UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2007
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to __________
Commission File Number: 333-129347
WHITE MOUNTAIN TITANIUM CORPORATION
(Exact name of Registrant as specified in its charter)
NEVADA 87-0577390
- ------------------------------ ---------------------------------
State or other jurisdiction of I.R.S. Employer Identification No.
incorporation or organization
2150 - 1188 West Georgia Street, Vancouver, British Columbia Canada V6C 4E2
- ------------------------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (604) 408-2333
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Exchange Act. [ ]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. (1) Yes [X] No [ ] (2) Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (paragraph 229.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See definitions of "large accelerated filer," "accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer [ ] Accelerated Filer [ ]
Non-Accelerated Filer [ ] Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant (25,801,133 shares) is $25,672,127, computed by reference to the
average bid and asked price of the Common Stock ($0.995) as of March 17, 2008.
At March 18, 2008, there were 29,189,133 shares of the registrant's Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
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Table of Contents
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ITEM 1. DESCRIPTION OF BUSINESS . . . . . . . . . . . . . . . . . . . . 4
ITEM 1A. RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ITEM 1B. UNRESOLVED STAFF COMMENTS . . . . . . . . . . . . . . . . . . . 10
ITEM 2. DESCRIPTION OF PROPERTY . . . . . . . . . . . . . . . . . . . . 10
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . 14
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES . . . . . . . 14
ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . 15
ITEM 7. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . . 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . 18
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . 42
ITEM 9A(T). CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . 42
ITEM 9B. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 43
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE . . . . . 43
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . 45
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . 49
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES . . . . . . . . . . . . . 55
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES . . . . . . . . . . . 56
Forward Looking Statements
The statements contained in this report that are not historical facts are
forward-looking statements that represent management's beliefs and assumptions
based on currently available information. Forward-looking statements include
the information concerning our possible or assumed future results of
operations, business strategies, need for financing, competitive position,
potential growth opportunities, potential operating performance improvements,
ability to retain and recruit personnel, the effects of competition and the
effects of future legislation or regulations. Forward-looking statements
include all statements that are not historical facts and can be identified by
the use of forward-looking terminology such as the words "believes," "intends,"
"may," "will," "should," "anticipates," "expects," "could," "plans," or
comparable terminology or by discussions of strategy or trends. Although we
believe that the expectations reflected in such forward-looking statements are
reasonable, we cannot give any assurances that these expectations will prove to
be correct. Such statements by their nature involve risks and uncertainties
that could significantly affect expected results, and actual future results
could differ materially from those described in such forward-looking
statements.
Among the factors that could cause actual future results to differ
materially are the risks and uncertainties discussed in this report. While it
is not possible to identify all factors, we continue to face many risks and
uncertainties including, but not limited to, the cyclicality of the titanium
dioxide industry, global economic and political conditions, global productive
capacity, customer inventory levels, changes in product pricing, changes in
product costing, changes in foreign currency exchange rates, competitive
technology positions and operating interruptions (including, but not limited
to, labor disputes, leaks, fires, explosions, unscheduled downtime,
transportation interruptions, war and terrorist activities). Mining operations
are subject to a variety of existing laws and regulations relating to
exploration and development, permitting procedures, safety precautions,
property reclamation, employee health and safety, air and water quality
standards, pollution and other environmental protection controls, all of which
are subject to change and are becoming more stringent and costly to comply
with. Should one or more of these risks materialize (or the consequences of
such a development worsen), or should the underlying assumptions prove
incorrect, actual results could differ materially from those expected. We
disclaim any intention or obligation to update publicly or revise such
statements whether as a result of new information, future events or otherwise.
There may also be other risks and uncertainties that we are unable to
predict at this time or that we do not now expect to have a material adverse
impact on our business.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
White Mountain Titanium Corporation was incorporated under the laws of the
State of Nevada on April 24, 1998. From approximately 2000 until 2004, we had
no business operations and no source of generating revenues. We were a
non-reporting shell company between 2000 and February 2004 when we entered into
a reverse acquisition with GreatWall Minerals, Ltd., an Idaho corporation. In
February 2004 we merged with GreatWall which had had an on-going interest in
the natural resources sector in Chile for several years and in 2003 had entered
into an agreement to acquire a core holding of Cerro Blanco mining concessions
through its 100% owned Chilean subsidiary, Compania Minera Rutile Resources
Limitada. In September 2005 we completed the purchase of these mining
concessions.
The mining concessions now consist of 33 registered mining exploitation
concessions, and 5 exploration concessions, over approximately 8,225 hectares
located approximately 39 kilometers west of the City of Vallenar in the
Atacama, or Region III, geographic region of northern Chile. We are in the
exploration stage, which means we are engaged in the search for mineral
deposits or reserves which could be economically and legally extracted or
produced. We are conducting a drilling campaign and pre-feasibility work in
preparation for a feasibility study to determine whether the concessions
contain commercially viable ore reserves. If we are successful in obtaining a
feasibility study which supports commercially viable ore reserves, we intend to
exploit the concessions and to produce titanium dioxide concentrate through
conventional open pit mining and minerals processing. Our business plan is to
explore solely for titanium deposits or reserves on the Cerro Blanco mining
concessions. If this exploration program is unsuccessful, we will be unable to
continue operations.
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We have produced no revenues, have achieved losses since inception, have
no operations, and currently rely upon the sale of our securities to fund our
operations. We estimate the cost to take the Cerro Blanco project to the point
of commissioning a final engineering feasibility study at approximately
$3,408,000. This figure excludes general and administrative expenses. As of
December 31, 2007, our cash position was $2,678,652. We currently do not have
sufficient capital to complete this plan and estimate that we will require
additional financing to do so.
Over the next twelve to twenty-four months we have two principal
objectives: to advance the project towards a final engineering feasibility
level and to secure off-take contracts for the planned rutile concentrate
output. We also continue to investigate the commercial viability of producing
a feldspar co-product. The feldspar could find applications in the glass and
ceramics industries.
Titanium Industry and Market Overview
Overview
Titanium is the ninth most abundant element, making up about 0.6% of the
earth's crust. Titanium occurs primarily in the minerals anatase, brookite,
ilmenite, leucoxene, perovskite, rutile, and sphene. Of these minerals, only
rutile, ilmenite and leucoxene, an alternation product of ilmenite, have
significant economic importance. Both rutile and ilmenite are chemically
processed to produce both titanium dioxide pigment and titanium metal.
Approximately 95% of titanium is consumed in the form of titanium dioxide
concentrate, primarily as a white pigment in paints, paper, and plastics.
Titanium dioxide pigment is characterized by its purity, refractive index,
particle size, and surface properties. The superiority of titanium dioxide as
a white pigment is due mainly to its high refractive index and resulting
light-scattering ability, which impart excellent hiding power and brightness.
Titanium metal is well known for its corrosion resistance, high
strength-to-weight ratio, and high melting point. Accordingly, titanium metal
is used in sectors, such as the aerospace and chemicals industries, where such
considerations are extremely important.
Our business is currently focused on the mining concessions which
constitute the Cerro Blanco property. These concessions host a hard rock
rutile deposit as opposed to ilmenite laden mineral sands deposits held by most
of our competitors. Rutile generally has higher percentages of titanium oxide.
Industry Background
The bulk of the world's titanium is used as the metal oxide, titanium
dioxide (TiO2). The chemically processed titanium ore, whether rutile or
ilmenite based, is turned into pure titanium dioxide and used as a brilliant
white pigment which imparts whiteness and opacity to paint, plastics, paper and
other products. The use of titanium dioxide as a color carrier has grown over
the last 40 years, since the use of white lead based paints was banned
throughout the world for health reasons. Titanium dioxide is chemically inert,
which gives it excellent color retention. It is thermally stable, with a
melting point at 1,668 degrees Celcius, which makes it suitable for use in
paints and products that are designed to withstand high temperatures. About
5% of the world's titanium is used as the metal, due to its exceptional
properties. It has the highest strength to weight ratio of any metal; is as
strong as steel but 45% lighter. The most noted chemical property of titanium
is its excellent resistance to corrosion; it is almost as resistant as
platinum, capable of withstanding attack by acids, moist chlorine gas, and by
common salt solutions.
The table below gives a summary of distribution and end uses on an
industry by industry basis for TiO2.
U.S. Distribution of TiO2 pigment shipments by industry: 2006
-------------------------------------------------------------
Industry Percent
------------------- -------
Paint and Coatings 57.1%
Plastics and Rubber 26.3%
Paper 12.6%
Other* 4%
* Includes agricultural, building materials, ceramics, coated fabrics
and textiles, cosmetics, food, paper and printing ink
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The table below gives a broad picture of principal uses for titanium dioxide.
Uses of Titanium Dioxide
------------------------
Industry Use
----------------- ---
Paints & Pigments Paints, coatings, lacquer, varnishes, to whiten and
opacity polymer binder systems, to provide coating
and hiding power, and to protect paints from UV
radiation and yellowing of the color in sunlight.
Plastics To ensure high whiteness and color intensity, and
increase plastic impact strength in such items as
window sections, garden furniture, household objects,
plastic components for the automotive industry.
Paper Additive to whiten and opacity the paper.
Cosmetics Protection against UV radiation in high factor sun
creams; to give high brightness and opacity in
toothpaste and soaps.
Food High brightness and opacity in foods and food
packaging.
Pharmaceuticals High chemical purity titanium dioxide is used as a
carrier and to ensure brightness and opacity.
Printing Inks Protection against fading and color deterioration.
Other Titanium dioxide is used in chemical catalysts, wood
preservation, rubber, ceramics, glass,
electroceramics, welding fluxes, and high temperature
metallurgical processes.
In 2004, an expanding world economy and industrial growth in China led to
strong demand for titanium mineral concentrates, titanium metal and titanium
dioxide (TiO2) pigment. Gross production of titanium mineral concentrates
(ilmenite and rutile) rose from 5.0 million tonnes in 2004 to an estimated 5.4
million tonnes in 2006. During the same period, published prices for high
grade rutile have held up at $500 - $750 per tonne, depending on grade.
The following table sets forth the estimated world reserves of titanium
minerals based upon global resources of titanium minerals.
World Reserves of Ilmenite and Rutile ('000t TiO2)
--------------------------------------------------
Country Ilmenite Rutile
------- -------- ------
Australia 130,000 19,000
Canada 31,000 -
India 85,000 7,400
Norway 37,000 -
South Africa 63,000 8,300
Ukraine 5,900 2,500
US 6,000 400
Other 15,000 8,100
Source: U.S. Geological Survey, Mineral Commodity Summaries,
January 12, 2007, found online at
http://minerals.usgs.gov/minerals/pubs/mcs/2007/mcs2007.pdf.
6
Titanium Pigment Production
Mining of titanium minerals is usually performed using surface methods
like dredging and dry mining and gravity spirals. Ilmenite is often processed
to produce a synthetic rutile.
The most widely used processes available for the manufacture of titanium
dioxide pigment are the sulphate and chloride processes. Commercially
manufactured titanium dioxide pigment is available as either anatase-type or
rutile-type, categorized according to its crystalline form, regardless of
whether it is made from the mineral rutile. Anatase pigment is currently made
by sulphate producers only, while rutile pigment is made by both the chloride
and the sulphate processes. The decision to use one process instead of the
other is based on numerous factors, including raw material availability,
freight, and waste disposal costs.
Anatase and rutile pigments, while both are white, have different
properties and thus have different end-uses. For example, rutile pigment is
less reactive with the binders in paint when exposed to sunlight than is the
anatase pigment and is preferred for use in outdoor paint. Anatase pigment has
a bluer tone than rutile, is somewhat softer, and is used mainly in indoor
paints and in paper manufacturing. Depending on the manner in which it is
produced and subsequently finished, TiO2 pigment can exhibit a range of
functional properties, including dispersion, durability, opacity, and tinting.
In the chloride process, rutile is converted to TiCl4 by chlorination in
the presence of petroleum coke. TiCl4 is oxidized with air or oxygen at about
900 degrees Celcius, and the resulting TiO2 is calcined to remove residual
chlorine and any hydrochloric acid that may have formed in the reaction.
Aluminum chloride is added to the TiCl4 to assure that virtually all the
titanium is oxidized into the rutile crystal structure. The process is
conceptually simple but poses a number of significant chemical engineering
problems because of the highly corrosive nature of chlorine, chlorine oxides
and titanium tetrachloride at temperatures of 900 degrees Celcius or higher.
In the sulphate process, ilmenite or titanium slag is reacted with
sulfuric acid. Titanium hydroxide is then precipitated by hydrolysis, filtered
and calcined. This is a process involving approximately 20 separate processing
steps. Because sulphate technology is predominantly a batch process, it is
possible to operate one part of a sulphate process plant while another part is
shut down for maintenance. To some extent, stocks of intermediate reaction
products can be allowed to build up, awaiting further processing downstream at
some later time. It is also possible that a sulphate process plant can be run
at 60-80% capacity utilisation fairly easily if necessary, simply by switching
off one or more of its calciners.
Synthetic rutile is formed by removing the iron content from ilmenite,
thereby concentrating the titanium dioxide content to at least 90%. In this
way, ilmenites can be upgraded to chloride route feedstocks and used as a
substitute for rutile.
For 2004, U.S. consumption of ilmenite and titaniferous slag was more than
three times that of both natural and synthetic rutile.
Demand for Titanium Pigment
An assessment of U.S. Geological Survey historical data (Titanium Minerals
Handbook, 1970-2005) shows that world demand for titanium dioxide pigments
showed practically unbroken annual growth from 1.6 million tons (Mt) in 1970 to
3.9Mt in 2000. It declined to 3.7Mt in 2001 but rebounded to around 4Mt in
2002, with sales increasing by around 6.6% and a further rise of 3.2% in 2003.
World consumption of titanium dioxide pigment was estimated to be 4.6 million
metric tons in 2004, an 8% increase compared with consumption in 2003.
According to the U.S. Geological Survey Mineral Industry Surveys, titanium mill
product shipments in 2004 were approximately 19,300 metric tons and in 2005
were approximately 23,800 metric tons, a 23% increase compared with the
shipments in the previous year.
Titanium Dioxide Prices
The 2006 year end published price range for bagged rutile mineral
concentrates was US$570 to US$700 per metric ton, a moderate increase compared
with that of 2005. Year end prices of ilmenite concentrate ranged from US$75 to
US$85 per ton for 2006, and there has been no change in 2005.
As capacity utilization rates for TiO2 pigment plants rose, 2006 year end
published prices for anatase and rutile grade pigment increased moderately
compared with those of 2005. The U.S. Department of Labor, Bureau of
7
Labor Statistics producer price index for TiO2 pigment increased to 148.9 in
December 2004 from 146.1 in December 2003.
Competition
Once in production we will compete with a number of existing titanium
dioxide concentrate producers, including Iluka Resources Inc., Richards Bay
Iron and Titanium Pty. Ltd., QIT-Fer et Titane Inc., and Titania A/S as well as
other projects proposed for development. Each of the existing producers has an
operating history as well as proven reserves and resources; however the
majority of their collective production is in the form of ilmenite or synthetic
rutile, not rutile.
Management believes that the location of the Cerro Blanco property may
provide a significant advantage in competing with other producers of titanium.
In addition to good road transport links, power and water, a port facility
capable of handling 70,000 ton ships is available at Huasco 30 kilometers
northwest of the Cerro Blanco property. The property also lies close to a
fully operational rail track, and if necessary, a spur line could be run into
the property linking it directly to port facilities at Huasco.
In order to be competitive, we will be required to meet buyers'
specifications, including particle size, concentration levels, calcium and
impurities. Management believes metallurgical tests to date have demonstrated
that the rutile mineralization at the Cerro Blanco concessions can be
concentrated to an acceptable level to buyers. Results received in November
2006 of metallurgical mapping studies of the Cerro Blanco rutile deposit, which
were based on 15 different samples selected from a recent RC drilling campaign,
indicate that a high grade rutile product with low levels of calcium and other
impurities can be produced from a range of ore types. The results also
highlighted ore types that would present process problems. We are using the
results of these studies as a basis for further geological assessment of
certain areas of Cerro Blanco. Metallurgical test work also showed that the
incorporation of a gravity pre-concentration stage in the process flow sheet
would reduce the amount of material passing from the crushing to the milling
stage. At the same time the head grade of ore going to the flotation section
could be almost doubled. Management believes that such a process improvement
could have a significant effect on the overall capital requirement of the
project. An earlier report indicated that ore from Cerro Blanco, in addition
to high grade rutile, could also yield a sodium and potassium feldspar
co-product. Feldspar is used extensively in the glass and ceramics industries
and management is examining the commercial possibilities for such a product.
Management does not currently have any customers for any rutile titanium
which it may produce. We anticipate that the concentrate would be transported
by ship which makes the location of the mining concessions near a port
advantageous. Notwithstanding this, management will need to evaluate shipping
rates and transit times when it obtains potential customers to determine
whether existing prices for titanium would make sales to such customers
economically viable.
Mining, particularly copper mining, is a significant industry in Chile.
We will be competing with a number of existing mining companies, including the
state-owned Codelco Copper Corporation, one of the world's largest copper
producers, for qualified workers, supplies, and equipment. However, management
believes Cerro Blanco has an attractive location and good infrastructure in an
active mining region. The property is located at a low elevation, near the
coast, with two nearby towns from which it will be able to draw manpower and
supplies. Thus, we do not anticipate any significant logistic issues, no
separate camps to construct, no inclement weather issues or other operating
considerations which would increase the cost of mining and make us less
competitive.
Government Compliance
Our exploration activities are subject to extensive national, regional,
and local regulations in Chile. These statutes regulate the mining of and
exploration for mineral properties, and also the possible effects of such
activities upon the environment. Future legislation and regulations could
cause additional expense, capital expenditures, restrictions and delays in the
development of the Cerro Blanco property, the extent of which cannot be
predicted. Also, permits from a variety of regulatory authorities are required
for many aspects of mine operation and reclamation. In the context of
environmental permitting, including the approval of reclamation plans, we must
comply with known standards, existing laws and regulations that may entail
greater or lesser costs and delays, depending on the nature of the activity to
be permitted and how stringently the regulations are implemented by the
permitting authority. We are not presently aware of any specific material
environmental constraints affecting the Cerro Blanco property that would
preclude its exploration, economic development, or operation.
Chile enacted provisions in its 1980 Constitution to stimulate the
development of mining, while at the same time guaranteeing the property rights
of both local and foreign investors. While the state owns all mineral
resources,
8
exploration and exploitation of these resources is allowed via mining
concessions, which are granted by the courts. A Constitutional Organic Law,
enacted in 1982, sets out that certain rights and obligations may attach to
concessions, such as the right to mortgage or transfer concessions and the
entitlement of the holder to explore (pedimentos) as well as to exploit
(mensuras). A concession is obtained by filing a claim and includes all
minerals that may occur within the area covered by the concession. The holder
of a concession also has the right to defend his interest against the state and
third parties.
Mining claims in Chile are acquired in the following manner:
* Pedimento: A pedimento is an exploration claim precisely defined by
coordinates with north south and east west boundaries. These may
range in size from a minimum of 100 hectares to a maximum of 5000
hectares, with a maximum length to width ratio of 5:1. A pedimento
is valid for a maximum period of two years, following which the claim
may be reduced in size by at least 50%, and renewed for an additional
two years, provided that no overlying claim has been staked. Claim
taxes are due annually in the month of March; if the taxes on a
pedimento are not paid by such time, the claim can be restored to
good standing by paying double the annual claim tax by or before the
beginning of the following year. In Chile, new pedimentos are
permitted to overlap pre existing claims; however, the previously
staked or underlying claim always takes precedence as long as the
claim holder maintains his claim in good standing and converts the
pedimento to a manifestacion within the initial two year period.
* Manifestacion: During the two year life of a pedimento, it may be
converted at any time to a manifestacion. Once an application to
this effect has been filed, the claim holder has 220 days to file a
"Solicitud de Mensura" or "Request for Survey" with a court of
competent jurisdiction, and notify surrounding claim holders of the
application by publishing such request in the Official Mining
Bulletin. This notifies surrounding claim holders, who may contest
the claim if they believe their pre established rights are being
encroached upon. The option also exists to file a manifestacion
directly on open ground, without going through the pedimento filing
process.
* Mensura: The claim must be surveyed by a government licensed surveyor
within nine months of the approval of the "Request for Survey."
During the survey any surrounding claim owners may be present, and
once completed the survey documents are presented to the court and
reviewed by SERNAGEOMIN, the National Mining Service. Assuming that
all steps have been carried out correctly and all other necessary
items are in order, the court then adjudicates the application and
grants a permanent property right (a mensura), the equivalent to a
"patented claim."
Each of the above stages of the acquisition of a mining claim in Chile
requires the completion of several steps, including application, publication,
inscription payments, notarization, tax payments, legal fees, "patente"
payments, and extract publication, prior to the application being declared by
the court as a new mineral property. Details of the full requirements of the
claim staking process are documented in Chile's mining code. Most companies
carrying on operations in Chile retain a mining claim specialist to carry out
and review the claim staking process and ensure that their land position is
kept secure.
In 1994 Chile adopted legislation establishing general environmental norms
which must be followed in activities such as mining. This legislation requires
us to prepare an environmental impact study which must include a description of
the project and a plan for compliance with the applicable environmental
legislation. It must also include base line studies containing the information
relative to the current components of the existing environment in the area
influenced by the project. Further, it must consider the construction,
operation and closure/abandonment phases of the project. It must also include
a plan to mitigate, repair, and compensate, as well as risk prevention and
accident control measures, to achieve a project compatible with the
environment. The study must be presented to the community for comment and to
the regional arm of the National Environmental Commission for approval. We
have completed an environmental base line study on the property, which has not
yet been submitted to the regional Chilean government authority for review and
approval.
Insurance
We maintain property and general liability insurance with coverage we
believe is reasonably satisfactory to insure against potential covered events,
subject to reasonable deductible amounts, through our exploration stage.
9
Employees
Aside from our President, who devotes his full time to our company, and
our directors and executive officers that donate a portion of their time to our
business, we currently have only one other full-time employee who works as an
assistant to Mr. Kurtanjek. We will also be dependent upon the services of
outside geologists, metallurgists, engineers, and other independent contractors
to conduct our drilling program, develop our pilot plant, and conduct the
various studies required to complete exploration of our mining concessions. In
addition, we do not have any agreements or arrangements for the necessary
managers and employees who will be necessary to operate the mine if commercial
production commences. We do not have any existing contracts for these services
or employees.
ITEM 1A. RISK FACTORS
As a smaller reporting company, we have elected not to provide the
disclosure required by this item.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Because we are neither an accelerated filer nor a large accelerated filer,
we have elected not to provide the disclosure required by this item.
ITEM 2. DESCRIPTION OF PROPERTY
Location and Access
The Cerro Blanco property is located approximately 39 kilometers, or
approximately 24 miles, west of the city of Vallenar in the Atacama geographic
region (Region III) of northern Chile and southwest of the Cerro Rodeo Mining
District. Access to the property is as follows: The main Ruta 5, the
PanAmerican Highway, runs north from Santiago for approximately 625 kilometers
to Vallenar; from there a paved road runs west toward the Port of Huasco for a
distance of 22 kilometers to the village of Nicolasa; at Nicolasa a municipally
maintained dirt road runs approximately 14 kilometers southwest to the
property. Management believes access to the property is adequate to
accommodate the type of vehicles and traffic during the exploration stage on
the property. Improvements to the dirt road will be required for the
development and production stages. These improvements will include widening of
the road and topping it with gravel. Management believes adequate supplies of
bedrock and gravel are available for this purpose, although it currently has no
arrangements or agreements to provide either the improvement services or
supplies. The area is served by a regional airport at Vallenar.
Cerro Blanco lies within an established mining district where management
believes experienced mineworkers and support personnel are available. Labor
rates in the region are considerably less costly when compared with standard
North American rates. Mining is one of the main sectors of the Chilean economy
and Region III has a broad base of mining contractors and suppliers of both
new and used mining and processing equipment. They service all the major gold,
copper, and iron ore mines in the area.
The local climate is generally arid with little rainfall in normal years.
Vegetation is minimal, supporting only desert scrub and sparse cactus.
Topography consists of low hills with a mean elevation of 100 meters, which are
incised periodically by active creeks. The Huasco River, 15 kilometers,
approximately 9 miles, to the north, is a source of water. Additionally,
high-tension power lines pass 15 kilometers, approximately 9 miles, to the
north of the property along the Vallenar-Huasco highway.
In addition to road transport links, power and water access, a port
facility with a capacity to handle 70,000 ton ships is accessible at Huasco,
which is 30 kilometers, approximately 19 miles, northwest of the property. The
property also lies close to a fully operational rail track. If necessary, a
spur line could be run into the property linking it directly to the port.
Title Status and Exploration Rights
Under the Chilean mining code, surveyed mineral concessions can be held in
perpetuity subject only to an annual tax based on the land held. Tax payments
are due in March and payments for 2005, and 2006 were approximately $17,961,
and $19,812, respectively. We have converted our existing exploration licenses
into thirty-three exploitation licenses in the current tax year which will
increase the tax payable. The tax payment for March
10
2007 was approximately $50,000 based upon the status of the mining concessions
and the currency exchange rate at that time.
The Chilean mining code does not convey surface rights to owners of the
mining concessions. However, the owners of mining concessions are entitled to
the establishment of the necessary easements for mining exploration and
exploitation. The surface lands are subject to the burden of being occupied,
to the extent required by mining operations, by ore yards and dumps, slag and
tailings, ore extraction and benefaction plants, electric substations and
communications lines, canals, reservoirs, piping, housing, construction and
supplementary works, and to the encumbrance of transit and of being occupied by
roads, railways, piping, tunnels, inclined planes, cableways, conveyor belts
and all other means used to connect the operations of the concession with
public roads, benefaction facilities, railroad stations, shipping ports, and
consumer centers. The establishment of these easements, the exercise thereof,
and the compensation therefore, are to be agreed upon either between the
concession owner and the surface owner, or are established by court decision
under a special brief procedure contemplated by the law.
The surface rights are owned by Agrosuper, a large Chilean agricultural
concern, and we are negotiating with the attorney who represents the company to
either sell outright the surface rights to us or negotiate an easement and
right of way with us. Nevertheless, should this alternative fail, we will
proceed to seek the easement through the court, which under Chilean mining law
we have the right to obtain. We do not anticipate any material difficulty with
surface rights on the Cerro Blanco property.
Exploration History
In 1990-1991 the western half of the property, then referred to a as
Barranca Negra, was held under option by Adonos Resources of Toronto, Canada,
who conducted extensive rock sampling, geological mapping and 450 meters of
trenching. In 1992 the property was optioned by Phelps Dodge, to which they
applied the name Freirina. In late 1992 and early 1993, 1,200 meters of
diamond and 6,000 meters of reverse circulation drilling were completed,
principally in the most westerly Cerro Blanco anomaly. In 1993 two 15 ton bulk
samples were taken for metallurgical testing. A gravity concentrate was
produced from a 15 ton sample of this material by Lakefield Research in
Santiago. Fifty kilos of this concentrate were shipped to Carpco Inc. in
Florida for further gravity circuit up-grading followed by dry-milling using
magnetic and electrostatic separation techniques.
In 1999 Dorado Mineral Resources N.L. purchased the property and re-named
the property Celtic. In February 2000, a preliminary processing test carried
out by RMG Services Pty. Ltd., Adelaide, Australia, on behalf of Dorado, used
combined microwave leaching and flotation in the up-grading of Celtic
(Freirina) gravity concentrate. In June 2000 a review and summary of prior
exploration programs and results was conducted by an independent geological
consultant on behalf of Dorado Mineral Resources N.L. A cross-sectional
estimation of the resource potential of the Cerro Blanco deposit based on the
prior drilling and surface sampling was completed as part of this study. Later
the same month a scoping study based on level plans produced for the area of
highest density drilling was undertaken on behalf of Dorado Recursos Minerales
Chile S.A. by Tecniterrae Limitada, a Santiago based group of consulting mining
engineers.
In November and December 2000 a further study was commissioned by Dorado
Recursos Minerales Chile S.A. to supervise the collection of a second bulk
sample of 25 tons for metallurgical testing. Also during this program the
Cerro Blanco area was geologically re-mapped. In August 2001, ownership of the
property was transferred to Kinrade Resources Limited. Subsequent to these
events, Kinrade defaulted on its obligations and was unable to meet the payment
schedules as required under contract. In the fall of 2003 ownership of the
property passed to Compania Minera Rutile Resources Limitada, the wholly owned
subsidiary of White Mountain Titanium Corporation. The purchase was completed
in September 2005.
Geology and Mineralization
Management believes the Cerro Blanco property contains a large and
possibly unique type of titanium mineralization. Nevertheless, we are still in
the exploration stage of development and there are no known reserves on the
property. The titaniferous mineral located on the property is clean red-brown
and black rutile which occurs disseminated with the tonalitic suite of an
alkalic diorite-gabbro-pyroxenite intrusive. Its uniformly disseminated nature
and associated alteration endow it with strong similarities to porphyry copper
deposits. Natural rutile concentrates such as found on this property would be
the preferred feed stock for both titanium metal and pigment grade titanium
dioxide production.
11
Exploration Plans
During 2006, we undertook two separate drilling campaigns. The first was
designed to test ore variability, and provided 15 different composites which
were subjected to metallurgical testing by Lakefield Research. The second
campaign, which commenced in October 2006, centered on an exploration program
consisting mainly of infill and step out drilling, grade variability studies
and regional reconnaissance in search of possible extensions to the
mineralization and geologic modelling. On January 24, 2007, we announced that
we had completed a 16-hole diamond drilling campaign, totaling over 2,900
meters at Cerro Blanco. The principal objectives of this campaign were to
increase resources in the central portion of the main zone as well as to test
new target areas to the south and south-west. Core recoveries in excess of 95%
were achieved in the majority of holes drilled. Split core samples were sent
to Lakefield Research in Ontario, Canada, for on-going metallurgical testing,
and whole-core geotechnical testing has been carried out in respect of rock
mechanics for mine planning purposes.
Planning and execution of the drilling campaign was closely linked to
previous metallurgical test work. The principal focus was to target titanium
resources which would yield a high grade TiO2 concentrate from conventional
flotation. After an extensive evaluation of historic data, our contract
geologists devised and are now utilizing an ore ranking system, MR1 ("Mine
Rank 1") through to MR4, with ranks MR1 and MR2 producing the best, and most
commercially acceptable chemical product specifications. Data from the latest
drilling campaign was input into a geological model and this model, together
with ongoing technical work, will be integrated into a resource model.
Titanium mineralization starts at surface and extends over long intercepts
with both attributes offering the potential for low mining costs. We believe
we have good results in the central portion of the main zone of Cerro Blanco,
as well as significant potential for further resource development to the south
and south-west areas of the property.
During 2007, the Company's geological team undertook and extensive
geochemical sampling program at the Eli prospect. Working on a 25 by 25 meter
grid, the team took nearly 700 samples of outcrop material over an area of 1100
meters by 900 meters. These were sent for chemical assay, and good surface
expression was noted throughout. Samples showed good mineralization with TiO2
grades in the range 1.0% to 3.0%; two samples from high grade vein material
reported results in excess of 21% TiO2 and 25% TiO2 respectively. As a result,
in early 2008, the Company has built a 12 kilometer, 5 meter wide access road
to and around the Eli prospect. Subject to the availability of funds, a
diamond drill program is planned at Eli to gain more information about the
mineralization, and assess the resource potential for future geological and
metallurgical testwork.
We are expecting to receive, in the near future, the results of our
pre-feasibility study from AMEC-Cade, an internationally recognized engineering
contractor. Based on preliminary discussions, we expect the results of the
study to support our internal assessments of the project.
A considerable body of engineering design and process engineering work has
already been completed, both by us and previous owners, for the development of
a large open pit mine and milling operation. The extent to which this
engineering work could be incorporated into a final feasibility study will
depend on factors such as optimal plant sizing and configuration based on
product volumes and specifications set out in off-take contracts and process
design, the latter to be determined by refinements coming out of this year's
planned metallurgical test work and pilot scale testing. With off-take
contracts in hand, we would undertake a program of drilling to provide data for
mine planning and design, for an environmental impact assessment and permitting
program, and to commission a feasibility study. As some of these activities
would be undertaken in tandem, we believe a feasibility study could be
completed within twelve to fourteen months of us receiving off-take contracts,
subject to the availability of funds, personnel and equipment. We estimate the
cost to take the project to the point of commissioning a final engineering
feasibility study at approximately $3,408,000. This figure includes a 20 per
cent contingency but excludes general and administrative expenses. As of
December 31, 2007, our cash position was $2,678,652. We currently do not have
sufficient capital to complete this plan and estimate that we will require
additional financing to do so. Our business plan remains to explore solely for
titanium deposits or reserves on the Cerro Blanco mining concessions. If this
exploration program is unsuccessful, we will be unable to continue operations.
Also, as an exploration stage company, our work is highly speculative and
involves unique and greater risks than are generally associated with other
businesses. We cannot know if our mining concessions contain commercially
viable ore bodies or reserves until additional exploration work is done and an
evaluation based on such work concludes that development of and production from
the ore body is technically, economically, and legally feasible.
12
If we proceed to development of a mining operation, our mining activities
could be subject to substantial operating risks and hazards, including
environmental hazards, industrial accidents, labor disputes, encountering
unusual or unexpected geologic formations or other geological or grade
problems, encountering unanticipated ground or water conditions, pit-wall
failures, flooding, rock falls, periodic interruptions due to inclement weather
conditions or other unfavorable operating conditions and other acts of God.
Some of these risks and hazards are not insurable or may be subject to
exclusion or limitation in any coverage which we obtain or may not be insured
due to economic considerations.
Glossary of Terms
Certain terms used in this section are defined in the following glossary:
ALKALIC DIORITE-GABBRO-PYROXENITE INTRUSIVE: a potassium and sodium rich,
coarse grained and possibly dark colored igneous rock with associated
magnesium and iron that consolidated from magma beneath the earth's
surface.
DEVELOPMENT: work carried out for the purpose of opening up a mineral
deposit and making the actual extraction possible.
DISSEMINATED: fine particles of mineral dispensed through the enclosing
rock.
EXPLOITATION MINING CONCESSIONS: licensed claims where the holder has the
right to permit, develop, and operate a mine.
EXPLORATION: work involved in searching for ore by geological mapping,
geochemistry, geophysics, drilling and other methods.
EXPLORATION MINING CONCESSIONS: licensed claims where the holder has the
right to explore.
GRADE: mineral or metal content per unit of rock or concentrate or
expression of relative quality e.g. high or low grade.
INTRUSIVE: a volume of igneous rock that was injected, while still molten,
and crystallized within the earth's crust.
MINERALIZATION: the concentration of metals and their compounds in rocks,
and the processes involved therein.
MORPHOLOGY: the observation of the form of lands.
ORE: material that can be economically mined from an ore body and
processed.
PORPHYRY DEPOSITS: deposits hosted in igneous rocks characterized by large
crystals of alkali feldspar set in a finer groundmass with the resulting
texture called porphyritic. In a commercial sense, the term is applied
to deposits characterized by large size (particularly with respect to the
horizontal dimension) and a uniform dissemination of the mineral or metal.
RECLAMATION: the restoration of a site after exploration activity or
mining is completed.
RUTILE: a mineral, titanium dioxide (TiO2), trimorpheus with anatase and
brookite.
TiO2: Titanium dioxide. The form of titanium found in the mineral
rutile.
TITANIUM: a widely distributed dark grey metallic element, (Ti), found in
small quantities in many minerals. The mineral ilmenite, (FeTiO3), is
currently the principal feedstock for the production of titanium dioxide
(TiO2) powder and titanium metal.
13
Metric Conversion Table
For ease of reference, the following conversion factors are provided:
Metric Share U.S. Measure U.S. Measure Metric Share
------------ ------------ ------------ ------------
1 hectare.......2.471 acres 1 acre..........0.4047 hectares
1 meter.........3.2881 feet 1 foot..........0.3048 meters
1 kilometer.....0.621 miles 1 mile..........1.609 kilometers
1 tonne.........1.102 short tons 1 short ton.....0.907 tonnes
ITEM 3. LEGAL PROCEEDINGS
We received a Cease Trade Order in British Columbia (the "Order") from the
British Columbia Securities Commission (the "BCSC") dated January 16, 2008. As
White Mountain is not a reporting issuer in Canada and its shares do not trade
on any Canadian exchange, we instructed the Company's Canadian legal counsel to
contact the BCSC to discuss the Order and prepare an appropriate response. We
understand from counsel that the basis of the Order is that on May 22, 2007, the
Company announced an internally prepared mineral resource estimate on its Cerro
Blanco titanium project (the "Project") in Chile without filing a technical
report in compliance with Canadian Securities Administrator's National
Instrument 43-101 ("NI 43-101") within 45 days of the announcement. NI 43-101
applies to issuers with a significant connection to Canada and requires
disclosure with regard to resources to be supported by a technical report
prepared in a prescribed manner. We understand that the BCSC maintains that
the filing of a NI 43-101 report is required regardless of reporting issuer
status within British Columbia.
To provide investors with an independent resource estimate and in
deference to proposed new provincial legislation, BC Instrument 51-509, which
if enacted would require OTCBB listed issuers with a significant connection to
British Columbia to file with the BCSC as if they were fully reporting in the
province, the Company engaged the independent, qualified person who authored a
previous NI 43-101 report on the Project in 2005 to prepare an update of the
report including his own estimate of current resources. This report was filed
with the BCSC on February 29, 2007. We anticipate that the Order will be
rescinded in the near future.
From time to time, we may become involved in various lawsuits and legal
proceedings, which arise in the ordinary course of business. However,
litigation is subject to inherent uncertainties, and an adverse result in these
or other matters may arise from time to time that may harm our business. We
are currently not aware of any such legal proceedings or claims that we believe
will have, individually or in the aggregate, a material adverse affect on our
business, financial condition or operating results.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders of the Company during
the fourth quarter of the fiscal year ended December 31, 2007.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is quoted on the OTC Bulletin Board and on the Pink
Sheets under the symbol "WMTM." The table below sets forth for the periods
indicated the range of the high and low bid information as reported by a
brokerage firm and/or as reported on the Internet. These quotations reflect
inter-dealer prices, without retail mark-up, mark-down, or commission and may
not necessarily represent actual transactions.
Quarter High Low
------- ---- ---
FISCAL YEAR ENDED
DECEMBER 31, 2006 First $1.10 $0.70
Second $0.90 $0.63
Third $0.84 $0.58
Fourth $1.01 $0.31
14
FISCAL YEAR ENDED
DECEMBER 31, 2007 First $0.70 $0.41
Second $0.61 $0.49
Third $0.66 $0.40
Fourth $1.45 $0.51
Holders
At March 18, 2008, we had approximately 100 holders of our common stock.
The number of record holders was determined from the records of our transfer
agent and does not include beneficial owners of common stock whose shares are
held in the names of various security brokers, dealers, and registered clearing
agencies. We have appointed Interwest Transfer Company, Inc., 1981 East 4800
South, Suite 100, Salt Lake City, UT 84117, to act as the transfer agent of our
common stock.
Dividends
We have never declared or paid any cash dividends on our common stock. We
do not anticipate paying any cash dividends to stockholders in the foreseeable
future. In addition, 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 such
other factors as the Board of Directors deem relevant
We currently have outstanding a class of preferred stock designated as
Series A Convertible Preferred Stock. The holders of these preferred shares
are entitled to any dividends paid and distributions made to the holders of our
common stock to the same extent as if these holders of preferred shares had
converted the preferred shares into common stock and had held such shares of
common stock on the record date for the particular dividends and distributions.
Securities Authorized for Issuance under Equity Compensation Plans
See "Item 12 - Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters" regarding information about our
equity compensation plans.
Purchases of Equity Securities
We have no equity securities registered pursuant to Section 12 of the
Exchange Act.
ITEM 6. SELECTED FINANCIAL DATA
As a smaller reporting company, we have elected not to provide the
disclosure required by this item.
ITEM 7. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
During the year, after discussions with our auditors, we reevaluated our
accounting for certain items to ensure that we were fully compliant with
generally accepted accounting policies for a company at our stage of
development. For example, in accordance with EITF 04-2, it was determined that
it would be appropriate to capitalize the acquisition costs of our property due
to the advances made during the year, where these costs had been expensed in
previous years. Accordingly, balance sheet for 2006 saw an increase in assets
of $650,000 and the reported deficit decreased by the same amount. Similarly,
it was determined that stock based compensation for the previous years should
be allocated to the underlying expense category where the expense for the
individual concerned was recorded. Accordingly, consulting fees, directors and
officers consulting fees, and management fees are restated for 2006 in the
discussion below. The aggregate loss for 2006 is unchanged.
We recorded a loss for the year ended December 31, 2007, of $3,921,817
($0.19 per weighted average common share outstanding) compared to a loss of
$2,184,843 ($0.10 per weighted average common share outstanding) for 2006.
This 79% increase in loss in the current year is attributable primarily to
increased stock based compensation, both through the issuance of stock options
and through stock issuances. During the year, we caused our compensation
committee to review the compensation structure of the company as a whole, and
determined that we significantly lagged the market in all areas, and have done
so historically. Given the critical stage of the company's development, we
considered that it would be detrimental to the company and its
15
shareholders to loose any of our management or consultants to competitors.
Accordingly we issued stock options and shares where we were not able to issue
stock options, as an alternative to significantly increasing cash compensation.
We refer the reader to note 7 b) and d) of the financials for the details of
stock based compensation and the restatement noted above.
The principal expenses were:
* Consulting fees of $928,532 (2006 - $115,955) due to approximately
$788,500 ($2006 - $24,200) of stock based compensation to external
consultants and geological staff, as well as increased fees for
marketing and metallurgical consulting with the addition of external
consultants in those areas;
* Consulting fees - directors and officers of $1,231,327 (2006 -
$218,183) due to $1,001,700 (2006 - $35,700) of stock based
compensation due to options and share issuances;
* Exploration of $571,090 (2006 - $1.041,629) as we scaled back
exploration in the first half of the year due to available funds, and
subsequently emphasized consolidating the results obtained to date,
commencing our engineering studies, and the acquisition of land where
we located additional prospects as opposed to additional drilling;
* Investor relations had a credit of $7,708 (2006 - $32,838) as we
received a refund of $10,470 of fees paid in 2006;
* Licenses, taxes and filing fees of $37,797 (2006 - $112,543) due to
reduced regulatory filings and reduced fees in Chile;
* Management fees of $595,350 (2006 - $96,000) due to stock based
compensation of $492,750 (2006 - $nil); and
* Professional fees of $191,331 (2006 - $319,396) due to reduced
regulatory filings and significantly reduced legal fees in Chile.
With respect to income:
* We did not record a gain of the sale of marketable securities in
2007 as we did not hold any securities; however we had a gain of
$69,064 in 2006;
* We recorded $88,485 of interest income (2006 - $146,503) due to lower
cash balances for part of 2007; and
* We recorded a nominal $9,418 of foreign exchange gain in 2007 as
opposed to an expense of $29,445 due to fluctuations in the US
dollar.
Liquidity and Cash Flow
As of December 31, 2007 we had working capital of $2,700,895 (2006 -
$2,002,590) including $2,678,652 (2006 -$2,049,315) of cash and cash
equivalents. As of March 15,2008 our cash position is approximately
$2,288,950.
We have prepared a 2008 combined operating budget which incorporates
general corporate and administrative expenses as well as a base case of Chilean
operations plus road construction, engineering studies, and drilling. We
anticipate that expenditures, net of interest income will be such that we have
sufficient funds for up to two years of operations, excluding 2008 drilling
expenditures. The diversion of funds from general purposes to engineering and
marketing will, however, reduce the period during which we can cover
expenditures.
We anticipate 2008 expenditures on the engineering and marketing plans to
be as follows:
Minimum Maximum
----------- -----------
Pre-feasibility study $ 120,000 $ 120,000
Pilot plant program 500,000 600,000
Marketing 50,000 60,000
Drilling of additional targets including
the Eli claims and roadwork 1,120,000 1,120,000
Additional claim holding costs 40,000 60,000
Environmental compliance 100,000 200,000
Final feasibility study 400,000 400,000
Contingency 160,000 210,000
--------- ---------
Total $2,490,000 $2,770,000
========= =========
16
We have been actively sourcing additional funds to meet or exceed the
anticipated expenditures above. We believe that the prospects are such that we
will be able to raise sufficient funds; however there are a number of risk
factors which will influence our ability to do so, including the state of the
capital markets generally, and the market price of our common stock. With the
exception of funds on deposit, we have no other sources of committed funds,
except for outstanding warrants for which there are no commitment to exercise.
The most likely source of new funds would be an equity placement of common
shares.
We believe that a failure to raise funds in a timely manner would likely
delay the achievement of some of the milestones in the engineering and
marketing plans, and would delay any decision regarding the viability of
operations while likely increasing future costs.
The July 2005 funding agreement with Rubicon contained certain
anti-dilution provisions, such that any subsequent funds raised below $1.25 per
share may trigger provisions which require the issuance of additional shares or
re-pricing of warrants held by Rubicon. This may influence our decision as to
the suitability of any future financing.
Off-Balance Sheet Arrangements
During the year ended December 31, 2007, the Company did not have any
off-balance sheet arrangements.
Critical Accounting Estimates
In July 2005, we entered into an agreement with Rubicon to provide
$5,000,000 in equity funding. In September 2005, we amended the agreement to
add Phelps Dodge to the agreement and to satisfy a $500,000 final payment on
our Cerro Blanco rutile property. The agreement with these parties provides
for liquidated damages if we did not meet certain requirements, including the
filing and effectiveness of a registration statement, and the filing of a
prospectus in Canada. We were required under the agreement to obtain
effectiveness of the registration statement and the filing of the prospectus in
Canada by January 31, 2006, which deadline was not met. In May 2006 the
Company amended the Securities Purchase Agreement and issued 400,000 shares to
Rubicon and 40,000 shares to Phelps Dodge in consideration for extending the
registration period to September 30, 2006, and eliminating the Canadian filing
requirement. These 440,000 shares may not have been eligible for an exemption
from registration under the Securities Act of 1933. In the absence of such an
exemption, these parties could bring suit against the Company to rescind the
purchase of the 440,000 shares, in which event the Company could be liable for
rescission payments to these persons. Rubicon subsequently agreed not to
require registration of the 400,000 shares issued to it. A similar agreement
is being sought from Phelps Dodge, but has not yet been received. If the
Company were to rescind the sale of the shares to Phelps Dodge, it would be
liable for liquidated damages since January 30, 2006, equal to $5,000 per month
for failure to meet the registration deadlines in the Securities Purchase
Agreement. The Company believes that because of the relative amount of the
liquidated damages collectable by Phelps Dodge, the likelihood of exercising a
right of rescission and the attendant potential aggregate liability is not
probable. As of June 30, 2006, the Company recorded the $330,000 as shares
issued for settlement of this amount and believes no additional accruals are
required.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we have elected not to provide the
disclosure required by this item.
17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
WHITE MOUNTAIN TITANIUM CORPORATION
(An Exploration Stage Company)
Consolidated Financial Statements
December 31, 2007, 2006 and 2005
(US Funds)
Index Page
- ----- ----
Report of Independent Registered Public Accounting Firm 19
Consolidated Financial Statements
Consolidated Balance Sheets 20
Consolidated Statements of Operations 21
Consolidated Statements of Cash Flows 22
Consolidated Statements of Stockholders' Equity (Deficit) 23 - 24
Notes to Consolidated Financial Statements 25 - 41
18
Smythe Ratcliffe
Chartered Accountants
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE DIRECTORS AND STOCKHOLDERS OF
WHITE MOUNTAIN TITANIUM CORP.
(An Exploration Stage Company)
We have audited the consolidated balance sheets of White Mountain Titanium
Corporation (An Exploration Stage Company) as of December 31, 2007 and 2006, and
the related statements of operations, stockholders' equity (deficit) and cash
flows for the years ended December 31, 2007, 2006 and 2005, and the cumulative
period from inception (November 13, 2001) through December 31, 2007. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States of America). 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 financial position of the Company as at December 31,
2007 and 2006 and the results of its operations and its cash flows for the
years ended December 31, 2007, 2006 and 2005, and for the cumulative period from
inception (November 13, 2001) through December 31, 2007, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going-concern. As discussed in Note 2 to the
financial statements, the Company has no revenues and limited capital, which
together raise substantial doubt about its ability to continue as a
going-concern. Management plans in regard to these matters are also described
in Note 2. These financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
As discussed in Note 3 to the financial statements, the Company changed its
method of accounting for acquisition costs of mineral properties.
(signed) "Smythe Ratcliffe, LLP"
Chartered Accountants
Vancouver, Canada
March 27, 2008
19
WHITE MOUNTAIN TITANIUM CORPORATION
(An Exploration Stage Company)
Consolidated Balance Sheets
(US Funds)
December 31,
2007 2006
------------- -------------
(restated Note 3)
Assets
Current
Cash and cash equivalents $ 2,678,652 $ 2,049,315
Prepaid expenses 51,687 34,059
Receivables 39,953 28,787
------------ ------------
Total Current Assets 2,770,292 2,112,161
Property and Equipment (Note 5) 58,466 56,671
Mineral Properties (Note 6) 651,950 650,000
------------ ------------
Total Assets $ 3,480,708 $ 2,818,832
============ ============
Liabilities
Current
Accounts payable and accrued liabilities $ 69,397 $ 109,571
------------ ------------
Total Current Liabilities and Total Liabilities 69,397 109,571
Stockholders' Equity
Preferred Stock and Paid-in Capital in Excess
of $0.001 Par Value (Note 7)
20,000,000 shares authorized
625,000 (2006 - 6,875,000) shares issued
and outstanding 500,000 5,500,000
Common Stock and Paid-in Capital in Excess
of $0.001 Par Value (Note 7)
100,000,000 shares authorized
29,189,133 (2006 - 16,269,133) shares issued
and outstanding 15,918,522 6,294,655
Deficit Accumulated During the Exploration Stage (13,007,211) (9,085,394)
------------ ------------
Total Stockholders' Equity 3,411,311 2,709,261
------------ ------------
Total Liabilities and Stockholders' Equity $ 3,480,708 $ 2,818,832
============ ============
20
See notes to consolidated financial statements.
WHITE MOUNTAIN TITANIUM CORPORATION
(An Exploration Stage Company)
Consolidated Statements of Operations
(US Funds)
Cumulative Period
From Inception
(November 13,
2001) through
Years Ended December 31, December 31,
2007 2006 2005 2007
------------ ------------ ------------ ------------
Expenses
Advertising and promotion $ 65,757 $ 42,738 $ 4,522 $ 142,794
Amortization 22,824 17,540 12,866 55,814
Bank charges and interest 5,754 4,296 3,656 17,106
Consulting fees (Note 7(d)) 928,532 115,955 192,774 1,755,777
Consulting fees - directors and officers
(Note 7(d)) 1,231,327 218,183 399,360 2,522,904
Exploration (Note 6) 571,090 1,041,629 475,649 2,596,957
Filing fees 250 27,463 4,718 45,297
Insurance 44,711 58,693 24,609 128,013
Investor relations (7,708) 32,838 29,693 68,989
Licenses, taxes and filing fees 37,797 112,543 52,603 279,365
Management fees (Note 7(d)) 595,350 96,000 565,840 1,257,190
Office 30,086 26,089 40,844 108,627
Professional fees 191,331 319,396 383,644 1,125,017
Rent 86,827 65,498 22,038 215,748
Telephone 28,266 13,490 4,778 51,526
Transfer agent fees 950 4,155 1,734 8,869
Travel and vehicle 189,182 176,450 177,196 704,105
----------- ----------- ----------- -----------
Loss Before Other Items (4,022,326) (2,372,956) (2,396,524) (11,084,098)
Gain on Sale of Marketable Securities - 69,064 18,153 87,217
Adjustment to Market for Marketable
Securities - - (11,610) (67,922)
Foreign Exchange 9,418 (29,445) 4,697 (21,218)
Interest Income 88,485 146,503 72,330 307,318
Dividend Income 2,606 1,991 - 4,597
Financing Agreement Penalty (Note 7(a)) - - (330,000) (330,000)
----------- ----------- ----------- -----------
Net Loss for Year (3,921,817) (2,184,843) (2,642,954) (11,104,106)
Preferred stock dividends (Note 7(a)) - - (1,537,500) (1,537,500)
----------- ----------- ----------- -----------
Net Loss Available for Distribution $ (3,921,817) $ (2,184,843) $ (4,180,454) $(12,641,606)
=========== =========== =========== ===========
Loss Per Share (Note 8) $ (0.19) $ (0.10) $ (0.19)
=========== =========== ===========
Weighted Average Number of Shares of
Common Stock Outstanding 19,713,626 16,118,545 15,624,575
=========== =========== ===========
21
See notes to consolidated financial statements.
WHITE MOUNTAIN TITANIUM CORPORATION
(An Exploration Stage Company)
Consolidated Statements of Cash Flows
(US Funds)
Cumulative Period
From Inception
(November 13,
2001) through
Years Ended December 31, December 31,
2007 2006 2005 2007
------------ ------------ ------------ ------------
Operating Activities
Net loss for year $ (3,921,817) $ (2,184,843) $ (2,642,954) $(11,104,103)
Items not involving cash
Amortization 22,824 17,540 12,866 55,814
Stock-based compensation (Note 7(d)) 718,184 59,896 688,920 2,118,750
Common stock issued for services 1,565,000 - 115,200 1,957,630
Financing agreement penalty (Note 7(a)) - - 330,000 330,000
Adjustment to market on marketable
securities - - 11,610 67,922
Gain on sale of marketable securities - (69,064) (18,153) (87,217)
Non-cash resource property expenditures - - - 600,000
Changes in Non-Cash Working Capital
Receivables (11,166) (16,676) (9,920) (39,953)
Marketable securities - 75,884 37,414 19,295
Accounts payable and accrued liabilities (40,174) 73,793 3,757 69,397
Loan payable - - - -
Prepaid expenses (17,629) (8,737) 3,755 (51,687)
----------- ------------ ----------- -----------
Cash Used in Operating Activities (1,684,778) (2,052,207) (1,467,505) (6,064,152)
----------- ------------ ----------- -----------
Investing Activities
Addition to property and equipment (24,619) (14,890) (55,675) (114,280)
Addition to mineral property (1,950) - - (651,950)
----------- ------------ ----------- -----------
Cash Used in Investing Activities (26,569) (14,890) (55,675) (766,230)
----------- ------------ ----------- -----------
Financing Activities
Repayment of long-term debt - - - (100,000)
Issuance of preferred stock - - 5,000,000 5,000,000
Issuance of common stock 2,340,684 - 339,000 4,377,863
Stock subscriptions received - - - 120,000
Stock subscriptions receivable - - - 111,000
Working capital acquired on acquisition - - - 171
----------- ------------ ----------- -----------
Cash Provided by Financing Activities 2,340,684 - 5,339,000 9,509,034
----------- ------------ ----------- -----------
Inflow (Outflow) of Cash and Cash Equivalents 629,337 (2,067,097) 3,815,820 2,678,652
Cash and Cash Equivalents,
Beginning of Year 2,049,315 4,116,412 300,592 -
----------- ------------ ----------- -----------
Cash and Cash Equivalents, End of Year $ 2,678,652 $ 2,049,315 $ 4,116,412 $ 2,678,652
=========== ============ =========== ===========
Supplemental Cash Flow Information
Income tax paid $ - $ - $ - $ -
Interest paid $ - $ - $ - $ -
Shares Issued for
Settlement of debt $ - $ 330,000 $ 500,000 $ 830,000
Services $ 1,565,000 $ - $ 115,200 $ 1,957,630
22
See notes to consolidated financial statements.
WHITE MOUNTAIN TITANIUM CORPORATION
(An Exploration Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
(US Funds)
Common Preferred
Stock Stock
and Paid-in and Paid-in Total
Capital in Shares of Capital in Sub- Sub- Accumu- Stockholders'
Excess of Preferred Excess of scriptions scriptions lated Equity
Shares Par value Stock Par Value Receivable Received Deficit (Deficit)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<s>
Balance, December 31, 2002 and
inception (November 13, 2001) - $ - - $ - $ - $ - $ - $ -
Shares issued for cash
Private placements 4,040,000 404,000 - - (111,000) - - 293,000
Shares issued for services 7,211,000 72,110 - - - - - 72,110
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, prior to acquisition 11,251,000 476,110 - - (111,000) - - 365,110
Shares of accounting subsidiary
acquired on reverse takeover 1,550,000 28,368 - - - - - 28,368
Adjustment to eliminate capital
of accounting subsidiary on
reverse takeover - (28,368) - - - - - (28,368)
Adjustment to increase capital
of accounting parent on reverse
takeover - 365,779 - - - - - 365,779
Excess of purchase price over
net assets acquired on
recapitalization - - - - - - (365,607) (365,607)
Net loss for year - - - - - - (830,981) (830,981)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 2003 12,801,000 841,889 - - (111,000) - (1,196,588) (465,699)
Shares issued for cash
Private placement 2,358,633 1,405,180 - - - - - 1,405,180
Share subscriptions
received - - - - - 120,000 - 120,000
Shares issued for services 128,500 205,320 - - - - - 205,320
Receipt of subscriptions
receivable - - - - 111,000 - - 111,000
Stock-based compensation - 651,750 - - - - - 651,750
Net loss for year - - - - - - (1,523,509) (1,523,509)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 2004 15,288,133 $ 3,104,139 - $ - $ - $ 120,000 $(2,720,097)$ 504,042
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
23
See notes to consolidated financial statements.
WHITE MOUNTAIN TITANIUM CORPORATION
(An Exploration Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
(US Funds)
Common Preferred
Stock Stock
and Paid-in and Paid-in Total
Capital in Shares of Capital in Sub- Sub- Accumu- Stockholders'
Excess of Preferred Excess of scriptions scriptions lated Equity
Shares Par value Stock Par Value Receivable Received Deficit (Deficit)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 2004 15,288,133 $ 3,104,139 - $ - $ - $ 120,000 $(2,720,097)$ 504,042
Preferred stock issued for cash
Private placement - - 6,250,000 5,000,000 - - - 5,000,000
Preferred stock issued for debt - - 625,000 500,000 - - - 500,000
Shares issued for cash
Private placement 459,000 459,000 - - - (120,000) - 339,000
Shares issued for services 82,000 115,200 - - - - - 115,200
Stock-based compensation - 688,920 - - - - - 688,920
Beneficial conversion feature - 1,537,500 - - - - (1,537,500) -
Net loss for year - - - - - - (2,642,954) (2,642,954)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 2005 15,829,133 5,904,759 6,875,000 5,500,000 - - (6,900,551) 4,504,208
Shares issued for financial
agreement (Note 11) 440,000 330,000 - - - - - 330,000
Stock-based compensation - 59,896 - - - - - 59,896
Net loss for year - - - - - - (2,184,843) (2,184,843)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 2006 16,269,133 6,294,655 6,875,000 5,500,000 - - (9,085,394) 2,709,261
Stock-based compensation - 718,184 - - - - - 718,184
Shares issued for cash
Private placement 5,070,000 2,340,683 - - - - - 2,340,683
Shares issued for services 1,600,000 1,565,000 - - - - - 1,565,000
Shares issued for conversion
of preferred stock 6,250,000 5,000,000 (6,250,000) (5,000,000) - - - -
Net loss for the year - - - - - - (3,921,817) (3,921,817)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 2007 29,189,133 $15,918,522 625,000 $ 500,000 $ - $ - $(13,007,211)$ 3,411,311
========== ========== ========== ========== ========== ========== ========== ==========
24
See notes to consolidated financial statements.
WHITE MOUNTAIN TITANIUM CORPORATION
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Years Ended December 31, 2007 and 2006
(US Funds)
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
White Mountain Titanium Corporation (the "Company") currently has no ongoing
operations. Its principal business is to advance exploration and development
activities on the Cerro Blanco rutile (titanium dioxide) property ("Cerro
Blanco") located in Region III of northern Chile. The Company is considered an
exploration stage company and its financial statements are presented in a
manner similar to a development stage company as defined in Statement of
Financial Accounting Standards ("SFAS") No. 7.
2. GOING-CONCERN
These consolidated financial statements have been prepared by management on the
basis of generally accepted accounting principles applicable to a
"going-concern," which assumes the Company will continue in operation for the
foreseeable future and will be able to realize its assets and discharge its
liabilities in the normal course of operations.
The Company has an accumulated deficit of $13,007,211 (2006 - $9,085,394), has
not yet commenced revenue-producing operations, and has significant expenditure
requirements to continue to advance its exploration and development activities
on the Cerro Blanco property.
These consolidated financial statements do not reflect adjustments that would
be necessary if the going-concern assumption were not appropriate because
management believes that the actions already taken or planned will mitigate the
adverse conditions and events that raise doubts about the validity of the
going-concern assumption used in preparing these consolidated financial
statements. Management intends to raise additional capital through stock
issuances to finance operations and invest in other business opportunities.
If the going-concern assumption were not appropriate for these consolidated
financial statements, then adjustments would be necessary to the carrying
values of the assets and liabilities, the reported revenues and expenses, and
the balance sheet classifications used.
3. RESTATEMENT
In accordance with EITF 04-2, the Company treats mineral properties as property
and equipment and, accordingly, property acquisition costs are capitalized.
Previously, the Company expensed mineral property acquisition costs.
Accordingly, certain expenditures from prior periods have been restated.
The effects on the financial statements resulting from the balance sheet
adaption of this standard are as follows:
2006
------------
Total assets, as previously stated $ 2,168,832
Acquisition cost capitalized 650,000
-----------
Total assets, as restated $ 2,818,832
===========
Deficit, as previously stated $ 9,735,394
Acquisition cost capitalized (650,000)
-----------
Deficit, as restated $ 9,085,394
===========
25
WHITE MOUNTAIN TITANIUM CORPORATION
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Years Ended December 31, 2007 and 2006
(US Funds)
4. SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of consolidation
These financial statements include the accounts of the Company and its
wholly-owned subsidiaries, Compania Minera Rutile Resources Limitada
("Rutile") (formerly Compania Minera Royal Silver Limitada), a Chilean
corporation; White Mountain Titanium Corporation, a Canadian corporation;
and White Mountain Titanium (Hong Kong) Limited, a Hong Kong corporation.
All significant intercompany balances and transactions have been
eliminated.
(b) Cash equivalents
The Company considers all highly liquid debt instruments that are readily
convertible to known amounts of cash and purchased with a maturity of
three months or less from the date acquired to be cash equivalents.
(c) Amortization
Amortization is provided using a straight-line method based on the
following estimated useful lives:
Vehicles - 5 years
Office furniture - 5 years
Office equipment - 5 years
Computer equipment - 5 years
Field equipment - 5 years
(d) Exploration expenditures
The Company is in the exploration stage of developing its mineral
properties and has not yet determined whether these properties contain ore
reserves that are economically recoverable.
Exploration costs incurred in locating areas of potential mineralization
are expensed as incurred. Mineral property acquisition costs are
capitalized. Commercial feasibility is established in compliance with
SEC Industry Guide 7, which consists of identifying that part of a mineral
deposit that could be economically and legally extracted or produced at the
time of the reserve determination. After an area of interest has been
assessed as commercially feasible, expenditures specific to the area of
interest for further development are capitalized. In deciding when an
area of interest is likely to be commercially feasible, management may
consider, among other factors, the results of prefeasibility studies,
detailed analysis of drilling results, the supply and cost of required
labor and equipment, and whether necessary mining and environmental permits
can be obtained.
26
WHITE MOUNTAIN TITANIUM CORPORATION
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Years Ended December 31, 2007 and 2006
(US Funds)
4. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(d) Exploration expenditures (Continued)
Mining projects and properties are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of these
assets may not be recoverable. If the estimated future cash flows
expected to result from the use of the mining project or property and its
eventual disposition are less than the carrying amount of the mining
project or property, an impairment is recognized based upon the estimated
fair value of the mining project or property. Fair value is generally
based on the present value of the estimated future net cash flows for each
mining project or property, calculated using estimated mineable reserves
and mineral resources based on engineering reports, projected rates of
production over the estimated life of the mine, recovery rates, capital
requirements, remediation costs and future prices considering the
Company's hedging and marketing plans.
(e) Asset retirement obligations
The Company recognizes a legal liability for obligations related to the
retirement of property, plant and equipment and obligations arising from
the acquisition, construction, development, or normal operations of those
assets. Such asset retirement costs must be recognized at fair value when
a reasonable estimate of fair value can be estimated in the period in
which the liability is incurred. A corresponding increase to the carrying
amount of the related asset, where one is identifiable, is recorded and
amortized over the life of the asset. Where a related future value is not
easily identifiable with a liability, the change in fair value over the
course of the year is expensed. The amount of the liability is subject to
re-measurement at each reporting period. The estimates are based
principally on legal and regulatory requirements.
It is possible that the Company's estimates of its ultimate reclamation
and closure liabilities could change as a result of changes in
regulations, changes in the extent of environmental remediation required,
changes in the means of reclamation, or changes in cost estimates.
Changes in estimates are accounted for prospectively commencing in the
period the estimate is revised.
Although the Company has begun drilling, a reasonable estimate cannot be
made at this time, therefore, no liability has been recorded.
(f) Income taxes
The Company uses the asset and liability approach in its method of
accounting for income taxes that requires the recognition of deferred tax
liabilities and assets for expected future tax consequences of temporary
differences between the carrying amounts and the tax basis of assets and
liabilities. A valuation allowance against deferred tax assets is
recorded if, based upon weighted available evidence, it is more likely
than not that some or all of the deferred tax assets will not be realized.
There is no federal income tax due as of December 31, 2007.
27
WHITE MOUNTAIN TITANIUM CORPORATION
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Years Ended December 31, 2007 and 2006
(US Funds)
4. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(g) Stock-based compensation
In December 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123R, "Share Based Payment." SFAS 123R is a revision of SFAS
No. 123, "Accounting for Stock-Based Compensation," and supersedes APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and its related
implementation guidance. SFAS 123R establishes standards for the
accounting for transactions in which an entity exchanges its equity
instruments for goods or services. It also addresses transactions in which
an entity incurs liabilities in exchange for goods or services that are
based on the fair value of the entity's equity instruments or that may be
settled by the issuance of those equity instruments. The Company has
elected to adopt SFAS No. 123R as at January 1, 2005, using the modified
prospective method. Common stock issued for services subsequent to
January 1, 2005, have been issued with a strike price equal to the fair
market value on the date of issuance. Stock-based compensation is
allocated to the expense category where the underlying expense is recorded.
(h) Loss per share
The Company accounts for loss per share in accordance with SFAS No. 128,
"Earnings Per Share," which requires the Company to present basic and
diluted earnings per share. The computation of loss per share is based on
the weighted average number of shares of common stock outstanding during
the year presented (see Note 8).
The Company uses the two-class method to calculate loss per share for
common stock as well as preferred stock at their conversion equivalent to
common stock.
Diluted loss per share has not been presented because the effects of all
common share equivalents were anti-dilutive.
28
WHITE MOUNTAIN TITANIUM CORPORATION
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Years Ended December 31, 2007 and 2006
(US Funds)
4. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(i) Financial instruments
The Company classifies its marketable securities into held-to-maturity,
trading or available-for-sale categories. Marketable securities that are
held principally for the purpose of selling them in the near term are
classified as trading securities and are reported at fair value, with
unrealized gains and losses recognized in operations. Marketable
securities not classified as held-to-maturity or as trading are classified
as available-for-sale and are carried at fair market value, with the
unrealized gains and losses, net of tax, included in the determination of
comprehensive income and reported in shareholders' equity.
The fair value of substantially all securities is determined by quoted
market prices. Gains and losses on securities sold are based on the
specific identification method.
(i) Credit risk
The Company's financial asset that is exposed to credit risk consists
primarily of cash and cash equivalents, which comprises a substantial
portion of the Company's assets. To manage the risk, cash and cash
equivalents are placed with major financial institutions.
(ii) Currency risk
The Company translates the results of non-US operations into US
currency using rates approximating the average exchange rate each
quarter. The exchange rate may vary from time to time. During the
year ended December 31, 2007, the Company spent $258,817,890 Chilean
pesos (US $497,801) on property exploration expenditures. Required
expenditures to continue the exploration process will be affected by
changes in foreign currency.
(j) Conversion of foreign currency
The functional and reporting currency of the Company and its subsidiaries
is the US dollar. The Company's Chilean operations are re-measured into
US dollars as follows:
* Monetary assets and liabilities, at year-end rates;
* All other assets and liabilities, at historical rates; and
* Revenue and expense items, at the average rate of exchange prevailing
during each quarter.
Exchange gains and losses arising from these transactions are reflected in
operations for the year.
29
WHITE MOUNTAIN TITANIUM CORPORATION
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Years Ended December 31, 2007 and 2006
(US Funds)
4. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(k) Use of estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect certain reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reported period. Accordingly,
actual results could differ from those estimates and could impact the
future results of operations and cash flows.
Significant areas requiring the use of estimates relate to the rates for
amortization, determining the variables used in calculating the fair value
of stock-based compensation expense, valuation allowance for future income
tax assets and asset retirement obligations.
(l) Recently enacted accounting standards
(i) In September 2006, FASB issued SFAS No. 157, "Fair Value
Measurements." SFAS No. 157 provides guidance for using fair value
to measure assets and liabilities. It clarifies that for items that
are not actively traded, such as certain kinds of derivatives, fair
value should reflect the price in a transaction with a market
participant, including adjustment for risk, not just the company's
mark-to-model value. Statement No. 157 also requires expanded
disclosure of the effect on earnings for items measured using
unobservable data. Fair value refers to the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants in the market in
which the reporting entity transacts. Statement No. 157 is
effective for financial statements issued for fiscal years beginning
after November 15, 2007. There is no impact on the Company's
financial statements
(ii) In February 2007, the FASB issued SFAS 159, "Fair Value Option for
Financial Assets and Financial Liabilities." The fair value option
established by this statement permits all entities to choose to
measure eligible items at fair value at specified election dates.
Most of the provisions of this statement apply only to entities that
elect the fair value option. However, the amendment to FASB
Statement No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," applies to all entities with available-for-sale
and trading securities. This statement is effective as of the
beginning of an entity's first fiscal year that begins after
November 15, 2007. The Company expects that this new pronouncement
will have no impact on the Company's financial statements.
(iii) In December 2007, the FASB issued SFAS No. 141(R), "Business
Combinations" (SFAS 141(R)), which replaces SFAS 141. SFAF 141(R)
requires assets and liabilities acquired in a business combination,
contingent consideration, and certain acquired contingencies to be
measured at their fair values as of the date of acquisition. SFAS
141(R) also requires that acquisition-related costs and restructuring
costs be recognized separately from the business combination. SFAS
141(R) is effective for fiscal years beginning after December 15,
2008 and will be effective for business combinations entered into
after January 1, 2009. There is no impact on the Company's financial
statements.
30
WHITE MOUNTAIN TITANIUM CORPORATION
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Years Ended December 31, 2007 and 2006
(US Funds)
4. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(l) Recently enacted accounting standards (Continued)
(iv) In December 2007, the FASB issued SFAS No. 160, "Non-controlling
interests in Consolidated Financial Statements, an Amendment of ARB
No. 51" (SFAS 160). SFAS 160 clarifies the accounting for
non-controlling interests and establishes accounting and reporting
standards for the non-controlling interest in a subsidiary, including
classification as a component of equity. SFAS 160 is effective for
fiscal years beginning after December 15, 2008. The Company does not
currently have any minority interests.
(v) SFAS 154, "Accounting Changes and Error Corrections." This new
standard replaces APB Opinion No. 20, Accounting Changes, and FASB 3,
"Reporting Accounting Changes in Interim Financial Statements."
Statement 154 requires that a voluntary change in accounting
principle be applied retrospectively with all prior period financial
statements presented on the new accounting principle, unless it is
impracticable to do so. Statement 154 also provides that (1) a change
in method of depreciating or amortizing a long-lived non-financial
asset be accounted for as a change in estimate (prospectively) that
was effected by a change in accounting principle, and (2) correction
of errors in previously issued financial statements should be termed
a "restatement." The new standard is effective for accounting changes
and correction of errors made in fiscal years beginning after
December 15, 2005. Early adoption of this standard is permitted for
accounting changes and correction of errors made in fiscal years
beginning after June 1, 2005. There is no impact on the Company's
financial statements.
(vi) On July 13, 2006, the FASB issued Interpretation No. 48, "Accounting
for Uncertainty in Income Taxes - an interpretation of FASB Statement
No. 109." Interpretation 48 clarifies the accounting for uncertainty
in income taxes recognized in an entity's financial statements in
accordance with Statement 109 and prescribes a recognition threshold
and measurement attribute for financial statement disclosure of tax
positions taken or expected to be taken on a tax return.
Additionally, Interpretation 48 provides guidance on de-recognition,
classification, interest and penalties, accounting in interim
periods, disclosure and transition. Interpretation 48 is effective
for fiscal years beginning after December 15, 2006, with early
adoption permitted. There is no impact on the Company's financial
statements.
31
WHITE MOUNTAIN TITANIUM CORPORATION
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Years Ended December 31, 2007 and 2006
(US Funds)
5. PROPERTY AND EQUIPMENT
2007
--------------------------------------
Accumulated
Cost Amortization Net
---------- ------------ ----------
Vehicles $ 42,549 $ 10,226 $ 32,323
Office furniture 2,704 860 1,844
Office equipment 5,417 1,442 3,975
Computer equipment 7,553 2,121 5,432
Computer software 1,142 207 935
Field equipment 23,085 9,128 13,957
--------- --------- ---------
$ 82,450 $ 23,984 $ 58,466
========= ========= =========
2006
--------------------------------------
Accumulated
Cost Amortization Net
---------- ------------ ----------
Vehicles $ 38,738 $ 16,158 $ 22,580
Office furniture 5,927 1,439 4,488
Office equipment 4,422 1,027 3,395
Computer equipment 11,072 659 10,413
Field equipment 23,402 7,607 15,795
--------- --------- ---------
$ 83,561 $ 26,890 $ 56,671
========= ========= =========
32
WHITE MOUNTAIN TITANIUM CORPORATION
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Years Ended December 31, 2007 and 2006
(US Funds)
6. MINERAL PROPERTY AGREEMENTS
On September 5, 2003, the Company, through its wholly-owned Chilean subsidiary,
Rutile, entered into a purchase agreement with Compania Contractual Mineral
Ojos del Salado ("Ojos del Salado"), a wholly-owned Chilean subsidiary of
Phelps Dodge Corporation, to acquire a 100% interest in nine exploration mining
concessions totalling 1,183 hectares, collectively known as Cerro Blanco. Cerro
Blanco is located in Region III of northern Chile, approximately 39 kilometres,
or 24 miles, west of the city of Vallenar. Consideration for the purchase was
$650,000 comprised of staged payments as set out below:
(i) $50,000 within 30 days from execution of the agreement (paid);
(ii) $50,000 on March 4, 2004 (paid);
(iii) $50,000 on September 5, 2004 (paid); and
(iv) $500,000 on September 4, 2005 (paid).
The purchase agreement covering Cerro Blanco was originally entered into
between Ojos del Salado and Dorado Mineral Resources NL ("Dorado") on March 17,
2000. Under that agreement, Dorado purchased the mining exploitation
concessions from Ojos del Salado for US $1,000,000, of which US $350,000 was
paid. A first mortgage and prohibitions against entering into other contracts
regarding mining concessions without the prior written consent of Ojos del
Salado had also been established in favor of Ojos del Salado. On September 5,
2003, Rutile assumed Dorado's obligations under the purchase agreement,
including the mortgage and prohibitions, with payment terms as described above.
Ownership in mineral properties involves certain inherent risks due to the
difficulties of determining the validity of certain claims as well as the
potential for problems arising from the frequent, ambiguous conveyance history
characteristic of mineral properties. The Company has investigated ownership
of its mineral properties, and to the best of its knowledge, ownership of its
interests is in good standing.
Years Ended December 31,
2007 2006 2005
----------- ----------- -----------
Assaying $ 70,671 $ 75,741 $ 89,222
Concession fees 43,148 20,632 2,060
Drilling - 325,021 -
Environmental 10,792 - 47,098
Equipment rental 16,560 28,048 31,200
Geological consulting fees 260,811 368,218 265,286
Maps and miscellaneous 75,922 109,616 1,056
Metallurgy 5,766 5,441 -
Site costs 71,977 84,075 36,655
Transportation 15,443 24,837 3,072
---------- ---------- ----------
Exploration expenditures for year $ 571,090 $ 1,041,629 $ 475,649
========== ========== ==========
33
WHITE MOUNTAIN TITANIUM CORPORATION
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Years Ended December 31, 2007 and 2006
(US Funds)
7. CAPITAL STOCK
(a) Preferred stock
The Company's authorized preferred stock with a par value of $0.001 is
20,000,000 shares. Each share of preferred stock has such rights,
preferences and designations and will be issued in such series as
determined by the Board of Directors.
During the year ended December 31, 2005, the Company designated and issued
Series A Convertible Stock with a par value of US $0.001 per share. Each
share of preferred stock is convertible into one common share of common
stock at any time at the holder's option. The preferred stock is
unlisted, non-retractable and non-redeemable. The preferred stockholders
are entitled to the number of votes equal to the number of whole shares of
common stock into which they are convertible. The preferred stockholders
are further entitled to the same dividends and distributions as the common
stockholders.
Pursuant to the issuance of 6,875,000 shares of preferred stock in 2005,
the Company was required to reach certain milestones including filing a
registration statement relating to the common stock that would be issued
on conversion of the preferred stock into common stock. Failure to meet
these milestones would cause the Company to incur a penalty of 1% of the
purchase price of the securities for each month the Company failed to meet
the requirements. On May 5, 2006, the Company reached an agreement with
the preferred stockholders to settle damages incurred related to breaching
these milestones and deferred the period by when the registration must
become effective to September 30, 2006. To settle this penalty, the
Company agreed to issue 440,000 registered shares of common stock at a
price of $0.75 each representing the fair market value at the date of
settlement, for a total of $330,000. The Company treated the liquidating
damages of the above transaction as a separate instrument and estimated
its value at December 31, 2005, to be $330,000, being the Company's
estimate of the total penalty it would pay. During 2006, this liability
was settled through the issuance of common stock.
During the year ended December 31, 2007, the holder of 6,250,000 shares of
preferred stock elected to sell its position to new investors. The new
investors purchased and received shares of common stock that resulted from
the conversion of the preferred stock into 6,250,000 shares of common
stock. Accordingly, the value of those shares of preferred stock was
transferred to common share equity.
No additional preferred stock was issued during the year ended
December 31, 2007.
(b) Common stock
The Company's authorized common stock with a par value of $0.001 is
100,000,000 shares.
During the year ended December 31, 2006, the Company issued 440,000 shares
of common stock at a fair value of $330,000 in settlement of the penalty
described in Note 11.
34
WHITE MOUNTAIN TITANIUM CORPORATION
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Years Ended December 31, 2007 and 2006
(US Funds)
7. CAPITAL STOCK (Continued)
(b) Common stock (Continued)
During the year ended December 31, 2007, the Company:
(i) completed an offering of 5,070,000 units at a price of $0.50 per unit
for total gross proceeds of $2,535,000. Each unit consisted of one
share of common stock and one common stock purchase warrant
exercisable at $0.60 until August 10, 2010. Share issuance costs for
the private placement consist of cash payments of $194,317 and
issuance of 77,600 warrants at an exercise price of $0.60, to give
net proceeds of $2,340,683;
(ii) issued 700,000 shares of common stock to management, employees, and
consultants for past services at $0.50 per share of common stock, the
market value at the time of signing the agreement. These costs have
been expensed as management and consulting fees. An additional
700,000 warrants were issued exercisable on the same terms as in note
(i) above, and were recorded at fair value using the Black-Scholes
option pricing model;
(iii) issued 6,250,000 shares of common stock upon the conversion of
6,250,000 shares of preferred stock as described in Note 7(a); and
(iv) issued 900,000 shares of common stock to management, employees and
consultants for services at $1.35 each, the market value at the time
of signing the agreement. These costs have been expensed as
management and consulting fees.
(c) Stock options
During the year ended December 31, 2005, the Company adopted a formal
stock option plan that covers its employees, directors, officers and
consultants. Options granted under this plan are for five years and are
subject to a vesting schedule as determined by the board at the time of
grant.
During the year ended December 31, 2006, 350,000 stock options were
granted at an exercise price of $1.25 each. These options were partially
vested as at December 31, 2006.
During the year ended December 31, 2007, 1,325,000 stock options were
granted at an exercise price of $0.50. These options were fully vested as
at December 31, 2007. In addition, all partially vested stock options
previously granted fully vested during 2007 and terms of certain options
were extended as follows:
(i) 600,000 options were re-priced from an exercise price of $0.60 each
to $0.50 each and were extended from an expiry date of May 31, 2009,
to May 31, 2011
(ii) 400,000 options were re-priced from an exercise price of $1.00 each
to $0.50 each and were extended from an expiry date of January 31,
2008, to January 31, 2011;
(iii) 200,000 options were re-priced from an exercise price of $1.25 each
to $0.50 each and were extended from an expiry date of August 1, 2009,
to August 1, 2011; and
35
WHITE MOUNTAIN TITANIUM CORPORATION
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Years Ended December 31, 2007 and 2006
(US Funds)
7. CAPITAL STOCK (Continued)
(c) Stock options (Continued)
(iv) 350,000 options were re-priced from an exercise price of $1.25 each
to $0.50 each and were extended from an expiry date of August 31,
2009, to August 31, 2011.
Years Ended December 31,
2007 2006
--------------------- ---------------------
Weighted Weighted
Average Average
Number Exercise Number Exercise
of Shares Price of Shares Price
---------- -------- --------- --------
Outstanding - beginning of year 1,650,000 $ 0.50 1,300,000 $ 0.93
Granted 1,325,000 $ 0.50 350,000 $ 1.25
--------- ----- --------- -----
Outstanding - end of year 2,975,000 $ 0.50 1,650,000 $ 1.00
========= ===== ========= =====
Exercisable - end of year 2,975,000 $ 0.50 1,430,375 $ 1.00
========= ===== ========= =====
As at December 31, 2007 and 2006, the following director and consultant
stock options were outstanding:
Exercise Years Ended December 31,
Expiry Date Price 2007 2006
----------- -------- ---------- ----------
January 31, 2008 $ 1.00 - 400,000
May 31, 2009 $ 0.60 - 600,000
August 1, 2009 $ 2.00 100,000 100,000
August 1, 2009 $ 1.25 - 200,000
April 5, 2010 $ 0.50 250,000 -
January 31, 2011 $ 0.50 400,000 -
August 31, 2011 $ 1.25 - 350,000
May 31, 2011 $ 0.50 600,000 -
August 1, 2011 $ 0.50 200,000 -
August 31, 2011 $ 0.50 350,000 -
August 31, 2012 $ 0.50 1,075,000 -
---------- ----------
2,975,000 1,650,000
========== ==========
36
WHITE MOUNTAIN TITANIUM CORPORATION
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Years Ended December 31, 2007 and 2006
(US Funds)
7. CAPITAL STOCK (Continued)
(c) Stock options (Continued)
The shares under option at December 31, 2007, were in the following
exercise price ranges:
Options Outstanding and Exercisable
---------------------------------------------------
Weighted
Weighted Average
Average Number of Aggregate Remaining
Exercise Shares Intrinsic Contractual
Exercise Price Price Under Option Value Life in Years
-------------- -------- ------------ --------- -------------
$0.50 $ 0.50 2,875,000 $ 0.00 3.78
$2.00 $ 2.00 100,000 $ 0.00 1.59
---------
$ 0.55 2,975,000 $ 0.00 3.71
=========
(d) Stock-based compensation
During the year ended December 31, 2007, the total stock-based
compensation recognized under the fair value method for management and
consulting fees was $718,184 (2006 - $59,896; 2005 - $688,920) using the
Black-Scholes option pricing model (Note 4 (g)). Included in the above
total is stock-based compensation of $183,269 (2006 - $nil; 2005 - $nil)
incurred as a result of the issuance of warrants (see note 7(b)(ii)),
$455,290 (2006 - $59,896; 2005 - $688,920) incurred as a result of options
granted during the year and $79,625 (2006 - $nil; 2005 - $nil) incurred as
a result of re-pricing and of previously unvested issued stock options.
During 2007, stock-based compensation was reallocated in the statement of
operations to the underlying expense account and, accordingly, stock-based
compensation for prior periods have also been reallocated to conform to
this year's presentation.
Prior
2007 2006 2005 Periods
---------- ---------- ---------- ----------
Consulting fees -
directors and officers $ 359,227 $ 35,683 $ 171,360 $ 510,000
Consulting fees 248,507 24,213 - 141,750
Management fees 110,450 - 517,560 -
--------- --------- --------- ---------
Compensation - options $ 718,184 $ 59,896 $ 688,920 $ 651,750
========= ========= ========= =========
The following assumptions were used for the Black-Scholes option pricing
model valuation of stock options granted:
Years Ended December 31,
2007 2006 2005
-------- -------- --------
Expected life (years) 3 - 5 3 - 4 3 - 4
Interest rate 4.40% 3.98% 3.45%
Volatility 88.79% 83.83% 165.00%
Dividend yield 0.00% 0.00% 0.00%
37
WHITE MOUNTAIN TITANIUM CORPORATION
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Years Ended December 31, 2007 and 2006
(US Funds)
7. CAPITAL STOCK (Continued)
(e) Share purchase warrants
Details of stock purchase warrant activity is as follows:
Years Ended December 31,
2007 2006
Weighted Weighted
Average Average
Number Exercise Number Exercise
of Shares Price of Shares Price
--------- -------- --------- --------
Outstanding - beginning of year 7,175,000 $ 0.50 9,533,633 $ 1.32
Issued 5,847,600 $ 0.60 - $ 0.00
Expired - $ 0.00 (2,358,633) $ 1.50
---------- ---------
Outstanding and exercisable
- end of year 13,022,600 $ 0.54 7,175,000 $ 1.25
========== =========
During the year, 7,175,000 warrants had their exercise price reduced from $1.25
each to $0.50 each due to anti-dilution provisions, which were triggered by the
private placement at $0.50 per unit. See Notes 7(b) and (d).
As at December 31, 2007, the following share purchase warrants were
outstanding:
Years ended
Exercise December 31,
Expiry Date Price 2007 2006
- ----------- -------- ---------- ----------
July 11, 2009 $ 0.50 6,550,000 6,550,000
September 7, 2009 $ 0.50 625,000 625,000
August 10, 2010 $ 0.60 5,847,600 -
----------- ----------
13,022,600 7,175,000
=========== ==========
38
WHITE MOUNTAIN TITANIUM CORPORATION
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Years Ended December 31, 2007 and 2006
(US Funds)
8. LOSS PER SHARE
The following data shows the amounts used in computing loss per share for the
years presented:
Years Ended December 31,
2007 2006 2005
------------ ------------ ------------
Net loss for year $ (3,921,817) $ (2,184,843) $ (2,642,954)
Preferred stock dividends - - (1,537,500)
----------- ----------- -----------
Net loss available for distribution $ (3,921,817) $ (2,184,843) $ (4,180,454)
=========== =========== ===========
Allocation of undistributed loss
Preferred shares (2.10%;
2006 - 29.71%; 2005 - 30.28%) $ (82,214) $ (649,011) $ (1,265,876)
Common shares (97.90%;
2006 - 70.29%; 2005 - 69.72%) (3,839,603) (1,535,832) (2,914,578)
----------- ----------- -----------
$ (3,921,817) $ (2,184,843) $ (4,180,454)
=========== =========== ===========
Basic loss per share amounts
Distributed amounts
Preferred stock $ - $ - $ (0.22)
Common stock $ - $ - $ -
Undistributed amounts
Loss per preferred share $ (0.02) $ (0.09) $ (0.31)
Loss per common share $ (0.19) $ (0.10) $ (0.19)
Weighted average number of shares:
Years Ended December 31,
2007 2006 2005
---------- ---------- ----------
Share allocation for distributed amounts
Preferred stock (common stock equivalent) 625,000 6,875,000 6,875,000
Common stock 29,189,133 16,269,133 15,829,133
Weighted average number of shares for
undistributed amounts
Preferred stock (common stock equivalent) 5,299,658 6,875,000 4,034,675
Common stock 19,713,626 16,118,545 15,624,675
39
WHITE MOUNTAIN TITANIUM CORPORATION
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Years Ended December 31, 2007 and 2006
(US Funds)
9. INCOME TAXES
Income tax provisions are determined as follows:
2007 2006 2005
------------ ------------ ------------
Income tax benefit computed at
statutory tax rate $ (1,372,636) $ (764,695) $ (925,034)
Amortization 7,988 6,139 4,503
Stock-based-compensation 251,364 20,964 241,122
Unrecognized tax losses 1,113,284 737,592 679,409
----------- ----------- ------------
$ - $ - $ -
=========== =========== ============
Deferred income taxes reflect the tax effect of the temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes. The applicable tax rate to be
expected is 35%. The components of the net deferred income tax assets are
approximately as follows:
Years Ended December 31,
2007 2006 2005
------------ ------------ ------------
Deferred income tax assets
Net operating losses and credit
carry-forwards $ 2,502,178 $ 1,388,895 $ 1,168,850
----------- ----------- -----------
Deferred tax assets 2,502,178 1,388,895 1,168,850
Valuation allowance (2,502,178) (1,388,895) (1,168,850)
----------- ----------- -----------
$ - $ - $ -
=========== =========== ===========
The valuation allowance reflects the Company's estimate that the tax assets
more likely than not will not be realized.
The Company has estimated net operating losses that may be carried forward to
apply against future years' income for US tax purposes. These losses expire as
follows:
Available to Amount
------------ ----------
2018 $ 9,336
2019 10,270
2020 1,704
2021 4,574
2022 1,200
2023 22,201
2024 555,336
2025 1,101,371
2026 2,262,279
2027 3,180,809
----------
$ 7,149,080
==========
40
WHITE MOUNTAIN TITANIUM CORPORATION
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Years Ended December 31, 2007 and 2006
(US Funds)
10. RELATED PARTY TRANSACTIONS
2007 2006 2005
--------- --------- ---------
Advances for expenses outstanding
at year end $ - $ 10,000 $ 19,984
Consulting fees 434,993 308,576 229,879
Management fees 121,600 96,000 50,289
Rent 22,000 15,000 10,038
-------- -------- --------
$ 578,593 $ 429,576 $ 310,190
======== ======== ========
Advances are made to various related parties as required for corporate purposes
including travel.
Consulting fees include payments to the officers and directors of the Company
for services rendered, and include payments to the President, CFO, and VP
Investor Relations. Management fees and rent consist of fees paid to a company
partly controlled by the CEO of the Company.
Related party transactions are recorded at the exchange amount, which is the
amount agreed to between the parties.
11. LOSS CONTINGENCY
The Company's Securities Purchase Agreement with Rubicon and Phelps Dodge
required that a registration statement for the resale of the shares underlying
the preferred shares and warrants issued to them be effective by January 30,
2006, and that the Company file a prospectus in Canada. In May 2006, the
Company amended the Securities Purchase Agreement and issued 400,000 shares to
Rubicon and 40,000 shares to Phelps Dodge in consideration for extending the
registration period to September 30, 2006, and eliminating the Canadian filing
requirement. These 440,000 shares may not have been eligible for an exemption
from registration under the Securities Act of 1933. In the absence of such an
exemption, these parties could bring suit against the Company to rescind the
purchase of the 440,000 shares, in which event the Company could be liable for
rescission payments to these persons.
During the year ended December 31, 2006, Rubicon agreed not to require
registration of the 400,000 shares issued to it. A similar agreement is being
sought from Phelps Dodge, but has not yet been received.
If the Company were to rescind the sale of the shares to Phelps Dodge, it would
be liable for liquidated damages since January 30, 2006, equal to $5,000 per
month for failure to meet the registration deadlines in the Securities Purchase
Agreement. Through December 31, 2007, these damages could be as much as
$115,000, plus interest at the rate of 1.5% per month. The Company believes
that because of the relative amount of the liquidated damages collectable by
Phelps Dodge, the likelihood of exercising a right of rescission and the
attendant potential aggregate liability is not probable.
The Company recorded the $330,000 as shares issued for settlement of this
amount and believes no additional accruals are required.
41
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 9A(T). CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our principal executive officer, Michael P. Kurtanjek, and our principal
financial officer, Charles E. Jenkins, have concluded, based on their
evaluation, as of the end of the period covered by this report, that our
disclosure controls and procedures (as defined in Rule 15d-15(e) under the
Exchange Act) are (1) effective to ensure that material information required to
be disclosed by us in reports filed or submitted by us under the Exchange Act
is recorded, processed, summarized, and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission,
and (2) designed to ensure that material information required to be disclosed
by us in such reports is accumulated, organized and communicated to our
management, including our principal executive officer and principal financial
officer, as appropriated, to allow timely decisions regarding required
disclosure.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting to provide reasonable assurance
regarding the reliability of our financial reporting and the preparation of
financial statements for external purposes in accordance with generally
accepted accounting principles. Internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of
records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of the assets of our company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of our management and
directors; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of the
company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
Management assessed our internal control over financial reporting as of
December 31, 2007, the end of our fiscal year. Management based its assessment
on criteria established in Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Management's
assessment included evaluation of such elements as the design and operating
effectiveness of key financial reporting controls, process documentation,
accounting policies, and our overall control environment.
We believe the internal controls we have implemented are reasonable in the
circumstances given the size of the Company. Our principal weaknesses are
(i) a lack of segregation of duties due to the small size of the company; and
(ii) a reliance on key management personnel to perform such duties. We believe
our management is aware of the need for strong internal controls and actively
implements new controls when it is cost effective to do so.
Based on our assessment, management has concluded that our internal
control over financial reporting was effective, as of the end of the fiscal
year, for a company of our size, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external reporting purposes in accordance with generally accepted
accounting principles.
42
Changes in Internal Control over Financial Reporting
During the year ended December 31, 2007, after discussions with our
auditors, we reevaluated our accounting for certain items to ensure that we
were fully compliant with generally accepted accounting policies for a company
at our stage of development. For example, in accordance with EITF 04-2, it was
determined that it would be appropriate to capitalize the acquisition costs of
our property due to the advances made during the year, where these costs had
been expensed in previous years. Accordingly, balance sheet for 2006 saw an
increase in assets of $650,000 and the reported deficit decreased by the same
amount. Similarly, it was determined that stock based compensation for the
previous years should be allocated to the underlying expense category where the
expense for the individual concerned was recorded. Accordingly, consulting
fees, directors and officers consulting fees, and management fees are restated
for 2006 and 2005. The aggregate loss for these years is unchanged.
Other than the above, there were no changes in our internal control over
financial reporting (as defined in Rule 15d-15(f) under the Exchange Act) that
occurred during the year ended December 31, 2007, that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
ITEM 9B. OTHER INFORMATION
None
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table sets forth the name and ages of, and position or
positions held by, our executive officers and directors and the employment
background of these persons:
Director
Name Age Positions Since Employment Background
- ---- --- --------- ----- -------------------
Michael P. Kurtanjek Director 2004 Mr. Kurtanjek has served as our
56 President since February 2004. From
1988 to 1995, he was a mining equity
research analyst and institutional
salesman with James Capel & Co. and
Credit Lyonnais Lang and from 1995 to
2004, a director of Grosvenor Capital
Ltd., a private business consulting
firm.
Howard M. Crosby 55 Director 2004 Since 1989, Mr. Crosby has been
president of Crosby Enterprises,
Inc., a family-owned business
advisory and public relations firm.
From 1994 to June 2006 he was
president and a director of Cadence
Resources Corporation (now Aurora Oil
and Gas, Inc.), a publicly traded oil
and gas company. He has been the
President and a director of Gold
Crest Mines, Inc., a reporting
company engaged in mining activities,
since August 2006. He is also an
officer and director of High Plains
Uranium, Inc., Sundance Diamonds
Corporation, Dotson Exploration
Company, Nevada-Comstock Mining
Company (formerly Caledonia
Silver-Lead Mines Company), Platinum
Diversified Mining, Inc., and Tomco
Energy, all of which are privately
held companies.
43
Cesar Lopez 43 Director 2004 Mr. Lopez has been a partner of Lopez
& Ashton, a legal and consulting firm
primarily to mining companies, since
January 2002. From November 1995
until January 2002 he was
self-employed as independent legal
counsel to mining companies and other
clients operating in Chile.
Brian Flower 58 Director 2005 Mr. Flower has served as our Chairman
since September 8, 2006. He served
as our Chief Financial Officer from
February 2005 through September 8,
2006. From 1986 to 1993 he was a
mining equity research analyst and
investment banker with James Capel &
Co. and from 1993 to 1999, Chief
Financial Officer and Senior
Vice-President, Corporate Development
with Viceroy Resource Corporation.
Since January 2000, he has provided
management consulting and advisory
services through two partly owned
companies of which he is president,
Chapelle Capital Corp. and Trio
International Capital Corp. He is
also a director of Orsa Ventures
Corp., Aurcana Corporation, and
Pacific Wildcat Resources Corp.
Charles E. Jenkins 52 Director 2007 Mr. Jenkins has served as our CFO
since September 8, 2006. From
November 2005 through August 2006
Mr. Jenkins served as the
Vice-President of Finance for Conor
Pacific Canada, Inc., a private
merchant bank. From January 2005
until September 2005, he served as
Controller and Acting CFO for
Metamedia Capital Corp., a
magazine publishing company. From
May 2003 until December 2004
Mr. Jenkins was self-employed as a
consultant providing controller or
CFO duties for a number of private
companies. From September 2000 until
May 2003, Mr. Jenkins was employed as
a manager of special projects for
Canaccord Capital Corporation. Prior
to this, from August 1989 to August
2000 Mr. Jenkins was employed by two
brokerage houses in Vancouver and
Calgary in a corporate finance
capacity.
Audit and Compensation Committees
On July 29, 2005, our board created a standing audit committee composed of
the following directors: John P. Ryan, Stephanie Ashton, and Brian Flower;
Ms. Ashton and Mr. Ryan resigned as directors and ceased being members of the
committee in March 2007. Howard M. Crosby was appointed to the committee in
March 2007. The Board of Directors has determined that Mr. Flower is an audit
committee financial expert by virtue of his past experience which includes
acting as the chief financial officer, an accounting supervisor and an internal
auditor. Mr. Flower and Mr. Crosby, because of their consulting agreements
with us under which they received in excess of $60,000 last year, would not be
considered independent members of the audit committee.
44
Also on July 29, 2005, our board created a standing compensation
committee. Our compensation committee is composed of the following directors:
Howard M. Crosby and Michael Kurtanjek.
The board has adopted a policy to compensate non-executive directors who
are members of committees of the board. These persons will receive $1,000 plus
expenses for attendance in person at each committee meeting. They will receive
$500 for attendance at committee meetings by conference telephone. In
addition, each chairman of the committee will receive $1,000 per meeting they
chair.
Nominating Procedures
We do not have a standing nominating committee; recommendations for
candidates to stand for election as directors are made by the Board of
Directors. We have not adopted a policy which permits security holders to
recommend candidates for election as directors or a process for stockholders to
send communications to the Board of Directors.
Code of Ethics
On August 30, 2005, we adopted a Code of Ethics which applies to our
principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions, as well as to
other employees or contractors and anyone associated with our company.
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation Summary
The following table sets forth the compensation of the named executive officers
for each of the two fiscal years ended December 31, 2007 and 2006:
SUMMARY COMPENSATION TABLE
Stock Option All other
Name and Salary Awards Awards Compensation Total
Princiapl Position Year ($) ($) ($) ($) ($)
- ------------------ ---- ----------- -------- -------- ------------ --------
Michael P. Kurtanjek 2007 $123,500 $372,500 $58,907 $22,362(2) $577,269
President 2006 $114,000(1) - - $20,130(2) $134,130
Charles Jenkins 2007 $61,493 $75,000 $142,357 - $278,850
CFO 2006 $17,717 - $17,113 - $34,830
Howard Crosby 2007 - $50,000 $60,543 $78,000(3) $188,543
Vice President 2006 - - - $78,000(3) $78,000
Brian Flower 2007 - $372,500 $110,449 $102,400(4) $585,349
Chairman 2006 - - - $96,000(4) $96,000
(1) The salary for January 2006 was approved by the Board for
Mr. Kurtanjek's services as President. The salary earned by
Mr. Kurtanjek for the months of February through December of 2006 was
paid to him pursuant to the Management Services Agreement which
provides for a monthly salary of $9,500.
(2) This amount represents the cost to us of maintaining an apartment in
Chile for Mr. Kurtanjek.
(3) This amount was paid to Crosby Enterprises under our Business
Consulting Agreement with Mr. Crosby's company.
(4) This amount was paid to Trio International Capital Corp., an entity
partially owned by Mr. Flower.
On August 18, 2005, our compensation committee recommended, and the board
approved, an increase in Mr. Kurtanjek's monthly salary from $6,000 to $9,500
beginning August 1, 2005. Effective February 1, 2006, we entered into a
one-year renewable Management Services Agreement dated February 6, 2006, with
Mr. Kurtanjek for
45
service as President of our company and for providing management of the
planning, implementation, and reporting on exploration, feasibility, and
project development activities carried out on the Cerro Blanco property. This
agreement was extended automatically for an additional one-year term beginning
February 1, 2007. Under the agreement we agreed to pay a monthly fee of
$9,500, plus reimbursable out-of-pocket expenses, which was increased to
$11,400 on August 31, 2007. Either party may terminate the agreement without
cause upon 120 days' written notice and at any time for cause. The agreement
also provides for severance payments in the event of termination upon a change
of control and maintaining the confidentiality of any proprietary information.
On December 21, 2007, our board approved grants of 200,000 shares to
Mr. Kurtanjek every time a project milestone is achieved, such as positive
pre-feasibility study, piloting and final feasibility study. In addition, the
board approved a bonus of 200,000 shares to Mr. Kurtanjek upon the listing of
our stock on the American Stock Exchange or other senior exchange.
Mr. Kurtanjek devotes essentially all of his time to the business of our
company. On May 31, 2004, we granted to him fully vested four-year common
stock purchase options for 600,000 shares exercisable at $0.60 per share. On
August 31, 2007, we granted him common stock purchase options for 150,000
shares exercisable at $0.50 per share; we also repriced the prior options to
$0.50 per share and extended the options by three years. On August 10, 2007,
we granted Mr. Kurtanjek warrants to purchase 225,000 shares at $0.60 per
share.
Effective September 8, 2006, we entered into a one-year renewable
Management Services Agreement dated September 1, 2006, with Mr. Jenkins for
service as a part-time Chief Financial Officer of our company. Under the
agreement we have agreed to pay a monthly fee of C$5,000 per month plus Goods
and Services Tax in Canada, plus reimbursable out-of-pocket expenses. As
additional compensation under the agreement, we granted to him 100,000
five-year options exercisable at $1.25 per share. On August 31, 2007, the
options were repriced to $0.50 per share and were fully vested. These options
will be subject to the terms, definitions and provisions of our Stock Option
Plan. Effective August 31, 2007, the monthly management fee payable to
Mr. Jenkins was raised to US$6,000. Either party may terminate the agreement
without cause upon 120 days' written notice and at any time for cause. In the
event of termination upon a change of control, Mr. Jenkins will be compensated
as follows: immediate payment of a severance amount equal to three times the
highest annual base cash compensation paid to him; the immediate vesting of any
outstanding unvested options, warrants, or other convertible instruments; the
pro rata amount of any bonuses for which he is eligible; the extension of the
exercise period for at least six months following such termination. The
agreement also provides for maintaining the confidentiality of any proprietary
information. Also effective August 31, 2007, Mr. Jenkins received a bonus for
past services comprised of five-year, fully vested options to purchase 300,000
shares at $0.50 per share, 150,000 shares of common stock, and 150,000 stock
purchase warrants, the latter exercisable through August 15, 2010, at an
exercise price of $0.60 per share. All options have now vested. On
December 21, 2007, our board approved a bonus of 100,000 shares to
Mr. Jenkins upon the listing of our stock on the American Stock Exchange or
other senior exchange. Mr. Jenkins devotes approximately half of all of his
time to the business of our company. On August 10, 2007, we granted
Mr. Jenkins warrants to purchase 150,000 shares at $0.60 per share.
On August 1, 2005, we entered into a five-month renewable Business
Consultant Agreement with Crosby Enterprises, an entity controlled by Howard M.
Crosby. On February 6, 2006, we renewed this agreement from January 1, 2006,
through May 31, 2006, and have extended it on a month-to-month basis. Crosby
Enterprises has agreed to perform financial consulting and public relations
services for us. In return, we have granted to this entity options to purchase
200,000 shares of our common stock at any time through August 1, 2009. The
original exercise price of the options was $1.25 per share. On August 7, 2007,
we reduced the exercise price to $0.50 per share and extended the term of the
options for an additional two years. In addition, we paid a monthly fee of
$12,000 for the initial five-month term of the agreement; we paid a monthly fee
of $6,500 during the five-month renewal period; and we have agreed to pay
$6,500 per month thereafter for the services performed by Crosby Enterprises.
Effective August 31, 2007, Mr. Crosby received a bonus for past services
comprised of five-year, fully vested options to purchase 100,000 shares at
$0.50 per share, 100,000 shares of common stock, and 100,000 stock purchase
warrants, the latter exercisable through August 15, 2010, at an exercise price
of $0.60 per share. Mr. Crosby devotes approximately 40% of his time to the
fulfillment of the obligations under this agreement and services as a director
of our company. In the event of termination upon a change of control, Crosby
Enterprises will be compensated as follows: immediate payment of a severance
amount equal to three times the highest annual base cash compensation paid to
it; the immediate vesting of any outstanding unvested options, warrants, or
other convertible instruments; the pro rata amount of any bonuses for which it
is eligible; the extension of the exercise period for at least six months
following such termination.
46
On February 10, 2005, we entered into a letter agreement with Trio
International Capital Corp., a company partly owned by Brian Flower. This
agreement provided that Trio, through its wholly owned subsidiary, Pacific
Venture Management Ltd., would provide services to us in connection with our
plans to seek listing of our stock on the Toronto Stock Exchange or other
suitable senior exchange; provide and coordinate our office in Vancouver,
Canada; manage our corporate functions; and provide assistance with the
pre-feasibility and feasibility reports on our property in Chile. Mr. Flower
devoted approximately 80% of his time to the affairs of the company under this
agreement, including serving as our Chief Financial Officer from February 2005
through September 8, 2006. As compensation under the agreement, Trio received
options to purchase 400,000 shares of our common stock at $1.00 per share at
any time on or before January 31, 2008. On August 31, 2007, the exercise price
was reduced to $0.50 per share and the term of the options was extended by
three years. We also paid Trio a monthly fee of $5,250 plus Goods and Services
Tax in Canada under the agreement since its inception through July 31, 2005, at
which time the monthly fee was increased by the board to $8,000. Effective
February 1, 2006, we entered into a one-year renewable Management Services
Agreement dated February 6, 2006, which replaced the original agreement and
provides for the furnishing of the same services as under the original letter
agreement. This agreement was extended automatically for an additional
one-year term beginning February 1, 2007. Under the new agreement we agreed to
pay a monthly fee of $8,000, plus reimbursable out-of-pocket expenses. Trio
has also agreed to provide office space for us for which we pay $1,250 per
month. We have also allowed Trio, through one of its subsidiaries, to broker
the ocean transportation services for any product produced from our Cerro
Blanco property. Either party may terminate the new agreement without cause
upon 120 days' written notice and at any time for cause. In the event of
termination upon a change of control, Trio will be compensated as follows:
immediate payment of a severance amount equal to three times the highest annual
base cash compensation paid to it; the immediate vesting of any outstanding
unvested options, warrants, or other convertible instruments; the pro rata
amount of any bonuses for which it is eligible; the extension of the exercise
period for at least six months following such termination. The new agreement
also provides for maintaining the confidentiality of any proprietary
information. In September 2006, we amended the agreement to provide for
Mr. Flower's services as our Chairman rather than our Chief Financial Officer
with additional responsibilities for marketing, finance, corporate development
and investor relations. The agreement also provides for payment of operating
expenses for the company. Effective August 31, 2007, the monthly management fee
payable to Trio was raised to $9,600 and the monthly office fee, to $2,000.
Effective January 1, 2008, the monthly management fee was raised to $11,600.
On December 21, 2007, the Board determined that in the event that the time
commitment of Mr. Flower increases beyond 80%, the base compensation payable to
Trio will be increased proportionately, but not to exceed the base compensation
payable to Mr. Kurtanjek. Mr. Flower receives no other compensation for
serving as our Chairman, except as provided in this agreement with Trio. Also
effective August 31, 2007, Trio received a bonus for past services comprised of
five-year, fully vested options to purchase 150,000 shares at $0.50 per share,
225,000 shares of common stock, and 225,000 stock purchase warrants, the latter
exercisable through August 15, 2010, at an exercise price of $0.60 per share.
On December 21, 2007, the board granted a bonus of 200,000 fully vested shares
to Mr. Flower for past services. Also on December 21, 2007, our board approved
grants of 200,000 shares to Mr. Flower every time a project milestone is
achieved, such as positive pre-feasibility study, piloting and final
feasibility study. In addition, the board approved a bonus of 200,000 shares
to Mr. Flower upon the listing of our stock on the American Stock Exchange or
other senior exchange. Mr. Flower devotes approximately 80% of his time to the
fulfillment of the obligations under this agreement and services as a director
of our company.
Equity Awards
The following table sets forth certain information for the named executive
officers concerning unexercised options that were outstanding as of
December 31, 2007:
47
Outstanding Equity Awards at Fiscal Year-End
Option Awards
-------------------------------------------------------------
Equity
Incentive
Plan Awards:
Number of Number of Number of
Securities Securities Securities
Underlying Underlying Underlying
Unexercised Unexercised Unexercised
Options Options Unearned Exercise Option
(#) (#) Options Price Expiration
Name Exercisable Unexercisable (#) ($) Date
- -------------------- ----------- ------------- ----------- -------- ----------
Michael P. Kurtanjek 600,000 -0- -0- $0.50 5/31/2011
President (Principal 150,000 -0- -0- $0.50 8/31/2012
Executive Officer)
Charles Jenkins 100,000 -0- -0- $0.50 8/31/2011
CFO 300,000 -0- -0- $0.50 8/31/2012
Howard Crosby 200,000 -0- -0- $0.50 8/1/2011
Vice-President 100,000 -0- -0- $0.50 8/31/2012
Brian Flower 400,000 -0- -0- $0.50 1/31/2012
Chairman 150,000 -0- -0- $0.50 8/31/2012
The options held by the named executive officers at year-end were granted
pursuant to our existing Stock Option Plan adopted on August 30, 2005. Our
shareholders approved the plan on November 10, 2006. The purpose of the plan
is to provide eligible persons an opportunity to acquire a proprietary interest
in our company and to participate in the profitability of the company.
There are 3,140,000 shares of common stock authorized for stock options
under the plan, which are subject to adjustment in the event of stock splits,
stock dividends, and other situations. In addition, aggregate grants to a
single person are limited to 5% of the total number of issued and outstanding
shares and the aggregate number authorized for grants to insiders is limited to
20% of the issued and outstanding shares. Grants to consultants are limited to
2% of the issued and outstanding shares.
The plan is administered by our Board of Directors. Participants in the
plan are to be selected by our Board of Directors. The persons eligible to
participate in the plan are as follows: (a) directors of our company and its
subsidiaries; (b) officers of our company and its subsidiaries; (c) employees
of our company and any of its subsidiaries; and (d) those engaged by us to
provide ongoing management or consulting services, or investor relations
activities for us or any entity controlled by us.
The purchase price under each option is established by the Board of
Directors at the time of the grant and may not be discounted below the maximum
discount permitted under the policy of the Toronto Exchange.
The Board of Directors will fix the terms of each option, but no option
can be granted for a term in excess of five years. The Board of Directors will
not impose a vesting schedule upon any options granted which provides for
exercise of an option for less than 25% of the shares subject to the option
upon approval of listing of our stock on the Toronto Exchange and 12.5% every
quarter thereafter.
During the lifetime of the person to whom an option has been granted, only
that person has the right to exercise the option and that person cannot assign
or transfer any right to the option.
In the event of the death of the option holder, the options will
immediately vest and may be exercised for up to one year from the date of
death. If the option holder's relationship with us is terminated for cause,
the unexercised options will immediately terminate. If the option holder
retires, voluntarily resigns, or is terminated for other than cause, the
options will be exercisable for 90 days thereafter or for 30 days if the person
was engaged in investor relations.
48
In the event of the corporate take-over, reorganization or change of
control, the options will vest and the holder may exercise the options or, in
the event of a corporate reorganization, receive the kind and amount of shares
or other securities or property that he would have been entitled to receive if
he had been a holder of shares of our company at the time of the
reorganization, or, if appropriate, as otherwise determined by the Board of
Directors.
Director Compensation
The following table sets forth certain information concerning the
compensation of our directors, excluding the named executive officers whose
total compensation is set forth in the Summary Compensation Table above, for
the last fiscal year ended December 31, 2007:
Director Compensation
All Other
Stock Awards Compensation Total
Name ($) ($) ($)
- ------------------- ------------ ------------ ------------
Cesar Lopez $130,000(1) $54,086(2) $184,086
Stephanie Ashton(4) - $6,352(3) $6,352
- ----------
(1) This amount represents a stock bonus of 100,000 fully vested shares
granted on December 21, 2007.
(2) This amount represents legal fees paid to Mr. Lopez and one-half of
the rent paid to Lopez and Ashton for our office in Chile. The
hourly legal fees were paid in Chilean pesos at prevailing exchange
rates and the rent was paid in Chilean pesos at a fixed rate of
CH$552 pesos for each US$1.00.
(3) This amount represents accounting and administrative fees paid to
Ms. Ashton and one-half of the rent paid to Lopez and Ashton for our
office in Chile up to the date of her resignation as a director.
These fees were paid in Chilean pesos at a fixed rate of CH$552 pesos
for each US$1.00.
(4) Ms. Ashton resigned as a director on March 9, 2007.
On July 29, 2005, the board adopted a policy to compensate directors who
are not executive officers of the Company. Such persons will receive $1,000
plus expenses for attendance in person at each meeting of the Board of
Directors. They will receive $500 for attendance at such meetings by
conference telephone. Also on July 29, 2005, the board adopted a policy to
compensate non-executive directors who are members of committees of the board.
These persons will receive $1,000 plus expenses for attendance in person at
each committee meeting. They will receive $500 for attendance at committee
meetings by conference telephone. In addition, each chairman of the committee
will receive $1,000 per meeting they chair. No fees were paid to or accrued by
any director during 2006 pursuant to the policies adopted on July 29, 2005 for
director and committee member compensation.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table sets forth certain information furnished by current
management and others, concerning the ownership of our common stock as of
March 18, 2008, of (i) each person who is known to us to be the beneficial owner
of more than 5 percent of our common stock, without regard to any limitations on
conversion or exercise of convertible securities or warrants; (ii) all
directors and executive officers; and (iii) our directors and executive
officers as a group:
49
Amount and Nature
Name and Address of Beneficial Percentage
of Beneficial Owner Ownership (1) of Class(2)
- ------------------- ----------------- -----------
Michael P. Kurtanjek 1,700,000 (3) 5.6%
9 Church Lane
Copthorne
West Sussex, England
RH10 3PT
Howard M. Crosby 1,249,000 (4) 4.2%
6 East Rose Street
Walla Walla, WA 99362
Cesar Lopez 1,089,000 3.7%
Enrique Foster Sur 20, Piso 19
Las Condes, Santiago, Chile
Brian Flower 1,350,000 (5) 4.5%
2150-1188 West Georgia Street
Vancouver, British Columbia
Canada V6E 4A2
Charles E. Jenkins 700,000 (6) 2.4%
2150-1188 West Georgia Street
Vancouver, British Columbia
Canada V6E 4A2
Executive Officers and 5,988,000 18.5%
Directors as a Group
(5 Persons)
Rubicon Master Fund (7) 6,620,000 (8) 18.7%
c/o Rubicon Fund Management LLP
103 Mount St.
London W1K 2TJ
United Kingdom
Phelps Dodge Corporation 1,665,000 (9) 5.4%
One North Central Ave.
Phoenix, AZ 85004
Wang Kin 1,600,000 7.0%
Block G 23 Floor
Shen Zhen 518053
Peoples Republic of China
Kin Wong 2,000,000 6.9%
6 Bl 23 Floor
Cts Plaza Otc
Peoples Republic of China
- ----------
(1) Beneficial Ownership is determined in accordance with the rules of
the Securities and Exchange Commission and generally includes voting
or investment power with respect to securities. Shares of common
stock subject to options, warrants, or other conversion privileges
currently exercisable or
50
convertible, or exercisable or convertible within 60 days of March 18,
2008, are deemed outstanding for computing the percentage of the
person holding such option or warrant but are not deemed outstanding
for computing the percentage of any other person.
(2) Percentage based on 29,189,133 shares of common stock outstanding as
of March 18, 2008.
(3) Includes 750,000 shares issuable pursuant to options and 225,000
stock purchase warrants .
(4) Includes 300,000 shares issuable pursuant to options and 100,000
stock purchase warrants.
(5) Includes 550,000 shares issuable pursuant to options and 225,000
stock purchase warrants.
(6) Includes 150,000 shares issuable pursuant to stock purchase warrants
and 400,000 shares issuable pursuant to options.
(7) Pursuant to Investment Agreements, each of Rubicon Fund Management
Ltd., and Rubicon Fund Management LLP share all investment and voting
power with respect to the securities held by Rubicon Master Fund.
Paul Anthony Brewer, Vilas Gadkari and Horace Joseph Leitch III share
all investment and voting power with respect to Rubicon Fund
Management Ltd. and Rubicon Fund Management LLP. Each of Rubicon
Fund Management Ltd., Rubicon Fund Management LLP, Paul Anthony
Brewer, Vilas Gadkari, and Horace Joseph Leitch III may be deemed to
be beneficial owners of the securities held by Rubicon Master Fund.
Each of Rubicon Fund Management Ltd., Rubicon Fund Management LLP,
Paul Anthony Brewer, Vilas Gadkari, and Horace Joseph Leitch III
disclaim beneficial ownership of the securities held by Rubicon
Master Fund.
(8) Includes 6,250,000 shares issuable upon exercise of warrants.
Notwithstanding the foregoing, the warrants may not be exercised if
the holder of the security, together with its affiliates, after such
exercise would hold 4.9% of the then issued and outstanding shares of
our common stock.
(9) Includes 1,000,000 shares issuable upon conversion of 625,000 Class A
Convertible Preferred Shares and 625,000 shares issuable upon
exercise of warrants. Notwithstanding the foregoing, the shares of
the Class A Convertible Preferred Stock and warrants may not be
converted or exercised if the holder of the security, together with
its affiliates, after such conversion or exercise would hold 4.9% of
the then issued and outstanding shares of our common stock.
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth as of the most recent fiscal year ended
December 31, 2007, certain information with respect to compensation plans
(including individual compensation arrangements) under which our common stock
is authorized for issuance:
Number of securities remaining
Number of securities to Weighted-average available for future issuance
be issued upon exercise exercise price of under equity compensation plans
of outstanding options, outstanding options, (excluding securities reflected
warrants and rights warrants and rights in column (a) and (b))
(a) (b) (c)
----------------------- -------------------- -------------------------------
Equity compensation plans 2,975,000 (1) $0.50 165,000
approved by security holders
Equity compensation plans not 7,175,000 (2) $0.53 -0-
approved by security holders 100,000 (3) $2.00 -0-
---------- --------
Total 8,825,000 $0.62 165,000
========== ========
(1) These options were granted to our officers and to various consultants
pursuant to our stock option plan adopted in August 2005.
(2) These shares are issuable pursuant to common stock purchase warrants
exercisable at prices ranging from $0.50 to $1.25 per share at any
time through July 11, 2009. Of the total warrants, 6,250,000 and
625,000 were granted to Rubicon and Phelps Dodge, respectively, in
connection with our funding transactions with these parties, and
300,000 were granted to a consultant in connection with the funding
transaction with Rubicon.
(3) These shares are issuable pursuant to a stock option agreement
granted to a consultant outside of our stock option plan. These
options expire on August 13, 2009.
51
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Certain Relationships and Related Transactions
From February 23, 2004, through July 31, 2005, our Board of Directors
approved and we paid a monthly salary of $6,000 to Mr. Kurtanjek for serving
as President. On August 18, 2005, our compensation committee recommended, and
the board approved, an increase in his monthly salary to $9,500 beginning
August 1, 2005. Effective February 1, 2006, we entered into a one-year
renewable Management Services Agreement dated February 6, 2006, with
Mr. Kurtanjek for service as President of our company and for providing
management of the planning, implementation, and reporting on exploration,
feasibility, and project development activities carried out on the Cerro
Blanco property. This agreement was extended automatically for an additional
one-year term beginning February 1, 2007. Under the agreement we agreed to
pay a monthly fee of $9,500, plus reimbursable out-of-pocket expenses.
Effective August 31, 2007, the monthly management fee payable to
Mr. Kurtanjek was raised to $11,400 and effective January 1, 2008, the monthly
management fee was raised to $13,400. Either party may terminate the
agreement without cause upon 120 days' written notice and at any time for
cause. In the event of termination upon a change of control, Mr. Kurtanjek
will be compensated as follows: immediate payment of a severance amount equal
to three times the highest annual base cash compensation paid to him; the
immediate vesting of any outstanding unvested options, warrants, or other
convertible instruments; the pro rata amount of any bonuses for which he is
eligible; the extension of the exercise period for at least six months
following such termination. The agreement also provides for maintaining the
confidentiality of any proprietary information. Also effective August 31,
2007, Mr. Kurtanjek received a bonus for past services comprised of five-year,
fully vested options to purchase 150,000 shares at $0.50 per share, 225,000
shares of common stock, and 225,000 stock purchase warrants, the latter
exercisable through August 15, 2010, at an exercise price of $0.60 per share.
On December 21, 2007, the board granted a bonus of 200,000 fully vested shares
to Mr. Kurtanjek for past services. In addition, on December 21, 2007, our
board approved grants of 200,000 shares to Mr. Kurtanjek every time a project
milestone is achieved, such as positive pre-feasibility study, piloting and
final feasibility study. In addition, the board approved a bonus of 200,000
shares to Mr. Kurtanjek upon the listing of our stock on the American Stock
Exchange or other senior exchange. Mr. Kurtanjek devotes virtually all of his
time to our company under this agreement. During the year ended December 31,
2007, we paid $123,500 to Mr. Kurtanjek pursuant to our agreement with him. We
also paid $22,362 to provide an apartment for him in Chile.
On February 10, 2005, we entered into a letter agreement with Trio
International Capital Corp., a company partly owned by Brian Flower, a director
and Chairman of our company. This agreement provided that Trio, through its
wholly owned subsidiary, Pacific Venture Management Ltd., would provide
services to us in connection with our plans to seek listing of our stock on the
Toronto Stock Exchange or other suitable senior exchange; provide and
coordinate our office in Vancouver, Canada; manage our corporate functions; and
provide assistance with the pre-feasibility and feasibility reports on our
property in Chile. Mr. Flower devoted approximately 80% of his time to the
affairs of the company under this agreement, including serving as our Chief
Financial Officer from February 2005 through September 8, 2006. As
compensation under the agreement, Trio received options to purchase 400,000
shares of our common stock at $1.00 per share at any time on or before
January 31, 2008. On August 31, 2007, the exercise price was reduced to
$0.50 per share and the term of the options was extended by three years. We
also paid Trio a monthly fee of $5,250 plus Goods and Services Tax in Canada
under the agreement since its inception through July 31, 2005, at which time
the monthly fee was increased by the board to $8,000. Effective February 1,
2006, we entered into a one-year renewable Management Services Agreement
dated February 6, 2006, which replaced the original agreement and provides
for the furnishing of the same services as under the original letter
agreement. This agreement was extended automatically for an additional
one-year term beginning February 1, 2007. Under the new agreement we agreed
to pay a monthly fee of $8,000, plus reimbursable out-of-pocket expenses.
Trio has also agreed to provide office space for us for which we pay
$1,250 per month. We have also allowed Trio, through one of its subsidiaries,
to broker the ocean transportation services for any product produced from our
Cerro Blanco property. Either party may terminate the new agreement without
cause upon 120 days' written notice and at any time for cause. In the event
of termination upon a change of control, Trio will be compensated as follows:
immediate payment of a severance amount equal to three times the highest
annual base cash compensation paid to it; the immediate vesting of any
outstanding unvested options, warrants, or other convertible instruments;
the pro rata amount of any bonuses for which it is eligible; the extension
of the exercise period for at least six months following
52
such termination. The new agreement also provides for maintaining the
confidentiality of any proprietary information. In September 2006, we amended
the agreement to provide for Mr. Flower's services as our Chairman rather than
our Chief Financial Officer with additional responsibilities for marketing,
finance, corporate development and investor relations. The agreement also
provides for payment of operating expenses for the company. Effective
August 31, 2007 the monthly management fee payable to Trio was raised to
$9,600 and the monthly office fee, to $2,000. Effective January 1, 2008,
the monthly management fee was raised to $11,600. On December 21, 2007, the
Board determined that in the event that the time commitment of Mr. Flower
increases beyond 80%, the base compensation payable to Trio will be increased
proportionately, but not to exceed the base compensation payable to
Mr. Kurtanjek. Mr. Flower receives no other compensation for serving as our
Chairman, except as provided in this agreement with Trio. Also effective
August 31, 2007, Trio received a bonus for past services comprised of
five-year, fully vested options to purchase 150,000 shares at $0.50 per share,
225,000 shares of common stock, and 225,000 stock purchase warrants, the latter
exercisable through August 15, 2010, at an exercise price of $0.60 per share.
On December 21, 2007, the board granted a bonus of 200,000 fully vested shares
to Mr. Flower for past services. Also on December 21, 2007, our board approved
grants of 200,000 shares to Mr. Flower every time a project milestone is
achieved, such as positive pre-feasibility study, piloting and final
feasibility study. In addition, the board approved a bonus of 200,000 shares
to Mr. Flower upon the listing of our stock on the American Stock Exchange or
other senior exchange. Mr. Flower devotes approximately 80% of his time to the
fulfillment of the obligations under this agreement and services as a director
of our company. During the year ended December 31, 2007, we paid $102,400 to
Trio for the services under the current agreement.
On November 26, 2007, we entered into a Brokerage Representation Agreement
with Beacon Hill Shipping Ltd., an entity in which Mr. Flower is a principal.
The term of the agreement is for the life of our mining property in Chile. We
have agreed to pay commissions of 2.5% for carriers or vessels sourced by
Beacon Hill and 1% in the case of any sale or purchase of vessels by for the
project owners.
On August 1, 2005, we entered into a five-month renewable Business
Consultant Agreement with Crosby Enterprises, an entity controlled by Howard M.
Crosby, one of our directors. On February 6, 2006, we renewed this agreement
from January 1, 2006 through May 31, 2006, and have extended it on a
month-to-month basis. Crosby Enterprises has agreed to perform financial
consulting and public relations services for us. In return, we have granted to
this entity options to purchase 200,000 shares of our common stock at any time
through August 1, 2009. The original exercise price of the options was $1.25
per share. On August 7, 2007, we reduced the exercise price to $0.50 per share
and extended the term of the options for an additional two years. In addition,
we paid a monthly fee of $12,000 for the initial five-month term of the
agreement; we paid a monthly fee of $6,500 during the five-month renewal
period; and we have agreed to pay $6,500 per month thereafter for the services
performed by Crosby Enterprises. Effective August 31, 2007, Mr. Crosby
received a bonus for past services comprised of five-year, fully vested options
to purchase 100,000 shares at $0.50 per share, 100,000 shares of common stock,
and 100,000 stock purchase warrants, the latter exercisable through August 15,
2010, at an exercise price of $0.60 per share. Mr. Crosby devotes
approximately 40% of his time to the fulfillment of the obligations under this
agreement and services as a director of our company. In the event of
termination upon a change of control, Crosby Enterprises will be compensated as
follows: immediate payment of a severance amount equal to three times the
highest annual base cash compensation paid to it; the immediate vesting of any
outstanding unvested options, warrants, or other convertible instruments; the
pro rata amount of any bonuses for which it is eligible; the extension of the
exercise period for at least six months following such termination. During the
year ended December 31, 2007, we paid $78,000 to Crosby Enterprises for
services under this agreement.
On February 1, 2004, we entered into a Management Services Agreement
through our Chilean subsidiary with Lopez & Ashton Ltda., an entity composed of
Cesar Lopez, one of our directors, and Stephanie D. Ashton, a former director
who resigned in March 2007. This agreement provided that Lopez & Ashton would
provide consulting and management services in Chile in connection with our
mining concessions located there. The agreement expired on December 31, 2005.
Effective January 1, 2006, we entered into a new one-year renewable Management
Services Agreement dated February 6, 2006, with Lopez and Ashton. This
agreement was extended automatically for an additional one-year term beginning
February 1, 2007. Pursuant to the new agreement, Lopez & Ashton has agreed to
provide and maintain our corporate offices in Chile, provide administrative
services for us in Chile, including maintaining our accounting records, provide
legal services, and furnish other related services. The agreement provides
that during its term Lopez & Ashton will not advise or
53
represent any other company in conflict with their representation of our
company. The new agreement provides for monthly payments of $2,500 for the
office space, $500 for office support services such as a receptionist, $1,000
for accounting services, and $2,000 for administrative services. We have also
agreed to pay for any specific management services requested by us to be
performed by Ms. Ashton at an hourly rate of $100 and for any legal services
performed by Mr. Lopez at $250 per hour. We have agreed to pay the flat fee
amounts in Chilean pesos at a fixed rate of CH$550 pesos for each US$1.00 and
the hourly fees at prevailing exchange rates. Either party may terminate the
new agreement without cause upon 90 days' written notice and at any time for
cause. We also have the right upon 60 days' written notice to terminate any
specific service to be performed by Lopez & Ashton while maintaining the
remaining services. The new agreement also provides for maintaining the
confidentiality of any proprietary information. Mr. Lopez and Ms. Ashton each
devote approximately 50% of their time to the fulfillment of the obligations
under this agreement, including Mr. Lopez's services as a director of our
company. During the year ended December 31, 2007, we paid $54,086 to Mr. Lopez
and $6,352 to Ms. Ashton for services under our agreement with their firm. On
December 21, 2007, the Board granted a bonus of 100,000 fully vested shares to
Mr. Lopez for past services.
On July 11, 2005, we closed a Securities Purchase Agreement with Rubicon,
one of our shareholders, on $5,000,000 in equity financing and issued 6,250,000
shares of Class A Convertible Preferred Stock and common stock purchase
warrants to purchase 6,250,000 shares of our common stock. Each share of Class
A Convertible Preferred Stock is convertible into our common shares at the rate
of one share of common stock for each share of preferred stock converted,
subject to adjustment in the event of certain transactions, and each warrant is
exercisable at $0.50 per share at any time through July 11, 2009. On May 5,
2006, we entered into an amendment of the Securities Purchase Agreement whereby
we issued 400,000 shares of our common stock to Rubicon in satisfaction of
breach of a provision of the agreement requiring that the registration
statement be declared effective by January 31, 2006. In September 2007, Rubicon
converted all of its preferred shares into 6,250,000 common shares and sold all
of the shares.
On September 7, 2005, we amended the Securities Purchase Agreement with
Rubicon to include a transaction with Phelps Dodge, one of our shareholders, in
which we issued 625,000 shares of Class A Convertible Preferred Stock
convertible into 1,000,000 shares of our common stock and common stock purchase
warrants to purchase 625,000 shares of our common stock under identical terms
as with Rubicon. These securities were issued in satisfaction of the final
payment of $500,000 due Phelps Dodge in connection with the purchase of our
Chilean mining concessions. On May 5, 2006, we entered into an amendment of
the Securities Purchase Agreement whereby we issued 40,000 shares of our common
stock to Phelps Dodge in satisfaction of breach of a provision of the agreement
requiring that the registration statement be declared effective by January 31,
2006.
Effective September 8, 2006, we entered into a one-year renewable
Management Services Agreement dated September 1, 2006, with Mr. Jenkins for
service as a part-time Chief Financial Officer of our company. Under the
agreement we have agreed to pay a monthly fee of C$5,000 per month plus Goods
and Services Tax in Canada, plus reimbursable out-of-pocket expenses. As
additional compensation under the agreement, we granted to him 100,000
five-year options exercisable at $1.25 per share. On August 31, 2007, the
options were repriced to $0.50 per share and were fully vested. These options
will be subject to the terms, definitions and provisions of our Stock Option
Plan. Effective August 31, 2007, the monthly management fee payable to
Mr. Jenkins was raised to US$6,000. Either party may terminate the agreement
without cause upon 120 days' written notice and at any time for cause. In the
event of termination upon a change of control, Mr. Jenkins will be compensated
as follows: immediate payment of a severance amount equal to three times the
highest annual base cash compensation paid to him; the immediate vesting of any
outstanding unvested options, warrants, or other convertible instruments; the
pro rata amount of any bonuses for which he is eligible; the extension of the
exercise period for at least six months following such termination. The
agreement also provides for maintaining the confidentiality of any proprietary
information. Also effective August 31, 2007, Mr. Jenkins received a bonus for
past services comprised of five-year, fully vested options to purchase 300,000
shares at $0.50 per share, 150,000 shares of common stock, and 150,000 stock
purchase warrants, the latter exercisable through August 15, 2010, at an
exercise price of $0.60 per share. All options have now vested. On
December 21, 2007, our board approved a bonus of 100,000 shares to Mr. Jenkins
upon the listing of our stock on the American Stock Exchange or other senior
exchange. Mr. Jenkins devotes approximately half of all of his time to the
business of our company. During the year ended December 31, 2007, we paid
$61,493 to Mr. Jenkins for services under this agreement.
54
In February 2004, control of our company changed by virtue of a reverse
merger with GreatWall Minerals Ltd., an Idaho corporation, in which the
shareholders of GreatWall exchanged their shares on a one-for-one basis for
shares of our company. Prior to that time we were a shell company since we had
no operations and no assets at the time. As a result of the merger, management
of our company resigned and Michael Kurtanjek, John Ryan, Howard Crosby were
appointed. GreatWall was controlled by these individuals, as well as Stephanie
Ashton and Cesar Lopez, who were the executive officers, directors, and
principal shareholders of that entity at the time of the merger. In addition
to the compensation paid to this persons and the transactions with them since
the reverse merger as set forth above, the following table sets forth the
number of shares of our company received by each of these individuals in the
reverse merger and the consideration paid for the GreatWall shares owned by
them, all of which were acquired on or about October 5, 2003:
Shares of Company
Received in Reverse Consideration Paid or Given
Name Merger(1) Percentage(2) for GreatWall Shares
- -------------------- -------------------- ------------- ---------------------------
Michael P. Kurtanjek 400,000 3.1% Services valued at $4,000
John P. Ryan (3) 1,104,000 8.6% Services valued at $11,040
Howard M. Crosby 1,104,000 8.6% Services valued at $11,040
Stephanie Ashton (4) 1,109,000 8.7% Services valued at $11,090
Cesar Lopez 1,109,000 8.7% Services valued at $11,090
- ----------
(1) At the time of the reverse merger, we had 1,550,000 shares
outstanding and GreatWall had 11,251,000 shares outstanding which
converted into a like number of our shares in the merger.
(2) This percentage is based upon the total shares outstanding,
12,801,000 shares, as a result of the reverse merger.
(3) Resigned as a director on March 26, 2007.
(4) Resigned as a director on March 9, 2007.
Director Independence
Our securities are not listed on a national securities exchange or in an
inter-dealer quotation system which has requirements that directors be
independent. As a result, we have adopted the independence standards of the
American Stock Exchange to determine the independence of our directors and
those directors serving on our committees. These standards provide that a
person will be considered an independent director if he or she is not an
officer of the company and is, in the view of the company's board of directors,
free of any relationship that would interfere with the exercise of independent
judgment. Our board of directors has determined that none of our directors
would meet this standard, and therefore, all would be considered not to be
independent.
On July 29, 2005, our board created standing audit and compensation
committees. Our audit committee is composed of the following directors:
Howard M. Crosby and Brian Flower. Our compensation committee is composed of
the following directors: Howard M. Crosby, and Michael Kurtanjek.
The rules of the American Stock Exchange require that an audit committee
of a small business issuer must maintain at least two members and that a
majority of the members must be independent directors. The rules further
provide that compensation of the chief executive officer and the other officers
can be determined by a compensation committee generally composed of independent
directors. Less than a majority of the members of our audit and compensation
committees are deemed to be independent under the standards established by the
American Stock Exchange.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Fees Paid
Smythe Ratcliffe LLP, Chartered Accountants, served as our accounting firm
for the two years ended December 31, 2007 and 2006. The following fees were
paid to our independent registered public accounting firm for services rendered
during our last two fiscal years:
55
Audit Fees
The aggregate fees billed for professional services rendered by our
principal accountant for the audit of our annual financial statements, review
of financial statements included in the quarterly reports and other fees that
are normally provided by the accountant in connection with statutory and
regulatory filings or engagements for the fiscal year ended December 31, 2007,
were $50,223 (invoiced as C$50,350). This total includes $14,873 (C$15,350)
for fees incurred for a review of the financial statements included in our
forms 10-QSB for the year ended December 31, 2007. The aggregate fees incurred
for professional services rendered for the audit of our annual financial
statements for the fiscal year ended December 31, 2006, were $33,091
(C$38,000). This total includes $10,640 (C$12,240) for fees incurred for a
review of the financial statements included in our forms 10-QSB for the year
ended December 31, 2006.
Audit-Related Fees
There were no fees billed for assurance and related services by our
principal accountant that are reasonably related to the performance of the
audit or review of the financial statements, other than those previously
reported above, for the fiscal years ended December 31, 2007 and 2006.
Tax Fees
There were no fees billed for professional services rendered by our
principal accountant for tax compliance, tax advice and tax planning in the
fiscal year ended December 31, 2006.
All Other Fees
There were no other fees billed for products or services provided by the
principal accountant, other than those previously reported above, for the
fiscal years ended December 31, 2007 and 2006.
Audit Committee
Our Audit Committee has considered whether the non-audit services provided
by our auditors to us are compatible with maintaining the independence of our
auditors and concluded that the independence of our auditors is not compromised
by the provision of such services. Our Audit Committee pre-approves all
auditing services and permitted non-audit services, including the fees and
terms of those services, to be performed for us by our independent auditor
prior to engagement.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Financial Statements
The following financial statements are filed with this report:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2007 and 2006
Consolidated Statements of Operations for the years ended December 31,
2007, 2006, 2005, and for the cumulative period from inception
(November 13, 2001) through December 31, 2007
Consolidated Statements of Cash Flows for the years ended December 31,
2007, 2006, 2005, and for the cumulative period from inception
(November 13, 2001) through December 31, 2007
56
Consolidated Statements of Stockholders' Equity from inception
(November 12, 2001) through December 31, 2007
Notes to Consolidated Financial Statements
Exhibits
The following exhibits are filed with this report:
Incorporated by Reference
------------------------------------
Exhibit Exhibit Filing Filed
Number Description Form File No. Exhibit Date Herewith
- ------- ----------- ------ --------- ------- -------- --------
2.1 Agreement and Plan of Merger dated SB-2 333-129347 2.1 10/31/05
January 26, 2004, with GreatWall
Minerals, Ltd.
3.1 Articles of Incorporation SB-2 333-129347 3.1 10/31/05
3.2 Current Bylaws 8-K 333-129347 3.1 9/12/06
4.1 Form of Common Stock Certificate SB-2 333-129347 4.1 10/31/05
4.2 Certificate of Designations, SB-2 333-129347 4.2 10/31/05
Preferences and Rights of the Class A
Convertible Preferred Stock,
as amended
4.3 Form of Class A Convertible SB-2 333-129347 4.3 10/31/05
Preferred Stock Certificate
4.4 Warrant Certificate dated July 11, SB-2 333-129347 4.4 10/31/05
2005, for Rubicon Master Fund
4.5 Warrant Certificate dated SB-2 333-129347 4.5 10/31/05
September 7, 2005, for Phelps Dodge
Corporation
4.6 Registration Rights set forth in SB2/A 333-129347 4.6 11/24/06
Article VI of the Securities Purchase
Agreement dated July 11, 2005, as
amended September 7, 2005 and May 5,
2006, for Rubicon Master Fund and
Phelps Dodge Corporation
4.7 Warrant Certificate effective SB-2 333-129347 4.8 10/31/05
July 11, 2005, in the name of Sunrise
Securities Corp. for 300,000 shares
4.8 Stock Option Plan* SB-2 333-129347 4.9 10/31/05
4.9 Stock Option Agreement with SB-2 333-129347 4.10 10/31/05
registration rights dated August 13,
2004, with Proteus Capital Corp.
10.1 Transfer of Contract and Mortgage SB-2 333-129347 10.1 10/31/05
Credit dated September 5, 2003, between
Compania Contractual Minera Ojos del
Salado and Compania Minera Rutile
Resources Limitada (formerly Minera
Royal Silver Limitada), with payment
extension document
10.2 Securities Purchase Agreement dated SB-2 333-129347 10.2 10/31/05
July 11, 2005, as amended September 7,
2005, with Rubicon Master Fund and
Phelps Dodge Corporation
10.3 Amendment dated May 5, 2006, to SB-2/A 333-129347 10.2(a) 5/30/06
Securities Purchase Agreement dated
July 11, 2005
10.4 Management Services Agreement dated SB-2/A 333-129347 10.3(a) 5/30/06
February 6, 2006, with Trio
International Capital Corp.*
10.5 Amendment dated September 1, 2006, 8-K 333-129347 10.1 9/12/06
to Management Services Agreement
dated February 6, 2006, with
Trio International Capital Corp.*
10.6 Amendment dated August 31, 2007, to SB-2 333-148644 10.6 1/14/08
Management Services Agreement dated
February 6, 2006, with Trio
International Capital Corp.*
10.7 Amendment dated December 21, 2007, SB-2 333-148644 10.7 1/14/08
to Management Services Agreement
dated February 6, 2006, with Trio
International Capital Corp.*
10.8 Option Agreement dated February 9, SB-2 333-129347 10.5 10/31/05
2005, with Trio International Capital
Corp.*
10.9 Management Services Agreement dated SB-2/A 333-129347 10.9 5/30/06
February 6, 2006, with Michael P.
Kurtanjek*
10.10 Amendment dated August 31, 2007, to SB-2 333-148644 10.10 1/14/08
Management Services Agreement
dated February 6, 2006, with Michael
P. Kurtanjek*
10.11 Amendment dated December 21, 2007, SB-2 333-148644 10.11 1/14/08
to Management Services Agreement
dated February 6, 2006, with Michael
P. Kurtanjek*
10.12 Option Agreement dated May 31, 2004, SB-2 333-129347 10.4 10/31/05
with Michael Kurtanjek*
10.13 Business Consulting Agreement dated SB-2 333-129347 10.7 10/31/05
August 1, 2005, with Crosby
Enterprises, Inc.*
10.14 Renewal dated February 6, 2006, of SB-2/A 333-129347 10.7(a) 5/30/06
Business Consulting Agreement with
Crosby Enterprises, Inc.*
10.15 Amendment dated December 21, 2007, SB-2 333-148644 10.15 1/14/08
to Business Consulting Agreement
dated August 1, 2005, with Crosby
Enterprises, Inc.*
10.16 Option Agreement dated August 18, SB-2 333-129347 10.6 10/31/05
2005, with Crosby Enterprises, Inc.*
10.17 Management Services Agreement dated SB-2/A 333-129347 10.8(a) 5/30/06
February 6, 2006, with Lopez &
Ashton Ltda.*
10.18 Management Services Agreement dated 8-K 333-129347 10.2 9/12/06
September 1, 2006, with Charles E.
Jenkins*
10.19 Amendment dated August 31, 2007, to SB-2 333-148644 10.19 1/14/08
Management Services Agreement dated
September 1, 2006, with Charles E.
Jenkins*
10.20 Amendment dated December 21, 2007, SB-2 333-148644 10.20 1/14/08
to Management Services Agreement
dated September 1, 2006, with
Charles E. Jenkins*
10.21 Option Agreement dated September 1, SB-2/A 333-129347 10.14 11/24/06
2006, with Charles E. Jenkins*
10.22 Management Services Agreement dated 8-K 333-129347 10.3 9/12/06
February 6, 2006, with MinCo Corporate
Mgmt Inc., and First Amendment dated
September 1, 2006*
10.23 Option Agreement dated September 1, SB-2/A 333-129347 10.16 11/24/06
2006, with Terese Gieselman
10.24 Brokerage Representation Agreement SB-2 333-148644 10.24 1/14/08
dated November 26, 2007, with Beacon
Hill Shipping Ltd.
14.1 Code of Ethics 10-KSB 333-129347 14.1 3/29/07
21.1 List of Subsidiaries SB-2 333-129347 21.1 10/31/05
31.1 Rule 13a-14(a) Certification by X
Principal Executive Officer
31.2 Rule 13a-14(a) Certification by X
Principal Financial Officer
32.1 Section 1350 Certification of X
Principal Executive Officer
32.2 Section 1350 Certification of X
Principal Financial Officer
*Management contract, or compensatory plan or arrangement, required to be
filed as an exhibit.
Signature Page Follows
59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
White Mountain Titanium Corporation
Date: March 27, 2008 By: /s/ Michael P. Kurtanjek
Michael P. Kurtanjek, President
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the date
indicated.
Date: March 27, 2008 /s/ Michael P. Kurtanjek
Michael P. Kurtanjek, Director and
President (Principal Executive
Officer)
Date: March 27, 2008 /s/ Charles E. Jenkins
Charles E. Jenkins, Chief Financial
Officer (Principal Financial and
Accounting Officer)
Date: March 27, 2008 /s/ Howard M. Crosby
Howard M. Crosby, Director
Date: March 27, 2008 /s/ Cesar Lopez
Cesar Lopez, Director
Date: March 27, 2008 /s/ Brian Flower
Brian Flower, Chairman
60