SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
x REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
¨ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended ______________________
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _______________
Commission file number: ________
L.E.H. VENTURES LTD.
(Exact name of Registrant as specified in its charter)
British Columbia, Canada
(Jurisdiction of incorporation or organization)
Suite 206-837 West Hastings St. Vancouver, BC V6C 3N6 CANADA
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class | Name of each exchange on which registered |
N/A | N/A |
Securities registered or to be registered pursuant to Section 12(g) of the Act.
Common Stock, No Par Value | TSX Venture Exchange |
(Title of Class) | (Name of Each Exchange on Which Registered) |
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report: 13,256,370
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
¨ Yes x No
Indicate by check mark which financial statement item the registrant has elected to follow.
x Item 17 ¨ Item 18
Page 1
Index to Exhibits on Page 62
GLOSSARY OF TERMS
S.E.C Industry Guide Reserve: That part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. The United States Securities and Exchange Commission requires a final or full Feasibility Study to support either Proven or Probable Reserves and does not recognize other classifications of mineralized deposits. Proven (Measured) Reserves: Probable (Indicated) Reserves: For which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of observation. | National Instrument 43-101 Mineral Reserve: The economically mineable part of a Measured or Indicated Mineral Resource demonstrated by at least a Preliminary Feasibility study. This study must include adequate information on mining, processing, metallurgical, economic and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified. Proven Mineral Reserve: The economically mineable part of a Measured Mineral Resource demonstrated by at least a Preliminary Feasibility study. This study must include adequate information on mining, processing, metallurgical, economic and other relevant factors that demonstrate, at the time of reporting, that economic extraction is justified. Probable Mineral Reserve: The economically mineable part of an indicated, and in some circumstances, a Measured Mineral Resource, demonstrated by at least a Preliminary Feasibility Study. This study must include adequate information on mining, processing, metallurgical, economic and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified. |
Alteration – any change in the mineral composition of a rock brought about by physical or chemical means.
Assaying - laboratory examination that determines the content or proportion of a specific metal (ie: silver) contained within a sample. Technique usually involves firing/smelting.
Batholith – a very large intrusive mass of igneous rock.
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Bottle Roll Leach Test – a small scale laboratory test where representative mineralized samples and solutions or solvents are placed in a bottle which is continuously agitated. The solutions are frequently measured to determine the cumulative extraction of the contained metals into solution.
Bulk Sample – A collection of representative mineralized material whose location, geologic character and metal assay content can be determined and then used for metallurgical or geotechnical testing purposes.
Chlorargyrite - a silver bearing mineral (AgC1); silver chloride.
Column Leach Test – a metallurgical test where materials are stacked inside a columnar container and subjected to a controlled flow of fluids or solvents intended to dissolve or extract minerals into solutions which are measured.
Core Samples - the cylindrical form of rock called “core” that is extracted from a diamond drill hole. Mineralized sections are separated and these samples are sent to a laboratory for analysis.
Cut-off grade - the lowest grade of mineralized material that qualifies as reserve in a deposit. ie: contributing material of the lowest assay that is included in a reserve estimate.
Diamond Drilling – a type of rotary drilling in which diamond bits are used as the rock-cutting tool to produce a recoverable drill core sample of rock for observation and analysis.
Dip – the angle that a structural surface, a bedding or fault plan, makes with the horizontal, measured perpendicular to the strike of the structure.
Disseminated – where minerals occur as scattered particles in the rock.
Environmental Baseline Study - a geotechnical study that monitors and establishes the numerous naturally occurring base levels present within a specific area/environment. These can include; water chemistry, flora and fauna.
Epithermal – low temperature hydrothermal process or product.
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Exploration – work involved in searching for ore, usually by drilling or driving a drift.
Fault – a fracture or break in rock along which there has been movement.
Feasibility – is a definitive study of the viability of a mineral project by a qualified professional which defines: (1) mining methods, pit configuration, mine scheduling, mine equipment and all related costing, (2) method of mineral processing and all related plant, equipment and costing, (3) necessary determination of all infrastructure required and relevant costs and (4) all requirements of government and markets for mine operation. A definitive financial analysis of the mineral project taking into consideration all relevant factors which will establish the presence of a Mineral Reserve and the details of its economic viability.
Felsic – an adjective describing an igneous rock having mostly light colored minerals and rich in silica, potassium and sodium.
Fracture – a break or crack in rock.
Fracture-controlled - a type of Mineralization where circulating fluids deposit minerals preferentially upon fracture planes within a rock mass.
Grade – The metal content of rock with precious metals, grade can be expressed as troy ounces or grams per tonne of rock.
Granodiorite – a medium to coarse-grained intrusive igneous rock, intermediate in composition between quartz diorite and quartz monzonite.
Heap Leach – a mineral processing method involving the crushing and stacking ore on an impermeable liner upon which solutions may be sprayed that dissolves metal i.e. gold/silver, etc.; the solutions containing the metals are then collected and treated to recover the metals.
Hydrothermal – the products or the actions of heated waters in a rock mass such as a mineral deposit precipitating from a hot solution.
Hydrothermal alteration - the process by which heated or superheated water/solutions alter the chemistry of the rocks they circulate through.
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Igneous – a primary type of rock formed by the cooling of molten material.
Intrusion; Intrusive – molten rock which is intruded (injected) into spaces that are created by a combination of melting and displacement.
Jones splitter - a mechanical device into which sample material consisting of rock chips from drill holes is fed into a hopper. The device then statistically splits the volume of material to produce a smaller representative sample, which is then sent to a laboratory for analysis.
Mesothermal – intermediate temperature hydrothermal process (200-300C) or product.
Metallurgical Tests - are scientific examinations of rock/material to determine the optimum extraction of metal contained. Core samples from diamond drill holes are used as representative samples of the Mineralization for this testwork.
Metallurgy – the study of the extractive processes which produce minerals from their host rocks.
Metamorphosed rocks - rocks that are changed in character by processes of intense heat and pressure deep within the earth’s crust.
Mineral – a naturally formed chemical element or compound having a definitive chemical composition and, usually a characteristic crystal form.
Mineralization – a natural concentration in rocks or soil of one or more metalliferous minerals.
Open Pit – a mining method whereby the mineral reserves are accessed from surface by the successive removal of layers of material usually creating a large pit at the surface of the earth.
Prefeasability Study – is a comprehensive study of the viability of a mineral project that has advanced to a stage where the mining method, in the case of underground mining, or the pit configuration, in the case of an open pit, has been established, and where an effective method of mineral processing had been determined. This Study must include a financial analysis based
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on reasonable assumptions of technical engineering, operating, and economic factors which are sufficient for a Qualified Person acting reasonably, to determine if all or part of the Mineral Resource may be classified as a Mineral Reserve.
Pyrite - an iron sulphide mineral (FeS2), the most common naturally occurring sulphide mineral.
Quartz – crystalline silica; often forming veins in fractures and faults within older rocks.
Quartz Monzonite - a coarse grained, quartz rich igneous rock usually occurring as a smaller rock mass associated with major granitic bodies.
Resource – a concentration of mineral material in such form and amount that economic extraction of a commodity from the concentration is currently or potentially feasible. Locations, grade, quality or quantity are estimated from specific geologic evidence.
Reverse Circulation Drilling (RC) – a drilling method used in geological appraisals whereby the drilling fluid passes inside the drill stem to a down-the-hole precision bit and returns to the surface outside the drill stem carrying the drill chip samples.
Silification – the in situ alteration of a rock, which involves an increase in the proportion of silica minerals.
Supergene effects - the effect of the water/solutions percolating down from the earth’s surface (weathering); these solutions can dissolve minerals at the surface and then reconcentrate at depth.
Vein – a thin, sheet-like, crosscutting body of hydrothermal Mineralization, principally quartz.
Volcanics – those originally molten rocks, generally fine grained, that have reached or nearly reached the Earth’s surface before solidifying.
Waste – barren rock in a mine, or mineralized material that is too low in grade to be mined and milled at a profit.
Waste to Ore Strip Ratio – the amount of waste material mined for each unit of ore presented as a ratio.
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Conversion Table
Conversion into imperial equivalents is as follows:
To Convert | To Imperial Measurement Units | Multiply By |
Hectares | Acres | 2.471 |
Metres | Feet | 3.281 |
Kilometers | Miles | 0.621 |
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L.E.H. Ventures Ltd.
Form 20-F Registration Statement
Table of Contents
Part I | Page | |
Item 1. | Identity of Directors, Senior Management | |
and Advisors | 9 | |
Item 2. | Offer Statistics and Expected Timetable | 9 |
Item 3. | Key Information | 10 |
Item 4. | Information on the Company | 17 |
Item 5. | Operating and Financial Review and Prospects | 24 |
Item 6. | Directors, Senior Management and Employees | 35 |
Item 7. | Major Shareholders and Related Party | |
Transactions | 39 | |
Item 8. | Financial Information | 40 |
Item 9. | The Offer and Listing | 41 |
Item 10. | Additional Information | 43 |
Item 11. | Disclosures about Market Risk | 60 |
Item 12. | Description of Other Securities | 60 |
Part II | ||
Item 13. | Defaults, Dividend Arrearages and Delinquencies | 60 |
Item 14. | Modifications of Rights of Securities Holders | |
and Use of Proceeds | 61 | |
Part III | ||
Item 17. | Financial Statements | 61 |
Item 18. | Financial Statements | 62 |
Item 19. | Exhibits | 62 |
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Part I
Item 1. Identity of Directors, Senior Management and Advisors
Table No. 1
A. COMPANY DIRECTORS AND SENIOR MANAGEMENT
Name | Position | Business Address |
John P. McGoran | President, CEO and Director | 206-837 West Hastings St |
Vancouver, BC V6C 3N6 | ||
Canada | ||
Luard Manning | Secretary, CFO and Director | 206-837 West Hastings St |
Vancouver, BC V6C 3N6 | ||
Canada | ||
James N. Plexman | Director | 618 Baywood Street |
North Bay, On P1B 4T1 | ||
Canada | ||
James C. O’Rourke | Director | 584-885 Dunsmuir Street |
Vancouver, BC V6C 1N5 | ||
Canada |
B. ADVISORS
The Company’s legal counsel is DuMoulin Black, located at 595 Howe Street, 10th Floor, Vancouver, British Columbia V6C 2T5. The telephone number of the Company’s legal counsel is 604-687-1224 and the contact person is Mr. George Brazier.
The Company’s banker is the Bank of Montreal located at 595 Burrard Street, Vancouver, British Columbia V7X 1L7.
C. AUDITORS
Staley, Okada & Partners, Chartered Accountants and Independent Auditors, is located at 10190 152-A Street, Surrey, British Columbia V3R 1J7. Staley Okada & Partners is a member of the Institute of Chartered Accountants for British Columbia. The telephone number for Staley Okada & Partners is 604-585-8300 and the contact person is Mr. Larry Okada.
Item 2. Offer Statistics and Expected Timetable
Not Applicable
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Item 3. Key Information
A. SELECTED FINANCIAL DATA
The selected financial data of the Company for fiscal year 2002, 2001, and 2000 ended November 30th and the three months ended February 28, 2003 (unaudited) was derived from the financial statements of the Company which have been audited by Staley Okada & Partners, Independent Auditors, as indicated in their audit report which is included elsewhere in this Registration Statement.
The selected financial data should be read in conjunction with the financial statements and other financial information included elsewhere in the Registration Statement.
The Company has not declared any dividends since incorporation and does not anticipate that it will do so in the foreseeable future. The present policy of the Company is to retain future earnings for use in its operations and the expansion of its business.
Table No. 2 is derived from the financial statements of the Company, which have been prepared in accordance with Canadian Generally Accepted Accounting Principles (GAAP), the application of which, in the case of the Company, conforms in all material respects for the periods presented with US GAAP, except as disclosed in a footnote to the financial statements.
Table No. 2
Selected Financial Data
(CDN$ in 000, except per share data)
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Cumulative U.S. GAAP deficit accumulated during the exploration stage has been ($4,187,894) to February 28, 2003.
In this Registration Statement, unless otherwise specified, all dollar amounts are expressed in Canadian Dollars (CDN$). The Government of Canada permits a floating exchange rate to determine the value of the Canadian Dollar against the U.S. Dollar (US$).
Table No. 3 sets forth the rate of exchange for the Canadian Dollar per U.S. Dollar at the end of the five most recent fiscal periods ended November 30th and for each of the months in the six month period ended February 28, 2003.
For purposes of this table, the rate of exchange means the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York. The table sets forth the number of U.S. dollars required under that formula to buy one Canadian Dollar. The average rate means the average of the exchange rates on the last day of each month during the period.
Table No. 3
Canadian Dollar/U.S. Dollar
Average | High | Low | Close | |
February 2003 | $1.53 | $1.48 | $1.48 | |
January 2003 | $1.57 | $1.51 | $1.52 | |
December 2002 | $1.57 | $1.54 | $1.57 | |
November 2002 | $1.59 | $1.55 | $1.57 | |
October 2002 | $1.59 | $1.56 | $1.57 | |
Sept. 2002 | $1.59 | $1.55 | $1.59 | |
Fiscal Year Ended 11/30/02 | $1.57 | $1.59 | $1.55 | $1.57 |
Fiscal Year Ended 11/30/01 | $1.54 | $1.60 | $1.49 | $1.56 |
Fiscal Year Ended 11/30/00 | $1.50 | $1.56 | $1.44 | $1.54 |
Fiscal Year Ended 11/30/99 | $1.49 | $1.53 | $1.44 | $1.44 |
Fiscal Year Ended 11/30/98 | $1.49 | $1.57 | $1.41 | $1.54 |
The exchange rate was 1.57 on November 29, 2002 and 1.48 on February 28, 2003.
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B. CAPITALIZATION AND INDEBTEDNESS
Table No. 4
Statement of Capitalization and Indebtedness
February 28, 2003
Shareholders’ Equity: | ||
Common Shares, no par value; | ||
100,000,000 common shares authorized | ||
13,256,270 common shares issued and outstanding | $3,903,580 | |
Retained Earnings (deficit) | $(2,556,697 | ) |
Net Stockholders’ Equity | $1,346,883 | |
TOTAL CAPITALIZATION | $3,903,580 | |
Stock Options Outstanding | 765,000 | |
Warrants Outstanding | 1,080,000 | |
Escrowed Share Capital | 750,000 | |
Capital Leases | Nil | |
Guaranteed Debt | Nil | |
Secured Debt | Nil |
Establishing and Maintaining Disclosure Controls and Procedures
Based on Management’s evaluation, the Company is in full compliance with establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14).
A certification for each principal executive officer and principal financial officer as required by Section 302 of the Sarbanes-Oxley Act of 2002 and SEC rule 33-8124 are attached as exhibits in Item 19.
Forward Looking Statements
This Registration Statement contains forward-looking statements. Words such as "anticipate", "believe", "expect", "future", "may", "will", "should", "plan", "will likely result", "intend", "are expected to", "will continue", " is anticipated", "estimate", "project or projected", and similar expressions identify forward-looking statements. Accordingly, such statements are qualified in their entirety by reference to and are accompanied by the following discussion of certain important factors that could cause actual results to differ materially from such forward-looking statements. These statements are based on the Company’s beliefs and the assurances made using information currently available to the Company. Because these statements reflect its current views concerning future events, these statements involve risks, uncertainties and assumptions. Actual results could differ materially from the
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results discussed in the forward- looking statements. Some, but not all, of the factors that may cause these differences include those discussed in the risk factors. A reader should not place undue reliance on these forward-looking statements. A reader should also remember that these statements are made only as of the date of this report and future events may cause them to be less likely to prove to be true.
The risks identified here are material risks. Furthermore, reference is also made to other sections of this Registration Statement that include additional factors that could adversely impact the Company’s business and financial performance. Also, the Company operates in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, not can it access the impact of all such risk factors on the Company’s business or the extent to which any factor or combination of factors may cause actual results to differ significantly from those contained in any forward-looking statements. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results.
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable.
D. RISK FACTORS
Unsuccessful Exploration Efforts By the Company Personnel Could Result In a Significant Negative Effect on the Company:
The expenditures to be made by the Company in the exploration of its properties as described herein may not result in discoveries of mineralized material in commercial quantities. Most exploration projects do not result in the discovery of commercially mineable ore deposits and this occurrence would have a significant negative effect on the Company.
The Company has No Proven Reserves on the Properties in Which It Has an Interest:
The properties in which the Company has an interest or the concessions in which the Company has the right to earn an interest are in the exploratory stage only and are without a known body of ore. Properties on which mineral reserves are not established by the Company will have to be abandoned causing the Company to write each respective property off resulting in a significant negative effect for the Company.
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There is No Guarantee of Clear Title to Any of the Mineral Properties to which the Company Has an Interest:
Unregistered agreements or unregistered transfers of title could cause the Company to forfeit its interests in one or more of its property interests. An event such as this would have a significant negative effect on the Company.
Mineral Prices May Not Support Corporate Profit for the Company:
The mining industry is intensely competitive and even if commercial quantities of mineral resources are developed (which is not guaranteed), a profitable market may not exist for the sale of same. If a profitable market does not exist the Company may have to cease operations.
The Expense of Meeting Environmental Regulations Could Cause a Significantly Negative Effect on the Company:
The current and anticipated future operations of the Company, including further exploration activities require permits from various Canadian Federal and Provincial governmental authorities. Such operations are subject to various laws governing land use, the protection of the environment, production, exports, taxes, labor standards, occupational health, waste disposal, toxic substances, mine safety and other matters. The permits which the Company may require for construction of mining facilities and the conduct of mining operations (which may not occur) must be obtainable on reasonable terms to the Company. Unfavorable amendments to current laws, regulations and permits governing operations and activities of mining companies, or more stringent implementation thereof, could have a materially adverse impact on the Company and cause increases in capital expenditures which could result in a cessation of operations by the Company.
Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions there under, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment or remedial actions. Parties engaged in mining operations may be required to compensate those suffering loss or damage by reason of the mining activities and may have civil or criminal fines or penalties imposed for violation of applicable laws or regulations.
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Large increases in capital expenditures resulting from any of the above factors could force the Company to cease operations.
Operating Hazards and Risks Associated with the Mining Industry Could Result in a Significantly Negative Effect on the Company:
Mining operations generally involve a high degree of risk. Hazards such as unusual or unexpected formations and other conditions are involved. Operations in which the Company has a direct or indirect interest will be subject to all the hazards and risks normally incidental to the exploration activities of precious and base metals, any of which could result in work stoppages, damage to or destruction of mines and other facilities, damage to life and property, environmental damage and legal liability for any or all damage. The Company may become subject to liability for cave-ins and other hazards for which it cannot insure or against which it may elect not to insure where premium costs are disproportionate to the Company’s perception of the relevant risks. The payment of such insurance premiums and of such liabilities would reduce the funds available for exploration activities and could force the Company to cease operations.
There is the Possibility of Significant Dilution to the Present and Prospective Shareholders of the Company:
The Company’s plan of operation contemplates the issuance of securities of the Company for cash. Any transaction involving the issuance of previously authorized but unissued shares of common stock, or securities convertible into common stock, would result in dilution, possibly substantial, to present and prospective holders of common stock.
As at May 20, 2003, the Company had 765,000 share purchase options outstanding and 1,080,000 share purchase warrants outstanding. If all of the share purchase warrants and share purchase options were exercised, the number of common shares issued and outstanding would increase from 13,256,270 to 15,101,270. This represents an increase of approximately 14% in the number of shares issued and outstanding and would result in significant dilution to current shareholders.
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The Risks Associated with Penny Stock Classification Could Affect the Marketability of the Common Stock of the Company and Shareholders May Find It Difficult to Sell Their Shares:
The Company’s stock is subject to “penny stock” rules as defined in 1934 Securities and Exchange Act rule 3a51-1. The Commission has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. The Company’s common shares are subject to these penny stock rules. Transaction costs associated with purchases and sales of penny stocks are likely to be higher than those for other securities. Penny stocks generally are equity securities with a price of less than U.S. $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system).
The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation.
In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from such rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the Company’s common shares in the United States and shareholders may find it more difficult to sell their shares.
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The Company is Dependent on Key Personnel, Especially John McGoran, President and Mr. McGoran’s Absence Could Result in a Significant Negative Effect on the Company:
The Company depends on the business and technical expertise of its management and key personnel. There is little possibility that this dependence will decrease in the near term. As the Company’s operations expand, additional general management resources will be required, especially since the Company encounters risks that are inherent in doing business in several countries. The Company is dependent, in particular, on its President Mr. John McGoran. The Company has no employment and/or consulting contracts with its President, Mr. John McGoran. Key man life insurance is not in place on Mr. McGoran.
The Lack of Trading Volume Associated with the Company’s Stock Reduces the Liquidity of the Stock for Investors
It May Be Difficult for U.S. Investors to Effect Service of Process Against the Company:
The Company is incorporated under the laws of the Province of British Columbia, Canada. The directors and officers are residents of Canada and substantially all of the Company’s assets and its subsidiaries are located outside of the United States. Consequently, it may be difficult for United States investors to enforce judgments both in and outside the United States.
Item 4. Information on the Company
A. HISTORY AND DEVELOPMENT OF THE COMPANY
L.E.H. Ventures Ltd. (the “Company”) was incorporated under the Company Act of the Province of British Columbia by Memorandum and Articles on July 17, 1981 under the name “O.P. Resources Ltd.”, with an authorized capital of 5,000,000 common shares without par value. By a series of special resolutions filed with the Registrar of Companies in British Columbia, the Company increased its authorized capital to 100,000,000 common shares without par value, and, effective February 15, 1994, changed its name to “L.E.H. Ventures Ltd.”.
The Company does not have any subsidiaries.
The Company's common shares trade on the TSE Venture Exchange (formerly the Canadian Venture Exchange) under the symbol "LEH".
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The Company has 100,000,000 common shares authorized with no par value. At February 28, 2003, there were 13,256,270 common shares issued and outstanding.
The Company’s executive office is located at:
206-837 West Hastings Street Vancouver, BC V6C 3N6 CANADA
Telephone: (604) 669-2066
Facsimile: (604) 699-3522
Email: leh@zoolink.com
The contact person in Vancouver, British Columbia is: Mr. John P. McGoran, President.
The Company's fiscal year ends November 30th.
B. BUSINESS OVERVIEW
Since its inception, the Company has engaged in the acquisition of properties in Canada, in respect to which it has undertaken exploration programs in an attempt to determine if the properties contain minerals that can be extracted on a commercially viable basis.
British Columbia Property
In February 1999, the Company purchased four modified grid claims (28 units) and one Crown Granted Mineral Claim known as the Gold Reef property, situated in the Skeena Mining Division, British Columbia. To the date hereof, the Company has not commenced an exploration program on the Gold Reef property. The Company has dropped the four modified grid claims and retained the one Crown Granted claim.
Ontario Property – Geordie Lake
During the fiscal year ending November 30, 1999, the Company entered into an Option Agreement with Gryphon Metals Corporation ("Gryphon") to acquire a 51% interest in five Mineral Claims situate in the Geordie Lake area of Ontario, subject to a 2½% net smelter royalty (the "Geordie Lake Option Agreement"), and the Company commenced an exploration program in respect to the same.
To exercise the Geordie Lake Option Agreement, the Company issued 100,000 shares to Gryphon and paid Gryphon $30,000, paid $75,000 to the underlying property owners, and incurred in
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excess of $470,000 in exploration expenditures over a period extending to December 31, 2002.
During the fiscal year ending November 30, 2000, the Geordie Lake Option Agreement was amended and the Company acquired a further 49% interest in the five Geordie Lake Mineral Claims in consideration of $50,000 paid to Gryphon. Gryphon has the right, for a period of 30 days after receipt of a Feasibility Study, to elect to acquire a 12½% working interest in the five Geordie Lake Mineral Claims by paying to the Company 2½ times 12½% of the total expenditures incurred by the Company in exploring and developing these Claims, such payment to be made within 60 days of Gryphon making the election. By way of example, if expenditures totalled $8,000,000, Gryphon could acquire a 12½% interest in the Claims by paying $2,500,000 to the Company. The five Geordie Lake Mineral Claims are subject to a 2½% net smelter return royalty held by Superior Prospects Inc. and Melvin Joa.
The Company acquired by staking three additional Mineral Claims surrounding the original five Geordie Lake Mineral Claims. These Claims are not subject to any net smelter return royalty.
The Company granted to Coubran Resources Ltd. ("Coubran") an option to acquire a 12.75% interest in the Geordie Lake property by funding $175,000 in exploration expenditures. This funding was completed and Coubran earned a 12.75% interest in the Geordie Lake property.
During the fiscal year ended November 30, 2001, Coubran accepted 444,465 common shares of the Company, at a deemed price of $0.40 per common share, in consideration of transferring its 12.75% interest in the Geordie Lake property to the Company. As at the date hereof, the Company owns a 100% interest in the Geordie Lake claims, subject to a 2½% net smelter return in respect to five Mineral Claims and Gryphon's 12½% back-in right as disclosed above.
During the fiscal years ending 2001 and 2002, the Company continued its exploration program in respect to the Geordie Lake Mineral Claims. The 2002 exploration program consisted of four diamond drill holes plus finishing the bottom of hole 14 that was started in 2001. A geochemical survey was also completed.
During fiscal 2003, the Company intends to continue its exploration program at the Geordie Lake property subject to
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obtaining the required financing. Current plans call for the following:
1 | ) | To continue diamond drilling in the vicinity of the present resource; |
2 | ) | To step out drill in the vicinity of hole 02-02, a separate mineralized zone located 400 meters to the east of the present resource; and, |
3 | ) | To use geochemistry, geophysics and possibly drill any other nearby mineral occurrences. |
Quebec Property
During the fiscal year ending November 30, 2002, the Company purchased 17 Mineral Claim Units (called Cells in the Province of Quebec) in the Otish Mountain region of northern Quebec.
C. ORGANIZATIONAL STRUCTURE
Not applicable.
D. PROPERTY, PLANTS AND EQUIPMENT
Property Description and Location
Geordie Lake
The Geordie Lake property is located in north western Ontario, 14 kilometers west north-west of the Town of Marathon, Ontario, and consists of 95 unpatented units or 1,538 hectares. The Trans Canada Highway is approximately 3 kms south of the property and the north shore of Lake Superior is approximately 5 kms south of the property.
Accessibility, Climate, Local Resources, Infrastructure and Physiography
Access to the property is provided by a series of old logging roads, all terrain vehicle trails and foot paths that extend in a northerly direction for a distance of approximately five miles from the Trans-Canada Highway. The property is also accessible by a five minute helicopter ride from the Marathon airport.
Much of the property is rugged, heavily timbered and characterized by deep, narrow north and east trending ravines, steep ridges and hills. In general, the overall relief is 800 feet ranging from 850 feet to 1,650 feet above sea level, and locally exhibits changes up to 350 feet in elevation over
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distances of 1500 feet more or less.
The climate is cold temperate with a moderate maritime influence. Summers are moderate to occasionally hot. Winters are long with up to 3 meters of snow.
History and Recent Exploration
In 1987 and 1988, St. Joe Canada Inc. commenced a comprehensive exploration program on the Geordie Lake property. The initial program included ground magnetometer and limited induced polarization surveys, geological mapping, sampling, outcrop stripping, detailed mapping and channel sampling of the Mathias and Island showings, with 10 meter spaced panel sampling along the eastern contact of the Geordie Lake Intrusion. Analysis of 301 grab, panel, and channel samples indicated that base and precious metals occur throughout the intrusion.
A Joint Venture Agreement was signed with Giant Bay Resources Ltd. in October of 1987. The Joint Venture funded a helicopter-assisted, eight hole diamond drilling program, totaling 773 meters, that tested the Eastern Contact Zone and a coincident IP high chargeability/low receptivity anomaly, over a 1,000 meter strike-length to a vertical depth of 115 meters. Giant Bay Resources Ltd. terminated the Joint Venture during the fourth quarter of 1988.
A loop UTEM survey was completed during June of 1988, but no definitive highly conductive zones or trends were encountered. St. Joe Canada Inc. dropped its option shortly after the completion of this UTEM survey.
From 1989 to June 1999, 26.21 kilometers of grid lines were cut and a VLF survey and proton magnetometer survey were conducted.
In the second half of 1999, the Company commenced its exploration program in respect to the Geordie Lake property.
During 1999, the Company re-established a grid (a total of 26.21 kilometers of grid lines were cut) over the known mineralized zones and conducted ground magnetometer and V.L.F. electromagnetic surveys. The magnetometer survey shows a unique magnetic anomaly over areas previously mapped as the Geordie Lake Intrusion. An outlier of the Geordie Lake Intrusion is open to the north east. Samples from this portion of the intrusion contain values in palladium and copper.
Approximately 80% of previous St. Joe Minerals drill core which remained on the property was re-split and re-assayed for
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palladium, copper, platinum, gold, silver, nickel and cobalt. These recent assays confirmed the previous assays from the St. Joe/Giant Bay work. One diamond drill hole was attempted but not completed.
The 2000 and 2001 drill programs and core sampling was supervised by an independent consultant Alan D. Stanley, Ph.D., P.Geo. The reliability of data obtained conforms to the requirements set out in National Instrument 43-101 – Standards of Disclosure for Mineral Projects. This data includes internal lab duplicates, blind duplicates, blanks and standards and second laboratory rechecks.
The Company also completed a three phase drill program, consisting of 23 diamond drill holes (G-00-01 to G-00-09 in 2000) and (G-01-01 to G-01-14 in 2002) totaling 3,900 meters.
Phase 1 consisted of two diamond drill holes G-00-01 and 02 to test the mineralized zones identified in St. Joe holes G87-5 and G87-6, respectively, a total of 542 meters.
Phase 2 consisted of 7 diamond drill holes along strike both north and south of G-00-1. Holes G-003 to G-00-9 were drilled between July and November 2000 and totaled 1,083 meters.
Phase 3 drilling began with the deepening of Hole G-00-09 a further 31 meters in February 2001.
The program continued with in-fill holes to establish continuity of both geology and grade. A total of 14 diamond drill holes were completed by October 2001, totaling 2,224 meters.
Phase 4 was completed during 2002 with 702 metres of diamond drilling in 4 diamond drill holes and the completion of Hole 01-14 that had been stopped in 2001. This hole was completed with 29 metres of drilling. Hole 02-01 tested continuity at the north end of the deposit between 01-10 and 01-14. Hole 02-02 was drilled 400 metres east of the north end of the presently known deposit, and is the first test of a zone of layered Mineralization that appears to be similar to and parallel with the known deposit. The two remaining drill holes, 03 and 04, were drilled to the west from the south end of the known deposit and extended the studied depth an additional 130 metres down dip from existing holes.
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Geological Setting
The Geordie Lake property is located near the center of the late Proterozoic Coldwell Alkaline Complex which intrudes and bisects the Neoarchean Schreiber-Hemlo greenstone belt and the southern margins of the Black-Pic Batholith of the Wawa Subprovince of the Superior Structural Province.
The Geordie Lake property is underlain by syenitic and gabbroic rocks of the Proterozoic-age Coldwell Alkaline Complex. The 3,000 metre elongated troctolite, and layered, gabbroic and troctolitic Geordie Lake Intrusion intrudes the syenites, and hosts multiple zones of roughly north-south striking west dipping, palladium-copper-silver, (Pd-Cu-Ag) enriched, sulphides. The best Mineralization discovered to date is contained within the Eastern Contact Zone and includes the MacRae (Ameranium), Mathias, and Joa occurrences. The footwall zone is approximately 2,500 meters long, 5 to 40 meters in thickness, and composed of 1% to 5% coarsely disseminated chalcopyrite with lesser amounts of bornite, pyrite, magnetite, and supergene chalcocite.
Mineralization
Early prospecting revealed the presence of a series of palladium-copper surface showings. Subsequently, the drill holes confirmed the existence of several distinctive layers of palladium-copper Mineralization over a distance of one kilometer.
The Mineralization is layered and from the base upward is made up of the ‘A’ Layer, ‘B’ Layer, ‘C’ Layer and ‘D’ Layer & etc. within the layered mafic-ultramafic complex. According to the Giroux/Stanley study of February 2002, 72% of the in situ value occurs within the ‘A’ Horizon, which exhibits north-south continuity of 1,400 meters and down dip continuity up to 350 meters. The average thickness of the ‘A’ Horizon is 30 meters. The Mineralization is 0.5% to 5% disseminated sulphides made up\ mostly of chalcopyrite and bornite. The lettered layers are separated by low grade layers of the host troctolite and are numbered upwards from the base, it being Layer 1. The numbered layers from 2 to 4 average 22 metres thick, and intervene between layers A, B, C , and D.
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British Columbia and Quebec Properties
The Company has not carried out any exploration activities on either its British Columbia or Quebec properties, and there are no plants or equipment situated thereon.
Item 5. Operating and Financial Review and Prospects
A. OPERATING RESULTS
Since its inception, the Company’s mineral properties have been in the exploration stage, and no revenues have been generated therefrom. With the purchase of the Geordie Lake property, the Company has no long term financial liabilities.
The Company has not declared any dividends, and does not anticipate declaring any dividends in the future.
The Company finances its exploration activities through the sale of securities pursuant to private placement financings, the exercise of share purchase warrants, and the exercise of share stock options.
The Company issued no stock during fiscal 1998, ended November 30th. At the end of Fiscal 1998 the Company had a working capital deficit of $36,136. The Company had no resource properties of any merit and was not active throughout the year.
During fiscal 1999, ended November 30th, the Company issued 60,000 shares from treasury for cash proceeds of $9,600; 1,100,000 Special Warrants for cash proceeds of $203,000; and, 150,000 shares for property acquisitions at a deemed value of $27,500.
During fiscal 2000, ended November 30th, the Company completed the following capital raising: A non-brokered private placement was completed, being 991,500 units at a price of $0.225 per unit for total proceeds of $223,087.50. Each unit consisted of one common share and one non-transferable share purchase warrant. Each warrant entitled the holder to purchase an additional common share at a price of $0.225 per share up to and including March 1, 2001, or at a price of $0.26 per share up to and including March 1, 2002. The Company completed a second non-brokered flow-through private placement for 994,500 units at $0.30 each to total proceeds of $298,350. This private placement consisted of one flow-through share and one-half flow-through share purchase warrant. Each whole warrant entitles the
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holder to purchase one additional flow-through share for $0.30 for one year up to and including August 31, 2001. Pursuant to the provisions of the Income Tax Act (Canada) in respect to flow-through financings, the Company renounces the exploration expenditures incurred in favour of the investor, but retains ownership of the mineral rights. The funds raised by the Company in respect to all flow-through financings have been used to fund the Company's ongoing exploration program in respect to its Geordie Lake property. Throughout fiscal 2000, the Company issued 745,000 common shares upon the exercise of warrants for total proceeds of $147,250. The Company also issued 241,500 common shares upon the exercise of employee stock options for total proceeds of $45,315. These funds were used for exploration work on the Company’s Geordie Lake property and for general corporate expenditures.
During Fiscal 2001, ended November 30th, the Company was active in both resource property acquisition, exploration, and in raising capital. On April 12, 2001, the Company closed a flow-through private placement for 761,000 units at a price of $0.40 per unit. Each unit consisted of one common flow-through share and one-half flow-through share purchase warrant. The holder of each whole warrant was entitled to purchase an additional common flow though share at a price of $0.40 per share up to and including May 24, 2002. The funds raised from this flow-through private placement, totaling $304,400, were used for the 2001 exploration program on the Company’s Geordie Lake property. On March 15, 2001, the Company issued 444,465 shares to Coubran Resources Ltd. at a deemed price of $0.40 per share to purchase Coubran’s 12¾% interest in the Geordie Lake property. Throughout fiscal 2001 698,750 shares were issued from the treasury at various prices against the exercise of both flow-through and non-flow-through warrants. The total proceeds raised from these warrants was $157,875. During this year the Company also issued 220,000 shares from the treasury against the exercise of stock options at various prices for total proceeds of $52,200.
During fiscal 2002, ended November 30th, the Company issued 200,000 shares at a deemed value of $42,000 for acquisition costs associated with the Otish Mountain property located in Quebec. On April 30, 2002 the Company completed two private placements pursuant to which it issued 1,080,000 common shares. The first private placement consisted of the sale of 380,000 units at a price of $0.24 per unit. Each unit consisted of one common share and one share purchase warrant which is exercisable for an additional common share until April 30, 2003 at a price
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of $0.24. The second private placement consisted of the sale of 700,000 flow-through units at a price of $0.26 per unit. Each unit consisted of one flow-through common share and one flow-through share purchase warrant which is exercisable for an additional common share until April 30, 2003 at a price of $0.26. Total proceeds from these two private placement financings were $273,200.
Results of Operations
Three Months Ended 02/28/03 vs. Three Months Ended 02/29/02
During the three months ended February 28, 2003, the Company incurred $14,677 in administration expenses compared to $10,747 for the corresponding three month period ending February 29, 2002. It had incurred mineral property costs of $10,139 as opposed to $29,772 in the corresponding three months ending February 29, 2002.
Twelve Months Ended 11/30/02 vs. Twelve Months Ended 11/30/01
During the year ended November 30, 2002, the Company spent a total of $222,685 for geological exploration and evaluation, most of which was on the Geordie Lake property. Last year for the same period the Company spent $550,163 for exploration. This year's exploration costs are $327,478 less than last year. Last year’s drilling cost for the period was $230,066 compared to $60,735 for the current period. This year’s camp and travel costs were $43,527 and $89,538 last year for the period or $46,011 less than what was spent last year. Geological analysis, report writing and assay costs for the twelve months ended November 30, 2001 were $43,159 and for the twelve months ended November 30, 2002 were $13,892.
During the period ended November 30, 2002 the Company’s general and administrative costs totaled $126,408 compared to $175,483 for the same time last year. Rent and office expenses for the twelve months ended November 30, 2002 were $20,379 and $34,538, respectively, for the twelve months ended November 30, 2001. Current professional fees are $52,530 while last year’s professional fees were $42,949. Professional fees consist of both audit and legal costs. Legal costs include fees for compliance as required by all publicly trading companies in Canada. The current wages, benefits and consulting expenses were $29,344 as opposed to $70,072 for last year. The other items that makeup the general and administrative expenses are fairly consistent on a year over year basis.
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Fiscal 2001 Ended 11/30/2001 vs. Fiscal 2000
During the year ended November 30, 2001 the Company’s acquisition expense increased to $227,786 as compared to $105,010 during the same time period last year. This is an increase of $122,776 or 116.92%. The main reason for this increase was the cost of the buy-out of Coubran Resources’ 12¾% interest in the Geordie Lake property. The Company issued 444,465 shares to Coubran from the treasury at a deemed price of $0.40 per share for a deemed cost of $177,786.
The Company spent a total of $500,164 on exploration for the twelve months ended November 30, 2001 compared with $199,240 in the same time frame last year. This is an increase of $300,924 or 151.04%. During the fiscal year ended November 30, 2000 Coubran Resources spent $177,786 on the Geordie Lake exploration project, which the Company recorded as an acquisition cost when it purchased Coubran's interest in the Geordie Lake property. This results in the effective exploration expense on the Geordie Lake property for the year ended November 30, 2000 being $377,026.
The year over year increase in exploration expense was a result of an increase in drilling costs to $230,066 from $45,393 in the prior year, being an increase of 406.83%. The costs of geological work, including report writing, increased to $137,400 compared with $65,625 for the same period last year or a 109.37% increase. Transportation, camp, and assaying costs totaled $132,698 this year and $88,222 for the same period in the previous year, being an increase of 50%. After applying the Coubran expenditures to the year 2000 when the work was carried out, exploration costs per metre of drilling are approximately the same on a year over year basis.
During the twelve months ended November 30, 2001 general office expense, including office rent, totaled $34,538 as compared to $23,460 for the twelve months ended November 30, 2000. This is an increase of $11,078 or 47%. Professional fees, which include legal and audit were $42,949 for the year ended November 30, 2001 and $28,709 for the year ended November 30, 2000. This represents an increase of 50% on a year over year basis. The annual employee wage cost was $70,072 this year whereas it was $79,176 last year for a decrease of $9,104 for 2001 or 11%. All other general and administrative costs including filing fees, depreciation and travel totaled $27,924 for the year ended November 30, 2001 compared with $23,815 for the year ended November 30, 2000 for an increase of $4,109 or 17%. The total
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office and general administrative cost for this year was $170,782 as opposed to $147,464 last year for an increase of 16%. The Company is maintaining similar cost structures on a year-to-year basis.
The Company had a working capital deficit of $904 at November 30, 2001. The Company is dependent on equity financing and/or joint venture agreements to explore and develop resource properties until these properties become productive and fund the Company’s future.
The cost of acquisitions and exploration are capitalized on the Company’s records by project. Costs for each project will be amortized against revenue from future production or written off if the interest is abandoned or sold. In the event of commercial production, net costs will be charged to operations on the unit-of-production method by project based upon estimated recoverable reserves.
Fiscal 2000 Ended 11/30/2000 vs. Fiscal 1999
The Company’s general corporate and administrative expenses have increased by 40% overall from the previous year end, November 1999. The primary reason for this increase is due to an increase in the number of employees. This increase was incurred to insure smoother operations and better coordination between management and the ongoing exploration program in Ontario. Consulting fees consisted of $45,506 for wages and benefits and $33,670 for consultants.
Professional fees, which include those for audit and legal, have changed very little with services maintained as for the previous year. Office expenses have increased by three fold this year compared with 1999. This increase is mainly due to both greater requirements for, and the improvement of, information circulation to the shareholders of the Company. A new item on the statement of operations is amortization. This is due to appreciable new investment in modern technology to provide adequate and timely general information and to improve our tracking systems.
The exploration expenditures this year have increased by more than two fold due to our initial program of mapping, trenching and diamond drilling of the Geordie Lake property. These expenditures include the construction of a more secure core shack with geologists’ office. The exploration program on the Geordie Lake property is progressing very well in that the
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understanding of mineral zone continuity on the property is being continually enhanced. Management intends to continue the present course of proving or disproving the existence of a viable ore body within an open pit profile on this site.
On January 25, 2001 the Company issued 20,000 shares from the treasury at a price of $0.20 for the exercise of warrants. On March 1, 2001 the Company issued 250,000 shares from the treasury at a price of $0.225 per share for the exercise of warrants. The $60,250 received for these warrants will be used as general working capital and property expenses for the Geordie Lake property in Ontario.
On February 28, 2001 Coubran Resources Ltd. elected to relinquish their interest in the Geordie Lake property back to the Company by requesting that their $177,786.16 in exploration costs for their 12 ¾% interest in the Geordie Lake property be converted to shares at a deemed price of $0.40 per share. The total issuance was 444,465 shares of the Company. On March 2, 2001, application for this share issuance had been made to the Canadian Venture Exchange (now known as the TSX Venture Exchange) for approval. On March 8, 2001 the Canadian Ventures Exchange accepted for filing the issuance of 444,465 shares of the Company to Coubran Resources to terminate the joint venture agreement with the Company. The Company now has an undivided 100% interest in the Geordie Lake property.
In February of this year the 2001 Geordie Lake drilling program commenced. The main focus will be on infill drilling between existing holes to examine continuity of the layered zones exhibited to date. Some exploratory drilling to extend the known Mineralization to the north and south is also planned.
Fiscal 1999 Ended 11/30/1999 vs. Fiscal 1998 Ended 11/30/98
On June 3, 1999 the Company entered into an agreement with Gryphon Metals Corporation to purchase a 51% interest in the Geordie Lake property. The company issued 100,000 shares on September 9, 1999 at a deemed value of $0.25 per share as part of the property purchase price. To earn the 51% interest in the Geordie Lake property the company must pay Gryphon $30,000 on or before March 31, 2000, and must pay the underlying vendors $25,000 on or before April 2, 2000 and $50,000 on or before April 1, 2001. The Company must incur exploration expenditures of $70,000 on or before December 31, 1999, a further $100,000 of exploration expenditures on or before December 31, 2000, an additional $150,000 on or before December 31, 2001 and $150,000
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on or before December 31, 2002. At the date of these financial statements, November 30, 1999, the Company has spent $113,338 on exploration expenditures on the property.
For the twelve month period ended November 30, 1998 the Company had a net loss of $33,135 ($0.01 per share) as compared to a net loss of $197,865 ($0.04 per share) for the same period in fiscal 1997. These losses were with respect to general administrative & corporate operating costs incurred during fiscal 1998.
No investor relations activities were undertaken by, or on behalf of, the Company during the year under review.
At the end of fiscal 1998, the Company did not hold an interest in any resource property and, as such, was designated “inactive” as designated by the TSX Venture Exchange. Subsequent to the year end, the Company entered into an option agreement to acquire the “Molly B” Crown-granted mineral claim which is situated about one kilometer east of the town of Stewart, British Columbia. This project is referred to as the “Gold Reef Project”.
Subsequent to year end, the Company completed a non-brokered private placement of up to 720,000 Special Warrants for gross proceeds of $108,000. Upon qualification, each Special Warrant was convertible into one common share and one common share purchase warrant. Each share purchase warrant will be exchangeable for one common share upon payment of $0.15 in the first year or $0.20 in the second. Funds raised pursuant to this offering will be used for working capital, debt payment and for expenditures related to mineral project acquisitions and exploration. The Company continues to seek financing.
B. LIQUIDITY AND CAPITAL RESOURCES
At February 28, 2003, the Company had a working capital deficit of $98,523 compared to a working capital deficit of $40,802 as at February 29, 2002.
At November 30, 2002, the Company had a working capital deficit of $74,159 compared to a working capital deficit of $904 as at November 30, 2001, as a result of accounts payable. During this three month period, the Company did not engage in any financing activity. As the Company does not receive any revenue from its exploration activities, it is solely dependent on equity financings, the exercise of outstanding stock options and stock warrants, or the entering into of agreements with third parties
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to provide the funds necessary for it to carry out exploration programs on its resource properties. For the twelve months ended November 30, 2002, the Company raised $273,200 and incurred exploration expenditures of $222,685, and administrative expenses of $126,408 compared to $514,475 raised during the twelve months ended November 30, 2001, and $500,163 spent on exploration expenditures and $175,483 spent on administrative expenses. The Company has no long term debt and no material income from operations and any improvement in working capital results primarily from the issuance of share capital. During the twelve months ended November 30, 2002, the Company received $514,475 in proceeds from the issuance of share capital. These funds are being utilized to continue the Company’s exploration work on the Geordie Lake property and for general and corporate expenses.
Fiscal 2001 Ended 11/30/2001
The Company had a working capital deficit of $904 at November 30, 2001. The Company is dependent on equity financing and/or joint venture agreements to explore and develop resource properties.
The cost of acquisitions and exploration are capitalized on the Company’s records by project. Costs for each project will be amortized against revenue from future production or written off if the interest is abandoned or sold. In the event of commercial production, net costs will be charged to operations on the unit-of-production method by project based upon estimated recoverable reserves.
On April 12, 2001 the Company closed a flow-through private placement for 761,000 units at $0.40 per unit. Each unit consisted of one common flow-through share and one-half flow-through share purchase warrant. The holder of each whole warrant is entitled to purchase an additional common flow-through share at a price of $0.40 per share up to and including May 24, 2002. The funds raised from this flow-through private placement, totaling $304,400, were used for the 2001 exploration program on the Geordie Lake property. Expenses incurred in performing the exploration program on the Geordie Lake property constitute Canadian Exploration Expense as described in the definition of “Canadian Exploration Expense” in the Income Tax Act of Canada.
On March 15, 2001 the Company issued 444,465 shares to Coubran Resources Ltd. at a deemed price of $0.40 per share to purchase Coubran’s 12¾ % interest in the Geordie Lake property. The
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Company now has a 100% undivided interest in the Geordie Lake property subject to the 2½% royalty and the 12½% back-in right described previously under the “Geordie Lake” section.
Throughout the year 698,750 shares were issued from the treasury at various prices against the exercise of both flow-through and non-flow-through warrants. The total proceeds raised from these warrants equaled $157,875. During the year the Company issued 220,000 shares from the treasury against the exercise of stock options at various prices for total proceeds of $52,200.
Fiscal 2000 Ended 11/30/2000
As of November 30, 2000, the Company’s working capital position was $85,241. On July 5, 2000 the Company issued a flow-through private placement for $298,350 to be spent on exploration on the Geordie Lake project of which $251,333 has been spent.
The Geordie Lake 2001 drill program has commenced by completing 00-09. Eight additional drill holes are planned. The Company intends to sell flow-through shares to finance this and all additional field programs. The Company is also planning a non-flow-through private placement to meet the Company’s ongoing obligations including sustaining fees. On April 30, 2001, the final acquisition payment of $50,000 to the underlying vendors of the Geordie Lake property will be made. This will complete all remaining Geordie Lake property acquisition obligations for the Company.
The Company completed a non-brokered private placement on March 1, 2000. This financing consisted of 991,500 units at a price of $0.225 per unit for total proceeds of $223,087.50. Each unit consisted of one common share and one nontransferable share purchase warrant. Each warrant entitles the holder to purchase an additional common share at a price of $0.225 per share up to and including March 1, 2001, or at a price of $0.26 per share up to and including March 1, 2002.
On August 31, 2000 the Company completed a non-brokered flow-through private placement for 994,500 units at $0.30 each for total proceeds of $298,350. The private placement consisted of one flow-through share and one-half flow-through share purchase warrant. Each whole warrant may purchase an additional flow-through share for $0.30 for one year up to and including August 31, 2001. The funds raised by this private placement are restricted for exclusive use of the ongoing exploration program at our Geordie Lake property.
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Throughout the year the Company issued 745,000 common shares against the exercise of warrants for total proceeds of $147,250. The Company also issued 241,500 common shares for the exercise of employee stock options for total proceeds of $45,315. The funds raised from these financings will be spent on the Geordie Lake exploration program and on general corporate affairs.
Fiscal 1999 Ended 11/30/1999
During the year the Company completed two non-brokered private placements and issued 60,000 shares from the treasury for the exercise of employee stock options at a price of $0.16 per share. The company issued 150,000 shares for the purchase of two properties, 50,000 shares for a 100% interest in the Gold Reef Property and 100,000 shares for a 51% interest in the Geordie Lake property.
The first non-brokered private placement was completed on April 16, 1999 for 720,000 special warrants at a price of $0.15 each for total proceeds of $108,000. Each special warrant can be converted to one common share and one share purchase warrant up to and including April 16, 2000 at which time the special warrants will be converted into one common share and one share purchase warrant by the company. The warrant can be used to purchase an additional common share for $0.15 up to and including April 16, 2000 or for $0.20 up to and including April 16, 2001.
The second non-brokered private placement was completed on August 25, 1999 for 380,000 special warrants at a price of $0.25 each for total proceeds of $95,000. Each special warrant can be converted to one common share and one share purchase warrant up to and including August 25, 2000 at which time the special warrants will be converted into one common share by the company. The warrant can be used to purchase an additional common share for $0.25 up to and including August 25, 2000. This financing was a flow-through share issuance. The money will be used to finance the on going exploration project at the Geordie Lake property. At the date of these financial statements all the money raised from this flow-through financing had been spent on the exploration of the Geordie Lake property.
US GAAP Reconciliation with Canadian GAAP
U.S. GAAP requires that exploration and general and administrative costs related to projects be charged to expense as incurred. As
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such, some of the costs accounted for as deferred mineral acquisition and exploration expenditures under Canadian GAAP would have been charged to earnings under U.S. GAAP. Property acquisition costs are capitalized under both Canadian and U.S. GAAP.
Under Canadian G.A.A.P., mineral property costs are capitalized if an enterprise considers such costs have the characteristics of property, plant and equipment. An enterprise applies the method of accounting for exploration costs that it considers to be appropriate to its operations and applies the method consistently to all its properties. (C.I.C.A. Handbook Section 3061.21)
A mining enterprise that has not established mineral reserves objectively, and therefore, does not have a basis for preparing a projection of the estimated future net cash flows from the property is not precluded from considering exploration costs to have the characteristics of property plant and equipment. (C.I.C.A. Emerging Issues Committee, EIC-126)
In general, exploration and capitalized mineral property costs are expenses under Canadian G.A.A.P. when:
1 | . | exploration activities have ceased; |
2 | . | exploration results are not promising such that exploration will not be planned for the foreseeable future; |
3 | . | lease ownership rights have expired; |
4 | . | or insufficient funding is available to complete the exploration program. |
The accounting policy disclosures as required by Canadian G.A.A.P. are described in Note 2 to the financial statements.
Variation in Operating Results
The Company is presently engaged in exploring its properties to determine if any of them contain reserves which would justify placing the property into commercial production. None of its properties are in production and, consequently, the properties do not produce any revenue. As a result there is little variation expected in operating results from year to year and little is to be expected until such time, if any, as a production decision is made on one of its properties.
The Company derives nominal interest income on its bank deposits.
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Management periodically through the exploration process, reviews results both internally and externally with mining related professionals. Decisions to abandon, reduce or expand exploration efforts is based upon many factors including general and specific assessments of mineral deposits, the likelihood of increasing or decreasing those deposits, land costs, estimates of future mineral prices, potential extraction methods and costs, the likelihood of positive or negative changes to the environment, permitting, taxation, labor and capital costs. There cannot be a predetermined hold period for any property as geological or economic circumstances render each property unique.
The Company's financial statements are stated in Canadian Dollars (CDN$) and are prepared in accordance with Canadian Generally Accepted Accounting Principles (GAAP), the application of which, in the case of the Company, conforms in all material respects for the periods presented with United States GAAP except as noted in Footnote 9 to the financial statements.
The Company has financed its activities through the distribution of equity capital. The timing of such distributions was dependent on the requirements of the Company and the economic climate. The Company anticipates having to raise additional funds by equity issuance in the next several years, as the Company does not expect to generate revenue from mining operations or to achieve self-sustaining commercial mining operations for several years.
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENCES
Not applicable.
D. TREND INFORMATION
Not applicable.
Item 6. Directors, Senior Management and Employees
Pursuant to the provisions of the British Columbia Company Act and the Company's Articles, the current members of the Board of Directors were elected at the Annual General Meeting on May 10, 2002. Unless the office is vacated in accordance with the Articles of the Company, the Directors will serve until the next Annual General Meeting of the Company. Certain information with respect to these individuals is set forth below:
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Table No. 5
Directors
Name | Principal Business Activities Inside the Company and Business Experience |
JOHN P. McGORAN b.1937 | Chief Executive Officer, President and Director of the Company; Board member, Chief Executive Officer and President since Sept. 1999; BSc (Geology), Carleton University; Member, Association of Professional Engineers and Geoscientists of the Province of British Columbia; Member, Canadian Institute of Mining and Metallurgy; Fellow, Geological Association of Canada; Member, American Institute of Mining Engineers; Chief Executive Officer, President and Director, Northern Platinum Ltd. |
LUARD MANNING b.1928 | Chief Financial Officer, Secretary and Director of the Company; Board member, Chief Financial Officer and Secretary since May 1999; BSc (Mining), University of British Columbia; Life Member, British Columbia Professional Engineers; Life Member, Canadian Institute of Metallurgy and Mining; Director and officer of numerous public mining companies |
JAMES N. PLEXMAN b.1921 | Board member since Sept. 1999; Graduate, Sudbury Mining School (Honors); over 40 years of experience in organizing, developing and managing resource companies in both oil and gas and hard-rock minerals |
JAMES C. O'ROURKE b.1939 | Board member since May 2001; BSc. (Mining Engineer), University of British Columbia; Member, Professional Engineers Association of British Columbia, Canadian Institute of Mining and Metallurgy, and American Institute of Mining and Metallurgical Engineers; Director of numerous public companies |
B. COMPENSATION
The Company has no formal plan for compensating its Directors for their service in their capacity as Directors. Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of the Board of Directors. The Board of Directors may award special remuneration to any Director undertaking any special services on behalf of the Company other than services ordinarily required of a Director. Other than indicated below no Director received any compensation for his services as a Director, including committee participation and/or special assignments.
The Company grants stock options to Directors, executive officers and employees; refer to Item 10, "Stock Options".
Total compensation accrued and/or paid (directly and/or indirectly) to all Officers/Directors for the twelve months ended November 30, 2002 was $38,811.
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Table No. 6
Summary Compensation Table
All Figures in Canadian Dollars unless otherwise noted
Long Term Compensation | ||||||||
Annual Compensation | Awards | |||||||
Restricted Options/ | ||||||||
Name and | Fiscal | Other Annual | Stock | SARS | LTIP | All other | ||
Principal Position | Year | Salary | Bonus | Compensation | Awards | Granted | Payouts | Compensation |
John P. McGoran¹ | 2002 | $9,000 | Nil | Nil | 100,000 | N/A | N/A | $10,950 |
CEO/President/ | 2001 | $9,000 | Nil | Nil | 100,000 | N/A | N/A | $14,875 |
Director | 2000 | $9,000 | Nil | Nil | 100,000 | N/A | N/A | $22,000 |
Luard Manning | 2002 | $9,000 | Nil | Nil | 100,000 | N/A | $9,861 | |
Secretary/CFO/ | 2001 | $9,000 | Nil | Nil | 100,000 | N/A | $12,861 | |
Director | 2000 | $7,500 | Nil | Nil | 100,000 | N/A | $12,361 | |
James N. Plexman | 2002 | Nil | Nil | Nil | 100,000 | N/A | N/A | Nil |
2001 | Nil | Nil | Nil | 100,000 | N/A | N/A | Nil | |
2000 | Nil | Nil | Nil | Nil | N/A | N/A | Nil | |
James C. O'Rourke | 2002 | Nil | Nil | Nil | 100,000 | N/A | N/A | Nil |
2001 | Nil | Nil | Nil | 100,000 | N/A | N/A | Nil | |
2000 | Nil | Nil | Nil | Nil | N/A | N/A | Nil |
¹ | For the three months ended February 28, 2003, John P. McGoran received a salary of $2,250 and Luard Manning received a salary of $2,250 and office rent of $1,215. No other compensation was received. |
The Company does not have any employment contracts with any of the executive officers or Directors.
Except for the stock option program discussed in Item 12, the Company has no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to the Company's Directors or executive officers.
No funds were set aside or accrued by the Company during Fiscal 2001, 2002 or the three months ending February 28, 2003 to provide pension, retirement or similar benefits for Directors or executive officers.
C. BOARD PRACTICES
Audit Committee
The Audit Committee assists the Board in fulfilling its responsibilities relating to the Company's corporate accounting and reporting practices. The Audit Committee is responsible for ensuring that management has established appropriate processes for monitoring the Company's systems and procedures for financial reporting and controls, reviewing all financial
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information in disclosure documents; monitoring the performance and fees and expenses of the Company's external auditors and recommending external auditors for appointment by shareholders. The Audit Committee is also responsible for reviewing the Company's quarterly and annual financial statements prior to approval by the Board and release to the public. The Audit Committee also meets periodically in private with the Company's external auditors to discuss and review specific issues as appropriate. This Committee met once in 2002. Currently, the members are Luard Manning, James Plexman and James O'Rourke, two of whom are unrelated Directors.
Compensation Committee
The Compensation Committee is responsible for reviewing all overall compensation strategy, objectives and policies; annually reviewing and assessing the performance of the senior officers; recommending to the Board the compensation of the senior officers; reviewing executive appointments; and recommending the adequacy and form of Directors' compensation.
This Committee meets at least once annually. Currently, the members are Luard Manning, James Plexman and John McGoran, one of whom is an unrelated Directors.
D. EMPLOYEES
The Company currently has three employees. The name, location and job title of each employee is listed below:
Name | Location | Job Title |
John P. McGoran | Vancouver, B.C. | President and CEO |
Luard Manning | Vancouver, B.C. | Secretary and CFO |
Alexis Mayne | Vancouver, B.C. | Office Manager |
E. SHARE OWNERSHIP
The Company is a publicly-owned Canadian corporation, the shares of which are owned by U.S. residents, Canadian residents and other foreign residents. The Company is not controlled by another corporation as described below.
Table No. 7 lists, as of May 20, 2003, Directors and Executive Officers who beneficially own the Company's voting securities and the amount of the Company's voting securities owned by the Directors and Executive Officers as a group.
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Table No. 7
Shareholdings of Directors and Executive Officers
Title | Amount and Nature | Percent | |
of | of Beneficial | of | |
Class | Name of Beneficial Owner | Ownership | Class # |
Common | John P. McGoran (1) | 3,005,022 | 22.6% |
Common | Luard Manning (2) | 157,500 | 1.2% |
Common | James N. Plexman (3) | 100,000 | .8% |
Common | James C. O’Rourke (4) | 0 | 0% |
Total Directors/Officers | 3,375,022 | 25.5% |
(1 | ) | Mr. McGoran also has a currently exercisable share purchase warrants in respect to 300,000 shares, and currently exercisable share options in respect to 100,000 shares, exercisable at $0.16 per share expiring January 22, 2005, share purchase options in respect to 100,000 shares, exercisable at $0.20 per share expiring February 7, 2005. | |
(2 | ) | Mr. Manning also has currently exercisable share purchase options in respect to 150,000 shares, of which 50,000 are exercisable at $0.20 per share expiring February 7, 2005, 50,000 are exercisable at $0.16 per share expiring June 9, 2004, and 50,000 are exercisable at $0.16 per share expiring January 22, 2005. | |
(3 | ) | Mr. Plexman also has currently exercisable share purchase options in respect to 125,000 shares, of which 100,000 are exercisable at $0.20 expiring January 16, 2007 and 25,000 are exercisable at $0.16 per share expiring January 22, 2005. | |
(4 | ) | Mr. O'Rourke also has currently exercisable share purchase options in respect to 125,000 shares, of which 100,000 are exercisable at $0.20 expiring May 17, 2006 and 25,000 are exercisable at $0.16 per share expiring January 22, 2005. | |
# | Based on 13,256,270 shares outstanding as of May 20, 2003 and stock options held by each beneficial holder exercisable within sixty days. |
Item 7. Major Shareholders and Related Party Transactions
A. MAJOR SHAREHOLDERS
Table No. 8 lists as of April 30, 2003, persons and/or companies holding 5% or more beneficial interest in the Company’s outstanding common stock.
Table No. 8
5% or Greater Shareholders
Title of | Amount and Nature of | Percent of | |
Class | Name and Address of Owner | Beneficial Ownership | Class |
Common | John P. McGoran | 3,005,022¹ | 22.6%* |
2111 West 34th Avenue | |||
Vancouver, British Columbia | |||
CANADA V6M 1G3 |
* | Based on 13,256,270 shares outstanding as of May 30, 2003. |
¹ | For Mr. McGoran's holdings of share purchase warrants and stock options, see Table 7 herein. |
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B. RELATED PARTY TRANSACTIONS
Geological consulting services, office rent and equipment rental was provided to the Company by two of its Directors and Officers and/or companies controlled by them, namely:
a. | John P. McGoran– Mr. McGoran is President and CEO of the Company. He receives an annual salary for his services as President. | ||
b. | Luard Manning – Mr. Manning is Secretary and CEO of the Company and bills for his services as a self employed consultant at rates consistent with the rate he bills his other clients. |
For fiscal 2002, ended November 30, 2002, for geological consulting services, office rent and equipment rental, $38,811 was paid ($45,736 in 2001 and $37,111 in 2000).
Management is of the opinion that the services provided are at rates similar to those charged by non-related parties.
Other than as disclosed above, there have been no transactions or proposed transactions, which have materially affected or will materially affect the Company in which any director, executive officer, or beneficial holder of more than 10% of the outstanding common stock, or any of their respective relatives, spouses, associates or affiliates has had or will have any direct or material indirect interest.
C. INTEREST OF EXPERTS AND COUNSEL
Not applicable.
Item 8. Financial Information
The financial statements are attached hereto and found immediately following the text of this Registration Statement. The audit report of Staley Okada & Partners, Independent Chartered Accountants, is included herein immediately preceding the financial statements and schedules.
There have been no significant changes of financial condition since the most recent audited financial statements dated November 30, 2002.
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Item 9. The Offer and Listing
A. OFFER AND LISTING DETAILS
As at February 28, 2003, the authorized capital of the Company was 100,000,000 common shares without par value and there were 13,256,270 common shares issued and outstanding.
Subject to compliance with applicable securities laws, there are no restrictions on the transferability of the common shares of the Company.
The Company's common shares began trading on the Vancouver Stock Exchange (now known as the TSX Venture Exchange) in British Columbia, Canada, under its former name “O.P. Resources Ltd” on July 17, 1981. The current stock symbol is “LEH”. The CUSIP number is 501922108.
The Company's common shares are issued in registered form and the following information is taken from the records of Equity Transfer Services Inc.
On March 21, 2003, the shareholders' list for the Company's common shares showed 100 registered shareholders and 13,256,270 shares issued and outstanding.
The Company has researched the indirect holding by depository institutions and estimates that there are 2 holders of record in Canada and 99 holders of record resident in the United States. The U.S. shareholders own 244,795 common shares which represents only 01.8% of the total outstanding shares.
Based on this research and other research into the indirect holdings of other financial institutions, the Company believes that it has in excess of 500 beneficial owners of its common shares.
The Company's common shares are not registered to trade in the United States in the form of American Depository Receipts (ADR's) or similar certificates.
The Company has not declared any dividends on its common shares for the last five years and does not anticipate that it will do so in the foreseeable future. The present policy of the Company is to retain any future earnings for use in its operations and the expansion of its business.
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Table No. 9 lists the volume of trading and high and low and sales prices on the TSX Venture Exchange for the Company's common shares for the last five fiscal years and three months, the last two years by quarters, and the last six months.
Table No. 9
TSX Venture Exchange
Common Shares Trading Activity
Canadian Dollars
Period (Ending Nov. 30) | High | Low |
Fiscal Year Ended 1997 | $0.60 | $0.12 |
Fiscal Year Ended 1998 | $0.32 | $0.09 |
Fiscal Year Ended 1999 | $0.28 | $0.08 |
2001 | High | Low |
First Quarter | $0.44 | $0.31 |
Second Quarter | $0.65 | $0.34 |
Third Quarter | $0.62 | $0.24 |
Full Year | $0.42 | $0.29 |
2002 | High | Low |
First Quarter | $0.21 | $0.14 |
Second Quarter | $0.25 | $0.15 |
Third Quarter | $0.28 | $0.17 |
Full Year | $0.28 | $0.14 |
Most Recent Six Months | High | Low |
November 2002 | $0.17 | $0.11 |
December 2002 | $0.14 | $0.10 |
January 2003 | $0.12 | $0.10 |
February 2003 | $0.13 | $0.10 |
March 2003 | $0.15 | $0.12 |
April 2003 | $.19 | $0.12 |
Table No. 10 lists, as of April 30, 2003 share purchase warrants outstanding, the date the share purchase warrants were issued, the exercise price, and the expiration date of the share purchase warrants.
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Table No. 10
Share Purchase Warrants Outstanding
Number of | Number of | |||||||||
Share | Share | Expiration | ||||||||
Purchase | Purchase | Date of | ||||||||
Effective | Warrants | Warrants | Exercise Price | Share | ||||||
Date of | Originally | Still | First | Second | Purchase | |||||
Issuance | Granted | Outstanding | Year | Year | Warrants | |||||
7/25/02 | 380,000 | 380,000 | $0.24 | N/A | 7/25/03 | |||||
7/25/02 | 700,000 | 700,000 | $0.26 | N/A | 7/25/03 |
B. PLAN OF DISTRIBUTION
Not applicable.
C. MARKETS
The Company's shares are listed and trade only on the TSX Venture Exchange.
D. SELLING SHAREHOLDERS
Not applicable.
E. DILUTION
Not applicable.
F. EXPENSES OF THE COMPANY
Not applicable.
Item 10. Additional Information
A. SHARE CAPITAL
As at February 28, 2003, the Company was authorized to issue 100,000,000 common shares, no par value, of which 13,256,270 shares are issued and fully paid for.
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The following is a history of the Company's share capital for the years ending November 30, 2000 to 2001 and 2002:
Issued and Outstanding Nov. 30, 1999: | 5,106,533 | ||||
Shares Issued 2000: | |||||
Private Placements | 1,986,000 | $ | 521,438.00 | ||
Stock Options Exercised | 241,500 | $ | 45,315.00 | ||
Warrants Exercised | 745,000 | $ | 147,250.00 | ||
Special Warrants | 1,100,000 | - | |||
Escrow Shares Issued | 673,022 | $ | 6,730.00 | ||
Issued and Outstanding Nov. 30, 2000: | 9,852,055 | ||||
Shares Issued 2001: | |||||
Private Placements | 761,000 | $ | 304,400.00 | ||
Property Acquisition | 444,465 | $ | 177,786.00 | ||
Exercise of Warrants | 698,750 | $ | 157,875.00 | ||
Exercise of Stock Options | 220,000 | $ | 28,200.00 | ||
Issued and Outstanding Nov. 30, 2001 | 11,976,270 | ||||
Shares Issued 2002: | |||||
Property Acquisition | 200,000 | $ | 42,000.00 | ||
Private Placement | 1,080,000 | $ | 273,200.00 | ||
Issued and Outstanding Nov. 30, 2002 | 13,256,270 |
No shares have been issued in the period December 1, 2002 to April 30, 2003.
Options
Options to purchase common shares from the Company may be granted to Directors and employees of the Company on terms and conditions acceptable to the TSX Venture Exchange and the British Columbia Securities Commission.
Options for up to 10% of the number of issued and outstanding common shares may be granted from time to time, provided that options in favor of any one individual may not exceed 5% of the issued and outstanding common shares. No option is transferable by the optionee other than by will or the laws of descent and distribution.
The exercise prices for options are determined in accordance with TSX Venture Exchange guidelines and reflect the average closing price of the Company's common shares immediately preceding the day on which the Directors grant and publicly
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announce the options (subject to a regulatory-acceptable discount), and/or at a price no lower than $0.10 per share. The maximum term of each option may not exceed five years.
Table No. 11
Stock Options Outstanding – May 20, 2003
Number of | |||
Shares of | CDN$ | ||
Common | Exer. Expiration | ||
Name | Stock | Price | Date |
John McGoran, Officer and Director | 100,000 | 0.20 | 02/07/05 |
100,000 | 0.16 | 01/22/05 | |
Luard Manning, Officer and Director | 50,000 | 0.16 | 06/09/04 |
50,000 | 0.20 | 02/07/05 | |
50,000 | 0.16 | 01/22/05 | |
James O’Rourke, Director | 100,000 | 0.20 | 05/17/06 |
25,000 | 0.16 | 01/22/05 | |
James Plexman, Director | 100,000 | 0.20 | 01/16/07 |
25,000 | 0.16 | 01/22/05 | |
Alexis Mayne, Employee | 20,000 | 0.16 | 01/09/04 |
25,000 | 0.16 | 01/22/05 | |
David Jones, Employee | 120,000 | 0.20 | 07/20/05 |
Total options granted to Officers and/or Directors | |||
(4 persons) | 600,000 | ||
Total options granted to Employees | |||
(2 persons) | 165,000 | ||
Total options granted to | |||
Officers/Directors/Employees | 765,000 |
B. MEMORANDUM AND ARTICLES OF ASSOCIATION
The Memorandum and Articles of the Company do not address the Company’s objects and purposes. The Company's objects and purposes are governed by the Company Act (British Columbia) the "B.C. Act").
All of the authorized common shares of the Company are of the same class and, once issued, rank equally as to dividends, voting powers, and participation in assets. Holders of common stock are entitled to one vote for each share held of record on all matters to be acted upon by the shareholders. Holders of common stock are entitled to receive such dividends as may be declared from time to time by the Board of Directors, in its discretion, out of funds legally available therefore.
Upon liquidation, dissolution or winding up of the Company, holders of common stock are entitled to receive pro rata the assets of Company, if any, remaining after payments of all debts and liabilities. No shares have been issued subject to call or
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assessment. There are no pre-emptive or conversion rights and no provisions for redemption or purchase for cancellation, surrender, or sinking or purchase funds.
Provisions as to the modification, amendment or variation of such shareholder rights or provisions are contained in the “Company Act" of British Columbia. Unless the “Company Act" or the Company's Articles or Memorandum otherwise provide, any action to be taken by a resolution of the members may be taken by an ordinary resolution which requires a vote of a majority or more of the shares represented in person or by proxy at the shareholders' meeting.
The Company's Articles and the British Columbia Company Act contain provisions which require a "special resolution" to enact certain corporate actions. A "special resolution" requires a three-quarters vote in favour by shareholders in person or by proxy. The principle corporate actions that require a "special resolution" include:
a. | Transferring the Company's jurisdiction from British Columbia to another jurisdiction; |
b. | Giving financial assistance under certain circumstances; |
c. | Certain conflicts of interest by Directors; |
d. | Disposing of all or substantially all of Company's assets; |
e. | Removing Director before expiration of their term of office; |
f. | Certain alterations of share capital; |
g. | Changing the Company name; |
h. | Altering any restrictions on the Company's business; and |
i. | Certain reorganizations of the Company. |
A Director shall not vote in respect of the approval of any contract or transaction with the Company in which he is interested and if he shall do so his vote shall not be counted, but he shall be counted in the quorum present at the meeting at which the vote is taken.
The Directors may from time to time on behalf of the Company:
(a) | borrow money in a manner and amount, on any security, from any source and upon any terms and conditions; |
(b) | issue bonds, debentures, and other debt obligations either outright or as security for any liability or obligation of the Company or any other person; and |
(c) | mortgage, charge, whether by way of specific or floating charge, or give other security on the undertaking, or on the whole or any part of the property and assets, of the Company (both present and future). |
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There are no age considerations pertaining to the retirement or non-retirement of directors.
A Director shall not be required to hold a share in the capital of the Company as qualification for his office but shall be qualified as required by The Act, to become or act as a Director.
All of the authorized common shares of the Company are of the same class and, once issued, rank equally as to dividends, voting powers, and participation in assets. Holders of common stock are entitled to one vote for each share held of record on all matters to be acted upon by the shareholders. Holders of common stock are entitled to receive such dividends as may be declared from time to time by the Board of Directors, in its discretion, out of funds legally available therefore.
Upon liquidation, dissolution or winding up of the Company, holders of common stock are entitled to receive pro rata the assets of Company, if any, remaining after payments of all debts and liabilities. No shares have been issued subject to call or assessment. There are no pre-emptive or conversion rights and no provisions for redemption or purchase for cancellation, surrender, or sinking or purchase funds.
Provisions as to the modification, amendment or variation of such shareholder rights or provisions are contained in the “Company Act“ of British Columbia. Unless the “Company Act“ or the Company's Articles or Memorandum otherwise provide, any action to be taken by a resolution of the members may be taken by an ordinary resolution or by a vote of a majority or more of the shares represented at the shareholders' meeting.
The Company's Articles and the Company Act of British Columbia contain provisions which require a "special resolution" for effecting certain corporate actions. Such a "special resolution" requires a three-quarters vote of shareholders rather than a simple majority for passage. The principle corporate actions that require a "special resolution" include:
a. | Transferring the Company's jurisdiction from BritishColumbia to another jurisdiction; |
b. | Giving financial assistance under certain circumstances; |
c. | Certain conflicts of interest by Directors; |
d. | Disposing of all/substantially all of Company's undertakings; |
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e. | Removing Director before expiration of his term of office; |
f. | Certain alterations of share capital; |
g. | Changing the Company name; |
h. | Altering any restrictions on the Company's business; and |
i. | Certain reorganizations of the Company. |
The common shares are not redeemable. The Company while there is any arrearage in the payment of dividends or sinking fund installments.
There is no liability to further capital calls by the Company.
There are no provisions discriminating against any existing or prospective holder of securities as a result of such shareholder owning a substantial number of shares.
The shareholders' rights can only be altered by a special resolution at an extraordinary general meeting of the Company's shareholders.
Annual General Meetings of shareholders of the Company shall be held once in every calendar year at a time not being more than 13 months after the holding of the preceding Annual General Meeting, at such place as the Directors shall appoint within the Province of British Columbia, unless otherwise ordered by the Registrar of Companies for British Columbia (the "Registrar"). Directors are required to call a meeting within 21 days, to be held within four months, if a meeting is requisitioned by shareholders of the Company holding not less than 5% of the issued shares. If the Directors fail to call the meeting, the requisitionist can do so as provided in the B.C. Act.
Not less than 25 days’ notice of any General Meeting specifying the time and place of meeting and the general nature of that business shall be given in the manner required by the British Columbia Securities Act. The accidental omission to give notice of any meeting to, or the non-receipt of any notice, by any person shall not invalidate any proceedings at that meeting.
There are no limitations on the rights to own securities.
There is no provision of the Company’s Articles that would have an effect of delaying, deferring or preventing a change in control of the Company and that would operate only with respect to a merger, acquisition or corporate restructuring involving the Company (or any of its subsidiaries).
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Shareholder ownership must be disclosed to the British Columbia Securities Commission by any shareholder who owns more than 10% of the Company’s common stock.
Legal Proceedings
The Company knows of no material, active or pending, legal proceedings against them; nor is the Company involved as a plaintiff in any material proceeding or pending litigation.
The Company knows of no active or pending proceedings against anyone that might materially adversely affect an interest of the Company.
C. MATERIAL CONTRACTS
Not applicable.
D. EXCHANGE CONTROLS
Except as discussed in ITEM #9, the Company is not aware of any Canadian federal or provincial laws, decrees, or regulations that restrict the export or import of capital, including foreign exchange controls, or that affect the remittance of dividends, interest or other payments to non-Canadian holders of the common shares. There are no limitations on the right of non-Canadian owners to hold or vote the common shares imposed by Canadian federal or provincial law or by the charter or other constituent documents of the Company.
The Investment Canada Act (the "IC Act") governs acquisitions of Canadian business by a non-Canadian person or entity. The IC Act requires a non-Canadian (as defined in the IC Act) making an investment to acquire control of a Canadian business, the gross assets of which exceed certain defined threshold levels, to file an application for review with the Investment Review Division of Industry Canada. The IC Act provides, among other things, for a review of an investment in the event of acquisition of "control" in certain Canadian businesses in the following circumstances:
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within Canada. This threshold level does not apply in certain sections of Canadian industry, such as uranium, financial services (except insurance), transportation services and cultural services (i.e. the publication, distribution or sale of books, magazines, periodicals (other than printing or typesetting businesses), music in print or machine readable form, radio, television, cable and satellite services; the publication, distribution, sale or exhibition of film or video recordings on audio or video music recordings), to which lower thresholds as prescribed in the IC Act are applicable.
2. If the investor is a non-Canadian and is not a NAFTA or WTO National, any direct acquisition having an asset value exceeding $5,000,000 and any indirect acquisition having an asset value exceeding $50,000,000 is reviewable.
3. If the investor is a non-Canadian and is NAFTA or WTO National, an indirect acquisition of control is reviewable if the value of the assets of the business located in Canada represents more than 50% of the asset value of the transaction or the business is involved in uranium, financial services, transportation services or cultural services (as set forth above).
Finally, certain transactions prescribed in the IC Act are exempted from review altogether.
In the context of the Company, in essence, three methods of acquiring control of a Canadian business are regulated by the IC Act: (i) the acquisition of all or substantially all of the assets used in carrying on business in Canada; (ii) the acquisition, directly or indirectly, of voting shares of a Canadian corporation carrying on business in Canada; or (iii) the acquisition of voting shares of an entity which controls, directly or indirectly, another entity carrying on business in Canada.
An acquisition of a majority of the voting shares of a Canadian entity, including a corporation, is deemed to be an acquisition of control under the IC Act. However, under the IC Act, there is a rebuttable presumption that control is acquired if one-third of the voting shares of a Canadian corporation or an equivalent undivided interest in the voting shares of such corporation are held by a non-Canadian person or entity. An acquisition of less than one-third of the voting shares of a Canadian corporation is deemed not to be an acquisition of
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control. An acquisition of less than a majority, but one-third or more, of the voting shares of a Canadian corporation is presumed to be an acquisition of control unless it can be established that, on the acquisition, the Canadian corporation is not, in fact, controlled by the acquirer through the ownership of voting shares. For partnerships, trusts, joint ventures or other unincorporated Canadian entities, an acquisition of less than a majority of the voting interests is deemed not to be an acquisition of control.
In addition, if a Canadian corporation is controlled by a non-Canadian, the acquisition of control of any other Canadian corporation by such corporation may be subject to the prior approval of the Investment Review Division, unless it can be established that the Canadian corporation is not in fact controlled by the acquirer through the ownership of voting shares.
Where an investment is reviewable under the IC Act, the investment may not be implemented unless it is likely to be of net benefit to Canada. If an applicant is unable to satisfy the Minister responsible for Industry Canada that the investment is likely to be of net benefit to Canada, the applicant may not proceed with the investment. Alternatively, an acquirer may be required to divest control of the Canadian business that is the subject of the investment.
In addition to the foregoing, the IC Act provides for formal notification under the IC Act of all other acquisitions of control by Canadian businesses by non-Canadian investors. The notification process consists of filing a notification within 30 days following the implementation of an investment, which notification is for information, as opposed to review, purposes.
E. TAXATION
The tax consequences to any particular holder of common stock will vary according to the status of that holder as an individual, trust, corporation or member of a partnership, the jurisdiction in which that holder is subject to taxation, the place where that holder is resident and, generally, according to that holder’s particular circumstances. This summary is applicable only to holders who are resident in the United States, have never been resident in Canada, deal at arm’s length with the Company, hold their common stock as capital property and who will not use or hold the common stock in carrying on business in Canada. Special rules, which are not discussed in this summary, may apply to a
51
United States holder that is an issuer that carries on business in Canada and elsewhere.
This summary is based upon the provisions of the Income Tax Act of Canada and the regulations there under (collectively, the "Tax Act" or “ITA”)and the Canada-United States Tax Convention (the “Tax Convention”) as at the date of the Registration Statement and the current administrative practices of Canada Customs and Revenue Agency. This summary does not take into account provincial income tax consequences.
Management urges each holder to consult his own tax advisor with respect to the income tax consequences applicable to him in his own particular circumstances.
CANADIAN INCOME TAX CONSEQUENCES
Disposition of Common Stock.
The summary below is restricted to the case of a holder (a “Holder”) of one or more common shares (“Common Shares”) who for the purposes of the Tax Act is a non-resident of Canada, holds his Common Shares as capital property and deals at arm’s length with the Company.
Dividends
A Holder will be subject to Canadian withholding tax (“Part XIII Tax”) equal to 25%, or such lower rates as may be available under an applicable tax treaty, of the gross amount of any dividend paid or deemed to be paid on his Common Shares. Under the Tax Convention, the rate of Part XIII Tax applicable to a dividend on Common Shares paid to a Holder who is a resident of the United States is, if the Holder is a company that beneficially owns at least 10% of the voting stock of the Company, 5% and, in any other case, 15% of the gross amount of the dividend. The Company will be required to withhold the applicable amount of Part XIII Tax from each dividend so paid and remit the withheld amount directly to the Receiver General for Canada for the account of the Holder.
Disposition of Common Shares
A Holder who disposes of Common Shares, including by deemed disposition on death, will not be subject to Canadian tax on any capital gain thereby realized unless the common Share constituted “taxable Canadian property” as defined by the Tax Act. Generally, a common share of a public corporation will not constitute taxable Canadian property of a Holder unless he held the common share as
52
capital property used by him carrying on a business in Canada, or he or persons with whom he did not deal at arm’s length alone or together held or held options to acquire, at any time within the 60 months preceding the disposition, 25% or more of the issued shares of any class of the capital stock of the Company.
A Holder who is a resident of the United States and realizes a capital gain on disposition of Common Shares that was taxable Canadian property will nevertheless, by virtue of the Treaty, generally be exempt from Canadian tax thereon unless (a) more than 50% of the value of the Common Shares is derived from, or from an interest in, Canadian real estate, including Canadian mineral resources properties, (b) the Common Shares formed part of the business property of a permanent establishment that the Holder has or had in Canada within the 12 months preceding disposition, or (c) the Holder (i) was a resident of Canada at any time within the ten years immediately preceding the disposition, and for a total of 120 months during any period of 20 consecutive years, preceding the disposition, and (ii) owned the Common Shares when he ceased to be resident in Canada.
A Holder who is subject to Canadian tax in respect of a capital gain realized on disposition of Common Shares must include one-half of the capital gain (“taxable capital gain”) in computing his taxable income earned in Canada. The Holder may, subject to certain limitations, deduct one-half of any capital loss (“allowable capital loss”) arising on disposition of taxable Canadian property from taxable capital gains realized in the year of disposition in respect to taxable Canadian property and, to the extent not so deductible, from such taxable capital gains of any of the three preceding years or any subsequent year.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of material United States Federal income tax consequences, under the law, generally applicable to a U.S. Holder (as defined below) of common shares of the Company. This discussion does not cover any state, local or foreign tax consequences.
The following discussion is based upon the sections of the Internal Revenue Code of 1986, as amended (“the Code”), Treasury Regulations, published Internal Revenue Service (“IRS) rulings, published administrative positions of the IRS and court decisions that are currently applicable, any or all of which could be materially and adversely changed, possible on a retroactive basis, at any time. In addition, the discussion does not consider the
53
potential effects, both adverse and beneficial, or recently proposed legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time. Management urges Holders and prospective Holders of common shares of the Company to consult their own tax advisors about the federal, state, local, and foreign tax consequences of purchasing, owning and disposing of common shares of the Company.
U.S. Holders
As used herein, a (“U.S. Holder”) includes a holder of common shares of the Company who is a citizen or resident of the United States, a corporation created or organized in or under the laws of the United States or of any political subdivision thereof, an estate whose income is taxable in the United States irrespective of source or a trust subject to the primary supervision of a court within the United States and control of a United States fiduciary as described in Section 7701(a)(30) of the Code. This summary does not address the tax consequences to, and U.S. Holder does not include, persons subject to special provisions of Federal income tax law, such as tax-exempt organizations, qualified retirement plans, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, non-resident alien individuals, persons or entities that have a “functional currency” other than the U.S. dollar, shareholders who hold common shares as part of a straddle, hedging or conversion transaction, and shareholders who acquired their common shares through the exercise of employee stock options or otherwise as compensation for services. This summary is limited to U.S. Holders who own common shares as capital assets. This summary does not address the consequences to a person or entity holding an interest in a shareholder or the consequences to a person of the ownership, exercise or disposition of any options, warrants or other rights to acquire common shares.
Distribution on Common Shares of the Company
U.S. Holders receiving dividend distributions (including constructive dividends) with respect to common shares of the Company are required to include in gross income for United States Federal income tax purposes the gross amount of such distributions equal to the U.S. dollar value of such distributions on the date of receipt (based on the exchange rate on such date), to the extent that the Company has current or accumulated earnings and profits, without reduction for any Canadian income tax withheld from such distributions. Such Canadian tax withheld may be credited, subject to certain limitations, against the U.S.
54
Holder’s United States Federal Income tax liability or, alternatively, individuals may be deducted in computing the U.S. Holder’s United States Federal taxable income by those individuals who itemize deductions. (See more detailed discussion at “Foreign Tax Credit” below). To the extent that distributions exceed current or accumulated earnings and profits of the Company, they will be treated first as a return of capital up to the U.S. Holder’s adjusted basis in the common shares and thereafter as gain from the sale or exchange of the common shares. Dividend income will be taxed at marginal tax rates applicable to ordinary income while preferential tax rates for long-term capital gains are applicable to a U.S. Holder which is an individual, estate or trust. There are currently no preferential tax rates for long-term capital gains for a U.S. Holder which is a corporation.
In the case of foreign currency received as a dividend that is not converted by the recipient into U.S. dollars on the date of receipt, a U.S. Holder will have a tax basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Generally any gain or loss recognized upon a subsequent sale of other disposition of the foreign currency, including the exchange for U.S. dollars, will be ordinary income or loss.
Dividends paid on the common shares of the Company will not generally be eligible for the dividends received deduction provided to corporations receiving dividends from certain United States corporations. A U.S. Holder which is a corporation may, under certain circumstances, be entitled to a 70% deduction of the United States source portion of dividends received from the Company (unless the Company qualifies as a “foreign personal holding company” or a “passive foreign investment company”, as defined below) if such U.S. Holder owns shares representing at least 10% of the voting power and value of the Company. The availability of this deduction is subject to several complex limitations which are beyond the scope of this discussion.
Under current Treasury Regulations, dividends paid on the Company’s common shares, if any, generally will not be subject to information reporting and generally will not be subject to U.S. backup withholding tax. However, dividends and the proceeds from a sale of the Company’s common shares paid in the U.S. through a U.S. or U.S. related paying agent (including a broker) will be subject to U.S. information reporting requirements and may also be subject to the 31% U.S. backup withholding tax, unless the paying agent is furnished with a duly completed and signed Form W-9. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a refund or a credit against the U.S. Holder’s U.S.
55
federal income tax liability, provided the required information is furnished to the IRS.
Foreign Tax Credit
For individuals whose entire income from sources outside the United States consists of qualified passive income, the total amount of creditable foreign taxes paid or accrued during the taxable year does not exceed $300 ($600 in the case of a joint return) and an election is made under section 904(j), the limitation on credit does not apply.
A U.S. Holder who pays (or has withheld from distributions) Canadian income tax with respect to the ownership of common shares of the Company may be entitled, at the option of the U.S. Holder, to either a deduction or a tax credit for such foreign tax paid or withheld. Generally, it will be more advantageous to claim a credit because a credit reduces United States Federal income taxes on a dollar-for-dollar basis, while a deduction merely reduces the taxpayer’s income subject to tax. This election is made on a year-by-year basis and applies to all foreign income taxes (or taxes in lieu of income tax) paid by (or withheld from) the U.S. Holder during the year. There are significant and complex limitations which apply to the credit, among which is the general limitation that the credit cannot exceed the proportionate share of the U.S. Holder’s United States income tax liability that the U.S. Holder’s foreign source income bears to his/her or its worldwide taxable income in the determination of the application of this limitation. The various items of income and deduction must be classified into foreign and domestic sources. Complex rules govern this classification process. In addition, this limitation is calculated separately with respect to specific classes of income such as “passive income”, “high withholding tax interest”, “financial services income”, “shipping income”, and certain other classifications of income. Dividends distributed by the Company will generally constitute “passive income” or, in the case of certain U.S. Holders, “financial services income” for these purposes. The availability of the foreign tax credit and the application of the limitations on the credit are fact specific and management urges holders and prospective holders of common shares of the Company to consult their own tax advisors regarding their individual circumstances.
Disposition of Common Shares of the Company
A U.S. Holder will recognize gain or loss upon the sale of common shares of the Company equal to the difference, if any, between (I)
56
the amount of cash plus the fair market value of any property received, and (ii) the shareholder’s tax basis in the common shares of the Company. Preferential tax rates apply to long-term capital gains of U.S. Holders which are individuals, estates or trusts. This gain or loss will be capital gain or loss if the common shares are capital assets in the hands of the U.S. Holder, which will be a short-term or long-term capital gain or loss depending upon the holding period of the U.S. Holder. Gains and losses are netted and combined according to special rules in arriving at the overall capital gain or loss for a particular tax year. Deductions for net capital losses are subject to significant limitations. For U.S. Holders which are not corporations, any unused portion of such net capital loss may be carried over to be used in later tax years until such net capital loss is thereby exhausted, but individuals may not carry back capital losses. For U.S. Holders which are corporations (other than corporations subject to Subchapter S of the Code), an unused net capital loss may be carried back three years from the loss year and carried forward five years from the loss year to be offset against capital gains until such net capital loss is thereby exhausted.
Other Considerations
In the following circumstances, the above sections of the discussion may not describe the United States Federal income tax consequences resulting from the holding and disposition of common shares of the Company.
Foreign Personal Holding Company
If at any time during a taxable year more than 50% of the total combined voting power or the total value of the Company’s outstanding shares is owned, actually or constructively, by five or fewer individuals who are citizens or residents of the United States and 60% (50% after the first tax year) or more of the Company’s gross income for such year was derived from certain passive sources (e.g. from interest income received from its subsidiaries), the Company would be treated as a “foreign personal holding company.” In that event, U.S. Holders that hold common shares of the Company would be required to include in gross income for such year their allocable portions of such passive income to the extent the Company does not actually distribute such income.
The Company does not believe that it currently has the status of a “foreign personal holding company”. However, there can be no assurance that the Company will not be considered a foreign
57
personal holding company for the current or any future taxable year.
Foreign Investment Company
If 50% or more of the combined voting power or total value of the Company’s outstanding shares are held, actually or constructively, by citizens or residents of the United States, United States domestic partnerships or corporations, or estates or trusts other than foreign estates or trusts (as defined by the Code Section 7701(a)(31), and the Company is found to be engaged primarily in the business of investing, reinvesting, or trading in securities, commodities, or any interest therein, it is possible that the Company might be treated as a “foreign investment company” as defined in Section 1246 of the Code, causing all or part of any gain realized by a U.S. Holder selling or exchanging common shares of the Company to be treated as ordinary income rather than capital gains.
Passive Foreign Investment Company
As a foreign corporation with U.S. Holders, the Company could potentially be treated as a passive foreign investment company (“PFIC”), as defined in Section 1297 of the Code, depending upon the percentage of the Company’s income which is passive, or the percentage of the Company’s assets which is held for the purpose of producing passive income.
Certain United States income tax legislation contains rules governing PFICs which can have significant tax effects on U.S. shareholders of foreign corporations. These rules do not apply to non-U.S. shareholders. Section 1297 (a) of the Code defines a PFIC as a corporation that is not formed in the United States and, for any taxable year, either (I) 75% or more of its gross income is “passive income”, which includes interest, dividends and certain rents and royalties or (ii) the average percentage, by fair market value (or, if the company is a controlled foreign corporation or makes an election, by adjusted tax basis), of its assets that produce or are held for the production of “passive income” is 50% or more. The taxation of a US shareholder who owns stock in a PFIC is extremely complex and is therefore beyond the scope of this discussion. Management urges US persons to consult with their own tax advisors with regards to the impact of these rules.
58
Controlled Foreign Corporation
A Controlled Foreign Corporation (CFC) is a foreign corporation more than 50% of whose stock by vote or value is, on any day in the corporation’s tax year, owned (directly or indirectly) by U.S. Shareholders. If more than 50% of the voting power of all classes of stock entitled to vote is owned, actually or constructively, by citizens or residents of the United States, United States domestic partnerships and corporations or estates or trusts other than foreign estates or trusts, each of whom own actually or constructively 10% or more of the total combined voting power of all classes of stock of the Company could be treated as a “controlled foreign corporation” under Subpart F of the Code. This classification would effect many complex results, one of which is the inclusion of certain income of a CFC which is subject to current U.S. tax. The United States generally taxes United States Shareholders of a CFC currently on their pro rata shares of the Subpart F income of the CFC. Such United States Shareholders are generally treated as having received a current distribution out of the CFC’s Subpart F income and are also subject to current U.S. tax on their pro rata shares of the CFC’s earnings invested in U.S. property. The foreign tax credit described above may reduce the U.S. tax on these amounts. In addition, under Section 1248 of the Code, gain from the sale or exchange of shares by a U.S. Holder of common shares of the Corporation which is or was a United States Shareholder at any time during the five-year period ending with the sale or exchange is treated as ordinary income to the extent of earnings and profits of the Company (accumulated in corporate tax years beginning after 1962, but only while the shares were held and while the Company was “controlled”) attributable to the shares sold or exchanged. If a foreign corporation is both a PFIC and a CFC, the foreign corporation generally will not be treated as a PFIC with respect to the United States Shareholders of the CFC. This rule generally will be effective for taxable years of United States Shareholders beginning after 1997 and for taxable years of foreign corporations ending with or within such taxable years of United States Shareholders. The PFIC provisions continue to apply in the case of PFIC that is also a CFC with respect to the U.S. Holders that are less than 10% shareholders. Because of the complexity of Subpart F, a more detailed review of these rules is outside of the scope of this discussion.
The amount of any backup withholding will not constitute additional tax and will be allowed as a credit against the U.S. Holder’s federal income tax liability.
59
Filing of Information Returns. Under a number of circumstances, United States Investor acquiring shares of the Company may be required to file an information return with the Internal Revenue Service Center where they are required to file their tax returns with a duplicate copy to the Internal Revenue Service Center, Philadelphia, PA 19255. In particular, any United States Investor who becomes the owner, directly or indirectly, of 10% or more of the shares of the Company will be required to file such a return. Other filing requirements may apply, and management urges United States Investors to consult their own tax advisors concerning these requirements.
F. DIVIDENDS AND PAYING AGENTS
There are no restrictions on dividends.
G. STATEMENTS BY EXPERTS
A “consent letter” from the Company’s auditors is included as an exhibit to this document.
H. DOCUMENTS ON DISPLAY
All of the documents referred to in this Registration Statement may be inspected at the head office of the Company, the address of which is indicated on the Cover Sheet of this Registration Statement.
I. SUBSIDIARY INFORMATION
Not applicable.
Item 11. Disclosures about Market Risk
Not Applicable
Item 12. Description of Other Securities
Not Applicable
Part II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Not Applicable
60
Item 14. Modifications of Rights of Securities Holders and Use of Proceeds
Not Applicable
Part III
Item 17. Financial Statements
The Company's financial statements are stated in Canadian Dollars (CDN$) and are prepared in accordance with Canadian Generally Accepted Accounting Principles (GAAP), the application of which, in the case of the Company, conforms in all material respects for the periods presented with United States GAAP, except as disclosed in a footnote to the financial statements.
The financial statements as required under ITEM #17 are attached hereto and found immediately following the text of this Registration Statement. The audit report of Staley Okada & Partners, independent Chartered Accountants, is included herein immediately preceding the financial statements.
Financial Statements
Comments by the Auditors for U.S. Readers on Canada-U.S. Reporting Conflict
61
Item 18. Financial Statements
The Company has elected to provide financial statements pursuant to ITEM #17.
Item 19. Exhibits
Page | |
Number | |
1. Certificate of Incorporation, Certificates of Name Change, Articles and Memorandum of Incorporation | * |
2. Instruments defining the rights of holders of the securities being registered | |
***See Exhibit Number 1*** | |
3. Voting Trust Agreements – N/A | |
4. Material Contracts – N/A | |
5. List of Foreign Patents – N/A | |
6. Calculation of earnings per share – N/A | |
7. Explanation of calculation of ratios – N/A | |
8. List of Subsidiaries | N/A |
9. Statement pursuant to the instructions to Item 8.A.4, regarding the financial statements filed in registration | |
statements for initial public offerings of securities – N/A | |
10.Other documents | |
a. Consent from Independent Accountants | |
b. Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of | |
the Sarbanes-Oxley Act of 2002 |
* This Exhibit was previously filed.
62
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
We hereby consent to the use in the L.E.H. Ventures Ltd. registration statement, on Form 20F, of our report dated 13 February 2003 (except as to notes 10 and 11, which are as of 30 April 2003), accompanying the financial statements of L.E.H. Ventures Ltd. for the years ended 30 November 2002, 2001 and 2000, which is part of the registration statement and to the reference to us under the heading “Experts” in such registration statement.
(“Staley, Okada & Partners”)
STALEY, OKADA & PARTNERS
Chartered Accountants
Surrey, B.C.
5 June 2003.
L.E.H. VENTURES LTD.
(An Exploration Stage Company)
FINANCIAL STATEMENTS
28 FEBRUARY 2003 AND 2002 (Unaudited)
AND
30 NOVEMBER 2002, 2001 AND 2000
STALEY, OKADA & PARTNERS
Chartered Accountants
F-1
INDEPENDENT AUDITORS’ REPORT
To the Directors of L.E.H. Ventures Ltd.:
We have audited the balance sheet of L.E.H. Ventures Ltd. (an Exploration Stage Company) as at 30 November 2002 and 2001 and the statements of loss and cash flows for each of the years ended 30 November 2002, 2001, 2000 and cumulative from 17 July 1981 through 30 November 2002 and the statement of shareholders’ equity from 30 November 1999 through 30 November 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with Canadian generally accepted auditing standards and in accordance with United States generally accepted auditing standards for the years ended 30 November 2002, 2001 and 2000. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material respects, the financial position of the Company as at 30 November 2002 and 2001 and the results of its operations and its cash flows for the years ended 30 November 2002, 2001, 2000 and cumulative from 17 July 1981 through 30 November 2002 and the changes in shareholders’ equity from 30 November 1999 through 30 November 2002 in conformity with Canadian generally accepted accounting principles. As required by the Company Act of British Columbia, we report that, in our opinion, these principles have been applied on a basis consistent with that of the preceding year.
“Staley, Okada & Partners” | |
Surrey, B.C. | STALEY, OKADA & PARTNERS |
13 February 2003 (except as to Notes 10 and 11, which are as of 30 April 2003) | CHARTERED ACCOUNTANTS |
Comments by the Auditors for U.S. Readers on Canada - U.S. Reporting Conflict
In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when the financial statements are affected by significant conditions and events that cast substantial doubt on the Company’s ability to continue as a going concern, such as those described in Note 1 to the financial statements. Our report to the shareholders dated 13 February 2003 is expressed in accordance with Canadian reporting standards which do not permit a reference to such events and conditions in the auditors’ report when these are adequately disclosed in the financial statements.
“Staley, Okada & Partners” | |
Surrey, B.C. | STALEY, OKADA & PARTNERS |
13 February 2003 | CHARTERED ACCOUNTANTS |
F-2
L.E.H. Ventures Ltd. | Statement 1 |
(An Exploration Stage Company) | |
Balance Sheet | |
Canadian Funds |
As at | As at | As at | As at | |||||||||
28 February | 28 February | 30 November | 30 November | |||||||||
2003 | 2002 | 2002 | 2001 | |||||||||
ASSETS | (Unaudited) | (Unaudited) | ||||||||||
Current | ||||||||||||
Cash | $ | 23,142 | $ | 17,928 | $ | 16,287 | $ | 19,671 | ||||
GST receivable | 3,054 | 2,307 | 15,269 | 21,924 | ||||||||
Prepaid expenses | 2,707 | 2,248 | 751 | 705 | ||||||||
28,903 | 22,483 | 32,307 | 42,300 | |||||||||
Mineral Property Costs (Note 4) | 1,440,347 | 1,195,295 | 1,430,208 | 1,165,523 | ||||||||
Capital Assets (Note 5) | 5,059 | 7,227 | 5,469 | 10,535 | ||||||||
$ | 1,474,309 | $ | 1,225,005 | $ | 1,467,984 | $ | 1,218,358 | |||||
LIABILITIES | ||||||||||||
Current | ||||||||||||
Accounts payable and accrued liabilities | $ | 112,426 | $ | 63,285 | $ | 106,466 | $ | 43,204 | ||||
Subscription received (Note 10a) | 15,000 | - | - | - | ||||||||
127,426 | 63,285 | 106,466 | 43,204 | |||||||||
Continued Operations (Note 1) | ||||||||||||
Contingent Liability (Note 11) | ||||||||||||
SHAREHOLDERS’ EQUITY | ||||||||||||
Share Capital - Statement 2 (Note 6) | 3,903,580 | 3,588,380 | 3,903,580 | 3,588,380 | ||||||||
Deficit - Statement 2 | (2,556,697 | ) | (2,426,660 | ) | (2,542,062 | ) | (2,413,226 | ) | ||||
1,346,883 | 1,161,720 | 1,361,518 | 1,175,154 | |||||||||
$ | 1,474,309 | $ | 1,225,005 | $ | 1,467,984 | $ | 1,218,358 | |||||
ON BEHALF OF THE BOARD:
/s/ John P. McGoran, Director
/s/ Luard Manning, Director
- See Accompanying Notes -
F-3
L.E.H. Ventures Ltd. | Statement 2 |
(An Exploration Stage Company) | |
Statement of Shareholders’ Equity | |
Canadian Funds |
Common Shares | |||||||||||
Accumulated | |||||||||||
Shares | Amount | Deficit | Total | ||||||||
Balance - 30 November 1999 | 6,206,533 | $ | 2,175,386 | $ | (2,076,382 | ) | $ | 99,004 | |||
Shares for cash on exercise of stock options in January | |||||||||||
($0.16) | 150,000 | 24,000 | - | 24,000 | |||||||
Shares for cash on exercise of warrants in January ($0.15) | 40,000 | 6,000 | - | 6,000 | |||||||
Shares for cash for private placement in March ($0.225) | 991,500 | 223,088 | - | 223,088 | |||||||
Shares for cash on exercise of warrants in April ($0.15) | 350,000 | 52,500 | - | 52,500 | |||||||
Escrow shares for cash in June ($0.01) | 673,022 | 6,730 | - | 6,730 | |||||||
Shares for cash on exercise of stock options in July ($0.21) | 21,500 | 4,515 | - | 4,515 | |||||||
Shares for cash on exercise of warrants in August ($0.25) | 355,000 | 88,750 | - | 88,750 | |||||||
Shares for cash for private placement in August ($0.30) | 994,500 | 298,350 | - | 298,350 | |||||||
Shares for cash on exercise of stock options in | |||||||||||
September ($0.24) | 50,000 | 12,000 | - | 12,000 | |||||||
Shares for cash on exercise of stock options in | |||||||||||
October ($0.24) | 20,000 | 4,800 | - | 4,800 | |||||||
Loss for the year | - | - | (147,464 | ) | (147,464 | ) | |||||
Balance - 30 November 2000 | 9,852,055 | 2,896,119 | (2,223,846 | ) | 672,273 | ||||||
Shares for cash on exercise of warrants in January ($0.20) | 20,000 | 4,000 | - | 4,000 | |||||||
Shares for cash on exercise of warrants in March ($0.225) | 250,000 | 56,250 | - | 56,250 | |||||||
Shares for property acquisition in March ($0.40) | 444,465 | 177,786 | - | 177,786 | |||||||
Shares for cash on exercise of warrants in March ($0.20) | 300,000 | 60,000 | - | 60,000 | |||||||
Shares for cash for private placement in April ($0.40) | 761,000 | 304,400 | - | 304,400 | |||||||
Shares for cash on exercise of warrants in May ($0.26) | 25,000 | 6,500 | - | 6,500 | |||||||
Shares for cash on exercise of stock options in June ($0.24) | 100,000 | 24,000 | - | 24,000 | |||||||
Shares for cash on exercise of stock options in July ($0.25) | 100,000 | 25,000 | - | 25,000 | |||||||
Shares for cash on exercise of stock options in July ($0.16) | 20,000 | 3,200 | - | 3,200 | |||||||
Shares for cash on exercise of warrants in | |||||||||||
September ($0.30) | 103,750 | 31,125 | - | 31,125 | |||||||
Loss for the year | - | - | (189,380 | ) | (189,380 | ) | |||||
Balance - 30 November 2001 | 11,976,270 | 3,588,380 | (2,413,226 | ) | 1,175,154 | ||||||
Loss for the period | - | - | (13,434 | ) | (13,434 | ) | |||||
Balance - 28 February 2002 (unaudited) | 11,976,270 | 3,588,380 | (2,426,660 | ) | 1,161,720 | ||||||
Shares for property acquisition in March ($0.21 per share) | 200,000 | 42,000 | - | 42,000 | |||||||
Shares for cash for private placement in | |||||||||||
August ($0.24 - $0.26) | 1,080,000 | 273,200 | - | 273,200 | |||||||
Loss for the period | - | - | (115,402 | ) | (115,402 | ) | |||||
Balance - 30 November 2002 | 13,256,270 | 3,903,580 | (2,542,062 | ) | 1,361,518 | ||||||
Loss for the period | - | - | (14,635 | ) | (14,635 | ) | |||||
Balance - 28 February 2003 (unaudited) | 13,256,270 | $ | 3,903,580 | $ | (2,556,697 | ) | $ | 1,346,883 | |||
- See Accompanying Notes -
F-4
L.E.H. Ventures Ltd. | Statement 3 |
(An Exploration Stage Company) | |
Statement of Loss | |
Canadian Funds |
Cumulative | ||||||||||||||||||
from | ||||||||||||||||||
Inception | Three | Three | ||||||||||||||||
(17 July | Months | Months | Year | Year | Year | |||||||||||||
1981 through | Ended | Ended | Ended | Ended | Ended | |||||||||||||
28 February | 28 February | 28 February | 30 November | 30 November | 30 November | |||||||||||||
2003) | 2003 | 2002 | 2002 | 2001 | 2000 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||||
Indirect and Administrative | ||||||||||||||||||
Expenses | ||||||||||||||||||
Consulting, salaries, benefits | $ | 758,484 | $ | 1,875 | $ | 3,750 | $ | 29,344 | $ | 70,072 | $ | 79,176 | ||||||
Professional fees | 373,297 | 1,889 | 323 | 52,530 | 42,949 | 28,709 | ||||||||||||
Office and general | 327,559 | 6,958 | 3,700 | 20,379 | 34,538 | 23,460 | ||||||||||||
Travel and promotion | 194,324 | 495 | 577 | 7,627 | 8,025 | 5,284 | ||||||||||||
Listing and filing fees | 89,169 | 2,208 | 1,207 | 8,871 | 8,618 | 9,787 | ||||||||||||
Transfer agent fees | 72,946 | 842 | 604 | 5,313 | 6,766 | 6,088 | ||||||||||||
Shareholder’s information | 15,774 | - | - | - | - | - | ||||||||||||
Bad debts | 87,388 | - | - | - | - | - | ||||||||||||
Loan bonus and finder’s fee | 37,100 | - | - | - | - | - | ||||||||||||
Amortization | 17,364 | 410 | 586 | 2,344 | 4,515 | 2,656 | ||||||||||||
Loss for the Period Before | ||||||||||||||||||
the Undernoted | 1,973,405 | 14,677 | 10,747 | 126,408 | 175,483 | 155,160 | ||||||||||||
Oil and gas revenue | (874 | ) | - | - | - | - | - | |||||||||||
Depletion | 7,090 | - | - | - | - | - | ||||||||||||
Interest, net | (68,879 | ) | (42 | ) | (35 | ) | (294 | ) | (4,701 | ) | (7,696 | ) | ||||||
Property investigation | 43,391 | - | - | - | - | - | ||||||||||||
Write off of mineral | ||||||||||||||||||
property costs | 590,766 | - | - | - | 18,598 | - | ||||||||||||
Write down of capital assets | 11,798 | - | 2,722 | 2,722 | - | - | ||||||||||||
Loss for the Period | $ | 2,556,697 | $ | 14,635 | $ | 13,434 | $ | 128,836 | $ | 189,380 | $ | 147,464 | ||||||
Loss per Share - basic | ||||||||||||||||||
and diluted | $ | 0.00 | $ | 0.00 | $ | 0.01 | $ | 0.02 | $ | 0.02 | ||||||||
- See Accompanying Notes -
F-5
L.E.H. Ventures Ltd. | Statement 4 |
(An Exploration Stage Company) | |
Statement of Cash Flows | |
Canadian Funds |
Cumulative | ||||||||||||||||||
from | ||||||||||||||||||
Inception | Three | Three | ||||||||||||||||
(17 July | Months | Months | Year | Year | Year | |||||||||||||
1981 through | Ended | Ended | Ended | Ended | Ended | |||||||||||||
28 February | 28 February | 28 February | 30 November | 30 November | 30 November | |||||||||||||
Cash Resources Provided By | 2003) | 2003 | 2002 | 2002 | 2001 | 2000 | ||||||||||||
(Used In) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||
Cash Used in Operating Activities | ||||||||||||||||||
Loss for the period | $ | (2,556,697 | ) | $ | (14,635 | ) | $ | (13,434 | ) | $ | (128,836 | ) | $ | (189,380 | ) | $ | (147,464 | ) |
Items not involving cash | ||||||||||||||||||
Amortization | 17,364 | 410 | 586 | 2,344 | 4,515 | 2,656 | ||||||||||||
Bad debts | 87,388 | - | - | - | - | - | ||||||||||||
Write-off of mineral | ||||||||||||||||||
property costs | 590,766 | - | - | - | 18,598 | - | ||||||||||||
Depletion | 7,090 | - | - | - | - | - | ||||||||||||
Write-down of capital assets | 11,798 | - | 2,722 | 2,722 | - | - | ||||||||||||
(1,842,291 | ) | (14,225 | ) | (10,126 | ) | (123,730 | ) | (166,267 | ) | (144,808 | ) | |||||||
Change in non-cash working | ||||||||||||||||||
capital | ||||||||||||||||||
GST receivable | (3,054 | ) | 12,215 | 19,617 | 6,655 | (2,758 | ) | (7,947 | ) | |||||||||
Prepaid expenses | (2,707 | ) | (1,956 | ) | (1,543 | ) | (46 | ) | (85 | ) | (140 | ) | ||||||
Accounts payable and | ||||||||||||||||||
accrued liabilities | 129,526 | 5,960 | 20,081 | 63,262 | 9,942 | (26,853 | ) | |||||||||||
Due to related party | - | - | - | - | - | (9,337 | ) | |||||||||||
123,765 | 16,219 | 38,155 | 69,871 | 7,099 | (44,277 | ) | ||||||||||||
(1,718,526 | ) | 1,994 | 28,029 | (53,899 | ) | (159,168 | ) | (189,085 | ) | |||||||||
Cash Used in Investing Activities | ||||||||||||||||||
Advances to directors | (87,388 | ) | - | - | - | - | - | |||||||||||
Purchase of capital assets | (34,221 | ) | - | - | - | - | (17,706 | ) | ||||||||||
Mineral property costs | (1,763,417 | ) | (10,139 | ) | (29,772 | ) | (222,685 | ) | (550,163 | ) | (304,250 | ) | ||||||
Restricted cash | - | - | - | - | 115,810 | (115,810 | ) | |||||||||||
(1,885,026 | ) | (10,139 | ) | (29,772 | ) | (222,685 | ) | (434,353 | ) | (437,766 | ) | |||||||
Cash Provided by Financing | ||||||||||||||||||
Activities | ||||||||||||||||||
Share capital issued for cash | 3,611,694 | - | - | 273,200 | 514,475 | 720,733 | ||||||||||||
Share subscription received | 15,000 | 15,000 | - | - | - | - | ||||||||||||
3,626,694 | 15,000 | - | 273,200 | - | - | |||||||||||||
Net Increase (Decrease) in Cash | 23,142 | 6,855 | (1,743 | ) | (3,384 | ) | (79,046 | ) | 93,882 | |||||||||
Cash position - Beginning | ||||||||||||||||||
of period | - | 16,287 | 19,671 | 19,671 | 98,717 | 4,835 | ||||||||||||
Cash Position - End of Period | $ | 23,142 | $ | 23,142 | $ | 17,928 | $ | 16,287 | $ | 19,671 | $ | 98,717 | ||||||
Supplemental Schedule of Non- | ||||||||||||||||||
Cash Transactions | ||||||||||||||||||
Shares issued for mineral | ||||||||||||||||||
property acquisitions | $ | 274,786 | $ | - | $ | - | $ | 42,000 | $ | 177,786 | $ | - | ||||||
Shares issued for finder’s fee | $ | 17,100 | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||
- See Accompanying Notes -
F-6
L.E.H. Ventures Ltd. (An Exploration Stage Company) Notes to Financial Statements 28 February 2003 Canadian Funds | |
1. | Continued Operations These financial statements have been prepared on the basis of accounting principles applicable to a “going concern”, which assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations. Several adverse conditions and events cast substantial doubt upon the validity of this assumption. The Company has incurred significant operating losses over the past several fiscal years and has a significant working capital deficiency. The continued operations of the Company as a going concern is dependent on its ability to obtain additional equity financing and generate profitable operations in the future. These financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate. If the going concern assumption were not appropriate for these financial statements, then adjustments would be necessary in the carrying values of assets and liabilities, the reported revenues and expenses and the balance sheet classifications used. |
2. | Significant Accounting Policies |
a) | Management Estimates | |
The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates. | ||
b) | Mineral Interests | |
The amounts shown for mineral interests represent costs incurred to date, less recoveries, and do not necessarily reflect present or future values. The recoverability of amounts shown for mineral interests is dependent upon the discovery of economically recoverable reserves, confirmation of the Company’s interest in the underlying mineral claims, the ability of the Company to obtain financing to complete development of the projects, and on future profitable production or proceeds from the disposition thereof. Ownership in mineral interests involves certain inherent risks due to the difficulties of determining and obtaining clear title to the claims as well as the potential for problems arising from the frequently ambiguous conveyancing history characteristic of many mineral interests. The Company has investigated ownership of its mineral interests and, to the best of its knowledge, ownership of its interests are in good standing. The Company does not accrue the estimated costs of maintaining its mineral interests in good standing. |
F-7
L.E.H. Ventures Ltd.
(An Exploration Stage Company)
Notes to Financial Statements
28 February 2003
Canadian Funds
2. | Significant Accounting Policies - Continued | |
c) | Property Option Agreements | |
From time to time, the Company may acquire or dispose of properties pursuant to the terms of option agreements. Due to the fact that options are exercisable entirely at the discretion of the optionee, the amounts payable or receivable are not recorded. Option payments are recorded as resource property costs or recoveries when the payments are made or received. | ||
d) | Loss per Share | |
Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during the period. The computation of diluted earnings per share assumes the conversion, exercise or contingent issuance of securities only when such conversion, exercise or issuance would have a dilutive effect on earnings per share. The dilutive effect of convertible securities is reflected in diluted earnings per share by application of the “if converted” method. The dilutive effect of outstanding options and warrants and their equivalents is reflected in diluted earnings per share by application of the treasury stock method. | ||
e) | Environmental Expenditures | |
The operations of the Company may, in the future, be affected by changes in environmental regulations, including those for future reclamation and site restoration costs. Both the likelihood of new regulations and their overall effect upon the Company vary greatly and are not predictable. The Company's policy is to comply with legal requirements, as instigated by government agencies or appropriate authorities, as a minimum where necessary to conduct its business responsibly and in accordance with the principles of economically sustainable development. | ||
f) | Amortization | |
The Company provides for amortization of its capital assets on the following basis: Computer equipment - 30% declining-balance method One-half of the normal rate is applied in the year of acquisition. | ||
g) | Share Capital |
i) | The proceeds from the exercise of stock options, warrants and escrow shares are recorded as share capital in the amount of which the option, warrant or escrow share enabled the holders to purchase a share in the Company. | ||
ii) | Share capital issued for non-monetary consideration is recorded at an amount based on fair market value reduced by an estimate of transaction costs normally incurred when issuing shares for cash, as determined by the board of directors of the Company. |
F-8
L.E.H. Ventures Ltd. (An Exploration Stage Company) Notes to Financial Statements 28 February 2003 Canadian Funds | ||
2. | Significant Accounting Policies - Continued | |
h) | Income Taxes | |
Income taxes are accounted for using the asset and liability method. Future taxes are recognized for the tax consequences of “temporary differences” by applying enacted or substantively enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and tax basis of existing assets and liabilities. The effect on deferred taxes for a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment. In addition, the method requires the recognition of future tax benefits to the extent that realization of such benefits is more likely than not. | ||
i) | Stock-based Compensation | |
The Company has adopted the new recommendations of CICA Handbook Section 3870, stock-based compensation and other stock-based payments, which applies to all awards granted on or after 1 January 2002. This Section establishes standards for the recognition, measurement and disclosure of stock-based compensation and other stock-based payments made in exchange for goods and services. Non-employees The standard requires that all stock-based awards made to non-employees be measured and recognized using a fair value based method. Employees The standard encourages the use of a fair value based method for all awards granted to employees, but only requires the use of a fair value based method for direct awards of stock, stock appreciation rights, and awards that call for settlement in cash or other assets. Awards that the Company has the ability to settle in stock are recorded as equity, whereas awards that the Company is required to, or has a practice of, settling in cash are recorded as liabilities. The Company has elected to account for employee stock options by measuring compensation cost for options as the excess, if any, of the quoted market price of the Company’s common shares at the date of grant over the amount an employee must pay to acquire the common shares. As required for employee stock options, the Company will disclose pro-forma income (loss) and pro-forma earnings (loss) per share using a fair value based method. | ||
3. | Fair Value of Financial Instruments | |
The Company’s financial instruments consist of cash, GST receivable, subscription received and accounts payable. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments. The fair value of these financial instruments approximates their carrying values, unless otherwise noted. | ||
F-9
L.E.H. Ventures Ltd. (An Exploration Stage Company) Notes to Financial Statements 28 February 2003 Canadian Funds | ||
4. | Mineral Properties | |
a) | Geordie Lake, Ontario | |
The Company owns 100% interest in certain mineral claims located near Marathon, Ontario. The claims are subject to certain back-in rights available to the vendor upon the Company completing a feasibility study. In addition, the Claims are subject to a 2.5% net smelter royalty payable to the original optionors, which can be reduced to 1.5% after paying $1,000,000 in royalties. | ||
b) | Gold Reef, British Columbia | |
The Company owns a 100% interest in certain mineral claims located near Stewart, B.C. All costs associated with this property have been written off. | ||
c) | Otish Mountain, Quebec | |
Pursuant to an agreement dated 15 February 2002, the Company purchased a 100% interest in certain claims located at Otish Mountain in Quebec. The consideration for the purchase consists of $7,500 (paid) and 200,000 shares of the Company (issued). The property is subject to a 2% royalty on the average appraised value of all diamond products produced from the claims. | ||
d) | Details of cumulative expenditures are as follows: |
Deferred | 28 February | 28 February | 30 November | 30 November | |||||||||||||||
Acquisition | Exploration | 2003 | 2002 | 2002 | 2001 | ||||||||||||||
(Unaudited) | (Unaudited) | ||||||||||||||||||
Mineral Properties | |||||||||||||||||||
Geordie Lake, Ontario | $ | 352,796 | $ | 1,037,511 | $ | 1,390,307 | $ | 1,194,755 | $ | 1,380,168 | $ | 1,165,523 | |||||||
Otish Mountain, Quebec | 49,500 | 540 | 50,040 | 540 | 50,040 | - | |||||||||||||
$ | 402,296 | $ | 1,038,051 | $ | 1,440,347 | $ | 1,195,295 | $ | 1,430,208 | $ | 1,165,523 | ||||||||
5. | Capital Assets | ||||||||||||||||||
Details are as follows: |
Net Book | Net Book | Net Book | Net Book | ||||||||||||||||
Value | Value | Value | Value | ||||||||||||||||
Accumulated | 28 February | 28 February | 30 November | 30 November | |||||||||||||||
Cost | Amortization | 2003 | 2002 | 2002 | 2001 | ||||||||||||||
(Unaudited) | (Unaudited) | ||||||||||||||||||
Computer equipment | $ | 13,075 | $ | 8,016 | $ | 5,059 | $ | 7,227 | $ | 5,469 | $ | 10,535 | |||||||
F-10
L.E.H. Ventures Ltd. (An Exploration Stage Company) Notes to Financial Statements 28 February 2003 Canadian Funds | ||
6. | Share Capital | |
Details are as follows: | ||
a) | Authorized share capital: 100,000,000 common shares without par value. | |
b) | Details of share purchase option activity are as follows: |
Number | Exercise Price | Expiry Date | ||||
Balance - 30 November 1999 | 585,500 | $0.16 to $0.25 | June to October 2004 | |||
Options Granted | 320,000 | $0.24 | * | 7 February 2005 | ||
Options Granted | 120,000 | $0.30 | * | 20 July 2005 | ||
Options Cancelled | (100,000 | ) | $0.16 | 9 June 2004 | ||
Options Cancelled | (124,000 | ) | $0.25 | 29 October 2004 | ||
Options Exercised | (150,000 | ) | $0.16 | 9 October 2004 | ||
Options Exercised | (21,500 | ) | $0.21 | 24 July 2004 | ||
Options Exercised | (70,000 | ) | $0.24 | 7 February 2005 | ||
Balance - 30 November 2000 | 560,000 | $0.16 to $0.30 | June 2004 to July 2005 | |||
Options Granted | 150,000 | $0.36 | * | 26 March 2003 | ||
Options Granted | 100,000 | $0.53 | * | 17 May 2006 | ||
Options Granted | 100,000 | $0.50 | 11 July 2006 | |||
Options Exercised | (20,000 | ) | $0.16 | 9 June 2004 | ||
Options Exercised | (100,000 | ) | $0.25 | 29 October 2004 | ||
Options Exercised | (100,000 | ) | $0.24 | 7 February 2005 | ||
Balance - 30 November 2001 and | ||||||
28 February 2002 (Unaudited) | 690,000 | $0.16 to $0.53 | March 2003 to July 2006 | |||
Options Cancelled | (100,000 | ) | $0.50 | 11 July 2006 | ||
Options Granted | 100,000 | $0.20 | 16 January 2007 | |||
Balance - 30 November 2002 | 690,000 | $0.16 to $0.20 | March 2003 to January 2007 | |||
Options Cancelled | (150,000 | ) | $0.20 | 26 March 2003 | ||
Options Granted | 225,000 | $0.16 | 22 January 2005 | |||
Balance - 28 February 2003 (Unaudited) | 765,000 | $0.16 to $0.20 | June 2004 to January 2007 | |||
* 17 January 2002, these options were re-priced from $0.24 - $0.53 down to $0.20.
F-11
L.E.H. Ventures Ltd. (An Exploration Stage Company) Notes to Financial Statements 28 February 2003 Canadian Funds | ||
6. | Share Capital - Continued | |
b) | Details of share purchase option activity are as follows: - Continued | |
A summary of the options outstanding at 28 February 2003 is as follows: |
Number | Exercise Price | Expiry Date | ||||
70,000 | $0.16 | 9 June 2004 | ||||
225,000 | $0.16 | 22 January 2005 | ||||
150,000 | $0.20 | 7 February 2005 | ||||
120,000 | $0.20 | 20 July 2005 | ||||
100,000 | $0.20 | 17 May 2006 | ||||
100,000 | 40.20 | 16 January 2007 | ||||
765,000 | ||||||
At 28 February 2003, all options had vested, the weighted average exercise price per option was $0.18, and the weighted average remaining contractual life of the options was 2.36 years. | ||
c) | Stock-Based Compensation | |
Effective 1 December 2002, the Company adopted the recommendations of CICA Handbook Section 3870 for stock-based compensation (Note 2i). The new standard requires that stock-based awards made to non-employees are to be measured and recognized using a fair value based method. During the period ended 28 February 2003, the Company granted options to purchase up to 225,000 shares of the Company’s stock to employees and directors of the Company at an exercise price of $0.16 per share, with an estimated fair value of $11,569 on the grant date. The pro-forma impact on net loss and loss per share is as follows: | ||
Net Loss | |||||
As Reported | $ | 14,635 | |||
Pro forma | $ | 26,204 | |||
Net Loss Per Share | |||||
As Reported | $ | 0.00 | |||
Pro forma | $ | 0.00 | |||
The fair value of each option grant is estimated on the date of grant using the Black-Scholes Option-Pricing model with the following weighted average assumptions: | |||||
Expected dividend yield | 0.00% | |||
Expected stock price volatility | 91.71% | |||
Risk-free interest rate | 3.80% | |||
Expected life of options | 2 years |
F-12
L.E.H. Ventures Ltd. (An Exploration Stage Company) Notes to Financial Statements 28 February 2003 Canadian Funds | ||
6. | Share Capital - Continued | |
The weighted average grant-date fair value of options granted was $0.05 per option. Option pricing models require the input of highly subjective assumptions including the expected price volatility. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore the existing models do not necessarily provide a reliable single measure of the fair value of the Company’s stock options. | ||
d) | As at 28 February 2003 there were 1,080,000 common share warrants outstanding. The warrant activity is as follows: | |
Number | Exercise Price | Expiry Date | ||||||
Balance - 30 November 1999 | 1,100,000 | $0.15 to $0.25 | April 2000 to August 2001 | |||||
Private placement warrants issued | 991,500 | 1st year $0.225 | 1 March 2001 | |||||
2nd year $0.26 | 1 March 2002 | |||||||
Flow-through warrants issued | 497,250 | $0.30 | 31 August 2001 | |||||
Special warrants exercised | (390,000 | ) | $0.15 | 16 April 2000 | ||||
Special warrants exercised | (380,000 | ) | $0.25 | 25 August 2000 | ||||
Balance - 30 November 2000 | 1,818,750 | $0.225 to $0.30 | March 2001 to March 2002 | |||||
Private placement warrants exercised | (250,000 | ) | $0.225 | 1 March 2001 | ||||
Special warrants exercised | (320,000 | ) | $0.20 | 16 April 2001 | ||||
Special warrants expired | (10,000 | ) | $0.20 | 16 April 2001 | ||||
Private placement warrants exercised | (25,000 | ) | $0.26 | 1 March 2002 | ||||
Flow-through warrants issued | 380,500 | $0.40 | 24 May 2002 | |||||
Flow-through warrants exercised | (103,750 | ) | $0.30 | 31 August 2001 | ||||
Flow-through warrants expired | (393,500 | ) | $0.30 | 31 August 2001 | ||||
Balance - 30 November 2001 and | ||||||||
28 February 2002 | 1,097,000 | $0.26 to $0.40 | March 2002 to May 2002 | |||||
Private placement warrants expired | (716,500 | ) | $0.26 | 1 March 2002 | ||||
Flow-through warrants expired | (380,500 | ) | $0.40 | 24 May 2002 | ||||
Private placement warrants issued | 380,000 | $0.24 | 25 July 2003 | |||||
Flow-through warrants issued | 700,000 | $0.26 | 25 July 2003 | |||||
Balance - 30 November 2002 and | ||||||||
28 February 2003 | 1,080,000 | $0.24 to $0.26 | 25 July 2003 | |||||
e) | 750,000 (2001 - 750,000; 2000 - 76,978) performance shares are held in escrow to be released only with the consent of the government regulatory bodies. | |||||||
F-13
L.E.H. Ventures Ltd. (An Exploration Stage Company) Notes to Financial Statements 28 February 2003 Canadian Funds | ||
7. | Related Party Transactions | |
Related party transactions not otherwise disclosed in these financial statements are as follows: | ||
a) | The Company paid or accrued the following amounts due to directors and companies controlled by directors: | |
28 February | 28 February | 30 November | 30 November | |||||||||||
2003 | 2002 | 2002 | 2001 | |||||||||||
(Unaudited) | (Unaudited) | |||||||||||||
Office rent | $ | 1,215 | $ | 1,215 | $ | 4,861 | $ | 4,861 | ||||||
Equipment rental | $ | - | $ | - | $ | 1,275 | $ | 1,700 | ||||||
Geological consulting | $ | 4,500 | $ | 4,500 | $ | 32,675 | $ | 39,175 | ||||||
b) | The Company issued shares for cash proceeds to directors and relatives of directors as follows: | |||||||||||||
28 February 2003 | 28 February 2002 | 30 November 2002 | 30 November 2001 | ||||||||||||||
(Unaudited) | (Unaudited) | ||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||
- | $ | - | - | $ | - | 310,000 | $ | 74,400 | 697,000 | $ | 154,600 | ||||||
c) | As at 28 February 2003, accounts payable included $11,500 (2002 - $3,750) owed to companies controlled by directors of the Company. Comparative amounts for 30 November 2002 and 2001 are $11,201 and $NIL respectively. | ||||||||||||||||
8. | Income Taxes | ||||||||||||||||
a) | The Company has income tax losses carried forward of approximately $229,000 available to reduce future taxable income. The benefit of these losses has not been recognized in the accounts and expire as follows: |
Date | Amount | |||||
2003 | $ | 73,000 | ||||
2005 | 32,000 | |||||
2009 | 124,000 | |||||
$ | 229,000 | |||||
b) | The Company has approximately $2,284,000 of resource related expenditures which may be carried forward indefinitely and used to reduce prescribed taxable income in future years. The benefit of these expenditures has not been recognized in the accounts. | |||||
c) | During the year ended 30 November 2001, the Company issued flow-through shares from treasury for cash proceeds of $304,400. All amounts relating to these flow-through agreements were incurred during the year and were renounced to the related flow-through shareholders effective 31 December 2001. | |||||
During the year ended 30 November 2002, the Company issued flow-through shares from treasury for proceeds of $182,000. All amounts relating to these flow-through agreements were incurred during the year and renounced to the related flow-through shareholders effective 31 December 2002. | ||||||
F-14
L.E.H. Ventures Ltd. (An Exploration Stage Company) Notes to Financial Statements 28 February 2003 Canadian Funds | ||
9. | Differences Between Canadian and United States Generally Accepted Accounting Principles (“GAAP”) | |
These financial statements are prepared in accordance with accounting principles generally accepted in Canada. The U.S. Securities and Exchange Commission requires that financial statements of foreign companies contain a reconciliation presenting the statements on the basis of accounting principles generally accepted in the United States (“U.S.”). Any differences in accounting principles as they pertain to the accompanying financial statements are as follows: | ||
a) | Under Canadian GAAP, mineral properties are carried at cost and written off or written down if the properties are abandoned, sold or if management decides not to pursue the properties. Under U.S. GAAP, the Company would periodically review and obtain independent reports in determining adjustments to the mineral properties and record properties at net realizable value. The Company has not yet obtained an independent report, therefore, for U.S. GAAP purposes, the Company’s mineral property costs have been written off. | |
b) | Under U.S. GAAP, stock compensation expense is recorded, as shares held in escrow become eligible for release, at the market value of the shares at that time. Under Canadian GAAP, no value is attributed to such shares released and no compensation expense is recorded. | |
c) | Under U.S. GAAP, stock compensation expense is recorded for non-employees using a fair-value based method of accounting. Prior to 30 November 2002, under Canadian GAAP, the Company was not required to record the effect of non-employee stock option based compensation expense in the financial statements. Effective 1 December 2002, the Company adopted the recommendations of CICA Handbook Section 3870 per stock-based compensation (Notes 2i and 6c), which effectively requires the same method of recording stock-based compensation for non-employees as is required in the U.S. d) Under U.S. GAAP, Statement of Accounting Standard No. 109 (“SFAS 109”), if flow-through shares are sold at a premium, the premium is recorded as a liability. If flow-through shares are sold at a discount, the discount is recorded as an asset. As restricted cash is spent, the premium or discount is recognized as income or expense respectively. Under Canadian GAAP, there is no requirement to recognize the premium or discount on the issuance of flow-through shares. During the year ended 30 November 2002, the Company completed a private placement that included flow-through shares priced at $0.26 per share and non-flow-through shares priced at $0.24 per share. The Company incurred all of the related flow-through expenditures by 30 November 2002. The premium on the flow-through share issuance under U.S. GAAP is as follows: | |
Flow-through premium - 700,000 shares at $ 0.02 | $ | 14,000 | |||
Flow-through premium recognized as income in year ended 30 November 2002 | (14,000 | ) | |||
Deferred flow-through premium | $ | - | |||
F-15
L.E.H. Ventures Ltd. (An Exploration Stage Company) Notes to Financial Statements 28 February 2003 Canadian Funds | ||
9. | Differences Between Canadian and United States Generally Accepted Accounting Principles (“GAAP”) - Continued | |
e) | A reconciliation of thestatements of operations from Canadian (“Cdn”) presentation to U.S. presentation is as follows: |
Three | Three | ||||||||||||||||
Months | Months | Year | Year | Year | |||||||||||||
Ended | Ended | Ended | Ended | Ended | |||||||||||||
28 February | 28 February | 30 November | 30 November | 30 November | |||||||||||||
2003 | 2002 | 2002 | 2001 | 2000 | |||||||||||||
(Unaudited) | (Unaudited) | ||||||||||||||||
Loss - Cdn basis | $ | (14,635 | ) | $ | (13,434 | ) | $ | (128,836 | ) | $ | (189,380 | ) | $ | (147,464 | ) | ||
Flow-through premium | - | - | 14,000 | - | - | ||||||||||||
Compensation expense on stock | |||||||||||||||||
options granted to non-employees | - | - | (9,391 | ) | (27,331 | ) | - | ||||||||||
Current exploration costs | (10,139 | ) | (29,772 | ) | (264,685 | ) | (727,949 | ) | (304,250 | ) | |||||||
Current exploration abandonment | - | - | - | 18,598 | - | ||||||||||||
Loss - U.S. basis | $ | (24,774 | ) | $ | (43,206 | ) | $ | (388,912 | ) | $ | (926,062 | ) | $ | (451,714 | ) | ||
Primary loss per share - U.S. basis | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.03 | ) | $ | (0.09 | ) | $ | (0.06 | ) | ||
f) | A reconciliation of certain balance sheet accounts from Canadian presentation to U.S. presentation is as follows: | ||||||||||||||||
Deficit |
Three | Three | ||||||||||||||||
Months | Months | Year | Year | Year | |||||||||||||
Ended | Ended | Ended | Ended | Ended | |||||||||||||
28 February | 28 February | 30 November | 30 November | 30 November | |||||||||||||
2003 | 2002 | 2002 | 2001 | 2000 | |||||||||||||
(Unaudited) | (Unaudited) | ||||||||||||||||
Deficit accumulated during the | |||||||||||||||||
exploration stage - Cdn basis | $ | (2,556,697 | ) | $ | (2,426,660 | ) | $ | (2,542,062 | ) | $ | (2,413,226 | ) | $ | (2,223,846 | ) | ||
Current flow-through premium | - | - | 14,000 | - | - | ||||||||||||
Prior years’ flow-through premium | 14,000 | - | - | - | - | ||||||||||||
Prior years’ stock compensation | |||||||||||||||||
expense | (204,850 | ) | (195,459 | ) | (195,459 | ) | (168,128 | ) | (168,128 | ) | |||||||
Current stock compensation expense | - | - | (9,391 | ) | (27,331 | ) | - | ||||||||||
Current exploration costs | (10,139 | ) | (29,772 | ) | (264,685 | ) | (727,949 | ) | (304,250 | ) | |||||||
Current exploration abandonment | - | - | - | 18,598 | - | ||||||||||||
Prior years’ exploration costs, | |||||||||||||||||
net of abandonment | (1,430,208 | ) | (1,165,523 | ) | (1,165,523 | ) | (456,172 | ) | (151,922 | ) | |||||||
Deficit accumulated during the | |||||||||||||||||
exploration stage - U.S. basis | $ | (4,187,894 | ) | $ | (3,817,414 | ) | $ | (4,163,120 | ) | $ | (3,774,208 | ) | $ | (2,848,146 | ) | ||
F-16
L.E.H. Ventures Ltd. (An Exploration Stage Company) Notes to Financial Statements 28 February 2003 Canadian Funds | ||
9. | Differences Between Canadian and United States Generally Accepted Accounting Principles (“GAAP”) - Continued | |
f) | Continued | |
Mineral Property Costs |
Three | Three | ||||||||||||||||
Months | Months | Year | Year | Year | |||||||||||||
Ended | Ended | Ended | Ended | Ended | |||||||||||||
28 February | 28 February | 30 November | 30 November | 30 November | |||||||||||||
2003 | 2002 | 2002 | 2001 | 2000 | |||||||||||||
(Unaudited) | (Unaudited) | ||||||||||||||||
Mineral property costs - Cdn basis | $ | 1,440,347 | $ | 1,195,295 | $ | 1,430,208 | $ | 1,165,523 | $ | 456,172 | |||||||
Current exploration costs | (10,139 | ) | (29,772 | ) | (264,685 | ) | (727,949 | ) | (304,250 | ) | |||||||
Current exploration abandonment | - | - | - | 18,598 | - | ||||||||||||
Prior years’ exploration costs, | |||||||||||||||||
net of abandonment | (1,430,208 | ) | (1,165,523 | ) | (1,165,523 | ) | (456,172 | ) | (151,922 | ) | |||||||
Mineral property costs - U.S. basis | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||
Share Capital |
Three | Three | ||||||||||||||||
Months | Months | Year | Year | Year | |||||||||||||
Ended | Ended | Ended | Ended | Ended | |||||||||||||
28 February | 28 February | 30 November | 30 November | 30 November | |||||||||||||
2003 | 2002 | 2002 | 2001 | 2000 | |||||||||||||
(Unaudited) | (Unaudited) | ||||||||||||||||
Share capital - Cdn basis | $ | 3,903,580 | $ | 3,588,380 | $ | 3,903,580 | $ | 3,588,380 | $ | 2,896,119 | |||||||
Current flow-through premium | - | - | (14,000 | ) | - | - | |||||||||||
Prior years’ flow-through premium | (14,000 | ) | - | - | - | - | |||||||||||
Prior years’ stock compensation | |||||||||||||||||
expense | 204,850 | 195,459 | 195,459 | 168,128 | 168,128 | ||||||||||||
Current stock compensation expense | - | - | 9,391 | 27,331 | - | ||||||||||||
Share capital - U.S. basis | $ | 4,094,430 | $ | 3,783,839 | $ | 4,094,430 | $ | 3,783,839 | $ | 3,064,247 | |||||||
F-17
L.E.H. Ventures Ltd. (An Exploration Stage Company) Notes to Financial Statements 28 February 2003 Canadian Funds | ||
9. | Differences Between Canadian and United States Generally Accepted Accounting Principles (“GAAP”) - Continued | |
g) | Prior to 30 November 2002, under Canadian GAAP, the Company was not required to disclose the pro forma effect of employee stock-based compensation in the notes to the financial statements. Effective 1 December 2002, the Company adopted the recommendations of CICA Handbook Section 3870 for stock-based compensation (Note 2i and 6c), which effectively requires the same disclosure of stock-based compensation for employees as is required in the U.S. Under U.S. GAAP, Statement of Financial Accounting Standards No. 123 (SFAS 123), “Accounting for Stock-Based Compensation”, establishes financial accounting and reporting standards for stock-based employee compensation plans. The statement encourages all entities to adopt a fair value-based method of accounting, but allows an entity to continue to measure compensation cost for those plans using the intrinsic value-based method of accounting prescribed by APB Opinion No. 25, “Accounting for Stock Issued to Employees”. The disclosure-only provision of SFAS No. 123 for prior years is provided as follows: | |
Year | Year | Year | |||||||||
Ended | Ended | Ended | |||||||||
30 November | 30 November | 30 November | |||||||||
2002 | 2001 | 2000 | |||||||||
Loss - U.S. basis | $ | (388,912 | ) | $ | (926,062 | ) | $ | (451,714 | ) | ||
Pro forma loss - U.S. basis | $ | (444,263 | ) | $ | (999,229 | ) | $ | (526,445 | ) | ||
Primary loss per share - U.S. basis | $ | (0.03 | ) | $ | (0.09 | ) | $ | (0.06 | ) | ||
Pro forma primary loss per | |||||||||||
share - U.S. basis | $ | (0.04 | ) | $ | (0.10 | ) | $ | (0.07 | ) | ||
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: | |||||||||||
Year | Year | Year | ||||||
Ended | Ended | Ended | ||||||
30 November | 30 November | 30 November | ||||||
2002 | 2001 | 2000 | ||||||
Expected dividend yield | 0.00% | 0.00% | 0.00% | |||||
Expected stock price volatility | 88.74% | 86.66% | 72.94% | |||||
Risk-free interest rate | 4.56% | 5.41% | 6.17% | |||||
Expected life of options | 5 years | 5 years | 5 years | |||||
The weighted average grant-date fair value of options granted in each period was $0.10, $0.37 and $0.17, respectively. | ||||||||
F-18
L.E.H. Ventures Ltd. (An Exploration Stage Company) Notes to Financial Statements 28 February 2003 Canadian Funds | ||
10. | Subsequent Event | |
a) | During the period, the Company announced its intention to raise up to $45,000 by issuing up to 300,000 non-flow-through shares at $0.15 per share by non-brokered private placement. To 28 February 2003, the Company had received subscriptions for 100,000 shares from a director, for cash of $15,000. Subsequent to 28 February 2003, the Company closed the private placement for a total of 280,000 shares and total cash proceeds of $42,000. | |
b) | Subsequent to the period-end, the Company signed a letter of intent with an unrelated third party to earn, over two years, a 60% interest in the Baxter Spring property near Tenopah, Nevada. To earn its interest, the Company, at its option, must incur exploration expenditures of U.S. $125,000 by 15 April 2004 and total expenditures of $325,000 by 15 April 2006, and make the following payments: | |
Date | Payment in U.S. funds | ||||
Upon signing (paid) | $ | 3,500 | |||
2 May 2003 | 14,500 | ||||
15 October 2003 | 10,000 | ||||
15 April 2004 | 20,000 | ||||
15 October 2004 | 20,000 | ||||
Total | $ | 68,000 | |||
c) | Subsequent to the period-end, the Company acquired a 60-day option to purchase the Par Lake property near Thunder Bay, Ontario from an unrelated third party. The terms of the acquisition are $50,000 plus 200,000 common shares with 200,000 warrants at $0.25 per share for a two-year period. The vendor would retain a 2% net smelter return royalty. | ||||
11. | Contingent Liability | ||||
A contractor has made a claim against the Company in the amount of $36,125 for services rendered and expense reimbursements that the contractor alleges were properly charged. Management is of the opinion that the services were not rendered and is confident that it will prevail in the dispute. The outcome of this dispute and the amount of damages, if any, cannot be reasonably determined at this time. No provision for loss has been provided in these financial statements. | |||||
F-19
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign the Registration Statement.
Registrant
By: /s/ JOHN P. McGORAN
Name: John P. McGoran
Title: President/Chief Executive Officer
May 26, 2003
CERTIFICATION
I, JOHN P. McGORAN, certify that:
1 | . | I have reviewed this annual report of L.E.H. VENTURES LTD.; |
2 | . | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; |
3 | . | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; |
4 | . | The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
| ||
5 | . | The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): |
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6 | . | The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
DATE: May 26, 2003
/s/ JOHN P. McGORAN
President and Chief Executive Officer
CERTIFICATION
I, LUARD MANNING, certify that:
1 | . | I have reviewed this annual report of L.E.H. VENTURES LTD.; |
2 | . | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; |
3 | . | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; |
4 | . | The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: |
| ||
5 | . | The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): |
| ||
6 | . | The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
DATE: May 26, 2003
/s/ LUARD MANNING
Chief Financial Officer