10-Q 1 r10q2id2l.txt INDEPENDENCE LEAD MINES COMPANY 2ND QRT 2002 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ___________ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to ________ Commission file number: 1-316 INDEPENDENCE LEAD MINES COMPANY (Exact name of registrant as specified in its charter) Arizona 82-0131980 (State or other jurisdiction (IRS Employer Identification No.) of incorporation) 510 Cedar Street Wallace, Idaho 83873 (Address of principal executive offices) Registrant's telephone number, including area code: (208) 753-2525 Common Stock None Title of each class Name of each exchange on which registered Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period as the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of outstanding shares of the registrant's common stock at August 1, 2002 was 4,175,357 shares. INDEPENDENCE LEAD MINES COMPANY QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002 TABLE OF CONTENTS Page PART I - FINANCIAL INFORMATION Item 1: Financial Statements . . . . . . . . . . . . . . . . 1 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations . . . 1 PART II - OTHER INFORMATION Item 1: Legal Proceedings . . . . . . . . . . . . . . . . . 2 Item 2: Changes in Securities . . . . . . . . . . . . . . . 3 Item 3: Defaults upon Senior Securities . . . . . . . . . . 3 Item 4: Submission of Matters to a Vote of Security Holders . 3 Item 5: Other Information . . . . . . . . . . . . . . . . . . 3 Item 6: Exhibits and Reports on Form 8-K . . . . . . . . . . 3 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . F/S 6 [The balance of this page has been intentionally left blank.] PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. The unaudited financial statements of the Company for the periods covered by this report are included elsewhere in this report, beginning at page F/S-1. The unaudited financial statements have been prepared by the Company in accordance with generally accepted accounting principles for interim financial information with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company's management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six-month period ended June 30, 2002 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2002. For further information refer to the financial statements and footnotes thereto in the Company's Annual Report on Form 10-K for the year ended December 31, 2001 incorporated by reference herein. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS FOR THE PERIOD ENDED JUNE 30, 2002. Six months Ended June 30, 2002 Compared to six months Ended June 30, 2001. During the six months ended June 30, 2002 the Company realized no income other than interest income of $1,260. General and administrative expenses decreased to $11,166 for the six-month period ended June 30, 2002 as compared to $14,525 for the six- month period ended June 30, 2001. This decrease is principally attributed to reduced consulting and legal expenses incurred in 2002. For the quarter ended June 30, 2002, the Company experienced a net loss of $5,381, or $0.001 per share, compared to a net loss of $8,577, during the comparable period in the previous year. LIQUIDITY AND CAPITAL RESOURCES. The Company is the owner of fifteen patented and seventeen unpatented mining claims. This claim group ("the property") is situated Northwest of Hecla Mining Company's Lucky 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 Property) was unitized with certain adjoining and near-by properties owned by 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. 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 -1- 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% 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. 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. 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. Until March, 2002 the Company received an advance royalty of $1,500 per month, which was recorded in the financial statements as deferred income. Because of problems with Hecla Mining Company over the management of the DIA area (see below), the Company in early March 2002 notified Hecla that it considers the DIA lease terminated and as a result will no longer accept advance royalty payments. Since June 30, 1999 the Company has experienced substantial differences with the Lesee. To establish a greater understanding of the DIA Project, Independence commissioned Mine Systems Design, Inc to conduct an overview of the Project. Under Hecla's management, as of December 31, 2001 more than 944 tons have been mined and milled while incurring more than $15,000,000 of additional DIA Project debt. We believe the record indicates the DIA Project was not viable to undertake the mining method chosen and the existing economic conditions, and did not justify the startup of a large mining operation on the Lessor's property. Because we believe this action by Hecla's management resulted in the waste of the resource, the Company gave written notice to Hecla Mining Company on March 1, 2002 of termination of the February 8, 1968 Lease Agreement and called for arbitration under the terms of the Agreement. Subsequently, both parties agreed to waive the arbitration provisions of the Lease Agreement and go to trial (see "Item 1. Legal Proceedings." below). In search for justice the Company has already invested a great deal of time and expense in an overview of the DIA Project. This will help expedite the process of preparing for trial. Management is very confident, but neither the timing nor outcome of the Company's Complaint for Declaratory Judgment, Injunctive Relief and Damages can be known at this time. The current officers and directors of the Company serve without compensation and are not considered by the Company to be employees. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Company has retained the Boise law firm of Mareus, Merrick, Christian and Hardez, and in early March 2002, the Company gave notice of termination of the 1968 Lease Agreement covering the DIA Project, which is Hecla's principle operation at it's Lucky Friday mine near Mullan, Idaho. Both parties agreed to waive arbitration and go to trial without a jury. In late June 2002 the Company's attorneys filed a complaint in the District Court of the First Judicial District of the State of Idaho, in and for the County of Kootenai. -2- ITEM 2. CHANGES IN SECURITIES. Neither the constituent instruments defining the rights of the registrant's securities holders nor the rights evidenced by the registrant's outstanding common stock have been modified, limited, or qualified. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. The registrant has no outstanding senior securities. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of the registrant's security holders during the period covered by this report. ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. EXHIBITS. The following exhibit is filed as part of this report: Exhibit 27.0 Financial Data Schedule REPORTS ON FORM 8-K. No reports on Form 8-K were filed by the registrant during the period covered by this report. [The balance of this page has been intentionally left blank.] -3- INDEPENDENCE LEAD MINES COMPANY TABLE OF CONTENTS PAGE Balance Sheets as of June 30, 2002 and December 31, 2001 . . . . . . . . . . . . . . . . . F/S-2 Statements of Operations for the three Months Ended June 30, 2002 and 2001 and for the six months Ended June 30, 2002 and 2001 . . . . . . . . . . . . . . . . . . . . . . . F/S-3 Statements of Cash Flow for the six Months Ended June 30, 2002 and 2001 . . . . . . . . . . F/S-4 Notes to Interim Financial Statements . . . . . . . . . . F/S-5 Signatures . . . . . . . . . . . . . . . . . . . . . . . F/S-6 [The balance of this page has been intentionally left blank.] F/S - 1 INDEPENDENCE LEAD MINES COMPANY (AN EXPLORATORY STAGE COMPANY) BALANCE SHEET - UNAUDITED

ASSETS ~~September~~JUNE 30, ~~2001~~2002 ~~December~~DECEMBER 31, ~~2000~~2001 ----------~~---~~ ------------- CURRENT ASSETS: Cash $ ~~163~~162,~~260~~234 $ ~~196~~167,~~726~~674 Royalties ~~& Interest~~ Receivable ~~1,500~~0 1,500 Investments 1,006 1,006 ----- ----- Total current assets ~~165~~163,~~766~~240 ~~199~~170,~~232~~180 ------ ------ PROPERTY AND EQUIPMENT, at cost: Equipment 0 0 Less accumulated depreciation 0 0 ---- ---- 0 0 Mining property 2,945,407 2,945,407 ------ ------ Total property and equipment 2,945,407 2,945,407 OTHER ASSETS: Unrecovered exploration costs 187,920 187,920 ----- ----- Total assets $3,~~299~~296,~~093~~567 $ 3,~~332~~303,~~559~~507 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 511,~~050~~426 $ 1210,~~389~~926 ~~Advances payable 0 0 Interest payable 0 0 Loans from Shareholders 0 0~~ Income taxes accrued (~~refund due) (2~~1,~~314~~835) ~~13,650~~536 ----- ----- Total current liabilities 29,~~736~~591 2611,~~039~~462 ----- ----- DEFERRED INCOME: ~~351~~359,~~500~~000 ~~337~~356,~~250~~000 ------ ------ STOCKHOLDERS' EQUITY: Common Stock, $1.00 par value, ~~Authorized~~authorized 5,000,000 shares; issued 4,308,793 and outstanding 4,175,357 shares at 12/31/0001; issued 4,308,793 and outstanding 4,175,357 shares at 0906/30/0102. 4,308,793 4,308,793 Treasury Stock Additional (55,290) (55,290) ~~Additional~~ Paid-In Capital (Deficit) (108,293) (108,293) ------ ------ 4,145,210 4,145,210 Less deficit accumulated during the exploration stage (1,~~200~~217,~~353~~234) (1,~~175~~209,~~940~~165) ------- ------- Total Stockholders equity 2,~~944~~927,~~857~~976 2,~~969~~936,~~270~~045 -------- -------- Total liabilities and stockholders' equity $3,~~299~~296,~~093~~567 $3,~~332~~303,~~559~~507 ======= ======= The accompanying notes are an integral part of these financial statements.

F/S - 2 INDEPENDENCE LEAD MINES COMPANY (AN EXPLORATORY STAGE COMPANY) STATEMENTS OF OPERATIONS AND DEFICIT ACCUMULATED DURING THE EXPLORATION STAGE - UNAUDITED

~~Quarter~~QUARTER ~~Nine~~SIX ~~Months~~MONTHS ~~Quarter~~QUARTER ~~Nine~~SIX ~~Months~~MONTHS ~~Ended~~ENDED ~~Ended~~ENDED ~~Ended~~ENDED ~~Ended~~ENDED ~~Sept.~~JUNE 30, 0102 ~~Sept.~~JUNE 30, 0102 ~~Sept.~~JUNE 30, 0001 ~~Sept.~~JUNE 30, 0001 ----------- ----------- ----------- ----------- REVENUE $ 0 $ 0 $ 0 $ 0 ~~--- --- --- ---~~ EXPENSES Consulting 32,~~150~~406 105,~~534~~163 6,~~300~~709 87,~~775~~384 Licenses and fees 048 48 ~~300~~48 ~~1,116~~48 Office expense ~~985~~519 ~~1,023~~519 0 ~~343~~38 Office services 150 ~~450~~300 150 ~~450~~300 Shareholder and Public Relations ~~5,050~~270 ~~6,612~~770 ~~348~~727 21,~~773~~562 Transportation and Travel 1,~~493~~648 1,~~493~~648 0 ~~4,236~~0 Accounting 0 870 0 ~~923~~87 Legal 52,~~368~~463 102,~~474~~718 3,~~409~~996 95,~~208~~106 ----- ----- ----- ----- Total expenses 167,~~196~~504 3011,~~721~~166 1011,~~507~~630 2714,~~824~~525 ----- ------ ------ ------ LOSS FROM OPERATIONS ($167,~~196~~504) ($3011,~~721~~166) (1011,~~507~~630) (2714,~~824~~525) OTHER INCOME AND (EXPENSE) Interest, net 618 1,~~370~~260 51,~~854~~886 ~~2,909~~ 4,~~972~~484 ~~Legal settlement 0 0 0 358,085~~ --- ----- ----- ----- Total other income $618 $1,~~370~~260 $51,~~854~~886 2$4,~~909~~484 ~~363,057~~ ---- ----- ----- ----- NET INCOME (LOSS) ~~before~~BEFORE ~~income~~INCOME ~~taxes~~TAXES (146,~~826~~886) (249,~~867~~906) (79,~~598~~744) ~~335~~(10,~~233~~041) Provision for income taxes (~~227~~1,505) (~~454~~1,837) (1,~~800~~167) (~~10,500~~227) ----- ----- ----- ----- NET INCOME (LOSS) ($145,~~599~~381) ($248,~~413~~069) ($58,~~798~~577) ($~~324~~9,~~733~~814) DEFICIT, accumulated during the exploration stage, beginning of period $($1,~~185~~211,~~754~~853) ($1,~~175~~209,~~940~~165) $($1,~~150~~177,~~883~~177) ($1,~~481~~175,~~414~~940) ~~----- ----- ----- -----~~ DEFICIT, accumulated during the exploration stage, end of period ($1,~~200~~217,~~353~~234) ($1,~~200~~217,~~353~~234) ($1,~~156~~185,~~681~~754) ($1,~~156~~185,~~681~~754) ========== ========== ========== ========== Income (Loss) per share ($0.~~003~~001) ($0.~~006~~002) ($0.~~001~~002) ($0.~~077~~003) Weighted average common shares outstanding 4,175,357 4,175,357 4,~~193~~175,357 4,~~238~~175,357 ~~____________________~~----------------------- The accompanying notes are an integral part of these financial statements.

F/ S - 3 INDEPENDENCE LEAD MINES COMPANY (AN EXPLORATORY STAGE COMPANY) STATEMENTS OF CASH FLOW - UNAUDITED

~~Nine~~SIX ~~Months~~MONTHS ~~Nine~~SIX ~~Months~~MONTHS ~~Ended~~ENDED ~~Ended~~ENDED ~~September~~JUNE 30, ~~2001~~2002 ~~September~~JUNE 30, ~~2000~~2001 ----------~~---~~ ----------- Operating Activities: Net income (loss) ($248,~~413~~069) ($ ~~324~~9,~~733~~814) Adjustments to reconcile net loss to net cash used in operating activities: 0 0 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable 01,500 0(1,200) Increase (decrease) in accounts payable ~~(7,339)~~500 (245,~~511~~436) Increase (decrease) in advances payable 0 ~~(86,100)~~0 Increase (decrease) in deferred income 143,~~250~~000 139,~~500~~000 Increase (decrease) in interest payable 0 ~~(20,381)~~0 Increase (decrease) in taxes payable (152,~~964~~371) 10(15,~~500~~227) ----- ----- Net cash used in operating activities (335,~~466~~440) ~~217~~(22,~~741~~677) ---- ---- Investing activities: Purchase of Company's capital stock 0 ~~(36,095)~~0 --- ----- Net cash used in investing activities 0 ~~(36,095)~~0 --- ---- Financing activities: Proceeds from the sale of Land 0 ~~103,000~~0 Retirement of director's shares 0 ~~(48,000)~~0 Repurchase and retirement of common stock 0 ~~(1,500)~~0 Repayment of long-term debt 0 ~~(42,000)~~0 --- ---- Net cash provided by financing activities 0 ~~(11,500)~~0 --- ---- Net increase (decrease) in cash (335,~~466~~440) ~~193~~(22,~~146~~677) Cash and cash equivalent, beginning of period 167,674 196,726 ~~5,298~~ ----- ----- Cash and cash equivalent, end of period $ ~~163~~162,~~260~~234 $ ~~198~~174,~~444~~049 ====== ====== Disclosure of accounting policy For the ~~nine~~six months ended ~~September~~June 30, ~~2001~~2002 and ~~September~~June 30, ~~2000~~2001, the Company had no cash equivalents. Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $ 0 $ ~~916~~0 Income taxes 15536 10,~~510~~200 30 The accompanying notes are an integral part of these financial statements.

F/S - 4 NOTES TO INTERIM FINANCIAL STATEMENTS - UNAUDITED Financing information presented in the Company's quarterly reports follow the policies set forth in its Annual Report on Form 10-K filed with the Securities and Exchange Commission. In accordance with generally accepted accounting principles for interim financial information, the instructions to Form 10-Q, and Rule 10-01 of Regulation S-X, these quarterly reports do not include all of the information and footnotes. In the opinion of the Company's management, all adjustments (consisting of only normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six-month period ended June 30, 2002 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2002. 1. Nature of 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 Lucky Friday Mine in the Coeur d'Alene Mining District, Shoshone County Idaho. The Company's property is part of the "DIA Area" which is currently being developed and mined by Hecla Mining Company. The Company has been in the development stage since its inception. The Company's only recurring source of funds has been a monthly advance royalty from Hecla Mining Company of $1,500. In March 2002, the Company notified Hecla Mining Company that it considers the DIA Lease terminated and as a result will no longer accept advance royalty payments. The Company has incurred operating losses since inception; these factors indicate doubt as to the ability of the company to continue business as a going concern basis. The financial statements do not contain any adjustments, which might be necessary if the Company is unable to continue as a going concern. 2. Common stock: In September 1997 the capitalization of the Company was increased from 4,000,000 shares to 5,000,000 shares. During the three months ended March 31, 2000 the Company purchased 47,000 shares of the Company's common stock on the open market at an average price of $0.49 per share. These purchases bring the total treasury shares held by the Company to 85,436 shares. There were no stock purchases in the six months ended June 30, 2002 and 2001. [The balance of this page has been intentionally left blank.] F/S - 5 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INDEPENDENCE LEAD MINES COMPANY By: /s/ Bernard C. Lannen ------------ Bernard C. Lannen, its President Date: August 01, 2002 By: /s/ Wayne Schoonmaker ------------ Wayne Schoonmaker, its Principal Accounting Officer Date: August 01, 2002 F/S-6

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