UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2006 | |
[ ] | Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period __________ to __________ | |
Commission File Number: 000-51013 |
Colombia Goldfields Ltd.
(Exact name of small business issuer as specified in its charter)
Delaware | 76-0730088 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
#208-8 King Street East, Toronto, Ontario, Canada M5C 1B5 |
(Address of principal executive offices) |
416-203-3856 |
(Issuer’s telephone number) |
_______________________________________________________________ |
(Former name, former address and former fiscal year, if changed since last report) |
Check whether the issuer (1) 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 issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days [X] Yes [ ] No
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 52,036,849 common shares as of October 27, 2006.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
![](https://capedge.com/proxy/10QSB/0001255294-06-000844/graphic1.jpg)
Page | ||
PART I - FINANCIAL INFORMATION | ||
PART II - OTHER INFORMATION | ||
PART I - FINANCIAL INFORMATION
Our unaudited consolidated financial statements included in this Form 10-QSB are as follows: | |
These unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-QSB. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended September 30, 2006 are not necessarily indicative of the results that can be expected for the full year.
COLOMBIA GOLDFIELDS LTD.
(An Exploration Stage Company)
U.S. Dollars | September 30, 2006 | December 31, 2005 | ||||||||
ASSETS | (unaudited) | |||||||||
Current | ||||||||||
Cash and cash equivalents | $ | 3,225,396 | $ 1,565,640 | |||||||
Prepaid expenses | 733,404 | 22,554 | ||||||||
Due from related parties (Note 6) | - | 158,202 | ||||||||
3,958,800 | 1,746,396 | |||||||||
Mineral and exploration properties and rights (Note 3) | 28,988,058 | - | ||||||||
Property and equipment, net of accumulated amortization (Note 4) | 353,899 | 1,445 | ||||||||
Website Development Cost, net of accumulated amortization (Note 4) | 23,500 | 17,500 | ||||||||
$ | 33,324,257 | $ 1,765,341 | ||||||||
LIABILITIES | ||||||||||
Current | ||||||||||
Accounts payable and accrued liabilities | $ | 4,807,657 | $ 83,004 | |||||||
Non-Current | ||||||||||
Future income tax liability (Note 3) | 4,974,252 | - | ||||||||
9,781,909 | 83,004 | |||||||||
STOCKHOLDERS’ EQUITY | ||||||||||
Common stock (Notes 5 and 10) | 490 | 296 | ||||||||
Additional paid-in capital (Note 5) | 29,973,307 | 1,465,354 | ||||||||
Share subscriptions (Note 5) | - | 1,767,650 | ||||||||
29,973,797 | 3,233,300 | |||||||||
Accumulated deficit | (6,431,449) | (1,550,963) | ||||||||
23,542,348 | 1,682,337 | |||||||||
$ | 33,324,257 | $ 1,765,341 |
See accompanying Notes to Consolidated Financial Statements
U.S. Dollars | Three Months Ended September 30, 2006 (unaudited) | Three Months Ended September 30, 2005 (unaudited) | Nine Months Ended September 30, 2006 (unaudited) | Nine Months Ended September 30, 2005 (unaudited) | Cumulative from inception (March 25, 2003) September 30, 2006 (unaudited) | |||||||||
REVENUES | $ | - | $ | - | $ | - | $ | - | $ | - | ||||
OPERATING EXPENSES | ||||||||||||||
Mineral property rights exploration expenses (Notes 3 and 5) | 1,074,629 | 260,000 | 2,187,686 | 260,000 | 3,332,450 | |||||||||
General and administrative (Note 5) | 919,698 | 79,091 | 2,776,293 | 79,091 | 3,188,483 | |||||||||
Amortization | 2,059 | 134 | 19,694 | 134 | 23,529 | |||||||||
Total operating expenses | 1,996,386 | 339,225 | 4,983,673 | 339,225 | 6,544,462 | |||||||||
Other income | (50,764) | - | (103,187) | - | (103,186) | |||||||||
Loss from continuing operations | (1,945,622) | (339,225) | (4,880,486) | (339,225) | (6,441,276) | |||||||||
Income (loss) from discontinued operations (Note 1) | - | - | - | (108,760) | 9,827 | |||||||||
NET LOSS | $ | (1,945,622) | $ | (339,225) | $ | (4,880,486) | $ | (447,985) | $ | (6,431,449) | ||||
LOSS PER SHARE- BASIC & DILUTED | ||||||||||||||
Loss from continuing operations | $ | (0.04) | $ | (0.01) | $ | (0.12) | $ | (0.01) | ||||||
Loss from discontinued operations | - | - | - | (0.01) | ||||||||||
NET LOSS PER SHARE-BASIC & DILUTED | $ | (0.04) | $ | (0.01) | $ | (0.12) | $ | (0.02) | ||||||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | ||||||||||||||
Basic and diluted | 45,079,035 | 24,097,826 | 39,513,913 | 24,032,967 |
See accompanying Notes to Consolidated Financial Statements
COLOMBIA GOLDFIELDS LTD.
(An Exploration Stage Company)
U.S. Dollars | Common Shares | Stock Amount | Additional Paid-in Capital | Share Subscriptions received | Deficit Accumulated During The Exploration Stage | Total Stockholders’ Equity (Deficiency) | |||||||||||
Issue of common stock for cash at $0.000125 per share on March 25, 2003 | 8 | $ | - | $ | 1 | $ | - | $ | - | $ | 1 | ||||||
Issue of common stock for cash at $0.000125 per share on May 5, 2003 | 16,000,000 | 160 | 1,840 | - | - | 2,000 | |||||||||||
Repurchase of common stock for cash at $0.000125 per share on October 31, 2003 | (8,000,008) | (80) | (920) | - | - | (1,000) | |||||||||||
Donated Capital | - | - | 35,200 | - | - | 35,200 | |||||||||||
Net loss for the twelve months ended December 31, 2003. | - | - | - | - | (36,399) | (36,399) | |||||||||||
Balance, December 31, 2003 | 8,000,000 | 80 | 36,121 | - | (36,399) | (198) | |||||||||||
Issue of common stock for cash at $0.00625 per share on December 20, 2004 | 16,000,000 | 160 | 99,840 | - | - | 100,000 | |||||||||||
Donated Capital | - | - | 19,200 | - | - | 19,200 | |||||||||||
Net loss for the twelve months ended December 31, 2004. | - | - | - | - | (23,094) | (23,094) | |||||||||||
Balance, December 31, 2004 | 24,000,000 | 240 | 155,161 | - | (59,493) | 95,908 | |||||||||||
Issue of common stock for Mineral concessions at $0.25 per share on September 22, 2005 | 1,000,000 | 10 | 249,990 | - | - | 250,000 | |||||||||||
Issue of 4,221,000 common stock for cash at $0.25 per share and 368,100 common stock for finders fee on October 14, 2005 | 4,589,100 | 46 | 1,055,204 | - | - | 1,055,250 | |||||||||||
Forgiveness of advances from a related party | 4,999 | - | - | 4,999 | |||||||||||||
Share Subscriptions Received | - | - | - | 1,767,650 | - | 1,767,650 | |||||||||||
Net loss for the twelve months ended December 31, 2005 | - | - | - | - | (1,491,470) | (1,491,470) | |||||||||||
Balance, December 31, 2005 | 29,589,100 | $ | 296 | $ | 1,465,354 | $ | 1,767,650 | $ | (1,550,963) | $ | 1,682,337 | ||||||
Issue of common stock for cash at $0.60 per share on January 24, 2006, net of $187,565 finders fee | 3,126,083 | 31 | 1,688,054 | (1,767,650) | - | (79,565) | |||||||||||
Issue of common stock for Mineral concessions at $1.90 per share on January 25, 2006 | 1,000,000 | 10 | 1,899,990 | - | - | 1,900,000 | |||||||||||
Issue of common stock For Mineral concession at $2.25 per share purchase on April 10, 2006 | 1,000,000 | 10 | 2,249,990 | - | - | 2,250,000 | |||||||||||
Issue of common stock for cash at $1.50 per unit (commons shares & warrants) less finders fee of $585,060 on April 26, 2006 | 6,500,666 | 65 | 6,416,112 | - | - | 6,416,177 | |||||||||||
Issue of share purchase warrants with April 26, 2006 common stock issuance | - | - | 2,749,762 | - | - | 2,749,762 | |||||||||||
Issue of common stock for Mineral concessions of $2.74 Per share purchase on April 28, 2006 | 2,000,000 | 20 | 5,479,980 | - | - | 5,480,000 | |||||||||||
Issue of common stock for mineral concessions at $1.10 per share on August 22, 2006. | 4,200,000 | 42 | 4,619,958 | - | - | 4,620,000 | |||||||||||
Issue of common stock for mineral concessions at $1.41 per share on September 25, 2006 | 1,150,000 | 16 | 1,621,484 | - | - | 1,621,500 | |||||||||||
Stock based compensation | - | - | 1,782,623 | - | - | 1,782,623 | |||||||||||
Net loss for the nine months ended September 30, 2006 | - | - | - | - | (4,880,486) | (4,880,486) | |||||||||||
Balance September 30, 2006 | 48,565,849 | $ | 490 | $ | 29,973,307 | - | $ | (6,431,449) | $ | 23,542,348 |
See accompanying Notes to Consolidated Financial Statements
COLOMBIA GOLDFIELDS LTD.
(An Exploration Stage Company)
U.S. Dollars | Nine Months Ended September 30, 2006 (unaudited) | Nine Months Ended September 30, 2005 (unaudited) | Cumulative From Inception (March 25, 2003) Through September 30, 2006 (unaudited) | |||||||||
OPERATING ACTIVITIES: | ||||||||||||
Net loss | ||||||||||||
Items not requiring cash outlay: | $ | (4,880,486) | $ | (447,985) | $ (6,431,449) | |||||||
- Consulting fees | - | - | 52,400 | |||||||||
- Website design and software development | - | - | 2,000 | |||||||||
- Amortization | 19,694 | 201 | 23,529 | |||||||||
- Mineral properties/rights acquisitions | - | 250,000 | 250,000 | |||||||||
- Stock based compensation | 1,782,623 | - | 1,782,623 | |||||||||
Changes in non-cash working capital items | ||||||||||||
- Accounts receivable and prepaid expenses | (710,850) | (499,090) | (733,404) | |||||||||
- Exploration expenditure advances | - | (158,202) | ||||||||||
- Accounts payable and accrued liabilities | 1,793,380 | 31,317 | 1,876,384 | |||||||||
- Due to/from related parties | 158,202 | (5,172) | 163,201 | |||||||||
Net cash provided by operating activities | (1,837,437) | (670,729) | (3,172,918) | |||||||||
FINANCING ACTIVITIES: | ||||||||||||
Issuance of securities net of finder fees | 9,086,374 | 1,020,250 | 10,242,625 | |||||||||
Proceeds of share subscription | - | - | 1,767,650 | |||||||||
Net cash provided by financing activities | 9,086,374 | 1,020,250 | 12,010,275 | |||||||||
INVESTING ACTIVITIES: | ||||||||||||
Purchase of mineral exploration rights | (5,211,033) | - | (5,211,033) | |||||||||
Purchase of equipment | (378,148) | (1,780) | (379,928) | |||||||||
Purchase of website | - | (21,000) | (21,000) | |||||||||
Net cash used in investing activities | (5,589,181) | (22,780) | (5,611,961) | |||||||||
INCREASE IN CASH | 1,659,756 | 326,741 | 3,225,396 | |||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 1,565,640 | 104,685 | - | |||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 3,225,396 | $ | 431,426 | $ | 3,225,396 | ||||||
SUPPLEMENTAL CASH FLOW INFORMATION | ||||||||||||
Interest expense | $ | - | $ | - | $ | - | ||||||
Taxes | $ | - | $ | - | $ | - |
See accompanying Notes to Consolidated Financial Statements
COLOMBIA GOLDFIELDS LTD.
(An Exploration Stage Company)
NOTE 1 - GOING CONCERN AND NATURE OF OPERATIONS
The Company was incorporated under the laws of the State of Nevada, U.S.A., on March 25, 2003. The Company changed its name from Secure Automated Enterprises, Inc. to Colombia Goldfields Ltd. on May 13, 2005. The Company changed its operational focus from providing electronic filings services for public access document submissions to the U.S. Securities Exchange Commission, to acquisition of, exploration for and development of mineral properties. The Company is currently in the exploration stage. On July 31, 2006 the Company’s jurisdiction of incorporation was changed to the state of Delaware.
In the first quarter of 2005, the Company discontinued its electronic filings services operations and its income and expense relating to its operations have been classified as discontinued operations in the Statements of Operations for all comparative periods.
The Company has incurred a loss for the period from inception on March 23, 2003 to September 30, 2006 and has no source of revenue. The Company’s future is dependent upon its ability to obtain financing and upon future, exploration and development of profitable operations from its mineral properties. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Although there are no assurances that management’s plans will be realized, management believes that the Company will be able to continue operations in the future. Management intends to continue relying upon the issuance of securities to finance the development of its business. There can be no assurance that it will be successful in raising the funds necessary to maintain operations, or that a self-supporting level of operations will ever be achieved. The financial statements do not include any adjustment to reflect the possible future effect on the recoverability and classification of the assets or the amounts and classification of liabilities that may result should the Company cease to continue as a going concern.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine month period ended September 30, 2006 are not necessarily indicative of the results that may be expected for the year ended December 31, 2006.
The consolidated balance sheet at December 31, 2005 has been derived from the audited financial statements at that date but these financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. For further information, refer to the financial statements and footnotes thereto included in the Company’s annual report on Form 10-KSB for the year ended December 31, 2005.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the period. Actual results may differ from those estimates.
COLOMBIA GOLDFIELDS LTD.
(An Exploration Stage Company)
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
Consolidation
Entities which are controlled by the Company, either directly or indirectly, are consolidated. Control is established by the Company’s ability to determine strategic, operating, investing and financing policies without the co-operation of others. The Company analyses its level of ownership, voting rights and representation on the board of directors in determining if control exists by any one, or a combination of these factors.
These consolidated financial statements include the accounts of (i) Colombia Goldfields Ltd., formerly a Nevada corporation, (ii) the Company’s 75% interest in RNC (Colombia) Limited (“RNC Colombia”), a Belize corporation and its 94.99% owned subsidiary - Compania Minera De Caldas, S.A. (“Caldas”), a Colombia corporation, (iii) the Company’s 94.99% interest in Gavilan Minerales, S.A. (“Gavilan”) a Colombia corporation. All significant inter-company transactions and balances have been eliminated upon consolidation.
In accordance with Interpretation No. 46R, Consolidation of Variable Interest Entities (“FIN 46R”), variable interest entities (VIEs) are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision making ability. All VIEs with which the Company is involved must be evaluated to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes.
At January 12, 2006 and in connection with the adoption of FIN 46R, the Company concluded that RNC (Colombia) Limited and its 94.99% owned subsidiary, Compania Minera De Caldas, S.A., were VIEs since the Company provided the principal financial support to these entities and the Company was their primary beneficiary. Under FIN 46R transition rules, the financial statements of RNC (Colombia) Limited and Compania Minera De Caldas, S.A. were considered VIEs and the Company’s 25% interest has been included within the Company’s consolidated financial statements for the period January 12, 2006 to April 28, 2006.
In connection with the Company’s April 28, 2006 acquisition of an additional 25% of RNC (Colombia), the Company also received rights to nominate three of the four members of RNC’s board of directors. As such, the Company determined that control over RNC (Colombia) existed as of April 28, 2006, and these financial statements reflect the consolidation of the Company’s 50% interest in RNC (Colombia), for the period April 29, 2006 to August 22, 2006.
On August 22, 2006 the Company acquired an additional 25% of RNC (Colombia), bringing the Company’s total ownership to 75%. These financial statements reflect the consolidation of the Company’s 75% interest in RNC (Colombia) for the period August 23, 2006 to September 30, 2006.
On September 25, 2006 the Company acquired 94.99% of the outstanding shares of Gavilan. These financial statements reflect the consolidation of Gavilan for the period September 25, 2006 to September 30, 2006.
Since the non-controlling shareholder of RNC and Gavilan has no obligation to contribute any additional capital and the Company was the primary entity obligated to fund future exploratory work, no non-controlling interest related to RNC or Gavilan has been recognized in the consolidated statement of operations for the period January 12, 2006 to September 30, 2006 and in the consolidated balance sheet at September 30, 2006.
COLOMBIA GOLDFIELDS LTD.
(An Exploration Stage Company)
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Mineral Property Rights Acquisition and Exploration Expenditures
Costs of acquiring mining properties and exploration and development costs are capitalized upon acquisition. Mine development costs incurred either to develop new ore deposits, expand the capacity of mines, or to develop mine areas substantially in advance of current production are also capitalized once proven and probable reserves exist and the property is a commercially minable property. Costs incurred to maintain current production or to maintain assets on a standby basis are charged to operations. Costs of abandoned projects are charged to operations upon abandonment. The Company evaluates the carrying value of capitalized mining costs and related property, plant and equipment costs, to determine if these costs are in excess of their net recoverable amount whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. The periodic evaluation of carrying value of capitalized costs and any related property, plant and equipment costs are based upon expected future cash flows and/or estimated salvage value in accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for Impairment or Disposal of Long-Lived Assets.
Asset Retirement Obligations
The Company applies SFAS No. 143, Accounting for Assets Retirement Obligations which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred. SFAS No. 143 requires the Company to record a liability for the present value of the estimated site restoration costs with a corresponding increase to the carrying amount of the related long-lived assets. The liability will be accreted and the asset will be amortized over the life of the related assets. Adjustments for changes resulting from the passage of time and changes to either the timing or amount of the original present value estimate underlying the obligation will be made. As at September 30, 2006, December 31, 2005, and December 31, 2004, the Company does not have any asset retirement obligations.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents.
Property and Equipment
Property and equipment are carried at cost. Depreciation is provided for using the following method and time periods:
Asset | Basis | Period |
Vehicles | Straight line | 5 years |
Buildings | Straight line | 20 years |
Office equipment & furniture | Straight line | 10 years |
COLOMBIA GOLDFIELDS LTD.
(An Exploration Stage Company)
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The Company reviews the carrying values of property and equipment based on expected future cash flows whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If this carrying value exceeds the recoverable amount, a write-down is changed to the statement of operations.
Comprehensive Income
In accordance with SFAS 130, Reporting Comprehensive Income (“SFAS 130”), comprehensive income consists of net income and other gains and losses affecting stockholders’ equity that are excluded from net income, such as unrealized gains and losses on investments available for sale, foreign currency translation gains and losses when the Company has a functional currency other than US dollars, and minimum pension liabilities. For all periods presented the Company’s financial statements include none of the additional elements that affect comprehensive income. Accordingly, net income and comprehensive income are identical.
Stock-Based Compensation
On January 1, 2006, the Company adopted SFAS No. 123(R), Share-Based Payment, to account for stock options and similar equity instruments issued. Accordingly, compensation expense attributable to stock options or similar equity instruments granted are measured at the fair value at the grant date, and recognized over the expected vesting period. For all stock option awards granted on or after January 1, 2006, the Company recognizes compensation using the fair value method of accounting for stock-based compensation. The fair value of stock options is estimated at the grant date using the Black-Scholes option pricing model.
Although the assumptions used to record stock compensation expense reflect management’s best estimates, they involve inherent uncertainties based on market conditions generally outside of the control of the Company. If other assumptions were used, stock-based compensation expense could be significantly impacted. As stock options are exercised, the proceeds received on exercise, in addition to the previously recognized amounts related to those stock options, are credited to stockholders’ equity. The adoption of SFAS No. 123(R) did not have an impact on the Company’s historical financial statements as the Company had no stock options outstanding prior to adoption.
Foreign Currency Translation
The Company’s functional currency is US dollars. Accordingly, foreign currency balances are translated into US dollars as follows:
i) Monetary assets and liabilities are translated at the period-end exchange rate;
ii) | Non-monetary assets are translated at the rate of exchange in effect at their acquisition date; and |
iii) | Revenue and expense items are translated at the average exchange rate for the respective period. |
Foreign exchange gains and losses are recognized as period expenses.
Earnings (Loss) per Share
Basic earnings (loss) per share is computed by dividing net earnings (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net earnings (loss) per share on the potential exercise of the equity-based financial instruments is not presented where anti-dilutive. For the periods ended September 30, 2006 and 2005, outstanding share purchase warrants and options to purchase common shares were excluded from the computation of diluted earnings per share as the impact of these instruments was antidilutive.
COLOMBIA GOLDFIELDS LTD.
(An Exploration Stage Company)
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Income taxes
The Company accounts for income taxes using the asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. In estimating future tax consequences, all expected future events other than enactment of changes in the tax laws or rates are considered.
Due to the uncertainty regarding the Company’s profitability and the risks and the expected timeline required to take the Company’s projects to commercial production, a full valuation allowance has been provided for against future tax assets and no net tax benefit has been recorded in the Company’s statement of operations.
Long-Lived assets
Long-lived assets of the Company are reviewed for impairment whenever events or circumstances indicate that the carrying amount of assets may not be recoverable, pursuant to SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
Management considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations (undiscounted and without interest charges) or if the Company has not yet completed economic feasibility studies to establish the existence of proven or probable reserves for the assets and if exploration activities have not advanced sufficiently to quantify values beyond proven and probable reserves. If impairment is deemed to exist, the assets will be written down to fair value. Fair value is generally determined using a discounted cash flow analysis.
Financial Instruments
The Company’s financial statements instruments consist of cash, accounts receivable, accounts payable and accrued liabilities and amounts due to and from related parties. The carrying value of these financial instruments approximates their fair value based on their liquidity or their short-term nature. The Company is not exposed to significant interest, credit or currency risk arising from these financial instruments.
NOTE 3 - MINERAL PROPERTIES AND EXPLORATION RIGHTS
Title to mineral properties and mining and exploration rights involves certain inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyance history characteristic of many mining properties. Currently, the Company is in the process of investigating the title of mineral concessions for which it holds the options to acquire. Therefore, the Company cannot give any assurance that title to such properties will not be challenged or impugned and cannot be certain that the Company will have valid title to its mining properties. The Company relies on title opinions by legal counsel who base such opinions on the laws of countries in which the Company operates.
COLOMBIA GOLDFIELDS LTD.
(An Exploration Stage Company)
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
A) Caramanta Project
(i) Caramanta Project - concessions 6602, 1343 and 6329
On September 22, 2005, the Company entered into an Assignment Agreement with Investcol Limited (“Investcol”) where Investcol assigned, transferred, and conveyed to the Company all of its rights under a contract for Purchase Option of Mining Concessions (“Original Option Contract”) entered into with Cia Servicios Y Logisticos Ltda. As the result of the Assignment Agreement, the Company acquired an option to purchase certain mining, mineral and exploration rights on property known as Concession 6602, 1343 and 6329 located in Caramanta Municipality, Antioquia Department, Medellin, Colombia for $10,000, on condition that $2,990,000 is invested in exploratory work on the property over a three year period. The Company issued 1,000,000 common stock to Investcol at a deemed fair market value $ 0.25 per share for total consideration of $ 250,000, which was recorded as part of mineral property rights acquisition and exploration expenditures in fiscal 2005.
Pursuant to the Assignment Agreement, the Company was committed to fund $2,990,000 exploratory work as follows:
a) | $500,000 upon the closing of the Assignment Agreement; |
b) | $750,000 during the 12 month period commencing June 25, 2006; and on the earlier of June, 2006 or commencement of the second exploration phase, one million restricted shares of the Company’s common shares; and |
c) | $1,740,000 during the 12-month period commencing June 25, 2007. |
In addition, the Company agreed to pay Investcol $7,500 per month as an office fee through July 31, 2006.
On September 25, 2006 the Assignment Agreement was superseded in connection with the Company’s agreement to acquire the Mining Concessions (See Note 3(A)(iii) below for details).
(ii) Caramanta Project - Concessions 6993,7039,6821 and 6770 and HETJ 01, 26, 27, 31, 32
On February 16, 2006 the Company entered into a Letter of Intent (“LOI”) with Investcol to acquire Investcol’s rights in a Contract for Purchase (“Purchase Contract”) entered into with Cia Servicios y Logisticos Ltda. The LOI outlined a proposed transaction where the Company intended to acquire Investcol’s rights to acquire certain mining contracts to exclusively engage in mining activities on concessions 6993, 7039, 6821 and 6770 (the “Contracts”) and options that Investcol holds to acquire the exclusive rights to engage in mining activities on concessions HET 31, 32, 26, 27 and HETG 01 (the “Options”) all located within an area in Colombia referred to as the Caramanta location.
The LOI was non-binding and subject to final negotiation and the execution of a definitive agreement. On April 10, 2006, the Company entered into a definitive agreement with Investcol finalizing this transaction (“Assignment Agreement”). In consideration for this Assignment Agreement, the Company paid Investcol total consideration in the amount of $350,000 and issued 1,000,000 restricted shares of common stock. Under the terms of the Assignment Agreement, Investcol agreed to pay the exercise price of $150,000 on the Options whose titles will remain in the name of Cia Servicios until the final exploration commitments have been made. The final option payments were made prior to July 30, 2006.
On September 25, 2006 the Assignment Agreement was superseded in connection with the company’s agreement to acquire the Mining Concessions (See Note 3(A)(iii) below for details).
COLOMBIA GOLDFIELDS LTD.
(An Exploration Stage Company)
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(iii) Caramanta Project - Acquisition of 100% of the Caramanta Exploration Properties
On September 25, 2006 the Company, through the acquisition of 94.99% of the outstanding shares of Gavilan Minerales, S.A., (“Gavilan”), acquired full legal title to the Caramanta project concessions described in Notes 3A(i) and 3A(ii) above. Consideration paid for the acquisition included $300,000 cash and the issuance of 1,150,000 restricted common shares at a fair value of $1.41 per share. In addition, a $50,000 finder’s fee was paid to Investcol. The total acquisition cost of $1,971,500 was allocated to the net assets acquired as follows:
Mineral and exploration properties and rights | $ | 1,780,841 |
Property, plant and equipment | 190,659 | |
$ | 1,971,500 |
As a result of the acquisition of Gavilan, the Company no longer has any minimum exploratory work obligations related to the Caramanta Concessions.
B) Marmato Project
On January 12, 2006, the Company entered into a Stock Purchase Agreement with Investcol and RNC (Colombia) Limited (the "Agreement"), whereby the Company (i) acquired twenty-five percent (25%) of the issued and outstanding stock of RNC (Colombia) Limited, a Belize corporation ("RNC") and (ii) held an option to acquire the remaining seventy five percent (75%) of RNC's issued and outstanding stock over a period of time. RNC is the beneficial holder of 94.99% of the issued and outstanding stock of Compania Minera De Caldas, S.A. ("Caldas"), a Colombia corporation that (i) owns certain mining, mineral and exploration rights, (ii) has options to acquire mining, mineral and exploration rights and (iii) has exclusive rights to evaluate certain property, all located in the Zona Alta portion of the Marmato project in Colombia.
Pursuant to the Stock Purchase Agreement, the Company:
a) | acquired 25% of the outstanding shares of RNC (total 25% of RNC) by the issuance of 1,000,000 common shares of the Company to Investcol and the advance to RNC of a $1,200,000 non-interest bearing loan. Total consideration of $2,250,000 related to this transaction was recorded as part mineral and exploration properties and rights in fiscal 2006. |
b) | acquired an additional 25% of RNC (total 50% of RNC) by the issuance of 2,000,000 shares of the Company to Investcol and the advance of an additional $4,000,000 non-interest bearing loan to RNC in two instalments of $1,000,000 and $3,000,000 on or before March 15, 2006 and April 30, 2006, respectively. On March 10, 2006, the Company entered an extension agreement with Investcol to extend the terms to April, 30, 2006, and completed the transaction on April 28, 2006. Total consideration of $5,480,000 related to this transaction was recorded as part of mineral and exploration properties and rights in fiscal 2006. |
COLOMBIA GOLDFIELDS LTD.
(An Exploration Stage Company)
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
c) | held an option to acquire an additional 25% of RNC (total 75% of RNC) by the issuance of 4,000,000 common shares of the Company to Investcol and the advance of an additional $15,000,000 non-interest bearing loan to RNC on or before October 30, 2006. On August 22, 2006, the Company amended its January 12, 2006 Stock Purchase Agreement with Investcol and RNC (Colombia) Limited and concurrently exercised its option to increase the Company’s interest in RNC from 50% to 75%. Under the terms of the amended agreement, the Company issued 4,200,000 common shares and paid $200,000 to Investcol. In connection with this transaction, the Company has committed to provide an additional $5,000,000 by way of non-interest bearing demand loan to Investcol by December 31, 2006 and provide sufficient funds to RNC, upon terms satisfactory to the Company, to complete a full bankable feasibility study of the Marmato Project. Total consideration of $4,820,000 related to this transaction was recorded as part of mineral and exploration properties and rights in fiscal 2006. |
d) | has the option to acquire an additional 25% of RNC (total 100% of RNC) until May 1, 2009 for a price equal to 25% of the value of Caldas determined by a bankable feasibility study prepared by a certified mineral property evaluator, or other acceptable third party. Payment of the purchase price can be made by the Company in either cash or the Company’s common shares. Under the terms of the August 22, 2006 amended agreement, the Company continues to hold an option to acquire the remaining 25% of RNC on or before May 1, 2009 for a purchase price equal to 25% of the fair value of Caldas determined by a feasibility study. The purchase price, pursuant to the amended agreement is limited to a maximum of $15,000,000 plus 4,000,000 shares of the Company. Payment of the purchase price can be satisfied in either cash or common shares of the Company, or any combination thereof. As at September 30, 2006 this option remains unexercised. |
C) Kedahda Properties
On August 30, 2006 the Company, purchased certain mining exploration properties in the Republic of Colombia and the related geochemical and other proprietary geological data from a wholly-owned subsidiary of Anglo Gold Ashanti, Sociedad Kedahda, S.A., for $500,000 cash consideration. The purchase was recorded as part of mineral and exploration properties and rights in fiscal 2006.
Mineral Property Rights Acquisition and Exploration Expenditures
The Company’s mineral property rights acquisition and exploration activities consist of:
I) | The acquisition of mineral concessions; |
II) | The acquisition of mineral and exploration rights from existing titleholders; and |
III) | The exploration of acquired mineral properties and related activities |
IV) | Stock-based compensation allocated pursuant to FAS 123(R) |
The Company capitalizes all expenditures that result in the acquisition and retention of resource properties or an interest therein. The recoverability of the carrying values of the properties is dependent on the ability of the Company to obtain the necessary financing and permits to continue exploration, the establishment of economically recordable reserves, future profitable production and/or proceeds from the disposition thereof. The following table summarizes the Company’s historical expenditures with respect to the aforementioned projects.
COLOMBIA GOLDFIELDS LTD.
(An Exploration Stage Company)
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended September 30, 2006 | Three Months Ended September 30, 2005 | Nine Months Ended September 30, 2006 | Nine Months Ended September 30, 2005 | Cumulative From Inception (March 25, 2003 Through September 30, 2006) | |||||||||||
(See note 1) | |||||||||||||||
I) | Acquisition of mineral concessions | $ | 7,100,841 | $ | - | $ | 17,080,841 | $ | - | $ | 17,080,841 | ||||
II) | Acquisition of Mineral and exploration rights | 2,966,087 | - | 6,932,965 | - | 6,932,965 | |||||||||
Total acquired Mineral and exploration properties and rights | 10,066,928 | - | 24,013,806 | - | 24,013,806 | ||||||||||
III) | Exploration of acquired mineral properties | 1,034,990 | 260,000 | 2,011,487 | 260,000 | 3,156,251 | |||||||||
IV) | Stock - based Compensation | 39,639 | - | 176,199 | - | 176,199 | |||||||||
Total mineral property rights exploration expenses | 1,074,629 | 260,000 | 2,187,686 | 260,000 | 3,332,450 | ||||||||||
Total mineral property rights acquisition and exploration expenditures | $ | 11,141,557 | $ | 260,000 | $ | 26,201,492 | $ | 260,000 | $ | 27,346,256 |
Capitalized Mineral and Exploration Properties and Rights
Acquired mineral and exploration properties and exploration rights of $24,013,806 have been recorded at amounts necessary to reflect temporary differences associated with the differences between their accounting and tax bases. As a result, these properties are recorded in the consolidated balance sheet at September 30, 2006 at $28,988,058, with a corresponding future tax liability of $4,974,252.
COLOMBIA GOLDFIELDS LTD.
(An Exploration Stage Company)
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - PROPERTY AND EQUIPMENT
As at September 30, 2006 | Cost | Accumulated Amortization | Net book Value | |||||
Furniture and office equipment | $ | 115,779 | $ | (3,880) | $ | 111,899 | ||
Buildings | 84,946 | - | 84,946 | |||||
Vehicles | 166,507 | (9,453) | 157,054 | |||||
Total | $ | 367,232 | $ | (13,333) | $ | 353,899 | ||
Website development cost | $ | 36,000 | $ | (12,500) | $ | 23,500 | ||
Mineral exploration properties and rights | $ | 28,988,058 | $ | - | $ | 28,988,058 |
As at December 31, 2005 | Cost | Accumulated Amortization | Net book Value | |||||
Furniture and office equipment | $ | 1,780 | $ | (335) | $ | 1,445 | ||
Website Development cost | $ | 21,000 | $ | (3,500) | $ | 17,500 | ||
Mineral exploration properties and rights | $ | - | $ | - | $ | - |
NOTE 5 - STOCKHOLDERS’ EQUITY
Common Stock
i) |
September 30, 2006 | December 31, 2005 | ||||
Authorized: | |||||
200,000,000 common shares, $0.00001 par value | |||||
Issued and Outstanding: | |||||
48,565,849 common shares, (December 31, 2005: 29,589,100 shares) | $ | 490 | $ | 296 |
During the nine month period ended September 30, 2006, the Company completed the following transactions:
a) | On January 10, 2006, the Company issued 3,126,083 common shares at $0.60 per share for gross proceeds of $1,875,650. The Company paid finders fees in the amount of $187,565, for net proceeds of $1,688,085. |
b) | On February 14, 2006, the Company issued 1,000,000 common shares at fair value of $1.90 per share to Investcol in connection with the acquisition of 25% ownership of RNC (Colombia) Limited (See Note 3). |
c) | On April 10, 2006, the Company issued 1,000,000 common shares at fair value of $2.25 per share to Investcol to acquire rights in certain properties in the Caramanta area of Colombia. (See Note 3) |
COLOMBIA GOLDFIELDS LTD.
(An Exploration Stage Company)
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
d) | On April 26, 2006 the Company completed a private equity offering of 6,500,666 Units at $1.50 per Unit to a total of 26 investors. Each Unit consists of one (1) share of common stock, par value $0.00001, and one (1) Warrant (the “Warrant”) to purchase one (1) share of common stock, exercisable for twenty-four (24) months from the closing of the offering. The exercise price for the Warrant is priced at $2.50. The gross proceeds received from this offering were $9,751,000. Assuming that all of the warrants are exercised by the investors, the gross proceeds received from the exercise of the Warrants will equal $16,251,665. In connection with this private equity offering, the Company paid as a commission $585,060 and issued warrants to purchase 390,040 shares of the Company’s common stock with each warrant exercisable for a period of thirty-six (36) months from the closing of the offering at the exercise price of $2.00 per share. Assuming that all of these warrants are exercised, the Company will receive gross proceeds of $780,080. The Company has allocated the total net proceeds from the offering of $9,165,939 to the various underlying equity instruments comprising the equity offering, based on the estimated relative fair value of each instrument at the offering date, as follows: |
Common shares | $ | 65 |
Additional paid in capital - common shares | 6,416,112 | |
Additional paid in capital - share purchase warrants | 2,749,762 | |
Total gross proceeds from private equity offering | $ | 9,165,939 |
e) | On April 28, 2006, in connection with the acquisition of the second 25% of RNC (Colombia) Limited, the Company issued 2,000,000 common shares at a fair value of $2.74 to Investcol. (See Note 3) . |
f) | On August 22, 2006 in connection with the acquisition of the third 25% of RNC (Colombia) Limited, the Company issued 4,200,000 common shares at a value of $1.10 per share to Investcol. (See Note 3). |
g) | On September 25, 2006 in connection with the Company’s acquisition of 100% of the Caramanta Exploration Properties, the Company issued 1,150,000 restricted common shares at a value of $1.41 (see Note 3). |
ii) | During the fiscal year ended December 31, 2005, the Company: |
a) | issued 1,000,000 restricted common shares valued at an estimated market price of $0.25 per share, pursuant to an option to acquire a 100% interest in certain mining and mineral and exploration rights on three gold properties known as the Caramanta concessions in the Marmato Mountain mining district, Colombia. |
b) | completed a private placement and issued 4,221,000 units at a price of $0.25 per share for net proceeds of $1,055,250. Each unit consisted of one common share and one non-transferable warrant, entitling the holder to acquire one additional common share at a price of $0.50, exercisable on or before October 14, 2006. The Company also issued 368,100 shares as a finders’ fee relating to this private offering. The Company has allocated the total gross proceeds from the offering of $1,055,250 to the various underlying equity instruments comprising the equity offering, based on the estimated relative fair value of each instrument at the offering date, as follows: |
COLOMBIA GOLDFIELDS LTD.
(An Exploration Stage Company)
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Common shares | $ | 46 |
Additional paid in capital - common shares | 712,204 | |
Additional paid in capital - share purchase warrants | 343,000 | |
Total gross proceeds from private equity offering | $ | 1,055,250 |
Warrants
As at September 30, 2006, the following warrants were issued and outstanding:
# Warrants | Exercise Price | Expiry Date |
4,589,100 | $0.50 per share | October 14, 2006 (see Note 10) |
6,500,666 | $2.50 per share | April 25, 2008 |
390,040 | $2.00 per share | April 25, 2009 |
11,479,806 | $1.67 per share |
Assuming all warrants are exercised, the Company would potentially receive $18,624,215.
Stock Options
In fiscal 2006, the Company adopted the 2006 Stock Incentive Plan, (the “Plan”) which provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, performance shares and performance units, and stock awards to officers, directors or employees of, as well as advisers and consultants to, the Company.
All stock options and rights are to vest over a period determined by the Board of Directors and expire not more than ten years from the date granted. On July 31, 2006 the Company received shareholder approval for an amended Stock Incentive Plan. Pursuant to the amended Plan, the number of shares that may be issued for awards granted under the 2006 plan was increased from 3,500,000 to 5,000,000.
Pursuant to the Plan, during fiscal 2006 the Company granted 3,050,000 stock options to employees, directors, officers and consultants of the Company. These stock options vest at a rate of 25% every six months over a period of two years, and expire over a life of 10 years. For the nine month period ended September 30, 2006, the Company recorded a total of $1,782,623 in stock based compensation expense related to these grants in the consolidation statements of operations as follows:
Nine Months Ended September 30, 2006 | Nine Months Ended September 30, 2005 | ||||
Mineral property rights acquisition and exploration expenditures | $ | 176,199 | - | ||
General and administrative | $ | 1,606,424 | - | ||
Total stock-based compensation | $ | 1,782,623 | - |
As at September 30, 2006 there was $1,783,328 of unrecognized compensation cost related to unvested stock options. The cost is expected to be recognized as follows: Fiscal 2006 - $597,640; Fiscal 2007 - $1,079,538; Fiscal 2008 - $106,150.
COLOMBIA GOLDFIELDS LTD.
(An Exploration Stage Company)
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
A summary of stock options granted and exercised is as follows:
Number | Weighted Average Exercise Price | ||||
Options outstanding at December 31, 2005 | - | $ | - | ||
Granted in fiscal 2006 | 3,050,000 | 1.07 | |||
Exercised in fiscal 2006 | - | - | |||
Forfeited and expired in fiscal 2006 | - | - | |||
Options outstanding at September 30, 2006 | 3,050,000 | $ | 1.07 |
Nine Months Ended September 30, 2006 | Nine Months Ended September 30, 2005 | ||||
Weighted Average | |||||
grant date fair | |||||
value of options | $ | 1.17 | $ | - | |
granted during the period | |||||
Weighted average fair | $ | 1.14 | $ | - | |
Value of options vested | |||||
during the period |
A summary of stock options outstanding and exercisable at September 30, 2006 is as follows:
Range of Exercise Prices | Number Outstanding | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (yrs) | Number Exercisable | Weighted Average Exercise Price |
$0.75 - $1.00 | 1,750,000 | $ 0.75 | 9.27 | 437,500 | $0.75 |
$1.01 - $2.00 | 1,300,000 | 1.50 | 9.46 | 150,000 | 1.69 |
$0.75 - $2.00 | 3,050,000 | $ 1.07 | 9.32 | 587,500 | $0.99 |
The fair value of each option granted has been estimated as of the date of the grant using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 4.45%, dividend yield 0%, a historic volatility of 71%, and expected term of 10 years, equal to the full life of the options as the Company does not expect any options to be exercised early.
COLOMBIA GOLDFIELDS LTD.
(An Exploration Stage Company)
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - RELATED PARTY TRANSACTIONS
Amounts due to related parties are unsecured, non-interest bearing and have no stated terms of repayment. Amounts due from related parties are due from a former Officer and Director of the Company, and are non-interest bearing, unsecured and due on demand.
Included in prepaid expenses at September 30, 2006 is $nil (December 31, 2005: $9,585) pertaining to office rent paid to a company related to a director of the Company. Included in accounts payable and accrued liabilities at September 30, 2006 is $nil (December 31, 2005: $19,883) payable to directors of the Company and to a company related to a director.
i) During the three month period ended September 30, 2006 the Company:
a) | paid $229,501 (three month period ended September 30, 2005: $7,500) for management and consulting fees to directors, senior officers and shareholders of the Company. |
b) | paid $nil (three month period ended September 30, 2005: $4,275) for office rent to a company related to a director of the Company. |
ii) During the nine month period ended September 30, 2006 the Company:
a) | paid $500,251 (nine month period ended September 30, 2005: $15,000) for management and consulting fees to directors, senior officers and shareholders of the Company. |
b) paid $10,256 (nine month period ended September 30, 2005: $8,025) for office rent to a
company related to a director of the Company
Related party transactions in these consolidated financial statements also include the acquisition of the Company’s interests in the Caramanta and Marmato projects as described in note 3.
NOTE 7 - SEGMENTED INFORMATION
The Company has determined that it operates in a single reportable segment, being the acquisition of, exploration for, and development of mineral properties.
Note 8 - NON-CASH ACTIVITIES
The Company has issued common shares as consideration for the acquisition of certain mineral rights as disclosed in Notes 3 and 5.
Note 9 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The FASB has issued FIN 48 which prescribes rules for the financial statements accounting for uncertainty in income tax positions. FIN 48 requires all material tax positions to undergo a new two-step recognition and measurement process. All material tax positions in all jurisdictions in all tax years in which the statute of limitations remains open upon the initial date of adoption are required to be assessed. The criteria for asset recognition is that it is more likely than not that a tax position will be sustained upon examination based solely on its technical merits. If the recognition standard is not satisfied, then no tax benefit otherwise arising from the tax position can be recorded for financial statement purposes. If the recognition standard is satisfied, the amount of tax benefit recorded for financial statement purposes is the largest amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. FIN 48 is effective for the Company’s fiscal 2007 year. The Company does not anticipate the adoption of FIN 48 will have a material impact on the Company’s financial position, results of the operations, or cash flows.
COLOMBIA GOLDFIELDS LTD.
(An Exploration Stage Company)
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - SUBSEQUENT EVENTS
During October, 2006 3,471,000 warrants were exercised for net proceeds to the Company of $1,735,500 and 3,471,000 common shares were issued upon exercise.
NOTE 11 - RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the current period presentation.
F-19
Forward-Looking Statements
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements.
Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.
Our Business
Our current focus is on the acquisition and development of our interests in mining properties located in the Marmato Mountain Gold District located in Colombia. We are an exploration stage company and there is no assurance that commercially exploitable reserves of gold exist on any of our property interests. In the event that commercially exploitable reserves of gold exist on any of our property interests, we cannot guarantee that we will make a profit. If we cannot acquire or locate gold deposits, or if it is not economical to recover the gold deposits, our business and operations will be materially adversely affected.
Disputes over land ownership are common, especially in the context of resource developments. Identifying all the affected landowners or related stakeholders, and structuring compensation arrangements that are both fair and acceptable to all of them, is often extremely difficult. We believe that the satisfactory resolution of any local landowner or related stakeholder concerns is essential to the eventual development and operation of modern gold mines in the Marmato and Caramanta projects. The failure to adequately address any such landowner or related stakeholder issues will disrupt our plans. Although we will spend considerable time, effort and expense in an
attempt to resolve any landowner or related stakeholder issues associated with our planned operations, no assurance can be given that disruptions arising out of landowner or related stakeholder dissatisfaction will not occur. In addition, we cannot give any assurance that title to any of our property interests will not be challenged or impugned and cannot be certain that we will have or acquire valid title to these mining properties.
The disclosure that follows is a discussion of each of the properties that we have an interest in.
The Caramanta and Marmato Projects
We are actively advancing two separate projects known as the Marmato Mountain Development Project and the Caramanta Exploration Project, both of which are located in Colombia’s Marmato Mountain Gold District. These projects are separated by approximately seven kilometers and our focus is on securing the region between Caramanta and Marmato and any other outlying targets which may contain similar mineralization.
Marmato Project
On January 12, 2006, we entered into a Stock Purchase Agreement with Investcol and RNC (Colombia) Limited (the "Agreement"), whereby we (i) acquired twenty-five percent (25%) of the issued and outstanding stock of RNC (Colombia) Limited, a Belize corporation ("RNC") and (ii) held an option to acquire the remaining seventy five percent (75%) of RNC's issued and outstanding stock over a period of time. RNC is the beneficial holder of 94.99% of the issued and outstanding stock of Compania Minera De Caldas, S.A. ("Caldas"), a Colombia corporation that (i) owns certain mining, mineral and exploration rights, (ii) has options to acquire mining, mineral and exploration rights and (iii) has exclusive rights to evaluate certain property, all located in the Zona Alta portion of the Marmato project in Colombia.
Pursuant to the Stock Purchase Agreement, we:
a) | Acquired 25% of the total outstanding shares of RNC by the issuance of 1,000,000 of our common shares to Investcol and the advance to RNC a $1,200,000 non-interest bearing loan. We completed the acquisition of 25% of RNC by the issuance of 1,000,000 shares of our restricted common stock to Investcol and the advancement of $1,200,000 by way of a non-interest bearing loan to RNC in the second quarter of fiscal 2006; |
b) | Acquired an additional 25% of RNC by issuance of 2,000,000 of our common shares to Investcol and the advance of an additional $4,000,000 non-interest bearing loan to RNC. We completed the acquisition of the second 25% of RNC by the issuance to Investcol of 2,000,000 shares of our restricted common stock and the advancement of $4,000,000 by way of a non-interest bearing demand loan to RNC in the second quarter of fiscal 2006; |
c) | Held the option to acquire an additional 25% of RNC by the issuance of 4,000,000 of our common shares to Investcol and the advance of an additional $15,000,000 non-interest bearing loan to RNC on or before October 30, 2006. On August 22, 2006 we amended the January 12, 2006 Stock Purchase Agreement with Investcol and RNC (Colombia) Limited |
and concurrently exercised our option to increase interest in RNC from 50% to 75% in the third quarter of fiscal 2006. Under the terms of the amended agreement, we issued 4,200,000 common shares and paid $200,000 to Investcol. In connection with this transaction, we have committed to provide an additional $5,000,000 by way of non-interest bearing demand loan to Investcol by December 31, 2006 and provide sufficient funds to RNC, upon terms satisfactory to the Company, to complete a full bankable feasibility study of the Marmato Project; and |
d) | Have the option to acquire the final 25% of RNC until May 1, 2009 for a price equal to the 25% of the value of Caldas determined by a bankable feasibility study prepared by a certified mineral property evaluator, or other acceptable third party. Payment of the purchase price can be made by us in either cash or our common shares. The terms of the agreement were amended on August 22, 2006. Under the terms of the amended agreement, we continue to hold an option to acquire the remaining 25% of RNC on or before May 1, 2009 for a purchase price equal to 25% of the fair value of Caldas, as determined by a forthcoming feasibility study. The purchase price, pursuant to the amended agreement is limited to a maximum of $15,000,000 plus 4,000,000 shares of the Company. Payment of the purchase price can be satisfied in either cash or shares of our common stock, or any combination thereof. As of September 30, 2006, we have not exercised our option to acquire the final 25% of RNC. |
Our business plan is to complete the acquisition of the remaining 25% equity interest in RNC which may require as much as $15,000,000 over the next twelve to thirty-six months, in addition to the issuance of 4,000,000 additional shares of our common stock to purchase the additional 25% ownership of RNC. There can be no assurance that we will be successful in securing sufficient financing to continue to acquire more than our seventy-five percent equity interest in RNC. Caldas, RNC’s wholly-owned subsidiary, is continuing to increase its ownership interest in certain mining rights in the Zona Alta portion of the Marmato project with the goal of consolidating all of its mining interests into a single mining license. During the quarterly period ended September 30, 2006, there was preliminary exploration activities conducted on our property interests in the Marmato Mountain Development Project which included underground mapping and sampling. We are currently interpreting the sampling results with evaluations expected in the next quarter.
Caramanta Project
Concessions 6602, 1343 and 6329
On September 22, 2005, we entered into an Assignment Agreement with Investcol Limited (“Investcol”) where Investcol assigned, transferred, and conveyed to us all of its rights under a contract for Purchase Option of Mining Concessions (“Original Option Contract”) entered into with Cia Servicios Y Logisticos Ltda. As the result of the Assignment Agreement, we acquired an option to purchase certain mining, mineral and exploration rights on property known as Concession 6602, 1343 and 6329 located in Caramanta Municipality, Antioquia Department, Medellin, Colombia for $10,000, on condition that $2,990,000 be invested in exploratory work on the property over a three year period. As consideration for these rights, we issued 1,000,000
restricted shares of common stock to Investcol at a deemed fair market value $ 0.25 per share for total consideration of $ 250,000.
Pursuant to the Assignment Agreement, we also committed to fund the $2,990,000 exploratory work as follows:
a) | $500,000 upon the closing of the Assignment Agreement; |
b) | $750,000 during the 12 month period commencing June 25, 2006; and on the earlier of June, 2006 or commencement of the second exploration phase, one million restricted shares of the Company’s common shares; |
c) | $1,740,000 during the 12-month period commencing June 25, 2007. |
In addition, we paid Investcol $7,500 per month as an office fee through July 31, 2006. On September 25, 2006, the Assignment Agreement was superseded in connection with our acquisition of 94.99% of the outstanding shares of Gavilan Minerales, S.A., (“Gavilan”). The material terms of this acquisition are described below.
Concessions 6993, 7039, 6821 and 6770 and HETJ 01, 26, 27, 31, and 32
On February 16, 2006, we entered into a Letter of Intent (“LOI”) with Investcol to acquire Investcol’s rights in a Contract for Purchase entered into with Cia Servicios y Logisticos Ltda.(“Servicios”). The LOI outlined a proposed transaction where we intended to acquire Investcol’s rights to acquire certain mining contracts to exclusively engage in mining activities on concessions 6993, 7039, 6821 and 6770 (the “Contracts”) and options that Investcol holds to acquire the exclusive rights to engage in mining activities on concessions HET 31, 32, 26, 27 and HETG 01 (the “Options”) all located within an area in Colombia referred to as the Caramanta location.
The LOI was non-binding and subject to final negotiation and the execution of a definitive agreement. On April 10, 2006, we entered into a definitive agreement with Investcol finalizing this transaction (the “Assignment Agreement”). In connection with the Assignment Agreement, we paid Investcol total consideration of $350,000 and issued 1,000,000 restricted shares of our common stock. Under the terms of the Assignment Agreement, Investcol agreed to pay the exercise price of $150,000 on the Options whose titles remained in the name of Cia Servicios until the final exploration commitments have been made. The final option payments were made prior to July 30, 2006.
On September 25, 2006, the Assignment Agreement in connection with our acquisition of 94.99% of the outstanding shares of Gavilan Minerales, S.A., (“Gavilan”). The material terms of this acquisition are described below.
Acquisition of 100% of the Caramanta Exploration Properties
On September 25, 2006, we, through the acquisition of 94.99% of the outstanding shares of Gavilan Minerales, S.A., (“Gavilan”), acquired full legal title to the Caramanta project concessions described above. Consideration paid for the acquisition included $300,000 cash and
the issuance of 1,150,000 restricted common shares at a fair value of $1.41 per share. In addition, a $50,000 finder’s fee was paid to Investcol. The total acquisition cost of $1,971,500 was allocated to the net assets acquired as follows:
Mineral and exploration properties and rights | $ | 1,780,841 |
Property, plant and equipment | 190,659 | |
$ | 1,971,500 |
The purchase of mineral and exploration properties and rights was recorded as part of mineral property rights acquisitions in our third quarter fiscal 2006 financial statements. As a result of our acquisition of Gavilan, we no longer have any minimum exploratory work obligations related to the Caramanta concessions.
During the quarterly period ended June 30, 2006, there was preliminary exploration activities conducted on the Options in the Caramanta Exploration Project which included surface geological mapping and sampling. We are currently interpreting the samples received with evaluations expected in the next quarter.
The Kedahda Properties
On August 30, 2006, we purchased, though our subsidiary Compañia Minera de Caldes, S.A., certain mining exploration properties in the Republic of Colombia and the related geochemical and other proprietary geological data from a wholly-owned subsidiary of Anglo Gold Ashanti, Sociedad Kedahda, S.A., for $500,000 cash consideration, which was recorded as part of mineral property acquisitions in the third quarter of fiscal 2006. The Mining Title, Mining Application, and Mining Data for property acquired is identified as Title 5956, Applications 6455, 6455-B, 6418, 6418-B, 6418-C, 6170, D15-151, 622-17, 623-17, 615-17, 616-17 and 628-17.
Consulting Services Agreements
On August 1, 2006, we entered into Consulting Services Agreements (the “Agreements”) with our President and Chief Executive Officer. J. Randall Martin, our Chief Operating Officer, Daniel Hunter, our Chief Financial Officer, Kenneth Phillippe, and the Chairman of our board of directors, Harry Hopmeyer. Under the Agreements, which are effective as of May 1, 2006, these individuals have agreed to devote their best efforts, skills, and sufficient time to carrying out their responsibilities under the Agreements. The Agreements also require that each of these individuals act in substantial accordance with all reasonable instructions of our board of directors and that they provide all management and operation services as may be requested by the board.
The consideration for the services to be rendered under the Agreements by each of these individuals is summarized in the table set forth below:
Consultant | Consideration |
J. Randall Martin | $10,000 per month commencing May 1, 2006 |
Daniel Hunter | $9,000 per month plus applicable Canadian Goods and Services Tax (GST) as applicable at the time of each payment commencing on May 1, 2006 |
Kenneth Phillippe | $3,000 per month plus applicable Canadian Goods and Services Tax (GST) as applicable at the time of each payment commencing on May 1, 2006 |
Harry Hopmeyer | $5,000 per month plus applicable Canadian Goods and Services Tax (GST) as applicable at the time of each payment commencing on May 1, 2006. |
In addition to their monthly consulting fees, each of these individuals will be entitled to reimbursement of expenses reasonably incurred in the performance of their services under the Agreement, to participate in our Stock Option Plan, and to be included in any group health and dental insurance obtained by the Company.
The Agreements are effective for a period of two years commencing May 1, 2006 and may be terminated by mutual consent, for cause as defined in the Consulting Agreements, or without cause. In the event of termination without cause, the Agreements provide for a lump sum payment equal to twelve (12) months of consulting fees and that any stock options granted to the officer shall vest immediately. Following termination the Agreements, each of the individuals is subject to a one year covenant not to compete within the Republic of Colombia and a one year covenant not to solicit any of our consultants or employees.
On September 25, 2006, we entered into a two year Renewable consulting contract with Chuck Major, the previous manager of Gavilan properties. The contract provides for a base salary of $120,000 per year and can be terminated by either us on 30 days notice or the consultant on 60 days notice. The contract includes non-competition and non-solicitation provisions in our favor.
Results of Operations for the three and nine months ended September 30, 2006 and 2005
Our current operations are focused on the acquisition and development of the aforementioned interests in mining properties located in the Marmato Mountain Gold District located in Colombia. We do not anticipate earning any revenues from mining operations until such time that commercial production commences on the mining properties for which we currently hold an interest or may acquire an interest in the future. We are presently in the exploration stage of our business and we can provide no assurance that we will discover commercially exploitable levels of mineral resources on our property interests, or if such resources are discovered, that we will enter into commercial production. In addition, numerous regulatory, practical, legal and other obstacles could adversely affect our ability to achieve profitable operations.
For the three months ended September 30, 2006, we incurred a net loss of $1,945,622, compared to a net loss of $339,225 in the three months ended September 30, 2005. We generated interest income of $50,764 and received no interest income during the three months ended September 30,
2005. For the nine months ended September 30, 2006 we incurred a net loss of $4,880,486, compared to a net loss of $447,985 for the nine months ended September 30, 2005. The primary contributors to our net loss were exploration expenses of $2,187,686 and general and administrative expenses of $2,776,293 (of which $1,606,424 relates to non-cash stock based compensation charges).
We incurred operating expenses of $1,996,386 for the three months ended September 30, 2006, compared to operating expenses of $339,225 for three months ended September 30, 2005. Our operating expenses were primarily attributable to exploration expenditures. Our exploration expenses increased significantly from $260,000 in three months ended September 30, 2005 to $1,074,629 for the three months ended September 30, 2006. During the three months ended September 30, 2006 for $1,034,990 was expended on the evaluation of acquired mineral properties. In addition, we recorded $39,639 in stock based compensation related to these activities.
We incurred operating expenses of $4,983,673 for the nine months ended September 30, 2006, compared to operating expenses of $339,225 for nine months ended September 30, 2005. The increase in our operating expenses was primarily attributable to increased mineral property rights and exploration expenditures.
Our exploration activities typically involve the following activities and expenditures:
i) | The acquisition of mineral concessions; to September 30, 2006 this has consisted primarily of payments for the assignment contracts and subsequent full legal titles associated with the Caramanta project, the acquisition of the Marmato project via our purchase of RNC (Colombia), and the purchase of the Kedahda properties. The concessions we acquire typically grant to the concessionaire, in an exclusive manner, the faculty to carry out within the given area, the studies, works and installations necessary in order to establish the existence of the minerals, and to exploit them according to the principles, rules and criteria belonging to the accepted techniques of geology and mining engineering. |
ii) | The acquisition of mineral and exploration rights from existing titleholders. This typically involves payments to affected landholders and related stakeholders. The procedure for payment is normally a payment of 25% of the total negotiated purchase price on signing, 25% of the total negotiated purchase price when all documentation has been submitted to the local mining department and the final 50% payments when the mining claim has been registered in our name. Satisfactory resolution of local landowner or relative concerns is essential to the eventual development and operation of modern gold mines on the Marmato project. As of September 30, 2006, we have reached agreements with titleholders to secure 71 of 120 titles deemed desirable in our business plan |
iii) | The evaluation of acquired mineral properties and related activities. This typically involves the payment of salaries, wages, and other exploration costs in the host country directly attributable to field activities furthering our mineral concessions and rights. |
Our general and administrative expenses also increased significantly from $79,091 in three months ended September 30, 2005 to $919,698 for the three months ended September 30, 2006. The primary component of general and administrative expenses in the third quarter of fiscal 2006 was allocated stock based compensation, which totaled $624,655. The remaining $295,043 consisted primarily of consulting and legal fees. Our general and administrative expenses also increased significantly from $79,091 in the nine months ended September 30, 2005 to $2,776,293 for the nine months ended September 30, 2006. The significant increase in our general and administrative expense reflects our transition from a start-up enterprise to a company with an active exploration program and infrastructure sufficient to support field activities, and the allocation of stock-based compensation charges.
Changes in amortization expenses in for the three and nine months ended September 30, 2006 were not significant when compared to the same reporting period in the prior year.
Liquidity and Capital Resources
Our cash and working capital positions as at the dates indicated were as follows:
September 30, 2006 | December 31, 2005 | ||||
Cash and cash equivalents | $ | 3,255,396 | $ | 1,565,640 | |
Working capital | $ | (848,857) | $ | 895,594 |
Our current assets as of September 30, 2006 consisted of cash and cash equivalents of $3,225,396 and prepaid expenses of $733,404 primarily attributable to advances for mineral and exploration rights and prepaid Marmato exploration expenditures. Our current liabilities as of September 30, 2006 consisted of accounts payable and accrued liabilities of $4,807,657, consisting primarily of amounts owing to Marmato titleholders under our mineral and exploration rights purchase agreements.
During the first nine months of fiscal 2006, we used $1,837,437 in operations compared to $670,729 for the first nine months of the prior year. During the third quarter of fiscal 2006, we issued a total of 5,350,000 common shares as consideration for the acquisition of i) the third 25% of RNC and ii) the acquisition of Gavilan, but did not receive cash from these issuances. We issued 9,626,749 common shares and 6,500,666 share purchase warrants in the nine months September 30, 2006 for net proceeds of $9,086,374. In fiscal 2006, we expended $378,148 on the purchase of capital assets and $5,211,033 on the purchase of mineral exploration rights, resulting in a net increase in cash of $1,659,756 for the nine months ended September 30, 2006.
We have historically relied on equity capital to fund our operations and mineral property acquisition and exploration activities. For the cumulative period from March 25, 2003 to September 30, 2006, we raised in excess of $12 million from the issuance of common shares and share purchase warrants and used approximately $8.8 million to fund operations and exploration activities, leaving approximately $3.2 million in cash reserves at September 30, 2006. In order to finance continuing operations and make payments related to the acquisition of identified properties and the exercise of existing options, additional funding will be required from external
sources. Management estimates that a minimum of an additional $15 million will be required over the next twelve months to adequately fund our business plan.
Based upon our current financial condition, we anticipate that the current cash on hand is insufficient to operate our business through the end of the current fiscal year. We intend to fund operations through debt and/or equity financing arrangements, which may be insufficient to fund expenditures or other cash requirements. We plan to seek additional financing in a public equity offering to secure funding for operations. There can be no assurance that we will be successful in raising additional funding. If we are not able to secure additional funding, the implementation of our business plan will be impaired and we may lose option to purchase certain mining and mineral rights. There can be no assurance that such additional financing will be available to us on acceptable terms or at all.
Off Balance Sheet Arrangements
As of September 30, 2006, there were no off balance sheet arrangements.
Going Concern
We have incurred net loss for the period from inception on March 25, 2003 to September 30, 2006 and have no current source of revenue. Our future is dependent upon our ability to obtain financing and upon future acquisition, exploration and development of profitable operations from our mineral properties. These conditions raise substantial doubt about our ability to continue as a going concern. Although there are no assurances that management’s plans will be realized, management believes that we will be able to continue operations in the future. Management intends to continue relying upon the issuance of securities to finance the development of our business. There can be no assurance that we will be successful in raising the funds necessary to maintain operations, or that a self-supporting level of operations will ever be achieved. The financial statements do not include any adjustment to reflect the possible future effect on the recoverability and classification of the assets or the amounts and classification of liabilities that may result should we cease to continue as a going concern.
Critical Accounting Policies
In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We believe that the following accounting policies fit this definition.
Basis of Presentation
Entities which are controlled by us, either directly or indirectly, are consolidated. Control is established by our ability to determine strategic, operating, investing and financing policies without the co-operation of others. We analyze our level of ownership, voting rights and
representation on the board of directors in determining if control exists by any one, or a combination of these factors.
Our consolidated financial statements include the accounts of (i) Colombia Goldfields Ltd., a Delaware corporation (ii) our 75% interest in RNC (Colombia) Limited, a Belize corporation and its 94.99% owned subsidiary - Compania Minera De Caldas, S.A., a Colombia corporation, iii) our 94.99% interest in Gavilan Minerales, S.A. (“Gavilan”) a Colombia Corporation. All significant inter-company transactions and balances are eliminated upon consolidation.
Mineral Property Rights Acquisition and Exploration Expenditures
Title on mineral properties and mining and exploration rights involve certain inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyance history characteristic of many mining properties. We are in the process of investigating the title of mineral concessions that we hold the options to acquire. Therefore, we cannot give any assurance that title to such properties will not be challenged or impugned and we cannot be certain that we will have valid title to our mining properties. We rely on title opinions by legal counsel who base such opinions on the laws of countries in which we operate.
Our mineral property rights acquisition and exploration activities consist of
i) The acquisition of mineral concessions;
ii) The acquisition of mineral and exploration rights from existing titleholders;
iii) The exploration of acquired mineral properties and related activities; and
iv) The allocation of stock based compensation related to certain participants in our stock option plan.
Costs of acquiring mining properties and exploration and development costs are capitalized upon acquisition. Mine development costs incurred either to develop new ore deposits, expand the capacity of mines, or to develop mine areas substantially in advance of current production are also capitalized once proven and probable reserves exist and a property is a commercially mineable property. Costs incurred to maintain current production or to maintain assets on a standby basis are charged to operations. Costs of abandoned projects are charged to operations upon abandonment. We evaluate, whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable the carrying value of capitalized mining costs and related property, plant and equipment costs to determine if these costs are in excess of their net recoverable amount. The periodic evaluation of carrying value of capitalized costs and any related property, plant and equipment costs are based upon expected future cash flows and/or estimated salvage value in accordance with Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for Impairment or Disposal of Long-Lived Assets.
Asset Retirement Obligations
We apply SFAS No. 143, Accounting for Asset Retirement Obligations which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is
incurred. SFAS No. 143 requires us to record a liability for the present value of the estimated site restoration costs with a corresponding increase to the carrying amount of the related long-lived assets. The liability is accreted and the asset will be amortized over the life of the related assets. Adjustments for changes resulting from the passage of time and changes to either the timing or amount of the original present value estimate underlying the obligation will be made. At September 30, 2006, we did not have any asset retirement obligations.
Stock-Based Compensation
We apply adopted SFAS No. 123(R), Share-Based Payment, to account for stock options and similar equity instruments issued. Accordingly, compensation expense attributable to stock options or similar equity instruments granted are measured at the fair value at the grant date, and recognized over the expected vesting period. For all stock option awards granted on or after January 1, 2006, we recognized compensation using the fair value method of accounting for stock-based compensation. The fair value of stock options is estimated at the grant date using the Black-Scholes option pricing model and the resultant compensation expenses are classified in our consolidated statement of operations based on the classification of the underlying option plan participants’ related compensation expenses. The majority of our stock based compensation relates to either i) mineral property, acquisition and exploration activities or ii) general and administrative expenses associated with our administrative employees, directors, and consultants.
Although the assumptions used to record stock compensation expense reflect management’s best estimates, they involve inherent uncertainties based on market conditions generally outside of our control. If other assumptions were used, stock-based compensation expense could be significantly impacted. As stock options are exercised, the proceeds received on exercise, in addition to the previously recognized amounts related to those stock options, are credited to stockholders’ equity.
Foreign Currency Translation
Our functional currency is US dollars. Accordingly, foreign currency balances are translated into US dollars as follows:
i) | Monetary assets and liabilities are translated at the period-end exchange rate; |
ii) | Non-monetary assets are translated at the rate of exchange in effect at their acquisition date; and |
iii) | Revenue and expense items are translated at the average exchange rate for the respective period. |
Foreign exchange gains and losses are recognized as period expenses.
Recently Issued Accounting Pronouncements
In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS 151, “Inventory Costs.” This Statement amends the guidance in ARB No. 43, Chapter 4, inventory
Pricing, to clarify the accounting for abnormal amounts of idle expense, freight, handling costs, and wasted material (spoilage). In addition, this Statement requires that allocation of fixed production overheard to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this Statement will be effective for us beginning with our fiscal year ending December 31, 2006. We are currently evaluating the impact this new Standard will have on our operations, but believe that it will not have a material impact on our financial position, results of operations or cash flows.
In December 2004, the FASB issued SFAS 123(R), “Share-Based Payment”. This Statement requires that the cost resulting from all share-based transactions be recorded in the financial statements. The Statement establishes fair value as of measurement objective in accounting for share-based payment transactions with employees. The Statement also establishes fair value as the measurement objective for transactions in which an entity acquires goods and services from non-employees in share-based payment transactions. The Statement replaces SFAS123, “Accounting for Stock-Based Compensation,” and supersedes APB Opinion No. 25” Accounting for Stock Issued Employees.” The adoption of this standard did not materially impact historical results, as we previously accounted for share-based compensation at fair value.
The FASB has issued FIN 48 which prescribes rules for the financial statements accounting for uncertainty in income tax positions. FIN 48 requires all material tax positions to undergo a new two-step recognition and measurement process. All material tax positions in all jurisdictions in all tax years in which the statute of limitations remains open upon the initial date of adoption are required to be assessed. In order to recognize a tax asset it must be more likely than not that a tax position will be sustained upon examination based solely on its technical merits. If the recognition standard is not satisfied, then no tax benefit otherwise arising from the tax position can be recorded for financial statement purposes. If the recognition standard is satisfied, the amount of tax benefit recorded for financial statement purposes will be the largest amount of tax benefit with a greater -than-50-percent likelihood of being realized upon ultimate settlement with a taxing authority. FIN 48 is effective for the Company’s fiscal 2007 year. The Company does not anticipate the adoption of FIN 48 will have a material impact on the Company’s financial position, results of the operations, or cash flows.
We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2006. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer, Mr. J. Randall Martin, and our Chief Financial Officer, Mr. Kenneth Phillippe. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2006, our disclosure controls and procedures are effective. There have been no changes in our internal controls over financial reporting during the quarter ended September 30, 2006.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the
SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Limitations on the Effectiveness of Internal Controls:
Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving our objectives and our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at that reasonable assurance level. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
PART II - OTHER INFORMATION
We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.
The information set forth below relates to our issuances of securities without registration under the Securities Act during the reporting period which were not previously included in a Current Report on Form 8-K.
On September 25, 2006, we issued 1,150,000 shares of our common stock to Chuck Major as part of the consideration paid to acquire certain properties located in the Caramanta Municipality in western Colombia. These shares were issued pursuant to Section 4(2) of the Securities Act. We did not engage in any general solicitation or advertising. The stock certificate was issued with the appropriate legends affixed to the restricted stock.
On September 22, 2006, we granted to a consultant, in connection with services to be rendered, options to purchase 100,000 shares of our common stock at the exercise price of $1.20 per share with the options vesting completely over two years and exercisable for a period of ten years from the date of issuance. These shares and options were issued pursuant to Section 4(2) of the Securities Act of 1933, as amended. We did not engage in any general solicitation or advertising.
On August 22, 2006, we issued 4,200,000 shares of our common stock to Investcol Limited as part of the consideration upon exercise of our option to acquire and additional twenty-five percent (25%) of the issued and outstanding stock of RNC (Colombia) Limited, a Belize corporation (“RNC”) and subsidiary of Investcol Limited. These shares were issued pursuant to Section 4(2) of the Securities Act. We did not engage in any general solicitation or advertising. The stock certificate was issued with the appropriate legends affixed to the restricted stock.
On July 31, 2006, we granted to a member of the board of directors options to purchase 200,000 shares of our common stock at the exercise price of $1.35 per share with the options vesting completely over two years and exercisable for a period of ten years from the date of issuance. Also on this date, we granted to two consultants each options to purchase 200,000 shares of our common stock at the exercise price of $1.35 per share in connection with services to be rendered These options also vest completely over two years and are exercisable for a period of ten years from the date of issuance. These options were issued pursuant to Section 4(2) of the Securities Act of 1933, as amended. We did not engage in any general solicitation or advertising.
None
On July 31, 2006, we held the annual meeting of our security holders. The meeting was called for the purpose of electing directors, confirming the appointment of Vellmer & Chang as the company’s independent certified public accountant for the fiscal year ended December 31, 2006, for approval of the adoption of the Colombia Goldfields Ltd. 2006 Stock Incentive Plan, to consider a proposal to amend the Articles of Incorporation to increase the number of shares of common stock authorized for issuance from 50,000,000 to 200,000,000, to consider proposed reincorporation of the Company in the State of Delaware by merger. The total number of shares of common stock outstanding on the record date, June 2, 2006, was 43,215,849 shares. The number of votes represented at the meeting was 29,991,363 shares, or 69.4% of the shares eligible to vote.
The following individuals were elected as directors with the votes being as follows:
Nominee | Votes Cast For | Votes Cast Against | Votes Withheld |
J. Randall Martin | 29,967,723 | 1,200 | 22,400 |
Daniel Hunter | 29,967,923 | 1,000 | 22,440 |
Harry Hopmeyer | 29,968,723 | 200 | 22,440 |
Thomas Ernest McGrail | 29,968,723 | 200 | 22,440 |
Hernando Molina Velez | 29,967,923 | 1,000 | 22,440 |
Robert E. Van Tassell | 29,966,623 | 2,300 | 22,440 |
David Bikerman | 29,968,923 | 0 | 22,440 |
The appointment of Vellmer & Chang as the Company’s independent certified public accountant for the fiscal year ended December 31, 2006 was confirmed, with the votes cast being as follows:
Votes Cast For | Votes Cast Against | Votes Withheld | ||
29,975,423 | 7,330 | 8,610 |
With respect to the approval of the adoption of the Colombia Goldfields Ltd. 2006 Stock Incentive Plan, votes were cast for confirmation as follows:
Votes Cast For | Votes Cast Against | Votes Withheld | Not Voted | |||
22,021,946 | 210,525 | 186,630 | 7,572,262 |
With respect to the proposed Amendment to the Articles of Incorporation to increase the number of shares of common stock authorized for issuance from 50,000,000 to 200,000,000, votes were cast for confirmation as follows:
Votes Cast For | Votes Cast Against | Votes Withheld | Not Voted | |||
29,471,239 | 199,567 | 320,556 | 1 |
With respect to the proposed reincorporation into the State of Delaware by merger, votes were cast for confirmation as follows:
Votes Cast For | Votes Cast Against | Votes Withheld | Not Voted | |||
22,235,576 | 13,200 | 170,326 | 7,572,261 |
No other matters were acted upon by our security holders at our annual meeting.
None
Exhibit Number | Description of Exhibit |
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Colombia Goldfields Ltd. | |
Date: | November 22, 2006 |
By: /s/ J. Randall Martin J. Randall Martin Title: Chief Executive Officer and Director |