INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
NORTH LILY MINING COMPANY
We have audited the accompanying consolidated balance sheets of North Lily
Mining Company and Subsidiaries as of December 31, 1997, 1998 and 1999 and
the related consolidated statements of operations, stockholders' equity and
cash flows for each of the four years in the period ended December 31, 1999.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of North Lily Mining
Company and Subsidiaries as of December 31, 1997, 1998 and 1999 and the
results of their operations and their cash flows for each of the four years
in the period ended December 31, 1999 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has a working capital
deficiency at December 31, 1999, has incurred losses from continuing
operations and has no operating cash flow to meet ongoing obligations. In
addition, there are certain potential liabilities which may have an adverse
effect on the Company (see Note 13). These factors, among others, raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2.
The consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties. Should the Company be unable
to realize the carrying value of its assets and discharge its liabilities in
the normal course of business, the net realizable value of its assets may be
materially less than the amounts recorded on the balance sheet.
WHEELER WASOFF, P.C.
Denver, Colorado
July 12, 2000, except for Note 16(b),
as to which the date is July 25, 2000
F - 1
<TABLE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997, 1998 and 1999
<CAPTION>
ASSETS 1997 1998 1999
<S> <C> <C> <C>
Current Assets
Cash $56,759 $23,495 $26,378
Marketable securities 16,213 10,581 6,086
Accounts and note receivable 14,353 15,331 12,500
Other 533 879 6,966
------- ------- -------
Total Current Assets 87,858 50,286 51,930
Property and equipment, net 22,230 19,414 30,376
Land 1,219,346 1,105,951 1,237,652
Reclamation bond 91,240 95,651 200,553
Other - - 12,500
-------- ------- ---------
TOTAL ASSETS $1,420,674 $1,271,302 $1,533,011
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
Current Liabilities
Accounts payable $193,653 $218,578 $226,027
Accrued legal settlement 100,104 104,343 -
Reclamation liabilities 90,110 90,110 180,059
Notes payable - 12,954 2,954
---------- -------- ---------
Total Current Liabilities 383,867 425,985 409,040
Due to officers 12,669 63,345 136,015
Accounts payable in stock 240,419 257,085 261,835
---------- -------- ---------
Total Liabilities 636,955 746,415 806,890
---------- -------- ---------
Minority Interest in LLC - - 362,410
---------- -------- ---------
</TABLE>
<TABLE>
<CAPTION>
Commitments and contingencies (Notes 1 and 13)
<S> <C> <C> <C>
Stockholders' Equity
Common stock, $0.10 par value;
authorized 30,000,000 shares;
issued and outstanding -
4,902,122 , 4,902,122 and
5,002,122 shares (1997, 1998,
1999) 490,212 490,212 500,212
Additional paid-in capital 52,373,692 52,373,692 52,382,692
Accumulated deficit (52,080,185) (52,339,017) (52,519,193)
------------ ------------ ------------
Total Stockholders' Equity 783,719 524,887 363,711
------------ ------------ ------------
$ 1,420,674 $ 1,271,302 $ 1,533,011
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<TABLE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1997, 1998, AND 1999
<CAPTION>
1996 1997 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue
Land sales $ - $ - $ - $425,859
Cost of land sales - - - (228,616)
--------- --------- --------- ----------
Gross Profit - - - 197,243
--------- --------- --------- ----------
Operating expenses
General and administrative 675,449 510,151 238,238 330,105
Exploration and property
carrying costs 3,527 51,409 - -
--------- ---------- -------- ----------
678,976 561,560 238,238 330,105
--------- ---------- -------- ----------
Operating loss (678,976) (561,560) (238,238) (132,862)
Other income (expenses)
Interest income 10,053 6,886 1,537 1,346
Interest expense (10,589) (11,306) (8,881) (43,193)
Realized gain on marketable
securities 118,883 - - -
Unrealized loss on
marketable securities - (15,171) (5,632) (4,495)
Abandonment of mineral
properties - (1,980,880) - -
Gain on disposition on
mineral properties 206,897 - - -
Write off of note receivable (176,751) - - -
Other, net (132,074) (16,746) (7,618) 54,436
--------- ---------- ------- -------
Net (loss) before minority
interest (662,557) (2,578,777) (258,832) (124,768)
Minority Interest - - - (55,408)
--------- ----------- -------- --------
Net (loss) $(662,557) $(2,578,777) $(258,832) $(180,176)
Net (loss) per common share-
basic and diluted $ (0.23) $ (0.80) $ (0.05) $ (0.04)
========= ============ ========= =======
Weighted average common shares
outstanding basic and diluted 2,848,047 3,234,622 4,902,122 4,952,122
========= =========== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<TABLE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1996, 1997, 1998, and 1999
<CAPTION>
Marketable
Securities
Additional Accumulated Treasury Valuation Total
Common Stock Paid-in Deficit Stock Adjustment
Shares Amount Capital
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 2,594,667 $259,466 $51,264,750 $(48,835,939) $ (17,395) $ 197,723 $2,868,605
Common stock issued for
services 55,000 5,500 79,500 - - - 85,000
Common stock issued by
private placement 341,073 34,108 351,409 (2,912) 17,395 - 400,000
Share issued costs - - (31,762) - - - (31,762)
Marketable securities
valuation adjustment - - - - - (189,453) (189,453)
Adjustment for fractional
shares issued 1,382 138 (138) - - - -
Net loss, year ended
December 31, 1996 - - - (662,557) - - (662,557)
--------- ------- --------- ---------- --------- --------- ---------
Balance, December 31, 1996 2,992,122 299,212 51,663,759(49,501,408) - 8,270 2,469,833
Common stock issued for
officers salaries 1,610,000 161,000 644,000 - - - 805,000
Common stock issued by
private placement 300,000 30,000 70,000 - - - 100,000
Share issue costs - - (4,067) - - - (4,067)
Marketable securities
adjustment for
permanent decline - - - - - (8,270) (8,270)
Net loss, year ended December - - - (2,578,777) - - (2,578,777)
---------- -------- -------- ------------ --------- -------- ----------
Balance, December 31, 1997 4,902,122 490,212 52,373,692 (52,080,185) - - 783,719
Net loss, year ended
December 31, 1998 - - - (258,832) - - (258,832)
---------- --------- ------- ----------- ---------- ------- -----------
Balance, December 31, 1998 4,902,122 490,212 52,373,692 (52,339,017) - - (524,887)
Common stock issued for
loan fees 100,000 10,000 9,000 - - - 19,000
Net loss, year ended
December 31, 1999 - - - (180,176) - - (180,176)
----------- --------- ---------- ----------- --------- -------- -----------
Balance, December 31, 1999 5,002,122 $ 500,212 $52,382,692 $(52,519,193) - $ - $ 363,711
========== ========= =========== =========== ========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<TABLE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1996, 1997, 1998 and 1999
<CAPTION>
Cash flows from operating activities 1996 1997 1998 1999
------ -------- ------- -------
<S> <C> <C> <C> <C>
Net(loss) $(662,557) $(2,578,777) $(258,832) $(180,176)
Adjustments to reconcile net loss
to net cash provided from (used for)
operating activities
Depreciation 3,946 2,816 2,816 2,816
Abandonment of mineral properties - 1,980,880 - -
Net realized gain on sale of
marketable securities (118,883) - - -
Unrealized loss on marketable
securities - 15,171 5,632 4,495
Abandonment of fixed assets - 32,116 - -
Minority Interest - - - (55,408)
Gain on disposition of
mineral properties (206,897) - - -
Cancellation of debt 176,751 - - -
Stock issued for salaries and
loan fees - 180,000 - 19,000
Increase (decrease) in accounts, notes
and interest receivable (101,298) 131,632 (978) (10,114)
Decrease in inventory 43,207 - - -
Increase (decrease) in other assets (4,575) (533) (346) (5,642)
Decrease (increase) in accounts-
payable trade (101,398) (8,189) 24,930 7,449
Increase (decrease) in accrued
liabilities 17,000 (32,981) 4,235 (104,343)
(Increase) in reclamation liabilities, net (27,501) (81,598) (4,411) (14,953)
Increase in due to officers 240,000 12,669 50,676 72,669
Increase in other accounts payable - 240,419 16,666 4,751
Other items 185,107 1,627 - (71,206)
--------- --------- -------- ---------
Net cash (used) provided operating
activities (557,098) (104,748) (159,612) (330,662)
--------- ---------- --------- ---------
Cash flows from investing activities
Acquisition and exploration of mineral
properties, net of option payments and
foreign taxes received (64,957) (1,452) 31,261 -
Proceeds received on sale of equipment 5,000 - - -
Proceeds from sale fo marketable securities
and investments 241,408 - - -
Distribution from LLC - - - 321,545
Net proceeds from sale of mineral
properties 280,292 - 82,134 -
Advances (141,751) - - -
--------- --------- -------- ---------
Net Cash (used) provided from
investing activities 319,992 (1,452) 113,395 321,545
--------- --------- -------- ---------
Cash flows from financing activities
Proceeds form short-term borrowings - - 13,106 257,538
Repayment of short-term borrowing (211,621) - (153) (267,538)
Minority member contribution in LLC - - - 22,000
Proceeds from issuance of common
stock, net of offering costs 393,238 95,933 - -
--------- --------- -------- ---------
Net cash provided by financing
activities 186,617 95,933 12,953 12,000
--------- --------- -------- ---------
Net (decrease) increase in cash (55,489) (10,267) (33,264) 2,883
Cash and cash equivalents, beginning
of year 122,515 67,026 56,759 23,495
--------- --------- -------- ---------
Cash and cash equivalents, end of year $ 67,026 $56,759 $ 23,495 $ 26,378
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1996, 1997, 1998 and 1999
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
During the years ended December 31, 1996, 1997, 1998 and 1999, the Company paid
cash for interest on indebtedness of $17,708, $0, $141, and $37,033,
respectively.
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES.
In 1996 the Company exchanged marketable securities in settlement of a note
payable and accrued interest for $98,296; issued 30,000 shares of common stock
(valued at $2.00 per share) for services of $60,000 and issued 25,000 shares of
common stock (valued at $1.00 per share) for offering costs of $25,000 on
private placements.
In 1997 the Company issued 1,610,000 shares of common stock to officers
(valued at $.050 per share) in settlement of accrued salaries of $805,000.
In 1999 the Company issued 100,000 shares of common stock (valued at $0.19 per
share) for loan fees of $19,000.
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
North Lily Mining Company was incorporated as a Utah corporation and was
engaged in mineral activities, including exploration, extraction, processing
and reclamation. The Company's principal assets were its copper mine, located
in Chile, and its mineral properties, located in Bolivia and the United
States. As of December 31, 1997 all mineral properties located outside the
United States were abandoned, and mineral exploration and development
activities on United Sates properties were ceased. The Tintic claims, located
in the State of Utah, were made available for sale. Effective January 1, 1999
substantially all of the Tintic claims were contributed to Xeres Tintic, LLC a
Colorado limited liability company.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
North Lily Mining Company, its inactive wholly owned subsidiaries, a 50%
interest in Silver City Joint Venture (100% in 1999), and its 69% interest in
Xeres Tintic LLC (Xeres). Collectively their entities are referred to as the
"Company." All significant inter-company accounts and transactions have been
eliminated in consolidation.
MINORITY INTEREST
The Company records minority interest expense which reflects the portion of
the earnings applicable to the minority interest partners in Xeres. Effective
January 1, 1999 the company contributed land to Xeres for a 99% interest.
Effective July 31, 1999 an outside investor acquired a 30% interest in Xeres
diluting the Company's interest to 69%. For financial reporting purposes the
results of Xeres are included in the Company's financial statements. Effective
January 31, 2000, the outside investor's interest was reduced to 7.5%, and the
Company's interest was increased to 91.5%.
JOINT OPERATIONS
The Company's 50% interest in Silver City Joint Venture, an unincorporated
joint venture, has been proportionally consolidated for years ended December
31, 1996, 1997 and 1998. In 1999 the Company acquired the 50% interest held
by an outside party and, accordingly, the 1999 financial statements include
100% of the joint venture operations, assets and liabilities of Silver City
Joint Venture.
REVENUE RECOGNITION
Prior to January 1, 1999 proceeds from the sale of land were charged against
the carrying cost of the applicable property, as the Company accounted for the
properties as mineral properties.
Effective January 1, 1999 and concurrent with the formation of Xeres, revenue
from sale of land is recognized under the full accrual method of accounting
pursuant to Statement for Financial Accounting Standards (SFAS) No. 66. Under
this method of accounting, revenue is recognized when all of the following
conditions are met: the refund period has expired; sufficient cumulative
payments of the contract sale price has been made; collectibility of
receivables is reasonably assured; receivables are not subject to
subordination; and the Company is not obligated to complete improvements or
incur other development costs.
F-7
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
MARKETABLE SECURITIES
Marketable equity securities are classified as available for sale and are
carried at fair value, as determined by quoted published market prices.
Unrealized losses and gains on available for sale securities are included as a
separate component of stockholders' equity. Net realized gains and losses on
security transactions are determined on the specific identification cost basis
and are included in the determination of loss for the year.
At December 31, 1997, 1998 and 1999 the company determined that the decline in
fair value of its marketable equity securities available for sale was other
than temporary and, accordingly, unrealized losses, including those previously
included as a separate component of stockholders' equity, were charged to
operations and the cost basis of the individual securities was reduced to fair
value as the new cost basis.
PROPERTY AND EQUIPMENT
Office furniture and equipment is recorded at cost. Depreciation is provided
by use of the straight-line method over the estimated useful lives of the
related assets of five to seven years. All mining plant and equipment is
available for sale as of December 31, 1999. Accordingly, proceeds from the
sale of mining plant and equipment is charged against the carrying cost, which
approximates salvage value, until such time as the carrying cost is reduced to
zero, at which time, gain on sale will be recognized.
Expenditures for replacements, renewals, and betterments are capitalized.
Maintenance and repairs are charged to operations as incurred.
Depreciation expense was $3,946 for 1996 and $2,816 for each of the three
years in the period ended December 31, 1999.
MINERAL PROPERTIES
Direct costs related to the acquisition, exploration and development of
mineral properties held or controlled by the Company were deferred on an
individual property basis until viability of a property was determined.
General exploration costs are expensed as incurred. Management of the Company
periodically reviews the recoverability of the capitalized mineral properties
and mining equipment. Management's calculation of proven and probable
reserves is based on engineering and geological estimates and financial
estimates including mineral prices and operating costs. The Company
depreciates its assets and accrues for reclamation on units of production
basis at each mine site over proven and probable reserves. Changes in the
geological and engineering interpretation of the Company's ore bodies, mineral
price and operating costs may change the Company's estimate of proven and
probable reserves. It is reasonably possible that the Company's estimate of
proven and probable reserves will change in the near term resulting in
additional charges for depreciation and reclamation in future reporting
periods. When it is determined that a project or property will be abandoned
or its carrying value has been impaired, a provision is made for any expected
loss on the project or property. Proceeds from the sale of mineral properties
are charged against the carrying value of the properties, on an individual
property basis, until such time as the carrying value of the individual
properties is reduced to zero, at which time, gain on disposition is
recognized. As of December 31, 1997 the Company had abandoned its foreign
mineral properties. U.S. mineral properties consisting of the "Tintic claims"
in the State of Utah were held for sale and subsequently transferred, in 1999,
to Xeres.
F-8
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
IMPAIRMENT OF LONG-LIVED ASSETS
The Company has adopted SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," which requires that long-
lived assets to be held and used be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company has determined that no impairment loss needs to
be recognized for applicable assets of continuing operations.
FOREIGN CURRENCEY TRANSLATION
Results of operations for foreign subsidiaries, whose functional currency is
other than the U.S. dollar, are translated using the average exchange rates
during the period, while assets and liabilities are translated into U.S.
dollars using current rates. Resulting translation adjustments are recorded
in currency translation adjustments in shareholders' equity. For foreign
subsidiaries whose functional currency is the U.S. dollar, currency gains and
losses resulting from translation and transactions are determined using a
combination of current and historical rates and are included in the results of
operations. Effective December 31, 1997 the company abandoned all of its
foreign properties and ceased operations outside the United States.
RECLAMATION COSTS
The Company's operations related to the Silver City Joint Venture are subject
to reclamation, site restoration and closure requirements. Post-closure
reclamation, site restoration costs and closure costs for each producing mine
are charged to operations over the expected life of the mine using the units
of production method. Current expenditures relating to ongoing environmental
and reclamation programs are expensed as incurred. The Company calculates its
estimate of the ultimate reclamation liability based on current laws and
regulations and the expected future costs to be incurred in reclaiming,
restoring and closing its operating mine sites. It is reasonably possible
that the Company's estimate of its ultimate reclamation liability will
increase in the near term due to possible changes in laws and regulations and
changes in cost estimates.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the
reported amount of revenues and expenses during the reporting period.
Significant estimates have been made by management with respect to the
recoverability of the Company's investment in land and the liability for
reclamation costs. Actual results could differ from those estimated.
CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers as cash
equivalents all highly liquid investments with a maturity of three months or
less at the time of purchase. On occasion, the Company has cash in banks in
excess of federally insured amounts. At December 31, 1997, 1998 and 1999
there were no cash equivalents.
F-9
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INCOME (LOSS) PER COMMON SHARE
Basic income (loss) per common share is calculated by dividing net income
(loss) by the weighted average number of common shares outstanding during the
year. Diluted income per common share is calculated by adjusting outstanding
shares, assuming conversion of all potentially dilutive stock options.
Convertible equity instruments, consisting of warrants and options, are not
considered in the calculation of net (loss) per share, as their inclusion
would be antidilutive.
INCOME TAXES
The company has adopted the provisions of SFAS No. 109, "Accounting for Income
Taxes". SFAS No. 109 requires recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, the
deferred tax liabilities and assets are determined based on the difference
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse.
SHARE BASED COMPENSATION
In October 1995, SFAS No. 123, "Accounting for Stock-Based Compensation" was
issued. This new standard defines a fair value based method of accounting for
an employee stock option or similar equity instrument. This statement gives
entities a choice of recognizing related compensation expense by adopting the
new fair value method or to continue to measure compensation using the
intrinsic value approach under Accounting Principles Board ("APB") Opinion No.
25. The Company has elected to utilize APB No. 25 for measurement; and will,
pursuant to SFAS No. 123, disclose supplementally the pro forma effects on net
income and earnings per share of using the new measurement criteria.
CONCENTRATION OF CREDIT RISK AND FINANCIAL INSTRUMENTS
Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist of cash and cash equivalents, investments in
marketable securities and receivables. The Company places its short-term cash
investments with high credit quality financial institutions and, by policy,
limits the amount of credit exposure to any one financial institution.
Generally, these investments mature within 90 days and therefore are subject
to minimal risk.
NEW TECHNICAL PRONOUNEMENTS
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.
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.
F-10
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In June 1999 SFAS No. 136, "Transfers of Assets to a Not-For-Profit
Organization or Charitable Trust that Raises or Holds Contributions for
Others" was issued for fiscal years beginning after December 15, 1999. SFAS
No. 136 will not have an impact on the Company's financial statements.
In June 1999 SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statements No. 133" was
issued. Adoption of SFAS No. 137 is not expected to have an impact on the
Company's financial statements.
NOTE 2 - BASIS OF ACCOUNTING
The accompanying financial statements have been prepared on the basis of
accounting principles applicable to a going concern, which contemplates the
realization of assets and extinguishment of liabilities in the normal course
of business. As shown in the accompanying financial statements, the Company
has accumulated a deficit of $52,519,193 through December 31, 1999, has
incurred losses of $662,557, $2,578,777, $258,832, and $180,176 for each of
the four years in the period ended December 31, 1999 and at December 31, 1999
has a working capital deficiency of $357,110.
During 1993 the Company ceased operations at its Silver City mine and in 1997
abandoned mining operations at its Tuina mine in Chile. As a result the
Company has continually been selling non-essential Company assets to fund
ongoing operations and property commitments over the past four years. The
Company requires financing to fund its future operations and will attempt to
meet its ongoing liabilities as they fall due through the sale of marketable
securities or mineral properties. There can be no assurance that the Company
will be able to raise the necessary financing to continue in operations or
meet its liabilities as they fall due or be successful in resolving its
contingent liabilities. Should the Company be unable to realize the carrying
value of its assets and discharge its liabilities in the normal course of
business, the Company may not be able to remain in operation and the net
realizable value of its assets may be materially less than the amounts
recorded on the consolidated balance sheets.
In April 2000 the Company acquired 100% of the outstanding common stock of
Loanmining.Com, Inc. (LMC) in exchange for 5.83 million shares of the
Company's common stock. Management believes that the acquisition of LMC and
ongoing efforts to sell its Tintic property claims in Utah through Xeres will
enable the Company to meet its financing and cash requirements and ultimately
achieve profitable operations.
NOTE 3 - MARKETABLE SECURITIES
As at December 31, 1997, 1998 and 1999 the Company has classified all
investments in marketable securities as available for sale. The cost, gross
unrealized holding gains gross unrealized holdings losses, and fair value of
available for sale securities are as follows:
F-11
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
NOTE 3 - MARKETABLE SECURITIES (continued)
<CAPTION>
Gross Gross
Unrealized Unrealized
Cost Holdings Holdings Fair
Basis Gains Losses Value
<S> <C> <C> <C> <C>
At December 31, 1996
Equity Securities $31,385 $8,270 $ - $39,655
======= ======= ====== =======
At December 31, 1997
Equity Securities $39,655 $ - $23,442 $16,213
======= ======= ======= =======
At December 31, 1998
Equity Securities $16,213 $ - $5,632 $10,581
======= ======= ======= =======
At December 31, 1999
Equity Securities $10,581 $ - $4,495 $6,086
======= ======= ======= ======
</TABLE>
Proceeds from sales and dispositions of marketable securities were $339,704 in
1996 and related net realized gains included in income was $118,883 in 1996.
The net change in the unrealized gain of marketable securities classified as
available for sale included as a component of equity was a decrease of
$189,453 for the year ended December 31, 1996. At December 31, 1997
management determined that the decline in fair value of available for sale
securities was other than temporary and accordingly unrealized losses have
been charged to operations.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997, 1998 and 1999 consists of the
following:
<TABLE>
<CAPTION>
1997 1998 1999
<S> <C> <C> <C>
Office furniture and equipment $24,915 $24,915 $24,915
Accumulated depreciation 16,464 19,280 22,096
-------- -------- --------
8,481 5,635 2,819
-------- -------- --------
Mining equipment 13,779 13,779 27,557
-------- -------- --------
$22,230 $19,414 $30,376
======== ======== ========
</TABLE>
F-12
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - PROPERTY AND EQUIPMENT (continued)
Included in mining equipment is an idle mill facility and related equipment
held for sale at the Silver City Venture reclamation site. The carrying cost
approximates salvage value at December 31, 1997, 1998 and 1999.
NOTE 5 - LAND AND MINERAL PROPERTIES
The Company's investment in land at December 31, 1997, 1998 and 1999 consists
of the Tintic property mining claims located in Utah. Prior to 1997 the
Company classified these claims as mineral properties and were pursuing the
exploration and development of the mining claims. The Company had previously
sold small parcels of the claims and charged the proceeds therefrom to the
carrying cost. Effective January 1, 1999 the Company transferred
substantially all of the claims to Xeres, in which they hold a majority
interest, and began to actively market and sell the properties.
Effective December 31, 1997 the Company abandoned its operations at its Tuina
mine project in Chile (Note 6) and its San Simon exploration project in
Bolivia. The carrying costs of these projects, including related debt, in the
aggregate amount of $1,980,880 was charged to operations in 1997.
During 1993 the Company's Silver City mining operation located in Utah ceased
operations and commenced reclamation work. As at December 31, 1997,1998 and
1999 the Company has accrued $90,110, $90,110 and $180,059, respectively, as
its share of estimated net future costs to complete the reclamation work.
During 1996, the Company received $65,000 from the partial sale of a portion
of the Tintic patented mining claims. In addition, the Company sold the Gray
Eagle property for total proceeds of $215,292. Of this amount $108,000 was
recorded as note receivable with interest at 8.5% per annum. The principal
and interest was paid in full in 1997.
NOTE 6 - DISPOSITION OF INTERESTS IN COMPANIA MINERA PHOENIX S.A.
Effective April 12, 1995, the Company and International Mahogany Corp.
("Mahogany") agreed to a restructuring of the ownership interest of the Tuina
Project. In settlement of the Company's outstanding debt to Mahogany of
$684,000 as at March 28, 1995, the Company reduced it ownership interest in
Compania Minera Phoenix S.A. ("Phoenix") from 50% to 41%. During 1995, the
Company also agreed to terms by which the Company's remaining interest in the
Tuina Project will be impacted. Subsequently, Mahogany agreed to sell its 59%
interest in Phoenix to Yuma Gold Mines Limited ("Yuma"). The sale to Yuma was
extended on several occasions and the terms subsequently revised (the
"Mahogany-Yuma Agreement").
On May 3, 1996 the Company and Yuma agreed to revise the terms of the
agreement whereby the Company's remaining interest in Phoenix will be
impacted. In summary, subject to receipt by Mahogany of regulatory approvals
and completion of the Mahogany-Yuma Agreement, the Company's interest will be
impacted as follows:
a) Yuma will receive an additional 5 % interest in Phoenix in exchange for
funded costs and the delivery of and independent bankable feasibility study
in respect of the Tuina Project;
b) the Company would be required to sell a further 10% interest in Phoenix
to Yuma for an initial payment of $145,000, less deductions for operating
costs and the costs of securing the water rights for the Tuina Project.
In addition, Yuma is required to make further payments to the Company, due
upon commencement of Tuina commercial production and one year thereafter.
These payments are to be calculated in relation to the initial capital costs
of the Tuina Project, from a high of $609,000 where the initial capital costs
are less than $14,000,000 with graduating payments decreasing as capital costs
increase, and may be made, at Yuma's election, in cash or shares of Yuma;
and
F-13
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - DISPOSITION OF INTERESTS IN COMPNANIA MINERA PHOENIX S.A. (continued)
c) all participants will be responsible for contributing their share of
funding following completion and delivery of the Feasibility Study. The
failure of any participant to contribute its share of funding will result in a
dilution of that participant's interest in accordance with a dilution
formula. Once a participant's interest has been diluted to 10%, then the
ownership interest will convert to a 10% net profits interest.
Since April 13, 1995, Yuma has provided funding to Phoenix to cover
operations, the preparation of the feasibility study and the costs of securing
the water rights for the Tuina Project. These costs are partially recoverable
by Yuma (the "Yuma Payments") from the Company from the proceeds to be
received from the sale of the 10% interest in Phoenix, as noted in item (ii)
above. The water rights have been secured and Yuma now has to either elect to
close the Mahogany-Yuma Agreement, subject to regulatory approval, or
terminate the agreement. If Yuma elects to terminate the Mahogany-Yuma
Agreement, the Company would not owe Yuma any funds for the Yuma Payments.
Due primarily to reduced copper prices, Yuma ceased to perform the Tuina
Project. Effective December 31, 1997 the Company abandoned the Tuina Mine
Project and wrote off its investment and any related debt previously forgiven.
NOTE 7 - PROPOSED SHARE EXCHANGE WITH TAMARINE VENTURES LTD
On November 17, 1995, the Company executed an Agreement and Plan of Share
Exchange (the "Agreement") with Tamarine Ventures Ltd., a company incorporated
under the laws of British Columbia, Canada ("Tamarine"). The 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 Agreement and abandoned its plan to acquire Tamarine. In
contemplation of the acquisition of Tamarine, the Company advanced $176,751 to
Tamarine. The Company has been unsuccessful in having the advances repaid
and, accordingly the Company has fully provided for a reserve for bad debts on
the advances to Tamarine in the accompanying 1996 financial statements.
NOTE 8 - NOTES PAYABLE
Notes payable at December 31, 1998 and 1999 consisted of:
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Bank overdraft advance $2,954 $2,954
Notes payable - officer
due on demand with
interest at 10% $10,000 -
--------- -------
$12,954 $2,954
========= =======
</TABLE>
F-14
NORTH LILY MINING COMPANY AND SUBSIDIARIESN
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - STOCKHOLDERS' EQUITY
On December 9, 1996 the Company effected a 1 for 10 reverse stock split. The
accompanying financial statements give retroactive effect to this reverse
stock split for all periods presented.
COMMON STOCK
In 1996, the Company completed private placements of 55,555 shares of common
stock at a $1.80 per share and 285,518 shares of common stock at $1.00 per
share. The company issued 25,000 shares of common stock for offering costs
associated with these private placements (valued at cost $1.00 per share).
The net proceeds to the Company was $378,754 after cash paid for offering
costs of $6,762.
The Company issued 30,000 shares of common stock for services of $60,000
(valued at $2.00 per share).
In 1997, the Company completed the sale of common stock and warrants pursuant
to two private placements as follows:
100,000 shares, at $0.50 per share and warrants to purchase 100,000 share
at $0.75 per share by April 1998 or $1.00 per share by April 1999. The
warrants were extended to December 31, 2000 and April 21, 2001,
respectively.
200,000 shares at $0.25 per share and warrants to purchase 100,000 at
$0.35 per share by September 1998, or $0.50 per share by September 1999.
The warrants were extended to December 31, 2000 and April 30, 2001,
respectively.
Proceeds from the offerings were $100,000 before offering costs of $4,067.
Effective December 31, 1997 the Company issued 1,610,000 shares of common
stock (valued at $0.50 per share) to two officers in settlement of accrued
salaries of $805,000.
In 1999 the Company issued 100,000 shares of common stock (valued at $0.19 per
share) to an unrelated third party for loan fees of $19,000.
In 2000 the Company reached settlement agreements with unrelated trade
creditors in which the creditors agreed to accept common stock in the Company
in exchange for payables due as follows:
1997 - 479,667 shares of common stock for accounts payable of $240,419
(valued at $0.50 per share)
1998 - 33,333 shares of common stock for accounts payable of $16,666
(valued at $0.50 per share)
1999 - 25,000 shares of common stock for accounts payable of $4,750
(valued at $0.19 per share)
Additionally in 2000, the Company issued shares of common stock to two
officers in settlement of accrued salaries at December 31, 1999 as follows:
402,179 shares for accrued salaries of $76,015 (valued at $0.19 per share),
and 708,970 shares of common stock for accrued salaries of $60,000 (valued at
$0.08 per share).
All stock issues for non-cash consideration are valued at a per share amount
which approximates the fair market price of the stock as of the date of
authorization by the Board of Directors.
F-15
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - STOCKHOLDERS' EQUITY (continued)
WARRANTS
In 1997, the Company issued warrants to purchase 200,000 shares of common
stock in conjunction with its private placements. The weighted average
excise price of the warrants is $ .55 per share.
NOTE 10 - STOCK OPTION PLANS
(a) 1984 Incentive Stock Option Plan:
During 1984, the stockholders approved an incentive stock option plan
(the "1984 Plan") for officers and key employees that provided for grants
of options to purchase up to 30,000 shares of unregistered common stock.
In 1990, the Board of Directors approved an amendment to the 1984 Plan to
increase the shares available for option grants to 250,000. The options
granted under the 1984 Plan are immediately exercisable at the fair
market value of the free trading common stock on the date of grant or
110% of such value if the optionee owned more than 10% of the combined
voting power of all classes of Company stock as of the grant date. The
1984 Plan expired October 31, 1994. The options that are outstanding
were issued in 1994 at an exercise price of $2.03 per share and at
December 31, 1997, 1998 and 1999 expire as follows: 170,000 - May 7,
2004.
(b) 1996 Stock Option Plan:
In 1996, the stockholders approved an incentive stock option plan (the
"1996 Plan") for employees, directors and/or officers of the Company.
The 1996 Plan reserves an aggregate of 275,000 shares (the "Available
Shares") of the Company's Common Stock and provides for annual
adjustments 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 options granted under the Plan will become vested 50% upon
the first anniversary option grant and 12.5% upon each of the four three-
month periods following the first anniversary. The purchase price shall
be equal to the fair market value of the stock as of the date of
issuance. No options have been granted under the 1996 Plan.
(c) 1996 Restricted Stock Plan:
In 1996, the stockholders approved a restricted stock plan (the "1996
Restricted Plan") for employees, officers, and directors of the Company
and consultants to the Company. The 1996 Restricted Plan reserves an
aggregate of 275,000 shares (the "Available 1996 Restricted Shares") of
the Company's Common Stock. The 1996 Restricted Plan also provides for
annual adjustments under the same terms as the 1996 Plan. Shares under
this plan are "restricted" in the sense that they are subject to
repurchase by the Company at cost during the vesting period. The options
granted under this plan will become vested under the same terms as the
1996 Plan. There are no options outstanding.
NOTE 11 - INCOME TAXES
At December 31, 1999, the Company had a net operating loss carry forward of
approximately $21,000,000 that may be offset against future taxable income
through 2019.
The Company has fully reserved the tax benefits of these operating losses
because the likelihood of realization of the tax benefits cannot be
determined. These carryforwards are subject to review by the Internal Revenue
Service.
The tax benefit of the loss carryforward has been offset by a valuation
allowance of the same amount. Of the total tax benefit, $6,000 is
attributable to 1999.
F-16
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - INCOME TAXES (continued)
Temporary differences between the time of reporting certain items for
financial and tax reporting purposes are primarily from using different
methods of reporting depreciation costs, mineral exploration costs, advanced
royalties and reclamation accruals.
NOTE 12 - RELATED PARTY TRANSACTIONS
a) During 1996, the Company was charged management, consulting and office
administration fees and salaries of $283,806 by officers and companies
under significant influence of certain directors of the Company. As at
December 31, 1996, $680,358 remained unpaid of which $625,000 was due to
officers for unpaid salaries for the period 1994 through 1996.
The Company's Bolivia properties were acquired pursuant to an agreement
entered into in 1995 with Akiko Gold Resources, Ltd. ("Akiko"), an
entity whose prior president is also president of the Company. The
Company had a 46% interest in the property and is responsible for 50% of
the project's funding requirements. In 1997 the Company abandoned the
project.
b) During the 1997, the Company accrued officers salaries for the year of
$192,689, issued 1,610,000 shares of common stock in settlement of
accrued salaries for 1996 through September 1997 (Note 9), and paid the
office lease of $30,684 (Note 13).
c) During 1998, the Company accrued officer salaries for the year of
$50,676 and paid the office lease of $31,316 (Note 13). Two officers
loaned the company $5,000 each at 10.0% interest.
d) During 1999, the Company accrued officer's salaries for the year of
$72,669, and paid the office lease of $35,336 (Note 13). The Company
repaid loans from officers of $10,000 and interest of $724. In 1999 the
Company advanced an aggregate of $68,641 to an officer. Pursuant to the
Company's employment agreement with the officer, advances accrue
interest at 8% per annum. The advances are secured by 137,282 shares of
the Company's common stock owned by the officer. As of December 31,
1999, the advances made have been charged to operations and no interest
income will be recognized until interest is paid by the officer to the
Company.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
a) The Company has assumed under a verbal agreement with an entity
controlled by the Company's Vice President an operating lease for office
space in Denver, Colorado. This assumption is under the same terms and
conditions as the related party's lease with the landlord. Future
minimum lease payments due under this arrangement are as follow:
Year ended December 31,
2000 $36,647
2001 $41,125
2002 $43,682
2003 $18,645
Rent expense for the years ended December 31, 1996, 1997, 1998 and 1999
was $17,838, $22,378, $31,316 and $35,336 respectively.
F-17
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - COMMITMENTS AND CONTINGENCIES (continued)
b) The Company and other third parties were subject to a multi-count claim
filed with the U.S. District Court in Butte, Montana claiming that, as a
result of exploration activity in the Southern Cross area, local ground
water supplies have been contaminated and reduced. Despite studies
prepared privately and by the Department of State Lands (Montana) in
1992, which found no evidence of earlier claims, the plaintiff continued
to seek alternative legal approaches against the defendants. Initial
discovery proceedings were completed in 1995. The Company and other third
parties filed for a Summary Judgement for dismissal of this lawsuit and
have received favorable disposition thereof, awaiting execution by the
federal court. Meanwhile, the lawsuit was settled for nominal
consideration in December 1997. Mahogony paid North Lily's share of
settlement.
c) During 1994, a former officer of the Company filed a complaint seeking
unpaid vacation pay, together with interest thereon, treble damages, cost
and attorney's fees. The Company subsequently paid the former officer
$20,834 representing the Company's calculation of its share of amounts
owed. Final settlement with the former officer was reached in 1996, in
which the Company agreed to pay an initial payment of $15,000 and a final
payment of $80,000. Final payment on the settlement agreement was made
in 1999 and the Company was released from further obligation.
d) In late 1998, a complaint was filed against the Company in 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 litigation counsel believe the claims are without merit,
will continue to defend vigorously, and do not believe there is any
likelihood of a material loss.
e) 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.
F - 18
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - SEGMENT REPORTING
In June 1997, SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information" was issued, which amends the requirements for a public
enterprise to report financial and descriptive information about its
reportable operating segments. Operating segments, as defined in the
pronouncement, are components of an enterprise about which separate financial
information is available that is evaluated regularly by the Company in
deciding how to allocate resources and in assessing performance. The
financial information is required to be reported on the basis that is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. The Company has adopted SFAS No. 131 for the year
ended December 31, 1997.
The Company has one reportable segment, land held for investment and sale. In
1997 the Company abandoned it's exploration and development of mineral
properties and concentrated its efforts on the sale of its US claims and
properties. Nominal sales were made in 1997 and 1998 and proceeds were
charged against the carrying cost of the properties. Sales of land in 1999
were made through Xeres, the Company's majority controlled LLC.
NOTE 15 - COMPREHENSIVE INCOME
There are no adjustments necessary to net (loss) as presented in the
accompanying statements of operations to derive comprehensive income in
accordance with SFAS No. 130, "Reporting Comprehensive Income." for the years
ended December 31, 1997, 1998 and 1999.
For the year ended December 31, 1996 the Company's Statement of Comprehensive
Income is as follows:
Net (loss) $ (662,557)
Unrealized holding gain on securities 8,270
------------
Comprehensive Income (loss) $(654,287)
============
NOTE 16 - SUBSEQUENT EVENTS
a) On April 7, 2000, the Company completed performance of closing requirements
for its acquisition of privately held Loanmining.Com, Inc. ("LMC") by
issuance of 5.83 million shares (the "Shares") of the Company`s restricted
common stock. The Shares are restricted securities pursuant to Rule 144,
are to be included in a Registration Statement by the Company after it
updates its audits and reports to the Securities and Exchange Commission,
and are to be subject to monthly sale restrictions for holdings in excess
of 200,000 shares. The recipients of the Shares were the several
stockholders of LMC, including its majority stockholder (Regina Mitchell),
who received over 4 million of the Shares.
In consideration for the Shares, the Company acquired rights to the names
Loanmining.Com, Inc. and Home Loan.Com; rights to a team of mortgage
brokers, telemarketers, processing and closing staff represented to be
capable of equalling the prior years production; 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 for traditional "bricks and mortar" basis as well as a highly automated
internet mortgage banker focused on the sub-prime mortgage niche.
Substantial equity financings will be required to compete for mortgage
lending business on the Internet, which already is populated by competitors
of several types, some of who already have substantial financing and market
penetration.
F - 19
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - SUBSEQUENT EVENTS (continued)
In conjunction with this acquisition, the Company closed on a private
placement financing of $245,000 in exchange for 7% Convertible Notes and
Warrants. The Notes are due in periods of six to nine months from the date
of issuance and are repayable or convertible, at the option of the holder,
into shares of Common Stock of the Company at $0.20 per share (except for
$25,000 at $0.50 per share). Warrants for the purchase of an aggregate
1,400,000 shares were issued as part of the sale of the notes and are
exercisable at $5.00 and $7.50 per share during years one and two,
respectively, from date of issue, and expire at various dates from February
2002 to April 2002. The Company utilized $63,000 of the proceeds to finance
stock redemption and releases from dissident stockholders of Loanmining.Com,
Inc.
In April 2000, the Company acquired 100% of the membership interests in
Mortgage Partners Home Funding, LLC in consideration of 170,000 shares of
the Company's common stock and $25,000 in promissory notes.
b) On July 25, 2000 the Company entered into a letter of intent to be acquired
by Captain's Management, Inc. (Captain's) for ten shares of Captain's for
every 14.5 shares of the Company when Captain's is registered and trading
on a stock exchange. 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. In addition,
Captain's is to provide web site development and marketing for LMC at
Captain's expense. Captain's is engaged in developing vertical market
applications, virtual inventory systems, and a public interactive dynamic
display network (in airports, music stores, movie theatres, shopping
centres and other high public traffic locations) with its affiliate
Touchvision for building and managing interactive systems.
F-20
