As filed with the Securities and Exchange Commission on May 5, 2008
Registration No. 333-139037
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 10
TO
FORM SB-2
ON
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
XTRA-GOLD RESOURCES CORP.
(Name of small business issuer in its charter)
NEVADA 1000 91-1956240
------ ---- ----------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
360 BAY STREET - SUITE 301
TORONTO, ONTARIO M5H 2V6 CANADA
TELEPHONE: (416) 366-4227
FACSIMILE: (416) 366-4225
(Address and telephone number of principal executive offices)
SAME AS ABOVE
(Address of principal place of business or intended principal place of business)
NEVADA CORPORATE SERVICES
1800 E. SAHARA, SUITE 107
LAS VEGAS, NV 89104
TELEPHONE: (702) 734-7557
(Name, address and telephone number of agent for service)
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on the Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement for the same offering. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company:
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
- ii -
CALCULATION OF REGISTRATION FEE
PROPOSED
AMOUNT MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED (1) REGISTERED PER SECURITY (1) OFFERING PRICE (1) FEE (1)
- ----------------------------------------------- ---------- ---------------- ------------------ ------------
Common stock, par value $.001 per share (2) 1,414,000 1.40 $1,979,600 $ 78
Common stock, par value $.001 per share,
issuable upon the exercise of warrants (3) 707,000 1.40 $ 989,000 $ 39
Common stock issuable upon the conversion of
convertible debentures and accrued interest (4) 661,375 1.40 $ 925,925 $ 36
--------- ----
TOTAL REGISTRATION FEE 2,782,375 $153 *
========= ====
*Previously paid.
(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933 based on the
average of the high and low sale price of the common stock as reported
on the Pink Sheets on February 8, 2008.
(2) Includes shares of common stock presently outstanding.
(3) Includes shares of common stock issuable upon the exercise of common
stock purchase warrants with an exercise price of (a) $1.50 per share
expiring between December 13, 2007 and April 23, 2008, the expiry dates
of which have been extended to July 13, 2008.
(4) Includes shares of common stock issuable upon the conversion of
$650,000 principal amount of convertible debentures and up to a maximum
of $11,375 in the event that the holders convert the then accrued
interest which would be no more than for a three month period, based
upon a conversion price of $1.00 per share until June 30, 2010.
To the extent permitted pursuant to Rule 416, this Registration Statement also
covers such additional number of common shares as may be issuable as a result of
reclassifications, stock splits, stock dividends or similar events of the common
stock, options, common stock purchase warrants and convertible debentures listed
above.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- iii -
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
Subject to Completion ________, 2008
PROSPECTUS
XTRA-GOLD RESOURCES CORP.
2,782,375 SHARES OF COMMON STOCK
This prospectus (the "PROSPECTUS") and the registration statement (the
"REGISTRATION STATEMENT"), of which it is a part, are being filed with the
Securities and Exchange Commission (the "COMMISSION") to satisfy our obligations
to the recipients of certain shares of common stock, common stock purchase
warrants (the "WARRANTS") and holders of convertible debentures ("CONVERTIBLE
DEBENTURES") (collectively, the "SELLING SECURITY HOLDERS") of Xtra-Gold
Resources Corp. This Prospectus and the Registration Statement cover the resale:
o by certain Selling Security Holders and their transferees, donees or
successors, of 1,414,000 shares of our issued and outstanding common
stock;
o includes shares of common stock issuable upon the exercise of Warrants
with an exercise price of $1.50 per share expiring on July 13, 2008;
o by certain Selling Security Holders and their transferees, donees or
successors, of up to 650,000 shares of common stock issuable upon the
conversion of Convertible Debentures and up to a maximum of 11,375
shares of common stock issuable in the event that the holders convert
the then accrued interest which would be no more than for a three month
period at a price of $1.00 per share expiring on June 30, 2010.
We will not receive any proceeds from sales of shares by the Selling
Security Holders.
Our common stock is quoted on the "Pink Sheets" quotation system ("PINK
SHEETS") maintained by Pink Sheets LLC under the symbol "XTGR". The last
reported sale price of our common stock on the Pink Sheets on May 2, 2008 was
$1.35.
There is no active market for our common stock and we do not know if an
active trading market will develop. The Selling Security Holders will offer and
sell their shares of common stock covered by this Prospectus at $1.50 per share
until our shares are quoted on the over-the-counter bulletin board or on an
exchange, and thereafter, at prevailing market prices or privately negotiated
prices. The "Pink Sheets" is not considered an exchange for purposes of selling
at other than the fixed price of $1.50.
For a description of the plan of distribution of the shares, please see
page 87 of this Prospectus.
- 1 -
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 8 OF THIS PROSPECTUS TO READ ABOUT RISKS OF INVESTING IN OUR
COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- 2 -
The date of this Prospectus is ________, 2008.
PROSPECTUS SUMMARY
THE COMPANY
SUMMARY OF BUSINESS
We are engaged in the exploration of gold properties exclusively in the
Republic of Ghana ("GHANA"), West Africa. Our interests in our projects are
held, by our Ghanaian subsidiaries, through prospecting licences and mining
leases granted by the Government of Ghana for licensed or leased areas
respectively located within and upon concessions in Ghana. A concession is a
grant of a tract of land made by a government or other controlling authority in
exchange for an agreement that the land will be used for a specific purpose.
Exploration means we are engaged in the search for mineral deposits or
reserves which could be economically and legally extracted or produced and
typically includes the review of existing data, grid establishment, geological
mapping, geophysical surveying, trenching and pitting to test the areas of
anomalous soil samples and RC and/or diamond drilling to test targets followed
by infill drilling, if successful, to define reserves. We have the following six
projects all of which are in the exploration stage:
o Kwabeng Project. Our interest in this project is held by a mining
lease. In January 2007 we commenced an early stage pre-production
mining process whereby a sample area of ore was processed, the results
of which assisted us in determining the best way and most profitable
manner in which to mine the gold to be recovered from the mineralized
material at our Kwabeng Project. The foregoing process was internally
referred to by our company as a "BULK TEST". We tested 32,906.70 bank
cubic meters ("BCM") of mineralized material at our Kwabeng Project
that we processed through our floating placer gold washing processing
plant (the "WASH PLANT") and recovered 608.50 ounces of gold. Following
completion of the Bulk Test on March 25, 2007, our company has made
modifications to our Wash Plant.
We have been recovering gold from the mineralized material at our
Kwabeng Project since January 19, 2007. As of April 30, 2008, the total
mineralized material that has been recovered from our Kwabeng Project
is 252,701.55 BCM. As of April 30, 2008, we have recovered 6,266.25
fine ounces of gold from the mineralized material at our Kwabeng
Project and as of such date we have sold 6,266.25 fine ounces of gold
for cash proceeds of $4,748,877.48.
o Pameng Project. Our interest in this project is held by a mining lease.
This project is in the exploration stage.
o Banso Project. Our interest in this project is held by a prospecting
licence. This project is in the exploration stage.
o Muoso Project. Our interest in this project is held by a prospecting
licence. This project is in the exploration stage.
- 3 -
o Apapam Project. Our interest in this project is held by a prospecting
licence. This project is in the exploration stage. We have submitted an
application to the Minerals Commission to convert the prospecting
licence to a mining lease and anticipate receiving a response to our
application within the next six months. A reconnaissance trenching
program was intermittently implemented from February to December 2007.
See "Phase II Exploration Program - Apapam Project" for the results of
this program.
o Edum Banso Project. We have an option to acquire the interest in a
prospecting licence in Edum Banso. This project is in the exploration
stage. An exploration work program was prepared by our Vice-President,
Exploration and approved by our Board. A first phase exploration
program was implemented from August 2007 to January 2008. See "Edum
Banso - Phase I Exploration Program" for the results of this
exploration program.
To a much lesser extent, we also plan in the next year or two to engage
in the exploration of oil and gas producing properties in Canada and Ghana
through two of our wholly-owned subsidiaries, which subsidiaries currently
conduct no activity.
As of the date of this Prospectus, we have received cash proceeds of
$391,414.23 derived from the recovery of gold during the Bulk Test, have
subsequently derived cash proceeds of $4,357,477.48 from the recovery of gold
from the mineralized material at our Kwabeng Project since April 24, 2007, have
achieved losses since inception, have minimal operations, and currently rely
upon the sale of our securities to fund our operations. We estimate that the
initial mine operating, capital equipment purchases or improvements and
administration costs to recover gold from the mineralized material at our
Kwabeng Project will be approximately $5,000,000, the cost for the exploration
programs at our Banso, Muoso, Apapam and Edum Banso Projects will be an
aggregate of approximately $1,500,000 and our general and administrative costs
will be $1,200,000 for the next 12 months. Based on approved expenditures in our
corporate operating budget for the next 12 months, we anticipate spending a
minimum of approximately $7,700,000, however, we would not expend this amount
unless we are able to generate sufficient cash proceeds derived from the sale of
the gold recovered from the mineralized material at our Kwabeng Project to cover
our operating costs in Ghana. At December 31, 2007, we had working capital of
approximately $1,761,284, comprised of current assets of $2,556,515 less current
liabilities of $795,231. Our current assets were comprised mostly of $334,265 in
cash and cash equivalents and $2,167,741 in trading securities.
Absent cash proceeds being derived from the recovery of gold from the
mineralized material at our Kwabeng Project, in future financial periods, or
raising additional financing to cover our operating costs in Ghana, we estimate
that we will be able to continue operations for approximately 12 months.
CORPORATE HISTORY
Xtra-Gold Resources Corp. ("XTRA-GOLD") was incorporated under the laws
of the State of Nevada on September 1, 1998 under the name Silverwing Systems
Corporation ("SILVERWING") with an authorized capital consisting of 25,000,000
shares of common stock at a par value of $.001 per share. From the incorporation
of Silverwing until March 14, 1999 we were inactive. Thereafter until June 1999,
we were involved in the negotiation and closing of the acquisition of a business
opportunity described below.
- 4 -
On June 23, 1999, we acquired all of the issued and outstanding shares
of Advertain On-Line Canada, Inc. ("ADVERTAIN") from the sole shareholder of
Advertain in exchange for 1,550,000 shares of common stock (24% of our then
issued and outstanding shares of common stock). At the time of the acquisition,
Advertain was in the business of creating and developing computer software for
an Internet web site called "Advertain.com" and maintaining and operating the
said web site. The primary purpose of the web site was to collect and distribute
entertaining advertising on the Internet. This transaction resulted in the
formation of our being a holding company for Advertain, our then only
wholly-owned subsidiary. Since our only business activities was the business
activities of Advertain, the president of Advertain joined our then current
management as president of our company. On August 19, 1999, we changed our name
to Advertain On-Line Inc. to better describe our intended business.
From the date of the acquisition of Advertain on June 23, 1999 to
December 31, 2000 our principal business activities were the continuation of the
business activities of Advertain. We continued to fund the activities of
Advertain through December 31, 2000. After December 31, 2000 we continued to use
our best efforts to fund Advertain. Since we were unable to complete further
funding, it was decided, on May 21, 2001, to abandon our interest in Advertain
and enter into a plan to dispose of Advertain and reorganize our company for a
future acquisition. On May 21, 2001, our then president, who was also president
of Advertain, resigned since we determined to dispose of Advertain, and our
former president, who was a director at the time, was appointed president. On
June 15, 2001, we sold the shares we owned in Advertain back to the former sole
shareholder and president of Advertain. On June 18, 2001, we consolidated our
outstanding common shares on a basis of 20 for 1, adopted a new business plan to
develop and operate laser eye correction (lasik surgery) clinics, and changed
our name to RetinaPharma International, Inc. ("RETINAPHARMA") to better describe
our new intended business plan, which was ultimately never developed for lack of
raising sufficient capital. No change of management occurred between May 21,
2001, when our former president rejoined our company as described above, and
October 31, 2003 when we acquired our subsidiary, XGRI, as described below.
From June 18, 2001 to October 31, 2003, we were inactive except for
searching for a business opportunity to acquire. During this period our
principal shareholders made capital contributions as needed to pay certain debts
and fund our minimal activities, which consisted of locating a business
opportunity. In addition, on July 22, 2002, we consolidated our outstanding
common shares on a basis of 5 for 1. In the fall of 2002, through the referral
to our former president by our current president, we commenced discussions for
the acquisition of XGRI, as described below.
On October 31, 2003, we acquired all of the issued and outstanding
shares of Xtra-Gold Resources, Inc., a Florida corporation ("XGRI") from the
shareholders of XGRI, all of which were unaffiliated third parties, in exchange
for 10,070,000 shares of common stock (approximately 80% of our then issued and
outstanding shares of our common stock). This transaction resulted in a change
of control of our company and the formation of our being a holding company for
XGRI, our then only wholly-owned subsidiary. As a result of this change in
control, the president and directors of XGRI were appointed as our new
management, and management immediately prior to this acquisition resigned.
Subsequently, on November 22, 2003, we executed a 5 for 1 forward stock split.
On December 16, 2003, we changed our name to Xtra-Gold Resources Corp. and
- 5 -
increased the number of shares of common stock we are authorized to issue to
250,000,000 shares effective December 19, 2003. We undertook this name change to
better describe our intended business. In May 2005, 93% of the original 80% of
shares of common stock issued in connection with the acquisition of XGRI were
returned to us for cancellation as a condition for the acquisition of XG Mining
in December 2004.
XGRI was incorporated on October 24, 2003 and its only operations prior
to the share exchange was the issuance of 10,070,000 shares to its two founders
in exchange for an option to develop a mining property located in Switzerland
and the sale of 50,000 shares of its common stock to pay certain expenses.
On October 20, 2005, we amended the name of XGRI to Xtra Energy Corp.
("XTRA ENERGY"). On October 20, 2005, we incorporated our wholly-owned
subsidiary, Xtra Oil & Gas Ltd. ("XOG"), an Alberta, Canada corporation, and on
March 2, 2006, we incorporated our wholly-owned subsidiary, Xtra Oil & Gas
(Ghana) Limited ("XOG GHANA"), an Accra, Ghana corporation for the business
purpose set forth hereunder. On April 7, 1998, our wholly-owned subsidiary
Xtra-Gold Exploration Limited ("XGEL"), a Ghana corporation, was formed. On June
7, 1989, our 90% owned subsidiary, Xtra-Gold Mining Limited ("XG MINING"), a
Ghana corporation, was formed.
LOCATION
Our head office is located at 360 Bay Street, Suite 301, Toronto,
Ontario, Canada, M5H 2V6, and our telephone number there is (416) 366-4227. We
maintain technical offices at P.O. Box CT5239, Cantonments, House No. 15,
Ade-Coker Road, East Legon, Accra, Ghana and at 430 Westmount Avenue, Unit F,
Sudbury, Ontario, P3A 5Z8. References in this Prospectus to "Xtra-Gold",
"company", "we", "us" and "our" are to Xtra-Gold Resources Corp., a Nevada
corporation, and our wholly owned subsidiaries, Xtra Energy, XOG; XGEL, XOG
Ghana and our 90% owned subsidiary, XG Mining.
OTHER PERTINENT INFORMATION
All information in this Prospectus gives effect to a 5:1 forward split
of our outstanding common stock on December 19, 2003. Our fiscal year end is
December 31.
THE OFFERING
This Prospectus covers the resale of a total of 2,782,375 shares of our
common stock by Selling Security Holders. Of those shares covered by this
Prospectus, 1,414,000 shares have been issued and are currently outstanding. The
remaining 1,357,000 shares are issuable upon the exercise of Warrants and
Convertible Debentures and up to a maximum of 11,375 shares of common stock
issuable in the event that the holders convert the then accrued interest (the
"ACCRUED INTEREST") which would be no more than for a three month period that
may be converted by certain Selling Security Holders. Selling Security Holders
may resell their shares from time to time, including through broker-dealers, at
prevailing market prices. We will not receive any proceeds from the resale of
our shares by the Selling Security Holders. We will pay all of the fees and
expenses associated with the registration of the shares covered by this
Prospectus.
- 6 -
Common Stock:
Outstanding Prior to this Offering. 29,818,359 shares
Outstanding After this Offering.... 31,481,109 shares, including an
aggregate of 1,662,750 shares covered by
this Prospectus which are reserved for
possible issuance upon the exercise of
outstanding Warrants and the conversion
of Convertible Debentures and the
Accrued Interest.
Common Stock Reserved.............. 2,221,471 shares issuable upon exercise
of outstanding Warrants, 1,380,000
shares issuable upon exercise of
outstanding Options and up to 915,750
shares issuable on conversion of the
outstanding principal owing under the
Convertible Debentures and the Accrued
Interest (the resale of which is covered
by this Prospectus). The Warrants are
exercisable at $1.50, $1.75 and $2.25
per share, the Options are exercisable
at $.70 per share, $.90 per share and
$.75 per share respectively and the
Convertible Debentures and the Accrued
Interest are convertible into shares at
$1.00 per share.
SELECTED FINANCIAL DATA
The selected financial data set forth hereunder has been derived from
our audited consolidated financial statements for the years ended December 31,
2007 and 2006 and should be read in conjunction with the consolidated financial
statements included elsewhere in this Prospectus.
BALANCE SHEET DATA
DECEMBER 31
-----------
2007 2006
---- ----
Working capital equity ..................... $ 1,761,284(1) $ 2,786,427
Current assets ............................. $ 2,556,515 $ 3,024,369
Total assets ............................... $ 4,465,234 $ 4,794,377
Current liabilities ........................ $ 795,231 $ 237,942
Total liabilities .......................... $ 1,723,630 $ 1,186,179
Stockholders' equity ....................... $ 2,741,604 $ 3,608,198
(1) Comprised of current assets of $2,556,515 less current liabilities of
$795,231. Our current assets were comprised mostly of $334,265 in cash and
cash equivalents and $2,167,741 in trading securities.
- 7 -
STATEMENT OF OPERATIONS DATA
AS AN EXPLORATION STAGE COMPANY
FOR THE YEARS ENDED DECEMBER 31
-------------------------------
2007 2006
---- ----
Total expenses ............................. $ (5,319,503) $ (2,116,246)
Loss before Other Items .................... $ (5,319,503) $ (2,116,246)
Other Items (1) ............................ $ 3,444,746 $ (446,746)
Loss for the Period ........................ $ (1,874,757) $ (2,562,992)
Net (loss) per share ....................... $ (0.07) $ (.10)
(1) Included in Other Items is $2,692,242 derived from 3,952.02 fine ounces of
gold recovered from the mineralized material at our Kwabeng Project and
sold during this financial period.
RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS SPECULATIVE IN NATURE AND
INVOLVES A HIGH DEGREE OF RISK. THE FOLLOWING FACTORS ARE BELIEVED BY MANAGEMENT
OF OUR COMPANY ("MANAGEMENT") TO BE THE MATERIAL RISKS THAT SHOULD BE CAREFULLY
CONSIDERED BY INVESTORS BEFORE PURCHASING OUR SHARES.
SALES OF A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK INTO THE PUBLIC
MARKET BY THE SELLING SECURITY HOLDERS MAY RESULT IN SIGNIFICANT DOWNWARD
PRESSURE ON THE PRICE OF OUR COMMON STOCK AND PURCHASERS OF OUR SHARES MAY BE
UNABLE TO RESELL THEIR SHARES.
We had 29,818,359 shares of our common stock issued and outstanding as
at April 24, 2008. When the Registration Statement which this Prospectus forms a
part is declared effective, the Selling Security Holders will be able to resell
up to 2,782,375 shares of our common stock, which includes up to an aggregate of
1,662,750 shares to the extent any of the Selling Security Holders exercise any
of the Warrants or convert any portion of the principal or interest owing under
the Convertible Debentures into shares. To the extent that these shares are sold
into the market by the Selling Security Holders, there may be an oversupply of
shares and undersupply of purchasers. In the event of this occurrence, the
market price for our shares may decline significantly and purchasers may be
unable to selling their shares at a profit, or at all.
As a result of the foregoing, approximately 9.33% of our shares of
common stock will be available for immediate resale, which could cause the price
of our common stock to decline. As a result of any decrease in price of our
common stock, purchasers who acquire shares from the Selling Security Holders
may lose some or all of their investment. Any significant downward pressure on
the price of our common stock as the Selling Security Holders sell their shares
of our common stock could encourage short sales by the Selling Security Holders
or others. Any such short sales could also cause the price of our common stock
to decline.
- 8 -
SINCE COMMENCEMENT OF OUR RECOVERY OF GOLD FROM THE MINERALIZED MATERIAL AT OUR
KWABENG PROJECT TO THE DATE OF THIS PROSPECTUS, WE HAVE GENERATED LIMITED CASH
PROCEEDS FROM OPERATIONS, WE HAVE A HISTORY OF LOSSES AND A SUBSTANTIAL
ACCUMULATED DEFICIT, AND AS WE MAY BE UNABLE TO OBTAIN PROFITABILITY IN THE
FUTURE OR CONTINUE AS A GOING CONCERN; OUR INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM HAS RAISED DOUBT OVER OUR CONTINUED EXISTENCE AS A GOING
CONCERN.
Since commencement of our recovery of gold from the mineralized
material at our Kwabeng Project to the date of this Prospectus, we have
generated limited cash proceeds. Our operations to date have been financed
through the issuance of equity and debt securities. We have incurred substantial
operating losses, as well as negative operating cash flow, since our inception.
As a result, we may in the future have working capital and stockholders'
deficits including a substantial accumulated deficit, which as of December 31,
2007 was $(5,111,554). Our operating results for future periods will include
significant expenses, including exploration, recovery of gold costs and
administrative expenses. We may not generate sufficient cash proceeds from our
operations or be profitable in the future. In recognition of such, our
independent registered public accounting firm plans to include an explanatory
paragraph in their report on our consolidated financial statements for the
fiscal years ended December 31, 2007 and 2006, which expresses doubt regarding
our ability to continue as a going concern.
WE ARE CURRENTLY IN THE EXPLORATION STAGE WITH RESPECT TO ALL OUR PROJECTS. THE
CHANCE OF EVER REACHING THE PRODUCTION STAGE AT OUR PROJECTS IS UNCERTAIN. IN
THE EVENT WE SHOULD EVER REACH THE PRODUCTION STAGE AT ANY OF OUR PROJECTS AND
BEGIN SUBSTANTIVE MINING OPERATIONS, WE WILL BE SUBJECT TO A NUMBER OF RISKS
WHICH COULD ADVERSELY AFFECT OUR ABILITY TO EVER GENERATE ANY SIGNIFICANT
REVENUES.
All of our projects are in the exploration stage. As of the date of
this Prospectus, we have derived cash proceeds of approximately $4,748,877.86
from the sale of 6,266.25 fine ounces of gold recovered from the mineralized
material at the Kwabeng Project. Our exploration efforts are subject to risks
which are beyond our control, including:
o mineral exploration involves a high degree of risk and few properties
which are explored are ever developed into producing mines and our exploration
efforts may never result in the discovery of commercial bodies of
mineralization;
o we may experience delays in obtaining, or be unable to obtain, the
necessary approvals, licences, permits or surface land and easement rights
necessary to develop our projects which could delay or prevent us from
continuing our development efforts.
o mining activities are inherently dangerous and we may not be able to
obtain insurance to cover the liabilities associated with these activities;
o illicit mining on one or more of our projects by artisanal miners
could result in environmental damage and surface depletion of mineral deposits
making the future mining of those deposits not economically feasible.
We may be unable to commence substantive mining operations or, if
commenced, we may not ever generate any significant revenues from mining
operations. In that event, we could be forced to cease operations.
- 9 -
WE WILL NEED SUBSTANTIAL ADDITIONAL CAPITAL TO COMMENCE PRODUCTION AT OUR
KWABENG, PAMENG AND APAPAM PROJECTS AND COMPLETE THE EXPLORATION AT OUR BANSO
AND MUOSO, APAPAM AND EDUM BANSO PROJECTS. IF WE CANNOT RAISE ADDITIONAL CAPITAL
AS NEEDED, OUR ABILITY TO EXECUTE OUR BUSINESS PLAN AND FUND OUR ONGOING
OPERATIONS WILL BE IN JEOPARDY.
We estimate that the initial mine operating, capital and administration
costs at our Kwabeng Project will be approximately $5,000,000, the cost for the
exploration programs at our Banso, Muoso, Apapam and Edum Banso Projects will be
an aggregate of approximately $1,500,000 and our general and administrative
costs will be $1,200,000 for the next 12 months. Based on approved expenditures
in our corporate operating budget for 2008, we anticipate spending a minimum of
approximately $7,700,000 over the next 12 months, however, we would not expend
this amount unless we are able to continue to derive cash proceeds from the sale
of the gold recovered from the mineralized material at our Kwabeng Project. Our
future capital requirements depend on a number of factors, including our ability
to continue to derive cash proceeds from the sale of the gold recovered from the
mineralized material at our Kwabeng Project, manage our business and control our
expenses. As described elsewhere herein, at December 31, 2007, we had working
capital of approximately $1,761,284, comprised of current assets of $2,556,515,
mostly $334,265 in cash and cash equivalents of $2,167,741 in trading
securities, less current liabilities of $795,231. Absent our being able to
continue deriving cash proceeds from the sale of gold recovered from the
mineralized material at our Kwabeng Project or raising additional financing, we
estimate that we will be able to continue operations for approximately 12
months. We are exploring various financing alternatives for the balance of the
projected costs and expenses. We cannot assure you that we will be able to
obtain the necessary financing for our Projects on favorable terms or at all.
Additionally, if the actual costs to commence production at our Kwabeng Project
and the development of and production at our Pameng and Apapam Projects are
significantly higher than we expect, we may not have sufficient funds to cover
these costs and we may not be able to obtain other sources of financing. The
failure to continue to derive cash proceeds from the sale of the gold recovered
from the mineralized material at our Kwabeng Project or to obtain all necessary
financing would prevent us from achieving production at our Kwabeng, Pameng and
Apapam Projects and would impede our ability to sustain operations or become
profitable, and we could be forced to cease our operations.
ALL OF OUR PROJECTS ARE IN THE EXPLORATION STAGE AND MAY NOT RESULT IN THE
DISCOVERY OF COMMERCIAL BODIES OF MINERALIZATION WHICH WOULD RESULT IN OUR
DISCONTINUING THAT PROJECT.
All of our Projects are in the exploration stage. Mineral exploration
involves a high degree of risk and few properties which are explored are
developed into producing mines. The exploration efforts on our Projects may not
result in the discovery of commercial bodies of mineralization which would
require us to discontinue that project.
THE COMMENCEMENT OF DEVELOPMENT OF AND PRODUCTION AT OUR KWABENG, PAMENG AND
APAPAM PROJECTS AND THE DEVELOPMENT OF OUR EXPLORATION PROJECTS MAY BE DELAYED
DUE TO DELAYS IN RECEIVING REGULATORY PERMITS AND APPROVALS, WHICH WOULD DELAY
OUR ABILITY TO COMMENCE PRODUCTION AND GENERATE REVENUES WHICH, ABSENT RAISING
ADDITIONAL CAPITAL, COULD CAUSE US TO CURTAIL OR DISCONTINUE DEVELOPMENT OR
OPERATIONS, IF ANY.
- 10 -
We may experience delays in developing and producing at our Kwabeng,
Pameng and Apapam Projects and developing our other exploration Projects. The
timing of development of and production at our Kwabeng, Pameng and Apapam
Projects and the development of our other exploration Projects depends on many
factors, some of which are beyond our control, including the:
o timely issuance of permits; and
o acquisition of surface land and easement rights required to develop
and operate the projects, particularly if we are required to acquire
surface land through expropriation in connection with our mining
concessions;
These delays could increase Project development costs, affect Project
economic viability, or prevent us from completing the development of the Project
and generating revenues therefrom.
WE MAY NOT BE ABLE TO OBTAIN, RENEW OR CONTINUE TO COMPLY WITH ALL OF THE
PERMITS NECESSARY TO DEVELOP AND OPERATE EACH OF OUR PROJECTS WHICH WOULD FORCE
US TO DISCONTINUE DEVELOPMENT OR OPERATIONS, IF ANY, ON THAT PROJECT.
Pursuant to Ghanaian law, we must obtain various approvals, licences or
permits in connection with the development and operations, if any, of our
Projects in connection with environmental protection and the use of water
resources. In addition to requiring permits for the development of and
production at our mining concessions located at each of our Kwabeng, Pameng and
Apapam Projects, we may need to obtain other permits and approvals during the
life of these projects. Obtaining, renewing and continuing to comply with the
necessary governmental permits and approvals can be a complex and time-consuming
process. The failure to obtain or renew the necessary permits or licences or
continue to meet their requirements could delay future development, increase our
costs or, in some cases, prevent us from commencing mining operations.
THE GOVERNMENT OF GHANA HAS THE RIGHT TO INCREASE ITS OWNERSHIP INTERESTS IN OUR
XG MINING SUBSIDIARY FOR NO CONSIDERATION AND HAS A PREEMPTIVE RIGHT TO PURCHASE
ALL GOLD AND OTHER MINERALS PRODUCED BY XG MINING. IF THE GOVERNMENT OF GHANA
WERE TO EXERCISE ANY OF ITS RIGHTS, OUR RESULTS OF OPERATIONS IN FUTURE PERIODS
COULD BE ADVERSELY IMPACTED.
The Government of Ghana currently has a 10% free carried interest in XG
Mining, one of our Ghanaian subsidiaries that holds two mining leases covering
our Kwabeng and Pameng concessions. The Government of Ghana also has: (a) the
right to acquire up to an additional 20% equity interest in XG Mining for a
price to be determined by agreement or arbitration; (b) the right to acquire a
special share or golden share (see "Ghanaian Law - Ghanaian Ownership and
Special Rights") in XG Mining at any time for no consideration or such
consideration as the Government of Ghana and XG Mining might agree; and (c) a
preemptive right to purchase all gold and other minerals produced by XG Mining.
We cannot assure you that the Government of Ghana would not seek to exercise one
or more of these rights which, if exercised, could have an adverse affect on our
results of operations in future periods. If the Government of Ghana should
exercise its right to either acquire the additional 20% equity interest in XG
Mining or its right to acquire the special share or golden share, any profit we
might otherwise report from XG Mining's operations would be proportionally
- 11 -
reduced in the same percentage as the minority interest attributable to the
Government of Ghana in that subsidiary would be increased. If the Government of
Ghana should exercise its right to purchase all gold and other minerals produced
by XG Mining, the price it would pay may be lower than the price we could sell
the gold or other minerals for in transactions with third parties and it could
result in a reduction in any revenues we might otherwise report from XG Mining's
operations.
OUR ACTIVITIES ARE SUBJECT TO ENVIRONMENTAL LAWS AND REGULATIONS THAT MAY
INCREASE OUR COSTS OF DOING BUSINESS AND MAY RESTRICT OUR OPERATIONS.
All of our exploration activities in Ghana are subject to regulation by
governmental agencies under various environmental laws. To the extent we conduct
exploration activities or undertake new mining activities in other foreign
countries, we will also be subject to environmental laws and regulations in
those jurisdictions. These laws address emissions into the air, discharges into
water, management of waste, management of hazardous substances, protection of
natural resources, antiquities and endangered species, and reclamation of lands
disturbed by mining operations. Environmental legislation in many countries is
evolving and the trend has been towards stricter standards and enforcement,
increased fines and penalties for non-compliance, more stringent environmental
assessments of proposed projects and increasing responsibility for companies and
their officers, directors and employees. Compliance with environmental laws and
regulations may require significant capital outlays and may cause material
changes or delays in our intended activities. We cannot assure you that future
changes in environmental regulations will not adversely affect our business, and
it is possible that future changes in these laws or regulations could have a
significant adverse impact on some portion of our business, causing us to
re-evaluate those activities at that time.
In addition, we may be exposed to potential environmental impacts
during any full scale mining operation. At such time of commencement of full
scale mining, if ever, we plan to negotiate posting of a reclamation bond to
quantify the reclamation costs. We anticipate that the dollar amount of reserves
established for exposure to environmental liabilities is $500,000 to $2,000,000,
however, we are currently unable to predict the ultimate cost of compliance or
the extent of liability risks.
OUR ACTIVITIES ARE AND WILL BE SUBJECT TO COMPLEX LAWS, SIGNIFICANT GOVERNMENT
REGULATIONS AND ACCOUNTING STANDARDS THAT MAY DELAY OR PREVENT OPERATIONS AT OUR
PROJECTS AND CAN ADVERSELY AFFECT OUR OPERATING COSTS, THE TIMING OF OUR
OPERATIONS, OUR ABILITY TO OPERATE AND OUR FINANCIAL RESULTS.
Our business, exploration activities and any future mining operations
and development activities are and will be subject to extensive Ghanaian, United
States, Canadian and other foreign, federal, state, provincial, territorial and
local laws and regulations and also exploration, development, production,
exports, taxes, labor standards, waste disposal, protection of the environment,
reclamation, historic and cultural resource preservation, mine safety and
occupational health, reporting and other matters, as well as accounting
standards. Compliance with these laws, regulations and standards or the
imposition of new such requirements could adversely affect our operating and
future development costs, the timing of our operations, our ability to operate
and our financial results. These laws and regulations governing various matters
include:
- 12 -
o environmental protection;
o management of natural resources;
o exploration, development of mines, production and post-closure
reclamation;
o export and import controls and restrictions;
o price controls;
o taxation;
o labor standards and occupational health and safety, including mine
safety;
o historic and cultural preservation; and
o general accepted accounting principles.
The costs associated with compliance with these laws and regulations
may be substantial and possible future laws and regulations, or more stringent
enforcement of current laws and regulations by governmental authorities, could
cause additional expense, capital expenditures, restrictions on or suspensions
of our operations and delays in the development of our Projects. These laws and
regulations may allow governmental authorities and private parties to bring
lawsuits based upon damages to property and injury to persons resulting from the
environmental, health and safety impacts of our past and current operations, and
could lead to the imposition of substantial fines, penalties or other civil or
criminal sanctions. In addition, our failure to comply strictly with applicable
laws, regulations and local practices relating to permitting applications or
reporting requirements could result in loss, reduction or expropriation of
entitlements, or the imposition of additional local or foreign parties as joint
venture partners. Any such loss, reduction, expropriation or imposition of
partners could have a materially adverse effect on our operations or business.
WE DEPEND ON THE CONTINUED SERVICES OF OUR VICE-PRESIDENT, EXPLORATION, SENIOR
PROJECT MANAGER, EXPLORATION, MANAGER, LODE GOLD EXPLORATION, MANAGEMENT
GEOLOGIST AND MINE MANAGER AND THE LOSS AND FAILURE TO REPLACE ANY OF THESE
PERSONS MAY DAMAGE OUR OPERATIONS AND OUR ABILITY TO COMMENCE DEVELOPMENT OR
GENERATE REVENUES IN FUTURE PERIODS.
Our future success depends upon the continued services of our
geological and gold mining team, comprised of our Vice-President, Exploration,
our Senior Project Manager, Exploration, our Manager, Lode Gold Exploration, our
Management Geologist and our Mine Manager. The exploration and mining
engineering experience of these individuals with respect to the geological and
gold mining knowledge and experience that is fundamental to our business
operations is unique and if we were to lose their services, we may encounter
difficulty in replacing them. If we were unable to replace these persons it may
lead to our having to delay, curtail or discontinue our exploration, future
development or operations, if any. In this event, any trading market for our
securities and your ability to liquidate your investment would be negatively
impacted and you could lose your entire investment in our company. We do not
maintain key person insurance on any of these persons.
- 13 -
WE MAY EXPERIENCE DIFFICULTY IN ENGAGING THE SERVICES OF QUALIFIED PERSONNEL IN
CONNECTION WITH OUR TECHNICAL OPERATIONS AT OUR KWABENG, PAMENG AND APAPAM
PROJECTS.
In the event of the loss of any of our technical personnel at our
Kwabeng, Pameng and Apapam Projects, we may have difficulty finding qualified
replacement. We will also need to engage additional sought-after professionals
to operate our Kwabeng, Pameng and Apapam Projects according to plan, including
an environmental manager.
Our inability to hire and retain the services of qualified persons for
these positions in a timely manner could impede the planned production at our
Kwabeng, Pameng and Apapam Projects which would have a material adverse effect
on our ability to conduct our business.
THE MARKETABILITY OF OUR COMMON STOCK MAY BE ADVERSELY IMPACTED AS A RESULT OF
THE REGULATORY HISTORY OF ONE OF OUR EXECUTIVE OFFICERS AND DIRECTORS. IN THIS
EVENT, YOUR ABILITY TO LIQUIDATE YOUR INVESTMENT IN OUR COMPANY COULD BE
ADVERSELY IMPACTED AND YOU COULD LOSE SOME OR ALL OF YOUR INVESTMENT IN OUR
COMPANY.
Since one of our officers and directors has a regulatory history,
potential investors could decide not to purchase our securities out of concern
which could impair the liquidity of our common stock. As a result, you may find
it more difficult to sell your investment in our company at a time when you wish
to liquidate your position, or at all.
WE HAVE NOT VOLUNTARILY IMPLEMENTED VARIOUS CORPORATE GOVERNANCE MEASURES, IN
THE ABSENCE OF WHICH, STOCKHOLDERS MAY HAVE REDUCED PROTECTIONS AGAINST
INTERESTED DIRECTOR TRANSACTIONS, CONFLICTS OF INTEREST AND OTHER MATTERS.
Recent Federal legislation, including the Sarbanes-Oxley Act of 2002,
has resulted in the adoption of various corporate governance measures designed
to promote the integrity of the corporate management and the securities markets.
Some of these measures have been adopted in response to legal requirements.
Others have been adopted by companies in response to the requirements of
national securities exchanges, such as the NYSE or The NASDAQ Stock Market, on
which their securities are listed. Among the corporate governance measures rules
of national securities exchanges are those that address board of directors'
independence, audit committee oversight, and the adoption of a code of ethics.
As our stock is not listed on an exchange, we are not required to adopt these
corporate governance standards. Our Board has not established Audit and
Compensation Committees and we have not adopted all of the corporate governance
measures which we might otherwise have been required to adopt if our securities
were listed on a national securities exchange. It is possible that if we were to
adopt some or all of the corporate governance measures, stockholders would
benefit from somewhat greater assurances that internal corporate decisions were
being made by disinterested directors and that policies had been implemented to
define responsible conduct. Prospective investors should bear in mind our
current lack of corporate governance measures in formulating their investment
decisions.
OUR COMMON STOCK IS CURRENTLY QUOTED ON THE PINK SHEETS AND TRADING IN THE
SHARES IS LIMITED. BECAUSE OUR STOCK CURRENTLY TRADES BELOW $5.00 PER SHARE, AND
IS QUOTED ON THE PINK SHEETS, OUR STOCK IS CONSIDERED A "PENNY STOCK" WHICH CAN
LIMIT OR MAKE TRADING AND LIQUIDITY IN THE STOCK MORE DIFFICULT TO EFFECTUATE.
- 14 -
The SEC has adopted regulations that generally define a penny stock to
be any equity security that has a market price of less than $5.00 per share,
subject to certain exemptions. Such exemptions include an equity security listed
on a national securities exchange or quoted on NASDAQ and an equity security
issued by an issuer that has net tangible assets of at least $2,000,000, if such
issuer has been in continuous operation for more than three (3) years. Unless
such an exemption is available, the regulations require the delivery of a
disclosure document to the investor explaining the penny stock market and the
risks associated therewith prior to any transaction involving a penny stock. In
addition, as long as the common stock is not listed on a national securities
exchange or at any time that the company has less that $2,000,000 in net
tangible assets, trading in the common stock is covered by Rule 15g-9 under the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), for
non-exchange listed securities. Under that rule, broker-dealers who recommend
such securities to persons other than established customers and accredited
investors must make a special written suitability determination for the
purchaser and receive the purchaser's written agreement to a transaction prior
to sale. Securities are exempt from this rule if the market price is at least
$5.00 per share. To the extent that we do not meet the exemptions under the
Penny Stock Rule, there will be reduced liquidity in the market.
OUR COMMON STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE, WHICH COULD CAUSE THE
VALUE OF YOUR INVESTMENT TO DECLINE.
The market price of our Common Stock may be highly volatile. Investors
may not be able to resell their shares of our Common Stock following periods of
volatility because of the market's adverse reaction to volatility. Factors that
could cause such volatility may include, among other things:
o actual or anticipated fluctuations in our quarterly operating
results;
o large purchases or sales of our Common Stock;
o additions or departures of key personnel;
o investor perception of our business prospects;
o conditions or trends in other industry related companies;
o changes in the market valuations of publicly traded companies in
general and other industry-related companies; and
o worldwide political, economic and financial conditions.
IT MAY BE DIFFICULT FOR STOCKHOLDERS TO ENFORCE ANY JUDGMENT OBTAINED IN THE
UNITED STATES AGAINST US OR OUR OFFICERS OR DIRECTORS, WHICH MAY LIMIT THE
REMEDIES OTHERWISE AVAILABLE TO OUR STOCKHOLDERS.
All of our directors and officers are residents of countries other than
the United States and all or a substantial portion of such persons' assets are
located outside the United States. As a result, it may be difficult or
impossible for investors to
o effect service of process on our directors or officers, or
- 15 -
o enforce any United States judgment they receive against us or our
officers or directors in a foreign court, or
o enforce within the United States any judgments obtained against us
or our officers or directors,
including judgments predicated upon the securities laws of the United States or
any state thereof. In addition, there is uncertainty as to whether foreign
courts would be competent to hear original actions brought in such foreign court
against us or such persons predicated upon the securities laws of the United
States or any state thereof. Consequently, you may be effectively prevented from
pursuing remedies under U.S. federal securities laws against us or our officers
and directors. The foregoing risks also apply to those experts identified in
this Prospectus that are not residents of the United States.
WE CANNOT PREDICT WHETHER WE WILL SUCCESSFULLY EFFECTUATE OUR CURRENT BUSINESS
PLAN. EACH PROSPECTIVE PURCHASER IS ENCOURAGED TO CAREFULLY ANALYZE THE RISKS
AND MERITS OF AN INVESTMENT IN THE SHARES AND SHOULD TAKE INTO CONSIDERATION
WHEN MAKING SUCH ANALYSIS, AMONG OTHERS, THE RISK FACTORS DISCUSSED ABOVE.
USE OF PROCEEDS
We will not receive any proceeds upon the sale of shares of our common
stock offered by the Selling Security Holders under this Prospectus. Currently
covered by this Prospectus are (i) 566,000 shares issuable upon the exercise of
566,000 Warrants having an original expiry date of July 31, 2007, which expiry
date has been extended to July 13, 2008; and (ii) 141,000 shares issuable upon
the exercise of 141,000 Warrants having an original expiry date of April 23,
2008, which expiry date has been extended to July 13, 2008 which, if all of such
Warrants are exercised, the maximum we would receive are gross proceeds of
approximately $1,060,500. There are also 661,375 shares issuable upon conversion
of the Convertible Debentures and Accrued Interest covered by this Prospectus
which, if converted, would reduce our debt by approximately $661,375.
The proceeds, if any, that we receive from the exercise of Warrants
will be used for working capital primarily in support of our growing business in
the gold industry and secondly in support of our future business in the oil and
gas industry. The actual allocation of proceeds realized from the exercise of
these securities will depend upon the amount and timing of such exercises, the
cash proceeds derived from the sale of gold recovered from the mineralized
material at our Kwabeng Project and our cash position at such time and our
working capital requirements. There can be no assurances that any of the
outstanding Warrants will be exercised.
MARKET FOR COMMON STOCK AND DIVIDEND POLICY
QUOTATIONS
Bid and ask prices for our common stock are quoted from broker dealers
on the Pink Sheets operated by Pink Sheets LLC under the symbol "XTGR". The
following table sets forth the range of high and low bid prices for our common
stock on the Pink Sheets since commencement. The quotations reflect inter-dealer
prices and do not include mark-ups or mark-downs or commissions and do not
represent actual transactions. There is limited trading for our shares and the
quotation of our shares on the Pink Sheets does not indicate that our shares can
be bought or sold at the prices set forth.
- 16 -
MARKET INFORMATION
PERIOD HIGH BID LOW BID
------ -------- -------
January 1, 2008 through March 31, 2008 ............. $ 1.45 $ 1.15
October 1, 2007 through December 31, 2007 .......... $ 1.40 $ 0.90
July 1, 2007 through September 30, 2007 ............ $ 1.35 $ 0.55
April 1, 2007 through June 30, 2007 ................ $ 1.14 $ 0.66
January 1, 2007 through March 31, 2007 ............. $ 0.98 $ 0.67
October 1, 2006 through December 31, 2006 .......... $ 1.30 $ 0.60
July 1, 2006 through September 30, 2006............. $ 1.30 $ 0.90
April 1, 2006 through June 30, 2006 ................ $ 1.28 $ 0.96
January 1, 2006 through March 31, 2006 ............. $ 1.25 $ 0.94
October 1, 2005 through December 31, 2005 .......... $ 0.96 $ 0.84
July 1, 2005 through September 30, 2005 ............ $ 0.84 $ 0.70
April 1, 2005 through June 30, 2005 ................ $ 0.70 $ 0.65
January 1, 2005 through March 31, 2005 ............. $ 0.69 $ 0.60
The last reported sales price of our common stock on the Pink Sheets on May 2,
2008 was $1.35.
Since no public information, including audited financial statements was
available about our business, operating results or financial condition during
the time the bid prices occurred, the bid prices reflected might not reflect the
historical valuation of the company on a per share basis, nor be an accurate
indication of the prices at which shares may be traded in the future, had such
information been available.
Of the issued and outstanding shares, 28,088,157 shares of our common
stock (2,123,500 shares of which are owned by our officers and directors,
directly or indirectly, one of which directors who is also a principal
stockholder and 2,122,526 shares which are owned by another principal
stockholder, directly or indirectly), have been held for in excess of one year
and will be available for public resale pursuant to Rule 144 promulgated under
the Securities Act commencing 90 days following the date of this Prospectus. As
of the date of this Prospectus, the 1,414,000 issued and outstanding shares
being offered by Selling Stockholders can be publicly transferred. Unless
covered by an effective registration statement, the resale of our shares of
common stock owned by officers, directors and affiliates is subject to the
volume limitations of Rule 144. In general, Rule 144 permits our stockholders
who have beneficially owned restricted shares of common stock for at least one
year to sell without registration, within a three month period, a number of
shares not exceeding one percent of the then outstanding shares of common stock.
Furthermore, if such shares are held for at least one year by a person
not affiliated with us (in general, a person who is not one of our executive
officers, directors or principal stockholders during the three month period
prior to resale), such restricted shares can be sold without any volume
limitation.
Sales of our common stock under Rule 144 or pursuant to such
registration statement may have a depressive effect on the market price for our
common stock.
- 17 -
DIVIDENDS
We have never paid cash dividends on our common stock. We intend to
retain future earnings, if any, to finance the expansion of our business, and we
do not anticipate that any cash dividends will be paid in the foreseeable
future. Our future payment of dividends will depend on our earnings, capital
requirements, expansion plans, financial condition and other relevant factors.
Our retained earnings deficit currently limits our ability to pay dividends.
STOCKHOLDERS OF RECORD
Our common stock was held by 418 registered stockholders of record as
of April 24, 2008.
SEC "PENNY STOCK" RULES
The Securities and Exchange Commission has adopted regulations which
generally define a "penny stock" to be any equity security that has a market
price of less than $5.00 per share, subject to certain exceptions. Depending on
market fluctuations, our common stock could be considered to be a "penny stock".
A penny stock is subject to rules that impose additional sales practice
requirements on broker/dealers who sell these securities to persons other than
established customers and accredited investors. For transactions covered by
these rules, the broker-dealer must make a special suitability determination for
the purchase of these securities. In addition he must receive the purchaser's
written consent to the transaction prior to the purchase. He must also provide
certain written disclosures to the purchaser. Consequently, the "penny stock"
rules may restrict the ability of broker/dealers to sell our securities, and may
negatively affect the ability of holders of shares of our common stock to resell
them.
DETERMINATION OF OFFERING PRICE
Management has determined the offering price of the shares of common
stock being registered in the registration statement which this Prospectus forms
a part on the price we last sold our stock and the historical bid and asked
prices of the common stock on the Pink Sheets.
FORWARD-LOOKING STATEMENTS
This Prospectus, including the Management's Discussion and Analysis or
Plan of Operation, contains forward-looking statements with respect to our
financial condition, results of operations, business prospects, plans,
objectives, goals, strategies, future events, capital expenditure, and
exploration and development efforts. Words such as "anticipates", "expects",
"intends", "plans", "forecasts", "projects", "budgets", "believes", "seeks",
"estimates", "could", "might", "should", and similar expressions identify
forward-looking statements. Although we believe that our plans, intentions and
expectations reflected in these forward-looking statements are reasonable, we
cannot be certain that these plans, intentions or expectations will be achieved.
Actual results, performance or achievements could differ materially from those
contemplated, expressed or implied by the forward-looking statements. These
statements include comments regarding: the establishment and estimates of
mineral reserves and mineral resources, production, production commencement
- 18 -
dates, productions costs, cash operating costs per ounce, total cash costs per
ounce, grade, processing capacity, potential mine life, feasibility studies,
development costs, capital and operating expenditures, exploration, the closing
of certain transactions including acquisitions and offerings.
The following, in addition to the factors described elsewhere in this
Prospectus under "Risk Factors", are among the factors that could cause actual
results to differ materially from the forward-looking statements:
o unexpected changes in business and economic conditions;
o significant increases or decreases in gold or oil and gas prices;
o changes in interest rates and currency exchange rates;
o timing and amount of production;
o unanticipated grade changes;
o unanticipated recovery rates or production problems;
o changes in mining, processing and overhead costs;
o changes in metallurgy and processing technology;
o access and availability of materials, equipment, supplies, labor and
supervision, power and water;
o determination of mineral reserves and mineral resources;
o availability of drill rigs; changes in project parameters;
o costs and timing of development of new mineral reserves; results of
current and future exploration activities;
o results of pending and future feasibility studies; joint venture
relationships;
o political or economic instability, either globally or in the
countries in which we operate;
o local and community impacts and issues;
o timing of receipt of government approvals; accidents and labor
disputes; environmental costs and risks; and
o competitive factors, including competition for property
acquisitions; and availability of capital at reasonable rates or at
all.
With respect to any forward-looking statement that includes a statement
of its underlying assumptions or bases, we believe such assumptions or bases to
be reasonable and have formed them in good faith, assumed facts or bases almost
always vary from actual results, and the differences between assumed facts or
- 19 -
bases and actual results can be material depending on the circumstances. When,
in any forward-looking statement, we express an expectation or belief as to
future results, that expectation or belief is expressed in good faith and is
believed to have a reasonable basis, but there can be no assurance that the
stated expectation or belief will result or be achieved or accomplished. All
subsequent written and oral forward-looking statements attributable to us, or
anyone acting on our behalf, are expressly qualified in their entirety by the
cautionary statements. Except for our ongoing obligations to disclose material
information under the Federal securities laws, we do not undertake any
obligations to publicly release any revisions to any forward-looking statements
to reflect events or circumstances after the date of this Prospectus or to
reflect unanticipated events that may occur.
Factors that may cause our actual results to differ materially from
those described in forward-looking statements include the risks discussed
elsewhere in this Prospectus under the caption "Risk Factors".
MANAGEMENT'S DISCUSSION AND ANALYSIS
AND PLAN OF OPERATIONS
The following discussion and analysis of our consolidated financial
conditions and results of operations for the year ended December 31, 2007 and
2006 should be read in conjunction with the consolidated financial statements
and the related notes to our consolidated financial statements and other
information presented elsewhere in this Prospectus. The following discussion
contains forward-looking statements that reflect our plans, estimates and
beliefs. Our actual results could differ materially from those discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to those discussed below and elsewhere
in this Prospectus, particularly in the section entitled "Risk Factors"
beginning on page 8 of this Prospectus. Our consolidated audited financial
statements are stated in United States Dollars and are prepared in accordance
with United States Generally Accepted Accounting Principles.
PLAN OF OPERATIONS
We are a gold exploration company engaged in the exploration of gold
properties in the Republic of Ghana, West Africa. Our mining portfolio currently
consists of 246.84 square kilometers (also referred to herein as "SQ KM")
comprised of 51.67 sq km for our Banso Project, 55.65 sq km for our Muoso
Project, 33.65 sq km for our Apapam Project, 44.76 sq km for our Kwabeng
Project, 40.51 sq km for our Pameng Project and 20.60 sq km for our Edum Banso
Project, or 60,969 acres, pursuant to the leased and licensed areas set forth in
our respective mining leases, prospecting licences and/or option agreement.
Our strategic plan is, with respect to our gold projects: (i) to define
potential reserves on our exploration projects; (ii) to mine the mineralized
material, where possible, to generate cash proceeds to assist funding of our
exploration programs; and (iii) to acquire further interests in gold mineralized
projects and oil and gas prospects that fall within the criteria of providing a
geological basis for development of drilling initiatives that can enhance
shareholder value by demonstrating potential to define reserves.
- 20 -
We anticipate that our ongoing efforts, subject to adequate funding
being available, will continue to be focused on the exploration and development
of our properties and completing acquisitions in strategic areas.
Our ability to continue to expand land acquisitions and drilling
opportunities during the next 12 months is dependent on adequate capital
resources being available. Assuming that we will be able to continue to derive
cash proceeds from the sale of the gold recovered from the mineralized material
at our Kwabeng Project, we intend to continue to advance operations at our
Kwabeng Project, recover gold for sale and acquire further interests in mineral
projects by way of acquisition or joint venture participation.
We anticipate that, over the next 12 months, we will spend an aggregate
of $7,700,000 comprised of $5,000,000 for mining operating, capital and
administrative costs at our Kwabeng Project, $1,500,000 for exploration expenses
and $1,200,000 for general and administrative expenses. However, we would not
expend this amount unless we are able to derive cash proceeds from the sale of
the gold recovered from the mineralized material at our Kwabeng Project.
We require additional capital to implement our plan of operations. We
anticipate that these funds primarily will be raised through equity and debt
financing or from other available sources of financing. If we raise additional
funds through the issuance of equity or convertible debt securities, it may
result in the dilution in the equity ownership of investors in our common stock.
There can be no assurance that additional financing will be available upon
acceptable terms, if at all. If adequate funds are not available or are not
available on acceptable terms, we may be unable to take advantage of prospective
new opportunities or acquisitions, which could significantly and materially
restrict our operations, or we may be forced to discontinue our current
projects.
We do not expect to purchase significant ore processing and gold
recovery equipment as our Wash Plant has sufficient capacity to handle our
processing requirements at our Kwabeng Project. We rent our earthmoving and
ancillary earthmoving equipment fleet in connection with our ongoing operations
at our Kwabeng Project. We plan to increase the number of key mining personnel
including technical consultants, contractors and skilled laborers during the
next 12 months. Our current business strategy is that we plan to continue
engaging technical personnel under contract where possible as Management
believes that this strategy, at its current level of development, provides the
best services available in the circumstances, leads to lower overall costs, and
provides the best flexibility for our business operations.
The cash proceeds derived from the sale of 608.50 fine ounces of gold
recovered from the mineralized material at our Kwabeng Project during the Bulk
Test (defined herein), as discussed elsewhere in this Prospectus, was
categorized as Recovery of Gold. The Bulk Test was only a pre-production stage
test that was completed on March 25, 2007. Since April 24, 2007 to the date of
this Prospectus, we have recovered 5,657.75 fine ounces of gold from the
mineralized material at our Kwabeng Project and derived cash proceeds of
$4,357,477.48 from the related gold sales.
- 21 -
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2007 COMPARED TO THE YEAR ENDED DECEMBER 31, 2006
Our loss for the year ended December 31, 2007 was $1,874,757 as
compared to a loss of $2,562,992 for the year ended December 31, 2006, a
decrease of $688,235. We incurred expenses of $5,319,503 in the year ended
December 31, 2007 as compared to $2,116,246 in the year ended December 31, 2006,
an increase of $3,203,257. The significant increase in expenses in the year
ended December 31, 2007 can be primarily attributed to (i) exploration costs of
$3,932,845 incurred mostly in connection with exploration programs at our Banso
and Muoso Project, our Apapam Project and our Edum Banso Project and operational
costs for our Kwabeng Project as compared to $1,091,948 expended on these
projects in the year ended December 31, 2006; and (ii) general and
administrative expenses of $1,348,898 as compared to $1,008,933 for the year
ended December 31, 2006.
Exploration costs were incurred in connection with our exploration
programs at our Banso and Muoso, Apapam and Edum Banso Projects and costs
associated with an early stage pre-production mining process (internally
referred to by our company as the "BULK TEST") which we commenced at our Kwabeng
Project whereby a sample area of ore was processed, the results of which
assisted us in determining the best way and most profitable manner in which to
recover gold from the mineralized material at this Project. We have booked all
costs associated with the Bulk Test (for the three months ended March 31, 2007)
including pre-production costs as exploration expenses. The increase in the
general and administrative expenses can be attributed to the establishment of a
corporate office in Toronto and as a result of increased activity in Ghana.
Our loss for the year ended December 31, 2007 was less than our loss
for the year ended December 31, 2006 due to (i) a significant reduction in
consulting fees; (ii) cash proceeds of $2,692,242 derived from the sale of gold
recovered from the mineralized material at our Kwabeng Project (compared to nil
income being generated in 2006); (iii) a foreign exchange gain of $354,480
(compared to a foreign exchange loss of $12,207 in 2006); and (iv) a net
unrealized gain on trading securities of $389,793 (compared to a loss of
$778,230 in 2006). The unrealized gain was due to an increase in market value of
those securities as of December 31, 2007. Trading securities were comprised
mostly of investments in common shares and income trust units of resource
companies.
Other items totaled a gain of $3,444,746 for the year ended December
31, 2007 compared to a loss of $446,746 for the year ended December 31, 2006. In
particular, during the year ended December 31, 2007, we recovered and sold
3,952.02 fine ounces of gold recovered from the mineralized material at our
Kwabeng Project for cash proceeds of $2,692,242 which was booked as Recovery of
Gold as compared to there being no recovery of gold for the year ended December
31, 2006. We had a foreign exchange gain of $366,687 for the year ended December
31, 2007 (2006 - loss of $12,207) which can be attributed to the weakening of
the US dollar. Our portfolio of marketable securities is largely Canadian
currency denominated. The sharp appreciation of the Canadian dollar resulted in
the bulk of the foreign exchange gain. Additionally, the continuing weakness in
the US dollar has reduced our expenses that are denominated in other foreign
currencies. Consequently, transactions denominated in US dollars are in effect
less costly.
- 22 -
Our portfolio of marketable securities had an unrealized gain of
$389,793 (compared to an unrealized loss of $778,230 in 2006) as the market
rebounded. Additionally, our securities portfolio realized a loss of $94,855 on
the sale of trading securities during the year ended December 31, 2007 compared
to a gain in 2006 of $127,023. Other income derived from dividends fell slightly
(2007 - $163,119; 2006 - $196,882). Interest expense is largely attributable to
our convertible debentures which was essentially flat (2007 - $72,240; 2006 -
$76,644).
Our basic and diluted loss per share for the year ended December 31,
2007 was $0.07 compared to $0.10 per share for the year ended December 31, 2006.
The weighted average number of shares outstanding was 28,216,728 at December 31,
2007 compared to 26,718,248 for the year ended December 31, 2006. The increase
in the weighted average number of shares outstanding can be attributed to the
issuance of 668,202 shares in connection with a private placement financing
completed during fiscal 2007.
LIQUIDITY AND CAPITAL RESOURCES
Historically, our principal source of funds is our available resources
of cash and cash equivalents and investments, as well as debt and equity
financings. During the year ended December 31, 2007, we received cash proceeds
of $2,692,242 derived from the sale of gold recovered from the mineralized
material at our Kwabeng Project during this financial reporting period.
UNREALIZED GAIN ON TRADING SECURITIES HELD FOR SALE
Unrealized gain on trading securities held for sale represents the
change securities as of the end of the financial reporting period. For the year
ended December 31, 2007, we recognized an unrealized gain of $389,793 on trading
securities held for sale, as compared to an unrealized loss of $778,230 for the
year ended December 31, 2006. The change reflects a rebound in the value of our
resource company investments following a significant decline during 2006.
Trading securities were comprised mostly of investments in common shares and
income trust units of resource companies.
LIQUIDITY DISCUSSION
Net cash provided by financing activities for the year ended December
31, 2007 was $812,540 (2006 - $2,370,379).
As of December 31, 2007, we had working capital equity of $1,761,284,
comprised of current assets of $2,556,515 less current liabilities of $795,231.
Our current assets were comprised mostly of $334,265 in cash and cash
equivalents and $2,167,741 in trading securities, which is based on our analysis
of the ready saleable nature of the securities including an existing market for
the securities, the lack of any restrictions for resale of the securities and
sufficient active volume of trading in the securities. Our trading securities
are held in our investment portfolio with an established brokerage in Canada in
which we primarily invest in the common shares and income trust fund units of
publicly traded resource companies.
As we have received limited cash proceeds from the recovery of gold
from our mineralized material since inception, we have historically relied on
equity and debt financings to finance our ongoing operations. Existing working
capital, and possible debt instruments, anticipated warrant exercises, further
private placements and anticipated cash flow are expected to be adequate to fund
our operations over the next year. We have no lines of credit or other bank
- 23 -
financing arrangements. Generally, we have financed operations to date through
the proceeds of the private equity financings and a convertible debt financing.
In connection with our business plan, Management anticipates operating expenses
and capital expenditures as follows: (i) $1,500,000 for exploration; (ii)
$5,000,000 for mine operating, capital and administration costs at our Kwabeng
Project; and (iii) $1,200,000 for general and administrative costs. At December
31, 2007, we had working capital of approximately $1,761,284, consisting of
current assets comprised of $334,265 in cash and $2,167,741 in trading
securities, less current liabilities of $795,231.
Absent deriving cash proceeds from the sale of gold recovered from the
mineralized material at our Kwabeng Project in future financial periods or
raising additional financing, we estimate that we will be able to continue
operations for approximately 12 months. Until we achieve profitability, we will
need to raise additional capital for our exploration programs. We intend to
finance these expenses with our cash proceeds and to the extent that our cash
proceeds are not sufficient, then from further sales of our equity securities or
debt securities, or from investment income. Thereafter, we may need to raise
additional capital to meet long-term operating requirements. Additional
financing may not be available upon acceptable terms, or at all. If adequate
funds are not available or are not available on acceptable terms, we may not be
able to take advantage of prospective new business endeavors or opportunities or
existing agreements and projects which could significantly and materially
restrict our business operations.
The independent auditors' report accompanying our December 31, 2007 and
December 31, 2006 consolidated financial statements contains an explanatory
paragraph expressing doubt about our ability to continue as a going concern. The
consolidated financial statements have been prepared "assuming that we will
continue as a going concern", which contemplates that we will realize our assets
and satisfy our liabilities and commitments in the ordinary course of business.
RECENT CAPITAL RAISING TRANSACTIONS
In February 2008, we received gross proceeds of $1,593,000 in
connection with a private equity financing whereby we sold 1,602,000 shares of
our common stock and issued 1,062,000 warrants at an exercise price of $2.25 per
share expiring one year from the earlier of the posting of our shares on an
over-the-counter bulletin board service and the listing of our shares on a
recognized stock exchange. The securities were sold to 13 non US persons, and
the transaction was exempt from registration under the Securities Act pursuant
to section 4(2) and Rule 506 thereunder and Regulation S.
In October 2007, we received gross proceeds of $530,822 in connection
with the second and final tranche of a private equity financing whereby we sold
393,202 shares of our common stock and issued 196,601 warrants at an exercise
price of $1.75 per share expiring on October 30, 2008. The securities were sold
to eight non US persons, and the transaction was exempt from registration under
the Securities Act pursuant to section 4(2) and Rule 506 thereunder and
Regulation S.
In October 2007, we received gross proceeds of $141,750 in connection
with the first tranche of a private equity financing whereby we sold 105,000
shares of our common stock and issued 52,500 warrants at an exercise price of
$1.75 per share expiring on October 10, 2008. The securities were sold to two
non US persons, and the transaction was exempt from registration under the
Securities Act pursuant to section 4(2) and Rule 506 thereunder and Regulation
S.
- 24 -
In September 2007, we received gross proceeds of $229,500 in connection
with the first tranche of a private equity financing whereby we sold 170,000
shares of our common stock and issued 85,000 warrants at an exercise price of
$1.75 per share expiring on October 10, 2008. The securities were sold to seven
non US persons, and the transaction was exempt from registration under the
Securities Act pursuant to section 4(2) and Rule 506 thereunder and Regulation
S.
In March 2006, we completed a private equity financing for net proceeds
of $496,420 whereby we sold 792,029 shares of our common stock. As well, we
received $81,375 from the exercise of share purchase warrants. The securities
were sold to two US persons and six non US persons, and the transaction was
exempt from registration under the Securities Act pursuant to section 4(2) and
Rule 506 thereunder and Regulation S.
In April 2006, an aggregate of 177,200 previously issued share purchase
warrants were exercised by 15 non US persons for which we received gross
proceeds of $132,900.
In June 2006, we completed a private equity financing for net proceeds
of $468,300 whereby we sold 578,112 shares of our common stock and 289,056
warrants at an exercise price of $1.50 per share expiring on June 16, 2007. The
securities were sold to six US persons and four non US persons, and the
transaction was exempt from registration under the Securities Act pursuant to
section 4(2) and Rule 506 thereunder and Regulation S.
In July 2006, we completed a private equity financing to non US persons
pursuant to Regulation S of the Securities Act for net proceeds of $1,018,800
whereby we sold 1,132,000 shares of our common stock and 566,000 warrants at an
exercise price of $1.50 per share expiring on July 31, 2007. The expiry date of
these warrants was extended, on approval of our Board, to December 13, 2007 and
subsequently extended to July 13, 2008.
In October 2006, we completed a private equity financing to non US
persons pursuant to Regulation S of the Securities Act for net proceeds of
$310,200 whereby we sold 282,000 shares of our common stock and 141,000 warrants
at an exercise price of $1.50 per share expiring on April 23, 2008. The expiry
date of these warrants was extended, on approval of our Board, to July 13, 2008.
As of December 31, 2007, we had working capital equity of $1,761,284
(2006 - $2,786,427), comprised of current assets of $2,556,515 (2006 -
$3,024,369) less current liabilities of $795,231 (2006 - $237,942). Our current
assets were comprised mostly of $334,265 (2006 - $279,995) in cash and cash
equivalents and $2,167,741 (2006 - $2,650,585) in trading securities.
During the year ended December 31, 2007, net cash flows from financing
activities were $812,540 (2006 - $2,370,379). These funds were raised through
the sale of common stock, net of financing costs (2007 - $812,540; 2005 -
$2,377,379).
In June 2005, we completed a private equity financing of $294,920
whereby we sold 536,218 equity units comprised of 536,218 shares of our common
stock and 268,110 underlying warrants. The securities were sold to one US person
and 15 non US persons, and the transaction was exempt from registration under
the Securities Act pursuant to section 4(2) and Rule 506 thereunder and
Regulation S. In July 2005, we completed an aggregate debt financing of $900,000
- 25 -
which was secured by the issuance of convertible debentures (described elsewhere
in this Prospectus). In August 2005, we completed a private equity financing of
$165,000 whereby we sold 300,000 equity units comprised of 300,000 shares of our
common stock and 150,000 underlying warrants. In November 2005, we completed a
private equity financing of $852,145 whereby we sold 1,549,354 shares of our
common stock.
During fiscal year 2004, we completed two private equity financings for
an aggregate of 4,129,400 units for net proceeds of $1,368,992. The securities
were sold to 12 US persons and 34 non US persons, and the transaction was exempt
from registration under the Securities Act pursuant to section 4(2) and Rule 506
thereunder and Regulation S. For every two shares held, we also issued one
common stock purchase warrant to purchase a share of our common stock at an
exercise price of $.75 per share for an aggregate of 2,064,700 warrants (the
"2004 WARRANTS"). The 2004 Warrants were exercisable for a term of one year and
were subsequently extended on approval by our Board to March 31, 2006. As of
March 31, 2006, 108,500 of the 2004 Warrants were exercised and the remaining
1,956,200 2004 Warrants expired unexercised.
MATERIAL COMMITMENTS
MINERAL PROPERTY COMMITMENTS
Save and except for fees payable from time to time to (i) the Minerals
Commission for an extension of an expiry date of a prospecting licence (current
consideration fee payable is $15,000) or mining lease or annual operating
permits; (ii) the Environmental Protection Agency ("EPA") in Ghana for the
issuance of permits prior to the commencement of any work at a particular
concession or the posting of a bond in connection with any mining operations
undertaken by our company; and (iii) a legal obligation associated with our
mineral properties for clean up costs when work programs are completed, we are
committed to expend an aggregate of less than $500 in connection with annual or
ground rent and mining permits to enter upon and gain access to the following
concessions and such other financial commitments arising out of any approved
exploration programs in connection therewith:
(a) the Kwabeng concession (Kwabeng Project);
(b) the Pameng concession (Pameng Project);
(c) the Banso and Muoso concessions (Banso and Muoso Project);
(d) the Apapam concession (Apapam Project); and
(e) the Edum-Banso concession (Edum Banso Project).
With respect to the Kwabeng, Pameng and Apapam Projects, upon and
following the commencement of gold production, a royalty of 3% of the net
smelter returns is payable quarterly to the Government of Ghana.
With respect to the Edum Banso Project:
(i) $5,000 is payable to Adom Mining Limited ("ADOM") on
the anniversary date of the Option Agreement in each
year that we hold an interest in the agreement;
- 26 -
(ii) $200,000 is payable to Adom when the production of
gold is commenced (or $100,000 in the event that less
than 2 million ounces of proven and probable reserves
are discovered on our project at this concession; and
(iii) an aggregate production royalty of 2% of the net
smelter returns ("NSR") from all ores, minerals and
other products mined and removed from the project,
except if less than 2 million ounces of proven and
probable reserved are discovered in or at the
Project, then the royalty shall be 1% of the NSR.
REPAYMENT OF CONVERTIBLE DEBENTURES AND ACCRUED INTEREST
We are committed to repay our Convertible Debenture holders outstanding
amounts of principal and interest calculated at 7% per annum on an aggregate
face value of $900,000. Interest only payments are payable quarterly on the last
days of September, December, March and June in each year of the term or until
such time that the principal has been repaid in the full. The Convertible
Debenture holders are entitled, at their option, to convert, at any time and
from time to time, until payment in full of their respective Convertible
Debentures, all or any part of the outstanding principal amount of the
Convertible Debenture, plus the Accrued Interest, into shares (the "CONVERSION
SHARES") of our common stock at the conversion price of $1.00 per share (the
"CONVERSION PRICE"). Provided there is a registration statement then in effect
covering the Conversion Shares, or the Conversion Shares may otherwise be resold
pursuant to Rule 144, the outstanding principal amount of each Convertible
Debenture, and all accrued but unpaid interest, shall automatically be converted
into shares of our common stock, at the Conversion Price, in the event that our
common stock trade for 20 consecutive trading days (a) with a closing bid price
of at least $1.50 per share and (b) a cumulative trading volume during such
twenty (20) trading day period of at least 1,000,000 shares.
FURTHER MATERIAL COMMITMENTS
Further material commitments are subject to new funding arrangements to
be obtained or agreements not yet formalized.
PURCHASE OF SIGNIFICANT EQUIPMENT
We do not expect to purchase significant ore processing and gold
recovery equipment as our Wash Plant has sufficient capacity to handle our
processing requirements at our Kwabeng Project. We rent our earthmoving and
ancillary earthmoving equipment fleet in connection with our ongoing operations
at our Kwabeng Project.
OFF BALANCE SHEET ARRANGEMENTS
We have no off balance sheet arrangements.
SIGNIFICANT ACCOUNTING POLICIES
APPLICATION OF CRITICAL ACCOUNTING POLICIES
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our financial
statements.
- 27 -
MINERAL PROPERTIES
The valuation of our mineral properties (the "ASSETS") is based upon
the fair value of the securities issued as consideration for the purchase of the
Assets. Specifically, we have restated our financial statements to indicate a
value of the Assets based upon the following:
The number of securities issued as consideration
for the Assets .................................... 2,698,350
multiplied by ....................................... x
the quoted bid price ................................ .60
----------
Consideration based on Fair Market Value of Shares .. $1,619,010
ASSET RETIREMENT OBLIGATION
The fair value of our asset retirement obligation are recorded as
liabilities when they are incurred. As such, the valuation could be affected by
the following:
Costs - When work actually commences on asset retirement obligations, actual
costs could materially differ from what has been projected. This would
materially affect the value of the obligation.
Ghanaian laws and regulations - If the Government of Ghana approves or changes
laws and regulations that affect mining operations in Ghana, the cost of meeting
our asset retirement obligations could change materially.
DEFERRED INCOME TAXES
As we have no history of profitability and currently have derived
limited cash proceeds, we have recognized a 100% valuation on our future tax
assets. If our company becomes profitable in the future, a material amount of
these future tax assets could actually be realized.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 48, "Accounting for Uncertainty in "Income Taxes" ("FIN
48"). FIN 48 clarifies the accounting and reporting for uncertainties in income
tax law. FIN 48 prescribes a comprehensive model for the financial statement
recognition, measurement, presentation, and disclosure of uncertain tax
positions taken or expected to be taken in income tax returns. FIN 48 is
effective for fiscal years beginning after December 15, 2006. We have adopted
FIN 48, however, this adoption has no material effect on our company's
consolidated financial position of results of operations and therefore no
additional disclosure was necessary in our financial statements.
In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements" which establishes a framework for measuring the fair value of
assets and liabilities. This framework is intended to provide increased
consistency in how fair value determinations are made under various existing
accounting standards which permit, or in some cases require, estimates of fair
market value. SFAS No. 157 is effective for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years, however,
earlier application is encouraged, provided that the reporting entity has not
yet issued financial statements for that fiscal year, including any financial
statements for an interim period within that fiscal year.
- 28 -
In February 2007, the FASB issued SFAS No. 159 "The Fair Value Option
for Financial Assets and Financial Liabilities" which permits entities to choose
to measure many financial assets and financial liabilities at fair value.
Unrealized gains and losses on items for which the fair value option has been
elected are reported in earnings. We have assessed this pronouncement and have
determined that implementation will have no material impact on our financial
statements.
We do not anticipate that the adoption of the foregoing pronouncements
will have a material effect on our company's consolidated financial position or
results of operations.
BUSINESS OF OUR COMPANY
BUSINESS DEVELOPMENT
Our predecessors were inactive from inception until October 21, 2003,
except for some non-mining business ventures, raising capital to fund such
ventures and two stock consolidations.
On October 31, 2003, we entered into a share exchange agreement (the
"SHARE EXCHANGE AGREEMENT") with Xtra Energy (formerly XGRI) and its
shareholders (the "XTRA ENERGY SHAREHOLDERS"). Pursuant to the terms of the
Share Exchange Agreement: (i) we acquired 100% of the issued and outstanding
shares of common stock of Xtra Energy from the Xtra Energy Shareholders; and
(ii) in exchange, we issued 10,070,000 shares of our common stock to the Xtra
Energy Shareholders in proportion to their respective holdings in Xtra Energy.
As a result of this transaction, Xtra Energy became our wholly owned subsidiary.
Since our acquisition of Xtra Energy in October 2003, we have been
primarily engaged in the business of exploration for gold mineralization from
our projects. Since February 2004, we have been focused on exploration for gold
mineralization from our projects and the recovery of gold from the mineralized
material at our Kwabeng Project, all of which are located in the Republic of
Ghana ("GHANA"), West Africa, through our Ghanaian subsidiaries, Xtra-Gold
Exploration Limited ("XGEL") and Xtra-Gold Mining Limited ("XG MINING").
At the time of our acquisition of Xtra Energy on October 28, 2003, Xtra
Energy held an option to earn up to 90% of an 80% interest in an early stage
mineral exploration property located in Switzerland (the "SWISS PROPERTY") held
by CaribGold Minerals Inc. ("CARIBGOLD"). We would have earned this 90% interest
in the Swiss Property by incurring exploration expenditures of a least
CAD$200,000 (USD$176,242) on or before October 28, 2004. Our Board subsequently
decided to let the option expire and to instead use our capital to focus on the
acquisition of mineral properties in Ghana. None of the CAD$200,000
(USD$152,532) was expended, except for approximately $1,200 which was paid for
an annual exploration fee to the relevant government authorities and storage
fees for core samples. Paul Zyla, our former President and Chief Executive
Officer, was the President and a director of CaribGold at the time of this
transaction. Mr. Zyla owned 647,500 (.550%) of the 11,758,232 issued and
outstanding shares of CaribGold at the time of this transaction.
Since October 2004 until October 2005, Xtra Energy had been an inactive
subsidiary of our company. In October 2005, the board of directors of Xtra
Energy decided to commence preliminary activities towards its business model in
the oil and gas industry. As a result of Xtra Energy being a new entrant into
the oil and gas industry and currently having no activities thereto, there is no
available information regarding production or revenue generation.
- 29 -
In October 2005, we also became engaged in the business of oil and gas
through two other wholly-owned subsidiaries; namely Xtra Energy (formerly XGRI)
and XOG, by way of XOG acquiring a 5% participating interest in one oil and gas
property located in southeastern Saskatchewan, Canada (the "SASKATCHEWAN
PROJECT").
Since the incorporation of our wholly-owned subsidiary, XOG Ghana on
March 2, 2006, its activities in the oil and gas industry have been limited to
organizational efforts and pursuing a petroleum interest in Ghana. In April
2006, our subsidiary XOG Ghana made an application to GNPC to acquire a
petroleum agreement for an oil interest in Ghana. The petroleum agreement was
granted to another applicant, however, we plan to continue to pursue
opportunities to acquire petroleum interests in Ghana.
In October 2006, we sold our 5% interest to an arm's length oil and gas
company, TriStar Oil & Gas Partnership, a general partnership, having an office
in Calgary, Alberta, pursuant to the terms of a purchase and sale agreement for
a consideration of CAD$350,000 (USD$314,258).
OUR BUSINESS IN THE GOLD INDUSTRY
We are currently engaged in the exploration of gold properties
exclusively in Ghana. Our interests in our Projects are held by our Ghanaian
subsidiaries, through prospecting licences, an option agreement in connection
with a prospecting licence and mining leases granted by the Government of Ghana
for licensed or leased areas respectively located within and upon concessions. A
concession is a grant of a tract of land made by a government or other
controlling authority in exchange for an agreement that the land will be used
for a specific purpose.
Exploration means we are engaged in the search for mineral deposits or
reserves which could be economically and legally extracted or produced and
typically includes the review of existing data, grid establishment, geological
mapping, geophysical surveying, trenching and pitting to test the areas of
anomalous soil samples and RC and/or diamond drilling to test targets followed
by infill drilling, if successful, to define reserves.
We currently have six projects as follows, as more fully described
herein:
o Kwabeng Project. Our interest in this project is held by a mining
lease. In January 2007 we commenced an early stage pre-production
mining process whereby a sample area of ore was processed, the
results of which assisted us in determining the best way and most
profitable manner in which to mine the gold to be recovered from the
mineralized material at our Kwabeng Project. This process was
internally referred to by our company as a "BULK TEST". We tested
32,906.70 BCM of mineralized material at our Kwabeng Project that we
processed through our Wash Plant and recovered 608.50 fine ounces of
gold. Following completion of the Bulk Test on March 25, 2007, our
company has made modifications to our Wash Plant.
We have been recovering gold from the mineralized material at our
Kwabeng Project since January 19, 2007. As of April 30, 2008, the
total mineralized material that has been recovered from our Kwabeng
Project is 252,701.55 BCM. As of April 30, 2008, we have recovered
6,266.25 fine ounces of gold from the mineralized material at our
Kwabeng Project and, as of such date, we have sold 6,266.25 fine
ounces of gold for cash proceeds of $4,748,877.86.
- 30 -
o Pameng Project. Our interest in this project is held by a mining
lease. This project is in the exploration stage.
o Banso Project. Our interest in this project is held by a prospecting
licence. This project is in the exploration stage.
o Muoso Project. Our interest in this project is held by a prospecting
licence. This project is in the exploration stage.
o Apapam Project. Our interest in this project is held by a
prospecting licence. This project is in the exploration stage. We
have submitted an application to the Minerals Commission to convert
the prospecting licence to a mining lease and anticipate receiving a
response within the next six months. A reconnaissance trenching
program was intermittently implemented from February to December
2007. See "Phase II Exploration Program - Apapam Project" for the
results of this program.
o Edum Banso Project. We have an option to acquire the interest in a
prospecting licence in Edum Banso. This project is in the
exploration stage. An exploration work program was prepared by our
Vice-President, Exploration and approved by our Board. A first phase
exploration program was implemented from August 2007 to January
2008. See "Edum Banso - Phase I Exploration Program" for the results
of this exploration program.
Our Banso and Muoso Project and Edum Banso concessions represent
"grassroots" or "greenfields" mineral exploration projects. These exploration
projects are each at an early stage of evaluation and no mineralized material or
reserve estimates have been made. The present exploration activities on these
concessions, including grid establishment, soil sampling, prospecting/geological
mapping, pitting/trenching and geophysics, are aimed at identifying lode gold
(hardrock) mineral occurrences to be further evaluated through drilling. We have
completed preliminary lode gold exploration programs at our Banso and Muoso and
Apapam Projects and have received their respective results as noted hereunder.
We are preparing a preliminary lode gold exploration program at our Edum Banso
Project. We have not yet produced any gold at our Banso and Muoso, Apapam and
Edum Banso Projects and we will require substantial additional capital in order
to do so.
THE GOLD INDUSTRY
THE GOLD INDUSTRY IN GHANA
The mining and minerals development industry in Ghana continues to be
focused on gold. Ghana is the second largest gold producer in Africa and is also
a major producer of bauxite, manganese and diamonds.
GEOLOGICAL SETTING
Ghana is situated mostly within the West African Craton, which
stabilized during the early Proterozoic Period some two billion years ago. In a
series of tectonic processes, large areas were folded, faulted, metamorphosed,
subjected to igneous activity, erosion and sedimentary processes, giving rise to
a series of gold belts. Gold deposits can be categorized as Birimian gold and
Tarkwaian gold. Birimian supracrustal rocks of West Africa, which extend from
- 31 -
Ghana westward to Senegal and Mauritania and northward into Burkina Faso, are
richly endowed with Proterozoic greenstone-type lode gold deposits. Deposits are
variable and structurally complex, featuring gold that occurs in both
quartz-filled shear zones and in altered rocks adjacent to shear zones. The
metamorphosed volcanic belts in which they are found average between 15
kilometers and 40 kilometers in width and cover approximately one-sixth of
Ghana's surface area. The bulk of Ghanaian gold is derived from Birimian rocks.
The second category is Tarkwaian gold. Auriferous quartz-pebble conglomerate
deposits occur within the Tarkwaian supercrustal rocks of Ghana. The matrix
consists of fine-grained quartz and black sands (mainly hematite, and to a
lesser extent, ilmenite, magnetite and rutile) and over 90% of the pebbles are
vein-quartz and the balance, quartzite and phyllite (1).
Ghana is covered by the Paleoprotoerozoic rocks of the Birimian Super
group and the overlying clastic sedimentary Tarkwaian group. A result of a
series of erosional events, significant portions of these rocks have been
re-deposited as placer formations in a number of streams and channels. Placer
gold deposits, which are also referred to as alluvial gold, are found in the
majority of rivers draining Birimian rocks. We have determined that large
deposits of placer gold also occur along the terraces, floodplains, channels and
river beds of the Offin, Pra, Ankobra, Birim and Tano rivers where large
Birimian and Tarkwaian gold deposits have experienced several episodes of
erosion and subsequent deposition.
ORGANIZATION OF MINING OPERATORS IN GHANA
Operators of gold projects are awarded mining leases by the Government
of Ghana to mine in a designated area for a period of time, usually for 30
years.
MINERAL RIGHTS
The governing mining law of Ghana is the Minerals and Mining Act, 2006
(Act 703) (the "MINING ACT") which was enacted in March 2006 by the President
and Parliament of Ghana. This law and associated legislation combines regulation
of the mining industry with fiscal incentives for investors. Some of the more
significant features of the legislation are as follows:
1. Every mineral in its natural state in, under or upon land in Ghana,
rivers, streams, water-courses throughout the country, the exclusive
economic zone and an area covered by the territorial sea or continental
shelf is the property of the Republic and is vested in the President in
trust for the people of Ghana.
2. The Mining Act established a new cadastral system of mineral title
administration. It is a system under which the country (Ghana) is
divided into geographical blocks of 21 hectares each. Applications for
mineral rights may be made in multiples of blocks which should be
contiguous. Fractions of blocks may not be applied for except for
blocks intended for small scale mining and blocks part of which lie
outside the country; in which case, such part-blocks are considered for
purposes of the cadastral system as full blocks. Three main types of
mineral rights in the form of licences may be granted under the Mining
Act, to coincide with the three key stages of the mining cycle, namely
reconnaissance, prospecting and development.
- 32 -
TYPE OF LICENCE PURPOSE AREA LICENCE PERIOD
- --------------- ------- ---- --------------
Reconnaissance ....... to conduct reconnaissance maximum of 12 months
operations in search for 5,000 contiguous renewable
for specific minerals (not blocks
including drilling or
excavations)
Prospecting Licence .. to intentionally explore or maximum of 2 years
search for specific minerals 750 contiguous renewable with 50%
and determining their extent blocks of 21 reduction of area
and economic value hectares each upon renewal
Mining Licence ....... to intentionally extract or maximum of 30 years
win specific minerals 30 contiguous renewable
blocks per lease
3. Negotiable matters are the deferment of royalty payments, work programs
and the level of export earnings retention allowances and the detailed
provisions of a stability agreement or development agreement provided
for respectively under sections 48 and 49 of the Mining Act.
4. In accordance with section 14(1), "a mineral right shall not in whole
or in part be transferred, assigned, mortgaged or otherwise encumbered
or dealt in, in a manner without the prior approval in writing of the
Minister (of Lands, Forestry and Mines), which approval shall not be
unreasonably withheld or given subject to unreasonable conditions".
5. The legislation is to be applied equally to Ghanaians and foreigners,
except for the provisions relating to artisanal mining and exploitation
of construction minerals which is reserved for Ghanaians.
6. The Government of Ghana is entitled to a free carried equity interest
of 10% in mining ventures. It also has the option of purchasing an
additional 20% at a fair market price. See the section entitled
"Ghanaian Law - Ghanaian Ownership and Special Rights" for more
detailed disclosure.
7. Royalties vary form 3% to 6% of the gross value of minerals produced.
The variation is related to the "operating margin" and is designed to
prevent royalties becoming too onerous during times of low
profitability.
8. Section 10 of the Mining Act provides as follows:
"10. Unless otherwise provided in this Act, a mineral right shall
not be granted to a person unless the person is a body
incorporated under the Companies Code 1963 (Act 179), under
the Incorporated Private Partnerships Act 1962 (Act 152) or
under an enactment in force."
This provision prohibits the grant of mineral rights which are defined
in the law to include reconnaissance licence, prospecting licence and
mining lease to natural persons unless a specific provision to the
contrary is made in the law. However, it should be noted that the
exceptions in this regard relate mainly to the grant of licences in
- 33 -
respect of (a) building and industrial minerals; and (b) small scale
mining to non-corporate persons who are citizens of Ghana. The
exceptions therefore do not apply to large scale mining.
In addition to being a corporate legal entity, an applicant is also
required to show financial and technical capability to carry out the
proposed mineral operations in respect of which the licence is being
applied for. Thus, section 11 of the Mining Act states that:
"11. An application for a mineral right shall be submitted to the
Minerals Commission in the prescribed form and shall be
accompanied with a statement providing,
(a) particulars of the financial and technical resources
available to the applicant for the proposed mineral
operations,
(b) an estimate of the amount of money proposed to be
spent on the operations,
(c) particulars of the programme of proposed mineral
operations, and
(d) particulars of the applicant's proposals with respect
to the employment and training in the mining industry
of Ghanaians."
KWABENG AND PAMENG, APAPAM, BANSO AND MUOSO AND EDUM BANSO PROJECTS
ACQUISITION OF XGEL AND XG MINING
On February 16, 2004, we entered into an offer to purchase (the
"ACQUISITION AGREEMENT") with Akrokeri-Ashanti Gold Mines Inc.
("AKROKERI-ASHANTI"), an unaffiliated third party, who at the time was the sole
shareholder of XGEL (formerly Canadiana Gold Resources Limited), a Ghanaian
corporation, to purchase 50,000 ordinary common shares, being all of the issued
and outstanding shares of XGEL (the "XGEL SHARES") for (i) $25,000 cash; (ii)
forgiveness of $175,000 in debt owed to XGEL by an affiliate of
Akrokeri-Ashanti; and (iii) agreeing to make a tender offer to Akrokeri-Ashanti
note holders and debenture holders (the "NOTE AND DEBENTURE HOLDERS") to
extinguish their debts totaling approximately $13,104,159.92. Akrokeri-Ashanti
had pledged as security to its Note and Debenture Holders, 90% of the issued and
outstanding shares (the "GOLDENRAE SHARES") of its subsidiary, XG Mining
(formerly Goldenrae Mining Company Limited). The remaining 10% of the issued and
outstanding shares of XG Mining was at the relevant time and continues to be
held by the Government of Ghana in accordance with governing mining laws and
regulations of Ghana.
Under the Acquisition Agreement, if we abandoned our bid to the Note
and Debenture Holders, or were unsuccessful in acquiring the XG Mining Shares by
December 31, 2004, then we would be required to reconvey the XGEL shares back to
Akrokeri-Ashanti. On December 22, 2004, we succeeded in our offer to the Note
and Debenture Holders and exchanged one-half share of our common stock for every
CAD$1.00 (USD$.90) principal amount of notes and debentures. We therefore issued
a total of 2,698,350 shares of our common stock for the $13,104,159.92,
outstanding principal amount of the notes and debentures. Following the
completion of the foregoing transaction, XG Mining became our subsidiary as to a
90% interest. The Government of Ghana holds the remaining 10%.
- 34 -
MAP OF OUR PROJECTS
- 35 -
THE KWABENG AND PAMENG PROJECTS
Three concessions totaling 118.92 sq km; namely our Kwabeng Project,
Pameng Project and our Apapam Project, which is located to the south of our
Kwabeng and Pameng Projects, are contiguous to our Banso and Muoso Project.
ACCESS AND LOCATION
Access to our Kwabeng Project can be gained by driving northwest from
the City of Accra on the Accra-Kumasi Trunk Road, which is the main paved
national highway, for approximately 110 km until arrival at the road sign for
"Kwabeng" where we have posted a sign reading "Xtra-Gold Mining Ltd. - Kwabeng".
Make a left hand turn on the road where a sign reads Town of Anyinam and drive
southwest approximately 10 km until the Town of Kwabeng is reached where our
Field Camp is located on the right side of the road approximately 50 meters from
the Anyinam to Kwabeng road. Our Field Camp is located approximately 500 meters
from the Town of Kwabeng. The eastern boundary of our Kwabeng Project is
approximately 500 meters to the east of our Field Camp.
Access to our Pameng Project can be gained by driving northwest from
the City of Accra on the Accra-Kumasi Trunk Road, which is the main paved
national highway, for approximately 125 km until arrival at the village of
Pameng where there is a road sign reading "Pameng". Make a left hand turn at the
Pameng sign and drive southwest approximately 2 km to reach our Pameng
concession. Our Pameng concession is located approximately 15 km south-southwest
from our Field Camp.
We hold 30-year mining leases expiring on July 26, 2019 on our Kwabeng
and Pameng mining concessions (see "Mining Leases - Kwabeng and Pameng
Projects") and a prospecting licence for our Apapam Project (see "The Apapam
Project").
These three Projects have had very little exploration for lode source
gold deposits; however, there has been detailed exploration for placer gold
deposits. The Kwabeng, Pameng and Apapam Projects contain approximately
12,583,000 BCM with an average grade of 0.568 grams/BCM. In addition to the
mineralized material, there is potential to define reserves with further
exploration.
The placer gold deposit currently located at our Kwabeng concession was
mined by the former owner in the early 1990's for 15 months and produced
approximately 16,800 ounces of gold before operations were ceased due to mining
difficulties as noted hereunder. The placer gold is contained in a gravel
deposit distributed across the floor of the river valleys west of the Atewa
Range which can easily be excavated.
In addition to the two mining leases, XG Mining owns the Wash Plant and
a functional living compound for mining personnel (the "FIELD CAMP") which is
also comprised of offices and facilities for stores, engineering and exploration
activities. The Wash Plant and the Field Camp are located on the property
included in our Kwabeng concession, close to the town of Kwabeng.
We have engaged experienced mining personnel with respect to our
recovery of gold effort at our Kwabeng Project. We currently have approximately
100 personnel working at the Kwabeng Field Camp and our administrative office in
Accra, Ghana. We have further engaged a Mine Manager who supervises all
- 36 -
personnel at our Plant, Field Camp and gold recovery room ("GOLD ROOM") and a
Management Geologist who supervises the exploration and planning of daily
recovery of gold activities of our personnel.
In early 1990's, the former mining lessee invested approximately
$24,000,000 to open and operate a mine at the Kwabeng concession. The mining
operation lasted for 15 months and 16,800 ounces of gold was produced before the
mine was shut down.
The preceding mining effort failed as the former operator was unable to
achieve anticipated throughput due to the design and construction deficiencies
of the processing plant. Significant operational costs to sustain high
throughputs, a poor gold price, lack of funds to continue mining operations and
the lack of available qualified placer gold consultants, engineers and operators
which led to the engagement of expensive foreign personnel also contributed to
the failure of the previous mining effort.
We are able to address the foregoing past failings of the former
operator as we have: (i) redesigned our Wash Plant to accommodate a higher
capacity of throughput; (ii) engaged experienced Ghanaian engineers, geological
consultants and accounting personnel; (iii) cash available to sustain our
current recovery of gold effort for approximately 12 months; and (iv) a plan to
derive cash proceeds from our current recovery of gold effort in order to meet
operational costs through the course of advancing our plan. Also, the current
gold price (approximately $900 per ounce) is significantly greater compared to
the gold price during the previous mining effort (approximately $300 per ounce).
On the basis of our planned annual recovery of gold of approximately 360,000
BCM, we anticipate that our plan could continue for a minimum of 20 years,
however, this will depend upon numerous factors including the grade and
commercial recoverability of the mineralized material and the selling gold price
at the relevant time.
FLOATING GOLD ORE WASHING AND PROCESSING PLANT
The Wash Plant was custom manufactured for the placer gold ores located
on the Kwabeng and Pameng concessions by IHC of the Netherlands and shipped to
Ghana in disassembled modules in the early 1990's while the Kwabeng mining lease
was held by the former owner, Goldenrae Mining Company Limited. The Wash Plant
is made up of two major functional components: (i) a series of modular pontoons
which are assembled on-site to make up the floating barge portion of the Wash
Plant; and (ii) the gold ore processing and recovery equipment, power generation
equipment are installed, which is comprised of vibrating grizzly feeder,
scrubber, vibrating screen, a three stage IHC radial jig gold recovery unit and
provisions for the disposal of the barren processed gravels back into the mining
pit. The rated recovery of gold capacity of the Wash Plant is approximately 150
cubic meters of ore gravels per hour and we anticipate that it will be operated
continuously by the staff to be hired at the commencement of full scale
production at our Kwabeng concession. The Wash Plant is currently being operated
on a one 10 hour shift per day for six days of the week. The Wash Plant, and our
Field Camp thereto, is currently operated by generators since the area of our
concession is not yet connected to any electrical power generation facility. In
light of the current government imposed power shedding (outages), our company
has decided to postpone connection of the Field Camp to the national power grid
and will continue to rely on its own generator systems. Currently, a new
vibrating screen deck and water supply pump have been installed and the Wash
Plant is fully operational.
- 37 -
BULK TEST
We completed the Bulk Test at our Kwabeng Project on March 25, 2007.
During the Bulk Test, we collected, processed, analyzed and sold the gold
recovered from the Bulk Test. We obtained the necessary approvals and permits
from the Ghanaian government authorities prior to commencing the Bulk Test.
MINING LEASES - KWABENG AND PAMENG PROJECTS
Our subsidiary, XG Mining, which is owned by us as to a 90% interest,
entered into two individual mining leases on July 26, 1989 with The Government
of the Republic of Ghana (the "GOVERNMENT OF GHANA"), who holds a 10% interest
in XG Mining, covering an area of 44.76 sq km with respect to the Kwabeng
concession and 40.51 sq km with respect to the Pameng concession (collectively,
the "LEASE AREA"), located in the East Akim District of the Eastern Region of
the Republic of Ghana. These mining leases have a 30 year term expiring on July
26, 2019. We have been granted surface and mining rights by the Government of
Ghana to work, develop and produce gold in the lease area (including processing,
storing and transportation of ore and materials). With respect to each mining
lease, we are: (i) required to pay applicable taxes and annual rental fees of
Cedis 15,500 (based on Cedis 500 per sq km) (USD$1.75) to the Government of
Ghana; and (ii) committed to pay a royalty in each quarter through the
Commissioner of Internal Revenue based on the production for that quarter within
30 days from the quarter end as well as a royalty on all timber felled in
accordance with existing legislation. Under the terms and conditions of each
mining lease, we are required to furnish (i) a report in each quarter not later
than 30 days after the quarter end to the Government Authorities in connection
with quantities of gold won in that quarter, quantities sold, revenue received
and royalties payable; (ii) a report half-yearly not later than 60 days after
the financial year end to the Government Authorities summarizing the results of
operations during the half year and records containing a description for the
proposed operations for the following year with an estimate of the production
and revenue to be obtained; (iii) a report not later than three months after the
expiration or termination of the mining lease, to the Government Authorities,
giving an account of the geology of the lease area including the stratigraphic
and structural conditions and a geological map on scale prescribed in the Mining
Regulations; (iv) a report to the Government Authorities of any proposed
alteration to its regulations and a report of the particulars of any proposed
transfer of any share of its capital stock representing 1% of more of the total
number of issued and outstanding shares; (v) a report to the Government
Authorities on the particulars of any fresh share issuance or borrowings in
excess of an amount equal to the stated capital of XG Mining; and (vi) having
regard to items (iv) and (v), these reports shall be submitted not less than 60
days in advance of the proposed alteration, transfer, issue or borrowing; (vii)
a copy of each of its annual financial reports including a balance sheet, profit
and loss account and notes thereto certified by a recognized accountant not
later than 180 days after the financial year end; and (viii) such other reports
and information in connection with our operations to Government Authorities as
be reasonably required. We are entitled to surrender all or any part of our
interest in the lease area upon providing proper notice to the Government of
Ghana. We have the right to terminate our interest in each mining lease if the
subject mine can no longer be economically worked, by giving not less than nine
months' notice to the Government Authorities, without prejudice to any
obligation or liability incurred prior to such termination. The Government of
Ghana has the right to terminate our interest in the mining lease if (i) we fail
to make payments when due; (ii) contravene or fail to comply with terms and
- 38 -
conditions of mining lease (however, we have three months to remedy from the
notice of such event); (iii) become insolvent or commit an act of bankruptcy; or
(iv) submit false statements to the Government Authorities.
The mining leases further provide that XG Mining shall report forthwith
to the Minister, the Chief Inspector of Mines, the Director of Geological Survey
and the Chief Executive of the Minerals Commission in the event it discovers any
other minerals in the lease area, who in turn will provide XG Mining with the
first option to prospect further and to work the said minerals subject to
satisfactory arrangements between made between XG Mining and the relevant
government authorities.
SALE OF GOLD
As of the date of this Prospectus, we have sold an aggregate of
6,266.25 ounces of gold recovered from the mineralized material at our Kwabeng
Project. We do not have an exclusive agreement with any company or entity to buy
the gold that we recover.
ANCILLARY OPERATIONS
KWABENG FIELD CAMP
Our company already possesses a fully operational and well maintained
Field Camp comprised of office, administration accommodation and workshop
facilities located on the Kwabeng concession and is accessible by paved road
located approximately 2 hours drive from the capital city of Accra. Our Field
Camp is the base of operations for our Kwabeng, Pameng and Apapam Projects. The
Field Camp is within cell phone coverage and can be supplied with electricity
from the national grid, which lines run along the road accessing the Field Camp.
We anticipate that all of our senior staff will be accommodated in the Field
Camp with the junior staff finding accommodation in the surrounding towns and
villages.
FUEL AND SPARE PARTS SUPPLY
We plan to deliver fuel from Accra by tanker and plan to discharge the
fuel into and store the fuel in the fuel tank facility located within the Field
Camp. We plan to purchase spare parts for all of our equipment either locally or
from suppliers overseas and store such parts in the secure spare parts warehouse
located at the Field Camp.
DEPARTMENTAL WORKSPACE
We anticipate, for the most part, hiring our company's engineering
staff locally due to the abundance of highly skilled mining professionals in
Ghana. There is adequate office space at the Field Camp for our anticipated mine
planning and engineering, geology, surveying, environmental, processing,
equipment maintenance and other departments.
EQUIPMENT MAINTENANCE
Depending upon whether we elect to own and operate our own earthmoving
equipment fleet or not, then the maintenance of that fleet will be carried out
in the workshops located within the Field Camp. At the time when we make our
decision to own and operate an earth moving equipment fleet, we plan for some
- 39 -
re-tooling and re-equipping of our workshops to suit the equipment that we
anticipate being utilized for our mining operations. If our company decides to
make use of a mining contractor to carry out the earth moving at our Kwabeng,
Pameng and Apapam Projects, then we anticipate leasing the workshops to the
contractor as part of the contract.
Capital Expenditures
To commence full scale production at the Kwabeng, Pameng and Apapam
Projects, with a view to generating revenues, we anticipate capital requirements
of approximately a maximum of $6,000,000 as set out below:
Mining Equipment (1) ............. $ 3,000,000
Service Equipment ................ $ 900,000
Wash Plant ....................... $ 900,000
Site Administration .............. $ 100,000
Environmental and Permitting ..... $ 75,000
Working Capital .................. $ 1,000,000
-----------
TOTAL CAPITAL EXPENDITURES $ 5,975,000
===========
(1) This capital cost contemplates the purchase of mining equipment, which
includes bull dozers, excavators, dump trucks, a front end loader and
motor grader, and will be reduced by $3,000,000 in the event that we
decide to lease such equipment through third parties.
XG Mining has commenced rehabilitating the Field Camp which includes
installation of a communication system for Internet access, electronic mail,
telephone and facsimile service and minor construction repairs.
Since completion of our Bulk Test, we commenced the recovery of gold
from the mineralized material at our Kwabeng Project on April 24, 2007.
THE BANSO AND MUOSO PROJECT
Our Banso and Muoso Project consists of two concessions totaling 107.32
sq km. We hold one prospecting licence, as more particularly described
hereunder, for the Banso and Muoso concessions which is situated in the Eastern
Region of Ghana approximately 80 kilometers north of Accra. These concessions
lie in the Kibi-Winneba Gold Belt on the western flanks of the prominent Atewa
Range, which is underlain by Birimian greenstone, phyllites, meta-tuffs,
epi-diorite, meta-greywacke and chert. The valleys, over which the concessions
are located, are underlain by thick sequences of Birimian metasediments. The
north-western end of the Atewa Range is the type-locality for the Birimian
metasediments and metavolcanics.
This area is one of the oldest placer gold mining areas of Ghana,
dating back many centuries. Historical exploration and mining has mainly focused
on placer gold. Prior to our acquisition of the Banso and Muoso concessions, to
the best of our knowledge and based on mining records in Ghana, there has never
been a detailed documented bedrock exploration program conducted on these
concessions.
- 40 -
Our Banso and Muoso Project represents a "grassroots" or "greenfields"
mineral exploration project. This Project is at an early stage of evaluation and
no mineralized material or reserve estimates have been made. The present
exploration activities on these concessions, including grid establishment, soil
sampling, prospecting/geological mapping, pitting/trenching and geophysics, are
aimed at identifying lode gold (hardrock) mineral occurrences to be further
evaluated through drilling. We have completed preliminary lode gold exploration
programs at our Banso and Muoso Project and have received the respective results
as noted hereunder.
ACCESS AND LOCATION: MUOSO CONCESSION
Access to the Muoso Concession is gained by driving northwest
approximately 80 km from Accra on the paved Accra-Kumasi Trunk Road. This
highway passes through the easternmost portion of the Muoso concession and
shares a common boundary with the Kwabeng Concession. From the town of Osino,
one would drive northwest approximately 5 km to the town of Anyinam, from which
an all weather direct road heads south through the centre of the Muoso
Concession and onto the Banso Concession, approximately 15 km south of the
Accra-Kumasi Trunk Road. The town of Muoso is approximately 10 km from Anyinam.
A number of dirt roads, trails and footpaths offer additional access to this
concession. Our Project is located approximately 10 km south-southeast from our
Field Camp.
ACCESS AND LOCATION: BANSO CONCESSION
Access to the Banso Concession is gained by driving northwest
approximately 136 km from Accra on the paved Accra-Kumasi Trunk Road. Our
Project is located approximately 11 km south-southwest from our Field Camp.
BANSO AND MUOSO PROSPECTING LICENCE
Our wholly-owned subsidiary, XGEL entered into a prospecting licence
with the Government of the Republic of Ghana (the "GOVERNMENT OF GHANA") on
September 24, 2001 covering a licensed area of 107.32 sq km (the "BANSO AND
MUOSO LICENSED AREA"). The current term of the prospecting licence has been
renewed and expires on May 29, 2008. In March 2007, as part of our application
for a further renewal of the prospecting licence, we submitted the required
terminal report in support of our application and will provide any additional
documentation upon request which may include (i) a detailed financial report;
(ii) a site plan indicating the areas to be retained and those to be shed off;
(iii) evidence of annual ground rent payments; and (iv) an environmental permit
from the EPA. Under the prospecting licence, we have been granted the right and
licence by the Government of Ghana to conduct geological and geophysical
investigations in the licensed area to determine adequate quantity of
geologically proven and mineable reserve of gold and diamonds (directly or
through agents, contractors or sub-contractors). The terms and conditions of the
prospecting licence include, among other things, our requirement to (i) conduct
a preliminary pitting program (Phase I); (ii) conduct a reserve definition
program (Phase II); and (iii) prepare an engineering/feasibility report (Phase
III); (iv) provide an annual report in prescribed form within 60 days after each
calendar year to various mining regulatory bodies and government authorities
(collectively, the "AUTHORITIES"). We have the right to (i) assign or mortgage
our interest in the prospecting licence, subject to obtaining the consent of the
Government of Ghana who may impose certain conditions in connection therewith;
(ii) surrender our interest in the prospecting licence; and (iii) renew the term
of the prospecting licence
- 41 -
for a period of two years or such other renewal period may be granted in
accordance with applicable mining laws of Ghana. The Government of Ghana has the
right to terminate the prospecting licence in the event we (i) fail to make
payments when due; (ii) contravene or fail to comply with terms and conditions
of the prospecting licence; (iii) become insolvent or commit an act of
bankruptcy; or (iv) submit false statements to the Government of Ghana. In any
of the foregoing events, we have 21 days in which to remedy any of these
occurrences. If upon expiration of prospecting licence, we have fulfilled our
obligations and have established to the Government of Ghana that development of
a mine from ore reserves established within the licensed area is economical and
financially feasible, the Government of Ghana shall grant us with first option
to (i) acquire a lease for purposes of mining in the licensed area of the Banso
and Muoso Project; and ii) participate in a mining project in the licensed area,
subject to negotiation with the Government of Ghana of satisfactory terms for
such licence and participation.
REGIONAL EXPLORATION PROGRAM
On July 4, 2004, we commenced the first exploration stage on these
concessions with fieldwork ending on August 23, 2004. We contracted with CME to
conduct the exploration program. Fieldwork included stream sediment sampling,
line cutting, GPS surveying of the grid and soil sampling. Acquisition and
interpretation of airborne geophysical data and satellite imagery was also
undertaken.
RESULTS
Results from the first phase of exploration evidenced a bedrock gold
source within both the Banso and Muoso concessions. Silt sampling indicated
significant gold values, with soil sampling showing several significant
anomalous zones. The gold-in-soil anomalies appear to correlate with an
interpreted contact between the Birimian volcanoclastics and metasediments.
FURTHER EXPLORATION WORK
On April 27, 2005, we further contracted with CME to conduct a second
stage exploration program at our Banso and Muoso Project located at the Banso
and Muoso concessions. The work program included detailed grid establishment and
soil sampling, ground magnetometer surveying, updating the geodatabase and
recommendations for future work. The purpose of this program was to determine
areas of gold mineralization at the Banso and Muoso concessions that can be
followed up with induced polarization surveys, trenching and diamond drilling.
Fieldwork included the following:
Grid Establishment
Grid placement was based on the results from the 2004 regional work
program. Four grids were established in the areas of primary interest, one on
the Muoso concession and three on the Banso concession. The grids on the latter
concession are referred to as Area 1, Area 2 and Area 3.
Soil Sampling
Soil sampling was undertaken along all grid lines established during
this work program. From the 6,961 established stations, 177 locations were not
sampled due to possible contamination from villages, streams and/or swamps.
- 42 -
A total of 6,516 samples were submitted for gold and 6,066 samples for
arsenic analyses. A breakdown of the gold results per property area includes:
o Muoso Grid ......................... 3,318
o Banso Area 1 Grid .................. 1,560
o Banso Area 2 Grid .................. 696
o Banso Area 3 Grid .................. 942
RESULTS, INTERPRETATION AND CONCLUSIONS
Soil sample geochemistry has been completed over selected portions of
the anomalous zones indicated by the 2004 regional sampling program. Work during
the 2005 program suggests the presence of a bedrock source within both the Muoso
and Banso concessions.
Values greater than the threshold value (mean + 2 standard deviations)
of 0.063 ppm gold are considered to be anomalous. The term "ppm" represents
"part per million" where 1 ppm = 1 gram per tonne (g/t) = 1,000 part per billion
(ppb). On the Muoso concession 284 samples (9%) out of the 3,318 samples
submitted for gold analyses yielded values greater than the threshold value;
while at Banso 152 samples (5%) out of the 3,198 samples submitted for gold
analyses yielded values greater than the 0.063 ppm Au threshold value.
At the southwest boundary of the concession several gold-in-soil
anomalies appear, the largest of which measures 350 meters in length and up to
300 meters in width. Immediately below this is an easterly trending anomaly with
a strike length of approximately 300 meters and a width of approximately 75
meters.
At Muoso the most significant gold-in-soil anomalies occur along the
inferred location of the northeast-southwest trending dolerite dyke. Secondary
anomalies occur to the east of this dyke and are oriented sub-parallel to the
strike of the dyke. These may represent possible structural events
(shears/faults) lying along geological contacts (planes of weakness). In the
southwest portion of the grid, a possible north-south to northwest-southeast
trending gold anomaly is coincident with inferred faulting in similar
directions. In the southwestern area of the Muoso grid, two of the arsenic
anomalies flank the sides of the north-south trending gold anomaly.
At Banso, each of the three grids outlined two gold-in-soil anomalies.
The Area I anomalies trend northwest-southeast and occur at the junction of
cross cutting structures. Within Area 2 and 3, linear gold anomalies trend
northeast-southwest, parallel to the regional geological trend. The western most
gold anomaly in Area 3 flanks the margins of a strong magnetic high (possible
intrusive). Arsenic anomalies at Banso typically occur on hill/ridge tops with
the gold anomalies flanking the sides of the arsenic anomalies.
The soil sampling program at Banso was successful in locating a number
of gold-in-soil anomalies (> 0.063 ppm Au), the most significant of these is
located about 400 meters NE of Abesim Township (i.e. Area 3). This anomalous
zone has an average width of about 50 meters and a length of about 500 meters
and follows the northeasterly regional geological trend.
- 43 -
RECOMMENDATIONS
The following staged exploration program was recommended to further
advance the geological knowledge of the concessions:
o An estimated 200 kilometers of grid to be cut at Muoso and Banso.
This will include the extension of selected existing lines and the
establishment of new ones. In addition, soil sampling, geochemical
analysis, GPS and ground magnetometer surveys should be conducted on
the newly established grid lines.
o A grid should be established within the eastern areas of the Muoso
concession, and soil samples collected, to follow up on anomalous
silt samples taken in the previous sample program.
o At Banso a grid should be cut within the northern portion to cover
those areas that returned anomalous silt samples. Additional soil
sampling is proposed to confirm and further define the anomalous
area.
o Auger sampling to depths of 2.5 meters should be conducted on both
concessions testing sites that returned greater than 0.1 ppm gold in
soils.
o Trenches are recommended at selected sites at both concessions to
investigate gold-in-soil anomalies and the relationship the
anomalies have to geology/structure. An estimated 300 meters of
trenching, to 3.0 meter depth, is recommended.
o Approximately 50 line kilometers of surface IP surveying may be
carried out on priority areas as identified in previous
sampling/work programs.
PHASE II EXPLORATION PROGRAM
We entered into a Phase II exploration contract in September 2006 with
CME incorporating some of the above recommendations, including additional grid
establishment, soil geochemical surveying, and prospecting on the Muoso
concession; and a pitting/trenching program designed to test the geochemical
signature at depth of the three primary gold-in-soil anomalies detected on the
Banso concession by the Phase I exploration program (i.e. Banso Area 1, 2, 3).
The work program for this project was completed in December 2006 at a
cost of approximately $200,000. The results of this program are noted hereunder.
The Phase II exploration program commenced on September 27, 2006 with
fieldwork ending December 2, 2006 on the Muoso and Banso Concessions. Work
included the following:
o Grid establishment (Muoso Concession): 67.4 line-km;
o Soil sampling: 2,338 samples collected, 1,438 sample submitted for
gold analysis;
o Rock sampling: 177 samples;
o GPS surveying: 67.4 km;
- 44 -
o Trenching and pitting (Banso Concession): 4 trenches (80.2 meters)
and 61 pits, 183 horizontal channel samples, 197 vertical channel
samples, 24 rock samples.
Muoso Concession Soil And Rock Sampling
Grid Layout / Soil Sampling Methodology
The present soil sampling program encompasses a combined semi-detailed
(200m) and detailed (100m) soil sampling grid (67.4 km) covering the eastern 5.5
km portion of the Muoso concession. Grid placement was designed to cover the
Birimian volcanic-sediment contact and an inferred NE - trending regional
structure; which we believe represent highly favorable environments for the
hosting of lode gold deposits throughout Ghana.
A total of 2,338 soil samples were collected from all cross lines with
1,438 samples submitted for gold analyses. All samples collected from the 100
meter spaced lines were submitted for analysis. Along 200 meter spaced lines,
every second sample was submitted for analysis. The held back samples may be
submitted at a later date to bracket any anomalous samples. Rock sampling was
undertaken concurrent with the soil sampling program. A total of 166 rock
samples were collected at Muoso with sample collection typically confined to the
immediate vicinity of grid lines.
Soil / Rock Sampling Results
Soil sampling from the current program extended the grid to the east
and identified significant geochemical anomalies over this portion of the
concession. Values greater than the threshold value (mean + 2 standard
deviations) of 0.10 ppm gold are considered to be anomalous. The term "ppm"
represents "part per million" where 1 ppm = 1 gram per tonne (g/t) = 1,000 part
per billion (ppb). 152 samples (11%) out of the 1,438 samples submitted for gold
analyses yielded values greater than the 0.10 ppm gold threshold value;
including 53 samples (4%) returning values greater than 0.20 ppm gold.
Contouring of the gold in soil results suggests an "S-fold" geochemical anomaly
(> 0.10 ppm Au) in the very eastern part of the concession.
Rock sampling in the northern portion of the anomaly (around the
highway) returned no significant results. The geochemical anomaly here is
located in the valley of the Birim River and may be an alluvial (paleoplacer)
occurrence.
Three (3) rock samples collected in the southern part of the anomaly
yielded anomalous gold values from oxidized quartz and phyllite floats. These
rock floats are located up on the hillsides in the soil anomaly, well out of any
obvious alluvial influence, thus indicating the potential for lode gold
mineralization in the vicinity.
A second linear anomaly (> 0.10 ppm Au) is present, extending 4.5 km in
an ESE direction from 9000E/18800N to 12750E/21200N. The anomaly is narrow (100
to 150 meters) and tends to occasionally pinch-out. Airborne geophysical and
LANDSAT interpretation (Naas, 2004) identifies a possible correlating
ESE-trending structure (fault?) although it requires extending that structure to
the east. Another interpreted structure, trending SE may intersect the
aforementioned structure in the area of the previously described geochemical
anomaly.
- 45 -
Banso Pitting / Trenching Program
Pit / Trench Program Design And Sampling Methodology
A pitting - trenching program was carried out to test the geochemical
signature at depth of the three primary gold-in-soil anomalies detected on the
Banso concession by the Phase I exploration program (i.e. Banso Area 1, 2, 3).
Single sample anomalies were pitted, while two or more continuous soil sample
anomalies were trenched.
Pits were dug manually by pickaxes and shovels; with pit dimensions
typically being 1 meter wide by 2 meters long by 3 meters deep. Two horizontal
samples and three vertical samples were collected from all the pits that reached
the saprolite. Only vertical samples were collected from pits that did not reach
saprolite. Grab and chip samples were also collected from quartz veins and
veinlets. A total of 305 samples were collected from 61 pits excavated according
to the following distribution in the Area 1, 2, and 3 gold-in-soil anomalies.
o 25 pits (125 samples) from Area 1;
o 13 pits (65 samples) from Area 2; and
o 23 pits (115 samples) from Area 3.
Trenches were also dug manually to a width of one meter and an average
depth of 3.0 meters. The four trenches excavated on the Area 3 anomaly consisted
of one 50 meter trench and three 10 meter trenches. All trenches encountered
saprolite. A total of 80 horizontal samples were collected at 1 meter intervals
approximately 0.20 meter above the trench floor.
Pitting / Trenching And Rock Sampling Results
The current pitting - trenching program tested the gold-in-soil
anomalies in the subsurface, preferably in the saprolite horizon.
Area 1 / Area 2
Two pits out of the 25 pits excavated in Area 1 and one pit out of the
13 pits in Area 2 returned anomalous gold results. But these anomalous values
reflect auriferous quartz gravels of probable alluvial provenance.
Area 3
Pitting - trenching and surface rock sampling in the eastern portion of
the Area 3 grid returned exploration - significant results indicative of
potential lode gold mineralization in the vicinity.
Vertical sampling in Pit 3P2 returned a length weighted average grade
of 1.36 ppm Au over 1.70 meters and horizontal sampling yielded a length
weighted average grade of 1.69 ppm Au over 2.10 meters. The term "ppm"
represents "part per million" where 1 ppm = 1 gram per tonne (g/t) = 1,000 part
per billion (ppb). A 0.4 meter channel sample across a vein present in this pit
returned 0.75 ppm Au. Pit 3P6 returned exploration - significant results of 1.91
ppm over 1.00 meters (vertical) and 1.74 ppm Au over 1.00 meters (horizontal).
The former is from the upper (near-surface) horizon. The latter appears
associated with quartz veining observed in the saprolite. Quartz veins were
mapped in many pits and are generally associated with the anomalous gold values,
though the converse is not necessarily true.
- 46 -
The four trenches (3T1 to 3T4) were excavated along a single line
(1400N) between 11570E and 11680E. Eleven samples (14%) out of the 80 channel
samples (1 meter) collected from the four (4) trenches yielded anomalous gold
values (> 0.10 ppm Au). Trench sampling returned similar sub economic but
exploration - significant results as with the pits. Trench 3T4 yielded a length
weighted average grade of 0.41 ppm Au over 4.0 meters; with the mineralization
appearing to be associated with a quartz vein oriented at 324 (degree)/30
(degree) E. A similar modest mineralized zone in 3T3 of 0.16 ppm Au over 4.00
meters is associated with a quartz vein stringer zone oriented similarly at 315
(degree)/30 (degree) E. In 3T2, a zone returning 0.29 ppm Au over 2.00 meters
appears associated with veins oriented at 220 (degree)/50-58 (degree) W.
Structural understanding based on the limited vein exposure precludes any
conclusions at this point.
Rock sampling (11 samples) in the vicinity of the trenches and pits
returned three (3) anomalous gold values from massive quartz boulders. This
suggests a potential lode source for gold in this area.
RECOMMENDATIONS
Recommended work to further advance the project includes: (a) The
gold-in-soil anomalies of the Muoso Concession should be pitted and trenched
where consecutive anomalies exist; (b) A total of 10 kilometers of soil sampling
is recommended at the Banso Concession. This includes the extension of selected
existing lines and the establishment of new ones; and (c) Rock sampling should
continue throughout the Concessions. The estimated cost of the follow-up
exploration program is $175,000.
A hand auger program is currently being implemented at Muoso by
Xtra-Gold's exploration staff to test the geochemical signature of the
gold-in-sold anomalies at depth in order to better define trenching targets.
Reconnaissance trenching is also ongoing at the Banso Area 3 gold-in-soil
anomaly to gain additional structural information of the veining.
No ore reserves have been identified on the Banso and Muoso Project.
THE APAPAM PROJECT
ACCESS AND LOCATION
Our Apapam Project concession lies within the Kibi-Winneba area in the
Eastern Region of Ghana and is located on the eastern flank of the Atewa Range
along the headwaters of the Birim River in the immediate vicinity of the
district capital of Kibi, approximately 75 km NNW of the nation's capital city
of Accra. Access to our Apapam Project is by driving northwest from Accra on the
paved Accra-Kumasi Trunk Road which is the main national highway for
approximately 90 km until the town of Kibi, marked by a road sign, is reached.
One would make a left hand turn at the Kibi sign and drive southwest for
approximately 5 km to arrive at our Apapam concession. A tarred road emanating
from the Accra-Kumasi Trunk Road approximately 15 km northeast of Kibi dissects
the north-central and south-eastern portions of our concession, while the tarred
road servicing the town of Apapam provides access to the concession's
south-western extremity. Our Apapam Project is located approximately 20 km
south-southeast from our Field Camp.
- 47 -
The Kibi-Winneba area is characterized by a narrow sequence of Birimian
metavolcanics underlying most of the Atewa Range, which is covered by an
extensive laterite/bauxite capping, and surrounded by a thick package of
Birimian metasediments dominating the flanks and the lower lying areas. Our
Apapam Project covers the Birimian volcanic-sediment contact which we believe
represents a highly favorable environment for the hosting of lode gold deposits
throughout Ghana.
Very little systematic exploration work for bedrock gold deposits has
been conducted in the Kibi area since the 1930s. Recent exploration activity in
the district appears to be limited to an airborne geophysical survey flown by
Ashanti Goldfields and a regional lode-gold occurrence compilation undertaken by
Sikaman Gold Resources - BHP Minerals in the mid-1990s.
PHASE I EXPLORATION PROGRAM
A first phase exploration program was implemented by geological
consultant CME on the Apapam concession from August 12 to September 23, 2006.
The Phase I exploration program undertaken in 2006 consisted of regional stream
sediment sampling, followed by gridded soil sampling, rock sampling and detailed
sampling of several adits located 400 meters northwest of Kibi. The work program
for this Project was completed at a cost of approximately $100,000. The results
of this program are noted hereunder.
In addition, a reconnaissance geology / prospecting program covering
the west-central portion of the Apapam concession was also intermittently
implemented by the Xtra-Gold exploration staff from November 2006 to February
2007. The results to date from the various surveys show very promising evidence
for the presence of a bedrock gold source within the Apapam concession.
Phase I fieldwork consisted of the following:
o Concession-wide stream sediment sampling survey (88 samples
collected from 44 sites);
o Survey grid establishment (33.78 line-km);
o Soil sampling (1,306 samples);
o GPS surveying (33.78 line-km);
o Rock sampling (89 samples); and
o Historical adit and bulldozer cut sampling (100 samples).
Stream Sediment Sampling
A total of 88 samples were collected from 44 sample sites from two
major streams and their respective tributaries; including 44 silt samples for
geochemical analysis (BLEG) and 44 pan concentrate samples for visual gold grain
counts.
Values greater than the threshold value (mean + 2 standard deviations)
of 0.14 ppm are considered to be anomalous. Five (5) samples (11%) yielded
values greater than the threshold value. Gold grain count of the pan
concentrates showed visible gold grains in 36 of the 44 samples (82%); with the
average gold grain count per sample being five (5) small grains.
- 48 -
The stream sediment anomalies are divided into two zones as follows:
Zone A (Adansu Anomaly): Consists of 1.5 km stretch from Line 158+00N
westwards at an average width of 1.0 km along the northwestern boundary of the
concession.
Zone B (Kokorabo Anomaly): Consists of 3.0 km stretch by 2.0 km in
width to cover the area between the southwestern boundary of the concession and
the floodplains of river Birim and river Krensen.
Soil Sampling Survey
A total of 1,306 soil samples were collected from 30.58 line -
kilometers of cross lines established within the Kibi North and Kibi South
survey grids. Grid location was based on testing historical mineral occurrences
located on and around Kibi Mountain (Kibi North Grid) and promising silt samples
results from creeks southeast of Kibi (Kibi South Grid). Line spacing was
100-meter interval within the Kibi Mountain area of the North Grid and 400
meters elsewhere within the gridded areas. Soil samples were collected at a
depth of 60 cm at 25 meter intervals along the SE - NW trending grid lines. Soil
samples were by analyzed by Fire Assay and reported in parts per billion (1 ppb
= 0.001 ppm). The term "ppm" represents "part per million" where 1 ppm = 1 gram
per tonne (g/t) = 1,000 part per billion (ppb).
The geochemical soil survey conducted on the Apapam concession produced
several interesting gold-in-soil anomalies that are listed below. A geochemical
trend of 050-060(degree) (ENE-WSW) is in conformity with the regional geological
trend. Values greater than the threshold value (mean plus 2 standard deviations)
of 0.098 ppm gold are considered to be anomalous. A total of 105 samples (8% out
of the 1,306 samples submitted for analysis produced gold-in-soil values greater
than the threshold value of 0.098 ppm gold.
Area 1: The area consists of the following 50 meter to 125 meter wide
anomalous zones extending over a minimum 200 meter distance on three (3)
adjacent grid lines. The limits of this anomaly located on the northwestern
flank of Kibi Mountain are well defined by the present soil survey.
o L163+00N, from 51+75E to 52+75E (100 meters), 5 samples average 0.12
ppm Au
o L164+00N, from 51+75E to 53+00E (125 meters), 6 samples averaging
0.25 ppm Au
o L165+00N, from 52+75E to 53+25E (50 meters), 3 samples averaging
0.21 ppm Au
Area 2: The area is defined by three (3) 125 meter to 250 meter wide
anomalous zones extending over a 600 meter distance on the following three (3)
grid lines. Further detailed soil sampling is required to well define limits of
the area.
o L166+00N, from 39+75E to 42+25E (250 meters), 11 samples averaging
0.27 ppm Au
o L170+00N, from 44+00E to 45+75E (175 meters), 8 samples averaging
0.41 ppm Au
- 49 -
o L172+00N, from 45+75E to 47+00E (125 meters), 6 samples averaging
0.30 ppm Au
Area 3: This area consists of a single 225 meter wide gold-in-soil
anomalous zone extending from 42+75E to 45+00E on L 158+00N (10 samples
averaging 0.23 ppm Au). Further detailed soil sampling is required to well
define limits of the area.
Area 4: This area consists of a single 100 meter wide gold-in-soil
anomalous zone extending from 41+00E to 42+00E on L 170+00N (5 samples averaging
0.18 ppm Au). Further detailed soil sampling is required to well define limits
of the area.
Rock And Historical Adit Sampling
A total of 89 rock (float) samples were collected during stream
sediment and soil sampling traversing. In addition, three historical adits
ranging from 7 to 85 meters in length and a bedrock face exposed along a
bulldozer cut, located on and in the vicinity of Kibi Mountain were also sampled
during the Apapam Phase I exploration program. A total of 77 channel samples
were collected from the three adits and 23 samples from the bulldozer cut face.
Rock and adit samples were analyzed by Fire Assay and reported in parts per
billion (1 ppb = 0.001 ppm). Rock and adit samples returning greater than 1,000
ppb (1.0 ppm) gold were re-analyzed by Fire Assay with results reported in grams
per metric tonne (1 g/t = 1.0 ppm). The term "ppm" represents "part per million"
where 1 ppm = 1 gram per tonne (g/t) = 1,000 part per billion (ppb).
Seven (8%) out of the 89 rock (float) samples returned anomalous gold
values greater than the threshold value (mean + 2 standard deviations). Three
adits and a bulldozer cut were located and sampled during the current
exploration program. Adit 1 was extensively sampled but no significant values
reported. Adit 2 has indicated potential for lode gold mineralization in the
Kibi Mountain area. Three (3) channel samples collected in this adit returned a
length weighted average grade of 3.47 ppm Au over 3.80 meters; including 6.36
ppm over 1.7 meters. Adit 2 falls within the Area 1 gold-in- soil anomaly. No
significant values were returned from Adit 3, although sampling was not able to
reach the end of the adit due to unsafe ground conditions. The channel sampling
(23 samples) of the bedrock face exposed in the bulldozer cut on the southwest
side of Kibi Mountain returned a single anomalous value of 1.52 ppm Au over a
1.00 meter length.
Reconnaissance Geology / Prospecting Program
A reconnaissance geology / prospecting program covering the
west-central portion of the Apapam concession was intermittently implemented by
the Xtra-Gold exploration staff from November 2006 to February 2007. The program
was initiated to follow-up on the anomalous gold-in-silt sample results returned
by the 2006 concession - wide stream sediment sampling program (i.e. Zone A -
Adansu Anomaly).
The reconnaissance program identified a 150 meter long, NW - trending
gold anomalous float train located approximately 400m west-northwest of the
anomalous gold-in-silt sample yielded by the Adansu stream. The rock floats
typically consist of strongly silicified metavolcanic cross-cut by sheeted to
stockworked quartz stringers exhibiting disseminated boxworks after pyrite.
- 50 -
An historical rock pit was also located within the west-central portion
of the concession. Grab samples collected from sheared quartz - iron carbonate
veining within the 3.5 meter deep pit returned anomalous gold values. This
auriferous vein occurrence is located approximately 550 meters west-northwest of
the open - ended Area 3 gold-in- soil anomaly described in the above Soil
Sampling section.
RECOMMENDATIONS
Recommended work to further advance the project includes: (a)
reconnaissance soil sample gridding for the evaluation of the two (2) anomalous
areas defined by the stream sediment sampling, and the auriferous float train
and rock pit areas identified during the in-house reconnaissance geology
program; (b) and detailed soil sampling and / or pitting - trenching to further
define the limits of the four (4) gold-in-soil anomalies and to test their
geochemical signature at depth.
PHASE II EXPLORATION PROGRAM - APAPAM PROJECT
A reconnaissance trenching program was intermittently implemented by
the Xtra- Gold exploration staff from February 2007 to December 2007 on the
Apapam concession. The trenching was carried out to test the geochemical
signature at depth of the gold-in-soil anomalies detected within the
north-western portion of the concession during the Phase I work program and to
obtain additional geological / structural information in order to optimize the
design of detail trenching and drilling targets. A total of 542 channel samples
were collected from 21 trenches totaling 1,090 linear - meters.
In order to obtain an independent assessment of the 2007 Xtra-Gold
trenching results, a National Instrument 43-101 compliant data verification
program was undertaken by CME Consultants Inc. ("CME") from December 3 to 7,
2007. The program involved the resampling of selected trenches which yielded
exploration - significant gold mineralization intervals. CME is a Canada - based
geological consultancy with over 15 years of project management experience in
Ghana. The Apapam data validation program was implemented under the direct
supervision of a professional geologist registered with the Association of
Professional Engineers and Geoscientists of British Columbia. The trenching
program results noted hereunder correspond to the results returned by the
independent CME data verification program.
Trenching; Methodoly / Targets
A total of 21 trenches ranging from 2 meters to 224 meters in length
were excavated by Xtra-Gold personnel within the north-western portion of the
Apapam concession during the 2007 reconnaissance trenching program. A total of
542 channel samples (2 meters) were collected from the 21 trenches totaling
1,090 linear - meters. Trenches were manually excavated by pickaxes and shovels
to a typical width of 1 meter and an average depth of 3 meters, with some
sections of the trenches reaching 4.0 meters in depth. Trenching typically
extended down to the saprolite horizon but locally the saprolite could not be
reached due to safety concerns. Trench specifications are presented in Table 1
below.
- 51 -
The bulk of the trenching efforts, including 8 trenches totaling 834
linear - meters (approx. 75%), focused on testing the Area #1, #2, and #3
gold-in-soil anomalies detected during the 2006 Phase I work program. Five (5)
trenches totaling 112 meters were excavated to test the subsurface along the
train of gold anomalous rock floats encountered during the November 2006
reconnaissance geology / prospecting program (i.e. Ahwiniase Area). An
additional 8 trenches totaling 144 meters were excavated to test the subsurface
in the general area of the historical rock pit also discovered during said
prospecting program (i.e. Adadietem Area).
Table 1: Trench Specifications - Apapam Concession
Location (UTM Zone 30N)
----------------------- Length Trench No. Channel
Trench No. Area / Zone Easting Northing (m) Orientation Samples
- ---------- ----------- ------- -------- ------ ----------- ----------
TKB001 Area No. 1 769824 683276 102 320 51
TKB002 Area No. 1 769961 683117 74 320 37
TKB003 Area No. 1 769736 683251 110 316 55
TKB004 Area No. 2 769700 684137 224 318 112
TKB005 Area No. 2 769896 684217 116 316 58
TKB005A Area No. 2 769812 684297 36 316 18
TAD001 Adadietem 768012 683691 20 140 10
TAD002 Adadietem 768091 683618 22 315 11
TAD003 Area No. 3 768748 683474 126 317 63
TAD004 Adadietem 768012 683691 50 320 25
TAD005 Adadietem 768043 683708 12 320 6
TAD006 Adadietem 768008 683744 8 320 4
TAD007 Area No. 3 768656 683573 46 317 23
TAH001 Ahwiniase 767291 682664 80 315 40
TAH002 Ahwiniase 766982 683002 22 140 11
TAH003 Ahwiniase 767264 682711 24 315 12
PAD001 Ahwiniase 767981 683666 4 345 2
PAD002 Ahwiniase n/a n/a 4 305 1
PAD003 Ahwiniase 767927 683753 4.5 340 1
PAD004 Ahwiniase 767977 683765 4 320 1
PAD006 Ahwiniase 767940 683801 2 320 1
Note: Trenches #TAD001 and #TAD004 extend from a common point of origin in
opposite directions resulting in one continuous trench.
Trenching Results / CME Data Verification Program
Based on past work experience in Ghana, the Xtra-Gold geological
personnel arbitrarily established channel sample intervals yielding weighted
average grades greater than 1.0 ppm gold has been exploration significant. The
term "ppm" represents "part per million" where 1 ppm = 1 gram per tonne (g/t) =
1,000 part per billion (ppb). Nevertheless, anomalous channel sample results
below the 1.0 ppm gold threshold remain of considerable exploration interest and
will be subjected to further investigation. Sixty-one (61) out of the 542
channel samples (11%) yielded gold values greater than the 1.0 ppm exploration -
significant threshold.
Four (4) out of the 21 trenches yielded length - weighted average grade
intervals greater than the arbitrarily set exploration - significant threshold
of 1.0 ppm gold, including: trench #TKB003 in gold-in-soil anomaly Area #1 (i.e.
Kibi Mountain); trenches #TKB004 and #TKB005 in gold-in-soil anomaly Area #2;
and trench #TAD001 in the Adadietem Area.
- 52 -
The independent data verification program undertaken by CME from
December 3 to 7, 2007 encompassed the complete resampling of the exploration -
significant intervals (= 1.0 ppm Au)from the four (4) above noted trenches. The
CME resampling included 116 channel samples totaling 115.41 linear meters.
Sampling consisted of a horizontal channel cut along the sidewall of the trench,
approximately 0.2 meters above the trench floor. Sampling was typically
established at one meter intervals, with sample lengths locally adjusted to
accommodate geological features.
Forty-six (46) out of the 116 channel samples (39.5%) collected by CME
returned values greater than 1.0 ppm gold. Exploration - significant gold
intervals (= 1 ppm Au) from the independent data validation program are
presented in Table 2. Note that all the weighted average grade intervals
represent trench lengths and are not necessarily indicative of the true widths
of the mineralization. Calculation of true widths within trenches can be
difficult, as not all geological features are properly exposed. In addition,
these mineralized intervals currently represent isolated features for which no
strike extension can be measured due to the relatively long distances between
the trenches; additional infill soil sampling and trenching is required to
define the actual strike length of the mineralization.
At Apapam, gold mineralization has been found to occur in several
different geological features, including steeply and flat - lying quartz veins
and alteration haloes proximate to the quartz veining. The presence of shallow
dipping ("flat lying") veins may produce an exaggeration in both the width and
grade of the mineralization. The effect of shallow veining is apparent in trench
#TKB004 where a 4.07 ppm gold grade over a 11.0 meter trench - length is
estimated to represent a true width of 3 to 4 meters due to the flat lying
nature of the quartz veins. As previously noted calculation of true widths
within trenches can be difficult, as not all the geological features are
properly exposed.
Table 2: Significant Trench Intersections - Apapam Concession
Intervals (meters) Average
-------------------------------- Grade Gold
Trench No. Zone / Area From To Length (ppm)
- ---------- ----------- ------ ------ -------- ----------
TKB003 Area 1 46.36 54.10 7.74 1.60
TKB003 Area 1 64.10 74.55 10.45 1.62
including 68.00 70.25 2.25 4.64
TKB004 Area 2 194.00 196.00 2.00 1.70
TKB004 Area 2 203.00 214.00 11.00(1) 4.07
TKB005 Area 2 61.00 74.00 13.00 5.23
including 69.00 71.00 2.00 14.45
TAD001 Adadietem 0.00 1.00 1.00 4.95
TAD001 Adadietem 4.00 8.00 4.00 1.82
TAD001 Adadietem 11.00 15.00 4.00 1.18
(1) Apparent Width: Estimated to represent a true width of 3 to 4 meters based
on shallow dipping ("flat lying") nature of the quartz veining.
Note: All intersections represent trench lengths and are not necessarily
indicative of the true width of the mineralization.
- 53 -
Sample Analyses
Samples taken during the data verification program were analyzed at Eco
Tech Laboratory Ltd., an ISO9001 registered laboratory located in British
Columbia, Canada. Prepared samples are weighed to 30 grams and fused along with
proper fluxing materials. The bead is digested in aqua regia and analyzed on an
atomic absorption instrument. Values are reported in parts per billion (1 ppb =
0.001 ppm or 0.001 g/t). Samples returning greater than 500 ppb (0.5 ppm) gold
were reanalysed by the metallic gold assay method. The purpose of this analysis
was to determine if there was a "nugget effect" with the gold mineralization.
The process involved taking minus 140 mesh fraction, homogenize it, then take 2
samples sub samples for gold fire assay. The plus 140 mesh material was assayed
in its entirely. The resultant fire assay bead is digested with acid and after
parting is analyzed on a Perkin Elmer atomic absorption machine using
air-acetylene flame to 0.03 grams/tonne (0.03 ppm) detection limit. Results are
collated by computer and are printed along with accompanying quality control
data (repeats and standards).
CONCLUSIONS / RECOMMENDATIONS
The results to date from the various surveys and trenching indicate
that the Apapam concession exhibits potential for the hosting of economic lode
gold mineralization. No ore reserves have been identified on the Banso and Muoso
Project.
Recommended work to further advance the project includes: (a) infill
soil sampling to further define the gold-in-soil anomalies; (b) additional
trenching to further define the geological / structural nature and extent of the
mineralization; and (c) diamond drilling. The estimated cost of the follow-up
exploration program is $815,000.
PROSPECTING LICENCE - APAPAM PROJECT
XG Mining entered into a prospecting licence with respect to our Apapam
Project with The Government of Ghana on March 29, 2004 covering a licensed area
of 33.65 sq km (the "APAPAM LICENSED AREA").
This prospecting licence had an initial two year term with renewal
provisions. The current term of the prospecting licence has been renewed and
expires on June 12, 2008. In March 2007, as part of our application for a
further renewal of the prospecting licence, we submitted the required terminal
report in support of our application and will provide any additional
documentation upon request which may include (i) a detailed financial report;
(ii) a site plan indicating the areas to be retained and those to be shed off;
(iii) evidence of annual ground rent payments; and (iv) an environmental permit
from the EPA. Under the prospecting licence, we have been granted the right and
licence by the Government of Ghana to conduct geological and geophysical
investigations in the licensed area to determine adequate quantity of
geologically proven and mineable reserve of gold and diamonds (directly or
through agents, contractors or sub- contractors). The future planned work
program at our Apapam Project includes, among other things, (i) conducting
pitting/trenching programs; (ii) additional detailed soil sampling; (iii)
bedrock mapping and sampling; (iv) possible IP surveys; (v) drilling to be
contingent upon exploration results. We are required to provide an annual report
in prescribed form within 60 days after each calendar year to various mining
regulatory bodies and government authorities (collectively, the "AUTHORITIES").
- 54 -
We have the right to (i) assign or mortgage our interest in the prospecting
licence, subject to obtaining the consent of the Government of Ghana who may
impose certain conditions in connection therewith; (ii) surrender our interest
in the prospecting licence; and (iii) renew the term of the prospecting licence
for a period of two years or such other renewal period may be granted in
accordance with the applicable mining laws of Ghana. The Government of Ghana has
the right to terminate the prospecting licence in the event we (i) fail to make
payments when due; (ii) contravene or fail to comply with terms and conditions
of prospecting licence; (iii) become insolvent or commit an act of bankruptcy;
or (iv) submit false statements to the Government of Ghana. In any of the
foregoing events, we have 21 days in which to remedy any of these occurrences.
If upon expiration of prospecting licence, we have fulfilled our obligations and
have established to the Government of Ghana that development of a mine from ore
reserves established within the licensed area is economical and financially
feasible, the Government of Ghana shall grant us with first option to (i)
acquire a lease for purposes of mining in the licensed area of our Apapam
Project; and (ii) participate in a mining project in the licensed area, subject
to negotiation with the Government of Ghana of satisfactory terms for such
mining lease and participation.
We have submitted an application to the Minerals Commission to convert
the prospecting licence to a mining lease. We anticipate receiving a response to
our application within the next six months.
A summary of the application procedure, steps and documentation
required to upgrade from or convert a prospecting licence ("PL") to a mining
lease ("ML") are as follows:
(a) The holder of a prospecting licence (the "LICENSEE") submits a terminal
report on the prospecting activities to the Minerals Commission in
Ghana ("MINCOM"), together with an application to convert into such PL
to a ML.
(b) The application for a ML must be supported by a bankable feasibility
report that confirms a commercially mineable gold deposit within the
concession.
(c) An environmental permit from the EPA must be obtained after an
Environmental Impact Assessment (EIA) has been conducted.
(d) A water permit from the Water Resources Commission must be obtained to
abstract water for the mining project.
(e) A forestry permit must be issued by the Forestry Commission to the
applicant (i.e., if the lease area falls within a forest reserve).
(f) Mincom recommends the grant issue of a ML to the Minister of Lands,
Forestry and Mines, provided that Mincom is satisfied that all above
are in place.
(g) Once the ML has been issued, it must be duly stamped, registered at the
Deeds Registry and submitted for ratification by Parliament in
accordance with Article 268 (2) of the 1992 Constitution.
(h) The consideration fee chargeable by Mincom for issue or grant of a ML
is currently $50,000. The timeline for the estimated reviews and/or
hearings are as follows:
- 55 -
Min Comm Review ..................... 1 month
Minister, Lands, Forestry and Mines
Review and issuance of ML .......... 2 weeks
Parliamentary ratification .......... 2-3 months
The bankable feasibility study may be done in-house or through
independent consultants. It is a multi-faceted study covering all aspects of the
mining project such as geological, mining engineering, metallurgical, economics,
environment and social. The cost of a feasibility study is dependent on many
variables including the size of the concession, personnel involved (in-house or
external) and the location of the project. Reasonable cost estimates for such a
study range from $50,000 to $150,000.
THE EDUM BANSO PROJECT
ACCESS AND LOCATION
Our Edum Banso Project lies within the south Ashanti gold belt in the
Western Region of Ghana and is located approximately 235 kilometers west of
Accra and 15 kilometers northwest of Takoradi, the regional capital.
Access to the Project is by asphalt road from Accra to Takoradi and by
gravel road from Takoradi to Edum Banso through the town of Apowa. Internal
access within the concession area is quite poor, however there are many
footpaths that interconnect the scattered settlements within this concession.
Our Edum Banso Project is located approximately 200 km southwest from our Field
Camp.
OPTION AGREEMENT FOR PROSPECTING LICENCE
Our wholly-owned subsidiary, XGEL entered into an option agreement
dated October 17, 2005 (the "Adom Option Agreement") with Adom Mining Ltd.
("ADOM"), a 100% wholly registered Ghanaian company, who is the registered
proprietor of a prospecting licence which Adom entered into with The Government
of Ghana on May 8, 1991, covering a licensed area of 20.60 sq km (the "EDUM
BANSO LICENSED AREA"). This prospecting licence has a current term expiring on
July 21, 2008.
Previously, Newmont Ghana Limited ("NEWMONT") had entered into an
option agreement with Adom in connection with the Edum Banso Project, however
abandoned their interest.
Under the terms and conditions of the prospecting licence, Adom has the
right to prospect for and prove gold under or in the licensed area including the
right to conduct such geological and geophysical investigations in the licensed
area in order to determine an adequate quantity of geologically proven and
mineable reserve of gold (directly or through agents, contractors or
sub-contractors). Under the prospecting licence, the holder has the right to (i)
assign or mortgage its interest in the prospecting licence, subject to obtaining
the consent of the Government of Ghana who may impose certain conditions in
connection therewith; (ii) surrender its interest in the prospecting licence;
and (iii) renew the term of the prospecting licence for a period of two years or
such other renewal period may be granted in accordance with applicable mining
laws of Ghana.
- 56 -
The Government of Ghana has the right to terminate the prospecting
licence in the event the holder of the prospecting licence (i) fails to make
payments when due; (ii) contravenes or fails to comply with terms and conditions
of prospecting licence; (iii) becomes insolvent or commits an act of bankruptcy;
or (iv) submits false statements to the Government of Ghana. In any of the
foregoing events, the holder will have 21 days in which to remedy any of these
occurrences. If upon expiration of prospecting licence, the holder has fulfilled
its obligations and has established to the Government of Ghana that development
of a mine from ore and reserves established within the licensed area is
economical and financially feasible, the Government of Ghana shall grant the
holder with first option to (i) acquire a licence for purposes of mining gold in
the licensed area of the Edum Banso concession; and (ii) participate in mining
project in licensed area, subject to negotiation with the Government of Ghana of
satisfactory terms for such licence and participation.
At the time of execution of the Adom Option Agreement, we paid Adom
$5,000 as consideration for entering into the agreement with us. We are required
to pay Adom additional payments of $5,000 on the anniversary date of the Adom
Option Agreement for each year that we hold an interest in such agreement. The
term of the Adom Option Agreement is for five years. There are no other
termination rights available to Adom.
We are required to make an additional payment of $200,000 to Adom at
the time of commencement of the production of gold in or on the Edum Banso
Project; provided, however in the event less than two million ounces of proven
and probable reserves are discovered in or on the Edum Banso Project, this
payment shall be reduced to $100,000. Under the terms and conditions of the Adom
Option Agreement, Adom has granted XGEL the sole and exclusive right and option
to acquire all of its right, title and interest in the prospecting licence,
which option may be exercised by XGEL at any time during the term. Adom has
further granted XGEL the exclusive right of free and unrestricted access to the
Edum Banso Project to explore, develop and, provided XGEL has exercised the
option, to mine, extract, remove and sell any and all ores, minerals,
concentrates or other products from the Edum Banso Project. Upon XGEL's written
election to exercise the option, Adom shall forthwith transfer the prospecting
licence to XGEL, subject only to a reserved royalty of 2% of the net smelter
returns ("NSR") from all ores, minerals or other products mined and removed from
the Edum Banso Project and sold by XGEL. In the event less than two million
ounces of proven and probable reserves are discovered in or on the Adom Project,
the reserved royalty shall be 1% of the NSR. Adom has granted XGEL the exclusive
right and option, exercisable by XGEL at any time to purchase the entirety of
the reserved royalty for the sum of $2,000,000. No payment of the actual NSR
shall be credited toward the reserved royalty purchase price. In the event less
than two million ounces of proven and probable reserves are discovered in or on
the Edum Banso Project, the reserved royalty purchase price shall be $1,000,000.
Pursuant to the terms of an amending agreement entered into between the parties
on October 19, 2006, XGEL has the right, without the prior consent of Adom, to
assign or transfer its rights under the Option Agreement and the option to any
affiliate or third party or to enter into a joint venture in connection
therewith provided that any assignment, transfer or joint venture by XGEL shall
be subject to agreement by the assignee, transferee or joint venture partner to
be bound by the terms of this agreement.
RESERVES
There are no proven (measured) reserves reported on this Project at
this time.
- 57 -
GEOLOGY
The Edum Banso concession is underlain by basic to intermediate
metavolcanic rocks, volcanoclastic rocks, greywackes and phyllites of the Upper
Birimian Formation. These rocks are intruded by Dixcove suite granites in the
north, mainly composed of hornblende granites, granodiorites, and gabbros and
diorites in the south. Similar intrusive granites in Ghana have been proven to
host disseminated sulphide hosted gold mineralization. Two major thrust faults
interpreted from aeromagnetic data run north by northeast through the project
area.
HISTORIC WORK
The only gold production on the concession was from local miners
working the auriferous gravels and quartz veins as reported by J.W. Lunn in the
1930s. Amercosa (formerly AngloAmerican) reportedly worked on the project in the
late 1990's, however the results from this work are not published. St. Jude
Resources, a Canadian public mining company, conducted geophysical surveys
including magnetic and induced polarization surveys. The prospective structures
identified in these surveys were followed up by geochemical surveys which
included soil, trench and pit sampling.
Stream sediment sampling throughout the entire concession area by
Newmont Mining in 2003 defined a broad anomalous gold zone approximately 7 km
long by 1.5 km wide, roughly conforming to the regional geological trend.
Follow-up soil (1,109 samples) and rock sampling by Newmont in 2004 further
constrained this broadly anomalous area into two distinctive anomalies, while
geophysical interpretation suggests they are coincident with the surface
expression of two major North-South oriented thrust faults.
PHASE I EXPLORATION PROGRAM
A first phase exploration program (the "PHASE I WORK PROGRAM") was
implemented on the Edum Banso concession from August 2007 to January 2008 by
Torkornoo & Associates Limited ("TAL"), at a cost of approximately $177,000. TAL
is a Ghanaian geological consultancy with the principal being a professional
geologist registered with The Australasian Institute of Mining and Metallurgy
(AusIMM).
Based on the complex structural nature of gold deposits identified to
date by Third Parties within the Hwini-Butre / Benso-Subriso gold district, the
Phase I Work Program encompassed infill soil sampling, reconnaissance geology /
prospecting, hand auger sampling and trenching designed to identify
cost-effective drill targets. The tighter soil geochemical coverage (200m) was
implemented to better define the length - extents and trends of the gold-in-soil
anomalies detected by the historical Newmont soil program (2004). The deep auger
components of the program was proposed to test the geochemical signature of
gold-in-soil anomalies at depth in order to better define trenching and drilling
targets. The results of this program are noted hereunder.
Phase I fieldwork consisted of the following:
o Grid establishment: 8.4 km baseline, 73.8 km gridlines;
o Soil sampling: 2,703 samples collected, 1,815 samples submitted for
gold analysis;
- 58 -
o Rock sampling: 68 samples;
o Hand auger sampling: 252 holes / samples;
o Trenching: 6 trenches (319 meters), 214 channel samples.
Soil / Rock Sampling; Methodology - Results
The first pass of the soil sampling survey was carried out using a
classical digging tool called a "soso" to a typical depth 0.5 meters. Infill
sampling in areas of interest was implemented by shallow auger sampling to a 1.0
meter depth. A total 1,815 soil samples were submitted for gold analysis.
TAL arbitrarily set the anomalous threshold for the soil sample results
at 0.05 ppm gold based on past work experience in the Hwini-Butre /
Benso-Subriso gold district. 123 out of the 1,815 soil samples (approx. 7%)
returned gold values greater than the 0.05 ppm anomalous threshold. The soil
geochemistry survey outlined a 8.0 km long by approximately 0.6 km wide,
gold-in-soil anomalous trend conforming to the regional NNE structural trend.
This gold-in-soil anomaly (> 0.05 ppm Au) tends to be patchy in nature and / or
to pinch-out along its 8.0 km extent. The term "ppm" represents "part per
million" where 1 ppm = 1 gram per tonne (g/t) = 1,000 part per billion (ppb).
Four areas (i.e. Zone A, B, C and D) within the defined gold-in-soil anomalous
corridor were prioritised for follow up work by deep auger sampling. These
prospective areas were selected based on the relative continuity and / or the
favourable geological and structural settings of the gold-in-soil anomalies.
Zone A, located to the north of the town of Edum Banso, extends from
gridline 14700N to 15200N (500 meters). Zone B, located to the northeast of the
hamlet of Edum Dominase, extends from line 11300N to 12100N (800 meters). Zone C
is an approximately 200 meter by 200 meter area located in the east - central
portion of the concession. This zone is characterized by three (3) consecutive,
strongly anomalous gold-in-soil values over a 50 meter distance on Line 11300N.
Zone D consists of a NE - trending zone of discrete gold-in-soil values
extending from L8200N to L9900N (1,700 meters) at the south-western extremity of
the concession.
Based on geophysical interpretation, including airborne magnetic and
radiometric data, the Zone C and Zone D gold-in-soil anomalies appear to be
spatially associated with the contact between the Birimian Metavolcanics and the
circular Mpohor Intrusive Complex.
A total of 68 rock (float) samples were collected during reconnaissance
geological mapping carried out alongside the soil sampling. This rock sampling
produced a single exploration - significant gold value from a float of iron
oxide stained quartz located to the south of the Zone D gold-in-soil anomaly.
Similarly to the Zone C and Zone D anomalies this anomalous quartz float also
appears to lie proximate to the inferred metavolcanic - Mpohor Complex contact.
Deep Auger Sampling; Methodology - Results
As a follow up to the soil sampling a deep auger program was
implemented on the four priority areas to test the geochemical signature of the
gold-in-soil anomalies at depth within the saprolite horizon in order to better
define trenching targets. A total of 252 sites were augered to an average depth
of approximately 4.0 meters with a one (1) meter sample collected from the
saprolite horizon at the bottom of each hole. Auger hole spacing was typically
25 meters, with some 12.5 meter infilling.
- 59 -
TAL set the anomalous threshold for the auger sample results at 0.10
ppm gold based on past work experience in the Hwini-Butre / Benso-Subriso gold
district. 19 (7.5%) out of the 252 deep auger samples returned gold values
greater than the 0.10 ppm anomalous threshold.
In Zone A , 8 (9%) out of 89 auger holes returned gold values greater
than the 0.10 ppm threshold. No samples from Zone B yielded results above the
anomalous threshold. Significant results in Zone C were limited to a single line
on which 3 (19%) out of 16 samples returned anomalous samples. In Zone D, 7
(12%) out of 58 samples returned gold values greater than the 0.10 ppm anomalous
threshold.
Manual Trenching; Methodology - Results
The Zone A and Zone D deep auger anomalies (> 0.10 ppm Au) were further
tested by three (3) trenches totaling 160 meters and three (3) trenches totaling
159 meters, respectively. The trenches were manually excavated with pickaxes and
shovels to a vertical depth of 4 meters. A total of 214 channel samples were
collected from the sidewall of the six (6) trenches totaling 319 meters. Samples
consisted of horizontal channels, typically 1 meter or 2 meters in length, cut
approximately 0.1 meter above the floor of the trench.
The Zone A trenching failed to yield any significant gold results.
Trench EBTR005 yielded the only exploration - significant gold results from the
Zone D trenching in the form of a length - weighted average grade of 1.23 ppm
gold over a 4 meter trench - length (2 samples). The anomalous section is
characterized by chlorite altered mafic metavolvanic rock hosting fine, iron
oxide stained, quartz stringers.
RESULTS / RECOMMENDATIONS
Although the Edum Banso Phase I Work Program only yielded limited
exploration - significant gold results, the spatial association of the Zone C
and Zone D gold-in-soil and deep auger anomalies, the anomalous trench EBTR005
channel samples, and the auriferous quartz float, with the geophysically
interpreted, north-western rim of the Mpohor Intrusive Complex is of
considerable exploration significance.
Economically significant gold mineralization is known to exist along
the south- eastern margin of the circular Mpohor Complex, approximately 2 km to
the south-east of the Edum Banso concession. Although published information,
geophysical interpretation, and the results of the present work program indicate
that the Edum Banso concession shares a similar geological / structural setting
as the deposits located on the south- eastern rim of the Mpohor Complex, it by
no means implies that the Edum Banso property hosts similar mineral deposits.
Recommended work to further advance the project includes: (a)
additional deep auger sampling of the Zone C and Zone D gold-in-soil anomalies;
(b) continued reconnaissance geology and rock (float) sampling along the
inferred margin of the Mpohor Complex; and (c) detail structural interpretation
of the property area based on the airborne magnetic and radiometric data. The
company is currently in the process of preparing a work program proposal and
budget for the implementation of these recommendations.
- 60 -
GHANAIAN LAW
GENERAL
Ghana is situated on the West Coast of Africa, approximately 600
kilometers north of the equator on the Gulf of Guinea. Accra, the capital city
of Ghana, is located on the Prime Meridian. After a period as a British colony,
Ghana achieved independence in 1957 and it is now a republic with a
democratically elected government and a national constitution promulgated in
1992 (the "CONSTITUTION"). Ghana has a population of approximately 20 million
people. English is the official and commercial language. The total land area of
the country is approximately 238,000 sq km and the topography is relatively
flat. Ghana has a tropical climate with two rainy seasons and two dry seasons
each year.
The legal and regulatory framework for mining in Ghana is set out in
the Constitution and the Minerals and Mining Act, 2006 (Act 703) (the "MINING
ACT"). Within this legal framework, the Ghanaian State is the owner of all
minerals occurring in their natural state within Ghana's land and sea territory,
including its exclusive economic zones. All minerals in Ghana are vested in the
President, on behalf of and in trust for the people of Ghana. Thus, regardless
of who owns the land upon or under which the mineral is situated, the exercise
of any mineral right requires, by law, a licence to be granted by the Minister
of Lands, Forestry and Mines (the "SECTOR MINISTER") who acts as an agent of the
State for the exercise of powers relating to minerals. The Sector Minister is
also authorized to exercise, within defined limits, powers relating to transfer,
amendment, renewal, cancellation and surrender of mineral rights. The powers
conferred upon the Sector Minister must be exercised contingent upon the advice
of the Minerals Commission, which has the authority under the Constitution to
regulate and manage the utilization of the mineral resources and co-ordinate
policies in relation to minerals. The law specifies the forms of the mineral
rights that the Sector Minister is empowered to grant, the duration of the
grant, the size of the concession, and eligibility criteria for the grantee, as
well as the procedure for the application for the mineral rights. The law also
sets out in broad terms the rights and obligations of the holder of the mineral
right and the terms and conditions upon which each mineral right grant should be
made. A mineral right grant is not transferable or tradable in any form except
with the prior written consent of the Sector Minister.
GHANAIAN OWNERSHIP AND SPECIAL RIGHTS
Rights to explore and develop a mine are administered through the
Minerals Commission, a governmental organization designed to promote and control
the development of Ghana's mineral wealth. Generally, a body corporate may apply
to the Minerals Commission on prescribed forms for a renewable exclusive
reconnaissance licence for a specific mineral for one year or an exploration
licence granting exclusive rights to explore for a particular mineral in a
selected area for a period of up to three years. To be eligible for the grant of
a licence, the applicant must show that it has the requisite financial and
technical capability to carry out the mineral operations in respect of which the
licence is applied for in accordance with a costed work program. The applicant
must also show how the proposed mineral operations would contribute to the
employment and training of Ghanaians in the mining industry. When exploration
has successfully delineated a mineable mineral reserve, an application is made
to the Minerals Commission for conversion to a mining lease, granting a company
the right to produce a specific product from the concession area for a period of
normally 30 years. Production must begin within two years of the date of
granting a mining lease.
- 61 -
Under the mining law, the Government of Ghana holds a mandatory 10%
carried interest in all mining leases. The Government may also acquire such
further interest in the mining operations as may be agreed with the holder of
the mining lease. The Government of Ghana currently has a 10% carried interest
in XG Mining and may acquire such interest as may be mutually agreed with the
holder. The carried interest that the Government of Ghana holds in XG Mining
entitles it to a pro rata share of future dividends (none have been declared to
date), if any, from XG Mining once all capital is repaid, and the Government of
Ghana has no obligation to contribute development or operating expenses in
respect of the carried interest. If the Government of Ghana wishes to exercise
its option to acquire an additional interest, it must first give reasonable
notice and pay a mutually agreed price. If there is no agreement, the purchase
price would be the fair market value of such interest at such time as may be
determined by arbitration conducted in accordance with the Mining Act.
The Government of Ghana could also acquire further interest in XG
Mining on terms mutually acceptable to the Government and XG Mining. To date,
the Government has indicated no intention to obtain additional ownership in any
of our Projects.
The Government of Ghana is entitled to acquire a special or golden
share in any mining or exploration company, including XG Mining or XGEL, at any
time for no consideration or such consideration as the Government of Ghana and
XG Mining or XGEL might agree. The special share would constitute a separate
class of shares with such rights as the Government of Ghana and XG Mining or
XGEL might agree. In the absence of such agreement, the special share would have
the following rights:
o the special share would carry no voting rights, but the holder would
be entitled to receive notice of and attend and speak at any general
meeting of the members or any separate meeting of the holders of any
class of shares;
o the special share could only be issued to, held by, or transferred
to the Government or a person acting on behalf of the Government;
o the written consent of the holder of the special share would be
required for all amendments to the organizational documents of the
company, the voluntary winding-up or liquidation of the company or
the disposal of any mining lease or the whole or any material part
of the assets of the company; and
o the holder of the special share would be entitled to the payment of
a nominal sum of 1,000 Ghanaian Cedis in a winding-up or liquidation
of the company in priority to any payment to other members and could
require the company to redeem the special share at any time for a
nominal sum of 1,000 Cedis.
XG Mining and XGEL have not issued nor to date been requested to issue
any such special share to the Government of Ghana.
The Government of Ghana has a preemptive right to purchase all gold and
other minerals produced by any mining company including XG Mining and XGEL. The
purchase price would be such price as the Government of Ghana and the mining
company might agree on, or the price established by any gold hedging arrangement
between the mining company and any third party approved by the Government, or
- 62 -
the publicly quoted market price prevailing for the minerals or products as
delivered at the mine or plant where the right of preemption was exercised. The
Government of Ghana may enter into agreement with XG Mining to take no
preemptive action pursuant to its right to purchase such gold or other minerals
so long as the mining company sells gold in accordance with certain procedures
for selling gold approved by the Bank of Ghana and set out in a Foreign Exchange
Retention Account Agreement (the "FOREX AGREEMENT").
GHANAIAN ROYALTY RIGHTS
Under the laws of Ghana, a holder of a mining lease is required to pay
quarterly a royalty of not less than 3% per annum and not more than 6% per annum
of the total revenues earned from the lease area. The Government of Ghana
determines the royalty percentage each year based on the ratio that the
operating margin bears to the value of gold produced from a mining lease in that
year. Based on the applicable Mineral Royalty Regulations of 1987 as amended by
the Mining Act, the royalty is 3% when the operating ratio is 30% or less, and
the royalty increases 0.225% for each 1% increase in operating ratio until the
royalty reaches a maximum of 6%.
GOVERNMENT REGULATION
Except as referred to elsewhere in this Prospectus, there are no other
U.S., Ghanaian, Canadian or other government regulations that are material to
our company.
EMPLOYEES
Our company has no salaried employees. Our President devotes
approximately 90% of his time to our company. Our Vice-President, Finance
devotes approximately 90% of his time to our company. Our Vice-President,
Exploration devotes approximately 50% of his time in consulting services to our
company. We further engage the consulting services of our Vice-President, Ghana
Operations for our Ghanaian subsidiaries who devotes approximately 60% of his
time to our company. We also engage our Secretary and Treasurer with respect to
corporate and administrative services. As of June 1, 2007, she devotes
approximately 75% of her time in consulting services to our company.
REAL PROPERTY AND FACILITIES
We do not own any real property. All of our exploration activities are
currently conducted at project sites located in Ghana. Mining leases or
prospecting licences to which we are a party, granting us the right to operate
at our Kwabeng and Pameng, Apapam, Banso and Muoso and Edum Banso Projects, are
described elsewhere in this Prospectus. Our administrative activities are
currently conducted from our corporate head office, where we have leased 1,163
square feet for a 66 month term commencing on May 1, 2007. We made arrangements
with our landlord, 360 Bay Street Limited, for earlier occupancy effective April
1, 2007. Our office is located at Suite 301, 360 Bay Street, Toronto, Ontario,
Canada, M5H 2V6. We pay rent of (i) CAD$3,392.08 (US$3,397.24) per month in the
first and second years of the lease; (ii) CAD$3,489.00 (US$3,494.31) per month
in the third and fourth years of the lease; and (iii) CAD$3,585.92 (US$3,591.38)
per month in the fifth year of the lease. Our landlord has provided us with a
rent incentive of six months of free rent at the beginning of the term of the
lease, following which we will then commence paying rent as noted herein. Our
technical activities are currently conducted from our technical office located
- 63 -
at House No. 15, Ade-Coker Road, East Legon, Accra, Ghana which we lease on an
annual basis and pay rent of $1,000 per month. We also maintain a technical
office located at 430 Westmount Avenue, Unit F, Sudbury, Ontario, Canada, P3A
5Z8, where our VPE and his staff conduct business and pay rent of CAD$500
(US$500.76) per month.
LEGAL PROCEEDINGS
We are not a party to any pending legal proceeding, nor are we aware of
any legal proceedings being contemplated against us by any governmental
authority. We are not aware of any legal proceeding in which any of our
officers, directors, affiliates or security holders is a party adverse to us or
in which any of them have a material interest adverse to us.
A former consultant of our Ghanaian subsidiaries, XG Mining and XGEL,
previously brought an action for damages in the High Court of Ghana against our
two subsidiaries with respect to an alleged wrongful termination of appointment.
He claimed for an amount of $172,000. We maintained that the court action was
both frivolous and vexatious and had no merit. We vigorously defended against
the claims and filed statements of defense on behalf of our two subsidiaries.
The trial of this suit commenced on November 2, 2006. On February 6, 2008, the
Judge rendered his final judgment whereby he dismissed the action and awarded
costs of 2,000 new cedis (US$2,049.98) be paid to our subsidiaries. The former
consultant's right to appeal will expire on June 6, 2008.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table includes the names, positions held and ages of our
executive officers and directors.
NAME AGE POSITION
- ---- --- --------
James Werth Longshore 41 President and Director
Richard W. Grayston 63 Chairman and Director
Peter Minuk 43 Vice-President, Finance and Director
Yves Pierre Clement 43 Vice-President, Exploration
Alhaji Nantogma Abudulai 65 Vice-President, Ghana Operations
Rebecca Kiomi Mori 57 Secretary, Treasurer and Director
Robert H. Montgomery 46 Director
JAMES WERTH LONGSHORE BA, Economics, President
(Principal Executive Officer), Principal Financial Officer and Director
Mr. Longshore is one of the founders of our company and was appointed
as President in March 2007 and a director in November 2006. Mr. Longshore has
been a director of our Ghanaian subsidiaries, XGEL and XOG Ghana, since April
2006 and XG Mining, since June 2006 and an officer and director of Xtra Energy
since March 2007. Mr. Longshore has approximately 16 years of business
experience. Since 1995 to the present, Mr. Longshore has been President of
Brokton International Ltd. ("BROKTON"), a Turks & Caicos Islands, British West
Indies based private investment company focused on investing in natural resource
companies. Since February 2004 until February 2006, Mr. Longshore has provided
financial advisory consulting services to our company through his corporation,
Brokton. From 1990 to 1995, he was a salesman for UNUM Insurance Company selling
in both the United States and Canada.
- 64 -
In August 2002, Mr. Longshore, formerly known as James Pincock, entered
into a settlement agreement and order with the Ontario Securities Commission
(the "OSC"). Pursuant to a settlement agreement reached between the OSC and Mr.
Longshore, he voluntarily agreed to abide by the order which included, among
other things, that he cease trading in securities for five years from the date
of the order (until August 27, 2007), with the exception that after three years
he can trade in securities beneficially owned by him in his personal accounts in
his name, and that he be prohibited from becoming or acting as an officer or
director of any issuer in Ontario or an officer or director of any issuer which
has an interest directly or indirectly in any registrant, for a period of five
years. Mr. Longshore paid the OSC CAD$20,000 (US$17,740) for cost incurred by
the OSC and its Staff with respect to the proceeding. Mr. Longshore disclosed
this matter to the company prior to his appointment as a director and advised
that as he was a non-resident of Ontario at the relevant time, he had sought,
relied and acted upon poor financial and legal advice of Ontario advisors and
completed certain securities transactions which ultimately gave rise to the
Order.
Mr. Longshore devotes approximately 90% of his time to our company. He
currently provides 10% of his time to unrelated companies. He has not entered
into a management consulting agreement with our company.
MR. RICHARD W. GRAYSTON
Chairman and Director
Mr. Grayston was appointed as Chairman and a director of our company in
March 2007. Since 1985, Mr. Grayston has been a self-employed business
consultant with more than 22 years of experience in financial and economic
consulting and public company management including preparation of valuations,
feasibility studies, capital budgeting, financial reorganizations, profit
improvement studies and business plans and going public and business brokerage
during which time he has provided his consulting services to oil and gas,
mineral exploration, technology, manufacturing, retail and wholesale consumer
businesses. Since January 1991, Mr. Grayston has been a director of New Cantech
Ventures Inc., an oil and gas and mineral exploration (diamonds and gold)
company listed on the TSXV. From April 1980 to September 1985, Mr. Grayston
served as the Executive Vice President, Secretary and a director of Brent
Resources Group Ltd., a TSXV and NASDAQ listed junior oil company with
operations in Canada, the U.S.A. and Australia. Mr. Grayston received a Ph.D. in
Business Administration - Finance and Economics from the University of Chicago
in 1971, a MBA from the University of Chicago in 1969, a BA, in Commerce and
Business Administration from the University of British Columbia in 1966 and has
been a certified general accountant since 1977.
PETER MINUK
Vice-President, Finance and Director
Mr. Minuk was appointed as Vice-President, Finance and a director of
our company in March 2007. Mr. Minuk has more than 20 years of experience in
finance and investment as well as experience in project management, training and
developing staff and client relationships. Prior to joining our company, from
1990 to 2006, Mr. Minuk was employed by BMO InvestorLine ("BMO") in connection
with implementing project management protocols. During his employment with BMO,
Mr. Minuk was the Intranet Content Developer (2001 to 2006) where he was
responsible for coding, authoring and researching information for posting on
this company's intranet web site, the National Work Force Analyst (1998 to 2000)
- 65 -
where he was responsible for the implementation of a call center management
scheduling program, the Emerging Technologies Officer (1996 to 1998) where he
mapped out the core functionality of the initial internet trading site for BMO
and the Trading Desk Supervisor (1993 to 1995) where he was responsible for the
supervision of 30 traders and an Options Specialist (1990 to 1993) where he
placed customer trades for stocks, bonds and options. Mr. Minuk received a
Masters Certificate in Project Management from the Schulich School of Business,
York University in 2005. He obtained his FCSI (Fellow of the Canadian Securities
Institute) in 1989 and completed the Business Administration program from
Southern Alberta Institute of Technology in 1985.
Mr. Minuk devotes approximately 90% of his time in consulting services
to our company. He currently provides 10% of his time to unrelated companies. He
has entered into a management consulting agreement as well as a non-disclosure
agreement with our company.
REBECCA KIOMI MORI
Secretary and Treasurer and Director
Ms. Mori was appointed Secretary and Treasurer of our company in
September 2005 and was further appointed as a director of our company in April
2006. Since March 2007, Ms. Mori has been a director of Verbina Resources Inc.
("VERBINA") and was appointed Secretary-Treasurer in August 2007. Verbina is a
uranium and silica exploration company listed on the TSX Venture Exchange. Ms.
Mori has approximately 25 years of legal experience. During the last 13 years,
she has worked exclusively with both public and private mining companies and
also at a Toronto, Ontario, Canada corporate securities law firm. Prior to
joining our company as Secretary and Treasurer, Ms. Mori was (i) the Corporate
Securities Legal Assistant for Roxy Resources Inc., a private Canadian mining
company from December 2003 to May 2005, (ii) a consultant to our company from
June 2005 to August 2005 for purposes of becoming Secretary and Treasurer, and
(iv) responsible for the corporate operations including the maintenance of
corporate records and regulatory reporting requirements for Valucap Investments
Inc. from July 1997 to June 2004 and Romarco Minerals Inc. from May 1997 to
March 2003. Prior thereto, she was a corporate securities legal assistant and/or
law clerk at numerous Toronto, Canada law firms. Ms. Mori has diverse legal
experience with respect to securities, corporate, accounting, finance and
litigation matters and is knowledgeable and experienced in Canadian and U.S.
securities matters.
Ms. Mori devotes approximately 75% of her time in consulting services
to our company. She provides 25% of her time to unrelated companies. She has
entered into a management consulting agreement as well as a non-disclosure
agreement with our company.
YVES PIERRE CLEMENT, P. Geo.
Vice-President, Exploration
Mr. Clement was appointed Vice-President, Exploration of our company in
May 2006. Mr. Clement has over 19 years experience in the generation, evaluation
and development of a wide variety of mineral resources hosted by a broad
spectrum of geological environments in Canada and South America. Prior to
joining our company, Mr. Clement was senior project geologist for Lake Shore
Gold Corp. in the Timmins lode gold camp from August 2005 to April 2006 and was
formerly exploration manager for Aurora Platinum Corp.'s Sudbury operations from
August 2000 to July 2005. Prior to joining Aurora, Mr. Clement was senior
- 66 -
project geologist/exploration manager for Southwestern Resources Corp. where he
was responsible for the generation of precious and base metal exploration
opportunities in Peru and Chile. Mr. Clement's experience will allow us to
further maximize the value of our existing portfolio of projects, as well as
allowing us to expand our strategy of growth through strategic acquisitions.
Mr. Clement devotes approximately 50% of his time in consulting
services to our company. He provides 50% of his time to an unrelated company. He
has entered into a management consulting agreement but has not entered into a
non-competition and non-disclosure agreement with our company.
ALHAJI NANTOGMA ABUDULAI, BA
Vice-President, Ghana Operations
Mr. Abudulai was appointed as Vice-President, Ghana Operations of our
company in April 2005. He is also the Secretary and the President, Community
Relations and a director of our Ghanaian subsidiaries. Mr. Abudulai has more
than 12 years of business experience in the mining industry. Since 1994 to the
present, he has been the managing director of CME (Ghana) Ltd. and a director of
CME (Nigeria) Ltd. where his responsibilities included protocol and coordination
of government and local authority affairs in Ghana and overseeing logistical
support. Mr. Abudulai is familiar and experienced with respect to obtaining
mining permits, prospecting and reconnaissance licences and the government
regulations relating thereto and is knowledgeable in connection with
environmental and forestry issues, immigration and customs affairs. He is also
the President of the Canadian Business Association in Ghana. Mr. Abudulai's
primary responsibilities with our company are the management of our Ghanaian
subsidiaries and the continued improvement of community and government
relations. His experience and background will assist us with respect to
acquiring approvals, prospecting licences, mining leases and related permits and
renewals from the relevant government authorities in order to advance our
operations in Ghana, acting as our primary government liaison in connection
therewith and will be involved in the hiring of skilled mining personnel and
laborers for our mining operations.
Mr. Abudulai devotes approximately 60% of his time in consulting
services to our company. He provides 40% of his time to unrelated companies. He
has entered into a management consulting agreement and a non-disclosure
agreement with our company.
ROBERT H. MONTGOMERY, CA
Director
Mr. Montgomery was appointed as a director of our company in March
2007. Mr. Montgomery has more than 13 years of experience as a chartered
accountant and auditor and since February 2004 to the present time, he has been
a Sarbanes Oxley contractor to the Canadian Imperial Bank of Commerce (CIBC),
from February 2004 to January 2005, the Bank of Montreal (BMO) from January to
September 2005 and a major Canadian investment dealer from September 2005 to
December 2006 where he was responsible for documentation and testing of key
financial and non-financial controls for various lines of business and assisted
in the preparation and transfer of Sarbanes Oxley audit files and supporting
documentation from their project groups to internal and external auditors. Mr.
Montgomery assisted in the design of process narrative and control testing
documents, planned and supervised the control testing program at a major
Canadian investment dealer and assisted in the remediation of control gaps and
- 67 -
weaknesses identified during the testing process and as identified by its
external auditors. At CIBC, Mr. Montgomery assisted in the update and
maintenance a database identifying key accounts, linking them to controls
procedures, testing and lines of business and assisted in the remediation of
control gaps and weaknesses identified during the testing process. He was not
employed during the periods December 2006 to March 2007 and August 2003 to
February 2004. Prior thereto, from January 2001 to August 2003, Mr. Montgomery
was the Manager, Financial Operations of Ellis Entertainment Corporation,
Toronto where he was responsible for accounting and financial reporting. Mr.
Montgomery was a Senior Auditor and Auditor of the US/Canada Regional Audit
Group of Walt Disney Company in Toronto from 1998 to 2000 and 1996 to 1997
respectively where he conducted contractual compliance audits for the product
licensing divisions throughout the U.S. and Canada assessing audit risk factors
and developing methodologies to validate information supplied by licencees
relating to royalty reporting and maintenance of quality controls for licensed
products. Prior thereto, Mr. Montgomery was a Senior Staff Accountant - Audit
from 1994 to 1995 at Price Waterhouse LLP, Toronto, an audit and tax contractor
from 1992 to 1994 and a Staff Accountant - Audit at Deloitte & Touche LLP,
Toronto from 1990 to 1992. He obtained his Chartered Accountant designation from
the Institute of Chartered Accountants of Ontario in 1994 and a BA, Double Major
Economics and Geography from the University of Victoria, Victoria, British
Columbia in 1985.
All of our executive officers and directors were awarded nonqualified
stock options as disclosed elsewhere in this Prospectus.
SIGNIFICANT CONSULTANTS
We engage the consulting services of a majority of our officers. We
further engage the consulting services of our Manager, Lode Gold Exploration,
Senior Project Manager, Exploration and Mine Manager with respect to our
Ghanaian subsidiaries and have entered into consulting agreements with each of
them.
We previously engaged the consulting services of John Douglas Mills, as
our Project Manager, Operations through JD Mining Ltd., a consulting company for
placer gold exploration and mining of which Mr. Mills has been the President
since 1994 to the present. Mr. Mills has 30 years' international experience in
the mining industry, including more than 13 years' prior experience in Ghana
from 1990 to 2004 with respect to placer gold mining operations. Mr. Mills'
consulting services were terminated effective March 1, 2008, however, he will
provide his services in Ghana on an "as needed" basis. Our operations in Ghana
are now overseen by our Mine Manager.
We have engaged the consulting services of Stewart Winter, B.A.Sc.,
Mining Engineering, M.Sc. (App.), Geological Sciences, as our Manager, Lode Gold
Exploration. He acts as a special advisor to our Board. Mr. Winter has 49 years'
experience in the mining industry. He has been the President of Winterbourne
Explorations Ltd., a private geological consulting company since 1981 to the
present and provides consulting services with respect to gold, silver, uranium,
diamonds and base metals for companies with properties in Canada, South America
and China. Mr. Winter has been the Chief Executive Officer and a director of
Verbina since September 2007 and was formerly the Exploration Manager of
Southwestern Resources Corp. - Chile from 1996 to 1998.
- 68 -
One of our business strategies is to outsource other services as
required by our company from time to time by engaging consultants on an
as-needed basis or entering into special purpose contracts with a view to
maintaining our overhead at a reasonable, affordable cost.
There are no family relationships between any of our officers or
directors. Each director is elected at our annual meeting of stockholders and
holds office until the next annual meeting of stockholders, or until his
successor is elected and qualified.
CORPORATE GOVERNANCE MATTERS
COMMITTEES GENERALLY
Our Board of Directors has not established any committees. In March
2007, we expanded our Board by appointing two independent directors, Mr. Richard
Grayston and Mr. Robert Montgomery, and we intend to establish audit and
compensation committees within the near future.
AUDIT COMMITTEE
Our Board has not yet established an audit committee. The functions of
the audit committee are currently performed by the entire Board. We are not
currently subject to any law, rule or regulation requiring that we establish or
maintain an audit committee. We may establish an audit committee in the future
if the Board determines it to be advisable or we are otherwise required to do so
by applicable law, rule or regulation.
BOARD OF DIRECTORS INDEPENDENCE
Our Board consists of five members. Although, we are not currently
subject to any law, rule or regulation requiring that all or any portion of our
Board include "independent" directors, two of our directors are considered to be
an "independent" director, within the meaning of Nasdaq Marketplace Rule 4200.
AUDIT COMMITTEE FINANCIAL EXPERT
While we have not yet established an audit committee, Robert Montgomery
is an "audit committee financial expert" within the meaning of Item 401(e) of
Regulation S-B. In general, an "audit committee financial expert" is an
individual member of the audit committee (board of directors) who (a)
understands generally accepted accounting principles and financial statements,
(b) is able to assess the general application of such principles in connection
with accounting for estimates, accruals and reserves, (c) has experience
preparing, auditing, analyzing or evaluating financial statements comparable to
the breadth and complexity to the company's financial statements, (d)
understands internal controls over financial reporting (e) understands audit
committee functions, and (f) is an independent director.
CODE OF ETHICS
We have adopted a Code of Ethics applicable to our principal executive
officer, principal financial and accounting officers and persons performing
similar functions. A Code of Ethics is a written standard designed to deter
wrongdoing and to promote (a) honest and ethical conduct, (b) full, fair,
accurate, timely and understandable disclosure in regulatory filings and public
- 69 -
statements, (c) compliance with applicable laws, rules and regulations, (d) the
prompt reporting violation of the code and (e) accountability for adherence to
the Code. A copy of our Code of Ethics is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part, and we will
provide a copy, without charge, to any person desiring a copy of the Code of
Ethics, by written request to us at our principal offices.
NOMINATING COMMITTEE
We have not yet established a nominating committee. Our Board, sitting
as a board, performs the role of a nominating committee. We are not currently
subject to any law, rule or regulation requiring that we establish a nominating
committee.
COMPENSATION COMMITTEE
We have not yet established a compensation committee. Our Board,
sitting as a board, performs the role of a compensation committee. We are not
currently subject to any law, rule or regulation requiring that we establish a
compensation committee.
NOMINATION OF DIRECTORS
We do not have a policy regarding the consideration of any director
candidates which may be recommended by our stockholders, including the minimum
qualifications for director candidates, nor has our Board of Directors
established a process for identifying and evaluating director nominees. We have
not adopted a policy regarding the handling of any potential recommendation of
director candidates by our stockholders, including the procedures to be
followed. Our Board has not considered or adopted any of these policies as we
have never received a recommendation from any stockholder for any candidate to
serve on our Board of Directors. Given our relative size, we do not anticipate
that any of our stockholders will make such a recommendation in the near future.
While there have been no nominations of additional directors proposed, in the
event such a proposal is made, all members of our Board will participate in the
consideration of director nominees.
EXECUTIVE COMPENSATION
CASH COMPENSATION TABLE
The following table sets forth information relating to all compensation
awarded to, earned by or paid by us during each of the two fiscal years ended
December 31, 2007 and 2006 respectively, to: (a) our chief (principal) executive
officer; (b) each of our executive officers who was awarded, earned or we paid
more than $100,000; and (c) up to two additional individuals for whom disclosure
would have been made in this table but for the fact that the individual was not
serving as an executive officer of our company at December 31, 2007. The value
attributable to any option awards is computed in accordance with FAS 123R.
- 70 -
SUMMARY COMPENSATION TABLE
NON-EQUITY
INCENTIVE NONQUALIFIED ALL
NAME AND STOCK OPTION PLAN DEFERRED OTHER
PRINCIPAL SALARY BONUS AWARDS AWARDS COMPENSATION COMPENSATION COMPENSATION TOTAL
POSITION YEAR ($) ($) ($) ($) ($) EARNINGS ($) ($) ($)
(A) (B) (C) (D) (E) (F) (G) (H) (I) (J)
- -------------- ---- ---------- ----- ------ ----------- ------------ ------------ ------------ -------
James Longshore 2007 0 0 0 14,040 0 0 0 14,040
CEO, CFO (1)
William Edward 2007 22,000(3) 0 0 0 0 0 0 22,000
McKechnie,
CEO, CFO and 2006 43,223(3) 0 0 176,247(3) 0 0 0 220,070
Chairman (2)
(1) Mr. Longshore was appointed as our CEO and CFO on March 3, 2007.
(2) Mr. McKechnie served as our CEO, CFO and Chairman from August 26, 2005 to
March 2007. Our company had entered into a management consulting agreement
with Goldeye Consultants Ltd., a corporation of which Mr. McKechnie is a
director and from which Mr. McKechnie received this compensation. Mr.
McKechnie has executed a non-disclosure and non-competition agreement.
(3) All of the 716,000 nonqualified stock options previously granted to Mr.
McKechnie on June 21, 2005, April 21, 2006 and August 1, 2006 were
cancelled in March 2007.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table sets forth information concerning our grant of
options to purchase shares of our common stock during the fiscal year ended
December 31, 2007 to each person named in the Summary Compensation table.
OPTION AWARDS STOCK AWARDS
------------------------------------------------------------------ -----------------------------------------
EQUITY
INCENTIVE
MARKET EQUITY PLAN
NUMBER VALUE INCENTIVE AWARDS:
OF OF PLAN MARKET OR
EQUITY SHARES SHARES AWARDS: PAYOUT
INCENTIVE OR OR NUMBER OF VALUE OF
PLAN AWARDS: UNITS UNITS UNEARNED UNEARNED
NUMBER OF NUMBER OF NUMBER OF OF OF SHARES, SHARES,
SECURITIES SECURITIES SECURITIES STOCK STOCK UNITS OR UNITS OR
UNDERLYING UNDERLYING UNDERLYING THAT THAT OTHER OTHER
UNEXERCISED UNEXERCISED UNEXERCISED OPTION HAVE HAVE RIGHTS RIGHTS
OPTIONS OPTIONS UNEARNED EXERCISE OPTION NOT NOT THAT HAVE THAT HAVE
(#) (#) OPTIONS PRICE EXPIRATION VESTED VESTED NOT NOT
NAME EXERCISABLE UNEXERCISABLE (#) ($) DATE (#) ($) VESTED (#) VESTED (#)
(A) (B) (C) (D) (E) (F) (G) (H) (I) (J)
- ------------ ----------- ------------- ------------ -------- ---------- ------ ------ ---------- ----------
James 40,500 121,500 0 0.75 March 12, 0 0 0 0
Longshore 2010
William 42,000 174,000 0 0.70 April 21, 0 0 0 0
Edward 2009
McKechnie,
CEO, CFO and 22,200 177,780 0 0.90 August 1, 0 0 0 0
Chairman(1) 2009
(1) Mr. McKechnie served as our CEO, CFO and Chairman from August 26, 2005 to
March 2007. All of the nonqualified stock options previously granted to Mr.
McKechnie on April 21, 2006 and August 1, 2006 were cancelled in March 2007.
- 71 -
COMPENSATION OF DIRECTORS
As of December 31, 2007, we did not pay fees to directors for their
attendance at meetings of the Board of Directors. The following table provides
information concerning the compensation of our directors for the fiscal year
ended December 31, 2007:
DIRECTOR COMPENSATION
FEES NON-EQUITY NON-QUALIFIED
EARNED INCENTIVE DEFERRED
OR PAID STOCK OPTION PLAN COMPENSATION ALL OTHER
IN CASH AWARDS AWARDS COMPENSATION EARNINGS COMPENSATION TOTAL
NAME ($) ($) ($) ($) ($) ($) ($)
(A) (B) (C) (D) (E) (F) (G) (H)
- --------------------------- ------- ------ --------- ------------ ------------- ------------ ------
William Edward McKechnie(2) 0 0 0 0 0 0 0
James Werth Longshore 6,800 0 28,080(2) 0 0 0 34,880
Rebecca Kiomi Mori 5,100 0 0 0 0 0 5,100
Richard Grayston 6,800 0 28,080(2) 0 0 0 34,880
Peter Minuk 5,100 0 28,080(2) 0 0 0 33,180
Robert Montgomery 5,100 0 28,080(2) 0 0 0 33,180
(1) Mr. McKechnie resigned as Chairman and director in March 2007.
(2) The named director noted in the above table was granted 108,000 options in
2007 for acting in such capacity.
As of March 2007, we established compensation arrangements for our
directors for each individual's service and expense on our board of directors as
follows: (a) Richard Grayston - CAD$2,000 (US$2,040) on a quarterly basis, (b)
James Longshore - CAD$2,000 (US$2,040) on a quarterly basis, (c) Peter Minuk -
CAD$1,500 (US$1,530) on a quarterly basis, (d) Robert Montgomery - CAD$1,500
(US$1,530) on a quarterly basis; and (e) Kiomi Mori - CAD$1,500 (US$1,530) on a
quarterly basis.
2005 EQUITY INCENTIVE COMPENSATION PLAN
On June 21, 2005, our board of directors authorized, approved and
adopted, our 2005 Equity Incentive Compensation Plan. As the Plan was not
submitted to our shareholders for approval and was not approved by our
shareholders, we are not permitted to issue any options qualifying as incentive
stock options under Section 422 of the Internal Revenue Code of 1986, as
amended. A total of 3,000,000 shares of our common stock have been reserved for
issuance under the Plan. As at the date of this Prospectus, we have granted
options to purchase an aggregate of 1,480,000 shares of our common stock, of
which 100,000 options have been cancelled. Pursuant to Board approval, 300,000
options will be cancelled, if not exercised by June 1, 2008.
The purpose of the Plan is to encourage stock ownership by our
officers, directors, key employees and consultants, and to give such persons a
greater personal interest in the success of our business and an added incentive
to continue to advance and contribute to us. Our board of directors, or a
committee of the board, will administer the Plan including, without limitation,
the selection of the persons who will be awarded stock grants and granted
options, the type of options to be granted, the number of shares subject to each
option and the exercise price.
- 72 -
Plan options may only be non-qualified options. In addition, the Plan
allows for the inclusion of a reload option provision, which permits an eligible
person to pay the exercise price of the option with shares of common stock owned
by the eligible person and receive a new option to purchase shares of common
stock equal in number to the tendered shares. Furthermore, compensatory stock
amounts may also be issued. The term of each plan option and the manner in which
it may be exercised is determined by the board of directors or the committee.
All awards granted under the Plan are made on a case by case basis, and the
Board does not have any policy regarding timing of grants, amount of shares
subject to any option to be granted or the exercise price, except that the Board
does consider and/or approve option grants to incoming officers and directors at
the time of their appointment.
Eligibility
Our officers, directors, key employees and consultants are eligible to
receive stock grants and non-qualified options under the Plan.
Administration
The Plan will be administered by our board of directors or an
underlying committee. The board of directors or the committee determines from
time to time those of our officers, directors, key employees and consultants to
whom stock grants or plan options are to be granted, the terms and provisions of
the respective option agreements, the time or times at which such options shall
be granted, the dates such Plan options become exercisable, the number of shares
subject to each option, the purchase price of such shares and the form of
payment of such purchase price. All other questions relating to the
administration of the Plan, and the interpretation of the provisions thereof and
of the related option agreements, are resolved by the board of directors or
committee. As of the date of this Prospectus, the entire board of directors
administers the Plan.
Shares Subject to Awards
We have currently reserved 3,000,000 of our authorized but unissued
shares of common stock for issuance under the Plan, and a maximum of 3,000,000
shares may be issued, unless the Plan is subsequently amended, subject to
adjustment in the event of certain changes in our capitalization, without
further action by our board of directors and stockholders, as required. Subject
to the limitation on the aggregate number of shares issuable under the Plan,
there is no maximum or minimum number of shares as to which a stock grant or
Plan option may be granted to any person. Shares used for stock grants and Plan
options may be authorized and unissued shares or shares reacquired by us. Shares
covered by Plan options which terminate unexercised or shares subject to stock
awards which are forfeited or cancelled will again become available for grant as
additional options or stock awards, without decreasing the maximum number of
shares issuable under the Plan.
The Plan provides that, if our outstanding shares are increased,
decreased, exchanged or otherwise adjusted due to a share dividend, forward or
reverse share split, recapitalization, reorganization, merger, consolidation,
combination or exchange of shares, an appropriate and proportionate adjustment
shall be made in the number or kind of shares subject to unexercised options and
in the purchase price per share under such options. Any adjustment, however,
does not change the total purchase price payable for the shares subject to
- 73 -
outstanding options. In the event of our proposed dissolution or liquidation, a
proposed sale of all or substantially all of our assets, a merger or tender
offer for our shares of common stock, the option may be assumed, converted or
replaced by the successor corporation (if any) or may substitute equivalent
awards or provide substantially similar consideration to awardees In the event
such successor corporation (if any) refuses or otherwise declines to assume or
substitute awards, as provided above, (i) the vesting of any or all Awards
granted pursuant to this Plan will accelerate immediately prior to the effective
date of a transaction described above and (ii) any or all Options granted
pursuant to the Plan will become exercisable in full prior to the consummation
of such event at such time and on such conditions as the board of directors or
underlying committee determines. If such Options are not exercised prior to the
consummation of the corporate transaction, they shall terminate at such time as
determined by the board of directors or underlying committee.
Terms of Exercise
The Plan provides that the options granted thereunder shall be
exercisable from time to time in whole or in part, unless otherwise specified by
the committee or by the board of directors.
Exercise Price
The purchase price for shares subject to options is determined by the
board of directors or the committee and may be below fair market value on the
day of grant. If the purchase price is paid with consideration other than cash,
the board or the committee shall determine the fair value of such consideration
to us in monetary terms.
The per share purchase price of shares issuable upon exercise of a plan
option may be adjusted in the event of certain changes in our capitalization,
but no such adjustment shall change the total purchase price payable upon the
exercise in full of options granted under the plan.
Manner of Exercise
Plan options are exercisable by delivery of written notice to us
stating the number of shares with respect to which the option is being
exercised, together with full payment of the purchase price therefor. Payment
shall be in cash, checks, certified or bank cashier's checks, promissory notes
secured by the shares issued through exercise of the related options, shares of
common stock or in such other form or combination of forms which shall be
acceptable to the board of directors or the committee.
Option Period
The term of each non-qualified stock option is determined and fixed by
the board of directors or underlying committee.
Termination
Except as otherwise expressly provided in the option agreement, all
Plan options are nonassignable and nontransferable, except by will or by the
laws of descent and distribution, and during the lifetime of the optionee, may
be exercised only by such optionee. If an optionee shall die while our employee
or within three months after termination of employment by us because of
- 74 -
disability, or retirement or otherwise, such options may be exercised, to the
extent that the optionee shall have been entitled to do so on the date of death
or termination of employment, by the person or persons to whom the optionee's
right under the option pass by will or applicable law, or if no such person has
such right, by his executors or administrators.
In the event of termination of employment because of death while an
employee or because of disability, the optionee's options may be exercised not
later than the expiration date specified in the option or one year after the
optionee's death, whichever date is earlier, or in the event of termination of
employment because of retirement or otherwise, not later than the expiration
date specified in the option or three months after the optionee's retirement,
whichever date is earlier.
If an optionee's employment by us terminates because of disability and
such optionee has not died within the following three months, the options may be
exercised, to the extent that the optionee shall have been entitled to do so at
the date of the termination of employment, at any time, or from time to time,
but not later than the expiration date specified in the option or one year after
termination of employment, whichever date is earlier.
If an optionee's employment shall terminate for any reason other than
death or disability, such optionee may exercise the options to the same extent
that the options were exercisable on the date of termination, for up to three
months following such termination, or on or before the expiration date of the
options, whichever occurs first. In the event that the optionee was not entitled
to exercise the options at the date of termination or if the optionee does not
exercise such options (which were then exercisable) within the time specified
herein, the options shall terminate.
If an optionee's employment with us is terminated for any reason
whatsoever, and within three months after the date thereof optionee either (i)
accepts employment with any competitor of, or otherwise engages in competition
with us, or (ii) discloses to anyone outside our company or uses any
confidential information or material of our company in violation of our policies
or any agreement between the optionee and our company, the committee, in its
sole discretion, may terminate any outstanding stock option and may require
optionee to return to us the economic value of any award that was realized or
obtained by optionee at any time during the period beginning on that date that
is six months prior to the date optionee's employment with us is terminated.
The Board or underlying committee may, if an optionee's employment with
us is terminated for cause, annul any award granted under the Plan to such
employee and, in such event, the board of directors or underlying committee, in
its sole discretion, may require optionee to return to us the economic value of
any award that was realized or obtained by optionee at any time during the
period beginning on that date that is six months prior to the date optionee's
employment with us is terminated.
Modification and Termination of Plan
The Board or committee may amend, suspend or terminate the Plan at any
time. However, no such action may prejudice the rights of any holder of a stock
grant or optionee who has prior thereto been granted options under the Plan. Any
such termination of the Plan shall not affect the validity of any stock grants
or options previously granted thereunder. Unless terminated by the Board, the
Plan shall continue to remain effective until such time as no further awards may
be granted and all awards granted under the Plan are no longer outstanding.
- 75 -
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table sets forth information relating to our outstanding
equity compensation plans as of December 31, 2007:
NUMBER OF
SECURITIES
REMAINING
NUMBER OF AVAILABLE FOR
SECURITIES TO FUTURE ISSUANCE
BE ISSUED UPON WEIGHTED AVERAGE UNDER EQUITY
EXERCISE OF EXERCISE PRICE COMPENSATION
OUTSTANDING OF OUTSTANDING PLANS (EXCLUDING
OPTIONS, OPTIONS, SECURITIES
WARRANTS AND WARRANTS AND REFLECTED IN
RIGHTS (A) RIGHTS (B) COLUMN (A)) (C)
-------------- ---------------- ----------------
Equity Compensation Plans Approved by Security Holders N/A N/A N/A
Equity Compensation Plans Not Approved By Security Holders
2005 Equity Incentive Compensation Plan(1) 1,380,000 $0.75 1,620,000
--------- ----- ---------
TOTAL 1,380,000 $0.75 1,620,000
(1) Includes (a) an aggregate amount of 540,000 options which were issued to
four members of our board of directors in March 2007; and (ii) 200,000 options
which were issued to our former Project Manager, Operations in March 2007 which
will expire and be cancelled on June 1, 2008.
MANAGEMENT CONSULTING AGREEMENTS
We have entered into the following management consulting agreements
with officers of our company.
MANAGEMENT CONSULTING AGREEMENT WITH PETER MINUK, VICE-PRESIDENT, FINANCE
We initially entered into a management consulting agreement with our
Vice- President, Finance (the "VPF"), Peter Minuk, on March 24, 2007. On mutual
agreement, both parties have agreed to terminate this agreement which has been
superseded in its entirety by a management consulting agreement dated July 1,
2007 for a term of one year. Our VPF is compensated CAD$3,000 (US$3,004.57) per
month and is reimbursed for expenses incurred by him on behalf of our company.
The VPF shall provide certain services to our company including, but not limited
to, preparation and/or filing financial reports, press releases and regulatory
filings, updating investor presentations, preparation of budgets, assisting with
the development, execution and communication of Xtra-Gold's overall financial
strategy to its stockholders through the design and execution of a strategy to
communicate key elements of its financial objectives, assessing Xtra-Gold's
financial management needs and current capabilities from time to time and
providing such assessments to the President and/or the Board, providing
recommendations to the President and/or the Board on major financial decisions
and carrying out the financial policy decisions made by Xtra-Gold's senior
management and reviewing all financial reports prepared by Xtra-Gold's
subsidiaries and discussing same with the President and/or the Board, assisting
our President with the day-to-day management of our company and liaising with
our legal counsel, auditors, stock transfer agent and all other professional
advisors from time to time.
- 76 -
MANAGEMENT CONSULTING AGREEMENT WITH YVES CLEMENT, VICE-PRESIDENT, EXPLORATION
We entered into a management consulting agreement with our
Vice-President, Exploration ("VPE"), Yves Clement, on May 1, 2006 for a term of
36 months. Our VPE is paid CAD$5,000 (US$5,007.61) per month and is reimbursed
for expenses incurred by him on behalf of our company. Our VPE shall be paid
compensation equivalent to 18 months' fees, based on the rate of compensation
being paid at the relevant time in the event of (i) termination without cause;
or (ii) a Change of Control. Our VPE shall provide certain services to our
company including, but not limited to, making project or property site
attendances as may be required from time to time, preparing progress reports
with respect to our mineral exploration projects, conducting due diligence as
may be required from time to time in connection with potential mineral
properties; reviewing geological data and liaising with principal owners of
mineral properties in which our company may wish to acquire an interest, meeting
with government authorities and retaining technical experts, making
recommendations to the Board and its relevant committees with respect to the
acquisition and/or abandonment of mineral exploration properties and preparing
and implementing, subject to Board approval, plans for the operation of
Xtra-Gold including plans for exploration programs, costs of operations and
other expenditures in connection with our mineral projects.
MANAGEMENT CONSULTING AGREEMENT WITH ALHAJI NANTOGMA ABUDULAI, VICE-PRESIDENT,
GHANA OPERATIONS
We entered into a management consulting agreement with our
Vice-President, Ghana Operations ("VPG"), Alhaji Nantogma Abudulai, on November
1, 2006 for a term of one year. Our VPG is paid $1,000 per month and is
reimbursed for expenses incurred by him on behalf of our company. Our VPG shall
provide certain services to our company including, but not limited to, managing
and improving community and government relations as may be required from time to
time including but not necessarily restricted to, relationships with the
Minerals Commission, the Minister of Lands, Forestry and Mines, the Water
Resource Commission, the EPA and the GNPC, by acting as Xtra-Gold's primary
liaison and attending meetings with related officials, managing specific
executions on an as needed basis including, but not limited to, facilitating the
procurement of licences, leases, permits and other government approvals and
handling any political or environmental issues that may arise from time to time,
participating in property acquisitions and dispositions from time to time and
reviewing all material contracts to be entered into by our Ghanaian
subsidiaries.
MANAGEMENT CONSULTING AGREEMENT WITH KIOMI MORI, SECRETARY AND TREASURER
We initially entered into a management consulting agreement with our
Secretary and Treasurer (the "ST"), Kiomi Mori, on July 1, 2006 for a term of
five years. On mutual agreement, both parties have agreed to terminate this
agreement which has been superseded in its entirety by a management consulting
agreement dated December 1, 2007 for a term of one year. Our ST is compensated
CAD$6,500 (US$6,509.90) per month and is reimbursed for expenses incurred by her
on behalf of our company. The ST shall provide certain services to our company
including, but not limited to, preparing and maintaining all corporate records
and overseeing all corporate and regulatory filings, preparing and/or filing
financial reports and press releases, updating investor presentations, assisting
our President and Vice-President, Finance with the day-to-day management of our
company and liaising with our legal counsel, auditors, stock transfer agent and
other professional advisors.
- 77 -
COMPENSATION OF MANAGEMENT
The terms of these management consulting agreements were determined at
the time by our then constituted Board, two members of which were our executive
officers who were parties to certain of these agreements. Our currently
constituted Board of Directors believes that the compensation payable to our
executive officers is appropriate in light of the risks and uncertainty of our
business, the time committed by such individuals, the compensation levels of
other executives in similarly sized companies and their ability to command at
least this level of salary in other commercial operations. The Board has
complete authority in determining the amount of compensation to be paid and the
other terms of management compensation. At the time of entering into the
foregoing agreements, our Board did not consult with any consultants or other
third parties in determining the amount of compensation to be paid under the
management consulting agreements.
SETTLEMENT AND TERMINATION AGREEMENT
In July 2006, we entered into a management consulting agreement with
our CEO for a term of five years. Mr. McKechnie, our then CEO, was compensated
CAD$5,000 (US$4,251) per month, through Goldeye Consultants Ltd. ("GOLDEYE"), a
Turks & Caicos Islands, British West Indies private corporation of which he is a
director.
In March 2007, Mr. McKechnie resigned as CEO and Chairman of our
company and the management consulting agreement was terminated. On March 22,
2007, Mr. McKechnie entered into a Settlement Termination Agreement with us
pursuant to which he provided his resignation as a director and also agreed to
the termination of the management consulting agreement. Under the terms of the
Settlement Termination Agreement, Mr. McKechnie was to be paid a termination
payment of $26,270.93 (US$22,710.40) which includes reimbursement of expenses
incurred until termination. Mr. McKechnie had executed a non-disclosure and
non-competition agreement which restricts Mr. McKechnie from competing with us
for a period of two years following termination.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
As authorized by the Nevada Revised Statutes, our articles of
incorporation ("ARTICLES") provide that none of our directors shall be
personally liable to us or our stockholders for monetary damages for breach of
fiduciary duty as a director, except liability for:
o any breach of a director's duty of loyalty to our company or its
stockholders;
o acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o unlawful payments of dividends or unlawful stock redemptions or
repurchases; and
o any transaction from which the director derived an improper personal
benefit.
- 78 -
This provision limits our rights and the rights of our stockholders to
recover monetary damages against a director for breach of the fiduciary duty of
care except in the situations described above. This provision does not limit our
rights or the rights of any stockholder to seek injunctive relief or rescission
if a director breaches his duty of care. These provisions will not alter the
liability of directors under federal securities laws. Our by-laws require us to
indemnify directors and officers against, to the fullest extent permitted by
law, liabilities which they may incur under the circumstances described above.
Our Articles further provide for the indemnification of any and all
persons who serve as our directors, officers, employees or agents to the fullest
extent permitted under Nevada law.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling our
company pursuant to the foregoing provisions, we have been informed that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS; DIRECTOR INDEPENDENCE
We have entered into certain transactions with certain of our
affiliates as described below. All of these transactions, except as expressly
provided below, have been approved, and the terms thereof determined, by our
board of directors excluding interested members of the board, if any. We believe
that the terms of these transactions are at least as beneficial to us as terms
we could obtain from unaffiliated third parties.
ACQUISITION OF SWISS PROPERTY
On October 28, 2003, prior to our acquisition of all of the issued and
outstanding capital stock of Xtra Energy, CaribGold Minerals, Inc. ("CARIBGOLD")
entered into a memorandum of agreement with Xtra Energy (the "CARIBGOLD
AGREEMENT"), under which Xtra Energy was granted the right and option to acquire
90% of CaribGold's interest in a mining property located in Switzerland provided
that Xtra Energy expended CAD$200,000 (USD$152,532) in exploration work on the
property by October 28, 2004, failing which the option would terminate and would
be reconveyed to CaribGold. Paul Zyla, who was our President and Chief Executive
Officer at the time of this transaction, was also the President and a director
of CaribGold and owned 647,500 common shares (5.51%) in the capital of CaribGold
at this time. As consideration for the option grant, Xtra Energy issued 20,000
non-refundable shares of its common stock to CaribGold. These shares were
subsequently exchanged for 20,000 shares of our common stock upon our
acquisition of all of the outstanding capital stock of Xtra Energy. In order to
exercise the option, our subsidiary would have been required to enter into a
joint venture agreement with CaribGold, operate the property and contribute our
share of expenditures of the joint venture. Our subsidiary did not expend the
required amount during the option exercise period. We permitted the option to
expire unexercised in order to permit us to devote our financial resources to
the acquisition of mineral properties in Ghana.
- 79 -
PROMISSORY NOTE ISSUED TO A FORMER OFFICER AND DIRECTOR OF OUR COMPANY
On January 12, 2006, the Board approved the issuance of an unsecured
promissory note (the "NOTE") in the aggregate amount of $66,302 in connection
with an account payable owing to a former officer and director of the company
(the "NOTE HOLDER") with respect to unpaid consulting fees, expenses incurred on
behalf of our company and a bonus. Under the terms of the Note, the Note Holder
had the option to convert any portion owing under the Note from time to time
into shares of our company at the conversion price of $0.55 per share. On
January 31, 2006, the Note Holder provided us with a notice of conversion to
convert $50,000 of the outstanding Note into shares and was subsequently issued
90,909 shares on February 9, 2006.
INVESTMENT IN A COMPANY OF WHICH A FORMER OFFICER AND DIRECTOR OF OUR COMPANY IS
ALSO AN OFFICER AND/OR DIRECTOR
We invested an aggregate of CAD$123,000 (US$108,258), through
participation in two private placement transactions in August 2006 (CAD$18,000 -
US$15,946) and October 2006 (CAD$105,000 - US$92,312), in Ginguro Exploration
Inc., an Ontario mineral exploration company listed on the TSX Venture Exchange
("TSXV"), of which a former officer and director of our company is also director
and officer.
CONSULTING AGREEMENT WITH PRINCIPAL SHAREHOLDER
From February 1, 2004 through February 1, 2006, we were a party to a
consulting agreement with Brokton International Ltd. ("BROKTON"), a company
which owns 6.93% of our common stock and one of only two shareholders that owns
more than 5% of our issued and outstanding shares of common stock. Under the
terms of this agreement, we engaged Brokton as a consultant to advise our
Management with respect to hiring additional qualified management, providing
support with respect to operational matters and government compliance in Ghana,
mergers and acquisitions and financial advisory. James Longshore, our President
and one of the directors of our company, is the President of Brokton and
exercises sole investment, voting and disposition powers over the shares of
Brokton. Mr. Longshore is also a director of our wholly-owned subsidiaries, XGEL
and XOG Ghana (since April 2006) and Chief Operating Officer (since February
2007) and a director of XG Mining (since June 2006) and Chief Operating Officer
(since February 2007) and a director and officer of Xtra Energy (since March
2007). From February 2004 to February 2006, we paid Brokton an aggregate of
$53,176 for its consulting services and reimbursed Brokton for expenses incurred
by Brokton on behalf of our company.
A PRINCIPAL SHAREHOLDER MANAGES OUR INVESTMENT PORTFOLIO
We currently, and since approximately four years ago, maintain our
brokerage account with Haywood Securities Inc. ("HAYWOOD") in connection with
our investment accounts. Haywood provides us with investment recommendations and
custodial services. Haywood is a member of the Toronto Stock Exchange, the TSX
Venture Exchange, the Montreal Exchange, the Canadian Trading and Quotation
System, the Canadian Investor Protection Fund, and the Investment Dealers
Association of Canada. In addition, Haywood Securities (USA) Inc., a wholly
owned subsidiary is a broker-dealer registered to transact securities business
in the United States and a member of the National Association of Securities
Dealers. We pay Haywood ordinary brokerage commissions on trade transactions and
our accounts with Haywood can be terminated at any time. Mark McGinnis, a
- 80 -
shareholder who owns 7.13% of our common stock and one of only two shareholders
that owns more than 5% of our issued and outstanding shares of common stock, is
an investment advisor with Haywood and is the manager of our accounts with
Haywood.
DIRECTORS' SECURITIES CANCELLED
In May 2005, an aggregate of 47,000,000 shares of our common stock
owned by Paul Zyla and William Edward McKechnie, former directors of our
company, were returned to treasury and cancelled pursuant to respective stock
cancellation agreements entered into between our company and such directors. The
parties agreed to the foregoing at the time we acquired XGRI and undertook the 5
for 1 forward stock split for the purpose of minimizing the dilution on our
shareholders in the event that the company issued further shares in
consideration of future financings, acquisitions or other significant business
transactions involving stock issuances. The cancellation occurred as a condition
to the acquisition of XG Mining in December 2004.
CONSULTING FEES TO OFFICERS AND COMPANIES CONTROLLED BY DIRECTORS AND OFFICERS
We have entered into consulting agreements with our officers, or
companies controlled by our officers, for the services of our officers as set
out elsewhere in this Prospectus. As of December 31, 2007, we paid or accrued an
aggregate of $191,512 (December 31, 2006 - $324,872), pursuant to these
consulting agreements.
DIRECTOR INDEPENDENCE
Two of the members of our board of directors (Robert H. Montgomery and
Richard W, Grayston) are "independent" within the meaning of Marketplace Rule
4200 of the National Association of Securities Dealers, Inc.
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us as of February
29, 2008, relating to the beneficial ownership of shares of our common stock by:
o each person who is known by us to be the beneficial owner of more
than five percent of our outstanding common stock;
o each director;
o each executive officer named in the Summary Compensation Table; and
o all executive officers and directors as a group.
Unless otherwise indicated, the address of each beneficial owner in the
table set forth below is care of Xtra-Gold Resources Corp., Suite 301, 360 Bay
Street, Toronto, Ontario, Canada, M5H 2V6.
We believe that all persons named in the table, or the footnotes
thereto, have sole voting and investment power with respect to all shares of
common stock shown as being owned by them.
- 81 -
Under securities laws, a person is considered to be the beneficial
owner of securities owned by him (or certain persons whose ownership is
attributed to him) and that can be acquired by him within 60 days from the date
of this Prospectus, including upon the exercise of options, warrants or
convertible securities. We determine a beneficial owner's percentage ownership
by assuming that options, warrants or convertible securities that are held by
him, but not those held by any other person, and which are exercisable within 60
days of the date of this Prospectus, have been exercised or converted.
The table is based on 29,818,359 shares currently outstanding. Except
as otherwise required by SEC rules relating to beneficial ownership, the table
does not give effect to the issuance of up to:
o 2,221,471 shares in the event of exercise of outstanding Warrants;
o 900,000 shares in the event of conversion of Convertible Debentures;
or
o 15,750 shares in the event of conversion of Accrued Interest.
AMOUNT AND NATURE OF PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ------------------------------------ ----------------------------- ----------
James Werth Longshore .............. 2,067,500 shares (1) 6.93%
Rebecca Kiomi Mori ................. 78,000 shares (2) .26%
Yves Pierre Clement ................ 234,000 shares (3) .78%
Alhaji Nantogma Abudulai ........... 178,000 shares (4) .60%
Richard W. Grayston ................ 97,000 shares (5) .33%
Peter Minuk ........................ 50,000 shares (6) .17%
Robert H. Montgomery ............... 45,000 shares (7) .15%
OFFICERS AND DIRECTORS
AS A GROUP (7 PERSONS) .......... 2,749,500 shares (1) thru (7) 9.22%
5% STOCKHOLDERS
Brokton International Ltd. ......... 2,067,500 shares (1) 6.93%
P.O. Box 150, Design House
Providenciales, Turks and Caicos
British West Indies
Mark T. McGinnis ................... 2,125,526 shares (8) 7.13%
236 Alscot Crescent
Oakville, Ontario, Canada L6J 4R4
(1) Consists of (a) 2,000,000 shares which are owned by Brokton International
Ltd.; (b) Consists of 58,500 shares which are issuable upon the exercise of
options that have vested and are currently exercisable; and (c) 9,000
shares which shall become issuable upon options that shall vest and be
exercisable within 60 days following the date of this Prospectus; namely
May 12 and June 12, 2008. Does not include 94,500 shares issuable upon the
exercise of options that have not yet vested and will vest monthly as to
4,500 in each month. Brokton International Ltd. ("BROKTON") is a British
West Indies corporation, whose sole beneficial owner is James Longshore.
Mr. Longshore exercises sole investment, voting and disposition powers over
the shares included in the table.
- 82 -
(2) Consists of 72,000 shares which are issuable upon the exercise of options
that have vested and are currently exercisable; and (c) 6,000 shares which
shall become issuable upon options that shall vest and be exercisable
within 60 days following the date of this Prospectus; namely May 21 and
June 21, 2008. Does not include 30,000 shares issuable upon the exercise of
options that have not yet vested and will vest monthly as to 3,000 in each
month.
(3) Consists of (a) 216,000 shares which are issuable upon the exercise of
options that have vested and are currently exercisable; and (b) 18,000
shares which shall become issuable upon options that shall vest and be
exercisable within 60 days following the date of this Prospectus; namely
June 1 and July 1, 2008. Does not include 90,000 shares issuable upon the
exercise of options that have not yet vested and will vest monthly as to
9,000 in each month.
(4) Consists of (a) 100,000 shares of common stock; (b) 72,000 shares which are
issuable upon the exercise of options that have vested and are currently
exercisable; and (c) 6,000 shares which shall become issuable upon options
that shall vest and be exercisable within 60 days following the date of
this Prospectus; namely June 1 and July 1, 2008. Does not include 30,000
shares issuable upon the exercise of options that have not yet vested and
will vest monthly as to 3,000 in each month.
(5) Consists of (a) 25,000 shares of common stock; (b) 63,000 shares which are
issuable upon the exercise of options that have vested and are currently
exercisable; and (c) 9,000 shares which shall become issuable upon options
that shall vest and be exercisable within 60 days following the date of
this Prospectus; namely June 5 and July 5, 2008. Does not include 90,000
shares issuable upon the exercise of options that have not yet vested and
will vest monthly as to 4,500 in each month.
(6) Consists of (a) 2,000 shares of common stock; (b) 42,000 shares which are
issuable upon the exercise of options that have vested and are currently
exercisable; and (c) 6,000 shares which shall become issuable upon options
that shall vest and be exercisable within 60 days following the date of
this Prospectus; namely June 5 and July 5, 2008. Does not include 60,000
shares issuable upon the exercise of options that have not yet vested and
will vest monthly as to 3,000 in each month.
(7) Consists of (a) 39,000 shares which are issuable upon the exercise of
options that have vested and are currently exercisable; and (b) 6,000
shares which shall become issuable upon options that shall vest and be
exercisable within 60 days following the date of this Prospectus; namely
May 12 and June 12, 2008. Does not include 63,000 shares issuable upon the
exercise of options that have not yet vested and will vest monthly as to
3,000 in each month.
(8) Consists of (a) 1,969,681 shares of common stock held by Mark McGinnis; and
(b) 155,845 shares of common stock held by his spouse.
- 83 -
CHANGE IN PERCENTAGE OWNERSHIP OF PRINCIPAL SHAREHOLDERS
The following provides the changes in percentage ownership of Brokton
International Ltd., whose sole beneficial owner is James Longshore, a director
of our company since November 2006 and President of our company since March
2007, and Mark McGinnis, the only shareholders of our company who currently own
more than 5% of the issued and outstanding shares of our common stock:
Brokton International Ltd.
o In October 2003, Brokton, a former shareholder of our subsidiary
XGRI, received 50,000 shares of common stock, representing
approximately .3% of our then issued and outstanding shares, in
connection with the Share Exchange with our subsidiary XGRI.
o In January 2004, Brokton acquired 2,000,000 shares of our common
stock from a principal shareholder increasing its ownership interest
to approximately 3.5% of our then issued and outstanding shares.
o In May 2005, the ownership interest of increased to approximately
15% as a result of the return to treasury of 47,000,000 shares by
two principal shareholders.
o In August 2006, Brokton acquired an aggregate of 250,000 shares from
two shareholders.
o Between March 2004 and November 2006, we undertook nine private
placements of shares of common stock which resulted in dilution to
the percentage ownership of Brokton to 7.12%.
o In October 2007, we undertook a tenth private placement of shares of
common stock which resulted in dilution to the percentage ownership
of Brokton to 6.95%.
o In March 2007, Mr. Longshore was granted 162,000 options which were
transferred to Brokton, of which (a) 58,500 have vested and are
currently exercisable; and (b) 9,000 shall vest over the 60 days
following the date of this Prospectus and the remaining 94,500
options will vest monthly over a 36 month period as to 4,500
options. This resulted in the increase in percentage ownership of
Brokton to 7.13%.
o In February 2008, we undertook a 11th private placement of shares of
common stock which resulted in dilution to the percentage ownership
of Brokton to 6.93%.
Mark McGinnis
o In January 2004, Mark McGinnis acquired 1,666,666 shares of our
common stock, representing 2.7% of our then issued and outstanding
shares, from a principal shareholder.
- 84 -
o In April 2004, the spouse of Mark McGinnis acquired 100,000 shares
under a private placement transaction.
o In May 2005, the ownership interest of Mark McGinnis increased to
approximately 11% as a result of the return to treasury of
47,000,000 shares by two principal shareholders.
o During 2006, Mark McGinnis and his spouse acquired 297,860 shares in
trust.
o Between March 2004 and November 2006, we undertook nine private
placements of shares of common stock which resulted in dilution to
the percentage ownership of Mark McGinnis to 7.35%.
o During August 2007, the ownership interest of Mark McGinnis
increased to 7.37% as a result of a purchase of 5,000 shares.
o In October 2007, we undertook a tenth private placement of shares of
common stock which resulted in dilution to the percentage ownership
of Mark McGinnis to 7.20%.
o During November 2007, the ownership interest of Mark McGinnis
increased to 7.29% as a result of a purchase of 26,500 shares.
o During December 2007, the spouse of Mark McGinnis purchased 3,000
shares thereby increasing the ownership interest of Mark McGinnis to
7.30%.
o During December 2007, the ownership interest of Mark McGinnis
increased to 7.40% as a result of a purchase of 30,000 shares.
o In February 2008, we undertook a 11th private placement of shares of
common stock which resulted in dilution to the percentage ownership
of Mark McGinnis to 7.14%.
o During April 2008, the ownership interest of Mark McGinnis decreased
to 7.13% as a result of a sale of 3,500 shares.
DESCRIPTION OF SECURITIES
GENERAL
The following description of our common stock and provisions of our
Articles is a summary thereof and is qualified by reference to our Articles,
copies of which may be obtained upon request. Our authorized capital consists of
250,000,000 shares of common stock, par value $0.001 per share. As of the date
of this Prospectus, 29,818,359 shares of common stock were issued and
outstanding.
COMMON STOCK
Holders of shares of common stock are entitled to share, on a ratable
basis, such dividends as may be declared by the Board out of funds, legally
available therefor. Upon our liquidation, dissolution or winding up, after
payment to creditors, our assets will be divided pro rata on a per share basis
among the holders of our common stock.
- 85 -
Each share of common stock entitles the holders thereof to one vote.
Holders of common stock do not have cumulative voting rights which means that
the holders of more than 50% of the shares voting for the election of directors
can elect all of the directors if they choose to do so, and, in such event, the
holders of the remaining shares will not be able to elect any directors. Our
By-Laws require that only a majority of our issued and outstanding shares need
be represented to constitute a quorum and to transact business at a
stockholders' meeting. Our common stock has no preemptive, subscription or
conversion rights and is not redeemable by us.
COMMON STOCK PURCHASE WARRANTS
There are currently outstanding Warrants to purchase an aggregate of
2,221,471 shares of our common stock. The Warrants and finder's Warrants were
issued in connection with financing transactions. The Warrants are exercisable
(i) at $1.50 per share and, pursuant to an extension of the expiry date by our
Board, now expire on July 13, 2008; (ii) at $1.75 per share and expire on
October 10, 2008; and (iii) at $1.75 per share and expire on October 30, 2008.
The finder's Warrants are exercisable (i) at $1.75 per share and expire on
October 10, 2008; (ii) at $1.75 per share and expire on October 30, 2008; and
(iii) at $2.25 per share and expire on the earlier of the shares being (a)
posted on an over-the-counter bulletin board service; or (b) listed on a
recognized share exchange. The exercise price of the Warrants and the number of
shares issuable upon the exercise of the Warrants is subject to adjustment in
the event of stock splits, stock dividends and reorganizations.
CONVERTIBLE DEBENTURES
We completed a convertible debenture transaction with three investors
(the "DEBENTURE HOLDERS") in July 2005 for gross proceeds of US$900,000, the
outstanding principal balance of which is repayable on or before June 30, 2010.
Interest is calculated at the rate of 7% per annum on the outstanding principal
and is payable on a quarterly basis on the last days of September, December,
March and June in each year. The Debenture Holders have the option to convert
any portion of the outstanding principal owing and the Accrued Interest into
shares at a conversion price of $1.00 per share. In addition, provided there is
a registration statement then in effect covering the Conversion Shares, or the
Conversion Shares may otherwise be resold pursuant to Rule 144, the outstanding
principal amount of this Debenture, and all accrued but unpaid interest, shall
automatically be converted into shares of the Company's Common Stock, at the
Conversion Price, in the event that the Common Stock trades for twenty (20)
consecutive trading days (a) with a closing bid price of at least $1.50 per
share and (b) a cumulative trading volume during such twenty (20) trading day
period of at least 1,000,000 shares.
The conversion price and the number of shares issuable upon the
conversion of the Convertible Debentures and Accrued Interest is subject to
adjustment in the event of stock splits, stock dividends and reorganizations. An
aggregate of 915,750 shares has been reserved for issuance in connection with
the debt conversion.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Allied Stock
Transfer, Inc., 200 Memorial Parkway, Atlantic Highlands, NJ, 07716. Our
transfer agent may be reached by telephone at (732) 872-2727.
- 86 -
SELLING SECURITY HOLDERS
BACKGROUND OF THE TRANSACTIONS
This Prospectus covers the resale of 2,782,375 shares of our common
stock issued or issuable in connection with the following transactions:
o 650,000 shares issuable upon conversion of an aggregate of $650,000
Convertible Debentures issued in a convertible debenture financing
completed on July 7, 2005;
o 11,375 shares issuable upon conversion of up to $11,375 Accrued
Interest in connection with the convertible debenture financing
completed on July 7, 2005;
o 1,132,000 shares we issued and 566,000 shares issuable upon exercise
of Warrants we issued pursuant to a private placement transaction
completed on July 24, 2006;
o 282,000 shares we issued and 141,000 shares issuable upon exercise
of Warrants we issued pursuant to a private placement transaction
completed on October 24, 2006; and
SELLING SECURITY HOLDERS
The following table sets forth:
o the name of each Selling Security Holder;
o the number or shares of common stock beneficially owned by each
Selling Security Holder as of the date of this Prospectus, giving
effect to the exercise of the Selling Security Holders' Warrants;
o the number of shares being offered by each Selling Security Holder;
and
o the number of shares to be owned by each Selling Security Holder
following completion of this Offering.
Beneficial ownership is determined in accordance with the rules of the
SEC and generally includes voting or investment power with respect to securities
and includes any securities which the person has the right to acquire within 60
days through the conversion or exercise of options, warrants, promissory notes
and any other security or other right. The information as to the number of
shares of our common stock owned by each Selling Security Holder is based upon
our records and information provided by our transfer agent.
We may amend or supplement this Prospectus from time to time to update
the disclosure set forth in the table. As the Selling Security Holders
identified in the table may sell some or all of the shares owned by them which
are included in this Prospectus, and as there are currently no agreements,
arrangements or understandings with respect to the sale of any of the shares, no
estimate can be given as to the number of shares available for resale hereby
that will be held by the Selling Security Holders upon termination of the
offering made hereby. We have therefore assumed, for the purposes of the
following table, that the Selling Security Holders will sell all of the shares
owned by them that are being offered hereby, but will not sell any other shares
of our common stock that they presently own. We do not believe that any of the
Selling Security Holders are broker-dealers or affiliated with broker-dealers.
- 87 -
The shares of common stock being offered have been registered to permit
public sales and the Selling Security Holders may offer all or part of the
shares for resale from time to time. All expenses of the registration of the
common stock on behalf of the Selling Security Holders are being borne by us. We
will receive none of the proceeds of this offering.
SHARES
AVAILABLE SHARES PERCENTAGE
SHARES AND PERCENTAGE OF PURSUANT OWNED OF CLASS
CLASS OWNED BENEFICIALLY TO THIS AFTER AFTER
SELLING SECURITY HOLDER PRIOR TO THIS OFFERING PROSPECTUS OFFERING OFFERING
- ----------------------- ------------------------ ---------- -------- ----------
Ernst Baur (1) 45,000 (0.151%) 45,000 0 0%
Markus Bertschin (2) 45,000 (0.151%) 45,000 0 0%
Bradam Financial Holdings Ltd. (3) 777,500 (2.607%) 508,750 268,750 .901%
Earl Charleton (4) 15,000 (0.053%) 15,000 0 0%
CMK Financial Holdings Ltd. (5) 240,000 (0.805%) 152,625 87,375 .293%
Kurt Groebli (6) 15,000 (0.053%) 15,000 0 0%
Adrian Jaggi (7) 30,000 (0.101%) 30,000 0 0%
Royal Trust Corp. of Canada (8) 1,665,000 (5.584%) 1,665,000 0 0%
Walter Schneider (9) 225,000 (0.755%) 75,000 150,000 .503%
Matthias Schole (10) 48,000 (0.161%) 48,000 0 0%
Leon van der Merwe (11) 350,000 (1.174%) 150,000 200,000 .671%
Peter Winnell (12) 33,000 (0.111%) 33,000 0 0%
(1) Consists of 30,000 shares and 15,000 shares of common stock underlying
Warrants that are currently exercisable.
(2) Consists of 30,000 shares and 15,000 shares of common stock underlying
Warrants that are currently exercisable.
(3) Consists of 277,500 shares and 500,000 shares of common stock underlying a
debenture, the outstanding principal of which is convertible into shares
and up to a maximum of $8,750 in the event that the holder converts the
then accrued interest which would be no more than for a three month period.
Bradam Financial Holdings Ltd. is a private foreign investment company
based in Castries, St. Lucia, Caribbean. Mikkel Lind, Managing Director of
the Selling Security Holder, makes decisions as to the voting and
disposition of the securities.
(4) Consists of 10,000 shares and 5,000 shares of common stock underlying
Warrants that are currently exercisable.
(5) Consists of 60,000 shares, 30,000 shares underlying warrants that are
currently exercisable and 150,000 shares of common stock underlying a
debenture, the outstanding principal of which is convertible into shares
and up to a maximum of $2,625 in the event that the holder converts the
then accrued interest which would be no more than for a three month period.
CMK Financial Holdings Ltd. is a private foreign investment company based
in Castries, St. Lucia, Caribbean. Mikkel Lind, Managing Director of the
Selling Security Holder, makes decisions as to the voting and disposition
of the securities.
(6) Consists of 10,000 shares and 5,000 shares of common stock underlying
Warrants that are currently exercisable.
(7) Consists of 20,000 shares and 10,000 shares of common stock underlying
Warrants that are currently exercisable.
- 88 -
(8) Consists of 1,110,000 shares and 555,000 shares of common stock underlying
Warrants that are currently exercisable. Sprott Asset Management exercises
voting and dispositive power over all of the shares beneficially owned by
Royal Trust Corp. of Canada in trust for Sprott Asset Management. Eric
Sprott, Chief Executive Officer of Sprott Asset Management, makes decisions
as to the voting and disposition of the securities.
(9) Consists of 200,000 shares and 25,000 shares of common stock underlying
Warrants that are currently exercisable.
(10) Consists of 32,000 shares and 16,000 shares of common stock underlying
Warrants that are currently exercisable.
(11) Consists of 300,000 shares and 50,000 shares of common stock underlying
Warrants that are currently exercisable.
(12) Consists of 22,000 shares and 11,000 shares of common stock underlying
Warrants that are currently exercisable.
None of the above Selling Security Holders are affiliates of United
States brokers-dealers, nor at the time of purchase did any of them have any
agreements or understandings, directly or indirectly, with any persons to
distribute the securities.
PLAN OF DISTRIBUTION
Offering Price
The selling security Holders may offer and sell their shares at $1.30
per share until our shares are quoted in the over-the-counter market or on a
national securities exchange and thereafter at prevailing market prices or
privately negotiated prices. This initial offering price of $1.50 per share was
arrived at based upon our last private placement completed in February 2008 in
which we sold shares of our common stock at $1.50 per share. Our common stock is
presently quoted on the Pink Sheets which is not considered an exchange for
purposes of selling at other than the fixed price of $1.50. Following such time
as our shares of common stock are quoted in the over-the-counter market or on a
national securities exchange the Selling Security Holders and any of their
pledgees, assignees and successors-in-interest may, from time to time, sell any
or all of their shares of common stock on any stock exchange, market or trading
facility on which the shares are traded or in private transactions.
Manner of Sales
These sales may be at fixed or negotiated prices. The Selling Security
Holders may use any one or more of the following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
- 89 -
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o settlement of short sales entered into after the date of this
Prospectus;
o broker-dealers may agree with the Selling Security Holders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The Selling Security Holders may also sell shares under Rule 144 under
the Securities Act of 1933, if available, rather than under this Prospectus.
Broker-dealers engaged by the Selling Security Holders may arrange for
other broker-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the Selling Security Holders (or, if any
broker-dealer acts as agent for the purchaser of shares, from the purchaser) in
amounts to be negotiated. The Selling Security Holders do not expect these
commissions and discounts to exceed what is customary in the types of
transactions involved. Broker-dealers may agree to sell a specified number of
such shares at a stipulated price per share, and, to the extent such
broker-dealer is unable to do so acting as agent for us or a selling
stockholder, to purchase as principal any unsold shares at the price required to
fulfill the broker- dealer commitment. Broker-dealers who acquire shares as
principal may thereafter resell such shares from time to time in transactions,
which may involve block transactions and sales to and through other
broker-dealers, including transactions of the nature described above, in the
over-the-counter markets or otherwise at prices and on terms then prevailing at
the time of sale, at prices then related to the then-current market price or in
negotiated transactions. In connection with such resales, broker-dealers may pay
to or receive from the purchasers of such shares, commissions as described
above. In the event that shares are resold to any broker-dealer, as principal,
who is acting as an underwriter, we will file a post-effective amendment to the
registration statement of which this Prospectus forms a part, identifying the
broker-dealer(s), providing required information relating to the plan of
distribution and filing any agreement(s) with such broker-dealer(s) as an
exhibit. The involvement of a broker-dealer as an underwriter in the offering
will require prior clearance of the terms of underwriting compensation and
arrangements from the Corporate Finance Department of the National Association
of Securities Dealers, Inc.
The Selling Security Holders may, from time to time, pledge or grant a
security interest in some or all of the shares or common stock or warrants owned
by them and, if they default in the performance of their secured obligations,
the pledgees or secured parties may offer and sell the shares of common stock,
from time to time, under this Prospectus, or under an amendment to this
Prospectus under Rule 424 (b)(3) or other applicable provision of the Securities
Act of 1933 amending the list of Selling Security Holders to include the
pledgee, transferee or other successors-in-interest as selling security holders
under this Prospectus.
- 90 -
The Selling Security Holders also may transfer the shares of common
stock in other circumstances, in which case the transferees, pledgees or other
successors-in- interest will be the selling beneficial owners for purposes of
this Prospectus.
The Selling Security Holders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933 in connection with such sales. In such
event, any commissions received by such broker-dealers or agents and any profit
on the resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act of 1933. The Selling Security
Holders have informed us that they do not have any agreement or understanding,
directly or indirectly, with any person to distribute the common stock.
Regulation M
The Selling Security Holders must comply with the requirements of the
Securities Act and the Exchange Act in the offer and sale of the common stock.
In particular, we will advise the selling stockholders that the
anti-manipulation rules of Regulation M under the Exchange Act may apply to
sales of shares in the market and to the activities of the Selling Security
Holders and their affiliates. Regulation M under the Exchange Act prohibits,
with certain exceptions, participants in a distribution from bidding for, or
purchasing for an account in which the participant has a beneficial interest,
any of the securities that are the subject of the distribution.
Accordingly, during such times as a Selling Security Holders may be
deemed to be engaged in a distribution of the common stock, and therefore be
considered to be an underwriter, the Selling Security Holders must comply with
applicable law and, among other things:
1. may not engage in any stabilization activities in connection with
our common stock;
2. may not cover short sales by purchasing shares while the
distribution is taking place; and
3. may not bid for or purchase any of our securities or attempt to
induce any person to purchase any of our securities other than as
permitted under the Exchange Act.
In addition, we will make copies of this Prospectus available to the
Selling Security Holders for the purpose of satisfying the prospectus delivery
requirements of the Securities Act.
Expenses of Registration
We are bearing all costs relating to the registration of the common
stock. The Selling Security Holders, however, will pay any commissions or other
fees payable to brokers or dealers in connection with any sale of the common
stock.
- 91 -
SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this Prospectus, we had 29,818,359 shares of common
stock issued and outstanding. Of the issued and outstanding shares,
approximately 28,088,157 shares of our common stock (4,252,526 of which are
owned by our officers, directors and principal stockholders) have been held for
in excess of one year and are available for public resale pursuant to Rule 144
promulgated under the Securities Act. As of the date of this Prospectus, the
1,414,000 shares registered under a registration statement of which this
Prospectus forms a part, and being offered by Selling Security Holders can be
publicly transferred. Not included in the foregoing are (i) 2,221,471 shares
issuable on exercise of outstanding warrants; (ii) 650,000 shares issuable upon
conversion of convertible debentures; and (iii) 11,375 shares issuable upon
conversion of the Accrued Interest. They may be resold by their holders as long
as they are covered by a current registration statement or under an available
exemption from registration.
In general, Rule 144 permits a shareholder who has owned restricted
shares for at least one year, to sell without registration, within a three-month
period, up to one percent of our then outstanding common stock. We must be
current in our reporting obligations in order for a stockholder to sell shares
under Rule 144. In addition, stockholders other than our officers, directors or
10% or greater stockholders who have owned their shares for at least two years
may sell them without volume limitation or the need for our reports to be
current.
We cannot predict the effect, if any, that market sales of common stock
or the availability of these shares for sale will have on the market price of
the shares from time to time. Nevertheless, the possibility that substantial
amounts of common stock may be sold in the public market could adversely affect
market prices for the common stock and could damage our ability to raise capital
through the sale of our equity securities.
LEGAL MATTERS
The validity of the securities offered by this Prospectus is being
reviewed upon for us by Schneider Weinberger & Beilly LLP, Boca Raton, Florida.
EXPERTS
The consolidated financial statements of Xtra-Gold Resources Corp. as
of December 31, 2007 and 2006, respectively, and for each of the two years then
ended appearing in this Prospectus have been audited by Davidson & Company LLP,
Independent Registered Public Accounting Firm, as set forth in their report
thereon appearing elsewhere in this Prospectus, and are included in reliance
upon this report given on the authority of such firm as experts in auditing and
accounting.
ADDITIONAL INFORMATION
We have filed with the SEC the Registration Statement on Amendment No.
8 to Form SB-2 on Form S-1 under the Securities Act for the common stock offered
by the Selling Security Holders by this Prospectus. This Prospectus, which is a
part of the Registration Statement, does not contain all of the information in
the Registration Statement and the exhibits filed with it, portions of which
- 92 -
have been omitted as permitted by SEC rules and regulations. For further
information concerning us and the securities offered by the Selling Security
Holders by this Prospectus, we refer to the Registration Statement and to the
exhibits filed with it. Statements contained in this Prospectus as to the
content of any contract or other document referred to are not necessarily
complete. In each instance, we refer you to the copy of the contracts and/or
other documents filed as exhibits to the Registration Statement, and these
statements are qualified in their entirety by reference to the contract or
document.
The Registration Statement, including all exhibits, and other materials
we file with the SEC, may be inspected without charge, and copies of these
materials may also be obtained upon the payment of prescribed fees, at the SEC's
Public Reference Room at:
100 F Street, N.E.
Room 1580
Washington, D.C. 20549
You may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330.
The Registration Statement, including all exhibits and schedules and
amendments, has been filed with the SEC through the Electronic Data Gathering,
Analysis and Retrieval (EDGAR) system. We do not currently file periodic reports
with the SEC; however, following the effective date of the registration
statement relating to this Prospectus, we will become a reporting company and
will file annual, quarterly and current reports, and other information with the
SEC. Copies of all of our filings with the SEC may be viewed on the SEC's
Internet web site at http://www.sec.gov. We maintain a website at
www.xtragold.com. The information on our website does not form a part of this
Prospectus.
For so long as we are a reporting company, we will be required to file
annual reports with the SEC, containing audited financial statements. However,
unless we register our common stock under Section 12(g) of the Exchange Act, we
will not be required to deliver an annual report containing audited financial
statements to security holders. We currently have no plans to register our
common stock under Section 12(g) of the Exchange Act. If we are not required to
deliver an annual report to security holders, we do not intend to voluntarily
deliver annual reports to security holders containing audited financial
statements.
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF
ANY OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THE INFORMATION SET FORTH HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
- 93 -
XTRA-GOLD RESOURCES CORP. AND SUBSIDIARIES
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN U.S. DOLLARS)
DECEMBER 31, 2007
F-1
DAVIDSON & COMPANY LLP
Chartered Accountants
A Partnership of Incorporated Professionals
================================================================================
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of
Xtra-Gold Resources Corp. and subsidiaries
(an exploration state company)
We have audited the accompanying consolidated balance sheets of Xtra-Gold
Resources Corp. and subsidiaries (an exploration stage company) as at December
31, 2007 and 2006 and the related consolidated statements of operations,
stockholders' equity and cash flows for the years then ended and for the period
from the beginning of the exploration stage on January 1, 2003 to December 31,
2007. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as at
December 31, 2007 and 2006 and the results of its operations and its cash flows
for the years then ended and for the period from the beginning of the
exploration stage on January 1, 2003 to December 31, 2007 in conformity with
generally accepted accounting principles in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has suffered recurring losses
from operations. These matters raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regards to these
matters are discussed in Note 2. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
"DAVIDSON & COMPANY LLP"
Vancouver, Canada Chartered Accountants
March 7, 2008
NEXIA INTERNATIONAL
1200 - 609 Granville Street, P.O. Box 10372, Pacific Centre,
Vancouver, BC, Canada, V7Y 1G6
Telephone (604) 687-0947 Fax (604) 687-6172
F-2
XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. Dollars)
AS AT DECEMBER 31
=======================================================================================
2007 2006
- ---------------------------------------------------------------------------------------
ASSETS
CURRENT
Cash and equivalents ............................... $ 334,265 $ 279,995
Investment in trading securities, at fair value
(cost of $2,160,741 (2006 - $3,002,267)) (Note 4) 2,167,741 2,650,685
Receivables and other .............................. 54,509 93,689
----------- -----------
TOTAL CURRENT ASSETS ............................... 2,556,515 3,024,369
EQUIPMENT (Note 5) .................................... 260,024 90,072
DEFERRED FINANCING COSTS (Note 6) ..................... 23,101 32,342
MINERAL PROPERTIES (Note 8) ........................... 1,625,594 1,647,594
----------- -----------
TOTAL ASSETS .......................................... $ 4,465,234 $ 4,794,377
=======================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities ........... $ 795,231 $ 237,942
----------- -----------
TOTAL CURRENT LIABILITIES ............................. 795,231 237,942
CONVERTIBLE DEBENTURES (Note 9) ....................... 900,000 900,000
ASSET RETIREMENT OBLIGATION (Note 10) ................. 28,399 48,237
----------- -----------
TOTAL LIABILITIES .................................. 1,723,630 1,186,179
----------- -----------
STOCKHOLDERS' EQUITY
Capital stock (Note 11)
Authorized
250,000,000common shares with a par value of $0.001
Issued and outstanding
28,756,359 common shares (December 31, 2006 -
28,088,157 common shares) ....................... 28,756 28,088
Additional paid in capital ......................... 9,252,166 8,244,671
Deficit ............................................ (1,427,764) (1,427,764)
Deficit accumulated during the exploration stage ... (5,111,554) (3,236,797)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY ......................... 2,741,604 3,608,198
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............ $ 4,465,234 $ 4,794,377
=======================================================================================
HISTORY AND ORGANIZATION OF THE COMPANY (Note 1)
CONTINGENCY AND COMMITMENTS(Note 16)
SUBSEQUENT EVENT (Note 17)
The accompanying notes are an integral part of these consolidated financial statements.
F-3
XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in U.S. Dollars)
=========================================================================================
Cumulative
amounts from
the beginning of
the exploration
stage on Year Year
January 1, 2003 Ended Ended
to December 31, December 31, December 31,
2007 2007 2006
- -----------------------------------------------------------------------------------------
EXPENSES
Amortization ....................... $ 54,179 $ 37,760 $ 15,365
Exploration ........................ 5,813,045 3,932,845 1,091,948
General and administrative ......... 2,992,532 1,348,898 1,008,933
Write-off of mineral property ...... 26,000 - -
------------ ------------ ------------
LOSS BEFORE OTHER ITEMS ............... (8,885,756) (5,319,503) (2,116,246)
------------ ------------ ------------
OTHER ITEMS
Foreign exchange gain (loss) ....... 491,844 366,687 (12,207)
Interest expense ................... (188,973) (72,240) (76,644)
Realized gains (losses) on sales of
trading securities ............... 193,633 (94,855) 127,023
Net unrealized gain (loss) on
trading securities ............... 1,473 389,793 (778,230)
Other income ....................... 487,553 163,119 196,882
Recovery of gold ................... 2,692,242 2,692,242 -
Gain (loss) on disposal of property 96,430 - 96,430
------------ ------------ ------------
3,774,202 3,444,746 (446,746)
------------ ------------ ------------
LOSS FOR THE PERIOD ................... $ (5,111,554) $ (1,874,757) $ (2,562,992)
=========================================================================================
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.07) $ (0.10)
=========================================================================================
BASIC AND DILUTED WEIGHTED AVERAGE
NUMBER OF COMMON SHARES OUTSTANDING ... 28,216,728 26,718,248
=========================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
F-4
XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
===========================================================================================================
Cumulative
amounts from
the beginning of
the exploration
stage on Year Year
January 1, 2003 Ended Ended
to December 31, December 31, December 31,
2007 2007 2006
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the period .................................. $ (5,111,554) $ (1,874,757) $ (2,562,992)
Items not affecting cash:
Amortization ....................................... 54,179 37,760 15,365
Amortization of deferred financing costs ........... 23,101 9,241 9,240
Accretion of asset retirement obligation ........... 10,534 2,162 4,404
Shares issued for services ......................... 5,500 - -
Stock-based compensation ........................... 442,686 195,623 206,041
Unrealized foreign exchange gain ................... (568,581) (416,970) (156)
Realized (gain) losses on sale of trading securities (193,633) 94,855 (127,023)
Purchase of trading securities (Note 4) ............ (8,697,836) (475,825) (3,431,241)
Proceeds on sale of trading securities (Note 4) .... 7,293,782 1,670,677 2,776,712
Unrealized (gain) loss on trading securities ....... (1,473) (389,793) 778,230
Gain on disposal of property ....................... (95,342) - (96,430)
Write-off of mineral property ...................... 26,000 - -
Expenses paid by stockholders ...................... 2,700 - -
Changes in non-cash working capital items:
(Increase) decrease in receivables and other ....... (46,134) 39,180 (61,022)
Increase (decrease) in accounts payable
and accrued liabilities .......................... 784,539 557,289 (21,345)
Increase (decrease) in due to related party ........ 50,000 - (36,499)
------------ ------------ ------------
Net cash used in operating activities ................ (6,021,532) (550,558) (2,546,716)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible debentures ..... 900,000 - -
Deferred financing costs ............................. (46,202) - -
Repurchase of capital stock .......................... (7,000) - (7,000)
Issuance of capital stock, net of financing costs .... 5,740,262 812,540 2,377,379
------------ ------------ ------------
Net cash provided by financing activities ............ 6,587,060 812,540 2,370,379
------------ ------------ ------------
- continued -
The accompanying notes are an integral part of these consolidated financial statements.
F-5
XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
===========================================================================================================
Cumulative
amounts from
the beginning of
the exploration
stage on Year Year
January 1, 2003 Ended Ended
to December 31, December 31, December 31,
2007 2007 2006
- -----------------------------------------------------------------------------------------------------------
Continued ...
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment ............................. (318,026) (207,712) (102,297)
Oil and gas property expenditures .................... (210,137) - (210,137)
Acquisition of cash on purchase of subsidiary ........ 11,510 - -
Acquisition of subsidiary ............................ (25,000) - -
Proceeds on disposal of assets ....................... 310,390 - 310,390
------------ ------------ ------------
Net cash provided by (used in) investing activities .. (231,263) (207,712) (2,044)
------------ ------------ ------------
CHANGE IN CASH AND CASH EQUIVALENTS DURING THE PERIOD ... 334,265 54,270 (178,381)
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD ...... - 279,995 458,376
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF THE PERIOD ............ $ 334,265 $ 334,265 $ 279,995
===========================================================================================================
SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS (Note 13)
The accompanying notes are an integral part of these consolidated financial statements.
F-6
XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Expressed in U.S. Dollars)
===================================================================================================================
Deficit
Common Stock Accumulated
----------------------- Additional During the
Number Paid-in exploration
of Shares Amount Capital Deficit Stage Total
- -------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2002 ....... 12,364,085 $ 12,364 $ 1,412,842 $(1,427,764) $ - $ (2,558)
Paid on behalf of the Company .... - - 5,258 - - 5,258
October 31, 2003, issuance
of stock for acquisition of
subsidiary ....................... 50,350,000 50,350 (50,350) - - -
Loss for the year ................ - - - - (2,700) (2,700)
----------- --------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 2003 ....... 62,714,085 62,714 1,367,750 (1,427,764) (2,700) -
March, 2004 - private
placement at $0.35 per share ..... 2,000,000 2,000 698,000 - - 700,000
May, 2004 - private
placement at $0.35 per share ..... 2,129,400 2,129 743,161 - - 745,290
December, 2004 - acquisition
of subsidiary via issuance
of common stock .................. 2,698,350 2,699 1,616,311 - - 1,619,010
Share issuance costs ............. - - (76,298) - - (76,298)
Loss for the year ................ - - - - (398,533) (398,533)
----------- --------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 2004 ....... 69,541,835 69,542 4,348,924 (1,427,764) (401,233) 2,589,469
May, 2005 - cancellation of
shares ........................... (47,000,000) (47,000) 47,000 - - -
June 2005 - for services ......... 10,000 10 5,490 - - 5,500
June, 2005 - private
placement at $0.55 per share ..... 536,218 536 294,384 - - 294,920
August, 2005 - private
placement at $0.55 per share ..... 300,000 300 164,700 - - 165,000
- continued -
The accompanying notes are an integral part of these consolidated financial statements.
F-7
XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Expressed in U.S. Dollars)
===================================================================================================================
Deficit
Common Stock Accumulated
----------------------- Additional During the
Number Paid-in exploration
of Shares Amount Capital Deficit Stage Total
- -------------------------------------------------------------------------------------------------------------------
continued ...
November, 2005 - private
placement at $0.55 per share ..... 1,549,354 1,550 850,595 - - 852,145
Share issuance costs ............. - - (130,714) - - (130,714)
Stock-based compensation ......... - - 41,022 - - 41,022
Loss for the year ................ - - - - (272,572) (272,572)
----------- --------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 2005 ....... 24,937,407 24,938 5,621,401 (1,427,764) (673,805) 3,544,770
February, 2006 - conversion of
promissory note at $0.55 per
share ............................ 90,909 91 49,909 - - 50,000
March, 2006 - exercise of
warrants at $0.75 per share ...... 108,500 108 81,267 - - 81,375
March, 2006 - private placement
at $0.70 per share ............... 792,029 792 553,628 - - 554,420
April, 2006 - exercise of
warrants at $0.75 per share ...... 177,200 177 132,723 - - 132,900
June, 2006 - cancellation of
shares ........................... (10,000) (10) (6,990) - - (7,000)
June, 2006 - private placement
at $0.90 per share ............... 578,112 578 519,722 - - 520,300
July, 2006 - private placement
at $0.90 per share ............... 1,132,000 1,132 1,017,668 - - 1,018,800
October, 2006 - private
placement at $1.10 per share ..... 282,000 282 309,918 - - 310,200
Share issuance costs ............. - - (240,616) - - (240,616)
Stock-based compensation ......... - - 206,041 - - 206,041
Loss for the year ................ - - - - (2,562,992) (2,562,992)
----------- --------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 2006 ....... 28,088,157 28,088 8,244,671 (1,427,764) (3,236,797) 3,608,198
===================================================================================================================
- continued -
The accompanying notes are an integral part of these consolidated financial statements.
F-8
XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Expressed in U.S. Dollars)
===================================================================================================================
Deficit
Common Stock Accumulated
----------------------- Additional During the
Number Paid-in exploration
of Shares Amount Capital Deficit Stage Total
- -------------------------------------------------------------------------------------------------------------------
continued ...
October, 2007 - Private
placement at $1.35 per unit ...... 668,202 668 901,405 - - 902,073
Share issuance costs ............. - - (89,533) - - (89,533)
Stock-based compensation ......... - - 195,623 - - 195,623
Loss for the year ................ - - - - (1,874,757) (1,874,757)
----------- --------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 2007 ....... 28,756,359 $ 28,756 $ 9,252,166 $(1,427,764) $(5,111,554) $ 2,741,604
===================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
F-9
XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
DECEMBER 31, 2007
================================================================================
1. HISTORY AND ORGANIZATION OF THE COMPANY
Silverwing Systems Corporation (the "Company"), a Nevada corporation,
was incorporated on September 1, 1998. On June 23, 1999, the Company
completed the acquisition of Advertain On-Line Canada Inc. ("Advertain
Canada"), a Canadian company operating in Vancouver, British Columbia,
Canada. The Company changed its name to Advertain On-Line Inc.
("Advertain") on August 19, 1999. Advertain Canada's business was the
operation of a web site, "Advertain.com", whose primary purpose was to
distribute entertainment advertising on the Internet.
In May 2001, the Company, being unable to continue its funding of
Advertain Canada's operations, decided to abandon its interest in
Advertain Canada. On June 15, 2001, the Company sold its investment in
Advertain Canada back to Advertain Canada's original shareholder. On
June 18, 2001, the Company changed its name from Advertain to
RetinaPharma International, Inc. ("RetinaPharma") and became inactive.
In 2003, the Company became a resource exploration company. On October
31, 2003, the Company acquired 100% of the issued and outstanding
common stock of Xtra-Gold Resources, Inc.("XGRI"). XGRI was
incorporated in Florida on October 24, 2003. On December 19, 2003, the
Company changed its name from RetinaPharma to Xtra-Gold Resources Corp.
In 2004, the Company acquired 100% of the issued and outstanding
capital stock of Canadiana Gold Resources Limited ("Canadiana") and 90%
of the issued and outstanding capital stock of Goldenrae Mining Company
Limited ("Goldenrae") (Note 5). Both companies are incorporated in
Ghana and the remaining 10% of the issued and outstanding capital stock
of Goldenrae is held by the Government of Ghana.
On October 20, 2005, XGRI changed its name to Xtra Energy Corp. ("Xtra
Energy").
On October 20, 2005, the Company incorporated Xtra Oil & Gas Ltd.
("XOG") in Alberta, Canada.
On December 21, 2005, Canadiana changed its name to Xtra-Gold
Exploration Limited ("XG Exploration").
On January 13, 2006, Goldenrae changed its name to Xtra-Gold Mining
Limited ("XG Mining").
On March 2, 2006, the Company incorporated Xtra Oil & Gas (Ghana)
Limited ("XOGG") in Ghana.
2. GOING CONCERN
The Company is in the exploration stage with respect to its resource
properties, incurred a loss of $1,874,757 for the year ended December
31, 2007 and has accumulated a deficit during the exploration stage of
$5,111,554. This raises substantial doubt about its ability to continue
as a going concern. The ability of the Company to continue as a going
concern is dependent on the Company's ability to raise additional
capital and implement its business plan. The financial statements do
not include any adjustments that might be necessary if the Company is
unable to continue as a going concern.
Management of the Company ("Management") is of the opinion that
sufficient financing will be obtained from external financing and
further share issuances to meet the Company's obligations. At December
31, 2007, the Company has working capital of $1,761,284.
F-10
XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
DECEMBER 31, 2007
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
These consolidated financial statements have been prepared in
conformity with generally accepted accounting principles of the United
States of America ("US GAAP").
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of the
Company, its wholly owned subsidiaries, Xtra Energy (from October 31,
2003), XG Exploration (from February 16, 2004), XOG (from October 20,
2005) and XOGG (from March 2, 2006) and its 90% owned subsidiary, XG
Mining (from December 22, 2004). All significant intercompany accounts
and transactions have been eliminated on consolidation.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
US GAAP requires Management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments with original
maturities of three months or less to be cash equivalents. At December
31, 2007 and 2006, cash and cash equivalents consisted of cash held at
financial institutions.
RECEIVABLES
No allowance for doubtful accounts has been provided. Management has
evaluated all receivables and believes they are all collectible.
RECOVERY OF GOLD
All gold recoveries from the Company's Ghana mine must be sold directly
to the Reserve Bank of Ghana. Recoveries and other income are
recognized when title and the risks and rewards of ownership to
delivered bullion and commodities pass to the buyer and collection is
reasonably assured.
TRADING SECURITIES
The Company's trading securities are reported at fair value, with
unrealized gains and losses included in earnings.
F-11
XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
DECEMBER 31, 2007
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd...)
EQUIPMENT
Equipment is recorded at cost and is being amortized over its estimated
useful lives using the declining balance method at the following annual
rates:
Furniture and equipment 20%
Computer equipment 30%
Vehicles 30%
Mining equipment 20%
DEFERRED FINANCING COSTS
Deferred financing costs consist of expenses incurred to obtain funds
pursuant to the issuance of the convertible debentures and are being
amortized straight-line over the term of the debentures.
MINERAL PROPERTIES AND EXPLORATION AND DEVELOPMENT COSTS
The costs of acquiring mineral rights are capitalized at the date of
acquisition. After acquisition, various factors can affect the
recoverability of the capitalized costs. If, after review, management
concludes that the carrying amount of a mineral property is impaired,
it will be written down to estimated fair value. Exploration costs
incurred on mineral properties are expensed as incurred. Development
costs incurred on proven and probable reserves will be capitalized.
Upon commencement of production, capitalized costs will be amortized
using the unit-of-production method over the estimated life of the ore
body based on proven and probable reserves (which exclude
non-recoverable reserves and anticipated processing losses).
LONG-LIVED ASSETS
The Company accounts for long-lived assets under Statements of
Financial Accounting Standards Nos. 142 and 144 "Accounting for
Goodwill and Other Intangible Assets" and "Accounting for Impairment or
Disposal of Long-Lived Assets" ("SFAS 142 and 144"). In accordance with
SFAS 142 and 144, long-lived assets held and used by the Company are
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
For purposes of evaluating the recoverability of long-lived assets, the
recoverability test is performed using undiscounted net cash flows
related to the long-lived assets.
ASSET RETIREMENT OBLIGATIONS
The Company records the fair value of an asset retirement obligation as
a liability in the period in which it incurs a legal obligation
associated with the retirement of tangible long-lived assets that
result from the acquisition, construction, development, and/or normal
use of the long-lived assets. The Company also records a corresponding
asset which is amortized over the life of the asset. Subsequent to the
initial measurement of the asset retirement obligation, the obligation
is adjusted at the end of each period to reflect the passage of time
(accretion expense) and changes in the estimated future cash flows
underlying the obligation (asset retirement cost).
F-12
XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
DECEMBER 31, 2007
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd...)
STOCK-BASED COMPENSATION
The Company calculates the fair value of all stock options granted and
records these amounts as compensation expense over the vesting period
of the options using the straight-line method. The Black-Scholes option
pricing model is used to calculate fair value.
INCOME TAXES
The Company accounts for income taxes under Statements of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). Under SFAS 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under SFAS 109, the effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
LOSS PER SHARE
Basic loss per common share is computed using the weighted average
number of common shares outstanding during the year. To calculate
diluted loss per share, the Company uses the treasury stock method and
the if converted method as defined in Financial Accounting Standards
No. 128, "Earnings Per Share." As of December 31, 2007, there were
1,074,511 warrants (2006 - 996,056); 1,480,000 options (2006 -
1,996,000) and convertible debentures exercisable into 900,000 common
shares (2006 - 900,000) outstanding which have not been included in the
weighted average number of common shares outstanding as these were
anti-dilutive.
FOREIGN EXCHANGE
The Company's functional currency is the U.S. dollar. The Company does
not have any significant non-monetary assets and liabilities that are
in a currency other than the U.S. dollar. Any monetary assets and
liabilities that are in a currency other than the U.S. dollar are
translated at the rate prevailing at year end. Revenue and expenses in
a foreign currency are translated at rates that approximate those in
effect at the time of translation. Gains and losses from translation of
foreign currency transactions into U.S. dollars are included in current
results of operations.
FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash
equivalents, trading securities, receivables, accounts payable and
accrued liabilities and convertible debentures. It is management's
opinion that the Company is not exposed to significant interest,
currency or credit risks arising from its financial instruments. The
fair values of these financial instruments approximate their carrying
values unless otherwise noted. The Company has its cash primarily in
one commercial bank in Toronto, Ontario, Canada.
F-13
XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
DECEMBER 31, 2007
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd...)
CONCENTRATION OF CREDIT RISK
The financial instrument which potentially subjects the Company to
concentration of credit risk is cash. The Company maintains cash in
bank accounts that, at times, may exceed federally insured limits. As
of December 31, 2007 and 2006, the Company has exceeded the federally
insured limit. The Company has not experienced any losses in such
accounts and believes it is not exposed to any significant risks on its
cash in bank accounts.
RECENT ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements". SFAS No. 157 establishes a framework for measuring the
fair value of assets and liabilities. This framework is intended to
provide increased consistency in how fair value determinations are made
under various existing accounting standards which permit, or in some
cases require, estimates of fair market value. SFAS No. 157 is
effective for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. Earlier application is
encouraged, provided that the reporting entity has not yet issued
financial statements for that fiscal year, including any financial
statements for an interim period within that fiscal year. The Company
is currently assessing the impact of SFAS No. 157 on its financial
position and results of operations, but does not anticipate a material
impact.
In February, 2007, the FASB issued SFAS No. 159 "The Fair Value Option
for Financial Assets and Financial Liabilities". SFAS No. 159 permits
entities to choose to measure many financial assets and financial
liabilities at fair value. Unrealized gains and losses on items for
which the fair value option has been elected are reported in earnings.
SFAS No. 159 is effective for fiscal years beginning after November 15,
2007. The Company is currently assessing the impact of SFAS No. 159 on
its financial position and results of operations, but does not
anticipate a material impact.
4. INVESTMENTS IN TRADING SECURITIES
At December 31, 2007, the Company held investments classified as
trading securities, which consisted of various equity securities. All
trading securities are carried at fair value. As of December 31, 2007,
the fair value of trading securities was $2,167,741 (2006 -
$2,650,685).
5. EQUIPMENT
===========================================================================================
December 31, 2007 December 31, 2006
------------------------------------------------------------------
Accumulated Net Book Accumulated Net Book
Cost Amortization Value Cost Amortization Value
------------------------------------------------------------------
Furniture and equipment $ 4,058 $ 1,623 $ 2,435 $ 568 $ 170 $ 398
Computer equipment .... 22,790 6,753 16,037 10,568 3,467 7,101
Mining equipment ...... 208,699 18,590 190,109 45,489 2,494 42,995
Vehicles .............. 76,564 25,121 51,443 49,472 9,894 39,578
-------- -------- -------- -------- -------- --------
$312,111 $ 52,087 $260,024 $106,097 $ 16,025 $ 90,072
===========================================================================================
F-14
XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
DECEMBER 31, 2007
================================================================================
6. DEFERRED FINANCING COSTS
=======================================================================
December 31, 2007 December 31, 2006
---------------------------------------
Balance, beginning of year $32,342 $41,582
Costs incurred ............. - -
Amortization ............... 9,241 9,240
------- -------
Balance, end of year ....... $23,101 $32,342
=======================================================================
During the year ended December 31, 2005, the Company paid a finder's
fee of $45,000 and other expenses of $1,202 relating to a convertible
debenture financing (Note 9).
7. OIL AND GAS PROPERTY
During the year ended December 31, 2005, the Company entered into a
participation agreement for a 5% participating interest in certain oil
and gas leases in Saskatchewan, Canada ("Saskatchewan Project"). To
earn its interest, the Company was required to pay Ranger Canyon Energy
Inc. $13,925 and to pay its proportionate share of seismic and drilling
expenditures incurred. The Company's share of a drilling program
undertaken in 2005 was $32,613 and for 2006 it was $163,599. During the
year ended December 31, 2006, the Company sold its interest to an
unrelated oil and gas company for $309,287.
8. MINERAL PROPERTIES
=======================================================================
December 31, 2007 December 31, 2006
---------------------------------------
Acquisition costs .......... $1,607,729 $1,607,729
Asset retirement obligation
(Note 10) ................ 17,865 39,865
---------- ----------
Total ...................... $1,625,594 $1,647,594
=======================================================================
KWABENG AND PAMENG PROJECTS
The Company holds two mining leases in Ghana. These mining leases grant
the Company surface and mining rights to produce gold in the leased
areas until July 26, 2019. All gold production will be subject to a 3%
production royalty of the net smelter returns ("NSR").
APAPAM, BANSO AND MUOSO PROJECTS
The Company holds prospecting licences on its Apapam, Banso and Muoso
Projects in Ghana. These licences grant the Company the right to
conduct exploratory work to determine whether there are mineable
reserves of gold or diamonds in the licenced areas, are for two years
and are renewable. If mineable reserves of gold or diamonds are
discovered, the Company will have the first option to acquire a mining
lease.
F-15
XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
DECEMBER 31, 2007
================================================================================
8. MINERAL PROPERTIES (cont'd...)
OPTION AGREEMENT ON EDUM BANSO PROJECT
In October, 2005, XG Exploration entered into an option agreement (the
"Option Agreement") with Adom Mining Limited ("Adom") to acquire 100%
of Adom's right, title and interest in and to a prospecting licence on
the Edum Banso concession (the "Edum Banso Project") located in Ghana.
Adom further granted XG Exploration the right to explore, develop, mine
and sell mineral products from this concession. The Option Agreement
has a five year term.
The consideration paid was $15,000 with additional payments of $5,000
to be paid on the anniversary date of the Option Agreement in each year
during the term. Upon the commencement of gold production, an
additional $200,000 is to be paid, unless proven and probable reserves
are less than 2,000,000 ounces, in which case the payment shall be
reduced to $100,000. Upon successful transfer of title from Adom to XG
Exploration, a production royalty (the "Royalty") of 2% of the net
smelter returns shall be paid to Adom; provided, however that in the
event that less than 2,000,000 ounces of proven and probable reserves
are discovered, then the Royalty shall be 1%. The Royalty can be
purchased by XG Exploration for $2,000,000; which will be reduced to
$1,000,000 if proven and probable reserves are less than 2,000,000
ounces.
MINING LEASE AND PROSPECTING LICENCE COMMITMENTS
The Company is committed to expend, from time to time to the Minerals
Commission for an extension of an expiry date of a prospecting licence
(currently $15,000 for each occurrence) or a mining lease and the
Environmental Protection Agency ("EPA") (of Ghana) for processing and
certificate fees with respect to EPA permits, an aggregate of less than
$500 in connection with annual or ground rent and mining permits to
enter upon and gain access to the areas covered by the Company's mining
leases and prospecting licences.
9. CONVERTIBLE DEBENTURES
During the year ended December 31, 2005, the Company completed a
convertible debenture financing for gross proceeds of $900,000. The
debentures bear interest at 7% per annum, payable quarterly, and the
principal balance is repayable by June 30, 2010. Debenture holders have
the option to convert any portion of the outstanding principal into
common shares at the conversion rate of $1 per share.
10. ASSET RETIREMENT OBLIGATION
=======================================================================
December 31, 2007 December 31, 2006
---------------------------------------
Balance, beginning of year . $ 48,237 $ 43,833
Change in obligation ....... (22,000) -
Accretion expense .......... 2,162 4,404
-------- --------
Balance, end of year ....... $ 28,399 $ 48,237
=======================================================================
The Company has a legal obligation associated with its mineral
properties for clean up costs when work programs are completed.
F-16
XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
DECEMBER 31, 2007
================================================================================
10. ASSET RETIREMENT OBLIGATION (cont'd...)
The undiscounted amount of cash flows, required over the estimated
reserve life of the underlying assets, to settle the obligation,
adjusted for inflation, is estimated at $109,261 (2006 - $53,060). The
obligation was calculated using a credit-adjusted risk free discount
rate of 10% and an inflation rate of 2%. The life of the mine was
extended from 2007 to 2023 during fiscal 2007. It is expected that this
obligation will be funded from general Company resources at the time
the costs are incurred.
11. CAPITAL STOCK
CANCELLATION OF SHARES
In May 2005, 47,000,000 common shares owned by two directors were
returned to treasury and cancelled.
In June 2006, 10,000 common shares were returned to the Company in
settlement of a dispute and cancelled.
PRIVATE PLACEMENTS
In October 2007, the Company issued 668,202 units at $1.35 per unit for
gross proceeds of $902,073. Each unit consisted of one common share and
one half of one share purchase warrant. One whole warrant enables the
holder to acquire an additional common share at a price of $1.75 for
one year. The Company also issued finders warrants enabling the holder
to acquire up to 33,410 common shares at the same terms as the unit
warrants.
In October 2006, the Company issued 282,000 common shares at $1.10 per
share for gross proceeds of $310,200. For each two shares subscribed
for, the purchaser received one share purchase warrant which enables
the holder to acquire an additional common share at a price of $1.50 to
April 23, 2008.
In July 2006, the Company issued 1,132,000 common shares at $0.90 per
share for gross proceeds of $1,018,800. For each two shares subscribed
for, the purchaser received one share purchase warrant which enables
the holder to acquire an additional common share at a price of $1.50 to
July 31, 2007 which expiry date was extended to December 13, 2007
(expired).
In June 2006, the Company issued 578,112 common shares at $0.90 per
share for gross proceeds of $520,300. For each two shares subscribed
for, the purchaser received one share purchase warrant which enables
the holder to acquire an additional common share at a price of $1.50 to
June 16, 2007 (expired).
In March 2006, the Company issued 792,029 common shares at $0.70 per
share for gross proceeds of $554,420.
In November 2005, the Company issued 1,549,354 common shares at $0.55
per share for gross proceeds of $852,145.
In August 2005, the Company issued 300,000 common shares at $0.55 per
share for gross proceeds of $165,000. For each two shares subscribed
for, the purchaser received one share purchase warrant which enables
the holder to acquire an additional common share at a price of $0.75 to
August 31, 2006.
F-17
XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
DECEMBER 31, 2007
================================================================================
11. CAPITAL STOCK (cont'd...)
In June 2005, the Company issued 536,218 common shares at $0.55 per
share for gross proceeds of $294,920. For each two shares subscribed
for, the purchaser received one share purchase warrant which enables
the holder to acquire an additional common share at a price of $0.75 to
April 30, 2006.
ACQUISITION OF SUBSIDIARY
Effective December 22, 2004, the Company acquired 90% of the
outstanding shares of XG Mining in exchange for 2,698,350 shares of
common stock. In connection with this acquisition, 47,000,000 shares
owned by two officers and directors of the Company were returned to
treasury and cancelled.
STOCK OPTIONS
The number of shares reserved for issuance under the Company's equity
compensation option plan is 3,000,000. The terms and conditions of any
options granted, including the number and type of options, the exercise
period, the exercise price and vesting provisions, are determined by
the board of directors.
At December 31, 2007, the following stock options were outstanding:
===================================================================
Number of Options Exercise Price Expiry Date
-------------------------------------------------------------------
108,000 $ 0.70 April 21, 2009
432,000 $ 0.70 May 1, 2009
200,000 $ 0.90 August 1, 2009
270,000 $ 0.75 March 5, 2010
470,000 $ 0.75 March 12, 2010
===================================================================
Stock option transactions and the number of stock options outstanding
are summarized as follows:
=========================================================================================
2007 2006
---------------------------------------------------------
Weighted Weighted
Number Average Number Average
of Options Exercise Price of Options Exercise Price
---------------------------------------------------------
Outstanding, beginning of year 1,996,000 $ 0.72 1,020,000 $ 0.55
Granted ................... 740,000 0.75 1,696,000 0.75
Cancelled/Expired ......... (1,256,000) 0.70 (720,000) 0.55
---------- -------- --------- --------
Outstanding, end of year ..... 1,480,000 $ 0.75 1,996,000 $ 0.72
=========================================================================================
Exercisable, end of year ..... 572,995 $ 0.75 395,720 $ 0.67
=========================================================================================
The aggregate intrinsic value for options vested as of December 31,
2007 is approximately $355,000 (2006 - $110,000) and for total options
outstanding is approximately $917,000 (2006 - $555,000).
F-18
XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
DECEMBER 31, 2007
================================================================================
11. CAPITAL STOCK (cont'd...)
STOCK-BASED COMPENSATION
The fair value of stock options granted during the year ended December
31, 2007 totalled $189,063 (2006 - $816,990). During the year ended
December 31, 2007, $195,623 (2006 - $206,041) was expensed and included
in general and administrative expenses. The remaining $302,377 (2006 -
$703,659) will be expensed in future periods.
The following assumptions were used for the Black-Scholes valuation of
stock options granted during the years ended December 31, 2007 and
2006:
2007 2006
------- -------
Risk-free interest rate .......... 4.52% 4.94%
Expected life .................... 3 years 3 years
Annualized volatility ............ 55.30% 31.75%
Dividend rate .................... 0% 0%
The weighted average fair value of options granted was $0.26 (2006 -
$0.48).
WARRANTS
At December 31, 2007, the following warrants were outstanding:
=======================================================================
Number of Warrants Exercise Price Expiry Date
-----------------------------------------------------------------------
566,000 $ 1.50 July 13, 2008
141,000 $ 1.50 July 13, 2008
151,250 $ 1.75 October 10, 2008
216,261 $ 1.75 October 30, 2008
=======================================================================
Warrant transactions and the number of warrants outstanding are
summarized as follows:
=======================================================================
December 31, 2007 December 31, 2006
---------------------------------------
Balance, beginning of year ... 996,056 2,482,810
Issued ................... 367,511 996,056
Exercised ................ - (285,700)
Expired .................. (289,056) (2,197,110)
--------- ----------
Balance, end of year ......... 1,074,511 996,056
=======================================================================
F-19
XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
DECEMBER 31, 2007
================================================================================
12. RELATED PARTY TRANSACTIONS
During the years ended December 31, 2007 and 2006, the Company entered
into the following transactions with related parties:
(a) Paid or accrued consulting fees of $191,512 (2006 - $324,872)
to officers of the Company or companies controlled by such
officers.
(b) Paid or accrued directors' fees of $26,692 (2006 - $nil) to
directors of the Company or companies controlled by directors.
(c) On January 12, 2006, the Board approved the issuance of an
unsecured promissory note ("Note") in the aggregate amount of
$66,302 in connection with an account payable owing to an
officer and director of the Company ("Note Holder") with
respect to unpaid consulting fees, expenses incurred on behalf
of the Company and a bonus. Under the terms of the Note, the
Note Holder had the option to convert any portion owing under
the Note from time to time into shares of the Company at the
conversion price of $0.55 per share. On January 31, 2006, the
Note Holder provided the Company with a notice of conversion
to convert $50,000 of the outstanding Note into shares and was
subsequently issued 90,909 shares on February 9, 2006.
The amounts charged to the Company for the services provided have been
determined by negotiation among the parties. These transactions were in
the normal course of operations and were measured at the exchange
value, which represented the amount of consideration established and
agreed to by the related parties.
13. SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS
==============================================================================
Cumulative amounts
from the beginning of
the exploration stage
on January 1, 2003 to
December 31, 2007 2007 2006
-------------------------------------------
Cash paid during the period for:
Interest .................... $ 157,500 $ 63,000 $ 63,000
Income taxes ................ $ - $ - $ -
==============================================================================
The significant non-cash transaction during the year ended December 31,
2007 was the issuance of 33,410 finder's warrants in connection to a
private placement (Note 11).
The significant non-cash transaction during the year ended December 31,
2006 was the issuance of 90,909 common shares valued at $50,000 for
conversion of a promissory note (Note 12).
F-20
XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
DECEMBER 31, 2007
================================================================================
14. DEFERRED INCOME TAXES
Income tax benefits attributable to losses from United States of
America operations was $Nil for the years ended December 31, 2007 and
2006, and differed from the amounts computed by applying the United
States of America federal income tax rate of 34% to pretax losses from
operations as a result of the following:
=======================================================================
2007 2006
--------------------------
Loss for the year ........................ $(1,874,757) $(2,562,992)
=======================================================================
Computed "expected" tax (benefit) expense $ (637,417) $ (871,417)
Non deductible (taxable) items ........... (174,452) 290,082
Lower effective income tax rate on loss of
foreign subsidiaries .................... 90,383 34,816
Valuation allowance ...................... 721,486 546,519
----------- -----------
Net expected tax (benefit) expense ....... $ - $ -
=======================================================================
The tax effects of temporary differences that give rise to significant
deferred tax assets and deferred tax liabilities are presented below:
=======================================================================
2007 2006
--------------------------
Deferred tax assets:
Net operating loss carryforwards - US .. $ 983,035 $ 698,585
Net operating loss carryforwards - Ghana 648,335 226,546
Valuation allowance ...................... (1,631,370) (925,131)
----------- -----------
Total deferred tax assets ................ $ - $ -
=======================================================================
The valuation allowance for deferred tax assets as of December 31, 2007
and 2006 was $1,631,370 and $925,131 respectively. In assessing the
realizability of deferred tax assets, management considers whether it
is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during
the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning
strategies in assessing the realizability of deferred tax assets. In
order to fully realize the deferred tax asset attributable to net
operating loss carryforwards, the Company will need to generate future
taxable income of approximately $5,206,000 prior to the expiration of
the net operating loss carryforwards. Of the $5,206,000 of operating
loss carryforwards, $2,891,000 is attributable to the US, and expires
between 2019 and 2027, and the balance of $2,315,000 is attributable to
Ghana and expires between 2008 and 2011.
F-21
XTRA-GOLD RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
DECEMBER 31, 2007
================================================================================
15. SEGMENTED INFORMATION
The Company has one reportable segment, being the exploration and
development of resource properties.
Geographic information is as follows:
=======================================================================
2007 2006
--------------------------
Capital assets:
Canada .............................. $ 16,089 $ 4,597
Ghana ............................... 1,869,529 1,733,069
----------- -----------
Total capital assets ..................... $ 1,885,618 $ 1,737,666
=======================================================================
16. CONTINGENCY AND COMMITMENTS
a) During the year ended December 31, 2006, a former consultant
to the Company's Ghanaian subsidiaries brought an action for
damages in the High Court of Ghana, alleging wrongful
termination and claiming $172,000 was owed. The Company
believed the lawsuit was without merit and vigorously defended
against it. No liability has been recorded in connection with
the lawsuit. On February 6, 2008, the High Court of Ghana
rendered its judgement and dismissed the action. The right to
appeal will expire on May 6, 2008.
b) Effective May 1, 2006, the Company entered into a management
consulting agreement with the Vice President, Exploration
whereby the Company will pay $4,672 (Cdn$5,000) per month for
three years. In the event of termination, without cause, 18
months of fees will be payable.
c) Effective November 1, 2006, the Company entered into a
management consulting agreement with the Vice President, Ghana
Operations whereby the Company will pay $1,000 per month for
one year.
d) Effective July 1, 2007, the Company entered into a management
consulting agreement with the Vice President, Finance whereby
the Company will pay $2,818 (Cdn$3,000) per month for one
year.
e) Effective December 1, 2007, the Company entered into a
management consulting agreement with the Secretary and
Treasurer whereby the Company will pay $5,895 (Cdn$6,500) per
month for one year.
17. SUBSEQUENT EVENT
Subsequent to December 31, 2007, the Company issued 1,062,000 units for
total proceeds of $1,593,000 pursuant to a private placement. Each unit
consists of one common share and one share purchase warrant. Each
warrant entitles the holder to acquire an additional common share for
$2.25 for one year from the earlier of the posting of its shares on an
over-the-counter bulletin board service or the listing of its shares on
a recognized stock exchange. The finder was paid a fee of $127,440 and
was issued 84,960 finder's warrants on the same terms as the unit
warrants.
F-22
TABLE OF CONTENTS
Page
----
Prospectus Summary ......................................................... 3
Risk Factors ............................................................... 8
Use of Proceeds ............................................................ 16
Market for Common Stock and Dividend Policy ................................ 16
Determination of Offering Price ............................................ 18
Forward-Looking Statements ................................................. 18
Management's Discussion and Analysis or Plan of Operation .................. 20
Business ................................................................... 29
Management ................................................................. 64
Executive Compensation ..................................................... 70
Certain Relationships and Related Transactions ............................. 79
Principal Stockholders ..................................................... 81
Description of Securities .................................................. 85
Selling Security Holders ................................................... 87
Plan of Distribution ....................................................... 89
Shares Eligible for Future Sale ............................................ 92
Legal Matters .............................................................. 92
Experts .................................................................... 92
Additional Information ..................................................... 92
Financial Statements ....................................................... F-1
2,782,375 SHARES
XTRA-GOLD RESOURCES CORP.
PROSPECTUS
________, 2008
PART TWO
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As authorized by the Nevada Revised Statutes, our articles of
incorporation provide that none of our directors shall be personally liable to
us or our stockholders for monetary damages for breach of fiduciary duty as a
director, except liability for:
o any breach of a director's duty of loyalty to our company or our
stockholders;
o acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o unlawful payments of dividends or unlawful stock redemptions or
repurchases; and
o any transaction from which a director derived an improper personal
benefit.
This provision limits our rights and the rights of our stockholders to
recover monetary damages against a director for breach of the fiduciary duty of
care except in the situations described above. This provision does not limit our
rights or the rights of any stockholder to seek injunctive relief or rescission
if a director breaches his duty of care. These provisions will not alter the
liability of our directors under federal securities laws. Our by-laws require us
to indemnify our directors and officers against, to the fullest extent permitted
by law, liabilities which they may incur under the circumstances described
above.
Our articles of incorporation further provide for the indemnification
of any and all persons who serve as our directors, officers, employees or agents
to the fullest extent permitted under Nevada law.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to our directors, officers or persons controlling
our company pursuant to the foregoing provisions, we have been informed that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the act and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the distribution of the
securities being registered, all of which are payable by our company, are as
follows:
SEC Registration and Filing Fee ............................... $ 1,560
Legal Fees and Expenses* ...................................... $ 20,000
Accounting Fees and Expenses* ................................. $ 15,000
Financial Printing* ........................................... $ 5,000
Transfer Agent Fees* .......................................... $ 1,000
Blue Sky Fees and Expenses* ................................... $ 0
Miscellaneous* ................................................ $ 500
-------------
TOTAL EXPENSES ................................................ $ 43,060
=============
* Estimated
None of the foregoing expenses are being paid by the Selling Security Holders.
II-1
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On October 28, 2003, as consideration for the option grant from
CaribGold Minerals, Inc., Xtra Energy issued 20,000 shares of its common stock
to CaribGold. These shares were subsequently exchanged for 20,000 shares of our
common stock upon our acquisition of all of the outstanding capital stock of
Xtra Energy (the "XTRA ENERGY ACQUISITION"). CaribGold was provided access to
business and financial information about our company and had such knowledge and
experience in business and financial matters that it was able to evaluate the
risks and merits of an investment in our company. Accordingly, CaribGold was a
"sophisticated" investor within the meaning of federal securities laws. The
certificate evidencing the shares issued in the transaction included a legend
stating that the securities were not registered under the Securities Act and may
not be resold absent registration or the availability of an applicable exemption
therefrom. No general solicitation or advertising was used in connection with
the transaction. The Xtra Energy Acquisition was exempt from the registration
requirements of the Securities Act by reason of Section 4(2) thereunder as a
transaction by an issuer not involving any public offering.
On October 31, 2003, our company issued 10,050,000 shares of our common
stock to acquire the balance of the issued and outstanding shares of Xtra Energy
pursuant to a share exchange (the "SHARE EXCHANGE") with the following
shareholders of Xtra Energy:
NAME NUMBER OF SHARES
- ---- ----------------
William Edward (Ted) McKechnie ............................ 5,000,000
Paul Zyla ................................................. 5,000,000
Brokton International Inc. ................................ 50,000
----------
TOTAL SECURITIES ISSUED ................................... 10,050,000
==========
The Xtra Energy shareholders were provided access to business and
financial information about our company and had such knowledge and experience in
business and financial matters that they were able to evaluate the risks and
merits of conducting the Share Exchange with our company. Accordingly, the Xtra
Energy shareholders were "sophisticated" investors within the meaning of federal
securities laws. The certificates evidencing the shares issued in the
transaction included a legend stating that the securities were not registered
under the Securities Act and may not be resold absent registration or the
availability of an applicable exemption therefrom. No general solicitation or
advertising was used in connection with the transaction. The Share Exchange was
exempt from the registration requirements of the Securities Act by reason of
Section 4(2) thereunder as a transaction by an issuer not involving any public
offering.
On December 19, 2003, our company conducted a forward stock split
whereby every shareholder of record, as set out in the following table, was
issued five shares for each one share held.
II-2
NUMBER OF NUMBER OF TOTAL SHARES
SHARES HELD SHARES ISSUED HELD POST
FORWARD ON FORWARD FORWARD
NAME OF SHAREHOLDER STOCK SPLIT STOCK SPLIT STOCK SPLIT
- ------------------- ----------- ----------- -----------
Cede & Co. ................... 46,705 186,820 233,525
Trevor Allen ................. 5 20 25
Pauline Amoy and Keith Lay ... 10 40 50
Bamby Investments Ltd. ....... 2,800 11,200 14,000
Brokton International Ltd. ... 50,000 200,000 250,000
Noreen Brown ................. 10 40 50
Jayne Burgoyne ............... 5 20 25
CaribGold Minerals Inc. ...... 20,000 80,000 100,000
Ian Daniel ................... 53 212 265
Judy Davey ................... 10 40 50
Harwinderj Dhillon ........... 10 40 50
Dynastar Investments Ltd. .... 1,000 4,000 5,000
Jason Ellis .................. 5 20 25
Janice Eng/Charles Macachor .. 10 40 50
Nancy Etchart ................ 10 40 50
G.M. Capital Partners ........ 1,200,000 4,800,000 6,000,000
Ursula Handschin ............. 4,000 16,000 20,000
High Quality Corp. ........... 1,000 4,000 5,000
Huda Ltd. .................... 4,000 16,000 20,000
Wan Jung ..................... 10 40 50
Sukhibir Kallu ............... 10 40 50
Knight Financial Ltd. ........ 1,200,000 4,800,000 6,000,000
Michelle Koch ................ 10 40 50
Glenn Lachowiez .............. 10 40 50
Edward and Edith Lay ......... 40 160 200
Barry Lee .................... 10 40 50
Franklin Macachor Jr ......... 20 80 100
Barry Maedel ................. 60 240 300
N.H. Maedel .................. 170 680 850
Bernard Magale ............... 5 20 25
Nicolas Mathys ............... 4,000 16,000 20,000
Jollean Matsen ............... 230 920 1,150
Karby Matsen ................. 50 200 250
Ted McKechnie ................ 5,000,000 20,000,000 25,000,000
New Creations Consulting ..... 200 800 1,000
New Creations Consulting ..... 128 512 640
Merv Peters .................. 10 40 50
Brent Peters ................. 10 40 50
Michael Reynoch .............. 10 40 50
Ian Shanks ................... 10 40 50
Alison Sharpe ................ 10 40 50
Anne Sharpe .................. 10 40 50
Betsy Sharpe ................. 10 40 50
Don Sharpe ................... 10 40 50
Lynn Sharpe .................. 10 40 50
Thomas and Mary Sheppard ..... 30 120 150
Christian Snelgrove .......... 10 40 50
Shawn Spronken ............... 15 60 75
Kenneth Szuszkiewicz ......... 5 20 25
Tannis Szuszkiewicz .......... 5 20 25
II-3
NUMBER OF NUMBER OF TOTAL SHARES
SHARES HELD SHARES ISSUED HELD POST
FORWARD ON FORWARD FORWARD
NAME OF SHAREHOLDER STOCK SPLIT STOCK SPLIT STOCK SPLIT
- ------------------- ----------- ----------- -----------
Ken Thomas ................... 10 40 50
Tiger-Eye Investments Cayman . 4,000 16,000 20,000
TTI Market Explorers Inc. .... 56 224 280
Randy West ................... 10 40 50
Paul Zyla .................... 5,000,000 20,000,000 25,000,000
----------
TOTAL SECURITIES ISSUED ...... 50,171,268
The Share Exchange was exempt from the registration requirements of the
Securities Act by reason of Section 4(2) thereunder as a transaction by an
issuer not involving any public offering.
On March 31, 2004, we completed a private financing for an aggregate
purchase price of $700,000 and, in connection therewith, we issued a total of
2,000,000 shares of our common stock and warrants to purchase an additional
1,000,000 shares to the following 22 accredited investors:
NUMBER OF NUMBER OF
NAME SHARES WARRANTS
- ---- --------- ---------
Avonlea Homes Investments Ltd. ......... 150,000 75,000
Anne McGinnis .......................... 100,000 50,000
Asad Sheikh ............................ 140,000 70,000
Gordon Winter .......................... 60,000 30,000
Sal Bossio ............................. 100,000 50,000
Rene Petitjean ......................... 30,000 15,000
Mazhar Sheikh .......................... 140,000 70,000
Paul Zyla .............................. 84,000 42,000
Bridgitte Longshore, Trustee ........... 100,000 50,000
Jim Schweitzer ......................... 100,000 50,000
Wamada Inc. ............................ 140,000 70,000
Ivano De Cotiis ........................ 30,000 15,000
Steven Adelstein ....................... 72,000 36,000
Michael J. Hausman ..................... 30,000 15,000
Joseph Parisi .......................... 30,000 15,000
Steve E. Vlach ......................... 72,000 36,000
Ashley Investors Corp. ................. 100,000 50,000
Michael Herman ......................... 150,000 75,000
Leonard Sculler ........................ 50,000 25,000
B. S. Jr. Inc. ......................... 143,000 71,500
Hans J. Morsches ....................... 35,000 17,500
Thousand Hills Properties Inc. ......... 144,000 72,000
--------- ---------
TOTAL SECURITIES ISSUED ................ 2,000,000 1,000,000
The warrants were initially exercisable until March 31, 2005. Pursuant
to Board approval, the expiry date for the exercise of warrants was extended to
March 31, 2006, at an exercise price of $.75 per share, subject to adjustment.
As of March 31, 2006, 78,500 of the 1,000,000 Warrants were exercised for 78,500
II-4
Shares. The remaining 921,500 Warrants were cancelled following their expiration
on March 31, 2006. Each of the investors was provided access to business and
financial information about our company and had such knowledge and experience in
business and financial matters that they were able to evaluate the risks and
merits of an investment in our company. Accordingly, the investors were
"sophisticated" within the meaning of federal securities laws. Each certificate
evidencing securities issued in the transaction included a legend stating that
the securities were not registered under the Securities Act and may not be
resold absent registration or the availability of an applicable exemption
therefrom. No general solicitation or advertising was used in connection with
the transaction. No commissions or finder's fees were paid. The transaction was
exempt from the registration requirements of the Securities Act by reason of
Section 4(2) thereunder as a transaction by an issuer not involving any public
offering, and under Rule 506 of Regulation D.
On May 31, 2004, we completed a private financing for an aggregate
purchase price of $745,290 and, in connection therewith, we issued a total of
2,129,400 shares of our common stock and warrants to purchase an additional
1,064,700 shares to the following 24 accredited [or sophisticated] investors:
NUMBER OF NUMBER OF
NAME SHARES WARRANTS
- ---- --------- ---------
Anacort Capital Inc. ................... 60,000 30,000
Nancy Blasiak .......................... 30,000 15,000
Dale Burstall .......................... 46,000 23,000
Cathy Butler ........................... 15,000 7,500
J. C. Cassina .......................... 50,000 25,000
Michael Cooper ......................... 30,000 15,000
John DeBoer ............................ 40,000 20,000
Joanne Dorval-Dronyk ................... 50,000 25,000
Allen Emes ............................. 60,000 30,000
Shelly Green ........................... 50,000 25,000
Sandra Hall ............................ 50,000 25,000
Arthur G. Hibbard ...................... 60,000 30,000
Robert Ritzer .......................... 30,000 15,000
Wendy E. Shaw .......................... 14,000 7,000
Sheridan Platinum Group Ltd. ........... 71,400 35,700
Richard Smith .......................... 30,000 15,000
Jeff Walker ............................ 30,000 15,000
Paul Weisberg .......................... 30,000 15,000
Paul Zyla .............................. 16,000 8,000
Avonlea Homes Investments Ltd. ......... 595,000 297,500
Finneran Investments Ltd. .............. 150,000 75,000
Stephen J. Maass ....................... 72,000 36,000
Anthony V. and Karen R. Laterza ........ 500,000 250,000
LOM Securities (Bermuda) Limited ....... 50,000 25,000
--------- ---------
TOTAL SECURITIES ISSUED ................ 2,129,400 1,064,700
The warrants were initially exercisable until May 31, 2005. Pursuant to
Board approval, the expiry date for the exercise of warrants was extended to
March 31, 2006, at an exercise price of $.75 per share, subject to adjustment.
As of March 31, 2006, 30,000 of the 1,064,700 Warrants were exercised for 30,000
Shares. The remaining 1,034,700 Warrants were cancelled following their
expiration on March 31, 2006. Each of the investors was provided access to
II-5
business and financial information about our company and had such knowledge and
experience in business and financial matters that they were able to evaluate the
risks and merits of an investment in our company. Accordingly, the investors
were "sophisticated" within the meaning of federal securities laws. Each
certificate evidencing securities issued in the transaction included a legend
stating that the securities were not registered under the Securities Act and may
not be resold absent registration or the availability of an applicable exemption
therefrom. No general solicitation or advertising was used in connection with
the transaction. Haywood Securities Inc. and Norstar Securities International,
registered broker-dealers received an aggregate commission in the amount of
US$21,123.20 for assisting our company with the sale of the securities issued in
connection with this transaction. We also paid two individuals an aggregate
finder's fee of $1,347.50 for introducing our company to certain investors in
connection with this transaction. The transaction was exempt from the
registration requirements of the Securities Act by reason of Section 4(2)
thereunder as a transaction by an issuer not involving any public offering, and
under Regulation S.
On December 22, 2004, we executed a share purchase agreement with the
trustees representing the note and debenture holders of Akrokeri-Ashanti Gold
Limited to extinguish their debts totaling approximately CAD$5,936,700
(USD$5,320,100). Akrokeri-Ashanti had pledged as security to the note and
debenture Holders, 90% of the issued and outstanding shares of its subsidiary,
XG Mining (formerly Goldenrae Mining Company Limited). We exchanged one-half
share of our common stock for every CAD$1.00 (USD$.90) principal amount of notes
and debentures and issued a total of 2,698,350 shares of our common stock for
the CAD$5,396,700 (USD$5,320,100) outstanding principal amount of the notes and
debentures.
NAME OF NOTE OR DEBENTURE HOLDER NUMBER OF SHARES
- -------------------------------- ----------------
Canadian Christian Education Foundation ...................... 171,500
Rory Cattanach ............................................... 300
CDS & Co. .................................................... 1,743,100
Marlene Chase ................................................ 50
Cyhen Developments Ltd. ...................................... 50,000
Penny Dibley ................................................. 250
Andrew Dielemen Sr ........................................... 550
John Griffin ................................................. 2,500
Wilfred Griffioen ............................................ 74,950
Gundyco CIBC World Markets ................................... 500
Laurentian Trust of Canada Inc., in trust for Donald Deeves .. 5,000
Trust La Laurentienne ........................................ 350
Jeannie Luimes ............................................... 5,000
Margaret Van Velzen .......................................... 1,000
Hilda Vroom .................................................. 5,250
W.D. Latimer Co. Ltd. ........................................ 38,050
Albert Bultje ................................................ 8,520
John Cappon .................................................. 17,135
CDS & Co. .................................................... 286,235
Anthony Cristani ............................................. 9,600
John De Boer ................................................. 1,695
John and Nell De Boer ........................................ 7,615
Henk and Yvonne De Bruin ..................................... 21,600
Diane Van Dyk ................................................ 18,130
II-6
NAME OF NOTE OR DEBENTURE HOLDER NUMBER OF SHARES
- -------------------------------- ----------------
Grace Engelsman .............................................. 17,870
Fundamental Capital Corp. .................................... 9,600
Doug Groombrdige ............................................. 2,405
Arie and Wilma Kleine ........................................ 18,300
Peter and Tina Koning ........................................ 22,430
Jeannie Luimes ............................................... 3,140
Paul and Susan McFarlan ...................................... 9,600
Paul Mercer and Katherine Ashendenm .......................... 9,690
Art Miedema .................................................. 3,470
J. Douglas Mills ............................................. 4,465
Larry Parker ................................................. 59,215
Yke Reitsma .................................................. 4,310
Susan Thomson ................................................ 5,950
William Ubbens ............................................... 2,515
William and Wendy Ubbens ..................................... 415
George Vroom ................................................. 10,720
Hilda Vroom .................................................. 44,325
John Vroom ................................................... 1,050
---------
TOTAL SECURITIES ISSUED ...................................... 2,698,350
The transaction was exempt from the registration requirements of the
Securities Act by reason of Section 4(2) thereunder as a transaction by an
issuer not involving any public offering.
On June 21, 2005, our Board approved the granting of an aggregate of
1,020,000 nonqualified stock options to certain officers, directors or
consultants of our company vesting in equal amounts over a four year term at an
exercise price of $0.55 per share. The transaction was exempt from the
registration requirements of the Securities Act by reason of Section 4(2)
thereunder as a transaction by an issuer not involving any public offering.
NUMBER OF SHARES
TO BE GRANTED ON
NAME OF OPTIONEE EXERCISE OF OPTIONS
- ---------------- -------------------
William Edward (Ted) McKechnie ....................... 300,000
Daniel Earle ......................................... 720,000
---------
TOTAL SECURITIES ISSUED .............................. 1,020,000
II-7
On June 30, 2005, we completed a private financing for an aggregate
purchase price of $294,920 and, in connection therewith, we issued a total of
536,218 shares of our common stock and warrants to purchase an additional
268,110 shares to the following 16 accredited [or sophisticated] investors:
NUMBER OF NUMBER OF
NAME SHARES WARRANTS
- ---- ------ --------
Bradam Financial Holdings Ltd. ......... 185,000 92,500
CMK Financial Holdings Ltd. ............ 60,000 30,000
Court Global SA ........................ 4,000 2,000
Interloan AG ........................... 19,000 9,500
Merlin Asset Holdings SA ............... 18,000 9,000
Christopher Nola ....................... 181,818 90,910
Nube Administration Inc. ............... 6,000 3,000
Piper Foundation ....................... 6,000 3,000
Anita Shapolsky ........................ 14,000 7,000
N. Sleeva .............................. 6,500 3,250
Suzanne Speckert ....................... 4,000 2,000
I. Spivack ............................. 1,600 800
Tom Stefopulos ......................... 4,000 2,000
Marianne Strub ......................... 2,500 1,250
Subaraschi Foundation .................. 21,000 10,500
B. Wilson .............................. 2,800 1,400
--------- ---------
TOTAL SECURITIES ISSUED ................ 536,218 268,110
The warrants were exercisable until April 30, 2006, at an exercise
price of $.75 per share, subject to adjustment. As of April 30, 2006, 177,200 of
the 268,110 Warrants were exercised for 177,200 Shares. The remaining 90,910
Warrants were cancelled following their expiration on April 30, 2006. Each of
the investors was provided access to business and financial information about
our company and had such knowledge and experience in business and financial
matters that they were able to evaluate the risks and merits of an investment in
our company. Accordingly, the investors were "sophisticated" within the meaning
of federal securities laws. Each certificate evidencing securities issued in the
transaction included a legend stating that the securities were not registered
under the Securities Act and may not be resold absent registration or the
availability of an applicable exemption therefrom. No general solicitation or
advertising was used in connection with the transaction. We paid a private
foreign investment company a finder's fee of $29,000 for introducing our company
to certain investors in connection with this transaction. The transaction was
exempt from the registration requirements of the Securities Act by reason of
Section 4(2) thereunder as a transaction by an issuer not involving any public
offering, and under Rule 506 of Regulation D and under Regulation S.
On July 7, 2005, we completed a private debt financing for which we
received aggregate loan proceeds of $900,000. We issued three convertible
debentures as security therefor whereby the holders of the convertible
debentures are entitled to convert the principal balance owing from time to time
thereunder into an aggregate of up to 900,000 shares of our common stock and
Accrued Interest for an aggregate of 15,750 shares of our common stock to the
following three accredited [or sophisticated] investors:
II-8
NUMBER OF NUMBER OF
SHARES ISSUABLE SHARES ISSUABLE
ON CONVERSION ON CONVERSION
OF CONVERTIBLE OF ACCRUED
NAME DEBENTURES INTEREST
- ---- --------------- ---------------
Alpine Atlantic Asset Management AG . 250,000 4,375
Bradam Financial Holdings Ltd. ...... 500,000 8,750
CMK Financial Holdings Ltd. ......... 150,000 2,625
------- ------
TOTAL SECURITIES ISSUED ............. 900,000 15,750
Each of the above-noted investors was provided access to business and
financial information about our company and had such knowledge and experience in
business and financial matters that they were able to evaluate the risks and
merits of an investment in our company. Accordingly, the investors were
"sophisticated" within the meaning of federal securities laws. Each convertible
debenture and the securities into which they are convertible (collectively, the
"SECURITIES") include a legend stating that the securities were not registered
under the Securities Act and may not be resold absent registration or the
availability of an applicable exemption therefrom. No general solicitation or
advertising was used in connection with these transactions. We paid a private
foreign investment company a finder's fee of $56,000 for introducing our company
to certain investors in connection with this transaction. The transaction was
exempt from the registration requirements of the Securities Act by reason of
Section 4(2) thereunder as a transaction by an issuer not involving any public
offering and under Regulation S. This transaction was an "offshore" transaction
with non-U.S. persons.
On August 31, 2005, we completed a private financing for an aggregate
purchase price of $165,000 and, in connection therewith, we issued a total of
300,000 shares of our common stock and warrants to purchase an additional
150,000 shares to the following three accredited [or sophisticated] investors:
NUMBER OF NUMBER OF
NAME SHARES WARRANTS
- ---- --------- ---------
Brian Lines ............................ 200,000 100,000
Fred Honea and Carmen de Liniers ....... 100,000 50,000
--------- ---------
TOTAL SECURITIES ISSUED ................ 300,000 150,000
The warrants are exercisable until August 31, 2006, at an exercise
price of $.75 per share, subject to adjustment. As of August 31, 2006, none of
the warrants had been exercised. Each of the investors was provided access to
business and financial information about our company and had such knowledge and
experience in business and financial matters that they were able to evaluate the
risks and merits of an investment in our company. Accordingly, the investors
were "sophisticated" within the meaning of federal securities laws. Each
certificate evidencing securities issued in the transaction included a legend
stating that the securities were not registered under the Securities Act and may
not be resold absent registration or the availability of an applicable exemption
therefrom. No general solicitation or advertising was used in connection with
the transaction. Haywood Securities Inc., a registered broker-dealer received a
commission in the amount of US$5,500 for assisting our company with the sale of
II-9
the securities issued in connection with this transaction. The transaction was
exempt from the registration requirements of the Securities Act by reason of
Section 4(2) thereunder as a transaction by an issuer not involving any public
offering and under Regulation S. This transaction was an "offshore" transaction
to non-U.S. persons.
On November 7, 2005, we completed a private financing for an aggregate
purchase price of $852,145 and, in connection therewith, we issued a total of
1,549,354 shares of our common stock to the following 22 accredited [or
sophisticated] investors:
NAME NUMBER OF SHARES
- ---- ----------------
Sufran Investments Ltd. ................................ 50,000
Walter Schneider ....................................... 100,000
Peter Schmid ........................................... 20,000
Leon van der Merwe ..................................... 100,000
Margaret Speckert ...................................... 100,000
Pipeline Displays and Fixtures Inc. .................... 50,000
1127024 Ontario Limited ................................ 35,000
Allen Emes ............................................. 30,000
H. Richard Smith ....................................... 40,000
Arthur G. Hibbard ...................................... 90,000
Anacort Capital Inc. ................................... 40,000
John Richard Charlton .................................. 200,000
Katherine Carson ....................................... 19,354
Joanne Dorval-Dronyk ................................... 60,000
Richard Coglan ......................................... 100,000
Asad Sheikh ............................................ 100,000
Walter Dainard ......................................... 100,000
Slowjen Ltd. ........................................... 15,000
Zapfe Holdings Inc. .................................... 50,000
John McFarlane ......................................... 50,000
Norman Clements ........................................ 50,000
Kander Financial Corp. ................................. 100,000
---------
TOTAL SECURITIES ISSUED ................................ 1,549,354
Each of the above-noted investors was provided access to business and
financial information about our company and had such knowledge and experience in
business and financial matters that they were able to evaluate the risks and
merits of an investment in our company. Accordingly, the investors were
"sophisticated" within the meaning of federal securities laws. Each certificate
evidencing securities issued in the transaction included a legend stating that
the securities were not registered under the Securities Act and may not be
resold absent registration or the availability of an applicable exemption
therefrom. No general solicitation or advertising was used in connection with
the transaction. Haywood Securities Inc., a registered broker-dealer received a
commission in the amount of US$2,200 for assisting our company with the sale of
the securities issued in connection with this transaction. We also paid a
private foreign investment company a finder's fee of $48,089 and an individual a
finder's fee of $8,800 for introducing our company to certain investors in
connection with this transaction. The transaction was exempt from the
registration requirements of the Securities Act by reason of Section 4(2)
thereunder and Regulation S. This transaction was an "offshore" transaction to
non-U.S. persons.
II-10
We established our 2005 Equity Compensation Plan (the "PLAN") effective
June 21, 2005, which provides for the issuance of nonqualified options to
officers, directors and key employees, consultants, advisors and other service
providers. As of April 25, 2007, we have issued and outstanding options to
purchase 1,480,000 shares of common stock under the Plan at an exercise price of
(i) $0.70 per share for 108,000 options expiring on April 21, 2009; (ii) $0.70
per share for 432,000 options which expire on May 1, 2009; (iii) $0.90 per share
for 200,000 options expiring on August 1, 2009; (iv) $0.75 per share for 270,000
options expiring on March 5, 2010; and (v) $0.75 per share for 270,000 options
and 200,000 options expiring on March 12 and 20, 2010 respectively. The options
were issued to four consultants of our company, three of whom are also current
officers and/or directors of our company. The security issuances were exempt
from registration by Section 4(2) of the Securities Act. The option holders had
access to information about us and had the opportunity to ask questions about
us. The options issued contain a legend restricting their transferability absent
registration or an available exemption.
On January 12, 2006, we issued a $66,302 convertible promissory note
(the "NOTE") to a former officer and director of our company, for accrued
expenses incurred on behalf of our company, unpaid consulting fees and a bonus.
This issuance was exempt from registration under the Securities Act in reliance
on Section 4(2). The certificate evidencing the Note that was issued contained a
legend restricting its transferability absent registration under the Securities
Act or the availability of an applicable exemption therefrom.
On March 6, 2006, we completed a private financing for an aggregate
purchase price of $554,420 and, in connection therewith, we issued a total of
792,029 shares of our common stock to the following eight accredited [or
sophisticated] investors:
NAME NUMBER OF SHARES
- ---- ----------------
Fred Honea and Carmen de Liniers ....................... 250,000
Morton Berman .......................................... 35,000
Brulene Inc. ........................................... 142,000
J.W.T. Witzel .......................................... 70,000
Eric Robert Taylor ..................................... 150,029
E.C. McFeely ........................................... 100,000
Fred Kozak ............................................. 20,000
Bank Julius Baer & Co. Ltd. ............................ 25,000
-------
TOTAL SECURITIES ISSUED ................................ 792,029
Each of the above-noted investors was provided access to business and
financial information about our company and had such knowledge and experience in
business and financial matters that they were able to evaluate the risks and
merits of an investment in our company. Accordingly, the investors were
"sophisticated" within the meaning of federal securities laws. Each certificate
evidencing securities issued in the transaction included a legend stating that
the securities were not registered under the Securities Act and may not be
resold absent registration or the availability of an applicable exemption
therefrom. No general solicitation or advertising was used in connection with
the transaction. We also paid two private foreign investment companies an
aggregate finder's fee of $58,000 for introducing our company to certain
investors in connection with this transaction. The transaction was exempt from
the registration requirements of the Securities Act by reason of Section 4(2)
thereunder and under Rule 506 of Regulation D and Regulation S.
II-11
In March 2006, we issued 108,500 shares of our common stock for an
aggregate purchase price of $81,375 to 4 accredited [or sophisticated] investors
pursuant to the exercise of common stock purchase warrants originally issued in
March 2004 (as to 53,500) and May 2004(as to 55,000). Each investor was provided
access to business and financial information about our company and had such
knowledge and experience in business and financial matters that they were able
to evaluate the risks and merits of an investment in our company. Accordingly,
the investors were "sophisticated" within the meaning of federal securities
laws. Each certificate evidencing securities issued in the transaction included
a legend stating that the securities were not registered under the Securities
Act and may not be resold absent registration or the availability of an
applicable exemption therefrom. No general solicitation or advertising was used
in connection with the transaction. The transaction was exempt from the
registration requirements of the Securities Act by reason of Section 4(2)
thereunder and under Rule 506 of Regulation D and Regulation S.
On April 21, 2006, our Board approved the granting of an aggregate of
324,000 nonqualified stock options to certain officers, directors or consultants
of our company vesting in equal amounts over a three year term at an exercise
price of $0.70 per share. The transaction was exempt from the registration
requirements of the Securities Act by reason of Section 4(2) thereunder as a
transaction by an issuer not involving any public offering.
NUMBER OF SHARES
TO BE GRANTED ON
NAME OF OPTIONEE EXERCISE OF OPTIONS
- ---------------- -------------------
William Edward (Ted) McKechnie ......................... 216,000
Rebecca Kiomi Mori ..................................... 108,000
-------
TOTAL SECURITIES ISSUED ................................ 324,000
In April 2006, we issued 177,200 shares of our common stock for an
aggregate purchase price of $132,900 to 15 accredited [or sophisticated]
investors pursuant to the exercise of common stock purchase warrants originally
issued in June 2005. Each investor was provided access to business and financial
information about our company and had such knowledge and experience in business
and financial matters that they were able to evaluate the risks and merits of an
investment in our company. Accordingly, the investors were "sophisticated"
within the meaning of federal securities laws. Each certificate evidencing
securities issued in the transaction included a legend stating that the
securities were not registered under the Securities Act and may not be resold
absent registration or the availability of an applicable exemption therefrom. No
general solicitation or advertising was used in connection with the transaction.
The transaction was exempt from the registration requirements of the Securities
Act by reason of Section 4(2) thereunder and under Rule 506 of Regulation D and
Regulation S.
On May 1, 2006, our Board approved the granting of an aggregate of
972,000 nonqualified stock options to certain officers, directors or consultants
of our company vesting in equal amounts over a three year term at an exercise
price of $0.70 per share. The transaction was exempt from the registration
requirements of the Securities Act by reason of Section 4(2) thereunder as a
transaction by an issuer not involving any public offering.
II-12
NUMBER OF SHARES
TO BE GRANTED ON
NAME OF OPTIONEE EXERCISE OF OPTIONS
- ---------------- -------------------
Dr. Michael Byron ...................................... 540,000 (1)
Yves Clement ........................................... 324,000
Alhaji Abudulai ........................................ 108,000
-------
TOTAL SECURITIES ISSUED ................................ 972,000
(1) Following the resignation of the optionee on October 30, 2006, all of these
options became vested and expired and were subsequently cancelled on January 30,
2007.
On June 16, 2006, we completed a private financing for an aggregate
purchase price of $520,300 and, in connection therewith, we issued a total of
578,112 shares of our common stock and warrants to purchase an additional
289,056 shares to the following ten accredited [or sophisticated] investors:
NUMBER OF NUMBER OF
NAME SHARES WARRANTS
- ---- --------- ---------
Norman Clements ........................ 70,000 35,000
Ron Nichol ............................. 10,000 5,000
Sharon Christie ........................ 50,000 25,000
Thousand Hills Properties .............. 60,000 30,000
Michael and Vicki Lawrence ............. 30,000 15,000
Frankie Mead ........................... 16,000 8,000
Christopher Nola ....................... 111,112 55,556
Basil F. Nola .......................... 20,000 10,000
Eric Taylor ............................ 111,000 55,500
Fred Honea ............................. 100,000 50,000
--------- ---------
TOTAL SECURITIES ISSUED ................ 578,112 289,056
The warrants are exercisable until June 16, 2007, at an exercise price
of $1.50 per share, subject to adjustment. Each of the above-noted investors was
provided access to business and financial information about our company and had
such knowledge and experience in business and financial matters that they were
able to evaluate the risks and merits of an investment in our company.
Accordingly, the investors were "sophisticated" within the meaning of federal
securities laws. Each certificate evidencing securities issued in the
transaction included a legend stating that the securities were not registered
under the Securities Act and may not be resold absent registration or the
availability of an applicable exemption therefrom. No general solicitation or
advertising was used in connection with the transaction. We also paid two
private foreign investment companies an aggregate finder's fee of $52,000 for
introducing our company to certain investors in connection with this
transaction. The transaction was exempt from the registration requirements of
the Securities Act by reason of Section 4(2) thereunder and under Rule 506 of
Regulation D and Regulation S.
II-13
On July 24, 2006, we completed a private financing for an aggregate
purchase price of $1,018,800 and, in connection therewith, we issued a total of
1,132,000 shares of our common stock and warrants to purchase an additional
566,000 shares to the following two accredited [or sophisticated] investors:
NUMBER OF NUMBER OF
NAME SHARES WARRANTS
- ---- --------- ---------
Sprott Asset Management ................ 1,110,000 555,000
Peter L. Winnell ....................... 22,000 11,000
--------- ---------
TOTAL SECURITIES ISSUED ................ 1,132,000 566,000
The warrants were initially exercisable until July 31, 2007. Pursuant
to Board approval, the expiry date for the exercise of warrants was extended to
December 13, 2007 and then subsequently extended to July 13, 2008 at an exercise
price of $1.50 per share, subject to adjustment. Each of the above-noted
investors was provided access to business and financial information about our
company and had such knowledge and experience in business and financial matters
that they were able to evaluate the risks and merits of an investment in our
company. Accordingly, the investors were "sophisticated" within the meaning of
federal securities laws. Each certificate evidencing securities issued in the
transaction included a legend stating that the securities were not registered
under the Securities Act and may not be resold absent registration or the
availability of an applicable exemption therefrom. No general solicitation or
advertising was used in connection with the transaction. We also paid a private
foreign investment company a finder's fee of $50,000 and an individual a
finder's fee of $50,000 for introducing our company to certain investors in
connection with this transaction. The transaction was exempt from the
registration requirements of the Securities Act by reason of Section 4(2)
thereunder and under Regulation S. This transaction was an "offshore"
transaction to non-U.S. persons.
On August 1, 2006, our Board approved the granting of an aggregate of
400,000 nonqualified stock options ("NSO'S") to certain officers, directors or
consultants of our company. The NSO's granted to our officer and director will
vest in equal amounts over a three year term and the NSO's granted to a
consultant will vest upon the achievement of certain milestones as to 100,000
per achievement. The NSO's have an exercise price of $0.90 per share. The
transaction was exempt from the registration requirements of the Securities Act
by reason of Section 4(2) thereunder as a transaction by an issuer not involving
any public offering.
NUMBER OF SHARES
TO BE GRANTED ON
NAME OF OPTIONEE EXERCISE OF OPTIONS
- ---------------- -------------------
William Edward (Ted) McKechnie ......................... 200,000
John Douglas Mills ..................................... 200,000
-------
TOTAL SECURITIES ISSUED ................................ 400,000
II-14
On October 24, 2006, we completed a private financing for an aggregate
purchase price of $310,200 and, in connection therewith, we issued a total of
282,000 shares of our common stock and warrants to purchase an additional
141,000 shares to the following eight accredited [or sophisticated] investors:
NUMBER OF NUMBER OF
NAME SHARES WARRANTS
- ---- --------- ---------
Walter Schneider ....................... 50,000 25,000
Adrian Jaggi ........................... 20,000 10,000
Markus Bertschin ....................... 30,000 15,000
Ernst Baur ............................. 30,000 15,000
Matthias Schole ........................ 32,000 16,000
Earl Charleton ......................... 10,000 5,000
Leon Van Der Merwe ..................... 100,000 50,000
Kurt Groebli ........................... 10,000 5,000
--------- ---------
TOTAL SECURITIES ISSUED ................ 282,000 141,000
The warrants were initially exercisable until April 23, 2008. Pursuant
to Board approval, the expiry date for the exercise of the warrants was extended
to July 13, 2008 at an exercise price of $1.50 per share, subject to adjustment.
Each of the above-noted investors was provided access to business and financial
information about our company and had such knowledge and experience in business
and financial matters that they were able to evaluate the risks and merits of an
investment in our company. Accordingly, the investors were "sophisticated"
within the meaning of federal securities laws. Each certificate evidencing
securities issued in the transaction included a legend stating that the
securities were not registered under the Securities Act and may not be resold
absent registration or the availability of an applicable exemption therefrom. No
general solicitation or advertising was used in connection with the transaction.
We paid an individual a finder's fee of $24,816 for introducing our company to
certain investors in connection with this transaction. The transaction was
exempt from the registration requirements of the Securities Act by reason of
Section 4(2) thereunder and under Regulation S. This transaction was an
"offshore" transaction to non-U.S. persons.
On March 5, 2007, our Board approved the granting of an aggregate of
270,000 nonqualified stock options to certain officers, directors or consultants
of our company vesting in equal amounts over a three year term at an exercise
price of $0.75 per share. The transaction was exempt from the registration
requirements of the Securities Act in accordance with Section 4(2) and
Regulation S as this transaction was an "offshore" transaction to non-U.S.
persons.
NUMBER OF SHARES
TO BE GRANTED ON
NAME OF OPTIONEE EXERCISE OF OPTIONS
- ---------------- -------------------
Richard W. Grayston .................................. 162,000
Peter Minuk .......................................... 108,000
-------
TOTAL SECURITIES ISSUED .............................. 270,000
II-15
On March 12, 2007, our Board approved the granting of an aggregate of
470,000 nonqualified stock options to certain officers, directors or consultants
of our company vesting in equal amounts over a three year term at an exercise
price of $0.75 per share. The transaction was exempt from the registration
requirements of the Securities Act in accordance with Section 4(2) and
Regulation S as this transaction was an "offshore" transaction to non-U.S.
persons.
NUMBER OF SHARES
TO BE GRANTED ON
NAME OF OPTIONEE EXERCISE OF OPTIONS
- ---------------- -------------------
Robert H. Montgomery ................................. 108,000
Brokton International Ltd. ........................... 162,000
John Douglas Mills ................................... 200,000
-------
TOTAL SECURITIES ISSUED .............................. 470,000
On October 10, 2007, we completed the first tranche of a private
financing for an aggregate purchase price of $371,250 and, in connection
therewith, we issued a total of 275,000 shares of our common stock and warrants
to purchase an additional 137,500 shares to the following nine accredited [or
sophisticated] investors:
NUMBER OF NUMBER OF
NAME SHARES WARRANTS
- ---- --------- ---------
Robert Patrick Desbarats ............... 20,000 10,000
Graham MacPherson ...................... 10,000 5,000
Lost in Space, Inc. .................... 10,000 5,000
Frank R. Dearlove ...................... 50,000 25,000
Harley L. Winger ....................... 25,000 12,500
John Wayne McClintick .................. 15,000 7,500
Anthony L. Friend ...................... 40,000 20,000
Clark Alexander Squires ................ 100,000 50,000
William Root ........................... 5,000 2,500
--------- ---------
TOTAL SECURITIES ISSUED ................ 275,000 137,500
The warrants are exercisable until October 10, 2008, at an exercise
price of $1.75 per share, subject to adjustment. Each of the above-noted
investors was provided access to business and financial information about our
company and had such knowledge and experience in business and financial matters
that they were able to evaluate the risks and merits of an investment in our
company. Accordingly, the investors were "sophisticated" within the meaning of
federal securities laws. Each certificate evidencing securities issued in the
transaction included a legend stating that the securities were not registered
under the Securities Act and may not be resold absent registration or the
availability of an applicable exemption therefrom. No general solicitation or
advertising was used in connection with the transaction. We paid an aggregate
finder's fee of $37,125.00 for introducing our company to certain investors in
connection with this transaction. The transaction was exempt from the
registration requirements of the Securities Act by reason of Section 4(2)
thereunder and under Regulation S. This transaction was an "offshore"
transaction to non-U.S. persons.
II-16
In connection with the foregoing, as part of the finder's fee, we
issued the following finder's warrants:
NUMBER OF NUMBER OF
NAME SHARES WARRANTS
- ---- --------- ---------
H. Richard Smith ....................... 0 13,750
On October 30, 2007, we completed the second and final tranche of a
private financing for an aggregate purchase price of $530,822 and, in connection
therewith, we issued a total of 393,202 shares of our common stock and warrants
to purchase an additional 196,601 shares to the following eight accredited [or
sophisticated] investors:
NUMBER OF NUMBER OF
NAME SHARES WARRANTS
- ---- --------- ---------
Rene Laviolette ........................ 20,000 10,000
Mazhar Sheikh .......................... 25,000 12,500
Asad Sheikh ............................ 25,000 12,500
Daniel Hachey .......................... 20,000 10,000
Peter L. Winnell ....................... 23,000 11,500
Sprott Asset Management Inc. ........... 225,000 112,500
Joanne Dorval-Dronyk ................... 35,202 16,601
Wamada Inc. ............................ 20,000 10,000
--------- ---------
TOTAL SECURITIES ISSUED ................ 393,202 196,601
The warrants are exercisable until October 30, 2008, at an exercise
price of $1.75 per share, subject to adjustment. Each of the above-noted
investors was provided access to business and financial information about our
company and had such knowledge and experience in business and financial matters
that they were able to evaluate the risks and merits of an investment in our
company. Accordingly, the investors were "sophisticated" within the meaning of
federal securities laws. Each certificate evidencing securities issued in the
transaction included a legend stating that the securities were not registered
under the Securities Act and may not be resold absent registration or the
availability of an applicable exemption therefrom. No general solicitation or
advertising was used in connection with the transaction. We paid an aggregate
finder's fee of $53,082.00 for introducing our company to certain investors in
connection with this transaction. The transaction was exempt from the
registration requirements of the Securities Act by reason of Section 4(2)
thereunder and under Regulation S. This transaction was an "offshore"
transaction to non-U.S. persons.
In connection with the foregoing, as part of the finder's fee, we
issued the following finder's warrants:
NUMBER OF NUMBER OF
NAME SHARES WARRANTS
- ---- --------- ---------
Haywood Securities Inc. ................ 0 19,660
II-17
On February 29, 2008, we completed the first tranche of a private
financing for an aggregate purchase price of $1,593,000 and, in connection
therewith, we issued a total of 1,062,000 shares of our common stock and
warrants to purchase an additional 1,062,000 shares to the following 13
accredited [or sophisticated] investors:
NUMBER OF NUMBER OF
NAME SHARES WARRANTS
- ---- --------- ---------
Michael B. Decter ...................... 20,000 20,000
Sextant Strategic Hybrid2 Hedge
Resource Fund Offshore Ltd. ......... 735,000 735,000
Robert Ritzer .......................... 17,000 17,000
Mazhar Sheikh .......................... 25,000 25,000
Camden Glass ........................... 20,000 20,000
Zapfe Holdings ......................... 100,000 100,000
I. Michael Cooper ...................... 15,000 15,000
Asad Sheikh ............................ 25,000 25,000
Jully Lowry ............................ 20,000 20,000
Ethel Cooper ........................... 15,000 15,000
Alclair Construction Ltd. .............. 15,000 15,000
Paul Weisberg .......................... 30,000 30,000
David McGozman ......................... 25,000 25,000
--------- ---------
TOTAL SECURITIES ISSUED ................ 1,062,000 1,062,000
The warrants are exercisable until the earlier of 12 months from
posting of the shares on an over-the-counter bulletin board service and the
listing of the shares on a recognized stock exchange, at an exercise price of
$2.25 per share. Each of the above-noted investors was provided access to
business and financial information about our company and had such knowledge and
experience in business and financial matters that they were able to evaluate the
risks and merits of an investment in our company. Accordingly, the investors
were "sophisticated" within the meaning of federal securities laws. Each
certificate evidencing securities issued in the transaction included a legend
stating that the securities were not registered under the Securities Act and may
not be resold absent registration or the availability of an applicable exemption
therefrom. No general solicitation or advertising was used in connection with
the transaction. We paid an aggregate finder's fee of $127,440 for introducing
our company to certain investors in connection with this transaction. The
transaction was exempt from the registration requirements of the Securities Act
by reason of Section 4(2) thereunder and under Regulation S. This transaction
was an "offshore" transaction to non-U.S. persons.
In connection with the foregoing, as part of the finder's fee, we
issued the following finder's warrants:
NUMBER OF NUMBER OF
NAME SHARES WARRANTS
- ---- --------- ---------
Haywood Securities Inc. ................ 0 84,960
II-18
ITEM 27. EXHIBITS
EXHIBIT NO. DESCRIPTION OF DOCUMENT
2.1 Stock Exchange Agreement dated October 31, 2003, by and between
Xtra-Gold Resources Corp. and the former shareholders of Xtra Energy
Corp. (formerly Xtra-Gold Resources, Inc.) **
3.1 Articles of Incorporation of Silverwing Systems Corporation filed on
September 1, 1998 **
3.2 Articles of Amendment filed on August 19, 1999 to change our name to
Advertain On-Line Inc. **
3.3 Articles of Amendment filed June 18, 2001 to change our name to
RetinaPharma International, Inc. **
3.4 Articles of Amendment filed on October 8, 2001 to increase our capital
stock from 25,000,000 to 100,000,000 shares **
3.5 Articles of Amendment filed December 16, 2003 to change our name to
Xtra-Gold Resources Corp. and to increase our capital stock from
100,000,000 to 250,000,000 shares **
3.6 By-laws **
4.1 Form of common stock purchase warrant **
4.2 Form of convertible debenture **
5.1 Legal Opinion of Schneider Weinberger & Beilly LLP **
10.1 2005 Equity Compensation Plan **
10.2 Memorandum of Agreement dated October 28, 2003, by and between Xtra
Energy Corp. (formerly Xtra-Gold Resources, Inc.) and Ranger Canyon
Energy Inc. (formerly CaribGold Minerals, Inc.) **
10.3 Agreement dated February 16, 2004 by and between Xtra-Gold Resources
Corp. and Akrokeri-Ashanti Gold Mines Inc. **
10.4 Share Purchase Agreement dated December 22, 2004 between Xtra-Gold
Resources Corp. and 2058168 Ontario Inc., the trustee for the former
note holders of Akrokeri-Ashanti Gold Mines Inc. **
10.5 Share Purchase Agreement dated December 22, 2004 among Xtra-Gold
Resources Corp., 2058168 Ontario Inc., the trustee for the former
debenture holders of Akrokeri-Ashanti Gold Mines Inc. and 2060768
Ontario Corp. **
10.6 Stock Cancellation Agreement dated December 22, 2004 by and between
Paul Zyla and Xtra-Gold Resources Corp. with respect to the
cancellation of 24,000,000 shares **
II-19
10.7 Stock Cancellation Agreement dated December 22, 2004 by and between
William Edward McKechnie and Xtra-Gold Resources Corp. with respect to
the cancellation of 23,000,000 shares **
10.09 Stock option agreement dated September 5, 2005 with William Edward
McKechnie, as optionee **
10.10 Stock option agreement dated April 21, 2006 with William Edward
McKechnie, as optionee **
10.11 Stock option agreement dated April 21, 2006 with Kiomi Mori, as
optionee **
10.12 Stock option agreement dated May 1, 2006 with Michael Byron, as
optionee **
10.13 Stock option agreement dated May 1, 2006 with Yves Clement, as optionee
**
10.14 Stock option agreement dated May 1, 2006 with Alhaji Abudulai, as
optionee **
10.15 Stock option agreement dated August 1, 2006 with William Edward
McKechnie, as optionee **
10.16 Stock option agreement dated August 1, 2006 with John Douglas Mills, as
optionee **
10.17 Management consulting agreement dated May 1, 2006 with Yves Clement **
10.18 Management consulting agreement dated July 1, 2006 with Goldeye
Consultants Ltd. **
10.19 Management consulting agreement dated July 1, 2006 with Rebecca Kiomi
Mori **
10.20 Consulting agreement dated August 1, 2006 with JD Mining Ltd. **
10.21 Management consulting agreement dated November 1, 2006 with Alhaji
Nantogma Abudulai **
10.22 Mining lease with respect to the Kwabeng concession **
10.23 Mining lease with respect to the Pameng concession **
10.24 Prospecting licence with respect to the Banso and Muoso concessions **
10.25 Prospecting licence with respect to the Apapam concession **
10.26 Prospecting licence with respect to the Edum Banso concession **
10.27 Option Agreement dated October 17, 2005 between Xtra-Gold Exploration
Limited and Adom Mining Limited **
II-20
10.28 Consulting agreement dated January 17, 2006 between Xtra-Gold Mining
Limited and Bio Consult Limited **
10.29 Purchase and Sale Agreement dated September 1, 2006 between Xtra Oil &
Gas Ltd. and TriStar Oil & Gas Partnership **
10.30 Amending Agreement dated October 19, 2006 between Xtra-Gold Exploration
and Adom Mining Limited **
10.31 Stock option agreement dated March 5, 2007 with Richard W. Grayston, as
optionee **
10.32 Stock option agreement dated March 5, 2007 with Peter Minuk, as
optionee **
10.33 Stock option agreement dated March 12, 2007 with Robert H. Montgomery,
as optionee **
10.34 Stock option agreement dated March 12, 2007 with Brokton International
Ltd., as optionee **
10.35 Stock option agreement dated March 12, 2007 with John Douglas Mills, as
optionee **
10.36 Consulting agreement dated March 20, 2007 with JD Mining Ltd. **
10.37 Settlement termination agreement dated March 22, 2007 with Goldeye
Consultants Ltd. and William Edward McKechnie **
10.38 Lease with 360 Bay Street Limited dated March 29, 2007 **
10.39 Management consulting agreement dated July 1, 2007 with Peter Minuk *
10.40 Management consulting agreement dated December 1, 2007 with Kiomi Mori *
10.41 Amending agreement dated June 1, 2007 with Alhaji Nantogma Abudulai *
14 Code of Ethics **
23.1 Consent of Schneider Weinberger & Beilly LLP (filed with Exhibit 5) **
23.2 Consent of Davidson & Company LLP
23.3 Consent of John Rae **
__________
* to be filed
** Previously filed
II-21
ITEM 28. UNDERTAKINGS
The undersigned small business issuer will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectuses filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in the volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(4) For determining liability of the undersigned small business issuer
under the Securities Act to any purchaser in the initial distribution of the
securities, the undersigned small business issuer undertakes that in a primary
offering of securities of the undersigned small business issuer pursuant to this
Registration Statement, regardless of the underwriting method used to sell the
securities to the purchaser, if the securities are offered or sold to such
purchaser by means of any of the following communications, the undersigned small
business issuer will be a seller to the purchaser and will be considered to
offer or sell such securities to such purchaser:
i. Any preliminary prospectus or prospectus of the undersigned small
business issuer relating to the offering required to be filed pursuant to Rule
424;
ii. Any free writing prospectus relating to the offering prepared by or
on behalf of the undersigned small business issuer or used or referred to by the
undersigned small business issuer;
iii. The portion of any other free writing prospectus relating to the
offering containing material information about the undersigned small business
issuer or its securities provided by or on behalf of the undersigned small
business issuer; and
II-22
iv. Any other communication that is an offer in the offering made by
the undersigned small business issuer to the purchaser.
Each prospectus filed pursuant to Rule 424(b) filed under the Act as
part of a registration statement relating to an offering, other than
registration statements relying on Rule 430B of the Act or other than
prospectuses filed in reliance on Rule 430A of the Act, shall be deemed to be
part of and included in the registration statement as of the date it is first
used after effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration statement
or made in a document incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the registration statement
will, as to a purchaser with a time of contract of sale prior to such first use,
supersede or modify any statement that was made in the registration statement or
prospectus that was part of the registration statement or made in any such
document immediately prior to such date of first use.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or preceding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-23
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Amendment No. 10 to Form SB-2 on Form S-1
and authorized this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Toronto, Canada on May 5, 2008.
XTRA-GOLD RESOURCES CORP.
By: /s/ JAMES WERTH LONGSHORE
JAMES WERTH LONGSHORE
President (Principal Executive Officer
and Principal Financial Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 10 to Form SB-2 on Form S-1 Registration Statement has been signed
by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ JAMES WERTH LONGSHORE President (Principal May 5, 2008
- ------------------------- Executive Officer),
JAMES WERTH LONGSHORE Principal Accounting/
Financial Officer)
and Director
/s/ REBECCA KIOMI MORI Secretary, Treasurer May 5, 2008
- ---------------------- and Director
REBECCA KIOMI MORI
/s/ RICHARD W. GRAYSTON Director (Chairman) May 5, 2008
- -----------------------
RICHARD W. GRAYSTON
/s/ PETER MINUK Vice President, Finance May 5, 2008
- --------------- and Director
PETER MINUK
/s/ ROBERT H. MONTGOMERY Director May 5, 2008
- ------------------------
ROBERT H. MONTGOMERY