Document:

Exhibit 4.10

 

 

ANNUAL
REPORT 2008

 

 

Report to Shareholders

 

For Cadiscor Resources Inc. (“the Company” or
“Cadiscor”), the highlights of 2008 were the acquisition and exploration of the
Sleeping Giant Mine property and new resource estimates for Discovery and
Sleeping Giant’s properties. In the first quarter, Cadiscor completed a
$3,000,000 private placement with CMP Gold Trust, a closed-end investment trust
managed by Goodman & Company. 
On December 31, 2008, CMP Gold Trust held 12.5% of Cadiscor’s outstanding
shares.

 

Early
in 2008, Cadiscor drilled four initial holes to test the extensions of the
Flordin gold deposit.  All four holes
intersected several mineralized zones, confirming the exploration potential of
the property.

 

In
June 2008, independent consultants InnovExplo Inc. realized a new 43-101 resource estimate for the Discovery
property. The Measured and Indicated resource grew by 15%, and is now estimated
at 1,282,082 tonnes grading 5.75
g/t, for a total of 237,074 ounces of gold. 
The Inferred resource grew by 56% compared to the May 2007 NI
43-101 estimate, to total 1,545,500 tonnes at an average grade of 5.93 g/t, for
294,473 ounces of gold.  In September 2008,
a scoping study by the same consulting firm concluded that, under certain
assumptions, the underground exploration and development project could be
carried out in two phases and generate a positive cash flow and a rate of
return of 27%.

 

At Sleeping Giant, the
2008 drilling program totalled 19,000 metres and was successful. For instance,
drilling on the Zone 30W extension outlined an Indicated resource of 123,000
tonnes grading 13.4 g/t of gold. The extensions of this zone remain open at
depth and along strike.

 

This drilling led to the
preparation of a new 43-101 report in September 2008 based on analysis of
existing data and the new underground exploration drilling at the Sleeping
Giant Mine.  GENIVAR concluded that the
gold Measured and Indicated resources totals 489,800 tonnes at a grade of 9.7
g/t, for 152,750 ounces.  Within this geological
resource, engineering studies have identified mineral Proven and Probable
reserves accessible from current workings totalling 235,300 tonnes at
9.3 g/t, for 70,350 ounces of gold. 
GENIVAR stated that the identified reserves could generate a net profit
of CAN $16 million at a gold price of CAN $850 per ounce. These reserves
represent 16 months of future production on the basis of an annual production
of 180,000 tonnes that would generate 52,000 recovered gold ounces per year.  If all converted to reserves, drilled
resources would represent 17 additional months of production.

 

On October 31,
2008, as planned, Cadiscor took possession of the Sleeping Giant Mine and
surface facilities, including related milling facilities and all mining
equipment, for $1.5 million paid in common shares and a $3.5 million
unsecured convertible debenture. Since that time, the Sleeping Giant Mine has
been on active standby while the Company secures the financing required to
restart production.

 

GENIVAR supplied a
development schedule in its September 2008 report that provides for the
mill to ramp up gradually after six months of development, to a final rate of
15,000 tonnes per month.

 

Also on October 31,
2008, Cadiscor acquired a 100% interest in IAMGOLD’s Dormex property.  The property is located in the same
geological context and surrounds the Sleeping Giant Mine property. A number of
till gold anomalies similar to the Sleeping Giant Mine till anomaly have been
identified on the property and represent quality exploration targets.

 

The year 2008 was a very
difficult year for the stock markets. 
Cadiscor’s value did not escape this turbulence, but the stock has
performed better than the TSX Venture Composite Index, mainly due to good
43-101 reports for Sleeping Giant and Discovery, and the Sleeping Giant Mine
and mill and the Dormex property acquisitions.

 

The gold price was up
slightly in 2008 and continues to do so in 2009. The price of an ounce has been
trading over CAN $1,000 for a few months now and financial analysts are
confident that it will hold up.  Cadiscor
will focus on putting Sleeping Giant back into production before the end of
2009.  The Company is evaluating
different financial scenarios to achieve this goal.

 

 

Michel Bouchard, President

March 12, 2009

 

2

 

Management Discussion and Analysis

 

For the year ended December 31,
2008

 

Scope of Management’s Financial Analysis

 

The following analysis should be read in conjunction
with the Company’s audited financial statements and notes thereto for the years
ended December 31, 2008 and 2007, and the management discussion and
analysis as required.  Our financial
statements were prepared in accordance with Canadian generally accepted
accounting principles (GAAP).

 

Forward-Looking Statements

 

This document may contain forward-looking statements
that reflect management’s current expectations with regard to future events.
Such forward-looking statements are subject to certain factors and involve a
number of risks and uncertainties. There can be no assurance that such
statements will prove to be correct. Factors that could cause our results, our
operations and future events to change materially from those expressed or
implied by such forward-looking statements include, but are not limited to,
volatility in the gold price, risks inherent to the mining industry,
uncertainty regarding the mineral resource estimation and additional funding
requirements and the Company’s ability to obtain such funding.

 

Incorporation, Nature of Operations
and Going Concern

 

The Company was incorporated
on March 6, 2006 under the Canada
Business Corporations Act. Shares of the Company have traded on the
TSX Venture Exchange since August 21, 2006.

 

The Company is primarily
engaged in the exploration of mining properties with a view to commercial
production. It currently owns or holds interests in various mining properties
in Quebec, but does not have any mines in production.  The Company holds an interest of 100% in six
properties and an option on a seventh, all located in Quebec.  Its main objective is to start production at
the Sleeping Giant Mine.  Since the
acquisition of the Sleeping Giant Mine on October 31, 2008, Cadiscor has
been working with several parties to secure financing to develop and start up
the mill and gold production.

 

Recovery of the cost of
mining assets is subject to the discovery and mining of economically
recoverable reserves, the Company’s ability to obtain the financing required to
pursue exploration and development of its properties, and profitable future
production or the proceeds from the sale of its properties.

 

The Company must periodically obtain new funds in
order to pursue its activities. While it has always succeeded in doing so to
date, there can be no assurance that it will continue to do so in the future.

 

Selected Annual Information

 

Selected financial information for the years ended December 31,
2008, 2007 and 2006 is shown in the following table:

 

	
   

  	
   

  	
  Results
  as at

  12-31-2008

  	
   

  	
  Results
  as at

  12-31-2007

  	
   

  	
  Results
  as at

  12-31-2006

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  (9
  month)

  restated

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  Total
  income

  	
   

  	
  112,351

  	
   

  	
  122,000

  	
   

  	
  97,175

  	
   

  
	
  General and administrative
  expenses

  	
   

  	
  1,473,512

  	
   

  	
  928,071

  	
   

  	
  873,689

  	
   

  
	
  Future
  income tax

  	
   

  	
  (733,600

  	
  )

  	
  (311,500

  	
  )

  	
  98,300

  	
   

  
	
  Net
  loss

  	
   

  	
  627,561

  	
   

  	
  494,571

  	
   

  	
  678,214

  	
   

  
	
  Net loss per share, basic
  and diluted

  	
   

  	
  0.016

  	
   

  	
  0.016

  	
   

  	
  0,025

  	
   

  

 

3

 

Other Information

 

	
   

  	
   

  	
  December 31

  	
   

  
	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  	
  2006

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  
	
  Mining assets

  	
   

  	
  8,594,269

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
  Mining properties

  	
   

  	
  4,991,911

  	
   

  	
  5,891,405

  	
   

  	
  4,700,172

  	
   

  
	
  Deferred expenditures

  	
   

  	
  3,920,120

  	
   

  	
  3,454,143

  	
   

  	
  1,221,707

  	
   

  
	
  Total assets

  	
   

  	
  22,616,405

  	
   

  	
  13,823,107

  	
   

  	
  10,326,070

  	
   

  
	
  Working
  capital

  	
   

  	
  2,430,942

  	
   

  	
  3,977,268

  	
   

  	
  3,922,110

  	
   

  
	
  Shareholders’ equity

  	
   

  	
  15,385,587

  	
   

  	
  11,268,577

  	
   

  	
  7,767,789

  	
   

  

 

Exploration Activities (Mining assets
and mining properties)

 

Exploration expenses for the year ended December 31,
2008, amounted to $3,317,266 compared to $3,667,436 for the same period in
2007. Sleeping Giant Mine was the most active property, with underground
exploration work of $2,392,683 during the fiscal year (See under “Mining
assets” in the financial statements). 
The Company invested $452,461 on the Discovery and Montbray properties,
$285,418 on the Flordin property, $175,217 on the Cameron Shear property and
$11,487 on the Florence and Dormex properties.

 

With
eligible exploration expenses of $3,317,266 incurred during the year, the
Company is eligible for a Quebec refundable tax credit for
resources of up to 35% and a Quebec refundable
credit on duties equal to 12% of eligible exploration expenses. The estimate
value of the tax credits receivable for expenses incurred during the year ended
December 31, 2008, is $218,714.

 

Exploration

 

2008 was an eventful year for the Company in terms of
exploration.

 

Sleeping
Giant Mine

 

In December 2007, Cadiscor started a 19,000-meter underground exploration program to test the
continuity of the gold zones in the mine and at depth, below the deepest mine
level (-975 metres). Cadiscor mandated consulting
firm GENIVAR to validate the results, the geological interpretation and the
known mineralized zones at the mine. In its 43-101 report, GENIVAR concluded
that Sleeping Giant Mine has gold measured and Indicated resources of 489,800
tonnes at an average grade of 9.7 g/t, for 152,750 ounces.  Within this geological resource, engineering
studies have identified mineral Proven and Probable reserves accessible via
current workings totalling 235,300 tonnes at an average grade of 9.3 g/t,
for 70,350 ounces of gold.  In 2008, the
Company invested $2,392,683 in the drilling program and the 43-101 report.

 

Discovery Property

 

Following the successful 2007-2008 drilling program,
Cadiscor mandated consultant firm InnovExplo to update the previous 43-101
report on the Discovery gold deposit. 
The new NI 43-101 resource estimate was published in June 2008.  The report indicates that the Measured and
Indicated resource increased by 15%, and is now estimated at 1,282,082 tonnes grading 5.75 g/t, for
a total of 237,074 ounces of gold.  In
addition, the Inferred resource increased by 56%, for a total of 1,545,500
tonnes grading 5.93 g/t, for 294,473 ounces of gold,

 

In September 2008, InnovExplo completed a scoping
study on this same project and confirmed that the project was economically
feasible and could generate positive cash flow, under certain assumptions.  The Company incurred total expenses of
$452,461 on the Discovery property in 2008.

 

4

 

Flordin and Cameron Shear Properties

 

Cadiscor carried out preliminary exploration drilling
on the Flordin and Cameron Shear properties, at a cost of $285,418 for Flordin
and $175,217 for Cameron Shear.  Drilling
on the Flordin property intersected several mineralized zones, confirming the lateral
and depth extensions and the excellent exploration potential of the property.

 

During the fourth quarter, the Company acquired two
properties, Sleeping Giant Mine and Dormex. 
The Company incurred servicing expenses on all its properties during the
quarter.

 

Outlook

 

In the coming months, the Company will focus on the
development of the Sleeping Giant Mine.

 

The dismal performance of the markets in recent
months, the collapse of commodities prices and the credit crisis are all
factors that have affected the Company, along with financing possibilities for
the development of the Sleeping Giant Mine virtually evaporating as a result.

 

Due to those circumstances, the Company was forced to
consider other alternatives, such as issuance of debt securities or some form
of partnership.

 

Management remains confident that financing will be
secured. Cadiscor will then begin developing the Sleeping Giant Mine according
to the schedule in the September 2008 43-101 report by external
consultants GENIVAR.  The schedule
provides for the mine to gradually resume production after a six-month period
of underground development.

 

Business Development

 

The Company gradually
decrease its investor relation exposure due to the financial markets dismal and
completed the acquisitions of the Sleeping Giant Mine and Dormex properties on October 31,
2008.

 

Operating Results

 

The Company incurred a net
loss of $627,561 for fiscal 2008 compared to a net loss of $494,571 for the
previous exercise in 2007 and a net loss of $678,214 for the exercise ended December 31,
2006.

 

The net loss increase of
$132,990 is mainly due to:

 

·                  The increase in professional and audit fees of
$382,801 related to the Sleeping Giant Mine acquisition;

·                  The decrease of $199,705 in investor relations for
unstable financial markets;

·                  Future income tax benefits amounted to $422,100
related to deferred losses and an adjustment to deferred expenditures;

·                  Higher stock-based compensation in stock-options of
$316,398 is related to exercisable options for this exercise. The expense is
determined at fair value using the Black-Scholes option-pricing model.

 

Salaries and fringe benefits
expenses of $118,455 in 2008 are following the hiring of some employees from
BBH Geo-Management on July 1, 2008.

 

Outstanding Share Data

 

The Company is authorized to issue an unlimited number
of common shares without par value.

 

At December 31, 2008, there were 43,315,260
shares issued and outstanding (33,575,000 at December 31, 2007) for a
value of $15,163,847 ($11,934,996 at December 31, 2007).

 

5

 

Liquidity and Sources of Financing

 

The Company’s working
capital stood at $2,430,942 at December 31, 2008 compared to $3,977,268 at
December 31, 2007.

 

The Company closed a private
placement on February 29, 2008, for net proceeds of $2,738,500.

 

During 2008, the Company
received an amount of $1,201,051 from tax credits for resources.

 

The Company’s investment
activities mainly included costs related to an increase in exploration work and
the acquisition of mining properties. 
The Company can claim a refundable Quebec tax credit for resources of up
to 35% and a 12% credit on duties refundable for losses on all eligible
expenses incurred.

 

The $5,961,694 Sleeping
Giant Mine acquisition was financed by the issuance of $2,010,000 in common
shares and a $3,500,000 convertible debenture maturing on October 31,
2011, a cash payment of $310,094 and warrants issuance for $141,600.

 

At the end of 2008, the
Company had $2,275,711 in cash, which will be used to pursue its 2009
exploration programs.

 

Dividend Policy

 

The Company has not declared
any cash dividend on its outstanding common shares since incorporation.  Any dividend payment will depend on the
Company’s financial requirements on its exploration programs, its future level
of growth and other factors deemed pertinent by the board of directors under
the circumstances.  It is unlikely that a
dividend will be paid in the foreseeable future.

 

Off Balance-Sheet Arrangements

 

The Company does not have any off balance-sheet
arrangements.

 

Related-Party Transactions

 

Since the beginning of the year, the Company conducted
the following transactions with a company that has a director and an officer
who is also director of the Company:

 

	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
  Capitalized expenditures in
  the statement of deferred expenditures:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Consultants and
  subcontractors

  	
   

  	
  $

  	
  293,000

  	
   

  	
  $

  	
  277,000

  	
   

  
	
  Management fees

  	
   

  	
  $

  	
  89,000

  	
   

  	
  $

  	
  300,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  General and administrative
  expenses in the statement of earnings and deficit:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Professional fees

  	
   

  	
  $

  	
  74,000

  	
   

  	
  $

  	
  114,000

  	
   

  
	
  Legal fees

  	
   

  	
  $

  	
  28,000

  	
   

  	
  $

  	
  27,000

  	
   

  
	
  Investor relations

  	
   

  	
  $

  	
  63,000

  	
   

  	
  $

  	
  147,000

  	
   

  
	
  Rent

  	
   

  	
  $

  	
  12,000

  	
   

  	
  $

  	
  24,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Share issue costs charged
  against capital stock

  	
   

  	
  $

  	
  3,000

  	
   

  	
  $

  	
  22,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Accounts payable and accrued
  liabilities

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  66,000

  	
   

  

 

On July 1, 2008, the
services agreement with BBH Geo-Management inc. was renegotiated and now only
covers a small group of employees. Henceforth, BBH will essentially provide
legal and computer graphics support services. 
Pursuant to this change, six employees were directly transferred to
Cadiscor on July 1, 2008. For the period from July 1 to December 31,
2008, Cadiscor incurred total expenses of $7,513 payable to BBH Geo-Management
inc.

 

6

 

Accounting Value of Mining Properties

 

At the end of every year, results
are assessed to determine the future potential of each property.

 

Quarterly Information

 

The following table shows key financial data for the
last eight quarters:

 

	
   

  	
   

  	
  2008

  	
   

  
	
   

  	
   

  	
  1st Quarter

  	
   

  	
  2nd Quarter

  	
   

  	
  3rd Quarter

  	
   

  	
  4th Quarter

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total income

  	
   

  	
  $

  	
  31,169

  	
   

  	
  $

  	
  32,620

  	
   

  	
  $

  	
  30,517

  	
   

  	
  $

  	
  18,045

  	
   

  
	
  General and administrative
  expenses

  	
   

  	
  $

  	
  246,771

  	
   

  	
  $

  	
  459,464

  	
   

  	
  $

  	
  168,910

  	
   

  	
  $

  	
  598,367

  	
   

  
	
  Net loss

  	
   

  	
  $

  	
  69,602

  	
   

  	
  $

  	
  185,944

  	
   

  	
  $

  	
  101,393

  	
   

  	
  $

  	
  270,622

  	
   

  
	
  Net loss per share, basic
  and diluted

  	
   

  	
  $

  	
  0.00

  	
   

  	
  $

  	
  0.00

  	
   

  	
  $

  	
  0.00

  	
   

  	
  $

  	
  0.00

  	
   

  

 

	
   

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
  1st Quarter

  	
   

  	
  2nd Quarter

  	
   

  	
  3rd Quarter

  	
   

  	
  4th Quarter

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total income

  	
   

  	
  $

  	
  36,101

  	
   

  	
  $

  	
  20,162

  	
   

  	
  $

  	
  28,078

  	
   

  	
  $

  	
  37,659

  	
   

  
	
  General and administrative
  expenses

  	
   

  	
  $

  	
  275,118

  	
   

  	
  $

  	
  252,995

  	
   

  	
  $

  	
  164,711

  	
   

  	
  $

  	
  235,247

  	
   

  
	
  Net loss

  	
   

  	
  $

  	
  215,117

  	
   

  	
  $

  	
  158,333

  	
   

  	
  $

  	
  96,633

  	
   

  	
  $

  	
  24,488

  	
   

  
	
  Net loss per share, basic
  and diluted

  	
   

  	
  $

  	
  0.01

  	
   

  	
  $

  	
  0.01

  	
   

  	
  $

  	
  0.00

  	
   

  	
  $

  	
  0.00

  	
   

  

 

Discussion of Quarterly Financial Information

 

In the last eight quarters, general expenses before
stock-based compensation expenses have averaged $249,937.

 

Fourth Quarter Results

 

The Company incurred a net loss of $270,622 for the
fourth quarter of 2008 compared to $24,488 for same quarter last year for a
difference of $246,134.

 

The increase of the loss is mainly due to the increase
in professional and audit fees for an amount of $382,801 related to the
acquisition of the Sleeping Giant Mine on October 31, 2008 and to future
tax benefits for an amount of $136,600.

 

The new services agreement
renewed with BBH Geo-Management on July 1, 2008, essentially covers legal
and computer graphics support services. 
On July 1, 2008, six employees of BBH were transferred to Cadiscor.

 

Summary of
Significant Accounting Policies

 

Use of Estimates

 

The preparation of financial
statements in accordance with Canadian generally accepted accounting principles
requires management to make estimates and assumptions that affect the assets
and liabilities reported in the financial statements. These estimates and
assumptions also affect the presentation of contingencies as at the date of the
financial statements, as well as revenue and expenses for the period. Critical
estimates include valuation of the credit on duties refundable for losses and
the refundable tax credit for resources, future income taxes or tax benefit,
the possibility of recovering the value of long-term investments and mining
properties and the fair value of stock options granted and certain amounts
payable. Actual results could therefore differ from these estimates.

 

Mining
Assets, Mining Properties and Deferred Expenditures

 

Mining properties
are recorded at cost and related exploration costs are deferred, net of
government assistance

 

7

 

received. In the
event of a production decision, costs related to a deposit and recorded under
mining properties and deferred exploration expenditures are transferred to
mining assets, and then amortized on the basis of units of production for the
year and proven and probable ore reserves. 
However, when a project is abandoned, the corresponding costs are
charged against earnings.

 

Credit on
Duties Refundable for Losses and Refundable Tax Credit for Resources

 

The
Company is eligible for a refundable credit on duties under the Quebec Mining Duties Act. This refundable credit on duties is equal
to 12% of expenses incurred for mining activities in Quebec and is recognized
as a credit under deferred expenditures.

 

The Company is also eligible
for a refundable tax credit for resources for mining industry companies in
relation to eligible expenses incurred. The refundable tax credit for resources
represents up to 35% of the amount of eligible expenses incurred. This tax
credit is recognized as a credit under deferred expenditures.

 

Changes in Accounting
Policy

 

Accounting Changes

 

Financial Instruments

 

On January 1, 2007, the Company adopted
new accounting policies resulting from the application of new accounting
standards published by the CICA relating to financial instruments:

 

·                  Section 3855, “Financial Instruments — Recognition and
Measurement”, provides guidance on when a financial instrument must be
recognized on the balance sheet and how it must be measured. It also provides
guidance on the presentation of gains and losses on financial instruments.

 

·                  Section 1530, “Comprehensive Income”, requires an entity to
recognize certain gains and losses in a separate statement, until such gains
and losses are recognized in the statement of earnings.

 

·                  Section 3251, “Equity”, establishes standards for the
presentation of equity and changes in equity during the reporting fiscal year.

 

Section 3861, “Financial Instruments — Disclosure and
Presentation” deals with the disclosure of financial instruments and
non-financial derivatives in the financial statements.

 

After initial recognition, the measurement of
financial instruments depends on their classification: held for trading,
available for sale, loans and receivables and other financial liabilities.

 

·                  Held
for trading  — Financial assets and financial liabilities
required to be classified or designated as held for trading are measured at
fair value, with gains, losses and transaction costs recorded in net earnings
for the period in which they arise. Section 3855 allows an entity to
designate any financial instrument as held for trading on initial recognition
or adoption of the accounting standard if reliable fair values are available,
even if that instrument would not otherwise satisfy the definition of a
security held for trading. Transaction costs are recorded immediately in net
earnings.

 

·                  Available
for sale  — Financial assets classified as available for sale
are measured at fair value. Unrealized gains and losses are recognized directly
in other comprehensive income, except for impairment losses, which are
recognized in net earnings. Upon derecognition of the financial asset, the
accumulated gains or losses previously recognized in accumulated other
comprehensive income are reclassified to net earnings. Transaction costs are
added to the carrying amount of the financial instrument.

 

8

 

·                  Loans
and receivables  —
Financial assets classified as loans and receivables are measured at amortized
cost using the effective interest method. Interest income or expenses are
included in net earnings over the expected life of the financial instrument.

 

·                  Other financial liabilities - Financial liabilities classified as other
financial liabilities are measured at amortized cost using the effective
interest method.

 

Below is a summary of the classifications the
Company has elected to apply to each of its significant categories of financial
instruments outstanding as of January 1, 2007:

 

	
  Cash and cash
  equivalents

  	
  Held for trading

  	
   

  
	
  Accounts
  receivable

  	
  Held for trading

  	
   

  
	
  Security deposit

  	
  Held for trading

  	
   

  
	
  Accounts payable
  and accrued liabilities

  	
  Held for trading

  	
   

  
	
  Long-term debt

  	
  Other financial liabilities

  	
   

  

 

On January 1,
2008, the Company adopted the Canadian Institute of Chartered Accountants
(“CICA”) Handbook Section 3862 and 3863, titled respectively “Financial
Instruments - Disclosures” and “Financial Instruments — Presentation” which
replace Section 3861 “Financial Instruments — Disclosures and
Presentation”. These new sections place increased emphasis on disclosures about
the nature and extent of risks arising from financial instruments recorded in
the balance sheet or off balance sheet and how the entity manages those risks.

 

These new requirements
only affect disclosure and do not have a financial impact on the Company’s
financial statements.

 

Going Concern

 

On January 1, 2008, in accordance with
the applicable transitional provisions, the Company adopted the new standards
of Section 1400, “General Standards of Financial Statement Presentation”.
This standard requires that management make an assessment of the Company’s
ability to continue as a going concern over a period which is at least, but is
not limited to, twelve months from the balance sheet date. The new requirements
only address disclosures and have no impact on the Company’s financial results.

 

Capital Disclosures

 

On January 1, 2008, in accordance with
the applicable transitional provisions, the Company adopted the recommendations
of new Section 1535, “Capital Disclosures”. The new section establishes
standards for disclosing information about an entity’s capital and how it is
managed.(Note 15)

 

FUTURE CHANGES IN ACCOUNTING POLICY

 

International Financial
Reporting Standards

 

In February 2008, the CICA published an exposure
draft as guidance which requires the transition to IFRS to replace Canadian
GAAP as currently employed by Canadian publicly accountable enterprises. The
changeover will occur no later than fiscal years beginning on or after January 1,
2011.  Accordingly, the Company expects
that its first interim financial statements presented in accordance with IFRS
will be for the three-month period of the year ended December 31, 2011,
when it prepares its current and comparative financial information in
accordance with IFRS.  The Company
expects this transition to have an effect on its accounting methods,
presentation of financial information and information systems.

 

During the next quarters, the
Company will develop its internal implementation plan in order To meet the
guidelines of the future reporting requirements.

 

Other new standards were
issued, but are not expected to have a material impact on the Company’s
financial statements.

 

9

 

Outstanding Share Data

 

The Company is authorized to issue an unlimited number
of common shares without par value.

 

The Company has a stock option
plan for its officers, directors, key employees and consultants. During the
year, the Company increased the number of common shares reserved for common
stock option grants from 2,759,900 to 3,902,954. The maximum number of options
that can be granted to any participant may not exceed 10% of the issued and
outstanding shares of the capital stock. The strike price of the options granted may not be less than the market
price, which corresponds to the discounted price of the common shares on the
TSX Toronto Venture Exchange on the date of the option grant. The options
granted are valid for a period established by the board of directors, not to
exceed ten years from the date the options are granted.

 

At December 31, 2008, the Company had
43,315,260 shares (33,575,000 shares at December 31, 2007) and
3,276,000 stock options issued and outstanding, of which 3,126,000 were
exercisable at prices of from $0.41 to $1.00 each, with expiry dates
ranging from December 25, 2009 to June 17, 2013. In fiscal 2008, the
Company granted 1,626,000 stock options to officers, directors, consultants and
employees of the Company’s suppliers. These options have a strike price of from
$0.41 to $0.61 each and are exercisable for a five-year period.

 

As December 31, 2008, the Company had 6,614,236 (5,062,030
as of December 31, 2007) warrants outstanding that could be exercised at
prices between $0.55 and $1.00, with maturity dates from February 10, 2009
to December 31, 2010.  During the
year, the Company issued 3,163,636 warrants pursuant to private placements and
the acquisition of the Sleeping Giant Mine. These warrants have strike prices
of $0.55 and $0.70 and are exercisable until March 1 and December 31,
2010. As of February 10, 2009, 2,400,600 warrants expired, unexercised.

 

At March 12, 2009, the Company had 43,315,260
shares, 3,276,000 stock options and 4,213,636 warrants issued and outstanding.

 

Risks and Uncertainties

 

Fair Value

 

Cash and cash equivalents, tax credits receivable,
deposits on exploration work and accounts payable and accrued liabilities are
financial instruments whose carrying value is comparable to their fair value
due to their short-term maturities or the prevailing market rates.

 

Credit Risk

 

Cash and cash equivalents are deposit in a banking
account at a Canadian financial institution and invested in high quality
securities.

 

Interest Rate Risk

 

At December 31, 2008, the Company’s exposure to
interest rate risk was as follows:

 

·                  Liquidity
and cash assets – floating interest rate

·                  Amounts
receivable – interest-free

·                  Amounts
payable – interest-free

 

In management’s opinion, the Company was not exposed
to any interest rate risk as at December 31, 2008.

 

Financial Risk

 

The Company is considered as an exploration company.
It must obtain financing regularly to continue its operations.  While it has been successful in doing so in
the past, there can be no assurance it will be able to do so in the future.

 

10

 

Exploration and Mining

 

Exploration and mining activities are subject to a
high level of risk. Few exploration properties reach the production stage.
Unusual or unexpected formations, fires, power failures, labour disputes,
floods, explosions, subsidence, landslides and the inability to locate the
appropriate or adequate manpower, machinery or equipment are all risks
associated with mining activities and the execution of exploration programs.

 

The development of resource properties depends on many
factors, including the cost of mining, variations in the material mined,
fluctuations in the commodities and exchange markets, the cost of processing
equipment and other factors such as native claims, government regulations
including in particular regulations on royalties, authorized production,
importation and exportation of natural resources and environmental protection.
Depending on the price of the commodities produced, the Company may decide not
to undertake or continue commercial production. There can be no assurance that
the exploration expenses incurred by the Company will result in the discovery
of commercial quantities of ore. Most exploration projects do not result in the
discovery of economic deposits.

 

Environmental and Other Regulations

 

Current, possible or future environmental legislation,
regulations and measures may entail unforeseeable additional cost, capital
expenditures, restrictions or delays in the Company’s activities. The
requirements of the environmental regulations and standards are constantly
re-evaluated and may be considerably increased, which could seriously hamper
the Company or its ability to develop its properties economically. Before a
property can enter into production, the Company must obtain regulatory and environmental
approvals from authorities. There can be no assurance that such approvals will
be obtained or that they will be obtained in a timely manner. The cost related
to assessing changes in government regulations may reduce the profitability of
the operation or altogether prevent a property from being developed. The
Company considers that it is in material compliance with the existing
environmental legislation.

 

Financing and Development

 

The Company has incurred
losses to date and does not presently have all the financial resources required
to finance its planned exploration and development programs. Development of the
Company’s properties therefore depends on its ability to obtain the additional
financing required. There can be no assurance that the Company will succeed in
obtaining the required funding. Failure to do so may lead to substantial
dilution of its interests (existing or to be acquired) in its properties.

 

Furthermore, the Company has
limited experience in putting a resource property into production, and its
ability to do so depends on the use of experienced people or in the signature
of agreements with major resource companies that can produce such expertise.

 

Commodity Prices

 

The market for gold can be affected by factors beyond
the Company’s control. Commodities prices have fluctuated widely, particularly
in recent years. The impact of these factors cannot be accurately predicted.

 

Uninsured Risks

 

The Company could become liable for subsidence,
pollution and other risks against which it cannot insure itself or chooses not
to insure itself due to the high cost of premiums or for some other reason.
Payment of such liabilities could decrease or even eliminate the funds
available for exploration and mining activities.

 

Key
Personnel

 

The Company’s success is related to its ability to
attract and keep qualified personnel, particularly its senior officers and
qualified geological personnel, as there is considerable competition in this field.
The Company’s inability to recruit qualified personnel and the loss of key
employees could compromise the pace and success of its activities.

 

11

 

Property Title

 

Although the Company has
taken steps to verify property titles relating to the mining assets in which it
holds an interest in line with industry standards for the current exploration
stage of such assets, its right to property title cannot be guaranteed.
Property title may be subject to unregistered prior agreements and be
non-compliant with regulatory requirements.

 

Disclosure Controls and Procedures

 

The President and
Chief Executive Officer and a person performing similar functions to a Chief
Financial Officer have designed, or supervised the design of, disclosure
controls and procedures to provide reasonable assurance that the material
information relating to the Company is made known to them, particularly during
the interim and annual document preparation period. They have also designed or had
designed internal reporting controls to provide reasonable assurance that
financial reporting is reliable and that the financial statements are designed
to report financial information in accordance with Canadian generally accepted
accounting principles.

 

Additional Information and Continuous Disclosure

 

This management discussion
and analysis was prepared on March 12, 2009, and complies with Regulation  51-102 on
continuous disclosure. This management discussion and analysis is intended to
help the reader understand and assess the material changes and trends affecting
the Company’s results and financial position. It presents management’s point of
view on the Company’s ongoing activities and its current and past financial
results, as well as an outlook of the activities planned for the coming months.
The Company regularly discloses additional information through press releases
and financial statements on the Company website (www.cadiscor.com) and filed on SEDAR (www.sedar.com) and other
documents on EDGAR
(www.sec.gov/edgar.shtml).

 

 

	
  

  	
   

  	
  

  
	
   

  	
   

  	
   

  
	
  Michel Bouchard

  	
   

  	
  Pauline Comtois

  
	
  President & Chief
  Executive Officer

  	
   

  	
  Treasurer

  

 

12

 

Management’s Responsibility for Financial
Reporting

 

Management is responsible
for the financial statements of Cadiscor Resources Inc. and the financial
information contained in this report. The financial statements are prepared by
management in accordance with generally accepted accounting principles in
Canada and necessarily include amounts based on best estimates and judgments of
management.

 

Management maintains a
system of internal control to provide reasonable assurance that assets are
safeguarded from any loss or unauthorized use and that financial information is
reliable and available in a timely manner.

 

Primarily through its Audit Committee, the Board of
Directors oversees management’s responsibility with regard to presentation of
the information, and reviews and approves the financial statements.

 

The Board
of Directors appoints the Audit Committee. Two of its three members are
independent directors, and all three are external directors. The committee
meets from time to time with management as well as the external auditors to
discuss matters related to internal controls, audit results, accounting
principles and related subjects.

 

Petrie Raymond,
LLP, chartered accountants, an independent chartered accounting firm, was
appointed to audit the Company’s financial statements and issue an opinion on
them.

 

On the
recommendation of the audit committee, the board of directors has approved the
Company’s financial statements for the years ended December 31, 2008 and
2007.

 

 

	
  

  	
  

  
	
   

  	
   

  
	
  Michel Bouchard,

  	
  Pauline Comtois,

  
	
  President and Chief
  Executive Officer

  	
  Treasurer

  
	
   

  	
   

  
	
   

  	
   

  
	
  Boucherville, Canada

  	
   

  
	
  March 12, 2009

  	
   

  

 

13

 

 

255 CRÉMAZIE BLVD. EAST – SUITE 1000

MONTRÉAL (QUÉBEC) 
H2M 1M2

TEL.: (514) 342-4740

FAX: (514) 737-4049

 

Auditors’ Report to the Shareholders

 

We have audited the balance
sheets of Cadiscor Resources Inc. as at December 31, 2008 and 2007 and the
statements of deferred expenditures, operations, comprehensive income and
deficit and cash flows for the years then ended. These financial statements are
the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our audits.

 

We conducted our audits in
accordance with Canadian generally accepted auditing standards. Those standards
require that we plan and perform an audit to obtain reasonable assurance
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.

 

In our opinion, these
financial statements present fairly, in all material respects, the financial
position of the Company’s as at December 31, 2008 and 2007 and its results
of operations and cash flows for the years then ended in accordance with
Canadian generally accepted accounting principles.

 

 

	
  

  	
  (1)

  

 

Limited Liability Partnership

Chartered Accountants

 

Montreal, Canada

February 25, 2009

 

(1)           CA
auditor permit No. 20507

 

14

 

CADISCOR RESOURCES INC.

 

BALANCE SHEETS

DECEMBER 31, 2008 AND 2007

(in Canadian dollars)

 

	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  restated

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ASSETS

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  CURRENT ASSETS

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash and cash equivalents
  (Note 3)

  	
   

  	
  $

  	
  2,275,711

  	
   

  	
  $

  	
  2,826,722

  	
   

  
	
  Account receivable

  	
   

  	
  28,623

  	
   

  	
  —

  	
   

  
	
  Tax credits receivable (Note
  4)

  	
   

  	
  452,663

  	
   

  	
  1,435,000

  	
   

  
	
  Sales taxes recoverable

  	
   

  	
  74,688

  	
   

  	
  166,191

  	
   

  
	
  Prepaid expenses

  	
   

  	
  336,405

  	
   

  	
  23,985

  	
   

  
	
   

  	
   

  	
  3,168,090

  	
   

  	
  4,451,898

  	
   

  
	
  SECURITY DEPOSIT (Note 10)

  	
   

  	
  1,769,156

  	
   

  	
  —

  	
   

  
	
  MINING ASSETS (Note 5)

  	
   

  	
  8,594,269

  	
   

  	
  —

  	
   

  
	
  MINING PROPERTIES (Note 6)

  	
   

  	
  4,991,911

  	
   

  	
  5,891,405

  	
   

  
	
  DEFERRED EXPENDITURES (Note
  7)

  	
   

  	
  3,920,120

  	
   

  	
  3,454,143

  	
   

  
	
  PROPERTY AND EQUIPMENT (Note
  8)

  	
   

  	
  172,859

  	
   

  	
  25,661

  	
   

  
	
   

  	
   

  	
  $

  	
   22,616,405

  	
   

  	
  $

  	
  13,823,107

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  LIABILITIES

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  CURRENT LIABILITIES

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Accounts payable and accrued
  liabilities

  	
   

  	
  $

  	
  729,732

  	
   

  	
  $

  	
  474,630

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Long-term debt maturing
  within the next year

  	
   

  	
  7,416

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
  737,148

  	
   

  	
  474,630

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  LONG-TERM DEBT (Note 9)

  	
   

  	
  3,378,214

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ASSET RETIREMENT OBLIGATION
  (Note 10)

  	
   

  	
  1,769,156

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  FUTURE INCOME TAXES (Note
  19)

  	
   

  	
  1,346,300

  	
   

  	
  2,079,900

  	
   

  
	
   

  	
   

  	
  7,230,818

  	
   

  	
  2,554,530

  	
   

  
	
  SHAREHOLDERS’ EQUITY

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Equity component of
  convertible debenture (Note 9)

  	
   

  	
  151,554

  	
   

  	
  —

  	
   

  
	
  Capital stock (Note 11)

  	
   

  	
  15,163,847

  	
   

  	
  11,934,996

  	
   

  
	
  Warrants and stock options (Note 13)

  	
   

  	
  2,091,132

  	
   

  	
  1,287,132

  	
   

  
	
  Contributed surplus (Note
  14)

  	
   

  	
  577,000

  	
   

  	
  16.834

  	
   

  
	
  Deficit

  	
   

  	
  (2,597,946

  	
  )

  	
  (1,970,385

  	
  )

  
	
   

  	
   

  	
  15,385,587

  	
   

  	
  11,268,577

  	
   

  
	
   

  	
   

  	
  $

  	
   22,616,405

  	
   

  	
  $

  	
  13,823,107

  	
   

  

 

See notes to the financial statements.

 

ON BEHALF OF THE BOARD OF DIRECTORS

 

	
  

  	
  

  
	
  Michel
  Bouchard, Director

  	
  Richard
  Jacques, Director

  

 

15

 

CADISCOR RESOURCES INC.

 

STATEMENTS OF DEFERRED EXPENDITURES

YEARS ENDED DECEMBER 31, 2008 AND 2007

(in Canadian dollars)

 

	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EXPLORATION EXPENSES

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Salaries and fringe benefits

  	
   

  	
  $

  	
  28,213

  	
   

  	
  $

  	
  —

  	
   

  
	
  Consultants and subcontractors

  	
   

  	
  126,744

  	
   

  	
  286,086

  	
   

  
	
  Labour

  	
   

  	
  159,267

  	
   

  	
  484,917

  	
   

  
	
  Drilling

  	
   

  	
  305,493

  	
   

  	
  2,172,265

  	
   

  
	
  Geophysics and geochemistry

  	
   

  	
  30,818

  	
   

  	
  127,022

  	
   

  
	
  Laboratory and assaying

  	
   

  	
  99,651

  	
   

  	
  108,418

  	
   

  
	
  Management fees

  	
   

  	
  57,316

  	
   

  	
  311,839

  	
   

  
	
  Travel and lodging

  	
   

  	
  50,795

  	
   

  	
  85,368

  	
   

  
	
  Supplies and equipment rental

  	
   

  	
  34,414

  	
   

  	
  66,640

  	
   

  
	
  General exploration expenses

  	
   

  	
  29,697

  	
   

  	
  23,975

  	
   

  
	
  Amortization of property and equipment

  	
   

  	
  2,175

  	
   

  	
  906

  	
   

  
	
   

  	
   

  	
  924,583

  	
   

  	
  3,667,436

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Transfer to mining assets

  	
   

  	
  (226,897

  	
  )

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Credits for mining duties and other
  exploration-related credits

  	
   

  	
  (231,709

  	
  )

  	
  (1,435,000

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  NET INCREASE IN DEFERRED EXPENDITURES

  	
   

  	
  465,977

  	
   

  	
  2,232,436

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  BALANCE, BEGINNING OF YEAR

  	
   

  	
  3,454,143

  	
   

  	
  1,221,707

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  BALANCE, END OF YEAR

  	
   

  	
  $

  	
  3,920,120

  	
   

  	
  $

  	
  3,454,143

  	
   

  

 

See notes to the financial statements.

 

16

 

CADISCOR RESOURCES INC.

 

STATEMENTS OF OPERATIONS, COMPREHENSIVE INCOME
AND DEFICIT

YEARS ENDED DECEMBER 31, 2008 AND 2007

(in Canadian dollars)

 

	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  INTEREST INCOME

  	
   

  	
  $

  	
  112,351

  	
   

  	
  $

  	
  122,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  GENERAL AND ADMINISTRATIVE EXPENSES

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Salaries and fringe benefits

  	
   

  	
  118,455

  	
   

  	
  —

  	
   

  
	
  Professional fees

  	
   

  	
  455,200

  	
   

  	
  127,261

  	
   

  
	
  Legal and audit fees

  	
   

  	
  135,244

  	
   

  	
  112,202

  	
   

  
	
  Stock-based compensation

  	
   

  	
  359,242

  	
   

  	
  42,844

  	
   

  
	
  Directors’ fees

  	
   

  	
  13,700

  	
   

  	
  10,500

  	
   

  
	
  Shareholder communications

  	
   

  	
  28,429

  	
   

  	
  36,930

  	
   

  
	
  Investor relations

  	
   

  	
  192,874

  	
   

  	
  392,579

  	
   

  
	
  Listing and registrar fees

  	
   

  	
  24,789

  	
   

  	
  43,779

  	
   

  
	
  Travel

  	
   

  	
  65,701

  	
   

  	
  27,635

  	
   

  
	
  Rent

  	
   

  	
  29,418

  	
   

  	
  24,000

  	
   

  
	
  Insurance

  	
   

  	
  36,324

  	
   

  	
  27,404

  	
   

  
	
  Office expenses

  	
   

  	
  25,292

  	
   

  	
  25,247

  	
   

  
	
  Part XII.6 tax
  (recovery)

  	
   

  	
  (23,947

  	
  )

  	
  55,891

  	
   

  
	
  Taxes and permits

  	
   

  	
  5,855

  	
   

  	
  882

  	
   

  
	
  Interest and bank charges

  	
   

  	
  678

  	
   

  	
  917

  	
   

  
	
  Amortization of property and equipment

  	
   

  	
  6,258

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
  1,473,512

  	
   

  	
  928,071

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  LOSS BEFORE INCOME TAXES

  	
   

  	
  1,361,161

  	
   

  	
  806,071

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  FUTURE INCOME TAX BENEFIT

  	
   

  	
  (733,600

  	
  )

  	
  (311,500

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  NET LOSS AND COMPREHENSIVE INCOME

  	
   

  	
  627,561

  	
   

  	
  494,571

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DEFICIT, BEGINNING OF YEAR

  	
   

  	
  1,970,385

  	
   

  	
  1,475,814

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DEFICIT, END OF YEAR

  	
   

  	
  $

  	
  2,597,946

  	
   

  	
  $

  	
  1,970,385

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  NET LOSS PER SHARE, BASIC
  AND DILUTED

  	
   

  	
  $

  	
  0.016

  	
   

  	
  $

  	
  0.016

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (in thousands)

  	
   

  	
  38,835

  	
   

  	
  29,584

  	
   

  

 

See notes to the financial statements.

 

17

 

CADISCOR RESOURCES INC.

 

STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2008 AND 2007

(in Canadian dollars)

 

	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
  CASH FLOW FROM (USED IN)
  OPERATING ACTIVITIES:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net loss

  	
   

  	
  $

  	
  (627,561

  	
  )

  	
  $

  	
  (494,571

  	
  )

  
	
  Items not affecting cash

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Stock-based compensation

  	
   

  	
  359,242

  	
   

  	
  42,844

  	
   

  
	
  Amortization of property, plant & equipment

  	
   

  	
  6,258

  	
   

  	
  —

  	
   

  
	
  Future income tax benefit

  	
   

  	
  (733,600

  	
  )

  	
  (311,500

  	
  )

  
	
  Changes in non-cash working
  capital items (Note 20)

  	
   

  	
  78,655

  	
   

  	
  (6,724

  	
  )

  
	
   

  	
   

  	
  (1,074,316

  	
  )

  	
  (769,951

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  CASH FLOW FROM (USED IN)
  INVESTING ACTIVITIES:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Tax credits receivable

  	
   

  	
  982,337

  	
   

  	
  —

  	
   

  
	
  Acquisition of mining
  properties

  	
   

  	
  (10,000

  	
  )

  	
  (323,333

  	
  )

  
	
  Acquisition of mining assets

  	
   

  	
  (5,898,677

  	
  )

  	
  —

  	
   

  
	
  Increase in deferred
  expenditures

  	
   

  	
  (606,482

  	
  )

  	
  (3,630,435

  	
  )

  
	
  Addition to property, plant & equipment

  	
   

  	
  (162,632

  	
  )

  	
  (26,567

  	
  )

  
	
   

  	
   

  	
  (5,695,454

  	
  )

  	
  (3,980,335

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  CASH FLOW FROM (USED IN)
  FINANCING ACTIVITIES:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Increase in long-term debt

  	
   

  	
  3,538,408

  	
   

  	
  —

  	
   

  
	
  Repayments of long-term debt

  	
   

  	
  (1,224

  	
  )

  	
  —

  	
   

  
	
  Common share and warrant
  issuance

  	
   

  	
  3,000,000

  	
   

  	
  3,800,700

  	
   

  
	
  Common share issue costs

  	
   

  	
  (318,425

  	
  )

  	
  (400,885

  	
  )

  
	
   

  	
   

  	
  6,218,759

  	
   

  	
  3,399,815

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  NET DECREASE IN CASH AND
  CASH EQUIVALENTS

  	
   

  	
  (551,011

  	
  )

  	
  (1,350,471

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  CASH AND CASH EQUIVALENTS,
  BEGINNING OF YEAR

  	
   

  	
  2,826,722

  	
   

  	
  4,177,193

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  CASH AND CASH EQUIVALENTS,
  END OF YEAR

  	
   

  	
  $

  	
  2,275,711

  	
   

  	
  $

  	
  2,826,722

  	
   

  

 

18

 

CADISCOR RESOURCES INC.

 

STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2008 AND 2007

(in Canadian dollars)

 

	
  Supplemental
  cash flow information

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  restated

  	
   

  
	
  Items related to operating,
  financing and investing activities not affecting cash:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Acquisition of mining assets
  in exchange of share issuance

  	
   

  	
  $

  	
  1,500,000

  	
   

  	
  $

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Acquisition of mining
  properties in exchange of share issuance

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  778,500

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Deferred expenditures
  included in accounts payable

  	
   

  	
  $

  	
  84,217

  	
   

  	
  $

  	
  378,239

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Amortization included in
  mining assets

  	
   

  	
  $

  	
  7,001

  	
   

  	
  $

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Amortization included in
  deferred expenditures

  	
   

  	
  $

  	
  2,175

  	
   

  	
  $

  	
  906

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Shares issue costs paid by
  warrants

  	
   

  	
  $

  	
  137,542

  	
   

  	
  $

  	
  87,160

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Future income tax expense
  included in common share issue costs

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  315,200

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Acquisition of mining
  properties in exchange of warrants

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  89,400

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Acquisition of mining assets
  in exchange of warrants

  	
   

  	
  $

  	
  52,200

  	
   

  	
  $

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Security deposit transferred
  to the Company following the acquisition of Sleeping Giant Mine

  	
   

  	
  $

  	
  1,769,156

  	
   

  	
  $

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Asset retirement obligation
  transferred to the Company following the acquisition of the Sleeping Giant
  Mine

  	
   

  	
  $

  	
  1,769,156

  	
   

  	
  $

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Transfer of the balance of
  mining properties to mining assets following the acquisition of the Sleeping
  Giant Mine

  	
   

  	
  $

  	
  909,494

  	
   

  	
  $

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Transfer of the balance of
  deferred expenditures to mining assets following the acquisition of the Sleeping
  Giant Mine

  	
   

  	
  $

  	
  226,897

  	
   

  	
  $

  	
  —

  	
   

  

 

See notes to the financial statements.

 

19

 

CADISCOR RESOURCES INC.

 

NOTES TO THE FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2008 AND 2007

(in Canadian dollars)

 

1.     INCORPORATION, NATURE OF OPERATIONS AND
GOING CONCERN

 

The Company, incorporated under the Canadian Business Corporations Act, is in the business of
acquiring and exploring mining properties to an eventual commercial production.
The recoverability of the cost of mining properties is dependent upon the
existence of economically recoverable reserves, the Company’s ability to obtain
the financing required to pursue the exploration and development of its properties,
and future profitable production or proceeds from the disposal of properties.

 

For the year ended December 31, 2008,
the Company recorded a loss of $627,561 ($494,571 in 2007). In addition to
ongoing working capital requirements, the Company must secure sufficient
funding to meet its existing commitments for exploration and development
programs and pay general and administrative costs.

 

Management periodically seeks additional
forms of financing through the issuance of new equity instruments and the exercise
of stock options to continue its operations, and while it has been successful
in doing so in the past, there can be no assurance it will be able to do so in
the future. Without new funding being available, the Company may be unable to
continue its operations, and amounts realized for assets may be less than
amounts reflected in these financial statements.

 

Although management has taken steps to verify
title to mining properties in which the Company has an interest, in accordance
with industry standards for the current stage of exploration of such
properties, these procedures do not guarantee the Company’s title. Property
title may be subject to unregistered prior agreements and non-compliant with
regulatory requirements.

 

The financial statements have been prepared
on a going-concern basis, which contemplates the realization of assets and
liquidation of liabilities during the normal course of operations. These
financial statements do not reflect the adjustment to the carrying values of
assets and liabilities, the reported revenues and expenses and balance sheet
classifications that would be necessary were the going concern assumption not
appropriate. These adjustments could be material.

 

2.     SIGNIFICANT ACCOUNTING POLICIES

 

CHANGES IN ACCOUNTING POLICY

 

Financial Instruments

 

On January 1, 2007, the Company adopted
new accounting policies resulting from the application of new accounting
standards published by the CICA relating to financial instruments:

 

·                  Section 3855, “Financial Instruments — Recognition and
Measurement”, provides guidance on when a financial instrument must be
recognized on the balance sheet and how it must be measured. It also provides
guidance on the presentation of gains and losses on financial instruments.

 

·                  Section 1530, “Comprehensive Income”, requires an entity to
recognize certain gains and losses in a separate statement, until such gains
and losses are recognized in the statement of earnings.

 

·                  Section 3251, “Equity”, establishes standards for the
presentation of equity and changes in equity during the reporting fiscal year.

 

20

 

CADISCOR RESOURCES INC.

 

NOTES TO THE FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2008 AND 2007

(in Canadian dollars)

 

2.     SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

 

CHANGES IN ACCOUNTING POLICY
(CONT’D)

 

·                  Section 3861, “Financial Instruments — Disclosure and
Presentation” deals with the disclosure of financial instruments and
non-financial derivatives in the financial statements.

 

After initial recognition, the measurement of
financial instruments depends on their classification: held for trading,
available for sale, loans and receivables and other financial liabilities.

 

·                  Held
for trading  — Financial assets and financial liabilities
required to be classified or designated as held for trading are measured at
fair value, with gains, losses and transaction costs recorded in net earnings
for the period in which they arise. Section 3855 allows an entity to
designate any financial instrument as held for trading on initial recognition
or adoption of the accounting standard if reliable fair values are available,
even if that instrument would not otherwise satisfy the definition of a
security held for trading. Transaction costs are recorded immediately in net
earnings.

 

·                  Available
for sale  — Financial assets classified as available for sale
are measured at fair value. Unrealized gains and losses are recognized directly
in other comprehensive income, except for impairment losses, which are
recognized in net earnings. Upon derecognition of the financial asset, the
accumulated gains or losses previously recognized in accumulated other
comprehensive income are reclassified to net earnings. Transaction costs are
added to the carrying amount of the financial instrument.

 

·                  Loans
and receivables  —
Financial assets classified as loans and receivables are measured at amortized
cost using the effective interest method. Interest income or expenses are
included in net earnings over the expected life of the financial instrument.

 

Other financial liabilities - Financial liabilities classified as other
financial liabilities are measured at amortized cost using the effective
interest method.

 

Below is a summary of the classifications the
Company has elected to apply to each of its significant categories of financial
instruments outstanding as of January 1, 2007:

 

	
  Cash and cash
  equivalents

  	
  Held for trading

  	
   

  
	
  Accounts
  receivable

  	
  Held for trading

  	
   

  
	
  Security deposit

  	
  Held for trading

  	
   

  
	
  Accounts payable
  and accrued liabilities

  	
  Held for trading

  	
   

  
	
  Long-term debt

  	
  Other financial liabilities

  	
   

  

 

On January 1,
2008, the Company adopted the Canadian Institute of Chartered Accountants
(“CICA”) Handbook Section 3862 and 3863, titled respectively “Financial
Instruments - Disclosures” and “Financial Instruments — Presentation” which
replace Section 3861 “Financial Instruments — Disclosures and
Presentation”. These new sections place increased emphasis on disclosures about
the nature and extent of risks arising from financial instruments recorded in
the balance sheet or off balance sheet and how the entity manages those risks.

 

21

 

CADISCOR RESOURCES INC.

 

NOTES TO THE FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2008 AND 2007

(in Canadian dollars)

 

2.     SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

 

CHANGES IN ACCOUNTING POLICY
(CONT’D)

 

These new requirements
only affect disclosure and do not have a financial impact on the Company’s
financial statements.

 

Going Concern

 

On January 1, 2008, in accordance with
the applicable transitional provisions, the Company adopted the new standards
of Section 1400, “General Standards of Financial Statement Presentation”.
This standard requires that management make an assessment of the Company’s
ability to continue as a going concern over a period which is at least, but is
not limited to, twelve months from the balance sheet date. The new requirements
only address disclosures and have no impact on the Company’s financial results.

 

Capital Disclosures

 

On January 1, 2008, in accordance with
the applicable transitional provisions, the Company adopted the recommendations
of new Section 1535, “Capital Disclosures”. The new section establishes
standards for disclosing information about an entity’s capital and how it is
managed.(Note 15)

 

FUTURE CHANGES IN
ACCOUNTING POLICY

 

International Financial
Reporting Standards

 

In February 2008, the CICA published an exposure
draft as guidance which requires the transition to IFRS to replace Canadian
GAAP as currently employed by Canadian publicly accountable enterprises. The
changeover will occur no later than fiscal years beginning on or after January 1,
2011.  Accordingly, the Company expects
that its first interim financial statements presented in accordance with IFRS
will be for the three-month period of the year ended December 31, 2011,
when it prepares its current and comparative financial information in
accordance with IFRS.  The Company
expects this transition to have an effect on its accounting methods,
presentation of financial information and information systems.

 

During the next quarters, the
Company will develop its internal implementation plan in order to meet the
guidelines of the future reporting requirements.

 

Other new standards were
issued, but are not expected to have a material impact on the Company’s
financial statements.

 

CASH AND CASH
EQUIVALENTS

 

Cash and cash equivalents comprise cash, bank balances
and highly-liquid short-term investments initially maturing within three months
of their acquisition date.

 

22

 

CADISCOR RESOURCES INC.

 

NOTES TO THE FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2008 AND 2007

(in Canadian dollars)

 

2.     SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

 

FUTURE CHANGES IN
ACCOUNTING POLICY (CONT’D)

 

MINING ASSETS, PROPERTIES
AND DEFERRED EXPENDITURES

 

Mining properties
are recorded at cost and related exploration costs are deferred, net of
government assistance received. In the event of a production decision, costs
related to a deposit and recorded under mining properties and deferred
exploration expenditures are transferred to mining asset, and then amortized on
the basis of units of production for the year and proven and probable ore
reserves.  However, when a project is
abandoned, the corresponding costs are charged against earnings.

 

CREDIT
ON MINING DUTIES REFUNDABLE FOR LOSSES AND REFUNDABLE TAX CREDIT FOR RESOURCES

 

The
Company is eligible for a refundable credit on mining duties under the Quebec Mining Duties Act. This refundable credit on mining duties
is equal to 12% of expenses incurred for mining activities in Quebec and is
recognized as a credit under deferred expenditures.

 

The Company is also eligible
for a refundable tax credit for resources for mining industry companies in
relation to eligible expenses incurred. The refundable tax credit for resources
represents up to 35% of the amount of eligible expenses incurred. This tax
credit is recognized as a credit under deferred expenditures.

 

PROPERTY AND EQUIPMENT

 

Property, plant and
equipment are amortized using the diminishing balance method at
a rate of 30% for rolling stock and a rate of 20% for machinery and equipment,
furniture and equipment, and using the straight line method over five years for
the fence and over three for computer equipment.

 

ASSET RETIREMENT OBLIGATION

 

The Company recognizes contractual, statutory and legal obligations
associated with retirement of mining properties when those obligations result
from the acquisition, construction, development or normal operation of the
assets.  Initially, a liability for asset
retirement obligation is recognized at its fair value in the period in which it
is incurred.  Upon initial recognition of
the liability, the corresponding asset retirement cost is added to the carrying
amount of that asset and the costs is amortized as an expense over the economic
life of the related asset.  Following the
initial recognition of the asset retirement obligation, the carrying amount of
the liability is increased for the passage of time and adjusted for changes to
the amount or timing of the underlying cash flows to settle the obligation.

 

CAPITAL STOCK

 

Shares
issued in consideration of non-monetary items are recorded at fair value.

 

Flow-through
shares are issued in consideration of the proceeds received, which corresponds
to their fair value.

 

When
mining properties are acquired, the carrying value may exceed the fiscal value
as the Company renounces deductions to the investors concerned. The Company
also issues flow-through shares with no premium or discount relating to the
renunciation of tax benefits to investors.

 

23

 

CADISCOR
RESOURCES INC.

 

NOTES
TO THE FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2008 AND 2007

(in Canadian dollars)

 

2.                  SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

 

CAPITAL STOCK (CONT’D)

 

Share
issue costs and future income taxes arising from the difference between
carrying value and fiscal value are included in capital stock as a credit.

 

STOCK-BASED COMPENSATION AND
OTHER STOCK-BASED PAYMENTS

 

The Company offers the stock option plan described in
Note 12 for its directors, management, consultants and service providers. Any
consideration received from participants in the plan on the exercise of options
is included in capital stock as a credit.

 

In accordance with canadian generally accepted
accounting principles, the Company recognizes options granted under the stock
option plan using the fair value method. Consequently, stock-based compensation
expenses are recognized at fair value as at the grant date, and are charged to
earnings over the vesting period.

 

The Company recognizes warrants granted pursuant to
some financings using the fair value method. Warrants are recorded based on
fair value determined using the Black-Scholes option pricing model.

 

When options or warrants are granted, the remuneration
expense is charged to the activity in question and the counterpart to
contributed surplus.

 

Any counterpart paid by the participants when options
or warrants are exercised, as well as any contributed surplus created when
options or warrants are granted, are included in capital stock as a credit.

 

INCOME TAXES

 

The Company records its income taxes using the balance
sheet method. Under this method, future income tax assets and liabilities are
recognized taking into account temporary deductible or taxable differences
between the carrying value and the fiscal value of assets and liabilities,
using the effective or practically effective income tax rate applicable for the
year in which the differences should be reversed.

 

The Company establishes a valuation allowance for a
future income tax asset if, based on available information, it is more likely
than not that part or all of the future income tax asset will not be realized.

 

NET LOSS PER SHARE

 

The basic and
diluted net loss per share is calculated based on the weighted-average number
of common shares outstanding during the year.

 

USE OF ESTIMATES

 

The preparation of financial
statements in accordance with Canadian generally accepted accounting principles
requires management to make estimates and assumptions that affect the assets
and liabilities reported in the financial statements. These estimates and
assumptions also affect the presentation of contingencies as at the date of the
financial statements, as well as revenue and expenses for the period.

 

24

 

CADISCOR RESOURCES INC.

 

NOTES TO THE FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2008 AND 2007

(in Canadian dollars)

 

2.              SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

 

USE OF ESTIMATES (CONT’D)

 

Critical estimates include valuation of the credit on
duties refundable for losses and the refundable tax credit for resources,
future income taxes or tax benefit, the possibility of recovering the value of
mining properties and deferred expenditures, the fair value of stock options
and warrants granted, the asset retirement obligation and certain amounts
payable. Actual results could therefore differ from these estimates.

 

3.              CASH AND CASH EQUIVALENTS

 

	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash

  	
   

  	
  $

  	
  289,275

  	
   

  	
  $

  	
  822,402

  	
   

  
	
  Term deposits, at a rate of
  1.65% (4.38% as at Dec. 31, 2007)

  	
   

  	
  $

  	
  1,986,436

  	
   

  	
  $

  	
  2,004,320

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  $

  	
  2,275,711

  	
   

  	
  $

  	
  2,826,722

  	
   

  

 

4.              TAX CREDITS RECEIVABLE

 

	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Quebec refundable credit on
  mining duties at a rate of 12%

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2007

  	
   

  	
  $

  	
  267,663

  	
   

  	
  $

  	
  235,000

  	
   

  
	
  2008

  	
   

  	
  34,000

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Refundable credit for
  resources related to exploration at a rate of 35%

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2007

  	
   

  	
  —

  	
   

  	
  1,200,000

  	
   

  
	
  2008

  	
   

  	
  151,000

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  $

  	
  452,663

  	
   

  	
  $

  	
  1,435,000

  	
   

  

 

25

 

CADISCOR RESOURCES INC.

 

NOTES TO THE FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2008 AND 2007

(in Canadian dollars)

 

5.                      MINING ASSETS

 

	
  SLEEPING
  GIANT MINE

  	
   

  	
  Cost(1)

  	
   

  	
  Accumulated

  Amortization(2)

  	
   

  	
  Net Value

  2008

  	
   

  	
  Net Value

  2007

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mining properties

  	
   

  	
  $

  	
  1,118,694

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  1,118,694

  	
   

  	
  $

  	
  —

  	
   

  
	
  Deferred expenditures(3)

  	
   

  	
  2,632,575

  	
   

  	
  —

  	
   

  	
  2,632,575

  	
   

  	
  —

  	
   

  
	
  Building / mill

  	
   

  	
  268,000

  	
   

  	
  —

  	
   

  	
  268,000

  	
   

  	
  —

  	
   

  
	
  Equipment

  	
   

  	
  4,575,000

  	
   

  	
  —

  	
   

  	
  4,575,000

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
  $

  	
  8,594,269

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  8,594,269

  	
   

  	
  $

  	
  —

  	
   

  

 

(1)          The Company’s policy is to capitalize interest
related to its mining assets during the asset development phase.

 

(2)          No
amortization was calculated as the mining assets were not being used as at December 31,
2008.

 

(3)          The increase of exploration expenses for the year
was $2,392,683.

 

6.              MINING PROPERTIES

 

	
   

  	
   

  	
  Interest

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  restated

  	
   

  
	
  Sleeping Giant Mine (1)

  	
   

  	
  100

  	
  %

  	
  $

  	
  —

  	
   

  	
  909,494

  	
   

  
	
  Discovery and Montbray

  	
   

  	
  100

  	
  %

  	
  $

  	
  4,700,172

  	
   

  	
  $

  	
  4,700,172

  	
   

  
	
  Flordin

  	
   

  	
  100

  	
  %

  	
  210,000

  	
   

  	
  210,000

  	
   

  
	
  Cameron Shear

  	
   

  	
  50

  	
  %

  	
  78,500

  	
   

  	
  68,500

  	
   

  
	
  Florence

  	
   

  	
  100

  	
  %

  	
  3,239

  	
   

  	
  3,239

  	
   

  
	
  Dormex

  	
   

  	
  100

  	
  %

  	
  —

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  $

  	
  4,991,911

  	
   

  	
  $

  	
  5,891,405

  	
   

  

 

(1)          Following
the closing of the Sleeping Giant Mine acquisition in October 2008,
$909,494 of mining properties has been reclassified as mining assets.

 

26

 

CADISCOR
RESOURCES INC.

 

NOTES TO THE FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2008 AND 2007

(in Canadian dollars)

 

7.              DEFERRED EXPENDITURES

 

	
  Mining

  properties

  	
   

  	
  Balance at

  December 31,

  2007

  	
   

  	
  Reclassification

  as mining assets

  	
   

  	
  Exploration

  Expenses

  	
   

  	
  Tax credits

  	
   

  	
  Balance at

  December 31,

  2008

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Sleeping Giant

  	
   

  	
  $

  	
  226,897

  	
   

  	
  $

  	
  (226,897

  	
  )

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  
	
  Discovery

  	
   

  	
  3,047,202

  	
   

  	
  —

  	
   

  	
  450,878

  	
   

  	
  (188,756

  	
  )

  	
  3,309,324

  	
   

  
	
  Montbray

  	
   

  	
  1,992

  	
   

  	
  —

  	
   

  	
  1,583

  	
   

  	
  —

  	
   

  	
  3,575

  	
   

  
	
  Flordin

  	
   

  	
  81,964

  	
   

  	
  —

  	
   

  	
  285,418

  	
   

  	
  (13,920

  	
  )

  	
  353,462

  	
   

  
	
  Cameron Shear

  	
   

  	
  94,469

  	
   

  	
  —

  	
   

  	
  175,217

  	
   

  	
  (24,918

  	
  )

  	
  244,768

  	
   

  
	
  Florence

  	
   

  	
  1,619

  	
   

  	
  —

  	
   

  	
  910

  	
   

  	
  (490

  	
  )

  	
  2,039

  	
   

  
	
  Dormex

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  10,577

  	
   

  	
  (3,625

  	
  )

  	
  6,952

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  $

  	
  3,454,143

  	
   

  	
  $

  	
  (226,897

  	
  )

  	
  $

  	
  924,583

  	
   

  	
  $

  	
  (231,709

  	
  )

  	
  $

  	
  3,920,120

  	
   

  

 

	
  Mining

  properties

  	
   

  	
  Balance at

  December 31,

  2006

  	
   

  	
  Reclassification

  as mining assets

  	
   

  	
  Exploration

  Expenses

  	
   

  	
  Tax credits

  	
   

  	
  Balance at

  December 31,

  2007

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Sleeping Giant

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  261,897

  	
   

  	
  $

  	
  (35,000

  	
  )

  	
  $

  	
  226,897

  	
   

  
	
  Discovery

  	
   

  	
  1,217,020

  	
   

  	
  —

  	
   

  	
  3,107,182

  	
   

  	
  (1,277,000

  	
  )

  	
  3,047,202

  	
   

  
	
  Montbray

  	
   

  	
  1,406

  	
   

  	
  —

  	
   

  	
  586

  	
   

  	
  —

  	
   

  	
  1,992

  	
   

  
	
  Flordin

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  138,964

  	
   

  	
  (57,000

  	
  )

  	
  81,964

  	
   

  
	
  Cameron Shear

  	
   

  	
  3,281

  	
   

  	
  —

  	
   

  	
  157,188

  	
   

  	
  (66,000

  	
  )

  	
  94,469

  	
   

  
	
  Florence

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  1,619

  	
   

  	
  —

  	
   

  	
  1,619

  	
   

  
	
  Dormex

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  $

  	
  1,221,707

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  3,667,436

  	
   

  	
  $

  	
  (1,435,000

  	
  )

  	
  $

  	
  3,454,143

  	
   

  

 

8.              PROPERTY AND EQUIPMENT

 

	
   

  	
   

  	
  Cost

  	
   

  	
  Accumulated

  Amortization

  	
   

  	
  Net Value

  2008

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Land

  	
   

  	
  $

  	
  15,691

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  15,691

  	
   

  
	
  Machinery and equipment

  	
   

  	
  86,450

  	
   

  	
  4,040

  	
   

  	
  82,410

  	
   

  
	
  Rolling stock

  	
   

  	
  39,471

  	
   

  	
  2,960

  	
   

  	
  36,511

  	
   

  
	
  Computer equipment

  	
   

  	
  24,161

  	
   

  	
  5,107

  	
   

  	
  19,054

  	
   

  
	
  Furniture and equipment

  	
   

  	
  12,550

  	
   

  	
  1,152

  	
   

  	
  11,398

  	
   

  
	
  Fence

  	
   

  	
  10,876

  	
   

  	
  3,081

  	
   

  	
  7,795

  	
   

  
	
   

  	
   

  	
  $

  	
  189,199

  	
   

  	
  $

  	
  16,340

  	
   

  	
  $

  	
  172,859

  	
   

  

 

27

 

CADISCOR RESOURCES INC.

 

NOTES TO THE FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2008 AND 2007

(in Canadian dollars)

 

8.              PROPERTY AND EQUIPMENT (CONT’D)

 

	
   

  	
   

  	
  Cost

  	
   

  	
  Accumulated

  Amortization

  	
   

  	
  Net Value

  2007

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Land

  	
   

  	
  $

  	
  15,691

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  15,691

  	
   

  
	
  Fence

  	
   

  	
  10,876

  	
   

  	
  906

  	
   

  	
  9,970

  	
   

  
	
   

  	
   

  	
  $

  	
  26,567

  	
   

  	
  $

  	
  906

  	
   

  	
  $

  	
  25,661

  	
   

  

 

9.              LONG TERM DEBT

 

	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
  Three-year $3,500,000
  unsecured convertible debenture bearing interest at 5% per year and payable
  in advance, maturing on October 31, 2011. The debenture can be converted
  into Company’s shares at $0.47 per share the first year, $0.51 per share the
  second year and $0.56 per share the third year. The Company may redeem the
  debenture at any time. The Company may force conversion if the shares trade
  at a 15% premium over the conversion price for a period of 20 consecutive
  days.

  	
   

  	
  $

  	
  3,500,000

  	
   

  	
  $

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Unsecured loan repayable in
  60 monthly instalments of $672 of capital and interest, bearing interest at
  1.9% and maturing on October 23, 2013

  	
   

  	
  37,184

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Equity component of
  convertible debenture

  	
   

  	
  (151,554

  	
  )

  	
   

  	
   

  
	
   

  	
   

  	
  3,385,630

  	
   

  	
  —

  	
   

  
	
  Portion maturing within the
  next year

  	
   

  	
  7,416

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
  $

  	
  3,378,214

  	
   

  	
  $

  	
  —

  	
   

  

 

Capital
repayments to be made over the next five years:

 

2009:  $7,416,  
2010: $7,558,   2011:  $3,507,703,  
2012:  $7,850,   2013:  $6,657

 

10.       ASSET RETIREMENT OBLIGATION

 

The
asset retirement obligation consists of mine closure of the Sleeping Giant Mine.  The Company has recorded the following
amount:

 

28

 

CADISCOR RESOURCES INC.

 

NOTES TO THE FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2008 AND 2007

(in Canadian dollars)

 

10.       ASSET RETIREMENT OBLIGATION (CONT’D)

 

	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
  Asset retirement obligation,
  beginning of year

  	
   

  	
  —   $

  	
   

  	
  —   $

  	
   

  
	
  Addition to provision

  	
   

  	
  1,769,156    

  	
   

  	
  —     

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Asset retirement obligation,
  end of year

  	
   

  	
  1,769,156   $

  	
   

  	
  —   $

  	
   

  

 

The
total undiscounted amount of estimated cash flows required to settle the asset
retirement obligation at the Sleeping Giant Mine property is $2,527,366, which
has been discounted using credit-adjusted risk-free rates of 7%.  The asset retirement obligation is not
expected to be paid for several years in the future and is intended to be
funded using the security deposit of $1,769,156 held by the Ministry of Natural
Resources and Wildlife and the product of the sale of the Sleeping Giant Mine.

 

11.       CAPITAL STOCK

 

Authorized

 

Unlimited number of common shares without par value.

 

Unlimited number of
preferred shares without par value issuable in series, with rights, privileges,
restrictions and conditions to be determined by the board of directors.

 

	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
  Common

  shares

  	
   

  	
  Amount

  	
   

  	
  Common

  shares

  	
   

  	
  Amount

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Restated

  	
   

  
	
  Issued and fully paid

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Balance, beginning of year

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Previously stated

  	
   

  	
  33,575,000

  	
   

  	
  12,408,447

  	
   

  	
  27,599,000

  	
   

  	
  $

  	
  8,632,492

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Prior years restatement
  (Note 22)

  	
   

  	
  —

  	
   

  	
  (473,451

  	
  )

  	
  —

  	
   

  	
  (199,783

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Restated balance

  	
   

  	
  33,575,000

  	
   

  	
  11,934,996

  	
   

  	
  27,599,000

  	
   

  	
  8,432,709

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  In consideration of mining
  properties

  	
   

  	
  4,285,715

  	
   

  	
  1,500,000

  	
   

  	
  975,000

  	
   

  	
  778,500

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  In cash

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Flow-through private
  placement

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  1,000,000

  	
   

  	
  1,000,000

  	
   

  
	
  Private placement

  	
   

  	
  5,454,545

  	
   

  	
  2,184,818

  	
   

  	
  4,001,000

  	
   

  	
  2,527,032

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Issue costs

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Professional fees

  	
   

  	
  —

  	
   

  	
  (318,425

  	
  )

  	
  —

  	
   

  	
  (400,885

  	
  )

  
	
  Warrants

  	
   

  	
  —

  	
   

  	
  (137,542

  	
  )

  	
  —

  	
   

  	
  (87,160

  	
  )

  
	
  Future income tax

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  	
  (315,220

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Balance, end of year

  	
   

  	
  43,315,260

  	
   

  	
  15,163,847

  	
   

  	
  33,575,000

  	
   

  	
  $

  	
  11,934,996

  	
   

  

 

29

 

CADISCOR RESOURCES INC.

 

NOTES TO THE FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2008 AND 2007

(in Canadian dollars)

 

11.       CAPITAL STOCK (CONT’D)

 

On February 29,
2008, the Company has closed a $3,000,000 private placement of 5,454,545 units
at a price of $0.55 per unit.  Each unit
is comprised of one common share and one half of one warrant.  Each full warrant entitles the holder to
purchase one common share at a price of $0.70 for a period of 24 months after February 29,
2008.

 

WARRANTS

 

As at December 31, 2008,
6,614,236 warrants (5,062,030 at December 31, 2007) were outstanding. Each
warrant entitles its holder to purchase one share of the Company.  Changes to the number of warrants are shown
in the following table:

 

	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
  Number

  	
   

  	
  Weighted

  average

  strike price

  	
   

  	
  Fair

  Value

  	
   

  	
  Number

  	
   

  	
  Weighted

  average

  strike price

  	
   

  	
  Fair

  Value

  	
   

  
	
  Balance, beginning of year

  	
   

  	
  5,062,030

  	
   

  	
  $

  	
  0.91

  	
   

  	
  752,883

  	
   

  	
  1,611,430

  	
   

  	
  $

  	
  1.18

  	
   

  	
  302,655

  	
   

  
	
  Issued

  	
   

  	
  3,163,636

  	
   

  	
  $

  	
  0.68

  	
   

  	
  1,004,924

  	
   

  	
  3,450,600

  	
   

  	
  $

  	
  0.85

  	
   

  	
  450,228

  	
   

  
	
  Cancelled

  	
   

  	
  (1,611,430

  	
  )

  	
  $

  	
  1.18

  	
   

  	
  (302,655

  	
  )

  	
  —

  	
   

  	
  —

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Balance, end of year

  	
   

  	
  6,614,236

  	
   

  	
  $

  	
  0.81

  	
   

  	
  1,455,152

  	
   

  	
  5,062,030

  	
   

  	
  $

  	
  0.91

  	
   

  	
  752,883

  	
   

  

 

The strike price and the maturity are the
following:

 

	
  Strike
  Price

  	
   

  	
  Number

  	
   

  	
  Maturity

  	
   

  
	
  $

  	
  0.70

  	
   

  	
  400,100

  	
   

  	
  February 10, 2009

  	
   

  
	
  $

  	
  0.95

  	
   

  	
  2,000,500

  	
   

  	
  February 10, 2009

  	
   

  
	
  $

  	
  1.00

  	
   

  	
  50,000

  	
   

  	
  April 30, 2009

  	
   

  
	
  $

  	
  0.70

  	
   

  	
  2,727,273 

  	
  (2)

  	
  March 1, 2010

  	
   

  
	
  $

  	
  0.55

  	
   

  	
  436,363 

  	
  (1)

  	
  March 1, 2010

  	
   

  
	
  $

  	
  0.70

  	
   

  	
  1,000,000 

  	
  (3)

  	
  December 31, 2010

  	
   

  
	
   

  	
   

  	
  6,614,236

  	
   

  	
   

  	
   

  

 

(1)      On February 29, 2008, pursuant to a
private placement, the Company issued Becher McMahon Capital Markets Inc.
broker options equal to 8% of the total number of units sold under the
placement (436,363 units). Each broker option allows the broker to purchase one
unit at the issue price until March 1, 2010. One unit at $0.55 consisted
of one common share and half a warrant. Each full warrant entitles the holder
to purchase one share at $0.70 per share. A total of 218,181 warrants could
eventually be exercised. The fair value of each option granted was determined
using the Black-Scholes option-pricing model. At the date of the grant, the
fair value of the broker options granted was $0.3152 per option.

 

(2)      On February 29,
2008, pursuant to a private placement the Company issued 2,727,273
warrants.  Each warrant allows to
purchase one share at a price of $0.70. 
The fair value of each warrant granted was determined using the
Black-Scholes option-pricing model. At the late of the grant, the fair value of
the warrants granted was $0.2989 per warrant.

 

30

 

CADISCOR RESOURCES INC.

 

NOTES TO THE FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2008 AND 2007

(in Canadian dollars)

 

11.       CAPITAL STOCK (CONT’D)

 

WARRANTS (CONT’D)

 

(3)      On October 14, 2008 the Company changed
the strike price to $0.70 from $1.00 and prolong the maturity date to December 31,
2010 for the 1,000,000 warrants issued on December 11, 2007.  The effect of that change was the
reassessment of the fair valued each warrant granted using the Black-Scholes
option-pricing model.  At that date, the
reassessment of each warrant granted was $0.0522 per warrant.

 

During the year ended December 31, 2008, 3,163,636
warrants were issued.

 

The following weighted-average assumptions were used
in the calculation:

 

	
  Risk-free interest rate

  	
   

  	
  2.75

  	
  %

  
	
  Expected life

  	
   

  	
  2 years

  	
   

  
	
  Expected volatility

  	
   

  	
  76

  	
  %

  
	
  Expected dividend

  	
   

  	
  0.0

  	
  %

  

 

An amount of $137,542 was recognized as share issue
costs and credited to contributed surplus.

 

12.           STOCK OPTION PLAN

 

The Company has a
stock option plan for its officers, directors, key employees and consultants.
During the year, the Company increased the number of common shares reserved for
common stock option grants from 2,759,900 to 3,902,954. The maximum number of
options that can be granted to any participant may not exceed 10% of the issued
and outstanding shares of the capital stock. The strike price of the options granted may not be less than the
market price, which corresponds to the discounted price of the common shares on
the TSX Toronto Venture Exchange on the date of the option grant. The options
granted are valid for a period established by the board of directors, not to
exceed ten years from the date the options are granted.

 

Stock options change that occurred during the year are as follows:

 

	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
  Number

  of options

  	
   

  	
  Weighted-average

  strike price

  	
   

  	
  Number

  of options

  	
   

  	
  Weighted-average

  strike price

  	
   

  
	
  Balance, beginning of year

  	
   

  	
  2,361,980

  	
   

  	
  $

  	
  0.93

  	
   

  	
  2,301,980

  	
   

  	
  $

  	
  0.93

  	
   

  
	
  Granted

  	
   

  	
  1,626,000

  	
   

  	
  $

  	
  0.45

  	
   

  	
  141,000

  	
   

  	
  $

  	
  1.00

  	
   

  
	
  Cancelled

  	
   

  	
  (711,980

  	
  )

  	
  $

  	
  0.70

  	
   

  	
  (81,000

  	
  )

  	
  $

  	
  1.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Balance, end of year

  	
   

  	
  3,276,000

  	
   

  	
  $

  	
  0.74

  	
   

  	
  2,361,980

  	
   

  	
  $

  	
  0.93

  	
   

  

 

31

 

CADISCOR
RESOURCES INC.

 

NOTES TO THE FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2008 AND 2007

(in Canadian dollars)

 

12.           STOCK OPTION PLAN (CONT’D)

 

Stock options
outstanding and exercisable as at December 31, 2008, are shown in the
following table:

 

	
  Options
  outstanding

  	
   

  	
  Options exercisable

  	
   

  
	
  Strike
  price

  	
   

  	
  Number

  	
   

  	
  Average remaining

  lifespan (years)

  	
   

  	
  Strike price

  	
   

  	
  Number

  	
   

  
	
  $

  	
  1.00

  	
   

  	
  1,760,000

  	
   

  	
  2.77

  	
   

  	
  $

  	
  1.00

  	
   

  	
  1,760,000

  	
   

  
	
  $

  	
  0.61

  	
   

  	
  96,000

  	
   

  	
  4.15

  	
   

  	
  $

  	
  0.61

  	
   

  	
  96,000

  	
   

  
	
  $

  	
  0.43

  	
   

  	
  1,120,000

  	
   

  	
  4.40

  	
   

  	
  $

  	
  0.43

  	
   

  	
  1,120,000

  	
   

  
	
  $

  	
  0.41

  	
   

  	
  300,000

  	
   

  	
  0.98

  	
   

  	
  $

  	
  0.41

  	
   

  	
  150,000

  	
   

  
	
  $

  	
  0.74

  	
   

  	
  3,276,000

  	
   

  	
   

  	
   

  	
  $

  	
  0.75

  	
   

  	
  3,126,000

  	
   

  

 

During the year ended December 31,
2008, a total of 1,626,000 options were granted to officers, directors,
consultants and key employees of a service provider of the Company.

 

The fair value of each option
granted was determined using the Black-Scholes option-pricing model. At the
grant date, the weighted average fair value of the options granted was $0.2434
per option.

 

The following weighted average assumptions were used
in the calculation:

 

	
  Risk-free interest rate

  	
   

  	
  3.19

  	
  %

  
	
  Expected life

  	
   

  	
  2.75 years

  	
   

  
	
  Expected volatility

  	
   

  	
  87.82

  	
  %

  
	
  Expected dividend

  	
   

  	
  0.0

  	
  %

  

 

An amount of $359,242 was recognized in the results
for the exercise and credited to contributed surplus regarding the vested
options whose rights are vested.

 

13.           WARRANTS AND STOCK OPTIONS

 

	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  restated

  	
   

  
	
  Balance, beginning of
  year

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Previously stated

  	
   

  	
  $

  	
  1,287,132

  	
   

  	
  $

  	
  611,111

  	
   

  
	
  Prior years restatement

  	
   

  	
  —

  	
   

  	
  199,783

  	
   

  
	
  Restated balance

  	
   

  	
  1,287,132

  	
   

  	
  810,894

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Issued

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  - Warrants

  	
   

  	
  1,004,924

  	
   

  	
  450,228

  	
   

  
	
  - Stock otions

  	
   

  	
  359,242

  	
   

  	
  42,844

  	
   

  
	
  Cancelled and expired

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  - Warrants

  	
   

  	
  (302,655

  	
  )

  	
  —

  	
   

  
	
  - Stock options

  	
   

  	
  (257,511

  	
  )

  	
  (16,834

  	
  )

  
	
  Balance, end of year

  	
   

  	
  $

  	
  2,091,132

  	
   

  	
  $

  	
  1,287,132

  	
   

  

 

32

 

CADISCOR RESOURCES INC.

 

NOTES TO THE FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2008 AND 2007

(in Canadian dollars)

 

14.           CONTRIBUTED SURPLUS

 

	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
  Balance,
  beginning of year

  	
   

  	
  $

  	
  16,834

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cancelled
  and expired

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  -
  Warrants (Note 11)

  	
   

  	
  302,655

  	
   

  	
  —

  	
   

  
	
  -
  Stock options (Note 12)

  	
   

  	
  257,511

  	
   

  	
  16,834

  	
   

  
	
  Balance,
  end of year

  	
   

  	
  $

  	
  577,000

  	
   

  	
  $

  	
  16,834

  	
   

  
								

 

15.             CAPITAL DISCLOSURES

 

The Company’s objective for capital management is to
ensure that it can continue as a going concern in order to pursue the development
of its mining properties and to the production of his mining assets.

 

The Company defines capital as shareholders’ equity,
comprising capital stock, contributed surplus, warrants and stock options and
equity component of convertible debenture.  ($17,983,533 - $13,238,962 in 2007)

 

The Company is not subject to
any external requirements regarding its capital.

 

Management reviews its capital
management approach on an ongoing basis and believes that this approach, given
the relative size of the Company, is reasonable.

 

There were no significant
changes in the Company’s approach to capital management during the year ended December 31,
2008.

 

16.                   FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

 

MARKET RISK

 

The Company is exposed to risk related to fluctuations
in the gold price, as the gold price influences the potential economics of the
Company’s mining properties and therefore has an effect on its exploration plan
and on the possible decision on whether to proceed with a possible production.

 

CREDIT RISK

 

The financial instruments that expose the Company to
market risk and concentration of credit risk include cash and cash equivalents,
account receivable and income tax credits receivable. The Company invests its
cash and cash equivalents in high quality instruments issued by financial
institutions. The Company does not have any security on its financial
instruments subject to credit risk, but mitigates such risk by only transacting
with a diversified group of partners with strong financial conditions, and consequently
does not anticipate any losses.

 

LIQUIDITY RISK

 

The Company manages its liquidity risk by using
budgets that enable it to determine the amounts required to fund its
exploration programs. The Company also ensures that it has sufficient working capital
available to meet its day-to-day commitments.

 

33

 

CADISCOR RESOURCES INC.

 

NOTES TO THE FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2008 AND 2007

(in Canadian dollars)

 

16.                   FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONT’D)

 

FAIR VALUE

 

Cash and cash equivalents account receivable, security deposit and
accounts payable and accrued liabilities are valued at their book value, which
is similar to their fair value. Long term debt is classified as another
financial liability and is valued at cost after amortization according to the
effective interest rate method.

 

17.           COMMITMENTS AND CONTINGENCY

 

On May 26, 2008, the Company signed a two-year
lease with Sogecor 2000 Inc. for the use of office space as of July 1,
2008, for a monthly rent of $2,680.  The
resulting commitment is:  $32,160 for
2009 and $16,080 for 2010.

 

The Company has two leases for photocopiers in the
amount of $1,838 each per quarter.  The
resulting commitment is detailed as follow: 
$14,704 in 2009, $14,704 in 2010 and $7,345 in 2011.

 

The Company has royalties of 1% on its gold production
on the Sleeping Giant Mine, redeemable for $1,000,000, a royalty of 1.5% on any
other metal production, if the deposit exceeds 5 million tonnes of ore and a
final royalty of $1,000,000 when 300,000 tonnes of ore will be produced at the
mill.

 

A new services agreement with BBH Geo-Management Inc.
(“BBH”) took effect on July 1, 2008. 
This agreement calls for BBH to provide legal and computer graphics support.

 

The Company agreed to pay 2 year-salary to its
President, amounting to $320,000, in case of employment loss and under
additional conditions met.

 

ENVIRONMENT

 

The Company is subject to laws regarding environmental
protection. However, the environmental impact of its operations is difficult to
assess.  To the best knowledge of its
officers, the Company is in compliance with the applicable laws and
regulations.  The Company has provided
for the Sleeping Giant Mine rehabilitation allowance.

 

18.             RELATED-PARTY TRANSACTIONS

 

During the year ended December 31, 2008,
consulting and subcontracting expenses of $293,000  ($277,000 in 2007) and management fees of
$89,000 ($300,000 in 2007) included in the statements of deferred expenditures
were paid to BBH Géo-Management Inc. (“BBH”), a director and an officer of
which is also an director of the Company. 
Michel Bouchard, President of the Company, was an employee of BBH until June 30,
2008.

 

General and administrative expenses of $177,000
($312,000 in 2007) included in the statement of operations were also paid to
BBH.

 

Legal fees of $3,000 ($22,000 in 2007) included in
share issue costs were also paid to BBH.

 

34

 

CADISCOR RESOURCES INC.

 

NOTES TO THE FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2008 AND 2007

(in Canadian dollars)

 

18.           RELATED-PARTY TRANSACTIONS (CONT’D)

 

On July 1, 2008, the
services agreement was renegotiated and six employees were transferred to the
Company without compensation.  During the
period between July 1 and December 31, 2008, an amount of $7,513 was
invoiced and paid under the new service agreement.

 

As at December 31, 2008, accounts payable and
accrued liabilities did not include any amount payable to BBH ($66,000 as at December 31,
2007).

 

Those operations occurred in normal course of business
and have been measured to the exchange value, which represents the amount of
counterpart established by both parties.

 

19.           INCOME TAXES

 

The income tax allowance differs from the amount
resulting from the application of the combined Canadian statutory income tax
rate as follows: 

 

	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Loss before income taxes

  	
   

  	
  $

  	
  (1,361,161

  	
  )

  	
  $

  	
  (806,071

  	
  )

  
	
  Combined Canadian statutory
  income tax rate

  	
   

  	
  29.90

  	
  %

  	
  31.52

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Income tax benefit at the
  combined Canadian statutory income tax rate

  	
   

  	
  $

  	
  (406,987

  	
  )

  	
  $

  	
  (254,074

  	
  )

  
	
  Tax benefit resulting from tax rate variation

  	
   

  	
  (107,422

  	
  )

  	
  (32,400

  	
  )

  
	
  Share issue costs

  	
   

  	
  (43,808

  	
  )

  	
  (34,113

  	
  )

  
	
  Stock-based compensation

  	
   

  	
  107,413

  	
   

  	
  13,504

  	
   

  
	
  Adjustment related to deferred
  expenditures

  	
   

  	
  (277,540

  	
  )

  	
  —

  	
   

  
	
  Non-deductible and other
  expenses

  	
   

  	
  (5,256

  	
  )

  	
  (4,417

  	
  )

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Future income tax benefit

  	
   

  	
  $

  	
  (733,600

  	
  )

  	
  $

  	
  (311,500

  	
  )

  

 

The combined
Canadian statutory income tax rate of 29.90% consists of a federal tax rate of
18% and a provincial rate of 11.90%. (federal tax rate of 19.62% and provincial
tax rate of 11.9% in 2007)

 

The tax effects of
temporary differences giving rise to material future income tax assets and
liabilities as at December 31, 2008 are as follows:

 

35

 

CADISCOR RESOURCES INC.

 

NOTES TO THE FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2008 AND 2007

(in Canadian dollars)

 

19.             INCOME TAXES (CONT’D)

 

	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Future income tax asset:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net operating losses

  	
   

  	
  $

  	
  689,300

  	
   

  	
  $

  	
  350,200

  	
   

  
	
  Financial expenses

  	
   

  	
  164,800

  	
   

  	
  127,600

  	
   

  
	
  Property, plant and
  equipment

  	
   

  	
  4,900

  	
   

  	
  300

  	
   

  
	
  Total future income tax
  asset

  	
   

  	
  859,000

  	
   

  	
  478,100

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Future income tax
  liability:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Mining properties and
  deferred expenditures

  	
   

  	
  $

  	
  2,205,300

  	
   

  	
  $

  	
  2,558,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Future income tax liability

  	
   

  	
  $

  	
  1,346,300

  	
   

  	
  $

  	
  2,079,900

  	
   

  

 

At December 31,
2008, the Company had non-capital losses and unused share issue costs that
could be deferred to later periods and used to reduce future taxable income.
These losses and share issue costs expire as follows:

 

	
   

  	
   

  	
  Federal

  	
   

  	
  Provincial

  	
   

  
	
  Non-capital losses:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2026

  	
   

  	
  $

  	
  298,451

  	
   

  	
  $

  	
  298,451

  	
   

  
	
  2027

  	
   

  	
  $

  	
  815,468

  	
   

  	
  $

  	
  815,468

  	
   

  
	
  2028

  	
   

  	
  $

  	
  1,191,407

  	
   

  	
  $

  	
  1,191,295

  	
   

  
	
  Share issue costs:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2009

  	
   

  	
  $

  	
  171,910

  	
   

  	
  $

  	
  171,910

  	
   

  
	
  2010

  	
   

  	
  $

  	
  171,911

  	
   

  	
  $

  	
  171,911

  	
   

  
	
  2011

  	
   

  	
  $

  	
  143,862

  	
   

  	
  $

  	
  143,862

  	
   

  
	
  2012

  	
   

  	
  $

  	
  63,685

  	
   

  	
  $

  	
  63,685

  	
   

  

 

20.   
CHANGES IN NON-CASH WORKING CAPITAL ITEMS

 

	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
  Account receivable

  	
   

  	
  $

  	
  (28,623

  	
  )

  	
  $

  	
  20,000

  	
   

  
	
  Sales tax recoverable

  	
   

  	
  91,503

  	
   

  	
  19,874

  	
   

  
	
  Prepaid expenses

  	
   

  	
  (312,420

  	
  )

  	
  (3,052

  	
  )

  
	
  Accounts payable and accrued
  charges

  	
   

  	
  170,885

  	
   

  	
  (43,546

  	
  )

  
	
   

  	
   

  	
  $

  	
  (78,655

  	
  )

  	
  $

  	
  (6,724

  	
  )

  

 

36

 

CADISCOR RESOURCES INC.

 

NOTES TO THE FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2008 AND 2007

(in Canadian dollars)

 

21.           BUSINESS ACQUISITION

 

On October 31,
2008, the Company closed the acquisition of the Sleeping Giant Mine for a
consideration of $5,961,694, of which $909,494 was engaged in 2007.  The assets and liabilities at their
attributed value are as follow:

 

	
   

  	
   

  	
  2008

  	
   

  	
  2007

  	
   

  
	
  ASSETS ACQUIRED

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Security deposit

  	
   

  	
  $

  	
  1,769,156

  	
   

  	
  $

  	
  —

  	
   

  
	
  Mining assets

  	
   

  	
  209,200

  	
   

  	
  909,494

  	
   

  
	
  Plant

  	
   

  	
  268,000

  	
   

  	
  —

  	
   

  
	
  Équipment

  	
   

  	
  4,575,000

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
  $

  	
  6,821,356

  	
   

  	
  $

  	
  909,494

  	
   

  
	
  LIABILITIES TRANSFERRED

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Asset retirement obligation

  	
   

  	
  1,769,156

  	
   

  	
  —

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net assets acquired

  	
   

  	
  $

  	
  5,052,200

  	
   

  	
  $

  	
  909,494

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Consideration :

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash

  	
   

  	
  $

  	
  —

  	
   

  	
  $

  	
  310,094

  	
   

  
	
  Convertible debenture

  	
   

  	
  3,500,000

  	
   

  	
  —

  	
   

  
	
  Common shares

  	
   

  	
  1,500,000

  	
   

  	
  510,000

  	
   

  
	
  Warrants

  	
   

  	
  52,200

  	
   

  	
  89,400

  	
   

  
	
   

  	
   

  	
  $

  	
  5,052,200

  	
   

  	
  $

  	
  909,494

  	
   

  

 

Upon
closing the deal on October 31, 2008, amounts resented as mining
properties and deferred expenditures of the Sleeping Giant Mine have been
reclassified as mining assets.

 

22.           PRIOR YEARS RESTATMENT

 

During
the period, the Company found some warrants issued during the financing which
never been valued.  The Company therefore
restated its financial statements and increased its warrants value as at January 1,
2008 by $562,851.  This amount includes
an increase in mining properties of $89,400 and a decrease of capital stock of
$273,668 and a contributed surplus increase of the same amount.  The balance of $199,783 relates to periods
prior to January 1, 2007. 
Shareholders’ equity balance has been decreased and contributed surplus
has been increased accordingly.

 

23.           SUBSEQUENT EVENTS

 

On
February 10, 2009, 2,400,600 warrants came to maturity and were not
exercised.  Taking this into account, the
Company now has 4,213,636 warrants outstanding.

 

24.           COMPARATIVE FIGURES

 

Certain
comparative figures have been reclassified to conform with the financial
statement presentation adopted in the current exercise.

 

37

 

FORM 52-109FV1

CERTIFICATION OF ANNUAL FILINGS

I, Michel
Bouchard, President and Chief Executive Officer of Cadiscor Resources Inc.,  certify the following:

 

1.                         Review:
I have reviewed the annual financial statements and annual MD&A of
Cadiscor Resources Inc.  (the
“issuer”) for the financial year ended December 31, 2008.

 

2.                         No misrepresentations: Based on my knowledge, having exercised
reasonable diligence, the annual filings do not contain any untrue statement of
a material fact or omit to state a material fact required to be stated or that
is necessary to make a statement not misleading in light of the circumstances
under which it was made, for the period covered by the annual filings.

 

3.                         Fair presentation:
Based on my knowledge, having exercised reasonable
diligence, the annual financial statements together with the other financial
information included in the annual filings fairly present in all material
respects the financial condition, results of operations and cash flows of the
issuer, as of the date of and for the periods presented in the annual filings.

 

 

March 12, 2009

 

	
  

  	
   

  
	
   

  	
   

  
	
  Michel Bouchard

  	
   

  
	
  President

  	
   

  

 

NOTE TO READER

 

In contrast to the
certificate required for non-venture issuers under Regulation 52-109 respecting
Certification of Disclosure in Issuers’ Annual and Interim Filings (Regulation
52-109), this Venture Issuer Basic Certificate does not include representations
relating to the establishment and maintenance of disclosure controls and
procedures (DC&P) and internal control over financial reporting (ICFR), as
defined in Regulation 52-109. In particular, the certifying officers filing
this certificate are not making any representations relating to the
establishment and maintenance of:

 

i)            controls and other procedures
designed to provide reasonable assurance that information required to be
disclosed by the issuer in its annual filings, interim filings or other reports
filed or submitted under securities legislation is recorded, processed,
summarized and reported within the time periods specified in securities
legislation; and

 

ii)         a process to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
the issuer’s GAAP.

 

The issuer’s
certifying officers are responsible for ensuring that processes are in place to
provide them with sufficient knowledge to support the representations they are
making in this certificate. Investors should be aware that inherent limitations
on the ability of certifying officers of a venture issuer to design and
implement on a cost effective basis DC&P and ICFR as defined in Regulation
52-109 may result in additional risks to the quality, reliability, transparency
and timeliness of interim and annual filings and other reports provided under
securities legislation.

 

38

 

FORM 52-109FV1

CERTIFICATION OF ANNUAL FILINGS

I, Pauline
Comtois, CGA, performing similar functions to a Chief Financial Officer for
Cadiscor Resources Inc.,  certify the
following:

 

1.                         Review:
I have reviewed the annual financial statements and annual MD&A of
Cadiscor Resources Inc.  (the
“issuer”) for the financial year ended December 31, 2008.

 

2.                         No misrepresentations: Based on my knowledge, having exercised
reasonable diligence, the annual filings do not contain any untrue statement of
a material fact or omit to state a material fact required to be stated or that
is necessary to make a statement not misleading in light of the circumstances
under which it was made, for the period covered by the annual filings.

 

3.                         Fair presentation:
Based on my knowledge, having exercised reasonable
diligence, the annual financial statements together with the other financial
information included in the annual filings fairly present in all material
respects the financial condition, results of operations and cash flows of the
issuer, as of the date of and for the periods presented in the annual filings.

 

 

March 12, 2009

 

	
  

  	
   

  
	
   

  	
   

  
	
  Pauline Comtois

  	
   

  
	
  CGA, performing similar functions to a Chief
  Financial Officer

  	
   

  

 

NOTE TO READER

 

In contrast to the
certificate required for non-venture issuers under Regulation 52-109 respecting
Certification of Disclosure in Issuers’ Annual and Interim Filings (Regulation
52-109), this Venture Issuer Basic Certificate does not include representations
relating to the establishment and maintenance of disclosure controls and
procedures (DC&P) and internal control over financial reporting (ICFR), as
defined in Regulation 52-109. In particular, the certifying officers filing
this certificate are not making any representations relating to the
establishment and maintenance of:

 

iii)      controls and other procedures
designed to provide reasonable assurance that information required to be
disclosed by the issuer in its annual filings, interim filings or other reports
filed or submitted under securities legislation is recorded, processed,
summarized and reported within the time periods specified in securities
legislation; and

 

iv)     a process to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
the issuer’s GAAP.

 

The issuer’s
certifying officers are responsible for ensuring that processes are in place to
provide them with sufficient knowledge to support the representations they are
making in this certificate. Investors should be aware that inherent limitations
on the ability of certifying officers of a venture issuer to design and
implement on a cost effective basis DC&P and ICFR as defined in Regulation
52-109 may result in additional risks to the quality, reliability, transparency
and timeliness of interim and annual filings and other reports provided under
securities legislation.

 

39

 

	
  General Information

   

  DIRECTORS

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Michel Bouchard

  	
   

  	
  Guylaine Daigle, C.A.*

  
	
  Québec, Québec

  	
   

  	
  Dubuisson, Québec

  
	
  President and Chief Executive Officer

  	
   

  	
  Forage
  G4 Ltd.

  
	
  Cadiscor Resources Inc.

  	
   

  	
   

  
	
   

  	
   

  	
  Richard Jacques, FCA *

  
	
  Guy Hébert

  	
   

  	
  Bromont, Québec

  
	
  Boucherville, Québec

  	
   

  	
  Management Consultant

  
	
  Chairman of the Board of Directors

  	
   

  	
   

  
	
  Cadiscor Resources Inc.

  	
   

  	
  Jean-Pierre Lachance

  
	
  President and
  Chief Executive Officer

  	
   

  	
  Saint-Hubert,
  Québec

  
	
  Strateco
  Resources Inc.

  	
   

  	
  Strateco
  Resources Inc.

  
	
   

  	
   

  	
   

  
	
  René Branchaud, LL.B.*

  	
   

  	
  Jean-Charles Potvin

  
	
  Montréal (Québec)

  Partner, Lavery

  	
   

  	
  Toronto, Ontario

  Chairman of the Board of Directors

  Tiomin Resources Inc.

  

 

* Audit
Committee member

 

	
  OFFICERS

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Michel Bouchard, M. Sc. Geol.,
  M.B.A.

  President and Chief Executive Officer

  	
   

  	
  Pauline Comtois C.G.A.

  Treasurer

  
	
   

  	
   

  	
   

  
	
  Vincent Jourdain,
  Ph. D, Eng.

  	
   

  	
  Anne Hébert

  
	
  Vice President, Exploration

  	
   

  	
  Secretary

  
	
   

  	
   

  	
   

  
	
  Paul Bonneville, Eng.

  	
   

  	
   

  
	
  Vice President, Mining

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  SHAREHOLDER INFORMATION

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Listing

  	
   

  	
  Head Office

  
	
  TSX
  Venture Exchange - Symbol CAO

  	
   

  	
  1570 Ampere Street # 502

  
	
  Frankfurt Exchange: Symbol DQN

  	
   

  	
  Boucherville,
  Québec J4B 7L4, CANADA

  
	
  US SEC Registration # 0-52252 – Symbol SRSIF

  	
   

  	
  Telephone:

  	
  (450) 449-0066

  
	
   

  	
   

  	
  Fax:

  	
  (450) 449-1744

  
	
   

  	
   

  	
  Website:

  	
  www.cadiscor.com

  
	
  Transfer Agent and Registrar

  	
   

  	
   

  
	
  Computershare Trust Company of Canada

  	
   

  	
  Annual Meeting

  
	
   

  	
   

  	
  June 18, 2008 at 11 a.m.

  
	
  Auditors

  	
   

  	
  Sheraton Centre Montreal

  
	
  Petrie Raymond, LLP, Chartered Accountants

  	
   

  	
  Salon 1

  
	
   

  	
   

  	
  1201 René-Lévesque Blvd. West

  
	
  Legal Advisors

  	
   

  	
  Montréal,
  Québec H3B 2L7 CANADA

  
	
  Miller Thomson LLP

  	
   

  	
   

  

 

40Exhibit 10.1

 

EMPLOYMENT AGREEMENT

 

THIS AGREEMENT, effective this first day of
January, 2009, between Dakota Ethanol, L.L.C., a South Dakota limited liability
company, hereinafter called “Employer” and Scott A. Mundt, of Brookings, South
Dakota, hereinafter called “Employee.”

 

W I T N E S S
E T H:

 

1.             Definitions.

 

(a)           “Adjusted
Earnings” means Employer’s earnings calculated before deductions for
interest expense, income taxes, depreciation and amortization, and without
including any governmental incentive income as determined by Employer using
generally accepted accounting principles in the United States applied on a
consistent basis.

 

(b)           “Applicable
Guidance” means as the context requires Code §§83, 409A, Treas. Reg.
§ 1.83, Treas. Reg. §§ 1.409A-1 through -6, or other written Treasury or IRS
guidance regarding or affecting Code §§ 83 or 409A.

 

(c)           “Board”
means the Board of Managing Members of the Employer.

 

(d)           “Book Value”
means the book value of the Employer as disclosed by the Employer’s books of
account regularly maintained in accordance with generally accepted accounting
principles in the United States applied on a consistent basis as determined by
certified public accountants regularly auditing Employer’s financial
statements.

 

(e)           “Change of
Control” means a change in (i) the ownership of Employer
(acquisition by any one person or more than one person acting as a group of
more than 50% of the total voting power or fair market value of the stock of
the Employer), (ii) in the effective control of Employer (acquisition or
acquisition during a 12 month period ending on the date of the latest
acquisition, by one or more persons acting as a group of 30% or more of the
total voting power of Employer or replacement of a majority of the members of
the Board of Employer [described below, but including only the entity for which
no other corporation is a majority shareholder] during any 12 month period by
members not endorsed by a majority of the Board before the appointment or
election); or (iii) in the ownership of a substantial portion of the
assets of Employer (acquisition or acquisition during a 12 month period ending
on the date of the latest acquisition, by one or more persons [other than
related persons described in Treas. Reg. § 1.409A-3(i)(5)(VII)(B)] acting as a
group of assets with total gross fair market value of 40% or more of the total
gross fair market value of all assets of Employer immediately before such
acquisition or acquisitions).  For this
purpose, “Employer” includes any corporation which is liable for the payment of
the benefits hereunder, a majority shareholder (more than 50% of total fair
market 

 

 

value and voting power) of the
foregoing or a corporation in a chain of corporations in which each is a
majority owner of another corporation in the chain, ending in Employer or in
the corporation that is liable for payment of the benefits hereunder, all in
accordance with Treas. Reg. § 1.409A-3(i)(5)(ii).  An event constituting a Change in Control
must be objectively determinable and any certification thereof by Employer or
its agents may not be subject to the discretion of such person.  For purposes of applying this Section, stock
ownership is determined in accordance with Code § 318(a) as modified under
Treas. Reg. § 1.409A-3(i)(5)(iii).  Pending
the issuance of Applicable Guidance as to the application of change in control
provisions to non-corporate entities, Employer will apply this definition by
analogy in accordance with Treas. Reg. § 1.409A, Preamble, II.G.

 

(f)            “Code”
means the Internal Revenue Code of 1986, as amended.

 

(g)           “Separation
from Service” means Employee’s termination of employment with
Employer whether on account of death, retirement, or otherwise.  Employer will determine whether Employee has
terminated employment based on the facts and circumstances as described in
Treas. Reg. § 1.409A-1(h).  Employee’s
employment terminates if Employer and Employee reasonably anticipate, based on
the facts and circumstances, Employee will not perform any additional services
after a certain date or that the level of bona fide services (whether performed
as an employee or as an independent contractor) will permanently decrease to no
more than twenty percent (20%) of the average level of bona fide services
performed over the immediately preceding thirty-six (36) month period.  Employer for purposes of determining
Separation from Service includes all persons with whom Employer would be
considered a single employer under Code §§ 414(b) and (c), but applying
50% in lieu of 80% in applying Code §§ 414(b) and (c).

 

2.             Employment.  The Employer hereby employs the Employee, and
the Employee hereby accepts employment upon the terms and conditions
hereinafter set forth.

 

3.             Duties
of Employee.  Employee shall serve as
the General Manager/CEO of Employer.  
Subject to the direction of the Board, Employee shall have full
authority to operate on a day-to-day basis, and manage the business and affairs
of Employer and shall perform such other executive, managerial and administrative
duties as are from time to time assigned to him by the Board and which are
normally associated with the position of General Manager/CEO.  Employee agrees as follows:

 

	
  (a)

  	
  Employee shall devote his working time,
  knowledge and skill solely and exclusively to the business of Employer. Employee
  shall not be engaged in any other trade, business or enterprise except as an
  investor for himself or any other person, business or company while employed
  by Employer.

  

 

2

 

	
  (b)

  	
  Employee shall at all times represent the
  interests of Employer to the utmost of Employee’s capacity and ability and
  Employee shall serve Employer loyally and faithfully.

  
	
   

  	
   

  
	
  (c)

  	
  The Employee’s hours of work shall be as
  dictated by the requirements of the duties for which Employee is responsible.

  
	
   

  	
   

  
	
  (d)

  	
  Employee agrees to observe and comply with
  all applicable rules and regulations established by the Employer.

  
	
   

  	
   

  
	
  4.

  	
  Compensation. As
  compensation for his services, the Employer shall pay to the Employee as
  follows:

  
	
   

  	
   

  
	
  (a)

  	
  Base Compensation.
  An annual base salary of One Hundred Fifty Thousand Dollars ($150,000.00),
  payable in equal bi-monthly installments during the term of his employment.
  The Board will review the base salary annually.

  
	
   

  	
   

  
	
  (b)

  	
  Variable Incentive Compensation.
  In addition to the Base Compensation, as an incentive to Employee to achieve
  high profitability, to promote collection of those revenues billed and to
  encourage quality and efficiency of operation, the Employer shall pay to the
  Employee Variable Incentive Compensation equal to five-tenths of one percent
  (0.5%) of the Adjusted Earnings in each `six-month period of the fiscal year
  ending June 30 and December 31. Adjusted Earnings are based on the
  most recent cumulative financial statements produced by the Employer and
  provided to the Board. The Employer will pay the Variable Incentive
  Compensation to Employee the on first regularly scheduled payroll following
  Board approval of the financial statements for the operations during
  January 1 through June 30 and from July 1 through
  December 31 but no later than March 15 of year following the year
  earned. In no event shall the total Variable Incentive Compensation paid to
  Employee for any single fiscal year exceed Seventy-Five Thousand Dollars
  ($75,000.00)

  

 

5.             Employee
Benefits.  This Agreement is not
intended to and shall not be deemed to be in lieu of any rights, benefits and
privileges to which Employee may be entitled as an employee of Employer under
any plan of employee benefits or any other arrangement providing employee
benefits to Employer’s employees, including, but not limited to, vacation,
medical and health insurance, life insurance, and any qualified retirement plan
which may now be in effect or hereafter adopted by Employer as amended from
time to time in the Employer’s sole discretion. To the extent the following
benefits are offered to all of Employer’s employees, Employer shall provide the
following enhanced benefits to Employee:

 

1.   Medical Insurance.
Employer agrees to pay the full premium for family coverage for any medical
insurance plan Employer offers to all of its employees.  To the extent Employer offers more than one
option to employees for medical insurance, Employer agrees to pay the full
premium for family coverage for the option chosen by Employee.

 

3

 

2.  Dental Insurance.
Employer agrees to pay the full premium for family coverage for dental
insurance.

 

3.  Short Term Disability.
Employer agrees to pay the full premium for Short Term Disability insurance.

 

4.  Paid Time Off.  Employee will receive thirty (30) days of PTO
per year. Employee will provide advance notice to the Board for PTO exceeding 5
consecutive business days.

 

6.             Expenses.  Employer will reimburse Employee for all
reasonable business related expenses upon the presentment by Employee, from
time to time, of an itemized account of such expenditures and receipts
therefor.

 

7.             Change
in Control.  Upon a Change in
Control, Employer shall pay Employee the following, payable in cash in a lump
sum on the first day of the month following the Change in Control:

 

(a)           If
the total financial consideration paid for Employer constituting the Change of
Control equals or exceeds one and one half the Book Value of the Employer
calculated as of the last day of the month preceding the final event
constituting the Change of Control, Employer shall pay Employee a lump sum
payment equal to three (3) times Employee’s annual Base Compensation in
effect on the date of the Change of Control; or

 

(b)           If
the total financial consideration paid for Employer constituting the Change of
Control is less than one and one-half times the Book Value of the Employer
calculated as of the last day of the month preceding the final event
constituting the Change of Control, Employer will pay Employee an amount equal
to his annual Base Compensation in effect on the date of the Change of Control.

 

8.             Withholding.
The Employer will withhold from any payment to Employee made pursuant to this
Agreement and from any amount taxable under Code §409A, all applicable taxes,
and any and all other amounts required to be withheld under federal, state or
local law, including Applicable Guidance, and any voluntary reductions elected
by Employee.

 

9.             Excess
Parachute Payment.  Notwithstanding
any provision of this Agreement to the contrary, Employer shall not pay any
benefit to the extent the benefit would be a nondeductible parachute payment
under Section 280G of the Internal Revenue Code.

 

10.           Termination
With or Without Cause.  Employee is an
Employee at will.  It is understood and
agreed that either Employee or Employer may terminate this agreement at any
time with or without cause and without formal notice.  If terminated, with cause (cause defined as
theft, embezzlement, illegal harassment, conviction of a felony or misdemeanor
involving moral turpitude), Employee shall not be entitled to any advance
notice, severance pay or any 

 

4

 

other
compensation other than compensation earned to date of the termination.  If terminated without cause, the employee
will receive a severance payment in the amount of six (6) months Base
Compensation payable in one lump sum on the first regularly scheduled pay date
immediately following termination of employment.

 

11.           Trade
Secrets.  Employee acknowledges that
in the course of employment, Employee will acquire confidential information of
a special and unique nature and value relating to Employer’s business and
relating to any subsidiaries and affiliates of Employer.  Such information shall be considered a trade
secret owned by the Employer, which information shall include, but is not
limited to, specifications, samples, tools, technical information, data, market
information, customers, relationship with experts, consultants and governmental
agencies, information concerning Employer’s systems, policies, methods of
operation, procedures, manuals, financial reports, and pricing and all other
non-public information acquired by Employee as a result of or during the course
of employment.  Employer shall retain
ownership of all rights to all materials, except materials which are readily
available to anyone in the ethanol industry. 
Reuse of the materials or concepts is prohibited without the prior
written consent of Employer.  Employee
agrees that all such information acquired during the course of employment,
whether such information is communicated in written or verbal form, and whether
such information is in recorded or unrecorded form and whether it is maintained
solely at Employer’s offices or also maintained elsewhere or combined or
maintained by Employee solely or in combination with other information,
constitute trade secrets of Employer.

 

Employee shall not at any time or in any manner, either directly or
indirectly, divulge or disclose Employer’s trade secrets to any other person or
entity, and Employee shall not use such trade secrets in competition with
Employer or for the gain or benefit of Employee or any other person or
company.  The obligations of Employee under
this paragraph 11 shall survive the termination of this Agreement.

 

Following termination of employment, Employee shall not remove or
retain any document, copy of document, client or prospect files, or any other
recording, in any type or form, relating to said trade secrets.  Employee shall not utilize or divulge said
trade secrets to any other person or company, regardless of whether such
knowledge or information is in recorded form or otherwise.

 

12.           Agreement
Not to Compete.  In consideration of
the Employer’s hiring and continued employment of Employee, and Employer making
Employer’s trade secrets available to Employee, the sufficiency of which
consideration is conclusively acknowledged, Employee agrees not to engage
directly or indirectly, either personally or as an employee, associate,
partner, or otherwise, or by means of any corporation or other legal entity, or
otherwise, in any business in competition with Employer or its subsidiaries,
divisions, or affiliates, during the course of employment and for a period of
one (1) year from the date of the termination of employment, within South
Dakota, Minnesota, Nebraska, Iowa, or any other state in which Employer
operates an ethanol plant so long as Employer (or related entity) continues to
carry on a like business in the described territory (the “Restricted Territory”).

 

5

 

The parties have attempted to limit Employee’s rights to compete only
to the extent necessary to protect Employer from unfair competition.  The parties recognize, however, that
reasonable people may differ in making such a determination.  Employee acknowledges that he will be able to
earn a livelihood without violating the foregoing restrictions and that his
ability to earn a livelihood without violating such restrictions is a material
condition to his execution of this Agreement with Employer.

 

Employee agrees that if Employee obtains or commences employment
(whether full-time or part-time) with any other employer during the one-year
period referred to in this section, Employee shall provide such new employer
with a copy of this Agreement, and Employee agrees that Employer may provide
copies of this Agreement to such new employer. 
Employee agrees that Employer shall have the right to inform such new
employer of Employee’s obligations hereunder.

 

For purposes of this section, the Employer shall include, in addition
to the Employer specifically identified herein, any successor to Employer and
any purchaser of Employer’s business.

 

13.           Remedies
for Breach of Trade Secrets and Non-Competition Agreement.  Employee expressly agrees that Employee’s
violation of this Agreement relating to trade secrets and/or non-competition
shall entitle Employer to injunctive relief. 
Employer shall be entitled to any and all further or other rights and
remedies available at law or in equity. 
If a legal action is instituted to enforce the provisions of this
Agreement, or any part of it, the prevailing party shall be entitled to
recovery of reasonable attorneys’ fees and costs, including discovery costs, as
determined by the Court.

 

14.           Assignment.  This Agreement is a personal services
contract and neither party may assign his or its duties or obligations
hereunder without first obtaining the written consent of the other parties
hereto.

 

15.           Notices.  Any notice required or permitted to be given
under this Agreement shall be sufficient if in writing and if sent by certified
mail to the Employee’s residence in the case of the Employee or to the Employer’s
principal office in the case of the Employer.

 

16.           Waiver
of Breach.  The waiver by the
Employer of a breach of any provisions of this Agreement by the Employee shall
not operate or be construed as a waiver of any subsequent breach by Employee.

 

17.           Counterparts.  This Agreement may be executed in multiple
counterparts all of which shall constitute but one Agreement.

 

18.           Entire
Agreement.  This instrument contains
the entire agreement of the parties.  It
may not be changed orally but only by an agreement in writing signed by the
party against whom the enforcement of any waiver, change, modification,
extension or discharge is sought.

 

6

 

19.           Binding
Effect.  This Agreement shall be
binding upon and inure to the benefit of the parties, their heirs, legal
representatives, successors and assigns.

 

20.           Governing
Law.  This Agreement shall be
construed in accordance with and governed by the laws of the State of South
Dakota.

 

21.           Severability.  The parties agree that if any part, term,
paragraph or provision of this Agreement is in any manner held to be invalid,
illegal, void or in any manner unenforceable, or to be in conflict with any law
of the State of South Dakota, then the validity of the remaining portions or
provisions of this Agreement shall not be affected, and such part, term,
paragraph or provision shall be construed and enforced in an manner designed to
effectuate the intent expressed in this Agreement to the maximum extent
permitted by law.

 

IN WITNESS WHEREOF, this Employment Agreement has been signed the 1 day
of April, 2009.

 

	
   

  	
  EMPLOYER:

  
	
   

  	
   

  
	
   

  	
  DAKOTA ETHANOL, L.L.C.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   /s/ Rick Kasperson

  
	
   

  	
    Its

  	
   Secretary

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  EMPLOYEE:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Scott A. Mundt

  
	
   

  	
  Scott A. Mundt

  

 

7

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