UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
[ ] | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934. |
[X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 31, 2005 |
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSACTION PERIOD FROM ______________ TO ___________________ |
Commission File Number 0-15688
CORAL GOLD RESOURCES LTD.
(Exact name of Registrant as specified in its charter)
A CORPORATION FORMED UNDER THE LAWS OF BRITISH COLUMBIA, CANADA
(Jurisdiction of Incorporation or Organization)
455 Granville Street, Suite 400, Vancouver, British Columbia V6C 1T1, Canada
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:None
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Common Shares, no par value
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:None
The number of outstanding Common Shares as of January 31, 2005 was 4,648,905.
Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X]Yes [ ]No
Indicate by check mark which financial statement item the Company has elected to follow.
Item 17 [X] Item 18 [ ]
(Applicable only to issuers involved in bankruptcy proceedings during the past five years)
Indicate by check mark whether the Company has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. NOT APPLICABLE
i
TABLE OF CONTENTS
Item Page
Glossary of Technical Terms | 2 |
Forward-looking Statements | 3 |
Part I | 3 |
Item 1. Identity of Directors, Senior Management and Advisors | 3 |
Item 2. Offer Statistics and Expected Timetable | 3 |
Item 3. Key Information | 3 |
Item 4. Information on the Company | 9 |
Item 5. Operating and Financial Review and Prospects | 23 |
Item 6. Directors, Senior Management and Employees | 28 |
Item 7. Major Shareholders and Related Party Transactions | 33 |
Item 8. Financial Information | 34 |
Item 9. The Offer and Listing | 35 |
Item 10. Additional Information | 36 |
Item 11. Quantitative and Qualitative Disclosures About Market Risk | 43 |
Item 12. Description of Securities Other than Equity Securities | 44 |
Part II | 44 |
Item 13. Defaults, Dividend Arrearages and Delinquencies | 44 |
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds | 44 |
Item 15. Controls and Procedures | 44 |
Item 16. [Reserved] | 45 |
Item 16A. Audit Committee Financial Report | 45 |
Item 16B. Code of Ethics | 45 |
Item 16C. Principal Accountant Fees and Services | 45 |
Item 16D. Exemptions from the Listing Standards for Audit Committees | 46 |
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers | 46 |
Part III | 46 |
Item 17. Financial Statements | 46 |
Item 18. Financial Statements | 46 |
Item 19. Exhibits | 46 |
Exhibits
Certification of Principal Executive Officer | 12.1 |
Certification of Principal Financial Officer | 12.2 |
Certification 906 | 13.1 |
Consent of Expert | 13.2 |
i
GLOSSARY OF TECHNICAL TERMS | |
au | The elemental symbol for gold. |
chalcopyrite | Copper sulphide mineral. |
chert | A rock resembling flint and consisting essentially of crypto-crystalline quartz or fibrous chalcedony. |
cretaceous | The geologic period extending from 135 million to 65 million years ago. |
epidote | Calcium, aluminum, iron silicate mineral commonly occurring in hydrothermally altered carbonate-bearing rocks. |
fault | A fracture in a rock where there has been displacement of the two sides. |
grade | The concentration of each ore metal in a rock sample, usually given as weight percent. Where extremely low concentrations are involved, the concentration may be given in grams per tonne (g/t or gpt) or ounces per ton (oz/t). The grade of an ore deposit is calculated, often using sophisticated statistical procedures, as an average of the grades of a very large number of samples collected from throughout the deposit. |
GSR | Payment of a percentage of gross mining profits commonly known as gross smelter return royalty. |
hydrothermal | Hot fluids, usually mainly water, in the earth's crust which may carry metals and other compounds in solution to the site of ore deposition or wall rock alteration. |
intrusive | A rock mass formed below earth's surface from magma which has intruded into a pre-existing rock mass. |
mineralization | Usually implies minerals of value occurring in rocks. |
net smelter or NSR Royalty | Payment of a percentage of net mining profits after deducting applicable smelter charges. |
porphyry | Rock type with mixed crystal sizes, i.e. containing larger crystals of one or more minerals. |
pyrrhotite | A bronze coloured mineral of metallic lustre that consists of ferrous sulphide and is attracted by a magnet. |
pyrite | Iron sulphide mineral. |
quartz | Silica or SiO2, a common constituent of veins, especially those containing gold and silver mineralization. |
veins | The mineral deposits that are found filling openings in rocks created by faults or replacing rocks on either side of faults. |
2
Forward-Looking Statements
The following discussion contains forward-looking statements regarding events and financial trends, which may affect the future operating results and financial position of Coral Gold Resources, Ltd., formerly known as Coral Gold Corp. (the “Company”, or alternatively, “Coral”). Such statements are subject to risks and uncertainties that could cause the Company’s actual results and financial position to differ materially from those anticipated in the forward-looking statements. These factors include, but are not limited to, the factors set forth in the sections entitled “Risk Factors” in Item 3.D. and “Operating and Financial Review and Prospects” at Item 5.
Part I
Item 1. Identity of Directors, Senior Management and Advisors
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
A. Selected Financial Data
The selected historical financial information presented in the table below for each year ended January 31, 2005, 2004, 2003, 2002 and 2001, is derived from the audited consolidated financial statements of the Company. The audited consolidated financial statements and notes for each year in the three year period ended January 31, 2005, 2004 and 2003 are included in this Annual Report. The selected historical financial information for each year ended January 31, 2002 and 2001, presented in the table below are derived from financial statements of the Company that are not included in this Annual Report. The selected financial information presented below should be read in conjunction with the Company’s financial statements and the notes thereto (Item 17) and the Operating and Financial Review and Prospects (Item 5) included elsewhere in this Annual Report.
The selected financial data has been prepared in accordance with Canadian generally accepted accounting principles, referred to as “Canadian GAAP”. The consolidated financial statements included in Item 17 in this filing are also prepared under Canadian GAAP. Included within these consolidated financial statements in Note 14 is a reconciliation between Canadian and United States generally accepted accounting principles, referred to as "U.S. GAAP", which differ in respect to the recording of the foreign exchange (gains) and losses, deferred exploration expenditures and recognition of compensation expense upon the issuance of stock options.
In this Annual Report, all dollars are expressed in Canadian dollars unless otherwise stated.
Canadian GAAP | Year Ended January 31, | |||||||||||||||
2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||
Operations: | ||||||||||||||||
Revenue | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||
Expense | ||||||||||||||||
General and administrative | 866,085 | 640,502 | 538,893 | 244,071 | 260,433 | |||||||||||
Net Income (Loss) | (878,819) | (753,596) | (755,999) | (1,128,401) | (471,458) | |||||||||||
Net Income (Loss) Per Share | (0.19) | (0.20) | (0.27) | (0.54) | (0.24) | |||||||||||
As at January 31, | ||||||||||||||||
2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||
BalanceSheetData: | ||||||||||||||||
Working Capital | $ | 1,469,909 | $ | 2,601,586 | $ | 43,181 | $ | 336,598 | $ | 393,554 | ||||||
Total Assets | 10,749,628 | 10,967,000 | 8,888,094 | 6,564,304 | 7,030,494 | |||||||||||
Liabilities | 162,289 | 161,095 | 387,499 | 259,095 | 78,884 | |||||||||||
Shareholders' Equity | 10,587,339 | 10,805,905 | 8,500,595 | 6,305,209 | 6,951,610 | |||||||||||
Number of Shares Issued | 4,629,892 | 3,686,398 | 2,805,433 | 2,095,913 | 1,948,953 | |||||||||||
U.S. GAAP: | ||||||||||||||||
Year Ended January 31, | ||||||||||||||||
2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||
Operations: | ||||||||||||||||
Revenue | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||
Loss for year under Canadian GAAP | (878,819 | ) | (753,596 | ) | (755,999 | ) | (1,128,401 | ) | (471,458 | ) | ||||||
Adjustments | ||||||||||||||||
Deferred exploration expenditures | (897,908 | ) | (420,054 | ) | (1,351,302 | ) | (196,909 | ) | (275,162 | ) | ||||||
Stock based compensation | - | - | (60,000 | ) | - | - | ||||||||||
Writedown of deferred exploration expenditures | - | 4,968 | 10,389 | 70,019 | 206,898 | |||||||||||
Writedown of mineral property acquisition costs | - | - | - | 700,000 | - | |||||||||||
Change in unrealized (gain) loss of marketable securities | - | - | 22,686 | 96,488 | - | |||||||||||
Unrealized loss on invetment security | - | 19,007 | - | - | - | |||||||||||
Proceeds of interest deposed of | - | - | 58,681 | - | - | |||||||||||
Net loss for the year under U.S. GAAP | (1,776,727 | ) | (1,149,675 | ) | (2,075,545 | ) | (458,803 | ) | (539,722 | ) | ||||||
Income (loss) per share under U.S. GAAP | (0.38 | ) | (0.31 | ) | (0.74 | ) | (0.22 | ) | (0.28 | ) | ||||||
As at January 31, | ||||||||||||||||
BalanceSheetData: | 2005 | 2004 | 2003 | 2002 | 2001 | |||||||||||
Total assests under Canadian GAAP | 10,749,628 | 10,967,000 | 8,888,094 | 6,564,304 | 7,030,494 | |||||||||||
Adjustments | (8,472,255 | ) | (7,574,347 | ) | (7,159,261 | ) | (5,877,029 | ) | (6,450,139 | ) | ||||||
Total assets under US GAAP | 2,277,373 | 3,392,653 | 1,728,833 | 687,275 | 580,355 | |||||||||||
Total equity under Canadian GAAP | 10,587,339 | 10,805,905 | 8,500,595 | 6,405,209 | 6,951,610 | |||||||||||
Adjustments | (8,472,255 | ) | (7,574,347 | ) | (7,159,261 | ) | (5,877,029 | ) | (6,450,139 | ) | ||||||
Total equity under US GAAP | 2,115,084 | 3,231,558 | 1,341,334 | 528,180 | 501,471 |
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Exchange Rates
The following table sets forth information as to the period end, average, the high and the low exchange rate for Canadian Dollars and U.S. Dollars for the periods indicated based on the noon buying rate in New York City for cable transfers in Canadian Dollars as certified for customs purposes by the Federal Reserve Bank of New York (Canadian dollar = US$1).
Year Ended January 31, | Average | Period End | High | Low |
2001 | 1.4899 | 1.4995 | 1.5600 | 1.4417 |
2002 | 1.5568 | 1.5915 | 1.6128 | 1.4933 |
2003 | 1.5655 | 1.5286 | 1.6112 | 1.5108 |
2004 | 1.3803 | 1.3265 | 1.5315 | 1.2690 |
2005 | 1.2961 | 1.2396 | 1.3970 | 1.1775 |
The following table sets forth the high and low exchange rate for the past six months. As of July 14, 2005, the exchange rate was CDN$1.2071 for each US$1.
Month | High | Low | |||||
January 2005 | $ | 1.2422 | $ | 1.1982 | |||
February 2005 | 1.2562 | 1.2294 | |||||
March 2005 | 1.2463 | 1.2017 | |||||
April 2005 | 1.2568 | 1.2146 | |||||
May 2005 | 1.2703 | 1.2373 | |||||
June 2005 | 1.2578 | 1.2256 |
B. | Capitalization and Indebtedness |
Not Applicable.
C. Reasons for the Offer and Use of Proceeds
Not Applicable.
D. Risk Factors
In addition to the other information presented in this Annual Report, the following should be considered carefully in evaluating the Company and its business. This Annual Report contains forward-looking statements that involve risk and uncertainties. The Company’s actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed below and elsewhere in this Annual Report.
We will be required to raise additional capital to mine our properties. The Company is currently in the exploration stage of its properties. If the Company determines based on its most recent information that it is feasible to begin operations on its properties, the Company will be required to raise additional capital in order to develop and bring the properties into production.
The commercial quantities of ore cannot be accurately predicted.Whether an ore body will be commercially viable depends on a number of factors including the particular attributes of the deposit, such as size, grade and proximity to infrastructure, as well as mineral prices and government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in a mineral deposit being unprofitable.
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The mining industry is highly speculative and involves substantial risks. The mining industry, from exploration, development and production is a speculative business, characterized by a number of significant risks including, among other things, unprofitable efforts resulting not only from the failure to discover mineral deposits but from finding mineral deposits which, though present, are insufficient in quantity and quality to return a profit from production. The marketability of minerals acquired or discovered by the Company may be affected by numerous factors which are beyond the control of the Company and which cannot be accurately predicted, such as market fluctuations, the proximity and capacity of milling facilities, mineral markets and processing equipment, and government regulations, including regulations relating to royalties, allowable production, importing and exporting of minerals, and environmental protection, the combination of which factors may result in the Company not receiving an adequate return on investment capital.
The Company’s properties are all at the exploration stage and have no proven reserves. All of the Company's properties are in the exploration stage only and are without a known body of ore. If the Company does not discover a body of ore in its properties, the Company will search for other properties where they can continue similar work.
The Company’s mineral exploration efforts may be unsuccessful. Despite exploration work on its mineral claims, no known bodies of commercial ore or economic deposits have been established on any of the Company’s properties. In addition, the Company is at the exploration stage on all of its properties and substantial additional work will be required in order to determine if any economic deposits occur on the Company’s properties. Even in the event commercial quantities of minerals are discovered, the exploration properties might not be brought into a state of commercial production. Finding mineral deposits is dependent on a number of factors, including the technical skill of exploration personnel involved. The commercial viability of a mineral deposit once discovered is also dependent on a number of factors, some of which are particular attributes of the deposit, such as size, grade and proximity to infrastructure, as well as metal prices. Most of these factors are beyond the control of the entity conducting such mineral exploration. The Company is an exploration stage company with no history of pre-tax profit and no income from its operations.
Competition for mineral land. There is a limited supply of desirable mineral lands available for acquisition, claim staking or leasing in the areas where the Company contemplates expanding its operations and conducting exploration activities. Many participants are engaged in the mining business, including large, established mining companies. Accordingly, there can be no assurance that the Company will be able to compete successfully for new mining properties.
Uncertainty of exploration and development programs. The Company's profitability is significantly affected by the costs and results of its exploration and development programs. As mines have limited lives based on proven and probable mineral reserves, the Company actively seeks to expand its mineral reserves, primarily through exploration, development and strategic acquisitions. Exploration for minerals is highly speculative in nature, involves many risks and is frequently unsuccessful. Among the many uncertainties inherent in any gold and silver exploration and development program are the location of economic ore bodies, the development of appropriate metallurgical processes, the receipt of necessary governmental permits and the construction of mining and processing facilities. Assuming the discovery of an economic deposit, depending on the type of mining operation involved, several years may elapse from the initial phases of drilling until commercial operations are commenced and, during such time, the economic feasibility of production may change. Accordingly, the Company's exploration and development programs may not result in any new economically viable mining operations or yield new mineral reserves to expand current mineral reserves.
Licenses and permits. The operations of the Company require licenses and permits from various governmental authorities. The Company believes that it holds all necessary licenses and permits under applicable laws and regulations and believes that it is presently complying in all material respects with the terms of such licenses and permits. However, such licenses and permits are subject to change in various circumstances. There can be no guarantee that the Company will be able to obtain or maintain all necessary licenses and permits as are required to explore and develop its properties, commence construction or operation of mining facilities and properties under exploration or development or to maintain continued operations that economically justify the cost.
6
Litigation.Although the Company is not currently subject to litigation, it may become involved in disputes with other parties in the future which may result in litigation. Any litigation could be costly and time consuming and could divert our management from our business operations. In addition, if the Company is unable to resolve any litigation favorably, it may have a material adverse impact on the Company's financial performance, cash flow and results of operations.
Acquisitions. The Company undertakes evaluations of opportunities to acquire additional mining properties. Any resultant acquisitions may be significant in size, may change the scale of the Company's business, and may expose the Company to new geographic, political, operating, financial and geological risks. The Company's success in its acquisition activities depends on its ability to identify suitable acquisition candidates, acquire them on acceptable terms, and integrate their operations successfully. Any acquisitions would be accompanied by risks, such as a significant decline in the price of gold or silver, the ore body proving to be below expectations, the difficulty of assimilating the operations and personnel of any acquired companies, the potential disruption of the company's ongoing business, the inability of management to maximize the financial and strategic position of the Company through the successful integration of acquired assets and businesses, the maintenance of uniform standards, controls, procedures and policies, the impairment of relationships with customers and contractors as a result of any integration of new management personnel and the potential unknown liabilities associated with acquired mining properties. In addition, the Company may need additional capital to finance an acquisition. Historically, the Company has raised funds through equity financing and the exercise of options and warrants. However, the market prices for natural resources are highly speculative and volatile. Accordingly, instability in prices may affect interest in resource properties and the development of and production from such properties that may adversely affect the Company's ability to raise capital to acquire and explore resource properties. There can be no assurance that the Company would be successful in overcoming these risks or any other problems encountered in connection with such acquisitions.
Conflict of interest. Certain directors and officers of the Company are officers and/or directors of, or are associated with, other natural resource companies that acquire interests in mineral properties. Such associations may give rise to conflicts of interest from time to time. The directors are required by law, however, to act honestly and in good faith with a view to the best interests of the Company and its shareholders and to disclose any personal interest which they may have in any material transaction which is proposed to be entered into with the Company and to abstain from voting as a director for the approval of any such transaction.
Uncertainty of continuing as a going concern.The continuation of the Company depends upon its ability to attain profitable operations and generate cash flow from operations and/or to raise equity capital through the sale of its securities. As a result, there is uncertainty about the Company's ability to continue as a going concern. The Company's financial statements do not include the adjustments that would be necessary if the Company were unable to continue as a going concern.
Limited and volatile trading volume.Although the Company's common shares are listed on the TSX Venture Exchange and quoted in the United States on the Over the Counter Bulletin Board, the volume of trading has been limited and volatile in the past and is likely to continue to be so in the future, reducing the liquidity of an investment in the Company's common shares and making it difficult for investors to readily sell their shares in the open market. Without a liquid market for the Company's common shares, investors may be unable to sell their shares at favorable times and prices and may be required to hold their shares in declining markets or to sell them at unfavorable prices.
Volatility of share price.In recent years, securities markets in Canada have experienced a high level of price volatility. The market price of many resource companies, particularly those, like the Company, that are considered speculative exploration companies, have experienced wide fluctuations in price, resulting in substantial losses to investors who have sold their shares at a low price point. These fluctuations are based only in part on the level of progress of exploration, and can reflect general economic and market trends, world events or investor sentiment, and may sometimes bear no apparent relation to any objective factors or criteria. During the 2005 fiscal year, the Company's common share price fluctuated on the TSX Venture Exchange between a low of $1.12 and a high of $4.30. Subsequent to the 2005 fiscal year, the Company's common share price has fluctuated between a low of $1.31 and a high of $2.40. Significant fluctuations in the Company's common share price is likely to continue, and could potentially increase in the future.
7
Difficulty for U.S. investors to effect services of process against the Company.The Company is incorporated under the laws of the Province of British Columbia, Canada. Consequently, it will be difficult for United States investors to affect service of process in the United States upon the directors or officers of the Company, or to realize in the United States upon judgments of United States courts predicated upon civil liabilities under the United States Securities Exchange Act of 1934, as amended. The majority of the Company's directors and officers are residents of Canada. A judgment of a U.S. court predicated solely upon such civil liabilities would probably be enforceable in Canada by a Canadian court if the U.S. court in which the judgment was obtained had jurisdiction, as determined by the Canadian court, in the matter. There is substantial doubt whether an original action could be brought successfully in Canada against any of such persons or the Company predicated solely upon such civil liabilities.
We have incurred net losses since our inception and expect losses to continue. We have not been profitable since our inception. For the fiscal year ended January 31, 2005, we had a net loss of $878,819 and an accumulated deficit on January 31, 2005 of $20,510,872. As the Company is currently at the exploration stage and has no reserves of precious metals, management expects the Company to continue to suffer net losses for the foreseeable future.
There are no assurances that we will discover minerals on a commercially viable basis. The Company’s ability to generate revenues and profits is expected to occur through exploration, development and production of its existing properties as well as through acquisitions of interests in new properties. Substantial expenditures will be incurred in an attempt to establish the economic feasibility of mining operations by identifying mineral deposits and establishing ore reserves through drilling and other techniques, developing metallurgical processes to extract metals from ore, designing facilities and planning mining operations. The economic feasibility of a project depends on numerous factors, including the cost of mining and production facilities required to extract the desired minerals, the total mineral deposits that can be mined using a given facility, the proximity of the mineral deposits to a user of the minerals, and the market price of the minerals at the time of sale. There is no assurance that existing or future exploration programs or acquisitions will result in the identification of deposits that can be mined profitably.
The Company's exploration activities are subject to various federal, state and local laws and regulations.Laws and regulations govern the exploration, development, mining, production, importing and exporting of minerals; taxes; labor standards; occupational health; waste disposal; protection of the environment; mine safety; toxic substances; and other matters. In many cases, licenses and permits are required to conduct mining operations. Amendments to current laws and regulations governing operations and activities of mining companies or more stringent implementation thereof could have a substantial adverse impact on the Company. Applicable laws and regulations will require the Company to make certain capital and operating expenditures to initiate new operations. Under certain circumstances, the Company may be required to stop its exploration activities once it is started until a particular problem is remedied or to undertake other remedial actions.
Market price is highly speculative. The market price of metals is highly speculative and volatile. Instability in metal prices may affect the interest in mining properties and the exploration, development and production of such properties. If gold prices substantially decline, this may adversely affect the Company’s ability to raise capital to explore for existing and new mineral properties.
The Company operates in a highly competitive industry. The Company competes with other developmental resource companies which have similar operations, and many competitors have operations and financial resources and industry experience greater than those of the Company. The Company may encounter increasing competition from other mining companies in our efforts to acquire mineral properties and hire experienced resource industry professionals. Increased competition in our business could adversely affect our ability to attract necessary capital funding or acquire suitable producing properties or prospects for mineral exploration in the future.
8
Penny stock rules may make it more difficult to trade the Company’s common shares.The Securities and Exchange Commission has adopted regulations which generally define a “penny stock” to be any equity security that has a market price of less than US$5.00 per share or an exercise price of less than US$5.00 per share, subject to certain exceptions. Our securities may be covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors such as institutions with assets in excess of US$5,000,000 or an individual with net worth in excess of US$1,000,000 or annual income exceeding US$200,000 or US$300,000 jointly with his or her spouse. For transactions covered by this rule, the broker-dealers must make a special suitability determination for the purchase and receive the purchaser’s written agreement of the transaction prior to the sale. Consequently, the rule may affect the ability of broker-dealers to sell our securities and also affect the ability of our investors to sell their shares in the secondary market.
The Company is subject to foreign currency fluctuations. The Company operates in more than one country and the Company's functional currency is the Canadian Dollar. The Company's offices are located in Canada, all of its mining exploration properties are located in United States, and the Company’s financial results are reported in Canadian Dollars. The Company's currency fluctuation exposure is primarily to the US Dollar and the Canadian Dollar. The Company has reported a foreign exchange loss of $46,520 in fiscal 2005. The Company does not use derivative financial instruments for speculative trading purposes, nor does the Company hedge its foreign currency exposure to manage the Company's foreign currency fluctuation risk. Fluctuations in and among the various currencies in which the Company operates could have a material effect on the Company’s operations and its financial results.
Item 4. Information on the Company
A. History and Development of the Company
The Company was organized under the Company Act of the Province of British Columbia, Canada on January 22, 1981 under the name of Carol Energy Corporation, which name was changed to Coral Energy Corporation on March 3, 1982, and to Coral Gold Corp. on September 9, 1987. On September 14, 2004, the Company changed it name to Coral Gold Resources Ltd in conjunction with a 10:1 share consolidation. The principal executive office of the Company is located at 455 Granville Street, Suite 400, Vancouver, British Columbia V6C 1T1, and its telephone number is 604-682-3701.
We are a natural resource company primarily engaged in the exploration and development of natural resource properties. Our principal business activities have been the exploration of certain mineral properties located in the States of Nevada and California. Since fiscal 2002 we have made aggregate principal capital expenditures of $2,498,084 on our properties known as the Robertson Mining Claims located in the State of Nevada. The Robertson Mining Claims comprise three separate claim groups known as: (i) the Robertson Property; (ii) the Carve Out Claims, and (iii) the Norma Sass and Ruf Claims. Of the aggregate capital expenditures of $2,498,084, $2,455,360 was spent on the Robertson Property and $42,724 was spent on the Norma Sass and Ruf Claims.
B. Business Overview
Presently, the Company’s principal business activity is the exploration of mineral properties. The Company is in the process of exploring its mineral properties and has not yet determined whether its mineral properties contain ore reserves that are economically recoverable. There is no assurance that a commercially viable mineral deposit exists on any of the Company's properties, and future exploration will be required before final evaluation as to the economic and legal feasibility is determined.
9
The Company’s mining claims are located in the states of Nevada and California in the United States. The Company’s present principal exploration activities have been focused on the Robertson Mining Claims located in Crescent Valley, Nevada.
Robertson Property - Operations and Activities
During fiscal year ended January 31, 1999, the Company entered into an option agreement dated October 8, 1998 ("Option Agreement") with Placer Dome U.S. Inc. (“Placer”), which was later assigned by Placer to the Cortez Joint Venture, doing business as Cortez Gold Mines (a joint venture owned by Placer and Kennecott Minerals) (“Cortez”).
Effective December 30, 1999, pursuant to the terms of the Option Agreement, Cortez elected to terminate the Option Agreement. This required the Company to post its own security for the reclamation bond for the Robertson Property and obtain a full release of Placer’s guarantee of the original reclamation bond. In order to satisfy its obligations under the Option Agreement, the Company spent a large portion of fiscal year 2003 conducting reclamation on the Robertson Property to reduce its reclamation bond that Placer had guaranteed for the Company. The Company was able to obtain a release of Placer's guarantee by conducting sufficient reclamation work to reduce the bonding requirement, and by raising sufficient funds to provide satisfactory alternative security of the reclamation bond. The reclamation bond was reduced to US$786,100 during the fiscal year ended 2003, for which the Company posted cash.
In fiscal year ended 2004, with more reclamation work having been completed and accounted for, the reclamation bond was further reduced to US$406,000. The cost to the Company to conduct the reclamation, prepare updated reclamation plan, and other associated costs was approximately US$500,000.
In April of 2004, the Company implemented a drilling program at the Robertson Property consisting of ten reverse circulation drill holes totaling 6,560 feet that ranged from 485 feet to 800 feet-deep. Eight of the reverse circulation drill holes were directed at the 39A Zone expansion and two holes were aimed at assessing the depth extent of the east-west striking high- grade structural zones in the Gold Pan resource area. All of the holes encountered strong anomalous gold values. The 2004 drilling resulted in providing a better definition of the western margin of the 39A Zone mineralization.
The most recent drilling at the Robertson Property, conducted in December 2004, consisted of ten reverse circulation drill holes totaling 7,200 feet. This program built upon the successful ten-hole program conducted in May of 2004. The latest holes ranged from 500 to 850 feet in depth. Eight of the holes were directed at expanding the 39A zone and two holes were aimed at assessing a potential northwest extension of mineralization in the Porphyry Zone resource area.
Nine of ten holes in this program encountered ore-grade intervals over thicknesses ranging from 75 feet to 230 feet, modestly increasing the high-grade portion of the 39A resource. Two holes expanded the 39A over 100 feet to the north and 150 east, respectively. Results from these holes provide strong evidence that the mineralization remains robust with excellent potential for significant expansion both to the east and north. In addition to the 39A and Gold Pan zones, the Robertson Property contains a number of attractive targets. The Distal target is currently defined by ore-grade intersections in six drill holes. These drill intersections indicate the presence of a persistent, low-angle mineralized zone with potentially very large dimensions.
A subsequent drill program has been proposed for 2005. The primary goal is to increase resources on the Robertson Property. The 2004 programs provided evidence for a potentially substantial increase in the resources at the Robertson Property with additional drilling.
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Norma Sass and Ruf Claims - Operations and Activities
Effective December 31, 1999, the Company and Levon Resources Ltd., referred to as "Levon", entered into a fourth amending agreement whereby Levon could earn an undivided 50% interest in the Norma Sass and Ruf Claims upon completion of certain terms. This agreement was further amended effective December 31, 2001 (but signed on October 3, 2002), whereby Levon was transferred a 33-1/3% interest in the Company’s interest in the Norma Sass and Ruf claims, in consideration of 300,000 common shares of Levon previously issued to the Company and the prior payment of $350,294 for exploration work. The Company currently owns a 66-2/3% interest in the Norma Sass and Ruf claims (subject to certain royalties to underlying property owners, as described below), following the execution of the December 2001 fifth amending agreement with Levon.
On December 4, 2002, the Company granted an option to acquire 33-1/3% of the Company’s interest in the Norma Sass and Ruf Claims to Goldfranchise Corporation, referred to as “Goldfranchise”. In order to earn the interest, Goldfranchise must:
(a) | Pay the Company US$38,391.50, which has been received by the Company; |
(b) | Incur a minimum of US$300,000 in exploration work on the Norma Sass and Ruf Claims, of which US$100,000 had to be incurred on or before December 4, 2003, and the balance of US$200,000 incurred on or before December 4, 2004; and |
(c) | Pay the Company 33-1/3% of all annual land fees, taxes, advance royalties required to keep the claims in good standing, until Goldfranchise has exercised the option. |
Goldfranchise failed to incur the exploration work required or to pay the Company 33-1/3% of all annual land fees, taxes and advance royalties under the option, and the option has since been terminated.
In January 2005 we announced the formation of an exploration agreement with Agnico-Eagle Mines Limited, referred to as "Agnico-Eagle". The agreement covers our Norma Sass, Blue Nugget and Lander Ranch claims. The Norma Sass agreement also includes our partnership with Levon. Under the agreement, Agnico-Eagle can earn a 51% interest in the Norma Sass, Blue Nugget and Lander Ranch claims by completing at least 45,000 feet of exploration drilling and paying certain advance royalties. At its option, Agnico-Eagle may acquire the claim leases from the underlying owners for its benefit and Agnico-Eagle shall be deemed to have earned an additional 24% interest. Agnico-Eagle will then have the option of acquiring the remaining 25% interest by producing a positive feasibility study and making a positive production decision.
At the fifth anniversary and every year thereafter until production occurs, the advance royalty payment will be $150,000 per annum. All advance royalty payments will be credited towards Agnico-Eagle’s payment of a royalty of 2.5% net smelter returns from production to the Company and Levon.
Plans of Operation
Exploration Activities
All of the Company's properties and interests are in the exploration stage only, and the Company does not have an operating mine or conduct any mining activities. The Company’s exploration activities are focused on gold. In the United States, the Company’s major exploration project is the Robertson Mining Claims.
In April of 2004, the Company implemented a drilling program at the Robertson Property consisting of ten reverse circulation drill holes totaling 6,560 feet that ranged from 485 feet to 800 feet-deep. Eight of the reverse circulation drill holes were directed at the 39A Zone expansion and two holes were aimed at assessing the depth extent of the east-west striking high- grade structural zones in the Gold Pan resource area. All of the holes encountered strong anomalous gold values. The 2004 drilling resulted in providing a better definition of the western margin of the 39A Zone mineralization.
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The November 2004 drilling program, which began November 29, 2004 and was completed December 21, 2004, consisted of ten vertical reverse-circulation drill holes, CR04-11 through CR04-20, totaling 7,200 feet. The depth of the holes ranged from 500 feet to 850 feet deep. Eight of the reverse circulation holes were directed at expanding the 39A Zone resources and two holes were aimed at assessing a potential northwest extension of mineralization in the Porphyry Zone resource area.
Nine of ten holes encountered ore-grade interval over thicknesses ranging from 75 feet to 230 feet. The latest 2004 drilling resulted in a modest increase to the high-grade portion of the 39A resource and two step-out holes, CR04-13 and CR04-18, expanded it over 100 feet to the north and 150 feet east, respectively. Results from these holes provide evidence that the mineralization remains robust with potential for expansion both to the east and north.
Reclamation Activities
The Company spent approximately $500,000 on reclamation and maintenance in fiscal year 2005 on the Robertson Property. The Company is reclaiming past mining and exploration related disturbances to public lands as required by the Bureau of Land Management and the Nevada Department of Environmental Protection.
Competition
The mining industry in which the Company is engaged is highly competitive. Competitors include well-capitalized mining companies, independent mining companies and other companies having financial and other resources far greater than those of the Company. The companies compete with other mining companies in connection with the acquisition of gold and other precious metal properties. In general, properties with a higher grade of recoverable mineral and/or which are more readily minable afford the owners a competitive advantage in that the cost of production of the final mineral product is lower. Thus, a degree of competition exists between those engaged in the mining industries to acquire the most valuable properties. As a result, the Company may eventually be unable to acquire attractive gold mining properties.
Dependence on Customers and Suppliers
The Company is not dependent upon a single or few customers or suppliers for revenues or its operations.
Environmental Regulations
The Company’s exploration programs in Nevada and California are subject to state and federal regulations regarding environmental considerations. All operations involving the exploration for the production of minerals are subject to existing laws and regulations relating to exploration procedures, safety precautions, employee health and safety, air quality standards, pollution of streams and fresh water sources, odor, noise, dust and other environmental protection controls adopted by federal, state and local governmental authorities as well as the rights of adjoining property owners. The Company may be required to prepare and present to federal, state or local authorities data pertaining to the effect or impact that any proposed exploration for or production of minerals may have upon the environment. All requirements imposed by any such authorities may be costly, time consuming and may delay commencement or continuation of exploration or production operations. Future legislation may significantly emphasize the protection of the environment, and, as a consequence, the activities of the Company may be more closely regulated to further the cause of environmental protection. Such legislation, as well as further interpretation of existing laws in the United States, may require substantial increases in equipment and operating costs to the Company and delays, interruptions, or a termination of operations, the extent of which cannot be predicted. Environmental problems known to exist at this time in the United States may not be in compliance with regulations that may come into existence in the future. This may have a substantial impact upon the capital expenditures required of the Company in order to deal with such problem and could substantially reduce earnings. At the present time, the Company’s exploration activities in Nevada are in compliance with all known environmental requirements.
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C. Organizational Structure
The Company has two wholly-owned subsidiaries, Coral Energy Corporation of California, a California corporation which holds title to the Company’s California real property, and Coral Resources, Inc., a Nevada corporation, which holds title to the Company’s mining claims located in Nevada.
D. Property, Plant and Equipment
Cautionary Note to U.S. Investors concerning Estimates of Measured and Indicated Resources
This section uses the terms “measured resources” and “indicated resources.” The Company advises U.S. investors that while those terms are recognized and required by Canadian regulations, the U.S. Securities and Exchange Commission does not recognize them.U.S. investors are cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted into reserves.
Presently, the Company is an “exploration stage company”, as all of the Company’s properties are currently in the exploratory stage of development. In order to determine if a commercially viable mineral deposit exists in any of the Company’s properties further geological work will need to be done and a final evaluation based upon the results obtained to conclude economic and legal feasibility.
The Company’s primary focus has been on the Robertson Mining Claims, in Nevada, United States.
Robertson Mining Claims, Nevada, U.S.A
The Robertson Mining Claims are located in Crescent Valley, Nevada on the western flanks of the Shoshone Range, 28 miles to the southeast of Battle Mountain, Nevada, which lies some 230 miles northeast of Reno, Nevada. The Robertson Mining Claims comprise approximately 11,000 acres in the Bullion Mining District, Lander County, Nevada, and currently include 724 unpatented lode and placer mining claims. The Robertson Mining Claims are recorded under three separate claim groups known as: (i) the Robertson Property; (ii) the Carve-Out Claims; and (iii) the Norma Sass and Ruf Claims, as described more particularly below.
These mining claims have been acquired over a period of several years from different sources.The entire Robertson Mining Claims are subject to a 3% net smelter royalty to Geomex Development Eighth Partnership (“Geomex 8”), which royalty shall cease at such time as the sum of US $1,250,000 has been paid to Geomex 8, and various mining leases requiring minimum annual advanced royalties ranging from 2% to 10% of net smelter returns.
There is no underground or surface plant or equipment located on the Robertson Mining Claims.
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(i) Robertson Property
The Robertson Property is the subject of a technical report dated January 15, 2004 prepared by Robert T. McCusker, P.Geol., entitled “Geological Report on the Robertson Property”, in accordance with the requirements of NI 43-101 (the “McCusker Report”). The following historical information concerning the Robertson Property is extracted from the McCusker Report. The reader is referred to the entire text of the McCusker Report, a copy of which is available under the Company’s filings on EDGAR atwww.sec.gov and on SEDAR atwww.sedar.com.
Property Description and Location
The Robertson Property is located in eastern Lander County, Nevada, on public lands administered by the Bureau of Land Management (BLM). The property is situated in Sections 2-10, 15-18, 20, 21, Township 28 North, Range 47 East and Sections 26, 32 and 34, Township 29 North, Range 47 East, Mt. Diablo Baseline & Meridian.
The Robertson Property is 27 air miles southeast of Battle Mountain and 60 miles southwest of Elko, Nevada. From Battle Mountain, the county seat, the property is reached by traveling 28 miles east on Interstate Highway 80, then 29 miles south on Nevada Highway 306 to the property turn off. The property is reached by driving two miles west on a well maintained gravel road. A network of unimproved dirt roads and tracks provide access to the remainder of the property.
The Robertson Property consists of 428 unpatented federal lode claims, 94 placer claims, nine patented lode claims and one unpatented mill site, covering over 4,500 acres. Two groups of claims totaling 82 claims are non-contiguous with the core group of claims. The Company controls the surface and mineral tenures within the project area through recorded title, or through mining lease and mining lease with option to purchase agreements of the patented and unpatented mining claims. The Company’s wholly-owned subsidiary, Coral Resources, Inc., is the owner of record with 100% interest in 343 claims and controls an additional 189 claims through a variety of mineral leases, as more particularly described below.
In 2001, a Boundary Agreement between the Company and the Cortez Joint Venture resolved claim boundary overlaps and seniority issues along the east and south sides of the Robertson claim block. This agreement required both parties to amend and/or abandon certain claims in order to achieve the agreed upon boundary. This was completed during the 2002-2003 assessment year.
Approximately 189 of the 532 claims that comprise the Robertson Property are controlled by the Company through six mining leases and option agreements. The claims held by the Company under lease or option agreements require minimum advance royalty payments and production royalties in the event of production. Total annual payments for the various leases and minimum advance royalties are US$67,800. A summary compilation of the terms of these agreements are presented in the Table below:
Mining Lease and Option Agreements
Company/Date | Number of Claims | Option Payment | Production Royalty | Advance Royalty Payment | |||||||||
Tenabo Gold Mining Co. Nov. 30, 1975 | 13 | $ | 2M | 8% NSR | $ | 12,000/yr | |||||||
Fannie Komp Sept. 16, 1986 | 76 | $ | 1M | 5% NSR | $ | 24,000/yr | |||||||
Florence Johnson Nov. 5, 1986 | 16 | $ | 50,000 | 5% GSR | $ | 1,800/yr | |||||||
Northern Nevada Au, Inc. Sept. 30, 1986 | 12 | $ | 0.3M | 4% GSR | $ | 9,600/yr | |||||||
Albany Gold Corp. (Geomex) | All | $ | 1.25M | 3% NSR | None/yr | ||||||||
Mauzy, et al Apr. 21, 1989 | 36 | $ | 0.75M | 5% NSR | $ | 14,400/yr | |||||||
Marcus Corp. July 31, 1997 | 36 | $ | 2.5M(cap | ) | 10% NSR | $ | 6,000/yr |
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Annual federal rental fees of US$44,300, payable to the Bureau of Land Management, and Notice of Intent to Hold Mining Claims have been filed for the 2003-2004 assessment year. A complete listing of claims with Lander County book and page numbers, and BLM serial numbers are presented in the Appendix to the McCusker Report.
Environmental Liabilities
In 1988-89, the Company operated a small open pit gold mining operation and heap leach facility on the Robertson Property. The resulting disturbances include three small open pit mines, waste dumps, haul roads, drill roads, open drill holes, and a 350,000 ton heap leach facility and related recovery plant. In 1994, a reclamation plan was prepared by Amax and submitted to the Battle Mountain office of the Bureau of Land Management. The cost to perform the reclamation of the Robertson mine site was estimated at that time to be US$2,000,000. In 2001, the Company began reclamation activities which were accelerated in 2002, with the recontouring of waste dumps, reclamation of the leach pad, haul roads and the filling of all open drill holes. As a result of this activity, in June 2003, the Bureau of Land Management reduced the bonding requirements for the project to US$406,000. The Company currently maintains a required performance bond with the Nevada State Office of the Bureau of Land Management. The Company is working with the Bureau of Land Management and the United States Department of Interior in efforts to further reduce the bond.
In March 2003, on behalf of the Company, SRK Consulting submitted a final plan for permanent closure with the Bureau of Land Management and Nevada Division of Environmental Protection (NDEP). The closure plan has been approved by both agencies.
Permitting
In 2002, the Company submitted and was granted a five year renewal of Water Pollution Control Permit (NEV60035) by the NDEP for the Robertson Property. In addition, the Company continues to conduct reclamation activities under a Plan of Operation (NV067688) approved in 1989 by the BLM.
Water is currently supplied to the project by the “Komp” well (Permit No. 50683), located in Section 10, Township 28 North, Range 47 East. Use of the well by the Company was granted as part of the “Fanny Komp” mining lease agreement. In 1994, Amax filed two applications to appropriate ground water (Permit No. 59780 and 59781). The filings progressed to “ready-for-action” status at that time, but were never approved because Amax subsequently withdrew from the project.
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Because no exploration activity has occurred on the Robertson Property since 1999, and significant reclamation has occurred, any new exploration activities that result in a surface disturbance will require submission and approval of an amendment to the plan of operation. Additionally, the National Historic Preservation Act requires that all operators on public lands conduct an archeological survey of the proposed site of a new disturbance. Much of the Robertson Property has been previously cleared under various surveys conducted by Amax. There are no known environmental or threaten and endangered species issues at the Robertson Property that would provide grounds for denial of approval of an amended plan of operation.
History and Exploration
The Robertson Property is located in the Tenabo area, a sub-district of the Bullion mining district. Historic lode mining in this district dates from 1905 and Placer gold was discovered in many of the dry washes in the Tenabo area in 1916. Between 1937-39, a small dragline dredge and washing plant operated in the district, and a dredge was reported by Humphrey to be operating in lower Mill Gulch in 1945.
During the period 1966-70, a number of companies explored the district in search of porphyry copper-style mineralization. In 1968, while drilling a series of shallow rotary holes near the Gold Pan mine, Superior Oil discovered a small, but relatively high-grade zone of gold at shallow depths in what is now known as the Gold Pan Zone. However, with additional drilling, Superior Oil quickly lost interest in the district. They were soon followed by a number of mainly Vancouver-based junior mining companies, including Placer Development (1974-75), Teck Corporation (1977), Aaron Mining Ltd. (1975-86), and E & B Exploration Ltd. (1980-81), all of whom sporadically explored the Tenabo area with limited success. A summary of the drilling completed by these companies prior to the Company’s involvement (1986) is presented in the table below:
Summary of Pre-Coral Drilling Activities at Robertson Property
Company | Date of Activity | Number and Type of Holes Drilled | Drill Footage(ft) | Target |
Superior Oil | 1968-70 | 92 Conv. Rotary | c. 32,000 | Gold Pan |
Placer Development | 1973-74 | 23 Conv. Rotary | c. 3,500 | none |
Teck Corporation | 1977 | none | none | none |
Aaron Mining Ltd. | 1977 | 7 Conv. Rotary | c.300 | Gold Quartz |
E & B Exploration Ltd. | 1980-81 | 148 Rev. Circlulation | 30,807 | Gold Pan |
Totals | 270 | 65,407 |
Modern open pit mining and heap leaching began as early as 1974, when Aaron Mining Ltd., initiated a pilot leach operation on the Robertson Property. During the period 1978-80, Aaron expanded its leaching operations and continued exploration and began consolidating and acquiring claims in the district.
In 1986, the Company acquired Aaron's interest in the Robertson Property and immediately began a series of major drilling programs beginning in 1986 and continuing until 1989. Mining operations on the Robertson Property commenced in 1988, but were suspended less than one year later. During the operating life of the Robertson Property mine, approximately 350,000 tons of low-grade material was placed on leach pads from which about 6,200 ounces of gold were recovered.
During the period 1986 through 1989, the Company completed approximately 380 reverse circulation drill holes and seven diamond drill holes, totaling about 109,377 ft. Much of this drilling was focused in four resources areas including the Gold Pan, Gold Quartz, Gold Quartz extension (also called Gold Quartz West) and the Triplet Gulch areas. The purpose of this drilling was to determine the limits and continuity of mineralization within these zones. Nearly all of the reverse circulation holes were drilled vertically to an average depth of about 300 ft.
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During the later stages of the Company’s exploration program, they completed two “deep” reverse circulation holes that reached depths of 1,400 ft and 1,810 ft, respectively. In addition to resource definition, the Company also embarked on a program of district-wide exploratory and follow-up drilling of numerous surface anomalies.
In 1990, the Company and Amax Gold Exploration entered into an amended and restated option and Earn-In Agreement in which Amax could earn a 60% interest in the Robertson Property by producing a bankable feasibility study. From 1990, until they withdrew from the venture in 1996, Amax completed an exploration program that included drilling 338 reverse circulation holes and 62 diamond drill holes, totaling over 176,000 ft.
In 1998, Cortez Gold Mines entered into an option and earn-in agreement with the Company in which Cortez could earn a 70% interest in the Robertson Property by producing a bankable feasibility study. The focus of their exploration was to expand the 39A Zone and test a number of outlying targets. During 1999, Cortez completed 46 reverse circulation drill holes and a single flood rotary hole, totaling 57,000 feet. Of the 13 holes directed at expanding the 39A Zone, only two holes, 99401 and 99413, encountered significant mineralization. This drilling program did little to expand the resource. Of the remaining holes drilled by Cortez, only two holes (99406 and 99419) encountered significant mineralization. Both holes were designed to offset and/or follow up existing drill intersections and surface gold anomalies.
After completing this drilling program, Cortez declared its interest in renegotiating the terms of the Option Agreement with the Company. When the Company declined, Cortez subsequently terminated the Option Agreement on December 30, 1999, and did not earn an interest in the Robertson Property.
Geological Setting
Geologically, the Robertson Property consists of a series of relatively flat-lying, vertically stacked thrust sheets that form part of the Roberts Mountain allochthon, which is composed of siliciclastic rocks of Ordovician through Devonian age. The district is dominated by a very thick sequence of middle to late Devonian Slaven Chert composed mainly of argillite, chert, lesser siltstone and shale, and minor intermediate volcanic rocks. Structurally overlying the Slaven Chert along the north and east sides of the district are a sequence of rusty brown weathering siltstone, sandstone and very minor limestone of the Silurian Elder Sandstone.
Intruding the thick Paleozoic sequence is an elliptical-shaped, composite granodiorite stock (or lacolith) of Eocene age. The orientation of the principal axis of the stock is approximately east-west. Associated with it are numerous dikes, sills and plugs that vary in composition from diorite, the earliest known intrusion, to rhyolite, the latest. Most of the identified gold resources, including the Porphyry, Gold Pan and 39A Zones, lie along or near the northern contact of the composite stock. A series of narrow and laterally continuous (up to 1,600 ft) intrusive “pebble” dikes extend northward from the northern contact of the granodiorite stock. Near contacts with the Tertiary intrusions, many of the sedimentary and volcanic rocks, and early phases of the stock, have undergone significant thermal metamorphism, intense recrystallization, bleaching and pervasive metasomatism. Many of these rocks have been converted to layered sequences of biotite, “quartz” and calc-silicate hornfels, marble, exoskarn and endoskarn.
Mineralization at the Robertson Property is strongly controlled by a system of low and high-angle faults and related fracture zones. Less commonly, brecciation associated with axial plane shear zones developed in isoclinal folds are also important hosts for mineralization, locally. Although individual structures host ore-grade gold, higher grades commonly occur where one or more structures intersect.
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Deposit Types and Mineralization
The Company has been focusing its exploration activities on four zones localized along the northern contact of the Tenabo stock forming the general east-west trend. These zones are the Porphyry, Gold Pan, Altenburg Hill and 39A Zones. The Porphyry, Gold Pan and Altenburg Hill Zones occur in highly fractured hornfels and skarn units at the contact of the granodiorite stock, whereas the 39A Zone is localized at the intersection of two high-angle faults in retrograde-altered hornfels.
The following is a summary of the main minerals identified at the Robertson Property:
Native gold | Native silver | Electrum | Pyrite |
Pyrrhotite | Marcasite | Arsenopyrite | Stibnite |
Chalcopyrite | Sphalerite | Galena | Bournonite |
Acanthite | Loellingite | Gersdorffite | Tetradymite |
Petzite | Hessite | Hedleyite | Tellurobismuthite |
Altaite | Tetrhedrite | Bornite | Chalcocite |
Covellite | Digenite | Native copper | Cuprite |
Chysocolla | Azurite | Goethite | Magnetite |
Hematite | Illmenite | Scorodite |
Mineral Resource Estimates
The various resource estimates for the four mineralized zones on the Robertson Property are summarized below. For reasons of geological confidence, all of the listed resources have been placed in the indicated resource category, as defined by NI 43-101 and NI 43-101CP. No economic considerations were applied to any of the studies cited in the Table.
Cautionary Note to U.S. Investors concerning Estimates of Measured and Indicated Resources
This section uses the terms “measured resources” and “indicated resources.” The Company advises U.S. investors that while those terms are recognized and required by Canadian regulations, the U.S. Securities and Exchange Commission does not recognize them.U.S. investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into reserves.
Robertson Property Indicated Resource Estimate (2001)
Zone | Cutoff Grade (oz Au/t) | Million Short Tons Ore | Au Grade (oz/ton) |
39A | 0.02 | 2.80 | 0.101 |
39A* | 0.05 | 1.54 | 0.130 |
Porphyry | 0.02 | 3.95 | 0.040 |
Gold Pan** | 0.02 | 2.97 | 0.038 |
Altenburg Hill | 0.02 | 1.25 | 0.024 |
Total: | 10.97 | 0.053 |
*Note 39A resource estimate at 0.05 oz Au/t cutoff not used in total calculation.
**From Mintec Inc., 1988 estimate; includes oxide+sulfide material.
No attempt has been made to assess the mineability of any of the indicated resources listed above. The 3,500,000 ton indicated resource portion of the larger Porphyry Zone was subject to a 1994 feasibility study that included detailed drilling, engineering and metallurgical studies as a heap leach operation. All of the remaining resources have had at least limited preliminary metallurgical evaluation and economic studies as a low-grade heap leach option.
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Proposed Exploration
The Company believes that there is a potential for discovery of additional mineral resources on the Robertson Property. The Company plans to continue to explore the Robertson Property or seek third party partners for further exploration.
(ii) Carve-Out Claims, Nevada, U.S.A.
Under the terms of an Exploration and Mining Venture Agreement dated July 11, 1997, Placer holds an undivided 61% interest, and the Company has a 39% interest carried to production in the Carve-Out Claims.
Beginning in 1997 and continuing through 1998, Cortez Gold Mines conducted a series of exploratory drilling programs on the Carve-Out Claims with limited success. In 2002, the Company conducted a drilling program on the Carve-Out Claims with follow-up drilling in the immediate vicinity of existing drill holes with mixed results. To date, no significant mineral resources have been discovered on the Carve-Out Claims. However, the wide-space deep drilling has established the presence of scattered significant gold values, anomalous levels of Carlin-type trace elements, key structural components and the occurrence of a preferred host strata.
The Company plans to rely on Cortez Gold Mines to further explore the property for mineral resources.
There is no underground or surface plant or equipment located on the Carve-Out Claims, nor any known body of commercial ore.
(iii) Norma Sass and Ruf Claims, Nevada, U.S.A
The Company currently owns a 66-2/3% interest in the Norma Sass and Ruf Claims, which originally were a part of the Carve-Out Claims, after an option agreement with Levon was amended on October 3, 2002 transferring to Levon a 33-1/3 interest in the Norma Sass and Ruf Claims. Levon is a British Columbia company also engaged in the exploration of precious minerals and has four directors in common to the Company.
In January 2005 we announced the formation of an exploration agreement with Agnico-Eagle. The agreement covers our Norma Sass, Blue Nugget and Lander Ranch claims. The Norma Sass agreement also includes our partnership with Levon. Under the agreement, Agnico-Eagle can earn a 51% interest in the Norma Sass, Blue Nugget and Lander Ranch claims by completing at least 45,000 feet of exploration drilling and paying certain advance royalties. At its option, Agnico-Eagle may acquire the claim leases from the underlying owners for its benefit and Agnico-Eagle shall be deemed to have earned an additional 24% interest. Agnico-Eagle will then have the option of acquiring the remaining 25% interest by producing a positive feasibility study and making a positive production decision.
At the fifth anniversary and every year thereafter until production occurs, the advance royalty payment will be $150,000 per annum. All advance royalty payments will be credited towards Agnico-Eagle's payment of a royalty of 2.5% net smelter returns from production to the Company and Levon. Agnico-Eagle has reserved the right to purchase 1% of this net smelter returns royalty (to reduce the royalty to the Company and Levon to 1.5%) for a cash payment of USD$1.0 million. The Company and Levon have agreed to share in any benefits from the agreement with Agnico-Eagle in proportion to their current respective interests in the Norma Sass Property.
There is no underground or surface plant or equipment located on the Norma Sass and Ruf Claims, nor any known body of commercial ore.
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JDN Claims, Nevada, U.S.A. (formerly known as the JD Mining Claim)
On December 16, 1986, the Company acquired six mining claims on 550 acres of land near Crescent Valley (Lander County), Nevada for US $10,000. The Company located an additional 28 unpatented lode mining claims covering some 30 acres in May 1996 and acquired a 100% interest by staking the “JDN Claims”. The JDN Claims are located approximately three miles north of the Robertson Mining Claims. In 1987, geological mapping was conducted. In fiscal year 1994, the Company optioned a 50% interest in the JDN claims to Mill Bay Ventures Inc., formerly First International Metals Corp. (“Mill Bay”), a company with two directors in common to the Company, for $10,000 and an initial installment of 50,000 common shares of Mill Bay. On February 5, 1997, Mill Bay exercised the option by issuing to the Company an additional 50,000 common shares and completion of specified exploration work.
Access to the JDN Claims from Elko, Nevada, a regional mining supply center, is via Highways 80 and 306, a distance of approximately 102 kilometers to the community of Crescent Valley and then an additional 18 kilometers on a gravel access road from the community of Crescent Valley. A four-wheel drive vehicle is usually necessary to access all roads on the property. As of fiscal year 2001, the Company has written down the JDN Claims to a nominal value. There is no underground or surface plant or equipment located on the JDN Claims, nor any known body of commercial ore.
C-Eagle Claims, Nevada, U.S.A.
In 1987, the Company acquired a 100% interest in the C-Eagle Claims. The C-Eagle Claims consist of 15 lode mineral claims, and are located at Corral Canyon, in Lander County, Nevada, approximately 16 kilometers north-northwest of Placer’s Cortez gold mine and comprises a total of approximately 646 acres. The C-Eagle Claims are approximately three miles west of Crescent Valley, Nevada, and approximately 18 miles southeast of Battle Mountain, Nevada. Access to the C-Eagle Claims from Elko, Nevada, a regional mining supply center, is via Highways 80 and 306, a distance of approximately 90 kilometers and then an additional 13 kilometers on a gravel access road from the community of Crescent Valley. A four-wheel drive vehicle is usually necessary to access all roads on the property.
The C-Eagle Claims are subject to a 3% net smelter royalty to Geomex Development Eighth Partnership (“Geomex 8”), which royalty shall cease at such time as the sum of US $1,250,000 has been paid to Geomex 8.
In fiscal year 1994, the Company optioned a 50% interest in these claims to Levon for $10,000 and 100,000 Levon common shares. During 1996, Levon exercised its option and holds a 50% interest in the C-Eagle Claims with the Company. During fiscal year 2000, no substantial work at the C-Eagle Claims was conducted and as of fiscal year 2001, the Company has written down the C-Eagle Claims to a nominal value. There is no underground or surface plant or equipment on the C-Eagle Claims, nor any known body of commercial ore.
Ludlow Property, California, U.S.A.
The Company owns certain mining property consisting of approximately 128 acres in San Bernardino County, California (the “Ludlow Property”). The purchase price for the Ludlow Property was $28,187, and as of January 31, 2000, the Company expended $36,885 on exploration costs. The property is located approximately six miles south of Ludlow, California, and is readily accessible by dirt road from Ludlow. Ludlow lies at the western junction of U.S. Highway 40 and Route 66. Old wagon roads allow any part of the property to be reached by an easy walk. The Ludlow property has previously been explored as evidenced by trenches, pits and shallow shafts and adits. The only recorded data relating to previous exploration applies to the Baghdad-Chase Mine which lies approximately two kilometers to the south of the Ludlow Property.
There has been no underground exploration or development work done on the claims by the Company other than geochemical soil sampling and, to the Company’s knowledge, there is no record of the previous work carried out on the claims as indicated by the evidence of trenches, pits and shallow shafts and adits that are located thereon. No exploration work has been performed on the property for the past five fiscal years. In order to keep the mining title to the Ludlow Property in good standing, the Company is required to pay property taxes. As of fiscal year 2001, the Company has written down the Ludlow Property to a nominal value. There is no surface or underground plant or equipment on the Ludlow Property, nor any known body of commercial ore.
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Item 5. Operating and Financial Review and Prospects
This discussion and analysis of the operating results and the financial position of the Company is for the years ended January 31, 2005, 2004 and 2003, and should be read in conjunction with the consolidated financial statements and the related notes attached hereto.
A. Operating Results
The principal business of the Company has been the acquisition and exploration of precious mineral properties and, where warranted, developing and mining such properties, particularly those judged by the Company to be potentially valuable for gold. The Company’s mining claims are located in the states of Nevada and California in the United States. None of the Company’s mineral properties are in production and the Company has received no revenues.
Overview
The 2004 fiscal year commenced with Coral announcing the preliminary results from the 2003 exploratory drill program conducted on the Carve-Out Claims. This program, confined to a very small area of the Robertson Mining Claims under joint venture with Cortez Gold Mines, provided key information for the proposed upcoming exploration program.
Much like the 2003 fiscal year, during the first two quarters the Company focused on reducing the cash reclamation bond posted on the 100% Company owned Robertson Property. Further reclamation was conducted on the property and by the end of the second quarter the cash bond was reduced by US $380,100 (approximately Cdn $635,000) from US $786,100 to US $406,000. The Company is working with the Bureau of Land Management and the United States Department of Interior in efforts to further reduce the bond.
During the second and third quarters, after assessing the exploration data on the Robertson Property, the Board approved a drill program to include a minimum of 10,000 feet. However, prior to the commencement of the program, an unexpected random review by the British Columbia Securities Commission of Coral’s continuous disclosure documents resulted in the immediate need for the Company to prepare a new technical report in compliance with NI 43-101 to update the historical technical reports prepared prior to 1999 on the Robertson Property. This resulted in certain on-going issues being put on hold including the drilling program and equity financings of approximately $1,030,000.
In order to expedite the technical report, the Company pulled Robert McCusker, P. Geol., off the drill program to prepare the technical report, thus postponing the program. The technical report was completed in February 2004. In Management’s opinion, Mr. McCusker was the best qualified person to prepare the technical report because he was the senior geologist for Amax Explorations Inc., where a large portion of the historical data was obtained.
April 2004 was the earliest the Company could contract a drill because the exploration area had become very active and drillers were in high demand. The drilling program was to expand the 39A Zone resource and evaluate the potential depth extent of the high-grade structural zones in the Gold Pan resource area. A recent reinterpretation of previous drilling conducted by Amax Gold and Cortez Gold Mines on the 39A Zone, suggested the potential for significantly expanding that resource to the west and southwest.
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The April 2004 drilling program consisted of ten reverse circulation drill holes totaling 6,560 feet that ranged from 485 feet to 800 feet-deep. Eight of the reverse circulation drill holes were directed at the 39A Zone expansion and two holes were aimed at assessing the depth extent of the east-west striking high- grade structural zones in the Gold Pan resource area. All of the holes encountered strong anomalous gold values and provided a better definition of the western margin of the 39A Zone mineralization.
The November 2004 drilling program, which began November 29, 2004 and was completed on December 21, 2004, consisted of ten vertical reverse-circulation drill holes, CR04-11 through CR04-20, totaling 7,200 feet. The depth of the holes ranged from 500 feet to 850 feet. Eight of the reverse circulation drill holes were directed at expanding the 39A Zone resources and two holes were aimed at assessing a potential northwest extension of mineralization in the Porphyry Zone resource area.
Nine of the ten holes encountered ore-grade interval over thicknesses ranging from 75 feet to 230 feet. The November 2004 drilling resulted in a modest increase to the high-grade portion of the 39A resource and two step-out holes, CR04-13 and CR04-18, expanded it over 100 feet to the north and 150 feet to the east, respectively. Results from these holes provide evidence that the mineralization remains robust with potential for expansion both to the east and north.
Selected Annual Information
The following are highlights of financial data on the Company for the most recently completed three financial years:
January 31, 2005 | January 31, 2004 | January 31, 2003 | ||||||||
$ | $ | $ | ||||||||
Loss before other items | (866,085 | ) | (640,502 | ) | (538,893 | ) | ||||
Loss per share | (0.19 | ) | (0.20 | ) | (0.27 | ) | ||||
Total assets | 10,749,628 | 10,967,000 | 8,888,094 | |||||||
Total liabilities | 162,289 | 161,095 | 387,499 | |||||||
Working capital | 1,469,909 | 2,601,586 | 43,181 |
Fiscal year ended January 31, 2005 compared to fiscal year ended January 31, 2004.
The loss for the twelve months ended January 31, 2005 was $878,819 compared with a loss of $753,596 for the twelve months ended January 31, 2004, an increase of $125,223. The main reason for the increase is the stock-based compensation expense of $343,533 as discussed above. There were no write downs of investments or mineral properties during the 2005 fiscal year as there were in the 2004 fiscal year. The foreign exchange loss decreased from $140,623 to $46,520 in the current year due to the stronger Canadian dollar and the reclamation bond remaining at US$406,000. The reclamation bond is converted to Canadian currency using the exchange rate as of the balance sheet date. The change in the exchange rate from January 31, 2004 to January 31, 2005 resulted in a decrease of $33,662 to the reclamation bond and comprises the majority of the foreign exchange loss for the year.
General and administrative expenses totaled $866,085 for the year ended January 31, 2005 compared with $640,502 for the year ended January 31, 2004, an increase of $225,583. As noted earlier this increase is due to a stock-based compensation expense of $343,533 in the current year as compared to $nil for the 2004 fiscal year. Due to the increase in mineral property related activities and support staff, consulting fees and salaries and benefits increased by $12,218 and $24,492 respectively. The 2005 fiscal year has benefited from the efforts in the 2004 fiscal year to promote company awareness, establish a web site, and meet filing and listing requirements. The results are decreases in investor relations and shareholder information costs of $69,142, listing and filings fees of $23,198, office and miscellaneous expenses of $24,963 and professional fees of $6,263. Travel expenditures, directors’ fees, and management fees also experienced a decrease in the 2005 fiscal year.
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During the 2005 fiscal year, the Company incurred a loss of $878,819 (in 2004 the loss was $753,596) and a net loss per share of $0.19 (in 2004 the net loss per share was $0.20). The 2005 loss includes interest income of $33,786, an increase of $18,602 from 2004 and a foreign exchange loss of $46,520, a decrease of $94,103 from 2004. The increase in interest income was due to a short term guaranteed investment certificate ranging from $1,350,000 to $2,000,000 being held through the year.
Total assets have stayed relatively stable from the 2004 fiscal year to the 2005 fiscal year due to the increase in mineral property expenditures offsetting the fewer funds being raised from private placements in the 2005 fiscal year. Mineral property expenditures increased by $897,908 compared to an increase of $420,054 in 2004. The net issuance of shares for cash raised $1,108,440 during the current year compared to $2,267,186 in 2004, a decrease of $1,158,746. This has resulted in the working capital being reduced by $1,131,677 over the course of 2005.
The Company remains free of long term interest bearing debt as the total liabilities amount of $162,289 is current in nature. The Company is aware of an asset retirement obligation regarding reclamation of mineral properties which would be a long term liability. While the Company acknowledges their land mediation obligations, the ultimate amount to be incurred and the timeline for the incurrence is at best uncertain. Management has estimated, on an undiscounted basis and before an adjustment for inflation, that costs would approximate $277,000. Management will continue to assess their asset retirement obligations and the associated liability will be recognized in the period in which sufficient information exists to estimate the costs and date of remediation.
Fiscal year ended January 31, 2004 compared to fiscal year ended January 31, 2003
During the year ended January 31, 2004, the Company incurred a net loss of $753,596 or $0.20 per share (in 2003 the net loss was $755,999 or $0.27). The Company recorded a loss in foreign exchange $140,623 relating to advances to the Company’s US subsidiary, Coral Resources Inc. which holds the Company’s Robertson Property. Investments were written down by $19,007 to reflect the current market value of the 400,000 common shares the Company holds in Levon. These shares were acquired over several years pursuant to the terms of an option the Company granted to Levon on the Ruff and Norma Sass Property. An amount of $4,968 incurred on miscellaneous properties to keep them in good standing was also expensed. The Company incurred corporate and administrative expenses of $640,502 compared to 2003 of $538,893.
Administrative Expenses for the fiscal year ended January 31, 2004 increased by 18.5% or $101,609, when compared to the 2003 fiscal year. During the year, legal fees declined by approximately $30,024 from $110,595 to $80,571 as a result of the Company doing more corporate filings in-house. Investor relations and shareholder information increased by $41,603 from $101,614 in 2003 to $143,217 in 2004 as a result of the more aggressive approach the Company took to public awareness by running internet banner ads, reconstruction of the Company’s web-site and preparing promotional material. Listing and filing fees increased by $23,262 as a result of the increase in both the volume of filings made by the Company during the year and the increased fees charged by the regulatory bodies for filing such documents. Salaries and benefits increased by $10,192 from $45,245 to $55,437 and office and miscellaneous expenses increased by $48,664 from $70,209 to $118,873 due to an increase in support staff and up-grading office equipment leases.
The Company reported a net loss of $753,595 or $0.20 per share for the year ended January 31, 2004 compared to a net loss of $755,999 or $0.27 per share for the corresponding year in 2003. The Company had no operating revenues, but recognized interest income of $15,184 compared to $10,926 in 2003. The increase is due to a consistently higher interest bearing bank balance in 2004 compared to 2003.
The Company recorded a loss in foreign exchange of $140,306 compared to a gain of $1,994 in 2003. No amount was charged to operations to recognize revenue received under the option agreements on the Norma Sass and Ruf Claims. The Company recorded a recovery of $36,320 against an allowance set up in 2002 for an outstanding receivable. Marketable securities were written down by $19,007 to reflect the current market value at January 31, 2004.
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During fiscal year ended January 31, 2004, the Company had operating expenses of $640,502 compared to $538,893 for the fiscal year ended January 31, 2003. An increase in the year of $101,609 or approximately 18.5% was primarily due to the increase of management and consulting fees as a result of the Company's increased fund raising and marketing activities.
Management fees of $90,000 for 2004 relate to a management contract with the President of the Company for $90,000 per annum of the administration of the day-to-day operations and activities of the Company and fee for 2003 of $84,500. Consulting fees of $22,500 for 2004 relate to a consulting contract with the Vice President of the Company for financial advice. Consulting fees for 2003 were $29,622.
Directors' fees increased from $11,500 in 2003 to $24,000 in 2004. The Chairman of the Board receives $12,000 per annum for his contribution to the Company. In September 2002, the Company adopted a policy whereby directors would be compensated $500 for each Director's Meeting they attend to cover their time and expenses.
Investor relations and shareholder information has increased from $101,614 in 2003 to $143,217 in 2004. The Company took a much more aggressive approach to promoting the awareness of the Company to broaden the shareholder base.
Legal and accounting has decreased from $110,595 in 2003 to $80,571 in 2004. The Company was able to decrease expenses by completing some work in house.
Auditing fees have remained consistent with last year averaging $25,000. Due to the re-newed focus on corporate governance in both the U.S and Canada, legal and accounting advice was sought more often by directors, officers and the in-house staff through the year on issues such as the Robertson reclamation bond issue, corporate governance and U.S. regulations. Listing and filing fees increased by $23,262 and transfer agent fees have increased by $184 compared to the expense in 2003.
The increased financing activity through the 2004 fiscal year increased the filing fees and the transfer agent fees. Travel has decreased from $53,991 to $43,396 as the Company has become more selective in which trade shows the Company attended and participated in.
Inflation
Historically, inflation has not affected the Company’s business in the current locations where it is doing business and the Company does not expect it to affect the Company’s operations in the future.
Government Regulation
We are subject to various federal and state laws and regulations including environmental laws and regulations. Environmental regulations impose, among other things, restrictions, liabilities and obligations in connection with the generation, handling, use, storage, transportation, treatment and disposal of hazardous substances and waste and in connection with spills, releases and emissions of various substances to the environment. Environmental regulation also requires that facility sites and other properties associated with our operations be operated, maintained, abandoned and reclaimed to the satisfaction of applicable regulatory authorities. In addition, certain types of operations, including exploration and development projects and changes to certain existing projects, may require the submission and approval of environmental impact assessments or permit applications. Compliance with environmental regulation can require significant expenditures, including expenditures for clean up costs and damages arising out of contaminated properties and failure to comply with environmental regulations may result in the imposition of fines and penalties. We believe that we are in substantial compliance with such laws and regulations. However, such laws and regulations may change in the future in a manner which will increase the burden and cost of compliance.
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Certain laws and governmental regulations may impose liability on us for personal injuries, clean-up costs, environmental damages and property damages, as well as administrative, civil and criminal penalties. We maintain limited insurance coverage for sudden and accidental environmental damages, but do not maintain insurance coverage for the full potential liability that could be caused by sudden and accidental environmental damage. Accordingly, we may be subject to liability or may be required to cease production from properties in the event of such damages.
B. Liquidity and Capital Resources
At January 31, 2005, the Company had cash and cash equivalents of $1,472,146 and working capital of $1,469,909. The Company feels it has sufficient cash on hand at this time to finance planned exploration work on its mineral properties and maintain operations. Mineral exploration and development is capital intensive and in order to maintain its interests, the Company will likely be required to raise new equity capital in the future. The Company invested $897,908 in 2005 on mineral exploration, of which $890,202 was expended on its Robertson Property. There is no assurance that the Company will be successful in raising new equity capital.
At this time, the Company has no operating revenues, and does not anticipate any operating revenues until the Company is able to find, acquire, place in production and operate a resource property. Historically, the Company has raised funds through equity financing and the exercise of options and warrants to fund its operations.
The market price of natural resources is highly speculative and volatile. Instability in prices may affect the interest in resource properties and the development of and production from such properties. This may adversely affect the Company’s ability to raise capital to acquire and explore resource properties.
Investor Relations
The Company had an investor relations contract with The Haft Group, Inc. a public relations company headquartered and based in New York City. The Company agreed to retain the Group at a fee of US $3,000 per month, plus reimbursement of out-of-pocket expense, and a reasonable finder’s fee based on the total dollar value raised for introducing the Company to any sources of financing. The agreement was for an initial four month period, and was to automatically renew and continue in full force and effect on a month to month basis, unless terminated by either party. Mr. Haft was a partner and principal of two NYSE member firms, which have since merged with other entities. His business career also includes serving as senior vice president of public relations for Warner Communications. This contract was terminated in January, 2004.
Subsequent Events
The Company announced on February 17, 2005 that it has commenced trading on the Frankfurt Stock Exchange and Berlin-Bremen Stock Exchange under the symbol WKN A0DJ0G.
The Company announced on April 12, 2005 that it has granted incentive stock options for the purchase of up to 42,500 shares at a price of $1.70 per share exercisable on or before April 12, 2010, to employees and consultants of the Company.
The Company announced on July 13, 2005 that it has arranged to purchase a 77% interest in Marcus Corporation. Marcus is a non-reporting Nevada corporation which owns mining claims consisting of 39 unpatented lode claims and two placer claims and which comprise a portion of the Company's Robertson Property. Consideration for the acquisition was 273,240 common shares of the Company. In addition, up to 136,620 non-transferable share purchases warrants permitting the holders to purchase one additional common share of the Company at an exercise price of $2.00 per share for a period of two years for each warrant held has been granted to shareholders selling their shares to the Company.
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C. Research and development, patents and licenses, etc.
Not Applicable.
D. Trend information
No known trend.
E. Off-balance sheet arrangements
None.
F. | Tabular disclosure of contractual obligations |
None.
G. | Safe Harbor |
Not Applicable.
Item 6. Directors, Senior Management and Employees
A. Directors and Senior Management
The following is a list of the Company’s directors and officers as of fiscal year ended January 31, 2005. The directors were re-elected by the Company’s shareholders on June 14, 2005 and are elected for a term of one year which term expires at the election of the directors at the next annual meeting of shareholders.
Name | Position Held | Principal Occupation | Director/Officer Since |
Lloyd Andrews | Chairman and Director | Chairman and Director of Berkley Resources Inc.; Bralorne Gold Mines Ltd.; Avino Silver & Gold Mines Ltd. and the Company. | September 1997 |
Matt Wayrynen(1) | President (CEO) and Director | President and Director ofthe Company; Vice President Operations and Director of Bralorne Gold Mines Ltd.; President and Director of Berkley Resources Inc. and the Director of one other reporting company. | June 2002 |
Chris Sampson | Vice President Exploration and Director | Director and Vice President Exploration of the Company; Professional Engineer. | February 1996 |
Louis Wolfin | Director and Former President and CEO | Director of the Company; Director and CEO of Bralorne Gold Mines Ltd.; Director of four other reporting issuers. | June 1990 |
Ernest Calvert | Director | Director of the Company; Director of four other reporting issuers (public mining companies). | June 1990(2) |
William Glasier | Director | Director of the Company; Director of two other reporting issuers (public mining companies). | August 1990 |
Florian Riedl-Riedenstein | Director | Director of the Company; Director of one other public mining company; Independent Financial Consultant. | March 1994 |
David Wolfin(3) | Director | Director of the Company; Vice President Finance and Director of Bralorne Gold Mines Ltd. and Berkely Resources Inc.; President of Gray Rock Resources Ltd.; President and Director of Avino Silver and Gold Mines Ltd.; and the director of two other public reporting issuers. | September 1997 |
Connie Lillico | Secretary | Secretary of the Company and Officer of five other reporting issuers, former Officer Administrator and Paralegal. | July 2004 |
(1) Mr. Matt Wayrynen is the son-in-law of Mr. Louis Wolfin.
(2) Mr. Calvert resigned effective July 15, 2005.
(3) Mr. David Wolfin is the son of Mr. Louis Wolfin.
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B. Compensation
The following table sets forth particulars concerning the compensation of the senior executive officer of the Company for the fiscal year ended January 31, 2005.
Summary Compensation Table | |||||||
Annual Compensation | Long-Term Compensation Awards | ||||||
Name/Principal Position | Year | Salary(1) $ | Bonus for the Year $ | Other AnnualCompensation $ | Securities Under Options/SARsGranted (#)(2) | Restricted Shares/UnitsAwarded $ | All OtherCompensation $ |
Matt Wayrynen, President (CEO) | 2005 2004 2003 | 60,000 60,000 60,000 | - - - | 15,000 30,000 17,500 | 75,000 40,000 40,000 | - - - | $1,082.08 $1,024.86 $1,325.06 |
_________________________
(1) No employee earned in excess of $100,000.
(2) Represents total common shares under options as of the end of the fiscal year.
(3) Represents one month of remuneration.
Termination of Employment, Changes in Responsibilities and Employment Contracts
There is no employment contract between the Company or its subsidiaries and the named executive officer and the Company has no compensatory plan or arrangement with respect to the named executive officer in the event of the resignation, retirement or any other termination of the named executive officer’s employment with the Company and its subsidiaries or in the event of a change of control of the Company or its subsidiaries or in the event of a change in the named executive officer’s responsibilities following a change in control, where in respect of the named executive officer the value of such compensation exceeds $100,000.
C. Board Practices
The board of directors is comprised of eight directors. The size and experience of the board is important for providing the Company with effective governance in the mining industry. The board’s mandate and responsibilities can be effectively and efficiently administered at its current size. The chairman of the board is not a member of management. The board has functioned, and is of the view that it can continue to function, independently of management as required. At the Annual General Meeting, held on June 14, 2005, the shareholders elected Lloyd Andrews, Matt Wayrynen, Louis Wolfin, Chris Sampson, Ernest A.W. Calvert, William Glasier, Florian Riedl-Riedenstein and David Wolfin as directors.
The board has considered the relationship of each director to the Company and considers two of the eight directors to be “unrelated” (Messrs. Andrews and Sampson). “Unrelated director” as the term is defined in the TSX Company Manual means a director who is independent of management and free from any interest and any business or other relationship which could reasonably be perceived to materially interfere with the director’s ability to act with a view to the best interest of the Company, other than interest and relationships arising solely from shareholdings.
Three of the directors who are considered related (Messrs. David Wolfin, Louis Wolfin and Matt Wayrynen) are related by family. Three other directors considered related (Calvert, Glasier, Riedl-Riedenstein) are on the board of directors of Levon, a company with which the Company has a joint venture on the Norma Sass and Ruf Claims in Nevada.
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The board has addressed the related directorship issues and intends, given a transitional period, to eventually be comprised of a majority of unrelated directors. Procedures are in place to allow the board to function independently. At the present time the board has experienced directors that have made a significant contribution to the Company’s success, and are satisfied that it is not constrained in its access to information, in its deliberations or in its ability to satisfy the mandate established by law to supervise the business and affairs of the Company. The Company’s chairman and independent directors meet in the absence of managing directors. Committees meet independent of management and other directors. Committees appoint a chairman from their number who preside over the committee meetings.
Mandate of the Board of Directors, its Committees and Management
The role of the board is to oversee the conduct of the Company’s business, including the supervision of management, and determining the Company’s strategy. Management is responsible for the Company’s day to day operations, including proposing its strategic direction and presenting budgets and business plans to the board of directors for consideration and approval. The strategic plan takes into account, among other things, the opportunities and risks of the Company’s business. Management provides the board with periodic assessments as to those risks and the implementation of the Company’s systems to manage those risks. The board reviews the personnel needs of the Company from time to time, having particular regard to succession issues relating to senior management. Management is responsible for the training and development of personnel. The board assesses how effectively the Company communicates with shareholders, but has not adopted a formal communications policy. Through the audit committee, and in conjunction with its auditors, the board assesses the adequacy of the Company’s internal control and management information systems. The board looks to management to keep it informed of all significant developments relating to or effecting the Company’s operations. Major financings, acquisitions, dispositions and investments are subject to board approval. A formal mandate for the board of directors and the chief executive officer has not been considered necessary since the relative allocation of responsibility is well understood by both management and the board.
The board has established that they will meet at a minimum of every three months, unless additional meetings are required. The board and committee’s may take action at these regular held meetings or at a meeting by conference call or by written consent.
The board has created three committees, all of which have the mandates set out below.
Committees
Corporate Governance Committee
The corporate governance committee assists the board in establishing the Company’s corporate governance policies and practices generally, identifying individuals qualified to become members of the board, reviewing the composition and functioning of the board and its committees and making recommendations to the board of directors as appropriate. When considering nominees to the board the committee’s mandate requires that it consider the current composition of the board and give consideration to candidates having experience in the industry, life experience and background. The committee is also responsible for the Company’s corporate governance guidelines. The committee may retain legal or other advisors.
As a result of the resignation of Mr. Calvert, the corporate governance committee currently consists of two directors (Messrs. Lloyd Andrews and David Wolfin). Mr. Andrews is an unrelated director. It is intended that this committee will eventually be comprised solely of unrelated and independent directors and the Company is currently seeking to replace Mr. Calvert.
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Audit Committee
The audit committee assists the board in its oversight of the Company’s financial statements and other related public disclosures, the Company’s compliance with legal and regulatory requirements relating to financial reporting, the external auditors, qualifications and independence and the performance of the internal audit function and the external auditors. The committee has direct communications channels with the Company’s auditors. The committee reviews the Company’s financial statements and related management’s discussion and analysis of financial and operating results. The committee can retain legal, accounting or other advisors.
As a result of the resignation of Mr. Calvert, the audit committee currently consists of two related directors (Messrs. Chris Sampson and Florian Riedl-Riedenstein) both of whom are financially literate. “Financially literate” means the ability to read and understand a balance sheet, an income statement, and a cash flow statement. “Accounting or related financial expertise” means the ability to analyze and interpret a full set of financial statements, including the notes attached thereto, in accordance with Canadian GAAP. The Company is currently seeking to replace Mr. Calvert.
It is intended that this committee eventually will be comprised solely of unrelated directors.
The board has adopted a charter for the audit committee which is reviewed annually and sets out the role and oversight responsibilities of the audit committee with respect to:
- | its relationship with and expectation of the external auditors, including the establishment of the independence of the external auditor and the approval of any non-audit mandates of the external auditor; |
- | determination of which non-audit services the external auditor is prohibited from providing; |
- | the engagement, evaluation, remuneration, and termination of the external auditors; |
- | appropriate funding for the payment of the auditor’s compensation and for any advisors retained by the audit committee; |
- | its relationship with and expectation of the internal auditor; |
- | its oversight of internal control; |
- | disclosure of financial and related information; and |
- | any other matter that the audit committee feels is important to its mandate or that which the board chooses to delegate to it. |
Compensation Committee
The compensation committee assists the board in monitoring, reviewing and approving compensation policies and administering the Company’s share compensation plans. The committee is responsible for reviewing and making recommendations to the board with respect to director and senior management compensation. When granting stock options, the committee determines the number of shares covered by each grant and the terms and conditions of the option, subject to the terms of the plan, and the approval of the board. The committee may consider changes to the remuneration of directors, which may be appropriate from time to time. The committee may retain legal or other advisors to assist it.
The committee consists of one unrelated director (Messr. Andrews) and two related director (Messrs. Calvert and Riedl-Riedenstein). It is intended that the compensation committee will eventually be comprised solely of unrelated directors.
Compensation of Directors
The directors of the Company have not been paid fees or other cash compensation in their capacity as directors. The compensation committee has adopted a policy which compensates all directors $500 for each board meeting attended by the director for the time and costs associated with attending the meeting. The Company has no arrangements, standard or otherwise, pursuant to which its current directors are compensated by the Company or its subsidiaries for their services in their capacity as directors, or for committee participation, or involvement in special assignments during the most recently completed financial year, except that directors may be reimbursed for actual expenses reasonably incurred in connection with the performance of their duties as directors, and certain directors may be compensated for services as consultants or experts. Incentive stock options, however, have been granted to non-named executive officers, directors and other insiders of the Company and are outstanding to purchase an aggregate 535,500 shares of the Company as follows:
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Name of Optionee | No. of Shares | Exercise Price Per Share | Date of Grant | Expiry Date | |||||||||
Non-Named Executive | |||||||||||||
Officer/Directors | |||||||||||||
Lloyd Andrews | 21,600 | $ | 2.50 | September 5, 2000 | September 5, 2005 | ||||||||
Louis Wolfin | 50,000 | $ | 2.50 | September 5, 2000 | September 5, 2005 | ||||||||
F. Riedl-Riedenstein | 7,500 | $ | 2.50 | September 5, 2000 | September 5, 2005 | ||||||||
Ernest Calvert | 5,000 | $ | 2.50 | September 5, 2000 | September 5, 2005 | ||||||||
William Glasier | 5,000 | $ | 2.50 | September 5, 2000 | September 5, 2005 | ||||||||
Chris Sampson | 5,000 | $ | 2.50 | September 5, 2000 | September 5, 2005 | ||||||||
David Wolfin | 7,000 | $ | 2.50 | September 5, 2000 | September 5, 2005 | ||||||||
Louis Wolfin | 50,000 | $ | 1.70 | December 1, 2004 | December 1, 2009 | ||||||||
F. Riedl-Riedenstein | 17,500 | $ | 1.70 | December 1, 2004 | December 1, 2009 | ||||||||
Ernest Calvert | 20,000 | $ | 1.70 | December 1, 2004 | December 1, 2009 | ||||||||
William Glasier | 20,000 | $ | 1.70 | December 1, 2004 | December 1, 2009 | ||||||||
Chris Sampson | 20,000 | $ | 1.70 | December 1, 2004 | December 1, 2009 | ||||||||
David Wolfin | 20,000 | $ | 1.70 | December 1, 2004 | December 1, 2009 | ||||||||
Lloyd Andrews | 53,400 | $ | 1.70 | December 1, 2004 | December 1, 2009 | ||||||||
Connie Lillico | 25,000 | $ | 1.70 | December 1, 2004 | December 1, 2009 | ||||||||
Other Insiders | |||||||||||||
Nil |
D. Employees
The Company has one full-time employee located in Nevada, United States.
E. Share Ownership
The following table sets for the share ownership of the directors and officers of the Company as of June 1, 2005.
Name of Beneficial Owner | Number of Shares | Percent |
Matt Wayrynen | 239 | * |
Louis Wolfin | 236,592 | 5.01% |
Chris Sampson | 7,100 | * |
Ernest Calvert | Nil | Nil |
Lloyd Andrews | 28,750 | * |
William Glasier | 8,190 | * |
Florian Riedl-Riedenstein | Nil | Nil |
David Wolfin | 74,700 | * |
Connie Lillico | Nil | Nil |
____________
* | Less than one percent |
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OPTION GRANTS DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR
Summary Options Table
Name of Executive Officer | Securities Under Option Granted | % of Total Options Granted to Employees in Financial Year | Executive or base Price ($/Security) | Market Value of Securities underlying Options on Date of Grant ($/Security) | Expiration Date | |||||||||||
Louis Wolfin | 50,000 | 12.11 | % | $ | 1.70 | $ | 1.70 | 1-Dec-09 | ||||||||
Florian Riedl-Riedenstein | 17,500 | 4.24 | % | $ | 1.70 | $ | 1.70 | 1-Dec-09 | ||||||||
Ernest Calvert | 20,000 | 4.84 | % | $ | 1.70 | $ | 1.70 | 1-Dec-09 | ||||||||
William Glasier | 20,000 | 4.84 | % | $ | 1.70 | $ | 1.70 | 1-Dec-09 | ||||||||
Chris Sampson | 20,000 | 4.84 | % | $ | 1.70 | $ | 1.70 | 1-Dec-09 | ||||||||
David Wolfin | 68,000 | 16.47 | % | $ | 1.70 | $ | 1.70 | 1-Dec-09 | ||||||||
Matt Wayrynen | 47,000 | 11.38 | % | $ | 1.70 | $ | 1.70 | 1-Dec-09 | ||||||||
Lloyd Andrews | 53,400 | 12.93 | % | $ | 1.70 | $ | 1.70 | 1-Dec-09 | ||||||||
Connie Lillico | 25,000 | 6.05 | % | $ | 1.70 | $ | 1.70 | 1-Dec-09 |
Item 7. Major Shareholders and Related Party Transactions
A. Major Shareholders
As far as it is known to the Company, it is not directly or indirectly owned or controlled by any other corporation or by the Canadian Government, or any foreign government or by any other natural or legal person(s) severally or jointly.
As of June 1, 2005, the Company knows of no person, other than Louis Wolfin, who owned more than five percent of the outstanding shares of each class of the Company’s voting securities. The following tables set forth the total shares owned by the officers and directors as a group as of June 1, 2005:
Name | Number of Shares ofCommon Stock Owned | Percent of Class |
All Officers and Directors as a Group (eight persons) | 355,571 | 7.64% |
All of the Company's common shares carry the same voting rights and the Company is not aware of any arrangements which may at a subsequent date result in a change of control of the Company.
B. Related Party Transactions
In June 1990, the Company entered into an agreement with Oniva International Services Corp., referred to as “Oniva”. Pursuant to the agreement, the Company paid Oniva an amount equal to twenty percent of Oniva’s overhead expenses and 100% of the actual expenditures paid by Oniva on behalf of the Company for providing administrative, accounting and shareholder relation services. On October 1, 1997, Oniva and the Company entered into a new administrative services contract whereby Oniva will provide general office administrative, secretarial and bookkeeping services; meet with the Company’s professional representatives; provide shareholder relation services; and provide interim or bridge financing provided that Oniva’s financial condition, as determined by Oniva in its sole discretion, allows for such financing. For its services, the Company shall pay Oniva 20% of Oniva’s office overhead expenses, 100% of Oniva’s out-of-pocket expenses, and a fee equal to 10% of the total sum paid by the Company to Oniva. The administrative services contract had an initial term of one year and is automatically renewed unless terminated by the Company by giving one-month notice prior to the expiration date.Oniva has four shares issued in trust with Messrs. Wolfin and Calvert on behalf of the Company and three other companies. Messrs. Wolfin and Calvert are the only directors of Oniva. For fiscal years 2005, 2004 and 2003, the Company paid Oniva an aggregate of $135,140, $107,393 and $63,192, respectively.
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Related party transactions for the 2005 fiscal year are as follows:
(a) | Advances receivable include $28,003 (2004 - $28,003) due from a joint venture with common management and common directors and $31,427 (2005: $122,048 less an allowance for bad debt of $90,621; 2004: $101,920 less an allowance for bad debt of $90,621) with two companies with common management and common directors. |
(b) | Advances payable include $31,333 (2004 - $36,833) due to Directors in regards to past directors’ fees; $32,540 (2004 - $32,540) due to a company with common management and common directors; and $1,783 (2004 - $1,064) to a company controlled by a Director. |
(c) | Consulting fees of $30,000 (2004 - $22,500) were paid to a company owned by a director. |
(d) | Management fees of $75,000 (2004 - $90,000) were paid to a company owned by a director. |
(e) | Directors’ fees of $14,000 (2004 - $24,000) were paid to directors of the Company. |
(f) | An allowance in the amount of $209,840 has been accrued in respect of advances made to a Company with common management. |
(g) | The loan receivable of $50,000 is due from a subsidiary of a related company that provides drilling services. The amount due is non-interest bearing, unsecured and due on demand. |
These transactions are in the normal course of operations and are measured at the exchange amount, which is the consideration established and agreed to by the related parties, unless otherwise noted.
C. Interest of Experts and Counsel.
Not Applicable.
Item 8. Financial Information
A. Consolidated Statements and Other Financial Information
The following financial statements of the Company are attached to this Annual Report:
· | Auditors Report. |
· | Consolidated Balance Sheet for years ended January 31, 2005 and 2004. |
· | Consolidated Statement of Operations and Deficit for the years ended January 31, 2005, 2004 and 2003. |
· | Consolidated Statement of Cash flows for the years January 31, 2005, 2004 and 2003. |
· | Consolidated Statement of Mineral Properties for the years January 31, 2005, 2004 and 2003. |
· | Notes to Consolidated Financial Statements for the years January 31, 2005, 2004 and 2003. |
Dividend Policy
The Company has never paid any dividends and does not intend to in the near future.
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B. Significant Changes
None.
Item 9. The Offering and Listing
A. Price History of Stock
The Common stock of the Company is listed on theTSX Venture Exchange under the symbol “CGR” and in the United States on the National Association of Securities Dealers OTC Bulletin Board, under the symbol “CGREF”.
As of July 5, 2005, there were 307 record holders in the United States holding 16.04% of the Company’s outstanding common stock representing approximately 87.22% of the total shareholders. The Company’s Common stock is issued in registered form and the percentage of shares reported to be held by record holders in the United States is taken from the records of thePacific Corporate Trust Company in the City of Vancouver, the registrar and transfer agent for the common stock.
The high and low prices expressed in Canadian dollars on theTSX Venture Exchange for the Company’ common stock and the high and low prices expressed in United States dollars quoted on the OTC Bulletin Board for the last six months, subsequent period, and for each quarter for the last two fiscal years.
TSX Venture Exchange (Canadian Dollars) | OTC Bulletin Board(United States Dollars) | ||||||||||||
Last Six Months | High | Low | High | Low | |||||||||
June 2005 | 1.89 | 1.33 | 1.49 | 1.16 | |||||||||
May 2005 | 1.61 | 1.31 | 1.44 | 1.07 | |||||||||
April 2005 | 1.70 | 1.33 | 1.41 | 1.06 | |||||||||
March 2005 | 2.30 | 1.65 | 2.00 | 1.39 | |||||||||
February 2005 | 2.40 | 1.32 | 1.80 | 1.075 | |||||||||
January 2005 | 1.73 | 1.12 | 1.40 | 0.92 | |||||||||
Subsequent Period | |||||||||||||
First Quarter ended April 30, 2005 | 2.40 | 1.32 | 2.00 | 1.075 | |||||||||
2003-2004 | High | Low | High | Low | |||||||||
Fourth Quarter ended January 31, 2004* | 0.61 | 0.33 | 0.45 | 0.23 | |||||||||
Third Quarter ended October 31, 2003* | 0.40 | 0.27 | 0.30 | 0.215 | |||||||||
Second Quarter ended July 31, 2003* | 0.38 | 0.21 | 0.28 | 0.165 | |||||||||
First Quarter ended April 30, 2003* | 0.42 | 0.25 | 0.28 | 0.17 | |||||||||
2004-2005 | High | Low | High | Low | |||||||||
Fourth Quarter ended January 31, 2005 | 1.95 | 1.12 | 1.60 | 0.90 | |||||||||
Third Quarter ended October 31, 2004 | 2.50 | 1.90 | 2.40 | 1.06 | |||||||||
Second Quarter ended July 31, 2004* | 0.37 | 0.19 | 0.28 | 0.19 | |||||||||
First Quarter ended April 30, 2004* | 0.43 | 0.26 | 0.33 | 0.20 | |||||||||
Last Five Fiscal Years | High | Low | High | Low | |||||||||
2005 Annual | 4.30 | 1.12 | 3.30 | 0.90 | |||||||||
2004 Annual* | 0.61 | 0.25 | 0.45 | 0.20 | |||||||||
2003 Annual* | 0.68 | 0.14 | 0.48 | 0.09 | |||||||||
2002 Annual* | 0.38 | 0.12 | 0.25 | 0.08 | |||||||||
2001 Annual* | 0.39 | 0.13 | 0.30 | 0.08 |
*On July 30, 2004, the shareholders approved a 10:1 share consolidation. The share consolidation was effective September 14, 2004. These share prices reflect the pre-consolidation shares.
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B. Plan of Distribution
Not Applicable.
C. Markets
The Company’s common stock is listed on theTSX Venture Exchange under the symbol “CGR” and in the United States on the National Association of Securities Dealers OTC Bulletin Board under the symbol "CGREF."
D. Selling Shareholders
Not Applicable.
E. Dilution
Not Applicable.
F. Expenses of the Issue.
Not Applicable.
Item 10. Additional Information
A. Share Capital
Not Applicable.
B. Memorandum and Articles of Association
Coral Gold Corp. was incorporated on January 22, 1981 under the Company Act of the Province of British Columbia, which changed its name to Coral Energy Corporation on March 3, 1982. On September 9, 1987, Coral Energy Corporation changed its name to the Coral Gold Corp. On September 14, 2004, the Company changed its name to Coral Gold Resources Ltd. in conjunction with a 10:1 share consolidation. It is anticipated that this consolidation may help the Company access institutional investors in both the United States and Europe.
Common Shares
All issued and outstanding common shares are fully paid and non-assessable. Each holder of record of common shares is entitled to one vote for each common share so held on all matters requiring a vote of shareholders, including the election of directors. The holders of common shares will be entitled to dividends on a pro-rata basis, if and when as declared by the board of directors. There are no preferences, conversion rights, preemptive rights, subscription rights, or restrictions or transfers attached to the common shares. In the event of liquidation, dissolution, or winding up of the Company, the holders of common shares are entitled to participate in the assets of the Company available for distribution after satisfaction of the claims of creditors.
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Powers and Duties of Directors
The directors shall manage or supervise the management of the affairs and business of the Company and shall have authority to exercise all such powers of the Company as are not, by the Company Act or by the Memorandum or Articles, required to be exercised by the Company in a general meeting.
Directors will serve as such until the next annual meeting. In general, a director who is, in any way, directly or indirectly interested in an existing or proposed contract or transaction with the Company whereby a duty or interest might be created to conflict with his duty or interest as a director, that director shall declare the nature and extent of his interest in such contract or transaction or the conflict or potential conflict with his duty and interest as a director. Such director shall not vote in respect of any such contract or transaction with the Company in which he is interested and if he shall do so, his vote shall note be counted, but he shall be counted in the quorum present at the meeting at which such vote is taken. However, notwithstanding the foregoing, directors shall have the right to vote on determining the remuneration of the directors.
The directors may from time to time on behalf of the Company: (a) borrow money in such manner and amount from such sources and upon such terms and conditions as they think fit; (b) issue bonds, debentures and other debt obligations; or (c) mortgage, charge or give other security on the whole or any part of the property and assets of the Company.
The majority of the directors of the Company must be persons ordinarily resident in Canada and one director of the Company must be ordinarily resident in British Columbiaand be of the full age of 18 years. There is no minimum share ownership to be a Director. No person shall be a Director of the Company who is not capable of managing their own affairs; is an undischarged bankrupt; convicted of an offense in connection with the promotion, formation or management of a corporation or involved in fraud within the last five years; or a person that has had a registration in any capacity under the “BC Securities” or the "BC Mortgage Brokers Act" canceled within the last five years.
Shareholders
An annual general meeting shall be held once in every calendar year at such time and place as may be determined by the directors. A quorum at an annual general meeting and special meeting shall be two shareholders or one or more proxy holder representing two shareholders, or one shareholder and a proxy holder representing another shareholder. There is no limitation imposed by the laws of Canada or by the charter or other constituent documents of the Company on the right of a non-resident to hold or vote the common shares, other than as provided in the Investment Canada Act, (the “Investment Act”) discussed below under “Item 10. Additional Information, D. Exchange Controls.”
In accordance with British Columbia law, directors shall be elected by an “ordinary resolution” which means: (a) a resolution passed by the shareholders of the Company in general meeting by a simple majority of the votes cast in person or by proxy: or (b) a resolution that has been submitted to the shareholders of the Company who would have been entitled to vote on it in person or by proxy at a general meeting of the Company and that has been consented to in writing by such shareholders of the Company holding shares carrying not less than 3/4 of the votes entitled to be cast on it.
Under British Columbia law certain items such as an amendment to the Company’s articles or entering into a merger requires approval by a special resolution which shall mean: (a) a resolution passed by a majority of not less than 3/4 of the votes cast by the shareholders of the Company who, being entitled to do so, vote in person or by proxy at a general meeting of the company; or (b) a resolution consented to in writing by every shareholder of the Company who would have been entitled to vote in person or by proxy at a general meeting of the Company, and a resolution so consented to is deemed to be a special resolution passed at a general meeting of the Company.
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Recent Developments
On March 29, 2004, the British Columbia legislature enacted the British Columbia Business Corporations Act ("BCBCA") and repealed the British Columbia Company Act (the "Company Act"). The BCBCA removes many of the restrictions contained in the Company Act, including restrictions on the residency of directors, the location of annual general meetings and limits on authorized share capital. As well, the BCBCA uses new forms and terminology and has replaced the Memorandum with a Notice of Articles. At the Company's annual and special general meeting held on June 14, 2005, shareholders were asked to approve:
1. | a special resolution to remove the application of the Pre-existing Company Provisions, as defined in the Business Corporations Act (British Columbia); |
2. | a special resolution to alter the Company's share structure to an unlimited number of common shares without par value; and |
3. a special resolution to approve new articles for the Company.
The regulations under the BCBCA effectively added certain provisions, called the "Pre-Existing Company Provisions" or "PCPs", to every company's Notice of Articles. The PCPs provide that the number of votes required to pass a special resolution (formerly also referred to as a special resolution under the Company Act) or a special separate resolution is at least three-quarters of the votes cast by shareholders present in person or by proxy at the meeting. This is the majority that was required under the Company Act. The BCBCA allows a special resolution to be passed by at least two-thirds of the votes cast by shareholders present in person or by proxy at the meeting. The Company proposes to amend its Notice of Articles to delete the PCPs so that the provisions of the BCBCA permitting a two-thirds majority will apply to the Company.
The shareholders have approved the above resolutions and therefore special resolutions will require a two-thirds majority vote, instead of a three-quarters majority vote. The authorized capital of the Company is now an unlimited number of common shares without par value. Management believes that this provides the Company with greater flexibility for future corporate activities and is consistent with special resolution requirements for companies in other jurisdictions.
C. Material Contracts
Except as otherwise disclosed in this annual report, the Company has not entered into any material contracts.
D. Exchange Controls
There is no law, governmental decree or regulation in Canada that restricts the export or import of capital or affects the remittance of dividends, interest or other payments to a non-resident holder of common shares other than withholding tax requirements. Any such remittances to United States residents are subject to withholding tax. See “Taxation.”
There is no limitation imposed by the laws of Canada or by the charter or other constituent documents of the Company on the right of a non-resident to hold or vote the common shares, other than as provided in the Investment Act. The following discussion summarizes the principal features of the Investment Act for a non-resident who proposes to acquire the common shares of the Company.
The Investment Act generally prohibits implementation of a reviewable investment by an individual, government or agency thereof, corporation, partnership, trust or joint venture (each an “entity”) that is not a "Canadian" as defined in the Investment Act (a “non-Canadian”), unless after review, the Director of Investments appointed by the minister responsible for the Investment Act is satisfied that the investment is likely to be of net benefit to Canada. An investment in the common shares by a non-Canadian other than a “WTO Investor” (as that term is defined by the Investment Act, and which term includes entities which are nationals of or are controlled by nationals of member states of the World Trade Organization) when the Company was not controlled by a WTO Investor, would be reviewable under the Investment Act if it was an investment to acquire control of the Company and the value of the assets of the Company, as determined in accordance with the regulations promulgated under the Investment Act, equals or exceeds $5 million for direct acquisition and over $50 million for indirect acquisition, or if an order for review was made by the federal cabinet on the grounds that the investment related to Canada's cultural heritage or national identity, regardless of the value of the assets of the Company. An investment in the common shares by a WTO Investor, or by a non-Canadian when the Company was controlled by a WTO Investor, would be reviewable under the Investment Act if it was an investment to acquire control of the Company and the value of the assets of the Company, as determined in accordance with the regulations promulgated under the Investment Act was not less than a specified amount, which for 2004 is any amount in excess of $137 million. A non-Canadian would acquire control of the Company for the purposes of the Investment Act if the non-Canadian acquired a majority of the common shares. The acquisition of one third or more, but less than a majority of the common shares would be presumed to be an acquisition of control of the Company unless it could be established that, on the acquisition, the Company was not controlled in fact by the acquirer through the ownership of the common shares.
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Certain transactions relating to the common shares would be exempt from the Investment Act, including: (a) an acquisition of the common shares by a person in the ordinary course of that person's business as a trader or dealer in securities; (b) an acquisition of control of the Company in connection with the realization of security granted for a loan or other financial assistance and not for a purpose related to the provisions of the Investment Act; and (c) an acquisition of control of the Company by reason of an amalgamation, merger, consolidation or corporate reorganization following which the ultimate direct or indirect control in fact of the Company, through the ownership of the common shares, remained unchanged.
E. Taxation
Canadian Federal Income Tax Consequences
The following summarizes the principal Canadian federal income tax consequences applicable to the holding and disposition of common shares in the capital of the Company by a United States resident, and who holds common shares solely as capital property (a “U.S. Holder”). This summary is based on the current provisions of the Income Tax Act (Canada) (the “Tax Act”), the regulations thereunder, all amendments thereto publicly proposed by the government of Canada, the published administrative practices of Revenue Canada, Customs, Excise and Taxation, and on the current provisions of the Canada-United States Income Tax Convention, 1980, as amended (the “Treaty”). Except as otherwise expressly provided, this summary does not take into account any provincial, territorial or foreign (including without limitation, any U.S.) tax law or treaty. It has been assumed that all currently proposed amendments will be enacted substantially as proposed and that there is no other relevant change in any governing law or practice, although no assurance can be given in these respects.
Each U.S. Holder is advised to obtain tax and legal advice applicable to such U.S. Holder’s particular circumstances.
Every U.S. Holder is liable to pay a Canadian withholding tax on every dividend that is or is deemed to be paid or credited to the U.S. Holder on the U.S. Holder’s common shares. The statutory rate of withholding tax is 25% of the gross amount of the dividend paid. The Treaty reduces the statutory rate with respect to dividends paid to a U.S. Holder for the purposes of the Treaty. Where applicable, the general rate of withholding tax under the Treaty is 15% of the gross amount of the dividend, but if the U.S. Holder is a company that owns at least 10% of the voting stock of the Company and beneficially owns the dividend, the rate of withholding tax is 5% for dividends paid or credited after 1996 to such corporate U.S. Holder. The Company is required to withhold the applicable tax from the dividend payable to the U.S. Holder, and to remit the tax to the Receiver General of Canada for the account of the U.S. Holder.
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Pursuant to the Tax Act, a U.S. Holder will not be subject to Canadian capital gains tax on any capital gain realized on an actual or deemed disposition of a common share, including a deemed disposition on death, provided that the U.S. Holder did not hold the common share as capital property used in carrying on a business in Canada, and that neither the U. S. Holder nor persons with whom the U.S. Holder did not deal at arm's length (alone or together) owned or had the right or an option to acquire 25% or more of the issued shares of any class of the Company at any time in the five years immediately preceding the disposition.
United States Federal Income Tax Consequences
Passive Foreign Investment Company.
The Company believes that it is a passive foreign investment company (“PFIC”) for United States federal income tax purposes with respect to a United States Investor. The Company will be a PFIC with respect to a United States Investor if, for any taxable year in which such United States Investor held the Company’s shares, either (i) at least 75 % of the gross income of the Company for the taxable year is passive income, or (ii) at least 50% of the Company’s assets are attributable to assets that produce or are held for the production of passive income. In each case, the Company must take into account a pro rata share of the income and the assets of any company in which the Company owns, directly or indirectly, 25% or more of the stock by value (the “look-through” rules). Passive income generally includes dividends, interest, royalties, rents (other than rents and royalties derived from the active conduct of a trade or business and not derived from a related person), annuities, and gains from assets that produce passive income. As a publicly traded corporation, the Company would apply the 50% asset test based on the value of the Company’s assets.
Because the Company believes it qualifies as a PFIC, unless a United States Investor who owns shares in the Company (i) elects (a section 1295 election) to have the Company treated as a “qualified electing fund” (a “QEF”) (described below), or (ii) marks the stock to market (described below), the following rules apply:
1. Distributions made by the Company during a taxable year to a United States Investor who owns shares in the Company that are an “excess distribution” (defined generally as the excess of the amount received with respect to the shares in any taxable year over 125% of the average received in the shorter of either the three previous years or such United States Investor's holding period before the taxable year) must be allocated ratably to each day of such shareholder’s holding period. The amount allocated to the current taxable year and to years when the corporation was not a PFIC must be included as ordinary income in the shareholder’s gross income for the year of distribution. The remainder is not included in gross income but the shareholder must pay a deferred tax on that portion. The deferred tax amount, in general, is the amount of tax that would have been owed if the allocated amount had been included in income in the earlier year, plus interest. The interest charge is at the rate applicable to deficiencies in income taxes.
2. The entire amount of any gain realized upon the sale or other disposition of the shares will be treated as an excess distribution made in the year of sale or other disposition and as a consequence will be treated as ordinary income and, to the extent allocated to years prior to the year of sale or disposition, will be subject to the interest charge described above.
A shareholder that makes a section 1295 election will be currently taxable on his or her pro rata share of the Company’s ordinary earnings and net capital gain (at ordinary income and capital gains rates, respectively) for each taxable year of the Company, regardless of whether or not distributions were received. The shareholder’s basis in his or her shares will be increased to reflect taxed but undistributed income. Distributions of income that had previously been taxed will result in a corresponding reduction of basis in the shares and will not be taxed again as a distribution to the shareholder.
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A shareholder may make a section 1295 election with respect to a PFIC for any taxable year of the shareholder (a "shareholder’s election year"). A section 1295 election is effective for the shareholder’s election year and all subsequent taxable years of the shareholder. Procedures exist for both retroactive elections and filing of protective statements. Once a section 1295 election is made it remains in effect, although not applicable, during those years that the Company is not a PFIC. Therefore, if the Company re-qualifies as a PFIC, the section 1295 election previously made is still valid and the shareholder is required to satisfy the requirements of that election. Once a shareholder makes a section 1295 election, the shareholder may revoke the election only with the consent of the Commissioner.
If the shareholder makes the section 1295 election for the first tax year of the Company as a PFIC that is included in the shareholder’s holding period, the PFIC qualifies as a pedigreed QEF with respect to the shareholder. If a QEF is an unpedigreed QEF with respect to the shareholder, the shareholder is subject to both the non-QEF and QEF regimes. Certain elections are available which enable shareholders to convert an unpedigreed QEF into a pedigreed QEF thereby avoiding such dual application.
A shareholder making the section 1295 election must make the election on or before the due date, as extended, for filing the shareholder’s income tax return for the first taxable year to which the election will apply. A shareholder must make a section 1295 election by completing Form 8621; attaching said Form to its federal income tax return; and reflecting in the Form the information provided in the PFIC Annual Information Statement or if the shareholder calculated the financial information, a statement to that effect. The PFIC Annual Information Statement must include the shareholder’s pro rata shares of the ordinary earnings and net capital gain of the PFIC for the PFIC’s taxable year or information that will enable the shareholder to calculate its pro rata shares. In addition, the PFIC Annual Information Statement must contain information about distributions to shareholders and a statement that the PFIC will permit the shareholder to inspect and copy its permanent books of account, records, and other documents of the PFIC necessary to determine that the ordinary earnings and net capital gain of the PFIC have been calculated according to federal income tax accounting principles. A shareholder may also obtain the books, records and other documents of the foreign corporation necessary for the shareholder to determine the correct earnings and profits and net capital gain of the PFIC according to federal income tax principles and calculate the shareholder’s pro rata shares of the PFIC’s ordinary earnings and net capital gain. In that case, the PFIC must include a statement in its PFIC Annual Information Statement that it has permitted the shareholder to examine the PFIC’s books of account, records, and other documents necessary for the shareholder to calculate the amounts of ordinary earnings and net capital gain. A shareholder that makes a Section 1295 election with respect to a PFIC held directly or indirectly, for each taxable year to which the Section 1295 election applies, must comply with the foregoing submissions.
Because the Company’s stock is “marketable” under section 1296(e), a U.S. Investor may elect to mark the stock to market each year. In general, a PFIC shareholder who elects under section 1296 to mark the marketable stock of a PFIC includes in income each year an amount equal to the excess, if any, of the fair market value of the PFIC stock as of the close of the taxable year over the shareholder’s adjusted basis in such stock. A shareholder is also generally allowed a deduction for the excess, if any, of the adjusted basis of the PFIC stock over the fair market value as of the close of the taxable year. Deductions under this rule, however, are allowable only to the extent of any net mark to market gains with respect to the stock included by the shareholder for prior taxable years. While the interest charge regime under the PFIC rules generally does not apply to distributions from and dispositions of stock of a PFIC where the U.S. Investor has marked to market, coordination rules for limited application will apply in the case of a U.S. Investor that marks to market PFIC stock later than the beginning of the shareholder's holding period for the PFIC stock.
Special rules apply with respect to the calculation of the amount of the foreign tax credit with respect to excess distributions by a PFIC or inclusions under a QEF.
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Controlled Foreign Corporations.
Sections 951 through 964 and Section 1248 of the Code relate to controlled foreign corporations (“CFCs”). A foreign corporation that qualifies as a CFC will not be treated as a PFIC with respect to a shareholder during the portion of the shareholder’s holding period after December 31, 1997, during which the shareholder is a 10% United States shareholder and the corporation is a CFC. The PFIC provisions continue to apply in the case of PFIC that is also a CFC with respect to shareholders that are less than 10% United States shareholders.
The 10% United States shareholders of a CFC are subject to current U.S. tax on their pro rata shares of certain income of the CFC and their pro rata shares of the CFC’s earnings invested in certain U.S. property. The effect is that the CFC provisions may impute some portion of such a corporation’s undistributed income to certain shareholders on a current basis and convert into dividend income some portion of gains on dispositions of stock, which would otherwise qualify for capital gains treatment.
The Company does not believe that it will be a CFC. It is possible that the Company could become a CFC in the future. Even if the Company were classified as a CFC in a future year, however, the CFC rules referred to above would apply only with respect to 10% shareholders.
Personal Holding Company/Foreign Personal Holding Company/Foreign Investment Company.
A corporation will be classified as a personal holding company (a “PHC”) if at any time during the last half of a tax year (i) five or fewer individuals (without regard to their citizenship or residence) directly or indirectly or by attribution own more than 50% in value of the corporation’s stock and (ii) at least 60% of its ordinary gross income, as specially adjusted, consists of personal holding company income (defined generally to include dividends, interest, royalties, rents and certain other types of passive income). A PHC is subject to a United States federal income tax of 39.6% on its undistributed personal holding company income (generally limited, in the case of a foreign corporation, to United States source income).
A corporation will be classified as a foreign personal holding company (an “FPHC”) and not a PHC if at any time during a tax year (i) five or fewer individual United States citizens or residents directly or indirectly or by attribution own more than 50% of the total combined voting power or value of the corporation’s stock and (ii) at least 60% of its gross income consists of foreign personal holding company income (defined generally to include dividends, interest, royalties, rents and certain other types of passive income). Each United States shareholder in a FPHC is required to include in gross income, as a dividend, an allocable share of the FPHC’s undistributed foreign personal holding company income (generally the taxable income of the FPHC, as specially adjusted).
A corporation will be classified as a foreign investment company (an “FIC”) if for any taxable year it (i) is registered under the Investment Company Act of 1940, as amended, as a management company or share investment trust or is engaged primarily in the business of investing or trading in securities or commodities (or any interest therein) and (ii) 50% or more of the value or the total combined voting power of all the corporation’s stock is owned directly or indirectly (including stock owned through the application of attribution rules) by United States persons. In general, unless an FIC elects to distribute 90% or more of its taxable income (determined under United States tax principles as specially adjusted) to its shareholders, gain on the sale or exchange of FIC stock is treated as ordinary income (rather than capital gain) to the extent of such shareholder’s ratable share of the corporation's earnings and profits for the period during which such stock was held.
The Company believes that it is not and will not be a PHC, FPHC or FIC. However, no assurance can be given as to the Company’s future status.
42
U.S. Information Reporting and Backup Withholding.
Dividends are generally subject to the information reporting requirements of the Code. Dividends may be subject to backup withholding at the rate of 31% unless the holder provides a taxpayer identification number on a properly completed Form W-9 or otherwise establishes an exemption.
The amount of any backup withholding will not constitute additional tax and will be allowed as a credit against the United States Investor's federal income tax liability.
Filing of Information Returns.
Under a number of circumstances, a United States Investor acquiring shares of the Company may be required to file an information return. In particular, any United States Investor who becomes the owner, directly or indirectly, of 10% or more of the shares of the Company will be required to file such a return. Other filing requirements may apply, and United States Investors should consult their own tax advisors concerning these requirements.
F. Dividends and Paying Agents
Not Applicable.
G. Statement by Experts
Not Applicable.
H. Documents on Display
The Company is required to file financial statements and other information with the Securities Commission in the Provinces of British Columbia, electronically through the Canadian System for Electronic Document Analysis and Retrieval (SEDAR) which can be viewed at www.sedar.com.
The Company files annual reports and furnishes other information with the Securities and Exchange Commission. You may read and copy any document that we file at the Commission’s Public Reference Room at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 or by accessing the Commission’s website (http://www.sec.gov).
Copies of the Company’s material contracts are kept in the Company’s administrative headquarters.
I. Subsidiary Information
Not Applicable.
Item 11. Quantitative and Qualitative Disclosures About Market Risk
A. TRANSACTION RISK AND CURRENCY RISK MANAGEMENT
The Company's operations do not employ financial instruments or derivatives which are market sensitive and the Company does not have financial market risks.
B. EXCHANGE RATE SENSITIVITY
The Company operates in more than one country and the Company's functional currency is the Canadian dollar. The Company's offices are located in Canada, however, all of its exploration properties are located in the United States, and the Company’s financial results are reported in Canadian Dollars. While most of the Company administrative expenses are paid in Canadian dollars, all of its operations, specifically land taxes, lease payments, and reclamation work are conducted in U.S. dollars. Therefore, the Company's currency fluctuation exposure is primarily to the U.S. dollar and the Canadian dollar.The following table sets forth the percentage of the Company's administrative expense by currency for the year ended January 31, 2005.
43
By Currency
2005 | ||||
Canadian Dollar | 96 | % | ||
U.S. Dollar | 4 | % | ||
Total: | 100 | % |
Such administrative expense by currency may change from time to time, but it has been roughly the same year to year. Further, the Company incurred reclamation, maintenance and drilling costs of approximately US$672,376 and US$300,779 for the fiscal years ended January 31, 2005 and 2004, respectively, which are primarily paid in U.S. dollars.
The Company has not entered into any material foreign exchange contracts to minimize or mitigate the effects of foreign exchange fluctuations on the Company's operations. The Company exchanges Canadian dollars to U.S. dollars to fund its U.S. operations. Based on prior years, the Company does not believe that it is subject to material foreign exchange fluctuations. However, no assurance can be given that this will continue to be true in the future.
Item 12. Description of Securities Other than Equity Securities
Not Applicable.
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Part II
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
None.
Item 15. Controls and Procedures
The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's chief executive officer along with the Company's principal financial officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Company's chief executive officer along with the Company's principal financial officer concluded that the Company's disclosure controls and procedures as of the end of the fiscal year covered by this Form 20-F are effective in timely alerting them to material information relating to the Company required to be included in this Form 20-F.
44
Item 16. [Reserved]
Item 16A. Audit Committee Financial Report
The Board of Directors determined that Mr. Ernest Calvert is qualified as an Audit Committee Financial Expert. Mr. Calvert resigned effective July 15, 2005 and the Company is currently seeking to replace him.
Item 16B. Code of Ethics
The Company has not adopted a code of ethics. The President is forming a committee to advise on the content of the code prior to presentation to the Board of Directors for adoption.
Item 16C. Principal Accountant Fees and Services
The independent auditor for the last three fiscal years was Moore Stephens - Ellis Foster, Chartered Accountants.
Audit Fees
The aggregate fees billed by Moore Stephens - Ellis Foster for professional services rendered for the audit of the Company's annual financial statements on Form 20-F for the fiscal year ended January 31, 2004 was $19,625 and January 31, 2005 was $30,000.
Audit-Related Fees
There were no aggregate fees billed for assurance and related services by the principal accountant that are reasonably related to the performance of the audit or review of the Company's financial statements for either the years ended January 31, 2004 or 2005.
Tax Fees
The aggregate fees billed for tax compliance, tax advice and tax planning rendered by our independent auditors for the fiscal year ended January 31, 2004 was $773 and January 31, 2005 was $2,310. The services comprising these fees include compliance service with respect to Canadian filings and lend assistance to U.S. tax preparers.
All Other Fees
The aggregate fees billed for all other professional services rendered by the Company’s independent auditors for the fiscal year ended January 31, 2004 was $4,800 and January 31, 2005 was $1,240.
The Audit Committee approved 100% of the fees paid to the principal accountant for audit-related, tax and other fees in the fiscal year 2005. The Audit Committee pre-approves all non-audit services to be performed by the auditor in accordance with the Audit Committee Charter. The percentage of hours expended on the principal accountant's engagement to audit the Company's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was 0%.
45
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Part III
Item 17. Financial Statements
The following Financial Statements pertaining to the Company are filed as part of this annual report:
Auditors' Report 48
Consolidated Balance Sheets 49
Consolidated Statements of Operations and Deficit 50
Consolidated Statements of Cash Flows 51
Consolidated Statements of Mineral Properties 52
Notes to Consolidated Financial Statements 54 thru 78
Item 18. Financial Statements
See Item 17.
Item 19. Exhibits
Exhibit Number | Name |
1.1 Memorandum of Coral Gold Corp.*
1.2. Articles of Coral Gold Corp.*
12.1 Certification of the Principal Executive Officer under the Sarbanes-Oxley Act
12.2 Certification of the Principal Financial Officer under the Sarbanes-Oxley Act
13.1 Certificate under section 906
13.2 Consent of Expert
___________________________
* Previously filed.
46
CORAL GOLD RESOURCES LTD.
(FORMERLY CORAL GOLD CORP.)
(AN EXPLORATION STAGE COMPANY)
Consolidated Financial Statements
January 31, 2005, 2004 and 2003
(In Canadian Dollars)
Index
Auditors’ Report
Consolidated Balance Sheets
Consolidated Statements of Operations and Deficit
Consolidated Statements of Cash Flows
Consolidated Statements of Mineral Properties
Notes to Consolidated Financial Statements
47
MOORESTEPHENS
ELLISFOSTERLTD.
CHARTERED ACCOUNTANTS
1650 West 1st Avenue
Vancouver, BC Canada V6J 1G1
Telephone: (604) 734-1112 Facsimile: (604) 714-5916
Website: www.ellisfoster.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Sharheolders of
CORAL GOLD RESOURCES LTD.
(formerly Coral Gold Corp.)
(An Exploration Stage Company)
We have audited the consolidated balance sheets and the consolidated statements of mineral properties ofCoral Gold Resources Ltd. (formerly Coral Gold Corp.) (An Exploration Stage Company) and Subsidiaries (the "Company") as at January 31, 2005, 2004 and 2003 and the consolidated statements of operations and deficit and cash flows for each of the years then ended and for the cumulative period January 22, 1981 (inception) to January 31, 2005. These consolidated financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards in Canada and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance 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, these consolidated financial statements presented fairly, in all material respects, the consolidated financial position of the company as at January 31, 2005, 2004 and 2003 and the results of its operations and its cash flows for each of the years and for the cumulative period January 22, 1981 (inception) to January 31, 2005 in accordance with Canadian generally accepted accounting principles.
Differences between Canadian and United States generally accepted accounting principles affecting the determination of shareholders' equity at January 31, 2005, 2004 and 2003 and the determination of net loss for each of the years in the three-year period ended January 31, 2005 are summarized in note 14.
Vancouver, Canada ”MOORE STEPHENS ELLIS FOSTER LTD.”
April 13, 2005 Chartered Accountants
(except as to note 14 all of which are as of July 21, 2005)
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-U.S. REPORTING CONFLICT
In the United States of America, reporting standards for auditors require that addition of an explanatory paragraph (following the opinion paragraph) when the financial statements are affected by significant uncertainties such as that referred to in the attached consolidated balance sheets as at January 31, 2005, 2004 and 2003 and described in note 1 to the financial statements. Furthermore, U.S. reporting standards require auditors to provide an explanatory paragraph outlining the changes in accounting principles that have been implemented in the consolidated financial statements.
Our report to the shareholders date April 13, 2005 is expressed in accordance with Canadian reporting standards which do not permit a reference to such an uncertainty nor is it permissible to outline changes in accounting principles in t he independent auditors' report when these issues are adequately disclosed elsewhere in the financial statements.
Vancouver, Canada ”MOORE STEPHENS ELLIS FOSTER LTD.”
April 13, 2005 Chartered Accountants
MS An independently owned and operated member of Moore Stephens North America Inc., a member of Moore Stephens International Limited
- members in principal cities throughout the world
48
CORAL GOLD RESOURCES LTD.
(formerly Coral Gold Corp.)
(An Exploration Stage Company)
Consolidated Balance Sheets
January 31, 2005, 2004 and 2003
(In Canadian Dollars)
2005 | 2004 | 2003 | ||||||||
ASSETS | ||||||||||
Current | ||||||||||
Cash and cash equivalents | $ | 1,472,146 | $ | 2,567,156 | $ | 336,034 | ||||
Advances receivable | 78,101 | 56,545 | 37,287 | |||||||
Marketable securities | 57,359 | 57,359 | 57,359 | |||||||
Prepaid expenses | 12,647 | 10,976 | - | |||||||
Share subscriptions receivable | 11,945 | 70,645 | - | |||||||
1,632,198 | 2,762,681 | 430,680 | ||||||||
Investment securities (note 3) | 72,575 | 72,575 | 91,582 | |||||||
Loan receivable | 50,000 | - | - | |||||||
Equipment(note 4) | 4,543 | 5,678 | 3,419 | |||||||
Mineral properties (note 5) | 8,472,255 | 7,574,347 | 7,159,261 | |||||||
Reclamation deposit (note 6) | 518,057 | 551,719 | 1,203,152 | |||||||
$ | 10,749,628 | $ | 10,967,000 | $ | 8,888,094 | |||||
LIABILITIES | ||||||||||
Current | ||||||||||
Accounts payable and accrued liabilities | $ | 85,937 | $ | 78,347 | $ | 230,766 | ||||
Advances payable | 76,352 | 82,748 | 156,733 | |||||||
162,289 | 161,095 | 387,499 | ||||||||
SHAREHOLDERS' EQUITY | ||||||||||
Subscriptions received in advance (note 7) | - | 791,720 | - | |||||||
Share capital(note 8) | 30,754,678 | 29,646,238 | 27,379,052 | |||||||
Contributed surplus | 343,533 | - | - | |||||||
Deficit | (20,510,872 | ) | (19,632,053 | ) | (18,878,457 | ) | ||||
10,587,339 | 10,805,905 | 8,500,595 | ||||||||
$ | 10,749,628 | $ | 10,967,000 | $ | 8,888,094 |
The accompanying notes form an integral part of these financial statements. | |||
Commitment(note 9) | |||
Approved by the Directors: | “Matthew Wayrynen” | “Louis Wolfin” | |
Matthew Wayrynen | Louis Wolfin |
49
CORAL GOLD RESOURCES LTD.
(formerly Coral Gold Corp.)
(An Exploration Stage Company)
Consolidated Statements of Operations and Deficit
Years Ended January 31, 2005, 2004 and 2003
(In Canadian Dollars)
For the period January 22, 1981 (inception) to January 31, 2005 | 2005 | 2004 | 2003 | ||||||||||
Revenue | |||||||||||||
Sales | $ | 2,176,079 | $ | - | $ | - | $ | - | |||||
Cost of Sales | (5,383,348 | ) | - | - | - | ||||||||
(3,207,269 | ) | - | - | - | |||||||||
Expenses | |||||||||||||
Administrative services | 1,058,598 | - | - | - | |||||||||
Amortization | 1,819 | 1,136 | 683 | - | |||||||||
Consulting fees | 186,925 | 41,480 | 29,262 | 29,622 | |||||||||
Directors fees | 63,763 | 14,000 | 24,000 | 11,500 | |||||||||
Investor relations and shareholder information | 1,816,197 | 74,075 | 143,217 | 101,614 | |||||||||
Legal and accounting | 2,391,450 | 74,308 | 80,571 | 110,595 | |||||||||
Listing and filing fees | 119,743 | 20,428 | 43,626 | 20,364 | |||||||||
Management fees | 249,500 | 75,000 | 90,000 | 84,500 | |||||||||
Office and miscellaneous | 1,954,605 | 93,910 | 118,873 | 70,209 | |||||||||
Salaries and benefits | 296,408 | 79,929 | 55,437 | 45,245 | |||||||||
Stock based compensation | 343,533 | 343,533 | - | - | |||||||||
Transfer agent fees | 42,932 | 12,470 | 11,437 | 11,253 | |||||||||
Travel | 871,434 | 35,816 | 43,396 | 53,991 | |||||||||
9,396,907 | 866,085 | 640,502 | 538,893 | ||||||||||
Operating loss | (12,604,176 | ) | (866,085 | ) | (640,502 | ) | (538,893 | ) | |||||
Other items | |||||||||||||
Interest income | 833,836 | 33,786 | 15,184 | 10,926 | |||||||||
Foreign exchange gain (loss) | (230,885 | ) | (46,520 | ) | (140,623 | ) | 1,994 | ||||||
Gain realized on disposition of option on property | 143,552 | - | - | 155,823 | |||||||||
Gain on sale of investment | 17,692 | - | - | - | |||||||||
Recovery (writedown) of advances receivable | (360,790 | ) | - | 36,320 | (352,774 | ) | |||||||
Financing costs | (341,006 | ) | - | - | - | ||||||||
Writedown of investment | (690,654 | ) | - | (19,007 | ) | - | |||||||
Writedown of marketable securities | (119,174 | ) | - | - | (22,686 | ) | |||||||
Loss on fixed asset disposals | (32,784 | ) | - | - | - | ||||||||
Writedown of investment | (16,335 | ) | - | - | - | ||||||||
Writedown of mineral properties | (7,110,148 | ) | - | (4,968 | ) | (10,389 | ) | ||||||
Loss for the year | $ | (20,510,872 | ) | (878,819 | ) | (753,596 | ) | (755,999 | ) | ||||
Deficit,beginning of year | (19,632,053 | ) | (18,878,457 | ) | (18,122,458 | ) | |||||||
Deficit,end of year | $ | (20,510,872 | ) | $ | (19,632,053 | ) | $ | (18,878,457 | ) | ||||
Basic and diluted: | |||||||||||||
Loss per share | $ | (0.19 | ) | $ | (0.20 | ) | $ | (0.27 | ) | ||||
Weighted average number of | |||||||||||||
common shares outstanding | 4,629,892 | 3,686,398 | 2,805,433 | ||||||||||
The accompanying notes form an integral part of these financial statements. |
50
CORAL GOLD RESOURCES LTD.
(formerly Coral Gold Corp.)
(An Exploration Stage Company)
Consolidated Statements of Cash Flows
Years Ended January 31, 2005, 2004 and 2003
(In Canadian Dollars
For the period January 22, 1981 (inception) to January 31, 2005 | 2005 | 2004 | 2003 | ||||||||||
Cash flows from (used in) operating activities | |||||||||||||
Loss for the year | $ | (20,400,081 | ) | $ | (878,819 | ) | $ | (753,596 | ) | $ | (755,999 | ) | |
Adjustments for items not involving cash: | |||||||||||||
- amortization | 188,207 | 1,136 | 684 | - | |||||||||
- writedown of equipment | 16,335 | - | - | - | |||||||||
- stock based compensation | 343,533 | 343,533 | - | - | |||||||||
- writedown of investment securities | 169,661 | - | 19,007 | - | |||||||||
- writedown of marketable securities | 119,174 | - | - | 22,686 | |||||||||
- writedown of mineral properties | 6,984,936 | - | 4,968 | 10,389 | |||||||||
- writedown (recovery) of advances receivable | 881,783 | - | (36,320 | ) | 352,774 | ||||||||
- loss on fixed asset disposals | 32,784 | - | - | - | |||||||||
- gain on sale of investments | (17,692 | ) | - | - | - | ||||||||
- gain realized on disposition of option on property | (155,823 | ) | - | - | (155,823 | ) | |||||||
(11,837,183 | ) | (534,150 | ) | (765,257 | ) | (525,973 | ) | ||||||
Change in non-cash working capital: | |||||||||||||
- increase in advances receivable | (337,263 | ) | (21,556 | ) | (19,258 | ) | 50,458 | ||||||
- increase in prepaid expenses | (12,647 | ) | (1,671 | ) | (10,976 | ) | 1,500 | ||||||
- marketable securities | (29,124 | ) | - | - | - | ||||||||
- (increase) decrease in share subscription receivable | (11,945 | ) | 58,700 | (70,645 | ) | - | |||||||
- increase (decrease) in accounts payable and accrued liabilities | (205,839 | ) | 7,589 | (152,419 | ) | 193,516 | |||||||
- decrease in advances payable | 76,352 | (6,396 | ) | (73,985 | ) | 34,888 | |||||||
- increase (decrease) in subscription received in advance | 188,500 | (791,720 | ) | 791,720 | (100,000 | ) | |||||||
(12,169,149 | ) | (1,289,204 | ) | (300,820 | ) | (345,611 | ) | ||||||
Cash flows from (used in) investing activities | |||||||||||||
Mineral properties acquisition and exploration expenditures incurred | (17,697,390 | ) | (897,908 | ) | (420,054 | ) | (1,195,479 | ) | |||||
Investment in and advances to Compania Minera Norte-Sur S.A. de C.V. | (52,884 | ) | - | - | - | ||||||||
Proceeds from sale of mineral property interest | 2,196,242 | - | - | 58,681 | |||||||||
Proceeds on sale of fixed assets | 92,732 | - | - | - | |||||||||
Due from related company | (198,198 | ) | (50,000 | ) | - | - | |||||||
Purchase of equipment | (445,691 | ) | - | (2,943 | ) | (3,419 | ) | ||||||
Purchase of investments | (67,500 | ) | - | - | - | ||||||||
Advances receivable recovered | (435,246 | ) | - | 36,320 | - | ||||||||
Reclamation deposit | (518,057 | ) | 33,662 | 651,433 | (1,203,152 | ) | |||||||
(17,125,992 | ) | (914,246 | ) | 264,756 | (2,343,369 | ) | |||||||
Cash flows from financing activities | |||||||||||||
Issuance of shares for cash, net | 30,738,158 | 1,108,440 | 2,267,186 | 2,951,385 | |||||||||
Net increase (decrease) in cash and cash equivalents | 1,443,017 | (1,095,010 | ) | 2,231,122 | 262,405 | ||||||||
Cash and cash equivalents,beginning of year | 29,129 | 2,567,156 | 336,034 | 73,629 | |||||||||
Cash and cash equivalents,end of year | $ | 1,472,146 | $ | 1,472,146 | $ | 2,567,156 | $ | 336,034 | |||||
The accompanying notes form an integral part of these financial statements. |
51
CORAL GOLD RESOURCES LTD.
(formerly Coral Gold Corp.)
(An Exploration Stage Company)
Consolidated Statements of Mineral Properties
January 31, 2005, 2004 and 2003
(In Canadian Dollars)
Acquisition Cost | Exploration Expenditures | Proceeds of Interest Disposed of | Total | |||||||||||||
UNITED STATES | ||||||||||||||||
Robertson Property(note 5(a)(i) and 5(a)(iii)) | ||||||||||||||||
Balance, January 31, 2000 | $ | 801,956 | $ | 6,671,741 | $ | (1,937,625 | ) | $ | 5,536,072 | |||||||
2001 transactions, net | - | 242,082 | - | 242,082 | ||||||||||||
Balance, January 31, 2001 | 801,956 | 6,913,823 | (1,937,625 | ) | 5,778,154 | |||||||||||
2002 transactions, net | - | 196,909 | - | 196,909 | ||||||||||||
Balance, January 31, 2002 | 801,956 | 7,110,732 | (1,937,625 | ) | 5,975,063 | |||||||||||
2003 transactions, net | - | 1,184,194 | - | 1,184,194 | ||||||||||||
Balance, January 31, 2003 | 801,956 | 8,294,926 | (1,937,625 | ) | 7,159,257 | |||||||||||
2004 transactions, net | - | 380,874 | - | 380,874 | ||||||||||||
Balance, January 31, 2004 | 801,956 | 8,675,800 | (1,937,625 | ) | 7,540,131 | |||||||||||
2005 transactions, net | - | 890,292 | - | 890,292 | ||||||||||||
Balance, January 31, 2005 | $ | 801,956 | $ | 9,566,092 | $ | (1,937,625 | ) | $ | 8,430,423 | |||||||
Ruf and Norma Sass Properties(note 5(a)(ii) | ||||||||||||||||
Balance, January 31, 2000 | $ | - | $ | 27,796 | $ | (136,443 | ) | $ | (108,647 | ) | ||||||
2001 transactions, net | - | 10,610 | - | 10,610 | ||||||||||||
Balance, January 31, 2001 | - | 38,406 | (136,443 | ) | (98,037 | ) | ||||||||||
2002 transactions, net | - | - | - | - | ||||||||||||
Balance, January 31, 2002 | - | 38,406 | (136,443 | ) | (98,037 | ) | ||||||||||
2003 transactions, net | - | 896 | 97,142 | 98,038 | ||||||||||||
Balance, January 31, 2003 | - | 39,302 | (39,301 | ) | 1 | |||||||||||
2004 transactions, net | - | 34,212 | - | 34,212 | ||||||||||||
Balance, January 31, 2004 | - | 73,514 | (39,301 | ) | 34,213 | |||||||||||
2005 transactions, net | - | 7,616 | - | 7,616 | ||||||||||||
Balance, January 31, 2005 | $ | - | $ | 81,130 | $ | (39,301 | ) | $ | 41,829 | |||||||
Eagle Property(note 5(b)) | ||||||||||||||||
Balance, January 31, 2000 | $ | 1 | $ | 75,317 | $ | (35,000 | ) | $ | 40,318 | |||||||
2001 transactions, net | - | (75,317 | ) | 35,000 | (40,317 | ) | ||||||||||
Balance, January 31, 2001, | ||||||||||||||||
2002, 2003, 2004 and 2005 | $ | 1 | $ | - | $ | - | $ | 1 | ||||||||
Balance carried forward | $ | 801,957 | $ | 9,647,222 | $ | (1,976,926 | ) | $ | 8,472,253 | |||||||
The accompanying notes form an integral part of these financial statements. |
52
CORAL GOLD RESOURCES LTD.
(formerly Coral Gold Corp.)
(An Exploration Stage Company)
Consolidated Statements of Mineral Properties
January 31, 2005, 2004 and 2003
(In Canadian Dollars)
Acquisition Cost | Exploration Expenditures | Proceeds of Interest Disposed of | Total | ||||||||||
Balance brought forward | $ | 801,957 | $ | 9,647,222 | $ | (1,976,926 | ) | $ | 8,472,253 | ||||
Ludlow Property(note 5(c)) | |||||||||||||
Balance, January 31, 2000 | $ | 28,187 | $ | 36,885 | $ | - | $ | 65,072 | |||||
2001 transactions, net | (28,186 | ) | (36,885 | ) | - | (65,071 | ) | ||||||
Balance, January 31, 2001 | |||||||||||||
2002, 2003, 2004 and 2005 | $ | 1 | $ | - | $ | - | $ | 1 | |||||
JDN Property(note 5(d)) | |||||||||||||
Balance, January 31, 2000 | $ | 11,651 | $ | 74,573 | $ | (19,600 | ) | $ | 66,624 | ||||
2001 transactions, net | (11,650 | ) | (74,573 | ) | 19,600 | (66,623 | ) | ||||||
Balance, January 31, 2001 | |||||||||||||
2002, 2003, 2004 and 2005 | $ | 1 | $ | - | $ | - | $ | 1 | |||||
Total Properties | $ | 801,959 | $ | 9,647,222 | $ | (1,976,926 | ) | $ | 8,472,255 |
53
CORAL GOLD RESOURCES LTD.
(formerly Coral Gold Corp.)
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
January 31, 2005, 2004 and 2003
(In Canadian Dollars)
1. Nature of Business and Going Concern
These financial statements have been prepared on a going-concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business in the foreseeable future. The Company is in the process of exploring its mineral interests and has not yet determined whether these properties contain ore reserves that are economically recoverable. The continued operations of the Company and the recoverability of mineral property costs is dependent upon the discovery of economically recoverable mineral reserves, the ability of the Company to obtain necessary financing to complete the development and upon future profitable production.
The Company has incurred recurring operating losses which require additional funds to meet its obligations and maintain its operations. Management’s plan in this regard is to raise equity financing as required.
The Company is in the business of exploration of mineral properties and has not generated any operating revenues to date.
2. | Significant Accounting Policies |
The financial statements of the Company have been prepared in accordance with Canadian generally accepted accounting principles, within reasonable limits of materiality and within the framework of the significant accounting policies summarized below.
(a) | Basis of Consolidation |
These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Coral Resources, Inc. and Coral Energy Corporation of California. Significant inter-company accounts and transactions have been eliminated.
These consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles and all figures are in Canadian dollars unless otherwise stated.
(b) | Marketable Securities |
Marketable securities are valued at the lower of cost and net realizable value.
54
CORAL GOLD RESOURCES LTD.
(formerly Coral Gold Corp.)
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
January 31, 2005, 2004 and 2003
(In Canadian Dollars)
2. Significant Accounting Policies (continued)
(c) | Mineral Properties |
The Company is in the exploration stage and defers all expenditures related to its mineral properties until such time as the properties are put into commercial production, sold or abandoned. Under this method, all amounts shown as mineral properties represent costs incurred to date less amounts amortized and/or written off and do not necessarily represent present or future values.
If the properties are put into commercial production, the expenditures will be depleted based upon the proven reserves available. If the properties are sold or abandoned, the expenditures will be charged to operations. The Company does not accrue the estimated future costs of maintaining in good standing its mineral properties.
In the event that reserves are determined, the carrying values of mineral interests, on a property-by-property basis, will be reviewed by management at least annually to determine if they have become impaired. If impairment is deemed to exist, the mineral property will be written down to its net recoverable value. The ultimate recoverability of the amounts capitalized for the mineral properties is dependent upon the delineation of economically recoverable ore reserves, the Company’s ability to obtain the necessary financing to complete their development and realize profitable production or proceeds from the disposition thereof. Management’s estimates of recoverability of the Company’s investment in various projects have been based on current conditions. However, it is reasonably possible that changes could occur in the near term which could adversely affect management’s estimates and may result in future writedowns of capitalized property carrying values.
Management has determined each property to be a cost centre.
(d) | Investment Securities |
The investments in Mill Bay Ventures Inc. (formerly First International Metals Corp.) and Levon Resources Ltd. are carried at cost. They will be written down to their net realizable value if and when it has been determined that a permanent impairment to their value has occurred.
(e) | Fair Value of Financial Instruments |
The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash and cash equivalents, advances receivable, share subscriptions receivable, accounts payable and accrued liabilities, subscriptions received in advance and advances payable. Fair values were assumed to approximate carrying values for these financial instruments, except where noted, since they are short term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand. Management is of the opinion that the Company is not exposed to significant interest, credit or currency risks arising from these financial instruments.
55
CORAL GOLD RESOURCES LTD.
(formerly Coral Gold Corp.)
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
January 31, 2005, 2004 and 2003
(In Canadian Dollars)
2. Significant Accounting Policies (continued)
(f) | Foreign Currency Translations |
Assets and liabilities denominated in foreign currencies are translated into Canadian dollars at exchange rates in effect at the balance sheet date for monetary items and at exchange rates prevailing at the transaction dates for non-monetary items. Revenues and expenses are translated at the average exchange rates prevailing during the year except for amortization, which is translated at historical exchange rates. Gains and losses on translations are included as income for the year.
(g) | Use of Estimates |
The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the period. Actual results may differ from those estimates.
(h) | Impairment of Long-term Assets |
The Company re-evaluates the recoverability of long-term assets, including equipment, mineral properties, and investment securities, based upon estimates using factors such as future asset utilization, business climate and future undiscounted cash flows expected to result from the use of the related assets or be realized on sale. The Company’s policy is to write-down assets to their net recoverable amount in the period when it is determined that the carrying amount of the asset is not likely to be recovered.
(i) | Equipment |
Equipment is recorded at historical cost. Amortization is charged to earnings in amounts sufficient to allocate the costs over their estimated useful lives on a straight-line basis using the following annual rates pro-rated from initial utilization:
Computer hardware 20%
Equipment 20%
56
CORAL GOLD RESOURCES LTD.
(formerly Coral Gold Corp.)
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
January 31, 2005, 2004 and 2003
(In Canadian Dollars)
2. Significant Accounting Policies (continued)
(j) | Earnings (Loss) per Share |
Diluted earnings per share amounts are calculated giving effect to the potential dilution that would occur if securities or other contracts to issue common shares were exercised or converted to common shares. The treasury stock method is used to determine the dilutive effect of stock options and other dilutive instruments. The treasury stock method assumes that proceeds received from the exercise of stock options and warrants are used to repurchase common shares at the prevailing market rate.
Basic earnings per share is computed using the weighted average number of common shares outstanding during the year.
(k) | Income Taxes |
Income taxes are accounted for using the asset and liability method pursuant to Section 3465, Income Taxes, ofThe Handbook of the Canadian Institute of Chartered Accountants. Future taxes are recognized for the tax consequences of “temporary differences” by applying enacted or substantively enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. The effect on future taxes for a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment. In addition, Section 3465 requires the recognition of future tax benefits to the extent that realization of such benefits is more likely than not.
In the year 2000, the Company changed its policy for accounting for income taxes by adopting the provision of CICA Handbook Section 3465, Income Taxes.
The adoption of Section 3465 did not impact amounts reported in the prior period.
57
CORAL GOLD RESOURCES LTD.
(formerly Coral Gold Corp.)
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
January 31, 2005, 2004 and 2003
(In Canadian Dollars)
2. Significant Accounting Policies (continued)
(l) | Intangible Assets |
The Company has adopted the recommendations of the CICA Handbook, Section 3062,Goodwill and Other Intangible Assets. Under the recommendation, a recognized intangible asset should be amortized over its useful life to an enterprise unless the life is determined to be indefinite. An intangible asset with an indefinite life will not be amortized but will be tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired.
The impairment test will consist of a comparison of the fair value of the intangible asset with its carrying amount. When the carrying amount of the intangible asset exceeds its fair value, an impairment loss will be recognized in an amount equal to the excess and charged to operations.
(m) | Asset Retirement Obligation |
Handbook Section 3110 of the Canadian Institute of Chartered Accountants requires the recognition of the fair value of liability for asset retirement obligations in the year in which such liability is incurred when a reasonable estimate can be made. At such time the present value of the site restoration costs are to be added to the capitalized cost of the mineral property, and recorded as a liability at the equivalent amount. In periods subsequent to initial measurement, the asset retirement obligation is adjusted for both the passage of time and revisions to the original estimate. The site restoration costs included in the capitalized cost of the property, as adjusted from time to time, are to be amortized to operations on the unit-of-production basis together with total mineral property costs capitalized.
(n) | Stock-Based Compensation |
The Company adopted the Canadian Institute of Chartered Accountants Handbook, Section 3870 (“CICA 3870”),Stock-based compensation and other stock-based payments, which establishes standards for the recognition, measurement and disclosure of stock-based compensation and other stock-based payments made in exchange for goods and services. Section 3870 sets out a fair value based method of accounting that is required for all stock-based transactions. Under the recommendation, direct awards of stock granted to employees and directors are recorded at fair value on the date of grant and the associated expense is amortized over the vesting period.
58
CORAL GOLD RESOURCES LTD.
(formerly Coral Gold Corp.)
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
January 31, 2005, 2004 and 2003
(In Canadian Dollars)
3. | Investment Securities |
2005 | 2004 | 2003 | ||||||||
Levon Resources Ltd. 400,000 common shares | $ | 60,089 | $ | 60,089 | $ | 79,096 | ||||
Mill Bay Ventures Inc. (formerly First International Metals Corp.) 72,495 common shares | 12,486 | 12,486 | 12,486 | |||||||
$ | 72,575 | $ | 72,575 | $ | 91,582 |
Levon Resources Ltd. and Mill Bay Ventures Inc. (formerly First International Metals Corp.) are related to the Company by way of common management and directors.
4. | Equipment |
2005 | 2004 | 2003 | ||||||||||||||
Cost | Accumulated Amortization | Net Book Value | Net Book Value | Net Book Value | ||||||||||||
Computer hardware | $ | 5,926 | $ | 1,688 | $ | 4,238 | $ | 5,286 | $ | 3,419 | ||||||
Equipment | 436 | 131 | 305 | 392 | - | |||||||||||
$ | 6,362 | $ | 1,819 | $ | 4,543 | $ | 5,678 | $ | 3,419 |
5. | Mineral Properties |
(a) | Robertson Property |
The Company has certain interests in 724 patented and unpatented load mining claims located in the Bullion Mining District, Lander County, Nevada, subject to NSR’s ranging from 4% to 10%, and which certain leases provide for advance royalty payments. The Robertson group is recorded under three separate claims groups known as the Core Claims (100% owned), the Carve-out Claims (39% carried interest) and the Norma Sass/Ruff Claims (66.67% owned).
(i) | Carve-out Claims - 39% carried interest |
By an Agreement dated May 16, 1996, the Company granted Amax Gold Exploration Inc. (“Amax”) an option to purchase a 51% interest in 200 claims. Amax exercised the option by paying twice the amount the Company had incurred in exploration expenditures on the property. Under the terms of the Agreement, the Company could elect to have the 51% of its interest reverted to a 39% carried interest.
59
CORAL GOLD RESOURCES LTD.
(formerly Coral Gold Corp.)
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
January 31, 2005, 2004 and 2003
(In Canadian Dollars)
5. Mineral Properties (continued)
(a) | Robertson Property (continued) |
(i) Carve-out Claims - 39% carried interest (continued)
The Carve-out Claims Option Agreement was assignable by either party. On September 13, 1995, the Company optioned 50% of its interest in 54 claims (subsequent known as the Ruff/Sass Claims - see Note 5(a)(ii)) to Levon Resources Ltd., and on March 24, 1997 Amax assigned it’s Option to Placer Dome Inc. On July 11, 1997, Placer exercised its right to acquire a 51% interest in the claims by making a payment to the Company of US $615,359. The claims that Placer had acquired a 51% interest in excluded the Ruff/Sass claims as these were released back to the Company by Placer. Pursuant to the terms under the option agreement, the parties entered into an Exploration and Mining Venture Agreement dated July 11, 1997, and the Company exercised its right to have Placer advance the Company’s share of venture costs from inception of the Venture to commencement of commercial production in exchange for an additional undivided 10% interest in the properties.
(ii) | Ruff/Norma Sass - 66.67% owned |
By an Option Agreement dated September 13, 1995 as amended the Company had granted Levon Resources Ltd. (“Levon”), a company related by common directors, an option to purchase a 50% interest in 54 claims known as the Ruff/Sass Claims. On December 31, 2002, the Agreement was amended whereby Levon earned a 33.33% interest in the claims by the issuance to the Company of 300,000 common shares in Levon (received during previous fiscal years) and incurring $350,294 in exploration on the Property (incurred during prior years).
A third party holds a 3% net smelter returns royalty on the production from some of these mining claims, up to a limit of USD$1,250,000.
By an Option Agreement dated December 4, 2002 the Company granted Goldfranchise Corporation (“Goldfranchise”) an Option to acquire a 33 1/3% interest in the Ruff/Norma Sass claims. In order to earn the interest, Goldfranchise must:
a) | Pay to Coral US$38,391.50; |
b) | Incur minimum expenditures on the Property in the amount of US $300,000, of which $100,000 on or before December 4, 2003, and the balance of $200,000 on or before December 4, 2004. |
c) | Pay to Coral 33 1/3% of all land fees, taxes, advance royalties required to keep the claims in good standing. |
60
CORAL GOLD RESOURCES LTD.
(formerly Coral Gold Corp.)
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
January 31, 2005, 2004 and 2003
(In Canadian Dollars)
5. Mineral Properties (continued)
(a)Robertson Property (continued)
(ii)Ruff/Norma Sass - 66.67% owned (continued)
This Option Agreement with Goldfranchise has been terminated due Goldfranchise not fulfilling their obligations under the Agreement.
By way of an agreement dated December 30, 2004, the Company and Levon have assigned, sub-leased and granted a mining lease to a subsidiary of Agnico-Eagle Mines Ltd. (“AGE”) of the following properties: the Blue Nugget; the Blue Nugget #1 to #8; the Lander Ranch; the Lander Ranch #1 to the Lander Ranch #25 and the Ladner Ranch Extension; the Blue Jay; the T and S; the Norma and the Norma #1 to the Norma #23; the Sass and the Sass #1 to the Sass #10; the DM #1 to the DM #8; the BA #1 to the BA #12; the PC #1 to the PC #20; and the PM #1 to the PM #12, in consideration of the following minimum advance royalty payments (in US dollars) and minimum work commitments:
Date | AdvanceRoyalty | Minimum Work |
Execution of the agreement | $25,000 | - |
First anniversary | $30,000 | 13,000 ft of drilling |
Second anniversary | $50,000 | 15,000 ft of drilling |
Third anniversary | $75,000 | 17,000 ft of drilling |
Fourth anniversary | $75,000 | - |
Fifth anniversary | $150,000 | - |
A minimum of 13,000 ft of exploration drilling is guaranteed to be completed as part of the first year's minimum work commitment. The initial advance royalty payment has been paid and received. Upon making the second and third year's anniversary advance royalty payments, AGE will be obligated to complete the associated minimum work commitment for that year. After the third anniversary, or at anytime after the completion of at least 45,000 ft of drilling, AGE will have earned a 51% interest in the Norma Sass Property.
AGE at its option may provide the funds to acquire the leased claims from the underlying owners of such claims for the benefit of AGE, the Company and Levon, to earn an additional 24% interest (bringing AGE's total interest to 75%). AGE will then have the option of acquiring the remaining 25% interest by producing a positive feasibility study and making a positive production decision.
61
CORAL GOLD RESOURCES LTD.
(formerly Coral Gold Corp.)
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
January 31, 2005, 2004 and 2003
(In Canadian Dollars)
5. Mineral Properties (continued)
(a)Robertson Property (continued)
(ii) Ruff/Norma Sass - 66.67% owned (continued)
At the fifth anniversary and every year thereafter until production occurs, the advance royalty payment will be $150,000 per annum. All advance royalty payments will be credited towards AGE's payment of a royalty of 2.5% net smelter returns from production to the Company and Levon. AGE has reserved the right to purchase 1% of this net smelter returns royalty (to reduce the royalty to the Company and Levon to 1.5%) for a cash payment of USD$1.0 million. The Company and Levon have agreed to share in any benefits from the agreement with AGE in proportion to their current respective interests in the Norma Sass Property.
(iii) | Core claims - 100% owned |
By an Option Agreement dated January 31, 1999 the Company granted Placer Dome Inc. an option to acquire up to a 70% interest in the entire Robertson Property’s, 724 claims. Under the terms of the Option, Placer guaranteed a Reclamation Bond required to be posted by the Company for previous exploration work on the Core Claims. The Option Agreement terminated on December 31, 1999. The Company was obligated under the terms of the Option to replace Placer’s guarantee. Subsequent to January 31, 2004, the Company replaced the guarantee by posting a cash bond (note 6).
(b) | Eagle Property |
The Company holds a 50% interest in 45 lode mineral claims located at Corral Canyon in Lander County, Nevada, USA. During the year ended January 31, 2001, the Company decided to defer exploration on the property and to reduce the carrying value to a nominal amount.
(c) | Ludlow Property |
The Company owns a mineral property consisting of approximately 128 acres in the San Bernadino County, California, USA. During the year ended January 31, 2001, the Company decided to defer exploration on the property and to reduce the carrying value to a nominal amount.
(d) | JDN Property |
The Company holds a 50% interest in 34 lode mineral claims located in Lander County, Nevada USA. The JDN claims are located approximately three miles north of the Robertson Property. During the year ended January 31, 2001, the Company decided to defer exploration on the property and to reduce the carrying value to a nominal amount.
62
CORAL GOLD RESOURCES LTD.
(formerly Coral Gold Corp.)
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
January 31, 2005, 2004 and 2003
(In Canadian Dollars)
5. Mineral Properties (continued)
Ownership in mineral properties involves certain inherent risks due to the difficulties in determining the validity of certain claims, as well as the potential for problems arising from the frequently ambiguous conveyancing history characteristics of many mineral interests. The Company has investigated ownership of its mineral interests and, to the best of its knowledge, ownership of its properties is in good standing.
6. | Reclamation Deposit |
Under the laws of the State of Nevada, the Company is required to have a reclamation deposit which covers the cost to reclaim the ground disturbed. The Company’s obligation at January 31, 1999 had been assumed by Placer as part of the Exploration and Development Option Agreement [note 5(a)]. As the Agreement was terminated on December 31, 1999, the Company was required to post its own security to guarantee performance under the Reclamation Bond.
During the previous year, a revised Reclamation Plan for the purposes of reducing the performance bond was approved by the Bureau of Land Management (the “Bureau”), reducing the required deposit to $518,057 (US$406,000) (2004 - $551,719). The performance bond remained the same for the 2005 year but efforts are being made to reduce it further.
Coral Resources Inc., as principal, placed the funds in trust with a fully secured standby letter of credit lodged as collateral in support of the bond.
7. | Subscriptions Received in Advance |
During 2005, the Company received $1,039,464 towards private placements of 255,220 units. Each unit consisted of one common share and a share purchase warrant entitling the investor to purchase an additional common share in the Company at a price of $4.80 and $5.50, respectively, on or before February 16, 2006 and February 17, 2006.
The Company has also received $76,000 towards the exercising of stock options and the issuance of 30,400 common shares.
The private placements were closed and all shares issued prior to year end so the balance for 2005 was nil (2004 - $791,720).
63
CORAL GOLD RESOURCES LTD.
(formerly Coral Gold Corp.)
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
January 31, 2005, 2004 and 2003
(In Canadian Dollars)
8. | Share Capital |
Authorized: 50,000,000 common shares without par value.
Issued:
Shares | Amount | Deficit | ||||||||
Balance, January 31, 2002 | 2,211,110 | $ | 24,427,667 | $ | (18,122,458 | ) | ||||
2003 share issuances for cash: | ||||||||||
Private placements | 8,297,396 | 2,078,178 | - | |||||||
Exercise of warrants | 4,161,442 | 1,091,368 | - | |||||||
Exercise of stock options | 140,000 | 35,000 | - | |||||||
Share issuance costs | - | (253,161 | ) | - | ||||||
2003 loss | - | - | (755,999 | ) | ||||||
Balance, January 31, 2003 | 3,470,993 | 27,379,052 | (18,878,457 | ) | ||||||
2004 share issuances for cash: | ||||||||||
Private placements | 721,881 | 1,897,068 | - | |||||||
Exercise of warrants | 149,310 | 357,368 | - | |||||||
Exercise of stock options | 19,500 | 48,750 | - | |||||||
Share issuance costs | - | (36,000 | ) | - | ||||||
2004 loss | - | - | (753,596 | ) | ||||||
Balance, January 31, 2004 | 4,361,685 | 29,646,238 | (19,632,053 | ) | ||||||
2005 share issuances for cash: | ||||||||||
Private placements | 255,220 | 1,039,464 | - | |||||||
Exercise of warrants | 1,600 | 4,960 | - | |||||||
Exercise of stock options | 30,400 | 76,000 | - | |||||||
Share issuance costs | - | (11,984 | ) | - | ||||||
2005 loss | - | - | (878,819 | ) | ||||||
Balance, January 31, 2005 | 4,648,905 | $ | 30,754,678 | $ | (20,510,872 | ) |
(a) | At January 31, 2005, the following director, officer and employee stock options are outstanding enabling the holders to acquire additional common shares as follows: |
Number of Shares | Exercise Price | Expiry Date |
142,600 | $2.50 | September 5, 2005 |
392,900 | $1.70 | December 1, 2009 |
64
CORAL GOLD RESOURCES LTD.
(formerly Coral Gold Corp.)
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
January 31, 2005, 2004 and 2003
(In Canadian Dollars)
8. Share Capital(continued)
(a) | (continued) |
The Company has granted founders, directors, officers and certain employees stock options. Stock option activity is summarized as follows:
NumberofShares | WeightedAverageExercisePrice | ||||||
Balance outstanding, January 31, 2002 | 127,750 | $ | 2.70 | ||||
2003 - Granted | 75,000 | 2.50 | |||||
Balance outstanding, January 31, 2003 | 202,750 | 2.50 | |||||
2004 - Cancelled | (10,000 | ) | 2.50 | ||||
2004 - Exercised | (19,500 | ) | 2.50 | ||||
Balance outstanding, January 31, 2004 | 173,250 | 2.50 | |||||
2005 - Granted | 412,900 | 1.70 | |||||
2005 - Cancelled | (20,250 | ) | 1.71 | ||||
2005 - Exercised | (30,400 | ) | 2.50 | ||||
Balance outstanding, January 31, 2005 | 535,500 | $ | 1.91 |
Options Outstanding | Options Exercisable | ||||
Exercise Price | Number Outstanding | Weighted Average Remaining Contractual Life (yrs.) | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price |
$2.50 | 142,600 | 0.60 | $2.50 | 142,600 | $2.50 |
$1.70 | 392,900 | 4.83 | $1.70 | 392,900 | $1.70 |
The Company in fiscal 2004 adopted a formal stock option plan which provides for the granting of options to directors, officers, employees and consultants for a maximum of 706,000 shares (representing approximately 20% of the issued share capital of the Company as at the date of approval of the Plan by the Board). The Company recorded compensation expense of $343,533 (2004 - $nil) with respect to stock options granted.
The fair value of options granted was estimated at the date of granting using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 3.5%, dividend yield of 0.0%, volatility factor of 52.3%, and a life of 5 years.
65
CORAL GOLD RESOURCES LTD.
(formerly Coral Gold Corp.)
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
January 31, 2005, 2004 and 2003
(In Canadian Dollars)
8. Share Capital(continued)
(a)(continued)
The Black-Scholes valuation model was developed for use in estimating the fair value of traded options, which are fully transferable and freely traded. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
(b) | At January 31, 2005, the Company has outstanding share purchase warrants enabling the holders to acquire additional common shares as follows: |
Number of Shares | Exercise Price | Expiry Date |
412,900 | $3.10 | October 12, 2005 |
204,425 | $3.60 | November 17, 2005 |
102,956 | $3.90 | December 19, 2005 |
104,380 | $4.80 | February 16, 2006 |
150,840 | $5.50 | February 17, 2006 |
975,501 |
9. | Commitment |
The Company entered into a new cost-sharing agreement during 2005 to reimburse a related party for 25% (2004 - 20%; 2003 - 20%) of its overhead expenses, to reimburse 100% of its out-of-pocket expenses incurred on behalf of the company, and to pay a 10% fee based on the total overhead and corporate expenses referred to above. The agreement may be terminated with one-month notice by either party.
A total of $135,140 (2004 - $107,393; 2003 - $63,192) was charged to operations in relation to the cost sharing agreement.
66
CORAL GOLD RESOURCES LTD.
(formerly Coral Gold Corp.)
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
January 31, 2005, 2004 and 2003
(In Canadian Dollars)
10. | Related Party Transactions |
Related party transactions not disclosed elsewhere in the financial statements are as follows:
(a) | Advances receivable include $28,003 (2004 - $28,003; 2003 - $33,003) due from a joint venture with common management and common directors and $31,427 (2005: $122,048 less an allowance for bad debt of $90,621; 2004: $101,920 less an allowance for bad debt of $90,621; 2003: $90,621) with two companies with common management and common directors. |
(b) | Advances payable include $31,333 (2004 - $36,833; 2003 - $18,833) due to Directors in regards to past directors’ fees; $32,540 (2004 - $32,540; 2003 - $21,351) due to a company with common management and common directors; and $1,783 (2004 - $1,064; 2003 - $72,530) to a company controlled by a Director. |
(c) | Consulting fees of $30,000 (2004 - $22,500; 2003 - $nil) were paid to a company owned by a director. |
(d) | Management fees of $75,000 (2004 - $90,000; 2003 - $74,500) were paid to a company owned by a director. |
(e) | Directors’ fees of $14,000 (2004 - $24,000; 2003 - $11,500) were paid to directors of the Company. |
(f) | An allowance in the amount of $209,840 has been accrued in respect of advances made to a Company with common management. |
(g) | The loan receivable of $50,000 is due from a subsidiary of a related company that provides drilling services. The amount due is non-interest bearing, unsecured and due on demand. |
Thesetransactions are in the normal course of operations and are measured at the exchange amount, which is the consideration established and agreed to by the related parties, unless otherwise noted.
11. | Asset Retirement Obligation |
While the Company acknowledges their land mediation obligations, the ultimate amount to be incurred and the timeline for the incurrence is at best uncertain. Management has estimated, on an undiscounted basis and before an adjustment for inflation, that the costs would approximate $277,000. Management will continue to assess their asset retirement obligations and the associated liability will be recognized in the period in which sufficient information exists to estimate the costs and date of remediation.
67
CORAL GOLD RESOURCES LTD.
(formerly Coral Gold Corp.)
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
January 31, 2005, 2004 and 2003
(In Canadian Dollars)
12. | Income Taxes |
The components of the future income tax assets are as follows:
2005 | 2004 | 2003 | ||||||||
Future income assets: | ||||||||||
Non-capital loss carry-forwards | $ | 1,345,000 | $ | 1,026,000 | $ | 1,074,000 | ||||
Earned depletion base | 74,000 | 74,000 | 77,000 | |||||||
Unused cumulative Canadian exploration expenses | 12,000 | 12,000 | 12,000 | |||||||
Unused cumulative Canadian development expenses | 732,000 | 732,000 | 764,000 | |||||||
2,163,000 | 1,844,000 | 1,927,000 | ||||||||
Less: valuation allowance | (2,163,000 | ) | (1,844,000 | ) | (1,927,000 | ) | ||||
Net future income assets | $ | - | $ | - | $ | - |
The valuation allowance reflects the Company’s estimate that the tax assets, more likely than not, will not be realized.
At January 31, 2005, the Company had, for Canadian tax purposes, operating losses aggregating approximately $3,290,000.
These losses are available to reduce taxable incomes earned by the Canadian operations of future years and expire as follows:
2006 | $ | 361,000 | ||
2007 | 419,000 | |||
2008 | 243,000 | |||
2009 | 231,000 | |||
2010 | 528,000 | |||
2011 | 627,000 | |||
2015 | 881,000 | |||
$ | 3,290,000 |
The net operating losses available to offset revenues of the US operations are approximately US$4,700,000 and expire at various times through 2017.
68
CORAL GOLD RESOURCES LTD.
(formerly Coral Gold Corp.)
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
January 31, 2005, 2004 and 2003
(In Canadian Dollars)
13. | Subsequent Events |
(a) | The Company announced on February 17, 2005 that it has commenced trading on the Frankfurt Stock Exchange and the Berlin-Bremen Stock Exchange under the symbol WKN A0DJ0G. |
(b) | The Company announced on April 12, 2005 that it has granted incentive stock options for the purchase of up to 42,500 shares at a price of $1.70 per share exercisable on or before April 12, 2010, to employees and consultants of the Company. |
14. | Differences Between Canadian And United States Generally Accepted Accounting Principles (Canadian GAAP And U.S. GAAP) |
These consolidated financial statements and the selected financial data have been prepared under Canadian Generally Accepted Accounting Principles (“Canadian GAAP”).
For each year of presentation, the modifications necessary in order for these consolidated financial statements to conform to U.S. GAAP have been suitably provided as follows:
(a) | Reconciliation of Consolidated Balance Sheet items: |
(i) | Reconciliation of Total Assets and Liabilities |
2005 | 2004 | 2003 | ||||||||
Total assets per CDN GAAP | $ | 10,749,628 | $ | 10,967,000 | $ | 8,888,094 | ||||
Mineral properties | (8,472,255 | ) | (7,574,347 | ) | (7,159,261 | ) | ||||
Total assets per US GAAP | $ | 2,277,373 | $ | 3,392,653 | $ | 1,728,833 | ||||
Total liabilities per US/CDN GAAP | $ | 162,289 | $ | 161,095 | $ | 387,499 |
69
CORAL GOLD RESOURCES LTD.
(formerly Coral Gold Corp.)
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
January 31, 2005, 2004 and 2003
(In Canadian Dollars)
14. | Differences Between Canadian And United States Generally Accepted Accounting Principles (Canadian GAAP And U.S. GAAP) (continued) |
(a) Reconciliation of Consolidated Balance Sheet items (continued):
(ii) | Reconciliation of Deficit under U.S. GAAP |
2005 | 2004 | 2003 | ||||||||
Deficit end of year per CDN GAAP | $ | (20,510,872 | ) | $ | (19,632,053 | ) | $ | (18,878,457 | ) | |
Stock compensation expense | (60,000 | ) | (60,000 | ) | (60,000 | ) | ||||
Deferred exploration expenditures, net | (8,472,255 | ) | (7,574,347 | ) | (7,159,261 | ) | ||||
Unrealized loss on marketable securities | 119,174 | 119,174 | 119,174 | |||||||
Unrealized loss on investment securities | 19,007 | 19,007 | - | |||||||
Deficit end of year per US GAAP | $ | (28,904,946 | ) | $ | (27,128,219 | ) | $ | (25,978,544 | ) |
(b) Reconciliation of Consolidated Statement of Income items:
Reconciliation of Net Loss under U.S. GAAP
Year ended January 31, 2005 | Year ended January 31, 2004 | Year ended January 31, 2003 | ||||||||
Net loss for the year per CDN GAAP | $ | (878,819 | ) | $ | (753,596 | ) | $ | (755,999 | ) | |
Deferred exploration expenditures | (897,908 | ) | (420,054 | ) | (1,351,302 | ) | ||||
Stock based compensation expense | - | - | (60,000 | ) | ||||||
Writedown of deferred exploration expenditures | - | 4,968 | 10,389 | |||||||
Change in unrealized (gain) loss of marketable securities | - | - | 22,686 | |||||||
Unrealized loss on investment security | - | 19,007 | - | |||||||
Proceeds of interest disposed of | - | - | 58,681 | |||||||
Net loss for the year per U.S. GAAP | $ | (1,776,727 | ) | $ | (1,149,675 | ) | $ | (2,075,545 | ) |
(c) Loss Per Share U.S. GAAP
Year Ended January 31, 2005 | Year Ended January 31, 2004 | Year Ended January 31, 2003 | ||||||||
Earnings (Loss) Per Share - basic and diluted | $ | (0.38 | ) | $ | (0.31 | ) | $ | (0.74 | ) |
70
CORAL GOLD RESOURCES LTD.
(formerly Coral Gold Corp.)
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
January 31, 2005, 2004 and 2003
(In Canadian Dollars)
14. Differences Between Canadian And United States Generally Accepted Accounting Principles(Canadian GAAP And U.S. GAAP)(continued)
(d) Comprehensive Income
Statement of Financial Accounting Standards No. 130 requires the reporting of comprehensive income in addition to net earnings. Comprehensive income includes net income plus other comprehensive income; specifically, all changes in equity of a company during a period arising from non-owner sources.
Under US GAAP, a statement of changes in shareholders’ equity and comprehensive income in the following format would form a part of the annual financial statement:
Consolidated Statement of Changes in Shareholders’ Equity
Share Capital | Share Sub-scriptions | Additional Paid In Capital | Compre-hensive Income (Loss) | Retained Earnings (Deficit) | Accumulated Other Compre-hensive Income (Loss) | Total Share-holders’ Equity | ||
Number of Shares | Amount | |||||||
Balance forward, January 31, 2002 | 2,211,110 | $24,427,667 | $ 100,000 | $- | $- | $(23,902,999) | $(96,488) | $528,180 |
Share subscriptions | - | - | (100,000) | - | - | - | - | (100,000) |
Issuance of shares (see Note 9) | 1,259,884 | 2,951,385 | - | - | - | - | - | 2,951,385 |
Stock-based compensation expense | - | - | - | 60,000 | - | - | - | 60,000 |
Components of Comprehensive income: | ||||||||
- net income (loss) | - | - | - | - | (2,077,539) | (2,077,539) | - | (2,075,545) |
- change in unrealized gain (loss) of marketable securities | - | - | - | - | (22,686) | - | (22,686) | (22,686) |
$(2,098,231) | ||||||||
Balance, January 31, 2003 | 3,470,994 | $27,379,052 | $- | $60,000 | $(25,978,544) | $(119,174) | $1,341,334 |
71
CORAL GOLD RESOURCES LTD.
(formerly Coral Gold Corp.)
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
January 31, 2005, 2004 and 2003
(In Canadian Dollars)
14. Differences Between Canadian And United States Generally Accepted Accounting Principles(Canadian GAAP And U.S. GAAP)(continued)
(d) Comprehensive Income (continued)
Consolidated Statement of Changes in Shareholders’ Equity (continued)
Share Capital | Share Sub- scriptions | Additional Paid In Capital | Compre-hensive Income (Loss) | Retained Earnings (Deficit) | Accumulated Other Compre- hensive Income (Loss) | Total Share-holders’ Equity | ||
Number of Shares | Amount | |||||||
Balance forward, January 31, 2003 | 3,470,994 | $27,379,052 | $ - | $60,000 | $- | $(25,978,544) | $(119,174) | $1,341,334 |
Share subscriptions | - | - | 791,720 | - | - | - | 791,720 | |
Issuance of shares (see Note 9) | 890,691 | 2,267,186 | - | - | - | - | - | 2,267,186 |
Components of comprehensive income: | ||||||||
- net income (loss) | - | - | - | - | (1,149,675) | (1,149,675) | - | (1,149,675) |
- change in unrealized gain (loss) of marketable securities | - | - | - | - | (19,007) | - | (19,007) | (19,007) |
$(1,168,682) | ||||||||
Balance, January 31, 2004 | 4,361,685 | $29,646,238 | $791,720 | $60,000 | $(27,128,219) | $(138,181) | $3,231,558 | |
Share subscriptions | - | - | (791,720) | - | - | - | (791,720) | |
Issuance of shares (see Note 9) | 287,220 | 1,108,440 | - | - | - | - | - | 1,108,440 |
Stock-based compensation expense | - | - | - | 343,533 | - | - | - | 343,533 |
Components of comprehensive income: | ||||||||
- net income (loss) | - | - | - | - | (1,776,727) | (1,776,727) | - | (1,776,727) |
- change in unrealized gain (loss) of marketable securities | - | - | - | - | - | - | - | - |
$(1,776,727) | ||||||||
Balance, January 31, 2005 | 4,648,905 | $30,754,678 | $ - | $403,533 | $(28,904,946) | $(138,181) | $2,115,084 | |
72
CORAL GOLD RESOURCES LTD.
(formerly Coral Gold Corp.)
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
January 31, 2005, 2004 and 2003
(In Canadian Dollars)
14. | Differences Between Canadian And United States Generally Accepted Accounting Principles (Canadian GAAP And U.S. GAAP) (continued) |
(e) Supplemental Financial Information
(i) Reconciliation of Cash Flows Under U.S. GAAP
Cash Flows from Operating Activities
2005 | 2004 | 2003 | ||||||||
Cash provided by (used in) operating activities per CDN GAAP | $ | (1,289,204 | ) | $ | (300,820 | ) | $ | (345,611 | ) | |
Deferred exploration expenditures | (897,908 | ) | (420,054 | ) | (1,195,479 | ) | ||||
Proceeds of interest disposed of | - | - | 58,681 | |||||||
Cash provided by (used in) operating activities per US GAAP | $ | (2,187,112 | ) | $ | (720,874 | ) | $ | (1,482,409 | ) |
Cash Flows from Investing Activities
2005 | 2004 | 2003 | ||||||||
Cash provided by (used in) investing activities per CDN GAAP | $ | 914,246 | $ | 264,756 | $ | (2,343,369 | ) | |||
Deferred exploration expenditures | (897,908 | ) | 420,054 | 1,195,479 | ||||||
Proceeds from sale of mineral interest | - | - | (58,681 | ) | ||||||
Cash provided by (used in) investing activities per US GAAP | $ | 16,338 | $ | 684,810 | $ | (1,206,571 | ) |
(f) New Accounting Pronouncements
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs - an amendment of ARB No. 43, Chapter 4", which is the result of the FASB's project to reduce differences between U.S. and international accounting standards. SFAS No. 151 requires idle facility costs, abnormal freight, handling costs, and amounts of wasted materials (spoilage) be treated as current period costs. Under this concept, if the costs associated with the actual level of spoilage or production defects are greater than the costs associated with the range of normal spoilage or defects, the difference would be charged to current-period expense, not included in inventory costs. SFAS No. 151 will be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of SFAS No. 151 does not have an impact on the Company's consolidated financial statements.
73
CORAL GOLD RESOURCES LTD.
(formerly Coral Gold Corp.)
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
January 31, 2005, 2004 and 2003
(In Canadian Dollars)
14. | Differences Between Canadian And United States Generally Accepted Accounting Principles (Canadian GAAP And U.S. GAAP) (continued) |
(f) New Accounting Pronouncements (continued)
In December 2004, the FASB issued SFAS No. 123(R), "Accounting for Stock-Based Compensation". SFAS 123(R) establishes standards for the accounting for transaction s in which an entity exchanges its equity instruments for goods or services. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS 123(R) requires that the fair value of such equity instruments be recognized as expense in the historical financial statements as services are performed. Prior to SFAS 123(R), only certain pro-forma disclosures of fair value were required. SFAS 123(R) shall be effective for the Company as of the beginning of the first interim or annual reporting period that begins after December 15, 2005. The adoption of this new accounting pronouncement does not have material impact on the Company's consolidated financial statements.
In May 2005, the FASB issued Statement of Financial Accounting Standards SFAS No. 154, "Accounting Changes and Error Corrections, a replacement of AFB Opinion No. 20 and FASB Statement No. 3". SFAS 154 requires retrospective application to prior period's financial statements for changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effects of the change. SFAS 154 also requires that retrospective application of a change in accounting principle be limited to the direct effects of the change. Indirect effects of a change in accounting principle, such as a change in non-discretionary profit-sharing payments resulting from an accounting change, should be recognized in the period of the accounting change. SFAS 154 also requires that a change in depreciation, amortization, or depletion method for long-lived, non-financial assets be accounted for as a change in accounting estimate affected by a change in accounting principle. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Early adoption is permitted for accounting changes and corrections of errors made in fiscal years beginning after the date this Statement is issued. The adoptions of this new accounting pronouncement does not have a material impact on its consolidated financial position, results of operations or cash flows.
74
CORAL GOLD RESOURCES LTD.
(formerly Coral Gold Corp.)
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
January 31, 2005, 2004 and 2003
(In Canadian Dollars)
14. | Differences Between Canadian And United States Generally Accepted Accounting Principles (Canadian GAAP And U.S. GAAP) (continued) |
(g) Stock options
In 1995 FASB issued SFAS No. 123 “Accounting for Stock-Based Compensation”, which contains a fair value-based method for valuing stock-based compensation that entities may use. This measures compensation cost at the grant date based on the fair value of the award. Compensation is then recognized over the service period, which is usually the vesting period. For U.S. GAAP purposes management accounts for options under Accounting Principles Board (“APB”) No. 25 “Accounting for Stock Issued to Employees”, under which no compensation is recognized in connection with options granted to employees and directors except if options are granted at a strike price below fair value of the underlying stock. If the alternative accounting-related provisions of SFAS No. 123 had been adopted as of the beginning of 1996, the effect on 2001 U.S. GAAP net loss per share would have been immaterial.
In fiscal year 2003, the fair value of each option granted to employees and directors has been estimated as of the date of grant using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 3.5%; dividend yield 0%; volatility of 98%; and 3.41 years of expected lives. The weighted average fair value of options granted in 2003 is $0.25.
Based on the computed option values and the number of the options issued, had the Company recognized compensation expense, the following would have been its effect on the Company’s loss for the 2003 year and loss per share:
2003 | ||||
Loss for the year: | ||||
- as reported | $ | (2,077,539 | ) | |
- pro-forma | $ | (2,129,399 | ) | |
Basic and diluted loss per share: | ||||
- as reported | $ | (0.74 | ) | |
- pro-forma | $ | (0.76 | ) |
For the year 2005 and 2004, there were no reportable differences between the reported amounts and the pro-forma fair value model.
75
CORAL GOLD RESOURCES LTD.
(formerly Coral Gold Corp.)
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
January 31, 2005, 2004 and 2003
(In Canadian Dollars)
14. | Differences Between Canadian And United States Generally Accepted Accounting Principles (Canadian GAAP And U.S. GAAP) (continued) |
(g) Stock options (continued)
In March 2000 the Financial Accounting Standards Board issued “Interpretation #44, Accounting For Certain Transactions Involving Stock Compensation” among other issues, this interpretation clarifies:
(i) The definition of employee for purposes of applying opinion 25.
(ii) | The criteria for determining whether a plan qualifies as a noncompensatory plan. |
(iii) | The accounting consequence of various modifications of the terms of a previously fixed stock option or award, and |
(iv) | The accounting for an exchange of stock compensation awards in a business combination. |
In relation to (iii) the interpretation states, “if the exercise price of a fixed stock option award is reduced, the award shall be accounted for as a variable from the date of the modification to the date the award is exercised, is forfeited, or expires unexercised, the exercise price of an option award has been reduced if the fair value of the consideration required to be remitted pursuant to the award’s original terms”.
(h) Statement of Cash Flow
(i) | Supplemental Disclosure of Cash Flow Information |
Cash paid during the year for: | 2005 | 2004 | 2003 | |||||||
Interest | $ | 145 | $ | 730 | $ | 1,315 | ||||
Income taxes | $ | - | $ | - | $ | - |
76
CORAL GOLD RESOURCES LTD.
(formerly Coral Gold Corp.)
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
January 31, 2005, 2004 and 2003
(In Canadian Dollars)
14. | Differences Between Canadian And United States Generally Accepted Accounting Principles (Canadian GAAP And U.S. GAAP)(continued) |
(i) Additional Disclosure Required by U.S. GAAP
(i) Asset Retirement Obligations
Under U.S. GAAP there is a requirement to report the fair value of a liability for an asset retirement obligation in the period in which it occurred if a reasonable estimate of the fair value can be made. The associated asset retirement costs are to be capitalized as a part of the carrying value of the long-lived asset to which they relate.
While the Company acknowledges their land mediation obligations, the ultimate amount to be incurred and the timeline for the incurrence is at best uncertain. Management has estimated, on an undiscounted basis and before an adjustment for inflation, that the costs would approximate $277,000. In accordance with U.S. GAAP future asset retirement obligations are not to be recorded in those instances where the timing of or the amounts of remediation costs to be incurred cannot be reasonably estimated. Management will continue with their efforts to assess their asset retirement obligations and the associated liability will be recognized in the period in which sufficient information exists to estimate the costs and date of remediation.
The Company has adopted SFAS No. 143 effective February 1, 2003 for the purposes of the U.S. GAAP reconciliation note. Canadian GAAP was aligned with U.S. GAAP effective February 1, 2004.
(ii) Concentrations of Credit Risk
At January 31, 2005, 2004 and 2003, the Company had approximately $nil, $nil and $nil, respectively, in cash balances at financial institutions which were in excess of the insured limits.
(iii) Operations in a Foreign Country
The Company is subject to numerous factors relating to conducting business in a foreign country (including, without limitation, economic, political and currency risk), any of which could have a significant impact on the Company’s operation.
The Company’s U.S. subsidiaries, Coral Resources, Inc. and Coral Energy Corporation of California are subject to U.S. corporation tax on profits.
77
CORAL GOLD RESOURCES LTD.
(formerly Coral Gold Corp.)
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
January 31, 2005, 2004 and 2003
(In Canadian Dollars)
14. | Differences Between Canadian And United States Generally Accepted Accounting Principles (Canadian GAAP and U.S. GAAP) (continued) |
(j) Additional Disclosure Required by SEC
The SEC requires that related party transactions be disclosed as a separate line in the financial statements. Under this requirement, the following related party transactions would have been shown separately as related party balances in the financial statements:
(i) | Advances receivable include $28,003 (2004 - $28,003; 2003 - $33,003) due from a joint venture with common management and common directors and $31,427 (2005: $122,048 less an allowance for bad debt of $90,621; 2004: $101,920 less an allowance for bad debt of $90,621; 2003: $90,621 less an allowance for bad debt of $90,621) with two companies with common management and common directors. |
(ii) | Consulting fees of $30,000 (2004 - $22,500; 2003 - $nil) were paid to a company owned by a director. |
(iii) | Management fees of $75,000 (2004 - $90,000; 2003 - $74,500) were paid to a company owned by a director. |
(iv) | An allowance in the amount of $209,840 has been accrued in respect of advances made to a company with common management. |
(v) | Investment securities and marketable securities would be noted as a related party on the balance sheet. |
(b) | Deferred Exploration Expenditures |
The Company follows the policy of deferring all acquisition and exploration costs relating to the mineral properties held. Under US GAAP, the deferred exploration expenditures would have been expensed in the year they were incurred (see note 14(a) to 14(e)).
78
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
Dated: July 22, 2005 CORAL GOLD RESOURCES LTD.
By: /s/Matt Wayrynen
Matt Wayrynen, Chief Executive Officer
79