|
UNITED STATES |
SECURITIES AND EXCHANGE COMMISSION |
Washington, D.C. 20549 |
|
AMENDMENT NO. 5 |
|
to |
FORM S-4/A |
|
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |
|
Guardians of Gold Inc. |
|
Nirek Resources Inc. |
(Exact name of registrant as specified in its charter) |
|
Nevada |
and |
Ontario, Canada |
(State or other jurisdiction of incorporation or organization) |
|
1040 |
(Primary Standard Industrial Classification Code Number) |
|
421770671 |
98-0658269 |
(I.R.S. Employer Identification Number) |
|
|
4 King Street West | 4 King Street West |
Suite 1320 | Suite 1320 |
Toronto, Ontario, Canada M5H 1B6 | Toronto, Ontario, Canada M5H 1B6 |
Telephone: (416) 603-1555 | Telephone: (800) 313-6010 |
|
(Address, including zip code and telephone number, including area code, of registrant’s principal |
Ron Haller | Copies to: |
Secretary | Matthew McMurdo |
4 King Street West | Nannarone & McMurdo LLP |
Suite 1320 | 511 Avenue of the Americas |
Toronto, Ontario, Canada M5H 1B6 | Suite 800 |
Telephone: (416) 603-1555 | New York, NY 10011 |
Facsimile: (416) 864-0175 | Telephone: (917) 318-2865 |
| Facsimile: (646) 390-7090 |
|
Kretzmer & Associates, PLLP |
Suite 2712, 228 East 45th Street, New York, NY 10017 |
Telephone: (212) 202-5158 |
(Name, address, including zip code and telephone number, including area code, of agent for |
Approximate dates of commencement of proposed sale of the securities to public: March 29, 2012
If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box o
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
|
|
Large accelerated filero | Accelerated filero | |
Non-accelerated filero | (Do not check if a smaller reporting company) | Smaller reporting companyx |
|
|
|
| Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) | o |
| Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) | o |
CALCULATION OF REGISTRATION FEE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Title of each class |
| Amount to be |
| Proposed |
| Proposed maximum |
| Amount of |
| ||||
|
|
|
|
| |||||||||
Common Stock (1) |
|
| 1,668,031 |
| $ | 0.00012 |
| $ | 200.16 |
| $ | 0.01427 |
|
Common Stock (2) |
|
| 1,668,031 |
| $ | 0.00068 |
| $ | 1,134.26 |
| $ | 0.08087 |
|
Silver Certificates (3) |
|
| 1,668,031 |
| $ | 0.00272 |
| $ | 4,537.04 |
| $ | 0.32349 |
|
Gold Warrants (4) |
|
| 1,668,031 |
| $ | 0.0455 |
| $ | 75,895.41 |
| $ | 5.41134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
(1) | Nirek Resources Inc. common stock, no par value per share; newly issued treasury shares. |
(2) | Guardians of Gold Inc. common stock, $0.001 par value per share; newly issued treasury shares. |
(3) | Silver certificates issued by Nirek Resources Inc. for ten (10) grams of silver. Such grams of silver shall be delivered to the holders of the silver certificates by March 31, 2016. |
(4) | Gold warrants issued by Nirek Resources Inc., exercisable on or before May 18, 2012, at a cost of $190.00 for ten (10) grams of gold. Such grams of gold, assuming timely exercise of the related gold warrants, shall be delivered to the holders of such gold warrants by March 31, 2016. Delivery of any or all of the gold is not guaranteed. In the event that only a portion of the gold can be delivered by March 31, 2016, it shall be distributed,pro rata, among the shareholders who exercised the related gold warrants. The remaining balance of gold shall be replaced by an amount of silver equal in value to the aforementioned gold, based on the market prices of the silver and gold on the date the related gold warrant was exercised. |
(5) | Represents the number of shares of such security that may be issued in the registrant’s exchange offer. |
|
|
(6) | The sum of the offering prices per unit is $0.049_____ which is the average of the bid and asked price of the common stock of Silver Dragon Resources Inc. as reported on the Over-the-Counter Bulletin Board on March 29, 2012. |
(7) | Pursuant to Rule 457(c) and Rule 457(f), and solely for the purpose of calculating the registration fee, the market value of the securities to be received by the co-registrants, Nirek Resources Inc. and Guardians of Gold Inc., in the exchange offer was calculated as the product of (i) 1,668,031 shares of Nirek Resources Inc. common stocktimes the average of the bid and asked price of the common stock of Silver Dragon Resources Inc. as reported on the Over-the-Counter Bulletin Board on March 29 2012 ($0.049_____);plus (ii) 1,668,031shares of Guardians of Gold Inc. common stocktimesthe average of the bid and asked price of the common stock of Silver Dragon Resources Inc. as reported on the Over-the-Counter Bulletin Board on March 29, 2012 ($_0.049___);plus (iii) 1,668,031 silver certificates issued by Nirek Resources Inc. for ten (10) grams of silver (such grams of silver shall be delivered to the holders of the silver certificates by March 31, 2016)timesthe average of the bid and asked price of the common stock of Silver Dragon Resources Inc. as reported on the Over-the-Counter Bulletin Board on March 29, 2012 ($0.049______)plus (iv) 1,668,031 warrants issued by Nirek Resources Inc., exercisable on or before May 18, 2012 at a cost of $190.00 for ten (10) grams of gold (such gold, or an equal value in silver, shall be delivered by March 31, 2016)timesthe average of the bid and asked price of the common stock of Silver Dragon Resources Inc. as reported on the Over-the-Counter Bulletin Board on March 29, 2012 ($0.049______). |
3
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. Guardians of Gold Inc. and Nirek Resources Inc. may not sell these securities until the registration statement filed with the Securities and Exchange Commission, of which this document is a part, is declared effective. This prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where an offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MARCH__, 2012
GUARDIANS OF GOLD INC.
NIREK RESOURCES INC.
(ii) 1,668,031 Shares of Common Stock of Guardians of Gold Inc.;
(iii) 1,668,031 Silver Certificates issued by Nirek Resources Inc. for ten (10) grams of silver
to be delivered by March 31, 2016; and
2012 at a cost of $190.00
for ten (10) grams of gold.
For Shares of Issued and Outstanding
Silver Dragon Resources Inc., Common Stock
On the Basis of an Exchange of One Hundred (100) Silver Dragon Resources Inc. Shares
for
(i) One (1) Guardians of Gold Inc. Share of Common Stock;
(ii) One (1) Nirek Resources Inc. Share of Common Stock;
(iii) One (1) Silver Certificate issued by Nirek Resources Inc. for ten (10) grams of silver to
be delivered by March 31, 2016; and
(iv) One (1) Warrant issued by Nirek Resources Inc. exercisable on or before May 18, 2012
at a cost of $190.00 for ten (10) grams of gold.
4
The prospectus incorporates important business and financial information about Guardians of Gold Inc. that is not included in or delivered with the document. This information is available without charge to security holders upon written or oral request. Written request should be made to Ron Haller at Guardians of Gold Inc., 4 King Street West, Suite 1320, Toronto, Ontario, Canada M5H 1B6. Oral request can also be made to Mr. Haller at (416) 603-1555. In order to obtain timely delivery, security holders must request the information no later than five business days before the date they must make their investment decision. All requests for information must be made by April 13, 2012.
5
THE OFFER AND THE WITHDRAWAL RIGHTS WILL EXPIRE AT 1:00 P.M. TORONTO TIME, ON APRIL 19, 2012, (THE “EXPIRATION DATE”) UNLESS EXTENDED. SHARES TENDERED PURSUANT TO THE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
NOTICE TO CANADIAN SHAREHOLDERS
This exchange offer is subject to the requirements of Section 14(a) of the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”). Accordingly, such solicitation is made in the United States with respect to securities of a U.S. issuer in accordance with U.S. corporate and securities laws and this prospectus has been prepared in accordance with disclosure requirements applicable in the United States. Shareholders of Silver Dragon Resources Inc. in Canada should be aware that such requirements of Canadian corporate and securities laws are different from those of the United States, as applicable to the offer under the Exchange Act.
Guardians of Gold Inc. (“GOG”) and Nirek Resources Inc. (“NRI” and together with GOG, the “Offeror”) are acting as co-Offerors in the offer. GOG and NRI entered into a memorandum of agreement on January 28, 2011 whereby they agreed to use reasonable best efforts to take all actions necessary to assist and cooperate with each other to consummate and effectuate the offer. The Offeror is offering to exchange (i) 1,668,031 shares of newly issued common stock of GOG; (ii) 1,668,031 shares of newly issued common stock of NRI; (iii) 1,668,031 silver certificates issued by NRI for (10) grams of silver (each a “Silver Certificate”); such silver will be delivered to the holders of the Silver Certificates on or before March 31, 2016 and (iv) 1,668,031 warrants issued by NRI, exercisable on or before May 18, 2012, each exercisable at a cost of $190.00 for ten (10) grams of gold (each, an “NRI Warrant”); such gold will be delivered to holders of the NRI Warrants who exercised such NRI Warrants in a timely manner and such delivery of the gold to the holders of the NRI Warrants shall occur on or before March 31, 2016 (in the event that only a portion of the gold can be delivered by March 31, 2016, it shall be distributed,prorata, among the holders of the NRI Warrants who exercised such NRI Warrants in a timely manner; the remaining balance of gold shall be replaced, on or before March 31, 2016, by an amount of silver equal in value to the aforementioned gold, based on the market prices of the silver and gold on the date the related NRI Warrants were exercised) for shares of issued and outstanding Silver Dragon Resources Inc. (“SDRG”) common stock, at an exchange ratio of (a) one (1) share of GOG common stock; (b) one (1) share of NRI common stock; (c) one (1) Silver Certificate and (d) one (1) NRI Warrant for each one hundred (100) shares of SDRG upon the terms and subject to the conditions in this prospectus and accompanying letter of transmittal. The GOG common stock and NRI common stock will be treasury stock newly issued in this offer. The GOG common stock and NRI common stock shall be immediately tradable because there is no holding period required for Frankfurt listed shares issued from treasury. Delivery of any or all of the gold, pursuant to the terms of the NRI Warrants, is not guaranteed. In the event there is not a sufficient supply of gold by March 31, 2016, the Offeror shall replace such remaining balance of gold with an amount of silver equal in value to the aforementioned gold, based on the market prices of the silver and gold on the date the related NRI Warrant was exercised.See Other Terms of the Offer, page 64; Description of Silver Certificates, page 89 and Description of NRI Warrants, page 89.
6
This offer is referred to in this prospectus as the “exchange offer” or the “offer.” The GOG common stock, NRI common stock, Silver Certificates and NRI Warrants are collectively referred to herein as the “Consideration”.
The Offeror will acquire 166,803,092 issued and outstanding shares of SDRG common stock in the offer. In the event that fewer than 166,803,092 shares are tendered, the Offeror may take up, at its sole option, a minimum of 83,568,349 shares. Failing the above minimum, the Offeror will forego the offer altogether. The Offeror proposes to supplement SDRG’s business by means of increasing SDRG’s opportunities in the resource industry, with a view of enhancing the Offeror’s investment in SDRG. In addition, the Offeror will explore and attempt to initiate joint venture efforts with SDRG’s associates and other potential partners. Although the Offeror does not presently have the intention to sell the SDRG common stock taken up under the exchange offer, the Offeror reserves the right to do so. The Offeror does not intend to make any additional offers for shares of SDRG common stock or to effect any business combinations with SDRG, such as a merger or share exchange, after the exchange offer.See Background and Reasons for the Offer, page 44.
GOG’s common stock is traded on the Frankfurt Stock Exchange under the symbol “QGD”. NRI’s common stock is traded on the Frankfurt Stock Exchange under the symbol “3N6”. SDRG’s common stock is traded on the Over-the-Counter Bulletin Board under the symbol “SDRG”. On March 29__________ __, 2012_, the last full trading day before the Offeror announced its intention to commence this offer, the closing price of a share of SDRG’s common stock was $0.049, the closing price of a share of GOG’s common stock was $[2.585___] and the closing price of a share of NRI’s common stock was $[0.003___]. On March 29________, 2012_, the last full trading day before the Offeror announced its intention to commence this offer, the market price of a gram of silver was $[1.04___]. On March 29__________, 2012_, the last full trading day before the Offeror announced its intention to commence this offer, the market price of a gram of gold was $[53.42___]. Based on these closing prices, the market prices and the exchange ratio in the offer of (i) one (1) share of GOG common stock, (ii) one (1) share of NRI common stock, (iii) one (1) Silver Certificate and (iv) one (1) NRI Warrant for each one hundred (100) shares of SDRG, the Offeror’s offer has a value of $[0.13___] per share of SDRG common stock. This represents a [165___]% markup from SDRG’s closing share price on March 29_______________ __, 2012_.
FOR A DISCUSSION OF CERTAIN FACTORS THAT YOU SHOULD CONSIDER IN CONSIDERATION WITH THE OFFER, PLEASE CAREFULLY READ THE SECTION CAPTIONED “RISK FACTORS” BEGINNING ON PAGE 30.
The Offeror’s obligation to exchange the Consideration for shares of SDRG common stock is subject to specified conditions, which are more fully described inThe Offer – Conditions of the Offer, page 58.This offer is conditioned on acquiring 166,803,092 issued and outstanding shares of SDRG common stock in the offer. In the event that fewer than 166,803,092 unrestricted shares are tendered, the Offeror may take up, at its sole option, a minimum of 83,568,349 shares. Failing the above minimum, the Offeror will forego the offer altogether. Odd lots of less than 100 may be tendered. However, odd lots of less than 100 shares of SDRG common stock must be tendered to Heritage Transfer Agency Inc. directly. The tendered securities will be accepted
7
by the Depository on behalf of the Offeror and the Consideration to be issued in exchange will bepro rated. For example, for a shareholder tendering one (1) shares of SDRG common stock, the Consideration will be (i) one one hundredth (1/100) of a share of GOG common stock, (ii) one one hundredth (1/100) of a share of NRI common stock, (iii) one (1) Silver Certificate for one tenth (1/10) of a gram of silver and (iv) one (1) NRI Warrant for ten (10) grams of gold at an exercise price of $190.00.
The Offeror has not authorized any person to provide any information or to make any representation in connection with the offer other than the information contained in this prospectus.
THE OFFEROR IS NOT ASKING YOU FOR A PROXY AND THIS OFFER DOES NOT CONSTITUTE A SOLICITATION OF PROXIES FOR ANY MEETING OF STOCKHOLDERS OF SDRG.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
8
TABLE OF CONTENTS
|
|
|
|
| |
|
| Page |
| 15 | |
|
|
|
| 22 | |
|
|
|
| 23 | |
|
|
|
| 24 | |
|
|
|
| 24 | |
| 24 | |
| 27 | |
| 27 | |
| 28 | |
| 28 | |
| 28 | |
| 28 | |
| 29 | |
| 29 | |
| 29 | |
| 29 | |
| 29 | |
| 29 | |
|
|
|
| 30 | |
|
|
|
| 30 | |
| 30 | |
| 33 | |
| 35 | |
| 37 | |
| 37 | |
| 38 | |
| 39 | |
| 39 | |
Risk Factors Relating to Ownership of Silver Certificates and NRI Warrants |
| 40 |
|
|
|
| 43 | |
|
|
|
| 44 | |
| 44 | |
| 46 | |
| 46 | |
|
|
9
|
|
|
|
| |
| 46 | |
| 47 | |
|
|
|
| 47 | |
| 47 | |
| 49 | |
| 50 | |
| 52 | |
| 53 | |
| 53 | |
| 54 | |
| 55 | |
| 55 | |
| 55 | |
| 56 | |
| 56 | |
| 56 | |
| 57 | |
| 57 | |
| 58 | |
| 60 | |
| 60 | |
| 61 | |
| 61 | |
| 61 | |
| 62 | |
| 63 | |
| 63 | |
|
|
|
| 64 | |
| 64 | |
| 64 | |
| 65 | |
|
|
|
| 65 | |
|
|
|
| 65 | |
|
|
|
Market for GOG’s Common Equity and Related Stockholder Matters |
| 65 |
| 65 | |
| 65 | |
| 66 | |
|
|
10
|
|
|
|
| |
GOG Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| 66 |
| 66 | |
| 66 | |
| 66 | |
| 66 | |
| 67 | |
| 67 | |
| 67 | |
| 67 | |
| 68 | |
|
|
|
GOG’s Quantitative and Qualitative Disclosures about Market Risk |
| 68 |
|
|
|
| 68 | |
|
|
|
| 68 | |
|
|
|
| 68 | |
| 70 | |
|
|
|
| 71 | |
|
|
|
| 71 | |
|
|
|
| 71 | |
|
|
|
Security Ownership of Certain Beneficial Owners And Management |
| 71 |
|
|
|
| 72 | |
|
|
|
| 73 | |
|
|
|
| 73 | |
| 73 | |
| 73 | |
| 74 | |
| 74 | |
| 74 | |
| 74 | |
|
|
|
| 75 | |
|
|
|
| 78 | |
|
|
11
|
|
|
|
| |
Market for NRI’s Common Equity and Related Stockholder Matters |
| 79 |
| 79 | |
| 79 | |
| 79 | |
|
|
|
NRI Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| 79 |
| 80 | |
| 80 | |
| 80 | |
| 81 | |
| 81 | |
| 82 | |
| 82 | |
| 83 | |
|
|
|
NRI’s Quantitative and Qualitative Disclosures about Market Risk |
| 83 |
|
|
|
| 83 | |
|
|
|
| 83 | |
|
|
|
| 83 | |
|
|
|
| 86 | |
| 86 | |
| 86 | |
| 86 | |
| 86 | |
| 86 | |
Security Ownership of Certain Beneficial Owners and Management |
| 87 |
|
|
|
| 88 | |
|
|
|
| 88 | |
|
|
|
| 88 | |
|
|
|
| 89 | |
|
|
|
| 89 | |
| 89 | |
| 89 | |
|
|
12
13
|
|
|
|
| |
| 129 | |
|
|
|
| 129 | |
| 129 | |
| 130 | |
|
|
|
| 131 | |
|
|
14
QUESTIONS AND ANSWERS ABOUT THE EXCHANGE OFFER
The following questions and answers are intended to address some commonly asked questions regarding the exchange offer. These questions and answers may not address all questions that may be important to you as a shareholder of SDRG. Please refer to the more detailed information contained elsewhere in this prospectus, the exhibits to this prospectus and the documents referred to in and delivered with this prospectus.
What is the Offeror’s proposed transaction?
|
Pursuant to the registration statement filed with the Securities and Exchange Commission (the “SEC”), of which this prospectus is a part, the Offeror is offering to acquire 166,803,092 shares of issued and outstanding SDRG common stock in exchange for (i) 1,668,031 shares of newly issued common stock of GOG and (ii) 1,668,031 shares of newly issued common stock of NRI; along with (A) 1,668,031 Silver Certificates and (B) 1,668,031 NRI Warrants (collectively, the “Consideration”). |
|
The common stock to be issued by GOG and NRI will be issued from treasury. The newly issued GOG common stock and NRI common stock are listed and immediately tradable on the Frankfurt Stock Exchange. There is no holding period required for Frankfurt listed shares issued from treasury. According to SDRG’s shareholder list, as of March 22, 2012, there were 166,803,092 shares of SDRG common stock outstanding. Of these, 140,883,176 shares were unrestricted and freely tradable and 25,919,916 shares were restricted. To the best of our knowledge, the number of outstanding shares of SDRG common stock held by non-affiliates of SDRG is approximately 135,300,000. As of the date of this prospectus, the Offeror holds no shares of SDRG common stock. However, GOG holds warrants for 1,250,000 shares of SDRG common stock at a strike price of $0.50 per share and NRI holds warrants for 1,250,000 shares of SDRG common stock at a strike price of $0.20 per share. Upon acceptance of this entire tender offer, the Offeror would own 166,803,092 shares of SDRG common stock, representing 100% of the outstanding common stock. The Offer does not intend to merge SDRG out of existence. The Offeror plans to provide all necessary support to meet SDRG’s responsibilities to its shareholders. |
|
If this offer is successful, the Offeror shall hold at least 50.01% of the outstanding common stock of SDRG, or 83,568,349 shares. As the majority stockholder, the Offeror shall take all of the corporate steps necessary in order to position itself, or its designees, so that it has the authority to cause SDRG to deliver and provide the monetary equivalent, or to bank or warehouse the future production of silver dore bars or silver concentrate for the Silver Certificates, and the monetary equivalent, or in the alternative, gold to be issued upon the exercise of the NRI Warrants as necessary to meet the future commitments of this exchange offer, on behalf of the Offeror. Delivery of any or all of the gold under the NRI Warrants is not guaranteed. In the event there is not a sufficient supply of gold to be delivered by March 31, 2016 to the holders of the NRI Warrants, who exercise such NRI Warrants in a timely manner, the Offeror shall cause SDRG to distribute the available gold among the shareholders who exercised the related NRI Warrants. Such distribution shall be done on apro ratabasis. The Offeror shall cause SDRG to replace the remaining balance of gold with an amount of silver equal in value to the aforementioned gold, based on the market prices of the silver and gold on the date the related NRI Warrant was |
15
|
exercised. The delivery of such replacement silver to the holders of the exercised NRI Warrants shall occur on or before March 31, 2016.See Other Terms of the Offer, page 64; Description of Silver Certificates, page 89 and Description of NRI Warrants, page 89. |
What are the Offeror’s plans for SDRG and its securities after the offer, assuming minimum participation in the offer and maximum participation in the offer?
Regardless of the level of participation in the offer, the Offeror has no plans to merge SDRG out of existence given its strong presence in the silver commodity market and its strong partners and relationships in China. The Offeror merely intends to provide all the necessary support required to meet and exceed SDRG’s current business plan and to bring value to SDRG’s shareholders. While the management and board of directors of SDRG have been managing business operations, shareholder value has declined since November, 2009. During that period, its price has dropped over 87%. With this offer, the Offeror hopes to unlock hidden shareholder value. If the minimum amount of SDRG shares are tendered, the plans of the Offeror is to provide all necessary support to meet and exceed SDRG current responsibilities to SDRG’s shareholders and to bring value to its shareholders with plans to use the proceeds from the exercised NRI Warrants to assist in the financing of new silver/gold production facilities planned for 2012-2013 and exploration projects planned for 2012. If the maximum amount of SDRG shares are tendered, the Offeror will be strongly positioned to raise additional capital financing and other types of financing which will be instrumental to fund the new silver/gold exploration and production facilities planned for the next several years at the Dadi property, Laopandao Field projects, Aobaotugonao Exploration, Shididonggou property, Zhuanxinhu property and Yuanlinzi property.
How many shares will the Offeror purchase in the offer?
|
The Offeror will purchase a maximum of 100% of the 166,803,092 issued and outstanding shares of SDRG common stock in the offer. In the event that fewer than 166,803,092 shares of common stock are tendered, the Offeror will take up a minimum of 83,568,349 shares or 50.01% of the outstanding shares of SDRG common stock. Failing the above minimum, the Offeror will forego the offer altogether. |
|
What will I receive in exchange for my SDRG shares? |
|
In exchange for each 100 shares of SDRG common stock purchased from you pursuant to the offer, you will receive (i) one (1) share of GOG common stock, (ii) one (1) share of NRI common stock, (iii) one (1) Silver Certificate and (iv) one (1) NRI Warrant. The amount of each item of the Consideration into which each 100 shares of SDRG common stock will be exchanged in the offer is sometimes referred to in this prospectus as the “exchange ratio.” GOG’s common stock is traded on the Frankfurt Stock Exchange under the symbol “QGD”. NRI’s common stock is traded on the Frankfurt Stock Exchange under the symbol “3N6”. The newly issued GOG common stock and NRI common stock will be listed and immediately tradable on the Frankfurt Stock Exchange. There is no holding period required for Frankfurt listed shares issued from treasury. |
|
What is the per share value of the offer? |
16
|
On March 29, 2012, the most recent full day of trading before the Offeror announced its intention to tender pursuant to this form, the closing price of each share of SDRG common stock was $0.049, the closing price of a share of GOG’s common stock was $2.585 and the closing price of a share of NRI’s common stock was $0.003. Also, on March 29, 2012, the market price of a gram of silver was $1.04. The market price of a gram of gold was $53.42. The exchange ratio in the offer would value SDRG at $0.13 per share. This represents a after-market markup of 165% to the SDRG closing price described above. |
|
What will the Offeror do in the event there is insufficient gold to meet the demand of the holders of the NRI Warrants by March 31, 2016? |
|
If this offer is successful, the Offeror shall hold a minimum of 83,568,349 or at least 50.01% of the outstanding common stock of SDRG. As the majority stockholder, the Offeror shall take all of the corporate steps necessary in order to position itself, or its designees, so that it has the authority to cause SDRG to deliver the monetary equivalent or in the alternative, gold it owns, on the Offeror’s behalf. The gold to be issued upon the exercise of the NRI Warrants will originate from SDRG’s current portfolio of properties. However, the subject gold will be provided on a “best efforts” basis. In the event the supply of gold available is insufficient to meet the requirements of the exercised NRI Warrants by March 31, 2016, the Offeror shall cause SDRG to distribute the available monetary equivalent or in the alternative, gold among the shareholders who exercised the related NRI Warrants in a timely manner. Such distribution shall be made on apro ratabasis. The Offeror shall cause SDRG to replace the remaining balance of gold with an amount of silver equal in value to the aforementioned gold, based on the market prices of the silver and gold on the date the related NRI Warrant was exercised. The delivery of such replacement silver to the holders of the exercised NRI Warrants shall occur on or before March 31, 2016. |
|
SDRG’s current gold properties and holdings are in the exploration phase at this time and do not currently have a quantifiable number. The Offeror will obtain the silver from SDRG’s properties currently in production at Erbahuo project and also from the other properties that in exploration stages – Dadi Polymetallic Project, Aobaotunonao and Laopandao. SDRG’s Erbahuo project silver mine has been quantified at 5.3 million ounces of silver. |
Is the offer open to all shareholders?
Yes, the offer is open to all shareholders.
May I tender in lots of less than 100 shares of SDRG common stock?
Yes, odd lots of less than 100 may be tendered. However, odd lots of less than 100 shares of SDRG common stock must be tendered to Heritage Transfer Agency Inc. (the “Depository”) directly. The tendered securities will be accepted by the Depository on behalf of the Offeror and the Consideration to be issued in exchange will bepro rated. For example, for a shareholder tendering one (1) shares of SDRG common stock, the Consideration will be (i) one one
17
hundredth (1/100) of a share of GOG common stock, (ii) one one hundredth (1/100) of a share of NRI common stock, (iii) one (1) Silver Certificate for one tenth (1/10) of a gram of silver and (iv) one (1) NRI Warrant for ten (10) grams of gold with an exercise price of $190.00.
What does the Board of Directors of SDRG think about the offer?
SDRG has assessed the terms and conditions of the offer to exchange SDRG shares of common stock for the Consideration. Representatives of the Offeror met with the President of SDRG, Marc Hazout, on September 2, 2011 and the President informed the Offeror that the Board of Directors of SDRG will not be taking a position for either acceptance or rejection of the offer. SDRG will be leaving it up to their shareholders to take the action they deem appropriate based on their individual advisers’ analysis.
Why is the Offeror offering to exchange the Consideration for SDRG?
The Offeror has assessed SDRG’s shareholder value and has concluded that SDRG’s market capitalization is significantly undervalued. The Offeror believes that the Offer could produce both short term and long term benefit to shareholders via direct access to silver and/or gold distributions. The Offeror believes that shareholder interest will be enhanced and maximized by the exchange offer and that additional value can be discovered by supplementing SDRG’s business through increasing SDRG’s opportunities in the resource industry. In addition, the Offeror hopes to explore and attempt to initiate joint venture efforts with SDRG’s associates and other potential partners.
Will I be taxed on the Consideration I receive?
|
The receipt of the Consideration by a U.S. holder in exchange for its shares of SDRG common stock pursuant to the offer is expected to be a taxable transaction for U.S. federal income tax purposes.See The Offer-Taxation, page 56. |
Is GOG’s financial condition relevant to my decision to tender in the offer?
Yes, GOG’s financial condition is relevant to your decision to tender your shares because shares of SDRG common stock accepted in the offer will be partially exchanged for shares of GOG common stock. You should therefore, consider GOG’s financial condition before you decide to become one of GOG’s stockholders through the offer. This prospectus contains financial information regarding GOG and SDRG, which we encourage you to carefully review.
Is NRI’s financial condition relevant to my decision to tender in the offer?
Yes, NRI’s financial condition is relevant to your decision to tender your shares because shares of SDRG common stock accepted in the offer will be partially exchanged for shares of NRI common stock and NRI Warrants. You should therefore, consider NRI’s financial condition and SDRG’s ability to deliver the gold to be issued upon exercise of the NRI Warrants before you
18
decide to accept the offer. This prospectus contains financial information regarding NRI and SDRG, which we encourage you to carefully review.
Will I have to pay any fee or commission to exchange shares?
If you are the record owner of your shares and you tender your shares in the offer, you will not have to pay any brokerage fees, commissions or similar expenses. If you own your shares through a broker, dealer, commercial bank, trust company or other nominee and your broker dealer commercial bank, trust company or other nominee tenders your shares on your behalf, they may charge a fee for doing so. You should consult your broker, dealer, commercial bank, trust company or other nominee to determine whether any charges will apply.
When and how do I receive the Consideration for my tendered shares?
|
The Offeror will exchange all validly tendered and not properly withdrawn shares of SDRG common stock promptly after the expiration time of the offer through the Depository. The Silver Certificates and NRI Warrants shall be deposited with the Depository by NRI. The Depository will act as your agent for the purpose of receiving the Consideration from the Offeror and transmitting such Consideration to you. In all cases, exchange of tendered shares will be made only after timely receipt by the Depository of certificates for such shares (or of a confirmation of a book-entry transfer of such shares) and a properly completed and duly executed letter of transmittal and any other required documents for such shares. Once the Depository has confirmation of the SDRG shares tendered and is in receipt of the certificate(s) of such shares, then after 10 days, from such confirmation, the Depository will send out the Consideration. |
Holders of NRI Warrants exercised on or before May 18, 2012, at a cost of $190.00 will receive a certificate for ten (10) grams of gold (a “Gold Certificate”). The delivery of silver to every Silver Certificate holders and the delivery of gold to Gold Certificate holders shall occur on or before March 31, 2016. Delivery of any or all of the gold is not guaranteed. In the event that only a portion of the gold can be delivered by March 31, 2016, it shall be distributed,pro rata, among the shareholders who exercised the related gold warrants in a timely manner. The undelivered gold shall be replaced by an amount of silver equal in value to such missing gold, based on the market prices of the silver and gold on the date the related gold warrant was exercised.
If I decide not to tender, how will the offer affect my shares?
The exchange of shares of SDRG common stock pursuant to the offer will reduce the number of holders of SDRG common stock and could adversely affect the liquidity, marketability and value of the shares of SDRG common stock.
Are dissenters’ rights available?
Dissenters’ rights are the rights of stockholders, in certain cases, to receive “fair value” for their shares, plus accrued interest, as determined by a statutorily-prescribed process, which may include a judicial appraisal process. Dissenters’ rights are not available in the offer.
19
What is the market value of my SDRG shares as of a recent date?
|
On March 29, 2012 the closing price of a share of SDRG common stock was $0.049. The Offeror advises you to obtain a recent quotation for the SDRG common stock before deciding whether to tender your shares. |
The cover page to this Prospectus states that the offer is subject to change and that the Registration Statement filed with the SEC is not yet effective. Does this mean that the offer has not commenced?
Yes. While completion of this preliminary prospectus and effectiveness of the registration statement are not necessary for the offer to commence, our offer has not yet commenced. Also, we cannot, accept for exchange any shares tendered in the offer or exchange any shares of SDRG common stock until the registration statement is declared effective by the SEC and the other conditions to the offer have been satisfied or to the extent legally permissible, waived.
What are the conditions of the offer?
The following are conditions of the offer:
|
|
|
| • | The registration statement of which this prospectus is a part shall have become effective under the Securities Act, no stop order suspending the effectiveness of the registration statement shall have been issued and no proceedings for that purpose shall have been initiated or threatened by the SEC; |
| • | An aggregate amount of not less than 50.01% of the shares of outstanding SDRG common stock is tendered; |
| • | No interim or final relief shall have been granted in any action, suit or proceeding in, before or by any domestic or foreign court, tribunal or governmental agency or other regulatory or administrative agency or commission or before or by any elected or appointed public official in the United States or elsewhere (whether or not having the force of law) and no law, regulation or directive (whether or not having the force of law) shall have been proposed, enacted, promulgated or applied, which (in any such case) prevents the Offeror from proceeding with the offer; |
| • | No action, suit or proceeding shall have been commenced in, before or by any domestic or foreign court, tribunal or governmental agency or other regulatory or administrative agency or commission or before any elected or appointed public official in the United States or elsewhere (whether or not having the force of law) and no law, regulation or directive (whether or not having the force of law) shall have been proposed, enacted, promulgated or applied, which (in any such case): (i) in the sole opinion of the Offeror has merit and questions the right of the Offeror lawfully to proceed with the offer or take up and pay for the shares of SDRG common stock; or (ii) in the sole opinion of the Offeror materially adversely affects any of the assets or properties of SDRG; |
20
|
|
|
| • | SDRG has not taken any action which might make it inadvisable for the Offeror to proceed with the offer and/or with the taking up and paying for SDRG common stock under the offer; |
| • | There shall have occurred (or, if there shall have previously occurred, there shall not have been disclosed, generally or to the Offeror in writing, prior to the commencement of the offer) any change (or any condition, event or development involving a prospective change) in the business, operations, assets, capitalization, financial condition, prospects, licenses, permits, rights, privileges or liabilities, whether contractual or otherwise, of SDRG or any of its subsidiaries considered on a consolidated basis which, in the sole judgment of the Offeror, is materially adverse or may be considered to be significant to a purchaser of shares of SDRG common stock; |
| • | All requisite approvals and consents of any governmental or regulatory authority (including, without limitation, any stock exchange or other regulatory authorities) required to be obtained in order that the Offeror may proceed with the offer and take up SDRG common stock tendered pursuant to the offer shall have been obtained on terms satisfactory to the Offeror in their sole judgment prior to the Expiration Date and shall not have been revoked or amended; and |
| • | No material change concerning any of the assets and liabilities of SDRG shall have occurred on or before the Expiration Date. |
What is the percentage of GOG and NRI stock former holders of SDRG shares will own after the exchange offer, if the maximum or minimum amounts are exchanged?
|
If the maximum amount of SDRG shares are tendered, the former shareholders of SDRG who tender their shares will own 9.46% of NRI’s outstanding common stock and 3.70% of GOG’s outstanding common stock. If the minimum amount of SDRG shares are tendered, the former shareholders of SDRG who tendered their shares will own 4.73% of NRI’s outstanding common stock and 1. 50% of GOG’s outstanding common stock. |
|
When does the offer expire? Can it be extended and, if so, under what circumstances? |
|
The offer will expire on April 19, 2012. It may be extended at the discretion of the Offeror unless such extension violates the rules of the SEC. |
|
Will tendering SDRG shareholders have the ability to withdraw previously tendered shares? |
|
Yes, tendering SDRG shareholders may withdraw the common stock tendered at any time at the place of deposit prior to midnight (Toronto time/Eastern Time Zone) on April 19, 2012, provided that the SDRG shares have not been taken up and paid for by the Offeror prior to the receipt by the Depository of the notice of withdrawal in respect of such shares of SDRG common stock. |
Can the offer be terminated prior to its expiration?
|
Yes, the Offeror may terminate the offer and not accept or exchange any shares of SDRG common stock not previously accepted or exchanged, upon the failure of any of the conditions of the offer to be satisfied prior to the expiration date. In addition, even if the Offeror has accepted |
21
|
for exchange, but not exchanged, shares in the offer, it may terminate the offer and not exchange shares of SDRG common stock that were previously tendered if completion of the offer is illegal or if a governmental authority has commenced or threatened legal action related to the offer. Please see page 48, “The Offer- Extension, Termination and Amendment of the Offer” for more information on amendments to the offer. |
Will the shareholders of GOG and NRI need to approve the offer?
GOG will not need to seek shareholder approval because GOG is a closely held corporation with two entities holding a majority of the outstanding voting stock. Therefore, GOG approval was obtained through the written consent of the holders of a majority of the outstanding voting stock. NRI received shareholder approval at a shareholder meeting held on October 24, 2011.
Does the Offeror have any plans to “squeeze out” remaining SDRG shareholders should the Offeror acquire less than all of the SDRG common stock in the offer?
The Offeror has no plans to “squeeze out” any remaining SDRG shareholders.
Will the Offeror seek or effect a change in the officers or directors or business of SDRG upon consummation of the offer?
The Offeror will seek to nominate (4) directors to SDRG’s board of directors. The Offeror has no plans to effect a change in the business of SDRG upon acceptance of the offer, however, the use of the proceeds from the exercised NRI Warrants will be used to assist in the financing of new silver/gold production facilities planned for the 2012-2013 timeframe and other SDRG’s properties/projects will be assessed on an as-needed basis.
EXCHANGE RATE INFORMATION; EXCHANGE CONTROLS
All audited and unaudited financial statements for GOG are shown in U.S. dollars and all audited and unaudited financial statements for NRI are shown in Canadian dollars. All other dollar figures are shown in United States dollars. The shares of common stock of GOG (QGD) and NRI (3N6) trade on the Frankfurt Stock Exchange in Euros with their trading symbols shown in brackets.
In this prospectus, unless otherwise specified or the context requires, references to “U.S. $” or “U.S. dollars” are to United States dollars, references to “Cdn $” are to Canadian dollars and references to “€” are to Euros.
The following tables contain the exchange rate of U.S. dollars for Cdn $ and the exchange rate of U.S. dollars for €. This information has been extracted from the OANDA Historical Exchange Rate tables (see www.oanda.com/currency/historicalrates).
22
Exchange Rate of U.S. dollars for Canadian Dollars
|
|
|
|
|
|
|
|
|
|
|
|
| Average |
| High |
| Low |
| |||
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Jan. 1 to Dec. 31, 2007 |
|
| 1.074 |
|
| 1.187 |
|
| 0.906 |
|
Jan. 1 to Dec. 31, 2008 |
|
| 1.067 |
|
| 1.301 |
|
| 0.971 |
|
Jan. 1 to Dec. 31, 2009 |
|
| 1.142 |
|
| 1.306 |
|
| 1.021 |
|
Jan. 1 to Dec. 31, 2010 |
|
| 1.037 |
|
| 1.077 |
|
| 0.997 |
|
Jan. 1 to December 31, 2011 |
|
| 0.988 |
|
| 1.046 |
|
| 0.948 |
|
Exchange Rate of U.S. dollars for Euros
|
|
|
|
|
|
|
|
|
|
|
|
| Average |
| High |
| Low |
| |||
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Jan. 1 to Dec. 31, 2007 |
|
| 0.731 |
|
| 0.777 |
|
| 0.668 |
|
Jan. 1 to Dec. 31, 2008 |
|
| 0.683 |
|
| 0.811 |
|
| 0.624 |
|
Jan. 1 to Dec. 31, 2009 |
|
| 0.719 |
|
| 0.803 |
|
| 0.660 |
|
Jan. 1 to Dec 31, 2010 |
|
| 0.757 |
|
| 0.823 |
|
| 0.691 |
|
Jan. 1 to December 31, 2011 |
|
| 0.718 |
|
| 0.766 |
|
| 0.680 |
|
Canadian dollars and Euros are both convertible into U.S. dollars free floating rates. Currently there are no restrictions on the flow of the currencies.
WHERE YOU CAN FIND MORE INFORMATION
Questions and requests for assistance may be directed to the Depository or the Offeror and additional copies of the letter of transmittal and the notice of guaranteed delivery may be obtained without charge on request from those persons at their respective offices shown on the letter of transmittal. Shareholders whose SDRG shares are registered in the name of a nominee should contact their broker, investment dealer, bank, trust company or other nominee for assistance.
SDRG files annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information that SDRG files at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information regarding the public reference room. SDRG’s public filings also are available to the public from commercial document retrieval services and at the Internet website maintained by the SEC athttp://www.sec.gov.
23
|
NRI and GOG have filed an Amendment No.5 to a Registration Statement on Form S-4 to register with the SEC the offering and sale of shares of GOG common stock and NRI common stock to be issued in the offer. This prospectus is a part of that registration statement. As allowed by SEC rules, this prospectus does not contain all of the information that you can find in the registration statement or the exhibits to the registration statement. For further information, reference is made to the registration statement and its exhibits. NRI and GOG have filed, and may file in the future, amendments to the registration statement. In addition, on _________, 2012, GOG and NRI filed with the SEC a Tender Offer Statement on Schedule TO under the Exchange Act, together with exhibits, to furnish certain information about the offer, and GOG and NRI may file amendments to the Schedule TO. You may obtain copies of amendment No.5 to the Form S-4 and the Schedule TO (and any amendments to those documents) by contacting NRI, prior to the expiration date of this offer, at its principal office,4 King Street West, Suite 1320, Toronto, Ontario, Canada M5H 1B6, Telephone: (416) 603-1555 or by contacting GOG, prior to the expiration date of this offer, at its principal office,4 King Street West, Suite 1320, Toronto, Ontario, Canada M5H 1B6, Telephone: 1-800-313-6010. |
In respect of information relating to SDRG’s business, operations and management presented in, or omitted from, this prospectus, the Offeror has relied upon publicly available information, primarily information publicly filed by SDRG with the SEC. Information publicly filed by SDRG may be examined and copies may be obtained at the places and in the manner set forth in the preceding Section,Where You Can Find More Information. The Offeror is not affiliated with SDRG. Publicly available information and information provided by SDRG concerning SDRG may contain errors. The Offeror has no knowledge that would indicate that any statements contained herein regarding SDRG’s operations, financial condition or condition in general are inaccurate, incomplete or untrue. However, the Offeror was not involved in the preparation of any publicly available documents or reports of SDRG.
Pursuant to Rule 409 under the Securities Act and Rule 12b-21 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Offeror will amend or supplement this prospectus to include any and all information not included herein, which is disclosed in the public filings of SDRG filed with the SEC before the offer expires and the Offeror considers it to be material, reliable and appropriate.
The following is a summary of the information contained elsewhere in this prospectus. This summary may not contain all of the information that is important to you. You should carefully read this entire prospectus and the other documents to which it refers.
Guardians of Gold Inc.
4 King Street West
Suite 1320
Toronto, Ontario, Canada M5H 1B6
Telephone: 1-800-313-6010
24
General
GOG is a publicly traded company listed on the Frankfurt Stock Exchange under the symbol QGD, trading in the “EURO” currency. GOG is a corporation incorporated under the laws of Nevada.
GOG is an exploration company that intends to reprocess precious and base metals mine tailings utilizing secondary recovery methods to extract trace quantities of gold and other precious minerals from existing mine tailings. GOG is a United States company. However, all of its officers and directors are residents of Canada and a majority of its assets, are located outside the United States.
History
On February 5, 1997, 1221745 Ontario Inc. was formed in Ontario. It changed its name to Creighton Corporation on September 28, 2004. On November 4, 2005, Pearlstar Corporation was formed in Nevada. On November 18, 2005, Creighton Corporation merged with Pearlstar Corporation by filing Articles of Merger in Nevada. Pearlstar Corporation was the surviving corporation. It changed its name to Guardians of Gold Inc. on Apri1 22, 2009 and its common shares were consolidated on a 1 for 1000 basis. As of December 30, 2011 45,136,000 issued and outstanding common shares.
Nirek Resources Inc.
4 King Street West
Suite 1320
Toronto, Ontario, Canada M5H 1B6
Telephone: (416) 603-1555
General
NRI is a corporation incorporated under the laws of Ontario in 2004. It is a Canadian based exploration company that is focused primarily on gold and secondarily on other precious and base metals in Canada. NRI currently has one exploration stage property in Quebec. NRI shares trade on the Frankfurt Stock Exchange (Deutsche Boerse) under the symbol 3N6.
NRI’s objective is to acquire mineral properties that had previous exploration work which indicated a potential resource. NRI looks for properties that have proven grade values where further exploration is required. The primary focus is precious metals, particularly gold and silver, although base metal properties with some precious metal content are also possible exploration candidates.
25
NRI originally acquired options on gold exploration properties in Northern Ontario, specifically in the Timmins and Kirkland Lake area. NRI had preliminary exploration done and geological reports prepared on three properties; however lease agreements were not renewed since an analysis of their economic value determined further expenditure was not justified. A fourth property, on which NRI currently has registered 19 claims, is Sarah Lake, Quebec, Canada. NRI had geologist on the property in May, 2009. The prepared technical report recommended a program to further explore the property.
Besides Canadian mineral properties, NRI has looked at prospective exploration properties in the USA, Mexico and Peru. The primary focus is Canadian properties and secondarily the USA and Mexico. NRI uses independent geologists to assess its properties and, when favorable, recommend a program for further exploration.
History
Nirek Resources Inc. was incorporated in Ontario as Dublin Castle Investments Inc. on August 6, 2004. It changed its name to Nirek Resources Inc. on August 2, 2007. Shareholders in Dublin Castle Investments Inc. were given one share in NRI for every 10 shares they held in Dublin Castle Investments Inc. On August 17, 2007 NRI shares began trading on the Frankfurt Stock Exchange, Germany under the symbol: 3N6. Also in August, 2007, the common stock of NRI was consolidated on a one-for ten-basis. As of December 30, 2011, there were 17,636,299 shares issued and outstanding.
Silver Dragon Resources Inc.
5160 Yonge Street, Suite 803
Toronto, Ontario, M2N 6L9
(416) 223-8500
General
SDRG is a corporation incorporated in Delaware trading on the Over-the-Counter Market under the symbol “SDRG”. SDRG is a mining and metals company focused on the exploration, acquisition, development and operation of silver mines in proven silver districts globally. SDRG’s objective is to acquire silver mining assets that contain promising exploration targets, have highly leveraged, out-of-the-money silver deposits, and/or are producing properties with significant untapped exploration potential. SDRG is engaged in the acquisition, exploration and development of silver and other mineral properties in China and Mexico. SDRG’s primary focus is the exploration of nine properties located in the Erbaohuo Silver District in Northern China, as well as the Cerro Las Minitas property located in Guadalupe, Durango, Mexico. SDRG is still in its exploration stage and has not generated any revenues from the mining properties in China and Mexico.
History
26
SDRG was initially incorporated in the State of Delaware on May 9, 1996 under the name of American Electric Automobile Company Inc. On July 16, 2002, it changed its name to American Entertainment & Animation Corporation. On February 25, 2005, SDRG again amended its Certificate of Incorporation to change the name to Silver Dragon Resources, Inc. in order to better reflect its business focus on global silver exploration and development. SDRG operates in Mexico through a wholly-owned subsidiary, Silver Dragon Mining De Mexico S.A. de C.V. (“Silver Dragon Mexico”), a Mexico company incorporated on April 21, 2006.
SDRG owns 40% equity interest in Sanhe Sino-Top Resources and Technologies, Ltd. (“Sino-Top”), which was originally formed by Sino Silver and certain other Chinese individuals as a joint venture company.
On April 21, 2011, SDRG publicly announced that it closed a convertible financing agreement for $3,000,000 over a three-year period with JMJ Financial and that the SDRG plans to use the proceeds from the financing to: (i) apply for a listing on a Canadian Stock Exchange; (ii) continue the exploration, development and resource conversion program presently under way at the Erbahuo silver properties in China; and (iii) for general corporate purposes.
The Offeror is offering to exchange the Consideration at an exchange ratio of (i) one (1) share of GOG common stock; (ii) one (1) share of NRI common stock; (iii) one (1) Silver Certificate; and (iv) one (1) NRI Warrant for each one hundred (100) shares of SDRG common stock upon the terms and subject to the conditions in this prospectus and accompanying letter of transmittal. Odd lots of less than 100 shares of SDRG common stock must be tendered to the Depository directly. The tendered securities will be accepted on behalf of the Offeror and the Consideration exchanged therefore will bepro rated. For example, for a shareholder of SDRG common stock tendering one (1) share of SDRG common stock, the Consideration will be (i) one one hundredth (1/100) of a share of GOG common stock, (ii) one one hundredth (1/100) of a share of NRI common stock, (iii) one (1) Silver Certificate for one tenth (1/10) of a gram of silver and (iv) one (1) NRI Warrant for ten (10) grams of gold. The offer is for 166,803,092 issued and outstanding shares of SDRG common stock or 100%. In the event that fewer than 166,803,092 shares are tendered, the Offeror will take up a minimum of 83,568,349 shares or 50.01%. Failing the above minimum, the Offeror will forego the offer altogether.
As of March 2, 2012, Marc Hazout, a director of SDRG, beneficially owned approximately 11.8% of SDRG’s outstanding common stock.
A copy of the letter of transmittal is attached to this prospectus. We encourage you to read it carefully.
Background and Reasons for the Offer (See Page 44)
The purpose of the offer is to enable the Offeror to acquire at least 50.01% of the outstanding shares of SDRG common stock. The Offeror then proposes to supplement SDRG’s business by
27
means of increasing SDRG’s opportunities in the resource industry, with a view of enhancing the Offeror’s investment in SDRG. In addition, the Offeror will explore and attempt to initiate joint venture efforts with SDRG’s associates and other potential partners.
Ownership of GOG after the Offer (See Page 56)
Based on the exchange ratio for the offer, the Offeror estimates that if 166,803,092 shares of SDRG common stock are exchanged pursuant to the offer, former shareholders of SDRG would own, in the aggregate, approximately 3.70 % of the outstanding shares of GOG common stock. Based on the exchange ratio for the offer, if 83,568,349 shares of SDRG common stock are exchanged for a minimum of 50.01% of the Consideration, the former SDRG stockholders would own, in the aggregate, approximately 1.85% of the outstanding shares of common stock.
Ownership of NRI after the Offer (See Page 56)
Based on the exchange ratio for the offer, the Offeror estimates that if 166,803,092 shares of SDRG common stock are exchanged pursuant to the offer, former shareholders of SDRG would own, in the aggregate, approximately 9.46% of the outstanding shares of NRI common stock. Based on the exchange ratio for the offer, if 83,568,349 shares of SDRG common stock are exchanged for a minimum of 50.01% of the Consideration, the former SDRG stockholders would own, in the aggregate, approximately 4.73% of the outstanding shares of NRI common stock.
Conditions of the Offer (See Page 58)
The Offeror’s obligation to exchange the Consideration for SDRG common stock is subject to several conditions, including the effectiveness with the SEC of a registration statement registering the shares of GOG common stock and NRI common stock to be exchanged in the offer and the valid tender of the minimum number of SDRG shares.
The offer is scheduled to expire at 1:00 p.m., Toronto time, on April 19, 2012, a trading day, unless extended by the Offeror. To the extent legally permissible, the Offeror reserves the right, in its sole discretion, at any time or from time to time:
|
|
|
| • | to extend, for any reason, the period of time during which the offer is open; |
|
|
|
| • | to delay acceptance for exchange of, or exchange of, any shares of SDRG common stock pursuant to the offer in order to comply in whole or in part with applicable law; |
|
|
|
| • | to terminate the offer and not accept or exchange any shares of SDRG common stock not previously accepted or exchanged, upon the failure of any of the conditions of the offer to be satisfied prior to the expiration date; and |
28
|
|
|
| • | to waive any condition or otherwise amend the offer in any respect. |
In addition, even if the Offeror has accepted for exchange, but not exchanged, shares in the offer, it may terminate the offer and not exchange shares of SDRG common stock that were previously tendered if completion of the offer is illegal or if a governmental authority has commenced or threatened legal action related to the offer.
Procedure for Tendering Shares (See Page 50)
The procedure for tendering shares of SDRG common stock varies depending on whether you possess physical certificates or a nominee holds your certificates for you and on whether or not you hold your securities in book-entry form. A letter of transmittal with instructions for tendering shares accompanies this prospectus.
Withdrawal Rights (See Page 53)
You can withdraw tendered shares at any time until the offer has expired and, if the Offeror has not agreed to accept your shares for exchange by the expiration date, you can withdraw them at any time after that date until it accepts shares for exchange.
Commitments to Tender (See Page 61)
There are no commitments to tender or refrain from tendering any SDRG Shares.
The Offeror is not aware of any material filings that will be required or advisable with any regulatory authorities in connection with the proposed transaction.
Comparison of Stockholders’ Rights (See Page 108)
You will receive GOG common stock and NRI common stock if you tender your shares of SDRG common stock in the offer. There are some differences between the rights of a stockholder of SDRG, a Delaware corporation, and the rights of a stockholder of GOG, a Nevada corporation, or the rights of a stockholder of NRI, an Ontario corporation. These differences, as well as the similarities of the stockholders’ rights, are described herein.
SDRG shareholders should carefully consider the risk factors listed in this prospectus in evaluating whether to accept the offer.
GOG does not have sufficient funds to meet all of its future obligations.
The auditors of GOG, in their report dated November 05, 2011, raised substantial doubt as to GOG’s ability to continue as a going concern
29
NRI does not have sufficient funds to meet all of its future obligations.
The auditors of NRI, in their report dated October 15, 2011, have raised substantial doubt as to NRI’s ability to continue as a going concern
SDRG does not have sufficient funds to meet all of its future obligations.
The independent auditors of SDRG in their report dated March 22, 2011 have raised substantial doubt as to SDRG’s ability to continue as a going concern.
This prospectus contains “forward-looking statements.” Specific forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and include, without limitation, words such as “may,” “expects,” “believes,” “anticipates,” “projects,” “targets,” “forecasts,” “seeks,” “could” or the negative of such terms or other variations on such terms or comparable terminology. Similarly, statements that describe our objectives, plans or goals are forward-looking. The Offeror’s forward-looking statements are based on management’s current intent, belief, expectations, estimates and projections regarding us and our industry. These statements are not guarantees of future performance and involve risks, uncertainties, assumptions and other factors that are difficult to predict, including those discussed below. Therefore, actual results may vary materially from what is expressed in or indicated by the forward-looking statements. Readers of this prospectus are cautioned not to place undue reliance on forward-looking statements since, while the Offeror believes the assumptions on which the forward -looking statements are based are reasonable, we cannot be certain that these forward-looking statements will prove to be accurate. This cautionary statement is applicable to all forward-looking statements contained in this prospectus and the material accompanying this prospectus.
You should carefully consider the following risks before deciding whether to accept the exchange offer and tender your SDRG common stock.
Risk Factors Relating to the Offer
The Offeror did not obtain an independent appraisal of the value of SDRG, or an independent opinion on the fairness of the Offeror’s offer.
The exchange offer was formulated by the management of GOG and NRI without obtaining any appraisal, or other opinion, from an independent third party, such as an investment bank, about
30
the relative values or about the fairness of the Offeror’s offer. SDRG shareholders have no independent opinion or other assurance that the offer being made by the Offeror reflects the fair market value of the SDRG common stock to be acquired by the Offeror.
This transaction may adversely affect the liquidity and value of non-tendered SDRG common stock.
In the event that the Offeror accepts for exchange those shares tendered in the offer, the number of stockholders and the number of shares of SDRG common stock held by individual holders will be reduced. As a result, the closing of the offer could adversely affect the liquidity and market value of the shares of SDRG common stock.
Your attempted enforcement of civil liabilities of the Offeror under the United States federal securities laws may be ineffective.
The enforcement by investors of civil liabilities under the United States federal securities laws may be affected adversely by the fact that NRI is incorporated under the laws of the Province of Ontario, all of the directors and officers of GOG and NRI are residents of Canada and the Depository and some of the experts named in the prospectus are residents of Canada and all or a substantial portion of the assets of GOG and NRI and of such persons may be located outside the United States.
The price of NRI’s common stock is subjected to volatility.
The market for NRI’s common stock is highly volatile. The trading price of NRI’s common stock is subject to wide fluctuations in response to, among other things, quarterly variations in operating and financial results, and general economic and market conditions. In addition, statements or changes in opinions, ratings, or earnings estimates made by brokerage firms or industry analysts relating to their markets or relating to NRI could result in an immediate and adverse effect on the market price of their common stock. The highly volatile nature of NRI’s stock prices may cause investment losses for their shareholders. If securities class action litigation is brought against NRI, such litigation could result in substantial costs while diverting management’s attention and resources.
The price of GOG’s common stock is subjected to volatility.
The liquidity for GOG’s common stock is currently low due to its recent approval for listing on December 6, 2010. GOG’s trading pattern may be subject to significant volatility since its liquidity and price are being tested by market conditions.
The market price of shares of NRI common stock may be volatile.
The trading prices of NRI’s common stock may be highly volatile. Trading volume is light and may not increase, which would result in limited liquidity for stockholders. Factors affecting the trading price of NRI’s common stock will include:
31
|
|
• | variations in its operating results; |
|
|
• | continued weakened global economic situation; |
|
|
• | ability to generate sufficient cash flow; |
|
|
• | ability to complete mergers and acquisitions; and |
|
|
• | delays with environmental government permits. |
The market price of shares of GOG common stock may be volatile.
The trading price of GOG’s common stock may be subject to significant fluctuations, which may be based on factors unrelated to its financial performance or prospects. These factors include macroeconomic developments in North America and globally, and market perceptions of the attractiveness of GOG’s industry. The price of GOG’s common stock may also be significantly affected by changes in commodity prices, currency exchange fluctuation, GOG’s financial condition or results of operations, a weakened global economic situation, an inability to generate sufficient cash flow, an inability to complete mergers or acquisitions or a decrease in the demand for infrastructure renewals projects.
The market price of silver may be volatile.
Historically, the price of silver generally moves up or down in tangent with the price of gold. The usual ratio is 40 to 1, though presently it is closer to 72 to 1, so the ratio could tighten. The Offeror cannot assert, with any certainty, whether this will occur. It cannot be predicted what the price of silver will be by March 31, 2016.
The market price of gold may be volatile.
Since 2000, the price of gold has gradually climbed from $650 to over $1,900 per ounce. However, the price can decrease or increase steeply in a short time. The Offeror cannot assert, with any certainty, what the price of gold will be by March 31, 2016.
Since the exchange ratio is fixed, SDRG stockholders cannot be sure of the market value of the Consideration that they will receive in the offer.
The exchange ratio of the Consideration is fixed while the market prices of shares of NRI common stock, shares of GOG common stock, silver and gold are volatile. This exchange ratio is fixed and will not be adjusted in case of any increases or decreases in the price or market value of the Consideration or the price of SDRG common stock. If the market value of the Consideration declines (which may occur as a result of a number of reasons, many of which are out of the Offeror’s control, including as a result of the risks described above), SDRG stockholders will receive less value for their shares in the offer than the value calculated pursuant to the exchange ratio on the last full trading day before the Offeror announced its intention to commence the offer. Because the offer may not be completed until specified conditions have
32
been satisfied or waived, a significant period of time may pass between the commencement of the offer and the time that the Offeror accepts shares of SDRG common stock for exchange. Therefore, at the time you tender your shares pursuant to the offer, you will not know the exact market value of the Consideration that will be issued to you if the Offeror accepts your shares for exchange. SDRG stockholders are urged to obtain current market quotations for GOG common stock, NRI common stock, silver, gold and SDRG common stock when they consider whether to tender their shares of SDRG common stock pursuant to the offer.
SDRG’s findings regarding its disclosure controls and procedures and internal controls over financial reporting, as disclosed in its annual report on Form 10-K for the year ended December 31, 2010, indicate that its financial statements may be inaccurate.
The Offeror is attempting to become the majority shareholder of SDRG. Such attempt is partially based on SDRG’s financial position. However, in SDRG’s Form 10-K for the year ended December 31, 2010 SDRG stated that it had determined that its disclosure controls and procedures were not effective at December 31, 2010 and its internal control over financial reporting was also not effective at December 31, 2010. Therefore, the Offeror may be relying on inaccurate information and may be attempting to gain voting control of a company in a less favorable financial position than anticipated.
Risk Factors Relating to GOG’s Business
GOG does not have sufficient funds to meet all of its future obligations.
GOG will need additional funding, either through equity or debt financings or partnering arrangements, which could negatively affect it and its stock price.
The auditors of GOG in their report dated November 5, 2011 have raised substantial doubt as to GOG’s ability to continue as a going concern. GOG’s management believes that GOG will be able to obtain additional funds in equity financing; however, there is no assurance of additional funding being available or available on acceptable terms. Realization values may be substantially different from carrying values as shown.
GOG may need significant additional funds to continue exploration projects, which it may not be able to obtain.
GOG may require future financing through the issuance of equity or debt to fund its future exploration and development projects. There can be no assurance that additional financing will be available to GOG when needed or on terms acceptable to GOG. In addition, capital markets have been volatile in recent months, and continued volatility could limit GOG’s ability to obtain financing, even if GOG has positive business results. GOG’s inability to raise capital to support any new exploration projects and to fund capital expenditures or acquisitions may limit GOG’s growth or may have a material adverse affect upon GOG. GOG estimates that it will require
33
approximately $500,000 over the next 12 months to fund its anticipated capital requirements and financial operations.
As a result of the weakened global economic situation, GOG may have restricted access to capital and borrowing costs may increase.
Although GOG’s business and asset base have not changed, the lending capacity of some financial institutions was reduced and in some circumstances risk premiums were increased. As future capital expenditures will be financed out of funds generated from business transactions, borrowings and possible future equity sales, GOG’s ability to do so is dependent on, among other factors, the overall state of capital markets and investor appetite for investments in the energy industry and GOG’s securities in particular. To the extent that external sources of capital become limited or unavailable, or available on onerous terms, GOG’s ability to make capital investments and maintain existing assets may be impaired, and its assets, liabilities, business, financial condition and results of financial operations may be materially and adversely affected as a result. Should funds generated from business transactions be lower than expected or capital costs for these projects exceed current estimates, or if GOG incurs major unanticipated expenses related to development or maintenance of its existing properties, it may be required to seek additional capital to maintain its capital expenditures at planned levels. Failure to obtain any financing necessary for GOG’s capital expenditure plans may result in a delay in development or production on GOG’s properties.
The impact of governmental regulation could adversely affect GOG’s business.
GOG’s business may be subjected to applicable domestic laws and regulations, including laws and regulations on taxation, the exploration for and development, production and distribution of electricity, and environmental and safety matters. Many laws and regulations require drilling permits and govern mineral exploration and the accumulation and handling of waste materials known as tailings. In addition, GOG’s mineral explorations are subject to complex environmental laws and regulations adopted by domestic jurisdictions where it operates.
GOG could incur liability to governments or third parties for any unlawful discharge of pollutants into the air, soil or water, including responsibility for remedial costs.
GOG could incur liability to governments or third parties for any unlawful discharge of pollutants into the air, soil or water, including responsibility for remedial costs. In addition, the submission and approval of environmental impact assessments may be required. Environmental legislation is evolving in a manner which means stricter standards; enforcement, fines and penalties for noncompliance are more stringent. Environmental assessments of proposed projects carry a heightened degree of responsibility for companies and directors, officers and employees.
The cost of compliance with changes in governmental regulations has a potential to reduce the profitability of its businesses.
Because the requirements imposed by these laws and regulations frequently change, GOG cannot assure you that laws and regulations enacted in the future, including changes to existing laws and
34
regulations, will not adversely affect Its business. In addition, because GOG may acquire interests in properties that have been operated in the past by others, it may be liable for environmental damage caused by former operators.
GOG may be unable to obtain regulatory and other required third party approvals in a timely manner.
In assessing the feasibility of potential gold and silver and other precious metals projects and in estimating the value of and the projected start-up dates for exploration projects, GOG’s management has made numerous assumptions that GOG will be able to obtain regulatory (including in respect of applicable environmental matters) and other required third party approvals in a timely manner and that the regulatory framework representing royalties, taxes and environmental matters will continue to support such exploration projects.
GOG may be unable to find strategic partners in order to enable it to fund projects at prices which support such projects.
GOG’s management has assumed that GOG will be able to find strategic partners in order to enable it to fund its exploration projects and future prices for minerals will continue to be at levels which support such projects. These assumptions may prove to be false which would adversely affect GOG’s business.
GOG may be unable to obtain qualified staff and equipment in a timely and cost efficient manner.
GOG management must rely on the personnel it plans to hire to assist them in making critical engineering and mining specific decisions. GOG may not be able to obtain qualified staff and equipment in a timely and cost efficient manner. In the event this occurs, there could be an adverse effect on the ability of GOG to commence exploration projects within noted timelines, or at all.
Risk Factors Relating to NRI’s Business
NRI does not have sufficient funds to meet all of its future obligations.
NRI will need additional funding, either through equity or debt financings or partnering arrangements, which could negatively affect it and its stock price.
The auditors of NRI, in their report dated October 15, 2011, raised substantial doubt as to NRI’s ability to continue as a going concern. NRI’s management believes that NRI will be able to obtain additional funds through the exercises of NRI Warrants and other financing instruments; however, there is no assurance of additional funding being available or available on acceptable terms.
35
NRI will need significant additional funds to continue its exploration projects, which it may not be able to obtain.
NRI estimates that it will require approximately $400,000 over the next 12 months to fund its anticipated capital requirements and exploration projects.
NRI’s success depends on its ability to hire and retain skilled operating, marketing, technical, financial and management personnel.
NRI management must rely on the personnel it plans to hire to assist them in making critical engineering and mining specific decisions. In the mining sector, competition in connection with hiring and retaining skilled, dependable personnel is intense. NRI may not offer salaries or benefits that are competitive with those offered by its competitors, who may have significantly more resources when compared to NRI. As such, even if NRI was to succeed in hiring skilled personnel, it may not succeed in retaining them.
Because NRI has limited capital, it may have to limit its exploration activity.
Because NRI has limited capital, it must limit its exploration activity. This may limit NRI’s ability to generate revenues.
Exploration, development and mining activities involve a high degree of risk.
NRI cannot assure you of the success of its planned exploration projects. Exploration costs are not fixed, and resources cannot be reliably identified until substantial development has taken place, which entails high exploration and development costs. The costs of mining, processing, development and exploitation activities are subject to numerous variables which could result in substantial cost overruns.
NRI’s exploration may be curtailed, delayed or cancelled.
NRI’s exploration activities may be curtailed, delayed or cancelled, as a result of numerous factors, many of which are beyond its control, including economic conditions, mechanical problems, title problems, weather conditions, compliance with governmental requirements and shortages or delays of equipment and services. If NRI’s drilling activities are not successful, it will experience a material adverse effect on its future results of exploration project operations and financial condition.
The cost of compliance with changes in governmental regulations has a potential to reduce the profitability of its businesses.
Because the requirements imposed by these laws and regulations frequently change, NRI cannot assure you that laws and regulations enacted in the future, including changes to existing laws and regulations, will not adversely affect its business. In addition, because NRI may acquire interests in properties that have been operated in the past by others, it may be liable for environmental damage caused by former operators.
36
Risk Factors Relating to SDRG’s Business
SDRG does not have sufficient funds to meet all of its future obligations.
The auditors of SDRG, in their report dated March 22, 2012, raised substantial doubt as to SDRG’s ability to continue as a going concern.
Risk Factors Relating to Ownership of GOG’s Common Stock
GOG’s common stock has limited liquidity.
The liquidity for GOG’s common stock is currently low due to the recent completion of the listing on December 06, 2010. GOG trading pattern maybe subject to significant volatility since its liquidity and price are being tested by market conditions. Therefore, there are many factors which can influence the volatility, for example: quarterly variations in operating and financial results, and general economic and market conditions.
The trading price of GOG’s common stock may be volatile.
The trading price of GOG’s common stock may be subject to significant fluctuations, which may be based on factors unrelated to its financial performance or prospects. These factors include macroeconomic developments in North America and globally, and market perceptions of the attractiveness of particular industries. The price of GOG’s common stock may also be significantly affected by changes in commodity prices, currency exchange fluctuation, GOG’s financial condition or results of operations, a weakened global economic situation, an inability to generate sufficient cash flow, an inability to complete mergers or acquisitions or a decrease in the demand for infrastructure renewals projects.
If securities or industry analysts do not publish research or reports about GOG’s business or if they issue an adverse or misleading opinion regarding GOG stock, its price and trading volume could decline.
The trading market for GOG’s common stock will be influenced by the research and reports that industry or securities analysts publish about GOG or its business, if any. Currently, there are no analysts reporting on GOG’s common stock.
GOG may incur substantial debt.
Loans GOG obtains may be collateralized by some or all of its properties or other assets, which will put those properties or other assets at risk of forfeiture if GOG is unable to pay its debts. Principal and interest payments on these loans reduce the amount of money that would otherwise be available for other purposes.
37
GOG intends to make foreign investments and will be susceptible to risks associated with such investments.
GOG intends to make foreign investments and will be susceptible to risks associated with such investments, including changes in currency exchange rates, foreign taxes, adverse political or economic developments and changes in foreign laws.
Recent disruptions in global financial markets and deteriorating global economic conditions could adversely affect the value of GOG investments and GOG exploration projects and cause lower returns to investors.
Recent disruptions in global financial markets and deteriorating global economic conditions could adversely affect the value of GOG’s investments and exploration projects. GOG believes that the risks associated with GOG’s business may be more severe during periods of economic slowdown or recessions if these periods are accompanied by declining values in minerals prices. The current state of the economy and the implications of future potential weakening may negatively impact the commodities market fundamentals, resulting in lower revenues and values for GOG’s business opportunities and investments.
Risk Factors Relating to Ownership of NRI’s Common Stock
The trading price of NRI’s common stock may be volatile with limited liquidity.
The trading prices of NRI’s common stock may be highly volatile. Trading volume is light and may not increase, resulting in limited liquidity for stockholders. Factors affecting the trading price of NRI’s common stock will include:
|
|
• | variations in its operating results; |
|
|
• | continued weakened global economic situation; |
|
|
• | ability to generate sufficient cash flow; |
|
|
• | ability to complete mergers and acquisitions; and |
|
|
• | delays with environmental government permits. |
If securities or industry analysts do not publish research or reports about NRI’s business or if they issue an adverse or misleading opinion regarding NRI stock, its price and trading volume could decline.
The trading market for NRI’s common stock will be influenced by the research and reports that industry or securities analysts publish about NRI or its business, if any.
38
Recent disruptions in global financial markets and deteriorating global economic conditions could adversely affect the value of NRI investments and NRI business and cause lower returns to investors.
Recent disruptions in global financial markets and deteriorating global economic conditions could adversely affect the value of NRI’s investments and its business. NRI believes that the risks associated with NRI’s business may be more severe during periods of economic slowdown or recessions if these periods are accompanied by declining values in minerals prices. The current state of the economy and the implications of future potential weakening may negatively impact the commodities market fundamentals, resulting in lower revenues and values for NRI’s business opportunities and investments.
Risk Factors Relating to Ownership of Silver
The market price of silver is volatile.
Historically, the price of silver generally moves up or down in tangent with the price of gold. The usual ratio is 40 to 1, though presently it is closer to 72 to 1, so the ratio could tighten. NRI cannot assert, with any certainty, whether this will occur. It cannot be predicted what the price of silver will be by March 31, 2016.
Silver prices are affected by numerous factors beyond anyone’s control.
Silver prices fluctuate widely and are affected by numerous factors beyond anyone’s control such as interest rates, exchange rates, inflation or deflation, fluctuation in the value of the United States dollar and foreign currencies, global and regional supply and demand, and the political and economic conditions of silver-producing countries throughout the world. The price of silver fluctuates in response to many factors, which are beyond anyone’s predictive abilities. The percentage change in the price of a metal cannot be directly related to the estimated mineralized material quantities, which are affected by a number of additional factors. Because mining occurs over a number of years, it may be prudent to continue mining for some periods during which cash flows are temporarily negative for a variety of reasons. Such reasons include a belief that the low price is temporary, and/or the expense incurred is greater when permanently closing a mine.
Mining for silver and other base or precious metals may involve unprofitable efforts.
Mining for silver and other base or precious metals may involve unprofitable efforts, not only from dry properties, but from properties that are productive but do not produce sufficient net revenues to return a profit after accounting for mining, operating and other costs.
Risk Factors Relating to Ownership of Gold
The market price of gold is volatile.
39
Since 2000, the price of gold has gradually climbed from $650 to over $1,900 per ounce. However, the price can decrease or increase steeply in a short time. NRI cannot assert, with any certainty, what the price of gold will be by March 31, 2016.
Gold prices are affected by a number of factors which are beyond NRI’s control.
Gold prices are subject to significant fluctuation and are affected by a number of factors which are beyond NRI’s control. Such factors include, but are not limited to, interest rates, exchange rates, inflation, deflation, fluctuation in the value of the United States dollar and foreign currencies, global and regional supply and demand and the political and economic conditions of major gold-producing countries throughout the world. The price of gold and other precious and base metals has fluctuated widely in recent years and future serious price declines could cause continued development of and commercial production from the Corporation’s mineral interests to be impracticable. Depending on the price of gold and other precious metals, projected cash flow from planned mineral exploration may not be sufficient and NRI could be forced to discontinue development and may lose its interest in, or may be forced to abandon participation in the Tailings project. Future production from NRI’s mineral interests is dependent on gold prices that are adequate to make these properties economic.
Risk Factors Relating to Ownership of Silver Certificates and NRI Warrants
The delivery of all or some of the silver to the owners of the Silver Certificates and/or the delivery of all or some of the gold to the owners of NRI Warrants, who exercised such NRI Warrants, may not occur by March 31, 2016, as planned.
If this offer is successful, the Offeror shall hold at least 50.01% or 83,568,349 shares of the outstanding common stock of SDRG. As the majority stockholder, the Offeror shall take all of the corporate steps necessary in order to position itself, or its designees, so that it has the authority to cause SDRG to deliver and provide the monetary equivalent, or to bank or warehouse the future production of silver dore bars or silver concentrate for the Silver Certificates, and the monetary equivalent, or in the alternative, gold to be issued upon the exercise of the NRI Warrants as necessary to meet the future commitments of this exchange offer, on its behalf. The Offeror will cause SDRG to provide the silver to be delivered to the tendering shareholders pursuant to the Silver Certificates from the silver production of SDRG’s Erbahuo silver mine, located in Wengniute county, Inner Mongolia, China. SDRG owns 70% of the Erbahuo silver mine through its holdings in Chifeng Silver Dragon Resources & Technologies, Ltd. (“Chifeng”). Chifeng is a Sino-American joint venture with Huaguan Industrial Corp., a Chinese state-owned entity which holds 30% of Chifeng. The Offeror believes that there is sufficient silver in the Erbahuo silver mine to supply the aggregate amount of silver that would be required pursuant to the Silver Certificates to be issued in the event all 166,803,092 shares of SDRG common stock are tendered. Furthermore, in the event the amount of the monetary equivalent or in the alternative, gold available for distribution by March 31, 2016 is insufficient to meet the amount required pursuant to exercised NRI Warrants, the Offeror will be required to cause SDRG to substitute an amount of silver equal in value to the shortfall in the amount of available gold, based on the market prices of the
40
silver and gold on the date the related NRI Warrant was exercised. The Offeror believes that there is sufficient silver in the Erbahuo silver mine to not only meet the potential requirements under the Silver Certificates discussed above, but to also fulfill any shortfall in the gold available for delivery, regardless of the number of NRI Warrants exercised. However, the amount of silver actually available for delivery by March 31, 2016, may be less than required by the Silver Certificates and the shortfall, if any, in the amount of gold available. If this occurs, the holders of the Silver Certificates and NRI Warrants may not receive the full value expected thereunder, by March 31, 2016. Other SDRG mining properties will also be explored.
If this offer is successful, the Offeror shall hold at least 50.01% or 83,568,349 shares of the outstanding common stock of SDRG. As the majority stockholder, the Offeror shall take all of the corporate steps necessary in order to position itself, or its designees, so that it has the authority to cause SDRG to deliver the monetary equivalent or in the alternative, gold on its behalf. The gold to be issued upon the exercise of the NRI Warrants will come from SDRG’s current portfolio of properties. The gold will be provided on a “best efforts” basis. In the event the supply of gold available is insufficient to meet the requirements of the exercised NRI Warrants by March 31, 2016, the Offeror shall cause SDRG to distribute the available gold among the shareholders who exercised the related NRI Warrants, on apro rata basis. The Offeror shall cause SDRG to replace the remaining balance of gold with an amount of silver equal in value to the aforementioned gold, based on the market prices of the silver and gold on the date the related NRI Warrant was exercised. However, the amount of gold available for delivery by March 31, 2016 may be too small for there to be a sufficient amount of silver to cure such gold shortfall. If this occurs, the holders of the Silver Certificates and NRI Warrants may not receive the full value expected thereunder, by March 31, 2016. Other SDRG mining properties will also be explored.
The Offeror currently has no alternate source for the gold to be issued under the NRI Warrants.
The Offeror currently has no identified source of gold. However, the “NI 43-101 Report on Dadi Property, Inner Mongolia, China for Silver Dragon Resources Inc. by: David G. Wahl, P.ENG., P.GEO.“designated qualified person”, D. George Cargill, PHD, P.ENG., QP and Philip Burt, P.GEO., MET., B.SC., QP, dated February 8, 2010, by Southampton Associates Inc. Consulting Engineers and Geoscientists” discloses the finding of a presence of “native gold” and “wide proportions of gold and silver”.
The Offeror has agreed to use “best efforts” to supply the gold but has made no guarantee that it will be able to fulfill the need. Furthermore, the Offeror currently has no alternate plan to obtain the potential amount of gold required. Although the Offeror will continue to explore alternative commodity sources of gold to meet the demands of the holders of the NRI Warrants, if a shortfall in the supply of gold occurs and the Offeror is unable to secure an alternate source of gold and the Offeror is unable to obtain the necessary amount of silver necessary to replace the shortfall in available gold, you may not receive the value in gold and silver that you expect.
NRI is an exploration company with no history of operations.
41
NRI is an early stage exploration company with no history of operations. NRI has limited funds available for development of its proposed mineral exploration and joint exploration projects and there can be no assurance the necessary funds required, will be raised.
NRI is dependent on certain key personnel.
NRI’s success will largely depend on the efforts and abilities of officers and directors. While NRI does not foresee any reason why such officers or directors will not remain, if for any reason they do not, NRI might be adversely affected.
Certain directors and officers of NRI may have conflicts of interest.
Certain of the directors and officers of NRI are directors or officers of other companies and, to the extent that such other companies may participate in ventures either in competition with NRI, or in which NRI participates, they may have a conflict of interest in negotiating and concluding terms related to such participation. In the event that such a conflict of interest arises at a meeting of the directors or officers of NRI, a director or officer who has such a conflict will abstain from voting for or against the approval of such participation. In appropriate cases NRI will establish a special committee of independent directors to review a matter in which several directors, officers or management, may have a conflict. Except as indicated or as required under the corporate governance rules of any regulatory body having jurisdiction, NRI does not have any other procedures or mechanisms for dealing with conflicts of interest. These may not be sufficient to compensate for any conflict of interest.
NRI’s directors are dependent on consultants for professional industry advice.
NRI’s directors have limited experience in the mineral exploration business. For technical advice on mineral matters, NRI’s Board of Directors relies on the input of professional geologists who act as independent consultants. The lack of availability of qualified consultants could have an adverse impact on NRI.
Resource exploration is a high risk business.
Funds for exploration are required for NRI to remain a going concern. Exploration is considered to be a high risk business because of the difficulty in discovering resources of sufficient grade and volume to justify the decisions of developing a mine. In addition, NRI has made an investment in other resource companies, specifically Millstream Resources Inc. (listed on the Toronto Stock Exchange Venture Exchange: MLM:TSX-V with a trading price of $0.03 CAD per share on December 9, 2011 and on the Frankfurt Stock Exchange: NJD). NRI may make other investments in resource companies, take options on claims of mineral properties as well as enter into joint venture arrangements with other companies on properties.
Resource exploration is very speculative.
Unprofitable efforts may result not only from the failure to discover mineral deposits, but also from finding mineral deposits which, though present, are insufficient in size to return a profit
42
from production. Mineral properties are often non-productive for reasons that cannot be anticipated in advance. It cannot be accurately predicted whether NRI’s exploration projects will result in an adequate return on invested capital in exploration and property development.
The mining industry is intensely competitive.
The mining industry is intensely competitive and even if commercial quantities of mineral resources are discovered, there are many factors to determine if the sale of such minerals can be profitable. NRI competes against larger companies for such items as funding, exploration properties and drilling arrangements. In addition, because larger companies have significantly more assets, financial resources and human resources than NRI, such companies may be able to sustain losses more easily than NRI.
GOG’s common stock is traded on the Frankfurt Stock Exchange under the symbol “QGD”. NRI’s common stock is traded on the Frankfurt Stock Exchange under the symbol “3N6”. SDRG’s common stock is traded on the Over-the-Counter Bulletin Board under the symbol “SDRG”. The following table lists the closing prices per share for the common stock of GOG, NRI and SDRG on the Frankfurt Stock Exchange and OTC Bulletin Board, respectively, on _March 29_____, 2012, the last full trading day before the Offeror announced its intention to commence the exchange offer. The table illustrates the value of the Consideration you would receive based on these closing prices, the current market value of silver and gold and the exchange ratio for the offer.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Per Share |
| Per Share Price |
| Per Share Price |
| Value |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
_March 29_____, 2012 |
|
| $ [2.585] |
|
| $ [0.003] |
|
| $ [0.49] |
|
| $ [ ] |
|
The value of each share of GOG common stock and NRI common stock is only a portion of the value to be received by an SDRG stockholder who tenders SDRG common stock. The Consideration to be exchanged for each 100 shares of SDRG common stock also includes a Silver Certificate and a NRI Warrant. On March 29______, 2012, the market price of a gram of silver was $[1.04__]. On March 29_______, 2012, the market price of a gram of gold was $[53.42___].
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Value of |
| Value of |
| Per Share Price |
| Value |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
March 29_____, 2012 |
|
| $ [10.37] |
|
| $ [538.33] |
|
| $ [0.49] |
|
| $ [ ] |
|
43
As stated above, the value of the stock portion of the Consideration to be received by SDRG shareholders per share of SDRG common stock is $_____. The value of the remaining portion of the Consideration to be received by SDRG shareholders per share of SDRG common stock is $_____. Therefore the total value of the Consideration per share of SDRG common stock is $_____.
The value of the offer will change as the market prices of GOG common stock, NRI common stock, silver, gold and SDRG common stock fluctuate during the offer period and thereafter, and may therefore be different from the prices set forth above at the expiration of the offer period and at the time you receive the Consideration.You are encouraged to obtain current market quotations prior to making any decision with respect to the offer.
BACKGROUND AND REASONS FOR THE OFFER
Since NRIs’ formation in 2004, NRI has explored all available avenues for profitable growth, including evaluating mining opportunities for strategic acquisitions which fit NRIs’ criteria of partnering with a producer. In connection with such strategic evaluation, NRI has, in the past, had preliminary discussions with GOG regarding a potential business combination transaction. In December 2009, GOG and NRI researched SDRG’s property holdings, management and stock trading. GOG and NRI concluded that the SDRG’s stock volatility did not reflect well on the management and operations. They believe they can assist in bringing more stability to SDRG’s ongoing operations and financial plans. The boards of both NRI and GOG have a deep reservoir of human resources to fill the gaps in the SDRG board. We would supplement SDRG’s board with highly skilled talent in the following area of expertise. On December 7, 2011, GOG hired Greame Scott as president. Mr. Scott would bring a depth of knowledge and experience to the engineering and production aspects of the mining projects of SDRG. Mr. Scott’s background includes over 25 years of mining experience. His most recent project was Project Manager at Fonteneau Resources, an iron mining company with projects in Schefferville, Quebec and Labrador. From 2005 to 2008, Mr. Scott was the President of Caliber Energy, a US public oil company with exploration projects in Alberta. In 2006 to 2008, Mr. Scott was also the President of Bancroft Uranium Inc., an exploration company with advance uranium project in East Central Ontario. Mr. David Coutts, MA in Psychology, would benefit SDRG’s Human Resources department. Mr. Walter Fox, LLB, who has over 43 years of experience as a lawyer. Mr. Fox would be an excellent choice for the Head of Compliance for SDRG. Furthermore, Mr. John Sprately, LLB and Field Geologist would bring capable experience to the all the legal aspects in the mining projects. Mr. Ron Haller, Certified Management Accountant (CMA) has over 20 years experience in accounting and corporate filings of public companies. Mr. Haller also has served as a director on the board of a number of mining companies. Both NRI and GOG, as co-
44
offerrors, merely intend to provide the support required to meet and exceed SDRG’s current business plan and to bring value to SDRG’s shareholders. While the management and board of directors of SDRG have been managing business operations, shareholder value has declined since November, 2009. During that period, its price has dropped over 87%. With this offer, the Offeror hopes to unlock hidden shareholder value. If the minimum amount of SDRG shares are tendered, the plans of the Offeror is to provide all necessary support to meet and exceed SDRG current responsibilities to SDRG’s shareholders and to bring value to its shareholders with plans to use the proceeds from the exercised NRI Warrants to assist in the financing of new silver/gold production facilities planned for 2012-2013 and exploration projects planned for 2012. If the maximum amount of SDRG shares are tendered, the Offeror will be strongly positioned to raise additional capital financing and other types of financing which will be instrumental to fund the new silver/gold exploration and production facilities planned for the next several years at the Dadi property, Laopandao Field projects, Aobaotugonao Exploration, Shididonggou property, Zhuanxinhu property and Yuanlinzi property.
As both GOG and NRI work with professionals in the mining industry, they believe they can be of assistance to SDRG’s strategic plans and development. GOG and NRI believe that, over the long term, SDRG’s asset value will improve and eventually be reflected in SDRG’s share price. In addition, GOG and NRI believe that there may be joint venture opportunities with SDRG.
Resolutions authorizing management to pursue the exchange offer was passed by the Board of Directors of NRI on December 4, 2009. Resolutions authorizing management to consider the exchange offer was passed by the Board of Directors of GOG on December 5, 2009.
Initially, GOG was a co-registrant in the Form F-4 exchange offer for SDRG shares. GOG’s was offering ten million (10,000,000) shares of Grit International Inc. (“GII”) held by GOG as part of the consideration for the SDRG shares. After review of the initial F-4 filing, it was determined that the GII shares, could not be previously issued shares, but must be new shares issued directly from treasury.
After several attempts to structure an offer without the inclusion of GII as a co-Offeror or registrant, NRI officially asked GII to join it as co-Offeror and to register the 18,622,251 shares of GII common stock to be issued in the offer. On April 7, 2010, GII agreed to become a co-Offeror and to register its shares of common stock which were to be issued by GII in the offer. GOG stepped down as a co-Offeror.
Subsequently, the Frankfurt Stock Exchange approved and listed the shares of GOG common stock on December 6, 2010.
On January 28, 2011 both NRI and GOG signed a Memorandum of Agreement to outline the roles and responsibilities of each company and their commitment to use reasonable best efforts for the successful completion of the exchange offer. On March 1, 2011 the Board of Directors met to approve the appointment of Nannarone & McMurdo, LLP as the law firm to represent GOG in this exchange offer. The initial registrants, NRI and GOG, then ascertained that there were significant divergent philosophies between the original registrants and GII given its changing corporate direction. Therefore, NRI asked GII to step down as a co-Offeror and
45
requested that GOG rejoin it as Co-Offeror, offering shares of GOG common stock. The Offeror has therefore withdrawn the registration statement filed on March 2, 2011 whereby GII was to have been a co-Offeror. Consequently, including the shares of GOG, this is now a more suitable mix of securities for the SDRG shareholders in lieu of the GII securities because GOG is an exploration company that intends to reprocess precious and base metals mine tailings utilizing a proprietary refining process and, therefore the current mining projects with both silver and gold owned and operated by SDRG bring a synergy of partnership. Both NRI’s and GOG’s Board of Directors met on May 3, 2011 to review the current F-4 Registration Statement and then the new S-4 Registration Statement recommendations and changes are proposed by the SEC response letter dated March 11, 2011. On July 29, 2011 the NRI Board of Directors with a representative from GOG met to review the finalized version of the revised S-4 scheduled to be filed on August 02, 2011. On August 5, 2011, at GOG’s board meeting, the S-4 Registration Statement filed on August 02, 2011 was discussed.
Ownership of SDRG Common Stock
NRI does not own any SDRG common stock. GOG does not own any SDRG common stock. Neither the directors and officers of GOG nor the directors and officers of NRI beneficially own, directly or indirectly, or control or exercise direction over, or have the right to acquire any SDRG common stock as of May 26, 2011. To the knowledge of the Offeror, after reasonable inquiry through the active questioning of each of the directors and officers of GOG and NRI and the beneficial holders of more than 10% of the outstanding equity of GOG and NRI, no securities of SDRG are beneficially owned, directly or indirectly, by, nor is control or direction over any securities of SDRG exercised by, any person or company acting jointly or in concert with GOG or NRI, any affiliate of GOG or NRI, any director or officer of GOG or NRI, or any person or company who beneficially owns, directly or indirectly, more than 10% of the GOG outstanding equity and/or the NRI outstanding equity, except as may otherwise be disclosed herein, in the prospectus.
Trading in SDRG Securities by the Offeror
No securities of SDRG have been traded during the six month period preceding the date of the offer by GOG or NRI, by any director or senior officer of GOG or NRI, or, to the knowledge of the Offeror, after reasonable inquiry through the active questioning of each of the directors and officers of GOG and NRI and the beneficial holders of more than 10% of the outstanding equity of GOG and NRI, by any person or company acting jointly or concert with GOG or NRI, any affiliate of GOG or NRI, any director or officer or any person or company who beneficially owns, directly or indirectly, more than 10% of any the outstanding capital stock of GOG or NRI.
Commitments to Acquire Securities of SDRG or Other Arrangements between the Offeror and SDRG, its Directors or Officers
No commitments or other arrangements have been made by the Offeror, or by any director or officer of GOG or NRI, or, to the knowledge of the Offeror, after reasonable inquiry through the active questioning of each of the directors and officers of GOG and NRI and the beneficial holders of more than 10% of the outstanding equity of GOG and NRI, by any person or company acting jointly or in concert with the GOG or NRI, any affiliate of GOG or NRI, any director or
46
officer of SDRG or any person or company who beneficially owns, directly or indirectly, more than 10% of the outstanding capital stock of GOG or NRI to acquire any securities of SDRG, except for the offer to acquire SDRG common stock.
The purpose of the offer is to enable the Offeror to acquire at least 50.01% of the outstanding common stock of SDRG. If the offer is successful, the Offeror proposes to supplement SDRG’s business by means of increasing SDRG’s opportunities in the resource industry, with a view of enhancing the Offeror’s investment in SDRG. In addition, the Offeror will explore and attempt to initiate joint venture efforts with SDRG’s associates and other potential partners.
Although the Offeror does not presently have the intention to sell SDRG common stock taken up under the offer after the ten (10) day period following the offer, the Offeror reserves the right to make or enter into an arrangement, commitment or understanding at or prior to the Expiration Date, conditional upon receiving a minimum of 50.01% or 83,568,349 shares of the outstanding shares of SDRG common stock, to sell any such SDRG common stock after the ten (10) day period following the Expiration Date.
The Offeror is offering to exchange (i) 1,668,031 shares of common stock of GOG; (ii) 1,668,031 shares of common stock of NRI; (iii) 1,668,031 Silver Certificates; and (iv) 1,668,031 NRI Warrants for shares of common stock of SDRG at an exchange ratio of (i) one (1) share of GOG common stock, (ii) one (1) share of NRI common stock, (iii) one (1) Silver Certificate and (iv) one (1) NRI Warrant for each 100 shares of SDRG common stock, upon the terms and subject to the conditions in this prospectus and accompanying letter of transmittal. This offer is referred to in this prospectus as the “exchange offer” or the “offer.”
The offer is open to all shareholders. Furthermore, the offer is for not less than 50.01% or 83,568,349 of the outstanding shares of SDRG. Odd lots of less than 100 shares may be tendered. However, odd lots of less than 100 shares of SDRG common stock must be tendered to the Depository directly. The tendered securities will be accepted by the Depository on behalf of the Offeror and the Consideration to be issued in exchange will bepro rated. For example, for a shareholder tendering one (1) shares of SDRG common stock, the Consideration will be (i) one one hundredth (1/100) of a share of GOG common stock, (ii) one one hundredth (1/100) of a share of NRI common stock, (iii) one (1) silver certificate for one tenth (1/10) of a gram of silver and (iv) one NRI Warrant.
If you are a registered stockholder and tender your shares of SDRG common stock directly to the Depository, you will not be obligated to pay any charges or expenses of the Depository or any brokerage commissions. If you hold your shares through a broker or bank, you should consult your institution as to whether or not they will charge you any service fees. Transfer taxes on the exchange of shares of SDRG common stock pursuant to the offer will be paid by the Offeror.
Extension, Termination and Amendment of the Offer
47
The offer will expire at 1:00 p.m., Toronto time, on April 19, 2012 (a trading day at least 20 business days after commencement of the exchange offer), unless extended to a later date by the Offeror (the “Expiration Date”), which date shall not be prior to date on which the SEC declares the registration statement, of which this prospectus is a part, effective. Subject to the rules of the SEC and the terms and conditions of this offer, the Offeror reserves the right, in its sole discretion, at any time or from time to time, to extend the period of time during which the offer remains open, and the Offeror can do so by giving oral or written notice of such extension to the Depository. If the Offeror decides to so extend the offer, the Offeror will make an announcement to that effect no later than 9:00 a.m., Toronto time, on the next business day after the previously scheduled expiration date. The Offeror is not making any assurance that it will exercise its right to extend the offer, although it currently intends to do so until all conditions to the offer have been satisfied or waived. During any such extension, all shares of SDRG common stock previously tendered and not withdrawn will remain subject to the offer, subject to your right to withdraw your shares of SDRG common stock.See The Offer—Withdrawal Rights, page 53.
To the extent legally permissible, the Offeror also reserves the right, in its sole discretion, at any time or from time to time:
|
|
|
| • | to delay acceptance for exchange of, or exchange of, any shares of SDRG common stock pursuant to the offer in order to comply in whole or in part with applicable law; |
|
|
|
| • | to terminate the offer and not accept or exchange any shares of SDRG common stock not previously accepted or exchanged, upon the failure of any of the conditions of the offer to be satisfied prior to the expiration date; and |
|
|
|
| • | to waive any condition or otherwise amend the offer in any respect. |
In addition, even if the Offeror has accepted for exchange, but not exchanged, shares in the offer, it may terminate the offer and not exchange shares of SDRG common stock that were previously tendered if completion of the offer is illegal or if a governmental authority has commenced or threatened legal action related to the offer.
SDRG will effect any extension, termination, amendment or delay by giving oral or written notice to the Depository and by making a public announcement as promptly as practicable thereafter. In the case of an extension, any such announcement will be issued no later than 9:00 a.m., Toronto time, on the next business day after the previously scheduled expiration date. Subject to applicable law and without limiting the manner in which the Offeror may choose to make any public announcement, the Offeror assumes no obligation to publish, advertise or otherwise communicate any such public announcement other than by making a press release.
The Offeror acknowledges that Rule 14e-1(c) under the Exchange Act requires that the Offeror pay the consideration offered or return the shares of SDRG common stock tendered promptly after the termination or withdrawal of the offer. The Offeror will make the exchange offer for a minimum of 20 business days, as required by SEC rules.
48
The Offeror confirms to you that if it makes a material change in the terms of the offer or the information concerning the offer, or if it waives a material condition of the offer, it will extend the offer to the extent required under the Exchange Act. If, prior to the expiration date, the Offeror changes the percentage of shares of SDRG common stock being sought or the consideration offered to you, that change will apply to all holders whose shares of SDRG common stock are accepted for exchange pursuant to the Offeror’s offer, regardless of whether the shares were tendered before or after the change. If at the time notice of that change is first published, sent or given to you, the offer is scheduled to expire at any time earlier than the tenth business day from and including the date that such notice is first so published, sent or given, the Offeror will extend the offer until the expiration of that ten business day period. For purposes of the offer, a “business day” means any day other than a Saturday, Sunday or federal holiday and consists of the time period from 12:01 a.m. through 12:00 midnight, Toronto time.
Exchange of SDRG Shares; Delivery of the Consideration
Upon the terms and subject to the conditions of the offer, as described in the prospectus, (including, if the offer is extended or amended, the terms and conditions of any such extension or amendment), the Offeror will accept for exchange, and will exchange, (i) 1,668,031 shares of common stock of GOG; (ii) 1,668,031 shares of common stock of NRI; (iii) 1,668,031 Silver Certificates; and (iv) 1,668,031 NRI Warrants for shares of SDRG common stock validly tendered and not properly withdrawn promptly after the expiration date. In addition, subject to applicable rules of the SEC, the Offeror expressly reserves the right to delay acceptance for exchange of, or the exchange of, shares of SDRG common stock in order to comply with any applicable law. In all cases, exchange of shares of SDRG common stock tendered and accepted for exchange pursuant to the offer will be made only after timely receipt by the Depository of certificates for those shares of SDRG common stock (or a confirmation of a book-entry transfer of those shares of SDRG common stock in the Depository’s account at The Depository Trust Company, referred to as “DTC”), a properly completed and duly executed letter of transmittal and any other required documents.
For purposes of the offer, the Offeror will be deemed to have accepted for exchange shares of SDRG common stock validly tendered and not properly withdrawn as, if and when it notifies the Depository of its acceptance of the tenders of those shares of SDRG common stock pursuant to the offer. The Depository will deliver the Consideration in exchange for shares of SDRG common stock pursuant to the offer promptly after receipt of such notice. The Depository will act as your agent for the purpose of receiving the Consideration from the Offeror and transmitting the Consideration to you.
Settlement will be made by the Offeror issuing and delivering a share of GOG common stock, a NRI Warrant, a share of NRI common stock and a Silver Certificate. Unless otherwise directed in the letter of transmittal, a GOG share, a NRI Warrant, a Silver Certificate and an NRI share will be issued in the name of the registered shareholder and will be forwarded by first-class mail to such person at the address specified in the letter of transmittal. If no address is therein specified, a GOG share, an NRI Warrant, a Silver Certificate and a NRI share will be forwarded to the address of the shareholder as shown on the register maintained by SDRG. The Silver
49
Certificate shall be redeemable on or after March 31, 2016 by depositing such by registered mail or hand delivery to the office of NRI or the Depository. The NRI Warrant shall be exercisable on or before May 18, 2012 by the holder tendering $190.00 by registered mail or hand delivered to the office of NRI or the Depository.
Within ten (10) business days of receipt by NRI of a NRI Warrant being exercised, together with a subscription form duly completed and executed, NRI shall deliver or cause to be delivered to the holder of the NRI Warrant a gold certificate representing the ten (10) grams of gold subscribed for and purchased by such holder thereunder (a “Gold Certificate”). The holder of the NRI Warrant must also deliver the applicable payment in order to receive a Gold Certificate. Such payment must be in the form of a certified check, bank draft or money order in U.S. dollars, payable to NRI. A form of a Gold Certificate is attached as an exhibit hereto.
If the Offeror does not accept any tendered shares of SDRG common stock for exchange pursuant to the terms and conditions of the offer for any reason (including shares not accepted because of proration), the Offeror will return certificates for such unexchanged shares of SDRG common stock without expense to the tendering stockholder or, in the case of shares of SDRG common stock tendered by book-entry transfer of such shares of SDRG common stock into the Depository’s account at DTC pursuant to the procedures set forth below inThe Offer—Procedure for Tendering, page 50, those shares of SDRG common stock will be credited to an account maintained within DTC promptly following expiration or termination of the offer.
Procedure for Tendering Shares
For you to validly tender shares of SDRG common stock pursuant to the offer, either (a) a properly completed and duly executed letter of transmittal, along with any required signature guarantees, or an agent’s message in connection with a book-entry transfer, and any other required documents, must be received by the Depository at one of its addresses set forth on the back cover of this prospectus, and certificates for tendered shares of SDRG common stock must be received by the Depository at such address or those shares of SDRG common stock must be tendered pursuant to the procedures for book-entry transfer set forth below (and a confirmation of receipt of such tender, referred to as a “book-entry confirmation,” must be received), in each case before the expiration date, or (b) you must comply with the guaranteed delivery procedures set forth below underThe Offer—Guaranteed Delivery,page 52.
The term “agent’s message” means a message transmitted by DTC to, and received by, the Depository and forming a part of a book-entry confirmation, which states that DTC has received an express acknowledgment from the DTC participant tendering the shares of SDRG common stock that are the subject of such book-entry confirmation, that such participant has received and agrees to be bound by the terms of the letter of transmittal and that The Offeror may enforce that agreement against such participant.
The Depository has established accounts with respect to the shares of SDRG common stock at DTC in connection with the offer, and any financial institution that is a participant in DTC may make book-entry delivery of shares of SDRG common stock by causing DTC to transfer such shares into the Depository’s account in accordance with DTC’s procedure for such
50
transfer. However, although delivery of shares of SDRG common stock may be effected through book-entry transfer at DTC, the letter of transmittal with any required signature guarantees, or an agent’s message, along with any other required documents, must, in any case, be received by the Depository at one of its addresses set forth on the back cover of this prospectus prior to the expiration date, or the guaranteed delivery procedures described below must be followed. The Offeror cannot assure you that book-entry delivery of its shares will be available. If book-entry delivery is not available, you must tender SDRG shares by means of delivery of SDRG share certificates or pursuant to the guaranteed delivery procedures set forth below underThe Offer—Guaranteed Delivery, page 52.
Signatures on all letters of transmittal must be guaranteed by an eligible institution (as defined below), except (1) in cases in which shares of SDRG common stock are tendered by a registered holder of shares of SDRG common stock who has not completed the box entitled “Special Issuance Instructions” or the box entitled “Special Delivery Instructions” on the letter of transmittal or (2) if shares of SDRG common stock are tendered for the account of a financial institution that is a member of the Securities Transfer Agents Medallion Program or by any other “eligible guarantor institution,” as that term is defined in SEC Rule 17Ad-15 (each of the foregoing is referred to as an “eligible institution”). Most banks, savings and loan associations and brokerage houses are able to effect these signature guarantees for you.
If the certificates for shares of SDRG common stock are registered in the name of a person other than the person who signs the letter of transmittal, or if the offer consideration is to be delivered, or certificates for unexchanged shares of SDRG common stock are to be issued, to a person other than the registered holder(s), the SDRG share certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered owner or owners appear on the certificates, with the signature(s) on the certificates or stock powers guaranteed by an eligible institution.
In all cases, the Offeror will exchange shares of SDRG common stock tendered and accepted for exchange pursuant to the offer only after timely receipt by the Depository of certificates for shares of SDRG common stock (or timely confirmation of a book-entry transfer of such securities into the Depository’s account at DTC as described above), properly completed and duly executed letter(s) of transmittal (or an agent’s message in connection with a book-entry transfer) and any other required documents.
By executing a letter of transmittal as set forth above, you irrevocably appoint the Offeror’s designee as your attorney-in-fact and proxies, with full power of substitution, to the full extent of your rights with respect to your shares of SDRG common stock tendered and accepted for exchange by the Offeror and with respect to any and all other shares of SDRG common stock and other securities issued or issuable in respect of the shares of SDRG common stock on or after the expiration date. That appointment is effective, and voting rights will be affected, when and only to the extent that the Offeror deposits with the Depository the Consideration. All such proxies will be considered coupled with an interest in the tendered shares of SDRG common stock and therefore will not be revocable. Upon the effectiveness of such appointment, all prior proxies that you have given will be revoked, and you may not give any subsequent proxies (and, if given, they will not be deemed effective). The Offeror’s designee will, with respect to the
51
shares of SDRG common stock for which the appointment is effective, be empowered, among other things, to exercise all of your voting and other rights as it, in its sole discretion, deem proper at any annual, special or adjourned meeting of SDRG’s stockholders or otherwise. The Offeror reserves the right to require that, in order for shares of SDRG common stock to be deemed validly tendered, immediately upon the exchange of those shares, the Offeror must be able to exercise full voting rights with respect to those shares.
The method of delivery of SDRG share certificates and all other required documents, including delivery through DTC, is at your option and risk, and the delivery will be deemed made only when actually received by the Depository. If delivery is by mail, the Offeror recommends registered mail with return receipt requested and properly insured. In all cases, you should allow sufficient time to ensure timely delivery.
This prospectus is directed to all persons who are shareholders (all such persons together being referred to as “relevant persons”). This prospectus must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this prospectus relates is available only to relevant persons and will be engaged in only with relevant persons.
If a shareholder wishes to deposit his or her SDRG shares pursuant to the offer and (i) the certificates representing the SDRG shares are not immediately available, or (ii) such shareholder is not able to deliver the certificates representing the SDRG shares and all other required documents to the Depository prior to the Expiration Date, such shares of SDRG common stock may nevertheless be deposited pursuant to the offer provided that all of the following conditions are met:
|
|
| (a) such deposit is made by or through an eligible institution; |
|
|
| (b) a properly completed and duly executed notice of guaranteed delivery in the form enclosed herewith (printed on yellow paper), or a manually signed facsimile thereof, is received by the Depository at its office as set forth on the notice of guaranteed delivery, prior to the Expiration Date; and |
|
|
| (c) the certificates representing deposited shares of SDRG common stock in proper form for transfer, together with a properly completed and duly executed letter of transmittal in the form enclosed herewith (printed on blue paper), or a manually signed facsimile thereof and all other documents required by such letter of transmittal, are received at the office of the Depository set forth on the last page of the letter of transmittal on or before 1:00 p.m. (Toronto time) not later than ten (10) trading days after delivery to the Depository of a properly completed and duly executed notice of guaranteed delivery. |
The notice of guaranteed delivery may be delivered by hand or sent by facsimile transmission or mail to the Depository at the office specified in the notice of guaranteed delivery and must
52
include a signature guarantee by an eligible institution in the form set forth in such notice of guaranteed delivery.
Matters Concerning Validity and Eligibility
The Offeror will determine all questions as to the validity, form, eligibility (including time of receipt) and acceptance for exchange of any tender of shares of SDRG common stock, in its sole discretion, and its determination will be final and binding to the fullest extent permitted by law. The Offeror reserves the absolute right to reject any and all tenders of shares of SDRG common stock that it determines is not in proper form or the acceptance of or exchange for which may, in the opinion of its counsel, be unlawful. The Offeror also reserves the absolute right to waive any defect or irregularity in the tender of any shares of SDRG common stock. No tender of shares of SDRG common stock will be deemed to have been validly made until all defects and irregularities in tenders of shares of SDRG common stock have been cured or waived. None of the Offeror, the Depository or any other person will be under any duty to give notification of any defects or irregularities in the tender of any shares of SDRG common stock or will incur any liability for failure to give any such notification. The Offeror’s interpretation of the terms and conditions of the offer (including the letter of transmittal and instructions thereto) will be final and binding to the fullest extent permitted by law.
If you have any questions about the procedure for tendering shares of SDRG common stock, please contact GOG or NRI at their respective address and telephone number set forth on the back cover of this prospectus.
Any shares of SDRG common stock deposited in acceptance of the offer may be withdrawn by or on behalf of the depositing shareholder (unless otherwise required or permitted by applicable law):
(a) at any time at the place of deposit before the expiration of twenty (20) days from the date of the offer, namely prior to midnight (Toronto time/Eastern Time Zone) on April 19, 2012; and provided that the SDRG shares have not been taken up and paid for by the Offeror prior to the receipt by the Depository of a notice of withdrawal in respect of such shares of SDRG common stock.
In addition, if:
(b) there is a variation of the terms of the offer before the Expiration Date (including any extension of the period during which SDRG shares may be deposited hereunder or the modification of a term or condition of the offer, but excluding, unless otherwise required by applicable law, a variation consisting solely of an increase in the consideration offered where the time for deposit is not at the same time extended for more than ten (10) days); or
53
(c) on or before the Expiration Date or after the Expiry Time but before the expiry of all rights of withdrawal with respect to the shares of SDRG common stock, a change occurs in the information contained in the prospectus, as amended from time to time, that would reasonably be expected to affect the decision of a shareholder to accept or reject the offer, unless such change is not within the control of the Offeror or affiliates of the Offeror (except, to the extent required by applicable law, where it is a change in material fact relating to the SDRG common stock);
then any SDRG shares deposited under the offer and not taken up and paid for by the Offeror at such time may be withdrawn by or on behalf of the depositing shareholder at the place of deposit at any time until the expiration of ten (10) days after the date upon which the notice of such change or variation is mailed, delivered or otherwise communicated, subject to abridgement of that period pursuant to such order or orders as may be granted by the applicable courts or securities regulatory authorities.
In order for any withdrawal to be made, notice of the withdrawal must be in writing (which includes telegraphic communication or notice by electronic means that produces a printed copy), and must be actually received by the Depository at the place of deposit of the applicable SDRG common stock or by facsimile transmission to the Toronto office of the Depository within the period permitted for withdrawal. Any such notice of withdrawal must be: (i) signed by or on behalf of the person who signed the letter of transmittal that accompanied the shares of SDRG common stock to be withdrawn and (ii) specify the number of SDRG shares to be withdrawn, the name of the registered holder and the certificate number shown on each certificate representing the SDRG shares to be withdrawn. Any signature in a notice of withdrawal must be guaranteed by an eligible institution in the same manner as in the letter of transmittal (as described in the rules and instructions set out in such letter).
All questions as to the validity (including timely receipt) and form of notices of withdrawal shall be determined by the Offeror in its sole discretion, and such determination shall be final and binding.
If the Offeror is delayed in taking up for shares of SDRG common stock or is unable to take up for SDRG shares for any reason, then, without prejudice to the Offeror’s other rights, SDRG shares may not be withdrawn except to the extent that depositing holders of SDRG common stock are entitled to withdrawal rights as set forth in this Section or pursuant to applicable law.
Any shares of SDRG common stock withdrawn will be deemed not validly deposited for the purposes of the offer, but may be re-deposited at any subsequent time prior to the Expiration Time by following any of the procedures described herein.
In addition to the foregoing rights of withdrawal, shareholders are entitled to statutory rights of rescission in certain circumstances.
54
Notwithstanding the provisions of the letter of transmittal or the notice of guaranteed delivery, the certificates for the GOG common stock, the certificates for the NRI common stock, the Silver Certificates, the NRI Warrants and the certificates for any shares of SDRG common stock to be returned will not be mailed if the Offeror determines that delivery thereof by mail may be delayed. Persons entitled to any certificates which are not mailed for the foregoing reason may take delivery thereof at the office of the Depository to which the deposited certificates for shares of SDRG common stock were deposited, upon application to the Depository, until such time as the Offeror has determined that delivery by mail will no longer be delayed. The Offeror shall provide notice of any such determination not to mail made under this Section as soon as reasonably practicable after the making of such determination.
Any notice to be given by the Offeror or the Depository pursuant to the offer will be deemed to have been properly given if it is mailed by first class mail, postage prepaid, to the registered shareholders at their addresses as shown on the register of SDRG and will be deemed to have been received on the first day following the date of mailing which is not a Saturday, Sunday or statutory holiday in the Province of Ontario. These provisions apply notwithstanding any accidental omission to give notice to anyone or more shareholders and notwithstanding any interruption of mail services in Canada following mailing. In the event of any interruption of mail service following mailing, the Offeror intend to make reasonable efforts to disseminate the notice by other means, such as publication. Except as otherwise required or permitted by law, if post offices in Canada are not open for the deposit of mail, any notice which the Offeror or the Depository may give under the offer will be deemed to have been properly given and to have been received by shareholders if it is published once in a national newspaper.
Wherever the offer calls for documents to be delivered to the Depository, such documents will not be considered delivered unless and until they have been physically received at the address listed for the Depository on the letter of transmittal or notice of guaranteed delivery, as applicable.
Announcement of Results of the Offer
The Offeror will announce by press release the final results of the offer, including whether all of the conditions to the offer have been fulfilled or waived and whether the Offeror will accept the tendered shares of SDRG common stock for exchange, promptly after expiration of the offer.
Ownership of GOG after the Offer
On December 30, 2011, 45,136,000 shares of GOG common stock were outstanding, including shares issuable on the exercise of outstanding stock options. Based on the exchange ratio for the offer, if 166,803,092 shares of SDRG common stock are exchanged for the entire 100% of the Consideration, former SDRG stockholders would own, in the aggregate, approximately 3.70% of the outstanding shares of GOG common stock. Based on the exchange ratio for the offer, if 63,957,655 shares of SDRG common stock are exchanged for a minimum of 50.01% of the
55
Consideration, the former SDRG stockholders would own, in the aggregate, approximately 1.85% of the outstanding shares of GOG common stock.
Ownership of NRI after the Offer
On December 30, 2011, 17,636,299 shares of NRI common stock were outstanding, including shares issuable on the exercise of outstanding stock options. Based on the exchange ratio for the offer, if 166,803,092 shares of SDRG common stock are exchanged for the entire 100% of the Consideration, former SDRG stockholders would own, in the aggregate, approximately 9.46% of the outstanding shares of NRI common stock. Based on the exchange ratio for the offer, if 63,957,655 shares of SDRG common stock are exchanged for a minimum of 50.01% of the Consideration, the former SDRG stockholders would own, in the aggregate, approximately 4.73% of the outstanding shares of GOG common stock.
For the purposes of these rules, a registered person shall account for all assets and liabilities in such a way that recognizes the substance of a transaction, an arrangement or a position. The SDRG shares acquired by GOG and NRI will be accounted for at the closing price of the SDRG shares on the day before the commencement date of the offer with the shares issued by GOG and NRI valued at this amount. If immediately after the transaction there is a shift in the assets/liabilities to increase overall net worth, then a gain/income should be recorded, even though the transaction itself may have not resulted in any net receivable or net amount received.
For the purposes of these rules, a registered person shall ensure that his accounting policies are in accordance with this section and seek the Commission’s approval before adopting a different accounting policy.
The following is a discussion of certain U.S. federal income tax consequences of the offer to holders of SDRG common stock whose stock is exchanged for the Consideration pursuant to the offer. The discussion is based on the Internal Revenue Code of 1986, as amended, referred to in this prospectus as the “Code,” applicable Treasury Regulations and administrative and judicial interpretations thereof, each as in effect as of the date of this offer, all of which may change, possibly with retroactive effect. The discussion applies only to stockholders who hold their SDRG common stock as capital assets and may not apply to stockholders subject to special rules under the Code, including, without limitation, persons who acquired their SDRG common stock upon the exercise of stock options or otherwise as compensation, financial institutions, brokers, dealers or traders in securities or commodities, insurance companies, partnerships or other entities treated as partnerships or flow-through entities for U.S. federal income tax purposes, tax-exempt organizations, persons who are subject to alternative minimum tax, persons who hold SDRG common stock as a position in a “straddle” or as part of a “hedging” or “conversion” transaction or other integrated investment, or persons that have a functional currency other than the United States dollar. This discussion does not address the U.S. federal tax consequences to
56
any stockholder of SDRG who, for U.S. federal income tax purposes, is a non-resident alien individual, foreign corporation, foreign partnership or foreign estate or trust, and does not address any state, local or foreign tax consequences of the offer.
Because individual circumstances may differ, each stockholder should consult such stockholder’s tax advisor regarding the applicability of the rules discussed below to such stockholder and the particular tax effects to such stockholder of the offer, including the application and effect of state, local, and foreign tax laws.
The receipt of the Consideration in exchange for SDRG common stock pursuant to the offer is expected to be a taxable transaction for U.S. federal income tax purposes. In general, a stockholder who exchanges SDRG common stock pursuant to the offer will recognize gain or loss for U.S. federal income tax purposes equal to the difference, if any, between the fair market value on the date of acceptance for exchange pursuant to the offer of the Consideration received and the holder’s adjusted tax basis in the SDRG common stock exchanged pursuant to the offer. Gain or loss will be determined separately for each block of SDRG common stock (i.e., SDRG common stock acquired at the same cost in a single transaction) exchanged pursuant to the offer. Any such gain or loss generally will be long-term capital gain or loss if the stockholder has held the SDRG common stock for more than one year on the date of acceptance for exchange pursuant to the offer. Long-term capital gain of non-corporate stockholders is generally taxable at a maximum rate of 15%. Certain limitations apply to the use of capital losses.
A holder’s tax basis in the GOG common stock and NRI common stock received pursuant to the offer will equal its fair market value on the date of acceptance for exchange pursuant to the offer. A holder’s holding period in the GOG common stock and the NRI common stock received will begin the day following the date of acceptance for exchange pursuant to the offer.
Dissenters’ rights are the rights of stockholders, in certain cases, to receive “fair value” for their shares, plus accrued interest, as determined by a statutorily prescribed process, which may include a judicial appraisal process. Dissenters’ rights are not available to SDRG shareholders in this offer.
Effect of the Offer on the Market for Shares of SDRG Common Stock; Registration under the Exchange Act; Margin Regulations
Effect of the Offer on the Market for the Shares of SDRG Common Stock
According to SDRG’s Form 10-K for the year ended December 31, 2011, the shares of SDRG common stock are quoted on the Over-the-Counter Bulletin Board and, as of March 22, 2012, there were approximately 386 holders of record of SDRG common stock not including shares held in “street name” in brokerage accounts which are unknown. The exchange of shares of SDRG common stock by the Offeror pursuant to the offer will reduce the number of holders of SDRG common stock and the number of shares of SDRG common stock held by individual
57
holders and could adversely affect the liquidity and market value of the shares of SDRG common stock.
Registration under the Exchange Act
Based upon SDRG’s public filings with the SEC, the Offeror believes that SDRG common stock is currently registered under the Exchange Act. The Offeror does not expect the offer to result in the termination of the registration of the SDRG common stock under the Exchange Act.
Margin Regulations
SDRG common stock is not a “margin security” under the regulations of the Board of Governors of the Federal Reserve System, and is therefore not subject to the margin regulations of the Federal Reserve Board.
Notwithstanding any other provision of the offer, the Offeror is not required to accept for exchange or, subject to any applicable rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating to the Offeror’s obligation to pay for or return tendered shares promptly after termination or expiration of the offer), exchange any shares of SDRG common stock, and may terminate or amend the offer, if, at the expiration date, any of the following conditions have not been satisfied or, to the extent legally permissible, waived:
|
|
|
| • | the “registration statement condition”—the registration statement of which this prospectus is a part shall have become effective under the Securities Act, no stop order suspending the effectiveness of the registration statement shall have been issued and no proceedings for that purpose shall have been initiated or threatened by the SEC; |
|
|
|
| • | that shareholders validly deposit under the offer and not withdraw or waive an aggregate amount of not less than 50.01% of the shares of outstanding SDRG common stock, on a fully diluted basis immediately prior to the expiration of the offer; |
In addition, notwithstanding any other provision of the offer, the Offeror is not required to accept for exchange or, subject to any applicable rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating to the Offeror’s obligation to pay for or return tendered shares promptly after termination or expiration of the offer), exchange any shares of SDRG common stock, and may terminate or amend the offer, if, at any time on or after the date of this prospectus and before the expiration of the offer, any of the following conditions exist:
|
|
|
| (i) | interim or final relief shall have been granted in any action, suit or proceeding in, before or by any domestic or foreign court, tribunal or governmental agency or |
58
|
|
|
|
| other regulatory or administrative agency or commission or before or by any elected or appointed public official in the United States or elsewhere (whether or not having the force of law) and no law, regulation or directive (whether or not having the force of law) shall have been proposed, enacted, promulgated or applied, which (in any such case) prevents the Offeror from proceeding with the offer or with the taking up and paying for SDRG shares; or |
|
|
|
| (ii) | an action, suit or proceeding shall have been commenced in, before or by any domestic or foreign court, tribunal or governmental agency or other regulatory or administrative agency or commission or before any elected or appointed public official in the United States or elsewhere (whether or not having the force of law) and no law, regulation or directive (whether or not having the force of law) shall have been proposed, enacted, promulgated or applied, which (in any such case): (i) in the reasonable opinion of the Offeror has merit and questions the right of the Offeror lawfully to proceed with the offer or take up and pay for the shares of SDRG common stock; or (ii) in the reasonable opinion of the Offeror materially adversely affects any of the assets or properties of SDRG; or |
|
|
|
| (iii) | the Offeror shall have reasonably determined in its sole judgment that SDRG has taken any action which might make it inadvisable for the Offeror to proceed with the offer and/or with the taking up and paying for SDRG common stock under the offer including, without limiting the generality of the foregoing, any agreement or understanding relating to the sale, disposition of or other dealing with any of the assets of SDRG or any part thereof or interest therein or relating to SDRG’s rights to manage, operate or control any of its assets or any part thereof or relating to the purchase, subscription, reservation, allotment or issuance of any unissued shares or securities convertible into shares of SDRG or any agreement, option, right or privilege (whether by law, pre-emptive or contractual) capable of becoming an agreement or option, including convertible securities, warrants or convertible obligations of any nature; or |
|
|
|
| (iv) | there shall have occurred (or, if there shall have previously occurred, there shall have been disclosed, generally or to the Offeror in writing, prior to the commencement of the offer) any change (or any condition, event or development involving a prospective change) in the business, operations, assets, capitalization, financial condition, prospects, licenses, permits, rights, privileges or liabilities, whether contractual or otherwise, of SDRG or any of its subsidiaries considered on a consolidated basis which, in the sole reasonable judgment of the Offeror, is materially adverse or may be considered to be significant to a purchaser of shares of SDRG common stock; or |
|
|
|
| (v) | all requisite approvals and consents of any governmental or regulatory authority (including, without limitation, any stock exchange or other regulatory authorities) required to be obtained in order that the Offeror may proceed with the offer and take up SDRG common stock tendered pursuant to the offer shall not have been obtained on terms satisfactory to the Offeror in its sole reasonable judgment prior to |
59
|
|
|
|
| the Expiration Date or shall have been revoked or amended; or |
|
|
|
| (vi) | a material change concerning any of the assets and liabilities of SDRG shall have occurred on or before the Expiration Date. |
The foregoing conditions are for the sole benefit of the Offeror and may be waived by the Offeror at its sole option in whole or in part at any time and from time to time without prejudice to any other rights, which the Offeror may have under the offer. The failure by the Offeror at any time to exercise or assert any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be exercised or asserted at any time and from time to time. Any determination by the Offeror concerning the events described in this Section will be final and binding.
Any waiver of a condition or the withdrawal or termination of the offer shall be effective upon oral or written notice by the Offeror to the Depository to that effect. The Offeror shall, forthwith after giving any such notice, make a public announcement of such waiver, withdrawal or termination and notify shareholders. If the offer is withdrawn or terminated, the Offeror shall not be obligated to take up and pay for any SDRG common stock deposited under the offer and will return all certificates representing shares of SDRG common stock and letters of transmittal to the parties who deposited them.
Any deposited shares of SDRG common stock not taken up and paid for by the Offeror will be returned at the Offeror’s expense promptly after the Expiration date by either sending new certificates representing SDRG shares not purchased or returning the deposited certificates (and other relevant documents).
Certificates (and other relevant documents) will be forwarded by first class insured mail in the name of and to the address specified by the shareholder in the letter of transmittal or, if such name or address is not so specified, in such name and to such address as shown on the share register maintained by SDRG as soon as practicable following the Expiration Date or withdrawal or termination of the offer.
If on or after the date of this prospectus, SDRG:
|
(a) splits, combines or otherwise changes its shares of common stock or its capitalization, |
|
(b) acquires shares of its common stock or otherwise causes a reduction in the number of outstanding shares, |
60
(c) issues or sells any additional shares of its common stock (other than shares or options issued to employees or directors in the ordinary course of business consistent with past practice), shares of any other class or series of capital stock, other voting securities or any securities convertible into, or options, rights, or warrants, conditional or otherwise, to acquire, any of the foregoing, or any other securities or rights in respect of, in lieu of, or in substitution or exchange for any shares of its capital stock, or
(d) discloses that it has taken such action,
then, without prejudice to the Offeror’s rights underThe Offer—Extension, Termination and Amendment and—Conditions of the Offer, the Offeror may, in its sole discretion, make such adjustments in the exchange ratio and other terms of the offer as it deems appropriate including, without limitation, the number or type of securities to be acquired.
Certain Legal Matters; Regulatory Approvals
The Offeror is not aware of any governmental license or regulatory permit that appears to be material to SDRG’s business that might be adversely affected by the Offeror’s acquisition of shares of SDRG common stock pursuant to the offer or of any approval or other action by any government or governmental administrative or regulatory authority or agency, domestic or foreign, that would be required for the Offeror’s acquisition or ownership of shares of SDRG common stock pursuant to the offer. Should any of these approvals or other actions be required, the Offeror currently contemplates that these approvals or other actions will be sought. There can be no assurance that any of these approvals or other actions, if needed, will be obtained (with or without substantial conditions) or that if these approvals were not obtained or these other actions were not taken adverse consequences might not result to the Offeror, SDRG or any of their respective subsidiaries, which could result in the failure of a condition to the offer. The Offeror’s obligation under the offer to accept for exchange and exchange shares of SDRG common stock is subject to certain conditions.See The Offer—Conditions of the Offer, page 58.
There are no commitments to tender or refrain from tendering any SDRG Shares.
Except as set forth below and elsewhere in this prospectus, neither GOG nor NRI, nor any of their affiliates nor, to the best of their knowledge, any of their directors or executive officers has any contract, arrangement, understanding or relationship with any other person with respect to any securities of SDRG, including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any securities, joint ventures, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies. Except as otherwise described in this prospectus, there are no past, present or proposed material contracts, negotiations or transactions between GOG, NRI or any of their affiliates, and SDRG or any of its affiliates, concerning a merger, consolidation or
61
acquisition, an exchange offer or other acquisitions of securities, election of directors, or sale or other transfer of a material amount of assets.See, Background of the Offer, page 44.
None of NRI’s or GOG’s affiliates beneficially owns any shares of SDRG common stock.
The GOG common stock and NRI common stock shall be fully paid and non-assessable and issued by GOG and NRI, respectively, from treasury shares authorized for issuance.
If this offer is successful, the Offeror shall hold at least 50.01% or 83,568,349 shares of the outstanding common stock of SDRG. As the majority stockholder, the Offeror shall take all of the corporate steps necessary in order to position itself, or its designees, so that it has the authority to cause SDRG to deliver and provide the monetary equivalent, or to bank or warehouse the future production of silver dore bars or silver concentrate for the Silver Certificates, and the monetary equivalent, or in the alternative, gold to be issued upon the exercise of the NRI Warrants as necessary to meet the future commitments of this exchange offer, on its behalf. The Offeror will cause SDRG to provide the silver to be delivered pursuant to the Silver Certificates and required to replace any shortfall in the available gold supply from the silver production in the Erbahuo silver mine, located in Wengniute county, Inner Mongolia, China. SDRG is entitled to a 70% interest in its after-tax proceeds of the Erbahuo silver mine through its holdings in Chifeng. Chifeng is a Sino-American joint venture with Huaguan Industrial Corp., a Chinese state-owned entity which holds 30% of Chifeng. Chifeng owns the Erbahuo silver mine and has signed a definitive agreement with Guangxi Hongteng Mining, Ltd. (“GHM”) to commence production at the Erbahuo silver mine.
A National Instrument (NI) 43-101 technical report on the Erbahuo silver mine was completed in July 2007 and updated in 2010 by Micromine Consulting, a resource sector consulting company headquartered in Perth, Australia. Also, a feasibility study for the Erbahuo polymetallic project was completed in early 2009 by Beijing Tenstar Technology Ltd. of Beijing, China.
SDRG’s corporate presentation published on its website for the 3rd Quarter, 2011 states that there are seven mining properties in the Erbahuo area, which is in a prolific silver district in Inner Mongolia. 5.3 million silver ounces (NI 43-101) are being reported in the Erbahuo silver mine (smallest of seven properties).
On February 12, 2012, SDRG publicly announced that the Erbahuo silver mine will be an open pit, heap leach process, and is scheduled to begin processing of the ore in second quarter,. The Erbahuo silver mine will be developed and operated by GHM as part of a five-year arrangement. GHM anticipates starting to process the ore shortly and believes it should yield up to 2.8 metric tons of silver in the first year. Chifeng Silver will receive 30% of the net proceeds. When, and if, the Offeror obtains 50.01% of the outstanding common stock of SDRG, the Offeror will cause SDRG to provide the monetary equivalent, or to bank or warehouse the future production of silver dore bars or silver concentrate, as necessary to meet the future commitments of this
62
exchange offer. However, the silver dore bars of silver or silver concentrate shall be provided on a “best efforts” basis.
Notwithstanding the above, the Offeror and/or SDRG may enter into arbitrage situations in order to finance the future commitments of this exchange offer.
The Offeror will cause SDRG to provide the monetary equivalent or in the alternative, gold to be issued upon the exercise of the NRI Warrants. However, the gold shall be provided on a “best efforts” basis. In the event the supply of gold available to be delivered by March 31, 2016 is insufficient to meet the demand of the exercised NRI Warrants by March 31, 2016, the Offeror agrees to cause SDRG to deliver an equivalent dollar amount of silver based on the market prices of the silver and gold on the date the related NRI warrant was exercised. The Offeror will continue to explore alternative commodity sources of both silver and gold. The Offeror will continue to explore alternative commodity sources of silver to meet the demands of the holders of the Silver Certificates and/or gold certificates, if a shortfall in the supply of silver occurs and the Offeror is unable to secure an alternate source of production silver, then holders of the silver certificates and/or gold certificates may not receive the value in silver that they expect.
The Offeror has appointed Heritage Transfer Agency Inc. as the Depository for the receipt of certificates representing the shares of SDRG common stock and letters of transmittal deposited pursuant to the offer. In addition, the Depository will receive notices of guaranteed delivery of the offer. The duties of the Depositoryalso includeassisting in making settlement pursuant to the offer. The Depository will receive a fee of Fifty Thousand Dollars ($50,000), a fee of Ten Dollars ($10) for each deposit and Three Dollars ($3) for each certificate returned, will be reimbursed by the Offeror for its out-of-pocket expenses and will be indemnified against certain liabilities and expenses in connection with the offer.
Tendering shareholders will not be obliged to pay brokerage commissions on the sale of their SDRG common stock hereunder if the offer is accepted by transmitting their shares of SDRG common stock directly to the Depository. Shareholders should contact the Offeror or the Depository for assistance in accepting the offer and in depositing SDRG common stock, letters of transmittal and notices of guaranteed delivery with the Depository.
(a) The offer and all agreements resulting from acceptance hereof shall be governed by and construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein. Each party to any agreement resulting from the acceptance of the Offer unconditionally and irrevocably submits to the jurisdiction of the courts of the Province of Ontario.
63
(b) No broker, dealer or other person has been authorized to give any information or make any representation on behalf of the Offeror not contained herein, and, if given or made, such information or representation must not be relied upon as having been authorized.
(c) The provisions of the letter of transmittal and the notice of guaranteed delivery, including the instructions and rules contained therein, as applicable, form part of the terms and conditions of the offer.
(d) The Offeror shall, in its sole discretion, be entitled to make a final and binding determination of all questions relating to the interpretation of the letter of transmittal and the notice of guaranteed delivery, the validity of any acceptance of this offer and the validity of any withdrawals of SDRG common stock.
(e) If this offer is successful, the Offeror shall hold at least 83,568,349 shares or 50.01% of the outstanding common stock of SDRG. As the majority stockholder, the Offeror shall take all of the corporate steps necessary in order to position itself, or its designees, so that it has the authority to cause SDRG to deliver silver and gold on its behalf. In the event the supply of gold available insufficient to meet the exercised NRI Warrants by March 31, 2016, the Offeror shall cause SDRG to deliver to the holders who exercised the NRI Warrants, an equivalent amount of silver, based on the market prices of the silver and gold on the date the related NRI warrant was exercised. The Offeror will continue to explore alternative commodity sources of both silver and gold to meet the demand of the holders of the Silver Certificates and NRI Warrants
On February 5, 1997, 1221745 Ontario Inc. was formed in Ontario. It changed its name to Creighton Corporation on September 28, 2004. On November 4, 2005, Pearlstar Corporation was formed in Nevada. On November 18, 2005, Creighton Corporation merged with Pearlstar Corporation by filing Articles of Merger in Nevada. Pearlstar Corporation was the surviving corporation. It changed its name to Guardians of Gold Inc. on Apri1 22, 2009 and its common shares were consolidated on a 1 for 1000 basis. As of December 30, 2011, GOG had 45,136,000 issued and outstanding common shares.
GOG is a Nevada corporation. It is an exploration company that intends to reprocesses precious and base metals mine tailings utilizing secondary recovery methods to extract trace quantities of gold and other precious minerals from existing mine tailings. GOG’s common stock is quoted on the Frankfurt Stock Exchange under the symbol “QGD” where the first day of trading was December 6, 2010. As of December 9, 2011 the stock market price of GOG (“QGD”) on the Frankfurt Stock Exchange was $2.81.
64
GOG currently has 0 fulltime employees.
GOG currently does not own or lease any properties.
GOG has not been a party to any legal proceedings over the last three years.
MARKET FOR GOG’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
GOG’s common stock is quoted on the Frankfurt Stock Exchange under the symbol “QGD”, where the first trading day was December 6, 2010. The following table sets forth high and low sales prices of GOG’s common stock for the three fiscal quarters, ended August 31, 2011, and the quarter ended November 30, 2011, as reported by the Frankfurt Stock Exchange, based on closing prices. The prices in the table reflect inter-dealer prices, without retail markup, markdown or commission and may not represent actual transactions.
|
|
|
|
|
|
|
|
|
| High |
| Low |
| ||
|
|
|
| ||||
Second Quarter ended February 28, 2011 |
| $ | 2.68 |
| $ | 1.54 |
|
Third Quarter ended May 31, 2011 |
| $ | 2.94 |
| $ | 2.81 |
|
Fourth Quarter ended August 31, 2011 |
| $ | 2.94 |
| $ | 2.81 |
|
First Quarter ended November 30, 2011 |
| $ | 2.85 |
| $ | 2.75 |
|
As of December 30, 2011, there were approximately 17 record holders of GOG’s common stock, not including shares held in “street name” in brokerage accounts which are unknown. As of December 30, 2011, there were approximately 45,136,000 shares of GOG’s common stock outstanding. As of December 9, 2011 the stock market price of GOG, “QGD” on the Frankfurt Stock Exchange, was $2.75.
No dividends have been paid.
65
The transfer agent and registrar for GOG’s common stock is Heritage Transfer Agency, 4 King Street West, Suite 1320, Toronto, Ontario M5H 1B6.
GOG MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Statements made in this Exchange Offer that are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements often can be identified by the use of terms such as “may,” “expect,” “believe,” “anticipate,” “estimate,” “approximate,” or “continue,” or the negative thereof. GOG intend that such forward-looking statements be subject to the safe harbors for such statements. GOG wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond GOG control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. GOG disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.
GOG prepared its audited financial statements in accordance with generally accepted auditing standards. Those standards require the Chartered Accountant to perform an audit to obtain reasonable assurance that the financial statements are free of material misstatement. The financial statements are the responsibility of GOG’s management. The Chartered Accountant expresses an opinion that the financial statements present fairly, in all material respects, the financial position of GOG, and the results of its operations and its cash flows in accordance with accounting principles generally accepted in the United States.
General Information on Financial Operations
GOG is primarily in the tailings processing business which, can result in the use of expensive capital equipment requirements. A small tailings project program could be $500,000, while a large program could be $3,000,000. Recouping monies spent only comes when a tailings project
66
starts with the production recovery of the precious metals.
Results of Operations for the Year Ended August 31, 2011, Compared to the Year Ended August 31, 2010.
GOG’s gross revenue was nil for the year ended August 31, 2011 and for the year ended August 31, 2010. GOG had a net loss of $644,877 for the year ended August 31, 2011 compared to a net loss of $74,906 for the year ended August 31, 2010. The increase in loss is primarily due to the costs of seeking financing. Total expenses for the year ended August 31, 2011 was $644,877 compared with expenses of $74,906 for the year ended August 31, 2010.
GOG’s gross revenue was $0 for the years ended August 31, 2010 and August 31, 2009.
Results of Operations for the Three Month Period Ended November 30, 2011, Compared to the Three Month Period Ended November 30, 2010.
GOG’s gross revenue was nil for the three month period ended November 30, 2011 and for the three month period ended November 30, 2010. GOG had a net loss of $62,465 for the three month period ended November 30, 2011 compared to a net loss of $28,340 for the three month period ended November 30, 2010. The increase in loss is primarily due to the costs of seeking financing. Total expenses for the three month period ended November 30, 2011 was $62,465 compared with expenses of $28,340 for the three month period ended November 30, 2010.
GOG’s gross revenue was $0 for the years ended August 31, 2011 and August 31, 2010.
Capital Resources and Liquidity
GOG relies on advances from exercise of options, exercise of share purchase warrants, and private placements, to fund working capital. Before October 31, 2012, GOG will need approximately $500,000 in capital infrastructure and operating expenses to actively carry-on business.
The auditors of GOG in their report dated November 5, 2011 have raised substantial doubt as to GOG’s ability to continue as a going concern. GOG’s management believes that GOG will be able to obtain additional funds in equity financing; however, there is no assurance of additional funding being available or available on acceptable terms. Realization values may be substantially different from carrying values as shown.
GOG plans to add 1 employee over the next twelve months at a cost of approximately $100,000.
67
GOG expects to incur operating expenses of approximately $400,000 over the next year.
No dividends have been paid to date by GOG. GOG does not have any present intention to pay dividends in the future. Dividends will only be declared by the Board of Directors and paid by GOG in the event the Board deems it prudent to distribute cash in excess of required cash flow.
GOG’S QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
GOG is not exposed to material market risk.
GOG’S OFF-BALANCE SHEET ARRANGEMENTS
GOG does not, as of August 31, 2011, have any off-balance sheet arrangements.
None.
GOG’S DIRECTORS AND EXECUTIVE OFFICERS
GOG’s Board of Directors consists of 2 directors. The Board of Directors has determined that neither of the directors qualify as “independent” as defined by SEC rules.
During the fiscal year ended August 31, 2011, the Board of Directors held a total of 6 meetings. Each director attended at least 75% of the total number of meetings of the Board of Directors and at least 75% of the meetings of all committees on which he served.
The Board of Directors is comprised as follows:
Ronald P. Haller, C.M.A. – Mr. Haller is 56 years old. Mr. Haller has 20 years experience in accounting and corporate filings of public companies. In 1992 he formed Fastcorp Management Ltd., which offers professional management services to both public and private entities and fills the positions of Secretary or Secretary-Treasurer for junior public issuers to facilitate the regulatory continuous reporting requirements. Mr. Haller also provides corporate secretarial and accounting and taxation services which includes: minute book maintenance, preparation of minutes, resolutions and incorporations, assist in preparing press releases, computerized bookkeeping, banking services, financial statement preparation, GST, PST and payroll filings.
68
Mr. Haller is a Certified Management Accountant (CMA) of the Society of Management Accountants of Ontario, Canada. He is a graduate of Ryerson University in Toronto.
Walter Fox LL.B, Law – Mr. Fox is 68 years old. Mr. Fox is a Senior Partner with Walter Fox & Associates, located in Toronto, Canada, and has been since 1968. He graduated from the University of Toronto Law School in 1965. Mr. Fox opened his practice in 1968. Mr. Fox has appeared at all levels of court in Ontario, including the Ontario Securities Commission.
Board members will not be considered independent unless the Board affirmatively determines that the member has no material relationship with GOG, either directly, or as a partner, shareholder or officer of an organization that has a relationship with GOG.
The Board of Directors adopts the following categorical standards to assist the Board in making independence determinations.
In order to be considered independent, a director must not:
|
|
|
| 1. | Be an employee of GOG or have been an employee of GOG within the past three years, or have an immediate family member who is an executive officer of GOG or has been an executive officer of GOG within the past three years; |
|
|
|
| 2. | Have received, or have an immediate family member who is an executive officer who has received, in any twelve-month period within the last three years, more than $120,000 in direct compensation from GOG, other than Director or Committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service); |
|
|
|
| 3. | Be (a) an employee or partner of a firm that is GOG’s internal or external auditor; (b) have an immediate family member who is a partner of such a firm or who is an employee of such a firm and personally works on GOG’s audit; or (c) have been, or have an immediate family member who has been, within the past three years, a partner of such a firm or an employee of such a firm who personally worked on GOG’s audit. |
|
|
|
| 4. | Be, or in the past three years have been, or have an immediate family member who is, or in the past three years has been, an executive officer of another company where any of GOG’s present executives at the same time serves or served on that GOG’s compensation committee; |
|
|
|
| 5. | Be an employee, or have an immediate family member who is an executive officer of a company that has made payments to, or received payments from, GOG for property or services in an amount which, in any of the last three fiscal years, exceeded the greater of $1 million or 2% of such other company’s consolidated gross revenues; or |
|
|
|
| 6. | Be an executive officer of a tax-exempt organization that, within the preceding three years, received contributions from GOG in any fiscal year exceeding the greater of $1 million or 2% of the tax-exempt organization’s consolidated gross revenues. |
69
The executive officers of GOG are as follows:
|
|
|
|
|
Name |
| Age |
| Position |
|
| |||
|
|
|
|
|
Greame Scott |
| 47 |
| President |
|
|
|
|
|
Ron Haller |
| 56 |
| Secretary & Treasurer |
Greame Scott – Mr. Scott is the President of GOG. Mr. Scott is a geologist with over 25 years of mining experience. His most recent project was Project Manager at Fonteneau Resources, an iron mining company with projects in Schefferville, Quebec and Labrador which was sold to Labrador Iron Mines Inc. From 2005 to 2008, Mr. Scott was the President of Caliber Energy, a US public oil company with exploration projects in Alberta. His responsibilities included reorganization of the company and taking the company public. He also negotiated acquisitions of Energy projects in Alberta, USA and Russian Federation. In 2006 to 2008, Mr. Scott was also the President of Bancroft Uranium Inc., an exploration company with advance uranium project in East Central Ontario. His responsibilities included negotiating an option agreement on an Ontario uranium project, reorganizing the company, taking the company public and working with the CFO on all SEC filings. Mr. Scott holds a B.Sc. in Geology from the University of Western, Ontario. Mr. Scott shall devote 100 percent of his business time to GOG.
Ronald P. Haller, C.M.A. – Mr. Haller is the Secretary and Treasurer of GOG. Mr. Haller has 20 years experience in accounting and corporate filings of public companies. In 1992 he formed a Fastcorp Management Ltd., which offers professional management services to both public and private entities and fills the positions of Secretary or Secretary-Treasurer for junior public issuers to facilitate the regulatory continuous reporting requirements. Mr. Haller is a Certified Management Accountant (CMA) of the Society of Management Accountants of Ontario, Canada. Mr. Haller also provides corporate secretarial and accounting and taxation services which includes: minute book maintenance, preparation of minutes, resolutions and incorporations, assist in preparing press releases, computerized bookkeeping, banking services, financial statement preparation, GST, PST and payroll filings. He is a graduate of Ryerson University in Toronto. Mr. Haller shall devote 100 percent of his business hours to GOG and NRI.
Involvement in Certain Legal Proceedings
None.
70
Committees of the Board of Directors
GOG does not currently have a nominating committee. It feels this is appropriate due to the small size of GOG. Therefore, this function is handled directly by the Board of Directors of GOG.
Audit Committee
GOG’s audit committee was established in accordance with Section 3(a)(58)(A) of the Exchange Act. It is chaired by Ron Haller. GOG’s audit committee does not have a charter. GOG’s audit committee has reviewed and discussed the audited financial statements with management, and has discussed with the independent auditors the matters required to be discussed by the statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU Section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T;
GOG’s audit committee has received the written disclosures and the letter from the independent accountant required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the audit committee concerning independence, and has discussed with the independent accountant the independent accountant’s independence.
GOG has not adopted a code of conduct.
The function of filling vacancies on the Board of Directors is handled directly by the Board of Directors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|
The following table sets forth certain information regarding beneficial ownership of GOG common stock as of November 30, 2011, by: (1) GOG directors, named executive officers and beneficial holders of more than 5% of GOG common stock, and (2) all of GOG current directors and executive officers as a group. The number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 under the Exchange Act, and the information is not necessarily indicative of beneficial ownership for any other purpose. Except as indicated in the footnotes to this table, and as affected by applicable community property laws, all persons listed have sole voting and investment power for all shares shown as beneficially owned by them. |
GOG executive officers and directors are encouraged to own GOG common stock to further align their interests with GOG stockholders’ interests.
71
|
|
|
|
|
|
|
|
Name and Address of Beneficial Owner |
| Number of |
| Percentage of Shares |
| ||
| |||||||
Greame Scott |
|
| 0 |
|
| 0 | % |
Ronald Haller |
|
| 0 |
|
| 0 | % |
Walter Fox |
|
| 0 |
|
| 0 | % |
1370383 Ont. Ltd(3) |
|
| 22,000,000 |
|
| 55.39 | % |
Officers and Directors as a group (3 persons) |
|
| 0 |
|
| 0 | % |
|
(1)Includes shares of common stock deemed to be beneficially owned by such person or group pursuant to warrants or other rights that are exercisable within 60 days from the above date. |
|
(2)Based on 45,136,000 shares outstanding as of December 30, 2011 plus any shares of common stock deemed to be beneficially owned by such person or group pursuant to warrants or other rights that are exercisable within 60 days from the above date. |
|
(3)4 King Street West, Suite 1320, Toronto, Ontario, Canada M5H 1B6. |
Outstanding Equity Awards at 2011 Fiscal Year-End
No named executive officers have any outstanding equity awards as of August 31, 2011. No options have been awarded to named executive officers.
COMPENSATION DISCUSSION AND ANALYSIS
The Board of Directors of GOG, as a whole, determines the level of compensation in respect of GOG’s executives. There are no pension plan benefits in place for the executives and no executive is indebted to GOG. There are no plans in place with respect to the executives for termination of employment or change in responsibilities.
SUMMARY COMPENSATION
No executive compensation has been paid.
COMPENSATION COMMITTEE REPORT
GOG has no compensation committee to determine the level of compensation for its executives. It is the responsibility of the Board of Directors, as a whole, to determine the level of compensation in respect of GOG’s executives with a view to providing them with a competitive compensation package having regard to performance. Performance is defined to include achievement of GOG’s strategic objective of growth and enhancement of shareholder value through increases in stock price resulting from enhanced annual cash flow. Compensation for executives is comprised primarily of base salary and performance bonuses.
COMPENSATION OF DIRECTORS
72
No director compensation is paid.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our Directors and executive officers and persons who own more than 10% of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of shares of common stock of GOG. Officers, Directors and greater than 10% stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. However, GOG has not been subject to such reporting rules.
|
Nirek Resources Inc. was incorporated in Ontario as Dublin Castle Investments Inc. on August 6, 2004. It changed its name to Nirek Resources Inc. on August 2, 2007. Shareholders in Dublin Castle Investments Inc. were given one share in NRI for every 10 shares they held in Dublin Castle Investments Inc. On August 17, 2007 NRI shares began trading on the Frankfurt Stock Exchange, Germany under the symbol: 3N6. Also in August, 2007, the common stock of NRI was consolidated one a one-for ten basis. As of December 30, 2011, there were 17,636,299 shares of NRI common stock outstanding. |
NRI is a corporation incorporated under the laws of Ontario in 2004. It is a Canadian based exploration company that is focused primarily on gold and secondarily on other precious and base metals in Canada. NRI currently has one exploration property in Quebec. Outside of Canada, NRI is negotiating with two companies who have producing gold properties for NRI to participate as a joint venture partner. NRI shares trade on the Frankfurt Stock Exchange (Deutsche Boerse) under the symbol: 3N6.
NRI’s objective is to acquire mineral properties that had previous exploration work which indicated a potential resource. NRI looks for properties that have proven grade values where further exploration is required. The primary focus is precious metals, particularly gold and silver, although base metal properties with some precious metal content are also possible exploration candidates.
NRI originally acquired options on gold exploration properties in Northern Ontario, specifically in the Timmins and Kirkland Lake area. NRI had preliminary exploration done and geological
73
reports prepared on three properties, however lease agreements were not renewed since an analysis of their economic value determined further expenditure was not justified. NRI has also successfully registered 19 claims on a Sarah Lake, Quebec, Canada property directly with the Ministere des Resources naturelles et de la Faune, Quebec on October 17, 2011. NRI had geologist on the property in May, 2009. The prepared technical report recommended a program to further explore the property.
Besides Canadian mineral properties, NRI has looked at prospective mineral properties in the USA, Mexico and Peru. The primary focus is Canadian properties and secondarily the USA and Mexico. NRI uses independent geologists to assess its properties and, when favorable, recommend a program for further exploration.
There are approximately 1500 publicly listed companies in Canada on the Toronto Stock Exchange (including the Venture Exchange) and the Canadian Venture Exchange engaged in mineral exploration in countries worldwide. NRI’s primary experience is in Canada where there are many independent prospectors who focus on geographic areas in the province where they reside. These prospectors, and their companies, usually have a number of properties they have staked claims on and done some preliminary exploration work on. Since NRI is a public traded company, it has the advantage of being able to offer its stock in part payment to acquire option agreements on claims.
Generally, small exploration projects will trigger few actual approvals. However, many environmental regulations and standards will apply whether there is a specific approval to be issued or not. The kind of exploration work NRI undertakes is encouraged by governments with some jurisdictions providing tax credit incentives or a rebate for costs. Once a project reaches consideration of an actual mine being established, there are a number of environmental permits and approvals required, for example by the First Nation people in Canada. However, NRI does not presently have any project at the stage of mine feasibility and will not have any in the foreseeable future.
NRI has one of its director as well one additional individual who administrate day-to-day operations. For exploration work, NRI hires independent geologists and exploration contractors.
Actual exploration can be seasonal depending on the location of the property. The Sarah Lake property in northern Quebec is best assessed by a float plane which gives a window from May to October, when the lake is unlikely to be frozen.
74
NRI owns 100% of 19 claims on a contiguous property block, referred to as Sarah Lake, situated in Northern Quebec, Canada, approximately 75 miles south of the Labrador border city of Wabush. NRI contracted with Derek McBride Geological and Management Services to do an on-site assessment and provide recommendations for future evaluation of the property. Dr. McBride’s report confirmed a large mineralized area exists near the surface but what has been evaluated thus far has not indicated as being economic alone. He recommends “further exploration should be aimed at expanding the mineralized area and attempting to understand its controls”. The current option agreement with Fenton Scott Management Inc., dated March 26, 2008, expired on March 26, 2011. NRI has successfully registered the 19 claims of the Sarah Lake Property directly with the Ministere des Resources naturelles et de la Faune, Quebec on October 17, 2011.
Property Location and Access
The Sarah Lake Project (the “Project”) is located 200 kilometres north of the city of Sept Iles in eastern Quebec, and is situated 90 kilometres southwest of the Quebec-Labrador border. Access for exploration of the Project will be means of floatplane to Sarah and Edgar Lakes from the town of Wabush, located 85 kilometres to the north. The nearest road access is to Highway 389, 55 kilometres to the northwest to the community of Fire Lake. Rail access is available 60 kilometres to the east. Power can be provided by a Hydro Quebec transmission line located 15 kilometres northeast of Sarah Lake. The access road for the transmission line provides the best land access to the Project; however, some sections of the road currently require reconstruction. No infrastructure exists in the vicinity of the Sarah Lake Project.
Terrain and Climate
The Project area is moderately hilly with two prominent northeast trending hills located between the north ends of Sarah and Edgar lakes. These hills are the topographic expression of the underlying ultramafic unit. Elevations in the Project area range from 200 to 600 meters above sea level. Bedrock exposure is less than 10%.
The climate includes winter temperatures with snowfall from December to May and open summer for the other six months of the year. The district is well populated by lakes with intervening hills and muskeg.
Property History
The regions mineral potential was evaluated by exploration work conducted 200 kilometers north of the city of Sept Iles in eastern Quebec. This exploration work discovered a number of copper and nickel occurrences in the area. These occurrences were most recently evaluated in 1990 by
75
the Quebec Department of Mines. This work included a detailed evaluation of the Sarah Lake prospect led by Quebec geologist, Aphrodite Andares. Samples taken during this program returned significant values of gold, copper, nickel, platinum, palladium and rhodium. Assay results included up to 2.15% copper, 376 ppm nickel, 113 ppb palladium, 125 ppb platinum and 18 ppb rhodium with 30 milligrams/ton of gold.
The mining rights were subsequently acquired by Explograph Inc. and subsequently optioned to Virginia Gold Mines (“Virginia”). Between 1990 and 1992, Virginia conducted an exploration program on the Project that included geological mapping, line cutting, geophysical surveying, geochemical sampling, stripping and sampling of 12 trenches and shallow hole diamond drilling. This report concluded that the ultramafic intrusion is multiphase comprised of amphibolized peridotite, pyroxenite and gabbro, the unit intrud biotite- amphibole gneisses. The geophysical surveys and outcrops suggested that these intrusions are much larger in size than indicated by the geological mapping. Also, copper mineralization occurs throughout the outcropping area of the intrusives. Sulphide mineralization was generally disseminated and ranged in content from trace amounts to several percent. It determined that this mineralization was composed primarily of chalcopyrite, pyrrhotite and pyrite. The magnetic survey indicated areas of distinct igneous stratification on the Project. The trenching confirmed the presence of magnetite enriched horizons, several metres thick. A VLF-EM survey also showed several conductive zones on the Project, with the conductor axes often situated on the contacts of mineralization.
Drill Sample Summary
A summary of the drill program is provided in the table below:
|
|
|
|
| Drill hole # |
| Description |
|
| ||
|
|
|
|
| 1 East Zone |
| Passed through 162 metres of peridotite before intersecting the underlying gneiss. Encountered 1 metre of copper mineralization, which also contained measurable gold, platinum and palladium values. Results included 200 metres grading 0.25% copper. |
|
|
|
|
| 2 East Zone |
| Drilled 200 metres west of drill hole # 1. Cut the peridotite gneiss contact 200 metres. No sulphide minerals of interest were encountered. |
|
|
|
|
| 3 West Zone |
| Drilled at the westerly end of the Project, Encountered gneiss at 171 metres. Results included 17.2 metres grading 0.21% cooper. |
|
|
|
|
| 5 East Zone |
| Drilled 200 metres north of drill hole # 1 Stopped at 70 meters, after passing through peridotite at 49 metres. Bottomed in a breccia zone with no sulphide mineralization. |
|
|
|
|
| 6 East Zone |
| Drilled 200 metres south of drill hole # 1. Cut 60 meters of peridotite, without intersecting gneiss. No significant mineralization |
76
|
|
|
|
| 7 East Zone |
| Drilled 5Q metres east of drill hole # 1. Peridotite gneiss encountered at 69.9 metres. No mineralization encountered |
|
|
|
|
| 8 West Zone |
| Located 59 metres east of the most westerly zone of outcropping mineralization. |
|
|
|
|
| 9 East Zone |
| Located 50 metres south of drill hole # 8.Continuous mineralization identified from the base of overburden at 12.3 metres to the gneiss contact at 78.9 metres. Best interval in this section was 12.0 metres of 0.49% copper and 8.5 metres 0.61% copper,. grading |
|
|
|
|
| 11 East Zone |
| Drilled 50 metres west of drill hole #8. Peridotite encountered at 74 metres, with no gneiss contact. Several quartz veins and magnetite were reported cutting the peridotite. |
|
|
|
|
| 12 East Zone |
| Drilled 100 metres southeast of drill hole #8. Gneiss contact at 186 metres, 150 metres deeper than in drill hole #8. Suggests that there is a drastic change in the base of the sill, or that faulting exists between drill holes#Band #9 on one side and # 12 on the other. |
Soil Geochemical Survey (MMI)
A soil geo-chemical survey was completed between the dates of September 19 to September 29, 2001, on the Exploration Permit, PEM 0001498, employing the Mobil Metal Ion (MMI) technique. This survey gave positive responses above the largest mineralized zone. It also indicated mineralization in an unexplored location to the south. The work program was conducted by Graeme Scott of Toronto, Ontario, Randon Ferderber of Val d’Or Quebec and Daniel Headricks of Malbaie, Quebec.
The objective of the 2001 field program was to further evaluate an Au-Cu-Ni-PGE occurrence within ultramafic rocks located northeast of Sarah Lake. The mineral occurrence was first discovered by Quebec government geologists in the early 1970’s. Subsequent to this discovery, the mineral occurrence has been explored by various operators, most recently by the Beaver Prospecting Syndicate and Diadem Resources in 1996.
The 2001 exploration program consisted of a soil geo-chemical survey, rock sampling of exposed mineralization and sampling of drill core from previous work. A total of 18 rock samples, 12 Samples of drill core, 163 Mobil Metal Ion (MMI) samples and 155 B horizon soil samples were taken during the project. All samples were sent to XRAL Laboratories of Toronto, Ontario
Exploration, Sample Method and Approach, Sample Preparation, Analysis and Security
A survey completed June 19 to June 25, 2009, was an assessment for NRI. It cost $23,054.53. Two types of samples were collected during the survey. Chip samples were taken, where possible, along outcrop surfaces or the margins of old sample saw cuts. Each was bagged at the
77
site, labelled and remained in the possession of the writer. All samples were transported to XRallabs, Toronto by the author and turned over to them for commercial analysis by atomic absorption and fire assay. Elements analysed for were copper, nickel gold and the PGM Group. Due to the limited number of samples commercially analysed at the recognized XRallab, no independent confirmation was obtained. No mineral processing or metallurgical studies have been undertaken. No mineral resource or reserve estimates have been undertaken.
Interpretations, Conclusions and Recommendations
The investigation was able to confirm the previous work, but did find some problems with drill hole locations. None are critical to understanding the potential of the property. The rarity of outcrop is definitely a hindrance to exploration, however the shallow overburden is amenable to stripping. Virginia did strip and their maps show the step layering. The trench nearest the drill holes of Diadem indicate a steep westerly dip, with the mineralization concentrated in one layer. Mineralization did not respond to the VLF electromagnetic survey, which is not surprising considering its disseminated nature. The investigations have only studied the mineralization where it outcrops. The MMI survey was too limited to assist in tracing the mineralization, but the peripheral lines indicate that it extends considerably further.
The mineralization at Sarah Lake indicates that a large mineralized area does exist on the property, with much of it very near the surface. Future exploration should be aimed at expanding the mineralized area and attempting to understand its controls. The existing grid should be re-picketed and expanded to the south and north to the limits of the ultramafic rocks. Once the results of the soil survey are available the more promising areas should be surveyed with IP (Induced Potential) geophysics. This technique is the best for outlining disseminated mineralization.
Statement of Qualifications of Geologist for Prior and Future Explorations
The investigation was performed by Dr. Derek McBride P.Eng. of 20 Forsythia Drive, West Hill, Ontario, MIE 1YI. He holds a diploma in Mining Technology from the Haileybury School of Mines, B.Sc. Eng. and M.Sc. Eng Degrees from Queen’s University and a Doctoral Degree in Geology from the University of New Brunswick. Dr. McBride is a geological engineer and a member of the Association of Professional Engineers of Ontario with over 40 years of experience in mineral exploration and is attributed with the discovery of the Nugget Pond Gold Mine in the province of Newfoundland.
NRI is not presently involved, nor has been involved since its inception, with any legal action.
78
MARKET FOR NRI’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
NRI’s common stock is quoted on the Frankfurt Stock Exchange under the symbol “3N6”. The following table sets forth high and low sales prices of NRI common stock for each fiscal quarter for the last two fiscal years as reported by the Frankfurt Stock Exchange, based on closing prices. The prices in the table reflect inter-dealer prices, without retail markup, markdown or commission and may not represent actual transactions.
|
|
|
|
|
|
|
|
|
| High |
| Low |
| ||
|
|
|
| ||||
First Quarter ended October 31, 2011 |
| $ | 0.002 |
| $ | 0.001 |
|
|
|
|
| ||||
Year Ended July 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |||||||
First Quarter ended October 31, 2010 |
| $ | 0.050 |
| $ | 0.014 |
|
Second Quarter ended January 31, 2011 |
| $ | 0.046 |
| $ | 0.014 |
|
Third Quarter ended April 30, 2011 |
| $ | 0.043 |
| $ | 0.005 |
|
Fourth Quarter ended July 31, 2011 |
| $ | 0.024 |
| $ | 0.004 |
|
|
|
|
|
|
|
|
|
|
| High |
| Low |
| ||
|
|
|
| ||||
Year Ended July 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |||||||
Second Quarter ended January 31, 2010 |
| $ | 0.009 |
| $ | 0.029 |
|
Third Quarter ended April 30, 2010 |
| $ | 0.010 |
| $ | 0.280 |
|
Fourth Quarter ended July 31, 2010 |
| $ | 0.056 |
| $ | 0.006 |
|
|
As of December 30, 2011 there were 125 record holders of NRI’s common stock, not including shares held in “street name” in brokerage accounts, which are unknown. As of December 30, 2011, there were approximately 17,636,299 shares of NRI’s common stock outstanding on record. |
No dividends have been paid.
The transfer agent and registrar for NRI’s common stock is Heritage Transfer Agency, 4 King Street West, Suite 1320, Toronto, Ontario M5H 1B6.
NRI MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
79
Statements made in this Exchange Offer that are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements often can be identified by the use of terms such as “may,” “expect,” “believe,” “anticipate,” “estimate,” “approximate,” or “continue,” or the negative thereof. NRI intend that such forward-looking statements be subject to the safe harbors for such statements. NRI wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond NRI control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. NRI disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.
NRI prepared its audited financial statements in accordance with generally accepted auditing standards. Those standards require the Chartered Accountant to perform an audit to obtain reasonable assurance that the financial statements are free of material misstatement. The financial statements are the responsibility of NRI’s management. The Chartered Accountant expresses an opinion that the financial statements present fairly, in all material respects, the financial position of NRI, and the results of its financial operations and its cash flows in conformity with accounting principles generally accepted in the United States.
General Information on Financial Operations
Liquidity
NRI is primarily in the mineral exploration business which, as a general statement, has capital intensive requirements. Diamond drilling and hiring professional geologists and contractors for carrying out geophysical and geochemical work on a property requires significant sums of money. A small exploration program of diamond drilling could be $250,000, while a large program could be $2,500,000. Recouping monies spent only comes when a property is developed to the stage of attracting a buyer or joint venture partner. Thusly, during exploration there is no cash generated from operating the day to day business. Liquidity is essentially cash on hand until a property has been proven up with grade and reserve estimates that are of a sufficient value that the property can be assessed a value by geological and economic models. As an exploration company, NRI must seek new funding to carry on exploration projects usually by offering shares, and for Canadian shareholders, NRI may offer flow-through shares. From July 31, 2010 to July 31, 2011, NRI’s cash on hand was reduced from $52,530 to $(16) because funds were
80
used to cover day to day operational expenses.
Flow-Through Shares
NRI has and may, from time to time in the future, issue flow-through shares to Canadian investors to finance a portion of its capital expenditure program. In 2008, NRI issued flow-through shares for which it was paid $160,000. Pursuant to the terms of flow-through share agreements, the tax deductions associated with expenditures are renounced by NRI per Revenue Canada rules and flow to the subscribers. Accordingly, share capital will be reduced and a future tax liability will be recorded equal to the estimated amount of future income taxes payable by NRI as a result of the renunciations, when the renunciations are made.
Results of Operations
Results of Operations for the Year Ended July 31, 2011, Compared to the Year Ended July 31, 2010.
NRI’s gross revenue was $1,795 for the year ended July 31, 2011 and $2,511for the year ended July 31, 2010. NRI had a net loss of $649,615 for the year ended July 31, 2011 compared to a net loss of $636,660 for the year ended July 31, 2010. Total expenses for the year ended July 31, 2011 was $14,750 compared with expenses of $84,596 for the year ended July 31, 2010.
NRI gross revenue was $2,511 for the year ended July 31, 2010 and $20 for the year ended July 31, 2009.
Results of Operations for the three month periods ended October 31, 2011 and October 31, 2010.
NRI gross revenue was $nil for the three month period ended October 31, 2011and $nil for the three month period ended October 31, 2010.
Total operating expenses for the three month period ended October 31, 2011 were$7,435 (2010 -$4,228).
Capital Resources and Liquidity
NRI relies on advances from exercise of options, exercise of share purchase warrants, offering of flow-through shares and private placements, and joint ventures to fund exploration costs and working capital. Before July 31, 2012, NRI will need approximately $400,000 in operating and exploration expenses to actively carry-on business.
The auditors of NRI, in their report dated October 15, 2011, have raised substantial doubt as to NRI’s ability to continue as a going concern
81
Sarah Lake
In May, 2011, NRI’s management was focused on maintaining 19 mineral claims in Northern Quebec. NRI had an option agreement on the 19 claims with Fenton Scott since March 26, 2008. NRI had paid monies to Fenton Scott as per terms of the option agreement, and, in June, 2009 had incurred exploration expenses on the claims. A professional geologist visited the property and prepared a geological report on the mineral potential of the property at a cost of $23,054 (Cdn).
The consulting geologist’s July 14, 2009 report was National Instrument 43-101 compliant. It recommended further exploration with a program budgeted at $120,000. In early 2011 NRI’s management planned to maintain the claims by spending more exploration dollars on them and further keep the option agreement in good standing with Fenton Scott. Approximately $130,000 was budgeted for exploration along with a salary of $45,000 for an in-house geologist.
Before attempting to organize the proposed financing, NRI wanted clarifications and amendments to their option agreement with Fenton Scott. Unfortunately Fenton Scott, became seriously ill, and therefore, beginning in April, 2011 his business affairs were being looked after by his son, Graeme Scott. From May to July, Graeme Scott and NRI management had meetings set-up to discuss how best to move forward on the claims but meetings for various reasons kept getting postponed. On August 12, 2011, Fenton Scott passed away with no determination of the claims.
The original $300,000 planned operating expenses was not required since the claims were about to expire on August 20, 2011. The $300,000 included the salary of a new employee as well as $130,000 exploration expenses as well as $125,000 for operating and/or exploration expenses. There was no substantive consequence of not raising $150,000 before July 31, 2011 and additionally NRI did not have to occur any debt or issue any new shares from Treasury.
Subsequent to the 30 day waiting period under Quebec Government regulations, NRI applied for the expired claims and, on October 17, 2011, received the aforementioned 19 claims with 100% ownership. As a result, NRI will have more time to do the recommended geological exploration per the July 14, 2009 report and more time to raise the $130,000 ($120,000 plus $10,000 for increased costs). NRI anticipates it will also need approximately $20,000 administrative expenses for the period ending July 31, 2012.
NRI believes it can raise $125,000 in flow-through financing under Canadian tax incentive legislation. In 2008, NRI was successful in raising $120,000 in flow-through financing and believes if market conditions improve, it should be able to do so again.
Employees
NRI plans to add 1 employee over the next twelve months at a cost of approximately $45,000.
82
NRI expects to incur operating expenses of approximately $355,000 over the next year.
No dividends have been paid to date by NRI. NRI does not have any present intention to pay dividends in the future. Dividends will only be declared by the Board of Directors and paid by NRI in the event the Board deems it prudent to distribute cash in excess of required cash flow.
NRI’S QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
NRI is not exposed to material market risk.
NRI’S OFF-BALANCE SHEET ARRANGEMENTS
NRI does not, as of July 31, 2011, have any off-balance sheet arrangements.
Other than agreements relating to the offer, there are no material contracts entered into by NRI, which are in effect.
NRI’S DIRECTORS AND EXECUTIVE OFFICERS
NRI’s Board of Directors consists of three (3) directors. The Board of Directors has determined that neither Abraham Arnold not Dave Coutts qualify as “independent” as defined by SEC rules. However, John Spratley does qualify as “independent”.
During the fiscal year ended July 31, 2011, the Board of Directors held a total of 6 meetings. Each director attended at least 75% of the total number of meetings of the Board of Directors and at least 75% of the meetings of all committees on which he served.
The Board of Directors is comprised as follows:
Abraham Arnold– 75, Mr. Arnold has been a director since August 2, 2007. Mr. Abraham does not own any shares of NRI common stock. Abraham Arnold is a retired stock broker, who retired in 2001.
83
John Spratley, LLB– 45, Mr. Spratley has been a director since November 28, 2008. Mr. Spratley does not own any shares of NRI common stock. John Spratley, LLB is a lawyer who practices commercial real estate law at his own firm, which he started in 1996. Mr. Spratley also represents mining companies.
Dave Coutts – 67, Mr. Coutts has been a director since February 5, 2008. Mr. Coutts does not own any shares of NRI common stock. Dave Coutts works in administration at Heritage Trust Agency and does communications for Heritage Trust Agency. Mr. Coutts began working at Heritage Trust Agency in 2005.
Board members will not be considered independent unless the Board affirmatively determines that the member has no material relationship with NRI, either directly, or as a partner, shareholder or officer of an organization that has a relationship with NRI.
The Board of Directors adopts the following categorical standards to assist the Board in making independence determinations.
In order to be considered independent, a director must not:
|
|
|
| 7. | Be an employee of NRI or have been an employee of NRI within the past three years, or have an immediate family member who is an executive officer of NRI or has been an executive officer of NRI within the past three years; |
|
|
|
| 8. | Have received, or have an immediate family member who is an executive officer who has received, in any twelve-month period within the last three years, more than $120,000 in direct compensation from NRI, other than Director or Committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service); |
|
|
|
| 9. | Be (a) an employee or partner of a firm that is NRI’s internal or external auditor; (b) have an immediate family member who is a partner of such a firm or who is an employee of such a firm and personally works on NRI’s audit; or (c) have been, or have an immediate family member who has been, within the past three years, a partner of such a firm or an employee of such a firm who personally worked on NRI’s audit. |
|
|
|
| 10. | Be, or in the past three years have been, or have an immediate family member who is, or in the past three years has been, an executive officer of another company where any of NRI’s present executives at the same time serves or served on that NRI’s compensation committee; |
|
|
|
| 11. | Be an employee, or have an immediate family member who is an executive officer of a company that has made payments to, or received payments from, NRI for property or services in an amount which, in any of the last three fiscal years, exceeded the greater of $1 million or 2% of such other company’s consolidated gross revenues; or |
|
|
|
| 12. | Be an executive officer of a tax-exempt organization that, within the preceding three years, received contributions from NRI in any fiscal year exceeding the greater of $1 million or 2% of the tax-exempt organization’s consolidated gross revenues. |
84
The executive officers of NRI are as follows:
|
|
|
|
|
Name |
| Age |
| Position |
|
| |||
|
|
|
|
|
Abraham Arnold |
| 75 |
| President |
|
|
|
|
|
Ronald Haller |
| 56 |
| Secretary & Treasurer |
Abraham Arnold – Mr. Arnold has been President of NRI since August 2, 2007. Mr. Arnold does not own any shares of NRI common stock. Abraham Arnold retired as a stock broker in 2001. Mr. Arnold shall devote 100 percent of his business hours to NRI.
Ronald Haller – Mr. Haller has been Secretary and Treasurer of NRI since August 2, 2007. Mr. Haller does not own any shares of NRI common stock. Ronald Haller owns Fastcorp Management Ltd., which offers professional management services to both public and private entities and fills the positions of Secretary or Secretary-Treasurer for junior public issuers to facilitate the regulatory continuous reporting requirements. Mr. Haller also provides corporate secretarial and accounting and taxation services which includes: minute book maintenance, preparation of minutes, resolutions and incorporations, assist in preparing press releases, computerized bookkeeping, banking services, financial statement preparation, GST, PST and payroll filings. Mr. Haller is a Certified Management Accountant (CMA) of the Society of Management Accountants of Ontario, Canada and a graduate of Ryerson University in Toronto. He shall devote 100 percent of his business hours to NRI and GOG.
Committees of the Board of Directors
Nominating Committee
NRI does not currently have a nominating committee. It feels this is appropriate due to the small size of NRI. Therefore, this function is handled directly by the Board of Directors of NRI.
Code of Conduct
NRI has not adopted a code of conduct.
Board Vacancies
The function of filling vacancies on the Board of Directors of NRI is handled directly by its Board of Directors.
85
COMPENSATION DISCUSSION AND ANALYSIS
The Board of Directors of NRI, as a whole, determines the level of compensation in respect of NRI’s executives. There are no pension plan benefits in place for the executives and no executive is indebted to NRI. There are no plans in place with respect to the executives for termination of employment or change in responsibilities.
No executive compensation is paid. Payment for management and consulting services in the amount of $24,180 CDN for the year 2010 (between August 1, 2009 and July 31, 2010) was paid to a private company, controlled by Dave Coutts. Abraham Arnold is President and Chairman of the Board of Directors and did not receive any compensation other than director’s fees.
NRI has no compensation committee to determine the level of compensation for its executives. It is the responsibility of the Board of Directors, as a whole, to determine the level of compensation in respect of NRI’s executives with a view to providing them with a competitive compensation package having regard to performance. Performance is defined to include achievement of NRI’s strategic objective of growth and enhancement of shareholder value through increases in stock price resulting from enhanced annual cash flow. Compensation for executives is comprised primarily of base salary and performance bonuses.
The following information is Directors Fees Paid and Stock Options available to NRI’s directors and officers for 2011 (between August 1, 2010 and July 31, 2011).
|
|
|
|
|
|
Name and Position |
|
| Directors Fees |
| Stock Options |
|
|
| |||
Abraham Arnold, Director |
| nil |
| nil | |
|
|
|
|
| |
John Spratley LLB, Director |
| nil |
| nil | |
|
|
|
|
| |
Dave Coutts, Director |
| nil |
| nil |
In 2007 a stock option plan was created by NRI (the “NRI Plan”). The NRI Plan was designed to encourage stock ownership by directors, officers and service providers by providing additional incentive for significant performance by such persons and to enable NRI to attract and retain valued persons. It will allow for the opportunity to participate in the profitability of NRI by
86
granting to such individuals options, exercisable over periods of up to five (5) years to buy shares of NRI at a price equal to the then current market price.
The aggregate number of shares of NRI common stock which may be reserved and set aside for issuance under the NRI Plan is 5,000,000. The aggregate number of shares that may be reserved for issuance to any one individual within a one year period under the NRI Plan and all other compensation arrangements shall not exceed five percent (5%) of the total number of issued and outstanding shares of common stock of NRI. Presently no director has any stock options.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
NRI executive officers and directors are encouraged to own NRI common stock to further align their interests with NRI stockholders’ interests.
|
|
|
|
|
|
|
|
Name and Address of Beneficial Owner |
| Number of Shares |
| Percentage of Shares |
| ||
|
|
| |||||
|
|
|
|
|
|
|
|
Abraham Arnold |
|
| 0 |
|
| 0 | % |
Dave Coutts |
|
| 0 |
|
| 0 | % |
John Spratley |
|
| 0 |
|
| 0 | % |
Ronald Haller |
|
| 0 |
|
| 0 | % |
First Market Confirmers(3) |
|
| 4,500,000 |
|
| 25.52 | % |
|
|
|
|
|
|
|
|
Directors and Officers as a group (4 persons |
|
| 0 |
|
| 0 | % |
87
Outstanding Equity Awards at 2011 Fiscal Year-End
No named executive officer had any outstanding equity awards as of July 31, 2011. No options have been awarded to any named executive officers.
DESCRIPTION OF GOG COMMON STOCK
The GOG common stock is fully paid and non-assessable. The GOG common stock shall be issued from treasury and shall be immediately tradable. There is no holding period required for Frankfurt listed shares issued from treasury. Holders of shares of GOG common stock are entitled to one vote for each share on all matters to be voted on by the shareholders. Holders of common stock do not have cumulative voting rights. Holders of GOG common stock have no preemptive rights to purchase GOG common stock. There are no conversion or redemption rights or sinking fund provisions with respect to the GOG common stock.
DESCRIPTION OF NRI COMMON STOCK
The NRI common stock is fully paid and non-assessable. There is an unlimited number of authorized common stock without par value. The NRI common stock shall be issued from treasury and shall be immediately tradable. There is no holding period required for Frankfurt listed shares issued from treasury. The holders of the shares of NRI common stock are entitled to receive notices of and to attend and vote at all meetings of shareholders of NRI and shall have one vote for each share of common stock held
DESCRIPTION OF SILVER CERTIFICATES
One (1) Silver Certificate for ten (10) grams of silver will be issued to every record holder of one hundred (100) shares of SDRG common stock that is tendered in this offer. Each record holder will be mailed one (1) or more Silver Certificate depending on the number of lots of 100 shares of SDRG common stock that is tendered in this offer. A form of a Silver Certificate is attached hereto. The Offeror will exchange your validly tendered and not properly withdrawn shares through Heritage Transfer Agency Inc. (the “Depository”). The Depository will act as your agent for the purpose of receiving the Silver Certificate(s) from the Offeror and transmitting such Silver Certificate(s) to you. In all cases, Silver Certificates will be made only after timely receipt by the Depository of certificates for such shares of SDRG (or of a confirmation of a book-entry transfer of such shares) and a properly completed and duly executed letter of transmittal and any other required documents for such shares.
If this offer is successful, the Offeror shall hold at least 50.01% of the outstanding common stock of SDRG. As the majority stockholder, the Offeror shall take all of the corporate steps necessary in order to position itself, or its designees, so that it has the authority to cause SDRG to deliver – on the Silver Certificate on its behalf. The Offeror intends to deliver the ten grams of silver by March 31, 2016 to the registered holder or his or her nominee. The Offeror will cause SDRG to provide the monetary equivalent, or to bank or warehouse the future production of silver dore
88
bars or silver concentrate, as necessary to meet the future commitments of this exchange offer. However, the silver dore bars of silver or silver concentrate shall be provided on a “best efforts” basis.
One (1) NRI Warrant will be issued to every record holder of one hundred (100) shares of SDRG common stock that is tendered in the offer. A form of a NRI Warrant is attached hereto. The Offeror will exchange your validly tendered and not properly withdrawn shares through Heritage Transfer Agency Inc. and Heritage Trust Company (the “Depository”). The Depository will act as your agent for the purpose of receiving the NRI Warrants from the Offeror and transmitting such NRI Warrants to you. In all cases, NRI Warrants will be issued only after timely receipt by the Depository of certificates for such shares (or of a confirmation of a book-entry transfer of such shares) and a properly completed and duly executed letter of transmittal and any other required documents for such shares. The NRI Warrants are exercisable on or before May 18, 2012 at a cost of $190.00 for ten (10) grams of gold.
If this offer is successful, the Offeror shall hold at least 50.01% of the outstanding common stock of SDRG. As the majority stockholder, the Offeror shall take all of the corporate steps necessary in order to position itself, or its designees, so that it has the authority to cause SDRG to deliver on the NRI Warrants on its behalf. The Offeror will cause SDRG to provide the monetary equivalent or in the alternative, gold to be issued upon the exercise of the NRI Warrants. However, the gold shall be provided on a “best efforts” basis. In the event the supply of gold is insufficient to meet the demand of the exercised NRI Warrants by March 31, 2016, the Offeror shall cause SDRG to deliver to all the holders of the exercised NRI Warrants an equivalent amount of silver, based on the market prices of the silver and gold on the date the related NRI Warrant was exercised. The Offeror will continue to explore alternative commodity sources of gold to meet the demand of the holders of the NRI Warrants.
Silver Dragon Resources Inc. was incorporated on May 9, 1996 in the State of Delaware and its executive office is in Toronto, Canada. It carries out operations through a subsidiary and affiliate in Mexico and China, respectively. SDRG and its subsidiary and affiliate are in the exploration stage as defined by Financial Accounting Standards Board’s (“FASB”) Accounting Standard Codification (“ASC”) 915 “Accounting and Reporting For Development Stage Entities.”
89
SDRG primary objective is to explore for silver minerals and, if warranted, to develop those existing mineral properties. SDRG secondary objective is to locate, evaluate, and acquire other mineral properties, and to finance the exploration and development through equity financing, by way of joint venture or option agreements or through a combination of both. The Company’s primary objective right now is to monetize its assets in order to augment its cash flow and ensure increased value.
The properties in China, in which SDRG have an interest, continue to be drilled and tunneled. Geologic mapping, trenching, tunneling and drilling work are underway for three of the properties known as Dadi, Laopandao, and Aobaotugounao. An NI 43-101 report on Laopandao property will be completed by the third quarter of this year and the NI43-101 report on Dadi will also be updated by the third quarter.
On February 1, 2011 SDRG reported an initial geological report from recently completed exploration work at the Company’s Laopandao Silver-Tin-Copper-Lead Polymetallic project in Inner Mongolia, Northern China. Since 2006, an advanced drilling program has been carried out on the project, focusing on three mineralization zones and it is these three zones which were the focus of the report. Highlights from the report are as follows:
|
|
|
|
| • | Mineralization zone I is featured by a silver-copper-tin enrichment and is approximately 540m long, 100m wide with a dip extension of over 300m, containing 8 mineralized bodies. | |
|
|
|
|
|
| • | Mineralization zone II is also featured by a silver-copper-tin enrichment and is approximately 200m long and 80m wide, containing 16 mineralized bodies. |
|
|
|
|
| • | Mineralization zone III is characterized by tin mineralization, approximately 300m long and 200m wide and occurs within a granite porphyry intrusion. A total of 21 mineralized bodies. | |
|
|
|
|
| • | All mineralized bodies have been defined by drill holes and/or underground drifts, the samples were analyzed with internal and external verification. | |
|
|
|
|
| • | SDRG will continue advanced exploration of Laopandao in 2011, conduct metallurgical testing on the 2010 exploration results and commission an initial NI 43-101 technical report based on CIM standards. |
On February 23, 2011, SDRG announced the completion of a geological report on the results from the 2010 drilling program at the Dadi Silver-Lead-Zinc Polymetallic project in Inner Mongolia, Northern China.
|
|
|
| • | Extensive exploration work has been carried out during the 2010 season with the major focus on mineralization zones I and II. These zones show the most significant |
90
|
|
|
|
| mineralization so far. Although mineralization zones (III, IV, and V) also show significant potential, they were not the focus of the 2010 season. |
|
|
|
| • | An associated element, cadmium, was found in the polymetallic ores. The cadmium resource could be of significant industrial and economic value. |
Further exploration and development plan
|
|
|
| • | Further exploration will focus on mineralization zones I and II in order to increase the amounts of mineable polymetallic resources by tunneling and underground drilling. For other mineralization zones, surface drilling will be continued. |
|
|
|
| • | Metallurgical testing will be completed shortly to provide basic industrial and economic parameters for development design. |
|
|
|
| • | The construction of the ore processing mill and the underground mining system will commence in order for Dadi to become a producing property by 2012. |
Since the associate element Cadmium is found in polymetallic ores, further testing work will be conducted to evaluate its industrial and economic values.
On March 23, 2011 Chifeng Silver Dragon Resources & Technologies, Ltd. which owns the Erbahuo mine signed a definitive agreement with Guangxi Hongteng Mining, Ltd. to commence production at the Erbahuo silver mine.
On April 5, 2011 SDRG announced that Sanhe Sino-Top Resources & Technologies, Ltd. commenced this year’s approved exploration program on three of its properties in Northern China. The exploration targets include 6,000 meters (incl. 1,000 meters contingency) drilling, 2,500m tunneling, a 200m inclined shaft and a 260m shaft at Dadi; 5,000 meters (incl. 1,000 meters contingency) drilling, 1,000m tunneling and a metallurgic test at Laopandao; 1,000 meters drilling at Aobaotugounao. In addition, field surveys will be conducted on the Yuanlinzi, Zhuanxinhu and Shididonggou properties for exploration consideration and potential in 2012.
On April 12, 2011 Sanhe Sino-Top Resources & Technologies, Ltd. completed an initial metallurgic analysis of the Dadi polymetallic silver project. The ore processing test was carried out by Inner Mongolia Minerals Experiment Research Institute, China, an ISO certified testing facility for exploration, assaying and ore processing. Crude ores for the metallurgic test were collected, using the channel sampling method, from underground drifts within mineralization zone II at Dadi. One 300 kilogram composite testing sample collected from four groups of underground sampling was submitted for the ore processing test. The combined samples have a grade of 1.50% lead and 1.78% zinc and constitute good representation of the Dadi project.
Ore processing testing and analysis included sample preparation, chemical and mineralogical composition analysis, mineral phase analysis, crude ore sizing analysis, crude ore gravity measurement, floatation reagent test, floatation condition test, grinding condition experiment, open-circuit test, closed-circuit test, chemical analysis of concentrates, and settling speed test of tailings.
91
The main conclusions of the ore processing test for the Dadi project are as follows:
|
|
1. | Collected crude ore samples from Dadi Property are composed of metal minerals of sphalerite, galena, chalcopyrite, pyrite, argentite and small amounts of arsenopyrite; and gangue minerals of quartz, carbonates, epidote, and chlorite. Main recoverable metals from crude ores are lead, zinc, and silver. Other metal contents do not reach economic parameters. |
|
|
2. | Based on the ore processing test, the floatation process consists of two stages. The first stage recovers lead and then the second stage recovers zinc from lead tailings. The grade of lead concentrate is 66.40% Pb and the recovery rate of lead reaches 90.14%; and the grade of zinc concentrate is 42.48% Zn and the recovery rate reaches 74.79%. The grade of silver in lead concentrate is 2,965.04 g/t and silver recovery rate is 40.19% in the first stage of processing; the silver grade in zinc concentrates reaches 1,943.48 g/t and silver recovery rate reaches 40.35% in the second stage. The total silver recovery rate through the two-stage floatation process is 80.54%. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Production |
| Grade |
| Grade |
| Recovery rate (%) |
| |||||||||||||
|
|
|
|
|
| |||||||||||||||||
Products |
|
| Pb |
| Zn |
|
| Pb |
| Zn |
| Ag |
| |||||||||
|
|
|
|
|
|
|
| |||||||||||||||
Lead concentrates |
|
| 2.05 |
|
| 66.40 |
|
| 3.90 |
|
| 2,965.04 |
|
| 90.14 |
|
| 4.48 |
|
| 40.19 |
|
Zinc concentrates |
|
| 3.14 |
|
| 1.12 |
|
| 42.48 |
|
| 1,943.48 |
|
| 2.33 |
|
| 74.79 |
|
| 40.35 |
|
Tails |
|
| 94.81 |
|
| 0.12 |
|
| 0.39 |
|
| 31.04 |
|
| 7.53 |
|
| 20.73 |
|
| 19.46 |
|
Crude ore |
|
| 100.00 |
|
| 1.51 |
|
| 1.78 |
|
| 151.24 |
|
| 100.00 |
|
| 100.00 |
|
| 100.00 |
|
|
|
3. | The ore processing test has provided efficient results on the recovery of useful metals. |
|
|
4. | Lead occurs in sulfides, which have good floatability and are easily recovered. |
|
|
5. | Since oxidized zinc grades 0.5% in crude ores accounts for 28.12% of the total zinc content in crude ores, the high content of oxidized zinc leads to a relatively low recovery rate of zinc. It is suggested that further processing tests on oxidized zinc should be conducted in order to reduce processing costs. |
|
|
6. | The results of the ore processing test indicate that the crude ores at the Dadi Property are easy-to-process ores and the parameters of the test can be used for resource evaluation of the property. |
|
|
7. | Since the ore processing test is on laboratory scale, industrial-scale and continued ore processing testing should be carried out in order to provide more reliable references for feasibility study, mill design and development of Dadi Property. |
92
MEXICO
China
Mexico
SDRG Mexican subsidiary has been subjected to irregularities that it is seeking to redress. Legal proceedings were heard and decided on an ex parte basis, without notice to SDRG that resulted in SDRG’s Mexican subsidiary losing title to its mineral assets. In December 2010, SDRG
93
Financing
As an element of o SDRG ongoing financing program, on January 27, 2011, the Superior Court of the State of California for the County of Los Angeles entered an Order Approving Stipulation for Settlement of Claim in the matter entitled Socius CG II, Ltd. v. Silver Dragon Resources Inc. The order provides for the settlement of Socius GC II, Ltd.’s $405,981.49 claim against SDRG, which they purchased from seven creditors.
Pursuant to the order, SDRG initially issued to Socius 9,000,000 shares of o SDRG common stock, representing approximately 8.28% of the total number of shares outstanding. SDRG issued the shares in reliance upon the exemption from registration provided by Section 3(a)(10) of the Securities Act of 1933, as amended. Such shares were issued in exchange for the Claims pursuant to the Order of the Court, which determined that such exchange was fair to Socius following notice to the Court of SDRG intent to rely upon the exemption and a hearing of which Socius received notice and in which it participated.
The total number of shares issued to Socius was adjusted on the 21st trading day following the date on which they were issued as follows: the number of Volume Weighted Average Price (VWAP) shares were less than the number of shares issued and therefore Socius is returning to SDRG for cancellation 3,116,104 shares which equals the difference between the number of VWAP Shares and the number of shares originally issued. The number of shares is equal to (i) $405,981.49 plus $28,691.32 of Socius’ legal fees divided by 75% of the VWAP of SDRG common stock over the 20-day trading period immediately following the date on which the shares were originally issued. The final number of shares issued to Socius is 5,883,896.
MARKET FOR SDRG’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
SDRG’s common stock is traded on the Over-the-Counter Bulletin Board under the symbol “SDRG”. The following table sets forth high and low sales prices of SDRG common stock for each fiscal quarter for the last two fiscal years as reported by the Over-the-Counter Bulletin Board, based on closing prices. The prices in the table reflect inter-dealer prices, without retail markup, markdown or commission and may not represent actual transactions.
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| High |
| Low |
| ||
|
|
|
| ||||
Year Ended December 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
First Quarter ended March 31, 2011 |
| $ | 0.21 |
| $ | 0.07 |
|
Second Quarter ended June 30, 2011 |
| $ | 0.21 |
| $ | 0.09 |
|
Third Quarter ended September 30, 2011 |
| $ | 0.07 |
| $ | 0.06 |
|
Fourth Quarter ended December 31, 2011 |
| $ | 0.095 |
| $ | 0.03 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| High |
| Low |
| ||
|
|
|
| ||||
Year Ended December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
First Quarter ended March 31, 2010 |
| $ | 0.44 |
| $ | 0.22 |
|
Second Quarter ended June 30, 2010 |
| $ | 0.36 |
| $ | 0.16 |
|
Third Quarter ended September 30, 2010 |
| $ | 0.29 |
| $ | 0.155 |
|
Fourth Quarter ended December 31, 2010 |
| $ | 0.28 |
| $ | 0.07 |
|
Fourth Quarter ended December 31, 2009 |
| $ | 0.49 |
| $ | 0.213 |
|
No dividends have been paid.
Securities Authorized for Issuance under Equity Compensation Plans
There are no equity compensation plans.
Unregistered Sales of Equity Securities and Use of Proceeds
Between January 3 and February 15, 2011 an investor elected to convert two outstanding notes payable totaling $120,000 plus accrued interest of $3,000 and $1,800 respectively. SDRG issued a total of 1,991,285 shares in lieu of a cash payment.
On January 18, 2011, SDRG issued 50,000 shares of restricted common stock to a company, pursuant to the signing of a term sheet proposing $2.5 million of convertible debt financing for SDRG, for fair value of $5,000.
On January 25, 2011, SDRG issued 1,410,000 common share purchase warrants to directors and consultants at an exercise price of $0.11 exercisable for a period of three years from the date of issuance.
On January 27, 2011, the Superior Court of the State of California for the County of Los Angeles entered an Order Approving Stipulation for Settlement of in the matter entitled Socius CG II, Ltd. v. Silver Dragon Resources Inc. The order provides for settlement of Socius GC II, Ltd.’s
95
$405,981 claim against SDRG. Socius purchased the claims from seven creditors of Silver Dragon. On January 28, 2011, SDRG issued 9,000,000 shares of common stock to Socius and Socius subsequently returned 3,116,104 shares for cancellation. For further information please see SDRG’s Form 8-Ks filed January 28 and March 3, 2011.
On January 31, 2011, SDRG issued 15,000 shares of SDRG’s restricted common stock to an individual for investor relation services provided, for fair value of $1,500.
On February 23, 2011, SDRG issued 100,000 shares of SDRG’s restricted common stock to an individual pursuant to an addendum to an agreement signed October 7, 2010, for fair value of $12,400.
On February 15, 2011, SDRG entered into a note and warrant purchase agreement with Tonaquint, Inc. (the “Investor”), whereby SDRG issued and sold, and the Investor purchased: (i) a Secured Convertible Promissory Note of SDRG in the principal amount of $2,766,500 and (ii) a Warrant to purchase 8.6 million shares of common stock of SDRG at an exercise price of $0.50 per share at any time within three years after February 15, 2011. In connection with the transaction, SDRG also issued to the Investor 50,000 shares of SDRG’s restricted common stock. For further information please see SDRG’s Form 8-K filed February 18, 2011.
On February 11, 2011, SDRG issued 250,000 share purchase warrants to a company at an exercise price of $0.07 exercisable for a period of one year from the date of issuance.
On April 20, 2011, SDRG issued 125,000 shares to a law firm for legal services provided in connection with the convertible financing agreement closed on April 21, 2011, for fair value of $20,000
On April 21, 2011 SDRG closed a convertible financing agreement for $3 million over a three-year period with JMJ Financial, a privately-held US investment firm. The total planned funding amount is $3,000,000, with payment consisting of $1,000,000 cash consideration through a convertible promissory note and four $500,000 promissory notes, secured & collateralized by JMJ Financial.
The initial note provides a $1 million consideration in the form of cash payments to be made to Silver Dragon according to a funding schedule expiring 180 days after an effective registration statement covering the resale of the shares of common stock issuable upon conversion of the note, assuming certain share volume and prices are met. $250,000 was paid to SDRG on April 21, 2011. The subsequent notes each provide $500,000 consideration, totaling $2,000,000, which are secured and collateralized by JMJ Financial, over the remainder of the three-year period. The total face amount of the convertible notes issued to JMJ is $3,150,000, which represents $3,000,000 to be paid to SDRG and includes other fees and expenses to be paid to JMJ Financial.
SDRG MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
96
Statements made in this Form 10-Q that are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 (the “Act”) and Section 21E of the Securities Exchange Act of 1934. These statements often can be identified by the use of terms such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “approximate,” or “continue,” or the negative thereof. We intend that such forward-looking statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.
SDRG file annual, quarterly, current reports, proxy statements, and other information with the SEC. You may read and copy documents that have been filed with the SEC at their Public Reference Room, 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. You can also obtain copies of SDRG SEC filings by going to their website atwww.sec.gov.
97
LIQUIDITY AND CAPITAL RESOURCES
98
99
SDRG does not have any off-balance sheet arrangements or contractual obligations that have had or are reasonably likely to have a material current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that have not been disclosed in its financial statements.
SDRG’S QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
100
101
SDRG’S DIRECTORS AND EXECUTIVE OFFICERS
|
|
|
|
|
|
|
Name |
| Age |
| Position |
| Date of first election or |
Executive Officers |
|
|
|
|
|
|
Marc Hazout |
| 47 |
| Chief Executive Officer, President and Director |
| November 5, 2005 |
Jeffrey Sherman |
| 56 |
| Chief Financial Officer |
| September 8, 2010 |
Alessandro Motta |
| 41 |
| Vice President, Investor Relations |
| October 5, 2010 |
Directors |
|
|
|
|
|
|
Manuel Chan |
| 61 |
| Director |
| August 7, 2007 |
Charles McAlpine |
| 77 |
| Director |
| September 28, 2010 |
Guoqiang Hao |
| 57 |
| Director |
| June 18, 2008 |
R. Glen MacMullin |
| 41 |
| Director |
| December 6, 2007 |
102
Mr. Jeffrey Sherman, age 56, has had extensive experience as a director and CFO of numerous corporations, written over 20 books, and lectured extensively on finance, treasury and governance, including as an adjunct professor at York University for 15 years, and executive development and other programs for the institutes of Chartered Accountants across Canada since 1980. His most recent books includeCash Management Toolkit, andFinance and Accounting PolicyPro, both published by the Canadian Institute of Chartered Accountants., and the four-volumeControllership Guide, published by Thomson-Reuters/Carswell. From 1999 to present Mr. Sherman has been President of Anagram Services, a consulting company, and from February 2008 to present he has been chief financial officer of Pure Nickel Inc., a mineral exploration company listed on the Toronto Stock Exchange. He graduated with a Bachelor of Commerce from the University of Toronto, and an M.B.A. from York University, and is a Fellow of the Institute of Chartered Accountants of Ontario.
Mr. Manuel Chan joined SDRG’s Board of Directors on August 29, 2007. Mr. Chan is also a member of the Board of Directors of Sanhe Sino-Top Resources & Technologies Ltd. (“Sino-Top’’) of which Silver Dragon owns a 40% equity interest. Mr. Chan possesses more than 20 years of experience in the real estate sector and holds a Bachelor of Commerce degree in Management Information Systems and Accounting from the University of British Columbia, Canada.
103
Florida. Prior to joining Minto Group, Inc. in 2008, Mr. MacMullin was a Managing Director and Chief Operating Officer with Xavier Sussex, LLC; a New York based private equity firm he co-founded in 2004. In 2001, Mr. MacMullin was appointed Director and Chief Operating Officer with DB Advisors, LLC; a $6 billion hedge fund group based in New York and a wholly owned subsidiary of Deutsche Bank AG. He has also held several senior management positions with Deutsche Bank Offshore in the Cayman Islands from 1998 through 2001, including Head of Investment Funds. He began his career in 1993 as a public accountant with Coopers & Lybrand in Ottawa, Canada and KPMG in the Cayman Islands. Mr. MacMullin received a Bachelor of Business Administration degree from Saint Francis Xavier University in 1993 and is a member of the Canadian Institute of Chartered Accountants. Mr. MacMullin also serves on the Board of Directors of Nayarit Gold, Inc.
Compensation Discussion and Analysis
The following Compensation Discussion and Analysis describes and explains the significant elements of SDRG compensation programs.
The objectives of SDRG compensation program are to retain and motivate qualified executive officers who will drive SDRG success while promoting an alignment of interests between the
104
executive officers and the shareholders. Compensation consists of three elements: base salary, short-term incentive bonus, and stock options. The Compensation Committee reviews annually each component and appropriate competitive factors, and makes recommendations based upon performance.
Base salaries: The primary element of SDRG compensation program is base salary. SDRG view is that a competitive base salary is a necessary element for retaining and attracting qualified employees. The base salary of each executive is determined based upon survey data and other competitive information, number of years’ experience, and comparison to other base salaries paid in similar situations.
Short-term incentive bonus: In addition to establishing competitive base salaries and stock option incentives, one of the objectives of the executive compensation strategy is to encourage and recognize strong levels of performance by linking achievement of specific goals with variable cash compensation in the form of a short-term incentive bonus. The compensation committee will be assessing appropriate targets going forward. No short-term incentive bonuses were awarded during 2010.
Stock warrants:The number of stock warrants granted is reviewed at each grant date to provide medium-term incentives. Warrants granted to directors who are not employees vest immediately and expire after three years. The terms and conditions of options granted to executives and other employees are reviewed for each grant at the time that it is made.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year |
| Salary |
| Bonus |
| Stock |
| Option |
| Non-Equity |
| Nonqualified |
| All Other |
| Total |
| ||||||||||
| ||||||||||||||||||||||||||||
Marc Hazout, |
|
| 2011 |
|
| 324,000 | (2) |
| — |
|
| — |
|
| 16,138 |
|
| — |
|
| — |
|
| None |
|
| 340,138 |
|
Director, President and Chief Executive Officer |
|
| 2010 |
|
| 324,000 | (2) |
| — |
|
| 279,000 | (1) |
| — |
|
| — |
|
| — |
|
| None |
|
| 603,000 |
|
| ||||||||||||||||||||||||||||
Jeffrey Sherman, |
|
| 2011 |
|
| 48,029 |
|
| — |
|
| — |
|
| 8,069 |
|
| — |
|
| — |
|
| None |
|
| 56,098 |
|
Chief Financial Officer and Corporate Secretary |
|
| 2010 |
|
| 16,000 | (3) |
| — |
|
| — |
|
| 23,058 |
|
| — |
|
| — |
|
| None |
|
| 39,058 |
|
|
|
|
|
| (1) | The shares granted in 2010 were pursuant to a financing and extension of contract for five years. The shares issued to Travellers International Inc., a corporation owned by Mr. Hazout, consisted of 1,000,000 shares of SDRG’s restricted common stock, valued at $0.279 per share on the grant date, which vested immediately and are restricted from |
105
|
|
|
|
| resale for six months from the date of issuance of the shares. |
|
|
|
| (2) | Payments were made to Travellers International Inc. |
|
|
|
| (3) | Mr. Sherman commenced employment effective September 1, 2010. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Option Awards |
| Stock Awards |
| |||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||
Name |
| No. of |
| No. of |
| Equity |
| Option |
| Option |
| Number |
| Market |
| Equity |
| Equity |
| |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Marc Hazout |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Directors who are also officers of SDRG are not remunerated for their services rendered as a director of SDRG. Outside directors received warrants as remuneration for their office. Directors are reimbursed for any reasonable expenses incurred in the connection with attendance at board or committee meetings or any expenses generated in connection with the performance of services on the behalf of SDRG.
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Name |
| Fees |
| Stock |
| Option |
| Non-Equity |
| Change in |
| All Other |
| Total |
| |||||||
| ||||||||||||||||||||||
Manuel Chan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
|
|
|
|
|
| 16,138 | (1) |
|
|
|
|
|
|
|
|
|
| 16,138 |
|
2010 |
|
|
|
|
|
|
|
| 20,426 | (2) |
|
|
|
|
|
|
|
|
|
| 20,426 |
|
| ||||||||||||||||||||||
Guoqiang Hao |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
2011 |
|
|
|
|
|
|
|
| 16,138 | (3) |
|
|
|
|
|
|
|
|
|
| 16,138 |
|
| ||||||||||||||||||||||
2010 |
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
|
|
| — |
|
| ||||||||||||||||||||||
Glen |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
2011 |
|
|
|
|
|
|
|
| 16,138 | (4) |
|
|
|
|
|
|
|
|
|
| 16,138 |
|
| ||||||||||||||||||||||
2010 |
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
|
|
| — |
|
| ||||||||||||||||||||||
Charles Alpine |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
|
|
|
|
|
| 16,138 | (5) |
|
|
|
|
|
|
|
|
|
| 16,138 |
|
2010 |
|
|
|
|
|
|
|
| 32,704 | (6) |
|
|
|
|
|
|
|
|
|
| 32,704 |
|
|
|
|
(1) | 200,000 share purchase warrants were awarded to Manual Chan exercisable at an exercise price of $0.11 for a period of three years from the date of issuance. |
(2) | 200,000 share purchase warrants were awarded to Manual Chan exercisable at an exercise price of $0.18 for a period of two years from the date of issuance. |
(3) | 200,000 share purchase warrants were awarded to Guoqiang Hao exercisable at an exercise price of $0.11 for a period of three years from the date of issuance. |
(4) | 200,000 share purchase warrants were awarded to Glen MacMillen exercisable at an exercise price of $0.11 for a period of three years from the date of issuance. |
(5) | 200,000 share purchase warrants were awarded to Charles McAlpine exercisable at an exercise price of $0.11 for a period of three years from the date of issuance. |
(6) | 200,000 share purchase warrants were awarded to Charles McAlpine exercisable at an exercise price of $0.25 for a period of three years from the date of issuance. |
107
On November 1, 2010, SDRG entered into a consulting agreement with Travellers International Inc., a corporation owned by Mr. Hazout, to provide consulting services including all activities required to direct, oversee, and manage SDRG including providing the services that would be provided by a chief executive officer. The consulting agreement provides that the Mr. Hazout is entitled to an annual fee of $288,000 for a term of five years, a travel allowance of $3,000 per month, and eight weeks paid holidays each calendar year. Upon termination of the consulting agreement, Mr. Hazout will be provided with 100% of his annual fee rate for the remaining period of the agreement. The agreement contains provisions prohibiting him from competing with SDRG or soliciting customers or employees for a period of one year following the termination of the agreement.
On October 6, 2010 SDRG issued 1,000,000 shares of common stock to Travellers International Inc., a company owned by Marc Hazout, pursuant to the signing of a consulting agreement. The fair value of the shares issued on the date of issuance was $279,000.
Equity Compensation Plan Information
The 2020 stock option plan was cancelled by the Board of Directors on March 16, 2011.
Security Ownership of Certain Beneficial Owners and Management
|
|
|
|
|
|
|
|
Name and Address of Beneficial Owner |
| Number of |
| % Shares(1) |
| ||
| |||||||
Marc Hazout(2) |
|
| 18,141,206 |
|
| 11.80 | % |
Jeffrey Sherman(3) |
|
| 300,000 |
|
| 0.20 | % |
Manual Chan(4) |
|
| 852,500 |
|
| 0.56 | % |
Guoqiang Hao(5) |
|
| 400,000 |
|
| 0.26 | % |
Glen MacMullin(6) |
|
| 450,000 |
|
| 0.29 | % |
Charles McAlpine(7) |
|
| 400,000 |
|
| 0.26 | % |
Officers and Directors as a group (6 persons) |
|
| 20,543,706 |
|
| 13.22 | % |
| |||||||
|
|
|
|
|
|
|
108
|
|
(1) | Based on 152,624,641 shares outstanding as of March 2, 2012, plus any shares of common stock deemed to be beneficially owned pursuant to warrants that are exercisable within 60 days from the above date. |
(2) | Owned by Travellers International Inc. solely owned by Mr. Hazout. Mr Hazout is the President and CEO of Travellers. Marc Hazout own purchase warrants expiring October 10, 2012, to purchase 100,000 shares of Common Stock at an exercise price of $0.50. He owns further share purchase warrants, expiring December 21, 2013, to purchase 768,000 shares of Common Stock at an exercise price of $0.25. He owns further share purchase warrants, expiring January 25, 2014, to purchase 200,000 shares of Common Stock at an exercise price of $0.11. |
(3) | Jeffrey Sherman owns share purchase warrants, expiring September 1, 2012, to purchase 200,000 shares of Common Stock at an exercise price of $0.18. He owns further share purchase warrants, expiring January 25, 2014, to purchase 200,000 shares of Common Stock at an exercise price of $0.11. |
(4) | Manual Chan owns share purchase warrants, expiring September 1, 2012, to purchase 200,000 shares of Common Stock at an exercise price of $0.18. He owns further share purchase warrants, expiring January 25, 2014, to purchase 200,000 shares of Common Stock at an exercise price of $0.11. |
(5) | Guoqiang Hao own share purchase warrants, expiring January 25, 2014, to purchase 200,000 shares of Common Stock at an exercise price of $0.11. |
(6) | Glen MacMullin owns share purchase warrants, expiring January 25, 2014, to purchase 200,000 share of Common Stock at an exercise price of $0.11. He owns further share purchase warrants, expiring December 5, 2012, to purchase 250,000 shares of Common Stock at an exercise price of $0.11. |
(7) | Charles McAlpine owns share purchase warrants, expiring September 28, 2013, to purchase 200,000 shares of Common Stock at an exercise price of $0.25. He owns further share purchase warrants, expiring January 25, 2014 to purchase 200,000 shares of Common Stock at an exercise price of $0.11. |
Glen MacMullin and Charles McAlpine were both considered independent under the independence standards of the NASDAQ Stock Market Rule 5605 during the past fiscal year. Mr. MacMullin and Mr. McAlpine currently sit on the audit committee and compensation committee.
DESCRIPTION OF SDRG COMMON STOCK
SDRG common stock is considered to be a “penny stock.” The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in “penny stocks.” Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on some national securities exchanges or quoted on NASDAQ, provided that current price and
109
|
|
• | deliver a standardized risk disclosure document prepared by the Securities and Exchange Commission that provides information about penny stocks and the nature and level of risks in the penny stock market; |
• | provide the customer with current bid and offer quotations for the penny stock; |
• | explain the compensation of the broker-dealer and its salesperson in the transaction; |
• | provide monthly account statements showing the market value of each penny stock held in the customer’s account; and |
• | make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. |
COMPARISON OF STOCKHOLDERS’ RIGHTS.
The following is a summary of the material differences between (a) the current rights of GOG’s stockholders under GOG’s articles of incorporation and bylaws, (b) the current rights of NRI’s stockholders under NRI’s articles of incorporation and bylaws and (c) the current rights of SDRG stockholders under SDRG’s articles of incorporation and bylaws.
The following summary is not a complete statement of the rights of stockholders of the two companies or a complete description of the specific provisions referred to below. This summary is qualified by reference to GOG’s, NRI’s and SDRG’s constituent documents.
|
|
|
|
|
Authorized Capital Stock |
|
|
|
|
|
|
|
|
|
|
|
|
| |
GOG |
| SDRG |
| NRI |
|
| |||
The total number of shares of common stock, par value of $0.001 per share, authorized for issuance is 200,000,000. As of December 30, 2011, 45,136,000 shares of common stock were issued and outstanding. The total number |
| The authorized capital stock of SDRG consists of 300,000,000 shares of common stock with a $.0001 par value per share. As of March 22, 2012, the number of shares of SDRG common stock issued and outstanding |
| The total number of shares of common stock, no par value per share, authorized for issuance is unlimited. As of December 30, 2011 there were approximately 17,636,299 shares of NRI’s common stock issued and outstanding on |
|
|
|
|
110
|
|
|
|
|
of shares of preferred stock, par value of $0.001 per share, authorized for issuance is 25,000,000. |
| was 166,803,092. There are 20,000,000 shares of preferred stock which have been authorized but none has been issued. |
| record. CDS & CO., in Toronto, Ontario holds 10,171,939 shares of common stock of NRI which is 57.7% of the outstanding common stock. |
|
|
|
|
|
Dividend Policy |
|
|
|
|
|
|
|
|
|
GOG |
| SDRG |
| NRI |
|
| |||
The GOG common stock is junior to the GOG preferred stock in the right to receive dividends. No dividends shall at any time be declared on GOG common stock if the result of the payment of the dividend declared would be to impair the ability of GOG immediately thereafter to redeem all of the issued and outstanding preferred stock. |
| In order that SDRG may determine the stockholders entitled to receive payment of any dividend, the Board of Directors of SDRG may fix, in advance, a record date, which shall not be more than sixty days prior to such action. If no record date is fixed, the record date shall be at the close of business on the day on which the Board of Directors adopts the resolution relating to the payment of any dividend. |
| The holders of the common stock of NRI are entitled to receive dividends and to receive the remaining property of the corporation upon dissolution. |
|
|
|
|
|
Voting |
|
|
|
|
|
|
|
|
|
GOG |
| SDRG |
| NRI |
|
| |||
Each share of GOG common stock is entitled to one vote. |
| Each share of SDRG common stock is entitled to one vote. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Any other action shall be authorized by a majority of the votes cast except where applicable law prescribes a different percentage of votes. Voting need not be by ballot. |
| Each share of NRI common stock is entitled to one vote. |
111
|
|
|
|
|
Number of Directors |
|
|
|
|
|
|
|
|
|
GOG |
| NRI |
| SDRG |
|
| |||
The number of Directors which shall constitute the whole Board of Directors of GOG shall be two. GOG’s Board of Directors currently consists of 2 Directors. |
| The number of Directors which shall constitute the whole Board of Directors of NRI shall be three. NRI’s Board of Directors currently consists of 3 Directors. |
| The number of Directors which shall constitute the whole Board of Directors of SDRG shall be five. SDRG’s Board of Directors currently consists of 5 Directors. |
|
|
|
|
|
Term of Directors |
|
|
|
|
|
|
|
|
|
GOG - |
| SDRG |
| NRI– |
|
| |||
Directors shall be elected at each annual meeting of the shareholders to hold office until the next annual meeting or special meeting of shareholders at which time a new Board of Directors of GOG is elected. Each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified. |
| Directors elected at the annual meeting of stockholders hold office until the next annual meeting of stockholders and until their respective successors is elected and qualified. |
| Directors elected at the annual meeting of stockholders hold office until the next annual meeting of stockholders and until their respective successors are elected and qualified. |
|
|
|
|
|
Removal of Directors |
|
|
|
|
|
|
|
|
|
GOG |
| SDRG |
| NRI |
|
| |||
Directors may be removed by shareholders at an annual meeting or special meeting of shareholders at which time a new Board of Directors is to be elected. Such removal is accomplished by a new director receiving a plurality of the votes. |
| Any one or more directors may be removed, with or without cause, by vote or written consent of the holders of a majority of the issued and outstanding shares of stock of SDRG entitled to vote for the election of directors. |
| Directors may be removed by shareholders at an annual meeting or special meeting of shareholders at which time a new Board of Directors is to be elected. Such removal is accomplished by a new director receiving a plurality of the votes. |
|
|
|
|
|
Vacancies on the Board |
|
|
|
|
|
|
|
|
|
GOG –Directors may be elected in the manner prescribed by the provisions of Sections 78.320 through 78.335 of the General |
|
|
| NRI –Vacancies shall be filled by the remaining directors. Directors elected by the Board to fill such vacancies will serve only until |
112
|
|
|
|
|
Corporation Law of Nevada. Any director may resign at any time upon written notice to GOG. Directors who are elected at an election of directors by stockholders, and directors who have been elected in the interim to fill vacancies and newly created directorships, shall hold office until the next election of directors by stockholders and until their successors are elected and qualified or until their earlier resignation or removal. In the interim between elections of directors by stockholders, newly created directorships and any vacancies in the Board of Directors, including any vacancies resulting from the removal of directors for causeSDRG –Vacancies in existing or new director positions may be filled by the vote of a majority of the remaining directors then in office, although less than a quorum, or by the sole remaining director. Directors elected by the Board to fill such vacancies will serve only until the next annual election of directors or without cause by the stockholders and not filled by said stockholders, may be filled by the vote of a majority of the remaining directors then in office, although less than a quorum, or by the sole remaining director. GOG currently has one vacancy on its Board of Directors. |
|
|
| the next annual election of directors at the annual shareholders meeting. NRI currently does not have any vacancies on its Board of Directors. |
113
|
|
|
|
|
Annual Stockholders Meeting |
|
|
|
|
|
|
|
|
|
GOG |
| SDRG |
| NRI |
|
| |||
The annual meeting shall be held on the date and at the time fixed, from time to time, by the directors, provided, that the first annual meeting shall be held on a date within thirteen months after the organization of the corporation, and each successive annual meeting shall be held on a date within thirteen months after the date of preceding annual meeting. A special meeting shall be held on the date and at the time fixed by the directors. |
| The annual meeting shall be held on the date and at the time fixed by the directors. When the directors shall fail to fix a place for the meeting, it shall be held at SDRG’s registered office. Written notice shall be given regarding each meeting. |
| The holders of the NRI common stock receive notices of and may attend and vote at all meetings of shareholders of NRI. The meetings of shareholders may be held in the Municipality of Metropolitan Toronto and Province of Ontario. |
|
|
|
|
|
Quorum for Stockholders Meetings |
|
|
|
|
|
|
|
|
|
GOG –A majority of the voting power, which includes the voting power that is present in person or by proxy, regardless of whether the proxy has authority to vote on all matters, constitutes a quorum at a meeting of stockholders for the transaction of business unless the action to be taken at the meeting shall require a greater proportion. The stockholders present may adjourn the meeting despite the absence of a quorum. |
| SDRG –The holders of a majority of the outstanding shares of common stock constitutes a quorum. |
| NRI– A majority of the voting power, which includes the voting power that is present in person or by proxy, regardless of whether the proxy has authority to vote on all matters, constitutes a quorum at a meeting of stockholders for the transaction of business unless the action to be taken at the meeting shall require a greater proportion. The stockholders present may adjourn the meeting despite the absence of a quorum. |
|
|
|
|
|
Stockholder Action by Written Consent |
|
|
|
|
|
|
|
|
|
GOG |
| SDRG |
| NRI |
|
| |||
Any action which, under any provisions of the laws of the Stale of Nevada or under the provisions of the Certificate of |
| Any action required to be taken at any annual or special meeting of the stockholders, or any action which may be |
| Any action required to be taken at any annual or special meeting of the stockholders, or any action which may be taken at any annual or special meeting of stockholders, may be |
114
|
|
|
|
|
Incorporation of GOG or under GOG’s by-laws may be taken at a meeting of the shareholders, may be taken without a meeting if a record or memorandum thereof be made in writing and signed by the holders of outstanding stock having no less than the minimum number of votes that would be necessary to authorize or take the action at a meeting for such purpose, and such record or memorandum be filed with the Secretary of GOG. |
| taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. |
| taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. |
|
|
|
|
|
Amendment of Governing Documents |
|
|
|
|
|
|
|
|
|
GOG |
| SDRG |
| NRI |
|
| |||
GOG reserves the right to amend, alter, change or repeal any provision contained in the articles of incorporation, in the manner now or hereafter prescribed, and all rights conferred upon stockholders herein granted subject to this reservation. |
| SDRG’s directors may amend the bylaws. |
| NRI requires shareholder approval. |
|
|
|
|
|
Indemnification of Directors and Officers |
|
| ||
|
|
|
|
|
GOG |
| SDRG |
| NRI |
|
| |||
The articles of incorporation contain provisions providing for the indemnification of directors and officers of GOG as follows: |
| SDRG’s Certificate of Incorporation provides for indemnification of directors as follows: no director shall be personally liable to SDRG or its stockholders for monetary |
| NRI indemnifies its officers and directors from any personal loss or damage from any actions regarding the corporation which are performed in good faith. The indemnification does not |
115
|
|
|
|
|
person who was or is a party, or is threatened to be made a party, of any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of GOG), by reason of the fact that he is or was a director, officer, employee or agent of GOG, or is otherwise serving at the request of GOG as a director, officer, employee or agent of another corporation, partnership joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred by him in connection with such action, suit or proceeding, if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to the best interests of GOG, and, with respect to any criminal action or proceeding, has no reasonable cause to believe his conduct is unlawful. The termination of any action, suit or proceeding, by judgment, order, settlement, conviction upon a plea ofnolo contendere or its equivalent, shall not of itself create a presumption that the person did not act in good faith in a manner he reasonably believed to be in, or not opposed to, the best interests of GOG and, with respect to any criminal action or proceeding, had reasonable |
| damages for any breach of fiduciary duty by such directors as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law, (i) for breach of the director’s duty of loyalty to SDRG or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. |
| apply to any directors’ or officers’ |
116
|
|
|
|
|
cause to believe the action was unlawful. |
|
|
| repurchase or redemption. |
|
|
|
|
|
(b) GOG shall indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action or suit by or in the right of GOG, to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of GOG, or is or was serving at the request of GOG as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), actually and reasonably incurred by him in connection with the defense or settlement of such action or suit, if he acted in good faith and in a manner he reasonably believed to be in, or not, opposed to, the best interests of GOG, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to GOG, unless, and only to the extent that, the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all circumstances of the case, such person is fairly and reasonably entitled to |
|
|
| The indemnification would generally absolve directors and officers of personal liability for negligence in the performance of duties, including gross negligence. |
117
|
|
|
|
|
indemnification for such expenses which such court deems proper. |
|
|
|
|
|
|
|
|
|
(c) To the extent that a director, officer, employee or agent of GOG has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections (a) and (b) above, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorney’s fees) actually and reasonably incurred by him in connection therewith. |
|
|
|
|
|
|
|
|
|
(d) Any indemnification under Section (a) or (b) above (unless ordered by a court) shall be made by GOG only as authorized in the specific case upon a determination that indemnification of the officer, director and employee or agent is proper in the circumstances, because he has met the applicable standard of conduct set forth in Section (a) or (b) above. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the affirmative vote of the holders of a majority of |
|
|
|
|
118
|
|
|
|
|
the shares of stock entitled to vote and represented at a meeting called for purpose. |
|
|
|
|
|
|
|
|
|
(e) Expenses (including attorneys’ fees) incurred in defending a civil or criminal action, suit or proceeding may be paid by GOG in advance of the final disposition or such action, suit or proceeding, as authorized in Section (d) of this Article, upon receipt of an understanding by or on behalf of the director, officer, employee or agent to repay such amount, unless it shall ultimately be determined that he is entitled to be indemnified by GOG. |
|
|
|
|
|
|
|
|
|
(f) The Board of Directors may exercise GOG’s power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of GOG, or is or was serving at the request of GOG as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not GOG would have the power to indemnify him against such liability. |
|
|
|
|
|
|
|
|
|
(g) The indemnification discussed above shall not be deemed exclusive of any other rights to which those seeking |
|
|
|
|
119
|
|
|
|
|
indemnification may be entitled. |
|
|
|
|
|
|
|
|
|
Authorized Capital Stock |
|
|
|
|
|
|
|
|
|
|
|
|
| |
GOG |
| SDRG |
| NRI |
|
| |||
The total number of shares of common stock, par value of $0.001 per share, authorized for issuance is 200,000,000. As of December 30, 2011, 45,136,000 shares of common stock were issued and outstanding. The total number of shares of preferred stock, par value of $0.001 per share, authorized for issuance is 25,000,000. |
| The authorized capital stock of SDRG consists of 300,000,000 shares of common stock with a $.0001 par value per share. As of March 22, 2012, the number of shares of SDRG common stock issued and outstanding was 166,803,092. There are 20,000,000 shares of preferred stock which have been authorized but none has been issued. |
| The total number of shares of common stock, no par value per share, authorized for issuance is unlimited. As of December 30, 2011 there were approximately 17,636,299 shares of NRI’s common stock issued and outstanding on record. CDS & CO., in Toronto, Ontario holds 10,171,939 shares of common stock of NRI which is 57.7% of the outstanding common stock. |
|
|
|
| |
|
|
|
|
|
Dividend Policy |
|
|
|
|
|
|
|
|
|
GOG |
| SDRG |
| NRI |
|
| |||
The GOG common stock is junior to the GOG preferred stock in the right to receive dividends. No dividends shall at any time be declared on GOG common stock if the result of the payment of the dividend declared would be to impair the ability of GOG immediately thereafter to redeem all of the issued and outstanding preferred stock. |
| In order that SDRG may determine the stockholders entitled to receive payment of any dividend, the Board of Directors of SDRG may fix, in advance, a record date, which shall not be more than sixty days prior to such action. If no record date is fixed, the record date shall be at the close of business on the day on which the Board of Directors adopts the resolution relating to the payment of any dividend. |
| The holders of the common stock of NRI are entitled to receive dividends and to receive the remaining property of the corporation upon dissolution. |
|
|
|
|
|
Voting |
|
|
|
|
|
|
|
|
|
GOG |
| SDRG |
| NRI |
|
| |||
Each share of GOG common stock is entitled to one vote. |
| Each share of SDRG common stock is entitled to one vote. Directors shall be elected by a |
| Each share of NRI common stock is entitled to one vote. |
120
|
|
|
|
|
|
| plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Any other action shall be authorized by a majority of the votes cast except where applicable law prescribes a different percentage of votes. Voting need not be by ballot. |
|
|
|
|
|
|
|
Number of Directors |
|
|
|
|
|
|
|
|
|
GOG |
| NRI |
| SDRG |
|
| |||
The number of Directors which shall constitute the whole Board of Directors of GOG shall be two. GOG’s Board of Directors currently consists of 2 Directors. |
| The number of Directors which shall constitute the whole Board of Directors of NRI shall be three. NRI’s Board of Directors currently consists of 3 Directors. |
| The number of Directors which shall constitute the whole Board of Directors of SDRG shall be five. SDRG’s Board of Directors currently consists of 5 Directors. |
|
|
|
|
|
Term of Directors |
|
|
|
|
|
|
|
|
|
GOG - |
| SDRG |
| NRI– |
|
| |||
Directors shall be elected at each annual meeting of the shareholders to hold office until the next annual meeting or special meeting of shareholders at which time a new Board of Directors of GOG is elected. Each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified. |
| Directors elected at the annual meeting of stockholders hold office until the next annual meeting of stockholders and until their respective successors is elected and qualified. |
| Directors elected at the annual meeting of stockholders hold office until the next annual meeting of stockholders and until their respective successors are elected and qualified. |
|
|
|
|
|
Removal of Directors |
|
|
|
|
|
|
|
|
|
GOG |
| SDRG |
| NRI |
|
| |||
Directors may be removed by shareholders at an annual |
| Any one or more directors may be removed, with or |
| Directors may be removed by shareholders at an annual |
121
|
|
|
|
|
meeting or special meeting of shareholders at which time a new Board of Directors is to be elected. Such removal is accomplished by a new director receiving a plurality of the votes. |
| without cause, by vote or written consent of the holders of a majority of the issued and outstanding shares of stock of SDRG entitled to vote for the election of directors. |
| meeting or special meeting of shareholders at which time a new Board of Directors is to be elected. Such removal is accomplished by a new director receiving a plurality of the votes. |
|
|
|
|
|
Vacancies on the Board |
|
|
|
|
|
|
|
|
|
GOG –Directors may be elected in the manner prescribed by the provisions of Sections 78.320 through 78.335 of the General Corporation Law of Nevada. Any director may resign at any time upon written notice to GOG. Directors who are elected at an election of directors by stockholders, and directors who have been elected in the interim to fill vacancies and newly created directorships, shall hold office until the next election of directors by stockholders and until their successors are elected and qualified or until their earlier resignation or removal. In the interim between elections of directors by stockholders, newly created directorships and any vacancies in the Board of Directors, including any vacancies resulting from the removal of directors for causeSDRG –Vacancies in existing or new director positions may be filled by the vote of a majority of the remaining directors then in office, although less than a quorum, or by the sole remaining |
|
|
| NRI –Vacancies shall be filled by the remaining directors. Directors elected by the Board to fill such vacancies will serve only until the next annual election of directors at the annual shareholders meeting. NRI currently does not have any vacancies on its Board of Directors. |
122
|
|
|
|
|
director. Directors elected by the Board to fill such vacancies will serve only until the next annual election of directors.or without cause by the stockholders and not filled by said stockholders, may be filled by the vote of a majority of the remaining directors then in office, although less than a quorum, or by the sole remaining director. GOG currently has one vacancy on its Board of Directors. |
|
|
|
|
|
|
|
|
|
Annual Stockholders Meeting |
|
|
|
|
|
|
|
|
|
GOG |
| SDRG |
| NRI |
|
| |||
The annual meeting shall be held on the date and at the time fixed, from time to time, by the directors, provided, that the first annual meeting shall be held on a date within thirteen months after the organization of the corporation, and each successive annual meeting shall be held on a date within thirteen months after the date of preceding annual meeting. A special meeting shall be held on the date and at the time fixed by the directors. |
| The annual meeting shall be held on the date and at the time fixed by the directors. When the directors shall fail to fix a place for the meeting, it shall be held at SDRG’s registered office. Written notice shall be given regarding each meeting. |
| The holders of the NRI common stock receive notices of and may attend and vote at all meetings of shareholders of NRI. The meetings of shareholders may be held in the Municipality of Metropolitan Toronto and Province of Ontario. |
|
|
|
|
|
Quorum for Stockholders Meetings |
|
|
|
|
|
|
|
|
|
GOG –A majority of the voting power, which includes the voting power that is present in person or by proxy, regardless of whether the proxy has authority to vote on all matters, constitutes a quorum at a meeting of |
| SDRG –The holders of a majority of the outstanding shares of common stock constitutes a quorum. |
| NRI– A majority of the voting power, which includes the voting power that is present in person or by proxy, regardless of whether the proxy has authority to vote on all matters, constitutes a quorum at a meeting of |
123
|
|
|
|
|
stockholders for the transaction of business unless the action to be taken at the meeting shall require a greater proportion. The stockholders present may adjourn the meeting despite the absence of a quorum. |
|
|
| stockholders for the transaction of business unless the action to be taken at the meeting shall require a greater proportion. The stockholders present may adjourn the meeting despite the absence of a quorum. |
|
|
|
|
|
Stockholder Action by Written Consent |
|
|
|
|
|
|
|
|
|
GOG |
| SDRG |
| NRI |
|
| |||
Any action which, under any provisions of the laws of the Stale of Nevada or under the provisions of the Certificate of Incorporation of GOG or under GOG’s by-laws may be taken at a meeting of the shareholders, may be taken without a meeting if a record or memorandum thereof be made in writing and signed by the holders of outstanding stock having no less than the minimum number of votes that would be necessary to authorize or take the action at a meeting for such purpose, and such record or memorandum be filed with the Secretary of GOG. |
| Any action required to be taken at any annual or special meeting of the stockholders, or any action which may be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. |
| Any action required to be taken at any annual or special meeting of the stockholders, or any action which may be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. |
|
|
|
|
|
Amendment of Governing Documents |
|
|
|
|
|
|
|
|
|
GOG |
| SDRG |
| NRI |
|
| |||
GOG reserves the right to amend, alter, change or repeal any provision contained in the articles of incorporation, in the |
| SDRG’s directors may amend the bylaws. |
| NRI requires shareholder approval. |
124
|
|
|
|
|
manner now or hereafter prescribed, and all rights conferred upon stockholders herein granted subject to this reservation. |
|
|
|
|
|
|
|
|
|
Indemnification of Directors and Officers |
|
| ||
|
|
|
|
|
GOG |
| SDRG |
| NRI |
|
| |||
The articles of incorporation contain provisions providing for the indemnification of directors and officers of GOG as follows: |
| SDRG’s Certificate of Incorporation provides for indemnification of directors as follows: no director shall be personally liable to SDRG or its stockholders for monetary damages for any breach of fiduciary duty by such directors as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law, (i) for breach of the director’s duty of loyalty to SDRG or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. |
| NRI indemnifies its officers and directors from any personal loss or damage from any actions regarding the corporation which are performed in good faith. The indemnification does not apply to any directors’ or officers’ |
125
|
|
|
|
|
reasonable cause to believe his conduct is unlawful. The termination of any action, suit or proceeding, by judgment, order, settlement, conviction upon a plea ofnolo contendere or its equivalent, shall not of itself create a presumption that the person did not act in good faith in a manner he reasonably believed to be in, or not opposed to, the best interests of GOG and, with respect to any criminal action or proceeding, had reasonable cause to believe the action was unlawful. |
|
|
| course of performing a director’s or officer’s duties, of a risk of serious injury to the corporation or its shareholders, |
126
|
|
|
|
|
indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to GOG, unless, and only to the extent that, the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnification for such expenses which such court deems proper. |
|
|
|
|
|
|
|
|
|
(c) To the extent that a director, officer, employee or agent of GOG has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections (a) and (b) above, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorney’s fees) actually and reasonably incurred by him in connection therewith. |
|
|
|
|
|
|
|
|
|
(d) Any indemnification under Section (a) or (b) above (unless ordered by a court) shall be made by GOG only as authorized in the specific case upon a determination that indemnification of the officer, director and employee or agent is proper in the circumstances, because he has met the applicable standard of |
|
|
|
|
127
|
|
|
|
|
conduct set forth in Section (a) or (b) above. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (ii) if such quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the affirmative vote of the holders of a majority of the shares of stock entitled to vote and represented at a meeting called for purpose. |
|
|
|
|
|
|
|
|
|
(e) Expenses (including attorneys’ fees) incurred in defending a civil or criminal action, suit or proceeding may be paid by GOG in advance of the final disposition or such action, suit or proceeding, as authorized in Section (d) of this Article, upon receipt of an understanding by or on behalf of the director, officer, employee or agent to repay such amount, unless it shall ultimately be determined that he is entitled to be indemnified by GOG. |
|
|
|
|
|
|
|
|
|
(f) The Board of Directors may exercise GOG’s power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of GOG, or is or was serving at the request of GOG as a director, officer, |
|
|
|
|
128
|
|
|
|
|
employee, or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not GOG would have the power to indemnify him against such liability. |
|
|
|
|
|
|
|
|
|
(g) The indemnification discussed above shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled. |
|
|
|
|
LEGAL REQUIREMENTS CONCERNING THE OFFER
This offer is being made solely by this prospectus and the accompanying letter of transmittal. The offer is being made to all holders of shares of SDRG common stock. The Offeror is not aware of any jurisdiction where making the offer or tendering shares of SDRG in response to the offer would violate the laws of the jurisdiction. If the Offeror becomes aware of any jurisdiction in which making the offer or tendering shares of SDRG in response could violate applicable law, the Offeror will make a good faith effort to comply with any such law. If, after such good faith effort, the Offeror cannot comply with any such law, the offer will not be made to (nor any tenders be accepted from or on behalf of) the holders of shares of SDRG common stock in such jurisdiction
GOG’s financial statements as of August 31, 2011 and 2010, and for the years then ended, have been audited by Joern (John) Scholz, independent public accountant and are attached as an exhibit to this prospectus.
NRI’s financial statements as of July 31, 2011 and 2010, and for the years then ended, have been audited by Joern (John) Scholz, independent public accountant and are attached as an exhibit to this prospectus.
129
The validity of the shares of GOG common stock offered pursuant to this prospectus will be passed on by Nannarone & McMurdo LLP, 511 Avenue of the Americas, Suite 800, New York, NY 10011.
The validity of the shares of NRI common stock, NRI Warrants and Silver Certificates offered pursuant to this prospectus will be passed on by John Spratley, LLB, 4 King St. W., #1320, Toronto, Ontario M5H 1B6.
130
|
|
| |
|
|
| GUARDIANS OF GOLD INC. |
|
|
| Years ended August 31, 2011 and 2010 |
|
|
| [shown in U.S. dollars] |
131
|
|
AUDITORS’ REPORT | |
| To the Shareholders of |
|
|
| Guardians of Gold Inc. |
|
|
|
|
|
|
| We have conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. |
|
|
| In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position ofGuardians of Gold Inc. as of August 31, 2011 and 2010, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. |
|
|
| John Scholz CA |
|
|
| [SIGNED] |
|
|
Woodbridge, Ontario, Canada | Chartered Accountant |
|
|
November 5, 2011 | Licensed Public Accountant |
| CPAB Registered |
| PCAOB Registered |
132
|
|
GUARDIANS OF GOLD INC. |
|
Balance Sheet |
|
| Stated in USD |
August 31, 2011 and 2010 |
|
|
|
|
|
|
|
|
|
|
| Aug 31, 2011 |
| Aug 31, 2010 |
| ||
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash |
| $ | 7 |
|
| 170 |
|
Subscriptions receivable |
|
| 1,500,000 |
|
| — |
|
Mining Ore Tailings (Note 3) |
|
| — |
|
| 34,000 |
|
|
| $ | 1,500,007 |
|
| 34,170 |
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
| $ | 677,478 |
|
| 93,388 |
|
|
|
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
|
|
|
Capital stock (note 4) |
|
| 1,602,724 |
|
| 76,100 |
|
Deficit |
|
| (780,195 | ) |
| (135,318 | ) |
|
|
| 822,529 |
|
| (59,218 | ) |
|
|
|
|
|
|
|
|
|
| $ | 1,500,007 |
|
| 34,170 |
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements. |
|
|
|
|
|
|
|
|
|
GUARDIANS OF GOLD INC. |
|
Statements of Earnings |
|
| Stated in USD |
Years ended August 31, 2011 and 2010 |
|
|
|
|
|
|
|
|
|
|
| Aug 31, 2011 |
| Aug 31, 2010 |
| ||
|
|
|
|
|
|
|
|
Revenue |
| $ | — |
|
| — |
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
Shareholders’ information |
|
| 592,400 |
|
| 69,842 |
|
Abandoned mining property |
|
| 34,000 |
|
| — |
|
Transfer agent’s fees and expenses |
|
| 5,123 |
|
| — |
|
Audit and accounting |
|
| 13,354 |
|
| 5,064 |
|
|
|
| 644,877 |
|
| 74,906 |
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
| $ | (644,877 | ) |
| (74,906 | ) |
|
|
|
|
|
|
|
|
Net income (loss) per share |
| $ | (0.01 | ) |
| (0.00 | ) |
See accompanying notes to financial statements.
133
|
|
GUARDIANS OF GOLD INC. |
|
Statement of Shareholders’ Equity |
|
| Stated in USD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common |
| Amount |
| Deficit |
| Total |
| ||||
|
|
|
|
|
| ||||||||
| |||||||||||||
Balance, August 31, 2009 |
|
| 40,136,000 |
|
| 76,100 |
|
| (60,412 | ) |
| 15,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| — |
|
| — |
|
| (74,906 | ) |
| (74,906 | ) |
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2010 |
|
| 40,136,000 |
|
| 76,100 |
|
| (60,412 | ) |
| (59,218 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for cash |
|
| 5,000,000 |
|
| 1,526,624 |
|
| — |
|
| 1,526,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| — |
|
| — |
|
| (644,877 | ) |
| (644,877 | ) |
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2011 |
|
| 45,136,000 |
|
| 1,602,724 |
|
| (705,289 | ) |
| 822,529 |
|
|
|
|
|
|
|
See accompanying notes to financial statements.
134
|
|
GUARDIANS OF GOLD INC. |
|
Statement of Cash Flows |
|
| Stated in USD |
Years ended August 31, 2011 and 2010 |
|
|
|
|
|
|
|
|
|
|
|
| Aug 31, 2011 |
|
| Aug 31, 2010 |
|
|
|
|
|
|
|
|
|
Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
| $ | (644,877 | ) |
| (74,906 | ) |
|
|
|
|
|
|
|
|
Changes in non-cash working capital: |
|
|
|
|
|
|
|
Abandoned mining property |
|
| 34,000 |
|
| — |
|
Accounts payable |
|
| 584,090 |
|
| 75,076 |
|
|
|
|
|
|
|
|
|
Cash provided by (Expended in) Operating Activities |
|
| (26,787 | ) |
| 170 |
|
|
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for cash |
|
| 26,624 |
|
| — |
|
|
|
|
|
|
|
|
|
Cash provided by (Expended in) Financing Activities |
|
| 26,624 |
|
| — |
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash |
|
| (163 | ) |
| 170 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of year |
|
| 170 |
|
| — |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
| $ | 7 |
|
| 170 |
|
See accompanying notes to financial statements.
135
|
|
GUARDIANS OF GOLD INC. |
|
Notes to Financial Statements |
|
| Stated in USD |
Years ended August 31, 2011 and 2010 |
|
|
|
|
|
1. FUTURE OPERATIONS | |
|
|
| The accompanying financial statements have been prepared on the basis of accounting principles applicable to a going concern which presumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business. |
|
|
| The Company is in the process of exploring its resource properties and has not yet determined whether the properties contain economically recoverable reserves. The recovery of the amounts shown for resource properties and the related deferred expenditures is dependent upon the existence of economically recoverable reserves, confirmation of the Company’s interest in the underlying mining claims, the ability of the Company to obtain necessary financing to complete the development, upon future profitable production and the support of the Company’s trade creditors. |
|
|
| The financial statements do not give effect to any adjustments to the amount of assets and liabilities that might be necessary should the Company be unable to continue as a going concern and therefore, be required to realize its assets and discharge its liabilities in other than the ordinary course of business. |
|
|
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
|
|
| Cash and Cash Equivalents |
|
|
| Cash and cash equivalents include cash on account and demand deposits. |
|
|
| Loss Per Share |
|
|
| Basic loss per share is computed using the weighted average number of common shares outstanding during the year. Diluted loss per share is computed using the weighted average number of common and potential common shares outstanding during the year. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options using the treasury stock method. |
|
|
| Use of Estimates |
|
|
| The preparation of these financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. |
136
|
|
GUARDIANS OF GOLD INC. |
|
Notes to Financial Statements |
|
| Stated in USD |
Years ended August 31, 2011 and 2010 |
|
|
|
|
|
| |
|
|
|
|
| Stock Based Compensation |
|
|
| The Company accounts for its stock option plan using the fair value method. The fair value of each stock option granted is estimated on the date of the grant using the Black-Scholes option pricing model and expensed over the service period which equals the vesting period. The stock option expense for the year ended August 31, 2011 was $NIL (2010 -$NIL). |
|
|
| Future Income Taxes |
|
|
| The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under the asset and liability method, future income taxes are recognized for temporary differences between the tax and financial statement bases of assets and liabilities and for certain carry forward items. Future income tax assets are recognized only to the extent that, in the opinion of management, it is more likely than not that the future income tax assets will be realized. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the year that includes the date of enactment or substantive enactment. |
|
|
| Measurement Uncertainty |
|
|
| The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the year. Actual results would differ from those estimates. |
|
|
| Foreign Currency Translation |
|
|
| The Company translates its foreign denominated monetary assets and liabilities at the exchange rate prevailing at year-end. Non-monetary assets and liabilities are translated at historic rates. Revenues and expenses are translated at the rate of exchange in effect at the time of the transaction. Exchange gains or losses are included in operations. |
137
|
|
GUARDIANS OF GOLD INC. |
|
Notes to Financial Statements |
|
| Stated in USD |
Years ended August 31, 2011 and 2010 |
|
|
|
|
|
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES … continued | |
|
|
| Mining Claims and Deferred Exploration Expenditures |
|
|
| Mining claims are carried at cost until they are brought into production at which time they are depleted on a unit-of-production basis. Exploration expenditures relating to mining claims are deferred until the properties are brought into production at which time they are amortized on a unit-of-production basis. The cost of claims abandoned or sold and the deferred exploration costs relating to claims abandoned or sold are charged to operations in the current year. |
|
|
3. MINING ORE TAILINGS | |
|
|
| The Company has acquired the Rapid Metal Recovery Process to be used at a tailings site at the Ross Mine located at Holtyre, Ontario, in consideration of 34,000,000 common shares of the Company, valued at $0.001 per share. As of the date of these financial statements, the Company is no longer involved in the Ross Mine and has discontinued all tailings operations. |
|
|
4. CAPITAL STOCK | |
|
|
| The Company is authorized to issue 75,000,000 common shares. Common shares issued and fully paid are as follows: |
|
|
|
|
|
|
|
|
Common shares issued: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Shares |
| Value |
| ||
|
|
|
|
|
| ||
Balance, August 31, 2009 and 2010 |
|
| 40,136,000 |
| $ | 76,100 |
|
|
|
|
|
|
|
|
|
Common shares issued for cash |
|
| 5,000,000 |
|
| 1,526,624 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance, August 31, 2011 |
|
| 45,136,000 |
| $ | 1,602,724 |
|
|
|
|
|
138
GUARDIANS OF GOLD INC.
(Incorporated under the laws of the State of Nevada)
BALANCE SHEET
NOVEMBER 30, 2011
(Stated in United States dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
| November 30, |
| August 31, |
| ||
ASSETS |
|
|
|
|
|
|
|
| |||||||
Current: |
|
|
|
|
|
|
|
Cash |
| $ | — |
| $ | 7 |
|
Subscriptions receivable |
|
| — |
|
| 1,500,000 |
|
|
|
|
| ||||
|
| $ | — |
| $ | 1,500,007 |
|
|
|
|
| ||||
LIABILITIES |
|
|
|
|
|
|
|
| |||||||
Current: |
|
|
|
|
|
|
|
Accounts payable |
| $ | 739,936 |
| $ | 677,478 |
|
|
|
|
| ||||
SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Capital (Note 3) |
|
|
|
|
|
|
|
| |||||||
Authorized: |
|
|
|
|
|
|
|
| |||||||
75,000,000 common shares, par value $0.001 per share |
|
|
|
|
|
|
|
| |||||||
Issued |
|
|
|
|
|
|
|
| |||||||
45,136,000 common shares |
|
| 102,724 |
|
| 1,602,724 |
|
| |||||||
Deficit |
|
| (842,660 | ) |
| (780,195 | ) |
|
|
|
| ||||
|
|
| (739,936 | ) |
| 822,529 |
|
|
|
|
| ||||
|
| $ | — |
| $ | 1,500,007 |
|
|
|
|
|
See accompanying notes to financial statements
139
GUARDIANS OF GOLD INC.
STATEMENT OF EARNINGS
FOR THE THREE MONTH PERIOD ENDED NOVEMBER 30, 2011
(Stated in United States dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
| November 30, |
| November 30, |
| ||
|
|
|
|
|
|
|
|
REVENUE: |
| $ | — |
| $ | — |
|
|
|
|
| ||||
EXPENSES: |
|
|
|
|
|
|
|
Shareholders’ information |
|
| 57,804 |
|
| 27,044 |
|
Accounting fees |
|
| 3,390 |
|
| — |
|
Transfer agent’s fees and expenditures |
|
| 1,271 |
|
| 1,296 |
|
|
|
|
| ||||
|
|
| 62,465 |
|
| 28,340 |
|
|
|
|
| ||||
NET LOSS |
| $ | 62,465 |
| $ | 28,340 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
NET LOSS PER COMMON SHARE |
| $ | 0.00 |
| $ | 0.00 |
|
|
|
|
|
See accompanying notes to financial statements
140
GUARDIANS OF GOLD INC.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTH PERIOD ENDED NOVEMBER 30, 2011
(Stated in United States dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
| November 30, |
| November 30, |
| ||
|
|
|
|
|
|
|
|
CASH PROVIDED BY (USED IN): |
|
|
|
|
|
|
|
OPERATIONS: |
|
|
|
|
|
|
|
Net loss |
| $ | (62,465 | ) | $ | (28,340 | ) |
Increase in subscriptions receivable |
|
| — |
|
| (1,526,624 | ) |
Increase in accounts payable |
|
| 62,458 |
|
| 28,296 |
|
|
|
|
| ||||
|
|
| (7 | ) |
| (1,526,668 | ) |
|
|
|
| ||||
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
Sale of common shares for cash |
|
| — |
|
| 1,526,624 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Decrease in cash |
|
| (7 | ) |
| (44 | ) |
Cash, beginning of period |
|
| 7 |
|
| 170 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Cash, end of period |
| $ | — |
| $ | 126 |
|
|
|
|
|
See accompanying notes to financial statements
141
GUARDIANS OF GOLD INC.
STATEMENT OF SHAREHOLDERS’ EQUITY
FOR THE THREE MONTH PERIOD ENDED NOVEMBER 30, 2011
(Stated in United States dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common |
| Amount |
| Deficit |
| Total |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2010 |
|
| 40,136,000 |
| $ | 76,100 |
| $ | (135,318 | ) | $ | (59,218 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for cash |
|
| 5,000,000 |
|
| 1,526,624 |
|
| — |
|
| 1,526,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| — |
|
| — |
|
| (644,877 | ) |
| (644,877 | ) |
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2011 |
|
| 45,136,000 |
|
| 1,602,724 |
|
| (780,195 | ) |
| 822,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription receivable reversed |
|
| — |
|
| (1,500,000 | ) |
| — |
|
| (1,500,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| — |
|
| — |
|
| (62,465 | ) |
| (62,465 | ) |
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, November 30, 2011 |
|
| 45,136,000 |
| $ | 102,724 |
| $ | (842,660 | ) | $ | (739,936 | ) |
|
|
|
|
|
|
See accompanying notes to financial statements
142
GUARDIANS OF GOLD INC.
NOTES TO THE FINANCIAL STATEMENTS
NOVEMBER 30, 2011
(Stated in United States dollars)
(Unaudited)
|
|
|
1. FUTURE OPERATIONS | ||
|
|
|
| The accompanying financial statements have been prepared on the basis of accounting principles applicable to a going concern which presumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business. | |
|
|
|
| The Company is in the process of exploring its resource properties and has not yet determined whether the properties contain economically recoverable reserves. The recovery of the amounts shown for resource properties and the related deferred expenditures is dependent upon the existence of economically recoverable reserves, confirmation of the Company’s interest in the underlying mining claims, the ability of the Company to obtain necessary financing to complete the development, upon future profitable production and the support of the Company’s trade creditors. | |
|
|
|
| The financial statements do not give effect to any adjustments to the amount of assets and liabilities that might be necessary should the Company be unable to continue as a going concern and therefore, be required to realize its assets and discharge its liabilities in other than the ordinary course of business. | |
|
|
|
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||
|
|
|
| Cash and Cash Equivalents | |
|
|
|
| Cash and cash equivalents include cash on account and demand deposits. | |
|
|
|
| Loss Per Share | |
|
|
|
| Basic loss per share is computed using the weighted average number of common shares outstanding during the year. Diluted loss per share is computed using the weighted average number of common and potential common shares outstanding during the year. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options using the treasury stock method. | |
|
|
|
| Use of Estimates | |
|
|
|
|
| The preparation of these financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. |
|
|
|
| Stock Based Compensation | |
|
|
|
| The Company accounts for its stock option plan using the fair value method. The fair value of each stock option granted is estimated on the date of the grant using the Black-Scholes option pricing model and expensed over the service period which equals the vesting period. The stock option expense for the three month period ended November 30, 2011 was $NIL (2010 -$NIL). | |
|
|
|
| Future Income Taxes | |
|
|
|
| The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, future tax assets and liabilities are recognized for the future tax |
143
|
|
|
| consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under the asset and liability method, future income taxes are recognized for temporary differences between the tax and financial statement bases of assets and liabilities and for certain carry forward items. Future income tax assets are recognized only to the extent that, in the opinion of management, it is more likely than not that the future income tax assets will be realized. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the year that includes the date of enactment or substantive enactment. | |
|
|
|
| Measurement Uncertainty | |
|
|
|
| The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the year. Actual results would differ from those estimates. | |
|
|
|
| Foreign Currency Translation | |
|
|
|
| The Company translates its foreign denominated monetary assets and liabilities at the exchange rate prevailing at year-end. Non-monetary assets and liabilities are translated at historic rates. Revenues and expenses are translated at the rate of exchange in effect at the time of the transaction. Exchange gains or losses are included in operations. | |
|
|
|
| Mining Claims and Deferred Exploration Expenditures | |
|
|
|
| Mining claims are carried at cost until they are brought into production at which time they are depleted on a unit-of-production basis. Exploration expenditures relating to mining claims are deferred until the properties are brought into production at which time they are amortized on a unit-of-production basis. The cost of claims abandoned or sold and the deferred exploration costs relating to claims abandoned or sold are charged to operations in the current year. | |
|
|
|
3. SHARE CAPITAL | ||
|
|
|
During the period, 150,000 options were granted to directors to purchase 150,000 common shares of the Company at an exercise price of 2.15 Euros per shares, vesting on September 23, 2012 with no expiry date. | ||
|
|
|
During the period, 4,000 options per month were granted to an officer during the period from November, 2011 to April, 2012 at an exercise price of $2.00 Canadian funds per share, vesting on December 31, 2012, expiring December 31, 2014. |
144
|
|
| Financial Statements of |
|
|
|
|
| NIREK RESOURCES INC. |
|
|
|
|
| Years ended July 31, 2011 and 2010 |
|
|
| [shown in Canadian dollars] |
145
AUDITORS’ REPORT
To the Shareholders of
Nirek Resources Inc.
We have audited the accompanying consolidated balance sheet ofNirek Resources Inc. as of July 31, 2011 and July 31, 2010, and the related consolidated statements of operations, stockholders’ deficiency, and cash flows for the period then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based upon our audits. We believe that our audit provides a reasonable basis for our opinion
We have conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position ofNirek Resources Inc. as of July 31, 2011 and July 31, 2010, and the results of its operations and its cash flows for the period then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company has incurred substantial operating losses in current period and also in the past. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
|
|
|
|
|
| Joern Scholz CA | |
|
|
| |
|
| [SIGNED] | |
|
|
| |
Woodbridge, Ontario, Canada |
| Chartered Accountant |
|
|
|
|
|
October 15, 2011 |
| Licensed Public Accountant |
|
|
| CPAB Registered | |
| PCAOB Registered |
|
146
|
|
NIREK RESOURCES INC. |
|
Balance Sheet |
|
|
|
July 31, 2011 and 2010 | [Stated in Canadian Dollars] |
|
|
|
|
|
|
|
|
|
| July 31, 2011 |
| July 31, 2010 |
| ||
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash |
| $ | 84 |
|
| — |
|
Accounts receivable |
|
| 312 |
|
| 332 |
|
|
|
| 396 |
|
| 332 |
|
|
|
|
|
|
|
|
|
Mining claims (Notes 2 and 3) |
|
| 23,000 |
|
| 23,000 |
|
|
|
|
|
|
|
|
|
Investment in Millstream Mines Ltd. (Note 4) |
|
| 160,000 |
|
| 160,000 |
|
|
|
|
|
|
|
|
|
Investment in Ofek Capital Corp. (Note 4) |
|
| 79 |
|
| 79 |
|
|
| $ | 183,475 |
|
| 183,411 |
|
| |||||||
Liabilities and Shareholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
Bank indebtedness |
| $ | — |
|
| 16 |
|
Accounts payable and accrued liabilities |
|
| 72,095 |
|
| 59,060 |
|
|
|
| 72,095 |
|
| 59,076 |
|
|
|
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
|
|
|
Capital stock (note 5) |
|
| 760,995 |
|
| 760,995 |
|
Deficit |
|
| (649,615 | ) |
| (636,660 | ) |
|
|
| 111,380 |
|
| 124,335 |
|
|
|
|
|
|
|
|
|
|
| $ | 183,475 |
|
| 183,411 |
|
See accompanying notes to financial statements.
147
|
NIREK RESOURCES INC. |
Statement of Stockholders’ Equity |
|
As at July 31, 2011 and 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Share |
| Contributed |
| Deficit |
| Total |
| ||||
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2009 |
| $ | 755,994 |
| $ | — |
| $ | (554,575 | ) | $ | 201,419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of common shares for professional fees |
|
| 5,000 |
|
|
|
|
|
|
|
| 5,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of common shares for office expenses |
|
| 1 |
|
|
|
|
|
|
|
| 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the period |
|
|
|
|
|
|
|
| (82,085 | ) |
| (82,085 | ) |
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2010 |
| $ | 760,995 |
| $ | — |
| $ | (636,660 | ) | $ | 124,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the period |
|
|
|
|
|
|
|
| (12,955 | ) |
| (12,955 | ) |
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2011 |
| $ | 760,995 |
| $ | — |
| $ | (649,615 | ) | $ | 111,380 |
|
|
|
148
NIREK RESOURCES INC.
Statements of Earnings
Years ended July 31, 2011 and 2010
|
|
|
|
|
|
|
|
|
| July 31, 2011 |
| July 31, 2010 |
| ||
|
|
|
|
|
|
|
|
Revenue |
| $ | 1,795 |
|
| 2,511 |
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
Office and general |
|
| 108 |
|
| 4,528 |
|
Travel |
|
| — |
|
| 14,790 |
|
Shareholders’ information |
|
| — |
|
| 5,671 |
|
Transfer agent’s fees and expenditures |
|
| 4,500 |
|
| 4,522 |
|
Management and Directors fees |
|
| — |
|
| 30,180 |
|
Professional fees |
|
| 9,000 |
|
| 24,000 |
|
Telephone |
|
| 1,142 |
|
| 905 |
|
|
|
| (14,750 | ) |
| (84,596 | ) |
|
|
|
|
|
|
|
|
Net earnings (loss) |
| $ | (12,955 | ) |
| (82,085 | ) |
|
|
|
|
|
|
|
|
Net income (loss) per share |
| $ | (0.01 | ) |
| (0.01 | ) |
See accompanying notes to financial statements.
149
|
NIREK RESOURCES INC. |
Statements of Retained Earnings |
|
Years ended July 31, 2011 and 2010 |
|
|
|
|
|
|
|
|
|
| July 31, 2011 |
| July 31, 2010 |
| ||
|
|
|
|
|
|
|
|
Retained earnings (Deficit), beginning of year |
| $ | (636,660 | ) |
| (554,575 | ) |
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
| (12,955 | ) |
| (82,085 | ) |
|
|
|
|
|
|
|
|
Retained earnings (Deficit), end of year |
| $ | (649,615 | ) |
| (636,660 | ) |
See accompanying notes to financial statements.
|
NIREK RESOURCES INC. |
Statement of Cash Flows |
|
Years ended July 31, 2011 and 2010 |
|
|
|
|
|
|
|
|
|
| July 31, 2011 |
| July 31, 2010 |
| ||
|
|
|
|
|
|
|
|
Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
| $ | (12,955 | ) |
| (82,085 | ) |
|
|
|
|
|
|
|
|
Changes in non-cash working capital: |
|
|
|
|
|
|
|
Accounts receivable |
|
| 20 |
|
| 6,832 |
|
Accounts payable |
|
| 13,035 |
|
| 17,754 |
|
|
|
|
|
|
|
|
|
Cash provided by (Expended in) Operating Activities |
|
| 100 |
|
| (57,499 | ) |
|
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares |
|
| — |
|
| 5,001 |
|
|
|
|
|
|
|
|
|
Cash provided by (Expended in) Financing Activities |
|
| — |
|
| 5,001 |
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash |
|
| 100 |
|
| (52,546 | ) |
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of year |
|
| (16 | ) |
| 52,530 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
| $ | 84 |
|
| (16 | ) |
See accompanying notes to financial statements.
150
|
NIREK RESOURCES INC. |
Notes to Financial Statements |
|
Years ended July 31, 2011 and 2010 |
|
1. FUTURE OPERATIONS
|
|
| The accompanying financial statements have been prepared on the basis of accounting principles applicable to a going concern which presumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business. |
|
|
| The Company is in the process of exploring its resource properties and has not yet determined whether the properties contain economically recoverable reserves. The recovery of the amounts shown for resource properties and the related deferred expenditures is dependent upon the existence of economically recoverable reserves, confirmation of the Company’s interest in the underlying mining claims, the ability of the Company to obtain necessary financing to complete the development, upon future profitable production and the support of the Company’s trade creditors. |
|
|
| The financial statements do not give effect to any adjustments to the amount of assets and liabilities that might be necessary should the Company be unable to continue as a going concern and therefore, be required to realize its assets and discharge its liabilities in other than the ordinary course of business. |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
|
| Cash and Cash Equivalents |
|
|
| Cash and cash equivalents include cash on account and demand deposits. |
|
|
| Loss Per Share |
|
|
| Basic loss per share is computed using the weighted average number of common shares outstanding during the year. Diluted loss per share is computed using the weighted average number of common and potential common shares outstanding during the year. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options using the treasury stock method. |
|
|
| Use of Estimates |
|
|
| The preparation of these financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. |
151
|
NIREK RESOURCES INC. |
Notes to Financial Statements |
|
Years ended July 31, 2011 and 2010 |
|
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES … continued
|
|
| Stock Based Compensation |
|
|
| The Company accounts for its stock option plan using the fair value method. The fair value of each stock option granted is estimated on the date of the grant using the Black-Scholes option pricing model and expensed over the service period which equals the vesting period. The stock option expense for the year ended July 31, 2011 was $NIL (2010 -$NIL). |
|
|
| Future Income Taxes |
|
|
| The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under the asset and liability method, future income taxes are recognized for temporary differences between the tax and financial statement bases of assets and liabilities and for certain carry forward items. Future income tax assets are recognized only to the extent that, in the opinion of management, it is more likely than not that the future income tax assets will be realized. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the year that includes the date of enactment or substantive enactment. |
|
|
| Measurement Uncertainty |
|
|
| The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the year. Actual results would differ from those estimates. |
|
|
| Foreign Currency Translation |
|
|
| The Company translates its foreign denominated monetary assets and liabilities at the exchange rate prevailing at year-end. Non-monetary assets and liabilities are translated at historic rates. Revenues and expenses are translated at the rate of exchange in effect at the time of the transaction. Exchange gains or losses are included in operations. |
152
|
NIREK RESOURCES INC. |
Notes to Financial Statements |
|
Years ended July 31, 2011 and 2010 |
|
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES … continued
|
|
| Mining Claims and Exploration Expenditures |
|
|
| Mining claims are carried at cost until they are brought into production at which time they are depleted on a unit-of-production basis. Exploration expenditures relating to mining claims are expensed as incurred. The cost of claims abandoned or sold and the deferred exploration costs relating to claims abandoned or sold are charged to operations in the current year. |
|
|
3. MINING CLAIMS | |
|
|
| The Company holds an option to acquire a 100% interest in the Sarah Lake, Quebec Property, under a 3-year earn-in option agreement with payments (in both flow-through cash into the property and shares which will be restricted for 12 months) and a work commitment, outlined in the options terms as follows: |
|
|
Option Terms: 3-year option to earn 100% interest, less royalty. | |
|
|
Work commitment: | Year 1 - $25,000 flow-through work in property |
|
|
| Year 2 - $25,000 flow-through work in property |
|
|
| Year 3 - $25,000 flow-through work in property |
|
|
Cash: | $10,000 on May 30, 2008 |
|
|
Shares: | April 1, 2008 – 30,000 shares |
|
|
| April 1, 2009 – 100,000 shares |
|
|
| April 1, 2010 – 100,000 shares |
|
|
| April 1, 2011 – 100,000 shares |
153
|
NIREK RESOURCES INC. |
Notes to Financial Statements |
|
Years ended July 31, 2011 and 2010 |
|
4. INVESTMENT IN MILLSTREAM MINES LTD. AND OFEK CAPITAL CORP.
|
|
| On February 17, 2008 the company purchased 160,000 shares of Millstream Mines Ltd. At $1.00 per share. |
|
|
| On October 10, 2008 the company received 395 shares of Ofek Capital Corp for 79 Shares of Nirek Resources Inc. |
5. CAPITAL STOCK
|
|
| The Company is authorized to issue an unlimited number of common shares. Common shares issued and fully paid are as follows: |
|
|
|
|
|
|
|
|
|
| Number of |
| Amount |
| ||
|
|
|
|
|
|
|
|
Balance, July 31, 2009 |
|
| 17,132,808 |
| $ | 755,994 |
|
|
|
|
|
|
|
|
|
Value of common shares issued in consideration of professional fees |
|
| 500,000 |
|
| 5,000 |
|
|
|
|
|
|
|
|
|
Value of common shares issued in consideration of office expenses |
|
| 2,000 |
|
| 1 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Balance, July 31, 2010 and 2011 |
|
| 17,634,808 |
| $ | 760,995 |
|
|
|
|
|
6. COMMENTS FOR U.S. READERS
|
|
| The financial statements of the Company for the years ended July 31, 2011 and 2010 have been prepared in accordance with the generally accepted accounting principles as applied in the United States. (U.S. “GAAP”). The only adjustment(s) that were required as a result of converting these financial statements from Canadian GAAP to US GAAP were the write-off and adjustment of Deferred Exploration Expenditures. Unlike Canadian GAAP, US GAAP does not permit the capitalization of deferred exploration expenditures, which under US GAAP must be expensed as incurred. |
154
|
NIREK RESOURCES INC. |
CONDENSED INTERIM STATEMENTS OF FINANCIAL POSITION
(Unaudited without review by auditor)
(in Canadian dollars)
|
|
|
|
|
|
|
|
|
|
|
|
| October 31, |
| July 31, |
| August 1, |
| |||
|
|
|
|
| ||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
Cash |
| $ | — |
| $ | 84 |
| $ | — |
|
Accounts receivable |
|
| 642 |
|
| 312 |
|
| 332 |
|
|
|
|
|
| ||||||
|
|
| 642 |
|
| 396 |
|
| 332 |
|
|
|
|
|
|
|
|
|
|
|
|
Mining claims (Notes 3 and 4) |
|
| 23,000 |
|
| 23,000 |
|
| 23,000 |
|
Investment in Millstream Mines Ltd. (Note 5) |
|
| 5,600 |
|
| 160,000 |
|
| 160,000 |
|
Investment in Ofek Capital Corp. (Note 6) |
|
| 79 |
|
| 79 |
|
| 79 |
|
|
|
|
|
| ||||||
|
| $ | 29,321 |
| $ | 183,475 |
| $ | 183,411 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
Bank indebtedness |
| $ | — |
| $ | — |
| $ | 16 |
|
Accounts payable and accrued liabilities |
|
| 79,776 |
|
| 72,095 |
|
| 59,060 |
|
|
|
|
|
| ||||||
|
|
| 79,776 |
|
| 72,095 |
|
| 59,076 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
Share Capital |
|
|
|
|
|
|
|
|
|
|
Authorized: |
|
|
|
|
|
|
|
|
|
|
Unlimited common shares |
|
|
|
|
|
|
|
|
|
|
Issued |
|
|
|
|
|
|
|
|
|
|
17,634,808 common shares |
|
| 760,995 |
|
| 760,995 |
|
| 760,995 |
|
Deficit |
|
| (657,050 | ) |
| (649,615 | ) |
| (636,660 | ) |
Accumulated other comprehensive loss |
|
| (154,400 | ) |
| — |
|
| — |
|
|
|
|
|
| ||||||
|
|
| (50,455 | ) |
| 111,380 |
|
| 124,335 |
|
|
| $ | 29,321 |
| $ | 183,475 |
| $ | 183,411 |
|
|
|
|
|
|
155
|
NIREK RESOURCES INC. |
CONDENSED INTERIM STATEMENTS OF OPERATIONS
For the Three Month Period Ended October 31, 2011
(Unaudited without review by auditor)
(in Canadian dollars)
|
|
|
|
|
|
|
|
|
| October 31, |
| October 31, |
| ||
|
|
|
| ||||
REVENUE: |
| $ | — |
| $ | — |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
EXPENSES: |
|
|
|
|
|
|
|
Shareholders’ information |
|
| 2,616 |
|
| — |
|
Transfer agent’s fees and expenses |
|
| 1,125 |
|
| 1,125 |
|
Professional fees |
|
| 1,000 |
|
| 3,000 |
|
Office and general |
|
| 2,694 |
|
| 103 |
|
|
|
|
| ||||
|
|
| 7,435 |
|
| 4,228 |
|
|
|
|
| ||||
NET LOSS FOR THE PERIOD |
| $ | 7,435 |
| $ | 4,228 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
LOSS PER COMMON SHARE |
| $ | 0.01 |
| $ | 0.01 |
|
|
|
|
|
156
|
NIREK RESOURCES INC. |
CONDENSED INTERIM STATEMENTS OF COMPREHENSIVE LOSS
For the Three Month Period Ended October 31, 2011
(Unaudited without review by auditor)
|
|
|
|
|
|
|
|
|
| October 31, |
| October 31, |
| ||
|
|
|
| ||||
Net loss for the period |
| $ | 7,435 |
| $ | 4,228 |
|
|
|
|
|
|
|
|
|
Unrealized losses on available for sale marketable securities |
|
| 154,400 |
|
| — |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Comprehensive loss for the period |
| $ | 161,835 |
| $ | 4,228 |
|
|
|
|
|
NIREK RESOURCES INC.
CONDENSED STATEMENTS OF CASH FLOWS
For the Three Month Period Ended October 31, 2011
(Unaudited without review by auditor)
|
|
|
|
|
|
|
|
|
| October 31, 2011 |
| October 31, |
| ||
|
|
|
| ||||
CASH PROVIDED BY (USED IN): |
|
|
|
|
|
|
|
Operating Activities: |
|
|
|
|
|
|
|
Net loss |
| $ | (7,435 | ) | $ | (4,228 | ) |
Increase in accounts receivable |
|
| (330 | ) |
| (204 | ) |
Increase in accounts payable |
|
| 7,681 |
|
| 4,661 |
|
|
|
|
| ||||
Increase (decrease) in cash |
|
| (84 | ) |
| 229 |
|
Cash (bank indebtedness), beginning of period |
|
| 84 |
|
| (16 | ) |
|
|
|
| ||||
Cash, end of period |
| $ | — |
| $ | 213 |
|
|
|
|
|
157
|
NIREK RESOURCES INC. |
CONDENSED INTERIM STATEMENTS OF CHANGES IN EQUITY
For the Three month period ended October 31, 2011
(Unaudited without review by auditor)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common |
| Amount |
| Deficit |
| Accumulated |
| Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, May 1, 2011 |
|
| 17,634,808 |
| $ | 760,995 |
| $ | (649,615 | ) | $ | — |
| $ | 111,380 |
|
Net loss |
|
| — |
|
| — |
|
| (7,435 | ) |
| — |
|
| (7,435 | ) |
Unrealized losses on available for sale marketable securities |
|
| — |
|
| — |
|
| — |
|
| (154,400 | ) |
| (154,400 | ) |
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, October 31, 2011 |
|
| 17,634,808 |
| $ | 760,995 |
| $ | (657,050 | ) | $ | (154,400 | ) | $ | (50,455 | ) |
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, May 1, 2010 |
|
| 17,634,808 |
| $ | 760,995 |
| $ | (636,660 | ) | $ | — |
| $ | 124,335 |
|
Net loss and comprehensive loss |
|
| — |
|
| — |
|
| (4,228 | ) |
| — |
|
| (4,228 | ) |
|
|
|
|
|
|
| ||||||||||
Balance, October 31, 2010 |
|
| 17,634,808 |
| $ | 760,995 |
| $ | (640,888 | ) |
| — |
| $ | 120,107 |
|
|
|
|
|
|
|
|
158
|
Nirek Resources Inc. |
NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS
OCTOBER 31, 2011
(Unaudited without review by auditor)
|
|
|
|
1. BASIS OF PREPARATION AND FIRST-TIME ADOPTION OF IFRS | |
|
|
| These are the Company’s first condensed interim financial statements prepared in accordance with IAS 34 Interim Financial Reporting (“IAS 34”) and IFRS 1 First-Time Adoption of International Financial Reporting Standards (“IFRS 1”). |
|
|
| The policies applied in these condensed interim financial statements based on the IFRS are expected to be in effect as of July 31, 2012. The Board of Directors approved these condensed interim financial statements on December 29, 2011. |
|
|
| Subject to the application of the transition elections disclosed in Note 7, the Company has consistently applied the same accounting policies from the opening IFRS statement of financial position as at May 1, 2010 (the Company’s “Transition Date”) and throughout all periods presented, as if these policies had always been in effect. These condensed consolidated interim financial statements should be read in conjunction with the Company’s Canadian GAAP annual financial statements. |
|
|
| The impact of the transition from Canadian GAAP to IFRS is explained in Note 7, including the effects of the transition to IFRS on equity and total comprehensive loss for the comparative periods. |
|
|
2. GOING CONCERN | |
|
|
| The ability of the Company to continue as a going concern and realize the carrying value of its assets is dependent upon its ability to achieve sales levels adequate to supporting the Company’s cost structure and success of its investments. It is not possible at this time to predict with assurance the outcome of these investments. |
|
|
3. SIGNIFICANT ACCOUNTING POLICIES | |
|
|
| Cash and Cash Equivalents |
| Cash and cash equivalents include cash on account and demand deposits. |
|
|
| Foreign Currency Translation |
|
|
| The Company translates its foreign denominated monetary assets and liabilities at the exchange rate prevailing at the end of the period. Non-monetary assets and liabilities are translated at historic rates. Revenues and expenses are translated at the rate of exchange in effect at the time of the transaction. Exchange gains or losses are included in operations. |
|
|
| Loss Per Share |
|
|
| Basic loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted loss per share is computed using the weighted average number of common and potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options using the treasury stock method. |
|
|
| Measurement Uncertainty |
159
|
|
| The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results would differ from those estimates. |
|
|
| Stock Based Compensation |
| The Company uses the Black-Scholes to estimate the fair value of the options at the date of grant. For graded vested share options, IFRS 2 requires the use of the attribution method, which requires that the Company treat each installment as a separate share option grant with a different fair value. Upon transition to IFRS, the Company provided for an estimate of the forfeiture rates determining the total share based compensation expense. |
|
|
| Future Income Taxes |
| The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under the asset and liability method, future income taxes are recognized for temporary differences between the tax and financial statement bases of assets and liabilities and for certain carry forward items. Future income tax assets are recognized only to the extent that, in the opinion of management, it is more likely than not that the future income tax assets will be realized. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the year that includes the date of enactment or substantive enactment. |
|
|
| Investments |
| Investments are stated at cost less any provision for any other than temporary decline in market value. |
|
|
| Mining Claims and Exploration Expenditures |
|
|
| Mining claims are carried at cost until they are brought into production at which time they are depleted on a unit-of-production basis. Exploration expenditures relating to mining claims are expensed as incurred. The cost of claims abandoned or sold and the deferred exploration costs relating to claims abandoned or sold are charged to operations in the current year. |
|
|
| Accounting standards issued but not yet applied |
|
|
| At the date of approval of these condensed interim financial statements, certain new standards, amendments and interpretations to existing standards have been published but are not yet effective, and have not been adopted early by the Company. Management anticipates that all of the relevant pronouncements will be adopted as an accounting policy for the first period beginning after the expected date of the pronouncement. Information on new standard, amendment and interpretation that is expected to be relevant to the Company’s financial statements is provided below. Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Company’s financial statements. |
|
|
| IFRS 9 – Financial instruments: classification and measurement |
|
|
| This is the first part of a new standard on classification and measurement of financial assets that will replace IAS 39, Financial Instruments: Recognition and Measurement. IFRS 9 has two measurement categories: amortized cost only in such instances that the entity is holding the financial asset to collect contractual cash flows and the cash flows represent principal and interest. Otherwise, the financial asset must be measured at |
160
|
|
| fair value through the statement of income. The new standard was also updated to included guidance on financial liabilities and de-recognition of financial instruments. The new standard is effective for years beginning on or after January 1, 2013. The Company has not yet considered the impact that this new standard will have on its financial statements. |
|
|
4. MINING CLAIMS | |
|
|
| As of the date of these financial statements, the Company holds directly a 100% interest in nineteen mining claims located in Sarah Lake, Quebec. Previously, these claims had lapsed under option. |
|
|
5. INVESTMENT IN MILLSTREAM MINES LTD. | |
| On February 17, 2008 the company purchased 160,000 shares of Millstream Mines Ltd. at $1.00 per share. During the period, the investment was written down to its market value. |
|
|
6. INVESTMENT IN OFEK CAPITAL CORP. | |
| On October 10, 2008 the company received 395 shares of Ofek Capital Corp for 79 Shares of Nirek Resources Inc. |
|
|
7. CONVERSION TO IFRS | |
|
|
| These are the Company’s first unaudited condensed interim financial statements prepared in accordance with IAS 34, using accounting policies consistent with IFRS. The accounting policies described in Note 3 have been selected to be consistent with IFRS as is expected to be effective or available on July 31, 2012, the Company’s first annual IFRS reporting date. These policies have been applied in the preparation of these unaudited condensed interim financial statements, including all comparative information. |
|
|
| First-time adoption of IFRS – exceptions and exemptions applied |
|
|
| IFRS 1, which governs the first-time adoption of IFRS, generally requires accounting policies to be applied retrospectively to determine the opening statement of financial position on the Company’s Transition Date. However, IFRS 1 also dictates certain mandatory exceptions and allows certain optional exemptions from full retrospective application on the transition to IFRS. In preparing its Transition Date statement of financial position, the Company has applied the following mandatory exceptions: |
|
|
| - The estimates established by the Company in accordance with IFRS at the date of transition to IFRS are consistent with estimates made for the same date in accordance with Canadian GAAP, after adjustments to reflect any difference in accounting principles, |
|
|
| - Financial assets and liabilities that had been de-recognized before August 1, 2010 under previous GAAP have not been recognized under IFRS. The Company applied by anticipation the modification to IFRS 1 related thereto with respect to the application date of the exception, which is August 1, 2010. |
|
|
| The Company has also elected to apply the following exemptions: |
|
|
| - To apply IFRS 2 Share Based Payments, only to equity instruments that were issued after November 7, 2002 and had not vested by the Transition Date; |
|
|
| Changes to accounting policies resulting from the conversion to IFRS |
|
|
| The Company has changed certain accounting policies to be consistent with IFRS as is expected to be effective or available on July 31, 2012, the Company’s first annual IFRS reporting date. The impact of the changes to |
161
|
|
| accounting policies on the recognition and measurement of assets, liaibilities, equity, revenue and expenses within the Company’s financial statements are presented below. |
|
|
| The following summarized the significant changes to the Company’s accounting policies on adoption of IFRS. |
|
|
| I) Share Based Payments |
|
|
| The guidance provided by IFRS 2 is largely consistent with Canadian GAAP and requires estimates of the fair value of stock options to be made at the date of the grant and the recognition of the related expense in income as the options vest. The use of the Black-Scholes model is an acceptable method to estimate the fair value of the options at the date of grant. For graded vested share options, IFRS 2 requires the use of the attribution method, which requires that the Company treat each installment as a separate share option grant with a different fair value. In accordance with Canadian GAAP, the Company had previously applied the straight line method. Also, under Canadian GAAP, the Company previously recorded forfeitures as they occur, however upon transition to IFRS, the Company provided for an estimate of the forfeiture rates determining the total share based compensation expense. The Company’s accounting policy related to share-based payments has been adjusted to reflect these differences. |
|
|
| II) Impairment of Non-financial Assets |
|
|
| IFRS requires a write down of assets if the higher of the fair value less cost to sale and the value in use of a group of assets is less than its carrying value. Value in use is determined using discounted estimated future cash flows. Canadian GAAP required a write down to estimated fair value only if the undiscounted estimated future cash flows of a group of assets was less than its carrying value. The Company’s accounting policies related to impairment of non-financial assets for impairment at the Transition Date (August 1, 2010) with the result that no impairment was required. |
RECONCILIATION FROM CANADIAN GAAP TO IFRS
STATEMENTS OF FINANCIAL POSITIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| At July 31, 2011 |
|
|
| |||
|
| CGAAP |
| IFRS |
| IFRS |
| |||
ASSETS |
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
Cash |
| $ | 84 |
| $ | — |
| $ | 84 |
|
Accounts receivable |
|
| 312 |
|
| — |
|
| 312 |
|
|
|
|
|
| ||||||
|
|
| 396 |
|
| — |
|
| 396 |
|
Mining claims |
|
| 23,000 |
|
| — |
|
| 23,000 |
|
Investment in Millstream Mines Ltd. |
|
| 160,000 |
|
| — |
|
| 160,000 |
|
Investment in Ofek Capital Corp. |
|
| 79 |
|
| — |
|
| 79 |
|
|
|
|
|
| ||||||
|
| $ | 183,475 |
| $ | — |
| $ | 183,475 |
|
|
|
|
|
| ||||||
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
| $ | 72,095 |
| $ | — |
| $ | 72,095 |
|
|
|
|
|
| ||||||
SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
Capital Stock |
|
| 760,995 |
|
| — |
|
| 760,995 |
|
Deficit |
|
| (649,615 | ) |
| — |
|
| (649,615 | ) |
|
|
|
|
| ||||||
|
|
| 111,380 |
|
| — |
|
| 111,380 |
|
|
|
|
|
| ||||||
|
| $ | 183,475 |
| $ | — |
| $ | 183,475 |
|
|
|
|
|
|
162
STATEMENTS OF COMPREHENSIVE LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended |
|
|
| |||
|
| CGAAP |
| IFRS |
| IFRS |
| |||
Revenue: |
| $ | — |
| $ | — |
| $ | — |
|
|
|
|
|
| ||||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
Professional fees |
|
| 3,000 |
|
| — |
|
| 3,000 |
|
Transfer agent’s fees and expenses |
|
| 1,125 |
|
| — |
|
| 1,125 |
|
Office and general |
|
| 103 |
|
| — |
|
| 103 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,228 |
|
| — |
|
| 4,228 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Net loss and comprehensive loss for the period |
| $ | 4,228 |
| $ | — |
| $ | 4,228 |
|
|
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
RECONCILIATION FROM CANADIAN GAAP TO IFRS | ||||||||||
| ||||||||||
STATEMENTS OF COMPREHENSIVE LOSS | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| CGAAP |
| Year ended |
| IFRS |
| |||
Revenue: |
| $ | 1,795 |
| $ | — |
| $ | 1,795 |
|
|
|
|
|
| ||||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
Professional fees |
|
| 9,000 |
|
| — |
|
| 9,000 |
|
Transfer agent’s fees and expenses |
|
| 4,500 |
|
| — |
|
| 4,500 |
|
Telephone |
|
| 1,142 |
|
| — |
|
| 1,142 |
|
Office and general |
|
| 108 |
|
| — |
|
| 108 |
|
|
|
|
|
| ||||||
|
|
| 14,750 |
|
| — |
|
| 14,750 |
|
|
|
|
|
| ||||||
Net loss and comprehensive loss for the period |
| $ | 12,955 |
| $ | — |
| $ | 12,955 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
RECONCILIATION FROM CANADIAN GAAP TO IFRS | ||||||||||
| ||||||||||
STATEMENT OF CHANGES IN EQUITY | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| July 31, |
| October 31, |
| August 1, |
| |||
Total equity - CGAAP |
| $ | 111,380 |
| $ | 120,107 |
| $ | 124,335 |
|
Transitional adjustments |
|
| — |
|
| — |
|
| — |
|
|
|
|
|
| ||||||
Total equity - IFRS |
| $ | 111,380 |
| $ | 120,107 |
| $ | 124,335 |
|
|
|
|
|
|
164
SILVER DRAGON RESOURCES INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010, and 2009
(EXPRESSED IN UNITED STATES FUNDS)
165
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders’ of
Silver Dragon Resources Inc. and Subsidiaries
SDRG have audited the accompanying consolidated balance sheets of Silver Dragon Resources Inc. and Subsidiary (a Delaware corporation in the exploration stage) as of December 31, 2010 and 2009, and the consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2010, and cumulative from inception (June 15, 1996) through to December 31, 2010, except as explained as follows: SDRG did not audit the cumulative data from June 15, 1996 to December 31, 2004. The cumulative data was audited by other auditors whose reports have been furnished to SDRG, and SDRG opinion, insofar as it relates to the amounts in the cumulative data through December 31, 2004, is based solely on the report of other auditors. These financial statements are the responsibility of the company’s management. SDRG responsibility is to express an opinion on these financial statements based on SDRG audits.
SDRG conducted its audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that SDRG 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 SDRG engaged to perform, an audit of its internal control over financial reporting. SDRG 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, SDRG 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. SDRG believe that its audits provide a reasonable basis for SDRG opinion.
In SDRG opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Silver Dragon Resources Inc. and Subsidiaries as of December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2010 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 consolidated financial statements, the Company has experienced operating losses since inception and has no long term contracts related to its business plans. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are also described in note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
|
|
| /s/ SF Partnership, LLP |
| |
Toronto, Canada | CHARTERED ACCOUNTANTS |
166
SILVER DRAGON RESOURCES INC.
(An exploration stage company)
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
| December 31 |
| December 31 |
| ||
|
|
|
| (restated, |
| ||
ASSETS |
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 96,563 |
| $ | 137,448 |
|
Prepaid expenses |
|
| 203,258 |
|
| 329,327 |
|
Total current assets |
|
| 299,821 |
|
| 466,775 |
|
|
|
|
|
|
|
|
|
Deferred expenses(note 6) |
|
| 220,125 |
|
| 13,125 |
|
Plant and equipment, net(note 7) |
|
| 90,875 |
|
| 370,825 |
|
Mineral rights(note 3, 8, and 16) |
|
| — |
|
| 2,488,995 |
|
Equity investment(note 9) |
|
| 4,832,922 |
|
| 4,804,963 |
|
|
| $ | 5,443,743 |
| $ | 8,144,683 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
Accounts payable |
| $ | 1,127,839 |
| $ | 984,535 |
|
Accrued liabilities (note 10) |
|
| 309,466 |
|
| 767,294 |
|
Promissory notes payable (note 11) |
|
| 166,623 |
|
| 516,623 |
|
Convertible notes payable (note 12) |
|
| 170,000 |
|
| — |
|
Related party payables (note 13) |
|
| 260,256 |
|
| — |
|
|
|
| 2,034,184 |
|
| 2,268,452 |
|
|
|
|
|
|
|
|
|
Capital stock(note 14) |
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value, 20,000,000 shares authorized, none issued and outstanding |
|
| — |
|
| — |
|
Common stock, $0.0001 par value, 150,000,000 shares authorized, 98,728,017 shares issued and outstanding (2009 – 91,597,686 issued and outstanding) |
|
| 9,873 |
|
| 9,160 |
|
Additional paid-in capital(note 14) |
|
| 39,641,412 |
|
| 37,771,329 |
|
Treasury(550,000 shares) |
|
| (209,000 | ) |
| (209,000 | ) |
Deficit accumulated during the exploration stage |
|
| (36,054,080 | ) |
| (31,735,762 | ) |
Accumulated comprehensive income |
|
| 21,354 |
|
| 40,504 |
|
Stockholders’ equity |
|
| 3,409,559 |
|
| 6,782,981 |
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity |
| $ | 5,443,743 |
| $ | 8,144,683 |
|
|
|
|
|
|
|
|
|
Commitments and contingencies(note 18) |
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
167
SILVER DRAGON RESOURCES INC.
(AN EXPLORATION STAGE COMPANY)
Consolidated Statements of Operations and Comprehensive Loss
For the Years Ended December 31, 2010 and 2009, and
Cumulative for the period from June 15, 1996 (date of inception) to December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
| December |
| December |
| For the |
| |||
|
|
|
|
|
|
|
|
|
|
|
Revenues |
| $ | — |
| $ | — |
| $ | 64,888 |
|
Cost of revenues |
|
| — |
|
| — |
|
| 74,482 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross loss |
|
| — |
|
| — |
|
| (9,594 | ) |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
Exploration |
|
| 213,248 |
|
| 62,756 |
|
| 7,174,048 |
|
General and administrative |
|
| 2,245,330 |
|
| 3,319,322 |
|
| 25,686,792 |
|
Write-off of Mexican assets (note 3) |
|
| 2,335,289 |
|
| 906,750 |
|
| 3,242,039 |
|
Total operating expenses |
|
| 4,793,867 |
|
| 4,288,828 |
|
| 36,102,879 |
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
| (4,793,867 | ) |
| (4,288,828 | ) |
| (36,112,473 | ) |
|
|
|
|
|
|
|
|
|
|
|
Other (expenses) income |
|
|
|
|
|
|
|
|
|
|
Interest gain (expense) (note 12) |
|
| 121,139 |
|
| (99,974 | ) |
| (473,770 | ) |
Gain (loss) on embedded derivative |
|
| 261,000 |
|
| 144,000 |
|
| — |
|
Net gain (loss) on equity investment |
|
| 93,410 |
|
| (663,441 | ) |
| (570,032 | ) |
Forgiveness of debt |
|
| — |
|
| 38,871 |
|
| 38,871 |
|
Gain on sale of interest in subsidiary |
|
| — |
|
| — |
|
| 1,816,733 |
|
Non-recurring items (note 21) |
|
| — |
|
| — |
|
| (703,675 | ) |
Total other income (expenses) |
|
| 475,549 |
|
| (580,544 | ) |
| 108,127 |
|
Loss before income taxes |
| $ | (4,318,318 | ) | $ | (4,869,372 | ) | $ | (36,004,346 | ) |
Provision for income taxes (note 17) |
|
| — |
|
| — |
|
| — |
|
Net loss from continuing operations,after tax |
|
| (4,318,318 | ) |
| (4,869,372 | ) |
| (36,004,346 | ) |
Minority interest |
|
| — |
|
| — |
|
| 253,021 |
|
Loss from discontinued operations (netof tax) |
|
| — |
|
| — |
|
| (302,755 | ) |
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| (4,318,318 | ) |
| (4,869,372 | ) |
| (36,054,080 | ) |
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
Foreign exchange gain (loss) |
|
| (19,150 | ) |
| (17,742 | ) |
| 21,354 |
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
| $ | (4,337,468 | ) | $ | (4,887,114 | ) | $ | (36,032,726 | ) |
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share–basic anddiluted |
| $ | (0.05 | ) | $ | (0.06 | ) |
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of commonshares outstanding – basic and diluted |
|
| 95,157,809 |
|
| 86,988,100 |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
168
SILVER DRAGON RESOURCES INC.
(AN EXPLORATION STAGE COMPANY)
Consolidated Statements of Stockholders’ Equity
Cumulative for the period from June 15, 1996 (date of inception) to December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Deficit |
|
|
|
|
| Accumulated |
| Total |
| ||
|
| Common Stock |
|
|
|
|
|
|
|
|
|
| |||||
|
|
| Additional |
|
|
|
|
|
|
|
| ||||||
|
| Number of |
| Amount |
|
|
| Stock |
| Treasury |
|
|
| ||||
|
|
|
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued to founders |
| 388,334 |
| 39 |
| 1,126 |
| — |
| — |
| — |
| — |
| 1,165 |
|
Shares issued |
| 413,333 |
| 41 |
| 47,564 |
| (1,060 | ) | — |
| — |
| — |
| 46,545 |
|
Net Loss, 1996 |
| — |
| — |
| — |
| (14,198 | ) | — |
| — |
| — |
| (14,198 | ) |
|
| ||||||||||||||||
Balance, December 31, 1996 |
| 801,667 |
| 80 |
| 48,690 |
| (15,258 | ) | — |
| — |
| — |
| 33,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued |
| 116,999 |
| 12 |
| 88,638 |
| — |
| — |
| — |
| — |
| 88,650 |
|
Net Loss, 1997 |
| — |
| — |
| — |
| (142,622 | ) | — |
| — |
| — |
| (142,622 | ) |
|
| ||||||||||||||||
Balance, December 31, 1997 |
| 918,666 |
| 92 |
| 137,328 |
| (157,880 | ) | — |
| — |
| — |
| (20,460 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued |
| 69,334 |
| 7 |
| 57,994 |
| — |
| — |
| — |
| — |
| 58,001 |
|
Net loss, 1998 |
| — |
| — |
| — |
| (54,404 | ) | — |
| — |
| — |
| (54,404 | ) |
|
| ||||||||||||||||
Balance, December 31, 1998 |
| 988,000 |
| 99 |
| 195,322 |
| (212,284 | ) | — |
| — |
| — |
| (16,863 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued |
| 203,918 |
| 20 |
| 191,999 |
| — |
| (4,000 | ) | — |
| — |
| 188,019 |
|
Forgiveness of debt of related party |
| — |
| — |
| 23,000 |
| — |
| — |
| — |
| — |
| 23,000 |
|
Net loss, 1999 |
| — |
| — |
| — |
| (181,898 | ) | — |
| — |
| — |
| (181,898 | ) |
|
| ||||||||||||||||
Balance, December 31, 1999 |
| 1,191,918 |
| 119 |
| 410,321 |
| (394,182 | ) | (4,000 | ) | — |
| — |
| 12,258 |
|
|
|
|
|
|
|
|
|
|
|
|
| — |
| — |
|
|
|
Shares issued for services |
| 4,950,333 |
| 495 |
| 695,435 |
| — |
| (278,539 | ) | — |
| — |
| 417,391 |
|
Shares canceled |
| (453,100 | ) | (45 | ) | (169,867 | ) | — |
| 157,791 |
| — |
| — |
| (12,121 | ) |
Forgiveness of debt reclassification |
| — |
| — |
| (23,000 | ) | — |
| — |
| — |
| — |
| (23,000 | ) |
Net loss, 2000 |
| — |
| — |
| — |
| (419,296 | ) | — |
| — |
| — |
| (419,296 | ) |
|
| ||||||||||||||||
Balance, December 31, 2000 |
| 5,689,151 |
| 569 |
| 912,889 |
| (813,478 | ) | (124,748 | ) | — |
| — |
| (24,768 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued |
| 1,179,415 |
| 118 |
| 89,784 |
| — |
| — |
| — |
| — |
| 89,902 |
|
Cash received for subscription |
| — |
| — |
| — |
| — |
| 124,748 |
| — |
| — |
| 124,748 |
|
Other adjustment |
| — |
| — |
| — |
| 1 |
| — |
| — |
| — |
| 1 |
|
Net loss, 2001 |
| — |
| — |
| — |
| (339,546 | ) | — |
| — |
| — |
| (339,546 | ) |
|
| ||||||||||||||||
Balance, December 31, 2001 |
| 6,868,566 |
| 687 |
| 1,002,673 |
| (1,153,023 | ) | — |
| — |
| — |
| (149,663 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued |
| 29,859,173 |
| 2,986 |
| 386,394 |
| — |
| — |
| — |
| — |
| 389,380 |
|
Shares canceled |
| (21,978,215 | ) | (2,198 | ) | 7 |
| — |
| — |
| — |
| — |
| (2,191 | ) |
Stock warrants issued |
| — |
| — |
| 31,000 |
| — |
| — |
| — |
| — |
| 31,000 |
|
Stock warrants exercised |
| 3,255,880 |
| 326 |
| — |
| — |
| — |
| — |
| — |
| 326 |
|
Net loss, 2002 |
| — |
| — |
| — |
| (570,874 | ) | — |
| — |
| — |
| (570,874 | ) |
|
| ||||||||||||||||
Balance, December 31, 2002 |
| 18,005,404 |
| 1,801 |
| 1,420,074 |
| (1,723,897 | ) | — |
| — |
| — |
| (302,022 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued |
| 4,927,411 |
| 493 |
| 150,833 |
| — |
| — |
| — |
| — |
| 151,326 |
|
Shares returned |
| (66,300 | ) | (7 | ) | (1,319 | ) | — |
| — |
| — |
| — |
| (1,326 | ) |
Net loss, 2003 |
| — |
| — |
| — |
| (414,601 | ) | — |
| — |
| — |
| (414,601 | ) |
|
| ||||||||||||||||
Balance, December 31, 2003 |
| 22,866,515 |
| 2,287 |
| 1,569,588 |
| (2,138,498 | ) | — |
| — |
| — |
| (566,623 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
169
SILVER DRAGON RESOURCES INC.
(AN EXPLORATION STAGE COMPANY)
Consolidated Statements of Stockholders’ Equity
Cumulative for the period from June 15, 1996 (date of inception) to December 31, 2010 (Cont’d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Deficit |
|
|
|
|
| Accumulated |
| Total |
| ||
|
| Common Stock |
| Additional |
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| Number of |
| Amount |
|
|
| Stock |
| Treasury |
|
|
| ||||
|
|
|
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(carried forward) |
| 22,866,515 |
| 2,287 |
| 1,569,588 |
| (2,138,498 | ) | — |
| — |
| — |
| (566,623 | ) |
Shares issued |
| 575,000 |
| 58 |
| 24,942 |
| — |
| — |
| — |
| — |
| 25,000 |
|
Short swing profits of shareholder |
| — |
| — |
| 50,496 |
| — |
| — |
| — |
| — |
| 50,496 |
|
Net loss, 2004 |
| — |
| — |
| — |
| (399,028 | ) | — |
| — |
| — |
| (399,028 | ) |
|
| ||||||||||||||||
Balance, December 31, 2004 |
| 23,441,515 |
| 2,345 |
| 1,645,026 |
| (2,537,526 | ) | — |
| — |
| — |
| (890,155 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued |
| 27,879,018 |
| 1,572 |
| 2,612,433 |
| — |
| (9,500 | ) | — |
| — |
| 2,604,505 |
|
Shares canceled |
| (3,500,000 | ) | (350 | ) | (724,650 | ) | — |
| — |
| — |
| — |
| (725,000 | ) |
Net loss, 2005 |
| — |
| — |
| — |
| (584,879 | ) | — |
| — |
| — |
| (584,879 | ) |
|
| ||||||||||||||||
Balance, December 31, 2005 |
| 35,670,533 |
| 3,567 |
| 3,532,809 |
| (3,122,405 | ) | (9,500 | ) | — |
| — |
| 404,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued |
| 25,790,000 |
| 2,579 |
| 13,949,985 |
| — |
| 458,500 |
| — |
| — |
| 14,411,064 |
|
Warrants issued |
| — |
| — |
| 4,941,036 |
| — |
| — |
| — |
| — |
| 4,941,036 |
|
Share issuance costs |
| — |
| — |
| (63,237 | ) | — |
| — |
| — |
| — |
| (63,237 | ) |
Treasury stock |
| — |
| — |
| — |
| — |
| — |
| (392,830 | ) | — |
| (392,830 | ) |
Other comprehensive loss |
| — |
| — |
| — |
| — |
| — |
| — |
| (1,562 | ) | (1,562 | ) |
Net loss, 2006 |
| — |
| — |
| — |
| (8,692,208 | ) | — |
| — |
| — |
| (8,692,208 | ) |
|
| ||||||||||||||||
Balance, December 31, 2006 |
| 61,460,533 |
| 6,146 |
| 22,360,593 |
| (11,814,613 | ) | 449,000 |
| (392,830 | ) | (1,562 | ) | 10,606,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued |
| 8,362,000 |
| 836 |
| 7,114,194 |
| — |
| (334,000 | ) | — |
| — |
| 6,781,030 |
|
Treasury stock |
| (276,545 | ) | (27 | ) | (392,803 | ) | — |
| — |
| 392,830 |
| — |
| — |
|
Warrants issued |
| — |
| — |
| 2,717,020 |
| — |
| — |
| — |
| — |
| 2,717,020 |
|
Options issued |
| — |
| — |
| 459,959 |
| — |
| — |
| — |
| — |
| 459,959 |
|
Share issuance costs |
| — |
| — |
| (75,000 | ) | — |
| — |
| — |
| — |
| (75,000 | ) |
Other comprehensive loss |
| — |
| — |
| — |
| — |
| — |
| — |
| (18,141 | ) | (18,141 | ) |
Net loss, 2007 (restated) |
| — |
| — |
| — |
| (10,665,000 | ) | — |
| — |
| — |
| (10,665,000 | ) |
|
| ||||||||||||||||
Balance, December 31, 2007 (restated) |
| 69,545,988 |
| 6,955 |
| 32,183,963 |
| (22,479,613 | ) | 115,000 |
| — |
| (19,703 | ) | 9,806,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for cash |
| 8,349,167 |
| 835 |
| 1,141,023 |
| — |
| — |
| — |
| — |
| 1,141,858 |
|
Shares issued for settlement |
| 2,833,333 |
| 283 |
| 398,050 |
| — |
| (165,000 | ) | — |
| — |
| 233,333 |
|
Shares issued for services |
| 1,450,000 |
| 145 |
| 156,855 |
| — |
| — |
| — |
| — |
| 157,000 |
|
Shares issued for compensation |
| 875,000 |
| 87 |
| 135,663 |
| — |
| — |
| — |
| — |
| 135,750 |
|
Shares issued for settlement of due to related parties |
| 1,200,000 |
| 120 |
| 107,880 |
| — |
| — |
| — |
| — |
| 108,000 |
|
Shares issued for cash pursuant to exercise of warrants |
| 500,000 |
| 50 |
| 74,950 |
| — |
| — |
| — |
| — |
| 75,000 |
|
Warrants issued for cash |
| — |
| — |
| 260,642 |
| — |
| — |
| — |
| — |
| 260,642 |
|
Warrants issued for settlement of due to related parties |
| — |
| — |
| 192,000 |
| — |
| — |
| — |
| — |
| 192,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2008 continued on next page) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
170
SILVER DRAGON RESOURCES INC.
(AN EXPLORATION STAGE COMPANY)
Consolidated Statements of Stockholders’ Equity
Cumulative for the period from June 15, 1996 (date of inception) to December 31, 2010 (Cont’d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Deficit |
|
|
|
|
| Accumulated |
| Total |
| ||
|
| Common Stock |
| Additional |
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| Number of |
| Amount |
|
|
| Stock |
| Treasury |
|
|
| ||||
|
|
|
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, (carried forward) |
| 15,207,500 |
| 1520 |
| 2,467,063 |
| (22,479,613 | ) | (165,000 | ) | — |
| — |
| 12,110,185 |
|
Warrants issued for services |
| — |
| — |
| 44,600 |
| — |
| — |
| — |
| — |
| 44,600 |
|
Options issued for services |
| — |
| — |
| 82,200 |
| — |
| — |
| — |
| — |
| 82,200 |
|
Share issuance costs |
| — |
| — |
| (6,562 | ) | — |
| — |
| — |
| — |
| (6,562 | ) |
Shares to be returned |
| — |
| — |
| — |
| — |
| (67,500 | ) | — |
| — |
| (67,500 | ) |
Other comprehensive loss |
| — |
| — |
| — |
| — |
| — |
| — |
| 77,949 |
| 77,949 |
|
Net loss, 2008 (restated, note 3) |
| — |
| — |
| — |
| (3,969,299 | ) | — |
| — |
| — |
| (3,969,299 | ) |
Prior period adjustment |
| — |
| — |
| — |
| (417,477 | ) | — |
| — |
| — |
| (417,477 | ) |
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 (restated) |
| 84,753,488 |
| 8,475 |
| 34,771,264 |
| (26,866,389 | ) | (117,500 | ) | — |
| 58,246 |
| 7,854,096 |
|
Shares issued for cash |
| 4,729,198 |
| 473 |
| 489,232 |
| — |
| — |
| — |
| — |
| 489,705 |
|
Shares issued for services |
| 2,490,000 |
| 249 |
| 347,909 |
| — |
| — |
| — |
| — |
| 348,158 |
|
Shares issued for compensation |
| 175,000 |
| 18 |
| 14,857 |
| — |
| — |
| — |
| — |
| 14,875 |
|
Shares issued for property |
| 550,000 |
| 55 |
| 208,945 |
| — |
| (209,000 | ) | — |
| — |
| — |
|
Warrants issued for cash |
| — |
| — |
| 728,771 |
| — |
| — |
| — |
| — |
| 728,771 |
|
Warrants issued for services |
| — |
| — |
| 1,442,484 |
| — |
| — |
| — |
| — |
| 1,442,484 |
|
Options issued for services |
| — |
| — |
| 24,134 |
| — |
| — |
| — |
| — |
| 24,134 |
|
Share issuance costs |
| — |
| — |
| (54,877 | ) | — |
| — |
| — |
| — |
| (54,877 | ) |
Shares returned |
| (1,100,000 | ) | (110 | ) | (201,390 | ) | — |
| 117,500 |
| — |
| — |
| (84,000 | ) |
Accumulated comprehensive loss |
| — |
| — |
| — |
| — |
| — |
| — |
| (17,742 | ) | (17,742 | ) |
Net loss, 2009 (restated, note 3) |
| — |
| — |
| — |
| (4,869,372 | ) | — |
| — |
| — |
| (4,869,372 | ) |
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2009 (restated) |
| 91,597,686 |
| 9,160 |
| 37,771,329 |
| (31,735,762 | ) | (209,000 | ) | — |
| 40,504 |
| 5,876,231 |
|
Shares issued for cash |
| 4,038,237 |
| 404 |
| 468,298 |
| — |
| — |
| — |
| — |
| 468,702 |
|
Shares issued for services |
| 3,092,094 |
| 309 |
| 790,076 |
| — |
| — |
| — |
| — |
| 790,385 |
|
Warrants issued for cash |
| — |
| — |
| 264,298 |
| — |
| — |
| — |
| — |
| 264,298 |
|
Warrants issued for services |
| — |
| — |
| 274,067 |
| — |
| — |
| — |
| — |
| 274,067 |
|
Share issuance costs |
| — |
| — |
| (26,497 | ) | — |
| — |
| — |
| — |
| (26,497 | ) |
Beneficial conversion feature |
| — |
| — |
| 99,841 |
| — |
| — |
| — |
| — |
| 99,841 |
|
Accumulated comprehensive loss |
| — |
| — |
| — |
| — |
| — |
| — |
| (19,150 | ) | (19,150 | ) |
Net loss, 2010 |
| — |
| — |
| — |
| (4,318,318 | ) | — |
| — |
| — |
| (4,318,318 | ) |
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2010 |
| 98,728,017 |
| 9,873 |
| 39,641,412 |
| (36,054,080 | ) | (209,000 | ) | — |
| 21,354 |
| 3,409,559 |
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
171
SILVER DRAGON RESOURCES INC.
(AN EXPLORATION STAGE COMPANY)
Consolidated Statements of Cash Flows
For the years ended December 31, 2010 and 2009, and
cumulative for the period from June 15, 1996 (date of inception) to December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
| 2010 |
| 2009 |
| For the period |
| |||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations |
| $ | (4,318,318 | ) | $ | (4,869,372 | ) | $ | (36,054,080 | ) |
Net loss from discontinued operations |
|
| — |
|
| — |
|
| 302,755 |
|
|
|
| ||||||||
Net loss |
|
| (4,318,318 | ) |
| (4,869,372 | ) |
| (35,751,325 | ) |
Adjustments for: |
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
| 92,687 |
|
| 99,248 |
|
| 524,840 |
|
Net (gain)/loss from equity investment |
|
| (93,410 | ) |
| 663,441 |
|
| 667,730 |
|
Gain on recognition of embedded derivative |
|
| (261,000 | ) |
| (144,000 | ) |
| — |
|
Shares issued for services |
|
| 790,385 |
|
| 279,033 |
|
| 8,473,121 |
|
Warrants and options issued for services |
|
| 274,067 |
|
| 1,466,615 |
|
| 3,608,212 |
|
Beneficial conversion feature |
|
| 99,841 |
|
| — |
|
| 99,841 |
|
Write-down of mineral rights |
|
| 2,504,559 |
|
| 906,750 |
|
| 3,411,309 |
|
Write-down of assets |
|
| 197,810 |
|
| — |
|
| 240,063 |
|
Other |
|
| — |
|
| — |
|
| (1,630,814 | ) |
Changes in non-cash working capital: |
|
|
|
|
|
|
|
|
|
|
Deferred expenses |
|
| (80,931 | ) |
| 362,668 |
|
| 158,706 |
|
Accounts payable |
|
| 143,304 |
|
| (273,822 | ) |
| 2,330,339 |
|
Accrued liabilities |
|
| (196,828 | ) |
| (57,691 | ) |
| 278,631 |
|
Other |
|
|
|
|
|
|
|
| 665,601 |
|
|
|
| ||||||||
Net cash used in operating activities |
| $ | (847,834 | ) | $ | (1,451,748 | ) | $ | (17,273,746 | ) |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
Investments in mineral rights |
| $ | (15,564 | ) | $ | — |
| $ | (1,920,441 | ) |
Additional contribution to Sino-Top |
|
| 65,451 |
|
| (893,398 | ) |
| (3,446,189 | ) |
Acquisition of plant and equipment |
|
| — |
|
| — |
|
| (981,486 | ) |
Other |
|
| — |
|
| — |
|
| 4,364,090 |
|
Net cash provided by (used in) investing activities |
|
| 49,887 |
|
| (893,398 | ) |
| (4,838,592 | ) |
|
|
| ||||||||
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock and warrants |
|
| 733,000 |
|
| 1,218,476 |
|
| 17,897,492 |
|
Share issuance costs |
|
| (26,497 | ) |
| (54,877 | ) |
| (197,936 | ) |
Related party loans payable |
|
| 260,256 |
|
| 10,000 |
|
| 1,192,922 |
|
Repayments of related party advances |
|
| — |
|
| (34,497 | ) |
| (462,557 | ) |
Minority interest |
|
| — |
|
| — |
|
| 253,021 |
|
Promissory note payable |
|
| — |
|
| 166,623 |
|
| 516,623 |
|
Write-down of promissory note payable |
|
| (350,000 | ) |
| — |
|
| (350,000 | ) |
Payment of notes payable |
|
| — |
|
| — |
|
| 3,581 |
|
Proceeds from issuance of convertible notes payable |
|
| 170,000 |
|
| — |
|
| 148,493 |
|
Other |
|
| — |
|
| — |
|
| (63,190 | ) |
|
|
| ||||||||
Net cash provided by (used in) financing activities |
|
| 786,759 |
|
| 1,305,725 |
|
| 19,288,449 |
|
|
|
|
|
|
|
|
|
|
|
|
Effect of change in foreign exchange |
|
| (29,697 | ) |
| (30,358 | ) |
| 65,886 |
|
|
|
| ||||||||
Change in cash and cash equivalents |
|
| (40,885 | ) |
| (1,069,779 | ) |
| 96,563 |
|
Cash and cash equivalents - beginning of period |
|
| 137,448 |
|
| 1,207,227 |
|
| — |
|
|
|
| ||||||||
Cash and cash equivalents - end of period |
| $ | 96,563 |
| $ | 137,448 |
| $ | 96,563 |
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
172
SILVER DRAGON RESOURCES INC.
(An exploration stage company)
Notes to the Consolidated Financial Statements
December 31, 2010 and 2009
1. Nature of Business and Basis of Presentation
Silver Dragon Resources Inc. was incorporated on May 9, 1996 in the State of Delaware and its executive office is in Toronto, Canada. It carries out operations through a subsidiary and affiliate in Mexico and China. Silver Dragon Resources Inc. and its subsidiary and affiliates (collectively referred to as “Silver Dragon” or the “Company”) are in the exploration stage as defined by Financial Accounting Standards Board’s (“FASB”) Accounting Standard Codification (“ASC”) 915 “Accounting and Reporting For Development Stage Entities.”
The Company’s strategy is to acquire and develop a portfolio of silver properties in proven silver districts globally. To date, the Company has generated no sales and has devoted its efforts primarily to financing, by issuing common shares, and to exploring its properties. The accompanying consolidated financial statements of the Company have been prepared following generally accepted accounting principles in the United States (“U.S. GAAP”), which are expressed in United States funds.
2. Going Concern and Exploration Stage Activities
These consolidated financial statements have been prepared in accordance with U.S. GAAP applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next twelve months.
At December 31, 2010, the Company had a working capital deficiency of $1,734,363, had not yet achieved profitable operations, incurred a net loss of $4,318,318 for the year ended December 31, 2010 (2009 – $4,869,372), has accumulated losses of $36,054,080 since its inception, and expects to incur further losses in the development of its business. These factors, in addition to the write-off of the Company’s Mexican assets, cast doubt as to the Company’s ability to continue as a going concern, which is dependent upon its ability to obtain the necessary
173
financing to repay liabilities when they come due, and in the long-run is dependent upon achieving profitable operations. Management believes that the Company will be able to obtain additional funds by equity financing; however, there is no assurance of additional funding being available or available on acceptable terms.
Realization values may be substantially different from carrying values as shown. These consolidated financial statements do not include any adjustments to reflect the future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result if the Company were unable to continue as a going concern.
3. Write-off of Mexican assets and prior period adjustment
As described more fully below, the Company has written off the book value of its mineral rights in Mexico, as well as related liabilities, due to adverse court judgments in Mexico. The net amount written off in 2010 is $2,335,289 (see note (b) below). In addition, 2009 results were restated which had the effect of increasing the deficit accumulated during the exploration stage by $1,424,201, and increasing the net loss in 2009 by $1,006,724, for an increase in the net loss per share in 2009 by $0.01 (see below). The 2008 results were also restated which had the effect of increasing the net loss in 2008 by 417,447.
Prior period figures have been restated as follows:
Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2009 |
| Adjustment |
| 2009 |
| Notes |
| ||||
|
| ||||||||||||
Mineral rights |
| $ | 3,045,745 |
| $ | (556,750 | ) | $ | 2,488,995 |
|
| a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 1,095,243 |
| $ | (110,708 | ) | $ | 984,535 |
|
| b |
|
Accrued liabilities |
| $ | 305,758 |
| $ | 461,536 |
| $ | 767,294 |
|
| a, b |
|
Promissory notes payable |
| $ | — |
| $ | 516,623 |
| $ | 516,623 |
|
| a, b |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit accumulated during the exploration stage |
| $ | (30,311,561 | ) | $ | (1,424,201 | ) | $ | (31,735,762 | ) |
| a, b |
|
Consolidated Statement of Operations and Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2009 |
| Adjustment |
| 2009 |
| Cumulative |
| Notes |
| |||||
|
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-off of Mexican assets |
| $ | — |
| $ | (906,750 | ) | $ | (906,750 | ) | $ | (906,750 | ) |
| a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expenses) income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
| $ | — |
| $ | (99,974 | ) | $ | (99,974 | ) | $ | (594,909 | ) |
| b |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (3,862,649 | ) | $ | (1,006,723 | ) | $ | (4,869,372 | ) | $ | (31,735,762 | ) |
| a, b |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share – Basic and diluted |
| $ | (0.04 | ) | $ | (0.02 | ) | $ | (0.06 | ) |
|
|
|
|
|
|
174
Consolidated Statement of Cash Flow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2009 |
| Adjustment |
| 2009 |
| Cumulative |
| Notes |
| ||||
|
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations |
| $ | (3,862,649 | ) | $ | (1,006,723 | ) | $ | (4,869,372 | ) | $ | (31,735,762 | ) | b |
|
Promissory note payable |
| $ | — |
| $ | 166,623 |
| $ | 166,623 |
| $ | 516,623 |
| b |
|
Changes in non-cash working capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | (107,199 | ) | $ | (166,623 | ) | $ | (273,822 | ) | $ | 2,187,035 |
| b |
|
Accrued liabilities |
| $ | (42,283 | ) | $ | 99,974 |
| $ | 57,691 |
| $ | 475,459 |
| a, b |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-down of mineral rights |
| $ | — |
| $ | 906,750 |
| $ | 906,750 |
| $ | 906,750 |
| a |
|
|
|
a) | Seizure of 15 mining concessions in Mexico: write-off of Mexican assets and restatement |
On March 2, 2006, Silver Dragon Mexico acquired 15 mining concessions from four individuals by entering into various assignment agreements.
In December 2010 the Silver Dragon Resources Inc. became aware of various matters that transpired between 2006 and 2010, that resulted in its concessions being seized without notice to the Company.
In Durango, Mexico, on August 18, 2006 a former representative of Silver Dragon Mining de Mexico, S.A. de C.V. (“Silver Dragon Mexico” or “SDM”) signed a promissory note for a principal amount of $350,000 for a vendor, from whom the Company had purchased 10 of the 15 aforementioned mining concessions, due March 5, 2008. The actions of the Company’s former legal representative were not authorized by the Silver Dragon Resources Inc. and he did not advise the Company about signing the promissory note, nor its terms. There was no valid commercial reason for the promissory note to have been signed, but it nonetheless became an obligation of Silver Dragon Mexico.
On April 21, 2008 the vendor filed a lawsuit in Mexico against Silver Dragon Mexico claiming payment of $350,000 and as ordinary interest at an annual rate of 10%, interest on past due and unpaid principal at an interest rate of 5% per month, as well as legal expenses. On October 10, 2008, Silver Dragon Mexico’s former legal representative was officially notified of the lawsuit through the former legal representative, but the representative did not advise Silver Dragon Mexico nor the Company. The vendor then seized the ten mining concessions that the Company had originally purchased from the vendor in 2006.
During this time, the Company had no knowledge of what had transpired. On November 28, 2008, the former legal representative appeared before the court on behalf of Silver Dragon Mexico to receive notifications, but did not advise the Company. Since Silver Dragon Mexico never appeared before the court to reply to the lawsuit, Silver Dragon Mexico was declared in default and lost its opportunity to offer evidence in its favor.
On January 8, 2009, the court passed final sentence ordering Silver Dragon Mexico to pay to the vendor the principal amount plus interest and legal costs. On January 16, 2009 the Company’s former legal representative was formally notified of the sentence, but did not advise the Company. Since Silver Dragon Mexico never appealed the final sentence, on February 10, 2009 the Court declared the sentence as final and irrevocable.
On March 30, 2009 the former legal representative of Silver Dragon Mexico, appeared again before the court to appoint an expert to appraise the mining concessions to be sold on a public auction. The appraisal of that expert was similar to the vendor’s appraisal. On May 29, 2009 by public auction the mining concessions were granted to the
175
vendor as payment of the owed principal amount and its corresponding interest, on June 25, 2009 the Court approved the auction.
On August 19, 2009, the vendor filed a motion before the court to request a further seizure of the assets of Silver Dragon Mexico to guarantee the remaining amount, which the court granted on October 2, 2009. On June 16, 2010 the vendor filed a motion before the court to request a further seizure of the assets of Silver Dragon Mexico to guarantee the payment of ordinary interest at a rate of 10% which at that date represented an amount of $45,739, interest on past due and unpaid principal at an interest rate of 5% per month, plus legal expenses of $100,000. On November 5, 2010 this petition of the vendor was granted by the court, and the Company’s remaining Mexican five concessions were seized.
Throughout this whole process the former legal representative never advised Silver Dragon Mexico or the Company of the existence of the promissory note nor the subsequent court actions.
He also accepted court service numerous times on behalf of Silver Dragon Mexico as mentioned earlier to enforce payment of the note, but similarly did not advise Silver Dragon Mexico of this. In summary, from the Company’s perspective, the legal proceedings were heard and decided on anex partebasis, without notice to the Company, nor allowing proper defense and representation of Silver Dragon Mining Mexico.
In December 2010, the Company became aware of this situation. The Company’s counsel in Mexico has filed a Constitutional Rights Claim before the Federal Court in the City of Durango, premised on procedural irregularities in the foreclosure proceedings, for the purposes of re-opening the case. On January 17, 2011, Silver Dragon Mexico provided certain evidence in connection with the claims to the court, which is currently reviewing the documentation. The Company expects the court to schedule a hearing within two months.
The Company has restated prior year results to reflect the original promissory note of $350,000 and the interest on the promissory note of $319,906 from prior years. However, since the Company has lost title to the 15 concessions in Mexico, pursuant to court judgments, management has decided to write-off the book value of these concessions of $3,411,309, of which $906,750 was written off in the restated December 31, 2009 financial statements. In 2010, the Company also wrote-off the promissory note and interest due on the promissory note as all obligations were fulfilled as part of the court order to repossess title to the 15 concessions.
|
|
b) | Promissory note: restatement |
In late 2010 the Company became aware of another situation involving the same former legal representative. In November 2010, the Company and Silver Dragon Mexico approached certain suppliers in order to arrange payment of the Company’s outstanding accounts payable. Agreements were reached in most cases. One of Silver Dragon Mexico’s creditors did not respond to the request, however, an individual purporting to represent that creditor subsequently emailed the Company in December 2010 requesting payment for an amount that was more than triple the amount of the debt and asserted that it was pursuant to a promissory note signed by Silver Dragon Mexico and a court decision related to the promissory note in Mexico. On January 17, 2011 the Company received a copy of the promissory note. It was dated April 24, 2008 and was for a principal amount of $166,623 and carried interest at a rate of 5% per month. It was signed by the same former legal representative of Silver Dragon Mexico. His actions were not authorized by the Company, and he did not advise the Company about the promissory note, or the subsequent court actions.
He also accepted court service several times on behalf of Silver Dragon Mexico to enforce payment of the note, but similarly did not advise Silver Dragon Mexico or the Company of this. There was no valid commercial reason for the promissory note to have been signed, but it nonetheless became an obligation of Silver Dragon Mexico.
The Company is in the process of investigating this matter and has determined that in April 2010 the creditor had obtained a judgment from a court in Chihuahua, Mexico, in its favor, for payments under the promissory note that the creditor asserts aggregates $408,226 with interest, as well as a further 10% for its legal fees. The Company has
176
restated results from prior years to reflect the original promissory note of $166,623 and the interest on the promissory note of $99,974 and $141,630 in 2009 and 2008, respectively.
4. Summary of Significant Accounting Policies
|
|
a) | Principles of consolidation |
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary Silver Dragon Mining De Mexico S.A. de C.V (a Mexico corporation) All significant inter-company balances and transactions have been eliminated on consolidation. The Company’s ownership of 40% of Sanhe Sino-Top Resources & Technology, Ltd. (a China corporation) (“Sino-Top”) is recorded on the equity basis.
|
|
b) | Use of estimates |
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Significant areas requiring the use of estimates relate to the estimated useful lives of plant and equipment, valuation of mineral rights, and stock-based compensation. Actual results could differ from these estimates. These estimates are reviewed periodically and as adjustments become necessary, they are reported in earnings in the period in which they become available.
|
|
c) | Cash and cash equivalents |
Cash and cash equivalents consist of deposits held in financial institutions and liquid investments with original maturities of three months or less at the time of purchase.
|
|
d) | Financial instruments |
The Company classifies all financial instruments as held-for-trading or other financial liabilities. Financial liabilities are measured at amortized cost. Instruments classified as held for trading are measured at fair value with unrealized gains and losses recognized in the statement of operations. Debt transaction costs are allocated to the related debt and amortized over the life of the loan using the effective interest method. Equity transaction costs are recorded in equity.
The Company has designated its cash and cash equivalents as held for trading, which is measured at fair value. Accounts payable, accrued liabilities, convertible notes payable and related party payables are classified as other liabilities, which are measured at amortized cost.
|
|
e) | Mineral rights |
The Company records its interest in mineral rights at cost. Accordingly, costs associated with the acquisition and development of mineral reserves are capitalized. Exploration costs are expensed as incurred.
Capitalized costs of mineral properties are amortized using the unit-of-production method using estimates of proved reserves. Investments in unproved properties and major exploration and development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs. If the results of an assessment indicate that a property is impaired, the capitalized cost of that property will be charged to expense at that time. The Company presently has no proven reserves. Where estimates of future net cash flows are not available and where other conditions suggest impairment, management assesses whether the carrying values can be recovered. If the carrying values exceed estimated recoverable values, then the costs are written-down to fair values with the
177
write-down expensed in the period. The Company evaluates the carrying amounts of its mineral rights when events or changes in circumstances indicate that the carrying amount may not be recoverable.
|
|
f) | Equity investment |
The Company exercises significant influence but does not exercise control over its equity investment, Sino-Top. It is accounted for using the equity method of accounting and is initially recognized at cost. The Company’s share of the entity’s profits or losses is recognized in the statement of operations, and cumulative post-acquisition changes in the investment are adjusted against the carrying amount of the investment. Were the Company’s share of losses on its investment to equal or exceed the carrying amount of the investment, the Company would then only recognize further losses if it incurred obligations or made payments on behalf of the equity investment.
|
|
g) | Income taxes |
The Company accounts for income taxes in accordance with FASB ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recorded for differences between the consolidated financial statements and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is recorded for the amount of income tax payable or refundable for the period, increased or decreased by the change in deferred tax assets and liabilities during the period.
|
|
h) | Revenue recognition |
The Company has not earned revenues from its planned principal operations. Revenues incidental to the planned principal operations will be recognized as follows: Revenues from the provision of mine exploration services are recognized when the services are performed and collection is reasonably assured. Revenues from the sale of silver and other byproducts are recognized when title and risk of ownership of metal and metal bearing concentrates passes to the buyer and collection is reasonably assured.
|
|
i) | Plant and equipment |
Plant and equipment are stated at cost. Equipment awaiting installation on site is not depreciated until it is commissioned. Depreciation is based on the estimated useful life of the asset and depreciated annually as follows:
|
|
|
|
|
|
Category |
| Rate |
| Method |
|
Computer hardware |
| 30% |
| Declining |
|
Computer software |
| 30% |
| Declining |
|
Vehicles |
| 20% |
| Declining |
|
Office equipment |
| 20% |
| Declining |
|
Mine equipment |
| 20% |
| Declining |
|
Leasehold improvements |
| 5 years |
| Straight line |
|
|
|
j) | Loss per share |
Basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the year. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus potentially dilutive securities outstanding for each year. The computation of diluted earnings (loss) per share has not been presented as its effect would be anti-dilutive.
178
|
|
k) | Stock-based compensation |
From time to time the Company grants warrants to management, directors, employees and consultants. The Company recognizes compensation expense for this plan at fair value. Under this method, the fair value of each warrant is estimated on the date of the grant and amortized over the vesting period, with the resulting amortization credited to contributed surplus. The fair value of each grant is determined using the Black-Scholes option-pricing model. Consideration paid upon the exercise of stock options is recorded as share capital.
|
|
l) | Asset retirement obligations |
The Company recognizes liabilities for statutory, contractual or legal obligations associated with the reclamation of mineral properties. Initially, a liability for an asset retirement obligation is recognized at its fair value in the period in which it is incurred and the corresponding asset retirement cost is added to the carrying amount of the related asset. The cost is amortized over the economic life of the asset using either the unit-of-production method or the straight-line method, as appropriate. Following the initial recognition of the asset retirement obligation, the carrying amount of the liability is adjusted for changes to the amount or timing of the underlying cash flows needed to settle the obligation. As at December 31, 2010, the Company had not incurred any asset retirement obligations related to the exploration of its mineral properties.
|
|
m) | Impairment of long lived assets |
In accordance with ASC 360, “Property, Plant and Equipment”, long lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable.
The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. If there are indications of impairment, the Company uses future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the carrying amounts are recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value.
|
|
n) | Comprehensive Loss |
The Company accounts for comprehensive loss in accordance with ASC 220, “Comprehensive Income,” which establishes standards for reporting and presentation of comprehensive loss and its components. Comprehensive loss is presented in the statements of stockholders’ equity, and consists of net loss and foreign currency translation adjustments.
|
|
o) | Foreign currency translation |
The Company accounts for foreign currency translation pursuant to ASC 830, “Foreign Currency Matters”. The Company’s functional currency is United States dollars. For operations in Mexico, the local currency is the functional currency. All assets and liabilities denominated in Mexican Pesos are translated into United States dollars using the current exchange rate. Revenues and expenses are translated using average exchange rates during the year. Foreign exchange gains or losses are included in other comprehensive income for the period. The functional currency of the equity investment in China is United States dollars. Net income or loss recorded on the equity basis is translated using average exchange rates during the year.
5. Recent Accounting Pronouncements
In January 2010, the FASB issued ASU 2010-06, “Improving Disclosures about Fair Value Measurements” (“ASU 2010-6”). The standard amends ASC Topic 820, “Fair Value Measurements and Disclosures” to require additional disclosures related to transfers between levels in the hierarchy of fair value measurements. ASU 2010-6 is effective
179
for interim and annual fiscal years beginning after December 15, 2009. The standard does not change how fair values are measured, accordingly the standard will not have an impact on the Company.
In February 2010, the FASB issued ASU 2010-09, “Subsequent Events (Topic 855); Amendments to Certain Recognition and Disclosure Requirements” (“ASU 2010-9”). The standard amends Subtopic 855-10, “Subsequent Events” to remove the requirement for a SEC filer to disclose the date through which subsequent events have been evaluated. ASU 2010-9 is effective upon issuance of the final update. The Company does not expect the adoption of ASU 2010-09 to have a material impact on its consolidated financial statements.
In July 2010, the FASB issued ASU 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses” (“ASU 2010-20”). The standard amends ASC Topic 310, “Receivables”to enhance disclosures about the credit quality of financing receivables and the allowance for credit losses by requiring an entity to provide a greater level of disaggregated information and to disclose credit quality indicators, past due information, and modifications of its financing receivables. ASU 2010-20 is effective for interim and annual fiscal years beginning after December 15, 2010 for public entities. The Company does not expect the adoption of ASU 2010-20 to have a material impact on its consolidated financial statements.
The FASB issues ASUs to amend the authoritative literature in ASC. There have been a number of ASUs to date that amend the original text of ASC. Except for the ASUs listed above, those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact on the Company.
6. Deferred Expenses
During the year ended December 31, 2010, $220,125 of the fair value of shares issued for services, pursuant to consulting agreements greater than a year, remained to be amortized over the remaining period of those agreements.
7. Plant and Equipment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost |
| Accumulated |
| 2010 |
| 2009 |
| ||||
|
| ||||||||||||
| |||||||||||||
Computer hardware |
| $ | 40,559 |
| $ | 28,354 |
| $ | 12,205 |
| $ | 21,271 |
|
Computer software |
|
| — |
|
| — |
|
| — |
|
| 45,122 |
|
Vehicles |
|
| — |
|
| — |
|
| — |
|
| 10,103 |
|
Office equipment |
|
| 45,720 |
|
| 24,110 |
|
| 21,610 |
|
| 33,845 |
|
Mine equipment |
|
| — |
|
| — |
|
| — |
|
| 160,050 |
|
Leasehold improvements |
|
| 195,667 |
|
| 138,607 |
|
| 57,060 |
|
| 100,434 |
|
|
| ||||||||||||
|
| $ | 281,946 |
| $ | 191,071 |
| $ | 90,875 |
| $ | 370,825 |
|
|
|
In 2010, the Company wrote off the net book value of its Mexican assets in the amount of $152,687.
8. Mineral Rights
|
|
|
|
|
|
| Cerro Las |
| |
|
|
|
|
|
Balance, December 31, 2008 |
| $ | 3,045,745 |
|
Additions during 2009 |
|
| — |
|
Prior period adjustment (note 3) |
|
| 350,000 |
|
Write-off during 2009 (note 3) |
|
| (906,750 | ) |
|
|
| ||
Balance, December 31, 2009 |
|
| 2,488,995 |
|
Additions during 2010 |
|
| 15,564 |
|
Write-off during 2010 (note 3) |
|
| (2,504,559 | ) |
|
|
| ||
Balance, December 31, 2010 |
| $ | — |
|
|
|
|
180
Cerros Las Minitas, Mexico
The Cerros Las Minitas property is located 70 kilometers northeast of the City of Durango, capital of the state of Durango, and 6 kilometers northwest of the town of Guadalupe Victoria, in the municipality of Guadalupe Victoria, Durango. The claims are located in the Minitas Mining District in the Mining Region of Guadalupe Victoria. The property consists of 16 mining concessions encompassing 1,423 hectares (3,516 acres).
On August 12, 2010, Silver Dragon Mexico entered into an agreement with Ema Violante wherein Ms. Violante sold to Silver Dragon Mexico five hectares of land for $15,564 in Guadalupe Victoria, Mexico to be used to build a tailings pond.
The Company decided to write-off its Mexican assets as set out in notes 3 and 16.
9. Equity Investment
On December 12, 2008, the Exploration Unit of North China Nonferrous Geological Exploration Bureau, also known as Huaguan Industrial Corp. (“HIC”), acquired 50%, in addition to its previous 10%, of the Company’s equity interest in Sanhe Sino-Top Resources & Technologies Ltd., not including the Erbahuo property, from the Company in exchange for Chinese Yuan 30 million (approximately $4.4 million). HIC and the Company hold equity interest of 60% and 40%, respectively, in Sino-Top, whose assets mainly consist of six exploration properties. With respect to Erbahuo, the seventh exploration property controlled by Sino-Top, it will be 70% beneficially owned by the Company and 30% by HIC. The proceeds have been used to further develop the Company’s properties in China and Mexico.
|
|
|
|
|
|
|
|
|
| 2010 |
| 2009 |
| ||
|
| ||||||
|
|
|
|
|
|
|
|
Equity investment, beginning of year |
| $ | 4,804,963 |
| $ | 4,575,006 |
|
Additional investment and advances |
|
| 81,049 |
|
| 893,398 |
|
Return of funds advanced |
|
| (146,500 | ) |
| — |
|
Share of income (loss) for the year |
|
| 93,410 |
|
| (663,441 | ) |
|
| ||||||
Equity investment, end of year |
| $ | 4,832,922 |
| $ | 4,804,963 |
|
|
| ||||||
|
|
|
|
|
|
|
|
Share of income (loss) for the year: |
|
|
|
|
|
|
|
Exploration expenses |
| $ | (1,351,294 | ) | $ | (510,404 | ) |
General and administrative expenses |
|
| (197,171 | ) |
| (153,037 | ) |
Gain on disposal of properties |
|
| 1,684,096 |
|
| — |
|
Income taxes |
|
| (42,102 | ) |
| — |
|
|
| ||||||
Share of income (loss) for the year (at 40%) |
| $ | 93,410 |
| $ | (663,441 | ) |
|
|
10. Accrued Liabilities
During 2006, the Company purchased a 100% interest in 10 mining concessions in Mexico for $800,000 and the issuance of 450,000 restricted common shares of the Company. The agreement stipulated that the 450,000 common shares issued have an aggregate minimum value of $450,000, which obligates the Company to compensate for any shortfall in the share price on disposition. Accordingly, an embedded derivative of $ nil (2009 -- $261,000) was recognized in accrued liabilities. The embedded derivative was written off in 2010 as the Company was no longer obligated to compensate for a shortfall, as per the loss of title to the Mexican mining concessions (see note 3).
181
11. Promissory Note Payable
In 2008, a promissory note was signed with a vendor in the amount of $166,623 with a carried interest rate of 5% per month, unsecured, and no maturity date. The Company became aware of the promissory note in 2010 and has since restated previously reported figures (see note 3). During the year ended December 31, 2010 the Company incurred interest of $93,517 (2009 - $99,974).
12. Convertible Notes Payable
During the year ended December 31, 2010, the Company issued three convertible notes with principal amounts aggregating $170,000. The notes bear interest of 8% per annum, are unsecured, and are due on March 21, April 22, and August 11, 2011, respectively. The notes are convertible into common stock, at the lender’s option, at a discount to the average of the three lowest closing prices of the common stock during the 10 trading day period prior to conversion. The lender has agreed to restrict its ability to convert the notes and receive shares of common stock, such that the number of shares of common stock held by them and their affiliates in the aggregate, after such conversion or exercise, does not exceed 4.99% of the then issued and outstanding shares of common stock. The Company recorded an expense of $99,841 as the value of the beneficial conversion feature of the convertible notes payable.
13. Related Party Transactions and Balances
|
|
|
|
|
|
|
|
|
| 2010 |
| 2009 |
| ||
|
|
|
| ||||
| |||||||
Remuneration payable |
| $ | 213,040 |
| $ | — |
|
Advances |
|
| 47,216 |
|
| — |
|
|
|
|
| ||||
|
| $ | 260,256 |
| $ | — |
|
|
|
|
|
During the year ended December 31, 2010, the Company incurred $288,000 (2009 – $288,000) in management fees, paid to a company controlled by a director, for Chief Executive Officer services rendered.
Amounts due to related parties (Chief Executive Officer and Vice President, China) are unsecured, non-interest bearing and payable on demand.
14. Capital Stock
On January 20, 2009, the Company issued 600,000 shares of the Company’s restricted common stock to a company, pursuant to an investor relations agreement dated January 20, 2009, for fair value of $57,000.
On January 21, 2009, the Company issued 650,000 shares of the Company’s restricted common stock to a company, pursuant to an investor relations agreement dated January 15, 2009, for fair value of $61,750.
On January 23, 2009, the Company cancelled 250,000 shares of the Company’s restricted common stock, which were initially issued on August 17, 2007 and requested to be returned and cancelled due to non-performance of contract terms.
On February 4, 2009, the Company issued 100,000 shares of the Company’s restricted common stock to an employee of the Company, in relation to the facilitation of the mill purchase, for fair value of $10,000.
On February 6, 2009, the Company issued 300,000 options, to an individual, to purchase shares of the Company’s restricted common stock at an exercise price of $0.10, exercisable for a period of three years from contract date. The options were issued pursuant to a management consulting agreement dated February 6, 2009, for fair value of $21,559.
On February 12, 2009, the Company issued 40,000 shares of the Company’s restricted common stock to an individual, in relation to investor relations services provided, for fair value of $3,608.
On May 1, 2009, the Company issued 175,000 of the Company’s restricted common stock to an individual, pursuant to a one-year accounting services contract for fair value of $14,875.
On May 15, 2009, the Company cancelled 50,000 shares of the Company’s restricted common stock, which were initially issued on April 2, 2007, and subsequently returned and cancelled due to non-payment of $50,000.
On June 18, 2009, the Company issued 500,000 of the Company’s restricted common stock to an individual in lieu of payment owed relating to services provided in a prior year, for fair value of $55,000.
On June 22, 2009, an individual forfeited warrants originally exercisable at any time during a five year period from March 1, 2007, to purchase 100,000 shares of restricted common stock at $2.50 per share and 100,000 shares of restricted common stock at $3.00 per share. New warrants were issued to the individual pursuant to an extension to their respective service contract, originally signed March 1, 2007. The new warrants were issued to purchase 100,000 shares of restricted common stock at $0.12 per share and 100,000 shares at $0.24 per share expiring on March 1, 2012.
On July 16, 2009, the Company closed a private placement totaling 200,000 units at $0.10 per unit for gross proceeds of $20,000. Each unit consists of one common share and one $0.25 per share purchase warrant exercisable within a two year period from the date of the closing of the private placement.
On September 25, 2009, the Company issued 600,000 shares of the Company’s restricted common stock to a company, pursuant to an investor relations agreement dated September 25, 2009, for fair value of $160,800.
On September 30, 2009, the Company closed a private placement totaling 250,000 units at $0.20 per unit for gross proceeds of $50,000. Each unit consists of one common share and one $0.50 per share purchase warrant exercisable within a two year period from the date of the closing of the private placement. In October 2009, the Company closed private placements totaling 400,000 units at $0.20 per unit for gross proceeds of $80,000. Each unit consists of one common share and one $0.50 per share purchase warrant exercisable within a two year period from the date of the closing of the respective private placements.
On October 13, 2009, the Company issued warrants, to a board member, to purchase 250,000 shares of the Company’s restricted common stock at an exercise price of $0.25, exercisable for a period of two years from the date of issuance, for fair value of $38,475.
On October 14, 2009, the Company issued warrants, to an individual, to purchase 30,000 shares of the Company’s restricted common stock at an exercise price of $0.25, exercisable for a period of two years from contract date. The warrants were issued pursuant to a management consulting agreement dated October 14, 2009, for fair value of 4,500.
On November 1, 2009, the Company issued warrants, to two Strategic Advisory Board members and a consulting group, to purchase 5,100,000 shares of the Company’s restricted common stock for a period of five years from the date of issuance. The warrants allow for 600,000 shares to be purchased at an exercise price of $0.25 and 4,500,000 shares to be purchased at an exercise price of $0.50. The warrants were issued pursuant to two appointments to the Strategic Advisory Board of the Company on October 13, 2009, for fair value of $1,215,000.
On November 3, 2009, the Company closed a private placement totaling 40,000 units at $0.25 per unit for gross proceeds of $10,000. Each unit consists of one common share and one $0.50 per share purchase warrant exercisable within a two year period from the date of the closing of the private placement.
On November 16, 2009, the Company issued 550,000 shares of the Company’s restricted common stock to an individual, pursuant to an agreement to purchase further mining concessions. As at December 31, 2010, the agreement had not been finalized and the Company continues to hold possession of the shares until final terms of the agreement have been reached.
Between November and December 2009, the Company closed private placements totaling 3,728,484 units at $0.28 per unit for gross proceeds of $1,043,976. Each unit consists of one common share and one $0.50 per share purchase warrant exercisable within a one year period from the date of the closing of the respective private placements.
On December 21, 2009, an individual exercised 100,000 options to purchase shares of the Company’s restricted common stock at a per share price of $0.115 for gross proceeds of $11,500.
On December 21, 2009, the Company issued warrants, to two individuals, to purchase 2,500 shares of the Company’s restricted common stock at an exercise price of $0.50, exercisable for a period of one year from the date of issuance, for fair value of $430.
On December 31, 2009, the Company cancelled 800,000 restricted shares of the Company’s stock that were initially issued on November 14, 2008, due to non-performance of contract terms.
On January 22, 2010, the Company issued warrants, to an organization, to purchase 200,000 shares of the Company’s restricted common stock at an exercise price of $0.50, exercisable for a period of three years from the contract date. The warrants were issued pursuant to a consulting agreement dated January 22, 2010, for fair value of $39,380.
On January 25, 2010, the Company issued 200,000 shares of the Company’s restricted common stock to a company, pursuant to a consulting agreement dated January 25, 2010, for fair value of $63,200.
On February 1, 2010, the Company issued 25,000 shares of the Company’s restricted common stock to a company, pursuant to an investor relations agreement dated February 1, 2010, for fair value of $7,500. The Company also issued warrants to purchase 150,000 shares of the Company’s restricted common stock at an exercise price of $0.30, exercisable for a period of one year from the contract date, for fair value of 20,355.
On February 1, 2010, an individual exercised 100,000 options to purchase shares of the Company’s restricted common stock at a per share price of $0.10 for gross proceeds of $10,000.
On February 3, 2010, the Company closed a private placement totaling 803,571 units at $0.28 per unit for gross proceeds of $225,000. Each unit consists of one common share and one $0.50 per share purchase warrant exercisable within a one year period from the date of the closing of the private placement.
On March 1, 2010, the Company issued 25,000 shares of the Company’s restricted common stock to a company, pursuant to the investor relations agreement dated February 1, 2010 for fair value of $7,500.
On March 13, 2010 the Company settled the outstanding debt of $100,000 with Minera Real Victoria through the issuance of 360,000 shares of the Company’s restricted common stock.
On March 24, 2010, the Company closed a private placement totaling 500,000 units at $0.20 per unit for gross proceeds of $100,000. Each unit consists of one common share and one $0.50 per share purchase warrant exercisable within a one year period from the date of the closing of the private placement.
On April 1, 2010, the Company issued 25,000 shares of the Company’s restricted common stock to a company, pursuant to the investor relations agreement dated February 1, 2010 for fair value of $7,000.
On April 12, 2010, the Company made an addendum to a consulting agreement dated January 22, 2010 and issued additional warrants, to an organization, to purchase 180,000 shares of the Company’s restricted common stock at an exercise price of $0.50, exercisable for a period of one year from the date of issuance, for fair value of 21,834.
On April 15, 2010, the Company issued warrants to purchase 50,000 shares of the Company’s restricted common stock at an exercise price of $0.50, exercisable for a period of two years from the date of issuance to an operations manager of the Company in China, for fair value of $9,095.
On April 15, 2010, the Company issued warrants to purchase 50,000 shares of the Company’s restricted common stock at an exercise price of $0.50, exercisable for a period of two years from the date of issuance to a geologist in China, for fair value of 9,095.
On May 1, 2010, the Company issued 25,000 shares of the Company’s restricted common stock to a company, pursuant to the investor relations agreement dated February 1, 2010 for fair value of $8,000.
On May 14, 2010, the Company closed a private placement totaling 300,000 units at $0.28 per unit for gross proceeds of $84,000. Each unit consists of one common share and one $0.50 per share purchase warrant exercisable within a one year period from the date of the closing of the private placement.
On May 25, 2010, the Company issued 75,000 shares of the Company’s restricted common stock to a company, pursuant to a long-term consulting agreement dated May 19, 2010, for fair value of $14,625. The Company also issued warrants to purchase 300,000 shares of the Company’s restricted common stock at an exercise price of $0.28, exercisable for a period of one year from the issuance date, for fair value of 20,430.
On May 27, 2010, the Company closed a private placement totaling 1,250,000 units at $0.12 per unit for gross proceeds of $150,000. Each unit consists of one common share and one $0.50 per share purchase warrant exercisable within a one year period from the date of the closing of the private placement.
On June 1, 2010, the Company issued 375,000 of the Company’s restricted common stock to an individual, pursuant to a one-year accounting services contract for fair value of $75,000.
On June 23, 2010, the Company issued 300,000 shares of the Company’s restricted common stock to a company, pursuant to the investor relations agreement dated June 23, 2010 for fair value of $74,850.
On September 1, 2010, the Company issued warrants to an individual to purchase 200,000 shares of the Company’s restricted common stock at an exercise price of $0.18, exercisable for a period of two years from the contract date. The warrants were issued pursuant to a consulting agreement dated September 1, 2010, for fair value of $20,426.
On September 8, 2010, the Company issued warrants to an individual to purchase 200,000 shares of the Company’s restricted common stock at an exercise price of $0.18, exercisable for a period of three years from the contract date. The warrants were issued pursuant to a contract to provide services as Chief Financial Officer, for fair value of $23,058.
On September 21, 2010, the Company issued 25,000 of the Company’s restricted common stock to an individual, pursuant to an employment agreement dated September 21, 2010 for fair value of $6,250.
On September 28, 2010, the Company issued warrants, to a Director, to purchase 200,000 shares of the Company’s restricted
common stock at an exercise price of $0.25, exercisable for a period of three years from the contract date. The warrants were issued pursuant to the appointment of the Director to the Company’s Board of Directors, for fair value of $32,704.
On October 1, 2010, the Company issued 300,000 shares of the Company’s restricted common stock to a company, pursuant to an investor relations agreement dated October 1, 2010 for fair value of $79,500.
On October 7, 2010, the Company issued warrants, to an individual, to purchase 50,000 shares of the Company’s restricted common stock at an exercise price of $0.25, exercisable for a period of two years from the contract date. The warrants were issued pursuant to a consulting agreement dated October 7, 2010, for fair value of $7,754.
On October 7, 2010, the Company issued 50,000 shares of the Company’s restricted common stock, to an individual, pursuant to an employment agreement dated October 7, 2010, for fair value of $13,000. The Company also issued warrants to purchase 200,000 shares of the Company’s restricted common stock at an exercise price of $0.25, exercisable for a period of one year from the contract date, for fair value of $31,015.
On October 8, 2010, the Company issued 100,000 shares of the Company’s restricted common stock, to an individual, as well as warrants to purchase 200,000 shares of the Company’s restricted common stock at an exercise price of $0.27, exercisable for a period of two years from the date of issuance. The shares and warrants were issued pursuant to the appointment of the individual to the Strategic Advisory Board of the Company on October 8, 2010, for fair value of $27,000 and $31,770, respectively.
On October 14, 2010, the Company closed a private placement totaling 50,000 units at $0.20 per unit for gross proceeds of $10,000. Each unit consists of one common share and one $0.50 per share purchase warrant exercisable within a one year period from the date of the closing of the private placement.
On October 15, 2010, the Company closed a private placement totaling 50,000 units at $0.20 per unit for gross proceeds of $10,000. Each unit consists of one common share and one $0.50 per share purchase warrant exercisable within a one year period from the date of the closing of the private placement.
On November 15, 2010, the Company closed a private placement totaling 33,333 units at $0.15 per unit for gross proceeds of $5,000. Each unit consists of one common share and one $0.50 per share purchase warrant exercisable within a one year period from the date of the closing of the private placement.
On November 29, 2010, the Company issued 6,000 shares of the Company’s restricted common stock to an individual as a finder’s fee, for fair value of $1,140.
On December 11, 2010, the Company closed a private placement totaling 33,333 units at $0.15 per unit for gross proceeds of $5,000. Each unit consists of one common share and one $0.50 per share purchase warrant exercisable within a one year period from the date of the closing of the private placement.
On December 21, 2010, the Company closed a private placement totaling 768,000 units at $0.125 per unit for gross proceeds of $96,000. Each unit consists of one common share and one $0.25 per share purchase warrant exercisable within a three year period from the date of the closing of the private placement.
182
December 21, 2010, pursuant to the signing of a term sheet proposing equity financing for the Company, the Company issued 201,094 shares of the Company’s restricted common stock to a company, for fair value of $22,120.
On December 23, 2010, the Company issued warrants to purchase 100,000 shares of the Company’s restricted common stock, to a consultant for assisting with a financing transaction, at an exercise price of $0.12, exercisable for a period of two years from the issuance date, for fair value of $7,152.
Common share purchase warrants
|
|
|
|
|
|
|
|
|
| Number of |
| Weighted |
| ||
|
|
|
|
|
|
|
|
Balance, December 31, 2008 |
|
| 8,570,667 |
| $ | 1.49 |
|
Issued during the year |
|
| 10,211,698 |
|
| 0.47 |
|
Exercised during the year |
|
| — |
|
| — |
|
Forfeitures during the year |
|
| (200,000 | ) |
| 2.75 |
|
Expired during the year |
|
| (2,768,167 | ) |
| 2.78 |
|
|
| ||||||
Balance, December 31, 2009 |
|
| 15,814,198 |
| $ | 0.58 |
|
|
| ||||||
Issued during the year |
|
| 6,018,237 |
|
| 0.40 |
|
Exercised during the year |
|
| — |
|
| — |
|
Forfeitures during the year |
|
| — |
|
| — |
|
Expired during the year |
|
| (6,614,198 | ) |
| 0.50 |
|
|
| ||||||
Balance, December 31, 2010 |
|
| 15,218,237 |
| $ | 0.55 |
|
|
|
As at December 31, 2010 the range of exercise prices of the outstanding warrants were as follows:
|
|
|
|
|
|
|
|
|
|
|
Range of |
| Number of warrants |
| Average remaining |
| Weighted average |
| |||
|
|
|
|
|
|
|
| |||
$0.12 - $1.00 |
|
| 13,983,237 |
|
| 2.12 years |
| $ | 0.46 |
|
$1.01 - $2.00 |
|
| 1,017,500 |
|
| 1.93 years |
| $ | 1.26 |
|
$2.01 - $5.00 |
|
| 217,500 |
|
| 1.14 years |
| $ | 2.93 |
|
|
|
|
|
|
|
| ||||
|
|
| 15,218,237 |
|
| 2.09 years |
|
|
|
|
|
|
|
|
|
|
|
Warrants were valued using the Black-Scholes model, using the weighted average key assumptions of volatility of 115% - 117%, a risk-free interest rate of 0.22% - 1.39%, and a term equivalent to the life of the warrant.
Options
|
|
|
|
|
|
|
|
|
| Number of |
| Weighted |
| ||
|
|
|
|
|
|
|
|
Balance, December 31, 2008 |
|
| 1,152,000 |
| $ | 0.68 |
|
Issued during the year |
|
| 300,000 |
|
| 0.10 |
|
Exercised during the year |
|
| (100,000 | ) |
| 0.115 |
|
Expired during the year |
|
| (52,000 | ) |
| 2.50 |
|
|
| ||||||
Balance, December 31, 2009 |
|
| 1,300,000 |
| $ | 0.48 |
|
|
| ||||||
Issued during the year |
|
| — |
|
| — |
|
Exercised during the year |
|
| (100,000 | ) |
| 0.10 |
|
Expired during the year |
|
| (500,000 | ) |
| 0.21 |
|
|
| ||||||
Balance, December 31, 2010 |
|
| 700,000 |
| $ | 0.70 |
|
|
|
183
As of December 31, 2010 the range of exercise prices of the outstanding options were as follows:
|
|
|
|
|
|
|
|
|
|
|
Range of |
| Number of options |
| Average remaining |
| Weighted |
| |||
$0.20 - $1.00 |
| 700,000 |
| 1.48 years |
| $ | 0.70 |
|
15. Consolidated Statements of Cash Flows Supplemental Disclosures
For the year ended December 31, 2010 there were no cash payments or receipts for income taxes (2009 - $ nil). Cash payments for interest expense amounted to $ nil (2009 - $ nil).
16. Litigation
a) China
In December, 2010, shareholders of the Company received a letter from a shareholder which contained two items. The first was a copy of a legal proceeding filed in Langfang District court, China and the second was a letter making certain allegations regarding the Company and its management.
The Langfang District Court proceeding was filed by two shareholders and seeks to invalidate the Company’s sale in 2008 of 50% of Sanhe Sino-Top Resources & Technologies, Ltd. After consulting with Chinese legal counsel, the Company believed that the Langfang proceeding had been filed in an improper jurisdiction and was, in any event, frivolous and wholly without merit. The sale in question was made to a Chinese government-owned entity, after the receipt of approval by the Ministry of Commerce in China. On January 17, 2011, the Company’s counsel advised that the Langfang proceeding will be transferred to the Beijing Second Intermediate Court. A trial date has not been set.
The second item was a letter purporting to be written by a “Minority Shareholder Committee”, which invested in the Company in 2006. The letter claimed that the Minority Shareholder Committee initiated the Langfang proceeding. The letter alleged that the Company and its management had engaged in various improper and illegal activities since 2005. The allegations made in the letter were similar to allegations that had been repeatedly made and published by an individual over the past three years. The Company, on several occasions, through its legal counsel in several countries, had asked that individual to cease and desist. On August 11, 2010 the Company’s Hong Kong counsel sent a final request letter to cease and desist and to comply with certain demands.
Silver Dragon believes that the allegations made are false and unsubstantiated. The Company believes that the continuous pursuance of such allegations and publication of libelous statements with respect to Silver Dragon and its management are malicious and calculated to defame and discredit the Company and its management, as well as to damage their reputation. On February 11, 2011, Silver Dragon filed a Writ of Summons in the High Court of the Hong Kong Special Administrative Region, Court of First Instance claiming damages for libel, damages, interest and an injunction in connection with emails, messages, and letters published or caused to be published.
b) Mexico Mineral Rights
The Company’s Mexican subsidiary has been subjected to irregularities in Mexico that it is seeking to redress. SDM is obligated to pay for a shortfall in the value of shares given in consideration for a 2006 purchase of mineral rights from a vendor. In the city of Durango, Mexico, on August 18, 2006 the then-legal representative of SDM signed a promissory note on behalf of SDM in the amount $350,000 to that vendor, due March 5, 2008. The actions of the former legal representative were not authorized by SDM, nor did he advise SDM about the promissory note. On April 21, 2008, the vendor filed a lawsuit against SDM for repayment of the note and ordinary interest at an annual rate of 10%, interest on past due and unpaid principal at an interest rate of 5% per month as well as for legal expenses. The legal proceedings were heard and decided on anex partebasis, without notice to SDM, nor allowing
184
proper defense and representation. Indeed, the former legal representative accepted notification of the lawsuit on behalf of SDM, but SDM was never advised. Since SDM did not respond to the lawsuit, it was declared in default and lost its opportunity to offer evidence in its favor. Several times subsequently, the former legal representative accepted service on behalf of SDM but did not inform SDM of the situation, and ultimately on June 25, 2009 by public auction, the ten mining concessions, originally purchased from the vendor, were granted to the vendor as payment of the principal and interest due on the note. Subsequently, in 2010, additional assets of SDM, including five additional mining concessions that were not acquired from the vendor, were also seized. In summary, the legal proceedings were heard and decided on anex partebasis, without notice to the Company, nor allowing proper defense and representation of Silver Dragon Mexico.
In December 2010, the Company became aware of this situation, and is now taking steps through the courts in Mexico to redress the situation. It has commenced a Constitutional Rights Claim before the Federal Court in the City of Durango, premised on procedural irregularities in the foreclosure proceedings, for the purposes of re-opening the case. On January 17, 2011, Silver Dragon Mexico provided certain evidence in connection with the claims to the court, which is currently reviewing the documentation. Although the Company expects that it may eventually be successful with the Constitutional Rights Claim, it has written off the book value of the concessions of $3,061,309 (see note 3 and 8).
c) Mexico Accounts Payable
In late November 2010, Silver Dragon and SDM approached certain suppliers in order to arrange payment of the Company’s accounts payables. Agreements were reached in most cases. One of SDM’ creditors did not respond to the request, however, an individual purporting to represent that creditor subsequently emailed the Company in December 2010 requesting payment for an amount that was more than triple the amount of the debt and asserted that it was pursuant to a promissory note signed by SDM and a court decision related to the promissory note in Mexico. On January 17, 2011 the Company received a copy of the promissory note. It was dated April 24, 2008 and was for a principal amount of $166,623 and carried interest at a rate of 5% per month. It was signed by the same former legal representative of SDM, who was acting under a power of attorney at that time. His actions were not authorized by SDM, and he did not advise SDM about the promissory note, nor the subsequent court actions. He also accepted court service several times on behalf of SDM to enforce payment of the note, but similarly did not advise SDM of this.
Silver Dragon is in the process of investigating this matter and has determined that in April 2010 the creditor had obtained a judgment from a court in Chihuahua, Mexico, in its favour, for payments under the promissory note that the creditor asserts aggregates $408,226 with interest, as well as a further 10% for its legal fees. The Company is endeavoring to settle the matter directly with the creditor (see note 3).
17. Income Taxes
The Company’s income tax provision has been calculated as follows:
|
|
|
|
|
|
|
|
|
| 2010 |
| 2009 |
| ||
|
|
|
|
|
|
|
|
Loss before income taxes |
| $ | (4,318,318 | ) | $ | (4,869,372 | ) |
|
| ||||||
Deferred: Expected income tax recovery at the combined average statutory rates of 32.58% (2009 – 33.39%) |
|
| (1,406,832 | ) |
| (1,625,711 | ) |
Losses not available to carryforward |
|
| 61,396 |
|
| 29,875 |
|
Change in valuation allowance |
|
| 1,345,437 |
|
| 1,595,836 |
|
|
| ||||||
|
|
|
|
|
|
|
|
Provision for income taxes |
| $ | — |
| $ | — |
|
|
|
The following summarizes the principal temporary differences and related future tax
185
|
|
|
|
|
|
|
|
|
| 2010 |
| 2009 |
| ||
|
|
|
|
|
|
|
|
Losses carried forward |
| $ | 9,548,613 |
| $ | 8,031,484 |
|
Valuation allowance |
|
| (9,548,613 | ) |
| (8,031,484 | ) |
|
| ||||||
|
|
|
|
|
|
|
|
Deferred income tax asset |
| $ | — |
| $ | — |
|
|
|
Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted SFAS No. 109 and ASC 740 as of their inception. Pursuant to ASC 740 the Company is required to compute tax asset benefits for net operating losses carried forward.
Potential benefits of net operating losses have not been recognized in these consolidated financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.
The Company’s tax returns have not yet been filed and when they are filed will be subject to audit and potential penalties reassessment by taxation authorities. The outcome of audits cannot be reasonably determined and the potential impact on the financial statements is not determinable.
18. Commitments and Contingencies
a) On April 1, 2007, the Company entered into a five year lease agreement for office space with an option to renew for an additional five years. The future minimum commitment under the lease obligations for office premises are as follows:
|
|
|
|
|
2011 |
| $ | 56,767 |
|
2012 |
|
| 14,192 |
|
|
|
| ||
|
| $ | 70,959 |
|
|
|
|
In addition, the Company is required to pay its proportionate share of realty taxes and certain other occupancy costs under the terms of the lease.
b) Under an agreement with HIC, the Company has committed to provide capital contributions to cover expenses proportionate to its equity interest in Sino-Top.
c) For other contingencies, please refer to Litigation, note 16.
19. Financial Instruments
Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from the financial instruments.
|
|
a) | Fair Value |
The carrying amount of cash and cash equivalents, accounts payable, accrued liabilities, promissory notes payable, convertible notes payable and related party payables approximates fair value due to the short term nature of these items.
|
|
b) | Financial Risk |
186
Financial risk is the risk that the Company’s earnings are subject to fluctuations in interest risk or currency risk and are fully dependent upon the volatility of these rates. The Company does not use derivative instruments to moderate its exposure to financial risk, if any.
|
|
c) | Concentration of Credit Risk |
The Company does not have significant off-balance-sheet risk or credit concentration. The Company maintains its cash and cash equivalents with major financial institutions so considers the risk as minimal.
|
|
d) | Currency Risk |
While the reporting currency is the U.S. Dollar, 11% of consolidated expenses for the year ended December 31, 2010 are denominated in the Mexican Peso. As at December 31, 2010, 0% of the assets and 45% of the liabilities are originally denominated in Mexican Pesos. The Company is exposed to foreign exchange risk as the results of operations may be affected by fluctuations in the exchange rates between the U.S. Dollar and the Mexican Peso.
The Company has not entered into any hedging transactions in an effort to reduce the exposure to currency risk.
20. Segmented Information
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2010 |
| Canada |
| Mexico |
| Total |
| |||
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
Mineral rights |
| $ | — |
| $ | — |
| $ | — |
|
Equity investment |
| $ | 4,832,922 |
| $ | — |
| $ | 4,832,922 |
|
Total assets |
| $ | 5,443,743 |
| $ | — |
| $ | 5,443,743 |
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2010 |
| Canada |
| Mexico |
| Total |
| |||
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
Revenues |
| $ | — |
| $ | — |
| $ | — |
|
Depreciation |
| $ | 54,008 |
| $ | 38,679 |
| $ | 92,687 |
|
Loss before income tax |
| $ | (1,982,929 | ) | $ | (2,335,389 | ) | $ | (4,318,318 | ) |
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2009 |
| Canada |
| Mexico |
| Total |
| |||
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
Mineral rights |
| $ | — |
| $ | 2,488,995 |
| $ | 2,488,995 |
|
Equity investment |
| $ | 4,804,963 |
| $ | — |
| $ | 4,804,963 |
|
Total assets |
| $ | 5,655,688 |
| $ | 2,488,995 |
| $ | 8,144,683 |
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2009 |
| Canada |
| Mexico |
| Total |
| |||
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
Revenues |
| $ | — |
| $ | — |
| $ | — |
|
Depreciation |
| $ | 53,358 |
| $ | 45,890 |
| $ | 99,248 |
|
Loss before income tax |
| $ | (3,786,885 | ) | $ | (1,082,487 | ) | $ | (4,869,372 | ) |
187
The Canadian operation has an equity investment in a Chinese company, Sino-Top, whose assets mainly consist of six exploration properties in China.
|
|
21. | Supplemental Disclosure |
In the Consolidated Statements of Operations and Comprehensive Loss, for the period from June 15, 1996 to December 31, 2010, non-recurring items consist of the following:
|
|
|
|
|
|
|
|
|
|
|
Non-recurring items |
| December |
| December |
| For the period |
| |||
|
| |||||||||
Development (non-mining) |
| $ | — |
| $ | — |
| $ | (60,000 | ) |
Settlement with Cyper Entertainment, Inc. |
|
| — |
|
| — |
|
| (80,000 | ) |
Loss on disposal of asset |
|
| — |
|
| — |
|
| (15,371 | ) |
Loss on investment |
|
| — |
|
| — |
|
| (158,939 | ) |
Loss on sale of marketable securities |
|
| — |
|
| — |
|
| (389,365 | ) |
|
| |||||||||
|
| $ | — |
| $ | — |
| $ | (703,675 | ) |
|
|
22. Subsequent Events
The following occurred subsequent to December 31, 2010 and before March 21, 2011, the date the financial statements were prepared:
Between January 3 and February 15, 2011 an investor elected to convert two outstanding notes payable totaling $120,000 plus accrued interest of $3,000 and $1,800 respectively. The Company issued a total of 1,991,285 shares in lieu of a cash payment.
On January 18, 2011, the Company issued 50,000 shares of restricted common stock to a company, pursuant to the signing of a term sheet proposing $2.5 million of convertible debt financing for the Company, for fair value of $5,000.
On January 25, 2011, the Company issued 1,410,000 common share purchase warrants to directors and consultants at an exercise price of $0.11 exercisable for a period of 3 years from the date of issuance.
On January 27, 2011, the Superior Court of the State of California for the County of Los Angeles entered an Order Approving Stipulation for Settlement of in the matter entitled Socius CG II, Ltd. v. Silver Dragon Resources Inc. The order provides for settlement of Socius GC II, Ltd.’s $405,981 claim against the Company. Socius purchased the claims from seven creditors of Silver Dragon. On January 28, 2011, the Company issued 9,000,000 shares of common stock to Socius. On March 2, 2011, Socius agreed to return for cancellation 3,116,104 shares. For further information please see the Company Form 8-Ks filed January 28 and March 3, 2011.
On January 31, 2011, the Company issued 15,000 shares of the Company’s restricted common stock to an individual for investor relation services provided, for fair value of $1,500.
On February 23, 2011, the Company issued 100,000 shares of the Company’s restricted common stock to an individual pursuant to an addendum to an agreement signed October 7, 2010, for fair value of $12,400.
On February 15, 2011, The Company entered into a Note and Warrant Purchase Agreement with Tonaquint, Inc. (“the Investor”), whereby the Company issued and sold, and the Investor purchased: (i) a Secured Convertible Promissory Note of the Company in the principal amount of $2,766,500 and (ii) a Warrant to purchase 8.6 million shares of common stock of the Company at an exercise price of US$0.50 per share at any time within three years after February 15, 2011. In connection with the transaction, the Company also issued to the Investor 50,000 shares of the Company’s restricted common stock. For further information please see the Company’s Form 8-K filed February 18, 2011.
23. Comparative Figures
Certain items have been reclassified to conform to the presentation adopted in 2010.
SILVER DRAGON RESOURCES INC. |
(AN EXPLORATION STAGE COMPANY) |
CONSOLIDATED FINANCIAL STATEMENTS |
FOR THE YEARS ENDED DECEMBER 31, 2011 and 2010 |
(EXPRESSED IN UNITED STATES FUNDS) |
CONTENTS | |
Report of the Independent Registered Public Accounting Firm | |
Consolidated Balance Sheets as of December 31, 2011 and 2010 | |
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2011 and 2010, and Cumulative for the Period from June 15, 1996 (Date of Inception) Through to December 31, 2011 | |
Consolidated Statements of Stockholders’ Equity, Cumulative for the Period from June 15, 1996, (Date of Inception) Through December 31, 2011 | |
Consolidated Statements of Cash Flows for the Years Ended December 31, 2011 and 2010, and Cumulative for the Period from June 15, 1996, (Date of Inception) Through December 31, 2011 | |
Notes to the Consolidated Financial Statements |
188
To the Board of Directors and Stockholders of
Silver Dragon Resources Inc. and Subsidiaries (the “Company”)
We have audited the accompanying consolidated balance sheets of Silver Dragon Resources Inc. and Subsidiaries (a Delaware corporation in the exploration stage) as of December 31, 2011 and 2010, and the consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2011, and cumulative from inception (June 15, 1996) through to December 31, 2011, except as explained as follows: we did not audit the cumulative data from June 15, 1996 to December 31, 2004. The cumulative data was audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts in the cumulative data through December 31, 2004, is based solely on the report of other auditors. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Silver Dragon Resources Inc. and Subsidiaries as of December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2011 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 consolidated financial statements, the Company has experienced operating losses since inception and has no long term contracts related to its business plans. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are also described in note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
|
|
| /s/ SF Partnership, LLP |
|
|
Toronto, Canada | CHARTERED ACCOUNTANTS |
|
|
March 22, 2012 |
|
189
(AN EXPLORATION STAGE COMPANY)
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
| December 31 |
| December 31 |
| ||
ASSETS |
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
Cash |
| $ | 114,568 |
| $ | 96,563 |
|
Other receivable |
|
| 12,474 |
|
| — |
|
Notes receivable (note 6) |
|
| 2,277,500 |
|
| — |
|
Deferred expenses |
|
| 75,500 |
|
| 164,583 |
|
Prepaid expenses |
|
| 99,458 |
|
| 38,675 |
|
Total current assets |
|
| 2,579,500 |
|
| 299,821 |
|
|
|
|
|
|
|
|
|
Notes receivable (note 6) |
|
| 2,000,000 |
|
| — |
|
Deferred expenses |
|
| 154,000 |
|
| 220,125 |
|
Plant and equipment, net (note 7) |
|
| 43,762 |
|
| 90,875 |
|
Equity investment (note 8) |
|
| 4,328,143 |
|
| 4,832,922 |
|
Total assets |
| $ | 9,105,405 |
| $ | 5,443,743 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
Accounts payable |
| $ | 526,270 |
| $ | 1,127,839 |
|
Accrued liabilities |
|
| 494,503 |
|
| 309,466 |
|
Promissory note payable (note 9) |
|
| 166,623 |
|
| 166,623 |
|
Convertible notes payable (note 10) |
|
| 4,025,629 |
|
| 170,000 |
|
Related party payables (note 11) |
|
| — |
|
| 260,256 |
|
|
|
| 5,213,025 |
|
| 2,034,184 |
|
Total liabilities |
|
| 5,213,025 |
|
| 2,034,184 |
|
Capital stock (note 12) |
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value, 20,000,000 shares authorized, none issued and outstanding |
|
| — |
|
| — |
|
Common stock, $0.0001 par value, 300,000,000 shares authorized (2010 – 150,000,000), 136,400,449 shares issued and outstanding (2010 – 98,728,017 issued and outstanding) |
|
| 13,640 |
|
| 9,873 |
|
Additional paid-in capital (note 12) |
|
| 44,042,425 |
|
| 39,641,412 |
|
Treasury (550,000 shares) |
|
| (209,000 | ) |
| (209,000 | ) |
Deficit accumulated during the exploration stage |
|
| (40,069,672 | ) |
| (36,054,080 | ) |
Accumulated comprehensive income |
|
| 114,987 |
|
| 21,354 |
|
Stockholders’ equity |
|
| 3,892,380 |
|
| 3,409,559 |
|
Total liabilities and stockholders’ equity |
| $ | 9,105,405 |
| $ | 5,443,743 |
|
Going concern(note 2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies(note 14) |
|
|
|
|
|
|
|
190
(AN EXPLORATION STAGE COMPANY)
Consolidated Statements of Operations and Comprehensive Loss
For the Years ended December 31, 2011 and 2010, and
Cumulative for the period from May 9, 1996 (date of inception) to December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
| December |
| December |
| For the |
| |||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
Exploration |
| $ | — |
| $ | 213,248 |
| $ | 7,174,048 |
|
General and administrative |
|
| 2,243,584 |
|
| 2,245,330 |
|
| 27,930,376 |
|
Write-off of Mexican assets |
|
| — |
|
| 2,335,289 |
|
| 3,242,039 |
|
Total operating expenses |
|
| 2,243,584 |
|
| 4,793,867 |
|
| 38,346,463 |
|
Loss from operations |
|
| (2,243,584 | ) |
| (4,793,867 | ) |
| (38,346,463 | ) |
Other (expenses) income |
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| (1,147,416 | ) |
| 121,139 |
|
| (1,621,186 | ) |
Interest income |
|
| 85,553 |
|
| — |
|
| 85,553 |
|
Gain (loss) on embedded derivative |
|
| — |
|
| 261,000 |
|
| — |
|
Net loss on equity investment |
|
| (710,145 | ) |
| 93,410 |
|
| (1,280,177 | ) |
Forgiveness of debt |
|
| — |
|
| — |
|
| 38,871 |
|
Gain on sale of interest of Subsidiary |
|
| — |
|
| — |
|
| 1,816,733 |
|
Non-recurring items |
|
| — |
|
| — |
|
| (713,269 | ) |
Total other expenses |
|
| (1,772,008 | ) |
| 475,549 |
|
| (1,673,475 | ) |
Loss before income taxes |
|
| (4,015,592 | ) |
| (4,318,318 | ) |
| (40,019,938 | ) |
Provision for income taxes |
|
| — |
|
| — |
|
| — |
|
Net loss from continuing operations, after tax |
|
| (4,015,592 | ) |
| (4,318,318 | ) |
| (40,019,938 | ) |
Minority interest |
|
| — |
|
| — |
|
| 253,021 |
|
Loss from discontinued operations (net of tax) |
|
| — |
|
| — |
|
| (302,755 | ) |
Net loss |
|
| (4,015,592 | ) |
| (4,318,318 | ) |
| (40,069,672 | ) |
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
Foreign exchange gain (loss) |
|
| 93,633 |
|
| (19,150 | ) |
| 114,987 |
|
Comprehensive loss |
|
| (3,921,959 | ) | $ | (4,337,468 | ) | $ | (39,954,685 | ) |
Net loss per common share – basic and diluted |
| $ | (0.03 | ) | $ | (0.05 | ) |
|
|
|
|
|
| ||||||||
Weighted average number of common shares outstanding – basic and diluted |
|
| 113,995,849 |
|
| 95,157,809 |
|
|
|
|
|
|
|
191
(AN EXPLORATION STAGE COMPANY)
Consolidated Statements of Stockholders’ Equity
Cumulative for the period from May 9, 1996 (date of inception) to December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Additional |
| Deficit |
| Stock |
| Treasury |
| Accumulated |
| Total |
| ||||||||||
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
| Number of |
| Amount |
|
|
|
|
|
|
| ||||||||||||||
|
| ||||||||||||||||||||||||
Shares issued to founders |
|
| 388,334 |
|
| 39 |
|
| 1,126 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1,165 |
|
Share issued |
|
| 413,333 |
|
| 41 |
|
| 47,564 |
|
| (1,060 | ) |
| — |
|
| — |
|
| — |
|
| 46,545 |
|
Net loss, 1996 |
|
| — |
|
| — |
|
| — |
|
| (14,198 | ) |
| — |
|
| — |
|
| — |
|
| (14,198 | ) |
|
| ||||||||||||||||||||||||
Balance, December 31, 1996 |
|
| 801,667 |
|
| 80 |
|
| 48,690 |
|
| (15,258 | ) |
| — |
|
| — |
|
| — |
|
| 33,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share issued |
|
| 116,999 |
|
| 12 |
|
| 88,638 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 88,650 |
|
Net loss, 1997 |
|
| — |
|
| — |
|
| — |
|
| (142,622 | ) |
| — |
|
| — |
|
| — |
|
| (142,622 | ) |
|
| ||||||||||||||||||||||||
Balance, December 31, 1997 |
|
| 918,666 |
|
| 92 |
|
| 137,328 |
|
| (157,880 | ) |
| — |
|
| — |
|
| — |
|
| (20,460 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share issued |
|
| 69,334 |
|
| 7 |
|
| 57,994 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 58,001 |
|
Net Loss, 1998 |
|
| — |
|
| — |
|
| — |
|
| (54,404 | ) |
| — |
|
| — |
|
| — |
|
| (54,404 | ) |
|
| ||||||||||||||||||||||||
Balance, December 31, 1998 |
|
| 988,000 |
|
| 99 |
|
| 195,322 |
|
| (212,284 | ) |
| — |
|
| — |
|
| — |
|
| (16,863 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share issued |
|
| 203,918 |
|
| 20 |
|
| 191,999 |
|
| — |
|
| (4,000 | ) |
| — |
|
| — |
|
| 188,019 |
|
Forgiveness of debt of related party |
|
| — |
|
| — |
|
| 23,000 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 23,000 |
|
Net loss, 1999 |
|
| — |
|
| — |
|
| — |
|
| (181,898 | ) |
| — |
|
| — |
|
| — |
|
| (181,898 | ) |
|
| ||||||||||||||||||||||||
Balance, December 31, 1999 |
|
| 1,191,918 |
|
| 119 |
|
| 410,321 |
|
| (394,182 | ) |
| (4,000 | ) |
| — |
|
| — |
|
| 12,258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share issued for services |
|
| 4,950,333 |
|
| 495 |
|
| 695,435 |
|
| — |
|
| (278,539 | ) |
| — |
|
| — |
|
| 417,391 |
|
Shares cancelled |
|
| (453,100 | ) |
| (45 | ) |
| (169,867 | ) |
| — |
|
| 157,791 |
|
| — |
|
| — |
|
| (12,121 | ) |
Forgiveness of debt reclassification |
|
| — |
|
| — |
|
| (23,000 | ) |
| — |
|
| — |
|
| — |
|
| — |
|
| (23,000 | ) |
Net loss, 2000 |
|
| — |
|
| — |
|
| — |
|
| (419,296 | ) |
| — |
|
| — |
|
| — |
|
| (419,296 | ) |
|
| ||||||||||||||||||||||||
Balance, December 31, 2000 |
|
| 5,689,151 |
|
| 569 |
|
| 912,889 |
|
| (813,478 | ) |
| (124,748 | ) |
| — |
|
| — |
|
| (24,768 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share issued for services |
|
| 1,179,415 |
|
| 118 |
|
| 89,784 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 89,902 |
|
Cash received for subscription |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 124,748 |
|
| — |
|
| — |
|
| 124,748 |
|
Other adjustment |
|
| — |
|
| — |
|
| — |
|
| 1 |
|
| — |
|
| — |
|
| — |
|
| 1 |
|
Net loss, 2001 |
|
| — |
|
| — |
|
| — |
|
| (339,546 | ) |
| — |
|
| — |
|
| — |
|
| (339,546 | ) |
|
| ||||||||||||||||||||||||
Balance, December 31, 2001 |
|
| 6,868,566 |
|
| 687 |
|
| 1,002,673 |
|
| (1,153,023 | ) |
| — |
|
| — |
|
| — |
|
| (149,663 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued |
|
| 29,859,173 |
|
| 2,986 |
|
| 386,394 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 389,380 |
|
Shares cancelled |
|
| (21,978,215 | ) |
| (2,198 | ) |
| 7 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (2,191 | ) |
Stock warrants issued |
|
| — |
|
| — |
|
| 31,000 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 31,000 |
|
Stock warrants exercised |
|
| 3,255,880 |
|
| 326 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 326 |
|
Net loss, 2002 |
|
| — |
|
| — |
|
| — |
|
| (570,874 | ) |
| — |
|
| — |
|
| — |
|
| (570,874 | ) |
|
| ||||||||||||||||||||||||
Balance, December 31, 2002 |
|
| 18,005,394 |
|
| 1,801 |
|
| 1,420,074 |
|
| (1,723,897 | ) |
| — |
|
| — |
|
| — |
|
| (302,022 | ) |
192
(AN EXPLORATION STAGE COMPANY)
Consolidated Statements of Stockholders’ Equity
Cumulative for the period from May 9, 1996 (date of inception) to December 31, 2011(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Additional |
| Deficit |
| Stock |
| Treasury |
| Accumulated |
| Total |
| ||||||||||
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
| Number of |
| Amount |
|
|
|
|
|
|
| ||||||||||||||
|
| ||||||||||||||||||||||||
Balance, December 31, 2002 |
|
| 18,005,394 |
|
| 1,801 |
|
| 1,420,074 |
|
| (1,723,897 | ) |
| — |
|
| — |
|
| — |
|
| (302,022 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share issued for services |
|
| 4,927,411 |
|
| 493 |
|
| 150,833 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 151,326 |
|
Shares returned |
|
| (66,300 | ) |
| (7 | ) |
| (1,319 | ) |
| — |
|
| — |
|
| — |
|
| — |
|
| (1,326 | ) |
Net loss, 2003 |
|
| — |
|
| — |
|
| — |
|
| (414,601 | ) |
| — |
|
| — |
|
| — |
|
| (414,601 | ) |
|
| ||||||||||||||||||||||||
Balance, December 31, 2003 |
|
| 22,866,505 |
|
| 2,287 |
|
| 1,569,588 |
|
| (2,138,498 | ) |
| — |
|
| — |
|
| — |
|
| (566,623 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share issued |
|
| 575,000 |
|
| 58 |
|
| 24,942 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 25,000 |
|
Short swing profits of shareholder |
|
| — |
|
| — |
|
| 50,496 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 50,496 |
|
Net loss, 2004 |
|
| — |
|
| — |
|
| — |
|
| (399,028 | ) |
| — |
|
| — |
|
| — |
|
| (399,028 | ) |
|
| ||||||||||||||||||||||||
Balance, December 31, 2004 |
|
| 23,441,505 |
|
| 2,345 |
|
| 1,645,026 |
|
| (2,537,526 | ) |
| — |
|
| — |
|
| — |
|
| (890,155 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued |
|
| 15,729,018 |
|
| 1572 |
|
| 2,612,433 |
|
| — |
|
| (9,500 | ) |
| — |
|
| — |
|
| 2,604,505 |
|
Shares cancelled |
|
| (3,500,000 | ) |
| (350 | ) |
| (724,650 | ) |
| — |
|
| — |
|
| — |
|
| — |
|
| (725,000 | ) |
Net Loss, 2005 |
|
| — |
|
| — |
|
| — |
|
| (584,879 | ) |
| — |
|
| — |
|
| — |
|
| (584,879 | ) |
|
| ||||||||||||||||||||||||
Balance, December 31, 2005 |
|
| 35,670,533 |
|
| 3,567 |
|
| 3,532,809 |
|
| (3,122,405 | ) |
| (9,500 | ) |
| — |
|
| — |
|
| 404,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share issued |
|
| 25,790,000 |
|
| 2,579 |
|
| 13,949,985 |
|
| — |
|
| 458,500 |
|
| — |
|
| — |
|
| 14,411,064 |
|
Warrants issued |
|
| — |
|
| — |
|
| 4,941,036 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 4,941,036 |
|
Share issuance costs |
|
| — |
|
| — |
|
| (63,237 | ) |
| — |
|
| — |
|
| — |
|
| — |
|
| (63,237 | ) |
Treasury stock |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (392,830 | ) |
| — |
|
| (392,830 | ) |
Other comprehensive loss |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (1,562 | ) |
| (1,562 | ) |
Net loss, 2006 |
|
| — |
|
| — |
|
| — |
|
| (8,692,208 | ) |
| — |
|
| — |
|
| — |
|
| (8,692,208 | ) |
|
| ||||||||||||||||||||||||
Balance, December 31, 2006 |
|
| 61,460,533 |
|
| 6,146 |
|
| 22,360,593 |
|
| (11,814,613 | ) |
| 449,000 |
|
| (392,830 | ) |
| (1,562 | ) |
| 10,606,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued |
|
| 8,362,000 |
|
| 836 |
|
| 7,114,194 |
|
| — |
|
| (334,000 | ) |
| — |
|
| — |
|
| 6,781,030 |
|
Treasury stock |
|
| (276,545 | ) |
| (27 | ) |
| (392,803 | ) |
| — |
|
| — |
|
| 392,830 |
|
| — |
|
| — |
|
Warrants issued |
|
| — |
|
| — |
|
| 2,717,020 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 2,717,020 |
|
Options issued |
|
| — |
|
| — |
|
| 459,959 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 459,959 |
|
Share issuance costs |
|
|
|
|
|
|
|
| (75,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| (75,000 | ) |
Other comprehensive loss |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 18,141 |
|
| (18,141 | ) |
Net loss, 2007 |
|
| — |
|
| — |
|
| — |
|
| (10,665,000 | ) |
| — |
|
| — |
|
| — |
|
| (10,665,000 | ) |
|
| ||||||||||||||||||||||||
Balance, December 31, 2007 |
|
| 69,545,988 |
|
| 6,955 |
|
| 32,183,963 |
|
| (22,479,613 | ) |
| 115,000 |
|
| — |
|
| (19,703 | ) |
| 9,806,602 |
|
193
(AN EXPLORATION STAGE COMPANY)
Consolidated Statements of Stockholders’ Equity
Cumulative for the period from May 9, 1996 (date of inception) to December 31, 2011(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Additional |
| Deficit |
| Stock |
| Treasury |
| Accumulated |
| Total |
| ||||||||||
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
| Number of |
| Amount |
|
|
|
|
|
|
| ||||||||||||||
|
| ||||||||||||||||||||||||
Balance, December 31, 2007 |
|
| 69,545,988 |
|
| 6,955 |
|
| 32,183,963 |
|
| (22,479,613 | ) |
| 115,000 |
|
| — |
|
| (19,703 | ) |
| 9,806,602 |
|
Shares issued for cash |
|
| 8,349,167 |
|
| 835 |
|
| 1,141,023 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1,141,858 |
|
Shares issued for settlement |
|
| 2,833,333 |
|
| 283 |
|
| 398,050 |
|
| — |
|
| (165,000 | ) |
| — |
|
| — |
|
| 233,333 |
|
Shares issued for services |
|
| 1,450,000 |
|
| 145 |
|
| 156,855 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 157,000 |
|
Shares issued for compensation |
|
| 875,000 |
|
| 87 |
|
| 135,663 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 135,750 |
|
Shares issued for settlement of due to related parties |
|
| 1,200,000 |
|
| 120 |
|
| 107,880 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 108,000 |
|
Shares issued for cash pursuant to exercise of warrants |
|
| 500,000 |
|
| 50 |
|
| 74,950 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 75,000 |
|
Warrants issued for cash |
|
| — |
|
| — |
|
| 260,642 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 260,642 |
|
Warrants issued for settlement of due to related parties |
|
| — |
|
| — |
|
| 192,000 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 192,000 |
|
Warrants issued for services |
|
| — |
|
| — |
|
| 44,600 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 44,600 |
|
Options issued for services |
|
| — |
|
| — |
|
| 82,200 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 82,200 |
|
Share issuance costs |
|
| — |
|
| — |
|
| (6,562 | ) |
| — |
|
| — |
|
| — |
|
| — |
|
| (6,562 | ) |
Shares to be returned |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (67,500 | ) |
| — |
|
| — |
|
| (67,500 | ) |
Other comprehensive loss |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 77,949 |
|
| 77,949 |
|
Net loss, 2008 |
|
| — |
|
| — |
|
| — |
|
| (3,969,299 | ) |
| — |
|
| — |
|
| — |
|
| (3,969,299 | ) |
Prior period adjustment |
|
| — |
|
| — |
|
| — |
|
| (417,477 | ) |
| — |
|
| — |
|
| — |
|
| (417,477 | ) |
|
| ||||||||||||||||||||||||
Balance, December 31, 2008 |
|
| 84,753,488 |
|
| 8,475 |
|
| 34,771,264 |
|
| (26,866,389 | ) |
| (117,500 | ) |
| — |
|
| 58,246 |
|
| 7,854,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share issued for cash |
|
| 4,729,198 |
|
| 473 |
|
| 489,232 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 489,705 |
|
Shares issued for services |
|
| 2,490,000 |
|
| 249 |
|
| 347,909 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 348,158 |
|
Shares issued for compensation |
|
| 175,000 |
|
| 18 |
|
| 14,857 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 14,875 |
|
Shares issued for property |
|
| 550,000 |
|
| 55 |
|
| 208,945 |
|
| — |
|
| — |
|
| (209,000 | ) |
| — |
|
| — |
|
Warrants issued for cash |
|
| — |
|
| — |
|
| 728,771 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 728,771 |
|
Warrants issued for services |
|
| — |
|
| — |
|
| 1,442,484 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1,442,484 |
|
Options issued for services |
|
| — |
|
| — |
|
| 24,134 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 24,134 |
|
Share issuance costs |
|
| — |
|
| — |
|
| (54,877 | ) |
| — |
|
| — |
|
| — |
|
| — |
|
| (54,877 | ) |
Shares returned |
|
| (1,100,000 | ) |
| (110 | ) |
| (201,390 | ) |
| — |
|
| 117,500 |
|
| — |
|
| — |
|
| (84,000 | ) |
Accumulated comprehensive loss |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (17,742 | ) |
| (17,742 | ) |
Net loss, 2009 |
|
| — |
|
| — |
|
| — |
|
| (4,869,373 | ) |
| — |
|
| — |
|
| — |
|
| (4,869,373 | ) |
|
| ||||||||||||||||||||||||
Balance, December 31, 2009 |
|
| 91,597,686 |
|
| 9,160 |
|
| 37,771,329 |
|
| (31,735,762 | ) |
| — |
|
| (209,000 | ) |
| 40,504 |
|
| 5,876,231 |
|
194
(AN EXPLORATION STAGE COMPANY)
Consolidated Statements of Stockholders’ Equity
Cumulative for the period from May 9, 1996 (date of inception) to December 31, 2011(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Additional |
| Deficit |
| Stock |
| Treasury |
| Accumulated |
| Total |
| ||||||||||
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
| Number of |
| Amount |
|
|
|
|
|
|
| ||||||||||||||
|
| ||||||||||||||||||||||||
Balance, December 31, 2009 |
|
| 91,597,686 |
|
| 9,160 |
|
| 37,771,329 |
|
| (31,735,762 | ) |
| — |
|
| (209,000 | ) |
| 40,504 |
|
| 5,876,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share issued for cash |
|
| 4,038,237 |
|
| 404 |
|
| 468,298 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 468,702 |
|
Shares issued for services |
|
| 3,092,094 |
|
| 309 |
|
| 790,076 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 790,385 |
|
Warrants issued for cash |
|
| — |
|
| — |
|
| 264,298 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 264,298 |
|
Warrants issued for services |
|
| — |
|
| — |
|
| 274,067 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 274,067 |
|
Share issuance costs |
|
| — |
|
| — |
|
| (26,497 | ) |
| — |
|
| — |
|
| — |
|
| — |
|
| (26,497 | ) |
Beneficial conversion feature |
|
| — |
|
| — |
|
| 99,841 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 99,841 |
|
Accumulated comprehensive loss |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (19,150 | ) |
| (19,150 | ) |
Net loss, 2010 |
|
| — |
|
| — |
|
| — |
|
| (4,318,318 | ) |
| — |
|
| — |
|
| — |
|
| (4,318,318 | ) |
|
| ||||||||||||||||||||||||
Balance, December 31, 2010 |
|
| 98,728,017 |
|
| 9,873 |
|
| 39,641,412 |
|
| (36,054,080 | ) |
| — |
|
| (209,000 | ) |
| 21,354 |
|
| 3,409,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for cash |
|
| 2,812,500 |
|
| 281 |
|
| 249,719 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 250,000 |
|
Shares issued for services |
|
| 1,490,000 |
|
| 149 |
|
| 174,426 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 174,575 |
|
Shares issued on conversion of notes |
|
| 28,236,036 |
|
| 2,774 |
|
| 1,352,849 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1,355,623 |
|
Shares issued for settlement of debt |
|
| 5,883,896 |
|
| 588 |
|
| 434,085 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 434,673 |
|
Shares cancelled |
|
| (750,000 | ) |
| (75 | ) |
| (83,550 | ) |
| — |
|
| — |
|
| — |
|
| — |
|
| (83,625 | ) |
Warrants issued for cash |
|
| — |
|
| — |
|
| 80,389 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 80,389 |
|
Warrants issued for services |
|
| — |
|
| — |
|
| 373,695 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 373,695 |
|
Shares issued on financing |
|
| 500,000 |
|
| 50 |
|
| 24,950 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 25,000 |
|
Share issuance costs |
|
| — |
|
| — |
|
| (8,750 | ) |
| — |
|
| — |
|
| — |
|
| — |
|
| (8,750 | ) |
Beneficial conversion feature |
|
| — |
|
| — |
|
| 1,803,200 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1,803,200 |
|
Accumulated comprehensive loss |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 93,633 |
|
| 93,633 |
|
Net loss, 2011 |
|
| — |
|
| — |
|
| — |
|
| (4,015,592 | ) |
| — |
|
| — |
|
| — |
|
| (4,015,592 | ) |
|
| ||||||||||||||||||||||||
Balance, December 31, 2011 |
|
| 136,400,449 |
|
| 13,640 |
|
| 44,042,425 |
|
| (40,069,672 | ) |
| — |
|
| (209,000 | ) |
| 114,987 |
|
| 3,892,380 |
|
|
|
195
(AN EXPLORATION STAGE COMPANY)
Consolidated Statements of Cash Flows
For the Years ended December 31, 2011 and 2010, and
Cumulative for the period from May 9, 1996 (date of inception) to December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
| 2011 |
| 2010 |
| For the period |
| |||
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (4,015,592 | ) | $ | (4,318,318 | ) | $ | (40,069,672 | ) |
Net loss from discontinued operations |
|
| — |
|
| — |
|
| 302,755 |
|
Net loss from continuing operations excluding minority interest |
|
| (4,015,592 | ) |
| (4,318,318 | ) |
| (39,766,917 | ) |
Adjustments for: |
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
| 47,113 |
|
| 92,687 |
|
| 571,953 |
|
Net loss from equity investment |
|
| 710,145 |
|
| (93,410 | ) |
| 1,377,875 |
|
Loss on recognition of embedded derivative |
|
| — |
|
| (261,000 | ) |
| — |
|
Interest on convertible notes payable |
|
| 145,060 |
|
| — |
|
| 145,060 |
|
Shares issued for services |
|
| 90,950 |
|
| 790,385 |
|
| 8,564,071 |
|
Warrants and options issued for services |
|
| 264,953 |
|
| 274,067 |
|
| 3,873,165 |
|
Amortization of beneficial conversion feature |
|
| 531,369 |
|
| 99,841 |
|
| 631,210 |
|
Write-down of mineral rights |
|
| — |
|
| 2,504,559 |
|
| 3,411,309 |
|
Write-down of assets |
|
| — |
|
| 197,810 |
|
| 240,063 |
|
Other |
|
| — |
|
| — |
|
| (1,630,814 | ) |
Changes in non-cash working capital: |
|
|
|
|
|
|
|
|
|
|
Other receivable |
|
| (73,257 | ) |
| — |
|
| (88,646 | ) |
Deferred expenses |
|
| 155,208 |
|
| (80,931 | ) |
| 313,914 |
|
Accounts payable |
|
| (166,896 | ) |
| 143,304 |
|
| 2,163,443 |
|
Accrued liabilities |
|
| 185,037 |
|
| (196,828 | ) |
| 463,668 |
|
Other |
|
| — |
|
| — |
|
| 680,990 |
|
|
| |||||||||
Net cash used in operating activities |
|
| (2,125,910 | ) |
| (847,834 | ) |
| (19,049,656 | ) |
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
Investments in mineral rights |
|
| — |
|
| (15,564 | ) |
| (1,920,441 | ) |
Additional contribution to Sino-Top |
|
| (205,366 | ) |
| 65,451 |
|
| (3,651,555 | ) |
Acquisition of plant and equipment |
|
| — |
|
| — |
|
| (981,486 | ) |
Other |
|
| — |
|
| — |
|
| 4,364,090 |
|
|
| |||||||||
Net cash (used in) provided by investing activities |
|
| (205,366 | ) |
| 49,887 |
|
| (2,189,392 | ) |
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock and warrants |
|
| 250,000 |
|
| 733,000 |
|
| 18,147,492 |
|
Share issuance costs |
|
| (8,750 | ) |
| (26,497 | ) |
| (206,686 | ) |
Related party loans payable |
|
| — |
|
| 260,256 |
|
| 1,192,922 |
|
Repayments of related party payables |
|
| (260,256 | ) |
| — |
|
| (722,813 | ) |
Minority interest |
|
| — |
|
| — |
|
| 253,021 |
|
Promissory note payable |
|
| — |
|
| (350,000 | ) |
| 516,623 |
|
Write-down of promissory note payable |
|
| — |
|
| — |
|
| (350,000 | ) |
Issuance of convertible notes payable (note 13) |
|
| 2,274,654 |
|
| 170,000 |
|
| 2,423,147 |
|
Other |
|
| — |
|
| — |
|
| (59,609 | ) |
|
| |||||||||
Net cash provided by financing activities |
|
| 2,255,648 |
|
| 786,759 |
|
| 21,194,097 |
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate on cash |
|
| 93,633 |
|
| (29,697 | ) |
| 159,519 |
|
|
| |||||||||
(Decrease) increase in cash |
|
| 18,005 |
|
| (40,885 | ) |
| 114,568 |
|
Cash - beginning of period |
|
| 96,563 |
|
| 137,448 |
|
| — |
|
|
| |||||||||
Cash - end of period |
| $ | 114,568 |
| $ | 96,563 |
| $ | 114,568 |
|
|
|
Supplemental cash flow information(note 13)
196
(AN EXPLORATION STAGE COMPANY)
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010
1.Nature of Business and Basis of Presentation
Silver Dragon Resources Inc. was incorporated on May 9, 1996 in the State of Delaware and its executive office is in Toronto, Canada. It carries out operations through subsidiaries in Canada and Mexico and an affiliate in China, although operations in Mexico are dormant pending resolution of a lawsuit (see note 14(d)). Silver Dragon Resources Inc. and its subsidiary and affiliate (collectively referred to as “Silver Dragon” or the “Company”) are in the exploration stage as defined by Financial Accounting Standards Board’s (“FASB”) Accounting Standard Codification (“ASC”) 915 “Accounting and Reporting For Development Stage Entities.”
The Company’s strategy is to acquire and develop a portfolio of silver properties in proven silver districts globally. To date, the Company has generated no sales and has devoted its efforts primarily to financing, by issuing common shares and convertible debt, and exploring its properties.
The accompanying consolidated financial statements of the Company have been prepared following generally accepted accounting principles in the United States (“US GAAP”), are expressed in United States funds.
2. Going Concern and Exploration Stage Activities
These consolidated financial statements have been prepared in accordance with US GAAP applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next twelve months.
197
(AN EXPLORATION STAGE COMPANY)
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010
3. Summary of Significant Accounting Policies
a) Principles of consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary Silver Dragon Mining De Mexico S.A. de C.V (a Mexican corporation). All significant inter-company balances and transactions have been eliminated on consolidation. The Company’s ownership of 40% of Sanhe Sino-Top Resources & Technology, Ltd. (a China corporation) (“Sino-Top”) is recorded on the equity basis.
b) Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Significant areas requiring the use of estimates relate to the estimated useful lives of plant and equipment, valuation of mineral rights, and stock-based compensation. Actual results could differ from these estimates. These estimates are reviewed periodically and as adjustments become necessary, they are reported in earnings in the period in which they become available.
c) Cash and cash equivalents
Cash and cash equivalents consist of deposits held in financial institutions and liquid investments with original maturities of three months or less at the time of purchase.
d) Financial instruments
The Company classifies all financial instruments as held-for-trading or other financial liabilities. Financial liabilities are measured at amortized cost. Instruments classified as held for trading are measured at fair value with unrealized gains and losses recognized in the statement of operations. Debt transaction costs are allocated to the related debt and amortized over the life of the loan using the effective interest method. Equity transaction costs are recorded in equity.
198
(AN EXPLORATION STAGE COMPANY)
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010
3. Summary of Significant Accounting Policies, continued
e) Mineral rights
The Company records its interest in mineral rights at cost. Accordingly, costs associated with the acquisition and the development of mineral reserves are capitalized. Exploration costs are expensed as incurred.
Capitalized costs of mineral properties are amortized using the unit-of-production method using estimates of proved reserves. Investments in unproved properties and major exploration and development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs. If the results of an assessment indicate that a property is impaired, the capitalized cost of that property will be charged to expense at that time. The Company presently has no proven reserves. Where estimates of future net cash flows are not available and where other conditions suggest impairment, management assesses whether the carrying values can be recovered. If the carrying values exceed estimated recoverable values, then the costs are written-down to fair values with the write-down expensed in the period. The Company evaluates the carrying amounts of its mineral rights when events or changes in circumstances indicate that the carrying amount may not be recoverable.
f) Equity investment
The Company exercises significant influence but does not exercise control over its equity investment, Sino-Top. It is accounted for using the equity method of accounting and is initially recognized at cost. The Company’s share of the entity’s profits or losses is recognized in the statement of operations, and cumulative post-acquisition changes in the investment are adjusted against the carrying amount of the investment. Were the Company’s share of losses on its investment to equal or exceed the carrying amount of the investment, the Company would then only recognize further losses if it incurred obligations or made payments on behalf of the equity investment.
g) Income taxes
The Company accounts for income taxes in accordance with FASB ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recorded for differences between the accounting and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is recorded for the amount of income tax payable or receivable for the period, increased or decreased by the change in deferred tax assets and liabilities during the period.
h) Revenue recognition
199
(AN EXPLORATION STAGE COMPANY)
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010
3. Summary of Significant Accounting Policies, continued
i) Plant and equipment
Plant and equipment are stated at cost. Equipment awaiting installation on site is not depreciated until it is commissioned. Depreciation is based on the estimated useful life of the asset and depreciated annually as follows:
|
|
|
|
|
Category |
| Rate |
| Method |
|
|
|
|
|
Computer hardware |
| 30% |
| Declining balance |
Computer software |
| 30% |
| Declining balance |
Vehicles |
| 20% |
| Declining balance |
Office equipment |
| 20% |
| Declining balance |
Mine equipment |
| 20% |
| Declining balance |
Leasehold improvements |
| 5 years |
| Straight line |
j) Loss per share
Basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the year. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus potentially dilutive securities outstanding for each year. The computation of diluted earnings (loss) per share has not been presented as its effect would be anti-dilutive.
k) Stock-based compensation
From time to time the Company grants warrants to management, directors, employees and consultants. The Company recognizes compensation expense at fair value. Under this method, the fair value of each warrant is estimated on the date of the grant and amortized over the vesting period, with the resulting amortization credited to contributed surplus. The fair value of each grant is determined using the Black-Scholes option-pricing model. Consideration paid upon the exercise of stock options is recorded as share capital.
l) Asset retirement obligations
200
(AN EXPLORATION STAGE COMPANY)
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010
3. Summary of Significant Accounting Policies, continued
m) Impairment of long lived assets
In accordance with ASC 360, “Property, Plant and Equipment”, long lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable.
The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. If there are indications of impairment, the Company uses future undiscounted cash flows of the related asset or asset grouping over the remaining life in measuring whether the carrying amounts are recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value.
n) Comprehensive Loss
The Company accounts for comprehensive loss in accordance with ASC 220, “Comprehensive Income,” which establishes standards for reporting and presentation of comprehensive loss and its components. Comprehensive loss is presented in the statements of stockholders’ equity, and consists of net loss and foreign currency translation adjustments.
o) Foreign currency translation
The Company accounts for foreign currency translation pursuant to ASC 830, “Foreign Currency Matters”. The Company’s functional currency is United States dollars. For operations in Mexico, the local currency is the functional currency. All assets and liabilities denominated in Mexican Pesos are translated into United States dollars using the current exchange rate. Revenues and expenses are translated using average exchange rates during the year. Foreign exchange gains or losses are included in other comprehensive income for the period. The functional currency of the equity investment in China is United States dollars. Net income or loss recorded on the equity basis is translated using average exchange rates during the year.
4. Recent Accounting Pronouncements
The Company continually assesses any new accounting pronouncements to determine their applicability. Where it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes a study to determine the consequence of the change to its financial statements and assures that there are proper controls in place to ascertain that the Company’s financials properly reflect the change. A variety of proposed or otherwise potential accounting standards are currently under study by standard-setting organizations and various regulatory agencies. Because of the tentative and preliminary nature of these proposed standards, the Company has not determined whether implementation of such proposed standards would be material to the Company’s financial statements. New pronouncements assessed by the Company recently are discussed below:
201
(AN EXPLORATION STAGE COMPANY)
Notes to the Consolidated Financial Statements
December 31, 2011 and 2010
4. Recent Accounting Pronouncements, continued
In May 2011, FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). The amendments in this update improve comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRSs and result in common fair value measurement and disclosure requirements. ASU 2011-04 is effective for fiscal years and interim periods beginning after December 15, 2011 (March 1, 2012 for the Company). The Company does not expect the adoption of ASU 2011-04 to have a material impact on its results of operations, financial condition, or cash flows.
5. Financial Instruments
The carrying value of cash, other receivable, notes receivable, accounts payable, accrued liabilities, promissory note payable, current portion of convertible notes payable and related party payables approximated their fair value as of December 31, 2011 and December 31, 2010 due to their short-term nature. Management believes that the carrying value of the non-current portion of convertible notes payable and notes receivable approximates their fair value using the present value method.
Interest and Credit Risk
In the opinion of management, the Company is not exposed to significant interest or credit risks arising from its financial instruments.
Currency Risk
While the reporting currency is the United States Dollar, $139,298 of consolidated expenses for the year ended December 31, 2011 are denominated in Mexican Pesos; and $919,425 of consolidated expenses for the year ended December 31, 2011, are denominated in Canadian Dollars. As at December 31, 2011; $917,687 of the net monetary liabilities are denominated in Mexican Pesos; and $54,063 of the net monetary liabilities are denominated in Canadian Dollars. The Company has not entered into any hedging transactions to reduce the exposure to currency risk.
6. Notes Receivable
|
|
(a) | Notes receivable consists of ten notes issued by an investor. (note 10 (a)), each in the principal amount of $200,000 and bearing interest of 5% per annum, with payment to the Company due on or before the earlier of (i) 49 months from February 15, 2011, or (ii) subject to certain conditions; a series of dates beginning September 15, 2011 and continuing on the 15th of each month thereafter. As at December 31, 2011, these conditions have not been met. Three of the notes receivable are secured by real estate property owned by the investor and the remainder are unsecured. |
|
|
| On June 20, 2011, the Company agreed with the investor to modify the terms of certain notes. The notes that were due on September 15, 2011 and October 15, 2011 were redeemed in exchange for $271,561 on July 1, 2011 with the difference recorded as interest expense. |
|
|
(b) | Notes receivable includes a promissory note issued by an investor on April 11, 2011 (note 10 (b)) for $300,000, bearing interest at 6% per annum and secured by assets pledged as collateral. The agreement was amended on October 12, 2011, and as a result $200,000 was paid on October 14, 2011 and the remaining $100,000 was paid on November 15, 2011. |
|
|
| On December 15, 2011 an additional promissory note was issued for $250,000, bearing interest at 6% per annum and secured by assets pledged as collateral. $125,000 of principal under this note shall be due and payable on June 15, 2012 and the balance of $125,000 of principal and accrued interest shall be due and payable on August 1, 2012. |
202
|
SILVER DRAGON RESOURCES INC. |
|
(AN EXPLORATION STAGE COMPANY) |
|
Notes to the Consolidated Financial Statements |
|
December 31, 2011 and 2010 |
6. Notes Receivable, continued
|
|
(c) | Notes receivable comprises of five notes issued to an investor. Four non-interest bearing notes were issued April 19, 2011 (note 10 (c)) of $500,000 each, totaling $2,000,000 and with payment of principal and a one- time financing fee of 5.25% due on the principal sum, due on maturity on April 19, 2014. The notes are secured and collateralized. The Company has received $650,000 of the $1,000,000 initial note issued April 19, 2011, and the remaining $350,000 receivable is currently outstanding. |
7. Plant and Equipment, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost |
| Accumulated |
| December |
| December |
| ||||
|
| ||||||||||||
Computer hardware |
| $ | 40,559 |
| $ | 32,016 |
| $ | 8,543 |
| $ | 12,205 |
|
Office equipment |
|
| 45,720 |
|
| 28,430 |
|
| 17,290 |
|
| 21,610 |
|
Leasehold improvements |
|
| 195,667 |
|
| 177,738 |
|
| 17,929 |
|
| 57,060 |
|
|
| ||||||||||||
|
| $ | 281,946 |
| $ | 238,184 |
| $ | 43,762 |
| $ | 90,875 |
|
|
|
8. Equity Investment
Sanhe Sino-Top Resources & Technologies Ltd., China
Gansu Shengda Group Ltd. (“Shengda”), owns 52%, and Exploration Unit of North China Geological Exploration Bureau, also known as Huaguan Industrial Corp. (“HIC”) and 5 individuals own 8%, and the Company owns 40% of Sino-Top, whose assets mainly consist of six exploration properties. Erbahuo, a seventh exploration property controlled by Sino-Top, is not controlled by the Company, although it has a right to receive 70% of its net income and 30% by HIC.
|
|
|
|
|
|
|
|
|
| 2011 |
| 2010 |
| ||
|
| ||||||
Carrying value of investment at December 31, 2010 |
| $ | 4,832,922 |
| $ | 4,804,963 |
|
Additional investment and advances |
|
| 205,366 |
|
| 81,049 |
|
Return of funds advanced |
|
| — |
|
| (146,500 | ) |
40% share of net (loss)/income for the year ended December 31, 2011 |
|
| (710,145 | ) |
| 93,410 |
|
Carrying value of investment at December 31, 2011 |
| $ | 4,328,143 |
| $ | 4,832,922 |
|
Share of (loss) income for the year ending December 31:
|
|
|
|
|
|
|
|
|
| 2011 |
| 2010 |
| ||
|
| ||||||
Exploration expenses |
| $ | (536,495 | ) | $ | (1,351,294 | ) |
General and administrative expenses |
|
| (173,650 | ) |
| (197,171 | ) |
Gain on disposal of properties |
|
| — |
|
| 1,684,096 |
|
Income taxes |
|
| — |
|
| (42,102 | ) |
Share of (loss) income for the year (at 40%) |
| $ | (710,145 | ) | $ | 93,410 |
|
9. Promissory Note Payable
In 2008, a promissory note was signed with a vendor in the amount of $166,623 with a carried interest rate of 5% per month, unsecured, and no maturity date. During the year ended December 31, 2011, the Company incurred interest of $99,974 (2010 - $99,974).
203
|
SILVER DRAGON RESOURCES INC. |
|
(AN EXPLORATION STAGE COMPANY) |
|
Notes to the Consolidated Financial Statements |
|
December 31, 2011 and 2010 |
10. Convertible Notes Payable
|
|
|
|
|
|
| Current |
| |
Balance, December 31, 2009 |
| $ | — |
|
Issued during the year ended December 31, 2010 |
|
| 170,000 |
|
Balance, December 31, 2010 |
| $ | 170,000 |
|
Issued during the year ended December 31, 2011 |
|
| 6,580,000 |
|
Deferred charges |
|
| (1,661,347 | ) |
Converted during the year ended December 31, 2011 |
|
| (1,063,024 | ) |
Balance December 31, 2011 |
| $ | 4,025,629 |
|
|
|
(a) | On February 15, 2011, the Company closed a convertible financing of $2.5 million bearing interest of 5.5% per annum over a four-year period, with consideration of $500,000 paid at closing and $2,000,000 paid in a series of ten notes (note 6(a)), each in the principal amount of $200,000, due on or before the earlier of (i) 49 months from February 15, 2011, or (ii) subject to certain conditions, a series of dates beginning on September 15, 2011 and following on the 15th of each month thereafter (note 6(a)). The Company has the right to offset the payment of any unpaid note receivable subject to certain conditions. In exchange for the note receivable issued, the Company issued a convertible note payable with a face amount of $2,766,000 due February 15, 2015, which represents the $2,500,000 paid or to be paid to the Company by the investor and other fees and expenses. The investor also received a warrant to purchase 8.6 million common shares of the Company at an exercise price of $0.50 per share at any time within three years after the date of issuance. |
|
|
| The proceeds of the financing were allocated between the convertible notes payable ($1,938,233), the related warrants ($242,090), the related expenses ($343,391), and the beneficial conversion feature ($242,786) based upon their respective fair values in accordance with ASC 470 (“Debt”). The difference between the face value of the convertible notes payable and the allocated value is being charged to interest expense over the term of the convertible notes payable. The fair value of the beneficial conversion feature will be allocated over the term from commitment date to the maturity date of the convertible notes payable. Contingent beneficial conversion features will be recognized when the outstanding conditions have been met and will be amortized from the date of recognition to the maturity date of the convertible notes payable. The fair value of the warrants and the related expenses will be allocated over the term from the commitment date to the maturity date of the convertible notes payable. |
|
|
(b) | On April 11, 2011, the Company issued two unsecured, convertible notes with a principal amount of $100,000 and $300,000, bearing interest at 6% per annum and maturing April 11, 2013. This reflects an original issue discount of 4% and the sale of these notes to the holder for $96,000 and $288,000 respectively. The notes are convertible into common stock, at the lender’s option, at a 30% discount of any four trading days prior to and including the day of conversion. As consideration, the Company received the note receivable set out in note 6(b). |
|
|
| On December 15, 2011, the Company issued two unsecured, convertible notes with a principal amount of $150,000 and $250,000, bearing interest at 6% per annum and maturing December 15, 2013. This reflects an original issue discount of 4% and the sale of this note to the holder for $144,000 and $240,000 respectively. The notes are convertible into common stock, at the lender’s option, at a 30% discount of any four trading days prior to and including the day of conversion. As consideration, the Company received $150,000 cash and the note receivable for $250,000 set out in note 6(b). |
204
|
SILVER DRAGON RESOURCES INC. |
|
(AN EXPLORATION STAGE COMPANY) |
|
Notes to the Consolidated Financial Statements |
|
December 31, 2011 and 2010 |
10. Convertible Notes Payable, continued
|
|
(c) | On April 19, 2011, the Company closed a convertible financing agreement with a privately-held United States investment firm. The total planned funding amount is $3,000,000, with payment consisting of $1,000,000 through a convertible promissory note and four $500,000 promissory notes, bearing interest at a 5% one-time interest charge on the principal sum due on maturity, secured and collateralized by the lender. |
|
|
| The initial note provides for $1,000,000 in the form of cash payments to be made to the Company according to a funding schedule expiring 180 days after an effective registration statement covering the resale of the shares of common stock issuable upon conversion of the note, assuming certain share volume and prices are met. The registration statement became effective on May 19, 2011. $650,000 was paid to the Company. $350,000 was due on December 31, 2011 (note 6(c)). The subsequent notes each aggregate $500,000 consideration, totaling $2,000,000, which are secured and collateralized, over the remainder of the three-year period. The total face amount of the convertible notes issued is $3,150,000 due April 19, 2014, which represents $3,000,000 to be paid to Company and other fees and expenses to be paid to the lender. The difference between the fair value of the convertible note payable and the allocated value is being charged to interest expense over the term of the convertible note payable. The fair value of the beneficial conversion feature as at December 31, 2011 is $802,083. The fair value of the beneficial conversion feature will be allocated over the term from the commitment date to the maturity date of the convertible note payable. |
|
|
(d) | On January 11, 2011, the Company issued a convertible note with a principal amount of $65,000 which was paid in full on July 25, 2011. On March 1, the Company issued a convertible note with a principal amount of $55,000 which was paid in full on September 27, 2011. On April 8, 2011, the Company issued a convertible note with a principal amount of $50,000 which was paid in full on October 27, 2011. On August 24, 2011, the Company issued a convertible note with a principal amount of $55,000, due on May 25, 2012. On November 30, 2011, the Company issued a convertible note with a principal amount of $75,000, due on September 5, 2012. The notes bear interest of 8% per annum and are unsecured. The notes are convertible into common stock, at the lender’s option, at a discount to the average of the three lowest closing prices of the common stock during the 10 trading day period prior to conversion. The lender has agreed to restrict its ability to convert the notes and receive shares of common stock such that the number of shares of common stock held by them and their affiliates in the aggregate after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock. |
11. Related Party Transactions and Balances
|
|
|
|
|
|
|
|
|
| December 31, 2011 |
| December 31, 2010 |
| ||
|
| ||||||
Unpaid remuneration |
| $ | — |
| $ | 213,040 |
|
Advances |
|
| — |
|
| 47,216 |
|
|
| ||||||
|
| $ | — |
| $ | 260,256 |
|
|
|
|
|
| During the year ended December 31, 2011, the Company incurred $360,688 (2010 - $216,000) in management fees paid to a company controlled by a director for his services as chief executive officer. |
205
|
SILVER DRAGON RESOURCES INC. |
|
(AN EXPLORATION STAGE COMPANY) |
|
Notes to the Consolidated Financial Statements |
|
December 31, 2011 and 2010 |
12. Capital Stock
On January 22, 2010, the Company issued warrants, to an organization, to purchase 200,000 shares of the Company’s restricted common stock at an exercise price of $0.50, exercisable for a period of three years from the contract date. The warrants were issued pursuant to a consulting agreement dated January 22, 2010, for fair value of $39,380.
On January 25, 2010, the Company issued 200,000 shares of the Company’s restricted common stock to a company, pursuant to a consulting agreement dated January 25, 2010, for fair value of $63,200.
On February 1, 2010, the Company issued 25,000 shares of the Company’s restricted common stock to a company, pursuant to an investor relations agreement dated February 1, 2010, for fair value of $7,500. The Company also issued warrants to purchase 150,000 shares of the Company’s restricted common stock at an exercise price of $0.30, exercisable for a period of one year from the contract date, for fair value of 20,355.
On February 1, 2010, an individual exercised 100,000 options to purchase shares of the Company’s restricted common stock at a per share price of $0.10 for gross proceeds of $10,000.
On February 3, 2010, the Company closed a private placement totaling 803,571 units at $0.28 per unit for gross proceeds of $225,000. Each unit consists of one common share and one $0.50 per share purchase warrant exercisable within a one year period from the date of the closing of the private placement.
On March 1, 2010, the Company issued 25,000 shares of the Company’s restricted common stock to a company, pursuant to the investor relations agreement dated February 1, 2010 for fair value of $7,500.
On March 13, 2010 the Company settled the outstanding debt of $100,000 with Minera Real Victoria through the issuance of 360,000 shares of the Company’s restricted common stock.
On March 24, 2010, the Company closed a private placement totaling 500,000 units at $0.20 per unit for gross proceeds of $100,000. Each unit consists of one common share and one $0.50 per share purchase warrant exercisable within a one year period from the date of the closing of the private placement.
On April 1, 2010, the Company issued 25,000 shares of the Company’s restricted common stock to a company, pursuant to the investor relations agreement dated February 1, 2010 for fair value of $7,000.
On April 12, 2010, the Company made an addendum to a consulting agreement dated January 22, 2010 and issued additional warrants, to an organization, to purchase 180,000 shares of the Company’s restricted common stock at an exercise price of $0.50, exercisable for a period of one year from the date of issuance, for fair value of 21,834.
On April 15, 2010, the Company issued warrants to purchase 50,000 shares of the Company’s restricted common stock at an exercise price of $0.50, exercisable for a period of two years from the date of issuance to an operations manager of the Company in China, for fair value of $9,095.
On April 15, 2010, the Company issued warrants to purchase 50,000 shares of the Company’s restricted common stock at an exercise price of $0.50, exercisable for a period of two years from the date of issuance to a geologist in China, for fair value of $9,095.
On May 1, 2010, the Company issued 25,000 shares of the Company’s restricted common stock to a company, pursuant to the investor relations agreement dated February 1, 2010 for fair value of $8,000.
206
|
SILVER DRAGON RESOURCES INC. |
|
(AN EXPLORATION STAGE COMPANY) |
|
Notes to the Consolidated Financial Statements |
|
December 31, 2011 and 2010 |
12. Capital Stock, continued
On May 14, 2010, the Company closed a private placement totaling 300,000 units at $0.28 per unit for gross proceeds of $84,000. Each unit consists of one common share and one $0.50 per share purchase warrant exercisable within a one year period from the date of the closing of the private placement.
On May 25, 2010, the Company issued 75,000 shares of the Company’s restricted common stock to a company, pursuant to a long-term consulting agreement dated May 19, 2010, for fair value of $14,625. The Company also issued warrants to purchase 300,000 shares of the Company’s restricted common stock at an exercise price of $0.28, exercisable for a period of one year from the issuance date, for fair value of $20,430.
On May 27, 2010, the Company closed a private placement totaling 1,250,000 units at $0.12 per unit for gross proceeds of $150,000. Each unit consists of one common share and one $0.50 per share purchase warrant exercisable within a one year period from the date of the closing of the private placement.
On June 1, 2010, the Company issued 375,000 of the Company’s restricted common stock to an individual, pursuant to a one-year accounting services contract for fair value of $75,000.
On June 23, 2010, the Company issued 300,000 shares of the Company’s restricted common stock to a company, pursuant to the investor relations agreement dated June 23, 2010 for fair value of $74,850.
On September 1, 2010, the Company issued warrants to an individual to purchase 200,000 shares of the Company’s restricted common stock at an exercise price of $0.18, exercisable for a period of two years from the contract date. The warrants were issued pursuant to a consulting agreement dated September 1, 2010, for fair value of $20,426.
On September 8, 2010, the Company issued warrants to an individual to purchase 200,000 shares of the Company’s restricted common stock at an exercise price of $0.18, exercisable for a period of three years from the contract date. The warrants were issued pursuant to a contract to provide services as Chief Financial Officer, for fair value of $23,058.
On September 21, 2010, the Company issued 25,000 of the Company’s restricted common stock to an individual, pursuant to an employment agreement dated September 21, 2010 for fair value of $6,250.
On September 28, 2010, the Company issued warrants, to a Director, to purchase 200,000 shares of the Company’s restricted common stock at an exercise price of $0.25, exercisable for a period of three years from the contract date. The warrants were issued pursuant to the appointment of the Director to the Company’s Board of Directors, for fair value of $32,704.
On October 1, 2010, the Company issued 300,000 shares of the Company’s restricted common stock to a company, pursuant to an investor relations agreement dated October 1, 2010 for fair value of $79,500.
207
|
SILVER DRAGON RESOURCES INC. |
|
(AN EXPLORATION STAGE COMPANY) |
|
Notes to the Consolidated Financial Statements |
|
December 31, 2011 and 2010 |
12. Capital Stock, continued
On October 4, 2010, the Company closed a private placement totaling 50,000 units at $0.20 per unit for gross proceeds of $10,000. Each unit consists of one common share and one $0.50 per share purchase warrant exercisable within a one year period from the date of the closing of the private placement.
On October 6, 2010, a Director of the Company subscribed to a private placement totaling 100,000 units at $0.28 per unit for gross proceeds of $28,000. Each unit consists of one common share and one $0.50 per share purchase warrant exercisable within a two year period from the date of the closing of the private placement.
On October 6, 2010, the Company issued 1,000,000 shares of the Company’s restricted common stock to a Director pursuant to the renewal of an employment agreement dated October 6, 2010, for fair value of $279,000.
On October 7, 2010, the Company issued warrants, to an individual, to purchase 50,000 shares of the Company’s restricted common stock at an exercise price of $0.25, exercisable for a period of two years from the contract date. The warrants were issued pursuant to a consulting agreement dated October 7, 2010, for fair value of $7,754.
On October 7, 2010, the Company issued 50,000 shares of the Company’s restricted common stock, to an individual, pursuant to an employment agreement dated October 7, 2010, for fair value of $13,000. The Company also issued warrants to purchase 200,000 shares of the Company’s restricted common stock at an exercise price of $0.25, exercisable for a period of one year from the contract date, for fair value of $31,015.
On October 8, 2010, the Company issued 100,000 shares of the Company’s restricted common stock, to an individual, as well as warrants to purchase 200,000 shares of the Company’s restricted common stock at an exercise price of $0.27, exercisable for a period of two years from the date of issuance. The shares and warrants were issued pursuant to the appointment of the individual to the Strategic Advisory Board of the Company on October 8, 2010, for fair value of $27,000 and $31,770, respectively.
On October 14, 2010, the Company closed a private placement totaling 50,000 units at $0.20 per unit for gross proceeds of $10,000. Each unit consists of one common share and one $0.50 per share purchase warrant exercisable within a one year period from the date of the closing of the private placement.
On October 15, 2010, the Company closed a private placement totaling 50,000 units at $0.20 per unit for gross proceeds of $10,000. Each unit consists of one common share and one $0.50 per share purchase warrant exercisable within a one year period from the date of the closing of the private placement.
On November 15, 2010, the Company closed a private placement totaling 33,333 units at $0.15 per unit for gross proceeds of $5,000. Each unit consists of one common share and one $0.50 per share purchase warrant exercisable within a one year period from the date of the closing of the private placement.
On November 29, 2010, the Company issued 6,000 shares of the Company’s restricted common stock to an individual as a finder’s fee, for fair value of $1,140.
208
|
SILVER DRAGON RESOURCES INC. |
|
(AN EXPLORATION STAGE COMPANY) |
|
Notes to the Consolidated Financial Statements |
|
December 31, 2011 and 2010 |
12. Capital Stock, continued
On December 11, 2010, the Company closed a private placement totaling 33,333 units at $0.15 per unit for gross proceeds of $5,000. Each unit consists of one common share and one $0.50 per share purchase warrant exercisable within a one year period from the date of the closing of the private placement.
On December 21, 2010, the Company closed a private placement totaling 768,000 units at $0.125 per unit for gross proceeds of $96,000. Each unit consists of one common share and one $0.25 per share purchase warrant exercisable within a three year period from the date of the closing of the private placement.
On December 21, 2010, pursuant to the signing of a term sheet proposing equity financing for the Company, the Company issued 201,094 shares of the Company’s restricted common stock to a company, for fair value of $22,120.
On December 23, 2010, the Company issued warrants to purchase 100,000 shares of the Company’s restricted common stock, to a consultant for assisting with a financing transaction, at an exercise price of $0.12, exercisable for a period of two years from the issuance date, for fair value of $7,152.
On January 18, 2011, the Company issued 50,000 shares of restricted common stock to a company, pursuant to the signing of a term sheet proposing $2.5 million of convertible debt financing for the Company, for fair value of $5,400 (note 10(d)).
On January 25, 2011, the Company issued 1,410,000 common share purchase warrants to directors and consultants at an exercise price of $0.11 exercisable for a period of three years from the date of issuance.
As an element of the Company’s ongoing financing program on January 27, 2011, the Superior Court of the State of California for the County of Los Angeles entered an Order Approving Stipulation for Settlement of in the matter entitled Socius CG II, Ltd. v. Silver Dragon Resources Inc. The order provided for settlement of Socius GC II, Ltd.’s (“Socius”) $405,981 claim against the Company. Socius purchased the claims from seven creditors of Silver Dragon. On January 28, 2011, the Company issued 9,000,000 shares of common stock to Socius and Socius subsequently returned 3,116,104 shares for cancellation.
On January 31, 2011, the Company issued 15,000 shares of restricted common stock to an individual for investor relation services provided, for fair value of $1,500.
On February 15, 2011 the Company issued 8.6 million share purchase warrants to an investor, as part of a financing arrangement (note 10) at an exercise price of $0.50 for a period of three years from the date of issuance.
On February 17, 2011, the Company issued 250,000 share purchase warrants to a company at an exercise price of $0.07 exercisable for a period of one year from the date of issuance.
On February 23, 2011, the Company issued 100,000 shares of restricted common stock to an individual pursuant to an addendum to an agreement signed October 7, 2010, for fair value of $12,400.
On April 20, 2011, the Company issued 125,000 shares of restricted common stock to a law firm for legal services provided in connection with the convertible financing agreement closed on April 21, 2011, for fair value of $20,000.
209
|
SILVER DRAGON RESOURCES INC. |
|
(AN EXPLORATION STAGE COMPANY) |
|
Notes to the Consolidated Financial Statements |
|
December 31, 2011 and 2010 |
12. Capital Stock, continued
On May 20, 2011, the Company issued 400,000 and 750,000 shares of restricted common stock for services provided in connection with investor relations, for a fair value of $45,400 and $83,625 respectively. On August 24, 2011, the Company cancelled 750,000 shares since the contract for services was cancelled.
On May 27, 2011, the Company closed a private placement and issued 1,250,000 units at $0.10 per unit for a total of $125,000. Each unit comprises of one common share and one common share purchase warrant. Each warrant of this type being exercisable for a period of 12 months to acquire one common share at an exercise price of $0.20.
On May 27, 2011, the Company issued 1,250,000 warrants exercisable for a period of 24 months to acquire one common share at an exercise price of $0.50.
On June 16, 2011, the Company issued 50,000 shares of restricted common stock for services provided in connection with investor relations, for a fair value of $5,000.
On June 16, 2011, the Company issued 100,000 common share warrants for services provided at an exercise price of $0.12 exercisable for a period of one year from the date of issuance, for fair value of $3,946.
On August 10, 2011, the Company issued 100,000 common share warrants to an employee at an exercise price of $0.15 exercisable for a period of two years from the date of issuance, for fair value of $6,139.
On December 8, 2011, the Company issued 1,562,500 shares at $0.08 per unit for a total of $125,000.
During the year ended December 31, 2011, the Company issued 5,010,000 shares pursuant to the conversion of a note of $185,380 principal and $103,105 interest (note 10(a)).
During the year ended December 31, 2011, an investor elected to convert two outstanding notes payable totaling $318,100 plus accrued interest of $3,353. The Company issued a total of 8,686,428 shares (note 10(b)).
During the year ended December 31, 2011, the Company issued 6,350,000 free trading shares pursuant to the conversion of a note with a balance of $392,085 principal (note 10(c)).
During the year ended December 31, 2011, an investor elected to convert six outstanding notes payable totaling $340,000 plus accrued interest of $13,600. The Company issued a total of 6,548,784 shares (note 10(d)).
210
|
SILVER DRAGON RESOURCES INC. |
|
(AN EXPLORATION STAGE COMPANY) |
|
Notes to the Consolidated Financial Statements |
|
December 31, 2011 and 2010 |
12. Capital Stock, continued
Warrants
As at December 31, 2011, 22,978,000 warrants were outstanding, having an exercise price between $0.07 and $5.00 per share with an average remaining contractual life of 1.89 years.
|
|
|
|
|
|
|
|
|
| Number of |
| Weighted |
| ||
|
|
|
|
|
|
|
|
Balance, December 31, 2009 |
|
| 15,814,198 |
| $ | 0.58 |
|
Issued during the year ended December 31, 2010 |
|
| 6,018,237 |
|
| 0.40 |
|
Expired during the year ended December 31, 2010 |
|
| (6,614,198 | ) |
| (0.50 | ) |
|
|
|
|
|
|
|
|
Balance, December 31, 2010 |
|
| 15,218,237 |
| $ | 0.55 |
|
Issued during the year ended December 31, 2011 |
|
| 12,960,000 |
|
| 0.41 |
|
Expired during the year ended December 31, 2011 |
|
| (5,200,237 | ) |
| (0.49 | ) |
|
|
|
|
|
|
|
|
Balance, December 31, 2011 |
|
| 22,978,000 |
| $ | 0.48 |
|
As at December 31, 2011, the range of exercise prices of the outstanding warrants were as follows:
|
|
|
|
|
|
|
|
|
|
|
Range of exercise prices |
| Number of |
| Average remaining |
| Weighted |
| |||
$0.07 - $1.00 |
|
| 21,778,000 |
|
| 1.95 years |
| $ | 0.43 |
|
$1.01 - $2.00 |
|
| 1,000,000 |
|
| 0.95 years |
| $ | 1.25 |
|
$2.01 - $5.00 |
|
| 200,000 |
|
| 0.17 years |
| $ | 2.75 |
|
Options
As at December 31, 2011, 700,000 options were outstanding, having an exercise price between $0.10 and $0.95 per share with an average remaining contractual life of 0.48 years.
|
|
|
|
|
|
|
|
|
| Number of |
| Weighted average |
| ||
|
| ||||||
Balance, December 31, 2010 |
|
| 700,000 |
| $ | 0.70 |
|
Balance, December 31, 2011 |
|
| 700,000 |
| $ | 0.70 |
|
As at December 31, 2011, the range of exercise prices of the outstanding options were as follows:
|
|
|
|
|
|
|
|
|
|
|
Range of exercise prices |
| Number of options |
| Average remaining |
| Weighted |
| |||
$0.10 - $0.95 |
|
| 700,000 |
|
| 0.48 years |
| $ | 0.70 |
|
211
|
SILVER DRAGON RESOURCES INC. |
|
(AN EXPLORATION STAGE COMPANY) |
|
Notes to the Consolidated Financial Statements |
|
December 31, 2011 and 2010 |
13. Supplemental Cash Flow Information
Issuance of convertible notes payable
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, |
| December |
| For the period |
| |||
|
| |||||||||
Issuance of convertible notes payable |
| $ | 5,240,000 |
| $ | — |
| $ | 5,240,000 |
|
Cash advances |
|
| 1,510,000 |
|
| 170,000 |
|
| 1,658,493 |
|
Notes receivable |
|
| (5,127,500 | ) |
| — |
|
| (5,127,500 | ) |
Cash repayments on notes receivable |
|
| 850,000 |
|
| — |
|
| 850,000 |
|
Deferred charges |
|
| (197,846 | ) |
| — |
|
| (197,846 | ) |
|
| |||||||||
|
| $ | 2,274,654 |
|
| 170,000 |
|
| 2,423,147 |
|
|
|
14. Commitments and Contingencies
|
|
(a) | In 2007, the Company entered into a five year lease agreement for office, which ends March 31, 2012. On December 19, 2011, the Company entered into a three year lease agreement for office, which commences April 1, 2012 and ends March 31, 2015. The future minimum commitment under the lease obligations for office premises are as follows: |
|
|
|
|
|
2012 |
| $ | 73,114 |
|
2013 |
|
| 60,355 |
|
2014 |
|
| 60,355 |
|
2015 |
|
| 15,089 |
|
|
|
| ||
|
| $ | 208,913 |
|
|
|
|
|
|
| In addition, the Company is required to pay its proportionate share of realty taxes and certain other occupancy costs under the terms of the lease. |
|
|
(b) | Under an agreement with HIC, the Company has committed to provide capital contributions to cover expenses proportionate to its equity interest in Sino-Top. |
|
|
(c) | In December 2010, shareholders of the Company received a letter from a shareholder which contained two items. The first was a copy of a legal proceeding filed in China and the second was a letter making certain allegations regarding the Company and its management. The legal proceeding was filed by two shareholders and sought to invalidate the Company’s sale in 2008 of 50% of Sanhe Sino-Top Resources & Technologies, Ltd. The Company believes that the legal proceeding was frivolous and wholly without merit. The sale in question was made to a Chinese government-owned entity, after the receipt of approval by the Ministry of Commerce in China. |
|
|
| The second item was a letter written by a purported “Minority Shareholder Committee,” claiming that it had initiated the proceeding. The letter alleged that the Company and its management had engaged in various improper and illegal activities. The Company, on several occasions, through its legal counsel in several countries, had asked that individual to cease and desist, and subsequently filed a Writ of Summons in the High Court of the Hong Kong Special Administrative Region, Court of First Instance claiming damages for libel, an injunction and other relief. On May 4, 2011, judgment was given in favor of the Company for damages for libel, malicious falsehood, interest and costs, with amounts to be assessed by the court. The next hearing has been scheduled in Beijing for April 18, 2012. |
212
|
SILVER DRAGON RESOURCES INC. |
|
(AN EXPLORATION STAGE COMPANY) |
|
Notes to the Consolidated Financial Statements |
|
December 31, 2011 and 2010 |
14. Commitments and Contingencies, continued
|
|
(d) | The Company’s Mexican subsidiary has been subjected to irregularities that it is seeking to redress. Legal proceedings were heard and decided on an ex parte basis, without notice to the Company that resulted in its Mexican subsidiary losing title to its mineral assets. In December 2010, the Company became aware of this situation, and has taken steps through the courts in Mexico to redress the situation. It has commenced a Constitutional Rights Claim before the Federal Court in the City of Durango, premised on procedural irregularities. The court proceedings are continuing in Mexico. |
15. Subsequent Events
On January 27, 2012, the Company issued a secured convertible promissory note, bearing interest at 8% per annum for $42,500; payable by October 30, 2012. The note is secured by assets pledged as collateral.
On February 3, 2012, 357,143 shares were issued for legal services rendered for a fair value of $20,000.
On February 15, 2012, 100,000 shares were issued for services rendered for a fair value of $6,000.
On March 15, 2012, the Company issued a secured convertible promissory note, bearing interest at 8% per annum for $51,000; payable by December 19, 2012. The note is secured by assets pledged as collateral.
After the year ended December 31, 2011, the Company issued 17,138,219 shares pursuant to the conversion of a note of $437,594 principal and $53,626 interest (note 10(a)).
After the year ended December 31, 2011, an investor elected to convert one outstanding notes payable totaling $81,900 plus accrued interest of $2,683. The Company issued a total of 2,663,514 shares (note 10(b)).
After the year ended December 31, 2011, the Company issued11,394,552 free trading shares pursuant to the conversion of a note with a principal balance of $360,428 to convert one outstanding notes payable totaling $55,000 plus accrued interest of $5,200. The Company issued a total of 1,890,039 shares (note 10(d)).
213
|
SILVER DRAGON RESOURCES INC. |
|
(AN EXPLORATION STAGE COMPANY) |
|
Notes to the Consolidated Financial Statements |
|
December 31, 2011 and 2010 |
16. Segmented Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2011 |
| Corporate |
| Mexico |
| China |
| Total |
| ||||
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity investment |
| $ | — |
| $ | — |
| $ | 4,328,143 |
| $ | 4,328,143 |
|
Notes receivable |
| $ | 4,277,500 |
| $ | — |
| $ |
|
| $ | 4,277.500 |
|
Total assets |
| $ | 4,776,665 |
| $ | 597 |
| $ | 4,328,143 |
| $ | 9,105,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2011 |
| Corporate |
| Mexico |
| China |
| Total |
| ||||
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Depreciation |
| $ | 47,113 |
| $ | — |
| $ | — |
| $ | 47,113 |
|
Loss before income tax |
| $ | (3,166,149 | ) | $ | (139,298 | ) | $ | (710,145 | ) | $ | (4,015,592 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2010 |
| Corporate |
| Mexico |
| China |
| Total |
| ||||
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity investment |
| $ | — |
| $ | — |
| $ | 4,832,922 |
| $ | 4,832,922 |
|
Notes receivable |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Total assets |
| $ | 609,859 |
| $ | 962 |
| $ | 4,832,922 |
| $ | 5,443,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2010 |
| Corporate |
| Mexico |
|
|
| Total |
| ||||
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
Depreciation |
| $ | 54,008 |
| $ | 38,679 |
| $ | — |
| $ | 92,687 |
|
Loss before income tax |
| $ | (1,889,519 | ) | $ | (2,335,389 | ) | $ | (93,410 | ) | $ | (4,318,318 | ) |
17. Comparative Figures
Certain items have been reclassified to conform to the presentation adopted in 2011.
214
Until 90 days after the date when the securities are sold, all dealers effecting transactions in the shares, whether or not participating in the distribution, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters to their unsold allotments or subscriptions.
NIREK RESOURCES INC.
GUARDIANS OF GOLD INC.
Offer to Exchange
215
of
Nirek Resources Inc.;
(ii) 1,668,031 Shares of Common Stock
of
Guardians of Gold Inc.;
(iii) 1,668,031 Silver Certificates
Issued by Nirek Resources Inc.
for ten (10) grams of silver to be delivered by March 31, 2016; and
issued by Nirek Resources Inc.
exercisable on or before May 18, 2012 at a cost of $190.00
for ten (10) grams of gold.
216
For Shares of Issued and Outstanding
Silver Dragon Resources Inc., Common Stock
On the Basis of an Exchange of one hundred (100) Silver Dragon Resources Inc. Shares for
(i) One (1) Guardians of Gold Inc. Share of Common Stock;
(ii) One (1) Nirek Resources Inc. Share of Common Stock;
(iii) One (1) Silver Certificate issued by Nirek Resources Inc. for ten (10) grams of silver to
be delivered by
March 31, 2016; and
(iv) One (1) Warrant issued by Nirek Resources Inc. exercisable on or before May 18, 2012
at a cost of $190.00 for ten (10) grams of gold.
217
|
|
Item 20. | Indemnification of Directors and Officers |
Section 78.751 of the Nevada General Corporation Law provides generally and in pertinent part that a Nevada corporation may indemnify its officers and directors. This provision does not apply to the directors’ (i) acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) acts or omissions that a director believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the director, (iii) approval of any transaction from which a director derives an improper personal benefit, (iv) acts or omissions that show a reckless disregard for the director’s duty to the corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director’s duties, of a risk of serious injury to the corporation or its shareholders, (v) acts or omissions that constituted an unexcused pattern of inattention that amounts to an abdication of the director’s duty to the corporation or its shareholders, or (vi) approval of an unlawful dividend, distribution, stock repurchase or redemption. This provision would generally absolve directors of personal liability for negligence in the performance of duties, including gross negligence.
The effect of this provision in GOG’s articles of incorporation is to eliminate the rights of GOG and its stockholders (through stockholder’s derivative suits on behalf of GOG) to recover monetary damages against a director for breach of his fiduciary duty of care as a director (including breaches resulting from negligent or grossly negligent behavior) except in the situations described in clauses (i) through (vi) above. This provision does not limit nor eliminate the rights of GOG or any stockholder to seek non-monetary relief such as an injunction or rescission in the event of a breach of a director’s duty of care. In addition, GOG’s articles of incorporation provide that if Nevada law is amended to authorize the future elimination or limitation of the liability of a director, then the liability of the directors will be eliminated or limited to the fullest extent permitted by the law, as amended. GOG’s bylaws provide for indemnification of such persons to the full extent allowable under applicable law. These provisions will not alter the liability of the directors under federal securities laws.
A resolution by the NRI Board of Directors, dated January 25, 2010, was passed that indemnified its officers and directors from that date forward from any personal loss or damage from any actions regarding the corporation which are performed in good faith. This resolution does not apply to any directors’ or officers’ (i) acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) acts or omissions that a director or officer believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the director or officer, (iii) approval of any transaction from which a director or officer derives an improper personal benefit, (iv) acts or omissions that show a reckless disregard for the director’s or officer’s duty to the corporation or its shareholders in circumstances in which the director or officer was aware, or should have been aware, in the ordinary course of performing a director’s or officer’s duties, of a risk of serious injury to the corporation or its shareholders, (v) acts or omissions that constituted an unexcused pattern of inattention that amounts to an abdication of the director’s or officer’s duty to the corporation or
218
its shareholders, or (vi) approval of an unlawful dividend, distribution, stock repurchase or redemption. This provision would generally absolve directors and officers of personal liability for negligence in the performance of duties, including gross negligence.
The effect of this resolution is to eliminate the rights of NRI’s stockholders (through stockholder’s derivative suits on behalf of NRI) to recover monetary damages against a director for breach of his fiduciary duty of care as a director (including breaches resulting from negligent or grossly negligent behavior) except in the situations described in clauses (i) through (vi) above. This resolution does not limit nor eliminate the rights of NRI or any stockholder to seek non-monetary relief such as an injunction or rescission in the event of a breach of a director’s duty of care. This resolution provides for indemnification of such persons to the full extent allowable under Canadian federal and provincial laws and to the extent the provincial security regulator laws may apply. Canadian and Ontario laws would generally take precedence over any foreign jurisdictions laws or regulatory body rules.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling GOG and NRI pursuant to the foregoing provisions, GOG and NRI have been informed that in the opinion of the SEC, such indemnification is against public policy and is therefore unenforceable.
|
|
Item 21. | Exhibits and Financial Statements |
See the Exhibit Index below.
|
|
Item 22. | Undertakings |
a. The undersigned registrant hereby undertakes:
1. To file, during any period in which it offers or sells securities, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933.
(ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set for the in the “Calculation of Registration Fee” table in the effective registration statement.
219
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
2. That, for the purpose of determining any liability under the Securities Act of 1933, the registrant will treat each post-effective amendment as a new registration statement relating to the securities offered therein, and the offering of the securities at that time to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment any of the securities that remain unsold at the termination of the offering.
4. Since the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use
5. That, for the purposes of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the Offering containing material information about the undersigned small business issuer or its securities provided by or on behalf of the undersigned small business issuer; and
(iv) Any other communication that is an offer in the Offering made by the undersigned small business issuer to the purchaser.
220
6. The undersigned registrant hereby undertakes to deliver or cause to be delivered with the prospectus, to each person to whom the prospectus is sent or given, the latest annual report to security holders that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be presented byArticle 3 of Regulation S-X are not set forth in the prospectus, to deliver, or cause to be delivered to each person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information.
7. The undersigned registrant hereby undertakes as follows: That prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning ofRule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form.
The registrant undertakes that every prospectus (i) that is filed pursuant to paragraph (h)(1) immediately preceding, or (ii) that purports to meet the requirements ofsection 10(a)(3) of the Act and is used in connection with an offering of securities subject toRule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
221
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Guardians of Gold Inc., certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-4/A and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized on April 3, 2012.
|
|
|
|
|
|
|
| Guardians of Gold Inc. |
|
|
|
|
| /s/ Ron Haller |
|
| |
|
| Ron Haller, Treasurer and Director |
|
|
|
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons, in the capacities and on the dates indicated.
|
|
|
|
|
|
|
|
|
|
Date: |
| April 3, 2012 |
| /s/ Ron Haller |
|
|
|
| |
|
|
|
| Ron Haller, Treasurer and Director |
|
|
|
|
|
|
|
|
|
|
Date: |
| April 3, 2012 |
| /s/ Walter Fox |
|
|
|
| |
|
|
|
| Walter Fox, Director |
|
|
|
|
|
Date: |
| April 3, 2012 |
| /s/ Graeme Scott |
|
|
|
| |
|
|
|
| Graeme Scott, President |
|
|
|
|
|
Date: |
| April 3, 2012 |
| /s/ Matthew McMurdo |
|
|
|
| |
|
|
|
| Matthew McMurdo |
|
|
|
| Authorized United States Representative |
|
|
|
|
|
222
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Nirek Resources Inc., certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-4/A and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized on April 3, 2012.
|
|
|
|
| Nirek Resources Inc. |
|
|
|
|
| /s/ Abraham Arnold |
|
| |
|
| Abraham Arnold |
|
| President, attorney-in-fact |
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons, in the capacities and on the dates indicated.
|
|
|
|
|
|
|
|
|
|
Date: |
| April 3, 2012 |
| /s/ Abraham Arnold |
|
|
|
| |
|
|
|
| Abraham Arnold |
|
|
|
| President, Principal Accounting Officer and Director |
|
|
|
|
|
Date: |
| April 3, 2012 |
| /s/ Dave Coutts |
|
|
|
| |
|
|
|
| Dave Coutts |
|
|
|
| Director |
|
|
|
|
|
Date: |
| April 3, 2012 |
| /s/ Matthew McMurdo |
|
|
|
| |
|
|
|
| Matthew McMurdo |
|
|
|
| Authorized United States Representative |
|
|
|
|
|
223
|
|
Exhibit | Description |
|
|
3.1 | Amended and Restated Articles of Incorporation of Bylaws Guardians of Gold Inc. (filed December 21, 2011). |
3.2 | Amended and Restated Articles of Incorporation and Bylaws of Nirek Resources Inc. (filed December 21, 2011). |
4.1 | Specimen Common Stock Certificate of Guardians of Gold Inc. (filed December 21, 2011). |
4.2 | Specimen Common Stock Certificate of Nirek Resources Inc. (filed December 21, 2011). |
4.3 | Form of Nirek Resources Inc. Silver Certificate. (filed December 21, 2011). |
4.4 | Form of Nirek Resources Inc. Gold Warrant with subscription form (filed December 21, 2011). |
4.5 | Form of Gold Certificate (filed December 21, 2011). |
5.1 | Opinion of Nannarone & McMurdo, LLP, as to the validity of the shares of GOG common stock being offered. |
5.2 | Opinion of John Spratley, LLB, as to the validity of the shares of NRI common stock, NRI Warrants and Silver Certificates being issued and matters of Ontario law. |
10.1 | Memorandum of Agreement, dated January 28, 2011, by and between Nirek Resources Inc. and Guardians of Gold, Inc. (filed December 21, 2011). |
23.1 | Consent of Joern (John) Scholz. |
23.2 | Consent of Nannarone & McMurdo, LLP (included in Exhibit 5.1). |
23.3 | Consent of John Spratley, LLB (included in Exhibit 5.2). |
|
|
23.4 | Consent of SF Partnership, LLC. |
24.1 | Power of Attorney, included on signature pages of Form S-4 (filed June 29, 2011). |
99.1 | Notice of Guaranteed Delivery (filed December 21, 2011). |
99.2 | Form of Letter of Transmittal.* |
224