INDEX
Final REVISION
FORM 1O-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended: December 31, 1997
Commission file number: 0-16740
NORTH LILY MINING COMPANY
(Exact name of small business issuer as specified in its charter)
Utah
(State or other jurisdiction of incorporation or organization)
87-0159350
(I.R.S. Employer Identification No.)
1800 Glenarm Place, Suite 210, Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 294-0427
Securities registered pursuant to Section 12(b) of the Act:
Title of each class N/A
Name of each exchange on which registered None
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the registrant (l) 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
the filing requirements for at least the past 90 days.
Yes No X
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of September 21, 2000: $4,853,742
Number of shares outstanding of registrant's common stock, $.10 par value, as
of September 8, 2000: 14,088,355
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K[ ].
Registrant's revenues for the fiscal year ended December 31, 1997 were $0.
Registrant's revenues for the fiscal year ended December 31, 1998 were $0.
Registrant's revenues for the year ended December 31, 1999 were $425,829.
1
INTRODUCTORY NOTE
North Lily Mining Co. as its Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1997 is filing this document. However, because the
Company is filing its Annual Report on Form 10-KSB for the fiscal years ended
December 31, 1998 and 1999 at the same time with the same substantive document
(except for the cover page, Introductory Note, and financial data
schedule), this document contains the information required for the Form
10-KSB Report for all of these fiscal years combined into a single
presentation. Except as otherwise indicated, information required by each
Item is presented for each of the years ended December 31, 1997, 1998 and
1999 in order that updated information be given in addition to that required
for earlier periods.
2
INDEX
PART I
Page
Item 1. Business 4
Item 2. Properties 8
Item 3. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 18
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 19
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations 20
Item 7. Financial Statements 25
Item 8. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure 25
PART III
Item 9. Directors and Executive Officers of the Registrant 26
Item 10. Executive Compensation 27
Item 11. Security Ownership of Certain Beneficial Owners
and Management 32
Item 12. Certain Relationships and Related Transactions 33
PART IV
Item 13. Exhibits, Financial Statements Schedules and Reports
on Form 8-K 35
3
PART I
Item 1. BUSINESS
General and Historical Background
North Lily Mining Company (together with its subsidiaries, "North Lily" or the
"Company") was incorporated in Utah in 1916 and was a subsidiary of Anaconda
Company from 1925 until 1949. During this period, the Company produced gold,
silver, lead, zinc and copper from the North Lily Mine in the Tintic Mining
District, Utah. In 1991, the Company and International Mahogany ("Mahogany")
acquired the Tuina copper property in Chile, South America. From 1991 until
1998, the Company and Mahogany jointly developed the Tuina copper project. At
Silver City, Utah, the Company and Mahogany also operated a small heap leach
tailing recovery project (the Tintic Project), which has produced approximately
33,000 ounces of gold and gold equivalent since 1988, and is now in the
reclamation and closure stages.
On April 12, 1995, the Company and Mahogany concluded an agreement for the
restructuring of the ownership interests of the Tuina, Chile copper project.
In settlement of the Company's outstanding debt to Mahogany of $797,481, the
Company reduced its effective interest in the Tuina project from 50% to 41%.
In May 1996, the Company and Yuma Gold Mines Limited (which had agreed to
purchase Mahogany's Tuina interest) agreed to further revise and reduce the
Company's interest. Yuma provided funding thereafter to cover Tuina
operations, feasibility study and water rights. However, due primarily to
decreased copper prices, Yuma ceased to perform, and the Company abandoned
Tuina and wrote off its investment effective December 31, 1997.
On November 17, 1995, the Company executed an Agreement and Plan of Share
Exchange (the "Exchange Agreement") with Tamarine Ventures Ltd. ("Tamarine"), a
company incorporated under the laws of British Columbia, Canada. The Agreement
provided for the issuance, at closing, of one share of Common Stock of the
Company in exchange for each four common shares of Tamarine, thereby making
Tamarine a wholly-owned subsidiary of the Company (the "Share Exchange").
At the closing of the Share Exchange, the Company would issue 2,000,000
post-reverse split shares of its Common Stock to the shareholders of
Tamarine. On November 22, 1996, the Company terminated the Exchange
Agreement and abandoned its plan to acquire Tamarine.
Effective December 8, 1996, the Company implemented a one-for-ten reverse split
on the outstanding shares of Common Stock. All of the per share amounts have
been restated to reflect this reverse stock split.
On December 31, 1998, the Company and Redshore Properties Inc. ("Redshore")
established a Colorado Limited Liability Company known as Xeres Tintic, LLC
(the "LLC"). The Company transferred its Tintic, Utah properties (consisting
of approximately 10,000 rural acres of patented mining claims and fee lands
70 miles south of Salt Lake City) to the LLC. The Company received a
controlling interest in the LLC and a promissory note for $12.5 million from
the LLC (the "Note"). The Company now owns 91.5% of and controls the LLC, and,
through its Note and its share of distributions, will receive 95 to 96.5% of
the LLC's net proceeds until repayment of the Note. The balance of LLC
proceeds (except for 1% on sales after repayment of the Note) will go to
Redshore, which was providing certain funding, research, expertise, and
handling of daily marketing and sales pursuant to the LLC's directions. The
LLC has sold $387,417 of properties since late April 1999, resulting in
payments of $316,000 to the Company. In 2000, the LLC had additional
sales and signed an agreement with Coldwell Banker West Realty for listing and
marketing of the Company's 8,000 acres of remaining rural undeveloped real
estate parcels. Separately in 2000, the Company is working with Utah State
environmental regulatory authorities concerning requirements for achieving
legal compliance and bonded reclamation and shut down of its small former heap
leach facility on a small portion of its Utah properties.
4
On July 13, 1999, the Company closed on a borrowing of $225,000 Canadian
(approximately $159,000 U.S.) from Quest Ventures Ltd. ("Lender") of Vancouver,
British Columbia, Canada, repayable with 12% compound interest on November 15,
1999, pursuant to a Loan Agreement (the "Loan Agreement") of June 28, 1999, as
amended July 12, 1999. The Loan Agreement was secured by Deeds of Trust of
Company property in Utah. The proceeds of the loan were used primarily to
discharge a judgment outstanding against the Company, and for administrative
expenses. The loan was repaid in full in late 1999, and the lien of the
Deeds of Trust have been released.
On April 7, 2000, the Company completed performance of closing requirements for
its acquisition of privately held Loanmining.com ("LMC") by issuing 5.83
million shares (the "Shares") of the Company's restricted common stock. The
Shares are restricted securities pursuant to Rule 144, and the resale of the
Shares is to be included in a Registration Statement by the Company after it
updates its audits and reports to the Securities and Exchange Commission,
subject to monthly sale restrictions for holdings by individual selling
shareholders in excess of 200,000 shares. The recipients of the Shares were
the stockholders of LMC, including its majority stockholder
(Regina Mitchell), who received over 4 million of the Shares. Five hundred
thousand of Ms. Mitchell's shares were understood to be owed by Ms. Mitchell
for prior consideration to the designees of W. Gene Webb, the Executive Vice
President and a Director of the Company.
In consideration for the Shares, the Company acquired rights to the names
Loanmining.Com and Mortgage Partners Funding Corporation; rights to a team of
mortgage brokers, telemarketers, processing and closing staff represented to be
capable of equalling and then increasing the $1.4 million annual revenue rate
produced at LMC in 1999 prior to establishing a preliminary internet presence;
and rights to the LMC internet web site development, the related business plan
for home improvement financing, and the business model/implementation plan for
LMC as both a traditional "bricks and mortar" operation as well as a highly
automated internet mortgage banker focused on the sub-prime mortgage niche.
Substantial funding will be required to compete for mortgage lending business
on the Internet, which already is populated by competitors of several types,
some of whom already have substantial financing and market penetration.
In conjunction with this acquisition, the Company has closed on initial private
placement financing of $245,000 in exchange for 7% Convertible Notes and
Warrants. $220,000 of the Notes are repayable or convertible on or before
October 31, 2000 into Common Stock of the Company at $0.20 per share, and the
Warrants are exercisable at $5 and $7.50 during years one and two,
respectively, and expire between February 2002 and April 2002. Twenty five
thousand dollars of the Notes are convertible at $0.50 and come due on
December 31, 2000. The Company utilized $63,000 of the proceeds to finance
stock redemption and releases from dissident stockholders of Loanmining.com.
In April 2000, the Company acquired ownership of Mortgage Partners
Home funding for LMC in consideration of 170,000 Company shares and $25,000 in
promissory notes. The notes are past due and the Company has been in
discussions concerning the extension of the notes or the conversation of the
notes into common stock. In June 2000, the Company issued one million shares
of stock in consideration for a joint venture providing commercial lending
business and facilitation arrangements for LMC and $125,000 in capital; the
transaction was not consummated and the Company expects return of the shares.
On July 25, 2000, the Company entered into a letter of intent to be acquired by
Captain's Management for ten shares of Captain's for every 14.5 shares of NLMC
when Captain's is registered and trading on a stock exchange. In addition,
Captain's agreed to provide the Company with $360,000. The Company agreed to
pledge a portion of its Utah properties to secure related financing to be
obtained by Captain's to provide internet website development and marketing
for LMC at Captain's expense. Captain's (KSMI) is engaged in developing
vertical market applications, virtual inventory systems, and a public
interactive dynamic display network (in airports, music stores, movie
theatres, shopping centers, and other high public traffic locations) with its
affiliate "Touchvision" for building and managing interactive systems.
5
At each of December 31, 1996, 1997, 1998 and 1999, North Lily had the following
subsidiaries and affiliates:
Minera Northern Resources S.A. ("Northern"), a Chilean limited
liability company, 100% (inactive).
Tenhard Resources, Inc., a Montana corporation, 100% (inactive).
Compania Minera Phoenix S.A., ("Phoenix") (formerly Compania Minera
San Martin S.A.), a Chilean limited liability company, 41% owned by
Northern (active).
Minera San Lorenzo Limitada ("San Lorenzo"), a Chilean limited
liability company, 50% owned by Northern (inactive).
Xeres Tintic LLC, a Utah limited liability company, owned 91.5% by
North Lily.
The Company is not currently pursuing any natural resource projects, and is
focused on developing the businesses related to its recently acquired LMC and
the sale of the Company's Utah properties.
Throughout this report, unless otherwise specified, all dollar amounts refer to
U.S. dollars.
From time to time, the Company has written off certain costs associated with
various properties when it has become apparent that such costs would not be
recoverable. Management believes that the financial statements included herein
reflect capitalized costs (under Mineral Properties) that can be recovered and
that no further write-downs are necessary at this time.
North Lily's common shares traded on the over-the-counter market for
approximately 60 years and, from May 1985 until October 30, 1997, were included
in the National Association of Securities Dealers Automated Quotation system
("NASDAQ") (NASDAQ Symbol: NLMC). From October 30, 1997 until February 24,
2000, the shares were quoted on the Electronic Bulletin Board. The shares
have been quoted on the "pink sheets" in the over-the-counter market since
February 24, 2000, when the shares ceased to be traded on the OTC Bulletin
Board because the Company was delinquent in its filing requirements with the
SEC.
Financial Information About Industry Segments
Until March 2000, the Company and its subsidiaries had been primarily engaged
in the gold and copper business. (See Note 14 of Notes to Consolidated
Financial Statements). The Company currently is focused on developing the
business of its recently acquired Loan Mining subsidiary and the sale of the
Company's Utah properties.
Sales and Marketing
Gold, silver and copper can be readily sold on numerous markets throughout the
world and it is not difficult to ascertain the market price for such metals at
any particular time.
The Company's heapleach tailing recovery operation in Silver City, Utah (Tintic
Project) produced gold and silver ore which was processed at Handy & Harman
refineries, and then sold to precious metal traders on a competitive basis.
The Silver City mine ceased mining operations in February, 1993. Residual gold
leaching continued during 1993 and the reclamation process was implemented in
1994 and is scheduled to be substantially completed by December 31, 2000.
6
Until December 1998, the Company's 41% owned Tuina mine produced copper
precipitate which was transported from Chile, South America and sold in the
United States to a metal trader on a competitive basis. The number of
companies willing to purchase copper precipitates is limited. The Company
does not plan to resume production of copper precipitates and determined the
most effective production process for the Tuina property was a solvent
extraction/electrowinning process ("SX/EW"). An SX/EW production process
would allow the Company to manufacture cathode copper at the mine site with
significantly reduced operating and marketing costs. In order for the
Company to produce copper utilizing the SX/EW process, an SX/EW plant was
required to be constructed at the mine site. Because of low prices for
copper, the Company and its partner abandoned plans to construct an SX/EW
plant or otherwise resume production at the Tuina Project, which the Company
has abandoned.
In the United States, the Company is subject to federal and state income taxes,
state and local franchise taxes, personal property taxes and state severance
taxes. State severance taxes vary between the states and within a single
state. The amount of the tax, based on a percentage of the value of the
mineral being extracted, may vary from mineral to mineral. Operations are
subject to taxation by each locality in which mineral properties are owned or
business is done. Because many state and local tax laws are not uniform, the
Company runs a risk of double taxation on portions of its income by various
jurisdictions. This may adversely effect earnings, if any.
Environmental And Other Regulations
UNITED STATES
Legislation and implementing regulations adopted or proposed by the United
States Environmental Protection Agency, the Bureau of Land Management ("BLM")
and comparable agencies in various states directly and indirectly affect the
mining industry in the United States. These laws and regulations address
potential contamination of air, soil and water from mining operations. In
particular, legislation such as the Federal Water Pollution Control Act, the
Comprehensive Environmental Response and the Compensation and Liability Act
impose effluent standards, new source performance standards, air quality and
emission standards, waste disposal requirements and other requirements with
respect to present, and in some cases past mining and mineral processing,
including gold mining.
U.S. mine operators must comply with the Federal Mine Safety and Health Act,
which is enforced by the Mine Safety and Health Administration ("MSHA"), an
agency within the Department of Labour. All mines, both underground and
surface, are subject to inspections by MSHA. The Occupational Safety and
Health Administration also has jurisdiction over safety and health standards
not covered by the Federal Mine Safety and Health Act, although there are
areas where the authority of both administrative agencies overlap.
With respect to operations in the United States, the Montana Department of
Lands administers the Montana Metal Mine Reclamation Act and the Montana
Environmental Policy Act, the purposes of which are to protect the
usefulness, productivity and scenic values of the State's lands and waters
and to reclaim to beneficial use the lands used for metal mining. The
Montana Department of Health and Environmental Sciences administers and
enforces air, water and waste regulations through various bureaus existing
under that Department, such as the Montana Air Quality Act and the Montana
Water Quality Act. The Water Rights Bureau under the Montana Department of
Natural Resources and Conservation, reviews existing and proposed surface and
ground water rights and uses.
Existing laws and regulations with respect to the reclamation of mining
operations are in place and may necessitate substantial planning and bonding
requirements.
7
The Company may be required to prepare and present to federal, state or local
authorities data pertaining to the effect or impact that any proposed
exploration for, or production of, minerals may have upon the environment.
It may be anticipated that future legislation will significantly emphasize the
protection of the environment, and that, as a consequence, the activities of
the Company may be more closely regulated to further the cause of environmental
protection. Such legislation, as well as future interpretation of existing
laws, may require substantial increases in equipment and operating costs to
the Company and delays, interruptions, or a termination of operations, the
extent of which cannot now be predicted.
Employees And Facilities
As of December 31, 1997, the Company had three employees in the U.S. consisting
of two technical people at its Utah reclamation joint project, an office
administrator in Denver and the following company officers: Stephen E.
Flechner, President and Chief Executive Officer; W. Gene Webb, Executive
Vice-President and Corporate Secretary; and Nick DeMare, Treasurer. Mr.
DeMare ceased being Treasurer on November 1, 1997. As of December 31, 1998
and 1999, the Company's employees consisted of Messrs. Flechner and Webb and
one employee at the Utah reclamation project.
North Lily's office in Denver, Colorado is leased. The address of its office
is 1800 Glenarm Place, Suite 210, Denver, Colorado 80202.
Item 2. PROPERTIES
The Company has acquired and maintained its mining claims in a manner that is
consistent with common industry practice and believes that title to all its
material properties and mineral interests is satisfactory.
UNITED STATES
All of the Company's properties in the United States currently consist of
patented mining claims and fee lands, and are owned by the Company or its land
holding company (Xeres Tintic LLC), or leased from third parties.
Unpatented mining claims are located upon public land and governed by
procedures established by the General Mining Law of 1872 and related laws of
the various states. Requirements for the location of a valid mining claim on
public land depend on the type of claim being located and the relevant state
law, but generally include discovery of valuable minerals, erecting a
monument and posting on it a location notice, marking the boundaries of the
claim, and filing a certificate of location with the county in which the
claim is located and with the BLM. If the statutes and regulations for the
location of a mining claim are complied with, the locator obtains a valid
possessory right to the claim and the right to mine, remove and sell the
contained minerals. To maintain an otherwise valid claim, a claimant must
also annually perform a specified amount of work, or pay rental fees directly
to the BLM, and make certain additional filings with the county and the BLM.
Failure to perform such work or make the required filings in a timely manner
may render the mining claim void or voidable.
Because mining claims are self-initiated and self-maintained, they possess some
unique vulnerabilities not associated with other types of property interests.
It is impossible to ascertain the validity of unpatented mining claims from
public real estate records alone, and therefore, it can be difficult or
impossible to confirm that all of the requisite steps have been followed for
location and maintenance of a claim. If the validity of an unpatented mining
claim is challenged by the federal government or by claimants of conflicting
rights to the ground, the claimant has the burden of proving the present
economic feasibility of mining minerals located within the claim as well as
the steps taken to perfect the claim's location. Thus, it is conceivable
that during times of falling metals prices, claims which were valid when
located could become invalid if challenged.
8
The patent procedure permits claimants to purchase from the federal government
fee title to claims upon demonstrating that the mineral deposit on the claims
can be mined at a profit and by satisfying other procedural requirements.
Patented mining claims are similar to other fee real property interests.
PROPERTIES AND EXPLORATION BUDGET
The following table lists the properties in which the Company had an interest
as of December 31, 1997. Effective December 31, 1997, the Company abandoned
Tuina and San Simon as the minerals markets retreated, and there were no
Company exploration budget commitments under contracts.
Property Portfolio
<TABLE>
<CAPTION>
Property Name State Location Approximate Interest Held
Property Size by the Company
(Acres) as of 12/31/97
<S> <C> <C> <C> <C>
San Simon Beni Bolivia 13,087 50%
Tintic Utah United States 1,000 2.5%NSR (1)(2)
Tintic Utah United States 10,000 100% (3)
Tuina Region II Chile 15,013 41%
<FN>
<F1>
(1) NSR - Net Smelter Return
<F2>
(2) In January 1998, the Company sold approximately 1,000 acres that were
under the Mining Lease dated 23 January 1987 to Grand Central Silver
Mines, Inc. for $100,000, an NSR of 2.5 % and received 62 patent
mining claims,approximately 1,l97 acres, located in the Tintic
Mining District, Utah county. As a result of this transaction, the
Mining Lease dated 23 January 1987 with Centurion Mines Corp. was
terminated.
<F3>
(3) This property was transferred to Xeres Tintic LLC, a Utah limited
liability company 91.5% owned by North Lily, on December 30, 1998.
See below, "--Tintic Properties".
</FN>
</TABLE>
Due to the Company's financial situation in each of 1997, 1998 and 1999, the
Company did not conduct, and in 2000 it does not plan to conduct, any
exploration activities. The Company is currently focused on developing the
businesses related to its recently acquired LoanMining.com, Inc. subsidiary
and the sale of the Company's Utah properties.
During Spring 1998, the Company assessed the capitalized costs of its mineral
properties in the United States and Chile. It was the opinion of management to
re-evaluate its continued involvement in the Tuina Project. It was concluded
that, Yuma, as the operator, was not able to arrange project financing to put
the Tuina Project into production and Yuma notified the Company in May l998
that Yuma was not able to make any further lease payments to the land owner.
Yuma therefore forfeited their interest, and Mahogany informed the Company
that it was writing off its Tuina interest. In the opinion of management, it
was appropriate to terminate the joint venture agreement and to abandon and
write off the Company's entire interest in the Tuina Project effective
December 31, 1997.
9
MINERAL PROPERTIES
The Company had acquired rights to various mineral properties in Chile, Bolivia
and the States of Montana and Utah. The following is a description of certain
of the Company's mineral properties.
TUINA PROJECT
Ownership:
The Tuina properties were held by Phoenix, a Chilean company that was owned 41%
by the Company and 59% by Mahogany at December 31, 1996. During 1995, the
Company, Mahogany and Yuma Gold Mines Limited ("Yuma") entered into a number of
agreements that could have resulted in Yuma's acquiring Mahogany's interest in
the Tuina properties. Yuma also had the right to increase its ownership in the
Tuina property by a further 15%. See Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations. In spring 1998,
Yuma informed Mahogany and the Company that Yuma would not make any further
property and advanced royalty payments, and were withdrawing from the Tuina
Project. Yuma forfeited their Tuina project interests, Mahogany chose to
abandon its interests, and the Company did the same with a write off
effective December 31, 1997.
Description of Property:
The property is located approximately 60 kilometers (37 miles) east of Calama,
in Region II in the Country of Chile and consists of a total of 6,080 hectares
(15,013 acres).
Hectares - Net
394 San Jose Lease
5,686 Other properties
6,080
Mineralization:
The Company had calculated a mineable tonnage of 3.5 million metric tonnes of
copper ore contained in the San Jose and San Martin pits at an estimated
soluble copper grade of 1.1%. The estimated stripping ratio to mine this
tonnage would be 2.3 to 1.
Description of Property Agreements:
(1) San Jose Lease:
The San Jose Lease covered an area of 394 hectares and hosts all, or
substantially all, of the current proven reserves. There were two known
areas of copper mineralization on this property called the San Jose pit and
the San Martin pit. All production was from properties held under this
lease. During 1994, Phoenix renegotiated its lease on the property (the
"Operating Lease"). The Operating Lease had a term of 30 years and required
a payment of 5% of the copper produced with a minimum payment of 16 tonnes
of copper per month. Under the terms of the Operating Lease, the obligation
to make the minimum lease payments had been waived until August 1995 and in
return a payment of $200,000 was made. This $200,000 payment represented an
advance payment against which future lease payments could be offset. Since
August 1995, the minimum lease payments had been partially met through
application of this advance payment. The minimum lease payment is a cost
which was funded by Yuma pursuant to the Tuina agreements. In addition,
Phoenix agreed to make certain bank payments while the Operating Lease was
in effect. The payments required of Phoenix are shown below:
1997 $ 291,000
1998 $ 278,000
1999 $2,285,000
10
Included in the 1999 payments is a lump sum payment of approximately
$2,196,000. This amount was payable only if Phoenix were producing from the
leased claims. Because operations ceased, this payment was not required to
be made.
(2) Other Properties:
The Company had the exploration rights for an additional 5,686 hectares which
are not subject to any underlying royalties or agreements. The Company was
in the process of transforming these exploration rights to exploitation
rights. There were two known areas of copper mineralization on this property
called Inca and Milagro.
Prior And Planned Activities:
Throughout 1997, Yuma acted as operator, paid the project costs and pursued
feasibility studies and project financing, which became unobtainable as copper
prices fell. Effective December 31, 1997, the Company dropped its entire
interest in Phoenix and all of the properties in the Tuina Project due
primarily to reduced copper prices and Yuma's inability to proceed as project
operator. This abandonment of the project precluded planned activities.
TINTIC PROPERTIES
Ownership:
The properties were held 100% by the Company until transfer to the Company's
land holding company, Xeres Tintic LLC, described below.
Description of Property:
The property is located in the Tintic Mining District, Utah and Juab Counties
in the State of Utah, approximately 70 miles south of Salt Lake City. The
property comprised (1) surface and mineral rights on approximately 7,741
acres of patented lode mining claims and other land owned in fee simple; (2)
2,200 acres of patented land with agricultural and mineral rights; (3) city
lots in Eureka, Utah, covering 21 acres; (4) 104 acres of unpatented mining
claims; and (5) 20 acres without mineral rights. In addition, the Company
owns 28 acres of patented lode mining claims and two unpatented lode mining
claims in the Tintic Mining District, Juab County, Utah.
Mineralization:
There currently are no mineral reserves identified on the properties.
Description of Property Agreements:
The Company owns the Tintic properties outright and has no obligations for
underlying payments other than annual fees to the State of Utah and as
described below regarding Xeres Tintic LLC.
On January 28, l998, the Company sold approximately 1,000 acres of its holdings
in the Tintic Mining district to Grand Central Silver Mines, Inc. (formerly
named Centurion Mines Corporation) for $100,000 and a production royalty, and
received 62 patent mining claims, approximately1,197 acres, located in the
Tintic Mining District, Utah County. As a result of this sale, the Mining
Lease dated January 23, l987 and extended on April 7, l997 with Centurion
Mines Corporation was terminated.
On November 22, 1996, the Company sold approximately 374 acres of its holdings
in the Tintic Mining District to the Tintic Utah Metals L.L.C. for $65,000.
These acres are still subject to the Centurion mining lease and the Company
retains the lease rentals, less property taxes, and an NSR. As a result of the
sale of 1,000 acres to Grand Central Silver Mines, Inc. and the termination of
the Mining Lease, the 374 acres are no longer subject to this lease.
11
On December 31, l998 the Company transferred the Tintic properties to Xeres
Tintic LLC. The Company, as manager of the Xeres LLC, sold an LLC interest to
Redshore Properties. The Company received controlling interest in the LLC, a
$12,500,000 note secured by the property and retained approximately 500 acres
of town lots, fee land and mining claims. The Company is the manager of the
LLC, now owns 91.5% of it, and is entitled to a total of 95 to 96.5% of LLC
proceeds.
Prior Activities:
1997
The lessee made all lease payments and fulfilled work commitments on
exploration and development in the Tintic Mining District.
l998
On January 28, l998 the Company sold approximately 1,000 acres of its holdings
in the Tintic Mining district to Grand Central Silver Mines, Inc. (formerly
named Centurion Mines Corporation) for $100,000 and a production royalty, and
received 62 patent mining claims, approximately1,197 acres, located in the
Tintic Mining District, Utah County.
On December 30, l998 the Company sold the Tintic properties to Xeres Tintic
LLC. The Company received controlling interest in the LLC, a $12,500,000
note secured by the property and retained approximately 500 acres of town
lots, fee land and mining claims. The Company is the manager of the LLC.
1999
The Company sold an interest in the Xeres Tintic LLC property holding company
to Redshore, which provided certain funding, research, expertise, and
handling of daily marketing and sales pursuant to the instructions of Xeres
Tintic LLC, which is managed by the Company.
During the year, the Company sold some of its town lots in Eureka and Mammoth,
Utah for $14,282.70, prior to any closing costs and commission, comprising
approximately 11 acres, and fee land of 35 acres (net 28 acres) for $28,000,
prior to any closing costs and commissions.
During the year, the Xeres Tintic LLC sold (a) Mammoth town lots for $8,417
comprising approximately 13 acres and (b) 1,667 acres of mining claims for
$374,000 prior to closing costs and commission. The LLC also received a note
receivable of $25,000 plus interest due September 30, 2000. The LLC made a
distribution to the members, and the Company received $302,016 plus a
management fee of $4,000.
Planned Activities:
l998
As a result of the termination of the Mining Lease, the Company had
approximately 10,000 acres with future potential real estate value as
commuter suburbs, new business communities or rural retreats occur in the
rural corridor developing south from Salt Lake City towards this area. The
Company contacted various real estate development companies concerning its
acreage and development opportunity.
1999
As a result of the sale of the Tintic Property to Xeres Tintic, LLC at year-end
l998, the Company was seeking an additional partner to purchase an interest in
the LLC. The Company communicated with a group in Canada regarding funding
the LLC either by a loan secured by the property or a participating interest
in the LLC. The Company continued to contact development companies and large
well-known real estate firms to market the properties.
12
2000
The Company increased its effective interest in the LLC to 96.5% in l999 as a
result of Redshore's reducing its interest pursuant to the terms of the LLC.
The Company signed a listing agreement with Coldwell Banker West of Utah to
list the Tintic properties, and to market and sell the properties when
acceptable prices are available. On behalf of Xeres, the Company had 890
acres of fee lands, which has been divided into 50 acre sub-parcels, and
the 800 acres of adjacent fee land south of Elberta appraised and valued.
The 890 acres was appraised at $864,000 and the comparable 800 acres was
informally valued at $776,000.
SILVER CITY TINTIC PROJECT JOINT VENTURE
Ownership:
The joint venture property was owned 50% by North Lily and 50% by Mahogany. In
l999, the Company undertook responsibility for the Mahogany 50% interest in the
joint venture for $100,000.
Description of Property:
The joint venture property is located in Juab County, approximately 70 miles
south of Salt Lake City, Utah and consists of approximately 20 acres.
Mineralization:
The Silver City Joint Venture was a project designed to extract gold and silver
from a previous mine tailings using a heap leach process. The project is now
undergoing reclamation and closure work.
Description of Property Agreement:
Pursuant to an agreement dated July 21, 1987, the Company conveyed a 50%
undivided beneficial interest, in the joint property, to Magellan Resources
Inc. ("Magellan"), a wholly-owned subsidiary of Mahogany. To earn its 50%
interest, Magellan funded the initial $300,000 development expenditures of
the joint venture.
Prior And Planned Activities
Silver City produced gold and silver through heap leaching with cyanide. The
gold and silver were recovered through zinc precipitation. A gold/silver ore
was produced at the plant and then sold to a refinery. The Silver City Tintic
Project processed only the mineral tailings dumps from the nearby area. It
produced approximately 33,000 ounces of gold and gold equivalent since 1998.
Closure and preliminary reclamation commenced in 1994.
1997
The Company sold non-essential equipment and leased and commenced use of carbon
columns to recover precious metals and base metals in the pregnant solution for
income and reclamation purposes.
1998
The Company continued preliminary reclamation and retained a consulting company
to commence design of a bioreactor system to submit to the State in connection
with reclamation and closure. The reclamation costs were budgeted for
$180,220, of which $60,110 was the Company's share.
l999
The Company received and evaluated the report of the consulting company
designing the bio-reactor systems to submit to the State as provided by the
closure plan. The reclamation costs were budgeted for $150,000, and as a
result of undertaking Mahogany's interest, the Company received cash and was
responsible for $125,000 of these reclamation costs.
13
2000
The Silver City Joint Venture project became 100% owned in March l999 and as
a result the Company is responsible for 100% of reclamation costs. The
Company's reclamation bond with the State of Utah was increased to over
$190,000, and the Company agreed to a Stipulation and Order providing for
substantial completion of reclamation by year end 2000. See "Item 3. Legal
Proceedings". Reclamation costs have been budgeted at $180,000 by the
Company. The previously pursued bioreactor approach is being replaced by
design of an infiltration gallery.
SAN SIMON PROPERTY
Ownership And Prior Activities:
On April 1, 1995, the Company and Akiko Gold Resources Ltd. ("Akiko"), entered
into a letter of agreement (the "San Simon Agreement") with Robert S. Friberg
and Marcelo Claure Z. (jointly "Friberg/Claure") whereby Friberg/Claure
agreed to acquire mineral properties located in the San Simon region of
Bolivia on behalf of Akiko and the Company (collectively the "Companies").
Friberg/Claure would retain an 8% carried interest, with the Companies
funding all costs and obligations on a 50/50 basis. Friberg/Claure did
geologic reconnaissance on and acquired four concessions (the "San Simon
Property") from a third party. Friberg/Claure were to transfer the San Simon
Property to a Bolivian subsidiary to be established by the Company. Through
December 31, 1996, the Companies paid $171,825 to Friberg/Claure relating to
costs incurred pursuant to the San Simon Agreement and property payments made
on the San Simon Property.
Prior Activities.
Effective September 1997, the Company's 50% interest partner, Akiko, informed
the Company that it would not be funding its 50% interest and recommended
dropping the Property or finding a new partner to acquire its 50% interest.
The Company was not able to find another joint venture partner, the geochem
results were not encouraging, and the Property owner would not reduce the
monthly lease payments. As a result, the Company elected to drop the Property.
MONTANA PROPERTIES
Prior to 1997, the Company held various interests in a number of properties in
the State of Montana. There were no obligations for underlying payments other
than annual state fees to the State of Montana. The Company has not conducted
any exploration work in 1997, 1998 or 1999 on these properties. During 1996,
the Company sold its Grey Eagle property for proceeds of $215,292, of which
$107,292 has been received. Costs relating to this and other properties were
mostly written off in prior years. The Company wrote-off its residual
balance of $40,000 for the Marysvile mill equipment at year-end 1999.
OTHER MINERAL ACTIVITIES
1997
Mali
The Company was offered the opportunity to participate in a 73 square mile
exploration concession located in Mali, West Africa. This property, Sadiola
West, lies just west of the newly opened Sadiola mine, which has reported
reserves of approximately 5,000,000 ounces of gold. Anglo-American is the
manager of the mine in a joint venture with IAM Gold and the Malian government.
After review of geologic data from limited prior work on the Sadiola West
concession, the Company entered into an agreement with the concession holders
in May. In June, Mr. Webb, officer and director of the Company, and the
Company's geologic consultant went to Mali to try to negotiate new terms on the
concession with the Malian government and for a site visit to the property. Our
consultant spent four days at the property taking geochemical samples and
performing geologic mapping. The results of this work indicated that the
Sadiola deposit was cut off by a fault and did not continue into Sadiola
West. The consultant, however, did identify a separate target area, which
could merit further evaluation depending upon modification of the concession
terms. In addition to the Sadiola West investigation, the Company reviewed
data in the government geologic offices relating to other concession areas
and made applications on three different trends of presumptively prospective
Birrimian rocks. Each application covered approximately 70 square miles.
14
Subsequent to the offer of participation in the Sadiola West concession, and
prior to the Mali travel, a third party entered into an agreement with the
Company entitling this party to participate with the Company in any interest it
might acquire in the Sadiola West concession, as well as in any other
concession interests that the Company could acquire in Mali. This third
party purchased 100,000 common shares of the Company, with a warrant to
purchase another 100,000 at a price of $1.00 per share, for a payment to the
Company of $50,000.
Mauritania
The Company's consultant reviewed geological information at the French geologic
and mining research offices in Paris and from this review delineated several
areas in Mauritania, West Africa, which he considered prospective for gold
discovery. An application was made for an exploration permit covering
approximately 500 square miles north of an area actively being explored by
General Gold Resource and LaSource, a privatized company, spun off from BRGM,
the French state geologic and mining research organization.
Kazakstan
At the request of and on behalf of Capco Resources Ltd. (Capco), the Company
reviewed a gold project in Kazakstan, central Asia, comprising three
underground gold mines and related exploration properties. This review was
made to consider the acquisition of a majority interest in Kazakstan
Goldfields Corporation ("KGC"), a Canadian company traded on the Toronto
Stock Exchange; KGC manages the project under agreement with the Kazakstan
government and holds an option to acquire up to a 100 percent equity
interest. As reported by KGC, the mines have 1.58 million ounces gold in
proven and probable reserves and 1.9 million ounces in possible reserves.
As a result of its examination of ore reserve and production cost data, the
Company recommended to Capco in July that it complete an agreement with KGC,
which would permit a full due diligence study. In August, the Kazakstan
government informed KGC that it planned to terminate its contract for failure
to complete certain funding obligations. Pending settlement of contractual
problems with KGC and the Kazakstan government, KGC gave permission to Capco
and the Company to contact the Kazakstan government directly in an attempt to
negotiate a new management and purchase contract.
In connection with its review of the Kazakstan project, the Company accepted a
subscription agreement from Capco for an interim investment of $200,000. Capco
agreed to purchase 400,000 units, each unit consisting of two of the Company
shares and one warrant, for $.50 per unit. Capco made a $50,000 payment under
the terms of this subscription agreement. The Company and Capco also entered
into a letter of intent contemplating an investment by Capco of $5 million in
the common shares of the Company and convertible debentures at prices
increasing from $.40 to $1.00 per share over an eight-month period. The
funds were to be used to continue investigating gold opportunities and
renegotiating the KGC purchase contract with the Kazakstan government.
In October 1997, the Company met with officials of the Kazakstan Mines Ministry
for preliminary discussions regarding the KGC contract. The Company, as a
possible participant with KGC, was invited to submit its technical and business
plan for the rehabilitation of the three mines.
Las Manzanillas Gold Property - Mexico
The Company executed a Memorandum of Understanding with the owners of a
property located on the western slope of the Sierra Madre Occidental near the
town of Manzanillas. The property had been leased by ASARCO, but released by
this company as a large rental-purchase payment became due, which the owners
would not reduce. There has been limited production from one of several
mineralized veins. The entire property is believed to have an exploration
potential of 1,000,000 or more ounces gold. The Company completed partial
due diligence.
15
Burkina Faso
The Company reviewed the Guiro project, held by a junior mining company, where
120,000 ounces gold has been identified in a vein structure, with potential for
increased reserves at depth and along strike. The junior company owns a nearby
camp with accommodation, power, water and gravity treatment plant. In
addition, the junior company holds a 3,000 square mile exploration
concession. This concession is underlain by Birrimian greenstone rocks that
are the hosts for the majority of primary gold deposits in the productive
west African areas. The junior company has a joint venture with a major
mining company for this concession with the right to explore for its own
account in areas not being explored by the major company. While the Company
likes the Guiro reserve base, with its potential, the upside in the project
is the ongoing major company exploration, which could result in very
significant discoveries in the large concession area. To consummate this
acquisition, the Company would have had to raise approximately $2 million by
Spring 1998 to develop the Guior deposit.
Mukodek Gold Projects - Russia
The Company began negotiations with a group located in London, resulting in a
Memorandum of Understanding, regarding certain gold mining and exploration
projects in the Irkutsk region of south-central Siberia. Present reserves in
both alluvial and bed-rock deposits are estimated at 500,000 to 600,000 ounces;
the exploration potential is estimated at over 2,000,000 ounces. The Company
could earn a 40 percent interest in these projects by payment of $4 million and
issuance of shares (amount to be further negotiated). The Company's due
diligence would require a trip to London and then to Russia to review
geological data and finalize agreements. This trip was postponed in order
for the Company to receive further requested data.
Other
Additional projects were reviewed in the states of Oaxaca, Sinalao and Sonoro,
Mexico, ranging from grass-roots exploration to small-scale mining. Working
with an independent geologist, some 16 prospects were defined as warranting
further investigation, but the Company did not acquire any mineral project
interests.
1998
Mali
The Company submitted a proposal on the Sadiola West concession and completed
applications for three other concessions. The Company met with some of the
government officials in Denver at an African Mining Investment Conference and
discussed the submittals and applications sent earlier in the year. It was
advised that the Company should meet with government officials in Mali to
finalize the proposal on Sadiola West and to further applications for the other
concessions. Due to minerals markets and the Company's financial condition,
this has not been pursued.
Mauritania
The Company had not received a response to its application made on
approximately 500 square miles from the government and was still awaiting
correspondence.
Kazakstan
Due to the down-turn in the oil and gas industry, Capco informed the Company
that Capco has terminated the Letter of Intent for an investment of $5
million. Capco further advised the Company that Capco could not purchase the
remaining units in the amount of $150,000 pursuant to the subscription
agreement described above. The Company notified KGC that the Company would
not acquire a majority interest in KGC and would not continue further
negotiations with the Kazakstan government due to the Capco funding being
terminated.
16
Las Manzanillas Gold Property - Mexico
Upon reviewing further data and meetings with the property owners, the Company
determined that the vein structures were too narrow and the property would
require extensive exploration. The Company notified the owners that the
Company was not interested in the property and would not continue further
negotiations.
Burkina Faso
The Company was informed that the Guiro project and the exploration concession
by the junior mining company holding these concessions had entered into a joint
venture with a major mining company for all of their holdings. The Company was
invited to submit a proposal but was not able to commit to the $2 million that
was required to develop the Guiro project and therefore withdrew from
negotiations.
Mukodek Gold Projects - Russia
The London group was not able to negotiate favorable terms with the local
government ownership and notified the Company they would not continue further
negotiations.
Other
The Company completed investigations of prospects in the states of Oaxaca,
Sinalao and Sonoro, Mexico, and determined that these did not meet the
Company's requirements for acquisition.
1999
Durango Gold Project - Mexico
The Company carried out a field examination of a gold prospect in western
Durango State, Mexico. Sampling of exploratory adits confirmed the presence
of high gold values, and the Company's geologic consultant strongly
recommended the acquisition of a joint venture interest in the project,
reporting that he assessed the exploration potential at over 500,000 ounces
of gold. The Company was in negotiations with the concession holders up to
the end of 1999. In early 2000, the concession holders informed the Company
that the project was no longer available to the Company, because the Company
had not been able to provide assurance for the necessary funding.
Other Mineral Projects
Due to the downturn in the gold and metal prices and the mining business as a
whole, the Company was unable to obtain the necessary financing to complete the
application procedures for the West African exploration permits (Mali and
Mauritania).
Item 3. LEGAL PROCEEDINGS
In March 2000, the Utah division of Oil, Gas and Mining (DOGM) and Department
of Water Quality (DWQ) each sent Notices to the Company addressing similar
issues. The Notices alleged failure to timely comply with Utah environmental
laws and regulations, violations of notices and orders thereunder, and
violation of the Company's Groundwater Discharge Permit, all in relation to
the Company's reclamation/closure obligations for its small former heapleach
tailing recovery project in Silver City, Utah (the Tintic Project). The
Company timely responded, contested the allegations, submitted requested
submissions, undertook certain reclamation actions, and requested a hearing.
By Stipulation and consent Order dated July 26, 2000, DOGM dismissed their
charges against the Company, and the Company agreed to perform ongoing
reclamation/closure activities. DWQ concurred with the reclamation/closure
schedule and terms in the Stipulation, but has not finally resolved its
Notice (including its right to seek substantial daily civil penalty for
violations). The Company's reclamation bond for the Tintic Project was
recently increased by agreement with DOGM and concurrence by DWQ to over
$190,000. The Company is confident that the bond (if forfeited as a result of
non-performance under the Stipulation) would cover the remaining reclamation
and closure costs (including civil penalty if any) of the Tintic Project.
17
In late 1998, a complaint was filed against the Company in the Fourth District
Court, Juab County, State of Utah, alleging breach of a special warranty deed,
breach of a terminated mining lease, and most recently attacking validity of
the Company's royalty and land development interests retained in properties
acquired by plaintiffs. The Company eliminated the primary basis for the
alleged breach of warranty during 1999, and believes the plaintiffs are not
entitled to assert claims under the deed and mining lease to which they are
not parties. The Company and its counsel believe the claims are without
merit, will continue to defend vigorously, and do not believe there is any
likelihood of a material loss.
In August 1994, George Holcomb filed a complaint against the Company in the
Superior Court for the County of Maricopa, Arizona. Mr. Holcomb sought
vacation pay, which was not paid to him when his employment with the Company
terminated, together with interest thereon, treble damages, costs, and
attorney fees. During November 1994, the Company paid $20,834 to Mr.
Holcomb, representing the Company's calculation of vacation pay owed. Mr.
Holcomb, however, had calculated the vacation pay owing as significantly
higher. Final settlement with Mr. Holcomb was reached in June 1996, in which
the Company agreed to pay an initial payment of $15,000 and has agreed to pay
a final payment of $80,000. The Company and Mahogany are paying the cost of
this settlement on a 50:50 basis. During 1996, the initial payment of
$15,000 was made and the Company accrued $40,000 for its share of the final
payment. In 1999, the Company received a cash payment from Mahogany, assumed
full responsibility for the Holcomb settlement and the Tintic Project
reclamation, paid Mr. Holcomb in full, and received Mr. Holcomb's release of
his rights against the Company.
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
persons 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 alleged, that,
as a result of exploration activity in the Southern Cross area of Montana,
local ground water supplies had been contaminated and reduced. No specific
stated claim for damages was made. 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 believed the claims were without merit, joined with other third
parties who filed a Summary Judgment for dismissal of this lawsuit and has
received favorable disposition thereof, awaiting execution by the federal
court. Meanwhile, the lawsuit was settled for nominal consideration in
December l997. Mahogany paid North Lily's share of the settlement in full.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
North Lily's common stock has traded on the over-the-counter market for
approximately 60 years and was included in the NASDAQ system from May 1985
(symbol: NLMC) until October 30, l997, when it was delisted and began trading
on the OTC Electronic Bulletin Board. In February 2000, the common stock
ceased being traded on the OTC Bulletin Board because the Company's periodic
reports were not filed with the SEC. Since February 2000, the common stock
has been quoted on the "pink sheets". The range of high and low bid prices
for each fiscal quarter during the two most recently completed fiscal years
and the current fiscal year as reported on the pink sheets (and previously on
the OTC Bulletin Board and NASDAQ) is as follows:
18
<TABLE>
<CAPTION>
2000 High Low
<S> <C> <C>
First quarter $1.30 $0.07
Second quarter $1.00 $0.20
</TABLE>
<TABLE>
<CAPTION>
1999 High Low
<S> <C> <C>
First quarter $0.20 $0.14
Second quarter $0.30 $0.15
Third quarter $0.31 $0.12
Fourth quarter $0.24 $0.06
</TABLE>
<TABLE>
<CAPTION>
1998 High Low
<S> <C> <C>
First quarter $0.38 $0.09
Second quarter $0.29 $0.16
Third quarter $0.20 $0.11
Fourth quarter $0.36 $0.12
</TABLE>
<TABLE>
<CAPTION>
1997 High Low
<S> <C> <C>
First quarter $1.87 $0.62
Second quarter $3.12 $0.62
Third quarter $2.81 $0.93
Fourth quarter $1.56 $0.38
</TABLE>
<TABLE>
<CAPTION>
1996 High Low
<S> <C> <C>
First quarter $2.50 $1.25
Second quarter $2.96 $1.25
Third quarter $2.50 $1.25
Fourth quarter $1.87 $0.62
</TABLE>
On September 21, 2000, the high bid price of the common stock was $0.53 per
share.
The above bid quotations reflect inter-dealer prices, without retail mark-up,
mark-down, or commission and may not necessarily represent actual transactions.
As of June 30, 2000, there were 9,876 shareholders of record of North Lily's
common stock.
North Lily has not paid or declared any cash dividends and does not anticipate
paying dividends for the foreseeable future. It is expected that any net
income will be retained by North Lily for the development of its business.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Corporate Profile and History
19
North Lily was incorporated in Utah and was a subsidiary of Anaconda Company
from l925 until l949. During this period, the Company produced gold, silver,
lead, zinc and copper from the North Lily Mine in the Tintic Mining District,
Utah. In 1991, the Company and Mahogany acquired the Tuina copper property in
Chile, South America. From 1991 until 1997, the Company and Mahogany jointly
developed the Tuina copper project. The Company has also operated a small
heap leach tailing recovery operation in Silver City, Utah (Tintic Project),
which has produced approximately 33,000 ounces of gold and gold equivalent
since 1988. Silver City is currently in the process of site reclamation and
closure work.
Restructuring of Tuina Ownership
Effective April 12, 1995, the Company and Mahogany agreed to a restructuring of
the ownership interest of the Tuina copper project in Chile. 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%. 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"). Since April 13, 1995, Yuma assumed all project indebtedness,
provided funding for the preparation of the feasibility study, the costs of
securing the water rights for the Tuina Project and the other ongoing costs.
In May 1996, the Company and Yuma agreed to further revise and reduce the
Company's interest. Yuma provided funding thereafter for Tuina operations,
feasibility and water rights. However, due primarily to reduced copper
prices and inability to receive project financing, Yuma ceased to perform,
and the Company abandoned Tuina and wrote off its investment effective
December 31, 1997.
Results of Operations
1999 - 1998
The Company incurred a loss of $180,176 ($0.04 per share) for the year ended
December 31, 1999, compared to losses of $258,832 ($0.05 per share) for 1998.
The Company had net revenues of $197,243 from land sales in Utah for the year
ended December 31, 1999. Due to the continuation of reclamation work at the
Silver City Joint Venture and the decision to drop the Tuina copper property
in Chile and suspended the Tintic Project Utah operations in 1993 there were
no revenues in 1998.
General and administrative costs for 1999 were $330,105 compared to $238,238 in
1998. During 1999, the Company increased its general and administrative costs,
due to cumulating and financial cost for debt financing, settlement with
officers for compensation and exchange of stock for compensation. As a
result, general and administrative costs in 1999 were $91,867 higher than
1998 levels.
During 1999, the Company recorded a gain of $197,243 from the disposition of
certain of its Tintic Utah properties and a distribution from its interest in
the LLC. The Company paid its short-term debt of $267,538. During 1998, the
Company recorded net proceeds of $82,134 from the sale of certain of its
mineral properties.
During 1999, Company management reviewed the carrying values of its remaining
mineral properties and determined that no write-downs were required.
1998-1997
20
The Company incurred a loss of $258,832 ($0.05 per share) for the year ended
December 31, 1998, compared to losses of $2,578,777 ($0.80 per share) for 1997.
Due to the continuation of reclamation work at the Silver City Tintic Project
and the decision to suspend operations at the Tuina copper property in Chile
during 1993, there were no revenue or cost of sales for 1998 or 1997.
General and administrative costs for 1998 were $238,238 compared to $510,151 in
1997. During 1998, the Company reduced general and administrative costs, due
to reduced corporate activities and the elimination of the Company's share of
general and administrative costs relating to the Tuina Project written-off in
1997. As a result, general and administrative costs in 1998 were $271,913 lower
than 1997 levels.
During 1998, the Company did not make any expenditures on general exploration
and property holding costs compared with $51,409 in 1997. The decrease in
exploration and property holding costs in 1998 is attributable to the
Company's financial condition.
During 1998, the Company recorded net proceeds of $82,134 from the sale of
certain of its minerals properties.
During 1998, Company management reviewed the carrying values of its remaining
mineral properties and determined that no write-downs were required. In 1997,
the Company wrote off $1,980,880 for its Tuina mine project in Chile and its
San Simon exploration project in Bolivia.
1997-1996
The Company incurred a loss of $2,578,777 ($0.80 per share) for the year ended
December 31, 1997, compared to losses of $662,557 ($0.23 per share) for 1996
due to the continuation of reclamation work at the Silver City Tintic Project
and the decision to suspend operations at the Tuina copper property in Chile
during 1993, there were no revenue or cost of sales for 1997 or 1996.
General and administrative costs for 1997 were $510,151 compared to $675,449 in
1996. During 1997, the Company continued to reduce general and administrative
costs, due to reduced corporate activities and the elimination of the Company's
share of general and administrative costs relating to the Tuina Project. As a
result, general and administrative costs in 1997 were $165,298 lower than 1996
levels.
During 1997, the Company spent $51,409 on general exploration and property
holding costs compared with $3,257 in 1996. The decrease in exploration and
property holding costs in 1997 is attributable to Yuma's funding of Tuina
Project costs throughout 1997 and the Company's financial condition.
During 1996, the Company recorded a gain of $206,897 from the disposition of
its Gray Eagle property, located in Montana.
Effective December 1997, the Company wrote off $1,980,880 for its Tuina mine
project in Chile and its San Simon exploration project in Bolivia.
During 1997 the Company realized net proceeds of $95,933 from the issuance of
its common stock, which were utilized to meet the Company's liquidity
requirements.
In contemplation of a proposed acquisition of Tamarine Ventures Ltd.
("Tamarine"), the Company advanced a total of $176,751 to Tamarine. On
November 22, 1996, the Company abandoned its plan to acquire Tamarine. To
date the Company has been unsuccessful in having the advances repaid and
accordingly, wrote off the advances in 1996.
21
Liquidity and Capital Resources
For the past three years the Company has experienced substantial losses and has
continually sold non-essential Company assets to fund ongoing operations and
property commitments and development. Management, in its efforts to ensure
maximum fund availability, has reduced Company operating costs substantially
and has deferred payment of fees for their services. The Company believes it
held properties with development potential. In order for the Company to
develop its properties or property interests, the Company required funds to
pay Company overheads, pay property commitment costs and fund property
development work. Resource property development is both costly and time
consuming. Development of a property to a position of generating cash flow
from underlying mineral sales is normally measured in years, and there is no
guarantee of the property's ultimate financial success. The Company's
current focus on the businesses related to its recent acquisition of
Loanmining.com, Inc. also require financing for website development and
advertising. There is no assurance that the Company will timely receive
adequate financing to compete in the highly competitive mortgage and related
internet areas.
The Company requires funds for its future operations. Funding is traditionally
provided to corporations by way of funds from ongoing company operations, funds
from the issuance of company debt instruments, funds from company equity issues
and funds from the sale of Company assets.
Dropping the Tuina mine, and continuing reclamation work at the Silver City
Tintic Project, the Company does not have operations from which funds from
ongoing Company operations can be accumulated. With the Company's present
asset base, the Company is not able to generate funds from operations within
the next two years at a minimum, except to the extent that a new project and
financing may be acquired with Company stock or the sale of its Tintic land
holdings, or profitability from its recently acquired Loanmining.com, Inc.
operations.
During 1999, the Company borrowed $160,000 and issued 100,000 common shares for
loan fees. The Company and Mahogany agreed to terminate the Silver City Tintic
Project. The Company received $100,000 from Mahogany for termination of the
joint venture and assumed Mahogany's obligation for the Silver City reclamation
and Mahogany's share of the reclamation bond. The Company received net
proceeds of $197,243 from Tintic property sales and LLC distributions. These
funds were used to reduce Company liabilities, Silver City reclamation,
payment of short debt and interest, and working capital. The Company issued
common shares to two officers in settlement of accrued salaries as follows:
402,179 shares of common stock for accrued salaries of $76,015 and 708,970
shares of common stock for accrued salaries of $60,000. The two officers
agreed to reduce their salaries by $329,000 as part of the settlement.
The accrued salaries were for the period of October 1997 through December 31,
1999. During 1998, the Company sold mineral properties for $113,395.
During l997, the Company sold 300,000 common shares for net proceeds of
$95,933. The funds received were used to evaluate mineral projects,
reclamation and working capital. During 1996, the Company sold 150,000 common
shares of Baja Gold for net cash proceeds of $241,408. The funds received
were then used to retire the promissory note and outstanding accrued interest
owing to Baja, totalling $211,623. In addition, in 1996 the Company
exchanged 50,000 common shares of Baja in settlement of the promissory note
and outstanding accrued interest, totalling $97,167, owing to the third
party. The Company issued 1,610,000 shares of common stock to two officers of
the Company in settlement of accrued salaries of $805,000 for the years l994,
l995, l996 and nine months in l997.
22
The Company has reviewed its asset base and has identified those assets that
are considered to be non-essential for the Company's future growth. In order
for the Company to meet its current operating obligations and property
commitments, the Company is required to sell all non-essential Company
assets. Effective January 1, l999, the Company transferred substantially all
of the Tintic properties in Utah to Xeres Tintic LLC. The Company has begun
to market and sell these properties to meet current obligations, property
commitments, and to acquire a development stage resource project or an
operating business with annual revenues (such as are expected from
Loanmining.com, Inc.).
At December 31, 1999, the Company had a working capital deficiency of $357,110,
a decrease of $18,589 from its working capital deficiency of $375,699 at
December 31, 1998.
The Company reports a use of funds of $330,662 from operating activities for
the year ended December 31, 1999. This compares to a use of funds of
$159,612 for 1998.
During the year ended December 31, 1999, the Company received $321,545 in
distributions from the LLC. The Company used $267,538 to pay short debt.
During 1998, the Company generated cash of $113,395 from the sale of mineral
properties.
For the year ended December 31, 1999, the Company was provided funds of $12,000
from financing activities compared to $ 12,953 provided in 1998.
At December 31, 1998, the Company had a working capital deficiency of $375,699,
an increase of $79,690 from its working capital deficiency of $296,009 at
December 31,1997.
The Company reports a use of funds of $159,612 from operating activities for
the year ended December 31, 1998. This compares to a use of funds of
$104,748 for 1997.
During the year ended December 31, 1998, the Company received $113,395 from
the sale of mineral properties. The Company used the funds for working
capital. During 1997, the Company had a deficit of $1,452 from its investing
activities.
For the year ended December 31, 1998, the Company was provided funds of
$ 12,953 from financing activities compared to $ 95,933 provided in 1997. In
1998, the Company received $13,106 from short-term borrowing. In 1997, the
Company received $95,933 from the sale of common stock pursuant to a private
placement of 300,000 shares.
At December 31, 1997, the Company had a working capital deficiency of $296,009,
an increase of $21,247 from its working capital deficiency of $274,762 at
December 31, 1996.
The Company reports a use of funds of $104,748 from operating activities for
the year ended December 31, 1997. This compares to a use of funds of
$557,098 for l996.
During year ended December 31, 1997, the Company had a deficit of $1,452 from
its investing activities. During 1996, the Company generated cash of
$319,992 from its investing activities. The Company received $241,408 from
the net sale of its marketable securities, $280,292 from the disposition of
certain mineral properties and $5,000 from the sale of equipment. The
Company used $64,957 in the exploration of its mineral properties and
advanced $141,751 to Tamarine.
For the year ended December 31, 1997, the Company was provided funds of $95,933
from financing activities compared to $186,617 in 1996. In 1997, the Company
received $95,933 from the sale of common stock pursuant to a private placement
of 300,000 shares. In 1996, the Company received $393,238 from the sale of
366,077 shares of common stock pursuant to a private placement and for services
rendered and repaid the $211,621 in promissory notes.
23
Future Operations
In order to meet its obligation for operations, the Company is required to sell
its non-essential assets, use its Tintic properties in Utah as collateral for
borrowing, and sell shares of its common stock. If the Company does not have
the financial ability to develop a project on its own, future development may
be done in conjunction with other parties (such as envisioned by the letter
of intent of July 2000 for acquisition by Captain's Management).
Company management currently is reviewing all resource and non-resource
operations with the view to identifying those that provide the most potential
for future growth. After reviewing the Company's current ownership of its
Tintic properties in Utah , the Company transferred substantially all of the
properties to Xeres Tintic, LLC (the "LLC"), in which the Company owns 91.5%
and will receive 95 to 96.5% of the LLC's net proceeds, to began to market
and sell the properties. The Tintic properties are located on the west side
of Utah Lake and this area has significant potential for development as the
east side of Utah Lake is more fully developed.
In addition, Company management is aggressively seeking joint ventures and/or
acquisitions and mergers and related financing to acquire natural resource
(near) development properties or non-resource operating business with
revenues in excess of one million dollars that fit the Company's criteria.
These criteria are technical/economic likelihood of success, sufficiently
advanced exploration or development status, and proximity of cash flow, if
possible. This approach led to the recent acquisition of Loanmining.com,
Inc. and letter of intent with Captain's Management.
PROPOSED SHARE EXCHANGE WITH TAMARINE VENTURES LTD.
On November 17, 1995, the Company executed an Agreement and Plan of Share
Exchange (the "Exchange Agreement") with Tamarine Ventures Ltd., a company
incorporated under the laws of British Columbia, Canada ("Tamarine"). The
Exchange Agreement provided for the issuance, at closing, of one post-reverse
stock split share of Common Stock of the Company in exchange for each four
common shares of Tamarine, thereby making Tamarine a wholly-owned subsidiary
of the Company (the "Share Exchange"). At the closing of the Share Exchange,
the Company would issue 2,000,000 post-reverse split shares of its Common
Stock to the shareholders of Tamarine. Closing of the Share Exchange was
subject to a number of conditions precedent, including regulatory acceptance,
approval by the shareholders of the Company and satisfactory results of due
diligence investigations conducted by the Company. On November 22, 1996, the
Company terminated the Exchange Agreement and abandoned its plan to acquire
Tamarine.
In contemplation of the acquisition of Tamarine, the Company advanced $176,751
to Tamarine. To date the Company has been unsuccessful in having the advances
repaid. Tamarine is a defunct company and accordingly, the Company has fully
provided for the advances to Tamarine. The Company recognizes that the advance
of $176,751 will not be recovered.
24
Impact of SFAS No. 133
In June 1998 SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued for fiscal years beginning after June 15, 1999.
Adoption of SFAS No. 133 is not expected to have an impact on the Company's
financial statements.
Impact of SFAS No. 134
In October 1998 SFAS No. 134, "Accounting for Mortgage Broker Securities," was
issued for fiscal years beginning after December 15, 1998. Adoption of SFAS No.
134 does not have an impact on the Company's financial statements.
Impact of Inflation
North Lily will be affected by inflation because market value of its potential
products (gold and silver) tends to fluctuate with inflation. Other major
costs should not increase at a rate in excess of inflation.
Item 7. FINANCIAL STATEMENTS
The unaudited consolidated financial statements are filed under this Item
beginning on page F-1 and the financial statements schedules required under
Regulation S-X are filed pursuant to Item 143 of this report.
Item 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On March 27, 1997, the Company engaged Wheeler Wasoff, P.C. to audit its
financial statements for the fiscal year ended December 31, 1996. During the
Company's two most recent fiscal years and the subsequent interim period
preceding the engagement of this firm, the Company did not consult this firm
regarding any of the matters identified in Item 304(a)(2) of Regulation S-K.
The engagement of Wheeler Wasoff, P.C. coincided with the announcement by
Coopers & Lybrand L.L.P. of its resignation on March 27, 1997.
Coopers & Lybrand L.L.P. audited the Company's financial statements for each of
the years ended December 31, 1994 and 1995. The report on such financial
statements contained an explanatory paragraph regarding the Company's ability
to continue as a going concern. The decision to change auditors was approved
by the board of directors. During the Company's two most recent fiscal years
and the subsequent period preceding the engagement of Wheeler Wasoff, P.C.,
there were no disagreements with Coopers & Lybrand L.L.P. on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of that firm, would have caused it to make reference to the
subject matter of the disagreements in connection with its report.
PART III
Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names and ages of all directors and
executive officers of the Company as of the date of this report, indicating
all positions and offices with the Company held by each such person:
25
<TABLE>
<CAPTION>
Name Age Position with the Company Business Experience
<S> <C> <C> <C>
Stephen E. Flechner 57 President and Chief May 1994 to present - President of the
Executive Officer and Company; 1979 to 1993 - Vice President,
Director General Counsel & Secretary, Gold
Fields Mining Corp., Denver, Colorado;
April 1993 to 1997 - President or
Chairman of Prospex Mining Inc.
(formerly Akiko Gold Resources Ltd.),
Vancouver, British Columbia; 1995 -
Investor, Co-founder and Director of First
American State Bank in Denver, Colorado.
W. Gene Webb 61 Executive Vice President, May 1994 to present - officer and
Corporate Secretary and director of the Company; Septemeber 1989
Director to March 1994 - President and director of
Canadian Industrial Minerals Corp.,
Denver, Colorado; May 1989 to present -
officer and director of Tellis Gold Mining
Company, Vancouver, British Columbia;
March 1990 to June 1994 - President and
director of Jerez Investment Corp.,
Denver, Colorado; September 1978 to
present - President and director of Ferret
Exploration Company, Inc., Denver,
Colorado.
Nick DeMare 46 Former Treasurer From May 1994 until November 1997,
Treasurer of the Company. Chartered
Accountant. May 1991 to November 30,
1997 - President, Chase Management
Ltd., Vancouver, British Columbia;
February 1986 to April 1991 - Vice
President and Chief Financial Officer,
Ingot Management Ltd., Vancouver,
British Columbia. Mr. DeMare is a
director and/or officer of several publicly-
traded Canadian companies.
Theodore E. Loud 64 Director 1982 to 1996 - President of TEL
Advisors Inc. of Charlottesville, Virginia,
a registered investment adviser and
corporate financial consulting company.
1997 to present - private investor and
corporate financial consultant.
</TABLE>
Except as otherwise indicated below, no organization by which any officer or
director previously has been employed is an affiliate, parent, or subsidiary of
the Company. The directors of the Company are elected to serve until the next
annual shareholders' meeting or until their respective successors are elected
and qualify. Officers of the Company hold office until the meeting of the
Board of Directors immediately following the next annual shareholders'
meeting or until removal by the Board of Directors. Interim replacements for
resigning directors and officers are appointed by the Board of Directors.
26
Compliance with Section 16(a) of the Exchange Act
During the fiscal years ended December 31, 1997, 1998 and 1999, there were no
known failures to file on a timely basis Forms 3, 4, and/or 5 with the
Securities and Exchange Commission as required by Section 16(a) of the
Securities Exchange Act of 1934 except as described below. Regina Mitchell
was late in filing an Initial Statement of Beneficial Ownership on Form 3
concerning her acquisition of more than 10% of the common stock in April 2000
and Forms 4 concerning subsequent transfers in 2000. Arnold Gutthenburg was
late in filing a Form 3 concerning his acquisition of more than 10% of the
common stock in April 2000. Theodore E. Loud was late in filing one Form 4
for one transaction occurring in June 2000. Each of Stephen E. Flechner and
W. Gene Webb was late in filing one Form 4 for one transaction in October
1997 and one Form 4 for one transaction in June 2000.
Item 10. EXECUTIVE COMPENSATION
The following table sets forth in summary form the compensation received during
each of the Company's fiscal years ended December 31, 1994, 1995, 1996, 1997,
1998 and 1999 by the Chief Executive Officer of the Company and by each other
executive officer of the Company whose total salary and bonus exceeded $100,000
in any of those fiscal years.
Summary Compensation Table
<TABLE>
Annual Compensation
<CAPTION>
Other Annual
Name and Principal Year Salary Bonus Compensation ($)
Position
<S> <C> <C> <C> <C>
Stephen E. Flechner, 1999 $120,000(2)(3) 0 0
President and Chief 1998 $60,000(2)(3) 0 0
Executive Officer 1997 $90,000(1)(2) 0 0
1996 $120,000(1) 0 0
1995 $110,000(1) 0 0
1994 $82,500(1) 85,000 0
W. Gene Webb, 1999 $120,000(2)(3) 0 0
Executive Vice 1998 $120,000(2)(3) 0 0
President and Corporate 1997 $120,000(1)(2) 0 0
Secretary 1996 $120,000(1) 0 0
1995 $110,000(1) 0 0
1994 $82,500(1) 0 0
William E. Grafham, 1996 0 0 0
former Chairman of the 1995 0 0 0
Board, President and 1994 0 0 0
Chief Executive
Officer(4)(5)
</TABLE>
<TABLE>
Long Term Compensation
Awards Payouts
<CAPTION>
Restricted
Stock Options/ LTIP All Other
Year Award(s) SARs (#) Payouts ($) Compensation
($)
<S> <C> <C> <C> <C> <C>
Name and Principal
Position
Stephen E. Flechner, 1999 0 0 0 0
President and Chief 1998 0 0 0 0
Executive Officer 1997 0 0 0 0
1996 0 0 0 0
1995 0 0 0 0
l994 0 85,000 0 0
W. Gene Webb, 1999 0 0 0 0
Executive Vice 1998 0 0 0 0
President and 1997 0 0 0 0
Corporate 1996 0 0 0 0
Secretary 1995 0 0 0 0
1994 0 85,000 0 0
William E. Grafham, 1996 0 0 0 0
former Chairman of 1995 0 0 0 0
the Board, President 1994 0 12,000 0 0
and Chief Executive
Officer(4)(5)
_________________
<FN>
<F1>
(1) An amount of $30,000 was unpaid as at December 31, 1997. Messrs. Flechner
and Webb agreed to accept 805,000 shares of Common Stock of the Company in
settlement of their unpaid salaries in the amount of $805,000 for the period
May l994 through September l997 pursuant to the terms of an Amendment to
Employment Agreement . See also "Employment Agreements" below.
27
<F2>
(2) As of March 31 l999, Messrs. Flechner and Webb had accrued salaries of
$105,000 and $180,000 respectively for the period October 1, l997 through
March 31, l999. Messrs. Flechner and Webb agreed to forgive $77,000 and
$132,000 of salaries and accept shares of Common Stock of the Company of
144,090 and 258,089 in settlement of these remaining unpaid salary balances,
respectively. See also "Certain Transactions" below.
<F3>
(3) On April 12, l999 Messrs. Flechner and Webb agreed to forego their salaries
for the period April 1, l999 through September 30, l999. Messrs. Flechner
and Webb each agreed to accept 354,485 shares of Common Stock of the Company
in settlement of their unpaid salaries in the amount of $30,000 for the
period October 1, l999 through December 31, l999. See also Item 12. "Certain
Relationship And Related Transactions" below.
<F4>
(4) Mr. Grafham resigned as an officer of the Company as of May 17, 1994. On
that date, Mr. Flechner became the Chief Executive Officer of the Company.
<F5>
(5) Mr. Grafham became the Chief Executive Officer of the Company as of October
25, 1993.
</FN>
</TABLE>
Employment agreements with the Company's executive officers are described below
in "Employment Agreements."
The Company does not pay non-officer directors for their services as such nor
does it pay any director's fees for attendance at meetings. Directors are reim-
bursed for any expenses incurred by them in their performance as directors.
Stock Option Plans
The Company adopted an Incentive Stock Option Plan (the "1984 Plan") in 1984
under which a total of 250,000 shares were available for grant to provide
incentive compensation to officers and key employees of the Company. The 1984
Plan was administered by the Board of Directors. Options could be granted for
up to 10 years at not less than the fair market value at the time of grant
except that the term could not exceed five years and the price had to be 110%
of fair market value for any person who at the time of grant held more than
10% of the total voting power of the Company. Unless otherwise specified by
the Board of Directors, options were exercisable as they vested at a rate of
2.77% per month, and terminated ten years after the date of grant. The 1984
Plan expired October 31, 1994. At December 31, 1996, options to purchase
187,250 shares at $2.03 were outstanding under the 1984 Plan.
On November 22, 1996, the Company adopted the 1996 Stock Option Plan (the "1996
Plan") reserving an aggregate of 275,000 shares of the Company's Common Stock
(the "Available Shares") for issuance pursuant to the exercise of stock options
("Options") which may be granted to employees, officers, and directors of the
Company and consultants to the Company. The 1996 Plan provides for annual
adjustment in the number of Available Shares, commencing December 31, 1996, to
a number equal to 10% of the number of shares outstanding on December 31 of the
preceding year or 275,000 shares, whichever is greater.
The 1996 Plan provides that disinterested directors will receive automatic
options grants to purchase 10,000 shares of the Company's Common Stock upon
their initial appointment or election as directors, and on the date of each
subsequent annual shareholders' meeting, which vest in 33-1/3% installments
commencing on the first anniversary of the grant date. Grants to employee
directors and officer/directors can be either Non-Qualified Stock Options or
Incentive Stock Options, to the extent that they do not exceed the Incentive
Stock Option exercise limitations, and the portion of an option to an
employee director or officer/director that exceeds the dollar limitations of
Code Section 422 will be treated as a Non-Qualified Stock Option. All
options granted to disinterested directors will be Non-Qualified Options.
28
The option price of any Incentive Stock Option may be not less than 100% of the
Fair Market Value per share on the date of grant of the option; provided,
however, that any Incentive Stock Option granted under the 1996 Plan to a
person owning more than ten percent of the total combined voting power of the
Common Stock will have an option price of not less than 110% of the Fair
Market Value per share on the date of grant of the Incentive Stock Option.
Each Non-Qualified Stock Option granted under the 1996 Plan will be at a
price no less than 85% of the Fair Market Value per share on the date of
grant thereof, except that the automatic stock option grants to disinterested
directors will be at a price equal to the Fair Market Value per share on the
date of grant. "Fair Market Value" per share as of a particular date is
defined in the 1996 Plan as the last sale price of the Company's Common Stock
as reported on a national securities exchange or on the NASDAQ System or, if
none, the average of the closing bid and asked prices of the Company's Common
Stock as reported by NASDAQ or, if such quotations are unavailable, the value
determined by the Compensation Committee in its discretion in good faith.
The exercise period of options granted under the 1996 Plan may not exceed ten
years from the date of grant thereof. Incentive Stock Options granted to a
person owning more than ten percent of the total combined voting power of the
Common Stock of the Company will be for no more than five years.
Unless otherwise specified in an optionee's agreement, options granted under
the 1996 Plan to officers, officer/directors, disinterested directors who are
not on the Compensation Committee, and employees will become vested with the
optionee under the following schedule: 50% upon the first anniversary of the
option grant and 12.5% upon each of the four three-month periods following
the first anniversary.
There were no individual grants of stock options or freestanding stock
appreciation rights made during the fiscal years ended December 31, 1996, 1997,
1998 and 1999. The only such options were issued in 1994.
<TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option Values
Option Values December 31, 1997 - 1999
<CAPTION>
Number of
Securities Value of
Underlying Unexercised in-
Unexercised the-money
Options/SARs Options/SARs at
at Fiscal Fiscal Year End
Year End (#) ($)
Shares Value Exercisable/ Exercisable/
Name Acquired Realized unexercisable unexercisable
or Exercise ($)
(#)
<S> <C> <C> <C> <C>
Stephen E.
Flechner -0- -0- 85,000/0 0/0
W. Gene Webb -0- -0- 85,000/0 0/0
</TABLE>
On November 22, 1996, the Company also adopted the 1996 Restricted Stock Plan
(the "Stock Plan") reserving an aggregate of 275,000 shares (the "Available
Shares") of the Company's Common Stock for issuance to employees, officers,
and directors of the Company and consultants to the Company. The Stock Plan
provides for annual adjustment in the number of Available Shares, commencing
December 31, 1996, to a number equal to 10% of the number of shares
outstanding on December 31 of the preceding year or 275,000 shares, whichever
is greater. Shares issued under this Stock Plan are "restricted" in the
sense that they are subject to repurchase by the Company at cost during the
vesting period. Unless otherwise specified in a participant's agreement,
shares issued under the Stock Plan to officers, officer/directors,
disinterested directors who are not on the Committee, and employees will
become vested with the participant under the following schedule: 50% upon
the first anniversary of the date of issuance and 12.5% upon each of the four
three-month periods following the first anniversary.
29
The Stock Plan provides that disinterested directors will receive automatic
issuances of 10,000 shares of the Company's Common Stock upon their initial
appointment or election as directors, and on the date of each subsequent annual
shareholders' meeting, which vest in 33-1/3% installments commencing on the
first anniversary of the issue date.
The Company has no other long-term incentive plans.
There are no arrangements pursuant to which directors of the Company are
compensated in their capacities as such.
Employment Agreements
Effective May 16, 1994, Messrs. Flechner and Webb entered into employment
agreements with the Company. The agreements provide for compensation
consisting of annual salary of $120,000 benefits including health and
disability insurance, key-man life insurance, and retirement plan; an annual
cash bonus, 50% of which may be taken in the Company's common stock at the
election of Messrs. Flechner and Webb; and equity grants pursuant to the
Company's incentive stock option plan and restricted stock plan. The term of
the employment agreements is five years. On October 1, l997 the Employment
Agreements were amended ("Amendment") in conjunction with accrued salaries.
Messrs. Flechner and Webb had agreed to defer demand of payment of their
salaries in the amount of $402,500 for the period May l994 through September
30, l997, and then agreed with the Board of Directors to waive their claim
for such salary in consideration of the receipt for 805,000 shares of common
stock of the Company. These shares were subject to a risk of forfeiture
pursuant to the terms of the Amendment. If Messrs. Flechner and Webb
terminated their employment on or before June 30, l998, Messrs. Flechner and
Webb would forfeit 785,000 shares of the common stock received. The Company
had the right to elect to pay Messrs. Flechner and Webb cash for all their
shares. Messrs. Flechner and Webb could elect to either accept cash in lieu
of shares or to extend all time periods. The Company did not elect to pay
cash in lieu of shares that were subject to the risk of forfeiture from May
l998 to January 15, 2000. Messrs. Flechner and Webb agreed to extend the
term for the risk of forfeiture for eighteen months pursuant to the
Amendment, and agreed that Messrs. Flechner and Webb would each forfeit the
805,000 common shares if they terminated employment on or before January 15,
2000. Due to passage of time, non-payment by the Company, and continuation
of employment, the risk of forfeiture was eliminated effective January 15,
2000. On December 31, 1999, Messrs. Flechner and Webb agreed to exchange of
compensation with the Company. Pursuant to the Employment Agreement as
amended since April 1996 and the letter agreement effective March 31, 1999,
Messrs. Flechner and Webb have forgiven compensation of $77,000 and $132,000
and accepted shares of 144,090 and 258,089 for the reduced compensation of
$28,000 and $48,000 respectively for the period October 1, 1997 through March
31, 1999. On April 12, 1999, Messrs. Flechner and Webb agreed to forgive
their compensation for the period April 1999 through September 1999 but were
entitled to $30,000 compensation for the period October 1, 1999 through
December 31, 1999 respectively and to extend their employment agreement two
years to April 2003. Messrs. Flechner and Webb have deferred demand for
payment of compensation of $30,000 and agreed with the Company to waive their
claim for such compensation in consideration for the receipt of 354,485 shares
respectively. The shares shall also be subject to risk of forfeiture, and
shall be forfeited if Messrs. Flechner and Webb terminate their employment
with the Company prior to December 31, 2001. The Shares became
non-forfeitable when the Company entered into a memo of understanding to
acquire a development stage resource project or an operating (non-natural
resource) business with annual revenues in excess of one million dollars, or
received a financing of at least five hundred thousand dollars. On February
14, 2000, the risk of forfeiture provisions were removed on the shares issued
in lieu of cash in the letter agreements of March 31, 1999 and December 31,
1999 by reason of the Company having entered into a memo of understanding for
the acquisition of Loanmining.com, which was an operating business with
annual revenues in excess of one million dollars. During 1999, the Company
advanced $68,641 to Mr. Webb, which was secured by Company stock owned by Mr.
Webb. As of December 31, 1999, the advances with interest have been charged
to operations, and the Company has retained two shares of Company stock for
each dollar advanced.
30
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of September 8, 2000 with
respect to the beneficial ownership of the Company's Common Stock by each
person known by the Company to be the beneficial owner of more than five
percent (5%) of the outstanding Common Stock, and by directors, nominees, and
officers of the Company, and by officers and directors as a group.
<TABLE>
<CAPTION>
Amount and Nature of
Name of Beneficial Owner Beneficial Ownership (1) Percent of Class (2)
<S> <C> <C>
CEDE & Co.
Box 20
Bowling Green Station
New York, NY 10004 2,521,827 17.90%
Regina Mitchell
6031 So. Andes Circle
Aurora, Colorado 80016 2,291,200 16.26%
Arnold P. Guttenberg
1777 S.Harrison, Suite 1110
Denver, Colorado 80110 1,002,400 7.11%
BCD USA, INC.
12849 Milbank Street
Studio City, California
91604 1,000,000 (4) 7.09%
Stephen E. Flechner 1,391,575 (3) 9.87%
W. Gene Webb 1,502,574 (3) 10.67%
Theodore E. Loud 117,000 0.83%
All officers and directors as a
group (3 persons) 3,011,149 (5) 21.37%
<FN>
<F1>
(1) Information with respect to beneficial ownership is based upon information
furnished by the Company's transfer agent or by each shareholder contained
in filings made with the Securities and Exchange Commission. Unless
otherwise indicated, the beneficial owner has sole voting and investment
power with respect to the shares shown.
31
<F2>
(2) Based on 14,088,355 shares outstanding. Where the persons listed on this
table have the right to obtain additional shares of Common Stock within 60
days from September 8, 2000, these additional shares are deemed to be
outstanding for the purpose of computing the percentage of class owned by
such persons, but are not deemed to be outstanding for the purpose of
computing the percentage of any other person.
<F3>
(3) Includes 85,000 shares of Common Stock issuable upon exercises of presently
exercisable options.
<F4>
(4) Issued pursuant to a joint venture agreement. The transaction was not
consumated and the Company expects return of the shares.
<F5>
(5) Includes 170,000 shares of Common Stock issuable upon exercise of presently
exercisable options.
</FN>
</TABLE>
Changes in Control
No arrangements are known to the Company, including any pledge by any person of
securities of the Company, the operation of which may, at a subsequent date,
result in a further change in control of the Company.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1994, the Company was charged management, consulting, and office
administration fees of $183,786 by private companies owned or controlled by
William E. Grafham, a former officer and director of the Company. In addition,
during 1994 these companies made disbursements on behalf of the Company. As of
December 31, 1994, $265,000, which included an outstanding balance of $82,167
as of December 31, 1993, remained unpaid. As indicated in the table below, the
indebtedness of $265,000 was paid in 1995 with the issuance of 88,333 shares of
the Company's Common Stock.
During 1994, 1995, and 1996, the Company was charged management, consulting,
and office administration fees of $65,264 (Cdn.$91,488), $51,194
(Cdn.$70,400), and $43,806 (Cdn.$59,750), respectively, by private companies
owned by Nick DeMare, an officer of the Company. As indicated in the table
below, indebtedness of $50,000 was paid in 1995 with the issuance of 16,667
shares of the Company's Common Stock. As of December 31, 1996, $50,213
remained unpaid.
In order to reduce its cash requirements during 1995, the Company negotiated
with certain then-current and former directors and officers, related
companies, and creditors to settle $354,250 of indebtedness and unpaid
amounts through the issuance of Common Stock at an ascribed price of $3.00
per share to the following parties:
<TABLE>
<CAPTION>
Indebtedness to Ascribed Price Number of
Creditor be Settled by Shares per Share Shares
<S> <C> <C> <C>
W.G. Ltd.1 $265,000 $3.00 88,333
DNG Capital Corp.2 $50,000 $3.00 16,667
Others $39,250 $3.00 13,083
Total $354,250 118,083
<FN>
<F1>
1 A private company owned by William E. Grafham
<F2>
2 A private company owned by Nick DeMare.
</FN>
</TABLE>
32
All of the shares were issued in 1995.
During 1993, Mr. Anton R. Hendriksz and Mr. Thomas L. Crom, then Chairman of
the Board and President of the Company, respectively, agreed to terminate their
existing employment agreements with the Company and to provide consulting
services to International Mahogany Corp. ("Mahogany") and the Company for a 24-
month period in consideration for cash payments of $125,000 and $100,000,
respectively, and quarterly cash payments of $12,500 each over a 24-month
period. The termination and consulting payments were to be shared equally by
Mahogany and the Company. Subsequent to an initial payment in 1993 of
$31,250 to Mr. Hendriksz and $25,000 to Mr. Crom (being the Company's share
of one-half of their termination payments), the Company and Mahogany did not
make further payments to Messrs. Hendriksz and Crom. Pursuant to a
Settlement Agreement dated June 20, 1995, assignees of Messrs. Hendriksz and
Crom agreed to accept 15,000 and 12,500 shares of the Company's Common Stock,
respectively, in full settlement of all claims against the Company.
On August 25, 1995, Turks Ltd., a private company of which W. Gene Webb is a
director, borrowed $74,532 (Cdn.$100,000) and in turn loaned the money to the
Company. The Company pledged 90,000 shares of Baja Gold Inc. stock as
collateral to secure the loan. The loan was due November 30, 1995 and
interest was charged at the rate of 8.875% per annum. Neither Turks Ltd. nor
Mr. Webb received any compensation from this transaction. On October 3,
1995, the Turks, Ltd. loan principal described above was repaid with proceeds
from a loan made to the Company by a non-affiliated third party. The loan
was in the amount of $97,167 (Cdn.$130,000), was originally due December 31,
1995, and accrued interest at the rate of 8% per annum. The Company pledged
90,000 shares of Baja Gold Inc. Stock as collateral to secure the loan. The
loan was extended to January 31, 1996 and paid as of that date.
During l994, the Company recorded $165,000 as due to officers relating to
unpaid salaries to Messrs. Flechner and Webb. The officers originally agreed
not to demand payment of this amount until January 2, 1996 (extended to
January 2, 1998), at which time the indebtedness was to be either settled
with cash, if available, or the issuance of shares of the Company. The amount
remained outstanding at December 31, 1996. During 1995,1996 and l997, the
Company recorded $220,000, $240,000 and 192,689, due $12,669 respectively, as
due to the officers as salary compensation.
Effective September 30, l997, Messrs. Flechner and Webb each agreed to defer
demand of payment of their salaries in the amount of $402,500 each for the
period May 1994 through September 30, l997 and further agreed to accept
805,000 shares of common stock for their unpaid salaries pursuant to the
terms of the amendment to the Employment Agreement. The Company recorded
$4,668 and $8,001 as due to officers relating to unpaid salary to Messrs.
Flechner and Webb respectively as of December 31, l997. Messr. Flechner
notified the Company that he would be reducing his salary by fifty per cent
for the period October 1, l997 through December 31, l998 due to other
obligations that required part of his time. During l998 and l999, the Company
recorded $180,000 and $240,000 respectively as due to officers relating to
unpaid salaries to Messrs. Flechner and Webb. As of March 31, l999 Messrs.
Flechner and Webb had unpaid salaries of $105,000 and $180,000 respectively
for the preceding 18 months. Messrs. Flechner and Webb each agreed to reduce
their salaries to $28,000 and $48,000 and to forgive the remainder of their
salaries of $77,000 and $132,000 respectively for this time period. In
addition Messrs. Flechner and Webb respectively agreed to accept 144,090 and
258,089 shares of common stock of the Company for these unpaid salaries. On
April 12, l999, Messrs. Flechner and Webb each agreed to forgo their salaries
of $60,000 for the period from April 1, l999 through September 30, l999. The
Company agreed to loan up to $112,500 and $150,000 to Messrs. Flechner and Webb
respectively in consideration of agreeing to continue employment, forgo
salaries for the period April through September l999, forgo any and all cash
bonus, per the Employment Agreement, for the period May l994 through March
l999, resume salary accrual in October l999, accept shares for salaries for
the period May l994 through March l999 on terms agreed, collateralize
repayment of the 18 month loan on a two share for each dollar loaned, and to
extend Employment Agreements for two years beyond its expiration date. As of
December 31, l999 Messrs. Flechner and Webb each had accrued salaries of
$30,000 for the period October through December, l999; in January 2000,
Messrs. Flechner and Webb each deferred demand for payment during that period
and agreed to accept 354,485 shares of common stock of the Company for
respective unpaid salaries.
33
During 1995, the Company and Akiko Gold Resources Ltd. ("Akiko"), a company
with a director in common, entered into a letter agreement to acquire mineral
properties located in the San Simon region of Bolivia. The Company has a 46%
interest in the property and is responsible for 50% of the project's funding
requirements. As at December 31, 1996, accounts payable included $66,534 for
costs paid on the Bolivia property by Akiko on behalf of the Company. See
"Item 2. Properties".
PART IV
Item 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A) The following documents are filed as part of this report:
1. Financial Statements:
Report of Independent Accountants,
Consolidated Balance Sheets, (December 31, 1996,1997,1998 and 1999)
Consolidated Statements of Operations, years ended December 31, 1996, 1997
1998 and 1999
Consolidated Statements of Shareholders' Equity, years ended December 31,
1996, 1997, 1998, 1999
Consolidated Statements of Cash Flows, December 31, 1996, 1997,1998 and 1999
Notes to Consolidated Financial Statements
2. Financial Statements Schedules:
All schedules have been omitted.
All other schedules have been omitted because they are not required, are
inapplicable, or the information is otherwise included in the financial
statements or notes thereto.
3. Exhibits:
Regulation
10-K Number Exhibit
3.1 Articles of Incorporation, as amended (1)
3.2 Bylaws (2)
10.1 Tuina Agreement (3)
10.2 Letter Agreement dated August 6, 1993 (4)
10.3 Baja Gold Inc., Loan Documents (5)
10.4 W. Gene Webb Employment Agreement (6)
10.5 Stephen E. Flechner Employment Agreement (6)
34
10.6 Amended Employment Agreements (Stephen E. Flechner and W.
Gene Webb) (7)
10.7 Transferred Tintic Utah Properties to Xeres Tintic, LLC
and Loan from Quest Ventures Ltd. Of Vancouver, B.C. (8)
10.8 Exchange Agreement of March 8, 2000 for acquisition of
Loanmining.com (9).
21.0 List of Subsidiaries
27.0 Financial Data Schedule
Footnotes:
(1) Incorporated by reference to the Exhibits to North Lily's Form 10-K for the
fiscal year ended December 31, 1987.
(2) Incorporated by reference to the Exhibits to North Lily's Form 10-K for the
fiscal year ended December 31, 1983.
(3) Incorporated by reference to the Exhibits to North Lily's Form 10-K for the
fiscal year ended December 31, 1991.
(4) Incorporated by reference to the Exhibits to North Lily's Form 8-K dated
August 6, 1993.
(5) Incorporated by reference to the Exhibits to North Lily's Form 10-K/A for
the fiscal year ended December 31, 1994.
(6) Incorporated by reference to the Exhibits to North Lily's Form 10-K for the
fiscal year ended December 31, 1995.
(7) Incorporated by reference to the Exhibits to North Lily's form 8-K dated
October 2, l997.
(8) Incorporated by reference to the Exhibits to North Lily's form 8-K dated
July 13, l999.
(9) Incorporated by reference to the Exhibits to North Lily's Form 8-K dated
April 7, 2000.
35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report(10k for 1997) has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
September 27, 2000 By: /s/ Stephen E. Flechner
--------------------
Stephen E. Flechner
Chief Executive Officer, President,
Principal Financial Officer and Director
September 27, 2000 By: /s/ W. Gene Webb
-----------------
W. Gene Webb
Executive Vice-President, Corporate
Secretary andPrincipal Financial and Accounting
Officer
September 27, 2000 By: /s/ Theodore E. Loud
-----------------
Theodore E. Loud
Director
36
Exhibit 21.0
List Of Subsidiaries
Minera Northern Resources S.A. ("Northern"), a Chilean limited
liability company, 100% (inactive).
Tenhard Resources, Inc., a Montana corporation, 100% (inactive).
Compania Minera Phoenix S.A., ("Phoenix") (formerly Compania Minera
San Martin S.A.), a Chilean limited liability company, 41% owned by
Northern (active 1997, inactive 1998 and 1999).
Minera San Lorenzo Limitada ("San Lorenzo"), a Chilean limited
liability company, 50% owned by Northern (inactive).
Xeres Tintic LLC, a Utah limited liability company, owned 91.5% by
North Lily.
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