[ ] Registration statement pursuant to Section 12(b)
or (g) of the Securities Exchange Act of 1934
or
[X] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
[ ] Transition report pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
[ ] Shell Company Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934.
Securities registered or to be registered pursuant to section
12(b) of the Act:
Securities registered or to be registered pursuant to Section
12(g) of the Act:
Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act:
Indicate the number of outstanding shares of each of the
issuers classes of capital or common stock as of the close of the period
covered by the annual report.
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
[
] Yes [X] No
If this report is an annual or transition report, indicate by
check mark if the registrant is not required to file reports pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934.
[ ]
Yes [X] No
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes
[ ] No
Indicate by check mark wether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such
files).
[ ] Yes [X] No (Not Required)
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of accelerated filer and large accelerated filer in Rule 12b-2 of
the Exchange Act. (Check one):
Large accelerated filer [
] Accelerated filer
[ ]
Non-accelerated filer [X]
Indicate by check mark which basis of accounting the registrant
has used to prepare the financial statements included in this filing
If Other has been checked in response to previous question,
indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 [X] Item 18 [
].
If this is an annual report, indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[ ] Yes [X] No
This Annual Report on Form 20-F and exhibits attached hereto
contain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 and Canadian securities laws. Such
forward-looking statements concern the Companys plans for its properties,
operations and other matters. T hese statements relate to analyses and other
information that are based on forecasts of future results, estimates of amounts
not yet determinable and assumptions of management. Statements concerning
estimates of mineral resources and reserves may also be deemed to constitute
forward-looking statements to the extent that they involve estimates of the
mineralization that will be encountered if the property is developed, and in the
case of mineral reserves, such statements reflect the conclusion based on
certain assumptions that the mineral deposit can be economically exploited. Any
statements that express or involve discussions with respect to predictions,
expectations, beliefs, plans, projections, objectives, assumptions or future
events or performance (often, but not always, using words or phrases such as
expects or does not expect, is expected, anticipates or does not
anticipate, plans, estimates or intends, or stating that certain actions,
events or results may, could, would, might or will be taken, occur or
be achieved) are not statements of historical fact and may be forward-looking
statements. Forward-looking statements are subject to a variety of risks and
uncertainties, which could cause actual events or results to differ from those
reflected in the forward-looking statements, including, without limitation:
This list is not exhaustive of the factors that may affect our
forward-looking statements. Some of the important risks and uncertainties that
could affect forward-looking statements are described in this Annual Report on
Form 20-F under
Description of the Business Risk Factors
. Should one
or more of these risks and uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
described in forward-looking statements. Forward-looking statements are made
based on managements beliefs, estimates and opinions on the date the statements
are made. Investors are cautioned against attributing undue certainty to
forward-looking statements.
PART I
ITEM
1.
Identity of Directors, Senior Management and Advisors
1.1
Directors and Senior Management:
Linda J. Smith
#203-409 Granville Street, Vancouver,
British Columbia, V0R 1X0, Canada
|
President, Chief Executive Officer and Director
|
Darcy T. Krell
#203-409 Granville Street, Vancouver,
British Columbia, V0R 1X0, Canada
|
Secretary, General Manager and Director
|
J. Ronald McGregor
#203-409 Granville Street,
Vancouver,
British Columbia, V0R 1X0, Canada
|
Chief Financial Officer, Director
|
Steven J. Chan
#203-409 Granville Street, Vancouver,
British Columbia, V0R 1X0, Canada
|
Director
|
James O. Burns
#203-409 Granville Street, Vancouver,
British Columbia, V0R 1X0, Canada
|
Director
|
Brian A. Lueck
#203-409 Granville Street, Vancouver,
British Columbia, V0R 1X0, Canada
|
Director
|
Mark H. Holden
#203-409 Granville Street, Vancouver
British
Columbia, V0R 1X0, Canada
|
Director
|
1.2
Advisors:
Doug Eacrett,
Barrister & Solicitor, Suite 203
409 Granville St,
Vancouver BC, Canada V6C 1T2
|
Company Lawyer
|
Dale Rondeau
C/o Thomas Rondeau, LLP, Business Lawyers
Suite 300 576 Seymour St, Vancouver,
British Columbia, V6B 3K1,
Canada
|
Special Canadian Securities Counsel
|
Thomas E. Puzzo, Esq.
Law Offices of Thomas E. Puzzo,
PLLC
382344
th
Ave. NE, Seattle, Washington 98105, USA
|
Special US Securities Counsel
|
Ms. Caitlin Jeffs, H.B.Sc., P.Geo,
Mr. Michael
Thompson, H.B.Sc., P.Geo,
C/o Fladgate Exploration Consulting
Corporation
195 Park Avenue, Thunder Bay
Ontario, P7B 1B9, Canada.
|
Consulting Geologists
|
6
1.3
Auditor:
Dale Matheson Carr-Hilton Labonte LLP,
Chartered
Accountants,
Suite 1500 1140 West Pender Street,
Vancouver BC,
Canada V6E 4G1
|
Replaced Morgan & Company during the year
ended January 31, 2009
|
Our auditors are members in good standing with the Institute of
Chartered Accountants of British Columbia and are registered with the Canadian
Public Accountability Board (CPAB) and the Public Company Accounting Oversight
Board - United States (PCAOB).
ITEM
2.
Offer Statistics and Expected Timetable
Not applicable
ITEM
3.
Key Information
3.1
Selected Financial Data
The following tables show selected financial data of the
Company derived from the audited financial statements. The data should be read
in conjunction with our audited financial statements for the fiscal years ended
January 31, 2013 and 2012 included as an exhibit in this annual report. Our
audited financial statements for the fiscal years ended January 31, 2011 and
2010are not included in this annual report.
Since February 1, 2010, our financial statements have been
prepared in accordance with International Financial Reporting Standards (IFRS)
issued by the International Accounting Standards Board (IASB) along with
interpretations of the International Financial Reporting Interpretations
Committee (IFRIC). Except for the reclassification between equity accounts
from contributed surplus, the Canadian GAAP term used for this account, to
option reserve, the IFRS term for this account, the adoption of IFRS had no
impact on the Companys financial position at February 1, 2010 and subsequent
periods. All amounts continue to be expressed in Canadian dollars.
The Company has reviewed recently issued accounting standards
under IFRS and is currently assessing the impact that these standards will have
on its financial statements. It does not expect the adoption of these standards
will have a material impact on its financial position, results of operations or
cash flows.
The financial data below is presented in accordance with IFRS
in Canadian dollars for the five fiscal years ended January 31.
IFRS (in Cdn $)
|
2013
|
2012
|
2011
|
2010
|
2009
|
Comprehensive loss
|
($239,258)
|
($279,284)
|
($255,692)
|
($118,922)
|
($195,335)
|
Comprehensive loss per share
|
($0.01)
|
($0.01)
|
($0.01)
|
($0.01)
|
($0.05)
|
Cash dividends per share
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Total assets
|
$584,877
|
$243,140
|
$364,036
|
$169,424
|
$101,485
|
Long term debt
|
Nil
|
$39,676
|
Nil
|
Nil
|
Nil
|
Accumulated deficit
|
($3,512,095)
|
($3,272,837)
|
($2,993,553)
|
($2,737,861)
|
($2,618,939)
|
Capital stock
|
$3,953,590
|
$3,110,796
|
$3,110,796
|
$1,613,471
|
$1,613,471
|
Shareholders equity (deficiency)
|
$494,852
|
($108,684)
|
$170,600
|
($971,033)
|
($952,111)
|
Weighted average number of shares outstanding
|
42,299,073
|
40,565,171
|
33,578,870
|
10,565,171
|
3,597,958
|
7
Since June 1, 1970, the government of Canada permitted a
floating exchange rate to determine the value of the Canadian dollar compared to
the United States dollar. On May 10, 2013, the exchange rate in effect was
C$1.00 = US$0.9969. This exchange rate is based on the noon buying rates in New
York City, for cable transfers in Canadian dollars, as certified for customs
purposes by the Federal Reserve Bank of New York. For the past five fiscal years
and the past six months ended January 31, 2013, the following exchange rates
were in effect for United States dollars stated in Canadian dollars:
Years Ended
|
Actual Year End Exchange Rate
|
January 31, 2013 (ie. Cdn$1.00 = US$0.998)
|
$0.998
|
January 31, 2012
|
$0.99
|
January 31, 2011
|
$1.00
|
January 31, 2010
|
$0.93
|
January 31, 2009
|
$0.81
|
|
|
Months Ended
|
Average Month End Exchange
Rate
|
January 31, 2013 (ie. Cdn$1.00 = US$0.9979)
|
$0.9979
|
December 31, 2012
|
$1.0033
|
November 31, 2012
|
$1.0070
|
October 31, 2012
|
$0.9995
|
September 30, 2012
|
$1.0167
|
August 31, 2012
|
$1.0091
|
3.2
Capitalization and Indebtedness
The following table sets forth our exploration and evaluation
assets, indebtedness and shareholders equity (deficiency) as at January 31,
2013 in Canadian dollars under both IFRS and US GAAP:
|
IFRS
|
US GAAP
|
Exploration and Evaluation Assets
|
$ 268,574
|
$ 61,640
|
Total Indebtedness
|
$
90,025
|
$ 90,025
|
Shareholders Equity (Deficiency)
|
|
|
Share capital
|
$3,953,590
|
$3,953,590
|
Convertible debt reserve
|
$ 53,357
|
-
|
Accumulated deficit
|
($3,512,095)
|
($3,665,673)
|
Total
|
$ 494,852
|
($ 287,917)
|
The Issuers financial statements have been prepared in
accordance with IFRS which differ in certain material respects from those
principles that the Issuer would have followed had its financial statements been
prepared in accordance with US GAAP. The differences above between IFRS and US
GAAP affecting the Companys financial statements are described below.
Exploration and Evaluation Assets
Under IFRS,
acquisition and exploration costs are capitalized and reviewed for impairment on
a reporting period basis. Under US GAAP, acquisition costs are capitalized and
reviewed for impairment on a reporting period basis and exploration costs are
expensed as incurred. When it has been determined that a mineral interest can be
economically developed as a result of establishing proven and probable reserves,
the costs incurred to develop such property are then capitalized.
8
Convertible Debt Reserve
Under IFRS, companies
allocate convertible loan proceeds between the debt component and the embedded
conversion feature based on their relative fair values. Under US GAAP, companies
allocate convertible loan proceeds to the embedded conversion feature only if
such feature has intrinsic value. Also, under US GAAP, the convertible note
should be treated solely as a liability since the embedded conversion feature
has no intrinsic value and accordingly does not meet the requirements of an
equity component.
3.3
Reasons for the Offer and Use of Proceeds
Not applicable
3.4 Description
of Business - Risk Factors
Any investment in our common shares involves a high degree of
risk. You should consider carefully the following information before you decide
to buy our common shares. If any of the events discussed in the following risk
factors actually occurs, our business, financial condition or results of
operations would likely suffer. In this case, the market price of our common
shares could decline, and you could lose all or part of your investment in our
shares The following is a list of all known material risks relating to our
business and an investment in our common shares:
We have a history of losses. Our inability to achieve
profitability will negatively impact any investment in our shares.
We
have incurred losses in our business operations since inception, and we expect
that we will continue to incur losses for the foreseeable future. From March 31,
1988, the date of incorporation, to January 31, 2013, we have incurred losses
totaling $3,512,095 under IFRS. Very few junior resource companies ever become
profitable. Failure to achieve and maintain profitability may adversely affect
the market price of our common stock.
We have limited financial resources and no source of
operating cash flow. If we are unable to generate revenue, our business may
fail.
We have limited financial resources, no source of operating cash
flow and no other commitments for additional funding for further exploration of
our mineral property interests. Failure to obtain such additional financing
could result in delay or indefinite postponement of further exploration and
ultimately the failure of our business.
Very few mineral properties are ultimately developed into
producing mines. If we are unable to prove that a mineral reserve exists on our
mineral property interests, our business may fail.
The business of
exploration for minerals and mining involves a high degree of risk. Few
properties that are explored are ultimately developed into producing mines. At
present, our mineral properties have no known body of commercial ore. Most
exploration projects do not result in the discovery of commercially mineable
deposits of ore.
Substantial expenditures are required for us to establish ore
reserves through drilling, to develop metallurgical processes, to extract the
metal from the ore and, in the case of new properties, to develop the mining and
processing facilities and infrastructure at any site chosen for mining.
It is unknown whether we will discover minerals in sufficient
quantities to justify commercial operations or that we can obtain the funds
required for development on a timely basis. The probability of an individual
mineral exploration prospect ever containing reserves is extremely remote. It is
unlikely that the property contains reserves, so any funds expended on the
property will most likely be lost.
Our auditors have expressed substantial doubt about our
ability to continue as a going concern, and if we do not obtain additional
financing, our business will fail.
As at January 31, 2013, we had cash
balance of $301,845. Our ability to continue as a going concern is dependent
upon the company raising sufficient financing to complete exploration and
development activities, upon the discovery of economically recoverable reserves,
and upon future profitable operations or proceeds from disposition of resource
property interests. The Company has not to date determined whether its mineral
property interests contain economically recoverable resources. The Companys
ability to continue operations and exploration activities as a going concern is dependent upon its ability to
obtain additional funding. While the Company has been successful in obtaining
its required funding in the past, there is no assurance that sufficient funds
will be available to the Company in the future. The Company has no assurance
that such financing will be available or be available on favorable terms.
Factors that could affect the availability of financing include the progress and
results of the Dotted Lake project, investor perceptions and expectations and
the global financial and metals markets. The Company will require additional
financing through, but not limited to, the issuance of additional equity in
order to fund its ongoing exploration. There can be no assurance the Company
will be successful in this endeavor. These financial statements do not include
adjustments that would be necessary should the company be unable to continue as
a going concern.
9
Due to the speculative nature of mineral property
exploration, there is substantial risk that no commercially viable mineral
deposits will be found on our Dotted Lake property or other mineral properties
that we acquire.
In order for us to even commence mining operations we
face a number of challenges which include finding qualified professionals to
conduct our exploration program, obtaining adequate financing to continue our
exploration program, locating a viable mineral body, partnering with a senior
mining company, obtaining mining permits, and ultimately selling minerals in
order to generate revenue. Moreover, exploration for commercially viable mineral
deposits is highly speculative in nature and involves substantial risk that no
viable mineral deposits will be located on any of our present or future mineral
properties. There is a substantial risk that the exploration program that we
will conduct on the Dotted Lake project may not result in the discovery of any
significant mineralization, and therefore no commercial viable mineral deposit.
There are numerous geological features that we may encounter that would limit
our ability to locate mineralization or that could interfere with our
exploration programs as planned, resulting in unsuccessful exploration efforts.
In such a case, we may incur significant costs associated with an exploration
program, without any benefit. This would likely result in a decrease in the
value of our common stock.
General economic conditions could have a negative impact on
our business.
Ongoing volatility in global financial markets has had a
profound impact on the global economy. Many industries, including the gold and
base metal mining industry, are impacted by these market conditions. Some of the
key impacts of the current financial market turmoil include contraction in
credit markets resulting in a widening of credit risk, devaluations and high
volatility in global equity, commodity, foreign exchange and precious metal
markets, and a lack of market liquidity. A continued or worsened slowdown in the
financial markets or other economic conditions, including but not limited to,
consumer spending, employment rates, business conditions, inflation, fuel and
energy costs, consumer debt levels, lack of available credit, the state of the
financial markets, interest rates, and tax rates may adversely affect our growth
and profitability. Specifically:
-
the global credit/liquidity crisis could impact the cost and availability
of financing and our overall liquidity;
-
the volatility of the gold price may impact our future revenues, profits
and cash flow;
-
volatile energy prices, commodity and consumables prices and currency
exchange rates impact potential production costs; and
-
the devaluation and volatility of global stock markets impacts the
valuation of our equity securities, which may impact our ability to raise
funds through the issuance of equity.
These factors could have a material adverse effect on our
financial condition and results of operations.
Mineral exploration involves a high degree of risk against
which we are not currently insured. If an environmental liability was incurred,
it may irreparably harm our business.
Unusual or unexpected rock
formations, formation pressures, fires, power outages, labour disruptions,
flooding, cave-ins, landslides and the inability to obtain suitable or adequate
machinery, equipment or labour are risks involved in the operation of mines and
the conduct of exploration programs.
It is not always possible to fully insure against such risks
and we may decide not to take out insurance against such risks as a result of
high premiums or other reasons. Should such liabilities arise, they could reduce
or eliminate any future profitability and result in increasing costs and a
decline in the value of our common stock. We do not currently maintain insurance
against environmental risks relating to our mineral property interests.
10
If title to our mineral property interests is disputed, we
may lose our business assets and our business may fail.
Our mineral
property interests may be subject to prior unregistered agreements or transfers
or aboriginal land claims and title may be affected by undetected defects. There
is a risk that the property boundaries could be challenged. In such
circumstances, we will incur costs defending our title to our mineral property
interests and may lose our interest in the claims, causing our business to fail.
The Company has investigated and believes it has good title to its properties.
However, there is no guarantee that adverse claims to title will not arise in
the future, nor can the Company express an opinion on how difficult the
resolution of such claims would be.
The Option Agreement pursuant to which we acquired our interest
in the Lampson Lake Property provides that we must make payments to the
Optionors on certain dates. If we fail to make such payments in a timely
fashion, we may lose our interest in the Lampson Lake Property. The legal nature
of aboriginal land claims, in particular, is a matter of considerable
complexity. The impact of any such claim on our ownership interest in our
properties cannot be predicted with any degree of certainty and no assurance can
be given that a broad recognition of aboriginal rights in the area in which the
properties optioned by us are located, by way of a negotiated settlement or
judicial pronouncement, would not have an adverse effect on our activities. Even
in the absence of such recognition, we may at some point be required to
negotiate with first nations in order to facilitate exploration and development
work on the properties optioned by us.
We may require permits and licenses that we may not be able
to obtain. If we are unable to obtain such permits and licenses, our business
plan will fail.
Our current or future operations, including exploration
and development activities and the commencement and continuation of commercial
production, require licenses, permits or other approvals from various federal,
provincial and/or local governmental authorities and such operations are or will
be governed by laws and regulations relating to prospecting, development,
mining, production, exports, taxes, labour standards, occupational health and
safety, waste disposal, toxic substances, land use, water use, environmental
protection, aboriginal land claims and other matters.
We believe that we are in substantial compliance with all
material laws and regulations which currently apply to our activities. There can
be no assurance, however, that we will obtain on reasonable terms or at all the
permits and approvals, and the renewals thereof, which we may require for the
conduct of our current or future operations or that compliance with applicable
laws, regulations, permits and approvals will not have an adverse effect on any
mining project which the Issuer may undertake. Possible changes to mineral tax
legislation and, regulations could cause additional expenses, capital
expenditures, restrictions and delay on the Issuers planned exploration and
operations, the extent of which cannot be predicted.
Failure to comply with applicable laws, regulations and
permitting requirements may result in enforcement actions thereunder, including
orders issued by regulatory or judicial authorities causing operations to cease
or be curtailed, and may include corrective measures requiring capital
expenditures, installation of additional equipment, or remedial actions. Parties
engaged in mining operations may be required to compensate those suffering loss
or damage by reason of the mining activities and may have civil or criminal
fines or penalties imposed for violations of applicable laws or regulations.
We will be required to obtain work permits from the Ontario
Ministry of Northern Development and Mines for any subsequent exploration work
that results in a physical disturbance to the land if the program calls for the
disturbance of more than 10,000 square meters of the property surface, or such
areas that would total that amount when combined. A work permit is also required
for the erection of structures on the property. There is no charge to obtain a
work permit under the Mining Act.
Mineral prices fluctuate widely. A decrease in mineral
prices may prevent us from raising the capital necessary to continue our
business plan in the future. As well, low mineral prices will reduce the value
of any reserve we discover on our mineral property interests.
Factors
beyond our control may affect the marketability of any minerals we discover.
Metal prices have fluctuated widely, particularly in recent years. Our ability
to raise capital for continuing exploration of our mineral property interests
depends to a large degree on the market price for metals generally, as well as
for gold in particular. In addition, the value of any reserve we discover on the
Dotted Lake property will fluctuate depending on current metal prices. Low metal prices may make it uneconomical to commence
production on our mineral property interests, if a reserve is established, of
which there is no guarantee.
11
The resource industry is very competitive. The competitive
nature of the business may increase our cost of operations and prevent us from
obtaining interests in additional mineral properties.
The resource
industry is intensely competitive in all its phases. We compete with many
companies possessing greater financial resources and technical facilities than
us for the acquisition of mineral concessions, claims, leases and other mineral
interests as well as for the recruitment and retention of qualified employees.
In conducting exploration on our mineral property interests,
we will be subject to environmental regulations. In addition, our operations may
be adversely affected by changes in environmental regulations. A significant
change in such regulations may prevent us from proceeding with our business
plan.
Our operations are subject to environmental regulations promulgated
by government agencies from time to time. Environmental legislation provides for
restrictions and prohibitions on spills, release or emissions of various
substances produced in association with certain mining industry operations, such
as seepage from tailings disposal areas, which would result in environmental
pollution. A breach of such legislation may result in the imposition of fines
and penalties. In addition, certain types of operations require the submission
and approval of environmental impact assessments. Environmental legislation is
evolving in a manner which means that standards, enforcement, fines and
penalties for non-compliance are more stringent. Environmental assessments of
proposed projects carry a heightened degree of responsibility for us and our
directors, officers and consultants. The cost of compliance with changes in
governmental regulations has a potential to reduce the profitability of our
operations. We do not maintain environmental liability insurance.
When our exploration program on our mineral property interests
proceeds to the drilling stage, we may be required to post small bonds if the
rights of a private land owner may be affected. We may also be required to file
statements of work with the Ministry of Northern Development and Mines. We will
also be required to undertake remediation work on any exploration that results
in physical disturbance to the land. The cost of remediation work will vary
according to the degree of physical disturbance.
Our listed securities are subject to penny stock regulation,
which may impede an investors ability to purchase our common shares.
The price of our common stock is below $5.00 per share and is subject to
"penny stock" regulation. "Penny stock" rules impose additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally those with assets in
excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together
with a spouse). For transactions covered by these rules, the broker-dealer must
make a special suitability determination for the purchase of such securities and
have received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the transaction, of a
disclosure schedule prescribed by the Commission relating to the penny stock
market. The broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements must be sent disclosing recent price
information on the limited market in penny stocks. Consequently, the "penny
stock" rules may restrict the ability of broker-dealers to sell our shares of
common stock. The market price of our shares would likely suffer as a result.
We rely on the technical and financial skills and
contributions of our management team, the loss of any one of which may adversely
impact our business.
Our success will be largely dependent, in part, on
the services of our senior management and directors whose contributions include
both technical and financial skills and assistance. We have not purchased any
key man insurance, nor have we entered into any non-competition or
non-disclosure agreements with any of our directors, officers or key employees
and have no current plans to do so. We may hire consultants and others for
geological and technical expertise but there is no guarantee that we will be
able to retain personnel with sufficient technical expertise to carry out the
future development of our properties.
12
Some of our directors are or will be directors of other
companies, which could result in conflicts of interest.
Certain of our
directors, officers and other members of management do, and may in the future,
serve as directors, officers, promoters and members of management of other
companies and, therefore, it is possible that a conflict may arise between their
duties as a director, officer, promoter or member of our management team and
their duties as a director, officer, promoter or member of management of such
other companies. Our directors and officers are aware of the laws governing
accountability of directors and officers for corporate opportunity and the
requirement of directors to disclose conflicts of interest. We will rely upon
these laws in respect of any directors and officers conflicts of interest or
in respect of any breaches of duty by any of our directors or officers.
Enforcement of US legal process may be difficult.
All members of our Board of Directors and management reside in Canada
and our address for service is a Canadian address. Accordingly, investors will
not be able to:
|
i)
|
effect legal process upon us or upon individuals related
to us within the United States;
|
|
ii)
|
enforce judgments obtained in United States courts
against us based upon the civil liability provisions of the United States
securities law; or
|
|
iii)
|
enforce United States court judgments based upon the
civil liability provisions of the United States federal securities
law.
|
However, investors may commence original actions against us,
our directors and officers and our experts in British Columbia courts. However,
as our sole mineral property asset is located in Ontario, additional legal
proceedings would need to be commenced in that province in order to satisfy any
judgment.
Investors may not be able to seek judgment in British Columbia
or Ontario if the court determines that it is unable to rule in a matter that
involves determinations respecting United States securities laws. In such
circumstances, investors would be prevented from obtaining judgment that is
enforceable against us.
As we are incorporated pursuant to the laws of British
Columbia, duties of our directors and officers, and the ability of shareholders
to initiate a lawsuit on our behalf, are governed by the British Columbia
Business Corporations Act
.
Currency fluctuations may increase the costs of doing
business for us.
The Company's offices and primary activities are
currently located in Canada and commodities are sold in international markets at
prices denominated in US dollars. However, some of the costs associated with the
Company's activities in Canada may be denominated in currencies other than the
US dollar. Any appreciation of these currencies vis-a-vis the US dollar could
increase the Company's cost of doing business in these countries. In addition,
the US dollar is subject to fluctuation in value vis-a-vis the Canadian dollar.
The Company does not utilize hedging programs to mitigate the effect of currency
movements.
We may, in the future, issue additional common shares, which
would reduce investors percent of ownership and may dilute our share
value.
Our Memorandum (charter document) authorized the issuance of an
unlimited number of common shares. As of May 14, 2013, the Company had
44,633,171 common shares outstanding. We may issue an unlimited number of
additional common shares. The future issuance of common shares may result in
substantial dilution in the percentage of our common shares held by our then
existing shareholders. We may value any common shares issued in the future on an
arbitrary basis. The issuance of common shares for future services or
acquisitions or other corporate actions may have the effect of diluting the
value of the shares held by our investors, and might have an adverse effect on
any trading market for our common shares.
If we lose our Foreign Private Issuer status in the U.S.,
our operating costs will increase.
The Company is required to determine
its foreign private issuer status (as defined in Rule 3b-4(c) under the U.S.
Securities and Exchange Act of 1934 (as amended) for the purposes of U.S.
securities law) (the Exchange Act), annually at the end of its second fiscal
quarter. Although more than 50% of its voting securities were held by U.S.
residents as of the last business day of its most recently completed second
fiscal quarter, the Company is still considered a foreign private issuer as it
met the following conditions: (i) a majority of its executive officers and
directors, taken separately, are non-U.S. citizens or residents, (ii) more than
50% of its assets are located outside the U.S., and (iii) the business of the Company is principally
administered outside the U.S. The Company may in the future lose its foreign
private issuer status if it fails to meet any of the aforementioned
criteria.
13
The regulatory and compliance costs to the Company under U.S.
securities laws as a U.S. domestic issuer may be significantly more than the
costs the Company incurs as a Canadian foreign private issuer eligible to use
the multi-jurisdictional disclosure system. If the Company is not a foreign
private issuer it would be required to file periodic and current reports and
registration statements on U.S. domestic issuer forms with the SEC, which are
more detailed and extensive than the forms available to a foreign private
issuer. This could have a materially adverse impact on the Companys corporate
overhead costs and its ability to raise future financing.
Because we do not intend to pay any cash dividends on our
common shares, our shareholders will not be able to receive a return on their
shares unless they sell them.
We intend to retain any future earnings to
finance the development and expansion of our business. We do not anticipate
paying any cash dividends on our common stock in the foreseeable future. Unless
we pay dividends, our shareholders will not be able to receive a return on their
shares unless they sell them. There is no assurance that shareholders will be
able to sell shares when desired.
ITEM
4
Information on the Company
4.1
History and Development
Rouge Resources Ltd (the Company or We or the Issuer)
under the name Gemstar Resources Ltd. on March 31, 1988 pursuant to the
provisions of the
Company Act
(British Columbia). In March 2006, we were
transitioned to the
Business Corporations Act
(British Columbia). On
March 25, 2008, the Companys name was changed to Rouge Resources Ltd. Our
registered and records office is located at 203-409 Granville Street, Vancouver
BC, V6C 1T2.
We have been a reporting issuer in British Columbia and Alberta
since April 3, 1989 and became a foreign issuer in the United States pursuant to
filings with the US Securities and Exchange Commission on or about November 15,
2003. Prior to August 30, 2012, our common shares were quoted OTC:BB in the
United States under the symbol ROUGF and now effective on this date our common
shares are also listed for trading on the TSX Venture Exchange under the symbol
ROU.
At January 31, 2013, there were 44,633,171 issued and fully
paid common shares outstanding (January 31, 2012 40,565,171) of which 5,684,400
shares were held in escrow, subject to release under regulatory approval.
Description of the Business
The Issuer is a Junior Mineral Exploration Company focused on
the exploration of certain mining claims located in the Thunder Bay Mining
District of North Central Ontario, Canada, called the Dotted Lake Property. The
Dotted Lake Property has been the only focus of the Issuers exploration
activities to date.
The material events in the development of the Issuers current
business over the past five fiscal years to the date of this Annual Report are
summarized as follows:
-
In March 2008, the Issuer consolidated its share capital on a 10 for 1
basis and changed its name from Gemstar Resources Ltd. to Rouge Resources Ltd.
-
In May 2008, the Issuer hired Caitlin Jeffs, P.Geo, of Fladgate Exploration
Consulting Corporation as consulting geologist to conduct a soil sampling
program on the Dotted Lake Property.
-
On August 5, 2008, Caitlin Jeffs, P.Geo completed an internal report of the
results of the Issuers soil sampling program, indicating the possibility of
both anomalous gold and anomalous zinc mineralization in two of the 47 samples
collected and analyzed during the program.
14
-
On December 24, 2008, the Issuer announced the closing of a non-brokered
private placement of 10,000,000 units at $0.05 per unit for gross proceeds of
$500,000 before share issue costs. Each unit was comprised of one Share of the
Issuer and one additional non-transferable share purchase warrant, each
warrant entitling the holder to acquire one additional Share of the Issuer at
a price of $0.10 per share for two years from the date of closing. Proceeds of
the private placement were used for exploration expenditures on the Issuers
property, operating expenses and general working capital purposes.
-
In October 2009, the Issuer expanded its holdings in the Dotted Lake
Property to a 100% interest in a total of ten claims of 82 units by staking.
Shortly thereafter, the Issuer commenced a new soil sampling program in
accordance with the report dated August 5, 2008.
-
On May 13, 2010, the Issuer announced the closing of a non-brokered private
placement of 30,000,000 units at a price of $0.05 per unit for gross proceeds
of $1,500,000 before share issue costs. Each unit was comprised of one Share
of the Issuer and one non-transferable share purchase warrant, each warrant
entitling the holder to acquire one additional Share of the Issuer at a price
of $0.10 per share for two years from the date of closing. Proceeds of the
private placement were used for repayment of related party loans, exploration
expenditures on the Original Dotted Lake Property, on-going operating expenses
and general working capital purposes.
-
On April 20, 2010, the Issuer entered into an Option Agreement with certain
Ontario prospectors to acquire a 100% undivided interest in two claims
adjacent to the Dotted Lake Property, known as the Lampson Lake Property,
subject to certain royalty interests when and if future revenue is generated.
Exercise of the Option requires the Issuer to pay a total of $60,000 to the
vendors over a period of three years of which $47,500 has been paid to date,
including $12,500 in April 2013.
-
On September 7, 2010, the Issuers independent consulting geologists
completed a NI 43-101 compliant Technical Report, detailing all work completed
on the Dotted Lake Property to date and recommendations for further
exploration work.
-
On October 25, 2010, the Issuer announced the resignations of Shannon
Krell, Ryan Krell and Ivan Martinez from its board of directors and the
appointment of Brian A Lueck and Mark H. Holden in their stead as independent
directors.
-
On November 30, 2010, a revised version of its NI 43-101 Technical Report
was completed by the authors and delivered to the Issuer.
-
At the December 13, 2011 Annual General Meeting of shareholders, three new
directors were elected: J. Ronald McGregor, Steven J. Chan and James O. Burns.
Subsequently, Mr. J. Ronald McGregor was appointed Chief Financial Officer of
the Issuer to replace Mr. Darcy T. Krell.
-
In February 2012, the Issuer entered into an agreement to defer $39,676 in
debt owed to a professional advisor which amount has been converted from a
short term to a long term liability. This amount is now due on or after July
31, 2013.
-
On April 25, 2012, the Issuer received conditional approval of its Listing
Application by the TSX Venture Exchange subject to completion of a proposed
private placement financing in accordance with the Exchange requirements.
-
On August 28, 2012, the Issuer announced the closure of two private
placements, one brokered and the other non-brokered. The brokered private
placement raised $829,000 (3,316,000 Units) through Canaccord Genuity Corp.
(the Agent) and the non-brokered private placement raised $188,000 (752,000
Units) for combined gross proceeds of $1,017,000 (4,068,000 units). Each unit
of the Company was sold for $0.25 consisting of one common share and one
transferable share purchase warrant. Each warrant entitles the holder to
acquire one additional common share of the Company at a price of $0.40 per
share for a period of one year from the date of closing. Share
issuance costs of $174,206 were incurred in relation to the brokered private
placement.
15
The net proceeds of the financings were used to eliminate the
working capital deficiency; to meet obligations under the Lamp-son Lake option
agreement; and to meet its on-going operating requirements.
-
On August 30, 2012, the shares commenced trading on the TSX Venture
Exchange under the symbol ROU.
-
On September 4, 2012, the Issuer paid $9,246 with respect to staking of
six additional claims contiguous to the Dotted Lake claims bringing the total
number of claims owned by the Issuer to eighteen, including the two Lampson
Lake claims under option per above.
-
On October 3, 2012, an assessment report was completed bu the Issuers
independent consulting geologists detailing results of a soil sampling and
prospecting program conducted on 5 of the 6 additional claims staked prior to
September 4, 2012.
-
On March 1, 2013 and further to the Lampson Lake Option Agreement
identified above , the Optionors agreed with the Issuer to split the final
payment of $25,000 into two equal amounts of $12,500, the first payable on
April 20, 2013 which was paid and the second payable on April 20, 2014.
We have not been involved in any bankruptcy, receivership or
similar proceedings, nor have we been a party to any material reclassification,
merger, consolidation, purchase or sale of a significant amount of assets.
Additional information on the Company is available on both SEDAR at
www.sedar.com
and EDGAR at
www.sec.gov/edgar
.
Since the Company is in the exploration stage, it has no
current revenues nor has it earned any since inception. There is no assurance
that a commercially viable mineral deposit exists on our Mineral Property
Interests. Further exploration is required before a final evaluation of the
economic feasibility can be determined. Significant additional financing and
considerable time will be required before our mineral claim can be explored and,
if warranted, developed into a commercial enterprise.
4.2
Mineral Property Interests
T
he following table summarizes the amounts expended on
exploration and evaluation assets for the years ended January 31, 2013 and
2012:
|
North-Central Ontario
|
|
|
|
|
|
|
Total for year
|
Total for year
|
|
Dotted Lake
|
Lampson Lake
|
ended
|
ended
|
|
mining claims
|
mining claims
|
January 31,
|
January 31,
|
|
|
|
2013
|
2012
|
|
|
|
|
|
Property acquisition costs
|
|
|
|
|
Balance, beginning
|
$ 15,261
|
$ 21,033
|
$ 36,294
|
$ 24,294
|
Additions
|
9,346
|
16,000
|
25,346
|
12,000
|
Balance, end
|
24,607
|
$ 37,033
|
$ 61,640
|
$ 36,294
|
|
|
|
|
|
Exploration and evaluation costs
|
|
|
|
|
Balance, beginning
|
$ 176,585
|
$
-
|
$ 176,585
|
$ 176,585
|
Additions
|
|
|
|
|
Drilling and related costs
|
|
|
|
|
Field and camp costs
|
21,477
|
|
21,478
|
|
Geological consulting/ reporting
|
3,488
|
|
3,488
|
|
Project administration
|
3,606
|
|
3,606
|
|
Soil sample analysis
|
1,778
|
|
1,778
|
|
Travel and accommodation
|
|
|
|
|
|
30,349
|
|
30,349
|
|
Balance, end
|
$ 206,934
|
$
-
|
$ 206,934
|
$ 176,585
|
Total balance, end
|
$ 231,541
|
$ 37,033
|
$ 268,574
|
$ 212,879
|
16
The original Dotted Lake Property (Dotted Lake Property)
consisted of one claim acquired by the Company in 2001 which was allowed to
lapse in 2002 then was re-staked by the Company in March 2003 at a cost of
$4,206. In October 2009, the Company expanded its 100% interest in this Property
from a single claim to ten claims at a cost of $11,055. Title to the Property,
originally held in trust for the Company by a director of the Company, was
transferred to the Company during the year ended January 31, 2012.
During the year ended January 31, 2013, the Company paid $9,346
with respect to staking of six additional claims contiguous to the original
Dotted Lake claims. The Company now has eighteen claims in the Dotted Lake area
totaling 171 units covering 6,840 acres (40 acres per unit) including the two
optioned Lampson Lake claims described below. Also, during the current year, the
Company paid $30,349 for prospecting and sampling on five of the six additional
staked claims on the Dotted Lake Property. The assessment report related thereto
indicated no significant gold occurrences but recommended a follow-up trenching
program to confirm.
On April 20, 2010, the Company entered into an option to
purchase agreement regarding two claims adjacent to the Dotted Lake Property,
known as the Lampson Lake Property. The Company has an exclusive option to
purchase a 100% interest in these two claims by making option payments totalling
$60,000 as follows: $7,000 paid on April 20, 2010 when the agreement was signed;
$12,000 paid on April 20, 2011; $16,000 paid on April 20, 2012; and $25,000
payable on April 20, 2013. However, due to the challenging economic conditions
being experienced by Junior Mineral Exploration Companies over the past year or
so, the Optionors agreed on March 1, 2013 to split the final payment of $25,000
into two equal amounts of $12,500, the first payable on April 20, 2013 (paid
subsequent to year end) and the second on April 20, 2014.
The optioned Lampson Lake claims are subject to a 2% net
smelter royalty (NSR) in favour of the Optionors on one claim and with respect
to the other, a combination of a 2% NSR in favour of the Optionors and a 1% NSR
on any metals and/or a 1% Net Sales Return royalty payable to Ontario
Exploration Company (OEC) on any precious metals recovered from the property.
The Company has the right to buy back 1% of the NSR in favour of the Optioners
for $1,000,000 and to buy back three-quarters of 1% of the royalty vested with
OEC over 10 years on an increasing scale from $15,000 to $750,000. In
anticipation of meeting the final payment schedule, title was transferred to the
Company during the year ended January 31, 2012. However, beneficial interest in
the property will not be transferred until the final option payment of $12,500
is made on or before April 20, 2014.
Dotted Lake Property Technical Report dated November 30,
2010
The Dotted Lake Property is located in the southeast part of
the Black River Area Township and the southwest corner of the Olga Lake Township
within the Thunder Bay Mining Division of Northwestern Ontario, Canada. The
Dotted Lake Property lies 45 km south of the town of Manitouwadge on NTS Sheet
42C13. The centre of the Dotted Lake Property has approximate geographic
coordinates of 48°5426N, 85°4550W (UTM NAD83 Zone 16N 590,597mE,
5,416,050mN). The Dotted Lake Property of 6,840 acres oriented approximately
east- west, 8.5 km long by roughly 2 km wide in an irregular shape .
The Issuers NI 43-101 compliant Technical Report dated
September 7, 2010 (as revised on November 30, 2010) was prepared by Caitlin
Jeffs H. B.Sc., P.Geo. and Michael Thompson H. B.Sc., P.Geo. of Fladgate
Exploration Consulting Corporation of Thunder Bay, Ontario in connection with
the original ten claims and the two adjacent Lampson Lake claims. This report
was discussed in detail as part of last years Form 20F and the full text is
available for review at the Companys registered office at Suite 203-409
Granville Street, Vancouver, BC, V6C 1T2. It is also available online, under the
Companys profile at www.sec.gov/edgar.
In addition, an assessment report dated October 3, 2012 was
prepared following completion of a soil sampling and prospecting program on 5 of
the 6 claims staked prior to September 4, 2012.
17
The information in table 1 below provides current status of the
eighteen mining claims owned by the Issuer following a mineral tenure search
dated May 13, 2013, conducted through the online database of the Ministry of
Northern Development and Mines website. All claims are in good standing.
Table 1 Status of Dotted Lake Mining Claims
Mining
Claim No.
|
Township/Area
|
Units
|
Date
Recorded
|
Date Due for Work
Credits to be applied
|
$
Work
Required/Year
|
3011450 (i)
|
Black River
|
15
|
14-Mar-03
|
14-Mar-14
|
$6,000
|
4245668 (ii)
|
Black River
|
6
|
6-Mar-09
|
6-Mar-14
|
$2,400
|
4246254 (ii)
|
Black River
|
16
|
21-Apr-09
|
21-Apr-14
|
$6,400
|
4252412 (iii)
|
Black River
|
12
|
17-Nov-09
|
17-Nov-13
|
$4,800
|
4252413 (iii)
|
Black River
|
12
|
17-Nov-09
|
17-Nov-13
|
$4,800
|
4252414 (iii)
|
Black River
|
2
|
17-Nov-09
|
17-Nov-13
|
$800
|
4252415 (iii)
|
Black River
|
2
|
17-Nov-09
|
17-Nov-13
|
$800
|
4252416 (iii)
|
Black River
|
1
|
17-Nov-09
|
17-Nov-13
|
$400
|
4252417 (iii)
|
Black River
|
2
|
17-Nov-09
|
17-Nov-13
|
$800
|
4252418 (iii)
|
Olga Lake
|
12
|
17-Nov-09
|
17-Nov-13
|
$4,800
|
4252419 (iii)
|
Olga Lake
|
12
|
17-Nov-09
|
17-Nov-13
|
$4,800
|
4252420 (iii)
|
Olga Lake
|
12
|
17-Nov-09
|
17-Nov-13
|
$4,800
|
4256854 (iv)
|
Black River
|
8
|
23-Sep-10
|
23-Sep-13
|
$3,200
|
4256855 (iv)
|
Black River
|
8
|
23-Sep-10
|
23-Sep-13
|
$3,200
|
4256856 (iv)
|
Black River
|
12
|
23-Sep-10
|
23-Sep-13
|
$4,800
|
4256857 (iv)
|
Black River
|
12
|
23-Sep-10
|
23-Sep-13
|
$4,800
|
4256859 (iv)
|
Black River
|
12
|
23-Sep-10
|
23-Sep-13 *
|
$4,800
|
4269766 (v)
|
Olga Lake
|
15
|
20-Apr-12
|
20-Apr-14
|
$6,000
|
|
Totals
|
171
|
|
|
$68,400
|
(i)
|
Issuers original claim re-staked in March
2003.
|
(ii)
|
Two claims optioned by the Issuer on April 20, 2010
called Lampson Lake Property. Title was transferred to Darcy T. Krell in
trust for the Issuer on July 13, 2010 pending final option payment due on
April 20, 2013 (revised to April 20, 2014). Title was subsequently
transferred to the Issuer and recorded on January 27, 2012.
|
(iii)
|
Nine claims staked by Darcy T. Krell on behalf of the
Issuer in October 2009. Title was transferred from Mr. Krell to the Issuer
on January 27, 2012.
|
(iv)
|
Five claims staked by Darcy T. Krell on behalf of the
Issuer in September 2010. Title was transferred from Mr. Krell to the
Issuer on November 6, 2012.
|
(v)
|
One claim staked by Brian D. Fowler on behalf of the
Issuer in April 2012. Title was transferred from Mr. Fowler to the Issuer
on November 6, 2012.
|
*
|
Pending work approval for
assessment
filed
February 21, 2013.
|
18
Map 1 - Dotted Lake Claims Located in Ontario,
Canada
19
Map 2 Dotted Lake Claims in Thunder Bay Mining Division of
North Western Ontario
20
Interpretations and Conclusions
The Issuer has held
the Dotted Lake Property since 2003 and has been slowly advancing the
exploration work to determine the potential of the ground.
Exploration work to date has included airborne and ground
geophysics in 2005, soil sampling in 2008 and 2009 and prospecting/ trenching in
2010 and more soil sampling/prospecting on five of the six new claims acquired
during year ended January 31, 2013.
The soil sampling programs completed in 2008 and 2009 were
intended to evaluate the property for further mineralization and potentially to
expand on the known zinc mineralization at the Fairservice zinc showing. The
soil sampling successfully outlined previously undetected gold mineralization,
but was not successful in expanding on the Fairservice zinc showing. Soil
sampling has proven to be a valuable tool on this property and could be used to
further explore the new claims acquired since the 2009 soil sampling program was
completed.
The sampling procedure used during the exploration completed in
2008, 2009, 2010 and 2012 was adequate for initial exploration work, but future
programs should also include a more thorough QA/QC procedure including a variety
of check samples such as duplicate samples, reruns of sample pulps, a variety of
standard samples including low and high grade gold and blank samples.
The Dotted Lake Property should be considered an early stage
exploration project upon which the Issuer should continue to conduct further
exploration in order to gain a further understanding of the nature and extent of
the gold mineralization already exposed during earlier trenching.
Recommendations
The Dotted Lake Property lies in an
underexplored area of the Schrieber-Hemlo greenstone belt which is host to the
Hemlo Gold deposit.
Based on the positive results from the Issuers initial
exploration work, it is recommended to continue working on the property to fully
define the gold potential. The Issuers next phase of exploration should
continue to outline the strike extent and width of the gold mineralization
uncovered in the past five years exploration programs. It is recommended to
continue exploring the property by further soil sampling, prospecting and
trenching.
The Company continues to monitor claims in the Dotted Lake area
and plans to make additional acquisitions in this and other areas when and if
the claims are considered to be strategic or otherwise beneficial to the
Company.
Although our work on the Dotted Lake Property in the past three
years has identified some gold mineralization hosted in sulphide rich shear
bands in granitoid rock, there is no assurance that a commercially viable
mineral deposit exists on our exploration and evaluation assets. Further
exploration is required before a final evaluation of the economic feasibility
can be determined. Significant additional financing and considerable time and
effort will be required before our mineral claims can be further explored and,
if warranted, developed into a commercial enterprise.
The budget below for the two phases of future exploration, as
recommended in our Technical Report .has been delayed due to the challenging
economic circumstances currently existing for the Junior Mineral Exploration
industry.
21
Budget Item
|
Total (CAD$)
|
Comments
|
|
Exploration (Phase 1) Property wide soils and further
trenching
|
Consulting geologist
|
$52,000
|
Consulting geologist at $650/day
|
Geotechnicians
|
$39,000
|
Geotechnician at $325/day
|
|
|
|
Truck and ATV Rental and Fuel
|
$22,000
|
Truck at $75/day and ATV at $125/day
|
|
Exploration (Phase 1) Property wide soils and further
trenching
|
Heavy Equipment Rental
|
$30,000
|
Trench digging at $140/hour
|
Assays
|
$45,500
|
Assaying at $35/sample
|
Room and board
|
$17,500
|
$125/day per geo & tech
|
|
|
|
10% contingency for miscellaneous items
|
$20,600
|
Field supplies etc.
|
Subtotal (Phase 1):
|
$226,600
|
|
|
|
Exploration (Phase 2) 1500 metres of diamond drilling
|
Consulting geologist
|
$52,000
|
Consulting geologist at $650/day
|
Geotechnicians
|
$16,250
|
Geotechnician at $325/day
|
Room and board
|
$12,500
|
$125/day per geo & tech
|
Truck and Fuel
|
$6,250
|
Truck at $75/day +fuel
|
Logging Shack w/saw
|
$2,500
|
$1500/month
|
|
|
|
Heavy equipment rental
|
$10,000
|
Building drill pads and access roads
|
Assays
|
$18,375
|
Assaying at $35/sample
|
Diamond Drilling
|
$165,000
|
Diamond drilling at $110/metre
|
|
|
|
10% contingency for miscellaneous items
|
$28,288
|
Field supplies etc.
|
Subtotal (Phase 2):
|
$311,163
|
|
|
|
|
Total CAD$ (Both Phases)
|
$537,763
|
|
4.3
Competition
The mineral property exploration business, in general, is
intensely competitive and there is no assurance that even if commercial
quantities of ore are discovered, a ready market will exist for the sale of
same. Numerous factors beyond our control may affect the marketability of any
minerals discovered. These factors include market fluctuations, the proximity
and capacity of natural resource markets and processing equipment, government
regulations relating to prices, taxes, royalties, land tenure, land use,
importing and exporting of minerals, environmental protection, etc. The exact
effect of these factors cannot be accurately predicted, but in combination they
may make it very difficult to realize an adequate return on investment.
We compete with many companies possessing greater financial
resources and technical capabilities than we have regarding the acquisition of
mineral concessions, claims, leases and other mineral interests as well as for
the recruitment and retention of qualified staff.
22
4.4
Management and Employees
We do not have any employees other than our directors and
officers. When required, we retain geological, financial and other consultants
on a contract basis in order to keep overhead expenses to a minimum.
We are party to an amended agreement dated August 1, 2008 with
Mr. Darcy Krell, our Secretary and General Manager, who is engaged to perform
certain management and administrative functions on our behalf for a fee of
$7,500 per month, including $5,000 for management fees and $2,500 for office
rent. Mr. Krell is the husband of our President and CEO, Ms. Linda Smith.
We retain Mr. Krell to arrange and negotiate mineral property
acquisitions and exploration contracts (subject to director approval); arrange
for and secure financings for the company; arrange for the payment of company
obligations and the collection of all receivables, if any; establish and
maintain suitable banking relationships; ensure the maintenance of proper
accounting records and compliance with all statutory reporting requirements; and
administer corporate inquiries and correspondence as required.
4.5
Environmental Regulations
We are required to comply with all regulations, rules and
directives of governmental authorities and agencies applicable to the
exploration of minerals in Canada generally, and in the Province of Ontario
specifically. Under these laws, prior to production, we have the right to
explore the property, subject only to a notice of work which may entail posting
a bond. To date, we have not been required to post a bond with respect to our
exploration activities on the Dotted Lake property.
In addition, production of minerals in Ontario will require
prior approval of applicable governmental regulatory agencies. We can provide no
assurance to investors that such approvals will be obtained. The cost and delay
involved in attempting to obtain such approvals is unknown at this time.
We have budgeted for regulatory compliance costs as part of our
operations. We will have to incur the cost of reclamation and environmental
mediation for all exploration work undertaken. The amount of these costs is
unknown at this time as we do not know the extent of future exploration.
Permits and regulations will control all aspects of any
production program, if the project continues to that stage, because of the
potential impact on the environment. Examples of regulatory requirements
include:
|
i)
|
Water discharge will have to meet water
standards;
|
|
ii)
|
Dust generation will have to be minimal or otherwise
re-mediated;
|
|
iii)
|
Dumping of material on the surface will have to be
re-contoured and re-vegetated;
|
|
iv)
|
An assessment of all material to be left on the surface
will need to be environmentally benign;
|
|
v)
|
Ground water will have to be monitored for any potential
contaminants;
|
|
vi)
|
The socio-economic impact of the project will have to be
evaluated and if deemed negative, will have to be re-mediated;
and
|
|
vii)
|
There will have to be an impact report of the work on the
local fauna and flora.
|
We do not require any government authorization to proceed with
Phase 1 of the exploration program recommended in our 43-101 technical
evaluation report since it will cause little, if any, physical disturbance of
the land. However, we will be required to obtain work permits from the Ontario
Ministry of Northern Development and Mines for the Phase 2 drilling program and
any subsequent exploration work that results in a physical disturbance to the
land should we decide to proceed. If more than 10,000 square meters of property
surface are affected, or such areas that would total that amount when combined,
a work permit is required. There is no charge to obtain a work permit under the
Mining Act.
23
When our exploration program proceeds to the drilling stage, we
may be required to post small performance bonds if the rights of a private land
owner may be affected. We may also be required to file statements of work with
the Ministry of Northern Development and Mines and to undertake remediation work
on any exploration that results in physical disturbance to the land. The cost of
remediation work will vary according to the degree of physical disturbance.
ITEM
4A. Unresolved
Staff Comments
None.
ITEM
5.
Operating and Financial Review and Prospects
(stated in Canadian $ under IFRS)
5.1
Operating Results
The following table summarizes information taken from our
audited financial statements presented in accordance with IFRS as at and for the
years ended January 31:
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
FINANCIAL POSITION
|
|
|
|
|
|
|
|
|
|
Total Assets
|
$
|
584,877
|
|
$
|
243,140
|
|
$
|
364,036
|
|
Total Liabilities
|
$
|
90,025
|
|
$
|
351,824
|
|
$
|
193,436
|
|
Accumulated Deficit
|
$
|
(3,512,095
|
)
|
$
|
(3,272,837
|
)
|
$
|
(2,993,553
|
)
|
OPERATIONS
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
Nil
|
|
|
Nil
|
|
|
Nil
|
|
Net and Comprehensive Loss
|
$
|
(239,258
|
)
|
$
|
(279,284
|
)
|
$
|
(255,692
|
)
|
Loss per share basic and diluted
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
The following table summarizes the results of operations for
the years ended January 31 and should be read in conjunction with the audited
financial statements contained herein:
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
Nil
|
|
$
|
Nil
|
|
$
|
Nil
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Amortization and accretion
|
$
|
776
|
|
$
|
1,008
|
|
$
|
15,365
|
|
Consulting fees
|
|
5,670
|
|
|
|
|
|
|
|
Listing application expenses
|
|
62,601
|
|
|
90,507
|
|
|
41,003
|
|
Management services
|
|
60,000
|
|
|
60,000
|
|
|
60,000
|
|
Office administration and travel
|
|
44,506
|
|
|
64,022
|
|
|
69,589
|
|
Professional fees
|
|
47,705
|
|
|
47,387
|
|
|
54,506
|
|
Transfer agent and filing fees
|
|
18,000
|
|
|
16,360
|
|
|
15,229
|
|
|
|
|
|
|
|
|
|
|
|
Net and comprehensive loss
|
$
|
(239,258
|
)
|
$
|
(279,284
|
)
|
$
|
(255,692
|
)
|
24
Revenue
The Company is in the exploration stage and has not generated
any revenues since inception.
Net and Comprehensive loss
The Company reported a net and comprehensive loss of $239,258
for year ended January 31, 2013 compared to last year of $279,284. This $40,026
decrease in loss resulted from the following:
|
-
|
$232 minor decrease in amortization.
|
|
-
|
$5,670 increase in consulting fees for business planning
purposes, not applicable last year
|
|
-
|
$27,906 decrease in Listing Application expenses
following approval on April 25, 2012 after which substantially all items
were charged to share issue costs as a reduction of share capital in
connection with the $1,017,000 financing from two private placements on
August 28, 2012.
|
|
-
|
$19,516 decrease in office administration and travel
expenses due to on-going effort to reduce overhead expenses.
|
|
-
|
$318 minor increase in professional fees (legal, audit
and accounting) resulting from concentration of time and effort by company
lawyer on completion of the two private placement financings which costs
were charged to share issue costs instead of listing application expenses
as referred to above.
|
|
-
|
$1,640 modest increase in transfer agent and filing fees.
|
5.2
Liquidity
The following table summarizes the working capital (deficiency)
as at January 31 and should be read in conjunction with the audited financial
statements contained herein:
Working Capital (Deficiency)
|
2013
|
2012
|
2011
|
Current assets
|
$
307,592
|
$
20,774
|
$
153,371
|
Current liabilities
|
(90,025)
|
(312,148)
|
(193,436)
|
Working capital (deficiency)
|
$
217,567
|
$ (291,374)
|
$
(40,065)
|
During the year ended January 31, 2013, working capital
improved to $217,567 from a deficiency of $291,374 last year. This $508,941
positive change arose from the two private placement financings closed on August
28, 2012 which put $842,794 of net proceeds into the Company treasury. Since
then the funds have been used to pay down related party payables and accrued
liabilities; meet on-going operating requirements; and contribute to avzailable
working capital.
The current assets at January 31, 2013 consist mainly of cash
$301,845 (January 31, 2012 - $17,823) and value-added tax receivable $4,122
(January 31, 2012 - $2,951). The current liabilities at January 31, 2013 consist
of $38,883 trade payables and accrued liabilities (January 31, 2012 - $58,030),
and $39,676 loan payable (January 31, 2012 nil) and $11,466 related party
payables (January 31, 2012 - $254,118).
The following table summarizes cash flows for years ended
January 31:
Cash Flows
|
2013
|
2012
|
2011
|
Net cash used in operating activities
|
$ (260,425)
|
(258,591)
|
(224,963)
|
Net cash used in investing activities
|
(55,695)
|
(12,709)
|
(97,119)
|
Net cash provided by financing activities
|
600,142
|
144,171
|
413,411
|
Increase (decrease) in cash
|
$ 284,022
|
(127,129)
|
91,329
|
Cash, beginning
|
17,823
|
144,952
|
53,623
|
|
|
|
|
Cash, end
|
$ 301,845
|
17,823
|
144,952
|
25
At January 31, 2013, the Companys cash position was $301,845
compared to $17,823 at last year end. The $284,022 increase in cash during year
ended January 31, 2013 resulted from the following cash flow activities:
|
(i)
|
Net cash used in operating activities of $260,425 in 2013
and $258,591 in 2012 was due in both years to on-going operating losses
adjusted for decreases and increases respectively in non-cash working
capital items.
|
|
(ii)
|
Net cash used in investing activities of $55,695 in 2013
and $12,709 in 2012 was due to expenditures on exploration and evaluation
assets on the Dotted Lake Property and scheduled payments under the
Lampson Lake option agreement.
|
|
(iii)
|
Net cash provided by financing activities of $600,142 in
2013 was due to $842,792 of net funds received from two private placements
reimbursing $242,652 of related party payables created during the funding
of on-going operating expenses. The $144,171 of cash provided in 2012 was
due entirely to funding received from related
parties.
|
5.3
Capital Resources
Share Capital
Authorized share capital
Unlimited number of common shares without par value.
Issued and outstanding share capital
At
January 31, 2013, there were 44,633,171 issued and fully paid common shares
outstanding (January 31, 2012 40,565,171) of which 5,684,400 shares were held
in escrow, subject to release under regulatory approval.
Private placements
On August 28, 2012,
4,068,000 units were issued in connection with the closure of two private
placements, one brokered and the other non-brokered. The brokered private
placement raised $829,000 (3,316,000 Units) through Canaccord Genuity Corp. (the
Agent) and the non-brokered private placement raised $188,000 (752,000 Units)
for combined gross proceeds of $1,017,000 (4,068,000 units). Each unit of the
Company was sold for $0.25 consisting of one common share and one transferable
share purchase warrant. Each warrant entitles the holder to acquire one
additional common share of the Company at a price of $0.40 per share for a
period of one year from the date of closing. No fair value was attributed to the
warrants Share issuance costs of $174,206 were incurred in relation to the
brokered private placement.
The net proceeds received by the Company from the two
financings, after deducting the share issue costs, totaled $842,794. In addition
to the share issue costs identified above, $194,110 was expensed regarding the
lengthy and expensive Listing Application process which started in January 2011.
As planned, the Company has used some of the remaining funds to eliminate its
working capital deficiency; to continue payments required under the revised
Lampson Lake option agreement; and otherwise to continue meeting its on-going
operating requirements including acquisition and exploration activities on the
Dotted Lake Property which have been delayed due to the challenging economic
circumstances of Junior Mineral Exploration companies at present.
26
Basic and diluted loss per share
The
calculation of basic and diluted loss per share for the year ended January 31,
2013 was based on the net and comprehensive loss attributable to common
shareholders of $239,258 (January 31, 2012 - $279,284) and the weighted average
number of common shares outstanding of 42,299,073 (January 31, 2012
40,565,171). Diluted loss per share does not include the 4,068,000 warrants
outstanding as the effect would be anti-dilutive.
Stock options
The Company has adopted an
incentive stock option plan which provides that the Board of Directors of the
Company may from time to time, in its discretion and in accordance with the
TSX-V requirements, grant to directors, officers, employees and technical
consultants to the Company, non-transferable stock options to purchase common
shares, provided that the number of common shares reserved for issuance in any
twelve month period will not exceed 10% of the Companys issued and outstanding
common shares. Such options will be exercisable for a period of up to 5 years
from the date of grant at a price not less than the closing price of the
Companys shares on the last trading day before the grant of such options less
any discount, if applicable, but in any event not less than $0.10 per share In
connection with the foregoing, the number of common shares reserved for issuance
to any one optionee insider in any twelve month period will not exceed ten
percent (10%) of the issued and outstanding common shares and the number of
common shares reserved for issuance to any one employee or consultant will not
exceed two percent (2%) of the issued and outstanding common shares. Options may
be exercised no later than 90 days following cessation of the optionees
position with the Company or 30 days following cessation of an optionee
conducting investor relations activities.
At January 31, 2013 and 2012, the Company had no issued or
outstanding stock options. .
Share purchase warrants
The changes in
warrants outstanding during the years ended January 31, 2013 and 2012 are as
follows:
|
Year Ended
January 31, 2013
|
Year Ended
January 31, 2012
|
|
Number of
warrants
|
Weighted
average exercise
price
|
Number of
warrants
|
Weighted
average
exercise price
|
Balance, beginning
Warrants
issued
Warrants expired
|
30,000,000
4,068,000
(30,000,000)
|
$ 0.10
0.40
|
30,000,000
-
-
|
$ 0.10
|
Balance, ending
|
4,068,000
|
$
0.40
|
30,000,000
|
$
0.10
|
The weighted average life for the share purchase warrants
outstanding at January 31, 2013 was 0.57 years.
Convertible debt reserve
Under IFRS, the
convertible debt reserve of $53,357 is the equity component of convertible debt
with both liability and equity components. On conversion, the amount recorded is
transferred to share capital.
Under US GAAP, companies allocate convertible loan proceeds to
the embedded conversion feature only if such feature has intrinsic value. Also,
under US GAAP, the convertible note should be treated solely as a liability
since the embedded conversion feature has no intrinsic value and accordingly
does not meet the requirements of an equity component.
Other than the above securities, no other securities are
outstanding which are convertible into, or exchangeable for, the Companys
shares.
With no operating revenues to date, we continue to finance our
operations through the issuance of common shares and advances from related
parties. As discussed above in this section of the annual report, two private
placements were completed in late August 2012. But there is no assurance
that additional financing will be available when needed in the future nor, if
available, on commercially reasonable terms. If we are unable to obtain
additional financing on a timely basis, either through issuance of more common
shares or obtaining additional advances from related parties, we may not be able
to meet our obligations as they come due which may impact our ability to
continue as a going concern in the future.
27
To a significant extent, our ability to raise capital is
affected by trends and uncertainties beyond our control. These include general
economic conditions, the market prices for precious metals and results from our
exploration programs. The Companys ability to reach its business objectives may
be significantly impaired if general economic conditions continue to
deteriorate, prices for metals such as zinc, gold, copper and platinum fall or
if results from planned exploration programs are unsuccessful.
5.4
Off-balance sheet arrangements
The Company has no off-balance sheet arrangements.
ITEM
6.
Directors, Senior Officers and Employees
6.1
Directors and Senior Officers
Background information about our directors and senior officers
is shown below as at January 31, 2013:
Name
|
Position Held with the
Company
|
Age
|
Date First Elected
or
Appointed
|
Linda J. Smith
|
President, Chief Executive
Officer and Director
|
63
|
October 27, 2000
|
Darcy T. Krell
|
Secretary, General Manager and
Director
|
64
|
October 10, 2008
|
J. Ronald McGregor
|
Chief Financial Officer and
Director
|
69
|
December 13, 2011
|
Steven J. Chan
|
Director
|
48
|
December 13, 2011
|
James O. Burns
|
Director
|
81
|
December 13, 2011
|
Brian A. Lueck
|
Director
|
52
|
October 25, 2010
|
Mark H. Holden
|
Director
|
54
|
October 25, 2010
|
There are no arrangements or undertakings between any of our
directors or executive officers, pursuant to being selected as a director or
senior officer. However, there is a family relationship between two of our
officers in that Ms. Linda Smith and Mr. Darcy Krell are husband and wife. The
following describes the business experience of our directors and senior
officers, including other directorships held in reporting companies:
Linda Smith
Ms. Linda Smith has acted as our
president, CEO and one of our directors since October 27, 2000 to present. She
spends approximately 10% of her time assisting Mr. Darcy Krell in providing
management services to us for which she receives no compensation.
Ms. Smith acted as Blue Lightning Ventures Inc.s president and
director from October 1999 to July 2004. She also acted in the same capacities
for Big Bar Gold Corporation from June 1999 to April 2003; for Candorado
Operating Company Ltd. from June 2000 to November 2001; and for East-West
Petroleum Corp. (formerly Algorithm Media Inc.) from December 2005 to December
2009. She is currently a director of Lakewood Mining Co.Ltd from December 2012.
All of these companies are British Columbia and Alberta reporting corporations
and involved in mineral property exploration.
Ms. Smith was also employed as a part-time dental assistant
from May 1995 to October 2002.
28
Darcy Krell
Mr. Krell has served the Issuer in
several capacities, including as the Issuers corporate secretary since March
31, 2005 and a director since October 10, 2008. He has served as the general
manager of the Issuer since November 1, 2000. Mr. Krell also served as the
Issuers CFO from October 10, 2008 to January 9, 2012. He has been a private
investor in various public and private companies since 1996. He has extensive
business experience but has no professional training or technical credentials in
the field of mineral property exploration or development. He spends
approximately 35% of his time on the business of the Issuer.
Mr. Krell also acted as a director of Big Bar Gold Corporation
from March 2000 to April 2004 and Blue Lightning Ventures Inc. from March 2002
to July 2004. In addition, Mr. Krell acted as a director of Algorithm Media Inc.
from December 2005 to January 2010 and has also been serving as President, CEO
and Director of Lakewood Mining Co Ltd since May 2, 2012. All of these companies
are Alberta and British Columbia reporting companies and involved in mineral
property exploration.
Ronald McGregor
Mr. McGregor has been contract
controller for the Issuer since December 2006; President of AYL Enterprises
Ltd., a private company providing contract controller services to public
companies since September 1996. He has also been a senior accounting instructor
at BCIT since January 1997. Mr. McGregor devotes approximately 20% of his time
to the business of the Issuer and has also been serving as Director and Acting
CFO of Lakewood Mining Co Ltd since May 2, 2012.
Steven Chan
Mr. Chan has been the CCO for
Wasco Management Inc. since September 2010. He is a director of several
companies listed on the Exchange including Abitibi Mining Corp.; Amador Gold
Corp.; Expedition Mining Inc.; Kermode Resources Ltd.; Klondike Gold Corp.;
Klondike Silver Corp.; La Ronge Gold Corp.; Lakewood Mining Co. Ltd., Sedex
Mining Corp.; and Zinccorp Resources Inc. He was Vice-President of Cambridge
House International Inc. from April 2000 to June 2010 and is currently a
director of Lakewood Mining Co. Ltd. May 2, 2012. Mr. Chan intends to devote
approximately 5% of his time to the business of the Issuer.
James Burns
Mr. Burns is a retired
businessman since 1998 following sale of his Northern Ontario hunting and
fishing lodge which he operated for many years and is currently a director of
Lakewood Mining Co. Ltd. May 2, 2012. Mr. Burns intends to devote approximately
5% of his time to the business of the Issuer.
None of the above individuals have entered into non-competition
or non-disclosure agreements with the Company. Except as otherwise disclosed,
none of the above individuals are employees or independent contractors of the
Company.
Brian Lueck
Mr Lueck has been a Philippine
resident for more than 13 years and active in mineral exploration for more than
23 years. Mr Lueck became President and Chief Operating Officer and a director
of Solfotara in 2008. He is also currently Chief Operating Officer and a
director of CDC (AIM: CDC). Prior thereto, he was a consulting geologist for
Metals Exploration plc from 2005 to 2008. He also was the President and a
director of Prospector International Resources Inc. (between 1998 and 2000) and
Yukon Gold Corp. and Alliance Pacific Gold Corp. (between 1994 and 1998). Mr
Lueck was a director of several Canadian public companies involved in mineral
exploration, including Lodestar Exploration Inc. and Regent Ventures Inc. from
1987 to 1992. Mr Lueck received a B.S. in Geology from the University of British
Columbia. He is also a practicing member of the Association of Professional
Engineers and Geoscientists of British Columbia. Mr Lueck is currently chairman
of Crazy Horse Resources Inc. (TSX Venture Exchange: CZH) and a director of
Otterburn Resources.
Mark Holden
Mr. Holden is a director of
Otterburn Resources Corporation (TSX Venture Exchange : OTB) since May 2010.
Formerly, CEO of Conversion Works Corporation from October 2010 - February 2011.
Formerly President and CEO of Hip Digital Media, an online music and media
distribution company, from September 2006 to April 2009 responsible for corporate vision and operations. Previously,
Mr. Holden was President of M Holden Productions Ltd., from 1998 to September
2006.
29
6.2
Compensation of Directors and senior officers
We are required, under applicable securities legislation in
Canada, to disclose to our shareholders details of compensation paid to our
directors and senior officers. The following fairly reflects all material
information regarding compensation paid to our directors and senior officers for
the fiscal years ended January 31 as follows:
Summary Compensation Table
NAME AND
PRINCIPAL
POSITION
|
YEAR
1
|
ANNUAL COMPENSATION
|
LONG-TERM COMPENSATION
|
Salary
|
Bonus
|
Other
Annual
Compen-
sation
|
Awards
|
LTIP
payouts
|
All Other
Compen-
sation
|
Restricted
Stock
Awards
|
Securities
Underlying
Options/
SARs
|
Linda Smith
as President,
CEO Officer
and
Director
|
2013
2012
2011
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Darcy Krell,
as Secretary,
General
Manager,
CF O and
Director
4
|
2013
2012
2011
|
$60,000
2
$60,000
2
$60,000
2
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
$30,000
3
$30,000
3
$30,000
3
|
Ronald
McGregor
as CFO and
Director
5
|
2013
2012
2011
|
$16,322
$9,034
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Mark Holden
as
Director
6
|
2012
2011
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Brian Lueck
as
Director
6
|
2012
2011
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Steven Chan
as
Director
7
|
2012
2011
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
James Burns
as
Director
7
|
2012
2011
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
Nil
Nil
|
1
|
February 1 to January 31.
|
2
|
Represents management fees.
|
3
|
Represents amounts paid to Darcy Krell for rent of office
facilities provided for the Company.
|
4
|
Resigned as CFO on December 13,
2011.
|
5
|
Appointed CFO and Director on December 31, 2011 and will
continue to earn fees on an hourly basis primarily for accounting and
financial reporting services which has been the case since December
2006.
|
6
|
Appointed as Director on October 25, 2010
|
7
|
Appointed Director on December 13,
2011.
|
30
The Issuer has not paid any compensation for director services
per se in the fiscal years ended January 31, 2013, 2012 and 2011. The Issuer
paid for certain management and administrative services to Mr. Darcy T. Krell,
prior to him becoming a director of the Issuer in October 2008 in his capacity
as the Issuers Secretary, General Manager and Chief Financial Officer. The
management fees were $2,500 per month from February 1, 2002 to April 30, 2008,
when they were increased to $5,000 per month pursuant to an unwritten agreement
which was formalized by an amended management agreement between the Issuer and
Mr. Krell dated August 1, 2008. Under this agreement, home office rent increased
from $1,500 to $2,500 per month; however, the increased rent payments did not
commence until February 1, 2009.
6.3
Board Practices
Linda Smith was appointed President, CEO and director of the
Issuer on October 27, 2000. Darcy Krell was appointed director on October 10,
2008. Mark Holden and Brian Lueck were appointed directors on October 25, 2010.
Ronald McGregor, Steven Chan and James Burns were appointed directors on
December 31, 2011. The directors hold office until the next annual general
meeting of the shareholders at which time they may stand for reelection. We are
required to hold an annual general meeting once every calendar year and not
longer than thirteen months from the last annual general meeting. The last
annual general meeting was held in Vancouver, BC on December 13, 2012.
We have a three member audit committee of the Board but have
not appointed a compensation committee. Full text of the audit committee charter
is attached as an Exhibit.
6.4 Employees
We do not have any employees other than our directors and
officers. When required, we retain geological, financial and other consultants.
6.5
Share Ownership of Directors and Senior Officers
Our directors and officers own beneficially the following
securities of the Company as of the date of this annual report.
|
Number of Shares
|
Number of Warrants
|
Shares as % of Issued and
Outstanding
Shares
|
Linda Smith
Darcy Krell
Steven Chan
James Burns
|
1,100,000
516,000
2,700,000
2,000,000
|
600,000
16,000
0
0
|
2.5%
1.2%
6.0%
4.5%
|
|
6,316,000
|
616,000
|
14.2%
|
The above percentages are based on the 44,633,171 common shares
issued and outstanding in our capital stock as of the date of this annual
report.
We have adopted an incentive stock option plan but to date the
Company had no issued or outstanding stock options.
31
ITEM
7.
Major Shareholders and Related Party Transactions
7.1
Beneficial Ownership
As used in this section, the term "beneficial ownership" with
respect to a security is defined by Regulation 228.403 under the Securities
exchange Act of 1934, as amended, as consisting of: (1) any person who, directly
or indirectly, through any contract, arrangement, understanding, relationship or
otherwise has or shares voting power (which includes the power to vote, or to
direct the voting of such security) or investment power (which includes the
power to dispose, or to direct the disposition of, such security); and (2) any
person who, directly or indirectly, creates or uses a trust, proxy, power of
attorney, pooling arrangement or any other contract, arrangement or device with
the purpose or effect of divesting such person of beneficial ownership of a
security or preventing the vesting of such beneficial ownership.
As of the date of this annual report, 44,633,171 common shares
are issued and outstanding and we are authorized to issue an unlimited number of
common shares without par value.
As of the date of this annual report, the following person
known to us was the beneficial owner of more than five percent of our
outstanding common shares.
Name of Shareholder
|
Number of Shares
Owned
|
Percentage of Issued and
Outstanding Shares
|
Steve Chan
|
2,700,000
|
6.0%
|
Each of our issued shares entitles the holder to one vote at
our annual general shareholder meetings. There are no disproportionate or
weighted voting privileges.
We are not controlled directly or indirectly by any other
corporation or any other foreign government or by any other natural or legal
person, severally or jointly.
There are no arrangements which at a subsequent date may result
in a change in our control.
7.2
Related Party Payables and Transactions
The following amounts are due to related parties as at January
31, 2013 and 2012:
|
As at January 31,
|
|
2013
|
2012
|
|
|
|
Payable to Company directors and companies
controlled by directors
|
$
11,466
|
$ 254,118
|
These amounts are non-interest bearing, unsecured with no fixed
term of repayment.
The Company had the following transactions with directors and
companies controlled by directors for the years ended January 31, 2013 and 2012:
|
Year ended January 31,
|
|
2013
|
2012
|
|
|
|
Consulting fees
|
$ 4,500
|
$
-
|
Management services
|
60,000
|
60,000
|
Office rent
|
30,000
|
30,000
|
Professional fees
|
16,322
|
9,034
|
|
$ 110,822
|
$ 99,034
|
32
Key management personnel compensation:
|
Year ended January 31,
|
|
2013
|
2012
|
|
|
|
Management services
|
$ 60,000
|
$ 60,000
|
Professional fees
|
16,322
|
9,034
|
|
$ 76,322
|
$ 69,034
|
7.3
Interests of Experts and Counsel
Our experts and legal counsel have no direct nor indirect
interest in our properties and our shareholdings are not employed on a
contingent basis.
ITEM
8.
Financial Information
The audited financial statements for the year ended January 31,
2013 are attached hereto as an exhibit and incorporated herein by reference.
8.1
Legal Proceedings
To the best of our knowledge there are no legal or arbitration
proceedings threatened, pending or in progress against us.
8.2
Subsequent Events
On March 1, 2013, the optionors of the Lampson Lake option
agreement agreed with the Company to split the final payment of $25,000 into two
equal amounts of $12,500 with the first payment due and paid on April 20, 2013
and the second due on April 20, 2014.
ITEM 9.
The Offer and Listing
Details
We have been a reporting issuer in both British Columbia and
Alberta since April 3, 1989 and became a foreign issuer with the United States
Securities and Exchange Commission on or about November 15, 2003. After filing
and receipting a registration statement on Form 20-F with the United States
Securities and Exchange Commission, our common shares were posted for trading on
the Over-the-Counter Bulletin Board (OTC:BB) in the United States under the
symbol GMSRF. With the name change to Rouge Resources Ltd., the trading symbol
was changed to ROUGF effective March 25, 2008. Our shares are now quoted on the
OTCQB operated by OTC Markets Group, Inc. in the United States and are also
listed for trading on the TSX-Venture Exchange under the symbol ROU.
The following table sets forth the high and low prices of our
common shares in US funds on a quarterly basis since trading began on the OTCBB:
33
Quarters ended
|
High
|
Low
|
February 14 to April 30, 2007
|
No trading
|
|
July 31, 2007
|
No trading
|
|
October 30, 2007
|
$0.50
|
$0.20
|
January 31, 2008
|
$0.70
|
$0.10
|
|
|
|
April 30, 2008
|
$1.00
|
$0.12
|
July 31, 2008
|
$0.13
|
$0.10
|
October 31, 2008
|
$0.10
|
$0.05
|
January 31, 2009
|
$0.07
|
$0.06
|
|
|
|
April 30, 2009
|
$0.06
|
$0.01
|
July 31, 2009
|
No trading
|
|
October 31, 2009
|
No trading
|
|
January 31, 2010
|
No trading
|
|
|
|
|
April 30, 2010
|
No trading
|
|
July 31, 2010
|
$0.30
|
$0.30
|
Oct 31, 2010
|
$0.35
|
$0.35
|
January 31, 2011
|
$0.35
|
$0.35
|
|
|
|
April 30, 2011
|
$0.36
|
$0.35
|
July 31, 2011
|
$0.35
|
$0.35
|
October 31, 2011
|
$0.35
|
$0.35
|
January 31, 2012
|
No trading
|
|
|
|
|
April 30, 2012
|
$0.50
|
$0.35
|
July 31, 2012
|
$0.50
|
$0.50
|
October 31, 2012
|
$0.50
|
$0.41
|
January 31, 2013
|
No trading
|
|
|
|
|
April 30, 2013
|
$0.25
|
$0.25
|
In prior years, our common shares were traded on the Canadian
Venture Exchange and its predecessor, the Vancouver Stock Exchange, under the
symbol GMS before the name change to Rouge Resources Ltd. effective March 25,
2008. On July 12, 2001, our shares were suspended from trading on the Canadian
Venture Exchange due to failure to meet the Exchanges minimum working capital
requirements. The Canadian Venture Exchange (now called the TSX Venture
Exchange) required that listed companies have a minimum of $50,000 in
unallocated working capital. At that time, we did not meet this requirement and
trading in our shares was suspended.
The Cease Trade Orders issued against us on November 7, 2003 by
the Alberta Securities Commission (the ASC) and on January 14, 2004 by the
British Columbia Securities Commission (the BCSC) were lifted on August 18,
2006 by the BCSC and on August 23, 2006 by the ASC. These reactivation and
revocation orders resulted from the Company bringing its disclosure records
up-to-date on SEDAR (
www.sedar.com
); preparing a new Evaluation Report
regarding the merits of the Dotted Lake property dated December 6, 2005; meeting
all other regulatory requirements; and paying all required fees and
penalties.
Following conditional approval of the Companys Listing
Application by the TSX Venture Exchange on April 25, 2012 and completion of a
required private placement financing, the companys shares commenced trading
again on August 30, 2012 under the symbol ROU.
The following table sets forth the high and low closing prices
in Canadian funds of our common shares during the time they traded originally
through the facilities of the Canadian Venture Exchange, and its predecessor,
the Vancouver Stock Exchange and again following start-up of trading again on
August 30, 2012:
34
Period
|
High
|
Low
|
February 1, 1999 to January
31, 2000
|
$1.50
|
$0.30
|
February 1, 2000 to January 31, 2001
|
$2.50
|
$0.60
|
February 1, 2001 to July 12,
2001
|
$1.00
|
$0.60
|
|
|
|
August 28, 2012 to January
31, 2013
|
$0.40
|
$0.30
|
February 1, 2013 to April 30,
2013
|
$0.25
|
$0.15
|
ITEM
10.
Additional Information
10.1
Share Capital
Refer to item 5.3 above
10.2
Memorandum and Articles of Association
We were incorporated pursuant to the
Company Act
of
British Columbia by registration of our articles of incorporation and memorandum
on March 31, 1988 and were subsequently transitioned to the replacement
Business Corporations Act
in March 2006. Pursuant to the provisions of
the
Business Corporations Act
, a company may conduct any business that it
is not restricted by the terms of its articles. Our articles contain no such
restrictions.
Our directors are required to disclose to the board of
directors the nature and extent of their interest in any proposed transaction or
contract and must thereafter refrain from voting in respect thereof. An
interested director may be counted in the quorum when a determination as to such
directors remuneration is being considered but may not vote in respect thereof.
The directors have an unlimited power to borrow money, issue debt obligations
and mortgage or charge our assets provided such actions are conducted bona fide
and in our best interests. There are no mandatory retirement ages for directors
or any required shareholdings.
All holders of common shares are entitled to receive dividends
out of assets legally available therefore at such times and in such amounts as
the board of directors may from time to time determine. All holders of common
shares will share equally on a per share basis in any dividend declared by the
board of directors. The dividend entitlement time limit will be fixed by the
board of directors at the time any such dividend is declared. Each outstanding
common share is entitled to one vote on all matters submitted to a vote of our
shareholders in general meeting. There are no cumulative voting rights attached
to any of our shares and, accordingly, the holders of more than half of the
shares represented at a general meeting can elect all of the directors to be
elected in a general meeting. All directors stand for re-election annually. Upon
any liquidation, dissolution or winding up, all common shareholders are entitled
to share ratably in all net assets available for distribution after payment to
creditors. The common shares are not convertible or redeemable and have no
preemptive, subscription or conversion rights. In the event of a merger or
consolidation, all common shareholders will be entitled to receive the same per
share consideration.
The rights of shareholders may only be altered by the
shareholders passing a special resolution at a general meeting. A special
resolution may only be passed when it has been circulated to all shareholders by
way of an information circular and then must be passed by seventy-five percent
of the votes cast at the general meeting.
The board of directors may call annual and extraordinary
general meetings when required. One or more shareholders holding in aggregate
five percent or more of our issued shares may requisition an extraordinary
meeting and the directors are required to hold such meeting within four months
of such requisition. Only registered shareholders or persons duly appointed by
proxy may be admitted to meetings unless otherwise permitted by the chairman of
the meeting.
There are no national limitations or restrictions on the right
to own our common shares.
35
There are no provisions in our articles of association that
would have the effect of delaying, deferring or preventing a change in control.
There are no provisions in our articles of association that
establish any threshold for disclosure of ownership. However, the British
Columbia and Alberta Securities Commissions require that persons who are the
registered owners of, and/or have voting control over 10% or more of our common
shares must file insider reports disclosing securities holdings.
10.3
Material Contracts
The following material contracts are currently outstanding:
i)
|
the Debt Deferral Agreement dated February 6, 2012
between the Issuer and Gregory S. Yanke Law Corp. regarding the deferral
of $39,676 of the Issuer debt to July 31, 2013 or later;
|
|
|
ii)
|
the amended management agreement with Mr. Darcy Krell
dated August 1, 2008 . The management fees were $2,500 per month from
February 1, 2002 to April 30, 2008, when they were increased to $5,000 per
month due to more time and effort required to run the business pursuant to
an unwritten agreement which was formalized by an amended management
agreement between the Issuer and Mr. Krell dated August 1, 2008. Under
this agreement, home office rent increased from $1,500 to $2,500 per
month; however, the increased rent payments did not commence until
February 1, 2009.
|
|
|
iii)
|
the option agreement dated April 20, 2010 with certain
Ontario prospectors to purchase two claims of the Lampson Lake Property,
adjacent to the Dotted Lake Property. We have an exclusive option to
purchase a 100% interest in these two claims by making option payments
totaling $60,000 as follows: $7,000 paid on April 20, 2010 when the
agreement was signed; $12,000 paid on April 20, 2011; $16,000 paid on
April 20, 2012 ; and $25,000 payable on April 20, 2013. The optionors
agreed on March 1, 2013 to split the final payment of $25,000 into two
equal amounts of $12,500, the first payable on April 20, 2013 (paid
subsequent to year end) and the second on April 20, 2014.
|
|
|
|
These claims are subject to a 2% net smelter royalty
(NSR) in favour of the Optionors on one claim and with respect to the
other, a combination of a 2% NSR in favour of the Optionors and a 1% NSR
on any metals and/or a 1% Net Sales Return royalty payable to Ontario
Exploration Company (OEC) on any precious stones recovered from the
property. The Company has the right to buy back 1% of the NSR in favour of
the Optioners for $1,000,000 and to buy back three-quarters 3/4 of 1% of
the royalty vested with OEC over 10 years on an increasing scale from
$15,000 to $750,000.
|
10.4
Exchange Controls and Other Limitations Affecting Security Holders
There is no law or governmental decree or regulation in Canada
that restricts the export or import of capital, or affects the remittance of
dividends, interest or other payments to a non-resident holder of common shares,
other than withholding tax requirements. See Item 10.5 below.
There is no limitation imposed by Canadian law or by our
constituent documents on the right of a non-resident to hold or vote common
shares, other than are provided in the Investment Canada Act (Canada). The
following summarizes the principal features of the Investment Canada Act
(Canada).
The Investment Canada Act (Canada) requires certain
"non-Canadian" individuals, governments, corporation or other entities who wish
to acquire a "Canadian business" (as defined in the Investment Canada Act), or
establish a "new Canadian business" (as defined in the Investment Canada Act) to
file either a notification or an application for review with a governmental
agency known as "Investment Canada". The Investment Canada Act requires that
certain acquisition of control of Canadian business by a "non-Canadian" must be
reviewed and approved by the Minister responsible for the Investment Canada Act
on the basis that the Minister is satisfied that the acquisition is "likely to
be of net benefit to Canada", having regard to criteria set forth in the
Investment Canada Act. Only acquisitions of control are reviewable under the Investment
Canada Act; however, the Investment Canada Act provides detailed rules for the
determination of whether control has been acquired and, pursuant to those rules,
the acquisition of one-third or more of the voting shares of a corporation may,
in some circumstances, be considered to constitute an acquisition of control.
Certain reviewable acquisitions of control may not be implemented before being
approved by the Minister; if the Minister does not ultimately approve a
reviewable acquisition, which has been completed, the acquired Canadian business
must be divested. Failure to comply with the review provisions of the Investment
Canada Act could result in, amongst other things, an injunction or a court order
directing disposition of assets of shares.
36
10.5
Canadian Federal Income Tax Consequences to U.S. Investors
A brief description of certain provisions of the tax treaty
between Canada and the United States is included below, together with a brief
outline of certain taxes, including withholding provisions to which United
States security holders are subject under existing laws and regulations of
Canada and United States; the consequences, if any, of state and local taxes are
not considered. The following information is general and security holders are
urged to seek the advice of their own tax advisors, tax counsel or accountants
with respect to the applicability or effect on their own individual
circumstances of not only the matters referred to herein, but also any state or
local taxes.
Canadian federal tax legislation generally requires a 25%
withholding from dividends paid or deemed to be paid to the Company's
nonresident shareholders. However, shareholders resident in the United States
will generally have this rate reduced to 15% through the tax treaty between
Canada and the United States. The amount of stock dividends paid to
non-residents of Canada will be subject to withholding tax at the same rate as
cash dividends. The amount of stock dividend (for tax purposes) would generally
be equal to the amount by which our stated capital has increased by reason of
the payment of such dividend. We will furnish additional tax information to
shareholders in the event of such a dividend. Interest paid or deemed to be paid
on our debt securities held by non-Canadian residents may also be subject to
Canadian withholding tax, depending upon the terms and provisions of such
securities and any applicable tax treaty. Under present legislation in the
United States, we are generally not subject to United States back up withholding
rules, which would require withholding at a rate of 20% on dividends and
interest paid to certain United States persons who have not provided us with a
taxpayer identification number.
Gains derived from a disposition of shares of the company by a
non-resident shareholder will be subject to tax in Canada only if not less than
25% of any class of our shares was owned by the nonresident shareholder and/or
persons with whom the nonresident did not deal at arm's length at any time
during the five-year period immediately preceding the disposition. In such cases
gains derived by a U.S. shareholder from a disposition of our shares would
likely be exempt from tax in Canada by virtue of the Canada-U.S. tax treaty.
10.6
United States Federal Income Tax Consequences to U.S. Investors
The following general discussion sets forth a summary of the
material United States federal income tax consequences that are applicable to
the following persons who invest in and hold our common shares as capital assets
("U.S. Shareholders"): (i) citizens or residents (as specially defined for
federal income tax purposes) of the United States, (ii) corporations or
partnerships created or organized in the United States or under the laws of the
United States or of any state and (iii) estates or trust the income of which is
subject to United States federal income taxation regardless of its source. This
discussion does not deal with (a) all aspects of federal income taxation that
may be relevant to a particular U.S. Shareholder based on such U.S.
Shareholder's particular circumstances (including potential application of the
alternative minimum tax, (b) certain U.S. Investors subject to special treatment
under federal income tax laws or foreign individuals or entities, (c) U.S.
Investors owning directly or by attribution 10% or more of our common shares, or
(d) any aspect of state, local or non-United States tax laws. Additionally, the
following discussion assumes that the Company will not be classified as a
"foreign personal holding company" under the Internal Revenue Code of 1986 as
amended (the "Code").
37
Passive Foreign Investment Company
For any of our taxable years, if 75% or more of our gross
income is "passive income" (as defined in the Code) or if at least 50% of our
assets, by average fair market value (or adjusted income basis if the Company
elects), are assets that produce or are held for the production of passive
income, we will be deemed to be a Passive Foreign Investment Company
("PFIC").
A U.S. Shareholder of a PFIC is subject to special U.S. federal
income tax rules in Section 1291 to 1297 of the Code. As described below, these
provisions set forth two alternative tax regimes at the election of each such
U.S. Shareholder, depending upon whether the U.S. Shareholder elects to treat us
as a "qualified electing fund" (a QEF election").
U.S. SHAREHOLDERS ARE STRONGLY URGED TO CONSIDER MAKING A
QEF ELECTION TO AVOID CERTAIN POTENTIALLY SIGNIFICANT ADVERSE U.S. TAX
CONSEQUENCES
The QEF Election Alternative
Each U.S. Shareholder is strongly urged to consider making a
QEF Election because of the potential benefits of such election that are
discussed below, and because we anticipate that we will not have any earnings
and profits (as computed for United States federal income tax purposes) for the
current taxable year and little, if any, earnings and profits for any future
taxable year in which we are a PFIC. There can be no assurance, however, that
this will be the case. Accordingly, the timely making of the QEF election, as
discussed below, generally should, subject to the discussion below under "Other
PFIC Rules", avoid any significant adverse United State federal income tax
consequences resulting from any classification of us as a PFIC, although this
may depend on a particular U.S. Shareholder's particular circumstances.
A U.S. Shareholder who elects in a timely manner to treat us as
a QEF (an "Electing U.S. Shareholder") will be subject, under Section 1293 of
the Code, to current federal income tax for any taxable year in which we are a
PFIC (or is treated as a PFIC with respect to the U.S. Shareholder) on such
Electing U.S. Shareholder's pro-rata share of our (i) "net capital gain" (the
excess of net long-term capital gain over short-term capital loss), which will
be taxed as long-term capital gain to the Electing U.S. Shareholder and (ii)
"ordinary earnings" (the excess of earnings and profits over net capital gain),
which will be taxed as ordinary income to the Electing U.S. Shareholder, in each
case, for the shareholder's taxable year in which, or with which, our taxable
year ends, regardless of whether such amounts actually are distributed. An
Electing U.S. Shareholder, however, would not take into account any income with
respect to any of our taxable years for which we have no earnings and profits.
Adjustments are provided generally to prevent double taxation at the time of
later distributions on or dispositions of Common Shares.
The QEF election also allows the Electing U.S. Shareholder
to:
(i) generally treat any gain realized on the disposition of our
common shares (or deemed to be realized on the pledge of such shareholder's
common shares) as capital gain;
(ii) treat such shareholder's share of our net capital gain, if
any, as long-term capital gain instead of ordinary income;
(iii) probably (although in the absence of regulations this
matter is not free from doubt) retain in the case of an individual Electing U.S.
Shareholder, the "step-up" in the tax basis of Common Shares to the fair market
value of such shares on the date of such Electing U.S. Shareholder's death
(which would otherwise not be retained); and (iv) generally avoid interest
charges resulting from PFIC status altogether.
In the event we are deemed a PFIC, we intend to comply with the
reporting requirements prescribed by Treasury regulations. In particular, we
will maintain information so that our ordinary earnings and net capital gain may
be determined. However, future regulations may contain reporting and
record-keeping requirements that are so onerous that it would not be practicable for us to comply. If, after
review of the requirements, we decide not to comply with the PFIC record-keeping
requirements, we will so notify our shareholders.
38
A QEF Election must be made by attaching the following
documents to the timely filed U.S. federal income tax return for the first
taxable year of the U.S. Shareholder in which or with which our taxable year
during which we were a PFIC and the U.S. Shareholder held (or was considered to
have held) common shares ends: (i) a "Shareholder Section 1295 Election
Statement" executed by the U.S. Shareholder, (ii) a "PFIC Annual Information
Statement" received by the U.S. Shareholder from us, and (iii) a Form 8621. In
addition, the Electing U.S. Shareholder must file a copy of the Shareholder
Section 1295 Election Statement with the Internal Revenue Center, PO Box 21086,
Philadelphia, PA 19114. In the case of common shares owned through a U.S entity,
the election is made at the entity level.
The following six paragraphs apply to electing U.S.
shareholders:
(i)
Dividends Paid on Common Shares:
Dividends paid on our common shares (including any Canadian
taxes withheld) to an Electing U.S. Shareholder will be treated as ordinary
dividend income for United States federal income tax purposes to the extent of
our current and accumulated earnings and profits (as computed for U.S. federal
income tax purposes) unless paid out of earnings and profits that were taxed to
the Electing U.S. Shareholder under the QEF rules. Such dividends generally will
not qualify for the dividends-received deduction available to corporations.
Amount in excess of such earnings and profits will be applied against the
Electing U.S. Shareholder's tax basis in the common shares, and to the extent in
excess of such tax basis, will be treated as gain from a sale or exchange of
such common shares.
(ii)
Credit for Canadian Taxes Withheld:
Subject to the limitations set forth in Section 904 of the Code
(which generally restricts the availability of foreign tax credits to a U.S.
Shareholder's tax liability attributable to foreign-source income of the same
type as the income with respect to which the tax was imposed, as determined
under complex U.S. tax rules), the Canadian tax withheld or paid with respect to
dividends on the common shares generally may be taken as a foreign tax credit
against United States federal income taxes by an Electing U.S. Shareholder who
chooses to claim such a credit for the taxable year. Electing U.S. Shareholders
who do not choose to claim foreign tax credits for a taxable year may claim
United States tax deduction for such Canadian tax in such taxable year.
(iii)
Disposition of Common Shares:
Any gain or loss on a sale or exchange of common shares by an
Electing U.S. Shareholder will be capital gain or loss, which will be long-term
capital gain or loss if the common shares have been held for more than one year,
and otherwise will be short-term capital or loss. The sale of common shares
through certain brokers may be subject to the information reporting and back-up
withholdings rules of the Code.
(iv) The
Non-QEF Election Alternative
If a U.S. Shareholder does not timely make a QEF Election for
the first taxable year during which he holds (or is considered to hold) the
common shares in question and we are a PFIC (a "Non-electing U.S. Shareholder"),
then special rules under Section 1291 will apply to (i) gains realized on the
disposition (or deemed to be realized by reason of a pledge) of common shares,
and (ii) certain "excess distribution" (as defined in the Code) by us. We have
never made any distributions with respect to our common shares and we do not
anticipate making any such distribution in the foreseeable future.
A non-electing U.S. Shareholder generally would be required to
pro-rate all gains realized on the disposition of our common shares and all
excess distributions over such shareholder's entire holding period for the
common shares. All gains or excess distributions allocated to prior years of the
U.S. Shareholder (provided such U.S. Shareholder's holding period and beginning
after December 31, 1986 for which it was a PFIC) would be taxed at the highest
tax rates for each such prior year applicable to ordinary income. Special
foreign tax credit rules apply with respect to withholding taxes imposed on amounts that are treated as excess
distributions. The Non-electing U.S. Shareholder also would be liable for
interest on the foregoing tax liability for each such prior year calculated as
if such liability had been due with respect to each such prior year. A
Non-electing U.S. Shareholder that is not a corporation must treat this interest
charge as "personal interest" which is non-deductible. The balance of the gain
or the excess distribution will be treated as ordinary income in the year of the
disposition or distribution and no interest charge will be incurred with respect
to such balance.
39
If we are a PFIC for any taxable year during which a
non-electing U.S. Shareholder holds, or is considered to hold, our common
shares, then we will continue to be treated as a PFIC with respect to such
common shares, even if we no longer meet the definition of a PFIC. A
Non-electing U.S. Shareholder may determine this deemed PFIC status by electing
to recognize gain (which will be taxed under the rules discussed above for
Non-electing U.S. Shareholders) as if such common shares had been sold on the
last day of the last taxable year for which it was a PFIC. Certain other
elections are also available to Non-Electing U.S. Shareholders.
(v) Other
PFIC Rules
Certain special, generally adverse, rules will apply with
respect to our common shares while we are a PFIC, regardless of whether the
common shares are held, or considered to be held, by an Electing or Non-electing
U.S. Shareholder. For example, under Section 1297(b)(6) of the Code, a U.S.
Shareholder who uses PFIC stock as security for a loan (including a margin loan)
will, except as may be provided in regulations, be treated as having made a
taxable disposition of such stock. In addition, under Section 1291(f) of the
Code, the Treasury has authority to issue regulations that would treat as
taxable certain transfers that are generally not so treated, such as gifts,
exchanges pursuant to corporate reorganizations, and transfers at death,
although it is not clear that such authority extends to transfers by Electing
U.S. Shareholders.
(vi) Future
Developments
The foregoing discussion is based on existing provisions of the
Code, existing and proposed regulations thereafter, and current administrative
rulings and court decisions, all of which are subject to change. Any such
changes could affect the validity of this discussion. In addition, the
implementation of certain aspects of the PFIC rules requires the issuance of
regulations which in many such instances have not yet been promulgated and which
may have retroactive effect. Furthermore, legislation has been proposed which
would replace the PFIC provisions with a consolidated anti-deferral regime.
While this legislation was vetoed, it may be re-introduced in subsequent years.
ALL PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF PURCHASING THE COMMON
SHARES.
10.7
Statements by Experts
We have placed reliance upon:
(i) our lawyer, Doug Eacrett, Barrister & Solicitor, Suite
203 - 409 Granville St, Vancouver BC, Canada V6C 1T2, as expert in Canadian
commercial law.
(ii) our special Canadian securities counsel, Dale Rondeau, C/o
Thomas Rondeau, LLP, Business Lawyers, Suite 300 576 Seymour St, Vancouver,
British Columbia, Canada, V6B 3K1, as expert in Canadian securities law.
(iii) our special US securities counsel, Thomas E. Puzzo, Esq.,
Law Offices of Thomas E. Puzzo, PLLC, 3823 44
th
Ave. NE, Seattle,
Washington 98105, USA, as expert in US securities law.
(iv) our consulting geologists, Ms Caitlin Jeffs, C/o Fladgate
Exploration Consulting Corp., 195 Park Avenue, Thunder Bay ON, Canada, P7B 1B9,
and Mr. Andre M Pouwels, P. Geo., 4900 Mariposa Court, Richmond BC, Canada V7C
2J9, as expert in mineral exploration geology of precious and base metals.
40
(v) our auditor, Dale Matheson Carr-Hilton Labonte LLP,
Chartered Accountants, Suite 1500 1140 West Pender Street, Vancouver BC,
Canada V6E 4G1, as expert in Canadian and US accounting, auditing and Canadian
income tax.
10.8
Documents on Display
You may review a copy of our filings with the SEC, including
exhibits and schedules filed with it, at the SEC's public reference facilities
at 100 F Street NE, Washington, D.C. 20549. You may call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. The SEC
maintains a Web site (
HTTP://www.sec.gov/edgar
) that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC. We have made our filings with the SEC
electronically as a reporting foreign issuer.
10.9
Subsidiary Information
Not applicable
ITEM
11.
Quantitative and Qualitative Disclosures about Market Risk
Market risk represents the risk of loss that may impact our
financial statements due to adverse changes in financial market prices and
rates, including credit risk, liquidity risk, foreign exchange risk and interest
rate risk..
We are engaged in the mineral exploration business and manage
related industry risk directly. We are potentially at risk for environmental
reclamation and fluctuations in commodity-based market prices associated with
resource property interests. We are of the opinion that we address environmental
risk and compliance in accordance with industry standards and specific project
environmental requirements. At present, the Company is not required to provide
for restoration and environmental obligations. Accordingly, no provision has
been made. However, there is no certainty that all environmental risks and
contingencies have been addressed.
The Company is exposed in varying degrees to financial
instrument related risks. The Board of Directors approves and monitors the risk
management processes, inclusive of documented investment policies, counterparty
limits, and controlling and reporting structures. The type of risk exposure and
the way in which such exposure is managed is provided as follows:
Credit risk
Credit risk is the risk that one
party to a financial instrument will fail to discharge an obligation and cause
the other party to incur a financial loss. The Companys primary exposure to
credit risk is on its cash held in bank accounts and its credit card deposit.
The majority of cash is deposited in bank accounts held with one major bank in
Canada so there is a concentration of credit risk. This risk is managed by using
a major bank that is a high credit quality financial institution as determined
by rating agencies. The Companys secondary exposure to risk is on its
harmonized sales tax refundable which is minimal since it is recoverable from
the Canadian Government.
Liquidity risk
Liquidity risk is the risk that
the Company will not be able to meet its financial obligations as they fall due.
The Company has a planning and budgeting process in place to help determine the
funds required to support the Companys normal operating requirements on an
ongoing basis. The Company attempts to ensure there is sufficient access to
funds to meet on-going business requirements, taking into account its current
cash position and potential funding sources.
Historically, the Company's source of funding has been either
the issuance of equity securities for cash through private placements or loans
from directors and officers. The Companys access to financing is always
uncertain and there can be no assurance of continued access to significant
funding from these sources.
Foreign exchange risk
Foreign currency risk is the risk that the fair values of
future cash flows of a financial instrument will fluctuate because they are
denominated in currencies that differ from the Companys functional currency.
The Company only operates in Canada and is therefore not exposed to foreign
exchange risk arising from transactions denominated in a foreign currency.
41
Interest rate risk
Interest rate risk is the
risk that the fair value of future cash flows of a financial instrument will
fluctuate because of changes in market interest rates. The Companys exposure to
interest rate risk relates to its ability to earn interest income on cash
balances at variable rates. Changes in short term interest rates will not have a
significant effect on the fair value of the Companys cash account.
Commodity Price Risk
The Companys ability to
raise capital to fund exploration or development activities is subject to risks
associated with fluctuations in the market price of precious metals. The Company
closely monitors commodity prices to determine the most appropriate course of
action.
Capital Management
The Company's policy is to
maintain a sufficient capital base so as to maintain investor and creditor
confidence, safeguard the Companys ability to support the exploration and
development of its exploration and evaluation assets and to sustain future
development of the business. The capital structure of the Company consists of
share and working capital. There were no changes in the Company's approach to
capital management during the year and the Company is not subject to any
restrictions on its capital.
ITEM
12.
Descriptions of Securities Other than Equity Securities
12.1
Stock Options
Refer to Item 5.3 above.
12.2
Stock Purchase Warrants
Refer to Item 5.3 above.