DYNAMIC RESOURCES CORP.
(AN EXPLORATION STAGE COMPANY)
REPORT AND CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
DECEMBER 31, 2004 AND 2003
<1>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders,
Dynamic Resources Corp.
(An Exploration Stage Company)
We have audited the consolidated balance sheets of Dynamic Resources Corp. (An
Exploration Stage Company) as at December 31, 2004 and 2003 and the consolidated
statements of operations, shareholders' equity (deficiency) and cash flows for
the years ended December 31, 2004, 2003 and 2002 and for the period May 21, 1993
(Date of Incorporation) to December 31, 2004. These financial statements are
the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards and the 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Corporation as at December 31,
2004 and 2003 and the results of its operations and its cash flows for the years
ended December 31, 2004, 2003 and 2002 and for the period May 21, 1993 (Date of
Incorporation) to December 31, 2004 in accordance with Canadian generally
accepted accounting principles.
Vancouver, Canada "AMISANO HANSON"
April 26, 2005 Chartered Accountants
COMMENTS BY AUDITOR FOR US READERS ON CANADA - US REPORTING CONFLICT
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when there is
substantial doubt about a Corporation's ability to continue as a going concern.
The accompanying financial statements have been prepared on the basis of
accounting principles applicable to a going concern which assumes the
realization of assets and discharge of liabilities in the normal course of
business. As discussed in Note 1 to the accompanying financial statements, the
Corporation has a working capital deficiency, substantial losses from operations
and is presently inactive. Its ability to continue as a going concern is
dependent upon the ability of the Corporation to obtain the necessary financing
to meet its obligations and repay its liabilities arising from normal business
operations when they come due.
Our report to the shareholders dated April 26, 2005 is expressed in accordance
with Canadian reporting standards which do not permit a reference to such
uncertainty in the auditors' report when the uncertainty is adequately disclosed
in the financial statements.
Vancouver, Canada "AMISANO HANSON"
April 26, 2005 Chartered Accountants
<2>
DYNAMIC RESOURCES CORP.
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31
(Expressed in Canadian Dollars)
2004 2003
ASSETS
CURRENT
Cash $ 105,395 $ 2,501
Amounts receivable 13,868 2,822
Prepaid expenses 8,375 -
TOTAL CURRENT ASSETS 127,638 5,323
DUE FROM DIRECTORS (Note 7) 6,960 -
INVESTMENT IN LIMITED PARTNERSHIP (Note 4) 16,686,594 -
ADVANCES FOR RESOURCE PROPERTY EXPLORATION (Note 5) 19,492 -
MINERAL PROPERTIES (Schedule 1 and Note 5) 243,596 2000
TOTAL ASSETS $17,084,280 $ 7,323
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT
Accounts payable $ 104,754 $ 837,493
Due to director (Note 7) - 255,869
TOTAL CURRENT LIABILITIES 104,754 1,093,362
PROMISSORY NOTES PAYABLE (Note 4) 16,686,594 -
TOTAL LIABILITIES 16,791,348 1,093,362
SHAREHOLDERS' EQUITY (DEFICIENCY)
Capital stock (Notes 6 and 7) 15,014,117 13,380,595
Share subscriptions (Note 6) - 2,500
Contributed surplus (Note 6) 112,000 -
Accumulated deficit (14,833,185) (14,469,134)
Total shareholders' equity (deficiency) 292,932 (1,086,039)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $17,084,280 $ 7,323
(DEFICIENCY)
NATURE AND CONTINUANCE OF OPERATIONS (Note 1)
COMMITMENTS (Notes 6 and 8)
CONTINGENCY (Note 11)
SUBSEQUENT EVENTS (Note 12)
APPROVED ON BEHALF OF THE BOARD:
"Robert Fedun" Director "Glenn MacDonald" Director
- ----------------------------------------------------
SEE ACCOMPANYING NOTES
DYNAMIC RESOURCES CORP.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in Canadian Dollars)
Period From
Date of
Incorporation
on May 21,
Year Ended Year Ended Year Ended 1993 to
December 31, December 31, December 31, December 31,
2004 2003 2002 2004
ADMINISTRATIVE EXPENSES
Accounting and audit fees $ 38,747 $ 22,315 $ 29,599 $ 265,021
Amortization - - - 14,063
Consulting fees 160,130 - - 493,210
Interest 121 5,863 - 5,984
Investor relations costs 59,596 - - 482,396
Legal fees 17,037 16,997 20,000 200,390
Management fees (Note 7) 72,000 48,000 - 333,105
Office 12,896 753 - 238,131
Rent 16,070 8,564 - 162,988
Telephone 6,797 - - 189,825
Transfer agent and filing fees 30,968 2,314 - 161,991
Travel 35,269 - - 1,027,695
LOSS BEFORE OTHER ITEMS AND DISCONTINUED OPERATIONS (449,631) (104,806) (49,599) (3,574,799)
OTHER ITEMS
Capital tax - - - (6,212)
Capital assets written-off - - - (11,345)
Foreign exchange (loss) gain (21,690) 107,945 5,430 48,343
Interest and other income 2,000 - 332 26,003
Loss from disposal of oil and gas lease - - - (1,275)
Option to purchase interest in resource property - - - 2,000
Resource properties written-off - - - 7,708,774)
Resource properties written-down - - - (1,010,765)
Property investigation costs (7,067) - - (532,952)
Write-off of uncollectible advances - - - (176,243)
Gain on sale of marketable securities - - - 56,371
Gain on settlement of accounts payable - 1,466 199,935 201,401
Limited partnership income 4,860,558 - - 4,860,558
Interest on promissory notes (854,498) - - (854,498)
Write-down of investment in a limited partnership
(Note 4) (3,781,723) - - (3,781,723)
Stock-based compensation (112,000) - - (112,000)
85,580 109,411 205,697 (9,001,111)
- continued -
SEE ACCOMPANYING NOTES
DYNAMIC RESOURCES CORP.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in Canadian Dollars)
Period From
Date of
Incorporation
on May 21,
Year Ended Year Ended Year Ended 1993 to
December 31, December 31, December 31, December 31,
2004 2003 2002 2004
Continued
INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS (364,051) 4,605 156,098 (12,575,910)
DISCONTINUED OPERATIONS - - - (2,257,275)
NET INCOME (LOSS) FOR THE PERIOD $(364,051) $ 4,605 $ 156,098 $(14,833,185)
BASIC AND DILUTED EARNINGS (LOSS) PER COMMON
SHARE FROM CONTINUING OPERATIONS $ (0.02) $ 0.00 $ 0.04
BASIC AND DILUTED LOSS PER COMMON SHARE FROM
DISCONTINUED OPERATIONS $ 0.00 $ 0.00 $ 0.00
BASIC AND DILUTED EARNINGS (LOSS) PER COMMON
SHARE FOR THE PERIOD $ (0.02) $ 0.00 $ 0.04
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 19,595,448 3,854,657 3,854,657
SEE ACCOMPANYING NOTES
DYNAMIC RESOURCES CORP.
(An Exploration Stage Company)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIENCY)
(Expressed in Canadian Dollars)
Common Stock
Share
Subscriptions Contributed Accumulated
Shares Amount Received Surplus Deficit Total
Balance, December 31, 1993 - $ - $ - $ - $ - $ -
Issuance of shares for cash:
Pursuant to public offering - at $1.00 200,000 200,000 - - - 200,000
- share subscriptions - at $0.2778 180,000 50,000 - - - 50,000
- share subscriptions - at $0.3348 82,962 27,777 - - - 27,777
Net loss for the period ended December 31, 1994 - - - - (45,334) (45,334)
Balance, December 31, 1994 462,962 277,777 - - (45,334) 232,443
Issuance of shares for cash:
Pursuant to the exercise of share purchase options - at $1.00 20,000 20,000 - - - 20,000
- at $1.50 41,200 61,800 - - - 61,800
- at $5.00 8,000 40,000 - - - 40,000
Pursuant to the exercise of share purchase warrants- at $5.50 414,500 2,279,750 - - - 2,279,750
Pursuant to a private placement - at $1.70 500,000 850,000 - - - 850,000
Less: finders' fee - (85,000) - - - (85,000)
Pursuant to share purchase agreement - at $10.50 160,000 1,680,000 - - - 1,680,000
For finders' fee 12,857 135,000 - - - 135,000
Issuance of shares pursuant to property acquisition
agreements - at $17.00 10,000 170,000 - - - 170,000
10,000 178,000 - - - 178,000
Net loss for the year ended December 31, 1995 - - - - (914,654) (914,654)
Balance, December 31, 1995 1,639,519 5,607,327 - - (959,988) 4,647,339
Issuance of shares for cash:
Pursuant to private placements - at $6.00 336,667 2,020,000 - - - 2,020,000
Less: finders' fee - (127,500) - - - (127,500)
Less: commission - (3,580) - - - (3,580)
Pursuant to the exercise of share purchase options- at $8.00 57,150 457,200 - - - 457,200
- at $1.50 5,000 7,500 - - - 7,500
- at $5.00 77,000 385,000 - - - 385,000
- at $6.00 13,000 78,000 - - - 78,000
Pursuant to the exercise of share purchase warrants- at $5.50 85,500 470,250 - - - 470,250
- at $7.50 220,000 1,650,000 - - - 1,650,000
Issuance of shares pursuant to a property acquisition
agreement - at $8.50 25,000 212,500 - - - 212,500
Net loss for the year ended December 31, 1996 - - - - (7,039,774)(7,039,774)
- continued -
SEE ACCOMPANYING NOTES
DYNAMIC RESOURCES CORP.
(An Exploration Stage Company)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIENCY)
(Expressed in Canadian Dollars)
Common Stock
Share
Subscriptions Contributed Accumulated
Shares Amount Received Surplus Deficit Total
Continued
Balance, December 31, 1996 2,458,836 10,756,697 - - (7,999,762) 2,756,935
Issuance of shares for cash:
Pursuant to the exercise of share purchase options - at $2.00 82,750 165,500 - - - 165,500
Pursuant to private placements - at $2.10 200,000 420,000 - - - 420,000
- at $3.00 321,951 965,854 - - - 965,854
Issuance of shares for services:
Pursuant to share purchase options - at $2.00 4,000 8,000 - - - 8,000
Issuance of shares pursuant to property
acquisition agreement - at $6.00 25,000 150,000 - - - 150,000
Net loss for the year ended December 31, 1997 - - - - (2,017,700)(2,017,700)
Balance,December 31, 1997 3,092,537 12,466,051 - - (10,017,462) 2,448,589
Issuance of shares for cash:
Pursuant to the exercise of share purchase options - at $1.20 280,000 336,000 - - - 336,000
Pursuant to private placement - at $1.20 417,120 500,544 - - - 500,544
Issuance of shares for services:
Pursuant to share purchase warrants - at $1.20 65,000 78,000 - - - 78,000
Net loss for the year ended December 31, 1998 - - - - (4,453,051)(4,453,051)
Balance, December 31, 1998 3,854,657 13,380,595 - - (14,470,513)(1,089,918)
Net loss for the year ended December 31, 1999 - - - - (72,881) (72,881)
Balance, December 31, 1999 3,854,657 13,380,595 - - (14,543,394)(1,162,799)
Net loss for the year ended December 31, 2000 - - - - (35,111)` (35,111)
Balance, December 31, 2000 3,854,657 13,380,595 - - (14,578,505)(1,197,910)
Net loss for the year ended December 31, 2001 - - - - (51,332) (51,332)
Balance, December 31, 2001 3,854,657 13,380,595 - - (14,629,837)(1,249,242)
Net income for the year ended December 31, 2002 - - - - 156,098 156,098
Balance, December 31, 2002 3,854,657 13,380,595 - - (14,473,739)(1,093,144)
Share subscriptions - - 2,500 - - 2,500
Net income for the year ended December 31, 2003 - - - - 4,605 4,605
- continued -
SEE ACCOMPANYING NOTES
DYNAMIC RESOURCES CORP.
(An Exploration Stage Company)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIENCY)
(Expressed in Canadian Dollars)
Common Stock
Share
Subscriptions Contributed Accumulated
Shares Amount Received Surplus Deficit Total
Continued
Balance, December 31, 2003 3,854,657 13,380,595 2,500 - 14,469,134) (1,086,039)
Pursuant to the acquisition of mineral properties - at $0.01 200,000 2,000 - - - 2,000
- at $0.05 2,750,000 137,500 - - - 137,500
Issuance of shares for cash:
Pursuant to private placement - at $0.05 11,655,986 582,799 (2,500) - - 580,299
Less: finders' fees paid - (3,000) - - - (3,000)
Finders' fee on private placement - at $0.05 100,000 - - - - -
Pursuant to debt settlement agreements - at $0.05 - $0.15 15,021,839 936,382 - - - 936,382
Less: share issue costs - (22,159) - - - (22,159)
Stock-based compensation - - - 112,000 - 112,000
Net loss for the period ended December 31, 2004 - - - - (364,051) (364,051)
Balance, December 31, 2004 33,582,482 $15,014,117 $ - $112,000 $(14,833,185) $ 292,932
SEE ACCOMPANYING NOTES
DYNAMIC RESOURCES CORP.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in Canadian Dollars)
Period From
Date of
Incorporation
on May 21,
Year Ended Year Ended Year Ended 1993 to
December 31, December 31, December 31, December 31,
2004 2003 2002 2004
CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) from continuing operations for the period $(364,051) $ 4,605 $ 156,098 $(12,575,910)
Items not affecting cash:
Amortization - - - 14,063
Capital assets written-off - - - 11,345
Loss from disposal of oil and gas lease - - - 1,275
Resources properties written-off - - - 7,708,774
Resources properties written-down - - - 1,010,765
Stock-based compensation 112,000 - - 112,000
Write-off of uncollectible advances - - - 176,243
Gain on sale of marketable securities - - - (56,371)
Gain on settlement of accounts payable - - (199,935) (199,935)
Limited partnership income (4,860,558) - - (4,860,558)
Write-down of investment in a limited partnership 3,781,723 - - 3,781,723
Interest on promissory notes 854,498 - - 854,498
Changes in non-cash working capital items:
Amounts receivable (11,046) (2,822) 3,771 (13,868)
Prepaid expenses (8,375) - - (8,375)
Accounts payable (22,249) (72,394) 40,066 1,013,179
Net cash flows used in operating activities (518,058) (70,611) - (3,031,152)
CASH FLOWS FROM INVESTING ACTIVITIES
Distributions from limited partnership 1,151,371 - - 1,151,371
Acquisition of capital assets - - - (25,408)
Advances for research property exploration (19,492) - - (19,492)
Resource properties costs (104,096) - - (6,298,135)
Proceeds from sale of oil and gas interest - - - 47,863
Proceeds from sale of subsidiary - - - 10
Cash acquired from investment in subsidiary - - - 132,160
Cash disposed of from sale of subsidiary - - - (1,693)
Net cash flows provided by (used in) investingactivities
1,027,783 - - (5,013,324)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on issuance of capital stock 557,640 - - 11,412,735
Share subscriptions received (2,500) 2,500 - -
Repayment of promissory notes (927,034) - - (927,034)
Advances receivable - - - (176,243)
Advances from (to) directors (34,937) 70,531 - 220,932
Net cash flows provided by (used in) financingactivities
(406,831) 73,031 - 10,530,390
- continued -
SEE ACCOMPANYING NOTES
DYNAMIC RESOURCES CORP.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in Canadian Dollars)
Period From
Date of
Incorporation
on May 21,
Year Ended Year Ended Year Ended 1993 to
December 31, December 31, December 31, December 31,
2004 2003 2002 2004
Continued
CHANGE IN CASH FROM CONTINUING OPERATIONS 102,894 2,420 - 2,485,914
DECREASE IN CASH FROM DISCONTINUED OPERATIONS - - - (2,380,519)
CHANGE IN CASH FOR THE PERIOD 102,894 2,420 - 105,395
CASH, BEGINNING OF PERIOD 2,501 81 81 -
CASH, END OF PERIOD $ 105,395 $ 2,501 $ 81 $ 105,395
CASH PAID FOR INTEREST $ - $ - $ -
CASH PAID FOR INCOME TAXES $ - $ - $ -
SUPPLEMENTAL DISCLOSURES WITH RESPECT TO CASH FLOWS (Note 9)
SEE ACCOMPANYING NOTES
DYNAMIC RESOURCES CORP. Schedule 1
(An Exploration Stage Company)
SCHEDULE OF MINERAL PROPERTIES
for the years ended December 31, 2004 and 2003
(Expressed in Canadian Dollars)
Franklin
Creek Good Hope TB 1-12 MAG 1-2 2004 2003
Acquisition Costs
Balance, beginning of the year $ 2,000 $ - $ - $ - $ 2,000 $ -
Additions:
Cash - 20,401 15,000 5,000 40,401 -
Common shares - 50,000 50,000 37,500 137,500 2,000
Option payments - 6,363 - - 6,363 -
Staking and land taxes 2,500 16,483 - - 18,983 -
4,500 93,247 65,000 42,500 205,247 2,000
Deferred Exploration Costs
Balance, beginning of the year - - - - - -
Additions:
Consulting 5,000 3,339 - - 8,339 -
Other 6,205 6,362 - - 12,567 -
Third-party exploration - 13,395 - - 13,395 -
Travel and accommodations 4,048 - - - 4,048 -
15,253 23,096 - - 38,349 -
Total costs, end of the year $ 19,753 $116,343 $ 65,000 $ 42,500 $243,596 $ 2,000
SEE ACCOMPANYING NOTES
DYNAMIC RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
(Expressed in Canadian Dollars)
1. NATURE AND CONTINUANCE OF OPERATIONS
Dynamic Resources Corp. (the "Corporation") was incorporated under the
Alberta Business Corporations Act on May 21, 1993 and is listed for
trading on the Canadian Trading and Quotation System Inc. ("CNQ") and the
Pink Sheets in the United States of America.
The Corporation is in the exploration stage and is in the process of
exploring and developing its resource properties and has not yet
determined whether these properties contain reserves that are economically
recoverable. The recoverability of amounts shown for resource properties
and related deferred exploration expenditures are dependent upon the
discovery of economically recoverable reserves, confirmation of the
Corporation's interest in the underlying mineral claims, the ability of
the Corporation to obtain necessary financing to complete the development
of the resource properties and upon future profitable production or
proceeds from the disposition thereof.
These consolidated financial statements have been prepared on a going
concern basis which presumes that the Corporation will be able to realize
its assets and discharge its liabilities in the normal course of business
for the foreseeable future. As at December 31, 2004, the Corporation has
not achieved profitable operations and has accumulated $14,833,185 in
losses since inception. The Corporation's ability to continue as a going
concern is dependent upon the ability of the Corporation to generate
profitable operations in the future and/or to obtain the necessary
financing to meet its obligations and repay its liabilities arising from
normal business operations when they come due. The outcome of these
matters cannot be predicted with any certainty at this time and raise
substantial doubt that the Corporation will not be able to continue as a
going concern. These financial statements do not give effect to
adjustments that would be necessary to the carrying values and
classification of assets and liabilities should the Corporation be unable
to continue as a going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of the Corporation have been
prepared in accordance with Canadian generally accepted accounting
principles and are stated in Canadian dollars and, except as described in
Note 13, conform in all material respects with accounting principles
generally accepted in the United States of America. The financial
statements have, in management's opinion, been properly prepared within
the framework of significant accounting policies summarized below:
A) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Corporation and its inactive wholly owned subsidiaries, 663654 Alberta
Ltd. and 679443 Alberta Ltd. The consolidated financial statements
have been consolidated using the purchase method. All inter-company
transactions and balances have been eliminated upon consolidation.
B) USE OF ESTIMATES
Management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
C) INVESTMENT IN LIMITED PARTNERSHIP
The Company accounts for its investment in a limited partnership using
the cost basis, whereby the initial investment is recorded at cost and
earnings are recorded only to the extent accrued or receivable. The
carrying cost of this investment is written-down to fair value if there
is a permanent impairment in its carrying value.
DYNAMIC RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
(Expressed in Canadian Dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
D) MINERAL PROPERTIES
The acquisition of resource properties are recorded at cost.
Exploration and development costs relating to these properties are
deferred until the properties are brought into production, at which
time the costs are amortized on the unit of production basis, or until
the properties are abandoned or sold, at which time the costs are
written off, or considered to be impaired in value. Resource
properties are abandoned, when the claims are no longer in good
standing or the agreements covering the claims are in default, and in
either case management has determined that abandonment is appropriate.
Abandoned properties and write-downs due to impairment are charged to
operations.
The Corporation is in the process of exploring and developing its
mineral properties and has not yet determined the amount of reserves
available. Management reviews the carrying value of mineral properties
on a periodic basis and will recognize impairment in value based upon
current exploration results, the prospect of further work being carried
out by the Corporation, the assessment of future probability of
profitable revenues from the property or from the sale of the property.
Amounts shown for properties represent costs incurred net of write-
downs and recoveries, and are not intended to represent present or
future values.
E) ENVIRONMENTAL COSTS
Environmental expenditures that relate to current operations are
expensed or capitalized as appropriate. Expenditures that relate to an
existing condition caused by past operations and which do not
contribute to current or future revenue generation are expensed.
Liabilities are recorded when environmental assessments and/or remedial
efforts are probable, and the costs can be reasonably estimated.
Generally, the timing of these accruals coincides with the earlier of
completion of a feasibility study or the Company's commitment to a plan
of action based on the then known facts. The Corporation does not
anticipate any material capital expenditures for environmental costs as
it is at an early stage of exploration.
F) EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing the income
(loss) for the year by the weighted average number of common shares
outstanding during the year. Diluted earnings (loss) per share
reflects the potential dilution that could occur if potentially
dilutive securities were exercised or converted to common stock. The
dilutive effect of options and warrants and their equivalent is
computed by application of the treasury stock method and the effect of
convertible securities by the "if converted" method. Fully diluted
amounts are not presented when the effect of the computations are anti-
dilutive due to losses incurred. Accordingly, there is no difference
in the amounts presented for basic and diluted loss per share.
G) FOREIGN CURRENCY TRANSLATION
The Company considers its function currency to be the Canadian dollar.
Monetary items that are denominated in a foreign currency are
translated into Canadian dollars at exchange rates prevailing at the
balance sheet date and non-monetary items are translated at exchange
rates prevailing when the assets were acquired or obligations incurred.
Foreign currency denominated revenue and expense items are translated
at the average rates of exchange during the year. Gains or losses
arising from the translation are included in operations.
DYNAMIC RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
(Expressed in Canadian Dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
h) INCOME TAXES
The Company has adopted the liability method of accounting for income
taxes. Future income tax assets and liabilities are determined based
on the differences between the tax basis of assets and liabilities and
those reported in the financial statements. The future tax assets or
liabilities are calculated using the tax rates for the periods in which
the differences are expected to be settled. Future tax assets are
recognized to the extent that they are considered more likely than not
to be realized.
I) FINANCIAL INSTRUMENTS
The carrying value of cash, accounts payable and due to a director
approximate fair value because of the short maturity of those
instruments. Promissory notes payable also approximates fair value.
Unless otherwise noted, it is management's opinion that the Corporation
is not exposed to significant interest, currency or credit risks
arising from these financial instruments.
I) STOCK BASED COMPENSATION
The Corporation has a stock option plan as described in Note 6.
Pursuant to CICA Handbook Section 3870, "Stock-Based Compensation and
Other Stock-Based Payments", effective for fiscal years on or after
January 1, 2004, the Corporation recognizes the fair value of all share
purchase options and expenses this value over their vesting period with
a corresponding increase to contributed surplus. Upon exercise of
share purchase options, the consideration paid by the option holder,
together with the amount previously recognized in contributed surplus,
is recorded as an increase to share capital. Previously only share
purchase options granted to non-employees followed this method and
options granted to employees were not expensed. The Corporation has
adopted the new policy on a retroactive basis with no restatement of
prior periods. However, as there were no share purchase options
granted during the years ended December 31, 2002 and 2003, there is no
adjustment required.
3. ACQUISITION OF SUBSIDIARIES
663654 ALBERTA LTD.
By an agreement dated September 15, 1995 the Corporation acquired 100% of
the issued and outstanding shares of 663654 Alberta Ltd., by the issuance
of 1,600,000 common shares of the Corporation at a deemed price of $1.05
per share ($1,680,000).
663654 Alberta Ltd.'s principal business was the development of oil and
gas properties. This subsidiary is inactive having abandoned its oil and
gas properties during the year ended December 31, 1996.
679443 ALBERTA LTD.
The Corporation acquired 100% of the issued and outstanding shares of
679443 Alberta Ltd. on April 3, 1996 for $1. 679443 Alberta Ltd.'s
principal business was the development of oil and gas properties. This
subsidiary is inactive having disposed of its oil and gas properties
during the year ended December 31, 1998.
DYNAMIC RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
(Expressed in Canadian Dollars)
4. INVESTMENT IN LIMITED PARTNERSHIP AND PROMISSORY NOTES
During the year ended December 31, 2004, the Corporation acquired an
interest in a limited partnership (the "Partnership") involved in the
petroleum and natural gas industry for $16,759,130. In consideration, the
Corporation issued to the vendors promissory notes totalling $16,759,130
which bear interest at 4.75% and are all repayable on or before November
30, 2008. The promissory notes are entirely secured by a charge on the
Company's interest in the Partnership. The promissory notes payable
balance of $16,686,594 as at December 31, 2004 included accrued interest
of $452,119.
At December 31, 2004, the investment in the partnership was written down
by $3,781,723.
5. MINERAL PROPERTIES
FRANKLIN CREEK PROPERTIES
By agreement dated October 1, 2002, the Corporation acquired the rights to
a 100% interest in 16 mineral property claims located in the Whitehorse
Mining District, Yukon Territory, Canada. As consideration for this
acquisition, the Corporation issued 200,000 (2,000,000 pre-consolidated)
common shares valued at $2,000.
GOOD HOPE PROPERTY
Pursuant to an agreement dated February 26, 2004, the Corporation was
granted an option to earn a 60% interest in 97 mining claims situated in
the Elko County, Nevada, U.S.A. (the "Claims"). To earn its interest, the
Corporation is required to pay US$90,000 to the optioner over three years
as follows:
- US$15,000 on February 26, 2004 (paid);
- US$20,000 on or before February 26, 2005;
- US$25,000 on or before February 26, 2006;
- US$30,000 on or before February 26, 2007.
Issue 1,000,000 common shares of the Corporation to the optionor as
follows:
- 500,000 shares on May 1, 2004 (issued);
- 500,000 shares on or before November 1, 2004 (issued).
Expend US$600,000 on exploration of the claims as follows:
- US$100,000 on or before February 26, 2005;
- US$200,000 on or before February 26, 2006;
- US$300,000 on or before February 26, 2007.
DYNAMIC RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
(Expressed in Canadian Dollars)
5. MINERAL PROPERTIES (cont'd)
GOOD HOPE PROPERTY (cont'd)
The optionor will act as operator. Once the option has been fully earned,
the optionor will have 120 days in which to provide written notice
electing to either:
a) form a joint venture in which the Corporation would have a 60%
interest and the optionor 40%;
b) not participate in a joint venture, in which event the Corporation
will be deemed to have earned an undivided 100% interest in the
Claims and the optionor shall be granted a 3% net smelter return
royalty. The Corporation will have the right at any time to
purchase up to two of the 3% royalty points by paying $1,000,000 per
royalty percentage point to the optionor.
As at December 31, 2004, the Corporation has advances of $19,492 with the
operator for future exploration on the claims.
TB 1-12 PROPERTIES
The Corporation entered into an agreement dated June 9, 2004, to acquire
the rights to a 100% interest in certain mineral claims located in the
South Mining District of the Northwest Territories, Canada. As
consideration, the Corporation paid $15,000 cash and, issued 1,000,000
common shares valued at $0.05 per share or $50,000.
MAG 1-2 CLAIMS
The Corporation entered into an agreement dated August 17, 2004 to acquire
a 100% interest in certain mineral claims located in the South Mining
District of the Northwest Territories, Canada. As consideration, the
Corporation paid $5,000 cash and issued 750,000 common shares value at
$0.05 per share or $37,500.
6. CAPITAL STOCK
AUTHORIZED:
An unlimited number of common shares
An unlimited number of preferred shares
Preferred shares may be issued in one or more series and the directors are
authorized to fix the number of shares in each series and to determine the
designation, rights, privileges, restrictions and conditions attached to
the shares of each series.
During the year ended December 31, 2004, the Corporation consolidated its
common stock on the basis of ten old shares for one new share. All
references to share amounts have been retroactively restated to give
effect to the share consolidation.
The Corporation issued 11,655,986 units pursuant to private placements for
gross proceeds of $582,799 of which $2,500 was received during the year
ended December 31, 2003. Each unit consists of one share of common stock
and one share purchase warrant entitling the holder to purchase one
additional common share at $0.15 per share for a period of two years. The
Corporation also issued 100,000 shares of common stock at a fair value of
$0.05 per share as a financing fee.
DYNAMIC RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
(Expressed in Canadian Dollars)
6. CAPITAL STOCK (cont'd)
AUTHORIZED: (cont'd)
The Corporation issued 200,000 common shares at a fair value of $2,000 and
2,750,000 common shares at a fair value of $137,500 pursuant to the
acquisition of mineral properties.
The Corporation issued 15,021,839 common shares in settlement of accounts
payable of $733,491 and due to related parties of $202,891 at prices
ranging from $0.05 to $0.15 per share.
COMMITMENTS
a) Mineral properties - Note 4
b) Stock-based Compensation Plan
The Corporation has granted directors and a consultant common share
purchase options. A summary of the stock option plan is presented
below:
-------------------------------------------------------------------------
2004 2003
-------------------------------------------------------------------------
Weighted Weighted
Average Average
Number Exercise Number Exercise
Of Shares Price Of Shares Price
-------------------------------------------------------------------------
Outstanding, beginning of year - - - -
Granted 2,700,000 $0.10 - -
Outstanding and exercisable,
at end of year 2,700,000 $0.10 - -
-------------------------------------------------------------------------
As at December 31, 2004:
i) 2,400,000 directors' share purchase options were outstanding
entitling the holder thereof the right to acquire 2,400,000 common
shares at $0.10 per share until October 1, 2009;
ii) 300,000 share purchase options granted to a consultant were
outstanding entitling the holder thereof the right to acquire
300,000 common shares at $0.10 per share until December 9, 2009.
During the year ended December 31, 2004, the fair value of stock
options granted was determined to be $112,000. The Corporation uses
the Black-Scholes option valuation model to calculate the fair value of
share purchase options at the date of the grant. Option pricing models
require the input of highly subjective assumptions, including the
expected price volatility. Changes in these assumptions can materially
affect the fair value estimate and, therefore, the existing do not
necessarily provide a reliable single measure of the fair value of the
Corporation's share purchase options.
DYNAMIC RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
(Expressed in Canadian Dollars)
6. CAPITAL STOCK (cont'd)
COMMITMENTS (cont'd)
b) Stock-based Compensation Plan (cont'd)
The 2004 assumptions used for the Black-Scholes model are as follows:
Expected dividend yield 0.0%
Expected volatility 101%
Risk-free interest rate 3.00%
Expected term in years 5 years
c) Share Purchase Warrants
At September 30, 2004, the Corporation had 11,655,986 share purchase
warrants outstanding enabling holders to acquire the following shares
of common stock:
---------------------------------------------------------
Number of Shares Exercise Price Expiry Date
---------------------------------------------------------
8,145,986 $ 0.15 April 19, 2006
60,000 $ 0.15 August 9, 2006
3,450,000 $ 0.15 December 9, 2006
---------------------------------------------------------
7. RELATED PARTY TRANSACTIONS
The Corporation incurred the following expenses charged by a director of
the Corporation:
----------------------------------------------------------------------
Period From
Date of
Incorporation
on May 21,
Year Ended Year Ended Year Ended 1993 to
December 31, December 31, December 31, December 31,
2004 2003 2002 2004
----------------------------------------------------------------------
Management fees $ 72,000 $ 48,000 $ - $ 333,105
----------------------------------------------------------------------
These charges were measured by the exchange amount, which is the amount
agreed upon by the transacting parties.
The amounts due to/from directors of the Corporation are unsecured, non-
interest bearing and have no specified terms for repayment.
DYNAMIC RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
(Expressed in Canadian Dollars)
7. RELATED PARTY TRANSACTIONS (cont'd)
During the year ended December 31, 2004, the Corporation issued:
i) 4,057,820 shares of common stock to a director of the Corporation in
settlement of $202,891 due to this director, and
ii) 100,000 at $0.05 per unit pursuant to a private placement to a
director of the Corporation. Each unit consists of one share of
common stock and one share purchase warrant entitling the director to
purchase one additional common share at $0.15 per share for a period
of two years.
8. CORPORATION INCOME TAXES
Future income tax assets and liabilities are recognized for temporary
differences between the carrying amount of the balance sheet items and
their corresponding tax values as well as for the benefit of losses
available to be carried forward to future years for tax purposes that are
likely to be realized. Significant components of the Corporation's future
tax assets and liabilities, after applying enacted corporation income tax
rates, are as follows:
--------------------------------------------------------------------------
2004 2003
--------------------------------------------------------------------------
Future income tax assets:
Net tax non-capital losses carried forward $1,200,575 $2,271,564
Resource deductions 657,072 794,962
Share issue costs 7,044 -
Valuation allowance for future income tax assets (1,864,691) (3,066,526)
Net future income tax assets $ - $ -
--------------------------------------------------------------------------
Management considers it more likely than not that the amounts will not be
utilized and accordingly a full valuation allowance has been applied.
At December 31, 2004, the Corporation has accumulated non-capital losses
totaling $3,430,215 which may be applied against future years' taxation
income. These losses expire as follows:
2005 $1,092,950
2006 836,954
2007 600,105
2008 464,033
2009 436,173
$3,430,215
At December 31, 2004, the Corporation has accumulated Canadian and foreign
Exploration and Development expense pools totaling $1,877,349. These
expenses can be utilized to offset future years' taxable income at various
rates and are available indefinitely.
DYNAMIC RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
(Expressed in Canadian Dollars)
9. SUPPLEMENTAL DISCLOSURES WITH RESPECT TO CASH FLOWS
Investing and financing activities that do not have a direct impact on
current cash flows are excluded from the statement of cash flows. The
following transactions have been excluded from the statement of cash flows
for the year ended December 31, 2004:
a) Pursuant to mineral property acquisition agreements, the Corporation
issued:
- 2,750,000 common shares at $0.05 per share for a fair value of
$137,500; and
- 200,000 common shares at $0.01 per share for a fair value of
$2,000.
b) The Corporation issued 15,021,839 common shares at $0.05 per share to
settle accounts payable of $733,491 and due to related parties of
$202,891.
c) The Corporation issued 100,000 common shares at $0.05 per share as a
finder's fee on a private placement.
d) The Corporation acquired an interest in a limited partnership (Note
4) for $16,759,130. In consideration, the Corporation issued to the
vendors promissory notes totalling $16,759,130.
There were no significant non-cash transactions for the years ended
December 31, 2003 and 2002.
10. SEGMENTED INFORMATION
The Corporation operates in one reportable segment being the exploration
of mineral properties and considers its loss from operations for the
period ended December 31, 2004 to relate to this segment.
The Corporation has mineral properties located in Canada and the U.S.A.
and conducts its administrative activities primarily in Canada. The total
amount of assets attributable to Canada is $16,948,445 and the U.S.A is
$135,835.
11. CONTINGENCY
During the year December 31, 2002, a Third Party Notice was filed against
the Corporation in respect to a breach of an oil and gas permit and
service lease and breach of statutory duties to reclaim the subject land.
The Corporation was advised that a defence is not required at this time.
The estimated cost on this claim, should the Corporation be unsuccessful
in its defence of this claim, is undeterminable.
12. SUBSEQUENT EVENTS
i) On February 4, 2005, the Corporation granted a consultant common share
purchase options to purchase 500,000 common shares at $0.10 per share
expiring February 4, 2010.
ii)On April 18, 2005, the Corporation has indicated its intention to
complete a private placement of up to 4,000,000 units at $0.05 per
unit. Each unit is to consist of one common share and one share
purchase warrant exercisable at $0.15 for a period of two years from
closing.
DYNAMIC RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
(Expressed in Canadian Dollars)
13. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in Canada ("Canadian GAAP").
Material variations in the accounting principles, practices and methods
used in preparing these consolidated financial statements from principles,
practices and methods accepted in the United States ("U.S. GAAP") are
described and quantified below.
A) MINERAL PROPERTIES AND DEFERRED EXPLORATION COSTS
Under Canadian GAAP, mineral property acquisition and exploration costs
may be deferred and amortized to the extent they meet certain criteria
unless commercial feasibility is established. Under U.S. GAAP, mineral
property acquisition and exploration costs must be expensed as
incurred. Therefore, an additional expense is required under U.S.
GAAP.
B) NEW ACCOUNTING STANDARDS
Management does not believe that any recently issued, but not yet
effective, accounting standards if currently adopted could have a
material effect on the accompanying financial statements.
The impact of the above differences between Canadian GAAP and U.S. GAAP on
the consolidated balance sheet items is as follows:
2004 2003
Balance Balance
as per Balance as per Balance
Canadian as per Canadian as per
GAAP Adjustments U.S. GAAP GAAP Adjustments U.S. GAAP
Current assets $127,638 $ - $127,638 $ 5,323 $ - $ 5,323
Due from directors 6,960 - 6,960 - - -
Investment in limited
partnership 16,686,594 - 16,686,594 - - -
Advances for resource
property exploration 19,492 - 19,492 - - -
Mineral properties 243,596 (243,596) - 2,000 (2,000) -
$17,084,280 $ (243,596) $16,840,684 $ 7,323 $ (2,000) $ 5,323
Total liabilities $16,791,348 $ - $16,791,348 $1,093,362 $ - $1,093,362
Shareholders'
equity (deficiency) 292,932 (243,596) 49,336 (1,086,039) (2,000) (1,088,039)
$17,084,280 $ (243,596) $16,840,684 $ 7,323 $ (2,000) $ 5,323
DYNAMIC RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
(Expressed in Canadian Dollars)
13. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES
(cont'd)
The impact of the above differences between Canadian GAAP and U.S. GAAP
on the consolidated loss for the period is as follows:
Period From
Date of
Incorporation
on May 21,
Year Ended Year Ended Year Ended 1993 to
December 31, December 31, December 31, December 31,
2004 2003 2002 2004
Continuing operations
Income (loss) from continuing operations
for the period per Canadian GAAP $(364,051) $ 4,605 $ 156,098 $(12,575,910)
Mineral properties written-off - - - 7,708,774
Mineral properties written-down - - - 1,010,765
Mineral property costs incurred (241,596) - (2,000) (8,963,135)
Income (loss) from continuing operations
for the period per U.S. GAAP (605,647) 4,605 154,098 (12,819,506)
Discontinued operations
Loss from discontinued operations for the
period per Canadian GAAP - - - (2,257,275)
Resource properties written-off - - - 2,051,539
Resource property costs incurred - - - (2,051,539)
Loss from discontinued operations for the
period per U.S. GAAP - - - (2,257,275)
Net income (loss) for the period per
U.S. GAAP $(605,647) $ 4,605 $ 154,098 $(15,076,781)
Earnings (loss) per share from continuing
operations per U.S. GAAP $ 0.03 $ 0.01 $ 0.04
Earnings (loss) per share from discontinued
operations per U.S. GAAP $ 0.00 $ 0.00 $ 0.00
Earnings (loss) per share per U.S. GAAP $ 0.03 $ 0.01 $ 0.04
Weighted average number of shares
outstanding per U.S. GAAP 19,595,448 3,854,657 3,854,657
DYNAMIC RESOURCES CORP.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
(Expressed in Canadian Dollars)
13. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES
(cont'd)
The impact of the above difference between Canadian GAAP and U.S. GAAP on
the consolidated statements of cash flows is as follows:
Period From
Date of
Incorporation
on May 21,
Year Ended Year Ended Year Ended 1993 to
December 31, December 31, December 31, December 31,
2004 2003 2002 2004
Cash flows used in operating activities,
Canadian GAAP $ (518,058) $(70,611) $ - $(3,031,152)
Adjustments to mineral properties (241,596) - - (6,435,635)
Cash flows used in operating activities,
U.S. GAAP (759,654) (70,611) - (9,466,787)
Cash flows used in investing activities,
Canadian GAAP 1,027,783 - - (5,013,324)
Adjustments to mineral properties 241,596 - - 6,435,635
Cash flows provided by (used in)investing activities, U.S. GAAP
1,269,379 - - 1,422,311
Cash flows provided by (used in) financing activities, Canadian and U.S. GAAP (406,831) 73,031 - 10,530,390
Decrease in cash from discontinued operations - - - (2,380,519)
Change in cash for the period 102,894 2,420 - 105,395
Cash, beginning of period 2,501 81 81 -
Cash, end of period $ 105,395 $ 2,501 $ 81 $ 105,395
DYNAMIC RESOURCES CORP.
(Expressed in Canadian Dollars)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
13. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES
(cont'd)
The impact of the above difference between Canadian and U.S. GAAP on the
consolidated statement of shareholders' equity (deficiency) is as follows:
- ------------------------------------------------------------------------
Shareholders' deficiency per U.S. GAAP, December 31, 1996 $ (562,690)
Add: Issue of shares 1,709,354
Less: 1997 operating loss (2,017,700)
Less: 1997 mineral property acquisition costs (878,229)
Add: 1997 mineral property costs written-off 571,823
Add: 1997 mineral property costs written-down 35,857
Shareholders' deficiency per U.S. GAAP, December 31, 1997 (1,141,585)
Add: Issue of shares 914,544
Less: 1998 operating loss (4,453,051)
Less: 1998 mineral property acquisition costs (69,303)
Add: 1998 mineral property costs written-off 3,659,477
Shareholders' deficiency per U.S. GAAP, December 31, 1998 (1,089,918)
Less 1999 operating loss (72,881)
Shareholders' deficiency per U.S. GAAP, December 31, 1999 (1,162,799)
Less: 2000 operating loss (35,111)
Shareholder' deficiency per U.S. GAAP, December 31, 2000 (1,197,910)
Less: 2001 operating loss (51,332)
Shareholders' deficiency per U.S. GAAP, December 31, 2001 (1,249,242)
Add: 2002 operating income 154,098
Shareholders' deficiency per U.S. GAAP, December 31, 2002 (1,095,144)
Add: 2003 operating income 4,605
Add: Share subscriptions received 2,500
Shareholders' deficiency per US GAAP, December 31, 2003 (1,088,039)
Add: Issue of shares 1,633,522
Less: Share subscriptions received in 2003 (2,500)
Add: Stock-based compensation 112,000
Less: 2004 operating loss (605,647)
Shareholders' equity per US GAAP, December 31, 2004 $ 49,336
- ---------------------------------------------------------------------------
Endnotes
<1>A PARTNERSHIP OF INCORPORATED PROFESSIONALS AMISANO HANSON
CHARTERED ACCOUNTANTS
<2>750 WEST PENDER STREET, SUITE 604 TELEPHONE:604-689-0188
VANCOUVER CANADA FACSIMILE:604-689-9773
V6C 2T7 E-MAIL: amishan@telus.net