UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
FORM 10-KSB
ON
FORM 10-K
(Mark One)
| x | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended: December 31, 2007
| ¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to ________
Commission File No. 000-52696
DOMINION MINERALS CORP.
(Name of small business issuer in its charter)
| Delaware | 22-3091075 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
75 Rockefeller Plaza, Suite 1817 New York, New York | 10019 | |
| (Address of principal executive offices) | (Zip Code) |
Issuer’s telephone number: (212) 231-8171
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.0001 per share par value
(Title of Class)
Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
State issuer’s revenues for its most recent fiscal year: $26,027
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days. $15,174,921 based on $0.425 per share.
(Applicable only to corporate registrants) State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 42,605,696 shares outstanding as of March 31, 2008.
Transitional Small Business Disclosure Format: Yes x No ¨
DOCUMENTS INCORPORATED BY REFERENCE:
None
AMENDMENT TO FORM 10-KSB
This Amendment No. 1 to Form 10-KSB on Form 10-K (this "Amendment") amends our annual report on Form 10-KSB for the fiscal year ended December 31, 2007 as filed with the Securities and Exchange Commission on April 16, 2008.
As described in Note 3 to the Company’s financial statements included herein, the Company has restated its financial statements as of and for the year ended December 31, 2007, to revise the accounting for common stock issued in connection with the conversion on April 1, 2007 of a promissory note previously issued by the Company and services that the Company expected to receive from the holders of the promissory note. As described in Note 3, the Company filed suit on December 23, 2008 in an effort to recover the shares of common stock issued and reached a settlement agreement on February 11, 2009, under which a portion of the shares issued were cancelled or returned to the Company. The Company has re-stated its accounting for the issuance of the shares and has recorded a non-cash charge to income of $2,205,492 in the year ended December 31, 2007 related to the shares that will not be returned to the Company and for which the Company will not receive the services it expected.
The restatement of the Company’s financial statements, as described in Note 3, reduced the Company’s net income for the year ended December 31, 2007 by $2,205,492. The restatement reduced the total amount of Shareholders’ Equity by $3,230 and increased Current Liabilities by $3,230, as of that date. Except for these effects and the inclusion of Note 3 and related revisions to Note 1, paragraph (h), Note 6, paragraph (a), Note 8, paragraph (e) and Note 9, this Amendment No. 1 and the Company’s financial statements included herein are unchanged from the Report previously filed.
This Amendment contains the complete text of the original report with the corrected information appearing in the financial statements.
PART I
The Issuer, Dominion Minerals Corp., a Delaware corporation "Company", is electing to furnish the information required in this PART I by supplying the information required by Items 6-11 of Model B of Form 1-A under Alternative 2 of Form 10-SB.
The Company has a wholly-owned subsidiary, Empire Minerals Corp., a Nevada corporation ("Nevada Subsidiary"). When used herein the terms "we", "us" and/or "our" shall mean the Company, and/or the Nevada Subsidiary in the context in which they appear.
This Registration Statement contains forward-looking statements that involve a number of risks and uncertainties. Such forward-looking statements are not historical facts and constitute or rely upon projections, forecasts, assumptions or other forward-looking information. Generally these statements may be identified by the use of forward-looking words or phrases such as "believes", "expects", "anticipates", "intends", "plans", "estimates", "may", and "should". These statements are inherently subject to known and unknown risks, uncertainties and assumptions. Our future results could differ materially from those expected or anticipated in the forward-looking statements. Specific factors that might cause such differences include factors described and discussed in Risk Factors in the Description of Business in Item 1 below.
2
Item 1 Description of Business.
(Item 6. of Model B of Form 1A)
General
The Company is engaged in the acquisition, exploration, development and operation of mineral and natural resource properties and prospects. The present activities are concentrated on mineral prospects and properties located in the Republic of Panama and in the People's Republic of China.
The Company has entered into an agreement with Bellhaven Copper & Gold, Inc., a British Columbia corporation and its wholly owned subsidiary, Cuprum Resources, Corp., a Panamanian corporation. Under this agreement, the Company may acquire a majority ownership interest in Cuprum Resources, Corp. Cuprum holds a mineral Concession from the Republic of Panama on a copper prospect located in the Guariviara Area of Panama.
The Nevada Subsidiary has entered into two joint venture agreements involving mineral properties and/or prospects located within China. These properties are primarily regarded as gold prospects or properties. One of the Chinese joint venture agreements of the Nevada Subsidiary is with Zhaoyuan Dongxing Gold Minerals Co., Ltd, an entity organized under the China Company Law. Under this agreement, the parties have formed Zhaoyuan Empire Gold Corp., Ltd., a Chinese entity in which they each own a 50% interest subject to future adjustment. This jointly held entity holds three mining leases from the Chinese government on gold prospects located in the Shandong Province of China along with certain mining and mill equipment. The other joint venture agreement of the Nevada Subsidiary is with the Tianjin Institute of Geology, a Chinese legal entity. Under this agreement the parties have formed a Chinese limited liability company named Empire (Tianjin) Resources Co., Ltd. This entity was formed to acquire mineral interests in and explore, develop and, if warranted, conduct mining operations on mineral properties located in the Inner Mongolian Autonomous Region of Tianjin Province in the Peoples Republic of China. The Nevada Subsidiary holds a 70% interest in this entity subject to future adjustment to reflect the parties’ respective capital contributions.
3
The following chart sets out our present organizational structure:
The acquisition of the majority interest in the Cuprum Resources, Corp. and operations on the Panamanian prospect and the proposed operations of the two Chinese Joint Ventures will require our expenditure of materially more capital than is presently available to us. Our proposed operations include:
| · | Supervising, and if necessary providing or procuring additional financing for, the operations of the two Chinese Joint Ventures; |
| · | Acquiring the majority interest in the Panamanian corporation holding the mineral concession and providing financing for and supervising its operations; |
| · | Exploring and evaluating additional mineral and natural resource acquisitions; and |
| · | Seeking the necessary additional capital to finance activities. |
4
The following subsections set out information on our history and present and proposed operations and certain of the risk factors associated with us and our securities.
History of the Company
The Company was formed as a Delaware corporation on January 4, 1996 under the name ObjectSoft Corporation. On May 9, 2005, The Company changed its name to Nanergy, Inc. On June 5, 2006, its name was changed to Xacord Corp. On January 3, 2007, the Company changed its name to Empire Minerals Corp. which was changed to Dominion Minerals Corp. on November 26, 2007.
We were originally formed in January of 1996 to acquire the business of a predecessor company, Object Soft Corporation, a New Jersey Corporation. This acquisition was completed in the form of a corporate business combination effective January 31, 1996. The acquired business involved the provision of retail Kiosks, which were internet-connected, advertising-interactive Kiosks. The Kiosks were public access terminals that offered terminals that offered information entertainment and the ability to execute financial transactions via a touch screen. This business was unsuccessful and in July of 2001, we filed a Bankruptcy Petition in the Bankruptcy Court for the District of New Jersey. None of our present officers, directors or significant employees were associated with us at the time of or involved in any way in our bankruptcy proceeding. In November of 2004, we exited the Bankruptcy case with no assets, one liability in the form of a convertible promissory note with a principal balance of $100,000.00 and outstanding stock of 195 shares of common stock. We then operated as a shell corporation seeking a new business opportunity either through a corporate business combination or an acquisition of assets.
In September of 2005, we were a party to a business combination in which we acquired the ownership of a New Jersey corporation holding licenses, patents and developments to certain photovoltaic processes. In this transaction, the Company issued 99,455 shares of our common stock The Company also agreed to issue additional shares of common stock and stock options, if certain economic milestones were met by December 31, 2006. These economic milestones were not met. In 2006, we abandoned our efforts to develop the involved processes.
During the period from June 17, 2005 to January 22, 2007, the Company effected three reverse stock splits of its outstanding common stock by amending its Certificate of Incorporation. On June 17, 2005, each outstanding 100 shares, was reversed into one share. On August 11, 2006, each 20 outstanding shares were reversed into one share. On January 22, 2007, each 20 outstanding shares were reversed into one share. In all three reverse splits, all fractional shares due to be issued were rounded up to the next full share. Unless otherwise indicated, all references to a number of shares of the Company's common stock have been adjusted to give effect to the applicable stock splits.
On February 20, 2007 we completed a business combination in which we acquired all of the outstanding stock of the Nevada Subsidiary in exchange for shares of our common stock. The combination was structured as a three-party merger in which:
| · | The Company acquired all of the outstanding stock of the Nevada Subsidiary; |
5
| · | A Nevada corporation named Xacord Acquisitions Sub Corp., formed and wholly owned by the Company to be used as a vehicle for the transaction, was merged into the Nevada Subsidiary; |
| · | The outstanding shares of the common stock of the Nevada Subsidiary as of the Effective Time of the merger were converted into shares of the common stock of the Company on a share for share basis with a total of 26,504,000 shares of the Company's stock issued in this conversion; |
| · | The Company assumed four warrants issued by the Nevada Subsidiary to purchase up to a total of 4,050,000 shares of the Company's Common Stock at $0.10 per share during a three year term. These warrants were held as follows: (i) a warrant for 2,000,000 shares was held by Saddle River Associates, Inc., a financial and business consultant to the Company; (ii) an additional warrant for 500,000 shares was held by Saddle River Associates, Inc.; (iii) a warrant for 1,500,000 shares was held by Pinchas Althaus, President and a director of the Company; and (iv) a warrant for 50,000 shares was held by Chaya Schreiber, a former shareholder of the Nevada Subsidiary. The warrant to purchase 50,000 shares was exercised on March 2, 2007. The remaining three warrants for 4,000,000 were canceled by mutual agreement of the parties on June 1, 2007. |
| · | The Company assumed a contingent obligation of the Nevada Subsidiary to issue warrants to Saddle River Associates, Inc. to purchase up to 500,000 shares of the Company's Common Stock at $0.50 per share during a five-year term from issuance, if the Company obtains specified amounts of additional capital; and |
| · | The Company acquired the rights of the Nevada Subsidiary under a Letter of Intent to enter into the agreements relating to the acquisition of the majority interest in the Panamanian corporation holding the concession to the copper prospect. |
| · | The management of the parties at the time of the business combination consisted of: (i) Diego Roca was the sole officer and director of the Company and of Xacord Acquisition Sub Corp.; and (ii) Pinchas Althaus, Diego Roca and Bruce Minsky were the officers and directors of the Nevada subsidiary. Messrs. Althaus, Roca and Minsky became the three directors and three of the officers of the Company and the Nevada Subsidiary upon completion of the business combination. |
6
The following diagrams set forth the organizational status of the Company and the Nevada Subsidiary before and after the completion of their business combination.
Status Before Business Combination:
Actions in Business Combination:
Status After Business Combination:
7
Present and Proposed Operations
Panamanian Venture
On March 6, 2007, the Company entered into an Exploration Development Agreement with Bellhaven Copper & Gold, Inc., a corporation organized in British Columbia, Canada ("Bellhaven") and Bellhaven's wholly owned Nevada Subsidiary, Cuprum Resources Corp., a corporation organized in the Republic of Panama ("Cuprum"). Cuprum is the holder of a Mineral Concession from the Republic of Panama on a copper prospect located in the Guariviara area of Panama. This agreement grants the Company an option to acquire up to 75% of the authorized and outstanding stock of Cuprum.
The material terms of this agreement and the material events related to it as of the date of this Registration Statement are:
| · | The Company is granted the option to acquire up to 75% of Cuprum’s outstanding stock; |
| · | To acquire 65% of Cuprum's stock the Company must: (i) pay to Cuprum or Bellhaven $2,000,000.00; (ii) issue to Bellhaven 4,000,000 shares of the Company common stock under an escrow agreement; and (iii) expend $15,000.000.00 in exploration and development work on the copper prospect underlying Cuprum's prospect underlying Cuprum's Mineral Concession; |
| · | The first $500,000.00 was paid on March 30, 2007 and the second $500,000 was paid on March 14, 2008. The 4,000,000 shares of the Company's common stock were deposited into escrow on May 14, 2007. The remaining $1,000,000.00 is payable by the Company in two $500,000.00 annual installments due on March 6, 2009 and 2010; |
| · | The escrow agreement under which the 4,000,000 shares of the Company's common stock issued to Bellhaven and deposited provides: (i) for the immediate release and delivery to Bellhaven of one-third of the shares (1,333,334); (ii) the release and delivery to Bellhaven of an additional one-third of the shares on each of March 6, 2008 and 2009; (iii) the adjustment of total shares to be issued to Bellhaven by valuing the shares at the price received by the Company for the first $1,000,000 raised by the sale of the Company's common stock or securities convertible into the common stock sold to non-affiliates of the Company after March 6, 2007, so that, if that price is less than $1.00 the shares to Bellhaven would be increased and if more than $1.00 the total shares to Bellhaven would be decreased; and (iv) the Company has agreed to file a Registration Statement under the U.S. Securities Act of 1933 for the shares of its common stock released to Bellhaven by November 3, 2007 or to include these shares on a "piggy-back" in any Registration Statement filed prior thereto by the Company During the period from June 25 through July 2, 2007, the Company raised $1,100,000.00 through the sale of notes convertible into shares of its common stock at $1.00 per share, thereby setting the number of shares to be issued to Bellhaven at the total of the 4,000,000 shares already issued and deposited in escrow; |
| · | The expenditure by the Company of the $15,000,000.00 for exploration and development work shall be made: (i) $2,000,000.00 by March 5, 2008 of which $2,100,492 was expended by March 14, 2008; (ii) a total of $9,000,000.00 by March 5, 2009; and (iii) a total of $15,000,000.00 by March 5, 2010. The Company may, at its discretion, pay any of the required amounts directly to Cuprum, in lieu of funding exploration or development work; |
8
| · | If the Company pays less than all of the $17,000,000 cash payments and funding due under the agreement but at least 50% of it, the Company will earn an interest in the Cuprum shares which will be proportionately reduced from the 65% total; |
| · | If the Company has earned the full 65% of the Cuprum shares by paying or expending the total $17,000,000.00, it shall have the option to earn an additional 10% of the outstanding stock of Cuprum by completing a Bankable Feasibility Study for the subject property. If this study is not completed by March 5, 2010, the Company will have to expend an additional $1,000,000.00 for exploration and development work for each successive six month period to keep the agreement in force to enable it to earn the additional 10% interest in Cuprum; |
| · | When the Company has made all of the required payments the operations of Cuprum will continue under the terms of an operating agreement of the three parties; |
| · | If the Company introduces a third party mining company, acceptable to Bellhaven and Cuprum, which agrees to complete the Company's payment and expenditure obligations under the agreement including the one to complete Bankable Feasibility Study, the Company will earn its full 75% interests in Cuprum, Bellhaven's interest will reduce to 25% and the interests in Cuprum of both the Company and Bellhaven will then be proportionately reduced by the amount of the interest acquired by the third party; |
| · | If the price of copper on the London Metals Exchange falls below $1.25 for 20 consecutive trading days, all activities and funding under the agreement shall be suspended for up to one year or until that price rises above $1.25 for 90 days, whichever occurs first; |
| · | Cuprum is the designated operator to manage and supervise the exploration and development work under budgets and exploration plans jointly agreed upon prior to any implementation of work on the property and Empire shall have sole final approval of all exploration budgets and spending. Empire shall, at its sole discretion, have the right to terminate Cuprum as operator at any time with or without cause after it has acquired a 50% equity position in the property. Empire shall give Cuprum 30 days notice of its intent to terminate Cuprum as operator; and |
| · | The interest of all parties to the agreement are subject to a right of refusal by the other parties to any sale or disposal of an interest in the agreement. |
9
The Cerro Chorcha concession consists of 24,241.91 hectares (ha) in five rectangular blocks and is located in Chiriqui and Bocas Del Toro Provinces of Panama straddling the continental divide about 290 km west of Panama City as shown in the following map.
The closest city to Cerro Chorcha is David, Panama's third largest city, which is about 40 km to the southwest of the concession site. Travel from Panama City to David requires approximately six hours by car along a paved two-lane highway. There are a number of daily commercial flights between these two cities.
To both the north and south of the concession site there are a number of small towns and villages all connected by a system of roads and trails. A north-south paved mad passes within the northwest portion of the Cerro Chorcha concession, however this highway occurs on the opposite side of the Continental divide to the main camp which is accessible only by helicopter or on foot.
Currently helicopter flights to the main Cerro Chorcha camp and work area arc out of Rambala a small town 31 kilometers north of the camp. There is a dirt road from Rambala to the village of Soloy. A foot trail leads from Soloy to the Cerro Chorcha camp. This route requires one day and a half to traverse by auto and foot.
Elevations on the property range from about 600 m to 2213 m at the top of Cerro Chorcha and slopes are steep. The higher elevations near the Continental Divide are often cloud covered generated by warm, moist Caribbean air that is lifted daily to cooler heights by air currents. Due to the weather effects, access to the concession site by helicopter is best achieved in the early morning and in the late afternoon.
10
The mountain terrain is covered in high altitude rain forest with annual rainfall reported to be up to about six meters. Temperatures in this locality average 20° C to 25° C but during some month’s temperatures can dip down to 5°C at night. Work on the concession site can be undertaken at any time of the year.
The main Chorcha exploration camp consists of four large all-weather buildings powered by a diesel generator. Within the region, personnel, supplies, fuel, water and sufficient space for a mining operation are readily available.
The Cerro Chorcha Mineral Exploration Concession (Contract # 006,2005) at Cerro Chorcha was granted to Cuprum on April 4, 2006. This exploration concession is currently valid and in force.
The area falls under the local jurisdictions of the District of San Lorenzo in Chiriqui Province and the District of Chirqui Grande in the Province of Betas Del Toro.
Mineral title to Cerro Chorcha was previously held under Exploration Concession 93-71 (Geo-Minas, S.A.). These concessions expired in 1999 and were officially cancelled by publication in the Official Gazette (No. 25,029) on April 15, 2004. An application for a new concession (CRC-EXPL 2004-05) was accepted on May 17, 2004 in the name of Cuprum.
Table 1 lists the coordinates of the corner points of the individual five blocks.
| Block | Longitude | Latitude | Area (hectares) | |||||||
| 1 | 82° | 40" | 8° | 08.61" | 10,302.92 | |||||
| 82° | 47" | 8° | 08.61" | |||||||
| 82° | 47" | 8° | 54.2" | |||||||
| 82° | 40" | 8° | 54.2" | |||||||
| 2 | 82° | 47" | 8° | 03.5" | 2,250.95 | |||||
| 82° | 03.4" | 8° | 03.5" | |||||||
| 82° | 03A" | 8° | 37" | |||||||
| 82° | 47" | 8° | 37" | |||||||
| 3 | 82° | 03.4" | 8° | 03.5" | 4,705.87 | |||||
| 82° | 21.4" | 8° | 03.5" | |||||||
| 82° | 21.4" | 8° | 54.2" | |||||||
| 82° | 03.4" | 8° | 54.2" | |||||||
| 4 | 82° | 47" | 8° | 54.2" | 4,480.77 | |||||
| 82° | 21.4" | 8° | 54.2" | |||||||
| 82° | 21.4" | 8° | 27.7" | |||||||
| 82° | 47" | 8° | 27.7" | |||||||
| 5 | 82° | 47” | 8° | 37” | 2,501.40 | |||||
| 82° | 0.34” | 8° | 37” | |||||||
| 82° | 0.34” | 8° | 54.2” | |||||||
| 82° | 47” | 8° | 54.2” | |||||||
11
The owners of the former concession lodged legal complaints objecting to the cancellation of their concession and the re-application by Cuprum. All legal complaints opposing the cancellation of the concession have been rejected by the Supreme Court of Panama. The new metallic mineral concession at Cerro Chorcha was granted to Cuprum and published in the Official Gazette (No. 25,517) on April 4, 2006. A metallic mineral exploration concession is valid for four years, with extensions available for another four years. There are various reporting requirements and a tax on the exploration concessions which begins at $0.50 per ha during the first year and increases to $1.50 per ha in year five.
The owner of the exploration mineral concession has an exclusive right to the application of an exploitation concession. The terms under which major projects proceed are negotiated with the government.
A portion of the Chorcha concession occurs on an autonomous aboriginal land reserve (Comarca) of the Ngobe-Bugle (see figure 2). There are no permanent habitations in the area of concession.
Cuprum signed an exclusive mineral exploration agreement (the "Agreement") with the Comarca on July 28, 2004. The Agreement grants Cuprum the exclusive rights to explore for minerals and to negotiate a new agreement with the Comarca for the "next phase of activity" upon completion of the exploration phase. The Agreement is valid until the expiration of the Exploration Concession and strictly follows the Panama Mining Code whereby an exploitation concession is granted once the presence of commercial ore is demonstrated.
The Agreement (resolution #1 Feb 12, 2006) was signed by the President of the Regional Congress of the NoKribo Region (Mr. Enrique Pineda), the Chief of the NoKribo Region (Mr. Johnny Bonilla), and the president of the Local Congress of the Kanicintti District of the NoKribo Region (Mr. Julian Palacio) and, for Cuprum, the General Manager and Secretary of the Board of Directors (Mr. Alfredo Burgos).
Among the issues covered by the Agreement are: work progress, budgets and reporting; employment and training; land rentals and leasing; development programs; environment, education and culture; force majeure; settlement of conflicts; notification, continuity and applicable laws.
A joint committee was created by Cuprum and the peoples of the Comarca. Monthly meetings of the committee are held to review development and to ensure continued mutual support. All work planned by the Company and Cuprum to date have been formally reviewed by and the approved by the operating committee.
The north western portion of the Concession is in the watershed of the Fortuna Hydroelectric Project. Significant development in the hydra-electric reserve area would require approval from Fortuna S.A. (a corporation composed equally of Americas Generation Corp. and the State of Panama) which purchased the publicly owned Institute deRecursos Hidro-electricos y Electrificacion (IE) in 1998.
The mineralized area, as presently known, is far outside of the reserve, in fact it is on the other side of the Continental Divide from the Fortuna Project and therefore does not affect the catchment area.
12
Exploration work can be performed within the boundaries of the hyrdo-electric reserve, as long as we present the plan and procedures that adhere to the respective regulations they will not affect the watershed.
A portion of the Palo Seco Forestal (Forestry Reserve) enters the concession from the north and extends to within about one kilometer north of the main mineralized zone, although legal survey of this area has not yet been done.
ANAM (Autoridad Nacional del Ambiente), Panama's environmental agency, is responsible for the administration of the forest reserve.
The Palo Seco Forest Reserve is divided into various sub-zones, each of which have a different levels of protection. The current management plan does not specifically address mineral exploration and development, however the portion of the Palo Seco Forest Reserve nearest the Chorcha Project is assigned to a highly protected status with entry permitted only for scientific research. In the past exploration has been permitted within the limits of forest reserves, however damages must be mitigated.
Prior exploration work on Cerro Chorcha has not resulted in anything that could be considered to be an environmental liability.
Most of Panama consists of island arc assemblages of Cretaceous to Recent age which have resulted from the subduction of the Cocos tectonic plate underneath the Caribbean plate.
In western Panama, where Cerro Chorcha is located, Miocene andesitic to basaltic flows and volcaniclastic rocks of the Caflazas Group have been intruded by Pliocene to Miocene granodiorite and monzonitic rocks of the Tabasara.
The Porphyry copper deposits in Panama are associated with calc-alkaline intrusives. Panama hosts two 'world class' mineralized systems at Cerro Colorado and at Petaquilla., each containing in excess of one billion tonnes of mineralized rock.
At Cerro Chorcha the main area of interest occurs within a composite intrusion, consisting of diorite, quartz diorite, and lesser amounts of monzodiorite. Small bodies and dykes of quartz feldspar porphyry and mafic dykes cut the various intrusive phases and are considered to be post-mineral.
The Cerro Chorcha project contains porphyry copper mineralization with related gold and some reported molybdenum. Oxide and hypogene copper zones are present.
Distal propylitic (chlorite, epidote, and actinolite) alteration surrounds proximal phyllic (sericitie and silicic) zones. Much of the chalcopyrite and bornite mineralization occurs in a quartz-magnetite stockwork and vein facies within the intrusive.
There is a strong structural component to the more or less east-west trending mineralized body which is cut by conjugate NE-SW and NW-SE trending faults.
13
By analogy with the Cerro Colorado porphyry copper deposit only 35 km to the ESE it is thought that the porphyry copper mineralization at Cerro Chorcha is between three and five million years old.
There are scattered mineralized showings over the entire 242 square kilometer Cerro Chorcha concession.
Porphyry copper (Cu) mineralization with associated gold, silver and molybdenum occur at the main Cerro Chorcha zone (the Guariviara Zone) over an area measuring 1.1 kilometers by 500 meters.
Much of the mineralization is structurally controlled and is related to quartz-magnetite sulphide veining and stockwork zones within the intrusive rocks. Laterally outward from the quartz-magnetite zones, sericite-altered intrusive rock contain fracture/veinlet controlled sulphides. The alteration outward from the phyllic, sericitic and siliceous material is predominantly propylitic.
Minerals encountered in the hypogene zone consist of magnetite, chalcopyrite, pyrite, bornite and minor sphalerite and molybdenite. Only minor supergene mineralization has been observed.
Exploration by previous operators has included regional stream sediment geochemistry, prospecting, trenching, soil and rock chip sampling, aerial and ground geophysics, and the drilling of 35 drill holes aggregating 7,036 meters.
ASARCO Exploration Company of Canada Ltd. discovered the Guariviara Zone during a regional stream sediment program initiated in 1969. In 1976, exploration efforts included sampling, mapping and trenching resulted in defining porphyry copper mineralization grading greater than 0.2% Cu over an area of 600 meters by 300 meters,
ASARCO mobilized a drill onto the property. Negotiations with the Government to improve the terms of the concession agreement failed and the company abandoned the project without drilling. A total of over 400 samples were taken and assayed during the ASARCO tenure.
In the period 1990 to 1992 Consultores Geologicos S.A. obtained a concession and confirmed the importance of the zone discovered by ASARCO.
In 1993 the original concession was grouped together in a land package measuring 24,350 ha in an agreement between Consultores Geologicos and GeoRecursos International SA. and the concession was transferred to Geo-Minas, S.A.
During 1993 a north-south grid was cut with 200m line spacing. A total of sixty-seven soil, 30 rock and 64 chip samples were taken as part of a regional prospecting program.
In the period 1994 and 1995 GeoRecursos International S.A. and Arlo Resources (Arlo) expanded the grid, performed geochemical, geological, and magnetic surveys and regional prospecting work.
14
GeoRecursos and Arlo completed 27 helicopter-supported diamond drill holes on the Guariviara Zone for a total of 5,765 meters.
During 1997 and 1998 Cyprus Minera de Panama (Cyprus) obtained an option on the property. Cyprus expanded the grids, refined the geology of the deposit, mapped and sampled outlying zones, conducted airborne radiometric and magnetic surveys and drilled nine diamond drill holes for a total of 1,271 meters. Cyprus left Panama and the concession remained dormant, finally being officially cancelled April 15, 2004.
Following approval of the new Chorcha mineral concession Cuprum and Belhaven undertook the construction of the Chorcha exploration camp and conducted a short program of geologic mapping and one-meter channel samples were collected from several zones of structurally-controlled quartz-magnetite stockwork that appears to host the high-grade copper-gold-silver mineralization. Reported grades within the stockwork zone returned a total of 61 meters at an average grade of 1.89% Cu, 1.44 g/t Au, and 23.28 g/t Ag.
Based upon exploration work on the Cerro Chorcha, Bellhaven and Cuprum have procured a technical report on the property which was prepared in compliance with the National Instrument (NI) 43-101, “Standards of Disclosure For Mineral Projects” adopted by Canadian securities regulatory authorities. However, a company reporting under the U.S. Securities Exchange Act of 1934 may not report resources designated under NI 43-101 based upon a pre-feasibility study. In addition, to designate reserves under the Industry Guide 7 of the U.S. Securities and Exchange Commission a final or bankable feasibility study is required. Accordingly, while Bellhaven, Cuprum and the Company have used the NI 43-101 report in their evaluation of the property, they are not claiming or asserting any reserves for the Cerro Chorcha and it must be considered as an exploration property without any known resources. The proposed program for the Cerro Chorcha is exploratory in nature.
Unless changes are required, the three phase program of geologic investigation will be conducted with Cuprum serving as the operator. Apart from direct geologic work, each phase of the program includes the funding of some social program with the local indigenous groups.
Phase One included surface prospecting, surface geologic mapping, trenching and sampling as well as a 3,615.8 meter diamond drill program. In March 2007, the Phase One program commenced. A contract with Cabo Drilling Corp. (Cabo), of Vancouver, B.C. Canada was signed to perform the drill program on March 14, 2007. In preparation for the drill program, the Company and Cuprum built drill pads and fuel storage facilities. The 3,615.8 meter drill program was commenced in June 2007 and concluded in December 2007. The total amount of expenditures by the Company based on a mutually approved annual budget was $2,100,492. Eleven drill holes and 3,615.8 meters were drilled with encouraging results.
The first drill hole, CH-07-01, was drilled to test a structurally-controlled quartz-magnetite-sulphide stockwork zone that hosts higher grade copper-gold-silver mineralization than what is observed within the larger mineralized Chorcha porphyry system.
15
The main zone of mineralization in Hole CH-07-01 begins at the surface, and is the thickest and the highest grade thus far encountered within the Cerro Chorcha porphyry copper deposit.
Highlights from Hole CH-07-01 include:
| From/To | Length | Copper | Gold | Silver | ||||||||||
| 0 to 239.4 m | 239.4 meters | 1.20 | % | 0.23 g/t | 6.1 g/t | |||||||||
| 0 to 785.4 ft | 785.4 feet | |||||||||||||
| including | ||||||||||||||
| 0 to 114m | 114 meters | 2.01 | % | 0.43 g/t | 11.3 g/t | |||||||||
| 0 to 374 ft | 374 feet | |||||||||||||
| including | ||||||||||||||
| 52 to 90 m | 38 meters | 2.88 | % | 0.73 g/t | 14.3 g/t | |||||||||
| 170.6 to 295.3 | 124.7 feet | |||||||||||||
Gold values are by fire assay prep and ICP-MS finish, and copper and silver values by multi-acid digestion and ICP-MS analysis. Analyses were performed by ACME Labs in Vancouver.
Hole CH-07-01 is located about 50 meters east of a 1995 Arlo diamond drill hole, G95-10. Hole G95-10 (north azimuth, -60 inclined) cored 309.1 meters (1014.1 feet) of 0.78 % copper and 0.07 g/t gold.
Hole CH-07-01 is a northwest directed -60 degree angle hole that has encountered extensive quartz-magnetite-sulphide stockwork veins and breccias that host the high grade copper-gold-silver mineralization. The entire drill hole (0 to 239.4 meters) (785.43 feet) averages 1.2 % copper, 0.23 grams per tonne of gold and 6.1 grams per tonne of silver. The hole indicates a vector toward greater thickness and grade at depth.
The zone of higher grade copper-gold-silver mineralization in Hole CH-07-01 is associated with stockwork veins, breccias and disseminations hosted in a quartz diorite to quartz monzodiorite porphyry of probable late Tertiary age within the Cerro Chorcha porphyry intrusive complex. The quartz-magnetite-sulphide stockwork zones appear to be a late, structurally-controlled mineralizing event within the porphyry center. Strong silicification and sericite-chlorite-magnetite alteration are closely associated with quartz-magnetite-sulphide stockwork veining and silica-flooded breccia zones with copper sulphide (chalcopyrite and bornite) mineralization. Minor supergene mineralization (covellite, chalcocite, and native copper) occurs within several meters of the surface and along fault zones at depth. The copper and gold mineralization is hosted in both the oxide and sulfide portions of the stockwork, and is open to the northeast, southeast, southwest, and at depth. The true thickness of the mineralized stockwork zone remains unknown as it is in a porphyry/stockwork environment.
16
Hole CH-07-02 was drilled to test a structurally-controlled quartz-magnetite-sulphide stockwork zone that hosts higher grade copper-gold-silver mineralization than what is observed within the larger mineralized Chorcha porphyry system.
Highlights from Hole CH-07-02 include:
| From/To | Length | Copper | Gold | Silver | ||||||||||||
| 5.1 to 246 m | 240.9 m | 0.81 | % | 0.08 g/t | 2.9 g/t | |||||||||||
| 16.7 to 807 ft | 790.4 ft | |||||||||||||||
| including | ||||||||||||||||
| 5.1 to 130m | 124.9 m | 1.32 | % | 0.15 g/t | 4.8 g/t | |||||||||||
| 16.7 to 426.5 ft | 409.8 ft | |||||||||||||||
Gold values are by fire assay prep and ICP-MS finish, and copper and silver values by multi-acid digestion and ICP-MS analysis. Analyses were performed by ACME Labs in Vancouver.
Hole CH-07-02 is a southeast directed -60 degree angle hole drilled from the same site as Hole CH-07-01 (northwest directed, -60 degree angle hole). Hole CH-07-02 has encountered an extensive quartz-magnetite-sulphide stockwork of veins and breccias that host the higher grade copper-gold-silver mineralization. This stockwork zone is similar to the style of mineralization in Hole CH-07-01, but differs in vein density, alteration intensity and the ratio of chalcopyrite to bornite. The apparent thickness of the stockwork zone in Hole CH-07-02 is about 65 meters. The stockwork zone in Hole CH-07-01 has an apparent thickness of 57 meters. The true thicknesses of the mineralized stockwork zones remain unknown as they are in a porphyry/stockwork environment.
The zone of higher grade copper-gold-silver mineralization in Hole CH-07-02 is associated with stockwork veins, breccias and disseminations hosted in a quartz diorite to quartz monzodiorite porphyry within the Cerro Chorcha porphyry intrusive complex. The quartz-magnetite-sulphide stockwork zones appear to be a late, structurally-controlled mineralizing event within the porphyry center. Strong silicification and sericite-chlorite-magnetite alteration are closely associated with quartz-magnetite-sulphide stockwork veining with copper sulphide (chalcopyrite and bornite) mineralization. Supergene mineralization (chalcocite and native copper) occurs within several meters of the surface and along fault zones at depth.
Hole CH-07-03 was drilled to test the continuation of structurally-controlled quartz-magnetite-sulphide stockwork zones that have been observed on-surface and in the two previous drill holes. The stockwork zones typically host higher grade copper-gold-silver mineralization than what is observed within the much larger mineralized Chorcha porphyry system. To date eight drill holes have been completed.
17
Highlights from Hole CH-07-03 include:
| From/To | Length | Copper | Gold | Silver | |||||||||
| 4 to 319.9 m | 313.9 m | 0.46 | % | pending | 1.1 g/t | ||||||||
| 13 to 1047 ft | 1030 ft | ||||||||||||
| including | |||||||||||||
| 122 to 154 m | 32 m | 0.82 | % | pending | 2.2 g/t | ||||||||
| 400 to 505 ft | 105 ft | ||||||||||||
| 224 to 242 m | 18 m | 1.04 | % | pending | 2.1 g/t | ||||||||
| 735 to 794 ft | 59 ft | ||||||||||||
| 286 to 319.9 m | 33.9 m | 0.62 | % | pending | 1.3 g/t | ||||||||
| 938 to 1047 ft | 109 ft | ||||||||||||
Copper and silver values are by multi-acid digestion and ICP-MS analysis. Gold values by fire assay prep and ICP-MS finish are pending final laboratory results. Analyses were performed by ACME Labs in Vancouver.
Hole CH-07-03 is a southeast directed -60 degree angle hole drilled from a site approximately 130 meters northeast of Holes CH-07-01 and CH-07-02. Hole CH-07-03 has encountered three (3) zones of quartz-magnetite-sulphide stockwork veins and breccias that host the higher grade copper-gold-silver mineralization. These stockwork zones are similar to the style of mineralization in Holes CH-07-01 and CH-07-02, but differ in vein density and alteration intensity. The combined total thickness and grade of the three (3) stockwork zones in Hole CH-07-03 is 74 meters of 0.84 % copper. The true thicknesses of the mineralized stockwork zones remain unknown as they are in a porphyry/stockwork environment.
The copper mineralization at Chorcha is commonly found directly at surface. The bulk of the mineralization in Hole CH-07-03 was associated with the phyllic altered quartz diorite to quartz monzodiorite porphyry that is widespread within the Cerro Chorcha porphyry complex. From previous drill efforts it is known that the mineralization may continues to a depth of over 500 meters. It is interesting to note that the final 33.9 meters of Hole CH-07-03 averaged slightly higher grade (0.62% Copper).
Holes CH-07-04 and CH-07-05 were drilled to test the northward continuation of both copper mineralization and the structurally-controlled quartz-magnetite-sulphide stockwork zones that have been observed on-surface and in Holes CH-07-01, CH-07-02 and CH-07-03. These stockwork vein zones typically host higher grade copper-gold-silver mineralization than what is observed within the much larger mineralized Chorcha porphyry system. Holes CH-07-04 and CH-07-05 were collared toward the north-most known edge of the on-surface high-grade stockwork zone.
18
Highlights from Hole CH-07-04 include:
From/To | Length | Copper | Gold | Silver | ||||||||||||
| 0 to 445.78 m | 445.78 m | 0.39 | % | 0.07 g/t | 1.4 g/t | |||||||||||
| 0 to 1463 ft | 1463 ft | |||||||||||||||
| Including | ||||||||||||||||
| 12 to 318 m | 306 m | 0.48 | % | .08 g/t | 1.7 g/t | |||||||||||
| 39 to 1,043 ft | 453 ft | |||||||||||||||
| Including | ||||||||||||||||
| 0 to 138 m | 138 m | 0.64 | % | 0.20 g/t | 2.3 g/t | |||||||||||
| 0 to 453 ft | 453 ft | |||||||||||||||
| Including | ||||||||||||||||
| 20 to 68 m | 48 m | 1.01 | % | 0.28 g/t | 2.6 g/t | |||||||||||
| 66 to 223 ft | 157 ft | |||||||||||||||
Highlights from Hole CH-07-05 include:
| From/To | Length | Copper | Gold | Silver | ||||||||||||
| 2 to 386.6 m | 384.6 m | 0.43 | % | 0.06 g/t | 1.6 g/t | |||||||||||
| 6.5 to 1268 ft | 1262 ft | |||||||||||||||
| Including | ||||||||||||||||
| 2 to 302 m | 300 m | .49 | % | 0.07 g/t | 1.72 g/t | |||||||||||
| 6.5 to 990 ft | ||||||||||||||||
| Including | ||||||||||||||||
| 2 to 142 m | 140 m | 0.67 | % | 0.14 g/t | 2.4 g/t | |||||||||||
| 6.5 to 466 ft | ||||||||||||||||
| Including | ||||||||||||||||
| 24 to 72 m | 48 m | 1.09 | % | 0.24 g/t | 3.6 g/t | |||||||||||
| 79 to 236 ft | 157 ft | |||||||||||||||
Copper and silver values are by multi-acid digestion and ICP-MS analysis. Gold values by fire assay prep and ICP-MS finish.
19
Hole CH-07-04 is a northwest directed -60 degree angle hole drilled from a site approximately 130 meters north-northeast of Hole CH-07-01. Hole CH-07-05 is a northwest directed -60 degree angle hole drilled from a site approximately 130 meters northeast of Hole CH-07-04 and extends the high grade mineralized zone to a minimum of 260 meters along strike. Holes CH-07-04 and CH-07-05 have both encountered a nearly 50 meter wide zone of quartz-magnetite-sulphide stockwork veins and breccias that host the higher grade (>1% copper and >0.25 g/t gold) mineralization. These stockwork zones are similar to the style of mineralization in Holes CH-07-01 and CH-07-02, but differ in vein density and alteration intensity. The true thicknesses of the mineralized stockwork zones remain unknown as they are in a porphyry/stockwork environment.
The copper mineralization at Chorcha is commonly found at the surface, and is known from previous and present drill results to extend to depths of at least 500 meters. The bulk of the mineralization in Holes CH-07-04 and CH-07-05 is associated with quartz-magnetite stockwork veins that are hosted by phyllic altered quartz diorite/monzodiorite porphyry that crops out over large areas within the Cerro Chorcha porphyry complex. Holes CH-07-04 and CH-07-05, as well as all previous assayed Holes, have bottomed in porphyry-style copper mineralization.
Hole CH-07-06 was drilled to test the eastward continuation and Hole CH-07-07 was drilled to test the northward continuation of both copper mineralization and the structurally-controlled quartz-magnetite-sulphide stockwork zones that have been observed on-surface and in previously reported Holes. These stockwork vein zones typically host higher grade copper-gold-silver mineralization than what is observed within the much larger mineralized Chorcha porphyry system.
Highlights from Hole CH-07-06 include:
| From/To | Length | Copper | Gold | Silver | ||||||||||||
| 0 to 346 m | 346 m | 0.42 | % | 0.05 g/t | 1.4 g/t | |||||||||||
| 0 to 1135 ft | 1135 ft | |||||||||||||||
| Including | ||||||||||||||||
| 8 to 84 m | 76 m | 0.66 | % | 0.11 g/t | 1.9 g/t | |||||||||||
| 26 to 276 ft | 249 ft | |||||||||||||||
| Including | ||||||||||||||||
| 8 to 40 m | 32 m | 1.01 | % | 0.20 g/t | 2.6 g/t | |||||||||||
| 26 to 131 ft | 105 ft | |||||||||||||||
Highlights from Hole CH-07-07 include:
| From/To | Length | Copper | Gold | Silver | ||||||||||
| 0 to 305.9 m | 305.9 m | 0.57 | % | 0.04 g/t | pending | |||||||||
| 0 to 1004 ft | 1004 ft | |||||||||||||
| Including | ||||||||||||||
| 20 to 214 m | 194 m | 0.72 | % | 0.05 g/t | pending | |||||||||
| 66 to 702 ft | 636 ft | |||||||||||||
| Including | ||||||||||||||
| 166 to 214 m | 48 m | 0.97 | % | 0.07 g/t | pending | |||||||||
| 545 to 702 ft | 157 ft | |||||||||||||
20
Copper and silver values are by multi-acid digestion and ICP-MS analysis. Gold values by fire assay prep and ICP-MS finish.
Hole CH-07-06 is a southeast directed -60 degree angle hole drilled from a site approximately 110 meters northeast of Hole CH-07-03. Hole CH-07-07 is a northwest directed -60 degree angle hole drilled from a site approximately 120 meters east-northeast of Hole CH-07-05 and extends the higher grade mineralized zone to a minimum of 450 meters along strike. Hole CH-07-07 has encountered a nearly 50 meter wide zone of quartz-magnetite-sulphide stockwork veins and breccias that host the higher grade (+1% copper) mineralization. This stockwork zone is similar to the style of mineralization in Holes CH-07-01, 02, 04, 05, but differs in vein density and alteration intensity. The true thicknesses of the mineralized stockwork zones remain unknown as they are in a porphyry/stockwork environment.
The copper mineralization at Chorcha is commonly found at the surface, and is known from previous and present drill results to extend to depths of at least 500 meters. The mineralization in Holes CH-07-06 and CH-07-07 is associated with quartz-magnetite stockwork veins that are hosted by phyllic altered quartz diorite/monzodiorite porphyry that crops out over large areas within the Cerro Chorcha porphyry complex. Holes CH-07-06 and CH-07-07, as well as all previous assayed Holes, have bottomed in porphyry-style copper mineralization.
Hole CH-07-08 was drilled to test the eastern and south-eastern extent of both the structurally-controlled quartz-magnetite-sulphide stockwork zones (higher grade mineralization) and the larger porphyry-style mineralized system.
Highlights from Hole CH-07-08 include:
| From/To | Length | Copper | Gold | Silver | |||||||||
| 0 to 270 m | 266 m | 0.41 | % | 0.06 g/t | Pending | ||||||||
| 0 to 886 ft | 873 ft | ||||||||||||
| including | |||||||||||||
| 0 to 82 m | 82 m | 0.69 | % | 0.15 g/t | Pending | ||||||||
| 0 to 269 ft | 269 ft | ||||||||||||
| 0 to 28 m | 28 m | 0.98 | % | 0.25 g/t | pending | ||||||||
| 0 to 92 ft | 92 ft | ||||||||||||
Copper values are by atomic absorption spectroscopy (AAS) analysis. Gold values by fire assay prep and AAS finish. Silver values by ICP-MS are pending final laboratory results.
21
Hole CH-07-08 is a northwest directed -60 degree angle hole drilled from a site approximately 200 meters southeast of Hole CH-07-07. Hole CH-07-08 encountered a 28 meter, near-surface zone of quartz-magnetite-sulphide stockwork that hosts the higher grade (1.0 % copper and 0.25 g/t gold) mineralization. This stockwork zone is similar to the style and grade of mineralization in previously reported Holes CH-07-01 thru CH-07-07. This extends the higher grade mineralized zones at least 500 meters along strike to the east, from Arlo Hole G95-10 to Hole CH-07-08. Sixty (60) meters to the south of Hole CH-07-08 is vertical Hole G95-25 (Arlo, 1995) that assayed 1% copper from the surface to 40 meters, and bottomed at 522 meters in porphyry-style copper mineralization. Assay results from these Holes confirm that stockwork and porphyry-style mineralization remains open to the east and at depth. In addition, assay results from previously reported Holes CH-07-04, CH-07-05 and CH-07-07 suggest that porphyry-style mineralization is also open to the north.
The zone of higher grade copper-gold-silver mineralization in Hole CH-07-08 is associated with stockwork veins and disseminations hosted in a quartz diorite to quartz monzodiorite porphyry within the Cerro Chorcha porphyry intrusive complex. The true thicknesses of the mineralized stockwork zones remain unknown as they are in a porphyry/stockwork environment.
The 3,615.8 meter drill program confirmed the Company’s geologic model which outlines a structurally controlled mineralized zone with a NE-SW direction. Holes CH-07-01 to CH-07-11 drilled across the higher grade stockwork structures, identifying a zone of nearly 900 meters in strike length, which will be further defined by the next drilling campaign. Additionally, the drill program confirmed an envelope of medium grades (ranging from 0.4 to 0.8% Cu) which surround the higher grade stockwork zones.
All holes drilled appear to indicate potential for the extension of the higher grade zone at depth as evidenced by dipping mineralized structures observed in drill core and as shown on cross sections. This possibility will be explored to greater extent by the upcoming 15,000 meter drill program to begin in the second quarter of 2008.
The recently completed drill program gives better context to the probable continuity of higher grade stockwork and porphyry-style mineralization within areas of previously unexplained rock and soil geochemical anomalies surrounding the known Chorcha deposit. These anomalies are located within 0.5 to 1 kilometer to the north, south and east of the drill indicated resource, and are now being investigated by field crews to develop drill targets for the 2008 drill program. An updated NI-43-101 report, which will be carried out within the next few months and serve as the basis for the next 15,000 meter drill program planned for 2008. The purpose of the upcoming drill program will be to provide greater continuity to the geological model and to further define the mineralization at Chorcha which remains open in almost every direction, and to extend porphyry-style copper and gold mineralization to areas adjacent to and surrounding the known deposit.
22
Summary of 2007 Drill Hole Results:
| Hole ID | From/To | Length | Copper | Gold | Silver | |||||||||||
| CH-07-01 | 0-239.4m | 239.4m | 1.20 | % | 0.23 g/t | 6.1 g/t | ||||||||||
| CH-07-02 | 5.1-278m | 272.9m | 0.73 | % | 0.06 g/t | 2.6 g/t | ||||||||||
| CH-07-03 | 4-319.9m | 313.9m | 0.46 | % | pending | 1.1 g/t | ||||||||||
| CH-07-04 | 0-445.78m | 445.78m | 0.39 | % | 0.07 g/t | 1.4 g/t | ||||||||||
| H-07-04 | 0-445.78m | 445.78m | 0.39 | % | 0.07 g/t | 1.4 g/t | ||||||||||
| CH-07-05 | 2-386.6m | 384.6m | 0.43 | % | 0.06 g/t | 1.6 g/t | ||||||||||
| CH-07-06 | 0-346m | 346m | 0.42 | % | 0.05 g/t | 1.4 g/t | ||||||||||
| CH-07-07 | 0-305.9m | 305.9m | 0.57 | % | 0.04 g/t | Pending | ||||||||||
| CH-07-08 | 0-270m | 270m | 0.41 | % | 0.06 g/t | pending | ||||||||||
| CH-07-09 | 4-295m | 287m | 0.28 | % | 0.04 g/t | 1.5 g/t | ||||||||||
| CH-07-10 | 0-422m | 419m | 0.19 | % | 0.03 g/ | pending | ||||||||||
| CH-07-11 | 4-297.43m | 293.43m | 0.33 | % | 0.06 g/t | 1.3 g/t | ||||||||||
Copper values by ICP-MS (Acme Labs, Vancouver) for Holes CH-07-01 to CH-07-06, and atomic absorption spectroscopy (SGS Labs, Peru) for Holes CH-07-07 to CH-07-11. Gold values by fire assay prep and AAS finish. Silver values by ICP-MS analysis.
Holes CH-07-09, CH-07-10 and CH-07-11 are northwest directed -60 degree angle holes located several hundred meters to the west of previously reported Holes CH-07-01 to CH-07-08. Hole CH-07-09 was drilled from a site approximately 350 meters west of Hole CH-07-01, and encountered an 8 meter (142-150 m) zone of quartz-magnetite-sulphide stockwork that assayed 0.88 % copper, 0.15 g/t gold, and 4 g/t silver. Hole CH-07-10 located 75 meters northeast of Hole CH-07-09 encountered a 20 meter (168-188 m) zone of stockwork that assayed 0.75 % copper. Holes CH-07-09 and CH-07-10 encountered strong and continuous zones of faulting and shearing that appear to have offset the main zone of mineralization. Approximately 100 meters southwest of Hole CH-07-09, Hole CH-07-11 encountered a 8 meter (100-108 m) stockwork zone that assayed 0.79 % copper, 0.2 g/t gold and 6.7 g/t silver, and bottomed in copper mineralization. This extends both the higher grade stockwork and main porphyry-style mineralization at least 900 meters along trend to the east-northeast, from Hole CH-07-11 to Hole CH-07-08. Assay results from all Holes confirm that stockwork and porphyry-style mineralization remains open in all directions and at depth. The zones of copper-gold-silver mineralization in Holes CH-07-01 to CH-07-11 are associated with stockwork veins and disseminations hosted in a quartz diorite to quartz monzodiorite porphyry within the Cerro Chorcha porphyry intrusive complex.
Phase Two will include the creation of access road into the Chorcha main zone This phase will include a 15,000 meter drill program of systematic drilling utilizing several diamond drill rigs.
Phase Three will concentrate on the completion of a bankable feasibility study by conducting the appropriate meters of drilling necessary to complete this task.
Throughout the exploration all samples will be prepared and analyzed by an independent 1S0 certified laboratory.
23
Cuprum and Empire’s exploration work on the Cerro Chorcha project is supervised by Michael D. Druecker, Ph.D., P.Geo a Qualified Person as defined in NI 43-101. Mr. Druecker has verified that trench and drill results have been accurately summarized from the official assay certificates provided to the Company.
Cuprum and Empire’s drilling sampling procedures follow the Exploration Best Practices Guidelines outlined by the Mining Standards Task Force and adopted by the Toronto Stock Exchange. Samples have been analyzed by ICP (inductively coupled plasma/mass spectrometry), and gold analysis has been by fire assay with gravimetric finish on a 30gram split.
Quality control measures, including check duplicates and sample standard-assaying are being implemented. A chain of custody review has been completed to ensure the integrity of all sample data. Samples were assayed by Acme Analytical Laboratories, independent of Cuprum and Empire.
On March 1, 2007, the Company entered into an agreement with Silver Global, SA, a Panamanian corporation ("Silver"). Silver is controlled by Mr. Abraham Crocamo, its President. There was no previous affiliation between Mr. Crocamo and the Company or the Nevada Subsidiary. This agreement provides that Silver will perform consulting services for the Company related to the identification, location, definition of mineral business opportunities in Panama and introductions to persons or entities holding potential acquisition properties involving Panama Mineral Concessions and related services. Under this agreement:
| · | The Company paid Silver a consultancy fee for $75,000.00 for services through February 29, 2008; |
| · | The Company may extend the agreement for a one-year term for each year after February 29, 2008 by paying a consultancy fee of $150,000.00 per year; |
| · | In addition to the cash consultancy fees the Company will pay Silver a non-cash transaction fee for any transaction the Company makes involving acquisition of an interest in a Panamanian Mineral Concession, directly or indirectly in any form, with a party introduced to the Company by Silver. Each transaction will be as agreed between then and in the form of a percentage interest in the Mineral Concession interest acquired by the Company and/or stock of the Company; and |
| · | For the transaction fee for the Company, the Company has paid Silver 1,000,000 shares of the Company's common stock (issued as "restricted securities") and if the Company completes its acquisition of the 65% interest in Cuprum, it will transfer to Silver 7.5% of Cuprum's outstanding stock. If the Company earns the additional 10% interest in Cuprum by obtaining the Bankable Feasibility Study, the Company will transfer to Silver 5% of Cuprum's outstanding stock. If the Company completes more than 50% of the full payment due to Bellhaven and Cuprum but not all and thus earns a reduced interest in Cuprum, the balance of the transaction fee to Silver will be proportionally reduced. |
24
Panamanian Regulations
The operations being conducted on the Cerro Chorcha project by Cuprum are subject to the supervisory and administrative laws of Panama which govern mining activities. In addition, these activities are governed by the terms and conditions of the exclusive mineral exploration agreement between Cuprum and the Regional Congress of the NoKaibo Region, the Chief of the NoKaibo Region and the Local Congress of the Kanicintti District of the NoKaibo Region as set out above. The major Panamanian statutes applicable to these operations are the “Code of Mineral Resources,” the “General Corporation Law” and the “General Environmental Law.”
Environmental Issues
Although our mineral activities are outside the United States of America and not subject to Federal, state or local provisions regarding discharge of material into the environment, they are subject to all the environmental regulations of their respective locales. However, since our proposed activities for the next several years are exploratory in nature, the effect of the regulations regarding the discharge of materials into the environment will not have a material effect upon the capital expenditures, earnings and competitive position of the Company and the Nevada Subsidiary.
Dongxing Venture
In 2006, the Nevada Subsidiary entered into a joint venture arrangement with Zhaoyuan Dongxing Gold Minerals Co., Ltd., a Chinese legal entity formed under the laws of the People's Republic of China ("Dongxing"). The control person of Dongxing was at the formation of the joint venture and now is Quizhi Liu, its Chairman and President, who was and is not affiliated with the Company or the Nevada Subsidiary. Under this arrangement, and after receiving the necessary business license in December of 2006, Dongxing and the Nevada Subsidiary formed a Chinese entity for the venture under the China Company Law. The entity is named Zhaoyuan Empire Gold Co., Ltd. ("Zhaoyuan Co."). As set out below, the results of the exploration work on the properties of Zhaoyuan Co. were less than anticipated and these properties are not presently considered material by the Nevada Subsidiary. Unless Zhaoyuan Co. acquires other mineral prospects or additional geological work or its present properties produce beneficial results, we do not plan to invest any material amount of additional funds in this venture. Under the present circumstances, it is unlikely we can salvage or recoup any material amount of this investment. The material terms of the arrangements of this joint venture and the material related events to date of this Amendment No. 1 to Annual Report on Form 10-KSB are:
| · | The formation of Zhaoyuan Co., in which the Nevada Subsidiary and Dongxing each have a 50% equity interest; |
| · | Dongxing contributed to Zhaoyuan Co. three Mining Licenses granted by the Shandong Land and Resources Administration Bureau on mineral properties located in the Shandong Province of China, along with certain mining equipment and instruments; |
25
| · | The Nevada Subsidiary contributed $500,000.00 (USD) to Zhaoyuan Co.; |
| · | The Nevada Subsidiary has exercised its right to appoint three of the five directors of Zhaoyuan Co. including the Chief Director and to appoint the General Manager and Chief Financial Officer and Dongxing has exercised its right to appoint the other two directors; |
| · | The joint venture has a term of 15 years commencing in December of 2006; |
| · | The Nevada Subsidiary has the right and option to contribute an additional $500,000 to the equity capital of Zhaoyuan Co. as the mining activities progress, in which case the Nevada Subsidiary's equity interest in Zhaoyuan Co. would increase to 70% and Dongxing's equity interest would decrease to 30%; |
| · | If the Nevada Subsidiary has invested a total of $1,000,000 in Zhaoyuan Co. and either Dongxing or the Nevada Subsidiary invest any additional capital in Zhaoyuan, the investment would be in the form of non-interest bearing contributed capital which the investing party would have the right to recover from Zhaoyuan Co.'s tax free profit before any sharing of profit would be allocated to the Nevada Subsidiary or Dongxing; |
| · | The arrangement defines an area of mutual interest including all potential mineral properties in Zhaoyuan City in the Shandong Province other than the three properties contributed to Zhaoyuan Co. by Dongxing and a specific property therein on which an independent third party presently holds an Exploration License; and |
| · | The Nevada Subsidiary has the final control over the selection of personnel and operations, provided that Dongxing has a preferential right to provide exploration services to Zhaoyuan Co. to the extent it can do so at comparable market rates. |
Following its formation as the joint venture company in December of 2006, Zhaoyuan Co. initiated a program for the renovation, exploration and development of the Dongxing mine. The previous operations on this property involved mining production down to the 150 meter level. Our completed renovation program included:
| · | General clean-up of the property, de-watering the mine and installation of underground electric and air systems; |
| · | Renovation and upgrading of the concentration mill located on the property; |
| · | Expansion of mine cross drifts at the 150 meter level; and |
| · | Completion of safety upgrades to the property followed by the acquisition of safety approvals from local authorities. |
26
Zhaoyuan Co. then conducted an exploration program which included a 1,896.3 meter drill program initiated on May 5, 2007. The program consisted of four holes that were to test the downward potential of gold bearing vein systems observed and previously mined from 0 to 150 meters depth. The target depth of this investigation was between 250m and 500m.
The drilling was completed on July 1, 2007. A thorough cleanup was done, post drilling, to minimize the environmental footprint. The drill core was logged and some sections were split and analyzed by a local state run laboratory. Anomalous gold, between 0.1 and 0.4 g/t was encountered in several sericitic alteration zones. These results were significantly lower than expected and it was concluded to reevaluate our strategy regarding this property.
The $500,000 invested by the Company, was expended in the renovation of the property and exploration program.
Zhaoyuan Co. is presently exploring the possibility of acquiring additional mineral prospective properties in the area and plans to do additional geological modeling work on the present property. However, unless these efforts are successful, the Company does not plan to invest any material amount of additional funds in this venture, as it will not consider the present property to have material prospects.
The concentration mill located on the present property has a capacity of 60 tons a day. It consists of a jaw crusher, conveyor systems, a ball mill and a flotation cell system. The mill reduces a gold and silver concentrate. Any concentrate produced would be sent to the refinery located in the area. This refinery presently custom-processes such concentrates and retains the silver recovered from the concentrate as payment for the refining fee. We have renovated the mill facilities and achieved successful concentrate results in test mill runs. However, unless Zhaoyuan Co. can acquire and develop a property with sufficient ore reserves, the mill will have no material value.
Tianjin Empire Venture
On November 21, 2006, the Nevada Subsidiary entered into a Joint Venture Contract with the Tianjin Institute of Geology, and Mineral Resources, a Chinese legal entity ("Institute") for the formation and operation of a mining joint venture in the form of a Chinese limited liability company to be named Empire (Tianjin) Resources Co., Ltd. ("Tianjin Empire"). Tianjin Empire is to be formed to conduct mineral exploration, development, and, if warranted, mining operations in the Inner Mongolia Autonomous Region of Tianjin Province in the People's Republic of China ("Cooperation Area"). As set out below, the Institute has not yet transferred to Tianjin Empire the mineral properties the Institute is to contribute to the capital of Tianjin Empire. Until mineral properties with a valuation satisfactory to us are contributed to Tianjin Empire by the Institute, the properties proposed for transfer are not considered to be material properties by us. The material terms of this contract and the related material events to the date of this Amendment No. 1 to Annual Report on Form 10-KSB are:
27
| · | The execution of the contract on November 21, 2006 followed by the application for the required business license for Tianjin Empire for its formation and operation which license was granted in April of 2007; |
| · | The Institute is to contribute capital to Tianjin Empire in the amount of Renminbi (the main currency used in China) totaling approximately $300,000. It is intended that the Institute’s capital contribution will be made in the form of the transfer to Tianjin Empire of mineral resources exploration licenses on properties located in the Cooperation Area. Any properties transferred will be valued for purposes of the Institute’s capital contribution by mutual agreement of the Institute and the Nevada Subsidiary. The Institute is obligated to transfer the properties for its capital contribution to Tianjin Empire. The Institute has not presented its valuation on the prospective properties for contribution purposes. The Institute has not timely presented the mineral properties and their valuations for transfer to Tianjin Empire under the terms of the agreement for this venture. We have agreed with the Institute to extend the deadline for the completion of the property transfers by the Institute for its capital contribution and for the payment by the Nevada Subsidiary of the $500,000 balance to May 31, 2008; |
| · | The Institute will contribute to Tianjin Empire the mineral information and data held by Licenses on properties located in the Cooperation Area along with the mineral data had by it on that region; |
| · | The Nevada Subsidiary shall contribute a total of $1,000,000 to Tianjin Empire as follows: (i) $200,000 paid on July 5, 2007; (ii) $300,000 paid on September 5, 2007; and (iii) $500,000 to be paid on or before May 31, 2008; |
| · | The Nevada Subsidiary shall own 70% of Tianjin Empire and the Institute shall own 30%; subject to adjustment so that the respective ownership interests will be equal to the respective capital contributions of the parties; |
| · | Any additional increase in the capital of Tianjin Empire shall be under terms decided by its Board of Directors subject to a first right of refusal by the party agreeing to contribute to a proposed capital increase contribution share not made by the non-contributing party and ownership interests of the parties shall be adjusted to reflect the actual ratio of capital contributions of the parties; |
| · | The Institute shall have a preferential right to provide exploration services to Tianjin Empire at a fair market price; |
| · | The Nevada Subsidiary and the Institute shall each have a pre-emptive right of first refusal to purchase all or any part of the other's interest in Tianjin Empire except for transfer of an interest to an affiliate of the transferor; |
| · | Tianjin Empire shall have a five member Board of Directors with the Nevada Subsidiary having the right to appoint three members, including the Chairman, and the Institute having the right to appoint two members, including the Vice-Chairman, and these appointments have been made; |
28
| · | Certain activities of Tianjin Empire's Board of Directors require unanimous assent of the directors, including: (i) amendment to its Articles of Association; (ii) increase or reduction of its registered capital; (iii) its dissolution; (iv) mortgage or pledge of its assets; or (iv) merger, division or change of form of organization of Tianjin Empire; |
| · | Subject to approval of the Board of Directors, the Nevada Subsidiary shall nominate Tianjin Empire's General Manager and Chief Financial Officer and the Institute shall nominate its Deputy General Manager, which nominations have been completed; |
| · | The contract sets out provisions and guidelines for the operations of Tianjin Empire; and |
| · | The duration of Tianjin Empire shall be for a term of 30 years from the granting of its original business licenses. |
The Institute (through an affiliate) received its business license on four mineral prospects on April 13 2007. However, the Institute has not completed all the valuations of the properties for purposes of transferring the properties to Tianjin Empire to make its capital contribution. The Institute and the Nevada Subsidiary have agreed to extend the deadline for the property transfers at a valuation mutually agreed upon by the parties to complete the Institute’s capital contribution to May 31, 2008. If the Institute’s capital contribution is not timely made, it is the intention of the Company to terminate its participation in the Tianjin Empire venture.
Although Tianjin Empire has preliminary plans to develop an exploration program for the properties covered by the business license issued to the Institute, until the properties are transferred to Tianjin Empire, the Company does not consider the properties to be material.
On March 27, 2006, the Nevada Subsidiary entered into an agreement with Universal Gold Corp., a New York corporation ("Universal"). Universal is controlled by Walter Reissman, its Chief Executive Officer, and there were no preexisting affiliations between him or Universal, with the Company or the Nevada Subsidiary. Universal is engaged in the business of providing facilitating services and information to persons and entities desiring to acquire, explore, develop and operate mineral properties in China. The agreement with Universal was related to the Tianjin joint venture in that Universal introduced to the Institute and provided information on mineral properties and prospects in the area of interest. Under this agreement, the Nevada Subsidiary purchased from Universal certain business relationships, due diligence, know-how and research and development in process, and all related relevant and technical information whether tangible or intangible, including without limitation any data, designs, calculations, computer source codes (human readable format), specifications, test and installation, instructions, service and maintenance notes, technical, operating and service and maintenance manuals, user documentation, training materials, and other data, information, know-how and all goodwill associated therewith, in each case which are in the possession of, owned by, developed and/or licensed to Universal which relate to, and are necessary or desirable to enhance, develop, manufacture, assemble, service, maintain, install, operate, use or test and/or explore, mine and/or produce precious metals/minerals, not limited to gold, in China. The Nevada Subsidiary paid Universal $350,000.00 under the agreement. The total payment under the agreement of $350,000 was expensed when paid during the year ended December 31, 2006 as research and development expenses and no value was placed on the purchased assets.
29
Chinese Regulations
Under the amended “Mineral Resources Law of the PRC”, which became effective as of January 1, 1997, all mineral resources of the PRC are owned by the State. The Ministry of Land and Resources (“MLR”) is responsible for the supervision and administration of the mining and exploration of mineral resources nationwide. The geology and mineral resources departments of the Chinese Government in the respective provinces, autonomous regions and municipalities are responsible for the supervision and administration of the exploration, development and mining of mineral resources within their own jurisdictions. The companies engaged in the mining or exploration of mineral resources must obtain mining and exploration licenses, as the case may be, which are transferable for consideration only in certain circumstances as provided under PRC laws, subject to approval by relevant administrative authorities.
According to the relevant PRC laws, before the exploration and mining activities relating to mineral resources can commence, the project company must first obtain the exploration license and the mining license, which generally entitles the project company to the exploration and mining rights attached to the relevant mining project. Furthermore, if the mining activities involve gold resources, the Gold Operating Permit must also be obtained.
Holders of exploration licenses and holders of mining licenses are subject to exploration right usage fees and mining right usage fees, respectively. In accordance with the “Administrative Measures on Registration of Mineral Resources Exploitation”, mining right usage fees are payable on an annual basis. The rate of mining right usage fee is RMB1,000 per sq. km. of mining area p.a. On the other hand, in accordance with the “Administrative Measures on Registration of Tenement of Mineral Resources Exploration and Survey”, exploration right usage fees are calculated according to the size of the exploration area and are payable on an annual basis. The rate of exploration right usage fees for the first year to the third year of exploration is RMB100 per sq. km. of exploration area p.a. From the fourth year of exploration onwards, the rate increases by RMB100 per sq. km of exploration area p.a. However, the annual maximum rate may not exceed RMB500 per sq.km. of exploration area. In addition, according to the amended “Administration Regulation for Collection of Mineral Resource Compensation Fee”), which became effective as of July 3, 1997, holders of mining licenses are subject to mineral resource compensation fees, which accounts for a certain percentage of the sales revenue of such holders. The mineral resource compensation fee is paid on a half-yearly basis.
30
An exploration license must be obtained before carrying out exploration activities. In accordance with the “Administrative Measures on Registration of Tenement of Mineral Resources Exploration and Survey”, the applicant must submit the following documents to the MLR or its local branch for the exploration license: (i) an application form for registration and a drawing or map indicating the scope of the blocks for which the applicant is applying; (ii) a copy of the certificate validating the qualification of the exploration unit; (iii) an exploration working plan and an exploration contract or documents evidencing that the exploration unit and project are entrusted by the State; (iv) an implementation proposal for the exploration, and its appendixes thereto; (v) documents of proof showing the source of the funds for the exploration project; and (vi) materials otherwise required by the relevant authority.
After all related documents required by the authority have been provided and submitted the competent authority shall make a decision within 40 days and notify the applicant of the result. If the application is approved, the applicant must pay the exploration right usage fee before obtaining the exploration license, which is calculated according to the size of the exploration area. The fee is payable on an annual basis.
The maximum valid period of the initial term of the exploration license is three years. An application must be submitted to the original competent registration authority for renewal of such exploration license at least 30 days prior to the expiration date stipulated thereon. Each renewal of valid term cannot exceed two years. If the holder of an exploration license fails to renew the same, such license is automatically annulled upon expiration.
During the term of an exploration license, the holder of such exploration license has the privileged priority to obtain mining rights to the mineral resources in the exploration area, provided that the holder of the exploration license meets the qualifying conditions for mining rights owners. The holder of the exploration license has the rights, among others, to: (i) explore without interference within the area under license during the license term, (ii) construct exploration facilities, and (iii) pass through other exploration areas and adjacent ground to access the licensed area.
The holder of an exploration license is obliged to, among other things: (i) begin exploration within the prescribed term, (ii) explore according to a prescribed exploration work scheme, (iii) comply with Chinese laws and regulations regarding labor safety, water and soil conservation, land reclamation and environmental protection, (iv) make detailed reports to local and other licensing authorities, (v) close and occlude the wells arising from exploration work, (vi) take other measures to protect against safety concerns after the exploration work is completed, and (vii) complete minimum exploration expenditures as required by the Administrative Measures on Registration of Tenement of Mineral Resources Exploration and Survey.
In accordance with the “Administrative Measures on Registration of Mineral Resources Exploitation”, to apply for the mining license, the applicant must submit the following documents to the MLR or its local branch: (i) an application form for registration and a drawing or map indicating the scope of the mining area; (ii) certificate validating the qualification of the applicant; (iii) a plan for development and utilization of the mineral resources; (iv) approval documents for establishment of the mining company; (v) an environment influence evaluation report for the exploitation of the mineral resources; and (vi) materials otherwise required by the relevant authority.
31
After all related documents required by the authority have been provided and submitted, the competent authority shall make a decision within 40 days and notify the applicant of the result. If the application is approved, the applicant must pay the mining right usage fee before obtaining the mining license, which is calculated according to the size of the mining area and must be paid on an annual basis.
The maximum valid period of the initial term of the mining license is determined according to the construction scale of the mine. For a large size mine, the term may be as long as 30 years, for a middle size mine, 20 years, and for a small size mine, 10 years. An application may be submitted to the original competent registration authority for renewal of such license at least 30 days prior to its expiration date. If the holder of a mining license fails to renew the same, such license is automatically annulled upon expiration.
The holder of a mining license has the rights, among others, to: (i) conduct mining activities during the term and within the mining area prescribed by the mining license, (ii) sell mineral products (except for mineral products that the State Council has identified for unified purchase by designated units), (iii) construct production and living facilities within the mine area, and (iv) use the land necessary for production and construction, in accordance with applicable laws.
The holder of a mining license is required to, among other things: (i) conduct mine construction or mining activities within a defined time period, (ii) conduct efficient production, rational mining and comprehensive use of the mineral resources, (iii) pay resources tax and mineral resources compensation (royalties) pursuant to applicable laws, (iv) comply with State laws and regulations regarding labor safety, water and soil conservation, land reclamation and environmental protection, (v) be subject to the supervision and management by the departments in charge of geology and mineral resources, and (vi) complete and present mineral reserves forms and mineral resource development and use statistics reports, in accordance with applicable law.
The holder of an exploration or mining license may transfer its exploration or mining license to others, subject to the approval of MLR.
An exploration license may only be transferred if the transferor has: (i) held the exploration license for two years as of the issue date, or discovered minerals in the exploration area, which are able to be explored or mined further, (ii) held a valid and subsisting exploration license, (iii) completed the stipulated minimum exploration expenditures, (iv) paid the user fees and the price for exploration rights pursuant to the relevant regulations, and (v) obtained the necessary approval from the authorized department in charge of the minerals.
A mining license may only be transferred if the transferor needs to change the ownership of such mining rights because it is: (i) engaging in a merger or split, (ii) entering into equity or cooperative joint ventures with others, (iii) selling its company’s assets, or (iv) engaging in a similar transaction that will result in an alteration of the property ownership of the company.
32
Additionally, when state-owned assets or state funds are involved in a transfer of exploration licenses and mining licenses, the related state-owned assets rules and regulations apply and a proper evaluation report must be completed and filed with the MLR.
Following documents must be submitted to MLR or its local branch to transfer an exploration or mining license: (i) a transfer application form; (ii) transfer agreement signed between the transferor and transferee; (iii) qualification certificates of the transferee; (iv) certificates proving that the transferor has meet the relevant requirements for transferring exploration license or mining license; (v) report regarding the exploration or mining status of the mineral resources; and (vi) materials otherwise required by the relevant authority. Additionally, when state-owned company transfers its mining license, approval document regarding the mining license transfer issued by its governing authorities should also be submitted.
Speculation in exploration and mining rights is prohibited. The penalties for speculation are that the rights of the speculator may be revoked, illegal income from speculation confiscated and a fine levied.
According to the “Provisions on the Administration of Gold Operating Permit”, the applicant for mining of gold minerals must submit the following documents to the National Development Reform Commission (“NDRC”): (i) an application form for exploitation of gold minerals; (ii) a formal map indicating the scope of the mining area; (iii) file records or the approval documents regarding the ore reserves report; (iv) an environment influence evaluation report approved by competent environment protection authorities; (v) the contract and the articles of association of the company and the approval for establishment of the company, if the applicant is a company limited by shares; and (vi) the awards rendered by relevant authorities in respect of any boundary dispute concerning the mining area.
The valid period for a Gold Operating Permit varies from five years to 15 years, depending upon the production size of the mine. An application must be submitted to the NDRC for renewal of the Gold Operating Permit at least 30 days prior to the expiration date stipulated thereon.
The holder of a Gold Operating Permit is entitled to exploit gold mineral resources in the areas specified in the Gold Operating Permit, subject to obtaining a corresponding mining license
Our Chinese operations are subject to the laws governing foreign investments in China, laws governing exploration and mining activities and laws on environmental issues, including the following:
| · | Foreign Investment in China: |
| (a) | Catalogue of Industries for Guiding Foreign Investments; |
| (b) | Company Law; |
| (c) | Regulation on Company Registration and Administration; and |
| (d) | Laws of the Chinese – Foreign Equity Joint Venture and its Implementation Regulations. |
33
| · | Exploration/mining activities: |
| (a) | Mineral Resource Law; |
| (b) | Procedures for Administration of Registration of Mining of the Mineral Resources; |
| (c) | Procedures for Administration of Registration of Exploring Area of the Mineral Resources; |
| (d) | Administration Rules on the Transfer of Exploration Rights and Mining Rights; |
| (e) | Safety Production Law; |
| (f) | Regulation of Safety Production License; and |
| (g) | Implementation Rules for the Safety Production License of Non-coal Mines Enterprise. |
| · | Environmental Issues: |
| (a) | Environmental Protection Law; |
| (b) | Law of the Prevention and Control of Environmental Pollution by Solid Waste; |
| (c) | Law of the Prevention and Control of Water Pollution; |
| (d) | Law of Appraising of the Environmental Impacts; |
| (e) | Administration Regulation for Environmental Protection of Construction Projects; |
| (f) | Administrative Provisions for Environmental Protection of Construction Projects; and |
| (g) | Administrative Provisions on the Completion-Based Check and Acceptance of Construction Projects. |
Plan of Operation
During the 12 month period commencing January 1, 2008, the Company will concentrate its efforts on the Panamanian copper prospect and the two Chinese mineral ventures, and in obtaining additional capital necessary to finance its operations. It will also continue to evaluate additional mineral acquisitions.
The Zhaoyuan Co. will continue to explore the acquisition of other mineral prospects in the general area of its present property and continue to geologically evaluate its present property to determine if any further exploration on it is warranted. If the efforts are unsuccessful, the Company intends to terminate the venture. If Zhaoyuan acquires another prospect or evidence of other promising mineral targets on the present property, the Company will evaluate whether or not to provide an additional $500,000 for any future exploration program.
34
If the Institute presents an evaluation satisfactory to the Nevada Subsidiary of the properties under its business licenses and transfers the properties and licenses to Tianjin Empire, it will initiate an exploration program for these properties. If the properties are not so transferred to Tianjin Empire, the Company presently intends to terminate this venture and not invest any additional funds in it. We have developed a prepared exploration plan for Tianjin Empire which includes (i) a review and evaluation of geophysical, geochemical and geologic surveys conducted by the Institute on the areas in which the proposed properties are located during the spring of 2008; (ii) exploration work including geological mapping, sampling, trenching and ground geophysical surveys; (iii) drilling to test high chargeability anomalies where warranted by other exploration results; and (iv) evaluation of exploration results to determine feasibility of additional exploration and/or development work. This exploration program would be conducted over the winter of 2008 and has a tentative budget of $1,000,000.00. Based on the information available from the surveys conducted by the Institute on the areas in which the proposed properties are located, the properties are considered copper prospects.
The Company will concentrate its efforts on the completion of the phase two of the exploration work on the Panamanian Cerro Chorcha property. The program, due to be initiated in June of 2008, calls for: (i) the drilling of approximately 15,000 meters which will begin in June 2008; (ii) further ground exploration work and topographic survey; (iii) airborne geophysical surveys (magnetic and electromagnetic); (iv) environmental assessments of and work on access trails to and on the property; and (v) create a three-dimensional model of the property based on old and new drilling results. It is estimated the phase two exploration program will be completed by or during the first quarter of 2009. The program is estimated to cost $7,200,000.00 through March of 2009.
The Company will have to raise additional capital of approximately $9,000,000.00 to finance all of its operations through 2008. There are presently no firm arrangements under which any capital can be obtained.
Personnel
The Company presently employs 2 full time employees, Pinchas Althaus, the Chief Executive Officer, and Diego Roca, the Chief Financial Officer. The Company's Vice President of Exploration, Craig Alford, is compensated as an independent contractor due to his out of the country residency status. The Company anticipates hiring additional personnel for administrative and financial functions during the year ended 2008.
Risk Factors
This Registration Statement contains statements concerning our future performance, intentions, objectives, plans and expectations that are or may be deemed to be "forward-looking statements". Our ability to do this has been fostered by the Private Securities Litigation Act of 1995, which provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective statements identifying important factors that could cause actual results to differ materially from those discussed in the statement. In addition, the Company's status as an exploration and development company without any present revenue producing operations increases the risks involved in an investment in the Company. These factors affecting us include, but are no limited to, the following:
35
PROPOSED OPERATIONS ARE DEPENDENT UPON OUR ABILITY TO RAISE A MATERIAL AMOUNT OF CAPITAL.
We are involved in the business of locating, acquiring, exploring, developing and operating mineral prospects and properties and have no present revenue producing operations. Our present contractual obligations require that we expend a total of approximately $500,000 over the next 12 months, to complete our minimum investments in the two Chinese ventures and $15,000,000 over the next 36 months, if we are to earn the full 65% interest in the Panama investment. In addition, there is no assurance that the expenditures of these funds will develop any of our mineral prospects to the point they may become revenue producing. The time and capital required for the exploration and development of production from mineral properties are intensive. Even if the results of our exploration and development activities are successful, we may still face material additional capital requirements to be able to achieve economical operations.
WE HAVE NO PRESENT SOURCE OF REVENUE AND ARE DEPENDENT UPON RAISING ADDITIONAL CAPITAL TO FINANCE CONTINUED OPERATIONS.
We have no present source of revenue. The lack of successful results in our exploration program of Zhaoyuan Co. has eliminated our only immediate potential source of revenue. We are dependent upon our ability to raise additional capital to finance our operations including our administrative operating costs which are estimated at $750,000 for the 12 months commencing January 1, 2008. Under our present program, it will likely be several years before we develop any revenue, even if our mineral exploration programs are successful, of which there is no assurance.
OUR COMMITMENTS TO REGISTER SHARES FOR SALE BY SELLING SHAREHOLDERS WILL ADVERSELY AFFECT OUR ABILITY TO RAISE NECESSARY CAPITAL.
We have contractual commitments to file a Registration Statement under the Securities Act of 1933 for the sale by certain of our shareholders of 6,093,333 shares of outstanding common stock and 2,807,500 shares of common stock underlying warrants issued or to be issued. In addition, we have agreed to include additional shares of common stock in any such Registration Statement for other outstanding shares or shares underlying warrants or convertible notes on a "piggyback basis". The offering of these shares under the Registration Statement will adversely effect our ability to raise additional capital.
36
WE FACE A SIGNIFICANT RISK OF THE LOSS OF OUR INVESTMENTS IN OUR CHINA PROJECTS.
We have invested $500,000.00 in the Zhaoyuan Co. joint venture and $500,000.00 in the Tianjin Empire joint venture. The results of the exploration program of the Zhoyuan Co. were negative and unless further geological work is successful or it can find another mineral prospect in the area the venture will be terminated. The failure of the Institute (our Chinese partner in the Tianjin venture) to transfer mineral properties has imperiled the future of this venture. There is a significant risk that we may lose both of these investments.
OUR OUTSTANDING CONVERTIBLE NOTES TOTALING $550,000.00 MAY HAVE TO BE REPAID INCREASING OUR NEED TO RAISE ADDITIONAL CAPITAL.
We have two outstanding Convertible Promissory Notes totaling $550,000.00 convertible into common stock which have the following maturities and conversion prices: (i) $200,000.00 – May 31, 2008 (convertible at $1.00 per share); and (ii) $350,000.00 – May 31, 2008 (convertible at $1.00 per share). If these notes are not converted, they will have to be paid. This would deplete our funds and increase our necessity to raise additional capital.
OUR OUTSTANDING LOAN PAYABLE OF $1,650,000.00 MAY HAVE TO BE REPAID INCREASING OUR NEED TO RAISE ADDITIONAL CAPITAL.
We have an outstanding Loan Payable in the amount of $1,650,000.00 due and payable on September 30, 2008. This loan will have to be repaid. This would deplete our funds and increase our necessity to raise additional capital.
ALL OF OUR PRESENT OPERATIONS ARE IN FOREIGN COUNTRIES WITH RESULTANT RISKS AND UNCERTAINTIES.
Our present mineral operations are in the People's Republic of China and the Republic of Panama. Accordingly, we are subject to risks and uncertainties involved in such foreign operations including:
| · | Difficulties in language communications and these arising out of cultural differences may adversely effect our operations; |
| · | The laws of the People's Republic of China and the Republic of Panama will govern our material agreements and operations. Their systems of laws and the enforcement thereof may not be as certain in implementation and interpretation as in the United States; |
| · | Substantially all of our non-cash assets will be located outside of the United States. Accordingly, we may not be able to enforce any judgments of any United States courts predicated upon United States laws on state laws, including securities laws; |
37
| · | The value of the "Renminbi" ("RMB"), the main currency used in the Peoples' Republic of China ("PRC") fluctuates and is affected by, among other things, changes in the PRC's political and economic conditions. The conversion of RMB into foreign currencies such as the United States dollar has be generally based on rates set by the People's Bank of China, which are set daily based on the previous day's interbank foreign exchange market rates and current exchange rates on the world financial markets. The official exchange rate had remained stable over the past several years. However, the PRC recently adopted a floating rate with respect to the RMB, with a 0.3% fluctuation. While most of the Company's business is conducted inside PRC will use the RMB changes in the exchange rate between it and other currencies may have a material adverse on our business; and |
| · | The RMB is not presently a freely convertible currency, and the restrictions on currency exchanges may limit our ability to use revenues generated in RMB to fund our business activities outside the PRC or to make dividends or other payments in the U.S. dollar. The PRC government strictly regulates conversion of RMB into foreign currencies. Over the years, foreign exchange regulations in the PRC have significantly reduced the government's control over routine foreign exchange transactions under current accounts. In the PRC, the State Administration for Foreign Exchange ("SAFE") regulates the conversion of the RMB into foreign currencies. We believe we will be required to apply for "Foreign Exchange" remittance of foreign currencies for payment of dividends and other distributions and such may be affected without requiring the approval of SAFE. However, even then, some items as direct investments, loans, securities, and the like still require the approval of SAFE. We may not be able to obtain a certificate or the current foreign exchange measures may be changed in a way that will make payment of dividends and other distributions outside China more difficult or unlawful. In that case, of we intend to distribute profits outside of the PRC, we may not be able to obtain sufficient foreign exchange to do so. |
THE MINERAL INDUSTRY IS SUBJECT TO INTENSIVE AND INCREASING GOVERNMENTAL REGULATION WHICH MAY ADVERSELY EFFECT OUR OPERATIONS.
All of our mineral operations will be subject to intensive and increasing governmental regulations, including those involving environmental, labor, waste management, environmental restoration, property ownership rights, and health and safety matters. Our Chinese operations are subject to the supervisory and administrative laws and regulations administered and/or issued by the Ministry of Land and Resources of the Peoples Republic of China and by the geology and mineral resources departments of the respective provinces, autonomous regions and municipalities in which properties are located. Exploration activities are conducted under licenses granted under the “Administrative Measures on Registration of Tenement of Mineral Resources Exploration and Survey” which also provides for supervising and taxing those activities. The “Administrative Measures on Registration of Mineral Resources Exploration” regulates mining activities, including their licensing, supervision and taxation. These two laws require that all exploration and mining activities comply with all national and local laws and regulations governing labor safety, water and soil conservation, land reclamation and environmental protection. See Chinese Regulations above. The operations being conducted in Panama on the Cerro Chorcha prospect by Cuprum are subject to the laws of Panama relating to mineral activities and to the terms of the exclusive exploration agreement included as part of the Panamanian mineral concession. See Panamanian Regulations above. Compliance with the applicable regulations, which are only likely to increase in the future, may adversely impact mining operations and their results. Since we will be operating in foreign jurisdictions these adverse effects may be magnified.
38
WE WILL BE DEPENDENT UPON THE SERVICES OF OTHERS IN OUR MINERAL OPERATIONS.
We will be dependent upon the services of others, including our joint venture partners and independent third parties in our exploration, development and mining operations. Our activities will be limited to supervision of and raising capital for the mineral activities. This diminished control over daily activities may adversely effect our operations.
WE HAVE NO PRESENT ESTABLISHED ECONOMIC OR RESERVES AND NO ASSURANCE WE CAN DEVELOP ANY.
There are no established economic ore reserves on any of the properties involved in our ventures. There is no assurance that we will be able to develop any such reserves; or that, if reserves are developed, we ill be able to mine them profitability, due to insufficient capital or otherwise.
IF WE DEFINE AN ECONOMIC ORE RESERVE AND ACHIEVE PRODUCTION, IT WILL DECLINE IN THE FUTURE AS AN ORE RESERVE IS A WASTED ASSET.
Our future ore reserve and production, if any, will decline as a result of the exhaustion of reserves and possible closure of any mine that might be developed. Eventually, at some unknown time in the future, all of the economically extractable ore will be removed from the properties, and there will be no ore remaining. This is called depletion of reserves. Ultimately, we must acquire or operate other properties in order to continue as an ongoing business.
MINERAL MARKET PRICES ARE SUBJECT TO FLUCTUATIONS WHICH MAY ADVERSELY EFFECT OUR OPERATIONS.
If we are successful in developing any mineral properties, our ability to operate at a profit will be dependent on the then existing market price of the involved mineral. Declines in the market prices of the involved mineral may render reserves containing relatively low grades of ore uneconomic to exploit, and we may be required to discontinue exploration, development or mining on the properties, or write down our assets. We cannot predict the future market price of minerals and we may not be able to survive in a declining market situation.
39
WE HAVE NOT OBTAINED ANY REPORT FROM AN INDEPENDENT GEOLOGIST OR MINING ENGINEER ON THE PANAMANIAN PROPERTY
Although our Vice President of Exploration has visited the Cerro Chorcha, site, we have not had any field examination done or report prepared on the site by any independent geologist or mining engineer. This subjects any investor in the Company to the risk of a lack of such independent review.
THE CERRO CHORCHA PROSPECT IS AN EXPLORATION PROSPECT WITHOUT ESTABLISHED RESERVES.
The Cerro Chorcha property is an exploration prospect without any established reserves. We have relied, in part, on a pre-feasibility study the property prepared for Bellhaven and Cuprum in our evaluation of it. These are significant risks involved in so relying on results of a pre-feasibility study, including:
| · | The limited amount of drilling work underlying the study; |
| · | Any process testing done is limited to small pilot plants and/or bench scale testing; |
| · | There are normally difficulties obtaining expected metallurgical recoveries when you are scaling up to production scale from a pilot plant; |
| · | The preliminary nature of the sine and processing concepts; |
| · | The lack of accuracy in preliminary cost estimates; |
| · | The actual metallurgical recoveries made; and |
| · | The history of pre-feasibility studies of typically underestimating capital and operating costs. |
THE CERRO CHORCHA PROJECT INVOLVES A LARGE EXPLORATION PROPERTY IN AN ISOLATED UNDEVELOPED AREA REQUIRING LARGE TIME EFFORT AND CAPITAL EXPENDITURES.
The Cerro Chorcha property is a large exploration prospect located in an isolated undeveloped area. The exploration program will require the expenditure of large amounts of capital over a period of several years. If the results of the initial exploration work are satisfactory, we will have to build access roads to and on the property to be able to complete the exploration program. If the completed exploration program is successful, we will then be faced with the necessity to complete the planning for the development of the property to the extent necessary to support a final or bankable feasibility study. During this period we will be subject to the potential adverse impact of factors beyond our control on the project; i.e., the decline in the price of the targeted mineral.
40
Item 2. Description of Property.
(Item 7 of Model 1B of Form 1A)
The Company has no material physical properties. Its material assets consist of cash, cash equivalent, its stock ownership of the Nevada Subsidiary and its contractual rights under the Panamanian project. The material assets of the Nevada Subsidiary consist of cash, cash equivalents and its contractual rights in the two Chinese joint ventures.
The Company leases approximately 760 square feet of office facilities at Suite 1817, 75 Rockefeller Plaza, New York, New York 10019. The initial lease term runs from February 14, 2008 through August 31, 2008. The Company pays a monthly rental of $6,000.00 plus $450.00 for telephone facilities. The lease automatically renews for a six-month term at the same rental fees unless terminated by either party by written notice on or before June 1, 2008.
Item 3. Directors, Executive Officers and Significant Employees.
(Item 8 of Model B of Form 1A)
The following table sets forth information regarding the directors and executive officers of the Company.
| Name | Age | Position | ||
| Pinchas Althaus | 33 | President, Chief Executive Officer and Director | ||
| Diego Roca | 40 | Executive Vice-President, Chief Financial Officer, Treasurer, and Director | ||
| Craig Alford | 44 | Vice President of Exploration | ||
| Bruce W. Minsky | 44 | Director | ||
| Grant Ewing | 47 | Director |
Pinchas Althaus has served as a director and as the President of the Nevada Subsidiary since March of 2006. He has been a director and President of the Company since February of 2007. From of October of 2004 to April of 2006 he was employed as the Chief Operating Officer for Golden River Resources, a mining and mineral exploration company of Melbourne, Australia. From February through October of 2004, he was employed as the Director of Business Development for Golden River Resources. From February of 2003 through December of 2003, he served as the Director of Business Development for Tahera Diamond Corporation of Toronto, Canada. From February of 2000 to February of 2003, he was the Director for Business Development for Ambient Corp. Mr. Althaus attended the Rabbinical College of Israel from which he received Rabbinical Certification in 1994.
41
Diego E. Roca served as a director and the Chief Financial Officer, Executive Vice President and Treasurer of the Nevada Subsidiary from May of 2006 on a part-time basis. In March of 2007, he assumed these positions on a full time basis for the Company and the Nevada Subsidiary. He has over 15 years of experience in financial management, operations, public (SEC) filings, cash management and internal controls including 9 years ending in 2004 with Digitec 2000, Inc. There he began as Digitec's Controller, progressing to Chief Operating Officer and Senior Vice President and Chief Financial Officer. From November 2004 until February 2007, Mr. Roca served as a consultant to various companies, including working with Empire Minerals on a part-time basis. He was the Chief Executive Officer and a Director of Trimax Corp. for the month of July 2004. Mr. Roca received a Bachelor of Science degree in Accounting from Queens College in 1992.
Craig Alford has served as the Vice President of Exploration for the Nevada Subsidiary since April of 2006 and for the Company since February of 2007. Since 2001 Mr. Alford has acted as President and proprietor of All Tech Services, providing geological consulting services to the hard rock and oil & gas industry. The hard rock clients include Placer Dome, Kentor Gold and Kings Bay Minerals. From 1996 to 2001, Mr. Alford acted as Senior Project Geologist/District Manager for TeckCominco in Central Asia and South America. He received a Bachelor of Science Degree from Lakehead University in Thunder Bay, Ontario, Canada in 1985 and a Masters of Science in Geology from Lakehead University in 1998.
Bruce W. Minsky has served as a director of the Nevada Subsidiary since May of 2006 and of the Company since February of 2007. Mr. Minsky has been engaged in the private practice of law in New Hempstead, New York since May of 2004. From July of 1991 through April of 2004 he was employed by the Banco Popular North America of New York City for which he served as Vice President and House Counsel. Mr. Minsky is a member of the Bar of the States of California, Connecticut and New York. Mr. Minsky received a Bachelor of Arts Degree from Boston University in 1985. In 1988, he received a Juris Doctor Degree from Southwestern University School of Law. In 1989, he received a Masters Degree in American Banking from Boston University.
Grant Ewing has served as a director of the Company since December 4, 2007. Mr. Ewing's mining career spans over 20 years. He has been the Chief Executive Officer of Staccato Gold Resources Ltd. since November 2007. During 2007, he served as President and Chief Operating Officer of Linear Metals Corporation. Mr. Ewing served as Executive Vice President of Corporate Development for Tahera Diamond Corporation from 2003 to 2007; and as Vice President-Investor Relations and Corporate Development and Corporate Secretary from 1998 to 2002.
There are no family relationships between any of the directors, officers or significant employees.
Item 4. Remuneration of Directors and Officers.
(Item 9 of Model B of Form 1A)
42
The following table sets forth the remuneration paid during the fiscal year ended December 31, 2007 to persons who were during that year or now are officers and directors of the Company by the Company and/or the Nevada Subsidiary.
Name of Individual Or Entity of Group | Capacities Which Remuneration Received | Total Remuneration | ||||
| Pinchas Althaus | As Officer of Nevada Subsidiary | $ | 175,000 | |||
| Diego Roca | As Officer of Nevada Subsidiary | $ | 130,308 | |||
| Craig Alford | As Officer of Nevada Subsidiary | $ | 95,385 | |||
| Bruce W. Minsky (1) | As General Counsel | $ | 9,775 | |||
| Grant Ewing | Director | -0- | ||||
| All Officers and Directors as a Group (6 Persons) | $ | 410,468 | ||||
| (1) | Resigned from positions of Senior Vice President, Secretary and General Counsel on March 10, 2008. |
In addition to the cash remuneration paid to Mr. Pinchas Althaus, on February 19, 2007, the Nevada Subsidiary issued to him 1,500,000 shares of its common stock as a bonus for his services to the Nevada Subsidiary during 2006 and as incentive compensation for future services. These shares of the Nevada Subsidiary became 1,500,000 shares of the Company's common stock, upon its acquisition of the Nevada Subsidiary February 20, 2007. These shares issued to Mr. Althaus were valued at $0.50 per share for total additional compensation of $750,000.00.
In April of 2006, the Nevada Subsidiary granted stock warrants to purchase 500,000 shares of its common stock at $0.10 per share during the period ending March 31, 2009 to Mr. Alford. The stock warrants were granted to Mr. Alford as compensation for his services in the formation of the Nevada Subsidiary and were valued under the Black-Scholes method at $118.00. These stock warrants were exercised in February of 2007 and the shares became shares of the Company's common stock on the same terms upon its acquisition of the Nevada Subsidiary.
On November 25, 2007, the Company issued stock options to five individuals (four of whom were then officers and/or directors of the Company) to purchase up to a total of 5,400,000 shares of its common stock. These options are for a five year term commencing February 23, 2008, have an exercise price of $0.50 per share and have cashless exercise provisions. Information as to these options is as follows:
43
| Optionee | Number of Shares | Valuation (1) | ||||||
| Pinchas Althaus | 1,900,000 | $ | 522,825 | |||||
| Diego Roca | 1,500,000 | $ | 412,757 | |||||
| Craig Alford | 1,200,000 | $ | 330,205 | |||||
| Bruce Minsky | 400,000 | $ | 110,069 | |||||
| Alan Mulaire | 400,000 | $ | 110,069 | |||||
| (1) | Valuation under the Black-Scholes method. |
We presently anticipate that during the year 2008 remuneration will be paid to the Company's officers and directors for services to the Company and the Nevada Subsidiary as follows:
| Name | Estimated Annual Total Remuneration | |||
| Pinchas Althaus | $ | 300,000 | ||
| Diego Roca | $ | 160,000 | ||
| Craig Alford | $ | 90,000 | ||
On January 26, 2008, the Company issued stock options to Grant Ewing, a director of the Company, to purchase up to a total of 200,000 shares of its common stock. These options are for a five year term commencing April 25, 2008, have an exercise price of $0.50 per share and have cashless exercise provisions. The value of the options under the Black-Scholes method is $51,585.
44
Item 5. Security Ownership of Management and Certain Securityholders.
(Item 10 of Model B of Form 1A)
The following table sets forth information as to the ownership of outstanding capital stock of the Company by its officers and directors and any shareholder owning more than 10% of any class of the Company's capital stock as of April 1, 2008:
| Title of Class | Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class | |||||||
| Common Stock | Pinchas Althaus 75 Rockefeller Center, Suite 1817 New York, NY 10019 | 4,500,000 | (1) | 10.71 | % | |||||
| Common Stock | Diego Roca 75 Rockefeller Center, Suite 1817 New York, NY 10019 | 300,000 | (1) | 0.71 | % | |||||
| Common Stock | Craig Alford 69 Regent Street Thunder Bay, Ontario Canada P7A 567 | 1,900,000 | (1) | 4.61 | % | |||||
| Common Stock | Bruce Minsky 112 Brick Church Road New Hempstead, NY 10907 | 200,000 | (1) | 0.48 | % | |||||
| Common Stock | Grant Ewing 700 Kerr Street Oakville, Ontario Canada L6K 3W5 | -0- | (1) | - | ||||||
| Common Stock | All Officers and Directors of the Company as a Group | 6,900,000 | 16.7 | % | ||||||
| (1) | Does not include shares underlying stock options as follows: (i) Pinchas Althaus – 1,900,000; (ii) Diego Roca – 1,500,000; (iii) Craig Alford – 1,200,000; (iv) Bruce Minsky – 400,000; and (v) Grant Ewing - 200,000. |
All of the directors of the Company, namely, Messrs. Althaus, Roca and Ewing may be deemed to be "parents" of the Company as such are defined under the Securities Exchange Act of 1934, as amended, by virtue of their positions since they have the duty under Delaware corporate law to control and direct the actions of the Company.
45
Item 6. Interest of Management and Others in Certain Transactions
(Item 11 of Model B of Form 1A)
Information is set forth in this Item as to any transaction during the two years ending April 1, 2008 to which the Company or Nevada Subsidiary was a party and in which any officer, director of the Company or any holder of more than 10% of any class of its stock had or is to have a material interest.
In December of 2007, the Company authorized and issued to Pinchas Althaus, its Chief Executive Officer and President, 100 shares of a Series I Preferred Stock pursuant to his Employment Agreement with the Company. The Series I Preferred Stock: (i) had no dividend preference; (ii) was not convertible into any other stock of the Company; (iii) was not redeemable by the Company; (iv) had a liquidity preference of $1.00 per share but was non-participating thereafter; and (v) had a “Super Voting Power” which enabled it to decide all matters submitted to the shareholders for a vote or action by consent. The Series I Preferred Stock had the right to cast 80% of all votes entitled to be made by the shareholders.
On February 20, 2007, the Nevada Subsidiary granted and issued to Pinchas Althaus 1,500,000 shares of its common stock as bonus compensation and as consideration for his cancellation of a stock warrant to purchase 1,500,000 shares of its stock at $0.10 per shares. These 1,500,000 shares of the Nevada Subsidiary became 1,500,000 shares of the Company's common stock upon the Company's acquisition of the Nevada Subsidiary on February 20, 2007.
On April 5, 2006 the Nevada Subsidiary granted and issued warrants to purchase shares of its common stock at $0.10 per share during the period from April 6, 2006 through March 31, 2009 as follows: (i) Pinchas Althaus - 1,500,000 shares; and (ii) Craig Alford - 500,000 shares. The warrants for 1,500,000 shares held by Mr. Althaus were cancelled on June 1, 2007. The remaining warrant granted to Mr. Alford for 500,000 shares was exercised and became shares of the Company's common stock upon the Company's acquisition of the Nevada Subsidiary on February 20, 2007.
In August of 2005, the Company authorized and issued to its then President 100 shares of a Series I Preferred Stock. The Series I Preferred Stock: (i) had no dividend preference; (ii) was not convertible into any other stock of the Company; (iii) was not redeemable by the Company; (iv) had a liquidity preference of $1.00 per share but was non-participating thereafter; and (v) had a “Super Voting Power” which enabled it to decide all matters submitted to the shareholders for a vote or action by consent. The Series I Preferred Stock had the right to cast 80% of all votes entitled to be made by the shareholders.
On October 26, 2006, Diego Roca, Executive Vice President, Chief Financial Officer and a director of the Company purchased all 100 outstanding shares of the Series I Preferred Stock for cash in the amount of $5,000.00. On June 18, 2007, the Company purchased the 100 shares of Series I Preferred Stock from Mr. Roca for $10,000.00. The Company has since canceled the 100 outstanding shares and the authorization of this class of Preferred Stock.
46
The Nevada Subsidiary has entered into two services agreements with Saddle River Associates, Inc., a New York corporation (“Saddle River”). The first agreement dated March 26, 2006 provides that Saddle River will provide consulting services relating to locating and evaluating financing alternatives, corporate structuring and other business issues and planning for a consulting fee of $15,000 per month. The agreement was for a one-year term which term automatically renews unless either party gives notice to terminate at least 90 days before the end of a term year. As of April 1, 2008, Saddle River had been paid $300,000.00 under this agreement.
The second agreement between Saddle River and the Nevada Subsidiary was made April 9, 2006 and was amended on December 15, 2006 and June 1, 2007. As amended, the agreement:
| · | Provided Saddle River would perform services in assisting the Nevada Subsidiary in locating a qualified acquisition or merger entity and assist in the business aspects of a business combination with the entity. |
| · | Called for the payment of a total of $550,000.00 upon completion of a business combination with the introduced entity, which amount has been paid to Saddle River for the business combination with the Company. |
| · | Provided for the issuance to Saddle River of warrants to purchase 500,000 shares of common stock if and when $3,000,000.00 of financing was received. This obligation of the Nevada Subsidiary was assumed by the Company in the business combination and five year warrants to purchase 500,000 shares of the Company’s common stock at $0.50 per share were issued to Saddle River. The 500,000 warrants were canceled by agreement of the parties in the June 1, 2007 amendment to the agreement. |
| · | Provides that the Company will issue stock purchase warrants to Saddle River in an amount up to warrants to purchase 1,000,000 shares on the basis of warrants to purchase up to 100,000 shares for each $1,000,000.00 of financing received by the Company in excess of the initial $3,000,000 already received. These warrants will be exercisable at $0.50 per share over a five year term from the date of issuance. |
The Company has also assumed an accrued liability to Saddle River of $23,750.00 for services related to the business combination between the Company and the Nevada Subsidiary. The Company has given notice to terminate these agreements on April 15, 2008.
For information on stock options to purchase up to 5,600,000 shares of the Company’s common stock at $0.50 per share.
See Item 5. Security Ownership of Management and Certain Securityholders immediately above.
47
PART II
Item 1. Market Price of and Dividends on the Company's Equity and Related Shareholder Matters.
The Company's common stock is quoted in the National Daily Quotation Sheets (commonly referred to as the "Pink Sheets") published by the National Quotation Bureau.
The following table sets forth the high and low bid of the common stock in the Pink Sheets for the periods indicated. The bid price represents prices between dealers, which do not indicate retail markups, markdown or commissions and the bid prices may not represent actual transactions:
| Quarter Period | High | Low | ||||||
| October – December 2005 | $ | 96.00 | $ | 40.00 | ||||
| January - March 3006 | 60.00 | 42.00 | ||||||
| April - June 2006 | 58.00 | 7.20 | ||||||
| July - September 2006 | 8.00 | 1.00 | ||||||
| October – December 2006 | 380 | 1.10 | ||||||
| January - March 2007 | 4.00 | 1.21 | ||||||
| April - June 2007 | 2.50 | 1.50 | ||||||
| July – September 2007 | 2.25 | 1.50 | ||||||
| October – December 2007 | 2.00 | 1.40 | ||||||
The number of record holders of our common stock of at March 24, 2008 was 157. Additional owners of the common stock hold their shares in street name with a brokerage firm and a depository firm.
The holders of our common stock are entitled to receive dividends as may be declared by the Board of Directors out of funds legally available, and after payment of adequate provisions for the payment of preferential dividends due on any then outstanding preferred stock. We have never had any material earnings and do not presently have any capacity to generate any such earnings. We have never declared any dividends. We do not anticipate declaring and paying any cash dividends in the foreseeable future.
Item 2. Description of Exhibits.
| Exhibit No. | Description of Exhibits | |
| 3.1 | Amended and Restated Certificate of Incorporation with Amendments through May 31, 2007 (1) | |
| 3.1a | Certificate of Ownership, Merger and Name Change (4) |
48
| 3.2 | Company’s Bylaws (1) | |
| 10.1 | Merger Agreement by and among Empire Minerals Corp., a Delaware corporation, Xacord Acquisitions Sub Corp., a Nevada corporation and Empire Gold Corp., a Nevada corporation dated February 20, 2007 (1) | |
| 10.2 | Joint Venture Contract by and between Diying (Tianjin) Mining Science and Technology Development Co., Ltd., organized under the laws of the Peoples Republic of China and Empire Gold Corp., a Nevada corporation dated November 21, 2006. (1) | |
| 10.2a | Amendment to Joint Venture Contract for Tianjin dated July 3, 2007. (2) | |
| 10.2b | Second Amendment to Joint Venture Contract for Tianjin dated September 5, 2007. (3) | |
| 10.2c | Amendment dated November 5, 2007 to Joint Venture Contract for Tianjin. (3) | |
| 10.3 | Cooperation Company Contract between Dongxing Gold Minerals Co., Ltd., organized under the laws of the People’s Republic of China and Empire Gold Corp., a Nevada corporation dated March 31, 2006. (1) | |
| 10.4 | Exploration and Development Agreement between and among Cuprum Resources Corp., a Panamanian corporation, Bellhaven Copper & Gold, Inc., a British Columbia corporation and Empire Minerals Corp., a Delaware corporation dated March 6, 2007. (1) | |
| 10.5 | Restricted Equity Purchase Agreement (1) | |
| 10.6 | Stock Repurchase Agreement (1) | |
| 10.7 | Convertible Promissory Note dated June 25, 2007. (2) | |
| 10.7a | Amendment to June 25, 2007 Convertible Promissory Note. (3) | |
| 10.8 | Convertible Promissory Note dated June 26, 2007. (2) | |
| 10.9 | Convertible Promissory Note dated July 2, 2007. (2) | |
| 10.10 | Subscription Agreement – Goldberg. (2) | |
| 10.11 | Form of Subscription Agreement. (2) | |
| 10.12 | Special Warrant Documents. (2) |
49
| 10.13 | Advisory Agreement between Saddle River Associates, Inc. and Empire Gold Corp. (2) | |
| 10.14 | Acquisition Agreement between Saddle River Associates, Inc. and Empire Gold Corp. (2) | |
| 10.15 | Consulting Agreement between Empire Gold Corp. and Silver Global S.A. (2) | |
| 10.16 | Loan Agreement between Dominion Minerals Corp. and Balstone Investments, Ltd. dated March 10, 2008. (5) | |
| 10.17 | Indemnification Letter dated March 11, 2008 between Dominion Minerals Corp. and Pinchas Althaus. (5) | |
| 21.1 | Subsidiaries* | |
| 31.1 | Officers Certifications under Section 302 of the Sarbanes-Oxley Act of 2002* | |
| 31.2 | Officers Certifications under Section 302 of the Sarbanes-Oxley Act of 2002* | |
| 32.1 | Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002.* |
| * | Filed herewith. |
| (1) | Incorporated by reference to the Company’s Registration Statement on Form 10-SB filed with the Commission on June 22, 2007. |
| (2) | Incorporated by reference to the Company’s Amendment No. 1 to the Registration Statement on Form 10-SB filed with the Commission on October 1, 2007. |
| (3) | Incorporated by reference to the Company’s Amendment No. 2 to the Registration Statement on Form 10-SB filed with the Commission on November 20, 2007. |
| (4) | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on November 27, 2007. |
| (5) | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 14, 2008. |
Item 3. Changes in and Disagreements with Accountants.
The Company had no relationship with an independent accountant for over 5 years prior to the engagement of the independent accountant for the audit of the financial statements for the fiscal years ended December 31, 2005 and 2006, and the six-months period ended June 30, 2007, which were filed with the Registration Statement on Form 10-SB and the amendments thereto. In 2007, the Company's Board of Directors approved Moore Stephens Wurth Frazer and Torbet, LLP to be its auditors.
50
Item 4. Submission of Matters to a Vote of Securityholders.
No matter was submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders, through the solicitation of proxies or otherwise.
Item 5. Compliance with Section 16(a) of the Exchange Act.
(a) Information with respect to failures of directors, officers and/or beneficial owners of more than ten percent of any class of equity securities of the Company to timely file reports required by Section 16(a) of the Exchange Act is as follows:
| Name | Date of Event Requiring Filing of Form 3 | Required Filing Date of Form 3 | Date Form 3 Filed with SEC | |||
| Pinchas Althaus | August 21, 2007(1) | August 21, 2007 | August 27, 2007 | |||
| Craig Alford | August 21, 2007(1) | August 21, 2007 | Not Filed | |||
| Bruce Minsky | August 21, 2007(1) | August 21, 2007 | August 27, 2007 | |||
| Diego Roca | August 21, 2007(1) | August 21, 2007 | December 28, 2007 | |||
| Grant Ewing | December 4, 2007(2) | December 14, 2007 | April 14, 2008 |
| (1) | Effective date of Registration Statement filed by the Company on Form 10-SB. |
| (2) | Date of becoming a member of the Company’s Board of Directors. |
| (b) | Information with respect to Form 4 filings is as follows: |
| Name | Date of Event Requiring Filing of Form 4 | Required Filing Date of Form 4 | Date Form 4 Filed with SEC | |||
| Pinchas Althaus | November 25, 2007(1) | November 27, 2007 | Not Filed | |||
| Craig Alford | November 25, 2007(1) | November 27, 2007 | Not Filed | |||
| Bruce Minsky | November 25, 2007(1) | November 27, 2007 | Not Filed | |||
| Diego Roca | November 25, 2007(1) | November 27, 2007 | Not Filed | |||
| Grant Ewing | January 26, 2008 (2) | January 28, 2008 | Not Filed |
| (1) | Date of grant of stock options to purchase common stock. |
| (2) | Date of grant of stock purchase warrants. |
51
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Dominion Minerals Corp. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Dominion Minerals Corp. and subsidiaries as of December 31, 2007, and the related consolidated statements of operations and other comprehensive income (loss), stockholders’ equity and cash flows for the year ended December 31, 2007, for the period from inception (March 1, 2006) through December 31, 2006 and for the period from inception (March 1, 2006) through December 31, 2007. Dominion Minerals Corp.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 3, the accompanying consolidated financial statements have been restated. The restatement relates to the accounting for common stock issued in connection with the conversion on April 1, 2007 of a promissory note previously issued by the Company and services that the Company expected to receive from the holders of the promissory note.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Dominion Minerals Corp. and subsidiaries as of December 31, 2007, and the results of its operations and its cash flows for the year ended December 31, 2007, for the period from inception (March 1, 2006) through December 31, 2006 and for the period from inception (March 1, 2006) through December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company’s significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustment that might result from the outcome of this uncertainty.
/s/ MOORE STEPHENS WURTH FRAZER AND TORBET, LLP
Walnut, California
April 15, 2008 (except for Note 3, and related revisions to
Note 1h, Note 6a and Note 8e and Note 9, as to which the date is May 14, 2009)
52
DOMINION MINERALS CORP. AND SUBSIDIARIES
(FORMERLY EMPIRE MINERALS CORP.)
(AN EXPLORATION COMPANY)
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 2007
| DECEMBER 31, | ||||
| 2007 | ||||
| ASSETS | (Restated) | |||
| CURRENT ASSETS: | ||||
| Cash and cash equivalents | $ | 878,116 | ||
| Prepaid expense | 69,521 | |||
| Total current assets | 947,637 | |||
| EQUIPMENT, net | 40,717 | |||
| OTHER ASSETS: | ||||
| Notes issuance cost, net | 303,615 | |||
| Long term investment | 2,720,279 | |||
| Total other assets | 3,023,894 | |||
| Total assets | $ | 4,012,248 | ||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
| CURRENT LIABILITIES: | ||||
| Accrued liabilities | $ | 529,534 | ||
| Convertible note payable | 300,000 | |||
| Total current liabilities | 829,534 | |||
| COMMITMENTS AND CONTINGENCIES | - | |||
| SHAREHOLDERS' EQUITY: | ||||
| Preferred stock, Voting Series I, $0.0001 par value; 5,000,000 shares authorized; | ||||
| 100 shares issued and outstanding | - | |||
| Common stock, $0.0001 par value; 700,000,000 shares authorized | ||||
| 42,605,696 issued and outstanding as of December 31, 2007 | 4,261 | |||
| Escrowed common stock | (267 | ) | ||
| Additional paid-in capital | 14,926,809 | |||
| Shares to be returned for services not received | (1,654,167 | ) | ||
| Stock subscription receivable | (1,560 | ) | ||
| Deficit accumulated during the exploration stage | (10,117,528 | ) | ||
| Accumulated other comprehensive income | 25,166 | |||
| Total shareholders' equity | 3,182,714 | |||
| Total liabilities and shareholders' equity | $ | 4,012,248 | ||
See report of independent registered public accounting firm.
The accompanying notes are an integral part of this consolidated statement.
53
(FORMERLY EMPIRE MINERALS CORP.)
(AN EXPLORATION COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
| For year | From inception | From inception | ||||||||||
| ended | (March 1, 2006) | (March 1, 2006) | ||||||||||
| December 31, | to December 31, | to December 31, | ||||||||||
| 2007 | 2006 | 2007 | ||||||||||
| (Restated) | (Restated) | |||||||||||
| REVENUE | $ | - | $ | - | $ | - | ||||||
| COST OF SALES | - | - | - | |||||||||
| GROSS PROFIT | - | - | - | |||||||||
| RESEARCH AND DEVELOPMENT COSTS | 381,662 | 398,690 | 780,352 | |||||||||
| GENERAL AND ADMINISTRATIVE EXPENSES | 5,316,567 | 1,731,566 | 7,048,133 | |||||||||
| LOSS FROM EXPECTED SERVICES NOT RECEIVED | 2,205,492 | - | 2,205,492 | |||||||||
| LOSS FROM OPERATIONS | (7,903,721 | ) | (2,130,256 | ) | (10,033,977 | ) | ||||||
| OTHER EXPENSE (INCOME) | (90,135 | ) | 6,584 | (83,551 | ) | |||||||
| LOSS BEFORE PROVISION FOR INCOME TAXES | (7,993,856 | ) | (2,123,672 | ) | (10,117,528 | ) | ||||||
| PROVISION FOR INCOME TAXES | - | - | - | |||||||||
| NET LOSS | (7,993,856 | ) | (2,123,672 | ) | (10,117,528 | ) | ||||||
| OTHER COMPREHENSIVE INCOME | ||||||||||||
| Foreign currency translation adjustment | 27,817 | (2,651 | ) | 25,166 | ||||||||
| COMPREHENSIVE LOSS | $ | (7,966,039 | ) | $ | (2,126,323 | ) | $ | (10,092,362 | ) | |||
| LOSS PER SHARE | ||||||||||||
| Basic and diluted loss per share | $ | (0.22 | ) | $ | (0.12 | ) | ||||||
| Basic and diluted weighted average number of common shares | 36,976,408 | 17,006,959 | ||||||||||
See report of independent registered public accounting firm.
The accompanying notes are an integral part of this consolidated statement.
54
DOMINION MINERALS CORP. AND SUBSIDIARIES (FORMERLY XACORD CORP.)
(FORMERLY EMPIRE MINERALS CORP.)
(AN EXPLORATION COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY
| SHARES TO | ACCUMULATED | |||||||||||||||||||||||||||||||||||||||||||||||
| ADDITIONAL | STOCK | BE RETURNED | OTHER | TOTAL | ||||||||||||||||||||||||||||||||||||||||||||
PREFERRED STOCK | COMMON STOCK | SHARES IN ESCROW | PAID-IN | SUBSCRIPTION | FOR SERVICES | ACCUMULATED | COMPREHENSIVE | SHAREHOLDERS' | ||||||||||||||||||||||||||||||||||||||||
SHARES | PAR | SHARES | PAR | SHARES | PAR | CAPITAL | RECEIVABLE | NOT RECEIVED | DEFICIT | GAIN (LOSS) | EQUITY | |||||||||||||||||||||||||||||||||||||
| Balance at inception, March 1, 2006 | - | $ | - | - | $ | - | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||||||||||||||||||
| Founders stock issued for cash, $0.001 per share | 6,460,000 | 646 | 5,814 | (3,060 | ) | 3,400 | ||||||||||||||||||||||||||||||||||||||||||
| Shares issued March 29, 2006 for $80,500 in services | ||||||||||||||||||||||||||||||||||||||||||||||||
| and $4,500 cash, at $0.01 per share | 8,500,000 | 850 | 84,150 | 85,000 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock sold through subscription agreements | ||||||||||||||||||||||||||||||||||||||||||||||||
| April through December 2006 | ||||||||||||||||||||||||||||||||||||||||||||||||
| at $0.50 per share | 5,505,000 | 551 | 2,751,949 | 2,752,500 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock issued through the exercise of warrants | 20,000 | 2 | 1,998 | 2,000 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock warrants issued to employees | 474 | 474 | ||||||||||||||||||||||||||||||||||||||||||||||
| Stock warrants issued to consultants for advisory services | 197,113 | 197,113 | ||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation loss | (2,651 | ) | (2,651 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | (2,123,672 | ) | (2,123,672 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2006 | - | $ | - | 20,485,000 | $ | 2,049 | - | $ | - | $ | 3,041,498 | $ | (3,060 | ) | $ | (2,123,672 | ) | $ | (2,651 | ) | $ | 914,164 | ||||||||||||||||||||||||||
| Proceeds on subscription receivable | 1,500 | 1,500 | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares assumed pursuant to reverse merger | 100 | 232,696 | 23 | (135,230 | ) | (135,207 | ) | |||||||||||||||||||||||||||||||||||||||||
| Repurchase preferred stock | (100 | ) | (10,000 | ) | (10,000 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Stock issued | ||||||||||||||||||||||||||||||||||||||||||||||||
| $0.10 per share, conversion of warrants for cash | 450,000 | 45 | 44,955 | 45,000 | ||||||||||||||||||||||||||||||||||||||||||||
| $0.10 per share, cashless conversion of warrants | 1,600,000 | 160 | (160 | ) | - | |||||||||||||||||||||||||||||||||||||||||||
| $0.50 per share, for services and conversion of note | 7,925,000 | 793 | 3,961,707 | (1,654,167 | ) | 2,308,333 | ||||||||||||||||||||||||||||||||||||||||||
| $0.50 per share, CEO for compensation | 1,500,000 | 150 | 749,850 | 750,000 | ||||||||||||||||||||||||||||||||||||||||||||
| $0.50 per share, for cash | 3,314,000 | 331 | 1,656,669 | 1,657,000 | ||||||||||||||||||||||||||||||||||||||||||||
| $0.50 per share, for consulting services | 2,299,000 | 230 | 1,149,270 | 1,149,500 | ||||||||||||||||||||||||||||||||||||||||||||
| $0.50 per share, for investment in Cuprum | 4,000,000 | 400 | (2,666,667 | ) | (267 | ) | 666,533 | 666,666 | ||||||||||||||||||||||||||||||||||||||||
| $0.50 per share, for loan issuance cost | 800,000 | 80 | 399,920 | 400,000 | ||||||||||||||||||||||||||||||||||||||||||||
| Warrants issued with convertible note | 67,427 | 67,427 | ||||||||||||||||||||||||||||||||||||||||||||||
| Special warrants issued | ||||||||||||||||||||||||||||||||||||||||||||||||
| Issued for cah | 2,230,000 | 2,230,000 | ||||||||||||||||||||||||||||||||||||||||||||||
| Issued with convertible promissory note | 500,000 | 500,000 | ||||||||||||||||||||||||||||||||||||||||||||||
| Preferred stock issued for compensation expense | 100 | - | 10,000 | 10,000 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock compensation expense | 594,370 | 594,370 | ||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation gain | 27,817 | 27,817 | ||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | (7,993,856 | ) | (7,993,856 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2007 (Restated) | 100 | $ | - | 42,605,696 | $ | 4,261 | (2,666,667 | ) | $ | (267 | ) | $ | 14,926,809 | $ | (1,560 | ) | $ | (1,654,167 | ) | $ | (10,117,528 | ) | $ | 25,166 | $ | 3,182,714 | ||||||||||||||||||||||
See report of independent registered public accounting firm.
The accompanying notes are an integral part of this consolidated statement.
55
DOMINION MINERALS CORP. AND SUBSIDIARIES
(FORMERLY EMPIRE MINERALS CORP.)
(AN EXPLORATION COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For year | From inception | From inception | ||||||||||
| ended | (March 1, 2006) | (March 1, 2006) | ||||||||||
| December 31, | to December 31, | to December 31, | ||||||||||
| 2007 | 2006 | 2007 | ||||||||||
| (Restated) | (Restated) | |||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
| Net loss | $ | (7,993,856 | ) | $ | (2,123,672 | ) | $ | (10,117,528 | ) | |||
| Adjustments to reconcile net loss to net cash | ||||||||||||
| used in operating activities: | ||||||||||||
| Depreciation | 9,347 | - | 9,347 | |||||||||
| Bad debt expense | 80,000 | 80,000 | ||||||||||
| Warrants issued for services | - | 197,587 | 197,587 | |||||||||
| Amortization of debt discount | 31,641 | - | 31,641 | |||||||||
| Amortization of loan issuance cost | 206,172 | - | 206,172 | |||||||||
| Common stock issued for advisory services | 1,829,979 | 76,500 | 1,906,479 | |||||||||
| Loss from write-off of services due from note holders | 2,202,262 | 2,202,262 | ||||||||||
| Empolyee stock option | 594,370 | - | 594,370 | |||||||||
| Preferred stock issued for employee compensation | 10,000 | - | 10,000 | |||||||||
| Loss on currency exchange | 11,080 | - | 11,080 | |||||||||
| Change in operating liabilities: | ||||||||||||
| Accrued liabilities | 366,644 | 162,890 | 529,534 | |||||||||
| Net cash used in operating activities | (2,652,361 | ) | (1,686,695 | ) | (4,339,056 | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
| Equipment purchases | (4,183 | ) | (42,305 | ) | (46,488 | ) | ||||||
| Long term investment | (2,053,614 | ) | - | (2,053,614 | ) | |||||||
| Notes receivable | (80,000 | ) | - | (80,000 | ) | |||||||
| Net cash used in investing activites | (2,137,797 | ) | (42,305 | ) | (2,180,102 | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
| Proceeds from sale of common stock | 1,657,000 | 2,764,400 | 4,421,400 | |||||||||
| Proceeds from special warrants | 2,218,920 | 2,000 | 2,220,920 | |||||||||
| Proceeds from exercise of warrants | 45,000 | - | 45,000 | |||||||||
| Payment on note issuance cost | (74,000 | ) | - | (74,000 | ) | |||||||
| Payment on notes payables | (325,000 | ) | - | (325,000 | ) | |||||||
| Proceeds from notes payable | 1,105,000 | - | 1,105,000 | |||||||||
| Proceeds from subscription receivable | 1,500 | - | 1,500 | |||||||||
| Payment repurchase preferred stock | (10,000 | ) | - | (10,000 | ) | |||||||
| Net cash provided by financing activities | 4,618,420 | 2,766,400 | 7,384,820 | |||||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | 15,955 | (3,501 | ) | 12,454 | ||||||||
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (155,783 | ) | 1,033,899 | 878,116 | ||||||||
| CASH AND CASH EQUIVALENTS, beginning of the period | 1,033,899 | - | - | |||||||||
| CASH AND CASH EQUIVALENTS, end of period | $ | 878,116 | $ | 1,033,899 | $ | 878,116 | ||||||
| SUPPLEMENTAL DISCLOSURES: | ||||||||||||
| Interest paid | $ | 66,024 | $ | - | $ | 66,024 | ||||||
| Income taxes paid | $ | - | $ | - | $ | - | ||||||
| Net liabitlities assumed in reverse acquisition | $ | 135,207 | $ | - | $ | 135,207 | ||||||
| Conversion of notes and interest for common stock | $ | 106,071 | $ | - | $ | 106,071 | ||||||
| Issuance of founders stock for subscription receivable | $ | - | $ | 14,960 | $ | 14,960 | ||||||
| Shares issued for exploration and development of investment | $ | 666,666 | $ | - | $ | 666,666 | ||||||
| Common stock issued to prepay for consulting services | $ | 69,521 | $ | - | $ | 69,521 | ||||||
| Special warrants issued for repayment of convertible promissory note | $ | 500,000 | $ | - | $ | 500,000 | ||||||
| Warrants issued for discount on debt | 31,641 | - | 31,641 | |||||||||
| Warrants issued for loan issuance costs | $ | 35,786 | $ | - | $ | 35,786 | ||||||
| Common stock issued for loan issuance cost | $ | 400,000 | $ | - | $ | 400,000 | ||||||
See report of independent registered public accounting firm.
The accompanying notes are an integral part of this consolidated statement.
56
DOMINION MINERALS CORP. AND SUBSIDIARIES
(FORMERLY EMPIRE MINERALS CORP.)
(AN EXPLORATION COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
1. Nature of Business and Significant Accounting Policies
| a. | Nature of Business – Dominion Minerals Corp. (“Company”) (formerly known as Empire Minerals Corp.) was incorporated January 4, 1996 under the laws of Delaware. The Company is engaged in the exploration of precious and base metals including gold and copper. All potential properties currently under exploration are located in the People’s Republic of China (“PRC”) and Panama. |
From September 2005 to November 2007, the Company changed its name 4 times to reflect the changing business plans. The original name of the Company was Objectsoft Corporation. In June 2005, the name was changed to Nanergy, Inc. In, June 2006, the name was changed to Xacord Corp, in January 2007, the name was changed to Empire Minerals Corp, and in November 2007, the name was changed to its current name, Dominion Minerals Corp.
On February 20, 2007, the Company completed a triangular reverse merger with Empire Minerals Corp., a Nevada Corporation (formerly Empire Gold Corp. and referred to as “Subsidiary”) and Xacord Acquisition Sub Corp, then the Company’s subsidiary (“Xacord”). All 26,504,000 shares in the Subsidiary were exchanged for 26,504,000 shares in the Company. Additionally, 5,950,000 warrants in the Subsidiary were exchanged for 5,950,000 warrants in the Company. The Subsidiary was the accounting acquirer and the Company was the legal acquirer. The transaction was accounted for as a reverse merger and recapitalization. As such, the accompanying financial statements reflect the historical operations of the Subsidiary in the capital structure of the Company at the beginning of the first period presented herein.
| b. | Basis of Presentation – The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The consolidated financial statements include the financial statements of the Company, its wholly owned subsidiaries Empire Minerals Corp., 50% owned Zhaoyuan Dongxing Gold Mining Co., Ltd. (“Dongxing”), and 70% owned Empire (Tianjin) Resources Co., Ltd. (“Tianjin”) (together the “Subsidiaries”). All significant inter-company transactions and balances are eliminated upon consolidation. Minority interest has not been presented on the consolidated balance sheet because accumulated losses have exceeded the minority shareholders’ equity. In accordance with APB No. 18, the minority interest has been written down to zero on the accompanying balance sheet. |
The Company is currently in an exploration stage, which is characterized by significant expenditures for the examination and development of exploration opportunities by its Subsidiaries. The Subsidiaries' focus for the foreseeable future will continue to be on securing joint venture agreements within the People’s Republic of China and Panama to begin conducting mining operations.
| c. | Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures, such as the fair value of warrants and stock issued for services as well as various accruals, for example, we must calculate the fair value of options granted based on various assumptions. Accordingly, the actual results could differ from those estimates. |
57
| d. | Fair value of financial instruments – The Company believes the carrying value of its financial instruments, including convertible notes, approximate fair value due to their short maturities. |
| e. | Cash and Cash Equivalents – For purposes of the statements of cash flows, the Company defines cash equivalents as all highly liquid debt instruments purchased with an original maturity of three months or less. |
| f. | Advances – From time to time, the Company advances funds to its consultants and business partners to further the Company’s business plans. Management monitors these advances to ensure appropriate progress is made pursuant to the funding terms. Additionally, management evaluates the collectibility of these monies and records reserves if collections are in doubt. |
g. Concentration of risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash and cash equivalents. The Company places its cash with high quality financial institutions and at times may exceed the FDIC $100,000 insurance limit. The Company has limited experience as it is an exploration stage company but does not anticipate incurring any losses related to this credit risk. As of December 31, 2007, the Company had amounts in bank accounts in excess of FDIC insurance of $768,899.
The Company has gold mining activities in People’s Repbulic of China (“PRC”). Accordingly, the Company’s mining business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, and by the general state of the PRC’s economy. The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in the North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
| h. | Net Loss Per Share – In accordance with Statement of Financial Accounting Standard (SFAS) No. 128, Earnings Per Share, an basic earnings/loss per common share (EPS) is computed by dividing net loss for the period by the weighted average number of common shares outstanding during the period. Under SFAS 128, diluted earnings/loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and dilutive. |
The following is a reconciliation of the basic and diluted loss per share computations for the year ended December 31, 2007 and from inception (March 1, 2006) to December 31, 2006:
58
| For year ended December 31, 2007 | From inception (March 1, 2006 to December 31, 2006) | |||||||
| Net loss | $ | 7,993,856 | $ | 2,123,672 | ||||
| Shares of common stock and common | ||||||||
| stock equivalents: | ||||||||
| Weighted average shares used in basic computation | 36,976,408 | 17,006,959 | ||||||
| Diluted effect of stock options, warrants | - | - | ||||||
Weighted average shares used in diluted computation | 36,976,408 | 17,006,959 | ||||||
| Losses per share: | ||||||||
| Basic | $ | 0.22 | $ | 0.12 | ||||
| Diluted | $ | 0.22 | $ | 0.12 | ||||
All warrants and options were excluded from the diluted loss per share due to the anti-diluted effect.
| i. | Income Taxes – The Company provides for income taxes under SFAS 109, “Accounting for Income Taxes,” which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities using the enacted income tax rate expected to apply to taxable income in the period in which the deferred tax liability or assets is expected to be settled or realized. SFAS 109 requires that a valuation allowance be established if necessary, to reduce the deferred tax assets to the amount that management believes is more likely than not to be realized. The provision for federal income tax differs from that computed amount by applying federal statutory rates to income before federal income tax expense mainly due to expenses that are not deductible and income that is not taxable for federal income taxes, including permanent differences such as non-deductible meals and entertainment. |
| j. | Stock based compensation – For stock, options and warrants issued to service providers, employees and founders, the Company follows SFAS No. 123(R), Share-Based Payment, and EITF 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services, which requires recording the options and warrants at the fair value of the service provided and expensing over the related service period. |
k. Recently issued accounting pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This statement clarifies the definition of fair value, establishes a framework for measuring fair value and expands the disclosures on fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2006. Management has not determined the effect, if any; the adoption of this statement will have on the financial statements.
59
In November 2006, Emerging Issues Task Force (“EITF”) issued 96-19 “Debtor’s Accounting for a Modification or Exchange of Debt Instruments”. EITF 96-19 provides a test to determine whether a transaction should be accounted for as an “extinguishment” (with gain or loss recognition) or as a “modification” (with no gain or loss recognition). If the change in the fair value of the embedded conversion option is at least 10 percent of the carrying amount of the original debt instrument immediately prior to the modification or exchange, the transaction should be accounted for as an “extinguishment”. EITF 96-19 also provides that when a convertible debt instrument is modified or exchanged in a transaction that is not accounted for as an extinguishment, an increase in the fair value of the embedded conversion option should be reduce the carrying amount of the debt instrument with a corresponding increase in additional paid-in capital. However, a decrease in the fair value of an embedded conversion option resulting from a modification or an exchange should not be recognized. The Company adopted EITF 96-19.
In December 2007, the FASB issued SFAS No. 160,“Noncontrolling Interests in Consolidated Financial Statements - an amendment of Accounting Research Bulletin No. 51” (“SFAS 160”), which establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained non-controlling equity investments when a subsidiary is deconsolidated. The Statement also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. SFAS 160 is effective for fiscal years beginning after December 15, 2008. The Company has not determined the effect that the application of SFAS 160 will have on its consolidated financial statements.
In December 2007, Statement of Financial Accounting Standards No. 141(R), Business Combinations, was issued. SFAS No. 141R replaces SFAS No. 141, Business Combinations. SFAS 141R retains the fundamental requirements in SFAS 141 that the acquisition method of accounting (which SFAS 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. SFAS 141R requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions. This replaces SFAS 141’s cost-allocation process, which required the cost of an acquisition to be allocated to the individual assets acquired and liabilities assumed based on their estimated fair values. SFAS 141R also requires the acquirer in a business combination achieved in stages (sometimes referred to as a step acquisition) to recognize the identifiable assets and liabilities, as well as the noncontrolling interest in the acquiree, at the full amounts of their fair values (or other amounts determined in accordance with SFAS 141R). SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date. The Company is currently evaluating the impact that adopting SFAS No. 141R will have on its financial statements.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133” (“SFAS 161”), which changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company has not determined the effect that the application of SFAS 161 will have on its consolidated financial statements.
60
| l. | Equipment – Equipment is stated at cost and is depreciated using the straight-line method over their estimated useful lives of five years. Expenditures for maintenance and repairs are charged to operations as incurred. The estimated service lives of equipment and vehicles are as follows: |
| Depreciable life | |
| Exploration equipment | 5 years |
| Office equipment | 5 years |
| Vehicles | 5 years |
| m. | Political and economic risks – The Company entered into joint venture contracts to establish businesses in China and Panama. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in these countries. |
| The Company’s operations in these countries are subject to specific considerations and significant risks not typically associated with companies in the North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things. |
| n. | Impairment for long live assets – SFAS No. 144, “Accounting for the Impairment or Disposal of Long−Lived Assets” requires that long−lived assets to be disposed of by sale, including those of discontinued operations, be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. SFAS No. 144 broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. SFAS No. 144 also establishes a "primary−asset" approach to determine the cash flow estimation period for a group of assets and liabilities that represents the unit of accounting for a long−lived asset to be held and used. The Company has no impairment issues to disclose. |
| o. | Foreign currency translation – The reporting currency of the Company is US dollar. Dongxing and Tianjin use their local currency RMB, as their functional currency. Results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate as quoted by the People’s Bank of China at the end of the period, and equity is translated at historical exchange rates. |
| Translation adjustments amounted to $25,166 gain as of December 31, 2007. Asset and liability accounts at December 31, 2007 were translated at 7.29 RMB to $1.00. Equity accounts were stated at their historical rate. The average translation rates applied to income statement accounts and cash flows for the year ended December 31, 2007, from inception (March 1, 2006) to December 31, 2006, and from inception (March 1, 2006) to December 31, 2007 were 7.59 RMB, 7.94 RMB and 7.75 RMB, respectively. In accordance with Statement of Financial Accounting Standards No. 95, "Statement of Cash Flows," cash flows from the Company's operations is calculated based upon the local currencies using the average translation rate. Because cash flows are translated at average translation rates for the period, amounts reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet. |
61
| Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. For the year ended December 31, 2007, from inception (March 1, 2006) to December 31, 2006, and from inception (March 1, 2006) to December 31, 2007, total transaction gain (loss) amounted to $11,080, $0 and $11,080 respectively. |
2. Going Concern
The Company is an exploration stage company and therefore has had no revenues or cash flows from operations. The Company has an accumulated deficit of approximately $10.1 million and has insufficient sources of cash to execute its business plan, raising substantial doubt about its ability to continue as a going concern. In response to these conditions, management is continuing to seek both debt and equity financing from various sources, although there are no guarantees that they will be successful in their endeavors. No adjustment has been made to the accompanying financial statements as a result of this uncertainty.
3. Restatement – Conversion of Promissory Note, Issuance of Common Stock, Litigation and Partial Recovery of Common Stock Shares issued
As discussed in the Company’s Report on Form 8-K filed on April 22, 2009, theCompany has concluded, based on further review, that it should restate the accounting for the issuance of 7,925,000 shares of its common stock under agreements entered into on April 1, 2007 for the conversion of a promissory note, previously issued by the Company and discussed below. The transaction was previously reported as the conversion of the outstanding balance of the promissory note, including accrued interest, of $106,071, at that carrying value, into 7,925,000 shares of the Company’s common stock, representing a conversion price of $0.013 per share. The Company has concluded that the accounting for the transaction should have been recorded at the fair value of the common stock issued and the Company should have recognized the value of services that, at that time, the Company expected to receive from the holders of the promissory note. The Company has not received the services that it expected to receive and on December 23, 2008, the Company filed suit in the Supreme Court of the State of New York, seeking return of the shares issued and other relief. On February 11, 2009, the Company entered into a Settlement Agreement of that suit, as a result of which a total of 3,308,333 of the 7,925,000 shares originally issued will be returned to the Company or otherwise cancelled and the Company will make payments aggregating $63,230 to the defendants, as more fully discussed below. Reflecting the terms of the Settlement Agreement, the Company has restated its financial statements to record the shares issued at their estimated fair value and to recognize a loss of $2,205,492 as of April 1, 2007, the date of the agreements under which the shares were issued, as discussed below.
62
On May 30, 2001, the Company and the Original Holder executed an Allonge and Amendment to Promissory Note, amending the Maturity Date to December 31, 2001. The Original Holder also waived any Events of Default that may have occurred and agreed to cooperate with the Company in a potential restructuring of the Company or other transaction pursuant to which the terms of the Note may be restructured. This restructuring was unsuccessful. In July 2001, ObjectSoft filed a Bankruptcy Petition in the Bankruptcy Court for the District of New Jersey and, in November of 2004, emerged from the Bankruptcy filing with no assets and a single liability for the principal amount of the Note of $100,000. None of our present officers, directors or employees were associated with us at the time of, or involved in any way in, the bankruptcy proceeding.
On November 16, 2004, the Original Holder executed an “Assignment and Endorsement of Note” and assigned all of the Original Holder’s right, title and interest in and to the Note, to Securities Acquisition New York, LLC (“SANY”). Prior to June 2006, with the agreement of the then management of the Company, SANY converted $32,300 of the principal amount of the Note into 807,500 shares of common stock of the Company (as adjusted for subsequent stock splits), at an effective conversion price of $0.04 per share. On October 26, 2006, SANY executed an “Agreement of Assignment of Note” and assigned all of their right, title and interest in and to the Note to West Greenwood Foundation (“WGF”). On the date of assignment, the principal balance was $67,700 and the amount of accrued interest was $28,170.
As described in Note 7a, the Company previously entered into consulting agreements with Saddle River Associates (“SRA”) for general business consulting and financial advisory services. SRA introduced the Company to Xacord Corporation (as ObjectSoft was then known), which entity had originally issued the Note and with whom we completed the reverse triangular merger on February 20, 2007 (see Note 1a). In addition, SRA advised the Company of the opportunity to invest in the Exploration and Development Agreement with Bellhaven Copper & Gold, Inc., which Agreement is described in Note 5.
Following our reverse triangular merger on February 20, 2007 (see Note 1a), on April 1, 2007, WGF and various entities and individuals (“designees”), which designees simultaneously purchased various interests in the Note from WGF, requested to convert the outstanding balance of the Note of $106,071 ($67,700 of principle and $38,371 of accrued interest) into 7,925,000 shares of our common stock, representing a conversion rate of approximately $0.013 per share. The Company was advised by SRA that these designees would be able to provide the Company with expertise and assistance to further the development of the Company’s Panamanian Exploration and Development Agreement with Bellhaven. Consequently, the Company agreed to the conversion and the Note was cancelled.
Over time, the Company has become aware that the designees did not possess the expertise necessary to provide the services that the Company expected that it would receive to assist it with its Panamanian operations. On December 23, 2008, the Company filed suit in the Supreme Court of the State of New York, against SRA, WGF and the designees, seeking return of the shares issued for conversion of the Note and other relief. The written agreements related to conversion of the Note did not refer to the provision of any services by the holders of the Note and the defendants asserted that no such agreement related to future services existed. Notwithstanding that assertion, the defendants agreed to return a portion of the shares issued and on February 11, 2009, the Company entered into a Settlement Agreement with the defendants. The Company concluded that it was in its best interests to accept the terms of the Settlement Agreement, rather than continue to litigate the matter. As a result of the Settlement Agreement, of the 7,925,000 shares originally issued, 1,000,000 shares will be cancelled and a further 2,308,333 shares (one-third of the remaining shares issued of 6,925,000) will be returned to the Company. The Company will make payments aggregating $63,230 to the defendants, representing (1) payment of principal and interest on the Note from April 2007 to the date of the Settlement Agreement for that portion of the Note for which shares are being returned and (2) outstanding consulting fees due to SRA of $25,000.
63
The Company originally accounted for the conversion of the Note based on the written terms of the agreements with WGF and the designees and recorded the common shares issued at the carrying amount of the note. However, to reflect the company’s expectation that it would also receive future services in addition to the conversion of the Note, the 7,925,000 shares issued should have been recorded at their fair value. On April 1, 2007, the closing price of the Company’s common stock was $2.50 per share. Although the Company’s common stock is publically traded, the trading volume is small; during the two year period ended December 31, 2007, the total trading volume of our common stock was less than 250,000 shares. In various private placements of the Company’s common stock that occurred between April 2006 and October 2007, the Company sold an aggregate of 12,819,000 shares of its common stock for cash, each placement at a price of $0.50 per share. Because the 7,925,000 shares issued represents a number of shares substantially in excess of the Company’s historical trading volume, the Company believes that the price of $0.50 per share at which it has effected private placements is a more reasonable estimate of fair value for the 7,925,000 shares issued than the quoted market price. Accordingly, the Company has restated its financial statements for the period ended June 30, 2007 and all subsequent periods to reflect the April 2007 issuance of the 7,925,000 shares at a fair value of $0.50 per share or an aggregate of $3,962,500.
As discussed above, the written terms of the Note provide for conversion only if a private placement was completed at or prior to maturity of the Note on December 31, 2001. The Note bears interest at 12% and accordingly the carrying value of the Note together with accrued interest at the date of conversion is considered to be a reasonable approximation of the fair value of the Note as of that date. In relation to the services that the Company expected to receive from the designees, EITF Issue 96-18 provides that the fair value of shares issued to non-employees for services to be performed should be determined as of the earlier of the date at which a commitment for performance by the counterparty to earn the shares is reached or the date at which their performance is complete. EITF Issue 00-18 further provides that where there are no specific performance criteria required by the recipient in order to retain the shares issued, a measurement date has been reached and the shares should be valued as of the date of the agreement. The Company expected that the designees would provide their services over the multi-year life of the Company’s Panamanian operations but no specific performance criteria were established. Accordingly, the Company has valued the services it expected to receive based on the fair value of the common shares at the time they were issued, which as discussed above has been estimated at $0.50 per share. The difference of $3,856,429 between the fair value of the shares issued of $3,962,500 and the carrying value of the Note at the date of conversion of $106,071, which carrying value is considered to be a reasonable approximation of its fair value at that date, has been allocated as the value of the services the Company expected to receive.
64
The Company has not received the services that it expected to receive when the shares were issued and as a result of the Settlement Agreement, the Company has recorded a loss of $2,205,492 as of April 1, 2007, reflecting the fair value of the shares that will not be returned to the Company or cancelled as a result of the Settlement Agreement, together with the amounts to be paid by the Company under the Settlement Agreement, offset by $60,000 previously recorded by the Company for amounts outstanding under the Company’s previous consulting agreements with SRA. At June 30, 2007, the value of the shares issued on April 1, 2007 but subsequently cancelled or returned to the Company as a result of the Settlement Agreement have been recorded as contra-equity. The affect of restatement of the Company’s financial statements as of December 31, 2007 as described above was as follows:
| For the year ended December 31, 2007 | From inception (March 1, 2006) to December 31, 2007 | |||||||||||||||
As Previously Reported | As Restated | As Previously Reported | As Restated | |||||||||||||
| Loss from expected services not received | - | $ | 2,205,492 | - | $ | 2,205,492 | ||||||||||
| Loss from operations | $ | (5,698,229 | ) | $ | (7,903,721 | ) | $ | (7,828,485 | ) | $ | (10,033,977 | ) | ||||
| Loss before provision for income taxes | (5,788,364 | ) | (7,993,856 | ) | (7,912,036 | ) | (10,117,528 | ) | ||||||||
| Net loss | $ | (5,788,364 | ) | $ | (7,993,856 | ) | $ | (7,912,036 | ) | $ | (10,117,528 | ) | ||||
| Comprehensive loss | $ | (5,760,547 | ) | $ | (7,966,039 | ) | $ | (7,886,870 | ) | $ | (10,092,362 | ) | ||||
| Net loss per share | $ | (0.16 | ) | $ | (0.22 | ) | ||||||||||
| December 31, 2007 | ||||||||||||||||
As Previously Reported | As Restated | |||||||||||||||
| Shareholders’ Equity | $ | 3,185,944 | $ | 3,182,714 | ||||||||||||
65
4. Equipment
| Equipment consists of the following at December 31, 2007: |
| Exploration equipment | $ | 17,110 | ||
| Office equipment | 4,843 | |||
| Vehicles | 28,352 | |||
| Total | 50,305 | |||
| Less: accumulated depreciation | 9,588 | |||
| Equipment, net | $ | 40,717 |
Depreciation expense amounted to $9,347, $0 and $9,347 for the year ended December 31, 2007, the period from inception (March 1, 2006) through December 31, 2006 and the period from inception (March 1, 2006) through December 31, 2007, respectively.
5. Long term investment
Cuprum Resources Corp. (“Cuprum”) – In March 2007, the Company, Bellhaven Copper & Gold, Inc. (“Bellhaven”) and Cuprum entered into an Exploration Development Agreement (“Agreement”). The Agreement grants the Company an option to acquire up to 75% of the authorized and outstanding stock of Cuprum, the holder of a Mineral Concession from the Republic of Panama on a copper prospect located in the Republic of Panama. The Agreement calls for the Company to pay Cuprum or Bellhaven $2,000,000 in annual installments of $500,000 each beginning in March 2007, issue Bellhaven 4,000,000 shares of the Company’s common stock under an escrow agreement and further cash investments totaling $15,000,000 to be used in exploration and development work on the copper prospect underlying Cuprum’s Mineral Concession. Currently, the Company owns less than 20% of Cuprum and therefore, has recorded this investment under the cost method of accounting for investments. At December 31, 2007, the Company made its first cash installment payment of $500,000, invested another $1,553,614 which was used for exploration and development work, issued 1,333,334 shares of common at $0.50 per share or $666,666. Accordingly, the Company recorded $2,720,279 as investments in the accompanying balance sheet which includes the $1,553,614 incurred in exploration and development work. The exploration and development work is made up of the project costs for the period. The project costs include drilling, general geology, camp, mobilization, geophysics, land administration, assays and shipping, helicopter, office and management expenses. The costs have been capitalized by the Company as part of the Company’s acquisition of the 75% stake in Cuprum, as per the Exploration and Development Agreement. Another 2,666,667 shares of common stock has been placed into escrow and is recorded as an offset to equity until such time as the shares are released at which time the Company will reflect an increase to both the investment and equity. Subsequent to December 31, 2007, the Company made its second cash installment payment of $500,000, invested an additional $548,881 to be used in exploration and development work and released an additional 1,333,333 shares of common stock.
66
| Zhaoyuan Dongxing Gold Mining Co., Ltd. (“Zhaoyuan Dongxing”) – The Company entered into a joint venture agreement with Zhaoyuan Dongxing Gold Minerals Co., Ltd. (“Dongxing”) to conduct gold mining activities in the PRC. The agreement calls for a total capital contribution of $500,000 from the Company. Dongxing will contribute various mining licenses and other assets such as instruments and equipment. The Company will receive a 50% equity stake in the joint venture in exchange for its $500,000 contribution. Dongxing will receive the remaining 50% stake in the joint venture in exchange for its contribution of mining licenses and other assets. The amount was due and payable when Dongxing acquired the required business license approvals in the People’s Republic of China. On December 20, 2006, the joint venture company, Zhaoyuan Dongxing was approved by the Chinese government and the business license was granted on December 21, 2006. The Company has contributed the full $500,000 capital contribution as per the joint venture agreement. The Company consolidates the financial statements of Zhaoyuan Dongxing into its financial statements because the Company exercises control over the Zhaoyuan Dongxing through its 50% ownership; additionally, the Company has the right to appoint three of the five board of director members and has control over the selection of key management personnel. |
| Empire (Tianjin) Resources Co., Ltd. (“Tianjin”) – In November 2006, the Company and Tianjin Institute of Geology and Mineral Resources (“TIGMR”) signed a cooperative joint venture agreement to form Tianjin. The purpose of the joint venture is to engage in the exploration and development of gold and other mineral products in the People’s Republic of China. The agreement calls for a $1,000,000 total capital contribution. The Company obtained a 70% equity stake in the joint venture in exchange for $1,000,000. The $1,000,000 contribution is required to be paid in installments after the approval by the Chinese government. The approval and the business license were received on April 12, 2007. The Company’s made the first two installment payments of $200,000 on July 5, 2007 and $300,000 on September 5, 2007, and will make a third installment payment of $500,000 on or before February 28, 2008 and amended to May 30, 2008 for the contribution of capital. TIGMR will contribute mining licenses and mineral data to the joint venture for the remaining 30% interest. As of December 31, 2007, TIGMR has not contributed mining licenses and mineral data to the joint venture. As per Amendment Number 2 entered into by the Company and TIGMR, the transfer of the licenses is required to be made on or before May 30, 2008. The term of the joint venture is 30 years beginning on April 12, 2007, the date the business license was issued. The Company has consolidated the financial statements of the joint venture into the its financial statements as the Company exercise control over the joint venture by its 70% of ownership. |
6. Convertible Note Payable
| a. | In February 2001, the Company executed a Promissory Note (“Note”) in the amount of $100,000 to Jay N. Goldberg (“Holder”). See Note 3 for further discussion of this Note. |
| b. | On June 25, 2007, the Company executed a Convertible Promissory Note (“Note”) in the amount of $300,000. The Note was payable in 90 days, bearing a total of $26,000 interest during the term of the Note. The Company also incurred additional fees associated with the Note in the amount of $34,000 and warrants to purchase 300,000 shares of the Company’s common stock at an exercise price of $1.00 for a two-year term. The Note is secured by 600,000 shares of the Company’s common stock, and the Company’s interest in income generated from the operations and sales of certain identified exploration / mining leases in Panama and China. The Holder of the Note may at any time convert the principal amount for shares of the Company’s common stock at a rate of $1.00 per share. On September 19, 2007, the Company and the Holder executed an Amendment to the Note. Pursuant to the amended agreement, the maturity date was extended to December 15, 2007. In addition, the warrant granted to the holder to purchase 300,000 shares of common stock at $1.00 for a two-year term was canceled and new warrant was granted to the holder to purchase 300,000 shares of common stock at $0.65 for a two-year term. On December 15, 2007, the Company and the Holder executed Amendment 2 to Convertible Promissory Note (“Amendment 2”). Pursuant to Amendment 2, the maturity date was extended to May 31, 2008, as of the date of Amendment 2, the Note bears interest at a rate of 9% annum. Additionally, the Company issued the Holder 600,000 shares of common stock at $0.65 per share for a two-year term. Subsequent to December 31, 2007, the Company paid $100,000 of the principal due on the Note. |
67
| c. | On June 26, 2007, the Company executed a Convertible Promissory Note (“Note”) in the amount of $300,000. The Company received $150,000 which represents the first half of the proceeds on the same date and the remaining $150,000 in July, 2007. The Note is payable in 120 days and bears a total of $15,000 interest during the term of the Note. The Company also incurred additional fees associated with the Note in the amount of $15,000 and 100,000 shares of the Company’s common stock. The Note is secured by 600,000 shares of the Company’s common stock, and the Company’s interest in income generated from the operations and sales of certain identified exploration / mining leases in Panama and China. The Holder of the Note may at any time convert the principal amount for shares of the Company’s Common Stock at a rate of $1.00 per share. On October 29, 2007, the Company repaid the entire principal in cash to the Note Holder. On October 30, 2007, the Company paid the Note Holder $15,000, which represented the additional fees incurred in connection with the Note. |
| d. | On July 2, 2007, the Company executed a Convertible Promissory Note (“Note”) in the amount of $500,000. The Note is payable in 90 days and bears a total of $25,000 interest during the term of the Note. The Company also incurred additional fees associated with the Note in the amount of $25,000 and 100,000 shares of the Company’s common stock. The holder of the Note may at any time convert the principal amount for shares of the Company’s common stock at a rate of $1.00 per share. On July 5, 2007, the Company paid the interest and additional fees and issued 100,000 shares of common stock to the holder pursuant to the Note. On September 19, 2007, the Company repaid the entire principal by issuing 1,000,000 Special Warrants to the Note Holder. |
7. Related Party Transactions
| a. | Saddle River Associates – The Company entered into three agreements with Saddle River Associates (SRA), a shareholder in the Company. The first transaction dated March 26, 2006 relates to a one year Advisory Agreement in which SRA will provide consulting services related to locating and evaluating financing alternatives, corporate structuring and other business issues for $15,000 per month. The agreement automatically renews annually, unless either party gives 90 days notice to terminate. The Company paid SRA $135,000 for the period from inception (March 1, 2006) through December 31, 2006 and $165,000 for the year ended December 31, 2007, under the terms of this agreement. The Company has given notice to terminate the agreements on April 15, 2008. |
The second agreement, an Acquisition Services Agreement, dated April 9, 2006 amended December 15, 2006 and June 1, 2007 relates to additional consulting services whereby SRA will identify and introduce prospective merger entities and will assist the Company with the business aspects of the transaction. Pursuant to this agreement, SRA introduced the Company to Xacord; SRA had no relationship to Xacord prior to identifying and introducing them to the Company as a potential merger partner. The Company paid SRA $250,000 upon signing the agreement and a total of $550,000 which represents payment in full for the services as per the agreement. The related expense is included in the accompanying statement of operations. The Company was also required to issue 500,000 warrants when and if the Company obtained at least $3,000,000 in financing and for each $1,000,000 in financing received over $3 million, the Company was to issue an additional 100,000 warrants up to a total of 1,000,000 warrants. The warrants were to have a 5 year life, would vest upon grant and would be exercisable at $0.50 per share. The warrants were canceled pursuant to Amendment Number 2, executed on June 1, 2007.
68
Additionally, the Company entered into a third agreement with SRA in October 2006. The agreement called for consulting services to the Company on a month to month basis, for $5,000 per month, prior to the merger between the Company and its subsidiary. This agreement was terminated on the date of the merger, February 21, 2007. The accompanying consolidated balance sheet includes the accrued consulting fees to SRA for the period, October 1, 2006 to February 21, 2007 totaling $23,750.
| b. | Chief Financial Officer – The Company’s Chief Financial Officer (“CFO”) provided consulting services to the Company prior to the merger to assist in merger preparations at $5,000 per month on a month to month basis beginning in November 2006 through February 21, 2007. As of April 1, 2007, the CFO resumed providing consulting services to the Company at $8,000 per month on a month to month basis. The services provided include the day to day financial management of the company and any related functions related to the financial operations of the Company. |
On June 18, 2007, the Company and the CFO entered into a Stock Repurchase Agreement in which the Company repurchased from the CFO, 100 shares of the Company’s outstanding Series I Preferred Stock (“Preferred Shares”) held by the CFO for $10,000.
| c. | Euro Centro Consulting Corp – The Company entered into 2 agreements with Euro Centro Consulting Corp (“Euro”), as shareholder in the Company. The first transaction dated July 15, 2007, the Company and Euro Centro Consulting Corp (“Euro”), a shareholder of the Company entered into a consulting agreement. Pursuant to the agreement, the Company received a one-time referral services from Euro in exchange for a cash fee of $50,000 and 100,000 shares of common stock. The shares were valued at $0.50 per share, for a total amount of $50,000, which was expensed as of December 31, 2007. |
The second transaction was a similar consulting agreement dated November 2, 2007. Pursuant to the agreement, the Company received a one-time referral services from Euro in exchange for a cash fee of $50,000 and 10,000 shares of common stock. The shares were valued at $0.50 per share, for a total amount of $5,000 which was expensed as of December 31, 2007.
8. Shareholders’ equity
The Company is authorized to issue 705,000,000 shares: 700,000,000 shares of $0.0001 par value common stock and 5,000,000 shares of $0.0001 par value preferred stock. As of December 31, 2007, the Company has 42,605,696 of Common Stock outstanding, including 2,666,667 shares held in escrow.
| a. | Effective August 11, 2006, the Company amended the Articles of Incorporation as follows: Each twenty (20) shares of Common Stock then issued was automatically combined into one share of Common Stock of the Company (“20-1 reverse split”). No fractional shares or scrip representing fractions of a share were issued, but in lieu thereof, each fraction of a share that any stockholder would otherwise be entitled to receive was rounded up to the nearest whole share. As a result of the 20 to 1 reverse split, the issued number of shares of Common Stock was reduced by 88,377,055, from 93,028,479 shares of Common Stock issued prior to the 20-1 reverse split to 4,651,424 shares of Common Stock issued subsequent to the 20-1 reverse split. The rounding of fractional shares to the nearest whole share resulted in an additional 661 shares being issued to stockholders who would have been entitled to receive a fraction of a share. The total number of shares of Common Stock issued after the issuance of the rounding of fractional shares was 4,652,085. |
69
| b. | Effective January 22, 2007, the Company amended the Articles of Incorporation as follows: Each twenty (20) shares of Common Stock then issued was automatically combined into one share of Common Stock of the Company (“20-1 reverse split”). No fractional shares or scrip representing fractions of a share were issued, but in lieu thereof, each fraction of a share that any stockholder would otherwise be entitled to receive was rounded up to the nearest whole share. As a result of the 20 to 1 reverse split, the issued number of shares of Common Stock was reduced by 4,419,481, from 4,652,085 to 232,604 shares of Common Stock. The rounding of fractional shares to the nearest whole share resulted in an additional 248 shares being issued to stockholders who would have been entitled to receive a fraction of a share. The total number of shares of Common Stock issued after the issuance of the rounding of fractional shares was 232,852. |
| c. | On February 20, 2007, the Company issued 26,504,000 shares of its common stock for 26,504,000 shares of common stock, representing all of the outstanding stock of its subsidiary pursuant to the triangular merger accounted for as a reverse merger and recapitalization. Additionally, all warrants issued by the subsidiary and outstanding at the date of the mere were exchanged for warrants in the Company. Prior to the merger, the Subsidiary had entered into several agreements which accounted for the shares of common stock outstanding: |
| (1) | Upon the formation of the Subsidiary, the founding shareholders received 6,460,000 shares of common stock for $6,460. As of December 31, 2007, the Company received $4,900 as payment for the shares. Therefore, the Company recorded subscription receivable for the amount of $1,560 at December 31, 2007 for the remaining balance. |
| (2) | On March 29, 2006, the Subsidiary issued managements and key consultants 8,500,000 shares for services valued at $76,500 and cash $8,500, totaling $0.01 per share. As of March 31, 2007, the Subsidiary received $8,500 in cash for payment. The Subsidiary recorded $76,500 of consulting expense during the year ended December 31, 2006. Additionally, the Subsidiary issued warrants to purchase up to a total of 5,970,000 to management and consultants. The warrants were vested upon grant, have a 3 year life, and are exercisable at $0.10 per share. Warrants to purchase up to 3,500,000 shares of common stock issued to management contained a cashless exercise provision. The eight warrants were valued at $197,587 using the Black-Scholes Option Pricing Model, using a volatility rate of 62% based on the volatility of a publicly traded exploration stage company in a similar stage of development, and a risk free rate of 4.79%. The Subsidiary recognized $197,587 of compensation expense during the year ended December 31, 2006. At December 31, 2007, four warrants with options to purchase a total of 450,000 were exercised for cash. The Subsidiary received $45,000 in cash for the exercise of the four warrants. Two warrants with options to purchase a total of up to 2,000,000 were exercised utilizing the cashless exercise provision. A total of 1,600,000 shares of common stock were issued to management in the transaction. Two warrants to purchase a total of up to 3,500,000 shares of common stock were canceled pursuant to an Agreement for Cancellation of Warrants entered into by and between the parties. |
| (3) | During the period from April 2006 through February 19, 2007, the Subsidiary sold 7,499,000 shares of common stock at a price of $0.50 per share for cash totaling $3,749,500. |
| (4) | During the period from January 2007 to December 2007, the Subsidiary issued 2,299,000 shares of its common stock to various individuals and entities in exchange for consulting services to the Subsidiary. The Company recorded consulting expenses in the amount of $1,079,979 in the accompanying statement of operations and $69,521 prepaid for consulting services. |
70
| (5) | On February 19, 2007, the Subsidiary issued to its President and Chief Executive Officer, 1,500,000 shares of common stock as a bonus for his services to the Subsidiary and as incentive compensation for future services. The Company recorded consulting expenses in the amount of $750,000 in the accompanying statement of operations. |
| d. | On March 9, 2007, the Company issued 4,000,000 shares of Common Stock to Bellhaven Gold & Copper, Inc. (“Bellhaven”) as part of an Exploration Development Agreement entered into by and between the Company, Bellhaven and its wholly owned subsidiary, Cuprum Resources Corp (“Cuprum”) (“agreement”). The agreement grants the Company an option to acquire up to 75% of the authorized and outstanding stock of Cuprum, the holder of a Mineral Concession from the Republic of Panama on a copper prospect located in the Republic of Panama. The agreement calls for the Company to pay Cuprum or Bellhaven $2,000,000 in annual installments of $500,000 each, issue Bellhaven shares of the Company’s common stock as valued under an escrow agreement with a total value of $4,000,000 and expend $15,000,000 in exploration and development work on the copper prospect underlying Cuprum’s Mineral Concession. As per the agreement, the Company has delivered a certificate in the amount of 1,333,334 shares of common stock to Bellhaven and deposited 2,666,667 shares of its common stock into escrow. The Company has recorded $666,666 as investment on the accompanying balance sheet. |
| e. | On April 1, 2007, the Company issued 7,925,000 shares of Common Stock to West Greenwood Foundation (“WGF”) and various entities and individuals (“designees”), pursuant to the conversion of the Convertible Promissory Note executed by the Company in February 2001 (“Note”). See Note 3 for further discussion on this Note. |
| f. | On May 4, 2007, the Company completed a Private Placement to sell 4,000,000 shares of Common Stock at a price of $0.50 per share for cash totaling $2,000,000. The transaction was completed in the form of a Restricted Equity Purchase Agreement and called for the Company to deposit the Stock Certificate representing the sold shares with a Custodial Bank selected by the purchaser. The closing date of the transaction was scheduled for 30 days from the date of the deposit of the Stock Certificate with the Custodial Bank. The agreement has since been canceled and the shares have been recalled from the Custodial Bank. |
| g. | On June 18, 2007, the Company and the Chief Financial Officer (“CFO”) entered into a Stock Repurchase Agreement in which the Company repurchased from the CFO, 100 shares of the Company’s outstanding Series I Preferred Stock (“Preferred Shares”) held by the CFO. The Preferred Shares were repurchased by the Company from the CFO for $10,000. The Preferred Shares repurchased represented the total amount of Preferred Stock issued and outstanding. Subsequent to the repurchase of the Preferred Shares, the Company filed a Certificate of Designation with the State of Delaware and canceled the Series I Preferred Stock. |
| h. | On June 26, 2007, the Company issued 100,000 shares of common stock as a form of payment for additional fees directly related to a Convertible Promissory Note (see Note 6c). |
| i. | On July 2, 2007, the Company issued 100,000 shares of common stock as a form of payment for additional fees directly related to a Convertible Promissory Note (see Note 6d). |
71
| j. | On July 31, 2007, the Company completed a Private Placement to sell 1,000,000 shares of Common Stock at a price of $0.50 per share for cash totaling $500,000. The transaction was completed in the form of a Subscription Agreement and called for the Company to issue warrants to purchase 1,000,000 shares of common stock at $1.00 per share for a 2 year term. |
| k. | From August 2007 to October 2007, the Company sold a total of 320,000 shares of common stock in the form of Subscription Agreements at $.50 per share. The total proceeds to the Company for the sale of the shares were $160,000. |
| l. | On December 15, 2007, the Company issued 600,000 shares of common stock as a form of payment for additional fees directly related to a Convertible Promissory Note (see Note 6b). |
| m. | In December 2007, the Company issued 100 shares of preferred stock at par value of $0.0001 to the Company’s CEO Mr. Pinchas Althaus for compensation and expensed $10,000. The value of the preferred stock was determined by the recent buy-back from the Company’s CFO at $100 per share. |
On June 25, 2007, the Company granted warrants to purchase 300,000 shares of the Company’s common stock, as a form of payment for additional fees directly related to a Convertible Promissory Note (see Note 6b). The warrant has an exercise price of $1.00 per share for a two-year term. The warrant was canceled on September 19, 2007 and a new grant was issued in the form of a warrant to purchase 300,000 shares of common stock at an exercise price of $0.65, was issued to the note holder. The fair values of the warrants were estimated at the date of grant using the Black-Scholes option–pricing model with the following assumptions:
| Expected | Expected | Dividend | Risk Free | Grant Date | ||||||||||||
| Life | Volatility | Yield | Interest Rate | Fair Value | ||||||||||||
| 2 years | 48.69 | % | - | 4.78 | % | $ | 31,641 | |||||||||
From August 2007 to December 2007, the Company received a total of $2,218,920 in cash, netted of $11,080 loss in currency exchange, and the cancellation of a Promissory Note in the amount of $500,000, for the sale of 5,460,000 Special Warrants offered by the Company at a price of $0.50 per Special Warrant. Each Special Warrant is convertible into one share of common stock and one half of one Common Share purchase warrant (each whole warrant, a “Warrant”). Each Warrant will entitle the holder to acquire one share of common stock at an exercise price of $0.65 for a two-year term. The Special Warrants Agreement includes an addendum requires the Company (i) to register the shares underlying both the converted shares and the warrants, (ii) to complete a registration statement to be filed within 150 days, and (iii) effective within 210 days. The Agreement imposes cash penalties of 2% per 30 day period for non-compliance. The potential registration penalties should be accounted for in accordance with FSP EITF 00-19-2. That FSP requires that the penalties be accounted for in accordance with FAS 5, that is, they are recognized when they are “probable” and can be “reasonably estimated”, which may be at inception. The Company concluded that the registration penalties are not probable at this time.
On November 25, 2007, the Company granted stock option incentive plan to purchase up to 5,400,000 shares of the Company’s common stock to management and employees of the Company, pursuant to the Company’s 2007 Employee Incentive Plan. The stock options have an exercise price of $0.50 per shares for a five-year term.
72
On December 15, 2007, the Company granted warrants to purchase 300,000 shares of the Company’s common stock, as a form of payment for additional fees directly related to Amendment 2 to Convertible Promissory Note (see Note 5b). The warrant has an exercise price of $0.65 per share for a two-year term.
The Company had 6,060,000 warrants outstanding as of December 31, 2007 and the following is a summary of the warrant activities:
| Average | ||||||||||||||||
| Number of | Number of | Weighted- | Remaining | |||||||||||||
| Warrants | Warrants | Average | Contractual | |||||||||||||
| Outstanding | Exercisable | Exercise | Life | |||||||||||||
| Balance at inception, March 1, 2006 | - | - | $ | - | - | |||||||||||
| Granted | 5,970,000 | 5,970,000 | $ | 0.16 | 3 years | |||||||||||
| Forfeited | - | - | $ | - | - | |||||||||||
| Exercised | (20,000 | ) | (20,000 | ) | $ | 0.10 | ||||||||||
| Balance at December 31, 2006 | 5,950,000 | 5,950,000 | $ | 0.10 | 2.75 years | |||||||||||
| Granted, June 25, 2007 | 300,000 | 300,000 | $ | 1.00 | 2 years | |||||||||||
| Granted, August through September, 2007 | 5,460,000 | - | $ | 0.50 | 2 years | |||||||||||
| Granted, December, 2007 | 300,000 | 300,000 | $ | 0.65 | 2 years | |||||||||||
| Forfeited | (5,500,000 | ) | (5,500,000 | ) | $ | - | - | |||||||||
| Exercised | (450,000 | ) | (450,000 | ) | $ | 0.10 | ||||||||||
| Balance at December 31, 2007 | 6,060,000 | 600,000 | $ | 0.58 | 1.63 years | |||||||||||
In November 2007, the Board of Directors of the Company adopted and approved the 2007 Stock Option Plan (the “Plan”) which authorized the issuance of up to 6,750,000 shares under the Plan. The fair values of stock options granted to employees were estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:
Expected Life | Expected Volatility | Dividend Yield | Risk Free Interest Rate | Grant Date Fair Value | |||||||||||||
| Employees – 2007 | 5.0 years | 61 | % | 0 | % | 3.52 | % | 8,100,000 | |||||||||
The Company determined its expected volatility and dividend yield based on the historical changes in stock price and dividend payments. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company determined the option’s expected life based on historical exercise behavior.
73
Following is a summary of the stock option activity:
Options Outstanding | Weighted Average Exercise Price | Aggregate Intrinsic Value | ||||||||||
| Outstanding as of January 1, 2006 | - | $ | - | $ | - | |||||||
| Granted | - | - | - | |||||||||
| Forfeited | - | - | - | |||||||||
| Exercised | - | - | - | |||||||||
| Outstanding as of December 31, 2006 | - | $ | - | $ | - | |||||||
| Granted | 5,400,000 | 0.5 | - | |||||||||
| Forfeited | - | - | - | |||||||||
| Exercised | - | - | - | |||||||||
| Outstanding as of December 31, 2007 | 5,400,000 | $ | 0.5 | $ | - | |||||||
9. Income Taxes
| Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities at December 31, 2007 are as follows: |
| Total net operating loss as of December 31, 2006 | $ | 2,123,672 | ||
| Effective income tax rate | 40 | % | ||
| Total deferred tax assets | 849,469 | |||
| Less: valuation allowance | (849,469 | ) | ||
| Total deferred tax assets as of December 31, 2006 | $ | - | ||
| Net loss for the year ended December 31, 2007 | $ | 7,993,856 | ||
| Effective income tax rate | 40 | % | ||
| Total deferred tax assets | 3,197,542 | |||
| Less: valuation allowance | (3,197,542 | ) | ||
| Total deferred tax assets as of December 31, 2007 | $ | - | ||
The Company’s deferred tax asset as December 31, 2007 of $3,197,542 was fully offset by a valuation allowance, resulting in a net deferred tax asset of $0 because of the uncertainty of the Company’s ability to utilize the net operating loss carryforward against future earnings.
The reconciliation of the effective income tax rate to the federal statutory rate for the period ended December 31, 2007 is as follows:
| Federal income tax rate | 34 | % | ||
| State tax, net of federal benefit | 6 | % | ||
| Increase in valuation allowance | (40 | )% | ||
| Effective income tax rate | - | % |
The deferred tax assets result from net operating loss carry-forwards. These assets will therefore reverse either upon their utilization against taxable income or upon their statutory expiration. Net operating loss carry-forwards will expire beginning in 2020 through 2028.
| 10. | Commitments – The Company and its Subsidiary entered into various agreements during the period beginning March 2006 (Subsidiary’s inception date) and ending December 31, 2007. These include: |
| a. | Empire (Tianjin) Resources Co., Ltd. – The Company is to pay $500,000 on or before May 31, 2008 to Tianjin pursuant to the cooperative joint venture agreement. (See Note 5) |
74
| b. | Employment Agreements – On April 12, 2006, the Company entered into employment agreements with its Chief Executive Officer and its Vice President of Exploration. The agreements have a term of 2 years and are automatically renewed for 2 year terms unless the Company or the employee gives 90 days prior written notice to terminate the agreement. On December 1, 2007, the Company entered into a new employment agreement with its Chief Executive Officer and its Chief Financial Officer. The agreements have terms of 5 years and 3 years, respectively. The agreements are automatically renewed for 1 year terms unless the Company or Executive gives 90 days prior written notice to terminate the agreement. |
| c. | Office Lease – The Company is subject to a six month license agreement dated February 14, 2008 for office space requiring monthly payments of $6,450. The agreement expires August 31, 2008 and is automatically renewed for an additional six month term unless the Company gives written notice of cancellation on or before June 1, 2008. The Company leased additional space at another location. The additional space is leased on a month to month basis at a rate of $1,445 per month. |
| d. | Cuprum Resources Corp. – In March 2007, the Company, Bellhaven Copper & Gold, Inc. (“Bellhaven”) and Cuprum Resources Corp (“Cuprum) entered into an Exploration Development Agreement (“agreement”). The agreement requires the Company over the next three years to issue 4 million shares of the Company’s common stock and make cash payments in the amount of $17,000,000. At December 31, 2007, the Company released 1,333,334 shares of its common stock from escrow and made cash payments of $2,051,611. Subsequent to December 31, 2007, the Company invested an additional $1,048,881 of which $548,881 was used for exploration and development work, and released additional 1,333,333 shares of common stock from escrow. |
Commitments are summarized as below:
| Period ending December 31, | ||||
| 2008 | $ | 8,705,366 | ||
| 2009 | 7,166,666 | |||
| 2010 and thereafter | - | |||
| 11 | Subsequent Events |
| a. | On January 18, 2008, the Company issued a Convertible Promissory Note in exchange for cash in the amount of $350,000. |
| b. | On January 26, 2008, the Company issued stock options to Grant Ewing, a director of the Company, to purchase up to a total of 200,000 shares of its common stock. The options are for a five-year term with an exercise price of $0.50 per share. |
| c. | On March 10, 2008, the Company entered into a loan agreement with Balstone Investments, Ltd. for the amount of $1,650,000. The loan bears LIBOR plus 1% due on or before September 11, 2008. |
| d. | The Company received $77,500 for the sale of 155,000 Special Warrants at $0.50 per share, subsequent to December 31, 2007. The terms of the Special Warrants are identical to the Special Warrants sold and disclosed in Note 8. |
75
| e. | On January 22, 2008, the Company entered into a consulting agreement with Eliezer Herczl for exclusive private placement rights. |
| f. | On January 26, 2008, the Company repaid $100,000 on the Convertible Promissory Note issued to ATM Group LLC, in the amount of $300,000. |
76
PART III
Item 1. Index to Exhibits.
| Exhibit No. | Description of Exhibits | |
| 3.1 | Amended and Restated Certificate of Incorporation with Amendments through May 31, 2007 (1) | |
| 3.1a | Certificate of Ownership, Merger and Name Change (4) | |
| 3.2 | Company's Bylaws (1) | |
| 10.1 | Merger Agreement by and among Empire Minerals Corp., a Delaware corporation, Xacord Acquisitions Sub Corp., a Nevada corporation and Empire Gold Corp., a Nevada corporation dated February 20, 2007 (1) | |
| 10.2 | Joint Venture Contract by and between Diying (Tianjin) Mining Science and Technology Development Co., Ltd., organized under the laws of the Peoples Republic of China and Empire Gold Corp., a Nevada corporation dated November 21, 2006. (1) | |
| 10.2a | Amendment to Joint Venture Contract for Tianjin dated July 3, 2007. (2) | |
| 10.2b | Second Amendment to Joint Venture Contract for Tianjin dated September 5, 2007. (3) | |
| 10.2c | Amendment dated November 5, 2007 to Joint Venture Contract for Tianjin. (3) | |
| 10.3 | Cooperation Company Contract between Dongxing Gold Minerals Co., Ltd., organized under the laws of the People's Republic of China and Empire Gold Corp., a Nevada corporation dated March 31, 2006. (1) | |
| 10.4 | Exploration and Development Agreement between and among Cuprum Resources Corp., a Panamanian corporation, Bellhaven Copper & Gold, Inc., a British Columbia corporation and Empire Minerals Corp., a Delaware corporation dated March 6, 2007. (1) | |
| 10.5 | Restricted Equity Purchase Agreement (1) | |
| 10.6 | Stock Repurchase Agreement (1) | |
| 10.7 | Convertible Promissory Note dated June 25, 2007. (2) |
77
| 10.7a | Amendment to June 25, 2007 Convertible Promissory Note. (3) | |
| 10.8 | Convertible Promissory Note dated June 26, 2007. (2) | |
| 10.9 | Convertible Promissory Note dated July 2, 2007. (2) | |
| 10.10 | Subscription Agreement – Goldberg. (2) | |
| 10.11 | Form of Subscription Agreement. (2) | |
| 10.12 | Special Warrant Documents. (2) | |
| 10.13 | Advisory Agreement between Saddle River Associates, Inc. and Empire Gold Corp. (2) | |
| 10.14 | Acquisition Agreement between Saddle River Associates, Inc. and Empire Gold Corp. (2) | |
| 10.15 | Consulting Agreement between Empire Gold Corp. and Silver Global S.A. (2) | |
| 10.16 | Loan Agreement between Dominion Minerals Corp. and Balstone Investments, Ltd. dated March 10, 2008. (5) | |
| 10.17 | Indemnification Letter dated March 11, 2008 between Dominion Minerals Corp. and Pinchas Althaus. (5) | |
| 21.1 | Subsidiaries* | |
| 31.1 | Officers Certifications under Section 302 of the Sarbanes-Oxley Act of 2002* | |
| 31.2 | Officers Certifications under Section 302 of the Sarbanes-Oxley Act of 2002* | |
| 32.1 | Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002.* |
| * | Filed herewith. |
| (1) | Incorporated by reference to the Company’s Registration Statement on Form 10-SB filed with the Commission on June 22, 2007. |
| (2) | Incorporated by reference to the Company’s Amendment No. 1 to the Registration Statement on Form 10-SB filed with the Commission on October 1, 2007. |
| (3) | Incorporated by reference to the Company’s Amendment No. 2 to the Registration Statement on Form 10-SB filed with the Commission on November 20, 2007. |
78
| (4) | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on November 27, 2007. |
| (5) | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on March 14, 2008. |
Item 2. Description of Exhibits.
See Item 2. Description of Exhibits in PART III above.
79
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| DOMINION MINERALS CORP. | ||
| Date: _____________, 2009 | By: | /s/ Pinchas Althaus |
| Pinchas Althaus | ||
| Chief Executive Officer and Director | ||
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Date: ___________, 2009 | By: | /s/ Pinchas Althaus |
| Pinchas Althaus | ||
| Chief Executive Officer and Director | ||
| Date: ___________, 2009 | By: | /s/ Chaim Lebovits |
| Chaim Lebovits | ||
| President and Director | ||
| Date: ___________, 2009 | By: | /s/ Diego Roca |
| Diego Roca | ||
| Executive Vice-President, Chief Financial | ||
| Officer, Treasurer and Director | ||
| Date: ___________, 2009 | By: | /s/ Grant Ewing |
| Grant Ewing | ||
| Director |
80