UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20F
ANNUAL REPORT PURSUANT TO SECTION 12(g) OF THE SECURITIES
EXCHANGE ACT OF 1934 OF A FOREIGN CORPORATION
March 31, 2001
LEADER MINING INTERNATIONAL, INC.
---------------------------------
(Exact name of registrant as specified in its charter)
Commission File no 000-26447
Alberta, Canada (N/A)
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
400 Fifth Avenue, S.W., Suite 810, Calgary, Alberta T2POL6
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(Address of principal executive offices) (Zip Code)
(403) 234-7501
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Registrant's telephone number, including area code
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class to be so registered: None
Name of each exchange on which each class is to be registered: None
Securities to be registered pursuant to Section 12(g) of the Act:
Title of class
Common Unlimited Shares of Common Stock
A total of 21,234,680 shares of common stock of Registrant were issued and
outstanding as of March 31, 2001. No other classes of stock were issued and
outstanding.
Indicated by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes No X
Indicate by check mark which financial statement item the Registrant has elected
to follow: Item 17 __X__ Item 18 ______
TABLE OF CONTENTS
PART I
Page
Item 1. Description of Business......................................5
Item 2. Description of Property.....................................11
Item 3. Legal Proceedings...........................................16
Item 4. Security Ownership of Certain Beneficial Owners
and Management (Control of Registrant)......................16
Item 5. Nature of Trading Market
Market Price of and Dividends on
Registrants Common Equity and
Related Stockholder matters.................................18
Item 6. Exchange Controls and Other Limitations Affecting Security
Holders.....................................................18
Item 7. Taxation....................................................19
Item 8. Selected Financial Information..............................20
Item 9. Management Discussion and Analysis..........................22
of Financial Condition and Results of Operations
Item 10. Directors and Executive Officers ...........................28
Item 11. Compensation of Officers and Directors......................30
Item 12. Options to Purchase Securities from Registration or
Subsidiaries................................................33
Item 13. Interest of Management in Certain Transactions..............34
Item 14. Description of Securities ..................................36
Item 15. Defaults upon Senior Securities.............................36
Item 16. Changes in Securities, Changes in Security for Registered
Securities..................................................36
Item 17. Financial Statements........................................37
Item 18. Financial Statements (Not applicable) ......................37
Item 19. Financial Statements, Exhibits, and Supplementary Data...F-1 - F-24
Signatures.........................................38
GLOSSARY
INDUSTRY DEFINITIONS
Alteration Zone: an area of distinct mineralization where there is
evidence of physical or chemical change in the minerals
subsequent to their formation.
Anticipated Resources: expected to be found within a specified property,
mining camp, or other area, which is restricted by
local geologic conditions or property boundaries -
Canadian Institute of Mining, Metallurgy and Petroleum
(CIM), Ad Hoc Committee Report entitled "Mineral
Resource/Reserve Classification: Categories,
Definitions and Guidelines" - February 1996.
Base Metals: metals other then gold, silver, mercury and platinum
group.
Commercial Production: Operation of a mineral prospect or any part thereof as
a mine but does not include milling for the purpose of
testing or milling by a pilot plant.
Diamond Drilling: coring of rock by a boring machine that uses a ring
shaped bit in which chips of diamond are set to obtain
samples for observation or sampling.
Domain: A region distinctively marked by some common geological
feature.
Electro-magnetic: Geophysical prospecting technique that uses the inter-
relation of electricity and magnetism.
EM: Electro-magnetic
Geochemical Prospecting: The search for mineral deposits,
particularly metalliferous deposits, by analyzing
rocks, stream silts, springs, soils, surface water or
organisms for abnormal concentrations of elements.
Geochemistry: The study of the abundances of elements and isotopes in
the earth, and the distribution and migration of the
individual elements in the various parts of the earth
(the atmosphere, hydrosphere, crust, etc.) with the
object of discovering principles governing such
distribution and migration.
Geophysical Prospecting: Advanced prospecting based on measurement of physical
properties of rocks and minerals.
1
Geophysics: The science of the physics of the earth, including its
atmosphere and hydrosphere.
Grade: Concentration of desired metal contained within one
tonne of mineralized rock.
Hypothetical Resources: those expected to be present because of
favourable geology and known mineralization within a
general area limited by specified political,
physiographic or geologic boundaries - Canadian
Institute of Mining, Metallurgy and Petroleum (CIM), Ad
Hoc Committee Report entitled "Mineral Resource/Reserve
Classification: Categories, Definitions and Guidelines
- February 1996.
Indicated Resource: the estimated quantity and grade of part of a deposit
for which the continuity of grade, together with the
extent and shape, are so well established that a
reliable grade and tonnage estimate can be made.
Fundamental to the indicated resource class is well
established geological information on the continuity of
the mineralized zones - Canadian Institute of Mining,
Metallurgy and Petroleum (CIM), Ad Hoc Committee Report
entitled "Mineral Resource/Reserve Classification:
Categories, Definitions and Guidelines" - February
1996.
Inferred Resource: the estimated quantity and grade of a deposit, or a
part thereof, that is determined on the basis of
limited sampling, but for which there is sufficient
geological information and a reasonable understanding
of the continuity and distribution of metal values to
outline a deposit of potential economic merit -
Canadian Institute of Mining, Metallurgy and Petroleum
(CIM), Ad Hoc Committee Report entitled "Mineral
Resource/Reserve Classification: Categories,
Definitions and Guidelines" - February 1996.
Measured Resource: the estimated quantity and grade of that part of a
deposit for which the size, configuration, and grade
have been very well established by observation and
sampling of outcrops, drill holes, trenches and mine
workings. - Canadian Institute of Mining, Metallurgy
and Petroleum (CIM), Ad Hoc Committee Report entitled
"Mineral Resource/Reserve Classification: Categories,
Definitions and Guidelines" - February 1996.
Mineral: A naturally occurring inorganic element or compound
with a characteristic external structure as a result of
a fixed internal arrangement of atoms or ions.
Mineral Deposit: a body of rock containing metals or minerals of
commercial interest which has been by a sufficient
number of drill holes tested to support sufficient
tonnage and average grade of metal(s) to warrant
further exploration. This deposit does not qualify as a
commercially minable ore body, until a comprehensive
2
economic, feasibility study based upon the test results
is concluded.
Mineral Prospect: A mineral occurrence that has some potential of being
of mineable size and mineral content.
Mineral Resource: a deposit or concentration of natural, solid, inorganic
or fossilized organic substance in such quantity and at
such a grade or quality that extraction of the material
at a profit is currently or potentially possible -
Canadian Institute of Mining, Metallurgy and Petroleum
(CIM), Ad Hoc Committee Report entitled "Mineral
Resource/Reserve Classification: Categories,
Definitions and Guidelines" - February 1996.
Net Smelter Royalty: the right to an amount equal to a
percentage of the gross sales proceeds received from
the sale of minerals obtained from a property less the
smelting costs and the costs of handling, transporting
and insuring the production from the mine to a
treatment facility.
Operator: Party responsible for performing the activities
necessary or desirable to explore, develop, or perform
work on a property or any part thereof on behalf of
another party.
Ore: a natural aggregate of one or more minerals which, at a
specified time and place, may be mined and sold at a
profit, or from which some part may be profitably
separated.
Pegmatite: Coarsely crystalline rock of plutonic or replacement
origin, generally forming dykes, sills, or small
irregular masses.
Precious Metals: Gold and silver only
Prospecting: Searching and examining outcrops, soil, and gravel for
indications of valuable minerals.
Strata-bound deposit: A concordant or transcurrent mineral deposit
occurring in stratified sedimentary, volcanic, or
metamorphic rocks, not necessarily formed at he same
time as the strata.
Sulphide: A compound of sulphur with another element.
Tonne: a unit of weight measurement equal to 2204 pounds.
Volcanics: Rock that solidified or crystallized at surface from
hot, molten, or partly molten mass or magma.
3
Volcanogenic Massive
Sulphide Deposit: Concordant, strata-bound sulphide deposit commonly
associated with volcanic rocks or volcanic and
sedimentary rock sequences.
VMS: Volcanogenic massive sulphide
4
PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) The Company
Leader Mining International Inc. ("Leader," "Company," or "Registrant") was
incorporated on June 22, 1987 as Durga Resources Ltd. ("Durga"), under the
Business Companys Act (Alberta). By a Certificate of Amalgamation dated March
31, 1993 Durga amalgamated with Durvada Resources Ltd. and resulted in new Durga
Resources Ltd. By a Certificate of Amendment dated September 24, 1993, Durga
changed its name to Leader Mining Company ("LMC"). By a Certificate of Amendment
dated July 18, 1994. It consolidated its shares (reverse split) in 1994 by one
for five shares. LMC changed its name to the Leader Mining International Inc.
The Registrant was listed on the Alberta Stock Exchange on December 18, 1987.
Leader is extraprovincially registered in the Province of Saskatchewan by a
Certificate of Registration dated November 21, 1996, under The Business
Corporations Act (Saskatchewan) and in the Province of Manitoba by a Certificate
of Registration dated November 20, 1996, under The Business Corporations Act
(Manitoba).
The registered office of the Company in Alberta is at 400 Fifth Avenue, S.W.,
Suite 810, Calgary, Alberta, T2P 0L6. The head office and records office of the
Corporation is at 810, 400-5th Avenue S. W., Calgary, Alberta, T2P 0L6.
The Company is a reporting company in the Province of British Columbia and in
the Province of Alberta. The Corporation's shares are listed and posted for
trading on the Canadian Venture Exchange (CDNX) under the symbol "LMN" and
quoted on the NASD under the symbol "LDRMF."
The Company was formed by Mr. Yashvir (Jasi) Nikhanj, the current President and
a director, to pursue the principal business of exploring for gold, silver and
base metal deposits. There is no assurance that a commercially viable mineral
deposit or reserve exists on any of its property until further exploration is
done and a comprehensive engineering feasibility evaluation based on such work
is performed which concludes economic and legal viability.
From 1987 to 1999, the Company was engaged in mineral exploration for gold,
copper, zinc and diamonds in the Northwest Territories and Saskatchewan, Canada.
The Company was also exploring for gold in the state of Nevada. The Company had
minimal capitalization during such period, and its activities were very limited.
The Company's strategy with respect to its mineral exploration related
activities is to identify geological areas in which the Company may invest or
participate in non-producing or producing mineral prospects or joint ventures,
and where the company may acquire mineral prospects for exploration through
staking claims.
5
During the last five (5) fiscal years, the Company conducted exploration
activities on certain mineral prospects as follows:
Similco Mines Ltd.; British Columbia, Canada, 2000. Approximately $185,000
expended for property acquisition, due diligence, and geologic and engineering
studies to examine the potential for re-opening the past producing mine and
mineral processing facilities. The acquisition and further development work have
been postponed pending improved markets.
KARMEL, ORANGE FREE STATE, REPUBLIC OF SOUTH AFRICA, 1999. Approximately
$185,000 was expended for land acquisition, airborne geophysic survey and ground
follow-up to explore prospective diamond bearing kimberlite targets. Prospecting
permits could not be obtained and this prospect has been abandoned and expenses
written off.
Voisey's Bay; Labrador, Canada, 1998. Approximately $55,000 expended for land
acquisition and prospecting and ground geophysics to explore for prospective
nickel deposits. No further work is planned.
Ariel Resources Ltd.; Costa Rica, 1998. Approximately $250,000 expended to
perform due diligence and technical feasibility studies to ascertain the
viability of corporate merger. No further work is planned.
Nighthawk Lake; Ontario, Canada, 1996-1998. Approximately $275,000 expended for
land acquisition and prospecting; ground geophysics; and diamond drilling to
test prospective gold targets. No further work is planned.
Bristol; Ontario, Canada, 1996-1997. Approximately $125,000 expended for land
acquisition and prospecting; ground geophysics; and diamond drilling to test
prospective gold targets. No further work is planned.
Steephill Lake; Saskatchewan Canada, 1997. Approximately $300,000 expended for
land acquisition and prospecting; airborne geophysics; and diamond drilling to
test prospective base metal targets. No further work is planned.
The Company hires third-party companies to conduct drilling, testing, and to
provide services and evaluation on a negotiated contract basis, except that a
company, Nikhanj and Associates Geo Consulting, owned by the Company's President
and largest shareholder, Y.S. (Jasi) Nikjanj provides management, geological,
and exploration consulting services to the Company for $10,000 per month.
The Company is not carrying any reserve values on any prospects due to the lack
of any quantifiable reserves. The Company has not earned any revenue from
operations to date, and it continues to be an exploration stage company.
(b) Current Business
The focus of the Company is to actively pursue mineral exploration to find and
outline mineral deposits in under-explored terrain within jurisdictions that are
politically stable. The Company currently has one major prospect, which is the
Knife Lake Project (located in Saskatchewan, Canada). The property is comprised
of a mining lease and 55 mineral claims; of which the Company owns 100% interest
in the mining lease and 44 mineral claims, and can earn up to 90% interest in an
additional 11 mineral claims.
As of December 31, 1998, the Company has spent $7.3 million (Canadian) exploring
for base and precious metals within the Scimitar Complex of northeastern
6
Saskatchewan and outline the Knife Lake copper deposit. Over the next three
years expenditure of an additional $3.3 million (Canadian) is anticipated for
geological reconnaissance ground geophysics, drilling, and preliminary
engineering studies.
The Company is always searching for high quality exploration opportunities,
which can be acquired at low cost. Identification of targets of opportunity
represent the Company's focus for growth, and annual expenditures of $0.25
million (Canadian) are anticipated for examination, acquisition, and initial
testing of new projects.
Corporate overhead is held to a minimum. Expenditure for office rent, office
supplies, travel, and administration are expected to continue at the current
level of $0.7 million (Canadian) per year.
A summary of the Company's proposed expenditures is presented below:
CORPORATE EXPLORATION BUDGET
($Canadian x 1000)
--------------------------------------------------------------------------------
Fiscal year, March 31 2002 2003 2004 2005 Total
--------------------------------------------------------------------------------
Knife Lake Project 1,000 1,000 1,000 1,000 4,000
--------------------------------------------------------------------------------
Opportunity Targets 300 300 300 300 1,200
--------------------------------------------------------------------------------
Overhead and Administration 700 700 700 700 2,800
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Grand Total (CAN $) 2,000 2,000 2,000 2,000 8,000
--------------------------------------------------------------------------------
The Company intends to finance its proposed expenditures by selling up to 50%
interest in the Knife Lake Project to the Korea Resources Corporation for $5.2
million. Additional cash requirements will be met via private placements of the
Company's common shares to sophisticated investors, under market conditions
prevailing at that time. Failure to obtain sufficient funding in a timely manner
could result in delay or indefinite postponement of further exploration work of
the Company's prospects with the possible loss of exploration or exploitation
permits.
The Company's current business plan is in mineral exploration including foreign
mineral joint ventures, in Canada and South/Central America. The Company has
determined that it must build an asset base through exploration; and acquisition
by exchange of stock for other mineral companies, leases, and mineral prospects
for exploration if the opportunity arises. The Company believes that debt will
rarely be desirable to acquire any mineral prospect or company. The Company may
acquire other assets by exchange of stock or cash.
The Company has not established, and does not intend to formally establish,
criteria for the selection or evaluation of mineral prospects or participations.
When a mineral prospect is located which in management's opinion, shows
favorable data to the Company, an attempt will be made to secure an option, or
lease, for the prospects. Shareholder approval will not be sought for mineral
prospect acquisitions. Therefore, shareholders will be dependent upon the
judgment of management in selecting mineral prospects (see "Management"). If
such an interest is acquired, the Company will then expend funds for preliminary
7
exploration and if warranted test sample the mineral prospect to determine
whether any mineral deposit could qualify as a resource. Based on the results of
such preliminary testing, the Company will decide, without shareholder approval,
whether to acquire or abandon the mineral prospect. A mineral prospect or
interest may be acquired by outright purchase; by earning an interest through
participation with other companies; or by exchange of the shares for leases or
interests in mineral prospects.
The Company may expend funds to explore or test any mineral prospects it
acquires to determine the economic feasibility, if any, of such mineral
prospects. If, and only if, a mineral deposit appears to have been located will
further funds be expended to delineate the deposit. If a deposit is delineated,
then a feasibility analysis will be conducted to determine if a development
attempt is warranted. The Company will rely on its own management and outside
consultants engaged for specific work on a limited basis, mineral prospect by
mineral prospect, to provide competent evaluation and recommendations concerning
mineral prospects or interests in mineral prospects to be considered for
acquisition or exploration. The Company has agreements with several third party
companies for providing specific limited services related to mineral prospects,
such as mapping, geochemical, sampling, or drilling. Based upon the results of
such exploration and tests, as interpreted by management, the Company will then
determine whether such mineral prospects should be acquired, explored further,
sold or leased to a third party, held for possible later development or
abandoned; and whether these activities should be attempted by the Company
either by itself or through joint venture or other business arrangements with
other companies or entities.
The Company may agree to assign rights in certain mineral prospects to be
explored to the general or managing partner of a partnership or joint venture,
which thereby becomes the owner of the working interest in the mineral prospect.
The Company may also agree to supervise and manage all activities on the
prospect and to obtain, through subcontractors, all necessary related services
and equipment. The Company actively reviews mineral prospects for putting
together exploration joint ventures.
Parents and Subsidiaries
Parent LEADER MINING INTERNATIONAL, INC.
Subsidiaries None.
The Company's principal areas of exploration are described herein below under
"Description of Properties."
RISK FACTORS
"Penny Stock" Rule
Leader Mining's common stock is covered by a Securities and Exchange Commission
rule that imposes additional sales practice requirements on broker-dealers who
sell these securities to persons other than established customers and accredited
investors, generally institutions with assets in excess of $5,000,000 or
individuals with net worth in excess of $1,000,000 or annual income exceeding
8
$200,000 or $300,000 jointly with their spouse. For transactions covered by the
rule, the broker-dealer must make a special suitability determination for the
purchaser and transaction prior to the sale. Consequently, the rule may affect
the ability of broker-dealers to sell our securities and also may affect the
ability of purchasers of our stock to sell their shares in the secondary market.
It may also cause less broker-dealers willing to make a market and it may affect
the level of news coverage received by the Company.
Risks of Exploration
Resource exploration is a speculative business and involves a high degree of
risk. The marketability of natural resources which may be acquired or discovered
by the Company will be affected by numerous factors beyond its control. These
factors include commodity price and currency volatility, the proximity and
capacity of natural resource markets and processing equipment, and government
regulations and changes thereto, including regulations relating to prices,
taxes, royalties, land tenure, importing and exporting of minerals and
environmental protection. In addition, few mineral exploration properties become
commercially viable mines, nor can there be any assurances that exploration work
carried out by the Company will be successful. The exact effect of these factors
cannot be accurately predicted, but the combination of these factors may result
in the Company not receiving an adequate return on invested capital.
Resource Estimates
In carrying on its mineral exploration activities, the Company may rely upon
calculations as to prospective resources and corresponding grades on the
Company's prospects which, by their nature, are not exact. Until ore is actually
mined and processed, ore resources and ore grades must be considered as
estimates only. The quantity of resources will also vary depending on mineral
prices which have historically been highly cyclical and dependent upon numerous
factors beyond the Company's control including changes in investment trends and
international monetary systems, political events and changes in the supply and
demand for minerals on public and private markets. Any material changes in
reserves, grades or stripping ratios will affect the economic feasibility of any
mineral prospects which might be developed. Further, short term operating
factors relating to the mineral prospect must be analyzed, such as fule prices,
water availability, climate/weather conditions, location in relation to labor
forces and transportation facilities.
Fluctuation of Mineral Prices
The Company's exploration activities will be subject to the normal commodity
risks that are subject to fluctuations in mineral prices, in particular the
market price of the mineral to be sought. The price of minerals has fluctuated
widely in recent years and is affected by numerous factors beyond the Company's
control including international economic and political trends, expectations of
inflation, interest rates, global or regional consumptive patterns, speculative
activities and increased production due to new mine developments and improved
mining and production methods. The effect of these factors on the price of
minerals cannot be accurately predicted.
Competition
The Company competes with major mining companies and other smaller natural
resources companies in the acquisition, exploration, financing and development
of new properties and projects. Some of these companies are more experienced,
larger and better capitalised than the Company. The Company's competitive
position will depend upon its ability to successfully and economically explore
acquire new and existing mineral resource properties or projects. Factors which
9
allow producers to remain competitive in the market over the long term are the
quality and size of the mineral deposit, if any, cost of production, and
proximity to market. Because of the number of companies and variables involved,
no individual or group of producers can be pointed to as being in direct
competition with the Company.
Capitalization and Commercial Viability
The Company has limited financial resources and there is no assurance that
additional funding would be available to the Company for further exploration of
its properties or to fulfill its obligations under any applicable agreements.
Although the Company has been successful in the past in obtaining financing
through the sale of equity securities, there can be no assurance that the
Company will be able to obtain adequate financing in the future or that the
terms of such financing will be favourable. Failure to obtain such additional
financing could result in delay or indefinite postponement of further
exploration of the Company's prospects with the possible loss of exploration or
exploitation permits.
The commercial viability of a particular mineral prospect will be affected by
factors that are beyond the Company's control, including the particular
attributes of the deposit, the fluctuation in mineral prices, the costs of
constructing and operating a mine, processing facilities, the availability of
economic sources of energy, government regulations including regulations
relating to prices, royalties, restrictions on production, quotas on exportation
of minerals, as well as the costs of protection of the environment and
agricultural lands.
It is impossible to assess with certainty the impact of these factors.
Uninsurable Risks
Exploration generally involve a high degree of risk. Hazards such as unusual or
unexpected formations, power outages, labour disruptions, flooding, explosions,
cave-ins, landslides, inability to obtain suitable or adequate machinery
equipment or labour and other risks are involved. The Company may become subject
to liability for pollution, cave-ins or hazards against which it cannot insure
or against which it may elect not to insure. The payment of such liabilities may
have a material, adverse effect on the Company's financial position.
Compliance with Governmental Regulations
The Company's exploration activities are subject to natural resource, health,
labour and environmental regulations, changes in which could result in
additional expenses and capital expenditures, availability of capital,
competition, resource uncertainty, potential conflicts of interest, title risks,
dilution and restrictions and delays in operations, the extent of which cannot
be predicted.
Currency
All transactions are in Canadian dollars. The company converts any other
currency used in a transaction into Canadian dollars as required to conduct
local activities. Accordingly, the company maybe subject to foreign currency
fluctuations, and such fluctuations may materially affect the Company's
financial position.
10
Location of Mineral Prospects
There are certain political and economic risks inherent in the fact the Company
carries on business in foreign jurisdictions. These include the risk of foreign
currency restrictions and currency fluctuations as well as the risk of
governmental intervention by way of expropriation of the Company's properties or
nationalization of the mining industry. While the Company pursue opportunities
in stable political climates in there is a risk that political instability could
adversely affect the Company's operations.
Conflicts of Interest
None of the directors and officers of the Company are also directors, officers,
and shareholders of other companies engaged in mineral exploration and
development. However, Manish Bindal is also a director of Canex Energy, Inc. and
Aspen Energy Corp., both of them are oil and gas exploration companies.
ITEM 2: DESCRIPTION OF PROPERTIES
The Company owns no properties. It has mineral prospects which consist of mining
claims or contractual exploration agreements which may be evolved to development
if the Company so decides. It holds such contracts in the name of Leader Mining
INternational, Inc. For all purposes in this description, Registrant is referred
to as "Leader."
Knife Lake Prospect, Saskatchewan, Canada
Location and History
The Knife Lake Prospect is located in northeastern Saskatchewan close to the
Manitoba border. Knife Lake itself is located in the southeastern portion of the
project area at latitude 55 degrees 54' N and longitude 102 degrees 43' W. The
project is operated from a well-equipped bush camp on Knife Lake, 136-km
north-northwest of Flin Flon, Manitoba (approximate population 7,600) and 180 km
northeast of La Ronge, Saskatchewan. The property, whose NTS reference is
63-M-15E, can be found on the Gilbert Lake, 63M15 claim map, available from
Saskatchewan Energy, Mines and Resources in Regina.
Leader is the operator in all the option agreements covering all claims in the
project area. It is currently proceeding with, or making preparations for,
exploration it has planned or is required to do under the option agreements. All
the field exploration, on all mineral lands in which Leader has, or is earning,
an interest and which are described in this summary is carried out for Leader by
its own field staff or contractors directly under its control.
The Knife Lake prospect, optioned by Leader from CopperQuest, Inc. in March,
1996, initially consisted of mining lease ML 5269. It is 648 ha in size and
covers the known copper showing and soil geochemistry anomaly as well as the
projected extensions. During 1996 and 1997, additional claims were staked by the
Company.
In 1997, the Company fulfilled all of the earn-in requirements and acquired 100%
interest in the mining lease and staked claims. CopperQuest Inc. retains a 2%
net smelter royalty; which becomes payable if and when commercial production
11
occurs from the aforesaid claims. Leader has the right to purchase one half of
this net smelter royalty at any time for $1,000,000.
In 1997, the Company optioned eleven claims from Consolidated Pine Channel Gold
Corp. The terms of the agreement were amended in 1999 so that Leader can earn a
90% interest in these claims by spending $500,000 over 6 years; and paying
$1,000,000 in cash and 10,000 common shares of Leader.
Consolidated Pine Channel Gold Corp. retains a 2% net smelter royalty which
becomes payable if and when commercial production occurs from these eleven
claims. Leader has the right to purchase one half of this net smelter royalty at
any time for $2,000,000.00.
All transactions involving Leader, CopperQuest Inc., and Consolidated Pine
Channel Gold Corp. have been arms-length.
On November 10, 1999 Leader entered into a joint venture agreement with Kores
Canada Corp. a wholly owned subsidiary of the Korea Resources Corporation, to
further explore the Knife Lake Project. Under the terms of the agreement Kores
Canada Corp. has the right to earn up to 50% interest by funding $4,000,000
exploration work over 4 years, and making cash payments to Leader totaling
$1,200,000. Leader will act as operator for the joint venture, and Leader will
receive an additional $300,000 bonus payment upon the start of commercial
production.
As amended on November 28, 2000, to earn the Interest set forth below, Kores
must make the following payments to Leader on or before the dates indicated and
fund the following Expenditures by the dates indicated:
Cumulative Interest
Payment Date Payment Expenditures by Date Amount Spent Earned
-------------- ------- -------------------- ------------ --------
Effective Date $300,000 $1,000,000 on or before $1,300,000 20.00%
1st Anniversary Date
1st Anniversary Date $100,000 $330,000 on or before $1,730,000 24.96%
2nd Anniversary Date
2nd Anniversary Date $200,000 $670,000 on or before $2,600,000 33.33%
3rd Anniversary Date
3rd Anniversary Date $300,000 $1,000,000 on or before $3,900,000 42.86%
4th Anniversary Date
4th Anniversary Date $300,000 $1,000,000 on or before $5,200,000 50.00%
5th Anniversary Date
The Expenditures will be funded according to Cash Calls received by Kores and
are cumulative such that any excess of Expenditures in one period will be
12
carried over into the next period. Any payment or Expenditures may be
accelerated at the option of Kores.
For greater certainty:
(a) upon the date that Kores has made payments and funded Expenditures
in a cumulative amount and on time as set forth in the table above,
Kores will be vested with the interest specified for such amount; and
(b) for the maximum Interest of 50%, Kores must make payments to Leader
totalling $1,200,000 on or before the 3rd anniversary Date and fund
Expenditures totalling $4,000,000 on or before the 4th Anniversary Date.
The Effective Date of the Joint Venture between the Company and KORES is
December 22, 1999. As of June 30, 2001; KORES has made the $400,000 cash payment
to Leader and incurred $1,330,000 in exploration expenditures.
Termination During First Year
If Kores fails to make the payment required on the Effective Date, then this
Agreement will terminate on the Effective Date. If Kores fails to fund the
Expenditures required by the first Anniversary Date, then this Agreement will
terminate on the first Anniversary Date. Upon such termination, Kores will have
no Interest nor any right to acquire an Interest, and neither party will have
any further obligation or liability hereunder except as may have arisen prior to
such termination.
Leader Mining developed a land position in the area, conducted numerous
geophysical surveys and collected extensive geological data. The data sets
consist of two airborne surveys, a regional gravity survey, extensive drilling
and mapping with accompanying lithogeochemical sampling. To further evaluate the
area, it was necessary to synthesize Leader's geophysical data and known geology
with the aim to identify areas on the property with the highest potential to
host various Volcanogenic Massive Sulphide (VMS) style sulphide deposits.
At Knife Lake, Leader now possesses or controls 108 mining claims and 1 mining
lease with a total land area of approximately 85,113 hectares. The claims are
held directly by Leader and other companies, which have optioned the mineral
prospects to Leader.
Mineral exploration and production in the Flin Flon Mining area has been active
for 80 years. Only recently has new geological modeling recognized that the
favorable Amisk Volcanics extend to the north from the Flin Flon Domain and
includes the former Hanson, Glennie, Scimitar and Kissenew Domains. These
domains have been explored intermittently by Hudson Bay Mining, Noranda, and
Cominco. With the current geological understanding, these domains are highly
prospective for VMS style mineralization. Leader's Knife Lake Volcanogenic
Massive Sulphide Deposit conforms well within the context of the newly defined
model for the Flin Flon-Glennie Domain. Recent government mapping has shown the
Knife Lake property to lie within the newly recognized Flin Flon-Glennie Domain,
which hosts the Flin Flon/Snow Lake VMS deposits.
The claims have received little mineral exploration and have no production
history, but appear to be an extension of the volcanic terrain which hosts the
base metal mineralization of the Flin Flon mining area. The Amisk Volcanics in
Flin Flon are host to Volcanogenic Massive Sulphide style, base metal
mineralization.
13
Since 1968, prospecting and mapping in the area of Knife Lake and Scimitar Lake
has resulted in the discovery of several copper occurrences. The largest of
these occurrences is the Knife Lake copper-gold deposit. The mineralization is
located on the west side of the Knife Lake, less than 100 metres west of the
shoreline, in the southern portion of Leader's property.
Infrastructure on the Knife Lake property is limited to the bush camp and winter
road access. Water for mineral processing and other needs is available in
abundance in the project area. The Island Falls hydroelectric power generating
station is located on the Churchill River at Sandy Bay. This station was
constructed to provide power to the town of Flin Flon. However, in the mid
1990's, the Government of Saskatchewan constructed a new high-tension power line
to deliver the power to the uranium mines of the Athabasca Basin in northern
Saskatchewan and all of the station's power output is now devoted to this
purpose. The transmission line comes within 20km of the southwestern corner of
the Knife Lake property.
While the Sandy Bay-Flin Flon area has been explored for base and precious
metals at various times over the past 80 years, the earliest records of work in
the immediate area of Knife Lake are dated October 1968. From 1968, through
1972, Straus Exploration conducted extensive exploration work, consisting of
horizontal loop, vertical loop and Turam EM ground geophysical surveys, ground
magnetometer surveys, geochemical soil sampling, geological mapping, trenching,
sampling and diamond drilling, over a copper-gold showing on the western shore
of Knife Lake. Approximately 4.7 square km of grid was geologically mapped at a
scale of 1:6,000 over the copper prospect area. A slightly smaller area was
covered by geochemical and geophysical surveys. D.E. Pearson, as part of his
1971 mapping project, mapped in detail a portion of the grid on a scale of
1:7,200. A diamond drill program consisting of 87 holes (2 Winkie and 85 XT
sized core), totaling approximately 8,484m, was completed. As a result of the
exploration work, a mining lease was taken out, covering the copper showing and
surrounding geochemical anomaly.
Hudson Bay Exploration and Development, the wholly-owned exploration division of
Hudson Bay Mining and Smelting, conducted a regional airborne EM survey in 1980
and 1982. During 1989 and 1990 Cominco performed line cutting, geological and
geochemical surveys, on property approximately 2 km north of Knife Lake. Results
of these programs are not available.
The Knife Lake copper showing remained inactive until early 1989 when
CopperQuest was formed. CopperQuest commissioned Standing Geophysics Ltd.
(Standing) to re-establish Staus' grid over the copper prospect and to conduct
horizontal-loop EM and magnetometer surveys. Standing Geophysics completed 77.6
line-km of magnetic surveying and 101 line-km of EM surveying in February 1989.
In completing the EM surveying, Standing used different cable lengths (coil
separations) over the copper prospect in an attempt to locate areas where the
copper mineralization may have been thickened due to folding. Three such areas
were located and recommended for diamond drilling. In addition, three other
conductive zones were identified outside of the immediate copper prospect area.
A total of 1,829m of drilling in 24 holes was recommended but never carried out.
In March 1996, Leader Mining acquired the mining leases, after entering into an
agreement with CopperQuest. Leader has access to the CopperQuest, and most of
the Straus, exploration data. A summary of Leader's expenditures on the prospect
is presented below:
14
----------------------------------------------------------------------------------------------------------------------
Summary of Exploration Expenditures (June 1996 to December 1998)
----------------------------------------------------------------------------------------------------------------------
Prospecting and 1,172 man days $342,600
Geological Mapping
----------------------------------------------------------------------------------------------------------------------
Line Cutting 313 line km $119,400
----------------------------------------------------------------------------------------------------------------------
Geophysics Airborne 12,689 line km $753,700
----------------------------------------------------------------------------------------------------------------------
Ground 427 line km $243,300
----------------------------------------------------------------------------------------------------------------------
Geochem Soil 2,374 $23,300
----------------------------------------------------------------------------------------------------------------------
Assay 8597 (588 whole rock) $164,200
----------------------------------------------------------------------------------------------------------------------
Trenching 180m3 $48,400
----------------------------------------------------------------------------------------------------------------------
Drilling 30,866 m $2,960,500
----------------------------------------------------------------------------------------------------------------------
Other (staking, logistics, $2,656,200
transportation)
----------------------------------------------------------------------------------------------------------------------
TOTAL = $7,311,000
----------------------------------------------------------------------------------------------------------------------
The Knife Lake Deposit is interpreted by the Company to be a remobilized
fraction of a larger primary VMS deposit. It is hosted within an altered
pegmatite, high in Na, K, Sr, and Ba which geochemistry has shown is derived
15
from alkali rich sedimentary rocks. To date, a total of 26,397 metres of diamond
drilling among 308 drill holes have been completed on the Knife Lake Deposit and
a digital geological model has been constructed. The mineralization is outlined
over a distance of 4,300 metres and to a depth of 100 metres. Internal
Geological modeling has generated sufficient indications to cause the Company to
continue exploration work.
GEOLOGICAL DESCRIPTION
Volcanogenic massive sulphide deposits occur in geological terraces that are
dominated by volcanic rocks. Individual deposits may be hosted by volcanic or
sedimentary strata which compromise the volcanic complex. These deposits are
formed as sygentic accumulations of sulphide and sulphate minerals deposited
from fluids exiting hydrothermal vents at or near the sea floor. Copper,
typically present as chalcopyrite, and zinc, typically present as sphalerite
constitute the primary economic constituents; and gold and silver can contribute
by-product values.
ITEM 3. LEGAL PROCEEDINGS
The Company is currently involved in only one contractual dispute, involving
legal proceedings, with a private Saskatchewan company, and the outcome of such
proceeding, if adverse to the Company, would not be material.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (CONTROL
OF REGISTRANT)
(a) Beneficial owners of five percent (5) or greater, of the
Registrant's Common Stock and Warrants: No Preferred Stock is outstanding at the
date of this offering. The following sets forth information with respect to
ownership by holders of more than five percent (5%) of the Company's Common
Stock known by the Company based upon 19,984,680 shares outstanding at March 31,
2001.
------------------------------------------------------------------------------------------------------------------------
Title of Class Name Beneficial of Owner Amount and Nature of Beneficial Percent of Class
Ownership
------------------------------------------------------------------------------------------------------------------------
Common Stock Y.S. Jasi Nikhanj 2,182,000 Shares (1)(2) 8.1%
320 Pumphill Cr. S.W. Calgary,
Alta T2V 4M1
------------------------------------------------------------------------------------------------------------------------
(1) Includes 685,000 shares owned by spouse, Aski Nikhanj.
(2) Includes 655,000 share option includable under Sec. 13d.
b) The following sets forth information with respect to the Company's
Common Stock beneficially owned by each Officer and Director,
16
------------------------------------------------------------------------------------------------------------------------
Title of Class Name Beneficial of Owner Amount and Nature of Beneficial Percent of Class
Ownership
------------------------------------------------------------------------------------------------------------------------
Common Y.S. Jasi Nikhanj (1) Pres/Director 2,182,000 shares (1)(5) 11.0%
------------------------------------------------------------------------------------------------------------------------
Common Kurt Marty Director 500,000 shares 2.5%
------------------------------------------------------------------------------------------------------------------------
Common Manish Bindal Secretary/Director 200,000 shares (2)(5) 1.0%
------------------------------------------------------------------------------------------------------------------------
Common Roland Kesselring V.P. 600,000 shares (3)(5) 3.0%
------------------------------------------------------------------------------------------------------------------------
Common Raymond Lai V.P. 420,000 shares (4)(5) 2.1%
------------------------------------------------------------------------------------------------------------------------
Total amount owned by officers and directors as a group.
------------------------------------------------------------------------------------------------------------------------
Title of Class Name Beneficial of Owners Amount and Nature of Beneficial Percent of Class
Ownership
------------------------------------------------------------------------------------------------------------------------
Common Directors 2,882,000 shares (5) 14.4%
------------------------------------------------------------------------------------------------------------------------
Common Officers 1,020,000 shares (5) 5.1%
------------------------------------------------------------------------------------------------------------------------
Common Combined 3,902,000 shares (5) 19.5%
------------------------------------------------------------------------------------------------------------------------
(1) Includes 685,000 shares owned by spouse, Aski Nikhanj.
(2) Includes 25,000 shares owned by spouse Sehra Bindal.
(4) Includes 146,000 shares owned by spouse, Amanda Lai.
(5) Includes option shares includable under Section 13d.
17
ITEM 5. (a) MARKET PRICE OF AND DIVIDENDS ON REGISTRANTS COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's common stock is listed and traded on the Alberta Stock Exchange
and is quoted on OTCBB. The following table sets forth high and low closing
prices of the Company's common stock for the three (3) years ended March 31,
2001, 2000, 1999, and 1998 on the Alberta Stock Exchange as follows:
Closing
(Canadian $)
High Low
2001 First Quarter 1.12 0.73
Second Quarter 1.00 0.73
Third Quarter 0.99 0.46
Fourth Quarter 0.97 0.40
2000
First Quarter 2.00 0.85
Second Quarter 1.00 0.65
Third Quarter 1.58 0.80
Fourth Quarter 1.84 0.91
1999
First Quarter 1.19 0.50
Second Quarter 1.05 0.65
Third Quarter 0.89 0.57
Fourth Quarter 1.60 0.75
1998
First Quarter 5.10 3.40
Second Quarter 4.00 2.95
Third Quarter 3.15 0.54
Fourth Quarter 0.85 0.30
(b) As of April 30, 2001, the Company had an estimated 500 shareholders of
record of the common stock, including those held in brokerage accounts in
"street name."
(c) No dividends on outstanding common stock have been paid within the last two
fiscal years, and interim periods. The Company does not anticipate or intend
upon paying dividends for the foreseeable future.
The Company estimates that 5% of the shareholders of the Company are U.S.
shareholders.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There are currently no limitations imposed by Canadian federal or provincial
laws on the rights of non-resident or foreign owners of Canadian securities to
hold or vote the securities held. There are also no such limitations imposed by
the Company's articles and bylaws with respect to the common shares of the
Company.
Under the Investment Canada Act, the acquisition of certain "businesses" by
"non-Canadians" or "Americans" are subject to review by Investment Canada, a
federal agency, and will not be allowed unless they are found likely to be of
"net benefit" to Canada. An acquisition will be reviewable by Investment Canada
18
only if the value of the assets of the Canadian business being acquired is CDN
$5 million or more in the case of a "direct" acquisition or CDN $50 million or
more in the case of an "indirect" acquisition. Under the Free Trade Agreement
between Canada and the United States, an acquisition by an American is
reviewable only if it involves the direct acquisition of a Canadian business
with assets of CDN $160 million or more. If the foregoing thresholds are not
reached, the acquisition of a Canadian business by a non-Canadian will not be
subject to review unless it relates to Canada's cultural heritage or national
identity. Even if the transaction is not reviewable, a non-Canadian must still
give notice to Investment Canada of the acquisition of a Canadian business
within 30 days after its completion.
ITEM 7. TAXATION
Canadian Federal Income Tax Consequences for Canadian Shareholders
The following summarizes the material Canadian federal income tax consequences
applicable to the holding and disposition of a common share by a holder (the
"Holder") of one or more common shares who is resident in the United States of
America and holds the common share as capital property. This summary is based on
the current provisions of the Income Tax Act (Canada) (the "Tax Act"), the
regulations thereunder and all amendments to the Tax Act publicly proposed by
the government of Canada to the date hereof. It is assumed that each such
amendment will be enacted as proposed and there is no other relevant change in
any governing law, although no assurance can be given in these respects.
Every Holder is liable to pay a withholding tax on every dividend that is or is
deemed to be paid or credited to him on his common shares. Under the
Canada-United States Income Tax Convention (1980) (the "Treaty"), the rate of
withholding tax is 10% of the gross amount of the dividend where the Holder is a
company that owns at least 10% of the voting stock of the Company and
beneficially owns the dividend, and 15% in any other case. A Protocol amending
the Treaty was ratified by the representatives of the Canadian and United States
governments. Effective in December, 1995 one of the amendments in the Protocol
reduces the 10% withholding rate on dividends to 6% in 1996 and 5% in 1997.
Under the Tax Act, a Holder will not be subject to Canadian tax on any capital
gain realised on an actual or deemed disposition of a common share, including a
deemed disposition at death, provided that he did not hold the common share as
capital property used in carrying on a business in Canada, and that neither he
nor persons with whom he did not deal at arm's length, alone or together, owned
25% or more of the issued shares of any class of the Company at any time in the
five years immediately preceding the disposition.
A Holder who otherwise would be liable for Canadian tax in respect of a capital
gain realised on an actual or deemed disposition of a common share will be
relieved under the Treaty from such liability unless
(1) the common share formed part of the business property of a
permanent establishment in Canada that the Holder had within the twelve-month
period preceding the disposition; or
(2) the Holder
(a) was resident in Canada for 120 months during any 20-year period
preceding the disposition, and
19
(b) was resident in Canada at any time during the 10 years immediately
preceding the disposition, and
(c) owned the common share when he ceased to be a resident of Canada
U.S. Tax Consequences
U.S. shareholders will not be impacted by Canada "Flow-through" shares under the
Internal Revenue Code shares. U.S. shareholders who hold shares for less than
one year will be able to take short time capital gain or loss for sales within a
twelve month period and be taxed at ordinary income rates on profits. If a
shareholder holds shares for one year or more, the shareholder will be able to
treat profit or loss as long term capital gain or loss, and, if a gain, the tax
rate is a maximum of 28% unless Alternative Minimum Tax applies, which could
only be determined on an individual's tax year basis.
ITEM 8. SELECTED FINANCIAL DATA
The selected financial data set forth below are derived from the accompanying
audited financial statements of the Company to March 31, 2000. Financial
statements of the Company included elsewhere herein should be read in
conjunction with those financial statements and the footnotes thereto. The
financial statements have been prepared in accordance with Canadian generally
accepted accounting principles ("GAAP"). For United States GAAP reconciliation,
see attached financial statements and notes. Reference should also be made to
"Item 9 Management's Discussion and Analysis of Financial Conditions and Results
of Operations."
20
Selected Financial Information for 5 Years (in Cdn$)
Fiscal Year Ended March 31st
2001 2000 1999 1998 1997
---- ---- ---- ----- ----
Interest 29,511 6,018 49,044 152,132 0
Mgmt Fees 64,358 60,000 0 0 0
------- ------- -------- ------- ------
Total Revenue 93,869 66,018 49,044 152,132 28,702
------- ------- -------- ------- ------
General &
Admin. Expenses 707,100 624,463 898,873 1,358,156 640,625
Exploration Costs
Written Off 565,774 360,858 1,848,313 561,500 1,506,392
Amortization 6,263 8,405 11,282 27,082 12,182
Other Expenses 0 0 137,723 92,420 0
Loss for the Period (1,185,268) (927,708) (2,847,147) (1,887,026) (2,130,497)
----------------------------------- ----------- ----------
Loss per Share (0.06) (0.05) (0.20) (0.17) (0.20)
---------------------- ----------- ----------- ----------
Weighted average
shares outstanding 18,669,609 17,221,284 14,446,458 13,911,958 10,924,623
----------------------------------- ----------- ---------
Balance Sheet Data
Current Assets 476,925 245,468 696,996 3,011,601 6,729,786
Capital Assets 19,245 24,829 32,579 155,645 68,834
Deferred Acq. &
Expl. Costs 7,862,415 8,004,148 8,100,426 8,957,965 4,440,824
---------- --------- --------- --------- -------
Exploration Costs
Total Assets 8,358,585 8,274,445 8,830,001 12,125,211 11,239,444
---------- --------- ---------- --------- -------
Current Liabilities 196,437 55,643 277,590 1,820,664 1,117,428
Due to Related Parties 177,089 0 22,800 8,553 231,243
Long Term Liabilities 0 0 0 0 0
Capital Stock 21,914,840 20,963,315 20,346,416 19,265,652 16,973,405
Deficit (13,929,781)(12,744,513) (11,816,805) (8,969,658) (7,082,632)
---------- ---------- ----------- ----------- ----------
Total Equity
& Liabilities 8,358,585 8,274,445 8,830,001 12,125,211 11,239,444
---------- ---------- ---------- --------- -------
21
Loss for the period and deficit as determined in accordance with Canadian GAAP
differ from those determined in accordance with U.S. GAAP, due principally to
the deferral under Canadian GAAP of exploration costs and the exclusion of
compensation expense arising from the issue of options at a discount from their
fair value. Under U.S. GAAP the exploration costs would have been expensed when
incurred, and the compensation expense would have been recorded.
2001 2000 1999
Net loss for the year under Canadian GAAP $(1,185,268) $ (927,708) $ (2,847,147)
Deferred exploration costs (i) (81,243) (115,778) 807,539
Stock based compensation (ii) - - (379,250)
---------------- ---------------- -----------------
Loss for the year under U.S. GAAP $(1,266,511) $ (1,043,486) $(2,418,858)
---------------- ---------------- -----------------
Loss per share under U.S. GAAP $(0.07) $(0.06) $ (0.17)
---------------- ---------------- -----------------
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND CHANGES
IN FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Differences between Canadian and U.S. GAAP (continued)
Under U.S. GAAP, a grant of stock options and warrants to acquire shares at a
price below the fair market value of the shares at the time of the grant, is
compensatory under APB No. 25 and is accounted for as compensation expense. This
has the effect of increasing capital stock and deficit under U.S. GAAP.
The Company's interest in a joint venture has been proportionately consolidated
in the Company's financial statements. For purposes of U.S. GAAP, this interest
would be accounted for by the equity method. Net loss, loss per share, and
22
shareholders' equity under U.S. GAAP are not impacted by the proportionate
consolidation of this joint venture interest.
Balance sheet components
2001 2000 1999
--------------------------- -------------------------- --------------------------
Canadian GAAP U.S. GAAP Canadian GAAP U.S. GAAP Canadian GAAP U.S. GAAP
Mineral properties and
deferred exploration $7,862,415 $67,117 $ 8,004,148 $ 158,500 $ 8,100,426 $ 169,000
costs (a) (i)
Capital stock (a) (ii) $ 21,914,840 $ 25,697,758 $ 20,963,315 $ 24,746,233 $ 20,346,416 $ 24,214,334
Deficit (a) $(13,929,781) $(25,926,146) $(12,744,513) $(24,659,635) $(11,816,805) $(23,616,149)
Shareholders' equity
Under U.S. GAAP, shareholders' equity would be as follows:
2001 2000 1999
Under Canadian GAAP $ 7,985,059 $ 8,218,802 $ 8,529,611
U.S. GAAP adjustment to net loss
Current (a)(i) and (a)(ii) (81,243) (115,778) 428,289
Cumulative (11,915,122) (11,799,344) (12,227,633)
U.S. GAAP adjustment to capital stock
Current (a)(ii) - - 379,250
Cumulative 3,782,918 3,782,918 3,488,668
----------------- ----------------- ----------------
Under U.S. GAAP $ (228,388) $ 86,598 $ 598,185
----------------- ----------------- ----------------
Recent accounting pronouncements
The Company has determined that there is no impact from the adoption of SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities", which
standardizes the accounting for derivative instruments.
The weighted average number of common shares used to calculate the loss per
share under Canadian GAAP is equal to weighted average number of common shares
under U.S. GAAP.
Effective January 1, 2001, the Canadian Institute of Chartered Accountants
issued a revised version of CICA Handbook Section 3500 "Earnings Per Share".
This standard complies in all material respects with SFAS 128, issued by the
Financial Accounting Standards Board.
23
RESULTS OF OPERATIONS
The Company is mainly involved in exploration for base and precious metals. At
present time, the Company does not have any producing properties, and
consequently, no revenue from mineral production. All the financing is raised by
way of private placement of equity shares. The revenue in FY2001 is made up by
$29,511 interest income generated by investing excessive working capital in the
short term money market, $64,358 is from management fees charged to Knife lake
Joint Venture with Kores Canada Corp. As the project's operator, the Company is
entitled to charge a 10% management fee on the actual expenditures spent on
Knife Lake. The project is expected to wind down in FY02.
The exploration costs written off are $565,774 in FY01 compared to $360,858 in
FY00. The large amount written off in FY01 is due to the fact that the Company
concentrated its efforts in Knife Lake and all other mining properties have been
written off. The General and Administrative Expenses for FY01 is $707,100
comparing to $624,463 in FY00, up $82,637 mainly due to legal expenses spent on
the Seagrove Case. The increase of operating losses of $257,560 incurred in FY01
reflect the above exploration costs written off, and increase in Admin. Expense.
CHANGES IN FINANCIAL CONDITION AS AT MARCH 31, 2001
At year-end 2001, the Company's assets increased to $8,358,585 from
$8,274,445 at March 31, 2000. The increase of $84,140 is mostly from the
increase of cash on hand and current assets.
The Current Liabilities increased $317,883 from $55,643 in 2000 to $373,526 in
2001 due to accrued expenses.
Accumulated deficit in 2001 was $13,929,781 which increased $1,185,268 from
$12,744,513 in 2000. The increase was the Operating Deficit for 2001.
COMPARISON OF RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED MARCH 31, 2001
AND 2000 (UNDER CANADIAN GAAP)
The Company had Management Fees Revenue of $64,358 in fiscal year 2001. The
Management Fees were for the operatorship of the Knife Lake Joint Venture
Exploration Program in 2001 for Kores and is expected to wind down in 2002. The
interest income of $29,511 in 2001 increased $23,493 from $6,018 in 2000 which
is the result of rental income for camp equipment used in the Knife Lake Joint
Venture.
The General and Administrative Expense increased $82,637 from $624,463 in 2000
to $707,100 in 2001 due to the legal expense incurred for the Seagrove case.
Exploration costs written off increased $204,916 from $360,858 in 2000 as the
company wrote off some low value mineral properties.
The Net loss for the year has increased $257,560 from $927,708 in 2000 to
$1,185,288 in 2001 mainly due to the increase in exploration costs written off
and general and administrative expense.
The loss per share in 2001 was $0.06 increased from $0.05 in 2000. The increase
is due to the increase of $257,560 in the net loss in 2001.
24
COMPARISON OF RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED MARCH 31, 2000
AND 1999 (UNDER CANADIAN GAAP)
The Company had Management Fees Revenue of $60,000 in fiscal year 2000. The
Management Fees were for the operatorship of the Knife Lake Joint Venture
Exploration Program in 2000 for Kores and is expected to continue in 2001. The
interest income of $6,018 in 2000 decreased $43,026 from $49,044 in 1999 funds
raised for exploration were used up.
The General and Administrative expense decreased $274,410 from $898,873 in 1999
to $624,463 in 2000 due to the winding down of 1998 Knife Lake exploration
program. Exploration costs written off decreased $1,487,455 from $1,848,313 in
1999 to $360,858 in 2000. The Company had not bought any new mineral claims in
2000. Loss on write-down of marketable securities of $139,840 incurred in 1999
was due to marketable securities which decreased in market value substantially
when the Company sold them in 1999 and no such activity occurred in 2000.
The Net loss for the year had decreased $1,919,439 from $2,847,147 in 1999 to
$927,708 in 2000. The decrease is mainly due to the decrease of $1,487,455 in
Exploration costs written off and decreases of $274,410 in General and
Administrative expense and no further loss on marketable securities ($139,480
loss was incurred in 1999).
The Loss per share in 2000 was $0.05 decreased $0.15 from $0.20 in 1999. The
decrease was due to the decrease of $1,919,439 in Net loss for the year in 2000.
LIQUIDITY AND CAPITAL RESOURCES
The following chart summarizes all capital funding raised in the past five
years.
25
FUNDING SUMMARY
FROM APRIL 1996 TO MAY 2001
--------------------------------------------------------------------------------
Year Total Shares Issued Share Price Total Amount
--------------------------------------------------------------------------------
1996 Private Placement 1,000,000 $3.90 $3,900,000
--------------------------------------------------------------------------------
Flow Through 425,000 $4.70 $1,997,500
--------------------------------------------------------------------------------
Exercise of Options 628,000 $2.63 $1,652,200
--------------------------------------------------------------------------------
Exercise of Warrants 950,000 $1.58 $1,502,500
--------------------------------------------------------------------------------
1996 Total 3,003,000 $3.01 $9,052,200
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1997 Private Placement 1,288,000 $3.90 $5,023,200
--------------------------------------------------------------------------------
Private Placement 472,000 $4.55 $2,147,60
--------------------------------------------------------------------------------
Exercise of Options 195,000 $3.90 $760,500
--------------------------------------------------------------------------------
Exercise of Warrants 75,000 $4.12 $309,000
--------------------------------------------------------------------------------
1997 Total 2,030,000 $4.06 $8,240,300
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1998 Private Placement 260,000 $3.40 $884,000
--------------------------------------------------------------------------------
1998 Total 260,000 $3.40 $884,000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1999 Private Placement 2,000,000 $0.35 $700,000
--------------------------------------------------------------------------------
Exercise of Options 687,000 $0.43 $295,410
--------------------------------------------------------------------------------
1999 Total 2,687,000 $0.37 $995,410
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
2000 Private Placement 410,000 $0.52 $214,800
--------------------------------------------------------------------------------
Exercise of Options 680,000 $0.43 $298,100
--------------------------------------------------------------------------------
Exercise of Warrants 210,000 $0.50 $104,000
--------------------------------------------------------------------------------
2000 Total 1,300,000 $0.47 $616,900
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
2001 Private Placement 623,615 $0.65 $405,350
--------------------------------------------------------------------------------
Exercise of Options 405,000 $0.51 $206,150
--------------------------------------------------------------------------------
Exercise of Warrants 837,500 $0.45 $376,875
--------------------------------------------------------------------------------
2001 Total 1,866,115 $0.53 $988,375
--------------------------------------------------------------------------------
26
The principal sources of funding for the Company's operation in the past five
years have been issuance of securities through private placements, flow through
shares, exercise of director and employee stock options, and loans from
directors and officers for cash and as consideration for certain acquisitions.
The company currently has $303,000 in cash at March 31, 2001.
The principal uncertainty that could affect the Company's liquidity is the
Capital Markets interest or lack thereof in Mining Industry which is beyond the
control of the Company.
On a short term basis, the Company is planning to raise $1 million through
private placements and the exercise of options and warrants to cover the
operating budget for 2001.
On a long-term basis, the Company does not have any assured certain source of
additional working capital and the continuation of operations is subject to its
ability to raise more equity money and its success in the exploration of the
Knife Lake and Karmel Projects.
Foreign Currency Adjustments
Other than adjustments between Canadian dollars and US dollars which are
reflected in its financial statements, the Company does not denominate expenses
in any other foreign currency. The Company recorded any South African expenses
in Canadian currency. South African currency has occasionally been volatile, and
there are strict currency controls to prevent the export of capital. To date,
the Company has only expended money in South Africa, and since it terminated its
exploration venture, does not anticipate export of capital from South Africa at
any time.
Hedging Activities
The Company does not engage in any hedging activities.
27
ITEM 10. DIRECTORS AND OFFICERS OF THE COMPANY
The names, residences, terms, and periods of service within the past five years
of each of the directors and executive officers of the Company are as follows:
Position
Name Within Period of
the Company Term Service
Yashvir (Jasi) Nikhanj (1,2) President and Director Annual 1987 to date
Calgary, Alberta
Kurt Marty (1,2) Director Annual 2000 to date
Switzerland
Manish Bindal (2) Secretary and director Annual 1996 to date
Calgary, Alberta
Raymond Lai Vice president Finance Annual 1996 to date
Calgary, Alberta
Roland Kesselring (2) Vice president Annual 1997 to date
Switzerland Corporate Affairs
(1) Member of the audit committee.
(2) Member of Nomination and Compensation Committee.
Yashvir Nikhanj, age 55, has been President and director of the Registrant since
1987. He obtained a Bachelor of Science in Geology from Ranchi University,
Bikar, India in 1968. He received a MSc in Earth Sciences from Massachusetts
Institute of Technology in 1970 and a MSc in Applied Geology from McGill
University in 1972. He also has been President and principal shareholder of
Nikhanj and Associates Consulting of Calgary, Canada since 1975.
Kurt Marty, age 38, is a director of the Registrant. He received a Commercial
Diploma as a banker in 1982 in Switzerland. He was a Procurist at Swissvolks
28
bank from 1982 to 1997. He was an Assistant Vice President of Credit Suisse from
1997 to 1999. He is also a director of Earthramp.com, a high-tech company listed
on the Canadian Venture Exchange.
Manish Bindal, age 37, is a director and General Counsel to the Company. Mr.
Bindal received a Bachelor of Science in 1984 and a Bachelor of Law in 1987 from
Kurukashetra University in India. From August 1987 to May 1991 Mr. Bindal was
engaged in private practice of law at Chandigarh, India. From May 1991 to
September 1994 Mr. Bindal was a law student in Calgary, Canada. He was employed
as a student-at-law at the firm of Howard Mackie, Nova Corp. and Alberta
Securities Commission from October 1994 to October 1995. He has been in private
law practice since November, 1995. Other than the Registrant, Mr. Bindal has
been a director of Canex Energy, Inc. and Aspen Energy Corp., both oil and gas
companies listed on the Albert Stock Exchange.
Raymond Lai, age 50, is Vice President of Finance and Administration for the
Registrant and has been since 1995. Mr. Lai received his B.Sc. degree in 1971
from the University of Calgary. He became a Certified Management Accountant in
1979. From 1993 to 1995, Mr. Lai was controller of Mission Packaging, Inc. in
Calgary.
Ronald Kesselring, age 38, is V.P Corporate Affairs - Europe since 1996. He
completed Banking School in Switzerland in 1982. He is CEO of Mascon Finance,
Ltd. of Ermatingen, Switzerland and has been since 1995 a Managing Director.
From April 1992 to 1995, he was a Managing Director at the institutional sales
desk of Swiss Bank Corp. Zurich, Switzerland.
The directors of the Company are elected by the shareholders at each annual
general meeting and typically hold office until the next annual general meeting
at which time they may be re-elected or replaced. Casual vacancies on the board
are filled by the remaining directors and the persons filling those vacancies
hold office until the next annual general meeting at which time they may be
re-elected or replaced. The senior officers are appointed by the board and hold
office indefinitely at the pleasure of the board.
Within the five years proceeding the date of this filing document, none of the
directors, officers or promoters of the Company have been a director, officer or
promoter of other reporting companies other than as follows:
Mr. Bindal has been a director of Canex Energy, Inc. and Aspen Energy
Corp., both oil and gas companies listed on the Alberta Stock Exchange,
since 1996.
Mr. Kurt Marty has been a director of Earthramp.com, a high-tech company
listed on the Canadian Venture Exchange.
No director, officer or promoter of the Company has, within the ten years
preceding the date of this filing document, been the subject of any penalties or
sanctions by a court or securities regulatory authority relating to trading in
securities, the promotion, formation or management of a publicly-traded company
or involving theft or fraud, other than as follows:
In 1996, Mr. Nikhanj entered into a Settlement Agreement and
Understanding with the Alberta Securities Commission because he had not
timely filed insider reports for purchases and sales of shares in
29
Leader Mining International with the Alberta Securities Commission. The
Settlement resulting in a $5,000 penalty and the Agreement to be
diligent in complying with the responsibility to report trades.
There are no understandings or arrangements pursuant to which any officers or
director was selected or appointed to such position.
(b) Identification of Certain Significant Employees.
There are no employees other than the executive officers disclosed above who
make, or are expected to make, significant contributions to the business of the
Company, the disclosure of which would be material.
(c) Family Relationships. Spouses of Yashvir (Jasi) Nikhanj and Raymond
Lai are currently employed on a part time basis with the Company in
non-executive positions.
Conflicts of Interest
The officers of the Company devote full time to the affairs of the Company, but
they may have other investment interests. There will be occasions when the time
requirements of the Company's business conflict with the demands of any other
business and investment activities. Such conflicts may require that the Company
attempt to employ additional personnel. There is no assurance that the services
of such persons will be available or that they can be obtained upon terms
favorable to the Company. Several of the Directors, Messrs. Bindal, Schurch, and
Kesselring are employed in other businesses and devote time to the company at
Director's meetings.
Conflicts of Interest - General. Certain of the officers and Directors of the
Company may be Directors and/or principal shareholders of other companies, and
therefore, could face conflicts of interest with respect to potential
acquisitions. A policy has been adopted whereby officers and Directors will not
participate in business ventures which could be deemed to complete directory
with the Company. Additional conflicts of interest and non-arms length
transactions may also arise in the future in the event the Company's officers or
Directors are involved in the management of any firm with which they or their
family members own or hold a controlling ownership interest. Although the Board
of Directors could elect to change this policy, the Board of Directors has not
present intention to do so.
ITEM 11. COMPENSATION OF OFFICERS AND DIRECTORS
(a) Cash Compensation.
Compensation paid by the Company for all services provided during the fiscal
year ended March 31, 2000, (1) to each of the Company's five most highly
compensated executive officers whose cash compensation exceeded $30,000 and (2)
to all officers as a group is set forth below under directors.
30
SUMMARY COMPENSATION TABLE OF EXECUTIVES
Annual Compensation
Awards
========== --------------------------------------------------------------================
Name and Year Salary ($) Bonus ($) Other Annual Restricted Securities
Principal Compensation($) Stock Underlying
Position Award(s)($) Options/SARs(#)
========= ---------------------------------------------------------------================
Y.S. Jasi 2001 0 0 120,000 (1) 0 265,000 shares
Nikhanj
President
and Director ------------------------------------------------------ =================
2000 0 0 120,000 (1) 0 265,000 shares
--------------------------------------------------------- =================
1999 0 0 120,000 (1) 0 840,000 shares
--------------------------------------------------------- =================
1998 0 0 120,000 (1) 0 250,000 shares
========= --------------------------------------------------------- =================
Manish 2001 0 0 18,000 (2) 0 75,000 shares
Bindal
Secretary
and Director ------------------------------------------------------ =================
2000 0 0 37,000 (2) 0 25,000 shares
--------------------------------------------------------- =================
1999 0 0 37,200 (2) 0 25,000 shares
--------------------------------------------------------- =================
1998 0 0 37,200 (2) 0 50,000 shares
========= --------------------------------------------------------- =================
Raymond Lai 2001 60,000 0 0 0 50,000 shares
V.P. Finance &
Administration ---------------------------------------------------- =================
2000 60,000 0 0 0 50,000 shares
--------------------------------------------------------- =================
1999 60,000 0 0 0 85,000 shares
--------------------------------------------------------- =================
1998 60,000 0 0 0 50,000 shares
======== ---------------------------------------------------------- =================
Roland 2001 0 0 0 $75,000 5,000 shares
Kesselring
V.P. Corporate
Affairs-Europe ---------------------------------------------------- =================
2000 0 0 0 0 100,000 shares
---------------------------------------------------------- =================
1999 0 0 0 0 100,000 shares
---------------------------------------------------------- =================
1998 0 0 0 50,000 shares 75,000 shares
======== ======== ========== ========== ============== ============ =================
(1) Paid as consulting fees to Nikhanj and Associates Geoconsulting.
(2) Paid as legal fees for services.
31
(b) Compensation Pursuant to Plans.
None.
(c) Other Compensation.
None. No stock appreciation rights or warrants exist to management
(d) Compensation of Directors.
Each member of the Board of Directors of the Company receives $500.00 plus
reasonable outside travel expenses for each Board meeting he attends and for
each Committee meeting he attends during the fiscal year. Directors who are also
officers of the Company receive no compensation for services as a director.
DIRECTOR'S COMPENSATION FOR LAST FISCAL YEAR
(Except for compensation of Officers who are also Directors whose Compensation
is listed in Summary Compensation Table of Executives)
Cash Compensation Security Grants
----------------------- -------------------------------------------------------------------------------- ---------------------------
Name Number of Securities
Annual Retainer Meeting Fees Consulting Fees/ Number of Underlying Options/SARs
Fees ($) ($) Other Fees ($) Shares (#) (#)
----------------------- -------------------------------------------------------------------------------- ---------------------------
A. Director 0 0 0 0 0
Kurt Marty
----------------------- -------------------------------------------------------------------------------- ---------------------------
B. Director 0 0 0 0 0
Y.S. Nikhanj
------------------------------------------------------------------------------------------------------------------------------------
C. Director 0 0 0 0 0
Manish Bindal
------------------------------------------------------------------------------------------------------------------------------------
(e) Termination of Employment and Change of Control Arrangements.
None
(f) Stock Option Plan
32
The Company has adopted a stock option plan covering officers, consultants, key
employees. The plan is administered by the Board of Directors and is limited to
10% of the total outstanding shares, in the aggregate, except if approval is
granted by the Alberta Stock Exchange (the "Exchange). Option prices shall not
be lower than the market price of the shares on the date of grant of the option
less the maximum discount permitted under the By-Laws and policies of the
Alberta Stock Exchange. The options may be granted by the Board under provisions
which may be established by the Board of Directors from time to time. The
options may not be granted for an exercise period of more than five years.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT
Stock Options
The Company has, from time to time, granted stock options to purchase common
shares to its directors and employees. The options have been granted on various
terms resulting from negotiation between the Company and such persons and the
exercise price per share was based on the average trading price of the Company's
shares pursuant to the policies of the Alberta Stock Exchange (the "Exchange").
The exercise price for all options currently issued by the Company is equal to
or in excess of the market price of the Company's stock at the date of issuance
less the maximum discount permitted under the by-laws and polices of The Alberta
Stock Exchange (or any stock exchange on which the Shares are then listed). The
options are non-assignable and have been granted as incentives and not in lieu
of any compensation for services. As at March 31, 2001 the Company has granted
outstanding options to its directors and employees to purchase an aggregate of
1,790,000 common shares as follows:
Share Price Amount Expiry Date
---------------------------------- ---------- ----------- ---------------
Outstanding Options 1,190,000 $0.45 $535,000 Dec. 22, 2003
----------------------------------------------- ----------- ---------------
100,000 $0.35 $35,000 Nov. 4, 2001
----------------------------------------------- ----------- ---------------
500,000 $0.54 $270,000 Mar. 18, 2002
----------------------------------------------- ----------- ---------------
Total Options 1,790,000 $840,500
----------------------------------------------- ----------- ---------------
Outstanding Warrants 311,807 $0.80 $249,445 Sept. 7, 2001
----------------------------------------------- ----------- ---------------
Outstanding Warrants 152,500 $0.65 $99,125 Oct. 25, 2001
----------------------------------------------- ----------- ---------------
Total Options
& Warrants 2,254,307 $1,189,070
----------------------------------------------- ----------- ---------------
33
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
The directors, senior officers, holders of greater than 10% of the common shares
of the Company and any associate or affiliate of such persons of the Company
have no other interest in any material transactions in which the Company has
participated in the preceding year or intends to participate in at this time,
except as follows:
a) Due to related parties
2001 2000 1999
$ $ $
i)The Company's president and his wife 177,089 - 22,800
ii)Other shareholders, directors 63,000 - -
======= ======== ========
The shareholders' loans have no fixed terms of repayment, are non-interest
bearing and are unsecured.
b) Advances from the related parties have no fixed terms of repayment, are
non-interest bearing and are unsecured.
c) The following transactions were conducted with related parties and
recorded at the exchange amounts:
(i) During 2001 the President made exploration expenditures on
behalf of the Company of $57,286 (2000 - $194,105; 1999 -
$78,120) and made net advances to the Company of $13,442 (2000
- $21,167; 1999 - $157,887). The advances were repaid in full
with no interest or fees charged.
34
(ii) During 2001 the President and the President's wife exercised
options for 300,000 shares for $83,440. During 2000 the
President and the President's wife exercised options for
325,000 shares for $147,750. During 1999 the President and the
President's wife exercised options for 677,000 shares for
$291,110. All of these amounts were settled from amounts owed
by the Company.
(iii) During 2001 a company owned by the President was paid
$90,000 (2000 - $120,000; 1999 - $120,000) for geological
consulting services provided during the year.
(iv) During 2001 a director's law firm was paid $17,150 (2000 -
$33,150; 1999 26,000) for legal services provided during the
year.
(v) During 2001 a company owned by a Vice-President was paid
$72,000 (2000 - $72,000; 1999 - $72,000) for geological
consulting services provided during the year.
35
PART II
ITEM 14. DESCRIPTION OF SECURITIES
The Company is authorized to issue an unlimited number of Common Shares without
nominal or par value, and an unlimited number of Preferred Shares, issuable in
series, of which, as at the date hereof, 16,818,565 Common Shares and no
Preferred Shares are issued and outstanding as fully-paid and non-assessable.
Common Shares
The holders of Common Shares are entitled to dividends if, as and when declared
by the directors, to one (1) vote per share at meetings of the holders of Common
Shares of the Company and, upon liquidation, to receive such assets of the
Company as are distributable to the holders of the Common Shares. All of the
Common Shares to be outstanding upon completion of this offering will be
fully-paid and non-assessable.
Preferred Shares
The Preferred Shares may be issued from time to time in one or more series. each
series consisting of a number of Preferred Shares as determined by the board of
directors of the Company who may also fix the designation, rights, privileges,
restrictions and conditions attaching to the shares of each series of Preferred
Shares. There are no Preferred Shares issued and outstanding.
The Preferred Shares of each series shall, with respect to payment of dividends
and distribution of assets in the event of liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary, or any other
distribution of the assets of the Company among its shareholders for the purpose
of winding-up its affairs, rank on a parity with the Preferred Shares of every
other series and shall be entitled to preference over the Common Shares and the
shares of any other class ranking junior to the Preferred Shares.
TRANSFER AGENT
The transfer agent for the company shares is Computershare Trust Company of
Canada, 600, 530-8th Avenue SW, Calgary, Alberta T2P3S8 (403) 267-6872.
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
There have been no defaults by the Company upon Senior Securities during the
fiscal year 1998 to date of this Annual Report.
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITIES
There have been no changes in securities or changes in security for the
registered securities to date of this Annual Report.
36
PART IV
ITEM 17. FINANCIAL STATEMENTS
The following documents are filed as a part of this report:
1) Financial Statements: (See Financial Exhibits Index below and
Financial Exhibits furnished as Pages F-1 through F-24).
2) Financial Statement Schedules: None
ITEM 18. NOT APPLICABLE.
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
a) INDEX TO FINANCIAL STATEMENTS
AND SUPPORTING SCHEDULES
37
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
DATED: October 10, 2001
LEADER MINING INTERNATIONAL, INC.
By: /s/ Y.S. Nikhanj
------------------------------
President
Directors:
/s/ Manish Bindal
---------------------------------
Secretary and Director
/s/ Ulrich Schurch
---------------------------------
Director
/s/ Y.S. Nikhanj
---------------------------------
Director
/s/ Raymond Lai
---------------------------------
Vice President of Finance
/s/ Roland Kesselring
---------------------------------
Vice President of Corporate Affairs
38
LEADER MINING INTERNATIONAL INC.
(an exploration stage company)
FINANCIAL STATEMENTS
March 31, 2001, 2000, and 1999
(expressed in Canadian dollars)
Auditors' Report
To the Shareholders of Leader Mining International Inc.
We have audited the balance sheets of Leader Mining International Inc. (an
exploration stage company) as at March 31, 2001 and 2000, and the statements of
loss and deficit and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at March 31, 2001 and 2000,
and the results of its operations and its cash flows for each of the years then
ended in accordance with Canadian generally accepted accounting principles.
The financial statements as at March 31, 1999 were audited by another firm of
Chartered Accountants who issued an unqualified report dated June 25, 1999.
CALGARY, ALBERTA
June 19, 2001, except /s/ "Coakwell Crawford Cairns LLP"
for notes 12 b), c) and d), Chartered Accountants
which are as of August 7, 2001
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 conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described in
F-1
Note 1 to the financial statements. Our report to the shareholders dated June
19, 2001, except for notes 12 b), c) and d), which are as of August 7, 2001, is
expressed in accordance with Canadian 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.
CALGARY, ALBERTA
June 19, 2001, except /s/ "Coakwell Crawford Cairns LLP"
for notes 12 b), c) and d), Chartered Accountants
which are as of August 7, 2001
F-2
Leader Mining International Inc.
(an exploration stage company)
Balance Sheets
As at March 31
(expressed in Canadian dollars)
2001 2000 1999
----------------- ------------------ -----------------
Assets
Current assets
Cash $303,216 $211,125 $456,425
Accounts receivable 58,992 20,724 37,856
Marketable securities - at market - - 22,942
Deposits and prepaid expenses 114,717 13,619 179,773
----------------- ------------------ -----------------
476,925 245,468 696,996
Capital assets (Note 4) 19,245 24,829 32,579
Mineral properties and deferred
exploration costs (Note 5) 7,862,415 8,004,148 8,100,426
----------------- ------------------ -----------------
$8,358,585 $8,274,445 $8,830,001
----------------- ------------------ -----------------
Liabilities
Current liabilities
Accounts payable and accrued liabilities $196,437 $54,769 $277,590
Due to related parties (Note 7) 177,089 874 22,800
----------------- ------------------ -----------------
373,526 55,643 300,390
----------------- ------------------ -----------------
Shareholders' equity
Capital stock (Note 8) 21,914,840 20,963,315 20,346,416
Deficit (13,929,781) (12,744,513) (11,816,805)
----------------- ------------------ -----------------
7,985,059 8,218,802 8,529,611
----------------- ------------------ -----------------
$8,358,585 $8,274,445 $8,830,001
----------------- ------------------ -----------------
Nature of operations and going concern (Note 1)
Approved by the Board of Directors /s/ Jasi N. Nikhanj
------------------------
Director
/s/ Manish Bindal
------------------------
Director
The accompanying notes are an integral part of these financial statements.
F-3
Leader Mining International Inc.
(an exploration stage company)
Statements of Loss and Deficit
For the years ended March 31
(expressed in Canadian dollars)
2001 2000 1999
----------------- ----------------- -----------------
Revenue
Management fees (Note 5 (d)) $64,358 $60,000 $-
Interest and other 29,511 6,018 49,044
----------------- ----------------- -----------------
93,869 66,018 49,044
----------------- ----------------- -----------------
Expenses
General and administrative (Note 7) 707,100 624,463 898,873
Mineral properties and exploration costs 565,774 360,858 1,848,313
written-off (Note 5(c))
Amortization 6,263 8,405 11,282
Gain on disposal of capital assets - - (2,117)
Loss on write-down of marketable securities - - 139,840
----------------- ----------------- -----------------
1,279,137 993,726 2,896,191
----------------- ----------------- -----------------
Net loss for the year 1,185,268 927,708 2,847,147
Deficit - beginning of year 12,744,513 11,816,805 8,969,658
----------------- ----------------- -----------------
Deficit - end of year $ 13,929,781 $ 12,744,513 $11,816,805
----------------- ----------------- -----------------
Loss per share $ $ $
0.06 0.05 0.20
----------------- ----------------- -----------------
The accompanying notes are an integral part of these financial statements.
F-4
Leader Mining International Inc.
(an exploration stage company)
Statements of Cash Flows
For the years ended March 31
(expressed in Canadian dollars)
2001 2000 1999
----------------- ---------------- -----------------
Cash flows from operating activities
Net loss for the year $(1,185,268) $(927,708) $(2,847,147)
Items not affecting cash
Mineral properties and exploration costs written-off 565,774 360,858 1,848,313
Amortization 6,263 8,405 11,282
Consulting fees 128,500 - -
Gain on disposal of capital assets - - (2,117)
Loss on write-down of marketable securities - - 139,840
Employee bonuses paid in common shares - - (113,700)
----------------- ---------------- -----------------
(484,731) (558,445) (963,529)
Net change in non-cash working capital
Accounts receivable (32,018) 18,006 341,420
Deposits and prepaid expenses (101,099) 166,154 (44,367)
Accounts payable and accrued liabilities 141,668 (222,821) (1,543,074)
----------------- --------------- -----------------
8,551 (38,661) (1,246,021)
----------------- --------------- -----------------
(476,180) (597,106) (2,209,550)
----------------- --------------- -----------------
Cash flows from financing activities
Advances from joint venture participant 1,064,000 - -
Issuance of common shares, net of share issue costs 861,835 358,349 675,954
Repayments to related parties, net 19,869 235,750 305,357
----------------- ---------------- -----------------
1,945,704 594,099 981,311
----------------- --------------- -----------------
Cash flows from investing activities
Mineral properties and deferred exploration costs (1,376,754) (264,580) (990,774)
Purchase of capital assets (679) (655) (2,599)
Proceeds on disposal of capital assets - - 116,500
Sale (purchase) of marketable securities - 22,942 (162,782)
----------------- ---------------- -----------------
(1,377,433) (242,293) (1,039,655)
----------------- --------------- -----------------
Increase (decrease) in cash 92,091 (245,300) (2,267,894)
Cash, beginning of year 211,125 456,425 2,724,319
----------------- --------------- -----------------
Cash, end of year $303,216 $211,125 $456,425
----------------- --------------- -----------------
Supplemental Cash Flow Information
Interest income $5,469 $6,018 $49,044
----------------- --------------- -----------------
The accompanying notes are an integral part of these financial statements.
F-5
Leader Mining International Inc.
(an exploration stage company)
Notes to Financial Statements
March 31, 2001, 2000, and 1999
(expressed in Canadian dollars)
1. Nature of operations and going concern
Leader Mining International Inc. (the "Company") is in the process of
exploring its mineral properties and has not yet determined whether these
properties contain mineral resources that are economically recoverable.
The recoverability of amounts shown for mineral properties and deferred
exploration costs is dependent upon the existence of economically
recoverable reserves, securing and maintaining title and beneficial
interest in the properties, the ability of the Company to obtain necessary
financing to complete the development, and upon future profitable
production or proceeds from disposition of the mineral properties. There
are no guarantees that such conditions will be met. The amounts shown as
mineral properties and deferred exploration costs represent net costs to
date, less amounts written-off and do not necessarily represent present or
future values.
The Company will have to raise additional funds to meet its planned
corporate and administrative expenses for the coming year, and to undertake
further exploration and development of its mineral properties. Management
is pursuing such additional sources of financing and while it has been
successful in the past there can be no assurance that it will be able to do
so in the future. Subsequent to March 31, 2001, the Company completed a
private placement of shares for proceeds of $500,000, see Note 12 (c).
These financial statements have been prepared on a going concern basis,
which assumes the Company will be able to realize its assets and discharge
its liabilities in the normal course of business for the foreseeable
future. These financial statements do not include any adjustments that
would be necessary should the Company be unable to continue as a going
concern.
Although the Company has taken steps to verify the title to resource
properties in which it has an interest, in accordance with industry
standards for the current stage of exploration of such properties, these
procedures do not guarantee the Company's title. Property title may be
subject to unregistered prior agreements, transfers or Native land claims
and title may be affected by undetected defects.
F-6
Leader Mining International Inc.
(an exploration stage company)
Notes to Financial Statements
March 31, 2001, 2000, and 1999
(expressed in Canadian dollars)
2. Significant accounting policies
Accounting principles
These financial statements are prepared in accordance with accounting
principles generally accepted in Canada ("Canadian GAAP"). Significant
differences from accounting principles generally accepted in the United
States ("U.S. GAAP") are described in Note 11.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. The most significant estimates relate to the
recoverability of amounts recorded for mineral properties and deferred
exploration costs. Actual results could differ from those reported.
Cash
Cash includes short-term deposits that mature within 90 days of the
original date of acquisition.
Marketable securities
Marketable securities are recorded at the lower of cost and market.
Interests in joint ventures
Interests in joint ventures are accounted for using the proportionate
consolidation method. Under this method the Company's proportionate share
of joint venture revenue, expenses, assets and liabilities is included in
the accounts of the Company.
Mineral properties and deferred exploration costs
Acquisition and exploration costs relating to mineral properties are
deferred. Upon commencement of commercial production, these costs will be
amortised. The carrying values of mineral properties are, where necessary,
F-7
Leader Mining International Inc.
(an exploration stage company)
Notes to Financial Statements
March 31, 2001, 2000, and 1999
(expressed in Canadian dollars)
2. Significant accounting policies (continued)
written down to the estimated recoverable amount based on undiscounted
estimated future cash flows. Costs relating to properties abandoned are
written-off when the decision to abandon is made. On a quarterly basis,
senior management reviews the carrying values of mineral properties and
deferred exploration costs with a view to assessing whether there has been
an impairment in value. In the event that management determines potential
reserves to be insufficient to recover the carrying value of the property,
the carrying amount will be written down or written off as appropriate.
The Company follows the cost reduction method of accounting for receipt of
option and similar payments. Cash payments received from the Company's
exploration partners are credited to the respective property until
capitalised costs are recovered; thereafter, such payments are included in
operations. Option payments are exercisable at the discretion of the
optionee and are only recognised when received.
Capital assets
Capital assets are recorded at cost. Amortization is provided on a
declining balance basis based on the estimated useful life of the assets
from the year of acquisition up to, and excluding the year of disposal, at
the following annual rates:
Computer equipment 30%
Furniture and fixtures 20%
Camp equipment 20%
Loss per share information
Per share amounts are calculated based on the weighted average number of
shares outstanding during the year of 18,669,609 (2000 - 17,221,284; 1999 -
14,446,458). Fully dilutive amounts per share are not shown, as there are
no material dilutive factors.
Future income taxes
In providing for corporate income taxes, temporary differences between the
tax basis of assets or liabilities and their carrying amounts are reflected
as future income taxes. Tax rates anticipated to be in effect when these
temporary differences reverse are used to calculate future income taxes.
F-8
Leader Mining International Inc.
(an exploration stage company)
Notes to Financial Statements
March 31, 2001, 2000, and 1999
(expressed in Canadian dollars)
2. Significant accounting policies (continued)
Stock-based compensation plan
The Company has stock-based compensation plans which are described in Note
8. No compensation expense is recognized for these plans when stock options
are issued to directors, officers, or employees. Any consideration paid by
directors, officers, or employees on exercise of stock options or purchase
of stock is credited to share capital. If stock or stock options are
repurchased from directors, officers, or employees, the excess of the
consideration paid over the carrying amount of the stock or stock option
cancelled is charged to retained earnings.
Financial instruments
The Company's financial instruments consist of cash, accounts receivable,
marketable securities, accounts payable and accrued liabilities, and
amounts due to related parties. The fair values of all financial
instruments approximate their carrying values due to their short-term
maturity.
3. Change in accounting policy
Effective April 1, 1999, the Company retroactively changed its method of
reporting corporate income taxes to conform with the new recommendations of
the Canadian Institute of Chartered Accountants. These recommendations
require the future income taxes be provided as described in Note 2. Prior
to this change, the Company used the deferral method of reporting income
taxes. This change in accounting policy did not change the Company's
previously reported income, retained earnings, and income taxes.
F-9
Leader Mining International Inc.
(an exploration stage company)
Notes to Financial Statements
March 31, 2001, 2000, and 1999
(expressed in Canadian dollars)
4. Capital assets
2001
--------------------------------------------------------------
Cost Accumulated Net Book Value
Amortization
Computer equipment $38,425 $9,816 $8,609
Furniture and fixtures 32,632 25,034 7,599
Camp equipment 9,029 5,991 3,037
-------------- ------------------ -----------------
$80,086 $60,841 $19,245
-------------- ------------------ -----------------
2000
-----------------------------------------------------------
Cost Accumulated Net Book Value
Amortization
Computer equipment $38,425 $26,126 $12,299
Furniture and fixtures 31,952 23,219 8,733
Camp equipment 9,029 5,232 3,797
---------------- ------------------- ------------------
$79,406 $54,577 $24,829
---------------- ------------------- ------------------
1999
-----------------------------------------------------------
Cost Accumulated Net Book Value
Amortization
Computer equipment $38,425 $20,855 $17,570
Furniture and fixtures 31,297 21,035 10,262
Camp equipment 9,029 4,282 4,747
---------------- ------------------- ------------------
$78,751 $46,172 $32,579
---------------- ------------------- ------------------
F-10
Leader Mining International Inc.
(an exploration stage company)
Notes to Financial Statements
March 31, 2001, 2000, and 1999
(expressed in Canadian dollars)
5. Mineral properties and deferred exploration costs
a) Summary
2001 2000 1999
Balance, beginning of year $ 8,004,148 $ 8,100,426 $ 8,957,965
------------------ ------------------ -------------------
Expenditures capitalised in the year:
Acquisition of mineral properties 332,117 19,500 30,000
Exploration costs 91,924 245,080 960,774
------------------ ------------------ -------------------
424,041 264,580 990,774
Less: Costs written-off (565,774) (360,858) (1,848,313)
------------------ ------------------ -------------------
(141,733) (96,278) (857,539)
------------------ ------------------ -------------------
Balance, end of year $7,862,415 $8,004,148 $8,100,426
------------------ ------------------ -------------------
b) During the year, the Company capitalized $409,700 (2000 - $224,400;
1999 - $84,000) of general and administrative costs to deferred explor-
ation costs.
c) During the year, the Company wrote-off $565,774 (2000 - $360,858; 1999
- $1,848,313) of mineral properties and exploration costs relating to
properties on which no further exploration activities are planned.
Included in the amounts written-off in 2001, are costs incurred to
acquire Similco Mines Ltd. as per Note 5 (h).
d) On November 10, 1999, the Company signed a joint venture agreement with
Kores Canada Corp. ("Kores") in respect of the Knife Lake property.
This agreement was amended in November 2000. Under the terms of the
amended agreement, the Company has granted Kores the right to acquire
up to a 50% working interest in this property by making both payments
to the Company and funding exploration expenditures on the property.
F-11
Leader Mining International Inc.
(an exploration stage company) Notes to Financial Statements March 31, 2001,
2000, and 1999 (expressed in Canadian dollars)
5. Mineral properties and deferred exploration costs (continued)
To earn a 50% working interest, Kores must make the following payments
and expenditures:
i) To the Company
$300,000 upon signing of the agreement
$100,000 by December 22, 2000
$200,000 by December 22, 2001
$300,000 by December 22, 2002
$300,000 by December 22, 2003
ii) Exploration expenditures on the project
$1,000,000 before December 22, 2000
$330,000 before December 22, 2001
$670,000 before December 22, 2002
$1,000,000 before December 22, 2003
$1,000,000 before December 22, 2004
Based on the payments and expenditures to December 22, 2000, Kores has
earned a 20% working interest in the property (Note 6). Assuming
further payments and expenditures are made as detailed above, the
working interest will be earned as follows:
December 22, 2001 - 24.96%
December 22, 2002 - 33.33%
December 22, 2003 - 42.86%
December 22, 2004 - 50.00%
Under the terms of the agreement, the Company granted Kores a stock
option to purchase 500,000 common shares at a price of $1.00 per share,
up to December 22, 2001. In addition, the Company is entitled to
receive a 10% management fee based on exploration expenditures on the
project incurred by Kores.
e) The Company has an obligation to pay a 2% net smelter return on its
Knife Lake property to Copper Quest, Inc. and has an option to purchase
a 1% net smelter return for $1 million.
f) The Company has an option to spend $500,000 on the Knife Lake Pistol
Lake property to earn an 80% working interest from Consolidated Pine
Channel Gold Corp. ("Consolidated Pine"). The Company has an additional
obligation to pay a 2% net smelter return on its Pistol Lake properties
to Consolidated Pine and has an option to purchase an additional 10%
working interest for $1 million and an option to purchase a 1% net
smelter return for $2 million.
g) In January 2001, the Company entered into a royalty and option to
purchase agreement to acquire a 100% interest in the Bright Lake
F-12
Leader Mining International Inc.
(an exploration stage company) Notes to Financial Statements March 31, 2001,
2000, and 1999 (expressed in Canadian dollars)
5. Mineral properties and deferred exploration costs (continued)
properties. The Company may acquire a 30% net profit interest and 0.6%
net smelter royalty by incurring $100,000 in acquisition and
exploration costs by July 31, 2002. In addition, the Company may at any
time purchase the net profits interest for $500,000 and the net smelter
royalty for $300,000.
h) On June 5, 2000 the Company signed an option agreement with Imperial
Metals Corporation ("Imperial") and HML Mining Inc. to purchase all of
the issued and outstanding shares of Similco Mines Ltd. (a wholly owned
subsidiary of Imperial), and the mineral claims and crown granted
claims related to the Invermay property. To grant a further extension
to February 28, 2001, the Company signed an amended agreement with
Imperial. As consideration, Imperial received cash of $50,000 and
100,000 common shares in the Company.
The Company was unable to complete this acquisition by February 28,
2001 and consequently deposits and project costs of $497,628 were
written off. The Company plans to renegotiate this potential
acquisition.
6. Interest in joint venture
As of March 31, 2001 the Company's 80% joint venture interest in the Knife
Lake project is proportionately consolidated in the financial statements
and summarized as follows:
Assets
Current assets
Cash $97,709
GST receivable 26,242
Deposits 73,360
----------------
197,311
Mineral properties and deferred exploration costs 7,270,967
----------------
$7,468,278
----------------
Liabilities
Accounts payable and accrued liabilities $65,718
Joint venturers' equity 7,402,560
----------------
$7,468,278
----------------
Cash flows from:
Operating activities $(33,884)
Financing activities $1,064,000
Investing activities $(932,407)
F-13
Leader Mining International Inc.
(an exploration stage company)
Notes to Financial Statements
March 31, 2001, 2000, and 1999
(expressed in Canadian dollars)
6. Interest in joint venture (continued)
The joint venture did not earn any revenues or incur any expenses, other
than exploration expenditures during the year ended March 31, 2001. The
cost of the interest to the Company of $7,792,000 at March 31, 2001 is
included in mineral properties and deferred exploration costs. The excess
of the Company's cost of the Knife Lake Project over its share of the
equity has been allocated to mineral properties. The joint venture
agreement is described more fully in Note 5 (d).
7. Related party transactions
a) The following summarises the amounts due to officers and directors of the Company:
2001 2000 1999
---------------- ---------------- ----------------
Balance, beginning of year $874 $22,800 $8,553
Expenditures paid on behalf of the Company 239,786 194,105 78,120
Debt assumed - - 389,622
Net advances 19,869 (68,282) (162,385)
Share options exercised (83,440) (147,750) (291,110)
---------------- ---------------- ----------------
Balance, end of year $177,089 $874 $22,800
---------------- ---------------- ----------------
b) Advances from the related parties have no fixed terms of repayment, are
non-interest bearing and are unsecured.
c) The following transactions were conducted with related parties and
recorded at the exchange amounts:
(i) During 2001 the President made exploration expenditures on
behalf of the Company of $57,286 (2000 - $194,105; 1999 -
$78,120) and made net advances to the Company of $13,442 (2000
- $21,167; 1999 - $157,887). The advances were repaid in full
with no interest or fees charged.
F-14
Leader Mining International Inc.
(an exploration stage company)
Notes to Financial Statements
March 31, 2001, 2000, and 1999
(expressed in Canadian dollars)
7. Related party transactions (continued)
(ii) During 2001 the President and the President's wife exercised
options for 300,000 shares for $83,440. During 2000 the
President and the President's wife exercised options for
325,000 shares for $147,750. During 1999 the President and the
President's wife exercised options for 677,000 shares for
$291,110. All of these amounts were settled from amounts owed
by the Company.
(iii) During 2001 a company owned by the President was paid $90,000
(2000 - $120,000; 1999 - $120,000) for geological consulting
services provided during the year.
(iv) During 2001 a director's law firm was paid $17,150 (2000 -
$33,150; 1999 26,000) for legal services provided during the
year.
(v) During 2001 a company owned by a Vice-President was paid
$72,000 (2000 - $72,000; 1999 - $72,000) for geological
consulting services provided during the year.
F-15
Leader Mining International Inc.
(an exploration stage company)
Notes to Financial Statements
March 31, 2001, 2000, and 1999
(expressed in Canadian dollars)
7. Related party transactions (continued)
c) continued
(vi) During 2001 a company owned by a Vice-President was paid $10,000
(2000 - $35,000; 1999 - $Nil) in public relations fees during
the year.
d) During 2001 directors and officers transferred shares held personally
to an investment brokerage firm, as payment for financial, advisory and
investment services provided to the Company, as follows:
Number of Shares Amount
------------------- ------------------
President 50,000 $ 45,000
President's wife 25,000 20,500
Vice-President 25,000 20,500
Director 50,000 42,500
------------------- ------------------
Totals 150,000 $ 128,500
------------------- ------------------
The fair market value was recorded using the ten day average trading
price prior to the date of transfer and the total amount charged to
general and administrative expenses.
e) During 2001 the President transferred 100,000 shares in the Company
held personally to Imperial to secure a contract extension. This
transaction has been recorded at $54,000 using the ten day average
trading price prior to the date of transfer and the amount charged to
mineral properties and deferred exploration costs.
F-16
Leader Mining International Inc.
(an exploration stage company)
Notes to Financial Statements
March 31, 2001, 2000, and 1999
(expressed in Canadian dollars)
8. Capital stock
a) Authorized
The authorized share capital of the Company is comprised of an
unlimited number of common and preferred shares.
b) Common shares issued
Number of Amount
Shares
---------------- ----------------
Balance - March 31, 1998 14,056,574 $ 19,265,652
---------------- ----------------
Shares issued
Director and employee bonus shares cancelled (157,000) (529,500)
Director and employee bonus shares reissued 157,000 418,200
Exercise of options 687,000 295,410
Legal settlement 75,000 225,000
Private placement for cash, net of share issue costs 2,000,000 671,654
---------------- ----------------
2,762,000 1,080,764
---------------- ----------------
Balance - March 31, 1999 16,818,574 20,346,416
---------------- ----------------
Shares issued
Exercise of options 680,000 298,099
Exercise of warrants 210,000 104,000
Private placement for cash 200,000 104,000
Settlement for debt 210,000 110,800
---------------- ----------------
1,300,000 616,899
---------------- ----------------
F-17
Continued....
Balance - March 31, 2000 18,118,574 20,963,315
---------------- ----------------
Shares issued
Exercise of options 405,000 206,150
Exercise of warrants 837,500 376,875
Private placement for cash, net of share issue costs 623,615 368,500
---------------- ----------------
1,866,115 951,525
---------------- ----------------
Balance - March 31, 2001 19,984,689 $ 21,914,840
---------------- ----------------
F-18
Leader Mining International Inc.
(an exploration stage company)
Notes to Financial Statements
March 31, 2001, 2000, and 1999
(expressed in Canadian dollars)
8. Capital stock (continued)
c) Share options
The Company has established a stock option plan for directors,
officers, and employees. Up to 10% of the issued and outstanding shares
are reserved for issuance. The option price is equivalent to the share
market price on the date of granting. Options are exercisable for
periods up to five years from the date of granting. Options issued and
exercised under this plan are summarized below:
Number of Weighted average
shares exercise price
---------------- --------------------
Outstanding, March 31, 1998 1,357,000 $ 0.93
Granted 1,200,000 0.76
Exercised (687,000) 0.84
Granted (195,000) 0.48
----------------
Outstanding, March 31, 1999 1,675,000 0.48
Exercised (680,000) 0.51
----------------
Outstanding, March 31, 2000 995,000 0.51
Granted 1,200,000 0.45
Exercised (405,000) 0.51
----------------
Outstanding and exercisable, March 31, 2001 1,790,000 $ 0.47
---------------- ------------------
The following table summarizes information about stock options
outstanding at March 31, 2001:
Average Weighted
Remaining Average
Range of Number Contractual Exercise
Exercise Prices Outstanding Life Price
----------------------------------------------------------------------------------------------
$0.35 - $0.44 100,000 0.60 years $0.35
$0.45 - $0.53 1,190,000 2.7 years $0.45
$0.54 - $0.55 500,000 1.0 years $0.54
----------------------------------------------------------------------------------------------
$0.35 - $0.55 1,790,000 2.1 years $0.47
==============================================================================================
F-19
Leader Mining International Inc.
(an exploration stage company)
Notes to Financial Statements
March 31, 2001, 2000, and 1999
(expressed in Canadian dollars)
8. Capital stock (continued)
d) Share purchase warrants
The number of share purchase warrants granted during the year in
conjunction with the private share placements and outstanding at
year-end were as follows:
Number of warrants
2001 2000 1999
Balance, beginning of year 990,000 1,000,000 130,000
Granted 311,807 200,000 1,000,000
Exercised (837,500) (210,000) -
Expired - - (130,000)
------------------------ ----------------------- ----------------------
Balance, end of year 464,307 990,000 1,000,000
------------------------ ----------------------- ----------------------
Warrants at March 31, 2001 expire as follows:
Number of warrants
-------------------
Exercisable at $0.80 expiring September, 2001 311,807
Exercisable at $0.65 expiring October, 2001 152,500
---------------
464,307
---------------
9. Commitments and contingencies
a) Pursuant to an agreement relating to a lease for office premises, the
Company is obligated to pay $32,950 per annum until June 2001 and
$50,900 thereafter to November 2005.
b) The Company is continuing to defend a legal action in respect of a 1995
mining option agreement. The plaintiff is alleging damages of $486,000
plus further unspecified damages. Discoveries are now completed and the
trial is set for January 28, 2002. The Company believes that this claim
is without merit and is continuing to vigorously defend it. In the
opinion of management, the amount of ultimate liability, if any, with
respect to this action, will not materially affect the financial
position, results of operations or cash flows of the Company. The
Company is not proceeding with its counterclaim in this action.
c) The Company has a defamation action against the plaintiffs mentioned in
b) above. Discoveries are complete and the next step in the action is a
trial for which no date has been fixed.
F-20
Leader Mining International Inc.
(an exploration stage company)
Notes to Financial Statements
March 31, 2001, 2000, and 1999
(expressed in Canadian dollars)
9. Commitments and contingencies (continued)
d) Subsequent to March 31, 2001, the Company agreed to discontinue a
legal action against Merendon Mining Corporation Ltd. subject to
the receipt of a $340,000 cash settlement. This settlement will
be recorded as revenue in the month it is received.
10. Income taxes
The provision for income taxes recorded in the financial statements differ
from the amount which would be obtained by applying the statutory income
tax rate of 45% to the loss for the years as follows:
2001 2000 1999
Net loss for the year $ (1,185,268) $ (927,708) $ (2,847,147)
------------------ ------------------ ------------------
Anticipated income tax recovery $(521,518) (417,468) (1,281,216)
Benefit of income tax losses not recognized 521,518 417,468 1,281,216
------------------ ------------------ ------------------
Income tax provision $- $- $-
------------------ ------------------ ------------------
The Company has non-capital losses for income tax purposes of approximately
$5.3 million, which are available for application against future taxable
income. These losses expire between 2002 and 2008. The Company also has tax
pools for income tax purposes of approximately $11.1 million that are
available for application against future taxable income.
11. Differences between Canadian and U.S. GAAP
Significant differences between Canadian GAAP and U.S. GAAP, which would
have an effect on these financial statements, are as follows:
a) Adjustment to net loss for the year
2001 2000 1999
Net loss for the year under Canadian GAAP $(1,185,268) $(927,708) $(2,847,147)
Deferred exploration costs (i) (81,243) (115,778) 807,539
Stock based compensation (ii) - - (379,250)
--------------- --------------- ---------------
Loss for the year under U.S. GAAP $(1,266,511) $(1,043,486) $(2,418,858)
--------------- --------------- ---------------
Loss per share under U.S. GAAP $(0.07) $(0.06) $(0.17)
--------------- --------------- ---------------
F-21
Leader Mining International Inc.
(an exploration stage company)
Notes to Financial Statements
March 31, 2001, 2000, and 1999
(expressed in Canadian dollars)
11. Differences between Canadian and U.S. GAAP (continued)
(i) Under U.S. GAAP, exploration costs, net of the tax effect of
flow-through shares, related to projects are charged to expense
as incurred. As such, the majority of costs charged to
exploration costs written off under Canadian GAAP would have been
charged to earnings in prior periods under U.S. GAAP. Property
acquisition costs are capitalized for both Canadian and U.S.
GAAP.
(ii) Under U.S. GAAP, a grant of stock options and warrants to acquire
shares at a price below the fair market value of the shares at
the time of the grant, is compensatory under APB No. 25 and is
accounted for as compensation expense. This has the effect of
increasing capital stock and deficit under U.S. GAAP.
(iii) The Company's interest in a joint venture has been
proportionately consolidated in the Company's financial
statements. For purposes of U.S. GAAP, this interest would be
accounted for by the equity method. Net loss, loss per share, and
shareholders' equity under U.S. GAAP are not impacted by the
proportionate consolidation of this joint venture interest.
b) Balance sheet components
2001 2000 1999
--------------------------- -------------------------- --------------------------
Canadian GAAP U.S. GAAP Canadian GAAP U.S. GAAP Canadian GAAP U.S. GAAP
Mineral properties and
deferred exploration $7,862,415 $67,117 $8,004,148 $158,500 $8,100,426 $169,000
costs (a) (i)
Capital stock (a) (ii) $ 21,914,840 $ 25,697,758 $ 20,963,315 $ 24,746,233 $ 20,346,416 $ 24,214,334
Deficit (a) $(13,929,781) $(25,926,146) $(12,744,513) $(24,659,635) $(11,816,805) $(23,616,149)
F-22
Leader Mining International Inc.
(an exploration stage company) Notes to Financial Statements March 31, 2001,
2000, and 1999 (expressed in Canadian dollars)
11. Differences between Canadian and U.S. GAAP (continued)
c) Shareholders' equity
Under U.S. GAAP, shareholders' equity would be as follows:
2001 2000 1999
Under Canadian GAAP $7,985,059 $8,218,802 $8,529,611
U.S. GAAP adjustment to net loss
Current (a)(i) and (a)(ii) (81,243) (115,778) 428,289
Cumulative (11,915,122) (11,799,344) (12,227,633)
U.S. GAAP adjustment to capital stock
Current (a)(ii) - - 379,250
Cumulative 3,782,918 3,782,918 3,488,668
----------------- ----------------- ----------------
Under U.S. GAAP $(228,388) $86,598 $598,185
----------------- ----------------- ----------------
d) Recent accounting pronouncements
(i) The Company has determined that there is no impact from the
adoption of SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities", which standardizes the
accounting for derivative instruments.
(ii) The weighted average number of common shares used to
calculate the loss per share under Canadian GAAP is equal to
weighted average number of common shares under U.S. GAAP.
(iii) Effective January 1, 2001, the Canadian Institute of
Chartered Accountants issued a revised version of CICA
Handbook Section 3500 "Earnings Per Share". This standard
complies in all material respects with SFAS 128, issued by
the Financial Accounting Standards Board.
12. Subsequent events
a) On May 4, 2001 the Company signed an option agreement to purchase an
interest in the Cogburn Project in British Columbia. The Company has
paid a $10,000 refundable deposit to secure the option. In addition,
the Company is required to grant 100,000 share purchase warrants for $1
each upon completion of a positive production feasibility study. The
Company can acquire a 100% interest in the property at the end of five
years for consideration of $395,000 cash, $1,515,000 towards mining
exploration, and issuance of 200,000 common shares of the Company. In
addition, the Company must pay a royalty of $50,000 on each
anniversary, beginning May 4, 2002. The payments are due as follows:
F-23
Leader Mining International Inc.
(an exploration stage company)
Notes to Financial Statements
March 31, 2001, 2000, and 1999
(expressed in Canadian dollars)
12. Subsequent events (continued)
i) Cash payments to Cogburn:
$10,000 upon signing of the agreement
$10,000 by October 1, 2001
$15,000 by May 4, 2002
$35,000 by May 4, 2003
$50,000 by May 4, 2004
$125,000 by May 4, 2005
$150,000 by May 4, 2006
ii) Exploration expenditures on the project:
$25,000 before October 1, 2001
$40,000 before May 4, 2002
$200,000 before May 4, 2003
$500,000 before May 4, 2004
$750,000 before May 4, 2005
b) The Company has reserved 330,000 share purchase options at $0.50
per share for a twelve month period for a new director.
c) Subsequent to March 31, 2001, the Company closed a private
placement for 1,250,000 shares at $0.40 per share for total
proceeds of $500,000. Each share carries one-half a share
purchase warrant with an exercise price of $0.52 per share,
exercizable for up to eighteen months.
F-24