PACIFIC COPPER CORP.
PACIFIC COPPER CORP.
Consolidated Statements of Changes in Stockholders’ Equity (Deficiency) from inception (May 18, 1999) to January 31, 2009
The accompanying notes are an integral part of these financial statements.
PACIFIC COPPER CORP.
For the three months ended January 31, 2009 and January 31, 2008 and from inception (May 18, 1999) to January 31, 2009
PACIFIC COPPER CORP.
The accompanying unaudited financial statements do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of recurring accruals) considered necessary for fair presentation have been included. Operating results for the interim period are not necessarily indicative of the results that may be expected for the year ended October 31, 2009. Interim financial statements should be read in conjunction with the company’s annual audited financial statements.
The interim consolidated financial statements include the accounts of Pacific Copper Corp. (the “Company” or “Pacific Copper” ), and its subsidiaries Pacific Copper Peru SRL, a limited liability partnership formed under the laws of Peru (99% owned by the Company) and Sociedad Pacific Copper Chile Limitada, a limited liability partnership formed under the laws of Chile (99% owned by the Company). All material inter-company accounts and transactions have been eliminated.
The Company's financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has no source for operating revenue and expects to incur significant expenses before establishing operating revenue. The Company has a need for equity capital and financing for working capital and exploration of its properties. Because of continuing operating losses, negative working capital and cash outflows from operations, the Company’s continuance as a going concern is dependent upon its ability to obtain adequate financing and to reach profitable levels of operation. The Company’s future success is dependent upon its continued ability to raise sufficient capital, not only to maintain its operating expenses, but to explore for reserves. There is no guarantee that such capital will continue to be available on acceptable terms, if at all or if the Company will attain profitable levels of operation. Management’s plans to mitigate these conditions are described below.
The Company is in the exploration stage and has not yet realized revenues from any operations. The Company has incurred a loss of $890,949 for the three month period ended January 31, 2009. This loss includes a non-cash stock based compensation expense for $64,904 and non-cash compensation expense for issue of warrants for $ 26,737.. At January 31, 2009, the Company had an accumulated deficit during the exploration stage of $15,068,264. During the year ended October 31, 2008 the Company raised an additional capital of $1,475,815 (net of offering costs). Further, during the year ended October 31, 2008 the Company raised an additional $100,000 being subscription for convertible notes (note 14). The Company did not raise any share capital during the three months ended January 31, 2009. Management's plan is to continue raising additional funds through future equity or debt financing until it achieves profitable operations from mineral extraction activities.
The Company was incorporated on May 18, 1999 as Gate-1 Financial, Inc. under the laws of the State of Delaware. On August 17, 2006, Gate-1 Financial, Inc. changed its name to Pacific Copper Corp. The Company operates with the intent of exploration and, if feasible, extraction of minerals.
PACIFIC COPPER CORP.
On December 17, 2007, Pacific Copper completed the acquisition of Pacific Copper Peru SRL, a limited liability partnership organized under the laws of Peru (“Peru SRL”) pursuant to the Share Exchange Agreement among the Company, Peru SRL and the former partners of Peru SRL dated as of April 11, 2007, as amended (the “Peru Agreement”).
Pursuant to the Peru Agreement, the Company issued 4,850,000 shares of the Company’s common stock (the “Peru Consideration Shares”) to the partners of Peru SRL as consideration for the acquisition of 99% of Peru SRL. The 1% minority interest was credited with $24,495. As a result of the acquisition, Peru SRL became a subsidiary of the Company. The Peru Consideration Shares were issued in escrow subject to a Closing and Escrow Agreement dated December 14, 2007 among the Company, Peru SRL and the former partners of Peru SRL (the “Closing Agreement”). Pursuant to the terms of the Closing Agreement, the former partners of Peru SRL must satisfy certain post-closing items, prior to the release of the Peru Consideration Shares from escrow. As of the date of this report, the Peru Consideration shares remain in escrow.
PACIFIC COPPER CORP.
Plant and equipment are recorded at cost less accumulated depreciation. Depreciation is provided commencing in the month following acquisition using the following annual rate and method:
PACIFIC COPPER CORP.
On January 8, 2008, Pacific Copper acquired Pacific LTDA pursuant to a Share Exchange Agreement entered into as of April 11, 2007 (the “Chile Agreement”) between the Company and the former partners of Pacific LTDA. Pursuant to the Chile Agreement the Company issued 6,088,452 of its common shares (the “Chile Consideration Shares”) to the former partners of Pacific LTDA as consideration for the acquisition of 99% of Pacific LTDA. As a result of the acquisition, Pacific LTDA became a subsidiary of the Company. The Chile Consideration Shares were issued in escrow subject to a Closing and Escrow Agreement dated January 8, 2008 among the Company, Pacific LTDA and the former partners of Pacific LTDA (the “Chile Closing Agreement”). Pursuant to the terms of the Chile Closing Agreement, the former partners of Pacific LTDA must satisfy certain post-closing items prior to the release of the Chile Consideration Shares from escrow, which has not yet occurred. The Company capitalized $400 and expensed the balance consideration of $3,043,826 relating to the acquisition of mineral properties of Pacific LTDA as project expense, calculated at $0.50 per share (See Note 8 “Mining Claims”, below). As of the date of this report, the Chile Consideration Shares remain in escrow.
The Company, through private placements, issued 3,157,143 units at a price of $0.35 per unit. Each unit consisted of one common share and one half a common share purchase warrant. Each full warrant is exercisable for one common share at $0.50 per share on or before April 30, 2010. The private placement was undertaken entirely outside the United States pursuant to Regulation S. The Company accrued share issuance expense of $77,350 as a finder’s fee for introduction to subscribers who purchased 3,157,143 units for a total investment of $1,105,000 in the above private placements. The Company also issued to the finder a warrant to purchase 45,000 shares at $0.50 per share on or before April 30, 2010.
The Company, through private placements, issued 743,572 units at a price of $0.35 per unit during the months of June and July 2008. Each unit consisted of one common share and one half a common share purchase warrant. Each full warrant is exercisable for one common share at $0.50 per share for a period of 2 years from the date of issuance. The private placement was exempt from registration under the Securities Act of 1933, as amended (the “Act”), pursuant to Regulation S promulgated thereunder (“Regulation S”). The Company expensed share issuance expense of $13,370 being total finder’s fees. The Company also issued to the finders a warrant to purchase 13,000 shares at $0.50 per share on or before two years from date of issuance.
PACIFIC COPPER CORP.
The Company, through private placements, issued 576,501 units at a price of $0.35 per unit during the months of September and October 2008. Each unit consisted of one common share and one half a common share purchase warrant. Each full warrant is exercisable for one common share at $0.50 per share for a period of two years from the date of issuance. The private placement was exempt from registration under the Securities Act pursuant to Regulation S.
The Company did not raise any capital during the three month period ended January 31, 2009.
On August 13, 2008, the Company entered into an advisory consulting agreement with Jesup & Lamont Sec. Corp. (“Consultant”). Pursuant to this agreement, Consultant agreed to provide and perform for the benefit of the Company certain consulting services. The Company issued to the consultant a warrant to purchase 500,000 common shares at a price of $0.50 per share and exercisable for a period of five years. The term of this agreement was for a period of 6 months. The Company expensed the entire compensation cost for the issue of these warrants for $129,034 which vested during the year ended October 31, 2008. The fair value of the warrants was estimated on the grant date using the Black-Scholes option-pricing model.
No warrants were issued during the three month period ended January 31, 2009.
PACIFIC COPPER CORP.
(AN EXPLORATION STAGE MINING COMPANY)
Condensed Notes to Interim Consolidated Financial Statements
January 31, 2009
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
| 6. | Stock Purchase Warrants-Cont’d |
| | | Number of Warrants Granted | | | Exercise Prices | | | Expiry Date | |
| | | | | | $ | | | | | |
| | | | | | | | | | | |
| Outstanding at October 31, 2007 and average exercise price | | | 4,318,100 | | | | 0.70 | | | | | |
| Granted in year 2008 | | | 1,623,571 | | | | 0.50 | | | 4/30/2010 | |
| Granted in year 2008 | | | 175,857 | | | | 0.50 | | | 6/06/2010 | |
| Granted in year 2008 | | | 208,928 | | | | 0.50 | | | 7/30/2010 | |
| Granted in year 2008 | | | 253,248 | | | | 0.50 | | | 9/12/2010 | |
| Granted in year 2008 | | | 500,000 | | | | 0.50 | | | 9/23/2013 | |
| Granted in year 2008 | | | 35,000 | | | | 0.50 | | | 10/24/2010 | |
| Outstanding at October 31, 2008 and average exercise price | | | 7,114,704 | | | | 0.62 | | | | | |
| Granted in year 2009 | | | - | | | | - | | | | | |
| Outstanding at January 31, 2009 and average exercise price | | | 7,114,704 | | | | 0.62 | | | | | |
The warrants do not confer upon the holders any rights or interest as a shareholder of the Company
| 7. | Stock Based Compensation |
On August 8, 2006, the Board of Directors approved stock option plan ("2006 Stock Option Plan"), the purpose of which is to enhance the Company's stockholder value and financial performance by attracting, retaining and motivating the Company's officers, directors, key employees, consultants and its affiliates and to encourage stock ownership by such individuals by providing them with a means to acquire a proprietary interest in the Company's success through stock ownership. Under the 2006 Stock Option Plan, officers, directors, employees and consultants who provide services to the Company may be granted options to acquire common shares of the Company. Options may have a term of up to 10 years. The aggregate number of shares of common stock originally authorized under the plan was 5,000,000. Since adoption of the Plan an additional 600,000 shares were authorized for issuance pursuant to the Plan’s “evergreen share reserve increase” provision.
PACIFIC COPPER CORP.
(AN EXPLORATION STAGE MINING COMPANY)
Condensed Notes to Interim Consolidated Financial Statements
January 31, 2009
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
| 7. | Stock Based Compensation-Cont’d |
During the three month period ended January 31, 2009, no options were granted.
During the year ended October 31, 2008, the Board granted the following stock options:
| | a) | On February 20, 2008, stock options to purchase 250,000 common shares at an exercise price of $0.40 per share were issued to a consultant. These options were granted in accordance with the terms of the Company’s 2006 Stock Option Plan and shall vest immediately on date of grant. These options were granted for a term of 2 years. |
| | b) | In March 1, 2008, the Board granted stock options to a consultant to purchase 100,000 common shares and to another two consultants to purchase 10,000 common shares each. The Board also granted stock options to employees of Kriyah Consultants LLC (“Kriyah”), who perform administrative and geological services for the Company in the following amounts: two persons received options to purchase 70,000 common shares each, three persons received options to purchase 50,000 common shares each and two persons received options to purchase 40,000 common shares each. The foregoing option grants totaled 490,000 options. The exercise price for all these options was $0.50 per share. These options were granted in accordance with the terms of the Company’s 2006 Stock Option Plan and shall vest 50% at the end of year one commencing grant of options and the balance 50% at the end of year two commencing grant of the options. |
| | c) | On May 15, 2008, stock options to purchase 200,000 common shares at an exercise price of $0.35 per share were issued to a consultant. These options were granted in accordance with the terms of the Company’s 2006 Stock Option Plan and shall vest on the third month from the date granted. These options were granted for a term of 2 years. |
| | d) | On September 24, 2008 stock options to purchase 50,000 common shares at an exercise price of $0.50 per share were issued to an employee of Kriyah, who performs administrative and geological services for the Company. These options were granted in accordance with the terms of the Company’s 2006 Stock Option Plan and shall vest 50% at the end of year one commencing grant of options and the balance 50% at the end of year two commencing grant of the options. |
The Company has adopted SFAS123 (Revised) commencing July 1, 2005.
The fair value of each grant was estimated at the grant date using the Black-Scholes option-pricing model. The Black-Scholes option pricing model requires the use of certain assumptions, including expected terms, expected volatility, expected dividends and risk-free interest rate to calculate the fair value of stock-based payment awards. The assumptions used in calculating the fair value of stock option awards involve inherent uncertainties and the application of management judgment. For the year ended October 31, 2008, the Company has recognized in its financial statements, stock-based compensation costs as per the following details. The fair value of each option used for the purpose of estimating the stock compensation is based on the grant date using the Black-Scholes option pricing model with the following weighted average assumptions:
PACIFIC COPPER CORP.
(AN EXPLORATION STAGE MINING COMPANY)
Condensed Notes to Interim Consolidated Financial Statements
January 31, 2009
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
| 7. | Stock Based Compensation-Cont’d |
| Date of grant | | 14-May | | | 20-Jul | | | 1-Aug | | | 9-Aug | | | 20-Feb | | | 1-Mar | | | 15-May | | | 24-Sep | | | | |
| | | 2007 | | | 2007 | | | 2007 | | | 2007 | | | 2008 | | | 2008 | | | 2008 | | | 2008 | | | Total | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Risk free rate | | | 4.50 | % | | | 4.50 | % | | | 4.50 | % | | | 4.50 | % | | | 5.00 | % | | | 5.00 | % | | | 5.00 | % | | | 2.95 | % | | | |
| Volatility factor | | | 50 | % | | | 50 | % | | | 50 | % | | | 50 | % | | | 100 | % | | | 98 | % | | | 86 | % | | | 84 | % | | | |
| Expected dividends | | | 0 | % | | | 0 | % | | | 0 | % | | | 0 | % | | | 0 | % | | | 0 | % | | | 0 | % | | | 0 | % | | | |
| Forfeiture rate | | | 0 | % | | | 0 | % | | | 0 | % | | | 0 | % | | | 0 | % | | | 0 | % | | | 0 | % | | | 0 | % | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Expected life | | 5 years | | | 5 years | | | 5 years | | | 5 years | | | 2 years | | | 5 years | | | 5 years | | | 5 years | | | | |
| Exercise price | | $ | 0.50 | | | $ | 0.50 | | | $ | 0.50 | | | $ | 0.51 | | | $ | 0.40 | | | $ | 0.50 | | | $ | 0.35 | | | $ | 0.50 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total number of options granted | | | 1,750,000 | | | | 250,000 | | | | 1,700,000 | | | | 650,000 | | | | 250,000 | | | | 490,000 | | | | 200,000 | | | | 50,000 | | | | 5,340,000 | |
| Total number of options forfeited/cancelled/Expired/Exercised | | | - | | | | - | | | | - | | | | - | | | | - | | | | (110,000 | ) | | | - | | | | - | | | | (110,000 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Grant date fair value | | $ | 0.24 | | | $ | 0.24 | | | $ | 0.24 | | | $ | 0.24 | | | $ | 0.22 | | | $ | 0.27 | | | $ | 0.25 | | | $ | 0.13 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock-based compensation cost expensed during the year ended October 31, 2008 | | $ | 223,699 | | | $ | 37,822 | | | $ | 160,333 | | | $ | 119,059 | | | $ | 54,618 | | | $ | 34,594 | | | $ | 49,504 | | | $ | 342 | | | $ | 679,971 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unexpended Stock -based compensation cost deferred over the vesting period | | $ | nil | | | $ | 8,599 | | | $ | 200,418 | | | $ | nil | | | | $nil | | | $ | 69,091 | �� | | $ | nil | | | $ | 6,226 | | | $ | 284,334 | |
As of October 31, 2008 there was $284,334 of unrecognized expenses related to non-vested stock-based compensation arrangements granted. The stock-based compensation expense for the year ended October 31, 2008 was $679,971.
During the three month period ended January 31, 2009, no new stock options were issued.
For the three-month period ended January 31, 2009, the Company has recognized in its financial statements, stock-based compensation costs as per the following details. The fair value of each option used for the purpose of estimating the stock compensation is based on the grant date using the Black-Scholes option pricing model with the following weighted average assumptions.
PACIFIC COPPER CORP.
(AN EXPLORATION STAGE MINING COMPANY)
Condensed Notes to Interim Consolidated Financial Statements
January 31, 2009
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
| 7. | Stock based compensation-cont’d |
Date of grant | | 14-May | | | 20-Jul | | | 1-Aug | | | 9-Aug | | | 20-Feb | | | 1-Mar | | | 15-May | | | 24-Sep | | | | |
| | | 2007 | | | 2007 | | | 2007 | | | 2007 | | | 2008 | | | 2008 | | | 2008 | | | 2008 | | | Total | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Risk free rate | | | 4.50 | % | | | 4.50 | % | | | 4.50 | % | | | 4.50 | % | | | 5.00 | % | | | 5.00 | % | | | 5.00 | % | | | 2.95 | % | | | |
| Volatility factor | | | 50 | % | | | 50 | % | | | 50 | % | | | 50 | % | | | 100 | % | | | 98 | % | | | 86 | % | | | 84 | % | | | |
| Expected dividends | | | 0 | % | | | 0 | % | | | 0 | % | | | 0 | % | | | 0 | % | | | 0 | % | | | 0 | % | | | 0 | % | | | |
| Forfeiture rate | | | 0 | % | | | 0 | % | | | 0 | % | | | 0 | % | | | 0 | % | | | 0 | % | | | 0 | % | | | 0 | % | | | |
| Expected life | | 5 years | | | 5 years | | | 5 years | | | 5 years | | | 2 years | | | 5 years | | | 5 years | | | 5 years | | | | |
| Exercise price | | $ | 0.50 | | | $ | 0.50 | | | $ | 0.50 | | | $ | 0.51 | | | $ | 0.40 | | | $ | 0.50 | | | $ | 0.35 | | | $ | 0.50 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total number of options granted | | | 1,750,000 | | | | 250,000 | | | | 1,700,000 | | | | 650,000 | | | | 250,000 | | | | 490,000 | | | | 200,000 | | | | 50,000 | | | | 5,340,000 | |
| Total number of options forfeited/cancelled/Expired/Exercised | | | - | | | | - | | | | - | | | | - | | | | - | | | | (110,000 | ) | | | - | | | | - | | | | (110,000 | ) |
| Grant date fair value | | $ | 0.24 | | | $ | 0.24 | | | $ | 0.24 | | | $ | 0.24 | | | $ | 0.22 | | | $ | 0.27 | | | $ | 0.25 | | | $ | 0.13 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock-based compensation cost expensed during the three month period ended January 31, 2009 | | $ | nil | | | $ | 3,031 | | | $ | 48,100 | | | $ | nil | | | $ | nil | | | $ | 12,952 | | | $ | nil | | | $ | 821 | | | $ | 64,904 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unexpended Stock -based compensation cost deferred over the vesting period | | $ | nil | | | $ | 5,568 | | | $ | 152,318 | | | $ | nil | | | $ | nil | | | $ | 56,139 | | | $ | nil | | | $ | 5,405 | | | $ | 219,430 | |
PACIFIC COPPER CORP.
(AN EXPLORATION STAGE MINING COMPANY)
Condensed Notes to Interim Consolidated Financial Statements
January 31, 2009
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
7. Stock Based Compensation-cont’d
As of January 31, 2009 there was $219,430 of unrecognized expenses related to non-vested stock-based compensation arrangements granted. The stock-based compensation expense for the three month period ended January 31, 2009 was $64,904.
8. Mining Claims
(a) On December 17, 2007, Pacific Copper acquired Peru SRL, pursuant to the Share Exchange Agreement among the Company, Peru SRL and the former partners of Peru SRL dated as of April 11, 2007, as amended (the “Peru Agreement”). Pursuant to the Peru Agreement, the Company issued 4,850,000 shares of the Company’s common stock (the “Peru Consideration Shares”) to the partners of Peru SRL as consideration for the acquisition of 99% of Peru SRL. The 1% minority interest was credited with $24,495. As a result of the acquisition, Peru SRL became a subsidiary of the Company. The Company expensed $2,449,295, relating to the issue of 4,850,000 common shares calculated at $0.50 per common share and the allocation of minority interest for $24,495 net of capitalization for $200 for mineral property claims. Property acquisition costs relating to the exploration properties are being expensed until the economic viability of the project is determined and proven and probable reserves quantified. In the absence of proven and probable reserves, the Company is unable to allocate any economic values to the claims. The Company does not consider either of the mineral claim groups acquired in the transaction (as listed below) to be material assets at this time, but our assessment may change after further work is done on the properties. Pursuant to this acquisition the Company acquired interests in the following mineral claims which were capitalized at $100 each:
Tonalia (subject to the completion of the formal documentation)
Don Javier (subject to the completion of formal documentation)
(b) On January 8, 2008, Pacific Copper acquired Pacific LTDA, pursuant to a Share Exchange Agreement entered into as of April 11, 2007 (the “Chile Agreement”), as amended, between the Company and the former partners of Pacific LTDA. Pursuant to the Chile Agreement the Company issued 6,088,452 of its common shares (the “Chile Consideration Shares”) to the former partners of Pacific LTDA as consideration for the acquisition of 99% of Pacific LTDA. The 1% minority interest was credited with $30,750. As a result of the acquisition, Pacific LTDA became a subsidiary of the Company. The Company expensed $3,074,576, relating to the issue of 6,088,452 common shares calculated at $0.50 per common share and the allocation of minority interest for $30,750 net of capitalization for $400 for mineral property claims. Property acquisition costs relating to the exploration properties are being expensed until the economic viability of the project is determined and proven and probable reserves quantified. In the absence of proven and probable reserves, the Company is unable to allocate any economic values to the claims groups acquired in the transaction (as listed below). The Company does not consider either of the foregoing mineral claims to be material assets at this time, but our assessment may change after further work is done on the properties. Pursuant to this acquisition the Company acquired interest in the following mineral claims which were capitalized at $100 each:
Carrera Pinto
Carrizal
Cerro Blanco
La Guanaca
(c) As of February 27, 2009 the Company entered into a mineral property acquisition agreement with Gareste Limitada, a Chilean limited liability partnership pursuant to which it acquired certain copper oxide properties in Atacama Region III, Chile. See Footnote 17, “Subsequent Events” below for more information.
PACIFIC COPPER CORP.
(AN EXPLORATION STAGE MINING COMPANY)
Condensed Notes to Interim Consolidated Financial Statements
January 31, 2009
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
| 9. | Commitments and Contingencies |
On June 1, 2007, the Company entered into an agreement with Sweetwater Capital Corporation, a private company with a director in common with the Company (“Sweetwater”) for a term of 24 months to provide financial public relations, business promotion, business growth and development consulting services, including consultation regarding mergers and acquisitions, and general business consultation. The Company will pay Sweetwater $4,000 per month plus 1,000,000 restricted shares of the Company's common stock that will be earned in equal installments of 250,000 shares on December 1, 2007, March 1, 2008, June 1, 2008 and September 1, 2008. The said 1,000,000 shares of restricted Common stock of the Company were tendered in one certificate on June 1, 2007. The consultant must return any unearned shares upon early termination of the agreement. Either the consultant or the Company may terminate the agreement with or without cause upon sixty (60) days written notice to the other provided that the Company may not give notice of cancellation before January 1, 2007.
On April 19, 2007, the Company executed an agreement dated as of April 11, 2007 with David Hackman, a director of the Company, on behalf of a corporation to be formed in Peru which, prior to closing, would then own certain mineral claims located in Peru. On December 17, 2007, Pacific Copper completed the acquisition of Peru SRL, pursuant to the Share Exchange Agreement among the Company, Peru SRL and the former partners of Peru SRL dated as of April 11, 2007. The 4,850,000 shares of the Company’s common stock issued in connection with the closing of this transaction are held in escrow subject to the satisfaction of certain post-closing conditions.
On April 19, 2007 the Company executed an agreement dated as of April 11, 2007 with Harold Gardner, a director of the Company, on behalf of a corporation to be formed in Chile which, prior to closing, would then own certain mineral claims located in Chile. On January 8, 2008, Pacific Copper acquired Pacific LTDA pursuant to a Share Exchange Agreement entered into as of April 11, 2007 between the Company and the former partners of Pacific LTDA. The 6,088,452 shares of the Company’s common stock issued in connection with the closing of this transaction are held in escrow subject to the satisfaction of certain post-closing conditions.
On August 9, 2007 the Company and Andrew A. Brodkey executed an employment agreement pursuant to which the Company retained Mr. Brodkey as President and Chief Executive Officer. The Employment Agreement has a two-year term that commenced on August 1, 2007 and will continue until August 1, 2009 unless terminated earlier pursuant to the terms of the Employment Agreement. Mr. Brodkey’s base salary is $132,000 per year. Upon certain events of termination Mr. Brodkey would be entitled to a maximum of one year’s salary as a severance payment. Under the employment agreement, Mr. Brodkey is permitted to pursue other business opportunities.
On August 22, 2007 the Company entered into an agreement with Kriyah for the performance of certain administrative and management services. The Kriyah Agreement has an initial term of two years and is then automatically renewable. Either party may terminate the Kriyah Agreement upon 60 days prior written notice. Under the Kriyah Agreement, Kriyah received an initial payment of $57,504 and will receive payments of $4000 each month thereafter. Commencing in January of 2009, this amount was reduced to $2500 per month. In order to facilitate the retaining of Kriyah, the Company guaranteed a lease agreement for the office space used by Kriyah in Tucson, Arizona. The Company’s maximum obligation under the lease guarantee, as of January 31, 2009, would be $246,608.52 in the event of a lease default with full acceleration of rent. Kriyah’s Manager, Andrew A. Brodkey, is also the President and CEO of the Company.
PACIFIC COPPER CORP.
(AN EXPLORATION STAGE MINING COMPANY)
Condensed Notes to Interim Consolidated Financial Statements
January 31, 2009
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
| 9. | Commitments and Contingencies-Cont’d |
On September 1, 2007, the Company entered into a Payroll Service Agreement with Kriyah to administer payroll and health insurance benefits to Andrew A. Brodkey, President and CEO of the Company, as contemplated in his Employment Agreement with the Company dated August 1, 2007 (“Employment Agreement”). The Company shall reimburse Kriyah monthly for all direct costs for wages, covered by the Employment Agreement and health benefits provided by Kriyah and invoiced to the Company for Mr. Brodkey.
On August 16, 2007, the Company entered into an agreement with Hydro Geophysics Inc. (“HGI”). Pursuant to this agreement, HGI provided certain mineral exploration, analytical and consulting services to the Company, as requested from time to time, with respect to the Company’s South American projects. This contract expired on February 16, 2009. The Company remains obligated for the payment of an aggregate of $89,212 of unpaid invoices under this contract.
On January 24, 2008, the Company, through its subsidiary Pacific LTDA entered into an exclusive exploration, mining and exploitation agreement (the "Guanaca Lease") for the La Guanaca oxide copper project located northeast of the town of Inca de Oro, Chanaral Province, Atacama Region 3, Chile. This property, which consists of approximately 300 hectares of exploration concessions, is road-accessible and was previously explored in the mid-1990's through geophysical methods, sampling and drilling by Empresa Nacional de Mineria ("ENAMI") a Chilean nationally-owned mining enterprise. The Guanaca Lease is for a term of 5 years and is renewable automatically for additional 5-year periods. The owners of the La Guanaca property will receive US$2,000 per month in cash during the term of the agreement.
On February 12, 2008, the Company’s subsidiary, Pacific LTDA, entered into an Operator Agreement (the “Chile Operator Agreement”) with Gareste Limitada, a limited liability partnership organized under the laws of Chile (“Gareste”). Pursuant to the Chile Operator Agreement Gareste will prepare and submit proposed annual work programs and accompanying budgets to Pacific LTDA covering the exploration and, if warranted, development of certain mineral concessions held by Pacific LTDA. Gareste will provide comprehensive management services and contract for transportation, labor, insurance and logistical services for all approved programs. Gareste’s overhead reimbursement and compensation will be specified in each proposed budget and subject to approval by Pacific LTDA. The Chile Operator Agreement is terminable by either party upon 90-days’ prior notice. Harold Gardner, a member of the Company’s board of directors, is a partner in Gareste.
On February 12, 2008 The Company’s subsidiary, Peru SRL entered into an Operator Agreement (the “Peru Operator Agreement”) with Inversiones Mineras Stiles, a limited liability partnership organized under the laws of Peru (“Stiles”). Pursuant to the Peru Operator Agreement Stiles will prepare and submit proposed annual work programs and accompanying budgets to Peru SRL covering the exploration and, if warranted, development of certain mineral concessions held by Peru SRL. Stiles will provide comprehensive management services and contract for transportation, labor, insurance and logistical services for all approved programs. Stiles’ overhead reimbursement and compensation will be specified in each proposed budget and subject to approval by Peru SRL.
PACIFIC COPPER CORP.
(AN EXPLORATION STAGE MINING COMPANY)
Condensed Notes to Interim Consolidated Financial Statements
January 31, 2009
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
| 9. | Commitments and Contingencies-Cont’d |
On February 28, 2008 the Company entered into an agreement with Michael A. McClave (“Consultant”). Pursuant to this agreement, Consultant will provide certain mineral exploration, geological and consulting services to the Company, as requested from time to time. Pacific Copper will be invoiced on a monthly basis for services rendered on the projects. Either party can terminate this agreement by giving 30 days notice with or without cause.
On May 15, 2008, the Company entered into a consulting and professional services agreement with Jehcorp Inc. (“Consultant”). Pursuant to this agreement, Consultant agrees to provide and perform for the benefit of the Company certain expert technical consulting services, specifically including, but not limited to, the preparation of a Canadian National Instrument NI-43-101 Technical Report for various properties owned or controlled by the Company and its subsidiaries in Peru and Chile. The Company will be invoiced on a monthly basis for services rendered and the Consultant was advanced $5,000.
The Company, through Pacific LTDA, also executed a letter of intent with Gareste to acquire its interest in the “Yerbas Buenas” oxide copper property located 130 km southeast of the city of Copiapo, Atacama Region III, Chile. Yerbas Buenas is located roughly 20 km from the El Corral property. The letter of intent contemplates that Gereste will receive 2 million shares of the Company at closing in exchange for its interest at Yerbas Buenas, and a 2% NSR royalty, capped at $6 million, 1% of which can be repurchased for the sum of $2 million at any time prior to commercial production. As of the date of this report, the Company and Gareste have postponed performance under this letter of intent due to the current copper market conditions and general economic decline worldwide.
On June 10, 2008 the Company executed an agreement with Eagle Mapping Ltd. for providing services for a total consideration payable for $52,200.
On August 14, 2008, the Company entered into a consulting services agreement with Yellow Rose Ltd., to provide business and financial consulting relating to the European markets. The term of this agreement is for a period of 12 months. A consulting fee of up to $20,000 is billable from the consultant during the term of this agreement. As of January 31, 2009, the consultant had billed the Company $10,000.
On October 28, 2008, the Company received a cease trade order (the “CTO”) from the British Columbia Securities Commission (the “BCSC”), the effect of which is limited to the Province of British Columbia. By its terms, the CTO was issued for not filing a technical report under Canadian National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”) with respect to its material copper oxide projects in Chile after having made public disclosures regarding such properties. The Company has engaged counsel in British Columbia and is in the process of obtaining and filing the reports and information required by the BCSC and otherwise satisfying the requirements of British Columbia law. As of the date of this report, this matter has not been resolved and the CTO is in effect. The financial impact of the CTO is unknown.
PACIFIC COPPER CORP.
(AN EXPLORATION STAGE MINING COMPANY)
Condensed Notes to Interim Consolidated Financial Statements
January 31, 2009
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
10. Related Party Transactions
Three month period ended January 31, 2009
The following transactions were undertaken in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
| | A) | During the three month period ended January 31, 2009, the Company expensed stock based compensation for $48,100 relating to the vesting of the stock options issued in years 2007 and 2008 to its director. |
| | B) | A director of the Company provided consulting geological services to the Company and a total of $22,500 was expensed to a private Company with director in common. $52,500 was owed to this private company as of January 31, 2009. |
| | C) | A director of the Company provided consulting services to the Company and a total of $22,500 was expensed to a private company with director in common. $145,849 was owed to this private company as of January 31, 2009 which also includes non-reimbursed expenses. |
| | D) | The President, CEO, Director and Chairman of the Board of Directors of the Company, was paid $34,865 by Kriyah, including benefits which was charged to the Company. |
| | E) | The Secretary of the Company is an employee of Kriyah and was paid $6,856 by Kriyah, including payroll burden and benefits that was charged to the Company. |
| | F) | The Company expensed $3,500 for services rendered to the Company by an officer of the Company. |
| G) | On June 1, 2007, the Company entered into an agreement with Sweetwater Capital Corporation, a private company with a director in common with the Company (“Sweetwater”) for a term of 24 months to provide financial public relations, business promotion, business growth and development consulting services, including consultation regarding mergers and acquisitions, and general business consultation. The Company expensed $29,200 for the three month period ended January 31, 2009 and also amortized deferred stock compensation expense for $62,500 relating to issue of 1,000,000 restricted shares of the Company's common stock that was earned during the three month period ended January 31, 2009. |
| H) | The Company incurred a total of $411,553 to a private Chilean company that provides exploration services to the Company in Chile, and has a director in common, of which $203,857 was owed at January 31, 2009 with such costs recorded as project costs. |
The Company received an advance of $70,000 from War Eagle Mining Company, Inc. a Company related through a common director. This amount was advanced interest free against a demand promissory note. Subsequent to the quarter ended January 31, 2009, the Company issued a secured promissory note with War Eagle Mining Company, Inc. which replaced the prior unsecured demand note. Certain of the Company’s obligations under this promissory note are in dispute. For more information please see Note 17, “Subsequent Events” below.
PACIFIC COPPER CORP.
(AN EXPLORATION STAGE MINING COMPANY)
Condensed Notes to Interim Consolidated Financial Statements
January 31, 2009
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
11. Deferred Stock Compensation
The Company issued 1,000,000 restricted common shares each to three consultants, for a total of 3,000,000 common shares valued at $1,500,000. The Company has expensed proportionate consulting expenses of $1,416,667 until January 31, 2009 and the balance of $83,333 is reflected as a deferred stock compensation expense under shareholders’ equity in the balance sheet.
12. Advances to a related party
Advances to a related party include a net receivable of $25,000, after providing a reserve for doubtful receivable for $197,000, advanced interest free against a demand promissory notes to the Company related through common directors and management. The Company opted to create a reserve for $197,000 as a matter of prudence and caution due to the current unfavorable and challenging general economic conditions. The related party repaid the net receivable of $25,000 subsequent to January 31, 2009. Refer to “Subsequent Events” below.
13. Advances from non-related parties
On June 20, 2008, the Company received an advance of $246,945 from a non-related party which bears interest at an annual rate of eight percent and is due and payable within ninety days from receipt thereof. The Company received a further advance of an additional $5,100 on September 30, 2008 from the same party. The Company received an additional advance of $100,000 from this party during the three month period ended January 31, 2009.
PACIFIC COPPER CORP.
(AN EXPLORATION STAGE MINING COMPANY)
Condensed Notes to Interim Consolidated Financial Statements
January 31, 2009
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
14. Convertible note financing transaction
Our convertible note consisted of the following as of January 31, 2009:
| | | Amount | |
| | | | |
| $100,000 face value, 6% convertible note, due October 31, 2010 | | $ | 37,610 | |
On October 27, 2008, the Company issued a $100,000 face value, 6% convertible note, due October 31, 2010. The principal amount of the note and interest is payable on October 31, 2010. While the note is outstanding, the investor has the option to convert the principal balance and interest, into conversion units at a conversion price of $0.16 per unit. Each conversion unit is convertible into one share of common stock and one warrant to purchase one share of common stock. Further, the terms of the convertible note provide for certain redemption features. If, in the event of certain defaults on the terms of the note, certain of which are indexed to equity risks, the holder can accelerate the payment of outstanding principal and interest. The financing transaction also provided the holder with Additional Investment Rights (“AIR”) to purchase up to $800,000 face value convertible notes under the same terms and conditions as the $100,000 convertible note.
The Company has evaluated the terms and conditions of the convertible note and the AIR under the guidance of SFAS No. 133 and EITF No. 00-19. The embedded conversion option, indexed to a share of stock and a warrant, does not meet the conventional convertible exemption. The warrant element of the conversion unit does not otherwise fall within the scope of the “indexed to the company’s own stock” exemption provided in SFAS No. 133 and required bifurcation. Further, certain redemption features that are indexed to equity risks are not clearly and closely related to the host debt agreement. Accordingly, a compound embedded derivative was bifurcated from the contract and has been recorded as a derivative liability. Similarly, the AIR embodies similar features that did not meet equity classification and accordingly derivative liability classification of the compound feature is also reflected in liabilities.
PACIFIC COPPER CORP.
(AN EXPLORATION STAGE MINING COMPANY)
Condensed Notes to Interim Consolidated Financial Statements
January 31, 2009
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
14. Convertible note financing transaction-Cont’d
Fair value of the compound embedded derivative and embedded warrants in the additional investment right were measured using the Monte Carlo Simulation technique and in applying this technique the Company was required to develop certain subjective assumptions. Information and significant assumptions embodied in the valuations (including ranges for certain assumptions during the subject periods that instruments were outstanding) as of the inception date and October 31, 2008 are illustrated in the following table:
| | | October 27, 2008 | | | October 31, 2008 | |
| Conversion price | | $ | 0.29 | | | $ | 0.29 | |
| Volatility | | | 78%-84 | % | | | 79%-86 | % |
| Equivalent term (years) | | | 3.987 | | | | 3.964 | |
| Credit-risk adjusted yield | | | 10.3%-14.0 | % | | | 10.3%-14.0 | % |
| Interest-risk adjusted rate | | | 5.0%-5.16 | % | | | 4.8%-5.10 | % |
Since, as discussed above, the common share element of the conversion option did not require treatment as derivative financial instruments, the Company was required to evaluate the feature as potentially embodying a beneficial conversion feature under EITF No. 98-5 Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios and EITF No. 00-27 Application of Issue No. 98-5 to Certain Convertible Instruments. A beneficial conversion feature is present when the fair value of the underlying common share exceeds the effective conversion price of the conversion option. The effective conversion price is calculated as the basis in the financing arrangement allocated to the hybrid convertible debt agreement, divided by the number of shares into which the instrument is indexed. As a result of this evaluation under the aforementioned standards, the Company concluded that a beneficial conversion feature was present in the amount of $5,625 in the $100,000 face value convertible note.
Discounts or (premiums) on the convertible notes arise from (i) the allocation of basis to other instruments issued in the transaction, (ii) fees paid directly to the creditor and (iii) initial recognition at fair value, which is lower than face value. Discounts (premiums) are amortized through charges (credits) to interest expense over the term of the debt agreement. Amortization of debt discounts (premiums) amounted to ($5,110) during the period for inception to January 31, 2009.
The derivative liabilities as of January 31, 2009 consisted of the following:
| Derivative Financial Instrument | | Amount | |
| Compound Embedded Derivative | | $ | 13,750 | |
| Additional Investment Right (AIR) | | | 110,000 | |
| | | $ | 123,750 | |
PACIFIC COPPER CORP.
(AN EXPLORATION STAGE MINING COMPANY)
Condensed Notes to Interim Consolidated Financial Statements
January 31, 2009
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
15. Project expenses
During the three month period ended January 31, 2009, the Company incurred project related expenses on the following mineral claims in Chile:
| Corral (Chile) | | $ | 4,620 | |
| Carrera Pinto (Chile) | | $ | 7,310 | |
| Carrizal (Chile) | | $ | 955 | |
| La Mofralla (Chile) | | $ | 3,937 | |
| La Guanaca (Chile) | | $ | 8,406 | |
| Venapai (Chile) | | $ | 229,721 | |
| Yerbas Buenas (Chile) | | $ | 236,613 | |
| Total | | $ | 491,563 | |
The above expenses include consulting, claims, equipment rentals, contract labor, field wages, drilling and other project related expenses.
16. General and administration expenses
General and administration expense for the three month period ended January 31, 2009 include the following:
| Non-cash compensation expense relating to the issue of options and warrants | | $ | 91,641 | |
| Non cash expense relating to the amortization of deferred stock compensation relating to issue of stock to consultants | | $ | 62,500 | |
| Legal, accounting and audit | | $ | 72,166 | |
| Office, payroll and other general expenses | | $ | 116,236 | |
| Total | | $ | 342,543 | |
PACIFIC COPPER CORP.
(AN EXPLORATION STAGE MINING COMPANY)
Condensed Notes to Interim Consolidated Financial Statements
January 31, 2009
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
17. Subsequent Events
Subsequent events not already reported in these financial statements are as follows:
Subsequent to the quarter ended January 31, 2009, a related party repaid an amount of $25,000 (refer to note 12 to the financial statements).
Subsequent to the quarter ended January 31, 2009, on February 17, 2009, Pacific Copper issued a secured promissory note (the “War Eagle Note”) to War Eagle Mining Company, Inc. a Canadian corporation (“War Eagle”). War Eagle and the Company share a common director. The War Eagle Note has a face amount of $155,000 which includes amounts previously advanced to the Company. Pursuant to the War Eagle Note, War Eagle agreed to make advances of credit to Kriyah for the benefit of Pacific Copper. Kriyah performs administrative services for Pacific Copper and also shares office space with War Eagle and Pacific Copper. Upon execution of the War Eagle Note, an initial advance of $15,000 was made to Kriyah for the benefit of the Company, with subsequent advances of $15,000 to be made on the 1st day of the months of February, March, April, and May of 2009, and a final payment of $10,000 to be made on or before June 1, 2009. Under the terms of the War Eagle Note, all amounts advanced are due and payable on June 30, 2009 with interest at 15% per annum. The War Eagle Note covers a prior advance of $70,000 that was received by Pacific Copper on June 22, 2008. The principal amount outstanding under the War Eagle Note (beginning with the initial advance on June 22, 2008) bears interest at 15% per annum. The War Eagle Note is secured by a blanket security interest in all real, personnel, and intangible interests of Pacific Copper associated with each of the La Guanaca, El Corral, La Mofralla and Venado projects (the Company’s South American oxide copper properties, as described in this report). While War Eagle funded $30,000 on February 17, 2009 pursuant to the War Eagle Note (bringing the outstanding principal amount to $100,000), War Eagle has notified the Company that it will not fund the March, April or May advances or the $10,000 final advance contemplated in the War Eagle Note, leaving a funding shortfall of $55,000. The Company has notified War Eagle that it considers this failure to fully fund the War Eagle Note to be a breach and has reserved all of its legal rights.
Subsequent to the quarter ended January 31, 2009, as of February 27, 2009, Pacific Copper, through its wholly owned subsidiary Pacific LTDA, entered into a definitive mineral property acquisition agreement (the “Gareste Agreement”) with Gareste pursuant to which the Company acquired a 100% interest in the following copper oxide properties located in Atacama Region II, Chile: the “Venado Property” (also known as the “Venapai Property”) consisting of approximately 3600 hectares of exploration concessions, located roughly 45 kilometers from the city of Copiapo, the “El Corral Property”, consisting of approximately 4000 hectares of exploration concessions, located roughly 60 kilometers from the city of Copiapo, and the adjacent “La Mofralla Property”, consisting of approximately 250 hectares of exploration concessions also located roughly 60 kilometers from the City of Copiapo. These properties were subject to separate letters of intent entered into during July and October of 2008, as previously disclosed.
Under the Gareste Agreement the Company is required to issue a total of 5,000,000 shares of its common stock to Gareste, allocable as follows: 2,000,000 shares of common stock as consideration for the Venado Property, 2,000,000 shares of common stock as consideration for the El Corral Property and 1,000,000 shares of common stock as consideration for the La Mofralla Property. In addition, the Venado Property is subject to a 2% net smelter return royalty, capped at $10,000,000, 50% of which can be repurchased by Pacific Copper at any time prior to the commencement of production for $3,000,000, and the El Corral Property is subject to a 2% net smelter return royalty, capped at $10,000,000, 50% of which can be repurchased by Pacific Copper at any time prior to the commencement of production for $2,000,000. As of the date of this report, title to the properties has been transferred to Pacific LTDA and the closing is in process.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
FOR THE THREE MONTH PERIOD ENDED JANUARY 31, 2009
Discussion of Operations & Financial Condition
Three months ended January 31, 2009
The Company is in the exploration stage and has not yet realized revenues from any operations. The Company has incurred a loss of $890,949 for the three-month period ended January 31, 2009. This loss includes a non-cash stock based compensation expense for $64,904 and non-cash compensation expense for issue of warrants for $26,737. At January 31, 2009, the Company had an accumulated deficit during the exploration stage of $15,068,264. During the year ended October 31, 2007, the Company raised $3,234,450. During the year ended October 31, 2008, the Company raised an additional $1,475,815 (net of offering costs). Further, during the year ended October 31, 2008, the Company raised an additional $100,000 from subscriptions for convertible notes (See note 14 to the Company’s financial statements contained in this report). The Company did not raise any share capital during the three months ended January 31, 2009. Management's plan is to continue raising additional funds through future equity or debt financing until it achieves profitable operations from mineral extraction activities. There is no assurance that we will be successful in obtaining such financing.
As of the date of the filing of this report, the Company has very little cash. As of the quarter ended January 31, 2009, the Company’s current liabilities were $1,267,362 while current assets were $59,414. Management has taken steps to reduce operating costs. These steps include deferral of salaries for senior management, deferral of payments to consultants and service providers, and suspension of all exploration activities.
Management expects that the Company will receive payments from Zoro Mining Corp. (“Zoro”) pursuant to an existing receivable (which has been reduced by a reserve for doubtful accounts - See Note 12 to the financial statements contained in this report). Zoro owes the Company gross $222,000 as of January 31, 2009 (net receivable $25,000 after adjusting a reserve for doubtful account for $197,000 created as a matter of caution due to current unfavorable and challenging general economic conditions) and has subsequent to the quarter repaid $25,000. Management believes that these funds will help to alleviate short term cash deficiencies. Management also anticipates that additional advances or other financing arrangements, similar to those provided in the past, will be arranged through a Director of the Company. Such historical financings have generally taken the form of unsecured bank loans or lines of credit, cash advances, advances under promissory notes, and investments in Company securities or advances under convertible notes. The Company has also received advances from War Eagle Mining Company, Inc (“War Eagle”) pursuant to a secured promissory note granted on February 17, 2009 (the “War Eagle Note”). War Eagle has notified the Company that it will not honor further funding advances under the War Eagle Note. The Company has notified War Eagle that it considers War Eagle to have breached its obligations under the War Eagle Note. See Note 17 of the Company’s financial statements included with this report for a further description of the War Eagle Note.
Due to current difficult economic conditions and increased competition among small mineral exploration stage companies for available sources of capital, it has become more difficult to raise financing than in the previous operating years of the Company. The continued depletion of current cash and cash equivalents to meet ongoing administrative expenses and other continuing obligations is a material concern of management. The continued operation of the Company is dependent on raising additional financing to meet commitments and obligations and there can be no assurance that such financing can be obtained on a timely basis or on favorable terms or at all. If we fail to obtain financing, the Company may be forced to cease doing business.
SELECTED QUARTER INFORMATION
| | | January 31, 2009 | | | January 31, 2008 | |
| | | | | | | |
| Revenues | | $ | Nil | | | $ | Nil | |
| Net Loss | | $ | 890,949 | | | $ | 6,995,469 | |
| Loss per share-basic and diluted | | $ | (0.02 | ) | | $ | (0.21 | ) |
| Total Assets | | $ | 200,168 | | | $ | 544,385 | |
| Total Liabilities | | $ | 1,304,972 | | | $ | 182,540 | |
| Cash dividends declared per share | | Nil | | | Nil | |
Total assets for the quarter ended January 31, 2009 include cash and cash equivalents for $17,961, prepaid expenses for $16,453, advances to a related party for $25,000, capital assets for $140,154 and mining claims for $600. For the quarter ended January 31, 2008, total assets includes cash and cash equivalents of $389,229, prepaid expenses of $55,347 capital assets of $99,209 and mineral claims for $600.
Revenues
No revenue was generated by the Company’s operations during the three month period ended January 31, 2009 and January 31, 2008.
Net Loss
The Company’s expenses are reflected in the Statements of Operation under the category of Expenses. The Company is an exploration stage mining company and has not yet realized any revenue from its operations. The Company is primarily engaged in the acquisition and exploration of mining properties. Mineral property exploration costs are expensed as incurred. Mineral property payments are capitalized only if the Company is able to allocate any economic value beyond proven and probable reserves. When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves, the costs incurred to develop such property will be capitalized. For the purpose of preparing financial information, the Company is unable to allocate any economic value beyond proven and probable reserves and hence all property payments are considered to be impaired and accordingly written off to project expense. All costs associated with a property that has the potential to add to the Company’s proven and probable reserves are expensed until a final feasibility study demonstrating the existence of proven and probable reserves is completed. No costs have been capitalized in the periods covered by these financial statements. Once capitalized, such costs will be amortized using the units-of-production method over the estimated life of the probable reserve. Mineral property acquisition costs will also be capitalized in accordance with the FASB Emerging Issues Task Force ("EITF") Issue 04-2 when management has determined that probable future benefits consisting of a contribution to future cash inflows have been identified and that adequate financial resources are available or are expected to be available as required to meet the terms of property acquisition and budgeted exploration and development expenditures. Mineral property payments are expensed as incurred if the criteria for capitalization is not met.
To date, mineral property exploration costs have been expensed as incurred. As of the date of these financial statements, the Company has incurred only property payments and exploration costs which have been expensed. To date the Company has not established any proven or probable reserves on its mineral properties.
The significant components of expense that have contributed to the total operating expense are discussed as follows:
(a) General and Administrative Expense
Included in operating expenses for the three month period ended January 31, 2009 is general and administrative expense of $342,543, as compared with $760,388 for the three month period ended January 31, 2008. General and administrative expense represents approximately 40.32% of the total operating expense for the quarter ended January 31, 2009. This expense for the quarter ended January 31, 2009 includes professional, consulting, office and general and non cash compensation expense relating to the issue of options and warrants for $91,641 (prior period: $199,958)and non cash expense relating to the amortization of deferred stock compensation relating to issue of stock to consultants for $62,500 (prior period $262,500).
(b) Project Expense
Included in operating expenses for the three month period ended January 31, 2009 is project expenses of $491,563 as compared with $706,663 for the three month period ended January 31, 2008. Project expense represents approximately 57.87 % of the total operating expense for the three month period ended January 31, 2009. This expense includes consulting, claims, equipment rentals, contract labor, field wages, photography and other project related expenses incurred during the quarter on the mineral claims in Chile.
(c) Mineral claims acquisition cost expense
(1) On December 17, 2007, Pacific Copper acquired Pacific Copper Peru SRL, a limited liability partnership organized under the laws of Peru (“Peru SRL”) pursuant to the Share Exchange Agreement among the Company, Peru SRL and the former partners of Peru SRL dated as of April 11, 2007, as amended (the “Peru Agreement”). Pursuant to the Peru Agreement, the Company issued 4,850,000 shares of the Company’s common stock (the “Peru Consideration Shares”) to the partners of Peru SRL as consideration for the acquisition of 99% of Peru SRL. The 1% minority interest was credited with $24,495. As a result of the acquisition, Peru SRL became a subsidiary of the Company. The Company expensed $2,449,295, relating to the issue of 4,850,000 common shares calculated at $0.50 per common share and the allocation of minority interest for $24,495 net of capitalization for $200 for mineral property claims. Property acquisition costs relating to the exploration properties are being expensed until the economic viability of the project is determined and proven and probable reserves quantified. In the absence of proven and probable reserves, the Company is unable to allocate any economic values to the claims. The Company does not consider either of the mineral claims acquired in this transaction (as listed below) to be material assets at this time, but our assessment may change after further work is done on the properties. Pursuant to this acquisition the Company acquired interest in the following mineral claims which were capitalized at $100 each:
Tonalia (subject to the completion of the formal documentation)
Don Javier (subject to the completion of formal documentation)
(2) On January 8, 2008, Pacific Copper acquired Sociedad Pacific Copper Chile Limitada, a limited liability partnership organized under the laws of Chile (“Pacific LTDA”) pursuant to a Share Exchange Agreement entered into as of April 11, 2007 (the “Chile Agreement”), as amended, between the Company and the former partners of Pacific LTDA. Pursuant to the Chile Agreement the Company issued 6,088,452 of its common shares (the “Chile Consideration Shares”) to the former partners of Pacific LTDA as consideration for the acquisition of 99% of Pacific LTDA. The 1% minority interest was credited with $30,750. As a result of the acquisition, Pacific LTDA became a subsidiary of the Company. The Company expensed $3,074,576, relating to the issue of 6,088,452 common shares calculated at $0.50 per common share and the allocation of minority interest for $30,750 net of capitalization for $400 for mineral property claims. Property acquisition costs relating to the exploration properties are being expensed until the economic viability of the project is determined and proven and probable reserves quantified. In the absence of proven and probable reserves, the Company is unable to allocate any economic values to the claims. The Company does not consider any of the mineral claims acquired in the transaction (as listed below) to be material assets at this time, but our assessment may change after further work is done on the properties. Pursuant to this acquisition the Company acquired interest in the following mineral claims which were capitalized at $100 each:
Carrera Pinto
Carrizal
Cerro Blanco
La Guanaca
Liquidity and Capital Resources
The following table summarizes the company’s cash flows and cash in hand as of January 31, 2009:
| | | January 31, 2009 | |
| | | | |
| Cash and cash equivalent | | $ | 17,961 | |
| Working capital (deficit) | | $ | (1,207,948 | ) |
| Cash used in operating activities | | $ | (194,283 | ) |
| Cash used in investing activities | | $ | nil | |
| Cash provided by financing activities | | $ | 100,000 | |
As at January 31, 2009, the Company had a working capital deficit of $1,207,948. During the three-month period ended January 31, 2009, the Company did not spend any funds on investment activity. The Plant and Equipment as on January 31, 2009 is $140,154.
Critical Accounting Policies
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect reported amounts of assets and liabilities at the date of the financial statements, the reported amount of revenues and expenses during the reporting period and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments. To the extent actual results differ from those estimates, our future results of operations may be affected. Beside this critical accounting policy on use of estimates, we believe the following critical accounting policy affects the preparation of our financial statements.
Acquisition, Exploration and Evaluation Expenditures
The Company is an exploration stage mining company and has not yet realized any revenue from its operations. It is primarily engaged in the acquisition and exploration of mining properties. Mineral property exploration costs are expensed as incurred. Mineral property payments are capitalized only if the Company is able to allocate any economic value beyond proven and probable reserves. When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves, the costs incurred to develop such property will be capitalized. For the purpose of preparing financial information, the Company is unable to allocate any economic value beyond proven and probable reserves and hence all property payments are considered to be impaired and accordingly written off to project expense. All costs associated with a property that has the potential to add to the Company’s proven and probable reserves are expensed until a final feasibility study demonstrating the existence of proven and probable reserves is completed. No costs have been capitalized in the periods covered by these financial statements. Once capitalized, such costs will be amortized using the units-of-production method over the estimated life of the probable reserve. Mineral property acquisition costs will also be capitalized in accordance with the FASB Emerging Issues Task Force ("EITF") Issue 04-2 when management has determined that probable future benefits consisting of a contribution to future cash inflows have been identified and that adequate financial resources are available or are expected to be available as required to meet the terms of property acquisition and budgeted exploration and development expenditures. Mineral property payments are expensed as incurred if the criteria for capitalization is not met.
To date, mineral property exploration costs have been expensed as incurred. As of the date of these financial statements, the Company has incurred only property payments and exploration costs which have been expensed. To date the Company has not established any proven or probable reserves on its mineral properties.
Off-Balance Sheet Arrangement
The Company had no off- balance sheet arrangements as of January 31, 2009 and January 31, 2008.
Contractual Obligations and Commercial Commitments
On June 1, 2007, the Company entered into an agreement with Sweetwater Capital Corporation, a private company with a director in common with the Company (“Sweetwater”) for a term of 24 months to provide financial public relations, business promotion, business growth and development consulting services, including consultation regarding mergers and acquisitions, and general business consultation. The Company will pay Sweetwater $4,000 per month plus 1,000,000 restricted shares of the Company's common stock that will be earned in equal installments of 250,000 shares on December 1, 2007, March 1, 2008, June 1, 2008 and September 1, 2008. The said 1,000,000 shares of restricted Common stock of the Company were tendered in one certificate on June 1, 2007. The consultant must return any unearned shares upon early termination of the agreement. Either the consultant or the Company may terminate the agreement with or without cause upon sixty (60) days written notice to the other provided that the Company may not give notice of cancellation before January 1, 2007.
On April 19, 2007, the Company executed an agreement dated as of April 11, 2007 with David Hackman, a director of the Company, on behalf of a corporation to be formed in Peru which, prior to closing, would then own certain mineral claims located in Peru. On December 17, 2007, Pacific Copper completed the acquisition of Peru SRL, pursuant to the Share Exchange Agreement among the Company, Peru SRL and the former partners of Peru SRL dated as of April 11, 2007. The 4,850,000 shares of the Company’s common stock issued in connection with the closing of this transaction are held in escrow subject to the satisfaction of certain post-closing conditions.
On April 19, 2007 the Company executed an agreement dated as of April 11, 2007 with Harold Gardner, a director of the Company, on behalf of a corporation to be formed in Chile which, prior to closing, would then own certain mineral claims located in Chile. On January 8, 2008, Pacific Copper acquired Pacific LTDA pursuant to a Share Exchange Agreement entered into as of April 11, 2007 between the Company and the former partners of Pacific LTDA. The 6,088,452 shares of the Company’s common stock issued in connection with the closing of this transaction are held in escrow subject to the satisfaction of certain post-closing conditions.
On August 9, 2007 the Company and Andrew A. Brodkey executed an employment agreement pursuant to which the Company retained Mr. Brodkey as President and Chief Executive Officer. The Employment Agreement has a two-year term that commenced on August 1, 2007 and will continue until August 1, 2009 unless terminated earlier pursuant to the terms of the Employment Agreement. Mr. Brodkey’s base salary is $132,000 per year. Upon certain events of termination Mr. Brodkey would be entitled to a maximum of one year’s salary as a severance payment. Under the employment agreement, Mr. Brodkey is permitted to pursue other business opportunities.
On August 14, 2008, the Company entered into a consulting services agreement with Yellow Rose Ltd., to provide business and financial consulting relating to the European markets. The term of this agreement is for a period of 12 months. Consulting fee of up to $20,000 is billable from the consultant during the term of this agreement.
On August 22, 2007 the Company entered into an agreement with Kriyah for the performance of certain administrative and management services. The Kriyah Agreement has an initial term of two years and is then automatically renewable. Either party may terminate the Kriyah Agreement upon 60 days prior written notice. Under the Kriyah Agreement, Kriyah received an initial payment of $57,504 and will receive payments of $4000 each month thereafter. Commencing in January of 2009, this amount was reduced to $2500 per month. In order to facilitate the retaining of Kriyah, the Company guaranteed a lease agreement for the office space used by Kriyah in Tucson, Arizona. The Company’s maximum obligation under the lease guarantee, as of January 31, 2009, would be $246,608.52 in the event of a lease default with full acceleration of rent. Kriyah’s Manager, Andrew A. Brodkey, is also the President and CEO of the Company.
On September 1, 2007, the Company entered into a Payroll Service Agreement with Kriyah to administer payroll and health insurance benefits to Andrew A. Brodkey, President and CEO of the Company, as contemplated in his Employment Agreement with the Company dated August 1, 2007 (“Employment Agreement”). The Company shall reimburse Kriyah monthly for all direct costs for wages, covered by the Employment Agreement and health benefits provided by Kriyah and invoiced to the Company for Mr. Brodkey.
On August 16, 2007, the Company entered into an agreement with Hydro Geophysics Inc. (“HGI”). Pursuant to this agreement, HGI provided certain mineral exploration, analytical and consulting services to the Company, as requested from time to time, with respect t the Company’s South American projects. This contract expired on February 16, 2009. The Company remains obligated for the payment of an aggregate of $89,212 of unpaid invoices under this contract.
On January 24, 2008, the Company, through its subsidiary Pacific LTDA entered into an exclusive exploration, mining and exploitation agreement (the "Guanaca Lease") for the La Guanaca oxide copper project located northeast of the town of Inca de Oro, Chanaral Province, Atacama Region 3, Chile. This property, which consists of approximately 300 hectares of exploration concessions, is road-accessible and was previously explored in the mid-1990's through geophysical methods, sampling and drilling by Empresa Nacional de Mineria ("ENAMI") a Chilean nationally-owned mining enterprise. The Guanaca Lease is for a term of 5 years and is renewable automatically for additional 5-year periods. The owners of the La Guanaca property will receive US$2,000 per month in cash during the term of the agreement.
On February 12, 2008, the Company’s subsidiary, Pacific LTDA, entered into an Operator Agreement (the “Chile Operator Agreement”) with Gareste Limitada, a limited liability partnership organized under the laws of Chile (“Gareste”). Pursuant to the Chile Operator Agreement Gareste will prepare and submit proposed annual work programs and accompanying budgets to Pacific LTDA covering the exploration and, if warranted, development of certain mineral concessions held by Pacific LTDA. Gareste will provide comprehensive management services and contract for transportation, labor, insurance and logistical services for all approved programs. Gareste’s overhead reimbursement and compensation will be specified in each proposed budget and subject to approval by Pacific LTDA. The Chile Operator Agreement is terminable by either party upon 90-days’ prior notice. Harold Gardner, a member of the Company’s board of directors, is a partner in Gareste.
On February 12, 2008 The Company’s subsidiary, Peru SRL entered into an Operator Agreement (the “Peru Operator Agreement”) with Inversiones Mineras Stiles, a limited liability partnership organized under the laws of Peru (“Stiles”). Pursuant to the Peru Operator Agreement Stiles will prepare and submit proposed annual work programs and accompanying budgets to Peru SRL covering the exploration and, if warranted, development of certain mineral concessions held by Peru SRL. Stiles will provide comprehensive management services and contract for transportation, labor, insurance and logistical services for all approved programs. Stiles’ overhead reimbursement and compensation will be specified in each proposed budget and subject to approval by Peru SRL.
On February 28, 2008 the Company entered into an agreement with Michael A. McClave (“McClave”). Pursuant to this agreement, McClave will provide certain mineral exploration, geological and consulting services to the Company, as requested from time to time. Pacific Copper will be invoiced on a monthly basis for services rendered on the projects. Either party may terminate this agreement by giving 30 days notice with or without cause.
On May 15, 2008, the Company entered into a consulting and professional services agreement with Jehcorp Inc. (“Consultant”). Pursuant to this agreement, Consultant agrees to provide and perform for the benefit of the Company certain expert technical consulting services, specifically including, but not limited to, the preparation of a Canadian National Instrument NI-43-101 Technical Report for various properties owned or controlled by the Company and its subsidiaries in Peru and Chile. The Company will be invoiced on a monthly basis for services rendered and the Consultant was advanced $5,000.
The Company, through Pacific LTDA, also executed a letter of intent with Gareste acquire its interest in the “Yerbas Buenas” oxide copper property located 130 km southeast of the city of Copiapo, Atacama Region III, Chile. Yerbas Buenas is located roughly 20 km from the El Corral property. Gareste will receive 2 million shares of the Company at closing in exchange for its interest at Yerbas Buenas, and a 2% NSR royalty, capped at $6 million, 1% of which can be repurchased for the sum of $2 million at any time prior to commercial production. As of the date of this report, the Company and Gareste have postponed performance under this letter of intent due to the current copper market conditions and general economic decline worldwide.
On June 10, 2008 the Company executed an agreement with Eagle Mapping Ltd. for providing services for a total consideration payable for $52,200.
On October 28, 2008, the Company received a cease trade order (the “CTO”) from the British Columbia Securities Commission (the “BCSC”), the effect of which is limited to the Province of British Columbia. By its terms, the CTO was issued for not filing a technical report under Canadian National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”) with respect to its material copper oxide projects in Chile after having made public disclosures regarding such properties. The Company has engaged counsel in British Columbia and is in the process of obtaining and filing the reports and information required by the BCSC and otherwise satisfying the requirements of British Columbia law. As of the date of this report, this matter has not been resolved and the CTO is in effect. The financial impact of the CTO is unknown.
Subsequent Events
Subsequent to the quarter ended January 31, 2009, a related party repaid an amount of $25,000 (refer to note 12 to the financial statements).
Subsequent to the quarter ended January 31, 2009, on February 17, 2009, Pacific Copper issued a secured promissory note (the “War Eagle Note”) to War Eagle Mining Company, Inc. a Canadian corporation (“War Eagle”). War Eagle and the Company share a common director. The War Eagle Note has a face amount of $155,000 which includes amounts previously advanced to the Company. Pursuant to the War Eagle Note, War Eagle agreed to make advances of credit to Kriyah for the benefit of Pacific Copper. Kriyah performs administrative services for Pacific Copper and also shares office space with War Eagle and Pacific Copper. Upon execution of the War Eagle Note, an initial advance of $15,000 was made to Kriyah for the benefit of the Company, with subsequent advances of $15,000 to be made on the 1st day of the months of February, March, April, and May of 2009, and a final payment of $10,000 to be made on or before June 1, 2009. Under the terms of the War Eagle Note, all amounts advanced are due and payable on June 30, 2009 with interest at 15% per annum. The War Eagle Note covers a prior advance of $70,000 that was received by Pacific Copper on June 22, 2008. The principal amount outstanding under the War Eagle Note (beginning with the initial advance on June 22, 2008) bears interest at 15% per annum. The War Eagle Note is secured by a blanket security interest in all real, personnel, and intangible interests of Pacific Copper associated with each of the La Guanaca, El Corral, La Mofralla and Venado projects (the Company’s South American oxide copper properties, as described in this report). While War Eagle funded $30,000 on February 17, 2009 pursuant to the War Eagle Note (bringing the outstanding principal amount to $100,000), War Eagle has notified the Company that it will not fund the March, April or May advances or the $10,000 final advance contemplated in the War Eagle Note, leaving a funding shortfall of $55,000. The Company has notified War Eagle that it considers this failure to fully fund the War Eagle Note to be a breach and has reserved all of its legal rights.
Subsequent to the quarter ended January 31, 2009, as of February 27, 2009, Pacific Copper, through its wholly owned subsidiary Pacific LTDA, entered into a definitive mineral property acquisition agreement (the “Gareste Agreement”) with Gareste pursuant to which the Company acquired a 100% interest in the following copper oxide properties located in Atacama Region II, Chile: the “Venado Property” (also known as the “Venapai Property”) consisting of approximately 3600 hectares of exploration concessions, located roughly 45 kilometers from the city of Copiapo, the “El Corral Property”, consisting of approximately 4000 hectares of exploration concessions, located roughly 60 kilometers from the city of Copiapo, and the adjacent “La Mofralla Property”, consisting of approximately 250 hectares of exploration concessions also located roughly 60 kilometers from the City of Copiapo. These properties were subject to separate letters of intent entered into during July and October of 2008, as previously disclosed.
Under the Gareste Agreement the Company is required to issue a total of 5,000,000 shares of its common stock to Gareste, allocable as follows: 2,000,000 shares of common stock as consideration for the Venado Property, 2,000,000 shares of common stock as consideration for the El Corral Property and 1,000,000 shares of common stock as consideration for the La Mofralla Property. In addition, the Venado Property is subject to a 2% net smelter return royalty, capped at $10,000,000, 50% of which can be repurchased by Pacific Copper at any time prior to the commencement of production for $3,000,000, and the El Corral Property is subject to a 2% net smelter return royalty, capped at $10,000,000, 50% of which can be repurchased by Pacific Copper at any time prior to the commencement of production for $2,000,000. As of the date of this report, title to the properties has been transferred to Pacific LTDA and the closing is in process.
RISK FACTORS
1. WE DO NOT HAVE ADEQUATE CASH ON HAND TO MEET CURRENT OBLIGATIONS
As of the date of the filing of this report, the Company has very little cash. As of the quarter ended January 31, 2009, the Company’s current liabilities were $1,267,362 while current assets were $59,414. Management has taken steps to reduce operating costs. As a result of current general economic conditions, the Company’s ability to attract investment and/or obtain financing is extremely limited. If we fail to obtain financing, the Company will be forced to cease doing business.
| 2. | SUBSTANTIAL PORTIONS OF OUR SOUTH AMERICAN COPPER OXIDE EXPLORATION PROPERTY ASSETS HAVE BEEN PLEDGED TO SECURE A SHORT-TERM NOTE |
Subsequent to the quarter ended January 31, 2009, on February 17, 2009, Pacific Copper issued a secured promissory note (the “War Eagle Note”) to War Eagle Mining Company, Inc. a Canadian corporation (“War Eagle”). The War Eagle Note has a face amount of $155,000. All amounts advanced under the War Eagle Note are due and payable on June 30, 2009 with interest at 15% per annum. By its terms, the War Eagle Note is secured by a blanket security interest in all real, personnel, and intangible interests of the Company associated with each of the La Guanaca, El Corral, La Mofralla and Venado projects (the Company’s South American oxide copper properties, as described herein). The Company has declared a breach by War Eagle under the War Eagle Note for failure by War Eagle to fully fund advances under the War Eagle Note. While the Company believes it has a strong legal position with respect to the dispute with War Eagle, it is possible that if the Company does not repay the War Eagle Note on June 30, 2009 (the maturity date), it could lose its interest in the properties securing the War Eagle Note.
| 3. | THE COMPANY HAS NO SOURCE OF OPERATING REVENUE AND EXPECTS TO INCUR SIGNIFICANT EXPENSES BEFORE ESTABLISHING AN OPERATING COMPANY, IF IT IS ABLE TO ESTABLISH AN OPERATING COMPANY AT ALL. |
Currently, the Company has no source of revenue, and no commitments to obtain additional financing. The Company will require significant additional working capital to carry out its exploration programs. The Company has no operating history upon which an evaluation of its future success or failure can be made. The ability to achieve and maintain profitability and positive cash flow is dependent upon:
§ further exploration of our properties and the results of that exploration;
§ raising the capital necessary to conduct this exploration; and
§ raising capital to develop our properties.
Because the Company has no operating revenue, it expects to incur operating losses in future periods as it continues to spend funds to explore its properties. Failure to raise the necessary capital to continue exploration could cause the Company to go out of business.
| 4. | BECAUSE OF THE UNIQUE DIFFICULTIES AND UNCERTAINTIES INHERENT IN MINERAL EXPLORATION VENTURES AND CURRENT DETERIORATION IN EQUITY MARKETS, WE FACE A HIGH RISK OF BUSINESS FAILURE. |
Investors should be aware of the difficulties normally encountered by new mineral exploration companies and the high rate of failure of such enterprises. Our prospects are further complicated by a pronounced deterioration in equity markets and constriction in equity capital available to finance and maintain our exploration activities. Our likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the exploration of the mineral properties that we plan to undertake and the difficult economy and market volatility that we are experiencing. Moreover, most exploration projects do not result in the discovery of commercially mineable deposits.
| 5. | THE COMPANY IS HIGHLY DEPENDENT UPON ITS OFFICERS AND DIRECTORS. BECAUSE OF THEIR INVOLVEMENT IN OTHER SIMILAR BUSINESSES WHICH MAY BE COMPETITORS, THEY MAY HAVE A CONFLICT OF INTEREST. |
None of the Company’s officers or directors works for the Company on a full-time basis. The Company’s President and Chief Executive Officer, Andrew Brodkey, is also the president of one other exploration stage mining company and, by the terms of his employment agreement with the Company, is permitted to participate in other mining related businesses. Some of our directors are officers or directors of other companies in similar exploration businesses. Such business activities may be considered a conflict of interest because these individuals must continually make decisions on how much of their time they will allocate to the Company as against their other business projects, which may be competitive. Also, the Company has no key man life insurance policy on any of its senior management or directors. The loss of one or more of these officers or directors could adversely affect the ability of the Company to carry on business.
6. THE COMPANY COULD ENCOUNTER REGULATORY AND PERMITTING DELAYS.
The Company could face further delays in obtaining title to properties under contract with its subsidiary in Peru, as well as delays in obtaining permits to explore on the properties covered by our claims. Such delays could jeopardize financing, if any is available, which could result in having to delay or abandon work on some or all of the properties.
7. RISKS ASSOCIATED WITH PROPERTIES IN SOUTH AMERICA
The Company is currently pursuing investments and exploration projects in Chile and Peru. These investments and projects, as well as any other investments or projects made or undertaken in the future in other developing nations, are subject to the risks normally associated with conducting business in such countries, including labor disputes and uncertain political and economic environments, as well as risks of disturbances or other risks which may limit or disrupt the projects, restrict the movement of funds or result in the deprivation of contract rights or the taking of property by nationalization or expropriation without fair compensation laws or policies, foreign taxation, limitations on ownership and on repatriation of earnings, and foreign exchange controls and currency fluctuations. Foreign investments may also be adversely affected by changes in United States laws and regulations relating to foreign trade, investment and taxation. If the Company’s operations in a particular foreign country were halted, delayed or interfered with, the Company’s business could be adversely affected.
| 8. | OUR PLANNED MINERAL EXPLORATION EFFORTS ARE HIGHLY SPECULATIVE; WE HAVE NOT YET ESTABLISHED ANY PROVEN OR PROBABLE RESERVES. |
Mineral exploration is highly speculative. It involves many risks and is often nonproductive. Even if we believe we have found a valuable mineral deposit, it may be several years before production is possible. During that time, it may become no longer feasible to produce those minerals for economic, regulatory, political, or other reasons. Additionally, we may be required to make substantial capital expenditures and to construct mining and processing facilities. As a result of these costs and uncertainties, we may be unable to start, or if started, to finish our exploration activities. In addition, we have not to date established any proven or probable reserves on our mining properties and there can be no assurance that such reserves will ever be established.
| 9. | MINING OPERATIONS IN GENERAL INVOLVE A HIGH DEGREE OF RISK, WHICH WE MAY BE UNABLE, OR MAY NOT CHOOSE TO INSURE AGAINST. |
Our operations are subject to all of the hazards and risks normally encountered in the exploration, development and production of minerals. These include unusual and unexpected geological formations, rock falls, flooding and other conditions involved in the drilling and removal of material, any of which could result in damage to, or destruction of, mines and other producing facilities, damage to life or property, environmental damage and possible legal liability. Although we plan to take adequate precautions to minimize these risks, and risks associated with equipment failure or failure of retaining dams which may result in environmental pollution, there can be no assurance that even with our precautions, damage or loss will not occur and that we will not be subject to liability which will have a material adverse effect on our business, results of operation and financial condition.
| 10. | BECAUSE OF THE INHERENT DANGERS INVOLVED IN MINERAL EXPLORATION, THERE IS A RISK THAT WE MAY INCUR LIABILITY OR DAMAGES AS WE CONDUCT OUR BUSINESS. |
The search for valuable minerals involves numerous hazards. As a result, we may become subject to liability for such hazards, including pollution, cave-ins and other hazards against which we cannot insure or against which we may elect not to insure. At the present time, we may not have sufficient coverage to insure against these hazards. Incurring such liabilities could result in our going out of business.
11. GOING CONCERN QUALIFICATION
The Company has included a “going concern” qualification in the Consolidated Financial Statements to the effect that we are an exploration stage company and have no established sources of revenue. In the event that we are unable to raise additional capital and/or locate mineral resources, as to which in each case there can be no assurance, we may not be able to continue our operations. In addition, the existence of the “going concern” qualification in our auditor's report may make it more difficult for us to obtain additional financing. If we are unable to obtain additional financing, you may lose all or part of your investment.
12. OUR BUSINESS IS AFFECTED BY CHANGES IN COMMODITY PRICES.
Our ability to develop our mineral properties and the future profitability of the Company is directly related to the market price of certain minerals. The Company is negatively affected by the current decline in commodity prices.
13. OUR COMMON STOCK IS A PENNY STOCK.
Our Common Stock is classified as a penny Stock, which is traded on the OTC Bulletin Board. As a result, an investor may find it more difficult to dispose of or obtain accurate quotations as to the price of the shares of the Common Stock. In addition, the “penny stock” rules adopted by the Securities and Exchange Commission subject the sale of the shares of the Common Stock to certain regulations which impose sales practice requirements on broker-dealers. For example, broker-dealers selling such securities must, prior to effecting the transaction, provide their customers with a document that discloses the risks of investing in such securities. Furthermore, if the person purchasing the securities is someone other than an accredited investor or an established customer of the broker-dealer, the broker-dealer must also approve the potential customer’s account by obtaining information concerning the customer’s financial situation, investment experience and investment objectives. The broker-dealer must also make a determination whether the transaction is suitable for the customer and whether the customer has sufficient knowledge and experience in financial matters to be reasonably expected to be capable of evaluating the risk of transactions in such securities. Accordingly, the Commission’s rules may result in the limitation of the number of potential purchasers of the shares of the Common Stock. In addition, the additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in the Common Stock, which could severely limit the market of the Company’s Common Stock.
DISCLOSURE AND FINANCIAL CONTROLS AND PROCEDURES
Based on an evaluation our Chief Executive Officer and Chief Financial Officer conducted, of the effectiveness of the design and operation of our disclosure controls and procedures, as required by Exchange Act Rule 13a-15(e) they concluded that our disclosure controls and procedures were effective as of January 31, 2009, to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are:
| 1. | recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms, and |
| 2. | accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. |
Management of Pacific Copper is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company's principal executive and principal financial officers and effected by the Company's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States and includes those policies and procedures that:
(a) Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
(b) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
(c) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce this risk.
In making this assessment, management, used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework.
Inherent in small business is the pervasive problem of segregation of duties. Given that the Company has a small accounting department, segregation of duties cannot be completely accomplished at this stage in the corporate lifecycle. Management has added many compensating controls to effectively reduce and minimize the risk of a material misstatement in the Company’s financial statements.
Based on its assessment, management has concluded that the Company's disclosure controls and procedures and internal control over financial reporting is effective based on those criteria.
During the quarter ended January 31, 2009, there have been no changes to the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS:
The Company is not a party to any pending legal proceeding or litigation and none of the Company’s property is the subject of a pending legal proceeding.
On October 28, 2008, the Company received a cease trade order (the “CTO”) from the British Columbia Securities Commission (the “BCSC”), the effect of which is limited to the Province of British Columbia. By its terms, the CTO was issued for not filing a technical report under Canadian National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”) with respect to its material copper oxide projects in Chile after having made public disclosures regarding such properties. The Company has engaged counsel in British Columbia and is in the process of obtaining and filing the reports and information required by the BCSC and otherwise satisfying the requirements of British Columbia law. As of the date of this report, this matter has not been resolved and the CTO is in effect.
ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS:
None
ITEM 3: DEFAULTS UPON SENIOR SECURITIES:
None.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None.
ITEM 5: OTHER INFORMATION:
ITEM 6: EXHIBITS & REPORTS ON FORM 8-K
(a) 10.1 Consulting Agreement with Yellow Rose Ltd. dated August 14, 2008
| 10.2 | Mineral Property Acquisition Agreement dated as of February 27, 2009 |
| 10.3 | Secured Promissory Note dated February 17, 2009 payable to War Eagle Mining Company, Inc. |
(b) 31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
| 31.2 | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. |
| 32.1 | Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
(c) In addition, the following reports are incorporated by reference:
Current Report on Form 8-K, “Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers, dated November 21, 2008
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
| Dated: March 16, 2009 | /s/ | Jodi Henderson |
| | | Secretary |
