UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark one)
[ ] 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
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________ to _________
or
[ ] Shell Company Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number: 001-32558
IMA EXPLORATION INC.
(Exact name of Registrant as specified in its charter)
IMA EXPLORATION INC.
(Translation of Registrant's name into English)
BRITISH COLUMBIA, CANADA
(Jurisdiction of incorporation or organization)
#709, 837 WEST HASTINGS STREET, VANCOUVER, BRITISH COLUMBIA, CANADA V6C 2N6
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
NONE
Securities registered or to be registered pursuant to Section 12(g) of the Act.
COMMON STOCK, NO PAR VALUE
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
NOT APPLICABLE
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
52,013,064 COMMON SHARES AS OF DECEMBER 31, 2006
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes No X
----- -----
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 No X
----- -----
Note - Checking the box above will not relieve any registrant required to file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
from their obligations under those Sections.
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
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 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 No X
----- -----
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GENERAL INFORMATION:
Unless otherwise indicated, all references herein are to Canadian dollars.
The Company is required under Canadian law (National Instrument 43-101 Standards
Of Disclosure For Mineral Projects) ("NI 43-101") to calculate and categorize
"mineral reserve", "proven mineral reserve", "probable mineral reserve",
"mineral resource", "measured mineral resource", "indicated mineral resource"
and "inferred mineral resource" under the Canadian Institute of Mining
Metallurgy and Petroleum ("CIM") Standards on Mineral Resources and Reserves -
Definitions and Guidelines dated December 11, 2005. These standards establish
definitions and guidelines for the reporting of exploration information, mineral
resources and mineral reserves in Canada. These definitions have not been
adopted for use in the United States of America by the Securities and Exchange
Commission (the "SEC"). Under these guidelines, the CIM definitions of proven
and probable mineral reserves equate to the definitions of proven and probable
reserves as set out in Guide 7 of the Securities Act Industry Guides adopted by
the SEC ("Guide 7"). In addition, Canadian law requires disclosure of mineral
resources that equate to measured, indicated and inferred resources.
PART I
ITEM 1. DIRECTORS, SENIOR MANAGEMENT AND ADVISORS.
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Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE.
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Not applicable.
ITEM 3. KEY INFORMATION.
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SELECTED FINANCIAL DATA
The selected financial data and the information in the following table of IMA
Exploration Inc. (the "Company") for the years ended December 31, 2006, 2005 and
2004 was derived from the consolidated financial statements of the Company which
have been audited by PricewaterhouseCoopers LLP, independent Chartered
Accountants, as indicated in their report which is included elsewhere in this
annual report. The selected financial data set forth and the information in the
following table for the years ended December 31, 2003 and 2002 are derived from
the Company's audited consolidated financial statements after reflecting the
carve out of Golden Arrow Resources Corporation not included herein.
The information in the following table should be read in conjunction with the
information appearing under the heading "Item 5. Operating and Financial Review
and Prospects".
Reference is made to Note 10 of the 2006 consolidated financial statements of
the Company included herein for a discussion of the material measurement
differences between Canadian Generally Accepted Accounting Principles ("Canadian
GAAP") and United States Generally Accepted Accounting Principles ("U.S. GAAP"),
and their effect on the Company's financial statements.
To date, the Company has not generated sufficient cashflow from operations to
fund ongoing operational requirements and cash commitments. The Company has
financed its operations principally through the sale of its equity securities.
The Company considers that it has adequate resources to meet property
commitments on its existing property holdings; however, at present, the Company
may not have sufficient funds to conduct exploration programs on all of its
existing properties and may need to obtain additional financing or joint venture
partners in order to initiate any such programs. See "Item 5. Operating and
Financial Review and Prospects".
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CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CDN$ IN 000, EXCEPT PER SHARE DATA)
-------------------------------------------------------------------------------------------------------------------
2006 2005 2004 2003 2002
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Revenue - - - - -
General Corporate Expenditures (3,452) (6,092) (4,084) (2,276) (330)
General Exploration Expenditures (499)(a) (56) (229) (227) (180)
Foreign Exchange Gain (Loss) (3) 233 (195) (13) (2)
Interest and Miscellaneous Income 373 150 102 67 27
Provision for Marketable Securities - - (100) - -
Loss Allocated to Spin off Assets - - (131) (969) (955)
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Net Loss for the Year (3,581) (5,765) (4,655) (3,418) (1,440)
=================================================================
Loss per Share from Continuing Operations (0.07) (0.12) (0.11) (0.08) (0.02)
=================================================================
Loss per Share -Basic and Diluted (0.07) (0.12) (0.11) (0.11) (0.06)
=================================================================
Weighted Average Number of Shares Outstanding 51,264 46,197 40,939 32,252 23,188
=================================================================
Working Capital 9,060 7,489 5,053 4,747 1,431
Capital Assets - - 94 36 46
Mineral Properties - 15,032 6,551 1,469 148
Navidad Interest 17,950 - - - -
Spin-Off Assets - - - 6,749 6,903
Long-Term Debt - - - - -
Total Assets 27,246 23,498 12,222 13,419 8,637
Net Assets - Shareholder's Equity 27,010 20,761 10,813 11,671 7,324
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(a) The 2006 General Exploration balance includes Navidad holding costs which
are comprised of:
i) costs incurred in order to maintain basic operations in Argentina
subsequent to the transfer of control of the Navidad project to
Aquiline;
ii) costs incurred in the period between the date of the judgment and the
transfer of control of the Navidad project to Aquline that would
normally have been included in mineral properties and deferred costs.
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ADJUSTED TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Under U.S. GAAP the following financial information would be adjusted from
Canadian GAAP (references are made to Note 11 of the accompanying consolidated
audited financial statements):
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(CDN$ IN 000, EXCEPT PER SHARE DATA)
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2006 2005 2004 2003 2002
--------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
Loss for the year under Canadian GAAP $(3,581) $(5,765) $(4,655) $(3,418) $(1,440)
Mineral property and deferred exploration costs
for the year, net of reversal of future income
tax and write down of marketable securities (4,492) (7,605) (4,479) (1,813) (1,267)
Mineral property and deferred exploration costs
written off during the year which would have been
expensed in the year incurred - - - 777 -
Stock-based compensation - - - (144) (102)
--------------------------------------------------------------
Loss for the year under US GAAP $(8,073) $(13,370) $(9,134) $(4,598) $(2,809)
Unrealized (loss) gains on
available-for-sale securities (3) - (387) 434 55
--------------------------------------------------------------
Comprehensive Loss for the year $(8,076) $(13,370) $(9,521) $(4,164) $(2,754)
==============================================================
Loss per share under US GAAP $(0.16) $(0.29) $(0.22) $(0.14) $(0.12)
==============================================================
Diluted Loss per share under US GAAP $(0.16) $(0.29) $(0.22) $(0.14) $(0.12)
==============================================================
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2006 2005 2004 2003 2002
--------------------------------------------------------------
SHAREHOLDERS' EQUITY
Balance per Canadian GAAP $27,010 $20,761 $10,813 $11,671 $7,324
Mineral property and deferred exploration costs
expensed net of reversal of future income tax (17,764) (13,272) (5,666) (6,884) (5,848)
Accumulated other comprehensive income 81 84 84 489 54
--------------------------------------------------------------
Balance per US GAAP $9,327 $7,573 $5,231 $5,277 $1,530
==============================================================
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2006 2005 2004 2003 2002
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MIENRAL PROPERTIES / NAVID INTEREST
Balance per Canadian GAAP $17,950 $15,032 $6,552 $8,214 $5,848
Mineral property and deferred exploration costs
expensed net of reversal of future income tax (17,764) (15,032) (6,552) (8,214) (5,848)
Transfer of marketable Securities 81 - - - -
--------------------------------------------------------------
Balance per US GAAP $267 $- $- $- $-
==============================================================
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2006 2005 2004 2003 2002
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CONSOLIDATED STATEMENTS OF CASH FLOWS
OPERATING ACTIVITIES
Cash used per Canadian GAAP $(3,785) $(3,850) $(2,962) $(1,419) $(1,306)
Mineral properties and deferred costs (4,492) (7,025) (4,578) (1,851) (1,267)
--------------------------------------------------------------
Cash used per US GAAP $(8,277) $(10,875) $(7,540) $(3,270) $(2,573)
==============================================================
INVESTING ACTIVITIES
Cash used per Canadian GAAP $(5,412) $(10,259) $(8,810) $(1,873) $(1,278)
Mineral properties and deferred costs 4,492 7,026 4,579 1,851 1,267
--------------------------------------------------------------
Cash provided (used) per US GAAP $(920) $(3,233) $(4,232) $(22) $(11)
==============================================================
FINANCING ACTIVITIES
Cash provided per Canadian and US GAAP $9,437 $13,478 $9,297 $6,278 $3,264
==============================================================
See Note 11 of the Company's consolidated financial statements.
EXCHANGE RATE HISTORY
The noon rate of exchange on February 28, 2007, reported by the United States
Federal Reserve Bank of New York for the conversion of Canadian dollars into
United States dollars was US$0.8547 (US$1.00 = CDN$1.1700).
The following table sets forth high and low exchange rates for one Canadian
dollar expressed in terms of one U.S. dollar for the six-month period ended
February 28, 2007.
MONTH HIGH LOW
September 2006 0.9048 0.8872
October 2006 0.8965 0.8784
November 2006 0.8869 0.8715
December 2006 0.8760 0.8582
January 2007 0.8586 0.8547
February 2007 0.8631 0.8437
The following table sets forth the average exchange rate for one Canadian dollar
expressed in terms of one U.S. dollar for the past five fiscal years.
PERIOD AVERAGE
January 1, 2002 - December 31, 2002 0.6368
January 1, 2003 - December 31, 2003 0.7206
January 1, 2004 - December 31, 2004 0.7682
January 1, 2005 - December 31, 2005 0.8254
January 1, 2006 - December 31, 2006 0.8818
Exchange rates are based upon the noon buying rate in New York City for cable
transfers in foreign currencies as certified for customs purposes by the Federal
Reserve Bank of New York.
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RISK FACTORS
Due to the nature of the Company's business and the present stage of exploration
on its mineral resource properties, the following risk factors apply to the
Company's operations (see "Item 4. Information on the Company - History and
Development of the Company"):
TITLE TO PROPERTIES RISK: On November 16, 2006 the Company transferred ownership
of its mineral properties to Aquiline Resources Inc. ("Aquiline") under the
terms of an Interim Project Development Agreement (the "Interim Agreement")
while the appeal of the Supreme Court of British Columbia decision of July 14,
2006 is heard and the Appeal Court's decision is rendered. In the event that the
Company is unsuccessful on appeal, the Company will be paid $18,500,000 as
consideration for these assets, less legal costs Aquiline would be entitled to
in relation to the trial and the appeal. In the event that the legal costs that
Aquiline may become entitled to are significant, the recoverability of the costs
reflected may be impaired. Such impairment may be material. However, at the
current time, the Company is unable to determine with any degree of certainty
what the final outcome of the appeal process may be and if the Company will
regain its direct ownership of the mineral properties. The Company has no other
mineral properties.
LIQUIDITY AND CASH FLOW: As at the date of this annual report, the Company has
not generated any revenues from operations to fund ongoing operational
requirements and cash commitments. The Company has financed its operations
principally through the sale of its equity securities. As at February 28, 2007
the Company had working capital of approximately $8,500,000. Management believes
the Company has adequate resources to maintain its ongoing operations and will
require additional financing for exploration and development in the event it
regains operational control over the Navidad Project. See "Item 5. Operating and
Financial Review and Prospects - Liquidity and Capital Resources".
EXPLORATION STAGE COMPANY: An investment in a natural resources company involves
a high degree of risk. The degree of risk increases substantially where the
company's properties are in the exploration stage.
ADDITIONAL FINANCING: The Company presently has sufficient financial resources
to meet its commitments. The Company at present may not, however, have
sufficient funds to conduct exploration and development programs on all these
properties and may need to obtain additional financing or find joint venture
partners in order to initiate any such programs in the event it regains
operational control over the Navidad Project.
The Company will continue to rely on successfully completing additional equity
financing and/or conducting joint venture arrangements to further exploration on
its properties. There can be no assurance that the Company will be successful in
obtaining the required financing or negotiating joint venture agreements. The
Company's management may elect to acquire new projects, at which time additional
equity financing may be required to fund overhead and maintain its interests in
current projects, or may decide to relinquish certain of its properties. These
decisions will be based on the results of ongoing exploration programs and the
response of equity markets to the projects and business plan. The failure to
obtain such financing or complete joint venture arrangements could result in the
loss or substantial dilution of the Company's interests (as existing or as
proposed to be acquired) in its properties as disclosed herein. The Company does
not have any definitive commitment or agreement concerning any investment,
strategic alliance or related effort, on any of the Company's material
properties. The Company may seek joint venture partners to provide funding for
further work on any or all of those other properties. Joint ventures may involve
significant risks and the Company may lose any investment it makes in a joint
venture. Any investments, strategic alliances or related efforts are accompanied
by risks such as:
1. the difficulty of identifying appropriate joint venture partners or
opportunities;
2. the time the Company's senior management must spend negotiating
agreements and monitoring joint venture activities;
3. the possibility that the Company may not be able to reach agreement on
definitive agreements, with potential joint venture partners;
4. potential regulatory issues applicable to the mineral exploration
business;
5. the investment of the Company's capital or properties and the loss of
control over the return of the Company's capital or assets;
6. the inability of management to capitalize on the growth opportunities
presented by joint ventures; and
7. the insolvency of any joint venture partner.
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There are no assurances that the Company would be successful in overcoming these
risks or any other problems encountered with joint ventures, strategic alliances
or related efforts.
EXPLORATION RISKS: Mineral exploration is highly speculative in nature, involves
many risks and frequently is nonproductive. There can be no assurance that the
Company's efforts to identify resources will be successful. Moreover,
substantial expenditures are required to establish resources through drilling,
to determine metallurgical processes to extract the metal from the ore and to
construct mining and processing facilities. During the time required to
establish resources, determine suitable metallurgical processes and construct
such mining and processing facilities, the economic feasibility of production
may change because of fluctuating prices.
METAL PRICE RISK: The Company's portfolio of properties has exposure to
predominantly silver and lead. The prices of these metals, especially silver,
greatly affect the value of the Company and the potential value of its
properties and investments.
FINANCIAL MARKETS RISK: The Company is dependent on the equity markets as its
sole source of operating working capital and the Company's capital resources are
largely determined by the strength of the junior resource markets and by the
status of the Company's projects in relation to these markets, and its ability
to compete for the investor support of its projects.
POLITICAL RISK: Exploration is presently carried out in Argentina. This exposes
the Company to risks that may not otherwise be experienced if all operations
were domestic. Political risks may adversely affect the Company's existing
assets and operations. Real and perceived political risk in some countries may
also affect the Company's ability to finance exploration programs and attract
joint venture partners, and future mine development opportunities.
CURRENCY RISK: Business is transacted by the Company in a number of currencies.
Fluctuations in exchange rates may have a significant effect on the cash flows
of the Company. Future changes in exchange rates could materially affect the
Company's results in either a positive or negative direction.
ENVIRONMENTAL RISK: The Company seeks to operate within environmental protection
standards that meet or exceed existing requirements in the countries in which
the Company operates. Present or future laws and regulations, however, may
affect the Company's operations. Future environmental costs may increase due to
changing requirements or costs associated with exploration and the developing,
operating and closing of mines. Programs may also be delayed or prohibited in
some areas. Although minimal at this time, site restoration costs are a
component of exploration expenses.
PROJECT DELAY RISK: The Company's minerals business is subject to the risk of
unanticipated delays in permitting its projects. Such delays may be caused by
fluctuations in commodity prices, mining risks, difficulty in arranging needed
financing, unanticipated permitting requirements or legal obstruction in the
permitting process by project opponents. In addition to adding to project
capital costs (and possibly operating costs), such delays, if protracted, could
result in a write-off of all or a portion of the carrying value of the delayed
project.
PRICE FLUCTUATIONS AND SHARE PRICE VOLATILITY: In recent years the securities
markets in Canada have experienced a high level of price and volume volatility
and the market price of securities of many companies, particularly junior
mineral exploration companies, like the Company, have experienced wide
fluctuations which have not necessarily been related to the operating
performance, underlying asset values or prospects of such companies. In
particular, the per share price of the Company's common shares on the TSX
Venture Exchange (the "TSX-V") fluctuated from a high of $3.96 to a low of $0.49
during the 12-month period ending December 31, 2006. There can be no assurance
that continual fluctuations in price will not occur.
OPERATING HAZARDS AND RISKS: Mining operations involve many risks, which even a
combination of experience, knowledge and careful evaluation may not be able to
overcome. Operations in which the Company has a direct or indirect interest will
be subject to all the hazards and risks normally incidental to exploration for
metals, any of which could result in damage to or destruction of mines and other
producing facilities, damage to life and property, environmental damage and
possible legal liability for any or all damage. Although the Company maintains
liability insurance in an amount which it considers adequate, the nature of
these risks is such that liabilities could exceed
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policy limits, in which event the Company could incur significant costs that
could have a materially adverse effect upon its financial condition.
INSURABLE RISKS AND LIMITATIONS OF INSURANCE: The Company maintains certain
insurance, however, such insurance is subject to numerous exclusions and
limitations. The Company maintains a Total Office Policy in Canadian dollars on
its principal offices. Generally, the Total Office Policy provides All Risk
Replacement Cost Coverage on office contents, up to $300,000, with a $500
deductible. In addition, the policy provides Commercial General Liability
coverage of up to $5,000,000 for Third Party Bodily Injury or Property Damage,
per occurrence and $2,000,000 for Tenants Legal Liability for any one leased
premises, with a $500 deductible. The Company also has insurance coverage of up
to $5,000,000 for non-owned automobile liability.
The Company maintains a Foreign Commercial General Liability policy in U.S.
dollars which provides US$5,000,000 coverage for bodily injury or property
damage per occurrence and coverage up to US$5,000,000 per offence for personal
injury or advertising injury (libel, slander, etc.). The policy has a general
aggregate limit for all claims during each consecutive policy period, except for
those resulting from product hazards or completed operations hazards, of
US$5,000,000. The policy has a US$5,000,000 aggregate limit for each consecutive
policy period, for bodily injury or property damage liability arising out of
completed operations and products. In addition, the Foreign Commercial General
Liability policy provides for coverage of up to US$10,000 in medical expenses,
per person, with a US$10,000 limit per accident, and up to US$100,000 for each
occurrence of tenants' fire legal liability. The policy does not apply to injury
or damages occurring within Canada, the United States (including its territories
and possessions), Puerto Rico, any countries or territories against which the
United States has an embargo, sanction or ban in effect, territorial waters of
any of the foregoing, the Gulf of Mexico, or international waters or airspace
when an injury or damage occurs in the course of travel or transportation to any
country or place included in the foregoing. The policy also does not cover
asbestos related claims or liability for bodily injury or property damages
arising out of the discharge, dispersal, release or escape of smoke, vapors,
soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials
or other irritants, contaminants or pollutants into or upon land, the
atmosphere, or any water-course or body of water. The policy also contains a
professional liability exclusion which applies to bodily injury or property
damage arising out of defects in maps, plans, designs or specifications
prepared, acquired or used by the Company or arising out of any act of
negligence, error, mistake or omission in rendering or failing to render
professional consulting or engineering services, whether performed by the
Company or other for whom the Company is responsible.
The Company maintains a Foreign Commercial Automobile Liability Insurance policy
on owned, leased, hired and non-owned automobiles with the following liability
limitations:
o $5,000,000 bodily injury liability for each person.
o $5,000,000 bodily injury liability for each occurrence.
o $5,000,000 property damage liability for each occurrence.
o $10,000 medical expense coverage, per person.
o $10,000 medical expense coverage, per accident.
The foregoing descriptions of the Company's insurance policies do not purport to
be complete and does not cover all of the exclusions to such policies.
The Company has an Executive and Organization Liability insurance policy for the
benefit of directors and officers. The aggregate limit of liability is $5
million. The policy is renewable on a yearly basis.
MANAGEMENT: The Company is dependent on the services of Joseph Grosso, the
President and a director of the Company. The loss of Mr. Grosso could have an
adverse affect on the Company. Joseph Grosso provides his services to the
Company through Oxbow International Marketing Corp. ("Oxbow"). The Company has
entered into a consulting agreement with Oxbow.
All of the Company's other officers are employed by Grosso Group Management Ltd.
("Grosso Group"). See "Item 6. Directors, Senior Management and Employees -
Directors and Senior Management - Conflicts of Interest". The Company does not
maintain "key-man" insurance in respect of any of its principals.
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DEPENDENCE UPON OTHERS: The success of the Company's operations will depend upon
numerous factors, many of which are beyond the Company's control, including: (i)
the ability of the Company to regain its direct ownership of the Navidad Project
through the appeal process; (ii) the ability to enter into strategic alliances
through a combination of one or more joint ventures, mergers or acquisition
transactions; (iii) the ability to discover and produce minerals; (iv) the
ability to attract and retain additional key personnel in investor relations,
marketing, technical support, and finance; and (v) the ability and the operating
resources to develop and maintain the properties held by the Company. These and
other factors will require the use of outside suppliers as well as the talents
and efforts of the Company. There can be no assurance of success with any or all
of these factors on which the Company's operations will depend.
CONFLICTS OF INTEREST: Several of the Company's directors are also directors,
officers or shareholders of other companies. Such associations may give rise to
conflicts of interest from time to time. Such a conflict poses the risk that the
Company may enter into a transaction on terms which could place the Company in a
worse position than if no conflict existed. The directors of the Company are
required by law to act honestly and in good faith with a view to the best
interest of the Company and to disclose any interest which they many have in any
project or opportunity of the Company. However, each director has a similar
obligation to other companies for which such director serves as an officer or
director. The Company has no specific internal policy governing conflicts of
interest. See "Item 6. Directors, Senior Management and Employees - Directors
and Senior Management - Conflicts of Interest".
FOREIGN COUNTRIES AND REGULATORY REQUIREMENTS: The projects in which the Company
has an interest are located in Argentina. Mineral exploration and mining
activities in Argentina may be affected in varying degrees by political
instability and government regulations relating to the mining industry. Any
changes in regulations or shifts in political conditions are beyond the control
of the Company and may adversely affect its business. The Company does not
maintain and does not intend to purchase political risk insurance. Operations
may be affected in varying degrees by government regulations with respect to
restrictions on production, price controls, export controls, income taxes,
expropriations of property, environmental legislation and mine safety. The
status of Argentina as a developing country may make it more difficult for the
Company to obtain any required exploration financing for its projects. The
effect of all of these factors cannot be accurately predicted.
Argentina has recently experienced some economic and political instability.
Management believes the new democratic elected government is making progress in
the domestic economy and it is improving the image of the country
internationally. Additionally, management believes the economic crisis of
December 2001 has been overcome, and although the country had defaulted on its
loans, it has repaid its debt to the International Monetary Fund in December
2005. The Company maintains the majority of its funds in Canada and only
forwards sufficient funds to meet current obligations and overhead in Argentina.
The Company does not believe that any current currency restrictions which may be
imposed in Argentina will have any immediate impact on the Company's exploration
activities.
IMPACT OF GOVERNMENT REGULATIONS ON THE COMPANY'S BUSINESS: The projects in
which the Company has an interest are located in Argentina.
ARGENTINA
MINING INDUSTRY
Mineral companies are subject to various federal and provincial laws and
regulations including specific mining and environmental rules. The Company
believes it is in material compliance with all applicable legislation.
THE RIGHT TO EXPLORE A PROPERTY (A "CATEO") AND THE RIGHT TO EXPLOIT (A "MINA")
ARE GRANTED BY ADMINISTRATIVE OR JUDICIAL AUTHORITIES VIA CONCESSIONS. FOREIGN
INDIVIDUALS AND CORPORATIONS MAY APPLY FOR AND HOLD CATEOS AND MINAS, AT THE
SAME LEVEL AS LOCAL INVESTORS WITHOUT DIFFERENCES OF ANY NATURE. CATEOS AND
MINAS ARE FREELY TRANSFERABLE UPON REGISTRATION WITH THE PROVINCIAL MINING
REGISTRY WHERE TITLE TO THE CATEO OR MINA WAS FIRST REGISTERED. UPON THE GRANT
OF A LEGAL CONCESSION OF A CATEO OR A MINE, PARTIES HAVE THE RIGHT TO EXPLORE
THE LAND OR TO OWN THE MINE AND THE RESOURCES EXTRACTED THEREFROM.
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REGULATORY ENVIRONMENT
Management believes the present government is committed to opening up the
economy and there has been progress in reducing import duties and export taxes.
For decades local industry has been protected and the transition to greater
international competitiveness will take some time.
Importers and exporters must be registered with Argentinean Customs office.
Except for a limited list of items requiring the previous approval of the
authorities there are no import restrictions. Import of pharmaceuticals, drugs,
foodstuffs, defense material and some other items require the approval of the
applicable government authority. Import duties are being progressively reduced
in accordance with the free enterprise and free-trade policy being implemented
by the government in order to achieve greater international competitiveness. To
illustrate, duties currently range between zero and 20 percent. Restrictions on
exports are not generally imposed, although there are export taxes currently in
place including mineral products.
POLITICAL ENVIRONMENT AND ECONOMY
In recent years Argentina has experienced a number of changes to its government.
The current president, Nestor Kirchner, came to power in May 2003. The economic
performance of the country has been troubled and uncertain since the late
1990's. Management believes there are positive indications that the economic
situation continues to improve.
ENVIRONMENTAL REGULATIONS: The Company's operations are subject to environmental
regulations promulgated by government agencies from time to time. Environmental
legislation provides for restrictions and prohibitions on spills, releases 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. At present, the Company does not believe
that compliance with environmental legislation and regulations will have a
material affect on the Company's operations; however, any changes in
environmental legislation or regulations, or in the Company's business, may
cause compliance with such legislation and/or regulation to have a material
impact on the Company's operations. In addition, certain types of operations
require the submission and approval of environmental impact assessments.
Environmental legislation is evolving in a manner which means stricter
standards, and enforcement, fines and penalties for non-compliance are more
stringent. Environmental assessments of proposed projects carry a heightened
degree of responsibility for companies and directors, officers and employees.
The cost of compliance with changes in governmental regulations has a potential
to reduce the profitability of operations. The Company intends to ensure that it
complies fully with all environmental regulations relating to its operations in
Argentina.
The provincial government of Chubut Province, Argentina, has enacted certain
anti-mining laws banning the use of cyanide in metallic mineral extraction in
the Province of Chubut and open-pit mining is subject to, a yet to be defined,
zoning process. The provincial legislation is more restrictive than current
federal Argentinean mining laws. Certain authorities believe that the provincial
legislation may be unconstitutional. However, there can be no assurance that the
provincial legislation will be repealed.
CURRENCY FLUCTUATIONS: The Company's operations in Argentina and Canada make it
subject to foreign currency fluctuations and such fluctuation may adversely
affect the Company's financial position and results. Certain of the Company's
expenses are denominated in U.S. dollars. As such, the Company's principal
foreign exchange exposure is related to the conversion of the Canadian dollar
into U.S. dollars. The Canadian dollar varies under market conditions. Continued
fluctuation of the Canadian dollar against the U.S. dollar will continue to
affect the Company's operations and financial position. The Company's foreign
subsidiaries comprise a direct and integral extension of the Company's
operations. These subsidiaries are also entirely reliant upon the Company to
provide financing in order for them to continue their activities. Consequently,
the functional currency of these subsidiaries is considered by management to be
the Canadian dollar and accordingly exchange gains and losses are included in
net income. Management does not believe the Company is subject to material
exchange rate exposure from any fluctuation of the Argentine currency. The
Company does not engage in hedging activities. See "Item 5. Operating and
Financial Review and Prospects".
NO DIVIDENDS: The Company has not paid out any cash dividends to date and has no
plans to do so in the immediate future.
- 11 -
PENNY STOCK REGULATION: The SEC has adopted rules that regulate broker-dealer
practices in connection with transactions in "penny stocks". Generally, penny
stocks are equity securities with a price of less than US$5.00 (other than
securities registered on certain national securities exchanges or quoted on the
NASDAQ system). Since the Company's shares are traded for less than US$5.00 per
share, the shares are subject to the SEC's penny stock rules. The Company's
shares will be subject to the penny stock rules until such time as (1) the
issuer's net tangible assets exceed US$5,000,000 during the issuer's first three
years of continuous operations or US$2,000,000 after the issuer's first three
years of continuous operations; or (2) the issuer has had average revenue of at
least US$6,000,000 for three years. The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document prescribed by the
SEC that provides information about penny stocks and the nature and level of
risks in the penny stock market. The broker-dealer must obtain a written
acknowledgement from the purchaser that the purchaser has received the
disclosure document. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction and monthly account
statements showing the market value of each penny stock held in the customer's
account. In addition, the penny stock rules require that prior to a transaction
in a penny stock not otherwise exempt from those rules, the broker-dealer must
make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser's written agreement to
the transaction. These requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to the
penny stock rules. Such rules and regulations may make it difficult for holders
to sell the common stock of the Company, and they may be forced to hold it
indefinitely.
ENFORCEMENT OF LEGAL PROCESS: It may be difficult to bring and enforce suits
against the Company. The Company is incorporated in British Columbia, Canada.
Only one of the Company's directors is a resident of the United States and all,
or a substantial portion, of the other directors' assets are located outside of
the United States. As a result, it may be difficult for U.S. holders of the
Company's common shares to effect service of process on these persons within the
United States or to enforce judgments obtained in the U.S. based on the civil
liability provisions of the U.S. federal securities laws against the Company or
their officers and directors. In addition, a shareholder should not assume that
the courts of Canada (i) would enforce judgments of U.S. courts obtained in
actions against the Company or their officers or directors predicated upon the
civil liability provisions of the U.S. federal securities laws or other laws of
the United States, or (ii) would enforce, in original actions, liabilities
against the Company or their officers or directors predicated upon the U.S.
federal securities laws or other laws of the United States.
However, U.S. laws would generally be enforced by a Canadian court provided that
those laws are not contrary to Canadian public policy, are not foreign penal
laws or laws that deal with taxation or the taking of property by a foreign
government and provided that they are in compliance with applicable Canadian
legislation regarding the limitation of actions. Also, a judgment obtained in a
U.S. court would generally be recognized by a Canadian court except, for
example:
1. where the U.S. court where the judgment was rendered had no
jurisdiction according to applicable Canadian law;
2. the judgment was subject to ordinary remedy (appeal, judicial review
and any other judicial proceeding which renders the judgment not
final, conclusive or enforceable under the laws of the applicable
state) or not final, conclusive or enforceable under the laws of the
applicable state;
3. the judgment was obtained by fraud or in any manner contrary to
natural justice or rendered in contravention of fundamental principles
of procedure;
4. a dispute between the same parties, based on the same subject matter
has given rise to a judgment rendered in a Canadian court or has been
decided in a third country and the judgment meets the necessary
conditions for recognition in a Canadian court;
5. the outcome of the judgment of the U.S. court was inconsistent with
Canadian public policy;
6. the judgment enforces obligations arising from foreign penal laws or
laws that deal with taxation or the taking of property by a foreign
government; or
7. there has not been compliance with applicable Canadian law dealing
with the limitation of actions.
- 12 -
ITEM 4. INFORMATION ON THE COMPANY.
--------------------------------------------------------------------------------
HISTORY AND DEVELOPMENT OF THE COMPANY
Since 1996, the Company has been engaged, through its subsidiaries, in the
acquisition and exploration of mineral properties, with a primary focus in
Argentina and Peru. The Company was incorporated in British Columbia under the
COMPANY ACT (British Columbia, Canada) (the "Company Act") on September 17,
1979, as Gold Star Resources Ltd. On May 1, 1990, the Company filed an Altered
Memorandum to reflect its name change to EEC Marketing Corp. On January 13,
1992, the Company filed an Altered Memorandum to reflect its name change to
Amera Industries Corp. From its date of inception to January 31, 1992, the
Company was inactive. Between January 31, 1992 and August 31, 1994, the Company
was involved in the eyewear and optical products industry. Subsequently, the
Company again became inactive and began seeking a new business opportunity. The
Company filed another Altered Memorandum on February 9, 1995, to reflect its
name change to International Amera Industries Corp. On February 20, 1996, the
Company filed an Altered Memorandum, changing its name to IMA Resource
Corporation, and became engaged in the acquisition and exploration of mineral
properties.
In September of 1995 the Company formed IMPSA Resources Corporation ("IMPSA") in
order to pursue opportunities in Peru. At that time, exploration efforts by
other companies in Peru were beginning in earnest. Management believed Peru was
a favorable country for mineral exploration due to the country's geology and
strong mining culture. In addition, management believed that Peru was
under-explored.
Management believed the amount of capital necessary to fully exploit
opportunities in Peru was greater than what the Company sought to invest. Since
the Company had an ongoing exploration program in Argentina, the Company
initially limited the funding of its Peruvian projects to $250,000. The Company
established IMPSA and used the Company's $250,000 capital contribution to
establish an infrastructure and initiate property reviews. A number of
consultants were retained and detailed property assessments were initiated. The
Company determined that in order to further develop IMPSA, additional funding
would be required.
The Company initially received 500,000 common shares, or 30.76%, of the then
issued and outstanding common shares of IMPSA, for its $250,000 capital
contribution. As a result of issuing 375,000 shares to IMPSA's management and
key employees, and the completion of two private placements (resulting in the
issuance of a total of 1,528,000 common shares of IMPSA), the Company's initial
investment in IMPSA was diluted to 20.76%. However, in order to assure the
Company an ongoing interest in the assets of IMPSA, the Company retained a 20%
participating interest in IMPSA (BVI) and retained the right to maintain a 20%
ownership interest in IMPSA. During fiscal 1998, the Company increased its
investment in IMPSA by purchasing 990,963 shares, which increased the Company's
percentage ownership of IMPSA from 20.76% to 43.81%. In January 1999, the
Company acquired an additional 6,500,000 common shares of IMPSA, increasing its
equity interest from 43.81% to 80.69%. During 2001, the Company completed the
reorganization of its corporate structure to continue the funding of the
Company's Peruvian exploration activities. On August 20, 2001, the Company
entered into an agreement with IMPSA, its 80.69% owned subsidiary, to acquire
IMPSA's 80% interest in IMPSA (BVI) and IMPSA's advances to IMPSA (BVI) of
approximately US$1.536 million, in exchange for $850,000 plus a 2% fee on any
net revenue or proceeds from the disposition of certain properties held by IMPSA
(BVI). See "Item 4. Information on the Company - Organizational Structure." The
fee is limited to a maximum of $1,400,000. This transaction was approved by
IMPSA's shareholders on September 4, 2001. IMPSA used the cash proceeds to
retire its debt to the Company. Rio Tabaconas (formerly known as Tamborapa),
IMPSA's principal property, is for the most part an early stage exploration
property and involves a high degree of risk.
On April 3, 1996, the Company acquired IMA Holdings Corp. ("IHC"), a British
Columbia company. The acquisition of IHC by the Company resulted in the former
shareholders of IHC acquiring control of the Company. At the time of the
acquisition, the Company had two common directors with IHC. Generally accepted
accounting principles required the transaction to be treated for accounting
purposes as a reverse-takeover. In accounting for this transaction:
(i) IHC was deemed to be the purchaser and parent company for accounting
purposes. Accordingly, its net assets are included in the Company's
consolidated balance sheet at their historical book value; and
- 13 -
(ii) control of the net assets and business of the Company was acquired
effective April 3, 1996. The transaction was accounted for as a
purchase of the assets and liabilities of the Company by IHC at their
fair values.
IHC's primary asset was a 50% joint venture interest in Minas Argentinas
(Barbados) Inc. ("Minas Barbados"). Oro Belle Resources Corporation ("Oro
Belle"), a third party, held the remaining 50% interest in Minas Barbados. The
sole asset of Minas Barbados is its 100% interest in Minas Argentinas S.A.
("MASA"). MASA is an Argentine company whose main activity is exploration of
mineral properties in Argentina. During 1998, the Company held discussions with
Oro Belle and its majority shareholder, Viceroy Resource Corporation
("Viceroy"), to restructure the arrangement and facilitate the funding of future
financial requirements of MASA.
In May 1998, the Company entered into an arrangement (the "Plan of Arrangement")
with Viceroy whereby the Company agreed to exchange its 50% interest in Minas
Barbados for 2,200,000 common shares of Viceroy (the "Viceroy Shares"), at a
price of $2.25 per Viceroy Share (being the market value of the Viceroy Shares
on the date of the transaction), a 1% net smelter returns royalty interest (the
"MASA NSR") in the mineral property interests held by MASA, and the
extinguishment of all debts owing by the Company to MASA. No value was ascribed
to the MASA NSR for the purpose of calculating the total consideration received
at the date of exchange.
The Company also restructured its share capital to facilitate the distribution
of 1,540,000 Viceroy Common Shares to the Company's shareholders. The
transaction was accomplished as follows:
i) each issued and outstanding common share of the Company was exchanged
for one Class A common share and one Class B preferred share (the
"Preferred Shares") of the Company;
ii) the holders of the Preferred Shares received 1,540,000 Viceroy Common
Shares, directly from Viceroy, in exchange for all of the Preferred
Shares;
iii) the Company relinquished its ownership interest in Minas Barbados to
Viceroy in exchange for the Preferred Shares, the MASA NSR, the
extinguishment of all debts to MASA and 660,000 Viceroy Shares. The
Preferred Shares were then canceled by the Company; and
iv) all options and warrants to purchase common shares of the Company
became exercisable to purchase Class A common shares on the same basis
as the common shares.
The transaction became effective July 7, 1998, upon filing an Altered
Memorandum, and the Company changed its name to IMA Exploration Inc. As a result
of the transaction, the Company consolidated its share capital on the basis of
four old shares for one new share.
On June 30, 1999, the shareholders of the Company passed a Special Resolution
approving a redesignation of the Class A Common Shares to common shares.
In August 1999, the Company completed a private placement with Barrick Gold
Corporation ("Barrick"). Barrick was granted an option to earn an interest in
either the Potrerillos or Rio de Taguas property. The funds were spent on the
drilling program on the Potrerillos property. Proceeds were spent on further
exploration of the Company's properties in the Valle de Cura region of San Juan
Province, Argentina from October 2000 to March 2001. As a result of the private
placement Barrick became the Company's largest shareholder. During September
2003 Barrick reduced its shareholding to 1,000,000 shares.
The Company agreed to spend a minimum of $1,125,000 on its Valle de Cura
properties out of the proceeds from the Barrick private placement. As of
December 31, 2003 this requirement had been met. On December 15, 2003, Barrick
served notice that it would not be exercising the option and the Company has
begun pursuing other partners for the continued exploration of these drill ready
projects.
In 2002, the Company began to acquire properties in Chubut Province, Argentina.
In 2003, the Company significantly increased its focus on activities in the
Chubut region. The Company has entered into a number of joint venture agreements
which resulted in the farm-out of several of its non-core properties.
- 14 -
In early 2003, the Company focused its efforts on its Navidad property in Chubut
Province located in southern Argentina. The preliminary results of its initial
exploration efforts were very encouraging. The first phase of a drill program
commenced in late 2003. The Company continued its exploration and development
program until mid 2006.
On March 29, 2004, the new British Columbia BUSINESS CORPORATIONS ACT (the
"BCBCA") came into force in British Columbia and replaced the former Company
Act, which is the statute that previously governed the Company. See "Item 10.
Additional Information - Memorandum and Articles of Association."
On May 3, 2004, the Company announced its intention to proceed with a
reorganization of the Company which had the result of dividing its present
mineral resource assets between two separate public companies. Under the
reorganization, the Company's most advanced project, the Navidad
silver-lead-copper project and certain other Navidad area properties in central
Chubut Province, Argentina (the "Navidad Properties") continued to be owned by
the Company, while the Company's non-Navidad mineral properties along with
$750,000 of operating cash and the joint venture agreements (including the
marketable securities) relating to the transferred properties (collectively the
"Transferred Assets") were transferred to Golden Arrow, a new public company
formed to effect the reorganization. The Company retained the Navidad project
and focused on:
1. a significantly expanded drill program on the numerous targets within
Navidad;
2. more detailed regional exploration for Navidad style targets;
3. pursuing a listing on major U.S. and Canadian stock exchanges;
4. completing a bankable feasibility study on the Navidad project in a
timely fashion; and
5. exploring the Navidad related properties directly or through joint
ventures.
However, there are no assurances that the Company will be able to successfully
complete any of the foregoing.
The reorganization was implemented by a Plan of Arrangement under the BCBCA. The
Company's shareholders and optionholders approved the Plan of Arrangement at the
Company's Annual General Meeting that was held on June 22, 2004. All other
approvals were subsequently received.
The common shares of Golden Arrow were distributed to shareholders of the
Company in proportion to their shareholdings in the Company on July 7, 2004 and
on the basis of one Golden Arrow share for every 10 shares of the Company held.
The reorganization was intended to enhance shareholder value by enabling each
company to focus on the development of its own properties, and by allowing
shareholders to hold an interest in Golden Arrow which reflects the value of the
Company's portfolio of exploration projects.
In March 2004, Aquiline commenced an action against the Company seeking a
constructive trust over the Navidad properties and damages. The trial was held
in Vancouver, British Columbia commencing in October 2005, and continuing until
mid-December 2005.
On July 14, 2006 the Supreme Court of British Columbia released its judgment in
Aquiline's lawsuit against the Company. The Company was not successful in its
defense and the court found in Aquiline's favour.
The Order reads in part:
"(a) that Inversiones Mineras Argentinas SA ("IMA SA") transfer the
Navidad Claims and any assets related thereto to Minera Aquiline
or its nominee within 60 days of this order;
(b) that IMA take any and all steps required to cause IMA SA to
comply with the terms of this order;
(c) that the transfer of the Navidad Claims and any assets related
thereto is subject to the payment to IMA SA of all reasonable
amounts expended by IMA SA for the acquisition and development of
the Navidad Claims to date; and
(d) any accounting necessary to determine the reasonableness of the
expenditures referred to in (c) above shall be by reference to
the Registrar of this court."
The Company has filed an appeal of this judgment which is scheduled to be heard
by the British Columbia Court of Appeal on April 10, 2007. While the Company is
confident of a favourable result from its appeal it recognizes that
- 15 -
this could take a substantial period of time and the costs will be significant,
with no guarantee of a successful outcome for the Company.
On October 18, 2006, the Company and Aquiline reached a definitive agreement for
the orderly conduct of the Navidad Project pending the determination of the
appeal. The transactions outlined in the Interim Agreement will constitute due
compliance by both parties with the Order. Control of the Navidad Project was
transferred to Aquiline in trust for the ultimately successful party in the
appeal, on November 16, 2006.
As a condition of the reorganization Golden Arrow became a party to the Aquiline
action. The Company has provided an indemnity to Golden Arrow for any costs or
losses that might be incurred by Golden Arrow in connection with this matter.
ACQUISITION AND DISPOSITION OF MINERAL PROPERTY INTERESTS DURING THE THREE PRIOR
FISCAL YEARS
The Company has made additions to mineral properties and deferred costs of
$2,731,414 and capital assets of $Nil, $8,480,509 and $Nil, $5,082,572 and
$93,650 for the fiscal years ended December 31, 2006, 2006 and 2004,
respectively. As at December 31, 2006, the Company's mineral properties and
deferred costs had been reclassified as a component of the Navidad interest
balance of $17,949,521, comprised of mineral properties and deferred costs of
$17,763,521 and marketable securities of $186,000 which are subject to transfer
to Aquiline under the terms of the Interim Agreement.
The Company has not made any write down to the value of its Navidad interest or
mineral properties and deferred costs. The Company and Aquiline have agreed to
the costs spent developing the Navidad Project in the amount of $18,500,000.
Aquiline has paid $7,500,000 of the costs into trust and the balance will be
expended by Aquiline in developing the Navidad Project during the period of the
appeal and secured under the terms of the trust conditions of the Interim
Agreement. In the event that the Company is unsuccessful on appeal, the Company
will be paid the $18,500,000, less legal costs Aquiline would be entitled to in
relation to the trial and the appeal.
PLANNED EXPLORATION EXPENDITURES AND PROPERTY PAYMENTS
The Company considers that it has adequate resources to maintain its ongoing
operations but currently may not have sufficient working capital to fund
exploration and development work in the event it regains operational control
over the Navidad Project. The Company will continue to rely on successfully
completing additional equity financing and/or conducting joint venture
arrangements to conduct further exploration on its properties. There can be no
assurance that the Company will be successful in obtaining the required
financing or negotiating joint venture agreements. The failure to obtain such
financing or joint venture agreements could result in the loss of, or
substantial dilution of the Company's interest in its properties. See "Item 4.
Information on the Company - Properties, Plants and Equipment - Principal
Properties - Argentinean Properties and "Item 7. Major Shareholders and Related
Party Transactions - Related Party Transactions."
BUSINESS OVERVIEW
The Company is a natural resource company engaged in the business of
acquisition, exploration and development of mineral properties in Argentina. At
present, the Company has no producing properties and consequently has no current
operating income or cash flow. As of the date of this annual report, the Company
is an exploration stage company and has not generated any revenues from mining
operations. There is no assurance that a commercially viable mineral deposit
exists on any of the Company's properties. Further exploration and evaluation
will be required before a final determination as to the economic and legal
feasibility of any of the properties is determined.
GOVERNMENT REGULATIONS
The Company's operations are subject to certain governmental laws and
regulations. See "Item 3. Key Information - Risk Factors - Foreign Countries and
Regulatory Requirements", "Item 3. Key Information - Risk Factors - Impact of
Government Regulations on the Company's Business" and "Item 3. Key Information -
Risk Factors - Environmental Regulations."
- 16 -
ORGANIZATIONAL STRUCTURE
The Company has one direct wholly-owned subsidiary, IMA Holdings Corp. ("IHC").
IHC has a direct wholly-owned subsidiary, IMA Latin America Inc. ("IMA Latin
America"), a British Virgin Islands company.
IMA Latin America has one direct wholly-owned subsidiary, Punto Dorado SA ,an
Argentine company.
The Company's current corporate structure is depicted below. See "Item 4.
Information on the Company - History and Development of the Company."
Unless otherwise indicated herein, the term "Company" means collectively the
Company and its subsidiaries.
CORPORATE STRUCTURE
----------------------------------
IMA Exploration Inc.
----------------------------------
|
|
100%
|
|
----------------------------------
CANADA IMA Holdings Corp.
----------------------------------
|
|
100%
|
|
----------------------------------
BVI IMA Latin America Inc.
----------------------------------
|
|
100%
|
|
----------------------------------
Punto Dorado S.A.
----------------------------------
PROPERTIES, PLANTS AND EQUIPMENT
The Company's principal business is the acquisition and exploration of mineral
properties. As of the date of this annual report, all of the Company's
properties are without known reserves and the Company's operations are
exploratory in nature. See "Item 4. Navidad Property - Estimated Resources."
- 17 -
PRINCIPAL PROPERTIES
ARGENTINEAN PROPERTIES
During the fiscal years ending December 31, 2006, 2005 and 2004 the Company had
capitalized and expensed costs on all of its properties as follows:
General Aggregate
Exploration Amount
Amount Expensed in Written-off In
Fiscal Year Ending Capitalized Fiscal Year(a) Fiscal Year
------------------ ----------- ------------ --------------
December 31, 2004 $6,551,598 $228,961 $ Nil
December 31, 2005 $15,032,107 $55,914 $ Nil
December 31, 2006 $17,763,521 $498,921 $ Nil
(a) In fiscal 2006, this amount includes $312,349 in Navidad holding costs
which is comprised of:
(i) costs incurred in order to maintain basic operations in Argentina
subsequent to the transfer of control of the Navidad project to
Aquiline; and
(ii) costs incurred in the period between the date of the judgment and the
transfer of control of the Navidad project to Aquline that would
normally have been included in mineral properties and deferred costs.
PRINCIPAL OFFICE
The Company's principal office is located at #709 - 837 West Hastings Street,
Vancouver, British Columbia, V6C 3N6. On January 1, 2005 the Company engaged the
Grosso Group to provide office facilities and management services. Until
December 31, 2006, the Company leased a portion of its office space from
Beauregard Holdings Corp. ("Beauregard"), which was sub-leased to Grosso Group.
See "Item 7. Major Shareholders and Related Party Transactions - Related Party
Transactions."
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.
--------------------------------------------------------------------------------
The following discussion of the results of operations of the Company for the
fiscal years ended December 31, 2006, 2005 and 2004 should be read in
conjunction with the consolidated financial statements of the Company and
related notes included therein.
CRITICAL ACCOUNTING POLICIES
Reference should be made to significant accounting policies contained in Note 3
of the December 31, 2006 consolidated financial statements of the Company
attached hereto. These accounting policies can have a significant impact of the
financial performance and financial position of the Company.
LEGAL PROCEEDINGS
On March 5, 2004, Aquiline Resources Inc. ("Aquiline"), through its subsidiary,
Minera Aquiline Argentina SA, filed a claim in the Supreme Court of British
Columbia against the Company seeking a constructive trust over the Navidad
properties and damages. The trial was held in Vancouver British Columbia
commencing in October 2005 and ended on December 12, 2005.
On July 14, 2006 the court released its judgment on the claim. The Company was
not successful in its defense and the court found in Aquiline's favour.
The Order reads in part:
"(a) that Inversiones Mineras Argentinas SA ("IMA SA") transfer the
Navidad Claims and any assets related thereto to Minera Aquiline
or its nominee within 60 days of this order;
(b) that IMA take any and all steps required to cause IMA SA to
comply with the terms of this order;
- 18 -
(c) that the transfer of the Navidad Claims and any assets related
thereto is subject to the payment to IMA SA of all reasonable
amounts expended by IMA SA for the acquisition and development of
the Navidad Claims to date; and
(d) any accounting necessary to determine the reasonableness of the
expenditures referred to in (c) above shall be by reference to
the Registrar of this court."
On October 18, 2006, the Company and Aquiline reached a definitive agreement for
the orderly conduct of the Navidad Project pending the determination of the
appeal by the Company against the judgment of the trial court. The parties have
agreed that the transactions outlined in the agreement are in satisfaction of
the Order referenced above. The principal terms and conditions of the agreement
are as follows:
(i) control of the Navidad Project will be transferred to Aquiline in
trust for the ultimately successful party in the appeal;
(ii) the Company and Aquiline have agreed to the costs spent to date
developing the Navidad Project in the amount of $18,500,000. Upon
transfer of control of the Navidad Project, Aquiline will pay
$7,500,000 of the costs into trust and the balance will be
expended by Aquiline in developing the Navidad Project during the
period of the appeal and secured under the terms of the trust
conditions;
(iii) in the event that the Company is unsuccessful on appeal, the
Company will be paid such $18,500,000 amount, less legal costs
Aquiline would be entitled to in relation to the trial and the
appeal.
(iv) in the event that the Company's appeal is successful, it will pay
Aquiline's qualifying costs expended on developing the Navidad
Project during the period of the appeal, less legal costs the
Company would be entitled to in relation to the trial and the
appeal, and control of the Navidad Project will then revert to the
Company; and
(v) pending the finalization of the appeal process, neither party will
attempt a hostile takeover of the other.
The effective date of the transfer of the Navidad project was November 16, 2006.
A copy of the agreement has been posted on the SEDAR website as one of the
Company's public documents and is titled "Interim Project Development
Agreement".
The Company has filed an appeal of this judgment. The appeal is scheduled to be
heard by the British Columbia Court of Appeal on April 10, 2007. While the
Company is confident of a favourable result from its appeal it recognizes that
this will take a substantial period of time and the costs will be significant,
with no guarantee of a successful outcome for the Company. The Company has not
provided for any future legal costs and will expense the legal costs of the
appeal as they occur
USE OF ESTIMATES
The preparation of financial statements in conformity with Canadian GAAP
requires management to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amount of
revenues and expenses during the period. Significant areas requiring the use of
management estimates relate to the determination of environmental obligations
and impairment of mineral properties and deferred costs. Actual results may
differ from these estimates.
MINERAL PROPERTIES AND DEFERRED COSTS
Consistent with the Company's accounting policy disclosed in Note 3 of the
consolidated financial statements attached hereto, direct costs related to the
acquisition and exploration of mineral properties held or controlled by it have
been capitalized on an individual property basis. It is the Company's policy to
expense any exploration associated costs not related to specific projects or
properties. Management periodically reviews the recoverability of the
capitalized mineral properties. Management takes into consideration various
information including, but not limited to, results of exploration activities
conducted to date, estimated future metal prices, and reports and opinions of
outside geologists, mine engineers and consultants. When it is determined that a
project or property will be abandoned then the costs are written-off, or if its
carrying value has been impaired, then the costs are written down
- 19 -
to fair value. In respect to the Navidad project and the related Aquiline
litigation, at the current time the Company is unable to determine with any
degree of certainty what the final outcome of the appeal process may be.
Accordingly, the Company has not made any adjustments to the carrying value of
the Navidad project at December 31, 2006.
The carrying value of the components of the Navidad project will be reviewed in
subsequent periods and adjusted if circumstances suggest that the full amount
may not be recoverable and an appropriate amount expensed for impairment when
such amounts can be reasonably determined. Additionally, in 2005 no impairment
of long-lived assets was identified.
The Company's operations and results are subject to a number of different risks
at any given time. These factors, include but are not limited to disclosure
regarding exploration, additional financing, project delay, titles to
properties, price fluctuations and share price volatility, operating hazards,
insurable risks and limitations of insurance, management, foreign country and
regulatory requirements, currency fluctuations and environmental regulations
risks. See "Item 3. Key Information - Risk Factors."
The Company's consolidated financial statements were prepared on a going concern
basis which assumes that it will be able to realize assets and discharge
liabilities in the normal course of business.
The Company's consolidated financial statements are in Canadian dollars (CDN$)
and are prepared in accordance with Canadian GAAP, the application of which, in
the case of the Company, conforms in all material respects for the periods
presented with U.S. GAAP except for the measurement differences referred to in
Note 10 of the consolidated financial statements of the Company included herein.
The effects of inflation and price changes have not had a material impact on the
Company's income or net sales revenues during the past three years.
The Company and its subsidiaries' functional currency is the Canadian dollar.
The majority of the Company's cash deposits and accounts are in Canadian funds.
The Canadian dollar varies under market conditions, the continued fluctuation of
the Canadian dollar against the U.S. dollar will continue to affect the
Company's operations and financial position. See "Item 3. Key Information - Risk
Factors - Currency Fluctuations".
OVERVIEW
The Company is a natural resource company engaged in the business of
acquisition, exploration and development of mineral properties in Argentina. At
this stage the Company has no producing properties and, consequently, has no
current operating income or cash flow.
The Company's accounting policy under Canadian GAAP is to defer all direct costs
related to the acquisition, exploration and development of mineral properties
held or controlled by the Company on an individual property basis until
viability of a property is determined. Under US GAAP, the costs would be
expensed. General exploration costs are expensed as incurred. When a property is
placed in commercial production, such deferred costs are depleted using the
units-of-production method. Management of the Company periodically reviews the
recoverability of the capitalized mineral properties. Management takes into
consideration various information including, but not limited to, results of
exploration activities conducted to date, estimated future metal prices, and
reports and opinions of outside geologists, mine engineers and consultants. When
it is determined that a project or property will be abandoned then the costs are
written-off, or if its carrying value has been impaired, then the costs are
written down to fair value. At December 31, 2006, the Company had capitalized
$17,763,521 (2005 - $15,032,107, 2004 - $6,551,598) on its Argentine properties
(In 2006 the mineral properties and deferred costs balance was classified as a
component of the Navidad interest balance).
During the year ended December 31, 2004, the Company completed a brokered
private placement of 1,500,000 units at $3.10 per unit, for proceeds of
$4,307,500 net of costs of $411,237. Each unit consisted of one common share and
one half common share purchase warrant. Each full warrant entitled the holder to
purchase one additional common share for one year at $3.70 per share.
Underwriters were paid a commission of 6% cash and 200,000 compensation options.
The compensation options were exercisable at a price of $3.25 per compensation
option, for a period of twelve months, into one share and one half warrant with
the warrants having the same terms as described above. The underwriters'
compensation options were exercisable for a period of twelve months. This
financing closed February 23, 2004.
- 20 -
During the year ended December 31, 2005, the Company completed a brokered
private placement of 3,333,340 units at $3.00 per unit, for proceeds of
$9,263,283 net of $600,001 agent's commission and $136,736 of related issue
costs. Each unit consisted of one common share and one half common share
purchase warrant. Each full warrant entitles the holder thereof to purchase one
additional common share in the capital of the Company at a price of $3.45 per
share until September 14, 2009. In addition to the cash commission the
underwriters were paid a commission of 7% (233,334) underwriter's warrants. Each
underwriter's warrant is exercisable for one share at a price of $3.25, for a
period of twenty four months, expiring on September 12, 2007. The financing
closed on September 12, 2005.
During the year ended December 31, 2005, the Company issued 1,663,517 common
shares on the exercise of options, warrants and agents warrants for $4,361,011.
As of December 31, 2005, the Company had reserved 1,900,004 common shares for
issuance upon the exercise of outstanding warrants. As of December 31, 2004, the
Company had reserved 1,422,017 common shares for issuance upon the exercise of
outstanding warrants.
During the year ended December 31, 2006, Company completed a syndicated brokered
private placement financing of 2,865,000 special warrants at $3.50 per warrant
for gross proceeds of $10,027,500. Each special warrant entitled the holder to
acquire one unit consisting of one common share and one half common share
purchase warrant without payment of any additional consideration. All special
warrants were converted into common shares and common share purchase warrants on
May 25, 2006. Each full warrant entitles the holder thereof to purchase one
additional common share in the capital of the Company at a price of $3.80 per
share until March 21, 2010. In addition to a cash commission of 6% the
underwriters were granted 171,900 agents' warrants, representing 6% of the
number of special warrants issued. Each agents' warrant is exercisable for one
share at a price of $3.80, for a period of twenty four months, expiring on March
21, 2008. As of February 28, 2007 no common share purchase warrants or agents'
warrants had been exercised. During the year ended December 31, 2006, 335,000
common shares were issued on exercise of options for proceeds of $280,950.
Cash on hand at February 28, 2007 was approximately $8,400,000.
RESULTS OF OPERATIONS
The following discussion of the results of operations of the Company for the
fiscal years ended December 31, 2006, 2005 and 2004 should be read in
conjunction with the consolidated financial statements of the Company attached
hereto and related notes included therein.
YEAR ENDED DECEMBER 31, 2006 COMPARED TO YEAR ENDED DECEMBER 31, 2005
For the year ended December 31, 2006, the Company reported a consolidated loss
of $3,581,360 ($0.07 per share), a decrease of $2,183,514 from the loss of
$5,764,874 ($0.12 per share) for the year ended December 31, 2005. The decrease
in the loss in 2006, compared to 2005 amount, can primarily be attributed to a
$2,196,370 decrease in operating expenses.
The Company's operating expenses for the year ended December 31, 2006 were
$3,951,504 an decrease of $2,196,370 from $6,148,234 in 2005.
Professional fees decreased $1,088,046 to $1,124,144 in 2006, as the Company
incurred significant legal costs incurred in connection with the Aquiline legal
action during and preceding the initial trial in 2005. The Company's 2006 legal
fees primarily consist of costs incurred in preparing and proceeding with the
appeal of the Aquiline judgment and costs relating to the establishment of the
Interim Project Development Agreement. In 2006 the Company recorded non-cash
stock based compensation of $393,120 compared to $2,380,000 in 2005, for stock
options granted to its employees, consultants and directors, of which $393,120
is included in expenses in 2006 compared to $1,800,000 in 2005. In 2006 $Nil
compared to $580,000 in 2005 is included in capitalized mineral property
expenditures.
Other notable changes in the operating expenses are:
(i) Administrative and management services increased by $166,725 primarily
as a result of increased fees paid for the services of the president of
the Company (see discussion on related party transactions below).
- 21 -
(ii) Corporate development and investor relations decreased by $167,759
primarily as a result of the Company's termination of its third-party
investor relation contracts in 2006.
(iii) General exploration increased $130,658 as a result of higher activity
levels of evaluating potential exploration projects.
(iv) Travel and accommodation decreased $162,643 due to decreased Navidad
Project related travel by Company staff subsequent to the Aquiline
judgment.
(v) Salaries increased $66,970 due to higher staff costs in the year.
(vi) Navidad holding costs of $312,349 were incurred in 2006 compared to
$Nil in 2005 as a result of:
a) costs incurred in order to maintain basic operations in
Argentina subsequent to the transfer of control of the Navidad
project to Aquiline; and
b) costs incurred in the period between the date of the judgment
and the transfer of control of the Navidad project to Aquline
that would normally have been included in mineral properties
and deferred costs.
In 2006 the Company recorded interest income of $373,009 compared to $150,406 in
2005, primarily as a result of increase of funds on deposit. A loss of $2,865
for foreign exchange was recorded in 2006 compared to gain of $232,954 in 2005.
The small foreign exchange adjustment in 2006 is a result of the relatively flat
exchange rate between the Canadian and US dollars during the year. In 2005, the
large gain was a result of strengthening of the Canadian dollar compared to US
dollar and due to the exchange movements between expenses being incurred in US$
and amounts exchanged to settle such payables.
YEAR ENDED DECEMBER 31, 2005 COMPARED TO YEAR ENDED DECEMBER 31, 2004
For the year ended December 31, 2005, the Company reported a consolidated loss
of $5,764,874 ($0.12 per share), an increase of $1,109,811 from the loss of
$4,655,063 ($0.11 per share) for the year ended December 31, 2004. The increase
in the loss in 2005, compared to 2004 amount, was due to a number of factors of
which $1,835,618 can be attributed to increases in operating expenses and
$725,807 decrease in other items.
The Company's prior period financial statements have been reclassified in
accordance with Canadian GAAP. The net assets transferred to Golden Arrow were
described as "Spin-Off Assets Transferred" and the allocated expenses are
described as "Loss Allocated to Spin-Off Assets" in the consolidated financial
statements. This reclassification did not change previously reported total
losses. The allocation of expenses was calculated on the basis of the ratio of
the specific assets transferred to assets retained. A loss of $131,231 was
allocated to spin-off assets in the 2004 period.
The Company's operating expenses for the year ended December 31, 2005 were
$6,148,234 an increase of $1,835,618 from $4,312,616 in 2004. $339,516 of the
2004 operating expenses had been reclassified as "Loss Allocated to Spin-Off
Assets" which relate to the assets transferred to Golden Arrow. The allocation
was calculated on the basis of the ratio of the specific assets transferred to
assets retained. Certain "Other Income and Expense" items have been allocated to
spin-off assets on a cost specific basis.
Professional fees increased $1,432,498 to $2,327,278 in 2005, primarily due to
legal costs incurred in connection with the Aquiline legal action as well as
increased costs of compliance. In 2005 the Company recorded non-cash stock based
compensation of $2,380,000 compared to $1,972,860 in 2004, for stock options
granted to its employees, consultants and directors, of which $1,800,000 is
included in expenses in 2005 compared to $1,972,860 in 2004 and $580,000 in 2005
compared to $Nil in 2004 is included in capitalized mineral property
expenditures. Other notable changes in the operating expenses are: (i) Salaries
increased $272,151 due to staff increases (salaries in 2005 are a portion of the
monthly fee charged for services by the Grosso Group while in 2004 the Company
directly employed its staff); (ii) Administrative and management services
decreased by $89,744 due to some of the services provided by consultants in 2004
were provided by employees of the Grosso Group during 2005 and are included in
salaries (iii) there are no cost recoveries (for shared administrative costs and
rent) from Amera or Golden Arrow in 2005; (iv) Corporate development and
investor relations increased $207,951, as the Company has made its shareholders
and others more aware of its Navidad project and its potential, (v) Office and
Sundry
- 22 -
increased $40,337 mainly due to the increase in insurance premiums and an
increase in activity, (vi) Transfer agent and regulatory fees increased $141,972
mainly due to the costs of the Company's listing on the American Stock Exchange,
(vii) General exploration decreased by $173,047 as the Company's focus is on
Navidad property for which costs are included in capitalized mineral property
expenditures, (viii) Travel increased $52,444 due to travel related to
conferences and investor presentations as well as to South America.
In 2005 the Company recorded interest income of $150,406 compared to $101,589 in
2004, primarily as a result of increase of funds on deposit. In 2005 there were
no reorganization costs recorded by the Company, in 2004 reorganization costs of
$346,103 were recorded. There was no gain on the optioning of properties to
other mining exploration companies, in 2004 a gain of $328,346 was recognized.
No write down for the carrying value of marketable securities in 2005 was
recognized while a $99,762 write down for the carrying value of marketable
securities was recorded in 2004. A gain of $232,954 for foreign exchange was
recorded in 2005 compared to loss of $195,285 in 2004. The foreign exchange
adjustment in 2005 is a result of a continued strengthening of the Canadian
dollar compared to US dollar and due to the exchange movements between expenses
being incurred in US$ and amounts exchanged to settle such payables. No gain or
loss was allocated to spin-off assets in 2005, in 2004 a loss of $131,232 was
recorded.
YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003
The Company reported a consolidated loss of $4,655,063 ($0.11 per share) in
2004, an increase of $1,236,645 from the loss of $3,418,418 ($0.11 per share) in
2003. The increase in the loss in 2004, compared to 2003, was due to a number of
factors of which $1,148,400 can be attributed to operating expenses and $88,245
to other expense items.
The Company's prior period financial statements have been reclassified to
reflect the reorganization in accordance with Canadian GAAP. The net assets
transferred to Golden Arrow are described as "Spin-Off Assets Transferred" and
the allocated expenses are described as "Loss Allocated to Spin-Off Assets" in
the consolidated financial statements. This reclassification did not change
previously reported total losses. The allocation of certain expenses was
calculated on the basis of the ratio of the specific assets transferred to
assets retained. The following discussion of the 2004 expenses compared to the
2003 expenses is based on expenses as originally reported.
The Company's 2004 operating expenses were $4,312,616 an increase of $1,148,400
from the $3,164,216 originally reported for 2003. $661,175 of the 2003 operating
expense has been reclassified as "Loss Allocated to Spin-Off Assets" which
relate to the assets transferred to Golden Arrow. In 2004, $131,232 was
allocated to the Loss from Spin-Off Assets compared to $969,175 in 2003. The
allocation was calculated on the basis of the ratio of the specific assets
transferred to assets retained. Certain "Other Income and Expense" items have
been allocated to spin-off assets on the basis of the nature of the income or
expense. In 2004 expenses increased as a result of increased activity at the
Navidad project and the support required at the corporate office.
Professional fees increased $597,017 to $894,780 in 2004, primarily due to legal
costs incurred in connection with the Aquiline legal action as well as increased
costs of compliance. During 2004 the Company recorded a non-cash expense of
$1,972,860 for stock based compensation for stock options granted to its
employees and directors, an increase of $485,625 from 2003. Other notable
changes in the operating expenses are: (i) Salaries increased $113,998 due to
staff increases (in 2004 the Company had an average of seven people on its
payroll compared to three in 2003); (ii) Travel increased $97,641due to travel
to conferences as well as to South America; (iii) Cost recoveries (for shared
administrative costs and rent) from Amera and Golden Arrow increased by
$114,161; (iv) Corporate development and investor relations decreased $62,026,
as 2003 was a more active year in which the Company developed investor
awareness.
In 2004 the Company recorded a gain of $328,346 on the optioning of certain
properties to other mining exploration companies (plus $433,960 of gains
relating to the Spin-Off Assets) compared to $481,779 in total in 2003. In 2004
a write-down of $99,762 (2003 - $nil) for the carrying value of marketable
securities was recognized. Reorganization costs of $346,103 were recorded in
2004. An expense of $195,285 for foreign exchange was recorded in 2004 compared
to $25,916 in 2003. The foreign exchange adjustment is as a result of the
continued strengthening of the Canadian dollar compared to the US dollar and due
to the exchange movements between the date of recognition of expenses incurred
in US$ and the date of settlement. Interest and other income was $101,589 in
2004, an increase of $35,028 from 2003, primarily as a result of an increase of
funds on deposit.
- 23 -
On March 5, 2004 Minera Aquiline Argentina SA, a subsidiary of Aquiline
Resources Inc. commenced an action against the Company seeking damages and a
constructive trust over the Navidad Area Properties. See "Item 8. Financial
Information - Legal Proceedings."
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position at December 31, 2006 was $391,420, an increase of
$240,025 from December 31, 2005. Short-term investments increased $920,000 to
$8,500,000 at December 31, 2006 from $7,580,000 at December 31, 2005. Total
assets increased to $27,246,146 at December 31, 2006 from $23,497,994 at
December 31, 2005. This increase is mainly due to the increase in Navidad
carrying value and in cash balance.
During fiscal 2006, Company completed a syndicated brokered private placement
financing of 2,865,000 special warrants at $3.50 per warrant for gross proceeds
of $10,027,500. Each special warrant entitled the holder to acquire one unit
consisting of one common share and one half common share purchase warrant. All
special warrants were converted into common shares on May 25, 2006. Each full
warrant entitles the holder thereof to purchase one additional common share in
the capital of the Company at a price of $3.80 per share until March 21, 2010.
In addition to a cash commission of 6% the underwriters were granted 171,900
agents' warrants, representing 6% of the number of special warrants issued. Each
agent's warrant is exercisable for one share at a price of $3.80, for a period
of twenty four months, expiring on March 21, 2008. At December 31, 2006, no
common share purchase warrants or agent's warrants had been exercised.
Stock options were exercised which resulted in cash proceeds of $280,950 during
2006. No warrants were exercised in 2006.
The Company has received $Nil from the exercise of options and warrants from
January 1 to February 28, 2007. As at February 28, 2007, the Company had working
capital of approximately $8,500,000.
The Company considers that it has adequate resources to maintain its core
operations for the next fiscal year. The Company will continue to rely on
successfully completing additional equity financing to further exploration and
development of mineral exploration projects. There can be no assurance that the
Company will be successful in obtaining the required financing.
Except as disclosed the Company does not know of any trends, demand,
commitments, events or uncertainties that will result in, or that are reasonably
likely to result in, its liquidity either materially increasing or decreasing at
present or in the foreseeable future. Material increases or decreases in
liquidity are substantially determined by the success or failure of the
exploration programs and by the final outcome of the Company's appeal of the
judgment of the Aquiline litigation.
The Company does not now and does not expect to engage in currency hedging to
offset any risk of currency fluctuations.
The Company's management may elect to acquire new projects, at which time
additional equity financing may be required to fund overhead and maintain its
interests in current projects, or may decide to relinquish certain of its
properties. These decisions will be based on the results of ongoing exploration
programs and the response of equity markets to the projects and business plan.
Except as otherwise disclosed, the Company knows of no other contractual
obligations during the period from January 1, 2007 through December 31, 2007.
- 24 -
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any material off balance sheet arrangements that have
or are reasonably likely to have a current or future effect on the Company's
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources.
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
-----------------------------------------------------------------------
Payments Due by Period
-----------------------------------------------------------------------
Less than 1 More than 5
Total Year 1-3 Years 3-5 Years Years
-----------------------------------------------------------------------
Contractual Obligations $Nil $Nil $Nil $Nil $Nil
Long-term Debt Obligations $Nil $Nil $Nil $Nil $Nil
Capital (Finance) Lease Obligations $Nil $Nil $Nil $Nil $Nil
Operating Lease Obligations $Nil $Nil $Nil $Nil $Nil
Purchase Obligations $Nil $Nil $Nil $Nil $Nil
Other Long-Term Liabilities Reflected in
the Company's Balance Sheet under the
GAAP of the Primary Financial Statements $Nil $Nil $Nil $Nil $Nil
----------- ----------- ----------- ----------- -----------
Total $Nil $Nil $Nil $Nil $Nil
=========== =========== =========== =========== ===========
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.
--------------------------------------------------------------------------------
DIRECTORS AND SENIOR MANAGEMENT
The name, positions held with the Company and principal occupation of each
director, officer and executive officer of the Company within the five years
preceding the date of this annual report are as follows:
---------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST PERIOD OF SERVICE AS A
NAME, AGE AND POSITION(1) FIVE YEARS DIRECTOR/OFFICER
---------------------------------------------------------------------------------------------------------------------------
GERALD G. CARLSON President and Director of Copper Ridge Chairman and Director since February
Chairman and Director Exploration Inc., a public British 1999 to present.
Age 61 Columbia mineral exploration company
from March 1999 to present.
President of Nevada Star Resources
Corp, from March 2002 to September
2004. President of Golden Aria Corp.
from March 2005 to present.
---------------------------------------------------------------------------------------------------------------------------
JOSEPH GROSSO Director, President and CEO of the Director, President and CEO since
President, Chief Executive Company since February 1990. February 1990 to present.
Officer and Director
Age 69
---------------------------------------------------------------------------------------------------------------------------
ARTHUR LANG CFO of the Company since April 2, Director, Vice-President and CFO
Chief Financial Officer, 2004. Consultant providing financial since April 2004 to present.
Corporate Secretary and management services to various Corporate Secretary since August
Director clients from 1999 to April 2004 2005 to present.
Age 63 through ArthurG Lang Inc., a private
BC company.
---------------------------------------------------------------------------------------------------------------------------
- 25 -
---------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST PERIOD OF SERVICE AS A
NAME, AGE AND POSITION(1) FIVE YEARS DIRECTOR/OFFICER
---------------------------------------------------------------------------------------------------------------------------
NIKOLAOS CACOS President, CEO and director of Amera Vice President since June, 2005 to
Vice President Resources Corporation, a public present.
Age 40 British Columbia company, since April Corporate Secretary June 1998 to
2000. January 2005.
---------------------------------------------------------------------------------------------------------------------------
SEAN HURD Corporate Communications Manager for Vice President, Corporate
Vice President, Corporate the Grosso Group since 2005 and for Communications since March 2005 to
Communications the Company from February 1999 to present.
Age 40 present. Director September 2000 to October
2004.
---------------------------------------------------------------------------------------------------------------------------
ROBERT STUART (TOOKIE) ANGUS Independent Business Adviser to the Director since May 2003 to present.
Director mining industry since January 2006.
Age 58 Managing Director, Mergers and
Acquisitions, Endeavour Financial
Ltd., November 2003 to December 2005.
Partner in law firm, Fasken Martineau
DuMoulin LLP from February 2001 to
October 2003.
---------------------------------------------------------------------------------------------------------------------------
CHET IDZISZEK President, CEO and director of Madison Director since May 2003 to present.
Director Minerals Inc. from 1993 to present.
Age 59 Director of Lund Gold Ltd. from May
1997 to present, President and CEO
since December 1998 to present.
President and CEO of Oromin
Explorations Ltd. from June 1999 to
present.
---------------------------------------------------------------------------------------------------------------------------
DAVID TERRY Vice President for the Company since Director since May 2004 to present.
Director, Vice President, June 2004 to present. Vice President, Vice President for the Company since
Exploration Exploration for the Grosso Group from June 2004 to present.
Age 41 January 2005 to present. Regional
geologist with the British Columbia
Ministry of Energy and Mines in
Cranbrook, British Columbia from May
2001 to March 2004.
---------------------------------------------------------------------------------------------------------------------------
DAVID HORTON Senior Vice-President and Director of Director since June 2004 to present.
Director Canaccord Capital Corporation from
Age 70 1996 to present.
---------------------------------------------------------------------------------------------------------------------------
LEONARD HARRIS Retired Mining Consultant since 1995. Director since August 2005 to
Director present.
Age 79
---------------------------------------------------------------------------------------------------------------------------
CARLOS D'AMICO President of Punto Dorado S.A. since President since November 2006 to
President (of subsidiary) November 2006 to present. President present. President from February,
Age 49 since February 2005 and General 2005 to November 2006 of former
Manager since 2003 to November subsidiary.
2006 of Inversiones Mineras
Argentinas S.A., a former subsidiary
of the Company, 2000-2003 President
of Independent Construction Company.
---------------------------------------------------------------------------------------------------------------------------
(1) Officers and Directors of the Company may also serve as directors of other
companies. See "Conflicts of Interest" below.
- 26 -
There are no family relationships between any directors or executive officers of
the Company. There are no known arrangements or understandings with any major
shareholders, customers, suppliers or others, pursuant to which any of the
Company's officers or directors was selected as an officer or director of the
Company. See "Item 7. Major Shareholders and Related Party Transactions -
Related Party Transactions."
CONFLICTS OF INTEREST
There are no existing or potential conflicts of interest among the Company, its
directors, officers or promoters as a result of their outside business interests
with the exception that certain of the Company's directors, officers and
promoters serve as directors, officers and promoters of other companies, and,
therefore, it is possible that a conflict may arise between their duties as a
director, officer or promoter of the Company and their duties as a director or
officer of such other companies.
The directors and officers of the Company are aware of the existence of laws
governing accountability of directors and officers for corporate opportunity and
requiring disclosures by directors of conflicts of interest and the Company will
rely upon such laws in respect of any directors' and officers' conflicts of
interest or in respect of any breaches of duty by any of its directors or
officers. All such conflicts will be disclosed by such directors or officers in
accordance with the BCBCA, and they will govern themselves in respect thereof to
the best of their ability in accordance with the obligations imposed upon them
by law.
All of the Company's directors are also directors, officers or shareholders of
other companies that are engaged in the business of acquiring, developing and
exploiting natural resource properties including properties in countries where
the Company is conducting its operations. Such associations may give rise to
conflicts of interest from time to time. Such a conflict poses the risk that the
Company may enter into a transaction on terms which place the Company in a worse
position than if no conflict existed. The directors of the Company are required
by law to act honestly and in good faith with a view to the best interest of the
Company and to disclose any interest which they may have in any project or
opportunity of the Company. However, each director has a similar obligation to
other companies for which such director serves as an officer or director. The
Company has no specific internal policy governing conflicts of interest.
The following table identifies the name of each director of the Company and any
company, which is a reporting issuer in Canada or the United States, and for
which such director currently serves as an officer or director:
-------------------------------------------------------------------------------------------------------------------
NAME OF DIRECTOR NAME OF COMPANY POSITION TERM OF SERVICE
-------------------------------------------------------------------------------------------------------------------
Gerald G. Carlson Copper Ridge Explorations President/Director Mar/99 to present
Golden Aria Corp President/Director Mar/05 to present
Almaden Minerals Ltd. Director Jul/98 to present
Amera Resources Corporation Director Nov/06 to present
-------------------------------------------------------------------------------------------------------------------
Arthur Lang Golden Arrow Resources Corporation Director, CFO ,VP Jul/04 to present
Amera Resources Corporation CFO & Secretary Mar/05 to present
Astral Mining Corporation CFO Feb/07 to present
-------------------------------------------------------------------------------------------------------------------
Joseph Grosso Amera Resources Corporation Chairman/Director Feb/04 to present
Golden Arrow Resources Corporation Chairman/President/ Jul/04tto present
CEO/Director
Gold Point Energy Corp. Chairman/Director April/06 to present
-------------------------------------------------------------------------------------------------------------------
(Table continued on next page)
- 27 -
-------------------------------------------------------------------------------------------------------------------
NAME OF DIRECTOR NAME OF COMPANY POSITION TERM OF SERVICE
-------------------------------------------------------------------------------------------------------------------
Robert Stuart (Tookie) Angus Wildcat Silver Corporation Director May/06 to present
Uranium North Resources Corp. Director May/06 to present
United Bolero Development Corp Director March/06 to present
Crescent Gold Limited Director Nov/05 to present
Tsodilo Resources Limited Director Sep/04 to present
CMQ Resources Inc. Director Dec/03 to present
Nevsun Resources Ltd. Director Jan/03 to present
Plutonic Power Corporation Director Jun/99 to present
Blackstone Ventures Inc. Director Sept/97 to present
Dynasty Gold Corp. Director Jan/06 to present
Chairman Oct/99 to present
Polaris Minerals Corporation Director Sept/03 to present
-------------------------------------------------------------------------------------------------------------------
Chet Idziszek Madison Minerals Inc. Director Nov/93 to present
President Nov/93 to Nov/99 &
Reappointed Aug/01
to present
CEO Apr/97 to present
Chairman Nov/99 to present
Lund Gold Ltd. Director May/97 to present
CEO & President Dec/98 to present
Oromin Explorations Ltd. Director Feb/94 to present
President May/95 to Oct/97 &
Reappointed Jun/99
to present
Surge Global Energy Inc. Director Aug/02 to present
Yukon Gold Corporation, Inc. Director Nov/05 to present
-------------------------------------------------------------------------------------------------------------------
David Terry Amera Resources Corporation VP Exploration Mar/04 to present
Golden Arrow Resources Corporation Director & Jul/04 to present
VP Exploration
Astral Mining Corporation Director Mar/05 to present
-------------------------------------------------------------------------------------------------------------------
David Horton Golden Arrow Resources Corporation Director July/04 to present
-------------------------------------------------------------------------------------------------------------------
Leonard Harris Solitario Resources Corp. Director Jun/98 to present
Cardero Resource Corp. Director Feb/00 to present
Canarc Resource Corp. Director Jun/01 to present
Sulliden Exploration Inc. Director Sep/03 to present
Endeavour Silver Corp. Director Jul/03 to present
Alamos Gold Inc. Director Nov/03 to present
Morgain Minerals Inc. Director Jun/04 to present
Indico Technologies Ltd. Director Apr/06 to present
Aztec Metals Corp. Director Feb/07 to present
-------------------------------------------------------------------------------------------------------------------
COMPENSATION
During the fiscal year ended December 31, 2006, the directors and officers of
the Company, as a group, had received or charged the Company a total of $533,917
(2005-$241,088; 2004-$476,226) for services rendered by the directors and
officers or companies owned by the individuals.
The Company is required, under applicable securities legislation in Canada, to
disclose to its shareholders details of compensation paid to its directors and
officers. The following fairly reflects all material information regarding
- 28 -
compensation paid by the Company to its directors and officers, which
information has been disclosed to the Company's shareholders in accordance with
applicable Canadian law.
EXECUTIVE COMPENSATION
"Named Executive Officers" means the Chief Executive Officer and Chief Financial
Officer of the Company, regardless of the amount of compensation of that
individual, and each of the Company's four most highly compensated executive
officers, other than the Chief Executive Officer and Chief Financial Officer,
who were serving as executive officers at the end of the most recent fiscal year
and whose total salary and bonus amounted to $150,000 or more. In addition,
disclosure is also required for any individual whose total salary and bonus
during the most recent fiscal year was at least $150,000, whether or not they
were an executive officer at the end of the most recent fiscal year.
During the year ended December 31, 2006, the Company had two Named Executive
Officers: Joseph Grosso, President and Chief Executive Officer and Arthur Lang,
Chief Financial Officer (the "Named Executive Officers"). The following table
sets forth all annual and long-term compensation awarded, paid to or earned by
the Company's Named Executive Officers during the financial years ended December
31, 2004, 2005 and 2006.
SUMMARY COMPENSATION TABLE
---------------------------------------
LONG TERM COMPENSATION
------------------------------ ---------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------ ---------------------------- ------- ---------
OTHER RESTRICTED
------------------ ANNUAL SECURITIES SHARES OR ALL OTHER
NAME AND ---- COMPEN- UNDER OPTIONS/ RESTRICTED LTIP COMPEN-
PRINCIPAL POSITION YEAR(1) SALARY BONUS SATION SARS GRANTED SHARE UNITS PAYOUTS SATION
($) ($) ($) (#)(2) (#) ($) ($)
------------------ ---- ------------------------------ ---------------------------- ------- ---------
Joseph Grosso(3) 2006 $200,667 $150,000 - 48,000 - - -
President and 2005 $102,000 - - 150,000 - - -
Chief Executive 2004 $102,000 - - 150,000 - - -
Officer
------------------ ---- ------------------------------ ---------------------------- ------- ---------
Arthur Lang, Chief 2006 $59,400(4) $50,000(4) - 35,000 - - -
Financial Officer 2005 $68,927(5) - - 100,000 - - -
2004 $58,671 - - 50,000 - - -
------------------ ---- ------------------------------ ---------------------------- ------- ---------
(1) Fiscal years ended December 31, 2006, 2005 and 2004.
(2) See "Options and Stock Appreciation Rights".
(3) See description of termination payment for Mr. Grosso in Item 6, agreement
dated July 1, 1999 with Oxbow International Marketing Corp.
(4) During the year ended December 31, 2006 Mr. Lang's total compensation from
the Grosso Group was $134,000, of which $59,400 was allocated to the
Company as part of the Grosso Group fees for the year. Additionally, during
the year ended December 31, 2006 a bonus of $50,000 was paid to Mr. Lang
directly by the Company.
(5) During the year ended December 31, 2005 Mr. Lang's total compensation from
the Grosso Group was $94,667, of which $68,927 was allocated to the Company
as part of the Grosso Group fees for the year.
LONG TERM INCENTIVE PLAN AWARDS
Long Term Incentive Plan Awards ("LTIP") means any plan providing compensation
intended to serve as an incentive for performance to occur over a period longer
than one fiscal year whether performance is measured by reference to financial
performance of the Company or an affiliate of the Company, or the price of
shares of the Company but does not include option or stock appreciation rights
plans or plans for compensation through restricted shares or units. The Company
has not granted any LTIP's to the Named Executive Officers during the most
recently completed fiscal year.
OPTIONS AND STOCK APPRECIATION RIGHTS
Stock Appreciation Rights ("SAR's") means a right, granted by an issuer or any
of its subsidiaries as compensation for services rendered or in connection with
office or employment, to receive a payment of cash or an issue or
- 29 -
transfer of securities based wholly or in part on changes in the trading price
of the shares of the Company. No SAR's were granted to or exercised by the Named
Executive Officers or directors during the most recently completed fiscal year.
OPTION GRANTS
The following table sets forth stock options granted by the Company during the
financial year ended December 31, 2006 to the Named Executive Officers of the
Company:
-------------------------------------------------------------------------------------------------------------------
Market Value
% of Total Options of Securities
Securities Under Granted in Exercise or Underlying Options
Name Options Granted Financial Year(1) Base Price(2) on Date of Grant Expiration Date
(#) ($/Security) ($/Security)
-------------------------------------------------------------------------------------------------------------------
Joseph Grosso 48,000 17.6% $3.21 $3.21 June 22, 2011
-------------------------------------------------------------------------------------------------------------------
Arthur Lang 35,000 12.8% $3.21 $3.21 June 22, 2011
-------------------------------------------------------------------------------------------------------------------
(1) Percentage of all options granted during the financial year.
(2) The exercise price of stock options was set according to the rules of the
TSX-V. The exercise price of stock options may only be adjusted in the
event that specified events cause dilution of the Company's share capital.
AGGREGATED OPTION EXERCISES AND OPTION VALUES
The following table sets forth details of all exercises of stock options by the
Named Executive Officers during the most recently completed fiscal year and the
fiscal year-end value of unexercised options on an aggregated basis:
---------------------------------------------------------------------------------------------------------------------
Value of Unexercised
Securities Unexercised Options In-the-Money Options
Name Acquired on Aggregate Value at Fiscal Year-End Fiscal Year-End(2)
Exercise(1) Realized(2) Exercisable/Unexercisable Exercisable/Unexercisable
(#) ($) (#) ($)
---------------------------------------------------------------------------------------------------------------------
Joseph Grosso Nil Nil 592,500 / Nil $4,750 / N/A
---------------------------------------------------------------------------------------------------------------------
Arthur Lang Nil Nil 150,000 / Nil $0 / N/A
---------------------------------------------------------------------------------------------------------------------
(1) All options are exercisable to acquire the Company's Common Shares.
(2) Value of unexercised in-the-money options calculated using the closing
price of the Company's Common Shares on the TSX-V on December 31, 2006,
$0.60 less the exercise price per share of in-the-money stock options.
PENSION PLAN
The Company does not provide retirement benefits for directors or executive
officers.
TERMINATION OF EMPLOYMENT, CHANGES IN RESPONSIBILITY AND EMPLOYMENT CONTRACTS
The Company has no plans or arrangements in respect of remuneration received or
that may be received by the Named Executive Officers in the Company's most
recently completed fiscal year or current fiscal year in respect of compensating
such officers in the event of termination of employment (as a result of
resignation, retirement, change of control, etc.) or a change in
responsibilities following a change of control, where the value of such
compensation exceeds $100,000, except as disclosed in "Item 6. Directors, Senior
Management and Employees - Compensation - Management Contracts."
COMPENSATION OF DIRECTORS
There are no arrangements under which directors were compensated by the Company
during the most recently completed financial year ended December 31, 2006 for
their services in their capacity as directors.
- 30 -
During the last completed financial year ending December 31, 2006, the Company
paid directly $133,250 and indirectly $57,400 (as part of the allocated Grosso
Group monthly fees) to its directors who are not Named Executive Officers, as a
group, for salaries and professional services rendered. See also "Item 6.
Directors, Senior Management and Employees - Compensation - Management
Contracts."
OPTION GRANTS
The following table sets forth information concerning stock options granted to
directors, as a group, who are not Named Executive Officers during the most
recently completed fiscal year:
-------------------------------------------------------------------------------------------------------------------
% of Total Market Value
Securities Options Granted of Securities
Under Options in Exercise or Underlying Options
Name Granted(1) Financial Year(2) Base Price(3) on Date of Grant Expiration Date
(#) ($/Security) ($/Security)
-------------------------------------------------------------------------------------------------------------------
Directors as a group
who are not Named
Executive Officers 120,000 44% $3.21 $3.21 June 22, 2011
-------------------------------------------------------------------------------------------------------------------
(1) All options are for the Company's Common Shares.
(2) Percentage of all options granted in the year.
(3) The exercise price of the option is set at not less than the market value
of the Company's Common Shares on the date of grant, less a discount
allowed by the TSX-V. The exercise price may be adjusted under certain
circumstances, subject to regulatory acceptance.
AGGREGATED OPTION EXERCISES AND OPTION VALUES
The following table sets forth details of all securities acquired, the aggregate
value realized and the fiscal year end number and value of unexercised
options/SARs held by directors, as a group, who are not Named Executive
Officers:
----------------------------------------------------------------------------------------------------------------------
Value of Unexercised
Securities Unexercised Options In-the-Money Options at
Name Acquired on Aggregate Value at Fiscal Year-End Fiscal Year-End(2)
Exercise(1) Realized Exercisable/Unexercisable Exercisable/Unexercisable
(#) ($) (#) ($)
----------------------------------------------------------------------------------------------------------------------
Directors, as a
group, who are not
Named Executive
Officers Nil Nil 1,260,000 / N/A $0 / N/A
----------------------------------------------------------------------------------------------------------------------
(1) All options are exercisable to acquire the Company Common Shares.
(2) Value of unexercised in-the-money options calculated using the closing
price of the Company's Common Shares on the TSX-V on December 31, 2006
$0.60, less the exercise price per share of in-the-money stock options.
PROPOSED COMPENSATION
The Company has no bonus, profit sharing or similar plans in place pursuant to
which cash or non-cash compensation is proposed to be paid or distributed to the
Named Executive Officers in the current or subsequent fiscal years other than as
disclosed herein.
- 31 -
MANAGEMENT CONTRACTS
GROSSO GROUP MANAGEMENT LTD.
Effective January 1, 2005, the Company engaged Grosso Group to provide services
and facilities to the Company. On May 6, 2005, an Administration Services
Agreement was finalized and executed by the Company and the Grosso Group. The
Grosso Group is a private company which is owned by the Company, Golden Arrow,
Amera, Astral Mining Corporation ("Astral"), Gold Point Energy Corp. ("Gold
Point"), and Blue Sky Uranium Corp. ("Blue Sky") each of which own one share.
The Grosso Group provides its shareholder companies with geological, corporate
development, administrative and management services. The Grosso Group staff is
available to the shareholder companies on a cost recovery basis without the
expense of full time personnel. The shareholder companies pay monthly fees to
the Grosso Group. The fee is based upon a reasonable pro-rating of the Grosso
Group's costs including its staff and overhead costs among each shareholder
company with regard to the mutually agreed average annual level of services
provided to each shareholder company. During fiscal 2006, the Company incurred
fees of $724,902 (2005 - $730,802) to the Grosso Group. In addition, included in
the accounts receivable, prepaids and deposits is a $205,000 (2005 - $205,000)
deposit to the Grosso Group. The deposits from the member companies were used
for the purchase of equipment and leasehold improvements and for operating
working capital.
The Administration Services Agreement may be terminated by a shareholder company
after January 1, 2007, upon 30 days written notice to the Grosso Group.
It is anticipated that upon termination of the Administration Services
Agreement, each of the shareholder companies will agree to resell its common
share back to the Grosso Group for $1.00 and the shareholder companies will not
be able to sell, transfer or otherwise dispose of or encumber such share during
the term of the Administration Services Agreement.
The Grosso Group's areas of experience encompass financing, marketing, property
acquisition, community relations, socioeconomic issues, regulatory compliance,
government relations, property exploration and investor relations.
Additionally the Grosso Group has a number of other support staff at its
corporate office and arrangements with contract providers of accounting and
administrative services at the country operations' offices in Argentina and
Peru.
The members of the board of directors of the Grosso Group are appointed by the
shareholder companies, with each shareholder company appointing one of its
directors to serve as a director of the Grosso Group. As of February 28, 2007,
the directors of the Grosso Group are Nikolaos Cacos, Joseph Grosso, Arthur
Lang, Manfred Kurschner, Nick DeMare and .Sean Hurd. Messrs. Lang and Grosso are
officers and directors of the Company. Mr. Lang is an officer and director of
Golden Arrow and an officer of Amera and Astral. Mr. Grosso is an officer and
director of Golden Arrow and of Amera and director of Gold Point. Mr. Cacos is
an officer of IMA, a director and officer of Golden Arrow and Amera and a
director of Blue Sky. Mr. Kurschner is an officer and director of Astral and a
director of Golden Arrow and Mr. DeMare is an officer and director of Gold Point
and Blue Sky. Mr. DeMare indirectly owns 100% of Chase Management Ltd., a
company which provides consulting services to the Company and other Grosso Group
shareholder companies. Mr. Hurd is an officer of IMA and President and Director
of Blue Sky.
Each of the public company shareholders of the Grosso Group will have its own
separate board of directors (whose members may include persons employed by the
Grosso Group); however, some directors will serve on multiple boards and on the
board of directors of companies which are not shareholders of the Grosso Group.
In connection with the formation and establishment of the Grosso Group, Mr. Nick
DeMare was issued the initial share of the Grosso Group and acted as the
President, Secretary and sole director of the Grosso Group. Effective February
6, 2004, Mr. DeMare transferred the sole outstanding share of the Grosso Group
to Joseph Grosso, the Chairman and a director and principal shareholder of the
Company. Mr. DeMare also resigned as a director and the President and Secretary
of the Grosso Group effective February 6, 2004 and Mr. Grosso was appointed as a
director and the President and Secretary of the Grosso Group. Mr. Grosso
returned the sole outstanding share of the Grosso Group to the Grosso Group for
cancellation and one share was issued to the Company.
The Board of Directors of the Company approved the Administration Services
Agreement.
- 32 -
JOSEPH GROSSO
By agreement, made effective as of July 1, 1999, Oxbow International Marketing
Corp., a private company owned by Joseph Grosso, was paid a consulting fee of
$8,500 per month for making available the services of Joseph Grosso as President
and Chief Executive Officer of the Company. During the fiscal year ended
December 31, 2006 Oxbow was paid $350,667 (2005 - $102,000). On April 12, 2006
the Board accepted the recommendation from the Compensation Committee to
increase the monthly consulting fee effective May 1, 2006 to $20,833 ($250,000
per annum) and to pay a bonus of $150,000.
Pursuant to the terms of the agreement, in the event the agreement is terminated
by the Company as a result of Mr. Grosso's death or permanent disability while
providing services to the Company, or by Mr. Grosso as a result of a material
breach or default by the Company, Oxbow is entitled to a bonus payment in the
amount of $461,500.
In the event the agreement is terminated by the Company without cause or as a
result of a change of control, Oxbow is entitled to (i) any monthly compensation
due to the date of termination, (ii) options as determined by the board of
directors, (iii) three years of Mr. Grosso's monthly compensation (which may be
adjusted annually), and (iv) a bonus payment of $461,500.
NIKOLAOS CACOS
By agreement dated January 1, 1996, as amended January 5, 2004, Mr. Cacos was
paid a fee paid of $1,375 per month. Mr. Cacos resigned as a director of the
Company in October 2004. During fiscal 2006, Mr. Cacos was paid directly by the
Company $Nil (2005 - nil, 2004 - $17,600). On January 1, 2005 Mr. Cacos's
contract with the Company was cancelled and replaced with a contract with the
Grosso Group. During the year ended December 31, 2006, Mr. Cacos's total
compensation from the Grosso Group was $22,500, of which $9,225 was allocated to
the Company as part of the Grosso Group fees for the year.
SEAN HURD
By agreement dated June 11, 2001, as extended, Mr. Hurd, a former director of
the Company, was paid $4,000 per month for professional services rendered.
During the fiscal year ended December 31, 2006, Mr. Hurd was paid directly by
the Company $Nil (2005 - nil, 2004 - $73,800). Mr. Hurd resigned as a director
in October 2004. In January 2005, Mr. Hurd became an employee of the Grosso
Group. During the year ended December 31, 2006, Mr. Hurd's total compensation
from the Grosso Group was $112,000, of which $45,920 was allocated to the
Company as part of the Grosso Group fees for the year. the year.
ARTHUR LANG
By agreement dated April 23, 2004, Arthur Lang, the Chief Financial Officer and
a director of the Company, was paid a salary of $80,000 per year for
professional services rendered. Mr. Lang is also reimbursed for certain monthly
club dues. During the fiscal year ended December 31, 2004, Mr. Lang was paid
$58,671. Mr. Lang became an employee of the Grosso Group in January 2005.
Effective May 1, 2005 Mr. Lang's annual salary was increased to $102,000. During
the year ended December 31, 2005, Mr. Lang's total compensation from the Grosso
Group was $94,667, of which $68,927 was allocated to the Company as part of the
Grosso Group fees for the year. On April 12, 2006 the Board accepted the
recommendation from the Compensation Committee to increase Mr. Lang's annual
salary to $150,000 effective May 1, 2006 and to pay a bonus of $50,000. During
the year ended December 31, 2006, Mr. Lang's total compensation from the Company
was $109,400 of which $59,400 was allocated to the Company as part of the Grosso
Group fees and $50,000 was paid directly as a bonus. Mr. Lang's total
compensation from the Grosso Group was $134,000.
- 33 -
DAVID TERRY
Mr. Terry, an officer and a director of the Company, had a consulting agreement
with Amera dated February 16, 2004, amended June 1, 2004, which called for
monthly payments of $10,000. The Company had agreed to reimburse Amera for 50%
of these fees. In the fiscal year ended December 31, 2004 the Company paid
$43,000 as a result of this arrangement. On January 1, 2005 Mr. Terry's
agreement with Amera was replaced by a similar agreement with the Grosso Group.
During the year ended December 31, 2005, Mr. Terry's total compensation from the
Grosso Group was $120,000, of which $63,600 was allocated to the Company as part
of the Grosso Group fees during the year. On April 12, 2006 the Board accepted
the recommendation from the Compensation Committee to increase Mr. Terry's
monthly fee to $12,500 ($150,000 annually) effective May 1, 2006 and to pay a
bonus of $50,000. During the year ended December 31, 2006, Mr. Terry's total
compensation from the Company was $107,400 of which $57,400 was allocated to the
Company as part of the Grosso Group fees and $50,000 was paid directly as a
bonus. Mr. Terry's total compensation from the Grosso Group was $140,000.
CORPORATE CEASE TRADE ORDERS OR BANKRUPTCIES
Other than as disclosed herein, no director or officer of the Company is or has
been, within the preceding 10 years, a director or officer of any other issuer
that, while that person was acting in that capacity:
(a) was the subject of a cease trade order or similar order or an order that
denied the other issuer access to any exemptions for a period of more than
30 consecutive days, or
(b) became bankrupt, made a proposal under any legislation relating to
bankruptcy or insolvency or was subject to or instituted any proceedings,
arrangement, or compromise with creditors or had a receiver, receiver
manager or trustee appointed to hold its assets.
PENALTIES OR SANCTIONS
No director or officer of the Company is or has, within the past 10 years:
(a) been subject to any penalties or sanctions imposed by a court relating to
Canadian securities legislation or Canadian securities regulatory authority
or has entered into a settlement agreement with a Canadian securities
regulatory authority, or
(b) been subject to any other penalties or sanctions imposed by a court or
regulatory body that would be likely to be considered important to a
reasonable investor making an investment decision.
INDIVIDUAL BANKRUPTCIES
No director or officer of the Company is or has, within the preceding 10 years,
become bankrupt, made a proposal under any legislation relating to bankruptcy or
insolvency or been subject to or instituted any proceedings, arrangement, or
compromise with creditors or had a receiver, receiver manager or trustee
appointed to hold the assets of that individual.
BOARD PRACTICES
COMPENSATION COMMITTEE
The board of directors of the Company has adopted procedures to ensure that all
employment, consulting or other compensation agreements between the Company and
any director or senior officer of the Company or between any associate or
affiliate of the Company and any director or senior officer are considered and
approved by the disinterested members of the board of directors or a committee
of independent directors.
The Company's Compensation Committee must be comprised of at least two
independent directors, who are not employees, control persons or members of the
management of the Company or any of its associates or affiliates. As of the date
of this report, Messrs. Horton and Angus are members of the Compensation
Committee. The board of directors
- 34 -
of the Company, after each annual shareholder's meeting must appoint or
re-appoint a compensation committee.
TERMS OF REFERENCE FOR THE COMPENSATION COMMITTEE
GENERAL
The Compensation Committee is a committee of the Board to which the Board has
delegated its responsibility for oversight of the Corporation's overall human
resources policies and procedures. This includes reviewing the adequacy and form
of the compensation paid to the Corporation's executives and key employees to
ensure that such compensation realistically reflects the responsibilities and
risks of such positions.
The Compensation Committee's objectives are to assist the Board in meeting its
responsibilities in respect of overall human resources policies and procedures
including recruitment, performance management, compensation, benefit programs,
resignation/terminations, training and development, succession planning and
organizational planning and design, to ensure a broad plan of executive
compensation is established that is competitive and motivating in order to
attract, retain and inspire executive management and other key employees and to
review all compensation and benefit proposals for the Corporation's executives
and make recommendations to the Board.
COMPOSITION AND PROCESS
1. The Compensation Committee will be comprised of a minimum of two directors,
all of whom will be independent.
2. Compensation Committee members will be appointed by the Board on an annual
basis for a one-year term and may serve any number of consecutive terms,
which are encouraged to ensure continuity of experience.
3. The Chair of the Compensation Committee will be appointed by its members on
an annual basis for a one-year term and may serve any number of consecutive
terms. The Compensation Committee Chair will arrange for an alternate chair
for a specific meeting if he or she is planning to be absent.
4. The Compensation Committee Chair will establish the agenda for Compensation
Committee meetings and ensure that properly prepared agenda materials are
circulated to the members with sufficient time for review prior to the
meeting.
5. The Compensation Committee will meet at least twice per year and may call
special meetings as required. A quorum at meetings of the Compensation
Committee will be one of its members. The Compensation Committee may hold
its meetings, and members of the Compensation Committee may attend
meetings, by telephone conference call.
6. At all meetings of the Compensation Committee every question will be
decided by a majority of the votes cast. In case of an equality of votes,
the Compensation Committee Chair will forward the matter to the Board of
Directors for resolution.
7. The minutes of Compensation Committee meetings will document the date and
time of the meetings.
8. The Compensation Committee will have the authority to retain (or terminate)
any outside counsel, advisors or consultants it determines necessary to
assist it in discharging its functions, independently of the Board, Chair
or CEO. The Compensation Committee will be provided with the necessary
funding to compensate any counsel, advisors or consultants it retains.
9. The CEO may attend and participate in meetings of the Compensation
Committee, except when his compensation is the subject matter.
- 35 -
RESPONSIBILITIES
1. The Compensation Committee will review management prepared policies and
make recommendations to the Board regarding the following matters:
2. Compensation, philosophy, policies and guidelines for senior officers, as
well as supervisory and management personnel of the Corporation and any
subsidiary companies.
3. Corporate benefits for senior management (i.e. car insurance, life
insurance, retirement plan, expense accounts, etc.).
4. Incentive plans, along with global payment information as it applies to
senior management bonus and discretionary bonus plans.
5. Review and approval of Corporate goals and objectives relevant to CEO and
other senior management compensation.
6. Evaluation of the performance of the CEO and other senior management in
light of corporate goals and objectives and making recommendations with
respect to compensation levels based on such evaluations.
7. Policies regarding the Corporation's Incentive Stock Option Plan and the
granting of stock options to Directors, management and employees of the
Corporation.
8. Policies regarding the development and implementation of incentive
compensation plans and equity based compensation plans.
9. Compensation levels for directors and committee members, including the
compensation of the Chair and the Chair of any Board committees, to ensure
compensation realistically reflects the responsibilities and risk involved
in being an effective director. Compensation should be commensurate with
the time spent by directors in meeting their obligations and should be
transparent and easy for shareholders to understand.
10. Succession plan for the CEO and other executives and key employees of the
Corporation, in conjunction with the CEO.
11. Any material changes in human resources policy, procedure, remuneration and
benefits.
12. Review of executive compensation disclosure in all public disclosure
documents.
13. The Compensation Committee will review and assess its effectiveness,
contribution and these Terms of Reference annually and recommend any
proposed changes thereto to the Board.
14. Perform any other activities consistent with these Terms of Reference, as
the Compensation Committee or the Board deems necessary or appropriate.
15. The Compensation Committee will have the authority to delegate any specific
tasks to individual Compensation Committee members.
AUDIT COMMITTEE
The Company's Audit Committee must be comprised of at least three directors, who
are not employees, control persons or members of the management of the Company
or any of its associates or affiliates. As of the date of this report, Messrs.
Horton, Angus, Idziszek are members of the Audit Committee. The board of
directors of the Company, after each annual shareholder's meeting must appoint
or re-appoint an audit committee.
The Audit Committee must review the annual financial statements of the Company
before they are approved by the board of directors of the Company. The board of
directors of the Company must review, and if considered appropriate, approve the
annual financial statements of the Company before presentation to the
shareholders of the Company. In addition, the Audit Committee is responsible
for:
- retaining the external auditors and communicating to them that they
are ultimately accountable to the Committee and the Board as the
representatives of the shareholders;
- reviewing the external audit plan and the results of the audit,
approves all audit engagement fees and terms and pre-approves all
non-audit services to be performed by the external auditor;
- reviewing the Company's financial statements and related management's
discussion and analysis of financial and operating results; and
- having direct communication channels with the Company's auditors.
The Audit Committee's mandate requires that all of the members be financially
literate and at least one member have accounting or related financial management
expertise. The mandate of the Committee empowers it to retain legal, accounting
and other advisors.
- 36 -
The Audit Committee's Charter is attached as an Exhibit.
EMPLOYEES
As of December 31, 2006, the Company uses the services of the Grosso Group,
which had twenty-four full-time employees in the area of management and
administration compared with twenty full-time employees that the Company
employed directly in the areas of management and administration at December 31,
2005 compared to nine full-time employees and three part-time employees in the
area of management and administration at December 31, 2004. Exploration
activities are conducted by consultants, laborers and technicians hired for the
duration of the exploration program.
SHARE OWNERSHIP
As of February 28, 2007, the Company had 52,013,065 shares outstanding. The
following table sets forth details of all employee share ownership and includes
information regarding the date of expiration or any options or warrants held by
each employee; the exercise price of the particular option or warrant held; the
total number of options and warrants held by each employee; the total number of
shares held by each employee; and each employee's percentage of ownership:
The following table sets forth certain information regarding ownership of the
Company's shares by the Company's officers and directors as of February 28,
2007.
--------------------------------------------------------------------------------------------------------------------
SHARES AND RIGHTS
BENEFICIALLY OWNED OR
TITLE OF CLASS NAME CONTROLLED (1) PERCENT OF CLASS(1)
--------------------------------------------------------------------------------------------------------------------
Common Stock Joseph Grosso 1,641,167(2) 3.2%
Common Stock Nikolaos Cacos 188,151(3) 0.4%
Common Stock Sean Hurd 310,000(4) 0.6%
Common Stock Gerald Carlson 291,000(5) 0.6%
Common Stock David Terry 202,000(6) 0.4%
Common Stock Chet Idziszek 245,000(7) 0.5%
Common Stock Robert Stuart (Tookie) Angus 260,000(8) 0.5%
Common Stock Arthur Lang 185,000(9) 0.4%
Common Stock David Horton 160,000(10) 0.3%
Common Stock Leonard Harris 105,000(11) 0.2%
--------------------------------------------------------------------------------------------------------------------
Common Stock Officers and Directors (as a group, 10 persons) 3,587,318(12) 6.9%
--------------------------------------------------------------------------------------------------------------------
(1) Where persons listed on this table have the right to obtain additional
shares of common stock through the exercise of outstanding options, these
additional shares are deemed to be outstanding for the purpose of computing
the percentage of common stock owned by such persons, but are not deemed to
be outstanding for the purpose of computing the percentage owned by any
other person. Based on 52,013,065 shares of common stock outstanding as of
February 28, 2007.
(2) Includes the following shares, options and warrants held by Mr. Grosso,
Evelyn Grosso (Mr. Grosso's wife) and Mr. Grosso's private companies:
(a) 585,543 shares held by Mr. Grosso;
(b) 7,500 shares held by Beauregard (50%);
(c) 27,564 shares held by Mr. Grosso's wife (50%);
(d) 348,448 shares held by Oxbow (50%);
(e) 9,612 shares held by Threadco (50%);
(f) 592,500 Options held by Mr. Grosso to acquire 592,500 shares. See
"Item 6. Directors, Senior Management and Employees - Options,
Warrants and Other Rights to Acquire Securities - Stock Options."; and
(g) 70,000 shares held in Mr. Grosso's RRSP account.
(3) Includes 13,151 shares held by Mr. Cacos and 175,000 options held by Mr.
Cacos to acquire an additional 175,000 shares. See "Item 6. Directors,
Senior Management and Employees - Options, Warrants and Other Rights to
Acquire Securities - Stock Options."
(4) Includes 310,000 options held by Mr. Hurd to acquire an additional 310,000
shares. See "Item 6. Directors, Senior Management and Employees - Options,
Warrants and Other Rights to Acquire Securities - Stock Options."
(5) Includes 88,500 shares held by Mr. Carlson and 47,500 shares held by KGE
Management Ltd., a private company owned by Mr. Carlson and options held by
Mr. Carlson to acquire an additional 155,000 shares. See "Item 6.
Directors, Senior Management and Employees - Options, Warrants and Other
Rights to Acquire Securities - Stock Options."
- 37 -
(6) Includes 2,000 shares held by Mr. Terry and options held by Mr. Terry to
acquire an additional 200,000 shares. See "Item 6. Directors, Senior
Management and Employees - Options, Warrants and Other Rights to Acquire
Securities - Stock Options."
(7) Mr. Idziszek holds 245,000 options to acquire 245,000 shares. See "Item 6.
Directors, Senior Management and Employees - Options, Warrants and Other
Rights to Acquire Securities - Stock Options."
(8) 260,000 options held by Mr. Angus to acquire 260,000 shares. See "Item 6.
Directors, Senior Management and Employees - Options, Warrants and Other
Rights to Acquire Securities - Stock Options."
(9) Includes 10,000 shares and 185,000 options held by Mr. Lang to acquire
185,000 shares. See "Item 6. Directors, Senior Management and Employees -
Options, Warrants and Other Rights to Acquire Securities - Stock Options."
(10) Includes options held by Mr. Horton to acquire 160,000 shares. See "Item 6.
Directors, Senior Management and Employees - Options, Warrants and Other
Rights to Acquire Securities - Stock Options."
(11) Includes 5,000 shares and options held by Mr. Harris to acquire 100,000
shares. See "Item 6. Directors, Senior Management and Employees - Options,
Warrants and Other Rights to Acquire Securities - Stock Options."
(12) Includes the shares, options, and warrants set forth in footnotes 2 through
11 above. See "Item 6. Directors, Senior Management and Employees -
Options, Warrants and Other Rights to Acquire Securities - Stock Options."
OPTIONS, WARRANTS AND OTHER RIGHTS TO ACQUIRE SECURITIES
As of February 28, 2007, the Company had granted a number of stock options,
issued a number of warrants and entered into a number of agreements pursuant to
which up to 8,123,404 common shares of the Company may be issued. The following
is a brief summary of these stock options and warrants currently outstanding and
agreements.
STOCK OPTIONS
The TSX-V requires all TSX-V listed companies to adopt stock options plans, and
such plans must contain certain provisions. At the annual and extraordinary
general meeting of shareholders of the Company held on June 26, 2003, the
shareholders approved the Company's stock option plan (the "Stock Option Plan").
At the annual and extraordinary general meetings of shareholders of the Company
held on June 24, 2004, June 23, 2005 and June 14, 2006 shareholders approved and
ratified by ordinary resolution the 2003 Stock Option Plan to make a total of up
to 10% of the issued and outstanding shares of IMA available for issuance. The
purpose of the Stock Option Plan is to provide incentive to the Company's
employees, officers, directors, and consultants responsible for the continued
success of the Company. The following is a summary of the Stock Option Plan.
ADMINISTRATION OF THE STOCK OPTION PLAN
The Stock Option Plan provides that it will be administered by the Company's
board of directors (the "Board"), or by the Compensation Committee (the
"Committee") of the Company's Board consisting of not less than two of its
members. The Stock Option Plan is currently administered by the Committee.
DESCRIPTION OF STOCK OPTION PLAN
The effective date (the "Effective Date") of the Stock Option Plan is June 2,
2003, the date the Board of Directors approved the Stock Option Plan, and it
will terminate ten years from the Effective Date.
The Stock Option Plan provides that options may be granted to any employee,
officer, director or consultant of the Company or a subsidiary of the Company.
The options issued pursuant to the Stock Option Plan will be exercisable at a
price not less than the market value of the Company's common shares at the time
the option is granted. "Market Value" means:
(a) for each organized trading facility on which the common shares are
listed, Market Value will be the closing trading price of the common
shares on the day immediately preceding the grant date less any
discounts permitted by the applicable regulatory authorities;
(b) if the Company's common shares are listed on more than one organized
trading facility, the Market Value shall be the Market Value as
determined in accordance with subparagraph (a) above for the primary
organized trading facility on which the common shares are listed, as
determined by the Board (or a committee thereof), subject to any
adjustments as may be required to secure all necessary regulatory
approvals;
(c) if the Company's common shares are listed on one or more organized
trading facilities but have not traded during the ten trading days
immediately preceding the grant date, then the Market Value will be
determined
- 38 -
by the Board (or a committee thereof), subject to any adjustments as
may be required to secure all necessary regulatory approvals; and
(d) if the Company's common shares are not listed for trading on a stock
exchange or over the counter market, the value which is determined by
the Board (or a committee thereof) to be the fair value of the
Company's common shares, taking into consideration all factors that the
Board (or a committee thereof) deems appropriate, including, without
limitation, recent sale and offer prices of the Company shares in
private transactions negotiated at arms' length.
Options under the Stock Option Plan will be granted for a term not to exceed 10
years from the date of their grant, provided that if the Company is then a "Tier
2" company listed on the TSX-V, the term of the option will be not more than
five years.
Options under the Stock Option Plan will be subject to such vesting schedule as
the Committee may determine. In the event that an option is to be terminated
prior to expiry of its term due to certain corporate events, all options then
outstanding shall become immediately exercisable for 10 days after notice
thereof, notwithstanding the original vesting schedule.
Options will also be non-assignable and non-transferable, provided that they
will be exercisable by an optionee's legal heirs, personal representatives or
guardians for up to 12 months following the death or termination of an optionee
due to disability, or up to 12 months following the death of an employee if the
employee dies within 12 months of termination due to disability. All such
options will continue to vest in accordance with their original vesting
schedule.
The maximum number of common shares to be reserved for issuance under the Stock
Option Plan, including options currently outstanding, will not exceed 10% of the
number of common shares of the Company issued and outstanding on the applicable
date of grant.
If a material alteration in the capital structure of the Company occurs as a
result of a recapitalization, stock split, reverse stock split, stock dividend,
or otherwise, the Committee shall make adjustments to the Stock Option Plan and
to the options then outstanding under it as the Committee determines to be
appropriate and equitable under the circumstances, unless the Committee
determines that it is not practical or feasible to do so, in which event the
options granted under the Stock Option Plan will terminate as set forth above.
The TSX-V requires all TSX-V listed companies who have adopted stock option
plans which reserve a maximum of 10% of the number of common shares of the
Company issued and outstanding on the applicable date of grant, to obtain
shareholder approval to the Stock Option Plan on an annual basis.
As of February 28, 2007, the Company has issued 4,619,000 non-transferable
incentive stock options to purchase common shares outstanding to the following
persons:
----------------------------------------------------------------------------------------------------------------
MARKET VALUE ON
NATURE NUMBER EXERCISE EXPIRATION DATE OF GRANT
OPTIONEE OF OPTION(1) OF SHARES PRICE DATE OR REPRICING
----------------------------------------------------------------------------------------------------------------
N. Cacos Officer 110,000 $3.10 Mar. 24/09 $3.10
50,000 $4.16 Mar. 16/10 $4.16
15,000 $2.92 Nov. 16/10 $2.92
----------------------------------------------------------------------------------------------------------------
J. Grosso Director 47,500 $0.50 Sept. 23/07 $0.50
200,000 $1.87 Aug. 27/08 $1.87
150,000 $3.10 Mar. 24/09 $3.10
150,000 $4.16 Mar. 16/10 $4.16
48,000 $3.21 Jun. 22/11 $3.21
----------------------------------------------------------------------------------------------------------------
S. Hurd Officer 100,000 $1.87 Aug. 27/08 $1.87
130,000 $3.10 Mar. 24/09 $3.10
60,000 $4.16 Mar. 16/10 $4.16
20,000 $2.92 Nov. 16/10 $2.92
----------------------------------------------------------------------------------------------------------------
- 39 -
----------------------------------------------------------------------------------------------------------------
MARKET VALUE ON
NATURE NUMBER EXERCISE EXPIRATION DATE OF GRANT
OPTIONEE OF OPTION(1) OF SHARES PRICE DATE OR REPRICING
----------------------------------------------------------------------------------------------------------------
G. Carlson Director 50,000 $1.87 Aug. 27/08 $1.87
85,000 $3.10 Mar. 24/09 $3.10
20,000 $4.16 Mar. 16/10 $4.16
----------------------------------------------------------------------------------------------------------------
N. DeMare Consultant 25,000 $0.84 Mar. 07/08 $0.84
50,000 $1.87 Aug. 27/08 $1.87
50,000 $3.10 Mar. 24/09 $3.10
30,000 $4.16 Mar. 16/10 $4.16
----------------------------------------------------------------------------------------------------------------
E. Grosso(2) Consultant 67,500 $0.50 Sept. 23/07 $0.50
75,000 $3.10 Mar. 24/09 $3.10
----------------------------------------------------------------------------------------------------------------
K. Patterson Consultant 25,000 $3.10 Mar. 24/09 $3.10
25,000 $2.92 Nov. 16/10 $2.92
----------------------------------------------------------------------------------------------------------------
D. Terry Director 50,000 $3.10 Mar. 24/09 $3.10
80,000 $4.16 Mar. 16/10 $4.16
70,000 $2.92 Nov. 16/10 $2.92
----------------------------------------------------------------------------------------------------------------
C. Idziszek Director 150,000 $0.90 May 30/08 $0.90
75,000 $3.10 Mar. 24/09 $3.10
20,000 $4.16 Mar. 16/10 $4.16
----------------------------------------------------------------------------------------------------------------
J. C. Berretta Consultant 25,000 $3.10 Mar. 24/09 $3.10
75,000 $4.16 Mar. 16/10 $4.16
----------------------------------------------------------------------------------------------------------------
W. Lee(3) Consultant 75,000 $1.87 Aug. 27/08 $1.87
30,000 $3.10 Mar. 24/09 $3.10
----------------------------------------------------------------------------------------------------------------
R. Angus Director 150,000 $0.90 May 30/08 $0.90
40,000 $3.10 Mar. 24/09 $3.10
30,000 $4.16 Mar. 16/10 $4.16
40,000 $3.21 Jun. 22/11 $3.21
----------------------------------------------------------------------------------------------------------------
D. Dorval Consultant 60,000 $3.10 Mar. 24/09 $3.10
30,000 $4.16 Mar. 16/10 $4.16
----------------------------------------------------------------------------------------------------------------
J. Denee Employee 10,000 $3.10 Mar. 24/09 $3.10
5,000 $4.16 Mar. 16/10 $4.16
----------------------------------------------------------------------------------------------------------------
C. Sandoval Employee 10,000 $3.10 Mar. 24/09 $3.10
15,000 $4.16 Mar. 16/10 $4.16
5,000 $3.21 Jun. 22/11 $3.21
----------------------------------------------------------------------------------------------------------------
C. D'Amico(5) Director (of 220,000 $1.87 Aug. 27/08 $1.87
subsidiary-exempted 75,000 $3.10 Mar. 24/09 $3.10
from reporting)
----------------------------------------------------------------------------------------------------------------
C. Timossi Consultant 75,000 $3.10 Mar. 24/09 $3.10
----------------------------------------------------------------------------------------------------------------
S. Phillips Consultant 300,000 $1.87 Aug. 27/08 $1.87
50,000 $3.10 Mar. 24/09 $3.10
----------------------------------------------------------------------------------------------------------------
J. Faccin Consultant 10,000 $3.10 Mar. 24/09 $3.10
----------------------------------------------------------------------------------------------------------------
- 40 -
----------------------------------------------------------------------------------------------------------------
MARKET VALUE ON
NATURE NUMBER EXERCISE EXPIRATION DATE OF GRANT
OPTIONEE OF OPTION(1) OF SHARES PRICE DATE OR REPRICING
----------------------------------------------------------------------------------------------------------------
M. De Simone Director (of 59,500 $0.50 May 02/07 $0.50
subsidiary-exempted 80,000 $3.10 Mar. 24/09 $3.10
from reporting)
----------------------------------------------------------------------------------------------------------------
I. Chiarantano Consultant 59,500 $0.50 May 02/07 $0.50
----------------------------------------------------------------------------------------------------------------
D. Horton Director 100,000 $3.10 Mar. 24/09 $3.10
30,000 $4.16 Mar. 16/10 $4.16
30,000 $3.21 Jun. 22/11 $3.21
----------------------------------------------------------------------------------------------------------------
A. Lang Director 50,000 $3.10 Mar. 24/09 $3.10
75,000 $4.16 Mar. 16/10 $4.16
25,000 $2.92 Nov. 16/10 $2.92
35,000 $3.21 Jun. 22/11 $3.21
----------------------------------------------------------------------------------------------------------------
G. James Consultant 7,000 $3.10 Mar. 24/09 $3.10
----------------------------------------------------------------------------------------------------------------
A. Colucci Consultant 120,000 $1.87 Aug. 27/08 $1.87
----------------------------------------------------------------------------------------------------------------
P. Hedblom Consultant 30,000 $1.87 Aug. 27/08 $1.87
20,000 $2.92 Nov. 16/10 $2.92
----------------------------------------------------------------------------------------------------------------
J. Wong Consultant 25,000 $1.87 Aug. 27/08 $1.87
----------------------------------------------------------------------------------------------------------------
D. Tindale Employee 5,000 $4.16 Mar. 16/10 $4.16
----------------------------------------------------------------------------------------------------------------
F. Riedl Consultant 30,000 $4.16 Mar. 16/10 $4.16
----------------------------------------------------------------------------------------------------------------
A. Beartl Consultant 150,000 $4.16 Mar. 16/10 $4.16
150,000 $2.92 Nov. 16/10 $2.92
----------------------------------------------------------------------------------------------------------------
I. Thomson Consultant 10,000 $4.16 Mar. 16/10 $4.16
----------------------------------------------------------------------------------------------------------------
L. Harris Director 50,000 $2.92 Nov. 16/10 $2.92
50,000 $3.21 Jun. 22/11 $3.21
----------------------------------------------------------------------------------------------------------------
C. Smyth Consultant 5,000 $2.92 Nov. 16/10 $2.92
----------------------------------------------------------------------------------------------------------------
L. McClusky Employee 10,000 $3.21 Jun. 22/11 $3.21
----------------------------------------------------------------------------------------------------------------
B. Dubowska Employee 5,000 $3.21 Jun. 22/11 $3.21
----------------------------------------------------------------------------------------------------------------
L. Carter Employee 25,000 $3.21 Jun. 22/11 $3.21
----------------------------------------------------------------------------------------------------------------
J. Barnes Employee 25,000 $3.21 Jun. 22/11 $3.21
----------------------------------------------------------------------------------------------------------------
TOTAL 4,619,000
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Officers and directors, as a group (10 persons)(4) 2,528,000
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
(1) Pursuant to the rules of the TSX-V, the Company has issued stock options to
employees, directors, officers and consultants. "Employee" refers to the
employees of the Grosso Group providing administrative and management
services to the Company.
(2) Evelyn Grosso is the wife of Joseph Grosso.
(3) The Company granted Mr. Lee options to acquire common shares during his
tenure as director. Mr. Lee resigned as an officer and director of the
Company effective April 2, 2004 and currently remains as a consultant to
the Company.
(4) Includes options held by Joseph Grosso's wife, Evelyn Grosso.
(5) The Company granted Mr. D'Amico options to acquire common shares during his
tenure as director of a subsidiary.
- 41 -
WARRANTS AND OTHER COMMITMENTS
As of February 28, 2007, there were 3,504,404 non-transferable common share
purchase warrants exercisable.
As of February 28, 2007, the Company's officers and directors, as a group,
including entities controlled or under significant influence of officers and
directors of the Company, did not hold any warrants to purchase the Company's
common shares.
There are no assurances that the options, warrants or other rights described
above will be exercised in whole or in part.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.
--------------------------------------------------------------------------------
PRINCIPAL HOLDERS OF VOTING SECURITIES
To the best of the Company's knowledge there are no persons who beneficially
own, directly or indirectly, or exercise control or direction, over more than 5%
of the issued and outstanding common shares of the Company other than that which
is described below.
CHANGES IN OWNERSHIP BY MAJOR SHAREHOLDERS
In August 1999 Barrick Gold Corporation ("Barrick") acquired, through a private
placement, 1.5 million units at a price of $1.00 per unit. Each unit consists of
one common share in the capital stock of the Company and one non-transferable
share purchase warrant, entitling Barrick to purchase an additional common share
for a period of one year at a price of $1.50 per share. On April 19, 2000,
Barrick exercised warrants at $1.50 to purchase an additional 350,000 shares of
the Company. On August 16, 2000, Barrick exercised its remaining warrants to buy
1,150,000 common shares of the Company. As of April 30, 2003 Barrick owned
3,000,000 common shares of the Company (9.22%). To the best of the Company's
knowledge, subsequent to April 30, 2003, Barrick sold common shares of the
Company and is no longer a major shareholder.
On April 28, 2003, Prudent Bear Funds, Inc. advised the Company that it had
acquired control and direction, through Prudent Bear Fund, a mutual fund
controlled by it, over 818,500 of the Company's common shares. This resulted in
Prudent Bear Funds, Inc. having ownership of and control over a total of
3,209,637 common shares together with warrants to purchase an additional 754,137
common shares. As of April 30, 2003, if such warrants were exercised Prudent
Bear Funds, Inc. would have control and direction of 3,963,774 common shares of
the Company (12.18%). To the best of the Company's knowledge, as of December 31,
2006, Prudent Bear Funds Inc. is no longer a major shareholder of the Company.
SHARES HELD IN THE UNITED STATES
As of February 28, 2007, there were approximately 189 registered holders of the
Company's shares in the United States, with combined holdings of 7,354,240
shares (14.14% of the 52,013,065 outstanding shares at February 28, 2007).
CHANGE OF CONTROL
As of February 28, 2007, there were no arrangements known to the Company which
may, at a subsequent date, result in a change of control of the Company.
CONTROL BY OTHERS
To the best of the Company's knowledge, the Company is not directly or
indirectly owned or controlled by another corporation, any foreign government,
or any other natural or legal person, severally or jointly.
- 42 -
RELATED PARTY TRANSACTIONS
Other than as disclosed below, from January 1, 2004 through February 28, 2007,
the Company did not enter into any transactions or loans between the Company and
any (a) enterprises that directly or indirectly through one or more
intermediaries, control or are controlled by, or are under common control with
the Company; (b) associates; (c) individuals owning, directly or indirectly, an
interest in the voting power of the Company that gives them significant
influence over the Company, and close members of any such individual's family;
(d) key management personnel and close members of such individuals' families; or
(e) enterprises in which a substantial interest in the voting power is owned,
directly or indirectly by any person described in (c) or (d) or over which such
a person is able to exercise significant influence.
1. Effective January 1, 2005, the Company engaged Grosso Group to provide
services and facilities to the Company. On May 6, 2005, an
Administrative Services Agreement was finalized and executed by the
Company and the Grosso Group. The Grosso Group is a private company
which is owned by the Company, Golden Arrow, Amera, Astral and Gold
Point Energy., each of which own one share. The Grosso Group provides
its shareholder companies with geological, corporate development,
administrative and management services. The Grosso Group staff is
available to the shareholder companies on a cost recovery basis without
the expense of full time personnel. The shareholder companies pay
monthly fees to the Grosso Group. The fee is based upon a reasonable
pro-rating of the Grosso Group's costs including its staff and overhead
costs among each shareholder company with regard to the mutually agreed
average annual level of services provided to each shareholder company.
During fiscal 2006, the Company incurred fees of $724,902 (2005 -
$730,802) to the Grosso Group. In addition, included in the Accounts
receivable, prepaids and deposits is a $205,000 (2005 - $205,000)
deposit to the Grosso Group. The deposits from the member companies
were used for the purchase of equipment and leasehold improvements and
for operating working capital.
The Administration Services Agreement may be terminated by a
shareholder company after January 1, 2007, upon 30 days written notice
to the Grosso Group.
2. Prior to the signing of the Administrative Services Agreement with the
Grosso Group in 2005 the Company shared office facilities, capital
assets and personnel with Amera. Joseph Grosso, Nikolaos Cacos, Arthur
Lang and David Terry, officers and/or directors of the Company, are
officers, directors and/or employees of Amera. During the fiscal year
ended December 31, 2006 the Company received $Nil (2005 - $Nil, 2004 -
$66,390) from Amera for reimbursement of expenses.
3. The Company leased a portion of its office space from Beauregard, a
private company owned by Mr. Grosso's wife, Mrs. Evelina Grosso and
subleased these premises to the Grosso Group in 2005 for the balance of
the existing lease term. Effective January 1, 2007 Beauregard and
Grosso Group executed a lease for the office premises. During the
fiscal year ended December 31, 2006, the Company paid rent to
Beauregard in the amount of $141,203 (2005 - $128,722, 2004 - $74,870).
The Company subleases the premises to the Grosso Group and recovered
the 2006 and 2005 rent it had paid. - See "Item 4. Information on the
Company - Properties, Plants and Equipment - Principal Office".
4. The Company executed an agreement with Oxbow, pursuant to which Mr.
Grosso, an officer and director of the Company, provides services to
the Company. See "Item 6. Directors, Senior Management and Employees -
Compensation - Management Contracts". During the fiscal year ended
December 31, 2006, Oxbow was paid $350,667 (2005 - $102,000, 2004 -
$102,000).
5. The Company's officers and directors have been granted incentive stock
options enabling them to purchase common shares of the Company. See
"Item 6. Directors, Senior Management and Employees - Share Ownership".
6. By agreement dated April 1, 2004, between the Company and KGE
Management Ltd. ("KGE"), a private company owned by Mr. Carlson,
Chairman of the board of directors of the Company, this new agreement,
which replaced a prior agreement, provided for a monthly retainer of
$2,000 per month plus a fee of $600 per day for additional days in
excess of 3 days per month. This agreement expired March 31, 2005 and
was renewed for six months with the same terms. Effective January 1,
2006 the Company agreed to pay KGE a
- 43 -
fee of $600 per day if services were required and the former agreement
was not renewed. During the fiscal year ended December 31, 2006, the
Company paid $3,300 to KGE (2005 - $24,000 2004 - $34,749).
7. On December 16, 2003 and November 16, 2004, the Company entered into an
agreement with Endeavour Financial Ltd. a company of which Mr. Angus, a
director of the Company, was a shareholder. A monthly fee of US$5,000
for services was payable under this agreement for a minimum period of
one year. On July 4, 2005, the agreement was amended to increase the
monthly fee to US$10,000 per month effective June 1, 2005. The
agreement includes a provision for a nominee from Endeavour to be
nominated to the board and for fees to be paid to Endeavour, in
addition to the monthly fee, in the event of certain specified
transactions. Effective December 31, 2005 Mr. Angus retired from
Endeavour and the monthly fee was reduced to US$5,000 per month. The
agreement was terminated by mutual consent effective February 28, 2006.
During the fiscal year ended December 31, 2006, Endeavour was paid
$11,600 (2005 - $115,088, 2004 - $78,637).
8. On February 14, 2006 and effective January 1, 2006, the Company has
entered into an agreement with RSA Holdings Ltd., pursuant to which Mr.
Angus, a director of the Company, provides advisory services including
participation on various committees of the Company. A monthly fee of
US$5,000 for services is payable under this agreement for a minimum
period of six months. The Company paid RSA $68,350 in 2006.
9. Mr. Terry had a consulting agreement with Amera dated February 16,
2004, amended June 1, 2004, which called for monthly payments of
$10,000. The Company had agreed to reimburse Amera for 50% of these
fees. In the fiscal year ended December 31, 2004 the Company paid
$43,000 as a result of this arrangement. On January 1, 2005 Mr. Terry's
agreement with Amera was replaced by a similar agreement with the
Grosso Group. During the year ended December 31, 2005, Mr. Terry's
total compensation from the Grosso Group was $120,000, of which $63,600
was allocated to the Company as part of the Grosso Group fees during
the year. On April 12, 2006 the Board accepted the recommendation from
the Compensation Committee to increase Mr. Terry's monthly fee to
$12,500 ($150,000 annually) effective May 1, 2006 and to pay a bonus of
$50,000. During the year ended December 31, 2006 Mr. Terry's total
compensation from the Grosso Group was $140,000, of which $57,400 was
allocated to the Company. See "Item 6. Directors, Senior Management and
Employees - Compensation - Management Contracts."
10. The Company has entered into an agreement dated April 23, 2004, with
Mr. Lang, Chief Financial Officer and a director of the Company,
pursuant to which Mr. Lang provides services to the Company. By
agreement dated April 23, 2004, Arthur Lang, the Chief Financial
Officer and a director of the Company, is paid a salary of $80,000 per
year for professional services rendered. Mr. Lang is also reimbursed
for certain monthly club dues. During the fiscal year ended December
31, 2004, Mr. Lang was paid $58,671. Mr. Lang became an employee of the
Grosso Group in January 2005. Effective May 1, 2005 Mr. Lang's annual
salary was increased to $102,000. During the year ended December 31,
2005, Mr. Lang's total compensation from the Grosso Group was $94,667,
of which $68,927 was allocated to the Company as part of the Grosso
Group fees for the year. On April 12, 2006 the Board accepted the
recommendation from the Compensation Committee to increase Mr. Lang's
annual salary to $150,000 effective May 1, 2006 and to pay a bonus of
$50,000. During the year ended December 31,2006 Mr. Lang's total
compensation from the Grosso Group was $134,000 of which $54,940 was
allocated to the Company. See "Item 6. Directors, Senior Management and
Employees - Compensation - Management Contracts."
11. The Company entered into an Arrangement Agreement with Golden Arrow
pursuant to which the Company transferred certain assets to Golden
Arrow as part of a reorganization of the Company completed in 2004. See
"Item 4. Information on the Company - History and Development of the
Company." The Company entered into an indemnity agreement, for any
costs or losses incurred by Golden Arrow in respect of the legal action
commenced by a Minera Aquiline Argentina S.A. against the Company. See
"Item 8. Financial Information - Legal Proceedings."
- 44 -
ITEM 8. FINANCIAL INFORMATION.
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
FINANCIAL STATEMENTS
DESCRIPTION PAGE
----------- ----
Consolidated Financial Statements for the Years Ended
December 31, 2006, 2005 and 2004. F-1 - F-27
SIGNIFICANT CHANGES
There are no significant changes to report between the year end December 31,
2006 and the date of this annual report.
LEGAL PROCEEDINGS
On March 5, 2004, Aquiline Resources Inc. ("Aquiline"), through its subsidiary,
Minera Aquiline Argentina SA, filed a claim in the Supreme Court of British
Columbia against the Company seeking a constructive trust over the Navidad
properties and damages. The trial was held in Vancouver British Columbia
commencing in October 2005 and ended on December 12, 2005.
On July 14, 2006 the court released its judgment on the claim. The Company was
not successful in its defense and the court found in Aquiline's favour.
The Order reads in part:
" (a) that Inversiones Mineras Argentinas SA ("IMA SA") transfer the
Navidad Claims and any assets related thereto to Minera
Aquiline or its nominee within 60 days of this order;
(b) that IMA take any and all steps required to cause IMA SA to
comply with the terms of this order;
(c) that the transfer of the Navidad Claims and any assets related
thereto is subject to the payment to IMA SA of all reasonable
amounts expended by IMA SA for the acquisition and development
of the Navidad Claims to date; and
(d) any accounting necessary to determine the reasonableness of
the expenditures referred to in (c) above shall be by
reference to the Registrar of this court."
The Company has filed an appeal of this judgment which is scheduled to be heard
by the British Columbia Court of Appeal on April 10, 2007. While the Company is
confident of a favourable result from its appeal it recognizes that this could
take a substantial period of time and the costs will be significant, with no
guarantee of a successful outcome for the Company.
On October 18, 2006, the Company and Aquiline reached a definitive agreement for
the orderly conduct of the Navidad Project pending the determination of the
appeal by the Company against the judgment of the trial court. The parties have
agreed that the transactions outlined in the agreement are in satisfaction of
the Order referenced above. The principal terms and conditions of the agreement
are as follows:
(a) control of the Navidad project will be transferred to Aquiline
in trust for the ultimately successful party in the appeal;
(b) the Company and Aquiline have agreed to the costs spent to
date developing the Navidad Project in the amount of
$18,500,000. Upon transfer of control of the Navidad project,
Aquiline paid $7,500,000 of the costs into trust and the
balance will be expended by Aquiline in developing the Navidad
Project during the period of the appeal and secured under the
terms of the trust conditions;
- 45 -
(c) in the event that the Company is unsuccessful on appeal, the
Company will be paid such $18,500,000 amount, less legal costs
Aquiline would be entitled to in relation to the trial and the
appeal.
(d) in the event that the Company's appeal is successful, it will
pay Aquiline's qualifying costs expended on developing the
Navidad Project during the period of the appeal, less legal
costs the Company would be entitled to in relation to the
trial and the appeal, and control of the Navidad Project will
then revert to the Company; and
(e) pending the finalization of the appeal process, neither party
will attempt a hostile takeover of the other.
The effective date of the transfer of the Navidad project was November 16, 2006.
A copy of the agreement has been posted on the SEDAR website as one of the
Company's public documents and is titled "Interim Project Development
Agreement".
As a condition of the reorganization Golden Arrow became a party to the Aquiline
action. The Company has provided an indemnity to Golden Arrow for any costs or
losses that might be incurred by Golden Arrow in connection with this matter.
DIVIDEND POLICY
The Company has not paid any dividends on its common shares and does not intend
to pay dividends on its common shares in the immediate future. Any decision to
pay dividends on its common shares in the future will be made by the board of
directors on the Company on the basis of earnings, financial requirements and
other such conditions that may exist at that time.
ITEM 9. THE OFFER AND LISTING
--------------------------------------------------------------------------------
PRICE HISTORY
The Company's common shares are listed on the TSX-V. From April 15, 1996 to
November 28, 1999, the Company's shares were listed on the Vancouver Stock
Exchange (the "VSE"). Effective November 29, 1999, the VSE and the Alberta Stock
Exchange (the "ASE") merged and began operations as the Canadian Venture
Exchange or CDNX. On August 1, 2001, the CDNX was acquired by the Toronto Stock
Exchange and became known as the TSX-V. The Company is classified as a Tier I
company on the TSX-V and trades under the symbol "IMR". Companies which satisfy
the minimum initial listing requirements of the TSX-V are designated as Tier II
companies and are subject to listing requirements which are stricter than those
for companies which are designated as Tier I companies.
The following table lists the volume of trading and high and low sales prices on
the TSX-V (or predecessor), for shares of the Company's common stock for the
last five fiscal years, each quarterly period during the last two fiscal years
and each month from September 2006 through February 2007.
TSX VENTURE EXCHANGE (OR PREDECESSOR) STOCK TRADING ACTIVITY
SALES PRICE
----------------------------
YEAR ENDED VOLUME HIGH LOW
December 31, 2006 52,243,300 $3.96 $0.49
December 31, 2005 18,584,000 $4.45 $2.56
December 31, 2004 37,199,200 $4.80 $1.73
December 31, 2003 50,625,400 $2.54 $0.49
December 31, 2002 17,609,200 $0.94 $0.34
- 46 -
SALES PRICE
----------------------------
QUARTER ENDED VOLUME HIGH LOW
December 31, 2006 15,052,600 $0.66 $0.49
September 30, 2006 22,456,700 $3.49 $0.50
June 30, 2006 5,606,400 $3.75 $2.86
March 31, 2006 9,127,600 $3.96 $2.84
December 31, 2005 5,453,800 $3.96 $2.56
September 30, 2005 3,780,700 $3.95 $2.65
June 30, 2005 2,949,100 $4.00 $2.61
March 31, 2005 6,400,400 $4.45 $3.40
SALES PRICE
----------------------------
MONTH ENDED VOLUME HIGH LOW
February 28, 2007 1,499,300 $0.95 $0.70
January 31, 2007 1,546,900 $0.72 $0.57
December 31, 2006 2,541,300 $0.66 $0.56
November 30, 2006 10,470,500 $0.62 $0.49
October 31, 2006 2,040,800 $0.64 $0.49
September 30, 2006 3,483,400 $0.72 $0.61
AMERICAN STOCK EXCHANGE AND OVER-THE-COUNTER BULLETIN BOARD STOCK
TRADING ACTIVITY
As of July 6, 2005, the Company's shares started to trade on the American Stock
Exchange ("AMEX"). Prior to that the Company's shares were trading on the OTC
Bulletin Board operated by the National Association of Securities Dealers in the
United States from October 8, 2002. The Company currently trades on the AMEX
under the symbol "IMR". The following tables set forth the market price ranges
and the aggregate volume of trading of the common shares of the Company on the
AMEX or the OTC Bulletin Board system for the periods indicated:
SALES PRICE (US$)
----------------------------
YEAR ENDED VOLUME HIGH LOW
December 31, 2006 26,580,100 $3.48 $0.43
December 31, 2005 13,245,000 $3.68 $2.00
December 31, 2004 20,134,200 $4.05 $1.31
December 31, 2003 6,974,500 $1.89 $0.36
December 31, 2002 97,497 $0.36 $0.22
SALES PRICE (US$)
----------------------------
QUARTER ENDED VOLUME HIGH LOW
December 31, 2006 4,592,600 $0.59 $0.43
September 30, 2006 9,104,900 $3.10 $0.44
June 30, 2006 5,606,700 $3.44 $2.57
March 31, 2006 7,275,900 $3.48 $2.43
December 31, 2005 4,024,400 $3.39 $2.16
September 30, 2005 3,003,500 $3.48 $2.00
June 30, 2005 2,150,800 $3.23 $2.05
March 31, 2005 4,066,300 $3.68 $2.72
SALES PRICE (US$)
----------------------------
MONTH ENDED VOLUME HIGH LOW
February 28, 2007 1,158,000 $0.83 $0.58
January 31, 2007 1,424,600 $0.63 $0.48
December 31, 2006 1,591,300 $0.59 $0.49
November 30, 2006 1,959,200 $0.55 $0.43
October 31, 2006 1,042,100 $0.58 $0.44
September 30, 2006 1,330,900 $0.63 $0.55
- 47 -
ITEM 10. ADDITIONAL INFORMATION.
---------------------------------
MEMORANDUM AND ARTICLES OF ASSOCIATION
The Company was incorporated under the COMPANY ACT (British Columbia) on
September 17, 1979, as Gold Star Resources Ltd. The Company's Incorporation
Number is 197061. On May 1, 1990, the Company filed an Altered Memorandum to
reflect its name change to EEC Marketing Corp. On January 13, 1992, the Company
filed an Altered Memorandum to reflect its name change to Amera Industries Corp.
On February 9, 1995, the Company filed an Altered Memorandum to reflect its name
change to International Amera Industries Corp. On February 20, 1996, the Company
filed an Altered Memorandum to reflect its name change to IMA Resource
Corporation. Effective July 7, 1998, the Company underwent a statutory plan of
arrangement (the "Arrangement") with Viceroy Resource Corporation ("Viceroy"),
changed its name to IMA Exploration Inc., consolidated its share capital on the
basis of four old shares for one new share and filed an Altered Memorandum to
give effect to the foregoing. See "Item 4. Information on the Company".
The Company's objects and purposes are not set forth in or prescribed by its
Articles or Memorandum. The Company is in the business of the acquisition,
exploration and development of mineral properties, mainly in Argentina.
AMENDMENT OF NOTICE OF ARTICLES
On March 29, 2004, the new British Columbia Business Corporations Act came into
force in British Columbia (the "BCBCA The Board of Directors of the Company
approved the Transition of the Company and the Company filed a transition
application with the Registrar of Companies British Columbia and completed the
Transition on May 4, 2004.
In order to bring the Company's Articles in line with the BCBCA, the Company
deleted and replaced its Articles in their entirety. Accordingly, the
shareholders passed a special resolution removing the application of the
Pre-Existing Company Provisions at a meeting held on June 24, 2004.
BORROWING POWERS
Under the BCBCA, companies are now permitted, without restriction, to guarantee
repayment of money by any other person or the performance of any obligation of
any other person. This change reflects the modernization of corporate
legislation to effectively respond to increasingly complex financial
transactions that companies may enter into in the course of their business. As a
result, the New Articles state that the Company is able to guarantee the
repayment of money by any other person or the performance of any obligation of
any other person. Management believes that it is in the best interests of the
Company to allow for such a guarantee to permit the Company the maximum
flexibility in possible future financial transactions, recognizing the duties
directors have to ensure that the guarantee must always be in the best interest
of the Company and its shareholders.
DIRECTORS AUTHORITY TO SET AUDITOR'S REMUNERATION
Under the BCBCA, the Company has, subject to shareholder approval, given
authorization for the directors to set the remuneration paid to the auditors of
the Company. Historically, shareholders of the Company have always authorized
the directors to appoint the auditors and to set the auditor's remuneration and
the Articles mere codify existing practice. More importantly, however, this
change also codifies new corporate governance rules and regulations relating to
audit committees and the appointment and remuneration of auditors.
SPECIAL MAJORITY FOR RESOLUTIONS
Under the BCBCA, the Company is authorized to determine whether a special
resolution requires two-thirds or three-quarters of the votes cast on a
resolution. The Company Articles propose that a special resolution require a
majority of two-thirds of the votes cast on a resolution. This threshold is
consistent with the threshold in most other Canadian corporate law statutes such
as the Canada Business Corporations Act.
- 48 -
SHARE ISSUANCES
Under the BCBCA the Company is, subject to shareholder approval, permitted to
avoid setting a numerical maximum for a discount or commission payable on the
issuance of a share but rather limit any discount or commission by a test of
reasonableness. The Articles provide that the Company be permitted to pay or
offer the commission or discount as permitted in the BCBCA. Management of the
Company believes that the 25% maximum limit should not be set out in the New
Articles as such a limit does not consider factual circumstances nor apply a
test of reasonableness. By limiting the discount or commission amounts payable
by the test of reasonableness, exercised by directors with a duty to act in the
best interest of the Company, the Company is provided greater flexibility in
possible future transactions. In addition, since the Company is a public
company, it is subject to the requirements of the TSX-V on share issuances and
discounts and commissions, which requirements are generally far more stringent
than the Former Act provisions.
The following are changes to the provisions contained in the BCBCA which have an
effect on provisions contained in the Existing Articles:
OFFICERS
The BCBCA no longer requires that the President and Secretary be separate
individuals and as a result, the Company Articles do not have these
requirements. Management and the board of directors believe that the Company is
better able to meet its corporate governance obligations as to membership of the
board of directors.
PUBLICATION OF ADVANCE NOTICE OF
MEETING
Under the BCBCA, the Company is no longer required to publish notice of general
meetings, and recent changes to securities legislation in Canada requires that
all public companies, including the Company, post advance notice of a general
meeting on WWW.SEDAR.COM in advance of the record date for the meeting.
SHARE CERTIFICATES
Under the BCBCA, a shareholder is entitled to a share certificate representing
the number of shares of the Company he or she holds or a written acknowledgement
of the shareholder's right to obtain such a share certificate The Articles have
been amended to provide for this additional right.
DISCLOSURE OF INTEREST OF
DIRECTORS
Under the BCBCA, the provisions relating to the disclosure of interests by
directors have been revised and updated and the Articles have deleted reference
to the old disclosure of interest provisions and refer to the provisions
contained in the BCBCA.
INDEMNITY PROVISION
Under the BCBCA, the Company is now permitted to indemnify a past or present
director or officer of the Company without obtaining prior court approval in
respect of an "eligible proceeding". An "eligible proceeding" includes any legal
proceeding relating to the activities of the individual as a director or officer
of the Company. However, under the BCBCA, the Company will be prohibited from
paying an indemnity if:
(a) the party did not act honestly and in good faith with a view
to the best interests of the Company;
(b) the proceeding was not a civil proceeding and the party did
not have reasonable grounds for believing that his or her
conduct was lawful; and
(c) the proceeding is brought against the party by the Company or
an associated corporation.
As a result, the Company Articles allow the Company to indemnify directors,
officers, employees and agents, subject to the limits imposed under the BCBCA.
Management believes that it is in the best interests of the Company to allow the
indemnification of directors, officers, employees and agents, subject to the
limits and conditions of the BCBCA.
- 49 -
The directors, officers, employees and agents have entered into Indemnity
Agreements, as allowed under the Articles of the Company.
AUTHORIZED SHARE CAPITAL
Under the BCBCA there are no maximum number restrictions and, due to the
elimination of the memorandum under the BCBCA, such authorized share capital
must be contained in a company's Notice of Articles. In order to provide the
Company with greater flexibility to proceed with equity financings, management
altered its authorized share capital from 200,000,000 shares divided into
100,000,000 common shares and 100,000,000 preferred shares to an unlimited
number of common shares and 100,000,000 preferred shares.
HOLDING OF ANNUAL MEETINGS
The BCBCA allows for annual meetings to be held once in each calendar year and
not more than 15 months after the last annual meeting and accordingly, the
Company's Articles reflect this provision.
QUORUM FOR SHAREHOLDER MEETING
The current Articles allow for quorum to be two persons who are, or who
represent by proxy, shareholders who, in the aggregate, hold at least five
percent (5%) of the issued shares entitled to be voted at the meeting.
ALTERATIONS TO CONSTATING
DOCUMENT
In accordance with the BCBCA, the Articles list the type of alterations that can
be made to the Company's constating documents, and disclose the type of
resolution that is required to make such amendments.
SUMMARY OF MATERIAL PROVISIONS
The following is a summary of certain material provisions of the Company's
Articles of Association and Memorandum:
A. DIRECTOR'S POWER TO VOTE ON A PROPOSAL, ARRANGEMENT OR CONTRACT IN
WHICH THE DIRECTOR IS MATERIALLY INTERESTED.
Under the BCBCA, subject to certain exceptions, a director or senior
officer of the Company must disclose any material interest that he
personally has, or that he as a director or senior officer of another
corporation has in a contract or transaction that is material to the
Company and which the Company has entered into or proposes to enter
into.
A director or senior officer of the Company does not hold a disclosable
interest in a contract or transaction if:
1. the situation that would otherwise constitute a disclosable
interest arose before the coming into force of the BCBCA, or
the interest was disclosed and approved under, or was not
required to be disclosed under legislation that applied to the
Company before the coming into effect of the BCBCA;
2. both the Company and the other party to the contract or
transaction are wholly owned subsidiaries of the same
corporation;
3. the Company is a wholly owned subsidiary of the other party to
the contract or transaction;
4. the other party to the contract or transaction is a wholly
owned subsidiary of the Company ; or
5. the director or senior officer is the sole shareholder of the
Company or of a corporation of which the Company is a wholly
owned subsidiary.
- 50 -
A director or senior officer of the Company does not hold a disclosable
interest in a contract or transaction merely because:
1. the contract or transaction is an arrangement by way of a
security granted by the Company for money loaned to, or
obligations undertaken by, the director or senior officer, or
a person in whom the director or senior officer has a material
interest, for the benefit of the Company or an affiliate of
the Company;
2. the contract or transaction relates to an indemnity or
insurance under the BCBCA;
3. the contract or transaction relates to the remuneration of the
director or senior officer, or a person in whom the director
or senior officer, employee or agent of the Company or of an
affiliate of the Company;
4. the contract or transaction relates to a loan to the Company,
and the director or senior officer, or a person win whom the
director or senior officer has a material interest, is or is
to be a guarantor of some or all of the loan; or
5. the contract or transaction has been or will be made with or
for the benefit of a corporation that is affiliated with the
Company and the director or senior officer is also a director
or senior officer of that corporation or an affiliate of that
corporation.
A director or senior officer who holds such a material interest must
disclose such interest in writing. The disclosure must be evidenced in
writing in a consent resolution, the minutes of a meeting or any other
record deposited with the Company's record office. A director who has a
disclosable interest in a contract or transaction is not entitled to
vote of any directors' resolution to approve that contract or
transaction, but may be counted in the quorum at the directors' meeting
at which such vote is taken.
B. DIRECTOR'S POWER, IN THE ABSENCE OF AN INDEPENDENT QUORUM, TO VOTE
COMPENSATION TO THEMSELVES OR ANY MEMBERS OF THEIR BODY.
The compensation of the directors is decided by the directors unless
the Board of Directors requests approval of the compensation from the
shareholders. If the issuance of compensation to the directors is
decided by the directors, a quorum is the majority of the directors in
office.
C. BORROWING POWERS EXERCISABLE BY THE DIRECTORS AND HOW SUCH BORROWING
POWERS MAY BE VARIED.
The Company, if authorized by the directors, may:
1. borrow money in the manner and amount, on the security, from
the sources and on the terms and conditions that they consider
appropriate;
2. issue bonds, debentures and other debt obligations either
outright or as security for any liability or obligation of the
Company or any other person and at such discounts or premiums
and on such other terms as they consider appropriate;
3. guarantee the repayment of money by any other person or the
performance of any obligation of any other person; and
4. mortgage, charge, whether by way of specific or floating
charge, grant a security interest in, or give other security
on, the whole or any part of the present and future assets and
undertaking of the Company.
The borrowing powers may be varied by amendment to the Articles of the
Company which requires approval of the shareholders of the Company by
special resolution.
D. RETIREMENT AND NON-RETIREMENT OF DIRECTORS UNDER AN AGE LIMIT
REQUIREMENT.
There are no such provisions applicable to the Company under the Notice
of Articles, Articles (as existing or the new proposed Articles) or the
BCBCA.
- 51 -
E. NUMBER OF SHARES REQUIRED FOR A DIRECTOR'S QUALIFICATION.
A director of the Company is not required to hold a share in the
capital of the Company as qualification for his office.
DESCRIPTION OF SHARE CAPITAL
The authorized capital of the Company consists of an unlimited number of common
shares without par value and 100,000,000 Preferred shares without par value, of
which 18,283,053 have been designated as Preferred Shares, Series I.
COMMON SHARES
A total of 52,013,064 common shares were issued and outstanding as of February
28, 2007. All of the common shares are fully paid and not subject to any future
call or assessment. All of the common shares of the Company rank equally as to
voting rights, participation in a distribution of the assets of the Company on a
liquidation, dissolution or winding-up of the Company and the entitlement to
dividends. The holders of the common shares are entitled to receive notice of
all shareholder meetings and to attend and vote at such meetings. Each common
share carries with it the right to one vote. The common shares do not have
preemptive or conversion rights. In addition, there are no sinking fund or
redemption provisions applicable to the common shares or any provisions
discriminating against any existing or prospective holders of such securities as
a result of a shareholder owning a substantial number of shares.
PREFERRED SHARES
The Company is authorized to issue up to 100,000,000 preferred shares in one or
more series of which 18,283,053 have been designated as Preferred Shares, Series
I. The preferred shares are entitled to priority over the common shares with
respect to the payment of dividends and distribution in the event of the
dissolution, liquidation or winding-up of the Company. The holders of preferred
shares as a class shall not be entitled as such to receive notice of, to attend
or to vote at any meeting of the shareholders of the Company, other than at a
meeting of holders of Preferred Shares. As of March 31 , 2007 there were no
issued or outstanding preferred shares.
CHANGES TO RIGHTS AND RESTRICTIONS OF SHARES
If the Company wishes to change the rights and restrictions of the common shares
or the preferred shares, the Company must obtain the approval of a special
resolution by 2/3 of the holders of the common shares, or 2/3 of the holders of
the preferred shares.
DIVIDEND RECORD
The Company has not paid any dividends on its common shares and has no policy
with respect to the payment of dividends.
OWNERSHIP OF SECURITIES AND CHANGE OF CONTROL
There are no limitations on the rights to own securities, including the rights
of non-resident or foreign shareholders to hold or exercise voting rights on the
securities imposed by foreign law or by the constituent documents of the
Company.
Any person who beneficially owns or controls, directly or indirectly, more than
10% of the Company's voting shares is considered an insider, and must file an
insider report with the British Columbia, Alberta and Ontario Securities
Commissions within ten days of becoming an insider disclosing any direct or
indirect beneficial ownership of, or control over direction over securities of
the Company. In addition, if the Company itself holds any of its own securities,
the Company must disclose such ownership.
- 52 -
There are no provisions in the Company's Memorandum and Articles of Association
or Bylaws that would have an effect of delaying, deferring or preventing a
change in control of the Company operating only with respect to a merger,
acquisition or corporate restructuring involving the Company or its
subsidiaries.
MEETINGS OF THE SHAREHOLDERS
ANNUAL AND GENERAL MEETINGS
Under BCBCA and the Company's Articles, the Company's annual general meeting is
to be held once in each calendar year and not more than 15 months after the
previous meeting. No advance notice will be required to be published at a
meeting where directors are to be elected. The Company must give shareholders
not less than 21 days notice of any general meeting of the shareholders.
The Directors may fix in advance a date, which is no fewer than 35 days or no
more than 60 days prior to the date of the meeting. All the holders of common
shares as at that date are entitled to attend and vote at a general meeting.
DIFFERENCES FROM REQUIREMENTS IN THE UNITED STATES
Except for the Company's quorum requirements, certain requirements related to
related party transactions and the requirement for notice of shareholder
meetings, discussed above, there are no significant differences in the law
applicable to the Company, in the areas outlined above, in Canada versus the
United States. In most states in the United States, a quorum must consist of a
majority of the shares entitled to vote. Some states allow for a reduction of
the quorum requirements to less than a majority of the shares entitled to vote.
Having a lower quorum threshold may allow a minority of the shareholders to make
decisions about the Company, its management and operations. In addition, most
states in the United States require that a notice of meeting be mailed to
shareholders prior to the meeting date. Additionally, in the United States, a
director may not be able to vote on the approval of any transaction in which the
director has a interest.
MATERIAL CONTRACTS
The following are material contracts to which the Company is a party:
1. Effective January 1, 2005, the Company engaged Grosso Group to provide
services and facilities to the Company. On May 6, 2005, an
Administrative Services Agreement was finalized and executed by the
Company and the Grosso Group. The Grosso Group is a private company
which is owned by the Company, Golden Arrow, Amera, Astral Mining
Corporation and Gold Point Energy Corp., each of which own one share.
The Grosso Group provides its shareholder companies with geological,
corporate development, administrative and management services. The
Grosso Group staff is available to the shareholder companies on a cost
recovery basis without the expense of full time personnel. The
shareholder companies pay monthly fees to the Grosso Group. The fee is
based upon a reasonable pro-rating of the Grosso Group's costs
including its staff and overhead costs among each shareholder company
with regard to the mutually agreed average annual level of services
provided to each shareholder company. During fiscal 2006, the Company
incurred fees of $724,902 (2005 - $730,802) to the Grosso Group. In
addition, included in the Accounts receivable, prepaids and deposits is
a $205,000 (2005 - $205,000) deposit to the Grosso Group. The deposits
from the member companies were used for the purchase of equipment and
leasehold improvements and for operating working capital.
The Administration Services Agreement may be terminated by a
shareholder company after January 1, 2007, upon 30 days written notice
to the Grosso Group.
2. The Company leased a portion of its office space from Beauregard, a
private company owned by Mr. Grosso's wife, Mrs. Evelina Grosso and
subleased these premises to the Grosso Group in 2005 for the balance of
the existing lease term. Effective January 1, 2007 Beauregard and
Grosso Group executed a lease for the office premises. During the
fiscal year ended December 31, 2006, the Company paid rent to
Beauregard in the amount of $141,203 (2005 - $128,722, 2004 - $74,870).
The Company subleases the premises to the Grosso Group and recovered
the 2006 and 2005 rent it had paid. - See "Item 4. Information on the
Company - Properties, Plants and Equipment - Principal Office".
- 53 -
3. The Company executed an agreement with Oxbow, pursuant to which Mr.
Grosso, an officer and director of the Company, provides services to
the Company. See "Item 6. Directors, Senior Management and Employees -
Compensation - Management Contracts". During the fiscal year ended
December 31, 2006, Oxbow was paid $350,667 (2005 - $102,000, 2004 -
$102,000).
4. By agreement dated April 1, 2004, between the Company and KGE
Management Ltd. ("KGE"), a private company owned by Mr. Carlson,
Chairman of the board of directors of the Company, this new agreement,
which replaced a prior agreement, provided for a monthly retainer of
$2,000 per month plus a fee of $600 per day for additional days in
excess of 3 days per month. This agreement expired March 31, 2005 and
was renewed for six months with the same terms. Effective January 1,
2006 the Company agreed to pay KGE a fee of $600 per day if services
were required and the former agreement was not renewed. During the
fiscal year ended December 31, 2006, the Company paid $3,300 to KGE
(2005 - $24,000 2004 - $34,749).
5. On December 16, 2003 and November 16, 2004, the Company entered into an
agreement with Endeavour Financial Ltd. a company of which Mr. Angus, a
director of the Company, was a shareholder. A monthly fee of US$5,000
for services was payable under this agreement for a minimum period of
one year. On July 4, 2005, the agreement was amended to increase the
monthly fee to US$10,000 per month effective June 1, 2005. The
agreement includes a provision for a nominee from Endeavour to be
nominated to the board and for fees to be paid to Endeavour, in
addition to the monthly fee, in the event of certain specified
transactions. Effective December 31, 2005 Mr. Angus retired from
Endeavour and the monthly fee was reduced to US$5,000 per month. The
agreement was terminated by mutual consent effective February 28, 2006.
During the fiscal year ended December 31, 2006, Endeavour was paid
$11,600 (2005 - $115,088, 2004 - $78,637).
6. On February 14, 2006 and effective January 1, 2006, the Company has
entered into an agreement with RSA Holdings Ltd., pursuant to which Mr.
Angus, a director of the Company, provides advisory services including
participation on various committees of the Company. A monthly fee of
US$5,000 for services is payable under this agreement for a minimum
period of six months. The Company paid RSA $68,350 in 2006.
7. Mr. Terry had a consulting agreement with Amera dated February 16,
2004, amended June 1, 2004, which called for monthly payments of
$10,000. The Company had agreed to reimburse Amera for 50% of these
fees. In the fiscal year ended December 31, 2004 the Company paid
$43,000 as a result of this arrangement. On January 1, 2005 Mr. Terry's
agreement with Amera was replaced by a similar agreement with the
Grosso Group. During the year ended December 31, 2005, Mr. Terry's
total compensation from the Grosso Group was $120,000, of which $63,600
was allocated to the Company as part of the Grosso Group fees during
the year. On April 12, 2006 the Board accepted the recommendation from
the Compensation Committee to increase Mr. Terry's monthly fee to
$12,500 ($150,000 annually) effective May 1, 2006 and to pay a bonus of
$50,000. During the year ended December 31, 2006 Mr. Terry's total
compensation from the Grosso Group was $140,000, of which $57,400 was
allocated to the Company. See "Item 6. Directors, Senior Management and
Employees - Compensation - Management Contracts."
8. The Company has entered into an agreement dated April 23, 2004, with
Mr. Lang, Chief Financial Officer and a director of the Company,
pursuant to which Mr. Lang provides services to the Company. By
agreement dated April 23, 2004, Arthur Lang, the Chief Financial
Officer and a director of the Company, is paid a salary of $80,000 per
year for professional services rendered. Mr. Lang is also reimbursed
for certain monthly club dues. During the fiscal year ended December
31, 2004, Mr. Lang was paid $58,671. Mr. Lang became an employee of the
Grosso Group in January 2005. Effective May 1, 2005 Mr. Lang's annual
salary was increased to $102,000. During the year ended December 31,
2005, Mr. Lang's total compensation from the Grosso Group was $94,667,
of which $68,927 was allocated to the Company as part of the Grosso
Group fees for the year. On April 12, 2006 the Board accepted the
recommendation from the Compensation Committee to increase Mr. Lang's
annual salary to $150,000 effective May 1, 2006 and to pay a bonus of
$50,000. During the year ended December 31,2006 Mr. Lang's total
compensation from the Grosso Group was $134,000 of which $54,940 was
allocated to the Company. See "Item 6. Directors, Senior Management and
Employees - Compensation - Management Contracts."
- 54 -
9. The Company entered into an Arrangement Agreement with Golden Arrow
pursuant to which the Company transferred certain assets to Golden
Arrow as part of a reorganization of the Company completed in 2004. See
"Item 4. Information on the Company - History and Development of the
Company." The Company entered into an indemnity agreement, for any
costs or losses incurred by Golden Arrow in respect of the legal action
commenced by a Minera Aquiline Argentina S.A. against the Company. See
"Item 8. Financial Information - Legal Proceedings."
10. The Company entered into a Management Services Agreement dated March
22, 2005 with IMA Latin America Inc., the Company's wholly owned BVI
subsidiary and Gestora de Negocios E Inversiones S.A. ("Gestora") to
retain Gestora to provide certain management, consulting and advisory
services of Mr. Augusto Baertl ("Baertl") for the development of the
Navidad project. A Confidentiality Agreement between the Grosso Group
Management Ltd. and Gestora was also entered into. A Director/Officer
Agreement between IMA Latin America Inc. and Baertl was also entered
into as well as an Indemnity Agreement between the Company and Baertl.
Baertl and Gestora gave notice of termination of the Management
Services Agreement and the Director/Officer Agreement effective
September 30, 2006.
11. On October 18, 2006, the Company and Aquiline reached a definitive
agreement (the Interim Agreement) for the orderly conduct of the
Navidad Project pending the determination of the appeal by the Company
against the judgment of the trial court. The transactions outlined in
the agreement will constitute due compliance by both parties with the
July 14, 2006 Supreme Court of British Columbia judgment in respect of
the Navidad project. The principal terms and conditions of the Interim
Agreement are as follows:
(a) control of the Navidad project will be transferred to Aquiline
in trust for the ultimately successful party in the appeal;
(b) the Company and Aquiline have agreed to the costs spent to
date developing the Navidad Project in the amount of
$18,500,000. Upon transfer of control of the Navidad project,
Aquiline paid $7,500,000 of the costs into trust and the
balance will be expended by Aquiline in developing the Navidad
Project during the period of the appeal and secured under the
terms of the trust conditions;
(c) in the event that the Company is unsuccessful on appeal, the
Company will be paid such $18,500,000 amount, less legal costs
Aquiline would be entitled to in relation to the trial and the
appeal.
(d) in the event that the Company's appeal is successful, it will
pay Aquiline's qualifying costs expended on developing the
Navidad Project during the period of the appeal, less legal
costs the Company would be entitled to in relation to the
trial and the appeal, and control of the Navidad Project will
then revert to the Company; and
(e) pending the finalization of the appeal process, neither party
will attempt a hostile takeover of the other.
EXCHANGE CONTROLS
There are no governmental laws, decrees, or regulations in Canada relating to
restrictions on the export or import of capital, or affecting the remittance of
interest, dividends, or other payments to non-resident holders of the Company's
Common Stock. Any remittances of dividends to United States residents are,
however, subject to a 15% withholding tax (10% if the shareholder is a
corporation owning at least 10% of the outstanding Common Stock of the Company)
pursuant to Article X of the reciprocal tax treaty between Canada and the United
States. See "Item 10. Additional Information - Taxation".
Except as provided in the Investment Canada Act (the "Act"), there are no
limitations specific to the rights of non-Canadians to hold or vote the Common
Stock of the Company under the laws of Canada or the Province of British
Columbia or in the charter documents of the Company.
- 55 -
Management of the Company considers that the following general summary is
materially complete and fairly describes those provisions of the Act pertinent
to an investment by an American investor in the Company.
The Act requires a non-Canadian making an investment which would result in the
acquisition of control of a Canadian business, the gross value of the assets of
which exceed certain threshold levels or the business activity of which is
related to Canada's cultural heritage or national identity, to either notify, or
file an application for review with, Investment Canada, the federal agency
created by the Investment Canada Act.
The notification procedure involves a brief statement of information about the
investment of a prescribed form which is required to be filed with Investment
Canada by the investor at any time up to 30 days following implementation of the
investment. It is intended that investments requiring only notification will
proceed without government intervention unless the investment is in a specific
type of business activity related to Canada's cultural heritage and national
identity.
If an investment is reviewable under the Act, an application for review in the
form prescribed is normally required to be filed with Investment Canada prior to
the investment taking place and the investment may not be implemented until the
review has been completed and the Minister responsible for Investment Canada is
satisfied that the investment is likely to be of net benefit to Canada. If the
Minister is not satisfied that the investment is likely to be of net benefit to
Canada, the non-Canadian must not implement the investment or, if the investment
has been implemented, may be required to divest himself of control of the
business that is the subject of the investment.
The following investments by non-Canadians are subject to notification under the
Act:
(a) an investment to establish a new Canadian business; and
(b) an investment to acquire control of a Canadian business that is not
reviewable pursuant to the Act.
An investment is reviewable under the Act if there is an acquisition by a
non-Canadian of a Canadian business and the asset value of the Canadian business
being acquired equals or exceeds the following thresholds:
(a) for non-WTO Investors, the threshold is $5,000,000 for a direct
acquisition and over $50,000,000 for an indirect acquisition. The
$5,000,000 threshold will apply however for an indirect acquisition of
the asset value of the Canadian business being acquired exceeds 50% of
the asset value of the global transaction;
(b) except as specified in paragraph (c) below, a threshold is calculated
for reviewable direct acquisitions by or from WTO Investors. The
threshold for 2005 is $250,000,000. Pursuant to Canada's international
commitments, indirect acquisitions by or from WTO Investors are not
reviewable; and
(c) the limits set out in paragraph (a) apply to all investors for
acquisitions of a Canadian business that:
(i) engages in the production of uranium and owns an interest in a
producing uranium property in Canada;
(ii) provides any financial services;
(iii) provides any transportation service; or
(iv) is a cultural business.
WTO Investor as defined in the Act means:
(a) an individual, other than a Canadian, who is a national of a WTO Member
or who has the right of permanent residence in relation to that WTO
Member;
(b) a government of a WTO Member, whether federal, state or local, or an
agency thereof;
(c) an entity that is not a Canadian-controlled entity, and that is a WTO
investor-controlled entity, as determined in accordance with the Act;
(d) a corporation or limited partnership:
- 56 -
(i) that is not a Canadian-controlled entity, as determined
pursuant to the Act;
(ii) that is not a WTO investor within the meaning of the Act;
(iii) of which less than a majority of its voting interests are
owned by WTO investors;
(iv) that is not controlled in fact through the ownership of its
voting interests; and
(v) of which two thirds of the members of its board of directors,
or of which two thirds of its general partners, as the case
may be, are any combination of Canadians and WTO investors;
(e) a trust:
(i) that is not a Canadian-controlled entity, as determined
pursuant to the Act;
(ii) that is not a WTO investor within the meaning of the Act;
(iii) that is not controlled in fact through the ownership of its
voting interests, and
(iv) of which two thirds of its trustees are any combination of
Canadians and WTO investors, or
(f) any other form of business organization specified by the regulations
that is controlled by a WTO investor.
WTO Member as defined in the Act means a member of the World Trade Organization.
Generally speaking, an acquisition is direct if it involves the acquisition of
control of the Canadian business or of its Canadian parent or grandparent and an
acquisition is indirect if it involves the acquisition of control of a
non-Canadian parent or grandparent of an entity carrying on the Canadian
business. Control may be acquired through the acquisition of actual or de jure
voting control of a Canadian corporation or through the acquisition of
substantially all of the assets of the Canadian business. No change of voting
control will be deemed to have occurred if less than one-third of the voting
control of a Canadian corporation is acquired by an investor.
The Act specifically exempts certain transactions from either notification or
review. Included among the category of transactions is the acquisition of voting
shares or other voting interests by any person in the ordinary course of that
person's business as a trader or dealer in securities.
TAXATION
MATERIAL CANADIAN FEDERAL INCOME TAX CONSEQUENCES
Management of the Company considers that the following discussion describes the
material Canadian federal income tax consequences applicable to a holder of
Common Stock of the Company who is a resident of the United States and who is
not a resident of Canada and who does not use or hold, and is not deemed to use
or hold, his shares of Common Stock of the Company in connection with carrying
on a business in Canada (a "non-resident shareholder").
This summary is based upon the current provisions of the Income Tax Act (Canada)
(the "ITA"), the regulations thereunder (the "Regulations"), the current
publicly announced administrative and assessing policies of Revenue Canada,
Taxation and all specific proposals (the "Tax Proposals") to amend the ITA and
Regulations announced by the Minister of Finance (Canada) prior to the date
hereof. This description is not exhaustive of all possible Canadian federal
income tax consequences and, except for the Tax Proposals, does not take into
account or anticipate any changes in law, whether by legislative, governmental
or judicial action.
DIVIDENDS
Dividends paid on the common stock of the Company to a non-resident will be
subject to withholding tax. The Canada-U.S. Income Tax Convention (1980)
provides that the normal 25% withholding tax rate is reduced to 15% on dividends
paid on shares of a corporation resident in Canada (such as the Company) to
residents of the United States, and also provides for a further reduction of
this rate to 5% where the beneficial owner of the dividends is a corporation
which is a resident of the United States which owns at least 10% of the voting
shares of the corporation paying the dividend. In the event of the Company
declaring and paying dividends it would withhold any applicable taxes.
- 57 -
CAPITAL GAINS
In general, a non-resident of Canada is not subject to tax under the ITA with
respect to a capital gain realized upon the disposition of a share of a
corporation resident in Canada that is listed on a prescribed stock exchange.
For purposes of the ITA, the Company is listed on a prescribed stock exchange.
Non-residents of Canada who dispose of shares of the Company will be subject to
income tax in Canada with respect to capital gains if:
(a) the non-resident holder;
(b) persons with whom the non-resident holder did not deal at
arm's length; or
(c) the non-resident holder and persons with whom the non-resident
holder did not deal with at arm's length,
owned not less than 25% of the issued shares of any class or series of the
Company at any time during the five-year period preceding the disposition. In
the case of a non-resident holder to whom shares of the Company represent
taxable Canadian property and who is resident in the United States, no Canadian
taxes will be payable on a capital gain realized on such shares by reason of the
Canada-U.S. Income Tax Convention (1980) (the "Treaty") unless the value of such
shares is derived principally from real property situated in Canada. However, in
such a case, certain transitional relief under the Treaty may be available.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material United States federal income
tax consequences, under current law, applicable to a U.S. Holder (as defined
below) of the Company's common stock. This discussion does not address
consequences peculiar to persons subject to special provisions of federal income
tax law, such as tax-exempt organizations, qualified retirement plans, financial
institutions, insurance companies, real estate investment trusts, regulated
investment companies, broker-dealers, nonresident alien individuals or foreign
corporations, or shareholders owning common stock representing 10% of the vote
and value of the Company. In addition, this discussion does not cover any state,
local or foreign tax consequences.
The following discussion is based upon the sections of the Internal Revenue Code
of 1986, as amended (the "Code"), Treasury Regulations, published Internal
Revenue Service ("IRS") rulings, published administrative positions of the IRS
and court decisions that are currently applicable, any or all of which could be
materially and adversely changed, possibly on a retroactive basis, at any time.
In addition, this discussion does not consider the potential effects, both
adverse and beneficial of recently proposed legislation which, if enacted, could
be applied, possibly on a retroactive basis, at any time. Holders and
prospective holders of the Company's Common Stock should consult their own tax
advisors about the federal, state, local and foreign tax consequences of
purchasing, owning and disposing of shares of Common Stock of the Company.
U.S. HOLDERS
As used herein, a "U.S. Holder" is defined as (i) citizens or residents of the
U.S., or any state thereof, (ii) a corporation or other entity created or
organized under the laws of the U.S., or any political subdivision thereof,
(iii) an estate the income of which is subject to U.S. federal income tax
regardless of source or that is otherwise subject to U.S. federal income tax on
a net income basis in respect of the common stock, or (iv) a trust whose
administration is subject to the primary supervision of a U.S. court and which
has one or more U.S. fiduciaries who have the authority to control all
substantial decisions of the trust, whose ownership of common stock is not
effectively connected with the conduct of a trade or business in the United
States and shareholders who acquired their stock through the exercise of
employee stock options or otherwise as compensation.
DISTRIBUTIONS ON SHARES OF COMMON STOCK
U.S. Holders receiving dividend distributions (including constructive dividends)
with respect to the Company's common stock are required to include in gross
income for United States federal income tax purposes the gross amount of such
distributions to the extent that the Company has current or accumulated earnings
and profits, without reduction for any Canadian income tax withheld from such
distributions. Such Canadian tax withheld may be credited, subject to certain
limitations, against the U.S. Holder's United States federal income tax
liability or, alternatively, may be deducted in computing the U.S. Holder's
United States federal taxable income by those who
- 58 -
itemize deductions. (See more detailed discussion at "Foreign Tax Credit"
below.) To the extent that distributions exceed current or accumulated earnings
and profits of the Company, they will be treated first as a return of capital up
to the U.S. Holder's adjusted basis in the common stock and thereafter as gain
from the sale or exchange of such shares. Preferential tax rates for long-term
capital gains are applicable to a U.S. Holder which is an individual, estate or
trust. There are currently no preferential tax rates for long-term capital gains
for a U.S. Holder which is a corporation. Dividends paid on the Company's common
stock will not generally be eligible for the dividends received deduction
provided to corporations receiving dividends from certain United States
corporations.
FOREIGN TAX CREDIT
A U.S. Holder who pays (or has withheld from distributions) Canadian income tax
with respect to the ownership of the Company's common stock may be entitled, at
the option of the U.S. Holder, to either a deduction or a tax credit for such
foreign tax paid or withheld. Generally, it will be more advantageous to claim a
credit because a credit reduces United States federal income taxes on a
dollar-for-dollar basis, while a deduction merely reduces the taxpayer's income
subject to tax. This election is made on a year-by-year basis and applies to all
foreign taxes paid by (or withheld from) the U.S. Holder during that year.
Subject to certain limitations, Canadian taxes withheld will be eligible for
credit against the U.S. Holder's United States federal income taxes. Under the
Code, the limitation on foreign taxes eligible for credit is calculated
separately with respect to specific classes of income. Dividends paid by the
Company generally will be either "passive" income or "financial services"
income, depending on the particular U.S. Holder's circumstances. Foreign tax
credits allowable with respect to each class of income cannot exceed the U.S.
federal income tax otherwise payable with respect to such class of income. The
consequences of the separate limitations will depend on the nature and sources
of each U.S. Holder's income and the deductions appropriately allocated or
apportioned thereto. The availability of the foreign tax credit and the
application of the limitations on the credit are fact specific and holders and
prospective holders of common stock should consult their own tax advisors
regarding their individual circumstances.
DISPOSITION OF SHARES OF COMMON STOCK
A U.S. Holder will recognize gain or loss upon the sale of shares of common
stock equal to the difference, if any, between (i) the amount of cash plus the
fair market value of any property received; and (ii) the shareholder's tax basis
in the common stock. This gain or loss will be capital gain or loss if the
shares are a capital asset in the hands of the U.S. Holder, and such gain or
loss will be long-term capital gain or loss if the U.S. Holder has held the
common stock for more than one year. Gains and losses are netted and combined
according to special rules in arriving at the overall capital gain or loss for a
particular tax year. Deductions for net capital losses are subject to
significant limitations. For U.S. Holders who are individuals, any unused
portion of such net capital loss may be carried over to be used in later tax
years until such net capital loss is thereby exhausted. For U.S. Holders which
are corporations (other than corporations subject to Subchapter S of the Code),
an unused net capital loss may be carried back three years from the loss year
and carried forward five years from the loss year to be offset against capital
gains until such net capital loss is thereby exhausted.
OTHER CONSIDERATIONS
The Company has not determined whether it meets the definition of a "passive
foreign investment company" (a "PFIC"). It is unlikely that the Company meets
the definition of a "foreign personal holding company" (a "FPHC") or a
"controlled foreign corporation" (a "CFC") under current U.S. law.
If more than 50% of the voting power or value of the Company were owned
(actually or constructively) by U.S. Holders who each owned (actually or
constructively) 10% or more of the voting power of the Company's common shares
("10% Shareholders"), then the Company would become a CFC and each 10%
Shareholder would be required to include in its taxable income as a constructive
dividend an amount equal to its share of certain undistributed income of the
Company. If (1) more than 50% of the voting power or value of the Company's
common shares were owned (actually or constructively) by five or fewer
individuals who are citizens or residents of the United States and (2) 60% or
more of the Company's income consisted of certain interest, dividend or other
enumerated types of income, then the Company would be a FPHC. If the Company
were a FPHC, then each U.S. Holder (regardless of the amount of the Company's
Common Shares owned by such U.S. Holder) would be required to include in its
taxable income as a constructive dividend its share of the Company's
undistributed income of specific types.
- 59 -
If 75% or more of the Company's annual gross income has ever consisted of, or
ever consists of, "passive" income or if 50% or more of the average value of the
Company's assets in any year has ever consisted of, or ever consists of, assets
that produce, or are held for the production of, such "passive" income, then the
Company would be or would become a PFIC. The Company has not provided assurances
that it has not been and does not expect to become a PFIC. Please note that the
application of the PFIC provisions of the Code to mining companies is somewhat
unclear.
If the Company were to be a PFIC, then a U.S. Holder would be required to pay an
interest charge together with tax calculated at maximum tax rates on certain
"excess distributions" (defined to include gain on the sale of stock) unless
such U.S. Holder made an election either to (1) include in his or her taxable
income certain undistributed amounts of the Company's income or (2) mark to
market his or her Company common shares at the end of each taxable year as set
forth in Section 1296 of the Internal Revenue Code of 1986, as amended. The
elections require certain conditions be met such as filing on or before the due
date, as extended, for filing the shareholder's income tax return for the first
taxable year to which the election will apply.
INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. information reporting requirements may apply with respect to the payment of
dividends to U.S. Holders of the Company's shares. Under Treasury regulations
currently in effect, non-corporate holders may be subject to backup withholding
at a 31% rate with respect to dividends when such holder (1) fails to furnish or
certify a correct taxpayer identification number to the payor in the required
manner, (2) is notified by the IRS that it has failed to report payments of
interest or dividends properly or (3) fails, under certain circumstances, to
certify that it has been notified by the IRS that it is subject to backup
withholding for failure to report interest and dividend payments.
DOCUMENTS ON DISPLAY
Documents concerning the Company and referred to in this report may be inspected
at the COMPANY'S principal office, located at #709 - 837 West Hastings Street,
Vancouver, British Columbia, V6C 3N6.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
--------------------------------------------------------------------------------
As of the date of this report, the Company does not have any material market
risk sensitive financial instruments.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.
--------------------------------------------------------------------------------
Not applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.
--------------------------------------------------------------------------------
Not applicable.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
AND USE OF PROCEEDS.
--------------------------------------------------------------------------------
Not applicable.
- 60 -
ITEM 15. CONTROLS AND PROCEDURES.
--------------------------------------------------------------------------------
An evaluation was performed under the supervision and with the participation of
the Company's management, including Mr. Grosso, the Company's Chief Executive
Officer, and Mr. Lang, the Company's Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures pursuant to Rules 13a-15(b) and 15d-15(b) of the Securities
Exchange Act of 1934 (the "Exchange Act") as of December 31, 2005. Based upon
that evaluation, Messrs. Grosso and Lang, concluded that the Company's
disclosure controls and procedures are effective to ensure that information
required to be disclosed by the Company in reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and
forms.
During the fiscal year ended December 31, 2006, there were no changes in the
Company's internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT.
--------------------------------------------------------------------------------
The Board of Directors has determined that the Company has at least one audit
committee financial expert, Mr. David Horton, an independent director, serves on
the Company's audit committee.
ITEM 16B. CODE OF BUSINESS CONDUCT AND ETHICS.
--------------------------------------------------------------------------------
CODE OF BUSINESS CONDUCT AND ETHICS
The Board of Directors of IMA Exploration Inc. (the "Company") has adopted a
Code of Business Conduct and Ethics that outlines the Company's values and its
commitment to ethical business practices in every business transaction. This
code applies to all directors, officers, and employees of the Company and its
subsidiaries and affiliates. A copy of the Company's Code of Business Conduct
and Ethics is available on the Company's website at
www.imaexploration.com/s/CorporateGovernance.asp.
HONEST AND ETHICAL CONDUCT
The Company expects a high level of personal integrity for each employee,
officer and director when interacting with investors, business partners,
shareholders, suppliers, consultants and other employees.
CONFLICT OF INTEREST
When possible, conflicts of interest between personal and professional
relationships should be avoided, however, unavoidable conflict of interest will
be handled in accordance with the Company's ethical standards.
A director, officer or employee may not represent the Company in any transaction
with a person or an entity in which the director, officer or employee has a
direct or indirect interest or from which the director, officer or employee may
derive personal benefit.
ACCURATE AND TIMELY DISCLOSURE
Full, fair, accurate, timely and understandable disclosure in reports or
documents submitted to the Securities and Exchange Commission and other
securities commissions across Canada as well as all public communications.
Employees and officers who prepare financial and other reports will exercise
diligence in ensuring that there are no false or misleading statements.
COMPLIANCE WITH APPLICABLE GOVERNMENTAL LAWS, RULES AND REGULATIONS
The Company is committed to compliance with all laws, rules and regulations,
including laws and regulations applicable to the Company's securities, as well
as any rules promulgated by any exchange on which the Company's shares are
listed.
- 61 -
PROMPT INTERNAL REPORTING OF VIOLATIONS
Employees and officers are responsible for the prompt internal reporting of any
violations of the Code to the Company's Compliance Officer.
PROTECTION AND PROPER USE OF COMPANY ASSETS AND OPPORTUNITIES
All employees have an obligation to protect the Company's assets and to ensure
that all opportunities available to the Company are brought to the attention of
the relevant officer or employee.
CONFIDENTIALITY OF COMPANY INFORMATION
It is the Company's policy that business affairs of the Company are confidential
and should not be discussed outside the Company except for information that has
already been made available to the public.
INSIDER TRADING
Management, employees, members of the Board of Directors and others who are in a
"special relationship" with the Company from time to time become aware of
corporate developments or plans which may affect the value of the Company's
shares (inside information) before these developments or plans are made public.
Company directors, officers and employees are prohibited from using inside
information themselves or disclosing this inside information to others who may
use the information to trade Company stock.
FAIR DEALING
Each employee should endeavour to respect the rights of, and deal fairly with,
our shareholders, investors, business partners, suppliers, competitors and
employees. No employee should take unfair advantage of anyone through
manipulation, concealment, abuse of privileged information, misrepresentation of
material facts, or any other unfair business practice.
REPORTING UNETHICAL AND ILLEGAL CONDUCT/ETHICS QUESTIONS
The Company is committed to taking prompt action against violations of the Code
of Business Conduct and Ethics and it is the responsibility of all directors,
officers and employees to comply with the Code and to report violations or
suspected violations to the Company's Compliance Officer. Employees may also
discuss their concerns with their supervisor who will then report suspected
violations to the Compliance Officer.
The Compliance Officer is appointed by the Board of Directors and is responsible
for investigating and resolving all reported complaints and allegations and
shall advise the President and CEO, the CFO and/or the Audit Committee.
The Compliance Officer can be reached via telephone at 1-866-921-6714 or via the
internet site located at http://www.whistleblowersecurity.com.
VIOLATIONS AND WAIVERS
The Compliance Officer will report suspected fraud or securities law violations
for review by the Audit Committee. The Audit Committee will report all
violations reviewed by the Committee to the Board of Directors.
The Compliance Officer will report regularly to the Board of Directors on the
results and resolution of complaints and allegations concerning violations of
the Code.
No waivers of any provision of this Code of Business Conduct and Ethics may be
made except by the Board of Directors. Any waiver or amendment shall be reported
as required by law or regulation.
Only the Audit Committee may amend this Code of Business Conduct and Ethics.
- 62 -
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
--------------------------------------------------------------------------------
AUDIT FEES
For the fiscal year ended December 31, 2006, the Company's auditor billed
approximately $28,500, and for the fiscal year ended December 31, 2005, the
Company's auditor billed approximately $42,000 for the audit of the Company's
annual financial statements or services that are normally provided by the
auditor in connection with statutory and regulatory filings or engagements for
those fiscal years.
AUDIT RELATED FEES
For the fiscal years ended December 31, 2006 and 2005, the Company's auditors
billed $58,303 and billed $32,015, respectively, for assurance and related
services that were reasonably related to the performance of the audit or review
of the Company's financial statements outside of those fees disclosed above
under "Audit Fees"
TAX FEES
For the fiscal years ended December 31, 2006 and 2005, the Company's auditor
billed $10,232 and billed $17,703, respectively, for tax compliance, tax advice
and tax planning services.
PRE-APPROVAL POLICIES AND PROCEDURES
Generally, in the past, prior to engaging the Company's auditors to perform a
particular service, the Company's audit committee has, when possible, obtained
an estimate for the services to be performed. The audit committee in accordance
with procedures for the Company approved all of the services described above.
Additionally, the auditors have been engaged to perform services by
non-independent directors of the Company pursuant to pre-approval policies and
procedures established by the audit committee (which are detailed as to the
particular service) and the audit committee has been informed of any such
engagement and service.
Since January 1, 2005, the Company's auditors have not billed the Company for
audit related services in connection with the reorganization.
Beginning July 1, 2004, the Company's audit committee obtained estimates for
services to be performed, prior to engaging the Company's auditor to perform any
audit or non-audit related services, including those set forth above. The audit
committee also allowed the engagement of the auditor, by a non-independent
member of the board of directors, to render services pursuant to pre-approval
policies and procedures established by the audit committee (which are detailed
as to the particular service), provided the audit committee is informed of any
such engagement and service. The audit committee may delegate to one of its
members, who is also an independent director of the Company, the ability to
approve such services on behalf of the audit committee. Any approval by such
director shall be ratified by the audit committee at its next scheduled meeting.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.
--------------------------------------------------------------------------------
Not applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PERSONS.
--------------------------------------------------------------------------------
Not applicable.
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PART III
ITEM 17. FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
See pages F-1 though F-27.
ITEM 18. FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
Not applicable.
ITEM 19. EXHIBITS.
--------------------------------------------------------------------------------
EXHIBIT
NUMBER DESCRIPTION
------- -------------------------------------------------------------------------------------------------
1.1 Notice of Articles (8)
1.2 Articles
4.1 Share Purchase Agreement Between Shareholders and 389863 B.C. Ltd. (1)
4.2 Arrangement Agreement Between Viceroy Resource Corporation and IMA Resource
Corporation (1)
4.3 Consulting Services Agreement Between Oxbow International Marketing Corp. and IMA
Resource Corporation (1)
4.4 Employment Agreement with William Lee (1)
4.5 Consulting Services Agreement Between Nikolaos Cacos and IMA Resource Corporation (1)
4.6 Consulting Agreement Between KGE Management Ltd. and IMA Exploration Inc. dated
April 1, 2004 (8)
4.7 Consulting Agreement Between Lindsay R. Bottomer and IMA Exploration Inc. (1)
4.8 Exploration and Option Agreement with Barrick Exploraciones Argentina S.A. (1)
4.9 Option Agreement with Juan Demetrio Lirio Jr. and Juan Demetrio Lirio representing Lir-Fer
Construcciones S.R.L. (1)
4.10 Option Agreement with Lirio and Lir-Fer Construcciones S.R.L. (1)
4.11 Option Agreement with Oscar Garcia and others (1)
4.12 Purchase Agreement with Modesto Enrique Arasena (1)
4.13 Option Agreement with Hugo Arturo Bosque (1)
4.14 Option Agreement with Guillermo Munoz, Lydia Gonzalez, Ricardo Sanchez and Antonio Monteleone (1)
4.15 Option Agreement with Jorge Ernesto Rodriguez and Gerardo Javier Rodriguez (1)
4.16 Option Agreement with Jorge Ernesto Rodriguez and Raul Alberto Garcia (1)
4.17 Purchase Agreement with Victor Ronchietto (1)
4.18 Option Agreement with Sociedad Minera de Responsabilidad Limitado Nova JJ de Piura and Sociedad
Minera de Responsabilidad Limitada (SMR Ltda) Don Alberto JJ de Piura (1)
4.19 Amendment to Option Agreement with Hugo Arturo Bosque (2)
4.20 Amendment to Purchase Agreement with Victor Ronchietto (2)
- 64 -
EXHIBIT
NUMBER DESCRIPTION
------- -------------------------------------------------------------------------------------------------
4.21 Option Agreement with Dionisio Ramos (2)
4.22 Amendment to Consulting Services Agreement Between Oxbow International Marketing Corp.
and IMA Resource Corporation (2)
4.23 Amendment to consulting Agreement between IMA Exploration Inc. and Nikolaos Cacos (3)
4.24 Agreement between the Company and Sean Hurd dated June 2, 2002 (3)
4.25 Option Agreement between Nestor Arturo and IMA S.A. (3)
4.26 Amendment to Option Agreement with Guillermo Munoz, Lydia Gonzalez, Ricardo Sanchez and Antonio
Monteleone (3)
4.27 Amendment to Option Agreement with Sociedad Minera de Responsabilidad Limitado Nova JJ de Piura
and Sociedad Minera de Responsabilidad Limitada (SMR Ltda) Don Alberto JJ de Piura (3)
4.28 Option Agreement with Rio Tinto Mining and Exploration Limited (4)
4.29 Amendment to Exploration and Option Agreement with Barrick Exploraciones Argentina S.A. (4)
4.30 Consulting Agreement between the Company and Lindsay Bottomer dated April 1, 2002 (4)
4.31 Amendment to Option Agreement with Juan Demetrio Lirio Jr. and Juan Demetrio Lirio representing
Lir-Fer Construcciones S.R.L. (4)
4.32 Amendment to Option Agreement with Juan Demetrio Lirio and Lir-Fer Construcciones S.R.L. (4)
4.33 Amendment to Option Agreement with Sociedad Minera de Responsabilidad Limitado Nova JJ de Piura
and Sociedad Minera de Responsabilidad Limitada (SMR Ltda) Don Alberto JJ de Piura (4)
4.34 Amendment to Option Agreement between Nestor Arturo and IMA S.A. (4)
4.35 Consulting Agreement Between KGE Management Ltd. and IMA Exploration Inc. (4)
4.36 Amendment to Option Agreement with Juan Demetrio Lirio Jr. and Juan Demetrio Lirio representing
Lir-Fer Construcciones S.R.L. (5)
4.37 Amendment to Option Agreement with Juan Demetrio Lirio and Lir-Fer Construcciones S.R.L. (5)
4.38 Amendment to Option Agreement between Nestor Arturo and IMA S.A. (5)
4.39 Amendment to Option Agreement with Sociedad Minera de Responsabilidad Limitado Nova JJ de Piura
and Sociedad Minera de Responsabilidad Limitada (SMR Ltda) Don Alberto JJ de Piura (5)
4.40 Short Form Offering Document (5)
4.41 Amendment to Consulting Services Agreement Between Oxbow International Marketing Corp. and IMA
Resource Corporation (5)
4.42 Amendment to Consulting Agreement Between KGE Management Ltd. And IMA Exploration Inc. (5)
4.43 Amendment to Agreement between the Company and Sean Hurd (5)
4.44 Amendment to Exploration and Option Agreement with Barrick Exploraciones Argentina S.A. dated
March 26, 2003. (6)
4.45 Letter of Intent dated March 6, 2003 with Amera Resources Corporation (6)
4.46 Letter Agreement with Amera Resources Corporation re: reimbursement of office expenses (6)
4.47 Amendment to Option Agreement with Sociedad Minera de Responsabilidad Limitado Nova JJ de Piura
and Sociedad Minera de Responsabilidad Limitada (SMR Ltda) Don Alberto JJ de Piura dated December
23, 2002 (6)
4.48 Amendment to Option Agreement with Juan Demetrio Lirio Jr. and Juan Demetrio Lirio representing
Lir-Fer Construcciones S.R.L. dated July 10, 2002 (6)
- 65 -
EXHIBIT
NUMBER DESCRIPTION
------- -------------------------------------------------------------------------------------------------
4.49 Amendment to Option Agreement with Juan Demetrio Lirio Jr. and Juan Demetrio Lirio representing
Lir-Fer Construcciones S.R.L. dated December 27, 2002 (6)
4.50 Amendment to Consulting Services Agreement Between Oxbow International Marketing Corp. and IMA
Resource Corporation dated July 15, 2002 (6)
4.51 Amendment to Consulting Agreement Between KGE Management Ltd. And IMA Exploration Inc. dated June
14, 2002 (6)
4.52 Amendment to Consulting Agreement Between KGE Management Ltd. And IMA Exploration Inc. dated
October 3, 2002 (6)
4.53 Amendment to Agreement between the Company and Sean Hurd dated June 10, 2002 (6)
4.54 Amendment to Consulting Services Agreement Between Oxbow International Marketing Corp. and IMA
Resource Corporation dated April 17, 2003 (6)
4.55 Arrangement Agreement between IMA Exploration Inc., IMA Holdings Corp. and Golden Arrow Resources
Corporation dated May 14, 2004 (7)
4.56 Amendment to consulting Agreement with Nikolaos Cacos dated January 5, 2004 (8)
4.57 Amendment to Agreement with Sean Hurd dated January 5, 2004 (8)
4.58 Financial Advisory Services Agreement with Endeavour Financial Ltd. (8)
4.59 Agreement between the Company and Amera Resources Corporation dated March 6, 2003 relating to the
Lago Pico, Loma Alta and Nueva Ruta properties (8)
4.60 Amendment to Letter of Intent with Amera Resources Corporation dated September 30, 2003 (8)
4.61 Amendment to Letter of Intent with Amera Resources Corporation dated April 8, 2004 (8)
4.62 Letter Agreement with Beauregard Holdings Corp. dated February 5, 2004 regarding office lease (8)
4.63 Option Agreement dated September 22, 2003, between the Company and Cloudbreak Resources Ltd. (8)
4.64 Option Agreement dated August 12, 2003 between the Company and Consolidated Pacific Bay Minerals
Ltd. (8)
4.65 Option agreement dated June 11, 2003, between the Company and Ballad Gold & Silver Ltd. (formerly
Ballad Ventures Ltd.) (8)
4.66 Amendment to Option Agreement with Sociedad Minera de Responsabilidad Limitado Nova JJ de Piura
and Sociedad Minera de Responsabilidad Limitada (SMR Ltda) Don Alberto JJ de Piura dated August
15, 2003 (8)
4.67 Letter Agreement with Arthur Lang dated April 23, 2004 (8)
4.68 Arrangement Agreement by and among the Company, Golden Arrow Resources Corporation and IMA
Holdings Corp. dated May 14, 2004 (9)
4.69 Indemnity Agreement provided to Golden Arrow Resources Corporation dated July 7, 2004 (9)
4.70 Administration Services Agreement with the Grosso Group Management Ltd. dated January 1, 2005 (9)
4.71 Amendment to Consulting Agreement between KGE Management Ltd. and IMA Exploration Inc. dated
April 1, 2005 (9)
4.72 Audit Committee Charter (9)
4.73 Amendment to Consulting Agreement between KGE Management Ltd. and IMA Exploration Inc. dated
January 26, 2006 (10)
4.74 Advisory Services Agreement between RSA Holdings Ltd. and IMA Exploration Inc. dated February 14,
2006 (10)
- 66 -
EXHIBIT
NUMBER DESCRIPTION
------- -------------------------------------------------------------------------------------------------
4.75 Interim Project Development Agreement between IMA Exploration Inc. and Aquiline Resources Inc.
dated October 18, 2006.(11)
8.1 List of Subsidiaries (8)
12.1 Certification of Joseph Grosso Pursuant to Rule 13a-14(a)
12.2 Certification of Arthur Lang Pursuant to Rule 13a-14(a)
13.1 Certification of Joseph Grosso Pursuant to 18 U.S.C. Section 1350
13.2 Certification of Arthur Lang Pursuant to 18 U.S.C. Section 1350
------- -------------------------------------------------------------------------------------------------
(1) Previously filed as an exhibit to the Company's Registration Statement
on Form 20-F, filed with the Commission on January 6, 2000. File
number 00-30464.
(2) Previously filed as an exhibit to the Company's Registration Statement
on Form 20-F/A Amendment No. 1 filed July 14, 2000. File Number
00-30464.
(3) Previously filed as an exhibit to the Company's Registration Statement
on Form 20-F/A Amendment No. 2 filed September 15, 2000. File Number
00-30464.
(4) Previously filed as an exhibit to the Company's Annual Report on Form
20-F filed May 8, 2001. File Number 00-30464.
(5) Previously filed as an exhibit to the Company's Annual Report on Form
20-F filed May 8, 2002. File Number 00-30464.
(6) Previously filed as an exhibit to the Company's Annual Report on Form
20-F filed May 16, 2003. File Number 00-30464.
(7) Previously filed as with the Company's Report on Form 6-K filed June
18, 2004. File Number 00-30464.
(8) Previously filed as an exhibit to the Company's Annual Report on Form
20-F filed June 23, 2004. File Number 00-30464.
(9) Previously filed as an exhibit to the Company's Annual Report on Form
20-F filed June 7, 2005. File Number 00-30464.
(10) Previously filed as an exhibit to the Company's Annual Report on Form
20-F filed May 8, 2006. File Number 01-32558.
(11) Previously filed as with the Company's Report on Form 6-K filed
October 19, 2006. File Number 01-32558.
- 67 -
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.
IMA EXPLORATION INC.
Dated: MARCH 30, 2007 /s/ Arthur Lang
---------------------- -----------------------------------
Arthur Lang,
Chief Financial Officer
and Director
- 68 -
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2006, 2005 AND 2004
(EXPRESSED IN CANADIAN DOLLARS)
F-1
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements of the Company have been
prepared by management in accordance with accounting principles generally
accepted in Canada and reconciled to accounting principles generally accepted in
the United States as set out in Note 11 and contain estimates based on
management's judgement. Management maintains an appropriate system of internal
controls to provide reasonable assurance that transactions are authorized,
assets safeguarded, and proper records maintained.
The Audit Committee of the Board of Directors has met with the Company's
independent auditors to review the scope and results of the annual audit, and to
review the financial statements and related financial reporting matters prior to
submitting the financial statements to the Board for approval.
The Company's independent auditors, PricewaterhouseCoopers LLP, are appointed by
the shareholders to conduct an audit in accordance with generally accepted
auditing standards in Canada and the Public Company Accounting Oversight Board
(United States), and their report follows.
/s/ JOSEPH GROSSO /s/ ART LANG
Joseph Grosso Art Lang
President Chief Financial Officer
March 29, 2007
F-2
PRICEWATERHOUSECOOPERS
PRICEWATERHOUSECOOPERS LLP
CHARTERED ACCOUNTANTS
PricewaterhouseCoopers Place
250 Howe Street, Suite 700
Vancouver, British Columbia
Canada V6C 3S7
Telephone +1 604 806 7000
Facsimile +1 604 806 7806
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF IMA EXPLORATION INC.
We have audited the consolidated balance sheets of IMA EXPLORATION INC. as at
December 31, 2006 and 2005 and the consolidated statements of operations and
deficit and cash flows for each of the years in the three year period ended
December 31, 2006. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards and the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at December 31, 2006
and 2005 and the results of its operations and its cash flows for each of the
years in the three year period ended December 31, 2006 in accordance with
Canadian generally accepted accounting principles.
(SIGNED) PRICEWATERHOUSECOOPERS LLP
CHARTERED ACCOUNTANTS
Vancouver, B.C., Canada
March 29, 2007
PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP
and the other member firms of PricewaterhouseCoopers International Limited, each
of which is a separate and independent legal entity.
F-3
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31, 2006 AND 2005
(EXPRESSED IN CANADIAN DOLLARS)
2006 2005
$ $
ASSETS
CURRENT ASSETS
Cash 391,420 151,395
Short-term investments (Note 4) 8,500,000 7,580,000
Other receivables, prepaids and deposits (Note 8) 405,205 548,492
Marketable securities (Note 5) - 186,000
------------ ------------
9,296,625 8,465,887
MINERAL PROPERTIES AND DEFERRED
COSTS (Notes 2 and 9) - 15,032,107
NAVIDAD INTEREST (Note 2) 17,949,521 -
------------ ------------
27,246,146 23,497,994
============ ============
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 236,612 976,811
FUTURE INCOME TAX LIABILITIES (Note 9) - 1,760,110
------------ ------------
236,612 2,736,921
------------ ------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 6) 58,664,727 50,414,672
WARRANTS (Note 6) 1,281,946 -
CONTRIBUTED SURPLUS (Note 7) 6,152,265 5,854,445
DEFICIT (39,089,404) (35,508,044)
------------ ------------
27,009,534 20,761,073
------------ ------------
27,246,146 23,497,994
============ ============
NATURE OF OPERATIONS AND CONTINGENCY (Note 1)
MEASUREMENT UNCERTAINTY AND NAVIDAD INTEREST (Note 2)
COMMITMENTS (Note 8)
APPROVED BY THE BOARD
/s/ DAVID HORTON , Director
------------------------
/s/ ROBERT STUART ANGUS , Director
------------------------
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(EXPRESSED IN CANADIAN DOLLARS)
2006 2005 2004
$ $ $
EXPENSES
Administrative and management services 461,553 294,828 350,521
Corporate development and investor relations 328,779 496,538 286,187
General exploration 186,572 55,914 228,961
Office and sundry 181,913 148,015 107,678
Professional fees 1,124,144 2,212,190 816,143
Rent, parking and storage 96,263 72,791 90,629
Salaries and employee benefits 652,530 585,560 313,409
Stock based compensation (Note 6) 393,120 1,800,000 1,972,860
Telephone and utilities 17,432 26,648 34,165
Transfer agent and regulatory fees 103,457 199,715 57,743
Travel and accommodation 93,392 256,035 203,591
Cost recoveries (Note 8) - - (149,271)
Navidad holding costs (Note 2) 312,349 - -
------------ ------------ ------------
3,951,504 6,148,234 4,312,616
------------ ------------ ------------
LOSS BEFORE OTHER ITEMS (3,951,504) (6,148,234) (4,312,616)
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Foreign exchange (2,865) 232,954 (195,285)
Reorganization costs - - (346,103)
Interest and other income 373,009 150,406 101,589
Gain on options and disposition of mineral
properties - - 328,346
Write-down of marketable securities - - (99,762)
------------ ------------ ------------
370,144 383,360 (211,215)
------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS (3,581,360) (5,764,874) (4,523,831)
Loss allocated to spin-off assets (Note 13) - - 131,232
------------ ------------ ------------
LOSS FOR THE YEAR (3,581,360) (5,764,874) (4,655,063)
DEFICIT - BEGINNING OF YEAR (35,508,044) (29,597,304) (17,577,363)
DISTRIBUTION OF EQUITY ON SPIN-OFF OF ASSETS
TO GOLDEN ARROW (Note 13) - (145,866) (7,364,878)
------------ ------------ ------------
DEFICIT - END OF YEAR (39,089,404) (35,508,044) (29,597,304)
============ ============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE
FROM CONTINUING OPERATIONS $(0.07) $(0.12) $(0.11)
============ ============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE $(0.07) $(0.12) $(0.11)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 51,263,575 46,197,029 40,939,580
============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(EXPRESSED IN CANADIAN DOLLARS)
2006 2005 2004
$ $ $
CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
Net loss for the year (3,581,360) (5,764,874) (4,655,063)
Net loss allocated to spin-off assets - - 131,232
------------ ------------ ------------
Net loss from continuing operations (3,581,360) (5,764,874) (4,523,831)
Items not affecting cash
Depreciation - - 26,665
Stock based compensation 393,120 1,800,000 1,972,860
Gain on options and disposition of
mineral properties - - (328,346)
Write-down of marketable securities - - 99,762
------------ ------------ ------------
(3,188,240) (3,964,874) (2,752,890)
Change in non-cash working capital balances (596,912) 115,256 74,785
------------ ------------ ------------
(3,785,152) (3,849,618) (2,678,105)
Cash used in spin-off operations - - (283,629)
------------ ------------ ------------
(3,785,152) (3,849,618) (2,961,734)
------------ ------------ ------------
INVESTING ACTIVITIES
Expenditures on mineral properties
and deferred costs (4,491,524) (7,025,492) (4,448,659)
Increase in short-term investments (920,000) (3,280,000) (4,300,000)
Net cash flow related to spin-off assets - - 32,592
Proceeds from sale/(purchase) of equipment - 46,589 (93,650)
------------ ------------ ------------
(5,411,524) (10,258,903) (8,809,717)
------------ ------------ ------------
FINANCING ACTIVITIES
Issuance of common shares 10,308,450 14,215,165 9,707,897
Share issuance costs (871,749) (736,737) (411,237)
------------ ------------ ------------
9,436,701 13,478,428 9,296,660
------------ ------------ ------------
INCREASE (DECREASE) IN CASH 240,025 (630,093) (2,474,791)
CASH TRANSFERRED TO GOLDEN ARROW (Note 13) - (145,866) (1,020,189)
------------ ------------ ------------
NET INCREASE IN CASH 240,025 (775,959) (3,494,980)
CASH - BEGINNING OF YEAR 151,395 927,354 4,422,334
------------ ------------ ------------
CASH - END OF YEAR 391,420 151,395 927,354
============ ============ ============
SUPPLEMENTARY CASH FLOW INFORMATION (Note 12)
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED SCHEDULE OF NAVIDAD INTEREST
FOR THE YEAR ENDED DECEMBER 31, 2006
(EXPRESSED IN CANADIAN DOLLARS)
NAVIDAD
NAVIDAD AREA IVA TAX TOTAL
$ $ $ $
Mineral property interests balance,
beginning of year 13,466,957 113,426 1,451,724 15,032,107
------------ ------------ ------------ ------------
Expenditures during the year
Acquisition costs 110,807 - - 110,807
Assays 63,985 - - 63,985
Communications 53,793 - - 53,793
Drilling 1,400,714 - - 1,400,714
Engineering 43,832 - - 43,832
Environmental and social 305,989 - - 305,989
Metallurgy 325,457 - - 325,457
Office and other 201,408 - - 201,408
Salaries and Contractors 599,049 - - 599,049
Supplies and Equipment 162,645 - - 162,645
Transportation 243,360 - - 243,360
Project Development 442,402 - - 442,402
IVA Tax - - 538,083 538,083
------------ ------------ ------------ ------------
3,953,441 - 538,083 4,491,524
------------ ------------ ------------ ------------
Future income tax (Note 9) 455,439 - - 455,439
------------ ------------ ------------ ------------
Mineral property interest balance 17,875,837 113,426 1,989,807 19,979,070
------------ ------------ ------------ ------------
Less: Future income tax (Notes 2 and 9) (2,215,549) - - (2,215,549)
Add: Marketable securities (Note 5) - 186,000 - 186,000
------------ ------------ ------------ ------------
Navidad interest balance, end of year
(Notes 1 and 2) 15,660,288 299,426 1,989,807 17,949,521
============ ============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED SCHEDULE OF MINERAL PROPERTY INTERESTS
FOR THE YEAR ENDED DECEMBER 31, 2005
(EXPRESSED IN CANADIAN DOLLARS)
NAVIDAD
NAVIDAD AREA IVA TAX TOTAL
$ $ $ $
Balance, beginning of year 5,770,968 112,694 667,936 6,551,598
------------ ------------ ------------ ------------
Expenditures during the year
Assays 316,220 - - 316,220
Communications 28,100 51 - 28,151
Drilling 2,188,346 - - 2,188,346
Engineering 53,340 - - 53,340
Environmental 391,816 - - 391,816
Geophysics 176,036 - - 176,036
Metallurgy 501,070 - - 501,070
Office and other 95,310 640 - 95,950
Petrography 13,563 - - 13,563
Salaries and Contractors (Note 6 (d)) 1,539,569 - - 1,539,569
Supplies and Equipment 441,012 41 - 441,053
Transportation 248,554 - - 248,554
Project Development 828,036 - - 828,036
IVA Tax - - 783,788 783,788
------------ ------------ ------------ ------------
6,820,972 732 783,788 7,605,492
------------ ------------ ------------ ------------
Future income tax (Note 9) 875,017 - - 875,017
------------ ------------ ------------ ------------
Balance, end of year 13,466,957 113,426 1,451,724 15,032,107
============ ============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(EXPRESSED IN CANADIAN DOLLARS)
1. NATURE OF OPERATIONS AND CONTINGENCY
IMA Exploration Inc. (the "Company") is a natural resource company
engaged in the business of acquisition, exploration and development of
mineral properties in Argentina. The Company presently has no proven or
probable reserves and on the basis of information to date, it has not
yet determined whether these properties contain economically
recoverable ore reserves. Consequently the Company considers itself to
be an exploration stage company. The amounts that were shown as mineral
properties and deferred costs represent costs incurred to date, less
amounts amortized and/or written off, and do not necessarily represent
present or future values. As at December 31, 2006 the Company had no
mineral property interests other than the Navidad Interest. The Company
considers that it has adequate resources to maintain its core
operations for the next fiscal year.
On March 5, 2004, Aquiline Resources Inc. ("Aquiline"), through its
subsidiary, Minera Aquiline Argentina SA, filed a claim in the Supreme
Court of British Columbia against the Company seeking a constructive
trust over the Navidad properties and damages. On July 14, 2006 the
court released its judgment on the claim. The Company was not
successful in its defense and the court found in Aquiline's favour.
The Order reads in part:
"(a) that Inversiones Mineras Argentinas SA ("IMA SA") transfer the
Navidad Claims and any assets related thereto to Minera
Aquiline or its nominee within 60 days of this order;
(b) that IMA take any and all steps required to cause IMA SA to
comply with the terms of this order;
(c) that the transfer of the Navidad Claims and any assets related
thereto is subject to the payment to IMA SA of all reasonable
amounts expended by IMA SA for the acquisition and development
of the Navidad Claims to date; and
(d) any accounting necessary to determine the reasonableness of
the expenditures referred to in (c) above shall be by
reference to the Registrar of this court."
The Company has filed an appeal of this judgment. The Company
recognizes that this will take a substantial period of time and the
costs will be significant, with no guarantee of a successful outcome
for the Company. The Company has not provided for any future legal
costs and will expense the legal costs of the appeal as they occur (see
Note 2).
On October 18, 2006, the Company and Aquiline reached a definitive
agreement for the orderly conduct of the Navidad Project pending the
determination of the appeal by the Company against the judgment of the
trial court. The parties have agreed that the transactions outlined in
the agreement are in satisfaction of the Order referenced above. The
principal terms and conditions of the agreement are as follows:
(a) control of the Navidad Project will be transferred to Aquiline
in trust for the ultimately successful party in the appeal;
(b) the Company and Aquiline have agreed to the costs spent to
date developing the Navidad Project in the amount of
$18,500,000. Upon transfer of control of the Navidad Project,
Aquiline paid $7,500,000 of the costs into trust and the
balance will be expended by Aquiline in developing the Navidad
Project during the period of the appeal and secured under the
terms of the trust conditions;
(c) in the event that the Company is unsuccessful on appeal, the
Company will be paid such $18,500,000 amount, less legal costs
Aquiline would be entitled to in relation to the trial and the
appeal.
F-9
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(EXPRESSED IN CANADIAN DOLLARS)
1. NATURE OF OPERATIONS AND CONTINGENCY (continued)
(d) in the event that the Company's appeal is successful, it will
pay Aquiline's qualifying costs expended on developing the
Navidad Project during the period of the appeal, less legal
costs the Company would be entitled to in relation to the
trial and the appeal, and control of the Navidad Project will
then revert to the Company; and
(e) pending finalization of the appeal process, neither party will
attempt a hostile takeover of the other.
The effective date of the transfer of the Navidad project was November
16, 2006. A copy of the agreement has been posted on the SEDAR website
as one of the Company's public documents and is titled "Interim Project
Development Agreement".
2. MEASUREMENT UNCERTAINTY AND NAVIDAD INTEREST
As discussed in Note 1 above, under the terms of the July 14, 2006
court order the Company's ownership of the Navidad project has been
transferred to Aquiline and the Company accordingly cautions readers
that until the British Columbia Court of Appeal rules on the matter the
Company may only recover the costs incurred in the development of the
Navidad project.
Upon the transfer of the Navidad property interest to Aquiline the
Related Future Income Liabilities, which related to differences between
the tax values of certain mineral properties expenditures and their
accounting values, are no longer a liability of the Company. As at
December 31, 2006, the Company has recorded a Navidad interest balance
of $17,949,521, the components of which are as follows:
$
Mineral properties and deferred costs 17,763,521
Marketable securities (Note 5) 186,000
------------
Navidad interest 17,949,521
============
As discussed in Note 1 above, in the event that the Company is
unsuccessful on appeal, the Company will be paid $18,500,000 as
consideration for these assets, less legal costs Aquiline would be
entitled to in relation to the trial and the appeal. In the event that
the legal costs that Aquiline may become entitled to are significant,
the recoverability of the costs reflected as Navidad interest may be
impaired. Such impairment may be material. However, at the current
time, the Company is unable to determine with any degree of certainty
what the final outcome of the appeal process may be, and if the Company
is unsuccessful, what legal costs may be awarded to Aquiline by the
court. Accordingly, the Company has not made any adjustments to the
carrying value of the Navidad interest balance at December 31, 2006.
The carrying value of the components of the Navidad interest balance
will be reviewed in subsequent periods and adjusted if circumstances
suggest that the full amount may not be recoverable and an appropriate
amount expensed for impairment when such amounts can be reasonably
determined.
The Company expensed Navidad holding costs of $312,349 in the year
ended December 31, 2006. These costs are comprised of:
i) costs incurred in order to maintain basic operations in
Argentina subsequent to the transfer of control of the Navidad
project to Aquiline; and
ii) costs incurred in the period between the date of the judgment
and the transfer of control of the Navidad project to Aquline
that would normally have been included in mineral properties
and deferred costs.
The Company expects to incur additional costs until the Aquiline
litigation is settled.
F-10
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(EXPRESSED IN CANADIAN DOLLARS)
3. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
These consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles
("Canadian GAAP"). The significant measurement differences between
those principles and those that would be applied under United States
generally accepted accounting principles ("US GAAP") as they affect the
Company are disclosed in Note 11.
USE OF ESTIMATES
The preparation of financial statements in conformity with Canadian
GAAP requires management to make estimates and assumptions that affect
the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the
period. Significant areas requiring the use of management estimates
include the recoverability of the Navidad interest balance (see Note 2
above), the determination of environmental obligations, and the
assumptions used in the determination of the fair value of stock based
compensation. Actual results may differ from these estimates.
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly owned. All
inter-company transactions and balances have been eliminated.
SHORT-TERM INVESTMENTS
Short-term investments include money market investments maturing
between 3 and 12 months from the date of initial investment.
MARKETABLE SECURITIES
Marketable securities are carried at the lower of cost and market.
MINERAL PROPERTIES AND DEFERRED COSTS
Direct costs related to the acquisition and exploration of mineral
properties held or controlled by the Company are deferred on an
individual property basis until the viability of a property is
determined. Administration costs and general exploration costs are
expensed as incurred. When a property is placed in commercial
production, deferred costs will be depleted using the
units-of-production method. Management of the Company periodically
reviews the recoverability of the capitalized mineral properties.
Management takes into consideration various information including, but
not limited to, results of exploration activities conducted to date,
estimated future metal prices, and reports and opinions of outside
geologists, mine engineers and consultants. When it is determined that
a project or property will be abandoned then the costs are written-off,
or if its carrying value has been impaired, then the mineral properties
and deferred costs are written down to fair value.
The Company accounts for foreign value added taxes paid as part of
mineral properties and deferred costs. The recovery of these taxes will
commence on the beginning of foreign commercial operations. Should
these amounts be recovered they would be treated as a reduction in
carrying costs of mineral properties and deferred costs.
F-11
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(EXPRESSED IN CANADIAN DOLLARS)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Although the Company has taken steps to verify title to mineral
properties in which it has an interest, these procedures do not
guarantee the Company's title. Such properties may be subject to prior
agreements or transfers and title may be affected by undetected
defects.
From time to time, the Company acquires or disposes of properties
pursuant to the terms of option agreements. Options are exercisable
entirely at the discretion of the optionee and, accordingly, are
recorded as mineral property costs or recoveries when the payments are
made or received. After costs are recovered, the balance of the
payments received are recorded as a gain on option or disposition of
mineral property.
ASSET RETIREMENT OBLIGATIONS
Asset retirement obligations are recognized when a legal or
constructive obligation arises. This liability is recognized at the
fair value of the asset retirement obligation. When the liability is
initially recorded the Company capitalizes the cost by increasing the
carrying amount of the related long-lived assets. Over time the
liability is accreted to its present value each period, and the
capitalized cost is amortized on the same basis as the related asset.
Upon settlement of the liability, the Company may incur a gain or loss.
As at December 31, 2006 the Company does not have any asset retirement
obligations.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment when events or
circumstances suggest their carrying value has become impaired.
Management considers assets to be impaired if the carrying value
exceeds the estimated undiscounted future projected cash flows to
result from the use of the asset and its eventual disposition. If
impairment is deemed to exist, the assets will be written down to fair
value. Fair value is generally determined using a discounted cash flow
analysis.
TRANSLATION OF FOREIGN CURRENCIES
The Company's foreign operations are integrated and are translated
using the temporal method. Under this method, the Company translates
monetary assets and liabilities denominated in foreign currencies at
period-end rates. Non-monetary assets and liabilities are translated at
historical rates. Revenues and expenses are translated at average rates
in effect during the period except for depreciation and amortization
which are translated at historical rates. The resulting gains or losses
are reflected in operating results in the period of translation.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a
significant concentration of credit risk consist primarily of cash,
short-term investments and other receivables. The Company limits its
exposure to credit loss by placing its cash and short-term investments
with major financial institutions.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments consisting of
cash, short-term investments, other receivables and accounts payable
and accrued liabilities approximate their carrying values due to the
short-term nature of those instruments.
F-12
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(EXPRESSED IN CANADIAN DOLLARS)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
INCOME TAXES
The Company uses the liability method of accounting for future income
taxes. Under this method of tax allocation, future income tax
liabilities and assets are recognized for the estimated tax
consequences attributable to differences between the amounts reported
in the consolidated financial statements and their respective tax
bases, using substantively enacted tax rates and laws that are expected
to be in effect in the periods in which the future income tax assets or
liabilities are expected to be settled or realized. The effect of a
change in income tax rates on future income tax liabilities and assets
is recognized in income in the period that the change occurs. Potential
future income tax assets are not recognized to the extent that they are
not considered more likely than not to be realized.
LOSS PER SHARE
Loss per share is calculated based on the weighted average number of
common shares issued and outstanding during the year. In years in which
a loss is incurred, the effect of potential issuances of shares under
options and warrants would be anti-dilutive and therefore basic and
diluted losses per share are the same. Information regarding securities
that could potentially dilute basic earnings per share in the future is
presented in Note 6.
STOCK BASED COMPENSATION
The Company has an employee stock option plan. The Company recognizes
an expense or addition to exploration properties and deferred
exploration expenditures arising from stock options granted to both
employees and non-employees using the fair value method. The fair value
of option grants is established at the date of grant using a Black
Scholes option pricing model and the expense or addition to mineral
properties is recognized over the option vesting period.
COMPARATIVE FIGURES
Certain of the prior year comparatives have been reclassified to
conform with the current year's presentation.
4. SHORT-TERM INVESTMENTS
As at December 31, 2006 and 2005, the Company held short-term
investments comprised of the following:
----------------------------
DECEMBER 31, 2006
----------------------------
MATURITY PRINCIPAL
$
12 month term deposit March 20,
- 3.7% annual interest rate 2007 500,000
12 month term deposit November 5,
- 4.2% annual interest rate 2007 8,000,000
------------
8,500,000
============
F-13
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(EXPRESSED IN CANADIAN DOLLARS)
4. SHORT-TERM INVESTMENTS (continued)
----------------------------
DECEMBER 31, 2005
----------------------------
MATURITY PRINCIPAL
$
12 month term deposit September 11,
- 2.65% annual interest rate 2006 7,580,000
------------
7,580,000
============
All term deposits are fully redeemable in full or portion at the
Company's option without penalty. Interest is paid on amounts redeemed
subsequent to 30 days from the date of investment.
5. MARKETABLE SECURITIES
---------------------------- ----------------------------
2006 2005
---------------------------- ----------------------------
QUOTED QUOTED
RECORDED MARKET RECORDED MARKET
VALUE VALUE VALUE VALUE
$ $ $ $
Tinka Resources Limited
- 300,000 common shares - - 96,000 126,000
Consolidated Pacific Bay Minerals Ltd.
- 900,000 common shares - - 90,000 144,000
------------ ------------ ------------ ------------
- - 186,000 270,000
============ ============ ============ ============
The Company acquired the marketable securities as a result of entering
into option and sale agreements for certain of its non-core mineral
property holdings relating to the Navidad Project for which the Company
received common shares of publicly traded companies as partial
consideration. These marketable securities were subject to transfer to
Aquiline in relation to the July 2006 court order (see Note 1 above).
Accordingly, at December 31, 2006, the carrying value of these
marketable securities has been reclassified as a component of the
Navidad interest balance (see Note 2 above).
F-14
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(EXPRESSED IN CANADIAN DOLLARS)
6. SHARE CAPITAL
Authorized - unlimited common shares without par value - 100,000,000
preferred shares without par value
NUMBER $
Issued - common shares
Balance, December 31, 2003 36,381,452 27,707,597
Private placement 1,500,000 4,650,000
Exercise of options 441,650 597,910
Exercise of agents' options 121,820 184,838
Contributed surplus reallocated on exercise of options - 226,630
Exercise of warrants 5,371,285 4,275,149
Proceeds collected and paid on behalf of Golden Arrow shares - (107,544)
Less share issue costs - (552,273)
------------ ------------
Balance, December 31, 2004 43,816,207 36,982,307
Private placement 3,333,340 10,000,020
Exercise of options 10,000 31,000
Exercise of agents' options 168,000 546,000
Contributed surplus reallocated on exercise of options - 131,270
Exercise of warrants 1,485,517 3,784,011
Proceeds collected and paid on behalf of Golden Arrow shares - (145,866)
Less share issue costs - (914,070)
------------ ------------
Balance, December 31, 2005 48,813,064 50,414,672
Private placement 2,865,000 10,027,500
Warrants valuation - (1,298,981)
Exercise of options 335,000 280,950
Contributed surplus reallocated on exercise of options - 95,300
Less share issue costs - (854,714)
------------ ------------
Balance, December 31, 2006 52,013,064 58,664,727
============ ============
(a) During fiscal 2006, the Company completed a syndicated
brokered private placement financing of 2,865,000 special
warrants at $3.50 per warrant for gross proceeds of
$10,027,500. Each special warrant entitled the holder to
acquire one unit consisting of one common share and one half
common share purchase warrant. All special warrants were
converted into common shares on May 25, 2006. Each full
warrant entitles the holder thereof to purchase one additional
common share in the capital of the Company at a price of $3.80
per share until March 21, 2010. In addition to a cash
commission of 6% the underwriters were granted 171,900 agent's
warrants, representing 6% of the number of special warrants
issued. Each agent's warrant is exercisable for one share at a
price of $3.80, for a period of twenty four months, expiring
on March 21, 2008.
The fair value of warrants and agent's warrants were as
follows:
i) value assigned to 1,432,500 warrants was $1,186,053,
net of share issue costs of $112,928
ii) value assigned to the 171,900 agent's warrant was
$95,893, net of share issue costs of $14,271
F-15
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(EXPRESSED IN CANADIAN DOLLARS)
6. SHARE CAPITAL (continued)
The Black-Scholes Pricing Model was used to value the warrants
and agent's warrants. The warrants were valued at $0.91 based
on the following assumptions: dividend yield 0%, risk-free
rate 4.0%, expected volatility 55% and expected life of 24
months. The agent's warrants were valued at $0.64 based on the
following assumptions: dividend yield 0%, risk-free rate 4.0%,
expected volatility 61% and expected life of 12 months. At
December 31, 2006, no warrants or agent's warrants had been
exercised.
(b) During fiscal 2005, the Company completed a brokered private
placement for 3,333,340 units at $3.00 per unit, for proceeds
of $9,263,283 net of $600,001 agent's commission and $136,736
of related issue costs. Each unit consisted of one common
share and one half common share purchase warrant. Each full
warrant entitles the holder thereof to purchase one additional
common share at a price of $3.45 per share until September 14,
2009. In addition to the cash commission the underwriters were
granted as commission 233,334 underwriter's warrants,
representing 7% of the number of units issued. Each
underwriter's warrant is exercisable for one share at a price
of $3.25, for a period of twenty four months, expiring on
September 12, 2007. The underwriter's warrants were valued
using the Black-Sholes Pricing Model. The warrants were valued
at $0.76 per warrant for a total value of $177,333 and have
been recorded as share issue costs with a corresponding
increase to contributed surplus. At December 31, 2006, no
underwriter's warrants had been exercised.
(c) During fiscal 2004, the Company completed a brokered private
placement of 1,500,000 units at $3.10 per unit for proceeds of
$4,238,763, net of $339,000 agent's commission and $72,237 of
related issue costs. Each unit consisted of one common share
and one half non-transferable share purchase warrant. Each
whole warrant entitles the holder to purchase a common share
for $3.70 per share on or before February 23, 2005. The
Company also issued 200,000 compensation options to the agent
to acquire 200,000 shares at $3.25 per share and 100,000
warrants at $3.70 per share on or before February 23, 2005.
The compensation options granted were valued at $0.705 per
option using the Black-Scholes Option Pricing Model, for a
total value of $141,036, which has been recorded as share
issue costs with a corresponding increase to contributed
surplus. At December 31, 2004, a total of 32,000 compensation
options had been exercised. The balance of 168,000
compensation options was exercised during 2005.
(d) Stock options and stock based compensation
The Company grants stock options in accordance with the
policies of the TSX Venture Exchange ("TSXV"). The stock
options granted during 2006 were subject to a four month hold
period and are exercisable for a period of five years. A
summary of the Company's outstanding options at December 31,
2006, 2005 and 2004 and the changes for the years ending on
those dates is presented below:
--------------------- --------------------- ----------------------
2006 2005 2004
--------------------- --------------------- ----------------------
OPTIONS WEIGHTED OPTIONS WEIGHTED OPTIONS WEIGHTED
OUTSTANDING AVERAGE OUTSTANDING AVERAGE OUTSTANDING AVERAGE
AND EXERCISE AND EXERCISE AND EXERCISE
EXERCISABLE PRICE EXERCISABLE PRICE EXERCISABLE PRICE
$ $ $
Balance,
Beginning of year 4,881,000 2.54 3,568,500 2.10 2,528,150 1.32
Granted 273,000 3.21 1,360,000 3.74 1,512,000 3.14
Exercised (335,000) 0.84 (10,000) 3.10 (441,650) 1.14
Cancelled (195,000) 2.78 (37,500) 3.92 (30,000) 3.10
------------ ------------ ------------
Balance, end of year 4,624,000 2.69 4,881,000 2.54 3,568,500 2.10
============ ============ ============
F-16
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(EXPRESSED IN CANADIAN DOLLARS)
6. SHARE CAPITAL (continued)
Stock options outstanding and exercisable at December 31, 2006
are as follows:
NUMBER EXERCISE PRICE EXPIRY DATE
$
119,000 0.50 May 2, 2007
115,000 0.50 September 23, 2007
25,000 0.84 March 7, 2008
300,000 0.90 May 30, 2008
1,170,000 1.87 August 27, 2008
1,372,000 3.10 March 24, 2009
865,000 4.16 March 16, 2010
385,000 2.92 November 16, 2010
273,000 3.21 June 22, 2011
------------
4,624,000
============
During fiscal 2006, the Company granted 273,000 stock options
(2005 - 1,360,000; 2004 - 1,512,000). The fair value of stock
options granted is estimated on the dates of grants using the
Black-Scholes Option Pricing Model with the following
assumptions used for the grants made during the year:
2006 2005 2004
---- ---- ----
Risk-free interest rate 4.0% 3.3% - 3.7% 2.4%
Estimated volatility 70% 70% - 77% 77%
Expected life 2.5 years 2.5 years 2.5 years
Expected dividend yield 0% 0% 0%
For 2006, stock based compensation of $393,120 (2005:
$2,380,000; 2004: $1,972,860) was recorded by the Company, of
which $393,120 (2005: $1,800,000; 2004: $1,972,860) is
included in expenses and Nil (2005: $580,000; 2004: Nil) is
included in capitalized mineral property expenditures, with a
corresponding increase in contributed surplus.
The weighted average fair value per share of stock options
granted during the year was $1.44 per share (2005 - $1.76;
2004 - $1.28). Option pricing models require the use of
estimates and assumptions including the expected volatility.
Changes in the underlying assumptions can materially affect
the fair value estimates and, therefore, existing models do
not necessarily provide reliable measure of the fair value of
the Company's stock options.
(e) Warrants
A continuity summary of warrant equity is presented below:
$
Balance, December 31, 2005 -
Warrant valuation from private placement warrants granted 1,298,981
Warrant valuation from agent's warrants granted 110,164
Warrant issue costs (127,199)
------------
Balance, December 31, 2006 1,281,946
============
F-17
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(EXPRESSED IN CANADIAN DOLLARS)
6. SHARE CAPITAL (continued)
A summary of the number of common shares reserved pursuant to
the Company's outstanding warrants and agents warrants
outstanding at December 31, 2006, 2005 and 2004 and the
changes for the years ending on those dates is as follows:
2006 2005 2004
Balance, beginning of year 1,900,004 1,422,017 6,042,448
Issued 1,604,400 1,984,004 810,909
Exercised - (1,485,517) (5,371,285)
Cancelled - - (38,955)
Expired - (20,500) (21,100)
------------ ------------ ------------
Balance, end of year 3,504,404 1,900,004 1,422,017
============= ============= ============
Common shares reserved pursuant to warrants and agent warrants
outstanding at December 31, 2006 are as follows:
NUMBER EXERCISE PRICE EXPIRY DATE
$
233,334 3.25 September 13, 2007
1,666,670 3.45 September 14, 2009
171,900 3.80 March 21, 2008
1,432,500 3.80 March 21, 2010
------------
3,504,404
============
7. CONTRIBUTED SURPLUS
A continuity summary of contributed surplus is presented below:
$
Balance, December 31, 2003 1,541,116
Contributed Surplus as a result of stock options granted 1,972,860
Contributed Surplus as a result of brokers' warrants granted 141,036
Contributed Surplus reallocated on exercise of stock options (226,630)
------------
Balance, December 31, 2004 3,428,382
Contributed Surplus as a result of stock options granted 2,380,000
Contributed Surplus as a result of brokers' warrants granted 177,333
Contributed Surplus reallocated on exercise of stock options (131,270)
------------
Balance, December 31, 2005 5,854,445
Contributed Surplus as a result of stock options granted 393,120
Contributed Surplus reallocated on exercise of stock options (95,300)
------------
Balance, December 31, 2006 6,152,265
============
F-18
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(EXPRESSED IN CANADIAN DOLLARS)
8. RELATED PARTY TRANSACTIONS
(a) Effective January 1, 2005 the Company engaged the Grosso Group
Management Ltd. ("Grosso Group") to provide services and
facilities to the Company. The Grosso Group is a private
company owned by the Company, Golden Arrow Resources
Corporation ("Golden Arrow"), Amera Resources Corporation
("Amera"), Gold Point Energy Corp. and Astral Mining
Corporation, each of which owns one share. The Grosso Group
provides its shareholder companies with geological, corporate
development, administrative and management services. The
shareholder companies pay monthly fees to the Grosso Group.
The fee is based upon a pro-rating of the Grosso Group's costs
including its staff and overhead costs among each shareholder
company with regard to the mutually agreed average annual
level of services provided to each shareholder company. During
fiscal 2006, the Company incurred fees of $724,902 (2005 -
$730,802) to the Grosso Group: $764,115 (2005 - $764,012) was
paid in twelve monthly payments and $39,213 (2005 - $33,210)
is included in other receivables, prepaids and deposits as a
result of a review of the allocation of the Grosso Group costs
to the member companies for the year. In addition, included in
other receivables, prepaids and deposits is other receivables
of a $205,000 (2005 - $205,000) deposit to the Grosso Group
for the purchase of equipment and leasehold improvements and
for operating working capital.
(b) During fiscal 2006, the Company paid $533,917 (2005 -
$241,088; 2004 - $476,226) to directors and officers or
companies controlled by directors and officers of the Company,
for accounting, management and consulting services provided.
(c) Prior to the signing of the Administration Services Agreement
with the Grosso Group in 2005, the Company shared its office
facilities with Amera and Golden Arrow. During fiscal 2005,
the Company received $nil (2004 - $66,390) from Amera and $nil
(2004 - $57,000l) from Golden Arrow for shared rent and
administration costs.
(d) The Company has agreements with a company controlled by the
wife of the President of the Company for the rental of office
premises. Effective January 1, 2005 the Company subleased the
office premises to the Grosso Group.
(e) The President of the Company provides his services on a
full-time basis under a contract with a private company
controlled by the President. On April 12, 2006 the Board
accepted the recommendation from the Compensation Committee to
increase the monthly fee, effective May 1, 2006, to $20,833
(previously $8,500) and to pay a bonus of $150,000. The total
compensation paid to the President in 2006 was $350,667. This
amount is included in the total amount paid to directors and
officers discussed in Note 8(b) above.
In the event the contract is terminated by the Company or as a
result of a change of control, a payment is payable to the
President consisting of (i) any monthly compensation due to
the date of termination, (ii) options as determined by the
board of directors (iii) three years of monthly compensation
(which may be adjusted annually) and (iv) bonus of $461,500.
If the termination had occurred on December 31, 2006, the
amount payable under the contract would be $1,211,500.
In the event the contract is terminated by the Company as a
result of the President's death or permanent disability while
providing services to the Company, a bonus in the amount of
$461,500 is payable.
Other related party transactions are disclosed elsewhere in these
consolidated financial statements. All of the related party
transactions and balances in these consolidated financial statements
arose in the normal course of operations and are measured at the
exchange amount, which is the amount of consideration established and
agreed to by the related parties
F-19
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(EXPRESSED IN CANADIAN DOLLARS)
9. INCOME TAXES
The recovery of income taxes shown in the consolidated statements of
operations and deficit differs from the amounts obtained by applying
statutory rates to the loss before provision for income taxes due to
the following:
2006 2005 2004
$ $ $
Statutory tax rate 34.12% 34.12% 35.62%
============ ============ ============
Loss for the year (3,581,360) (5,764,874) (4,655,063)
============ ============ ============
Provision for income taxes based on statutory (1,221,960) (1,966,975) (1,658,133)
Canadian combined federal and provincial
income tax rates
Differences in foreign tax rates (526) - (114,390)
Non-deductible differences 149,332 625,988 -
Losses for which an income tax benefit
has not been recognized 956,653 1,340,987 1,722,523
Other 116,501 - -
------------ ------------ ------------
- - -
============ ============ ============
The significant components of the Company's future tax assets are as
follows:
2006 2005
$ $
Future income tax assets
Operating loss carryforward 4,950,897 4,709,496
Share issue costs 509,317 472,437
Resource deductions 306,710 -
Other 45,442 -
------------ ------------
5,812,366 5,181,933
Valuation allowance for future tax assets (5,812,366) (5,181,933)
------------ ------------
- -
============ ============
FUTURE INCOME TAX LIABILITIES
For certain acquisitions and other payments for mineral property
interests, the Company records a future income tax liability and a
corresponding adjustment to the related asset carrying amount. During
the year ended December 31, 2006, as a result of the uncertainty
regarding the status of the mineral properties balance (included in
Navidad interest), the Company eliminated the future income tax
liability of $1,760,110 that existed as of December 31, 2005 and made a
corresponding adjustment to mineral properties. During the year ended
December 31, 2005, the Company recorded an $875,017 increase to the
future income tax liability and a corresponding adjustment to mineral
properties.
2006 2005
$ $
Future income tax liabilities - 1,760,110
============ ============
F-20
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(EXPRESSED IN CANADIAN DOLLARS)
9. INCOME TAXES (continued)
The Company has Canadian capital loss carryforwards of $161,172 and
non-capital loss carryforwards of $15,895,279 that may be available for
tax purposes. The Company's capital losses do not expire and may be
carried forward indefinitely. The non-capital losses expire as follows:
EXPIRY DATE $
2007 1,261,932
2008 841,160
2009 1,317,729
2010 1,545,964
2014 2,752,324
2015 4,709,088
2016 3,467,379
------------
15,895,279
============
10. SEGMENTED INFORMATION
The Company is involved in mineral exploration and development
activities, which are conducted principally in Argentina. The Company
is in the exploration stage and, accordingly, has no reportable segment
revenues or operating results for each of fiscal 2006 and 2005.
The Company's total assets are segmented geographically as follows:
--------------------------------------------
DECEMBER 31, 2006
--------------------------------------------
CANADA ARGENTINA TOTAL
$ $ $
Current assets 9,217,352 79,273 9,296,625
Navidad interest - 17,949,521 17,949,521
------------ ------------ ------------
9,217,352 18,028,794 27,246,146
============ ============ ============
--------------------------------------------
DECEMBER 31, 2005
--------------------------------------------
CANADA ARGENTINA TOTAL
$ $ $
Current assets 8,331,000 134,887 8,465,887
Mineral properties
and deferred costs - 15,032,107 15,032,107
------------ ------------ ------------
8,331,000 15,166,994 23,497,994
============ ============ ============
F-21
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(EXPRESSED IN CANADIAN DOLLARS)
11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
The consolidated financial statements of the Company have been prepared
in accordance with Canadian GAAP, which differ in certain material
respects from US GAAP.
The effects of significant measurement differences between Canadian
GAAP and US GAAP for certain items on the consolidated balance sheets,
statements of operations and deficit and statements of cash flows are
as follows:
2006 2005 2004
$ $ $
CONSOLIDATED STATEMENTS OF OPERATIONS
Loss for the year under Canadian GAAP (3,581,360) (5,764,874) (4,655,063)
Mineral properties and deferred costs for the year (i) (4,491,524) (8,480,509) (5,212,625)
Reversal of Future income tax liability (i) - 875,017 633,913
Write down of marketable securities - - 99,762
------------ ------------ ------------
Loss for the year under US GAAP (8,072,884) (13,370,366) (9,134,013)
Unrealized losses
on available-for-sale securities (ii) (3,000) - (387,160)
------------ ------------ ------------
Comprehensive loss (iii) (8,075,884) (13,370,366) (9,521,173)
============ ============ ============
Basic and diluted loss per share under US GAAP (0.16) (0.29) (0.22)
============ ============ ============
Weighted average number of common shares outstanding 51,263,575 46,197,029 40,939,580
============ ============ ============
2006 2005
$ $
SHAREHOLDERS' EQUITY
Balance per Canadian GAAP 27,009,534 20,761,073
Mineral properties and deferred costs expensed (i)
(In 2006, classified as a component of Navidad
interest - Note 2) (17,763,521) (15,032,107)
Reversal of Future income tax liability (i) - 1,760,110
Accumulated other comprehensive income (ii) 81,000 84,000
------------ ------------
Balance per US GAAP 9,327,013 7,573,076
============ ============
2006 2005
$ $
MINERAL PROPERTIES / NAVIDAD INTEREST
Balance per Canadian GAAP 17,949,521 15,032,107
Transfer of marketable securities (ii) 81,000 -
Mineral properties and deferred costs
expensed under US GAAP (i) (17,763,521) (15,032,107)
------------ ------------
Balance per US GAAP 267,000 -
============ ============
F-22
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(EXPRESSED IN CANADIAN DOLLARS)
11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
2006 2005
$ $
FUTURE INCOME TAX LIABILITY
Balance per Canadian GAAP - 1,760,110
Reversal of Future income tax liability (i) - (1,760,110)
------------ ------------
Balance per US GAAP - -
============ ============
2006 2005 2004
$ $ $
CONSOLIDATED STATEMENTS OF CASH FLOWS
OPERATING ACTIVITIES
Cash used per Canadian GAAP (3,785,152) (3,849,618) (2,961,734)
Mineral properties and deferred costs (i)
(In 2006, classified as a component of Navidad
interest - Note 2) (4,491,524) (7,025,492) (4,578,712)
------------ ------------ ------------
Cash used per US GAAP (8,276,676) (10,875,110) (7,540,446)
============ ============ ============
2006 2005 2004
$ $ $
INVESTING ACTIVITIES
Cash used per Canadian GAAP (5,411,524) (10,258,903) (8,809,717)
Mineral properties and deferred costs (i)
(In 2006, classified as a component of Navidad
interest - Note 2) 4,491,524 7,025,492 4,578,712
------------ ------------ ------------
Cash provided by (used) per US GAAP (920,000) (3,233,411) (4,231,005)
============ ============ ============
i) Mineral Properties and Deferred Costs
Mineral properties and deferred costs are accounted for in
accordance with Canadian GAAP as disclosed in Note 3. For US
GAAP purposes, the Company expenses exploration costs relating
to unproven mineral properties as incurred, and reverses any
associated future income tax liabilities. When proven and
probable reserves are determined for a property, subsequent
exploration and development costs of the property are
capitalized.
ii) Investments
For the 2005 fiscal year, the Company's marketable securities
were classified as available-for-sale investments under US
GAAP and carried at the lower of cost and market value for
Canadian GAAP purposes. Such investments are not held
principally for the purpose of selling in the near term and,
for US GAAP purposes, must have holding gains and losses
reported as a separate component of shareholders' equity until
realized or until an other than temporary impairment in value
occurs. For the 2006 fiscal year, the Company's marketable
securities were classified as available for sale investments
under US GAAP until July 14, 2006, the date of the Navidad
judgment (see Note 1 above). Subsequently, the marketable
securities were transferred to the Navidad interest balance
(see Note 2 above).
F-23
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(EXPRESSED IN CANADIAN DOLLARS)
11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
iii) Comprehensive Income
US GAAP requires disclosure of comprehensive income (loss)
which is intended to reflect all other changes in equity
except those resulting from contributions by and payments to
owners.
iv) Spin-Off of Assets to Golden Arrow
Under Canadian GAAP, a spin-off of assets is accounted for and
disclosed in accordance with CICA Handbook Section 3475
"Disposal of Long-Lived Assets and Discontinued Operations".
Under US GAAP, such a spin-off would be accounted for and
disclosed as a dividend in kind and would not require separate
carve-out of results in the statements of operations and cash
flows nor separate balance sheet classification.
v) Recent Accounting Pronouncements
FINANCIAL INSTRUMENTS
On January 27, 2005, the CICA issued Section 3855 of the
Handbook titled "Financial Instruments - Recognition and
Measurement". It expands Handbook section 3860, "Financial
Instruments - Disclosure and Presentation" by prescribing when
a financial instrument is to be recognized on the balance
sheet and at what amount. It also specifies how financial
instrument gains and losses are to be presented. All financial
instruments will be required to be classified into various
categories. Held to maturity investments, loans and
receivables are measured at amortized cost with amortization
of premium or discounts and losses and impairment included in
current period interest income or expense. Held for trading
financial assets and liabilities are measured at fair market
value with all gains and losses included in net income in the
period in which they arise. All available for sale financial
assets are measured at fair market value with revaluation
gains and losses included in other comprehensive income until
the asset is removed from the balance sheet except that other
than temporary losses due to impairment are included in net
income. All other financial liabilities are to be carried at
amortized cost. This new Handbook section will bring Canadian
GAAP more in line with U.S. GAAP. The mandatory effective date
is for fiscal years beginning on or after October 1, 2006. At
present, the Company's most significant financial instruments
are cash, short-term investments, other receivables and
accounts payable. The Company will adopt this Handbook section
in its fiscal 2007 year. The Company is currently reviewing
the section to determine the potential impact, if any, on its
consolidated financial statements.
HEDGE ACCOUNTING
Handbook Section 3865, "Hedges" provides alternative
treatments to Handbook Section 3855 for entities which choose
to designate qualifying transactions as hedges for accounting
purposes. The effective date of this section is for fiscal
years beginning on or after October 1, 2006.
The Company does not currently have any hedging relationships.
COMPREHENSIVE INCOME
New Handbook Section 1530, "Comprehensive Income", introduces
a new requirement to temporarily present certain gains and
losses outside of income. Section 1530 defines comprehensive
income as a change in value of net assets that is not due to
owner activities. Assets that are classified as available for
sale will have revaluation gains and losses included in other
comprehensive income until the asset is removed from the
balance sheet.
F-24
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(EXPRESSED IN CANADIAN DOLLARS)
11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
At present, the Company has investments in shares of arm's
length corporations that may be classified as available for
sale investments. The Company would be required to recognize
unrealized gains and losses on these securities and include
these amounts in comprehensive income. The effective date of
this section is for fiscal years beginning on or after October
1, 2006. Implementation of this section will more closely
align Canadian GAAP with U.S. GAAP.
ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES
In July 2006, the Financial Accounting Standards Board (FASB)
issued FIN 48, Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement 109. This Interpretation
applies to all tax positions related to income taxes subject
to SFAS 109, Accounting for Income Taxes. FIN 48 uses a
two-step approach for evaluating tax positions. The first
step, recognition, occurs when an enterprise concludes that a
tax position, based solely on its technical merits, is more
likely than not to be sustained upon examination. The second
step, measurement, is only addressed if the recognition
threshold is met; under this step, the tax benefit is measured
as the largest amount of the benefit, determined on a
cumulative probability basis, that is more likely than not to
be realized upon settlement. FIN 48's use of the term "more
likely than not" represents a greater than 50 percent
likelihood of occurrence.
The cumulative effect of applying the provisions of this
Interpretation shall be reported as an adjustment to the
opening balance of retained earnings for fiscal year in which
the enterprise adopts the Interpretation. FIN 48 is effective
for fiscal years beginning after December 15, 2006. Earlier
application is permitted if the reporting enterprise has not
publicly issued financial statements, including interim
financial statements, for that fiscal year. Accordingly, the
Company will adopt the provisions of this Interpretation in
its fiscal 2007 year. The Company is currently reviewing the
provisions to determine the potential impact, if any, on its
consolidated financial statements
FAIR VALUE MEASUREMENTS
In September 2006, FASB issued SFAS No. 157, "Fair Value
Measurements", which establishes a framework for measuring
fair value. It also expands disclosures about fair value
measurements and is effective for the first quarter of 2008.
The Company is currently reviewing the guidance to determine
the potential impact, if any, on its consolidated financial
statements.
12. SUPPLEMENTARY CASH FLOW INFORMATION
Non-cash investing and financing activities were conducted by the
Company as follows:
2006 2005 2004
$ $ $
Investing activities
Proceeds on disposition of mineral properties - - (252,000)
Acquisition of marketable securities - - 252,000
Expenditures on mineral properties and deferred costs - (580,000) -
Stock based compensation capitalized - 580,000 -
------------ ------------ ------------
- - -
============ ============ ============
F-25
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(EXPRESSED IN CANADIAN DOLLARS)
12. SUPPLEMENTARY CASH FLOW INFORMATION (continued)
2006 2005 2004
$ $ $
Financing activities
Shares issue costs (95,893) (177,333) -
Warrant issue costs (14,271)
Warrants 110,164
Shares issued on exercise of options 74,800 - 204,070
Contributed surplus (74,800) 177,333 (204,070)
------------ ------------ ------------
- - -
============ ============ ============
13. SPIN-OFF OF ASSETS
On July 7, 2004, the Company completed a corporate restructuring plan
(the "Reorganization") which resulted in dividing the Company's assets
and liabilities into two separate companies. Following the
Reorganization the Company continued to hold the Navidad Area
properties, while all other mineral property interests, certain
marketable securities and cash were spun-off to Golden Arrow, a newly
created company. The Navidad project, located in the province of Chubut
Argentina, was staked by the Company in late 2002 and continues to be
the focus of the Company's activities. The Reorganization of the
Company was accomplished by way of a statutory plan of arrangement. The
shareholders of the Company were issued shares in Golden Arrow on the
basis of one Golden Arrow share for ten shares of the Company. On
completion of the Reorganization, the Company transferred to Golden
Arrow:
i) all of the Company's investment in its mineral properties,
excluding the Navidad project and Navidad Area properties and
related future income tax liabilities;
ii) the assets and liabilities of IMPSA Resources (BVI) Inc.,
Inversiones Mineras Argentinas Holdings (BVI) Inc., both
wholly-owned subsidiaries of the Company, and IMPSA Resources
Corporation, an 80.69% owned subsidiary of the Company;
iii) certain marketable securities at their recorded values; and
iv) cash
The aggregate carrying amount of the net assets transferred
from the Company to Golden Arrow during 2004 is as follows:
2004
$
Cash 1,020,189
Marketable securities and other current assets and liabilities 548,841
Mineral properties and deferred cost and equipment 6,874,960
Future income tax liabilities (1,079,112)
------------
7,364,878
============
During 2005 the Company paid $145,866 to Golden Arrow from the exercise
of warrants of the Company that resulted in the issue of Golden Arrow
shares as required by the terms of the Reorganization. As all warrants
that were outstanding as of the effective date of the reorganization
have been exercised the Company has no further obligation to pay
amounts to Golden Arrow for the issue of its shares on the exercise of
the Company's warrants.
F-26
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(EXPRESSED IN CANADIAN DOLLARS)
13. SPIN-OFF OF ASSETS (continued)
The Company's comparative amounts in the Statement of Operations and
Deficit include an allocation of general and administrative expenses as
Loss allocated to spin-off assets. The allocation was calculated on the
basis of the ratio of the specific assets transferred to assets
retained. Certain "Other Income and Expense" items have been allocated
to spin-off assets on a cost specific basis.
As a condition of the Reorganization, Golden Arrow became a party to
the Aquiline litigation (see Notes 1 and 2 above). The Company provided
Golden Arrow with an indemnification that will compensate for any
payment or cost Golden Arrow might have to pay in the event of an award
against the Company and/or Golden Arrow. Accordingly, no amounts
related to this action have been accrued in these financial statements
at December 31, 2006.
F-27