Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
|x| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2010
or
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number: 000-32551
---------------------------------
LEGEND INTERNATIONAL HOLDINGS, INC.
-----------------------------------
(Exact name of registrant as specified in its charter)
Delaware 233067904
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation) Identification No.)
Level 8, 580 St Kilda Road
Melbourne, Victoria, Australia 3004
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 001 (613) 8532 2866
-------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. |X| Yes |_| No
Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T
during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).*
* The registrant has not yet been phased into the interactive data
requirements. |_| Yes |_| No
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See definitions of "accelerated filer," "large accelerated filer" and "smaller
reporting company" in Rule 12-b2 of the Exchange Act.
(Check one): Large accelerated filer |_| Accelerated filer |X|
Non-accelerated filer |_| Smaller reporting company |_|
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12-b2 of the Exchange Act). |_| Yes |X| No
There were 226,399,674 shares of common stock outstanding on August 6,
2010.
Table of Contents
PAGE NO
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PART I FINANCIAL INFORMATION
Item 1 Financial Statements 2
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 3 Quantitative and Qualitative Disclosure about Market Risk 20
Item 4 Controls and Procedures 20
PART II OTHER INFORMATION
Item 1 Legal Proceedings 22
Item 1A Risk Factors 22
Item 2 Unregistered Sales of Equity Securities and Use of
Proceeds 22
Item 3 Defaults Upon Senior Securities 22
Item 4 Removed and Reserved 22
Item 5 Other Information 22
Item 6 Exhibits 22
SIGNATURES 23
EXHIBIT INDEX 24
Exh. 31.1 Certification 25
Exh. 31.2 Certification 26
Exh. 32.1 Certification 27
Exh. 32.2 Certification 28
1
PART I - FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
Introduction to Interim Consolidated Financial Statements.
The interim consolidated financial statements included herein have been prepared
by Legend International Holdings, Inc. ("Legend" or the "Company") without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission (The "Commission"). Certain information and footnote disclosure
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. These interim consolidated financial statements should
be read in conjunction with the financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the year ended December 31,
2009.
In the opinion of management, all adjustments, consisting of normal recurring
adjustments and consolidating entries, necessary to present fairly the
consolidated financial position of the Company and subsidiaries as of June 30,
2010, the results of its consolidated operations for the three and six month
periods ended June 30, 2010 and June 30, 2009 and for the cumulative period
January 5, 2001 (inception) through June 30, 2010, and the changes in its
consolidated cash flows for the six month periods ended June 30, 2010 and June
30, 2009 and for the cumulative period January 5, 2001 (inception) through June
30, 2010, have been included. The results of operations for the interim periods
are not necessarily indicative of the results for the full year.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Foreign Currency Translation
The functional and reporting currency of the Company is the Australian dollar.
UNLESS OTHERWISE INDICATED, ALL FINANCIAL INFORMATION PRESENTED IS IN AUSTRALIAN
DOLLARS.
2
LEGEND INTERNATIONAL HOLDINGS, INC.
(An Exploration Stage Company)
Consolidated Balance Sheet
June 30, December 31,
2010 2009
A$ A$
(unaudited)
--------------- ---------------
ASSETS
Current Assets:
Cash 47,000,579 72,666,088
Receivables 3,164,557 1,148,567
Prepayments 763,983 644,033
Inventories 202,455 254,544
Marketable securities (note 9) 73,083 -
--------------- ---------------
Total Current Assets 51,204,657 74,713,232
--------------- ---------------
Non-Current Assets:
Property and equipment, net (note 3) 9,172,197 8,473,654
Investment in unconsolidated entities (note 13) 11,372,729 10,409,693
Marketable securities (note 9) 2,137,598 2,928,294
Deposits (note 4) 2,843,732 2,659,494
Receivables 1,584,706 1,243,172
Prepayments 698,821 622,272
Mineral rights 17,591,038 18,290,290
Goodwill 1,092,950 1,092,950
--------------- ---------------
Total Non-Current Assets 46,493,771 45,719,819
--------------- ---------------
Total Assets 97,698,428 120,433,051
=============== ===============
LIABILITIES
Current Liabilities:
Accounts payable and accrued expenses 3,986,591 4,086,609
Lease liability (note 8) 381,718 213,550
--------------- ---------------
Total Current Liabilities 4,368,309 4,300,159
--------------- ---------------
Non Current Liabilities:
Reclamation and remediation provision (note 7) 918,040 935,558
Lease liability (note 8) 513,930 297,914
--------------- ---------------
Total Non Current Liabilities: 1,431,970 1,233,472
--------------- ---------------
Total Liabilities 5,800,279 5,533,631
--------------- ---------------
Commitments and Contingencies (Note 10)
Stockholders' Equity
Common stock: US$.001 par value, 300,000,000 shares authorized
226,399,674 and 226,333,392 shares issued and outstanding 275,178 275,101
Additional paid-in-capital 162,806,972 163,765,820
Accumulated other comprehensive (loss) (725,846) (388,529)
Retained deficit during development period (839,463) (839,463)
Retained deficit during exploration period (84,436,257) (65,262,031)
--------------- ---------------
Legend Stockholders' Equity 77,080,584 97,550,898
Non-controlling interests 14,817,565 17,348,522
--------------- ---------------
Total Equity 91,898,149 114,899,420
--------------- ---------------
Total Liabilities and Equity 97,698,428 120,433,051
=============== ===============
The accompanying notes are integral part of the consolidated financial statements.
3
LEGEND INTERNATIONAL HOLDINGS, INC.
(An Exploration Stage Company)
Consolidated Statements of Operations
(Unaudited)
January 5, 2001
For the three months For the six months (Inception) to
ended June 30 ended June 30 June 30,
-------------------------- ------------------------- ---------------
2010 2009 2010 2009 2010
A$ A$ A$ A$ A$
============= ============ ============ ============ ===============
Revenues:
Sales - - - - 6,353
less cost of sales - - - - (1,362)
------------- ------------ ------------ ------------ ---------------
Gross profit - - - - 4,991
Other income
Interest income - related entity 39,589 17,648 73,057 31,307 204,491
Interest income - other 578,566 806,296 1,268,638 1,964,841 8,302,451
Other 76,395 1,120 131,415 2,270 541,215
------------- ------------ ------------ ------------ ---------------
Total other income 694,550 825,064 1,473,110 1,998,418 9,048,157
------------- ------------ ------------ ------------ ---------------
Costs and expenses:
Legal, accounting and professional 148,116 141,462 373,405 357,580 2,310,160
Exploration expenditure 7,533,685 4,587,790 15,561,663 8,625,094 58,893,828
Aircraft maintenance 103,953 136,655 195,306 245,988 1,363,075
Stock based compensation 365,568 1,198,265 958,253 2,420,363 11,550,796
Interest expense 3,853 17,873 31,271 34,681 240,948
Impairment of investment - - - - 326,526
Amortization of mineral rights 349,626 - 699,252 - 1,281,962
Administration expenses 2,420,602 2,041,969 5,694,037 3,772,424 25,447,808
------------- ------------ ------------ ------------ ---------------
Total costs and expenses (10,925,403) (8,124,014) (23,513,187) (15,456,130) (101,415,103)
------------- ------------ ------------ ------------ ---------------
(Loss) from operations (10,230,853) (7,298,950) (22,040,077) (13,457,712) (92,361,955)
Foreign currency exchange gain/(loss) 648,885 (3,172,261) 357,396 (2,962,778) 925,655
Adjustment to fair value on stepped acquisition - - - - 2,200,620
Unrealised loss on trading securities (24,861) - (24,689) 29,602 75,787
Gain (loss) on sale of trading securities - 55,309 - 84,137 84,137
------------- ------------ ------------ ------------ ---------------
(Loss) before income taxes and equity in losses of
unconsolidated entities (9,606,829) (10,415,902) (21,707,370) (16,306,751) (89,075,756)
Provision for income taxes - - - - -
------------- ------------ ------------ ------------ ---------------
(Loss) before equity in losses of unconsolidated entities (9,606,829) (10,415,902) (21,707,370) (16,306,751) (89,075,756)
Equity in losses of unconsolidated entities (229,767) (141,798) (374,574) (141,798) (720,281)
------------- ------------ ------------ ------------ ---------------
Net (loss) (9,836,596) (10,557,700) (22,081,944) (16,448,549) (89,796,037)
Net loss attributable to non-controlling entities 1,260,262 - 2,907,718 - 4,520,317
------------- ------------ ------------ ------------ ---------------
Net (loss) attributable to Legend stockholders (8,576,334) (10,557,700) (19,174,226) (16,448,549) (85,275,720)
------------- ------------ ------------ ------------ ---------------
Basic and diluted loss per common shares (0.04) (0.05) (0.08) (0.07) (0.95)
============= ============ ============ ============ ===============
Weighted average number of common shares used in per
share calculations 226,385,835 226,329,436 226,359,758 226,322,453 90,002,303
============= ============ ============ ============ ===============
The accompanying notes are integral part of the consolidated financial statements
4
LEGEND INTERNATIONAL HOLDINGS, INC.
(An Exploration Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
for the period ended June 30, 2010
Common Stock
Retained Retained
(Deficit) (Deficit) Accumulated
Additional During the During the Other Non- Stockholders'
Par Paid-In Exploration Development Comprehensive Controlling Equity
Value Capital Period Period Income (Loss) Interests (Deficit)
Shares A$ A$ A$ A$ A$ A$ A$
--------------------------------------------------------------------------------------------------
Balance, January 5, 2001 - - - - - - - -
Shares issued to founder for
organisation cost and services
at US$0.05 per shares 4,297,500 5,550 118,896 - - - - 124,446
Shares issued for services
rendered at US$0.05 per share 146,250 189 4,046 - - - - 4,235
Shares issued for cash 616,500 796 17,056 - - - - 17,852
Net Loss - - - - (131,421) - - (131,421)
--------------------------------------------------------------------------------------------------
Balance, December 31, 2001 5,060,250 6,535 139,998 - (131,421) - - 15,112
Shares issued for cash 225,000 291 6,225 - - - - 6,516
Shares issued for officer's
compensation 11,250,000 14,529 148,359 - - - - 162,888
Net Loss - - - - (182,635) - - (182,635)
--------------------------------------------------------------------------------------------------
Balance, December 31, 2002 16,535,250 21,355 294,582 - (314,056) - - 1,881
Shares issued for services
rendered at US$0.022 per share 5,026,500 6,491 139,065 - - - - 145,556
Net Loss - - - - (156,965) - - (156,965)
--------------------------------------------------------------------------------------------------
Balance, December 31, 2003 21,561,750 27,846 433,647 - (471,021) - - (9,528)
Shares issued for services
rendered at US$0.022 per share 2,004,750 2,589 55,464 - - - - 58,053
Options issued for services - - 160,672 - - - - 160,672
Loan forgiveness-former major
shareholder - - 12,144 - - - - 12,144
Net Loss - - - - (234,611) - - (234,611)
--------------------------------------------------------------------------------------------------
Balance, December 31, 2004 23,566,500 30,435 661,927 - (705,632) - - (13,270)
Shares issued on cashless
exercise of options 17,085,938 22,066 (22,066) - - - - -
Net Loss - - - - (75,508) - - (75,508)
--------------------------------------------------------------------------------------------------
Balance, December 31, 2005 40,652,438 52,501 639,861 - (781,140) - - (88,778)
Share issued on cashless exercise
of options 72,281,329 93,336 (93,336) - - - - -
Shares and options issued under
settlement agreement 112,500 144 35,272 - - - - 35,416
Shares issued for cash 12,756,734 16,524 3,854,843 - - - - 3,871,367
Cost of share issues - - (128,376) - - - - (128,376)
Amortisation of options under
stock option plan - - 115,307 - - - - 115,307
Net unrealized gain on foreign
exchange translation - - - - - 38,490 - 38,490
Net Loss - - - (4,516,271) (58,323) - - (4,574,594)
--------------------------------------------------------------------------------------------------
Balance, December 31, 2006 125,803,001 162,505 4,423,571 (4,516,271) (839,463) 38,490 - (731,168)
5
LEGEND INTERNATIONAL HOLDINGS, INC.
(An Exploration Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
for the period ended June 30, 2010
(continued)
Common Stock
Retained Retained
(Deficit) (Deficit) Accumulated
Additional During the During the Other Non- Stockholders'
Par Paid-In Exploration Development Comprehensive Controlling Equity
Value Capital Period Period Income (Loss) Interests (Deficit)
Shares A$ A$ A$ A$ A$ A$ A$
---------------------------------------------------------------------------------------------------
Shares issued for cash 47,686,624 56,438 25,684,666 - - - - 25,741,104
Cost of share issues - - (1,675,111) - - - - (1,675,111)
Shares issued for consulting
fees 2,604,200 2,984 1,001,122 - - - - 1,004,106
Shares issued on cashless
exercise of options 75,000 85 (85) - - - - -
Shares issued as a result of
delay in lodgement of
registration statement 200,000 230 364,575 - - - - 364,805
Shares issued for part-
settlement of the acquisition
of rights to exploration
licences under agreement 500,000 545 517,455 - - - - 518,000
Amortization of options under
stock option plan - - 375,740 - - - - 375,740
Net Loss - - - (8,638,129) - - - (8,638,129)
---------------------------------------------------------------------------------------------------
Balance, December 31, 2007 176,868,825 222,787 30,691,933 (13,154,400) (839,463) 38,490 - 16,959,347
Shares issued for cash 42,000,000 44,011 109,984,282 - - - - 110,028,293
Cost of share issues - (5,964,346) - - - - (5,964,346)
Shares issued on cashless
exercise of options 1,522,358 1,701 (1,701) - - - - -
Shares issued on exercise of
options 5,435,600 5,999 13,717,586 - - - - 13,723,585
Shares issued for consulting
fees 30,800 33 147,555 - - - - 147,588
Shares issued under registration
rights agreement 457,809 545 899,950 - - - - 900,495
Amortization of options under
stock option plan - - 5,185,743 - - - - 5,185,743
Net Loss - - - (14,221,560) - - - (14,221,560)
---------------------------------------------------------------------------------------------------
Balance, December 31, 2008 226,315,392 275,076 154,661,002 (27,375,960) (839,463) 38,490 - 126,759,145
Shares issued on exercise of
options 18,000 25 2,738 - - - - 2,763
Amortization of options under
stock option plan - - 4,259,903 - - - - 4,259,903
Net unrealized loss on foreign
exchange translation - - - - - (427,019) - (427,019)
Net Loss attributable to Legend
stockholders - - - (37,886,071) - - - (37,886,071)
Fair value of non-controlling
interest - - - - - - 10,261,290 10,261,290
Net change in controlling/non-
controlling interest - - 4,842,177 - - - 8,699,831 13,542,008
Net loss attributable to non-
controlling stockholders - - - - - - (1,612,599) (1,612,599)
---------------------------------------------------------------------------------------------------
Balance, December 31, 2009 226,333,392 275,101 163,765,820 (65,262,031) (839,463) (388,529) 17,348,522 114,899,420
6
LEGEND INTERNATIONAL HOLDINGS, INC.
(An Exploration Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
for the period ended June 30, 2010
(continued)
Common Stock
Retained Retained
(Deficit) (Deficit) Accumulated
Additional During the During the Other Non- Stockholders'
Par Paid-In Exploration Development Comprehensive Controlling Equity
Value Capital Period Period Income (Loss) Interests (Deficit)
Shares A$ A$ A$ A$ A$ A$ A$
---------------------------------------------------------------------------------------------------
Shares issued on cashless
exercise of options 66,282 77 (77) - - - - -
Amortization of options under
stock option plan - - 958,253 - - - - 958,253
Net unrealized loss on foreign
exchange translation - - - - - 453,378 - 147,082
Net unrealized loss on
marketable securities - - - - - (790,695) - (484,399)
Net loss attributable to Legend
stockholders - - - (19,174,226) - - - (19,174,226)
Adjustment due to purchase of
additional shares in subsidiary - - (2,689,622) - - - (1,315,517) (4,005,139)
Adjustment due to issue of
shares by subsidiary - - 772,598 - - - 1,692,278 2,464,876
Net loss attributable to non-
controlling stockholders - - - - - - (2,907,718) (2,907,718)
---------------------------------------------------------------------------------------------------
Balance, June 30, 2010 226,399,674 275,178 162,806,972 (84,436,257) (839,463) (725,846) 14,817,565 91,898,149
---------------------------------------------------------------------------------------------------
The accompanying notes are integral part of the consolidated financial statements.
7
LEGEND INTERNATIONAL HOLDINGS, INC.
(An Exploration Stage Company)
Consolidated Statement of Cash Flows
For the six months January 5, 2001
ended June 30 (Inception) to
June 30,
2010 2009 2010
A$ A$ A$
--------------- ---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (22,081,944) (16,448,549) (89,796,037)
--------------- ---------------- ---------------
Adjustments to reconcile net loss
to net cash (used) by operating activities:
Foreign exchange (357,396) 2,962,778 (926,998)
Gain on sale of property and equipment - - (16,761)
Unrealised gain in trading securities 24,689 (29,602) (75,787)
Gain in sale of trading securities - (84,137) (84,137)
Shares and Options issued for stock based compensation
- Employees 958,253 2,420,363 11,550,797
- Consultants - - 531,421
- Exploration agreement - - 518,000
- Registration payment arrangements - - 1,265,299
Provision for reclamation and remediation 216,016 (114,973) 513,930
Adjustment to fair value on stepped acquisition - - (2,200,620)
Equity accounting loss 374,574 141,798 720,281
Depreciation and amortisation 1,281,123 314,697 2,678,568
Interest receivable (73,057) (17,648) (204,491)
Accrued interest added to principal - - 37,282
Net Change in:
Receivables (2,357,524) (9,274) (3,313,509)
Prepayments and deposits (205,357) (598,868) (4,153,437)
Inventories 52,089 (18,747) (202,455)
Accounts payable and accrued expenses (570,429) 483,866 3,289,137
--------------- ---------------- ---------------
Net Cash (Used) by Operating Activities (22,738,963) (10,998,296) (79,869,518)
--------------- ---------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of trading securities - 1,272,343 1,272,343
Investment in trading securities (97,772) (377,658) (475,430)
Investment in equity accounted investment (657,961) (6,961,816) (14,450,328)
Acquisition of subsidiary - - (326,526)
Investment in consolidated entity (4,005,138) - (13,203,550)
Proceeds from sale of property and equipment - - 110,100
Purchase of property and equipment (830,078) (880,891) (8,981,698)
--------------- ---------------- ---------------
Net Cash (Used) In Investing Activities (5,590,949) (6,948,022) (36,055,089)
--------------- ---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances payable - affiliates - - 23,847
Repayment of convertible debenture - - (130,310)
Repayment of shareholder advance - - (641)
Repayments under finance leases (157,869) (134,032) (511,813)
Proceeds from convertible debenture payable - - 130,310
Shareholder advance - - 6,621
Proceeds from issuance of stock by controlled entity 2,607,283 2,763 16,149,291
Proceeds from Issuance of stock - - 153,391,479
Cost of share issues (142,407) - (7,268,879)
--------------- ---------------- ---------------
Net Cash Provided/(Used) by Financing Activities 2,307,007 (131,269) 161,789,905
--------------- ---------------- ---------------
Effect of exchange rate changes on cash 357,396 (2,960,732) 1,135,281
--------------- ---------------- ---------------
Net increase (decrease) in cash (25,665,509) (21,038,319) 47,000,579
Cash at beginning of period 72,666,088 119,277,536 -
--------------- ---------------- ---------------
Cash at end of period 47,000,579 98,239,217 47,000,579
--------------- ---------------- ---------------
Supplemental Disclosures:
Cash paid for interest 27,842 9,869 122,753
Cash paid for income taxes - - -
Stock and options issued for services - - 1,595,523
Accrued interest and stockholder advances charged to paid in capital - - 12,744
Stock issued for exploration agreement - - 518,000
Stock issued for registration payment arrangement - - 1,265,299
Equipment obtained through a capital lease 466,521 - 1,196,943
Capital lease obligation for exploration costs - - 362,462
Interest in relation to capital lease for exploration costs - - 42,313
Fair value of warrants in connection with issuance of capital stock - - 1,330,852
The accompanying notes are integral part of the consolidated financial statements
8
LEGEND INTERNATIONAL HOLDINGS, INC.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
1. ORGANISATION AND BUSINESS
Legend International Holdings, Inc. ("Legend") was incorporated under the
laws of the State of Delaware on January 5, 2001.
Following a change of management in November 2004, Legend developed a new
plan of operations for fiscal 2006, which is to engage in mineral exploration
and development activities. Legend 's current business plan calls for the
identification of mineral properties where it can obtain secure title to
exploration, development and mining interests. Legend's preference is to
identify large minerals deposits with low operating costs. At the beginning of
2006, Legend expanded its areas of interest to include diamond exploration
activities and in July 2006, Legend completed the acquisition of certain diamond
mining tenements in Northern Australia. Since that time, Legend has identified
that those mining tenements in Northern Australia also have potential for
uranium and base metals. In November 2007 and February 2008, Legend acquired
mining tenements prospective for phosphate in the State of Queensland,
Australia.
During the economic downturn of 2008, Legend decided that part of the
Company's strategy should be to invest into undervalued mining projects should
opportunities arise. This investment would not detract from Legend's primary
goal of developing the Phosphate Project and had the aim of diversifying
interests to dilute the effect of identified potential project risks. This was
seen as necessary by the Company due to the obviously volatile and unpredictable
nature of the commodity markets at the time. Some of these investments include
taking a major stake in North Australian Diamonds Ltd (NADL) which controls the
Merlin Diamond Mine and includes NADL's 28% interest in Top End Uranium Ltd in
the Northern Territory, Australia; and an investment in Northern Capital
Resources Corporation which controls gold and zinc assets in Canada. These are
outlined in further detail below.
Legend formed a strategic alliance with Wengfu Group Ltd. of China in
November 2009 and on July 23, 2010 the Company announced the positive and robust
results from the completed feasibility study for Legend's Paradise Phosphate
Project conducted by Wengfu. The results of the feasibility study have confirmed
that development of the project is technically and economically viable. The
financial model is robust across a number of market scenarios and Legend
management believes that studies currently being conducted on project expansion
will add significant further value.
The Paradise Phosphate Project Feasibility Study ("PPPFS") was completed on
schedule and confirms the technical and financial viability of the base case
development scenario. The PPPFS delineates total revenue of US$11 billion over
30 years and US$2.6 billion total free cash flow after tax and capital. The
PPPFS also determines a Pre-tax IRR of 25.5%, a Pre-tax NPV of US$1.5 billion,
and an average annual free cash flow after tax of US$113 million. The PPPFS has
a total capital cost of US$808.16 million (includes working capital) and a
capital payback period of 5 years.Additional information concerning the PPPFS
may be found in the Company's Form 8-K filed with the SEC July 23, 2010.
Legend intends to spin out to a new company the diamond, gold and base
metal interests of Legend of which Legend shareholders will receive shares of
common stock on a pro rata basis to the shares they hold in Legend. Following
the spin out, Legend will be a 100% pure phosphate company. Legend intends to
prepare and file a Registration Statement with the Securities and Exchange
Commission registering the spin-out distribution of the shares of the newly
formed company to the shareholders of Legend, pro rata. The spin-out will not
occur until the Registration Statement has been declared effective by the
Securities and Exchange Commission. The timing of the spin-out is also dependent
upon the receipt of certain required approvals in Australia.
The financial statements presented herein have been prepared on a
consolidated basis to include the accounts of Legend and NADL ("collectively
"the Company"). All intercompany balances and transactions have been eliminated
in consolidation.
The Company's consolidated financial statements are prepared using
generally accepted accounting principles applicable to a going concern, which
contemplates the realization of assets and liquidation of liabilities in the
normal course of business. However, Legend has incurred net losses since its
inception.
Exploration Stage Enterprise
The Company complies with ASC Topic 930 - Extractive Activities and its
characterization of the Company as an exploration stage enterprise. The Company
is devoting all of its present efforts in securing and establishing its
exploration business through field sampling and drilling programs in the State
of Queensland and the Northern Territory of Australia.
9
2. RECENT ACCOUNTING PRONOUNCEMENTS
In May 2009, the Financial Accounting Standards Board (FASB) issued
guidance on the accounting for and disclosure of events that occur after the
balance sheet date. This guidance was effective for interim and annual financial
periods ending after June 15, 2009. In February 2010, the FASB issued
Accounting Standards Update (ASU) 2010-09, Subsequent Events: Amendments to
Certain Recognition and Disclosure Requirements. This ASU retracts the
requirement to disclose the date through which subsequent events have been
evaluated and whether that date is the date the financial statements were issued
or were available to be issued. ASU 2010-09 requires an entity that is a SEC
filer to evaluate subsequent events through the date that the financial
statements are issued. ASU 2010-09 is effective for interim and annual
financial periods ending after February 24, 2010. The adoption of this guidance
did not have an impact on our consolidated financial statements.
In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and
Disclosures (Topic 820) - Improving Disclosures about Fair Value Measurements.
This ASU requires new disclosures and clarifies certain existing disclosure
requirements about fair value measurements. ASU 2010-06 requires a reporting
entity to disclose significant transfers in and out of Level 1 and Level 2 fair
value measurements, to describe the reasons for the transfers and to present
separately information about purchases, sales, issuances and settlements for
fair value measurements using significant unobservable inputs. ASU 2010-06 is
effective for interim and annual reporting periods beginning after December 15,
2009, except for the disclosures about purchases, sales, issuances and
settlements in the roll forward of activity in Level 3 fair value measurements,
which is effective for interim and annual reporting periods beginning after
December 15, 2010; early adoption is permitted. The adoption of ASU 2010-06 did
not have a material impact on our financial position, results of operations or
cash flows.
In April 2010, the FASB issued ASU 2010-13, Share Based Payment Awards
Denominated in Certain Currencies. The ASU guidance issued to amend ASC 718,
Compensation - Stock Compensation to clarify that an employee share-based
payment award that has an exercise price denominated in the currency of the
market in which a substantial portion of the entity's equity shares trades
should not be considered to contain a condition that is not a market,
performance, or service condition. Therefore, an entity should not classify such
an award as a liability if it otherwise qualifies as equity. This amended
guidance is effective for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15 2010, with early adoption permitted.
The adoption of ASU 2010-13 did not have a material impact on our financial
position, results of operations or cash flows.
3. PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. The Company records depreciation
and amortization, when appropriate, using straight-line method over the
estimated useful lives of the assets. Expenditures for maintenance and repairs
are charged to expense as incurred. Additions, major renewals and replacements
that increase the property's useful life are capitalized. Property sold or
retired, together with the related accumulated depreciation is removed from the
appropriate accounts and the resultant gain or loss is included in net income
(loss).
At June 30, 2010 At December 31, 2009
Depreciable Accumulated Net Book Accumulated Net Book
Life Cost Depreciation Value Cost Depreciation Value
(in years) A$ A$ A$ A$ A$ A$
Land 1,101,358 - 1,101,358 1,101,358 - 1,101,358
Buildings 40 2,978,840 (80,252) 2,898,588 2,968,213 (43,235) 2,924,978
Leasehold
Improvements 1-2 303,665 (55,485) 248,180 235,831 (35,790) 200,041
Motor Vehicles 5 1,468,385 (342,210) 1,126,175 1,001,863 (234,199) 767,664
Equipment 1-10 2,788,114 (398,467) 2,389,647 2,135,498 (282,626) 1,852,872
Lear Jet 5 1,270,869 (478,387) 792,482 1,270,869 (352,345) 918,524
Construction in
Progress 615,767 - 615,767 708,217 - 708,217
----------------------------------------------------------------------
10,526,998 (1,354,801) 9,172,197 9,421,849 (948,195) 8,473,654
======================================================================
The depreciation expense for the six months ended June 30, 2010 amounted to
A$581,871 and the six months ended June 30, 2009 amounted to A$314,697. Assets
written off for the six months ended June 30, 2010 amounted to A$191,450.
4. DEPOSITS
Deposits held by the Company as at June 30, 2010 consist of:
A$
Term Deposit as security for a Banker's Undertaking 2,170,619
Cash deposits provided to Government Departments for the purpose
of guaranteeing the Company's performance in accordance with
mining law 529,402
Other 143,711
---------
2,843,732
=========
10
5. STOCKHOLDERS EQUITY
Share Option Plan
The Company has a Stock Incentive Plan ("Stock Plan") for executives and
eligible employees and contractors. Under this Stock Plan, options to purchase
shares of stock can be granted with exercise prices not less than the fair
market value of the underlying stock at the date of grant. The Company believes
that such awards better align the interests of its employees with those of its
shareholders. Option awards are generally granted with an exercise price equal
to or greater than the market price of the Company's stock at the date of grant;
those option awards generally vest 1/3 after 12 months, 1/3 after 24 months and
the balance after 36 months with a 10-year contractual term. The expected life
of the options is generally between 5 to 6 years. Certain option and share
awards provide for accelerated vesting if there is a change in control (as
defined in the Stock Plan). The maximum aggregate number of Shares which may be
optioned and sold under the Stock Plan is 10% of the issued and outstanding
shares (on a fully diluted basis).
The fair value of each option award is estimated on the date of grant using
the Binomial option valuation model that uses the assumptions noted in the
following table. The Binomial option valuation model requires the input of
subjective assumptions, including the expected term of the option award and
stock price volatility. Expected volatility is based on the historical
volatility of our stock at the time grants are issued and other factors,
including the expected life of the options of 5 to 6 years. The Company uses
historical data to estimate option exercise and employee termination within the
valuation model; separate groups of employees that have similar historical
exercise behaviour are considered separately for valuation purposes. The
expected term of options granted is derived from the output of the option
valuation model and represents the period of time that options granted are
expected to be outstanding; the range given below results from certain groups of
employees exhibiting different behaviour. The risk-free rate for periods within
the contractual life of the option is based on the U.S. Treasury yield curve in
effect at the time of grant.
Various assumptions and factors related to stock options are as follows:
Weighted Average Volatility 70%
Dividend Yield -
Expected term (years) 5.5 - 6.5
Risk-free rate 2.48% - 3.54%
A summary of option activity under the Plan as of June 30, 2010, and
changes during the six months then ended is presented below:
Options Weighted-Average
Shares Exercise Price
----------------------------------------
Balance, December 31, 2009 23,687,500 $1.30
Granted - -
Exercised 333,334 $0.83
Forfeited and expired 666,666 $0.96
----------------------------------------
Balance, June 30, 2010 22,687,500 $1.32
----------------------------------------
Options exercisable at June 30, 2010 15,375,000 $1.23
----------------------------------------
For the six months ended June 30, 2010 stock-based compensation expense
relating to stock options was A$958,253 (US$914,293). No income tax benefit was
recognized in the six months ended June 30, 2010 for stock-based compensation
arrangements because of the valuation allowance. For the six months ended June
30, 2010 333,334 options were exercised using the cashless feature and the
Company issued 66,282 shares, The number of shares issued under the cashless
exercise is determined by a fraction at the date of exercise, the numerator of
which is the difference between the current market price per share of Common
Stock and the per share option price, and the denominator the current market
price per share of Common Stock As at June 30, 2010, there was A$1,182,131
(US$954,534) of unrecognized compensation cost, before income taxes, related to
unvested stock options.
11
Options Outstanding Options Exercisable
-------------------------------------- ----------------------------------------
Weighted Weighted
Exercise Average Weighted- Average Weighted-
Prices Number Remaining Average Number Remaining Average
US$ Outstanding Contractual Exercise Exercisable Contractual Exercise
Life Price Life Price
(In Years) (In Years)
-------------------------------------- ----------------------------------------
$0.444 1,856,250 6.36 1,806,250 6.34
$1.000 13,931,250 7.35 9,602,084 6.98
$2.000 5,900,000 7.68 3,633,333 7.65
$3.480 1,000,000 8.03 333,333 8.03
-------------------------------------- ----------------------------------------
22,687,500 7.38 $1.32 15,375,000 7.10 $1.23
-------------------------------------- ----------------------------------------
The aggregate intrinsic value of outstanding stock options at June 30, 2010 was
A$753,638 and the aggregate intrinsic value of exercisable stock options was
A$733,338.
6. AFFILIATE TRANSACTIONS
The Company has entered into an agreement with AXIS Consultants Pty Ltd
("AXIS") to provide geological, management and administration services to the
Company. AXIS is affiliated through common management. The Company is one of ten
affiliated companies. Each of the companies has some common Directors, officers
and shareholders.
During the six months ended June 30, 2009, AXIS charged the Company
A$2,756,525 for management and administration services and A$3,571,398 for
exploration services. The Company paid A$5,917,000 for 2009 charges. For the six
months ended June 30, 2009, the Company charged AXIS interest of A$31,307 at a
rate between 9.25% and 10.80%.
During the six months ended June 30, 2010, AXIS charged the Company
A$4,011,231 for management and administration services and A$4,000,881 for
exploration services. The Company paid A$422,692 for 2010 charges and advanced
AXIS A$268,477. The amount owed by AXIS at June 30, 2010 under current assets -
receivables was A$2,045,613 and under non-current assets - receivables was
A$1,584,706. For the six months ended June 30, 2010, the Company charged AXIS
interest of A$73,057 at a rate between 9.25% and 10.80%.
During the six months ended June 30, 2010, the Company invested A$657,961
in Northern Capital Resources Corp. ("NCRC"). (See Note 13)
7. RECLAMATION AND REMEDIATION
June 30,
2010
A$
Balance January 1 935,558
Increase as a result of rehabilitation requirement on exploration
undertaken during year 12,757
Decrease as a result of rehabilitation performed during the year (30,275)
----------
Closing balance June 30 918,040
----------
The Company's exploration activities are subject to various federal and
state laws and regulations governing the protection of the environment. These
laws and regulations are continually changing and are generally becoming more
restrictive. The Company conducts its operations so as to protect the
environment and believes its operations are in compliance with applicable laws
and regulations in all material respects. The Company has made, and expects to
make in the future, expenditures to comply with such laws and regulations, but
cannot predict the full amount of such future expenditures. Estimated future
reclamation costs are based principally on legal and regulatory requirements.
8. LEASE LIABILITY
A$
The Company entered into capital finance lease agreements for
motor vehicles. The leases are non-cancellable and require
total monthly repayments of A$37,342 and expire at various
dates from 2012 to 2013. Future minimum payments due for the
remaining term of the leases as of June 2010 are as follows:
2010 448,105
2011 383,724
2012 166,988
----------------
998,817
Less amounts representing interest 103,169
----------------
895,648
----------------
Current liability 381,718
Non-current liability 513,930
----------------
895,648
----------------
At June 30, 2010, the net book value of the motor vehicles
under capital leases amounts to: 929,859
----------------
12
9. MARKETABLE SECURITIES
Management determines the appropriate classification of its investments
in marketable securities at the time of purchase and re-evaluates such
determinations at each reporting date. The Company accounts for its marketable
securities and other marketable securities in accordance with ASC Topic 320,
"Investments - Debt and Equity Securities"
On January 1, 2008, Legend partially adopted ASC Topic 820 "Fair Value
Measurements and Disclosures" ("ASC 820"), which, among other things, defines
fair value, establishes a consistent framework for measuring fair value and
expands disclosure for each major asset and liability category measured at fair
value on either a recurring or nonrecurring basis. Legend did not adopt the ASC
820 fair value framework for nonfinancial assets and liabilities, except for
items that are recognized or disclosed at fair value in the financial statements
at least annually. ASC 820 clarifies that fair value is an exit price,
representing the amount that would either be received to sell an asset or be
paid to transfer a liability in an orderly transaction between market
participants. As such, fair value is a market-based measurement that should be
determined based on assumptions that market participants would use in pricing an
asset or liability. As a basis for considering such assumptions, ASC 820
establishes a three-tier fair value hierarchy, which prioritizes the inputs used
in measuring fair value as follows:
Level 1. Observable inputs such as quoted prices in active markets for identical
assets or liabilities;
Level 2. Inputs, other than the quoted prices in active markets, that are
observable either directly or indirectly; and
Level 3. Unobservable inputs in which there is little or no market data, which
require the reporting entity to develop its own assumptions.
Investment Measured at Fair Value on a Recurring Basis:
Fair Value Fair Value at
Hierarchy June 30, 2010
---------------------------------
Current Asset
Marketable Securities - (Trading Securities) Level 1 A$73,083
Non Current Asset
Marketable Securities - (Available-for-sale Securities) Level 2 A$2,137,598
The marketable securities classified as trading securities held at June
30, 2010 are investments in companies in the phosphate industry that are listed
on a US stock exchange. The cost of the investments was A$97,772, the fair
market value at June 30, 2010 was A$73,083 and the net unrealized loss for the
six months ended June 30, 2010 was A$24,689. Unrealized gains and losses are
included in earnings in the period they arise.
The marketable securities (non-current asset) classified as available-for-sale
securities held at June 30, 2010 are investments in a Fund that purchases shares
in companies quoted on international stock exchanges. The cost of the investment
was A$2,928,294 and the fair market value after exchange rate revaluation at
June 30, 2010 was A$2,137,598.The investment is valued at the net asset value
which is provided by the Fund's manager. Unrealized temporary gains and losses
are included in other comprehensive income or loss in the period they arise.
10. COMMITMENTS AND CONTINGENCIES
The Company entered into an agreement for drilling on its Queensland
phosphate project whereby the Company guaranteed to drill a set number of
metres. If those metres were not drilled, the Company was required to make a
payment for the metres that had not been drilled. At June 30, 2010, the value of
the commitment was A$3,028,037 and drilling programs are continuing. The Company
has also entered into non-cancellable operating leases and has a commitment of
A$269,552.
13
The Company has to perform minimum exploration work and expend minimum
amounts of money on its tenements. The overall expenditure requirement tends to
be limited in the normal course of the Company's tenement portfolio management
through expenditure exemption approvals, and expenditure reductions through
relinquishment of parts or the whole of tenements deemed non prospective. Should
the Company wish to preserve interests in its current tenements, the amount
which may be required to be expended is as follows:
2010
A$
Not later than one year 4,070,965
Later than one year but not later than five years 4,634,040
Later than five years but not later than twenty one years 1,714,893
-----------
10,419,898
==========
In January 2010, two stockholders (being an individual and his private
company) commenced an action in Supreme Court, New York County against the
Company, Renika Pty Ltd. and Joseph Gutnick on account of the alleged failure of
the defendants to issue warrants to the plaintiffs in connection with the
purchase of shares of common stock from the Company and from Renika Pty Ltd. in
2006 and 2007. The Company, Renika Pty Ltd. and Joseph Gutnick vigorously
defended the claim and moved to dismiss the complaint as a matter of law. During
the June 2010 quarter, the plaintiffs withdrew the claim.
The Company has received a claim for compensation in consideration of
introducing the Company to a third party. The Company's attorneys responded
denying any agreement or understanding. The Company does not believe the claim
has any merit and will defend the claim vigorously if necessary.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, accounts receivable,
accounts payable and accrued expenses. The carrying amounts of cash, accounts
receivable, accounts payable and accrued expenses approximate their respective
fair values because of the short maturities of those instruments.
12. RECLASSIFICATIONS
Certain amounts in the 2009 financial statements are reclassified to
conform to the 2010 presentation with no effects on operations.
13. INVESTMENTS/SUBSIDARIES
North Australian Diamonds Limited ("NADL")
At March 31, 2010, the Company's holding in NADL was 49.41%. During the
three months ended June 30, 2010, the Company purchased an additional 22,301,346
shares, increasing its holding in NADL to 50.36% at June 30, 2010. The cost to
the Company was A$911,516. It is management's conclusion that the Company had
and continues to have controlling financial interest in NADL and accordingly,
it consolidates NADL's results into the Company's Financial Statements.
The amount of revenue of NADL for the six months ended June 30, 2010
included in the Consolidated Statement of Operations for the reporting period is
A$nil and the amount of loss is A$5,735,031.
Northern Capital Resources Corp ("NCRC")
At December 31, 2009, the Company's holding in NCRC was 21.29%. During the
six months ended June 30, 2010, the Company closed a private placement in NCRC,
acquiring 2,990,110 shares of common stock at a cost of A$657,961 and at June
30, 2010, the Company held a 22.34% interest in NCRC. The Company has accounted
for the investment in NCRC using the equity method. At June 30, 2010, the
carrying value of the investment was A$10,465,649. For the six months ended June
30, 2010, the Company recorded an equity loss in NCRC of A$294,387.
Top End Uranium Ltd
The Company through its investment in NADL increased its interest from 25%
to 28% interest in Top End Uranium ("TEU") which has a carrying value of
A$907,080 at June 30, 2010. NADL purchased 1,866,879 ordinary shares at a cost
of A$259,889 during the six months ended June 30, 2010. NADL accounts for the
investment in TEU using the equity method. For the six months ended June 30,
2010, the Company recorded equity loss in TEU of A$80,187.
14
14. INCOME TAXES
The Company has adopted the provisions of ASC Topic 740 "Income Taxes". ASC
740 requires recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined based on the differences between the financial statement
and tax basis of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse.
ASC Topic 740 prescribes how a company should recognise, measure, present
and disclose in its financial statements uncertain tax positions that the
Company has taken or expects to take on a tax return. Additionally for tax
positions to qualify for deferred tax benefit recognition under ASC 740, the
position must have at least a "more likely than not" chance of being sustained
upon challenge by the respective taxing authorities, and whether or not it meets
that criteria is a matter of significant judgement. The Company believes that it
does not have any uncertain tax positions that would require the recording or
disclosure of a potential tax liability. The Company's tax years for all years
since December 31, 2006 remain open to most taxing authorities.
The Company follows the asset and liability approach which requires the
recognition of deferred tax liabilities and assets for the expected future tax
consequences of temporary differences between the carrying amounts and the tax
basis of assets and liabilities. For the period presented, there was no taxable
income. There are no deferred income taxes resulting from temporary differences
in reporting certain income and expense items for income tax and financial
accounting purposes. The Company, at this time, is not aware of any net
operating losses which are expected to be realised.
The Company is subject to taxation in both the USA and Australia.
At June 30, 2010, deferred taxes consisted of the following:
USA Australia Total
2010 2010 2010
A$ A$ A$
Deferred tax assets
Net operating loss carry-forward 17,140,479 20,438,310 37,578,789
Exploration expenditure 18,805,397 - 18,805,397
Less valuation allowance (35,945,876) (20,438,310) (56,384,186)
---------------------------------------------
Net deferred taxes - - -
=============================================
Under ASC 740-10 tax benefits are recognised only for tax positions that
are more likely than not to be sustained upon examination by tax authorities.
The valuation allowance offsets the net deferred tax asset for which there is no
assurance of recovery. The valuation allowance will be evaluated at the end of
each year, considering positive and negative evidence about whether the deferred
tax asset will be realized.
At that time, the allowance will either be increased or reduced; reduction
could result in the complete elimination of the allowance if positive evidence
indicates that the value of the deferred tax assets is no longer impaired and
the allowance is no longer required.
As a result of the ownership change that occurred in November 2004 (see note 1),
Internal Revenue Code Section 382 limits the use of available operating loss
carryforwards for losses incurred prior to the ownership change. In addition,
the Company will need to file tax returns for 2009 to establish the tax benefits
of the net operating loss carry forwards in Australia for those years.
Carry-forward net operating losses will be available to offset future taxable
income. Total available net operating loss carryforwards in the United States,
which are subject to limitations, amount to approximately A$37,000,000 at June
30, 2010 and expire in years 2023 through 2030. Net operating loss carryforwards
in Australia do not have a definite expiration date.
15. SUBSEQUENT EVENTS
The Company has evaluated significant events subsequent to the balance
sheet date and has determined that there were no subsequent events or
transactions which would require recognition or disclosure in the consolidated
financial statements, other than noted herein.
Since June 30, 2010, Legend has acquired a further 524,365 ordinary shares
in NADL at a cost of A$15,145, taking its interest in NADL to 50.38%.
Since June 30, 2010, Legend has acquired a further 7,137,900 ordinary
shares in Northern Capital Resources, Corp. at a cost of A$1,634,048, taking its
interest to 24.92%.
15
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FUND COSTS CONVERSION
The statements of operations and other financial and operating data
contained elsewhere here in and the balance sheets and financial results have
been reflected in Australian dollars unless otherwise stated.
The following table shows the average rate of exchange of the Australian
dollar as compared to the US dollar during the periods indicated:
6 months ended June 30, 2009 A$1.00 = US$.8048
6 months ended June 30, 2010 A$1.00 = US$.8567
RESULTS OF OPERATION
Three Months Ended June 30, 2010 vs. Three Months Ended June 30, 2009.
The Company's financial statements are prepared in Australian dollars (A$).
A number of the costs, expenses and assets of the Company are incurred/held in
US$ and the conversion of these costs to A$ means that the comparison of the
three months ended June 30, 2010 to the three months ended June 30, 2009 does
not always present a true comparison.
Furthermore, the results for the quarter ended June 30, 2010 include the
consolidated results of NADL and the equity accounted results of NCRC and TEU
and therefore a comparison of June 2010 and June 2009 does not always present a
true comparison.
As an exploration company, we do not have an ongoing source of revenue. Our
revenue stream is normally from interest received on cash in bank and ad-hoc
tenement disposals and Australian Taxation Office refunds.
During the three months ended June 30, 2010, we received A$578,566 in
interest on funds in the bank, interest income from a related entity of A$39,589
and fuel rebate of A$76,395. The decrease in interest income is primarily a
result of the reduction of cash at bank from comparative periods.
Costs and expenses increased from A$8,124,014 in the three months ended
June 30, 2009 to A$10,925,403 in the three months ended June 30, 2010. The
increase in expenses is a net result of:
a) an increase in legal, accounting and professional expense from
A$141,462 for the three months ended June 30, 2009 to A$148,116 for
the three months ended June 30, 2010 as a result of a increase in
legal fees for general legal work including stock transfer matters,
regulatory filings, stock transfer agent fees, and audit fees for
professional services in relation to the Form 10-Q. Included within
legal, accounting and professional expense for the three months ended
June 30, 2010 are the following material amounts for NADL; legal fees
of A$17,838, accounting fees of A$17,208; for which there is no
comparative amount in the three months ended June 30, 2009.
b) an increase in exploration expenditure written off from A$4,587,790
in the three months ended June 30, 2009 to A$7,533,685 in the three
months ended June 30, 2010. The exploration costs include
drilling/geological/geophysical/mineral analysis contractors, salaries
for contract field staff, travel costs, accommodation and tenement
costs. In the current year in relation to our diamond operations,
drilling and trial testing recommenced in January 2010 at Merlin and
surrounding areas and included within exploration expenditure written
off for the three months ended June 30, 2010 is A$2,571,551; for which
there is no comparative amount in the three months ended June 30, 2009
as NADL was not consolidated in the comparable period. On our
phosphate operations, we continued to advance the current feasibility
test work. In the prior year, phosphate field activities including
drilling occurred during the quarter and work continued on
investigations into a mining operation and in relation to our diamond
operations, a detailed sampling program in Northern Territory
recommenced in March 2009 after the end of the wet season in Northern
Australia.
c) a decrease in aircraft maintenance costs from A$136,655 in the three
months ended June 30, 2009 to A$103,953 in the three months ended June
30, 2010.
d) a decrease in stock based compensation from A$1,198,265 in the three
months ended June 30, 2009 to A$365,568 in the three months ended June
30, 2010. The Company has issued options under the 2006 Incentive
Option Plan throughout 2006, 2007, 2008 and 2009. The decrease is a
result of options being fully vested in prior periods.
16
e) a decrease in interest expense from A$17,873 for the three months
ended June 30, 2009 to A$3,853 for the three months ended June 30,
2010.
f) an increase in amortization of mineral rights from A$nil for the
three months ended June 30, 2009 to A$349,626 for the three months
ended June 30, 2010. On the acquisition date of the business
combination of NADL, the Company recognised mineral rights of
A$18,873,000. The underlying mineral property licences have a set term
and the mineral rights are being amortized over the term of the
licences. The acquisition occurred in August 2009 and therefore there
was no comparable amount for the three months ended June 30, 2009.
g) an increase in administrative costs from A$2,041,969 in the three
months ended June 30, 2009 to A$2,420,602 in the three months ended
June 30, 2010. As a result of the increase in activities in the
current quarter, there was an increase in direct costs, indirect costs
and service fees charged to the Company by AXIS which increased from
A$1,239,237 to A$1,562,536; the cost of travel and accommodation
relating to the business activities of the Company of A$354,211;
investor relations and other consultants of A$221,497; property
rentals and associated costs of A$48,000; and the cost of insurance of
A$46,169. Included within administrative costs for the three months
ended June 30, 2010 are the following material amounts for NADL;
A$60,034 for rent; A$158,761 for salaries and associated benefits; for
which there is no comparative amount in the three months ended June
30, 2009.
As a result of the foregoing, the loss from operations increased from
A$7,298,950 for the three months ended June 30, 2009 to A$10,230,853 for the
three months ended June 30, 2010. An increase in foreign currency exchange gain,
from a loss of A$3,172,261 for the three months ended June 30, 2009 to a foreign
currency exchange gain of A$648,885 in the three months ended June 30, 2010 was
recorded as a result of the movement in the Australian dollar versus the US
dollar. A net gain of A$55,309 on revaluation and sale of certain trading
securities, being the difference between the cost price, sale price and market
value, was incurred in the three months ended June 30, 2009 compared to a net
loss of A$24,861 incurred in the three months ended June 30, 2010.
The loss before income taxes and equity in losses of unconsolidated
entities was A$10,415,902 for the three months ended June 30, 2009 compared to a
net loss of A$9,606,829 for the three months ended June 30, 2010. There was no
provision for income taxes in either the three months ended June 30, 2009 or
2010.
The equity losses in unconsolidated entities for the three months ended
June 30, 2010 amounted to A$229,767. The Company holds a 22.34% interest in
Northern Capital Resources Corp and the Company through its investment in NADL
holds a 28% investment in Top End Uranium Ltd at June 30, 2010. The Company
accounts for both of these investments using the equity method of accounting.
There were no comparable investments in the three months ended June 30, 2009.
The net loss was A$9,836,596 for the three months ended June 30, 2010
compared to a net loss of A$10,557,700 for the three months ended June 30, 2009.
The share of the loss attributable to the non-controlling interests of NADL
for the three months ended June 30, 2010 amounted to A$1,260,262, for which
there was no comparable amount in 2009. On May 12, 2009, the Company made an
on-market takeover offer for all of the shares in North Australian Diamonds
Limited ("NADL"). The Company held 34.61% of the issued and outstanding shares
at May 31, 2009 and as a result, accounted for its interest in NADL as an
unconsolidated entity until August 6, 2009. The takeover offer concluded on
August 6, 2009. At the close of the offer, the Company held 55% of the issued
and outstanding shares of NADL and as a result, commenced consolidating the
results of NADL from that date. In early December 2009, NADL placed shares to a
third party which had the effect of diluting the Company's interest in NADL to
47.83%. Under Australian takeover laws, the Company was prevented from
purchasing further shares in NADL for a period of 6 months from the conclusion
of the takeover (August 6, 2009). Accordingly, it was not until February 6, 2010
that the Company was entitled to purchase any further shares in NADL under
Australian Corporations Law. Since February 6, 2010, the Company has purchased
further shares in NADL and at June 30, 2010 its interest is 50.36%.
The net loss attributable to Legend stockholders amounted to A$8,576,334
for the three months ended June 30, 2010 compared to A$10,557,700 for the three
months ended June 30, 2009.
Six Months Ended June 30, 2010 vs. Six Months Ended June 30, 2009.
The Company's financial statements are prepared in Australian dollars (A$).
A number of the costs, expenses and assets of the Company are incurred/held in
US$ and the conversion of these costs to A$ means that the comparison of the six
months ended June 30, 2010 to the six months ended June 30, 2009 does not always
present a true comparison.
Furthermore, the results for the six months ended June 30, 2010 include the
consolidated results of NADL and the equity accounted results of NCRC and TEU
and therefore a comparison of June 2010 and June 2009 does not always present a
true comparison.
17
As an exploration company, we do not have an ongoing source of revenue. Our
revenue stream is normally from interest received on cash in bank and ad-hoc
tenement disposals and Australian Taxation Office refunds.
During the six months ended June 30, 2010, we received A$1,268,638 in
interest on funds in the bank, interest income from a related entity of A$73,057
and fuel rebate of A$131,404. The decrease in interest income is primarily a
result of the reduction of cash at bank from comparative periods.
Costs and expenses increased from A$15,456,130 in the six months ended June
30, 2009 to A$23,513,187 in the six months ended June 30, 2010. The increase in
expenses is a net result of:
a) an increase in legal, accounting and professional expense from
A$357,580 for the six months ended June 30, 2009 to A$373,405 for the
six months ended June 30, 2010 as a result of a increase in legal fees
for general legal work including stock transfer matters, regulatory
filings, stock transfer agent fees, and audit fees for professional
services in relation to the Form 10-Q's which was offset by the
inclusion for the first time of legal, accounting and professional
expense for NADL; including legal fees of A$42,363, and accounting
fees of A$41,488; for which there is no comparative amount in the six
months ended June 30, 2009.
b) an increase in exploration expenditure written off from A$8,625,094
in the six months ended June 30, 2009 to A$15,561,663 in the six
months ended June 30, 2010. The exploration costs include
drilling/geological/geophysical/mineral analysis contractors, salaries
for contract field staff, travel costs, accommodation and tenement
costs. In the current year in relation to our diamond operations,
drilling and trial testing recommenced in January 2010 at Merlin and
surrounding areas and included within exploration expenditure written
off for the six months ended June 30, 2010 is A$5,617,721; for which
there is no comparative amount in the six months ended June 30, 2009
as NADL was not consolidated in the comparable period. On our
phosphate operations, we continued to advance the current feasibility
test work. In the prior year, phosphate field activities including
drilling occurred during the quarter and work continued on
investigations into a mining operation and in relation to our diamond
operations, a detailed sampling program in Northern Territory
recommenced in March 2009 after the end of the wet season in Northern
Australia.
c) a decrease in aircraft maintenance costs from A$245,988 in the six
months ended June 30, 2009 to A$195,306 in the six months ended June
30, 2010.
d) a decrease in stock based compensation from A$2,420,363 in the six
months ended June 30, 2009 to A$958,253 in the six months ended June
30, 2010. The Company has issued options under the 2006 Incentive
Option Plan throughout 2006, 2007, 2008 and 2009. The decrease is a
result of options being fully vested in prior periods.
e) a decrease in interest expense from A$34,681 for the six months ended
June 30, 2009 to A$31,271 for the six months ended June 30, 2010.
f) an increase in amortization of mineral rights from A$nil for the six
months ended June 30, 2009 to A$699,252 for the six months ended June
30, 2010. On the acquisition date of the business combination of NADL,
the Company recognised mineral rights of A$18,873,000. The underlying
mineral property licences have a set term and the mineral rights are
being amortized over the term of the licences. The acquisition
occurred in August 2009 and therefore there was no comparable amount
for the six months ended June 30, 2009.
g) an increase in administrative costs from A$3,772,424 in the six
months ended June 30, 2009 to A$5,694,037 in the six months ended June
30, 2010. As a result of the increase in activities in the first half
of 2010, there was an increase in direct costs, indirect costs and
service fees charged to the Company by AXIS which increased from
A$2,756,525 to A$4,011,231; which included the cost of travel and
accommodation relating to the business activities of the Company of
A$448,277; investor relations and other consultants of A$553,545;
property rentals and associated costs of A$178,627; and the cost of
insurance of A$105,925. Included within administrative costs for the
six months ended June 30, 2010 are the following material amounts for
NADL; A$120,294 for rent; A$276,138 for salaries and associated
benefits; for which there is no comparative amount in the six months
ended June 30, 2009.
As a result of the foregoing, the loss from operations increased from
A$13,457,712 for the six months ended June 30, 2009 to A$22,040,077 for the six
months ended June 30, 2010. An increase in foreign currency exchange gain, from
a loss of A$2,962,778 for the six months ended June 30, 2009 to a foreign
currency exchange gain of A$357,396 in the six months ended June 30, 2010 was
recorded as a result of the movement in the Australian dollar versus the US
dollar. A net gain of A$113,739 on revaluation and sale of certain trading
securities, being the difference between the cost price, sale price and market
value, was incurred in the six months ended June 30, 2009 compared to a net loss
of A$24,689 incurred in the six months ended June 30, 2010.
18
The loss before income taxes and equity in losses of unconsolidated
entities was A$16,306,751 for the six months ended June 30, 2009 compared to a
net loss of A$21,707,370 for the six months ended June 30, 2010. There was no
provision for income taxes in either the six months ended June 30, 2009 or 2010.
The equity losses in unconsolidated entities for the six months ended June
30, 2010 amounted to A$374,574. The Company holds a 22.34% interest in Northern
Capital Resources Corp and the Company through its investment in NADL holds a
28% investment in Top End Uranium Ltd. The Company accounts for both of these
investments using the equity method of accounting.
The net loss was A$22,081,944 for the six months ended June 30, 2010
compared to a net loss of A$16,448,549 for the six months ended June 30, 2009.
The share of the loss attributable to the non-controlling interests of NADL
for the six months ended June 30, 2010 amounted to A$2,907,718, for which there
was no comparable amount in 2009. On May 12, 2009, the Company made an on-market
takeover offer for all of the shares in North Australian Diamonds Limited
("NADL"). The Company held 34.61% of the issued and outstanding shares at May
31, 2009 and as a result, accounted for its interest in NADL as an
unconsolidated entity until August 6, 2009. The takeover offer concluded on
August 6, 2009. At the close of the offer, the Company held 55% of the issued
and outstanding shares of NADL and as a result, commenced consolidating the
results of NADL from that date. In early December 2009, NADL placed shares to a
third party which had the effect of diluting the Company's interest in NADL to
47.83%. Under Australian takeover laws, the Company was prevented from
purchasing further shares in NADL for a period of 6 months from the conclusion
of the takeover (August 6, 2009). Accordingly, it was not until February 6, 2010
that the Company was entitled to purchase any further shares in NADL under
Australian Corporations Law. Since February 6, 2010, the Company has purchased
further shares in NADL and its current interest is approximately 50%. It is the
Company's intentions to continue to acquire shares and to maintain a controlling
financial interest. Furthermore, management believes it has the ability to
control the operations of NADL through its share ownership as well as having six
of the Directors of NADL. It is management's conclusion that the Company has a
controlling financial interest in NADL and accordingly, it should continue to
consolidate NADL's results into the Company
The net loss attributable to Legend stockholders amounted to A$19,174,226
for the six months ended June 30, 2010 compared to A$16,448,549 for the six
months ended June 30, 2009.
Liquidity and Capital Resources
For the six months ending June 30, 2010, net cash used in operating
activities was A$22,738,963 (2009: A$10,998,296) primarily consisting of the net
loss of A$22,081,944 (2009: A$16,448,549), increase in accounts receivable of
A$2,357,524 (2009: A$9,274); increase in prepayments and deposits of A$205,357
(2009: A$598,868); and a decrease in inventories of A$52,089 (2009: increase
A$18,747) offset by an decrease in accounts payable and accrued expenses of
A$570,429 (2009: A$483,866).
Net cash used in investing activities was A$5,590,949 (2009: A$6,948,022),
consisting of the purchase of an additional 86,210,897 shares in NADL at a cost
of A$4,005,138 (2009: A$6,961,816), increasing the Company's holding in NADL to
50.36% at June 30, 2010 and the purchase of an additional 2,990,110 shares in
NCRC at a cost of A$657,961, investments in marketable securities of A$97,772
and purchase of plant and equipment including plant upgrade at Merlin of
A$830,078.
Net cash provided by financing activities was A$2,307,007 being primarily
net repayments under financing leases of A$157,869 (2009: A$134,032); and net
proceeds from the share purchase plan for ordinary shares of NADL of
A$2,607,283, less costs of A$142,407.
At June 30, 2010, the Company held US$7,960,887 in US accounts which when
converted to Australian dollars results in an unrealized foreign exchange loss
of A$357,396.
As at June 30, 2010, the Company had A$47,000,579 in cash.
On July 23, 2010 the Company announced the positive and robust results from
the completed feasibility study for Legend's Paradise Phosphate Project
conducted by Wengfu Group Ltd. The results of the feasibility study have
confirmed that development of the project is technically and economically
viable. The Project has a total capital cost of US$808.16 million (includes
working capital) and a capital payback period of 5 years. Wengfu will finalize
their proposed level of equity involvement and facilitation of financing after
completion of the Feasibility Expansion Study due by the end of the third fiscal
quarter of, 2010. Legend has also been approached by a number of other
international fertilizer industry corporations to discuss equity investment and
financing assistance for development of the project. These discussions will be
progressed aggressively over the next few months to ensure that project planning
and execution remains on schedule.
We plan to continue our exploration and pre-development program throughout
2010 and anticipate spending A$8.5 million on exploration and pre-development
and A$7.1 million on administrative costs.
19
The Company is considered to be an exploration stage company, with no
significant revenue, and is dependent upon the raising of capital through
placement of its common stock, preferred stock or debentures to fund its
operations. In the event the Company is unsuccessful in raising such additional
capital, it may not be able to continue active operations.
Cautionary Safe Harbor Statement under the United States Private Securities
Litigation Reform Act of 1995.
Certain information contained in this Form 10-Q's forward looking
information within the meaning of the Private Securities Litigation Act of 1995
(the "Act") which became law in December 1995. In order to obtain the benefits
of the "safe harbor" provisions of the act for any such forwarding looking
statements, the Company wishes to caution investors and prospective investors
about significant factors which among others have affected the Company's actual
results and are in the future likely to affect the Company's actual results and
cause them to differ materially from those expressed in any such forward looking
statements. This Form 10-Q report contains forward looking statements relating
to future financial results. Actual results may differ as a result of factors
over which the Company has no control including, without limitation:
- The risk factors set forth in Item 1A of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2009,
- The possibility that the phosphates we find are not commercially
economical to mine,
- The possibility that we do not find diamonds or other minerals or that the
diamonds or other minerals we find are not commercially economical to
mine,
- The risks and hazards inherent in the mining business (including
environmental hazards, industrial accidents, weather or geologically
related conditions),
- Changes in the market price of phosphate, base metals and diamonds,
- The uncertainties inherent in our production, exploratory and
developmental activities, including risks relating to permitting and
regulatory delays,
- The uncertainties inherent in the estimation of ore reserves,
- The effects of environmental and other governmental regulations, and
- Uncertainty as to whether financing will be available to enable further
exploration and mining operations.
Investors are cautioned not to put undue reliance on forward-looking
statements. We disclaim any intent or obligation to update publicly these
forward-looking statements, whether as a result of new information, future
events or otherwise.
Additional information which could affect the Company's financial results
is included in the Company's Form 10-K on file with the Securities and Exchange
Commission.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
At June 30, 2010, the Company had no outstanding loan facilities. At June
30, 2010, assuming no change in the cash at bank, a 10% change in the A$ versus
US$ exchange rate would have an A$0.97 million effect on the Company's cash
position.
Item 4. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures.
Our principal executive officer and our principal financial officer
evaluated the effectiveness of our disclosure controls and procedures (as
defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of
1934 as amended) as of the end of the period covered by this report. Based
on that evaluation, such principal executive officer and principal
financial officer concluded that, the Company's disclosure control and
procedures were effective as of the end of the period covered by this
report at the reasonable level of assurance.
(b) Change in Internal Control over Financial Reporting.
No change in our internal control over financial reporting occurred during
our most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect our internal control over financial
reporting.
(c) We believe that a controls system, no matter how well designed and
operated, cannot provide absolute assurance that the objectives of the
controls system are met and no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within a
company have been detected. Therefore, a control system, no matter how well
conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Our disclosure
controls and procedures are designed to provide such reasonable assurances
of achieving our desired control objectives, and our principal executive
officer and principal financial officer have concluded, as of June 30,
2010, that our disclosure controls and procedures were effective in
achieving that level of reasonable assurance.
20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
In January 2010, two stockholders ("the plaintiffs"- being an individual
and his private company) commenced an action in Supreme Court, New York County
against the Company, Renika Pty Ltd. and Joseph Gutnick (collectively "the
defendants") on account of the alleged failure of the defendants to issue
warrants to the plaintiffs in connection with the purchase of shares of common
stock from the Company and from Renika Pty Ltd. in 2006 and 2007. The Company,
Renika Pty Ltd. and Joseph Gutnick vigorously defended the claim and moved to
dismiss the complaint as a matter of law. During the June 2010 quarter, the
plaintiffs withdrew the claim.
The Company has received a claim for compensation in consideration of
introducing the Company to a third party. The Company's attorneys responded
denying any agreement or understanding. The Company does not believe the claim
has any merit and will defend the claim vigorously if necessary.
Other than these matters, there are no pending legal proceedings to which
the Company is a party, or to which any of its property is the subject, which
the Company considers material.
Item 1A Risk Factors
An investment in the Company involves a high degree of risk.
In addition to the other information set forth in this report, you should
carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in
our Annual Report on Form 10-K for the fiscal year ended December 31, 2009 which
could materially affect our business, financial condition or future results. The
risks described in our Annual Report on Form 10-K are not the only risks facing
the Company. Other unknown or unpredictable factors could also have material
adverse effects on future results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the three month endend June 30, 2010, the Company issued an
aggregate of 66,282 shares of common stock pursuant to the cashless exercise of
outstanding options in reliance on the exemption from registration under Section
3(a)(9) of the Securities Act of 1933, as amended.
Item 3. Defaults Upon Senior Securities.
Not Applicable
Item 4. Removed and Reserved.
Not Applicable
Item 5. Other Information.
Not Applicable
Item 6. Exhibits.
Exhibit No. Description
------------ -----------
31.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
by Joseph Isaac Gutnick (6)
31.2 Certification of Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by
Peter James Lee (6)
32.1 Certification of Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by
Joseph Isaac Gutnick (6)
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by
Peter James Lee (6)
21
FORM 10-Q
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorised.
LEGEND INTERNATIONAL HOLDINGS, INC.
(Registrant)
By: /s/ Peter J Lee
----------------------------
Peter J Lee
Chief Financial Officer and Secretary
Dated: August 9, 2010
22
EXHIBIT INDEX
Exhibit No. Description
------------ -----------
31.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
by Joseph Isaac Gutnick (6)
31.2 Certification of Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by
Peter James Lee (6)
32.1 Certification of Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by
Joseph Isaac Gutnick (6)
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by
Peter James Lee (6)
2
