SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-K/A
ANNUAL REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1997
Commission file number 0-10104
LA TEKO RESOURCES LTD.
(Name of small business issuer in its charter)
BRITISH COLUMBIA, CANADA 87-0483319
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Ientification No.)
SUITE 500, 625 HOWE ST. V6C 2T6
VANCOUVER, B.C. -------------------
- ------------------------------- (Zip Code)
Issuer's telephone number, including area code: (604) 688-0833
Securities registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
None None
Securities registered under Section 12(g) of the Act:
COMMON STOCK, WITHOUT PAR VALUE
Indicate by check mark whether the issuer registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 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
Indicate by check mark if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-BK is not contained in this form herein,
and no disclosure will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ].
The aggregate market price of the voting stock held by non-affiliates was
computed at the average closing bid and asked prices in the Small Capitalization
as quoted on the National Association of Securities Dealers Automatic Quotation
System closing sales price on The Nasdaq Stock Market ("NASDAQ") on March 18,
1998 was approximately $17,601,000.
As of March 18, 1998, the Company had outstanding 23,467,358 shares of its
common stock, without par value.
DOCUMENTS INCORPORATED BY REFERENCE. If the following documents are
incorporated by reference, briefly describe them and identify the part of Form
10-K (e.g., Part I, Part II, etc.) Into which the document is incorporated: (1)
any annual report to security holders; (2) any proxy or information statement;
and (3) any prospectus filed pursuant to rule 424(b) or (c) under the Securities
Act of 1933 ("Securities Act"). The listed documents should be clearly described
for identification purposes (e.g., annual report to security holders for fiscal
year ended December 31, 1990). NONE
Form 10-K filed by La Teko Resources Ltd. on March 31, 1998, is hereby
amended to include financial statements which were inadvertently omitted from
the original filing.
SIGNATURES
In accordance with section 13 or 15(d) of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: April 14, l998. LA TEKO RESOURCES LTD.
(Registrant)
By /s/ Gerald G. Carlson
Gerald G. Carlson, President (chief
executive and financial officer and
controller)
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
LA TEKO RESOURCES LTD.
VANCOUVER, BRITISH COLUMBIA
DECEMBER 31, 1997
1. AUDITORS' REPORT
2. CONSOLIDATED STATEMENTS OF OPERATIONS
3. CONSOLIDATED BALANCE SHEETS
4. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
5. CONSOLIDATED STATEMENTS OF CASH FLOWS
6. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
BEDFORD CURRY & CO.
CHARTERED ACCOUNTANTS
Michael J. Bedford Inc.
John E. Curry Inc.
AUDITORS' REPORT
To the Shareholders of La Teko Resources Ltd.
We have audited the consolidated balance sheets of La Teko Resources Ltd. (a
Canadian corporation) as of December 31, 1997 and 1996, and the consolidated
statements of operations, changes in shareholders' equity and cash flows for the
years ended December 31, 1997, 1996 and 1995. 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 an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the company as at
December 31, 1997 and 1996, the changes in shareholders' equity and the
consolidated results of its operations and its cash flows for the years ended
December 1997, 1996 and 1995 in accordance with United States generally accepted
accounting principles. As required by the British Columbia Company Act, we
report that, in our opinion, these principles have been applied on a consistent
basis.
Vancouver, British Columbia BEDFORD CURRY & CO.
February 28, 1998, except as to Note 11(b) CHARTERED ACCOUNTANTS
which is as of March 26, 1998
<PAGE>
LA TEKO RESOURCES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(EXPRESSED IN U.S. DOLLARS)
Year ended December 31, 1997
1997 1996 1995
--------- -------- -------
EXPENSES
General and administrative expenses $ 863,947 956,413 674,550
Operating and mine maintenance costs 387,855 275,623 151,179
Royalty and lease 150,000 150,000 286,901
Depreciation 45,244 54,828 51,092
New prospect evaluation 14,409 55,708 36,741
--------- --------- ---------
1,461,455 1,492,572 1,200,463
--------- --------- ---------
Loss from operations before other items (1,461,455) (1,492,572)(1,200,463)
Other income (expense)
Interest income (expense) (net) 63,767 7,687 (62,893)
Gain (loss) on sale of equipment (23,571) 7,969 (8,132)
Abandonment of mineral property (40,966) - (454,305)
Gain on sale of mineral property - 2,447,248 1,383,436
--------- --------- ---------
Income (loss) before income taxes (1,462,225) 970,332 (342,357)
Provision for income taxes expense
- Note 5 - 14,547 22,500
--------- --------- ---------
NET INCOME (LOSS) $(1,462,225) 955,785 (364,857)
========= ========= =========
Income (loss) per share - Note 8 $ (0.06) 0.04 (0.02)
========= ========= =========
<PAGE>
LA TEKO RESOURCES LTD.
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN U.S. DOLLARS)
December 31, 1997
1997 1996
---------- ---------
ASSETS
Current
Cash and short-term deposits $ 613,304 3,041,205
Accounts receivable 93,891 15,918
Inventories - 6,295
Prepaid expenses 160,090 200,845
---------- ---------
867,285 3,264,263
Mineral properties and deferred costs (Note 2) 10,985,135 10,515,140
Plant and equipment (Note 3) 57,593 210,716
Investments (Note 4) 750,913 500,913
---------- ----------
$12,660,926 14,491,032
========== ==========
LIABILITIES
Current
Bank demand loan $ 150,000 -
Accounts payable and accrued expenses 84,462 194,718
Current portion of long-term debt - 372,500
---------- ---------
234,462 567,218
SHAREHOLDERS' EQUITY
Common capital stock; no par value;
authorized: 100,000,000 shares; issued
and outstanding: 23,467,358 (1996:
23,457,258) (Note 6) 18,182,217 18,217,342
Accumulated deficit (5,755,753) (4,293,528)
---------- ---------
12,426,464 13,923,814
---------- ---------
$12,660,926 14,491,032
========== ==========
<PAGE>
LA TEKO RESOURCES LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(EXPRESSED IN U.S. DOLLARS)
Year ended December 31, 1997
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 public offering and private
placement costs - (45,360) - (45,360)
Compensatory stock options - 64,190 - 64,190
Net income (loss) - - (364,857) (364,857)
---------- ---------- ---------- ----------
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 (loss) - - 955,785 955,785
---------- ---------- ---------- ----------
Balance, December 31, 1996 36,868,229 24,474,648 (4,293,528) 20,181,120
1997
Common stock issued for:
Exercise of options 5,000 8,000 - 8,000
Other 5,100 - - -
Compensatory stock options
(reduction) - (43,125) - -
Net income (loss) - - (1,462,225) (1,462,225)
10,100 (35,125) (1,462,225) (1,454,225)
---------- ---------- ---------- ----------
Balance, December 31, 1997 36,878,329 24,439,523 (5,755,753) 18,726,895
Less treasury shares (13,410,971) (6,257,306) - (6,257,306)
---------- ---------- ---------- ----------
Balance, December 31, 1997 23,467,358 18,182,217 (5,755,753) $12,469,589
========== ========== ========== ===========
<PAGE>
LA TEKO RESOURCES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN U.S. DOLLARS)
Year ended December 31, 1997
1997 1996 1995
------------ -------- ---------
Supplemental disclosures of Cash Flow Information
Net income (loss) $ (1,462,225) 955,785 (364,857)
Charges (credits) to operations
not affecting cash:
(Gain) loss on sale of equipment 23,571 (7,969) 10,004
Depreciation 45,244 54,828 51,092
Gain on sale of mineral property - (2,447,248) (1,383,436)
Abandonment of mineral property 40,966 2,294 454,305
Compensatory stock options (43,125) 188,125 64,190
---------- ---------- ----------
(1,395,569) (1,254,185) (1,168,702)
Net changes
(Increase) decrease in accounts receivable
and pre-paid expenses (30,923) 84,654 (87,506)
Increase (decrease) in accounts payable
and accrued expenses (110,256) (45,723) 101,707
---------- ---------- ----------
Net cash used in operating activities (1,536,748) (1,215,254) (1,154,501)
Cash Flows from Investing Activities
Investment in mineral properties (209,818) (107,752) (272,950)
Exploration costs capitalized (551,143) (304,906) (321,984)
Purchase of plant and equipment (70,252) (65,080) (13,047)
Proceeds from sale of equipment 154,560 9,800 13,705
Increase in investments (250,000) (269,844) -
Proceeds from sale of mineral property 250,000 2,500,000 3,500,000
---------- ---------- ----------
Net cash provided by (used in) investing
activities (676,653) 1,762,218 2,905,724
---------- ---------- ----------
Cash Flows From Financing Activities
Proceeds from debt financing - - 200,000
Reduction of principal on debt (372,500) (700,085) (202,115)
Cash proceeds from issuance
of common stock 8,000 222,048 991,066
Public offering and reorganization
costs - - (45,360)
Short-swing profits - - 2,100
---------- ---------- ----------
Net cash provided by (used in)
financing activities (364,500) (478,037) 945,691
---------- ---------- ----------
Net increase (decrease) in cash
and cash equivalents (2,577,901) 68,927 2,696,914
Cash and cash equivalents,
beginning of year 3,041,205 2,972,278 275,364
---------- ---------- ----------
Cash and cash equivalents, end of year $ 463,304 3,041,205 2,972,278
========== ========== ==========
Cash and cash equivalents are
represented by:
Cash $ 613,304 3,041,205 2,972,278
Bank indebtedness (150,000) - -
---------- ---------- ----------
$ 463,304 3,041,205 2,972,278
========== ========== ==========
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for
interest $ 2,562 94,196 134,072
Cash paid during the period for
income taxes - 37,047 -
Supplementary Schedule of Non-cash Investing
and Financing Activities
Depreciation capitalized into deferred
costs - - 4,835
<PAGE>
LA TEKO RESOURCES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS)
Year ended December 31, 1997
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of the company and its wholly-owned subsidiaries, La Teko Resources,
Inc., a Nevada corporation and Ryan Lode Mines, Inc., an Alaska Corporation.
The consolidated financial statements are presented in U.S. dollars and prepared
in accordance with accounting principles generally accepted in the United
States.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
FOREIGN CURRENCY TRANSLATION - Transactions in Canadian dollars, primarily
related to certain asset acquisitions and administrative expenses, have been
translated to U.S. dollars as prescribed by SFAS No. 52 "Foreign Currency
Translation". Balance sheet items have been converted to U.S. dollars at
exchange rates on specific dates of asset acquisition, where practicable, or at
year-end exchange rates. Operating statement amounts have been converted at
actual rates on dates of specific transactions.
INCOME (LOSS) PER SHARE - Income (loss) per share of common stock is computed
based on the weighted average number of common shares outstanding during the
year.
CASH EQUIVALENTS - For purposes of the Statement of Cash Flows, the company
considers all short-term debt instruments with maturities of less than three
months as cash equivalents.
MARKETABLE SECURITIES - The company has adopted the provisions of SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
The company classifies its marketable debt securities as "held to maturity" if
it has the positive intent and ability to hold the securities to maturity. All
other marketable debt and equity securities are classified as "available for
sale". Securities classified as "available for sale" are carried in the
financial statements at fair value. Realized gains and losses determined using
the specific identification method are included in earnings; unrealized holding
gains and losses are reported as a separate component of stockholders' equity.
Securities classified as held to maturity are carried at amortized cost.
INVESTMENTS - Investments in marketable securities are carried at cost, which
approximates market value. Investments are written down to recognize a loss
when a reduction in value is considered to be other than a temporary decline.
MINERAL PROPERTIES AND DEFERRED COSTS - Mineral properties and deferred costs
are recorded at the lower of cost or the present value of estimated recoverable
amounts applicable thereto. Exploration and development expenses are deferred
until the mineral properties are brought into production, at which time they are
amortized on a units-of-production basis, or until the properties are abandoned
or sold, at which time the deferred costs are written off or charged against
sales proceeds. Capitalized costs and deferred exploration are evaluated at
least annually to determine the probability of recovery and the requirement for
periodic adjustments.
Certain properties are in the exploration or development stage. The ultimate
realization of capitalized costs is dependent upon the determination of
economically recoverable reserves, the ability of the company to obtain
necessary financing to complete development, future profitable production and/or
proceeds from sale of these properties.
When a property is determined not to be commercially productive or its value
impaired, the accumulated costs are charged to operations to the extent that
costs exceed estimated net realizable value.
PLANT AND EQUIPMENT - Plant and equipment are recorded at cost and are
depreciated on the declining balance method over their estimated useful lives at
rates varying from 10% to 30% per year. Maintenance and repairs are expensed as
incurred. Replacements and major improvements are capitalized.
FAIR VALUE OF FINANCIAL INSTRUMENTS THAT APPROXIMATE CARRYING VALUES - The
company has financial instruments, none of which are held for trading purposes.
The company estimates that the fair value of such financial instruments does
not differ materially from the aggregate carrying values of its financial
instruments reported in the financial statements. The estimated fair value
amounts have been determined by the company using available market information
and appropriate valuation methodologies. Considerable judgement is necessarily
required in interpreting market data to develop the estimates of fair value, and
accordingly, the estimates are not necessarily indicative of the amounts that
the company could realize in a current market exchange. As a result of the risk
associated with these financial instruments, the cost applicable thereto
approximates market.
INCOME TAXES - The company follows the tax allocation method of accounting for
income taxes, whereby deferred taxes and tax benefits are provided to the extent
that current taxes are affected by differences in accounting methods for book
and income tax purposes, primarily related to capitalization of equipment and
exploration and development costs, and depreciation and amortization related
thereto.
NOTE 2 - MINERAL PROPERTIES AND DEFERRED COSTS
[CAPTION]
<TABLE>
<S> <C> <C> <C> <C> <C>
Capitalized Capitalized
Balance Additions Balance Additions Balance
December 31, (Deletions) December 31, (Deletions) December 31,
1995 1996 1996 1997 1997
----------- ---------- ----------- ---------- ----------
Ryan Lode
Acquisition cost $4,839,376 - 4,839,376 (250,000) 4,589,376
Deferred exploration
and dev't expenses 4,882,993 73,570 4,956,563 224,591 5,181,154
---------- --------- ---------- ---------- ----------
Total Ryan Lode 9,722,369 73,570 9,795,939 (25,409) 9,770,530
---------- --------- ---------- ---------- ----------
Margarita
Acquisition cost 350,100 - 350,100 - 350,100
Deferred exploration and
development expense 4,554 71,540 76,094 4,458 80,552
---------- --------- ---------- ---------- ----------
Total Margarita 354,654 71,540 426,194 4,458 430,652
---------- --------- ---------- ---------- ----------
Juniper
Deferred exploration and
development expenses 78,211 90,294 168,505 63,257 231,762
---------- --------- ---------- ---------- ----------
Total Juniper 78,211 90,294 168,505 63,257 231,762
---------- --------- ---------- ---------- ----------
True North
Acquisition cost - - - 154,818 154,818
Deferred exploration and
development expenses - - - 70,647 70,647
---------- --------- ---------- ---------- ----------
Total True North - - - 225,465 225,465
---------- --------- ---------- ---------- ----------
Twin Buttes
Acquisition cost - 30,000 30,000 45,000 75,000
Deferred exploration and
development expenses - 27,634 27,634 125,037 152,671
---------- --------- ---------- ---------- ----------
Total Twin Buttes - 57,634 57,634 170,037 227,671
---------- --------- ---------- ---------- ----------
Discovery
Acquisition cost - 15,000 15,000 10,000 25,000
Deferred exploration and
development expenses - 20,555 20,555 53,500 74,055
---------- --------- ---------- ---------- ----------
Total Discovery - 35,555 35,555 63,500 99,055
---------- --------- ---------- ---------- ----------
Lucky Gulch
Acquisition cost - 10,000 10,000 - 10,000
Deferred exploration and
development expenses - 21,313 21,313 9,653 30,966
Abandonment of property - - - (40,966) (40,966)
---------- --------- ---------- ---------- ----------
Total Lucky Gulch - 31,313 31,313 (31,313) -
---------- --------- ---------- ---------- ----------
Total Mineral
Properties $10,155,234 359,906 10,515,140 469,995 10,985,135
========== ========= ========== ========== ==========
</TABLE>
RYAN LODE MINE
The principal Ryan Lode leasehold interest consists of 10 patented lode claims
and 15 unpatented lode claims. The company's lease, dated November 7, 1992,
provides for a primary term of 20 years commencing January 1, 1993 with four
five-year extensions, all subject to the timely payment of production and/or
advance royalty payments of $150,000 for the primary term and escalating in
$50,000 increments for each 5 year extension increasing to $350,000 per year in
2028 and annually thereafter. Advance minimum royalties may be applied against
production royalties for the year of production only.
The Ryan Lode Mine includes other claims subject to net profits and net smelter
returns royalties with advance minimum royalty requirements. Generally, net
profits royalties payable to the State of Alaska on future production are 3%
whereas the royalties based on gross value of mineral products removed from the
mining properties are 5%. Advance minimum royalty payments are to be deducted
from production royalties.
On December 19, 1997 the company agreed with Silverado Gold Mines Ltd.
("Silverado") for Silverado to acquire an option to purchase all of its interest
in the Ryan Lode property, for $12,000,000. As consideration for the grant of
the option, Silverado delivered 1,000,000 of its common shares to the company
(Note 4).
Silverado is required to make payments to the company and to complete minimum
expenditures on the property as follows:
Cash Expenditure
--------- ------------
On January 30, 1998
(Plus $150,000 to be applied to advance royalty) $ 50,000 -
On February 27, 1998 450,000 -
By December 1, 1998 300,000 $1,000,000
By December 1, 1999 400,000 $1,000,000
By December 1, 2000 700,000 $1,000,000
On the earlier of June 1, 2002, the
completion of a Mining facility or
30 days after commencement of
commercial production 3,000,000 -
6 months after above payment date 7,100,000 -
---------- ----------
$12,000,000
========== ==========
Should the property not proceed into commercial production by June 1, 2002,
Silverado may extend the construction period for up to 5 years by making annual
payments of $500,000 to the company, $375,000 of which will be credited to the
purchase price.
Silverado has not made the payments to the company due on January 30, 1998 and
February 27, 1998 or the advance royalty payment of $150,000 (which was made by
the company on its due date) and the company has given notice to Silverado that
it is in default of the terms of the agreement, see Note 11(b).
The company has reduced the carrying cost of the Ryan Lode property by the
market value of the 1,000,000 Silverado shares option consideration, being
$250,000.
MARGARITA
The Margarita project comprises 34 unpatented lode mining claims consisting of
the Margarita, MX and NWM claims in Santa Cruz County, Arizona.
A royalty of 10% of net profits is payable on the first 20,000 ounces of product
removed for the property and 15% thereafter. "Net profits" is determined after
deduction of exploration costs, capital expenditures and all other operating
costs.
There are additional obligations to prior owners for a 3% net smelter return
royalty on the Margarita properties.
JUNIPER
In February 1995, the company located 104 state of Alaska prospecting sites on
approximately 16,131 acres approximately 30 miles north northeast of Fairbanks,
Alaska and in 1996, the company staked 403 State of Alaska claims on the
property.
TRUE NORTH
On January 10, 1994, the company executed a mining property transfer agreement
with AMAX and acquired the 2,333-acre True North project. It has subsequently
staked and acquired additional claims, bringing the total True North property to
approximately 10,100 acres.
In June 1995, the company executed a joint-venture agreement with Newmont
Exploration Limited, a subsidiary of Newmont Gold Mining Company, whereby
Newmont acquired a 65% interest in the True North property, contingent upon its
continued development of the property and the payment of specified amounts
required to explore, develop and place the property into production,
The agreement provided for Newmont to pay La Teko $6 million in cash, to expend
at least $3 million during 1995 and 1996 for exploration, development and
property payments on the True North property and, if it continued with the
project, to expend up to an additional $18 million for a feasibility study and
the installation of capital equipment required to place the property into
production. Newmont has satisfied its $3 million capital requirement for 1995
and 1996 and has extended the required date for completion of a feasibility
study by continued active exploration work.
In 1995, as a result of the $3.5 million received in cash, the company reflected
a $1,383,436 gain from the sale of mineral properties. In 1996, Newmont paid
$2.5 million and the company recognized an additional $2,447,248 gain. In
accordance with generally accepted accounting principles applicable to the
mining industry, the company wrote off all of its previously capitalized True
North costs against the $6 million cash received from Newmont.
If Newmont determines that the results of a future feasibility study do not
warrant development of the True North property, then Newmont will be deemed to
have elected to terminate the joint venture. If Newmont determines, in its sole
discretion, that the results of the feasibility study warrant development of the
True North property, then the joint venture will proceed with development and
the initiation of production, with Newmont being obligated to contribute for
development up to $18 million. Any amounts by which the True North development
costs exceed the $18 million development commitment, as adjusted, will be borne
by Newmont and La Teko in proportion to their respective participating interest.
Newmont may terminate the joint venture at any time in its sole discretion
without further liability, in which case it would be required to convey to La
Teko the 65% interest in the True North property acquired from La Teko and
contributed to the joint venture plus its 65% interest in subsequently-acquired
property in the area of interest. Newmont will not be entitled to reimbursement
of any amounts paid to La Teko, spent on the True North property or contributed
to the joint venture prior to termination. Termination of the joint venture by
Newmont would not relieve it of the obligation for exploration, development or
reclamation costs incurred but not yet paid prior to the date of termination.
TWIN BUTTES
During April 1996, the company consummated a five-year agreement with the
University of Alaska to explore its Twin Buttes property, located 28 miles
northeast of Fairbanks, Alaska, adjacent to La Teko's Juniper property. The
initial acquisition cost was $30,000 for an exclusive development and mining
lease. During the current period the company made its first annual option
payment of $45,000 and continued its geochemical sampling program initiated in
1996.
DISCOVERY
On May 24, 1996, the company acquired approximately 3,000 acres known as
Discovery Gulch in the Circle Mining District, Alaska. The exploration lease
required an initial payment of $15,000 plus annual payments of $10,000 on the
first two anniversary dates and $35,000 annually thereafter. The property is
subject to a 2% NSR royalty on production from the property. The exploration
requirement for 1998 is $35,000. During the fourth exploration season, the
exploration commitment increases to $100,000 with an additional $50,000 increase
annually thereafter.
LUCKY GULCH
Management has elected not to continue its interest in the property and
accordingly accumulated acquisition and exploration costs have been written-off
in the current period.
NOTE 3 - PLANT AND EQUIPMENT
Accumulated Net Book Value
Cost Depreciation 1997 1996
--------- ------------ ------- -------
Office furniture and equipment $ 51,163 10,461 40,702 37,579
Machinery and equipment 19,464 2,573 16,891 79,347
Buildings - - - 78,814
Trucks - - - 13,380
Site work and roads - - - 1,596
--------- ------- ------- -------
$ 70,627 13,034 57,593 210,716
========= ======= ======= =======
NOTE 4 - INVESTMENTS
1997 1996
--------- --------
International Freegold Mineral Development Inc.
- 1,500,000 shares at cost $ 500,913 500,913
Silverado Gold Mines Ltd. - 1,000,000 shares 250,000 -
--------- --------
$ 750,913 500,913
========= ========
The shares in Silverado Gold Mines Ltd. are reported at their fair market value
on the date obtained (Note 2). As at December 31, 1997 and 1996, the market
value of the investments approximated their reported amounts.
NOTE 5 - INCOME TAXES
Provision for income tax expense differs from the amount calculated at the
statutory U.S. federal income tax rate due to the following:
1997 1996 1995
----------- -------- --------
U.S. federal income tax expense
at statutory rate $ (476,862) 367,145 112,978
Alternative minimum taxes U.S.
federal and state - 14,547 22,500
Benefits of losses not recognized 476,862 - -
Utilization of net operating
loss carry forwards - (367,145) (112,978)
---------- --------- --------
Provision for income tax expense $ - 14,547 22,500
========== ========= ========
The company has a net operating loss carry forward available to offset future
taxable income of approximately $10,964,000 expiring in 2006 through 2012. No
deferred tax assets have been provided for these amounts since realization is
not assured.
NOTE 6 - CAPITAL STOCK
Information regarding stock options is summarized below:
Number of Option Price
Options Per Share
--------- -------------
Outstanding at January 1, 1995 390,000 $1.60 - 2.13
Granted 877,935 1.60
Exercised -
Expired -
Forfeited -
--------- -----------
Outstanding at December 31, 1995 1,267,935 1.60 - 2.13
Granted 800,000 1.85 - 2.50
Exercised (138,780) 1.60
Expired - -
Forfeited (245,155) 1.60
--------- -----------
Outstanding at December 31, 1996 1,684,000 1.60 - 2.50
Granted 250,000 1.05 - 1.50
Exercised (5,000) 1.60
Expired - -
Forfeited (285,000) 1.60
--------- -----------
Outstanding at December 31, 1997 1,644,000 $1.05 - 2.50
========= -----------
NOTE 7 - STOCK-BASED COMPENSATION
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation" (SFAS
123) which established financial accounting and reporting standards for
stock-based compensation. The new standard defines a fair value method of
accounting for an employee stock option or similar equity instrument. This
statement gives entities the choice between adopting the fair value method or
continuing to use the intrinsic value method under Accounting Principles Board
(APB) Opinion No. 25 with footnote disclosure of the pro forma effects as if the
fair value method had been adopted. The company has opted for the latter
approach. Had compensation expense for the company's stock option plan been
determined based on the fair value at the grant date for awards in 1997, 1996
and 1995 consistent with the provisions of SFAS No. 123, the company's results
of operations would have been reduced to the pro forma amounts indicated below:
1997 1996 1995
----------- -------- --------
Net (loss) income - as reported $(1,462,225) 955,785 (364,857)
Net (loss) income - pro forma $(1,705,846) 663,202 (446,719)
(Loss) income per share - as reported $ (0.06) 0.04 (0.02)
(Loss) income per share - pro forma $ (0.07) 0.03 (0.02)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:
1997 1996 1995
----------- -------- --------
Expected dividend yield - - -
Expected stock price volatility 45.11% 39.66% 39.66%
Risk-free interest rate 5.50% 6.13% 5.25%
Expected life of options 8 years 5 years 5 years
The weighted average fair value of options granted during 1997, 1996 and 1995
are $.70, $1.22, and $.80, respectively.
The following table summarizes information about stock options outstanding at
December 31, 1997:
Options Outstanding Options Exercisable
-------------------------------- ---------------------
Weighted
Average
Range of Number Remaining Weighted Number Weighted
Exercise Outstanding Contractual Average Exercisable Average
Prices at Life Exercise at Exercise
12/31/97 (Years) Price 12/31/97 Price
------------- ---------- ---------- --------- --------- ---------
$1.05 to 1.50 250,000 7.7 $1.23 62,500 $1.23
1.60 to 2.13 1,094,000 5.0 1.76 819,000 1.76
2.41 to 2.50 300,000 6.3 2.44 200,000 2.46
$1.05 to 2.50 1,644,000 6.2 $1.81 1,081,500 $1.86
NOTE 8 - EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (SFAS 128) "Earnings Per Share," which
requires companies to present basic earnings per share (EPS) and diluted
earnings per share, instead of the primary and fully diluted EPS as previously
required. The new standard also requires additional informational disclosures,
and makes certain modifications to the previously applicable EPS calculations
defined in Accounting Principles Board No. 15. The new standard is required to
be adopted by all public companies for reporting periods ending after December
15, 1997, and requires restatement of EPS for all prior periods reported.
During the year ended December 31, 1997, the company adopted this standard.
Earnings per share information in accordance with SFAS 128 is as follows:
Year Ended December 31, 1997
------------------------------------------
Loss Shares Per-Share
(Numerator) (Denominator) Amount
----------- -------------- ---------
Net Loss $(1,462,225)
Less preferred stock dividends -
BASIC AND DILUTED EPS
Loss available to common
stockholders $(1,462,225) 23,463,000 $(.06)
Year Ended December 31, 1996
------------------------------------------
Loss Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ----------
Net Income $955,785
Less preferred stock dividends -
BASIC EPS
Income available to common
stockholders 955,785 23,393,000 $.04
EFFECT OF DILUTIVE SECURITIES
Stock options - 122,000
DILUTED EPS
Income available to common
stockholders plus assumed
conversions $955,785 23,515,000 $.04
Year Ended December 31, 1995
------------------------------------------
Loss Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ----------
Net Loss $(364,857)
Less preferred stock dividends -
----------- ------------- ----------
BASIC AND DILUTED EPS
Income available to common
stockholders (364,857) 23,183,000 $(.02)
NOTE 9 - RELATED-PARTY TRANSACTIONS
During the year the company paid directors fees of $20,629 (1996: $19,800).
Legal fees of $41,293 (1996: $25,324) were paid to a corporation controlled by a
director of the company.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The company is obligated for various royalty payments based on future mining
and/or earnings from its mineral properties, as further described in Note 2.
Subject to regulatory approval, the company has agreed to issue 65,000 shares as
part of a severance agreement with a former senior employee.
La Teko cannot insure for environmental pollution and, consistent with industry
practice, has elected not to insure for losses from mine cave-ins, mine
flooding, earthquake and other possible natural hazards caused by the
unavailability of such coverage or the cost thereof. The company may in the
future be exposed to contingencies relating to the foregoing or liabilities that
may arise under the governmental regulations relating to the environment. It is
not, however, aware of any existing material contingencies respecting compliance
with environmental requirements or previous activities.
NOTE 11 - SUBSEQUENT EVENT
(A) SCHEELITE DOME
By agreement dated November 24, 1997, as amended February 2, 1998, the company
obtained an option from Kennecott Canada Explorations Inc. to earn a 100%
interest in the Scheelite Dome project in the Mayo mining district, Yukon
Territory, Canada.
The company must make C$135,000 in payments to the underlying property owner and
carry out C$800,000 worth of exploration expenditures as follows:
a) Pay C$70,000 and conduct C$150,000 of exploration in 1998;
b) Pay C$65,000 and conduct C$200,000 of exploration in 1999;
c) Conduct C$200,000 of exploration in 2000; and
d) Conduct C$250,000 of exploration in 2001.
Should the company exercise its option and deliver a feasibility study to
Kennecott, Kennecott shall have 60 days in which to select to reacquire a 49%
interest in the project by paying 150% of 49% of the expenditures incurred by
the company.
(B) SALE OF RYAN LODE MINE TO SILVERADO GOLD MINES LTD.
The company entered into an agreement with Silverado Gold Mines Ltd.
("Silverado") on December 19, 1997 whereby Silverado acquired an option to
purchase the Ryan Lode property, as described in Note 2.
Silverado did not make certain payments to the company that subsequently became
due and, on March 26, 1998, Silverado gave notice to the company that it was
terminating the agreement.
NOTE 12 - DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED
ACCOUNTING PRINICPLES
These consolidated financial statements have been prepared in accordance with
U.S. GAAP, which, in the case of the company, conforms in all material respects
with Canadian GAAP, except as follows:
a. Under U.S. GAAP the income (loss) per share is calculated using the weighted
average number of common and common equivalent shares during the year, using the
"treasury stock method" for stock options and warrants outstanding. Common
equivalent shares which include common stock options were not included in the
calculation of income (loss) per share, because the effects were antidilutive or
immaterial. The income (loss) per share under Canadian GAAP is not
significantly different from the income (loss) per share under U.S. GAAP.
The company has determined that the application of Statement of Financial
Accounting Standard No. 128 concerning the presentation of earnings per share
under U.S. GAAP, which is effective for the company's 1998 fiscal year, would
not have resulted in a basic loss per share or a fully diluted loss per share
that is different from the basic loss per share under Canadian GAAP.
b. U.S. GAAP requires, pursuant to Statement of Financial Accounting Standard
No. 109, that a deferred tax asset be recognized for loss carry-forwards.
Although the company has U.S. tax loss carry-forwards (Note 5), due to
uncertainty as to utilization prior to their expiry, the deferred tax asset
amounts have been completely offset in these consolidated financial statements
by an uncertainty provision.
c. The company accounts for its stock-based compensation expense under the
intrinsic value method under Accounting Principles Board (APB) Opinion No. 25.
Under Canadian GAAP no recognition is given to any part of a stock option as
representing compensation.
The changes to the consolidated statements of operations and income (loss) per
share under Canadian GAAP would be as follows:
1997 1996 1995
----------- -------- ---------
Net income (loss) for the year
as reported $(1,462,225) 955,785 (364,857)
Compensatory stock option expense
(reduction) (43,125) 188,125 64,190
----------- -------- ---------
Net income (loss) for the year
under Canadian GAAP $(1,505,350) 1,143,910 (300,667)
=========== ========= =========
Income (loss) per share under
Canadian GAAP $ (0.06) 0.05 (0.01)
=========== ========= =========
