UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the month of MARCH, 2007.
Commission File Number: 001-32558
IMA EXPLORATION INC.
--------------------------------------------------------------------------------
(Translation of registrant's name into English)
#709 - 837 West Hastings Street, Vancouver, British Columbia, V6C 3N6, Canada
--------------------------------------------------------------------------------
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F: FORM 20-F [X] FORM 40-F [ ]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1): _______
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7): _______
Indicate by check mark whether the registrant by furnishing the information
contained in this Form, is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
YES [ ] NO [X]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3- 2(b): 82-_____________
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf of the
undersigned, thereunto duly authorized.
IMA EXPLORATION INC.
-------------------------------------
Date: March 30, 2007 /s/ Joseph Grosso
------------------------------ -------------------------------------
Joseph Grosso,
President & CEO
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
IMA EXPLORATION INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 2006
INTRODUCTION
The following management discussion and analysis and financial review, prepared
as of March 29, 2007, should be read in conjunction with the Company's audited
annual consolidated financial statements and related notes for the years ended
December 31, 2006, 2005 and 2004. The consolidated financial statements have
been prepared in accordance with Canadian generally accepted accounting
principles ("Canadian GAAP"). Except as otherwise disclosed all dollar figures
in this report are stated in Canadian dollars. Additional information relevant
to the Company can be found on the SEDAR website at WWW.SEDAR.COM.
FORWARD LOOKING STATEMENTS
Certain information included in this discussion may constitute forward-looking
statements. Forward-looking statements are based on current expectations and
entail various risks and uncertainties. These risks and uncertainties could
cause or contribute to actual results that are materially different than those
expressed or implied. The Company disclaims any obligation or intention to
update or revise any forward-looking statement, whether as a result of new
information, future events or otherwise.
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 flows. As of this date the Company is an exploration
stage company and has not generated any revenues. The Company is entirely
dependent on the equity market for its source of funds. There is no assurance
that a commercially viable mineral deposit exists on any of the properties.
Further evaluation and exploration will be required before the economic
viability of any of the properties is determined.
In March 2004 Aquiline Resources Inc. ("Aquiline") commenced an action against
the Company seeking a constructive trust over the Navidad properties and
damages. The trial commenced on October 11, 2005 and ended on December 12, 2005.
On July 14, 2006 Justice Koenigsberg issued her reasons for judgment and order.
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."
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;
- 1 -
(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 that is scheduled to be heard
on April 10, 2007 by the British Columbia Court of Appeal. The Company's factum
and reply to Aquiline's factum are available on SEDAR and the Company's website.
While the Company is confident of a favourable result from its appeal it
recognizes that it may take a substantial period of time for the Court of Appeal
to issue their decision. The costs have been and continue to 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.
SELECTED ANNUAL FINANCIAL INFORMATION
The following selected consolidated financial information is derived from the
audited consolidated financial statements and notes thereto. The information has
been prepared in accordance with Canadian GAAP.
------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31
------------------------------------------------------------------------------------------
2006 2005 2004
$ $ $
------------------------------------------------------------------------------------------
Total Assets 27,246,146 23,497,994 12,221,856
Long Term Financial Liabilities - - -
Total Revenues - - -
General and Administrative Expenses 3,951,504 6,148,234 4,312,616
Loss from Continuing Operations (3,581,360) (5,764,874) (4,523,831)
Loss per Common Share from Continuing Operations (0.07) (0.12) (0.11)
Loss allocated to Spin-Off Assets - - (131,232)
Net Loss (3,581,360) (5,764,874) (4,655,063)
Net Loss per Common Share Basic and Diluted (0.07) (0.12) (0.11)
------------------------------------------------------------------------------------------
Total assets increased $3,748,152 from December 31, 2005 to 2006 as a result of
expenditures on the Navidad Project (incurred until the transfer to Aquiline) as
well as increases in the Company's cash and short-term investment balances.
Total assets increased $11,276,138 from December 31, 2004 to December 31, 2005
primarily due to the expenditures on the Navidad Project. General and
adminstrative expenses have decreased mainly due to the reduction in legal costs
incurred in connection with the Aquiline legal action and due to the decrease in
stock based compensation during the year.
SELECTED QUATERLY FINANCIAL INFORMATION AND FOURTH QUARTER
The following selected consolidated financial information is derived from the
unaudited consolidated interim financial statements of the Company. The
information has been prepared in accordance with Canadian GAAP.
------------------------------------------------- -------------------------------------------------
2006 2005
------------------------------------------------- -------------------------------------------------
DEC 31 SEP 30 JUN 30 MAR 31 DEC 31 SEP 30 JUN 30 MAR 31
$ $ $ $ $ $ $ $
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Revenues - - - - - - - -
Net Loss (1,126,586) (836,136) (1,112,336) (506,320) (1,041,118) (1,233,392) (972,894) (2,517,470)
Net Loss per Common Share
Basic and Diluted (0.02) (0.02) (0.02) (0.01) (0.02) (0.03) (0.02) (0.06)
------------------------------------------------- -------------------------------------------------
- 2 -
The Net Loss for the periods includes the following:
o Q4 2006 net loss includes $312,349 in Navidad holding costs subsequent
to the transfer of control of the Navidad project to Aquiline, as
detailed below. The Company expects to incur additional costs until the
Aquiline litigation is settled. The Q4 2006 net loss also includes
increased legal fees related to Company's appeal of the Aquiline
judgment.
o Q2 2006 net loss includes $393,120 non-cash stock based compensation
for the stock options granted during the period.
o Q4 and Q3 2005 net losses include increased legal fees related to the
initial trial of the Aquiline litigation .
o Q1 2005 net loss includes $1,800,000 non-cash stock based compensation
for the stock options granted during the period.
SUMMARY OF FINANCIAL RESULTS
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.
RESULTS OF OPERATIONS
The Company's operating expenses for the year ended December 31, 2006 were
$3,951,504, a 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).
(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
- 3 -
$232,954 in 2005. The small foreign exchange adjustment in 2006 is a result of
the relatively flat exchange rate between the Canadian and US dollars during the
year. In 2005, the large gain was a result of strengthening of the Canadian
dollar compared to US dollar and due to the exchange movements between expenses
being incurred in US$ and amounts exchanged to settle such payables.
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 at December 31, 2006 were $27,246,146, an increase of $3,748,152 from
$23,497,994 at December 31, 2005. This increase is mainly due to the increase in
Navidad carrying value and the increases in the cash and short-term investment
balances.
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. At December 31,
2006, no 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 March 29, 2007. As at March 29, 2007, the Company had working
capital of approximately $8,200,000.
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.
OPERATING CASH FLOW
Cash outflow from operating activities for the year ended December 31, 2006 was
$3,785,152, compared to cash outflow for 2005 of $3,849,618 as a result of
decreases in activities offset by a change in non-cash working capital.
FINANCING ACTIVITIES
During the year ended December 31, 2006, the Company received $10,308,450 from
the issue of common shares from a brokered private placement and on the exercise
of stock options less costs of $871,750, compared to $14,215,165, less costs of
$736,737, for the year ended December 31, 2005.
- 4 -
INVESTING ACTIVITIES
Investing activities required cash of $5,411,524 during 2006, compared to
$10,258,903 for 2005. In 2006, these investing activities included additions of
$4,491,524 to the Navidad Project in Argentina and an increase of $920,000 in
short-term investments.
RELATED PARTY TRANSACTIONS
Effective January 1, 2005 the Company engaged 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., Astral Mining Corporation and Blue Sky Uranium Corp, 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 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: $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 a $205,000 (2005 - $205,000) deposit to the Grosso
Group for the purchase of equipment and leasehold improvements and for operating
working capital
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.
CRITICAL ACCOUNTING ESTIMATES
Reference should be made to the Company's significant accounting policies
contained in Note 3 of the Company's consolidated financial statements for the
years ended December 31, 2006, 2005 and 2004. These accounting policies can have
a significant impact of the financial performance and financial position of the
Company. As disclosed previously, the Company has not made any provision for any
potential loss in the event of an adverse judgement related to the Aquiline
legal action.
RECENT ACCOUNTING PRONOUNCEMENTS
Reference should be made to the recent accounting pronouncements in Canada and
in US that described in Note 11 of the Company's consolidated financial
statements for the years ended December 31, 2006, 2005 and 2004.
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 for the years ended December 31, 2006, 2005
and 2004, direct costs related to the acquisition and exploration of mineral
properties held or controlled by the Company have been capitalized on an
individual property basis. For certain acquisitions and related payments for
mineral property interests, the Company records a future income tax liability
and a corresponding adjustment to the related asset carrying amount if the
expenditures do not have the corresponding tax basis. It is the Company's policy
to expense any exploration associated costs not related to specific projects or
properties.
- 5 -
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 or its carrying value has been impaired, a
provision is made for any expected loss on the project or property. In respect
to the Navidad interest 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 interest at December 31, 2006.
The carrying value of the components of the Navidad interest 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.
FINANCIAL INSTRUMENTS
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.
RISK FACTORS
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. Exploration for mineral resources involves a high degree of risk. The
cost of conducting programs may be substantial and the likelihood of success is
difficult to assess.
TITLE RISK: The Company has transferred effective ownership of all of its
mineral properties to Aquiline under the terms of the Interim Project
Development Agreement. If the Company is unsuccessful with its appeal of the
court order that resulted in this transfer of ownership it will not regain its
interest in the mineral properties.
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: 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.
- 6 -
DISCLOSURE CONTROL AND PROCEDURES
Disclosure controls and procedures are defined under Multilateral Instrument
52-109 - Certification of Disclosure Controls in Issuers' Annual and Interim
Filings ("MI 52-109") as "... controls and other procedures of an issuer that
are designed to provide reasonable assurance that information required to be
disclosed by the issuer in its annual filings, interim filings or other reports
filed or submitted by it under provincial and territorial securities legislation
is recorded, processed, summarized and reported within the time periods
specified in the provincial and territorial securities legislation and include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by an issuer in its annual filings, interim filings or
other reports filed or submitted under provincial and territorial securities
legislation is accumulated and communicated to the issuer's management,
including its chief executive officers and chief financial officers (or persons
who perform similar functions to a chief executive officer or a chief financial
officer), as appropriate to allow timely decisions regarding required
disclosure". The Company has conducted a review and evaluation of its disclosure
controls and procedures, with the conclusion that it has an effective system of
disclosure controls, and procedures as defined under MI 52-109. In reaching this
conclusion, the Company recognizes that two key factors must be and are present:
(a) the Company is very dependant upon its advisors and
consultants (principally its legal counsel) to assist in
recognizing, interpreting, understanding and complying with
the various securities regulations disclosure requirements;
and
(b) an active Board and management with open lines of
communication.
The Company has a small staff with varying degrees of knowledge concerning the
various regulatory disclosure requirements. The Company is not of a sufficient
size to justify a separate department or one or more staff member specialists in
this area. Therefore the Company must rely upon its advisors and consultants to
assist it and as such they form part of the disclosure controls and procedures.
Proper disclosure necessitates that one not only be aware of the pertinent
disclosure requirements, but one is also sufficiently involved in the affairs of
the Company and/or receives the communication of information to assess any
necessary disclosure requirements. Accordingly, it is essential that there be
proper communication among those people who manage and govern the affairs of the
Company, this being the Board of Directors and senior management. The Company
believes this communication exists.
While the Company believes it has adequate disclosure controls and procedures in
place, lapses in the disclosure controls and procedures could occur and/or
mistakes could happen. Should such occur, the Company will take whatever steps
necessary to minimize the consequences thereof.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
Management is responsible for the design of internal controls over financial
reporting within the Company in order to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with Canadian generally accepted
accounting principles. Management has evaluated the design of the Company's
internal controls and procedures over financial reporting as of the end of the
period covered by the annual filings, and believes the design to be sufficient
to provide reasonable assurance.
SHARE DATA INFORMATION
As of March 29, 2007 there were 52,013,064 common shares, 3,504,404 warrants and
4,619,000 stock options outstanding.
INVESTOR RELATIONS
The Company currently does not engage any outside investor relations
consultants. Mr. Sean Hurd is the Company's Vice-President, Investor Relations
and coordinates investor relations' activities. The Company maintains a website
at www.imaexploration.com.
- 7 -
FORM 52-109F1 CERTIFICATION OF ANNUAL FILINGS
I, Joseph Grosso, President and Chief Executive Officer of IMA Exploration Inc.,
certify that:
1. I have reviewed the annual filings (as this term is defined in
Multilateral Instrument 52-109 Certification of Disclosure in Issuers'
Annual and Interim Filings) of IMA Exploration Inc. (the issuer) for
the period ending December 31, 2006;
2. Based on my knowledge, the annual filings do not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated or that is necessary to make a statement not misleading in
light of the circumstances under which it was made, with respect to the
period covered by the annual filings;
3. Based on my knowledge, the annual financial statements together with
the other financial information included in the annual filings fairly
present in all material respects the financial condition, results of
operations and cash flows of the issuer, as of the date and for the
periods presented in the annual filings;
4. The issuer's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures and
internal control over financial reporting for the issuer, and we have:
(a) designed such disclosure controls and procedures, or caused
them to be designed under our supervision, to provide
reasonable assurance that material information relating to the
issuer, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which the annual filings are being prepared;
(b) designed such internal control over financial reporting, or
caused it to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with the issuer's GAAP; and
(c) evaluated the effectiveness of the issuer's disclosure
controls and procedures as of the end of the period covered by
the annual filings and have caused the issuer to disclose in
the annual MD&A our conclusions about the effectiveness of the
disclosure controls and procedures as of the end of the period
covered by the annual filings based on such evaluation; and
5. I have caused the issuer to disclose in the annual MD&A any change in
the issuer's internal control over financial reporting that occurred
during the issuer's most recent interim period that has materially
affected, or is reasonably likely to materially affect, the issuer's
internal control over financial reporting.
Date: March 30, 2007
/s/ Joseph Grosso
-----------------
Joseph Grosso,
President & CEO
FORM 52-109F1 CERTIFICATION OF ANNUAL FILINGS
I, Arthur Lang, Chief Financial Officer of IMA Exploration Inc., certify that:
1. I have reviewed the annual filings (as this term is defined in
Multilateral Instrument 52-109 Certification of Disclosure in Issuers'
Annual and Interim Filings) of IMA Exploration Inc. (the issuer) for
the period ending December 31, 2006;
2. Based on my knowledge, the annual filings do not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated or that is necessary to make a statement not misleading in
light of the circumstances under which it was made, with respect to the
period covered by the annual filings;
3. Based on my knowledge, the annual financial statements together with
the other financial information included in the annual filings fairly
present in all material respects the financial condition, results of
operations and cash flows of the issuer, as of the date and for the
periods presented in the annual filings;
4. The issuer's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures and
internal control over financial reporting for the issuer, and we have:
(a) designed such disclosure controls and procedures, or caused
them to be designed under our supervision, to provide
reasonable assurance that material information relating to the
issuer, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which the annual filings are being prepared;
(b) designed such internal control over financial reporting, or
caused it to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with the issuer's GAAP; and
(c) evaluated the effectiveness of the issuer's disclosure
controls and procedures as of the end of the period covered by
the annual filings and have caused the issuer to disclose in
the annual MD&A our conclusions about the effectiveness of the
disclosure controls and procedures as of the end of the period
covered by the annual filings based on such evaluation; and
5. I have caused the issuer to disclose in the annual MD&A any change in
the issuer's internal control over financial reporting that occurred
during the issuer's most recent interim period that has materially
affected, or is reasonably likely to materially affect, the issuer's
internal control over financial reporting.
Date: March 30, 2007
/s/ Arthur Lang
-----------------------
Arthur Lang,
Chief Financial Officer