UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
[ ]
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year endedJuly 31, 2006
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ]
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report……………..
For the transition period from to
Commission file number: 000-50827
Tyler Resources Inc. |
(Exact name of Registrant as specified in its charter) |
Tyler Resources Inc. |
(Translation of Registrant's name into English) |
ALBERTA, CANADA |
(Jurisdiction of incorporation or organization) |
#500 - 926 - 5th AVENUE, S.W., CALGARY, ALBERTA, T2P 0N7 |
(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, without nominal or par value
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.
90,384,199 common shares as at July 31, 2006.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes No X
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes No X
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer Accelerated filer X Non-accelerated filer
Indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 X Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No X
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant 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.
Yes No
PART I
Glossary of Terms
In addition to the terms defined elsewhere in this 2006 Annual Report, certain terms used in the annual report are defined below:
“Affiliate” | One who, directly or indirectly, either controls, is controlled by or is under common control with, the specified person or entity. |
“CDG” | CDG Investments Inc. |
“Company” | Tyler Resources Inc. and all direct and indirect subsidiaries |
“deposit” | A mineralized body which has been physically delineated by drilling, underground work, surface trenching and other workings or drill holes and found to contain a sufficient amount of mineralized material with an average grade sufficient to warrant further evaluation. Such deposit does not qualify as a commercially mineable (or viable) ore body until technical, economic and legal factors have been sufficiently satisfied to classify the mineralized material as a reserve. |
“diamond drill” | A type of rotary drill in which the cutting is done by abrasion rather than by percussion. The drill cuts a core of rock which is recovered in long cylindrical sections. |
“dyke” | A tabular intrusion, meaning it is sheet or slab-like, and which cuts across or through the host rocks. Dykes vary from a few centimetres to many tens of meters in thickness and may extend several kilometres. |
“ejido” | An association of individuals who communally own and manage surface rights to the rural lands surrounding their village. |
“exploration concession” | A right granted by a governmental entity to explore a prescribed area for minerals for a specified period. |
“exploitation concession” | A right granted by a governmental entity to exploit or develop a prescribed area for a specified period. |
“grade” | Term used to indicate the concentration of an economically desirable mineral or element in its host rock as a function of their relative mass. In gold, this may be expressed as grams per tonne (g/t) or ounces per tonne (opt). |
“g/T” | Grams per metric tonne. |
“indicated mineral resource1” | That part of a mineral resource for which quantity, grade or quality, densities, shape and physical characteristics can be estimated with confidence sufficient to allow the appropriate application of technical and economic parameters, to support mine planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough for geological and grade continuity to be reasonably assumed. |
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1 Please refer to “Use of Mineral Reserve and Resource Terminology on page 4 of this document.
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Conversion Table
In this annual report both Imperial and metric measures are used with respect to mineral properties located in Canada. Conversion rates from Imperial measure to metric and from metric to Imperial are provided below:
Imperial Measure | Metric Unit | Metric Measure = | Imperial Unit |
2.47 acres | 1 hectare | 0.4047 hectares | 1 acre |
3.28 feet | 1 metre | 0.3048 metres | 1 foot |
0.62 miles | 1 kilometre | 1.609 kilometres | 1 mile |
0.032 ounces (troy) | 1 gram | 31.1 grams | 1 ounce (troy) |
1.102 tons (short) | 1 tonne | 0.907 tonnes | 1 ton |
0.029 ounces (troy)/ton | 1 gram/tonne | 34.28 grams/tonne | 1 ounce (troy/ton) |
Explanatory Notes
In the annual report unless otherwise indicated or unless the context otherwise requires, all dollar amounts are expressed in Canadian dollars.
NOTE OF CAUTION REGARDING FORWARD-LOOKING INFORMATION.
This report contains forward-looking statements concerning the Company’s plans for its projects, claims, mineralization and other matters. These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management.
Statements concerning mineral resource estimates may also be deemed to constitute forward-looking statements to the extent that they involve estimates of the mineralization that will be encountered if the prospect is developed, and in the case of mineral reserves, such statements reflect the conclusion based on certain assumptions that the mineral resource can be economically exploited. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as “expects” or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “estimates” or “intends”, or stating that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved) are not statements of historical fact and may be “forward-looking statements.” Forward-looking statements are subject to a variety of risks and uncertainties that could cause actual results to differ from those reflected in the forward-looking statements, including, without limitation:
·
risks related to price fluctuations;
·
risks and uncertainties relating to the interpretation of drill results, the geology, grade and continuity of occurring mineralization;
·
risks related to the inherent uncertainty of production and cost estimates and the potential for unexpected costs and expenses;
·
results of initial feasibility, prefeasibility and feasibility studies, and the possibility that future exploration results will not be consistent with the Company’s expectations;
·
exploration risks, including risks related to accidents, equipment breakdowns, labor disputes or other unanticipated difficulties with, or interruptions in, production;
·
the potential for delays in exploration activities or the completion of feasibility studies;
·
the uncertainty of profitability based upon the Company’s history of losses;
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·
risks related to failure to obtain adequate financing on a timely basis and on acceptable terms;
·
risks related to environmental regulation and liability;
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political and regulatory risks associated with exploration; and
·
other risks and uncertainties related to the Company and its business strategy.
Should one or more of these risks and uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in forward-looking statements. Forward-looking statements are made based on management’s beliefs, estimates and opinions on the date the statements are made, and the Company undertakes no obligation to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change. Persons reading this report are cautioned against attributing undue certainty to forward-looking statements.
Use of Mineral Reserve and Resource Terminology
The Company is incorporated under theBusiness Corporations Act (Alberta) in Canada. The mineral resources described in this Form 20-F are estimates and have been prepared in compliance with National Instrument 43-101 of the Canadian Securities Administrators. The definitions of proven and probable reserves used in National Instrument 43-101 differ from the definitions in Securities and Exchange Commission ("SEC") Industry Guide 7. In addition, the terms "mineral resource", "measured mineral resource", "indicated mineral resource" and "inferred mineral resource" are defined in and required to be disclosed by National Instrument 43-101; however, these terms are not defined terms under SEC Industry Guide 7 and normally are not permitted to be used in reports and registration statements filed with the SEC. Accordingly, information contained in this Form 20-F containing descriptions o f the Company's mineral deposits may not be comparable to similar information made public by U.S. companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder.
Cautionary Note to U.S. Investors Concerning Estimates of Indicated Mineral Resources
This document uses the term "indicated mineral resources". The Company advises U.S. investors that while this term is recognized and required by Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it.U.S. investors are cautioned not to assume that any part or all of mineral deposits in this category will ever be converted into reserves.
Cautionary Note to U.S. Investors Concerning Estimates of Inferred Mineral Resources
This document uses the term "inferred mineral resources". The Company advises U.S. investors that while this term is recognized and required by Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. "Inferred resources" have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of a feasibility or other economic study.U.S. investors are cautioned not to assume that any part or all of an inferred resource exists or is economically or legally mineable.
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ITEM 1:
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
A.
DIRECTORS AND SENIOR MANAGEMENT
The directors of the Company are:
Theodore Renner, B.S.C., Mech. Eng., M.B.A.
Gregory Smith, C.A.
Jean Pierre Jutras, P.Geol.
Dr. Shane Ebert, Ph.D., P.Geo.
Lesley Hayes
Alan Craven, P.Eng.
The senior management of the Company are:
Jean Pierre Jutras, P.Geol.
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President and CEO
Shane Ebert, P.Geol.
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Vice-President Exploration
Jennifer Munro, C.A.
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Chief Financial Officer
Barbara O’Neill
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Secretary
B.
ADVISERS:
The legal advisors and banking information is as follows:
Legal Counsel:
Graubard Miller
405 Lexington Avenue, 19th Floor
New York, NY 10174-1901
TingleMerritt LLP
1250 Standard Life Building
639-5th Avenue S.W.
Calgary, Alberta, T2P 0M9
Bank:
HSBC Bank of Canada
407-8th Avenue S.W.
Calgary, Alberta, T2P 1E5
TD Canada Trust
902-8th Avenue S.W.
Calgary, Alberta, T2P 1H8
C.
AUDITORS:
The Auditors of the Company from May 20, 2005 to date are:
PricewaterhouseCoopers LLP
Suite 3100, 111-5th Avenue SW
Calgary, Alberta, T2P 5L3
The Auditors of the Company, prior to May 20, 2005 were:
Grant Thornton, LLP
Suite 1000, 112-4th Avenue SW
Calgary, Alberta, T2P 0H3
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ITEM 2:
OFFER STATISTICS AND EXPECTED TIMETABLE
Not required.
ITEM 3:
KEY INFORMATION
A.
SELECTED FINANCIAL DATA
The selected financial data set forth in the following table is expressed in Canadian dollars. A history of the exchange rates for Canadian dollars in terms of U.S. Dollars follows. The financial information set forth in the following table includes the accounts of the Company and subsidiaries on a consolidated basis. This financial information was prepared in accordance with accounting principles generally accepted in Canada, the application of which conforms in all material respects for the periods presented with accounting principles generally accepted in the United States, except to the extent noted in Note 15 to the Consolidated Financial Statements appearing elsewhere in this Annual Report. The selected financial data should be read in conjunction with and is qualified by such Consolidated Financial Statements and the Notes thereto.
YEARS ENDED JULY 31
(In $000’S Cdn except for “per/share” and “number of shares” information)
| 2006 | 2005 | 2004 | 2003 | 2002 |
Operating Summary |
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Revenue (Canadian and US GAAP) |
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Interest | $226 | $ 75 | $ 25 | $ 5 | $ 5 |
Overhead recoveries | (18) | - | 9 | 6 | 16 |
Income (loss) continuing operations |
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Canadian GAAP | (2,664) | (1,632) | (1,145) | (134) | (1,582) |
US GAAP | (9,098) | (5,797) | (1,960) | (464) | (999) |
Net income (loss) |
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Canadian GAAP | (2,664) | (1,632) | (1,145) | (134) | (1,582) |
United States GAAP | (9,098) | (5,797) | (1,960) | (464) | (999) |
Financial Status |
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Total assets |
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Canadian GAAP | 20,015 | 20,255 | 8,139 | 4,960 | 4,737 |
United States GAAP | 3,728 | 10,411 | 2,443 | 64 | 133 |
Working capital (deficiency) (a) |
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Canadian | 2,694 | 9,983 | 2,317 | (267) | 48 |
United States | 2,694 | 9,983 | 2,317 | (261) | 61 |
Long term liabilities |
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Canadian GAAP | - | - | - | - | - |
United States GAAP | - | - | - | - | - |
Shareholder’s equity (net assets) |
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Canadian GAAP | 19,011 | 19,936 | 8,091 | 4,642 | 4,672 |
United States GAAP | 2,724 | 10,091 | 2,394 | (255) | 67 |
Capital Stock |
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- amount Canadian GAAP | 23,110 | 21,620 | 13,051 | 9,050 | 8,946 |
- amount US GAAP | 23,097 | 21,607 | 13,038 | 9,037 | 8,933 |
- number | 90,384,199 | 86,698,929 | 68,431,439 | 38,294,939 | 36,219,939 |
Dividends per share | - | - | - | - | - |
Net earnings (loss) per common share: |
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Canadian GAAP |
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Basic and diluted | (0.03) | (0.02) | (0.02) | (0.00) | (0.05) |
United States GAAP |
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Basic and diluted | (0.10) | (0.08) | (0.04) | (0.01) | (0.03) |
Comprehensive Loss – US GAAP | (9,106) | (5,780) | (1,945) | (426) | (917) |
Net earnings (loss) per common share – continuing operations |
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Canadian GAAP-Basic and Diluted | (0.03) | (0.02) | (0.02) | (0.00) | (0.05) |
United States GAAP Basic and diluted | (0.10) | (0.08) | (0.04) | (0.01) | (0.03) |
(a) This is a non-GAAP measure which is calculated as current assets less current liabilities.
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Exchange Rates
In this Annual Report, unless otherwise specified, all dollar amounts are expressed in Canadian dollars. The exchange rate for Canadian dollars expressed in United States dollars at November 17, 2006, the exchange rate was $0.87.
The high and low exchange rates for each month during the previous six months were as follows:
Month | High | Low |
October, 2006 | $0.90 | $0.88 |
September, 2006 | $0.90 | $0.89 |
August, 2006 | $0.90 | $0.88 |
July, 2006 | $0.90 | $0.88 |
June, 2006 | $0.91 | $0.89 |
May, 2006 | $0.91 | $0.89 |
The average exchange rates for the five most recent financial years were as follows:
Years Ended July 31: | 2006 | 2005 | 2004 | 2003 | 2002 |
Average rate | $0.87 | $0.81 | $0.75 | $0.67 | $0.64 |
B.
CAPITALIZATION AND INDEBTEDNESS
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Debt |
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| $ - |
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Share Capital |
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Common shares amount |
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| $ 23,109,538 |
| $ 21,620,259 |
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Common shares number | unlimited number |
| 90,384,199 |
| 86,698,929 |
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C.
REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable
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D.
RISK FACTORS
An investment in the Company presents a high degree of risk. It is noteworthy that companies in the mineral exploration and extractive business often do not generate revenues and profit from their prospects and operations. In any evaluation of the Company, a person should consider the following risk factors in addition to the other information about the Company set forth in this disclosure document and other information available about the Company.
The Company is in the exploration stage, and therefore investors bear all the risks of an early stage company with no operating history.
The Company is in the mineral exploration business. It has not engaged in any activities beyond that of obtaining mineral rights and conducting exploratory activities. There is a significant amount of additional work and investment necessary for the Company to demonstrate the efficacy of its business plan of exploring different prospects for mineralization. Investors should consider the business future of the Company based on the risks associated with its early stage and its lack of revenue history. An investment in the Company is speculative.
Mineral Reserves and Resources Estimates.
The definitions of indicated and inferred mineral resources are set forth in Canadian Securities Administrators National Instrument 43-101, Standards of Disclosure for Mineral Projects. A reader in the United States should be aware that the definition standards identified in National Instrument 43-101 differ in certain respects from those set forth in SEC Industry Guide 7. The figures presented for mineral resources herein are only estimates. The estimating of mineral resources is a subjective process and the accuracy of resource estimates is a function of the quantity and quality of available data and the assumptions used and judgments made in interpreting engineering and geological information. There is significant uncertainty in any resource estimate and the actual deposits encountered.
The Company has arrangements with other entities on which it is dependant for exploration, which if they do not fulfill their commitments, will result in either a loss of the prospect or a loss of a business opportunity.
The Company has entered into arrangements and has interest dispositions with other entities. Consequently, the Company is dependant on others for exploration of the prospects to which it has partial exploitation rights. If these entities do not fulfill their obligations to the Company or do not perform the activities expected, the Company will suffer a direct loss or a loss of an opportunity.
There are many risks associated with mineral exploration, any one of which could increase operational expense, cause delays or require curtailment of activities, with adverse effect on the business operations, asset value and business prospects.
Mineral exploration involves a high degree of risk and few prospects which are explored ultimately result in production or generate revenues or profits. The long-term profitability of the Company’s operations will be, in part, directly related to the cost and success of its exploration programs, which may be affected by a number of factors. Substantial expenditures are required to determine ore reserves through drilling, to develop metallurgical processes to extract the metal from the ore and, in the case of new prospects, to develop the mining and processing facilities at any site chosen for development. Even after development and extraction is undertaken, it is possible that mineralizations will not exist in sufficient quantities to justify operations. In that event, shareholders may suffer an unrecoverable loss in their investment in the Company.
The commercial viability of a prospect is subject to many variables, any one or more of which could cause the Company to terminate exploration with a corresponding loss in the asset value and revenue potential.
If the Company proceeds to production on a particular prospect, its commercial viability may be affected by factors that are beyond the Company’s control, including the particular attributes of the deposit, the fluctuation in metal prices, the costs of mining, processing and refining, the availability of economic sources of energy, government regulations including those relating to prices, royalties,
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restrictions on production, quotas on extraction of minerals, as well as the protection of the environment and agricultural land. It is impossible to assess with certainty the impact of these factors. As a result of any one or a combination of these factors, the Company may be compelled to halt development or extraction operations resulting in unrecoverable losses and diminished business prospects.
Metals price fluctuations may adversely affect development decisions, revenue and profitability and ultimately investor return on an investment in the Company.
The decision to develop a prospect, and ultimately the revenues and profitability of the Company’s operations, will be dependent in part upon the market price of certain metals. The prices of these metals have fluctuated widely and are affected by numerous factors. These factors include international economic and political conditions, expectations of inflation, currency exchange rates, interest rates, global or regional consumption patterns, speculative activities, levels of supply and demand, availability and costs of metal substitutes, metal stock levels, and inventory carrying costs. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in the Company not pursuing a prospect or not receiving an adequate return on invested capital, or the investment not retaining its value.
Operations in Mexico may be affected by changes in the political and government attitude towards foreign extractive companies operating in the country with the result that the Company is adversely impacted, it is unable to finance its operations, or it is unprofitable to pursue its business plan.
The Company’s most important prospects are in Mexico. Exploration and mining activities on these prospects may be affected in varying degrees by political stability and government regulations relating to the mining industry. Changes in regulation or shifts in political conditions may adversely affect its business. Mexico is, to a degree, a developing country, which may make it more difficult for the Company to obtain any required exploration, development and production financing for prospects located there.
Extractive operations are subject to many aspects of government regulation and compliance, all of which impact the ability to conduct operations and may impact the profitability of the Company.
Exploration activities on its prospects in each country of the Company’s operations, is subject to various laws and regulations administered by federal, provincial, state and local governmental authorities. The current operations of the Company will not only require regulatory compliance, but also having in place various licenses and permits for proposed exploration and development activities. The laws and regulations include those governing prospecting, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection and mine safety. Companies engaged in the exploration for mineral prospects and related extractive facilities generally experience increased costs and delays in schedules as a result of the need to comply with applicable laws and regulations and to obtain licenses and permits which may impose additional standards of compliance. These laws, regulations and permitting requirements change from time to time, often becoming more stringent. There is the possibility that the Company may not meet these various requirements resulting in enforcement actions, injunctions, fines and penalties or curtailment or cessation of operations. Additionally, the Company may have to take remedial measures requiring unanticipated capital expenditures, installation of additional equipment or restoration. The Company also may be required to compensate those suffering loss or damage by reason of its activities and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations.
In addition to general governmental regulation, the Company faces an increasingly strict regime of environmental regulations which in all likelihood will result in greater operational expense and longer lead times for developmental and extractive activities and more stringent curtailments, fines and penalties for non-compliance.
The Company’s operations will be subject to environmental regulation. This body of law provides for restrictions and prohibitions on spills, releases or emissions of various substances produced in association with certain mining industry operations. This regulation also governs aspects of operations, including water use, tailings, and reclamation. Under these regulations, the Company will have to obtain licenses and permits, which will require expenditure on consultants, preparation of impact studies, and
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fees and which will take substantial time. Additionally, a breach of these regulations may result in the imposition of fines and penalties or force curtailment of activities. Environmental legislation continues to evolve and is increasingly stringent with stricter standards, more investigation, and the greater likelihood of enforcement actions, fines and penalties for non-compliance. Environmental assessments of proposed projects carry a heightened degree of responsibility for companies and directors, officers and employees. The cost of compliance with changes in environmental regulations has the potential to reduce the profitability of operations or, in some events, limit operations.
If the title to its prospects in Mexico and Canada are impaired or altered disadvantageously to the Company, its business operations will be adversely impacted and its assets diminished.
There is no guarantee that title in its Mexican prospect will not be challenged or impugned by third parties or that the applicable governmental authorities will not revoke, or significantly alter the ownership conditions of the mineral prospects. There is no certainty that the current rights represented by the mineral prospects or any additional rights applied for, will be granted or renewed on terms satisfactory to the Company. The prospects in Mexico are important to the business plan of the Company, and if their ownership is impaired or questioned, it will be a significant set back to the Company.
There is no guarantee that title to its Canadian prospects will not be challenged or impugned. The Company has not conducted boundary surveys of the claims in which it holds direct or indirect interests, and therefore, the precise area and location of such claims may be in doubt. The Company’s claims may be subject to prior unregistered agreements or transfers or native land claims and title may be affected by undetected defects. Native land claim settlements are more advanced in the Northwest Territories than they are in most other areas of Canada. None of the Company’s prospects in the Northwest Territories cover areas where the Federal Crown proposes to transfer mineral rights to First Nations. Any loss of a prospect will impair its assets and future business operations.
Competitors may be able to act more efficiently and more quickly with the result that the Company’s future is adversely impacted.
The Company competes with major mining companies and other smaller natural resource companies in acquisition, exploration and financing of new prospects and projects. Many of these companies are more experienced, larger and better capitalized than the Company. The Company’s competitive position will depend upon its ability to successfully explore, acquire and develop new and existing prospects or projects. The Company’s ability to compete also will depend on its financial condition.
Some risks of operations cannot be insured, so that if and when they happen, the Company will be faced with an extraordinary expense and loss.
In the course of exploration of mineral prospects, unusual geological or unexpected operating conditions may occur, including rockbursts, cave-ins, fires and flooding. The Company may also incur liability as a result of pollution and other casualties. It is not always possible to fully insure against such risks, and the Company may decide not to take out insurance against such risks as a result of high premiums or other reasons. Paying compensation for obligations resulting from such liability may result in significant costs for the Company.
Because of corporate inter-relationships due to common directors, officer and shareholders, the Company may encounter conflicting positions with some of its partners which may not be resolved wholly satisfactorily to the Company.
Certain of the directors and officers of the Company are also directors and/or officers and/or shareholders of other natural resource companies with which the Company has business dealings or intends to have dealings. Such associations may give rise to conflicts of interest from time to time when decisions have to be made to engage, continue and modify arrangements or pursue prospects. The directors of the Company are required by law to act honestly and in good faith with a view to the interests of the Company and its shareholders and to disclose any interests which they may have in any project or opportunity being pursued by the Company. If a conflict of interest arises at a meeting of the board of directors, any director in a conflict will disclose his or her interest and abstain from voting on such matter. In determining whether or not the Company will participate in any project or opportunity, the dire ctors will
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primarily consider the degree of risk to which the Company may be exposed and its financial position at the time.
The loss of the services of the Company’s President and Vice-President Exploration may have an adverse impact on the management leadership and the public perception of the Company.
The Company is dependent on its Chief Executive Officer (“CEO”)/President and Vice-President of Exploration. The Company has a written employment contract with the CEO/President that requires 60 days advance notice of resignation and a written consulting contract with the Vice-President of Exploration which requires 30 days notice of resignation. The Company does not have any key man insurance with respect to the CEO/President or Vice-President of Exploration. If the services of the CEO/President and Vice-President of Exploration were unavailable to it, the Company may be adversely affected.
Our By-laws indemnify our officers and directors against all costs, charges and expenses incurred by them.
The Company’s By-laws contain provisions limiting the liability of our officers and directors for all acts, receipts, neglects or defaults of themselves and all of our other officers or directors or for any other loss, damage or expense incurred by the Company which shall happen in the execution of the duties of such officers or directors, as do indemnification agreements between us and our directors. Such limitations on liability may reduce the likelihood of derivative litigation against our officers and directors and may discourage or deter our shareholders from suing our officers and directors based upon breaches of their duties to the Company, though such an action, if successful, might otherwise benefit the Company and our shareholders.
Investors' interests in the Company will be diluted and investors may suffer dilution in their net book value per share if we issue incentive stock options to our employees, directors, officers and consultants.
The Company is currently without a proven and reliable source of revenue and will most likely be required to issue additional shares to finance its operations and, depending on the outcome of its exploration programs, may issue additional shares to finance additional exploration programs of any or all of our projects or to acquire additional properties. We have also granted, and in the future may grant, to directors, officers, insiders, and key employees options to purchase our common shares as non-cash incentives to those persons. Such options have been and may in future be granted at exercise prices equal to market prices, or at prices as allowable under the policies of the TSX Venture Exchange, when the public market is depressed. The issuance of additional shares will cause our existing shareholders to experience dilution of their ownership interests.
Investors' interests in the Company will be diluted and investors may suffer dilution in their net book value per share if we issue additional shares or raise funds through the sale of equity securities.
In the event that the Company is required to issue additional shares or decide to enter into joint ventures with other parties in order to raise financing through the sale of equity securities, investors' interests in the Company will be diluted and investors may suffer dilution in their net book value per share depending on the price at which such securities are sold. As at November 17, 2006 there are also outstanding common share purchase warrants and options exercisable into common shares which, if exercised, would cause a reduction in the proportionate ownership and voting power of all other shareholders. The dilution may result in a decline in the market price of the Company’s shares.
The Company has a history of net losses and there is no assurance that we can reach profitability in the future.
The Company has a history of losses and there is no assurance that it can reach profitability in the future. The Company will require significant additional funding to meet its business objectives. Capital will need to be available to help maintain and to expand exploration on its principal exploration property.
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The Company may not be able to obtain additional financing on reasonable terms, or at all. If equity financing is required, as expected, then such financings could result in significant dilution to existing shareholders. If the Company is unable to obtain sufficient financing, it might have to dramatically slow exploration efforts and/or lose control of its projects. The Company has historically obtained the preponderance of its financing through the issuance of equity, there is no limit to the number of authorized common shares, and we may obtain financing through means other than the proposed Convertible Debenture financing disclosed in Item 4.A.3.
U.S. investors may not be able to enforce their civil liabilities against us or our directors, controlling persons and officers.
It may be difficult to bring and enforce suits against us. The Company was incorporated under theCompany Act (British Columbia) and continued under the Business Corporations Act(Alberta). All of our directors and officers are residents of countries other than the United States and all of the Company’s assets are located outside of the United States. Consequently, it may be difficult for United States investors to effect service of process in the United States upon those directors or officers who are not residents of the United States, 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. There is substantial doubt whether an original action could be brought successfully in Canada against any of such persons or us predicated solely upon such civil liabilities.
Shareholders may not be able to readily resell their shares of the Company because of penny stock regulation.
The Company’s common shares currently have a market price of less than US$5.00 and, pursuant to the Securities Enforcement Remedies and Penny Stock Reform Act of 1990, they are classified as a “penny stock”. Since the common shares are classified as “penny stock,” they are subject to Rules 15g-2 through 15g-9 (the “Penny Stock Rules”) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Penny Stock Rules impose additional reporting, disclosure and sales practice requirements on brokers and dealers before they can recommend the common shares for purchase by their customers, and require that such brokers and dealers make a special suitability determination for each purchaser and obtain the purchaser’s written consent to the purchase or sale of the common shares. The additional risk disclosures and documentation imposed b y the Penny Stock Rules could have an adverse effect on the market for and/or the valuation of the Company’s common shares.
ITEM 4:
INFORMATION ON THE COMPANY
A.
HISTORY AND DEVELOPMENT OF THE COMPANY
The Company’s current corporate name is Tyler Resources Inc. The Company was incorporated on August 5, 1980 under the Business Corporations Act of British Columbia, Canada, and was continued under the Business Corporations Act of Alberta on April 6, 1995. The original name of the Company was “Capoose Mining Incorporated. It changed its name to Capoose Minerals Incorporated on December 19, 1981, and then, on July 10, 1986, to Tyler Resources Inc.
The Company is located at Suite 500, 926-5th Avenue, S.W. Calgary, Alberta, Canada, T2P ON7 and its phone number is 403-269-6753.
1.
Subsequent to July 31, 2006 – Weedy Lake Property Sold
In August 2006, the Company sold its 50.1% interest in the Weedy Lake property in Saskatchewan to Golden Band Resources Inc. Total consideration for the sale of Tyler’s interest consisted of $1,000,000 CDN, as well as 500,000 common share purchase warrants, with each warrant exercisable to acquire one common share of Golden Band at a price of $0.55 per share until August 29, 2008. The warrants received on the sale were valued using the Black-Scholes Option Pricing Model to be $87,000. The disposition is part of the Company’s continuing commitment to streamline the Company and focus on its ongoing, active exploration program in Mexico.
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2.
Subsequent to July 31, 2006 – Independent Resource Report
In September 2006, the Company reported the results of an initial NI 43-101 compliant independent resource estimate confirming the discovery of a significant mineral deposit within the main zone at Bahuerachi for work conducted to July 15, 2006. A significant portion of the material was classified as an Indicated Resource. A full Independent Technical Report on the Mineral Resource Estimate will be filed on Sedar on November 17, 2006.
3.
Subsequent to July 31, 2006 – 10% Net Profits Purchase Bahuerachi Property
In October 2006, the Company purchased the 10% net profits interest and finalized all documents required to file its 100% interest in the Bahuerachi claim, thus terminating the commitment for future royalty obligations.
4.
During the year ended July 31, 2005, the Company had the following significant changes or important events:
The Company closed a non-brokered private placement for $9,888,000 through the issuance of 7,910,400 Units. The Units were issued at $1.25 per Unit with each Unit consisting of one common share of the Company and one common share purchase warrant (a “Warrant”). Each whole Warrant entitles the holder thereof to acquire, subject to adjustment, one Common Share at a price of $1.75 per share on or before 4:30 p.m. (Calgary time) on the earlier of the date that is (i ) 2 years from the date of issuance of the Warrant; and (ii) thirty (30) days from the date that the Company issues an Early Exercise Notice which shall be issuable at any time from and after six months from the Closing Date, after the trading price of the Common Shares on the Exchange has exceeded $2.50 for a period of thirty (30) consecutive trading days. An aggregate 920,800 of the Units were issued to directors, officers a nd control persons of the Company. Total finders fees in the gross amount of $115,500 were paid on the placement to arm’s length third parties.
5.
During the year ended July 31, 2004, the Company had the following significant changes or important events:
Bahuerachi Purchase
The Company entered into a letter of intent dated as of November 12, 2003 with CDG Investments Inc. (CDG), for the acquisition of CDG’s interest in the Bahuerachi prospect in Mexico. The Company’s interest in the prospect at that date was approximately 49%, with CDG holding 40% and the initial vendor 11%. The Company is related to CDG by virtue of certain common officers and directors. See “Item 7: Major Shareholders and Related Party Transactions - B. Related Party Transactions.” The Company has issued 13,336,000 shares at a deemed price of $0.06 per share in payment of the purchase price. The acquisition cost of $800,000 was negotiated and agreed to by independent committees of the board of directors of both companies. The sale closed on January 29, 2004, upon shareholder and regulatory approval.
Arbitration Settlement – Carat Joint Venture
Pursuant to an arbitration hearing regarding certain disputed Carat joint venture costs, Diamondex Resources Ltd. (“Diamondex”), the joint venture partner, was directed to pay $261,572 to the Company as reimbursement of over-expenditures plus accrued interest of $11,654. The Company received payment in the amount of $273,226 on November 3, 2003. In addition, Diamondex was directed to pay the Company’s reasonable costs incurred, including legal costs that pertained to the arbitration. The Company received $284,675 for these awarded costs. The legal and other costs associated with the Carat arbitration have been capitalized to the Carat prospect. The awards reduced the Carat exploration costs in the Company’s quarterly financial statements.
Private Placement Financing – March 2004
The Company closed a brokered financing of 13,003,000 units for gross proceeds of $3,250,750 (net $2,921,796). Each unit was sold at $0.25 per unit and consisted of one common share and one half
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of one common share purchase warrant. Each whole warrant is exercisable into one common share until September 16, 2005 upon payment by the holder of $0.35 per common share. Pursuant to the brokered private placement the Company granted Agents’ Options whereby the Agents may acquire 1,040,240 Units at $0.25 per unit until September 16, 2005. The Agent Units are comprised of 1,040,240 common shares and 520,120 warrants which may be exercised at $0.35 per share to acquire 520,120 common shares to September 16, 2005. Prior to September 16, 2005, all the warrants were exercised except 2,500 Agents’ Warrants which then expired.
Private Placement Financing – December 2003
The Company closed a non-brokered private placement of 2,500,000 Units at $0.06 per Unit for total proceeds of $150,000 less issue costs of $3,500. Each Unit consisted of one common share and one non-transferable share purchase warrant. Each warrant entitled the holder to purchase one additional common share at a price of $0.10 per share until December 23, 2004. The private placement was sold to investors resident in Alberta and British Columbia and the shares issued were subject to a hold until April 24, 2004. All the warrants were exercised prior to their expiry on December 2004.
Option of the Carat Property, Northwest Territories
The Carat property, in which the Company has a 29.91%, is held in a joint venture with Diamondex Resources Ltd. (Diamondex).
During the year ended July 31, 2004, pursuant to an Arbitration decision, the Company received $261,572 plus interest of $11,654, as reimbursement of joint venture over-expenditures associated with the Carat Joint Venture. The Company also received $284,675 as reimbursement for legal and other costs incurred regarding the arbitration. The awards were credited to the Carat property where the original property and arbitration costs had been capitalized. The interest has been included in “interest and other” in the statement of operations.
The Company had granted Majescor Resources Inc., (Majescor), an option to acquire its 29.91% interest, subject to a net profits interest retained by the Company of approximately 8%, in the Carat diamond exploration joint ventures respectively. In order to purchase the interests, Majescor was required to pay the Company $300,000 in cash, (received $150,000), and issue 300,000 common shares, (received 200,000), and 200,000 warrants, (received 100,000: 50,000 with an exercise price of $0.40 per share expiring March 5, 2007 and 50,000 with an exercise price of $0.45 per share expiring January 22, 2008). The final option payment due in March 2006 comprised of 100,000 Majescor common shares, 100,000 common share purchase warrants exercisable at $0.55 per share to January 22, 2008 and a cash payment of $150,000.
In March 2006, the Company was advised by Majescor that they had elected not to make the final payment to complete their option to purchase the Company’s interests in the property. Accordingly, the interests that were optioned by Majescor reverted back to the Company. The Company has no exploration budgeted for the Northwest Territories properties at this time and has therefore written off the property as part of Management’s continuing commitment to streamline the Company and focus its active and ongoing exploration program in Mexico.
6.
During the year ended July 31, 2002, the Company had the following significant changes or important events:
Weedy Lake Option Agreement
The Company had a 50.1% interest in the Weedy Lake property. During fiscal 2002 the Company entered into an option agreement with Golden Band Resources Inc. (Golden Band), whereby Golden Band could earn 50% of the company’s interest in the property, (25.05% of the total property interest). In order to earn the interest, Golden Band was required to incur a minimum of $100,000 of exploration expenditures on the property in each of the first three years and a minimum of $1,500,000 in aggregate over four years. On March 4, 2004, the Company notified Golden Band that it was in default of the option agreement. The Company has agreed that Golden Band would undertake a scoping study which would serve as the basis for negotiations on the acquisition of the Company’s remaining equity in the Golden Heart deposit by Golden
14
Band and that, in the meantime, the Company temporarily suspended the non-compliance provisions of the Weedy Lake option agreement. Subsequent to year end, the Company sold Weedy Lake to Golden Band for $1 million CAD plus 500,000 warrants. The sale price was used in assessing the carrying value of the property and a write-down was recognized for the year ended July 31, 2006.
B.
BUSINESS OVERVIEW
The Company
The Company is engaged exclusively in the business of acquisition, exploration and, if warranted, the development of natural resource properties. The Company’s primary property is the Bahuerachi property in Mexico. The Company is an “exploration company” as its properties have not yet reached commercial production being at the advanced exploration stage. At this time all efforts planned by the Company are directed to increasing understanding of the characteristics and economics of the Bahuerachi mineralization.
Exploration for commercially viable mineralization of any mineral includes a high degree of risk which careful evaluation, experience and factual knowledge may not eliminate. It is noteworthy that few prospects explored and developed ever produce a significant return on invested capital. The Company’s future depends on obtaining additional financing from time to time, for which it has no identified sources. The Company has not generated any revenues from mining operations since its incorporation in 1980.
Overview of Prospects
The principal exploration property in Mexico, Bahuerachi, is owned by the Company’s wholly-owned subsidiary Recursos Tyler SA de CV. Bahuerachi is located in the state of Chihuahua roughly eight kilometres north of the town of La Reforma, Sinaloa. Substantially all of the Company’s current efforts and resources are devoted to the exploration of this project. The base and precious metals of interest on the property include copper, gold, zinc, molybdenum and silver.
In addition to the Mexican prospect, the Company holds a number of interests in prospects in Canada. The first of these is a 30% and 33% interest in the Carat and Kelsey prospects in the Northwest Territories. The Company shares these interests with Diamondex Resources Ltd. which holds a 70% interest in the Carat prospect and a 67% interest in the Kelsey prospect. The Company had granted Majescor Resources Inc., (Majescor), an option to acquire its approximate 30% interest, subject to a net profits interest retained by the Company of approximately 8%, in the Carat diamond exploration joint venture. In order to purchase the interest, Majescor was required to pay the Company $300,000 in cash, (received $150,000), and issue 300,000 common shares, (received 200,000), and 200,000 warrants, (received 100,000: 50,000 with an exercise price of $0.40 per share expiring March 5, 2007 and 50,000 with an exer cise price of $0.45 per share expiring January 22, 2008). The final option payment due in March 2006 comprised of 100,000 Majescor common shares, 100,000 common share purchase warrants exercisable at $0.55 per share to January 22, 2008 and a cash payment of $150,000.
In March 2006, the Company was advised by Majescor that they had elected not to make the final payment to complete their option to purchase the Company’s interest in the Carat and Kelsey properties. Accordingly, both interests that were optioned by Majescor reverted back to the Company. The Company has no exploration budgeted for the Northwest Territories properties at this time and has therefore written off the property as part of the Management’s continuing commitment to streamline the Company and focus its active and ongoing exploration program in Mexico.
The Company also held a 50.1% interest in the Weedy Lake property. During fiscal 2002 the Company entered into an option agreement with Golden Band Resources Inc. (Golden Band), whereby Golden Band can earn 50% of the company’s interest in the property, (25.05% of the total property interest). In order to earn the interest, Golden Band was required to incur a minimum of $100,000 of exploration expenditures on the property in each of the first three years and a minimum of $1,500,000 in aggregate over four years. On March 4, 2004, the Company notified Golden Band that it was in default of the option agreement. The Company has agreed that Golden Band would undertake a scoping study which would serve as the basis for negotiations on the acquisition of the Company’s remaining equity in the Golden Heart
15
deposit by Golden Band and that, in the meantime, the Company temporarily suspended the non-compliance provisions of the Weedy Lake option agreement. Subsequent to year end, the property interest was sold to Golden Band Resources Inc. (“Golden Band”) for $1 million CAD plus 500,000 warrants, with each warrant exercisable to acquire one common share of Golden Band at a price of $0.55 per share until August 29, 2008. The warrants received on the sale were valued using the Black-Scholes Option Pricing Model for $87,000. This selling price was used to determine the carrying value of the property as at July 31, 2006 and the difference between this price and the book value resulted in a write-down of $1,295,003.
Mineral Reserve and Resource
The Company is incorporated under theBusiness Corporations Act (Alberta) in Canada. The mineral resources described in this Form 20-F are estimates and have been prepared in compliance with National Instrument 43-101 of the Canadian Securities Administrators. The definitions of proven and probable reserves used in National Instrument 43-101 differ from the definitions in Securities and Exchange Commission ("SEC") Industry Guide 7. In addition, the terms "mineral resource", "measured mineral resource", "indicated mineral resource" and "inferred mineral resource" are defined in and required to be disclosed by National Instrument 43-101; however, these terms are not defined terms under SEC Industry Guide 7 and normally are not permitted to be used in reports and registration statements filed with the SEC. Accordingly, information contained in this Form 20-F containing description s of the Company's mineral deposits may not be comparable to similar information made public by U.S. companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder.
Bahuerachi
The principal exploration property in Mexico is Bahuerachi, located in the state of Chihuahua roughly 8 kilometers north of the town of La Reforma, Sinaloa. The base and precious metals of interest on the property are copper, molybdenum, gold, zinc and silver.
Property Location And Description
Property Location
Bahuerachi lies in southwestern Chihuahua state, Mexico, about 5 km northeast of the Sinaloa state boundary (Figure 2.1). The closest town is La Reforma, Sinaloa, located some 8 km to the south. A small village of less than 100 inhabitants (Bahuerachi) is located on the western portion of the permit area.
Property Description
The Property presently consists of six mining concessions totalling 6,488 ha as follows:
Concession | Title Number | Area (Ha) | Date Issued | Expiry | Type |
Bahuerachi | T 211761 | 500 | 2000 | July 2050 | Exploitation |
Bahuerachi Dos | T 215572 | 2482 | 2002 | March 2052 | Exploitation |
Bahuerachi Tres | T 215511 | 30 | 2002 | February 2008 | Exploration |
Bahuerachi Cuatro | T226593 | 1238 | 2006 | February 2056 | Exploitation |
Bahuerachi Cinco | T 225440 | 1939 | 2005 | September 2011 | Exploration |
Baherachi Seis | T226595 | 300 | 2006 | February 2056 | Exploitation |
The prospect is under six contiguous concessions, which were issued in 2000, 2002, 2005 and 2006. The majority of the prospect, 4,520 hectares, is under three exploitation type concessions, which expire in 2050, 2052 and 2056. An additional 1,969 hectares are under exploration concessions which expire in February 2008 and September 2011; however, the concessions may be converted to exploitation permits.
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Figure 2.1-General Location Map
Title
The Bahuerachi property was subject to an option agreement with a Mexican national, (the “Optionor”). At July 31, 2006 the Company held a 95% interest in the property. Pursuant to an option agreement with a Mexican national, (the “Optioner”), the remaining 5% property interest was convertible by the Company into a 10% net profits interest, which could be purchased by the Company for $700,000 US. In October 2006, the Company purchased the 10% net profits interest and finalized all documents required to file its 100% interest in the Bahuerachi 1 claim. All other claims 100% owned.
Permits and Liabilities
Tyler maintains the necessary annual environmental reporting on the prospects, and the last inspection was conducted in July 2006. Tyler has the necessary permits for its current program of drilling. The Company is responsible for the maintenance in good standing of the prospects under the agreement, including all statutory filings and tax payments. Tyler currently pays annual mining duties of approximately US$12,000 for the six concessions.
(ii)
Accessibility, Climate, Physiography, Local Resources And InfrastructureAccess
The Bahuerachi prospect lies in the south-western portion of Chihuahua State, about five kilometers northeast of the Sinaloa State border. The closest town is La Reforma, Sinaloa, located about eight kilometers to the south. The prospect is accessed by secondary unpaved roads from Choix, Sinaloa which takes about four hours and requires a ferry crossing of Rio Fuerte. Access to Choix is by paved roads. Access to the property is possible year round. Access throughout the prospect is by a network of exploration roads, drill roads and numerous foot/burro trails, including well developed trails in Arroyo Reforma and several major tributary drainages.
The closest town, La Reforma, offers limited health services (nursing station) as well as phone/fax services and a poorly stocked country store which sells essential supplies. Supplies such as food, electrical/mechanical supplies and fuel are typically sourced out of the cities of Choix, El Fuerte and Los Mochis where a wide range of products can be found. Supply trips to town from the property can usually be completed in two days when ferry service across the El Fuerte reservoir is available.
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Electrical power is not presently available on the property, and the closest hydroelectric power generating facility is located roughly 25 kilometers to the south west of the property, at Huites on the El Fuerte River. The current power grid extends to the village of La Reforma, eight kilometers south of the property.
Water is present year round throughout the concessions in the major arroyos, such as Arroyo Reforma which crosses the property in a north-south direction. Drinking water is available either by filtering water from local arroyos or obtained from artesian wells at the village of Bahuerachi or at the Company’s exploration camp.
Climate and Physiography
The climate on the property is typical of this area of the Sierra Madre with a dry, arid climate for most of the year punctuated by typically heavy rains during the period from September to November.
Terrain is rugged to extreme, rising abruptly from main valleys at about 200 m above sea level to peaks at 1,300 m.
(iii)
Property History
According to available records, the prospect has been visited by numerous large companies over the years, but their limited exploration efforts appear to have yielded little actual modern exploration data. It also appears that the work done by these companies was concentrated on the main zone of the prospect and not in the farther reaches of the concessions. Thus, Tyler will be required to conduct a full range of exploration studies and evaluations to properly assess the potential of the overall prospect. The historical workings and explorations of the concessions at best can only serve as a guide to where Tyler’s activities will be focused. The bulk of the Company’s work at the Bahuerachi prospect began with its 2004 Phase I and II drill programs.
(iv)
Geological Setting
Regional Geology
The geology of northwestern Mexico is dominated by the Sierra Madre Occidental, a belt of Cretaceous to Tertiary volcanic rocks extending southeasterly from the US border for 1,400 km. These rocks comprise a lower (45 to 100 million year old) sequence of andesitic flows and pyroclastic rocks, uncomformably overlain by a distinctive, upper (27 to 34 million year old) ignimbrite complex. The upper complex, probably the most extensive of its type on earth, is up to 1 km thick. A thick sequence of Triassic-Cretaceous volcano-sedimentary sequence is exposed between the Pacific Coast and the western slopes of the Sierra Madre. Cretaceous and Tertiary intrusive rocks occur in a belt, 60 km-100 km wide, immediately inland of the coast.
Property Geology
At the property scale, a large range of the units previously described are exposed by the presence of an erosional window through the late Tertiary volcanic sequence.
At the base of the sequence, the Triassic-Jurassic-Cretaceous volcano sedimentary units are well exposed and consist of interbedded sediments (conglomerates, sandstones and siltstones), carbonates and limy sediments as well as andesitic volcanic flows. Field observations where bedding relationships can readily be observed indicate that these units were folded although fold geometry and amplitude have not yet been defined. Evidence for thrusting is also present on a regional scale.
These units are locally overlain by the Tertiary andesitic, pyroclastic and ignimbrite flows and are intruded by a series of intrusions ranging in composition from dioritic to rhyolitic.
An important intrusive complex consisting of multiple intrusions ranging in composition from mafic (dioritic/andesitic) to felsic (rhyolitic) is present on the property. The core of this complex is exposed over
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a north-south distance of at least 10 km by a minimum width of 3 km although its total extent is not known at present. The best exposures of this complex occur along arroyo Reforma from the north end of the property to the town of La Reforma and then southerly to the El Fuerte River. Most of the intrusive complex consists of fault bound (post emplacement faults) dyke like bodies with a volumetrically dominant dacitic core. The dacitic bodies have now been observed at the Property’s Main Zone as varying in widths from 50 m to over 200 m in width. Numerous andesitic or rhyolitic dykes with widths in the 1 m-10 m range are seen cutting the dacitic core in both north-south and locally east-west orientations. These later dykes have been observed to the east of the property cutting the base of the tertiary sequence providing an age constraint on these intrusive events. It can be noted that the late dykes are predominantly observed as fre sh, unaltered rocks at the Main Zone and are therefore considered as being post-mineralization.
Large scale faulting is observed on the property and some of the late faults have been intruded by flow-banded rhyolite dykes. Important fault systems occur in both roughly north-south and east-west directions. Important displacement in the >100 m range can be inferred using the base of the uncomformably tertiary ignimbrite complex as a marker horizon. To the north-east of the property, Cretaceous carbonate units and sedimentary rocks can be seen at the same topographic level as tertiary ignimbrites across the valley of arroyo Cieneguita which marks a major north-south fault structure. This particular fault structure, which is well exposed in the dry creek bed, is characterized by a thick section of coarse polymictic fault breccia. The importance of faulting is crucial in terms of the exploration model as creating zones of structural weakness and/or dilation propitious for the emplacement of magmas and subsequent mineralizing fluids.
Detailed mapping to date has only been carried out at the site of identified mineralization.
(v)
Mineralization
Currently, there are seven significant zones of mineralization identified within the entire prospect. One of these zones is the focus of the current phase of exploratory work. In the Main Zone, it is expected that copper and gold, along with other base metals, may be present at levels that will be commercially viable for later work. Subsequent sections outlining results from historical and ongoing work support the widespread presence of copper mineralization with locally elevated concentrations
In the Los Alisos zone, there appears to be a gold-silver hydrothermal system, which has had some mapping and sampling at the surface. Initial reverse circulation drilling, with 4 holes, returned anomalous gold, silver and zinc values typical of mineralized low-sulphidation epithermal systems in Mexico. Early results confirm that the Los Alisos target deserves further drilling work.
Work to date has only been on specific areas within the prospect. This work has outlined a mineralized complex with overall surface widths and grades comparable to that of historical or present economic producers within a mineralized porphyry-style complex.
(vi)
Exploration
Company Exploration
Since the acquisition of its interest in the Bahuerachi prospect in 1994, Tyler has pursued activities designed to commence exploration of the concession area. Tyler initially built a rudimentary road access to the area. Tyler then initiated drilling in an effort to define a small zone of near-surface copper oxide mineralization within the Main Zone. This initial drilling campaign was conducted in 1997 to evaluate the near surface copper-oxide potential of the prospect. It was conducted on a theoretical 50 meter centre grid to cover an area of roughly 400 meters by 200 meters over what was believed to be the core of the mineralized system in the main zone. Initial holes were planned as vertical holes to evaluate a possible near-surface, sub-horizontal zone of copper oxide enrichment (oxide blanket). Although mineralization was found to be widespread, even outside the higher grade re placement zones, drill hole location and drilling directions did not allow for adequate testing of the higher grade zones or the mineralized intrusion as defined by subsequent work. Core recovery also reportedly averaged only 70% over the program with heavy losses in altered, mineralized sections as well as within intrusive sections.
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Plotting of the 1997 drill holes shows that 10 of the 18 holes were located in the sediments and volcanics outside of the main skarns or mineralized dacitic porphyry. Only two holes were collared in the high grade replacement skarn zones but were poorly oriented in terms of recently established geological controls. Regardless of this deficiency, results of the 1997 drilling include the following reported statistics which remain valid in the context of future exploration on the prospect, in the main zone: cumulative 166.06 m of drill intersections in the exoskarn averaged 1.17% copper with a range of 0.23%-2.34% copper, cumulative 111.43 metres in altered andesites and sediments was found to average 0.58% copper with a range of 0.28%-0.86% copper and a cumulative 59.7 metres of intersections of copper mineralization in the altered dacitic porphyry intrusion was found to grade 0.67% copper with a range of 0.28%-1.28% copper. All of these ranges are considered within the type of values expected in an economic porphyry style system and associated high grade skarn zones.
Other prospecting programs conducted during this period allowed for the accumulation of local to regional scale data that has greatly enhanced the understanding of the mineralization and its potential at Bahuerachi. A greater understanding of regional stratigraphy and structure allows for the integration of punctual data and evaluation of overall potential for each occurrence. Numerous mineralized showings have been identified on the property outside of the Main Zone
In 2001, a surface exploration program to examine known showings with the objective of determining geological controls and settings for existing mineralization. Previous datasets from prospecting programs offered punctual data in terms of mineralized occurrences but without further mapping, this data could not be used to outline the potential of any one area as true widths of mineralized systems could not be determined with reasonable certainty. The 2001 program was successful in outlining minimum surface length and widths for mineralization at the Main Zone and the Mina Mexicana and Los Alisos areas. It also provided for greater understanding of the geological context and controls on the known mineralization and as such, created the base necessary for drilling recommendations on the property.
A short program of underground sampling was conducted in August 2003 in conjunction with a number of field property visits with third parties. The short program centered on the partial rehabilitation of an historical adit. The program objective was to collect data at depth which, in conjunction with the 2001 surface data, allowed for the generation of an interpretative cross-section across the system.
Tyler conducted an airborne geophysical survey on the property in February 2004 in preparation for an exploratory drilling program that commenced in April 2004.
Phase 1 Drilling program
The 2004 Phase 1 Drilling program consisted of 1,084 meters of diamond drilling as well as mechanized trenching. Field work started in March and lasted through to early June 2004. The program successfully confirmed the extensive and continuous nature of high grade copper, gold, silver and locally zinc bearing breccia and skarn bodies. These occur locally within, on the edges, and away from the main mineralized porphyry (QFP). The mineralized intrusive complex, including mineralized sediments and high grade breccia and skarn zones in the core of the complex, has now been outlined at surface over an area in excess of 4 kilometres in strike length with widths varying between 200 metres to in excess of 700 metres. Overall results continued to confirm the presence of mineralization with bulk mining potential in a world class sized porphyry setting at the Bahuerachi Property.
The Phase I drilling program in 2004 ended with the completion of 12 drill holes for a cumulative 1,084 meters of drilling. Due to generally poor ground conditions, all drill holes were terminated before reaching their full planned target depths, often within mineralized zones. Phase I drilling confirmed the extensive and continuous nature of high grade copper, gold, silver and locally zinc-bearing breccia and skarn bodies.
Tyler’s Management believes that Phase 1 accomplished its objectives, which were to confirm the continuity and grade of surface mineralization and obtain a better understanding of the geologic controls on mineralized zones. High grade breccia-skarn zones were traced at surface over a strike length exceeding 1,200 metres, and were intersected in drilling over a strike length of 500 metres, to depths of up to 100 metres. The average width of this unit in drilling to date was approximately 24 metres and the weighted
20
average grade of drill sections was 2.29% copper, 0.12 g/t gold, 15.9 g/t silver and 0.40% zinc. The breccia unit remains open along strike and at depth. A supergene enrichment blanket was also confirmed although its extent remained poorly defined. Encouraging grades within stockwork veined QFP in the northern part of the area tested during Phase 1 include 3.05 metres grading 0.73% copper and 3.05 metres grading 0.18% copper and 0.35 g/t gold at the end of drill hole #11. Combined with surface chip samples in variably leached intrusion grading 0.51% copper over 24 metres and 36 metres grading 0.40% copper, this provided an excellent porphyry copper target currently being tested during Phase 2.
Phase 2 Drilling program
The Phase II Program, designed to cover approximately 11,000 meters of drilling and commenced during the year ended July 31, 2005, with expenditures totaling approximately $4 million by fiscal year end. This Program was subsequently substantially expanded, to an ultimate total of 35,000 meters (ongoing) of combined diamond drilling and reverse circulation drilling based on encouraging results within the areas drilled. This program has largely been funded by the proceeds of a private placement netting $9.7 million concluded in April 2005.
The Company expanded its Bahuerachi property in 2006 by staking three new areas contiguous to its previously existing claim block. The three new titles cover an additional 3,476 hectares bringing the total area under title to the Company and forming the Bahuerachi project to 6,488 hectares.
As of June 4, 2006, the Company formalized their working relationship with the local Community for a fixed period of 10 years for exploration purposes. In a formally called and legally constituted Assembly meeting of the Community at Bahuerachi, Tyler was formally granted an occupation agreement which will protect its rights to explore on all priority exploration targets identified to date. The Agreement gives Tyler secure rights to access the areas it needs for exploration, the right to build roads, conduct trenching and drilling, maintain its camp and build further infrastructure as needed, as well as access to water.
In September 2006, the Company reported the results of an initial NI 43-101 compliant independent resource estimate confirming a solid deposit within the main zone of Bahuerachi for work conducted to July 15, 2006. A significant portion of the material was classified as an Indicated Resource.
(vii)
Sampling Methodology And Data Verification
Sample security and integrity during each phase of work and subsequent transport of samples to the ALS Chemex lab facilities to Hermosillo was insured through the use of individually numbered, tamper proof plastic tags. No issues of tampering or missing tags were reported by the Hermosillo lab upon receipt of the samples from the field and samples were in the custody of Tyler personnel at all times before delivery to ALS-Chemex.
All drilling samples from the Phase 1 and 2 drilling programs were likewise treated for delivery to ALS Chemex Labs in Hermosillo. In addition, each batch of drilling samples sent for assay work includes a series of standards and duplicates samples. No significant or ongoing discrepancies have been noted in the assay results upon review of the data and the Company remains satisfied with the current laboratory and analytical procedures used are satisfactory for the current stage of exploration.
(viii)
Mineral Processing And Metallurgical Testing
The Company received the results of preliminary metallurgical testing of samples from various mineralized domains in the Main Zone porphyry and skarn system at Bahuerachi undertaken by Process Research Associates Ltd of Vancouver, B.C. in June 2006.
Metallurgical testing indicated that all types of mineralization tested responded well to standard processing procedures for the recovery of copper with gold, silver, molybdenum and zinc recoverable as byproducts.
21
Scope of Metallurgical Testing
The study was commissioned by the Company to identify at an early stage any metallurgical issues such as poor recoveries of metals, or requirements for complex processing which could have negatively impacted the exploration findings to date. No such significant issues were identified.
Six composite samples of drill core were submitted for testing. Four were of primary sulphide mineralization and two were of mixed oxide/sulphide domains.
All of the samples were subjected to standard batch froth flotation procedures to recover sulphide minerals. Preliminary acid leach tests were performed on samples from the oxidized zones. Results of testing are summarized below.
Specific Gravity (density) tests of the various potential ore types were also conducted for use in the current resource estimation study.
Primary/Hypogene Sulphide Mineralization
1) Porphyry Testing
A porphyry sample with a head grade of 0.46% copper, 3 g/t silver and 0.03 g/t gold was submitted as representing the anticipated average grade within the Main Zone Porphyry to date. Standard flotation tests recovered a total of 93% of the copper present.
A second porphyry sample, representing the anticipated mining cut-off grade within the Main Zone Porphyry, with a head grade of 0.23% copper, 2 g/t silver, 0.01 g/t gold and a high molybdenum grade of 0.028% was submitted for testing to determine if molybdenum could be recovered in addition to copper. Recovery tests produced copper recoveries ranging from 93 to 98%, with molybdenum recoveries of up to 71.7%. It is noted that molybdenum recoveries may depend on and be optimized by finer initial grinding of the material processed.
In summary, testing of hypogene porphyry produced copper recoveries ranging between 93 to 98%, with final concentrate grades of 19% copper, 0.92% molybdenum, 0.5 g/t gold and up to 86 g/t silver. Preliminary results indicate that further upgrading is possible and that a good baseline response to bulk flotation was established, with copper, molybdenum, silver and gold reporting to the concentrates.
2) Skarn Testing
Two skarn composite samples were tested. The first sample had head grades of 1.24% copper, 11 g/t silver, 0.09 g/t gold, 0.15% zinc and the second sample had head grades of 2.07% copper, 15 g/t silver, 0.18 g/t gold and 0.15% zinc. Trace molybdenum at 0.005% and 0.006% was also present in the material submitted for testing.
Extremely high copper recoveries of 98.8% and 98.1% respectively were achieved by traditional flotation methods. Gold and silver recoveries are also noted as excellent, with a concentrate grade reached from the skarn zones of 32% copper, 142 g/t silver, 2.5 g/t gold, 0.2% lead , 0.032% molybdenum and 1.8% zinc.
Oxidized (mixed suphide/oxide) Mineralization
Two samples of mineralized material with mixed oxide and sulphide mineralization were submitted. These were expected by the Company to represent the most challenging processing environment at Bahuerachi with regards to traditional metallurgical treatment methods.
One sample was from the transition zone between the chalcocite blanket and the underlying primary sulphide material, and the other was from near surface, oxidized high grade skarn.
22
1) Chalcocite Blanket Testing
Head grade of the sample was 1.14% copper (including 0.76% acid soluble copper), 0.01 g/t gold, 3 g/t silver and 0.007% molybdenum. The material was treated with standard flotation, followed by acid leaching of the tails (residue) to extract copper not recovered by flotation. Flotation tests recovered in the order of 55% of the total copper, with additional metals present in the float concentrate including 126 g/t silver and 0.73% molybdenum. Acid leaching of the flotation residues resulted in the extraction of 74.5% of remaining copper, with acid consumptions of 41.2 kg/ton.
An alternate test using only leaching to recover copper yielded recoveries of 83.3% copper after 71 days, with an acid consumption of 72.9 kg/ton.
2) Oxidized Skarn Testing
Head grade of the sample was 2.62% copper, 23 g/t silver, 0.18 g/t gold and 0.15% zinc. Surface oxidation in the skarn units is generally noted to occur only to relatively shallow depths (+/-15-30 meters).
In this case, flotation recovered 34.1% of the copper present, and subsequent acid leaching of the residue recovered 80.7% of the copper not recovered by flotation, with an acid consumption of 58.8 kg/ton. Potential recovery for other metals was not calculated for this sample.
An alternate test using only leaching to recover copper yielded recoveries of 77.6% copper after 71 days, with an acid consumption of 80.6 kg/ton.
Oxide Testing Observations
The initial studies on mixed sulphide/oxide ores to date suggest that standard metallurgical processing routes can be used to recover metals from both the sulphide and oxide ores. Results also support further column testing to evaluate heap leaching potential of the oxide zones, including evaluation of bacterial assisted heap leaching. Studies of acid base accounting neutralization values as well as ability of the material to generate acid from the sulphides present suggest that overall acid consumption requirements should be reasonable.
Conclusions
The Company was encouraged with the results of this preliminary phase of metallurgical testing, which indicated that all of the mineralized zones tested respond well to established process routes widely used in the mining industry. This study was a major milestone in the advancement of the Bahuerachi project, as it indicates that the potential extraction of copper, as well as other metals present in the system including gold, silver, zinc and molybdenum, does not pose any readily identifiable technical challenges.
(ix)
Mineral Resource And Mineral Reserve Estimates
In September 2006, the Company reported results of the initial NI 43-101 compliant independent resource estimate, incorporating the bulk of drilling conducted at Bahuerachi to July 31, 2006. The estimate was prepared by Associated Mining Consultants Ltd. for work conducted to July 15th, 2006 within the Main Zone of its Bahuerachi Project. The Company noted that a significant portion of the material as defined in this initial resource estimate has been classified as an Indicated Resource, which exceeded management’s expectation for this initial round of modeling. This increase in confidence level for a portion of the resources on a first pass basis is largely due to the relatively uniform and predictable distribution of mineralization within the bulk tonnage porphyry and skarn units, allowing for greater confidence levels in projecting data from existing drill holes within the model space.
A summary of both Inferred and Indicated resources defined to date at various cut-off grades has been provided by Tyler’s Independent Consultants and results as were released on September 25th 2006 are presented below:
23
BAHUERACHI MAIN ZONE Initial Indicated and Inferred Resources
Copper % cutoff | Category | In Situ Tonnes | Cu % | Au g/t | Ag g/t | Mo % | Zn % | CuEq(1) % |
0.0 | Indicated | 202,006,507 | 0.36 | 0.04 | 3.28 | 0.008 | 0.06 | 0.55 |
| Inferred | 237,569,006 | 0.26 | 0.02 | 1.61 | 0.005 | 0.02 | 0.35 |
|
|
|
|
|
|
|
|
|
0.1 | Indicated | 176,589,593 | 0.41 | 0.04 | 3.64 | 0.009 | 0.07 | 0.61 |
| Inferred | 202,525,959 | 0.29 | 0.02 | 1.78 | 0.005 | 0.02 | 0.40 |
|
|
|
|
|
|
|
|
|
0.2(2) | Indicated | 134,693,967 | 0.49 | 0.05 | 4.25 | 0.009 | 0.08 | 0.72 |
| Inferred | 134,221,239 | 0.36 | 0.03 | 2.11 | 0.005 | 0.02 | 0.48 |
|
|
|
|
|
|
|
|
|
0.3 | Indicated | 92,244,570 | 0.60 | 0.06 | 5.20 | 0.007 | 0.11 | 0.85 |
| Inferred | 75,565,829 | 0.46 | 0.04 | 2.57 | 0.004 | 0.03 | 0.59 |
|
|
|
|
|
|
|
|
|
0.4 | Indicated | 63,082,536 | 0.71 | 0.07 | 6.33 | 0.006 | 0.16 | 1.01 |
| Inferred | 40,482,465 | 0.55 | 0.05 | 3.22 | 0.004 | 0.04 | 0.71 |
|
|
|
|
|
|
|
|
|
0.5 | Indicated | 45,894,555 | 0.81 | 0.08 | 7.42 | 0.007 | 0.20 | 1.16 |
| Inferred | 22,161,619 | 0.64 | 0.06 | 3.81 | 0.004 | 0.05 | 0.82 |
(1)
Copper equivalents calculated using US$1.50/lb Cu, $10.00/lb Mo, $7.00/oz Ag. Gold and Zinc were not factored in the copper equivalent calculation and copper equivalents have not been adjusted for metallurgical recoveries at this time.
(2)
A 0.2% copper cutoff is consistent with, and in the case of oxide material, above cut off grades currently being used in Mexico at other operations in this type of environment.
(3)
For modeling purposes, all metal values were capped at the 99th percentile of their normal population distribution.
BAHUERACHI MAIN ZONE, Contained metals, Initial estimate, based on Inferred and Indicated categories
Copper % cutoff | Category | Copper Million lbs | Gold Ounces | Silver Million Ounces | Molybdenum Million lbs | Zinc Million lbs |
0.0 | Indicated | 1,608.78 | 240,306 | 21.32 | 35.55 | 275.54 |
| Inferred | 1,332.76 | 152,763 | 12.29 | 26.13 | 104.53 |
|
|
|
|
|
|
|
0.1 | Indicated | 1,581.18 | 232,781 | 20.66 | 34.97 | 268.06 |
| Inferred | 1,301.03 | 143,252 | 11.56 | 22.28 | 93.57 |
|
|
|
|
|
|
|
0.2 | Indicated | 1,440.15 | 216,529 | 18.39 | 26.67 | 248.92 |
| Inferred | 1,074.84 | 120,831 | 9.10 | 14.76 | 70.87 |
|
|
|
|
|
|
|
0.3 | Indicated | 1,209.51 | 183,878 | 15.43 | 14.21 | 231.35 |
| Inferred | 756.41 | 87,463 | 6.25 | 6.65 | 48.21 |
|
|
|
|
|
|
|
0.4 | Indicated | 988.12 | 150,085 | 12.84 | 8.33 | 216.50 |
| Inferred | 492.51 | 61,173 | 4.19 | 3.56 | 33.84 |
|
|
|
|
|
|
|
0.5 | Indicated | 818.85 | 123,948 | 10.94 | 7.07 | 200.93 |
| Inferred | 313.50 | 40,614 | 2.72 | 1.95 | 25.35 |
A full Independent Technical Report on the Mineral on the Mineral Resource Estimate was filed on Sedar on November 17, 2006.
24
Cautionary Note to U.S. Investors Concerning Estimates of Indicated Mineral Resources
This document uses the term "indicated mineral resources". The Company advises U.S. investors that while this term is recognized and required by Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it.U.S. investors are cautioned not to assume that any part or all of mineral deposits in this category will ever be converted into reserves.
Cautionary Note to U.S. Investors Concerning Estimates of Inferred Mineral Resources
This document uses the term "inferred mineral resources". The Company advises U.S. investors that while this term is recognized and required by Canadian regulations, the U.S. Securities and Exchange Commission does not recognize it. "Inferred resources" have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of a feasibility or other economic study.U.S. investors are cautioned not to assume that any part or all of an inferred resource exists or is economically or legally mineable.
Interpretations And Conclusions
Interpretations and Conclusions
The Company continues to be encouraged by the widespread mineralization encountered to date on the project with grades and widths confirming open pit style, bulk tonnage mining potential. With the confirmation through an initial resource estimate study of a significant new mineral deposit identified in Mexico, the Company plans to conduct a preliminary economic assessment for a mining operation based on the current resource base as well as expand the resource area with continued drilling. Copper grades continue to fall well within the range of grades that are considered to have economic potential in the context of this property, and the presence of numerous additional metals, (gold, silver, zinc and molybdenum), could add considerable value to the complex.
Recommendations
The Company plans to perform infill drilling within the Bahuerachi main zone porphyry/skarn complex in order to continue increasing the overall amount of the resource base as well as upgrade classification of inferred material to the indicated category, expand the resource area where open potential to do so exists, as well as test additional targets on site. The Company is also currently requesting bids to conduct a scoping study on its current resource base which would outline economic parameters for a mining operation at Bahuerachi.
Weedy Lake Prospect, Saskatchewan
The Weedy Lake Prospect was staked as a claim in 1999. To maintain the claims, annual assessment work of $11,925 is required, but there is an excess expenditure credit of $240,000 available to be applied against this obligation. To date, the Company has incurred a total of $2,000,000 in exploration expenditures.
The Company had a 50.1% interest in the Weedy Lake property. During fiscal 2002 the Company entered into an option agreement with Golden Band Resources Inc. (Golden Band), whereby Golden Band can earn 50% of the company’s interest in the property, (25.05% of the total property interest). In order to earn the interest, Golden Band was required to incur a minimum of $100,000 of exploration expenditures on the property in each of the first three years and a minimum of $1,500,000 in aggregate over four years. On March 4, 2004, the Company notified Golden Band that it was in default of the option agreement. The Company has agreed that Golden Band would undertake a scoping study which would serve as the basis for negotiations on the acquisition of the Company’s remaining equity in the Golden Heart deposit by Golden Band and that, in the meantime, the Company temporarily suspended t he non-compliance provisions of the
25
Weedy Lake option agreement. Subsequent to year end, the Company sold Weedy Lake to Golden Band for $1 million CAD plus 500,000 warrants. The sale price was used in assessing the carrying value of the property and a write-down was recognized.
Carat Property, Northwest Territories
The Carat property, in which the Company has a 29.91%, is held in a joint venture with Diamondex Resources Ltd. (Diamondex).
During the year ended July 31, 2004, pursuant to an Arbitration decision, the Company received $261,572 plus interest of $11,654, as reimbursement of joint venture over-expenditures associated with the Carat Joint Venture. The Company also received $284,675 as reimbursement for legal and other costs incurred regarding the arbitration. The awards were credited to the Carat property where the original property and arbitration costs had been capitalized. The interest has been included in “interest and other” in the statement of operations.
The Company had granted Majescor Resources Inc., (Majescor), an option to acquire its 29.91% interest, subject to a net profits interest retained by the Company of approximately 8%, in the Carat diamond exploration joint ventures respectively. In order to purchase the interests, Majescor was required to pay the Company $300,000 in cash, (received $150,000), and issue 300,000 common shares, (received 200,000), and 200,000 warrants, (received 100,000: 50,000 with an exercise price of $0.40 per share expiring March 5, 2007 and 50,000 with an exercise price of $0.45 per share expiring January 22, 2008). The final option payment due in March 2006 comprised of 100,000 Majescor common shares, 100,000 common share purchase warrants exercisable at $0.55 per share to January 22, 2008 and a cash payment of $150,000.
In March 2006, the Company was advised by Majescor that they had elected not to make the final payment to complete their option to purchase the Company’s interests in the property. Accordingly, the interests that were optioned by Majescor reverted back to the Company. The Company has no exploration budgeted for the Northwest Territories properties at this time and has therefore written off the property as part of Management’s continuing commitment to streamline the Company and focus its active and ongoing exploration program in Mexico.
Government Regulation
The exploration of a mining prospect is subject to regulation by a number of different governmental authorities. The most significant of the kinds of regulation affecting the business of the Company at this time are those related to preservation of the interest and environmentally related regulation. The former regulation generally is related to perfecting an interest in a particular prospect, registration and payment of annual maintenance fees. In some instances, it also includes filing required exploration proposals for a particular prospect. The latter regulation generally addresses issues relating to air, soil and water contamination and environmental restoration, and apply to many mining related activities including exploration, drilling, trenching, and other soil disturbance, water use, waste disposal and use of toxic substances.
In addition, in the pursuit of exploration activities, there are regulations relating to labor standards, occupational health and safety, mine safety, and general land use. In some instances, the Company may encounter regulations on the export of minerals and local labor requirements.
The current laws and regulations affecting the business of the Company may be found at the federal, provincial, state and local levels of administration, in both countries in which it operates. All of the regulatory bodies are constantly reviewing their regulatory structures, and it is likely that over time the laws and regulations will become more stringent. Much of the regulation is administered by imposing the need for permits and licenses. In some instances, it is also administered by inspections. The failure to have a required permit or license, or fail an inspection, may result in fines or other penalties or in the revocation of a permit or license. In some instances, the failure to comply with regulations, mostly in the area of registration and maintenance fees, may result in the loss of the right to exploit a particular prospect. Additionally, the Company m ay have to take remedial action resulting in unexpected expense. The Company may be required to recompense those suffering loss or damage by reason of its activities.
26
In some instances, the Company relies on third parties with whom it shares an ownership interest to comply with the regulations and other legal requirements. Although their relationship is governed by various option and joint venture arrangements, the failure of a third party to comply with any of the above types of regulations could have consequence on the Company, including fines, penalties, reclamation costs and the loss of rights of exploitation.
Competition
The Company expects to compete with numerous junior mining and exploration companies to identify and acquire claims with mineralization potential. In addition, it will compete with such companies for the services of experienced professionals and consultants in geological, environmental, drilling, testing and surveying disciplines. Many of the current competitors have, and many of the future competitors are expected to have, greater resources than the Company. Therefore, the Company will have to compete largely on the basis of its current financial resources and its ability to obtain future funding.
C.
ORGANIZATIONAL STRUCTURE
The Company owns 100% of Recursos Tyler S.A. de C.V., a Mexican Company and 100% of Tyler Diamondfields Inc., an inactive Alberta Corporation.
D.
PROPERTY, PLANT AND EQUIPMENT
The Company owns or has rights to various mineralization prospects. These are discussed above in the business discussion of the Company. Expenditures incurred in the last three fiscal years ended July 31, 2006:
| Balance July 31, 2003 |
| Costs Fiscal 2004 |
| Costs Fiscal 2005 |
| Costs Fiscal 2006 |
| Balance July 31, 2006 | |
Acquisition |
|
|
|
|
|
|
|
|
| |
Bahuerachi – Mexico | 248,613 |
| 875,246 |
| 83,419 |
| 183,776 |
| 1,391,054 | |
Weedy Lake – Saskatchewan | 637,844 |
| - |
| - |
| (346,771) | e | 291,073 | |
Carat and Kelsey, Northwest Territories | 246,112 |
| - |
| - |
| (246,112) | f | - | |
Keni, Nunavut | 55,520 |
| (55,520) | a | - |
| - |
| - | |
Other | 6,343 |
| 926 |
| 1,086 |
| 285 |
| 8,640 | |
Total Acquisition | 1,194,432 |
| 820,652 |
| 84,505 |
| (408,822) |
| 1,690,767 | |
Exploration |
|
|
|
|
|
|
|
|
| |
Bahuerachi – Mexico | 1,048,902 |
| 762,204 |
| 4,182,291 |
| 7,779,008 |
| 13,772,405 | |
Weedy Lake - Saskatchewan | 1,743,802 |
| 357 |
| - |
| (948,232) | e | 795,927 | |
Carat and Kelsey, Northwest Territories | 698,247 |
| (591,975) | b | (119,000) | d | 12,728 | f | - | |
Keni, Nunavut | 203,593 |
| (203,593) | c | - |
| - |
| - | |
Other | 13,143 |
| (5,781) |
| 2,375 |
| - |
| 9,737 | |
Total Exploration | 3,707,687 |
| (38,788) |
| 4,065,666 |
| 6,843,504 |
| 14,578,069 |
(a)
Costs of $92 net of write-offs of $55,612.
(b)
Costs of $37,772 net of cost recoveries of $546,247 that pertained to an arbitration award of reimbursed joint venture over-expenditures and reimbursed arbitration costs, all of which had been capitalized to the property, and net of option receipts of $83,500.
(c)
Costs of $2,753 net of write-offs of $206,346.
(d)
Option receipts.
(e)
Write-down of $1,295,003 in total to subsequent sale price.
(f)
Write-down of $233,384 in total.
27
In connection with its operational headquarters in Calgary, Alberta, the Company is committed, pursuant to a sublease with a company related by virtue of certain common officers and directors, to pay its share of base office rent. The base rent for which it is committed aggregates $37,414 in fiscal 2007 and $52,332 in fiscal 2008 to 2011. The Company is also required to pay its share of annual associated lease operating costs which are expected to approximate $15,871 in fiscal 2007 and $22,488 in fiscal 2008 to 2011.
ITEM 5:
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
General
The Company is engaged in the exploration of its Bahuerachi property in Mexico for copper, gold, silver, zinc and molybdneum. To date, the Company has not had any producing prospects and no revenues from extractive activities. It is significant that many exploration companies do not generate revenues, and it is common that prospects do not result in commercial quantities of minerals. Companies engaged in the extractive industries are highly speculative investments.
In evaluating the Company, consideration should be given to certain factors. One factor is the ability of the Company to finance its operations. This is influenced by the state of the capital markets for investment in extractive companies, the perception in the market about the Company, and the market prices of the mineralizations sought by the Company in its prospects. Another factor is the characteristics of the Company’s prospects. Finally, consideration should be given to the history of acquisition and exploration costs, general operating expenses and abandonments and write-downs of mineral properties.
Set forth below is a brief summary of the Company’s financial operations during the last three financial years.
The amounts shown are using Canadian GAAP | Year Ended July 31, 2006 | Year Ended July 31, 2005 | Year Ended July 31, 2004 |
Revenues Interest income Overhead recoveries | $ 226,308 $ 18,303 | $ 74,665 $ - | $ 25,460 $ 9,224 |
Write down of Mineral Properties Stock Option Compensation Expense Corporate Expenses | $ (1,528,387) $ (381,250) $ (980,341) | $ - $ (1,192,900) $ (514,027) | $ (261,959) $ (596,000) $ (322,742) |
Gain (Loss) on the Sale of Marketable Securities | $ - | $ 675 | $ 1,810 |
Other Mineral property receipts in excess of mineral property costs Future income tax recovery Net Loss | $ - $ - $ - $ (2,663,670) | $ (10) $ - $ - $ (1,631,597) | $ (563) $ - $ - $ (1,144,770) |
Working Capital (deficiency)(a) | $ 2,693,858 | $ 9,983,280 | $ 2,317,383 |
Properties: Mineral Property Acquisition Costs Deferred Exploration | $ 1,690,767 $ 14,578,069 | $ 2,099,590 $ 7,734,565 | $ 2,015,084 $ 3,668,899 |
Long Term Debt | Nil | Nil | Nil |
Shareholders’ Equity: Dollar Amount Number of Common Shares | $ 19,010,853 90,384,199 | $ 19,935,873 86,698,929 | $ 8,090,843 68,431,439 |
(a) This is a non-GAAP measure which is calculated as current assets less current liabilities.
28
RESULTS OF OPERATIONS
Fiscal Year Ended July 31, 2006 compared to 2005
Loss and Revenue
The net loss for the year ended July 31, 2006 of $2,664,000 represents a $1,032,000 increase over the prior year’s loss. The increase is primarily due to the $1,528,000 abandonment and write-down of mineral properties during the fourth quarter of fiscal 2006, as well as increases in professional fees. This increase in expenses and write-offs was offset by the $170,000 increase in revenues and overhead recoveries and the decrease in general and administrative expenses.
The Weedy Lake property in Saskatchewan was sold subsequent to year end, therefore the July 31, 2006 carrying value of the property was written-down by $1,295,000 to reflect the actual sale price. The $233,000 carrying value of the Northwest Territory properties was written off at year end as the Company has no exploration planned for these properties. Professional fees also contributed to the higher net loss in fiscal 2006. The $124,000 increase in professional fees is mainly due to a change in regulatory requirements and resulting increases in audit requirements. $49,000 of the increase relates to audit work for the 2005 year end completed and paid in fiscal 2006.
The increase in revenues and overhead recoveries offset the increase in expenses noted above. Interest income is earned on the Company’s investments in treasury bills and bankers acceptances. The interest income increased from the prior year by $152,000 due to the fact that the Company was investing money throughout the whole fiscal 2006 year, whereas the financings in fiscal 2005 did not occur and thus could not be invested until the third quarter. As well, the Company is again receiving overhead recoveries due to a new office and administrative arrangement with related parties as of June 1, 2006. Overhead recoveries for fiscal 2006 totaled $18,000.
The Company’s net loss for the year ended July 31, 2006, as determined under U.S. GAAP, totaled $9,098,000 compared to the loss of $5,797,000 in 2005, with the major difference being the higher expenditure on the mineral properties which increased by $3,694,000 over 2005. Under U.S. GAAP, exploration costs of resource interests can not be capitalized and deferred so they are written off as incurred. The effect of this write-off was $7,963,000 in 2006 compared to the $4,269,000 in 2005. There was also $1,528,000 in abandonment of property costs in 2006 versus the $Nil abandoned in fiscal 2005.
Expenses
“General and administrative” expenses have decreased approximately $510,000 from the comparative year. An increase in salaries, investor relations and directors fees was offset by the decrease of $812,000 in stock compensation expense allocated to general and administrative expenses. Stock options vested during the year ended July 31, 2006 valued at $499,000 decreased from the prior year’s value of $1,401,000, and the allocation of this expense was changed. Stock based compensation in respect of the options granted to geological personnel is capitalized as part of mineral properties in line with their compensation and totaled $118,000 in fiscal 2006 (2005 - $208,000). The allocation to general and administrative expenses relating to options granted to officers and directors was $381,000 in fiscal 2006 (2005 - $1,193,000). The increase of approximately $182,000 in salaries and benefits is due to the hiring of four employees and the increase of $52,000 in investor relations from the prior year is due to contracting with an investor relations company in the first quarter of 2006. The investor relations contract was concluded in May 2006. Monthly directors’ fees were paid in the first half of 2005, but were waived as of August 1. These payments account for $36,000 of the remaining increase from the comparable period.
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Fiscal Year Ended July 31, 2005 compared to 2004
Loss and Revenue
The net loss for the year ended July 31, 2005 of $1,632,000 represents a $487,000 increase over the prior year’s loss. Overhead recoveries ceased to be an income source for the Company in the current year, as they pertained to fees received by the Company for acting as operator for the joint venture with CDG Investments Inc., (CDG). The joint venture ceased when the Company bought CDG’s share of the Bahuerachi mineral property during fiscal 2004. This resulted in a decrease in revenues of $9,000. This was offset by an increase in interest income of $49,000 attributable to higher cash balances. Further, total expenses increased $536,000 from the comparative year. The bulk of the increase is due to an increase in stock-based compensation of $597,000. Stock-based compensation represents the value assigned to options that were granted to consultants, officers and directors during the year. ;The value is calculated using the Black Scholes Option Pricing Model as described in note 7b)iv) to the financial statements. The higher amount in fiscal 2005 is primarily due to the increasing stock price of the Company.
The Company’s net loss for the year ended July 31, 2005, as determined under U.S. GAAP, totaled $5,797,000 compared to a loss of $1,960,000 in 2004, with the major difference being the higher expenditure on the mineral properties which increased by $2,595,000 over 2004. Under U.S. GAAP, exploration costs of resource interests can not be capitalized and deferred and all costs are written off as incurred. The effect of this write-off was $4,269,000 in 2005 compared to $1,674,000 in 2004.
Expenses
“General and administrative” expenses have increased approximately $748,000 from fiscal 2004. The bulk of the increase is due to the increase in stock-based compensation discussed above. With funds received from private placements, and renewed exploration on the Company’s Mexico property, the Company made a focused effort to increase shareholder value through increased exposure to the investment community. The significant increase in consulting expenses of $54,000, related to the time committed to boosting the Company’s profile in the investment community, including attendance at, and preparation for, numerous presentations, responding to investor phone calls and inquiries, attendance at industry conventions and creating the new website. More rigorous regulatory requirements are placing an added financial burden on the Company, particularly now that the Company must meet certain US filing requiremen ts. In addition various other administrative issues have become more demanding with the increased activity in the Company. The private placement and the large number of warrants and options exercised in the year resulted in greater office and secretarial costs during the current year of $32,000. The increased exploration has also resulted in greater administrative requirements and hence increased costs.
As at July 31, 2005 the Company recorded a non-cash unrealized foreign currency translation loss of $28,000. This figure reflects a more volatile relationship among the Canadian dollar, U.S. dollar and Mexican peso in fiscal 2005. The Company did not have any foreign currency bank accounts in fiscal July 31, 2004.
Fiscal Year Ended July 31, 2004 compared to 2003
Loss
The net loss for the year ended July 31, 2004 of $1,145,000 represents a $1,011,000 increase over the prior year’s loss. The largest contributors to this increase were the $596,000 stock-based compensation expense in the current year, (2003 - $nil), and mineral property write-offs of $262,000 in the current year, (2003 - $46,000). Stock-based compensation represents the value attributed to the stock options granted during the year through a calculation that uses an option-pricing model. The method of calculation and assumptions are provided in detail in note 7b)iv) to the financial statements.
The Company’s net loss for the year ended July 31, 2004, as determined under U.S. GAAP, totaled $1,960,000 compared to a loss of $464,000 in 2003, with the major difference being the higher
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expenditure on the mineral properties which increased by $1,343,000 over 2003. Under U.S. GAAP, exploration costs of resource interests can not be capitalized and deferred and all costs are written off as incurred. The effect of this write-off was $1,674,000 in 2004 compared to $331,000 in 2003.
Revenue
Revenue is comprised of interest of $25,000 and $9,000 of overhead fees relating to joint venture billings where the Company acted as operator, (Bahuerachi and Keni). “Interest and other income” for the comparative period is comprised of an expense recovery of $5,000 and nominal interest income. The increase in interest income was primarily due to the interest that pertained to the arbitration award that was discussed above under the Carat property. Further, interest earned on the proceeds from the March, 2004 private placement contributed to the increase in interest income. As CDG is no longer a joint venture partner on the Bahuerachi property, and the Keni property has been returned to the vendor, there should be no overhead fees in the following fiscal year.
Expenses
“General and administrative” expenses have increased approximately $734,000 from the comparative period. Mainly due to stock compensation expense of $596,000 in 2004 and $Nil in 2003. The decline in investor relation costs of $11,000 was offset by an increase in consulting fees of $89,000 and an increase in interest expense of $6,000. Further, travel and promotional costs increased $33,000 and office and secretarial costs increased $16,000.
As the contract with the investor relations firm was terminated effective January 1, 2003, there were no contracted costs in the year ended July 31, 2004, ($16,000 – 2003), and nominal investor administrative costs of $5,000 in the current period, ($Nil – 2003). The significant increase in consulting expenses related to the time committed to the arbitration proceedings, significant efforts made to boost the Company’s profile in the investment community, including attendance at, and preparation for, numerous conferences, and time spent in arranging financings for the Company as well as time invested in the preparation of various public filing documents. Comparative costs were unusually low due to the relative inactivity of the Company in the comparative period that coincided with its limited working capital.
The increase in interest expense in the year ended July 31, 2004 related to interest on notes payable of $6,000 in fiscal 2004; the 2003 amount was negligible. Increased promotional costs related to numerous conferences, (including the PDA in Toronto, the Round-up in Vancouver and two investment conferences), costs associated with conference promotional literature and displays, attendance fees, air-fare and accommodation, and advertisements in trade magazines. In the comparative period the Company did not have sufficient funds to commit to a largely discretionary expenditure. With funds received from private placements, and renewed exploration on the Company’s Mexico property, the Company made a focused effort to increase shareholder value through increased exposure to the investment community. Secretarial and office expenses increased as a direct result of increased activity in the Company, including expand ed exploration activity and administrative activity associated with various filings and regulatory paperwork associated with the financings.
Professional fees increased $23,000. The Company incurred approximately $20,000 in professional fees associated with the preparation of a Regulatory Filing Document, (the 20F), for the United States. The Company did not have comparative United States regulatory costs in the prior period. Transfer agent, stock exchange and filing fees increased $12,000 from the comparative period due to numerous news releases during the period, stock option grants, and the transaction with CDG involving the issue of shares for a mineral property interest.
LIQUIDITY AND CAPITAL RESOURCES
Fiscal 2006
During the prior year, the Company netted $9.7 million through a non-brokered private placement. These funds were utilized to further expand the Bahuerachi exploration program. During fiscal 2006, $8,472,000 was expended on the Bahuerachi property.
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At July 31, 2006, the Company had positive working capital of $2,694,000 and cash and cash equivalents of $2,225,000. Cash was provided by the exercise of warrants (2,277,670 for proceeds of $797,000) and options (1,166,800 employee and consultant options for proceeds of $382,000 and 240,800 in agent’s options for proceeds of $60,000) during the current year for aggregate proceeds of $1,239,000. The largest use of cash during the year ended July 31, 2006 related to mineral property expenditures of $8,472,000. Further, cash was expended on operating expenditures in excess of interest and other income in the amount of $771,000. The increase in operating activities of $483,000 over the comparative amount was largely due to the increase in general and administrative expenditures and professional fees which were offset by the increase in interest income discussed above.
The Company plans to perform further infill drilling within the Bahuerachi Main Zone porphyry/skarn complex in order to continue increasing the overall amount of the resource base, upgrade classification of inferred material to the indicated category, expand the resource area where open potential to do so exists, as well as test additional targets on site over the forthcoming year. The Company is also currently soliciting bids to conduct a scoping study on its current resource base. The scoping study will provide the necessary economic and technical parameters required to determine whether the project, or parts of the project, justify moving to the mining feasibility stage to convert the existing resource base to a mineable reserve base and provide a comprehensive economic analysis of the deposit’s potential.
Management and the Board of Directors review the approved work plan and budget for the Bahuerachi project at regular intervals throughout the year, and make revisions to the budget in response to exploration success (or the lack thereof) on the project as well as working capital available for further exploration and development expenditures.
The planned activities for 2007 are subject to financing; therefore the Company is actively pursuing financing.
Significant changes in working capital amounts were as follows:
Total accounts receivables (combined related and non-related) increased over the prior year by a total of $1,366,000. Most of the increase is due to value added tax recoverable of $1,218,000. The Company pays a 15% recoverable goods and services value added tax to the Government of Mexico. As of November 17, 2006, over $1,044,000 of this receivable has been deposited. Other receivables also increased from fiscal 2005 by $127,000 which was mainly due to a total of $100,000 USD advance to a third party drilling company. Payables and accrued liabilities, (combined related and non-related) increased by approximately $629,000. The large increase is primarily attributable to the significant drilling and exploration activity at the Bahuerachi property in Mexico at year end and the timing of billings received by the Company from a third party drilling company. The partial cost of the Initial Resource Es timate was accrued to fiscal 2006 for approximately $47,000.
Table of Contractual Commitments
The following table lists as of July 31, 2006 information with respect to the Company’s known contractual obligations.
| Payments due by period | ||||
Contractual Obligations | Total | Less than | 1- 3 years | 3 – 5 years | More than |
Long-Term Debt Obligations | - | - | - | - | - |
Capital (Finance) Lease Obligations | - | - | - | - | - |
Operating Lease Obligations | 352,565 | 53,285 | 224,460 | 74,820 | - |
Occupation Agreement | 170,000 | 17,000 | 51,000 | 51,000 | 51,000 |
Other Long-Term Liabilities Reflected on | - | - | - | - | - |
Total | 522,565 | 70,285 | 275,460 | 125,820 | 51,000 |
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For additional information related to the Company’s obligations and commitments see Note 11 and Note 12 in the Company’s consolidated financial statements attached.
Fiscal 2005
Sources
At July 31, 2005, the Company had positive working capital of $9,983,000. During the fiscal year, the Company sold 7,910,400 units at $1.25 per unit in a private placement in which it raised $9,723,000 after commissions and other expenses of the offering aggregating $165,000. The Company also raised $2,352,000 from the sale of additional shares of common stock pursuant to exercises of outstanding warrants and options and $20,000 from the sale of investments. The proceeds of these sales provided the Company with the working capital required to implement portions of its Phase II program with respect to the Bahuerachi prospects during the fiscal year.
Uses
The largest use of cash during the year ended July 31, 2005 related to mineral property expenditures, exploration advances and capital asset expenditures aggregating $3,855,000. These included purchases of capital assets of $45,000. Cash expenditures of $3,908,000 were incurred in respect of the Bahuerachi property during the fiscal year, which was offset by the $119,000 received in option payments regarding the Northwest Territories properties.
The Company expects to continue to use most of its working capital for further work in connection with the Bahuerachi property, primarily for exploration activities. The Company may also use some of the working capital it has to modify the terms or exercise all or a portion with respect to its option with Luis Palafox which terminates on October 21, 2006. The Company believes that it will continue to need additional capital in the near term to fund its exploration operations on all of its prospects because it does not expect that it will generate income necessary to cover it expenses from its prospects on which it has rights.
Significant changes in working capital amounts were as follows:
Mineral property cash expenditures increased from 2004 by approximately $2,776,000 due to increased activity in Mexico. The 2005 private placements brought in about $6,655,000 more in cash than the 2004 private placements and $2,223,000 more cash was received in 2005 over 2004 in relation to the exercising of warrants and options. In 2004 there was the one time arbitration settlement of $546,000 in cash.
Fiscal 2004
Sources
At July 31, 2004, the Company had positive working capital of $2,318,000. The most significant contributor to the positive working capital was the March, 2004 brokered private placement. The gross proceeds of the issue aggregated $3,251,000. Commissions and financing fees of $267,000 and related legal and issue costs of $62,000 offset these proceeds to arrive at net proceeds of approximately $2,922,000. This cash inflow ensured that the Company had sufficient working capital to finance the Phase I drilling program, (approximate cost of $700,000). In addition, the Company then had sufficient working capital to help finance the Phase II program estimated at between $1,200,000 and $1,500,000, and to cover operating expenses for the ensuing year and beyond.
During the year ended July 31, 2004 there were several other sources of cash inflows that contributed to the significant improvement in working capital. The Company received $546,000 plus interest of $12,000 pursuant to the arbitration settlement discussed earlier. The Company netted $146,500 from the December, 2003 private placement and $130,000 upon the exercise of options and
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warrants. In addition, the Company sold investments for proceeds of $28,000 and received $42,500, ($50,000 net of $7,500 finders’ fee), as an option payment on the Carat property.
Uses
The largest use of cash during the year ended July 31, 2004 related to mineral property and capital asset expenditures aggregating $1,034,000 and $58,000 respectively. Approximately $220,000 of the total mineral property expenditures related to the Carat property, ($190,000 of the Carat expenditures represent arbitration). Cash expenditures on the Bahuerachi property aggregated $811,000, $75,000 of which related to the annual option payment, and the remainder exploration expenditures.
The Company received a further $10,000 by way of notes payable during the current year, repaid the full notes payable outstanding of $77,000, (net $67,000), and repaid the accrued interest thereon of $6,000.
In all of the periods reported upon, the Company has used its cash resources to cover the excess of expenses over revenues. It is expected that this will continue into the future as the Company pursues its exploration activities, since none of the prospects on which it has rights is expected to produce income in the near term. The cash operating expenditures during the year ended July 31, 2004 were significant at $313,000. The increase over the comparative amount of $56,000 was largely due to the increase in operating expenses discussed above, but also due to the fiscal 2004 payment of liabilities that were outstanding at July 31, 2003 when the Company had virtually no cash.
Significant changes in working capital amounts were as follows:
Payables (combined related and non-related) decreased by approximately $271,000. Subsequent to July 31, 2003 the Company completed its private placements and had cash available to pay the outstanding liabilities from year-end as well as ongoing operating and exploration expenditures.
IMPACT OF INFLATION
Inflation and changing prices have had no significant impact on the Company’s income or operations during the past three years.
OFF BALANCE SHEET ARRANGEMENTS
The Company does not have any material off balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
ITEM 6:
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.
DIRECTORS AND SENIOR MANAGEMENT
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Mr. Jean Pierre Jutras has been the President, Chief Operating Officer and a director of the Company since December 19, 2001 and Chief Executive Officer since November 18, 2005. Mr. Jutras is a geologist by training. Mr. Jutras is also the Vice President and a Director of Manson Creek Resources Ltd., a public exploration company which trades on the TSX Venture Exchange under the symbol MCK, and Vice President and a Director of Northern Abitibi Mining Corp., a public exploration company which trades on the TSX Venture Exchange under the symbol NAI. Mr. Jutras was a Vice President of CDG Investments Inc. from 2000 to 2003, a public investment company which trades on the CNQ under the symbol CDGI.
Mr. Gregory H. Smith has been a director of the Company since December 20, 2000. Mr. Smith is also a Chartered Accountant and President of Oakridge Financial Management. Mr. Smith is the President of Alberta-Pacific Management Ltd, a private consulting company, a Director of Armistice Resources Ltd., an exploration company which trades on the TSX Exchange in Canada, the Chief Financial Officer and Director of Okalla Corp. and Chief Financial Officer and director of CDG Investments Inc., a public investment company which trades on the CNQ under the symbol CDGI and on the OTCBB under the symbol CDGEF.
Mr. Theodore Renner has been a director of the Company since February 13, 2006 and Chairman since May 2006. Mr. Renner is a self-employed private business executive with B.Sc. Degree in Mechanical Engineering and MBA. He has previous extensive experience over the last 25 years working with senior management in the oil and gas resource industry for various public companies and venture capital groups including President, CEO and Director Wascana Energy, President, CEO and Director Mark Resources; Director of Uravan Minerals Inc. which trades on the TSX Venture Exchange under the symbol UVN.
Ms. Lesley Hayes has been a Director of the Company since February 11, 1997. Ms. Hayes is self-employed as a management consultant. From 1999 to 2002, Ms. Hayes was the practice manager creative services of Burntsand Inc., a public technology service company which trades on the Toronto Stock Exchange under the symbol BRT. From 1996 to 1999, Ms. Hayes was self-employed as an investor relations consultant, and from 1992 to 1996, she was the vice president, operations of Vicom Multimedia, a public company at that time, which provided custom video and multimedia solutions, as well as building products for resale across North America. Ms. Hayes is also a Director of Northern Abitibi Mining Corp., a public exploration company which trades on the TSX Venture Exchange under the symbol NAI.
Dr. Shane Ebert has been a Director of the Company since January 26, 2004 and Vice-President Exploration since November 18, 2005. Dr. Ebert is a self-employed professional geologist. Dr. Ebert was a consulting geologist and research associate at the Mineral Deposit Research Unit of the University of British Columbia from 1999 to 2005. He is also the president of Hot Spring Gold Corporation, a private company, and from 1996 to the present, Dr. Ebert has been a consulting geologist. Dr. Ebert is a Director of Manson Creek Resources Ltd., a public exploration Company which trades on the TSX Venture Exchange under the symbol MCK. He is also the President and a Director of Northern Abitibi Mining Corp., a public exploration company which trades on the TSX Venture Exchange under the symbol NAI.
Mr. Alan Craven has been a Director of the Company since June 14, 2005. He is President and CEO of Associated Mining Consultants Ltd., and is responsible for the technical, operational and commercial management of the company. Mr. Craven is a professional engineer with over forty years technical management and consulting experience in the mining industry. After graduating from University of Newcastle, with a degree in Chemical Engineering, he worked in British Coal for 15 years. He was plant superintendent of two processing plants before moving into the design and planning of new major projects at national level. Since moving to Canada in 1978, he has undertaken research studies, evaluations, qualification reports, technical audits, restructuring studies, feasibility studies and detailed project designs for mineral projects. He has been retained by mining companies, legal and financial institutions an d acted on behalf of insurance companies. Mr. Craven has undertaken assignments in over 25 countries in North and South America, Africa, Asia and Europe (including the former Soviet Republics).
Mrs. Jennifer Munro has been the Chief Financial Officer of the Company since November 18, 2005. Ms. Munro is a Chartered Accountant and holds a Bachelor of Commerce degree from the University of Alberta (2001). From January 2001 to June 2005, Ms. Munro was employed by Grant
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Thornton LLP, Calgary, most recently as a Manager, providing audit, assurance, accounting, and compliance services for public and private corporations. Ms. Munro has been the Corporate Controller for Tyler since June 13, 2005.
Ms. Barbara O’Neill has been the Secretary of the Company since August 31, 1998. Ms. O’Neill also is the secretary of CDG Investments Inc., a public investment company which trades on the CNQ under the symbol CDGI; Manson Creek Resources Ltd., a public exploration company which trades on the TSX Venture Exchange under the symbol MCK; Northern Abitibi Mining Corp., a public exploration company which trades on the TSX Venture Exchange under the symbol NAI and Okalla Corp., a public internet processing Company which trades on the TSX Venture Exchange under symbol AOK.
B.
COMPENSATION
The following tables summarize the cash compensation paid or payable by the Company to each of the executive officers, or their affiliated companies, who were serving in those capacities at the end of the 2006 fiscal year, for all services rendered in all capacities to the Company and its subsidiaries and options granted to such persons during the year ended July 31, 2006. Compensation includes benefits and other expenses paid on the employees’ behalf.
Summary Compensation Table
(1)
This was paid to Mr. Jutras, or a Company controlled by Mr. Jutras, an Officer and Director of the Company for geological consulting and management services;
(2)
On the basis of per diem fees charged by the officer for his geological services and directors meeting fees up to November 18, 2005.
(3)
For director services and meeting fees.
(4)
This was paid to Ms. Munro for corporate accounting and management services.
(5)
This was paid to Ms. O’Neill for Corporate Secretary services.
A total of $32,590 was paid to Mr. Devonshire, a former officer and director or a Company controlled by Mr. Devonshire, for managerial services until December 31, 2005. In addition pursuant to the terms of the employment contract Mr. Devonshire received termination-related costs of $16,295 in December, 2005.
A total of $372 was paid to Mr. Chernish, a former officer, for geological services provided while he was an officer of the Company until November 2005.
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Summary Option and Warrant Table November 17, 2006
Holder | Number of Options/Warrants | Exercise Price | Expiry Date |
Jean Pierre Jutras | 700,000 Options 310,000 Options 325,000 Options 225,000 Options 200,000 Options 80,000 Warrants | $0.10 $0.20 $0.35 $0.65 $1.54 $1.75 | December 15, 2008 January 29, 2009 July 22, 2007 December 16, 2009 May 2, 2008 April 25,2007 |
Gregory Smith | 100,000 Options 150,000 Options 150,000 Options 100,000 Warrants | $0.20 $0.35 $0.65 $1.75 | January 29, 2009 July 22, 2007 December 16, 2009 April 25, 2007 |
Theodore Renner | 200,000 Options | $1.09 | February 9, 2009 |
Lesley Hayes | 150,000 Options 150,000 Options 100,000 Options | $0.20 $0.35 $0.65 | January 29, 2009 July 22, 2007 December 16, 2009 |
Shane Ebert | 30,000 Options 240,000 Options 275,000 Options 225,000 Options 125,000 Options 12,000 Warrants | $0.10 $0.20 $0.35 $0.65 $1.54 $1.75 | December 15, 2008 January 29, 2009 July 22, 2007 December 16, 2009 May 2, 2008 April 25, 2007
|
Alan Craven | 200,000 Options | $1.00 | July 20, 2010 |
Jennifer Munro | 200,000 Options | $1.18 | June 13, 2010 |
Barbara O’Neill | 125,000 Options 100,000 Options 100,000 Options 50,000 Options 40,800 Warrants | $0.20 $0.35 $0.65 $1.54 $1.75 | January 29, 2009 July 22, 2007 December 16, 2009 May 2, 2008 April 25,2007 |
As of July 31, 2006 the Company does not have any plans or commitments to contribute to, or to provide pension, retirement or similar benefits to directors and officers.
All of the Company’s shareholders, including officers and directors if they own shares, have the same voting rights.
C.
BOARD PRACTICES
Board of Directors
The Board functions independently of management because more than half of the members are non-management. The Board has determined that four of six Directors are independent. An “independent” director is a director who is independent of management and free from any interest any business or other relationship that could, or could reasonably be perceived to materially interfere with the director’s ability to act in the best interests of the Company, other than interests arising from shareholders. These directors are Lesley Hayes, Gregory Smith, Alan Craven and Theodore Renner.
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Messrs. Jutras and Ebert are not considered to be “independent” directors because they are officers of the Company.
All directors hold office until the next annual meeting of the shareholders of the Company and until their successors have been elected and qualified. Officers of the Company serve at the discretion of the board of directors. Non-executive directors are paid $300 per directors’ meeting if by telephone and $500 per directors’ meeting if attended in person. Effective January 2006, the outside directors are entitled to receive monthly compensation of $1,000 per director and an additional $250 for the chairman. In July 2006, the directors’ meeting fees were suspended until further notice.
All directors are granted options and warrants to purchase common stock of the Company from time to time as part of their compensation for service. Directors who are not consultants do not serve under any written engagement arrangements. Directors who are also consultants may have consultant agreements, which agreements from time to time provide severance and other benefits upon termination of employment separate from any statutory obligations of the place of employment.
Audit Committee
The Company is required to have an audit committee which must be comprised of at least three directors, all of whom must be outside directors who are not employees or members of management of the Company or any of its associates or affiliates. The board of directors of the Company, after each annual shareholders meeting must appoint or re-appoint an audit committee. As of the date of this annual report, the members of the audit committee were Messrs. Smith (Chairman), Renner and Ms. Hayes.
The audit committee must review the annual and interim financial statements of the Company before they are approved by the board of directors of the Company. The board of directors of the Company must review, and if considered appropriate, approve the annual and interim financial statements of the Company before presentation to the shareholders of the Company. The audit committee has a formal charter under which it operates.
Orientation and Continuing Education
At present, each new director is given an outline of the nature of the Company’s business, its corporate strategy, and current issues with the Company. New directors are also required to meet with management of the Company to discuss and better understand the Company’s business and policies. As each director has a different skill set and professional background, orientation will be tailored to the particular needs and experience of each director.
Continuing education is provided through relevant reading materials, board meeting presentations and discussions to ensure the directors maintain the knowledge and skill necessary to meet their obligations as directors. In addition, management of the Company makes itself available for discussion with all Board members.
Nominating Committee and Corporate Governance Commitee
The Nominating and Corporate Governance Committee is comprised of three directors, Lesley Hayes, Alan Craven and Gregory Smith (Chairman). All the directors are considered to be “independent” directors.
The Nominating and Governance Committee develops the Company’s approach to governance issues in general and is responsible for establishing the processes for assessing the effectiveness of the Board as a whole, the Committees of the Board, and each individual Director.
The Nominating and Governance Committee identifies, recruits, nominates, endorses and recommends appointment of new Directors based on the needs of the Board. Generally, new nominees for Directors must have a track record in general business management, special expertise in an area of strategic interest to the Company, the ability to devote the time required, shown support for the Company’s mission and strategic objectives, and a willingness to serve.
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Compensation Committee
The Board has a Compensation Committee comprised of three directors Lesley Hayes (Chairman), Alan Craven and Gregory Smith. All the directors are considered to be “independent” directors. The Board is responsible for reviewing and approving the position description for the President, which shall include his authorities and accountabilities; the corporate goals and objectives for which the President shall be responsible; to monitor the President’s performance relative to these goals and objectives and to formally evaluate his performance at least annually.
The Compensation Committee is also responsible for reviewing the President’s recommendations respecting compensation of other senior executives of the Company, to ensure such arrangements reflect the responsibilities and risk associated with each position. When determining the compensations, the Compensation Committee considers: (i) recruiting and retaining executives critical to the success of the Company and the enhancement of shareholder value; (ii) providing fair and competitive compensation compared to the remuneration paid by other reporting issuers similarly placed within the same business as the Company; (iii) balancing the interest of management and the Company’s shareholders; (iv) rewarding performance, both on an individual basis and with respect to operations in general. In order to achieve these objectives, the compensation paid to the Company’s executive officers consists of a base salary and fro m time to time may consist of an incentive in the form of stock options.
The Compensation Committee conducts a review with regards to directors’ compensation once a year. To make its recommendation on directors’ compensation, the Compensation Committee takes into account the types of compensation, the amounts paid to directors of comparable publicly traded companies and risk of personal liability. At July 31, 2005, the Company did not have a standard arrangement pursuant to which directors of the Company are compensated by the Company for their services in their capacity as directors except for receiving $500 for a directors meeting in person and $300 for a directors meeting by phone. As of January 2006, a cash compensation of $1,000 monthly to each outside director and an additional $250 to the Chairman of the Board has been approved. The Directors suspended payment of these fees as of August 2006. In addition, from time to time directors receive grants of stock options, under the Company’s stock option plan.
The Company maintains Directors’ and Officers’ Liability Insurance for its Directors and Officers.
Technical Committee
The Company has also appointed a Technical Committee consisting of Jean Pierre Jutras, Shane Ebert and two independent directors, Alan Craven and Theodore Renner. The Technical Committee shall be appointed annually from among the members of the Board and must contain at least one independent director. Its primary function is to assist the Board in fulfilling its oversight responsibilities by reviewing the Company’s technical activities and contents of news releases.
To the best of the Company’s knowledge, there are no arrangements or understandings with major shareholders, customers, suppliers, or others, pursuant to which any of the Company’s officers or directors was selected as an officer or director of the Company.
There are no family arrangements between any directors or officers of the Company.
D.
EMPLOYEES
As of July 2006, the Company had four full-time employees. During the fiscal year 2005 the Company had one full-time employee and during the fiscal years 2004 and 2002 the Company did not have any full time employees. The officers and directors have and will continue to provide services to the Company on “as-needed” basis. Corporations in which certain of the Company's officers or directors are shareholders have provided geological and exploration services and direct administrative services at usual professional rates.
The Company utilized the services of seven independent contractors during fiscal year 2006 and four during fiscal 2005.
39
E.
SHARE OWNERSHIP
The following table sets forth certain information as at November 17, 2006 with respect to the share ownership of the officers and directors of the Company. The table does not assume that any of the options and warrants previously discussed will be exercised even if eligible for exercise. Therefore, the percentage ownership is based solely on the number of shares of common stock outstanding at the above date, which is 90,384,199. Each common share is entitled to one vote, and there are no special or differentiating voting rights for the shares listed below.
Name | Number of Common Shares | Percent of Class |
Theodore Renner | 1,410,000 | 1.6% |
Gregory H. Smith | 1,651,833 | 1.8% |
Jean Pierre Jutras | 2,342,000 | 2.5% |
Lesley Hayes | 400,000 | 0.4% |
Shane Ebert | 1,069,000 | 1.2% |
Alan Craven | 236,000 | 0.3% |
Jennifer Munro | 203,100 | 0.2% |
Barbara O’Neill | 585,100 | 0.6% |
Employee/Officers Stock Options
In August of 2002, the TSX Venture Exchange ("TSXV") adopted a new stock option policy whereby all Tier 2 Corporations each year must implement and approve a stock option plan. In accordance with this policy, the Company adopted a 2002 Stock Option Plan on November 7, 2002, which was approved by the shareholders at the annual and special meeting held on December 18, 2002. The 2002 Plan was renamed the 2006 Stock Option Plan and received yearly shareholder approval at the Annual & Special Meeting held on March 16, 2006. The plan authorizes the board of directors to issue options to directors, officers, key employees and others who are in a position to contribute to the future success and growth of the Company.
Under the plan, the aggregate number of common shares issuable upon exercise of options granted may not exceed 10% of the total number of outstanding shares of the Company at the time the options are granted. Further, the aggregate number of shares issuable upon the exercise of the options granted to any one individual may not exceed 5% of the total number of outstanding shares of the Company. Options issued pursuant to the plan must have an exercise price not less than that from time to time permitted by the stock exchange on which the shares are then listed. The period during which an option may be exercised shall be determined by the board of directors at the time the option is granted, subject to any vesting limitations which may be imposed by the board of directors at the time the option is granted, provided no option shall be exercisable for a period exceeding five years from the date the o ption is granted unless specifically provided by the board of directors of the Company. No option may be exercisable for a period exceeding ten years from the date the option is granted.
The options granted under the plan expire on the earlier of the date of the expiration of the option period noted above and must expire 90 days after the date a holder ceases to hold the position or positions of director, officer, employee or consultant of the Company and within 30 days for any optionee engaged in investor relations civilities. In the event of the death or permanent disability of a holder, any previously granted vested options shall be exercisable until the end of the option period noted above or until the expiration of 12 months after the date of death or permanent disability of such option holder, whichever is earlier.
In the event of a sale by the Company of all or substantially all of its assets or in the event of a change in control of the Company, each holder shall be entitled to exercise, in whole or in part, the options granted to such holder, either during the term of the option or within 90 days after the date of the sale or change of control, whichever first occurs.
40
Pursuant to the 2006 plan of the Company, employees/consultants, and officers have been granted options. The following are outstanding as at November 17, 2006, (exclusive of directors’ and officers’ options summarized above):
Number of Common Shares | Exercise Price CDN $ | Expiration Date |
58,200 | $0.12 | January 29, 2007 |
250,000 | $0.20 | January 29, 2009 |
125,000 | $0.35 | July 22, 2007 |
125,000 | $0.65 | December 16, 2009 |
70,000 | $1.54 | February 7, 2010 |
100,000 | $1.35 | October 11, 2010 |
40,000 | $1.05 | January 5, 2009 |
50,000 | $0.94 | April 6, 2009 |
ITEM 7:
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A.
MAJOR SHAREHOLDERS
To the best knowledge of management, as at November 17, 2006, no persons or corporations beneficially owned, directly or indirectly, or exercised control or direction over 5% or more of the votes attached to all outstanding shares of the Company which have the right to vote in all circumstances.
As of November 17, 2006, according to records of the Company’s transfer agent, the Company had 1,247 registered holders of its common shares, 267 of whom were residents of the United States. The total shareholdings of such United States resident shareholders as at November 17, 2006 were 7,501,877 common shares, representing 8.3% of the total issued and outstanding capital of the Company. These do not include an indeterminable number of persons who hold their shares in 'street name’ through broker-dealers or other beneficial holders.
To the best knowledge of management, the Company is not directly or indirectly owned or controlled by a single person, a group of persons or by another corporation or by any foreign government. The Company believes that the day-to-day business operations and affairs of the Company are controlled by the board of directors.
To the best knowledge of management, there are no arrangements, the operations of which may, at a date subsequent to the date of this annual report will result in a change of control of the Company.
The following significant changes occurred in the percentage share ownership of the major shareholders during the past three years.
-
On July 31, 2003, CDG Investments Inc. held 2.3% of the issued and outstanding common shares of the Company. This percentage amount was increased in January 2004 when the Company issued 13,336,000 common shares to CDG in exchange for its interest in the Bahuerachi, Mexico prospect. CDG distributed one share of Tyler for each three CDG common shares owned by shareholders of CDG, together with a cash dividend of $0.07 per share, on May 12, 2006 to the CDG shareholders of record as at April 28, 2006 to hold a total of 279,000 common shares.
B.
RELATED PARTY TRANSACTIONS
Other than as disclosed below, for the years ended July 31, 2006, 2005 and 2004, the Company has not entered into any transactions or loans between the Company and any (a) enterprises that directly or indirectly through one or more intermediaries, control or are controlled by, or are under common control with, the Company; (b) associates; (c) individuals owning, directly or indirectly, an interest in the voting power of the Company that gives them significant influence over the Company, and close members of
41
any such individuals' family; (d) key management personnel and close members of such individuals' families; or (e) enterprises in which a substantial interest in the voting power is owned, directly or indirectly, by any person described in (c) or (d) or over which such a person is able to exercise significant influence.
For purposes of this section, an “associate” is an unconsolidated enterprise in which the Company has a significant influence or which has significant influence over the Company. “Significant influence” over an enterprise is the power to participate in the financial and operating policy decisions of the enterprise but is less than control over those policies. Shareholders (including the Company) beneficially owning a 10% interest in the voting power of a company are presumed to have a significant influence on the company. This section also includes transactions between the Company and any enterprises that has a member of key management in common with the Company.
All related party transactions and loans, in accordance with the preceding discussion, during the last three fiscal years are as follows:
1.
The purchase of the Company’s additional Bahuerachi prospect interests from CDG Investments Inc., a company related by virtue of certain common officers and directors. Mr. Devonshire (who was a director and officer of CDG until May 19, 2006), Mr. Smith and Ms. O’Neill, who are currently officers and/or directors of the Company, are also currently officers and/or directors of CDG.
2.
The Company subleases office space from Manson Creek Resources Ltd, a company related by virtue of certain officers and directors. Mr. Jutras, Mr. Ebert and Ms. O’Neill, who are officers and/or directors of the Company are also officers and/or directors of Manson. The Company is committed to pay its share of base office rent. The base rent for which it is committed aggregates $37,414 in fiscal 2007 and $52,332 in fiscal 2008 to 2011. The Company is also required to pay its share of annual associated lease operating costs which are expected to approximate $15,871 in fiscal 2007 and $22,488 in fiscal 2008 to 2011.
3.
During the year ended July 31, 2005, the Company closed a non-brokered private placement for $9,888,000 through the issuance of 7,910,400 Units. The Units were issued at $1.25 per Unit with each Unit consisting of one common share of the Company and one common share purchase warrant (a “Warrant”). Each whole Warrant entitles the holder thereof to acquire, subject to adjustment, one Common Share at a price of $1.75 per share on or before 4:30 p.m. (Calgary time) on the earlier of the date that is (i ) 2 years from the date of issuance of the Warrant; and (ii) thirty (30) days from the date that the Company issues an Early Exercise Notice which shall be issuable at any time from and after six months from the Closing Date, after the trading price of the Common Shares on the Exchange has exceeded $2.50 for a period of thirty (30) consecutive trading days. An aggregate 920,800 of the Units wer e issued to directors, officers and control persons of the Company. Currently a total 0f 232,800 of the Units are held by directors and officers. Total finders fees in the gross amount of $115,500 were paid on the placement to long armed individuals.
4.
During the year ended July 31, 2004, the Company closed a non-brokered private placement of 2,500,000 Units at $0.06 per Unit for total proceeds of $150,000. Each Unit consists of one common share of the Company and one non-transferable share purchase warrant. Each warrant will entitled the holder to purchase one additional common share at a price of $0.10 per share until December 23, 2004. Mr. Jutras, a director and officer, purchased 100,000 Units, Mr. Ebert, a director, purchased 83,333 Units, and Ms. O’Neill, an officer, purchased 30,000 Units in this private placement. All the warrants were exercised prior to December 2004.
5.
During the year ended July 31, 2004, the Company closed a brokered financing of 13,003,000 Units for gross proceeds of $3,250,750. Each Unit was sold at $0.25 per Unit and consisted of one common share of the Company and one half of one common share purchase warrant. Each warrant is exercisable into one common share until September 16, 2005 upon payment by the holder of $0.35 per common share. All of the securities issued pursuant to the private placement will be subject to a 4-month hold period in accordance with applicable securities laws. Mr. Jutras, a director and officer, purchased 12,500 Units, Mr. Devonshire, formerly a director and officer, purchased 250,000 Units and Mr. Smith, a director and officer, purchased 200,000 Units. The Units purchased by Mr. Devonshire and
42
Mr. Smith were through companies over which the individual exercises control. Pursuant to the brokered private placement the Company granted Agents’ Options whereby the Agents may acquire 1,040,240 Units at $0.25 per unit until September 16, 2005. The Agent Units are comprised of 1,040,240 common shares and 520,120 warrants which may be exercised at $0.35 per share to acquire 520,120 common shares to September 16, 2005. As at September 16, 2005, the options and warrants expired leaving 4,200 unexercised options.
6.
During fiscal 2003, the Company borrowed $24,991 from CDG Investments Inc., a company related by virtue of certain common officers and directors, and one which subsequent to year-end acquired a significant interest in the Company. Mr. Devonshire (former director and officer), Mr. Smith and Ms. O’Neill, who are officers and/or directors of the Company are also officers and/or directors of CDG. Further the Company borrowed $42,074 from companies controlled by Mr. Devonshire and Mr. Jutras, officers and directors of the Company in fiscal 2003 and $10,000 from a Company controlled by Mr. Devonshire in fiscal 2004. The interest rates on the advances were 10% per annum on the advances aggregating $13,580 and 12% per annum on advances aggregating $63,485. The advances, along with accrued interest, were repaid in full in fiscal 2004.
7.
The Company paid a company controlled by Mr. Jutras, the President, COO and a director, for his consulting services during the years noted at a per diem rate of $400 to December 31, 2003 and $475 per diem thereafter. Mr. Jutras began as an employee of the Company on February 1, 2006 and is paid $12,000 per month. The amounts paid in the past three fiscal years, rounded to the nearest $1,000, were $133,000 in 2006, $109,000 in 2005 and $99,000 in 2004.
8.
The Company paid a company controlled by Mr. Chernish, who was Vice-President Exploration until November 18, 2005, was paid for his consulting services during the years noted at a daily rate of $350 until January 31, 2004 and $425 per diem thereafter. The amounts paid in the past three fiscal years, rounded to the nearest $1,000, were $Nil in 2006, $3,000 in 2005 and $39,000 in 2004.
9.
The Company paid a company controlled by Mr. Ebert, a director and Vice-President of Exploration since November 18, 2005, for his consulting services during the year noted at a daily rate of $450. The amount paid in the past three fiscal years, rounded to the nearest $1,000, was $85,000 in 2006, $70,000 in 2005 and $27,000 in 2004.
10.
The Company paid another company controlled by Mr. Devonshire, the former Chairman, CEO and director, for his consulting services during the years noted at an hourly rate of $105. Total amounts paid in the past three fiscal years, rounded to the nearest $1,000, were $33,000 in 2006, $60,000 in 2005 and $54,000 in 2004.
11.
CDG Investments Inc., a company related by virtue of certain common officers and directors employed three individuals whose services are were used by the Company and other related companies. Further CDG paid certain administrative costs applicable to related companies. CDG then billed the related companies for their share of the salaries and administrative costs including a 10% mark-up to compensate for the administrative costs associated with rebilling. Effective May 2006, CDG ceased to pay any administrative costs on behalf of the Company. The amounts charged to the Company in the past three fiscal years, rounded to nearest $1,000, were as follows: $66,000 in 2006, $51,000 in 2005 and $34,000 in 2004.
12.
During the three preceding fiscal years the Company, as operator of the Bahuerachi Joint Venture, charged CDG for its share of joint venture mineral property expenditures. CDG is related by virtue of certain common officers and directors (James Devonshire, Gregory Smith and Barbara O’Neill). A 10% overhead fee is added to certain of the amounts billed, a practice that is common in the industry, the rate of which is the same as most non-related joint ventures in which the Company has participated. The amounts charged in the preceding three fiscal years, including the related overhead fees, rounded to the nearest $1,000, were as follows: $NIL in 2006, $NIL in 2005 and $96,000 in 2004.
There were no loans made by the Company or any of its subsidiaries to, or for the benefit of, any of the persons noted above.
43
The following table identifies, as of November 17, 2006, the name of each director of the Company and any public reporting company, for which such director currently serves as an officer or director:
Name of Director | Name of Company | Position | Term of Service |
Jean Pierre Jutras | Tyler Resources Inc. Manson Creek Resources Ltd. Northern Abitibi Mining Corp. | President CEO Director Director/VP Director Vice-President
| December 2001 – Present November 2005 - Present December 2001 – Present October 2000 – Present October 2000 – Present March 2002 – Present |
Gregory H. Smith | Tyler Resources Inc. CDG Investments Inc. Armistice Resources Ltd. Okalla Corp. | Director Director CFO Director Director CFO
| December 2000 - Present March 1997 – Present February 2001 – Present November 1987 – Present March 2003 – Present February 2001 – Present |
Lesley Hayes | Tyler Resources Inc. Northern Abitibi Mining Corp. | Director Director
| February 1997 - Present December 1996 – Present |
Shane Ebert | Tyler Resources Inc. Manson Creek Resources Ltd. Northern Abitibi Mining Corp. | Director VP Exploration Director Director President
| January 2004 – Present November 2005 - Present March 2001 - Present March 2003 – Present December 2005 - Present |
Theodore Renner | Tyler Resources Inc. Uravan Minerals | Director Chairman Director
| February 2006 – Present May 2006 – Present October 1999 - Present |
Alan Craven | Tyler Resources Inc. | Director
| June 14, 2005 - Present |
C.
INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
ITEM 8:
FINANCIAL INFORMATION
The financial statements are attached to and form part of this Annual Report. See Item 17. No significant change has occurred since the date of the annual financial statements included herein unless disclosed elsewhere in this document.
Legal Proceedings
During the year ended July 31, 2004, pursuant to an arbitration hearing regarding certain disputed Carat joint venture costs, the joint venture partner was directed to pay $261,572 to the Company as reimbursement of over-expenditures plus accrued interest of $11,654. A cheque in the amount of $273,226 was issued to the Company on November 3, 2003. In addition, the joint venture partner was directed to pay the Company’s reasonable costs incurred, including legal costs that pertained to the arbitration. The Company received $284,675 for these awarded costs. The legal and other costs associated with the Carat arbitration have been capitalized to the Carat property. The awards reduced Carat exploration costs in the Company’s fiscal 2004 financial statements.
44
Dividend Policy
The Company has not paid any dividends on its common shares and does not intend to pay dividends on its common shares in the immediate future. Any decision to pay dividends on its common shares in the future will be made by the board of directors on the Company on the basis of earnings, financial requirements and other such conditions that may exist at that time.
ITEM 9:
OFFER AND LISTING
A.
OFFER AND LISTING DETAILS
1.-3.
Not applicable
4.
See Item 9. C. Markets for price history.
5.
Capital Stock
Authorized
(i)
an unlimited number of common voting shares, no par value
(ii)
an unlimited number of preferred shares, no par value
Issued
- 90,384,199 common shares
6.
Not applicable
7.
Not applicable
B.
PLAN OF DISTRIBUTION
Not applicable
C.
MARKETS
Since August 2000, the Company’s common shares have been traded under the symbol TYS on the TSX Venture Exchange. Prior to August 2000 the common shares were traded on the Toronto Stock Exchange under the symbol TYS. Listed below in the three tables are (i) the range of the high and low market prices of the common shares for the last five full fiscal years, (ii) the high and low market prices for each full fiscal quarter during the last two years, and (iii) the most recent six months high and low market prices for each month. All price amounts are expressed in Canadian dollars.
Year ended July 31, | 2006 | 2005 | 2004 | 2003 | 2002 |
High | $1.53 | $2.18 | $0.39 | $0.07 | $0.17 |
Low | $0.335 | $0.19 | $0.035 | $0.03 | $0.06 |
45
Quarter Ended | Low | High |
Fiscal 2006 |
|
|
July 31, 2006 | $0.335 | $0.92 |
April 30, 2006 | $0.76 | $1.19 |
January 31, 2006 | $1.00 | $1.47 |
October 31, 2005 | $0.97 | $1.53 |
Fiscal 2005 |
|
|
July 31, 2005 | $0.80 | $1.63 |
April 30, 2005 | $1.33 | $1.93 |
January 31, 2005 | $0.33 | $2.18 |
October 31, 2004 | $0.19 | $0.44 |
Fiscal 2004 |
|
|
July 31, 2004 April 30, 2004 | $0.17 $0.20 | $0.36 $0.39 |
Month Ended | Low | High |
May, 2006 | $0.61 | $0.92 |
June, 2006 | $0.475 | $0.70 |
July, 2006 | $0.335 | $0.60 |
August, 2006 | $0.40 | $0.67 |
September, 2006 | $0.375 | $0.63 |
October, 2006 | $0.40 | $0.495 |
B.
SELLING SHAREHOLDERS
Not applicable.
C.
DILUTION
Not applicable.
D.
EXPENSES OF THE ISSUE
Not applicable.
46
ITEM 10:
ADDITIONAL INFORMATION
A.
SHARE CAPITAL
Capital Stock
Authorized
(i)
an unlimited number of common voting shares, no par value
(ii)
an unlimited number of preferred shares, no par value
Issued
90,384,199 common shares.
The following summarizes capital stock transactions for the years ended July 31, 2006 and July 31, 2005:
| Number of Shares | Amount |
Balance July 31, 2004 | 68,431,439 | $13,051,242 |
Private Placement April 2005 | 7,910,400 | 6,123,294 |
Options Exercised | 3,137,740 | 538,950 |
Exercise of Warrants | 7,219,350 | 1,906,773 |
Balance July 31, 2005 | 86,698,929 | 21,620,259 |
Options Exercised | 1,407,600 | 692,095 |
Exercise of Warrants | 2,277,670 | 797,184 |
Balance July 31, 2006 | 90,384,199 | $23,109,538 |
B.
INCORPORATION, ARTICLES OF AMENDMENT AND BY-LAWS
1.
Company’s Objects and Purposes
The Company, Tyler Resources Inc., was incorporated on August 5, 1980, under the name “Capoose Mining Incorporated” by registration of its Memorandum and Articles under the Company Act of British Columbia. The Company subsequently changed its name on December 19, 1981 to “Capoose Minerals Incorporated” and then on July 10, 1986 to “Tyler Resources Inc.” and consolidated its share capital on the basis of two old shares for one new share. On April 6, 1995, the Company was continued under the Business Corporations Act of Alberta and assigned corporate access number 206453185. The Company prepares and makes its own corporate registry filings withAlberta Registrar of Companies.
2.
Directors
According to the Company’s By-Laws, except as required by the Business Corporations Act of Alberta (the “Act”), no director is obliged to make any declaration or disclosure of interest or refrain from voting. As a matter of practice, the Company’s directors do make this type of disclosure.
In the absence of an independent quorum, the directors are permitted to vote compensation to themselves or any members of their body. The Articles of Association, as amended, and by-laws both state that, the directors will be paid remuneration for their services to the Company as the board from time to time determines. There is no specification regarding an “independent quorum” although a quorum is required for any meeting.
Without limiting the powers of the Company as set forth in the Act, the board of directors may from time to time cause the Company to:
47
a)
borrow money on credit of the Company,
b)
to the extent permitted by the Act, give guarantees on behalf of the Company to secure the performance of any present or future indebtedness or other obligation of another person,
c)
issue, reissue, sell or pledge bonds, debentures, notes or other evidences of indebtedness or guarantee of the Company, whether secured or unsecured, and
d)
charge, mortgage, hypothecate, pledge or otherwise create a security interest in any or all property of the Company, currently owned or subsequently acquired, to secure any present or future indebtedness or other obligation of the Company.
To the extent permitted by the Act, the board may from time to time delegate to a committee, or to one or more of the directors and officers of the Company, all or any of the powers conferred on the board to such extent and in such manner as the board from time to time determines.
There is no specification in the Company’s Articles of Association, as amended, or By-laws that indicate an age limit regarding retirement or non-retirement of directors.
A director is not required to be a shareholder of the Company in accordance with the “Articles of Association”.
The Articles of Association, as amended, authorize the directors, between annual general meetings, to appoint one or more additional directors of the Company to serve until the next annual general meeting, given the number of directors added does not at any time exceed 1/3 of the number of directors who held office at the expiration of the last annual general meeting.
3.
Rights, Preferences, Restrictions of Shares
The Company is authorized to issue an unlimited number of common shares without nominal or par value in accordance with Articles of Association, as amended, dated December 1995. No other class of equity security is authorized. All of the following pertains to common shares:
(a)
Dividend Rights. Subject to the rights of persons, if any, entitled to capital shares with special rights as to dividends, all dividends declared shall be paid to the shareholders in proportion to the number of shares held by them. All dividends unclaimed for three years after having been declared may be forfeited by the directors for the benefit of the Company.
(b)
Voting Rights. On a show of hands every member personally present and every duly appointed proxy or representative of a member attending the meeting shall have one vote for each share of which he is the holder, proxy or representative.
At the first annual general meeting and at every succeeding annual general meeting all of the directors however appointed or elected shall retire from office. A retiring director shall retain office until the dissolution of the meeting at which his successor is elected. A retiring director shall be eligible for re-election. Directors are elected by a plurality.
(c)
Rights to Share in the Company’s Profits. There are no rights assigned pursuant to the Company’s Articles of Association, as amended, or By-Laws that are in addition to those assigned by the Act.
(d)
Rights to Share in Surplus. There are no rights assigned pursuant to the Company’s Articles of Association, as amended, or By-Laws that are in addition to those assigned by the Act.
(e)
Redemption Provisions. There are no redemption provisions in the Articles of Association, as amended, or By-Laws.
48
(f)
Sinking Fund Provisions. There are no sinking fund provisions in the Articles of Association, as amended, or By-Laws.
(g)
Further Capital. There are no provisions for liability to further capital calls in the Articles of Association, as amended, or By-Laws.
(h)
No Discrimination for Significant Shareholders. There are no provisions discriminating against any existing or prospective holder of common shares as a result of the shareholder owning a substantial number of shares.
In order to change the rights of the holders of capital stock, the Company would have to create another class of shares and have the holders exchange their shares for those of the other class. The Company, is, however, only authorized to issue common shares at this time. Conditions to change are not more significant than is required by law. If the Company wishes to amend the Articles of Association currently in effect, it must receive shareholder approval, and then it must file the amendment with Alberta Corporate Registry.
4.
Meeting of Shareholders
In accordance with the Act, the directors of a company must call an annual meeting of shareholders to be held not later than fifteen months after holding the last annual meeting and may, at any time, call a special meeting of shareholders. Notice of the time and place of the meeting shall be communicated to shareholders of record entitled to vote, directors and auditors not less than 21 days and not more than 50 days before the meeting.
A notice of record date advising of the Company’s annual general meeting and the date for which the determination of shareholders is to be fixed must be issued seven days in advance of the record date. The notice of meeting, information circular, financial statements and proxy are to be mailed to the shareholders not less than 25 days prior to the meeting date. A quorum for the transaction of business at a general meeting is one shareholder present in person or represented by proxy representing a minimum of 5% of the issued voting shares in the Company.
Only members who are registered holders of the Company’s shares at the close of business on the record date (a date which is not more than 50 days, nor less than 35 days prior to the date of the meeting) who either attend the meeting or who have completed and delivered a form of proxy shall be entitled to vote or to have their shares voted at the meeting.
On a show of hands, every person who is present and entitled to vote shall have one vote per common share. Whenever a vote by show of hands shall have been taken upon a question, unless a ballot thereon is so required or demanded, a declaration by the chairman of the meeting that the vote upon the question has been carried or carried by a particular majority or not carried, will be entered to that effect in the minutes of the meeting and shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favor of or against any resolution or other proceeding in respect of the matter.
No business shall be transacted at a general meeting unless the quorum requisite shall be present at the commencement of the meeting. The Company does not limit who may attend its annual meetings to shareholders, directors and auditors.
5.
Ownership of Shares: Investment Canada Act
There are no known limitations on the rights to own securities, including the rights of non-resident or foreign shareholders to hold or exercise voting rights except that, in accordance with the Act, the Company is prohibited from holding shares in itself and subsidiaries are also prohibited from acquiring shares of the Company and except as provided in the Investment Canada Act, (the “Investment Act”).
The Investment Act requires a non-Canadian making an investment which would result in the acquisition of control of a Canadian business, the gross value of the assets of which exceeds certain
49
threshold levels or the business activity of which is related to Canada’s cultural heritage or national identity, to either notify, or file an application for review with, Investment Canada, the federal agency created by the Investment Act.
The notification procedure involves a brief statement of information about the investment of a prescribed form, which is required to be filed with Investment Canada by the investor at any time up to 30 days following implementation of the investment. It is intended that investments requiring only notification will proceed without government intervention unless the investment is in a specific type of business activity related to Canada’s cultural heritage and national identity. If an investment is reviewable under the Investment Act, an application for review in the form prescribed is normally required to be filed with Investment Canada prior to the investment taking place and the investment may not be implemented until the review has been completed and the minister responsible for Investment Canada is satisfied that the investment is likely to be of benefit to Canada. If the minister is not sati sfied that the investment is likely to be of benefit to Canada, the non-Canadian must not implement the investment or, if the investment has been implemented, may be required to divest himself of control of the business that is the subject of the investment.
The following investments by non-Canadians are subject to notification under the Investment Act:
(a)
an investment to establish a new Canadian business; and
(b)
an investment to acquire control of a Canadian business that is not reviewable pursuant to the Act.
The following investments by a non-Canadian are subject to review under the Investment Act:
(a)
direct acquisitions of control of Canadian businesses with assets of $5 million or more unless the acquisition is being made by an American investor;
(b)
direct acquisitions of control of Canadian businesses with assets of $152,000,000 or more by an American investor;
(c)
indirect acquisitions of control of Canadian businesses with assets of $5 million or more if such assets represent more than 50% of the total value of the assets of the entities, the control of which is being acquired, unless the acquisition is being made by an American investor;
(d)
indirect acquisitions of control of Canadian businesses with assets of $152,000,000 or more by an American investor if such assets represent more than 50% of the total value of the assets of the entities, the control of which is being acquired;
(e)
indirect acquisitions of control of Canadian businesses with assets of $50 million or more even if such assets represent less than 50% of the total value of the assets of the entities, the control of which is being acquired, unless the acquisition is being made by an American investor in which case there is no review; and
(f)
an investment subject to notification that would not otherwise be reviewable if the Canadian business engages in the activity of publication, distribution or sale of books, magazines, periodicals, newspapers audio or video music recordings, or music in print or machine-readable form.
Generally speaking, an acquisition is direct if it involves the acquisition of control of the Canadian business or of its Canadian parent or indirect parent corporation and an acquisition is indirect if it involves the acquisition of control of a non- Canadian parent or indirect parent corporation of an entity carrying on the Canadian business. Control may be acquired through the acquisition of actual or de jure voting control of a Canadian corporation or through the acquisition of substantially all of the assets of the Canadian business. No change of voting control will be deemed to have occurred if less that one-third of the voting control of a Canadian corporation is acquired by an investor.
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An American, as defined in the Investment Act includes an individual who is an American national or a lawful, permanent resident of the United States, a government or government agency of the United States, an American-controlled corporation, limited partnership, trust or joint venture and a corporation, limited partnership, trust or joint venture that is neither American-controlled or Canadian-controlled of which two-thirds of its board of directors, general partners or trustees, as the case may be, are any combination of Canadians and Americans.
The higher thresholds for Americans do not apply if the Canadian business engages in activities in certain sectors such as oil, natural gas, uranium, financial services (except insurance), transportation services or media activities.
The Investment Act specifically exempts certain transactions from either notification or review. Included among the category of transactions is the acquisition of voting shares or other voting interests by any person in the ordinary course of that person’s business as a trader or dealer in securities. Given the nature of the Company’s business and the size of its operations, management does not believe the Investment Act would apply to an investment in the Company’s shares by a United States investor.
There are no provisions in the Company’s Articles of Association, as amended, or By-Laws that would have the effect of delaying, deferring, or preventing a change in control of the Company and that would operate only with respect to a merger, acquisition or corporate restructuring.
There are no By-Law provisions governing the ownership threshold above which shareholder ownership must be disclosed.
Except for the Company’s quorum requirement discussed above, there are no significant differences that management is aware of, in the law applicable to the Company in the areas outlined above in Canada versus the United States. In most states in the United States, a quorum must consist of a majority of the shares entitled to vote. Some states allow for a reduction of the quorum requirements to one-third of the shares entitled to vote. Having a lower quorum threshold may allow a minority of the shareholders to make decisions about the Company, its management and operations.
C.
MATERIAL CONTRACTS
The following are material contracts relating to the business of the Company entered into during the last two years:
1.
Acquisition of the Bahuerachi prospect.
2.
Sublease agreement with Manson Creek dated October 26, 2001 and Amending Letter Agreements dated July 1, 2004, June 1, 2005 and October 1, 2005. Sublease agreement with Manson Creek dated September 1, 2006.
3.
Consulting Contract with Mr. Chernish’s company, 916165 Alberta Ltd., dated January 1, 2004. The agreement specifies that 916165 shall be remunerated at $425 per day for services that have been provided by Mr. Chernish as a Consultant of the Company.
4.
Consulting Contract with Mr. Ebert dated January 1, 2005. The agreement specifies that Mr. Ebert shall be remunerated at $450 per day for services that have been provided by Mr. Ebert.
5.
Service contract with Resource Geosciences de Mexico S.A. de C.V. (“RGM”). The agreement specifies that RGM shall provide geological consulting and logistical support services for the Company in Mexico in connection with the Bahuerachi exploration program.
6.
Employment Contract with Ms. Munro dated June 13, 2005. The agreement specifies that Ms. Munro shall be remunerated at $6,250 per month for services that have been provided by Ms. Munro. This was later increased to $7,083 per month.
51
7.
Employment contract with Mr. Jutras dated February 1, 2006. The agreement specifies that Mr. Jutras shall be remunerated at $12,000 per month for services that have been provided by Mr. Jutras.
8.
Pursuant to an occupation agreement signed in June 2006, the Company is required to make annual surface rights payments of $166,000 Pesos (approximately $17,000) in June of each year for 10 years (to 2016) to a third party as well as pay for the last two years of exploration. The first payment totaling $49,000 was paid in June.
D.
EXCHANGE CONTROLS
There is no law or governmental decree or regulation in Canada that restricts the export or import of capital including the availability of cash and cash equivalents for use by the Company’s group, or affects the remittance of dividends, interest or other payments to a non-resident holder of common shares of the Company, other than withholding tax requirements (see E, Taxation, below).
E.
TAXATION
Material Canadian Federal Income Tax Consequences
Management of the Company considers that the following discussion fairly describes the material Canadian federal income tax consequences applicable to a holder of common shares of the Company who is a resident of the United States and who is not a resident of Canada and who does not use or hold, and is not deemed to use or hold, his shares of common shares of the Company in connection with carrying on a business in Canada (a “non-resident shareholder”).
This summary is based upon the current provisions of the Income Tax Act (Canada) (the “ITA”), the regulations thereunder (the “Regulations”), the current publicly announced administrative and assessing policies of Revenue Canada, Taxation and all specific proposals (the “Tax Proposals”) to amend the ITA and Regulations announced by the Minister of Finance (Canada) prior to the date hereof. This description is not exhaustive of all possible Canadian federal income tax consequences and, except for the Tax Proposals, does not take into account or anticipate any changes in law, whether by legislative, governmental or judicial action.
Dividends
Dividends paid on the common stock of the Company to a non-resident will be subject to withholding tax. The Canada-U.S. Income Tax Convention (1980) provides that the normal 25% withholding tax rate is reduced to 15% on dividends paid on shares of a corporation resident in Canada (such as the Company) to residents of the United States, and also provides for a further reduction of this rate to 5% where the beneficial owner of the dividends is a corporation which is a resident of the United States which owns at least 10% of the voting shares of the corporation paying the dividend.
Capital Gains
In general, a non-resident of Canada is not subject to tax under the ITA with respect to a capital gain realized upon the disposition of a share of a corporation resident in Canada that is listed on a prescribed stock exchange. For purposes of the ITA, the Company is listed on a prescribed stock exchange. Non-residents of Canada who dispose of shares of the Company will be subject to income tax in Canada with respect to capital gains if:
(a)
the non-resident holder;
(b)
persons with whom the non-resident holder did not deal at arm’s length; or
(c)
the non-resident holder and persons with whom the non-resident holder did not deal with at arm’s length,
52
owned not less than 25% of the issued shares of any class or series of the Company at any time during the five-year period preceding the disposition. In the case of a non-resident holder to whom shares of the Company represent taxable Canadian property and who is resident in the United States, no Canadian taxes will be payable on a capital gain realized on such shares by reason of the Canada-U.S. Income Tax Convention (1980) (the “Treaty”) unless the value of such shares is derived principally from real property situated in Canada. However, in such a case, certain transitional relief under the Treaty may be available.
Material United States Federal Income Tax Considerations
The following discussion summarizes the material United States federal income tax consequences, under current law, applicable to a U.S. Holder (as defined below) of the Company’s common shares. This discussion does not address consequences peculiar to persons subject to special provisions of federal income tax law, such as tax-exempt organizations, qualified retirement plans, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, nonresident alien individuals or foreign corporations, and shareholders owning common stock representing 10% of the vote and value of the Company. In addition, this discussion does not cover any state, local or foreign tax consequences.
The following discussion is based upon the sections of the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations, published Internal Revenue Service (“IRS”) rulings, published administrative positions of the IRS and court decisions that are currently applicable, any or all of which could be materially and adversely changed, possibly on a retroactive basis, at any time. In addition, this discussion does not consider the potential effects, both adverse and beneficial of recently proposed legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time. Holders and prospective holders of the Company’s common shares should consult their own tax advisors about the federal, state, local and foreign tax consequences of purchasing, owning and disposing of shares of common shares of the Company.
U.S. Holders
As used herein, a “U.S. Holder” is defined as (i) citizens or residents of the U.S., or any state thereof, (ii) a corporation or other entity created or organized under the laws of the U.S., or any political subdivision thereof, (iii) an estate the income of which is subject to U.S. federal income tax regardless of source or that is otherwise subject to U.S. federal income tax on a net income basis in respect of the common stock, or (iv) a trust whose administration is subject to the primary supervision of a U.S. court and which has one or more U.S. fiduciaries who have the authority to control all substantial decisions of the trust, whose ownership of common stock is not effectively connected with the conduct of a trade or business in the United States and shareholders who acquired their stock through the exercise of employee stock options or otherwise as compensation.
Distributions on Shares of Common Stock
U.S. Holders receiving dividend distributions (including constructive dividends) with respect to the Company’s common stock are required to include in gross income for United States federal income tax purposes the gross amount of such distributions to the extent that the Company has current or accumulated earnings and profits, without reduction for any Canadian income tax withheld from such distributions. Such Canadian tax withheld may be credited, subject to certain limitations, against the U.S. Holder’s United States federal income tax liability or, alternatively, may be deducted in computing the U.S. Holder’s United States federal taxable income by those who itemize deductions. (See more detailed discussion at “Foreign Tax Credit” below.) To the extent that distributions exceed current or accumulated earnings and profits of the Company, they will be treated first as a return of capital up to the U.S. Holder’s adjusted basis in the common stock and thereafter as gain from the sale or exchange of such shares. Preferential tax rates for long-term capital gains are applicable to a U.S. Holder which is an individual, estate or trust. There are currently no preferential tax rates for long-term capital gains for a U.S. Holder which is a corporation. Dividends paid on the Company’s common stock will not generally be eligible for the dividends received deduction provided to corporations receiving dividends from certain United States corporations.
53
Foreign Tax Credit
A U.S. Holder who pays (or has withheld from distributions) Canadian income tax with respect to the ownership of the Company’s common stock may be entitled, at the option of the U.S. Holder, to either a deduction or a tax credit for such foreign tax paid or withheld. Generally, it will be more advantageous to claim a credit because a credit reduces United States federal income taxes on a dollar-for-dollar basis, while a deduction merely reduces the taxpayer’s income subject to tax. This election is made on a year-by-year basis and applies to all foreign taxes paid by (or withheld from) the U.S. Holder during that year. Subject to certain limitations, Canadian taxes withheld will be eligible for credit against the U.S. Holder’s United States federal income taxes. Under the Code, the limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of in come. Dividends paid by the Company generally will be either “passive” income or “financial services” income, depending on the particular U.S. Holder’s circumstances. Foreign tax credits allowable with respect to each class of income cannot exceed the U.S. federal income tax otherwise payable with respect to such class of income. The consequences of the separate limitations will depend on the nature and sources of each U.S. Holder’s income and the deductions appropriately allocated or apportioned thereto. The availability of the foreign tax credit and the application of the limitations on the credit are fact specific and holders and prospective holders of common stock should consult their own tax advisors regarding their individual circumstances.
Disposition of Shares of Common Stock
A U.S. Holder will recognize gain or loss upon the sale of shares of common stock equal to the difference, if any, between (i) the amount of cash plus the fair market value of any property received; and (ii) the shareholder’s tax basis in the common stock. This gain or loss will be capital gain or loss if the shares are a capital asset in the hands of the U.S. Holder, and such gain or loss will be long-term capital gain or loss if the U.S. Holder has held the common stock for more than one year. Gains and losses are netted and combined according to special rules in arriving at the overall capital gain or loss for a particular tax year. Deductions for net capital losses are subject to significant limitations. For U.S. Holders who are individuals, any unused portion of such net capital loss may be carried over to be used in later tax years until such net capital loss is thereby exhausted. For U.S. Holde rs which are corporations (other than corporations subject to Subchapter S of the Code), an unused net capital loss may be carried back three years from the loss year and carried forward five years from the loss year to be offset against capital gains until such net capital loss is thereby exhausted.
Other Considerations
The Company has not determined whether it meets the definition of a “passive foreign investment company” (a “PFIC”). It is unlikely that the Company meets the definition of a “foreign personal holding company” (a “FPHC”) or a "controlled foreign corporation" (a “CFC”) under current U.S. law.
If 75% or more of the Company’s annual gross income has ever consisted of, or ever consists of, “passive” income or if 50% or more of the average value of the Company’s assets in any year has ever consisted of, or ever consists of, assets that produce, or are held for the production of, such “passive” income, then the Company would be or would become a PFIC. The Company has not provided assurances that it has not been and does not expect to become a PFIC.
If the Company were to be a PFIC, then a U.S. Holder would be required to pay an interest charge together with tax calculated at maximum tax rates on certain “excess distributions” (defined to include gain on the sale of stock) unless such U.S. Holder made an election either to (1) include in his or her taxable income certain undistributed amounts of the Company’s income or (2) mark to market his or her Company common shares at the end of each taxable year as set forth in Section 1296 of the Code.
Information Reporting and Backup Withholding
U.S. information reporting requirements may apply with respect to the payment of dividends to U.S. Holders of the Company’s shares. Under Treasury regulations currently in effect, non-corporate holders may be subject to backup withholding at a 31% rate with respect to dividends when such holder (1) fails to furnish or certify a correct taxpayer identification number to the payor in the
54
required manner, (2) is notified by the IRS that it has failed to report payments of interest or dividends properly or (3) fails, under certain circumstances, to certify that it has been notified by the IRS that it is subject to backup withholding for failure to report interest and dividend payments.
F.
DIVIDENDS AND PAYING AGENTS
Not applicable.
G.
STATEMENT BY EXPERTS
This Form 20-F is being filed as an Annual Report under the Exchange Act and, as such, there is no requirement to provide any information under this Item.
H.
DOCUMENTS ON DISPLAY
Any documents referred to herein may be examined at the Company’s offices at 500, 926-5th Avenue S.W., Calgary, Alberta, T2P 0N7, Canada.
I.
SUBSIDIARY INFORMATION
Not required – see financial statements
ITEM 11:
QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not enter into any hedging transactions or hold any derivative instruments.
ITEM 12:
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not required.
ITEM 13:
DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable.
ITEM 14:
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
There have been no modifications to the constituent instruments defining the rights of the holders of the common shares. The rights evidenced by the common shares have not been materially modified or qualified by the issuance or modification of any other class of securities or debt.
ITEM 15:
CONTROLS AND PROCEDURES
As of the end of the period covered by this report, under the supervision and with the participation of Mr. Jutras, the Chief Executive Officer, and Ms. Munro, the Chief Financial Officer, the Company conducted an evaluation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934 (“1934 Act”). Based on this evaluation, the Chief Executive Officer and Chief Operating Officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the 1934 Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.
Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in the Company reports filed or submitted under the 1934 Act is recorded, processed, summarized and reported, within the time periods specified in the rules and regulations of the Securities and Exchange Commission.
55
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Prior to the filing date of this report, management, including the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness and operation of the Company’s internal controls and procedures over financial reporting. The Chief Executive Officer and Chief Financial Officer concluded that, as of July 31, 2006, the internal controls and procedures over financial reporting were effective in all material respects.
Internal control over financial reporting is a process, affected by an entity's board of directors, management and other personnel, designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with Generally Accepted Accounting Principles (“GAAP”). Internal control over financial reporting includes those policies and procedures which pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions; provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP; provide reasonable assurance that expenditures are being made only in accordance with the Board of Directors' authorization; and provide reasonable assurance regarding prevention or timely detection of una uthorized use of our assets that could have a material effect on our consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness of our internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of July 31, 2006, using the criteria in Internal Control -- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").
Management identified the following significant deficiencies in our control environment based on the criteria established in the COSO framework.
·
The Company did not establish an effective program to ensure that the code of conduct and ethics guidelines were fully communicated and distributed appropriately to all of the employees, consultants and directors.
·
The Company did not maintain written Information Technology (“IT”) policies and procedures or adequate controls with respect to the review, supervision and monitoring of the IT operations.
Management has concluded that the significant deficiencies above could not result in a misstatement to the financial statements accounts and disclosures that would result in a material misstatement to our annual or interim consolidated financial statements that would not otherwise be prevented or detected by other internal controls in place.
Subsequent to July 31, 2006, but prior to issuance of this Annual Report on Form 20-F, the Company implemented several measures described below to remediate the deficiencies we have identified. The Company has taken, or will take, the following actions:
·
The Company established an effective program to ensure that the code of conduct and ethics guidelines are fully communicated and distributed appropriately to the employees, consultants and directors. This was completed in the first quarter of fiscal 2007.
·
The Company created a written IT policy and procedures in the first quarter of fiscal 2007, but has yet to ensure that the policy is fully communicated and distributed appropriately to the employees and consultants. The Company plans to have this disseminated in the second quarter of 2007.
56
Management also identified a number of significant deficiencies in the current financial reporting processes and internal controls relating to a lack of segregation of duties. The lack of segregation of duties is inherent in most junior mining exploration companies. Limited financial resources and limited personnel resources cause inadequate segregation of critical duties within each of the accounting processes but the Company has instituted reasonable monitoring controls over these processes to mitigate the risk of human error or fraud. The responsibilities assigned to the CFO include booking adjusting journal entries, preparation of financial statements and MD&A and processing payroll. The responsibilities of the bookkeeper include maintaining the vendor master file, processing payables, creating and voiding cheques, reconciling bank accounts, making bank deposits, and booking journal entries.
The Company has a limited number of employees and has determined that it is not appropriate to create segregation of duties such as may be expected in a larger organization, based on an analysis of the cost versus the benefit of hiring additional employees solely to address that issue. We have determined that the risks associated with the lack of segregation of duties are insignificant based on the close involvement of management in day-to-day activities (i.e. tone at the top, corporate governance, officer oversight and involvement with daily activities, and other company controls). The Company has limited resources available and the limited amount of transactions and activities allow for sufficient compensating controls.
The Company has established an independent review of the adjusting closing entries made by the CFO in the creation of the financial statements by the Audit Committee to help compensate for this deficiency. This control was in place for the fourth quarter of 2006.
The Company is committed to continuing to improve internal control processes and will continue to diligently review financial reporting controls and procedures in order to ensure compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 in the United States and Multilateral Instrument 52-109 in Canada and the related rules promulgated by the Securities Exchange Commission (“SEC”). As the Company continues to work to improve internal control over financial reporting, the Company may take additional measures to address control deficiencies and/or determine not to complete certain of the remediation measures described above.
Changes in Internal Control over Financial Reporting
As discussed above, there were no changes in our internal control over financial reporting during the year ended July 31, 2006 that have materially effected or are reasonably likely to materially effect our internal control over financial reporting.
It should be noted that while management believes that current disclosure and internal controls and procedures provide a reasonable level of assurance, it cannot be expected that existing disclosure controls and procedures or internal financial controls will prevent all human error and circumvention or overriding of the controls and procedures. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
Management has concluded that the consolidated financial statementsincluded in this Annual Report on Form 20-F fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP.
The public accounting firm that audited the Company’s financial statements were no required to, and have not issued an attestation report on management’s assessment of the Company’s internal control over financial reporting and they did not rely on the internal controls of the Company for the fiscal years ended July 31, 2006, 2005 and 2004.
57
ITEM 16:
RESERVED
ITEM 16A:
AUDIT COMMITTEE FINANCIAL EXPERT
The Board of Directors has determined that Mr. Gregory Smith, CA, Chairman of the audit committee is the Company’s audit committee financial expert. This determination is based on his experience and active employment as a Chartered Accountant and his educational background in accountancy. Mr. Smith is independent as that term is used in SEC regulations or the rules of a United States national securities exchange or national securities association. The other members of the audit committee are Mr. Renner and Ms. Hayes, both of whom are independent directors of the Company.
ITEM 16B:
CODE OF ETHICS
To encourage and promote a culture of ethical business conduct, the Board of Directors has adopted a code of business conduct and ethics applicable to all members of the Company including directors, officers, consultants and employees. Each director, officer, consultant and employee of the Company receives a copy of the code of business conduct and ethics.
In addition, the Board of Directors monitors the ethical conduct of the Corporation to ensure that it complies with applicable legal and regulatory requirements, such as those of relevant securities commission, stock exchanges and the Business Corporations Act. The Board of Directors believes that the fiduciary duties placed on individual directors by the Company’s governing corporate legislation and common law, as well as the restrictions placed by applicable corporate legislation on the individual directors’ participation in decisions of the Board of Directors in which the director has an interest, have been sufficient to ensure that the Board of Directors operated independently of management and in the best interest of the Company.
The Board of Directors has also adopted a “Whistleblower Policy” wherein employees, directors, officers or consultants of the Company are provided with a mechanism by which they can raise concerns in a confidential, anonymous process.
ITEM 16C:
PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Fees
In fiscal 2006, the Company paid $53,000 for aggregate professional services rendered by the principal accounting firm for the audit of its 2005 annual financial statements and review of financial statements and other statutory and regulatory filings. In fiscal 2005, the Company paid $11,000 for aggregate professional services rendered by the principal accounting firm for the audit of its 2004 annual financial statements and review of financial statements and other statutory and regulatory filings.
Audit Related Fees
The Company paid $43,000 in fiscal 2006 in respect of audit related fees (2005 - $Nil)
Tax Fees
In each of the fiscal years 2006 and 2005, the Company paid $Nil and $Nil, respectively, for tax compliance, tax advice and related professional services rendered by the Company’s principal accounting firm.
All Other Fees
The Company did not pay any amounts in respect of other non-audit services in fiscal years 2006 and 2005.
58
Board Approval
The services rendered by the Company’s principal accounting firm were approved by the audit committee. Approval was based on an evaluation of past services and the need for these services in the current period, comparative analysis of rates and availability of service staff and management’s recommendation. Each service was specifically evaluated before an engagement was undertaken.
ITEM 16D:
EXEMPTION FROM THE LISTING STANDARDS FOR AUDIT COMMITTEE
Not applicable.
ITEM 16E:
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Not applicable.
PART III
ITEM 17:
FINANCIAL STATEMENTS
See the Financial Statements for the years ended July 31, 2006 and July 31, 2005 listed in Item 19 hereof and filed as part of this Annual Report.
These financial statements were prepared in accordance with generally accepted accounting principles in Canada and are expressed in Canadian dollars. Such financial statements contain a discussion of the material variations in the accounting principles, practices and methods used in preparing the financial statements from the principles, practices and methods generally accepted in the United States. For a history of exchange rates in effect for Canadian dollars as against U.S. dollars, see “Item 3: Key Information – A. Selected Financial Data - Exchange Rates.”
ITEM 18:
FINANCIAL STATEMENTS
Not applicable - see Item 17 "Financial Statements" above.
Item 19:
FINANCIAL STATEMENTS AND EXHIBITS
(a)
Financial Statements
Balance Sheets of the Company for the years ended July 31, 2006 and 2005, and Statements of Operations, Shareholders' Equity and Cash Flow for each of the years in the three year period ended July 31, 2006.
(a)
Exhibits
4.1
Service Contract with Resource Geosciences de Mexico S.A. de C.V.
4.2
4.3
Employee Contract Jean Pierre Jutras
4.4
Employee Contract Jennifer Munro
8.1
59
99.1
Bahuerachi Independent Report November 2006 – Filed as part of Form 6K on November 22, 2006
99.2
Management’s Discussion and Analysis for the year ended July 31, 2006
12.1
Certification of Jean Pierre Jutras pursuant to Rule 13a-14(a)
12.2
Certification of Jennifer Munro pursuant to Rule 13a-14(a).
13.1
Certification of Jean Pierre Jutras pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
13.2
Certification of Jennifer Munro pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
60
Tyler Resources Inc.
Consolidated
Financial Statements
July 31, 2006
Contents
Page
Auditors' Report
1
Consolidated Balance Sheets
2
Consolidated Statements of Operations and Deficit
3
Consolidated Statements of Cash Flows
4
Notes to the Consolidated Financial Statements
5-19
PricewaterhouseCoopers LLP | |
Chartered Accountants | |
111 5th Avenue SW, Suite 3100 | |
Calgary, Alberta | |
Canada T2P 5L3 | |
Telephone +1 (403) 509 7500 | |
November 17, 2006 | Facsimile +1 (403) 781 1825 |
Auditors’ Report | |
To the Shareholders of | |
Tyler Resources Inc. |
We have audited the consolidated balance sheets ofTyler Resources Inc. as at July 31, 2006 and 2005 and the consolidated statements of income and retained earnings and cash flows for the years then ended. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Canada and in accordance with 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 present fairly, in all material respects, the financial position of the company as at July 31, 2006 and 2005 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.
The consolidated financial statements as at July 31, 2004 and for the year then ended were audited by other auditors who expressed an opinion without reservation on those statements in their report dated October 12, 2004.
Chartered Accountants Calgary, Alberta |
PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP and the other member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.
Tyler Resources Inc.
Consolidated Balance Sheets
(Canadian dollars)
July 31
2006 | 2005 | |||||
ASSETS | ||||||
Current | ||||||
Cash and cash equivalents | $ | 2,224,922 | $ | 10,268,934 | ||
Accounts receivable Note 3 | 1,386,180 | 20,084 | ||||
Prepaids | 30,969 | 13,381 | ||||
3,642,071 | 10,302,399 | |||||
OTHER ASSETSNote 4 | 35,750 | 41,991 | ||||
CAPITAL ASSETSNote 5 | 67,999 | 76,447 | ||||
MINERAL PROPERTIESNote 6 | 16,268,836 | 9,834,155 | ||||
$ | 20,014,656 | $ | 20,254,992 | |||
LIABILITIES | ||||||
Current | ||||||
Accounts payable and accrued liabilities Note 12 | $ | 948,213 | $ | 319,119 | ||
Asset retirement obligationNote 7 | 55,590 | - | ||||
SHAREHOLDERS’ EQUITY | ||||||
CAPITAL STOCKNote 8 | ||||||
Authorized: | ||||||
i) an unlimited number of common voting shares | ||||||
ii) an unlimited number of preferred shares | ||||||
Issued: | ||||||
90,384,199 common shares (2005 - 86,698,929) | 23,109,538 | 21,620,259 | ||||
CONTRIBUTED SURPLUSNote 9 | 2,332,070 | 1,900,660 | ||||
WARRANTSNote 10 (iii) | 3,417,961 | 3,600,000 | ||||
DEFICIT | (9,848,716 | ) | (7,185,046 | ) | ||
19,010,853 | 19,935,873 | |||||
$ | 20,014,656 | $ | 20,254,992 |
Commitments Note 13
Subsequent Events Note 14
Approved by the Board
"Gregory Smith" | Director | "Jean Pierre Jutras" | Director |
Gregory Smith | Jean Pierre Jutras |
See accompanying notes to the consolidated financial statements.
2
Tyler Resources Inc.
Consolidated Statements of Operations and Deficit
(Canadian dollars)
Years Ended July 31
2006 | 2005 | 2004 | |||||||
INTEREST INCOME | $ | 226,308 | $ | 74,665 | $ | 25,460 | |||
EXPENSES | |||||||||
General and administrative | 1,067,910 | 1,577,687 | 829,382 | ||||||
Professional fees | 150,103 | 26,267 | 36,286 | ||||||
Reporting to shareholders | 55,317 | 12,311 | 13,228 | ||||||
Stock exchange, filing and transfer agent fees | 57,863 | 43,942 | 30,005 | ||||||
Depreciation | 20,993 | 18,216 | 8,594 | ||||||
Overhead recoveries | (18,303 | ) | - | (9,224 | ) | ||||
Abandonment and write-down of mineral properties | 1,528,387 | - | 261,959 | ||||||
Foreign exchange loss | 27,708 | 27,839 | - | ||||||
2,889,978 | 1,706,262 | 1,170,230 | |||||||
NET LOSS | $ | (2,663,670 | ) | $ | (1,631,597 | ) | $ | (1,144,770 | ) |
DEFICIT, beginning of year | (7,185,046 | ) | (5,553,449 | ) | (4,408,679 | ) | |||
DEFICIT, end of year | $ | (9,848,716 | ) | $ | (7,185,046 | ) | $ | (5,553,449 | ) |
LOSS PER SHARE | |||||||||
Basic and diluted | $ | (0.03 | ) | $ | (0.02 | ) | $ | (0.02 | ) |
WEIGHTED AVERAGE NUMBER OF SHARES | |||||||||
OUTSTANDING, basic and diluted | 89,604,118 | 76,498,828 | 51,960,480 |
See accompanying notes to the consolidated financial statements.
3
Tyler Resources Inc.
Consolidated Statements of Cash Flows
(Canadian dollars)
Years Ended July 31
2006 | 2005 | 2004 | |||||||
(DECREASE) INCREASE IN CASH AND | |||||||||
CASH EQUIVALENTS: | |||||||||
OPERATING ACTIVITIES | |||||||||
Interest and other income received | $ | 244,611 | $ | 74,665 | $ | 34,684 | |||
Cash operating expenses | (1,015,461 | ) | (362,399 | ) | (347,066 | ) | |||
(770,850 | ) | (287,734 | ) | (312,382 | ) | ||||
INVESTING ACTIVITIES | |||||||||
Mineral property expenditures | (8,472,309 | ) | (3,810,474 | ) | (1,034,307 | ) | |||
Option receipts net of finders’ fee | - | - | 42,500 | ||||||
Arbitration settlement | - | - | 546,247 | ||||||
Capital asset expenditures | (12,545 | ) | (44,927 | ) | (58,330 | ) | |||
(8,484,854 | ) | (3,855,401 | ) | (503,890 | ) | ||||
FINANCING ACTIVITIES | |||||||||
Private Placement proceeds net of issue costs | - | 9,723,294 | 3,068,296 | ||||||
Exercise of warrants and options | 1,239,400 | 2,352,333 | 129,750 | ||||||
Demand notes payable | - | - | (67,065 | ) | |||||
Proceeds on disposal of other assets | - | 19,825 | 27,837 | ||||||
Interest paid on notes payable | - | - | (6,067 | ) | |||||
1,239,400 | 12,095,452 | 3,152,751 | |||||||
FOREIGN EXCHANGE LOSS ON CASH HELD IN | |||||||||
FOREIGN CURRENCY | (27,708 | ) | (27,839 | ) | - | ||||
(DECREASE) INCREASE IN CASH AND | |||||||||
CASH EQUIVALENTS | (8,044,012 | ) | 7,924,478 | 2,336,479 | |||||
CASH AND CASH EQUIVALENTS: | |||||||||
Beginning of year | 10,268,934 | 2,344,456 | 7,977 | ||||||
End of year | $ | 2,224,922 | $ | 10,268,934 | $ | 2,344,456 | |||
Cash and cash equivalents consist of: | |||||||||
Balances with banks | 745,466 | 596,931 | 2,344,456 | ||||||
Short term deposits | 1,479,456 | 9,672,003 | - | ||||||
$ | 2,224,922 | $ | 10,268,934 | $ | 2,344,456 |
See accompanying notes to the consolidated financial statements.
4
Tyler Resources Inc.
Notes to the Consolidated Financial Statements
(Canadian dollars)
July 31, 2006
1.
Nature of Operations
Tyler Resources Inc. is engaged in the business of mineral exploration and development. Since inception, the efforts of the Company have been devoted to the acquisition, exploration and development of mineral properties. To date the Company has not received any revenue from mining operations and is considered to be in the development stage.
These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles and include the accounts of the Company and its wholly-owned Mexican subsidiary Recursos Tyler S.A. DE C.V.
Mineral properties are recognized in these financial statements in accordance with the accounting policies outlined in Note 2. Accordingly, their carrying values represent costs incurred to date, net of recoveries, abandonments and write-downs, and do not necessarily reflect present or future values. The recoverability of these amounts is dependent upon the existence of economically recoverable mineral reserves; the acquisition and maintenance of appropriate permits, licenses and rights; the ability of the Company to obtain necessary financing to complete the development of properties where appropriate, and upon future profitable operations; or alternatively, upon the Company’s ability to recover its costs through a disposition of its interests.
2.
Summary of Significant Accounting Policies
a)
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates that affect the reported amounts of assets, such as resource properties (see Note 1), and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
b)
Cash and Cash Equivalents
Cash and cash equivalents includes bank and brokerage deposits and bankers acceptances and treasury bills with maturities equal to or less than 90 days at the date of acquisition.
c)
Mineral Properties
Costs relating to the acquisition, exploration and development of mineral properties are capitalized on an area of interest basis. These expenditures will be charged against income, through unit of production depletion when properties are developed to the stage of commercial production. If an area of interest is abandoned, the related costs are written off to operations. A mineral property and deferred exploration cost is reviewed for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. When the carrying value of the property exceeds its estimated net recoverable amount, an impairment loss is recognized for the decline to the value.
Where the Company’s exploration commitments for an area of interest are performed under option agreements with a third party, the proceeds of any option payments under such agreements are applied to the area of interest to the extent of costs incurred. The excess, if any, is credited to operations. Option payments made by the Company are recorded as mineral property costs. Options are exercisable entirely at the discretion of the optionee and accordingly, are recorded as mineral property costs or recoveries when the payments are made or received.
d)
Capital Assets
Capital assets include computer hardware and software, equipment, furniture and fixtures, a vehicle and leaseholds which are recorded at historical cost. The declining-balance method is used to calculate amortization at rates of 20% to 30%.
5
Tyler Resources Inc.
Notes to the Consolidated Financial Statements
(Canadian dollars)
July 31, 2006
2.
Summary of Significant Accounting Policies(continued)
e)
Joint Interests
Certain of the Company's exploration and development activities are conducted jointly with others. These financial statements reflect only the Company's proportionate interest in such activities. Although the Company holds certain interests in mineral properties through joint venture agreements, none of its current operations are carried on through joint venture entities.
f)
Investments
Portfolio investments are carried at cost, less a provision for declines in value that are considered to be other than temporary.
g)
Loss Per Share
Basic loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding for the year. Diluted per share amounts reflect the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted to common shares. For the years presented this calculation proved to be anti-dilutive. The treasury stock method is used to determine the dilutive effect of stock options and other dilutive instruments. Under the treasury stock method only “in-the-money” dilutive instruments impact the dilution calculations.
h)
Stock-Based Compensation
The Company has a stock-based compensation plan which is described in Note 8(b)(i). The Company follows the “fair value” method of accounting for stock-based compensation arrangements, including stock options, whereby the fair value of the stock options is determined and recorded as compensation cost and a credit to contributed surplus when the options have vested. If the stock options are exercised, the proceeds are credited to share capital and the fair value at the date of the grant is reclassified from contributed surplus to share capital.
The fair value is determined using an option–pricing model that takes into account the exercise price and expected life of the option, the current price of the underlying stock, its expected volatility, the expected dividends on the stock, and the current risk-free interest rate for the expected life of the option.
i)
Warrants
The Company follows the “fair value” method of accounting for warrants, whereby the fair value of the warrants is determined and recorded as warrants when granted.
The fair value is determined using a pricing model that takes into account the exercise price and expected life of the warrant, the current price of the underlying stock, its expected volatility, the expected dividends on the stock, and the current risk-free interest rate for the expected life of the warrant.
j)
Income Taxes
Income taxes are recorded using the liability method of tax allocation. Future income taxes are calculated based on temporary timing differences arising from the difference between the tax basis of an asset or liability and its carrying value using tax rates anticipated to apply in the periods when the timing differences are expected to reverse. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that substantive enactment or enactment occurs. To the extent that the Company does not consider it more likely than not that a future tax asset will be recovered, it provides a valuation allowance against the excess.
6
Tyler Resources Inc.
Notes to the Consolidated Financial Statements
(Canadian dollars)
July 31, 2006
2.
Summary of Significant Accounting Policies(continued)
k)
Foreign Currency Translation
Monetary assets and liabilities are translated into Canadian dollars at the balance sheet date rate of exchange and non-monetary assets and liabilities are translated at historical rates. Income and expenses are translated at appropriate transaction date rates except for depreciation value, which is recorded at the historical rate. Gains and losses in translation are included in income.
The Company’s foreign subsidiary, Recursos Tyler S.A. DE C.V., is considered financially and operationally dependent on the parent Company and, as such, is accounted for as an integrated operation whereby its accounts are translated into Canadian dollars using the method noted above.
l)
Financial Instruments
The fair market value of the cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their carrying values as a result of the short-term nature of the instruments and/or the variable interest rate associated with the instrument. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency, or credit risks arising from these financial instruments.
m)
Asset Retirement Costs
The Company provides for future asset retirement obligations on its tangible long-lived assets based on current legislation and industry operating practices. The fair values of asset retirement obligations related to retirement of tangible long-lived assets that the Company is required to settle, are recognized as a liability in the period in which they are incurred. This includes obligations related to future removal of property and equipment, and site restoration costs. Such asset retirement cost are recognized at the fair value in the period in which it is incurred by adding that amount to the carrying amount of the asset and amortized as a charge to earnings on a systematic basis over its useful life. The amount of the liability will be subject to re-measurement annually. It is possible that the Company’s estimates of its ultimate reclamation and closure liabiliti es could change as a result of changes in regulations, the extent of environmental remediation required, and the means of reclamation or cost estimates. Changes in estimates are accounted for prospectively from the period the estimate is revised.
3.
Accounts Receivable
|
| 2006 |
| 2005 |
Value added tax receivable (“IVA”) (a) | $ | 1,218,101 | $ | - |
Due from related parties |
| 21,301 |
| - |
Other accounts receivable |
| 146,778 |
| 20,084 |
| $ | 1,386,180 | $ | 20,084 |
a)
The Company pays a 15% recoverable goods and services value added tax to the Government of Mexico, which is recoverable.
7
Tyler Resources Inc.
Notes to the Consolidated Financial Statements
(Canadian dollars)
July 31, 2006
4.
Other Assets
|
| 2006 |
| 2005 |
Long-term investments: |
|
|
|
|
Majescor Resources Inc. | $ | 35,750 | $ | 35,750 |
Long-term prepaid expense |
| - |
| 6,241 |
| $ | 35,750 | $ | 41,991 |
In each of the years ended July 31, 2005 and July 31, 2004 the Company received 100,000 common shares and 50,000 purchase warrants of Majescor Resources Inc. as option payments on the Carat mineral property. The warrants received in 2004 may be exercised at $0.40 per share to March 5, 2007 and the warrants received in 2005 may be exercised at $0.45 per share to January 22, 2008. The Company sold 50,000 shares during 2005 for total proceeds of $3,075. The Company held 150,000 (market value $18,000; 2005 - $25,500) shares and 100,000 warrants at July 31, 2006. No value was assigned to the warrants as management considered it unlikely that these warrants would be exercised before their expiry date.
5.
Capital Assets
|
| 2006 |
| 2005 |
Cost | $ | 115,112 | $ | 103,257 |
Accumulated amortization |
| 47,113 |
| 26,810 |
Net book value | $ | 67,999 | $ | 76,447 |
6.
Mineral Properties
2006 Exploration and development expenditures: |
| Mexico | Other |
Total | Bahuerachi | ||
Balance July 31, 2005 | $ 7,734,565 | $ 5,993,397 | $ 1,741,168 |
Geological consulting | 644,796 | 644,796 | - |
Drilling | 4,231,196 | 4,231,196 | - |
Drilling advances | 305,054 | 305,054 | - |
Camp costs | 1,167,498 | 1,167,498 | - |
Site preparation | 689,176 | 689,176 | - |
Project field costs | 202,347 | 202,347 | - |
Geophysical | 35,374 | 35,374 | - |
Geochemical | 420,850 | 420,850 | - |
Environmental | 27,133 | 27,133 | - |
Long lived asset (ARO) | 55,590 | 55,590 | - |
Write-downs and write-offs | (935,504) | - | (935,504) |
Balance July 31, 2006 | 14,578,069 | 13,772,405 | 805,664 |
|
|
|
|
Property acquisition costs: |
|
|
|
Balance July 31, 2005 | 2,099,590 | 1,208,365 | 891,225 |
Costs incurred | 184,060 | 182,689 | 1,371 |
Abandonment’s and write-offs | (592,883) | - | (592,883) |
Balance July 31, 2006 | 1,690,767 | 1,391,054 | 299,713 |
Total mineral properties July 31, 2006 | $ 16,268,836 | $ 15,163,459 | $ 1,105,377 |
8
Tyler Resources Inc.
Notes to the Consolidated Financial Statements
(Canadian dollars)
July 31, 2006
6.
Mineral Properties (continued)
2005 Exploration and development expenditures: |
| Mexico | Other |
Total | Bahuerachi | ||
Balance July 31, 2004 | $3,668,899 | $1,811,106 | $1,857,793 |
Geological consulting | 550,453 | 548,078 | 2,375 |
Drilling | 1,876,480 | 1,876,480 | - |
Drilling advances | 139,697 | 139,697 | - |
Camp costs | 429,709 | 429,709 | - |
Site preparation | 558,693 | 558,693 | - |
Project field costs | 305,870 | 305,870 | - |
Geophysical | 68,492 | 68,492 | - |
Geochemical | 159,530 | 159,530 | - |
Taxes and property maintenance | 22,184 | 22,184 | - |
Survey | 17,914 | 17,914 | - |
Environmental | 55,644 | 55,644 | - |
Option payments | (119,000) | - | (119,000) |
Balance July 31, 2005 | 7,734,565 | 5,993,397 | 1,741,168 |
|
|
|
|
Property acquisition costs: |
|
|
|
Balance July 31, 2004 | 2,015,084 | 1,123,859 | 891,225 |
Costs incurred | 84,506 | 84,506 | - |
Balance July 31, 2005 | 2,099,590 | 1,208,365 | 891,225 |
Total mineral properties July 31, 2005 | $9,834,155 | $7,201,762 | $2,632,393 |
Mexico
The principal exploration property in Mexico, Bahuerachi, is owned by the Company’s wholly-owned subsidiary Recursos Tyler SA de CV. Bahuerachi is located in the state of Chihuahua roughly eight kilometres north of the town of La Reforma, Sinaloa. Substantially all of the Company’s current efforts and resources are devoted to the exploration of this project. The base and precious metals of interest on the property include copper, gold, zinc, molybdenum and silver.
At July 31, 2006 the Company held a 95% interest in 2 of the 6 titles on the property. Pursuant to an option agreement with a Mexican national, (the “Optioner”), the remaining 5% property interest was convertible by the Company into a 10% net profits interest, which could be purchased by the Company for $700,000 USD. Under the terms of this option agreement the Company was required to pay $50,000 USD annually to the Optioner until the property commenced production. In October 2006, the Company purchased the 10% net profits interest extinguishing all future royalty obligations. All titles for the Bahuerachi project are now fully owned by the Company’s Mexican subsidiary.
Other
The Company has a 29.91% interest in the Carat property located in the Northwest Territories. The Company does not intend to carry out any future development on the property and has therefore reduced the carrying costs of the property to $Nil for a total write-off of $233,384.
The Company has a 50.1% interest in the Weedy Lake property located in Saskatchewan. Subsequent to year end, the property was sold to Golden Band Resources Inc. (“Golden Band”) for $1 million CAD plus 500,000 warrants, with each warrant exercisable to acquire one common share of Golden Band at a price of $0.55 per share until August 29, 2008. This subsequent selling price was used to determine the carrying value of the property as at July 31, 2006 and the difference between this price and the book value resulted in a write-down of $1,295,003.
9
Tyler Resources Inc.
Notes to the Consolidated Financial Statements
(Canadian dollars)
July 31, 2006
7.
Asset Retirement Obligations
The Company’s environmental permit for its Bahuerachi project establishes reclamation requirements for land disturbed during exploration. Although the ultimate amount of future site restoration costs to be incurred for existing exploration interests is uncertain, the Company has determined, with the assistance of a knowledgeable third party, its future reclamation obligation to be $51,000 USD at July 31, 2006. No obligation was recorded in fiscal 2005 as management determined the cost not to be material at that time.
8.
Capital Stock
a)
Common Shares Issued:
| 2006 | 2005 | 2004 | |||
| Number of Shares | $ | Number of Shares | $ | Number of Shares | $ |
Balance, beginning of year | 86,698,929 | $21,620,259 | 68,431, 439 | $13,051,242 | 38,294,939 | $ 9,050,246 |
Issued for acquisition of mineral properties | - | - | - | - | 13,336,000 | 800,000 |
Issued for cash: |
|
|
|
|
|
|
Private Placement (net of issue costs of $Nill; 2005 -$164,706; 2004 - $332,454) | - | - | 7,910,400 | 6,123,294 | 15,503,000 | 3,068,296 |
Exercise of options | 1,407,600 | 692,095 | 3,137,740 | 538,950 | 277,500 | 30,700 |
Exercise of warrants | 2,277,670 | 797,184 | 7,219,350 | 1,906,773 | 1,020,000 | 102,000 |
Balance, end of year | 90,384,199 | $23,109,538 | 86,698,929 | $21,620,259 | 68,431,439 | $13,051,242 |
During April, 2005 the Company completed a private placement of 7,910,400 units at $1.25 per unit for gross proceeds of $9,888,000. Officers, directors or their immediate family subscribed to 232,800 units. Each unit was comprised of one common share plus one warrant that may be exercised at $1.75 to acquire one common share in accordance with the terms detailed under note 10 Warrants, below. The warrants were allocated a value of $3,600,000. Finders’ fees of $115,500 were included in the $164,706 issue costs that were deducted from the private placement proceeds.
During December, 2003 the Company completed a private placement of 2,500,000 units at $0.06 per unit. Each unit was comprised of one common share and one share purchase warrant with the attributes described in note 10 below. During March, 2004 the Company completed a brokered private placement of 13,003,000 units at $0.25 per unit. Each unit was comprised of one common share and one-half of a share purchase warrant with the attributes described in note 10 below. Officers, directors or their immediate family subscribed to 313,333 units of the December, 2003 private placement and 125,000 units of the March 2004 private placement. Pursuant to the brokered private placement the Company granted options to the brokers (“Agent’s Options”) whereby the holder’s of the Agent’s Options may acquire 1,040,240 Units at $0.25 per unit until September 16, 2005. These units are comprised of 1,040,240 common shares and 520,120 warrants which may be exercised at $0.35 per share to acquire 520,120 common shares to September 16, 2005. During the 2006 fiscal year, brokers exercised options to acquire 240,800 common shares and 120,400 warrants (2005 – 795,240 options and 397,620 warrants). As at September 16, 2005, the options and warrants expired leaving 4,200 unexercised options.
10
Tyler Resources Inc.
Notes to the Consolidated Financial Statements
(Canadian dollars)
July 31, 2006
8.
Capital Stock(continued)
b)
Employee and Consultant Stock Options
i)
Employee and Consultant Options Outstanding
Expiry Date | Number of Shares | Price | ||
2006 | 2005 | 2004 | ||
January 23, 2006 | - | 225,000 | 1,057,500 | $0.10 |
January 29, 2007 | 58,200 | 75,000 | 75,000 | $0.12 |
July 22, 2007 | 1,125,000 | 1,450,000 | 1,500,000 | $0.35 |
May 2, 2008 | 375,000 | 600,000 | - | $1.54 |
December 15, 2008 | 730,000 | 730,000 | 2,190,000 | $0.10 |
January 5, 2009 | 40,000 | - | - | $1.05 |
January 29, 2009 | 1,175,000 | 1,500,000 | 1,500,000 | $0.20 |
February 9, 2009 | 200,000 | - | - | $1.09 |
April 6, 2009 | 50,000 | - | - | $0.94 |
December 16, 2009 | 925,000 | 1,300,000 | - | $0.65 |
February 7, 2010 | 70,000 | 70,000 | - | $1.54 |
June 13, 2010 | 200,000 | 200,000 | - | $1.18 |
July 20, 2010 | 200,000 | 200,000 | - | $1.00 |
October 11, 2010 | 100,000 | - | - | $1.35 |
| 5,248,200 | 6,350,000 | 6,322,500 |
|
The Company has an option plan, (the Plan), under which up to 10% of the issued and outstanding common shares are reserved for issuance. Under the Plan, the options that have been granted expire at the earlier of five years from the grant date, the date at which the Directors determine, or not more than 60 days from the date on which the optionee ceases to be a director, officer, employee or consultant. The Board shall, at the time an option is granted under this Plan, fix the exercise price to not be less than that permitted under the rules of any stock exchange or exchanges on which the shares are then listed.
The 70,000 options exercisable at $1.54 per share to February 7, 2010 were fully vested as of year end. The 200,000 options exercisable at $1.18 per share to June 13, 2010 vest in increments of 50,000 every six months commencing six months from the date of employment of June 13, 2005. The 250,000 options exercisable at $1.11 per share to October 2, 2007 vested in increments of 62,500 every three months commencing three months from the grant date of October 3, 2005 but were cancelled subsequent to the early conclusion of the investor relations contract. The 100,000 options exercisable at $1.35 per share to October 11, 2010 vest in twelve equal monthly instalments over a period of one year commencing one month from the grant date of October 12, 2005. The remainder of the options outstanding vested on the grant date. Refer to note 8(a) regarding Agent’s Options.
ii)
Option Transactions
| Number of Options |
| Weighted-Average Exercise Price |
As at July 31, 2003 | 1,360,000 |
| $0.10 |
Granted | 5,240,000 |
| $0.20 |
Exercised | (277,500) |
| $0.10 |
As at July 31, 2004 | 6,322,500 |
| $0.18 |
Granted | 2,370,000 |
| $0.97 |
Exercised | (2,342,500) |
| $0.11 |
As at July 31, 2005 | 6,350,000 |
| $0.50 |
Granted | 640,000 |
| $1.12 |
Exercised | (1,166,800) |
| $0.33 |
Expired | (575,000) |
| $1.20 |
As at July 31, 2006 | 5,248,200 |
| $0.54 |
Exercisable at July 31, 2006 | 5,139,867 |
|
|
11
Tyler Resources Inc.
Notes to the Consolidated Financial Statements
(Canadian dollars)
July 31, 2006
8.
Capital Stock(continued)
b)
Employee and Consultant Stock Options(continued)
iii) Stock-Based Compensation
Stock based compensation expense during the year ended July 31, 2006 was valued at $499,250 (2005 – $1,401,000; 2004 - $596,000) of which $118,000 (2005 - $208,100; 2004 - $Nil) is included in geological consulting in mineral properties and $381,250 (2005 - $1,192,900; 2004 - $596,000) is included in general and administrative expenses. The valuations were calculated in accordance with the Black-Scholes Option Pricing Model using the following assumptions:
| 2006 |
| 2005 |
| 2004 |
Risk-free interest rate | 3.66% |
| 3.53% |
| 3.87% |
Expected life of options | 2 to 3 years |
| 2 to 5 years |
| 3 to 5 years |
Annualized volatility | 101.96% |
| 119.99% |
| 122.27% |
Dividend rate | 0.00% |
| 0.00% |
| 0.00% |
9.
Contributed Surplus
|
| 2006 |
| 2005 |
| 2004 |
Balance July 31 | $ | 1,900,660 | $ | 593,050 | $ | - |
Warrants cancelled during the year |
| 182,039 |
| - |
| - |
Stock-based compensation Note 8b)iii) |
| 499,250 |
| 1,401,000 |
| 596,000 |
Options exercised during the year |
| (249,879) |
| (93,390) |
| (2,950) |
Balance July 31 | $ | 2,332,070 | $ | 1,900,660 | $ | 593,050 |
10.
Warrants
i) Warrants Outstanding
Issue Date | Expiry Date | Number of Warrants | Exercise Price | Fair Value Assigned | ||
2006 | 2005 | 2004 |
|
| ||
December 23, 2003 | December 23, 2004 | - | - | 2,480,000 | $0.10 | $Nil |
March 16, 2004 | September 16, 2005 | - | 2,159,770 | 6,501,500 | $0.35 | $Nil |
April 25, 2005 | April 26, 2007 | 3,617,800 | 4,017,800 | - | $1.75 | $1,828,489 |
April 27, 2005 | April 28, 2007 | 3,892,600 | 3,892,600 | - | $1.75 | $1,771,511 |
|
| 7,510,400 | 10,070,170 | 8,981,500 |
|
|
ii) Warrant Transactions
| 2006 |
| 2005 |
| 2004 | |||
| Number of Warrants | Weighted-Average Exercise Price |
| Number of Warrants | Weighted- Average Exercise Price |
| Number of Warrants | Weighted - Average Exercise Price |
Balance, beginning of year | 10,070,170 | 1.45 |
| 8,981,500 | 0.28 |
| 1,000,000 | 0.10 |
Granted | 120,400 | 0.35 |
| 8,308,020 | 1.68 |
| 9,001,500 | 0.28 |
Exercised | (2,277,670) | 0.35 |
| (7,219,350) | 0.26 |
| (1,020,000) | 0.10 |
Cancelled/Expired | (402,500) | 1.74 |
| - | - |
| - | - |
Balance, End of year | 7,510,400 | 1.75 |
| 10,070,170 | 1.45 |
| 8,981,500 | 0.28 |
Exercisable at end of year | 7,510,400 |
|
| 10,070,170 |
|
| 8,981,500 |
|
12
Tyler Resources Inc.
Notes to the Consolidated Financial Statements
(Canadian dollars)
July 31, 2006
10.
Warrants(continued)
iii) Warrant Values
|
| 2006 |
| 2005 |
| 2004 |
Balance July 31 | $ | 3,600,000 | $ | - | $ | - |
Warrants issued |
| - |
| 3,600,000 |
| - |
Warrants cancelled during the year |
| (182,039) |
| - |
| - |
Balance July 31 | $ | 3,417,961 | $ | 3,600,000 | $ | - |
Pursuant to the April, 2005 private placement, warrants exercisable at $1.75 per share were issued that may be exercised to acquire 4,017,800 and 3,892,600 common shares to April 26, 2007 and April 28, 2007 respectively. The Company has the option to demand early exercise of these warrants on or after October 26 and 28, 2005 respectively if the trading price of the common shares on the TSX Venture Exchange has exceeded $2.50 for a period of thirty consecutive trading days prior to the demand being made. Once demand to exercise has been made, the warrant holders have thirty days to exercise the warrants. Directors, officers and control persons subscribed to 232,800 of the Units pursuant to the April, 2005 private placements.
During the year, a total of 400,000 warrants at a price of $1.75 were tendered back to Tyler for immediate cancellation.
Warrants to purchase 6,501,500 common shares at $0.35 per share to September 16, 2005 were issued pursuant to the March, 2004 private placement. Pursuant to the March, 2004 private placement, Agents were granted options as outlined above that will allow the purchase of units comprised of common shares and warrants. These warrants, which could be exercised at $0.35 per share, expired September 16, 2005.
Warrants to purchase 2,500,000 common shares at $0.10 per share to December 23, 2004 were issued pursuant to the December 23, 2003 private placement.
The valuations were calculated in accordance with the Black-Scholes Option Pricing Model using the following assumptions:
| 2005 |
Risk-free interest rate | 3.04% |
Expected life of warrants | 2 years |
Annualized volatility | 116.50% |
Dividend rate | 0.00% |
Warrants granted in 2006 related to the Agent’s Options exercised (see Note 8a) were valued as $Nil. There were no warrants issued in 2004.
13
Tyler Resources Inc.
Notes to the Consolidated Financial Statements
(Canadian dollars)
July 31, 2006
11.
Income Taxes
a)
Following is a reconciliation of income taxes calculated at statutory rates to the actual income taxes recorded in the accounts:
2006 | 2005 | 2004 | |
Computed expected tax recovery at a combined Provincial and Federal rate of 34% (2005 & 2004–34%) | $ 919,000 | $ 555,000 | $ 389,000 |
Effect on income taxes resulting from: |
|
|
|
Non-deductible expenses | (133,000) | (408,000) | (204,000) |
Deductible capital items | - | 36,000 | 24,000 |
Non-recognition of losses and future tax benefits for financial statement purposes | (786,000) | (183,000) | (209,000) |
Future income tax recovery | $ - | $ - | $ - |
|
|
|
|
The net future income tax asset is comprised of: |
|
|
|
Tax value of resource properties in excess of book value | $ 603,000 | $ 179,000 | $ 94,000 |
Non-capital losses carried forward for income tax purposes | 616,000 | 451,000 | 302,000 |
Investments with tax values exceeding book values | - | - | 13,000 |
Share issue costs deductible for tax purposes | 67,000 | 113,000 | 92,000 |
| 1,286,000 | 743,000 | 501,000 |
Less valuation allowance | (1,286,000) | (743,000) | (501,000) |
Future income tax asset | $ - | $ - | $ - |
b)
The Company has incurred non-capital losses for income tax purposes of approximately $2,412,000 expiring at the following dates:
2007
$
100,000
2009
$ 180,000
2010
$
135,000
2014
$
349,000
2015
$
531,000
2026
$
1,117,000
12.
Related Party Transactions
Companies, related by virtue of certain common officers and directors, and corporations in which certain of the Company’s officers or directors are shareholders, have provided services for consideration summarized below:
|
| 2006 |
| 2005 |
| 2004 |
Geological and exploration | $ | 91,000 | $ | 98,000 | $ | 117,000 |
Direct administrative |
| 148,000 |
| 195,000 |
| 137,000 |
Office lease and operating |
| 45,000 |
| 35,000 |
| 22,000 |
| $ | 284,000 | $ | 328,000 | $ | 276,000 |
Included in the above related party transactions are amounts unpaid at July 31, 2006 of $6,000 (2005 - $6,000; 2004 - $19,000). These amounts are included in accounts payable and accrued liabilities.
Related party transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
14
Tyler Resources Inc.
Notes to the Consolidated Financial Statements
(Canadian dollars)
July 31, 2006
12.
Related Party Transactions(continued)
Overhead recoveries of $18,000 (2005 - $Nil; 2004 - $9,000) were charged to companies related by virtue of certain common officers and directors.
See also notes 8 and 13.
13.
Commitments
The Company is committed, pursuant to a sublease with a company related by virtue of certain common officers and directors, to pay its share of base office rent. The base rent for which it is committed aggregates $37,414 in fiscal 2007 and $52,332 in fiscal 2008 to 2011. The Company is also required to pay its share of annual associated lease operating costs which are expected to approximate $15,871 in fiscal 2007 and $22,488 in fiscal 2008 to 2011.
During the year, the Company entered into drilling contracts with third party drilling companies and committed to a maximum expenditure of approximately $2,651,000 USD of diamond drilling and/or reverse circulation drilling. As of July 31, 2006, $1,990,000 USD has been incurred, leaving $661,000 USD remaining on the contracts.
Pursuant to an occupation agreement signed in June 2006, the Company is required to make annual surface rights payments of $166,000 Pesos (approximately $17,000) in June of each year for 10 years (to 2016) to a third party. The first payment also included paying for the previous two years and totaled $498,000 Pesos (approximately $49,000), which was paid in June 2006.
14.
Subsequent Events
In August 2006, the Company sold its 50.1% interest in the Weedy Lake property in Saskatchewan to Golden Band Resources Inc. Total consideration for the sale of Tyler’s interest consisted of $1,000,000 CDN, as well as 500,000 common share purchase warrants, with each warrant exercisable to acquire one common share of Golden Band at a price of $0.55 per share until August 29, 2008. The warrants received on the sale were valued using the Black-Scholes Option Pricing Model to be $87,000. This subsequent selling price was used to determine the carrying value of the property as at July 31, 2006 and the difference between this price and the book value resulted in a write-down of $1,295,003. The disposition is part of the Company’s continuing commitment to streamline the Company and focus on its ongoing, active exploration program in Mexico.
In October 2006, the Company entered into an agreement with Jennings Capital Inc. on a “best efforts” basis, to lead a brokered private placement of up to 2,041 units at $980 per unit for an aggregate of $2,000,180. The financing allows for an over allotment of up to 510 units and is scheduled to close late November 2006. The proceeds from the offering will be used to further the Company’s Bahuerachi project in Mexico and for working capital purposes.
In October 2006, the Company purchased the 10% net profits interest and finalized all documents required to file its 100% interest in the Bahuerachi claim, thus terminating the commitment for future royalty obligations.
15.
Comparative Amounts
Certain comparative amounts have been reclassified to conform to presentation adopted in the current year.
15
Tyler Resources Inc.
Notes to the Consolidated Financial Statements
(Canadian dollars)
July 31, 2006
16.
Reconciliation between Canadian and United States Generally Accepted Accounting Principles
The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”), which differ in certain material respects from those principles that the Company would have followed had its financial statements been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”). Had the Company followed U.S. GAAP, certain items on the financial statements of loss and deficit, and balance sheets would have been reported as follows:
Consolidated Statements of Operations and Deficit
For the years ended July 31, | 2006 $ | 2005 $ | 2004 $ |
Net loss as shown in the financial statements | (2,663,670) | (1,631,597) | (1,144,770) |
Adjustments to: |
|
|
|
Exploration property expenditures(a) | (7,963,091) | (4,269,172) | (1,673,569) |
Abandonments of property costs (a) | 1,528,387 | - | 261,959 |
Mineral property recoveries (a) | - | 119,000 | 629,747 |
Adjust write-offs and loss on sale of investments previously written-down for Canadian GAAP(c) | - | (15,260) | (33,618) |
Net loss according to U.S. GAAP | (9,098,374) | (5,797,029) | (1,960,251) |
Comprehensive loss (d) | (9,105,849) | (5,779,513) | (1,945,134) |
Net loss per share (U.S. GAAP, basic and diluted) | (0.10) | (0.08) | (0.04) |
Consolidated Balance Sheets
For the years ended July 31, | 2006 | 2005 | ||
| Canadian GAAP $ | U.S. GAAP $ | Canadian GAAP $ | U.S. GAAP $ |
Assets |
|
|
|
|
Current assets (c) | 3,642,071 | 3,642,079 | 10,302,399 | 10,302,405 |
Other assets (c) | 35,750 | 18,000 | 41,991 | 31,741 |
Capital assets | 67,999 | 67,999 | 76,447 | 76,447 |
Mineral properties (a) | 16,268,836 | - | 9,834,155 | - |
| 20,014,656 | 3,728,078 | 20,254,992 | 10,410,593 |
Liabilities and shareholders’ equity |
|
|
| |
Current liabilities | 948,213 | 948,213 | 319,119 | 319,119 |
Long term liabilities | 55,590 | 55,590 | - | - |
Shareholders’ equity |
|
|
|
|
Capital stock | 23,109,538 | 23,096,538 | 21,620,259 | 21,607,259 |
Contributed surplus (b) | 2,332,070 | 2,477,070 | 1,900,660 | 2,045,660 |
Warrants | 3,417,961 | 3,417,961 | 3,600,000 | 3,600,000 |
Accumulated other comprehensive income (c &d) | - | (17,742) | - | (10,267) |
Deficit | (9,848,716) | (26,249,552) | (7,185,046) | (17,151,178) |
Total shareholders’ equity | 19,010,853 | 2,724,275 | 19,935,873 | 10,091,474 |
| 20,014,656 | 3,728,078 | 20,254,992 | 10,410,593 |
16
Tyler Resources Inc.
Notes to the Consolidated Financial Statements
(Canadian dollars)
July 31, 2006
16.
Reconciliation between Canadian and United States Generally Accepted Accounting Principles(continued)
Consolidated Statements of Comprehensive Loss
For the years ended July 31, | 2006 $ | 2005 $ | 2004 $ |
Net loss, US GAAP | (9,098,374) | (5,797,029) | (1,960,251) |
Change in net unrealizable gains on available-for-sale investments | (7,475) | (4,004) | (15,513) |
Realized portion of loss regarding investments sold during the year | - | 21,520 | 30,630 |
Comprehensive loss (d) | (9,105,849) | (5,779,513) | (1,945,134) |
Consolidated Statements of Cash Flows
For the years ended July 31, | 2006 | 2005 | 2004 | |||
Canadian GAAP $ | U.S. GAAP $ | Canadian GAAP $ | U.S. GAAP $ | Canadian GAAP $ | U.S. GAAP $ | |
Operating activities (a) | (770,850) | (9,243,159) | (287,734) | (4,098,208) | (312,382) | (1,346,689) |
Investing activities (a) | (8,484,854) | (12,545) | (3,855,401) | (44,927) | (503,890) | 530,417 |
Financing activities | 1,239,400 | 1,239,400 | 12,095,452 | 12,095,452 | 3,152,751 | 3,152,751 |
Foreign exchange gain | (27,708) | (27,708) | (27,839) | (27,839) | - | - |
Cash and cash equivalents, beginning of year | 10,268,934 | 10,268,934 | 2,344,456 | 2,344,456 | 7,977 | 7,977 |
Cash and cash equivalents, end of year | 2,224,922 | 2,224,922 | 10,268,934 | 10,268,934 | 2,344,456 | 2,344,456 |
a)
Mineral properties
Under Canadian GAAP the costs relating to the acquisition and exploration of mineral properties are capitalized on an area of interest basis and charged against income through unit-of-production depletion, when properties are developed to the stage of commercial production. The costs relating to abandoned properties, and costs related to properties which the Company has assessed as not viable, based on the price of metals/minerals and general economic and market conditions, are charged to “other expenses” in the year in which such determination is made.
Under U.S. GAAP the costs relating to mineral properties as defined above, which have not led to the identification of a commercially feasible property, are expensed in the year incurred and are charged to income (loss) from operations.
b)
Stock-based compensation
Prior to August 1, 2002, the Company did not recognize compensation expense when stock options were granted. Under U.S. GAAP, FAS 123, Accounting for Stock-Based Compensation, required compensation expense to be recognized for stock options granted in its fiscal 2001 and 2002 years. Therefore, the stock compensation expense for options granted prior to August 1, 2002 is included under U.S. GAAP causing the difference of $145,000 in contributed surplus between Canadian and U.S. GAAP.
17
Tyler Resources Inc.
Notes to the Consolidated Financial Statements
(Canadian dollars)
July 31, 2005
16.
Reconciliation between Canadian and United States Generally Accepted Accounting Principles(continued)
c)
Investments
Under Canadian GAAP, portfolio investments in shares of public companies have been recorded at the lesser of cost and fair market value. Under U.S. GAAP, the Company’s investments are classified as available-for-sale investments under FAS No. 115,Accounting for Certain Investments in Debt and Equity Securities. As a result, the investments are recorded at fair value on the balance sheet, with unrealized holding gains and losses excluded from the determination of earnings and reported as a separate component of comprehensive income. Included in other assets is an investment in Majescor Resources Inc. with a fair value of $18,000 at July 31, 2006 (2005 - 25,500; 2004 - $21,000). An adjustment is made to comprehensive income on sale or impairment of the investment.
d)
Comprehensive income
Comprehensive income is measured in accordance with FAS No. 130,Reporting Comprehensive Income. This standard defines comprehensive income as all changes in equity other than those resulting from investments by owners and distributions to owners. Comprehensive income comprises of net earnings and other comprehensive income where other comprehensive income is the change in equity during the period that arises from transactions and other events that are related to non-owner sources. See the impending accounting changes (e) below for the new Canadian standard.
e)
Impending Accounting Changes
Canadian GAAP
In April 2005, the CICA approved Handbook Section 1530,Comprehensive Income. The new standard is intended to harmonize Canadian GAAP with U.S. GAAP. This section applies to fiscal years beginning on or after October 1, 2006, and is therefore effective for the Company in fiscal 2008.
In July 2006, the CICA issued section 1506,Changes in Accounting Policies and Estimates, and Errors to replace the existing Section 1506, Accounting Changes. This section applies to fiscal years beginning on or after January 1, 2007, and is therefore effective for the Company in fiscal 2008.
In April 2005, the CICA approved Handbook Section3855,Financial Instruments -Recognition and Measurement. The new standard is intended to harmonize Canadian GAAP with U.S. GAAP. The new standard prescribes when a financial asset, financial liability, or non-financial derivative is to be recognized on the balance sheet as well as its measurement amount. This Section also specifies how financial instruments gains and losses are to be presented. This section applies to fiscal years beginning on or after October 1, 2006, and is therefore effective for the Company in fiscal 2008.
United States GAAP
FAS 154,Accounting Changes and Error Corrections, changes the requirements for the accounting for and reporting of a change in accounting principle. FAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Therefore the new standard is effective for the Company in fiscal 2007.
In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“FAS”) No. 123(R),Share Based Payment, a revision to FAS 123, Accounting for Stock-Based Compensation. This standard requires all share based payments (including employee stock options) to be measured at fair value and included in earnings. FAS No. 123(R) is effective at the beginning of the first interim or annual reporting period commencing after December 15, 2005. The Company adopted a policy of recognizing the cost of stock options at the beginning of fiscal 2002 and as a result anticipates no impact on our consolidated results of operations and financial conditions when FAS 123(R) becomes effective.
18
Tyler Resources Inc.
Notes to the Consolidated Financial Statements
(Canadian dollars)
July 31, 2005
16.
Reconciliation between Canadian and United States Generally Accepted Accounting Principles(continued)
e)
Impending Accounting Changes (continued)
In July 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement 109. This interpretation applies to all tax positions related to income taxes subject to SFAS 109, Accounting for Income Taxes. FIN 48 creates a single model to address uncertainty in tax positions and clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 is effective for fiscal years beginning after December 15, 2006, and is therefore effective for the Company in fiscal 2008.
19
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing the Amendment to its original filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
DATED at Calgary, Alberta, this 17th day of November, 2006.
TYLER RESOURCES INC.
/s/ Jean Pierre Jutras
By:
Jean Pierre Jutras
President/Director/Chief Executive Officer
Exhibit 12.1
FORM OF CERTIFICATION
PURSUANT TO RULE 13a-14 AND 15d-14
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
CERTIFICATIONS
I, Jean Pierre Jutras, certify that:
1.
I have reviewed this annual report on Form 20-F of Tyler Resources Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and we have:
(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles
(c)
evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
5.
The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):
(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize, and report financial information; and
(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting.
Date: November 17, 2006
/s/ Jean Pierre Jutras
Name:
Jean Pierre Jutras
Title:
President/Chief Executive Officer
Exhibit 12.2
FORM OF CERTIFICATION
PURSUANT TO RULE 13a-14 AND 15d-14
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
CERTIFICATIONS
I, Jennifer Munro, certify that:
1.
I have reviewed this annual report on Form 20-F of Tyler Resources Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and we have:
(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles
(c)
evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
5.
The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):
(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize, and report financial information; and
(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting.
Date: November 17, 2006
/s/ Jennifer Munro
Name:
Jennifer Munro
Title:
Chief Financial Officer
Exhibit 13.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the report of Tyler Resources Inc. (the “Company”) on Form 20-F for the financial year ended July 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
November 17, 2006
/s/ Jean Pierre Jutras
By: Jean Pierre Jutras
President/Chief Executive Officer
Exhibit 13.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the report of Tyler Resources Inc. (the “Company”) on Form 20-F for the financial year ended July 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
November 17, 2006
/s/ Jennifer Munro
By: Jennifer Munro
Chief Financial Officer