AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 27, 2006
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM SB-2/A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
CIGMA METALS CORPORATION
(Name of small business issuer in its charter)
FLORIDA 1040 98-0203244
- -------------------------------- ----------------------------- -------------------
(State or Other Jurisdiction (Primary Standard Industrial (IRS Employer
of incorporation or organization Classification Code) Identification No.)
LARS PEARL
1 EDITH PLACE, COOLUM BEACH, 1 EDITH PLACE, COOLUM BEACH,
QUEENSLAND, AUSTRALIA 4573 QUEENSLAND, AUSTRALIA, 4573
TELEPHONE: +61 4111 56177 TELEPHONE: +61 4111 56177
FACSIMILE: +61-7-54716370 FACSIMILE: +61-7-54716370
- -------------------------------------- -------------------------------------
(Address and telephone of registrant's (Name, address and telephone number
executive office) of agent for service)
Copies of all communications and notices to:
JOSEPH SIERCHIO, ESQ.
SIERCHIO GRECO & GRECO, LLP
720 FIFTH AVENUE
NEW YORK, NEW YORK 10019
TELEPHONE: (212) 246-3030
FACSIMILE: (212) 246-2225
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this registration statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") check the following box. [X]
If this Form is filed to register additional securities for an offering under
Rule 462(b) of the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed under Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. [ ]
If this Form is a post-effective amendment filed under Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made under Rule 434, please
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------
PROPOSED
NUMBER OF MAXIMUM PROPOSED
SECURITIES TO BE SHARES REGISTERED OFFERING PRICE MAXIMUM
REGISTERED (1) (2) PER SHARE (3) OFFERING PRICE (3) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------
Shares of Common
Stock Par Value 8,000,000 $ 1.05 $ 8,400,000 $ 899.00
0.0001 per Share
- ---------------------------------------------------------------------------------------------------
Shares of Common 8,000,000 $ 0.75 6,000,000 $ 642.00
Stock Par Value
0.0001 per
Share(4)
- ---------------------------------------------------------------------------------------------------
Total 16,000,000 - $ 14,400,000 $ 1,532.00(5)
- ---------------------------------------------------------------------------------------------------
(1)The 8,000,000 shares were issued in connection with two private
placements of 8,000,000 units completed by the registrant in May 2006. Each
Unit was comprised of one share of the Company's common stock, $0.0001 par
value per share and one stock purchase warrant, each warrant entitling the
holder to purchase one additional common share of the Company at a price of
US $0.675 per share for a period of one year from the closing date of the
placement and at a price of US $0.75 per share for a period of one year
commencing on the first anniversary of the closing date of the Private
Placement.
(2)All of the 16,000,000 shares being registered are offered by the Selling
Stockholders. Accordingly, this registration statement includes an
indeterminate number of additional shares of common stock issuable for no
additional consideration pursuant to any stock dividend, stock split,
recapitalization or other similar transaction effected without the receipt
of consideration, which results in an increase in the number of outstanding
shares of our common stock. In the event of a stock split, stock dividend
or similar transaction involving our common stock, in order to prevent
dilution, the number of shares registered shall be automatically increased
to cover the additional shares in accordance with Rule 416(a) under the
Securities Act of 1933.
(3)Estimated solely for the purpose of computing the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933; the closing sale
price of our stock on August 16, 2006, as quoted on the National
Association of Securities Dealers, Inc.'s Pink Sheets was $1.05. It is not
known how many shares will be purchased under this registration statement
or at what price shares will be purchased.
(4) Shares to be issued upon exercise of the warrants constituting a part
of the Units.
(5) Previously Paid
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY OUR EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING UNDER SAID SECTION 8(A), MAY
DETERMINE.
SUBJECT TO COMPLETION, DATED NOVEMBER 27, 2006
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALES IS NOT PERMITTED.
PROSPECTUS
CIGMA METALS CORPORATION
16,000,000 SHARES COMMON STOCK
This prospectus relates to the resale by certain of our stockholders named
in this prospectus (the "SELLING STOCKHOLDERS") of up to 16,000,000 shares of
our common stock. The Selling Stockholders acquired 8,000,000 shares from us in
connection with two private placements of 8,000,000 units which we concluded in
May of 2006. The remaining 8,000,000 shares may be acquired by the Selling
Stockholders pursuant to outstanding share purchase warrants which were part of
the units acquired by the Selling Stockholders in the May 2006 private
placements. We will not receive any proceeds from the sale of these shares by
the Selling Stockholders. However, we may receive proceeds from the exercise, if
any, of the warrants.
The Selling Stockholders and any underwriter, broker-dealer or agent that
participates in the sale of the common stock or interests therein may be deemed
"underwriters" within the meaning of Section 2(11) of the Securities Act of
1933, as amended. Any discounts, commissions, concessions, profit or other
compensation any of them earns on any sale or resale of the shares, directly or
indirectly, may be underwriting discounts and commissions under the Securities
Act of 1933. The Selling Stockholders who are "underwriters" within the meaning
of Section 2(11) of the Securities Act of 1933 will be subject to the prospectus
delivery requirements of the Securities Act of 1933.
The Selling Stockholders may sell common stock from time to time in the
principal market on which the stock is traded at the prevailing market price or
in negotiated transactions. The shares may be sold directly or through agents or
broker-dealers acting as agents on behalf of the Selling Stockholders. The
Selling Stockholders may engage brokers, dealers or agents, who may receive
commissions or discounts from the Selling Stockholders. We will pay
substantially all the expenses incident to the registration of the shares;
however, we will not pay for sales commissions and other expenses applicable to
the sale of the shares.
Our shares are listed on the Pink Sheets under the symbol "CGMX." On
November 24, 2006, the closing price for our common stock on the Pink Sheets was
U.S. $0.97 per share.
THE PURCHASE OF THE SECURITIES OFFERED THROUGH THIS PROSPECTUS INVOLVES A
HIGH DEGREE OF RISK. SEE SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS ______, 2006
TABLE OF CONTENTS
Page
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PROSPECTUS SUMMARY 3
RISK FACTORS 6
FORWARD-LOOKING STATEMENTS 11
USE OF PROCEEDS 11
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 12
LEGAL PROCEEDINGS 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
BUSINESS 13
MANAGEMENT 20
EXECUTIVE COMPENSATION 22
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 24
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 25
SELLING STOCKHOLDERS 26
PLAN OF DISTRIBUTION 28
DESCRIPTION OF OUR CAPITAL STOCK 29
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES 31
EXPERTS 32
WHERE YOU CAN FIND ADDITIONAL INFORMATION 34
FINANCIAL STATEMENTS F1
--------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS OR ANY
SUPPLEMENT HERETO. WE HAVE NOT, AND THE SELLING STOCKHOLDERS HAVE NOT,
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. IF ANYONE PROVIDES
YOU WITH DIFFERENT INFORMATION YOU SHOULD NOT RELY ON IT. WE ARE NOT, AND THE
SELLING STOCKHOLDERS ARE NOT, MAKING AN OFFER TO SELL THE COMMON STOCK IN ANY
JURISDICTION WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN
THE DATE ON THE FRONT COVER OF THIS PROSPECTUS REGARDLESS OF THE DATE OF
DELIVERY OF THIS PROSPECTUS OR ANY SUPPLEMENT HERETO, OR THE SALE OF COMMON
STOCK. OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS
MAY HAVE CHANGED SINCE THAT DATE.
WE OBTAINED STATISTICAL DATA AND CERTAIN OTHER INDUSTRY FORECASTS USED
THROUGHOUT THIS PROSPECTUS FROM MARKET RESEARCH, PUBLICLY AVAILABLE INFORMATION
AND INDUSTRY PUBLICATIONS. INDUSTRY PUBLICATIONS GENERALLY STATE THAT THEY
OBTAIN THEIR INFORMATION FROM SOURCES THAT THEY BELIEVE TO BE RELIABLE, BUT THEY
DO NOT GUARANTEE THE ACCURACY AND COMPLETENESS OF THE INFORMATION. SIMILARLY,
WHILE WE BELIEVE THAT THE STATISTICAL AND INDUSTRY DATA AND FORECASTS AND MARKET
RESEARCH USED HEREIN ARE RELIABLE, WE HAVE NOT INDEPENDENTLY VERIFIED SUCH DATA.
WE HAVE NOT SOUGHT THE CONSENT OF THE SOURCES TO REFER TO THEIR REPORTS OR
ARTICLES IN THIS PROSPECTUS.
2
PROSPECTUS SUMMARY
This summary contains material information about us and the offering which
is described in detail elsewhere in the prospectus. Since it may not include
all of the information you may consider important or relevant to your investment
decision, you should read the entire prospectus carefully, including the more
detailed information regarding our company, the risks of purchasing our common
stock discussed under "Risk Factors" on page 6, and our financial statements and
the accompanying notes.
Unless the context otherwise requires, the terms "we," "our," "us," the
"Company" and "Cigma Metals" refer to Cigma Metals Corporation, a Florida
corporation, and not to the Selling Stockholders.
OUR BUSINESS
We were incorporated under the laws of the State of Florida on January 13,
1989 as "CIGMA VENTURES CORPORATION". On April 17, 1999 we changed our name to
Cigma Metals Corporation and are in the business of location, acquisition,
exploration and, if warranted, development of mineral properties. The Company,
through our Russian subsidiary, is engaged in the exploration of gold and silver
mining properties located in the Russian Federation and has not yet determined
whether our properties contain mineral reserves that may be economically
recoverable.
Our general business strategy is to acquire mineral properties either
directly or through the acquisition of operating entities. Our continued
operations and the recoverability of mineral property costs is dependent upon
the existence of economically recoverable mineral reserves, confirmation of our
interest in the underlying properties, our ability to obtain necessary financing
to complete the development and upon future profitable production.
Since 1999 we have acquired and disposed of a number of properties. We have
not been successful in any of our exploration efforts to establish reserves on
any of the properties that we owned or in which we have or have had an interest.
We currently have interest in two properties none of which contain any
reserves. Please refer to "DESCRIPTION OF PROPERTIES." We have no revenues, have
sustained losses since inception, have been issued a going concern opinion by
our auditors and rely upon the sale of our securities to fund operations. We
will not generate revenues even if any of our exploration programs indicate that
a mineral deposit may exist on our properties. Accordingly, we will dependent on
future financings in order to maintain our operations and continue our
exploration activities.
Our principal and technical office is located at 1 Edith Place, Coolum
Beach, Queensland, 4573, Australia. The telephone number is (+61) 4111-56177. We
conduct our exploration and property acquisition activities through the Coolum
Beach office.
3
RISK ASSOCIATED WITH OUR BUSINESS
The search for valuable minerals as a business is extremely risky. We can
provide investors with no assurance that the exploration of any of the
properties in which we have or may acquire an interest will uncover commercially
exploitable mineral reserves. It is likely that such properties will not contain
any reserves and, in all likelihood, any funds spent on exploration will
probably be lost. In addition, problems such as unusual or unexpected geological
formations or other variable conditions are involved in exploration and, often
result in unsuccessful exploration efforts.
In addition, due to our limited capital and resources, we are limited in
the amount of exploration work we can do. As a result, our already low
probability of successfully locating mineral reserves will be reduced
significantly further. Therefore, we may not find a commercial mineable ore
deposit prior to exhausting our funds. Furthermore, exploration costs may be
higher than anticipated, in which case, the risk of utilizing all of our funds
prior to locating any ore deposits shall be greatly increased. Factors that
could cause exploration costs to increase are: adverse conditions, difficult
terrain and shortages of qualified personnel. Please refer to "Risk Factors."
THE OFFERING
On May 12, 2006 we concluded a private placement of 6,540,000 (post stock
split) shares of our common stock, at a price of $0.50 per unit (post stock
split price) or $3,270,000 in the aggregate and on May 26, 2006 we concluded a
private placement of 1,460,000 shares of our common stock, at a price of $0.50
per unit or $730,000 in the aggregate; all of the shares were acquired by the
Selling Stockholders, none of whom are residents of the United States or Canada.
The units were issued to the Selling Stockholders pursuant to an exemption from
the registration requirements of the Securities Act of 1933, as amended,
afforded by Regulation S as promulgated by the U.S. Securities and Exchange
Commission. Each Unit is comprised of one share of the Company's common stock
US $0.0001 par value per share and one stock purchase warrant, each warrant
entitling the holder to purchase one additional common share of the Company at a
price of US $0.675 per share for a period of one year from the closing date of
the placement and at a price of US $0.75 per share for a period of one year
commencing on the first anniversary of the Closing Date. None of the warrants
have been exercised as of the date of this prospectus. As a condition to the
consummation of the private placement, we agreed to register the shares that are
the subject of this prospectus and to maintain such registration effective for a
period of two years following the date of this prospectus.
Although we have agreed to the costs and expenses related to the
preparation and filing of this prospects, which we estimate will be
approximately $35,000 we will receive none of the proceeds from the sale of the
shares by the Selling Stockholders.
The Selling Stockholders are offering an aggregate of 16,000,000 shares of
which 8,000,000 are issuable upon exercise of outstanding warrants owned by the
Selling Stockholders. The Selling Stockholders holders will determine if, when,
and how they will sell the common stock offered in this prospectus. PLEASE REFER
TO "PLAN OF DISTRIBUTION." The offering will conclude upon the earlier to occur
of:
- The sale of all of the 16,000,000 shares of common stock being
offered;
- The second anniversary date of the effective date of this prospectus;
or
- The earlier termination of the registration statement covering the
shares being offered.
4
At November 24, 2006 we had 39,500,000 shares issued and outstanding,
inclusive of the shares being offered by the Selling Stockholders. Our common
stock is currently quoted on the Pink Sheets under the symbol "CGMX." There is
only a limited trading market for our common stock. PLEASE REFER TO "RISK
FACTORS" AND TO "MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS."
SELECTED FINANCIAL DATA
The following summary statement of operations and summary balance sheet
data are derived from our financial statements for the years ended December31,
2005 and 2004, and for the three and nine months ended September 30, 2006, that
were filed with the U.S. Securities and Exchange Commission on our Annual
Reports Form 10-KSB or Form 10-QSB as applicable. This information should be
read in conjunction with the audited consolidated financial statements and the
related notes appearing elsewhere in this prospectus.
BALANCE SHEETS
September December December
30, 2006 31, 2005 31, 2004
(Unaudited) (Audited) (Audited)
Cash $ 3,335,756 $ 250,170 $ 311,845
Total Assets $ 3,500,362 $ 431,967 $ 566,160
Total Liabilities $ 9,112 $ 43,880 $ 21,722
Total Stockholders' Equity $ 3,491,250 $ 388,087 $ 544,438
(Deficit) $(2,843,159) $(1,963,513) $(1,075,289)
STATEMENTS OF OPERATION
From
Nine October 10,
Months Year Ended 1995(inception)
Ended September December December 31, to September 30,
30, 2006 31, 2005 2004 2006
(Unaudited) (Audited) (Audited) (Unaudited)
Revenue $ - $ - $ - $ -
Other Income (Loss) $ 21,452 $ (239,413) $ (34,709) $ (219,782)
Expenses $ 901,098 $ 648,811 $ 622,322 $ 2,623,377
Net Loss for the Period $ (879,646) $ (888,224) $ (657,031) $ (2,843,159)
5
RISK FACTORS
You should carefully consider the risks described below before purchasing
our shares of our common stock. Our most significant risks and uncertainties
are described below; if any of the following risks actually occur, our business,
financial condition, or results or operations could be materially adversely
affected, the trading of our common stock could decline, and you may lose all or
part of your investment therein. You should acquire shares of our common stock
only if you can afford to lose your entire investment.
RISKS RELATED TO OUR BUSINESS, PROPERTY AND INDUSTRY
WE ARE AN EXPLORATION STAGE COMPANY WITH NO HISTORY OF OPERATIONS, WHICH HAS
INCURRED SUBSTANTIAL LOSSES AND, THEREFORE, THERE IS A STRONG LIKELIHOOD THAT WE
MAY FAIL.
Due to the fact that we have not commenced any business operations, we have
no operating history upon which to evaluate the likelihood that our business
will be successful. We have never earned any revenues. In addition, we have
incurred net losses of approximately $2,843,159 for the period from our
inception (January 13, 1989) through September 30, 2006 and, based upon current
plan of operation, we expect that we will incur losses for the foreseeable
future.
Potential investors should be aware of the difficulties normally
encountered by new mineral exploration companies and the high rate of failure of
such companies. We are subject to all of the risks inherent to a new business
enterprise, such as established bank relationships, limited capital resources,
lack of manpower, and possible cost overruns. Potential investors must also
weigh the likelihood of success in light of any problems, complications, and
delays that may be encountered with the exploration of our properties.
BECAUSE WE DO NOT HAVE ANY REVENUES, WE EXPECT TO INCUR OPERATING LOSSES FOR THE
FORESEEABLE FUTURE.
Our independent auditors have added an explanatory paragraph to their audit
opinion issued in connection with the financial statements for the years ended
December 31, 2005 and 2004 relative to our ability to continue as a going
concern. Our ability to obtain additional funding will determine our ability to
continue as a going concern. Our financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
We have never generated revenues and we have never been profitable. Prior
to completing exploration on our mineral properties, we anticipate that we will
incur increased operating expenses without realizing any revenues. We therefore
expect to incur significant losses into the foreseeable future. If we are unable
to generate financing to continue the exploration of our properties, we will
fail and you will lose your entire investment in this offering.
NONE OF THE PROPERTIES IN WHICH WE HAVE AN INTEREST OR THE RIGHT TO EARN AN
INTEREST HAVE ANY KNOWN RESERVES.
We currently have an interest or the right to earn an interest in two
properties, none of which have any known reserves. To date, we have engaged in
only limited preliminary exploration activities on the properties. Accordingly,
we do not have sufficient information upon which to assess the ultimate
6
success of our exploration efforts. If we do not establish reserves we may be
required to curtail or suspend our operations, in which case the market value of
our common stock may decline and you may lose all or a portion of your
investment.
WE ARE SUBJECT TO ALL THE RISKS INHERENT TO MINERAL EXPLORATION, WHICH MAY HAVE
AN ADVERSE AFFECT ON OUR BUSINESS OPERATIONS.
We are subject to the numerous risks and hazards inherent to the mining
industry including, without limitation, the following:
- mineral exploration is subject to substantial operating hazards some
of which are not insurable or may not be insured due to economic
considerations;
- interruptions caused by adverse weather conditions;
- unforeseen limited sources of supplies may resulted in shortages of
materials, equipment and availability of experienced manpower.
The prices and availability of such equipment, facilities, supplies and
manpower may change and have an adverse effect on our operations, causing us to
suspend operations or cease our activities completely.
BECAUSE WE HAVE NOT COMMENCED PRELIMINARY EXPLORATION OF OUR PROPERTIES, WE FACE
A HIGH RISK OF BUSINESS FAILURE AND THIS COULD RESULT IN A TOTAL LOSS OF YOUR
INVESTMENT.
We have not begun the initial stages of exploration of our properties, and
thus have no way to evaluate whether we will be able to operate our business
successfully. To date, we have been involved primarily in organizational
activities, acquiring interests in properties and in conducting preliminary
exploration of properties. We have not earned any revenues and have not achieved
profitability as of the date of this prospectus. Potential investors should be
aware of the difficulties normally encountered by new mineral exploration
companies and the high rate of failure of such enterprises. The likelihood of
success must be considered in light of the problems, expenses, difficulties,
complications and delays encountered in connection with the exploration of the
mineral properties that we plan to undertake. These potential problems include,
but are not limited to, unanticipated problems relating to exploration and
additional costs and expenses that may exceed current estimates. If we are
unsuccessful in addressing these risks, our business will likely fail and you
will lose your entire investment in this offering.
IT IS POSSIBLE THAT OUR TITLE FOR THE PROPERTIES IN WHICH WE HAVE AN INTEREST
WILL BE CHALLENGED BY THIRD PARTIES.
We have not obtained title insurance for our properties. It is possible
that the title to the properties in which we have our interest will be
challenged or impugned. If such claims are successful, we may loose our interest
in such properties.
7
OUR FAILURE TO COMPETE WITH OUR COMPETITORS IN THE MINERAL EXPLORATION INDUSTRY
FOR FINANCING, ATTRACTING MINING CLAIMS, AND FOR QUALIFIED MANAGERIAL AND
TECHNICAL EMPLOYEES WILL CAUSE OUR BUSINESS OPERATIONS TO SLOW DOWN OR BE
SUSPENDED.
Our competition includes large established mineral exploration companies
with substantial capabilities and with greater financial and technical resources
than we have. As a result of this competition, we may be unable to acquire
additional attractive mining claims or financing on terms we consider
acceptable. We may also compete with other mineral exploration companies in the
recruitment and retention of qualified managerial and technical employees. If we
are unable to successfully compete for financing or for qualified employees, our
exploration programs may be slowed down or suspended.
COMPLIANCE WITH ENVIRONMENTAL REGULATIONS APPLICABLE TO OUR OPERATIONS MAY
ADVERSELY AFFECT OUR CAPITAL LIQUIDITY.
All phases of our operations in the Russian Federation, where the
properties are located, will be subject to environmental regulations.
Environmental legislation in the Russian Federation is evolving in a manner
which will require stricter standards and enforcement, increased fines and
penalties for non-compliance, more stringent environmental assessments of
proposed projects and a heightened degree of responsibility for companies and
their officers, directors and employees. It is possible that future changes in
environmental regulation will adversely affect our operations as compliance will
be more burdensome and costly.
Because we have not allocated any money for reclamation of any of our
mining claims, we may be subject to fines if the mining claims are not restored
to their original condition upon termination of our activities.
AS WE ARE AN EXPLORATION STAGE COMPANY WITH LIMITED ASSETS, ACCORDINGLY WE MAY
NOT HAVE THE FUNDS REQUIRED TO FULLY IMPLEMENT OUR BUSINESS PLAN AND WE MAY HAVE
TO LIMIT OUR EXPLORATION ACTIVITY WHICH MAY RESULT IN A LOSS OF YOUR INVESTMENT.
Substantial expenditures are required to conduct exploration activities and
to establish ore reserves through drilling. Even if our results of exploration
are encouraging, we will require additional funds to complete our exploration
activities. It is possible that we will be unable to obtain additional
financing. Failure to obtain such financing would preclude us from continuing
our exploration activities.
Moreover, we may, in the future, be unable to meet our share of costs
incurred under agreements to which we are a party and we may have our interests
in the properties subject to such agreements reduced as a result. Furthermore,
if other parties to such agreements do not meet their share of such costs, we
may be unable to finance the costs required to complete the recommended
programs.
Because we are small and do not have much capital, we must limit our
exploration activity. As such we may not be able to complete an exploration
program that is as thorough as we would like. In that event, an existing ore
body may go undiscovered. Without an ore body, we cannot generate revenues and
you will lose your investment.
8
OUR EXECUTIVE OFFICERS DEVOTE AND WILL CONTINUE TO DEVOTE ONLY A LIMITED AMOUNT
OF TIME TO OUR BUSINESS ACTIVITIES.
Mr. Pearl, our president, chief executive officer and chief financial
officer is engaged in other business activities and devotes only a limited
amount of his time (approximately 50%) to our business. As we expand our
activities, a need for full time management may arise. In such an event, should
Mr. Pearl be unwilling to dedicate more of his time to our business or fail to
hire additional personnel, our business and results of operations would suffer a
material adverse effect.
OUR DIRECTORS MAY FACE CONFLICTS OF INTEREST IN CONNECTION WITH OUR
PARTICIPATION IN CERTAIN VENTURES BECAUSE THEY ARE DIRECTORS OF OTHER MINERAL
RESOURCE COMPANIES.
Messrs. Pearl, Biagioni, Mueller, Rigg and Segura, who serve as our
directors, may also be directors of other companies (including resource
exploration companies) and, if those other companies participate in ventures in
which we may participate, our directors may have a conflict of interest in
negotiating and concluding terms respecting the extent of such participation.
It is possible that due to our directors' conflicting interests, we may be
precluded from participating in certain projects that we might otherwise have
participated in, or we may obtain less favorable terms on certain projects than
we might have obtained if our directors were not also directors of other
participating mineral resources companies. In an effort to balance their
conflicting interests, our directors may approve terms equally favorable to all
of their companies as opposed to negotiating terms more favorable to us but
adverse to their other companies. Additionally, it is possible that we may not
be afforded certain opportunities to participate in particular projects because
those projects are assigned to our directors' other companies for which the
directors may deem the projects to have a greater benefit.
OUR FUTURE PERFORMANCE IS DEPENDENT ON OUR ABILITY TO RETAIN KEY PERSONNEL, LOSS
OF WHICH WOULD ADVERSELY AFFECT OUR SUCCESS AND GROWTH.
Our performance is substantially dependent on performance of our senior
management. In particular, our success depends on the continued efforts of Mr.
Pearl. The loss of his services could have a material adverse effect on our
business, results of operations and financial condition as our potential future
revenues would most likely dramatically decline and our costs of operations
would rise. We do not have employment agreements in place with any of our
officers or our key employees, nor do we have key person insurance covering our
employees.
THE VALUE AND TRANSFERABILITY OF OUR SHARES MAY BE ADVERSELY IMPACTED BY THE
LIMITED TRADING MARKET FOR OUR SHARES.
There is currently only a limited trading market for our common stock on
the NASD's Pink Sheets. This may make it more difficult for you to sell your
stock if you so desire.
OUR COMMON STOCK IS A PENNY STOCK AND BECAUSE "PENNY STOCK" RULES WILL APPLY,
YOU MAY FIND IT DIFFICULT TO SELL THE SHARES OF OUR COMMON STOCK YOU ACQUIRED IN
THIS OFFERING.
Our common stock is a "penny stock" as that term is defined under Rule
3a51-1 of the Securities Exchange Act of 1934. Generally, a "penny stock" is a
common stock that is not listed on a national securities exchange and trades for
less than $5.00 a share. Prices often are not available to buyers and sellers
and the market may be very limited. Penny stocks in start-up companies are among
the riskiest equity investments. Broker-dealers who sell penny stocks must
provide purchasers of these stocks with
9
a standardized risk-disclosure document prepared by the Securities and Exchange
Commission. The document provides information about penny stocks and the nature
and level of risks involved in investing in the penny stock market. A broker
must also give a purchaser, orally or in writing, bid and offer quotations and
information regarding broker and salesperson compensation, make a written
determination that the penny stock is a suitable investment for the purchaser,
and obtain the purchaser's written agreement to the purchase. Consequently, the
rule may affect the ability of broker-dealers to sell our securities and also
may affect the ability of purchasers of our stock to sell their shares in the
secondary market. It may also cause fewer broker dealers to make a market in
our stock.
Many brokers choose not to participate in penny stock transactions. Because
of the penny stock rules, there is less trading activity in penny stock and you
are likely to have difficulty selling your shares.
In addition to the "penny stock" rules promulgated by the Securities and
Exchange Commission, the NASD has adopted rules that require that in
recommending an investment to a customer, a broker-dealer must have reasonable
grounds for believing that the investment is suitable for that customer. Prior
to recommending speculative low-priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information
about the customer's financial status, tax status, investment objectives and
other information. Under interpretations of these rules, the NASD believes that
there is a high probability that speculative low priced securities will not be
suitable for at least some customers. The NASD requirements make it more
difficult for broker-dealers to recommend that their customers buy our common
stock, which may limit your ability to buy and sell our stock and have an
adverse effect on the market for our shares.
SALES OF A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK INTO THE PUBLIC
MARKET BY THE SELLING STOCKHOLDERS MAY RESULT IN SIGNIFICANT DOWNWARD PRESSURE
ON THE PRICE OF OUR COMMON STOCK AND COULD AFFECT THE ABILITY OF OUR
STOCKHOLDERS TO REALIZE ANY CURRENT TRADING PRICE OF OUR COMMON STOCK.
Sales of a substantial number of shares of our common stock in the public
market could cause a reduction in the market price of our common stock, when and
if such market develops. When this registration statement is declared effective,
the Selling Stockholders may be reselling up to approximately 20.25% of the
issued and outstanding shares of our common stock. As a result of such
registration statement, a substantial number of our shares of common stock which
have been issued may be available for immediate resale when and if a market
develops for our common stock, which could have an adverse effect on the price
of our common stock. As a result of any such decreases in price of our common
stock, purchasers who acquire shares from the Selling Stockholders may lose some
or all of their investment.
Any significant downward pressure on the price of our common stock as the
Selling Stockholders sell the shares of our common stock could encourage short
sales by the Selling Stockholders or others. Any such short sales could place
further downward pressure on the price of our common stock.
FUTURE SALES OF SHARES BY US MAY REDUCE THE VALUE OF OUR STOCK.
If required, we will seek to raise additional capital through the sale of
our common stock. Future sales of shares by us could cause the market price of
our common stock to decline and may result in further dilution of the value of
the shares owned by our stockholders.
10
FORWARD-LOOKING STATEMENTS
This prospectus contains statements that plan for or anticipate the future,
called "forward-looking statements." In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"could," "expects," "plans," "intends," "anticipates," "believes," "estimates,"
"predicts," "potential" or "continue" or the negative of those terms and other
comparable terminology.
These forward-looking statements include statements about:
- our market opportunity;
- our strategies; - competition;
- expected activities and expenditures as we pursue our business plan;
and
- the adequacy of our available cash resources.
These statements appear in a number of places in this prospectus and
include statements regarding our intent, belief or current expectations, those
of our directors or officers with respect to, among other things: (i) trends
affecting our financial condition or results of operations, (ii) our business
and growth strategies, and (iii) our financing plans. Although we believe that
the expectations reflected in the forward-looking statement are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements.
The accompanying information contained in this prospectus, including the
information discussed under the headings "Risk Factors," "Plan of Operations"
and "Description of Business and Property" identify important factors that could
adversely affect actual results and performance. All forward-looking statements
attributeable to us are expressly qualified in their entirety by the cautionary
statement appearing above.
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be offered
and sold from time to time by the Selling Stockholders. Although we will pay
the costs and expenses incurred in connection with the preparation and filing of
this prospectus, we will receive no proceeds from the sale of shares of common
stock in this offering.
11
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock has been quoted on the Pink Sheets since November 18,
1999. The following table sets forth the high and low bid prices for our Common
Stock for the calendar quarters indicated as reported by the Pink Sheets for the
last two years. These prices represent quotations between dealers without
adjustment for retail markup, markdown or commission and may not represent
actual transactions.
- -----------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
2006 - High $ 1.270 $ 1.600 $ 1.250 $ 1.000
- -----------------------------------------------------------------------------
2006 - Low $ 0.575 $ 0.850 $ 0.870 $ 0.750
- -----------------------------------------------------------------------------
2005 - High $ 1.525 $ 1.575 $ 1.550 $ 1.426
- -----------------------------------------------------------------------------
2005 - Low $ 1.350 $ 1.450 $ 1.000 $ 1.075
- -----------------------------------------------------------------------------
2004 - High $ 1.125 $ 1.125 $ 1.145 $ 1.500
- -----------------------------------------------------------------------------
2004 - Low $ 0.505 $ 0.750 $ 0.655 $ 0.725
- -----------------------------------------------------------------------------
Our stock is also quoted in the Frankfurt Exchange under the symbols "C9K.FSE,"
and "C9K.ETR".
(1) The high and low bid prices for our Common Stock for the Third Quarter of
2006 were for the period October 1, 2006 to November 24, 2006
On November 24, 2006 the closing price of our common stock as reported on the
Pink Sheets was $0.97. As of November 24, 2006, we had 19 stockholders of
record.
As of the date hereof, we have no common shares reserved for issuance under
our Stock option plan.
DIVIDEND POLICY
We have never paid cash dividends on our capital stock and do not
anticipate paying any cash dividends in the foreseeable future, but intend to
retain our capital resources for reinvestment in our business. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon our financial condition, results of
operations, capital requirements and other factors as the board of directors
deems relevant. Our board of directors has the right to authorize the issuance
of preferred stock, without further stockholder approval, the holders of which
may have preferences over the holders of the common stock as to payment of
dividends.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings and there are no
material legal proceedings pending with respect to our property. We are not
aware of any legal proceedings contemplated by any governmental authorities
involving either us or our property. None of our directors, officers or
affiliates is an adverse party in any legal proceedings involving us, or has an
interest in any proceeding which is adverse to us.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
GENERAL
We are a mineral exploration company. We maintain a technical and property
acquisition office in Coolum Beach, Australia. We also maintain an office in
Tomsk, Russian Federation; we are engaged in the exploration of base, precious
metals and industrial minerals worldwide.
We were incorporated under the laws of the State of Florida on January 13,
1989 as Cigma Ventures Corp. On April 17, 1999 we changed our name to Cigma
Metals Corporation and are an exploration stage enterprise.
This Prospectus contains numerous forward-looking statements relating to
our business. Operating, exploration and financial data, and other statements
in this document are based on information the company believes reasonable, but
involve significant uncertainties as to future gold and silver prices, costs,
ore grades, estimation of gold and silver reserves, mining and processing
conditions, changes that could result from our future acquisition of new mining
properties or businesses, the risks and hazards inherent in the mining business
(including environmental hazards, industrial accidents, weather or geologically
related conditions), regulatory and permitting matters, and risks inherent in
the ownership and operation of, or investment in, mining properties or
businesses in foreign countries. Actual results and timetables could vary
significantly from the estimates presented. Readers are cautioned not to put
undue reliance on forward-looking statements.
Our continued operations and the recoverability of mineral property costs
is dependent upon the existence of economically recoverable mineral reserves,
confirmation of our interest in the underlying properties, our ability to obtain
necessary financing to complete the development and upon future profitable
production. Since 1999 we have acquired and disposed of a number of properties.
We have not been successful in any of our exploration efforts to establish
reserves on any of the properties that we owned or in which we had an interest.
On August 30, 2004, the Company signed a Joint Activity Agreement with OOO
Science Industrial Corporation Geosphera ("Geosphera"), a company registered in
Russia, to form a partnership to explore the Haldeevskaya license located in the
Tomsk district of the Tomsk region of the Russian Federation, 25 km east of the
city of Tomsk. Geosphera will earn a 51% interest in the partnership by
contributing the license for the Haldeevskaya area and the geological data. The
license and the geological data have been valued at US$52,000. The terms of the
agreement provided that the Company was to earn a 49% interest in the
partnership by paying US$50,000. However, the Company increased our interest in
the partnership to 80% (Geosphera - 20%) by funding US$350,000 of exploration
expenditures on the licensed property in 2004. Geosphera is the manager of the
project.
Pursuant to the terms of the Joint Activity Agreement, and for the purpose
of conducting further financing and exploration work, a company, Limited
Liability Company HaldeyGold. ("HaldeyGold"), was registered with the Ministry
of the Russian Federation for Taxes and Levies on January 19, 2005. The
Haldeevskaya mineral exploration license along with all relevant geological data
was transferred by the partnership to HaldeyGold on March 16, 2005. The Company
has an 80% (Geosphera 20%) interest in HaldeyGold.
On April 22, 2005, December 31, 2005 and July 7, 2006 the Company and
Geosphera agreed to amendments to the Haldeevskaya Joint Activity Agreement
dated August 30, 2004 resulting in a revision of the 2005 exploration
expenditure commitment from $300,000 to $250,000 and an
13
agreement on behalf of the Company to fund $460,000 (decreased from $2,450,000)
toward the 2006 HaldeyGold exploration budget. In the event that the Company
funds less than $460,000 (decreased from $1,500,000) of the 2006 exploration
budget, the Company's interest in HaldeyGold will be reduced to 50%. Geosphera's
ownership interest in HaldeyGold cannot be reduced below 20%
On June 17, 2005, as amended December 31, 2005 and July 7, 2006, the
Company signed a Joint Activity Agreement to form a partnership to explore the
Tugojakovsk Project, located in the Tomsk Oblast Region of the Russian
Federation. Under the terms of the agreement: (1) the Company acquired an 80%
share of the project in exchange for contributing $126,440 in 2005; and (2) the
Company is committed to finance the project in 2006 by providing $600,400 in
accordance with an approved budget. If the financing provided in 2007 is
between (1) $800,000 and $1,499,000, the Company's ownership interest will be
reduced to 70%; (2) $350,000 and $799,000, reduced to 60%; (3) $200,000 to
$350,000, reduced to 49% (4) less than $200,000, then the Company shall assign
to Geosphera 100% equity interest in the joint venture and withdraw from the
joint venture. Geosphera's ownership interest cannot be reduced below 20%.
Pursuant to the terms of the Joint Activity Agreement, a company will be
incorporated and registered by Geosphera in the Russian Federation with the
Ministry of the Russian Federation for Taxes and Levies in order to conduct
further financing and exploration work on the Tugojakovsk license area once the
Company's contribution to the joint venture reaches $700,000. Once the joint
venture company is registered with the Ministry of the Russian Federation for
Taxes and Levies, the Partnership will transfer the Tugojakovsk mineral
exploration license along with all relevant geological data to the new joint
venture company. The licence, geological data, professional knowledge, skills
and business contacts contributed to the joint venture by Geosphera was valued
at $100,000. The Company will have an 80% (Geosphera 20%) interest in the new
company. As of August 16, 2006 the new company has not yet been registered.
On April 7, 2006, the Company's Board of Directors approved a 2:1 forward
stock split effective May 15, 2006 which was subject to regulatory approval
which was received on May 19, 2006. The par value and the number of authorized
but unissued shares of the Company's common stock was not changed as a result of
the forward stock split.
UNLESS OTHERWISE NOTED, ALL REFERENCES TO COMMON STOCK, COMMON SHARES
OUTSTANDING, WEIGHTED AVERAGE NUMBERS OF COMMON SHARES OUTSTANDING AND PER SHARE
AMOUNTS IN THIS PROSPECTUS AND THE ACCOMPANYING FINANCIAL STATEMENTS AND NOTES
TO FINANCIAL STATEMENTS PRIOR TO THE EFFECTIVE DATE OF THE FORWARD STOCK SPLIT
HAVE BEEN RESTATED TO REFLECT THE 2:1 FORWARD STOCK SPLIT ON A RETROACTIVE
BASIS.
In March 2006 the Company issued 800,000 common shares for cash of $300,000
which was received in the year ended December 31, 2005.
On May 12, 2006 the Company completed a private placement to non-affiliated
offshore investors of 6,540,000 Units priced at $0.50 per unit for a total
consideration of $3,270,000 pursuant to the exemption from registration
requirements of the Securities Act of 1933 as amended afforded by Regulation S
as promulgated by the Act. Each Unit is comprised of one share of the Company's
pre-forward split common stock US $0.0001 par value per share and one stock
purchase warrant, each warrant entitling the holder to purchase one additional
common share of the Company at a price of US $0.675 per share for a period of
one year from the closing date of the placement and at a price of US $0.75 per
share for a period of one year commencing on the first anniversary of the
Closing Date.
14
None of the warrants have been exercised as of the date of this prospectus.
On May 26, 2006 the Company completed a private placement to non-affiliated
offshore investors of 1,460,000 Units priced at $0.50 per Unit for a total
consideration of $730,000 pursuant to the exemption from registration
requirements of the Securities Act of 1933 as amended afforded by Regulation S
as promulgated by the Act. Each Unit is comprised of one share of the Company's
common stock US $0.0001 par value per share and one (1) stock purchase warrant,
each warrant entitling the holder to purchase one additional common share of the
Company at a price of US $0.675 per share for a period of one year from the
closing date of the placement and at a price of US $0.75 per share for a period
of one year commencing on the first anniversary of the Closing Date. None of the
warrants have been exercised as of the date of this prospectus.
RESULTS OF OPERATIONS
(1) NINE MONTHS ENDED SEPTEMBER 30, 2006 VERSUS NINE MONTHS ENDED SEPTEMBER 30,
2005
The Company had no operating revenues for the nine months ended September
30, 2006 (2005 - $0).
For the nine months ended September 30, 2006 the Company recorded a net
loss of $879,646 (2005 - $424,412) or $0.02 per share (2005 - $0.01).
EXPENSES - For the nine months ended September 30, 2006 the Company
recorded expenses of $370,575 (2005 - $187,024). The 2006 amount includes,
professional fees - accounting $20,049 (2005 - $5,299) and legal $94,106
(2005 - $18,010).
EXPLORATION EXPENDITURES - For the nine months ended September 30, 2006, we
recorded total exploration costs of $578,840 compared to $239,854 in 2005.
Exploration expenses on the Haldeevskaya mineral exploration licence area
located in the Tomsk Oblast region of the Russian Federation totalled
$290,840 (2005 - $189,854) of which $241,583were spent by the HaldeyGold
(2005 - $150,000). Exploration expenses on the Tugojakovsk mineral
exploration licence area located in the Tomsk Oblast region of the Russian
Federation totalled $288,000 during the nine months ended September 30,
2006 (2005 - $50,000).
The Company's investment in the HaldeyGold partnership interest is as
follows:
- --------------------------------------------------------------------------------------------------------------
January 13, Year
1989 (inception) ended
to September 30, September 30, September 30, December 31,
2006 2006 2005 2005
- --------------------------------------------------------------------------------------------------------------
Capital invested $ 938,612 $ 241,583 $ 150,000 $ 297,029
- --------------------------------------------------------------------------------------------------------------
Exploration costs incurred (757,661) (193,266) (120,000) (202,795)
- --------------------------------------------------------------------------------------------------------------
180,951 48,317 30,000 94,234
- --------------------------------------------------------------------------------------------------------------
Write-down of investment in partnership
interest (180,951) (48,317) (30,000) (94,234)
- --------------------------------------------------------------------------------------------------------------
Partnership interest at end of period $ - $ - $ - $ -
- ------------------------------------------====================================================================
Exploration costs on the Tugojakovsk mineral exploration licence area located in
the Tomsk Oblast
15
region of the Russian Federation totalled $288,000 during the nine months ended
September 30, 2006 (2005 - $50,000)..
(2) YEAR ENDED DECEMBER 31, 2005 VERSUS YEAR ENDED DECEMBER 31, 2004
For the year ended December 31, 2005 we recorded a loss of $(888,224) or
$0.03 per share, compared to a loss of $657,031 ($0.02 per share) in 2004.
EXPENSES - For the year ended December 31, 2005 we recorded total general and
administrative expenses of $303,419 (2004 - $214,016). The 2005 amount includes
administrative and general expenses of $32,985 (2004 - $49,964), professional
fees $51,211 (2004 - $50,116), property search and negotiation $69,608 (2004 -
$32,146), and salaries and consulting fees of $145,396 (2004 - $79,533).
EXPLORATION EXPENDITURES - For the year ended December 31, 2005 we recorded
total exploration costs of $345,392 compared to $408,306 in fiscal 2004. Direct
exploration expenses on the Haldeevskaya mineral exploration licence area
located in the Tomsk Oblast region of the Russian Federation totaled $18,226
during the twelve months ended December 31, 2005 (2004 - $46,706). Additionally
we recorded $202,795 in partnership exploration costs (2004 - $361,600) and
$94,234 (2004 - $38,400) in write-down of investment in partnership interest.
Exploration expenses on the Tugojakovsk mineral exploration licence area located
in the Tomsk Oblast region of the Russian Federation totaled $124,371 during the
twelve months ended December 31, 2005 (2004 - $0).
The Company's investment in the HaldeyGold partnership interest is as follows:
- ----------------------------------------------------------------------------------------------------
Year Year
January 13, 1989 ended ended
(inception) to December 31, December 31,
December 31, 2005 2004
2005
- ----------------------------------------------------------------------------------------------------
Capital invested $ 697,029 $ 297,029 $ 400,000
- ----------------------------------------------------------------------------------------------------
Exploration costs incurred (564,395) (202,795) (361,600)
- ----------------------------------------------------------------------------------------------------
132,634 94,234 38,400
- ----------------------------------------------------------------------------------------------------
Write-down of investment in partnership interest (132,634) (94,234) (38,400)
- ----------------------------------------------------------------------------------------------------
Partnership interest at end of period $ - $ - $ -
- --------------------------------------------------==================================================
Exploration costs on the Tugojakovsk mineral exploration licence area located in
the Tomsk Oblast region of the Russian Federation totalled $124,371 during the
year ended December 31, 2005 (2004 - $nil).
CAPITAL RESOURCES AND LIQUIDITY
SEPTEMBER 30, 2006 VERSUS SEPTEMBER 30, 2005
At September 30, 2006 the Company had cash of $3,335,756 (2005 - $77,045)
and working capital of $3,491,250 (2005 - $38,231) respectively. Total
liabilities as of September 30, 2006 were $9,112 (2005 - $205,123), a decrease
of $196,011. During the nine months ended September 30, 2006 the Company issued
8,800,000 (2005 - 2,000,000) common shares for cash of $4,300,000 of which
300,000 was received in December 2005. During the nine months ended September
30, 2006 investing activities consisted of investment in partnerships $529,583
(2005 - $150,000). For the nine months ended September 30, 2006 the Company
recorded a net loss of $879,646 (2005 - $424,412) or $0.02 per share (2005 -
$0.01 per share).
16
At September 30, 2006 we have sufficient working capital to (i) pay our
administrative and general operating expenses through December 31, 2007 and (ii)
to conduct our preliminary exploration programs. Without cash flow from
operations, we may need to obtain additional funds (presumably through equity
offerings and/or debt borrowing) in order, if warranted, to implement additional
exploration programs on our properties. Failure to obtain such additional
financing may result in a reduction of our interest in certain properties or an
actual foreclosure of our interest. We have no agreements or understandings with
any person as to such additional financing.
Our exploration properties have not commenced commercial production and we
have no history of earnings or cash flow from our operations. While we may
attempt to generate additional working capital through the operation,
development, sale or possible joint venture development of our property, there
is no assurance that any such activity will generate funds that will be
available for operations.
PLANS FOR THE YEARS 2006 AND 2007
During the next 12 months we intend to raise additional funds through
equity offerings and/or debt borrowing to meet our administrative/general
operating expenses and to conduct work on exploration properties. There is, of
course, no assurance that we will be able to do so.
We will concentrate our 2006/2007 exploration activities on (1) the
Haldeevskaya mineral exploration licence area located in the Tomsk Oblast region
of the Russian Federation and the Tugojakovsk mineral exploration licence (2)
examining data relating to the potential acquisition or joint venturing of
additional mineral properties in either the exploration or development stage in
the Russian Federation. Additional employees will be hired on a consulting basis
as required by the exploration projects.
The 2006/2007-exploration work program on the Haldeevskaya mineral
exploration licence area will involve continued evaluation of the current
drilling activities. We will also evaluate data accumulated by previous workers
in the area of a large antimony resource.
The antimony resource was delineated during a different exploration and
cultural environment in the Soviet era and was never tested for gold. As these
mineralised zones are considered to be quite extensive, exploration will include
the antimony resource area as well as further test work on the Verkhnekamensk
and surrounding anomalies. The black shales of the Haldeevskaya show a good
correlation with elevated levels of antimony and elevated levels of gold.
We will conduct further surface exploration over antimony resource area so
as to plan drilling to best target the previously reported mineralised zones.
Drilling is expected to commence during the latter part of 2006 and continue
through to the beginning of the fourth quarter of 2006. During the early stages
of 2007 the resulting drill data will be evaluated and a geological model
elucidated in preparations for future resource calculations.
We also intend to conduct further lithochemical studies, geological
mapping, soil sampling to delineate geochemical anomalies, stream sediment
sampling, ground geophysics surveys. Any anomalies will then be classified and
prioritized for further future exploration.
During 2006/2007 the exploration work program on the Tugojakovsk mineral
exploration licence area will involve continued evaluation of the current
drilling activities. Limited previous
17
exploration, including drilling, was and is concurrently being compared to
lithologies gained from the current diamond drilling on the Baturino Anomaly.
Comparisons of grades versus geochem and geophysical anomalies will be completed
during the latter half of 2006, and further drilling, if warranted, will be
planned to assist in the delineation of mineral resources considered to be
primarily gold.
We also intend to follow up the high grade sampling results associated with
the Larinsk anomaly, situated towards the centre of the property area. Previous
sampling showed grades of up to 40 g/t Gold were associated with the black
shales and the intrusion of a Doleritic dyke.
Initial investigations of the Larinsk anomaly will begin during the third
quarter of 2006, with a view to drilling any targets early in 2007.
The data compiled from the work on the Haldeevskaya mineral exploration
licence and the Tugojakovsk mineral exploration licence areas will be used to
determine whether: (i) further exploration is warranted; or (ii) whether certain
claim blocks should be surrendered.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The preparation of our consolidated financial statements requires us to use
estimates and assumptions that affect the reported amounts of assets and
liabilities as well as revenues and expenses. Our accounting policies are
described in note 2 to our December 31, 2005 financial statements. Our
accounting policies relating to capitalization of mineral property acquisition,
exploration and development costs and the investment in partnership interest are
critical accounting policies that are subject to estimates and assumptions
regarding future activities.
See the following notes to the December 31, 2005 audited Consolidated
Financial Statements:
Note 2 - Mineral Properties and Exploration Expenses
Note 2 - Investment in Partnership Interest
RELATED PARTY TRANSACTIONS
For a description of our related party transactions, see the "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS" section of this prospectus and the
related notes to our financial statements appearing at the end of this
prospectus.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
We do not have any off-balance sheet arrangements or contractual
obligations that are likely to have or are reasonably likely to have a material
current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that have not been disclosed in our financial
statements.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk is confined to our cash equivalents and
short-term investments. We invest in high-quality financial instruments;
primarily money market funds, federal agency notes, and
18
US Treasury obligations, with the effective duration of the portfolio within one
year which we believe are subject to limited credit risk. We currently do not
hedge interest rate exposure. Due to the short-term nature of our investments,
we do not believe that we have any material exposure to interest rate risk
arising from our investments.
DESCRIPTION OF OUR BUSINESS AND PROPERTY
We conduct exploration activities from our technical office in Coolum
Beach, Queensland, Australia. These offices are provided to us on a rent free,
month to month basis by Lars Pearl, one of our directors. We believe that these
offices are adequate for our purposes.
Our strategy is to concentrate our investigations into: (i) existing
operations where an infrastructure already exists; (ii) properties presently
being developed and/or in advanced stages of exploration which have potential
for additional discoveries; and (iii) grass-roots exploration opportunities.
We are currently concentrating our property exploration activities in the
Russian Federation. We are also examining data relating to the potential
acquisition of other exploration properties in the Russian Federation.
Our properties are in the exploration stage only and are without a known
body of mineral reserves. Development of the properties will follow only if
satisfactory exploration results are obtained. Mineral exploration and
development involves a high degree of risk and few properties that are explored
are ultimately developed into producing mines. There is no assurance that our
mineral exploration and development activities will result in any discoveries of
commercially viable bodies of mineralization. The long-term profitability of our
operations will be, in part, directly related to the cost and success of our
exploration programs, which may be affected by a number of factors. PLEASE REFER
TO "RISK FACTORS."
We currently have an interest in two projects located in the Tomsk Oblast
Region of the Russian Federation. We have conducted only preliminary
exploration activities to date and may discontinue such activities and dispose
of the properties if further exploration work is not warranted.
HALDEEVSKAYA LICENCE
The Haldeevskaya exploration license covers an area of 576 km2 and is
located approximately 16 kilometres NE from Tomsk via paved highway. Excellent
infrastructure is currently in place, including, maintained tarmac access roads,
high tension power lines at 500 kilowatts per line, gravel vehicular access
roads over the project area with close-spaced, 100 metre, cut lines over the
target areas. The area is also close to the railheads in Tomsk, with links to
the Trans Siberian Railway, and all infrastructures associated with a regional
centre.
Geology of Haldeevskaya area is represented by the mid Devonian
volcanogenic-sedimentary sediments of the Mitrofan suite, terrigenous ("black
shale") sediments of the Jurginsk, Pachinsk, Salamat suites of upper Devonian,
and the Yarsk, Lagernosadsk stratus of the lower Carboniferous age. The rock
formations are deformed into the linear folds with the north-north-eastern
strike and they are cut by the series of longitudinal, lateral and diagonal
fractures of different type and order. The area is located at the front zone of
the Tomsk thrust above the granitoid intrusions that are inferred by geophysics.
Dolerite and Monzonite dikes intrude Paleozoic rocks forming the series of dike
zones with a north-western trend with an echelon-like arrangement of some dikes
and their
19
groups. Mineralisation is focussed into areas associated with the thrusting.
TUGOJAKOVSK LICENCE
The Tugojakovsk exploration license covers an area of 164 km2 and is
located 25 kilometres SE from the regional centre of Tomsk via paved highway. An
excellent infrastructure is in place including excellent sealed roads, close
access to railheads and the infrastructure associated with the regional centre
of Tomsk.
The geology of Tugojakovsk area is represented by the sedimentary rock
formations of Carboniferous age composed of carbonaceous shales, siltstones and
sandstones united under the common term "black shale". The rocks are deformed
into linear folds and cut by the series of longitudinal, lateral and diagonal
faults. The dolerite and monzonite dikes intrude Palaeozoic rocks forming a
series of dike zones controlling quartz stock works with gold mineralization.
MANAGEMENT
The following table lists the names and positions of our executive officers
and directors as of August 16, 2006. All executive officers and directors have
been elected and appointed to serve until their successors are elected and
qualified. Additional information regarding the business experience, length of
time served in each capacity and other matters relevant to each individual are
set forth below the table.
Name and Address Age and Position
- ---------------- ----------------
- ---------------------------------------------------------------------------------------
Lars Pearl Age 44, President and Director since March 15, 2004.
1 Edith Place, Coolum Beach,
Queensland, Australia 4573
- ---------------------------------------------------------------------------------------
Robert Biagioni Age 50, Director since May 29, 2006
336 West 19th Street,
North Vancouver, B.C.,
Canada, V7M 1X8
- ---------------------------------------------------------------------------------------
Waldemar K. Mueller Age 56, Director since March 15, 2004.
40 Ruffian Loop, Willetton,
Western Australia, Australia 6155
- ---------------------------------------------------------------------------------------
Robert Ian Rigg Age 52, Director since May 29, 2006
21 - 4957 Marine Drive,
West Vancouver, B.C.,
Canada, V7W 2P5
- ---------------------------------------------------------------------------------------
Agustin Gomez de Segura Age 52, Director since April 17, 1998.
2 Tvezskaya - Yamskaya 54,
Moscow, Russia
- ---------------------------------------------------------------------------------------
The following is a description of the employment history for each of our
directors and officers for the last five years:
20
LARS PEARL Contact Resources Limited, Western Australia, technical consultant
(2005 to 2006); self employed as a geological consultant (1994 to
present)
ROBERT BIAGIONI Canadian Chartered Accountant (British Columbia); President and
Chief Executive Officer of the Corus Financial Group, 1986 to present,
provides financial and operational consulting services in the United
States of America and Canada primarily in the real estate, technology
and manufacturing sectors. President, Chief Executive Officer and
Director of Katie Gold Corp. from January 2005 to April 2006.
WALDEMAR MUELLER Geologist, Chairman and Managing Director of Kiintas Mining
Management PTY Ltd. (1998 to present). Vice President Exploation Lalo
Ventures, Canada (January to November 2004). Director of Central Asia
Resources, Western Australia, from March 2006 to present.
ROBERT IAN RIGG Canadian Chartered Accountant (British Columbia); Vice President of
Mass Financial Corporation (a 2006 spin-off of the financial assets of
KDH Humboldt Wedag Ltd., formerly MFC Bankcorp Ltd.) from
2002 to present, responsible for the management of a cobalt refinery
in Uganda, zinc alloy facilities in England and Slovakia and two
aluminum rolling mills in Germany. Between 1999 and 2003 he was a
Director, Vice-President and Chief Financial Officer of Mercer
International Inc.
AGUSTIN GOMEZ DE SEGURA Director of the Delta Capital, an investment company in Liechtenstein
from April 1999 to present, Director and President Eurasia Gold
Fields, Inc. November 1997 to present. Director and President of Soil
Biogenics Limited July 2003 to present.
During the past five years none of our directors, executive officers,
promoters or control persons has been:
(a) the subject of any bankruptcy petition filed by or against any business of
which such person was a general partner or executive officer either at the
time of the bankruptcy or within two years prior to that time;
(b) convicted in a criminal proceeding or is subject to a pending criminal
proceeding (excluding traffic violations and other minor offenses);
(c) subject to any order, judgment, or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently
or temporarily enjoining, barring, suspending or otherwise limiting his
involvement in any type of business, securities or banking activities; or
(d) found by a court of competent jurisdiction (in a civil action), the
Commission or the Commodity Futures Trading Commission to have violated a
federal or state securities or commodities law.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Based on information provided to the Company, it is believed that all of
the Company's directors, executive officers and persons who own more than 10% of
the Company's common stock were in compliance with Section 16(a) of the Exchange
Act of 1934 during the year ended December 31, 2005 and subsequent period to
August 16, 2006.
21
DIRECTORS
Our Board of directors consists of five members. Directors serve for a term
of one year and stand for election at our annual meeting of stockholders.
Pursuant to our Bylaws, any vacancy occurring in the Board of directors,
including a vacancy created by an increase in the number of directors, may be
filled by the stockholders or by the affirmative vote of a majority of the
remaining directors though less than a quorum of the Board of directors. A
director elected to fill a vacancy shall hold office only until the next
election of directors by the stockholders. If there are no remaining directors,
the vacancy shall be filled by the stockholders.
At a meeting of stockholders, any director or the entire Board of directors
may be removed, with or without cause, provided the notice of the meeting states
that one of the purposes of the meeting is the removal of the director. A
director may be removed only if the number of votes cast to remove him exceeds
the number of votes cast against removal.
COMMITTEES
Robert Ian Rigg, Robert Biagioni and Agustin Gomez de Segura are the
independent committee financial experts serving on our Executive Committee,
Audit Committee, Compensation and Benefits Committee and the Nominating and
Corporate Governance Committees.
COMPENSATION OF DIRECTORS
For the nine months ended September 30, 2006 we incurred $118,750 (2005 -
$90,000; Fiscal 2004 - $54,000 in consulting fees to directors. We do not pay a
fee to our outside, non-officer directors.
STANDARD ARRANGEMENTS
We currently do not pay a fee to our outside, non-officer directors. We
reimburse our directors for reasonable expenses incurred by them in attending
meetings of the Board of Directors. During the nine months ended September 30,
2006 and fiscal 2005 and 2004 non-officer directors did not receive any
consulting fees.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation of the
named executive officers for each of the registrant's last three completed
fiscal year:
- -------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
- -------------------------------------------------------------------------------------------------------
Awards Payments
- -------------------------------------------------------------------------------------------------------
Securities
Other Under- All
Annual Restricted Lying other
Compen- Stock Options/ LTIP Compen-
Name And Salary Bonuses Sation Award(s) SARs Payouts sation
Principal Position Year ($) ($) ($) ($) (#) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- -------------------------------------------------------------------------------------------------------
Lars Pearl 2006 -0- -0- 55,750 None None None -0-
President and --------------------------------------------------------------------------------
Director 2005 -0- -0- 72,000 None None None -0-
--------------------------------------------------------------------------------
2004 -0- -0- 42,000 None None None -0-
--------------------------------------------------------------------------------
2003 -0- -0- -0- None None None -0-
- -------------------------------------------------------------------------------------------------------
Waldemar K. Mueller 2006 -0- -0- 63,000
Vice-President and --------------------------------------------------------------------------------
Director 2005 -0- -0- 48,000 None None None -0-
--------------------------------------------------------------------------------
2004 -0- -0- 12,000 None None None -0-
--------------------------------------------------------------------------------
2003 -0- -0- -0- None None None -0-
- -------------------------------------------------------------------------------------------------------
22
None of our officers or directors was party to an employment agreement with us.
The consulting fees paid to the directors were recorded at the exchange amount,
being the value established and agreed to by the related parties. During the
fiscal year ending December 31, 2005 and the subsequent period to November 24,
2006, the entire board of directors acted as our Executive Committee, Audit
Committee, Compensation and Benefits Committee and our Nominating and Corporate
Governance Committees.
OPTIONS/SAR GRANTS TABLE
Effective March 1, 2006, subject to shareholder approval (received on June
21, 2006), the Board of Directors approved a Stock Option Plan ("SOP") in order
to provide additional incentive for our directors, officers, employees and
service providers. The maximum amount of shares that can be issued under the
SOP in any calendar year cannot exceed 15% of the issued and outstanding common
shares of the Company on January 1 of such year. The exercise price of each such
stock option shall not be less than the fair market value of a share at the time
of grant. However, if a stock option is granted to a 10% shareholder, the
purchase price shall not be less than 110% of the fair market value of a share
at the time of grant. All options granted under the plan will not be
exercisable for six months from the date of grant, except in the event of a
change of control, and the term of all options granted will not exceed five
years.
The following information sets forth information concerning individual
grants of stock options (whether or not in tandem with stock appreciation rights
("SARs") and freestanding SARs made during the nine months ended September 30,
2006 to each of the named executive officers.
- ---------------------------------------------------------------------------
Option/SAR Grants in Last Fiscal Year
(Individual Grants)
- ---------------------------------------------------------------------------
Percent Of
Number of Total Options/
Securities SARs Granted
Underlying To Employees Exercise Or Expiration
Option/SARs In Fiscal Base Price Date
Granted (#) Year ($/Sh) (M/D/Y)
(a) (b) (c) (d) (e)
- ---------------------------------------------------------------------------
Lars Pearl 0 0 0 0
- ---------------------------------------------------------------------------
Waldemar Mueller 0 0 0 0
- ---------------------------------------------------------------------------
We awarded no stock purchase options, or any other rights, to any of our
directors or officers in 2005 or 2004.
23
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUE TABLE
The following table sets forth information concerning each exercise of
stock options (or tandem SARs) and freestanding SARs during the nine months
ended September 30, 2006 by each of the named executive officers and the
September 30, 2006 value of unexercised options and SARs, on an aggregated
basis:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
- --------------------------------------------------------------------------------
Number of Value Of
Securities Unexercised
Underlying In-The-Money
Unexercised Options/SARs
Shares Options/SARs At September 30,
Acquired Value At FY-End ($) 2006 ($0.970)
On Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
(a) (b) (c) (d) (e)
- -----------------------------------------------------------------------------
Lars Pearl 0 0 0 0
- -----------------------------------------------------------------------------
Waldemar Mueller 0 0 0 0
- -----------------------------------------------------------------------------
At no time during the nine months ended September 30, 2006 or the last
completed fiscal year did we, while a reporting company pursuant to Section
13(a) of 15(d) of the Exchange Act, adjust or amend the exercise price of the
stock options or SARs previously awarded to any of the named executive officers,
whether through amendment, cancellation or replacement grants, or any other
means.
LONG-TERM INCENTIVE PLANS ("LTIP") AWARDS TABLE
We do not have a Long-term Incentive Plan.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The following table sets forth certain information regarding the beneficial
ownership of our Common Stock as of November 24, 2006 by (i) each person who is
known by us to own beneficially more than five percent (5%) of our outstanding
Common Stock; (ii) each of our directors and officers; and (iii) all our
directors and officers as a group. As at November 24, 2006 there were
39,500,000 (December 31, 2005 - 31,500,000) shares of Common Stock issued and
outstanding.
24
- -----------------------------------------------------------------------------------------------
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNER PERCENTAGE OF CLASS
- -----------------------------------------------------------------------------------------------
Boavista Securities Ltd. (1)
Suite 2402, Bank of America Tower,
12 Harcourt Road, Hong Kong
2,400,000 6.08%
- -----------------------------------------------------------------------------------------------
Carrington International Limited (2)
Suite 2402, Bank of America Tower,
12 Harcourt Road, Hong Kong
3,200,000 8.10 %
- -----------------------------------------------------------------------------------------------
EL&A Ltd (3)
Graben 27, Steige 3
A-1010, Vienna, Austria
2,000,000 5.06%
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
OFFICERS AND DIRECTORS:
- -----------------------------------------------------------------------------------------------
Lars Pearl (4)
1 Edith Place, Coolum Beach, Queensland, Australia
4573
0 *
- -----------------------------------------------------------------------------------------------
Robert Biagioni (4)
336 West 19th Street,
North Vancouver, B.C.,
Canada, V7M 1X8
0 *
- -----------------------------------------------------------------------------------------------
Waldemar K. Mueller (4)
40 Ruffian Loop, Willetton, Western Australia,
Australia 6155
0 *
- -----------------------------------------------------------------------------------------------
Robert Ian Rigg (4)
21 - 4957 Marine Drive,
West Vancouver, B.C.,
Canada, V7W 2P5
0 *
- -----------------------------------------------------------------------------------------------
Agustin Gomez de Segura (4)
2 Tvezskaya - Yamskaya 54, Moscow, Russia
0 *
- -----------------------------------------------------------------------------------------------
Officers and Directors (5 persons) 0 *
- -----------------------------------------------------------------------------------------------
(1) Maria del Carmen Becerro Morais, Avenida del Campo 10, E-28223 Madrid,
Spain, is the 100% beneficial owner of Boavista Securities Ltd.
(2) Dr. Georg H Schnura, Avenida del Campo 10, E-28223 Madrid, Spain, is the
100% beneficial owner of Carrington International Ltd
(3) Dr. Markus Baerfontein, c/o Medoc Medical Services, Petersplatz 1, Vienna
1, District, 1010, Austria is the 100% beneficial owner of EL & A Ltd.
(4) Officer and/or director
*Less than 1%.
CHANGES IN CONTROL
There were no arrangements during the last completed fiscal year or
subsequent period to November 24, 2006 which would result in a change in our
control. We do not believe that the offer and sale by us of an aggregate of
8,000,000 shares in May 2006, to twelve unrelated investors resulted in a change
of control.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our proposed business raises potential conflicts of interests between us
and certain of our officers and directors. There have been no transactions
during the last two years or the subsequent period to
25
November 24, 2006, or proposed transactions, to which we were or are a party, in
which any of our directors or executive officers had or have a direct or
indirect material interest.
Certain of our directors are directors of other mineral resource companies
and, to the extent that such other companies may participate in ventures in
which we may participate, our directors may have a conflict of interest in
negotiating and concluding terms regarding the extent of such participation. In
the event that such a conflict of interest arises at a meeting of our directors,
a director who has such a conflict will abstain from voting for or against the
approval of such participation or such terms. In appropriate cases, we will
establish a special committee of independent directors to review a matter in
which several directors, or management, may have a conflict. From time to time,
several companies may participate in the acquisition, exploration and
development of natural resource properties thereby allowing for their
participation in larger programs, involvement in a greater number of programs
and reduction of the financial exposure with respect to any one program. It may
also occur that a particular company will assign all or a portion of our
interest in a particular program to another of these companies due to the
financial position of the company making the assignment.
In determining whether we will participate in a particular program and the
interest therein to be acquired by it, the directors will primarily consider the
potential benefits to us, the degree of risk to which we may be exposed and our
financial position at that time. Other than as indicated, we have no other
procedures or mechanisms to deal with conflicts of interest. We are not aware
of the existence of any conflict of interest as described herein.
There have been no transactions or proposed transactions with promoters
during the last two years or the subsequent period to November 24, 2006 which we
are or were a party.
SELLING STOCKHOLDERS
The following table presents information regarding the Selling
Stockholders. Neither the Selling Stockholders nor any of their affiliates has
held a position or office, or had any other material relationship, with us.
Unless otherwise indicated, the percentage of outstanding shares beneficially
owned is based on 39,500,000 shares issued and outstanding at November 24, 2006.
Information with respect to beneficial ownership is based upon information
provided to us by the Selling Stockholders. Except as may be otherwise
described below, to the best of our knowledge, the named Selling Stockholder
beneficially owns and has sole voting and investment authority as to all of the
shares set forth opposite his name.
- --------------------------------------------------------------------------------------------------------------
Percentage of
No. of Shares Percentage of Issued and
Beneficially Issued and No. of Shares Outstanding
Owned Prior Outstanding To Be Sold in Shares Owned
to the Offering Shares Prior This Offering After the
Name and Address of Selling Stockholder To the Offering (1) Offering
- --------------------------------------------------------------------------------------------------------------
Carrington International Ltd. (2) 3,600,000 7.58% 800,000 7.09%
Suite 2402, Bank of America
12 Harcourt Road, Hong Kong
- --------------------------------------------------------------------------------------------------------------
Boavista Securities Ltd (3) 3,600,000 7.58% 2,400,000 3.04%
Suite 2402, Bank of America
12 Harcourt Road, Hong Kong
- --------------------------------------------------------------------------------------------------------------
26
- --------------------------------------------------------------------------------------------------------------
EL&A (4) 4,000,000 8.42% 4,000,000 0%
Graben 27, Steige 3
A-1010, Vienna, Austria
- --------------------------------------------------------------------------------------------------------------
Deutsche Balaton AG (5) 2,000,000 4.21% 2,000,000 0%
Weberstr. 1
69120, Heidelberg, Germany
- --------------------------------------------------------------------------------------------------------------
Tsang Fat Investment Ltd 6) 4.21% 2,000,000 0%
Goldschmiedgasse 9-1-16 2,000,000
A-1010, Vienna, Austria
- --------------------------------------------------------------------------------------------------------------
Yalta AG (7) 2,000,000 4.21% 2,000,000 0%
Im Haderheck 3
61462 Konigstein, Germany
- --------------------------------------------------------------------------------------------------------------
Kastalia Ltd (8) 800,000 1.68% 800,000 0%
Wickhams Cay 1
Road Town, Tortola, British Virgin Islands
- --------------------------------------------------------------------------------------------------------------
Daniel Hauri 600,000 1.26% 600,000 0%
Rittergasse 33
CH4051, Basel, Switzerland
- --------------------------------------------------------------------------------------------------------------
Daniel Garth 400,000 0.84% 400,000 0%
Hanhofer Strasse 36
D-67459 Bohl-Iggelheim, Germany
- --------------------------------------------------------------------------------------------------------------
Dr. B. Putzi 400,000 0.84% 400,000 0%
Wollzeute 32
A-1010, Vienna, Austria
- --------------------------------------------------------------------------------------------------------------
Dr. Georg H. Schnura (2) 400,000 0.84% 400,000 0%
Marques de Urquijo 5. 5b
28008 Madrid, Spain
- --------------------------------------------------------------------------------------------------------------
Thomas Meusburger 200,000 0.42% 200,000 0%
Reichsratsstrasse 15/12
A-1010, Wien, Austria
- --------------------------------------------------------------------------------------------------------------
(1) 50% of the amount reflects shares to be issued on the exercise of warrants.
(2) Dr. Georg H Schnura, Avenida del Campo 10, E-28223 Madrid, Spain is the
100% beneficial owner of Carrington International Ltd. which owns 3,200,000
shares included in this number, the beneficial ownership of which is
attributed to Dr. Schnura
(3) Maria del Carmen Becerro Morais, Avenida del Campo 10,E-28223 Madrid,
Spain, is the 100% beneficial owner of Boavista Securities Ltd.
(4) Dr. Markus Baerfontein, c/o Medoc Medical Services, Petersplatz 1, Vienna
1, District, 1010, Austria is the 100% beneficial owner of EL & A Ltd.
(5) Deutsche Balaton AG is a public company whose shares are widely held.
(6) J. McEwan & Gywneth Strief, Golschmiedgasse 9-1-16, A-1010, Vienna, Austria
are the 100% beneficial owners of Tsang Fat Investments Ltd.
(7) Yalta AG is a public company whose shares are widely held.
(8) Alexander Kleimionov, Ul. Demiana Bednovo 17, corp. 3, ap. 10 Moscow,
Russia is the 100% beneficial owner of Kastalia Ltd.
27
Under Rule 13d-3, a beneficial owner of a security includes any person who,
directly or indirectly, through any contract, arrangement, understanding,
relationship, or otherwise has or shares: (i) voting power, which includes the
power to vote, or to direct the voting of shares; and (ii) investment power,
which includes the power to dispose or direct the disposition of shares. Certain
shares may be deemed to be beneficially owned by more than one person (if, for
example, persons share the power to vote or the power to dispose of the shares).
In addition, shares are deemed to be beneficially owned by a person if the
person has the right to acquire the shares (for example, upon exercise of an
option) within 60 days of the date as of which the information is provided. In
computing the percentage ownership of any person, the amount of shares
outstanding is deemed to include the amount of shares beneficially owned by such
person (and only such person) by reason of these acquisition rights. As a
result, the percentage of outstanding shares of any person as shown in this
table does not necessarily reflect the person's actual ownership or voting power
with respect to the number of shares of common stock actually outstanding on
November 24, 2006.
Because a Selling Stockholder may offer by this prospectus all or some part
of the common shares which it holds, no estimate can be given as of the date
hereof as to the number of common shares actually to be offered for sale by a
Selling Stockholder or as to the number of common shares that will be held by a
Selling Stockholder upon the termination of such offering.
PLAN OF DISTRIBUTION
We are registering the securities covered by this prospectus on behalf of
the Selling Stockholders. Each selling shareholder is free to offer and sell
his or her shares of our common stock at such times, in such manner and at such
prices as he or she may determine. The Selling Stockholders have advised us that
the sale or distribution of our common stock owned by the selling shareholders
may be effected in transactions in the over-the-counter market (including block
transactions), negotiated transactions, the settlement of short sales of our
common stock, or a combination of such methods of sale. The sales will be at
market prices prevailing at the time of sale or at negotiated prices. Such
transactions may or may not involve brokers or dealers.
None of the Selling Stockholders are underwriters, registered
broker/dealers or affiliates of such persons. The Selling Stockholders have
advised us that they have not entered into agreements, understandings or
arrangements with any underwriters or broker-dealers regarding the sale of their
shares. The Selling Stockholders do not have an underwriter or coordinating
broker acting in connection with the proposed sale of our common stock. There is
no over-allotment option and no shares will be sold by us.
The Selling Stockholders may sell their shares directly to purchasers or to
or through broker-dealers, which may act as agents or principals. These
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Stockholders. They may also receive compensation
from the purchasers of our common stock for whom such broker-dealers may act as
agents or to whom they sell as principal, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions).
Selling Stockholders and any broker-dealer that acts in connection with the
sale of shares of our common stock hereunder may be deemed to be
"underwriters" within the meaning of Section 2(a)(11) of the Securities Act. Any
commissions received by such broker-dealers and any profit on the resale of the
shares of our common stock sold by them while acting as principals might be
28
deemed to be underwriting discounts or commissions under the Securities Act. The
Selling Stockholders may agree to indemnify any agent, dealer or broker-dealer
that participates in transactions involving sales of our common stock against
certain liabilities, including liabilities arising under the Securities Act.
Because each of Selling Stockholders may be deemed to be an
"underwriter" within the meaning of Section 2(a)(11) of the Securities Act, the
Selling Stockholders will be subject to prospectus delivery requirements of the
Securities Act.
We have informed the Selling Stockholders that the anti-manipulation rules
of the Commission, including Regulation M promulgated under the Securities
Exchange Act of 1934 will apply to our sales in the market, and we have informed
the other Selling Stockholders that these anti-manipulation rules may apply to
their sales in the market.
Regulation M may limit the timing of purchases and sales of any of the
shares of our common stock by the Selling Stockholders and any other person
distributing our common stock. The anti-manipulation rules under the Securities
Exchange Act of 1934 may apply to sales of shares of our common stock in the
market and to the activities of the Selling Stockholders and their affiliates.
Furthermore, Regulation M of the Securities Exchange Act may restrict the
ability of any person engaged in the distribution of shares of our common
stock to engage in market-making activities with respect to the particular
shares of common stock being distributed for a period of up to five
business days prior to the commencement of such distribution. All of the
foregoing may affect the marketability of our common stock and the ability of
any person or entity to engage in market-making activities with respect to our
common stock.
Rules 101 and 102 of Regulation M under the Securities Exchange Act 0f
1934, among other things, generally prohibit certain participants in a
distribution from bidding for or purchasing for an account in which the
participant has a beneficial interest, any of the securities that are
the subject of the distribution. Rule 104 of Regulation M governs bids
and purchases made to stabilize the price of a security in connection with
a distribution of the security.
The Selling Stockholders also may resell all, or a portion, of the shares
in open market transactions in reliance upon Rule 144 under the Securities Act,
provided they meet the criteria and conform to the requirements of such Rule.
The Selling Stockholders will pay all commissions, transfer taxes and other
expenses associated with their sales. The shares offered hereby are being
registered pursuant to our contractual obligations, and we have agreed to pay
the expenses of the preparation of this prospectus.
DESCRIPTION OF OUR CAPITAL STOCK
Our authorized capital stock consists of 100,000,000 shares of common
stock, par value $.0001 per share. As of November 24, 2006 we had 39,500,000
shares of common stock outstanding.
COMMON STOCK
Holders of our common stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of our common
stock entitled to vote in any election of directors may elect all of the
29
directors standing for election. Holders of our common stock are entitled to
receive dividends ratably, if any, as may be declared from time to time by our
board of directors out of funds legally available therefore. Upon our
liquidation, dissolution or winding up, the holders of our common stock are
entitled to receive ratably, our net assets available after the payment of all
liabilities.
Holders of our common stock have no preemptive, subscription, redemption or
conversion rights, and there are no redemption or sinking fund provisions
applicable to the common stock. The outstanding shares of our common stock are,
and the shares offered in this offering will be, when issued and paid for, duly
authorized, validly issued, fully paid and nonassessable.
DIVIDENDS
We have not declared any cash dividends to date. We have no present
intention of paying any cash dividends on our common stock in the foreseeable
future, as we intend to use earnings, if any, to generate growth. The payment of
dividends, if any, in the future, rests within the discretion of our Board of
Directors and will depend, among other things, upon our earnings, capital
requirements and our financial condition, as well as other relevant factors.
There are no restrictions in our Certificate of Incorporation or By-laws that
restrict us from declaring dividends.
WARRANTS
We have a total of 8,000,000 share purchase warrants issued and
outstanding; the warrants were issued as part of the private placements
concluded in May 2006. Each warrant entitles the holder to purchase one
additional share of our common stock at a price of US $0.675 per share for a
period of one year from the closing date of the placement and at a price of US
$0.75 per share for a period of one year commencing on the first anniversary of
the Closing Date. None of the warrants have been exercised as of the date of
this prospectus. The shares to be issued upon exercise of the warrants have
registered pursuant to the registration statement of which this prospectus is
part.
REGISTRATION RIGHTS
In connection with the private placements concluded in May 2006, we granted
the purchasers of the stock registration rights. The registration statement, of
which the prospectus is part, was filed in order to fulfill our obligations to
those purchasers.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of a substantial number of shares of our common stock in the
public market could adversely affect market prices prevailing from time to time.
Under the terms of this offering, the shares of common stock offered may be
resold without restriction or further registration under the Securities Act of
1933, except that any shares purchased by our "affiliates," as that term is
defined under the Securities Act, may generally only be sold in compliance with
Rule 144 under the Securities Act.
SALE OF RESTRICTED SHARES
Certain shares of our outstanding common stock were issued and sold by us
in private transactions in reliance upon exemptions from registration under the
Securities Act and have not been registered
30
for resale. Additional shares may be issued pursuant to outstanding warrants and
options. Such shares may be sold only pursuant to an effective registration
statement filed by us or an applicable exemption, including the exemption
contained in Rule 144 promulgated under the Securities Act.
On November 24, 2006 we had outstanding 39,500,000 shares of common stock.
Of these shares, approximately 27,300,000 are freely tradable by persons other
than our affiliates, without restriction under the Securities Act; and
11,000,000 shares are restricted securities within the meaning of Rule 144 under
the Securities Act and may not be sold unless an exemption from the registration
requirements of the Securities Act is available (including 144). As at November
24, 2006, 7,800,000 shares were held by persons who may be deemed our affiliates
and may only be sold publicly pursuant to Rule 144.
In general, under Rule 144 as currently in effect, a stockholder, including
one of our affiliates, may sell shares of common stock after at least one year
has elapsed since such shares were acquired from us or our affiliate. The number
of shares of common stock which may be sold within any three-month period is
limited to the greater of: (i) one percent of our then outstanding common stock,
or (ii) the average weekly trading volume in our common stock during the four
calendar weeks preceding the date on which notice of such sale was filed under
Rule 144. Certain other requirements of Rule 144 concerning availability of
public information, manner of sale and notice of sale must also be satisfied. In
addition, a stockholder who is not our affiliate, who has not been our affiliate
for 90 days prior to the sale, and who has beneficially owned shares acquired
from us or our affiliate for over two years may resell the shares of common
stock without compliance with many of the foregoing requirements under Rule 144.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Our directors and officers are indemnified by our bylaws against amounts
actually and necessarily incurred by them in connection with the defense of any
action, suit or proceeding in which they are a party by reason of being or
having been our directors or officers or of our subsidiaries. Our articles of
incorporation provide that none of our directors or officers shall be personally
liable for damages for breach of any fiduciary duty as a director or officer
involving any act or omission of any such director or officer. Insofar as
indemnification for liabilities arising under the Securities Act of 1933, as
amended, may be permitted to such directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities,
other than the payment by us of expenses incurred or paid by such director,
officer or controlling person in the successful defense of any action, suit or
proceeding, is asserted by such director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
31
LEGAL MATTERS
The validity of the issuance of the common stock offered hereby will be
passed upon for us by Sierchio Greco & Greco, LLP.
EXPERTS
The consolidated financial statements of the Company as at and for the year
ended December 31, 2005 included in this prospectus and registration statement
have been audited by Dale Matheson Carr-Hilton LaBonte, Chartered Accountants,
an independent registered public accounting firm, as set forth in their report
thereon which contain an explanatory paragraph describing conditions that raise
substantial doubt about our ability to continue as a going concern as described
in Note 1 to the consolidated financial statements appearing elsewhere herein
and in the registration statement and are included in reliance upon such report
given on the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of the Company as at and for the year
ended December 31, 2004 included in this prospectus and registration statement
have been audited by Ernst & Young LLP, Chartered Accountants, an independent
registered public accounting firm, as set forth in their report thereon which
contain an explanatory paragraph describing conditions that raise substantial
doubt about the Company's ability to continue as a going concern as described in
Note 1 to the consolidated financial statements appearing elsewhere herein and
in the registration statement and are included in reliance upon such report
given on the authority of such firm as experts in accounting and auditing.
The consolidated statements of stockholders' equity, operations and cash
flows of the Company for the cumulative period from January 13, 1989 (inception)
to December 31, 2003 included in this prospectus and registration statement have
been audited by Moore Stephens Ellis Foster Ltd., Chartered Accountants, an
independent registered public accounting firm, as set forth in their report
thereon which contain an explanatory paragraph describing conditions that raise
substantial doubt about the Company's ability to continue as a going concern as
described in Note 1 to the consolidated financial statements appearing elsewhere
herein and in the registration statement and are included in reliance upon such
report given on the authority of such firm as experts in accounting and
auditing.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
On January 7, 2006, the Company asked Ernst & Young LLP to resign and our Board
of Directors approved the engagement of Dale Matheson Carr-Hilton LaBonte,
Chartered Accountants, of Suite 1500 - 1140 West Pender Street, Vancouver, B.C.,
Canada, V6E 4G1, as our principal independent accountant.
Dale Matheson Carr-Hilton LaBonte's report on the Company's consolidated
financial statements for the year ended December 31, 2005, did not contain an
adverse opinion or a disclaimer of opinion, nor was it qualified or modified as
to uncertainty, audit scope, or accounting principles except Dale Matheson
Carr-Hilton LaBonte's report notes that the Company has incurred significant
recurring net loses which raise substantial doubt about the Company's ability to
continue as a going concern.
During the period covered by the report of Dale Matheson Carr-Hilton LaBonte and
any subsequent interim period, the Company had no disagreements with Dale
Matheson Carr-Hilton LaBonte, whether
32
or not resolved, on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of Dale Matheson Carr-Hilton LaBonte, would
have caused Dale Matheson Carr-Hilton LaBonte to make reference to the subject
matter of the disagreement in connection with its reports.
Ernst & Young LLP's report on the Company's financial statements during the most
recent fiscal year contained no adverse opinion or disclaimer of opinion, nor
was it qualified or modified as to uncertainty, audit scope or accounting
principles, except that the report was qualified as to the Company's ability to
continue as a going concern.
In connection with the audit of the fiscal year ended December 31, 2004 and for
any subsequent interim period preceding the change, there were no disagreements
with Ernst & Young LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures, which
disagreements if not resolved to the satisfaction of Ernst & Young LLP would
have caused them to make reference thereto in their report on the financial
statements for such year.
In connection with the audit of the fiscal year ended December 31, 2004 and
through the subsequent interim period preceding the change, there have been no
reportable events as defined in paragraphs (a)(1)(iv)(A) through (D) of Item 304
of Regulation S-B.
On August 4, 1999, our Board of Directors approved and authorized the engagement
of Moore Stephens Ellis Foster Ltd., Chartered Accountants, as our principal
independent accountant. Moore Stephens Ellis Foster Ltd. was our principal
independent accountant for the fiscal year ended December 31, 2003.
Moore Stephens Ellis Foster Ltd. was our principal independent accountant from
August 4, 1999 to May 3, 2005. On May 3, 2005, Moore Stephens Ellis Foster Ltd.
entered into a transaction with Ernst & Young LLP (Canada) under which certain
assets of Moore Stephens Ellis Foster Ltd. were sold to Ernst & Young LLP and
the professional staff and partners of Moore Stephens Ellis Foster Ltd. joined
Ernst & Young LLP either as employees or partners of Ernst & Young LLP and
carried on their practice as members of Ernst & Young LLP. Subsequent to the
transaction, Moore Stephens Ellis Foster Ltd. was dismissed as the auditor and
Ernst & Young LLP was appointed as our independent auditor.
Moore Stephens Ellis Foster Ltd.'s report on the Company's consolidated
financial statements for the year ended December 31, 2003, did not contain an
adverse opinion or a disclaimer of opinion, nor was it qualified or modified as
to uncertainty, audit scope, or accounting principles except Moore Stephen Ellis
Foster Ltd.'s report notes that the Company has incurred significant recurring
net loses which raise substantial doubt about the Company's ability to continue
as a going concern.
During the period covered by the report of Moore Stephens Ellis Foster Ltd. and
up to the effective date of appointment of Ernst and Young LLP, the Company had
no disagreements with Moore Stephens Ellis Foster Ltd., whether or not resolved,
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of Moore Stephens Ellis Foster Ltd., would have cause Moore
Stephens Ellis Foster Ltd. to make reference to the subject matter of the
disagreement in connection with its reports.
During the Company's previous two fiscal years and up to the effective date of
resignation the
33
Company did not consult with Ernst & Young LLP regarding any of the items
described under Item 304(a)(1)(iv)(B), Item 304(a)(2) or Item 304(b) of
Regulation S-B.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We file current, quarterly and annual reports with the U.S. Securities &
Exchange Commission on forms 8-K, 10-QSB and 10-KSB. We have filed with the U.S.
Securities & Exchange Commission under the Securities Act of 1933 a registration
statement on Form SB-2 with respect to the shares being offered in this
offering. This prospectus does not contain all of the information set forth in
the registration statement, certain items of which are omitted in accordance
with the rules and regulations of the U.S. Securities & Exchange Commission. The
omitted information may be inspected and copied at the Public Reference Room
maintained by the U.S. Securities & Exchange Commission at 100 F Street, N.E.,
Washington, D.C. 20549. You can obtain information about operation ofthe Public
Reference Room by calling the U.S. Securities & Exchange Commission at
1-800-SEC-0330. The U.S. Securities & Exchange Commission also maintains an
Internet site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically withthe U.S. Securities &
Exchange Commission at http://www.sec.gov. Copies of such material can be
obtained from the public reference section of the U.S. Securities & Exchange
Commission at prescribed rates. Statements contained in this prospectus as to
the contents of any contract or other document filed as an exhibit to the
registration statement are not necessarily complete and in each instance
reference is made to the copy of the document filed as an exhibit to the
registration statement, each statement made in this prospectus relating to such
documents being qualified in all respects by such reference.
For further information with respect to us and the securities being offered
hereby, reference is hereby made to the registration statement, including the
exhibits thereto and the financial statements, notes, and schedules filed as a
part thereof.
34
Index to Financial Statements
INDEX TO FINANCIAL STATEMENTS -SEPTEMBER 30, 2006 (UNAUDITED) PAGE
- -------------------------------------------------------------
Consolidated Balance Sheets F-3
September 30, 2006 (unaudited) and December 31, 2005 (audited)
Interim Consolidated Statements of Operations (unaudited) F-4
Three and Nine-months Ended September 30, 2006 and 2005; and for the
Period from January 13, 1989 (inception) to September 30, 2006
Interim Consolidated Statements of Cash Flows (unaudited) F-5
Nine-months Ended September 30, 2006 and 2005; and for the
Period from January 13, 1989 (inception) to September 30, 2006
Notes to Interim Consolidated Financial Statements F-6
INDEX TO FINANCIAL STATEMENTS - DECEMBER 31, 2005 (AUDITED)
- -----------------------------------------------------------
Report of Independent Registered Public Accounting Firm F-17
Consolidated Balance Sheets
Years Ended December 31, 2005 and 2004 F-18
Consolidated Statements of Operations
Years Ended December 31, 2005 and 2004 F-19
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 2005 and 2004 F-20
Consolidated Statements of Cash Flows
Years Ended December 31, 2005 and 2004 F-21
Notes to Consolidated Financial Statements
Years Ended December 31, 2005 and 2004 F-22
Report of Independent Registered Public Accounting Firm F-33
Report of Independent Registered Public Accounting Firm F-34
F-1
CIGMA METALS CORPORATION
(An exploration stage company)
Interim Consolidated Financial Statements
(EXPRESSED IN U.S. DOLLARS)
September 30, 2006 and 2005
Consolidated Balance Sheets F 3
September 30, 2006 (unaudited) and December 31, 2005 (audited)
Interim Consolidated Statements of Operations (unaudited) F 4
Three and Nine-months ended September 30, 2006 and 2005; and for the
Period from January 13, 1989 (inception) to September 30, 2006
Interim Consolidated Statements of Cash Flows (unaudited) F5
Nine-months ended September 30, 2006 and 2005; and for the
period from January 13, 1989 (inception) to September 30, 2006
Notes to Interim Consolidated Financial Statements (unaudited) F 6
F-2
CIGMA METALS CORPORATION
(An exploration stage enterprise)
Consolidated Balance Sheets
September 30, 2006 and December 31, 2005
(Expressed in U.S. Dollars)
==================================================================================
September 30, December 31,
2006 2005
- ----------------------------------------------------------------------------------
ASSETS (unaudited)
Current
Cash $ 3,335,756 $ 250,170
Available-for-sale securities 164,606 181,797
- ----------------------------------------------------------------------------------
Total assets 3,500,362 431,967
- ----------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 9,112 $ 26,894
Accounts payable - related party (Note 7) - 16,986
- ----------------------------------------------------------------------------------
Total current liabilities 9,112 43,880
- ----------------------------------------------------------------------------------
Stockholders' Equity
Common stock (Note 5)
Authorized
100,000,000 common shares, par value $0.0001
Issued and outstanding:
39,500,000 (2005 - 30,700,000) common shares 3,950 3,070
Additional paid in capital 6,347,650 2,048,530
Common stock to be issued - 300,000
Accumulated deficit during the development stage (2,843,159) (1,963,513)
Accumulated other comprehensive income (loss) (17,191) -
- ----------------------------------------------------------------------------------
Stockholders' equity 3,491,250 388,087
- ----------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 3,500,362 $ 431,967
==================================================================================
Nature of Business and Continuance of Operations (Note 1)
Commitments (Note 4)
The accompanying notes are an integral part of these interim consolidated
financial statements.
F-3
CIGMA METALS CORPORATION
(An exploration stage enterprise)
Interim Consolidated Statements of Operations
(Expressed in U.S. Dollars) Cumulative
(unaudited) January 13 Three months Three months Nine months Nine months
1989 (inception) Ended Ended Ended Ended
to September 30, September 30, September 30, September 30, September 30,
2006 2006 2005 2006 2005
- -----------------------------------------------------------------------------------------------------------------------------
Expenses
Administrative and general $ 269,241 $ 28,664 $ 4,808 $ 90,724 $ 28,599
Exploration costs (Note 4) -
- HaldeyGold Project - partnership 757,661 145,266 80,000 193,266 120,000
- HaldeyGold Project - other 177,614 13,518 - 49,257 39,854
- Tugojakovsk Project 412,371 8,000 50,000 288,000 50,000
Interest and bank charges 10,993 1,262 897 3,174 2,647
Professional fees 319,505 46,740 8,827 114,155 23,309
Property investigation costs 109,279 3,546 - 7,525 19,980
Salaries and consulting fees 566,713 52,770 32,389 154,997 112,489
- -----------------------------------------------------------------------------------------------------------------------------
Loss before other items 2,623,377 299,766 176,921 901,098 396,878
- -----------------------------------------------------------------------------------------------------------------------------
Other income (loss)
Writedown of available-for-sale
securities (Note 3) (148,180) - - - -
Writedown of investment in
partnership interest (Note 4) (180,951) (36,317) (20,000) (48,317) (30,000)
Interest income 109,349 41,568 178 69,769 2,466
- -----------------------------------------------------------------------------------------------------------------------------
Total other income (loss) (219,782) 5,251 (19,822) 21,452 (27,534)
- -----------------------------------------------------------------------------------------------------------------------------
Net loss for the period $ (2,843,159) $ (294,515) $ (196,743) $ (879,646) $ (424,412)
=============================================================================================================================
Basic and diluted loss per share $ (0.01) $ (0.01) $ (0.02) $ (0.01)
=============================================================================================================================
Weighted average number of
common shares outstanding 39,500,000 14,170,833 35,645,074 28,733,456
=============================================================================================================================
The accompanying notes are an integral part of these interim consolidated
financial statements.
F-4
Interim Consolidated Statements of Cash Flows Cumulative
(Expressed in U.S. Dollars) January 13 Nine months Nine months
(unaudited) 1989 (inception) Ended Ended
to September 30 September 30 September 30
2006 2006 2005
- ------------------------------------------------------------------------------------------------------------------------
Net loss for the period $ (2,843,159) $ (879,646) $ (424,412)
- ------------------------------------------------------------------------------------------------------------------------
Cash flows used in operating activities
Adjustments to reconcile net loss to net cash used
in operating activities
- issuance of common stock for mineral property rights 600 - -
- issuance of common stock for services rendered 1,000 - -
- partnership exploration costs 1,045,661 481,266 120,000
- writedown of investment in partnership interest 180,951 48,317 30,000
- accumulated gains on available for sale securities 148,180 - -
Changes in working capital assets and liabilities
- decrease in other receivables - - 6,211
- increase (decrease) in accounts payables and accrued liabilities 9,112 (34,768) (16,599)
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (1,457,655) (384,831) (284,800)
- ------------------------------------------------------------------------------------------------------------------------
Cash flows used in investing activities
- investment in available-for-sale securities (329,977) - -
- investment in partnership interest (1,226,612) (529,583) (150,000)
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,556,589) (529,583) (150,000)
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
- issuance of common stock 6,350,000 4,000,000 -
- Loan proceeds - - 200,000
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 6,350,000 4,000,000 200,000
- ------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash for the period 3,335,756 3,085,586 (234,800)
Cash, beginning of period - 250,170 311,845
- ------------------------------------------------------------------------------------------------------------------------
Cash, end of period $ 3,335,756 $ 3,335,756 $ 77,045
========================================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION (Note 7)
The accompanying notes are an integral part of these interim consolidated
financial statements.
F-5
Cigma Metals Corporation
(an exploration stage company)
Notes to Interim Consolidated Financial Statements
September 30, 2006
(unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND CONTINUANCE OF OPERATIONS
- --------------------------------------------------------------------------------
The Company was incorporated under the laws of the State of Florida on January
13, 1989 as Cigma Ventures Corporation. On April 17, 1999 the Company changed
its name to Cigma Metals Corporation and is in the business of location,
acquisition, exploration and, if warranted, development of mineral properties.
The Company is in the exploration stage and has not yet determined whether its
properties contain mineral reserves that may be economically recoverable.
These consolidated unaudited financial statements have been prepared in
accordance with generally accepted accounting principles in the United States of
America ("US GAAP") applicable to a going concern, which contemplates the
realization of assets and the satisfaction of liabilities and commitments in the
normal course of business. The general business strategy of the Company is to
acquire and explore mineral properties. The continued operations of the Company
and the recoverability of mineral property costs is dependent upon the existence
of economically recoverable mineral reserves, confirmation of the Company's
interest in the underlying mineral claims, the ability of the Company to obtain
necessary financing to complete the development and upon future profitable
production. The Company has not generated any revenues or completed development
of any properties to date, has incurred losses of $2,843,159 since inception,
and further significant losses are expected to be incurred in the exploration
and development of its mineral properties. The Company will require additional
funds to meet its obligations and maintain its operations. Management's plans in
this regard are to raise equity financing as required. During the period the
Company raised $4,000,000 through private placements and has sufficient cash to
fund operations for the next year.
NOTE 2 - BASIS OF PRESENTATION
- --------------------------------------------------------------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the nine months ended
September 30, 2006 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2006.
The consolidated balance sheet at December 31, 2005 has been derived from the
audited financial statements at that date. The consolidated financial statements
and footnotes thereto included in the Cigma Metals Corporation Annual Report on
Form 10-KSB for the year ended December 31, 2005 should be reviewed in
connection with these condensed consolidated financial statements.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements, prepared in accordance with US GAAP,
include the accounts of the Company and its wholly-owned subsidiaries, Northgold
Company Limited ("Northgold") and Cigma Metals Limited ("Cigma BVI").
Collectively, they are referred to herein as (the "Company"). Significant
inter-company accounts and transactions have been eliminated. Northgold and
Cigma BVI are inactive.
F-6
Cigma Metals Corporation
(an exploration stage company)
Notes to Interim Consolidated Financial Statements
September 30, 2006
(unaudited)
- --------------------------------------------------------------------------------
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
- --------------------------------------------------------------------------------
BASIS OF PRESENTATION
These consolidated financial statements are presented in United States dollars
and have been prepared in accordance with US GAAP.
USE OF ESTIMATES
The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the period. Actual results could differ from those estimates.
MINERAL PROPERTIES AND EXPLORATION COSTS
Mineral property acquisition costs are capitalized when incurred. In accordance
with Emerging Issues Task Force 04-02, such costs are classified as tangible
assets and are evaluated for impairment and written down as required.
Mineral property exploration and development costs are expensed as incurred
until such time as economic reserves are quantified. From that time forward,
the Company will capitalize all costs to the extent that future cash flow from
mineral reserves equals or exceeds the costs deferred. The deferred costs will
be amortized over the recoverable reserves when a property reaches commercial
production. As of the date of these financial statements, the Company has only
incurred exploration costs which have been charged to operations. To date the
Company has not established any proven or probable reserves on its mineral
properties. Exploration activities conducted jointly with others are reflected
at the Company's proportionate interest in such activities.
The Company has adopted the provisions of SFAS No. 143 "Accounting for Asset
Retirement Obligations" which establishes standards for the initial measurement
and subsequent accounting for obligations associated with the sale, abandonment,
or other disposal of long-lived tangible assets arising from the acquisition,
construction or development and for normal operations of such assets. The
Company has not recognized any potential costs relating to the retirement of the
Company's mineral property interests through September 30, 2006 because there
are no retirement costs associated with its current level of exploration
activity.
INVESTMENT IN PARTNERSHIP INTERESTS
The Company accounts for its partnership interests under US GAAP using the
equity method. Therefore, the partnership interests are initially carried at
cost and adjusted for any return of capital and any allocation of profits and
losses including the Company's share of exploration costs. Fair value
adjustments may be required where there are long term indications relating to
the impairment of the interest.
SHARE-BASED COMPENSATION
On January 1, 2006, the Company adopted SFAS No.123 (revised 2004) (SFAS
No.123R), Share-Based Payment, which addresses the accounting for stock-based
payment transactions in which an enterprise receives employee services in
exchange for (a)equity instruments of the enterprise or (b)liabilities that are
based on the fair value of the enterprise's equity instruments or that maybe
settled by the issuance of such equity instruments. In January2005, the
Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin
(SAB)No.107, which provides supplemental implementation guidance for SFAS
No.123R. SFAS No.123R eliminates the ability to account for stock-based
compensation transactions using the intrinsic value method under Accounting
Principles Board (APB) Opinion No.25, Accounting for Stock Issued to Employees,
and instead generally requires that such
F-7
Cigma Metals Corporation
(an exploration stage company)
Notes to Interim Consolidated Financial Statements
September 30, 2006
(unaudited)
- --------------------------------------------------------------------------------
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
- --------------------------------------------------------------------------------
SHARE-BASED COMPENSATION (CONT'D)
transactions be accounted for using a fair-value-based method. The Company uses
the Black-Scholes-Merton ("BSM") option-pricing model to determine the
fair-value of stock-based awards under SFAS No.123R, consistent with that used
for pro forma disclosures under SFAS No.123, Accounting for Stock-Based
Compensation. The Company has elected the modified prospective transition method
as permitted by SFAS No.123R and accordingly prior periods have not been
restated to reflect the impact of SFAS No.123R. The modified prospective
transition method requires that stock-based compensation expense be recorded for
all new and unvested stock options, restricted stock, restricted stock units,
and employee stock purchase plan shares that are ultimately expected to vest as
the requisite service is rendered beginning on January 1, 2006 the first day of
the Company's fiscal year 2006. Stock-based compensation expense for awards
granted prior to January 1, 2006 is based on the grant date fair-value as
determined under the pro forma provisions of SFAS No.123.
Prior to the adoption of SFAS No.123R, the Company measured compensation expense
for its employee stock-based compensation plans using the intrinsic value method
prescribed by APB Opinion No.25. The Company applied the disclosure provisions
of SFAS No.123 as amended by SFAS No.148, Accounting for Stock-Based
Compensation - Transition and Disclosure, as if the fair-value-based method had
been applied in measuring compensation expense. Under APB Opinion No.25, when
the exercise price of the Company's employee stock options was equal to the
market price of the underlying stock on the date of the grant, no compensation
expense was recognized.
AVAILABLE-FOR-SALE SECURITIES
Available-for-sale securities are carried at fair market value with unrealized
holding gains and losses included as a component of accumulated other
comprehensive income (loss). If a loss in value in the available-for-sale
securities is considered to be other than temporary, it is recognized in the
determination of net income. Cost is based on the specific identification method
for the individual securities to determine realized gains or losses. Realized
gains and losses are determined on an average cost basis when securities are
sold. In accordance with the Company's policy to review its investment
portfolio for declines that may be other than temporary, the Company recognized
a non-cash loss of $148,180 on a lower-of-cost-or-market write down on certain
available-for-sale securities during the year ended December 31, 2005. During
the nine months ended September 30, 2006 the Company has recorded a non-cash
loss of $17,191 as other comprehensive loss.
FOREIGN CURRENCY TRANSLATIONS AND TRANSACTIONS
The Company's reporting currency is the U.S. Dollar. Foreign subsidiaries
utilize the functional currency applicable to the country in which they operate.
The Company translates assets and liabilities of its foreign subsidiaries at the
rate of exchange at the balance sheet date. Revenues and expenses are
translated at the average rate of exchange throughout the year. Gains or
losses from these translations, if significant, are reported as a separate
component of other comprehensive income, until all or a part of the investment
in the subsidiary is sold or liquidated. Translation adjustments do not
recognize the effect of income tax because the Company expects to reinvest the
amounts indefinitely in operations.
CONCENTRATION OF CREDIT RISK
The Company places its cash and cash equivalents with high credit quality
financial institutions. The Company occasionally maintains balances in a
financial institution exceeding the insured amount. As of September 30, 2006,
the Company had deposits in a bank exceeding insured limits.
F-8
Cigma Metals Corporation
(an exploration stage company)
Notes to Interim Consolidated Financial Statements
September 30, 2006
(unaudited)
- --------------------------------------------------------------------------------
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
- --------------------------------------------------------------------------------
LONG-LIVED ASSETS
In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-lived Assets", the carrying value of intangible assets and other long-lived
assets is reviewed on a regular basis for the existence of facts or
circumstances that may suggest impairment. The Company recognizes impairment
losses when the sum of the expected undiscounted future cash flow is less than
the carrying amount of the asset. Impairment losses, if any, are measured as the
excess of the carrying amount of the asset over its estimated fair value. The
Company has not recognized any impairment losses through September 30, 2006.
FAIR VALUE OF FINANCIAL INSTRUMENTS AND RISKS
Fair value estimates of financial instruments are made at a specific point in
time, based on relevant information about financial markets and specific
financial instruments. As these estimates are subjective in nature, involving
uncertainties and matters of significant judgment, they cannot be determined
with precision. Changes in assumptions can significantly affect estimated fair
value.
The carrying value of cash, available for sale securities, accounts payable and
accrued expenses, and accounts payable - related party, approximate their fair
value because of the short-term nature of these instruments. Management is of
the opinion that the Company is not exposed to significant interest or credit
risks arising from these financial instruments.
The Company operates outside of the United States of America and is exposed to
foreign currency risk due to the fluctuation between the currency in which the
Company operates in and the U.S. dollar. The Company does not use any
derivative instruments.
As all of the Company's mineral properties and partnership interests are located
in Russia, the Company is subject to different considerations and other risks
not typically associated with companies in North America. Such risks are
associated with the political, economic, foreign currency and legal
environments. The Company's results may be adversely affected by changes in the
political and social conditions in Russia and by changes in government policies
with respect to laws and regulations.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company has adopted the Statement of Financial Accounting Standards No. 133
(SFAS 133) Accounting for Derivative Instruments and Hedging Activities, which
requires companies to recognize all derivative contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in the fair value of
the hedged asset or liability that are attributable to the hedged risk or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income in
the period of change. Historically, the Company has not entered into derivative
contracts either to hedge existing risks or for speculative purposes.
INCOME TAXES
The Company has adopted the Statement of Financial Accounting Standards No. 109
(SFAS 109), Accounting for Income Taxes, which requires the Company to recognize
deferred tax liabilities and assets for the expected future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns using the liability method. Under this method, deferred tax liabilities
and assets are determined based on the differences between the financial
statement carry amounts and tax bases of assets and liabilities using enacted
tax rates in effect in the years in which the differences are expected to
reverse.
F-9
Cigma Metals Corporation
(an exploration stage company)
Notes to Interim Consolidated Financial Statements
September 30, 2006
(unaudited)
- --------------------------------------------------------------------------------
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
- --------------------------------------------------------------------------------
LOSS PER SHARE
The Company computes loss per share in accordance with SFAS No. 128, "Earnings
per Share" which requires presentation of both basic and diluted earnings per
share on the face of the statement of operations. Basic loss per share is
computed by dividing net loss available to common shareholders by the weighted
average number of outstanding common shares during the period. Diluted loss per
share gives effect to all dilutive potential common shares outstanding during
the period including stock options and warrants, using the treasury method, and
preferred stock, using the if-converted method. Dilutive loss per share excludes
all potential common shares if their effect is anti-dilutive.
COMPREHENSIVE LOSS
The Company's accumulated other comprehensive loss consists solely of the
accumulated unrealized gain/(loss) on available-for-sale securities.
COMPARATIVE FIGURES
Certain comparative figures have been reclassified in order to conform to the
current period's financial statement presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Financial Instruments-an amendment of FASB Statements No. 133 and 140", to
simplify and make more consistent the accounting for certain financial
instruments. SFAS No. 155 amends SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", to permit fair value re-measurement for any
hybrid financial instrument with an embedded derivative that otherwise would
require bifurcation, provided that the whole instrument is accounted for on a
fair value basis. SFAS No. 155 amends SFAS No. 140, "Accounting for the
Impairment or Disposal of Long-Lived Assets", to allow a qualifying
special-purpose entity to hold a derivative financial instrument that pertains
to a beneficial interest other than another derivative financial instrument.
SFAS No. 155 applies to all financial instruments acquired or issued after the
beginning of an entity's first fiscal year that begins after September 15, 2006,
with earlier application allowed. This standard is not expected to have a
significant effect on the Company's future reported financial position or
results of operations.
In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets, an amendment of FASB Statement No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities".
This statement requires all separately recognized servicing assets and servicing
liabilities be initially measured at fair value, if practicable, and permits for
subsequent measurement using either fair value measurement with changes in fair
value reflected in earnings or the amortization and impairment requirements of
Statement No. 140. The subsequent measurement of separately recognized servicing
assets and servicing liabilities at fair value eliminates the necessity for
entities that manage the risks inherent in servicing assets and servicing
liabilities with derivatives to qualify for hedge accounting treatment and
eliminates the characterization of declines in fair value as impairments or
direct write-downs. SFAS No. 156 is effective for an entity's first fiscal year
beginning after September 15, 2006. This adoption of this statement is not
expected to have a significant effect on the Company's future reported financial
position or results of operations.
F-10
Cigma Metals Corporation
(an exploration stage company)
Notes to Interim Consolidated Financial Statements
September 30, 2006
(unaudited)
- --------------------------------------------------------------------------------
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
- --------------------------------------------------------------------------------
RECENT ACCOUNTING PRONOUNCEMENTS (CONT'D)
In September 2006, the Financial Accounting Standards Board ("FASB") issued
SFASNo.157, "Fair Value Measures" ("SFASNo.157"). This Statement defines fair
value, establishes a framework for measuring fair value in generally accepted
accounting principles (GAAP), expands disclosures about fair value measurements,
and applies under other accounting pronouncements that require or permit fair
value measurements. SFASNo.157 does not require any new fair value measurements.
However, the FASB anticipates that for some entities, the application of
SFASNo.157 will change current practice. SFAS No. 157 is effective for financial
statements issued for fiscal years beginning after November15, 2007, which for
the Company would be the fiscal year beginning January 1, 2008. The Company is
currently evaluating the impact of SFASNo.157 but does not expect that it will
have a material impact on its financial statements.
In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans." This Statement requires
an employer to recognize the over funded or under funded status of a defined
benefit post retirement plan (other than a multiemployer plan) as an asset or
liability in its statement of financial position, and to recognize changes in
that funded status in the year in which the changes occur through comprehensive
income. SFAS No. 158 is effective for fiscal years ending after December 15,
2006. The Company does not expect that the implementation of SFAS No. 158 will
have any material impact on its financial position and results of operations.
In September2006, the SEC issued Staff Accounting Bulletin ("SAB")No.108,
"Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements." SAB No.108 addresses how
the effects of prior year uncorrected misstatements should be considered when
quantifying misstatements in current year financial statements. SAB No.108
requires companies to quantify misstatements using a balance sheet and income
statement approach and to evaluate whether either approach results in
quantifying an error that is material in light of relevant quantitative and
qualitative factors. SAB No. 108 is effective for periods ending after
November15, 2006. The Company is currently evaluating the impact of adopting
SAB No.108 but does not expect that it will have a material effect on its
financial statements.
NOTE 4 - MINERAL PROPERTIES AND EXPLORATION COSTS
- --------------------------------------------------------------------------------
The Company holds an interest in two mineral exploration projects located in the
Tomsk Oblast Region, of the Russian Federation.
HALDEYGOLD PROJECT
On August 30, 2004, the Company signed a Joint Activity Agreement with OOO
Science Industrial Corporation Geosphera ("Geosphera"), a company registered in
Russia, to form a partnership to explore the Haldeevskaya license located in the
Tomsk district of the Tomsk region of the Russian Federation, 25 km east of the
city of Tomsk. Geosphera will earn a 51% interest in the partnership by
contributing the license for the Haldeevskaya area and the geological data. The
license and the geological data have been valued at US$52,000. The terms of the
agreement provided that the Company was to earn a 49% interest in the
partnership by paying US$50,000. However, the Company increased its interest in
the partnership to 80% (Geosphera - 20%) by funding US$350,000 of exploration
expenditures on the licensed property in 2004. Geosphera is the manager of the
project.
F-11
Cigma Metals Corporation
(an exploration stage company)
Notes to Interim Consolidated Financial Statements
September 30, 2006
(unaudited)
- --------------------------------------------------------------------------------
NOTE 4 - MINERAL PROPERTIES AND EXPLORATION COSTS (CONT'D)
- --------------------------------------------------------------------------------
Pursuant to the terms of the Joint Activity Agreement, and for the purpose of
conducting further financing and exploration work, a company, Limited Liability
Company HaldeyGold. ("HaldeyGold"), was registered with the Ministry of the
Russian Federation for Taxes and Levies on January 19, 2005. The Haldeevskaya
mineral exploration license along with all relevant geological data was
transferred by the partnership to HaldeyGold on March 16, 2005. The Company has
an 80% (Geosphera 20%) interest in HaldeyGold.
On April 22, 2005, December 31, 2005 and July 7, 2006 the Company and Geosphera
agreed to amendments to the Haldeevskaya Joint Activity Agreement dated August
30, 2004 resulting in a revision of the 2005 exploration expenditure commitment
from $300,000 to $250,000 and an agreement on behalf of the Company to fund
$460,000 (decreased from $2,450,000) toward the 2006 HaldeyGold exploration
budget. In the event that the Company funds less than $460,000 (decreased from
$1,500,000) of the 2006 exploration budget, the Company's interest in HaldeyGold
will be reduced to 50%. Geosphera's ownership interest in HaldeyGold cannot be
reduced below 20%.
Consistent with the Company's accounting policies, exploration costs on unproven
reserves are charged to operating costs as incurred.
The Company's investment in the HaldeyGold partnership interest is as follows:
- ----------------------------------------------------------------------------------------------------------------------
January 13,
1989
(inception) to, Year
September 30, September 30, September 30, ended
2006 2006 2005 December 31,
(Unaudited) (Unaudited) (Unaudited 2005
- ----------------------------------------------------------------------------------------------------------------------
Capital invested $ 938,612 $ 241,583 $ 150,000 $ 297,029
- ----------------------------------------------------------------------------------------------------------------------
Exploration costs incurred (757,661) (193,266) (120,000) (202,795)
- ----------------------------------------------------------------------------------------------------------------------
180,951 48,317 30,000 94,234
- ----------------------------------------------------------------------------------------------------------------------
Write-down of investment in partnership interest (180,951) (48,317) (30,000) (94,234)
- ----------------------------------------------------------------------------------------------------------------------
Partnership interest at end of period $ - $ - $ - $ -
- --------------------------------------------------====================================================================
Direct exploration costs on the Haldeevskaya mineral exploration license area
located in the Tomsk Oblast region of the Russian Federation totalled $49,257
during the nine months ended September 30, 2006 (2005 - $39,854).
TUGOJAKOVSK PROJECT
On June 17, 2005, as amended December 31, 2005 and July 7, 2006, the Company
signed a Joint Activity Agreement to form a partnership to explore the
Tugojakovsk Project, located in the Tomsk Oblast Region of the Russian
Federation. Under the terms of the agreement: (1) the Company acquired an 80%
share of the project in exchange for contributing $126,440 in 2005; and (2) the
Company is committed to finance the project in 2006 by providing $600,400 in
accordance with an approved budget. If the financing provided in 2007 is
between (1) $800,000 and $1,499,000, the Company's ownership interest will be
reduced to 70%; (2) $350,000 and $799,000, reduced to 60%; (3) $200,000 to
$350,000, reduced to 49% (4) less than $200,000, then the Company shall assign
to Geosphera 100% equity interest in the joint venture and withdraw from the
joint venture. Geosphera's ownership interest cannot be reduced below 20%.
F-12
Cigma Metals Corporation
(an exploration stage company)
Notes to Interim Consolidated Financial Statements
September 30, 2006
(unaudited)
- --------------------------------------------------------------------------------
NOTE 4 - MINERAL PROPERTIES AND EXPLORATION COSTS (CONT'D)
- --------------------------------------------------------------------------------
TUGOJAKOVSK PROJECT (CONT'D)
Pursuant to the terms of the Joint Activity Agreement, a company will be
incorporated and registered by Geosphera in the Russian Federation with the
Ministry of the Russian Federation for Taxes and Levies in order to conduct
further financing and exploration work on the Tugojakovsk license area once the
Company's contribution to the joint venture reaches $700,000. Once the joint
venture company is registered with the Ministry of the Russian Federation for
Taxes and Levies, the Partnership will transfer the Tugojakovsk mineral
exploration license along with all relevant geological data to the new joint
venture company. The licence, geological data, professional knowledge, skills
and business contacts contributed to the joint venture by Geosphera was valued
at $100,000. The Company will have an 80% (Geosphera 20%) interest in the new
company. As of the date of these financial statements the new company has not
yet been registered.
Exploration costs on the Tugojakovsk mineral exploration licence area located in
the Tomsk Oblast region of the Russian Federation totalled $288,000 during the
nine months ended September 30, 2006 (2005 - $50,000) and $124,371 during the
year ended December 31, 2005.
NOTE 5 - CAPITAL STOCK
- --------------------------------------------------------------------------------
As at September 30, 2006, the Corporation's authorized capital stock consists of
100,000,000 common shares with a par value of $0.0001 per share.
FORWARD STOCK SPLIT
On April 7, 2006, the Company's Board of Directors approved a 2:1 forward stock
split effective May 15, 2006 which was subject to regulatory approval which was
received on May 19, 2006. The par value and the number of authorized but
unissued shares of the Company's common stock was not changed as a result of the
forward stock split.
Unless otherwise noted, all references to common stock, warrants, common shares
outstanding, warrants outstanding, weighted average numbers of common shares
outstanding and per share amounts in these Financial Statements and Notes to
Financial Statements prior to the effective date of the forward stock split have
been restated to reflect the 2:1 forward stock split on a retroactive basis.
PRIVATE PLACEMENTS
During the quarter ended March 31, 2006 the Company issued 800,000 common shares
for cash of $300,000 which was received in the year ended December 31, 2005.
On May 12, 2006 the Company completed a private placement to non-affiliated
offshore investors of 6,540,000 Units priced at $0.50 per unit for a total
consideration of $3,270,000 pursuant to the exemption from registration
requirements of the Securities Act of 1933 as amended afforded by Regulation S
as promulgated by the Act. Each Unit is comprised of one share of the Company's
common stock US $0.0001 par value per share and one stock purchase warrant, each
warrant entitling the holder to purchase one additional common share of the
Company at a price of US $0.675 per share for a period of one year from the
closing date of the placement and at a price of US $0.75 per share for a period
of one year commencing on the first anniversary of the Closing Date.
F-13
Cigma Metals Corporation
(an exploration stage company)
Notes to Interim Consolidated Financial Statements
September 30, 2006
(unaudited)
- --------------------------------------------------------------------------------
NOTE 5 - CAPITAL STOCK (CONT'D)
- --------------------------------------------------------------------------------
PRIVATE PLACEMENTS (CONT'D)
On May 26, 2006 the Company completed a private placement to non-affiliated
offshore investors of 1,460,000 Units priced at $0.50 per Unit for a total
consideration of $730,000 pursuant to the exemption from registration
requirements of the Securities Act of 1933 as amended afforded by Regulation S
as promulgated by the Act. Each Unit is comprised of one share of the Company's
common stock US $0.0001 par value per share and one (1) stock purchase warrant,
each warrant entitling the holder to purchase one additional common share of the
Company at a price of US $0.675 per share for a period of one year from the
closing date of the placement and at a price of US $0.75 per share for a period
of one year commencing on the first anniversary of the Closing Date.
SHARE PURCHASE WARRANTS
A summary of the Company's warrants outstanding at September 30, 2006 and
December 31, 2005, and changes during nine months ended September 30, 2006 is
presented below:
Weighted
Number of warrants to Average
Purchase shares Exercise Price
------------------------------------------------------------------------
Balance, December 31, 2005 - -
Warrants granted May 12, 2006 (1) 6,540,000 0.582
Warrants granted May 26, 2006 (2) 1,460,000 0.130
------------------------------------------------------------------------
Balance, September 30, 2006 8,000,000 0.713
------------------------------------------------------------------------
Weighted Weighted average
Average Remaining
Range of exercise Exercise Number of warrants to contractual
prices price Purchase shares Life (in years)
-----------------------------------------------------------------------
0.675 - $0.75 (1) $ 0.713 6,540,000 1.62
0.675 - $0.75 (2) $ 0.713 1,460,000 1.65
-----------------------------------------------------------------------
8,000,000
-----------------------------------------------------------------------
1. Each warrant entitling the holder to purchase one additional common share
of the Company at a price of US $0.675 per share for a period of one year
from the May 12, 2005, closing date of the placement, and at a price of US
$0.75 per share for a period of one year commencing on the first
anniversary of the Closing Date.
2. Each warrant entitling the holder to purchase one additional common share
of the Company at a price of US $0.675 per share for a period of one year
from the May 26, 2005, closing date of the placement, and at a price of US
$0.75 per share for a period of one year commencing on the first
anniversary of the Closing Date.
STOCK OPTION PLAN
Effective March 1, 2006, subject to shareholder approval, approved June 21,
2006, the Board of Directors approved a Stock Option Plan ("SOP") in order to
provide additional incentive for its directors, officers, employees and service
providers. The maximum amount of shares that can be issued under the SOP in any
calendar year cannot exceed 15% of the issued and outstanding common shares of
the Company on January 1 of such year. The exercise price of each such stock
option shall not be less than the fair market value of a share at the time of
grant. However, if a stock option is granted to a 10% shareholder, the purchase
price shall not be less than 110% of the fair market value of a share at the
time of grant. All options granted under the plan will not be exercisable for
six months from the date of grant, except in the event of a change of control,
and the term of all options granted will not exceed five years.
F-14
Cigma Metals Corporation
(an exploration stage company)
Notes to Interim Consolidated Financial Statements
September 30, 2006
(unaudited)
- --------------------------------------------------------------------------------
NOTE 5 - CAPITAL STOCK (CONT'D)
- --------------------------------------------------------------------------------
STOCK OPTION PLAN (CONT'D)
As at September 30, 2006 and December 31, 2005, the Company had no stock options
outstanding.
NOTE 6 - RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
a) During the nine months ended September 30, 2006, consulting fees of $118,750
(2005 - $90,000) were paid to directors. The transactions were recorded at the
exchange amount, being the value established and agreed to by the related
parties.
b) Included in accounts payable - related party, as at September 30, 2006 is $0
(December 31, 2005 - $16,986) payable to directors of the Company for consulting
fees and/or various expenses incurred on behalf of the Company. All amounts
owing to related parties are unsecured and non-interest bearing and have no
fixed terms of repayment.
NOTE 7 - SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS
- --------------------------------------------------------------------------------
Nine month period ended Nine month period ended
September 30, 2006 September 30, 2005
------------------------------------------------------------------------------------
Cash paid during the period for:
Interest $ - $ -
Income taxes $ - $ -
------------------------------------------------------------------------------------
F-15
CIGMA METALS CORPORATION
(An exploration stage company)
Consolidated Financial Statements
(EXPRESSED IN U.S. DOLLARS)
December 31, 2005 and 2004
INDEX
- -----
Report of Independent Registered Public Accounting Firm F 17
Consolidated Balance Sheets F 18
Consolidated Statements of Operations F 19
Consolidated Statements of Stockholders' Equity F 20
Consolidated Statements of Cash Flows F 21
Notes to Consolidated Financial Statements F 22
F-16
DALE MATHESON Partnership of
CARR-HILTON LABONTE Robert J. Burkart, Inc. James F. Carr-Hilton, Ltd.
CHARTERED ACCOUNTANTS Alvin F. Dale, Ltd. Peter J. Donaldson, Inc.
Wilfred A. Jacobson, Inc. Reginald J. LaBonte, Ltd.
Robert J. Matheson, Inc. Rakesh I. Patel, Inc.
Fraser G Ross, Ltd. Brian A. Shaw, Inc.
Anthony L. Soda, Inc.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Stockholders and Board of Directors of Cigma Metals Corporation:
We have audited the accompanying consolidated balance sheet of Cigma Metals
Corporation (the "Company") (an exploration stage company) as at December 31,
2005 and the consolidated statements of operations, stockholders' equity, and
cash flows for the year then ended and for the period from January 13, 1989
(inception) to December 31, 2005 . 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 audit. The financial
statements for the period from January 13, 1989 (inception) to December 31, 2004
were reported on by other auditors and reflect a total net loss of $1,075,289 of
the related cumulative totals. The other auditors' reports have been furnished
to us, and our opinion, insofar as it relates to amounts included for such prior
periods, is based solely on the reports of such other auditors.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2005
and the results of its operations and its cash flows and the changes in
stockholders' equity for the year then ended and for the period from January 13,
1989 (inception) to December 31, 2005, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the financial statements, to date the Company has reported losses since
inception from operations and requires additional funds to meet its obligations
and fund the costs of its operations. These factors raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in this regard are described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
As discussed in Note 11 to the financial statements, the Company has restated
the financial statements for the years ended December 31, 2005 and 2004 to
reflect the 2 for 1 forward stock split that occurred on May 15, 2006.
DALE MATHESON CARR-HILTON LABONTE
CHARTERED ACCOUNTANTS
Vancouver, Canada
April 11, 2006, except for Note 11 which is dated September 7, 2006
A MEMBER OF MGI INTERNATIONAL, A WORLDWIDE NETWORK OF INDEPENDENT ACCOUNTANTS
AND BUSINESS ADVISORS
Vancouver Suite 1500-1140 West Pender Street, Vancouver, B.C., Canada V6E 4G1
Tel: 604 687 4747 - Fax: 604 689 2778 - Main Reception
Suite 1700- 1140 West Pender Street, Vancouver, B.C., Canada V6E 4G1
Tel: 604 687 4747 - Fax: 604 687 4216
F-17
CIGMA METALS CORPORATION
(An exploration stage company)
Consolidated Balance Sheets
December 31, 2005 and 2004
(Expressed in U.S. Dollars)
(Restated - See Note 11)
- -------------------------------------------------------------------------------
December 31 December 31
2005 2004
- -------------------------------------------------------------------------------
ASSETS
Current
Cash $ 250,170 $ 311,845
Other receivables - 6,211
Available-for-sale securities (Note 3) 181,797 248,104
- -------------------------------------------------------------------------------
Total assets $ 431,967 $ 566,160
- -------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities $ 26,894 $ 17,722
Accounts payable - related party (Note 7) 16,986 4,000
- -------------------------------------------------------------------------------
Total current liabilities 43,880 21,722
- -------------------------------------------------------------------------------
Stockholders' Equity
Common stock (Note 5)
Authorized
100,000,000 common shares, par value $0.0001
Issued and outstanding:
30,700,000 (2004 - 28,000,000) common shares 3,070 2,800
Additional paid in capital 2,048,530 698,800
Common stock subscriptions (Note 10) 300,000 1,000,000
Accumulated deficit during the exploration stage (1,963,513) (1,075,289)
Accumulated other comprehensive (loss) - (81,873)
- -------------------------------------------------------------------------------
Total stockholders' equity 388,087 544,438
Total liabilities and stockholders' equity $ 431,967 $ 566,160
===============================================================================
Nature of Business and Continuance of Operations (Note 1)
Commitments (Note 4)
The accompanying notes are an integral part of these consolidated financial
statements.
F-18
CIGMA METALS CORPORATION
(An exploration stage company)
Consolidated Statements of Operations
(Expressed in U.S. Dollars) Cumulative
(Restated - See Note 11) January 13 Year Year
1989 (inception) Ended Ended
to December 31, December 31, December 31,
2005 2005 2004
- ---------------------------------------------------------------------------------------------------------
Expenses
Administrative and general $ 178,517 $ 32,985 $ 49,964
Exploration costs (Note 4)
- HaldeyGold Project - partnership 564,395 202,795 361,600
- HaldeyGold Project - other 128,357 18,226 46,706
- Tugojakovks Project 124,371 124,371 -
Interest and bank charges 7,819 4,219 2,257
Professional fees 205,350 51,211 50,116
Property investigation costs 101,754 69,608 32,146
Salaries and consulting fees 411,716 145,396 79,533
- ---------------------------------------------------------------------------------------------------------
Loss before other items (1,722,279) (648,811) (622,322)
- ---------------------------------------------------------------------------------------------------------
Other income (loss)
Write-down of available-for-sale securities (Note 3) (148,180) (148,180) -
Write-down of investment in
partnership interest (Note 4) (132,634) (94,234) (38,400)
Interest income 39,580 3,001 3,691
- ---------------------------------------------------------------------------------------------------------
Total other income (loss) (241,234) (239,413) (34,709)
- ---------------------------------------------------------------------------------------------------------
Net loss $ (1,963,513) $ (888,224) $ (657,031)
=========================================================================================================
Basic and diluted loss per share $ (0.03) $ (0.02)
=========================================================================================================
Weighted average number of
common shares outstanding 28,927,198 28,000,000
=========================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
F-19
CIGMA METALS CORPORATION
(an exploration stage company)
Consolidated Statements of Stockholders' Equity
January 13, 1989 (inception) to December 31, 2005
(Expressed in U.S. Dollars)
(Restated - See Note 11)
Deficit
Accumulated Accumulated
Additional Common During the Other
Common stock Paid-In Stock Exploration Comprehensive
Shares Amount Capital Subscriptions Stage Gain (Loss) Total
- --------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock for 2,000,000 $ 200 $ 800 $ - $ - $ - $ 1,000
services on August 2, 1989
Net loss for the period - - - - (1,000) - (1,000)
Balance, December 31, 1989
to 1997 2,000,000 200 800 - (1,000) - -
- --------------------------------------------------------------------------------------------------------------------------------
Issuance of stock for mineral
property rights on April 2, 1998 12,000,000 1,200 (600) - - - 600
Net loss for the year - - - - (600) - (600)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 14,000,000 1,400 200 - (1,600) - -
Issuance of common stock for
cash on March 31, 1999 14,000,000 1,400 698,600 - - - 700,000
Net loss for the year - - - - (141,392) - (141,392)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 28,000,000 2,800 698,800 - (142,992) - 558,608
Net loss for the year - - - - (211,182) - (211,182)
Unrealized losses on available
for sale securities - - - - - (77,734) (77,734)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 28,000,000 2,800 698,800 - (354,174) (77,734) 269,692
Net loss for the year - - - - (25,510) - (25,510)
Unrealized losses on available
for sale securities - - - - - (17,803) (17,803)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31 2001 28,000,000 2,800 698,800 - (379,684) (95,537) 226,379
Net loss for the year - - - - (20,943) - (20,943)
Unrealized gain on available
for sale securities - - - - - 48,407 48,407
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31 2002 28,000,000 2,800 698,800 - (400,627) (47,130) 253,843
Net loss for the year - - - - (17,631) - (17,631)
Unrealized losses on available
for sale securities - - - - - (3,723) (3,723)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2003 28,000,000 2,800 698,800 - (418,258) (50,853) 232,489
Common stock to be issued - - - 1,000,000 - - 1,000,000
Net loss for the year - - - - (657,031) - (657,031)
Unrealized losses on available
for sale securities - - - - - (31,020) (31,020)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2004 28,000,000 2,800 698,800 1,000,000 (1,075,289) (81,873) 544,438
Issuance of common stock for
cash on May 20, 2005 2,000,000 200 999800 (1,000,000) - - -
Issuance of common stock for
cash on December 13, 2005 700,000 70 349,930 - - - 350,000
Common stock to be issued - - - 300,000 - - 300,000
Recognition of other than
temporary decline in market value
of available-for-sale securities - - - - - 81,873 81,873
Net loss for the year - - - - (888,224) - (888,224)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2005 30,700,000 $ 3,070 $ 2,048,530 $ 300,000 $ (1,963,513) $ - $ 388,087
================================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
F-20
CIGMA METALS CORPORATION
(An exploration stage company)
Consolidated Statements of Cash Flows
(Expressed in U.S. Dollars)
January 13 Year Year
1989 (inception) Ended Ended
to December 31, December 31, December 31,
2005 2005 2004
- ----------------------------------------------------------------------------------------------------------------------
Net loss for the period $ (1,963,513) $ (888,224) $ (657,031)
Cash flows used in operating activities
Adjustments to reconcile net loss to net cash used
in operating activities
- issuance of common stock for mineral property rights 600 - -
- issuance of common stock for services rendered 1,000 - -
- partnership exploration costs 564,395 202,795 361,600
- write-down of investment in partnership interest 132,634 94,234 38,400
- accumulated losses on available for sale securities 148,180 148,180 -
Changes in working capital assets and liabilities
- decrease (increase) in other receivables - 6,211 (6,211)
- increase (decrease) in accounts payable and accrued liabilities 43,880 22,158 (25,016)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (1,072,824) (414,646) (288,258)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows used in investing activities
- investment in available-for-sale securities (329,977) - -
- investment in partnership interest (697,029) (297,029) (400,000)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,027,006) (297,029) (400,000)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
- issuance of common shares for cash 2,050,000 650,000 -
- shares subscribed 300,000 - 1,000,000
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 2,350,000 650,000 1,000,000
- ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash for the period 250,170 (61,675) 311,742
Cash, beginning of period - 311,845 103
- ----------------------------------------------------------------------------------------------------------------------
Cash, end of period $ 250,170 $ 250,170 $ 311,845
======================================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION (Note 9)
The accompanying notes are an integral part of these consolidated financial
statements.
F-21
CIGMA METALS CORPORATION
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
- --------------------------------------------------------------------------------
NOTE 1 - NATURE OF BUSINESS AND CONTINUANCE OF OPERATIONS
- --------------------------------------------------------------------------------
The Company was incorporated under the laws of the State of Florida on January
13, 1989 as Cigma Ventures Corporation. On April 17, 1999 the Company changed
its name to Cigma Metals Corporation and is in the business of location,
acquisition, exploration and, if warranted, development of mineral properties.
The Company is in the exploration stage and has not yet determined whether its
properties contain mineral reserves that may be economically recoverable.
These financial statements have been prepared in accordance with generally
accepted accounting principles in the United States of America ("US GAAP")
applicable to a going concern, which contemplates the realization of assets and
the satisfaction of liabilities and commitments in the normal course of
business. The general business strategy of the Company is to acquire and
explore mineral properties. The continued operations of the Company and the
recoverability of mineral property costs is dependent upon the existence of
economically recoverable mineral reserves, confirmation of the Company's
interest in the underlying mineral claims, the ability of the Company to obtain
necessary financing to complete the development and upon future profitable
production. The Company has not generated any revenues or completed development
of any properties to date, has incurred losses of $1,963,513 since inception,
and further significant losses are expected to be incurred in the exploration
and development of its mineral properties. The Company will require additional
funds to meet its obligations and maintain its operations. Management's plans in
this regard are to raise equity financing as required.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. These financial statements do not include any adjustments
that might result from this uncertainty.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
PRINCIPALS OF CONSOLIDATION
These consolidated financial statements, prepared in accordance with US GAAP,
include the accounts of the Company and its wholly-owned subsidiaries, Northgold
Company Limited ("Northgold") and Cigma Metals Limited ("Cigma BVI").
Collectively, they are referred to herein as (the "Company"). Significant
inter-company accounts and transactions have been eliminated. Northgold and
Cigma BVI are inactive.
BASIS OF PRESENTATION
These financial statements are presented in United States dollars and have been
prepared in accordance with United States generally accepted accounting
principles.
USE OF ESTIMATES
The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the period. Actual results could differ from those estimates.
CASH EQUIVALENTS
Cash equivalents comprise certain highly liquid instruments with a maturity of
three months or less when purchased. The Company did not have any cash
equivalents at December 31, 2005 and 2004.
F-22
CIGMA METALS CORPORATION
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
MINERAL PROPERTIES AND EXPLORATION COSTS
Mineral property acquisition costs are capitalized when incurred. In accordance
with Emerging Task Force Issue 04-02, such costs are classified as tangible
assets and are evaluated for impairment and written down as required.
Mineral property exploration and development costs are expensed as incurred
until such time as economic reserves are quantified. From that time forward,
the Company will capitalize all costs to the extent that future cash flow from
mineral reserves equals or exceeds the costs deferred. The deferred costs will
be amortized over the recoverable reserves when a property reaches commercial
production. As of the date of these financial statements, the Company has only
incurred exploration costs which have been charged to operations. To date the
Company has not established any proven or probable reserves on its mineral
properties. Exploration activities conducted jointly with others are reflected
at the Company's proportionate interest in such activities.
The Company has adopted the provisions of SFAS No. 143 "Accounting for Asset
Retirement Obligations" which establishes standards for the initial measurement
and subsequent accounting for obligations associated with the sale, abandonment,
or other disposal of long-lived tangible assets arising from the acquisition,
construction or development and for normal operations of such assets. The
Company has not recognized any potential costs relating to the retirement of the
Company's mineral property interests through December 31, 2005 because there are
no retirement costs associated with its current level of exploration activity.
INVESTMENT IN PARTNERSHIP INTEREST
The Company accounts for its partnership interests under US GAAP using the
equity method. Therefore, the partnership interests are carried at cost and
adjusted for any return of capital and any allocation of profits and losses
including the Company's share of exploration costs. Fair value adjustments may
be required where there are long term indications relating to the impairment of
the interest.
SHARE-BASED COMPENSATION
On January 1, 2006, the Company adopted SFAS No.123 (revised 2004) (SFAS
No.123R), Share-Based Payment, which addresses the accounting for stock-based
payment transactions in which an enterprise receives employee services in
exchange for (a)equity instruments of the enterprise or (b)liabilities that are
based on the fair value of the enterprise's equity instruments or that maybe
settled by the issuance of such equity instruments. In January2005, the
Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin
(SAB)No.107, which provides supplemental implementation guidance for SFAS
No.123R. SFAS No.123R eliminates the ability to account for stock-based
compensation transactions using the intrinsic value method under Accounting
Principles Board (APB) Opinion No.25, Accounting for Stock Issued to Employees,
and instead generally requires that such transactions be accounted for using a
fair-value-based method. The Company uses the Black-Scholes-Merton ("BSM")
option-pricing model to determine the fair-value of stock-based awards under
SFAS No.123R, consistent with that used for pro forma disclosures under SFAS
No.123, Accounting for Stock-Based Compensation. The Company has elected the
modified prospective transition method as permitted by SFAS No.123R and
accordingly prior periods have not been restated to reflect the impact of SFAS
No.123R. The modified prospective transition method requires that stock-based
compensation expense be recorded for all new and unvested stock options,
restricted stock, restricted stock units, and employee stock purchase plan
shares that are ultimately expected to vest as the requisite service is rendered
beginning on January 1, 2006 the first day of the Company's fiscal year 2006.
Stock-based compensation expense for awards granted prior to January 1, 2006 is
based on the grant date fair-value as determined under the pro forma provisions
of SFAS No.123.
F-23
CIGMA METALS CORPORATION
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
SHARE-BASED COMPENSATION (CONTINUED)
Prior to the adoption of SFAS No.123R, the Company measured compensation expense
for its employee stock-based compensation plans using the intrinsic value method
prescribed by APB Opinion No.25. The Company applied the disclosure provisions
of SFAS No.123 as amended by SFAS No.148, Accounting for Stock-Based
Compensation - Transition and Disclosure, as if the fair-value-based method had
been applied in measuring compensation expense. Under APB Opinion No.25, when
the exercise price of the Company's employee stock options was equal to the
market price of the underlying stock on the date of the grant, no compensation
expense was recognized.
The Company did not grant any stock options during the years ended December 31,
2005 and 2004 and accordingly has not recorded any stock-based compensation.
AVAILABLE-FOR-SALE SECURITIES
Available-for-sale securities are carried at fair market value with unrealized
holding gains and losses included as a component of accumulated other
comprehensive income (loss). If a loss in value in the available-for-sale
securities is considered to be other than temporary, it is recognized in the
determination of net income. Cost is based on the specific identification method
for the individual securities to determine realized gains or losses. Realized
gains and losses are determined on an average cost basis when securities are
sold. In accordance with the Company's policy to review its investment
portfolio for declines that may be other than temporary, the Company recorded a
non-cash loss of $148,180 on a lower-of-cost-or-market write-down on certain
available-for-sale securities during the year ended December 31, 2005.
FOREIGN CURRENCY TRANSLATIONS AND TRANSACTIONS
The Company's reporting currency is the U.S. Dollar. Foreign subsidiaries
utilize the functional currency applicable to the country in which they operate.
The Company translates assets and liabilities of its foreign subsidiaries at the
rate of exchange at the balance sheet date. Revenues and expenses are
translated at the average rate of exchange throughout the year. Gains or
losses from these translations, if significant, are reported as a separate
component of other comprehensive income, until all or a part of the investment
in the subsidiary is sold or liquidated. Translation adjustments do not
recognize the effect of income tax because the Company expects to reinvest the
amounts indefinitely in operations.
CONCENTRATION OF CREDIT RISK
The Company places its cash and cash equivalents with high credit quality
financial institutions. The Company occasionally maintains balances in a
financial institution beyond the insured amount. As of December 31, 2005 and
December 31, 2004, the Company has deposits in a bank beyond insured limits.
LONG-LIVED ASSETS
In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-lived Assets", the carrying value of intangible assets and other long-lived
assets is reviewed on a regular basis for the existence of facts or
circumstances that may suggest impairment. The Company recognizes impairment
losses when the sum of the expected undiscounted future cash flow is less than
the carrying amount of the asset. Impairment losses, if any, are measured as the
excess of the carrying amount of the asset over its estimated fair value. The
Company has not recognized any impairment losses through December 31, 2005.
FAIR VALUE OF FINANCIAL INSTRUMENTS AND RISKS
Fair value estimates of financial instruments are made at a specific point in
time, based on relevant information about financial markets and specific
financial instruments. As these estimates are subjective in nature, involving
F-24
CIGMA METALS CORPORATION
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
FAIR VALUE OF FINANCIAL INSTRUMENTS AND RISKS (CONTINUED)
uncertainties and matters of significant judgment, they cannot be determined
with precision. Changes in assumptions can significantly affect estimated fair
value.
The carrying value of cash, other receivables, accounts payable and accrued
expenses, and accounts payable - related party, approximate their fair value
because of the short-term nature of these instruments. Management is of the
opinion that the Company is not exposed to significant interest or credit risks
arising from these financial instruments.
The Company operates outside of the United States of America and is exposed to
foreign currency risk due to the fluctuation between the currency in which the
Company operates in and the U.S. dollar. The Company does not use any
derivative instruments.
As all of the Company's mineral properties and partnership interest are located
in Russia, the Company is subject to different considerations and other risks
not typically associated with companies in North America. Such risks are
associated with the political, economic, foreign currency and legal
environments. The Company's results may be adversely affected by changes in the
political and social conditions in Russia and by changes in government policies
with respect to laws and regulations.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company has adopted the Statement of Financial Accounting Standards No. 133
(SFAS 133) Accounting for Derivative Instruments and Hedging Activities, which
requires companies to recognize all derivative contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in the fair value of
the hedged asset or liability that are attributable to the hedged risk or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income in
the period of change. Historically, the Company has not entered into derivative
contracts either to hedge existing risks or for speculative purposes.
INCOME TAXES
The Company has adopted the Statement of Financial Accounting Standards No. 109
(SFAS 109), Accounting for Income Taxes, which requires the Company to recognize
deferred tax liabilities and assets for the expected future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns using the liability method. Under this method, deferred tax liabilities
and assets are determined based on the differences between the financial
statement carry amounts and tax bases of assets and liabilities using enacted
tax rates in effect in the years in which the differences are expected to
reverse.
LOSS PER SHARE
The Company computes loss per share in accordance with SFAS No. 128, "Earnings
per Share" which requires presentation of both basic and diluted earnings per
share on the face of the statement of operations. Basic loss per share is
computed by dividing net loss available to common shareholders by the weighted
average number of outstanding common shares during the period. Diluted loss per
share gives effect to all dilutive potential common shares outstanding during
the period including stock options and warrants, using the treasury method, and
preferred stock, using the if-converted method. Dilutive loss per share excludes
all potential common shares if their effect is anti-dilutive.
F-25
CIGMA METALS CORPORATION
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
COMPREHENSIVE LOSS
The Company's accumulated other comprehensive loss consists of the accumulated
unrealized loss on available-for-sale securities. The Company had a
comprehensive loss of $888,224 and $688,051 which includes an unrealized loss of
$nil and $31,020 at December 31, 2005 and 2004, respectively.
COMPARATIVE FIGURES
Certain comparative figures have been reclassified in order to conform to the
current year's financial statement presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets,
an amendment of APB No. 29, Accounting for Nonmonetary Transactions. SFAS No.
153 requires exchanges of productive assets to be accounted for at fair value,
rather than at carryover basis, unless (1) neither the asset received nor the
asset surrendered has a fair value that is determinable within reasonable limits
or (2) the transactions lack commercial substance. SFAS No. 153 is effective
for nonmonetary asset exchanges occurring in fiscal periods beginning after June
15, 2005. The adoption of FASB No. 153 will not have a material impact on the
Company's financial statements.
In July 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections- a Replacement of APB Opinion No. 20 and FASB Statement No. 3.
Under the provisions of SFAS No. 154, a voluntary change in accounting principle
requires retrospective application to prior period financial statements, unless
it is impracticable to determine either the period-specific effects or the
cumulative effect of the change. A change in depreciation, amortization, or
depletion method for long-lived, non-financial assets must be accounted for as a
change in accounting estimate effected by a change in accounting principle. The
guidance contained in Opinion 20 for reporting the correction of an error in
previously issued financial statements and a change in accounting estimate was
not changed. The Company will implement this new standard beginning January 1,
2006. This standard is not expected to have a significant effect on the
Company's reported financial position or earnings.
In March 2005, the FASB issued FASB Interpretation ("FIN") No. 47, "Accounting
for Conditional Asset Retirement Obligations, an interpretation of FASB
Statement No. 143". Asset Retirement Obligations (AROs) are legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and/or normal operation of a long-lived
asset, except for certain obligations of lessees. FIN 47 clarifies that
liabilities associated with asset retirement obligations whose timing or
settlement method are conditional on future events should be recorded at fair
values as soon as fair value is reasonably estimable. FIN 47 also provides
guidance on the information required to reasonably estimate the fair value of
the liability. FIN 47 is intended to result in more consistent recognition of
liabilities relating to AROs among companies, more information about expected
future cash outflows associated with those obligations stemming from the
retirement of the asset(s) and more information about investments in long-lived
assets because additional asset retirement costs will be recognized by
increasing the carrying amounts of the assets identified to be retired. FIN 47
is effective for fiscal years ending after December 15, 2005. Management is
currently evaluating the impact, which the adoption of this standard will have
on the Company's financial statements.
In November 2005, the FASB issued Staff Position "FSP" FAS115-1/124-1, The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments, which addresses the determination as to when an investment is
considered impaired, whether that impairment is other than temporary, and the
measurement of an impairment loss. This FSP also includes accounting
considerations subsequent to the recognition of an other-than-temporary
impairment and required certain disclosures about unrealized losses that have
not been recognized as other-than-temporary impairments. The guidance in this
FSP amends FASB Statements No. 115, Accounting for
F-26
CIGMA METALS CORPORATION
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
Certain Investments in Debt and Equity Securities, and No. 124, Accounting for
Certain Investments Held by Not-for-Profits Organizations, and APB Opinion No.
18, The Equity Method of Accounting for Investments in Common Stock. This FSP is
effective for reporting periods beginning after December 15, 2005. Management
does not believe the adoption of this FSP will have a material impact on the
Company's financial statements.
In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Financial Instruments-an amendment of FASB Statements No. 133 and 140", to
simplify and make more consistent the accounting for certain financial
instruments. SFAS No. 155 amends SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", to permit fair value re-measurement for any
hybrid financial instrument with an embedded derivative that otherwise would
require bifurcation, provided that the whole instrument is accounted for on a
fair value basis. SFAS No. 155 amends SFAS No. 140, "Accounting for the
Impairment or Disposal of Long-Lived Assets", to allow a qualifying
special-purpose entity to hold a derivative financial instrument that pertains
to a beneficial interest other than another derivative financial instrument.
SFAS No. 155 applies to all financial instruments acquired or issued after the
beginning of an entity's first fiscal year that begins after September 15, 2006,
with earlier application allowed. This standard is not expected to have a
significant effect on the Company's future reported financial position or
results of operations.
In March 2006, the FASBissuedSFASNo. 156, "Accounting for Servicing of Financial
Assets, an amendment of FASB Statement No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities".This statement
requires all separately recognized servicing assets and servicing liabilities be
initially measured at fair value, if practicable, and permits for subsequent
measurement using either fair value measurement with changes in fair value
reflected in earnings or the amortization and impairment requirements of
Statement No. 140. The subsequent measurement of separately recognized servicing
assets and servicing liabilities at fair value eliminates the necessity for
entities that manage the risks inherent in servicing assets and servicing
liabilities with derivatives to qualify for hedge accounting treatment and
eliminates the characterization of declines in fair value as impairments or
direct write-downs.SFAS No. 156is effective for an entity's first fiscal year
beginning after September 15, 2006.This adoption of this statement is not
expected to have a significant effect on the Company's future reported financial
position or results of operations.
NOTE 3 - AVAILABLE-FOR-SALE SECURITIES
- --------------------------------------------------------------------------------
Net
Gross Gross Accumulated
Unrealized Unrealized Unrecognized Market
Cost Gains (Losses) Gains (Losses) Value
$ $ $ $ $
- ----------------------------------------------------------------------------------------------------------------------------
December 31, 2003, equity securities 329,977 122,013 (172,866) (50,853) 279,124
Change during the year - 48,516 (79,536) (31,020) (31,020)
- ----------------------------------------------------------------------------------------------------------------------------
December 31, 2004, equity securities 329,977 170,529 (252,402) (81,873) 248,104
Change during the year - 2,966 (69,273) - (66,307)
Recognition of other than temporary decline in market value - - - 81,873 -
- ----------------------------------------------------------------------------------------------------------------------------
December 31, 2005, equity securities 329,977 173,495 (321,675) - 181,797
============================================================================================================================
F-27
CIGMA METALS CORPORATION
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
- --------------------------------------------------------------------------------
NOTE 4 - MINERAL PROPERTIES AND EXPLORATION COSTS
- --------------------------------------------------------------------------------
The Company holds an interest in two mineral exploration licences located in the
Tomsk Oblast Region, of the Russian Federation.
HALDEYGOLD PROJECT
On August 30, 2004, the Company signed a Joint Activity Agreement with OOO
Science Industrial Corporation Geosphera ("Geosphera"), a company registered in
Russia, to form a partnership to explore the Haldeevskaya license located in the
Tomsk district of the Tomsk region of the Russian Federation, 25 km east of the
city of Tomsk. Geosphera will earn a 51% interest in the partnership by
contributing the license for the Haldeevskaya area and the geological data. The
license and the geological data have been valued at US$52,000. The terms of the
agreement provided that the Company was to earn a 49% interest in the
partnership by paying US$50,000. However, the Company increased its interest in
the partnership to 80% (Geosphera - 20%) by funding US$350,000 of exploration
expenditures on the licensed property in 2004. Geosphera is the manager of the
project.
Pursuant to the terms of the Joint Activity Agreement, and for the purpose of
conducting further financing and exploration work, a company, HaldeyGold Ltd.
("HaldeyGold"), was registered with the Ministry of the Russian Federation for
Taxes and Levies on January 19, 2005. The Haldeevskaya mineral exploration
license along with all relevant geological data was transferred by the
partnership to HaldeyGold on March 16, 2005. The Company has an 80% (Geosphera
20%) interest in HaldeyGold.
On April 22, 2005 and December 31, 2005 the Company and Geosphera agreed to
amendments to the Haldeevskaya Joint Activity Agreement dated August 30, 2004
resulting in a revision of the 2005 exploration expenditure commitment from
$300,000 to $250,000 and an agreement on behalf of the Company to fund
$2,450,000 toward the 2006 HaldeyGold exploration budget. In the event that the
Company funds less than $1,500,000 of the 2006 exploration budget, the Company's
interest in HaldeyGold will be reduced to 50%. Geosphera's ownership interest in
HaldeyGold cannot be reduced below 20%.
Consistent with the Company's accounting policies, acquisition and exploration
costs on unproven reserves are charged to operating costs as incurred.
The Company's investment in the HaldeyGold partnership interest is as follows:
Year Year
January 13, 1989 ended ended
(inception) to December 31, December 31,
December 31, 2005 2004
2005
--------------------------------------------------
Capital invested $ 697,029 $ 297,029 $ 400,000
Exploration costs incurred (564,395) (202,795) (361,600)
--------------------------------------------------
132,634 94,234 38,400
Write-down of investment in partnership interest (132,634) (94,234) (38,400)
--------------------------------------------------
Partnership interest at end of period $ - $ - $ -
==================================================
Direct exploration costs on the Haldeevskaya mineral exploration license area
located in the Tomsk Oblast region of the Russian Federation totalled $18,226
during the year ended December 31, 2005 (2004 - $46,706).
F-28
CIGMA METALS CORPORATION
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
- --------------------------------------------------------------------------------
NOTE 4 - MINERAL PROPERTIES AND EXPLORATION COSTS (CONTINUED)
- --------------------------------------------------------------------------------
TUGOJAKOVKS PROJECT
On June 17, 2005, as amended December 31, 2005, the Company signed a Joint
Activity Agreement to form a
partnership to explore the Tugojakovsk Project, located in the Tomsk Oblast
Region of the Russian Federation. Under the terms of the agreement: (1) the
Company has the right to acquire an 80% share of the project in exchange for
contributing $126,440 in 2005 and upon the formation of a company in Russia; and
(2) the Company is committed to finance the project in 2006 by providing
$1,500,000 in accordance with an approved budget. If the financing provided in
2006 is between (1) $800,000 and $1,499,000, the Company's ownership interest
will be reduced to 70%; (2) $350,000 and $799,000, reduced to 60%; or (3) less
than $350,000, reduced to 49%. Geosphera's ownership interest cannot be reduced
below 20%.
Geosphera will contribute the license for Tugojakovsk and all geological
information on this subsoil area which is owned by Geosphera, as well as
professional knowledge, skills and business contacts. The licence and geological
data was valued at $100,000.
Pursuant to the terms of the Joint Activity Agreement, a company will be
registered in the Russian Federation in order to conduct further financing and
exploration work on the Tugojakovsk licence area. Once the joint venture company
is registered with the Ministry of the Russian Federation for Taxes and Levies,
the Partnership will transfer the Tugojakovsk mineral exploration license along
with all relevant geological data to the new joint venture company. The Company
will have an 80% (Geosphera 20%) interest in the new company. As of the date of
these financial statements the new company has not yet been registered.
Exploration costs on the Tugojakovsk mineral exploration licence area located in
the Tomsk Oblast region of the Russian Federation totalled $124,371 during the
year ended December 31, 2005 (2004 - $nil).
NOTE 5 - CAPITAL STOCK
- --------------------------------------------------------------------------------
As at December 31, 2005, the Corporation's authorized capital stock consists of
100,000,000 common shares with a par value of $0.0001 per share. There were
30,700,000 common shares issued and outstanding at December 31, 2005 (2004 -
28,000,000).
During the year ended December 31, 2005 the Company issued 2,700,000 common
shares for cash of $1,350,000, $1,000,000 of which was received in the year
ended December 31, 2004. No share issuances were completed in the year ended
December 31, 2004.
On April 7, 2006, the Company's Board of Directors approved a 2:1 forward stock
split effective May 15, 2006, which was subject to regulatory approval which was
received on May 19, 2006. The par value and the number of authorized but
unissued shares of the Company's common stock was not changed as a result of the
forward stock split.
Unless otherwise noted, all references to common stock, common shares
outstanding, weighted average numbers of common shares outstanding and per share
amounts in the accompanying Financial Statements and Notes to Financial
Statements prior to the effective date of the forward stock split have been
restated to reflect the 2:1 forward stock split on a retroactive basis.
F-29
CIGMA METALS CORPORATION
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
- --------------------------------------------------------------------------------
NOTE 6 - STOCK OPTIONS
- --------------------------------------------------------------------------------
The Company did not grant any stock options during 2005 and 2004 and at December
31, 2005 and 2004 the Company had no stock options outstanding.
NOTE 7 - RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
a) During 2005, consulting fees of $120,000 (2004 - $54,000) were paid to
directors. The transactions were recorded at the exchange amount, being the
value established and agreed to by the related parties.
b) Included in accounts payable - related party, as at December 31, 2005 is
$16,986 (2004 - $4,000) payable to directors of the Company for consulting fees
and/or various expenses incurred on behalf of the Company. All amounts owing to
related parties are unsecured and non-interest bearing and have no fixed terms
of repayment.
NOTE 8 - INCOME TAXES
- ---------------------
The Company has adopted FASB No. 109 for reporting purposes. As of December 31,
2005, the Company had net operating loss carry forwards of approximately
$1,831,000 that may be available to reduce future years' taxable income and will
expire between the years 2018 - 2025. Future tax benefits which may arise as a
result of these losses have not been recognized in these financial statements,
as their realization is determined not likely to occur and accordingly, the
Company has recorded a valuation allowance for the deferred tax asset relating
to these tax loss carry forwards.
The Company evaluates its valuation allowance requirements on an annual basis
based on projected future operations. When circumstances change and this causes
a change in management's judgment about the recoverability of future tax assets,
the impact of the change on the valuation allowance is generally reflected in
current income.
A reconciliation of income tax computed at the federal and state statutory tax
rates and the Company's effective tax rate is as follows:
Year ended Year ended
December 31, December 31,
2005 2004
- ------------------------------------------------------------------------------------------------------------
Federal income tax provision at statutory rate 34.0% 34.0%
State income tax provision at statutory rate, net of federal income tax effect 5.0 5.0
Less valuation allowance (39.0) (39.0)
- ------------------------------------------------------------------------------------------------------------
Total income tax provision - -
============================================================================================================
The tax effects of temporary differences that give rise to the Company's
deferred tax asset (liability) are as follows:
2005 2004
----------------------
Loss carry forwards $ 714,000 $ 365,000
Valuation allowance (714,000) (365,000)
----------------------
$ - $ -
======================
As the criteria for recognizing deferred income tax assets have not been met due
to the uncertainty of realization, a valuation allowance of 100% has been
recorded for the current and prior year.
F-30
CIGMA METALS CORPORATION
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
- --------------------------------------------------------------------------------
NOTE 9 - SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS
- --------------------------------------------------------------------------------
Year ended Year ended
December 31, 2005 December 31, 2004
- ----------------------------------------------------------------------
Cash paid during the year for:
Interest $ - $ 1,667
Income taxes $ - $ -
- ----------------------------------------------------------------------
NOTE 10 - SUBSEQUENT EVENTS
- ----------------------------------------------------------------------
1. In March 2006, 400,000 pre-forward split common shares of the Company were
issued at $0.75 per share. The cash proceeds of $300,000 were received in
December 2005.
2. In March 2006, the Company offered, on a no minimum basis, up to an
aggregate of 3,500,000 pre-forward split Units at a price of US $1.00 per
Unit. Each Unit shall be comprised of one (1) share of the Company's common
stock US $0.0001 par value per share and one (1) stock purchase warrant,
each warrant entitling the holder to purchase one (1) additional common
share of the Company at a price of US $1.35 per share for a period of one
(1) year from the closing date of the placement and at a price of US $1.50
per share for a period of one (1) year commencing on the first anniversary
of the Closing Date.
3. Effective March 1, 2006, subject to shareholder approval, the Board of
Directors approved a Stock Option Plan ("SOP") in order to provide
additional incentive for its directors, officers, employees and service
providers. The maximum amount of shares that can be issued under the SOP in
any calendar year cannot exceed 15% of the issued and outstanding common
shares of the Company on January 1 of such year. The exercise price of each
such stock option shall not be less than the fair market value of a share
at the time of grant. However, if a stock option is granted to a 10%
shareholder, the purchase price shall not be less than 110% of the fair
market value of a share at the time of grant. All options granted under the
plan will not be exercisable for six months from the date of grant, except
in the event of a change of control, and the term of all options granted
will not exceed five years.
NOTE 11 - RESTATEMENT
- ----------------------------------------------------------------------
The Company has restated its consolidated financial statements for the years
ended December 31, 2005 and December 31, 2004. The Company is restating the
financial statements to reflect the 2 for 1 forward stock split that took place
on May 15, 2006.
- ----------------------------------------------------------------------------------
December 31, 2005 December 31, 2005
As Reported Adjustment As Restated
$ $ $
- ----------------------------------------------------------------------------------
Balance Sheet
- ----------------------------------------------------------------------------------
Common shares 1,535 1,535 3,070
- ----------------------------------------------------------------------------------
Additional paid in capital 2,050,065 (1,535) 2,048,530
- ----------------------------------------------------------------------------------
F-31
CIGMA METALS CORPORATION
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
- --------------------------------------------------------------------------------
NOTE 11 - RESTATEMENT (CONTINUED)
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
December 31, 2004 December 31, 2004
As Reported Adjustment As Restated
$ $ $
- ----------------------------------------------------------------------------------
Balance Sheet
- ----------------------------------------------------------------------------------
Common shares 1,400 1,400 2,800
- ----------------------------------------------------------------------------------
Additional paid in capital 700,200 (1,400) 698,800
- ----------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Year ended Year Ended
December 31, 2005 Adjustment December 31, 2005
- ---------------------------------------------------------------------------------------
Basic and diluted loss per share $ (0.06) $ 0.03 $ (0.03)
- ---------------------------------------------------------------------------------------
Weighted average number of
common shares outstanding 14,163,599 14,163,599 28,927,198
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Year ended Year Ended
December 31, 2004 Adjustment December 31, 2004
- ---------------------------------------------------------------------------------------
Basic and diluted loss per share $ (0.05) $ 0.03 $ (0.02)
- ---------------------------------------------------------------------------------------
Weighted average number of
common shares outstanding 14,000,000 14,000,000 28,000,000
- ---------------------------------------------------------------------------------------
In addition to the restatements noted above, certain other revisions to the
financial statement note disclosures were made to improve the overall
presentation of the Company's financial statements.
F-32
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
CIGMA METALS CORPORATION AND SUBSIDIARIES
(AN EXPLORATION STAGE COMPANY)
We have audited the accompanying consolidated balance sheet of CIGMA METALS
CORPORATION AND SUBSIDIARIES (the "Company") (an exploration stage company) as
of December 31, 2004, the related consolidated statements of stockholders'
equity (deficit), operations and cash flows for the year ended December 31,
2004. 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 audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company's 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 includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provide a reasonable basis for our opinion.
In our opinion, based on our audit the financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as at December 31, 2004 and 2003 and the consolidated results of its
operations and its cash flows for the years ended December 31, 2004 and 2003,
and from January 13, 1989 (inception) to December 31, 2004, in conformity with
U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has recurring losses from operations since
inception that raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Vancouver, Canada, /s/ "ERNST & YOUNG LLP"
August 15, 2005. Chartered Accountants
F-33
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
CIGMA METALS CORPORATION AND SUBSIDIARIES ('THE COMPANY"
(AN EXPLORATION STAGE COMPANY)
We have audited the consolidated statements of stockholders' equity, operations
and cash flows of CIGMA METALS CORPORATION AND SUBSIDIARIES (an exploration
stage company) for the cumulative period from January 13, 1989 (inception) to
December 31, 2003. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the change in the Company's stockholders' equity, and the
results of its operations and cash flows for the cumulative period from January
13, 1989 (inception) to December 31, 2003 in conformity with generally accepted
accounting principles in the United States.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has not generated any revenue
from operations that raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Vancouver, Canada /s/ "MOORE STEPHENS ELLIS FOSTER LTD"
October 8, 2004. Chartered Accountant
F-34
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Florida Business Corporation Act, or FBCA, permits a Florida
corporation to indemnify any person who may be a party to any third party
proceeding by reason of the fact that such person is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another entity,
against liability incurred in connection with such proceeding (including any
appeal thereof) if he or she acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.
The FBCA permits a Florida corporation to indemnify any person who may be a
party to a derivative action if such person acted in any of the capacities set
forth in the preceding paragraph, against expenses and amounts paid in
settlement not exceeding, in the judgment of the board of directors, the
estimated expenses of litigating the proceeding to conclusion, actually and
reasonably incurred in connection with the defense or settlement of such
proceeding (including appeals), provided that the person acted under the
standards set forth in the preceding paragraph. However, no indemnification
shall be made for any claim, issue, or matter for which such person is found to
be liable unless, and only to the extent that, the court determines that,
despite the adjudication of liability, but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnification for
such expenses which the court deems proper.
The FBCA provides that any indemnification made under the above provisions,
unless pursuant to a court determination, may be made only after a determination
that the person to be indemnified has met the standard of conduct described
above. This determination is to be made by a majority vote of a quorum
consisting of the disinterested directors of the board of directors, by duly
selected independent legal counsel, or by a majority vote of the disinterested
stockholders. The board of directors also may designate a special committee of
disinterested directors to make this determination. Notwithstanding the
foregoing, the FBCA provides that a Florida corporation must indemnify any
director, officer, employee or agent of a corporation who has been successful in
the defense of any proceeding referred to above.
Notwithstanding the foregoing, the FBCA provides, in general, that no
director shall be personally liable for monetary damages to our company or any
other person for any statement, vote, decision, or failure to act, regarding
corporate management or policy, unless: (a) the director breached or failed to
perform his duties as a director; and (b) the director's breach of, or failure
to perform, those duties constitutes (i)a violation of criminal law, unless the
director had reasonable cause to believe his conduct was lawful or had no
reasonable cause to believe his conduct was unlawful, (ii)a transaction from
which the director derived an improper personal benefit, either directly or
indirectly, (iii)an approval of an unlawful distribution, (iv)with respect to a
proceeding by or in the right of the company to procure a judgment in its favor
or by or in the right of a stockholder, conscious disregard for the best
interest of the company, or willful misconduct, or (v)with respect to a
proceeding by or in the right of someone other than the
II-1
company or a stockholder, recklessness or an act or omission which was committed
in bad faith or with malicious purpose or in a manner exhibiting wanton and
willful disregard of human rights, safety, or property. The term "recklessness,"
as used above, means the action, or omission to act, in conscious disregard of a
risk: (a)known, or so obvious that it should have been known, to the directors;
and (b)known to the director, or so obvious that it should have been known, to
be so great as to make it highly probable that harm would follow from such
action or omission.
The FBCA further provides that the indemnification and advancement of
payment provisions contained therein are not exclusive and it specifically
empowers a corporation to make any other further indemnification or advancement
of expenses of any of its directors, officers, employees or agents under any
bylaw, agreement, vote of stockholders or disinterested directors, or otherwise,
both for actions taken in an official capacity and for actions taken in other
capacities while holding such office. However, a corporation cannot indemnify or
advance expenses if a judgment or other final adjudication establishes that the
actions of the director, officer, employee, or agent were material to the
adjudicated cause of action and the director, officer, employee, or agent
(a)violated criminal law, unless the director, officer, employee, or agent had
reasonable cause to believe his or her conduct was unlawful, (b)derived an
improper personal benefit from a transaction, (c)was or is a director in a
circumstance where the liability for unlawful distributions applies, or
(d)engaged in willful misconduct or conscious disregard for the best interests
of the corporation in a proceeding by or in right of the corporation to procure
a judgment in its favor or in a proceeding by or in right of a stockholder.
We have adopted provisions in our articles of incorporation and bylaws
providing that our directors, officers, employees, and agents shall be
indemnified to the fullest extent permitted by Florida law. Additionally, our
bylaws permit us to secure insurance on behalf of any officer, director,
employee, or other agent for any liability arising out of his or her actions in
connection with their services to us, regardless of whether our articles or
incorporation or bylaws permit such indemnification. We intend to obtain such
insurance.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling us
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses of this offering, all of which are to be paid by the
registrant, are as follows:
- ----------------------------------------------
U.S. Securities & Exchange Commission
Registration Fee $ 899
- ----------------------------------------------
Accounting Fees and Expenses $ 2,500
- ----------------------------------------------
Legal Fees and Expenses $25,000
- ----------------------------------------------
Transfer Agent Fees $ 500
- ----------------------------------------------
Miscellaneous Expenses $ 6,054
==============================================
Total $34,953
- ----------------------------------------------
II-2
The foregoing amounts are only estimates and actual expenditures may be more or
less.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, we have offered and sold the following shares
of common stock which were not registered under the Securities Act of 1933, as
amended.
Unless otherwise noted, all references to common stock, common shares
outstanding, weighted average numbers of common shares outstanding and per share
amounts in this Prospectus and the accompanying Financial Statements and Notes
to Financial Statements prior to the effective date of the forward stock split
have been restated to reflect the 2:1 forward stock split on a retroactive
basis.
In May 2005, 2,000,000 common shares were issued at $0.50 per share for
cash proceeds of $1,000,000. The funds were received in the year ended December
31, 2004. The shares were issued to individuals and companies who reside outside
the United States of America (in accordance with the exemption from registration
requirements afforded by Regulation S as promulgated thereunder).
In December 2005, 700,000 common shares were issued at $0.50 per share for
cash proceeds of $350,000. The shares were issued to two individuals who
reside outside the United States of America (in accordance with the exemption
from registration requirements afforded by Regulation S as promulgated
thereunder).
In March 2006, 800,000 common shares were issued at $0.375 per share for
cash proceeds of $300,000. The funds were received in December 2005. The
shares were issued to an individual who resides outside the United States of
America (in accordance with the exemption from registration requirements
afforded by Regulation S as promulgated thereunder).
In May 2006 the Company completed a private placement to non-affiliated
offshore investors of 6,540,000 Units priced at $0.50 per unit for a total
consideration of $3,270,000 pursuant to the exemption from registration
requirements of the Securities Act of 1933 as amended afforded by Regulation S
as promulgated by the Act. Each Unit is comprised of one share of the Company's
pre-forward split common stock US $0.0001 par value per share and one stock
purchase warrant, each warrant entitling the holder to purchase one additional
common share of the Company at a price of US $0.675 per share for a period of
one year from the closing date of the placement and at a price of US $0.75 per
share for a period of one year commencing on the first anniversary of the
Closing Date. None of the warrants have been exercised as of the filing date of
this registration statement as amended.
In May 2006 the Company completed a private placement to non-affiliated
offshore investors of 1,460,000 Units priced at $0.50 per Unit for a total
consideration of $730,000 pursuant to the exemption from registration
requirements of the Securities Act of 1933 as amended afforded by Regulation S
as promulgated by the Act. Each Unit is comprised of one share of the Company's
common stock US $0.0001 par value per share and one (1) stock purchase warrant,
each warrant entitling the holder to purchase one additional common share of the
Company at a price of US $0.675 per share for a period of one year from the
closing date of the placement and at a price of US $0.75 per share for a period
of one year commencing on the first anniversary of the Closing
II-3
Date. None of the warrants have been exercised as of the filing date of this
registration statement as amended.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following Exhibits are attached hereto:
EXHIBIT DESCRIPTION OF EXHIBIT AND FILING REFERENCE NUMBER
3.1.1 Certificate of Incorporation, incorporated by reference to the Form 10-SB12G filed
on September 16, 1999 (SEC File No. 000-27355-99712713). *
3.1.2 Certificate of Amendment to the Certificate of Incorporation, incorporated by
reference to the Form 10-SB12G filed on September 16, 1999 (SEC File No. 000-
27355-99712713). *
3.2.1 By-laws, incorporated by reference to the Form 10-SB12G filed on September 16,
1999 (SEC File No. 000-27355-99712713). *
5.1 Opinion of Sierchio Greco & Greco, LLP, regarding the legality of the securities
being registered. *
10.1.1 Haldeevskaya Joint Activity Agreement dated August 30, 2004, incorporated by
reference to the Form 10-KSB filed on June 6, 2006 (SEC File No. 000-27355-
06888704). *
10.1.2 Amendment to Haldeevskaya Joint Activity Agreement dated April 22, 2005,
incorporated by reference to the Form 10-KSB filed on June 6, 2006 (SEC File No.
000-27355-06888704). *
10.1.3 Amendment to Haldeevskaya Joint Activity Agreement dated December 31, 2005,
incorporated by reference to the Form 10-KSB filed on June 6, 2006 (SEC File No.
000-27355-06888704). *
10.1.4 Amendment to Haldeevskaya Joint Activity Agreement dated July 7, 2006,
incorporated by reference to the Form 10-QSB filed on August 14, 2006, 2006 (SEC
File No. 000-27355-061028644). *
10.2.1 Tugoyakovka Joint Activity Agreement dated June 17, 2005, incorporated by
reference to the Form 10-KSB filed on June 6, 2006 (SEC File No. 000-27355-
06888704). *
10.2.2 Amendment to Tugoyakovka Joint Activity Agreement dated December 31, 2005,
incorporated by reference to the Form 10-KSB filed on June 6, 2006 (SEC File No.
000-27355-06888704). *
10.2.3 Amendment to Tugoyakovka Joint Activity Agreement dated July 7, 2006,
incorporated by reference to the Form 10-QSB filed on August 14, 2006 (SEC File
No. 000-27355-061028644). *
II-4
23.1 Consent of Sierchio Greco & Greco, LLP (included in Exhibit 5.1) *
23.2 Consent dated November 24, 2006 of Dale Matheson Carr-Hilton LaBonte
23.3 Consent dated November 24, 2006 of Ernst & Young LLP
23.4 Consent dated November 24, 2006 of Moore Stephens Ellis Foster Ltd.
99.1 Corporate Governance Principles, incorporated by reference to the Form 10-KSB
filed on November 4, 2004 (SEC File No. 000-27355-041117794). *
99.2 Change in Registrant's Certifying Accountant, incorporated by reference to the Form
8-K filed on February 8, 2006 (SEC File No. 000-27355-06588386). *
- -----
* Previously filed
ITEM 28.UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Securities and
Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, as amended, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time
II-5
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4) For purposes of determining liability under the Securities Act of 1933 to
any purchaser:
(i) if the registrant is relying Rule 430B,
(A) Each prospectus filed by the registrant pursuant to Rule 424(b)(3)
shall be deemed to be part of the registration statement as of the date the
filed prospectus was deemed part of and included in the registration
statement; and
(B)Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5),
or (b)(7) as part of a registration statement in reliance on Rule 430B
relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x)
for the purpose of providing the information required by section 10(a) of
the Securities Act of 1933 shall be deemed to be part of and included in
the registration statement as of the earlier of the date such form is first
used after effectiveness or the date of the first contract of sale of
securities in the offering described in the prospectus. As provided in Rule
430B, for liability purposes of the issuer, and any person that is at that
date an underwriter, such date shall be deemed to be a new effective date
of the registration statement relating to the securities in the
registration statement to which that prospectus relates, and the offering
of such securities at that time shall be deemed to be the initial bona fide
offering thereof. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration or
made in a document incorporated or deemed incorporated by reference into
the registration statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale prior to
such effective date, supersede or modify any statement that was made in the
registration statement or prospectus that was part of the registration
statement or made in any such document immediately prior to such effective
date; or
(ii) If the Registrant is subject to Rule 430C, each prospectus filed pursuant
to Rule 424(b) as part of a registration statement relating to an offering,
other than registration statements relying on Rule 430B or other that
prospectuses filed in reliance on Rule 430A, shall be deemed to be part of
and included in the registration statement as of the date it is first used
after effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration or
made in a document incorporated or deemed incorporated by reference into
the registration statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale prior to
such first use, supersede or modify any statement that was made in the
registration statement or prospectus that was part of the registration
statement or made in any such document immediately prior to such date of
first use.
(5)That for the purpose of determining liability of the registrant under the
Securities Act of 1933 to any purchaser in the initial distribution of the
securities:
The undersigned registrant undertakes that in a primary offering of securities
of the undersigned
II-6
registrant pursuant to this registration statement, regardless of the
underwriting method used to sell the securities to the purchaser, if the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on
behalf of the undersigned registrant or used or referred to by the
undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering
containing material information about the undersigned registrant or its
securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the
undersigned registrant to the purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 24 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Actof1933andis,therefore, unenforceable. In the
event that acclaim for indemnification against such liabilities(other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, in the City of Coolum
Beach, Queensland, Australia, on the November 27, 2006.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated:
- -----------------------------------------------------------------------------------
Name Title Date
-----------------
By:/s/ "LARS PEARL" Chief Executive Officer, Principal November 27, 2006
- ------------------ Accounting Officer and Director
LARS PEARL, Attorney in Fact
- -----------------------------------------------------------------------------------
ROBERT BIAGIONI Director November 27, 2006
By:/s/ "LARS PEARL"
- -------------------
LARS PEARL, Attorney in Fact
- -----------------------------------------------------------------------------------
II-7
- -----------------------------------------------------------------------------------
WALDEMAR MUELLER Director November 27, 2006
By:/s/ "LARS PEARL"
- -------------------
LARS PEARL, Attorney in Fact
- -----------------------------------------------------------------------------------
ROBERT IAN RIGG Director November 27, 2006
By:/s/ "LARS PEARL"
- -------------------
LARS PEARL, Attorney in Fact
- -----------------------------------------------------------------------------------
AGUSTIN GOMEZ DE SEGURA Director November 27, 2006
By:/s/ "LARS PEARL"
- -------------------
LARS PEARL, Attorney in Fact
- -----------------------------------------------------------------------------------
Cigma Metals Corporation
Registration Statement on Form SB-2
File No 333-[-].
Index to Exhibits
3.1.1 Certificate of Incorporation, incorporated by reference to the Form 10-SB12G
filed on September 16, 1999 (SEC File No. 000-27355-99712713). *
3.1.2 Certificate of Amendment to the Certificate of Incorporation, incorporated by
reference to the Form 10-SB12G filed on September 16, 1999 (SEC File No. 000-
27355-99712713). *
3.2.1 By-laws, incorporated by reference to the Form 10-SB12G filed on September
16, 1999 (SEC File No. 000-27355-99712713). *
5.1 Opinion of Sierchio Greco & Greco, LLP, regarding the legality of the securities
being registered *
10.1.1 Haldeevskaya Joint Activity Agreement dated August 30, 2004, incorporated by
reference to the Form 10-KSB filed on June 6, 2006 (SEC File No. 000-27355-
06888704). *
10.1.2 Amendment to Haldeevskaya Joint Activity Agreement dated April 22, 2005,
incorporated by reference to the Form 10-KSB filed on June 6, 2006 (SEC File
No. 000-27355-06888704). *
10.1.3 Amendment to Haldeevskaya Joint Activity Agreement dated December 31,
2005, incorporated by reference to the Form 10-KSB filed on June 6, 2006 (SEC
File No. 000-27355-06888704). *
10.1.4 Amendment to Haldeevskaya Joint Activity Agreement dated July 7, 2006,
incorporated by reference to the Form 10-QSB filed on August 14, 2006 (SEC
File No. 000-27355-061028644). *
10.2.1 Tugoyakovka Joint Activity Agreement dated June 17, 2005, incorporated by
reference to the Form 10-KSB filed on June 6, 2006 (SEC File No. 000-27355-
06888704). *
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10.2.2 Amendment to Tugoyakovka Joint Activity Agreement dated December 31,
2005, incorporated by reference to the Form 10-KSB filed on June 6, 2006 (SEC
File No. 000-27355-06888704). *
10.2.3 Amendment to Tugoyakovka Joint Activity Agreement dated July 7, 2006,
incorporated by reference to the Form 10-QSB filed on August 14, 2006 (SEC
File No. 000-27355-061028644). *
23.1 Consent of Sierchio Greco & Greco, LLP (included in Exhibit 5.1) *
23.2 Consent dated November 24, 2006 of Dale Matheson Carr-Hilton LaBonte
23.3 Consent dated November 24, 2006 of Ernst & Young LLP
23.4 Consent dated November 24, 2006 of Moore Stephens Ellis Foster Ltd.
99.1 Corporate Governance Principles, incorporated by reference to the Form 10-KSB
filed on November 4, 2004 (SEC File No. 000-27355-041117794). *
99.2 Change in Registrant's Certifying Accountant, incorporated by reference to the
Form 8-K filed on February 8, 2006 (SEC File No. 000-27355-06588386). *
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* Previously filed
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