UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20F
ANNUAL REPORT PURSUANT TO SECTION 12(g) OF THE SECURITIES
EXCHANGE ACT OF 1934 OF A FOREIGN CORPORATION
March 31, 2000
LEADER MINING INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Commission File no 000-26447
Alberta, Canada (N/A)
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
400 Fifth Avenue, S.W., Suite 810, Calgary, Alberta T2POL6
(Address of principal executive offices) (Zip Code)
(403) 234-7501
Registrant's telephone number, including area code
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class to be so registered: None
Name of each exchange on which each class is to be registered: None
Securities to be registered pursuant to Section 12(g) of the Act:
Title of class
Common Unlimited Shares of Common Stock
A total of 18,118,565 shares of common stock of Registrant were issued and
outstanding as of March 31, 2000. No other classes of stock were issued and
outstanding.
Indicated 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 No X
Indicate by check mark which financial statement item the Registrant has elected
to follow: Item 17 __X__ Item 18 ______
1
<PAGE>
TABLE OF CONTENTS
PART I
Page
Item 1. Description of Business......................................8
Item 2. Description of Property......................................8
Item 3. Legal Proceedings...........................................20
Item 4. Security Ownership of Certain Beneficial Owners
and Management (Control of Registrant)......................21
Item 5. Nature of Trading Market
Market Price of and Dividends on
Registrants Common Equity and
Related Stockholder matters.................................22
Item 6. Exchange Controls and Other Limitations Affecting Security
Holders.....................................................22
Item 7. Taxation....................................................23
Item 8. Selected Financial Information..............................24
Item 9. Management Discussion and Analysis..........................26
of Financial Condition and Results of Operations
Item 10. Directors and Executive Officers ...........................34
Item 11. Compensation of Officers and Directors......................38
Item 12. Options to Purchase Securities from Registration or
Subsidiaries................................................40
Item 13. Interest of Management in Certain Transactions..............40
Item 14. Description of Securities ..................................43
Item 15. Defaults upon Senior Securities.............................44
Item 16. Changes in Securities, Changes in Security for Registered
Securities..................................................44
Item 17. Financial Statements........................................44
Item 18. Financial Statements (Not applicable) ......................44
2
<PAGE>
Item 19. Financial Statements, Exhibits, and Supplementary Data .....44
Exhibit Index......................................46
Signatures.........................................45
3
<PAGE>
GLOSSARY
INDUSTRY DEFINITIONS
Alteration Zone: an area of distinct mineralization where there is
evidence of physical or chemical change in the minerals
subsequent to their formation.
Anticipated Resources: expected to be found within a specified property,
mining camp, or other area, which is restricted by
local geologic conditions or property boundaries -
Canadian Institute of Mining, Metallurgy and Petroleum
(CIM), Ad Hoc Committee Report entitled "Mineral
Resource/Reserve Classification: Categories,
Definitions and Guidelines" - February 1996.
Base Metals: metals other then gold, silver, mercury and platinum
group.
Commercial Production: Operation of a mineral prospect or any part thereof as
a mine but does not include milling for the purpose of
testing or milling by a pilot plant.
Diamond Drilling: coring of rock by a boring machine that uses a ring
shaped bit in which chips of diamond are set to obtain
samples for observation or sampling.
Domain: A region distinctively marked by some common geological
feature.
Electro-magnetic: Geophysical prospecting technique that uses the inter-
relation of electricity and magnetism.
EM: Electro-magnetic
Geochemical Prospecting: The search for mineral deposits, particularly
metalliferous deposits, by analyzing rocks, stream
silts, springs, soils, surface water or organisms for
abnormal concentrations of elements.
Geochemistry: The study of the abundances of elements and isotopes in
the earth, and the distribution and migration of the
individual elements in the various parts of the earth
(the atmosphere, hydrosphere, crust, etc.) with the
object of discovering principles governing such
distribution and migration.
Geophysical Prospecting: Advanced prospecting based on measurement of physical
properties of rocks and minerals.
4
<PAGE>
Geophysics: The science of the physics of the earth, including its
atmosphere and hydrosphere.
Grade: Concentration of desired metal contained within one
tonnne of mineralized rock.
Hypothetical Resources: those expected to be present because of favourable
geology and known mineralization within a general area
limited by specified political, physiographic or
geologic boundaries - Canadian Institute of Mining,
Metallurgy and Petroleum (CIM), Ad Hoc Committee Report
entitled "Mineral Resource/Reserve Classification:
Categories, Definitions and Guidelines - February 1996.
Indicated Resource: the estimated quantity and grade of part of a deposit
for which the continuity of grade, together with the
extent and shape, are so well established that a
reliable grade and tonnage estimate can be made.
Fundamental to the indicated resource class is well
established geological information on the continuity of
the mineralized zones - Canadian Institute of Mining,
Metallurgy and Petroleum (CIM), Ad Hoc Committee Report
entitled "Mineral Resource/Reserve Classification:
Categories, Definitions and Guidelines" - February
1996.
Inferred Resource: the estimated quantity and grade of a deposit, or a
part thereof, that is determined on the basis of
limited sampling, but for which there is sufficient
geological information and a reasonable understanding
of the continuity and distribution of metal values to
outline a deposit of potential economic merit -
Canadian Institute of Mining, Metallurgy and Petroleum
(CIM), Ad Hoc Committee Report entitled "Mineral
Resource/Reserve Classification: Categories,
Definitions and Guidelines" - February 1996.
Measured Resource: the estimated quantity and grade of that part of a
deposit for which the size, configuration, and grade
have been very well established by observation and
sampling of outcrops, drill holes, trenches and mine
workings. - Canadian Institute of Mining, Metallurgy
and Petroleum (CIM), Ad Hoc Committee Report entitled
"Mineral Resource/Reserve Classification: Categories,
Definitions and Guidelines" - February 1996.
Mineral: A naturally occurring inorganic element or compound
with a characteristic external structure as a result of
a fixed internal arrangement of atoms or ions.
Mineral Deposit: a body of rock containing metals or minerals of
commercial interest which has been by a sufficient
number of drill holes tested to support sufficient
tonnage and average grade of metal(s) to warrant
further exploration. This deposit does not qualify as a
commercially minable ore body, until a comprehensive
economic, feasibility study based upon the test results
is concluded.
Mineral Prospect: A mineral occurrence that has some potential of being
of mineable size and mineral content.
Mineral Resource: a deposit or concentration of natural, solid, inorganic
or fossilized organic substance in such quantity and at
such a grade or quality that extraction of the material
at a profit is currently or potentially possible -
Canadian Institute of Mining, Metallurgy and Petroleum
(CIM), Ad Hoc Committee Report entitled "Mineral
Resource/Reserve Classification: Categories,
Definitions and Guidelines" - February 1996.
5
<PAGE>
Net Smelter Royalty: the right to an amount equal to a percentage of the
gross sales proceeds received from the sale of minerals
obtained from a property less the smelting costs and
the costs of handling, transporting and insuring the
production from the mine to a treatment facility.
Operator: Party responsible for performing the activities
necessary or desirable to explore, develop, or perform
work on a property or any part thereof on behalf of
another party.
Ore: a natural aggregate of one or more minerals which, at a
specified time and place, may be mined and sold at a
profit, or from which some part may be profitably
separated.
Pegmatite: Coarsely crystalline rock of plutonic or replacement
origin, generally forming dykes, sills, or small
irregular masses.
Precious Metals: Gold and silver only
Prospecting: Searching and examining outcrops, soil, and gravel for
indications of valuable minerals.
Strata-bound deposit: A concordant or transcurrent mineral deposit occurring
in stratified sedimentary, volcanic, or metamorphic
rocks, not necessarily formed at he same time as the
strata.
Sulphide: A compound of sulphur with another element.
Tonne: a unit of weight measurement equal to 2204 pounds.
Volcanics: Rock that solidified or crystallized at surface from
hot, molten, or partly molten mass or magma.
Volcanogenic Massive
Sulphide Deposit: Concordant, strata-bound sulphide deposit commonly
associated with volcanic rocks or volcanic and
sedimentary rock sequences.
VMS: Volcanogenic massive sulphide
6
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) The Company
Leader Mining International Inc. ("Leader," "Company," or "Registrant") was
incorporated on June 22, 1987 as Durga Resources Ltd. ("Durga"), under the
Business Companys Act (Alberta). By a Certificate of Amalgamation dated March
31, 1993 Durga amalgamated with Durvada Resources Ltd. and resulted in new Durga
Resources Ltd. By a Certificate of Amendment dated September 24, 1993, Durga
changed its name to Leader Mining Company ("LMC"). By a Certificate of Amendment
dated July 18, 1994. It consolidated its shares (reverse split) in 1994 by one
for five shares. LMC changed its name to the Leader Mining International Inc.
The Registrant was listed on the Alberta Stock Exchange on December 18, 1987.
Leader is extraprovincially registered in the Province of Saskatchewan by a
Certificate of Registration dated November 21, 1996, under The Business
Corporations Act (Saskatchewan) and in the Province of Manitoba by a Certificate
of Registration dated November 20, 1996, under The Business Corporations Act
(Manitoba).
The registered office of the Company in Alberta is at 400 Fifth Avenue, S.W.,
Suite 810, Calgary, Alberta, T2P 0l6. The head office and records office of the
Corporation is at 810, 400-5th Avenue S. W., Calgary, Alberta, T2P 0L6.
The Company is a reporting company in the Province of British Columbia and in
the Province of Alberta. The Corporation's shares are listed and posted for
trading on the Canadian Venture Exchange (CDNX) under the symbol "LMN" and
quoted on the NASD under the symbol "LDRMF."
The Company was formed by Mr. Yashvir (Jasi) Nikhanj, the current President and
a director, to pursue the principal business of exploring for gold, silver and
base metal deposits. There is no assurance that a commercially viable mineral
deposit or reserve exists on any of its property until further exploration is
done and a comprehensive engineering feasibility evaluation based on such work
is performed which concludes economic and legal viability.
From 1987 to 1999, the Company was engaged in mineral exploration for gold,
copper, zinc and diamonds in the Northwest Territories and Saskatchewan, Canada.
The Company was also exploring for gold in the state of Nevada. The Company had
minimal capitalization during such period, and its activities were very limited.
The Company's strategy with respect to its mineral exploration related
activities is to identify geological areas in which the Company may invest or
participate in non-producing or producing mineral prospects or joint ventures,
and where the company may acquire mineral prospects for exploration through
staking claims.
7
<PAGE>
During the last five (5) fiscal years, the Company conducted exploration
activities on certain mineral prospects as follows:
Voisey's Bay; Labrador, Canada, 1998. Approximately $55,000 expended for land
acquisition and prospecting and ground geophysics to explore for prospective
nickel deposits. No further work is planned.
Ariel Resources Ltd.; Costa Rica, 1998. Approximately $250,000 expended to
perform due diligence and technical feasibility studies to ascertain the
viability of corporate merger. No further work is planned.
Nighthawk Lake; Ontario, Canada, 1996-1998. Approximately $275,000 expended for
land acquisition and prospecting; ground geophysics; and diamond drilling to
test prospective gold targets. No further work is planned.
Bristol; Ontario, Canada, 1996-1997. Approximately $125,000 expended for land
acquisition and prospecting; ground geophysics; and diamond drilling to test
prospective gold targets. No further work is planned.
Steephill Lake; Saskatchewan Canada, 1997. Approximately $300,000 expended for
land acquisition and prospecting; airborne geophysics; and diamond drilling to
test prospective base metal targets. No further work is planned.
Nettogami Lake; Ontario, Canada, 1996. Approximately $1,278,000 expended on land
acquisition and prospecting, airborne and ground geophysics, and diamond
drilling to test prospective base metal targets. No further work is planned.
Merendon Mining Corporation; Honduras, 1996. Approximately $750,000 expended for
land acquisition, due diligence, and technical studies to ascertain the
attractiveness of venture participation. No further work is planned.
Blower Investments AVV and Condor Resources AVV; Peru, 1996. Approximately
$430,000 expended for land acquisition, due diligence, and technical studies to
ascertain the attractiveness of venture participation. No further work is
planned.
Rioux Lake; Saskatchewan, Canada, 1994-1995. Approximately $50,000 expended for
geological and geochemical surveys to identify polymetallic base metal
opportunity. No further work is planned.
8
<PAGE>
Candle Lake; Saskatchewan, Canada, 1994. Prospective diamond claims acquired. No
further work is planned.
KARMEL, ORANGE FREE STATE, REPUBLIC OF SOUTH AFRICA, 1999. Approximately
$185,000 was expended for land acquisition, airborne geophysic survey and ground
follow-up to explore prospective diamond bearing kimberlite targets. Prospecting
permits could not be obtained and this prospect has been abandoned and expenses
written off.
The Company hires third-party companies to conduct drilling, testing, and to
provide services and evaluation on a negotiated contract basis, except that a
company, Nikhanj and Associates Geo Consulting, owned by the Company's President
and largest shareholder, Y.S. (Jasi) Nikjanj provides management, geological,
and exploration consulting services to the Company for $10,000 per month.
The Company is not carrying any reserve values on any prospects due to the lack
of any quantifiable reserves. The Company has not earned any revenue from
operations to date, and it continues to be an exploration stage company.
(b) Current Business
The focus of the Company is to actively pursue mineral exploration to find and
outline mineral deposits in under-explored terrain within jurisdictions that are
politically stable. The Company currently has one major prospect, which is the
Knife Lake Project (located in Saskatchewan, Canada). The property is comprised
of a mining lease and 55 mineral claims; of which the Company owns 100% interest
in the mining lease and 44 mineral claims, and can earn up to 90% interest in an
additional 11 mineral claims.
As of December 31, 1998, the Company has spent $7.3 million (Canadian) exploring
for base and precious metals within the Scimitar Complex of northeastern
Saskatchewan and outline the Knife Lake copper deposit. Over the next three
years expenditure of an additional $3.3 million (Canadian) is anticipated for
geological reconnaissance ground geophysics, drilling, and preliminary
engineering studies.
The Company is always searching for high quality exploration opportunities,
which can be acquired at low cost. Identification of targets of opportunity
represent the Company's focus for growth, and annual expenditures of $0.25
million (Canadian) are anticipated for examination, acquisition, and initial
testing of new projects.
Corporate overhead is held to a minimum. Expenditure for office rent, office
supplies, travel, and administration are expected to continue at the current
level of $0.7 million (Canadian) per year.
9
<PAGE>
<TABLE>
<CAPTION>
A summary of the Company's proposed expenditures is presented below:
CORPORATE EXPLORATION BUDGET
($Canadian x 1000)
<S> <C> <C> <C> <C>
------------------------------------------------------- -------------- ---------------- --------------------- ---------------------
Fiscal year, March 31 2000 2001 2002 Total
------------------------------------------------------- -------------- ---------------- --------------------- ---------------------
Knife Lake Project
------------------------------------------------------- -------------- ---------------- --------------------- ---------------------
Geological Reconnaissance 300 100 50 450
------------------------------------------------------- -------------- ---------------- --------------------- ---------------------
Geophysics 300 100 50 450
------------------------------------------------------- -------------- ---------------- --------------------- ---------------------
Drilling 500 800 700 2000
------------------------------------------------------- -------------- ---------------- --------------------- ---------------------
Engineering 100 300 400
------------------------------------------------------- -------------- ---------------- --------------------- ---------------------
Sub-Total 1,100 1,100 1,100 3,300
------------------------------------------------------- -------------- ---------------- --------------------- ---------------------
Opportunity Targets 250 250 250 750
------------------------------------------------------- -------------- ---------------- --------------------- ---------------------
Overhead and Administration 700 700 700 2,100
------------------------------------------------------- -------------- ---------------- --------------------- ---------------------
Grand Total (CAN $) 2,050 2,050 2,050 6,150
------------------------------------------------------- -------------- ---------------- --------------------- ---------------------
</TABLE>
The Company intends to finance its proposed expenditures by selling up to 50%
interest in the Knife Lake Project to the Korea Resources Corporation for $5.2
million. Additional cash requirements will be met via private placements of the
Company's common shares to sophisticated investors, under market conditions
prevailing at that time. Failure to obtain sufficient funding in a timely manner
could result in delay or indefinite postponement of further exploration work of
the Company's prospects with the possible loss of exploration or exploitation
permits.
The Company's current business plan is in mineral exploration including foreign
mineral joint ventures, in Canada, South Africa, and South/Central America. The
Company has determined that it must build an asset base through exploration; and
acquisition by exchange of stock for other mineral companies, leases, and
mineral prospects for exploration if the opportunity arises. The Company
believes that debt will rarely be desirable to acquire any mineral prospect or
company. The Company may acquire other assets by exchange of stock or cash.
The Company has not established, and does not intend to formally establish,
criteria for the selection or evaluation of mineral prospects or participations.
When a mineral prospect is located which in management's opinion, shows
favorable data to the Company, an attempt will be made to secure an option, or
lease, for the prospects. Shareholder approval will not be sought for mineral
prospect acquisitions. Therefore, shareholders will be dependent upon the
judgment of management in selecting mineral prospects (see "Management"). If
such an interest is acquired, the Company will then expend funds for preliminary
exploration and if warranted test sample the mineral prospect to determine
whether any mineral deposit could qualify as a resource. Based on the results of
such preliminary testing, the Company will decide, without shareholder approval,
whether to acquire or abandon the mineral prospect. A mineral prospect or
interest may be acquired by outright purchase; by earning an interest through
participation with other companies; or by exchange of the shares for leases or
interests in mineral prospects.
10
<PAGE>
The Company may expend funds to explore or test any mineral prospects it
acquires to determine the economic feasibility, if any, of such mineral
prospects. If, and only if, a mineral deposit appears to have been located will
further funds be expended to delineate the deposit. If a depostit is delineated,
then a feasibility analysis will be conducted to determine if a development
attempt is warranted. The Company will rely on its own management and outside
consultants engaged for specific work on a limited basis, mineral prospect by
mineral prospect, to provide competent evaluation and recommendations concerning
mineral prospects or interests in mineral prospects to be considered for
acquisition or exploration. The Company has agreements with several third party
companies for providing specific limited services related to mineral prospects,
such as mapping, geochemical, sampling, or drilling. Based upon the results of
such exploration and tests, as interpreted by management, the Company will then
determine whether such mineral prospects should be acquired, explored further,
sold or leased to a third party, held for possible later development or
abandoned; and whether these activities should be attempted by the Company
either by itself or through joint venture or other business arrangements with
other companies or entities.
The Company may agree to assign rights in certain mineral prospects to be
explored to the general or managing partner of a partnership or joint venture,
which thereby becomes the owner of the working interest in the mineral prospect.
The Company may also agree to supervise and manage all activities on the
prospect and to obtain, through subcontractors, all necessary related services
and equipment. The Company actively reviews mineral prospects for putting
together exploration joint ventures.
Parents and Subsidiaries
Parent LEADER MINING INTERNATIONAL, INC.
Subsidiaries None.
The Company's principal areas of exploration are described herein below under
"Description of Properties."
RISK FACTORS
"Penny Stock" Rule
Leader Mining's common stock is covered by a Securities and Exchange Commission
rule that imposes additional sales practice requirements on broker-dealers who
sell these securities to persons other than established customers and accredited
investors, generally institutions with assets in excess of $5,000,000 or
individuals with net worth in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 jointly with their spouse. For transactions covered by the
rule, the broker-dealer must make a special suitability determination for the
purchaser and transaction prior to the sale. Consequently, the rule may affect
the ability of broker-dealers to sell our securities and also may affect the
ability of purchasers of our stock to sell their shares in the secondary market.
It may also cause less broker-dealers willing to make a market and it may affect
the level of news coverage received by the Company.
11
<PAGE>
Risks of Exploration
Resource exploration is a speculative business and involves a high degree of
risk. The marketability of natural resources which may be acquired or discovered
by the Company will be affected by numerous factors beyond its control. These
factors include commodity price and currency volatility, the proximity and
capacity of natural resource markets and processing equipment, and government
regulations and changes thereto, including regulations relating to prices,
taxes, royalties, land tenure, importing and exporting of minerals and
environmental protection. In addition, few mineral exploration properties become
commercially viable mines, nor can there be any assurances that exploration work
carried out by the Company will be successful. The exact effect of these factors
cannot be accurately predicted, but the combination of these factors may result
in the Company not receiving an adequate return on invested capital.
Resource Estimates
In carrying on its mineral exploration activities, the Company may rely upon
calculations as to prospective resources and corresponding grades on the
Company's prospects which, by their nature, are not exact. Until ore is actually
mined and processed, ore resources and ore grades must be considered as
estimates only. The quantity of resources will also vary depending on mineral
prices which have historically been highly cyclical and dependent upon numerous
factors beyond the Company's control including changes in investment trends and
international monetary systems, political events and changes in the supply and
demand for minerals on public and private markets. Any material changes in
reserves, grades or stripping ratios will affect the economic feasibility of any
mineral prospects which might be developed. Further, short term operating
factors relating to the mineral prospect must be analyzed, such as fule prices,
water availability, climate/weather conditions, location in relation to labor
forces and transportation facilities.
Fluctuation of Mineral Prices
The Company's exploration activities will be subject to the normal commodity
risks that are subject to fluctuations in mineral prices, in particular the
market price of the mineral to be sought. The price of minerals has fluctuated
widely in recent years and is affected by numerous factors beyond the Company's
control including international economic and political trends, expectations of
inflation, interest rates, global or regional consumptive patterns, speculative
activities and increased production due to new mine developments and improved
mining and production methods. The effect of these factors on the price of
minerals cannot be accurately predicted.
Competition
The Company competes with major mining companies and other smaller natural
resources companies in the acquisition, exploration, financing and development
of new properties and projects. Some of these companies are more experienced,
larger and better capitalised than the Company. The Company's competitive
position will depend upon its ability to successfully and economically explore
acquire new and existing mineral resource properties or projects. Factors which
allow producers to remain competitive in the market over the long term are the
quality and size of the mineral deposit, if any, cost of production, and
proximity to market. Because of the number of companies and variables involved,
no individual or group of producers can be pointed to as being in direct
competition with the Company.
12
<PAGE>
Capitalization and Commercial Viability
The Company has limited financial resources and there is no assurance that
additional funding would be available to the Company for further exploration of
its properties or to fulfill its obligations under any applicable agreements.
Although the Company has been successful in the past in obtaining financing
through the sale of equity securities, there can be no assurance that the
Company will be able to obtain adequate financing in the future or that the
terms of such financing will be favourable. Failure to obtain such additional
financing could result in delay or indefinite postponement of further
exploration of the Company's prospects with the possible loss of exploration or
exploitation permits.
The commercial viability of a particular mineral prospect will be affected by
factors that are beyond the Company's control, including the particular
attributes of the deposit, the fluctuation in mineral prices, the costs of
constructing and operating a mine, processing facilities, the availability of
economic sources of energy, government regulations including regulations
relating to prices, royalties, restrictions on production, quotas on exportation
of minerals, as well as the costs of protection of the environment and
agricultural lands.
It is impossible to assess with certainty the impact of these factors.
Uninsurable Risks
Exploration generally involve a high degree of risk. Hazards such as unusual or
unexpected formations, power outages, labour disruptions, flooding, explosions,
cave-ins, landslides, inability to obtain suitable or adequate machinery
equipment or labour and other risks are involved. The Company may become subject
to liability for pollution, cave-ins or hazards against which it cannot insure
or against which it may elect not to insure. The payment of such liabilities may
have a material, adverse effect on the Company's financial position.
Compliance with Governmental Regulations
The Company's exploration activities are subject to natural resource, health,
labour and environmental regulations, changes in which could result in
additional expenses and capital expenditures, availability of capital,
competition, resource uncertainty, potential conflicts of interest, title risks,
dilution and restrictions and delays in operations, the extent of which cannot
be predicted.
Currency
All transactions are in Canadian dollars. The company converts any other
currency used in a transaction into Canadian dollars as required to conduct
local activities. Accordingly, the company maybe subject to foreign currency
fluctuations, and such fluctuations may materially affect the Company's
financial position.
13
<PAGE>
Location of Mineral Prospects
There are certain political and economic risks inherent in the fact the Company
carries on business in foreign jurisdictions. These include the risk of foreign
currency restrictions and currency fluctuations as well as the risk of
governmental intervention by way of expropriation of the Company's properties or
nationalization of the mining industry. While the Company pursue opportunities
in stable political climates in there is a risk that political instability could
adversely affect the Company's operations. In the Republic of South Africa the
marketing and sale of diamonds recovered during exploration is regulated by the
Diamonds Act 1986, and the impact cannot be predicted with any absolute
certainty.
Conflicts of Interest
None of the directors and officers of the Company are also directors, officers,
and shareholders of other companies engaged in mineral exploration and
development. However, Manish Bindal is also a director of Canex Energy, Inc. and
Aspen Energy Corp., both of them are oil and gas exploration companies.
14
<PAGE>
ITEM 2: DESCRIPTION OF PROPERTIES
The Company owns no properties. It has mineral prospects which consist of mining
claims or contractual exploration agreements which may be evolved to development
if the Company so decides. It holds such contracts in the name of Leader Mining
INternational, Inc. For all purposes in this description, Registrant is referred
to as "Leader."
Knife Lake Prospect, Saskatchewan, Canada
Location and History
The Knife Lake Prospect is located in northeastern Saskatchewan close to the
Manitoba border. Knife Lake itself is located in the southeastern portion of the
project area at latitude 55 degrees 54' N and longitude 102 degrees 43' W. The
project is operated from a well-equipped bush camp on Knife Lake, 136-km
north-northwest of Flin Flon, Manitoba (approximate population 7,600) and 180 km
northeast of La Ronge, Saskatchewan. The property, whose NTS reference is
63-M-15E, can be found on the Gilbert Lake, 63M15 claim map, available from
Saskatchewan Energy, Mines and Resources in Regina.
Leader is the operator in all the option agreements covering all claims in the
project area. It is currently proceeding with, or making preparations for,
exploration it has planned or is required to do under the option agreements. All
the field exploration, on all mineral lands in which Leader has, or is earning,
an interest and which are described in this summary is carried out for Leader by
its own field staff or contractors directly under its control.
The Knife Lake prospect, optioned by Leader from CopperQuest, Inc. in March,
1996, initially consisted of mining lease ML 5269. It is 648 ha in size and
covers the known copper showing and soil geochemistry anomaly as well as the
projected extensions. During 1996 and 1997, additional claims were staked by the
Company.
In 1997, the Company fulfilled all of the earn-in requirements and acquired 100%
interest in the mining lease and staked claims. CopperQuest Inc. retains a 2%
net smelter royalty; which becomes payable if and when commercial production
occurs from the aforesaid claims. Leader has the right to purchase one half of
this net smelter royalty at any time for $1,000,000.
In 1997, the Company optioned eleven claims from Consolidated Pine Channel Gold
Corp. The terms of the agreement were amended in 1999 so that Leader can earn a
90% interest in these claims by spending $500,000 over 6 years; and paying
$1,000,000 in cash and 10,000 common shares of Leader.
15
<PAGE>
Consolidated Pine Channel Gold Corp. retains a 2% net smelter royalty which
becomes payable if and when commercial production occurs from these eleven
claims. Leader has the right to purchase one half of this net smelter royalty at
any time for $2,000,000.00.
All transactions involving Leader, CopperQuest Inc., and Consolidated Pine
Channel Gold Corp. have been arms-length.
On November 10, 1999 Leader entered into a joint venture agreement with Kores
Canada Corp. a wholly owned subsidiary of the Korea Resources Corporation, to
further explore the Knife Lake Project. Under the terms of the agreement Kores
Canada Corp. has the right to earn up to 50% interest by funding $4,000,000
exploration work over 4 years, and making cash payments to Leader totaling
$1,200,000. Leader will act as operator for the joint venture, and Leader will
receive an additional $300,000 bonus payment upon the start of commercial
production.
To earn the Interest set forth below, Kores must make the following payments to
Leader on or before the dates indicated and fund the following Expenditures by
the dates indicated:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Cumulative Interest
Payment Date Payment Expenditures by Date Amount Spent Earned
------------ ------- -------------------- ------------ --------
Effective Date $300,000 $1,000,000 on or before $1,300,000 20.00%
1st Anniversary Date
1st Anniversary Date $300,000 $1,000,000 on or before $2,600,000 33.33%
2nd Anniversary Date
2nd Anniversary Date $300,000 $1,000,000 on or before $3,900,000 42.86%
3rd Anniversary Date
3rd Anniversary Date $300,000 $1,000,000 on or before $5,200,000 50.00%
4th Anniversary Date
</TABLE>
The Expenditures will be funded according to Cash Calls received by Kores and
are cumulative such that any excess of Expenditures in one period will be
carried over into the next period. Any payment or Expenditures may be
accelerated at the option of Kores.
For greater certainty:
(a) upon the date that Kores has made payments and funded Expenditures
in a cumulative amount and on time as set forth in the table above,
Kores will be vested with the interest specified for such amount; and
(b) for the maximum Interest of 50%, Kores must make payments to
Leader totalling $1,200,000 on or before the 3rd anniversary Date and
fund Expenditures totalling $4,000,000 on or before the 4th Anniversary
Date.
The Effective Date of the Joint Venture between the Company and KORES is
December 22, 1999. As of June 30, 2000; KORES has made the $300,000 cash payment
to Leader and incurred $650,202 in exploration expenditures.
16
<PAGE>
Termination During First Year
If Kores fails to make the payment required on the Effective Date, then this
Agreement will terminate on the Effective Date. If Kores fails to fund the
Expenditures required by the first Anniversary Date, then this Agreement will
terminate on the first Anniversary Date. Upon such termination, Kores will have
no Interest nor any right to acquire an Interest, and neither party will have
any further obligation or liability hereunder except as may have arisen prior to
such termination.
Leader Mining developed a land position in the area, conducted numerous
geophysical surveys and collected extensive geological data. The data sets
consist of two airborne surveys, a regional gravity survey, extensive drilling
and mapping with accompanying lithogeochemical sampling. To further evaluate the
area, it was necessary to synthesize Leader's geophysical data and known geology
with the aim to identify areas on the property with the highest potential to
host various Volcanogenic Massive Sulphide (VMS) style sulphide deposits.
At Knife Lake, Leader now possesses or controls 108 mining claims and 1 mining
lease with a total land area of approximately 85,113 hectares. The claims are
held directly by Leader and other companies, which have optioned the mineral
prospects to Leader.
Mineral exploration and production in the Flin Flon Mining area has been active
for 80 years. Only recently has new geological modeling recognized that the
favorable Amisk Volcanics extend to the north from the Flin Flon Domain and
includes the former Hanson, Glennie, Scimitar and Kissenew Domains. These
domains have been explored intermittently by Hudson Bay Mining, Noranda, and
Cominco. With the current geological understanding, these domains are highly
prospective for VMS style mineralization. Leader's Knife Lake Volcanogenic
Massive Sulphide Deposit conforms well within the context of the newly defined
model for the Flin Flon-Glennie Domain. Recent government mapping has shown the
Knife Lake property to lie within the newly recognized Flin Flon-Glennie Domain,
which hosts the Flin Flon/Snow Lake VMS deposits.
The claims have received little mineral exploration and have no production
history, but appear to be an extension of the volcanic terrain which hosts the
base metal mineralization of the Flin Flon mining area. The Amisk Volcanics in
Flin Flon are host to Volcanogenic Massive Sulphide style, base metal
mineralization.
Since 1968, prospecting and mapping in the area of Knife Lake and Scimitar Lake
has resulted in the discovery of several copper occurrences. The largest of
these occurrences is the Knife Lake copper-gold deposit. The mineralization is
located on the west side of the Knife Lake, less than 100 metres west of the
shoreline, in the southern portion of Leader's property.
Infrastructure on the Knife Lake property is limited to the bush camp and winter
road access. Water for mineral processing and other needs is available in
abundance in the project area. The Island Falls hydroelectric power generating
station is located on the Churchill River at Sandy Bay. This station was
constructed to provide power to the town of Flin Flon. However, in the mid
1990's, the Government of Saskatchewan constructed a new high-tension power line
to deliver the power to the uranium mines of the Athabasca Basin in northern
Saskatchewan and all of the station's power output is now devoted to this
purpose. The transmission line comes within 20km of the southwestern corner of
the Knife Lake property.
17
<PAGE>
While the Sandy Bay-Flin Flon area has been explored for base and precious
metals at various times over the past 80 years, the earliest records of work in
the immediate area of Knife Lake are dated October 1968. From 1968, through
1972, Straus Exploration conducted extensive exploration work, consisting of
horizontal loop, vertical loop and Turam EM ground geophysical surveys, ground
magnetometer surveys, geochemical soil sampling, geological mapping, trenching,
sampling and diamond drilling, over a copper-gold showing on the western shore
of Knife Lake. Approximately 4.7 square km of grid was geologically mapped at a
scale of 1:6,000 over the copper prospect area. A slightly smaller area was
covered by geochemical and geophysical surveys. D.E. Pearson, as part of his
1971 mapping project, mapped in detail a portion of the grid on a scale of
1:7,200. A diamond drill program consisting of 87 holes (2 Winkie and 85 XT
sized core), totaling approximately 8,484m, was completed. As a result of the
exploration work, a mining lease was taken out, covering the copper showing and
surrounding geochemical anomaly.
Hudson Bay Exploration and Development, the wholly-owned exploration division of
Hudson Bay Mining and Smelting, conducted a regional airborne EM survey in 1980
and 1982. During 1989 and 1990 Cominco performed line cutting, geological and
geochemical surveys, on property approximately 2 km north of Knife Lake. Results
of these programs are not available.
The Knife Lake copper showing remained inactive until early 1989 when
CopperQuest was formed. CopperQuest commissioned Standing Geophysics Ltd.
(Standing) to re-establish Staus' grid over the copper prospect and to conduct
horizontal-loop EM and magnetometer surveys. Standing Geophysics completed 77.6
line-km of magnetic surveying and 101 line-km of EM surveying in February 1989.
In completing the EM surveying, Standing used different cable lengths (coil
separations) over the copper prospect in an attempt to locate areas where the
copper mineralization may have been thickened due to folding. Three such areas
were located and recommended for diamond drilling. In addition, three other
conductive zones were identified outside of the immediate copper prospect area.
A total of 1,829m of drilling in 24 holes was recommended but never carried out.
In March 1996, Leader Mining acquired the mining leases, after entering into an
agreement with CopperQuest. Leader has access to the CopperQuest, and most of
the Straus, exploration data. A summary of Leader's expenditures on the prospect
is presented below:
18
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Summary of Exploration Expenditures (June 1996 to December 1998)
---------------------------------------- ------------------------------------- -------------------------------------
<S> <C> <C>
Prospecting and 1,172 man days $342,600
Geological Mapping
---------------------------------------- ------------------------------------- -------------------------------------
Line Cutting 313 line km $119,400
--------------------- ------------------ ------------------------------------- -------------------------------------
Geophysics Airborne 12,689 line km $753,700
--------------------- ------------------ ------------------------------------- -------------------------------------
Ground 427 line km $243,300
--------------------- ------------------ ------------------------------------- -------------------------------------
Geochem Soil 2,374 $23,300
--------------------- ------------------ ------------------------------------- -------------------------------------
Assay 8597 (588 whole rock) $164,200
---------------------------------------- ------------------------------------- -------------------------------------
Trenching 180m3 $48,400
---------------------------------------- ------------------------------------- -------------------------------------
Drilling 30,866 m $2,960,500
---------------------------------------- ------------------------------------- -------------------------------------
Other (staking, logistics, $2,656,200
transportation)
--------------------------------------------------------------------------------------------------------------------
TOTAL = $7,311,000
--------------------------------------------------------------------------------------------------------------------
</TABLE>
The Knife Lake Deposit is interpreted by the Company to be a remobilized
fraction of a larger primary VMS deposit. It is hosted within an altered
pegmatite, high in Na, K, Sr, and Ba which geochemistry has shown is derived
from alkali rich sedimentary rocks. To date, a total of 26,397 metres of diamond
drilling among 308 drill holes have been completed on the Knife Lake Deposit and
a digital geological model has been constructed. The mineralization is outlined
over a distance of 4,300 metres and to a depth of 100 metres. Internal
Geological modeling has generated sufficient indications to cause the Company to
continue exploration work.
GEOLOGICAL DESCRIPTION
Volcanogenic massive sulphide deposits occur in geological terraces that are
dominated by volcanic rocks. Individual deposits may be hosted by volcanic or
sedimentary strata which compromise the volcanic complex. These deposits are
formed as sygentic accumulations of sulphide and sulphate minerals deposited
from fluids exiting hydrothermal vents at or near the sea floor. Copper,
typically present as chalcopyrite, and zinc, typically present as sphalerite
constitute the primary economic constituents; and gold and silver can contribute
by-product values.
ITEM 3. LEGAL PROCEEDINGS
The Company is currently involved in only one contractual dispute, involving
legal proceedings, with a private Saskatchewan company, and the outcome of such
proceeding, if adverse to the Company, would not be material and involves money
damages only less than $25,000.
19
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (CONTROL
OF REGISTRANT)
(a) Beneficial owners of five percent (5) or greater, of the
Registrant's Common Stock and Warrants: No Preferred Stock is outstanding at the
date of this offering. The following sets forth information with respect to
ownership by holders of more than five percent (5%) of the Company's Common
Stock known by the Company based upon 18,118,656 shares outstanding at May 20,
2000.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
------------------------ ---------------------------------- ----------------------------------- ----------------------
Title of Class Name Beneficial of Owner Amount and Nature of Beneficial Percent of Class
Ownership
------------------------ ---------------------------------- ----------------------------------- ----------------------
Common Stock Y.S. Jasi Nikhanj 2,390,000 Shares (1)(2) 8.1%
320 Pumphill Cr. S.W. Calgary,
Alta T2V 4M1
------------------------ ---------------------------------- ----------------------------------- ----------------------
</TABLE>
(1) Includes 532,000 shares owned by spouse, Aski Nikhanj.
(2) Includes 120,000 share option includable under Sec. 13d.
b) The following sets forth information with respect to the Company's
Common Stock beneficially owned by each Officer and Director,
<TABLE>
<CAPTION>
<S> <C> <C> <C>
---------------------- ----------------------------------- ------------------------------------ ----------------------
Title of Class Name Beneficial of Owner Amount and Nature of Beneficial Percent of Class
Ownership
---------------------- ----------------------------------- ------------------------------------ ----------------------
Common Y.S. Jasi Nikhanj (1) Pres/Director 2,390,000 shares (1)(5) 11.0%
---------------------- ----------------------------------- ------------------------------------ ----------------------
Common Ueli Schurch Director 650,000 shares 4.0%
---------------------- ----------------------------------- ------------------------------------ ----------------------
Common Manish Bindal Secretary/Director 225,000 shares (2)(5) 0.1%
---------------------- ----------------------------------- ------------------------------------ ----------------------
Common Roland Kesselring V.P. 690,000 shares (3)(5) 3.2%
---------------------- ----------------------------------- ------------------------------------ ----------------------
Common Raymond Lai V.P. 412,500 shares (4)(5) 1.94%
---------------------- ----------------------------------- ------------------------------------ ----------------------
Total amount owned by officers and directors as a group.
---------------------- ----------------------------------- ------------------------------------ ----------------------
Title of Class Name Beneficial of Owners Amount and Nature of Beneficial Percent of Class
Ownership
---------------------- ----------------------------------- ------------------------------------ ----------------------
Common Directors 3,265,000 shares (5) 18.00%
---------------------- ----------------------------------- ------------------------------------ ----------------------
Common Officers 2,902,500 shares (5) 17.00%
---------------------- ----------------------------------- ------------------------------------ ----------------------
Common Combined 4,367,500 shares (5) 23.00%
---------------------- ----------------------------------- ------------------------------------ ----------------------
</TABLE>
(1) Includes 532,000 shares owned by spouse, Aski Nikhanj.
(2) Includes 75,000 shares owned by spouse Sehra Bindal.
(3) Includes 590,000 shares owned by spouse Manuela Kesselring.
(4) Includes 222,500 shares owned by spouse, Amanda Lai.
(5) Includes option shares includable under Section 13d.
20
<PAGE>
ITEM 5. (a) MARKET PRICE OF AND DIVIDENDS ON REGISTRANTS COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's common stock is listed and traded on the Alberta Stock Exchange
and is quoted in the National Quotation Bureau "Pink Sheets" when trades are
made. The Company has applied to OTC BB for quotation privileges in the U.S. and
such listing is pending completion of Form 20f comments. The following table
sets forth high and low closing prices of the Company's common stock for the
three (3) years ended March 31, 2000, 1999, 1998, and 1997 on the Alberta Stock
Exchange as follows:
Closing
(Canadian $)
High Low
2000 First Quarter 2.00 0.85
Second Quarter 1.00 0.65
1999
First Quarter 1.19 0.50
Second Quarter 1.05 0.65
Third Quarter 0.89 0.57
Fourth Quarter 1.60 0.75
1998
First Quarter 5.10 3.40
Second Quarter 4.00 2.95
Third Quarter 3.15 0.54
Fourth Quarter 0.85 0.30
1997
First Quarter 9.45 4.00
Second Quarter 7.45 5.25
Third Quarter 6.20 2.80
Fourth Quarter 3.85 3.30
The Company has been unable to obtain a reliable history of pink sheet activity.
(b) As of April 30, 2000, the Company had an estimated 900 shareholders of
record of the common stock, including those held in brokerage accounts in
"street name."
(c) No dividends on outstanding common stock have been paid within the last two
fiscal years, and interim periods. The Company does not anticipate or intend
upon paying dividends for the foreseeable future.
The Company estimates that 5% of the shareholders of the Company are U.S.
shareholders.
21
<PAGE>
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There are currently no limitations imposed by Canadian federal or provincial
laws on the rights of non-resident or foreign owners of Canadian securities to
hold or vote the securities held. There are also no such limitations imposed by
the Company's articles and bylaws with respect to the common shares of the
Company.
Under the Investment Canada Act, the acquisition of certain "businesses" by
"non-Canadians" or "Americans" are subject to review by Investment Canada, a
federal agency, and will not be allowed unless they are found likely to be of
"net benefit" to Canada. An acquisition will be reviewable by Investment Canada
only if the value of the assets of the Canadian business being acquired is CDN
$5 million or more in the case of a "direct" acquisition or CDN $50 million or
more in the case of an "indirect" acquisition. Under the Free Trade Agreement
between Canada and the United States, an acquisition by an American is
reviewable only if it involves the direct acquisition of a Canadian business
with assets of CDN $160 million or more. If the foregoing thresholds are not
reached, the acquisition of a Canadian business by a non-Canadian will not be
subject to review unless it relates to Canada's cultural heritage or national
identity. Even if the transaction is not reviewable, a non-Canadian must still
give notice to Investment Canada of the acquisition of a Canadian business
within 30 days after its completion.
ITEM 7. TAXATION
Canadian Federal Income Tax Consequences for Canadian Shareholders
The following summarizes the material Canadian federal income tax consequences
applicable to the holding and disposition of a common share by a holder (the
"Holder") of one or more common shares who is resident in the United States of
America and holds the common share as capital property. This summary is based on
the current provisions of the Income Tax Act (Canada) (the "Tax Act"), the
regulations thereunder and all amendments to the Tax Act publicly proposed by
the government of Canada to the date hereof. It is assumed that each such
amendment will be enacted as proposed and there is no other relevant change in
any governing law, although no assurance can be given in these respects.
Every Holder is liable to pay a withholding tax on every dividend that is or is
deemed to be paid or credited to him on his common shares. Under the
Canada-United States Income Tax Convention (1980) (the "Treaty"), the rate of
withholding tax is 10% of the gross amount of the dividend where the Holder is a
company that owns at least 10% of the voting stock of the Company and
beneficially owns the dividend, and 15% in any other case. A Protocol amending
the Treaty was ratified by the representatives of the Canadian and United States
governments. Effective in December, 1995 one of the amendments in the Protocol
reduces the 10% withholding rate on dividends to 6% in 1996 and 5% in 1997.
22
<PAGE>
Under the Tax Act, a Holder will not be subject to Canadian tax on any capital
gain realised on an actual or deemed disposition of a common share, including a
deemed disposition at death, provided that he did not hold the common share as
capital property used in carrying on a business in Canada, and that neither he
nor persons with whom he did not deal at arm's length, alone or together, owned
25% or more of the issued shares of any class of the Company at any time in the
five years immediately preceding the disposition.
A Holder who otherwise would be liable for Canadian tax in respect of a capital
gain realised on an actual or deemed disposition of a common share will be
relieved under the Treaty from such liability unless
(1) the common share formed part of the business property of a
permanent establishment in Canada that the Holder had within the twelve-month
period preceding the disposition; or
(2) the Holder
(a) was resident in Canada for 120 months during any 20-year period
preceding the disposition, and
(b) was resident in Canada at any time during the 10 years immediately
preceding the disposition, and
(c) owned the common share when he ceased to be a resident of Canada
U.S. Tax Consequences
U.S. shareholders will not be impacted by Canada "Flow-through" shares under the
Internal Revenue Code shares. U.S. shareholders who hold shares for less than
one year will be able to take short time capital gain or loss for sales within a
twelve month period and be taxed at ordinary income rates on profits. If a
shareholder holds shares for one year or more, the shareholder will be able to
treat profit or loss as long term capital gain or loss, and, if a gain, the tax
rate is a maximum of 28% unless Alternative Minimum Tax applies, which could
only be determined on an individual's tax year basis.
ITEM 8. SELECTED FINANCIAL DATA
The selected financial data set forth below are derived from the accompanying
audited financial statements of the Company to March 31, 2000. Financial
statements of the Company included elsewhere herein should be read in
conjunction with those financial statements and the footnotes thereto. The
financial statements have been prepared in accordance with Canadian generally
accepted accounting principles ("GAAP"). For United States GAAP reconciliation,
see attached financial statements and notes. Reference should also be made to
"Item 9 Management's Discussion and Analysis of Financial Conditions and Results
of Operations."
23
<PAGE>
<TABLE>
<CAPTION>
Selected Financial Information for 5 Years (in Cdn$)
Fiscal Year Ended March 31st
<S> <C> <C> <C> <C> <C>
2000 1999 1998 1997 1996
---- ---- ---- ----- -----
Interest 6,018 49,044 152,132 0 0
Mgmt Fees 60,000 0 0 0 0
---------- ------- -------- ------- ------
Total Revenue 66,018 49,044 152,132 28,702 0
---------- ------- -------- ------- ------
General &
Admin. Expenses 624,463 898,873 1,358,156 640,625 368,902
Exploration Costs
Written Off 360,858 1,848,313 561,500 1,506,392 0
Amortization 8,405 11,282 27,082 12,182 0
Other Expenses 0 137,723 92,420 0 100,000
Loss for the Period (927,708) (2,847,147) (1,887,026) (2,130,497) (468,902)
----------- ----------- ----------- ----------- ----------
Loss per Share (.05) (0.20) (0.17) (0.20) (0.08)
----------- ----------- ----------- ----------- ----------
Weighted average
shares outstanding 17,221,284 14,446,458 13,911,958 10,924,623 5,961,296
----------- ----------- ---------- ----------- ----------
Balance Sheet Data:
Current Assets 245,468 696,996 3,011,601 6,729,786 1,510,715
Capital Assets 24,829 32,579 155,645 68,834 28,326
Deferred Acq. &
Expl. Costs 8,004,148 8,100,426 8,957,965 4,440,824 1,065,975
---------- --------- --------- --------- -------
Exploration Costs
Total Assets 8,274,445 8,830,001 12,125,211 11,239,444 2,605,016
---------- ---------- ---------- --------- -------
Current Liabilities 55,643 277,590 1,820,664 1,117,428 238,189
Due to Related Parties 0 22,800 8,553 231,243 207,346
Long Term Liabilities 0 0 0 0 100,000
Capital Stock 20,963,315 20,346,416 19,265,652 16,973,405 7,011,616
Deficit (12,744,513) (11,816,805) (8,969,658) (7,082,632) (4,952,135)
---------- ----------- ----------- ----------- -----------
Total Equity
& Liabilities 8,274,445 8,830,001 12,125,211 11,239,444 2,605,016
---------- ---------- ---------- --------- -------
</TABLE>
24
<PAGE>
Loss for the period and deficit as determined in accordance with Canadian GAAP
differ from those determined in accordance with U.S. GAAP, due principally to
the deferral under Canadian GAAP of exploration costs and the exclusion of
compensation expense arising from the issue of options at a discount from their
fair value. Under U.S. GAAP the exploration costs would have been expensed when
incurred, and the compensation expense would have been recorded.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
2000 1999 1998
$ $ $
---- ---- ----
Loss for the Year Following U.S. GAAP (1,043,486) (2,418,858) (7,601,157)
Loss for the Year Following CDN GAAP (927,708) (2,847,147) (1,887,026)
Loss per share under U.S. GAAP (0.06) (0.17) (0.55)
Loss per share under CDN GAAP (0.05) (0.20) (0.17)
Deferred Exploration Costs Adjustment (115,778) 807,539 (4,606,141)
Stock Based Compensations Adjustment - (379,250) (1,107,980)
</TABLE>
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND CHANGES
IN FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Differences between Canadian and U.S. generally accepted accounting principles
Significant differences between Canadian GAAP and U.S. GAAP which would have an
effect on these financial statements, are as follows:
a) Adjustment to net loss
<TABLE>
<CAPTION>
<S> <C> <C> <C>
2000 1999 1998
$ $ $
Loss for the year following Canadian GAAP (927,708) (2,847,147) (1,887,026)
Deferred exploration costs (i) (115,778) 807,539 (4,606,141)
Stock based compensation (iii) - (379,250) (1,107,990)
----------------------------------------------------------------
Loss for the year following U.S. GAAP (1,043,486) (2,418,858) (7,601,157)
----------------------------------------------------------------
Loss per share under U.S. GAAP (0.06) (0.17) (0.55)
----------------------------------------------------------------
</TABLE>
25
<PAGE>
i) For U.S. GAAP, exploration costs, net of the tax effect of
flow-through shares, related to projects are charged to expense as
incurred. As such, the majority of costs charged to exploration costs
written offunder Canadian GAAP would have been charged to earnings in
prior periods under U.S. GAAP. Property acquisition costs are
capitalized for both Canadian and U.S. GAAP.
ii) Under U.S. GAAP, a grant of stock options and warrants to acquire
shares at a price below the fair market value of the shares at the
time of the grant, is compensatory under APB No. 25 and is accounted
for as compensation expense. This has the effect of increasing capital
stock and deficit under U.S. GAAP.
b) Adjustments to balance sheet
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
2000 1999 1998
---------------------------- --------------------------- -----------------------------
Canadian Canadian Canadian
GAAP U.S. GAAP GAAP U.S. GAAP GAAP U.S. GAAP
$ $ $ $
Mineral properties and
deferred exploration 8,004,148 158,500 8,100,426 169,000 8,957,965 219,000
costs (a)(i)
Capital stock(a)(ii) 20,963,315 24,746,233 20,346,416 24,214,334 19,265,652 22,754,320
Deficit(a) (12,744,513)(25,240,459) (11,816,805) (23,616,149) (8,969,658) (21,197,291)
</TABLE>
<TABLE>
<CAPTION>
c) Shareholders' equity
Under U.S. GAAP, shareholders' equity would be as follows:
<S> <C> <C> <C>
2000 1999 1998
$ $ $
Under Canadian GAAP 8,218,802 8,529,611 10,295,994
U.S. GAAP adjustment to net loss
Current (a)(i) and (a)(ii) 115,778 428,289 (5,714,131)
Cumulative (12,611,724) (12,227,633) (6,513,502)
U.S. GAAP adjustment to capital stock
(a)(ii) - 379,250 1,244,490
Cumulative 3,782,918 3,488,668 2,244,178
-------------------------------------------------------------
(494,226) 598,185 1,557,029
-------------------------------------------------------------
</TABLE>
26
<PAGE>
d) Income taxes
Under U.S. GAAP, the Company would be required to initially recognize an
income tax asset arising from the benefit of losses carried forward. This
asset has been reduced to $nil through the application of a valuation
allowance of $4,645,000.
e) Recent accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" which
standardizes the accounting for derivative instruments. SFAS 133 is
effective for all fiscal quarters of all fiscal years beginning after June
15, 1999. The effective date was subsequently changed to all fiscal
quarters of all fiscal years beginning after June 15, 2000. Adopting this
standard will not have a significant impact on the Company's financial
position, results of operations, or cash flows.
RESULTS OF OPERATIONS
The Company has no primary income source at this time and has never had any
operating revenues. All working capital is obtained from equity financing such
as private placements, options and warrants exercising. The revenue reported in
FY 1999 and 1998 is from interest earned from working capital invested in
secured short-term money markets. The Management Fee income of $60,000 reported
in FY 2000 is for operating the Knife Lake Joint Venture Exp. Exploration
program. The major expenditure for the Company is acquiring mineral properties
and conducting exploration programs on those properties. These exploration
expenditures are capitalized as intangible assets. If no economical mineral
resource is found on a certain property after an extensive exploration program,
the capitalized value is written off as an expense in the income statement. The
Company also does not have any long-term debt. The only liability of the Company
is accounts payable incurred during its on-going exploration operations. The
amounts due to related parties are mainly funds advanced from the Directors and
Officers to the Company when the Company is short in funding. Such debt is
non-interest bearing and has no fixed terms of repayment.
CHANGES IN FINANCIAL CONDITION AS AT MARCH 31, 2000
At year-end 2000, the Company's assets decreased to $8,274,445 compared to
$8,830,001 at March 31, 1999. The decrease of $555,556 mainly consisted of 2
major factors totaling $547,806. The first factor is the decrease of Cash and
Deposit of $451,528 from 2000 to 1999 due to wind-down of 1998 Knife Lake
exploration program. The second factor is the decrease of $96,278 in Deferred
Acquisition and Exploration costs from 2000 to 1999 due to write off of
acquisition cost of numerous non-productive mineral claims.
The Current Liabilities decreased $244,747 from $300,390 in 1999 to $55,643 in
2000 due to wind-down of 1998 Knife Lake exploration program and resulting
payoff of bills due.
Accumulated deficit in 2000 was $12,744,513 which increased $927,708 from
$11,816,805 in 1999. The increase was the Operating Deficit for 2000.
27
<PAGE>
COMPARISON OF RESULTS OF OPERATION FOR THE FISCAL YEARS ENDED MARCH 31, 2000
AND 1999 (UNDER CANADIAN GAAP)
The Company had Management Fees Revenue of $60,000 in fiscal year 2000. The
Management Fees were for the operatorship of the Knife Lake Joint Venture
Exploration Program in 2000 for Kores and is expected to continue in 2001. The
interest income of $6,018 in 2000 decreased $43,026 from $49,044 in 1999 funds
raised for explorations were used up.
The General and Administrative expense decreased $274,410 from $898,873 in 1999
to $624,463 in 2000 due to the winding down of 1998 Knife Lake exploration
program. Exploration costs written off decreased $1,487,455 from $1,848,313 in
1999 to $360,858 in 2000. The Company had not bought any new mineral claims in
2000. Loss on write-down of marketable securities of $139,840 incurred in 1999
was due to marketable securities which decreased in market value substantially
when the Company sold them in 1999 and no such activity occurred in 2000.
The Net loss for the year had decreased $1,919,439 from $2,847,147 in 1999 to
$927,708 in 2000. The decrease is mainly due to the decrease of $1,487,455 in
Exploration costs written off and decreases of $274,410 in General and
Administrative expense and no further loss on marketable securities ($139,480
loss was incurred in 1999).
The Loss per share in 2000 was $0.05 decreased $0.15 from $0.20 in 1999. The
decrease was due to the decrease of $1,919,439 in Net Loss for the year in 2000.
COMPARISON OF RESULTS OF OPERATION FOR THE FISCAL YEARS ENDED MARCH 31, 1999 AND
1998 (UNDER CANADIAN GAAP)
The Company had no operating revenue in either fiscal years 1999 or 1998 except
interest income of $49,044 in 1999 and $152,132 in 1998. The decrease of
$103,088 was due to the winding down of 1998 Knife Lake exploration program and
funds raised for that purpose was used up.
The per-share loss amounted to ($0.20) at March 31, 1999 as compared to ($.17)
at March 31, 1998.
In the fiscal year ended March 31, 1999, the Company incurred $898,873 in
general and administrative expenses as compared to the prior year in which
$1,358,156 in general and administrative expenses were incurred.
The General and Administrative expense had decreased $459,283 from $1,358,156 in
1998 to $898,873 in 1999. It was also due to the winding down of 1998 Knife Lake
exploration program and additional labor and facilities had been let go an
closed up. Exploration costs written off had increased $1,286,813 from $561,500
in 1998 to $1,848,313 in 1999. It was due to the written off acquisition costs
of numerous non-proving mineral claims. Loss on write-down of marketable
securities of $139,840 incurred in 1999 was due to marketable securities that
the Company invested had decreased in market value substantially when the
Company sold them in 1999. Site restoration and abandonment costs was nil in
1999 compared to $68,250 in 1998 as the Site restoration and clean up job for
Sandy Valley Project was done in 1998.
The Net loss for the year had increased $960,121 from $2,039,158 in 1998 to
$2,847,147 in 1999. The increase is largely due to $103,088 less in interest
income and the increase of $1,286,813 in Exploration costs written off and one
time loss of $139,840 in write-down of marketable securities offsetting with
decreases of $459,283 in General and Administrative expense and $68,250 in Site
restoration cost.
28
<PAGE>
The Loss per share in 1999 was $0.20 increased $0.03 from $0.17 in 1998. the
increase was due to the increase of $960,121 in Net Loss for the year in 1999.
The increased losses were as a result of increased expenditures for the
evaluation and testing of the Knife Lake project in Canada. The Company expects
that losses will continue because the Knife Lake project requires further
evaluating, and no production exists or can be predicted. The Company is not now
conducting any mining operations.
29
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The following chart summarizes all capital funding raised in the past five
years.
<TABLE>
<CAPTION>
FUNDING SUMMARY
FROM APRIL 1995 TO MAY 2000
<S> <C> <C> <C> <C>
----------------------- ------------------------------ ----------------------------- ------------------ ----------------------
Year Total Shares Issued Share Price Total Amount
----------------------- ------------------------------ ----------------------------- ------------------ ----------------------
1995 Private Placement 1,150,000 $1.65 $1,900,000
----------------------- ------------------------------ ----------------------------- ------------------ ----------------------
Exercise of Options 543,000 $0.47 $255,750
----------------------- ------------------------------ ----------------------------- ------------------ ----------------------
1995 Total 1,693,000 $1.27 $2,155,750
----------------------- ------------------------------ ----------------------------- ------------------ ----------------------
----------------------- ------------------------------ ----------------------------- ------------------ ----------------------
1996 Private Placement 1,000,000 $3.90 $3,900,000
----------------------- ------------------------------ ----------------------------- ------------------ ----------------------
Flow Through 425,000 $4.70 $1,997,500
----------------------- ------------------------------ ----------------------------- ------------------ ----------------------
Exercise of Options 628,000 $2.63 $1,652,200
----------------------- ------------------------------ ----------------------------- ------------------ ----------------------
Exercise of Warrants 950,000 $1.58 $1,502,500
----------------------- ------------------------------ ----------------------------- ------------------ ----------------------
1996 Total 3,003,000 $3.01 $9,052,200
----------------------- ------------------------------ ----------------------------- ------------------ ----------------------
----------------------- ------------------------------ ----------------------------- ------------------ ----------------------
1997 Private Placement 1,288,000 $3.90 $5,023,200
----------------------- ------------------------------ ----------------------------- ------------------ ----------------------
Private Placement 472,000 $4.55 $2,147,600
----------------------- ------------------------------ ----------------------------- ------------------ ----------------------
Exercise of Options 195,000 $3.90 $760,500
----------------------- ------------------------------ ----------------------------- ------------------ ----------------------
Exercise of Warrants 75,000 $4.12 $309,000
----------------------- ------------------------------ ----------------------------- ------------------ ----------------------
1997 Total 2,030,000 $4.06 $8,240,300
----------------------- ------------------------------ ----------------------------- ------------------ ----------------------
----------------------- ------------------------------ ----------------------------- ------------------ ----------------------
1998 Private Placement 260,000 $3.40 $884,000
----------------------- ------------------------------ ----------------------------- ------------------ ----------------------
1998 Total 260,000 $3.40 $884,000
----------------------- ------------------------------ ----------------------------- ------------------ ----------------------
----------------------- ------------------------------ ----------------------------- ------------------ ----------------------
1999 Private Placement 2,000,000 $0.35 $700,000
----------------------- ------------------------------ ----------------------------- ------------------ ----------------------
Exercise of Options 687,000 $0.43 $295,410
----------------------- ------------------------------ ----------------------------- ------------------ ----------------------
1999 Total 2,687,000 $0.37 $995,410
----------------------- ------------------------------ ----------------------------- ------------------ ----------------------
2000 Private Placement 400,000 $0.52 $208,000
----------------------- ------------------------------ ----------------------------- ------------------ ----------------------
(Up to May 1, 2000) Exercise of Options 690,000 $0.43 $296,700
----------------------- ------------------------------ ----------------------------- ------------------ ----------------------
Exercise of Options 210,000 $0.45 $ 94,500
----------------------- ------------------------------ ----------------------------- ------------------ ----------------------
2000 Total $599,200
----------------------- ------------------------------ ----------------------------- ------------------ ----------------------
</TABLE>
30
<PAGE>
The principal sources of funding for the Company's operation in the past five
years have been issuance of securities through private placements, flow through
shares, exercise of director and employee stock options, and loans from
directors and officers for cash and as consideration for certain acquisitions.
The company currently has $250,000 in cash at July 31, 2000.
The principal uncertainty that could affect the Company's liquidity is the
Capital Markets interest or lack thereof in Mining Industry which is beyond the
control of the Company.
On a short term basis, the Company is planning to raise $1 million through
private placements and the exercise of options and warrants to cover the
operating budget for 2000. The Knife Lake project 2000 exploration program will
be funded by the Joint Venture partner, Kores Canada. The Joint Venture
Agreement has paid the Company a $300,000 option fee and management fee for 2000
of $75,000. Capital Expenditures are budgeted at $1,000,000 for Knife Lake which
will be paid by Kores Canada.
On a long-term basis, the Company does not have any assured certain source of
additional working capital and the continuation of operations is subject to its
ability to raise more equity money and its success in the exploration of the
Knife Lake and Karmel Projects.
Flow Through Shares
The Company has raised 2 million dollars through Flow Through Shares in 1996.
The mechanism of Flow Through Shares is as follows:
The Canadian Income Tax Act contains provisions whereby a principal business
corporation that incurs Qualifying Expenditures with funds received from a
subscriber under an agreement for the issue of shares of the Company, other than
prescribed shares, will be entitled to renounce such Qualifying Expenditures to
the purchaser of such shares within certain parameters set by the Act. The
Company has undertaken that it is and at all material times will be, a principal
business corporation and that the flow through Common Shares, when issued, will
not be prescribed shares, all within the meaning of the Act.
It is a condition of entitlement of a subscriber to Qualifying Expenditures that
the Company complete certain filings in respect of the prospectus and
renunciation of Qualifying Expenditures. The Company has represented that it
will complete such filings and will provide each subscriber with the necessary
information with respect to renounced Qualifying Expenditures for the purposes
of enabling the subscriber to claim deductions in respect of the Qualifying
Expenditures so renounced. The preparation and filing of all income tax returns
will be the responsibility of each subscriber.
The funds received from the issue of the flow through shares offered hereunder
will be used by the Company on its own account to incur Qualifying Expenditures
which the Company will renounce to subscribers to the extent permitted by and in
accordance with the Act. Such Qualifying Expenditures as are properly renounced
to a subscriber will be deemed to have been incurred by the subscriber on the
effective date of the renunciation.
31
<PAGE>
Provided that certain conditions are met, the Act currently provides that
Qualifying Expenditures incurred within 60 days after the end of a calendar year
under a flow-through share arrangement may be treated as if incurred on the last
day of the preceding calendar year. The March 6, 1996 Federal Budget announced
certain proposals in respect of flow through shares (the "Budget Proposals"),
including an extension of the 60 day look back rule for renunciations made after
1996. The following is based on counsel's understanding of the Budget Proposals,
which is subject to some uncertainty pending availability of the detailed
legislation. There is no assurance that the Budget Proposals will be enacted
into law as proposed or at all.
Under the Budget Proposals, Qualifying Expenditures, which are anticipated to be
expended by the end of a calendar year may be renounced in the first 90 days of
the calendar year effective as of the end of the preceding calendar year. If
such renounced expenditures are not in fact incurred by the Company by the end
of the calendar year, the renunciations made by subscribers will be reduced
accordingly. Subscribers will not be required to pay interest on any resulting
increase in tax payable as a result of such reduction of renunciations until
after April of the calendar year following the renunciation. The Company will be
required to pay to Revenue Canada deductible monthly charges equal to 1/12 of
the interest rate prescribed under the Act in respect of renounced and
unexpended funds. The Company will also be required to pay a deductible charge
at the end of the year of 10% of any unexpended funds.
To the extent permitted by the Act, the Company has agreed to use its best
efforts to incur Qualifying Expenditures in an amount equal to the funds it
receives for the flow through shares on or before March 1, 1997 and to renounce
such Qualifying Expenditures effective no later than December 31, 1996. In the
event that the Company is unable to incur Qualifying Expenditures equal to such
amount on or before March 1, 1997, the Company has agreed (to incur and renounce
the Qualifying Expenditures effective no later than December 31, 1997) or (to
incur no later than December 31, 1997, and renounce effective December 31,1996,
assuming the Budget Proposals are passed into law).
Generally speaking, the Company will be entitled to renounce to subscribers of
the amount of otherwise deductible. Qualifying Expenditures incurred by it for
up to 24 months after the end of the month in which the subscriptions for flow
through Common Shares are accepted less any previous renunciations with respect
to such Qualifying Expenditures, any portion of those Qualifying Expenditures
which are prescribed by regulations to relate to overhead and any assistance
that the Company has received or is entitled to receive or may reasonably be
expected to receive from a government authority or other person relating to such
Qualifying Expenditures.
The Company may not renounce to subscribers an amount in excess of the amount
paid by subscribers for the flow through shares offered hereunder. Further, the
Company will not be entitled to renounce Qualifying Expenditures to the Extent
that such renunciation, in effect, would cause the Company's own cumulative CEE
("CCEE"), to be a negative amount.
The Company has agreed to refrain from transactions or the taking of deductions
which would otherwise reduce its CCEE to an extent which would preclude a
renunciation of Qualifying Expenditures.
Qualifying Expenditures which are renounced by the Company to a subscriber will
be added to the subscriber's cumulative CEE account for the subscriber's
taxation year in which the renunciations effective. A subscriber may deduct all
or any portion of the balance in his cumulative CEE may be carried forward to
subsequent years.
32
<PAGE>
In the event that the Company failed to comply with the Canadian regulations
regarding Canadian Exploration Expenditures, the Company would be subject to
civil penalties under Revenue Canada regulations and would be subject to
lawsuits for damages by shareholders for loss of tax benefits of flow through
shares.
Impact of the Year 2000
The year 2000 issue arises from computer systems using two digit date fields
rather that four to refer to a particular year. This means that a computer
system might not properly recognize "00" as the Year 2000, but instead as the
Year 1900, which could result in operational and financial disruption, and
possibly systems failures. The Company is taking appropriate steps to identify
and remediate the Year 2000 issue before the end of 1999, and does not expect
the costs of these efforts to be material. The Company does not believe that
there will be an adverse effect on its business, operating results or financial
position as a result of the Year 2000 Issue. However, there can be no assurance
that the Year 2000 readiness efforts by the Company's suppliers and business
partners will be successful, therefore it remains uncertain to what extent, if
any, the Company may be affected. So far, the Company has not experienced any
difficulties relating to the year 2000.
ITEM 10. DIRECTORS AND OFFICERS OF THE COMPANY
Foreign Currency Adjustments
Other than adjustments between Canadian dollars and US dollars which are
reflected in its financial statements, the Company does not denominate expenses
in any other foreign currency. The Company recorded any South African expenses
in Canadian currency. South African currency has occasionally been volatile, and
there are strict currency controls to prevent the export of capital. To date,
the Company has only expended money in South Africa, and since it terminated its
exploration venture, does not anticipate export of capital from South Africa at
any time.
Hedging Activities
The Company does not engage in any hedging activities.
The names, residences, terms, and periods of service within the past five years
of each of the directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Position
Name Within Period of Service
the Company Term
Yashvir (Jasi) Nikhanj (1,2) President and Director Annual 1987 to date
Calgary, Alberta
Ulrich Schurch Director Annual 1996 to date
Switzerland
Manish Bindal (2) Secretary and director Annual 1996 to date
Calgary, Alberta
Raymond Lai Vice president Finance Annual 1996 to date
Calgary, Alberta
Roland Kesselring (2) Vice president Annual 1997
Switzerland Corporate Affairs
(1) Member of the audit committee.
(2) Member of Nomination and Compensation Committee.
</TABLE>
33
<PAGE>
Yashvir Nikhanj, age 53, has been President and director of the Registrant since
1987. He obtained a Bachelor of Science in Geology from Ranchi University,
Bikar, India in 1968. He received a MSc in Earth Sciences from Massachusetts
Institute of Technology in 1970 and a MSc in Applied Geology from McGill
University in 1972. He also has been President and principal shareholder of
Nikhanj and Associates Consulting of Calgary, Canada since 1975.
Ulrich Schurch, age 37, is a director of the Registrant. He received a
Commercial Diploma as a banker in 1981 in Switzerland. In 1993, he received a
"Diplomaster" betribsokonom BVS" in Switzerland at St. Grallen. From 1992 to
1996, he was Vice President and a partner at Moscom Finary in Zurich,
Switzerland. From 1996 to 1998, he was President and Partner of Schwich Asset
Management BmDH, St Gallen, Switzerland. From 1998 to date he has been with
Credit Swisse Zurich as a Portfolio Manager - Special Mandates.
Manish Bindal, age 35, is a director and General Counsel to the Company. Mr.
Bindal received a Bachelor of Science in 1984 and a Bachelor of Law in 1987 from
Kurukashetra University in India. From August 1987 to May 1991 Mr. Bindal was
engaged in private practice of law at Chandigarh, India. From May 1991 to
September 1994 Mr. Bindal was a law student in Calgary, Canada. He was employed
as a student-at-law at the firm of Howard Mackie, Nova Corp. and Alberta
Securities Commission from October 1994 to October 1995. He has been in private
law practice since November, 1995. Other than the Registrant, Mr. Bindal has
been a director of Canex Energy, Inc. and Aspen Energy Corp., both oil and gas
companies listed on the Albert Stock Exchange.
34
<PAGE>
Raymond Lai, age 48, is Vice President of Finance and Administration for the
Registrant and has been since 1995. Mr. Lai received his B.Sc. degree in 1971
from the University of Calgary. He became a Certified Management Accountant in
1979. From 1993 to 1995, Mr. Lai was controller of Mission Packaging, Inc. in
Calgary.
Ronald Kesselring, age 36, is V.P Corporate Affairs - Europe since 1996. He
completed Banking School in Switzerland in 1982. He is CEO of Mascon Finance,
Ltd. of Ermatingen, Switzerland and has been since 1995 a Managing Director.
From April 1992 to 1995, he was a Managing Director at the institutional sales
desk of Swiss Bank Corp. Zurich, Switzerland.
The directors of the Company are elected by the shareholders at each annual
general meeting and typically hold office until the next annual general meeting
at which time they may be re-elected or replaced. Casual vacancies on the board
are filled by the remaining directors and the persons filling those vacancies
hold office until the next annual general meeting at which time they may be
re-elected or replaced. The senior officers are appointed by the board and hold
office indefinitely at the pleasure of the board.
Within the five years proceeding the date of this filing document, none of the
directors, officers or promoters of the Company have been a director, officer or
promoter of other reporting companies other than as follows:
Mr. Bindal has been a director of Canex Energy, Inc. and Aspen Energy
Corp., both oil and gas companies listed on the Alberta Stock Exchange,
since 1996.
35
<PAGE>
No director, officer or promoter of the Company has, within the ten years
preceding the date of this filing document, been the subject of any penalties or
sanctions by a court or securities regulatory authority relating to trading in
securities, the promotion, formation or management of a publicly-traded company
or involving theft or fraud, other than as follows:
In 1996, Mr. Nikhanj entered into a Settlement Agreement and
Understanding with the Alberta Securities Commission because he had not
timely filed insider reports for purchases and sales of shares in
Leader Mining International with the Alberta Securities Commission. The
Settlement resulting in a $5,000 penalty and the Agreement to be
diligent in complying with the responsibility to report trades.
There are no understandings or arrangements pursuant to which any officers or
director was selected or appointed to such position.
(b) Identification of Certain Significant Employees.
There are no employees other than the executive officers disclosed above who
make, or are expected to make, significant contributions to the business of the
Company, the disclosure of which would be material.
(c) Family Relationships. Spouses of Yashvir (Jasi) Nikhanj and Raymond
Lai are currently employed on a part time basis with the Company in
non-executive positions.
Conflicts of Interest
The officers of the Company devote full time to the affairs of the Company, but
they may have other investment interests. There will be occasions when the time
requirements of the Company's business conflict with the demands of any other
business and investment activities. Such conflicts may require that the Company
attempt to employ additional personnel. There is no assurance that the services
of such persons will be available or that they can be obtained upon terms
favorable to the Company. Several of the Directors, Messrs. Bindal, Schurch, and
Kesslring are employed in other businesses and devote time to the company at
Director's meetings.
Conflicts of Interest - General. Certain of the officers and Directors of the
Company may be Directors and/or principal shareholders of other companies, and
therefore, could face conflicts of interest with respect to potential
acquisitions. A policy has been adopted whereby officers and Directors will not
participate in business ventures which could be deemed to complete directory
with the Company. Additional conflicts of interest and non-arms length
transactions may also arise in the future in the event the Company's officers or
Directors are involved in the management of any firm with which they or their
family members own or hold a controlling ownership interest. Although the Board
of Directors could elect to change this policy, the Board of Directors has not
present intention to do so.
36
<PAGE>
ITEM 11. COMPENSATION OF OFFICERS AND DIRECTORS
(a) Cash Compensation.
Compensation paid by the Company for all services provided during the fiscal
year ended March 31, 2000, (1) to each of the Company's five most highly
compensated executive officers whose cash compensation exceeded $30,000 and (2)
to all officers as a group is set forth below under directors.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE OF EXECUTIVES
Annual Compensation Awards
<S> <C> <C> <C> <C> <C> <C>
========================== ----------- -------------- ------------ ----------------------- ------------------ ======================
Name and Principal Year Salary ($) Bonus ($) Other Annual Restricted Stock Securities Underlying
Position Compensation ($) Award(s)($) Options/SARs(#)
========================== ----------- -------------- ------------ ----------------------- ------------------ ======================
Y.S. Jasi Nikhanj 2000 0 0 120,000 (1) 0 265,000 shares
President and Director ----------- -------------- ------------ ----------------------- ------------------ ======================
1999 0 0 120,000 (1) 0 840,000 shares
----------- -------------- ------------ ----------------------- ------------------ ======================
1998 0 0 120,000 (1) 0 250,000 shares
----------- -------------- ------------ ----------------------- ------------------ ======================
1997 0 0 120,000 (1) 0 355,000 shares
========================== ----------- -------------- ------------ ----------------------- ------------------ ======================
Manish Bindal 2000 0 0 37,000 (2) 0 25,000 shares
Secretary and Director ----------- -------------- ------------ ----------------------- ------------------ ======================
1999 0 0 37,000 (2) 0 25,000 shares
----------- -------------- ------------ ----------------------- ------------------ ======================
1998 0 0 37,200 (2) 0 50,000 shares
----------- -------------- ------------ ----------------------- ------------------ ======================
1997 0 0 37,200 (2) 0 25,000 shares
========================== ----------- -------------- ------------ ----------------------- ------------------ ======================
Raymond Lai 2000 60,000 0 0 0 50,000 shares
V.P. Finance & ----------- -------------- ------------ ----------------------- ------------------ ======================
Administration 1999 60,000 0 0 0 85,000 shares
----------- -------------- ------------ ----------------------- ------------------ ======================
1998 60,000 0 0 0 50,000 shares
----------- -------------- ------------ ----------------------- ------------------ ======================
1997 60,000 0 0 0 25,000 shares
========================== ----------- -------------- ------------ ----------------------- ------------------ ======================
Roland Kesselring 2000 0 0 0 0 100,000 shares
V.P. Corporate ----------- -------------- ------------ ----------------------- ------------------ ======================
Affairs-Europe 1999 0 0 0 0 100,000 shares
----------- -------------- ------------ ----------------------- ------------------ ======================
1998 0 0 0 50,000 shares 75,000 shares
----------- -------------- ------------ ----------------------- ------------------ ======================
1997 0 0 0 $175,000 175,000 shares
========================== =========== ============== ============ ======================= ================== ======================
(1) Paid as consulting fees to Nikhanj and Associates Geoconsulting.
(2) Paid as legal fees for services.
</TABLE>
37
<PAGE>
(b) Compensation Pursuant to Plans.
None.
(c) Other Compensation.
None. No stock appreciation rights or warrants exist to management
(d) Compensation of Directors.
Each member of the Board of Directors of the Company receives $500.00 plus
reasonable outside travel expenses for each Board meeting he attends and for
each Committee meeting he attends during the fiscal year. Directors who are also
officers of the Company receive no compensation for services as a director.
Compensation paid by the Company for all services provided during the fiscal
year ended March 31, 2000, (1) to each of the Company's directors whose cash
compensation exceeded $30,000 and (2) to all directors as a group is set forth
below:
<TABLE>
<CAPTION>
DIRECTOR'S COMPENSATION FOR LAST FISCAL YEAR
(Except for compensation of Officers who are also Directors whose Compensation
is listed in Summary Compensation Table of Executives)
<S> <C> <C> <C> <C> <C>
Cash Compensation Security Grants
======================= --------------------- ------------------ --------------------- ----------------- =========================
Name Number of Securities
Annual Retainer Meeting Fees Consulting Fees/ Number of Underlying Options/SARs
Fees ($) ($) Other Fees ($) Shares (#) (#)
======================= --------------------- ------------------ --------------------- ----------------- =========================
A. Director 0 0 0 60,000 320,000 shares
Ulrich Schurch
======================= --------------------- ------------------ --------------------- ----------------- =========================
B. Director 0 0 0 0 0
Y.S. Nikhanj
----------------------- --------------------- ------------------ --------------------- ----------------- -------------------------
C. Director 0 0 0 0 0
Manish Bindal
----------------------- --------------------- ------------------ --------------------- ----------------- -------------------------
</TABLE>
(e) Termination of Employment and Change of Control Arrangements.
None
(f) Stock Option Plan
The Company has adopted a stock option plan covering officers, consultants, key
employees. The plan is administered by the Board of Directors and is limited to
10% of the total outstanding shares, in the aggregate, except if approval is
granted by the Alberta Stock Exchange (the "Exchange). Option prices shall not
be lower than the market price of the shares on the date of grant of the option
less the maximum discount permitted under the By-Laws and policies of the
Alberta Stock Exchange. The options may be granted by the Board under provisions
which may be established by the Board of Directors from time to time. The
options may not be granted for an exercise period of more than five years.
38
<PAGE>
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT
Stock Options
The Company has, from time to time, granted stock options to purchase common
shares to its directors and employees. The options have been granted on various
terms resulting from negotiation between the Company and such persons and the
exercise price per share was based on the average trading price of the Company's
shares pursuant to the policies of the Alberta Stock Exchange (the "Exchange").
The exercise price for all options currently issued by the Company is equal to
or in excess of the market price of the Company's stock at the date of issuance
less the maximum discount permitted under the by-laws and polices of The Alberta
Stock Exchange (or any stock exchange on which the Shares are then listed). The
options are non-assignable and have been granted as incentives and not in lieu
of any compensation for services. As at May 15, 1999 the Company has granted
outstanding options to its directors and employees to purchase an aggregate of
1,675,000 common shares as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Share Price Amount Expiry Date
------------------------------------------ ---------------- ---------- ----------- ---------------
Outstanding Options 830,000 $1.00 $830,000 July 31, 2003
------------------------------------------ --------------- ------------------ ---------------- ---------------
80,000 $0.43 $34,400 Oct. 15, 2000
------------------------------------------ --------------- ------------------ ---------------- ---------------
105,000 $0.35 $36,750 Nov. 4, 2001
------------------------------------------ --------------- ------------------ ---------------- ---------------
600,000 $0.54 $324,000 Mar. 18, 2002
------------------------------------------ --------------- ------------------ ---------------- ---------------
Total Options 1,615,000 $1,225,150
------------------------------------------ --------------- ------------------ ---------------- ---------------
Outstanding Warrants 837,500 $0.45 $376,875 Jan. 18, 2001
------------------------------------------ --------------- ------------------ ---------------- ---------------
Outstanding Warrants 152,500 $0.65 $99,125 Oct. 25, 2001
------------------------------------------ --------------- ------------------ ---------------- ---------------
Total Options & Warrants 2,125,000 $1,022,150
------------------------------------------ --------------- ------------------ ---------------- ---------------
</TABLE>
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
The directors, senior officers, holders of greater than 10% of the common shares
of the Company and any associate or affiliate of such persons of the Company
have no other interest in any material transactions in which the Company has
participated in the preceding year or intends to participate in at this time,
except as follows:
a) Due to related parties
<TABLE>
<CAPTION>
<S> <C> <C> <C>
2000 1999 1998
$ $ $
i) The Company's president and his wife - 22,800 4,055
ii) Other shareholders, directors - - 4,498
======= ======== ========
</TABLE>
39
<PAGE>
The shareholders' loans have no fixed terms of repayment, are non-interest
bearing and are unsecured.
b) During fiscal year 2000, the following transactions were conducted
with related parties and recorded at the exchange amounts:
i) The President made expenditures on behalf of the Company of $194,105
and made net advances to the Company of $21,167. These amounts were
repaid in full with no interest or fees charged.
ii) The President's wife exercised options for 325,000 shares at a cost
of $147,750. This amount was settled from amounts owed by the Company.
iii) A company owned by the President was paid $120,000 (1999 -
$120,000; 1998 - $135,000) for geological consulting services provided
during the year.
iv) A director's law firm was paid $33,150 for legal services provided
during the year (1999 - $36,000; 1998 - $40,422).
v) A company owned by a Vice-President was paid $72,000 for geological
consulting services provided during the year (1999 - $72,000; 1998 -
$72,000).
vi) A company owned by a Vice-President was paid $35,000 in public
relations fees during the year (1999 - $Nil; 1998 - $Nil).
c) During fiscal year 1999, the following transactions were conducted
with related parties and recorded the exchange amounts:
i) The President assumed Company debts of $389,622, made expenditures
on behalf of the Company of $78,120 and received net advances of
$157,887. These amounts were subsequently repaid in full with no
interest or fees charged.
ii) The President and his wife exercised options for 677,000 shares at
a cost of $291,110. This amount was settled from amounts owed by the
Company.
d) During fiscal year 1998, the following transactions were conducted
with related parties and related parties at the exchange amounts:
i) The Company advanced the President $348,225 as a short-term loan.
Interest was charged on the loan at bank prime plus one percent. These
advances were repaid in full during the fiscal year 1998.
40
<PAGE>
ii) The President sold a mobile home, previously used in the Company's
operations, to Durvada Resources Inc. for proceeds of $34,648, which
equaled the balance of the mortgage owed by the President on the
mobile home.
The terms of transactions that the Company entered into with any director,
senior officer, or other management member were term that were as favorable as
those that the Company could have obtained from an unaffiliated party.
41
<PAGE>
PART II
ITEM 14. DESCRIPTION OF SECURITIES
The Company is authorized to issue an unlimited number of Common Shares without
nominal or par value, and an unlimited number of Preferred Shares, issuable in
series, of which, as at the date hereof, 16,818,565 Common Shares and no
Preferred Shares are issued and outstanding as fully-paid and non-assessable.
Common Shares
The holders of Common Shares are entitled to dividends if, as and when declared
by the directors, to one (1) vote per share at meetings of the holders of Common
Shares of the Company and, upon liquidation, to receive such assets of the
Company as are distributable to the holders of the Common Shares. All of the
Common Shares to be outstanding upon completion of this offering will be
fully-paid and non-assessable.
Preferred Shares
The Preferred Shares may be issued from time to time in one or more series. each
series consisting of a number of Preferred Shares as determined by the board of
directors of the Company who may also fix the designation, rights, privileges,
restrictions and conditions attaching to the shares of each series of Preferred
Shares. There are no Preferred Shares issued and outstanding.
The Preferred Shares of each series shall, with respect to payment of dividends
and distribution of assets in the event of liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary, or any other
distribution of the assets of the Company among its shareholders for the purpose
of winding-up its affairs, rank on a parity with the Preferred Shares of every
other series and shall be entitled to preference over the Common Shares and the
shares of any other class ranking junior to the Preferred Shares.
42
<PAGE>
TRANSFER AGENT
The transfer agent for the company shares is Montreal Trust, 600, 530-8th Avenue
SW, Calgary, Alberta T2P3S8 (403) 267-6872.
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
There have been no defaults by the Company upon Senior Securities during the
fiscal year 1998 to date of this Annual Report.
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITIES
There have been no changes in securities or changes in security for the
registered securities to date of this Annual Report.
PART IV
ITEM 17. FINANCIAL STATEMENTS
The following documents are filed as a part of this report:
1) Financial Statements: (See Financial Exhibits Index below and
Financial Exhibits furnished as Pages F-1 through F-19).
2) Financial Statement Schedules: None
ITEM 18. NOT APPLICABLE.
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
a) INDEX TO FINANCIAL STATEMENTS
AND SUPPORTING SCHEDULES
Page
Reports of Independent Public Accountants F-2
I. Financial Statements:
Consolidated Balance Sheets at March 31,
2000, 1999, 1998 F-3
Consolidated Statements of Loss & Deficit for
the period ended March 31, 2000, 1999, 1998 F-4
Statement of Cash Flows for the period ended
March 31, 2000, 1999, 1998 F-5
Notes to Consolidated Financial Statements F-6 - F-19
43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 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.
DATED: October 31, 2000
LEADER MINING INTERNATIONAL, INC.
By: Y.S. Nikhanj
------------------------------
President
Directors:
/s/ Manish Bindal
---------------------------------
Secretary and Director
/s/ Ulrich Schurch
---------------------------------
Director
/s/ Y.S. Nikhanj
---------------------------------
Director
/s/ Raymond Lai
---------------------------------
Vice President of Finance
/s/ Roland Kesselring
---------------------------------
Vice President of Corporate Affairs
44
<PAGE>
LEADER MINING INTERNATIONAL INC.
FINANCIAL STATEMENTS
MARCH 31, 2000, 1999, AND 1998
F-1
<PAGE>
AUDITORS' REPORT
TO THE SHAREHOLDERS OF LEADER MINING INTERNATIONAL INC.
We have audited the balance sheet of Leader Mining International Inc. as at
March 31, 2000, and the statement of loss and deficit and cash flows for the
year then ended. 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 audit.
We conducted our audit in accordance with Canadian 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 financial statements present fairly, in all material
respects, the financial position of the Company as at March 31, 2000, and the
results of its operations and the changes in its cash flows for the year then
ended in accordance with Canadian generally accepted accounting principles.
The consolidated financial statements as at March 31, 1999 and 1998 were audited
by another firm of Chartered Accountants (PricewaterhouseCoopers LLP) who issued
unqualified reports dated June 25, 1999 and June 12, 1998 respectively.
]
(Signed) "Coakwell Crawford Cairns"
JUNE 19, 2000 CHARTERED ACCOUNTANTS
F-2
<PAGE>
<TABLE>
<CAPTION>
LEADER MINING INTERNATIONAL INC.
Balance Sheets
as at March 31
<S> <C> <C> <C>
2000 1999 1998
$ $ $
-------------------- ------------------- ------------------
ASSETS
CURRENT ASSETS
Cash and short-term deposits 211,125 456,425 2,724,319
Accounts receivable 20,724 3,214 15,214
Marketable securities - at market - 22,942 -
Goods and Services Tax receivable - 34,642 136,662
Deposits and prepaid expenses 13,619 179,773 135,406
-------------------- ------------------- ------------------
245,468 696,996 3,011,601
CAPITAL ASSETS (Note 4) 24,829 32,579 155,645
MINERAL PROPERTIES AND DEFERRED EXPLORATION COSTS
(Note 5) 8,004,148 8,100,426 8,957,965
-------------------- ------------------- ------------------
8,274,445 8,830,001 12,125,211
==================== =================== ==================
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 55,643 277,590 1,820,664
Due to related parties (Note 6) - 22,800 8,553
-------------------- ------------------- ------------------
55,643 300,390 1,829,217
-------------------- ------------------- ------------------
SHAREHOLDERS' EQUITY
CAPITAL STOCK (Note 7) 20,963,315 20,346,416 19,265,652
DEFICIT (12,744,513) (11,816,805) (8,969,658)
-------------------- ------------------- ------------------
8,218,802 8,529,611 10,295,994
-------------------- ------------------- ------------------
8,274,445 8,830,001 12,125,211
==================== =================== ==================
APPROVED BY THE BOARD OF DIRECTORS _________________________ Director
(Signed) "Jasi Nikhanj"
_________________________ Director
(Signed) "Manish Bindal"
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
LEADER MINING INTERNATIONAL INC.
Statements of Loss and Deficit
for the years ended March 31
<S> <C> <C> <C>
2000 1999 1998
$ $ $
----------------- ----------------- -----------------
REVENUE
MANAGEMENT FEES (NOTE 5 D (II)) 60,000 - -
Interest 6,018 49,044 152,132
----------------- ----------------- -----------------
66,018 49,044 152,132
----------------- ----------------- -----------------
EXPENSES
General and administrative 624,463 898,873 1,358,156
Exploration costs written off (Note 5(a)) 360,858 1,848,313 561,500
Amortization 8,405 11,282 27,082
Loss (gain) on disposal of capital assets - (2,117) 24,170
Loss on write-down of marketable securities - 139,840 -
Site restoration and abandonment costs - - 68,250
----------------- ----------------- -----------------
993,726 2,896,191 2,039,158
----------------- ----------------- -----------------
NET LOSS FOR THE YEAR 927,708 2,847,147 1,887,026
DEFICIT - BEGINNING OF YEAR 11,816,805 8,969,658 7,082,632
----------------- ----------------- -----------------
DEFICIT - END OF YEAR 12,744,513 11,816,805 8,969,658
================= ================= =================
LOSS PER SHARE (0.05) (0.20) (0.17)
================= ================= =================
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
LEADER MINING INTERNATIONAL INC.
Statements of Cash Flows
for the years ended March 31
<S> <C> <C> <C>
2000 1999 1998
$ $ $
--------------- ---------------- ----------------
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Loss for the year (927,708) (2,847,147) (1,887,026)
Items not affecting cash
Exploration costs written off 360,858 1,848,313 561,500
Amortization 8,405 11,282 27,082
Loss (gain) on disposal of capital assets - (2,117) 24,170
Write-down on marketable securities - 139,840 -
Provision for site restoration & abandonment costs - - 68,250
Employee bonuses paid in shares - (113,700) 529,500
--------------- --------------- ---------------
(558,445) (963,529) (676,524)
Net change in non-cash working capital (38,661) (1,246,021) 689,601
-------------- ---------------- ----------------
(597,106) (2,209,550) 13,077
-------------- ---------------- ----------------
FINANCING ACTIVITIES
Issuance of common shares, net of issue costs 358,349 675,954 1,637,998
Payments made from (to) related parties 235,750 305,357 (222,690)
--------------- --------------- ---------------
594,099 981,311 1,415,308
-------------- ---------------- ----------------
INVESTING ACTIVITIES
Mineral properties and deferred exploration costs (264,580) (990,774) (4,816,392)
Purchase of capital assets (655) (2,599) (145,163)
Proceeds on disposal of capital assets - 116,500 7,100
Sale (purchase) of marketable securities 22,942 (162,782) -
--------------- --------------- ---------------
(242,293) (1,039,655) (4,954,455)
-------------- ---------------- ----------------
DECREASE IN CASH FOR THE YEAR (245,300) (2,267,894) (3,526,070)
CASH AND SHORT-TERM DEPOSITS, BEGINNING OF YEAR 456,425 2,724,319 6,250,389
-------------- ---------------- ----------------
CASH AND SHORT-TERM DEPOSITS, END OF YEAR 211,125 456,425 2,724,319
============== ================ ================
</TABLE>
F-5
<PAGE>
LEADER MINING INTERNATIONAL INC.
Notes to Financial Statements
MARCH 31, 2000, 1999, AND 1998
1. NATURE OF OPERATIONS
Leader Mining International Inc. (the "Company") is in the process of
exploring its mineral properties and has not yet determined whether these
properties contain mineral reserves that are economically recoverable. The
recoverability of amounts shown for mineral properties and deferred
exploration costs is dependent upon the existence of economically
recoverable reserves, securing and maintaining title and beneficial
interest in the property, the ability of the Company to obtain necessary
financing to complete the development, and upon future profitable
production or proceeds from disposition of the mineral properties. There
are no guarantees that such conditions will be met. The amounts shown as
mineral properties and deferred exploration costs represent net costs to
date, less amounts written-off and do not necessarily represent present or
future values.
2. SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING PRINCIPLES
These financial statements are prepared in accordance with accounting
principles generally accepted in Canada ("Canadian GAAP"). Significant
differences from accounting principles generally accepted in the United
States ("US GAAP") are described in Note 10.
BASIS OF PRESENTATION
These 1999 and 1998 comparative figures include the results of the
Company's wholly owned United States inactive subsidiaries, Durvada
Resources Inc. and Durga Resources Inc. The subsidiaries were wound up
effective April 1, 1998.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. The most significant estimates are related to the
recoverability of amounts recorded for mineral properties and deferred
exploration costs. Actual results could differ from those reported.
F-6
<PAGE>
LEADER MINING INTERNATIONAL INC.
Notes to Financial Statements
MARCH 31, 2000, 1999, AND 1998
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
MINERAL PROPERTIES AND DEFERRED EXPLORATION COSTS
Acquisition and exploration costs relating to mineral properties are
deferred until the properties are brought into production, at which time
they are amortized on a unit of production basis, or until the properties
are abandoned or sold or management determines that a mineral property is
no longer economically viable, at which time the deferred costs are
written-off. Where the Company's exploration commitments for an area of
interest are performed under option agreements with a third party, the
proceeds of any option payments are applied to the area of interest to the
extent of costs incurred. The excess, if any, is credited to operations.
CASH AND SHORT TERM DEPOSITS
Cash and short-term deposits mature within 90 days of the original date of
acquisition. In order to limit its exposure, the Company deposits its funds
with large financial institutions.
CAPITAL ASSETS
Capital assets are recorded at cost. Amortization is provided on a
declining balance basis based on the estimated useful life of the assets
from the year of acquisition up to, and excluding, the year of disposal, at
the following annual rates:
Computer equipment 30%
Furniture and fixtures 20%
Vehicles 30%
Camp equipment 20%
Field office building 4%
FOREIGN CURRENCY TRANSLATION
The Company follows the temporal method of translation whereby all monetary
assets and liabilities denominated in a foreign currency are translated
into Canadian dollars at the rate of exchange in effect at the balance
sheet date. Non-monetary assets and exploration expenditures are translated
at the rates prevailing when they are acquired or incurred. Exchange gains
or losses are included in net loss for the year.
LOSS PER SHARE INFORMATION
Per share amounts are calculated based on the weighted average number of
shares outstanding during the year, which was 17,221,284 (1999 -
14,446,458; 1998 - 13,911,958). Fully dilutive amounts per share are not
shown, as there are no material dilutive factors.
MARKETABLE SECURITIES
Marketable securities are recorded at the lower of cost or market.
F-7
<PAGE>
LEADER MINING INTERNATIONAL INC.
Notes to Financial Statements
MARCH 31, 2000, 1999, AND 1998
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
FINANCIAL INSTRUMENTS
The Company's financial instruments recognized in the balance sheet consist
of cash and short-term deposits, accounts receivable, marketable
securities, accounts payable and accrued liabilities, and amounts due to
related parties. The fair values of all financial instruments approximate
their carrying values due to their short-term maturity.
FUTURE INCOME TAXES
In providing for corporate income taxes, temporary differences between the
tax basis of assets or liabilities and their carrying amounts are reflected
as future income taxes. Tax rates anticipated to be in effect when these
temporary differences reverse are used to calculate future income taxes.
STOCK-BASED COMPENSATION PLAN
The Company has stock-based compensation plans which are described in Note
7. No compensation expense is recognized for these plans when stock
options are issued to directors, officers, or employees. Any consideration
paid by directors, officers, or employees on exercise of stock options or
purchase of stock is credited to share capital. If stock or stock options
are repurchased from directors, officers, or employees, the excess of the
consideration paid over the carrying amount of the stock or stock option
canceled is charged to retained earnings.
3. CHANGE IN ACCOUNTING POLICY
The Company has retroactively changed its method of reporting corporate
income taxes to conform with the new recommendations of the Canadian
Institute of Chartered Accountants. Previously, the Company used the
deferral method of reporting corporate income taxes and now follows the
future tax method as described in Note 2. This change in accounting policy
has caused no change to previously reported income, retained earnings, and
income tax payable in the Company.
<TABLE>
<CAPTION>
4. CAPITAL ASSETS
2000
--------------------------------------------------------------
<S> <C> <C> <C>
ACCUMULATED
COST AMORTIZATION NET BOOK VALUE
$ $ $
Computer equipment 38,425 26,126 12,299
Furniture and fixtures 31,952 23,219 8,733
Camp equipment 9,029 5,232 3,797
------------------- ------------------ ------------------
79,406 54,577 24,829
=================== ================== ==================
</TABLE>
F-8
<PAGE>
<TABLE>
<CAPTION>
LEADER MINING INTERNATIONAL INC.
Notes to Financial Statements
MARCH 31, 2000, 1999, AND 1998
4. CAPITAL ASSETS (continued)
1999
--------------------------------------------------------------
<S> <C> <C> <C>
ACCUMULATED
COST AMORTIZATION NET BOOK VALUE
$ $ $
Computer equipment 38,425 20,855 17,570
Furniture and fixtures 31,297 21,035 10,262
Camp equipment 9,029 4,282 4,747
=================== =================== ======================
78,751 46,172 32,579
=================== =================== ======================
1998
---------------------------------------------------------------
ACCUMULATED
COST AMORTIZATION NET BOOK VALUE
$ $ $
Computer equipment 38,424 13,324 25,100
Vehicle 21,843 11,140 10,703
Furniture and fixtures 29,128 18,471 10,657
Camp equipment 8,600 3,095 5,505
Field office building 108,000 4,320 103,680
------------------- ------------------- ----------------------
205,995 50,350 155,645
=================== =================== ======================
</TABLE>
<TABLE>
<CAPTION>
5. MINERAL PROPERTIES AND DEFERRED EXPLORATION COSTS
a) Summary
<S> <C> <C> <C>
2000 1999 1998
$ $ $
Balance - beginning of year 8,100,426 8,957,965 4,440,824
--------------------- ------------------ ----------------------
Expenditures capitalized in the year
Acquisition of mineral properties 19,500 30,000 70,000
Explorations costs 245,080 960,774 5,008,641
--------------------- ------------------ ----------------------
264,580
Less: Exploration costs written off (360,858) (1,848,313) (561,500)
--------------------- ------------------ ----------------------
(96,278) (857,539) 4,517,141
--------------------- ------------------ ----------------------
Balance - end of year 8,004,148 8,100,426 8,957,965
===================== ================== ======================
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
LEADER MINING INTERNATIONAL INC.
Notes to Financial Statements
MARCH 31, 2000, 1999, AND 1998
5. MINERAL PROPERTIES AND DEFERRED EXPLORATION COSTS (continued)
b) The breakdown of mineral properties and deferred exploration costs by property is as
follows:
2000
----------------------------------------------------------------
<S> <C> <C> <C>
MINERAL DEFERRED
PROPERTIES EXPLORATION TOTAL
COSTS
$ $ $
Knife Lake, Saskatchewan 85,000 7,845,648 7,930,648
Pistol Lake, Saskatchewan 54,000 - 54,000
Baby Township, Quebec 19,500 - 19,500
--------------------- ------------------- ----------------------
158,500 7,845,648 8,004,148
===================== =================== ======================
1999
----------------------------------------------------------------
MINERAL DEFERRED
PROPERTIES EXPLORATION TOTAL
COSTS
$ $ $
Knife Lake, Saskatchewan 85,000 7,846,179 7,931,179
Karmel, South Africa 30,000 85,247 115,247
Pistol Lake, Saskatchewan 54,000 - 54,000
--------------------- ------------------- ----------------------
169,000 7,931,426 8,100,426
===================== =================== ======================
1998
----------------------------------------------------------------
MINERAL DEFERRED
PROPERTIES EXPLORATION TOTAL
COSTS
$ $ $
Knife Lake, Saskatchewan 85,000 7,093,516 7,178,516
Nettogami Lake, Ontario 65,000 1,277,978 1,342,978
Cody Township, Ontario - 224,354 224,354
Other 69,000 143,117 212,117
--------------------- ------------------- ---------------------
219,000 8,738,965 8,957,965
===================== =================== =====================
</TABLE>
F-10
<PAGE>
LEADER MINING INTERNATIONAL INC.
Notes to Financial Statements
MARCH 31, 2000, 1999, AND 1998
5. MINERAL PROPERTIES AND DEFERRED EXPLORATION COSTS (continued)
c) During fiscal year 2000, the Company wrote off $360,858 (1999 - $1,848,313;
1998 - $561,000) of exploration costs relating to properties on which no
further exploration activities are planned.
d) On November 5, 1999, the Company signed a Joint Venture Agreement with
Kores Canada Corp. ("Kores") in respect of the Knife Lake property. Under
the terms of the agreement, the Company has granted Kores the right to
acquire up to a 50% working interest in this property by making both
payments to the Company and funding exploration expenditures on the
property.
To fully earn the 50% working interest, Kores must make the following
payments:
i) To the Company
$300,000 upon signing of the Agreement
$300,000 by December 22, 2000
$300,000 by December 22, 2001
$300,000 by December 22, 2002
ii) Exploration expenditures on the project
$1,000,000 before December 22, 2000
$1,000,000 before December 22, 2001
$1,000,000 before December 22, 2002
$1,000,000 before December 22, 2003
If Kores fails to fund the required exploration expenditures by
December 22, 2000, then the agreement terminates. Assuming payments are
made as detailed above, the working interest will be earned at the end
of each year as follows:
December 22, 2000- 20.00%
December 22, 2001- 33.33%
December 22, 2002- 42.86%
December 22, 2003- 50.00%
Under the terms of the Agreement, the Company granted Kores a stock
option to purchase 500,000 common shares at a price of $1.00 per share,
up to December 22, 2001. In addition, the Company is entitled to charge
Kores a 10% management fee based on exploration expenditures on the
project.
e) The Company has an obligation to pay a 2% net smelter return on its Knife
Lake property to Copper Quest, Inc. and has an option to purchase a 1% net
smelter return for $1 million.
F-11
<PAGE>
LEADER MINING INTERNATIONAL INC.
Notes to Financial Statements
MARCH 31, 2000, 1999, AND 1998
5. MINERAL PROPERTIES AND DEFERRED EXPLORATION COSTS (continued)
The Company has an option to spend $500,000 on its Pistol Lake property to
earn an 80% working interest from Consolidated Pine Channel Gold Corp.
(Consolidated Pine). The Company has an additional obligation to pay a 2%
net smelter return on its Pistol Lake properties to Consolidated Pine and
has an option to purchase an additional 10% working interest for $1 million
and an option to purchase a 1% net smelter return for $2 million.
f) In March 1998, to consolidate a strategic land position in Voisey Bay,
Labrador, the Company entered into three separate agreements to acquire
interests in certain mineral claims. In 1999, the Company terminated the
above agreements at no further cost to the Company.
g) On January 28, 1999, the Company signed an option agreement with Karmel
Diamond Holdings (Pty.) Ltd. (Karmel) and Poplar Resources Ltd. (Poplar) to
acquire a 75% right, title and interest in the Karmel Diamond property.
During the year ended March 31, 2000, the Company terminated the above
agreements at no further cost to the Company.
<TABLE>
<CAPTION>
6. RELATED PARTY TRANSACTIONS
a) Due to related parties
<S> <C> <C> <C>
2000 1999 1998
$ $ $
i) The Company's president and his wife - 22,800 4,055
ii) Other shareholders, directors - - 4,498
---------------- ------------------- ---------------------
- 22,800 8,553
================ =================== =====================
</TABLE>
The shareholders' loans have no fixed terms of repayment, are non-interest
bearing and are unsecured.
b) During fiscal year 2000, the following transactions were conducted with
related parties and recorded at the exchange amounts:
i) The President made expenditures on behalf of the Company of $194,105
and made net advances to the Company of $21,167. These amounts were
repaid in full with no interest or fees charged.
ii) The President's wife exercised options for 325,000 shares at a cost of
$147,750. This amount was settled from amounts owed by the Company.
iii) A company owned by the President was paid $120,000 (1999 - $120,000;
1998 - $135,000) for geological consulting services provided during
the year.
F-12
<PAGE>
LEADER MINING INTERNATIONAL INC.
Notes to Financial Statements
MARCH 31, 2000, 1999, AND 1998
6. RELATED PARTY TRANSACTIONS (continued)
iv) A director's law firm was paid $33,150 for legal services provided
during the year (1999 - $36,000; 1998 - $40,422).
v) A company owned by a Vice-President was paid $72,000 for geological
consulting services provided during the year (1999 - $72,000; 1998 -
$72,000).
vi) A company owned by a Vice-President was paid $35,000 in public
relations fees during the year (1999 - $Nil; 1998 - $Nil).
c) During fiscal year 1999, the following transactions were conducted with
related parties and recorded the exchange amounts:
i) The President assumed Company debts of $389,622, made expenditures on
behalf of the Company of $78,120 and received net advances of
$157,887. These amounts were subsequently repaid in full with no
interest or fees charged.
ii) The President and his wife exercised options for 677,000 shares at a
cost of $291,110. This amount was settled from amounts owed by the
Company.
d) During fiscal year 1998, the following transactions were conducted with
related parties and related parties at the exchange amounts:
i) The Company advanced the President $348,225 as a short-term loan.
Interest was charged on the loan at bank prime plus one percent. These
advances were repaid in full during the fiscal year 1998.
ii) The President sold a mobile home, previously used in the Company's
operations, to Durvada Resources Inc. for proceeds of $34,648, which
equaled the balance of the mortgage owed by the President on the
mobile home.
7. CAPITAL STOCK
a) AUTHORIZED
The authorized share capital of the Company is comprised of an
unlimited number of common and preferred shares.
F-13
<PAGE>
<TABLE>
<CAPTION>
LEADER MINING INTERNATIONAL INC.
Notes to Financial Statements
MARCH 31, 2000, 1999, AND 1998
7. CAPITAL STOCK (continued)
b) COMMON SHARES ISSUED
<S> <C> <C>
NUMBER OF SHARES AMOUNT
$
BALANCE - MARCH 31, 1997 13,213,229 16,973,405
--------------------- --------------------
Shares issued
Subscriptions received 35,256 136,500
Exercise of options 85,000 331,500
Director and employee bonuses 157,000 529,500
Private placement for cash 500,000 1,889,500
Finder's fees 66,080 262,249
Less: Share issue costs - (857,002)
--------------------- --------------------
843,336 229,224
--------------------- --------------------
BALANCE - MARCH 31, 1998 14,056,565 19,265,652
--------------------- --------------------
Shares issued
Director and employee bonus shares cancelled (157,000) (529,500)
Director and employee bonus shares reissued 157,000 418,200
Exercise of options 687,000 295,410
Legal settlement for Blower & Condor 75,000 225,000
Private placement for cash 2,000,000 700,000
Less: Share issue costs - (28,346)
--------------------- --------------------
2,762,000 1,080,764
--------------------- --------------------
BALANCE - MARCH 31, 1999 16,818,565 20,346,416
--------------------- --------------------
Shares issued
Exercise of options 680,000 298,099
Exercise of warrants 210,000 104,000
Private placement for cash 200,000 104,000
Settlement for debt 210,000 110,800
--------------------- --------------------
1,300,000 616,899
--------------------- --------------------
BALANCE - MARCH 31, 2000 18,118,565 20,963,315
===================== ====================
</TABLE>
F-14
<PAGE>
<TABLE>
<CAPTION>
LEADER MINING INTERNATIONAL INC.
Notes to Financial Statements
MARCH 31, 2000, 1999, AND 1998
7. CAPITAL STOCK (continued)
C) SHARE OPTIONS
The Company has established a directors, officers, and employees stock
option plan. Options issued and exercised under this plan are
summarized below:
<S> <C> <C>
WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICE
$
As at March 31, 1998 847,000 1.66
Granted 195,000 2.08
Granted 615,000 1.47
Exercised (85,000) 1.34
Cancelled (215,000) 0.93
----------------------- --------------------
As at March 31, 1998 1,247,000 0.93
Granted 950,000 0.77
Granted 250,000 0.73
Exercised (687,000) 0.84
Granted (195,000) 0.48
----------------------- --------------------
As at March 31, 1999 1,675,000 0.48
Exercised (680,000) 0.51
----------------------- --------------------
As at March 31, 2000 995,000 0.51
======================= ====================
As at March 31, 2000, the options outstanding under the plan have
prices between $0.35 and $0.54, and a weighted average remaining
contractual life of 1.46 years.
</TABLE>
<TABLE>
<CAPTION>
D) SHARE PURCHASE WARRANTS
The number of share purchase warrants issued during the year in
conjunction with the private share placements and outstanding at the
year-end were as follows:
NUMBER OF WARRANTS
<S> <C> <C> <C>
2000 1999 1998
------------------------ ----------------------- ----------------------
Balance - Beginning of year 1,000,000 130,000 637,500
Granted in the year 200,000 1,000,000 322,000
Expired in the year (210,000) (130,000) (829,500)
------------------------ ----------------------- ----------------------
Balance - End of year 990,000 1,000,000 130,000
======================== ======================= ======================
</TABLE>
F-15
<PAGE>
LEADER MINING INTERNATIONAL INC.
Notes to Financial Statements
MARCH 31, 2000, 1999, AND 1998
D) SHARE PURCHASE WARRANTS (continued)
The warrants expire as follows:
NUMBER OF WARRANTS
------------------
Exercisable at $0.45 expiring January, 2001 790,000
Exercisable at $0.65 expiring October, 2001 200,000
------------------
990,000
==================
8. COMMITMENTS AND CONTINGENCIES
Pursuant to an agreement relating to a lease for office premises, the
Company is obligated to pay $32,950 per annum until June 2001 and $50,900
thereafter to November 2005.
While the Company was successful in defending a 1998 legal action, and was
also successful in defending the appeal.
The Company is currently defending another legal action, and the Company is
countersuing the claimant for damages. The outcome of these proceedings are
not determinable at this time.
<TABLE>
<CAPTION>
9. INCOME TAXES
The provision for income taxes recorded in the financial statements differ
from the amount which would be obtained by applying the statutory income
tax rate to the loss for the years as follows:
<S> <C> <C> <C>
2000 1999 1998
$ $ $
Loss for the year (927,708) (2,847,147) (1,887,026)
Statutory Canadian corporate tax rate 45% 45% 45%
Anticipated tax provision (417,468) (1,281,216) (849,162)
Tax benefit of loss not recorded 417,468 1,281,216 849,162
--------------------- --------------------- ---------------------
Income tax provision - - -
===================== ===================== =====================
</TABLE>
F-16
<PAGE>
LEADER MINING INTERNATIONAL INC.
Notes to Financial Statements
MARCH 31, 2000, 1999, AND 1998
9. INCOME TAXES (continued)
The Company has non-capital losses for income tax purposes of approximately
$4,645,000 which are available for application against future taxable
income. These losses expire as follows:
YEAR $
2001 289,000
2002 164,000
2003 320,000
2004 674,000
2005 1,455,000
2006 1,064,000
2007 679,000
The Company has unclaimed mining expenditures of $11,325,000 to reduce
future years taxable income.
<TABLE>
<CAPTION>
10. DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
Significant differences between Canadian GAAP and U.S. GAAP, which would
have an effect on these financial statements, are as follows:
A) ADJUSTMENT TO NET LOSS
<S> <C> <C> <C>
2000 1999 1998
$ $ $
------------------ --------------- ---------------
Loss for the year following Canadian GAAP (927,708) (2,847,147) (1,887,026)
Deferred exploration costs (i) (115,778) 807,539 (4,606,141)
Stock based compensation (iii) - (379,250) (1,107,990)
------------------ --------------- ---------------
Loss for the year following U.S. GAAP (1,043,486) (2,418,858) (7,601,157)
================== =============== ===============
Loss per share under U.S. GAAP (0.06) (0.17) (0.55)
================== =============== ===============
</TABLE>
F-17
<PAGE>
LEADER MINING INTERNATIONAL INC.
Notes to Financial Statements
MARCH 31, 2000, 1999, AND 1998
10. DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (continued)
i) For U.S. GAAP, exploration costs, net of the tax effect of
flow-through shares, related to projects are charged to expense as
incurred. As such, the majority of costs charged to exploration costs
written off under Canadian GAAP would have been charged to earnings in
prior periods under U.S. GAAP. Property acquisition costs are
capitalized for both Canadian and U.S. GAAP.
ii) Under U.S. GAAP, a grant of stock options and warrants to acquire
shares at a price below the fair market value of the shares at the
time of the grant, is compensatory under APB No. 25 and is accounted
for as compensation expense. This has the effect of increasing capital
stock and deficit under U.S. GAAP.
<TABLE>
<CAPTION>
B) ADJUSTMENTS TO BALANCE SHEET
<S> <C> <C> <C>
2000 1999 1998
------------------------ ------------------------- ---------------------------
CANADIAN U.S. CANADIAN U.S. CANADIAN U.S.
GAAP GAAP GAAP GAAP GAAP GAAP
$ $ $ $ $ $
Mineral properties and
deferred exploration
costs (a) (i) 8,004,148 158,500 8,100,426 169,000 8,957,965 219,000
Capital stock (a) (ii) 20,963,315 24,746,233 20,346,416 24,214,334 19,265,652 22,754,320
Deficit (a) (12,744,513) (25,240,459) (11,816,805) (23,616,149) (8,969,658) (21,197,291)
</TABLE>
<TABLE>
<CAPTION>
C) SHAREHOLDERS' EQUITY
Under U.S. GAAP, shareholders' equity would be as follows:
<S> <C> <C> <C>
2000 1999 1998
$ $ $
---------------- ---------------- ----------------
Under Canadian GAAP 8,218,802 8,529,611 10,295,994
U.S. GAAP adjustment to net loss
Current (a)(i) and (a)(ii) 115,778 428,289 (5,714,131)
Cumulative (12,611,724) (12,227,633) (6,513,502)
U.S. GAAP adjustment to capital stock
Current (a)(ii) - 379,250 1,244,490
Cumulative 3,782,918 3,488,668 2,244,178
---------------- ---------------- ----------------
(494,226) 598,185 1,557,029
================ ================ ================
</TABLE>
D) INCOME TAXES
Under U.S. GAAP, the Company would be required to initially recognize
an income tax asset arising from the benefit of losses carried forward.
This asset has been reduced to $nil through the application of a
valuation allowance of $4,645,000.
F-18
<PAGE>
LEADER MINING INTERNATIONAL INC.
Notes to Financial Statements
MARCH 31, 2000, 1999, AND 1998
10. DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (continued
E) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities"
which standardizes the accounting for derivative instruments. SFAS 133
is effective for all fiscal quarters of all fiscal years beginning
after June 15, 1999. The effective date was subsequently changed to all
fiscal quarters of all fiscal years beginning after June 15, 2000.
Adopting this standard will not have a significant impact on the
Company's financial position, results of operations, or cash flows.
11. SUBSEQUENT EVENTS
a) On June 5, 2000 the Company signed an option to purchase agreement with
Imperial Metals Corporation ("Imperial") and HML Mining Inc. to purchase
all of the issued and outstanding shares of Similco Mines Ltd. (a wholly
owned subsidiary of Imperial), and the mineral claims and crown granted
claims related to the Invermay property. Consideration includes $1,000,000
cash and warrants to purchase up to 2,000,000 common shares of the Company
at a price of $1.00 per share, exercisable by Imperial for a period of two
years after the date of the agreement.
The cash payments are due as follows:
$150,000 upon signing of the Agreement
$150,000 on or before September 1, 2000
$700,000 on or before December 1, 2000.
The option is deemed to be exercised upon making the final cash payment.
Under the terms of the Agreement, Imperial will be granted a 3% net smelter
return and the Company has the right to purchase 2% of the net smelter
return for $2,000,000. In addition, the Company has the option to purchase
from Imperial, the Ball Mill for $750,000, at any time, up to December 31,
2001.
b) On June 5, 2000, the Company entered into a twelve-month financial
consulting and investment banking services agreement with Wavecount Inc.
(Wavecount Inc. is the parent company of Dupont Securities Group Inc. a
broker-dealer firm based in New York). The Company has agreed to issue
Wavecount Inc. 200,000 common shares (100,000 free trading) subject to
regulatory approval.
c) Subsequent to year end, the Company has reserved 820,000 common shares
under option to directors, officers, and employees. These options are
subject to regulatory approval and are exercisable at $1.00 per share over
a 24-month period.
F-19
