UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB/A
[X] | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended June 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: 56,036,849 common shares as of December 31, 2006
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
EXPLANATORY NOTE
During fiscal 2006, we acquired several mineral rights in connection with our Marmato and Caramanta projects. On November 20, 2006, we were advised by our independent accountant, PricewaterhouseCoopers LLP, that under GAAP, previously expensed amounts related to mineral property acquisitions were required to be recognized on our consolidated balance sheet. We previously accounted for these acquisitions by capitalizing the mineral rights and then subsequently recording an impairment charge against amounts capitalized. We engaged PricewaterhouseCoopers as our auditor on August 10, 2006 and PricewaterhouseCoopers reviewed the financial statements for the quarterly period ended June 30, 2006 as required by Item 310 of Regulation S-B.
Upon further review of the authoritative guidance and discussions with our auditors, we concluded that FAS 144 was misapplied in the first and second quarters of fiscal 2006. As of the dates of acquisition of our 2006 mineral rights, no impairment provision is permissible under GAAP, and furthermore there have been no changes in circumstances suggesting an impairment charge is warranted.
Emerging Issues Task Force (“EITF”) 04-2: Whether Mineral Rights are Tangible or Intangible Assets indicates that acquired mineral rights are tangible assets and should be reported as a separate component of property, plant, and equipment. EITF 04-3: Mining Assets: Impairment and Business Combinations indicates that Values Beyond Proven and Probable Reserves (VBPP) should be considered to the extent that a market participant would include VBPP in determining the fair value of the assets. The mineral rights acquired in each instance were “Long-Lived Assets” as contemplated by FAS 144: Accounting for the Impairment or Disposal of Long-Lived Assets and should have only been subject to FAS 144’s impairment considerations whenever events or changes in circumstances indicated that their carrying amount might not be recoverable. At the acquisition dates of our mineral rights, there were no events or changes in circumstances that would suggest that an impairment of amounts initially capitalized under EITF 04-2 should be recognized.
In reaching the conclusion that there have been no changes in circumstances subsequent to the acquisition dates of our mineral rights, we considered the following factors:
i) | Subsequent to the acquisition dates of our mineral rights, we have continued to consolidate the various Marmato concessions during fiscal 2006, and have purchased 70 mining properties, awaiting payment once the documentation and registration is complete; |
ii) | We have completed an independent technical review of available data indicating historical resources of approximately 5.3 million ounces of gold; |
iii) | We have commenced channel sampling of the purchased concessions, supporting the conclusions of the technical review; |
iv) | We have commenced an exploration program on the “el Salto” area of the Caramanta project, with encouraging preliminary results; and |
v) | Progress on the movement of the Town of Marmato is positive, with continued support from the local government. |
We have therefore concluded that it is inappropriate to record an impairment provision against acquired mineral rights at June 30, 2006.
As a result of the forgoing, this Amended Quarterly Report on Form 10-QSB/A is being filed to revise the interim financial statements for the period ended June 30, 2006 to reflect the acquired mineral rights on the balance sheet at their historical acquisition costs without any impairment provision.
Page | ||
Our unaudited consolidated financial statements included in this Amended Form 10-QSB/A 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 June 30, 2006 are not necessarily indicative of the results that can be expected for the full year.
COLOMBIA GOLDFIELDS LTD.
(An Exploration Stage Company)
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(UNAUDITED - AS RESTATED)
(An Exploration Stage Company)
(AS RESTATED - SEE NOTE 2)
As at (expressed in U.S. dollars) | June 30, 2006 (unaudited as restated -See Note 2) | December 31, 2005 | |||||
ASSETS | |||||||
Current | |||||||
Cash and cash equivalents | $ | 6,728,353 | $ | 1,565,640 | |||
Accounts receivable | 61,843 | - | |||||
Prepaid expenses | 38,776 | 22,554 | |||||
Exploration advances | 102,124 | 158,202 | |||||
6,931,096 | 1,746,396 | ||||||
Mineral and exploration properties and rights (Notes 2 & 3) | 16,940,878 | - | |||||
Property and equipment, net of accumulated amortization of $11,970 | |||||||
(December 31, 2005:$335) | 144,206 | 1,445 | |||||
Website Development Cost, net of accumulated amortization of $9,500 | |||||||
(December 31, 2005:$3,500) | 26,500 | 17,500 | |||||
$ | 24,042,680 | $ | 1,765,341 | ||||
LIABILITIES | |||||||
Current | |||||||
Accounts payable and accrued liabilities | $ | 2,402,678 | $ | 83,004 | |||
Non-Current | |||||||
Future income tax liability (Notes 2 & 3) | 2,994,000 | - | |||||
5,396,678 | 83,004 | ||||||
STOCKHOLDERS’ EQUITY | |||||||
Common stock (Note 5) | |||||||
Authorized: 50,000,000 shares, $0.00001 par value | |||||||
Issued and outstanding: 43,215,849 shares | 432 | 296 | |||||
(December 31, 2005: 29,589,100 shares) | |||||||
Additional paid-in capital (Note 5) | 23,131,397 | 1,465,354 | |||||
Share subscriptions (Note 5) | - | 1,767,650 | |||||
Accumulated Deficit (Note 2) | (4,485,827) | (1,550,963) | |||||
18,646,002 | 1,682,337 | ||||||
$ | 24,042,680 | $ | 1,765,341 |
See accompanying Notes to Consolidated Financial Statements
(An Exploration Stage Company)
(AS RESTATED - SEE NOTE 2)
(expressed in U.S. dollars) | Three Months Ended June 30, 2006 (unaudited; as restated -See Note 2) | Three Months Ended June 30, 2005 (unaudited) | Six Months Ended June 30, 2006 (unaudited; as restated -See Note 2) | Six Months Ended June 30, 2005 (unaudited) | Cumulative from Inception (March 25, 2003) through June 30, 2006 (unaudited; as restated -See Note 2) | |||||||||
REVENUES | $ | - | $ | - | $ | - | $ | - | $ | - | ||||
OPERATING EXPENSES | ||||||||||||||
General and administrative | 473,218 | 87,269 | 811,002 | 125,456 | 1,223,190 | |||||||||
Amortization - equipment | 9,191 | 67 | 11,635 | 67 | 11,970 | |||||||||
Amortization - website | ||||||||||||||
development cost | 3,000 | - | 6,000 | - | 9,500 | |||||||||
Mineral property rights exploration (Note 2) | 469,423 | - | 976,497 | 2,121,261 | ||||||||||
Stock based compensation | 695,666 | - | 1,182,155 | - | 1,182,155 | |||||||||
Total operating expenses | 1,650,498 | 87,336 | 2,987,289 | 125,523 | 4,548,076 | |||||||||
Other income | (48,870) | - | (52,425) | (763) | (52,422) | |||||||||
Loss from continuing operations | (1,601,628) | - | (2,934,864) | - | (4,495,654) | |||||||||
Income (loss) from discontinued operations | - | (87,336) | - | (124,760) | 9,827 | |||||||||
NET LOSS FOR THE PERIOD | $ | (1,601,628) | $ | (87,336) | $ | (2,934,864) | $ | (124,760) | $ | (4,485,827) | ||||
�� | ||||||||||||||
LOSS PER SHARE - BASIC & DILUTED | ||||||||||||||
Loss from continuing operations | $ | (0.04) | $ | 0.00 | $ | (0.08) | $ | 0.00 | ||||||
Loss from discontinued operations | 0.00 | 0.00 | 0.00 | (0.01) | ||||||||||
NET LOSS | $ | (0.04) | $ | 0.00 | $ | (0.08) | $ | (0.01) | ||||||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | ||||||||||||||
Basic and diluted | 39,258,915 | 24,000,000 | 36,581,942 | 24,000,000 |
See accompanying Notes to Consolidated Financial Statements
(An Exploration Stage Company)
(AS RESTATED - SEE NOTE 2)
From Inception (March 25, 2003) to June 30, 2006:
(unaudited) | 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 period | - | - | - | - | (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 year | - | - | - | - | (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 finder 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 year | - | - | - | - | (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 |
See accompanying Notes to Consolidated Financial Statements
(An Exploration Stage Company)
INTERIM CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(AS RESTATED - SEE NOTE 2)
From Inception (March 25, 2003) to June 30, 2006 (cont’):
(unaudited) | Common Shares | Stock Amount | Additional Paid-in Capital | Share Subscriptions Received | Deficit Accumulated During The Exploration Stage | Total Stockholders’ Equity (Deficiency) | |||||||||||
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 February 14, 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 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 on April 28, 2006 | 2,000,000 | 20 | 5,479,980 | - | - | 5,480,000 | |||||||||||
Stock based compensation | - | - | 1,182,155 | - | - | 1,182,155 | |||||||||||
Net loss for the period | - | - | - | - | (2,934,864) | (2,934,864) | |||||||||||
Balance June 30, 2006 (unaudited) | 43,215,849 | $ | 432 | $ | 23,131,397 | - | $ | (4,485,827) | $ | 18,646,002 |
See accompanying Notes to Consolidated Financial Statements
(An Exploration Stage Company)
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(AS RESTATED - SEE NOTE 2)
(expressed in U.S. dollars) | Six months ended June 30, 2006 (unaudited; As restated -See Note 2 | Six months ended June 30, 2005 (unaudited) | Cumulative From Inception (March 25, 2003) Through June 30, 2006 (unaudited; as restated - See Note 2) | ||||||||||
OPERATING ACTIVITIES: | |||||||||||||
Loss from operations | $ | (2,934,864) | $ | (124,760) | $ | (4,485,827) | |||||||
Items not requiring cash outlay: | |||||||||||||
- Consulting fees | - | - | 52,400 | ||||||||||
- Website design and software development | - | - | 2,000 | ||||||||||
- Amortization of equipment | 11,635 | 67 | 11,970 | ||||||||||
- Amortization of website development cost | 6,000 | - | 9,500 | ||||||||||
- Mineral property exploration | - | - | 250,000 | ||||||||||
- Stock based compensation | 1,182,155 | - | 1,182,155 | ||||||||||
Changes in non-cash working capital items: | |||||||||||||
- Accounts receivable | (61,843) | 910 | (61,843) | ||||||||||
- Prepaid expenses | (16,222) | (10,000) | (38,776) | ||||||||||
- Exploration expenditure advances | 56,078 | - | (102,124) | ||||||||||
- Accounts payable and accrued liabilities | (334,511) | 29,358 | 2,893 | ||||||||||
- Due to/from related parties | - | 5,250 | 4,999 | ||||||||||
Net cash used in operating activities | (2,091,572) | (99,175) | (3,172,653) | ||||||||||
FINANCING ACTIVITIES: | |||||||||||||
Issuance of securities, net of finder fees | 9,086,374 | - | 10,242,625 | ||||||||||
Proceeds of share subscription received | - | - | 1,767,650 | ||||||||||
Net cash provided by financing activities | 9,086,374 | - | 12,010,275 | ||||||||||
INVESTING ACTIVITIES: | |||||||||||||
Purchase of mineral exploration rights | (1,662,693) | - | (1,917,093) | ||||||||||
Purchase of equipment | (154,396) | (1,780) | (156,176) | ||||||||||
Purchase of website | (15,000) | - | (36,000) | ||||||||||
Net cash used in investing activities | (1,832,089) | (1,780) | (2,109,269) | ||||||||||
INCREASE (DECREASE) IN CASH | 5,162,713 | (100,955) | 6,728,353 | ||||||||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 1,565,640 | 104,685 | - | ||||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 6,728,353 | $ | 3,730 | $ | 6,728,353 | |||||||
SUPPLEMENTAL CASH FLOWS INFORMATION | |||||||||||||
Interest expense | - | - | - | ||||||||||
Taxes | - | - | - |
See accompanying Notes to Consolidated Financial Statements
(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.
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 net loss for the period from inception on March 25, 2003 to June 30, 2006 and has no source of operating revenue. Based upon the current financial condition of the Company, management anticipates that the current cash on hand is insufficient to implement the business plan through the end of the fiscal year. The Company’s future is dependent upon its ability to obtain financing and upon future acquisition, 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. If the Company is unable to secure additional funding, the implementation of the business plan will be impaired and the Company may lose its option to purchase certain mining and mineral rights. 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 accruals) considered necessary for a fair presentation have been included. Operating results for the six month period ended June 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 does 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.
(An Exploration Stage Company)
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006
Restatement of Previously Issued Financial Statements
As outlined in Note 3, during fiscal 2006 the Company acquired several mineral rights in connection with the Marmato and Caramanta projects. On November 20, 2006, the Company determined that under the GAAP, previously expensed amounts related to fiscal 2006 mineral property acquisitions were required to be recognized on the Company’s consolidated balance sheet. The Company previously accounted for the acquisition of mineral rights in fiscal 2006 by capitalizing these mineral rights and then subsequently recording an impairment charge against amounts capitalized. Upon further review of the authoritative guidance and discussions with its auditors, the Company has concluded that FAS 144 was misapplied in the first and second quarters of fiscal 2006. As of the dates of acquisition of the Company’s mineral rights, no impairment provision is permissible under GAAP, and furthermore there have been no changes in circumstances suggesting an impairment charge is warranted.
In reaching the conclusion that there have been no changes in circumstances subsequent to the acquisition dates of the Company’s mineral rights, the Company considered the following factors:
i) | Subsequent to the acquisition dates of the Company’s mineral rights, the Company has continued to consolidate the various Marmato concessions during fiscal 2006, and currently has purchased 70 mining properties, awaiting payment once the documentation and registration is complete; |
ii) | The Company has completed an independent technical review of available data indicating historical resources of approximately 5.3 million ounces of gold; |
iii) | The Company has commenced channel sampling of the purchased concessions, supporting the conclusions of the technical review; |
iv) | The Company has commenced an exploration program on the “el Salto” area of the Caramanta project, with encouraging preliminary results; and |
v) | Progress on the movement of the Town of Marmato is positive, with continued support from the local government. |
The Company has therefore concluded that it was inappropriate to record an impairment provision against acquired mineral rights at March 31, 2006 and June 30, 2006. The Company has restated its financial statements for the first and second quarters of fiscal 2006 to i) Recognize acquired mineral and exploration properties and rights and their associated future income tax liabilities in the consolidated balance sheets, ii) Reduce the Company’s’ previously recorded net losses in the consolidated statements of operations by the amount of previously recognized impairment charges, and iii) Reclassify cash flows associated with mineral and explorations properties and rights acquisitions as investing activities in the consolidated statements of cash flows.
(An Exploration Stage Company)
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The impacts of the restatement adjustments on the Company’s historical financial statements are as follows:
i) Balance Sheet:
June 30, 2006 | ||
Mineral and exploration properties and rights, as previously reported | $ | - |
Adjustments | 16,940,878 | |
Mineral and exploration properties and rights, as restated | 16,940,878 | |
Future income tax liability, as previously reported | $ | - |
Adjustments | (2,994,000) | |
Future income tax Liability, as restated | $ | (2,994,000) |
Accumulated deficit, as previously reported | $ | (18,432,705) |
Adjustments | 13,946,878 | |
Accumulated deficit, as restated | $ | (4,485,827) |
ii) Statements of Operations:
Three Months Ended June 30, 2006 | Six Months Ended June 30, 2006 | Cumulative From Inception (March 25, 2003 through June 30, 2006 | ||||||
Net loss, as previously reported | $ | (13,394,106) | $ | (16,881,742) | $ | (18,432,705) | ||
Adjustments | 11,792,478 | 13,946,878 | 13,946,878 | |||||
Net loss, as restated | $ | (1,601,628) | $ | (2,934,864) | $ | (4,485,827) | ||
Loss per share - Basic and diluted, as previously reported | $ | (0.34) | $ | (0.46) | ||||
Adjustments | $ | 0.30 | $ | 0.45 | ||||
Loss per share - basic and diluted, as restated | $ | (0.04) | $ | (0.01) |
(An Exploration Stage Company)
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
iii) Statements of Cash Flows:
Six months Ended June 30, 2006 | Six months Ended June 30, 2005 | Cumulative from Inception (March 25, 2003 through June 30, 2006 | ||||||
Net Cash used in generating activities, as previously reported | $ | (3,754,265) | $ | (99,175) | $ | (5,089,746) | ||
Adjustments | 1,662,693 | - | 1,917,093 | |||||
Net Cash used in operating activities, as restated | $ | (2,091,572) | $ | (99,175) | $ | (3,172,653) | ||
Net cash used in investing activities, as previously reported | $ | (169,396) | $ | (1,780) | $ | (192,176) | ||
Adjustments | $ | (1,662,693) | $ | - | $ | (1,917,093) | ||
Net cash used in investing activities, as restated | $ | (1,832,089) | $ | (1,780) | $ | (2,109,269) |
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., a Nevada corporation (ii) The Company’s 50% interest in RNC (Colombia) Limited, a Belize corporation and its 94.99% owned subsidiary - Compania Minera De Caldas, S.A., 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.
Up until April 28, 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., are VIEs since the Company provides the principal financial support to these entities and is considered to be the primary beneficiary. Under FIN 46R transition rules, the financial statements of RNC (Colombia) Limited and Compania Minera De Caldas, S.A. have been conseded VIEs and the Company’s 25% interest had been included within the Company’s consolidated financial statements for the period January 12, 2006 to April 30, 2006.
(An Exploration Stage Company)
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
In connection with the Company’s April 28, 2006 acquisition of an additional 25% of RNC (Colombia) (total ownership of 50% 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 has determined that control over RNC (Colombia) exists as of May 1, 2006, and these financial statements reflect the consolidation of the Company’s 50% interest thereafter. Since the non-controlling shareholder of RNC has no obligation to contribute any additional capital, the non-controlling interest related to RNC in the consolidated statement of operations and in the consolidated balance sheet was zero.
NOTE 3 - MINERAL PROPERTIES AND EXPLORATION RIGHTS
The Company has determined that the Caramanta and Marmato properties constitute one reportable segment, due to the nature of the Company’s business and the geographic location of these properties.
Title on 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 for 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.
(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.
Pursuant to the Assignment Agreement, the Company is committed to fund the $2,990,000 exploratory work as follows:
a) | $500,000 (advanced) 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, to June 30, 2006, $350,000 have been advanced in respect to this second year commitment. |
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.
(An Exploration Stage Company)
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(ii) Caramanta Project - 6993,7039,6821 and 6770 and HET 31, 32, 26 and HETG 01
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 in 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.
The Company has no additional obligations under the Assignment Agreement. Provided the Company satisfies its exploration work obligations on concessions 6602, 1343 and 6329 as described above or completes the same exploratory work on any of these Contracts or Options, these Options will become exercisable. If not exercised, these Options will terminate on November 10, 2008.
(iii) 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 would (i) acquire twenty-five percent (25%) of the issued and outstanding stock of RNC (Colombia) Limited, a Belize corporation ("RNC") and (ii) hold an option to acquire the remaining seventy five percent (75%) of RNC's issued and outstanding stock over a period of time. RNC is a subsidiary of Investcol, the beneficial holder of 94.99% of the issued and outstanding stock of Compania Minera De Caldas, S.A. ("Caldas"), and 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 has the option to:
a. | acquire 25% of the total outstanding shares 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. (The Company acquired 25% of ownership on February 14, 2006) |
b. | to acquire an additional 25% of RNC (total 50% of RNC) by 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 May 1, 2006). |
c. | 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. |
(An Exploration Stage Company)
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
d. | have the option until May 1, 2009 to acquire the final 25% of RNC 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 the Company in either cash or the Company’s common shares (which will be valued at 90% of the average closing provide of the Company’s common shares) |
On February 14, 2006, the Company completed the acquisition of 25% of RNC by the issuance of 1,000,000 restricted common stock of the Company to Investcol and the advancement of $1,200,000 by way of a non-interest bearing loan to RNC. Total consideration of $1,900,000 related to this common stock issuance was recorded as part of mineral and exploration properties and rights in fiscal 2006.
On April 28, 2006, the Company completed the acquisition of an additional 25% of RNC (total 50% of RNC) by the issuance to Investcol Limited of 2,000,000 restricted common stock and the advancement of $4,000,000 by way of a non-interest bearing demand loan to RNC. Total consideration of $5,480,000 related to this common stock issuance was recorded and expensed as part of the 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. |
(An Exploration Stage Company)
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
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:
Three Months Ended June 30, 2006 | Three Months Ended June 30, 2005 | Six Months Ended June 30, 2006 | Six Months Ended June 30, 2005 | Cumulative From Inception (March 25, 2003 Through June 30, 2006) | |||||||||||
(See note 1) | |||||||||||||||
I) | Acquisition of mineral concessions | $ | 8,080,000 | $ | - | $ | 9,980,000 | $ | - | $ | 9,980,000 | ||||
II) | Acquisition of Mineral and exploration rights | 3,712,478 | - | 3,966,878 | - | 3,966,878 | |||||||||
Total acquired Mineral and exploration properties and rights | 11,792,478 | - | 13,946,878 | - | 13,946,878 | ||||||||||
III) | Exploration of acquired mineral properties | 469,423 | - | 976,497 | - | 2,121,261 | |||||||||
Total mineral property rights acquisition and exploration expenditures | $ | 12,261,901 | $ | - | $ | 14,923,375 | $ | - | $ | 16,068,139 |
Capitalized Mineral and Exploration Properties and Rights
Acquired mineral and exploration properties and rights of $13,946,878 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 June 30, 2006 at $16,940,878, with a corresponding future tax liability of $2,994,000.
(An Exploration Stage Company)
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - PROPERTY AND EQUIPMENT
As at June 30, 2006 | Cost | Accumulated Amoritization | Net book Value | |||||
Furniture and office equipment | $ | 46,978 | $ | (8,485) | $ | 38,493 | ||
Vehicles | 109,198 | (3,485) | 105,713 | |||||
Total | $ | 156,176 | $ | (11,970) | $ | 144,206 | ||
As at December 31, 2005 | Cost | Accumulated Amortization | Net book Value | |||||
Office equipment | $ | 1,780 | $ | (335) | $ | 1,445 |
NOTE 5 - STOCKHOLDERS’ EQUITY
Common Stock
Effective March 7, 2005, the Company completed an eight shares for one share stock split. The Company’s share transactions disclosed in these financial statements have been retroactively restated to reflect the above stock split.
During the years ended December 31, 2004 and 2005, the Company:
a. | completed its initial public offering and issued 16,000,000 common stock at a price of $0.00625 per share for total proceeds of $100,000. |
b. | 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 rights on three gold properties known as the Caramanta concessions in the Marmato Mountain mining district, Colombia. |
c. | completed a private placement and issued 4,221,000 units at a price of $0.25 per share for total 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: |
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 |
During the six month period ended June 30, 2006, the Company completed the following transactions:
a. | On January 24, 2006, the Company issued 3,126,083 common shares at $0.60 per share for total proceeds of $1,875,650. The Company paid finders fees in the amount of $187,565. |
(An Exploration Stage Company)
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
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 of acquisition of 25% ownership of RNC (Colombia) Limited. |
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. |
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 we 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 our 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 gross proceeds from the offering of $9,751,000 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 is 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), the Company issued 2,000,000 common shares at a fair value of $2.74 to Investcol for deemed proceeds of $5,480,000. |
Warrants
As at June 30, 2006, the following warrants were issued and outstanding:
# Warrants | Exercise Price | Expiry Date |
4,589,100 | $0.50 per share | October 14, 2006 |
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
During the period ended June 30, 2006, the Company adopted the 2006 Stock Incentive 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.
(An Exploration Stage Company)
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Under the 2006 Stock Incentive Plan, the Company has reserved 3,500,000 shares of common stock for the granting of options and rights. 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 of granted.
Pursuant to the Plan, the Company granted 1,750,000, 500,000 and 100,000 stock options to employees, directors and consultants of the Company with exercise prices of $0.75, $1.65 and $1.90 per share, respectively during the six month period ending June 30, 2006. 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 sixth month period ended June 30, 2006, the Company recorded a total of $1,182,155 (for the three month period ended June 30, 2006 - $695,666) for stock based compensation expenses. The Company has incurred $2,681,061 in stock-based compensation costs for historical stock option awards through June 30, 2006. In respect of these awards, $1,182,155 has been recognized to date in the consolidated statements of operations as stock based compensation expense and an additional $1,498,903 is expected to be recognized in respect of these awards in future periods through fiscal 2008.
A summary of the stock options granted and exercised is as follows.
(expressed in U.S. dollars) | Shares | Weighted Average Exercise Price | |||
Options outstanding at December 31, 2005 | - | $ | - | ||
Granted | 2,350,000 | 0.99 | |||
Options outstanding at June 30, 2006 | 2,350,000 | $ | 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-interest rate of 4.45%, dividend yield 0%, a historic of 63.72% 10 years, equal to the full life of the options as the Company does not expect any options to be exercised daily. A summary of weighted average fair value of stock options granted during the period end June 30, 2006 is as follows:
(expressed in U.S. dollars) | Weighted Average Exercise Price | Weighted Average Fair Value | |||
Exercise price is below market price at grant date: | $ | 0.81 | $ | 1.11 | |
Exercise price is equal to or greater than market price at grant date: | $ | 1.65 | $ | 1.24 |
A summary of stock options outstanding and exercisable is as follows:
Range of Exercise Prices | Number Outstanding | Weighted Average Remaining Contractual Life (yr) | Weighted Average Exercise Price |
$0.01 - $1.00 | 1,750,000 | 9.77 | $0.75 |
$1.01 - $2.00 | 600,000 | 9.97 | $1.69 |
2,350,000 | 9.82 | $0.99 |
(An Exploration Stage Company)
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
No options were exercisable as at June 30, 2006, and no options have expired or have been forfeited during the six month period ending June 30, 2006.
NOTE 6 - RELATED PARTY TRANSACTIONS
During the six month period ended June 30, 2006 the Company:
a. | paid $270,750 (2005: $nil) for management and consulting fees to directors, senior officers and shareholders of the Company. |
b. | paid $10,256 (2005: $nil) for office rent to a company related to a director of the Company. |
Amounts due to a related party are non-secured, non-interest bearing and have no stated terms of repayment.
NOTE 7 - COMMITMENTS
See Note 3.
NOTE 8 - RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the current period presentation.
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.
Overview
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. The disclosure that follows is a discussion of each of the properties that we have an interest in. 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.
Marmato Mountain Development Project
Acquisition of an interest in RNC (Colombia) Limited
On January 12, 2006, we entered into a Stock Purchase Agreement with Investcol Limited ("Investcol") and RNC (Colombia) Limited (the "Agreement"), whereby we would (i) acquire twenty-five percent (25%) of the issued and outstanding stock of RNC (Colombia) Limited, a Belize corporation ("RNC") and (ii) hold an option to acquire the remaining seventy five percent (75%) of RNC's issued and outstanding stock over a period of time. RNC is a subsidiary of Investcol that 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 rights, (ii) has options to acquire mining rights and (iii) has exclusive rights to evaluate certain properties, all located in the Zona Alta portion of the Marmato project in Colombia. The closing of this transaction was subject to the completion of certain schedules to the Agreement to our satisfaction and compliance with certain closing conditions. These conditions were satisfied and the Agreement closed on February 14, 2006.
Under the terms of the Agreement, we acquired a 25% interest in RNC in consideration for the issuance of 1,000,000 shares of our common stock to Investcol and a $1,200,000 non-interest bearing demand loan which has been advanced in full.
On April 28, 2006, we exercised our option to acquire an additional 25% of RNC’s issued and outstanding common stock, resulting in us owning 50% of RNC’s issued and outstanding common stock. In consideration for the acquisition of the additional 25% interest in RNC, we issued to Investcol 2,000,000 shares of our common stock and issued a $4,000,000 non-interest bearing demand loan to RNC.
We have the option to acquire an additional 25% interest in RNC, resulting in us owning 75% of RNC, in consideration for the issuance of 4,000,000 shares of our common stock to Investcol and a $15,000,000 non-interest bearing demand loan to RNC on or before October 30, 2006
We have the option to acquire the remaining 25% interest in RNC until May 1, 2009, resulting in us owning 100% of RNC, in consideration for a purchase price equal to 25% of the value of Caldas as determined by a full feasibility study. The purchase price is payable in either cash or shares of our common stock.
Our business plan is to complete the acquisition of the remaining 50% equity interest in RNC which will require additional funds of at least approximately $15,000,000 over the next 8 months, in addition to the issuance of 4 million additional shares of our common stock to purchase the additional 50% ownership of RNC. The final 25% interest can be purchased by us at a price to be determined by a full feasibility study we plan to complete. There can be no assurance that we will be successful in securing sufficient financing to continue to acquire more than our fifty 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 reporting period, there was preliminary exploration activities conducted on our property interests in the Marmato Mountain Development Project which included underground mapping and sampling. We have not received any results at the present time based upon these exploration activities.
Caramanta Exploration Projects
Concessions 6602, 1343, and 6329
On September 22, 2005, we entered into an Assignment Agreement with Investcol Limited (“Investcol”), a corporation organized and existing under the laws of Belize, 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., a corporation organized and existing under the laws of Colombia. As a result of the Assignment Agreement with Investcol, we acquired an option to purchase certain mining and mineral rights on property known as Concession 6602, 1343, and 6329 located in Caramanta Municipality, Antioquia Department, Medellin, Colombia (the “Property”) for $10,000, on condition that $2,990,000 is invested in exploratory work on the Property over a three year period. Our option on this property is currently unexercised. In consideration for this assignment, we issued to Investcol one million (1,000,000) restricted shares of our common stock. We also agreed to pay Investcol fees for the management, exploration, and development of the Property over the three year period to satisfy our exploratory work obligations under the Original Option Contract as follows:
(a) | five hundred thousand dollars ($500,000), which has been paid in full; |
(b) | seven hundred fifty thousand dollars ($750,000) during the 12 month period of the Assignment Agreement commencing June 25, 2006, and, on the earlier of June 2006 or commencement of the second exploration phase, one million restricted shares of our common stock; and |
(c) | one million seven hundred and forty thousand dollars ($1,740,000) during the 12 month period of the Assignment Agreement, commencing June 25, 2007. |
In addition, we agreed to pay Investcol $7,500 per month as an office fee through July 31, 2006.
Concessions 6993, 7039, 6821, and 6770 and HET-31, 32, 26, 27, and HETG-01
On February 16, 2006, we entered into a Letter of Intent (“LOI”) with Investcol Limited, a corporation incorporated under the laws of Belize (“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 we intended to acquire Investcol’s rights in 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 (“Assignment Agreement”). In consideration for this Assignment Agreement, we paid Investcol total consideration in the amount of $350,000 and issued 1,000,000 restricted shares of our common stock. Under the terms of the Assignment Agreement, Investcol paid the exercise price of $150,000 on the Options and the titles will remain in the name of Cia Servicios until the final exploration commitments have been made.
We have no additional obligations under the Assignment Agreement. Provided we satisfy our exploratory work obligations on Concessions 6602, 1343, and 6329 as described above or complete the same exploratory work on any of these Contracts or Options, these Options will become exercisable. If not exercised, these Options will terminate of November 10, 2008.
During the reporting period, there was preliminary exploration activities conducted on the Options in the Caramanta Exploration Project which included surface geological mapping and sampling. We have not received any results at the present time based upon these exploration activities.
Results of Operations for the three and six months ended June 30, 2006 and 2005
We generated interest income of $48,870 for the three months ended June 30, 2006 and $52,423 for the six months ended June 30, 2006, but did not generate any revenue during the reporting period from our current mining operations. Our current operations are focused on the acquisition and development of our interests in mining properties located in the Marmato Mountain Gold District located in Colombia. We do not anticipate earning any revenues from 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.
We did not generate any revenue during the three months ended June 30, 2005. During the six months ended June 30, 2005, we generated $763 from our prior business plan which was discontinued in the first quarter of 2005 to pursue the acquisition and development of mining properties located in the Marmato Mountain Gold District located in Colombia.
We incurred operating expenses of $1,650,498 for the three month period ended June 30, 2006, compared to operating costs and expenses of $87,336 for the same three month period in the prior year. We incurred operating expenses of $2,987,289 for the six month period ended June 30, 2006, compared to operating costs and expenses of $125,523 for the six months ended June 30, 2005. The increase in our operating expenses for the three and six months ended June 30, 2006 when compared to the same reporting period in the prior year is attributable to expenditures relating to mineral property exploration operations under our new business plan and stock based compensation. Our expenses for the three months ended June 30, 2006 consisted primarily of mineral property rights and exploration expenses in the amount of $469,423, stock based compensation of $695,666, and general and administrative expenses in the amount of $473,218. Our expenses for the six months ended June 30, 2006 consisted primarily of mineral property rights exploration expenditures in the amount of $976,497, stock based compensation of $1,182,155, and general and administrative expenses in the amount of $811,002.
We incurred a net loss of $1,601,628 in the three months ended June 30, 2006, as compared to a net loss of $87,336 in the three months ended June 30, 2005. We incurred a net loss of $2,934,864 in the six months ended June 30, 2006, as compared to a net loss of $124,760 in the six months ended June 30, 2005. The increase in our net loss is attributable to increased expenditures relating to mineral property exploration operations under our new business plan and stock based compensation.
Liquidity and Capital Resources
As of June 30, 2006, we had current assets of $6,931,096 and current liabilities of $2,402,678. As a result, we had working capital of $4,528,418.
Operating activities used $2,091,572 in cash for the six months ended June 30, 2006. Our net loss of $2,934,864 was the primary component of our negative operating cash flow. Investing activities during the six months ended June 30, 2006 consisted of website development costs of $15,000, the purchase of equipment in the amount of $154,396, and cash of $1,662,693 used in the purchase of mineral exploration rights. Cash flows generated from financing activities during the six months ended June 30, 2006 consisted of $9,086,374 related to the issuance of common stock, net of finder’s fee.
We primarily relied on equity capital to fund our operations during the six months ended June 30, 2006. During the reporting period, we sold securities to accredited investors. On April 26, 2006, we completed a private equity offering of 6,500,666 Units at $1.50 per Unit to a total of 26 investors. Each Unit consisted 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. As a result, we issued a total of 6,500,666 shares of common stock and warrants to purchase 6,500,666 shares of our common stock in connection with this private equity offering. The exercise price for the Warrant is priced at $2.50. The gross proceeds we received from this offering was $9,751,000
Based upon the current financial condition of the company, our management anticipates that the current cash on hand is insufficient for us to operate our business through the end of the fiscal year. We intend to fund operations through debt and/or equity financing arrangements, which may be insufficient to fund our expenditures or other cash requirements for the year ending December 31, 2006. We plan to seek additional financing in a private equity offering to secure funding for our 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 our 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 June 30, 2006, there were no off balance sheet arrangements.
Going Concern
We have incurred a net loss of $4,485,827 for the period from inception on March 25, 2003 to June 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 policies” 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.
Mineral Claim Payments and Exploration Expenditures
We expense all costs related to the acquisition, maintenance and exploration costs relating to unproven mineral properties, to which we have secured exploration rights. When proven and probable reserves are determined for a property and a feasibility study prepared with respect to the property, then subsequent exploration and development costs of the property will be capitalized. To date, we have not established the commercial feasibility of our exploration prospects. Therefore, all costs have been expensed.
Environmental Costs
Environmental expenditures that related to current operations are charged to operations or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are charged to operations. Liabilities are recorded when environmental assessments and/or remedial efforts are probable, and the cost can be reasonably estimated. Generally, the timing of these accruals coincides with the earlier of completion of a feasibility study or our commitments to plan of action based on the then known facts.
Recently Issued Accounting Pronouncements
In November 2004, the FASB issued SFAS 151, "INVENTORY COSTS", which revised ARB 43, relating to inventory costs. This revision is to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage). This Statement requires that these items be recognized as a current period charge regardless of whether they
meet the criterion specified in ARB 43. In addition, this Statement requires the allocation of fixed production overheads to the costs of conversion to be based on normal capacity of the production facilities. SFAS 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. We do not believe the adoption of SFAS 151 will have a material impact on our financial statements.
In December 2004, the FASB issued SFAS 153, "EXCHANGES OF NONMONETARY ASSETS", which changes the guidance in APB Opinion 29, "ACCOUNTING FOR NONMONETARY TRANSACTIONS". This Statement amends Opinion 29 to eliminate the exception for non-monetary exchanges of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective during fiscal years beginning after June 15, 2005. We do not believe the adoption of SFAS 153 will have a material impact on our financial statements.
In connection with the restatement of our interim financial statements for the period ended June 30, 2006, we reevaluated 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 June 30, 2006. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer, Mr. James Martin Randall, and Chief Financial Officer, Mr. James Kopperson. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2006, our disclosure controls and procedures are ineffective. As a result of this restatement, the following remedial actions were undertaken:
- Mr. James Kopperson, a CPA with extensive public company financial reporting experience, was appointed as CFO on December 1, 2006.
- We have subscribed to a financial reporting service to ensure that we are current with U.S. GAAP accounting and disclosure pronouncements.
- We have reviewed our quarterly reporting procedures with our independent auditors to ensure that all material accounting and disclosure issues are identified on a timely basis.
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.
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.
On April 28, 2006, we issued 2,000,000 shares of our common stock to Investcol Limited as part of the consideration upon exercise of our option to acquire an additional twenty-five percent (25%) of the issued and outstanding stock of RNC (Colombia) Limited, a Belize corporation ("RNC") and wholly owed 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 April 26, 2006, we 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. As a result, we issued a total of 6,500,666 shares of common stock and warrants to purchase 6,500,666 shares of our common stock in connection with this private equity offering. The exercise price for the Warrant is priced at $2.50. The gross proceeds we received from sale of Units in this exempt offering were $9,751,000.
In connection with this private equity offering, we paid as a commission $585,060 and issued warrants to purchase 390,040 shares of our 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.
We completed this offering pursuant to Regulation S of the Securities Act. Each investor represented to us that he was a non-US person as defined in Regulation S. We did not engage in a distribution of this offering in the United States. Each investor represented his intention to acquire the securities for investment only and not with a view toward distribution. We requested our stock transfer agent to affix appropriate legends to the stock certificate issued to each investor in accordance with Regulation S and the transfer agent affixed the appropriate legends. Each investor was given adequate access to sufficient information about us to make an informed investment decision.
In connection with this private equity offering, we have agreed to commence the filing of a registration statement to register the common stock in each Unit and the underlying common stock for each warrant. In the event that the registration statement is not effective within seven (7) months from the closing date of this offering, we will incur a cash penalty of 2.5% on each investor’s investment per month for each month until the registration statement is declared effective by the Securities and Exchange Commission.
On April 10, 2006, we issued 1,000,000 shares of our common stock to Investcol Limited as part of the consideration paid for transferring us certain mining contracts and options to acquire the exclusive rights to engage in mining activities. 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.
None
Subsequent to the reporting period 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: | February 9, 2007 |
By: /s/ J. Randall Martin Mr. J. Randall Martin Title: Chief Executive Officer and Director |