ITEM 1. BUSINESS.
Independence Lead Mines Company (the "Company") is a corporation organized under the laws of the State of Arizona on September 16, 1929. The Company is the owner of fifteen patented and fourteen unpatented mining claims. This claim group (the "property") is situated Northwest of Hecla Mining Company's Luck Friday Mine in the Coeur d' Alene Mining District, Shoshone County Idaho. Adjacent is the community of Mullan and U.S. Interstate Highway 90.
Pursuant to the terms of an agreement dated February 8, 1968, among Hecla Mining Company ("Hecla"), Day Mines, Inc. ("Day"), Abot Mining Company ("Abot") and the Company (the "Unitization Agreement"), the Eastern portion of the Company's Property (approximately five-eighths of the total area of the Property) was unitized with certain adjoining and near-by properties owned by the Day and Abot into a unitized area, consisting of 55 claims, (known as the "DIA Area"). Under the terms of the Unitization Agreement, ores and minerals in place are owned by the parties thereto in the following percentages:
Day (now Hecla by merger) 47.70% Independence 46.30% Abot 6.00%
By a second agreement also dated February 8, 1968, (the "Lease Agreement"), Hecla leased the DIA Area for a period of fifty (50) years, subject to a 30-year extension, for the purpose of conducting mineral exploration and development of the DIA Area and mining such commercial ore as may be discovered in the DIA Area by Hecla. Since inception of the Lease Agreement, Hecla has performed exploration and development work on the DIA Project at a cost of more than $32,000,000 at year end December 31, 1998. To date exploration has revealed a resource estimate of 7,933,418 tons. Ore production for 1998 was 193,891 tons and averaged 18.41 ounces silver, 10.33 % lead and 1.35% zinc per ton.
The Lease Agreement provides that all costs and expenses incurred in the exploration, development and operation of the DIA Area are to be paid by Hecla subject to the right of Hecla to be reimbursed for such costs and expenses, together with all advance royalties paid, out of any future net profits realized from the operation of the DIA Area. After recovery of Hecla's costs and expenses and amounts paid as advance royalties, and the establishment of a three month working capital reserve, net profit royalties are to be paid to the Company and the other property owners as follows:
Day (now Hecla by Merger) 19.08% Independence 18.52% Abot 2.40%
Hecla, as the lessee, will retain the remaining sixty percent (60%) of any net profits realized. Under the terms of the Unitization Agreement, one-half of the first net profit royalties received by the Company are to be paid over to Day (now Hecla) until Day recovers the sum of $450,000. The relationship of the parties to the Agreement may, under certain
circumstances, be converted to a joint venture at the option of the property owners, where after the property owners would become participating, non-operating working interest owners who would share profits and expenses in connection with the DIA Area in the same ratio as exists pursuant to lease arrangement with Hecla described above.
Until Hecla commences to pay net profit royalties and during such period as the Lease Agreement is in effect, Hecla is obligated to pay an advance royalty to the Company of $750 per month subject to increase to $1,500 if production for the DIA Area exceeds 2,000 tons per month.
Pursuant to the terms of the February 8, 1968, agreements, Hecla will be obligated to pay a royalty of 18.52 percent of defined net profits after Hecla has recouped its costs to explore and develop this property from the new discovery to Independence Lead Mines Company.
The Company has no patents, licenses, franchises or concessions which are considered by the Company to be of importance. The business is not of a seasonal nature. Since the potential products are traded in the open market, the Company has no control over the competitive conditions in the industry. There is no backlog of orders.
There are numerous Federal and State laws and regulation related to environmental protection which have direct application to mining and milling activities. The more significant of these laws deal with mined land reclamation and waste water discharge from mines and milling operations. The Company does not believe that these laws and regulations as presently enacted will have a direct material adverse effect on its operations.
The current officers and directors of the Company serve without compensation and are not considered by the Company to be employees.
The western portion of the Company's property is not under the DIA Area agreement. West Independence, as it is called, consists of 10 patented mining claims of which four (4) claims are partly included in the DIA Area agreement. Patented acres owned are listed below.
West Independence Acres 81.362 East Independence Acres 91.808 --------- Total Acres 173.170
On November 10, 1997 present management was informed by Hecla that Hecla had given notice of termination of the West Independence Agreements in 1993. The former management had been notified of this by Hecla's certified letter dated December 21, 1993. Former Management did not disclose the termination of the West Independence agreements in the 1993 10-K. Erroneous statements as to the status of the West Independence continued in the 10-K's for 1994,1995, and 1996. Two letters from Hecla dated November 12, 1993 and December 21, 1993 regarding the West Independence Agreements are missing from the corporate records received from previous management. The minute book is silent on this subject.
Within the boundaries of the property covered by the West Independence agreement were three unpatented claims owned by the Company, named Goethals, Panama Number 2 and Silver Mountain. After the termination of the West Independence Agreements, the former management failed to make the necessary filings and to pay the necessary fees. Those three mining claims lapsed and were lost to Independence Lead Mines Company.
These three unpatented claims were re-staked and filed in the name of Hunter Mining Company by Don Springer, a former geological consultant of Independence Lead mines Company, on May 7, 1996. The Idaho Secretary of State's annual report form for 1997 lists the following persons as officers and directors of Hunter Mining Company.
Harry F. Magnuson, President R.M. MacPhee, Secretary/Treasure Tom Magnuson, Director H. James Magnuson, Director
H. James Magnuson is a former Director of Independence. R.M. MacPhee is a former director and was a long time Secretary/Treasurer of Independence.
During 1998, Hunter Mining Company offered to return the three unpatented claims to Independence for its cost involved with these claims and Independence accepted this offer.
During 1998, The Company conducted a voluntary share buyback program for shareholders with no more than 200 shares, in order to relieve those shareholders of the inconvenience and cost of brokerage commission. As result of the buyback program, the company purchased a total of 6,793 shares at a price of $1.70 per share. The program was terminated in October 1998.
ITEM 2.
ITEM 2. PROPERTIES
By an agreement dated February 8, 1968 among the Company and the owners of other adjacent or neighboring mining properties, the Company and the owners of the other properties entered into certain agreements, the general effect of which was to establish certain vertical boundaries between their respective properties and to waive certain existing or potential claims to extralateral rights to veins or ores found outside of the vertical boundaries of their respective properties. The Property of the Company is subject to this agreement.
Pursuant to existing law, the Company is required to perform the equivalent of $100 of work each year on each of its 14 unpatented claims included in the agreements mentioned in paragraph above, or to pay $100.00 per claim as a rental fee in order to maintain possessory title to such properties. These requirements are performed by Hecla Mining Company under the terms of the February 8, 1968 agreements described in Item 1 of this report.
In addition the three (3) claims in West Independence not included in the above agreements are paid for directly by Independence Lead Mine.
Further information regarding the Properties of the Company is set forth in this report under "Item 1. Business" and is incorporated herein by reference.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
1. H.F. Magnuson & Company, the accounting firm, which, prior to May 22, 1997 provided accounting, bookkeeping, geological and other professional services to Independence Lead Mines Company. H.F. Magnuson Company has filed suit in Shoshone County, Idaho in case #CV98-34222 to enforce two promissory notes. One note in the amount of $47,800.00 executed by former directors, R.M. MacPhee and Dale B. Lavigne, in favor of H.F. Magnuson & Company was executed on September 10, 1996 and states interest at nine percent (9%) per annum. The other note is in the principal amount of $38,300 and was executed by former directors R.M. MacPhee and Dale B. Lavigne in favor of H.F. Magnuson & Company on May 13, 1997 and states interest at the rate of nine percent (9%) per annum. H.F. Magnuson & Company also seeks an award of its attorney fees and costs in that action. Independence Lead Mines Company, Inc. has denied any liability of Independence Lead Mines Company under those notes. Independence Lead Mines Company has also filed a counterclaim against H.F. Magnuson & Company. Management believes that the promissory notes will be invalidated by the court and believes that Independence Lead Mines Company will prevail on its counterclaims.
2. H.F. Magnuson & Company and former directors, R.M. MacPhee, Dale B. Lavigne and Wray Featherstone have filed suit in Shoshone County, Idaho case #CV98-34225 against Independence Lead Mines Company, Bernard Lannen, Gordon Berkhaug, Forrest Godde, and Robert Bunde to validate 60,000 shares of Independence stock issued to them prior to May 22, 1997 for alleged past advances of expenses, services and as directors fees. The Plaintiffs also seek monetary damages from the Defendants in excess of $10,000 plus attorney fees and costs for the actions for the Defendants. Independence Lead Mines Company, Bernard Lannen, Gordon Berkhaug, Forrest Godde, and Robert Bunde have denied the validity of those 60,000 shares and have denied any liability for monetary damages. Independence Lead Mines company and the other named Defendants have made counterclaims against the Plaintiffs. Management believes the 60,000 shares of stock claimed by the plaintiffs will be invalidated by the court, the Plaintiffs will recover nothing from any of the Defendants and the Plaintiffs, including Independence Lead Mines Company, will prevail on their counterclaim. See note 5 to the financial statements.
The hearing date for both proceedings has been set for December, 1999. Dale Lavigne, a director of the company at the time the lawsuits were filed, was a party to the lawsuits against the company and its directors. As a consequence, the remaining directors asked for and received Mr. Lavigne's resignation from the board in 1998.
ITEM 4.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
There was no shareholder meeting held in 1998.
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PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) The market price ranges of the Company's common stock during each quarter of the years 1998 and 1997, respectively, were as follows:
(b) Approximate Number of Equity Security Holders.
Title of Class (1) Number of Record Holders December 31, 1998 ------------------ ------------------------------ Common non-assessable Approximately 2,300 (1) Capital stock, par value $1.00 per share
(1) Included in the number of shareholders of record are shares held in "nominee" or "street" name.
(c) No dividends were paid by the Registrant in 1998 or 1997, and the Company has no plans to pay a dividend in the foreseeable future.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Selected Income Statements Data:
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Selected Balance Sheets Data:
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS.
Liquidity. The liquidity of the Company increased over the past year, primarily due the proceeds from a private placement of 50,000 shares of company stock. It is anticipated that working capital will be provided in the future by advanced royalties and proceeds from the sale of company stock.
CAPITAL RESOURCES. The Property of the Company is leased to Hecla Mining Company. Capital improvements are to paid for by Hecla pursuant to the terms of the leases. The Company has no long-term debt.
RESULTS OF OPERATIONS. The Company is in the exploratory and development stage and has no operations. The general and administrative costs remained substantially constant with 1997 levels in 1998.Revenue of $3,592 was realized in 1998 from the sale of timber and interest income.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's financial statements appear following Item 9.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
Filed as part of the Annual Report Form 10-K December 31, 1998
Page
FINANCIAL STATEMENTS:
Balance Sheet, December 31, 1998 and 1997 . 8
Statement of Operations and Deficit Accumulated During The Exploratory Stage for the Years Ended December 31, 1998, 1997 and 1996 . . . . 9
Statement of Cash flows, for the years ended December 31, 1998, 1997 and 1996 . . . . 10
Notes to Financial Statements, December 31, 1998 And 1997 . . . . . . . . 11
The Company's financial statements are unaudited in reliance upon Section 210.3-11 of Regulations S-X adopted by the Securities and Exchange Commission.
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INDEPENDENT LEAD MINES COMPANY (An Exploration Stage Company)
PART III
BALANCE SHEET - UNAUDITED December 31, 1998 and 1997
A S S E T S
INDEPENDENT LEAD MINES COMPANY (An Exploration Stage Company)
STATEMENT OF OPERATIONS AND DEFICIT ACCUMULATED DURING THE EXPLORATORY STAGE - UNAUDITED For the years ended December 31, 1998, 1997, 1996
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The accompanying notes are an integral part of these financial statements.
INDEPENDENT LEAD MINES COMPANY (An Exploration Stage Company)
STATEMENT OF CASH FLOWS - UNAUDITED For the years ended December 31, 1998, 1997, 1996
DISCLOSURE OF ACCOUNTING POLICY For the years ended December 31, 1998, 1997 and 1996, the Company had no cash equivalents.
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
INDEPENDENT LEAD MINES COMPANY (An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS December 31, 1998 and 1997
Note 1 - Company business - The Company was incorporated under the laws of the State of Arizona on September 16, 1929. The Company is presently in the exploratory stage.
Note 2 - The significant accounting principles and practices of the Company are as follows:
a. The financial statements are prepared on the accrual basis of accounting.
b. In accordance with Statement No. 7 of the Financial Accounting Standards Boards, the Company charges current costs related to exploration and development to operations.
c. The Company depreciated its equipment on the straight-line method over their estimated useful life of 7 years. The Company currently has no depreciable property.
d. Earning per share have been computed using the weighted average of shares outstanding during the period.
Note 3 - Company property - The Company has 15 patented and 17 unpatented claims situated in the Hunter Mining District, Shoshone County, Idaho. On February 8, 1968, the Company entered into an agreement with Day Mines, Inc., Abot Mining Company and Hecla Mining Company. Certain properties of the four companies were combined for purposes of exploration and development. These properties were referred to as the DIA Area. The DIA Area consists of 9 patented and 14 unpatented claims of Independence Lead Mines Company. Hecla Mining Company is the exploring and developing company. The DIA agreement allows Hecla Mining Company to recover all of its exploration and development cost, advance royalties paid, and to build a three months' reserve for working capital prior to splitting profits. Independence is to receive 18.52% of the profits, and under the terms of the DIA agreement the Company receives an advance of $1,500 for each month 2,000 tons of ore is mined.
Note 4 - In addition to cash costs in the amount of $23,302, the amount reflected in the balance sheet as the cost of mining claims reflects the par value assigned to 3,024,000 shares of stock issued for $3,034,000. The underlying cost basis of the mining claims is unknown and unobtainable. Since it was an accepted accounting practice at the time of the transaction, all subsequent financial statements have used the par value of the shares issued as the cost basis of the mining claims. The Company has considered revaluation of the mining properties, but feels that to revalue them at an amount that has no basis would be misleading. The Company feels that the claims are of value, as Hecla Mining Company has continued with its lease since 1968. Note 5 - As reported in previous forms 10-K by management, the stock ledger and shareholders list in the past indicated more shares issued and outstanding than the shares authorized and reported on the financial statements. In spite of the apparent over-issuance of stock, on September 10, 1996 the previous board of directors authorized the issuance of 30,000 shares to H.F. Magnuson & Co. and 30,000 shares to themselves as compensation for services. Immediately prior to the issuance of the 60,000 shares, the shares issued and outstanding according to the shareholder list exceeded authorized capitalization by 255,806 shares. Shares outstanding, according to the shareholders list, were understated in the company's then - current form 10-K by 325,759 shares. Current management has not found what it considers to be adequate substantiation that the Company was not over-capitalized when the 60,000 shares were issued. Because of this, the recipients of the shares have been requested to return the shares to the company. This request has been refused by all recipients.
Note 6 - As shown in the financial statements, the Company incurred net losses of $29,023, $34,788 and $51,353, during the years ending December 31, 1998, 1997, and 1996, respectively, and on these dates, the Company's current liabilities exceeded current assets by $44,979, $96,302and $78,764. These factors indicate doubt as to the ability of the Company to continue business on a going concern basis. Current liabilities at December 31, 1998 include advances payable to H.F. Magnuson & Co. of $86,100 plus accrued interest of $12,632. These liabilities are being disputed by the Company and subsequent to December 31, 1997 have become involved in litigation which is still ongoing as of December 31, 1998. The Company has taken the position that the advances and accrued interest are not valid claims against the Company. The financial statements do not include any adjustments relating to the recoverability of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the company be unable to continue in existence.
Note 7 - Statements of income, cash flows, and shareholders' equity since the inception of the Company, September 16, 1929, through December 31, 1998 have not been presented. Generally accepted Accounting principles require that such statements be presented when financial statements purport to present financial position and results of operations for a development stage company.
Early records of income and expense for the Company are incomplete.
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INDEPENDENT LEAD MINES COMPANY Form 10-K Annual Report For the year ended December 31, 1998
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Name of Executive Officers and Directors Brief profile of And Position Held Age Officers and Directors - ------------------ ---- -----------------------
Bernard C. Lannen 62 Semi Retired President and Director Director of Lucky Friday Extension Mining Company
Wayne L. Schoonmaker 62 Certified Public Accountant Secretary/Treasurer Secretary/Treasurer of Hanover Gold Company Inc. Treasurer of Metalline Mining Company.
Forrest G. Godde 82 President of Corporate Ranches in Director California and Nevada, Director of Mineral Mountain Mining
Robert Bunde 60 Semi retired farmer with investments in Director The mining field.
Gordon Berkhaug 64 Management of real estate investments Director With experience in the mining field
The by-laws of the Company provide that the Directors serve until the next annual meeting of shareholders or until their respective successors have been duly elected and qualified. Officers serve at the discretion of the Board of Directors.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
(a) The following table sets forth all remuneration paid by the Company during the fiscal year ended December 31, 1998, for services in all capacities to all directors and executive officers of the Company.
Name of Individual Capacities in Or Number in Group Which served Compensation - -------------------- ---------------- ------------------
Five persons in the All executive -0- group officers and Directors as a group
No retirement benefit, bonus or other remuneration plans are in effect with respect to the Company's officers and directors.
The Company has no standard or other arrangements for compensating directors.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
To the knowledge of the Company, no person beneficially owned more than five percent (5%) of any class of the Registrant's voting securities as of January 31, 1999.
The following tabulation shows the beneficial ownership's of the Company's officers and directors in the securities of the Company as of January 31, 1999:
All directors and executive officers of the Company as a group (5 persons in a group) own 490,857 shares or approximately 11.23 percent of the Company are outstanding voting securities.
(1) Includes 45, 000 shares that represent Mr. Godde's 50% interest in the Godde 1980 Trust.
During 1998, the Company had a private placement of 50,000 shares, primarily to the Company's officers and directors. The purpose of the private placement was to raise working capital for company operations. The Company realized $75,000 from the sale.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION
Not applicable.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(b) 1. Financial Statements - See index to Financial Statements at page 12 of this report
2. Financial Statement Schedules V - Statement of Property, Plant and Equipment, Page 25
Other financial statement schedules are omitted because of conditions under which they are required, or because the required information given in the financial statements or notes thereto.
(c) The company filed its report on Form 8-K during the last quarter of 1992.
(d) Exhibits - No additional exhibits are filed as a part of this report. The Exhibit Index appears at Page 23 of this report.
INDEPENDENT LEAD MINES COMPANY Form 10-K Annual Report For the year ended December 31, 1998
EXHIBIT INDEX
Exhibits
3.1 Articles of Incorporation of Independence Lead Mines, Inc., as amended, previously filed as Exhibit 3.1 to form 10-K for 1983 and incorporated by reference herein.
3.2 Bylaws of Independence Lead Mines Company, as amended, previously filed as Exhibit 3.2 to form 10-K for 1983 and incorporated by reference herein.
10.1 Unitization Agreement dated February 8, 1968 among Day Mines, Inc., Independence Lead Mines company and Abot Mining Company, previously filed as Exhibit 10.1 to Form 10-K for 1983 and incorporated by reference herein.
10.2 Agreement dated February 8, 1968 among Hecla Mining Company, Day Mines, Inc., Independence Lead Mines Company and Abot Mining Company, previously filed Exhibit 10.2 to Form 10-K for 1983 and incorporated by reference herein.
10.3 Agreement dated February 8, 1968 among Independence Lead Mines Company, Day Mines, Inc., Abot Mining Company, Wall Street Mining Company, Hunter Creek Mining Company, Lucky Friday Extension Mining Company, Hecla Mining Company and the Bunker Hill Mining Company relating to extralateral and intralimital rights to mining claims, previously filed as Exhibit 10.7 to Form 10-K for 1983 and incorporated by reference herein.
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INDEPENDENCE LEAD MINES COMPANY (AN EXPLORATION STAGE COMPANY)
PROPERTY, PLANT AND EQUIPMENT FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
SIGNATURES
Pursuant to the requirement of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be sign on its behalf by the undersigned, thereunto duly Authorized.
INDEPENDENCE LEAD MINES COMPANY
By: /s/ Bernard C. Lannen ----------------------------- Bernard C. Lannen, its President and Chief Administrative Officer Dated: March 13, 1999
By: /s/ Wayne L. Schoonmaker ------------------------------ Wayne L. Schoonmaker, its Principal Accounting Officer Dated: March 13, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and as of the date indicated.
By: /S/ BERNARD C. LANNEN By: /S/ WAYNE L. SCHOONMAKER --------------------- ------------------------ Bernard C. Lannen Wayne L. Schoonmaker Director Secretary and Treasurer Dated: March 13, 1999 Dated: March 13, 1999
By: /S/ FORREST G. GODDE By: /S/ GORDON BERKHAUG -------------------- ------------------- Forrest G. Godde Gordon Berkhaug Director Director Dated: March 13, 1999 Dated: March 13, 1999
By: /S/ ROBERT BUNDE ---------------- Robert Bunde Director Dated: March 13, 1999