UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20F
AMENDMENT No. 1
REGISTRATION STATEMENT PURSUANT TO SECTION 12(g) OF THE SECURITIES
EXCHANGE ACT OF 1934 OF A FOREIGN CORPORATION
FOR FISCAL YEAR ENDED MARCH 31, 1999
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 16,818,565 shares of common stock of Registrant were issued and
outstanding as of March 31, 1999. 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 ______
<PAGE>
TABLE OF CONTENTS
PART I
Page
Item 1. Description of Business......................................5
Item 2. Description of Property.....................................12
Item 3. Legal Proceedings...........................................18
Item 4. Security Ownership of Certain Beneficial Owners
and Management (Control of Registrant)......................20
Item 5. Nature of Trading Market
Market Price of and Dividends on
Registrants Common Equity and
Related Stockholder matters.................................21
Item 6. Exchange Controls and Other Limitations Affecting Security
Holders.....................................................22
Item 7. Taxation....................................................22
Item 8. Selected Financial Information..............................24
Item 9. Management Discussion and Analysis..........................28
of Financial Condition and Results of Operations
Item 10. Directors and Executive Officers ...........................31
Item 11. Compensation of Officers and Directors......................33
Item 12. Options to Purchase Securities from Registration or
Subsidiaries................................................35
Item 13. Interest of Management in Certain Transactions..............36
Item 14. Description of Securities ..................................37
Item 15. Defaults upon Senior Securities.............................37
Item 16. Changes in Securities, Changes in Security for Registered
Securities..................................................38
Item 17. Financial Statements........................................38
Item 18. Financial Statements (Not applicable) ......................38
<PAGE>
Item 19. Financial Statements, Exhibits, and Supplementary Data .....39
Exhibit Index......................................49
Signatures.........................................42
<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 1600, 407 - 2nd Street
S. W., Calgary, Alberta, T2P 2Y3. 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 Alberta Stock Exchange (ASE) under the symbol "LMN" and quoted on
National Quotation Bureau "Pink Sheets."
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.
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.
<PAGE>
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.
<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).
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 $0.7 million (Canadian) per year.
A summary of the Company's proposed expenditures is presented below:
<PAGE>
<TABLE>
<CAPTION>
CORPORATE EXPLORATION BUDGET
($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'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.
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
<PAGE>
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.
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.
<PAGE>
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.
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,
<PAGE>
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.
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
Certain of the directors and officers of the Company are also directors,
officers and shareholders of certain other companies engaged in natural resource
exploration and development and conflicts of interest may arise.
<PAGE>
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.
<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.
<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
<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.
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.
<PAGE>
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>
Cumulative Interest
Payment Date Payment Expenditures by Date Amount Spent Earned
- ------------ ------- -------------------- ------------ --------
<S> <C> <C> <C> <C>
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.
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 Lake
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.
<PAGE>
While the Sandy Bay-Flin Flon 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:
<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.
<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 16,826,065 shares outstanding at May 20,
1999.
<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 1,500,000 Shares (1) 8.9%
320 Pumphill Cr. S.W. Calgary,
Alta T2V 4M1
- ------------------------ ---------------------------------- ----------------------------------- ----------------------
</TABLE>
(1) Includes 207,000 shares owned by spouse, Aski Nikhanj.
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 1,500,000 shares (1) 8.9%
- ---------------------- ----------------------------------- ------------------------------------ ----------------------
Common Ueli Schurch Director 500,000 shares 3.0%
- ---------------------- ----------------------------------- ------------------------------------ ----------------------
Common Manish Bindal Director 80,000 shares (2) 0.4%
- ---------------------- ----------------------------------- ------------------------------------ ----------------------
Common Roland Kesselring V.P. 590,000 shares (3) 3.5%
- ---------------------- ----------------------------------- ------------------------------------ ----------------------
Common Raymond Lai V.P. 285,000 shares (4) 1.6%
- ---------------------- ----------------------------------- ------------------------------------ ----------------------
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 2,080,000 shares 12.35%
- ---------------------- ----------------------------------- ------------------------------------ ----------------------
Common Officers 2,375,000 shares 14.1%
- ---------------------- ----------------------------------- ------------------------------------ ----------------------
- ---------------------- ----------------------------------- ------------------------------------ ----------------------
Common Combined 2,955,000 17.6%
- ---------------------- ----------------------------------- ------------------------------------ ----------------------
</TABLE>
<PAGE>
(1) Includes 207,000 shares owned by spouse, Aski Nikhanj.
(2) Includes 50,000 shares owned by spouse Sehra Bindal.
(3) Includes 590,000 shares owned by spouse Manuela Kesselring.
(4) Includes 195,000 shares owned by spouse, Amanda Lai.
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, 1998, and 1997 on the
Alberta Stock Exchange as follows:
Closing
(Canadian $)
High Low
2000 First Quarter 2.00 0.85
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.
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
<PAGE>
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 principal Canadian federal income tax
considerations 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.
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
<PAGE>
(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 Canadia "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, 1999. 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."
<TABLE>
<CAPTION>
Selected Financial Information for 5 Years (in Cdn$)
Fiscal Year Ended March 31st
1999 1998 1997 1996 1995
---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Interest 49,044 152,132 0 0 27,445
Other 0 0 0 0
---------- ------- ------ ------ ------
Total Revenue 49,044 152,132 28,702 0 27,445
------- ------ ------- ------ -
General & Administrative Expenses 898,873 1,358,156 640,625 368,902 234,960
Exploration Costs Written Off 1,848,313 561,500 1,506,392 0 1,306,276
Amortization 11,282 27,082 12,182 0 0
Other Expenses 137,723 92,420 0 100,000 0
Loss for the Period (2,847,147) (1,887,026) (2,130,497) (468,902) (1,513,791)
----------- ----------- ----------- --------- -----------
Loss per Share (.20) (0.17) (0.20) (0.08) (0.47)
----------- ------ ------ ------ ------
Weighted average shares outstanding 14,446,458 13,911,958 10,924,623 5,961,296 3,213,527
----------- ---------- ---------- --------- ---------
Balance Sheet Data:
Current Assets 696,996 3,011,601 6,729,786 1,510,715 11,438
Capital Assets 32,579 155,645 68,834 28,326 5,160
Deferred Acq. & Expl. Costs 8,100,426 8,957,965 4,440,824 1,065,975 198,322
---------- --------- --------- --------- -------
Exploration Costs
Total Assets 8,830,001 12,125,211 11,239,444 2,605,016 214,920
---------- ---------- ---------- --------- -------
Current Liabilities 277,590 1,820,664 1,117,428 238,189 41,074
Due to Related Parties 22,800 8,553 231,243 207,346 490,013
Long Term Liabilities 0 0 0 100,000 62,500
Capital Stock 20,346,416 19,265,652 16,973,405 7,011,616 4,104,566
Deficit (11,816,805) (8,969,658) (7,082,632) (4,952,135) (4,483,233)
---------- ----------- ----------- ----------- -----------
Total Equity & Liabilities 8,830,001 12,125,211 11,239,444 2,605,016 214,920
---------- ---------- ---------- --------- -------
</TABLE>
<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>
1999 1998 1997
$ $ $
---- ---- ----
<S> <C> <C> <C>
Loss for the Year Following U.S. GAAP (2,978,358) (7,038,271) (7,838,592)
Loss per share under U.S. GAAP (0.21) (0.51) (0.72)
Deferred Acquisition & Exploration Cost - - -
(139,000) 219,000 308,000
Capital Stock 24,219,334 22,139,820 19,132,583
Deficit (24,428,529) (21,450,171) (14,411,900)
</TABLE>
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND CHANGES
IN FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NOTE: 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 the consolidated financial statements and the Results of Operations
are as follows:
a) Adjustment to net loss
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
<S> <C> <C> <C>
Loss for the year following Canadian GAAP (2,847,147) (1,887,026) (2,130,497)
Deferred exploration costs (i) 777,539 (4,606,141) (4,229,545)
Stock based compensation (iii) (908,750) (578,490) (1,563,550)
----------------------------------------------------------------
Flow-through shares (iv) - 33,386 85,000
Loss for the year following U.S. GAAP (2,978,358) (7,038,271) (7,838,592)
----------------------------------------------------------------
Loss per share under U.S. GAAP (0.21) (0.51) (0.72)
----------------------------------------------------------------
</TABLE>
<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 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) For U.S. GAAP, subscriptions receivable are recorded as a reduction in
share capital.
iii) 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.
iv) Under U.S. GAAP flow-through shares are recorded in share capital at
the market price on the date of issue and any discount or premium is
recorded on the balance sheet and reversed to income when the flow-
through shares are renounced. The difference between the original
carrying value of a property and its tax basis results in a deferred
tax liability that reverses in line with the depletion and write-down
of the assets.
b) Adjustments to balance sheet
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------- ----------------------------- -----------------------------
Canadian Canadian Canadian
GAAP U.S. GAAP GAAP U.S. GAAP GAAP U.S. GAAP
$ $ $ $ $ $
<S> <C> <C> <C> <C> <C> <C>
Subscription receivable
(a)(ii) - - - - 136,500 -
Deferred acquisition and
and acquisition costs
(a)(i) 8,100,426 139,000 8,957,965 219,000 4,440,824 308,000
Deferred tax (a) (iv) - 867,380 - 867,380 - 900,766
Capital stock 20,346,416 24,219,334 19,265,652 22,139,820 16,973,405 19,132,583
Deficit (11,816,805) (24,428,529) (8,969,658) (21,450,171) (7,082,632) (14,411,900)
</TABLE>
c) Shareholders' equity
<TABLE>
<CAPTION>
Under U.S. GAAP, shareholders' equity would be as follows:
1999 1998 1997
$ $ $
<S> <C> <C> <C>
Under Canadian GAAP 8,529,611 10,295,994 9,890,773
U.S. GAAP adjustment to net loss
Current (a)(i) and (a)(iii) (131,211) (5,151,245) (5,708,095)
Cumulative (12,480,513) (7,329,268) (1,621,173)
U.S. GAAP adjustment to capital stock
(a)(ii) - - (136,500)
Current (a)(iii) 908,750 714,990 1,478,550
Cumulative 2,874,168 2,159,178 817,128
-------------------------------------------------------------
(299,195) 689,649 4,720,683
-------------------------------------------------------------
</TABLE>
<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 $4,134,000.
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.
The Company has no primary income source at this time. Funding for the Company's
operation is solely from private placements, options and warrant exercise.
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, 1998 and FY 1997 is from interest earned from working capital invested
in secured short-term money markets. 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, 1999
At year-end 1999 the Company's assets decreased to $8,830,001 compared to
$12,125,211 at March 31, 1998. The decrease was a result of written off
exploration costs for the acquisition and exploration of the Knife Lake Project
in Canada.
The liabilities of the Company, nearly all of which are current liabilities,
decreased significantly as a result of payment of cash for expenditures for
prospect exploration. At March 31, 1999, current liabilities were $300,390, a
decrease of 84% over the March 31, 1998 year end liabilities of $1,820,664.
<PAGE>
The Company's deficit at year-ended March 31, 1999 was $11,816,805, an increase
of 32% over the 1998 deficit of $8,969,658. The deficit will continue to
increase as a result of the Company's continuing effort to explore for
economical mineral resources. Consequently, additional funding from equity
financing is essential for the Company to continue its exploration efforts until
it has found one or more economical mineral resources in its mineral properties.
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 the fiscal year ended March 31,
1998 or 1998 except interest income of $49,044 (1999) and $152,132 (1998) from
working capital invested in secured short-term money market investments.
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 Company had
$1,848,313 in the written off exploration costs in the year ended March 31,
1998, as compared to $561,500 in the year ended March 31, 1998. The Company had
no site restoration/abandonment costs in the year ended March 31, 1999, but in
the year ended March 31, 1998, the Company incurred $68,250 in such costs. The
Company had a net loss on operations of ($2,847,147) for the year ended March
31, 1999 as compared to a net loss of ($1,887,026) for year ended March 31,
1998.
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.
COMPARISON OF RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED MARCH 31, 1998
AND 1997
The Company had no operating revenue in either 1998 or 1997 except interest
income from working capital invested in secured short-term money markets.
In the fiscal year ended March 31, 1998, 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 Company had
$1,848,313 in the written off exploration costs in the year ended March 31,
1998, as compared to $561,500 in the year ended March 31, 1997. The Company had
no site restoration/abandonment costs in the year ended March 31, 1998, but in
the year ended March 31, 1998, of $68,250 in such costs and no such costs in
1997. The Company had a net loss on operations of ($139,840) for the year ended
March 31, 1998 as compared to a net loss of ($1,887,026) for year ended March
31, 1998.
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.
The Company incurred operating expenses, most of which are Exploration
expenditures, totaling $5,078,641 in 1998 as compared to $4,881,241 in 1997
(under Canadian GAAP most of these costs are capitalized rather than expensed as
under US GAAP). Exploration Costs Written Off were $561,500 in 1998 a decrease
of $944,892 from $1,506,392 in 1997. The Company had a decrease in operating
losses to ($1,887,026) in 1998 from ($2,130,492) in 1997.
<PAGE>
The other major item in the operating expenses is General and Administrative
costs which increased in 1998 to $1,358,156 from $640,625 in 1997. The increase
includes $156,171 is mainly due to additional legal expenses pertaining to
several legal proceedings against the Company, increase of $324,275 in
advertising and $123,236 promotional expenses, travel expenses and costs
pertaining to private placement activities.
The per-share loss amounted to ($0.17) in 1998 as compared to ($0.20) in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The principal sources of funding for the Company's operation in the
past 5 years have been issuance of securities for cash and as consideration for
certain acquisitions, exercise of director and employee stock options and loans
from directors and officers.
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.
<PAGE>
The following chart summarizes all capital funding raised in the past
five years.
<TABLE>
<CAPTION>
FUNDING SUMMARY
FROM APRIL 1995 TO MARCH 99
- ----------------------- ------------------------------ ----------------------------- ------------------ ----------------------
Year Total Shares Issued Share Price Total Amount
- ----------------------- ------------------------------ ----------------------------- ------------------ ----------------------
<S> <C> <C> <C> <C>
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
- ----------------------- ------------------------------ ----------------------------- ------------------ ----------------------
(up to March 31) Exercise of Options 687,000 $0.43 $295,410
-------------
- ----------------------- ------------------------------ ----------------------------- ------------------ ----------------------
1999 Total 2,687,000 $0.37 $995,410
- ----------------------- ------------------------------ ----------------------------- ------------------ ----------------------
</TABLE>
<PAGE>
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 in 2000
through private placements and the exercise of options and warrants which is
expected to cover all its 2000 exploration programs in Knife Lake, Canada and
Karmel Project, S. Africa. Subsequent to March 31, 1999, the Company raised
$600,000 through the issuance of shares.
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.
<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.
<PAGE>
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>
Position
Name and Within Period of Service
Residence the Company Term
<S> <C> <C> <C>
Present Occupations and
Yashvir (Jasi) Nikhanj (1,2) President and Director Annual 1987 to date
Calgary, Alberta
Ulrich Schurch1 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
</TABLE>
<PAGE>
(1) Member of the audit committee.
(2) Member of Nomination and Compensation Committee.
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.
<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.
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:
<PAGE>
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.
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, 1999, (1) to each of the Company's five most highly
compensated executive officers whose cash compensation exceeded $30,000 and (2)
to all officers as a group is set forth below under directors.
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE OF EXECUTIVES
Annual Compensation Awards
========================== ----------- -------------- ------------ ----------------------- ------------------ ======================
<S> <C> <C> <C> <C> <C> <C>
Name and Principal Year Salary ($) Bonus ($) Other Annual Restricted Stock Securities Underlying
Position Compensation ($) Award(s)($) Options/SARs(#)
========================== ----------- -------------- ------------ ----------------------- ------------------ ======================
Y.S. Jasi Nikhanj 1998 0 0 120,000 (1) 0 250,000 shares
President and Director
----------- -------------- ------------ ----------------------- ------------------ ======================
1997 0 0 120,000 (1) 0 355,000 shares
----------- -------------- ------------ ----------------------- ------------------ ======================
1996 0 0 120,000 (1) 0 0
========================== ----------- -------------- ------------ ----------------------- ------------------ ======================
========================== ----------- -------------- ------------ ----------------------- ------------------ ======================
Manish Bindal 1998 0 0 37,200 (2) 0 50,000 shares
Secretary and Director
----------- -------------- ------------ ----------------------- ------------------ ======================
1997 0 0 37,200 (2) 0 25,000 shares
----------- -------------- ------------ ----------------------- ------------------ ======================
1996 0 0 37,200 (2) 0 0
========================== ----------- -------------- ------------ ----------------------- ------------------ ======================
========================== ----------- -------------- ------------ ----------------------- ------------------ ======================
Raymond Lai 1998 60,000 0 0 0 50,000 shares
V.P. Finance &
Administration
----------- -------------- ------------ ----------------------- ------------------ ======================
1997 60,000 0 0 0 25,000 shares
----------- -------------- ------------ ----------------------- ------------------ ======================
1996 36,000 0 0 0 0
========================== ----------- -------------- ------------ ----------------------- ------------------ ======================
========================== ----------- -------------- ------------ ----------------------- ------------------ ======================
Roland Kesselring 1998 0 0 0 50,000 shares 75,000 shares
V.P. Corporate
Affairs-Europe
----------- -------------- ------------ ----------------------- ------------------ ======================
1997 0 0 0 $175,000 175,000 shares
=========== ============== ============ ======================= ================== ======================
1996 0 0 0 0 0
========================== =========== ============== ============ ======================= ================== ======================
</TABLE>
(1) Paid as consulting fees to Nikhanj and Associates Geoconsulting.
(2) Paid as legal fees for services.
<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, 1999, (1) to each of the Company's directors
whose cash compensation exceeded $30,000 and (2) to all directors as a group is
set forth below:
<TABLE>
<CAPTION>
DIRECTOR'S COMPENSATION FOR LAST FISCAL YEAR
(Except for compensation of Officers who are also Directors whose Compensation
is listed in Summary Compensation Table of Executives)
Cash Compensation Security Grants
======================= --------------------- ------------------ --------------------- ----------------- =========================
<S> <C> <C> <C> <C> <C>
Name Number of Securities
Annual Retainer Meeting Fees Consulting Fees/ Number of Underlying Options/SARs
Fees ($) ($) Other Fees ($) 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.
<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>
Share Price Amount Expiry Date
- ------------------------------------------ ---------------- ---------- ----------- ---------------
<S> <C> <C> <C> <C>
Outstanding Options 475,000 $0.43 $204,250 Oct. 15, 2000
- ------------------------------------------ --------------- ------------------ ---------------- ---------------
250,000 $0.35 $87,500 Nov. 4, 2001
- ------------------------------------------ --------------- ------------------ ---------------- ---------------
950,000 $0.50 $475,000 Mar. 18, 2002
- ------------------------------------------ --------------- ------------------ ---------------- ---------------
Total Options 1,675,000 $766,750
- ------------------------------------------ --------------- ------------------ ---------------- ---------------
- ------------------------------------------ --------------- ------------------ ---------------- ---------------
Outstanding Warrants 1,000,000 $0.45 $450,000 Oct. 25, 2001
- ------------------------------------------ --------------- ------------------ ---------------- ---------------
Total Options & Warrants 2,675,000 $1,216,750
- ------------------------------------------ --------------- ------------------ ---------------- ---------------
</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>
1999 1998 1997
<S> <C> <C> <C>
$ $ $
i) The Company's president and his wife 22,800 4,055 226,745
ii) Other shareholders, directors - 4,498 4,498
======== ======== =======
</TABLE>
<PAGE>
The shareholders' loans have no fixed terms of repayment, are
non-interest bearing and are unsecured.
b) Transactions in the year
During fiscal year 1999, the following transactions were conducted
with related parties:
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 total $309,855.
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.
iii) A company owned by the President was paid $120,000 (1998 - $135,000; 1997
- $120,000) for geological consulting services provided during the year.
iv) A director's law firm was paid $36,000 for legal services provided during
the year (1998 - $40,422; 1997 - $41,850).
During fiscal year 1998, the following transactions were conducted
with related parties:
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) Directors received 117,000 shares during the year in
settlement of performance bonuses (1997 - cash payment
$257,250 and 5,000 shares).
During fiscal year 1997, the following transactions occurred:
i) The President and his wife made additional non-interest
bearing cash advances to the Company, assumed Company debts
and made expenditures on behalf of the Company totalling
$282,203. The expenditures included certain mining options
acquired on behalf of the Company (note 4) for total
non-cash consideration valued at $134,000. These options
were transferred to the Company at cost. In addition, the
President secured the services of a consulting geologist on
behalf of the Company for non-cash consideration valued at
$75,000. The Company repaid the President and his wife a
total of $458,306 in 1997.
<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
equalled 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.
<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.
<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 registration statement.
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-18).
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,
1999, 1998 and Dec. 31, 1997 F-3
Consolidated Statements of Loss & Deficit for
the period ended March 31, 1999, 1998, 1997 F-4
Statement of Cash Flows for the period ended
March 31, 1999, 1998, 1997 F-6
Notes to Consolidated Financial Statements F-6 - F-18
<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: -------------------
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
<PAGE>
Leader Mining International Inc.
Consolidated Financial Statements
March 31, 1999, 1998 and 1997
<PAGE>
PricewaterhouseCoopers LLP
Chartered Accountants
425 1st Street SW
Suite 1200
Calgary Alberta
Canada T2P 3V7
Telephone (403) 509-7500
Facsimile (403) 781-1825
June 25, 1999
Auditors' Report
To the Shareholders of
Leader Mining International Inc.
We have audited the consolidated balance sheets of Leader Mining International
Inc. as at March 31, 1999, 1998 and 1997 and the consolidated statements of loss
and deficit and cash flows for the three years 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 audits.
We conducted our audits 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 consolidated financial statements present fairly, in all
material respects, the financial position of the company as at March 31, 1999,
1998 and 1997 and the results of its operations and the changes in its cash
flows for the three years then ended in accordance with Canadian generally
accepted accounting principles.
/s/ PricewaterhouseCoopers LLP
Chartered Accountants
<PAGE>
<TABLE>
<CAPTION>
Leader Mining International Inc.
Consolidated Balance Sheet
As at March 31, 1999, 1998 and 1997
1999 1998 1997
$ $ $
<S> <C> <C> <C>
Assets
Current assets
Cash and short-term deposits 456,425 2,724,319 6,250,389
Accounts receivable 3,214 15,214 3,214
Marketable securities - at market 22,942 - -
Goods and Services Tax receivable 34,642 136,662 196,700
Deposits and prepaid expenses 179,773 135,406 142,983
Subscriptions receivable - - 136,500
-------------------------------------------------------------
696,996 3,011,601 6,729,786
Capital assets (note 3) 32,579 155,645 68,834
Deferred acquisition and exploration costs (note 4) 8,100,426 8,957,965 4,440,824
-------------------------------------------------------------
8,830,001 12,125,211 11,239,444
-------------------------------------------------------------
Liabilities
Current liabilities
Accounts payable and accrued liabilities 277,590 1,820,664 1,117,428
Due to related parties (note 5) 22,800 8,553 231,243
-------------------------------------------------------------
300,390 1,829,217 1,348,671
-------------------------------------------------------------
Shareholders' equity
Capital stock (note 6) 20,346,416 19,265,652 16,973,405
Deficit (11,816,805) (8,969,658) (7,082,632)
-------------------------------------------------------------
8,529,611 10,295,994 9,890,773
-------------------------------------------------------------
8,830,001 12,125,211 11,239,444
-------------------------------------------------------------
</TABLE>
Commitments and contingencies (note 7)
The accompanying notes are an integral part of these financial statements
<PAGE>
<TABLE>
<CAPTION>
Leader Mining International Inc.
Consolidated Statement of Loss and Deficit
For the years ended March 31, 1999, 1998 and 1997
- ----------------------------------------------------------------------------
1999 1998 1997
$ $ $
<S> <C> <C> <C>
Revenue
Interest 49,044 152,132 28,702
-------------------------------------------------------------
Expenses
General and administrative 898,873 1,358,156 640,618
Exploration costs written off (note 4) 1,848,313 561,500 1,506,392
Amortization 11,282 27,082 12,189
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 -
-------------------------------------------------------------
2,896,191 2,039,158 2,159,199
-------------------------------------------------------------
(2,847,147) (1,887,021) (2,130,497)
Net loss for the year
Deficit - Beginning of year (8,969,658) (7,082,632) (4,952,135)
-------------------------------------------------------------
Deficit - End of year (11,816,805) (8,969,658) (7,082,632)
-------------------------------------------------------------
Loss per share (0.20) (0.17) (0.20)
-------------------------------------------------------------
Weighted average number of shares outstanding (note 6) 14,446,458 13,911,958 10,924,663
-------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
<TABLE>
<CAPTION>
Leader Mining International Inc.
Consolidated Statement of Cash Flows
For the years ended March 31, 1999, 1998 and 1997
- ----------------------------------------------------------------------------
1999 1998 1997
$ $ $
<S> <C> <C> <C>
Cash provided by (used in)
Operating activities
Loss for the year (2,847,147) (1,887,026) (2,130,497)
Items not affecting cash
Exploration costs written off 1,848,313 561,500 1,506,392
Amortization 11,282 27,082 12,189
Loss (gain) on disposal of capital assets (2,117) 24,170 -
Write-down of marketable securities 139,840 - -
Provision for site restoration and abandonment costs - 68,250 -
Employee bonuses and legal settlement paid in shares 113,700 529,500 18,500
-------------------------------------------------------------
(736,129) (676,524) (593,416)
Change in non-cash working capital balances (note 10) (1,473,421) 690,601 606,032
-------------------------------------------------------------
(2,209,550) (14,077) 12,616
-------------------------------------------------------------
Financing activities
Issuance of common shares, net of issue costs 967,064 1,636,998 10,721,305
Payments made from (to) related parties 14,247 (222,690) 23,897
-------------------------------------------------------------
981,311 1,414,308 10,745,202
-------------------------------------------------------------
Investing activities
Deferred acquisition and exploration costs (990,774) (4,816,392) (5,685,757)
Purchase of capital assets (2,599) (145,163) (52,697)
Proceeds on disposal of capital assets 116,500 7,100 -
Purchase of marketable securities (162,782) - -
-------------------------------------------------------------
(1,039,655) (4,954,455) (5,738,454)
-------------------------------------------------------------
(2,267,894) (3,521,070) 5,019,364
Increase (decrease) in cash
Cash and short-term deposits - Beginning of year 2,724,319 6,250,389 1,231,025
-------------------------------------------------------------
Cash and short-term deposits - End of year 456,425 2,724,319 6,250,389
-------------------------------------------------------------
Cash and short-term deposits consists of
Cash 456,425 637,813 4,040,053
Short-term deposits - 2,086,506 2,210,336
-------------------------------------------------------------
456,425 2,724,319 6,250,839
-------------------------------------------------------------
Non-cash financing activities
Issue of shares for
Finders fees - 262,249 61,250
Property acquisition - - 35,000
-------------------------------------------------------------
- 262,249 96,250
-------------------------------------------------------------
Non-cash investing activities
Exploration expenditures - (262,249) (96,250)
-------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
Leader Mining International Inc.
Notes to Consolidated Financial Statements
March 31, 1999, 1998 and 1997
- ----------------------------------------------------------------------------
1 Nature of operations
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
deferred acquisition and 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. 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 consolidated 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 12.
Basis of presentation
These consolidated financial statements include the results of the
Company's wholly owned United States inactive subsidiaries, Durvada
Resources Inc. and Durga Resources Inc. The subsidiary wound up effective
April 1, 1998.
Use of estimates
The preparation of consolidated 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 deferred acquisition and
exploration costs. Actual results could differ from those reported.
Deferred acquisition and 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.
Cash
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.
<PAGE>
Leader Mining International Inc.
Notes to Consolidated Financial Statements
March 31, 1999, 1998 and 1997
- ----------------------------------------------------------------------------
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
at the following annual rates:
Computer equipment 30%
Furniture and fixtures 20%
Vehicles 30%
Camp equipment 20%
Field office building 4%
Subscriptions receivable
Subscriptions receivable from employees, officers or directors of the
Company are recorded as assets of the Company when collectibility of the
receivable is reasonably assured. When collectibility is not reasonably
assured, the amount receivable is offset against issued share capital.
Subscriptions receivable from third parties are offset against issued
share capital.
Translation of foreign currency
The financial statements of the Company's foreign subsidiaries are
prepared using the Canadian dollar as its functional currency. As a
result, the transactions of these operations that are denominated in
foreign currencies have been re-measured in Canadian dollars, and any
resulting gain or loss is reported in income.
Monetary assets and liabilities denominated in a foreign currency are
re-measured in Canadian dollars at the rate of exchange in effect at the
balance sheet date. Non-monetary assets and revenue and expenses are
translated at the rates prevailing when they are acquired or incurred.
Exchange gains or losses are included in net loss for the year.
Per share information
Loss per share has been calculated using the weighted average method.
Marketable securities
Marketable securities are recorded at the lower of cost or market.
<PAGE>
Leader Mining International Inc.
Notes to Consolidated Financial Statements
March 31, 1999, 1998 and 1997
- ----------------------------------------------------------------------------
3 Capital assets
<TABLE>
<CAPTION>
1999
----------------------------------------------------------------
Accumulated
Cost amortization Net
$ $ $
<S> <C> <C> <C>
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
$ $ $
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
----------------------------------------------------------------
1997
----------------------------------------------------------------
Accumulated
Cost amortization Net
$ $ $
Computer equipment 7,678 2,569 5,109
Vehicle 21,843 6,552 15,291
Furniture and fixtures 22,713 15,807 6,906
Camp equipment 43,248 1,720 41,528
----------------------------------------------------------------
95,482 26,648 68,834
----------------------------------------------------------------
</TABLE>
<PAGE>
Leader Mining International Inc.
Notes to Consolidated Financial Statements
March 31, 1999, 1998 and 1997
- ----------------------------------------------------------------------------
Deferred acquisition and exploration costs
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
<S> <C> <C> <C>
a) Balance - Beginning of year 8,957,965 4,440,824 1,065,975
-------------------------------------------------------------
Expenditures capitalized in the year
Acquisition of mineral properties 30,000 70,000 219,000
Exploration costs 960,774 5,008,641 5,563,007
Tax effect of flow-through shares (note 6(c)) - - (900,766)
-------------------------------------------------------------
990,774 5,078,641 4,4881,241
Less: Exploration costs written off (1,848,313) (561,500) (1,506,392)
-------------------------------------------------------------
(857,539) 4,517,141 3,374,849
-------------------------------------------------------------
Balance - End of year 8,100,426 8,957,965 4,440,824
-------------------------------------------------------------
b) The breakdown of deferred acquisition and exploration costs by
property is as follows:
1999
----------------------------------------------------------------
Deferred
Mineral exploration
properties costs Total
$ $ $
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
----------------------------------------------------------------
Deferred
Mineral exploration
properties costs Total
$ $ $
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>
<PAGE>
Leader Mining International Inc.
Notes to Consolidated Financial Statements
March 31, 1999, 1998 and 1997
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997
----------------------------------------------------------------
Deferred
Mineral exploration
properties costs Total
$ $ $
<S> <C> <C> <C>
Knife Lake, Saskatchewan 30,000 2,709,763 2,739,763
Nettogami Lake, Ontario 65,000 1,199,546 1,264,546
Nighthawk Lake, Ontario 149,000 52,928 201,928
Other 64,000 170,587 234,587
----------------------------------------------------------------
308,000 4,132,824 4,440,824
----------------------------------------------------------------
</TABLE>
c) During fiscal year 1999, the Company wrote off $1,848,313 (1998 -
$561,000; 1997 - $137,930) of exploration costs relating to
properties on which no further exploration activities are planned.
d) In March, 1998, to consolidate a 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.
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.
The Company has an option to spend $1,500,000 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 $10 million and an option to
purchase a 1% net smelter return for $2 million.
f) 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.
The interest is earned after incurring expenditures of $1,500,000, in
scheduled expenditures of $500,000 each year for the three years
following the agreement date. Should the Company elect to spend less
than the $1,500,000 to a minimum of $500,000, the Company will retain
a 1% Net Smelter Return Royalty on the property so long as Karmel or
Poplar hold an interest.
As part of the above agreement, the Company is obligated to pay a 3%
net profit interest to the property owners. The Company has an option
to purchase a 2% net profit interest for 4 million Rand.
<PAGE>
Leader Mining International Inc.
Notes to Consolidated Financial Statements
March 31, 1999, 1998 and 1997
- ----------------------------------------------------------------------------
Related party transactions
a) Due to related parties
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
<S> <C> <C> <C>
i) The Company's president and his wife 22,800 4,055 226,745
ii) Other shareholders, directors - 4,498 4,498
-------------------------------------------------------------
22,800 8,553 231,243
-------------------------------------------------------------
</TABLE>
The shareholders' loans have no fixed terms of repayment, are
non-interest bearing and are unsecured.
b) Transactions in the year
During fiscal year 1999, the following transactions were conducted
with related parties:
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 total $309,855.
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.
iii) A company owned by the President was paid $120,000 (1998 -
$135,000; 1997 - $120,000) for geological consulting services
provided during the year.
iv) A director's law firm was paid $36,000 for legal services
provided during the year (1998 - $40,422; 1997 - $41,850).
During fiscal year 1998, the following transactions were conducted
with related parties:
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) Directors received 117,000 shares during the year in settlement
of performance bonuses (1997 - cash payment $257,250 and 5,000
shares).
During fiscal year 1997, the following transactions occurred:
i) The President and his wife made additional non-interest bearing
cash advances to the Company, assumed Company debts and made
expenditures on behalf of the Company totalling $282,203. The
expenditures included certain mining options acquired on behalf
of the Company (note 4) for total non-cash consideration valued
at $134,000. These options were transferred to the Company at
cost. In addition, the President secured the services of a
consulting geologist on behalf of the Company for non-cash
consideration valued at $75,000. The Company repaid the
President and his wife a total of $458,306 in 1997.
<PAGE>
Leader Mining International Inc.
Notes to Consolidated Financial Statements
March 31, 1999, 1998 and 1997
- ----------------------------------------------------------------------------
ii) The President sold a mobile home, previously used in the
Company's operations, to Durvada Resources Inc. for proceeds of
$34,648, which equalled the balance of the mortgage owed by the
President on the mobile home.
6 Capital stock
a) Authorized
The authorized share capital of the Company is comprised of an
unlimited number of common and preferred shares.
b) Common shares issued
Changes in the Company's outstanding common share capital are
summarized as follows:
<TABLE>
<CAPTION>
Number of Amount
shares $
<S> <C> <C>
Balance - March 31, 1996 9,606,370 7,011,616
-----------------------------------------
Shares issued
Subscriptions received 50,000 175,000
Exercise of options 628,000 1,652,200
Exercise of warrants 1,025,000 1,811,500
Employee bonus 5,000 18,500
Acquisition of mineral claims 100,000 35,000
Finder's fee 47,115 61,250
Flow-through shares (note 6(c)) 425,000 1,997,500
Private placements for cash 1,362,000 5,543,790
-----------------------------------------
3,642,115 11,294,740
-----------------------------------------
13,248,485 18,306,356
Add: Flow-through warrant issue proceeds - 21,250
Less:Subscriptions receivable (35,256) (136,500)
Share issue costs - (316,935)
Tax effect of flow-through shares (note 6(c)) - (900,766)
-----------------------------------------
Balance - March 31, 1997 13,213,229 169,973,405
-----------------------------------------
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
-----------------------------------------
843,336 3,149,249
-----------------------------------------
14,056,565 20,122,654
Less: Share issue costs - (857,002)
-----------------------------------------
Balance - March 31, 1998 14,056,565 19,265,652
-----------------------------------------
Shares issued
Director and employee bonus shares cancelled (157,000) (529,500)
<PAGE>
Leader Mining International Inc.
Notes to Consolidated Financial Statements
March 31, 1999, 1998 and 1997
- ----------------------------------------------------------------------------
Number of Amount
Shares $
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
-----------------------------------------
2,762,000 1,109,110
-----------------------------------------
16,818,565 20,374,762
Less: Share issue costs - (28,346)
-----------------------------------------
Balance - March 31, 1999 16,818,565 20,346,416
-----------------------------------------
</TABLE>
The weighted average number of shares outstanding for the year ended
March 31, 1999 was 14,446,458 (1998 - 13,911,958; 1997 - 10,924,623).
c) Flow-through shares
Pursuant to the issuance of flow-through shares, the Company spent
$1,997,500 on qualifying expenditures in fiscal year 1997, the tax
effects of which were renounced to the investors.
d) Share options
The Company has a stock option plan for the officers, directors and
employees. Up to 10% of the issued and outstanding shares are
reserved for issuance. The number of stock options outstanding at the
year-end were as follows:
<TABLE>
<CAPTION>
Number of options
-------------------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
Balance - Beginning of year 1,357,000 847,000 965,000
Granted in the year 250,000 810,000 1,150,000
Exercised in the year (687,000) (85,000) (628,000)
Expired / cancelled in the year (200,000) (215,000) (640,000)
-------------------------------------------------------------
Balance - End of year 720,000 1,357,000 847,000
-------------------------------------------------------------
</TABLE>
<PAGE>
Leader Mining International Inc.
Notes to Consolidated Financial Statements
March 31, 1999, 1998 and 1997
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
The options expire as follows:
Number of
options
<S> <C>
Exercise at $0.43 expiring July, 1999 220,000
Exercise at $0.43 expiring October, 2000 250,000
Exercise at $0.35 expiring November, 2001 250,000
-------------------
720,000
-------------------
</TABLE>
e) Share warrants
The number of share warrants issued during the year in conjunction
with the private share placements and outstanding at the year-end
were as follows:
<TABLE>
<CAPTION>
Number of warrants
-------------------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
Balance - Beginning of year 130,000 637,500 950,000
Granted in the year 1,000,000 322,000 712,500
Expired in the year (130,000) (829,500) -
Exercised in the year - - (1,025,000)
-------------------------------------------------------------
Balance - End of year 1,000,000 130,000 637,500
-------------------------------------------------------------
</TABLE>
The 1,000,000 warrants are exercisable at $0.45 by January 18, 2001.
7 Commitments and contingencies
a) Pursuant to an agreement relating to a lease for office premises, the
Company is obligated to pay $24,000 per annum until the year 2001.
b) While the Company was successful in defending a 1998 legal action,
the matter is currently under appeal.
8
<PAGE>
Leader Mining International Inc.
Notes to Consolidated Financial Statements
March 31, 1999, 1998 and 1997
- ----------------------------------------------------------------------------
Income taxes
The Company has Canadian resource deductions including undepreciated
capital costs of approximately $10,994,000 which may be carried forward
indefinitely in the prescribed manner to reduce taxable income in future
years, and Canadian non-capital tax losses of approximately $4,134,000.
The non-capital tax losses expire as follows:
Amount Available
Year of Loss $ Until
1993 169,000 2000
1994 289,000 2001
1995 164,000 2002
1996 320,000 2003
1997 674,000 2004
1998 1,454,000 2005
1999 1,064,000 2006
------------------
4,134,000
------------------
In addition, the Company has United States net operating losses available
to be carried forward for 15 years commencing in 1989, of approximately
$1,865,000.
The potential income tax benefit associated with the above non-capital
losses have not been recorded in these financial statements.
Differences between income taxes calculated at Canadian statutory rates
and the income tax provision are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
<S> <C> <C> <C>
Income taxes at Canadian statutory rates 1,281,200 849,000 959,000
Tax effect of losses which have not been
recorded (1,281,200) (849,000) (959,000)
----------------------------------------------------------------
Balance - End of period - - -
----------------------------------------------------------------
</TABLE>
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 except the
amounts due to related parties approximate their carrying values due to
their short-term maturity. The fair value of amounts due to related
parties is not determinable.
<PAGE>
Leader Mining International Inc.
Notes to Consolidated Financial Statements
March 31, 1999, 1998 and 1997
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
10 Changes in non-cash working capital balances
1999 1998 1997
$ $ $
<S> <C> <C> <C>
Operating activities
Accounts receivable 12,000 (12,000) (3,214)
Goods and Services Tax receivable 102,020 60,038 (170,302)
Deposits and prepaid expenses (44,367) 7,577 309
Accounts payable and accrued liabilities (1,543,074) 634,986 779,239
----------------------------------------------------------------
(1,473,421) 690,601 606,032
----------------------------------------------------------------
</TABLE>
11 Uncertainty due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an entity's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the entity,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
12 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 consolidated financial statements are as follows:
<TABLE>
<CAPTION>
a) Adjustment to net loss
1999 1998 1997
$ $ $
<S> <C> <C> <C>
Loss for the year following Canadian GAAP (2,847,147) (1,887,026) (2,130,497)
Deferred exploration costs (i) 777,539 (4,606,141) (4,229,545)
Stock based compensation (iii) (908,750) (578,490) (1,563,550)
Flow-through shares (iv) - 33,386 85,000
----------------------------------------------------------------
Loss for the year following U.S. GAAP (2,987,358) (7,038,271) (7,838,592)
----------------------------------------------------------------
Loss per share under U.S. GAAP (0.21) (0.51) (0.72)
----------------------------------------------------------------
</TABLE>
<PAGE>
Leader Mining International Inc.
Notes to Consolidated Financial Statements
March 31, 1999, 1998 and 1997
- ----------------------------------------------------------------------------
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) For U.S. GAAP, subscriptions receivable are recorded as a
reduction in share capital.
iii) 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.
iv) Under U.S. GAAP flow-through shares are recorded in share
capital at the market price on the date of issue and any
discount or premium is recorded on the balance sheet and
reversed to income when the flow-through shares are renounced.
The difference between the original carrying value of a property
and its tax basis results in a deferred tax liability that
reverses in line with the depletion and write-down of the asset.
<TABLE>
<CAPTION>
b) Adjustments to balance sheet
1999 1998 1997
----------------------------- ----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Canadian Canadian Canadian
GAAP U.S. GAAP GAAP U.S. GAAP GAAP U.S. GAAP
$ $ $ $ $ $
Subscription receivable
(a)(ii) - - - - 136,500 -
Deferred acquisition and
exploration costs
(a)(i) 8,100,426 139,000 8,957,965 219,000 4,440,824 308,000
Deferred tax (a)(iv) - 867,380 - 867,380 - 900,766
Capital stock (a)(iii) 20,346,416 24,129,334 19,265,652 22,139,820 16,973,405 19,132,583
Deficit (11,816,805) (24,428,529) (8,969,658) (21,450,171) (7,082,632) (14,411,900)
</TABLE>
<PAGE>
Leader Mining International Inc.
Notes to Consolidated Financial Statements
March 31, 1999, 1998 and 1997
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
c) Shareholders' equity (deficit)
Under U.S. GAAP, shareholders' equity would be as follows:
1999 1998 1997
$ $ $
<S> <C> <C> <C>
Under Canadian GAAP 8,529,611 10,295,994 9,890,773
U.S. GAAP adjustment to net loss
Current (a)(i), (a)(iii) and (a)(iv) (131,211) (5,151,245) (5,708,095)
Cumulative (12,480,513) (7,329,268) (1,621,173)
U.S. GAAP adjustment to capital stock
(a)(ii) - - (136,500)
Current (a)(iii) 908,750 714,990 1,478,550
Cumulative 2,874,168 2,159,178 817,128
-------------------------------------------------------------
(299,195) 689,649 4,720,683
-------------------------------------------------------------
</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 $4,134,000.
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.
