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To our shareholders Guyanor Ressources S.A. became the first gold exploration and mining company listed on Le Nouveau Marché of the Paris Bourse in October 1996, raising approximately $8.9 million. Today we continue to build on the foundation of the past two years, supported by a premier portfolio of projects that positions Guyanor at the forefront of precious minerals resource development in French Guiana. Our confidence for future growth is based on the merits of our foremost gold projects Yaou, Dorlin and St-Elie/Dieu-Merci, a promising advanced stage gold project Paul-Isnard, an intermediate diamond project Dachine, and significant prospective earlier stage properties throughout the greenstone belts in French Guiana. Exploration for gold and diamonds is a systematic investigation using geochemical and geophysical surveying and sampling to identify a target, then defining resources and reserves, and finally determining the shape and size of a commercially viable ore body. Our expertise in tropical greenstone exploration under demanding, hot, humid, jungle conditions is built on our best asset­the experience and skills of our exceptional team of geologists, metallurgists, technicians and support staff at field camps and our headquarters in Cayenne. Our exploration teams are diligently working to increase the reserves reported at Yaou, to begin to define the mineralization at the large St-Elie/Dieu-Merci project, to make continued progress at Dorlin, Paul-Isnard and Dachine, and to continue to acquire and evaluate new prospects. What was accomplished in 1996? For starters, during 1996, Guyanor reported the first significant gold reserves in French Guiana, the Yaou project, where the Company announced probable reserves containing 876,000 ounces of gold. Most of these reserves were identified at the Yaou Central prospect. This year Yaou is on an aggressive schedule to increase reserves and resources with the objective of advancing the project to the feasibility stage by 1998. Cambior, our partner for the Yaou and Dorlin projects, is earning in their interest. The Dorlin gold project was reassessed in 1996 and a core drilling at the Montagne Nivre target provided encouragement for increased drilling in 1997. In addition, Guyanor identified gold mineralization as a result of deep augering at the Jadfar target at Dorlin. In 1997, we anticipate making an initial estimate of near surface resources at Montagne Nivre at Dorlin and beginning a prefeasibility study. Another exciting project is St-Elie, which appears extremely promising for bulk tonnage mining. Guyanor, along with our partner, ASARCO, is pursuing an aggressive exploration effort. Core drilling at Devis pit, a historic mining site, and the Michel prospect encountered mineralized zones. Mineralization seems to be open at depth and along strike. Core drilling to depth at the Chemin de Fer prospect will test the mineralization identified in trenching results at depth. The St-Elie project doubled its size when Guyanor and ASARCO acquired an option on the adjoining DieuMerci concession, which presently has four identified targets with promising trenching. In 1997, the objective at St-Elie is to assess the potential of 13 known gold occurrences through an aggressive drilling campaign. At Paul-Isnard, Guyanor entered into a joint venture agreement with ASARCO and LaSource Developpement S.A.S. under which Guyanor is the exploration project manager and ASARCO, once vested, would become the manager for any feasibility study and mine operation. Early indications from an initial 3,200-meter core drilling program were encouraging and indicate the potential for massive sulfide type mineralization that will be investigated further in 1997. 1. In January 1997, Guyanor began French Guiana represents a unique implementing a program to discontin- combination of prospective geology, ue alluvial production by SOTRAP- skilled manpower, political stability MAG, which has experienced continu- and economic incentives. As explorers, ing operating losses since its acquisi- we are committed to safeguarding the tion in 1994. This action was neces- environment, our employees and the sary because management did not communities in which we work. We believe that future profitability could be achieved without significant capital investments, changes in work prac- David A. Fennell, President and CEO are conscientious stew-ards of the rain forest environment where we conduct exploration activities. As a tices and a reduction in fuel taxes. part of the Golden Star group, Guyanor participates in Golden Star's companywide Environ-mental Manage- With the help of Golden Star's diamond exploration ment System to ensure effective environmental protec- team based in Guyana, Guyanor is evaluating diamond tion and mitigation planning. prospects in French Guiana as well as the Dachine pro- ject. Guyanor plans a 4,000-meter reverse circulation Thank you for your support in the past year and your drilling program at Dachine in 1997 to test the diamon- continuing faith in the Company's future. The Board diferous ultramafic body to depth. Dachine continues to of Directors, management and employees continue to be a promising project that we feel needs further geolog- believe the best is yet to come for Guyanor. ic evaluation to properly assess its commercial potential. Sincerely yours, We are pleased that Jean-François Sauvage has taken over the helm as Managing Director for Guyanor. Jean- François, who joined the Company in 1994, has more than 20 years of global exploration experience as a David A. Fennell geologist and consultant. He replaces Carlos Bertoni, President Vice President-Exploration, Eastern Division, who successfully built Guyanor into a significant gold explo- April 1997 ration company. Carlos has transferred to Brazil to oversee Golden Star's Brazilian operations. We believe that Guyanor has greater potential for growth than shown by the stock performance through the first quarter of 1997. Our task at hand is to continue to advance projects toward the goal of feasibility and possible mine development. Guyanor's combination of prospective projects, talented exploration teams and strong partners provides Guyanor with considerable growth potential. 2. Left: The Blue Morpho (Morpho menelaus) in its natural environment in the jungles from Venezuela to Brazil. Right: A brilliant red hibiscus typically found in the Amazon rain forest of South America. Guyanor strives to conduct all its activities in an environmentally responsible manner. The tropical rain forest environment where much of Guyanor's activities are carried out is one of the most diverse ecosystems in the world. Guyanor is committed to sound environmental management of its activities, wherever they may be located. During 1996, Guyanor's parent Golden Star Resources Ltd. adopted a new companywide environmental program, the Environmental Management System (EMS), to ensure effective environmental protection and mitigation planning. With the assistance of Rescan Environmental Services Ltd., the EMS was developed with reference to the Mining Association of Canada's Environmental Policy, as well as ISO 14000, the International Standards Organization's environmental management systems. There are five principal elements to the EMS: 1. Environmental Goals--Guyanor's environmental goals are to comply with all the local requirements, and/or with North American and World Bank E n v i r o n m e n t environmental standards in places where no local standards exist. 2. Perfor- mance Procedures--The Company established best practices and procedures for all exploration activities to safeguard environmental resources and minimize impact. 3. Environmental Monitoring--Requirements were established to monitor environmental conditions in coordination with the level of exploration. 4. Biannual Project Reporting--Information collected from all active projects will be compiled as a companywide database, detailing environmental character-istics, compliance with performance procedures and environmental monitoring. 5. Annual Environmental Audits--Each year a full environmental audit will be conducted at one property to review operating procedures, environmental data collection and compliance. The database information as well as the results of the annual environmental audit will be reported each year in an environmental management assessment to the Board of Directors. 3. RESOURCE DEVELOPMENT PROCESS Projects 1 Early A project has broadly identified areas that warrant geochemical and geophysical surveying. Régina Est 2 Intermediate Near surface gold mineralization is identified through trenching, augering and widespaced drilling. Dachine 3 Advanced Drilling to test for mineralization at depth produces data to plot a 3-D model and define resources. Dorlin Paul-Isnard St-Elie 4 Pre-Feasibility Data exists to determine reserves, requiring further drilling and exploration to expand the zones. Yaou 5 Feasibility and Mine In the final stages, exploration continues to further define an orebody, leading to mine planning. Mining commences and exploration continues in order to replace reserves. Building the honeycomb for storing the golden harvest it produces, the honeybee is known for being industrious. Thus, we found it to be appropriate as a symbol for the progress realized by Guyanor Ressources in French Guiana. South America Types Paul-Isnard St-Elie Régina Est Dorlin Yaou Dachine legend key Mining concessions Diamond Project Exploration permits Gold Project N Guyanor Ressources S.A. (Guyanor) is a publicly listed company on the Toronto Stock Exchange and Le Nouveau Marché of the Paris Bourse. F r e nc h G u i a n a Guyanor, which is an approximately 68% owned subsidiary of Golden Star Resources, is incorporated under French laws. With a balanced portfolio of projects, including such premier prospects as St-Elie, Yaou and Dorlin, Guyanor delineated the first significant gold deposits in French Guiana with the reporting of probable reserves of 876,000 ounces of gold at Yaou in 1996. French Guiana has been a "Département" of France since 1946. The interior of French Guiana is largely remote and undeveloped but holds mineral potential in the extensive belts of Paramaca greenstones. Gold production from placer mining dates back to the 1860s. French Guiana, which covers 91,000 square kilometers, has a population of 140,000. The major local industries include aerospace, mining, seafood and timber. G u ya n o r R e s s o u rc e s S . A . Guyanor became the first gold exploration and mining company listed on Le Nouveau Marché of the Bourse de Paris on October 30, 1996, raising approximately $9 million in net proceeds through the sale of shares to European investors. Following a strategy of securing early opportunities, Guyanor is well positioned as one of the leading precious mineral exploration companies in French Guiana. Guyanor, its subsidiaries, and joint venture companies, all hold Personal Mining Authorization or "Autorisation Personnelle Minière" (APM), which is a prerequisite for a mining title or permit. Guyanor, its subsidiaries and joint-ventures companies currently hold 21 mining titles. Guyanor directly or indirectly is allowed up to 39 mining titles giving it a strategic advantage in obtaining some of the most prospective properties in French Guiana. Yao u Yaou, the most advanced project in Guyanor's portfolio, is undergoing a pre-feasibility study on the strength of initial probable reserves. Located in western French Guiana, about 210 kilometers southwest of Cayenne, the Yaou project covers 150 square kilometers and was acquired by Guyanor in 1993. Cambior is earning in a 50% interest at Yaou and the nearby Dorlin gold project. Reserves & Exploration Probable reserves of 10.3 million tonnes at an average gold grade of 2.7 g Au/t, representing 875,900 ounces of gold in situ were reported in September 1996. More than 90% of the probable reserves are hosted at the Yaou Central prospect, totaling 9.2 million tonnes grading 2.8 g Au/t. At Yaou Central the "A" and "C-L" deposits are hosted by intrusive rock while the "B" and "B-West" deposits are hosted by volcanic tuffs. Gold is generally associated with sulfides, primarily pyrite and quartz-carbonate veins. Previous owners had conducted more than 12,500 meters of core drilling, 13,000 meters of augering and nearly 2,000 meters of trenching. Through the end of 1996, Guyanor had completed the integration of the past exploration data and drilled 95 core holes, totaling 16,258 meters, to define the known mineralized zones at Yaou Central and Chaina prospects. 5. paul-isnard yaou french guiana Cayenne st-elie dorlin dachine Above: Guyanor Ressources S.A. has an exciting portfolio of projects in French Guiana. Based in Cayenne, Guyanor is rapidly advancing several gold projects such as Yaou, St-Elie and Dorlin. 1000 ppb Au 500-1000 ppb Au 200-500 ppb Au YAOU PROJECT 100-200 ppb Au TARGETS PLANNED OPEN PITS CAMP CREEK K I J Yaou Central Probable Reserves: Sept. 1996 9.2 Mt at 2.8g Au/t 824,000oz N 0 1KM During 1996, Guyanor focused on expanding three known mineralized zones "A", "B" and "C-L" at Yaou Central. At the "A" zone in Yaou Central, gold mineralization was intercepted in each of nine holes, exhibiting a weighted average gold grade of approximately 3.6 g Au/t with an average intercept length of approximately 18 meters. In the "B" zone, intercepts from three of four holes showed a weighted average grade of 4.0 g Au/t over an average length of approximately 15 meters. Drilling at the "C-L" zone intercepted mineralization exhibiting a weighted average grade of approximately 2.2 g Au/t over an average intercept length of approximately seven meters. At Chaina, six of nine holes indicated lower grade mineralization with intercepts of 1.5 g Au/t over an average length of 12 meters. In 1996, the Company spent $1.1 million at the Yaou project, of which $1.0 million was reimbursed by Cambior under the terms of the option agreement. 1997 Outlook The goal at Yaou is to identify sufficient resources and reserves by year-end 1997 to advance the project to feasibility with the objective of commencing mine development in late 1998. Guyanor anticipates drilling 10,000 meters of core holes at Yaou in 1997. The drilling program is planned to include step-out and infill drilling to extend known deposits along strike and at depth as well as to identify new zones of mineralization at Yaou Central and Chaina. Drilling also is planned for the "I", "J" and "K" zones to the northeast of Yaou Central, which are believed to be part of the same trend as Yaou Central. Regional exploration to define additional potential mineralization at Yaou Nord, Tomantoni and Bois Blanc areas will continue. Approximately 20% of the total Yaou project area has been evaluated. Dorlin Dorlin, an advanced stage gold project, covers 150 square kilometers and lies approximately 40 kilometers east of Yaou and 180 kilometers southwest of Cayenne. The greenstones which characterize Dorlin are intruded by younger granite rocks. St-Elie Project: Kerouani/Virgile Trenching Results +900ppb Au +500ppb Au ROADS Average Grade of 167 Auger Holes 3.0 g/t Au TRK.3 5.2 ------ 26.0 TRK.1 4.3 ------ 18.0 KEROUANI TRK.2 4.0 ------ TRK.4 26.0 5.4 ------ 22.0 TRK.5 5.8 ------ 10.0 Trench g/t Au ---------------- Length (m) N TRV.22 TRV.1 1.8 ------ 2.6 ------ 10.0 12.0 TRV.2 18.5 ------ 4.0 VIRGILE TRV.21 7.5 ------ 24.0 TRV.5 3.6 ------ 3.0 TRV.4 1.2 ------ 8.0 0 100m 7. Left: The Dachine diamond project camp in French Guiana. Right: The Devis Pit at the St-Elie project was a site of hydraulic mining at the turn of the century. Dense vegetation has rapidly re-grown over the site. Exploration Guyanor has established two parallel, hydrothermal zones of sulfide associated gold mineralization. These two mineralized zones, Sud Nivre and West Nivre, are approximately 40-50 meters wide with a strike of over 750 meters, located in the southern sector of Dorlin. During 1996, Guyanor completed 31 core holes to an average depth of 65 meters for a total of 2,000 meters at the Sud Nivre zone on a prominent ridge called Montagne Nivre. These results were integrated with a review of a 1986 drilling program conducted by the previous owners, Bureau de Recherches Géologiques et Minières (BRGM) and BHP, at the adjacent West Nivre zone consisting of 19 core holes to depths of 140 meters totaling 4,323 meters. Mineralization was encountered in 15 of these holes with a weighted average grade of 1.9 g Au/t over 9.9 meters. Guyanor's results were nearly identical with gold mineralization encountered in approximately 23 of the core holes, at a weighted average grade of 1.9 g Au/t and an average length of 9.8 meters. Late in the year, Guyanor initiated a second 2,400meter drilling program and moved a second, larger drill rig to test the Sud Nivre zone to greater depth and to infill drill targets at West Nivre. Further investigation of Montagne Nivre included outcrop sampling, 57 deep auger holes for 565 meters and 199 meters of trenches. In 1996 Guyanor incurred exploration expenses for the Dorlin project totaling $1 million, all of which were reimbursed by Cambior under the terms of the option agreement. 1997 Outlook During 1997, further drilling will be conducted in a systematic investigation of the mineralized zones on Montagne Nivre, which have been established to extend at least an additional three kilometers. Guyanor will also conduct systematic exploration on three intrusive related targets on the property, Jadfar, Sept Kilo and Dartagnan. The budget for 1997 includes 8,000 meters of core drilling, trenching, augering and soil sampling. The goal for Dorlin is to establish an initial resource on the Nivre zones in 1997. St-Elie The St-Elie project is a 50-50 joint venture between Guyanor and ASARCO Guyane Française, through the jointly owned company Société des Mines de St-Elie (SMSE). St-Elie is progressing quickly with 13 targets identified in a systematic exploration program since the concession was first acquired by Guyanor in 1993. The St-Elie project, which includes the adjoining DieuMerci property, covers 254 square kilometers in north central French Guiana, about 110 kilometers west of Cayenne. The geology at the project is characterized by a belt of Paramaca greenstones trending northnorthwest through the property, locally intruded by granites. Gold mineralization has been identified in quartz veins in cross-cutting altered granites and volcano rocks. The St-Elie area is one of the most significant historical gold districts in French Guiana. Historical records indicate more than 600,000 ounces of gold production from the St-Elie area from 1878 to 1956. 8. Exploration The Devis and Michel zones were the primary focus of the 1996 core drilling program of more than 4,500 meters. The Devis pit is a historic hydraulic mining site. At Devis, 13 of 23 core holes, totaling 3,202 meters, encountered mineralization over a zone approximately 550 meters long by 200 meters wide, exhibiting an average intercept width of 8.5 meters at a weighted average grade of 2.6 g Au/t. At Michel, a zone of mineralization was identified by drilling approximately 1.2 kilometers by 200 meters. In a series of 11 core holes totaling 1,780 meters at the Michel zone, mineralization was encountered in nine drill holes with average intercept widths of 4.3 meters at a weighted average gold grade of 3.9 g Au/t. Mineralization at both Devis and Michel is open at depth and along strike. At the Chemin de Fer zone, four trenches identified a 1,200 by 40 meters zone of intense quartz veining, yielding an average mineralized interval of approximately 12 meters with a weighted average gold grade of 3.0 g Au/t. Mineralization appears to be open at depth. A 10-hole core drilling program for 1,500 meters was initiated late in the first quarter 1997. In the first quarter 1997, Guyanor, through SMSE, more than doubled the size of the St-Elie project by acquiring an option on the Dieu-Merci property. Dieu-Merci measures 155 square kilometers and borders the St-Elie property to the east and south. DieuMerci features the southeastern extension of the StElie greenstone-hosted mineralization and has four identified gold anomalies ranging from 400 to 600 meters in length. These four anomalies are Kerouani, Virgile, Cesar and Devis Sud. At Kerouani, five trenches excavated across the zone over a 350-meter strike showed an average mineralized interval of approximately 18 meters with a St-Elie Prospect Locations GRANITES SEDIMENTARY GREENSTONE prospects: 1 DEVIS 2 MICHEL 3 CHEMIN DE FER 4 AUGUSTE 5 MADELEINE 6 PACTOLE 7 COURIEGE 8 SABLE 9 GIRAUD 10 KEROUANI 11 VIRGILE 12 CESAR 13 DEVIS SUD AREAS OF PLACER MINING ST-ELIE CONCESSION COURIEGE PERMIT DIEU-MERCI CONCESSION 4 3 5 2 9 6 71 8 10 13 11 12 RENAISSANCE CONCESSION LA VICTOIRE CONCESSION N 0 4km 9. weighted average gold grade of 10.7 g Au/t. At the Virgile zone, five trenches over a 450-meter strike length exhibited an average mineralized interval of approximately 10 meters with a weighted average gold grade of 7.6 g Au/t. The Kerouani and Virgile zones were further defined by nine shallow core holes at each zone drilled by the previous owner to a depth of 35 meters. Results at Kerouani yielded an average mineralized interval of 5.7 meters with an average grade of 3.5 g Au/t over 300 meters of strike length. At Virgile, shallow drilling indicated an average interval of 6.1 meters at 2.5 g Au/t over 250 meters of strike length. The Cesar zone had five trenches excavated over a 500-meter strike, showing an average mineralized interval of approximately 18 meters with a weighted average gold grade of 6.0 g Au/t. Guyanor initiated a 10-hole, 3,000 meter core drilling campaign at Kerouani and Virgile in the second quarter of 1997 to test the targets at depth. A total of 1,933 samples from line cutting and auger sampling were collected and 48 trenches totaling 2,200 meters were dug at various prospects. During 1996, Guyanor's exploration spending at St-Elie totaled $2.4 million, all of which was reimbursed by ASARCO according to the terms of the joint venture agreement. 1997 Outlook A minimum of 15,000 meters of core drilling is planned for 1997 using two drill rigs. The first phase of 4,500 meters involves testing mineralization to depth at the Chemin de Fer and infill drilling at the Michel zones. At the Dieu-Merci property, 3,000 meters of core drilling is scheduled at Kerouani and Virgile to investigate depth of mineralization identified by trenching. The second phase of 4,500 meters of core drilling targets the northern half of the project. There will be further soil geochemistry and ground geophysical sampling, followed by additional augering and trenching to extend known anomalous zones. Paul-Isnard Paul-Isnard, an advanced gold project, covers 250 square kilometers in a basin flanked by the Decou-Decou and Lucifer mountains in western French Guiana. Stream sediment sampling at Paul-Isnard yielded grades ranging from 0.5 to 6.0 g Au/t. Guyanor believes that alluvial gold, originating from gold-bearing rocks from the Decou-Decou and Lucifer mountains, was carried downstream and settled in the gravel stream beds. An initial drilling program at Paul-Isnard targeted 1.1 kilometers of strike length at Montagne d'Or on the north flank of the Decou-Decou Mountain. At Montagne d'Or, Guyanor has identified a zone of strongly sheared, mineralized felsic volcano rocks approximately two kilometers in length with varying widths of 100 to 400 meters, yielding an average grade of 1.5 to 2 g Au/t. The drilling results from 18 core holes totaling 3,232 meters revealed shear related gold mineralization associated with sulfides as well as semi-massive to massive sulfide mineralization with weighted average metal grades of 10.4 g Au/t, 51 g silver, 1.1% copper and 0.4% zinc over three meters in one hole. This style of mineralization is very similar to deposits being mined along the famed Cadillac Break in Quebec, Canada. In 1996, Guyanor spent approximately $1.5 million for the Paul-Isnard project, all of which was reimbursed by ASARCO under the terms of the joint venture agreement. 1997 Outlook The work program planned for 1997 includes ground geophysical surveys at Montagne d'Or to assist in preparing a core drilling program. Guyanor expects to complete 4,500 meters of core drilling at the Montagne d'Or and other targets in 1997. 10. Alluvial Mining Operation Guyanor began implementation of a program to discontinue alluvial production by SOTRAPMAG in January 1997. SOTRAPMAG has experienced continuing operating losses since its acquisition in 1994 and management did not believe that future profitability could be achieved without significant capital investments, changes in work practices and a reduction in fuel taxes. Guyanor incurred a fourth quarter charge to 1996 earnings of $3.2 million for the write-down of assets and accrual of closure costs. Dachine Located in southwest French Guiana, the five- by five-kilometer Dachine property is an intermediate stage diamond exploration project. Microdiamonds (<0.5 millimeter) were found in 1983 during prospecting work as part of a Mineral Inventory of French Guiana performed by the BRGM, the French geological survey. Guyanor received a "B" exploration permit covering 25 square kilometers of the Dachine occurrence from the French government in 1995. Guyanor has applied for an "A" exploration permit covering 337 square kilometers, which would include the "B" permit area. >200 ppb Au 100-200 ppb Au Dorlin Project, French Guiana QUARTZ-TO-BRECCHIA ORPAILLAGE WORKINGS GRANITOIDS CREEK JADFAR PLACER MINING CAMP SEPT KILOS DARTAGNAN Petit Inini N 0 1000m 11. Left: Helicopters are frequently used to ferry personnel, equipment and lab samples from the field sites in French Guiana. Right: Laurent Sapor, a Guyanor geologist, examines drilling samples in the core shack at Dorlin. Exploration At Dachine, diamonds are contained in a body of metamorphosed ultramafic rock (a talc schist) extending for five kilometers varying in width from 350 to 1,000 meters. In 1996, results from an initial program of auger and core drilling yielded 8,970 microdiamonds from approximately 1,164 kilograms of samples. In addition, 976 microdiamonds were recovered from approximately 387 kilograms of outcrop and soil samples collected. Furthermore, 31 stream sediment samples from creeks that drain from the Dachine area processed at Golden Star Resources' Georgetown, Guyana laboratory were found to contain 7,009 microdiamonds (<0.5 millimeters) and 815 macrodiamonds (>0.5 millimeters) in a total of 700 liters. The largest stone was 2.7 millimeters long. A gravity jig plant was set up at Dachine in late 1996 to produce a heavy mineral concentrate from bulk samples. A small bulk sample of 186 tonnes excavated from ten shallow pits was completed, resulting in the production of 3 tonnes of concentrate. The concentrate was processed at BHP's diamond recovery laboratory in Reno, Nevada. An insignificant number of stones larger than 1.25 millimeters was recovered. Much of the bulk material that was considered oversized remains at the Dachine property. During 1996, Dachine was a joint venture project with BHP, which funded and conducted the exploration as project manager in order to earn in a 51% interest. Total 1996 exploration expenditures at Dachine were $1.2 million, of which BHP contributed $1.1 million. BHP withdrew from the project in the first quarter 1997. 1997 Outlook Further bulk sampling of alluvial material from streams draining the diamondiferous ultramafic body and a comprehensive reverse circulation drilling program of 4,000 meters is planned in 1997 to test the Dachine body to depth over the five-kilometer strike length using widely spaced 800 meter intervals. The Company believes that a better understanding of the body's geology will help assess the commercial potential of Dachine and help guide the future selection of targets for additional bulk sampling and potential diamond recovery. 12. MANAGEMENT OF THE COMPANY List of the officers as at May 1, 1997: NAME AND MUNICIPALITY OF RESIDENCE Golden Star Resources Ltd. POSITION WITHIN THE COMPANY Administrator 1 PRESENT AND PRINCIPAL OCCUPATION FOR THE PAST FIVE YEARS N/A Raymond Abchée Cayenne, French Guiana Director President and Managing Director, Tanon Automobiles, Cayenne (French Guiana), President of SoGuci S.A. Gordon J. Bell Littleton, Colorado, USA Chief Financial Officer Vice President and Chief Financial Officer, Golden Star Resources, since November 1995; prior thereto, Vice President and Director, RBC Dominion Securities Inc. from October 1994; Vice President, RBC Dominion Securities Inc. from December 1991 to October 1994. Carlos H. Bertoni Brasilia, Brazil Director Vice-President, Exploration (Eastern Division) of Golden Star and prior thereto, Exploration Manager for Golden Star. David A. Fennell Nassau, Bahamas Donald R. Getty 2, 3 Edmonton, Alberta, Canada Pierre Gousseland 2 Greenwich, Connecticut, USA 3 Jean-Bernard Guyon Paris, France 3 Roger Parfait Cayenne, French Guiana President and Director President of the Company since 1994; President and Chief Executive Officer of Golden Star since May, 1996; President of Golden Star from May, 1992 to May, 1996; prior thereto, President of Golden Star Resources Ltd. (one of Golden Star's predecessor companies). Director President and Chief Executive Officer, Sunnybank Investments Ltd. (investment and consulting company), December 1992 to present. Director Self-employed business consultant and professional director. Director Departmental Director, Banque Bruxelles Lambert France (financial institution); Managing Director, Acti Mines d'Or (mining investment company). Director Managing Director, Guyane Car-Citer, (automobile rentalbusiness); Vice President, Union Patronale de Guyane (union representing all employers in French Guiana). Jean-Pierre Prévot Cayenne, French Guiana Director President and Managing Director, Air-Guyane; Co-Manager, Rhum Prévot (Rum Distillery); President, SOFIDEG (financial institution); President, Chambre de Commerce et d'Industrie de la Guyane (Chamber of Commerce and Industry of French Guiana). Jean-François Sauvage Cayenne, French Guiana Managing Director Managing Director of the Company since April 1997; and Exploration Manager since January 1997; prior thereto, Senior Geologist from 1994; consultant to mining companies. 1 Under French corporate law, it is permissible for a company to be a director of another company including of its subsidiary. David K. Fagin, Chairman of Golden Star, has been designated by Golden Star as its permanent representative in connection with proceed- ings of the directors of the Company. 2 Member of the Compensation Committee. David K. Fagin also serves as a member of the Compensation Committee. 3 Member of the Audit Committee. David K. Fagin also serves as a member of the Audit Committee. 13. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with and is qualified by the Company's consolidated financial statements and related notes, for the periods indicated, included herein. The financial statements have been prepared in accordance with Canadian generally accepted accounting principles. Results of Operations Overview The Company's current business activity focus is the exploration and, if warranted, development of precious metal and diamond deposits within specific geological domains. Upon completion of the exploration phase, a decision to proceed to the development phase requires that expenditures reflect the cost of the resultant reserves and be depleted on the unit of production basis over the estimated total reserve as mined. A decision to discontinue exploration or not to proceed to the development stage for a specific project would result in reducing the total capitalized cost of the exploration program and charging those costs against income during the period in which the decision was made to abandon the project. As such, reported net income or loss for the Company may be volatile and principally represents gold sales revenue from the Company's SOTRAPMAG alluvial gold mine and investment revenues received through the investment of idle funds, offset by costs of sales and those expenditures which cannot be directly attributed to a specific project and those costs for projects the Company has elected to abandon. 1996 compared to 1995 The Company reported a net loss of $9.5 million in 1996 as compared to $4.9 million in 1995. Total revenues of $1.8 million in 1996 decreased by $2.6 million as compared to 1995 revenues of $4.4 million, principally due to reduced gold sales by SOTRAPMAG. Interest and other revenues decreased from $0.4 million in 1995 to $0.1 million in 1996 due to the decrease in the average cash balance invested during 1996 as compared to 1995 resulting from continued spending on the Company's portfolio of exploration projects and corporate administration. Cost of goods sold decreased to $4.1 million for 1996 as compared to $5.8 million for 1995 as a result of the reduced production levels at SOTRAPMAG during 1996, with revenue from gold sales in 1996 of $1.7 million, compared to revenue of $4.0 million in 1995. Total gold production at SOTRAPMAG in 1996 was 143,562 grams (approximately 4,616 ounces), compared to 1995 production of 347,295 grams (approximately 11,165 oz). SOTRAPMAG's cost of goods sold exceeded revenues in 1996 by $2.4 million and in 1995 by $1.8 million primarily as a result of higher unit operating costs resulting from lower than expected grades of gold ore mined, lower than planned recoveries of gold due to the delays in changing the recovery methods used, and inefficiencies due to inherited plant operating design and methods. During 1996 and 1995, approximately $0.9 million and $1.0 million, respectively, was spent on improvements in infrastructure and mining and recovery processes at SOTRAPMAG in order to increase production and lower unit operating costs. Depreciation expense increased as a result of an increase in the depre- ciable asset base through the various capital expenditures made in 1995 and 1996. General and administrative expenditures in 1996 of $2.6 million remained consistent with 1995 expenditures. The alluvial operations being conducted through SOTRAPMAG experienced continuing operating losses since its acquisition in 1994. Outside consultants engaged in 1996 to review the operations and make recommendations on how to render the operation profitable concluded that without a significant capital investment to increase production, changes in certain work practices and a reduction in fuel taxes, the operation could not achieve profitability. As a result, the Company has begun implementation of a program to discontinue the alluvial operations conducted by SOTRAPMAG. The Company incurred charges to fourth quarter 1996 earnings totaling $3.2 million, including $0.8 million resulting from the write-down of certain fixed assets and inventories, $1.1 million for the write-down of certain capitalized exploration costs related to the alluvial mining operations, $0.1 million for accrual of land rehabilitation and mine closure costs, and $1.1 million for accrual of the severance and other social costs associated with the discontinuation of alluvial production. Certain fixed assets, equipment and inventories owned by SOTRAPMAG will be utilized in the ongoing exploration at the Paul-Isnard project area and were not subject to a write-down. The final amount of severance and other costs associated with the discontinuation of alluvial production are contingent upon negotiation with the representative of the workers and the French government. The French government was formally notified of the closure plans in January 1997. In March 1997, the deadline for French government opposition to the closure plan passed, with no such opposition expressed by the government. Closure of the plant and processing facilities and land rehabilitation are scheduled to be completed by the end of the second quarter of 1997. Relocation and retraining of certain employees, as well as company-provided outplacement services, is anticipated to be complete by the end of the third quarter of 1997. The Company also expects to incur operating losses of approximately $0.5 million during the shut-down process during the first quarter of 1997. 1995 compared to 1994 The Company reported a net loss of $4.9 million in 1995 as compared to $1.2 million in 1994. Total revenues increased to $4.4 million as compared to $0.7 million in 1994 principally due to a full year of gold sales by SOTRAPMAG. Interest and other revenues increased from $0.2 million in 1994 to $0.4 million in 1995 due to the increase in the average cash balance invested during 1995 as compared to 1994 resulting from cash received in the initial public offering of the Company's common shares in March 1995. Cost of goods sold increased to $5.8 million for 1995 as compared to $0.7 million for 1994 as a result of the inclusion of SOTRAPMAG's production costs for a full year in 1995. Revenue from gold sales in 1995 was $4.0 million at an average realized gold price of $388 per ounce sold. Cash operating costs amounted to $562 per ounce sold. Total gold production at SOTRAPMAG in 1995 was 347,295 grams (approximately 11,165 oz). SOTRAPMAG's cost of goods sold exceeded revenues in 1995 by $1.8 million primarily as a result of higher unit operating costs resulting 14. from lower than expected grades of gold ore mined, lower than planned recoveries of gold due to the delays in changing the recovery methods used, and inefficiencies due to inherited plant operating design and methods. During 1995, approximately $1.0 million was spent on improvements in infrastructure and mining and recovery processes at SOTRAPMAG in order to increase production and lower unit operating costs. General and administrative expenditures increased to $2.6 million in 1995 as compared to $1.1 million in 1994, reflecting the necessary growth in the level of support required to service the increased size of the Company's portfolio of exploration projects throughout French Guiana and the costs associated with creating and maintaining a public listing. Depreciation expense increased as a result of an increase in the depreciable asset base through the various acquisitions made in 1994 and an increase in equipment purchases of $0.8 million in 1995 for exploration and support services. Foreign exchange gains of $0.2 million resulted from the strengthening of the French Franc against the U.S. dollar. During 1995, the Company elected not to exercise its option to earn an interest in an exploration permit known as Esperance and the option lapsed on March 31, 1995. The charge against earnings for the year ended December 31, 1995 for this abandonment was $0.2 million. Liquidity and Capital Resources 1996 compared to 1995 Consolidated cash and short term investments as of December 31, 1996 of $1.9 million decreased $0.7 million from $2.6 million as of December 31, 1995. Working capital as of December 31, 1996 decreased $2.0 million to $0.4 million as compared to $2.4 million as of December 31, 1995, due primarily to a decrease in joint venture and other receivables of $0.9 million, a decrease in cash due to continued spending on exploration projects in 1996, and an increase in current liabilities of $0.3 million, due primarily to accruals related to the shut-down of alluvial mining operations at SOTRAPMAG. On October 30, 1996, the Company obtained the approval of a final prospectus entitling the Company to list its Class B common shares for trading on the Nouveau Marché of the Bourse de Paris in France, and for the sale of 1.0 million of its Class B shares. Trading of the Company's Class B shares on the Nouveau Marché began on October 30, 1996. The offering of the Company's shares in Europe was completed on November 5, 1996, and as a result, the Company received proceeds of approximately FF45.5 million (approximately $8.9 million) after commissions. As a result of the offering Golden Star's interest in the Company was reduced to approximately 68% of its outstanding common shares. Cash used in investing activities of $4.0 million in 1996 increased from $2.3 million in 1995 primarily due to the increase in net exploration expenditures in 1996 resulting from an increase project spending not reimbursed by joint venture partners and the purchase of equipment for use at SOTRAPMAG. Total exploration expenditures for 1996 amounted to $9.3 million, offset by joint venture recoveries of $6.9 million compared to $6.8 million, offset by joint venture recoveries of $5.2 million in 1995. Cash provided by financing activities of $8.8 million increased in 1996 as compared to $8.1 million during 1995, primarily as a result of the $8.9 million of proceeds received from the Company's public offering on the Nouveau Marché in Paris in October 1996. In addition, the Company received $0.3 million from the exercise of stock options during 1996, compared to $0.1 million for stock option exercises in 1995. Share capital issuances were $30.4 million in 1995 due to shares issued for the initial public offering and shares issued to Golden Star in exchange of $21.4 million debt owed by the Company to Golden Star. Outlook Total budgeted expenditures on exploration for 1997 approved by the Company's Board of Directors are $17.9 million. The Company expects to recover $13.0 million of these expenditures from various joint venture partners which are funding such programs to earn interests in the Company's projects. The budgeted 1997 expenditures are estimated expenditures and certain of these expenditures may be reduced or reallocated based, among other things, on exploration results, the completion of joint venture arrangements with respect to certain of the properties and available funding. As at December 31, 1996, the Company held consolidated cash and short-term investments of $1.9 million. Most of the exploration and development spending for the Company and its subsidiaries represents discretionary spending and can be adjusted to reflect, among other things, results of exploration and development activities, the successful acquisition of additional properties or projects, the price of gold and management's assessment of the capital markets. The Company does not have sufficient cash on hand to fund budgeted 1997 operating and exploration expenditures. Alternative sources of capital available to the Company include the sale of equity, debt guaranteed by Golden Star from third parties, direct funding by Golden Star, sale of assets, or entering into new joint venture partnerships. Whether, and to what extent, such alternative financing options are pursued by the Company in 1997 will depend on a number of factors including: results of exploration and development activities; the successful acquisition of additional properties or projects; the price of gold and management's assessment of the capital markets. The Company does not presently have sufficient financial resources to undertake large scale mining development projects. Financing for development of those projects would be dependent upon the Company's ability to raise the necessary funds or secure financing for project development through joint venture partners. The Company believes that its current activities are in compliance with applicable laws and regulations designed to protect the environment. The Company periodically engages specialists to evaluate potential environmental issues for specific projects. The results of these evaluations are utilized in the property evaluation process, where applicable. The Company also evaluates the need for reclamation reserves in light of current laws and regulations and will make provisions for such reserves as they become necessary based on the Company's activities in French Guiana. To the Shareholders of Guyanor Ressources S.A. The consolidated financial statements and all information in the Annual Report are the responsibility of the Board of Directors and management. The consolidated financial statements have been prepared by management based on information available to March 14, 1997 and are in accordance with accounting principles generally accepted in Canada. To the Shareholders of Guyanor Ressources S.A. A system of internal accounting and administrative controls is maintained by management in order to provide a reasonable assurance that financial information is accurate and reliable, and that the Company's assets are safeguarded. Limitations exist in all cost effective systems of internal controls. The Company's systems have been designed to provide a reasonable but not absolute assurance that financial records are adequate to allow for the completion of reliable financial information and the safeguarding of its assets. The Company believes that the systems are adequate to achieve the stated objectives. Regular testing of these systems 15. MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL INFORMATION AUDITORS' REPORT is employed to ensure continued effectiveness of the controls, and actions are taken when necessary to correct deficiencies when they are identified. The Audit Committee of the Board of Directors is comprised of three directors, and meets with management and the independent auditors to assure that management is maintaining adequate internal controls and systems and to approve the annual and quarterly consolidated financial statements of the Company. The Audit Committee also reviews the audit plan of the independent auditors and discusses the results of their audit and their report prior to submitting the consolidated financial statements to the Board of Directors for approval. The consolidated financial statements have been audited by Coopers & Lybrand Chartered Accountants, who were appointed by the shareholders. The auditors' report outlines the scope of their examination and their opinion on the consolidated financial statements. David A. Fennell President To the Shareholders of Guyanor Ressources S.A. We have audited the consolidated balance sheets of Guyanor Ressources S.A. as at December 31, 1996 and 1995 and the consolidated statements of loss and deficit and changes in financial position 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 generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at December 31, 1996 and 1995, and the results of its consolidated operations and changes in its financial position for the years then ended, in accordance with Canadian generally accepted accounting principles. Coopers & Lybrand General Partnership Chartered Accountants Montreal, Quebec March 14, 1997 16. GUYANOR RESSOURCES S.A. CONSOLIDATED BALANCE SHEETS (Stated in thousands of United States dollars) ASSETS Current Assets Cash and short-term investments Inventories-gold Accounts receivable Inventories-materials and supplies Prepaids Total Current Assets Mining Properties and Deferred Exploration (note 4) Exploration (note 4) Fixed Assets (note 6) Other Assets Total Assets As of December 31, 1996 1995 $ 1,942 384 1,675 332 ,58 4,391 18,795 3,360 ,- $ 26,546 $ 2,550 ,383 2,616 526 ,3 6,078 17,573 3,258 ,7 $ 26,916 LIABILITIES Current Liabilities Accounts payable and accrued liabilities Due to Golden Star (note 7) Total Current Liabilities Other Liabilities Total Liabilities Commitments and Contingencies (note 10) $ 3,603 401 4,004 83 4,087 $ 3,044 647 3,691 -\ 3,691 SHAREHOLDERS' EQUITY Share Capital (note 9) 38,242 Deficit (15,783) Total Shareholders' Equity 22,459 Total Liabilities and Shareholders' Equity $ 26,546 The accompanying notes are an integral part of these consolidated financial statements. Approved by the Board: By: David A. Fennell, Director David K. Fagin, As Designee for Golden Star Resources Ltd. 29,526 (6,301) 23,225 $ 26,916 17. GUYANOR RESSOURCES S.A. CONSOLIDATED STATEMENT OF LOSS AND DEFICIT (Stated in thousands of United States dollars) REVENUE Precious metals sales Interest and other EXPENSES Cost of Sales General and administrative expenses Depreciation and depletion Interest expense Loss on disposal of assets Exploration expense Abandonment and write-down of mineral properties Loss on suspension of mining activities (note 5) Foreign exchange loss (gain) For the years ended December 31, 1996 1995 $ 1,723 65 1,788 4,097 2,637 ,1,079 143 22 79 1,126 2,085 2 11,270 $ 4,007 ,428 4,435 5,805 2,563 ,875 8 58 57 156 (230) 9,292 NET LOSS $ 9,482 $ 4,857 DEFICIT--BEGINNING OF YEAR DEFICIT--END OF YEAR $ 6,301 $ 15,783 $ 1,444 $ 6,301 NET LOSS PER SHARE $ 0.25 The accompanying notes are an integral part of these consolidated financial statements. $ 0.14 18. GUYANOR RESSOURCES S.A. CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION (Stated in thousands of United States dollars) OPERATING ACTIVITIES: Net loss Reconciliation of net loss to net cash used in operations: Depreciation Depletion Loss on disposal of assets Write-down of equipment Abondonment and write-down of mineral properties Changes in non-cash operating working capital Net cash used in operating activities For the Years Ended December 31, 1996 1995 $ (9,482) 1,079 - 22 450 1,126 1,370 (5,435) $ (4,857) 825 50 - 156 (469) (4,295) INVESTING ACTIVITIES: Expenditures on mineral properties, net of joint venture recoveries Fixed asset purchases Other long-term assets Net cash used in investing activities (2,348) (1,631) 7 (3,972) (1,590) (1,351) 632 (2,309) FINANCIAL ACTIVITIES: Issuance of shares Issuance of share capital under options Offering costs Other liabilities Increase (decrease) in notes payable to parent Net cash provided by Financing Activities 9,586 276 (1,146) 83 - 8,799 30,337 72 (929) - (21,360) 8,120 INCREASE (DECREASE) IN CASH $ (608) CASH AND SHORT-TERM INVESTMENTS--BEGINNING OF YEAR $ 2,550 CASH AND SHORT-TERM INVESTMENTS--END OF YEAR $ 1,942 The accompanying notes are an integral part of these consolidated financial statements. $ 1,516 $ 1,034 $ 2,550 19. GUYANOR RESSOURCES S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (All tabular amounts in thousands of United States dollars) 1. Formation Guyanor Ressources S.A. (the "Company" or "Guyanor") was incorporated under the laws of France on April 20, 1993. The Company is a subsidiary of Golden Star Resources Ltd. ("Golden Star"), which owns approximately 68% of the Company's outstanding common shares. The Company is publicly traded with its Class B common shares listed on The Toronto Stock Exchange under the symbol "GRL.B". On October 30, 1996, the Company's Class B common shares became listed on the Nouveau Marché of the Bourse de Paris in France under the symbol "GUYN". (See Note 9.) 2. Description of Business The Company is engaged in the business of exploration, acquisition, development and, if warranted, operation of precious minerals deposits in French Guiana, an overseas department of France. The Company conducts its activities in French Guiana under agreements with third parties or pursuant to permits or concessions granted by the appropriate authorities. The Company was granted an Autorisation Personnelle Minière\ on October 6, 1993 by the Ministère de I'Industrie, des Postes et Télécommunications et du Commerce Extérieur which allows the Company to engage in exploration or to hold permits and mining concessions in French Guiana. 3. Summary of Significant Accounting Policies These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles. The following policies have been adopted by the Company. Basis of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany balances and transactions have been eliminated. Cash and Short-term Investments Cash and short-term investments consist primarily of high credit quality United States, French and Canadian money market investments and fixed and variable income commercial paper, which are capable of reasonably prompt liquidation, and are stated at amortized cost, which approximates market value. Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of temporary cash investments. The Company restricts investment of temporary cash balances to financial institutions with high credit standing. The Company strives to minimize its credit risk through diversification of investment and financial institutions. Revenue Recognition and Gold Inventories The Company recognizes income from gold and other precious metals when they have been extracted and processed at the on-site facilities. The gold inventory includes gold and gold concentrate and is recorded at the estimated net realizable value. Materials and Supplies Inventories Materials and supplies are valued at the lower of average cost or replacement cost. Interest Costs Interest costs resulting from funding provided by Golden Star incurred during the exploration and development phase of mining properties are capitalized and will be amortized and charged to earnings once commercial production is achieved or written off if the property is abandoned. Other interest costs are charged to expense as incurred. Mining properties and deferred exploration Mining properties and deferred exploration include acquisition, administrative, exploration and development costs of new mine areas, exploration sites or mineral properties and are depleted on a unit of production basis at such time as production commences or charged against income if the properties are abandoned. Administration costs incurred after commencement of production are charged against operations in the period incurred. Fixed Assets Fixed assets include building, machinery and equipment and are stated at cost. Depreciation is computed using the straight-line method at rates calculated to amortize the cost of the assets less their residual values over their estimated useful lives. The net book value of fixed assets at property locations are charged against income if the site is abandoned and it is determined that the assets can not be economically transferred to another project or sold. Foreign Currency Translation As the functional currency of the Company is the U.S. dollar, monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange prevailing at the end of the period. Non-monetary assets and liabilities are translated at the rates of exchange prevailing when the assets were acquired or the liabilities assumed. Revenue and expense items are translated at the average rate of exchange during the year. Translation gains or losses are included in the determination of net income for the period. The accounts of subsidiaries are translated using the same method. 20. GUYANOR RESSOURCES S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (All tabular amounts in thousands of United States dollars) Credit Risk The Company performs periodic credit reviews of its accounts receivable balances and records an allowance for doubtful accounts when amounts are determined to be uncollectible. Net Loss Per Share Net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the year. Common share equivalents are not included as the effect would be antidilutive. 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 amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Fair Value of Financial Instruments The Company's financial instruments are comprised of cash and short-term investments, accounts receivable, accounts payable, accrued liabilities and accrued wages and payroll taxes. The fair value of cash and short-term investments, accounts receivable, accounts payable, accrued liabilities and accrued wages and payroll taxes equals their carrying value due to the short-term nature of these items. 4. Mineral Properties The mineral properties in which the Company has an interest (either directly or through its subsidiaries) consist of the St-Elie, Dieu-Merci, Yaou, Dorlin, Paul-Isnard, Régina Est and Dachine properties, all located in French Guiana. The Company's interests in the properties are held by way of exploration permits, concessions, joint venture agreements and property purchase agreements. All of the properties are in the exploration or pre-exploration stage, except for alluvial gold operations conducted on the Paul-Isnard property. St-Elie and Dieu-Merci On October 25, 1993, the Company entered into an agree- ment to acquire the St-Elie concession for FF1.0 million (approximately $0.2 million). The Company also paid approximately $0.9 million to Compagnie Minière Espérance S.A. ("CME") in consideration of the relinquishment of certain contractual rights which CME held in the St-Elie concession. The aggregate amount of $1.1 million represented Golden Star's original expenditure for the St-Elie Concession and was satisfied by the Company's issuance of a $1.1 million promissory note payable to Golden Star. The amount was canceled in March 1995 in consideration for the issuance to Golden Star of Guyanor shares. Pursuant to an agreement dated October 22, 1993, CME agreed to relinquish to the Company certain residual alluvial exploitation rights in consideration for $500,000 and a royalty of 5% of any fine gold extracted from the concession, up to a maximum of 3,215 oz. By agreement dated February 18, 1995, the Company agreed to transfer to ASARCO Inc. ("ASARCO") a 50% equity interest in Société des Mines de St-Elie S.A.R.L. ("SMSE"), a company wholly owned by the Company and to which the St-Elie concession was transferred by decree of the French government dated April 24, 1996. SMSE was granted an APM authorizing it to hold up to three mining titles. Under the terms of the agreement, ASARCO must fund 100% of all costs required to advance the St-Elie concession to the development stage for a mining operation, including reimbursement of certain expenses incurred by the Company and completion of a feasibility study within five years or any shorter period as provided in the agreement with respect to the Company's acquisition of the St-Elie concession. ASARCO is required to spend $10.0 million on the concession over a five year period. If ASARCO completes the feasibility study for less than $10.0 million, ASARCO must expend the remaining balance on the St-Elie concession before the Company is required to contribute its proportionate share of expenses. ASARCO and the Company will be entitled to reimbursement of all expenses related to the St-Elie concession incurred by each of them and the Company will be entitled to a finder's fee of $1.8 million, on a pro rata basis, prior to any distribution of revenues based upon each party's participating interest in SMSE. The agreement provides that ASARCO's 50% interest in SMSE will return automatically to the Company if ASARCO's various commitments described above are not met. ASARCO may decide at any time to terminate its obligations under the agreement and stop funding the project. As of December 31, 1996, ASARCO had expended $3.6 million at the St-Elie concession. On February 19, 1997, SMSE and a French company entered into an agreement pursuant to which SMSE was granted an option to acquire a 100% undivided interest in three concession and one exploration permit know as Dieu-Merci. (See Note 11). Yaou and Dorlin Pursuant to an agreement dated July 16, 1993, Golden Star acquired from BHP Minerals International Exploration Inc. ("BHP") for $4.3 million a 63.3% participating interest in a joint venture between BHP and Bureau de Recherches Géologiques et Minières ("BRGM") with respect to six type "B" exploration permits covering an area known as Yaou (the "Yaou Permits") and six type "B" exploration permits covering an area known as Dorlin (the "Dorlin Permits") in French Guiana. In August 1993, Golden Star transferred this 63.3% participating interest in the joint venture to the Company at cost. Further to an agreement, dated August 3, 1993, between Golden Star and BRGM and a subsequent agreement, dated September 23, 1993, among Golden Star, the Company and BRGM, the Company acquired for $2.5 million BRGM's 36.7% interest in the joint venture assets owned for the 21. GUYANOR RESSOURCES S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (All tabular amounts in thousands of United States dollars) benefit of the joint venture by BRGM. In addition, the Company agreed to pay to BRGM a further FF14.0 million (approximately $2.8 million) as follows: FF7.0 million at the time of completion of a feasibility study on either the Yaou or Dorlin properties and FF7.0 million at the time of commencement of commercial production on either of these properties. The transfer of the Yaou Permits and the Dorlin Permits from BRGM to the Company was approved by the relevant French regulatory authorities on May 25, 1994. Both BHP and BRGM are arms' length parties to the Company and Golden Star. The Company and Golden Star entered into an option agreement with Cambior, dated as of May 11, 1994, under which Cambior was granted the option to acquire a 50% interest in a sole purpose company holding the Company's Yaou and Dorlin property interests in French Guiana. Cambior may exercise the option by spending $11.0 million on the Yaou and Dorlin properties by June 30, 1998. The agreement also provides that the Company is to manage the exploration of the Yaou and Dorlin permits and Cambior is to undertake the preparation of a feasibility study on the properties and to manage the development and operation of future mining operations. The acquisition by Cambior of any interest in the Yaou and Dorlin properties is subject to French government approval. There can be no assurance that such approval will be granted. After having met its initial funding requirement, Cambior may elect to terminate the agreement and stop funding the project at any time. As of December 31, 1996, Cambior had expended $4.3 million and $2.0 million at Yaou and Dorlin, respectively. Paul-Isnard and Eau-Blanche On October 29, 1994, the Company acquired its interest in the Paul-Isnard and Eau-Blanche Properties by way of its acquisition of all of the outstanding shares of SOTRAPMAG, a company incorporated under the laws of France and based in French Guiana. SOTRAPMAG holds a 99.7% interest in SGM, a société en nom collectif incorporated under the laws of France, also based in French Guiana. The Company also directly acquired the 0.3% interest in SGM not owned by SOTRAPMAG. SOTRAPMAG holds, directly or indirectly, eight mineral concessions (the "PaulIsnard Concessions"), and four type "B" exploration permits (the "Eau-Blanche Permits"). Pursuant to an agreement (the "Cermi Agreement") dated October 29, 1994, between SOTRAPMAG and Cermi S.A.R.L. ("Cermi"), a corporation owned by the previous owners of SOTRAPMAG, SOTRAPMAG granted Cermi the exclusive right to exploit alluvial minerals on a portion (the "Elysée Creek area") of two of the Paul-Isnard Concessions for a period of three years, renewable for an additional seven years. During the renewal period, SOTRAPMAG may, at its discretion, terminate the Cermi Agreement upon 90 days' notice. In consideration for this grant, Cermi agreed to pay SOTRAPMAG a royalty of 2.5% of the gross proceeds from the sale of gold produced from Cermi's alluvial operations in the Elysée Creek area. Cermi is also allowed to build an airstrip near the Elysée Creek area provided it allows SOTRAP- MAG use of the airstrip. SOTRAPMAG reserved the right to conduct exploration in the Elysée Creek area provided Cermi's exploitation rights are not interfered with. In addition, SOTRAPMAG has reserved the right under certain limited conditions to carry out any alluvial operations in the Elysée Creek area which it considers necessary to maintain its alluvial exploitation on the Paul-Isnard Concessions in the event it does not have exploitable reserves elsewhere on the Paul-Isnard Concessions. Cermi has granted SOTRAPMAG the option to acquire an interest in any primary mineral deposits discovered under any exploration permits which Cermi may obtain in the future covering areas adjacent to the Paul-Isnard property. Joint Venture with LaSource and ASARCO In conjunction with the Company's acquisition of SOTRAPMAG, BRGM has renounced in favor of the Company, an option which BRGM received from Alcatel to the primary deposits under the eight Paul-Isnard Concessions. In consideration for such renunciation, the Company agreed to pay BRGM FF 2,500,000 (approximately $505,000) in four installments ending December 31, 1996. On June 26, 1996, SOTRAPMAG entered into a joint venture agreement to give LaSource Développement S.A. ("LaSource") a 25% participating interest in the exploration and exploitation of primary gold deposits on the Paul-Isnard and Eau-Blanche projects. Pursuant to the joint venture agreement, ASARCO has two separate options to acquire a 50% interest in SOTRAPMAG's remaining interest in the primary deposits on each of the Paul-Isnard and Eau-Blanche projects. In order to acquire its interests in one of these projects, ASARCO is obligated, by June 2001, to complete a feasibility study on the project and to spend at least $10 million on such project, or to combine the Paul-Isnard and Eau-Blanche projects into a single project. SOTRAPMAG's share of expenditures will be funded by ASARCO. ASARCO is also obligated to use its best efforts to obtain financing on a project finance basis for 80% of project development costs, with SOTRAPMAG and ASARCO each contributing 37.5% and LaSource contributing 25% of the remainder of such costs. Guyanor will act as project manager for the exploration phase at the Paul-Isnard and Eau-Blanche project areas, which ASARCO, once vested, has the right to act as the manager of any resulting feasibility study and exploitation. ASARCO may withdraw from either project and terminate its right to vest its participating interest in such project at any time by giving written notice to SOTRAPMAG 90 days prior to the end of the current program period for such joint venture. As of December 31, 1996, ASARCO and LaSource had expended a combined $2.2 million at the Paul-Isnard and EauBlanche projects 22. GUYANOR RESSOURCES S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (All tabular amounts in thousands of United States dollars) Régina Est On April 26, 1994, the Company was granted a type "B" exploration permit covering a property known as Régina Est, located in northeastern French Guiana. Exploration expenditures of approximately $36,000 were incurred on the Régina Est property in 1996. Dachine In June 1995, the Company was granted a type "B" explo- ration permit by the French government covering a 25 km2 area in southwest French Guiana known as the Dachine (formerly known as Inini) property. An application was filed in December of 1995 for a type "A" permit covering an area of 337 km2 which would include the current type "B" permit. BHP and the Company entered into an agreement in December 1995 whereby BHP would earn a 51% interest in the Dachine project by spending $3.5 million by May 31, 1998. In March 1997, BHP gave notice of its intent to withdraw from the agreement effective as of March 31, 1997. (See Note 11) Mining Properties and Deferred Exploration 1996: Dorlin St-Elie Dieu-Merci Yaou Dachine Re´gina Est SOTRAPMAG Paul-Isnard/Eau-Blanche Other Diamond Projects Total Deferred Exploration Expenditures as of December 31, 1995 $ 757 2,221 ,,7,736 ,449 891 ,1,161 ,4,038 ,320 ,- $ 17,573 1996 Capitalized Exploration Expenditures $ 990 ,2,386 ,1,100 ,1,179 36 ,1,485 ,1,459 ,,243 $ 8,878 1996 Capitalized Acquisition Expenditures ,$ , 21 ,382 ,,,,,,,- $403 1996 Joint Venture Recoveries 1996 Property Abandonments/ Write-downs ,$ (971) (2,,407) ,,(1,004) ,(1,053) ,,,(1,459) ,,(39) ,$ - , ,,,,,- ,(1,126) ,,,- $ (6,933) $ (1,126) Deferred Exploration Expenditures as of December 31, 1996 $ 776 ,2,221 ,382 ,7,832 ,575 927 ,1,520 ,4,038 ,320 204 $ 18,795 1995: Dorlin St-Elie Yaou Dachine ,Re´gina Est SOTRAPMAG Paul-Isnard/Eau-Blanche Other Total Deferred Exploration Expenditures as of December 31, 1994 1995 Capitalized Exploration Expenditures $ 740 2,467 ,7,668 ,801 367 ,821 ,3,634 ,492 $ 633 ,981 2,265 ,- 524 ,390 ,1,137 ,31 $ 16,189 $ 6,762 1995 Capitalized Acquisition Expenditures ,$ ,,- , (352) ,- , (50) ,,- $(50 ) 1995 Joint Venture Recoveries 1995 Property Abandonments/ Write-downs Deferred Exploration Expenditures as of December 31, 1995 ,$ (616) ,(1,227) ,(2,197) ,,,- , ,(733) ,(47) ,$ ,,- (156) ,$ 757 ,2,221 ,7,736 ,449 891 ,1,161 ,4,038 320 $(5,172 ) $ (156) $ 17,573 In 1997, the Company is required to make property rental payments and minimum exploration expenditures totaling $0.6 million in order to maintain its current property interests per existing mineral agreements. In the fourth quarter of 1996, the Company decided to discontinue alluvial mining operations at SOTRAPMAG, and, as a result, wrote-off certain capitalized exploration costs related to the alluvial operations in 1996 totaling $1.1 million (See Note 5). 23. GUYANOR RESSOURCES S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (All tabular amounts in thousands of United States dollars) On March 31, 1993, the Company signed an option agreement with CME under which it could earn a 100% interest in an exploration permit on a property known as Espérance. In March 1995, the Company elected not to exercise this option. The option lapsed on March 31, 1995. This decision was made after the Company's geologists concluded that the potential for a large tonnage disseminated gold deposit on the property was limited. The charge against earnings for the twelve months ended December 31, 1995 was $0.2 million. The recoverability of amounts shown for mining properties and deferred exploration is dependent upon the sale or discovery of economically recoverable reserves, the ability of the Company to obtain necessary financing to complete the development and upon future profitable production or proceeds from the disposition thereof. The amounts deferred and capitalized represent costs to be charged to operations in the future and do not necessarily reflect the present or future values of the mining properties and deferred exploration. The results of exploration activities have not resulted in conclusions that the carrying value of these mining properties and deferred exploration will or will not be recoverable by charges against income from future mining operations or the sale of properties. Realization of these costs is dependent upon the success of exploration programs resulting in the sale or discovery of economically minable reserves and the subsequent development or sale of these reserves or properties. The outcome of those matters is contingent upon future events which cannot be determined at this time. 5. Suspension of Alluvial Mining Operations at SOTRAPMAG The alluvial operations being conducted through SOTRAPMAG experienced continuing operating losses since "its acquisition in 1994. Outside consultants engaged in 1996 to review the operations and make recommendations on how to render the operations profitable concluded that without a significant capital investment to increase production, changes in certain work practices and a reduction in fuel taxes, the operations could not achieve profitability. As a result of these conclusions, in the fourth quarter of 1996, management decided to discontinue the alluvial operations conducted by SOTRAPMAG. The Company incurred fourth quarter charges to 1996 earnings totaling $3.2 million, including $0.8 million resulting from the write-down of certain fixed assets and inventories, $1.1 million for the write-down of certain capitalized exploration costs related to the alluvial mining operations, $0.1 million for accrual of land rehabilitation and mine closure costs, and $1.1 million for accrual of the severance and other social costs associated with the discontinuation of alluvial production. All accruals for future obligations are included in current liabilities. The Company expects that certain fixed assets, equipment and inventories owned by SOTRAPMAG will be utilized in the ongoing exploration at the Paul-Isnard project area and were not subject to a write-down. The amount of severance and other costs associated with the discontinuation of alluvial production are contingent upon negotiations with representatives of the workers and the French government. The French government was formally notified of the closure plans in January 1997. In March 1997, the deadline for French government opposition to the closure plan passed, with no such opposition expressed by the government. Closure of the plant and processing facilities and land rehabilitation are scheduled to be completed by the end of the second quarter of 1997. Relocation and retraining of certain employees, as well as company-provided outplacement services is anticipated to be complete by the end of the third quarter of 1997. The Company also expects to incur operating losses of approximately $0.5 million during the shut-down process during the first quarter of 1997. 6. Fixed Assets Building Machinery & equipment Less: Accumulated depreciation As of December 31, 1996 1995 $ 1,833 3,933 $ 903 3,427 5,766 (2,406) 4,330 (1,072) $ 3,360 $ 3,258 In December 1996, the Company initiated a program to discontinue alluvial mining operations conducted by SOTRAPMAG. An evaluation of the fixed assets held by SOTRAPMAG and used in the alluvial mining operations was conducted. As a result, fixed assets totaling $0.5 million were deemed obsolete and were charged to operations for 1996. (See Note 5.) In addition, certain fixed assets have been identified for future sale. The net book value of these assets as of December 31, 1996, is $0.5 million. The Company does not have a purchaser identified for these assets and there can be no assurance that these assets will be sold in 1997. As such, the assets are recorded as non-current. 7. Due to Golden Star Amounts due to Golden Star as of December 31, 1995 consist of current payables incurred on behalf of the Company by Golden Star for purchases of goods and services. Such amounts are reimbursed to Golden Star pursuant to the terms of a management agreement. (See Note 8.) Outstanding Notes Payable due from the Company to Golden Star were canceled in March 1995 in exchange for shares of the Company. (See Note 9.) 24. GUYANOR RESSOURCES S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (All tabular amounts in thousands of United States dollars) 8. Management Services Provided by Golden Star On January 1, 1995, the Company entered into an agreement with Golden Star whereby Golden Star provides various management services and will provide other potential services as needed from time to time in exchange for reimbursement of costs incurred to provide these services, plus certain fees. During the years ended December 31, 1996 and 1995, a total of $0.4 million and $0.1 million, respectively, was charged to the Company by Golden Star for management services fees. 9. Share Capital Share capital of the Company consists of the following: Issued and outstanding as of December 31, 1996 1995 Class A Common Shares (22,500,000 shares) Par Premium $ 314 $ 8,648 $ 314 $ 8,648 $ 8,962 $ 8,962 Class B Common Shares (1996: 16,072,124 shares; 1995: 14,880,736 shares) Par $ 223 Premium $ 29,057 $ 208 $ 20,356 $ 29,280 $ 20,564 Total Share Capital $ 38,242 $ 29,526 Share capital at December 31, 1996 and 1995, is net of issue and offering costs of approximately $2.8 million and $1.6 million, respectively. The Class A common shares and Class B common shares are equal in all respects except that holders of Class A common shares are entitled to receive the par value of each of their Class A common shares in priority to holders of Class B common shares in the event of a distribution of assets upon liquidation, dissolution or winding up of the Company. Par value of Class A and Class B common shares is equal to FF0.07 per share. On March 14, 1995, the Company completed an initial public offering in Canada (the "Offering") of 6,000,000 of its Class B common shares at Cdn $2.10 (approximately $1.50) per share generated net proceeds of approximately $8.3 million after payment of commissions and expenses. As a result of the offering, the Company is a publicly traded company with its Class B common shares listed on The Toronto Stock Exchange under the symbol "GRL.B". Prior to the initiation of the Offering, the Company had capital of FF250,000 divided among 2,500 shares. Immediately before the effectiveness of the Offering, the Company's share capital was increased as a result of the issuance of 13,250 common shares as consideration for the cancellation of outstanding notes payable in the amount of $8.8 million owed by the Company to Golden Star as of January 31, 1995. The Company subsequently effected a subdivision of its then outstanding 15,750 common shares into 22.5 million common shares. Those shares were then redesignated as Class A common shares and a second class of common shares, the Class B common shares were created. Immediately thereafter, outstanding notes payable in the amount of $13.3 million owed by the Company to Golden Star as of January 31, 1995 were canceled in consideration for the issuance to Golden Star of 8.8 million Class B common shares at a price of Cdn $2.10 per share, thereby eliminating all outstanding notes payable between the Company and Golden Star as of January 31, 1995. On October 30, 1996, the Company obtained the approval of a final prospectus entitling it to list its Class B common shares for trading on the Nouveau Marché of the Bourse de Paris in France, and for the sale of 1.0 million of its Class B shares. Trading of the Company's Class B shares on the Nouveau Marché began on October 30, 1996. The offering of the Company's shares in Europe was completed on November 5, 1996, and as a result, the Company received net proceeds of approximately FF45.5 million (approximately $8.9 million). As a resultof the offering, the Company's Class B shares trade on the Nouveau Marché under the symbol "GUYN". The following table sets forth the activity under the Company's stock option plan for the periods ended December 31, 1995 and 1996. 25. GUYANOR RESSOURCES S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 (All tabular amounts in thousands of United States dollars) Schedule of Stock Option Activity Shares Under Option at December 31, 1994 Activity: Granted Exercised Canceled Shares Under Option at December 31, 1995 Activity: Granted Exercised Canceled Shares Under Option at December 31, 1996 Shares - ,1,677,500 (42,934) (23,000) 1,611,566 1,295,800 (191,388) 2,715,978 Price (Cdn$) - $ 2.10 to $3.00 $ 2.10 $ 2.10 $ 2.10 to $3.00 $ 3.30 to $12.40 $ 2.10 to $3.30 $ 2.10 to $12.40 10. Commitments and Contingencies Environmental Regulations The Company is not aware of any events of non-compliance in its operations with environmental laws and regulations. The exact nature of environmental control problems, if any, which the Company may encounter in the future cannot be predicted, primarily because of the changing character of environmental requirements that may be enacted. 11. Subsequent Events On February 19, 1997, SMSE and a French company entered into an agreement pursuant to which SMSE was granted the four-year option to acquire a 100% undivided interest in three concessions and one exploration permit immediately adjacent to the St-Elie property and covering a 155 km2 (15,500 ha.) area known in French Guiana as Dieu-Merci. In order to maintain its rights under the Dieu-Merci option, SMSE must (i) make annual payments of FF4.0 million in year one, FF1.5 million in year two, FF2.0 million in year three and FF2.5 million in year four and (ii) incur minimum expenditures on the Dieu-Merci property of FF5.5 million (including a 3,000 meter core drilling campaign) during year one and FF5.0 million during each subsequent year of the option period. SMSE may exercise the option at any time by paying the difference between FF21.5 million and the annual payments made as of the exercise date. In addition, upon exercise of the option, the optionor will be entitled to receive a 3% net smelter royalty from future production from the Dieu-Merci property. In the event the St-Elie property is mined first, the optionor will be entitled to a 1% net smelter royalty from the StElie property. The Dieu-Merci property is subject to the ASARCO joint venture regarding the St-Elie property. SMSE has already made the first payment of FF4.0 million which was funded equally by Guyanor and ASARCO. In March 1997, BHP gave notice of its intent to withdraw from the agreement effective as of March 31, 1997. The Company and Golden Star intend to continue its diamond exploration on the Dachine area and may seek new joint venture partners. There can be no assurance that the Company will be successful in finding a partner or that the funds required for development of the Dachine project can be obtained by the Company. 12. Capital Resources As at December 31, 1996, the Company held consolidated cash and short-term investments of $1.9 million. Most of the exploration and development spending for the Company and its subsidiaries represents discretionary spending and can be adjusted to reflect, among other things, results of exploration and development activities, the successful acquisition of additional properties or projects, the price of gold and management's assessment of the capital markets. The Company does not have sufficient cash on hand to fund budgeted 1997 operating and exploration expenditures. However, the Company anticipates that its current cash balances, together with proceeds from the exercise of options, temporary funding by Golden Star, financing provided by joint venture partners and possible sale of common shares and/or debt securities will be sufficient to fund operating expenditures and exploration commitments for 1997. Alternative sources of capital available to the Company include the sale of equity, debt from the parent company or third parties, sale of assets, or entering into new joint venture partnerships. Whether, and to what extent, such alternative financing options are pursued by the Company in 1997 will depend on a number of factors including: results of exploration and development activities; the successful acquisition of additional properties or projects; the price of gold and management's assessment of the capital markets. 26. 

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TRADEPOINT FINANCIAL NETWORKS plc Report and Financial Statements 31 March 1997 Tradepoint Financial Networks plc Directors S D L Ross M C Waller-Bridge S C M J Wilson P M Barnes FCCA Sir M N H Jenkins OBE R P Wilkinson OBE P N M Glass Chairman & Non Executive Director Chief Executive Executive Director Finance Director Non Executive Director Non Executive Director Non Executive Director (retired 21 November 1996) Secretary P M Barnes FCCA Auditors Ernst & Young Rolls House 7 Rolls Buildings Fetter Lane London EC4A 1NH Nominated Advisor and Nominated Broker (AIM) Williams de Broe Plc. 6 Broadgate London EC2M 2RP Registrars The Royal Bank of Scotland plc Owen House 8 Bankhead Cross Way North Edinburgh EH11 4BR Registered OÇce 35 King Street London WC2E 8JD Registered No. 2578702 TRADEPOINT FINANCIAL NETWORKS plc Overview Chairman's statement I am pleased to report that activity on your Exchange has continued to grow since my last statement. Trading volumes are increasing strongly and we have just completed a record month. Our list of participants is growing steadily and includes many of the household names in the industry. Our electronic order driven design is now well proven and the system continues to operate in the most robust fashion. Integration with existing global networks and the internal trading systems of our participants continues at a very satisfactory pace. In terms of the competitive environment, the London Stock Exchange (LSE) has announced it will introduce an element of order driven trading, planned for October this year, through the Stock Exchange Electronic Trading Service (SETS). Now that their design has Ñnally crystallised, I believe that ours is superior in many crucial areas. I consider, that the discussion surrounding this dramatic change of direction by LSE is nothing but beneÑcial to us. Results In operating and further developing Tradepoint, the company incurred a loss on ordinary activities before taxation for the year to 31 March, 1997 of 6,092,962 (1996: 5,677,781). Operating costs, excluding depreciation and amortisation, amounted to 5.63 million (1996: 5.49 million). The company has, since the year end, completed two issues of new securities, raising 775,000.00 (net of expenses) on 2 June and 11.4 million (net of expenses) on 28 July 1997. The 28 July Ñnancing was led by Apax Partners & Electra (two leading venture capital providers) with participation by three IDB's Ì Tullet & Tokyo; Garban and First Equity. Building and Developing the Markets In June 1997 we concluded our best month ever with a traded value of 97,579,652 (up 368% on June 1996). At the time of writing, the current month's traded value is already well ahead of even that record. Our average trade size stands at approximately 210,000 up from approximately 80,000 in October 1995. This compares with the average customer trade on the LSE of 70,000. Our hit rate (ie the probability of trading a posted order) is over 74% for institutional orders and 92% of these are traded inside the SEAQ spread. Participants on the Exchange have increased steadily and as of 30 June 1997 numbered 64 compared with 48 in June 1996. In terms of extending our global reach, we were delighted to announce in December 1996 that arrangements with Bloomberg allow any of their 100,000 or so screens to view, and, subject to regulatory considerations, to trade directly on the Tradepoint system. In the same month arrangements were completed to distribute all our trading information via Reuter's network. Additionally we anticipate that participants of the Liberty network (owned by Cedel) will soon be able to direct orders to our Exchange. We are also working closely with our participants' key suppliers of trading systems to incorporate Tradepoint as a standard oÅering. The Competitive Marketplace We have analysed and compared in detail SETS with Tradepoint and believe that even when the LSE introduces order driven trading, scheduled for October this year, Tradepoint will enjoy competitive advantages arising from several structural diÅerences. Tradepoint gives visibility to all orders and trades, gives institutional investors direct access, avoids broker/dealer's costs, allows post trade anonymity, gives assured settlement, and allows consolidation and netting of all trades. The proposed SETS system will not provide these beneÑts. 1 Conclusion During the last year, I believe we have taken signiÑcant steps down the road towards achieving breakeven, since trade investors can now bring to our system so far unprecedented volumes. When that occurs, I consider it will eÅectively become mandatory for all major London market users to view the business on Tradepoint. Having the screen and seeing the activity will, in my opinion, increase the impetus to participate, thus enhancing volumes. It is a truism that volume begets volume. I should like to thank the members of our Market Advisory Panel, recently strengthened by the inclusion of Alan Line from Foreign and Colonial and Scott Bannister from the Royal Bank of Scotland, for their continuing work throughout the year. My very special thanks are due to Michael Waller-Bridge, Stephen Wilson, Paul Barnes, our non-executive board members and to the whole company in their unremitting eÅorts. Stanley D.L. Ross (signed) Chairman. 2 TRADEPOINT FINANCIAL NETWORKS plc Non-executive directors Stanley D L Ross (age 66), the chairman, has 45 years' experience in the securities markets and was formerly managing director of Deutsche Bank Capital Markets. He is a former Council member of the London Stock Exchange and a former chairman of Kidder Peabody International and Kidder Peabody Securities. He was also chief executive oÇcer of Ross & Partners Securities Limited. He was a member of the Ñrst Board of the Association of International Bond Dealers (""AIBD'') (now renamed the International Securities Markets Association) and a former chairman of the AIBD Market Practices Committee responsible for AIBD market trading rules. He is a member of the Securities Institute. He co-founded the company in January 1992. Sir Michael Jenkins OBE (age 64) is currently the non-executive chairman of the London Commodity Exchange and of the Futures & Options Association and a director of London Clearing House (LCH). In 1981 he was recruited as chief executive to set up the London International Financial Futures and Options Exchange (LIFFE) where he continued as chief executive until his retirement in late 1992. In 1978 he was appointed joint managing director with responsibility for operations of the European Options Exchange in Amsterdam, having joined this Exchange in 1977 when he set up their clearing house. He joined the London Stock Exchange as technical director in 1971 where he was responsible for the development of market information services and of the TALISMAN settlement system. He joined the company in March 1995. Robert Wilkinson OBE (age 63) was a member of the London Stock Exchange for Ñfteen years where he was a former Council member and chairman of the Firms Accounts Committee. He is a former deputy chief executive and director of Enforcement of The Securities Association and a former executive director of the London Stock Exchange. He is a non-executive director of Invesco Group Limited. He joined the company in September 1994. Nicholas Glass (age 52) is a member of the Bar of England and Wales and of the Law Society of British Columbia. Formerly a partner in Swinton & Company, a Vancouver law Ñrm, he currently specialises in the Ñeld of industrial relations as a mediator and arbitration board chairman. He joined the company in March 1992, and having served over 4 years with the Company as a non-executive director, did not put himself forward for re-election at the Annual General Meeting. His appointment expired on 21 November 1996. 3 TRADEPOINT FINANCIAL NETWORKS plc Corporate governance Regulation and governance The company is a Recognised Investment Exchange and is regulated under the provisions of the Financial Services Act 1986 (""FSA''). Annually, as with all other recognised bodies, the company agrees with the Securities and Investments Board (""SIB'') its regulatory plan for the coming year. The regulatory plan encompasses both Regulatory Objectives and details of Corporate Governance. The FSA requirements for recognition of the company as an investment exchange cover speciÑcally: , adequate Ñnancial resources , safeguards for investors , adequate monitoring and enforcement arrangements , the ability to investigate complaints , promotion and maintenance of standards Regulatory objectives The board of directors has considered these obligations and has set about establishing a number of regulatory objectives, which are covered in more detail in the company's annual Regulatory Plan. However, the main objectives, which seek to promote and maintain the highest of regulatory standards operated by the exchange, are set out below: , To promote and maintain an orderly, cost-eÅective and eÇciently operated screen based exchange. , To aÅord proper protection to investors. , To ensure that all participants are Ñt and proper. , To promote and maintain the highest standards of integrity and fair dealing in the carrying on of investment business. , To co-operate with the Secretary of State to exchange information with all relevant regulatory and supervisory bodies. , To support the ongoing development of CRESTCo Limited, a company organised by the Bank of England to create a securities settlement system called CREST which has replaced the Talisman/INS arrangements that were previously in place for settling UK securities. , To maintain comprehensive, sound and eÅective monitoring and enforcement procedures in order to ensure compliance by the participants with the Market Rules of the Exchange. , To ensure that the company maintains Ñnancial resources suÇcient for the exchange's proper performance of its functions as a Recognised Investment Exchange. , To maintain proper procedures for the monitoring and investigation of complaints in respect of business transacted on the exchange. , To establish eÅective default procedures. , To maintain the inclusion of its market in the list of UK regulated markets under the Europe Communities Investment Services Directive, implemented in the United Kingdom in January 1996 Corporate governance The board has reviewed its obligations with regard to corporate governance and prior to the commencement of live operations had established procedures in order to comply with the provisions of the Cadbury Committee's Code of Best Practice which are currently in force, except that the appointment of directors is to be dealt with by the board as a whole rather than a duly appointed nominations committee. The board of directors comprises three executive directors and currently three non-executive directors and meets at least twelve times a year to review current trading and key business decisions. The board has 4 reserved to itself the power to approve all main issues, including the approval of strategic plans and budgets. In accordance with the Articles of Association of the company, all directors retire each year at the Annual General Meeting and are all eligible for nomination for re-election. The audit committee was formally constituted on 22 June 1995. It is chaired by the non-executive chairman, Stanley D L Ross and comprises the non-executive directors. This committee meets with the Ñnancial director and with the auditors to review the annual accounts and the interim and preliminary announcements prior to submission to the board, compliance with accounting standards and the scope and extent of the external audit programme. The chairman of the audit committee reports to the board on matters discussed at the audit committee meeting. The audit committee is responsible for selecting the Ñrm of accountants to be recommended to shareholders for appointment as independent auditors each year. The company has established a compliance committee, chaired by Robert Wilkinson OBE, comprising the non-executive directors. The compliance committee meets with the Associate Director of Market Regulation and Support, with the company secretary in attendance, and keeps under review the company's adherence to the strict regulatory requirements of maintaining a Recognised Investment Exchange. The compliance committee reports to the board on matters discussed at compliance meetings. There is a remuneration committee, chaired by the non-executive chairman Stanley D L Ross and comprising the non-executive directors. The remuneration committee determines salaries, bonuses, share options and any other beneÑts of the executive directors. In addition: , The roles of chairman and chief executive are separate. , Non-executive directors are independent of management and free from any business or other relationships with the company other than owning shares or holding share options. , There is an agreed procedure for directors to take independent advice, if necessary, at the company's expense. Internal controls The company in administering its business has put in place strict authorisation, approval and control levels within which management operate. These controls reÖect the company's organisational structure and business objectives and the regulatory regime. These controls are designed to ensure that the company's assets are safeguarded against material loss and that transactions are properly authorised, recorded and reported. As with any such system the controls can provide only reasonable, and not absolute, assurance against material misstatement or loss. The control system includes clear lines of accountability, which are subject to periodic review. All items of expenditure are subject to a budgeting system. An annual budget is approved by the Board in March of each year. Actual results are reported against budget on a monthly basis. Revised Ñnancial forecasts for the year end and projections for future years are prepared on a regular basis. The internal control system is monitored through management review by the Ñnance director, who reports to the Board, the programme of internal audit and the work of the audit committee. 5 TRADEPOINT FINANCIAL NETWORKS plc Directors' report The directors present their report together with the audited Ñnancial statements for the year ended 31 March 1997. Results and dividends The proÑt and loss account on page 9 shows the result for the year. The directors do not recommend the payment of a dividend. Principal activities and future developments The principal activity of the company is the development and operation of a screen based exchange for securities trading by the professional investment management and trading community. A review of the year's activities and future development is given in the chairman's statement on page 1. Share capital Details of movements in share capital are set out in note 12 to the Ñnancial statements. Directors and their interests The directors of the company who served during the year are listed below. Their interests, including those of connected persons, in the ordinary share capital of the company and in options to purchase such shares under the company's employee share option scheme are disclosed in note 6 to the Ñnancial statements. S D L Ross (Non-Executive Chairman) M C Waller-Bridge S C M J Wilson P M Barnes FCCA M N H Jenkins OBE R P Wilkinson OBE P N M Glass (retired 21 November 1996)* * P N M Glass, having served as a non- executive director, did not put himself forward for nomination for re- election as a director at the Company's Annual General Meeting, held on 21 November 1996. Directors' and oÇcers' liability insurance During the year the company purchased and maintained liability insurance for its directors and oÇcers as permitted by section 310(3) of the Companies Act 1985. Going concern The directors have prepared the Ñnancial statements on a going concern basis. In arriving at their decision to prepare the Ñnancial statements on a going concern basis, the directors have reviewed the company's operating budget for 1998 and plans for 1999. This includes detailed consideration of the cash Öow implications of those plans, including review of the anticipated take-up and use by potential participant users of the trading system, and review of proposed expenditure on tangible and intangible Ñxed assets. These plans were then compared with the company's cash resources and borrowing cap, and the proceeds of the forthcoming Ñnancing. 6 Substantial shareholders The company has been notiÑed of the following shareholdings of 3% or more of the issued ordinary share capital as at 31 March 1997. Ordinary of 1p each % CDS & Co Nominees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ P M Bennett ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ NC Lombard Street Nominees Limited ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Bishopsgate Nominees Limited ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7,601,557 1,286,000 857,143 740,259 35.28 5.97 3.98 3.44 Fixed assets Movements in tangible Ñxed assets are set out in note 8 to the Ñnancial statements. Directors' Responsibilities Company law requires the directors to prepare Ñnancial statements for each Ñnancial year which give a true and fair view of the state of aÅairs of the company and of the proÑt or loss of the company for that period. In preparing those Ñnancial statements, the directors are required to: , select suitable accounting policies and then apply them consistently; , make judgements and estimates that are reasonable and prudent; , state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the Ñnancial statements; and , prepare the Ñnancial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the Ñnancial position of the company and to enable them to ensure that the Ñnancial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. By order of the board Secretary 31 July 1997 7 TRADEPOINT FINANCIAL NETWORKS plc Report of the auditors To the members of TRADEPOINT FINANCIAL NETWORKS plc We have audited the Ñnancial statements on pages 9 to 19, which have been prepared under the historical cost convention and on the basis of the accounting policies set out on page 12. Respective responsibilities of directors and auditors As described on page 7 the company's directors are responsible for the preparation of the Ñnancial statements. It is our responsibility to form an independent opinion, based on our audit, on those Ñnancial statements and to report our opinion to you. Basis of opinion We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the Ñnancial statements. It also includes an assessment of the signiÑcant estimates and judgements made by the directors in the preparation of the Ñnancial statements, and of whether the accounting policies are appropriate to the company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with suÇcient evidence to give reasonable assurance that the Ñnancial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the Ñnancial statements. Going concern In forming our opinion we have considered the adequacy of the disclosures made in the report of the directors in regard to the operating budget for 1998 and plans for 1999, including the future take up and use by potential users of the trading system and proposed capital expenditure. In view of the uncertainty over the extent of the take up and use of the trading system we consider that the disclosures should be drawn to your attention, but our opinion is not qualiÑed in this respect. Opinion In our opinion the Ñnancial statements give a true and fair view of the state of aÅairs of the company as at 31 March 1997 and of its loss for the year then ended and have been properly prepared in accordance with the Companies Act 1985. ERNST & YOUNG (signed) Chartered Accountants Registered Auditor London 31 July 1997 8 TRADEPOINT FINANCIAL NETWORKS plc ProÑt and loss account for the year ended 31 March 1997 Notes Income from operations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2 Administrative expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3 Interest receivable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Operating loss and loss on ordinary activities before taxationÏÏÏÏÏ 4 Taxation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 7 Loss on ordinary activities after taxation for the year ÏÏÏÏÏÏÏÏÏÏÏ Loss brought forwardÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Loss carried forward ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1997 260,304 (6,563,793) 210,527 (6,092,962) Ì (6,092,962) (12,137,785) (18,230,747) 1996 77,706 (5,907,505) 152,018 (5,677,781) Ì (5,677,781) (6,460,004) (12,137,785) All amounts relate to continuing activities. All recognised gains and losses are included in the proÑt and loss account. The notes on pages 12 to 19 form part of these Ñnancial statements. 9 TRADEPOINT FINANCIAL NETWORKS plc Balance sheet at 31 March 1997 Notes Fixed assets Tangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 8 Trade investments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9 Current assets Debtors ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 10 Cash at bank and in handÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Creditors: amounts falling due within one year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11 Net current assets/liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Total assets less current liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Capital and reserves Share capitalÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 12 Share premiumÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 12 ProÑt and loss account ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Shareholders' funds ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 13 1997 2,569,400 30,000 2,599,400 1,019,496 765,010 1,784,506 1,186,848 597,658 3,197,058 1996 2,840,981 30,000 2,870,981 234,395 206,031 440,426 829,516 (389,090) 2,481,891 215,479 21,212,326 (18,230,747) 3,197,058 172,372 14,447,304 (12,137,785) 2,481,891 All items within shareholders' funds are equity. The Ñnancial statements were approved by the Board on 31 July 1997 MICHAEL C. WALLER-BRIDGE (signed) Chief Executive PAUL M. BARNES (signed) Finance Director The notes on pages 12 to 19 form part of these Ñnancial statements. 10 TRADEPOINT FINANCIAL NETWORKS plc Cash Öow statement for the year ended 31 March 1997 Notes Net cash outÖow from operating activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 16 Returns on investments and servicing of Ñnance Interest receivedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Taxation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Capital expenditure Additions to tangible Ñxed assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Financing Issue of ordinary share capital ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 17 Expenses paid in connection with share issues ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 17 Net cash inÖow from Ñnancing ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Increase/(decrease) in cash ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 18 1997 1996 (5,921,833) (5,717,143) 210,527 (31,050) 152,018 Ì (506,794) (812,035) 7,530,000 (721,871) 6,808,129 558,979 6,518,000 (765,656) 5,752,344 (624,816) The notes on pages 12 to 19 form part of these Ñnancial statements. 11 TRADEPOINT FINANCIAL NETWORKS plc Notes to the Ñnancial statements at 31 March 1997 1. Accounting policies The Ñnancial statements have been prepared under the historical cost convention on a going concern basis, as discussed in the report of the directors, and are in accordance with applicable accounting standards of the United Kingdom. Accounting principles generally accepted in the United Kingdom diÅer in certain signiÑcant respects from accounting principles generally accepted in Canada (""Canadian GAAP''). However, there are no items included in the audited Ñnancial statements, which, if presented in conformity with Canadian GAAP, would give rise to a material variation to the loss and cash Öow for the year and shareholders' equity. The following principal accounting policies have been applied: Research and development Expenditure on pure and applied research is charged to the proÑt and loss account in the year in which it is incurred. Development costs are also charged to the proÑt and loss account in the year of expenditure, except when individual projects satisfy the following criteria: the project is clearly deÑned and related expenditure is separately identiÑable; the project is technically feasible and commercially viable; current and future costs will be exceeded by future revenue; and adequate resources exist for the project to be completed. In such circumstances the costs are carried forward and amortised over a period not exceeding Ñve years commencing when the company begins to beneÑt from revenue generated from such expenditure. Prepaid establishment costs Expenditure incurred on prepaid establishment costs are written oÅ over the contracted 36 month period from 1 August 1996. Depreciation Depreciation is provided to write oÅ the cost less estimated residual value of all tangible Ñxed assets over their expected useful lives. It is calculated at the following rates: Computer systems, hardware and infrastructure Improvements to leasehold premises OÇce equipment Ì 20%-33% per annum (from commencement of trading) Ì 20% per annum Ì 25% per annum Valuation of investments Investments held as Ñxed assets are stated at cost less any provision for a permanent diminution in value. Foreign currencies Assets and liabilities in foreign currencies are translated into sterling at the rate of exchange ruling at the balance sheet date. Transactions in foreign currencies are translated into sterling at the rate of exchange ruling at the date of the transaction. Exchange diÅerences are taken to the proÑt and loss account. Deferred taxation Provision is made for timing diÅerences between the treatment of certain items for taxation and accounting purposes, to the extent that it is probable that a liability or asset will crystallise. Leased assets Annual rentals paid on operating leases are charged to the proÑt and loss account on a straight line basis. 12 TRADEPOINT FINANCIAL NETWORKS plc Notes to the Ñnancial statements at 31 March 1997 Ì (Continued) 1. Accounting policies Ì (Continued) Prior year Ñgures Certain prior year comparative numbers have been reclassiÑed where appropriate, to be consistent with the presentation for 1997. 2. Income from operations Registration and transaction fees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Information distribution feesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Income from sale of equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1997 228,113 32,191 Ì 260,304 1996 74,982 Ì 2,724 77,706 3. Administrative expenses System operating and development costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Marketing and promotion ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Legal, professional and regulatory ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Wages and salariesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Directors' remuneration Ì management remuneration ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Management services fees (see note 15) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ General operational and establishment costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Foreign exchange losses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Amortisation of prepaid establishment costsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Depreciation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Operating lease rentals Ì computer equipmentÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì land and buildings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Auditors' remuneration ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1997 573,535 400,000 507,969 2,365,630 522,500 45,603 886,109 2,923 154,000 778,375 121,108 179,791 26,250 6,563,793 1996 419,444 579,714 821,161 1,983,746 570,416 Ì 691,774 4,471 Ì 435,143 203,520 173,116 25,000 5,907,505 Share issue costs (see note 12) in year ending 31 March 1997 include 55,000 (1996: 25,346) paid to the auditors for non-audit services. 4. Result before taxation The result before taxation and net assets are wholly attributable to the development and operation of a screen based exchange for securities trading by the professional investment management and trading community and arose wholly within the United Kingdom. 5. Employees StaÅ costs for all employees, including directors, consist of: Wages and salariesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Social security costsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ The average number of employees during the year was 49 (1996 Ì 37). 1997 2,624,836 263,294 2,888,130 1996 2,319,313 234,849 2,554,162 13 TRADEPOINT FINANCIAL NETWORKS plc Notes to the Ñnancial statements at 31 March 1997 Ì (Continued) 6. Directors Remuneration policy The remuneration policy for all executive directors, which is determined by the remuneration committee chaired by Stanley D L Ross, has the following primary components: , base salaries , short term incentives , equity based long term incentives These components form a strategy to encourage senior management by paying cash emoluments, which are competitive in the European securities industry marketplace, the sector in which the company operates. In particular, reference has been made to professionals employed by other Recognised Investment Exchanges, where remuneration levels are generally higher than those paid to the company's executive directors. The guiding principles and objectives in the company's executive remuneration arrangements are as follows: , attract and retain key executives to meet business objectives , support the company's strategic business direction , directly reinforce increases in shareholder value , support a lean, Öat and cost-eÅective management structure , provide acceptable internal equity options to reÖect the roles and responsibilities of individual executive positions , be acceptable to executives, other staÅ and shareholders In approving remuneration for the executive directors, the members of the remuneration committee of the board have had regard for the importance of their role in the company's plans in completing the development of the company's trading system, achieving the status of a Recognised Investment Exchange and the successful implementing of the start of operations of the company's screen based exchange for securities trading by the professional investment management and trading community. The company does not currently provide any pension, health insurance or any such beneÑts to the executive directors. In the year to 31 March 1997 all executive directors were employed on a two year rolling service contracts, with two year notice periods required from both the executive directors and the company. These have been varied since the year end to six month notice periods required from the company. The remuneration arrangements for the year ending 31 March 1997 for the executive directors were approved by the non-executive directors on 7 March 1995 and were varied by deed dated on 2 June 1997. In December 1992, the executive directors were granted, under the company's ""Share Option Scheme'', share options conditional upon the company completing listing arrangements described in the initial public oÅering prospectus. These options were granted at the same exercise price as new shares being oÅered under the initial public oÅering. The company completed its listing arrangements on the Vancouver Stock Exchange in March 1993. The options were subject to speciÑed performance criteria relating generally in the company and particularly to the individual holder of such options. The remuneration of the highest paid directors are set out below: M C Waller-Bridge ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S C M J WilsonÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Management remuneration 160,000 160,000 Fees as directors 10,000 10,000 BeneÑts in kind 200 200 Total 170,200 170,200 14 TRADEPOINT FINANCIAL NETWORKS plc Notes to the Ñnancial statements at 31 March 1997 Ì (Continued) 6. Directors Ì (Continued) Directors' remuneration consists of: Fees as directorsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Management remuneration ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ BeneÑts in kind Ì mobile phones ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1997 67,500 455,000 600 523,100 1996 70,000 500,416 600 571,016 Directors' interests The directors' interests, including those of connected persons, in the ordinary share capital of the company and in options to purchase such shares under the company's employee share options scheme were: S D L RossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ M C Waller-Bridge ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S C M J Wilson ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ P M Barnes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ M N H Jenkins ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ R P Wilkinson ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ P N M Glass ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1997 Shares 1,170,700 1,285,750 1,265,750 251,000 100,000 100,000 150,500 1996 Shares 1,168,500 1,285,750 1,265,750 251,000 100,000 100,000 150,500 On 25 July 1997, 3,669,234 ordinary shares held by certain directors under escrow arrangements, (see note 12), were surrendered to the company at nil value, in accordance with arrangements entered into on 30 May 1997. S D L RossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ M C Waller-Bridge ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ S C M J WilsonÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ P M BarnesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ P N M Glass ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ R P Wilkinson ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Options at 1 April 1996 Shares 68,250 68,250 68,250 40,000 68,250 100,000 Granted during the year Shares Nil Nil Nil Nil Nil Nil Options at 31 March 1997 Shares 68,250 68,250 68,250 40,000 68,250 100,000 Exercise price per share 186p 186p 186p 186p 186p 200p Exercise period Jan 95-Dec 97 Jan 95-Dec 97 Jan 95-Dec 97 Jan 95-Dec 97 Jan 95-Dec 97 Sep 95-Dec 97 All options are currently exercisable. At the year end the market price of the company's shares was C$2.51, equivalent to 110p. 7. Taxation Due to trading losses being available to the Company for the year under review, there is no liability to corporation tax for the year of these Ñnancial statements. 15 TRADEPOINT FINANCIAL NETWORKS plc Notes to the Ñnancial statements at 31 March 1997 Ì (Continued) 8. Tangible assets Cost: At 1 April 1996 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Additions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ At 31 March 1997 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Depreciation: At 1 April 1996 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Charge for the year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ At 31 March 1997 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Net book value: At 31 March 1997 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ At 31 March 1996 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Computer systems, hardware and infrastructure 2,691,758 267,842 2,959,600 259,963 540,903 800,866 2,158,734 2,431,795 Improvements to leasehold premises 361,217 90,342 451,559 144,282 96,627 240,909 210,650 216,935 OÇce equipment 414,768 148,610 563,378 222,517 140,845 363,362 200,016 192,251 Total 3,467,743 506,794 3,974,537 626,762 778,375 1,405,137 2,569,400 2,840,981 Capital commitments contracted for but not provided in the Ñnancial statements were Nil (1996 Ì Nil). 9. Trade investments On 21 October 1994 the company made a ""Tier 4'' subscription in CRESTCo Limited, an unlisted UK company. CRESTCo Limited has been organised by the Bank of England to create a settlement system for traded securities called CREST to replace existing Talisman/INS settlement arrangements. CRESTCO Limited was granted status as a Recognised Clearing House in July 1996, enabling the CREST settlement system to become operational during August 1996. Whilst there is no ready market in ""Tier 4'' subscriptions the directors believe that the current market value of the trade investment in CRESTCo Limited is not less than cost. 10. Debtors Prepaid establishment costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Prepayments and accrued income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ VAT recoverable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1997 546,000 465,093 8,403 1,019,496 1996 Ì 214,843 19,552 234,395 11. Creditors: amounts falling due within one year Trade creditors ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Corporation tax ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Accruals ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Taxation and social security ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1997 778,764 Ì 301,821 106,263 1,186,848 1996 222,620 31,050 419,256 156,590 829,516 16 TRADEPOINT FINANCIAL NETWORKS plc Notes to the Ñnancial statements at 31 March 1997 Ì (Continued) 12. Share capital Ordinary shares of 1p each ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Authorised 1997 1996 500,000 500,000 Allotted, called up and fully paid 1997 1996 215,479 172,372 Balance as at 1 April 1996 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Shares issued during the year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Option exerciseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Share issue costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Balance as at 31 March 1997 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Number of 1p ordinary shares 17,237,234 4,285,714 25,000 Ì 21,547,948 Share capital 172,372 42,857 250 Ì 215,479 Share premium 14,447,304 7,457,143 29,750 (721,871) 21,212,326 Total 14,619,676 7,500,000 30,000 (721,871) 21,427,805 On 29 April 1996 the company issued 4,285,714 ordinary shares of 1p each at a price of 175p per share in satisfaction of the receipt of 7,500,000 cash under a placing agreement entered into on 23 April 1996, in order to Ñnance the development of the business. In connection with the share issue, the agents to the placing were granted 349,028 warrants entitling it to subscribe for 349,028 ordinary shares during the three year period following 29 April 1996. The subscription price for the warrants was 175p in the Ñrst year rising to 201.25p in the second year and 261.625p in the third year. The options exercised during the year resulted from options granted to a former employee under the company's share option scheme. Of the shares in issue, as at 31 March 1997, 5,700,000 were held under an escrow agreement. Under this agreement, these shares will be released to the holders subject to the future performance of the company. Until these shares are released from escrow, the holders have waived the right to receive dividends and to participate in the assets of the company upon a winding up. On 25 July 1997 under agreements entered into on 30 May 1997, 4,678,273 1p ordinary shares previously held under escrow arrangements were surrendered to the company for nil value. On 2 June 1997 the company issued 1,600,000 ordinary shares of 1p each through a placing arranged by its nominated broker Williams de Broe plc at an issue price of 50p per 1p ordinary share. As part of these arrangements the terms of warrants previously granted to the company's nominated broker Ì Williams de Broe plc were varied. Consequently 900,000 warrants entitling Williams de Broe to subscribe for 900,000 ordinary shares will be exercisable on or before 31 December 1998 at 50p per ordinary share and a further 949,028 warrants will now be exercisable on or before 31 December 1999 at 85p per ordinary share. On 28 July 1997 the company entered into agreements in a Ñnancing led by Apax Partners & Co. Ventures to secure 11,400,000 (net of expenses) to meet the working capital requirements of the company for the foreseeable future. As part of these arrangements the exercise price of 900,000 warrants held by Williams de Broe previously exercisable at 50p was varied to 40p per ordinary share. In accordance with agreements entered into on 30 May 1997, certain directors and employees have subscribed for 155,832 ordinary shares at 50p per share. The long term Ñnancing has been provided by the creation of 12,000,000 of nominal value zero coupon convertible loan stock, convertible into new ordinary shares at a conversion price of 40p per ordinary share in the company's authorised and issued share capital. As part of the Ñnancing referred to above, the company has agreed, subject to shareholder approval to increase the authorised share capital of the company and the granting to the directors the necessary authority to allot securities, entered into undertakings to grant each of Stanley Ross, Michael Waller-Bridge, Stephen Wilson and Paul Barnes, directors of the company, and Peter Bennett, ""founder'' warrants. These are exercisable for 1,893,374 ordinary shares of 1p each at a conversion price of 40p at any time in the period to 24th July 2002. 17 TRADEPOINT FINANCIAL NETWORKS plc Notes to the Ñnancial statements at 31 March 1997 Ì (Continued) 12. Share capital Ì (Continued) Share options and warrants At 31 March 1997, the following share options were outstanding: Date of grant Number of shares Exercise period Exercise price per share 6 January 1993 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1 October 1993 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 31 March 1994 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 15 September 1994 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 15 November 1994ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9 June 1995ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 381,250 260,000 85,000 100,000 50,000 115,000 Jan 1995 Ì Dec 1997 Apr 1995 Ì Oct 1998 Apr 1995 Ì Mar 1999 Sept 1995 Ì Mar 1999 Nov 1995 Ì Mar 1999 Mar 1996 Ì Mar 1999 186p 120p 200p 200p 200p 395p At 31 March 1997, the following share warrants were outstanding: Date of grant Number of shares Exercise period Exercise price per share 7 June 1995 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 29 April 1996ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,500,000 349,028 Jun 1995 Ì Jun 1998 Apr 1996 Ì Apr 1999 165p-214.5p 175p-261.625p 13. Reconciliation of movements in shareholders' funds Loss for the year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Net proceeds from share issue ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Net addition to shareholders' funds ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Opening shareholders' funds ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Closing shareholders' fundsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1997 (6,092,962) 6,808,129 715,167 2,481,891 3,197,058 1996 (5,677,781) 5,729,938 52,157 2,429,734 2,481,891 14. Commitments under operating leases and other Ñnancial commitments As at 31 March 1997, the company had annual commitments under non-cancellable operating leases and other Ñnancial commitments as set out below: Operating leases which expire: Within 2 to 5 years ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Over 5 years ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Other Ñnancial commitments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1997 Land and buildings Other 13,000 186,220 Ì 103,372 Ì 149,590 1996 Land and buildings Other Ì 186,220 Ì 29,170 Ì 148,010 18 TRADEPOINT FINANCIAL NETWORKS plc Notes to the Ñnancial statements at 31 March 1997 Ì (Continued) 15. Related party transactions During the year the company was invoiced 45,603 fees and expenses (1996: Nil), pursuant to the consultancy agreement dated 1 April 1996, by Pydale Limited, a company in which S D L Ross is a director and in which he has a material interest. 16. Reconciliation of operating loss to net cash outÖow from operating activities Operating lossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (Increase)/decrease in debtors (as per note 10) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Increase/(decrease) in creditors ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Depreciation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Interest receivable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Net cash outÖow from operating activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1997 (6,092,962) (785,101) 388,382 778,375 (210,527) (5,921,833) 1996 (5,677,781) 158,567 (481,054) 435,143 (152,018) (5,717,143) 17. Analysis of changes in Ñnancing during the year Balance at 1 April 1996 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Cash inÖow from issue of shares ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Share issue costs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Balance at 31 March 1997 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Share capital (including share premium 14,619,676 7,530,000 (721,871) 21,427,805 18. Analysis of changes in net funds Balance at 31 March 1995 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Net cash outÖow ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Balance at 31 March 1996 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Net cash inÖow ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Balance at 31 March 1997 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Cash at bank 830,847 (624,816) 206,031 558,979 765,010 19. Exchange rates The exchange rates for translation of pounds sterling into Canadian dollars are set out below: Canadian $ Average for the year ended 31 March 1996 ÏÏÏÏÏÏÏÏÏÏÏÏ Rate at 31 March 1996 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Average for the year ended 31 March 1997 ÏÏÏÏÏÏÏÏÏÏÏÏ Rate at 31 March 1997 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 2.134 2.080 2.183 2.285 19 

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A M B R E X M I N I N G C O R P O R AT I O N 1997 Annual Report SGV TABLE OF CONTENTS · Message to Shareholders 1 · Description of Properties 3 · Management's Analysis of the Financial Situation 6 · Management's Responsibility for Financial Reporting 7 · Auditors' Report 8 · Consolidated Balance Sheets 9 · Consolidated Statements of Loss and Deficit 10 · Consolidated Statements of Changes in Financial Position 11 · Notes to Consolidated Financial Statements 12 · Corporate Information 16 MESSAGE TO SHAREHOLDERS Fiscal 1997 should have been a year of celebration for you, our shareholders. Instead it was a year of mixed results. On the one hand, we can take pride in having discovered a major polymetallic deposit on the Aripuanã property in the state of Mato Grosso, Brazil. The fact that Noranda Mining and Exploration Inc. ("Noranda") has signed a letter of intent to explore the property served to confirm for us what we had known ever since assays began coming in from the first few drill holes - Aripuanã is a large volcanogenic massive sulphide discovery with the potential for not just one, but perhaps several, deposits. Even before the Noranda agreement, the independent consultant Watts, Griffis and McOuat (WGM) had calculated a 10 million tonne potential for the deposit known as the Valley Deposit. Within the Valley Deposit, Ambrex and WGM formally calculated an indicated resource of 2.0 million tonnes with a Net Smelter Return (NSR) value of US$74 per tonne. The value-per-tonne today is quite a bit higher now that zinc is trading at a seven-year high. However, in spite of the WGM report and Noranda's announced participation, the company's share price did not respond in the way we had expected. Inexplicably, the news of a major basemetal find seemed to weaken our share price. We can only conclude that Ambrex's shares, like those of many other legitimate juniors, succumbed to the general downdraft created by some rather spectacular "crashes" by individual stocks. Investor confidence in the junior mining sector became severely undermined by these events and thus Ambrex suffered along with the others. Nevertheless, management is pleased that we succeeded in doing what very few junior mining companies do. The company actually found an orebody that has a very good chance of one day becoming a producing mine. We believe that, as Noranda proceeds through the first phases of drilling at Aripuanã, the results will begin to have a positive effect on our share price. The fact that zinc prices are at a seven-year high also bodes well for the company. The key points in the letter of intent that will qualify Noranda for a 55% interest are as follows: i) Noranda will spend $2 million in exploration to April 1998; make a $650,000 payment in 1997 and $150,000 in early 1998 to cover property payments to garimpeiro handminers; make a cash payment of US$800,000 (CDN$1.1 million), at the time of a production decision, to previous owners. ii) Noranda is then committed to further exploration expenditures to December 1999 of $10 million. iii) A final $3 million cash payment by Noranda will be paid pro-rata to its joint venture partners at the time of a production decision. After these expenditures, the company will hold a 22.05% interest. Noranda also has the right to a further 15% by spending $12 million on a feasibility study. At that point, Ambrex will hold 14.7%. The signing of the final option agreement with Noranda appears to be imminent. Noranda has shown confidence in the state of negotiations by recently activating their exploration crew at the Aripuanã site. As you can see, the Aripuanã project rightfully served as the focal point of operations during the year. Most of our energies and funds were directed at exploring Aripuanã. However, during the year, we were presented with the opportunity of acquiring a small gold mine called Paraiba. Discussions for the acquisition were extensive but as pricing and other burdens became increasingly costly, we took the prudent course and terminated the negotiations. As the year began, we were still assembling the impressive land package that we currently hold in the state of Mato Grosso. Ambrex holds 329,000 hectares of land on five properties - Paranaíta (75,000 ha), Juruena (116,000 ha), Aripuanã (2,000 ha), Cabeca (109,000 ha) and Trairão (27,000 ha). Towards year-end, Trairão underwent a preliminary exploration program of drilling, trenching and geochemical sampling. This program indicated widespread gold mineralization within a 6-by-1 kilome- 1 tre structural/alteration zone. The limited drilling that we were able to do revealed good gold grades up to 12.9 grams of gold per tonne across mineable widths. As soon as possible, we will follow up this work with a second-stage program. Subsequent to year-end, the company received unsolicited expressions of interest from Inco Limited ("Inco") for a possible joint-venture to explore all of the Mato Grosso properties (with the exception of Aripuanã). These discussions are advanced and progressing well. On the financing front, we were able to raise a significant sum despite an equity market that continued to deteriorate throughout the year. In total, the company raised $4.5 million. Obviously, we can exercise no control over general market conditions and it seems that currently the market for the junior mines sector is in a slump. However, Ambrex is fortunate that it has an important discovery on the Aripuanã property and even more fortunate in having a major integrated mining company as a joint-venture partner. The outlook for the coming year is favorable as Noranda begins its exploration programs. From a personal point of view, the Ambrex challenge has been much valued. The announcement, made earlier, that I would turn over the Presidency to Mr. Neil Novak came as a result of my being offered an extraordinary opportunity with an international mining company. Mr. Novak brings to your company over 20 years experience as an exploration geologist. His most recent position is as International Exploration Manager for the St. Geneviève Group. I am confident that Mr. Novak will guide Ambrex in a direction favorable to you, the shareholders, as he has the full management and financial support of the St. Geneviève Group. However, I will follow closely the progress of Ambrex as its Aripuanã volcanogenic massive sulphide deposits are guided through the next critical phase of exploration by Ambrex's senior partner Noranda. William J. Fisher President and CEO August 21, 1997 2 DESCRIPTION OF PROPERTIES MATO GROSSO In the state of Mato Grosso within the cen- tral Brazilian Shield, Ambrex has assem- bled five large properties: Paranaíta (75,000 hectares) Juruena (116,000 hectares) Aripuanã (2,000 hectares) Cabeça (109,000 hectares) Trairão (27,000 hectares) Each property has been the site of intense near-surface mining by garim- peiros. Most of the garimpeiro activity has abated because of their inability to deal with water inflows after their hand work- ings extended to a certain depth, or until the sulphide mineralization was reached. This fortuitous circumstance works in Ambrex's favour by establishing the exact site of gold in primary source rocks in what otherwise would have been a prohib- itively large regional play. In essence, the needle in the haystack has been located by the garimpeiros. Lacking the capital and technology to sustain a modern operation, the garimpeiros have by and large aban- doned the diggings. Geologically, each property lies with- in a major horst/graben system that is fractured in an approximate east-west direction. To the north is the Cachimbo Graben; in the centre, the Juruena Teles Pires Horst; and in the south, the Caiabis Graben. Gold mineralization is associated with continental-scale shearing at the north and south boundaries of the central horst and with the volcanic and metasedi- mentary units exposed at the margins of the grabens. The mineralization occurs in numer- ous geological settings: · Shear zones and related silicification · Stock works within granites · Shearing associated with doming above late intrusives · Quartz vein with pyrite and chalcopyrite · Supergene enrichment · Alluvial deposits ARIPUANÃ PROJECT The Aripuanã project, the most advanced in Ambrex's property portfolio, is a gold, copper and molybdenum target covering 2,000 hectares about 20 kilometres from the town of Aripuanã in the northwestern region of Mato Grosso. Ambrex has the right to earn a 49% interest in the project from Madison do Brazil, the Brazilian subsidiary of Consolidated Madison Holdings. Garimpeiros began working the alluvial gold here in 1979 and by 1990 had mined an estimated 350,000 ounces of gold. In 1990, a local garimpeiros started to mine gossans associated with fault zones. One such fault zone is approximately six metres wide and dips to the northeast at 45 degrees. The hand miners pulled out about 70 kilograms of gold from these hard rock operations. Average grades from sampling in the shear zone are 11.8 grams of gold per tonne (including 18.75 grams per tonne reported by the DNPM, the Brazilian mining registry), 1.45% copper and 277 grams of molybdenum per tonne. In 1994, the Aripuanã property was assessed by Western Mining of Australia, which carried out geochemical and geophysical surveys around the garimpeiros pit and 500 metres in the direction of the northern property boundary. This work revealed strong electromagnetic and induced polarization anomalies with associated polymetallic anomalies along strike of the carrying structure. In spite of the results, Western Mining withdrew from the region following a strategic reevaluation of its exploration objectives, which enabled Madison to acquire the ground. As indicated by the accompanying map, Anglo American of South Africa holds ground surrounding Ambrex's property. Since 1993, the focal point of their increasingly intense exploration efforts has been the shear zone that traverses Ambrex's property and crosses the boundary into Anglo American ground to both the northwest and southeast. Anglo American's Brazilian entity has not publicly disclosed drilling results, but it seems that the project is maturing to the feasibility stage. Anglo American is now drilling on 50-metre centres. The smaller drill rigs seen early in the Anglo American campaign have been replaced by two large rigs capable of drilling to 500-metre depths. A third 3 rig was added in April this year to accelerate resource definition. Gold mineralization is associated with a 200 metre wide shear zone, which is characterized by intense hydrothermal pneumatolitic alteration represented by silification, sericitization and greisenization. At the central core of the intensively mineralized zone is the six metre zone of high grade gold discovered and hand mined. The body has been mapped by Ambrex for two kilometres and the structure can be extrapolated to extend to over three kilometres within the property. The high-grade shear zone is surrounded by a number of silicified bands within the metasediments up to 50 metres from the core of the shear, with values ranging from 0.43 grams of gold per tonne to 3.73 grams per tonne. TRAIRÃO PROPERTY The 27,000 hectare Trairão property is in the northwest section of the Peixoto de Azevedo gold district, which has a reported garimpeiro production of 3.8 million ounces of gold. Ambrex can earn a 52.5% interest in the property from Consolidated Madison Holdings by spending US$2.35 million over 39 months. Ambrex has an option to earn an additional 5% interest by committing to fund the property to completion of a feasibility study following the US$2.35 million expenditure. Trairão lies within the Brazilian Shield and overlies Archean gneisses and migmatites of the Xingu Complex, lower Protorozoic acid and intermediate volcanics and Teles Pires granites of the Uatuma Group. These are overlain by metasedimentary rocks of the midProterozoic Beneficiente Group. The area is adjacent to the southern edge of the Cachimbo Graben. Northwest-trending faults parallel to the graben margin resulted in hydrothermal activity represented by silicification, sericitization, and development of sulphide-rich zones. Quartz veins and sulphides (pyrite and chalcopyrite) developed within a stock work setting occur in hard rock garimpeiro mines on the block. Extensive supergene enrichment is also in evidence in the eluvial material; preliminary geo- logical mapping and pan sampling were carried out over 24,000 hectares of the claim block. The mapping defined the gold-anomalous area within the gneisses and acid volcanic rocks associated with regional faulting. During mid-1996, a comprehensive geochemical program was completed over a two kilometre by five kilometre area where an 80 metre by 200 metre hardrock garimpo at the centre of the anomaly has produced significant gold by hand mining methods from a wide quartz stock work system. Airborne geophysics would readily identify these anomalies. Airborne geophysics is planned. CABEÇA PROPERTY The 109,000 hectare Cabeça property, in the municipality of Nova Canaa do Norte in the northern part of Mato Grosso state, is about 72 kilometres south of the city of Alta Floresta. Ambrex can earn a 52.5% interest by spending US$2.35 million over 39 months. A one-time option for an additional 5% is available if Ambrex funds the property to mine feasibility. Over the past five years, garimpeiros working alluvial and lode material have mined about 400,000 ounces of gold in the vicinity. The property lies within the Brazilian Shield on the northern flank of the Caiabis Graben. The underlying rocks are the gneiss migmatites of the Archean Xingu Complex and the Alto Paranaíta volcanosedimentary sequence of lower Proterozoic age, both of which have been intruded by basic and granitic intrusives. Gold mineralization is associated with regional faulting. Seven of the active mines in the adjacent Garimpeiro Reserve produce gold from primary quartz veins with sulphides along fault zones. Preliminary mapping defined a 12 kilometre long anomalous zone coincident to a volcanosedimentary belt and the regional northwest faulting. A phased exploration program is planned, including stream sediment and auger sampling, airborne and ground geophysics, and drilling. The sampling phase has been conducted in 1996. 4 JURUENA AND PARANAÍTA P RO P E RT I E S Juruena is in the northern part of Mato Grosso adjacent to the Jaruana, Clareira, and Novo Astro garimpos that have yielded more than half a million ounces of gold. Ambrex can earn a 70% interest in the 116,000 hectare block by spending US$383,000 over the next three years. The property is subject to a royalty of up to 2.3% The block is underlain by the gneissic and migmatitic rocks of the Archean Xingu Complex, Proerozoic Teles Pires granites, acid volcanics of the Uatuma Group and metasediments of the Beneficiente Group. Gold mineralization, occurring in quartz veins with sulphides, is associated with shear zones trending northwest and northeast and is affected by intense potassiumrich hydrothermal alteration. Currently, Ambrex is interpreting satellite imagery and air photos. A program of mapping, geochemistry, airborne geophysics and drilling is planned. The 75,000 hectare Paranaíta project on the right bank of the Apiacas River will be owned 70% by Ambrex after expenditures of US$383,000 over the next three years. Approximately 1.6 million ounces of gold were mined by garimpeiros. Paranaíta displays very similar geology and mineralization to Juruena and the complex is related to the southern boundary of the Cachimbo Graben. Prior to drilling, a program of geophysical and geochemical work is planned. The Juruena and Paranaíta properties are under negotiation with a potential exploration partner to provide funding for a comprehensive three-year program of exploration. expenditures of US$1.5 million over three years and a staged share issue of up to 750,000 Ambrex shares. Having met its first-year spending commitments, Ambrex currently holds 49%. Virgem da Lapa was the site of a major gold rush in the early 1700s. CVRD, Brazil's state-owned mining company, holds ground directly north and northeast of the Bequinha property. CVRD has an operating mine at Riacho dos Machados just to the north of our property which is in a similar geological setting (thrust fault) to the Santana prospect. Various parts of the entire property have been the subject of geochemical sampling and ground and airborne geophysical surveys. Geoklock, the Brazilian affiliate of Toronto-based Watts, Griffis and McOuat, was retained last year to confirm and expand on existing data with a geological mapping, soil and alluvial geochemistry program. This year, prospect mapping and grid-based geophysics and geochemistry are planned. Geologically, the property comprises Proterozoic carbonaceous graphitic and pyritic schists of the Macaubas group. Gold mineralization is related to a number of low-angle thrust faults with associated transcurrent shearing and gross-cutting quartz vein systems. Ambrex's Brazilian joint-venture partner had previously identified zones of mineralization up to six kilometres in length characterized by eluvium, soil and stream geochemical anomalies overlying structural hosts. As well, likely bedrock sources have been established. Joint-venture discussions are under way to finance a comprehensive three-year exploration program on these properties. MINAS GERAIS GOLD Virgem da Lapa covers 34,000 hectares in northern Minas Gerais. Ambrex holds a 100% interest in the Tajobeiras claim block and has a staged option to earn 100% in the Bequinha and Funil/Santana blocks, subject to a 2% royalty and total 5 M A N AG E M E N T ' S A N A LYS I S O F THE FINANCIAL SITUATION Ambrex Mining Corporation was incorporated on February 3, 1995 under the Business Corporation Act of Ontario to engage in mineral exploration and development of gold and gemstone opportunities in Brazil. LIQUIDITY AND CAPITAL RESOURCES During the year, Ambrex completed private placements which resulted in the issuance of 7,810,889 common shares for a total consideration of $3,242,559. Following the exercise of warrants, 2,885,000 common shares were issued for a consideration of $1,221,250. Furthermore, 750,000 common shares were issued for a consideration of $750 to a director of Ambrex Holding Limitada. The proceeds were used to fund exploration and prospecting costs $4,620,776 (1996 - $2,617,916), general and administrative expenses $672,822 (1996 - 577,245), and acquisitions of capital assets $525,916 (1996 - $564,581) OUTLOOK The company is currently in the final stage of negotiations for important deals with Noranda Mining and Exploration Inc. and Inco Limited for the continuity of its vast exploration program on its properties. Accordingly, a major restructuring plan has been put in place to down size the company's administrative structure. The St. Geneviève Group management team will have an integral role to play in this regard. The company believes that its association with major partners combined with a leaner administrative structure will achieve greater benefits for its shareholders. 6 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING Management is responsible for the preparation of the financial statements and other financial information relating to the company included in this annual report. The financial statements have been prepared in accordance with generally accepted accounting principles in Canada and necessarily include amounts based on estimates and judgments of management. Coopers Lybrand, our independent auditors, are engaged to express a professional opinion on the financial state- ments. Their examination is conducted in accordance with generally accepted auditing standards and includes tests and other procedures which allow the auditors to report whether the financial statements prepared by management are presented fairly in accordance with generally accepted accounting principles. The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting. Garfield J. Last Chairman of the Board William J. Fisher President 7 AUDITORS' REPORT August 15, 1997 To the Shareholders of Ambrex Mining Corporation We have audited the consolidated balance sheets of Ambrex Mining Corporation as at April 30, 1997 and 1996 and the consolidated statements of loss and deficit and changes in financial position 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 generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the company as at April 30, 1997 and 1996 and the results of its operations and changes in financial position for the years then ended in accordance with generally accepted accounting principles. Chartered Accountants Toronto, Ontario 8 C O N S O L I DAT E D BALANCE SHEETS (IN CANADIAN DOLLARS) Assets Current assets Cash and short-term investments Prepaid expenses and advances Other assets Gemstone samples Capital assets (note 3) Equipment under capital lease (note 4) Liabilities Current liabilities Accounts payable and accrued liabilities Due to shareholders Current portion of capital lease obligation (note 4) Obligations under capital lease (note 4) Contingency (note 1) Shareholders' Equity Share capital (note 6) Deficit April 30 1997 1996 $ 77,939 $ 1,327,555 54,450 92,605 - 10,907 132,389 1,431,067 662,878 100,353 21,942 532,056 - $ 895,620 $ 1,985,065 $ 309,449 - 44,231 $ 288,136 19,417 - 353,680 307,553 16,072 - - - 9,560,814 5,096,255 (9,034,946) (3,418,743) 525,868 1,677,512 $ 895,620 $ 1,985,065 Approved by the Board , Director , Director 9 C O N S OL I DAT E D S TAT E M E N T S OF LOSS AND DEFICIT (IN CANADIAN DOLLARS) Income Interest income Expenses Exploration and prospecting costs General and administrative expenses Depreciation and amortization Loss on foreign exchange Interest Net loss for the year Deficit at beginning of year Deficit at end of year Loss per common share - based on the weighted average number of common shares outstanding during the year Year ended April 30 1997 1996 $ 51,365 $ 93,662 51,365 93,662 4,620,776 672,822 316,683 54,080 3,207 5,667,568 5,616,203 3,418,743 $ 9,034,946 2,617,916 577,245 32,525 70,329 18,819 3,316,834 3,223,172 195,571 $ 3,418,743 $ 0.14 $ 0.13 10 C ONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION (IN CANADIAN DOLLARS) Operating activities Net loss for the year Item not affecting cash Depreciation and amortization Net change in non-cash items Cash used for operating activities Financing activities Share capital issued on exercise of warrants Share capital issued on amalgamation, net of costs and goodwill Share capital issued on private placement, net of costs Share capital issued to an employee Capital lease obligations Cash generated from financing activities Investing activity Acquisition of capital assets Cash used for investing activity Net change in cash and short-term investments during the year Cash and short-term investments at beginning of year Cash and short-term investments at end of year Year ended April 30 1997 1996 $(5,616,203) $(3,223,172) 316,683 32,525 (5,299,520) (3,190,647) 50,958 151,955 (5,248,562) (3,038,692) 1,221,250 3,242,559 750 60,303 4,524,862 - 46,886 4,847,414 350 - 4,894,650 (525,916) (525,916) (564,581) (564,581) (1,249,616) 1,327,555 1,291,377 36,178 $ 77,939 $ 1,327,555 11 NOTES TO CONSOLIDATED F I N A N C I A L S TAT E M E N T S (IN CANADIAN DOLLARS) 1. CONTINUED OPERATIONS Ambrex Mining Corporation ("Ambrex") was incorporated on February 3, 1995 under the Business Corporation Act of Ontario to engage in mineral exploration and development of gold and gemstone opportunities in Brazil. Ambrex, directly and through a joint venture, is in the process of exploring its mining properties and has not yet determined whether these properties contain ore reserves that are economically recoverable. The recoverability of costs incurred on exploration and development is dependent upon the discovery of economically recoverable reserves, the securing and maintenance of the interests in the properties, the ability of the company to obtain the necessary financing to complete the development, and future production or proceeds from the disposition thereof. The company has incurred significant losses and has a working capital deficiency. It's continued operations require some combination of increased funding and farming out certain of its property obligations. 2. SIGNIFICANT ACCOUNTING POLICIES Basis of consolidation The consolidated financial statements include the accounts of Ambrex and its wholly owned subsidiaries, Ambrex Holdings Limitada and Mineracao Rio Taboco S.A. Property, plant and equipment Exploration and prospecting costs are expensed as incurred. When a property is determined to have development potential, development and exploration costs related to that property are capitalized and amortized on a unit of production basis. All administrative costs that do not directly relate to and are not necessary for the development activity are expensed as incurred. Capital assets are recorded at cost and depreciated on a straight-line basis over their estimated economic lives. Foreign currency translation As the company considers all of its foreign operations to be fully integrated, all items denominated in foreign currencies have been translated using the temporal method. Under this method, monetary assets and liabilities and non-monetary items carried at market values are translated into Canadian dollars at exchange rates prevailing at the balance sheet date. Other non-monetary assets and liabilities are translated at historical exchange rates applicable at the transaction date. Revenues and expenses are translated at the average exchange rate for the year. Foreign exchange gains and losses on translations during the year and on the year-end translation of the accounts are reflected in earnings. 3. CAPITAL ASSETS 1997 1996 Balance at beginning of year Additions: Exploration and mining equipment Building, furniture and equipment $ 564,581 215,178 199,235 $ - 423,498 141,083 Less: Accumulated depreciation 978,994 (316,116) 564,581 (32,525) Balance at end of year $ 662,878 $ 532,056 12 4. EQUIPMENT UNDER CAPITAL LEASE 1997 Equipment under capital lease Less: Accumulated depreciation $ 111,503 (11,150) $ 100,353 The capital lease obligations relate to automobiles which are being leased over a 2 year period, for use in exploration and prospecting activities in Brazil 5. PRIVATE PLACEMENTS On March 28, 1996, Ambrex entered into a private placement with St. Geneviève Resources Ltd. ("St. Geneviève") to issue 6 million units at $0.35 per unit. Each unit comprises one common share and one 18-month warrant to purchase an additional treasury share at $0.50 per share. St. Geneviève also purchased a 30% participating interest, on a cost recovery basis to Ambrex, in the gold exploration activities in the state of Mato Grosso, Brazil. On June 7, 1996, 2,000,000 of these warrants were exercised for gross proceeds of $1,000,000. During the month of November, pursuant to a private placement, 7,810,889 units were issued at $0.45 per unit. Each unit comprises one common share and a warrant to purchase one half common share at $0.60 per share, expiring November 11, 1998. 6. SHARE CAPITAL Authorized Authorized capital stock consists of an unlimited number of common shares. Issued Movements in the company's share capital were as follows: Common shares Balance at April 30, 1995 Issued during the year: For cash pursuant to a share purchase agreement For cash pursuant to a private placement, net of issue costs On conversion of promissory notes payable to shareholders On amalgamation with Brooks For cash pursuant to a private placement, net of issue costs Number of shares 11,000,000 350,000 12,600,000 762,420 2,393,196 6,000,000 Balance at April 30, 1996 Issued during the year: On exercise of 2,000,000 warrants On exercise of 885,000 broker warrants To a director of Ambrex Holdings Limitada For cash pursuant to a private placements net of issue costs 33,105,616 2,000,000 885,000 750,000 7,810,889 Balance at April 30, 1997 44,551,505 1996 $ - - $ - Amount $ 11,000 350 2,873,414 190,605 46,886 1,974,000 5,096,255 1,000,000 221,250 750 3,242,559 $ 9,560,814 13 On May 1, 1995, 350,000 shares were issued to a director of Ambrex Holdings Limitada, pursuant to a share agreement which required Ambrex to issue 1,100,000 sharesat a price of $0.001 per share before May 1, 1997. The remaining 750,000 shares were issued during 1996 for proceeds of $750. Wa r r a n t s Balance at April 30, 1995 Warrants issued during the year: Broker warrants issued on private placement On private placement with St. Geneviève Number of warrants Exercise price 1,260,000 $ 0.25 6,000,000 0.50 Expiry June 19/96 August 12/97 Balance at April 30, 1996 Warrants issued during the year: On private placement - Series A Warrants exercised during the year: St. Geneviève warrants Broker warrants 7,260,000 3,905,445 (2,000,000) (885,000) 0.60 0.50 0.25 November 11/98 Balance at April 30, 1997 8,280,445 Stock options The following options to acquire common shares in the company were issued and outstanding at April 30, 1997: Number of options Exercise price Expiry 400,000 271,562 1,000,000 100,000 750,000 100,000 250,000 450,000 250,000 $ 0.25 May 26, 1998 0.30 November 13, 2000 0.58 March 28, 2001 0.68 July 17, 2001 0.75 July 24, 2001 0.38 October 22, 2001 0.37 December 4, 2001 0.33 January 1, 2002 0.33 January 27, 2001 3,571,562 2,921,562 of the above options are issued to Officers and Directors of the company. 7. RELATED PARTY TRANSACTIONS General and administrative expenses in 1996 included $153,156 paid to Aldermines Corporation for costs incurred by them on behalf of Ambrex. There were no payments to Aldermines Corporation in 1997. A shareholder and officer of the company is contracted to provide geological and management consulting services for a fee of US$8,500 per month (1996 US$8,500 per month). Certain shareholders and directors of the company provided consulting and management services to the company during the year without remuneration. 14 8. COMMITMENTS To retain its interests in the properties, the company is required to make approximately $3,550,000 of property payments over the next twelve months. These payments will be assumed under farm out arrangements or the properties may be dropped if the company does not have the reserves to make such payments. 9. SUBSEQUENT EVENTS (a) Share issue Subsequent to year end, the company issued 5,000,000 common shares at $0.10 per share. (b) Letter of intent with Noranda Mining Exploration Inc. ("Noranda") Noranda has signed a letter of intent with regard to the Aripuanã property in which it undertakes to make property payments for 1997 and 1998 and to spend an initial $2,000,000 on exploration costs by April 1998. Management is confident that the letter of intent will lead to the signing of a binding contract. (c) Agreement with St. Geneviève Subject to shareholder approval, St. Geneviève has agreed to a private placement in the company of 1,320,000 common shares at $0.25 per share. Proceeds will be used to fulfill site and other obligations prior to closing of its previously announced joint-venture agreement with Noranda. 15 C O R P O R AT E I N F O R M AT I O N William J. Fisher President, Chief Executive Officer and Director Garfield J. Last Chairman and Director Peter Miller Director A. Douglas McCallum General Counsel and Director David R. Kapelus Chief Financial Officer Victor Retamal Vice-President Annual Meeting The Annual and Special Meeting of Shareholders of Ambrex Mining Corporation will be held on October 24, 1997 at 11:00 a.m. in Room 2-3, Xchange Center, 17th Floor, Standard Life Building, 121 King St. West, Toronto, Ontario. Te r m s All amounts stated in this report are in Canadian dollars unless otherwise specified. Annual Report Additional copies of this report may be obtained upon request to: Ambrex Mining Corporation Public Relations Department 630 René-Lévesque Blvd. West Suite 3200 Montreal, Quebec H3B 1S6 Telecopier: (514) 866-6193 E-Mail: [email protected] Head Office 121 King Street West Suite 2100 Toronto, Ontario M5H 3T9 Telephone: (416) 869-0626 Telecopier: (416) 869-0727 E-Mail: [email protected] Internet: www.ambrexmining.com Solicitors Beach Hepburn 36 Toronto Street Suite 1000 Toronto, Ontario M5C 2C5 Auditors Coopers & Lybrand 145 King Street West Toronto, Ontario M5H 1V8 Brazil Office Mineração Rio Taboco S / A Av. Almte. Barroso, 63 - Centro Rio de Janeiro, RJ Brazil Telephone: 55-21-532-2511 Telecopier: 55-21-532-3632 Registrar and Transfer Agent Montreal Trust Company 151 Front Street West 8th Floor Toronto, Ontario M5J 2N1 Exchange Listing Canadian Dealers Network Symbol: AMBX Cusip 022918106 16 121 King Street West Suite 2100 Toronto, Ontario M5H 3T9 Telephone: (416) 869-0626 Telecopier: (416) 869-0727 E-Mail: [email protected] Internet: www.ambrexmining.com 

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