<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
-----------------
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
0-16740
-----------
(Commission File Number)
NORTH LILY MINING COMPANY
-----------------------------
(Exact name of registrant as specified in its charter)
UTAH 87-0159350
- ------------------------ --------------
(State of Incorporation) (IRS Employer Identification No.)
SUITE 210, 1800 GLENARM PLACE, DENVER, COLORADO 80202
- ------------------------------------------------ ---------
(Address of principal executive offices) (ZIP Code)
(303) 294-0427
------------------
(Registrant's telephone number, including area code)
N/A
-------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
As of May 9, 1997 the Registrant had 2,992,122 shares of common stock, $0.10 par
value.
Transitional Small Business Disclosure Format (check one):
Yes No X
------- -------
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NORTH LILY MINING COMPANY
-------------------------
FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 1997
INDEX
-----
<TABLE>
<CAPTION>
<S> <C>
Part I. Financial Information:
Item 1. - Condensed Consolidated Balance Sheets -
June 30, 1997 and December 31, 1996............................ 3
- Condensed Consolidated Statements of Cash Flow -
Six Months Ended June 30, 1997 and 1996........................ 4
- Condensed Consolidated Statements of Operations -
Six Months Ended June 30, 1997 and 1996........................ 5
- Condensed Consolidated Statements of Shareholder's Equity -
June 30, 1997 and December 31, 1996............................ 6
- Notes to Condensed Consolidated Financial Statements........... 7
Item 2. - Management's Discussion and Analysis of
Financial Condition and Results of Operations.................. 8
Part II. Other Information:
Item 6. - Exhibits and Reports on Form 8-K...............................10
Signature......................................................11
</TABLE>
2
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 41,050 $ 67,026
Marketable securities 29,032 39,655
Accounts receivable 15,202 37,985
Note receivable 108,000 108,000
------------ ------------
Total Current Assets 193,284 252,666
Plant and equipment, net 55,190 57,162
Mineral properties, net 3,185,294 3,200,401
Other assets 112,032 112,032
------------ ------------
Total Assets $ 3,545,800 $ 3,622,261
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 432,720 $ 279,928
Accrued and other liabilities 45,000 55,000
Reclamation liabilities 143,367 192,500
------------ ------------
Total Current Liabilities 621,087 527,428
Due to officers 625,000 625,000
------------ ------------
Total Liabilities 1,246,087 1,152,428
------------ ------------
Shareholders' Equity:
Common stock, $0.10 par value; authorized 30,000,000 shares;
issued and outstanding 3,092,122 and 2,992,122 shares
as at June 30, 1997 and December 31, 1996, respectively 309,212 299,212
Additional paid-in capital 51,703,759 51,663,759
Accumulated deficit (49,710,905) (49,501,408)
Marketable securities valuation adjustment (2,353) 8,270
------------ ------------
Total Shareholders' Equity 2,299,713 2,469,833
------------ ------------
Total Liabilities and Shareholders' Equity $ 3,545,800 $ 3,622,261
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED:
JUNE 30, JUNE 30,
1997 1996
------------ ------------
<S> <C> <C>
Operating expenses:
General and administrative expenses $ 214,566 $ 354,466
Exploration and property carrying costs 557 3,249
------------ ------------
Operating loss (215,123) (357,715)
Other income:
Interest income 5,626 1,829
Net realized gain on sale of marketable securities - 118,883
------------ ------------
Net Loss $ (209,497) $ (237,003)
============ ============
Net loss per common share: $ (0.07) $ (0.10)
============ ============
Weighted average common shares outstanding 3,025,455 2,441,371
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIODS ENDED DECEMBER 31, 1996 AND JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------- MARKETABLE
ADDITIONAL SECURITIES
PAID-IN ACCUMULATED TREASURY VALUATION
SHARES AMOUNT CAPITAL DEFICIT STOCK ADJUSTMENT TOTAL
---------- -------- ------------ ------------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 2,594,667 $259,466 $51,264,750 $(48,835,939) $(17,395) $ 197,723 $2,868,605
Net loss, year ended
December 31, 1996 - - - (662,557) - - (662,557)
Common stock issued for
services rendered 55,000 5,500 79,500 - - - 85,000
Common stock issued by
private placement 341,073 34,108 351,409 (2,912) 17,395 - 400,000
Share issue costs - - (31,762) - - - (31,762)
Marketable securities
valuation adjustment - - - - - (189,453) (189,453)
Adjustment for fractional
shares issued 1,382 138 (138) - - - -
--------- -------- ----------- ------------ -------- --------- ----------
Balance, December 31, 1996 2,992,122 299,212 51,663,759 (49,501,408) - 8,270 2,469,833
Net loss, period ended
June 30, 1997 - - - (209,497) - - (209,497)
Common stock issued by
private placement 100,000 10,000 40,000 - - - 50,000
Marketable securities
valuation adjustment - - - - - (10,623) (10,623)
--------- -------- ----------- ------------ -------- --------- ----------
Balance, June 30, 1997 3,092,122 $309,212 $51,703,759 $(49,710,905) $ - $ (2,353) $2,299,713
========= ======== =========== ============ ======== ========= ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED:
JUNE 30, JUNE 30,
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(209,497) $(237,003)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Amortization and depreciation 1,972 1,972
Net realized gain on sale of marketable
securities and investments - (118,883)
Decrease (increase) in accounts receivable 22,783 (6,182)
Increase in accounts payable and accrued liabilities 142,792 161,218
Decrease in reclamation liabilities (49,133) (55,155)
Decrease in notes payable - (308,788)
Other - 60,000
--------- ---------
Net cash used for operating activities (91,083) (502,821)
--------- ---------
Cash flows from investing activities:
Acquisition and exploration of mineral properties,
net of option payments received 15,107 (6,376)
Advances to Tamarine Ventures Ltd. - (113,912)
Proceeds from sale of marketable securities and investments - 338,576
Proceeds from sale of mining and milling equipment - 5,000
--------- ---------
Net cash provided from investing activities 15,107 223,288
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock 50,000 360,000
--------- ---------
Net increase (decrease) in cash and cash equivalents (25,976) 80,467
Cash and cash equivalents at beginning of period 67,026 122,515
--------- ---------
Cash and cash equivalents at end of period $ 41,050 $ 202,982
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
GOING CONCERN
During 1996, 1995, and 1994 the Company incurred net losses of $662,557,
$922,032 and $2,071,147, respectively, and at December 31, 1996 had a working
capital deficiency of $274,762. At June 30, 1997, the Company had a working
capital deficiency of $427,803.
During 1993 the Company ceased operations at its Silver City mine and suspended
mining operations at its Tuina mine. As a result the Company has no operating
cash flow to meet ongoing obligations. The Company has continually been selling
non-essential Company assets to fund ongoing operations and property commitments
over the past three years. The Company requires financing to fund its future
operations and will attempt to meet its ongoing liabilities as they fall due
through the sale of marketable securities or mineral properties or through the
issuance of its common stock. There can be no assurance that the Company will be
able to raise the necessary financing to continue in operations or meet its
liabilities as they fall due or be successful in resolving its contingent
liabilities. Should the Company be unable to realize on its assets and discharge
its liabilities in the normal course of business, the Company may not be able to
continue in operations and the net realizable value of its assets may be
materially less than the amounts recorded on the consolidated balance sheets.
DISCLOSURES
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Rule 10-01 of Regulation S-
X. Accordingly, they do not include all the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The unaudited financial statements reflect all adjustments which are, in the
opinion of management, necessary to a fair statement of results for interim
periods presented. All adjustments made in the preparation of interim period
results, for the six month period ended June 30, 1997, are of a normal recurring
nature. The operating results for the six month period ended June 30, 1997 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1997. For further information, refer to the consolidated
financial statements for the year ended December 31, 1996.
DUE TO OFFICERS
As at June 30, 1997, the Company has recorded $625,000 as due to officers of the
Company. The officers have agreed not to demand repayment until January 3, 1998,
at which time the indebtedness may be either settled with cash, if available, or
the issuance of shares of the Company. In addition, as at June 30, 1997,
accounts payable includes $120,000 due to the officers of the Company.
7
<PAGE>
NORTH LILY MINING COMPANY
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
RESTRUCTURING OF TUINA OWNERSHIP
Effective April 12, 1995, the Company and Mahogany agreed to a restructuring of
the ownership interest of the Tuina Project. In settlement of the Company's
outstanding debt to Mahogany of $797,481, as at March 28, 1995, the Company
reduced its ownership interest in Compania Minera Phoenix S.A. ("Phoenix") from
50% to 41%. The Company also agreed to terms by which the Company's remaining
interest in the Tuina Project will be impacted. Subsequently, Mahogany agreed to
sell its 59% interest in Phoenix to Yuma Gold Mines Limited ("Yuma"). The sale
to Yuma was extended on several occasions and the terms subsequently revised
(the "Mahogany-Yuma Agreement").
By previous agreements entered into in 1995, on May 3, 1996 Yuma entered into a
revised agreement with the Company. In summary, the Company's remaining interest
in Phoenix will, subject to receipt of regulatory approvals and completion of
the Mahogany-Yuma Agreement, be impacted as follows:
i) Yuma will receive an additional 5% interest in Phoenix in exchange
for funded costs and the delivery of an independent bankable
feasibility study in respect of the Tuina Project;
ii) the Company would be required to sell a further 10% interest in
Phoenix to Yuma for an initial payment of $145,000, less deductions
for operating costs and the costs of securing the water rights for
the Tuina Project. In addition, Yuma is required to make two further
payments to the Company, due upon commencement of Tuina commercial
production and one year thereafter. These payments are to be
calculated in relation to the initial capital costs of the Tuina
Project, from a high of $609,000 where the initial capital costs are
less than $14,000,000 with graduating payments decreasing as capital
costs increase, and may be made, at Yuma's election, in cash or
shares of Yuma; and
iii) all participants will be responsible for contributing their share of
funding following completion and delivery of the Feasibility Study.
The failure of any participant to contribute its share of funding
will result in a dilution of that participant's interest in
accordance with a dilution formula. Once a participant's interest has
been diluted to 10%, then the ownership interest will convert to a
10% net profits interest.
Since April 13, 1995, Yuma has assumed all indebtedness of Phoenix, provided
funding for the preparation of the feasibility study, the costs of securing the
water rights for the Tuina Project and the ongoing costs of Phoenix. These costs
are partially recoverable by Yuma (the "Yuma Payments") from the Company from
the proceeds to be received from the sale of the 10% interest in Phoenix, as
noted in item (ii) above. The water rights have now been secured and Yuma now
has to either elect to close the Mahogany - Yuma Agreement, subject to
regulatory approval, or terminate the agreement. If Yuma elects to terminate the
agreement, the Company would not owe Yuma any funds for the Yuma Payments.
8
<PAGE>
On August 4, 1997, Yuma announced that it had completed a bankable feasibility
study for the Tuina Project. Bateman Engineering of Tucson, Arizona conducted
the study in association with New Baron Leveque Inc. ("NBLI") of Belgium, and
Parsons of Pasadena, California. The study outlines the plans for construction
and operation of a 12,000 metric tonne per year solvent extraction
electrowinning ("SX-EW") project. The feasibility study has considered all
aspects of the project including ore reserves, processing, environmental
considerations, and infrastructure to a level suitable for project financing.
Cash flow calculations indicate an internal rate of return of 25.6% and a net
present value of $16.6 million using $1.00 per pound copper. Project life is six
years using current reserves. The plant and associated infrastructure could be
developed for $33.7 million including owner's costs. Cash costs for the
production of copper are estimated at $0.53 per pound of copper.
An extensive analysis of the ore reserves at Tuina conducted by MINTEC of
Tucson, Arizona has defined proven/probable (80%/20%) reserves of 9.36 million
tonnes averaging 1.12% total copper. An additional 3.5 million tonnes of
material of similar grade has been classified as inferred. The overall stripping
ratio for the life of the project has been calculated at 1.72. The potential for
expanding the reserves within the site concessions and therefore extending the
project life is excellent.
Mining, crushing, and material handling will be performed under contract to
NBLI. The plant design incorporates a two-stage crushing circuit followed by
conventional heap leaching on static piles. Pregnant leach solutions will be
collected and clarified, followed by treatment using conventional SX methodology
to produce a rich electrolyte that will be processed into copper cathodes using
conventional EW technology.
Extensive heap leaching and column tests have been performed on the ore, and
copper recovery is expected to be in excess of 85%. Electrical power will be
obtained through an overland transmission line. Most of the site infrastructure
has been developed and will be used by the Tuina operation.
Yuma is in advanced negotiations for financing of the project while concurrently
completing basic engineering. The basic engineering study is expected to lower
both the capital and operating costs for the project.
With the completion of the feasibility study, Yuma will proceed with project
financing and final design and construction of the project. Construction is
scheduled to begin later this year with startup in late 1998.
The Company and Mahogany have an agreement in principle to conduct the
activities of the Tuina Project on a joint venture basis. The Company expects to
enter into a definitive joint venture and operating agreement with Yuma after
closing of the Mahogany-Yuma Agreement.
BOLIVIA - SAN SIMON GOLD PROJECT
The Company and Akiko Gold Resources Ltd. have acquired properties in the San
Simon gold project in northeastern Bolivia totalling 5,300 hectares on a 50/50
basis. The companies are actively seeking a joint venture partner to help
exploit the San Simon property. Several companies are reviewing the data. In
addition, the companies plan to do further field work this summer which will
include stream concentrate sampling and geochem and rock sampling and mapping to
delineate drill targets.
9
<PAGE>
RESULTS OF OPERATIONS
The Company incurred a loss of $209,497 for the six month period ended June 30,
1997, compared to a loss of $237,003 for the same period in 1996. There was no
revenue and no cost of sales for the six month period ending June 30, 1997. The
Company does not anticipate any revenue over the next year from current
properties.
During the six month period ended June 30, 1997, the Company incurred $214,566
in general and administration expenses, compared to $354,466 for the comparable
period in 1996. The decrease in general and administration in 1997 occurred
mainly as a result of reduced Company personnel and reduced legal and consulting
fees. For the six month period ended June 30, 1997, the Company incurred $557 of
exploration and property carrying costs and for the same period in 1996,
incurred costs of $3,249. Project costs incurred by the Tuina project since
April 1995 have been funded by Yuma.
At June 30, 1997 the Company had a working capital deficiency of $427,803, an
increase of $153,041 from its working capital deficiency of $274,762 at December
31, 1996. As at June 30, 1997, accounts payable include $190,039 due to officers
of the Company.
During the six month period ended June 30, 1997, the Company was provided cash
of $15,107 from investing activities, comprising $75,000 advance royalty payment
received from Centurion Mines Corporation on the Tintic properties, offset by
$23,885 incurred by the Company on the San Simon gold project and $36,008 due
diligence review costs incurred on the Sadiola West concession in the Republic
of Mali. The Company also received $50,000 on the completion of a private
placement of 100,000 common shares.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
On June 23, 1993, Jack M. Scanlon and Carolyn M. Scanlon; Dr. Richard
Urwiller and Roberta Urwiller, Dr. William Inkret, Jr., M.D.,
individually and Dr. William Inkret, Jr., M.D., P.C., a corporation and
profit sharing trust; Dr. Richard Granberg and Mary Granberg, on behalf
of themselves and all other person similarly situated, filed an action
in the United States District Court for the District of Montana, Butte
Division, against Magellan Resources Inc., a corporation; Mahogany
International Inc. (sic), a corporation, former subsidiaries of North
Lily Mining Company, a corporation, their former parent corporation;
Ruen Drilling, a corporation, Longyear Company, a corporation; and
other unknown John Doe persons and corporations. The plaintiffs allege,
that, as a result of exploration activity in the Southern Cross area of
Montana, local ground water supplies have been contaminated and
reduced. No specific stated claim for damages have been made at this
time. Despite studies prepared privately and by the Department of State
Lands (Montana) in 1992 which found no evidence of earlier claims, the
Plaintiffs continue to seek alternative legal approaches against the
defendants. Initial discovery proceedings have been completed. The
Company believes the claims are without merit and have instructed its
legal counsel to file for a summary judgment for dismissal. The Company
and other third parties filed a Summary Judgement for the dismissal of
this lawsuit and has received favorable disposition thereof, awaiting
execution by the federal court.
10
<PAGE>
ITEM 2. CHANGES IN SECURITIES
---------------------
On May 10, 1997, pursuant to a subscription agreement with Hexagon
Resources Group S.A., an international business corporation registered
in the British Virgin Islands ("Hexagon"), the Company sold 100,000
units, for $50,000 at $0.50 per unit, to Hexagon. The units consisted
of one share of Common Stock and one Warrant. Each Warrant is
exercisable to purchase a share of the Company's Common Stock at a
price of $0.75 per share if exercised by April 21, 1998, or at a price
of $1.00 per share if exercised from April 22, 1998 to April 21, 1999.
The Warrants shall expire after April 21, 1999. The Company relied on
the registration exemption provided by Section 4(2) of the Securities
Act, due to the non-public nature of the offering.
ITEM 5. OTHER INFORMATION
-----------------
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) The following exhibits are filed with this report.
Regulation
S-K Number Exhibit
---------- -------
27.1 Financial Data Schedule
(b) Reports on Form 8-K: none
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTH LILY MINING COMPANY
By: /s/ Nick DeMare
----------------------------------------------------
Nick DeMare August 14, 1997
Chief Financial Officer and Chief Accounting Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 41,045
<SECURITIES> 29,032
<RECEIVABLES> 123,202
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 193,284
<PP&E> 5,857,324
<DEPRECIATION> 2,504,808
<TOTAL-ASSETS> 3,545,800
<CURRENT-LIABILITIES> 621,087
<BONDS> 625,000
0
0
<COMMON> 309,212
<OTHER-SE> 51,703,759
<TOTAL-LIABILITY-AND-EQUITY> 3,545,800
<SALES> 0
<TOTAL-REVENUES> 5,626
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 215,123
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (209,497)
<INCOME-TAX> 0
<INCOME-CONTINUING> (209,497)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (209,497)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
