UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
| | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR |
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 2008 OR |
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period fromto _______________________ |
| | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring shell company report |
Commission file number 0-31190
CANPLATS RESOURCES CORPORATION
(Exact name of Registrant as specified in its charter)
(Translation of Registrant’s name into English)
British Columbia, Canada
(Jurisdiction of incorporation or organization)
Suite 1510 – 999 West Hastings Street, Vancouver, British Columbia V6C 2W2
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class
None | Name of each exchange on which registered
Not Applicable |
Securities registered or to be registered pursuant to Section 12(g) of the Act.
Common Stock without par value
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.
56,748,056
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes þ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes þ No
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
þ Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | Accelerated filer þ | Non-accelerated filer |
Indicate by check mark which financial statement item the Registrant has elected to follow.
þ Item 17 Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes þ No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes No
- ii -
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements concerning our operations and planned future acquisitions within the meaning of the safe harbor for such statements under the Private Securities Litigation Reform Act of 1995. Any statements that involve discussions with respect to predictions, expectations, belief, plans, projections, objectives, assumptions or future events or performance (often but not always using phrases such as “expects”, or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “estimates” or “intends”, or stating that certain actions, events or results “may”, could”, “might”, or “will” be taken to occur or be achieved) are not statements of historical fact and may be “forward looking statements” and are intended to identify forward-looking statements, which include statements relating to, among other things, our ability to continue to successfully compete in its market. You are cautioned not to place undue reliance on forward looking statements. These forward-looking statements are based on the beliefs of our management as well as on assumptions made by and information currently available to us at the time such statements were made. We undertake no obligation to update forward-looking statements should circumstances or estimates or opinions change. Forward-looking statements are subject to a variety of risks and uncertainties which could cause actual events or results to differ from those reflected in the forward looking statements, including, without limitation,
| | · | uncertainty of production at our mineral exploration properties; |
| | · | risks related to our ability to finance the continued exploration of our mineral properties; |
| | · | risks related to no Proven Mineral Reserves or Probable Mineral Reserves; |
| | · | our history of losses and expectation of future losses; |
| | · | risks related to factors beyond our control; |
| | · | risks and uncertainties associated with new mining operations; |
| | · | risks related to our ability to obtain adequate financing for our planned development activities; |
| | · | lack of infrastructure at our mineral exploration properties; |
| | · | risks and uncertainties relating to the interpretation of drill results and the geology, grade and continuity of our mineral deposits; |
| | · | unpredictable risks and hazards related to mining operations; |
| | · | uncertainties related to title to our mineral properties and the acquisition of surface rights; |
| | · | risks related to governmental regulations, including environmental regulations; |
| | · | commodity price fluctuations; |
| | · | our ability to attract and retain qualified personnel; |
| | · | risks related to reclamation activities on our properties; |
| | · | risks related to political instability and unexpected regulator change; |
| | · | increased competition in the mining industry for properties and qualified personnel; |
| | · | risks related to some of our directors and officers involvement with other natural resource companies; |
| | · | enforcement of U.S. judgments and laws in Canada; |
| | · | our ability to attract and retain qualified management; |
| | · | our ability to maintain adequate control over financial reporting; and |
| | · | our classification as a passive foreign investment company under the Internal Revenue Code. |
Actual results could differ materially from those projected in the forward-looking statements as a result of the matters set out or incorporated in this Annual Report generally and certain economic and business factors, some of which may be beyond our control. Some of the important risks and uncertainties that could effect forward looking statements as described further in this document under the headings “Risk Factors”, “History and Development of the Company”, “Business Overview”, “Descriptions of Properties” and “Operating and Financial Review and Prospects”.
In this Annual Report, “we”, “us”, “our”, “Canplats” and “the Company” refer to Canplats Resources Corporation, a company incorporated under the Business Corporations Act (British Columbia).
GLOSSARY OF GEOLOGICAL TERMS
DEFINITIONS AND ABBREVIATIONS
alteration - - usually referring to chemical reactions in a rock mass resulting from the passage of hydrothermal fluids.
breccia - rock consisting of more or less angular fragments in a matrix of finer-grained material or cementing material.
claim - that portion of public mineral lands, which a party has staked or marked out in accordance with provincial or state mining laws, to acquire the right to explore for the minerals under the surface.
cut-off grade - the minimum grade of mineralization that delimits mineralization that has a reasonable prospect of economic extraction from mineralization that does not have a reasonable prospect of economic extraction.
deposit - a natural occurrence of a useful mineral of sufficient extent and degree to invite exploitation.
fault - a fracture in a rock where there has been displacement of the two sides.
feasibility study means a detailed study of a deposit in which all geological, engineering, operating, economic and other relevant factors are engineered in sufficient detail that it could reasonably serve as the basis for a final decision by a financial institution to finance the development of the deposit for mineral production.
g/t - grams per tonne.
geophysics - - the study of the physical properties of rocks, minerals, and mineral deposits.
grade - the concentration of each ore metal in a rock sample, usually given as weight percent. Where extremely low concentrations are involved, the concentration may be given in grams per tonne (g/t) or ounces per ton (oz/ton). The grade of an ore deposit is calculated, often using sophisticated statistical procedures, as an average of the grades of a very large number of samples collected from throughout the deposit.
hectare - a square of 100 meters on each side.
host rock - - the rock within which the ore deposit occurs.
igneous - means a rock formed by the cooling of molten silicate material.
Indicated Mineral Resource - is that part of a Mineral Resource for which quantity, grade or quality, densities, shape and physical characteristics, can be estimated with a level of confidence sufficient to allow the appropriate application of technical and economic parameters, to support mine planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough for geological and grade continuity to be reasonably assumed. This definition is from the Canadian Institute of Mining, Metallurgy and Petroleum Standards on Mineral Resources and Mineral Reserves adopted on December 11, 2005.
Inferred Mineral Resource - is that part of a Mineral Resource for which quantity and grade or quality can be estimated on the basis of geological evidence and limited sampling and reasonably assumed, but not verified, geological and grade continuity. The estimate is based on limited information and sampling gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. This definition is from the Canadian Institute of Mining, Metallurgy and Petroleum Standards on Mineral Resources and Mineral Reserves adopted on December 11, 2005.
Measured Mineral Resource - is that part of a Mineral Resource for which quantity, grade or quality, densities, shape, and physical characteristics are so well established that they can be estimated with confidence sufficient to allow the appropriate application of technical and economic parameters, to support production planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough to confirm both geological and grade continuity. This definition is from the Canadian Institute of Mining, Metallurgy and Petroleum Standards on Mineral Resources and Mineral Reserves adopted on December 11, 2005.
Mineral Reserve - is the economically mineable part of a Measured or Indicated Mineral Resource demonstrated by at least a Preliminary Feasibility Study. This Study must include adequate information on mining, processing, metallurgical, economic and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified. A Mineral Reserve includes diluting materials and allowances for losses that may occur when the material is mined. This definition is from the Canadian Institute of Mining, Metallurgy and Petroleum Standards on Mineral Resources and Mineral Reserves adopted on December 11, 2005.
Mineral Resource - is a concentration or occurrence of diamonds, natural solid inorganic material, or natural solid fossilized organic material including base and precious metals, coal, and industrial minerals in or on the Earth’s crust in such form and quantity and of such a grade or quality that it has reasonable prospects for economic extraction. The location, quantity, grade, geological characteristics and continuity of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge. This definition is from the Canadian Institute of Mining, Metallurgy and Petroleum Standards on Mineral Resources and Mineral Reserves adopted on December 11, 2005.
mineralization - - usually implies minerals of value occurring in rocks.
net profits interest royalty - a royalty based on the profit, allowing for costs directly related to production. The expenses that the operator deducts from revenue are defined in the royalty agreement. Payments generally begin after payback of capital costs. The royalty holder is not responsible for contributing to capital expenses, covering operating losses or environmental liabilities.
net smelter return - means the amount actually paid to the mine or mill owner from the sale of ore, minerals and other materials or concentrates mined and removed from mineral properties.
oz/ton - ounces per ton.
Preliminary Feasibility Study - is a comprehensive study of the viability of a mineral project that has advanced to a stage where the mining method, in the case of underground mining, or the pit configuration, in the case of an open pit, has been established and an effective method of mineral processing has been determined, and includes a financial analysis based on reasonable assumptions of technical, engineering, legal, operating, economic, social, and environmental factors and the evaluation of other relevant factors which are sufficient for a Qualified Person, acting reasonably, to determine if all or part of the Mineral Resource may be classified as a Mineral Reserve. This definition is from the Canadian Institute of Mining, Metallurgy and Petroleum Standards on Mineral Resources and Mineral Reserves adopted on December 11, 2005.
Probable Mineral Reserve - is the economically mineable part of an Indicated and, in some circumstances, a Measured Mineral Resource demonstrated by at least a Preliminary Feasibility Study. This study must include adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified. This definition is from the Canadian Institute of Mining, Metallurgy and Petroleum Standards on Mineral Resources and Mineral Reserves adopted on December 11, 2005.
Proven Mineral Reserve - is the economically mineable part of a Measured Mineral Resource demonstrated by at least a Preliminary Feasibility Study. This study must include adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that economic extraction is justified. This definition is from the Canadian Institute of Mining, Metallurgy and Petroleum Standards on Mineral Resources and Mineral Reserves adopted on December 11, 2005.
Qualified Person - means an individual who is an engineer or geoscientist with at least five years of experience in mineral exploration, mine development or operation or mineral project assessment, or any combination of these; has experience relevant to the subject matter of the mineral project and the technical report; and is a member or licensee in good standing of a professional association.
sedimentary - - a rock formed from cemented or compacted sediments.
sediments - - are composed of the debris resulting from the weathering and breakup of other rocks that have been deposited by or carried to the oceans by rivers, or left over from glacial erosion or sometimes from wind action.
sulphide - a mineral compound characterized by the linkage of sulphur with a metal.
veins - the mineral deposits that are found filling openings in rocks created by faults or replacing rocks on either side of faults.
All disclosure about our exploration properties in this Annual Report conforms to the standards of United States Securities and Exchange Commission Industry Guide 7, Description of Property by Issuers Engaged or to be Engaged in Significant Mining Operations, other than disclosure of “Mineral Resources”, “Measured Mineral Resources”, “Indicated Mineral Resources” and “Inferred Mineral Resources”, which are Canadian geological and mining terms as defined in accordance with Canadian National Instrument 43-101 under the guidelines set out in the CIM Standards.
In this Annual Report references to “Canadian National Instrument 43-101” are references to National Instrument 43-101, Standards of Disclosure for Mineral Projects, of the Canadian Securities Administrators and references to “CIM Standards” are references to Canadian Institute of Mining, Metallurgy and Petroleum (the “CIM”) Standards on Mineral Resources and Mineral Reserves, adopted by the CIM Council on December 11, 2005 as may be amended from time to time by the CIM.
Cautionary Note to U.S. Investors concerning estimates of Measured Mineral Resources and Indicated Mineral Resources.
This Annual Report uses the terms “Measured Mineral Resource” and “Indicated Mineral Resource.” We advise U.S. investors that while such terms are recognized and permitted under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize them. U.S. investors are cautioned not to assume that any part or all of the Mineral Resources in these categories will ever be converted into Mineral Reserves.
Cautionary Note to U.S. Investors concerning estimates of Inferred Mineral Resources.
This Annual Report uses the term “Inferred Mineral Resources.” We advise U.S. investors that while such term is recognized and permitted under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. “Inferred Mineral Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not generally form the basis of feasibility or other economic studies. U.S. investors are cautioned not to assume that any part or all of an Inferred Mineral Resource exists, or is economically or legally mineable.
PART I
| Identity of Directors, Senior Management and Advisers |
This Form 20-F is being filed as an annual report under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and, as such, there is no requirement to provide any information under this item.
This Form 20-F is being filed as an annual report under the Exchange Act, and, as such, there is no requirement to provide any information under this item.
This Form 20-F is being filed as an annual report under the Exchange Act, and, as such, there is no requirement to provide any information under this item.
| Offer Statistics and Expected Timetable |
This Form 20-F is being filed as an annual report under the Exchange Act, and, as such, there is no requirement to provide any information under this item.
| | A. | Selected Financial Data |
The following table summarizes certain of our selected financial data. This information should be read in conjunction with the more detailed financial statements included in this Annual Report.
Table No. 1
Selected Financial Data
(expressed in thousands of Canadian dollars, except per share and number of shares data)
| | Year ended Jul 31, 2008 | Year ended Jul 31, 2007 | Year ended Jul 31, 2006 | Year ended Jul 31, 2005 | Year ended Jul 31, 2004 |
| 1.Revenues | Nil | Nil | Nil | Nil | Nil |
| 2.Loss for year* | (3,595,000) | (872,000) | (336,000) | (1,494,000) | (1,270,000) |
| 3.Loss per common share* | (0.07) | (0.02) | (0.01) | (0.05) | (0.06) |
| 4.Total assets | 22,680,000 | 5,891,000 | 4,071,000 | 2,326,000 | 3,458,000 |
| 5.Long term obligations | Nil | Nil | Nil | Nil | Nil |
| 6.Capital stock | 24,365,000 | 15,539,000 | 12,725,000 | 11,340,000 | 11,267,000 |
| 7.Cash dividends per common share | Nil | Nil | Nil | Nil | Nil |
| 8.Number of shares | 56,748,056 | 48,810,056 | 40,327,806 | 29,442,306 | 29,142,306 |
* All of our operations are continuing |
The selected financial data is presented in Table 1 above and in the financial statements in accordance with generally accepted accounting principles (“GAAP”) prevailing in Canada as of the dates shown.
The selected financial data under U.S. GAAP for the above periods is indicated below in Table 2:
Table No. 2
Selected Financial Data
(expressed in thousands of Canadian dollars, except per and number of shares data)
| | Year ended Jul 31, 2008 | Year ended Jul 31, 2007 | Year ended Jul 31, 2006 | Year ended Jul 31, 2005* | Year ended Jul 31, 2004 |
| 1.Revenues | Nil | Nil | Nil | Nil | Nil |
| 2.Loss for year* | (13,360,000) | (2,045,000) | (932,000) | (1,409,000) | (1,519,000) |
| 3.Loss per common share* | (0.25) | (0.05) | (0.03) | (0.05) | (0.07) |
| 4.Total assets | 8,638,000 | 2,306,000 | 1,676,000 | 610,000 | 1,734,000 |
| 5.Long term obligations | Nil | Nil | Nil | Nil | Nil |
| 6.Capital stock | 24,365,000 | 15,539,000 | 12,725,000 | 11,340,000 | 11,267,000 |
| 7.Cash dividends per common share | Nil | Nil | Nil | Nil | Nil |
| 8.Number of shares | 56,748,056 | 48,810,056 | 40,327,806 | 29,442,306 | 29,142,306 |
*Certain comparative figures have been restated - see note 14 to the July 31, 2006 financial statements |
Reference should be made to note 15 to the financial statements for a description of material differences between Canadian and U.S. GAAP.
U.S./Canadian Dollar Exchange Rates
In this Annual Report, unless otherwise specified, all dollar amounts are expressed in Canadian dollars (Cdn$). The Government of Canada permits a floating exchange rate to determine the value of the Canadian dollar against the U.S. dollar (US$). In this Annual Report all references to “$” and “Cdn$” refer to Canadian Dollars and all references to “US$” refer to United States Dollars.
Table No. 3 below sets out the rate of exchange for the Canadian dollar at July 31 2008, July 31, 2007, July 31, 2006, July 31, 2005 and July 31, 2004, the average rates for the period and the range of high and low rates for the period. Table No. 4 sets out the high and low rates of exchange for the Canadian dollar for each month during the previous six months.
For purposes of these tables, the rate of exchange means the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York. The tables set out the number of Canadian dollars required under that formula to buy one U.S. dollar. The average rate in Table No. 3 means the average of the exchange rates on the last day of each month during the period.
Table No. 3
U.S. Dollar/Canadian Dollar Exchange Rates for Five Most Recent Financial Years
| | Average | High | Low | Close |
| Fiscal Year Ended July 31, 2008 | 1.01 | 1.08 | 0.92 | 1.03 |
| Fiscal Year Ended July 31, 2007 | 1.13 | 1.18 | 1.04 | 1.07 |
| Fiscal Year Ended July 31, 2006 | 1.16 | 1.22 | 1.10 | 1.13 |
| Fiscal Year Ended July 31, 2005 | 1.24 | 1.33 | 1.18 | 1.23 |
| Fiscal Year Ended July 31, 2004 | 1.33 | 1.40 | 1.27 | 1.33 |
Table No. 4
U.S. Dollar/Canadian Dollar Exchange Rates for Previous Six Months
| | July | August | September | October | November | December |
High | 1.03 | 1.07 | 1.08 | 1.30 | 1.29 | 1.30 |
Low | 1.00 | 1.03 | 1.03 | 1.00 | 1.15 | 1.24 |
On January 26, 2009, the exchange rate of Canadian dollars into United States dollars, based upon the noon buying rate in New York City for cable transfers payable in Canadian dollars as certified for customs purposes by the Federal Reserve Board, was US $1.00 equals Cdn $1.2204.
This Form 20-F is being filed as an annual report under the Exchange Act, and, as such, there is no requirement to provide any information under this item.
This Form 20-F is being filed as an annual report under the Exchange Act, and, as such, there is no requirement to provide any information under this item.
Our exploration programs may not result in a commercial mining operation.
Mineral exploration involves significant risk because few properties that are explored contain bodies of ore that would be commercially economic to develop into producing mines. Our mineral properties are without a known body of commercial ore and our proposed programs are an exploratory search for ore. We cannot provide any assurance that our current exploration programs will result in any commercial mining operation. If the exploration programs do not result in the discovery of commercial ore, we will be required to acquire additional properties and write-off all of our investments in our existing properties.
We may not have sufficient funds to complete further exploration programs.
We have limited financial resources (working capital of approximately $5,825,000 at July 31, 2008), do not generate operating revenue, and must finance our exploration activity by other means, including financing through joint ventures, debt financing or equity financing. We cannot provide any assurance that additional funding will be available for further exploration of our projects or to fulfil our anticipated obligations under our existing property agreements. If we fail to obtain additional financing, we will have to delay or cancel further exploration of our properties, and we could lose all of our interest in our properties.
We do not have Proven Mineral Reserves or Probable Mineral Reserves.
We have not established the presence of any Proven Mineral Reserves or Probable Mineral Reserves (as such terms are defined in National Instrument 43-101 of the Canadian Securities Administrators) at any of our mineral properties. We cannot provide any assurance that future feasibility studies will establish Proven Mineral Reserves or Probable Mineral Reserves at our properties. The failure to establish Proven Mineral Reserves or Probable Mineral Reserves could restrict our ability to successfully implement our strategies for long-term growth.
We have a history of losses and expect to incur losses for the foreseeable future.
We have incurred losses during each of the following periods and expect to incur losses for the foreseeable future:
| | · | $3,595,000 for the year ended July 31, 2008; |
| | · | $872,000 for the year ended July 31, 2007: |
| | · | $336,000 for the year ended July 31, 2006; |
| | · | $1,494,000 for the year ended July 31, 2005; and |
| | · | $1,270,000 for the year ended July 31, 2004. |
As of July 31, 2008, we had an accumulated deficit of $14,510,000. We expect to continue to incur losses unless and until such time as one or more of our properties enter into commercial production and generate sufficient revenues to fund our continuing operations. If our exploration programs successfully locate an economic ore body, we will be subject to additional risks associated with mining including those set out in this Item 3.D - “Risk Factors” under the heading “We have no revenue from operations and no ongoing mining operations of any kind.”
Factors beyond our control may determine whether any mineral deposits we discover are sufficiently economic to be developed into a mine.
The determination of whether our mineral deposits are economic is affected by numerous factors beyond our control. These factors include:
| | · | the metallurgy of the mineralization forming the mineral deposit; |
| | · | market fluctuations for precious metals; |
| | · | the proximity and capacity of natural resource markets and processing equipment; and |
| | · | government regulations governing prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection |
We have no revenue from operations and no ongoing mining operations of any kind.
We are a mineral exploration company and have no revenues from operations and no ongoing mining operations of any kind. Our properties are in the exploration stage, and we have not defined or delineated any proven or probable reserves on any of our properties. If our exploration programs successfully locate an economic ore body, we will be subject to additional risks associated with mining:
| | · | We will require additional funds to place the ore body into commercial production. Substantial expenditures will be required to: |
| | o | establish ore reserves through drilling; |
| | o | develop metallurgical processes to extract the metals from the ore; and |
| | o | construct the mining and processing facilities at any site chosen for mining. |
The sources of external financing that we may use for these purposes include public or private offerings of debt, convertible notes and equity. In addition, we may enter into one or more strategic alliances and may utilize one or a combination of all these alternatives. We cannot provide any assurance that the financing alternative chosen by us will be available on acceptable terms, or at all. If additional financing is not available, we may have to postpone the development of, or sell, the property.
| | · | The majority of our property interests are not located in developed areas and as a result may not be served by appropriate: |
| | o | water and power supply; and |
| | o | other support infrastructure. |
These items are often needed for development of a commercial mine. If we cannot procure or develop roads, water, power and other infrastructure at a reasonable cost, it may not be economic to develop properties, where our exploration has otherwise been successful, into a commercial mining operation.
| | · | In making determinations about whether to proceed to the next stage of development, we must rely upon estimated calculations as to the mineral reserves and grades of mineralization on our properties. Until ore is actually mined and processed, mineral reserves and grades of mineralization must be considered as estimates only. These estimates are imprecise and depend upon geological interpretation and statistical inferences drawn from drilling and sampling which may prove to be unreliable. We cannot provide any assurance that: |
| | o | these estimates will be accurate; |
| | o | resource or other mineralization figures will be accurate; or |
| | o | this mineralization can be mined or processed profitably. |
Any material changes in mineral reserve estimates and grades of mineralization will affect the economic viability of the placing of a property into production and a property’s return on capital.
| | · | Mining operations often encounter unpredictable risks and hazards that add expense or cause delay. These include: |
| | o | unusual or unexpected geological formations; |
| | o | metallurgical and other processing problems; |
| | o | periodic interruptions due to inclement or hazardous weather conditions; |
| | o | flooding, explosions, fire, rockbursts, cave-ins, landslides, and; |
| | o | inability to obtain suitable or adequate machinery, equipment or labour. |
| | · | We may become subject to liabilities in connection with: |
| | o | hazards against which we cannot insure against or which we may elect not to insure. |
The payment of these liabilities could require the use of financial resources that would otherwise be spent on mining operations.
| | · | Mining operations and exploration activities are subject to national and local laws and regulations governing: |
| | o | prospecting, development, mining and production; |
| | o | labour standards, occupational health and mine safety; |
| | o | waste disposal, toxic substances, land use and environmental protection. |
In order to comply, we may be required to make capital and operating expenditures or to close an operation until a particular problem is remedied. In addition, if our activities violate any such laws and regulations, we may be required to compensate those suffering loss or damage, and may be fined if convicted of an offence under such legislation.
| | · | Our profitability and long-term viability will depend, in large part, on the market price of gold and other metals. The market prices for these metals are volatile and are affected by numerous factors beyond our control, including: |
| | o | global or regional consumption patterns; |
| | o | supply of, and demand for, gold and other metals; |
| | o | expectations for inflation; and |
| | o | political and economic conditions. |
We cannot predict the effect of these factors on metals prices.
| | · | In order to bring our mineral properties into production we will experience significant growth in our operations. We expect this growth to create new positions and responsibilities for management personnel and increase demands on our operating and financial systems. There can be no assurance that we will successfully meet these demands and effectively attract and retain additional qualified personnel to manage our anticipated growth. The failure to attract such qualified personnel to manage growth effectively could have a material adverse effect on our business, financial condition and results of operations. |
Our properties may be subject to uncertain title.
We cannot assure you that title to our properties will not be challenged. We own, lease or have under option, unpatented and patented mining claims, mineral claims or concessions which constitute our property holdings. The ownership and validity, or title, of unpatented mining claims and concessions are often uncertain and may be contested. We also may not have, or may not be able to obtain, all necessary surface rights to develop a property. We have not conducted surveys of all of the claims in which we hold direct or indirect interests. A successful claim contesting our title to a property will cause us to lose our rights to explore and, if warranted, develop that property. This could result in our not being compensated for our prior expenditures relating to the property.
We are subject to significant governmental regulations.
Our exploration activities are subject to extensive federal, state, provincial, territorial and local laws and regulations governing various matters, including:
| | · | environmental protection; |
| | · | management and use of toxic substances and explosives; |
| | · | management of natural resources; |
| | · | exploration of mineral properties; |
| | · | labor standards and occupational health and safety, including mine safety; and |
| | · | historic and cultural preservation. |
Failure to comply with applicable laws and regulations may result in civil or criminal fines or penalties or enforcement actions, including orders issued by regulatory or judicial authorities enjoining or curtailing operations or requiring corrective measures, installation of additional equipment or remedial actions, any of which could result in significant expenditures. We may also be required to compensate private parties suffering loss or damage by reason of a breach of such laws, regulations or permitting requirements. It is also possible that future laws and regulations, or more stringent enforcement of current laws and regulations by governmental authorities, could cause additional expense, capital expenditures, restrictions on or suspensions of our activities and delays in the exploration of our properties.
Land reclamation requirements for our exploration properties may be burdensome.
Although variable depending on location and the governing authority, land reclamation requirements are generally imposed on mineral exploration companies (as well as companies with mining operations) in order to minimize long term effects of land disturbance. Reclamation may include requirements to:
| | · | control dispersion of potentially deleterious effluents; and |
| | · | reasonably re-establish pre-disturbance land forms and vegetation. |
In order to carry out reclamation obligations imposed on us in connection with our mineral exploration, we must allocate financial resources that might otherwise be spent on further exploration programs.
Political or economic instability or unexpected regulatory change in the countries where our properties are located could adversely affect our business.
Certain of our properties are located in countries, provinces and states more likely to be subject to political and economic instability, or unexpected legislative change, than is usually the case in certain other countries, provinces and states. Our mineral exploration activities could be adversely affected by:
| | · | political instability and violence; |
| | · | war and civil disturbance; |
| | · | expropriation or nationalization; |
| | · | changing fiscal regimes; |
| | · | fluctuations in currency exchange rates; |
| | · | high rates of inflation; |
| | · | underdeveloped industrial and economic infrastructure; and |
| | · | unenforceability of contractual rights; |
any of which may adversely affect our business in that country.
We may be adversely affected by fluctuations in foreign exchange rates.
We maintain our bank accounts mainly in Canadian dollars. Any appreciation in the currency of Mexico or other countries where we conduct exploration activities against the Canadian dollar will increase our costs of carrying out operations in such countries. In addition, any decrease in the U.S. dollar against the Canadian dollar will result in a loss on our books to the extent we hold funds in U.S. dollars.
We face industry competition in the acquisition of exploration properties and the recruitment and retention of qualified personnel.
We compete with other exploration companies, many of which have greater financial resources than us or are further in their development, for the acquisition of mineral claims, leases and other mineral interests as well as for the recruitment and retention of qualified employees and other personnel. If we require and are unsuccessful in acquiring additional mineral properties or personnel, we will not be able to grow at the rate we desire or at all.
Table of Contents
Some of our directors and officers have conflicts of interest as a result of their involvement with other natural resource companies.
Some our directors and officers are directors or officers of other natural resource or mining-related companies and these associations may give rise to conflicts of interest from time to time. As a result of these conflicts of interest, we may miss the opportunity to participate in certain transactions, which may have a material, adverse effect on our financial position.
Enforcement of judgments or bringing actions outside the United States against us and our directors and officers may be difficult.
We are organized under the law of and headquartered in British Columbia, Canada, and the majority of our directors and officers are not citizens or residents of the United States. In addition, a substantial part of our assets are located outside the United States and Canada. As a result, it may be difficult or impossible for an investor to (a) enforce in courts outside the United States judgments against us and a majority of our directors and officers, obtained in United States’ courts based upon the civil liability provisions of United States’ federal securities laws or (b) bring in courts outside the United States an original action against us and our directors and officers to enforce liabilities based upon such United States’ securities laws.
We may experience difficulty attracting and retaining qualified management to grow our business, which could have a material adverse effect on our business and financial condition.
We are dependent on the services of key executives including our Chief Executive Officer, President and other highly skilled and experienced executives and personnel focused on advancing our corporate objectives as well as the identification of new opportunities for growth and funding. Due to our relatively small size, the loss of these persons or our inability to attract and retain additional highly skilled employees required for our activities may have a material adverse effect on our business and financial condition.
We may fail to achieve and maintain adequate internal control over financial reporting pursuant to the requirements of the Sarbanes-Oxley Act.
We documented and tested during our two most recent fiscal years our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act (“SOX”). SOX requires an annual assessment by management of the effectiveness of our internal control over financial reporting and, for fiscal years commencing with our fiscal year ended July 31, 2008, an attestation report by our independent auditors addressing the effectiveness of internal control over financial reporting. We may fail to achieve and maintain the adequacy of our internal control over financial reporting as such standards are modified, supplemented, or amended from time to time, and we may not be able to ensure that we can conclude, on an ongoing basis, that we have effective internal control over financial reporting in accordance with Section 404 of SOX. Our failure to satisfy the requirements of Section 404 of SOX on an ongoing, timely basis could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the trading price or the market value of our securities. In addition, any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. Future acquisitions of companies, if any, may provide us with challenges in implementing the required processes, procedures and controls in our acquired operations. No evaluation can provide complete assurance that our internal control over financial reporting will detect or uncover all failures of persons within our Company to disclose material information otherwise required to be reported. The effectiveness of our processes, procedures and controls could also be limited by simple errors or faulty judgments. In addition, as we continue to expand, the challenges involved in implementing appropriate internal control over financial reporting will increase and will require that we continue to improve our internal control over financial reporting.
Under U.S. federal tax rules, we may be classified as a passive foreign investment company (a “PFIC”), which may result in special and generally unfavorable U.S. federal tax consequences to our U.S. shareholders.
As a non-U.S. corporation, we may be a PFIC depending on the percentage of our gross income which is “passive”, within the meaning of the U.S. Internal Revenue Code of 1986, as amended, or the percentage of our assets that produce or are held to produce passive income. We may have been a PFIC in our 2007 taxable year, and we may be a PFIC in subsequent taxable years. If we are a PFIC for any taxable year during a U.S. shareholder’s holding period in our common stock, such U.S. shareholder may be subject to increased U.S. federal income tax liability on the sale of common shares or on the receipt of dividends. See Item 10.E - “Taxation”. The PFIC rules are complex and may be unfamiliar to U.S. shareholders. Accordingly, U.S. shareholders are urged to consult their own tax advisors concerning the application of the PFIC rules to their investment in our common shares.
| | A. | History and Development of the Company |
General Background
We were incorporated under the laws of the Province of British Columbia, Canada on February 15, 1967 under the name Colby Mines Ltd. (N.P.L.). On January 11, 1977, we changed our name to Colby Mines Ltd. and then to Colby Resources Corp. on February 11, 1980. On October 14, 1999, we changed our name to International Colby Resources Corporation and consolidated our shares on a five for one basis. On March 15, 2000, we changed our name to “Canplats Resources Corporation”. On December 15, 2005, our shareholders adopted new articles as required by the then new British Columbia Business Corporations Act and authorized an increase in our authorized capital from 100,000,000 common shares without par value to an unlimited number of common shares without par value.
Our head office and registered and records office is located at: Suite 1510 - 999 West Hastings Street, Vancouver, British Columbia, Canada V6C 2W2. The contact person is R.E. Gordon Davis, Chairman and Chief Executive Officer. The telephone number is (604) 683-8218; the facsimile number is (604) 683-8350. We do not have a registered agent in the United States.
In October 2007, we announced the acquisition by staking of the Camino Rojo Project, located in the state of Zacatecas, Mexico. See Item 4.B - “Business Overview”.
In November 2008, we announced an initial resource estimate for the Camino Rojo Project located in the state of Zacatecas, Mexico. See Item 4.D - “Property, Plant and Equipment”.
The information contained in this Annual Report is current as at July 31, 2008, other than where a different date is specified.
All disclosure about our exploration properties in this Annual Report conforms to the standards of United States Securities and Exchange Commission Industry Guide 7, Description of Property by Issuers Engaged or to be Engaged in Significant Mining Operations, other than disclosure of “Mineral Resources”, “Measured Mineral Resources”, “Indicated Mineral Resources” and “Inferred Mineral Resources”, which are geological and mining terms as defined in accordance with Canadian National Instrument 43-101 under the guidelines set out in the CIM Standards. U.S. investors in particular are advised to read carefully the definitions of these terms as well as the explanatory and cautionary notes in the Glossary, and the cautionary notes below, regarding use of these terms.
Our primary business focus is the exploration for gold in Mexico. We are an exploration stage company and none of our properties are currently beyond the advanced exploration stage. There is no assurance that a commercially viable mineral deposit exists on any of our properties and further exploration work may be required before a final evaluation as to the economic and legal feasibility is determined. For further information, see Item 3.D - “Risk Factors”.
We currently have one principal mineral property, the Camino Rojo Project, located in Zacatecas State, Mexico. We expect to continue to expend the majority of our exploration efforts on the Camino Rojo Project in 2009. We have six secondary properties, all of which are located in Mexico: Rodeo Gold Prospect, Yerbabuena Gold Prospect, El Rincon Gold Prospect, Mecatona Gold Prospect, Maijoma Prospect and El Alamo Prospect. During 2009, we will be assessing our secondary properties to determine whether additional exploration is warranted.
Camino Rojo Project
In July 2007, we acquired, by staking, the Camino Rojo Project in Zacatecas State, Mexico, subject to the payment of a finder’s fee to LCI. Under the terms of the agreement with LCI, we are required to pay:
| | · | LCI US$5,000 on acquisition of the property (paid); |
| | · | every six months, the greater of US$5,000 and 2% of direct exploration expenditures made for the benefit of the property; and |
| | · | on commencement of commercial production on the property, a 0.25% net smelter return royalty; |
provided that the maximum amount payable to LCI for the Camino Rojo Project is US$2,000,000.
We currently hold a 100% interest in the Camino Rojo Project, subject to making the above described payments to LCI.
Rodeo Gold Prospect
In February 2003, we acquired by staking a 100% interest in the Rodeo gold prospect located 150 kilometres north of Durango, Mexico, subject to the payment of a finder’s fee to La Cuesta International, Inc. (“LCI”). Under an agreement dated February 20, 2003, we are required to pay LCI a finder’s fee in respect of our acquisition of the Rodeo prospect of:
| | · | US $10,000 on signing the agreement (paid); |
| | · | every six months commencing June 11, 2003, the greater of US $5,000 and 2% of direct exploration expenditures made for the benefit of the property; |
| | · | on commencement of commercial production on the property, a 0.25% net smelter returns royalty (net smelter returns (“NSR”) means the amount actually paid to the mine or mill owner from the sale of ore, minerals and other materials or concentrates mined and removed from mineral properties. This type of royalty provides cash flow that is free of any operating or capital costs and environmental liabilities.); |
provided that the maximum amount payable to LCI in respect of the finder’s fee for the Rodeo prospect is US $500,000.
In October 2003, we granted to Silver Standard Resources Inc. (“Silver Standard”) a right of first offer on all properties referred to us by Silver Standard. Under the terms of the right of first offer, if we intend to dispose of an interest in any referred property, we must give Silver Standard the first opportunity to acquire the interest. Our Rodeo property is subject to the right of first offer.
We currently hold a 100% interest in the Rodeo prospect, subject to making the above described payments to LCI and the right of first offer granted to Silver Standard.
Yerbabuena Gold Prospect
Under an agreement dated July 11, 2003, we acquired from LCI a lease with option to purchase a 100% interest in the Yerbabuena gold prospect located approximately 150 kilometres north-northwest of Durango, Mexico. In order to maintain the lease in good standing, we are required to pay LCI:
| | · | US $7,500 on signing the agreement (paid); |
| | · | US $5,000 on or before September 1, 2003 (paid); |
| | · | US $7,500 on or before March 1, 2004 (paid); |
| | · | US $7,500 on or before September 1, 2004 (paid); |
| | · | US $10,000 on or before March 1, 2005 (paid); |
| | · | US $10,000 on or before September 1, 2005 (paid); |
| | · | US $15,000 every six months thereafter commencing March 1, 2006 (paid); |
| | · | on commencement of commercial production on the property, the greater of US $25,000 per quarter and a 2% NSR; |
We can purchase the property from LCI at anytime on payment of US $2,000,000, less all lease payments described above.
Our Yerbabuena prospect is subject to the right of first offer granted to Silver Standard.
Under the terms of the lease with option to purchase, we have the exclusive right to explore and mine the Yerbabuena prospect, subject to making the above described payments to LCI and the right of first offer granted to Silver Standard.
El Rincon Gold Prospect
In May 2004, we acquired by staking a 100% interest in the El Rincon gold prospect located in Durango State, Mexico, subject to the payment of a finder’s fee to LCI and the back-in right to Silver Standard. Under an agreement dated August 24, 2004, we are required to pay LCI a finder’s fee in respect of our acquisition of the El Rincon prospect of:
| | · | US $5,000 on signing the agreement (paid); |
| | · | every six months commencing May 3, 2004, the greater of US $5,000 and 2% of direct exploration expenditures made for the benefit of the property; |
| | · | on commencement of commercial production on the property, a 0.25% NSR; |
provided that the maximum amount payable to LCI in respect of the finder’s fee for the El Rincon prospect is US $2,000,000.
Effective March 24, 2004, we granted Silver Standard a one-time right to acquire a 51% interest in any property we acquire that was referred to us by Silver Standard, which is known as the “back-in right”. This one-time right to acquire replaces the right of first offer, granted in 2003, for properties acquired after March 24, 2004. In order to exercise the back-in right in respect of any property, Silver Standard must (a) exercise the back-in right prior to, or on, our incurring US $1.5 million in exploration expenditures on the property and (b) incur exploration expenditures equal to twice the acquisition and exploration expenditures we have incurred on the property at the time of exercise. The El Rincon prospect is subject to the back-in right granted to Silver Standard.
We currently hold a 100% interest in the El Rincon gold prospect, subject to making the above described payments to LCI and the back-in right granted to Silver Standard.
Mecatona Gold Prospect
In December 2005, we acquired the Mecatona Gold Prospect consisting of:
| | · | an option to acquire 12 claims comprising 65.7301 hectares with the following payments: |
| | o | US $5,000 on signing the agreement (paid); |
| | o | US $10,000 on the first anniversary of signing the agreement (paid); |
| | o | US $20,000 on the second anniversary of signing the agreement (paid); |
| | o | US $215,000 on the third anniversary of signing the agreement; and |
| | o | a 1% NSR capped at US $250,000; |
| | · | an option to acquire one claim comprising 29.5896 hectares with the following payments: |
| | o | US $10,000 on signing the agreement (paid); |
| | o | US $20,000 on the first anniversary of signing the agreement (paid); |
| | o | US $30,000 on the second anniversary of signing the agreement (paid); |
| | o | US $50,000 on the third anniversary of signing the agreement; |
| | o | US $90,000 on the fourth anniversary of signing the agreement; and |
| | o | US $800,000 on the fifth anniversary of signing the agreement; and |
| | · | the acquisition of two claims covering approximately 4,000 hectares for staking costs. |
We are required to pay LCI a finder’s fee in respect of our acquisition of the Mecatona prospect of:
| | · | US $5,000 on signing the agreement (paid); |
| | · | every six months the greater of US $5,000 and 2% of direct exploration expenditures made for the benefit of the property; |
| | · | on commencement of commercial production on the property, a 0.25% NSR; |
provided that the maximum amount payable to LCI in respect of the finder’s fee for the Mecatona Gold Prospect is US $2,000,000.
In November 2008, we terminated the option to acquire 12 claims comprising 65.7301 hectares and the option to acquire one claim comprising of 29.5896 hectares. The Mecatona Gold Prospect now comprises two claims covering approximately 4,000 hectares.
The Mecatona Gold Prospect is subject to the back-in right granted to Silver Standard (See Item 4.B - “El Rincon Gold Prospect”).
We currently hold a 100% interest in the Mecatona Gold Prospect, subject to making the above described payments to LCI and the back-in right granted to Silver Standard.
Maijoma Prospect
In May 2006, we acquired by staking a 100% interest in the Maijoma Prospect located in Chihuahua State, Mexico, subject to the payment of a finder’s fee to LCI. Under an agreement dated January 1, 2006, we are required to pay LCI a finder’s fee in respect of our acquisition of the Maijoma Prospect of:
| | · | US $5,000 on signing the agreement (paid); |
| | · | every six months commencing October 28 2006, the greater of US $5,000 and 2% of direct exploration expenditures made for the benefit of the property; |
| | · | on commencement of commercial production on the property, a 0.25% NSR; |
provided that the maximum amount payable to LCI in respect of the finder’s fee for the Maijoma Prospect is US $2,000,000.
We currently hold a 100% interest in the Maijoma Prospect, subject to making the above described payments to LCI.
El Alamo Prospect
In December 2006, we acquired by staking a 100% interest in the El Alamo Prospect located in Chihuahua State, Mexico, subject to the payment of a finder’s fee to LCI. Under the terms of the agreement with LCI, we are required to pay:
| | · | LCI US$5,000 on acquisition of the property (paid); |
| | · | every six months, the greater of US$5,000 and 2% of direct exploration expenditures made for the benefit of the property; and |
| | · | on commencement of commercial production on the property, a 0.25% net smelter return royalty; |
provided that the maximum amount payable to LCI for the El Alamo Prospect is US$2,000,000.
We currently hold a 100% interest in the El Alamo Prospect, subject to making the above described payments to LCI.
We have one subsidiary: Canplats de Mexico S.A. de C.V., which was incorporated under the laws of Mexico on January 5, 2004. We hold a 100% beneficial interest in Canplats de Mexico S.A. de C.V.
Mexican Gold Prospects
Camino Rojo Project
Location, Access and Infrastructure
The Camino Rojo Project is located approximately 50 kilometres southeast of Goldcorp Inc.’s Peñasquito mine in the northeast corner of the State of Zacatecas, Mexico. The property is accessed by a series of gravel roads from paved Highway 54 and a high tension power line crosses the project. See the following Camino Rojo Property Location Map.
Land Tenure
The Camino Rojo Project consists of six claims covering approximately 340,872 hectares (~1,316 square miles). In order to maintain our rights to these claims, we are required to pay mining taxes to the Mexican government.
History
The Represa Zone, the main zone of mineralization outlined to date at the Camino Rojo Project was discovered in a small quarry dug for road aggregate. The zone was defined by a backhoe test-pitting program that included pits dug at 50-meter intervals along a 700 meter-long, east-west oriented base line and three north-south survey lines ranging from 400 meters to 650 meters in length. The pits were between 1.5 meters and 3.0+ meters deep. Generally, two or more representative samples were collected from bedrock in each pit. Values for individual samples ranged up to 6.18 grams of gold per tonne, 1.24% zinc and 1.46% lead.
Based on a cut-off grade of 0.20 grams of gold per tonne, pit sampling defined an area measuring 300 meters by 500 meters with the following average assay values (based on an arithmetic average of pit samples collected within the zone): gold: 0.65 grams/tonne; silver: 10.7 grams/tonne; zinc: 0.21%; and lead: 0.26%. Within this zone is a higher grade core measuring 175 meters by 275 meters with the following average assay values: gold: 1.00 gram/tonne; silver: 11.3 grams/tonne; zinc: 0.18%; and lead: 0.34%.
Geology
The wholly-owned claims are underlain by sub-horizontal, calcareous siltstones and sandstones of the Caracol Formation. Although most of the claims are covered by overburden, several small volcanic centers are located along a structural lineament 8 to 10 kilometres southeast of the main zone of mineralization on the property, known as the Represa Zone.
The mineralization is hosted by siltstones and sandstones which are bleached, iron-stained and locally brecciated, silicified and cut by quartz veinlets. The area is generally covered with overburden ranging from 0.25 meters to in excess of three meters in thickness. The Represa Zone is open to the east, west and to depth.
Status
To date, a total of 122 diamond and reverse circulation drill holes totalling 39,727 meters have been completed at the Camino Rojo Project. Metallurgical testwork is currently underway and a preliminary assessment of the economics of the project is expected to be commenced later in the year.
Resource Estimate
As of the date of this report, the Camino Rojo Project is without known Mineral Reserves, and any activity carried out on the property is exploratory in nature.
J. Douglas Blanchflower, P. Geo, of Aldergrove, British Columbia completed the following resource estimate for the Camino Rojo Project in accordance with the standards of Canadian National Instrument 43-101 and the definitions of the CIM Standards, in a report dated January 5, 2009.
Cautionary Note to U.S. Investors concerning estimates of Measured Mineral Resources.
Table No. 5 below uses the term “Measured Mineral Resource.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. U.S. investors are cautioned not to assume that any part or all of the mineral deposits in this category will ever be converted into reserves.
Table No. 5
Canplats Resources Corporation
Camino Rojo Project - Represa
Measured Mineral Resource Estimate
(0.2 g/t Gold for oxide and transitional resources and
0.3 g/t Gold for sulphide resources - Cutoff Grade)
Classification | Tonnes (millions) | Gold Grade (g/t) | Silver Grade (g/t) | Zinc (%) | Lead (%) |
Measured | 9.58 | 0.76 | 13.40 | 0.34 | 0.29 |
Cautionary Note to U.S. Investors concerning estimates of Indicated Mineral Resources.
Table No. 6 below uses the term “Indicated Mineral Resource.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. U.S. investors are cautioned not to assume that any part or all of the mineral deposits in this category will ever be converted into reserves.
Table No. 6
Canplats Resources Corporation
Camino Rojo Project - Represa
Indicated Mineral Resource Estimate
(0.2 g/t Gold for oxide and transitional resources and
0.3 g/t Gold for sulphide resources - Cutoff Grade)
Classification | Tonnes (millions) | Gold Grade (g/t) | Silver Grade (g/t) | Zinc (%) | Lead (%) |
Indicated | 153.81 | 0.65 | 11.44 | 0.37 | 0.18 |
Cautionary Note to U.S. Investors concerning estimates of Inferred Mineral Resources.
Table No. 7 below uses the term “Inferred Mineral Resources.” We advise U.S. investors that while such term is recognized and required under Canadian regulations, the SEC does not recognize it. “Inferred Mineral Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies. U.S. investors are cautioned not to assume that any part or all of an Inferred Mineral Resource exists, or is economically or legally mineable.
Table No. 7
Canplats Resources Corporation
Camino Rojo Project - Represa
Inferred Mineral Resource Estimate
(0.2 g/t Gold for oxide and transitional resources and
0.3 g/t Gold for sulphide resources - Cutoff Grade)
Classification | Tonnes (millions) | Gold Grade (g/t) | Silver Grade (g/t) | Zinc (%) | Lead (%) |
Inferred | 31.03 | 0.56 | 7.63 | 0.31 | 0.10 |
Rodeo Gold Prospect
The Rodeo gold prospect is located approximately 150 kilometres north of Durango, Mexico and is comprised of two mineral claims covering an area of 13,820-hectare (53.4 square miles). The property is accessed by paved highway.
The Rodeo property is located along a major northwest-trending fault system, which places volcanic rocks against limestones and shales.
The Rodeo prospect was explored in the 1990s by Monarch Resources de Mexico, S.A. de C.V., whose objective was to locate near-surface, bulk tonnage gold mineralization. Monarch completed extensive mapping, selective and grid rock chip sampling, and reverse circulation drilling. Sampling demonstrated highly anomalous disseminated and vein-controlled values in gold, silver, arsenic, antimony and mercury. Strong geochemical anomalies were noted in multiple target areas over significant lengths and widths.
In January and February 2004, we carried out a Phase 1 drill program at Rodeo of reverse circulation drilling (a rotary percussion drill in which the drilling mud and cuttings return to the surface through the drill pipe). Results of the program ranged from 0.71 grams per tonne of gold over 10 metres (0.02 ounces per ton of gold over 32.8 feet) to 5.94 grams per tonne of gold over 27 metres (0.17 ounces of gold per ton over 88.6). In September 2004, we completed a Phase 2 drill program at Rodeo, with results ranging from holes with no significant values of gold to 2.04 grams of gold per tonne over 29 metres (0.06 ounces of gold per ton over 95.1 feet). During 2007, a follow up drill program was completed without encountering significant results. In the three programs, a total of 3,291 meters in 25 holes were drilled.
Yerbabuena Gold Prospect
The Yerbabuena gold prospect is located approximately 150 kilometres north-northwest of Durango, Mexico and is comprised of three mineral claims totaling 7,610 hectares (29.4 square miles). The property is accessed by gravel road.
The Yerbabuena prospect is located along a major northwest-trending fault system, which places volcanic rocks against limestones and shales. The property covers four distinct areas of mineralization.
In May 2005, we completed a Phase 1 drill program at Yerbabuena consisting of 12 reverse circulation drill holes totalling 1,882 meters and three diamond drill holes (a type of rotary drill in which the cutting is done by abrasion using diamonds embedded in a matrix with the drill cutting a core of rock which is recovered in long cylindrical sections) totalling 608 meters. Results of the program ranged from no significant values in certain drill holes to 0.57 grams per tonne of gold over 31.5 metres (0.02 ounces of gold per ton over 103 feet). We are currently assessing the property to determine whether follow up work is warranted.
El Rincon Gold Prospect
The El Rincon Gold Prospect is located approximately 100 kilometres north of Durango, Mexico and is comprised of one mineral claim totaling 13,300 hectares (51.4 square miles). The property is accessed by gravel road.
The El Rincon prospect is located along a northeast-trending structural corridor which hosts two nearby gold deposits. The property covers geophysical anomalies, for which mapping, sampling and detailed geophysics are recommended prior to drilling.
Mecatona Gold Prospect
The Mecatona Gold Prospect is located approximately 12 miles south of Parral, Mexico and is comprised of two claims covering approximately 15.4 square miles (4,000 hectares). The property is accessed by gravel road.
The Mecatona Gold Prospect now covers the perceived extensions of the principal veins of the Mecatona gold-silver district where historic mining activities focused on gold-silver production from epithermal veins measuring from one to five meters in thickness. In late 2005, a mapping and sampling program was completed to identify drill sites. In March 2006, a drill program comprised of 10 holes totalling 1,010 meters was completed that tested the Maria and Plateada veins on the Mecatona Gold Prospect. The best results from the drill program came from the Maria Vein where drilling intersected up to 2.4 grams of gold-equivalent per tonne over 42 meters (0.07 ounces of gold-equivalent per ton over 137.8 feet) from surface in hole MC-08. Drilling tested approximately 600 meters of strike length of the vein, which has been mapped over 2,000 meters. In November 2008, we terminated our option agreements that covered the area of historic mining activities. We are currently assessing the remainder of the property, that covers the perceived extensions of the principal veins of the historic mining activities, to determine whether a follow up drill program is warranted.
Maijoma Prospect
The Maijoma Prospect is located approximately 70 kilometres southeast of Ojinaga, Mexico and is comprised of one claim block covering approximately 48 square miles (12,500 hectares). The property is accessed by gravel road from paved Highway 67.
The prospect covers a large (+25 kilometres²) area of hydrothermal alteration within the lower volcanic sequence. This alteration is associated with iron-stained and locally silicified volcanic breccias, rhyolite-to-latite dikes and domes, and highly calcified intrusive rocks. Several small windows through the volcanic sequence have exposed intensely altered limestone and skarn with associated jasperoids, hematite, jarosite, sulphide casts and local gossans up to two meters thick. Exploration targets for the property include massive sulphide veins and replacement zones (mantos and chimneys) localized along structures peripheral to a variably skarned intrusive; and precious and base metals disseminated in the host sedimentary and volcanic rocks around the intrusive. An initial drill program has been recommended based on prospecting, geological mapping and a limited geophysical study; however, the program has been held in abeyance as we focus our financial and technical resources on the Camino Rojo Project.
El Alamo Prospect
The El Alamo Prospect is located 66 kilometres southeast of Presidio, Texas and 42 kilometres northeast of the Maijoma Prospect. We also hold a 100% interest in the Aqua Loca and Los Volcanes claims that cover the area between the ElAlamo Prospect and the Maijoma Prospect (located 42 kilometres to the southwest). The El Alamo Prospect is accessed by gravel road from paved Highway 67.
At El Alamo, a large area of variably-altered sediments and carbonates is enclosed by weakly-altered rhyolite volcanics. Several northwest-trending structures have been mapped and sampled over a strike length of 6 kilometres. Showings along the structure are marked by quartz veining, from 1 meter to 5 meters in width. The host rock has been altered to skarn and marble over varying widths of 5 meters to 25 meters from the vein. Samples along the vein generally assayed between 20 g/t silver and 260 g/t silver. An IP geophysical survey identified several anomalies at shallow to moderate depths which are closely associated with the structures. Further exploration of the El Alamo Prospect has been held in abeyance as we focus our financial and technical resources on the Camino Rojo Project.
Office Space
Under a Management Services Agreement with Silver Standard, we retained Silver Standard to provide us with general corporate management, accounting, administrative and technical services. For personnel, hourly rates charged are based on direct salary costs and benefits, as well as a factor for overhead costs, office equipment, usage, management services personnel, office space and furnishings. In July 2008, we agreed to lease our head office, 1510 - 999 West Hastings Street, for a six year term commencing in September 2008. Under the terms of the lease, we agreed to lease 2,209 square feet of office space at rates increasing from $77,315 in the first year to $88,360 in the sixth year. We have also agreed to pay our proportionate share of operating costs and property taxes over the term of the lease. On October 31, 2008, we gave notice of termination of our Management Services Agreement with Silver Standard. See Item 6D. - “Employees”. As of January 1, 2009, we have retained our own general corporate management, accounting and administrative and technical services staff. Certain Silver Standard personnel are continuing to provide us with services as we complete the transition to operating with our own staff.
| Operating and Financial Review and Prospects |
Management’s discussion and analysis is presented in relation to our financial statements, which statements are prepared in accordance with Canadian GAAP. Reference should be made to note 15 to our financial statements for a discussion of material differences from the amount presented to U.S. GAAP.
Year ended July 31, 2008 compared to year ended July 31, 2007.
During the fiscal year ended July 31, 2008, the Company incurred a loss of $3,595,000 ($0.07 per share) compared to a loss of $872,000 ($0.02 per share) for fiscal year ended July 31, 2007.
Total expenses for the year increased to $3,714,000 from the $931,000 recorded in the prior year. During the year, 2,815,000 (2007 - 2,040,000) stock options were granted to employees, directors and consultants. Stock-based compensation expense for the year was $2,689,000 (2007 - 562,000). The increase was attributed to amortization of the fair value of additional stock options granted during the current year, which increased in part as a result of the addition of management and consultants to advance the Camino Rojo project. Salaries expense was $277,000 compared to $61,000 in the prior year. The increase was also related to senior management added during the year. Without stock-based compensation expense, total expenses in the current year were $1,025,000, resulting in an increase of $656,000 in 2008 compared to 2007. Exploration expense decreased to $41,000 from $129,000 in the prior year as the Company reduced grass roots exploration and continued to focus on the Camino Rojo project after initial drilling results confirmed significant mineralization. The arrangement with G2 Consultants Corporation to provide investor relations services continued throughout fiscal 2008. Total investor relations costs for fiscal 2008 were $350,000 compared to $89,000 recorded in the prior year. Listing and filing fees of $18,000 (2007 - $10,000) increased in the current year due to financing activity. Professional fees of $134,000 (2007 - $34,000) increased in the current year due to accruals for higher audit fees and first year compliance with Bill-198 (Ontario) and Sarbanes-Oxley Act of 2002 (United States). Office costs of $139,000 (2007 - $14,000) increased in the current year due to the Company securing separate office space.
Interest income was $158,000 compared to $76,000 in the prior year. The increase in interest income was due to a higher cash balance on hand subsequent to the Company’s $15,750,000 private placement in February 2008. Foreign exchange gain for the year was $64,000 compared to a loss of $17,000 in the prior year. The foreign exchange gain reflects the fluctuation between the Canadian and US dollar exchange rates during the year. Write-down of mineral properties was $103,000 compared to $nil in the prior year. The write-down relates to the Mecatona property in Mexico after the Company determined to allow option agreements underlying a portion of the mineral claims that comprise the Mecatona property to lapse subsequent to year end.
Year ended July 31, 2007 compared to year ended July 31, 2006.
During the fiscal year ended July 31, 2007, the Company incurred a loss of $872,000 ($0.02 per share) compared to a loss of $336,000 ($0.01 per share) for fiscal year ended July 31, 2006.
Total expenses for the year increased to $931,000 from the $348,000 recorded in the prior year. During the year, 2,040,000 (2006 - nil) stock options were granted to employees, directors and consultants. Stock-based compensation expense for the year was $562,000 (2006 - nil). Without stock-based compensation expense, total expenses in the current year were $369,000, resulting in an increase of $21,000 in 2007 compared to 2006. Exploration expense decreased to $129,000 from $135,000 in the prior year. The arrangement with G2 Consultants Corporation to provide investor relations services continued throughout fiscal 2007. Investor relations costs for fiscal 2007 were $89,000 compared to $88,000 recorded in the prior year and of the amount expended in fiscal 2007. Listing and filing fees of $10,000 (2006 - $14,000) decreased in the current year due to less financing activity. Professional fees of $34,000 (2006 - $10,000) increased in the current year due to an under-accrual in audit fees for the 2006 year-end as well as higher than expected costs associated to the current year’s audit. Office costs of $14,000 (2006 - $7,000) increased in the current year due to additional mailing costs related to the calling of warrants in accordance with the warrant agreements.
Interest income increased to $76,000 in fiscal 2007, compared to $18,000 in fiscal 2006. This increase relates to higher cash balances available for investment and higher interest rates.
Selected Quarterly Financial Data (unaudited)
| | 2008 $ | 2007 $ |
| | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 |
| Total revenues | Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil |
| Loss for the quarter | (810,000)(1) | (583,000) | (417,000) | (1,785,000)(2) | (93,000) | (534,000)(3) | (154,000) | (91,000) |
Loss per share - basic and diluted | (0.01) | (0.01) | (0.01) | (0.04) | (0.00) | (0.01) | (0.00) | (0.01) |
| | (1) | During the first quarter of fiscal 2008, the Company issued 1,620,000 stock options at an exercise price of $0.44. The stock-based compensation expense that was recorded was $348,000. |
| | (2) | During the fourth quarter of fiscal 2008, the Company issued 410,000 stock options at exercise prices between $4.10 - $4.15. The stock-based compensation expense that was recorded was $1,377,000. |
| | (3) | During the second quarter of fiscal 2007, the Company issued 2,040,000 stock options at an exercise price of $0.44. The stock-based compensation expense that was recorded was $434,000. |
Fourth quarter ended July 31, 2008 compared to fourth quarter ended July 31, 2007
The loss for the fourth quarter was $1,785,000 ($0.04 per share) compared to a loss of $91,000 ($0.01 per share) in the fourth quarter of the prior year. The increased loss for the quarter over the prior year is mainly due the non-cash stock-based compensation expense of $1,377,000 compared to $64,000 in the prior year due to new stock options granted during the quarter. A write-down of mineral property for $103,000 was also recorded in the period after the Company determined to allow option agreements underlying a portion of the mineral claims that comprise the Mecatona property to lapse subsequent to year end. Salaries and office expenses also increased as a result of additional senior management hired during the year.
At July 31, 2008, we had $7,343,000 (2007 - $2,107,000) in cash and cash equivalents and working capital of $5,825,000 (2007 - $2,049,000). Management has estimated that we will have adequate funds from existing working capital to meet our corporate, administrative and property obligations for the coming year. If we are to advance or develop our mineral properties further, it will be necessary to obtain additional financing and while we have been successful in the past, there can be no assurance that we will be able to do so in the future.
We have no contractual obligations other than discretionary mineral property holding and finders fee costs and an office lease.
Operating Activities
Operating activities required a funding of $483,000 in 2008 and $305,000 and $398,000 for the years ending July 31, 2007 and July 31, 2006, respectively.
Financing Activities
For the year, the Company completed a $15,750,000 private placement of 7,000,000 units at $2.25 per unit for net proceeds of $14,632,000 after commission and expenses. Each unit consisted of one common share and one-half common share purchase warrant with an exercise price of $3.00 per warrant for a period of 24 months. Net proceeds from the private placement are being used to advance mineral projects in Mexico and for general working capital purposes.
A total of $567,000 was raised in fiscal 2008 through the exercise of warrants and options. A summary of the components of the funds raised in 2008 and the two prior years is as follows:
| | 2008 $ | 2007 $ | 2006 $ |
| Private placement | 15,750,000 | - | 2,030,000 |
| Exercise of stock options | 375,000 | 23,000 | 6,000 |
| Exercise of warrants | 192,000 | 2,102,000 | 26,000 |
| | 16,317,000 | 2,125,000 | 2,062,000 |
A total of $2,125,000 was raised in fiscal 2007 through the exercise of warrants and options.
In September 2006, $23,000 was raised from the exercise of 75,000 stock options that had an exercise price of $0.30 per share. An additional $2,102,000 was raised throughout the year from the exercise of 8,407,250 warrants that had an exercise price of $0.25 per share.
In January 2006, the Company completed a private placement consisting of 5,150,000 units at a price of $0.20 per unit for total proceeds of $1,030,000. In June 2006, the Company completed a second private placement consisting of 5,000,000 units at a price of $0.20 per unit for total proceeds of $1,000,000. $6,000 was raised from the exercise of 50,000 stock options that had an exercise price of $0.11 per share. An additional $26,000 was raised from the exercise of 105,000 warrants that had an exercise price of $0.25 per share.
Investing Activities
A total of $8,475,000 (2007 - $1,173,000) was spent on the Company’s various mineral properties in fiscal 2008. All of the funds were spent on properties in Mexico.
The most active exploration program during the year was on the Camino Rojo Property, located in Zecatecas State in north-central Mexico, which accounted for 98% of the total spending. Drilling commenced on the project in November 2007 and has now outlined mineralization at the Represa Zone along a length of 1,300 meters and to a vertical depth exceeding 700 meters. An initial independent resource estimate for the Represa Zone was completed and announced on November 24, 2008.
Value-added tax receivable increased to $1,115,000 during the year compared to $183,000 in the prior year as a result of increased exploration expenditures at the Camino Rojo property in Mexico.
Acquisitions and Disposals
See Item 4.A - “General Background”.
Risks and Uncertainties
As a mineral exploration company, we are exposed to a number of risks and uncertainties. See Item 3.D.-”Risk Factors”.
Impact of Inflation
Currently, inflation in Canada is similar to that in the U.S. Inflation is not expected to have a material impact on us beyond the impact on all businesses generally, such as higher cost of materials, services and salaries.
We are a mineral exploration company with no producing properties; the information required by this item is inapplicable.
We are a mineral exploration company with no producing properties; the information required by this item is inapplicable.
| Directors, Senior Management and Employees |
| | A. | Directors and Senior Management |
The following table lists as of December 31, 2008 the names of our directors and senior management. Each of the directors and senior officers has served in his respective capacity since his election and/or appointment and will serve until the next annual general meeting of shareholders or until a successor is duly elected, unless the office is vacated in accordance with our Articles.
Table No. 8
Our Directors and Senior Management
Name | Position with Canplats | Date of First Appointment | Age |
Gordon J. Bogden(1)(2)(3) | Director | November 2008 | 50 |
R.E. Gordon Davis(3) | Chairman, CEO and Director | March 2000 | 70 |
James W. Tutton(1)(2)(3) | Director | October 1999 | 69 |
David H. Watkins(1)(2)(3) | Director | April 2008 | 64 |
Bruce A. Youngman(3) | President and COO | December 2007 | 51 |
Kenneth C. McNaughton(3) | Vice President, Exploration | March 2000 | 50 |
Tom S.Q. Yip(3) | Vice President, Finance & CFO | July 2007 | 51 |
John J. Kim(3) | Corporate Secretary | December 2007 | 41 |
Joseph J. Ovsenek(3) | Assistant Corporate Secretary | January 2004 | 50 |
| (1) | Member of the Audit Committee |
| (2) | Member of the Compensation Committee |
Resumes
Our Board of Directors and Senior Management
The following is a brief description of the principal business activities of our directors and senior management:
Gordon J. Bogden
Mr. Bogden is the Managing Partner of Gryphon Partners, a specialised investment banking group. He has extensive experience as an investment banker having most recently held the position as Vice Chairman and Head of Global Mining and Metals, Corporate and Investment Banking at National Bank Financial Inc. Prior to National Bank, Mr. Bogden held senior positions with Beacon Group Advisors Inc., Newcrest Capital Inc., N.M. Rothschild & Sons Canada Limited and CIBC Wood Gundy Securities (the predecessor company to CIBC World Markets). Mr. Bogden began his career as a professional engineer and geophysicist, having co-founded Quantech Consulting Inc. (now known as Quantec Geoscience Inc.). He holds a Bachelor of Science in Geology from Queen’s University, is a Certified Corporate Director and a Professional Engineer (Ontario). Mr. Bogden also serves as a director of Aeroquest International Ltd., International Royalty Corporation and Volta Resources Inc.
R.E. Gordon Davis
Mr. Davis is our Chairman and Chief Executive Officer and responsible for our day to day operations as well as strategic planning and the raising of capital to fund our operations. Mr. Davis graduated with a Bachelor of Applied Science Degree in Geological Engineering in 1962. He was a Director and Senior Executive with Dynasty Explorations Ltd. and its successor corporation, Cyprus Anvil Mining Corporation from 1964 to 1982. Since 1982, Mr. Davis has been a director of a number of resource companies including Pine Point Mines Ltd., Cabre Exploration Ltd. and Golden Knight Resources Inc. Mr. Davis also currently serves as a director of Silver Standard, a mineral resource exploration company (whose shares are listed on the Toronto Stock Exchange and Nasdaq Global Market) with which we have one common director and certain common officers, and as a director of Pacific Ridge Exploration Ltd.
James W. Tutton
Mr. Tutton is a self-employed business consultant. From 1968 to 1992 he was employed as Chairman, President and Director of Webb & Knapp (Canada) Ltd. following amalgamation with Wolstencroft Agencies Ltd. Mr. Tutton also serves as a director of Archon Minerals Limited, Horseshoe Gold Mining Inc., Finlay Minerals Ltd., Consolidated Firstfund Capital Corp., New Nadina Explorations Limited, Williams Creek Explorations Limited and Prism Resources Inc.
David H. Watkins
Mr. Watkins has been the President and Chief Executive Officer of Atna Resources Ltd. since 2000. Mr. Watkins is an international mining executive with over 40 years of experience in building and managing mining companies. He is a geologist by training whose work resulted in the discovery, acquisition, development, and operation of 15 successful gold, copper, and zinc mines in Canada, US, Chile, Peru, Australia, and Zambia. His experience includes managing a number of corporate mergers, acquisitions, and dispositions. Prior to joining Atna, he was Senior Vice President of Cyprus Amax Minerals Company responsible for worldwide exploration and business development. He was President of Minnova Inc., a successor company to Falconbridge Copper where he and his teams discovered and built a number of mines that resulted in five operating divisions producing gold silver, copper, and zinc for the company.
Bruce A. Youngman
Mr. Youngman has been appointed President and Chief Operating Officer to lead our management team in advancing our exploration programs at the Camino Rojo Project and at our other properties. Mr. Youngman has over 25 years of experience in mineral exploration and public company management. He holds a Bachelor of Science Degree in Geology from the University of British Columbia. Mr. Youngman served as a director and senior officer of Northern Dynasty Minerals Ltd. and was closely involved in the acquisition and exploration of the Pebble Gold-Copper Porphyry Project in Alaska.
Kenneth C. McNaughton
Mr. McNaughton devotes approximately 5% of his time to our business, with the remainder of his time allocated to Silver Standard. Mr. McNaughton is a professional engineer and earned a B.A.Sc. and M.A.Sc. in geological engineering in 1981 and 1983, respectively, from the University of Windsor. Before joining Silver Standard in 1991 as Vice President, Exploration, he worked as contract engineer for Oretech Engineering and worked on exploration programs for three bulk mineable gold or copper/gold deposits in Arizona and British Columbia. From 1984 to 1989, he was employed by Corona Corporation and its affiliate Mascot Gold Mines Ltd. as a project geologist and engineer for projects in British Columbia. Mr. McNaughton also serves as a director of Minco Silver Corporation.
Tom S.Q. Yip
Mr. Yip devotes approximately 10% of his time to our business, with the remainder of his time allocated to Silver Standard. Mr. Yip is Vice President, Finance and Chief Financial Officer. His career includes over 20 years in senior financial management positions in the resources and mining industry. Prior to joining Silver Standard, he held the position of Vice-President and Chief Financial Officer at Asarco, LLC. He also held finance roles of increasing responsibility at Echo Bay Mines Ltd., including Vice-President, Finance and Chief Financial Officer, before the company merged with Kinross Gold Corporation in 2003. Mr. Yip is a chartered accountant and holds a Bachelor of Commerce in Business Administration from the University of Alberta.
John J. Kim
Mr. Kim devotes approximately 20% of his time to our business, with the remainder of his time allocated to Silver Standard. Mr. Kim has over 11 years experience as a paralegal at several law firms in Vancouver practising in the area of securities and corporate finance. His experience includes legal matters related to acquisitions, mergers, takeovers, initial public offerings, secondary financings, cross-border financings, stock option plans, public company disclosure requirements and stock exchange listings as well as SEDAR, SEDI and EDGAR filings. Mr. Kim’s primarily responsible for our securities and corporate filings management. He is currently the Corporate Secretary for Silver Standard Resources Inc.
Joseph J. Ovsenek
Mr. Ovsenek devotes approximately 5% of his time to our business, with the remainder of his time allocated to Silver Standard. Mr. Ovsenek is Senior Vice President, Corporate of Silver Standard and is responsible for Silver Standard’s day-to-day corporate activities, including corporate and securities compliance. Mr. Ovsenek has been a practicing corporate lawyer for over 18 years, and holds a Bachelor of Law degree from the University of Toronto. He originally joined Silver Standard as legal counsel in 1996. He is also a registered professional engineer, and holds a Bachelor of Applied Science (Mech. Eng.) from the University of British Columbia.
There are no family relationships among the members of our board of directors or the members of our senior management.
We have no formal plan for compensating our directors for their services in their capacity as directors. The board of directors may award special remuneration to any director undertaking any special services on our behalf other than services ordinarily required of a director. Other than indicated below, no director received any compensation for his or her services as a director, including committee participation and/or special assignments.
Compensation of Named Executive Officers
“Named Executive Officers” means the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) of a company, or if a company does not have a CFO, an individual which acted in a similar capacity, regardless of the amount of compensation of that individual, each of a company’s three most highly compensated executive officers, other than the CEO and CFO, who were serving as executive officers at the end of the most recent financial year and whose total salary and bonus amounted to $150,000 or more. In addition, disclosure is also required for any individuals whose total salary and bonus during the most recent financial year was $150,000 whether or not they are an executive officer at the end of the financial year.
We currently have two Named Executive Officers, R.E. Gordon Davis, the Chairman and Chief Executive Officer and Tom S.Q. Yip, the Chief Financial Officer of the Company.
Summary Compensation Table
Table No. 9
Summary Compensation Table
| | | Annual Compensation | Long Term Compensation | |
| | | | Awards | Payouts | |
| | | | | | | |
| | | | | | | Shares or | | |
| Name and Principal Position | Year (1) | Salary ($) | Bonus ($) | Other Annual Compen- sation ($) | Securities Under Options Granted (#) (2) | Units Subject to Resale Restrictions ($) | LTIP Payouts ($) | All Other Compen- sation ($) |
R.E. Gordon Davis Chairman, CEO and Director | 2008 2007 2006 | 84,000(3) Nil Nil | Nil Nil Nil | Nil Nil Nil | 200,000 350,000 Nil | Nil Nil Nil | Nil Nil Nil | Nil Nil Nil |
Tom S.Q. Yip Vice President, Finance and CFO | 2008 2007 | Nil Nil | Nil Nil | Nil Nil | 100,000 Nil | Nil Nil | Nil Nil | Nil Nil |
| (1) | Fiscal years ended July 31. |
| (2) | Figures represent options granted during a particular year; see “Aggregated Option” table for the aggregate number of options outstanding at year end. |
| (3) | Mr. Davis commenced receiving cash compensation of $12,000 per month on January 1, 2008. |
Long Term Incentive Plan
Long term incentive plan (“LTIP”) means any plan providing compensation intended to motivate performance over a period greater than one financial year. LTIPs do not include option or stock appreciation rights plans or plans for compensation through shares or units that are subject to restrictions on resale. We did not grant any LTIPs during the recently completed fiscal year ended July 31, 2008.
Options and SARs
Stock Appreciation Rights
Stock appreciation right (“SAR”) means a right, granted by an issuer or any of its subsidiaries as compensation for employment services or office to receive cash or an issue or transfer of securities based wholly or in part on changes in the trading price of our shares. No SARs were granted or exercised by the Named Executive Officers during the recently completed fiscal year ended July 31, 2008.
Aggregated Option Exercises During the Most Recently Completed Financial Year and Financial Year-End Option Values
The following table sets forth details of all exercises of stock options during the last financial year ended July 31, 2008, by the Named Executive Officers and the financial year-end value of unexercised options on an aggregated basis:
Table No. 10
Aggregated Option Exercises During the Most Recently Completed Financial Year
and Financial Year-End Option Values
Name | Securities Acquired on Exercise | Aggregate Value Realized ($)(1) | Unexercised Options at Financial Year-End # Exercisable/ Unexercisable | Value of Unexercised In-the-Money Options at Financial Year-End ($) (2) Exercisable/ Unexercisable |
R.E. Gordon Davis | Nil | Nil | 362,500 / 187,500 | 1,360,000 / 675,000 |
Tom S.Q. Yip | Nil | Nil | 50,000 / 50,000 | 180,000 / 180,000 |
| (1) | Valued using the closing price of our common shares on the TSX Venture Exchange (the “Exchange”) on the date of exercise, less the exercise price per share. |
| (2) | Valued using the closing price of our common shares on the Exchange on July 31, 2008, being the last trading day of our shares for the financial year, of $3.60 per share, less the exercise price per share. |
Termination of Employment, Change in Responsibilities and Employment Contracts
We have no plans or arrangements in respect of remuneration received or that may be received by our Named Executive Officers in our most recently completed financial year or current financial year in respect of compensating such officer in the event of termination of employment (as a result of resignation, retirement, change of control, etc.) or a change in responsibilities following a change of control, where the value of such compensation exceeds $100,000 per executive officer.
Compensation to Directors and Executive Officers
Compensation of Directors who are not Executive Officers
During fiscal 2008, we had no arrangements, standard or otherwise, pursuant to which we or our subsidiaries compensated our directors for their services in their capacity as directors, or for committee participation, involvement in special assignments or for services as consultants or experts.
The following table sets forth details of all exercises of stock options during the last financial year ended July 31, 2008, by directors who are not Named Executive Officers, as a group, and the financial year-end value of unexercised stock options on an aggregated basis:
Table No. 11
Aggregated Option Exercises in Last Financial Year and Financial Year-End Option Values of Directors Who are Not Named Executive Officers (as a group)
Name | Securities Acquired on Exercise (#) | Aggregate Value Realized ($)(1) | Unexercised Options at Financial Year-End (#) Exercisable/ Unexercisable | Value of Unexercised In-the-Money Options at Financial Year-End ($)(2) Exercisable/ Unexercisable |
Directors who are not Named Executive Officers (3) | Nil | Nil | 987,500 / 562,500 | 3,555,000 / 2,025,000 |
| (1) | Valued using the closing price of our common shares on the Exchange on the date of exercise, less the exercise price per share. |
| (2) | Valued using the closing price of our common shares on the Exchange on July 31, 2008, being the last trading day of our shares for the financial year, of $3.60 per share, less the exercise price per share. |
During the most recently completed financial year, except for the above-noted Stock Options, our directors did not receive compensation for services provided to us in their capacities as directors and/or consultants and/or experts.
Compensation of Directors and Senior Officers
Total compensation for all directors and senior officers during the year ended July 31, 2008 totalled $294,974. This amount includes compensation based on hourly rates charged for personnel by Silver Standard, which included direct salary costs and benefits, as well as a factor for overhead costs, office equipment, usage, management services personnel, office space and furnishings (see Item 6.D. - “Employees”).
Executive Benefits
We do not have a pension, retirement fund or similar benefits plan or other arrangement for non-cash compensation to our directors or senior officers, with the exception of incentive stock options.
Options to Purchase Securities from Company or Subsidiaries
Options Outstanding
Stock Options to purchase our securities are granted to our directors, officers and employees on terms and conditions acceptable to the regulatory authorities in Canada, notably the TSX Venture Exchange (the “Exchange”). On December 10, 2008, our Board of Directors approved an amended and restated stock option plan (the “Stock Option Plan”), under which 10% of our issued and outstanding shares are reserved for issuance on the exercise of incentive stock options (including previously issued stock options). The Amended and Restated Stock Option Plan was approved by our shareholders at our Annual General and Special Meeting held on January 14, 2009. The Stock Option Plan supercedes our 2003 Stock Option Plan first approved by our shareholders on December 17, 2003 and approved and ratified at each of our subsequent Annual General Meetings.
Under our Stock Option Plan, (a) stock options in favour of any one individual may not exceed 5% of the issued and outstanding shares of common stock, (b) no stock option is transferable by the optionee other than by will or the laws of descent and distribution, (c) a stock option is exercisable during the lifetime of the optionee only by such optionee, (d) the maximum term of each stock option is five years, with the vesting period determined at the discretion of the Board of Directors and (e) the minimum exercise price for a stock option is the last closing price of our common shares on the TSX Venture Exchange immediately preceding the granting of the option.
The number of stock options and the number of common shares subject to such stock options granted to executive officers as a group and to directors who are not executive officers as a group are set out below as of July 31, 2008. The exercise price of the stock options is stated in Canadian dollars.
Table No. 12
Outstanding Stock Options
| | Number of Options Outstanding | Exercise Price* | Expiry Date |
| Executive Officers | 350,000 300,000 | $0.44 $0.44 | December 19, 2011 October 24, 2012 |
Directors who are not Executive Officers | 250,000 150,000 200,000 | $0.44 $0.44 $2.64 | December 19, 2011 October 24, 2012 April 25, 2013 |
Employees and Consultants | 1,127,500 1,128,500 80,000 50,000 350,000 85,000 200,000 200,000 | $0.44 $0.44 $1.82 $1.87 $2.89 $3.08 $4.10 $4.15 | December 19, 2011 October 24, 2012 December 3, 2012 December 6, 2012 December 20, 2012 March 17, 2013 June 19, 2013 June 26, 2013 |
Total: | 4,471,000 | | |
In the year ended July 31, 2008, 3,941,000 common share purchase warrants were issued in connection with a private placement. Of the warrants issued, 3,500,000 were issued for cash and 441,000 were issued for broker’s fees. The fair value assigned to the 3,941,000 warrants issued was $6,726,000.
In the year ended July 31, 2008, 64,000 common share purchase warrants were exercised for cash of $192,000. As at July 31, 2008, we have 3,436,000 share purchase warrants and 441,000 broker’s warrants outstanding.
Our directors are elected annually and hold office until the next annual general meeting of our shareholders or until their successors in office are duly elected or appointed. We do not have an executive committee. All directors are elected for a one-year term. All officers serve at the pleasure ofthe Board. We held an annual general meeting of our shareholders on December 19, 2007 and our next annual general meeting of our shareholders is set for January 14, 2009.
Our Board of Directors has two committees: the Audit Committee and the Compensation Committee. The members of the Audit Committee and Compensation Committee do not have any fixed terms for holding their positions, are appointed and replaced from time to time by resolution of the Board of Directors and do not receive any separate remuneration for acting as members of the committees.
The Audit Committee, comprised of Gordon J. Bogden, James W. Tutton and David H. Watkins, has the responsibility of reviewing with our Auditor all financial statements to be submitted to an annual general meeting of our shareholders, prior to their consideration by the Board of Directors. Following its review, the Audit Committee must submit a report on the financial statements to the Board of Directors.
The Compensation Committee, comprised of Gordon J. Bogden, James W. Tutton and David H. Watkins, has the responsibility for determining executive and management direct remuneration and stock options. The Chief Executive Officer’s and President’s functions in relation to the Compensation Committee are to make specific recommendations on remuneration with supporting commentary on individual performance and industry standards.
Currently, we do not have service contracts with any of our officers or those of our subsidiaries providing for benefits upon termination of employment (see Item 6.B - - “Compensation”).
On February 1, 2004, we entered into a management services agreement with Silver Standard. Under the agreement, Silver Standard provides us with general corporate management, administrative and technical services. For personnel, hourly rates charged are based on direct salary costs and benefits, as well as a factor for overhead costs, office equipment, usage, management services personnel, office space and furnishings. The agreement also provides for Silver Standard to recalculate charge out rates from time to time to take into account increased costs of providing the services. This agreement was terminated on October 31, 2008.
The following table sets out, as of December 31, 2008 the number of our common shares beneficially owned by the Named Executive Officers, whom, to our knowledge, possess sole voting and investment power with respect to the shares shown.
Table No. 13
Named Executive Officer Share Ownership
Name of Beneficial Owner | Title of Class | Number of Securities of Class | Percent of Class |
R.E. Gordon Davis | Common | 2,296,750* | 4.0% |
Tom S.Q. Yip | Common | 100,000* | 0.1% |
*includes options and warrants exercisable within 60 days.
As at December 31, 2008, our directors and officers held, as a group, directly or indirectly, an aggregate of 3,282,000 common shares and 187,500 share purchase warrants.
The number of stock options and the number of common shares subject to such stock options granted to the Named Executive Officers are set out below as of December 31, 2008. The exercise price of the stock options is stated in Canadian dollars.
Table No. 14
Named Executive Officer Stock Options
| Name | Number of Options Outstanding | Exercise Price | Expiry Date |
| R.E. Gordon Davis | 350,000 200,000 150,000 | $0.44 $0.44 $1.34 | December 19, 2011 October 24, 2012 December 10, 2013 |
Tom S.Q. Yip | 100,000 | $0.44 | October 24, 2012 |
| Major Shareholders and Related Party Transactions |
To the best of our knowledge at the date of this Annual Report, no shareholder directly or indirectly owns more than 5% of our issued shares.
To the best of our knowledge, we are not directly or indirectly owned or controlled by another corporation, by any foreign government or by any other natural or legal person severally or jointly.
Our common stock is issued in registered form and the following information is taken from the records of Computershare Investor Services Inc. (located in Vancouver, British Columbia, Canada), the registrar and transfer agent for the common stock.
On July 31, 2008, the shareholders’ list for our common stock showed 1,488 registered shareholders and 56,748,056 shares outstanding. 1,219 of these registered shareholders were U.S. residents, owning 7,414,344, shares representing 13.8% of our issued and outstanding shares.
Since August 1, 2005, we have entered or have proposed to enter into the following transactions that have materially affected or will materially affect us in which any director, executive officer, or beneficial holder of more than 10% of the outstanding common stock, or any of their respective relatives, spouses, associates or affiliates has had or will have any direct or material indirect interest.
We entered into a Management Services Agreement with Silver Standard, a company with a common director (R.E. Gordon Davis), under which Silver Standard provides us with administrative and technical services (see Item 6.D - “Employees”). During 2008, we accrued $1,211,000 (2007 - $355,000) in geological support, management and administration expenses to Silver Standard. Included in amounts payable at July 31, 2008 is $183,000 (2007 - $21,000) payable to Silver Standard. We gave notice of termination of this agreement on October 31, 2008.
During fiscal 2007, we sold property, plant and equipment to a related company for proceeds of $20,000. Any amounts payable to related parties are non-interest bearing and without specific terms of repayment. Any transactions for expense reimbursement or asset sales with related parties are at normal business terms.
This Form 20-F is being filed as an annual report under the Exchange Act, and, as such, there is no requirement to provide any information under this sub-item.
| | A. | Consolidated Statements and Other Financial Information |
Our financial statements are stated in Canadian dollars (Cdn$) and are prepared in Canadian Generally Accepted Accounting Principles (“GAAP”), which differ in certain respects from those principles that we would have followed had our financial statements been prepared in accordance with US GAAP. The major measurement differences between Canadian and US GAAP, as they affect us, are disclosed in note 14 to the financial statements.
Exhibited hereto are audited financial statements prepared by our management, audited by an independent auditor and accompanied by an audit report:
| | (a) | PricewaterhouseCoopers LLP Auditors’ Report, dated November 20, 2008. |
| | (b) | Consolidated Balance Sheets as at July 31, 2008 and July 31, 2007 (in Canadian Dollars). |
| | (c) | Consolidated Statements of Loss and Deficit for the years ended July 31, 2008, July 31, 2007 and July 31, 2006 (in Canadian Dollars). |
| | (d) | Consolidated Statements of Cash Flows for the years ended July 31, 2008, July 31, 2007 and July 31, 2006 (in Canadian Dollars). |
| | (e) | Consolidated Statements of Changes in Shareholders’ Equity for the years ended July 31, 2008, July 31, 2007 and July 31, 2006 (in Canadian Dollars). |
| | (f) | Notes to Consolidated Financial Statements for the years ended July 31, 2008, July 31, 2007 and July 31, 2006 (in Canadian Dollars). |
We have not paid dividends in the past five years and do not expect to pay dividends in the near future. Our present policy is to retain future earnings for use in our operations and the expansion of our business.
No significant changes have occurred since the date of our most recent audited financial statements, July 31, 2008, other than the following:
| | (a) | September 18, 2008, we granted 50,000 stock options to a consultant at an exercise price of $1.86 and an expiry date of September 18, 2013; |
| | (b) | on November 10, 2008, we granted 200,000 stock options to a director at an exercise price of $1.20 with an expiry date of November 10, 2013; |
| | (c) | on November 24, 2008, we announced our initial independent resource estimate for our Camino Rojo Project; |
| | (d) | on December 10, 2008, we granted an aggregate of 725,000 stock options to our directors, officers, employees and consultants at an exercise price of $1.34 with an expiry date of December 10, 2013; |
| | (e) | on December 10, 2008, we announced the adoption of a shareholder rights plan; |
| | (f) | on December 22, 2008, we granted and aggregate of 70,000 stock options to consultants at an exercise price of $1.48 with an expiry date of December 22, 2011; |
| | (g) | on January 14, 2009, we appointed Mr. Peter de Visser as the Company’s Chief Financial Officer, who replaces Mr. Tom S.Q. Yip. Messrs. McNaughton and Kim also resigned as officers of the Company on January 14, 2009; and |
| | (h) | on January 20, 2009, we granted 50,000 stock options to an officer at an exercise price of $1.71 with an expiry date of January 19, 2014. |
| | A. | Offer and Listing Details |
We became a reporting issuer in the Province of British Columbia upon the issuance of a receipt for a prospectus on December 11, 1967 and our common shares were first listed on the Vancouver Stock Exchange (a predecessor of the TSX Venture Exchange) on June 21, 1972. In April 1992, our common shares were delisted by the Vancouver Stock Exchange for failure to pay sustaining fees. We were the subject of cease trade orders issued by the British Columbia Securities Commission on September 9, 1992 and January 11, 1993, for failure to submit statutory filings. Both of these cease trade orders were rescinded by the British Columbia Securities Commission on January 22, 1993.
Our initial public offering prospectus was filed with and receipted by the British Columbia and Alberta Securities Commissions on February 14, 2001. Effective March 22, 2001, our common shares again commenced trading on the TSX Venture Exchange (“TSX-V”) in Toronto, Ontario, Canada, under the trading symbol CPQ and CUSIP #138054-10-1.
The following tables set out the reported high and low prices for (a) the five most recent fiscal years; (b) each quarterly period for the past two fiscal years and for the first quarter of 2008; and (c) each month for the past six months.
Table No. 15
High and Low Price for the Five Most Recent Fiscal Years
on the TSX-V (Cdn$’s)
Fiscal Year Ended | High | Low |
July 31, 2008 | $5.43 | $0.23 |
July 31, 2007 | $0.56 | $0.31 |
July 31, 2006 | $0.37 | $0.10 |
July 31, 2005 | $0.49 | $0.12 |
July 31, 2004 | $0.84 | $0.095 |
Table No. 16
High and Low Prices for each Quarterly Period for the Past Two Fiscal Years
and for the First Quarter of 2008 on the TSX-V (Cdn$’s)
Period Ended | High | Low |
October 31, 2008 | $3.78 | $1.08 |
July 31, 2008 | $5.43 | $2.95 |
April 30, 2008 | $4.05 | $2.48 |
January 31, 2008 | $3.84 | $0.40 |
October 31, 2007 | $0.54 | $0.23 |
July 31, 2007 | $0.40 | $0.31 |
April 30, 2007 | $0.56 | $0.36 |
January 31, 2007 | $0.49 | $0.33 |
October 31, 2006 | $0.43 | $0.31 |
Table No. 17
High and Low Prices for each Month for the Past Six Months on the TSX-V (Cdn$’s)
Month Ended | High | Low |
December 31, 2008 | $1.87 | $1.03 |
November 30, 2008 | $1.58 | $1.04 |
October 31, 2008 | $1.93 | $1.60 |
September 30, 2008 | $2.90 | $1.59 |
August 31, 2008 | $3.78 | $2.64 |
July 31, 2008 | $4.48 | $3.00 |
This Form 20-F is being filed as an annual report under the Exchange Act, and, as such, there is no requirement to provide any information under this item.
See the first paragraph of this Item 9.
This Form 20-F is being filed as an annual report under the Exchange Act, and, as such, there is no requirement to provide any information under this item.
This Form 20-F is being filed as an annual report under the Exchange Act, and, as such, there is no requirement to provide any information under this item.
This Form 20-F is being filed as an annual report under the Exchange Act, and, as such, there is no requirement to provide any information under this item.
Incorporation
We were incorporated in British Columbia, Canada, under Certificate of Incorporation number 72955 on February 15, 1967. We do not have any stated “objects” or “purposes” as such are not required by the corporate laws of the Province of British Columbia. Rather, we are, by such corporate laws, entitled to carry on any activities whatsoever, which are not specifically precluded by other statutory provisions of the Province of British Columbia.
Powers and Functions of the Directors
The powers and functions of the directors are set out in our Articles which were adopted on December 15, 2004 and filed on May 16, 2005. They provide:
| | (a) | a director is obligated to disclose his potential interest in a proposal, arrangement or contract being considered by us, and may not vote on any proposal, arrangement or contract proposed, but such director shall be counted in the quorum at the meeting of the directors at which the proposal, arrangement or contract is approved; |
| | (b) | the directors may, in the absence of an independent quorum, vote compensation to themselves; |
| | (c) | there are no limitations on the exercise by the directors of our borrowing powers; |
| | (d) | there are no provisions for the retirement or non-retirement of directors under an age limit; and |
| | (e) | there is no requirement for a director to hold any of our shares. |
Rights and Restrictions Attached to the Shares
As all of our authorized and issued shares are of one class there are no special rights or restrictions of any nature or kind attached to any of the shares. All authorized and issued shares rank equally in respect to the declaration and receipt of dividends, the rights to share in any profits or surplus on our liquidation, dissolution or winding. Each share has attached to it one non-cumulative vote.
Alteration of Share Rights
To alter the rights of holders of our issued shares such alteration must be approved by the majority vote of 66 2/3% of our issued shares attending and voting at a meeting of our shareholders.
Annual General Meetings
Annual general meetings are called and scheduled upon decision by the Board of Directors. The directors may convene an extraordinary general meeting of the shareholders. The holders of not less than 5% of our issued shares may requisition an extraordinary meeting of the shareholders. All meetings of the shareholders may be attended by registered shareholders or persons who hold powers of attorney or proxies given to them by registered shareholders.
Foreign Ownership Limitations
Our Articles do not contain limitations prohibiting shares being held by non-residents, foreigners or any other group.
Change of Control
There are no provisions in our Articles that would have an effect of delaying, deferring or preventing a change in our control, or that would operate with respect to any proposed merger, acquisition or corporate restructuring.
Share Ownership Reporting Obligations
There are no provisions in our Articles requiring share ownership to be disclosed. The securities laws of the Province of British Columbia require disclosure of shareholdings by:
| | (a) | persons who are our directors or senior officers; and |
| | (b) | a person who has direct or indirect beneficial ownership of, control or direction over, or a combination of direct or indirect beneficial ownership of and control or direction over our securities carrying more than 10% of the voting rights attached to all of our outstanding voting securities. |
Differences from U.S. Law
The threshold of share ownership percentage requiring disclosure of ownership is higher in the home jurisdiction of British Columbia than the U.S. where U.S. securities law prescribes a 5% threshold for ownership disclosure.
The following is a summary of each material contract, other than contracts entered into in the ordinary course of business, to which we or any member of the group is a party, for the two years immediately preceding publication of the document, including dates, parties, general nature of the contracts, terms and conditions, and amount of any consideration passing to or from us or any other member of the group.
| 1. | Consulting and finder’s fee agreement between La Cuesta International, Inc. and Canplats dated January 1, 2006 applicable to the Maijoma Prospect, El Alamo Prospect and Camino Rojo Project. See Item 4.B - “Business Overview” under the headings “Maijoma Prospect”, “El Alamo Prospect” and “Camino Rojo Project” for a description of the consulting and finder’s agreement. |
| 2. | Agency Agreement between Canaccord Capital Corporation (“Canaccord”) and Canplats dated January 24, 2008 in respect of the offering of 6,300,000 units of the Company. As consideration, Canplats will pay Canaccord a commission of 6.5% of the total proceeds raised upon closing and issue to Canaccord, underwriter’s warrants equal to 7% of the units issued pursuant to the offering. See Item 5.B - “Liquidity and Capital Resources” under the heading “Financing Activities”. |
| 3. | Underwriting Agreement between Canaccord Capital Corporation, Macquarie Capital Markets Canada Ltd., Bolder Investment Partners, Ltd., National Bank Financial Inc. (collectively, the “Underwriters”) and Canplats dated February 12, 2008 in respect of the offering of up to 6,300,000 units of the Company. As consideration, Canplats will pay the Underwriters a commission of 6.5% of the total proceeds raised upon closing and issue to the Underwriters, underwriter’s warrants equal to 7% of the units issued pursuant to the offering. See Item 5.B - “Liquidity and Capital Resources” under the heading “Financing Activities”. |
| 4. | Shareholder Rights Plan Agreement (the “Plan”) between Computershare Investor Services Inc. and Canplats dated December 15, 2008. The Plan was ratified by the shareholders on January 14, 2009 and will have a term of nine years expiring in 2018. The Plan is subject to re-ratification by the shareholders at the Company’s annual general meetings in 2012 and 2015. The Plan was adopted to ensure the fair treatment of the Company’s shareholders in the event of any take-over bid for the Company’s common shares. The objectives of the Rights Plan include providing shareholders with adequate time to properly assess the merits of any proposed take-over bid or similar transaction involving the shares of the Company without undue pressure; encouraging the development of alternative transactions or competing take-over bids under the circumstances; and giving the directors of the Company adequate time to fully consider any such take-over bid or similar transaction and any alternative transaction that may be proposed. |
Canada has no system of exchange controls. There are no exchange restrictions on borrowing from foreign countries nor on the remittance of dividends, interest, royalties and similar payments, management fees, loan repayments, settlement of trade debts, or the repatriation of capital. Any such remittances to United States residents, however, may be subject to a withholding tax pursuant to the Canadian Income Tax Act as modified by the reciprocal tax treaty between Canada and the United States. See “Item 10 E, Taxation”.
The Investment Canada Act (the “Act”), enacted on June 20, 1985, requires prior notification to the Government of Canada on the “acquisition of control” of Canadian businesses by non-Canadians, as defined in the Act. Certain acquisitions of control, discussed below, are reviewed by the Government of Canada. The term “acquisition of control” is defined as any one or more non-Canadian persons acquiring all or substantially all of the assets used in the Canadian business, or the acquisition of the voting shares of a Canadian corporation carrying on the Canadian business or the acquisition of the voting interests of an entity controlling or carrying on the Canadian business. The acquisition of the majority of the outstanding shares is deemed to be an “acquisition of control” of a corporation. The acquisition of less than a majority, but one-third or more, of the voting shares of a corporation is presumed to be an “acquisition of control” of a corporation unless it can be established that the purchaser will not control the corporation.
Investments requiring notification and review are all direct acquisitions of Canadian businesses with assets of C$5,000,000 or more (subject to the comments below on WTO investors), and all indirect acquisitions of Canadian businesses (subject to the comments below on WTO investors) with assets of more than C$50,000,000 or with assets of between C$5,000,000 and C$50,000,000 which represent more than 50% of the value of the total international transaction. In addition, specific acquisitions or new businesses in designated types of business activities related to Canada’s cultural heritage or national identity could be reviewed if the Government of Canada considers that it is in the public interest to do so.
The Act was amended with the implementation of the Agreement establishing the World Trade Organization (“WTO”) to provide for special review thresholds for “WTO investors”, as defined in the Act. “WTO investor” generally means (i) an individual, other than a Canadian, who is a national or a WTO member (such as, for example, the United States), or who has the right of permanent residence in relation to that WTO member, (ii) governments of WTO members, and (iii) entities that are not Canadian controlled, but which are WTO investor controlled, as determined by rules specified in the Act. The special review thresholds for WTO investors do not apply, and the general rules described above do apply, to the acquisition of control of certain types of businesses specified in the Act, including a business that is a “cultural business”. If the WTO investor rules apply, an investment in our shares by or from a WTO investor will be reviewable only if it is an investment to acquire control of Canplats and the value of our assets is equal to or greater than a specified amount (the “WTO Review Threshold”). The WTO Review Threshold is adjusted annually by a formula relating to increases in the nominal gross domestic product of Canada. The 2007 WTO Review Threshold is C$295,000,000.
If any non-Canadian, whether or not a WTO investor, acquires control of Canplats by the acquisition of shares, but the transaction is not reviewable as described above, the non-Canadian is required to notify the Canadian government and to provide certain basic information relating to the investment. A non-Canadian, whether or not a WTO investor, is also required to provide a notice to the government on the establishment of a new Canadian business. If our business is then a prescribed type of business activity related to Canada’s cultural heritage or national identity, and if the Canadian government considers it to be in the public interest to do so, then the Canadian government may give notice in writing within 21 days requiring the investment to be reviewed.
For non-Canadians (other than WTO investors), an indirect acquisition of control, by the acquisition of voting interests of an entity that directly or indirectly controls Canplats, is reviewable if the value of our assets is then C$50,000,000 or more. If the WTO investor rules apply, then this requirement does not apply to a WTO investor, or to a person acquiring the entity from a WTO investor. Special rules specified in the Act apply if the value of our assets is more than 50% of the value of the entity so acquired. By these special rules, if the non-Canadian (whether or not a WTO investor) is acquiring control of an entity that directly or indirectly controls Canplats, and the value of our assets and all other entities carrying on business in Canada, calculated in the manner provided in the Act and the regulations under the Act, is more than 50% of the value, calculated in the manner provided in the Act and the regulations under the Act, of the assets of all entities, the control of which is acquired, directly or indirectly, in the transition of which the acquisition of control of Canplats forms a part, then the thresholds for a direct acquisition of control as discussed above will apply, that is, a WTO Review Threshold of C$192,000,000 (in 2000) for a WTO investor or a threshold of C$5,000,000 for a non-Canadian other than a WTO investor. If the value exceeds that level, then the transaction must be reviewed in the same manner as a direct acquisition of control by the purchase of our shares.
If an investment is reviewable, an application for review in the form prescribed by the regulations is normally required to be filed with the Director appointed under the Act (the “Director”) prior to the investment taking place and the investment may not be consummated until the review has been completed. There are, however, certain exceptions. Applications concerning indirect acquisitions may be filed up to 30 days after the investment is consummated and applications concerning reviewable investments in culture-sensitive sectors are required upon receipt of a notice for review. In addition, the Minister (a person designated as such under the Act) may permit an investment to be consummated prior to completion of the review, if he is satisfied that delay would cause undue hardship to the acquirer or jeopardize the operations of the Canadian business that is being acquired. The Director will submit the application to the Minister, together with any other information or written undertakings given by the acquirer and any representation submitted to the Director by a province that is likely to be significantly affected by the investment.
The Minister will then determine whether the investment is likely to be of net benefit to Canada, taking into account the information provided and having regard to certain factors of assessment where they are relevant. Some of the factors to be considered are (i) the effect of the investment on the level and nature of economic activity in Canada, including the effect on employment, on resource processing, and on the utilization of parts, components and services produced in Canada; (ii) the effect of the investment on exports from Canada; (iii) the degree and significance of participation by Canadians in the Canadian business and in any industry in Canada of which it forms a part; (iv) the effect of the investment on productivity, industrial efficiency, technological development, product innovation and product variety in Canada; (v) the effect of the investment on competition within any industry or industries in Canada; (vi) the compatibility of the investment with national industrial, economic and cultural policies; (vii) the compatibility of the investment with national industrial, economic and cultural policies taking into consideration industrial, economic and cultural objectives enunciated by the government or legislature of any province likely to be significantly affected by the investment; and (viii) the contribution of the investment to Canada’s ability to compete in world markets.
The Act sets certain time limits for the Director and the Minister. Within 45 days after a completed application has been received, the Minister must notify the acquirer that (a) he is satisfied that the investment is likely to be of net benefit to Canada, or (b) he is unable to complete his review, in which case he shall have 30 additional days to complete his review (unless the acquirer agrees to a longer period), or (c) he is not satisfied that the investment is likely to be of net benefit to Canada.
Where the Minister has advised the acquirer that he is not satisfied that the investment is likely to be of net benefit to Canada, the acquirer has the right to make representations and submit undertakings within 30 days of the date of the notice (or any further period that is agreed upon between the acquirer and the Minister). On the expiration of the 30 day period (or the agreed extension), the Minister must quickly notify the acquirer (i) that he is now satisfied that the investment is likely to be of net benefit to Canada or (ii) that he is not satisfied that the investment is likely to be of net benefit to Canada. In the latter case, the acquirer may not proceed with the investment or, if the investment has already been consummated, must divest itself of control of the Canadian business.
The Act provides civil remedies for non-compliance with any provision. There are also criminal penalties for breach of confidentiality or providing false information.
A brief description of certain provisions of the tax treaty between Canada and the United States is included below, together with a brief outline of certain taxes, including withholding provisions, to which United States security holders are subject under existing laws and regulations of Canada. The consequences, if any, of provincial, state and local taxes are not considered.
The Company recommends security holders seek the advice of their own tax advisors, tax counsel or accountants with respect to the applicability or effect on their own individual circumstances of the matters referred to herein and of any provincial, state or local taxes.
Certain Canadian Federal Income Tax Consequences
The discussion under this heading summarizes the principal Canadian federal income tax consequences of acquiring, holding and disposing of shares of common stock of the Company for a shareholder of the Company who is not a resident of Canada but is a resident of the United States and who will acquire and hold shares of common stock of the Company as capital property for the purposes of the Income Tax Act (Canada) (the “Canadian Tax Act”). This summary does not apply to a shareholder who carries on business in Canada through a “permanent establishment” situated in Canada or performs independent personal services in Canada through a fixed base in Canada if the shareholder’s holding in the Company is effectively connected with such permanent establishment or fixed base. This summary is based on the provisions of the Canadian Tax Act and the regulations thereunder and on an understanding of the administrative practices of Revenue Canada, and takes into account all specific proposals to amend the Canadian Tax Act or regulations made by the Minister of Finance of Canada as of the date hereof. It has been assumed that there will be no other relevant amendment of any governing law although no assurance can be given in this respect. The Company recommends security holders seek the advice of their own Canadian and U.S. tax advisors.
The provisions of the Canadian Tax Act are subject to income tax treaties to which Canada is a party, including the Canada-United States Income Tax Convention (1980), as amended (the “Convention”).
Dividends on Common Shares and Other Income
Under the Canadian Tax Act, a non-resident of Canada is generally subject to Canadian withholding tax at the rate of 25% on dividends paid or deemed to have been paid to him or her by a corporation resident in Canada. The Convention limits the rate to 15 percent if the shareholder is a resident of the United States and the dividends are beneficially owned by and paid to such shareholder, and to 5 percent if the shareholder is also a corporation that beneficially owns at least 10 percent of the voting stock of the payor corporation.
The amount of a stock dividend (for tax purposes) would generally be equal to the amount by which the paid up or stated capital of the Company had increased by reason of the payment of such dividend. The Company will furnish additional tax information to shareholders in the event of such a dividend. Interest paid or deemed to be paid on the Company’s debt securities held by non-Canadian residents may also be subject to Canadian withholding tax, depending upon the terms and provisions of such securities and any applicable tax treaty.
The Convention generally exempts from Canadian income tax dividends paid to a religious, scientific, literary, educational or charitable organization or to an organization constituted and operated exclusively to administer a pension, retirement or employee benefit fund or plan, if the organization is a resident of the United States and is exempt from income tax under the laws of the United States.
Dispositions of Common Shares
Under the Canadian Tax Act, a taxpayer’s capital gain or capital loss from a disposition of a share of common stock of the Company is the amount, if any, by which his or her proceeds of disposition exceed (or are exceeded by, respectively) the aggregate of his or her adjusted cost base of the share and reasonable expenses of disposition. The capital gain or loss must be computed in Canadian currency using a weighted average adjusted cost base for identical properties. One-half of a capital gain (the “taxable capital gain”) is included in income, and one-half of a capital loss in a year (the “allowable capital loss”) is deductible from taxable capital gains realized in the same year. The amount by which a shareholder’s allowable capital loss exceeds the taxable capital gain in a year may be deducted from a taxable capital gain realized by the shareholder in the three previous years or any subsequent year, subject to certain restrictions in the case of a corporate shareholder and subject to adjustment when the capital gains inclusion rate in the year of disposition differs from the inclusion rate in the year the deduction is claimed.
If a share of common stock of the Company is disposed of to the Company other than in the open market in the manner in which shares would normally be purchased by the public, the proceeds of disposition will, in general terms, be considered as limited to the paid-up capital of the share and the balance of the price paid will be deemed to be a dividend. In the case of a shareholder that is a corporation, the amount of any capital loss otherwise determined may be reduced, in certain circumstances, by the amount of dividends previously received in respect of the shares disposed of, unless the corporation owned the shares for at least 365 days prior to sustaining the loss and (together with corporations, persons and other entities, with whom the corporation was not dealing at arm’s length) did not own more than five percent of the shares of any class of the corporation from which the dividend was received. These loss limitation rules may also apply where a corporation is a member of a partnership or a beneficiary of a trust that owned the shares disposed of.
Under the Canadian Tax Act, a non-resident of Canada is subject to Canadian tax on taxable capital gains, and may deduct allowable capital losses, realized on a disposition of “taxable Canadian property.” Shares of common stock of the Company will constitute taxable Canadian property of a shareholder at a particular time if the shareholder used the shares in carrying on business in Canada, or if at any time in the five years immediately preceding the disposition 25 percent or more of the issued shares of any class or series in the capital stock of the Company belonged to one or more persons in a group comprising the shareholder and persons with whom the shareholder did not deal at arm’s length and in certain other circumstances. Corporations disposing of taxable Canadian property must file a Canadian tax return to report the disposition.
The Convention relieves United States residents from liability for Canadian tax on capital gains derived on a disposition of shares unless:
| | (a) | the value of the shares is derived principally from “real property” in Canada, including the right to explore for or exploit natural resources and rights to amounts computed by reference to production; |
| | (b) | the shareholder was resident in Canada for 120 months during any period of 20 consecutive years preceding, and at any time during the 10 years immediately preceding, the disposition and the shares were owned by him when he or she ceased to be resident in Canada; or |
| | (c) | the shares formed part of the business property of a “permanent establishment” that the holder has or had in Canada within the 12 months preceding the disposition. |
United States Federal Income Tax Consequences
The following is a general discussion of certain possible United States federal income tax consequences, under current law, generally applicable to a U.S. Holder (as hereinafter defined) of common shares of the Company. This discussion does not address all potentially relevant federal income tax matters and it does not address consequences peculiar to persons subject to special provisions of federal income tax law, such as those described below as excluded from the definition of a U.S. Holder. In addition, this discussion does not cover any state, local or foreign tax consequences (see “Taxation - Certain Canadian Federal Tax Consequences” above).
The following discussion is based upon the sections of the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations, published Internal Revenue Service (“IRS”) rulings, published administrative positions of the IRS and court decisions that are currently applicable, any or all of which could be materially and adversely changed, possibly on a retroactive basis, at any time and which are subject to differing interpretations. This discussion does not consider the potential effects, both adverse and beneficial, of any proposed legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time. The Company recommends holders and prospective holders of common shares of the Company consult their own tax advisors about the federal, state, local, and foreign tax consequences of purchasing, owning and disposing of common shares of the Company.
U.S. Holders
As used herein, a “U.S. Holder” means a holder of common shares of the Company who is (i) a citizen or individual resident of the United States, (ii) a corporation or partnership created or organized in or under the laws of the United States or of any political subdivision thereof, (iii) an estate whose income is taxable in the United States irrespective of source or (iv) a trust subject to the primary supervision of a court within the United States and control of a United States fiduciary as described Section 7701(a)(30) of the Code. This summary does not address the tax consequences to, and U.S. Holder does not include, persons subject to specific provisions of federal income tax law, such as tax-exempt organizations, qualified retirement plans, individual retirement accounts and other tax-deferred accounts, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, persons or entities that have a “functional currency” other than the U.S. dollar, shareholders subject to the alternative minimum tax, shareholders who hold common shares as part of a straddle, hedging, conversion transaction, constructive sale or other arrangement involving more than one position, and shareholders who acquired their common shares through the exercise of employee stock options or otherwise as compensation for services. This summary is limited to U.S. Holders who own common shares as capital assets within the meaning of Section 1221 of the Code. This summary does not address the consequences to a person or entity holding an interest in a shareholder or the consequences to a person of the ownership, exercise or disposition of any options, warrants or other rights to acquire common shares.
Distribution on Common Shares of the Company
U.S. Holders receiving dividend distributions (including constructive dividends) with respect to common shares of the Company are required to include in gross income for United States federal income tax purposes the gross amount of such distributions, equal to the U.S. dollar value of such distributions on the date of receipt (based on the exchange rate on such date), to the extent that the Company has current or accumulated earnings and profits, without reduction for any Canadian income tax withheld from such distributions. Such Canadian tax withheld may be credited, subject to certain limitations, against the U.S. Holder’s federal income tax liability or, alternatively, may be deducted in computing the U.S. Holder’s federal taxable income by those who itemize deductions. (See more detailed discussion at “Foreign Tax Credit” below). To the extent that distributions exceed current or accumulated earnings and profits of the Company, they will be treated first as a return of capital up to the U.S. Holder’s adjusted basis in the common shares and thereafter as gain from the sale or exchange of the common shares. Preferential tax rates for long-term capital gains are applicable to a U.S. Holder which is an individual, estate or trust. There are currently no preferential tax rates for long-term capital gains for a U.S. Holder which is a corporation.
In the case of foreign currency received as a dividend that is not converted by the recipient into U.S. dollars on the date of receipt, a U.S. Holder will have a tax basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Generally any gain or loss recognized upon a subsequent sale or other disposition of the foreign currency, including the exchange for U.S. dollars, will be ordinary income or loss. However, an individual whose realized gain does not exceed $200 will not recognize that gain, to the extent that there are no expenses associated with the transaction that meet the requirements for deductibility as a trade or business expense (other than travel expenses in connection with a business trip) or as an expense for the production of income.
Dividends paid on the common shares of the Company generally will not be eligible for the dividends received deduction provided to corporations receiving dividends from certain United States corporations. A U.S. Holder which is a corporation and which owns shares representing at least 10% of the voting power and value of the Company may, under certain circumstances, be entitled to a 70% (or 80% if the U.S. Holder owns shares representing at least 20% of the voting power and value of the Company) deduction of the United States source portion of dividends received from the Company (unless the Company qualifies as a “foreign personal holding company” or a “passive foreign investment company,” as defined below). The availability of this deduction is subject to several complex limitations which are beyond the scope of this discussion.
Under current Treasury Regulations, dividends paid on the Company’s common shares, if any, generally will not be subject to information reporting and generally will not be subject to U.S. backup withholding tax. However, dividends and the proceeds from a sale of the Company’s common shares paid in the U.S. through a U.S. or U.S. related paying agent (including a broker) will be subject to U.S. information reporting requirements and may also be subject to the 31% U.S. backup withholding tax, unless the paying agent is furnished with a duly completed and signed Form W-9 or the recipient is exempt from such procedures. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a refund or a credit against the U.S. Holder’s U.S. federal income tax liability, provided the required information is furnished to the IRS. U.S. Holders are urged to consult their own tax counsel regarding the information reporting and backup withholding rules applicable to the Company’s common shares.
Foreign Tax Credit
A U.S. Holder who pays (or has withheld from distributions) Canadian income tax with respect to the ownership of common shares of the Company may be entitled, at the option of the U.S. Holder, to either receive a deduction or a tax credit for such foreign tax paid or withheld. Generally, it will be more advantageous to claim a credit because a credit reduces United States federal income taxes on a dollar-for-dollar basis, while a deduction merely reduces the taxpayer’s income subject to tax. This election is made on a year-by-year basis and applies to all foreign taxes paid by (or withheld from) the U.S. Holder during that year. There are significant and complex limitations which apply to the credit, among which is the general limitation that the credit cannot exceed the proportionate share of the U.S. Holder’s United States income tax liability that the U.S. Holder’s foreign source income bears to his or its worldwide taxable income. In the determination of the application of this limitation, the various items of income and deduction must be classified into foreign and domestic sources. Complex rules govern this classification process. In addition, this limitation is calculated separately with respect to specific classes of income such as “passive income, “high withholding tax interest,” “financial services income,” “shipping income,” and certain other classifications of income. Dividends distributed by the Company will generally constitute “passive income” or, in the case of certain U.S. Holders, “financial services income” for these purposes. In addition, U.S. Holders which are corporations that own 10% or more of the voting stock of the Company may be entitled to an “indirect” foreign tax credit under Section 902 with respect to the payment of dividends by the Company under certain circumstances and subject to complex rules and limitations. The availability of the foreign tax credit and the application of the limitations on the credit are fact specific, and U.S. Holders of common shares of the Company should consult their own tax advisors regarding their particular circumstances.
Information Reporting and Backup Withholding
U.S. Information reporting requirements may apply with respect to the payment of dividends to U.S. Holders of the Company’s common shares. Under Treasury regulations currently in effect, non-corporate holders may be subject to backup withholding at a 31% rate with respect to dividends when such holder (1) fails to furnish or certify a correct taxpayer identification number to the payor in the required manner, (2) is notified by the IRS that it has failed to report payments of interest or dividends properly or (3) fails, under certain circumstances, to certify that it has been notified by the IRS that it is subject to backup withholding for failure to report interest and dividend payments. Any amounts withheld under the backup withholding rules from a payment to a U.S. Holder generally will be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle the U.S. Holder to a refund, provided that the required information is furnished to the IRS. Certain U.S. Holders, including corporations, are not subject to backup withholding.
Disposition of Common Shares of the Company
A U.S. Holder will recognize gain or loss upon the sale of common shares of the Company equal to the difference, if any, between (i) the amount of cash plus the fair market value of any property received, and (ii) the shareholder’s tax basis in the common shares of the Company. Preferential tax rates apply to long-term capital gains of U.S. Holders which are individuals, estates or trusts. This gain or loss will be capital gain or loss if the common shares are a capital asset in the hands of the U.S. Holder, which will be long-term capital gain or loss if the common shares of the Company are held for more than one year. Deductions for net capital losses are subject to significant limitations. For U.S. Holders who are not corporations, any unused portion of such net capital loss may be carried over to be used in later tax years until such net capital loss is thereby exhausted. For U.S. Holders that are corporations (other than corporations subject to Subchapter S of the Code), an unused net capital loss may be carried back three years and carried forward five years from the loss year to be offset against capital gains until such net capital loss is thereby exhausted.
Currency Exchange Gains or Losses
U.S. Holders generally are required to calculate their taxable incomes in United States dollars. Accordingly, a U.S. Holder who purchases common shares of the Company with Canadian dollars will be required to determine the tax basis of such shares in United States dollars based on the exchange rate prevailing on the settlement date of the purchase (and may be required to recognize the unrealized gain or loss, if any, in the Canadian currency surrender in the purchase transaction). Similarly, a U.S. Holder receiving dividends or sales proceeds from common shares of the Company in Canadian dollars will be required to compute the dividend income or the amount realized on the sale, as the case may be, in United States dollars based on the exchange rate prevailing at the time of receipt in the case of dividends and on the settlement date in the case of sales on an established securities exchange. Gain or loss, if any, recognized on a disposition of Canadian currency in connection with the described transactions generally will be treated as ordinary gain or loss.
Other Considerations
In the following circumstances, the above sections of this discussion may not describe the United States federal income tax consequences resulting from the holding and disposition of common shares:
Foreign Personal Holding Company
If at any time during a taxable year (i) more than 50% of the total combined voting power or the total value of the Company’s outstanding shares is owned, directly or indirectly, by five or fewer individuals who are citizens or residents of the United States and (ii) 60% (50% in some circumstances) or more of the Company’s gross income for such year was “foreign personal holding company income” (e.g. dividends, interest and similar income), the Company may be treated as a “foreign personal holding company.” In that event, U.S. Holders that hold common shares would be required to include in gross income for such year their allocable portions of such “foreign personal holding company income” to the extent the Company does not actually distribute such income. The Company does not believe that it currently qualifies as a foreign personal holding company. However, there can be no assurance that the Company will not be considered a foreign personal holding company for the current or any future taxable year.
Foreign Investment Company
If 50% or more of the combined voting power or total value of the Company’s outstanding shares is held, directly or indirectly, by citizens or residents of the United States, United States domestic partnerships or corporations, or estates or trusts other than foreign estates or trusts (as defined by the Code Section 7701(a)(31)), and the Company is found to be engaged primarily in the business of investing, reinvesting, or trading in securities, commodities, or any interest therein, it is possible that the Company may be treated as a “foreign investment company” as defined in Section 1246 of the Code, causing all or part of any gain realized by a U.S. Holder selling or exchanging common shares to be treated as ordinary income rather than capital gain. The Company does not believe that it currently qualifies as a foreign investment company. However, there can be no assurance that the Company will not be considered a foreign investment company for the current or any future taxable year.
Passive Foreign Investment Company
Certain United States income tax legislation contains rules governing “passive foreign investment companies” (“PFIC”) which can have significant tax effects on U.S. Holders of foreign corporations. These rules do not apply to non-U.S. Holders. Section 1297 of the Code defines a PFIC as a corporation that is not formed in the United States and, for any taxable year, either (i) 75% or more of its gross income is “passive income,” which includes interest, dividends and certain rents and royalties or (ii) the average percentage, by fair market value (or, if the corporation is not publicly traded and either is a controlled foreign corporation or makes an election, by adjusted tax basis), of its assets that produce or are held for the production of “passive income” is 50% or more. If a foreign corporation owns, directly or indirectly, at least 25% by value of the stock a second corporation, then for purposes of the PFIC tests described above, the first corporation will be treated as owning a proportionate share of the assets of, and as receiving a proportionate share of the income of, the second corporation. The Company believes that it qualified as a PFIC for its most recently ended fiscal year and may qualify as a PFIC in subsequent fiscal years. There can be no assurance that the Company’s determination concerning its PFIC status will not be challenged or that it will be able to satisfy record keeping requirements that will be imposed on a qualified electing fund (“QEF”). Each U.S. Holder of the Company is urged to consult a tax advisor with respect to how the PFIC rules affect their tax situation.
A U.S. Holder who holds stock in a foreign corporation during any year in which such corporation qualifies as a PFIC is subject to United States federal income taxation under one of two alternative tax regimes at the election of each such U.S. Holder. The following is a discussion of such two alternative tax regimes applied to such U.S. Holders of the Company. In addition, special rules apply if a foreign corporation qualifies as both a PFIC and a “controlled foreign corporation” (as defined below) and a U.S. Holder owns, actually or constructively, 10% or more of the total combined voting power of all classes of stock entitled to vote of such foreign corporation (See more detailed discussion at “Controlled Foreign Corporation” below).
A U.S. Holder who elects in a timely manner to treat the Company as a QEF (an “Electing U.S. Holder”) will be subject, under Section 1293 of the Code, to current federal income tax for any taxable year in which the Company qualifies as a PFIC on his pro rata share of the Company’s (i) “net capital gain” (the excess of net long-term capital gain over net short-term capital loss), which will be taxed as long-term capital gain to the Electing U.S. Holder and (ii) “ordinary earnings” (the excess of earnings and profits over net capital gain), which will be taxed as ordinary income to the Electing U.S. Holder, in each case, for the shareholder’s taxable year in which (or with which) the Company’s taxable year ends, regardless of whether such amounts are actually distributed.
The effective QEF election also allows the Electing U.S. Holder to (i) generally treat any gain realized on the disposition of his common shares in the Company (or deemed to be realized on the pledge of his shares) as capital gain; (ii) treat his share of the Company’s net capital gain, if any, as long-term capital gain instead of ordinary income; and (iii) either avoid interest charges resulting from PFIC status altogether, or make an annual election, subject to certain limitations, to defer payment of current taxes on his share of the Company’s annual realized net capital gain and ordinary earnings subject, however, to an interest charge. If the Electing U.S. Holder is not a corporation, such an interest charge would be treated as “personal interest” that is not deductible.
The procedure a U.S. Holder must comply with in making an effective QEF election will depend on whether the year of the election is the first year in the U.S. Holder’s holding period in which the Company is a PFIC. If the U.S. Holder makes a QEF election in such first year, i.e., a timely QEF election, then the U.S. Holder may make the QEF election by simply filing the appropriate documents at the time the U.S. Holder files his tax return for such first year. If, however, the Company qualified as a PFIC in a prior year, then in addition to filing documents, the U.S. Holder must elect to recognize (i) under the rules of Section 1291 of the Code (discussed herein), any gain that he would otherwise recognize if the U.S. Holder sold his stock on the qualification date or (ii) if the Company is a controlled foreign corporation, the U.S. Holder’s pro rata share of the Company’s post-1986 earnings and profits as of the qualification date. The qualification date is the first day of the Company’s first tax year in which the Company qualified as a QEF with respect to such U.S. Holder. The elections to recognize such gain or earnings and profits can only be made if such U.S. Holder’s holding period for the common shares of the Company includes the qualification date. By electing to recognize such gain or earnings and profits, the U.S. Holder will be deemed to have made a timely QEF election. A U.S. Holder who made elections to recognize gain or earnings and profits after May 1, 1992 and before January 27, 1997 may, under certain circumstances, elect to change such U.S. Holder’s qualification date to the first day of the first QEF year. U.S. Holders are urged to consult a tax advisor regarding the availability of and procedure for electing to recognize gain or earnings and profits under the foregoing rules.
A QEF election, once made with respect to the Company, applies to the tax year for which it was made and to all subsequent tax years, unless the election is invalidated or terminated, or the IRS consents to revocation of the election. If a QEF election is made by a U.S. Holder and the Company ceases to qualify as a PFIC in a subsequent tax year, the QEF election will remain in effect, although not applicable, during those tax years in which the Company does not qualify as a PFIC. Therefore, if the Company again qualifies as a PFIC in a subsequent tax year, the QEF election will be effective and the U.S. Holder will be subject to the rules described above for Electing U.S. Holders in such tax year and any subsequent tax years in which the Company qualifies as a PFIC. In addition, the QEF election remains in effect, although not applicable, with respect to an Electing U.S. Holder even after such U.S. Holder disposes of all of his or its direct and indirect interest in the shares of the Company. Therefore, if such U.S. Holder reacquires an interest in the Company, that U.S. Holder will be subject to the rules described above for Electing U.S. Holders for each tax year in which the Company qualifies as a PFIC.
If a U.S. Holder does not make a timely QEF election during a year in which it holds (or is deemed to have held) the common shares in question and the Company is a PFIC (a “Non-Electing U.S. Holder”), then special taxation rules under Section 1291 of the Code will apply to (i) gains realized on the disposition (or deemed to be realized by reasons of a pledge) of his common shares in the Company and (ii) certain “excess distributions” (generally, distributions received in the current taxable year that are in excess of 125% of the average distributions received during the three preceding years or, if shorter, the U.S. Holder’s holding period) by the Company.
A Non-Electing U.S. Holder generally would be required to pro rate all gains realized on the disposition of his common shares in the Company and all excess distributions on his common shares in the Company over the entire holding period for the common shares. All gains or excess distributions allocated to prior years of the U.S. Holder (other than years prior to the first taxable year of the Company during such U.S. Holder’s holding period and beginning after January 1, 1987 for which it was a PFIC) would be taxed at the highest tax rate for each such prior year applicable to ordinary income. The Non-Electing U.S. Holder also would be liable for interest on the foregoing tax liability for each such prior year calculated as if such liability had been due with respect to each such prior year. A Non-Electing U.S. Holder that is not a corporation must treat this interest charge as “personal interest” which, as discussed above, is wholly nondeductible. The balance of the gain or the excess distribution will be treated as ordinary income in the year of the disposition or distribution, and no interest charge will be incurred with respect to such balance.
If the Company is a PFIC for any taxable year during which a Non-Electing U.S. Holder holds common shares of the Company, then the Company will continue to be treated as a PFIC with respect to such common shares in the Company, even if it is no longer definitionally a PFIC. A Non-Electing U.S. Holder may terminate this deemed PFIC status by electing to recognize gain (which will be taxed under the rules discussed above for Non-Electing U.S. Holders) as if such common shares in the Company had been sold on the last day of the last taxable year for which it was a PFIC.
Effective for tax years of U.S. Holders beginning after December 31, 1997, U.S. Holders who hold, actually or constructively, marketable stock (as specifically defined in the Treasury Regulations) of a foreign corporation that qualifies as a PFIC may annually elect to mark such stock to the market (a “mark-to-market election”). If such an election is made, such U.S. Holder will generally not be subject to the special taxation rules of Section 1291 discussed above. However, if the mark-to-market election is made by a Non-Electing U.S. Holder after the beginning of the holding period for the PFIC stock, then the Section 1291 rules will apply to certain dispositions of, distributions on and other amounts taxable with respect to the common shares in the Company. A U.S. Holder who makes the mark-to market election will include in income for the taxable year for which the election was made an amount equal to the excess, if any, of the fair market value of the common shares of the Company as of the close of such tax year over such U.S. Holder’s adjusted basis in such common shares. In addition, the U.S. Holder is allowed a deduction for the lesser of (i) the excess, if any, of such U.S. Holder’s adjusted tax basis in the common shares over the fair market value of such shares as of the close of the tax year, or (ii) the excess, if any, of (A) the mark-to-market gains for the common shares in the Company included by such U.S. Holder for prior tax years, including any amount which would have been included for any prior tax year but for the Section 1291 interest on tax deferral rules discussed above with respect to Non-Electing U.S. Holders, over (B) the mark-to-market losses for shares that were allowed as deductions for prior tax years. A U.S. Holder’s adjusted tax basis in the common shares of the Company will be adjusted to reflect the amount included in or deducted from income as a result of a mark-to-market election. A mark-to-market election applies to the taxable year in which the election is made and to each subsequent taxable year, unless the common shares of the Company cease to be marketable, as specifically defined, or the IRS consents to revocation of the election. Because the IRS has not established procedures for making a mark-to-market election, U.S. Holders should consult their tax advisor regarding the manner of making such an election.
Under Section 1291(f) of the Code, the IRS has issued Treasury Regulations that, subject to certain exceptions, would treat as taxable certain transfers of PFIC stock by Non-Electing U.S. Holders that are generally not otherwise taxed, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death. Generally, in such cases the basis of the common shares of the Company in the hands of the transferee and the basis of any property received in the exchange for those common shares would be increased by the amount of gain recognized. Under the Proposed Treasury Regulations, an Electing U.S. Holder would not be taxed on certain transfers of PFIC stock, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death. The transferee’s basis in this case will depend on the manner of the transfer. The specific tax effect to the U.S. Holder and the transferee may vary based on the manner in which the common shares are transferred. Each U.S. Holder of the Company is urged to consult a tax advisor with respect to how the PFIC rules affect their tax situation.
Certain special, generally adverse, rules will apply with respect to common shares of the Company while the Company is a PFIC whether or not it is treated as a QEF. For example under Section 1298(b)(6) of the Code, a U.S. Holder who uses PFIC stock as security for a loan (including a margin loan) will, except as may be provided in regulations, be treated as having made a taxable disposition of such shares.
Controlled Foreign Corporation
If more than 50% of the total combined voting power of all classes of shares entitled to vote or the total value of the shares of the Company is owned, actually or constructively, by citizens or residents of the United States, United States domestic partnerships or corporations, or estates or trusts other than foreign estates or trusts (as defined by the Code Section 7701(a)(31)), each of which own, actually or constructively, 10% or more of the total combined voting power of all classes of shares entitled to vote of the Company (“United States Shareholder”), the Company could be treated as a controlled foreign corporation (“CFC”) under Subpart F of the Code. This classification would effect many complex results, one of which is the inclusion of certain income of a CFC which is subject to current U.S. tax. The United States generally taxes United States Shareholders of a CFC currently on their pro-rata shares of the Subpart F income of the CFC. Such United States Shareholders are generally treated as having received a current distribution out of the CFC’s Subpart F income and are also subject to current U.S. tax on their pro rata shares of the CFC’s earnings invested in U.S. property. The foreign tax credit described above may reduce the U.S. tax on these amounts. In addition, under Section 1248 of the Code, gain from the sale or exchange of shares by a U.S. Holder of common shares of the Company which is or was a United States Shareholder at any time during the five-year period ending with the sale or exchange is treated as ordinary income to the extent of earnings and profits of the Company attributable to the shares sold or exchanged. If a foreign corporation is both a PFIC and a CFC, the foreign corporation generally will not be treated as a PFIC with respect to United States Shareholders of the CFC. This rule generally will be effective for taxable years of United States Shareholders beginning after 1997 and for taxable years of foreign corporations ending with or within such taxable years of United States Shareholders. Special rules apply to United States Shareholders who are subject to the special taxation rules under Section 1291 discussed above with respect to a PFIC. Because of the complexity of Subpart F, a more detailed review of these rules is outside of the scope of this discussion. The Company does not believe that it currently qualifies as a CFC. However, there can be no assurance that the Company will not be considered a CFC for the current or any future taxable year.
This Form 20-F is being filed as an annual report under the Exchange Act, and, as such, there is no requirement to provide any information under this item.
This Form 20-F is being filed as an annual report under the Exchange Act, and, as such, there is no requirement to provide any information under this item.
Any of the documents referred to above can be viewed at our registered office, which is located at Suite 1510 - , 999 West Hastings Street, Vancouver, British Columbia, Canada. All of these documents are in English.
This information is not required for reports filed in the United States.
| Quantitative and Qualitative Disclosures About Market Risk |
At this time, we are not subject to any interest rate risk, foreign currency exchange rate risk or commodity price risk.
| Description of Securities Other than Equity Securities |
Not applicable.
PART II
| Defaults, Dividend Arrearages and Delinquencies |
Not applicable.
| Material Modifications to the Rights of Security Holders and Use of Proceeds |
Not applicable.
As of July 31, 2008, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be (a) included in our periodic reports to the Securities and Exchange Commission is recorded, processed, summarized and reported in a timely manner and (b) disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
In addition, there were no changes in our internal control over financial reporting during our fiscal year covered by this annual report on Form 20-F that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting subsequent to the date of their last evaluation.
| | A. | Audit committee financial expert. |
Our board of directors has determined that we do not have an audit committee financial expert serving on our audit committee. We currently have limited operations and funds and as a result do not believe an audit committee financial expert is required to serve on our audit committee at this time. As our operations grow and finances become more complex, we will commence a search for an audit committee financial expert to be appointed to our board of directors and our audit committee.
We have adopted a Code of Business Conduct that applies to our Chief Executive Officer, Chief Financial Officer and other senior financial officers performing similar functions. The Code of Business Conduct is available for viewing on our website at www.canplats.com.
The following is a summary of the aggregate fees billed in each of the last two fiscal years by our principal accountant.
Principal Accountant Fees and Services | | Fiscal year ended July 31, 2008 | | Fiscal year ended July 31, 2007 |
Audit Fees(1) | | $76,000 | | $22,000 |
All Other Fees | | $21,000 | | Nil |
Total | | $97,000 | | $22,000 |
(1) Includes audit, interim financial statements review and fees in connection with regulatory financial filings
Pre-Approval Policies and Procedures
Our audit committee has established policies and procedures that are intended to control the services provided by our auditors and to monitor their continuing independence. Under these policies, no services may be undertaken by our auditors unless the engagement is specifically approved by our audit committee or the services are included within a category which has been pre-approved by our audit committee. The maximum charge for services is established by the audit committee when the specific engagement is approved or the category of services pre-approved. Management is required to notify the audit committee of the nature and value of pre-approved services undertaken.
Our audit committee will not approve engagements relating to, or pre-approve categories of, non-audit services to be provided by our auditors (i) if such services are of a type the performance of which would cause our auditors to cease to be independent within the meaning of applicable Securities and Exchange Commission rules, and (ii) without consideration, among other things, of whether our auditors are best situated to provide the required services and whether the required services are consistent with their role as auditor.
All services provided by our principal accountant in 2008 were pre-approved by our audit committee.
Not applicable.
Not applicable.
PART III
Our consolidated financial statements are stated in Canadian Dollars (Cdn$) and are prepared in Canadian GAAP, which differs in certain respects from those principles that we would have followed had our financial statements been prepared in accordance with US GAAP. The major measurement differences between Canadian and US GAAP, as they affect us, are disclosed in note 15 to the financial statements.
Table of Contents
The consolidated financial statements and notes thereto as required under Item 17 are attached to this Annual Report, are individually listed under Item 14, and are found immediately following the text of this Annual Report. The audit report of PricewaterhouseCoopers, LLP is included in this Annual Report immediately preceding the financial statements.
Not applicable.
All Financial Statements and Exhibits referred to in this Item 19 are incorporated by reference into this Annual Report.
Exhibit Number | Description |
1.1 | Memorandum, Articles and Certificate of Incorporation incorporated by reference from Exhibit 1.1 to Registration Statement under the Securities Exchange Act of 1934 on Form 20-F, file no. 0-31190 filed on July 30, 2001. |
1.1 | Notice of Articles and Articles of Incorporation incorporated by reference from Exhibit 1.1 to Annual Report under the Securities Exchange Act of 1934 on Form 20-F, file no. 0-31190 filed on December 30, 2005. |
2.1 | Shareholders Rights Plan dated December 15, 2008, between the Company and Computershare Investor Services Inc. incorporated by reference from Report of Foreign Private Issuer under the Securities Exchange Act of 1934 on Form 6-K, file no. 0-31190 filed on December 16, 2008. |
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Canplats Resources Corporation
Consolidated Financial Statements
July 31, 2008, 2007 and 2006 (in Canadian dollars)
Management’s Responsibility for the Financial Statements
The preparation and presentation of the accompanying consolidated financial statements, Management Discussion and Analysis (“MD&A”) and all financial information in the Annual Report are the responsibility of management and have been approved by the Board of Directors.
The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles. Financial statements, by nature, are not precise since they include certain amounts based upon estimates and judgments. When alternative methods exist, management has chosen those it deems to be the most appropriate in the circumstances. The financial information presented elsewhere in the Annual Report is consistent with that in the consolidated financial statements.
Management, under the supervision of and the participation of the Chief Executive Officer and Chief Financial Officer, have a process in place to evaluate disclosure controls and procedures and internal control over financial reporting as required by Canadian and U.S. securities regulations. We, as Chief Executive Officer and Chief Financial Officer, will certify our annual filings with the CSA and SEC as required in Canada by Multilateral Instrument 52-109 and in the United States as required by the Securities Exchange Act of 1934.
The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and is ultimately responsible for reviewing and approving the consolidated financial statements. The Board carries out this responsibility principally through its Audit Committee which is independent from management.
The Audit Committee is appointed by the Board of Directors and reviews the consolidated financial statements and MD&A; considers the report of the external auditors; assesses the adequacy of our internal controls, including management’s assessment described below; examines the fees and expenses for audit services; and recommends to the Board the independent auditors for appointment by the shareholders. The independent auditors have full and free access to the Audit Committee and meet with it to discuss their audit work, our internal control over financial reporting and financial reporting matters. The Audit Committee reports its findings to the Board for consideration when approving the consolidated financial statements for issuance to the shareholders and management’s assessment of the internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting.
Management has assessed the effectiveness of our internal control over financial reporting as at July 31, 2008 using criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as at July 31, 2008.
PricewaterhouseCoopers LLP, our independent auditors, has audited the effectiveness of our internal control over financial reporting as at July 31, 2008, as stated in their report which appears herein.
“R.E. Gordon Davis” “Tom S.Q. Yip”
R.E. Gordon Davis Tom S.Q. Yip
Chairman and Chief Executive Officer Chief Financial Officer
November 20, 2008
Chartered Accountants
PricewaterhouseCoopers Place
250 Howe Street, Suite 700
Vancouver, British Columbia
Canada V6C 3S7
Telephone +1 604 806 7000
Facsimile +1 604 806 7806
INDEPENDENT AUDITORS' REPORT
To the shareholders of Canplats Resources Corporation
We have completed an integrated audit of Canplats Resource Corporation’s (the “Company”) 2008 consolidated financial statements and of its internal control over financial reporting as at July 31, 2008 and audits of its 2007 and 2006 consolidated financial statements. Our opinions, based on our audits, are presented below.
Consolidated financial statements
We have audited the accompanying consolidated balance sheets of Canplats Resources Corporation as at July 31, 2008 and July 31, 2007, and the related consolidated statements of loss, comprehensive loss and deficit and cash flows for each of the years in the three year period ended July 31, 2008. 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 of the Company’s financial statements in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. A financial statement audit also includes assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinions.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as at July 31, 2008 and July 31, 2007 and the results of its operations and its cash flows for each of the years in the three year period ended July 31, 2008 in accordance with Canadian generally accepted accounting principles.
Internal control over financial reporting
We have also audited Canplats Resources Corporation’s internal control over financial reporting as at July 31, 2008, based on criteria established in Internal Control - - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Controls over Financial Reporting. Our responsibility is to express an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.
We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as at July 31, 2008 based on criteria established in Internal Control — Integrated Framework issued by the COSO.
“PricewaterhouseCoopers LLP”
Chartered Accountants
Vancouver, British Columbia
November 20, 2008
PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP and the other member firms of PricwaterhouseCoopers International Limited, each of which is a separate and independent legal entity.(An Exploration Stage Company)
Consolidated Balance Sheets
(expressed in Canadian dollars)
| | 2008 | 2007 |
| | $ | $ |
| ASSETS | | |
| | | |
| Current | | |
| Cash and cash equivalents | 7,343,000 | 2,107,000 |
| Receivables | 23,000 | 6,000 |
| Prepaid expenses and deposits | 96,000 | 10,000 |
| | 7,462,000 | 2,123,000 |
| | | |
| Value added tax recoverable | 1,115,000 | 183,000 |
Mineral properties (note 4) | 14,042,000 | 3,585,000 |
Property, plant and equipment, net (note 5) | 61,000 | - |
| | 22,680,000 | 5,891,000 |
| | | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | |
| | | |
| Current | | |
| Accounts payable and accrued liabilities | 1,454,000 | 53,000 |
| Due to related parties (note 9) | 183,000 | 21,000 |
| | 1,637,000 | 74,000 |
| | | |
Future income tax liability (note 10b) | 910,000 | 218,000 |
| | 2,547,000 | 292,000 |
| | | |
| Shareholders' Equity | | |
| | | |
| Share capital (note 6) | 24,365,000 | 15,539,000 |
| Value assigned to stock options and warrants (note 7 and 8) | 9,961,000 | 658,000 |
| Contributed surplus | 317,000 | 317,000 |
| Deficit | (14,510,000) | (10,915,000) |
| | 20,133,000 | 5,599,000 |
| | 22,680,000 | 5,891,000 |
| | | |
| | | |
Approved by the Board of Directors
“James W. Tutton” “R.E. Gordon Davis”
James W. Tutton R.E. Gordon Davis
(Chairman of the Audit Committee) (Director)
The accompanying notes are an integral part of the consolidated financial statements.
(An Exploration Stage Company)
Consolidated Statements of Loss, Comprehensive Loss and Deficit
(expressed in Canadian dollars, except number of shares)
| | 2008 | 2007 | 2006 |
| | $ | $ | $ |
| | | | |
| Expenses | | | |
| Bank charges | 4,000 | 4,000 | 2,000 |
| Depreciation | 11,000 | - | - |
| General exploration | 41,000 | 129,000 | 135,000 |
| Insurance | 19,000 | 4,000 | 10,000 |
| Investor relations | 350,000 | 89,000 | 88,000 |
| Legal, accounting and audit | 134,000 | 34,000 | 10,000 |
| Listing and filing fees | 18,000 | 10,000 | 14,000 |
| Office and administration | 139,000 | 14,000 | 7,000 |
| Salaries | 277,000 | 61,000 | 58,000 |
| Shareholder relations | 19,000 | 12,000 | 12,000 |
| Stock-based compensation (note 7) | 2,689,000 | 562,000 | - |
| Transfer agents | 13,000 | 12,000 | 12,000 |
| | (3,714,000) | (931,000) | (348,000) |
| | | | |
| Other income (expense) | | | |
| Interest income | 158,000 | 76,000 | 18,000 |
| Foreign exchange gain/(loss) | 64,000 | (17,000) | (12,000) |
| Recovery (write-down) of mineral properties (note 4) | (103,000) | - | 6,000 |
| | 119,000 | 59,000 | 12,000 |
| | | | |
| Loss and comprehensive loss for the year | (3,595,000) | (872,000) | (336,000) |
| | | | |
| Deficit - Beginning of year | (10,915,000) | (10,043,000) | (9,707,000) |
| | | | |
| Deficit - End of year | (14,510,000) | (10,915,000) | (10,043,000) |
| | | | |
| Weighted average number | | | |
| of shares issued | 52,514,514 | 44,709,023 | 32,390,739 |
| | | | |
| Basic and diluted loss per share | (0.07) | (0.02) | (0.01) |
The accompanying notes are an integral part of the consolidated financial statements.
(An Exploration Stage Company)
Consolidated Statements of Cash Flows
(expressed in Canadian dollars)
| | | 2008 | | 2007 | | 2006 |
| | | $ | | $ | | $ |
| | | | | | | |
| Operating activities | | | | | | |
| Loss for the year | | (3,595,000) | | (872,000) | | (336,000) |
| Non-cash items: | | | | | | |
| Stock-based compensation | | 2,689,000 | | 562,000 | | - |
| Depreciation | | 11,000 | | - | | - |
| Write-down (recovery) of mineral properties | | 103,000 | | - | | (6,000) |
| Decrease (increase) in non-cash working capital: | | | | | | |
| Accounts receivable and prepaid expenses | | (103,000) | | 18,000 | | (6,000) |
| Accounts payable and accrued liabilities | | 249,000 | | 14,000 | | (10,000) |
| Due to related parties | | 162,000 | | (27,000) | | (40,000) |
| | | | | | | |
| Cash used in operating activities | | (484,000) | | (305,000) | | (398,000) |
| | | | | | | |
| Financing activities | | | | | | |
| Shares and warrants issued for cash | | 16,317,000 | | 2,125,000 | | 2,062,000 |
| Share issue costs | | (1,118,000) | | - | | (6,000) |
| | | | | | | |
| Cash generated by financing activities | | 15,199,000 | | 2,125,000 | | 2,056,000 |
| | | | | | | |
| Investing activities | | | | | | |
| Mineral property costs | | (8,475,000) | | (1,173,000) | | (596,000) |
| Sale (purchase) of property, plant, and equipment | | (72,000) | | - | | 42,000 |
| Increase in VAT recoverable | | (932,000) | | (130,000) | | - |
| | | | | | | |
| Cash used in investing activities | | (9,479,000) | | (1,303,000) | | (554,000) |
| | | | | | | |
| Increase in cash | | 5,236,000 | | 517,000 | | 1,104,000 |
| | | | | | | |
| Cash and cash equivalents - beginning of year | | 2,107,000 | | 1,590,000 | | 486,000 |
| | | | | | | |
| Cash and cash equivalents - end of year | | 7,343,000 | | 2,107,000 | | 1,590,000 |
| | | | | | | |
| | | | | | | |
The accompanying notes are an integral part of the consolidated financial statements.
(An Exploration Stage Company)
Consolidated Statements of Shareholders’ Equity
(expressed in Canadian dollars, except number of shares)
| | Number of | | Value Assigned | | | Total |
| | Common | Share Capital | to Stock Options | Contributed | | Shareholders' |
| | Shares | Issued | and Warrants | Surplus | Deficit | Equity |
| | | $ | $ | $ | $ | $ |
| | | | | | | |
| Balance, July 31, 2005 | 29,442,306 | 11,340,000 | 431,000 | - | (9,707,000) | 2,064,000 |
| | | | | | | |
| Issued for cash: | | | | | | |
| Private placements | 10,150,000 | 1,417,000 | 612,000 | - | - | 2,029,000 |
| Exercise of options | 50,000 | 6,000 | - | - | - | 6,000 |
| Exercise of warrants | 105,000 | 26,000 | - | - | - | 26,000 |
| Non-cash: | | | | | | |
| Value assigned to warrants granted | - | - | 73,000 | - | - | 73,000 |
| Value assigned to options exercised | - | 4,000 | (4,000) | - | - | - |
| Value assigned to warrants exercised | - | 10,000 | (10,000) | - | - | - |
| Value assigned to expired warrants | | | | | | |
| and options | - | - | (317,000) | 317,000 | - | - |
| Shares issued for finder's fee | 580,500 | 81,000 | - | - | - | 81,000 |
| Shares issue costs | - | (159,000) | - | - | - | (159,000) |
| Loss for the year | - | - | - | - | (336,000) | (336,000) |
| | | | | | | |
| Balance, July 31, 2006 | 40,327,806 | 12,725,000 | 785,000 | 317,000 | (10,043,000) | 3,784,000 |
| | | | | | | |
| Issued for cash: | | | | | | |
| Exercise of options | 75,000 | 23,000 | - | - | - | 23,000 |
| Exercise of warrants | 8,407,250 | 2,102,000 | - | - | - | 2,102,000 |
| Non-cash: | | | | | | |
| Value assigned to options granted | - | - | 562,000 | - | - | 562,000 |
| Value assigned to options exercised | - | 15,000 | (15,000) | - | - | - |
| Value assigned to warrants exercised | - | 674,000 | (674,000) | - | - | - |
| Loss for the year | - | - | - | - | (872,000) | (872,000) |
| | | | | | | |
| Balance, July 31, 2007 | 48,810,056 | 15,539,000 | 658,000 | 317,000 | (10,915,000) | 5,599,000 |
| | | | | | | |
| Issued for cash: | | | | | | |
| Private placement | 7,000,000 | 14,632,000 | - | - | - | 14,632,000 |
| Exercise of options | 874,000 | 375,000 | - | - | - | 375,000 |
| Exercise of warrants | 64,000 | 192,000 | - | - | - | 192,000 |
| Non-cash: | | | | | | |
| Value assigned to options granted | - | - | 2,930,000 | - | - | 2,930,000 |
| Value assigned to options exercised | - | 245,000 | (245,000) | - | - | - |
| Value assigned to warrants | - | (5,927,000) | 5,927,000 | - | - | - |
| Value assigned to warrants exercised | - | 108,000 | (108,000) | - | - | - |
| Value assigned to underwriters' warrants | - | (799,000) | 799,000 | - | - | - |
| Loss for the year | - | - | - | - | (3,595,000) | (3,595,000) |
| | | | | | | |
| Balance, July 31, 2008 | 56,748,056 | 24,365,000 | 9,961,000 | 317,000 | (14,510,000) | 20,133,000 |
The accompanying notes are an integral part of the consolidated financial statements.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended July 31, 2008, 2007 and 2006
(expressed in Canadian dollars, unless otherwise stated)
| 1. | NATURE AND CONTINUANCE OF OPERATIONS |
Canplats Resources Corporation (“Canplats” or “the Company”) is in the process of acquiring, exploring and developing precious and base metal mineral properties. The Company will attempt to bring the properties to production, structure joint ventures with others, option or lease properties to third parties, or sell the properties outright. The Company has not determined whether these properties contain ore reserves that are economically recoverable and the Company is considered to be in the exploration stage.
These consolidated financial statements have been prepared assuming the Company will continue on a going-concern basis. Management has estimated that the Company will have adequate funds from existing working capital to meet its corporate, administrative and property obligations for the coming year. If the Company is to advance or develop its mineral properties further, it will be necessary to obtain additional financing and while it has been successful in the past, there can be no assurance that it will be able to do so in the future.
The recoverability of the amounts shown for mineral properties and related deferred exploration costs is dependent upon the existence of economically recoverable reserves, securing and maintaining title and beneficial interest in the properties, the ability of the Company to obtain necessary financing to complete the development, and upon future profitable production or sale. The amounts shown as deferred exploration expenditures and property acquisition costs represent net costs to date, less amounts amortized and written-off, and do not necessarily represent present or future values.
Although the Company has taken steps to verify title to mineral properties in which it has an interest, in accordance with industry standards for the current stage of exploration of such properties, these procedures do not guarantee the Company’s title. Property title may be subject to unregistered prior agreements or transfers and may be affected by undetected defects.
| 2. | SIGNIFICANT ACCOUNTING POLICIES |
Generally accepted accounting principles
These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (Canadian GAAP). The significant differences between those principles and those that would be applied under U.S. generally accepted accounting principles and requirements promulgated by the Securities and Exchange Commission (collectively U.S. GAAP), as they affect the Company, are disclosed in note 15.
These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Canplats de Mexico S.A. de C.V. All inter-company balances are eliminated upon consolidation.
The accompanying notes are an integral part of the consolidated financial statements.
Canplats Resources Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended July 31, 2008, 2007 and 2006
(expressed in Canadian dollars, unless otherwise stated)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (continued) |
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes. Significant areas where management’s judgment is applied are the determination of asset impairment, stock-based compensation and future income tax balances. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications of prior year balances have been made to conform to the current year presentation. These reclassifications have had no impact on previously reported total assets or results of operations, and do not affect previously reported cash flows from operating or financing activities.
Foreign currency translation
The Company’s subsidiary is an integrated foreign operation and its results and financial position are translated into Canadian dollars using the temporal method. Monetary items are translated at the exchange rate in effect at the balance sheet date; non-monetary items are translated at historical exchange rates. Income and expense items are translated at the average exchange rate for the period. Translation gains and losses are reflected in Consolidated Statements of Loss, Comprehensive Loss and Deficit unless they relate to a specific mineral property in which case, they are capitalized.
Cash and cash equivalents
Cash and cash equivalents include cash, bank balances and highly liquid deposits with maturity of three months or less at date of acquisition. Cash equivalents are designated as held-for-trading and are stated at market value.
Mineral property costs
The Company records its interests in mineral properties at cost. The costs of acquiring mineral properties and related exploration and development expenditures, holding costs to maintain a property are deferred and would be amortized against future production following commencement of commercial production or are written-off if the properties are sold, allowed to lapse or abandoned. General exploration, overhead and administration costs are expensed in the period incurred.
Option payments received are treated as a reduction of the carrying value of the related mineral property and deferred costs until the receipts are in excess of costs incurred, at which time they are credited to income. Option payments are at the discretion of the optionee, and accordingly, are recorded on a cash basis.
The accompanying notes are an integral part of the consolidated financial statements.
Canplats Resources Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended July 31, 2008, 2007 and 2006
(expressed in Canadian dollars, unless otherwise stated)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (continued) |
Management of the Company regularly reviews the net carrying value of each mineral property. Where events or changes in circumstances suggest impairment, estimated future cash flows are calculated using estimated future prices, proven and probable reserves, value beyond proven and probable reserves, probability weighted outcomes and operating capital and reclamation costs on an undiscounted basis. If it is determined that the future cash flows are less than the carrying value, a write-down to the estimated fair value is expensed for the period. The Company presently has no proven or probable reserves. Where estimates of future net cash flows are not available and where other conditions suggest impairment, management assesses if carrying values can be recovered. If the carrying values exceed estimated recoverable values, then the project is written-down to estimated fair values with the write-down expensed in the period.
Management’s estimates of future mineral prices, recoverable resources, initial and operating capital and reclamation costs are subject to certain risks and uncertainties that may affect the recoverability of mineral property costs. Although management has made its best estimate of these factors, it is possible that changes could occur that could adversely affect management’s estimate of the net cash flows to be generated from its properties.
Property, plant and equipment
Property, plant and equipment are recorded at cost less accumulated depreciation. Depreciation is calculated over the useful life of the asset at rates ranging from 15% to 30% per annum once the asset is available for use. Leasehold improvements are amortized over the shorter of their economic lives and the lease term plus lease renewals, if any, only when such renewals are reasonably assured. Depreciation charges on assets that are directly related to mineral properties are allocated to that mineral property. We assess if an impairment loss exists when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized if the carrying amount of a long-lived asset exceeds the sum of the undiscounted cash flows expected to result from its use and eventual disposition. The amount of the loss is measured as the amount by which long-lived asset’s carrying value exceeds its fair value.
Stock-based compensation
Compensation expense for stock options granted to employees and warrants issued are measured at their fair value at the grant date. Compensation expense for stock options granted to consultants are initially measured at their fair value at the grant date and are revalued on each balance sheet date until they are fully vested. Stock options and warrants are measured using the Black-Scholes valuation model and are recognized over the vesting period of the options and warrants granted using the graded method. In situations where stock options are granted in exchange for services related to specific mineral properties, the expense is capitalized against that mineral property. The value assigned to stock options and warrants within shareholders’ equity is subsequently reduced if the options and warrants are exercised with the amount recorded credited to share capital. Any values assigned to stock options and warrants that have expired are credited to contributed surplus.
The accompanying notes are an integral part of the consolidated financial statements.
Canplats Resources Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended July 31, 2008, 2007 and 2006
(expressed in Canadian dollars, unless otherwise stated)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (continued) |
Income taxes
The liability method of income tax allocation is used and is based on differences between financial reporting and tax bases of assets and liabilities. Temporary differences arising from the difference between the tax basis of an asset or liability and its carrying amount on the balance sheet are used to calculate future income tax liabilities or assets. Future income tax liabilities or assets are calculated using the tax rates anticipated to apply in the periods that the temporary differences are expected to reverse. Future tax assets are recognized to the extent that they are considered more likely than not to be realized.
Loss per common share
Loss per share is calculated based on the weighted average number of common shares issued and outstanding during the year. The Company follows the treasury stock method in the calculation of diluted earnings per share. Under this method, the weighted average number of shares includes the potential net issuances of common shares for “in-the-money” options and warrants assuming the proceeds are used to repurchase common shares at the average market price during the period, if dilutive. The effect of potential issuances of shares under options and warrants would be anti-dilutive if a loss is reported, and therefore basic and diluted losses per share are the same.
Recent accounting pronouncements
Recent accounting pronouncements issued which may impact us in the future are as follows:
Capital Disclosures
CICA Handbook Section 1535, Capital Disclosures, establishes standards for disclosing information about an entity's capital and how it is managed. Under this standard the Company will be required to disclose the following, based on the information provided internally to the entity's key management personnel:
| (i) | qualitative information about its objectives, policies and processes for managing capital; |
| (ii) | summary quantitative data about what it manages as capital; |
| (iii) | whether during the period it complied with any externally imposed capital requirements to which it is subject; and |
| (iv) | when the company has not complied with such externally imposed capital requirements, the consequences of such non-compliance. |
This standard is effective for the Company’s interim and annual financial statements beginning on August 1, 2008.
The accompanying notes are an integral part of the consolidated financial statements.
Canplats Resources Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended July 31, 2008, 2007 and 2006
(expressed in Canadian dollars, unless otherwise stated)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (continued) |
Financial Instruments Presentation and Disclosures
CICA Handbook Section 3862, Financial Instruments – Disclosures, and Section 3863, Financial Instruments – Presentation, requires entities to provide disclosure of quantitative and qualitative information in their financial statements that enable users to evaluate (a) the significance of financial instruments for the entity's financial position and performance; and (b) the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the balance sheet date, and management’s objectives, policies and procedures for managing such risks. Entities will be required to disclose the measurement basis or bases used, and the criteria used to determine classification for different types of instruments.
The Sections require specific disclosures to be made, including the criteria for:
| (i) | designating financial assets and liabilities as held for trading; |
| (ii) | designating financial assets as available-for-sale; and |
| (iii) | determining when impairment is recorded against the related financial asset or when an allowance account is used. |
These standards are effective for the Company’s interim and annual financial statements beginning on August 1, 2008.
General Standards on Financial Statement Presentation
CICA Handbook Section 1400, General Standards on Financial Statement Presentation, has been amended to include requirements to assess and disclose an entity’s ability to continue as a going concern. The changes are effective for the Company’s interim and annual financial statements beginning August 1, 2008. The Company does not expect the adoption of these changes to have an impact on its financial statements.
Goodwill and Intangible Assets
CICA Handbook Section 3064, Goodwill and Intangible Assets, establishes revised standards for recognition, measurement, presentation and disclosure of goodwill and intangible assets. Concurrent with the introduction of this standard, the CICA withdrew EIC 27, Revenues and Expenses during the pre-operating period. As a result of the withdrawal of EIC 27, companies will no longer be able to defer costs and revenues incurred prior to commercial production at new mine operations. The changes are effective for interim and annual financial statements beginning August 1, 2009. The Company does not expect the adoption of these changes to have an impact on its financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
Canplats Resources Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended July 31, 2008, 2007 and 2006
(expressed in Canadian dollars, unless otherwise stated)
| 2. | SIGNIFICANT ACCOUNTING POLICIES (continued) |
International Financial Reporting Standards ("IFRS")
In 2006, the Canadian Accounting Standards Board ("AcSB") published a new strategic plan that will significantly affect financial reporting requirements for Canadian companies. The AcSB strategic plan outlines the convergence of Canadian GAAP with IFRS over an expected five year transitional period. In February 2008 the AcSB announced that 2011 is the changeover date for publicly-listed companies to replace Canadian GAAP with IFRS. The date is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The transition date of January 1, 2011 will require the restatement for comparative purposes of amounts reported by the Company for the year ended July 31, 2011. While the Company has begun assessing the adoption of IFRS for 2011, the financial reporting impact of the transition to IFRS cannot be reasonably estimated at this time.
3. CHANGES IN ACCOUNTING POLICIES
Effective August 1, 2007, the Company prospectively adopted the following new accounting standards and related amendments to other standards on financial instruments issued by the CICA. Accordingly, prior periods have not been restated.
Financial Instruments – Recognition and Measurement, Section 3855 and Financial Instruments – Disclosure and Presentation, Section 3861
These standards requires all financial instruments to be classified into one of the following five categories: held for trading, held-to-maturity investments, loans and receivables, available-for-sale financial assets or other financial liabilities. All financial instruments within its scope, including derivatives, are to be included on the Company’s balance sheet and measured either at fair value or, in certain circumstances when fair value may not be considered most relevant, at cost or amortized cost. Depending on the classification, changes in fair value are to be recognized in the statements of operations and comprehensive income.
All held-for-trading and available-for-sale financial instruments are recorded on the balance sheet at fair value. All other financial instruments will be recorded at cost or amortized cost, subject to impairment reviews. Transaction costs incurred to acquire held-for-trading financial instruments are recorded to the Consolidated Statements of Loss. Transaction costs incurred to acquire all other financial instruments are included in the underlying balance.
The Company’s financial instruments include cash and cash equivalents, receivables, accounts payables and accrued liabilities, and amounts due to related parties. Cash and cash equivalents are designated as held-for trading. All other financial instruments are either loans and receivables, or other financial liabilities and are recorded at cost. The fair value of these financial instruments approximates their carrying value due to their short term nature and capacity of prompt liquidation. Therefore, the adoption of Section 3855 and 3861 had no impact on the Company’s financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
Canplats Resources Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended July 31, 2008, 2007 and 2006
(expressed in Canadian dollars, unless otherwise stated)
Hedges, Section 3865
This standard is applicable when a company chooses to designate a hedging relationship for accounting purposes. The Company currently does not have any hedges.
3. CHANGES IN ACCOUNTING POLICIES (continued)
Comprehensive Income, Section 1530
This standard requires the presentation of a statement of comprehensive income and its components. Comprehensive income is the change in net assets that results from transactions, events and circumstances from sources other than shareholders and includes items such as unrealized gains or losses on available-for-sale investments. Accumulated other comprehensive income includes the holding gains and losses from available-for-sale securities which are not included in net income (loss) until realized. The adoption of Section 1530 had no material impact on the Company’s financial statements.
4. MINERAL PROPERTY COSTS
The Company’s mineral properties are as follows:
| | | Rodeo | Yerbabuena | El Rincon | Mecatona | Maijoma | El Alamo | Camino Rojo | |
| | | (Mexico) | (Mexico) | (Mexico) | (Mexico) | (Mexico) | (Mexico) | (Mexico) | Total |
| | | $ | $ | $ | $ | $ | $ | $ | $ |
| | | | | | | | | | |
| Balance, July 31, 2007 | 1,304,000 | 1,164,000 | 166,000 | 513,000 | 227,000 | 190,000 | 21,000 | 3,585,000 |
| | | | | | | | | | |
| Acquisition costs | 10,000 | 30,000 | 10,000 | 60,000 | 10,000 | 31,000 | 139,000 | 290,000 |
| | | | | | | | | | |
| Assaying | 2,000 | - | - | - | - | - | 2,141,000 | 2,143,000 |
| Claim taxes | 28,000 | 25,000 | 22,000 | 6,000 | 14,000 | 69,000 | 209,000 | 373,000 |
| Consulting and contracting service | - | - | - | - | - | - | 15,000 | 15,000 |
| Drafting salaries and consulting | - | - | - | - | - | - | 4,000 | 4,000 |
| Drilling | - | - | - | - | - | - | 4,782,000 | 4,782,000 |
| Environmental | - | - | - | - | - | - | 12,000 | 12,000 |
| Field administration | 4,000 | 1,000 | - | 1,000 | 1,000 | 2,000 | 120,000 | 129,000 |
| Foreign exchange | - | - | - | - | - | - | 25,000 | 25,000 |
| Future income taxes | - | 1,000 | 7,000 | 7,000 | 7,000 | 14,000 | 656,000 | 692,000 |
| Geology salaries and consulting | 1,000 | - | - | 2,000 | 5,000 | 3,000 | 936,000 | 947,000 |
| Geophysics airborne and ground | - | 1,000 | - | - | - | - | 428,000 | 429,000 |
| Equipment | - | - | - | - | - | - | 270,000 | 270,000 |
| Licenses and government fees | - | - | - | - | - | - | 2,000 | 2,000 |
| Living costs and travel | - | 1,000 | - | 1,000 | - | 1,000 | 182,000 | 185,000 |
| Maps, prints and film | - | - | - | - | - | - | 111,000 | 111,000 |
| Metallurgy | - | - | - | - | - | - | 19,000 | 19,000 |
| Storage | - | - | - | - | - | - | 10,000 | 10,000 |
| Supplies | - | - | - | - | - | - | 30,000 | 30,000 |
| Trenching | - | - | - | - | - | - | 92,000 | 92,000 |
| | | | | | | | | | |
| Exploration costs for the year | 35,000 | 29,000 | 29,000 | 17,000 | 27,000 | 89,000 | 10,044,000 | 10,270,000 |
| | | | | | | | | | |
| Write-down of mineral property | - | - | - | (103,000) | - | - | - | (103,000) |
| | | | | | | | | | |
| Balance, July 31, 2008 | 1,349,000 | 1,223,000 | 205,000 | 487,000 | 264,000 | 310,000 | 10,204,000 | 14,042,000 |
The accompanying notes are an integral part of the consolidated financial statements.
Canplats Resources Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended July 31, 2008, 2007 and 2006
(expressed in Canadian dollars, unless otherwise stated)
4. MINERAL PROPERTY COSTS (continued)
| | | Rodeo | Yerbabuena | El Rincon | Mecatona | Maijoma | El Alamo | Camino Rojo | |
| | | (Mexico) | (Mexico) | (Mexico) | (Mexico) | (Mexico) | (Mexico) | (Mexico) | Total |
| | | $ | $ | $ | $ | $ | $ | $ | $ |
| | | | | | | | | | |
| Balance, July 31, 2006 | 780,000 | 1,054,000 | 133,000 | 370,000 | 51,000 | 7,000 | - | 2,395,000 |
| | | | | | | | | | |
| Acquisition costs | 11,000 | 34,000 | 11,000 | 40,000 | 17,000 | 17,000 | 16,000 | 146,000 |
| | | | | | | | | | |
| Assaying | 20,000 | - | - | 26,000 | 13,000 | - | 3,000 | 62,000 |
| Claim taxes | 21,000 | 15,000 | 19,000 | 21,000 | 17,000 | 29,000 | - | 122,000 |
| Consulting | 5,000 | 1,000 | - | 1,000 | 4,000 | 3,000 | - | 14,000 |
| Drilling | 371,000 | - | - | - | - | - | - | 371,000 |
| Equipment | 41,000 | 1,000 | - | 1,000 | 3,000 | 1,000 | - | 47,000 |
| Field administration | 21,000 | 5,000 | 1,000 | 8,000 | 6,000 | 6,000 | - | 47,000 |
| Foreign exchange | (13,000) | 5,000 | - | 7,000 | 2,000 | (4,000) | - | (3,000) |
| Future income taxes | 1,000 | - | 2,000 | 5,000 | 4,000 | 4,000 | 2,000 | 18,000 |
| Gas and oil | 2,000 | - | - | - | - | - | - | 2,000 |
| Geology salaries and consulting | 2,000 | 1,000 | - | 21,000 | 6,000 | - | - | 30,000 |
| Geophysics | - | 27,000 | - | - | 46,000 | 65,000 | - | 138,000 |
| Legal | 1,000 | - | - | 1,000 | - | - | - | 2,000 |
| Living costs and travel | 12,000 | 4,000 | - | 5,000 | 14,000 | 12,000 | - | 47,000 |
| Maps, prints and film | - | - | - | - | 2,000 | - | - | 2,000 |
| Storage | 6,000 | 2,000 | - | 2,000 | - | - | - | 10,000 |
| Supervision project and labour | 23,000 | 15,000 | - | 5,000 | 42,000 | 50,000 | - | 135,000 |
| | | | | | | | | | |
| Exploration costs for the year | 513,000 | 76,000 | 22,000 | 103,000 | 159,000 | 166,000 | 5,000 | 1,044,000 |
| | | | | | | | | | |
| Balance, July 31, 2007 | 1,304,000 | 1,164,000 | 166,000 | 513,000 | 227,000 | 190,000 | 21,000 | 3,585,000 |
PRINCIPAL PROPERTIES
Rodeo, Mexico
In fiscal 2003, the Company acquired through staking a 100% interest in the Rodeo property located 150 kilometers north of Durango, Mexico. The property is subject to a finder’s fee consisting of US$5,000 on acquisition; the greater of US$5,000 or 2% of all direct exploration expenditures every six months thereafter and a 0.25% net smelter royalty. The maximum amount payable in respect of this finder’s fee is US$500,000. The property is also subject to a right of first offer.
Yerbabuena, Mexico
In fiscal 2003, the Company entered into a lease with an option to purchase agreement for a 100% interest in the Yerbabuena epithermal gold prospect located approximately 150 kilometres north-northwest of Durango, Mexico. The property is subject to a 2% net smelter royalty.
Under the terms of the agreement with La Cuesta International, Inc. (“LCI”), owner of the Yerbabuena property, the Company may make staged payments totalling US$62,500 over three years and US$30,000 annually thereafter, plus applicable taxes, to lease the property. On commencement of commercial production on the property, the Company is to pay the greater of US$25,000 per quarter and a 2% net smelter royalty. The Company may purchase the property for a total consideration of US$2,000,000 less all lease payments paid under the agreement. The property is also subject to a right of first offer.
The accompanying notes are an integral part of the consolidated financial statements.
Canplats Resources Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended July 31, 2008, 2007 and 2006
(expressed in Canadian dollars, unless otherwise stated)
4. MINERAL PROPERTY COSTS (continued)
El Rincon, Mexico
In fiscal 2004, the Company acquired, by staking, the El Rincon gold project in Durango, Mexico, subject to a finder’s fee to LCI.
Under the terms of the agreement with LCI, dated August 24, 2004, but effective May 3, 2004, the Company is required to pay LCI: US$5,000 on signing the agreement (paid); every six months commencing May 3, 2004, the greater of US$5,000 and 2% of direct exploration expenditures made for the benefit of the property; and, on commencement of commercial production on the property, a 0.25% net smelter return royalty; provided that the maximum amount payable to LCI for the El Rincon property is US$2,000,000.
On and prior to the Company expending US$1.5 million on the property, Silver Standard Resources Inc. (“Silver Standard”) can earn a 51% interest in El Rincon by incurring expenditures equal to two times the Company’s accrued acquisition and exploration expenditures.
Mecatona, Mexico
In fiscal 2006, the Company acquired, by a combination of option agreements and staking, four claim blocks for a 100% interest in the Mecatona property located in the Mecatona gold/silver district in the state of Chihuahua, Mexico located approximately 20 kilometres south of Parral.
For two claims , the Company agreed to pay, under separate option agreements, two private owners an aggregate of US$15,000 on signing (paid). Subsequent option payments for one of these claim blocks are US$10,000 on November 25, 2006 (paid), US$20,000 on November 25, 2007 (paid), US$215,000 on November 25, 2008 and 1% net smelter return capped at US$250,000. For the other claim block, subsequent option payments are US$20,000 on November 26, 2006 (paid), US$30,000 on November 26, 2007(paid), US$50,000 on November 26, 2008, $90,000 on November 26, 2009 and US$800,000 on November 26, 2010. In October 2008, the Company has determined to allow these two option agreements to lapse. As a result, a write-down of $103,000 (US$95,000) was recorded in fiscal 2008. The Company acquired the remaining two claim blocks that comprise the Mecatona property by staking and will continue with the exploration of these two claim blocks.
Under the terms of the agreement with LCI, the Company is required to pay LCI: US$5,000 on acquisition of the property (paid); every six months, the greater of US$5,000 and 2% of direct exploration expenditures made for the benefit of the property; and, on commencement of commercial production on the property, a 0.25% net smelter return royalty; provided that the maximum amount payable to LCI for the Mecatona property is US$2,000,000.
On and prior to the Company expending US$1.5 million on the property, Silver Standard can earn a 51% interest in Mecatona by incurring expenditures equal to two times the Company’s accrued acquisition and exploration expenditures.
The accompanying notes are an integral part of the consolidated financial statements.
Canplats Resources Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended July 31, 2008, 2007 and 2006
(expressed in Canadian dollars, unless otherwise stated)
4. MINERAL PROPERTY COSTS (continued)
Maijoma, Mexico
In fiscal 2006, the Company acquired by staking a 100% interest in the Maijoma Prospect located in Chihuahua State, Mexico, subject to the payment of a finder’s fee to LCI.
Under the terms of the agreement with LCI, the Company is required to pay LCI: US$5,000 on acquisition of the property (paid); every six months, the greater of US$5,000 and 2% of direct exploration expenditures made for the benefit of the property; and, on commencement of commercial production on the property, a 0.25% net smelter return royalty; provided that the maximum amount payable to LCI for the Maijoma property is US$2,000,000.
El Alamo, Mexico
In fiscal 2006, the Company acquired by staking a 100% interest in the El Alamo Prospect located in Chihuahua State, Mexico, subject to the payment of a finder’s fee to LCI.
Under the terms of the agreement with LCI, the Company is required to pay LCI: US$5,000 on acquisition of the property (paid); every six months, the greater of US$5,000 and 2% of direct exploration expenditures made for the benefit of the property; and, on commencement of commercial production on the property, a 0.25% net smelter return royalty; provided that the maximum amount payable to LCI for the El Alamo property is US$2,000,000.
Camino Rojo, Mexico
In fiscal 2007, the Company acquired, by staking, the Camino Rojo property in Zacatecas State, Mexico, subject to the payment of a finder’s fee to LCI.
Under the terms of the agreement with LCI, the Company is required to pay LCI: US$5,000 on acquisition of the property (paid); every six months, the greater of US$5,000 and 2% of direct exploration expenditures made for the benefit of the property; and, on commencement of commercial production on the property, a 0.25% net smelter return royalty; provided that the maximum amount payable to LCI for the Camino Rojo property is US$2,000,000.
The accompanying notes are an integral part of the consolidated financial statements.
Canplats Resources Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended July 31, 2008, 2007 and 2006
(expressed in Canadian dollars, unless otherwise stated)
5. PROPERTY, PLANT AND EQUIPMENT
The Company’s property, plant and equipment are as follows:
| | July 31, 2008 |
| | | Accum. | Net Book |
| | Cost | Amort. | Value |
| | $ | $ | $ |
| | | | |
| Computer equipment | 8,000 | (2,000) | 6,000 |
| Furniture and fixtures | 26,000 | (4,000) | 22,000 |
| Leasehold improvements | 38,000 | (5,000) | 33,000 |
| | | | |
| | 72,000 | (11,000) | 61,000 |
The Company had no property, plant and equipment as at July 31, 2007.
6. SHARE CAPITAL
| (a) | Common Shares |
| | Shares authorized: Unlimited number of common shares, no par value |
| (i) | In February 2008, the Company completed a $15,750,000 private placement of 7,000,000 units at $2.25 per unit for net proceeds of approximately $14,632,000 after commissions and expenses. Each unit consists of one common share and one-half common share purchase warrant with an exercise price of $3.00 for a period of 24 months. The gross proceeds were assigned values of $9,823,000 to the shares and $5,927,000 to the warrants. |
| | As consideration to the brokers, the Company issued 441,000 underwriters’ warrants with an exercise price of $2.25 for a period of 24 months. Total share issue costs related to the transaction were $1,917,000, which includes commission and expenses of $1,118,000 and underwriters’ warrants with a fair value of $799,000 based on the Black-Scholes option pricing model. The fair value of the common share purchase warrants and underwriters’ warrants issued as part of the private placement in February 2008 was based on the Black-Scholes pricing model, using a weighted average risk free rate of 3.2%, expected volatility of 139% and expected life of 2 years. Warrant and option pricing models require the input of highly subjective assumptions including the expected price volatility. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore, the existing models do not necessarily provide a reliable measure of the fair value of the Company’s warrants and stock options. |
The accompanying notes are an integral part of the consolidated financial statements.
Canplats Resources Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended July 31, 2008, 2007 and 2006
(expressed in Canadian dollars, unless otherwise stated)
6. SHARE CAPITAL (continued)
| (ii) | In June 2006, the Company completed a private placement of 5,000,000 units at a price of $0.20 per unit for gross proceeds of $1,000,000. The gross proceeds were assigned values of $627,000 to the shares and $373,000 to the warrants. Each unit consisted of one common share and one common share purchase warrant. Each warrant entitled the holder to purchase one additional common share at a price of $0.25 for two years, provided that if the shares of the Company trade for a period of 20 consecutive days (after the expiry of the four month hold period) at or above $0.40 per share on the TSX Venture Exchange, the warrant holders will be required to exercise their warrants. A finder’s fee of 6% (300,000 units valued at $60,000) was paid in units on a portion of the placement. The values assigned to these finder’s fee units was $38,000 to the shares and $22,000 to the warrants. A further 10% in broker’s fees (500,000 warrants) was paid in warrants relating to this placement. The values assigned to these broker’s fee warrants was $37,000. The fair value of the common share purchase warrants issued as part of the private placement in June 2006 was based on the Black-Scholes pricing model, using a weighted average risk free rate of 4.1%, expected volatility of 99% and expected life of 2.0 years. |
| (iii) | In January 2006, the Company completed a private placement of 5,150,000 units at a price of $0.20 per unit for gross proceeds of $1,030,000. The gross proceeds were assigned values of $791,000 to the shares and $239,000 to the warrants. Each unit consisted of one common share and one half of a common share purchase warrant. Each full warrant entitled the holder to purchase one additional common share at a price of $0.25 in year one or $0.35 in year two, provided that if the shares of the Company trade for a period of 20 consecutive days (after the expiry of the four month hold period) at or above $0.35 per share in year one or $0.45 per share in year two on the TSX Venture Exchange, the warrant holders will be required to exercise their warrants. A finder’s fee of 6% (280,500 units valued at $56,000) was paid in units on a portion of the placement. The value assigned to these finder’s fee units was $43,073 to the shares and $13,000 to the warrants. The fair value of the common share purchase warrants issued as part of the private placement in January 2006 was based on the Black-Scholes pricing model, using a weighted average risk free rate of 3.8%, expected volatility of 104% and expected life of 2.9 years. |
7. STOCK OPTIONS
The Company has a share option plan for its employees, directors, officers and consultants. The plan provides for the issuance of incentive options to acquire up to a total of 10% of the issued and outstanding common shares of the Company. As at July 31, 2008, incentive options outstanding represent 7.9% (2007 – 5.3%) of the issued and outstanding common capital. The exercise price of each option shall not be less than the closing market price of the Company’s stock on the award date. The options can be granted for a maximum term of 5 years with vesting provisions determined by the Company.
The accompanying notes are an integral part of the consolidated financial statements.
Canplats Resources Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended July 31, 2008, 2007 and 2006
(expressed in Canadian dollars, unless otherwise stated)
7. STOCK OPTIONS (continued)
During the year ended July 31, 2008, 2,815,000 stock options were granted to employees, directors and consultants at a weighted average strike price of $1.59 and vesting term of 2 years. As at their grant dates, these options had a weighed average fair value assigned of $1.34 per option based on the Black-Scholes option pricing model, using a weighted average risk free rate of 3.86%, expected volatility of 115% and expected life of 5 years. The Company amortizes the fair value of stock options using the graded method over the respective vesting period of the stock options. The fair value of options that was charged to the Statements of Loss, Comprehensive Loss and Deficit was $2,689,000 in the current year.
During the year ended July 31, 2007, 2,040,000 stock options were granted to employees, directors and consultants at a weighted average strike price of $0.44 and vesting terms of 2 years. These options had a fair value assigned of $0.37 per option based on the Black-Scholes option pricing model, using a weighted average risk free rate of 3.85%, expected volatility of 117% and expected life of 5 years. The fair value of options that was charged to the Statements of Loss, Comprehensive Loss and Deficit was $562,000 in 2007.
A summary of the Company’s options at July 31, 2008, 2007 and 2006 and the changes for the periods ending on those dates is presented below:
| | | Options | Weighted Average |
| | | Outstanding | Exercise Price |
| | | | $ |
| At August 1, 2005 | 1,830,000 | 0.35 |
| | Granted | - | - |
| | Exercised | (50,000) | 0.11 |
| | Expired | (1,170,000) | 0.35 |
| At July 31, 2006 | 610,000 | 0.36 |
| | Granted | 2,040,000 | 0.44 |
| | Exercised | (75,000) | 0.30 |
| | Expired | - | - |
| At July 31, 2007 | 2,575,000 | 0.43 |
| | Granted | 2,815,000 | 1.59 |
| | Exercised | (874,000) | 0.43 |
| | Expired | (45,000) | 1.01 |
| At July 31, 2008 | 4,471,000 | 0.92 |
The following table summarizes information about stock options outstanding and exercisable at July 31, 2008:
The accompanying notes are an integral part of the consolidated financial statements.
Canplats Resources Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended July 31, 2008, 2007 and 2006
(expressed in Canadian dollars, unless otherwise stated)
| | | Weighted | |
| Exercise | Options | Average | Options |
| Price | Outstanding | Remaining Life | Exercisable |
| $ | | | |
| 0.44 | 3,306,000 | 3.79 | 2,011,000 |
| 1.82 - 1.87 | 130,000 | 4.35 | 55,000 |
| 2.64 - 3.08 | 635,000 | 4.53 | 242,500 |
| 4.10 - 4.15 | 400,000 | 4.90 | 293,750 |
| | 4,471,000 | 4.01 | 2,602,250 |
The accompanying notes are an integral part of the consolidated financial statements.
Canplats Resources Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended July 31, 2008, 2007 and 2006
(expressed in Canadian dollars, unless otherwise stated)
8. WARRANTS
A summary of the Company’s warrants at July 31, 2008, 2007 and 2006 and the changes for the periods ending on those dates is presented below:
| | | | Weighted |
| | | Warrants | Average |
| | | Outstanding | Exercise Price |
| | | | $ |
| At August 1, 2005 | 5,870,000 | 0.40 |
| | Issued with private placement | 8,515,250 | 0.25 |
| | Exercised | (105,000) | 0.25 |
| | Expired | (5,870,000) | 0.40 |
| At July 31, 2006 | 8,410,250 | 0.25 |
| | Issued with private placement | - | - |
| | Exercised | (8,407,250) | 0.25 |
| | Expired | (3,000) | 0.25 |
| At July 31, 2007 | - | - |
| | Issued with private placement (share purchase warrants) | 3,500,000 | 3.00 |
| | Issued with private placement (underwriters' warrants) | 441,000 | 2.25 |
| | Exercised | (64,000) | 3.00 |
| | Expired | - | - |
| At July 31, 2008 | 3,877,000 | 2.91 |
The following table summarizes information about the warrants outstanding at July 31, 2008:
| | | Warrants | Weighted |
| | Exercise | Outstanding | Average |
| | Price | and Exercisable | Remaining Life |
| | $ | | |
| Share purchase warrants | 3.00 | 3,436,000 | 1.54 |
| Underwriters' warrants | 2.25 | 441,000 | 1.54 |
| | | 3,877,000 | 1.54 |
| 9. | RELATED PARTY TRANSACTIONS |
The Company was billed $1,211,000 (2007 - $355,000) in the current year for fees and expenses related to geological support, management and administration services provided by Silver Standard Resources Inc., a company of which two directors are also directors of the Company. Included in current liabilities at July 31, 2008 is $183,000 (2007 - $21,000) due to Silver Standard. Any amounts payable to related parties are non-interest bearing and without specific terms of repayment. These transactions were in the normal course of operations and are measured at the exchange amount, which is the amount established and agreed to by the related parties.
The accompanying notes are an integral part of the consolidated financial statements.
Canplats Resources Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended July 31, 2008, 2007 and 2006
(expressed in Canadian dollars, unless otherwise stated)
| | (a) The income taxes shown on the Consolidated Statements of Loss, Comprehensive Loss and Deficit differs from the amounts obtained by applying statutory rates due to the following: |
| | 2008 | 2007 | 2006 |
| | $ | $ | $ |
| | | | |
| Statutory tax rate | 32.3% | 34.1% | 34.1% |
| | | | |
| Loss for the year before taxes | (3,595,000) | (872,000) | (336,000) |
| Provision for income taxes based on statutory rates | (1,161,000) | (297,000) | (115,000) |
| Non deductible expenses | 750,000 | 216,000 | 23,000 |
| Change in statutory tax rates | 299,000 | 31,000 | 276,000 |
Unrecognized benefit of net operating losses carried forward | 112,000 | 50,000 | (184,000) |
| | - | - | - |
| (b) | Future income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s future tax assets and liabilities as of July 31 are as follows: |
| | 2008 | 2007 |
| | $ | $ |
| Future tax assets: | | |
| Mineral properties | 1,219,000 | 1,490,000 |
| Finance charge | 458,000 | 36,000 |
| Non-capital losses | 745,000 | 503,000 |
| | 2,422,000 | 2,029,000 |
| Future tax liability: | | |
| Mineral properties | (910,000) | (218,000) |
| | | |
| Valuation allowance | (2,422,000) | (2,029,000) |
| Net future tax liability | (910,000) | (218,000) |
The potential income tax benefit of these losses and tax pool balances have been offset by a valuation allowance.
The accompanying notes are an integral part of the consolidated financial statements.
Canplats Resources Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended July 31, 2008, 2007 and 2006
(expressed in Canadian dollars, unless otherwise stated)
| 10. | INCOME TAXES (continued) |
| | (c)As of July 31, 2008, the Company has approximately $2,865,000 in operating losses, $4,677,000 in accumulated Canadian and foreign exploration and development expenditures and $1,598,000 in unclaimed share issuance costs available to reduce future taxable income. The potential benefit of these losses has not been reflected in these consolidated financial statements. The operating losses expire as follows: |
| | $ |
| | |
| 2009 | 194,000 |
| 2010 | 162,000 |
| 2014 | 312,000 |
| 2015 | 329,000 |
| 2016 | 343,000 |
| 2027 | 350,000 |
| 2028 | 1,175,000 |
| | 2,865,000 |
| 11. | SUPPLEMENTAL CASH FLOW INFORMATION |
| | 2008 | 2007 | 2006 |
| | $ | $ | $ |
| Non-cash financing activities | | | |
| Share issue costs | (799,000) | - | (153,000) |
| Share capital issued for finder’s fees | - | - | 81,000 |
The Company operates in one industry segment which is the acquisition and exploration of mineral properties. Loss for the year and segment assets by geographic location are as follows:
| | Loss for the year | | Total assets |
| | July 31 | July 31 | | July 31 | July 31 |
| | 2008 | 2007 | | 2008 | 2007 |
| Canada | (3,492,000) | (861,000) | | 6,521,000 | $2,032,000 |
| Mexico | (103,000) | (11,000) | | 16,159,000 | 3,859,000 |
| Total | (3,595,000) | (872,000) | | $22,680,000 | $5,891,000 |
The accompanying notes are an integral part of the consolidated financial statements.
Canplats Resources Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended July 31, 2008, 2007 and 2006
(expressed in Canadian dollars, unless otherwise stated)
As at July 31, 2008, the Company has committed to payments under contractual obligations as follows:
| | | Less than 1 year | 1-3 years | 4-5 years | Total |
| | | $ | $ | $ | $ |
| | | | | | |
| Office lease obligations | 71,000 | 155,000 | 156,000 | 382,000 |
The Company’s financial instruments consist of cash and cash equivalents, receivables, accounts payables and accrued liabilities, and amounts due to related parties. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest or credit risks arising from the financial instruments. The fair value of these financial instruments approximates their carrying value due to their short-term maturity or capacity of prompt liquidation.
The Company is exposed to currency risk from foreign currency fluctuations as some of the Company’s cash equivalents are held in U.S. Dollars. The Company does not use any derivative instruments to manage its exposure to fluctuation in foreign currency exchange rates.
| 15. | MATERIAL DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) |
These consolidated financial statements are prepared in accordance with accounting principles generally accepted in Canada (Canadian GAAP), which differ in certain respects from accounting principles generally accepted in the United States (U.S. GAAP) and from practices promulgated by the Securities and Exchange Commission (SEC). The major differences between Canadian and U.S. GAAP and their effect on the consolidated financial statements are summarized below:
| (a) | Mining and mineral property assets |
| | Under U.S. GAAP, mineral property exploration and land use costs must be expensed as incurred, until commercially mineable deposits are determined to exist within a particular property. Accordingly, for U.S. GAAP purposes, for all periods presented, the Company has expensed all exploration and land use costs for mineral properties and deferred exploration costs, that have been incurred by the Company, for which commercially mineable revenues do not exist. Under Canadian GAAP, such costs have been deferred. Due to this difference in treatment, the future income tax liability recorded under Canadian GAAP is not required under U.S. GAAP, and the balance is accordingly reversed. Write-down of mineral property recorded under in Canadian GAAP is reversed, as the mineral expenditure was previously expensed under U.S. GAAP. |
For Canadian GAAP, cash flows relating to mineral property exploration and land use costs are reported as investing activities. For U.S. GAAP, these costs would be characterized as operating activities.
The accompanying notes are an integral part of the consolidated financial statements.
Canplats Resources Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended July 31, 2008, 2007 and 2006
(expressed in Canadian dollars, unless otherwise stated)
| 15. | MATERIAL DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) (continued) |
| (b) | The effect of the significant measurement differences between Canadian GAAP and U.S. GAAP on the amounts reported in the Consolidated Balance Sheets, Statements of Loss, Comprehensive Loss and Deficit and Cash Flows are as follows: |
Balance Sheets As at July 31 | 2008 $ | | 2007 $ |
| Assets under Canadian GAAP | 22,680,000 | | 5,891,000 |
| Mineral property exploration and development (a) | (14,042,000) | | (3,585,000) |
| Assets under U.S. GAAP | 8,638,000 | | 2,306,000 |
| Liabilities under Canadian GAAP | 2,547,000 | | 292,000 |
| Future income tax liability (a) | (910,000) | | (218,000) |
| Liabilities under U.S. GAAP | 1,637,000 | | 74,000 |
| Shareholders’ equity under Canadian GAAP | 20,133,000 | | 5,599,000 |
| Mineral property exploration and development (a) | (14,042,000) | | (3,585,000) |
| Future income tax liability (a) | 910,000 | | 218,000 |
| Shareholders’ equity under U.S. GAAP | 7,001,000 | | 2,232,000 |
| | | | |
| Statements of Operations | | | | | | |
Years ended July 31 | | 2008 $ | | 2007 $ | | 2006 $ |
| Loss for the year, Canadian GAAP | | 3,595,000 | | 872,000 | | 336,000 |
| Mineral property exploration costs (a) | | 9,868,000 | | 1,173,000 | | 596,000 |
| Write-down of mineral property (a) | | (103,000) | | - | | - |
Loss and comprehensive loss for the year, U.S. GAAP | | 13,360,000 | | 2,045,000 | | 932,000 |
Weighted average number of shares outstanding | | 52,514,514 | | 44,709,023 | | 32,390,739 |
| Loss per share, basic and diluted under U.S. GAAP | | (0.25) | | (0.05) | | (0.03) |
The accompanying notes are an integral part of the consolidated financial statements.
Canplats Resources Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended July 31, 2008, 2007 and 2006
(expressed in Canadian dollars, unless otherwise stated)
| 15. | MATERIAL DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) (continued) |
Statements of Cash Flows | | | | | |
Years ended July 31 | | | 2008 $ | | 2007 $ | | 2006 $ | |
Cash used in operating activities under Canadian GAAP | | | 483,000 | | 305,000 | | 398,000 | |
Mineral property exploration and development expenditures (a) | | | 8,475,000 | | 1,173,000 | | 596,000 | |
Cash used in operating activities, under U.S. GAAP | | | 8,958,000 | | 1,477,000 | | 994,000 | |
Cash generated by financing activities, under Canadian and U.S. GAAP | | | 15,199,000 | | 2,125,000 | | 2,056,000 | |
Cash used in investing activities, under Canadian GAAP | | | 9,480,000 | | 1,303,000 | | 554,000 | |
Mineral property exploration and development expenditures (a) | | | (8,475,000 | ) | (1,173,000 | ) | (596,000 | ) |
Cash used in (from) investing activities, under U.S. GAAP | | | 1,005,000 | | 130,000 | | (42,000 | ) |
Increase (decrease) in cash under U.S. GAAP | | | 5,236,000 | | 517,000 | | 1,104,000 | |
Cash and cash equivalents, beginning of year | | | 2,107,000 | | 1,590,000 | | 486,000 | |
Cash and cash equivalents, end of year, under Canadian and U.S. GAAP | | | 7,343,000 | | 2,107,000 | | 1,590,000 | |
The accompanying notes are an integral part of the consolidated financial statements.
Canplats Resources Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended July 31, 2008, 2007 and 2006
(expressed in Canadian dollars, unless otherwise stated)
| 15. | MATERIAL DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) (continued) |
(c) Uncertainty in income taxes
Effective August 1, 2007, the Company has adopted FASB Standard No.48, “Accounting for Uncertainty in Income Taxes – an Standard of FASB Statement No. 109” (“FIN 48”). This Standard clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB No. 109, “Accounting for Income Taxes”. This Standard prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Standard also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company has determined that the adoption of FIN 48 does not have an impact on its results of operations for financial position.
(d) Impact of recent United States accounting pronouncements
| (i) | Fair value measurements |
In September 2006, FASB issued SFAS No. 157 which defines fair value, establishes a framework for measuring fair value under U.S. GAAP and expands disclosures about fair values. This standard does not require any new fair value measurements. The standard is applicable for fiscal years beginning after November 15, 2007. In February 2008, FASB issued SFAS No. 157-2 which delays the effect date of FAS No. 157 for certain non-financial assets and non-financial liabilities to years beginning after November 15, 2008. We do not expect the adoption of this Standard to have a significant effect on the Company’s results of operations or financial position.
In February 2007, FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. This Statement permits entities to choose to measure various financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. The standard is applicable for fiscal years beginning after November 15, 2007. We do not expect the adoption of this Standard to have a significant effect on the Company’s results of operations or financial position.
| (ii) | Non-controlling interests |
| | In December 2007, the FASB issued SFAS 160 a standard on accounting for non-controlling interests and transactions with non-controlling interest holders in consolidated financial statements. The standard is converged with standards issued by the AcSB and IASB on this subject. This statement specifies that non-controlling interests are to be treated as a separate component of equity, not as a liability or other item outside of equity. Because non-controlling interests are an element of equity, increases and decreases in the parent's ownership interest that leave control intact are accounted for as capital transactions rather than as a step acquisition or dilution gains or losses. The carrying amount of the non-controlling interests is adjusted to reflect the change in ownership interests, and any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity attributable to the controlling interest. We do not expect the adoption of this Standard to have a significant effect on the Company’s results of operations or financial position. |
The accompanying notes are an integral part of the consolidated financial statements.
Canplats Resources Corporation
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended July 31, 2008, 2007 and 2006
(expressed in Canadian dollars, unless otherwise stated)
| | 15. | MATERIAL DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) (continued) |
| | In December 2007, the FASB issued a revised standard on accounting for business combinations, SFAS 141R. The major changes to accounting for business combinations are summarized as follows: |
| | · | all business acquisitions would be measured at fair value |
| | · | the existing definition of a business would be expanded |
| | · | pre-acquisition contingencies would be measured at fair value |
| | · | most acquisition-related costs would be recognized as expense as incurred (they would no longer be part of the purchase consideration) |
| | · | obligations for contingent consideration would be measured and recognized at fair value at acquisition date (would no longer need to wait until contingency is settled) |
| | · | liabilities associated with restructuring or exit activities be recognized only if they meet the recognition criteria of SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities, as of the acquisition date |
| | · | non-controlling interests would be measured at fair value at the date of acquisition (i.e. 100% of the assets and liabilities would be measured at fair value even when an acquisition is less than 100%) |
| | · | goodwill, if any, arising on a business combination reflects the excess of the fair value of the acquiree, as a whole, over the net amount of the recognized identifiable assets acquired and liabilities assumed. Goodwill is allocated to the acquirer and the non-controlling interest |
| | · | in accounting for business combinations achieved in stages, commonly called step acquisitions, the acquirer is to re-measure its pre-existing non-controlling equity investment in the acquiree at fair value as of the acquisition date and recognize any unrealized gain or loss in income |
| | The statement is effective for periods beginning on or after December 15, 2008. We do not expect the adoption of this Standard to have a significant effect on the Company’s results of operations or financial position. |
The accompanying notes are an integral part of the consolidated financial statements.
-
END OF FINANCIAL STATEMENTS -
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| | Canplats Resources Corporation (Company) |
Date: January 27, 2009 | By: /s/ R.E. Gordon Davis R.E. Gordon Davis, Chairman and CEO |
CERTIFICATION
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, R.E. Gordon Davis, certify that:
| 1. | I have reviewed this annual report on Form 20-F of Canplats Resources Corporation; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; |
| 4. | The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(a) and 15(d)-14(a)) for the company and have: |
| | (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| | (b) | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| | (c) | Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and |
| 5. | The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): |
| | (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and |
| | (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. |
Date: January 27, 2009
/s/ R.E. Gordon Davis
R.E. Gordon Davis
Chairman and CEO
CERTIFICATION
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Peter de Visser, certify that:
| 1. | I have reviewed this annual report on Form 20-F of Canplats Resources Corporation; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; |
| 4. | The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(a) and 15(d)-14(a)) for the company and have: |
| | (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| | (b) | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| | (c) | Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and |
| 5. | The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): |
| | (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and |
| | (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. |
Date: January 27, 2009
/s/ Peter de Visser
Peter de Visser
Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 20-F of Canplats Resources Corporation for the year ended July 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Annual Report”), I hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Annual Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| 2. | The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the registrant. |
Date: January 27, 2009
/s/ R.E. Gordon Davis
R.E. Gordon Davis
Chairman and CEO
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 20-F of Canplats Resources Corporation for the year ended July 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Annual Report”), I hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Annual Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
| 2. | The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the registrant. |
Date: January 27, 2009
/s/ Peter de Visser
Peter de Visser
Chief Financial Officer
