SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
Commission file number 0-10104
LA TEKO RESOURCES LTD.
(Exact name of Registrant as specified in its charter)
British Columbia, Canada 87-0483319
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
625 Howe St., #500
Vancouver, B.C. V6C 2T6
(Address of principal executive offices) (Zip Code)
(604) 688-0833
(Registrant's telephone number, including area code)
N/A
Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of September 30, 1997, the registrant had 23,467,358 shares of its common
stock issued and outstanding.
LA TEKO RESOURCES LTD.
Financial Information
Item 1- FINANCIAL STATEMENTS
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-Q and do not include all of the
information and note disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with the financial
statements and notes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1996. The accompanying financial
statements have not been examined by independent accountants in accordance with
generally accepted auditing standards, but in the opinion of management such
financial statements include all adjustments (consisting only of normal
recurring adjustments) necessary to summarize fairly the Company's financial
position and results of operations.
La Teko Resources Ltd.
CONSOLIDATED STATEMENTS OF OPERATIONS
(EXPRESSED IN U.S. DOLLARS)
(Unaudited)
Three months
ended September 30,
1997 1996
--------- ---------
EXPENSES
General and administrative expenses $ 129,864 140,412
Operating and mine maintenance costs 116,929 129,166
Royalty and lease 37,500 37,500
Depreciation 14,247 14,243
New prospect evaluation - 3,171
---------- ---------
298,540 324,492
---------- ---------
Loss from operations before other items
and income taxes (298,540) (324,492)
OTHER ITEMS
Interest income (expense) 12,569 (283)
---------- ---------
Net loss before income taxes (285,971) (324,775)
Income taxes - (4,797)
---------- ---------
NET LOSS $(285,971) (329,572)
========= ========
NET LOSS PER SHARE $ (0.012) (0.014)
========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING 23,459,783 23,418,106
========== ==========
The accompanying notes are an integral part of these financial statements.
La Teko Resources Ltd.
CONSOLIDATED STATEMENTS OF OPERATIONS
(EXPRESSED IN U.S. DOLLARS)
(Unaudited)
Nine months ended
September 30,
1997 1996
--------- ---------
EXPENSES
General and administrative expenses $ 691,340 667,167
Operating and mine maintenance costs 218,215 234,499
Royalty and lease 112,500 112,500
Depreciation 42,811 41,040
New prospect evaluation - 42,504
---------- ----------
1,064,866 1,097,710
---------- ----------
Loss from operations before other items
and income taxes (1,064,866) (1,097,710)
OTHER ITEMS
Interest income 58,870 7,164
Gain on sale of equipment 1,581 7,407
Loss on abandonment of furnishings and equipment (4,505) -
---------- ----------
Net loss before income taxes (1,008,920) (1,083,139)
Income taxes - (4,797)
---------- ----------
NET LOSS $(1,008,920) (1,087,936)
========== =========
NET LOSS PER SHARE $ (0.043) (0.046)
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 23,464,833 23,374,064
========== ==========
The accompanying notes are an integral part of these financial statements.
LA TEKO RESOURCES LTD.
CONSOLIDATED BALANCE SHEET
(EXPRESSED IN U.S. DOLLARS)
(Unaudited)
September December
31, 1997 31, 1996
CURRENT ASSETS ---------- ----------
Cash and short-term deposits $1,068,175 3,041,205
Accounts receivable 44,563 15,918
Inventories 1,574 6,295
Prepaid expenses 55,024 200,845
---------- ----------
Total current assets 1,169,336 3,264,263
Mineral properties and deferred costs 11,121,284 10,515,140
Plant and equipment 226,989 210,716
Investments 500,913 500,913
---------- ----------
$13,018,522 14,491,032
========== ==========
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 95,628 194,718
Current portion of long-term debt - 372,500
---------- ----------
Total current liabilities 95,628 567,218
SHAREHOLDERS' EQUITY
Common capital stock; no par value;
authorized: 100,000,000 shares; issued
and outstanding: 23,467,358
(1996: 23,426,258) 18,225,342 18,217,342
Accumulated deficit (5,302,448) (4,293,528)
---------- ----------
12,922,894 13,923,814
---------- ----------
$13,018,522 14,491,032
========== ==========
The accompanying notes are an integral part of these financial statements.
La Teko Resources Ltd.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(EXPRESSED IN U.S. DOLLARS)
(Unaudited)
For years ended December 1995 and 1996,
and nine months ended September 30, 1997 and 1996
Common Stock Accumulated
Shares Amount Deficit Total
---------- ---------- ---------- ----------
Balance,
December 31, 1994 36,287,809 23,052,479 (4,884,456) 18,168,023
1995
Common stock issued for:
Public offering sales 70,520 177,005 - 177,005
Exercise of warrants 371,120 814,061 - 814,061
Short swing profits - 2,100 - 2,100
Less offering costs - (45,360) - (45,360)
Compensatory stock options - 64,190 - 64,190
Net loss - - (364,857) (364,857)
---------- ---------- ---------- ----------
441,640 1,011,996 (364,857) 647,139
---------- ---------- ---------- ----------
Balance,
December 31, 1995 36,729,449 24,064,475 (5,249,313) 18,815,162
1996
Common stock issued for:
Exercise of options 138,780 222,048 - 222,048
Compensatory
stock options - 188,125 - 188,125
Net income - - 955,785 955,785
---------- ---------- ---------- ----------
138,780 410,173 955,785 1,365,958
---------- ---------- ---------- ----------
Balance,
December 31, 1996 36,868,229 24,474,648 (4,293,528) 20,181,120
Nine months ended
September 30, 1997
Common stock issued for:
Exercise of options 5,000 8,000 - 8,000
Other 5,100 - - -
Net loss - - (1,008,920) (1,008,920)
10,100 8,000 (1,008,920) (1,000,920)
---------- ---------- ---------- ----------
Balance,
September 30, 1997 36,878,329 24,482,648 (5,302,448) 19,180,200
---------- ---------- ---------- ----------
Less treasury shares (13,410,971) (6,257,306) - (6,257,306)
---------- ---------- ---------- ----------
Balance,
September 30, 1997 23,467,358 $18,225,342 $(5,302,448) $12,922,894
========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
La Teko Resources Ltd.
CONSOLIDATED STATEMENT OF CASH FLOWS
(EXPRESSED IN U.S. DOLLARS)
(Unaudited)
Nine months ended
September 30,
1997 1996
Cash flows from operating activities ---------- -----------
Net loss $(1,008,920) (1,087,936)
Charges (credits) to operations not affecting cash:
Depreciation 42,811 41,040
Loss on abandonment of furnishings and equipment 4,505 -
Gain on sale of investment (1,581) (7,407)
Compensatory stock options - 66,000
---------- ---------
(963,185) (988,303)
Net changes
Decrease in accounts receivable and
pre-paid expenses 121,897 235,719
Decrease in accounts payable and
accrued expenses (99,090) (176,642)
---------- ---------
Net cash used in operating activities (940,378) (929,226)
Cash Flows from Investing Activities
Exploration costs capitalized (406,326) (188,037)
Investment in mineral properties (199,818) (84,436)
Purchase of plant and equipment (65,464) (57,703)
Proceeds from sale of equipment 3,456 -
Proceeds from sale of investment - 9,800
Investment in corporate securities - (269,844)
---------- ---------
Net cash used in investing activities (668,152) (590,220)
---------- ---------
Cash Flows From Financing Activities
Reduction of debt (372,500) (398,085)
Cash proceeds from issuance of common stock 8,000 172,448
---------- ---------
Net cash used in financing activities (364,500) (225,637)
---------- ---------
Net decrease in cash and cash equivalents (1,973,030) (1,745,083)
Cash and cash equivalents, beginning of period 3,041,205 2,972,278
---------- ---------
Cash and cash equivalents, end of period $1,068,175 1,227,195
========== =========
The accompanying notes are an integral part of these financial statements.
La Teko Resources Ltd.
CONSOLIDATED STATEMENT OF CASH FLOWS
(EXPRESSED IN U.S. DOLLARS)
(Unaudited)
Nine months ended
September 30,
1997 1996
Supplemental Disclosures of Cash Flow Information ----------- ----------
Cash paid during the period for interest $ 2,562 81,303
Cash paid during the period for income taxes $ - 4,797
Supplementary Schedule of Non-cash Investing and Financing Activities
Depreciation capitalized into deferred costs $ - -
Stock issued as bonus compensation $ - -
La Teko Resources Ltd.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS)
(Unaudited)
Nine months ended September 30, 1997 and 1996
1. SHARE CAPITAL
Authorized - 100,000,000 shares having no par value
Issued - 23,467,358
During the third quarter no shares were issued or options granted.
Options outstanding at September 30, 1997:
Number Price Expire
------- ----- -------------
200,000 $1.60 11/16/2000-03
100,000 $1.60 11/24/2000-03
100,000 $2.50 03-14-2001
200,000 $2.41 06/18/2001-04
500,000 $1.85 12-10-2001-04
200,000 $1.60 01/31/1998
100,000 $2.13 04/01/1998-99
149,000 $1.60 08/17/1999
105,935 $1.60 11/16/2000
Warrants Outstanding - None
2. SALE OF MINERAL PROPERTY
On July 10, 1997, the Company has entered into a letter of intent with Silverado
Gold Mines Ltd. ("Silverado") for Silverado to acquire a right to purchase all
its interest in the Ryan Lode property for $12,000,000.
Silverado will be required to pay the Company $500,000 on its election to
purchase the property after a due diligence period commencing with VSE approval.
Annual payments thereafter are $300,000 after year 1, $400,000 after year two
and $700,000 after year three. Silverado will commit minimum expenditures on
the property of $1,000,000 for each of the three years, including the costs of
ongoing reclamation, property maintenance and advance royalty payments.
After the three years Silverado will have 18 months to construct a milling
facility and to place the property into production. At that time Silverado will
be required to pay $3,000,000 with the balance of the purchase price six months
thereafter. Should the property not proceed into production within 18 months,
the purchase can be extended with annual payments of $500,000, with 75% of such
amounts credited against the purchase price.
At September 30, 1997 Silverado was continuing to complete its due diligence
review of the property and the Company, assuming Silverado's procedures are
completed to their satisfaction, expects to complete the transaction by November
30, 1997.
LA TEKO RESOURCES LTD.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The Company is in the business of exploration and development of mineral
properties, with two advanced-stage projects, True North and Ryan Lode, and five
early stage exploration projects. The Company has provided for recent years'
operations primarily from the receipt of funds from Newmont pursuant to the True
North JV Agreement and the cash proceeds from issuance of common stock. It is
anticipated that the $1,068,175 cash on hand September 30, 1997 is sufficient to
cover expenditures required for the balance of 1997.
All dollar amounts included herein respecting Management's Discussion and
Analysis are in U.S. dollars except where noted otherwise as Canadian dollars
(CAN).
Capitalized Costs
Costs of acquisition and deferred exploration expenditures associated with the
Company's mineral properties are summarized as follows:
Project Balance Capitalized Additions Balance
December 31, 1996 (Deletions) 1997 09/30/97
- ---------- ----------------- --------------------- ----------
True North 0.00 154,818.00 154,818.00
Ryan Lode 9,795,939.00 172,830.00 9,968,769.00
Margarita 426,194.00 3,925.00 430,119.00
Juniper 168,505.00 47,405.00 215,910.00
Twin Buttes 57,634.00 163,479.00 221,113.00
Lucky Gulch 31,313.00 7,250.00 38,563.00
Discovery 35,555.00 56,437.00 91,992.00
------------- ---------- -------------
Total Mineral Properties
and Deferred Costs 10,515,140.00 606,144.00 11,121,284.00
Results of Operations
Income
The Company has not received operating revenues during any of the last three
years and will not have income from sales of mineral product in 1997.
Expenses
During the first three quarters of 1997, the Company expended $606,144 for
capitalized costs associated with the acquisition, exploration and development
of its mineral properties compared to $272,473 which was expended during the
comparable period of 1996. The increase was due primarily to $154,818 paid to
Newmont for the Company's 35% share of the initial acquisition costs for a
number of new properties added to the True North JV. The increased reclamation
activity at the Ryan Lode property as well as more intensive exploration
programs on the Twin Buttes and Discovery projects account for the balance of
the increase in capitalized costs.
General and administrative expenses, including corporate and project overhead
increased to $691,340 for the first nine months of 1997 as compared to $667,167
for the same nine month period for 1996. Most of this difference was in the
first quarter, as the third quarter 1997 result, $129,864, is a reduction from
the third quarter 1996, $140,412.
Operating and mine maintenance costs were $218,215 for the first nine months of
1997 as compared to $234,499 in the first nine months of 1996, again reflecting
reclamation and environmental monitoring activities at the Ryan Lode project.
During the third quarter 1997 the costs were $116,929, a reduction from the
$129,166 expended in the third quarter of 1996.
Royalty and lease payments were identical at $112,500 and $37,500 for the nine
month periods and third quarters, respectively, of both years.
Net interest income for the first nine months of 1997 was $58,870 compared with
$7,164 for the comparable nine months of 1996. The third quarter 1997 interest
income was $12,569 compared to interest expense of $283 in the third quarter of
1996. The increase in interest income in the 1997 nine month and quarterly
periods reflects the reduction in interest expense resulting from the redemption
of the Company's debentures. The Company currently has no debt.
Depreciation was approximately equal for the nine month periods ended September
30, 1997 and 1996 and the third quarters of 1997 and 1996.
Liquidity and Capital Resources
During the first nine months of 1997, the Company has relied on its December 31,
1996 cash on hand of $3,040,205 to fund its requirements for general and
administrative costs, ongoing exploration and development projects, and
redemption of debentures.
At September 30, 1997, the Company had working capital of approximately
$1,074,000 compared with $2,697,000 at December 31, 1996. The Company believes
that it has sufficient working capital to meet its anticipated expenditures for
the remainder of 1997.
During the nine months of 1997, cash flows from operating activities used
approximately $940,000, investing activities $668,000, primarily respecting
capitalized exploration costs, and $372,500 for the redemption of convertible
debentures. The third quarter increase in capitalized exploration costs
reflects the increased exploration activity during the summer. Remaining cash
requirements for 1997 will be provided for from current cash reserves.
On July 16, 1997, the Company announced that it had entered into a letter of
intent for the sale of its Ryan Lode property to Silverado Gold Mines , Ltd.
("Silverado") for $12 million. In order to maintain its right to purchase the
Ryan Lode property near Fairbanks, Alaska, Silverado is required to make
payments to La Teko over a five year period with an initial payment of $500,000
to be made after its due diligence which will allow for completion of an
independent environmental report on the property, scheduled to be completed by
the end of November. Annual payments thereafter will include $300,000 after
year one, $400,000 after year two, and $700,000 after year three. In order to
maintain its purchase right, Silverado will also complete minimum expenditures
on the Ryan Lode property of $1 million in each of the first three years,
including the costs of ongoing reclamation, property maintenance as well as
advance royalty payments. After the third year, Silverado will have 18 months
to complete construction and place the property into production. Once the mill
has been running for 30 days, Silverado will make an additional $3 million
payment to La Teko, with the balance of $12 million to be paid six months
thereafter. Should the property not proceed into production within 18 months,
the purchase can be extended with annual payments of $500,000 to La Teko,
$375,000 of which will be credited against the purchase price.
The sale will relieve the Company of significant ongoing reclamation and
property maintenance. This sale represents an important strategic move for La
Teko, providing short term cash and relieving the Company of ongoing
environmental monitoring and reclamation costs as well as sizeable advance
royalty payments related to the Ryan Lode project. The sale will allow La Teko
to focus its attention on its key asset, the True North joint venture with
Newmont Exploration Limited, and other promising properties.
The Company will receive no further cash payments from Newmont under the True
North JV Agreement. Beyond 1997, the Company may require additional capital for
ongoing administrative, exploration, development and acquisition activities. In
order to meet such long-term needs, it will be necessary to obtain required
capital from the sale of securities, possible new joint ventures or similar
arrangements, project financing or other sources. There can be no assurance
that any required additional funds will be available or can be obtained on terms
favorable to the Company.
The Company has outstanding options exercisable during 1997 to purchase an
aggregate of 1,654,935 shares of common stock at an average exercise price of
$1.86 per share, for a total of $3,078,180 but cannot predict whether any
material number of such options will be exercised.
Projected 1997 Requirements
During 1997, the Company budgeted approximately $1,998,000 in capital to fund
the continuation of permitting and reclamation activities at the Ryan Lode mine
and related royalty payments, continue with the True North project under joint
venture with Newmont, undertake exploration of its other prospects and make
related minimum royalty and other property payments, evaluate and perhaps
acquire other potential prospects, retire $373,000 in convertible debentures,
and meet other ongoing operating expenses. The first nine months 1997
expenditures for these purposes were approximately $1,973,000. The sale of Ryan
Lode will offset some of these expenditures, although the bulk of the 1997
program will have been completed prior to closing of the sale.
Notwithstanding Newmont's announcement of its intent to continue with the True
North Joint Venture and that it is planning substantial additional exploration
and development work during 1997, decisions by Newmont respecting its True North
activities are beyond the ability of the Company to predict or control.
Provisions of the joint venture agreement are such that Newmont may withdraw
from the joint venture at its sole discretion. In the event of termination by
Newmont, the Company will re-acquire, at no cost, Newmont's 65% interest in the
True North project, including subsequently-acquired acreage, together with all
exploration data, and the Company will then become obligated for the continuing
carrying costs and expenses of the True North project.
Commitments and Contingencies
Operations are subject to certain lease and royalty obligations.
The Company carries insurance against property damage including insurance on its
machinery and equipment and motor vehicles and also comprehensive general
liability and liability policies applicable to motor vehicles. The Company has
elected not to insure against business interruption.
The Company cannot insure for environmental pollution and has elected not to
insure for mine cave-ins, flooding, earthquake and other possible natural
hazards consistent with industry practice. The Company may in the future be
exposed to contingencies and liabilities relating to the foregoing that may
arise under governmental regulations relating to the environment. The Company
is not aware of any existing material contingencies respecting compliance of its
previous activities with environmental requirements.
The Company has implemented procedures to minimize the possibility of chemical
spills, especially in its drilling and heap-leaching operations and utilizes a
patented process in the neutralization of cyanide and other chemical solutions
prior to disseminating liquids from its retention ponds into the environment.
Changing Prices, Currency Exchange Rates and Inflation
The value of the Company's properties and its proposed operations have been and
will continue to be affected generally by changes in gold prices. The Company's
ability to obtain exploration capital through joint ventures or other
arrangements with other mining firms and attract additional capital, if
required, through the sale of securities or borrowings on attractive terms are
also affected by gold prices. Such prices are subject to substantial
fluctuations that are beyond the ability of the Company to control or predict.
Although certain of the Company's costs and expenses are affected by the level
of inflation, inflation has not had a significant effect on the Company's
operations. Similarly, the Company's operations, all of which except for its
executive offices are located in the United States, are not materially affected
by fluctuations in the exchange rate between Canadian and US dollars.
Other
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share. This statement
establishes standards for computing and presenting earnings per share ("EPS")
and applies to entities with publicly-held common stock or potential common
stock. This statement simplifies the standards for computing EPS and makes them
comparable to international EPS standards. This statement is effective for
financial statements for both interim and annual periods ending after December
15, 1997. The Company is currently evaluating the impact of the recently issued
statement and will adopt the requirements for the year ending December 31, 1997.
The Company has reviewed all other recently issued, but not yet adopted,
accounting standards in order to determine their effects, if any, on the results
of operations or financial position of the Company. Based on that review, the
Company believes that none of these pronouncements will have a significant
effect on current or future earnings.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
The following exhibits are included as part of this report:
SEC
EXHIBIT REFERENCE
NUMBER NUMBER TITLE OF DOCUMENT LOCATION
Item 27. Financial Data Schedule
27.01 27 Financial Data Schedule This Filing
(1) Incorporated by reference from the current report on Form 8-K dated April
4, 1997.
(B) REPORTS ON FORM 8-K.
During the quarter ended September 30, 1997, the Company filed the
following reports
on Form 8-K:
DATE OF EVENT REPORTED ITEM REPORTED
July 16, 1997 Item 5. Other Events
July 21, 1997 Item 5. Other Events
August 13, 1997 Item 5. Other Events
September 17, 1997 Item 5. Other Events
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
LA TEKO RESOURCES LTD.
Date: November 13, 1997 By /s/Gerald G. Carlson
Chief Executive Officer, President, Chief
Financial Officer, and Director
23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF SEPTEMBER 30, 1997, AND STATEMENTS OF OPERATIONS FOR THE QUARTER
ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,642,830
<SECURITIES> 0
<RECEIVABLES> 122,214
<ALLOWANCES> 0
<INVENTORY> 3,148
<CURRENT-ASSETS> 1,768,192
<PP&E> 12,161,390
<DEPRECIATION> (685,238)
<TOTAL-ASSETS> 13,244,344
<CURRENT-LIABILITIES> 35,480
<BONDS> 0
<COMMON> 18,225,341
0
0
<OTHER-SE> (5,016,477)
<TOTAL-LIABILITY-AND-EQUITY> 13,244,344
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> (766,326)
<OTHER-EXPENSES> 43,377
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (722,949)
<INCOME-TAX> 0
<INCOME-CONTINUING> (722,949)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (722,949)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
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