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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
[X] REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR (G) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[_] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED ______________________________________________
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________________ TO __________________
Commission file number _________
TLC Ventures Corp.
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(Exact name of Registrant as specified in its charter)
Not Applicable
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(Translation of Registrant's name into English)
British Columbia
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(Jurisdiction of incorporation or organization)
Suite 285, 200 Granville Street, Vancouver, British Columbia, Canada, V6C 1S4
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(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class Name of each exchange on which registered
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None N/A
Securities registered or to be registered pursuant to Section 12(g) of the Act.
Common Shares Without Par Value
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(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
None
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(Title of Class)
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2
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: 19,454,001 Common Shares at December 31, 2004.
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 [_] No [X]
Indicate by check mark which financial statement item the registrant has elected
to follow.
[X] Item 17 [_] Item 18
3
TABLE OF CONTENTS
GLOSSARY
PART I........................................................................6
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS............6
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE..........................7
ITEM 3. KEY INFORMATION..................................................7
ITEM 4. INFORMATION ON US...............................................13
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS....................22
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES......................31
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS...............36
ITEM 8. FINANCIAL INFORMATION...........................................37
ITEM 9. THE OFFER AND LISTING...........................................38
ITEM 10. ADDITIONAL INFORMATION..........................................38
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.......49
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES..........49
PART II......................................................................49
ITEM 13. DEFAULTS, DIVIDENDS ARREARAGES AND DELINQUENCIES................49
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
USE OF PROCEEDS.................................................49
ITEM 15. CONTROLS AND PROCEDURES.........................................49
ITEM 16. AUDIT COMMITTEE FINANCIAL EXPERT ITEM 16B. CODE OF ETHICS
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES...............49
PART III.....................................................................49
ITEM 17. FINANCIAL STATEMENTS............................................49
ITEM 18. ................................................................69
ITEM 19. EXHIBITS........................................................70
4
INTRODUCTION AND USE OF CERTAIN TERMS
TLC Ventures Corp. is a company incorporated under the BUSINESS CORPORATIONS ACT
(British Columbia). It was incorporated on January 15, 1969 under the COMPANY
ACT (British Columbia). As used herein, except as the context otherwise
requires, the terms "us", "we" or "our" refer to TLC Ventures Corp. Our
financial statements are prepared in accordance with Canadian generally accepted
accounting principles with a reconciliation to United States Generally Accepted
Accounting Principles and are presented in Canadian dollars. All monetary
amounts contained in this Registration Statement are in Canadian dollars unless
otherwise indicated.
Our North American office and principal place of business is located at Suite
285, 200 Granville Street, Vancouver, British Columbia, Canada, V6C 1S4. Our
registered office is located at Suite 1400, 1055 West Hastings Street,
Vancouver, British Columbia, Canada, V6E 2E9.
FORWARD-LOOKING STATEMENTS
The following discussion contains forward-looking statements regarding events
and financial trends, which may affect our future operating results and
financial position. Such statements are subject to risks and uncertainties that
could cause our actual results and financial position to differ materially from
those anticipated in forward-looking statements. These factors include, but are
not limited to, the fact that we will need additional financing to fully execute
our business plan and our business is subject to certain risks. We make
cautionary statements in the "Risk Factors" section of this registration
statement (see Item 3. Key Information - Risk Factors) and in other parts herein
(see Item 5. Operating and Financial Review and Prospects). You should read
these cautionary statements as being applicable to all related forward-looking
statements wherever they appear in this registration statement.
When used in this Registration Statement, the words "estimate," "intend,"
"expect," "anticipate" and similar expressions are intended to identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these statements, which speak only as of the date of this Registration
Statement. These statements are subject to risks and uncertainties that could
cause results to differ materially from those contemplated in such
forward-looking statements.
5
GLOSSARY
The following is a glossary of terms that appear in this Registration Statement.
AG The elemental symbol for silver.
AU The elemental symbol for gold.
COMMON SHARES Common Shares without par value in our capital
stock.
CU The elemental symbol for copper.
DEVELOPMENT Preparation of a mineral deposit for commercial
production including installation of plant and
machinery and the construction of all related
facilities.
EXPLORATION The prospecting, diamond drilling and other work
involved in the searching for ore bodies.
FRACTURE Breaks in a rock, usually due to intensive
folding or faulting.
G/T Grams per tonne (31.1 g/T = 1.0 troy
ounce/tonne).
GRADE The concentration of each ore metal in a rock
sample, usually given as weight percent. Where
extremely low concentrations are involved, the
concentration may be given in grams per tonne
(g/T) or ounces per ton (oz/T). The grade of an
ore deposit is calculated, often using
sophisticated statistical procedures, as an
average of the grades of a very large number of
samples collected from throughout the deposit.
MINERAL RESERVE That part of a mineral deposit which could be
economically and legally extracted or produced
at the time of the reserve determination. The
economically mineable part of a measured or
indicated mineral resource demonstrated by at
least a preliminary feasibility study. The study
must include adequate information on mining,
processing, metallurgical, economic and other
relevant factors that demonstrate, at the time
of reporting, that economic extraction can be
justified. A mineral reserve includes diluting
materials and allowances for losses that may
occur when the material is mined.
MINERAL RESOURCE A concentration or occurrence of natural, solid,
inorganic or fossilized organic material in or
on the Earth's crust in such form and quantity
and of such a grade or quality that it has
reasonable prospects for economic extraction.
The location, quantity, grade, geological
characteristics and continuity of a mineral
resource are known, estimated or interpreted
from specific geological evidence and knowledge.
MINERALIZATION Usually implies minerals of value occurring in
rocks.
NET SMELTER RETURNS ROYALTY Payment of a percentage of mining revenues after
OR NSR deducting applicable smelter charges.
ORE A natural aggregate of one or more minerals
which may be mined and sold at a profit, or from
which some part may be profitably separated.
OUTCROP An exposure of rock at the earth's surface.
OZ/T Troy ounces per tonne.
TONNE OR "T" Metric ton = 1,000 kilograms or 1,000,000 grams.
TRENCH A surficial excavation designed to expose
bedrock for sampling.
VEINS The mineral deposits that are found filling
openings in rocks created by faults or replacing
rocks on either side of faults.
ZN The elemental symbol for zinc.
6
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
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DIRECTORS AND SENIOR MANAGEMENT
The following table sets forth the names, business addresses and functions of
our directors and senior management.
NAME BUSINESS ADDRESS POSITION
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Dr. Sally L. Eyre Suite 285, 200 Granville Street Chief Executive Officer, Director
Vancouver, British Columbia and Audit Committee Member
Canada
V6C 1S4
Douglas B. Forster Suite 285, 200 Granville Street Director and Audit Committee
Vancouver, British Columbia Member
Canada
V6C 1S4
Dr. Richard Henley 131 Poppet Road Director, Chairman and Audit
Wamboin NSW Committee Member
2620,
Australia
John Reynolds Suite 285, 200 Granville Street Director
Vancouver, British Columbia
Canada
V6C 1S4
Jeffrey P. Franzen Suite 285, 200 Granville Street Director
Vancouver, British Columbia
Canada
V6C 1S4
Edward Farrauto Suite 700, 900 West Hastings Street Chief Financial Officer
Vancouver, British Columbia
Canada
V6C 1E5
Blayne Johnson Suite 285, 200 Granville Street Vice President, Corporate
Vancouver, British Columbia Development
Canada
V6C 1S4
David Toyoda Suite 1400, 1055 West Hastings Street Secretary
Vancouver, British Columbia
Canada
V6E 2E9
ADVISERS
Our legal advisers are Catalyst Corporate Finance Lawyers. Their address is
Suite 1400, 1055 West Hastings Street, Vancouver, British Columbia, Canada, V6E
2E9.
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INDEPENDENT AUDITORS
Our independent auditors are Staley Okada & Partners. Their address is Suite
400, 889 West Pender St., Vancouver, British Columbia, Canada, V6C 3B2.
Our registrar and transfer agent is Pacific Corporate Trust Company. Their
address is 10th Floor, 625 Howe Street, Vancouver, British Columbia, Canada, V6C
2B8.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
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Not applicable.
ITEM 3. KEY INFORMATION
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SELECTED FINANCIAL DATA
The following table sets forth our selected financial information, which has
been derived from our financial statements included in this Registration
Statement prepared in accordance with Canadian Generally Accepted Accounting
Principles which conforms to United States Generally Accepted Accounting
Principles ("U.S. GAAP") except as disclosed in Note 17 to the financial
statements included herein. Information for the 12 months ended December 31,
2004, 2003 and 2002 are derived from audited financial statements, which are
included elsewhere in this Registration Statement. The financial data should be
read in conjunction with our financial statements and notes thereto and Item 5.
Operating and Financial Review and Prospects.
YEAR ENDED DECEMBER 31
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2004 2003 2002 2001 2000
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Revenue $ 0 $ 0 $ 0 $ 0 $ 0
Total Expenses $ (1,674,678) $ (210,512) $ (63,005) $ (70,090) $ (55,187)
Other Income (Loss) $ (26,420) $ (101,842) $ 858 $ 401 $ 817
Net Loss $ (1,701,098) $ (312,354) $ (62,147) $ (69,689) $ (54,370)
Basic and Diluted
Loss per Share $ (0.10) $ (0.04) $ (0.01) $ (0.01) $ (0.01)
Weighted Average
Common Shares
Outstanding 16,971,078 8,704,001 8,433,590 6,386,193 5,540,302
Balance Sheet
Total Assets $ 7,180,909 $ 460,869 $ 275,465 $ 161,511 $ 64,481
Total Liabilities $ (44,774) $ (18,375) $ (113,856) $ (55,255) $ (6,036)
Working Capital $ 6,317,240 $ 442,494 $ (79,911) $ 16,736 $ 18,925
Shareholders' Equity $ 7,136,135 $ (17,506) $ 161,609 $ 106,256 $ 58,445
Under U.S. GAAP, all amounts in the foregoing table remain the same except the
following:
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YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2004 2003 2002
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Net Loss $ (2,462,319) $ (70,834) $ (214,147)
Loss per Share $ (0.15) $ (0.01) $ (0.03)
Total Assets $ 6,419,688 $ 460,869 $ 33,945
Shareholders' Equity $ 6,374,914 $ 223,744 $ 79,641
8
CURRENCY EXCHANGE RATES
In this registration statement all references to dollars ($) are expressed in
Canadian funds, unless otherwise indicated. On March 31, 2005, the Interbank
rate of exchange for converting United States dollars into Canadian dollars
equalled 1.2173 United States dollars for one Canadian dollar. The following
table presents a history of the high and low exchange rates of United States
dollars into Canadian dollars for the previous six months.
MONTH HIGH LOW
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March 2005 1.4929 1.1198
February 2005 1.2566 1.2299
January 2005 1.2383 1.1987
December 2004 1.2376 1.1899
November 2004 1.2230 1.1774
October 2004 1.2725 1.2197
The following table presents a five-year history of the average annual exchange
rates of United States dollars into Canadian dollars, calculated by using the
average of the exchange rates on the last day of each month during the given
year.
YEAR AVERAGE EXCHANGE RATE
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2004 1.30152
2003 1.40146
2002 1.57036
2001 1.54841
2000 1.48520
CAPITALIZATION
The following table sets forth our capitalization as of the dates indicated:
AMOUNT OUTSTANDING AS OF AMOUNT OUTSTANDING AS AT
DECEMBER 31, 2004 FEBRUARY 28, 2005 (UNAUDITED)
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Indebtedness $44,774 $53,585
Common Shares (authorized - $14,593,350 (19,454,001 $14,593,350
unlimited common shares) shares) (19,454,001 shares)
Contributed Surplus $Nil $Nil
Deficit $(7,457,215) $(7,493,042)
Total $ 7,136,135 $7,100,308
Diluted Share Capital
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Assuming that all our outstanding options and other rights to purchase Common
Shares are exercised and assuming the remaining Common Shares issuable to
Rubicon as payment for the Property (see "Item 4, Information on the Company")
(the "Property Shares") are issued, our fully-diluted share capital will be
24,564,001 Common Shares, comprised of the following:
NUMBER OF COMMON SHARES
DESCRIPTION (UNAUDITED)
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Outstanding as of February 28, 2005 19,454,001
Share Purchase Warrants 3,200,000
Options 1,760,000
Property Shares 150,000
Total 24,564,001
9
RISK FACTORS
The following is an overview of certain risks and uncertainties to be considered
in relation to our business, prospects and results of operations, in addition to
the risks discussed elsewhere in this registration statement. Specific risk
factors to be considered are as follows:
Risk Factors Relating to the Our Property Interests
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1. THE PROPERTIES IN WHICH WE HAVE AN INTEREST ARE IN THE EXPLORATION STAGE
AND MOST EXPLORATION PROJECTS DO NOT RESULT IN THE DISCOVERY OF
COMMERCIALLY MINEABLE DEPOSITS. All of our property interests are at the
exploration stage and there are no known commercial quantities of minerals
or precious gems on such properties. Most exploration projects do not
result in the discovery of commercially mineable deposits of ores or gems.
Because the probability of an individual prospect ever having reserves is
extremely remote, in all probability our properties do not contain any
reserves, and any funds spent on exploration will be lost. Our failure to
find an economic mineral deposit on any of our mineral properties will
have a negative effect on us.
2. THE PROPERTIES IN WHICH WE HAVE AN INTEREST ARE IN CANADA. Any changes in
governmental laws, regulations, economic conditions or shifts in political
attitudes or stability in Canada are beyond our control and may adversely
affect our business. See Item 4. Information on the Company - Business
Overview - Carrying on Business in Canada.
3. THERE ARE NO GUARANTEE LICENSES AND PERMITS REQUIRED BY US WILL BE
OBTAINED WHICH MAY RESULT IN LOSING OUR INTEREST IN THE SUBJECT PROPERTY.
Our operations may require licenses and permits from various governmental
authorities. We may not be able to obtain all necessary licenses and
permits that may be required to carry out exploration, development and
mining operations at our projects. Failure to obtain such licenses and
permits may adversely affect our business, as we would be unable to
legally conduct our intended exploration work, which may result in losing
our interest in the subject property.
4. ENVIRONMENTAL REGULATIONS ARE BECOMING MORE ONEROUS TO COMPLY WITH AND THE
COST OF COMPLIANCE WITH ENVIRONMENTAL REGULATIONS AND CHANGES IN SUCH
REGULATIONS MAY REDUCE THE PROFITABILITY OF OUR OPERATIONS. Our operations
are subject to environmental regulations promulgated by government
agencies from time to time. Environmental legislation provides for
restrictions and prohibitions of spills, release or emission of various
substances produced in association with certain mining industry
operations, such as seepage from tailing disposal areas, which could
result in environmental pollution. Failure to comply with such legislation
may result in the imposition of fines and penalties. In addition, certain
types of operations require submissions to and approval of environmental
impact assessments. Environmental legislation is evolving in a manner,
which means stricter standards, and enforcement, fines and penalties for
non-compliance are more stringent. Environmental assessments of proposed
projects carry a heightened degree of responsibility for companies and
directors, officers and employees. The cost of compliance with
environmental regulations and changes in such regulations may reduce the
profitability of our operations.
Risk Factors Relating to Us
- ---------------------------
5. VALUES ATTRIBUTED TO OUR ASSETS MAY NOT BE REALIZABLE AS WE HAVE NO PROVEN
HISTORY AND OUR ABILITY TO CONTINUE AS A GOING CONCERN DEPENDS UPON A
NUMBER OF SIGNIFICANT VARIABLES. The amounts attributed to our mineral
properties in our financial statements represent acquisition and
exploration costs and should not be taken to represent realizable value.
Further, we have no proven history of performance, revenues, earnings or
success. As such, our ability to continue as a going concern is dependent
upon the existence of economically recoverable resources, our ability to
obtain the necessary financing to complete the development of our
interests and future profitable production or alternatively, and upon our
ability to dispose of our interests on a profitable basis.
6. WE HAVE NO REVENUES AND WE EXPECT TO INCUR SUBSTANTIAL OPERATING LOSSES.
Over the past several fiscal years, we have not generated any revenues
from operations. Generating revenues depends significantly on our ability
to successfully explore and develop our properties
7. WE ARE DEPENDENT ON OUR KEY PERSONNEL. We are dependent upon the continued
availability and commitment of our key management and consultants, whose
contributions to our immediate and future operations are of central
importance. We rely on our Chief Executive Officer, Dr. Sally L. Eyre, and
our other officers, for our day-to-day operation, our projects and the
execution of our business plan. We have
10
not obtained "key man" insurance for any of our management or consultants
and we do not have employment agreements with any of our executive
officers, other than Dr. Sally L. Eyre.
8. WE DO NOT PAY DIVIDENDS. Payment of dividends on our shares is within the
discretion of our Board and will depend upon our future earnings, our
capital requirements and financial condition, and other relevant factors.
We do not currently intend to declare any dividends for the foreseeable
future.
9. OUR DIRECTORS AND OFFICERS MAY HAVE CONFLICTS OF INTEREST, WHICH MAY NOT
BE RESOLVED IN OUR FAVOUR, WHICH IN TURN MAY ADVERSELY AFFECT US. None of
our directors or officers, other than Dr. Eyre, devote their full time to
our affairs. Most of our directors and officers are also directors,
officers and shareholders of other natural resource or public companies,
as a result of which they may find themselves in a position where their
duty to another company conflicts with their duty to us. There is no
assurance that any such conflicts will be resolved in our favour. If any
of such conflicts are not resolved in our favour, we may be adversely
affected. See Item 6. Directors, Senior Management and Employees for
details of other companies that our officers and directors are involved
with.
Risk Factors Relating to Title on Properties
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10. TITLE TO THE PROPERTIES IN WHICH WE HAVE AN INTEREST MAY BE IN DOUBT AND
ANY CHALLENGE TO THE TITLE TO ANY OF SUCH PROPERTIES MAY HAVE A NEGATIVE
IMPACT ON US. A full investigation of legal title to our property
interests has not been carried out at this time. Accordingly, title to
these property interests may be in doubt. Other parties may dispute title
to the properties in which we have an interest. Our property interests may
also be subject to prior unregistered agreements or transfers or land
claims and title may be affected by undetected defects. Any challenge to
the title to any of our property interests may have a negative impact on
us as we will incur expenses in defending such challenge and, if the
challenge is successful, we will lose any interest it may have in the
subject property. In addition, our ability to explore and exploit the
property interests is subject to ongoing approval of local governments. If
we do not pay the balance of the purchase price for the Property to
Rubicon, we could lose the Property.
11. TITLE OPINIONS PROVIDE NO GUARANTEE OF TITLE AND ANY CHALLENGE TO THE
TITLE TO ANY OF SUCH PROPERTIES MAY HAVE A NEGATIVE IMPACT ON US. Although
we have or will receive title opinions for any concessions in which we
have or will acquire a material interest, there is no guarantee that title
to such concessions will not be challenged or impugned. Any challenge to
the title to any of our properties in which we have an interest may have a
negative impact on us as we will incur expenses in defending such
challenge and, if the challenge is successful, we will lose any interest
we may have in the subject property.
Risk Factors Relating to Mining Generally
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12. MINING EXPLORATION IS A SPECULATIVE BUSINESS AND MOST EXPLORATION PROJECTS
DO NOT RESULT IN THE DISCOVERY OF COMMERCIALLY MINEABLE DEPOSITS.
Exploration for minerals or precious gems is a speculative venture
necessarily involving substantial risk. The expenditures made by us
described herein may not result in discoveries of commercial quantities of
minerals or precious gems. The failure to find an economic mineral deposit
on any of our mineral properties will have a negative effect on us.
13. MINING OPERATIONS GENERALLY INVOLVE A HIGH DEGREE OF RISK AND POTENTIAL
LIABILITY. Hazards such as unusual or unexpected formations and other
conditions are involved in mining. We may become subject to liability for
pollution, fire, explosions, cave-ins or hazards against which we cannot
insure or against which we may elect not to insure. The incurrence of any
such liabilities may have a material, adverse effect on our financial
position.
14. MINERAL PRICES AND MARKETABILITY FLUCTUATE AND ANY DECLINE IN MINERAL
PRICES MAY HAVE A NEGATIVE EFFECT ON US. Mineral prices, particularly gold
and silver prices, have fluctuated widely in recent years. The
marketability and price of minerals and precious gems, which may be
acquired by us, will be affected by numerous factors beyond our control.
These other factors include delivery uncertainties related to the
proximity of our reserves to processing facilities and extensive
government regulation relating to prices, taxes, royalties, allowable
production land tenure, the import and export of minerals and precious
gems and many other aspects of the mining business. Declines in mineral
prices may have a negative effect on us.
15. MINING IS A HIGHLY COMPETITIVE INDUSTRY. The mining industry is intensely
competitive and we must compete in all aspects of our operations with a
substantial number of large established mining companies
11
with substantial capabilities and greater financial and technical
resources than us. We may be unable to acquire additional attractive
mining properties on terms we consider to be acceptable. Our inability to
acquire attractive mining properties would result in difficulties in our
obtaining future financing and profitable operations.
Risk Factors Relating to Financing
- ----------------------------------
16. ADEQUATE FUNDING MAY NOT BE AVAILABLE, RESULTING IN THE POSSIBLE LOSS OF
OUR PROPERTY INTERESTS. Sufficient funding may not be available to us for
further exploration and development of our property interests or to fulfil
our obligations under applicable agreements. We may not be able to obtain
adequate financing in the future or the terms of such financing may not be
favourable. Failure to obtain such additional financing could result in
delay or indefinite postponement of further exploration and development of
properties with the possible loss of such properties. We will require new
capital to continue to operate our business and to continue with
exploration on our properties, and additional capital may not be available
when needed, if at all.
17. FUNDING AND PROPERTY COMMITMENTS WILL RESULT IN DILUTION TO OUR
SHAREHOLDERS. It is likely that any additional capital required by us will
be raised through the issuance of additional equity, which will result in
dilution to our shareholders. Further, as described in Item 4. Information
on the Company - Business Overview, we are required to issue common shares
in order for us to keep our interests in properties. Such Property Share
issuances will also result in dilution to our shareholders.
18. SUBSTANTIAL EXPENDITURES ARE REQUIRED FOR COMMERCIAL OPERATIONS AND IF
FINANCING FOR SUCH EXPENDITURES IS NOT AVAILABLE ON ACCEPTABLE TERMS, WE
MAY NOT BE ABLE TO JUSTIFY COMMERCIAL OPERATIONS. If mineable deposits are
discovered, substantial expenditures are required to establish reserves
through drilling, to develop processes to extract the resources and, in
the case of new properties, to develop the extraction and processing
facilities and infrastructure at any site chosen for extraction. Although
substantial benefits may be derived from the discovery of a major deposit,
resources may not be discovered in sufficient quantities to justify
commercial operations or the funds required for development may not be
obtained at all or on terms acceptable to us.
19. LACK OF FUNDING TO SATISFY CONTRACTUAL OBLIGATIONS MAY RESULT IN THE LOSS
OF OUR PROPERTY INTERESTS. We may, in the future, be unable to meet our
share of costs incurred under agreements to which we are or will be a
party and we may have our property interests reduced or even face
termination of such agreements. We have acquired an option to acquire
interests in one property in Canada and in order to obtain ownership of
the property, we must make payments to the owners of the property. In
order to secure ownership of these properties, additional financing may be
required. Our failure to make the requisite payments in the prescribed
time periods will result in us losing our entire interest in the subject
property and we will no longer be able to conduct our business as
described in this Registration Statement. We may not have sufficient funds
to: (a) satisfy the option payment required to be made in 2005 in relation
to the Property; (b) make the minimum expenditures to maintain the
Property in good standing under Canadian law. In such event, we may seek
to enter into a joint venture or sell the subject property or elect to
terminate our option. See Item 4. Information on the Company - Business
Overview and Item 5. Operating and Financial Review and Prospects -
Tabular Disclosure of Contractual Obligations for details of the property
payments we are required to make to earn our interests.
Risk Factors Relating to Common Shares
- --------------------------------------
20. THE PRICE OF OUR SHARES IS VOLATILE. Publicly quoted securities are
subject to a relatively high degree of price volatility. It may be
anticipated that the quoted market for our shares will be subject to
market trends generally, notwithstanding any potential success of us in
creating sales and revenues.
21. THERE IS AN ABSENCE OF A LIQUID TRADING MARKET FOR OUR SHARES. Our
shareholders may be unable to sell significant quantities of shares into
the public trading markets without a significant reduction in the price of
their shares, if at all. We may not continue to meet the listing
requirements of the TSX Venture Exchange or achieve listing on any other
public listing exchange. Our Shares are not listed on any exchange or
quotation system in the United States and there can be no assurance that a
market will develop or be sustained in the United States.
12
22. THE PENNY-STOCK RULE MAY LIMIT TRADING IN OUR SHARES. In October 1990,
Congress enacted the "Penny Stock Reform Act of 1990." "Penny Stock" is
generally any equity security other than a security (a) that is registered
or approved for registration and traded on a national securities exchange
or an equity security for which quotation information is disseminated by
The National Association of Securities Dealers Automated Quotation
("NASDAQ") System on a real-time basis pursuant to an effective
transaction reporting plan, or which has been authorized or approved for
authorization upon notice of issuance for quotation in the NASDAQ System,
(b) that is issued by an investment company registered under the
Investment Company Act of 1940, (c) that is a put or call option issued by
Options Clearing Corporation, (d) that has a price of five dollars (US) or
more, or (e) whose issuer has net tangible assets in excess of
$2,000,000(US), if the issuer has been in continuous operation for at
least three years, or $5,000,000(US) if the issuer has been in continuous
operation for less than three years, or average revenue of at least
$6,000,000(US) for the last three years.
Our Common Shares are presently considered "Penny Stock" under these
criteria. Therefore, the Common Shares are subject to Rules 15g-2 through
15g-9 (the "Penny Stock Rules") under the Exchange Act. The "Penny Stock"
trading rules impose duties and responsibilities upon broker-dealers and
salespersons effecting purchase and sale transactions in our shares,
including determination of the purchaser's investment suitability,
delivery of certain information and disclosures to the purchaser, and
receipt of a specific purchase agreement from the purchaser prior to
effecting the purchase transaction. Compliance with the "Penny Stock"
trading rules affect or will affect the ability to resell our shares by a
holder principally because of the additional duties and responsibilities
imposed upon the broker-dealers and salespersons recommending and
effecting sale and purchase transactions in such securities. In addition,
many broker-dealers will not effect transactions in penny stocks, except
on an unsolicited basis, in order to avoid compliance with the "Penny
Stock" trading rules. Consequently, the "Penny Stock" trading rules may
materially limit or restrict the number of potential purchasers of our
shares and the ability of a holder to resell our stock.
So long as the Common Shares are within the definition of "Penny Stock" as
defined in Rule 3a51-1 of the Exchange Act, the Penny Stock Rules will
continue to be applicable to the Common Shares. Unless and until the price
per share of Common Shares is equal to or greater than $5.00(US), or an
exemption from the rule is otherwise available, the Common Shares may be
subject to substantial additional risk disclosures and document and
information delivery requirements on the part of brokers and dealers
effecting transactions in the Common Shares. Such additional risk
disclosures and document and information delivery requirements on the part
of such brokers and dealers may have an adverse effect on the market for
and/or valuation of the Common Shares.
23. CLASSIFICATION AS A PASSIVE FOREIGN INVESTMENT COMPANY HAS ADVERSE INCOME
TAX CONSEQUENCES FOR UNITED STATES SHAREHOLDERS. We believe we are a
Passive Foreign Investment Company ("PFIC"), as that term is defined in
Section 1297 of the Internal Revenue Code of 1986, as amended, and we
believe we will be a PFIC in the foreseeable future. Consequently, this
classification will result in adverse tax consequences for U.S. holders of
our shares. For an explanation of these effects on taxation, see Item 10.
Additional Information - United States Federal Income Tax Consequences.
U.S. shareholders and prospective holders of our shares are also
encouraged to consult their own tax advisers.
24. WE ARE LOCATED OUTSIDE OF THE UNITED STATES WHICH MAKES IT DIFFICULT TO
EFFECT SERVICE OF PROCESS OR ENFORCE WITHIN THE UNITED STATES ANY
JUDGMENTS OBTAINED AGAINST US OR OUR OFFICERS OR DIRECTORS. Substantially
all of our assets are located outside of the United States and we do not
currently maintain a permanent place of business within the United States.
In addition, all of the directors and officers are nationals and/or
residents of countries other than the United States, and all or a
substantial portion of such persons' assets are located outside the United
States. As a result, it may be difficult for investors to effect service
of process or enforce within the United States any judgments obtained
against us or our officers or directors, including judgments predicated
upon the civil liability provisions of the securities laws of the United
States or any state thereof. In addition, there is uncertainty as to
whether the courts of Canada and other jurisdictions would recognize or
enforce judgments of United States courts obtained against us or our
directors and officers predicated upon the civil liability provisions of
the securities laws of the United States or any state thereof, or be
competent to hear original actions brought in Canada or other
jurisdictions against us or our directors and officers predicated upon the
securities laws of the United States or any state
13
thereof. Further, any payments as a result of judgments obtained in Canada
should be in Canadian dollar and service of process in Canada must
generally be effectuated personally and not by mail.
ITEM 4. INFORMATION ON US
================================================================================
OUR HISTORY AND DEVELOPMENT
We were originally incorporated under the COMPANY ACT (British Columbia) on
January 15, 1969 under the name "Mark V. Mines Limited (N.P.L.)". On October 4,
1994 we changed our name to "TLC Ventures Corp.". Effective March 29, 2004, the
COMPANY ACT (British Columbia) was replaced by the BUSINESS CORPORATIONS ACT
(British Columbia). Our North American office and principal place of business is
located at Suite 285, 200 Granville, Vancouver, British Columbia, Canada, V6C
1S4 (phone: (604) 681-9944). Our registered and records office is Suite 1400,
1055 West Hastings Street, Vancouver, British Columbia, V6E 2E9 (phone: (604)
688-6900).
We are a "reporting" company in the Provinces of British Columbia and Alberta.
Our Common Shares have been listed and posted for trading on the Exchange (TSXV:
TLV) since October 5, 1994.
We do not have an agent in the United States.
We are a Canadian mineral exploration and mine development company that is
focused on the acquisition, advancement and development of gold and base metal
assets around the world.
The following is a summary of certain significant developments with respect to
our business during the past three fiscal years.
MANAGEMENT REORGANIZATION
- -------------------------
On December 11, 2003, we announced a management reorganization wherein our
former Directors Mr. Robert Anderson, Mr. John P. Bradford, and Mr. Rodney
Spence resigned, and Mr. Edward Farrauto, CGA, Mr. Douglas B. Forster, M.Sc.,
P.Geo and Dr. Richard Henley, PhD., FAICD were appointed as Directors. Mr.
Bharmal resigned as President and Mr. Farrauto was appointed President and Chief
Financial Officer. Dr. Henley was appointed Chairman of the Board of Directors,
and Mr. David Toyoda was appointed Secretary. For more information about our
current directors and officers see, "Item 6. Directors, Senior Management and
Employees".
ACQUISITION OF POINT LEAMINGTON PROPERTY
- ----------------------------------------
We entered into an option agreement with Rubicon Minerals Corp. ("Rubicon") on
February 16, 2004 (the "Acquisition Agreement") to acquire a 100% interest in
certain real property located in north-central Newfoundland, Canada (the
"Property"). The Property's Zn-Au-Ag-Cu deposit, discovered by Noranda Inc. in
1971, is located 26 kilometres north of Grand Falls, north-central Newfoundland,
Canada. The Property is described in greater detail below at "- Description of
the Point Leamington Property." At the time of the Acquisition Agreement,
Douglas Forster, one of our Directors also served as a Director of Rubicon.
Under the terms of the Acquisition Agreement, in order to exercise the option
and acquire a 100% interest in the Property, we will be required to issue a
total of 300,000 Common Shares and pay $250,000 to Rubicon. On May 7, 2004, we
exercised the option by issuing 150,000 Common Shares and paying $125,000 to
Rubicon, with the balance to be paid on the following terms:
o 75,000 Common Shares and $50,000 due and payable on May 7, 2005; and
o 75,000 Common Shares and $75,000 due and payable on May 7, 2006.
If we do not pay in full the remaining balance when due, ownership of the
Property will revert back to Rubicon. We or any of our nominees have a right of
first refusal on the purchase, at market value, of any or all of the 300,000
Common Shares if Rubicon intends to sell them. There is an area of interest
(AOI) in the Acquisition Agreement whereby additional claims staked by either
Rubicon or us within 1.5 kilometres of the boundary of the Property will form
part of the Acquisition Agreement. Subsequent to signing the Acquisition
Agreement, we have acquired by
14
staking an additional 80 claims covering 2,000 hectares surrounding the
Property. In addition, if prior to us paying Rubicon 300,000 Common Shares and
$250,000, we sell a 100% interest in the project to an arm's-length third party,
Rubicon is entitled to receive 50% of the gross sale proceeds less the total
consideration paid to Rubicon pursuant to the Acquisition Agreement prior to the
date of sale. Rubicon retains a right of first refusal on the purchase of
Noranda Exploration Co. Ltd's ("Noranda") 1.5% net smelter return royalty (NSR)
on the Property. Rubicon also retains an option to purchase the 0.5% NSR held by
MFC Merchant Bank for $500,000.
STRATEGIC/CONSULTANT AGREEMENTS
- -------------------------------
We entered into a Strategic Alliance Agreement with Orogen Holding (BVI)
Limited, a wholly owned subsidiary of Gold Fields Ltd. ("Gold Fields"), dated
December 11, 2003 whereby we will have exclusive, reciprocal Rights of First
Review of Data from mineral properties that either company wishes to sell,
option or joint venture. In the case of Gold Fields, the exclusive Rights held
by us to review project data on projects that Gold Fields decides to sell,
option or joint venture applies to all Gold Fields projects except projects
deemed to be of a strategic nature to their business. These reciprocal rights
expire on December 11, 2006. As part of this agreement, Gold Fields also has the
right to maintain their approximate 9.5% equity interest in us by pro-rata
participation in future equity financings for a period of three years, expiring
on December 11, 2006.
Pursuant to an agreement dated December 12, 2003, Endeavour Financial Ltd.
("Endeavour") has agreed to act as an Advisor to us. The services to be provided
to us will include assistance in project evaluation and acquisition and capital
markets advice. Endeavour has provided financial advisory services to the mining
and minerals industries for 15 years. They are a private, independent investment
banking firm. Over the years, Endeavour has structured and arranged numerous
project, acquisition and corporate financings, corporate mergers and
acquisitions, mine acquisitions and divestitures.
PRIVATE PLACEMENTS
- ------------------
On December 11, 2003, as part of the management reorganization, we announced a
non-brokered private placement of up to 5,000,000 Common shares at a price of
$0.25 per Share. On January 28, 2004, we closed the private placement, raising
gross proceeds of $1,250,000.
Subsequently, on February 18, 2004, we announced a brokered $6,250,000 private
placement financing with Haywood Securities Inc. acting as Agent. The private
placement closed in May 2004 and consisted of 5,000,000 Units at $1.25 per Unit
for gross proceeds of $6,250,000. Each Unit consists of one Common Share and
one-half of one Common Share purchase warrant. One full warrant will allow the
holder to purchase one Common Share at a price of $1.50 per Share until May 7,
2005. We paid Haywood Securities Inc. a commission of 6% of the gross proceeds
on the financing by the issuance of 300,000 Units. The Agent also received
Agent's Warrants representing 5% of the financing. Each Agent's Warrant is
exercisable into one Common Share at $1.25 until May 7, 2005. All securities
issued in connection with the private placement are subject to a minimum
four-month hold period from closing.
In September 2004, we closed a non-brokered private placement of 300,000 units
at $1.25 per Unit for gross proceeds of $375,000. Each unit consists of one
Common Share and one full Common Share purchase warrant. One warrant will allow
the holder to purchase one Common Share until September 29, 2006 at a price of
$1.50 per share. No commissions or finders fee was paid in conjunction with this
financing.
15
DISPOSITION OF PROPERTY
- -----------------------
Prior to the management reorganization announced on December 11, 2003, we had
purchased a 10% working interest in 103 mineral claims in the Dawson and Mayo
mining districts in the Yukon for $50,000 from Thor Exploration Ltd. in 2001.
During 2002, we purchased a further 20% interest in that property for $150,000.
We subsequently sold this property back to Thor Exploration Ltd. for $1 in 2003.
BUSINESS OVERVIEW
We are in the mineral exploration and development business. We are an
exploration stage company and we have no revenues from operations. Currently,
our sole property interest consists of our rights in the Point Leamington
Property, including the additional 80 claims covering 2,000 hectares surrounding
the Property. The Property is described in greater detail below at "-Description
of the Point Leamington Property." We will also focus on acquiring and
developing global precious and base metal assets.
There is no assurance that a commercially viable mineral deposit exists on any
of our properties. Further exploration will be required before a final
evaluation as to the economic and legal feasibility of any of our properties is
determined. An airborne geophysical survey, using a deep penetrating,
electro-magnetic and magnetometer system is planned during 2005 to allow for
extrapolation of the prospective stratigraphy and definition of additional
exploration targets on the Property. This survey, which would cover
approximately 1,000 line kilometres at 100 metre line spacing, would cost
approximately $125,000. Additional diamond drilling may be carried out upon
completion and interpretation of the planned airborne survey to explore new
geophysical targets and further expand the higher grade Zn-Au zones intersected
in the 2004 Phase One drill program. Even if we complete our exploration program
and are successful in identifying a mineral deposit, we will have to spend
substantial funds on further drilling and engineering studies before knowing
that we have a commercially viable mineral deposit or reserve.
ORGANIZATIONAL STRUCTURE
We have no subsidiaries.
PROPERTY, PLANTS AND EQUIPMENT
Our administrative offices are located in leased premises at Suite 285, 200
Granville Street, Vancouver, British Columbia, V6C 1S4. We have no significant
plant or equipment for our operations other than computer equipment, software,
furniture and office equipment. Equipment used for exploration or drilling is
rented or contracted as needed.
DESCRIPTION OF THE POINT LEAMINGTON PROPERTY
The disclosure in this section is based on a report entitled "Point Leamington
Massive Sulphide Deposit Independent Technical Report" prepared by Callum Grant,
P.Eng. and Gary Ciroux, P.Eng of HATCH Associates Ltd. of Suite 200 - 1550
Alberni Street, Vancouver, British Columbia, Canada, V6E 1A5.
PROPERTY DESCRIPTION AND LOCATION
The Point Leamington massive sulphide deposit (the "Property") is located in
north-central Newfoundland, Canada, approximately 70 kilometres northwest of
Gander and 37 kms north of the town of Grand Falls. The Property sits in a
low-lying swampy area accessible via an 8km logging road connecting to the Trans
Canada Highway #1, or directly via helicopter from Gander, and is particularly
well located with respect to access to tidewater.
ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY
The Property consists of a Mining Lease covering 263 hectares. Subsequent to
signing the Acquisition Agreement, we have acquired by staking an additional 80
claims covering 2,000 hectares surrounding the Property. These new claims have
not been surveyed however we have received confirmation from the Newfoundland
Department of Mines that they have been accepted for filing and duly accepted.
The topography around the Property is low-lying and swampy.
16
The climate is typical of the north-central region of Newfoundland with cold
winters and heavy snowfalls throughout the winter months, and generally warm but
variable summers. Precipitation falls mainly in winter, predominantly as snow or
rain from December through March. The mean annual precipitation is 655 mm.
HISTORY
Noranda discovered the Property in 1971 as part of a regional program for
massive sulphide deposits. Noranda completed two programs of diamond drilling on
the property (17,896m in 70 holes), various geophysical programs, and two phases
of metallurgical testwork.
In 1999/2000, Rubicon completed a first phase of three drill holes followed by
an additional nine diamond drill holes, several of which were deepened from
original Noranda holes. Rubicon's principal target was an interpreted deep zone
below the main footwall stringer zone in aphanitic felsic volcanics.
Noranda completed two Inferred Resource estimates, the first in 1975 totalling
12.5 million tonnes grading 1.9% Zn, 0.9g/T Au, 20.9g/T Ag, and 0.48% Cu. In
1978, additional drilling and a higher cutoff grade of 6% ZnEq was used to
generate a higher-grade Inferred Resource as follows:
- -----------------------------------------------------------------
Zone Tonnes Zn, % Cu, % Au, g/T Ag, g/T
- -----------------------------------------------------------------
Lower 1,490,566 7.34 0.43 2.25 54.7
- -----------------------------------------------------------------
(Zinc equivalent grades were based on recoveries of between 40% and 60% for Cu,
Ag, and Au and metal prices of $0.40/lb, $8.40/oz, and $536/oz respectively).
To date, exploration activities have defined three areas of sulphide
mineralization along a 500 m long, north-trending, structure separated into
Hangingwall and Footwall Zones. The depth extent of the mineralization defined
by drilling below surface elevation is approximately 360m, and widths are
typically in the 3m-20m range with a maximum of 85m (true widths).
GEOLOGICAL SETTING
The property sits in the Dunnage tectonic-stratigraphic zone of Newfoundland,
interpreted by Strong (1977), Dean (1978), and Kean et. al. (1981) as an
Ordivician-Silurian island arc complex, which was built upon Cambro-Ordivician
oceanic crust. The rocks therefore have ophiolitic affinities, subjected to
subsequent metamorphic events.
The Dunnage Zone can be divided into a number of belts, all of which are known
to host Volcanic Massive Sulphide (VMS) types of deposits. The most significant
VMS deposit in the region is the Buchans deposit where five main orebodies were
mined between 1928 and 1984 producing a total of 16.2 million tonnes grading
15.51% Zn, 7.56% Pb, 1.33% Cu, 1.37g/T Au, and 126g/T Ag. The mineralization at
Buchans is recognised as a typical "Kuroko" style of VMS deposit associated with
felsic Pyroclatsic rocks and breccias.
The deposit occurs along a north-south trending contact zone between mafic
volcaniclastics to the west and a thick cherty rhyolite dome sequence to the
east. Massive sulphide mineralization lies at this steeply dipping contact
within what has been interpreted as a westward-facing dome complex composed
mainly of felsic hyalites of a porphyritic or fragmental lithology. Dyke rocks
cutting through the massive sulphide zone are common throughout the drill core.
From hangingwall to footwall, the deposit is underlain by thinly bedded volcanic
sediments, cherty sediments, fine-grained tuffs, and quartz crystal tuffs, below
which is found a sequence of graphitic to argillaceous or cherty rhyolites
representing the top of the massive sulphide units and considered as the marker
horizon. The massive sulphide unit (MS) itself occurs in felsic units (including
tuffs) underlain by massive and brecciated rhyolites with stringers of pyrite
+/- sphalerite mineralization. The total thickness of the massive sulphide and
lower stringer zone can exceed 400m.
17
Point Leamington can be classed as a VMS deposit based on style of
mineralization, host rocks consisting of felsic volcanics and breccias, and a
massive sulphide, breccia, or stockwork style of mineralization occupying zones
of fracturing, possibly associated preferentially with intercalated altered tuff
zones. Zoning of mineralogy can be a characteristic feature with sphalerite -
galena in the upper parts of the volcanic pile trending to more copper-rich
mineralization at depth.
VMS deposits are a major source of zinc and copper and often contain significant
by-product credits in gold and silver. Prominent examples are the Westmin
deposit on Vancouver Island, Kidd Creek in Ontario, and the Buchans deposit in
Newfoundland. These deposits typically occur in clusters and vary in size from
less than a million tonnes to several tens of millions of tonnes, and are
amenable to both open pit and underground mining.
Mineralization on the Property has been defined along a near-surface zone along
a 500m strike length and to depths of 360m. A large, low-grade geological
inferred resource of 12.5Mt and a higher-grade inferred resource of 1.49Mt have
been estimated from previous Noranda work.
At Point Leamington, mineralization is composed of very fine-grained, brown to
grey sphalerite (up to 80%); pyrite and minor marcasite (12%); some arsenopyrite
(5%); chalcopyrite (2%); silver-bearing, lead sulphosalts (<1%); cassiterite
(<1%); and trace pyrrhotite, covellite, galena, chalcocite, tetrahedrite,
stannite, jamesonite, covellite, and native copper.
An upper pyrite-rich zone and lower zinc-rich zone have been recognised by
Rubicon geologists. The sulphides are typically fine-grained, with only
occasional sections with coarser-grained mineralization (in the lower zone).
Quartz is the most common gangue mineral associated with the massive sulphides.
Stringer mineralization consists mainly of pyrite.
18
EXPLORATION
The following information taken from the Rubicon files is a summary of
exploration on the Property:
Year Exploration
- ---- -----------
1953 Original mapping of the area by Newmont Mining Corporation
1956 Mapping and prospecting by NALCO
1970s Airborne geophysics by Phelps Dodge
1971-74 Reconnaissance silt sampling (Noranda) lead to discovery of the
zone and an initial drill hole. Subsequently a total of 45 holes
were completed by Noranda between 1971 and 1977
1984 Drilling (5 holes) and geophysics by Noranda
1986-88 Additional 4 holes by Noranda for metallurgical testwork, followed
by a further 6 holes with one reported at 4.67% Zn and 1.68g/T Au
(plus silver and weak Cu) over 11m. Late in this period, 8 other
holes intersected weak mineralization
1997 Two additional holes by Noranda
1998-2000 Rubicon acquired the Property and completed 12 holes.
DRILLING
Drilling by Noranda can be summarised as follows:
Year Holes Objective/Results Metres
- ---- ----- ----------------- ------
1971 1 Discovery Hole
1971-74 44 Testing sulphides along strike and to 550m in depth
1984 5 Testing MaxMin anomalies, plus deeper mineralization
1986 4 Metallurgical testwork
6 Testing of zone along strike
1987-88 8 Weakly mineralised MS
1997 2 Minor pyrite
TOTAL 70 17,896
The Rubicon drill programs of 1998 thru 2000 were as follows:
Year Holes Objective/Results Metres
- ---- ----- ----------------- ------
1999-2000 3 Phase 1 to test deep zones below footwall rhyolite
9 Phase 2 which intersected at least 4 horizons at
depths of +450m hosting weakly mineralised, narrow
sulphides
TOTAL 12 3,818
Significant intercepts from the Noranda and Rubicon deeper drilling are recorded
as follows:
Drill Hole Intercept (m) Zn,% Au, g/T Ag, g/T Cu,%
- ---------- ------------- ---- ------- ------- ----
71-08 7.62 4.43 6.85 90.07 0.44
73-36 11.58 11.82 3.84 50.19 0.66
73-40 12.80 6.12 3.51 97.50 0.41
PL-67 21.72 5.59 1.99 34.42 0.69
PL-68 16.74 4.07 1.95 40.88 0.26
This latest drill program by Rubicon provided indications of extensions to the
VMS mineralization compared to the earlier Noranda work.
19
"Main Zone" massive sulphide mineralization was encountered 275m to the south of
the previous Noranda limit as demonstrated in Rubicon's hole #PL-072 (8m grading
0.4% Zn, plus by-products in copper, and precious metals), and extensions to
several of the earlier Noranda holes to depths of 300-500m encountered low-grade
but interesting zinc, copper, and precious metals values in a felsic sequence
containing at least four horizons interpreted by Rubicon to possibly point to a
favourable pattern of "stacked zones".
EXPLORATION AND DEVELOPMENT
The delineated mineralization for the Property is classified as an Inferred
Resource according to the following definition from National Instrument 43-101
of the British Columbia Securities Commission:
"An 'Inferred Mineral Resource' is that part of a Mineral Resource for
which quantity and grade or quality can be estimated on the basis of
geological evidence and limited sampling and reasonably assumed, but
not verified, geological and grade continuity. The estimate is based on
limited information and sampling gathered through appropriate
techniques from locations such as outcrops, trenches, pits, workings
and drill holes."
The drill hole information shows reasonable geologic continuity for the massive
sulphide domain with the zone apparent on all sections and level plans separated
by a single cross fault. The uncertainty on down hole surveys, the wide spacing
of drill hole data relative to the ranges of semivariograms, the lack of quality
assurance/quality control data and the lack of measured specific gravities,
however, all necessitate a classification of inferred for this resource.
Results of the resource estimation at various zinc cutoff grades can be
tabulated as follows:
CutOff Tonnes > Cutoff Average Grade above Cutoff
%Zn (tonnes) Zn (%) Cu (%) Au (g/T) Ag (g/T)
- --- -------- ------ ------ -------- --------
1.00 12,300,000 1.92 0.28 0.88 16.94
2.00 3,500,000 3.23 0.28 1.37 25.90
3.00 1,600,000 4.16 0.23 1.54 31.26
4.00 620,000 5.42 0.29 1.81 31.96
The Property consists of a VMS massive sulphide zone of zinc-copper-gold-silver
mineralization at the contact of mafic volcanics in the hangingwall and a
rhyolitic dome sequence in the footwall. Mineralization is interpreted to have
occurred in several stages of replacement and brecciation along a prominent
north-south trending zone. A central Hangingwall Zone dipping at 70 degrees to
the west has been investigated by drilling along a 500 m strike length and to
depths of ~400 m with widths varying from 4m to 20m (maximum 85m). The
mineralization responds with difficulty to standard flotation metallurgy as
demonstrated from bench-scale test work completed by Noranda.
The latest drilling by Rubicon in 1999/2000 provided evidence of extensions of
the Main Zone massive sulphide zone(s) to the south compared to the earlier
Noranda work. In addition, deep drilling to depths of >350m encountered
stringer-style of pyrite mineralization possibly representing a lower horizon
with a favourable environment for massive sulphides deposition.
The overall dimensions of the mineralization, its location close to surface,
good access close to tidewater, and promising exploration targets along strike
and to depth, justify further consideration within our overall corporate
exploration plan. Deeper mineralization below the main zone of sulphides would
have to be of significantly higher grade than currently indicated (to support an
underground operation), but remains a valid, although higher-risk exploration
target.
A drill program is warranted to test the lateral and depth extents of the
favourable massive sulphide zones at Point Leamington. Specific targets are:
o Down-dip from Hole #72 which intercepted ~8m of low-grade
mineralization in the massive sulphide horizon approximately 275m along
strike beyond the main zone originally defined by Noranda in the 1970s
and 1980s;
20
o Extensions of the interpreted high-grade Zn-Au zone at depth
o The deep footwall zone encountered by Rubicon in the 2000 drill program
Down-hole geophysics may also be useful to target zones for further drilling.
Other recommended work would include further geological investigation
interpretation of the high-grade zinc zone, and limited metallurgical
investigations with the objective of improving processing characteristics of the
mineralization.
Specific gravity measurements must be completed on a representative number of
samples from various grade ranges to determine the relationship between grade
and bulk density for all rock and mineralization types.
All future drill hole sampling should be completed with a full Quality
Assurance/Quality Control program including the introduction of blank samples
and representative standards into the assay stream at regular intervals. In
addition, a representative number of random duplicates should be selected for
re-assay at a second lab where the remaining pulps should be placed in new bags,
given a random number supplied by us, and resubmitted to the primary lab. In
this manner a representative number of assays can be completed in triplicate
with checks available to both identify and quantify any laboratory bias and
quantify sampling precision.
All drill holes should have down-hole surveys. A few older holes should also be
re-surveyed for accuracy of the historical work, and holes twinned if required.
The additional work program recommended for the Property would therefore be as
follows:
Work Program Description
- ------------ -----------
Down-Hole Geophysics $150,000
Diamond Drilling, Phase 1 5,000m @ $60/metre, all-in cost $300,000
Metallurgical Testwork To investigate potential for improved
recoveries $ 50,000
General & Admin $ 25,000
Contingency, 10% $ 25,000
TOTAL ESTIMATE $550,000
Additional drill expenditures may be required depending on results of the Phase
One drilling listed above.
On December 3, 2004, we completed our Phase One drill program. The results set
out below are based on management's review of the data.
The Phase one drill program consisted of 2,402 metres of diamond core drilling
in five holes and was designed to locate extensions of the known higher grade
Zn-Au mineralization outside the current resource, both at depth and along
strike, and to expand the recently discovered South Zone.
Drill hole PL04-077 was drilled along the projection of higher grade massive
sulphide mineralization in the southern portion of the main deposit, beyond the
lower edge of previously defined mineralization. This hole intersected 4.00
metres of massive sulphide grading 14.94% Zn, 4.93 g/T Au, 59.0 g/T Ag and 0.36%
Cu (see Table 1). Additional drilling was targeted on a new sulphide zone, the
South Zone, discovered in the final hole of a previous drill program in 2000 and
located about 250 metres south of the known limit of the Point Leamington
deposit. Drill Hole PL04-073 and PL04-074 targeted this zone down plunge to the
north. PL04-073 intersected 3.9 metres of massive sulphide, grading 5.18% Zn,
1.65 g/T Au, 33.1 g/T Ag and 0.27% Cu (see Table 1) 110 metres from the previous
intersection (PL-072 drilled in 2000 which returned 8.08 metres grading 0.44%
Zn, 1.08 g/T Au, 0.66% Cu). This mineralization is interpreted to lie at the
same stratigraphic horizon and likely represents a faulted offset of the Point
Leamington deposit. The potential exists for additional mineralization between
these two mineralized zones. Drill hole PL04-074 was intended to test the South
Zone 75 metres down dip from PL04-073 but intersected a wide dyke at the target
depth. As such, the South Zone remains untested below PL04-073 and PL-072.
Two drill holes PL04-075 and PL04-076, explored the entire thickness of
prospective volcanic stratigraphy for additional mineralized horizons. Several
lower grade intervals of stringer to semi-massive sulphide mineralization were
intersected in this section, particularly within the footwall unit to the main
deposit (see Table 1).
21
Table 1 - Drill Results - Point Leamington, 2004 Phase One Drill Program
Hole From To Drilled True Zn% Au g/T Ag g/T Cu%
(m) (m) Width Width
(m) (calc.)
------ ------ ------ ------ ------ ------ ------ ------
PL04-073
South Zone 239.20 243.20 4.00 3.90 5.18 1.65 33.1 0.27
incl. 240.70 242.85 2.15 2.10 7.47 1.71 35.0 0.30
Or 237.17 243.20 6.03 5.88 3.91 1.14 25.0 0.21
PL04-074
Footwall 344.94 346.40 1.46 0.84 0.74 1.69 23.3 .03
PL04-075
421.88 426.67 4.79 *n.p.o. 0.42 <.005 0.03 0.01
548.44 550.25 1.79 1.29 0.45 0.12 2.6 0.02
PL04-076
549.80 550.73 0.93 0.81 0.18 7.31 3.8 0.02
574.70 575.75 1.05 *n.p.o. 0.21 0.47 1.1 0.01
577.65 582.34 4.69 *n.p.o. 0.67 0.05 0.3 0.01
PL04-077
Main Zone 400.36 405.03 4.67 4.00 14.94 4.93 59.0 0.36
Footwall 409.40 412.40 3.00 1.93 0.85 0.19 3.1 0.04
418.37 420.75 2.38 *n.p.o. 0.59 0.10 0.3 0.04
433.80 436.29 1.49 1.14 0.64 0.32 0.7 0.03
437.80 441.42 3.62 1.81 0.61 0.38 0.7 0.06
466.08 468.39 2.31 1.63 1.50 0.20 0.4 0.07
*n.p.o. = no preferred orientation apparent, i.e. breccia or stockwork
mineralization
Assaying was conducted on sawn, one-half, NQ-sized core sections and analyzed at
Eastern Analytical Ltd., Springdale, Newfoundland. Gold was analyzed by fire
assay-atomic absorption on a 30 gram sub-sample. Check analyses were done on all
samples with greater than 1.0 g/T Au. Base metals and other elements were
analyzed by aqua regia digestion and inductively coupled plasma-atomic emission
spectroscopy (ICP-AES). Any of Zn, Cu, or Ag that reported greater than
detection limits was re-assayed using atomic absorption. Duplicate and blank
samples were included in each sample batch. A pulp from approximately every
tenth sample was forwarded to Chemex Labs in North Vancouver, B.C. for check
gold (fire assay-atomic absorption) and ICP (aqua regia digestion, and ICP-AES)
analyses. The Phase One drill program was managed by Vancouver-based Equity
Engineering Limited under the direction of Murray Jones, M.Sc. P.Geo. an
independent and qualified person as defined by National Instrument 43-101.
Regional government mapping and lithogeochemical sampling has indicated that the
Property's host volcanic stratigraphy extends well beyond the vicinity of the
deposit. However, exploration on the Property is hindered by a lack of outcrop
exposure of the prospective volcanic rocks that host the massive sulphide
mineralization. An airborne geophysical survey, using a deep penetrating,
electro-magnetic and magnetometer system is planned during 2005 to allow for
extrapolation of the prospective stratigraphy and definition of additional
exploration targets on the Property. This survey, which would cover
approximately 1,000 line kilometres at 100 metre line spacing, would cost
approximately $125,000. Additional diamond drilling may be carried out upon
completion and interpretation of the planned airborne survey to explore new
geophysical targets and further expand the higher grade Zn-Au zones intersected
in the 2004 Phase One drill program.
NONE OF THE MINERAL PROPERTIES IN WHICH WE HOLD AN INTEREST IS KNOWN TO CONTAIN
COMMERCIAL QUANTITIES OF MINERALS OR PRECIOUS GEMS. ALL EXPLORATION PROGRAMS
PROPOSED FOR ANY MINERAL PROPERTIES IN WHICH WE HAVE AN INTEREST ARE EXPLORATORY
IN NATURE.
Management reviews the carrying value, for accounting purposes, of mineral
rights and deferred exploration costs as described in Item 5. Operating and
Financial Review and Prospects.
22
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
================================================================================
RESULTS OF OPERATIONS
The following discussion and analysis of financial conditions and results of
operations should be read in conjunction with our financial statements included
in Item 17 of this Form 20-F.
Our results of operations, presented in accordance with Canadian GAAP are
summarized below:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2004 2003 2002
------------ ------------ ------------
REVENUE $- $- $-
EXPENSES
Audit and accounting $ 32,605 $ 8,700 $ 4,238
Amortization 10,605 -- --
Bank Charges 660 400 222
Foreign exchange 441 -- --
Consulting Fees 63,000 -- --
Insurance 19,015 -- --
Legal fees 110,827 14,349 2,043
Marketing 46,569 -- --
Office, Postage and Printing 43,145 -- --
Rent 34,375 23,550 25,600
Salaries and Wages 274,624 -- --
Salaries and Wages - Stock Compensation 824,517 133,239 --
Shareholder Relations 7,563 16,362 20,253
Telephone and Utilities 10,632 -- --
Trade Shows 14,467 -- --
Transfer Agent, Regulatory Fees 23,644 9,512 5,849
Travel 157,989 4,400 4,800
TOTAL EXPENSES $ (1,674,678) $ (210,512) $ (63,005)
Gain on forgiveness of debt -- 139,408 --
Mineral properties written off -- (241,520) --
Property investigation (102,098) -- --
Interest Income 75,678 270 858
LOSS FOR THE YEAR $ (1,701,098) $ (312,354) $ (62,147)
23
TOTAL EXPENSES
Our total expenses have increased in each fiscal period due to the completion of
a management reorganization at the end of 2003. Activities in 2004 included the
completion of three private placements, the acquisition of the Property and the
completion of a Phase One drill program at the Property. Total expenses
continued to increase in 2004 as we recruited a Chairman, President and Chief
Financial Officer and set up offices in Vancouver.
The components of our operating expenses are disclosed below.
Audit and accounting
- --------------------
Our audit and accounting costs have generally increased due to our increased
corporate acquisition and financing activity.
Audit and accounting fees were $4,238 during 2002 and reflect a low level of
activity. Audit and accounting fees increased to $8,700 during 2003 as we
implemented a management reorganization, initiated a financing and also required
additional services for stock based compensation reconciliation. Audit and
accounting fees for 2004 were $32,605. The increase in audit fees in 2004 was
due to the three financings and the Property acquisition. The Company changed
auditors during the year and has undertaken to produce financial statements that
comply with both U.S. GAAP and GAAS. As such, we increased amounts for accruals
for the 2004 audit. We anticipate that our accounting costs will increase as we
complete the process of becoming a reporting issuer under the Securities
Exchange Act of 1934 and are required to prepare our financial statements with
U.S. GAAP reconciliation on an ongoing basis.
Amortization
- ------------
Our amortization expenses are attributable to amortization on our computer
equipment, furniture and office equipment and leasehold improvements.
We incurred no amortization costs during 2002 and 2003. Our amortization
expenses in 2004 of $10,605, reflects the purchase of computer equipment, desks
and other general office equipment during the year. We entered into an office
lease and incurred leasehold improvement costs that are amortized over the three
year life of the lease.
Consulting Fees
- ---------------
Our consulting fees consist of consulting fees paid to Endeavor Financial Corp.
for services including but not limited to assistance in project evaluation and
acquisition, as well as capital markets advice.
Consulting fees for 2002 and 2003 were $Nil compared to $63,000 in 2004. We
anticipate our consulting fees will increase as we evaluate potential
acquisitions.
Insurance
- ---------
Our insurance costs include general office insurance, equipment insurance and
director and officer liability insurance.
Insurance costs during 2002 and 2003 were $Nil compared to $19,015 in 2004. We
implemented insurance policies to cover commercial liability as well as coverage
for directors and officers.
Legal Fees
- ----------
Legal fees are primarily attributable to legal fees incurred in connection with
our acquisition of the Property, financings, contract preparation and our status
as a publicly traded company in Canada.
Our legal costs have generally increased due to our increased corporate
acquisition and financing activity. Legal costs for 2002 were $2,043 and for
2003 were $14,349 for general legal work. Legal fees in 2004 were $110,827 and
reflected our increased activity that included filing documents with securities
regulatory authorities, completing employment agreements and non-disclosure
agreements and the preparation of contracts. We anticipate that our legal costs
will increase as we complete the process of becoming a reporting issuer under
the Securities Exchange Act of 1934.
24
Marketing
- ---------
Marketing expenses include the production of marketing materials for
presentations and the preparation of packages for investors. We have directed
our marketing expenses towards the investment community as part of our efforts
to raise capital and also to increase our public profile.
Our marketing expenses were $Nil in 2002 and 2003 compared to $46,569 in 2004 as
we prepared materials in connection with the completion of our private placement
financings and acquisition of the Property. We have expanded our marketing
efforts during 2004 with the objective of increasing public awareness of us. Our
objectives are to increase the brand recognition of our name. Accordingly, we
anticipate that our marketing expenses will continue to increase during 2005.
Office, Postage and Printing
- ----------------------------
Our office, postage and printing costs generally include office, postage and
printing costs associated with our leased premises. These costs include general
office supplies, stationary and printing.
Our office, postage and printing costs for 2002 and 2003 were $Nil compared to
$43,145 for 2004. Our office, postage and printing costs have increased during
the last year as a result of our increased activity and the increased number of
employees and consultants involved in our business.
Rent
- ----
Our rent includes rent payable in connection with our head office in Vancouver,
British Columbia
Rent increased in 2004 compared to 2003 as we acquired our head office space for
our operations. Rent in 2004 was $34,375 compared to $23,550 in 2003 and $25,600
in 2002. Rents will continue to increase in 2005 over 2004, as costs in 2005
will be for a twelve-month period.
Salaries and Wages
- ------------------
Our salaries and wages expenses include salaries, wages and benefits payable to
our employees and fees paid to our Chairman and Chief Financial Officer.
Salaries and wages expense was $274,624 for 2004 as a result of the hiring of
our President, Chairman, Chief Financial Officer and a full time employee. These
costs were $Nil in 2003 and 2002 as we had little activity in both years.
Salaries and Wages - Stock Compensation
- ---------------------------------------
Stock compensation expense associated with salaries and wages is attributable to
stock options granted to both employees and non-employees using the fair value
method.
We have recorded stock-based compensation expense of $824,517 for 2004 compared
to $133,239 for 2003. $Nil was recorded for 2002.
Shareholder Relations
- ---------------------
Shareholder relation expenses include costs of communications with our
shareholders including annual general meeting material and news release
dissemination and filing.
Shareholder relation expense was $7,563 for 2004. These expenses were $16,362
for 2003 and $20,253 for 2002. The costs for 2004 are lower as we are allocating
promotional material to marketing for improved monitoring of costs.
Telephone and Utilities
- -----------------------
Our telephone expenses include telephone expenses associated with our office
premises and telecommunication costs for cellular phones and Blackberry devices
used by our personnel.
Our telephone expenses have increased to $10,632 in 2004 consistent with the
expansion of our operations. Telephone expenses were $Nil in 2003 and 2002.
Trade Shows
- -----------
Our trade show expenses include expenses associated with trade shows attended by
us for the purpose of increasing public awareness of us.
25
Trade show expenses in 2004 were attributable to our participation in the San
Francisco Gold Show and attendance at conferences in London and Capetown. Trade
show expenses for 2004 were $14,467 and $Nil for 2003 and 2002.
Transfer Agent, Regulatory Fees
- -------------------------------
Our transfer agent and regulatory fees include fees payable to our transfer
agent and fees payable to securities regulatory authorities as a result of us
being a public company in Canada.
Our transfer agent and regulatory fee expenses have increased in each period
consistent with our growth as a public company. In 2004, we completed three
financings, the Property acquisition and entered into two escrow agreements, and
our transfer agent and regulatory fees were $23,644 for 2004. These fees were
$9,512 in 2003 and $5,849 in 2002 and reflect our lower level of activity during
the two years.
Travel
- ------
Travel expenses include business travel and travel related to our pursuit of
financing and sending management and consultants for property investigation.
Our travel expenses were minimal in 2002 and 2003. Travel expenses increased
substantially in 2004 in connection with our pursuit of private placement
financings, investor updates and review of potential business opportunities.
Travel expenses for 2004 were $157,989. We anticipate that our travel expenses
will continue to increase during 2005 as we review business opportunities and
provide investor updates.
Gain on forgiveness of debt
- ---------------------------
As part of our management reorganization in 2003, we incurred a gain of $139,408
as a result of forgiveness of debt.
Mineral properties written off
- ------------------------------
During 2003, we wrote off mineral property costs of $241,520.
In prior years, we acquired a mineral lode property of 6 claims known as the HP
group in Dawson Mining District, Yukon for $32,000 and a 30% working interest in
103 mineral claims in the Dawson and Mayo Mining Districts, Yukon for $200,000.
In 2003, management wrote off these mineral claims.
Interest Income
- ---------------
Our interest income is attributable to interest earned on our liquid
investments, including cash and cash equivalents.
Interest increased substantially in 2004 over prior periods due to the
significant private placement financings completed during 2004. Interest income
for 2004 was $75,678 as a result of proceeds from private placement financings.
These funds are presently held in cash and cash equivalent investments pending
expenditure of these amounts on our operations.
Net Loss
- --------
Our net loss has increased in each period as our expenses have increased in each
period. We anticipate that our net loss will increase through 2005 unless we
complete an acquisition resulting in positive earnings for us.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital
- ---------------
We had a working capital balance of $6,317,240 at December 31, 2004, compared
with $442,494 at December 31, 2003. The significant increase in working capital
is due primarily to the net proceeds of the private placements completed in
2004.
We plan to complete additional work on the Property during the next twelve
months. The additional costs for this project are anticipated to be $125,000. In
addition, we anticipate that we will spend approximately $925,000 over the next
twelve months in general and administrative expenses pursuing our plan of
operations. We will set additional costs for project evaluation as opportunities
arise. We anticipate that we will be able to finance both our anticipated
capital and operating expenses over the next twelve months using our current
working capital.
26
Cash and Cash Equivalents
- -------------------------
We had cash of $6,192,278 at December 31, 2004 compared to $459,871 at December
31, 2003. The liquid portion of the working capital consists of cash and cash
equivalents held in banks and highly liquid investments with remaining
maturities at point of purchase of 90 days or less. The management of these
securities is conducted in-house based on investment guidelines approved by our
Board, which generally specify that investments be made in conservative money
market instruments that bear and carry on a low degree of risk. The objective of
these investments is to preserve funds for our plan of operations.
Cash Used in Operating Activities
- ---------------------------------
Cash used in our operating activities continues to increase as we expand our
operations. Cash used in operating activities increased to $1,008,315 for the
year ended December 31, 2004, compared to $100,830 for the year ended December
31, 2003 and $20,389 for the year ended December 31, 2002. We anticipate that
cash used in operating activities will continue to increase during the remainder
of 2005.
Cash Used in Investing Activities
- ---------------------------------
We used $627,000 of cash in investing activities during the year ended December
31, 2004. Cash used in investing activities included the acquisition of $68,279
of property, plant and equipment. Cash used in investing activities also
included $558,721 of mineral property costs in connection with the Property.
In 2004, we incurred cash costs of $558,721 for the Property. These costs
include $125,000 for acquisition, $194,229 for drilling, $127,762 for geological
consulting, $15,465 for assaying, $28,460 for camp and general expenses, $27,486
for equipment rental, $14,486 for geophysical work and $25,833 for mineral claim
maintenance payments. In addition, 150,000 Common Shares, valued at $202,500,
were issued as an acquisition cost. This was treated as a non-cash item.
We used $Nil of cash in investing activities during the year ended December 31,
2003.
We used $152,000 of cash in investing activities during year ended December 31,
2002. During that year, we spent $150,000 on option payments for our Dawson
Clear Creek Property and $2,000 for geological and field expenses related to
that property.
Cash Generated by Financing Activities
- --------------------------------------
During the year ended December 31, 2004, we generated $7,367,722 in cash from
financing activities. This amount included funds raised from three private
placements.
In January 2004, we closed a non-brokered private placement of 5,000,000 Common
Shares at a price of $0.25 per Common Share for gross proceeds of $1,250,000.
There was no commission or finders fee payable on the financing
In May 2004, we closed a brokered private placement financing with Haywood
Securities Inc. We issued 5,000,000 units at $1.25 per unit for gross proceeds
of $6,250,000. Each unit consists of one Common Share and one-half of a Common
Share purchase warrant. One full warrant will allow the holder to purchase one
Common Share until May 7, 2005 at a price of $1.50 per share. Haywood Securities
Inc. was paid a commission of 6% of the gross proceeds on the financing. The
commission was paid in units of the financing at the election of the agent. The
agent received 250,000 agent's warrants representing 5.0% of the financing. Each
agent's warrant was exercisable into one Common Share at $1.25 until May 7,
2005.
In September 2004, we closed a non-brokered private placement of 300,000 units
at $1.25 per Unit for gross proceeds of $375,000. Each unit consists of one
Common Share and one full Common Share purchase warrant. One warrant will allow
the holder to purchase one Common Share until September 29, 2006 at a price of
$1.50 per share. No commission or finders fee was paid in conjunction with this
financing.
The purpose of the private placements was to complete the following objectives:
a) acquire the Property
b) complete the recommended work program on the Property
27
c) hire executive personnel, office staff and geologists
d) establish a corporate office
(e) complete project evaluations and potential acquisitions pursuant to our
strategic alliance agreement with Orogen Holdings (BVI) Ltd., subsidiary of Gold
Fields Limited.
During the year ended December 31, 2004, we granted 705,000 stock options
exercisable at prices ranging from $1.35 to $2.10 on or before dates ranging
from March 11, 2009 to September 29, 2009. The stock option compensation amount
was $824,517. This amount was included in salaries and wages-stock compensation
and included in share capital. These costs were treated as a non-cash financing
activity.
During the year ended December 31, 2003, we received share subscription funds in
advance of $460,000 as part of a private placement completed in early 2004. We
received $66,908 as payment for the balance of an outstanding loan.
During the year ended December 31, 2003, we granted 1,055,000 stock options
exercisable at $0.25 on or before December 11, 2008. The stock option
compensation amount was $133,239. This amount was included in salaries and
wages-stock compensation and included in share capital. These costs were treated
as a non-cash financing activity.
During the year ended December 31, 2002, we received $117,500 upon the exercise
of 1,175,000 warrants. We received payment of $22,500 against an outstanding
loan.
Requirement of Additional Equity Financing
- ------------------------------------------
We have relied on equity financings for all funds raised to date for our
operations. We do not have a credit facility or line of credit with a bank or
other financial institution.
We are presently working on the Property and project evaluation. As described
above at "-Working Capital," we anticipate incurring approximately $125,000 in
connection with the Property over the next 12 months.
Our ability to realize the costs we have incurred to date on our mineral
property is dependent on our ability to successfully place our property in
commercial production. We presently do not generate cash flow from operations to
fund our activities and has therefore relied principally upon the issuance of
securities for financing. We intend to continue relying upon the issuance of
securities to finance our operations, if required to the extent such instruments
are issuable under terms acceptable to us and until we attain profitability.
At December 31, 2004, we had 1,760,000 stock options and 3,200,000 share
purchase warrants outstanding. The outstanding stock options have a weighted
average exercise price of $0.87 per share. The outstanding warrants have a
weighted average exercise price of $1.48 per share. Accordingly, as at December
31, 2004, the outstanding options and warrants represented a total of 4,960,000
shares issuable for a maximum of $6,271,250 if these options and warrants were
exercised in full. The exercise of these options and warrants is completely at
the discretion of the holders. There is no assurance that any of these options
or warrants will be exercised.
During the fiscal year ended December 31, 2004, we signed a lease agreement for
the rental of office space. The lease expires on November 29, 2007. The future
minimum lease obligations are as follows:
Amount
--------------------
2005 34,012
2006 34,012
2007 30,920
--------------------
$ 98,944
--------------------
No other material commitments have been made to date.
TREND INFORMATION
Other than the obligations under the Acquisition Agreement (as described in Item
4. Information on the Company - Business Overview and Item 5. Operating and
Financial Review and Prospects - Tabular Disclosure of Contractual Obligations)
there are no identifiable trends, demands, commitments, events or uncertainties
that will result in, or that are reasonably likely to result in, our liquidity
either increasing or decreasing at present or in the foreseeable
28
future. We may require additional capital in the future to meet our acquisition
payments and other obligations under property option agreements for those
properties we consider worthy to incur continued holding and exploration costs
upon. The need to make such payments is a "Trend" as it is unlikely that all
such obligations will be eliminated from our future business activities. We
intend to utilize cash on hand in order to meet our obligations under property
option agreements at least until December 31, 2005. It is unlikely that we will
generate sufficient operating cash flow to meet these ongoing obligations in the
foreseeable future. Accordingly, subsequent to December 31, 2005, we may need to
raise additional capital by the issuance of equity. At this time, we have no
plan or intention to issue any debt in order to raise capital for future
requirements.
At the time of filing there is a noted favourable trend in the public press with
regard to the market for metal commodities and related companies, however, it is
our opinion that our own liquidity will be most affected by the results of our
exploration activities. The discovery of an economic mineral deposit on one of
our exploration concessions may have a favourable effect on our liquidity, and
conversely, the failure to find one may have a negative effect.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
29
Tabular Disclosure of Contractual Obligations
CONTRACTUAL OBLIGATIONS* TOTAL LESS THAN 1 YEAR 1-3 YEARS
- ------------------------ ----- ---------------- ---------
Operating lease for office $98,944 $34,012 $64,932
rent
Point Leamington Property $125,000 and 150,000 $50,000 and 75,000 $75,000 and 75,000 Common
Common Shares Common Shares Shares
TOTAL $223,944 and 150,000 $84,012 and 75,000 $139,932 and 75,000
Common Shares Common Shares Common Shares
* A description of the written agreement pursuant to which these obligations
arise is contained in Item 4. Information on the Company - Business overview.
CRITICAL ACCOUNTING POLICIES
Our accounting policies are set out in Note 2 of the accompanying Financial
Statements. There are two policies that, due to the nature of the mining
business, are more significant to our financial results. These policies relate
to the capitalization of mineral exploration expenditures and the use of
estimates.
Under Canadian GAAP, we deferred all costs relating to the acquisition and
exploration of our exploration concessions. Any revenues received from
exploration of these concessions are credited against the costs of the
concession. When commercial production commences on any of our properties, any
previously capitalized costs would be charged to operations using a
unit-of-production method. We regularly review deferred exploration costs to
assess their recoverability and when the carrying value of an exploration
concession exceeds the estimated net recoverable amount, provision is made for
impairment in value.
Management reviews the carrying value, for accounting purposes, of mineral
rights and deferred exploration costs on at least a quarterly basis for evidence
of impairment. This review is generally made with reference to the project
economics, including the timing of the exploration work, work programs proposed,
exploration results achieved by us and others in the related area of interest
and any changes in the status of the property. When the results of this review
indicate that a condition of impairment exists, we estimate the net recoverable
amount of the deferred exploration costs and related mining rights by reference
to the potential for success of further exploration activity and the likely
proceeds to be received from the sale or assignment of rights. When the carrying
values of mineral rights or deferred exploration costs are estimated to exceed
their net recoverable amounts, a provision is made for the decline in the value.
When assessing for evidence of impairment, we also refer to the other factors
relevant for companies in the extractive industries. These factors include
unfavorable changes in the property (including disputes as to title), inability
to access the site, environmental restrictions on exploration or development and
political instability in the region in which the property is located.
Furthermore, we conclude an event of impairment has occurred when any of the
following conditions exist:
a. our work program on a property has significantly changed such
that previously-identified resource targets or work programs
are no longer being pursued;
b. exploration results are not promising and no more work is
being planned in the foreseeable future; or
c. remaining lease terms are insufficient to conduct necessary
exploration work.
The existence of uncertainties during the exploration stage and the lack of
definitive empirical evidence with respect to the feasibility of successful
commercial development of any exploration property do create measurement
uncertainty concerning the calculation of the amount of impairment. We rely on
our own or independent estimates of further geological prospects of a particular
property and also considers the likely proceeds from the sale or assignment of
the rights. The latter will often be indicated by offers that we or others have
received for exploration rights in the same or similar geological area. In many
cases, the identified condition of impairment will result in a
30
determination that no further exploration activity be performed and the amount
of the write-down is the entire carrying value of the interest.
Under U.S. GAAP, we expensed all costs relating to the exploration of our
exploration concessions prior to the establishment of proven and probable
reserves. After that point, these costs are capitalized as exploration costs.
When commercial production commences on any of our properties, any previously
capitalized costs would be charged to operations using the unit-of-production
method.
Our financial statements are based on the selection and application of
significant accounting policies, some of which require management to make
estimates and assumptions. Estimates are based on historical experience and on
our future expectations that are believed to be reasonable; the combination of
these factors forms the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. Actual
results are likely to differ from our current estimates and those differences
may be material.
RECENT U.S. ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 123R, "Share Based
Payment". SFAS 123R is a revision of SFAS No. 123 "Accounting for Stock-Based
Compensation", and supersedes APB Opinion No. 25, "Accounting for Stock Issued
to Employees" and its related implementation guidance. SFAS 123R establishes
standards for the accounting for transactions in which an entity exchanges its
equity instruments for goods or services. It also addresses transactions in
which an entity incurs liabilities in exchange for goods or services that are
based on the fair value of the entity's equity instruments or that may be
settled by the issuance of those equity instruments. SFAS 123R focuses primarily
on accounting for transactions in which an entity obtains employee services in
share-based payment transactions. SFAS 123R does not change the accounting
guidance for share-based payment transactions with parties other than employees
provided in SFAS 123 as originally issued and Emerging Issues Task Force Issue
No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services".
SFAS 123R does not address the accounting for employee share ownership plans,
which are subject to AICPA Statement of Position 93-6, "Employers' Accounting
for Employee Stock Ownership Plans". SFAS 123R requires a public entity to
measure the cost of employee services received in exchange for an award of
equity instruments based on the grant-date fair value of the award (with limited
exceptions). That cost will be recognized over the period during which an
employee is required to provide service in exchange for the award - the
requisite service period (usually the vesting period). SFAS 123R requires that
the compensation cost relating to share-based payment transactions be recognized
in financial statements. That cost will be measured based on the fair value of
the equity or liability instruments issued. The scope of SFAS 123R includes a
wide range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans. Public entities (other than those filing as small
business issuers) will be required to apply SFAS 123R as of the first interim or
annual reporting period that begins after June 15, 2005. Public entities that
file as small business issuers will be required to apply SFAS 123R in the first
interim or annual reporting period that begins after December 15, 2005. For
nonpublic entities, SFAS 123R must be applied as of the beginning of the first
annual reporting period beginning after December 15, 2005. The adoption of this
standard is not expected to have a material effect on our results of operations
or financial position.
In December 2004, FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets -
An Amendment of APB Opinion No. 29". The guidance in APB Opinion No. 29,
"Accounting for Nonmonetary Transactions", is based on the principle that
exchanges of nonmonetary assets should be measured based on the fair value of
the assets exchanged. The guidance in that Opinion, however, included certain
exceptions to that principle. SFAS No. 153 amends Opinion No. 29 to eliminate
the exception for nonmonetary exchanges of similar productive assets and
replaces it with a general exception for exchanges of nonmonetary assets that do
not have commercial substance. A nonmonetary exchange has commercial substance
if the future cash flows of the entity are expected to change significantly as a
result of the exchange. The provisions of SFAS No. 153 are effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after June 15,
2005. Early application is permitted and companies must apply the standard
prospectively. The adoption of this standard is not expected to have a material
effect on our results of operations or financial position.
31
DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
During the year ended December 31, 2004, net loss under Canadian GAAP was
$(1,701,098) compared to a net loss of $(2,462,319) under US GAAP. The
difference relates to the expensing of exploration costs of $(761,221) under
U.S. GAAP, which are capitalized as part of mineral property interests under
Canadian GAAP.
During the year ended December 31, 2003, net loss under Canadian GAAP was
$(312,354) compared to a net loss of $(70,834) under U.S. GAAP. The difference
relates to the add back of previously expensed exploration costs of $241,520
under US GAAP which are capitalized in the prior year as part of mineral
property interests under Canadian GAAP.
During the year ended December 31, 2002, net loss under Canadian GAAP was
$(62,147) compared to a net loss of $(214,147) under U.S. GAAP. The difference
relates to the expensing of exploration costs of $(152,000) under U.S. GAAP,
which are capitalized as part of mineral property interests under Canadian GAAP.
Under Canadian GAAP, exploration costs are capitalized until such time
management determines that the value of the interests in resource properties are
impaired or commercial production of the mineral resource properties commences.
Under U.S. GAAP, exploration costs are not capitalized until a feasibility study
has been completed indicating the presence of economically mineable reserves.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
================================================================================
Directors and Senior Management
The following table sets forth all of our current directors and executive
officers, with each position and office held by them. Each director's term of
office expires at the next annual general meeting of shareholders.
PRINCIPAL OCCUPATION SERVICE AS A
NAME, AGE AND POSITION DURING THE PAST 5 YEARS DIRECTOR/OFFICER
- ---------------------- ----------------------- ----------------
DR. SALLY L. EYRE, 33 Vice President, Corporate Affairs, Since March 2004
CEO and Director Southernera Resources Ltd. (May 2002 to
March 2004); Manager, Corporate
Communication, Manhattan Minerals
Corporation (September 2001 to April 2002);
Corporate Development, Southern Rio
Resources Limited (May 2000 to September
2001); Contract Geologist, Minera Southern
Rio S.A. (February 2000 to April 2000);
Corporate Development, Altoro Gold
Corporation (April 1999 to February 2000).
EDWARD FARRAUTO, 48 Director, Bayridge Capital Corp. (1997 to Since December 2003
CFO present); CFO, Sonic Environmental
Solutions Inc. (2002 to present).
DOUGLAS B. FORSTER, 46 Director, Rubicon Minerals Corp. (1996 to Since December 2003
Director present), Director, Radiant Communications
Corp. (2000 to present), Director, Odyssey
Resources Ltd. (2001 to present), and
Director, Sonic Environmental Solutions
Inc. (2002 to present). President, Quarry
Capital Corp. (1994 to present).
DR. RICHARD HENLEY, 58 Director, Epithermex International PTY Since December 2003
Director (1988 to 2003); CEO, SRK Australia (1990 to
1999); Chair, Anutech Pty. (1999 to 2001);
Chair, Shipbuilding Board, Department of
Defence Australia (2001-2003); Chair, CSIRO
CLW Commercialization Advisory Board (2001
to present)
32
PRINCIPAL OCCUPATION SERVICE AS A
NAME, AGE AND POSITION DURING THE PAST 5 YEARS DIRECTOR/OFFICER
- ---------------------- ----------------------- ----------------
JOHN REYNOLDS, 63 Leader of the Official Opposition for the Since March 2005
Director Government of Canada, Official Opposition
House Leader and Member of Parliament for
the riding of the West Vancouver-Sunshine
Coast-Sea to Sky Country since 1997
JEFFREY P. FRANZEN, 54 President, Franzen Mineral Engineering Since August 2004
Director Limited.
BLAYNE JOHNSON, 47 Businessman Since May 2004
Vice President, Corporate
Development
DAVID TOYODA, 37 Partner, Catalyst Corporate Finance Lawyers Since December 2003
Corporate Secretary (1999 to present).
The business background and principal occupations of our officers, directors,
and senior management for the preceding five years are as follows:
Dr. Sally L. Eyre (Age 33)
- --------------------------
Dr. Eyre holds a B.Sc. (Hons.) degree in Geology from Kingston University,
England and a PhD. (Economic Geology) from the Royal School of Mines, Imperial
College, London. Dr. Eyre has extensive experience in mineral exploration,
corporate development and corporate communications. She has held executive
positions with a number of mineral exploration and development companies
including Manhattan Minerals and most recently with platinum producer
Southernera Resources where she was Vice President Corporate Affairs. Dr. Eyre
will be responsible for our strategic growth and overall management.
Douglas B. Forster (Age 46)
- ---------------------------
Mr. Forster has been associated with the mineral exploration and mine
development industry for the past 22 years. He holds a B.Sc. (1981) in Geology
and a M.Sc. (1984) in Economic Geology from the University of British Columbia.
Mr. Forster has extensive experience and a proven track record in resource
project development and venture capital finance. He has been a founder, senior
executive and/or director of ten publicly traded companies listed on the TSX
Venture Exchange, TSX Exchange or NASDAQ. Mr. Forster is currently a director of
Rubicon Minerals Corporation (1996 to present), Radiant Communications Corp.
(2000 to present), Odyssey Resources Limited (2001 to present), and Sonic
Environmental Solutions Inc. (2002 to present). Since 1994, Mr. Forster has been
President of Quarry Capital Corporation where he assists companies in matters
pertaining to corporate development and finance. Mr. Forster is a registered
member of the Association of Professional Engineers and Geoscientists of British
Columbia.
Dr. Richard Henley (Age 58)
- ---------------------------
For nearly 30 years, Dr. Richard Henley has been acknowledged internationally as
a leader in the fields of mineral deposit exploration and research, through
major contributions to knowledge of the origin of each of the dominant styles of
gold and porphyry mineralization, and their exploration. As a minerals
consultant he is credited with involvement in a number of major gold discoveries
including the world's largest on Lihir Island in Papua New Guinea (PNG), which
contains in excess of 40 million ounces of gold. Dr. Henley is the recipient of
numerous awards including the Thayer Lindsley Award of the Society of Economic
Geologists (1995) and a Fulbright Scholarship in 1983. He obtained his PhD. in
1971 from the University of Manchester, and, following appointments in New
Zealand and Newfoundland, moved to Australia in 1986 as Chief Scientist in the
Bureau of Mineral Resources for the Commonwealth Government. In 1990, Dr. Henley
founded and was Managing Director of Etheridge and Henley, later EHW, which
became the largest geosciences consulting organization in Australia, and one of
its fastest growing private companies. He then led the international merger of
EHW to become Steffen Robertson and Kirsten (Australasia) Pty Ltd. and
subsequent company acquisitions. Dr. Henley has been frequently invited as a
keynote speaker at industry and science forums all over the world. He is a
Fellow of the Australian Institute of Company Directors, and he has advised
major organizations on corporate governance, business management, risk and
commercialization strategies.
33
John Reynolds (Age 63 )
- -----------------------
Mr. Reynolds has served as the Member of Parliament for West-Vancouver-Sunshine
Coast since June 1997. Since his election, he has served in the "shadow cabinet"
of the Official Opposition as the Critic for Fisheries and Oceans, and one year
as the Justice Critic and Chief Opposition Whip. After his re-election in 2000,
Mr. Reynolds was appointed Official Opposition House Leader and then, in
December of the same year, he was elected Leader of the Opposition in the House
of Commons by the Canadian Alliance Caucus. He served in that position until
Stephen Harper was elected to Parliament and assumed the role of Leader of the
Opposition. Shortly after, he was again appointed to the position of Official
Opposition House Leader until resigning the post in early 2004 to serve as the
Co-Chairman of Stephen Harper's leadership campaign for the Conservative Party
of Canada. Prior to his election in 1997, Mr. Reynolds was a member of the
federal Progressive Conservative Party caucus, worked in the private sector, and
served as Speaker of the Legislative Assembly and as Minister of Environment for
British Columbia.
Jeffrey P. Franzen (Age 54)
- ---------------------------
Mr. Franzen has over thirty years experience in mineral exploration, mine
development and operations, and he is a registered professional engineer in the
Province of British Columbia. He holds a B.Sc., (Honours Geology) from the
University of British Columbia and a M.Sc. (Structural Geology) from Carleton
University. In addition to his open pit and underground operations expertise,
Mr. Franzen has been associated with five development-stage mining projects that
were subsequently sold to third parties including: North American Metals Corp.
(1986-1988), Continental Gold Corp. (1988- 1990), El Condor Resources Limited
(1990-1992), Francisco Gold Corp. (1997) and Mar-West Resources Ltd. (1998).
Mr.Franzen is President of Franzen Mineral Engineering Limited, an independent
mining consultancy.
Edward Farrauto (Age 48)
- ------------------------
Mr. Farrauto has 17 years of experience as a senior financial officer in private
and public companies. His experience encompasses financial and regulatory
compliance and public company management. Mr. Farrauto has been directly
responsible for overseeing private placement financings, prospectus filings,
reverse takeovers and merger and acquisition transactions. He has extensive
experience with U.S. filings including SEC clearance and reporting issuers
Blayne Johnson (Age 47)
- -----------------------
Mr. Blayne Johnson has been involved in the investment community for the past 18
years. After leaving Midland Walwyn Securities where he was a broker, Mr Johnson
held the position of Vice President, First Marathon Securities Inc. where he was
involved in structuring equity and debt financings as well as mergers and
acquisitions. Mr. Johnson also advised institutional clients on investments and
was directly involved in over $500 million of financing for public companies
listed on the Vancouver and Toronto Stock Exchanges. Since 1996, Mr Johnson has
managed his own investment and real estate portfolio and has been an active
angel investor focusing on small cap companies in the technology, mining and
industrial sectors.
David Toyoda (Age 37)
- ---------------------
Mr. Toyoda is a Partner in the law firm of Catalyst Corporate Finance Lawyers.
He completed his law and commerce degrees at the University of British Columbia
in 1992, and was called to the British Columbia Bar in 1993. Mr. Toyoda is also
involved in coordinating corporate governance courses for Simon Fraser
University and the TSX Venture Exchange.
Compensation
Our directors do not receive any cash compensation for services rendered in
their capacity as our directors but instead are issued stock based compensation
in the form of options. Certain information about compensation paid to our
senior executive officers during the past three fiscal years is set out in the
following table:
34
LONG TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------- ----------------
NAME FISCAL OTHER ANNUAL SECURITIES UNDER
AND POSITION OF YEAR COMPENSATION OPTIONS/SARS
PRINCIPAL ENDING SALARY($) BONUS($) ($) GRANTED(#)
--------- ------ --------- -------- --- ----------
Dr. Sally L. Eyre (1) 2004 105,000 Nil 50,000(2) 500,000 (3)
Chief Executive Officer 2003 N/A N/A N/A N/A
and Director 2002 N/A N/A N/A N/A
Edward Farrauto, 2004 67,642 Nil Nil Nil
President and CFO 2003 Nil Nil 0 400,000 (4)
2002 N/A N/A N/A Nil
Nizar Bharmal 2004 N/A N/A N/A Nil
Former CEO (5) 2003 6,500 Nil Nil Nil
2002 7,000 Nil Nil Nil
NOTES:
(1) Dr. Eyre was hired as our Chief Executive Officer in March 2004, and
she currently receives $11,500 per month for services rendered in such
capacity.
(2) This was paid for relocation expenses.
(3) Of these options, 300,000 are exercisable at a price of $2.10 each
until March 15, 2009 and 200,000 are exercisable at a price of $1.80
each until May 11, 2009.
(4) Of these options, 400,000 are exercisable at a price of $0.25 each
until December 11, 2008.
(5) Mr. Bharmal resigned as our CEO in December 2003.
PENSION PLANS
We do not provide pension, retirement or similar benefits for directors, senior
management or employees.
BOARD PRACTICES
Each of the directors continues to serve until the next annual general meeting
unless his or her office is vacated earlier in accordance with our Articles or
the provisions of the BUSINESS CORPORATIONS ACT (British Columbia). Our next
annual general meeting of shareholders will be held in May 2005. Our officers
are elected by the board and serve at the board's pleasure. We have not entered
into service contracts with any of our directors. The Audit Committee, comprised
of Dr. Eyre, Mr. Forster and Dr. Henley, meets once per quarter. The Audit
Committee also meets periodically with management and the independent auditors
to review financial reporting and control matters. The Audit Committee is
responsible for reviewing with the independent auditors all of our financial
statements to be submitted to the annual general meeting of our shareholders,
prior to their consideration by the Board of Directors. The directors have also
established a Compensation Committee comprised of Dr. Henley, Mr. Forster and
Mr. Farrauto. This committee meets periodically and is responsible for ensuring
the compensation levels and incentives are appropriate and makes recommendations
to the board.
The Corporate Governance Committee is comprised of Dr. Henley, Dr. Eyre, Mr.
Forster and Mr. Franzen and meets periodically. It is responsible for overseeing
the strategic planning process and identification of risk, reviewing the
internal controls and monitoring the effectiveness of the board.
We have entered into indemnity agreements with each of our Directors. Pursuant
to these agreements, we will indemnify the Director against all costs incurred
by the Director in any action, proceeding, environmental claim or investigation
which arises from the Director acting in his or her capacity as a director. We
will only indemnify the Director if the Director acted honestly and in good
faith and, in the case of a criminal or administrative action, only if the
Director had reasonable grounds to believe that the conduct was lawful.
35
EMPLOYEES
As of March 31, 2005, we had two full-time employees located in the Vancouver
office. None of the employees are unionized.
SHARE OWNERSHIP
The following table shows the beneficial ownership of directors and senior
management as of March 31, 2005.
NAME AND TITLE SHARE OWNERSHIP (1) % SHARE OWNERSHIP(2)
- -------------- ------------------- --------------------
Dr. Sally L. Eyre 568,750 2.85%
CHIEF EXECUTIVE OFFICER AND DIRECTOR
Douglas B. Forster 2,543,982 12.94%
DIRECTOR
Dr. Richard Henley 450,000 2.29%
DIRECTOR
Jeffrey P. Franzen 800,000 4.01%
DIRECTOR
John Reynolds 200,000 1.02%
DIRECTOR
Edward Farrauto 887,500 4.54%
CHIEF FINANCIAL OFFICER
Blayne Johnson 2,400,232 12.34%
VICE PRESIDENT, CORPORATE DEVELOPMENT
David Toyoda 17,500 0.09%
SECRETARY
ALL DIRECTORS AND SENIOR MANAGEMENT AS A GROUP 7,867,964 36.66%
NOTES:
(1) As of March 31, 2005, including options described in the table below as
well as all warrants to purchase Common Shares.
(2) Calculated based on a total of 19,454,0001 Common Shares issued and
outstanding as of March 31, 2005 and on the basis whereby only the
options and warrants as held by the individual are added to the issued
and outstanding number of shares thereby showing no effect to other
possible anti-dilutive factors.
STOCK OPTIONS
At our annual general meeting held on May 26, 2004, the shareholders adopted our
Stock Option Plan (the "Stock Option Plan"). The effective date of the Stock
Option Plan is April 29, 2004 being the date the Board approved the Stock Option
Plan, and it will terminate on April 29, 2014. The following is a summary of the
Stock Option Plan.
The maximum number of Common Shares reserved for issuance under the Stock Option
Plan is 3,600,000 Common Shares. The Stock Option Plan will be administered by
the Compensation Committee of our Board consisting of not less than two of its
members. The Stock Option Plan provides that options may be granted to any
employee, officer, director or consultant of us or a subsidiary of ours. The
options issued pursuant to the Stock Option Plan will be exercisable at a price
not less than the market value of the Common Shares at the time the option is
granted. Options under the Stock Option Plan will be granted for a term not to
exceed five years from the date of their grant, provided that if we are then a
"Tier 1" company listed on the Exchange, the term of the option will be not more
than 10 years. Options granted under the Stock Option Plan will be subject to
such vesting schedule the Compensation Committee may determine. In the event
that an option is to be terminated prior to expiry of its term due to certain
corporate events, all options then outstanding shall become immediately
exercisable for 10 days after notice thereof,
36
notwithstanding the original vesting schedule. Options are non-assignable and
non-transferable, provided that they will be exercisable by an optionee's legal
heirs, personal representatives or guardians for up to six months following the
death or termination of an optionee due to disability, or up to six months
following the death of an employee if the employee dies within six months of
termination due to disability. All such options will continue to vest in
accordance with their original vesting schedule.
The following options are presently outstanding:
NUMBER OF
COMMON SHARES EXERCISE
NAME POSITION WITH US UNDER OPTION PRICE EXPIRY DATE
- ---- ---------------- ------------ ----- -----------
Dr. Sally L. Eyre Chief Executive Officer and 300,000 $2.10 March 15/09
Director 200,000 $1.80 May 11/09
Edward Farrauto Chief Financial Officer 400,000 $0.25 Dec. 11/08
Douglas B. Forster Director 200,000 $0.25 Dec. 11/08
Dr. Richard Henley Chairman and Director 200,000 $0.25 Dec. 11/08
Jeffrey P. Franzen Director 200,000 $1.35 Sept. 29/09
David Toyoda Corporate Secretary 5,000 $0.25 Dec. 11/08
5,000 $2.00 Apr. 29/09
Consultant 250,000 $0.25 Dec. 11/08
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
================================================================================
MAJOR SHAREHOLDERS
The following table sets forth, as at March 31, 2005, certain information with
respect to the beneficial ownership of our Common Shares by each shareholder
known by us to be the beneficial owner of more than 5% of our outstanding Common
Shares. Unless otherwise indicated by footnote, we believe that the beneficial
owners of the Common Shares listed below, based on information furnished by such
owners, have sole investment and voting power with respect to such Common
Shares, subject to community property laws where applicable. Beneficial
ownership is determined in accordance with the rules of the United States
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. We are not aware of any significant change in
the percentage ownership held by any of these greater-than-5% shareholders
during the past three years. The shareholders below have identical voting rights
to the other shareholders.
NUMBER OF PERCENTAGE OF
IDENTITY OF HOLDER COMMON SHARES BENEFICIALLY OWNED
- ------------------ ------------- ------------------
Douglas B. Forster 2,343,982 12.05%
Blayne Johnson 2,400,233 12.34%
Orogen Holdings (BVI) Limited 1,775,000 9.12%
37
UNITED STATES SHAREHOLDERS
As of March 31, 2005 we had 50 registered shareholders with addresses in the
United States representing 24.88% of the then issued and outstanding shares. In
addition, residents of the United States may beneficially own common shares
registered in the names of non-residents of the United States.
NO CHANGE IN CONTROL ARRANGEMENTS
- ---------------------------------
We are not aware of any arrangements, the operation of which may result in a
change of our control.
RELATED PARTY TRANSACTIONS
None of our directors or senior officers, and no associates or affiliates of any
of them is or has been materially indebted to us at any time. None of our
experts or counsel was employed on a contingent basis or owns any shares which
is material to such person.
Douglas B. Forster, one of our Directors, has also served as a director of
Rubicon since 1996. As described above in "Item 4. History and Development of
the Company," in 2004 we entered into the Acquisition Agreement with Rubicon,
pursuant to which we acquired the Property.
Pursuant to an Escrow Agreement dated the 10th day of December, 2003 between us,
Computershare Investor Services Inc., Douglas B. Forster and Blayne Johnson,
4,800,465 Common Shares held by Messrs. Forster and Johnson are subject to
escrow restriction. Pursuant to a second escrow agreement between us , Pacific
Corporate Trust Company, Edward Farrauto and Dr. Richard Henley, 690,000 Common
Shares held by Messrs. Farrauto and Henley are subject to escrow restriction.
Subject to the terms of the escrow agreements, the escrow shares are subject to
release over three years commencing from May 7, 2004 (the "Notice Date") as
follows:
% OF TOTAL ESCROWED SECURITIES TOTAL NUMBER OF ESCROWED
RELEASE DATES TO BE RELEASED SECURITIES TO BE RELEASED
------------- -------------- -------------------------
On the Notice Date 10% 549,046
Six Months from Notice Date 15% 823,569
12 Months from Notice Date 15% 823,576
18 Months from Notice Date 15% 823,576
24 Months from Notice Date 15% 823,576
30 Months from Notice Date 15% 823,576
36 Months from Notice Date 15% 823,576
ITEM 8. FINANCIAL INFORMATION
================================================================================
FINANCIAL STATEMENTS
Our audited financial statements for each of the years in the three year period
ended December 31, 2004, 2003 and 2002including our balance sheets, the
statements of operations, of shareholders' equity and of cash flows and the
notes to those statements and the auditors' report thereon, are included in this
Form 20-F.
ITEM 9. THE OFFER AND LISTING
================================================================================
PRICE HISTORY
Our common shares have been listed and posted for trading on the TSX Venture
Exchange (symbol: TLV) since October 5, 1994. Since then, the high-low stock
range has been between $0.04 and $2.75. From January 1, 2005 to March 31, 2005,
the high-low stock range has been between $1.25 and $0.80. The closing price of
our common shares on March 31, 2005 was $1.15. Currently, our Common Shares are
not listed or traded on an exchange or stock market in the United States.
38
The annual high-low ranges for our common shares on the TSX Venture Exchange
since 2000 are set out below, as well as the quarterly high-low range for the
last two financial years.
YEAR HIGH LOW
- ---- ---- ---
2005
2nd Quarter (thru April 15, 2005) $1.25 $1.07
1st Quarter $1.25 $0.86
2004
4th Quarter 1.10 0.75
3rd Quarter 1.80 1.05
2nd Quarter 2.75 1.50
1st Quarter 2.40 1.15
2003
4th Quarter 1.26 0.09
3rd Quarter 0.155 0.045
2nd Quarter 0.05 0.04
1st Quarter 0.07 0.05
2002 0.15 0.05
2001 0.23 0.06
2000 0.48 0.13
The monthly high-low ranges for our Common Shares on the TSX Venture Exchange
since October 2004 are set out below.
MONTH HIGH LOW
- ----- ---- ---
March 2005 1.25 1.00
February 2005 1.05 0.86
January 2005 1.25 0.90
December 2004 1.10 0.85
November 2004 1.05 0.75
October 2004 1.10 0.85
At March 31, 2005, we had 19,454,001 Common Shares issued and outstanding and
held by an estimated 201 owners of record.
ITEM 10. ADDITIONAL INFORMATION
================================================================================
SHARE CAPITAL
Our authorized capital consists of an unlimited number of common shares without
par value of which 19,454,001 Common Shares were issued and outstanding as at
December 31, 2004 and 19,454,001 Common Shares were issued and outstanding as of
March 31, 2005.
39
The following is a reconciliation of our share issuances for the last
three fiscal years:
Common Shares
----------------------------------
Shares Amount
------------ ------------
Balance - December 31, 2001 7,529,001 $ 5,487,872
Issuance of shares for cash 1,175,000 117,500
------------ ------------
Balance - December 31, 2002 8,704,001 5,605,372
Stock compensation expense -- 133,239
------------ ------------
Balance - December 31, 2003 8,704,001 5,738,611
Issuance of shares for cash 10,300,000 7,875,000
Issuance of shares for mineral property 150,000 202,500
Issuance of shares for finder's fees 300,000 --
Shares issuance costs -- (47,278)
Stock compensation expense -- 824,517
------------ ------------
Balance - December 31, 2004 19,454,001 $ 14,593,350
============ ============
During the 2002 fiscal year, 1,175,000 warrants were exercised for $0.10 per
warrant for gross proceeds of $117,500.
On January 28, 2004, we issued, by private placement, 5,000,000 common shares at
$0.25 per Common Share for gross proceeds of $1,250,000 ($460,000 of this was
received in fiscal 2003 and was accordingly classified as share subscription
received in advance). No commission or finder's fees was paid in conjunction
with this financing.
On May 7, 2004 we issued, by private placement, 5,000,000 units at $1.25 per
unit for gross proceeds of $6,250,000. Each unit consists of one Common Share
and one-half of a common share purchase warrant. One full warrant will allow the
holder to purchase one Common Share until May 7, 2005 at a price of $1.50 per
share. The Agent was paid a commission by issuing 300,000 units with each unit
consisting of one Common Share and one-half of a common share purchase warrant.
One full warrant will allow the Agent to purchase one Common Share until May 7,
2005 at a price of $1.50 per share. The Agent received 250,000 agent's warrants.
Each agent's warrant is also exercisable into one Common Share at $1.25 until
May 7, 2005.
On September 29, 2004 we issued, by private placement, 300,000 units at $1.25
per unit to one or our directors for gross proceeds of $375,000. Each unit
consists of one Common Share and one full common share purchase warrant. One
share purchase warrant will allow the holder to purchase one Common Share until
September 29, 2006 at a price of $1.50 per share. No commission or finder's fees
was paid in conjunction with this financing.
We also have options outstanding to purchase up to 1,760,000 Common Shares as
described in Item 6. Directors, Senior Management and Employees - Stock Options.
There have been no changes to the number or classes of our shares, nor any
changes to the voting rights attached to any of our shares.
Fully Diluted Share Capital
- ---------------------------
Assuming that all options and other rights to purchase Common Shares are
exercised and all Property Shares are issued, up to a maximum of 24,564,001
Common Shares will be issued and outstanding on a fully diluted basis, comprised
of the following:
DESCRIPTION NUMBER OF COMMON SHARES
- ----------- -----------------------
Outstanding as of March 31, 2005 19,454,001
Agents' Warrant Shares 3,200,000
Options 1,760,000
Point Leamington Shares 150,000
TOTAL 24,564,001
* See Item 4. Information on the Company - Description of the Business
for details of our obligations to issue these shares.
40
NOTICE OF ARTICLES AND ARTICLES OF ASSOCIATION
Our Memorandum and Articles of Incorporation were filed with the Ministry of
Finance and Corporate Relations, Registrar of Companies in the Province of
British Columbia, Canada on January 15, 1969 under the name Mark V. Mines Ltd.
(N.P.L.) with the Certificate of Incorporation No. 84,103. We were incorporated
to conduct all lawful business pursuant to the laws of British Columbia and our
Certificate of Incorporation and Articles do not describe a business object or
purpose.
On August 12, 2004, we amended our articles to comply with the NEW BUSINESS
CORPORATIONS ACT (British Columbia) and our Memorandum was replaced by the
Notice of Articles.
The Articles may be amended by a special resolution of the shareholders approved
by not less than 66.66% of the votes cast and by filing thereafter with
Registrar of Companies in the Province of British Columbia.
As at March 31, 2005 our authorized and issued capital is as follows:
Authorized: unlimited number of common shares without par value
Issued: 19,454,001 common shares, of which 4,117,850 are held in escrow
COMMON SHARES
All issued and outstanding Common Shares are fully paid and non-assessable. Each
holder of record of Common Shares is entitled to one vote for each Common Share
so held on all matters requiring a vote of shareholders, including the election
of directors. The holders of Common Shares will be entitled to dividends on a
pro-rata basis, if, as and when declared by the board of directors. There are no
preferences, conversion rights, pre-emptive rights, subscription rights, or
restrictions or transfers attached to the Common Shares. In the event of our
liquidation, dissolution, or winding up, the holders of Common Shares are
entitled to participate in our assets available for distribution after
satisfaction of the claims of creditors. Provisions as to the creation,
modification, amendment or variation of such rights or such provisions are
contained in the BUSINESS CORPORATIONS ACT (British Columbia) and our Notice of
Articles and articles do not contain any additional provisions which are more
stringent than those permitted in the BUSINESS CORPORATIONS ACT (British
Columbia). Generally, such variations require a special resolution of the
shareholders approved by not less than 66.66% of the votes cast and by filing
thereafter with Registrar of Companies in the Province of British Columbia.
The BUSINESS CORPORATIONS ACT (British Columbia) does not impose any limitations
on the rights to own our securities.
There are no provisions in our Notice of Articles or articles that would have an
effect of delaying, deferring or preventing a change in our control and that
would operate only with respect to a merger, acquisition or corporate
restructuring involving us or any of our subsidiaries.
There are no provisions in our Articles governing the ownership threshold above
which shareholder ownership must be disclosed. However, the SECURITIES ACT
(British Columbia) requires such disclosure by a shareholder holding more than
10% of our issued voting securities.
POWERS AND DUTIES OF DIRECTORS
The directors shall manage or supervise the management of our affairs and
business and shall have authority to exercise all such powers that are not
required to be exercised by our shareholders in a general meeting.
Questions to be determined at a directors meeting shall be determined by a
majority vote. The Chairman has no additional power for voting, and directors
are not required to hold our shares.
A director's term of office expires immediately prior to the next annual general
meeting. In general, a director who is, in any way, directly interested in an
existing or proposed contract or transaction with us, whereby a duty or interest
might be created to conflict with his duty or interest as a director, shall
declare the nature and extent of his
41
interest in such contract or transaction or the conflict or potential conflict
with his duty and interest as a director. Generally, such director shall not
vote in respect of any such contract or transaction and if he shall do so, his
vote shall not be counted, but he shall be counted in the quorum presented at
the meeting at which such vote is taken. However, notwithstanding the foregoing,
directors shall have the right to vote on determining the remuneration of the
directors.
The directors may from time to time on our behalf (a) borrow money in such
manner and amount from such sources and upon such terms and conditions as they
think fit; (b) issue bonds, debentures and other debt obligation; or (c)
mortgage, charge or give other security on the whole or any part of our property
and assets.
SHAREHOLDERS
An annual general meeting shall be held once in every calendar year and within
15 months of the last annual general meeting at such time and place as may be
determined by the directors. A quorum at an annual general meeting and special
meeting shall be two members or two proxyholders representing members, or a
combination thereof, holding not less then 5% of the issued and outstanding
shares entitled to be voted at the meeting. We believe there is no limitation
imposed by the laws of British Columbia or by the Notice of Articles or Articles
on the right of a non-resident to hold or vote the Common Shares.
MATERIAL CONTRACTS
We have entered into the following material contracts:
1. Option Agreement between us and Rubicon dated February 16, 2004 described
above.
2. Agreement between us and Endeavour dated December 12, 2003 described
above.
3. Agreement between us and Orogen Holding (BVI) Limited dated December 11,
2003 described above.
4. Escrow Agreement among us, Computershare Investor Services Inc., Douglas
Forster and Blayne Johnson dated December 10, 2003 described above.
5. Escrow Agreement among us, Pacific Corporate Trust Company, Edward
Farrauto and Dr. Richard Henley dated May 7, 2004 described above.
6. Stock Option Agreements dated December 11, 2003 between us and each of
Edward Farrauto, Douglas B. Forster, Dr. Richard Henley, David Toyoda, and
Endeavour Financial Corp. See item 6. Directors, Senior Management and
Employees - Stock Options described above.
7. Dr. Sally L. Eyre's Stock Options dated March 15, 2004 and May 11, 2004.
See item 6. Directors, Senior Management and Employees - Stock Options
described above.
8. Jeffrey P. Franzen's Stock Options dated September 29, 2004. See item 6.
Directors, Senior Management and Employees - Stock Options described
above.
9. David Toyoda's Stock Options dated April 29, 2004. See item 6. Directors,
Senior Management and Employees - Stock Options described above.
10. John Reynolds' Stock Options dated March 4, 2005. See item 6. Directors,
Senior Management and Employees - Stock Options described above.
11. Indemnity Agreements dated December 10, 2003 and March 15, 2004 between us
and each of: Dr. Sally L. Eyre, Edward Farrauto, Douglas B. Forster, David
Toyoda and Dr. Richard Henley pursuant to which we agree to indemnity them
against liability incurred while acting as our director or officer
described above.
12. Indemnity Agreement dated September 29, 2004 between us and Jeffrey P.
Franzen pursuant to which we agree to indemnify him against liability
incurred while acting as our director described above.
42
13. Indemnity Agreement dated March 7, 2005 between us and John Reynolds
pursuant to which we agree to indemnify him against liability incurred
while acting as our director described above.
14. Sublease Agreement dated March 5, 2004 described above.
EXCHANGE CONTROLS
We do not believe there are any decrees or regulations under the laws of British
Columbia or Canada applicable to us restricting the import or export of capital
or affecting the remittance of dividends or other payments to non-resident
holders of our Common Shares, other than for the withholding of taxes. There are
no restrictions under our Notice of Articles or Articles that limits the right
of non-resident owners to hold or vote our Common Shares or to receive dividends
thereon. We are organized under the laws of British Columbia. There is
uncertainty as to whether the Courts of British Columbia would (i) enforce
judgments of United States Courts obtained against us or our directors and
officers predicated upon the civil liability provisions of the federal
securities laws of the United States or (ii) entertain original actions brought
in British Columbia Courts against us or such persons predicated upon the
federal securities laws of the United States.
There is no limitation imposed by the laws of Canada or our Notice of Articles
or Articles on the right of a non-resident to hold or vote the Common Shares,
other than as provided in the INVESTMENT ACT (Canada) (the "Investment Act").
The following discussion summarizes the principal features of the Investment Act
for a non-resident who proposes to acquire the Common Shares.
The Investment Act generally prohibits implementation of a reviewable investment
by an individual, government or agency thereof, corporation, partnership, trust
or joint venture (each an "entity") that is not a "Canadian" as defined in the
Investment Act (a "non-Canadian"), unless after review, the Director of
Investments appointed by the minister responsible for the Investment Act is
satisfied that the investment is likely to be of net benefit to Canada. An
investment in the Common Shares by a non-Canadian other than a "WTO Investor"
(as that term is defined by the Investment Act, and which term includes entities
which are nationals of or are controlled by nationals of member states of the
World Trade Organization) when we were not controlled by a WTO Investor, would
be reviewable under the Investment Act if it was an investment to acquire our
control and the value of our assets, as determined in accordance with the
regulations promulgated under the Investment Act, was $5,000,000 or more, or if
an order for review was made by the federal cabinet on the grounds that the
investment related to Canada's cultural heritage or national identity,
regardless of the value of our assets. An investment in the Common Shares by a
WTO Investor, or by a non-Canadian when we were controlled by a WTO Investor,
would be reviewable under the Investment Act if it was an investment to acquire
our control and the value of our assets, as determined in accordance with the
regulations promulgated under the Investment Act was not less than a specified
amount, which for 2000 was any amount in excess of $192 million. A non-Canadian
would acquire our control for the purposes of the Investment Act if the
non-Canadian acquired a majority of the Common Shares. The acquisition of one
third or more, but less than a majority of the Common Shares would be presumed
to be an acquisition of our control unless it could be established that, on the
acquisition, we were not controlled in fact by the acquirer through the
ownership of the Common Shares.
Certain transactions relating to the Common Shares would be exempt from the
Investment Act, including: (a) an acquisition of the Common Shares by a person
in the ordinary course of that person's business as a trader or dealer in
securities; (b) an acquisition of our control in connection with the realization
of security granted for a loan or other financial assistance and not for a
purpose related to the provisions of the Investment Act; and (c) an acquisition
of our control by reason of an amalgamation, merger consolidation or corporate
reorganization following which our ultimate direct or indirect control in fact,
through the ownership of the Common Shares, remained unchanged.
Currently 100% of our operations are in Canadian dollars.
CANADIAN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material Canadian federal income tax
considerations, as of the date hereof, generally applicable to security holders
who deal at arm's length with us, who, for purposes of the Income Tax Act
(Canada) (the "Canadian Tax Act") and any applicable tax treaty or convention,
have not been and will not be resident or deemed to be resident in Canada at any
time while they have held Common Shares, to whom such Common Shares are capital
property, and to whom such Common Shares are not "taxable Canadian property" (as
defined in the Canadian Tax Act). This summary does not apply to a non-resident
insurer.
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Generally, Common Shares will be considered to be capital property to a holder
thereof provided that the holder does not use such Common Shares in the course
of carrying on a business and has not acquired them in one or more transactions
considered to be an adventure in the nature of trade. All security holders
should consult their own tax advisors as to whether, as a matter of fact, they
hold Common Shares as capital property for the purposes of the Canadian Tax Act.
This discussion is based on the current provisions of the Canadian Tax Act and
the regulations thereunder, the current provisions of the Canada-United States
Income Tax Convention (1980) (the "Tax Treaty") and current published
administrative practices of the Canada Customs and Revenue Agency. This
discussion takes into account specific proposals to amend the Canadian Tax Act
and the regulations thereunder publicly announced by or on behalf of the
Minister of Finance (Canada) prior to the date hereof (the "Proposed
Amendments") and assumes that all such Proposed Amendments will be enacted in
their present form. No assurances can be given that the Proposed Amendments will
be enacted in the form proposed, if at all.
Except for the foregoing, this discussion does not take into account or
anticipate any changes in law, whether by legislative, administrative or
judicial decision or action, nor does it take into account provincial,
territorial or foreign income tax legislation or considerations, which may
differ from the Canadian federal income tax considerations described herein.
WHILE INTENDED TO ADDRESS ALL MATERIAL CANADIAN FEDERAL INCOME TAX
CONSIDERATIONS, THIS SUMMARY IS OF A GENERAL NATURE ONLY. THEREFORE, SECURITY
HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THEIR
PARTICULAR CIRCUMSTANCES.
Generally, Common Shares will not be "taxable Canadian property" at a particular
time provided that such Common Shares are listed on a prescribed stock exchange
(which proposed legislation includes the TSX Venture Exchange), the holder does
not use or hold, and is not deemed to use or hold, Common Shares in connection
with carrying on a business in Canada and the holder, persons with whom such
holder does not deal at arm's length, or the holder and such persons, has not
owned (or had under option) 25% or more of the issued shares of any class or
series of our capital stock at any time within sixty months preceding the
particular time.
Generally, a holder of Common Shares that are not taxable Canadian property will
not be subject to tax under the Canadian Tax Act on the sale or other
disposition of shares.
Dividends paid or deemed to be paid on Common Shares are subject to non-resident
withholding tax under the Canadian Tax Act at the rate of 25%, although such
rate may be reduced under the provisions of an applicable income tax treaty or
convention. For example, under the Tax Treaty, the rate is reduced to 5% in
respect of dividends paid to a company that is the beneficial owner thereof,
that is resident in the United States for purposes of the Tax Treaty and that
owns at least 10% of our voting stock. In all other cases, the rate is reduced
to 15% in respect of dividends paid to the beneficial owner thereof that is
resident in the United States for purposes of the Tax Treaty.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the material United States Federal
income tax law for U.S. holders that hold Common Shares as a capital asset, as
defined under United States Federal income tax law and is limited to discussion
of U.S. Holders that own less than 10% of the common stock. This discussion does
not address all potentially relevant Federal income tax matters and it does not
address consequences peculiar to persons subject to special provisions of
Federal income tax law, such as those described below as excluded from the
definition of a U.S. Holder. 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 to the date hereof (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 any future legislation
which, if enacted, could be applied, possibly on a retroactive basis, at any
time. The following discussion is for general information only and it is not
intended to be, nor should it be construed to be, legal or tax advice to any
holder or prospective holder of Common Shares and no opinion or representation
with respect to the United States Federal income tax consequences to any such
holder or prospective holder is made. Accordingly, holders and prospective
holders of Common Shares
44
are urged to consult their own tax advisors about the Federal, state, local, and
foreign tax consequences of purchasing, owning and disposing of Common Shares.
U.S. Holders
- ------------
As used herein, a "U.S. Holder" is a holder of Common Shares who or which is a
citizen or individual resident (or is treated as a citizen or individual
resident) of the United States for federal income tax purposes, a corporation or
partnership created or organized (or treated as created or organized for federal
income tax purposes) in the United States, including only the States and
District of Columbia, or under the law of the United States or any State or
Territory or any political subdivision thereof, or a trust or estate the income
of which is includable in its gross income for federal income tax purposes
without regard to its source, if, (i) a court within the United States is able
to exercise primary supervision over the administration of the trust and (ii)
one or more United States trustees have the authority to control all substantial
decisions of the trust. For purposes of this discussion, a U.S. Holder does not
include 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 and Holders who acquired their stock through the
exercise of employee stock options or otherwise as compensation.
Distributions on Common Shares of the Company
- ---------------------------------------------
U.S. Holders, who do not fall under any of the provisions contained within the
"Other Considerations for U.S. Holders" section, and receiving dividend
distributions (including constructive dividends) with respect to Common Shares
are required to include in gross income for United States Federal income tax
purposes the gross amount of such distributions to the extent that we have
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 our distributions exceed current or accumulated
earnings and profits, they will be treated first as a return of capital up to
the U.S. Holder's adjusted basis in the Common Shares and thereafter as gain
from the sale or exchange of the Common 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 Common Shares will not generally be eligible for the
dividends received deduction provided to corporations receiving dividends from
certain United States corporations. A U.S. Holder which is a corporation may,
under certain circumstances, be entitled to a 70% deduction of the United States
source portion of dividends received from us (unless we qualify as a "foreign
personal holding company" or a "passive foreign investment company", as defined
below) if such U.S. Holder owns shares representing at least 10% of the voting
power and value of us. Because we expect that we will be classified as a
"passive foreign investment company" as described below, this deduction will not
be available to a U.S. Holder which is a corporation.
Foreign Tax Credit
- ------------------
A U.S. Holder, who does not fall under any of the provisions contained within
the "Other Considerations for U.S. Holders" section, and who pays (or has
withheld from distributions) Canadian income tax with respect to the ownership
of Common Shares 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. There are significant and complex limitations
which apply to the credit, among which is the general limitation that the credit
cannot exceed the proportionate shares of the U.S. Holder's United States income
tax liability that the U.S. Holder's foreign source taxable income bears to his
or its world-wide taxable income. In the determination of the application of
this limitation, the various items of income and deduction must be classified
into foreign and domestic (U.S.) sources. Complex rules govern this
classification process. In addition, this limitation is calculated separately
with respect to specific classes of income such as "passive income", "high
withholding tax interest", "financial services income", "shipping income", and
certain other classifications of income. Dividends distributed by us will
generally constitute foreign source "passive income" or, in the case of U.S.
Holders, "financial services income" for these purposes. The availability of the
foreign tax credit
45
and the application of the limitations on the credit are fact specific and
holders and prospective holders of Common Shares are urged to consult their own
tax advisors regarding their individual circumstances.
Disposition of our Common Shares
- --------------------------------
A U.S. Holder, who does not fall under any of the provisions contained within
the "Other Considerations for U.S. Holders" section, and will recognize gain or
loss upon the sale of Common Shares of equal to the difference, if any, between
the amount of cash plus the fair market value of any property received, and the
Holder's tax basis in the Common Shares. This gain or loss will be capital gain
or loss if the Common Shares are a capital asset in the hands of the U.S. Holder
unless we were to become a controlled foreign corporation. For the effect on us
becoming a controlled corporation, see "Controlled Foreign Company Status"
below. Any capital gain will be a short-term or long-term capital gain or loss
depending upon the holding period of the U.S. Holder. 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 which 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. Holders 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 for U.S. Holders
- -------------------------------------
In the following circumstances, the above sections of this discussion may not
describe the United States Federal income tax consequences resulting from the
holding and disposition of Common Shares.
FOREIGN PERSONAL HOLDING COMPANY
If at any time during a taxable year more than 50% of the total combined voting
power or the total value of our outstanding shares is owned, actually or
constructively, by five or fewer individuals who are citizens or residents of
the United States and 60% (50% after the first year) or more of our gross income
for such year was derived from certain passive sources (e.g., from interest,
dividends and certain rents), we would be treated as a "foreign personal holding
company." In that event, U.S. Holders that hold Common Shares would be required
to include in income for such year their allocable portion of our passive income
which would have been treated as a dividend had that passive income actually
been distributed.
FOREIGN INVESTMENT COMPANY
If 50% or more of the combined voting power or total value of our outstanding
shares are held, actually or constructively, by citizens or residents of the
United States, United States domestic partnerships or corporations, or estates
or trusts other than foreign estates or trusts (as defined by the Code Section
7701(a)(31)), and we are found to be engaged primarily in the business of
investing, reinvesting, or trading in securities, commodities, or any interest
therein, it is possible that we might be treated as a "foreign investment
company" as defined in Section 1246 of the Code, causing all or part of any gain
realized by a U.S. Holder selling or exchanging Common Shares to be treated as
ordinary income rather than capital gains.
PASSIVE FOREIGN INVESTMENT COMPANY
As a foreign corporation with U.S. shareholders, the corporation could be
treated as a passive foreign investment corporation ("PFIC"). Section 1297 of
the Code defines a PFIC as a corporation that is not formed in the United States
and, for any taxable year, either (i) 75% or more of its gross income is
"passive income," which includes but is not limited to interest, dividends and
certain rents and royalties or (ii) at least 50% of our assets held during the
year produce or are held for the production of passive income. The 50% test is
based upon the value of our assets (or, the adjusted tax basis of our assets, if
we are not publicly traded and are a controlled foreign corporation or makes an
election). WE BELIEVE THAT WE HAVE BEEN A PFIC FOR EACH FISCAL YEAR SINCE OUR
INCORPORATION, AND EXPECT TO BE CHARACTERIZED AS A PFIC THIS FISCAL YEAR.
46
A U.S. Holder who holds stock in a PFIC is subject to U.S. federal income
taxation of that foreign corporation under one of two alternative tax methods at
the election of each such U.S. Holder.
As a PFIC, each U.S. Holder must determine under which of the alternative tax
methods it wishes to be taxed. Under one method, a U.S. Holder who elects in a
timely manner to treat us as a Qualified Electing Fund ("QEF"), as defined in
the Code, (an "Electing U.S. Holder") will be subject, under Section 1293 of the
Code, to current federal income tax for any taxable year in which we qualify as
a PFIC on his pro-rata share of our (i) "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), which will be taxed as
long-term capital gain to the Electing U.S. Holder and (ii) "ordinary earnings"
(the excess of earnings and profits over net capital gain), which will be taxed
as ordinary income to the Electing U.S. Holder, in each case, for the U.S.
Holder's taxable year in which (or with which) our taxable year ends, regardless
of whether such amounts are actually distributed.
A QEF election also allows the Electing U.S. Holder to (i) generally treat any
gain realized on the disposition of his Common Shares (or deemed to be realized
on the pledge of his Common Shares) as capital gain; (ii) treat his share of our
net capital gain, if any, as long-term capital gain instead of ordinary income,
and (iii) either avoid interest charges resulting from PFIC status altogether
(see discussion of interest charge below), or make an annual election, subject
to certain limitations, to defer payment of current taxes on his share of our
annual realized net capital gain and ordinary earnings subject, however, to an
interest charge. If the Electing U.S. Holder is not a corporation, such an
interest charge would be treated as non-deductible "personal interest."
The procedure a U.S. Holder must comply with in making a timely QEF election
will depend on whether the year of the election is the first year in the U.S.
Holder's holding period in which we are a PFIC. If the U.S. Holder makes a QEF
election in such first year, (sometimes referred to as a "Pedigreed QEF
Election"), then the U.S. Holder may make the QEF election by simply filing the
appropriate documents at the time the U.S. Holder files its tax return for such
first year. If, however, we qualified as a PFIC in a prior year, then in
addition to filing documents, the U.S. Holder may also elect to recognize as an
"excess distribution" (i) under the rules of Section 1291 (discussed below), any
gain that he would otherwise recognize if the U.S. Holder sold his stock on the
application date or (ii) if we are a controlled foreign corporation ("CFC"), the
Holder's pro rata share of the corporation's earnings and profits. (But see
"Elimination of Overlap Between Subpart F Rules and PFIC Provisions"). Either
the deemed sale election or the deemed dividend election will result in the U.S.
Holder being deemed to have made a timely QEF election.
With respect to a situation in which a Pedigreed QEF election is made, if we no
longer qualify as a PFIC in a subsequent year, normal Code rules and not the
PFIC rules will apply.
If a U.S. Holder has not made a QEF Election at any time (a "Non-electing U.S.
Holder"), then special taxation rules under Section 1291 of the Code will apply
to (i) gains realized on the disposition (or deemed to be realized by reason of
a pledge) of his Common Shares and (ii) certain "excess distributions", as
specially defined, by us.
A Non-electing U.S. Holder generally would be required to pro-rate all gains
realized on the disposition of his Common Shares and all excess distributions
over the entire holding period for the Common Shares. All gains or excess
distributions allocated to prior years of the U.S. Holder (other than years
prior to our first taxable year during such U.S. Holder's holding period and
beginning after January 1, 1987 for which it was a PFIC) would be taxed at the
highest tax rate for each such prior year applicable to ordinary income. The
Non-electing U.S. Holder also would be liable for interest on the foregoing tax
liability for each such prior year calculated as if such liability had been due
with respect to each such prior year. A Non-electing U.S. Holder that is not a
corporation must treat this interest charge as "personal interest" which, as
discussed above, is wholly non-deductible. The balance of the gain or the excess
distribution will be treated as ordinary income in the year of the disposition
or distribution, and no interest charge will be incurred with respect to such
balance.
If we are a PFIC for any taxable year during which a Non-electing U.S. Holder
holds Common Shares, then we will continue to be treated as a PFIC with respect
to such Common Shares, even if it is no longer by definition a PFIC. A
Non-electing U.S. Holder may terminate this deemed PFIC status by electing to
recognize gain (which will be taxed under the rules discussed above for
Non-Electing U.S. Holders) as if such Common Shares had been sold on the last
day of the last taxable year for which it was a PFIC.
Under Section 1291(f) of the Code, the Department of the Treasury has issued
proposed regulations that would treat as taxable certain transfers of PFIC stock
by Non-electing U.S. Holders that are generally not otherwise taxed, such as
gifts, exchanges pursuant to corporate reorganizations, and transfers at death.
47
If a U.S. Holder makes a QEF Election that is not a Pedigreed Election (i.e. it
is made after the first year during which we are a PFIC and the U.S. Holder
holds our shares) (a "Non-Pedigreed Election"), the QEF rules apply
prospectively but do not apply to years prior to the year in which the QEF first
becomes effective. U.S. Holders are urged to consult their tax advisors
regarding the specific consequences of making a Non-Pedigreed QEF Election.
Certain special, generally adverse, rules will apply with respect to the Common
Shares while we are a PFIC whether or not it is treated as a QEF. For example
under Section 1298(b)(6) of the Code, a U.S. Holder who uses PFIC stock as
security for a loan (including a margin loan) will, except as may be provided in
regulations, be treated as having made a taxable disposition of such stock.
The foregoing discussion is based on currently effective provisions of the Code,
existing and proposed regulations thereunder, and current administrative rulings
and court decisions, all of which are subject to change. Any such change could
affect the validity of this discussion. In addition, the implementation of
certain aspects of the PFIC rules requires the issuance of regulations which in
many instances have not been promulgated and which may have retroactive effect.
There can be no assurance that any of these proposals will be enacted or
promulgated, and if so, the form they will take or the effect that they may have
on this discussion. Accordingly, and due to the complexity of the PFIC rules,
U.S. Holders of the Common Shares are strongly urged to consult their own tax
advisors concerning the impact of these rules on their investment in us.
MARK-TO-MARKET ELECTION FOR PFIC STOCK
A U.S. Holder of a PFIC may make a mark-to-market election with respect to the
stock of the PFIC if such stock is marketable as defined below. This provision
is designed to provide a current inclusion provision for persons that are
Non-Electing Holders. Under the election, any excess of the fair market value of
the PFIC stock at the close of the tax year over the Holder's adjusted basis in
the stock is included in the Holder's income. The Holder may deduct the lesser
of any excess of the adjusted basis of the PFIC stock over its fair market value
at the close of the tax year, or the "unreversed inclusions" with respect to the
PFIC stock (the net mark-to-market gains on the stock that the Holder included
in income in prior tax years).
For purposes of the election, PFIC stock is marketable if it is regularly traded
on (1) a national securities exchange that is registered with the SEC, (2) the
national market system established under Section 11A of the Securities Exchange
Act of 1934, or (3) an exchange or market that the IRS determines has rules
sufficient to ensure that the market price represents legitimate and sound fair
market value.
A Holder's adjusted basis of PFIC stock is increased by the income recognized
under the mark-to-market election and decreased by the deductions allowed under
the election. If a U.S. Holder owns PFIC stock indirectly through a foreign
entity, the basis adjustments apply to the basis of the PFIC stock in the hands
of the foreign entity for the purpose of applying the PFIC rules to the tax
treatment of the U.S. owner. Similar basis adjustments are made to the basis of
the property through which the U.S. persons hold the PFIC stock.
Income recognized under the mark-to-market election and gain on the sale of PFIC
stock with respect to which an election is made is treated as ordinary income.
Deductions allowed under the election and loss on the sale of PFIC with respect
to which an election is made, to the extent that the amount of loss does not
exceed the net mark-to-market gains previously included, are treated as ordinary
losses. The U.S. or foreign source of any income or losses is determined as if
the amount were a gain or loss from the sale of stock in the PFIC.
If PFIC stock is owned by a Controlled Foreighn Company ("CFC") (discussed
below), the CFC is treated as a U.S. person that may make the mark-to-market
election. Amounts includable in the CFC's income under the election are treated
as foreign personal holding company income, and deductions are allocable to
foreign personal holding company income.
The rules of Code Section 1291 applicable to nonqualified funds generally do not
apply to a U.S. Holder for tax years for which a mark-to-market election is in
effect. If Code Section 1291 is applied and a mark-to-market election was in
effect for any prior tax year, the U.S. Holder's holding period for the PFIC
stock is treated as beginning immediately after the last tax year of the
election. However, if a taxpayer makes a mark-to-market election for PFIC stock
that is a nonqualified fund after the beginning of a taxpayer's holding period
for such stock, a coordination rule applies to ensure that the taxpayer does not
avoid the interest charge with respect to amounts attributable to periods before
the election.
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CONTROLLED FOREIGN COMPANY STATUS
If more than 50% of the voting power of all classes of stock or the total value
of our stock is owned, directly or indirectly, by U.S. Holders, each of whom own
10% or more of the total combined voting power of all classes of our stock, we
would be treated as a CFC under Subpart F of the Code. This classification would
bring into effect many complex results including the required inclusion by such
10% U.S. Holders in income of their pro rata shares of "Subpart F income" (as
defined by the Code) of us and our earnings invested in "U.S. property" (as
defined by the Code). In addition, under Section 1248 of the Code, gain from the
sale or exchange of Common Shares by such a 10% U.S. Holder of us at any time
during the five year period ending with the sale or exchange is treated as
ordinary dividend income to the extent of our earnings and profits attributable
to the stock sold or exchanged. Because of the complexity of Subpart F, and
because we may never be a CFC, a more detailed review of these rules is beyond
of the scope of this discussion.
ELIMINATION OF OVERLAP BETWEEN SUBPART F RULES AND PFIC PROVISIONS
Under the Taxpayer Relief Act of 1997, a PFIC that is also a CFC will not be
treated as a PFIC with respect to certain 10% U.S. Holders. For the exception to
apply, (i) the corporation must be a CFC within the meaning of section 957(a) of
the Code and (ii) the U.S. Holder must be subject to the current inclusion rules
of Subpart F with respect to such corporation (i.e., the U.S. Holder is a
"United States Shareholder," see "Controlled Foreign Corporation," above). The
exception only applies to that portion of a U.S. Holder's holding period
beginning after December 31, 1997. For that portion of a United States Holder
before January 1, 1998, the ordinary PFIC and QEF rules continue to apply.
As a result of this provision, if we were ever to become a CFC, U.S. Holders who
are currently taxed on their pro rata shares of Subpart F income of a PFIC which
is also a CFC will not be subject to the PFIC provisions with respect to the
same stock if they have previously made a Pedigreed QEF Election. The PFIC
provisions will however continue to apply to PFIC/CFC U.S. Holders for any
periods in which they are not subject to Subpart F and to U.S. Holders that did
not make a Pedigreed QEF Election unless the U.S. Holder elects to recognize
gain on the PFIC shares held in us as if those shares had been sold.
DIVIDEND AND PAYING AGENTS
The declaration of dividends on our Common Shares is within the discretion of
our board of directors and will depend on the assessment of, among other
factors, earnings, capital requirements and our operating and financial
condition. At the present time, our anticipated capital requirements are such
that we intend to follow a policy of retained earnings in order to finance the
further development of our business.
STATEMENT BY EXPERTS
Our financial statements for each of the years in the three year period ended
December 31, 2004, 2003 and 2002 included in this Registration Statement have
been audited by Staley Okada & Partners, independent auditors, as stated in
their reports appearing herein (which reports express an unqualified opinion),
and are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The descriptions of the Point Leamington Property contained in Item 4.
Information on the Company are summarized from reports prepared by Callum Grant,
P.Eng. and Gary Giroux, P.Eng. of HATCH Associates Ltd. of Suite 200 - 1550
Alberni Street, Vancouver, British Columbia, V6E 1A5.
DOCUMENTS ON DISPLAY
Any documents referred to in this registration statement on Form 20-F may be
inspected at our principal office located at Suite 285, 200 Granville Street,
Vancouver, British Columbia, V6C 1S4 during normal business hours.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
================================================================================
Not applicable.
49
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
================================================================================
Not applicable.
PART II
ITEM 13. DEFAULTS, DIVIDENDS ARREARAGES AND DELINQUENCIES
================================================================================
Not Applicable.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS
OF SECURITY HOLDERS AND USE OF PROCEEDS
================================================================================
Not Applicable.
ITEM 15. CONTROLS AND PROCEDURES
================================================================================
Not Applicable.
ITEM 16. AUDIT COMMITTEE FINANCIAL EXPERT
ITEM 16B. CODE OF ETHICS
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
================================================================================
Not Applicable.
PART III
ITEM 17. FINANCIAL STATEMENTS
================================================================================
The financial statements of TLC Ventures Corp. are filed as part of this
Registration Statement.
The following Financial Statements are filed as part of this Registration
Statement, together with the Reports of the Independent Auditors:
EXHIBIT
REFERENCE #
- -----------
TLC VENTURES CORP.
N/A Report of Independent Auditors
N/A Balance Sheets
N/A Statements of Operations
N/A Statements of Shareholders' Equity
N/A Statements of Cash Flows
N/A Notes to the Financial Statements
50
TLC VENTURES CORP.
(An Exploration Stage Company)
FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
(Expressed in Canadian Funds)
51
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Directors of TLC Ventures Corp.:
We have audited the accompanying balance sheets of TLC Ventures Corp. (An
Exploration Stage Company) as at December 31, 2004 and 2003 and the related
statements of changes in shareholders' equity, loss and cash flows for the years
ended December 31, 2004, 2003 and 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statements presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 2004 and 2003
and the changes in shareholders' equity, results of its operations and its cash
flows for the years ended December 31, 2004, 2003 and 2002 in accordance with
Canadian generally accepted accounting principles.
/s/ Staley, Okada & Partners
Vancouver, B.C. STALEY, OKADA & PARTNERS
January 14, 2005 CHARTERED ACCOUNTANTS
52
TLC Ventures Corp. Statement 1
- ------------------ -----------
(An Exploration Stage Company)
BALANCE SHEETS
AS AT DECEMBER 31
Canadian Funds
ASSETS 2004 2003
- --------------------------------------------------------------------------------
CURRENT
Cash and cash equivalents $ 6,192,278 $ 459,871
Amounts receivable 98,231 998
Prepaid expenses and advances 71,505 --
-----------------------------
6,362,014 460,869
PROPERTY, PLANT AND EQUIPMENT, NET OF
ACCUMULATED AMORTIZATION (NOTE 4) 57,674 --
MINERAL PROPERTY COSTS - SCHEDULE (NOTE 5) 761,221 --
-----------------------------
$ 7,180,909 $ 460,869
- --------------------------------------------------------------------------------
LIABILITIES
- --------------------------------------------------------------------------------
CURRENT
Accounts payable $ 14,716 $ 6,255
Accrued liabilities 17,000 --
Due to related parties (NOTE 7A) 13,058 12,120
-----------------------------
44,774 18,375
SHARE SUBSCRIPTIONS RECEIVED IN ADVANCE (NOTE 6C) -- 460,000
SHAREHOLDERS' EQUITY (DEFICIENCY)
- --------------------------------------------------------------------------------
SHARE CAPITAL - STATEMENT 2 (NOTE 6) 14,593,350 5,738,611
DEFICIT - STATEMENT 2 (7,457,215) (5,756,117)
-----------------------------
7,136,135 (17,506)
$ 7,180,909 $ 460,869
================================================================================
ON BEHALF OF THE BOARD:
/s/ Sally Eyre, Director
/s/ Edward Farrauto, Director
- See Accompanying Notes -
53
TLC Ventures Corp. Statement 2
(An Exploration Stage Company) -----------
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31
Canadian Funds
Common Shares Accumulated
Shares Amount Deficit Total
=============================================================================================================
Balance - December 31, 2001 7,529,001 $ 5,487,872 $ (5,381,616) $ 106,256
Issuance of shares for cash 1,175,000 117,500 -- 117,500
Loss for the year -- -- (62,147) (62,147)
--------------------------------------------------------
Balance - December 31, 2002 8,704,001 5,605,372 (5,443,763) 161,609
Stock compensation expense -- 133,239 -- 133,239
Loss for the year -- -- (312,354) (312,354)
--------------------------------------------------------
Balance - December 31, 2003 8,704,001 5,738,611 (5,756,117) (17,506)
Issuance of shares for cash 10,300,000 7,875,000 -- 7,875,000
Issuance of shares for mineral property 150,000 202,500 -- 202,500
Issuance of shares for finder's fees 300,000 -- -- --
Shares issuance costs -- (47,278) -- (47,278)
Stock compensation expense -- 824,517 -- 824,517
Loss for the year -- -- (1,701,098) (1,701,098)
--------------------------------------------------------
Balance - December 31, 2004 19,454,001 $ 14,593,350 $ (7,457,215) $ 7,136,135
=============================================================================================================
- See Accompanying Notes -
54
TLC Ventures Corp. Statement 3
(An Exploration Stage Company) -----------
STATEMENTS OF LOSS
FOR THE YEARS ENDED DECEMBER 31
Canadian Funds
2004 2003 2002
=============================================================================================================
EXPENSES
Audit and accounting fees $ 32,605 $ 8,700 $ 4,238
Amortization 10,605 -- --
Bank charges 660 400 222
Foreign exchange 441 -- --
Consulting fees 63,000 -- --
Insurance 19,015 -- --
Legal fees 110,827 14,349 2,043
Marketing 46,569 -- --
Office, postage and printing 43,145 -- --
Rent 34,375 23,550 25,600
Salaries and wages 274,624 -- --
Salaries and wages - Stock compensation 824,517 133,239 --
Shareholder relations 7,563 16,362 20,253
Telephone and utilities 10,632 -- --
Trade shows, conferences 14,467 -- --
Transfer agent, regulatory fees 23,644 9,512 5,849
Travel 157,989 4,400 4,800
---------------------------------------------
(1,674,678) (210,512) (63,005)
---------------------------------------------
OTHER ITEMS
Gain on forgiveness of debt -- 139,408 --
Mineral properties written off -- (241,520) --
Property investigation (102,098) -- --
Interest income 75,678 270 858
---------------------------------------------
LOSS FOR THE YEAR $ (1,701,098) $ (312,354) $ (62,147)
=============================================================================================================
LOSS PER SHARE - BASIC AND DILUTED $ (0.10) $ (0.04) $ (0.01)
=============================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 16,971,078 8,704,001 8,433,590
=============================================================================================================
- See Accompanying Notes -
55
TLC Ventures Corp. Statement 4
(An Exploration Stage Company) -----------
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
Canadian Funds
CASH RESOURCES PROVIDED BY (USED IN) 2004 2003 2002
=============================================================================================================
OPERATING ACTIVITIES
Loss for the year $ (1,701,098) $ (312,354) $ (62,147)
Items not affecting cash:
Amortization 10,605 -- --
Gain on forgiveness of debt -- (139,408) --
Mineral properties written off -- 241,520 --
Stock-based compensation 824,517 133,239 --
---------------------------------------------
(865,976) (77,003) (62,147)
Net changes in non-cash working capital components:
Amounts receivable (97,233) (846) 507
Accounts payable and accrued liabilities 26,399 (22,981) 36,101
Prepaid expenses (71,505) -- 5,150
---------------------------------------------
(1,008,315) (100,830) (20,389)
---------------------------------------------
INVESTING ACTIVITIES
Property, plant and equipment acquired (68,279) -- --
Mineral property costs (558,721) -- (152,000)
---------------------------------------------
(627,000) -- (152,000)
---------------------------------------------
FINANCING ACTIVITIES
Loans payable -- 66,908 22,500
Share subscriptions received in advance -- 460,000 --
Cash received for shares - net of issuance costs 7,367,722 -- 117,500
---------------------------------------------
7,367,722 526,908 140,000
---------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,732,407 426,078 (32,389)
Cash and Cash Equivalents - Beginning of Year 459,871 33,793 66,182
---------------------------------------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 6,192,278 $ 459,871 $ 33,793
=============================================================================================================
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Shares issued for mineral property $ 202,500 $ -- $ --
Shares issued for finder's fees $ -- $ -- $ --
Stock-compensation costs recorded in share capital $ 824,517 $ 133,239 $ --
=============================================================================================================
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest $ -- $ -- $ --
Cash paid for income taxes $ -- $ -- $ --
=============================================================================================================
- See Accompanying Notes -
56
TLC Ventures Corp. Schedule
(An Exploration Stage Company) --------
SCHEDULES OF MINERAL PROPERTY COSTS
FOR THE YEARS ENDED DECEMBER 31
Canadian Funds
2004 2003 2002
=============================================================================================================
DAWSON CLEAR CREEK PROPERTY, YUKON, CANADA
Acquisition costs
Cash - option payments $ -- $ -- $ 150,000
Deferred exploration expenditures
Geological and field expenses -- -- 2,000
---------------------------------------------
-- -- 152,000
---------------------------------------------
POINT LEAMINGTON PROPERTY, NEWFOUNDLAND, CANADA
Acquisition costs
Cash - option payments 125,000 -- --
Shares - option payments 202,500 -- --
---------------------------------------------
327,500 -- --
---------------------------------------------
Deferred exploration expenditures
Assaying 15,465 -- --
Camp and general 28,460 -- --
Drilling 194,229 -- --
Equipment rental 27,486 -- --
Geological consulting 127,762 -- --
Geophysical 14,486 -- --
Mineral claim maintenance 25,833 -- --
---------------------------------------------
433,721 -- --
---------------------------------------------
COSTS FOR THE YEAR 761,221 -- 152,000
Balance - Beginning of year -- 241,520 89,520
Write-off of mineral property costs -- (241,520) --
---------------------------------------------
BALANCE - END OF YEAR $ 761,221 $ -- $ 241,520
=============================================================================================================
- See Accompanying Notes -
57
TLC Ventures Corp.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
Canadian Funds
1. NATURE OF BUSINESS
TLC Ventures Corp. ("TLC" or the "Company") is an exploration and mine
development company focused on the acquisition, advancement and development of
global precious and base metal assets. The recovery of the Company's investment
in its mineral properties is dependent upon the discovery, development and sale
of ore reserves and the ability to raise sufficient capital to finance these
operations. The ultimate outcome of these operations cannot presently be
determined because they are contingent on future matters.
The Company's common shares are listed on the TSX Venture Exchange under the
symbol "TLV". The Company's corporate head office is in Vancouver, Canada.
2. SIGNIFICANT ACCOUNTING POLICIES
A) CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers cash and
cash equivalents to include amounts held in banks and highly liquid
investments with remaining maturities at point of purchase of 90 days
or less. The Company places its cash and cash equivalents with
institutions of high-credit worthiness.
B) MINERAL PROPERTIES AND DEFERRED EXPLORATION EXPENDITURES
The Company is in the process of exploring its mineral properties and
has not yet determined whether these properties contain ore reserves
that are economically recoverable.
Mineral exploration and development costs are capitalized on an
individual prospect basis until such time as an economic ore body is
defined or the prospect is abandoned. Costs for a producing prospect
are amortized on a unit-of-production method based on the estimated
life of the ore reserves, while costs for the prospects abandoned are
written off.
The recoverability of the amount capitalized for the undeveloped
resource properties is dependent upon the determination of economically
recoverable ore reserves, confirmation of the Company's interest in the
underlying mineral claims, the ability to farm out its mineral
properties, the ability to obtain the necessary financing to complete
their development and future profitable production or proceeds from the
disposition thereof.
Title to mineral properties involves certain inherent risks due to the
difficulties of determining the validity of certain claims as well as
the potential for problems arising from the frequently ambiguous
conveyancing history characteristic of mineral properties. The Company
has investigated title to all of its mineral properties and, to the
best of its knowledge, title to all of its properties are in good
standing.
C) OPTION AGREEMENT
From time to time, the Company may acquire or dispose of properties
pursuant to the terms of option agreements. Due to the fact that
options are exercisable entirely at the discretion of the optionee, the
amounts payable or receivable are not recorded. Option payments are
recorded as mineral property costs or recoveries when the payments are
made or received.
D) AMORTIZATION
The Company provides for amortization on its property, plant and
equipment at an annual rate as follows:
(i) 20% for furniture and office equipment on the declining balance
method,
58
TLC Ventures Corp.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
Canadian Funds
(ii) 30% - 45% for computer equipment and software on the declining
balance method, and
(iii) leasehold improvements are amortized on a straight-line basis
over the term of the lease.
One-half of the above rate is taken in the year of acquisition.
E) INCOME TAXES
Income taxes are accounted for using the asset and liability method.
Future taxes are recognized for the tax consequences of "temporary
differences" by applying enacted or substantively enacted statutory tax
rates applicable to future years to differences between the financial
statement carrying amounts and tax basis of existing assets and
liabilities. The effect on deferred taxes for a change in tax rates is
recognized in income in the period that includes the date of enactment
or substantive enactment. In addition, the method requires the
recognition of future tax benefits to the extent that realization of
such benefits is more likely than not.
F) SHARE CAPITAL
i) The proceeds from the exercise of stock options, warrants and
escrow shares are recorded as share capital in the amount for
which the option, warrant or escrow share enabled the holder to
purchase a share in the Company.
ii) Share capital issued for non-monetary consideration is recorded at
an amount based on fair market value.
G) STOCK-BASED COMPENSATION - CHANGE IN ACCOUNTING POLICY
As encouraged by CICA Handbook Section 3870 the Company enacted
prospectively early adoption of the fair value based method of
accounting for awards to employees for the fiscal year beginning
January 1, 2003.
The new standard requires that all stock-based awards made to employees
and non-employees be measured and recognized using a fair value based
method. In prior years, stock-based compensation expense was only
recognized when stock-based compensation awards were made to
non-employees, while pro-forma disclosure was acceptable for awards
made to employees.
H) LOSS PER SHARE
Basic earnings (loss) per share is computed by dividing income (loss)
available to common shareholders by the weighted average number of
common shares outstanding during the year. The computation of diluted
earnings per share assumes the conversion, exercise or contingent
issuance of securities only when such conversion, exercise or issuance
would have a dilutive effect on earnings per share. The dilutive effect
of convertible securities is reflected in diluted earnings per share by
application of the "if converted" method. The dilutive effect of
outstanding options and warrants and their equivalents is reflected in
diluted earnings per share by application of the treasury stock method.
I) MANAGEMENT'S ESTIMATES
The preparation of financial statements in conformity with Canadian
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the dates of the financial statements and the reported amounts of
revenues and expenses during the reported periods. Actual results could
differ from those estimates.
59
TLC Ventures Corp.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
Canadian Funds
J) FLOW-THROUGH SHARES
During the year, the Company adopted the new recommendations of the
Emerging Issues Committee relating to flow-through shares effective for
all flow-through agreements dated after March 19, 2004. Canadian Income
Tax Legislation permits an enterprise to issue securities referred to
as flow-through shares, whereby the investor can claim the tax
deductions arising from the renunciation of the related resource
expenditures. When resource expenditures are renounced to the investors
and the Company has reasonable assurance that the expenditures will be
completed, future income tax liabilities are recognized (renounced
expenditures multiplied by the effective tax rate) thereby reducing
share capital.
If a company has sufficient unused tax losses and deductions ("losses")
to offset all or part of the future income tax liabilities and no
future income tax assets have been previously recognized on such
losses, a portion of such unrecognized losses (losses multiplied by the
effective corporate tax rate) is recorded as income up to the amount of
the future income tax liability that was previously recognized on the
renounced expenditures. As no flow-through shares were issued during
the year, there was no impact on the financial statements for the
current fiscal year.
K) ASSET RETIREMENT OBLIGATION
Effective January 1, 2004, the Company adopted the recommendations of
CICA Handbook Section 3110, Asset Retirement Obligations. This new
section requires recognition of a legal liability for obligations
relating to retirement of property, plant, and equipment, and arising
from the acquisition, construction, development, or normal operation of
those assets. Such asset retirement cost must be recognized at fair
value when a reasonable estimate of fair value can be estimated, in the
period in which it is incurred, added to the carrying value of the
asset, and amortized into income on a systematic basis over its useful
life.
There is no material impact on the financial statements resulting from
the adoption of Section 3110 either in the current or prior years
presented.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
amounts receivable and accounts payable, and amounts due to related
parties. 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. The fair value of these
instruments approximates their carrying value due to their short-term
maturity or capacity of prompt liquidation.
4. PROPERTY, PLANT AND EQUIPMENT
Details are as follows:
Net Book Net Book
Accumulated Value Value
Cost Amortization 2004 2003
---------------------------------------------------------------
Computer equipment and software $ 23,483 $ (3,523) $ 19,960 $ --
Furniture and office equipment 19,918 (1,993) 17,925 --
Leasehold improvements 24,878 (5,089) 19,789 --
---------------------------------------------------------------
$ 68,279 $ (10,605) $ 57,674 $ --
---------------------------------------------------------------
60
TLC Ventures Corp.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
Canadian Funds
5. MINERAL PROPERTY COSTS
Details are as follows:
Deferred Total Total
Acquisition Exploration 2004 2003
---------------------------------------------------------------
Point Leamington Property $ 327,500 $ 433,721 $ 761,221 $ --
A) POINT LEAMINGTON PROPERTY, NEWFOUNDLAND, CANADA
Pursuant to a letter agreement dated February 13, 2004 with Rubicon
Minerals Corporation ("Rubicon"), a company with a director in common,
the Company acquired the option to purchase a 100% interest in the
Point Leamington deposit and Mining Lease, located in Newfoundland,
Canada. As consideration, the Company, at its option, must issue
300,000 common shares and pay $250,000 as follows:
Shares Cash
--------------------------
Upon regulatory approval (issued/paid) 150,000 $ 125,000
On or before May 7, 2005 75,000 50,000
On or before May 7, 2006 75,000 75,000
--------------------------
300,000 $ 250,000
--------------------------
The Company or its nominee has a right of first refusal on the purchase
of any or all of the 300,000 shares if Rubicon intends to sell them.
There is an Area of Interest (AOI) in the agreement whereby additional
claims staked by either Rubicon or the Company within 1.5 km of the
boundary of the Point Leamington Mining Lease will form part of the
Agreement. In addition if, prior to the Company fulfilling the full
conditions of the agreement, the Company sells a 100% interest in the
project to an arms-length third party, Rubicon shall receive 50% of the
gross sale proceeds less the total consideration paid to them pursuant
to the agreement prior to the date of sale.
There is a 2% Net Smelter Return Royalty on the property held by third
parties.
B) DAWSON CLEAR CREEK PROPERTIES, YUKON TERRITORY, CANADA
In prior years, the Company acquired a mineral lode property of 6
claims known as the HP group in Dawson Mining District, Yukon for
$32,000 and a 30% working interest in 103 mineral claims in the Dawson
and Mayo Mining Districts, Yukon for $200,000. In 2003, management
wrote off these mineral claims.
6. SHARE CAPITAL
a) Authorized: Unlimited number of common shares without par value (2003 -
25,000,000; 2002 - 10,000,000).
b) During the 2002 fiscal year, 1,175,000 warrants were exercised for
$0.10 per warrant for gross proceeds of $117,500.
c) On January 28, 2004, the Company issued, by private placement,
5,000,000 common shares at $0.25 per common share for gross proceeds of
$1,250,000 ($460,000 of this was received in fiscal 2003 and was
accordingly classified as share subscription received in advance). No
commission or finder's fees was paid in conjunction with this
financing.
d) On May 7, 2004 the Company issued, by private placement, 5,000,000
units at $1.25 per unit for gross proceeds of $6,250,000. Each unit
consists of one common share and one-half of a common share purchase
61
TLC Ventures Corp.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
Canadian Funds
warrant. One full warrant will allow the holder to purchase one common
share in the Company until May 7, 2005 at a price of $1.50 per share.
The Agent was paid a commission by issuing 300,000 units with each unit
consisting of one common share and one-half of a common share purchase
warrant. One full warrant will allow the Agent to purchase one common
share of the Company until May 7, 2005 at a price of $1.50 per share.
The Agent received 250,000 agent's warrants. Each agent's warrant is
also exercisable into one common share of the Company at $1.25 until
May 7, 2005.
e) On September 29, 2004 the Company issued, by private placement, 300,000
units at $1.25 per unit to a director of the Company for gross proceeds
of $375,000. Each unit consists of one common share and one full common
share purchase warrant. One share purchase warrant will allow the
holder to purchase one common share in the Company until September 29,
2006 at a price of $1.50 per share. No commission or finder's fees was
paid in conjunction with this financing.
f) SHARE PURCHASE OPTIONS
i) The Company has established a share purchase option plan whereby
the Board of Directors, may from time to time, grant options to
directors, officers, employees or consultants to a maximum of
3,600,000 options. Options granted must be exercised no later than
five years from date of grant or such lesser period as determined
by the Company's Board of Directors. The exercise price of an
option is not less than the closing price on the Exchange on the
last trading day preceding the grant date.
Options vest according to the following schedule:
25% - on grant date 25% - six months after grant date 25% - twelve
months after grant date 25% - eighteen months after grant date
ii) A summary of the Company's options at December 31, 2004 and the
changes for the period are as follows:
Outstanding Expired Outstanding
Exercise December 31 or December
Price 2003 Granted Exercised Cancelled 31, 2004 Expiry date
----------------------------------------------------------------------------------------------
$0.25 1,055,000 -- -- -- 1,055,000 December 11, 2008
$2.10 -- 300,000 -- -- 300,000 March 15, 2009
$2.00 -- 5,000 -- -- 5,000 April 29, 2009
$1.80 -- 200,000 -- -- 200,000 May 11, 2009
$1.35 -- 200,000 -- -- 200,000 September 29, 2009
----------------------------------------------------------------------------------------------
1,055,000 705,000 -- -- 1,760,000
----------------------------------------------------------------------------------------------
Weighted average $0.25 $1.80 -- -- $ 0.87
exercise price
Weighted Average
Number of Options Exercise Price Expiry
----------------------------------------------------------------------------------------------
Vested as at December 31, 2004 1,546,740 $0.78 December 11, 2008
to September 29, 2009
----------------------------------------------------------------------------------------------
For the newly granted options, compensation expense is based on
the fair value of the options at the grant date. For any options
that have alteration in their conditions, compensation expense is
based on the fair value of the options on the alteration date less
the fair value of the original options based on the shorter of the
remaining expanded life of the old option or the expected life of
the modified option.
62
TLC Ventures Corp.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
Canadian Funds
Effective January 1, 2003, the Company recognizes compensation
expense on stock options granted to both employees and
non-employees using the fair value method, which the Company
records as an expense.
iii) During the 2002 fiscal year, the Company did not grant any stock
options to either the employees or non-employees of the Company,
and as such, no compensation expense was recorded and no pro forma
disclosure of these awards was required under the fair value
method.
iv) During the 2003 fiscal year, the Company granted stock options of
805,000 to directors and officers. The Company also granted stock
options of 250,000 to a consultant. Each option entitles the
holder to acquire one common share of the Company at an exercise
price of $0.25 per share, expiring December 11, 2008. The Company
recorded $101,665 of stock-based compensation expenses on options
vested to directors and officers of the Company and $31,574 of
stock-based compensation expenses on options vested to consultant
to the Company for a total of $133,239 as salaries and wages -
stock compensation expense. The offsetting entry is to share
capital.
v) During the year, the Company granted options to purchase up to
705,000 shares of the Company at exercise prices between $1.35 to
$2.10 per share to directors and officers of the Company. As at
December 31, 2004, 491,740 of these options have vested. The total
fair value of the options granted was calculated to be $1,094,934.
Since the options were granted under a graded vesting schedule,
$824,517 of the fair value has been recorded in the Company's
accounts as salaries and wages - stock compensation expense. The
offsetting entry is to share capital.
The fair value of the options used in the information above has
been estimated at the date of grant of options using the
Black-Scholes option pricing model with the following assumptions:
2004 2003 2002
-------------------------
Average risk free interest rate 3.79% 5% N/A
Average expected option life 5 years 5 years N/A
Stock volatility - based on
trading history 154.81% 90.80% N/A
Dividend payments during life
of option Nil Nil N/A
The Black-Scholes option pricing model was created for use in
estimating the fair value of freely tradable, fully transferable
options. The Company's employee stock options have characteristics
significantly different from those of traded options, and because
changes in the highly subjective input assumptions can materially
affect the calculated values, management believes that the
accepted Black-Scholes model does not necessarily provide a
reliable measure of the fair value of the Company's stock option
awards.
G) SHARE PURCHASE WARRANTS
As at December 31, 2004, the following share purchase warrants are
outstanding:
Outstanding Outstanding
Exercise December 31 Expired or December
Price 2003 Issued Exercised Cancelled 31 2004 Expiry date
-------------------------------------------------------------------------------------------------
$1.25 -- 250,000 -- -- 250,000 May 7, 2005
$1.50 -- 2,500,000 -- -- 2,500,000 May 7, 2005
$1.50 -- 150,000 -- -- 150,000 May 7, 2005
$1.50 -- 300,000 -- -- 300,000 September 29, 2006
-------------------------------------------------------------------------------------------------
-- 3,200,000 -- -- 3,200,000
-------------------------------------------------------------------------------------------------
Weighted average -- $1.48 -- -- $1.48
exercise price
-------------------------------------------------------------------------------------------------
63
TLC Ventures Corp.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
Canadian Funds
H) ESCROW SHARES
As at December 31, 2004 there are 4,117,850 common shares held in
escrow. Subject to the terms of the escrow agreements, the escrow
shares are subject to be released as follows:
TOTAL NUMBER OF ESCROWED
RELEASE DATES SECURITIES TO BE RELEASED
May 7, 2005 823,570
November 7, 2005 823,570
May 7, 2006 823,570
November 7, 2006 823,570
May 7, 2007 823,570
------------
4,117,850
------------
7. RELATED PARTY TRANSACTIONS
Except as noted elsewhere in these financial statements, related party
transactions are as follows:
a) As at December 31, 2004, amounts due to related parties consist of
$13,058 (2003 - $12,120) owing to directors and officers and a law firm
where an officer of the Company is a partner. These amounts were
incurred in the ordinary course of business are non-interest bearing,
unsecured and due on demand.
b) During the year, a salary of $105,000 (2003 - $Nil; 2002 - $Nil) was
paid to a director and officer. In addition, $50,000 was also paid on
behalf of the same director and officer for relocation expenses.
c) During the year, consulting fees of $27,921 (2003 - $Nil; 2002 - $Nil)
were paid to a director and officer.
d) During the year, accounting fees of $67,642 (2003 - $Nil; 2002 - $Nil)
were paid to a director and an officer.
e) During the year, accounting fees of $Nil (2003 - $6,500; 2002 - $7,000)
were paid to a former director and officer.
f) During the year, legal fees of $90,309 (2003 - $11,378; 2002 - $Nil)
were paid to a law firm where an officer of the Company is a partner.
8. INCOME TAXES
The components of the future income tax asset are as follows:
Future income tax assets 2004 2003
---------------------------------------------------------------------------
Tax benefit of loss carry-forwards $ 386,000 $ 136,000
Valuation allowance (386,000) (136,000)
----------------------------
Net future income tax assets $ -- $ --
----------------------------
The Company reassessed its future tax assets at each balance sheet date. At
December 31, 2004, the Company has provided for a valuation allowance to
recognize that a future income tax asset is recognized only to the extent
that it is more likely than not that sufficient taxable income will be
available to allow an unrecognized future income tax asset to be realized.
The Company has approximately $761,221 of deferred mineral expenditures
available as at December 31, 2004 which may be carried forward indefinitely
and used to reduce prescribed taxable income in future years.
64
TLC Ventures Corp.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
Canadian Funds
The non-capital losses totalling approximately $1,084,000 are carried
forward for tax purposes and are available to reduce taxable income of
future years. These losses expire as follows:
Non-Capital Losses
------------------
2005 $ 36,000
2006 40,000
2007 54,000
2008 70,000
2009 95,000
2010 77,000
2014 712,000
------------
$ 1,084,000
------------
The potential future tax benefits of these losses have not been recognized
in these financial statements due to uncertainty of their realization.
9. COMPARATIVE FIGURES
Certain of the comparative figures have been reclassified to conform with
the current year presentation.
10. COMMITMENTS
a) During the year, the Company signed a lease agreement for the rental of
office space. The lease expires November 29, 2007. The future minimum
lease obligations are as follows:
Amount
------------
2005 $ 34,012
2006 34,012
2007 30,920
------------
$ 98,944
------------
b) By agreement dated March 29, 2004, the Company entered into a two-year
employment agreement with a director and officer. Compensation is
$11,500 per month. In addition, the employment agreement also includes
a discretionary bonus and reimbursement of moving expenses. This
agreement is renewable at the end of two years with mutual consent. The
Company may terminate the agreement at any time but will be responsible
to pay:
i) Twelve months salary if the termination is within the first year of
the agreement; ii) Twenty-four months salary if the termination is
after the first year of the agreement; and iii) Twenty-four months
salary if the termination is a result of a change in control of the
Company.
11. DIFFERENCES BETWEEN UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("GAAP")
These financial statements have been prepared in accordance with generally
accepted accounting principles in Canada. Except as set out below, these
financial statements also comply, in all material aspects, with accounting
principles generally accepted in the United States and the rules and
regulations of the Securities Exchange Commission.
a) Under Canadian GAAP, the mineral properties are carried at cost and
written off or written down if the properties are abandoned, sold or if
management decides not to pursue the properties. Under United States
GAAP, the Company would periodically review and obtain independent
reports in determining adjustments to the mineral properties and record
properties at net realizable value. The Company has not yet obtained an
65
TLC Ventures Corp.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
Canadian Funds
independent report for United States GAAP purposes, therefore, the
Company's mineral property costs would have been written off.
b) The impact of the above differences between Canadian and United States
GAAP on loss for the period is as follows:
Year Ended Year Ended Year Ended
December 31 December 31 December 31
2004 2003 2002
---------------------------------------------
Loss for the period as reported $ (1,701,098) $ (312,354) $ (62,147)
Add back write-off of mineral property costs -- 241,520 --
Less mineral property expenditures during the year (761,221) -- (152,000)
---------------------------------------------
Loss for the period in accordance with
United States GAAP $ (2,462,319) $ (70,834) $ (214,147)
---------------------------------------------
Year Ended Year Ended Year Ended
December 31 December 31 December 31
2004 2003 2002
---------------------------------------------
Primary loss per share for the year in accordance
with United States GAAP $ (0.15) $ (0.01) $ (0.03)
---------------------------------------------
c) The impact of the above differences between Canadian and United States
GAAP on the deficit, as reported, is as follows:
Year Ended Year Ended Year Ended
December 31 December 31 December 31
2004 2003 2002
---------------------------------------------
Deficit - As reported $ (7,457,215) $ (5,756,117) $ (5,443,763)
Less capitalized mineral property costs (761,221) -- (241,520)
---------------------------------------------
Deficit in accordance with United States GAAP $ (8,218,436) $ (5,756,117) $ (5,685,283)
---------------------------------------------
d) The impact of the above differences between Canadian and United States
GAAP on the statement of changes in shareholders' equity, as reported,
is as follows:
Common Shares
Comprehensive
Number Amount Deficit Income Total
--------------------------------------------------------------------
Shareholders' equity balance as
reported at December 31, 2002 8,704,001 $5,605,372 $(5,443,763) $ -- $ 161,609
Less capitalized mineral property
costs -- -- (241,520) -- (241,250)
--------------------------------------------------------------------
Shareholders' equity in accordance
with United States GAAP at
December 31, 2002 8,704,001 $5,605,372 $(5,685,283) $ -- $ (79,641)
--------------------------------------------------------------------
Shareholders' equity balance as
reported at December 31, 2003 8,704,001 $5,738,611 $(5,756,117) $ -- $ (17,506)
Less capitalized mineral property
costs -- -- -- -- 241,250
--------------------------------------------------------------------
Shareholders' equity in accordance
with United States GAAP at
December 31, 2003 8,704,001 $5,738,611 $(5,756,117) $ -- $ 223,744
--------------------------------------------------------------------
Shareholders' equity balance as
reported at December 31, 2004 19,454,001 $14,593,350 $(7,457,215) $ -- $ 7,136,135
Less capitalized mineral property
costs -- -- (761,221) -- (761,221)
--------------------------------------------------------------------
Shareholders' equity in accordance
with United States GAAP at
December 31, 2004 19,454,001 $14,593,350 $(8,218,436) $ -- $ 6,374,914
--------------------------------------------------------------------
e) NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued SFAS No. 141, "Business Combinations".
SFAS No. 141 mandates the purchase method of accounting for all
business combinations initiated after June 30, 2001. In addition, SFAS
No. 141 addresses the accounting for intangible assets and goodwill
acquired in business combinations
66
TLC Ventures Corp.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
Canadian Funds
completed after June 30, 2001. The Company adopted SFAS No. 141, as
required, with no material impact on its financial statements.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets", which revises the accounting for purchased goodwill
and other intangible assets. Under SFAS No. 142, goodwill and other
intangible assets with indefinite lives will no longer be
systematically amortized into operating results. Instead, each of these
assets will be tested, in the absence of an indicator of possible
impairment, at least annually, and upon an indicator of possible
impairment, immediately. The Company adopted SFAS No. 142, as required,
on January 1, 2002, with no material impact on its financial
statements.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". SFAS No. 143 requires entities to record the
fair value of a liability for an asset retirement obligation in the
period in which it is a cost by increasing the carrying amount of the
related long-lived asset. Over time, the liability is accreted to its
present value each period, and the capitalized cost is depreciated over
the useful life of the related obligation for its recorded amount or
incurs a gain or loss upon settlement. The Company adopted SFAS No.
143, as required, on January 1, 2003, with no material impact on its
financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-lived Assets". SFAS No. 144 was issued
to resolve certain implementation issues that had arisen under SFAS No.
121. Under SFAS No. 144, a single uniform accounting model is required
to be used for long-lived assets to be disposed of by sale, whether
previously held and used or newly acquired, and certain additional
disclosures are required. The Company adopted SFAS No. 144, as
required, with no material impact on its financial statements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections". SFAS No. 145 updates, clarifies and simplifies
existing accounting pronouncements, by rescinding SFAS No. 4, which
required all gains and losses from extinguishment of debt to be
aggregated and, if material, classified as an extraordinary item, net
of related income tax effect. As a result, the criteria in APB No. 30
will now be used to classify those gains and losses. Additionally, SFAS
No. 145 amends SFAS No. 13 to require that certain lease modifications
that have economic effects similar to sale-leaseback transactions be
accounted for in the same manner as sale-leaseback transactions.
Finally, SFAS No. 145 also makes technical corrections to existing
pronouncements. While those corrections are not substantive in nature,
in some instances, they may change accounting practice. The Company
adopted the provisions of SFAS No. 145 that amended SFAS No. 13, as
required, on May 15, 2002 for transactions occurring after such date
with no material impact on its financial statements. The Company
adopted the remaining provisions of SFAS No. 145, as required, on
January 1, 2003, with no material impact on its financial statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 was issued
to address the financial accounting and reporting for costs associated
with exit or disposal activities, unless specifically excluded. SFAS
No. 146 requires that a liability for a cost associated with a covered
exit or disposal activity be recognized and measured initially at its
fair value in the period in which the liability is incurred, except for
a liability for one-time termination benefits that is incurred over
time. If employees are not required to render service until they are
terminated in order to receive the one-time termination benefits or if
employees will not be retained to render service beyond the minimum
retention period (as dictated by existing law, statute or contract, or
in the absence thereof, 60 days), a liability for the termination
benefits shall be recognized and measured at its fair value at the
communication date. If employees are required to render service until
they are terminated in order to receive the one-time termination
benefits and will be retained to render service beyond the minimum
retention period, a liability for the termination benefits shall be
measured initially at the communication date based on the fair value of
the liability as of the termination date. The liability shall be
recognized rateably over the future service period. SFAS No. 146 also
dictates that a liability for costs to terminate an operating lease or
other contract before
67
TLC Ventures Corp.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
Canadian Funds
the end of its term shall be recognized and measured at its fair value
when the entity terminates the contract in accordance with the contract
terms. A liability for costs that will continue to be incurred under a
contract for its remaining term without economic benefit to the entity
is to be recognized and measured at its fair value when the entity
ceases using the right conveyed by the contract. SFAS No. 146 further
dictates that a liability for other covered costs associated with an
exit or disposal activity be recognized and measured at its fair value
in the period in which the liability is incurred. The Company adopted
SFAS No. 146, as required, on January 1, 2003 with no material impact
on its financial statements.
In November 2002, the FASB issued FASB interpretation No. 45 ("FIN
45"), "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others".
FIN 45 requires that a liability be recorded in the guarantor's balance
sheet upon issuance of certain guarantees. FIN 45 also requires
disclosure about certain guarantees that an entity has issued. The
disclosure requirements of FIN 45 were effective for fiscal years
ending after December 15, 2002. The Company adopted the provisions of
FIN 45, as required, on January 1, 2002 with no material impact on its
financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation -- Transition and Disclosure". SFAS No. 148
amends SFAS No. 123, to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the
effect of the method used on reported results. SFAS No. 148 is
effective for fiscal years beginning after December 15, 2002. The
interim disclosure provisions are effective for financial reports
containing financial statements for interim periods beginning after
December 15, 2002. The Company effective January 1, 2003 has used APB25
therefore adoption of SFAS No. 148 is not required.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, an Interpretation of APB
No. 51." FIN 46 requires certain variable interest entities to be
consolidated by the primary beneficiary of the entity if the equity
investors in the entity do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk
for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 is effective
for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired
prior to February 1, 2003, the provisions of FIN 46 must be applied for
the first interim or annual period beginning after June 15, 2003. The
Company adopted the provisions of FIN 46, as required, with no material
impact on its financial statements.
On April 30, 2003, the FASB issued SFAS No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities." SFAS
No. 149 amends and clarifies accounting for derivative instruments,
including certain derivative instruments embedded in other contracts,
and for hedging activities under SFAS No. 133. The new guidance amends
SFAS No. 133 for decisions made as part of the Derivatives
Implementation Group ("DIG") process that effectively required
amendments to SFAS No. 133, and decisions made in connection with other
FASB projects dealing with financial instruments and in connection with
implementation issues raised in relation to the application of the
definition of a derivative and characteristics of a derivative that
contains financing components. In addition, it clarifies when a
derivative contains a financing component that warrants special
reporting in the statement of cash flows. SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The Company adopted SFAS
No. 149, as required, on July 1, 2003, with no material impact on its
financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity". SFAS No. 150 establishes standards for classifying and
measuring as liabilities certain financial instruments that embody
obligations of the issuer and have characteristics of both liabilities
and equity. SFAS No. 150 is effective for all financial instruments
created or
68
TLC Ventures Corp.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
Canadian Funds
modified after May 31, 2003 and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003. The Company
adopted SFAS No. 150, as required, on July 1, 2003, with no material
impact on its financial statements.
In December 2003, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition. SAB No.
104 revises or rescinds portions of the interpretive guidance included
in Tope 13 of the codification of staff accounting bulletins in order
to make this interpretive guidance consistent with current
authoritative accounting and auditing guidance and SEC rules and
regulations. The adoption of SAB No. 104 did not have a material effect
on the Company's financial statements.
In December 2004, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standard (SFAS) No. 123R,
"Share Based Payment". SFAS 123R is a revision of SFAS No. 123
"Accounting for Stock-Based Compensation", and supersedes APB Opinion
No. 25, "Accounting for Stock Issued to Employees" and its related
implementation guidance. SFAS 123R establishes standards for the
accounting for transactions in which an entity exchanges its equity
instruments for goods or services. It also addresses transactions in
which an entity incurs liabilities in exchange for goods or services
that are based on the fair value of the entity's equity instruments or
that may be settled by the issuance of those equity instruments. SFAS
123R focuses primarily on accounting for transactions in which an
entity obtains employee services in share-based payment transactions.
SFAS 123R does not change the accounting guidance for share-based
payment transactions with parties other than employees provided in SFAS
123 as originally issued and Emerging Issues Task Force Issue No.
96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or
Services". SFAS 123R does not address the accounting for employee share
ownership plans, which are subject to AICPA Statement of Position 93-6,
"Employers' Accounting for Employee Stock Ownership Plans". SFAS 123R
requires a public entity to measure the cost of employee services
received in exchange for an award of equity instruments based on the
grant-date fair value of the award (with limited exceptions). That cost
will be recognized over the period during which an employee is required
to provide service in exchange for the award - the requisite service
period (usually the vesting period). SFAS 123R requires that the
compensation cost relating to share-based payment transactions be
recognized in financial statements. That cost will be measured based on
the fair value of the equity or liability instruments issued. The scope
of SFAS 123R includes a wide range of share-based compensation
arrangements including share options, restricted share plans,
performance-based awards, share appreciation rights, and employee share
purchase plans. Public entities (other than those filing as small
business issuers) will be required to apply SFAS 123R as of the first
interim or annual reporting period that begins after June 15, 2005.
Public entities that file as small business issuers will be required to
apply SFAS 123R in the first interim or annual reporting period that
begins after December 15, 2005. For nonpublic entities, SFAS 123R must
be applied as of the beginning of the first annual reporting period
beginning after December 15, 2005. The adoption of this standard is not
expected to have a material effect on the Company's results of
operations or financial position.
In December 2004, FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets - An Amendment of APB Opinion No. 29". The guidance in APB
Opinion No. 29, "Accounting for Nonmonetary Transactions", is based on
the principle that exchanges of nonmonetary assets should be measured
based on the fair value of the assets exchanged. The guidance in that
Opinion, however, included certain exceptions to that principle. SFAS
No. 153 amends Opinion No. 29 to eliminate the exception for
nonmonetary exchanges of similar productive assets and replaces it with
a general exception for exchanges of nonmonetary assets that do not
have commercial substance. A nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. The provisions of SFAS No.
153 are effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005. Early application is permitted
and companies must apply the standard prospectively. The adoption of
this standard is not expected to have a material effect on the
Company's results of operations or financial position.
69
ITEM 18. FINANCIAL STATEMENTS
================================================================================
We have elected to provide financial statements pursuant to Item 17. Financial
Statements.
70
ITEM 19. EXHIBITS
================================================================================
The following Exhibits are filed with this Registration Statement:
EXHIBIT
REFERENCE # NAME
- ----------- ----
1.1 Notice of Articles
1.2 Articles, effective August 12, 2004
4.1 Point Leamington Agreement between TLC Ventures Corp. and Rubicon
Minerals Corporation and stock purchase agreement dated February 13,
2004 between TLC Ventures Corp. and Rubicon Minerals Corporation.
4.2 Escrow Agreement dated May 7, 2004 among Pacific Corporate Trust
Company, TLC Ventures Corp., Ed Farrauto and Richard Henley
4.3 Escrow Agreement dated December 10, 2003 among Pacific Corporate Trust
Company, TLC Ventures Corp., Doug Forster and Blayne Johnson
4.4 Agreement dated December 12, 2004 between TLC Ventures Corp. and
Endeavor Financial Ltd.
4.5 Strategic Alliance Agreement dated December 11, 2003 between TLC
Ventures Corp. and Orogen Holdings (BVI) Ltd.
4.6 Sublease Agreement, dated March 5, 2004, among TLC Ventures Corp.,
Ontrea Inc. and Forbes Travel International Ltd.
4.7 Stock Option Plan
4.8 Form of Stock Option Agreement for officers and directors
4.9 Form of Indemnity Agreement for officers and directors
15.1 Consent of Staley Okada & Partners, Chartered Accountants
15.2 Consent of HATCH Associates Ltd.
15.3 The Point Leamington Massive Sulphide Deposit Independent Technical
Report, dated April 14, 2004, prepared by Callum Grant, P.Eng. and
Gary Giroux, P.Eng. of HATCH Associates Ltd. of Vancouver, BC.
71
SIGNATURES
The Registrant hereby certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorized the undersigned to sign
this Registration Statement on its behalf.
Dated: April 22, 2005
TLC VENTURES CORP.,
A BRITISH COLUMBIA COMPANY
/s/ DR. SALLY L. EYRE
------------------------------------
Dr. Sally L. Eyre
Chief Executive Officer and Director