UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
[ ] Registration Statement Pursuant to Section 12(b) or (g) of the
Securities Exchange Act of 1934
or
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________ to _________
or
[ ] Shell Company Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number: 001-32558
IMA EXPLORATION INC.
(Exact name of Registrant as specified in its charter)
IMA EXPLORATION INC.
(Translation of Registrant's name into English)
BRITISH COLUMBIA, CANADA
(Jurisdiction of incorporation or organization)
#709, 837 WEST HASTINGS STREET, VANCOUVER, BRITISH COLUMBIA, CANADA V6C 2N6
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
NONE
Securities registered or to be registered pursuant to Section 12(g) of the Act.
COMMON STOCK, NO PAR VALUE
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
NOT APPLICABLE
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.
52,132,064 COMMON SHARES AS OF DECEMBER 31, 2007
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes No X
----- -----
If this report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
Yes No X
----- -----
Note - Checking the box above will not relieve any registrant required to file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
from their obligations under those Sections.
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer Accelerated filer Non-accelerated filer X
--- --- ---
Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 X Item 18
----- -----
If this is an annual report, indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act)
Yes No X
----- -----
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GENERAL INFORMATION:
Unless otherwise indicated, all references herein are to Canadian dollars.
CAUTIONARY NOTE TO UNITED STATES READERS CONCERNING ESTIMATES OF MEASURED,
INDICATED AND INFERRED RESOURCES
This form uses the terms "Measured," "Indicated" and "Inferred" Mineral
Resources. United States investors are advised that while such terms are
recognized and required by Canadian regulations, the United States Securities
and Exchange Commission (the "SEC") does not recognize them. "Inferred Mineral
Resources" have a great amount of uncertainty as to their existence, and great
uncertainty as to their economic and legal feasibility. It cannot be assumed
that all or any part of an Inferred Mineral Resource will ever be upgraded to a
higher category. Under Canadian rules, estimates of Inferred Mineral Resources
may not form the basis of feasibility or other economic studies. United States
investors are cautioned not to assume that all or any part of Measured or
Indicated Mineral Resources will ever be converted into reserves. United States
investors are also cautioned not to assume that all or any part of an Inferred
Mineral Resource exists, or is economically or legally mineable.
PART I
ITEM 1. DIRECTORS, SENIOR MANAGEMENT AND ADVISORS.
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Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE.
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Not applicable.
ITEM 3. KEY INFORMATION.
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SELECTED FINANCIAL DATA
The selected financial data and the information in the following table of IMA
Exploration Inc. (the "Company") for the years ended December 31, 2007, 2006 and
2005 was derived from the consolidated financial statements of the Company which
have been audited by PricewaterhouseCoopers LLP, independent Chartered
Accountants, as indicated in their report which is included elsewhere in this
annual report. The selected financial data set forth and the information in the
following table for the years ended December 31, 2004 and 2003 are derived from
the Company's audited consolidated financial statements after reflecting the
carve out of Golden Arrow Resources Corporation not included herein.
The information in the following table should be read in conjunction with the
information appearing under the heading "Item 5. Operating and Financial Review
and Prospects".
Reference is made to Note 11 of the 2007 consolidated financial statements of
the Company included herein for a discussion of the material measurement
differences between Canadian Generally Accepted Accounting Principles ("Canadian
GAAP") and United States Generally Accepted Accounting Principles ("U.S. GAAP"),
and their effect on the Company's financial statements.
To date, the Company has not generated sufficient cashflow from operations to
fund ongoing operational requirements and cash commitments. The Company has
financed its operations principally through the sale of its equity securities.
The Company considers that it has adequate resources to meet its commitments.
The funds on hand and received in January and February 2008 will allow the
company to acquire viable advance stage exploration
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assets. The Company may need to obtain additional financing or joint venture
partners in order to initiate any such programs. See "Item 5. Operating and
Financial Review and Prospects".
CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
--------------------------------------------------
(CDN$ IN 000, EXCEPT PER SHARE DATA)
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2007 2006 2005 2004 2003
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Revenue - - - - -
General Corporate Expenditures (2,093) (3,452) (6,092) (4,084) (2,276)
General Exploration Expenditures (209)(a) (499)(a) (56) (229) (227)
Foreign Exchange Gain (Loss) (8) (3) 233 (195) (13)
Interest and Miscellaneous Income 1,225 373 150 102 67
Provision for Marketable Securities - - - (100) -
Loss Allocated to Spin off Assets - - - (131) (969)
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Net Loss for the Year (1,085) (3,581) (5,765) (4,655) (3,418)
================================================================
Loss per Share from Continuing Operations (0.02) (0.07) (0.12) (0.11) (0.08)
================================================================
Loss per Share -Basic and Diluted (0.02) (0.07) (0.12) (0.11) (0.11)
================================================================
Weighted Average Number of Shares Outstanding 52,100 51,264 46,197 40,939 32,252
================================================================
Working Capital 26,019 9,060 7,489 5,053 4,747
Capital Assets - - - 94 36
Mineral Properties - - 15,032 6,551 1,469
Navidad Interest - 17,950 - - -
Spin-Off Assets - - - - 6,749
Long-Term Debt - - - - -
Total Assets 26,124 27,246 23,498 12,222 13,419
Net Assets - Shareholder's Equity 26,019 27,010 20,761 10,813 11,671
(a) The 2007 and 2006 General Exploration balance includes Navidad holding
costs which are comprised of:
i) costs incurred in order to maintain basic operations in Argentina
subsequent to the transfer of control of the Navidad project to
Aquiline;
ii) costs incurred in the period between the date of the judgment and the
transfer of control of the Navidad project to Aquiline that would
normally have been included in mineral properties and deferred costs.
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ADJUSTED TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
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Under U.S. GAAP the following financial information would be adjusted from
Canadian GAAP (references are made to Note 11 of the accompanying consolidated
audited financial statements):
(CDN$ IN 000, EXCEPT PER SHARE DATA)
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2007 2006 2005 2004 2003
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CONSOLIDATED STATEMENT OF OPERATIONS
Loss for the year under Canadian GAAP $(1,085) $(3,581) $(5,765) $(4,655) $(3,418)
Mineral property and deferred exploration costs
for the year, net of reversal of future income
tax and write down of marketable securities - (4,492) (7,605) (4,479) (1,813)
Mineral property and deferred exploration costs
written off during the year which would have been
expensed in the year incurred - - - - 777
Stock-based compensation - - - - (144)
Realization of Navidad interest 17,683 - - - -
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Income (loss) for the year under US GAAP $16,598 $(8,073) $(13,370) $(9,134) $(4,598)
Unrealized (loss) gains on
available-for-sale securities - (3) - (387) 434
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Comprehensive Income (loss) for the year $16,598 $(8,076) $(13,370) $(9,521) $(4,164)
================================================================
Income (loss) per share under US GAAP $0.32 $(0.16) $(0.29) $(0.22) $(0.14)
================================================================
Diluted Income (loss) per share under US GAAP $0.32 $(0.16) $(0.29) $(0.22) $(0.14)
================================================================
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2007 2006 2005 2004 2003
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SHAREHOLDERS' EQUITY
Balance per Canadian GAAP $26,019 $27,010 $20,761 $10,813 $11,671
Mineral property and deferred exploration costs
expensed net of reversal of future income tax - (17,764) (13,272) (5,666) (6,884)
Accumulated other comprehensive income - 81 84 84 489
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Balance per US GAAP $26,019 $9,327 $7,573 $5,231 $5,277
================================================================
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2007 2006 2005 2004 2003
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MINERAL PROPERTIES/NAVIDAD INTEREST
Balance per Canadian GAAP $18,500 $17,950 $15,032 $6,552 $8,214
Mineral property and deferred exploration costs
expensed net of reversal of future income tax - (17,750) (15,032) (6,552) (8,214)
Transfer of marketable securities - 81 - - -
----------------------------------------------------------------
Balance per US GAAP $18,500 $267 $- $- $-
================================================================
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(CDN$ IN 000, EXCEPT PER SHARE DATA)
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2007 2006 2005 2004 2003
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CONSOLIDATED STATEMENTS OF CASH FLOWS
OPERATING ACTIVITIES
Cash used per Canadian GAAP $(1,954) $(3,785) $(3,850) $(2,962) $(1,419)
Mineral properties and deferred costs - (4,492) (7,025) (4,578) (1,851)
----------------------------------------------------------------
Cash used per US GAAP $(1,954) $(8,277) $(10,875) $(7,540) $(3,270)
================================================================
INVESTING ACTIVITIES
Cash used per Canadian GAAP $1,687 $(5,412) $(10,259) $(8,810) $(1,873)
Mineral properties and deferred costs - 4,492 7,026 4,579 1,851
----------------------------------------------------------------
Cash provided (used) per US GAAP $1,687 $(920) $(3,233) $(4,232) $(22)
================================================================
FINANCING ACTIVITIES
Cash provided per Canadian and US GAAP $ 60 $9,437 $13,478 $9,297 $6,278
===============================================================
See Note 11 of the Company's consolidated financial statements.
EXCHANGE RATE HISTORY
The noon rate of exchange on February 29, 2008, reported by the United States
Federal Reserve Bank of New York for the conversion of Canadian dollars into
United States dollars was US$1.00 (US$1.00 =0.9999 CDN$).
The following table sets forth high and low exchange rates for one Canadian
dollar expressed in terms of one U.S. dollar for the six-month period ended
February 29, 2008.
MONTH HIGH LOW
September 2007 0.9721 0.9783
October 2007 1.0218 1.0283
November 2007 1.0292 1.0398
December 2007 0.9924 1.0010
January 2008 0.9852 0.9940
February 2008 0.9964 1.0047
The following table sets forth the average exchange rate for one Canadian dollar
expressed in terms of one U.S. dollar for the past five fiscal years.
PERIOD AVERAGE
January 1, 2003 - December 31, 2003 0.7206
January 1, 2004 - December 31, 2004 0.7682
January 1, 2005 - December 31, 2005 0.8254
January 1, 2006 - December 31, 2006 0.8818
January 1, 2007 - December 31, 2007 1.0740
Exchange rates are based upon the noon buying rate in New York City for cable
transfers in foreign currencies as certified for customs purposes by the Federal
Reserve Bank of New York.
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RISK FACTORS
Due to the nature of the Company's business and the present stage of exploration
on its mineral resource properties, the following risk factors apply to the
Company's operations (see "Item 4. Information on the Company - History and
Development of the Company"):
TITLE TO PROPERTIES RISK: The validity of mining claims, which will constitute a
significant portion of the Company's contemplated property holdings, is often
uncertain and may be contested. Although the Company will attempt to acquire
satisfactory title to undeveloped properties it acquires, the Company, in
accordance with mining industry practice, does not intend to obtain title
opinions until a decision is made to develop a property, with the attendant risk
that some titles, particularly titles to undeveloped properties, may be subject
to contest by other parties. Title to properties may be subject to litigation
claims by others. The Company has no mineral properties as of the date of this
filing.
LIQUIDITY AND CASH FLOW: As at the date of this annual report, the Company has
not generated any revenues from operations to fund ongoing operational
requirements and cash commitments. The Company has financed its operations
principally through the sale of its equity securities. As at February 29, 2008
the Company had working capital of approximately $25,485,000. Management
believes the Company has adequate resources to maintain its ongoing operations.
See "Item 5. Operating and Financial Review and Prospects - Liquidity and
Capital Resources".
EXPLORATION STAGE COMPANY: An investment in a natural resources company involves
a high degree of risk. The degree of risk increases substantially where a
company's properties are in the exploration stage.
ADDITIONAL FINANCING: The Company presently has sufficient financial resources
to meet its commitments. The Company will continue to rely on successfully
completing additional equity financing and/or conducting joint venture
arrangements to further exploration on its properties. There can be no assurance
that the Company will be successful in obtaining the required financing or
negotiating joint venture agreements. The Company's management may elect to
acquire new projects, at which time additional equity financing may be required
to fund overhead and maintain its interests in current projects, or may decide
to relinquish certain of its properties. These decisions will be based on the
results of ongoing exploration programs and the response of equity markets to
the projects and business plan. The failure to obtain such financing or complete
joint venture arrangements could result in the loss or substantial dilution of
the Company's interests (as existing or as proposed to be acquired) in its
properties as disclosed herein. The Company does not have any definitive
commitment or agreement concerning any investment, strategic alliance or related
effort. The Company may seek joint venture partners to provide funding for
further work on any or all of those other properties. Joint ventures may involve
significant risks and the Company may lose any investment it makes in a joint
venture. Any investments, strategic alliances or related efforts are accompanied
by risks such as:
1. the difficulty of identifying appropriate joint venture partners or
opportunities;
2. the time the Company's senior management must spend negotiating
agreements and monitoring joint venture activities;
3. the possibility that the Company may not be able to reach agreement on
definitive agreements, with potential joint venture partners;
4. potential regulatory issues applicable to the mineral exploration
business;
5. the investment of the Company's capital or properties and the loss of
control over the return of the Company's capital or assets;
6. the inability of management to capitalize on the growth opportunities
presented by joint ventures; and
7. the insolvency of any joint venture partner.
There are no assurances that the Company would be successful in overcoming these
risks or any other problems encountered with joint ventures, strategic alliances
or related efforts.
EXPLORATION RISKS: Mineral exploration is highly speculative in nature, involves
many risks and frequently is nonproductive. There can be no assurance that the
Company's efforts to identify resources will be successful. Moreover,
substantial expenditures are required to establish resources through drilling,
to determine metallurgical processes to extract the metal from the ore and to
construct mining and processing facilities. During the time
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required to establish resources, determine suitable metallurgical processes and
construct such mining and processing facilities, the economic feasibility of
production may change because of fluctuating prices.
METAL PRICE RISK: The prices of metals greatly affect the value of the Company
and the potential value of its potential properties and investments.
FINANCIAL MARKETS RISK: The Company is dependent on the equity markets as its
sole source of operating working capital and the Company's capital resources are
largely determined by the strength of the junior resource markets and by the
status of the Company's projects in relation to these markets, and its ability
to compete for the investor support of its projects.
POLITICAL RISK: Exploration in foreign jurisdictions 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. Site restoration costs are a component of exploration expenses.
PROJECT DELAY RISK: The Company's minerals business will be subject to the risk
of unanticipated delays in permitting its contemplated projects. Such delays may
be caused by fluctuations in commodity prices, mining risks, difficulty in
arranging needed financing, unanticipated permitting requirements or legal
obstruction in the permitting process by project opponents. In addition to
adding to project capital costs (and possibly operating costs), such delays, if
protracted, could result in a write-off of all or a portion of the carrying
value of the delayed project.
PRICE FLUCTUATIONS AND SHARE PRICE VOLATILITY: In recent years the securities
markets in Canada have experienced a high level of price and volume volatility
and the market price of securities of many companies, particularly junior
mineral exploration companies, like the Company, have experienced wide
fluctuations which have not necessarily been related to the operating
performance, underlying asset values or prospects of such companies. In
particular, the per share price of the Company's common shares on the TSX
Venture Exchange (the "TSX-V") fluctuated from a high of $1.20 to a low of $0.36
during the 12-month period ending December 31, 2007. There can be no assurance
that continual fluctuations in price will not occur.
OPERATING HAZARDS AND RISKS: Mining operations involve many risks, which even a
combination of experience, knowledge and careful evaluation may not be able to
overcome. Operations in which the Company has a direct or indirect interest will
be subject to all the hazards and risks normally incidental to exploration for
metals, any of which could result in damage to or destruction of mines and other
producing facilities, damage to life and property, environmental damage and
possible legal liability for any or all damage. Although the Company maintains
liability insurance in an amount which it considers adequate, the nature of
these risks is such that liabilities could exceed policy limits, in which event
the Company could incur significant costs that could have a materially adverse
effect upon its financial condition.
INSURABLE RISKS AND LIMITATIONS OF INSURANCE: The Company maintains certain
insurance, however, such insurance is subject to numerous exclusions and
limitations. The Company maintains a Total Office Policy in Canadian dollars on
its principal offices. Generally, the Total Office Policy provides All Risk
Replacement Cost Coverage on office contents, up to $450,000, with a $2,500
deductible. In addition, the policy provides Commercial General Liability
coverage of up to $5,000,000 for Third Party Bodily Injury or Property Damage,
per occurrence and $2,000,000 for Tenants Legal Liability for any one leased
premises, with a $500 deductible. The Company also has insurance coverage of up
to $5,000,000 for non-owned automobile liability.
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The Company maintains a Foreign Commercial General Liability policy in U.S.
dollars which provides US$5,000,000 coverage for bodily injury or property
damage per occurrence and coverage up to US$5,000,000 per offence for personal
injury or advertising injury (libel, slander, etc.). The policy has a general
aggregate limit for all claims during each consecutive policy period, except for
those resulting from product hazards or completed operations hazards, of
US$5,000,000. The policy has a US$5,000,000 aggregate limit for each consecutive
policy period, for bodily injury or property damage liability arising out of
completed operations and products. In addition, the Foreign Commercial General
Liability policy provides for coverage of up to US$10,000 in medical expenses,
per person, with a US$10,000 limit per accident, and up to US$100,000 for each
occurrence of tenants' fire legal liability. The policy does not apply to injury
or damages occurring within Canada, the United States (including its territories
and possessions), Puerto Rico, any countries or territories against which the
United States has an embargo, sanction or ban in effect, territorial waters of
any of the foregoing, the Gulf of Mexico, or international waters or airspace
when an injury or damage occurs in the course of travel or transportation to any
country or place included in the foregoing. The policy also does not cover
asbestos related claims or liability for bodily injury or property damages
arising out of the discharge, dispersal, release or escape of smoke, vapors,
soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials
or other irritants, contaminants or pollutants into or upon land, the
atmosphere, or any water-course or body of water. The policy also contains a
professional liability exclusion which applies to bodily injury or property
damage arising out of defects in maps, plans, designs or specifications
prepared, acquired or used by the Company or arising out of any act of
negligence, error, mistake or omission in rendering or failing to render
professional consulting or engineering services, whether performed by the
Company or other for whom the Company is responsible.
The Company maintains a Foreign Commercial Automobile Liability Insurance policy
on owned, leased, hired and non-owned automobiles with the following liability
limitations:
o $5,000,000 bodily injury liability for each person.
o $5,000,000 bodily injury liability for each occurrence.
o $5,000,000 property damage liability for each occurrence.
o $10,000 medical expense coverage, per person.
o $10,000 medical expense coverage, per accident.
The Company has an Executive and Organization Liability insurance policy for the
benefit of directors and officers. The aggregate limit of liability is $5
million. The policy is renewable on a yearly basis.
The foregoing descriptions of the Company's insurance policies do not purport to
be complete and do not cover all of the exclusions to such policies.
MANAGEMENT: The Company is dependent on the services of Joseph Grosso, the
President and a director of the Company. The loss of Mr. Grosso could have an
adverse affect on the Company. Joseph Grosso provides his services to the
Company through Oxbow International Marketing Corp. ("Oxbow"). The Company has
entered into a consulting agreement with Oxbow.
All of the Company's other officers are employed by Grosso Group Management Ltd.
(the "Grosso Group"). See "Item 6. Directors, Senior Management and Employees -
Directors and Senior Management - Conflicts of Interest". The Company does not
maintain "key-man" insurance in respect of any of its principals.
DEPENDENCE UPON OTHERS: The success of the Company's operations will depend upon
numerous factors, many of which are beyond the Company's control, including: (i)
the ability of the Company to acquire properties or projects of merit; (ii) the
ability to enter into strategic alliances through a combination of one or more
joint ventures, mergers or acquisition transactions; (iii) the ability to
discover and produce minerals; (iv) the ability to attract and retain additional
key personnel in investor relations, marketing, technical support, and finance;
and (v) the ability and the operating resources to develop and maintain the
properties held by the Company. These and other factors will require the use of
outside suppliers as well as the talents and efforts of the Company. There can
be no assurance of success with any or all of these factors on which the
Company's operations will depend.
CONFLICTS OF INTEREST: Several of the Company's directors are also directors,
officers or shareholders of other companies. Such associations may give rise to
conflicts of interest from time to time. Such a conflict poses the risk
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that the Company may enter into a transaction on terms which could place the
Company in a worse position than if no conflict existed. The directors of the
Company are required by law to act honestly and in good faith with a view to the
best interest of the Company and to disclose any interest which they many have
in any project or opportunity of the Company. However, each director has a
similar obligation to other companies for which such director serves as an
officer or director. The Company has no specific internal policy governing
conflicts of interest. See "Item 6. Directors, Senior Management and Employees -
Directors and Senior Management - Conflicts of Interest".
FOREIGN COUNTRIES AND REGULATORY REQUIREMENTS: Mineral exploration and mining
activities in foreign jurisdictions may be affected in varying degrees by
political instability and government regulations relating to the mining
industry. Any changes in regulations or shifts in political conditions are
beyond the control of the Company and may adversely affect its business. The
Company does not maintain and does not intend to purchase political risk
insurance. Operations may be affected in varying degrees by government
regulations with respect to restrictions on production, price controls, export
controls, income taxes, expropriations of property, environmental legislation
and mine safety. The effect of all of these factors cannot be accurately
predicted.
CURRENCY FLUCTUATIONS: The Company's operations make it subject to foreign
currency fluctuations and such fluctuation may adversely affect the Company's
financial position and results. Certain of the Company's expenses are
denominated in U.S. dollars. As such, the Company's principal foreign exchange
exposure is related to the conversion of the Canadian dollar into U.S. dollars.
The Canadian dollar varies under market conditions. Continued fluctuation of the
Canadian dollar against the U.S. dollar will continue to affect the Company's
operations and financial position. The Company's foreign subsidiaries comprise a
direct and integral extension of the Company's operations. These subsidiaries
are also entirely reliant upon the Company to provide financing in order for
them to continue their activities. Consequently, the functional currency of
these subsidiaries is considered by management to be the Canadian dollar and
accordingly exchange gains and losses are included in net income. The Company
does not engage in hedging activities. See "Item 5. Operating and Financial
Review and Prospects".
NO DIVIDENDS: The Company has not paid out any cash dividends to date and has no
plans to do so in the immediate future.
PENNY STOCK REGULATION: The SEC has adopted rules that regulate broker-dealer
practices in connection with transactions in "penny stocks". Generally, penny
stocks are equity securities with a price of less than US$5.00 (other than
securities registered on certain national securities exchanges or quoted on the
NASDAQ system). Since the Company's shares are traded for less than US$5.00 per
share, the shares are subject to the SEC's penny stock rules. The Company's
shares will be subject to the penny stock rules until such time as (1) the
issuer's net tangible assets exceed US$5,000,000 during the issuer's first three
years of continuous operations or US$2,000,000 after the issuer's first three
years of continuous operations; or (2) the issuer has had average revenue of at
least US$6,000,000 for three years. The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document prescribed by the
SEC that provides information about penny stocks and the nature and level of
risks in the penny stock market. The broker-dealer must obtain a written
acknowledgement from the purchaser that the purchaser has received the
disclosure document. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction and monthly account
statements showing the market value of each penny stock held in the customer's
account. In addition, the penny stock rules require that prior to a transaction
in a penny stock not otherwise exempt from those rules, the broker-dealer must
make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser's written agreement to
the transaction. These requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to the
penny stock rules. Such rules and regulations may make it difficult for holders
to sell the common stock of the Company, and they may be forced to hold it
indefinitely.
ENFORCEMENT OF LEGAL PROCESS: It may be difficult to bring and enforce suits
against the Company. The Company is incorporated in British Columbia, Canada.
Only one of the Company's directors is a resident of the United States and all,
or a substantial portion, of the other directors' assets are located outside of
the United States. As a result, it may be difficult for U.S. holders of the
Company's common shares to effect service of process on these persons within the
United States or to enforce judgments obtained in the U.S. based on the civil
liability provisions of the U.S. federal securities laws against the Company or
their officers and directors. In addition, a shareholder should not assume that
the courts of Canada (i) would enforce judgments of U.S. courts obtained in
actions against the
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Company or their officers or directors predicated upon the civil liability
provisions of the U.S. federal securities laws or other laws of the United
States, or (ii) would enforce, in original actions, liabilities against the
Company or their officers or directors predicated upon the U.S. federal
securities laws or other laws of the United States.
However, U.S. laws would generally be enforced by a Canadian court provided that
those laws are not contrary to Canadian public policy, are not foreign penal
laws or laws that deal with taxation or the taking of property by a foreign
government and provided that they are in compliance with applicable Canadian
legislation regarding the limitation of actions. Also, a judgment obtained in a
U.S. court would generally be recognized by a Canadian court except, for
example:
1. where the U.S. court where the judgment was rendered had no
jurisdiction according to applicable Canadian law;
2. the judgment was subject to ordinary remedy (appeal, judicial review
and any other judicial proceeding which renders the judgment not
final, conclusive or enforceable under the laws of the applicable
state) or not final, conclusive or enforceable under the laws of the
applicable state;
3. the judgment was obtained by fraud or in any manner contrary to
natural justice or rendered in contravention of fundamental principles
of procedure;
4. a dispute between the same parties, based on the same subject matter
has given rise to a judgment rendered in a Canadian court or has been
decided in a third country and the judgment meets the necessary
conditions for recognition in a Canadian court;
5. the outcome of the judgment of the U.S. court was inconsistent with
Canadian public policy;
6. the judgment enforces obligations arising from foreign penal laws or
laws that deal with taxation or the taking of property by a foreign
government; or
7. there has not been compliance with applicable Canadian law dealing
with the limitation of actions.
ITEM 4. INFORMATION ON THE COMPANY.
--------------------------------------------------------------------------------
HISTORY AND DEVELOPMENT OF THE COMPANY
Since 1996, the Company has been engaged, through its subsidiaries, in the
acquisition and exploration of mineral properties, with a primary focus in
Argentina and Peru. The Company was incorporated in British Columbia under the
COMPANY ACT (British Columbia, Canada) (the "Company Act") on September 17,
1979, as Gold Star Resources Ltd. On May 1, 1990, the Company filed an Altered
Memorandum to reflect its name change to EEC Marketing Corp. On January 13,
1992, the Company filed an Altered Memorandum to reflect its name change to
Amera Industries Corp. From its date of inception to January 31, 1992, the
Company was inactive. Between January 31, 1992 and August 31, 1994, the Company
was involved in the eyewear and optical products industry. Subsequently, the
Company again became inactive and began seeking a new business opportunity. The
Company filed another Altered Memorandum on February 9, 1995, to reflect its
name change to International Amera Industries Corp. On February 20, 1996, the
Company filed an Altered Memorandum, changing its name to IMA Resource
Corporation, and became engaged in the acquisition and exploration of mineral
properties.
In September of 1995 the Company formed IMPSA Resources Corporation ("IMPSA") in
order to pursue opportunities in Peru. At that time, exploration efforts by
other companies in Peru were beginning in earnest. Management believed Peru was
a favorable country for mineral exploration due to the country's geology and
strong mining culture. In addition, management believed that Peru was
under-explored.
Management believed the amount of capital necessary to fully exploit
opportunities in Peru was greater than what the Company sought to invest. Since
the Company had an ongoing exploration program in Argentina, the Company
initially limited the funding of its Peruvian projects to $250,000. The Company
established IMPSA and used the Company's $250,000 capital contribution to
establish an infrastructure and initiate property reviews. A number of
consultants were retained and detailed property assessments were initiated. The
Company determined that in order to further develop IMPSA, additional funding
would be required.
The Company initially received 500,000 common shares, or 30.76%, of the then
issued and outstanding common shares of IMPSA, for its $250,000 capital
contribution. As a result of issuing 375,000 shares to IMPSA's management and
key employees, and the completion of two private placements (resulting in the
issuance of a total
- 11 -
of 1,528,000 common shares of IMPSA), the Company's initial investment in IMPSA
was diluted to 20.76%. However, in order to assure the Company an ongoing
interest in the assets of IMPSA, the Company retained a 20% participating
interest in IMPSA (BVI) and retained the right to maintain a 20% ownership
interest in IMPSA. During fiscal 1998, the Company increased its investment in
IMPSA by purchasing 990,963 shares, which increased the Company's percentage
ownership of IMPSA from 20.76% to 43.81%. In January 1999, the Company acquired
an additional 6,500,000 common shares of IMPSA, increasing its equity interest
from 43.81% to 80.69%. During 2001, the Company completed the reorganization of
its corporate structure to continue the funding of the Company's Peruvian
exploration activities. On August 20, 2001, the Company entered into an
agreement with IMPSA, its 80.69% owned subsidiary, to acquire IMPSA's 80%
interest in IMPSA (BVI) and IMPSA's advances to IMPSA (BVI) of approximately
US$1.536 million, in exchange for $850,000 plus a 2% fee on any net revenue or
proceeds from the disposition of certain properties held by IMPSA (BVI). See
"Item 4. Information on the Company - Organizational Structure." The fee is
limited to a maximum of $1,400,000. This transaction was approved by IMPSA's
shareholders on September 4, 2001. IMPSA used the cash proceeds to retire its
debt to the Company. Rio Tabaconas (formerly known as Tamborapa), IMPSA's
principal property, is for the most part an early stage exploration property and
involves a high degree of risk.
On April 3, 1996, the Company acquired IMA Holdings Corp. ("IHC"), a British
Columbia company. The acquisition of IHC by the Company resulted in the former
shareholders of IHC acquiring control of the Company. At the time of the
acquisition, the Company had two common directors with IHC. Generally accepted
accounting principles required the transaction to be treated for accounting
purposes as a reverse-takeover. In accounting for this transaction:
(i) IHC was deemed to be the purchaser and parent company for accounting
purposes. Accordingly, its net assets are included in the Company's
consolidated balance sheet at their historical book value; and
(ii) control of the net assets and business of the Company was acquired
effective April 3, 1996. The transaction was accounted for as a
purchase of the assets and liabilities of the Company by IHC at their
fair values.
IHC's primary asset was a 50% joint venture interest in Minas Argentinas
(Barbados) Inc. ("Minas Barbados"). Oro Belle Resources Corporation ("Oro
Belle"), a third party, held the remaining 50% interest in Minas Barbados. The
sole asset of Minas Barbados is its 100% interest in Minas Argentinas S.A.
("MASA"). MASA is an Argentine company whose main activity is exploration of
mineral properties in Argentina. During 1998, the Company held discussions with
Oro Belle and its majority shareholder, Viceroy Resource Corporation
("Viceroy"), to restructure the arrangement and facilitate the funding of future
financial requirements of MASA.
In May 1998, the Company entered into an arrangement (the "Plan of Arrangement")
with Viceroy whereby the Company agreed to exchange its 50% interest in Minas
Barbados for 2,200,000 common shares of Viceroy (the "Viceroy Shares"), at a
price of $2.25 per Viceroy Share (being the market value of the Viceroy Shares
on the date of the transaction), a 1% net smelter returns royalty interest (the
"MASA NSR") in the mineral property interests held by MASA, and the
extinguishment of all debts owing by the Company to MASA. No value was ascribed
to the MASA NSR for the purpose of calculating the total consideration received
at the date of exchange.
The Company also restructured its share capital to facilitate the distribution
of 1,540,000 Viceroy Common Shares to the Company's shareholders. The
transaction was accomplished as follows:
i) each issued and outstanding common share of the Company was exchanged
for one Class A common share and one Class B preferred share (the
"Preferred Shares") of the Company;
ii) the holders of the Preferred Shares received 1,540,000 Viceroy Common
Shares, directly from Viceroy, in exchange for all of the Preferred
Shares;
iii) the Company relinquished its ownership interest in Minas Barbados to
Viceroy in exchange for the Preferred Shares, the MASA NSR, the
extinguishment of all debts to MASA and 660,000 Viceroy Shares. The
Preferred Shares were then canceled by the Company; and
- 12 -
iv) all options and warrants to purchase common shares of the Company
became exercisable to purchase Class A common shares on the same basis
as the common shares.
The transaction became effective July 7, 1998, upon filing an Altered
Memorandum, and the Company changed its name to IMA Exploration Inc. As a result
of the transaction, the Company consolidated its share capital on the basis of
four old shares for one new share.
On June 30, 1999, the shareholders of the Company passed a Special Resolution
approving a redesignation of the Class A Common Shares to common shares.
In August 1999, the Company completed a private placement with Barrick Gold
Corporation ("Barrick"). Barrick was granted an option to earn an interest in
either the Potrerillos or Rio de Taguas property. The funds were spent on the
drilling program on the Potrerillos property. Proceeds were spent on further
exploration of the Company's properties in the Valle de Cura region of San Juan
Province, Argentina from October 2000 to March 2001. As a result of the private
placement Barrick became the Company's largest shareholder. During September
2003 Barrick reduced its shareholding to 1,000,000 shares.
The Company agreed to spend a minimum of $1,125,000 on its Valle de Cura
properties out of the proceeds from the Barrick private placement. As of
December 31, 2003 this requirement had been met. On December 15, 2003, Barrick
served notice that it would not be exercising the option and the Company began
pursuing other partners for the continued exploration of these drill ready
projects.
In 2002, the Company began to acquire properties in Chubut Province, Argentina.
In 2003, the Company significantly increased its focus on activities in the
Chubut region. The Company has entered into a number of joint venture agreements
which resulted in the farm-out of several of its non-core properties.
In early 2003, the Company focused its efforts on its Navidad property in Chubut
Province located in southern Argentina. The preliminary results of its initial
exploration efforts were very encouraging. The first phase of a drill program
commenced in late 2003. The Company continued its exploration and development
program until mid 2006.
On March 29, 2004, the new British Columbia BUSINESS CORPORATIONS ACT (the
"BCBCA") came into force in British Columbia and replaced the former Company
Act, which is the statute that previously governed the Company. See "Item 10.
Additional Information - Memorandum and Articles of Association."
On May 3, 2004, the Company announced its intention to proceed with a
reorganization of the Company which had the result of dividing its present
mineral resource assets between two separate public companies. Under the
reorganization, the Company's most advanced project, the Navidad
silver-lead-copper project and certain other Navidad area properties in central
Chubut Province, Argentina (the "Navidad Properties") continued to be owned by
the Company, while the Company's non-Navidad mineral properties along with
$750,000 of operating cash and the joint venture agreements (including the
marketable securities) relating to the transferred properties (collectively the
"Transferred Assets") were transferred to Golden Arrow Resources Corporation
("Golden Arrow"), a public company formed to effect the reorganization. The
Company retained the Navidad project and focused on:
1. a significantly expanded drill program on the numerous targets within
Navidad;
2. more detailed regional exploration for Navidad style targets;
3. pursuing a listing on major U.S. and Canadian stock exchanges;
4. completing a bankable feasibility study on the Navidad project in a
timely fashion; and
5. exploring the Navidad related properties directly or through joint
ventures.
The reorganization was implemented by a Plan of Arrangement under the BCBCA. The
Company's shareholders and optionholders approved the Plan of Arrangement at the
Company's Annual General Meeting that was held on June 22, 2004. All other
approvals were subsequently received.
The common shares of Golden Arrow were distributed to shareholders of the
Company in proportion to their shareholdings in the Company on July 7, 2004 and
on the basis of one Golden Arrow share for every 10 shares of the Company held.
The reorganization was intended to enhance shareholder value by enabling each
company to
- 13 -
focus on the development of its own properties, and by allowing shareholders to
hold an interest in Golden Arrow which reflects the value of the Company's
portfolio of exploration projects.
On March 5, 2004, Aquiline Resources Inc. ("Aquiline"), through its subsidiary,
Minera Aquiline Argentina SA, filed a claim in the Supreme Court of British
Columbia against the Company seeking a constructive trust over the Navidad
properties and damages. The trial was held in Vancouver British Columbia
commencing in October 2005, and ended on December 12, 2005. Additionally, as a
condition of the reorganization, Golden Arrow became a party to the Aquiline
action. The Company provided an indemnity to Golden Arrow for any costs or
losses that might be incurred by Golden Arrow in connection with this matter.
On July 14, 2006 the court released its judgment on the Aquiline claim. The
Company was not successful in its defense and the court found in Aquiline's
favour.
The Order read 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
(the "Interim Agreement") for the orderly conduct of the Navidad Project pending
the determination of the appeal by the Company against the judgment of the trial
court. The parties agreed that the transactions outlined in the Interim
Agreement were in satisfaction of the Order referenced above. The principal
terms and conditions of the Interim Agreement were as follows:
(i) control of the Navidad Project was transferred to Aquiline in
trust for the ultimately successful party in the appeal
(ii) the Company and Aquiline 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 and
(iii) in the event that the Company was unsuccessful on appeal, the
Company was to be paid such $18,500,000 amount.
The effective date of the transfer of the Navidad project was November 16, 2006.
A copy of the Interim 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's appeal of this judgment was heard by the British Columbia Court of
Appeal between April 10 and April 12, 2007. The Court of Appeal dismissed the
Company's appeal and released their reasons for judgment on June 7, 2007.
The Company filed an application for leave to appeal to the Supreme Court of
Canada in October 2007. On December 20, 2007 the Supreme Court of Canada denied
the Company's appeal. This brought the lawsuit to a close. The Navidad property
has been transferred to Aquiline.
The Company was paid $18,500,000 as consideration for these assets. The Company
received the $7.5 million held in trust on January 8, 2008, plus interest that
had accrued in the amount of $341,380. The $11 million balance was received on
February 11, 2008.
- 14 -
On February 29, 2008 IMA Holdings Inc. was wound up into IMA Exploration Inc.
ACQUISITION AND DISPOSITION OF MINERAL PROPERTY INTERESTS DURING THE THREE PRIOR
FISCAL YEARS
The Company has made additions to mineral properties and deferred costs of $Nil
and capital assets of $Nil, $2,731,414 and $Nil, $8,480,509 and $Nil for the
fiscal years ended December 31, 2007, 2006 and 2005, respectively. As at
December 31, 2006, the Company's mineral properties and deferred costs had been
reclassified as a component of the Navidad interest balance of $17,949,521,
comprised of mineral properties and deferred costs of $17,949,521 and marketable
securities of $186,000 which are subject to transfer to Aquiline under the terms
of the Interim Agreement. As at December 31, 2007, the Navidad interest was
increased to $18,500,000 as a result of a recovery of overhead costs that were
previously expensed. The $18,500,000 was received subsequent to December 31,
2007.
PLANNED EXPLORATION EXPENDITURES AND PROPERTY PAYMENTS
The Company has been actively reviewing many projects and opportunities for
future acquisitions. The Company has $25 million of cash available and is well
funded to acquire projects and properties and to then further develop their
potential for 2008 and beyond. The Company's reviews have focused on projects
with a defined resource combined with future potential or which have had
previous positive exploration activities. In the fall of 2007 Dr. Greg Myers was
retained to assist the existing staff and management in this search. Management
is very cognizant of the shareholders' expectations for the Company to return to
active exploration and development. However, this is a process that cannot be
rushed. Proper due diligence takes time and resources, then followed by
negotiations with the property vendors and then whatever regulatory approvals
may also be required.
The Company is well placed to apply strict criteria to its selection and given
current market conditions expects to be presented with excellent opportunities
for one or more acquisitions on which to act.
The Company considers that it has adequate resources to maintain its
contemplated operations. The Company will continue to rely on successfully
completing additional equity financing and/or conducting joint venture
arrangements to identify and acquire future properties. There can be no
assurance that the Company will be successful in obtaining the required
financing or negotiating joint venture agreements. The failure to obtain such
financing or joint venture agreements could result in the Company being unable
to identify and acquire future properties. See "Item 4. History and Development
of the Company."
BUSINESS OVERVIEW
The Company is a natural resource company engaged in the business of
acquisition, exploration and development of mineral properties. At present, the
Company has no producing properties and consequently has no current operating
income or cash flow. As of the date of this annual report, the Company is an
exploration stage company and has not generated any revenues from mining
operations. There is no assurance that a commercially viable mineral deposit
exists on any of the Company's properties. Further exploration and evaluation
will be required before a final determination as to the economic and legal
feasibility of any of the properties is determined.
GOVERNMENT REGULATIONS
The Company's operations are subject to certain governmental laws and
regulations. See "Item 3. Key Information - Risk Factors - Foreign Countries and
Regulatory Requirements", "Item 3. Key Information - Risk Factors - Impact of
Government Regulations on the Company's Business" and "Item 3. Key Information -
Risk Factors - Environmental Regulations."
ORGANIZATIONAL STRUCTURE
The Company has one direct wholly-owned subsidiary, IMA Latin America Inc. ("IMA
Latin America"), a British Virgin Islands company.
IMA Latin America has one direct wholly-owned subsidiary, Punto Dorado SA, an
Argentine company.
- 15 -
The Company's current corporate structure is depicted below. See "Item 4.
Information on the Company - History and Development of the Company."
Unless otherwise indicated herein, the term "Company" means collectively the
Company and its subsidiaries.
----------------------------------
IMA Exploration Inc.
(CANADA)
----------------------------------
|
|
|
|
----------------------------------
IMA Latin America Inc.
(BVI)
----------------------------------
|
|
|
|
----------------------------------
Punto Dorado S.A.
(ARGENTINA)
----------------------------------
PROPERTIES, PLANTS AND EQUIPMENT
The Company's principal business is the acquisition and exploration of mineral
properties. As of the date of this annual report, the Company's has no mineral
properties and the Company's operations are exploratory in nature. See "Item 4.
History and Development of the Company."
PRINCIPAL PROPERTIES
ARGENTINEAN PROPERTIES
As described in "Item 4. History and Development of the Company," the Company no
longer has an interest in its former Argentinean Properties. During the fiscal
years ending December 31, 2007, 2006 and 2005 the Company had capitalized and
expensed costs on all of its properties as follows:
General Aggregate
Exploration Amount
Amount Expensed in Written-off In
Fiscal Year Ending Capitalized Fiscal Year(a) Fiscal Year
------------------ ----------- ------------ --------------
December 31, 2005 $15,032,107 $55,914 $ Nil
December 31, 2006 $17,763,521 $498,921 $ Nil
December 31, 2007 $ - $209,255 $ Nil
(a) In fiscal 2007, this amount includes $109,666 (2006 - $312,349) in Navidad
holding costs which is comprised of:
(i) costs incurred in order to maintain basic operations in Argentina
subsequent to the transfer of control of the Navidad project to
Aquiline; and
(ii) costs incurred in the period between the date of the judgment and the
transfer of control of the Navidad project to Aquiline that would
normally have been included in mineral properties and deferred costs.
PRINCIPAL OFFICE
The Company's principal office is located at #709 - 837 West Hastings Street,
Vancouver, British Columbia, V6C 3N6. On January 1, 2005 the Company engaged the
Grosso Group to provide office facilities and management services. See "Item 7.
Major Shareholders and Related Party Transactions - Related Party Transactions."
- 16 -
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.
--------------------------------------------------------------------------------
The following discussion of the results of operations of the Company for the
fiscal years ended December 31, 2007, 2006 and 2005, respectively, should be
read in conjunction with the consolidated financial statements of the Company
and related notes included therein.
CRITICAL ACCOUNTING POLICIES
Reference should be made to significant accounting policies contained in Note 3
of the December 31, 2007 consolidated financial statements of the Company
attached hereto. These accounting policies can have a significant impact of the
financial performance and financial position of the Company.
LEGAL PROCEEDINGS
On March 5, 2004, Aquiline, through its subsidiary, filed a claim in the Supreme
Court of British Columbia against the Company seeking a constructive trust over
the Navidad properties and damages. The trial was held in Vancouver British
Columbia commencing in October 2005 and ended on December 12, 2005.
On July 14, 2006 the court released its judgment on the Aquiline claim. The
Company was not successful in its defense and the court found in Aquiline's
favour.
The Company's appeal of this judgment was heard by the British Columbia Court of
Appeal between April 10 and April 12, 2007. The Court of Appeal dismissed the
Company's appeal and released their reasons for judgment on June 7, 2007.
The Company filed an application for leave to appeal to the Supreme Court of
Canada in October 2007. On December 20, 2007 the Supreme Court of Canada denied
the Company's appeal. This brought the lawsuit to a close. As a result, the
Navidad property has been transferred to Aquiline. See "Item 4. History and
Development of the Company."
USE OF ESTIMATES
The preparation of financial statements in conformity with Canadian GAAP
requires management to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amount of
revenues and expenses during the period. Significant areas requiring the use of
management estimates relate to the determination of environmental obligations
and impairment of mineral properties and deferred costs. Actual results may
differ from these estimates.
MINERAL PROPERTIES AND DEFERRED COSTS
Consistent with the Company's accounting policy disclosed in Note 3 of the
consolidated financial statements attached hereto, direct costs related to the
acquisition and exploration of mineral properties held or controlled by it have
been capitalized on an individual property basis. It is the Company's policy to
expense any exploration associated costs not related to specific projects or
properties. Management periodically reviews the recoverability of the
capitalized mineral properties. Management takes into consideration various
information including, but not limited to, results of exploration activities
conducted to date, estimated future metal prices, and reports and opinions of
outside geologists, mine engineers and consultants. When it is determined that a
project or property will be abandoned then the costs are written-off, or if its
carrying value has been impaired, then the costs are written down to fair value.
The Company's operations and results are subject to a number of different risks
at any given time. These factors, include but are not limited to disclosure
regarding exploration, additional financing, project delay, titles to
properties, price fluctuations and share price volatility, operating hazards,
insurable risks and limitations of insurance, management, foreign country and
regulatory requirements, currency fluctuations and environmental regulations
risks. See "Item 3. Key Information - Risk Factors."
- 17 -
The Company's consolidated financial statements were prepared on a going concern
basis which assumes that it will be able to realize assets and discharge
liabilities in the normal course of business.
The Company's consolidated financial statements are in Canadian dollars (CDN$)
and are prepared in accordance with Canadian GAAP, the application of which, in
the case of the Company, conforms in all material respects for the periods
presented with U.S. GAAP except for the measurement differences referred to in
Note 11 of the consolidated financial statements of the Company included herein.
The effects of inflation and price changes have not had a material impact on the
Company's income or net sales revenues during the past three years, as the
Company has had no income or net sales revenue during such period.
The Company and its subsidiaries' functional currency is the Canadian dollar.
The majority of the Company's cash deposits and accounts are in Canadian funds.
The Canadian dollar varies under market conditions, the continued fluctuation of
the Canadian dollar against the U.S. dollar will continue to affect the
Company's operations and financial position. See "Item 3. Key Information - Risk
Factors - Currency Fluctuations".
OVERVIEW
The Company is a natural resource company engaged in the business of
acquisition, exploration and development of mineral properties. At this stage
the Company has no producing properties and, consequently, has no current
operating income or cash flow.
The Company's accounting policy under Canadian GAAP is to defer all direct costs
related to the acquisition 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. 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 a property is
placed in commercial production, such deferred costs are depleted using the
units-of-production method. Management of the Company periodically reviews the
recoverability of the capitalized mineral properties. Management takes into
consideration various information including, but not limited to, results of
exploration activities conducted to date, estimated future metal prices, and
reports and opinions of outside geologists, mine engineers and consultants. When
it is determined that a project or property will be abandoned, then the costs
are written-off, or if its carrying value has been impaired, then the costs are
written down to fair value. At December 31, 2007 the Company recorded
$18,500,000 as Navidad Interest receivable; this amount was received in January
and February 2008. At December 31, 2006, the Company had capitalized $17,763,521
(2005 - $15,032,107) on its Argentine properties. In 2006 the Company's mineral
properties and deferred costs balance was classified as a component of the
Navidad interest balance.
During the year ended December 31, 2007, the Company issued 119,000 common
shares on the exercise of options, warrants and agents warrants for $59,500. As
of December 31, 2007, the Company had reserved 3,271,070 common shares (2006 -
3,504,404, 2005 - 1,900,004) for issuance upon the exercise of outstanding
warrants.
During the year ended December 31, 2006, Company completed a syndicated brokered
private placement financing of 2,865,000 special warrants at $3.50 per warrant
for gross proceeds of $10,027,500. Each special warrant entitled the holder to
acquire one unit consisting of one common share and one half common share
purchase warrant without payment of any additional consideration. All special
warrants were converted into common shares and common share purchase warrants on
May 25, 2006. Each full warrant entitles the holder thereof to purchase one
additional common share in the capital of the Company at a price of $3.80 per
share until March 21, 2010. In addition to a cash commission of 6% the
underwriters were granted 171,900 agents' warrants, representing 6% of the
number of special warrants issued. Each agents' warrant is exercisable for one
share at a price of $3.80, for a period of twenty four months, expiring on March
21, 2008. As of February 28, 2007 no common share purchase warrants or agents'
warrants had been exercised. During the year ended December 31, 2006, 335,000
common shares were issued on exercise of options for proceeds of $280,950.
During the year ended December 31, 2005, the Company completed a brokered
private placement of 3,333,340 units at $3.00 per unit, for proceeds of
$9,263,283 net of $600,001 agent's commission and $136,736 of related issue
costs. Each unit consisted of one common share and one half common share
purchase warrant. Each full warrant entitles the holder thereof to purchase one
additional common share in the capital of the Company at a price of $3.45 per
share until September 14, 2009. In addition to the cash commission the
underwriters were paid a commission of
- 18 -
7% (233,334) underwriter's warrants. Each underwriter's warrant is exercisable
for one share at a price of $3.25, for a period of twenty four months, expiring
on September 12, 2007. The financing closed on September 12, 2005.
During the year ended December 31, 2005, the Company issued 1,663,517 common
shares on the exercise of options, warrants and agents warrants for $4,361,011.
As of December 31, 2005, the Company had reserved 1,900,004 common shares for
issuance upon the exercise of outstanding warrants.
Cash on hand and short-term investments at February 29, 2008 were approximately
$25,560,000.
RESULTS OF OPERATIONS
The following discussion of the results of operations of the Company for the
fiscal years ended December 31, 2007, 2006 and 2005 should be read in
conjunction with the consolidated financial statements of the Company attached
hereto and related notes included therein.
YEAR ENDED DECEMBER 31, 2007 COMPARED TO YEAR ENDED DECEMBER 31, 2006
For the year ended December 31, 2007, the Company reported a consolidated loss
of $1,084,689 ($0.02 per share), a decrease of $2,496,671 from the loss of
$3,581,360 ($0.07 per share) for the year ended December 31, 2006. The decrease
in the loss in 2007, compared to the 2006 amount, can primarily be attributed to
a $1,649,504 decrease in operating expenses and an increase of income $847,167
from other income items.
The Company's operating expenses for the year ended December 31, 2007 were
$2,302,000, a decrease of $1,649,504 from $3,951,504 in 2006.
Professional fees decreased $101,823 to $1,022,321 in 2007, as the Company
incurred significant legal costs incurred in connection with the Aquiline legal
action. The Company's 2007 legal fees primarily consist of costs related to the
appeal to the British Columbia Court of Appeal in and the application of leave
to appeal to the Supreme Court of Canada. In 2007 the Company recorded non-cash
stock-based compensation of $34,421 compared to $393,120 in 2006, for stock
options granted to its employees, consultants and directors.
Other notable changes in the operating expenses are:
(i) Administrative and management services decreased by $252,352 primarily
as a result of decreased fees paid for the services of the president of
the Company which included a bonus of $150,000 paid in 2006. See "Item
7. Major Shareholders and Related Party Transactions - Related Party
Transactions
(ii) Corporate development and investor relations decreased by $160,962
primarily as a result of the Company's termination of its third-party
investor relation contracts in 2006 as well as decreased investor
relations activity during the year.
(iii) General exploration decreased by $86,983, as the 2006 expenses included
payments made to review properties.
(iv) Office and sundry increased by $56,307 as a result of increased
insurance purchased during the year.
(v) Salaries decreased $408,193 to $244,337 in 2007 due to a decrease in
activity levels and bonuses paid in 2006 totalling $100,000.
(vi) Travel and accommodation decreased $58,162 due to decreased activity
during the year.
(vii) Navidad holding costs decreased $202,683 to $109,666. These are costs
incurred in order to maintain basic operations in Argentina subsequent
to the transfer of control of the Navidad project to Aquiline. The
Company expensed all Navidad related costs that would otherwise being
capitalized from September 30, 2006. In 2006 the Company funded costs
during the transfer of the Navidad project in October and November. As
the full amount of the costs agreed to, between the Company and
Aquiline, were received
- 19 -
($18,500,000) a recovery of overhead costs in the amount of $550,479
was recorded in 2007 representing the excess over the Navidad carrying
costs.
In 2007 the Company recorded interest income of $675,156 compared to $373,009 in
2006. As a result of the transfer of $7.5 million amount of funds in trust on
January 8, 2008 interest of $341,380 was recorded in 2007. A loss of $8,324 for
foreign exchange was recorded in 2007 compared to loss of $2,865 in 2006.
YEAR ENDED DECEMBER 31, 2006 COMPARED TO YEAR ENDED DECEMBER 31, 2005
For the year ended December 31, 2006, the Company reported a consolidated loss
of $3,581,360 ($0.07 per share), a decrease of $2,183,514 from the loss of
$5,764,874 ($0.12 per share) for the year ended December 31, 2005. The decrease
in the loss in 2006, compared to 2005 amount, can primarily be attributed to a
$2,196,370 decrease in operating expenses.
The Company's operating expenses for the year ended December 31, 2006 were
$3,951,504 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 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:
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 Aquiline
that would normally have been included in mineral properties
and deferred costs.
In 2006 the Company recorded interest income of $373,009 compared to $150,406 in
2005, primarily as a result of increase of funds on deposit. A loss of $2,865
for foreign exchange was recorded in 2006 compared to gain of $232,954 in 2005.
The small foreign exchange adjustment in 2006 is a result of the relatively flat
exchange rate between the Canadian and US dollars during the year. In 2005, the
large gain was a result of strengthening of the Canadian dollar compared to US
dollar and due to the exchange movements between expenses being incurred in US$
and amounts exchanged to settle such payables.
- 20 -
YEAR ENDED DECEMBER 31, 2005 COMPARED TO YEAR ENDED DECEMBER 31, 2004
For the year ended December 31, 2005, the Company reported a consolidated loss
of $5,764,874 ($0.12 per share), an increase of $1,109,811 from the loss of
$4,655,063 ($0.11 per share) for the year ended December 31, 2004. The increase
in the loss in 2005, compared to 2004 amount, was due to a number of factors of
which $1,835,618 can be attributed to increases in operating expenses and
$725,807 decrease in other items.
The Company's prior period financial statements have been reclassified in
accordance with Canadian GAAP. The net assets transferred to Golden Arrow were
described as "Spin-Off Assets Transferred" and the allocated expenses are
described as "Loss Allocated to Spin-Off Assets" in the consolidated financial
statements. This reclassification did not change previously reported total
losses. The allocation of expenses was calculated on the basis of the ratio of
the specific assets transferred to assets retained. A loss of $131,231 was
allocated to spin-off assets in the 2004 period.
The Company's operating expenses for the year ended December 31, 2005 were
$6,148,234 an increase of $1,835,618 from $4,312,616 in 2004. $339,516 of the
2004 operating expenses had been reclassified as "Loss Allocated to Spin-Off
Assets" which relate to the assets transferred to Golden Arrow. The allocation
was calculated on the basis of the ratio of the specific assets transferred to
assets retained. Certain "Other Income and Expense" items have been allocated to
spin-off assets on a cost specific basis.
Professional fees increased $1,432,498 to $2,327,278 in 2005, primarily due to
legal costs incurred in connection with the Aquiline legal action as well as
increased costs of compliance. In 2005 the Company recorded non-cash stock based
compensation of $2,380,000 compared to $1,972,860 in 2004, for stock options
granted to its employees, consultants and directors, of which $1,800,000 is
included in expenses in 2005 compared to $1,972,860 in 2004 and $580,000 in 2005
compared to $Nil in 2004 is included in capitalized mineral property
expenditures. Other notable changes in the operating expenses are: (i) Salaries
increased $272,151 due to staff increases (salaries in 2005 are a portion of the
monthly fee charged for services by the Grosso Group while in 2004 the Company
directly employed its staff); (ii) Administrative and management services
decreased by $89,744 due to some of the services provided by consultants in 2004
were provided by employees of the Grosso Group during 2005 and are included in
salaries (iii) there are no cost recoveries (for shared administrative costs and
rent) from Amera or Golden Arrow in 2005; (iv) Corporate development and
investor relations increased $207,951, as the Company has made its shareholders
and others more aware of its Navidad project and its potential, (v) Office and
Sundry increased $40,337 mainly due to the increase in insurance premiums and an
increase in activity, (vi) Transfer agent and regulatory fees increased $141,972
mainly due to the costs of the Company's listing on the American Stock Exchange,
(vii) General exploration decreased by $173,047 as the Company's focus is on
Navidad property for which costs are included in capitalized mineral property
expenditures, (viii) Travel increased $52,444 due to travel related to
conferences and investor presentations as well as to South America.
In 2005 the Company recorded interest income of $150,406 compared to $101,589 in
2004, primarily as a result of increase of funds on deposit. In 2005 there were
no reorganization costs recorded by the Company, in 2004 reorganization costs of
$346,103 were recorded. There was no gain on the optioning of properties to
other mining exploration companies, in 2004 a gain of $328,346 was recognized.
No write down for the carrying value of marketable securities in 2005 was
recognized while a $99,762 write down for the carrying value of marketable
securities was recorded in 2004. A gain of $232,954 for foreign exchange was
recorded in 2005 compared to loss of $195,285 in 2004. The foreign exchange
adjustment in 2005 is a result of a continued strengthening of the Canadian
dollar compared to US dollar and due to the exchange movements between expenses
being incurred in US$ and amounts exchanged to settle such payables. No gain or
loss was allocated to spin-off assets in 2005, in 2004 a loss of $131,232 was
recorded.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position at December 31, 2007 was $183,628, a decrease of
$207,792 from December 31, 2006. Short-term investments decreased $1,686,538 to
$6,813,462 at December 31, 2007 from $8,500,000 at December 31, 2006. Total
assets decreased to $26,124,490 at December 31, 2007 from $27,246,146 at
December 31, 2006. This increase is mainly due to the increase in Navidad
carrying value and in cash balance.
- 21 -
During fiscal 2006, Company completed a syndicated brokered private placement
financing of 2,865,000 special warrants at $3.50 per warrant for gross proceeds
of $10,027,500. Each special warrant entitled the holder to acquire one unit
consisting of one common share and one half common share purchase warrant. All
special warrants were converted into common shares on May 25, 2006. Each full
warrant entitles the holder thereof to purchase one additional common share in
the capital of the Company at a price of $3.80 per share until March 21, 2010.
In addition to a cash commission of 6% the underwriters were granted 171,900
agents' warrants, representing 6% of the number of special warrants issued. Each
agent's warrant is exercisable for one share at a price of $3.80, for a period
of twenty four months, expiring on March 21, 2008. At December 31, 2007, no
common share purchase warrants or agent's warrants had been exercised.
Stock options were exercised which resulted in cash proceeds of $59,500 during
2007. No warrants were exercised in 2007.
The Company has received $Nil from the exercise of options and warrants from
January 1 to February 29, 2008. As at February 29, 2008, the Company had working
capital of approximately $25,485,000.
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 identify, acquire and
conduct 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
Company's exploration programs.
The Company does not now and does not expect to engage in currency hedging to
offset any risk of currency
fluctuations.
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any material off balance sheet arrangements that have
or are reasonably likely to have a current or future effect on the Company's
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources.
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
Except as otherwise disclosed, the Company knows of no other contractual
obligations during the period from January 1, 2008 through December 31, 2008.
-----------------------------------------------------------------------
Payments Due by Period
-----------------------------------------------------------------------
Less than 1 More than 5
Total Year 1-3 Years 3-5 Years Years
-----------------------------------------------------------------------
Contractual Obligations $Nil $Nil $Nil $Nil $Nil
Long-term Debt Obligations $Nil $Nil $Nil $Nil $Nil
Capital (Finance) Lease Obligations $Nil $Nil $Nil $Nil $Nil
Operating Lease Obligations $Nil $Nil $Nil $Nil $Nil
Purchase Obligations $Nil $Nil $Nil $Nil $Nil
Other Long-Term Liabilities Reflected in
the Company's Balance Sheet under the
GAAP of the Primary Financial Statements $Nil $Nil $Nil $Nil $Nil
----------- ----------- ----------- ----------- -----------
Total $Nil $Nil $Nil $Nil $Nil
=========== =========== =========== =========== ===========
- 22 -
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.
--------------------------------------------------------------------------------
DIRECTORS AND SENIOR MANAGEMENT
The name, positions held with the Company and principal occupation of each
director, officer and executive officer of the Company within the five years
preceding the date of this annual report are as follows:
---------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST PERIOD OF SERVICE AS A
NAME, AGE AND POSITION(1) FIVE YEARS DIRECTOR/OFFICER
---------------------------------------------------------------------------------------------------------------------------
JOSEPH GROSSO Director, President and CEO of the Director, President and CEO since
President, Chief Executive Company since February 1990. February 1990 to present.
Officer and Director
Age 70
---------------------------------------------------------------------------------------------------------------------------
ARTHUR LANG CFO of the Company since April 2, Director, Vice-President and CFO
Chief Financial Officer, 2004. Consultant providing financial since April 2004 to present.
and Director management services to various Corporate Secretary from August
Age 64 clients from 1999 to April 2004 2005 to December 2007.
through Arthur G Lang Inc., a private
BC company.
---------------------------------------------------------------------------------------------------------------------------
NIKOLAOS CACOS President, CEO and director of Amera Vice President since June, 2005 to
Vice President Resources Corporation, a public present.
Age 41 British Columbia company, since April Corporate Secretary June 1998 to
2000. January 2005.
---------------------------------------------------------------------------------------------------------------------------
SEAN HURD Corporate Communications Manager for Vice President, Corporate
Vice President, Corporate the Grosso Group since 2005 and for Communications since March 2005 to
Communications the Company from February 1999 to present.
Age 41 present. Director September 2000 to October
2004.
---------------------------------------------------------------------------------------------------------------------------
ROBERT STUART (TOOKIE) ANGUS Independent Business Adviser to the Director since May 2003 to present.
Director mining industry since January 2006.
Age 59 Managing Director, Mergers and
Acquisitions, Endeavour Financial
Ltd., November 2003 to December 2005.
Partner in law firm, Fasken Martineau
DuMoulin LLP from February 2001 to
October 2003.
---------------------------------------------------------------------------------------------------------------------------
DAVID TERRY Vice President for the Company from Director since May 2004 to present.
Director, Vice President, June 2004 to present. Vice President, Vice President for the Company since
Exploration Exploration for the Grosso Group from June 2004 to present.
Age 42 January 2005 to present. Regional
geologist with the British Columbia
Ministry of Energy and Mines in
Cranbrook, British Columbia from May
2001 to March 2004.
---------------------------------------------------------------------------------------------------------------------------
DAVID HORTON Senior Vice-President and Director of Director since June 2004 to present.
Director Canaccord Capital Corporation from
Age 71 1996 to present.
---------------------------------------------------------------------------------------------------------------------------
LEONARD HARRIS Retired Mining Consultant since 1995. Director since August 2005 to
Director present.
Age 80
---------------------------------------------------------------------------------------------------------------------------
- 23 -
---------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST PERIOD OF SERVICE AS A
NAME, AGE AND POSITION(1) FIVE YEARS DIRECTOR/OFFICER
---------------------------------------------------------------------------------------------------------------------------
CARLOS D'AMICO President of Desarrollo de Inversiones President since May 2007 to present
President (of subsidiary) S. A. from November 2006 to present of subsidiary.
Age 50 President of Punto Dorado S.A, .a
subsidiary of the Company, from May
2007 to present. President from
February 2005 and General Manager from
2003 to November 2006 of Inversiones
Mineras Argentinas S.A.
---------------------------------------------------------------------------------------------------------------------------
LINDA MCCLUSKY Corporate Secretary for Grosso Group Corporate Secretary since December
Corporate Secretary companies since October 2005. From 4, 2007.
Age 65 1999 to 2005, paralegal, Corporate
Legal Department, Imperial Parking
Canada Corporation.
---------------------------------------------------------------------------------------------------------------------------
(1) Officers and Directors of the Company may also serve as directors of other
companies. See "Conflicts of Interest" below.
There are no family relationships between any directors or executive officers of
the Company. There are no known arrangements or understandings with any major
shareholders, customers, suppliers or others, pursuant to which any of the
Company's officers or directors was selected as an officer or director of the
Company. See "Item 7.
Major Shareholders and Related Party Transactions - Related Party Transactions."
CONFLICTS OF INTEREST
There are no existing or potential conflicts of interest among the Company, its
directors, officers or promoters as a result of their outside business interests
with the exception that certain of the Company's directors, officers and
promoters serve as directors, officers and promoters of other companies, and,
therefore, it is possible that a conflict may arise between their duties as a
director, officer or promoter of the Company and their duties as a director or
officer of such other companies.
The directors and officers of the Company are aware of the existence of laws
governing accountability of directors and officers for corporate opportunity and
requiring disclosures by directors of conflicts of interest and the Company will
rely upon such laws in respect of any directors' and officers' conflicts of
interest or in respect of any breaches of duty by any of its directors or
officers. All such conflicts will be disclosed by such directors or officers in
accordance with the BCBCA, and they will govern themselves in respect thereof to
the best of their ability in accordance with the obligations imposed upon them
by law.
All of the Company's directors are also directors, officers or shareholders of
other companies that are engaged in the business of acquiring, developing and
exploiting natural resource properties including properties in countries where
the Company is conducting its operations. Such associations may give rise to
conflicts of interest from time to time. Such a conflict poses the risk that the
Company may enter into a transaction on terms which place the Company in a worse
position than if no conflict existed. The directors of the Company are required
by law to act honestly and in good faith with a view to the best interest of the
Company and to disclose any interest which they may have in any project or
opportunity of the Company. However, each director has a similar obligation to
other companies for which such director serves as an officer or director. The
Company has no specific internal policy governing conflicts of interest.
The following table identifies the name of each director of the Company and any
company, which is a reporting issuer in Canada or the United States, and for
which such director currently serves as an officer or director:
-------------------------------------------------------------------------------------------------------------------
NAME OF DIRECTOR NAME OF COMPANY POSITION TERM OF SERVICE
-------------------------------------------------------------------------------------------------------------------
Arthur Lang Golden Arrow Resources Corporation Director, CFO ,VP Jul/04 to present
Amera Resources Corporation CFO Mar/05 to present
Astral Mining Corporation CFO Feb/07 to present
Blue Sky Uranium Corp. CFO Mar/07 to present
-------------------------------------------------------------------------------------------------------------------
- 24 -
-------------------------------------------------------------------------------------------------------------------
NAME OF DIRECTOR NAME OF COMPANY POSITION TERM OF SERVICE
-------------------------------------------------------------------------------------------------------------------
Joseph Grosso Amera Resources Corporation Chairman/Director Feb/04 to present
Golden Arrow Resources Corporation Chairman/President/ Jul/04tto present
CEO/Director
-------------------------------------------------------------------------------------------------------------------
Robert Stuart (Tookie) Angus Wildcat Silver Corporation Director May/06 to present
Uranium North Resources Corp. Director May/06 to present
United Bolero Development Corp Director March/06 to present
Crescent Gold Limited Director Nov/05 to present
Tsodilo Resources Limited Director Sep/04 to present
CMQ Resources Inc. Director Dec/03 to present
Nevsun Resources Ltd. Director Jan/03 to present
Plutonic Power Corporation Director Jun/99 to present
Blackstone Ventures Inc. Director Sept/97 to present
Dynasty Gold Corp. Director Jan/06 to present
Chairman Oct/99 to present
Polaris Minerals Corporation Director Sept/03 to present
-------------------------------------------------------------------------------------------------------------------
David Terry Amera Resources Corporation Director Dec/07 to present
VP, Exploration Mar/04 to Dec/07
Golden Arrow Resources Corporation Director & Jul/04 to present
VP Exploration
Astral Mining Corporation Director Mar/05 to present
-------------------------------------------------------------------------------------------------------------------
David Horton Golden Arrow Resources Corporation Director July/04 to present
-------------------------------------------------------------------------------------------------------------------
Leonard Harris Solitario Resources Corp. Director Jun/98 to present
Cardero Resource Corp. Director Feb/00 to present
Canarc Resource Corp. Director Jun/01 to present
Sulliden Exploration Inc. Director Sep/03 to present
Endeavour Silver Corp. Director Jul/03 to present
Alamos Gold Inc. Director Nov/03 to present
Morgain Minerals Inc. Director Jun/04 to present
Indico Technologies Ltd. Director Apr/06 to present
Golden Arrow Resources Corp. Director Jan/08 to present
-------------------------------------------------------------------------------------------------------------------
Jerry Minni Raytec Development Corp. Director & CEO Feb/92 to present
Mantra Mining Inc. Director & CEO Jul/98 to present
Avantec Technologies Inc. Director Jun/99 to present
Amera Resources Corporation Director Nov/02 to present
Weststar Resources Ltd. Director & CFO Jun/05 to present
-------------------------------------------------------------------------------------------------------------------
COMPENSATION
During the fiscal year ended December 31, 2007, the directors and officers of
the Company, as a group, had received or charged the Company a total of $353,283
(2006-$533,917; 2005-$241,088 ) for services rendered by the directors and
officers or companies owned by the individuals.
The Company is required, under applicable securities legislation in Canada, to
disclose to its shareholders details of compensation paid to its directors and
officers. The following fairly reflects all material information regarding
compensation paid by the Company to its directors and officers, which
information has been disclosed to the Company's shareholders in accordance with
applicable Canadian law.
- 25 -
EXECUTIVE COMPENSATION
"Named Executive Officers" means the Chief Executive Officer and Chief Financial
Officer of the Company, regardless of the amount of compensation of that
individual, and each of the Company's four most highly compensated executive
officers, other than the Chief Executive Officer and Chief Financial Officer,
who were serving as executive officers at the end of the most recent fiscal year
and whose total salary and bonus amounted to $150,000 or more. In addition,
disclosure is also required for any individual whose total salary and bonus
during the most recent fiscal year was at least $150,000, whether or not they
were an executive officer at the end of the most recent fiscal year.
During the year ended December 31, 2007, the Company had two Named Executive
Officers: Joseph Grosso, President and Chief Executive Officer and Arthur Lang,
Chief Financial Officer (the "Named Executive Officers"). The following table
sets forth all annual and long-term compensation awarded, paid to or earned by
the Company's Named Executive Officers during the financial years ended December
31, 2005 , 2006 and 2007.
---------------------------------------
LONG TERM COMPENSATION
------------------------------ ---------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------ ---------------------------- ------- ---------
OTHER RESTRICTED
------------------ ANNUAL SECURITIES SHARES OR ALL OTHER
NAME AND ---- COMPEN- UNDER OPTIONS/ RESTRICTED LTIP COMPEN-
PRINCIPAL POSITION YEAR(1) SALARY BONUS SATION SARS GRANTED SHARE UNITS PAYOUTS SATION
($) ($) ($) (#)(2) (#) ($) ($)
------------------ ---- ------------------------------ ---------------------------- ------- ---------
Joseph Grosso(3) 2007 $250,000 Nil Nil Nil Nil Nil Nil
President and 2006 $200,667 $150,000 Nil 48,000 Nil Nil Nil
Chief Executive 2005 $102,000 Nil Nil 150,000 Nil Nil Nil
Officer
------------------ ---- ------------------------------ ---------------------------- ------- ---------
Arthur Lang, Chief 2007 $59,834(4) Nil Nil Nil Nil Nil Nil
Financial Officer 2006 $59,400(5) $50,000 Nil 35,000 Nil Nil Nil
2005 $68,927(6) Nil Nil 100,000 Nil Nil Nil
------------------ ---- ------------------------------ ---------------------------- ------- ---------
(1) Fiscal years ended December 31, 2007, 2006 and 2005.
(2) See "Options and Stock Appreciation Rights".
(3) See the description of termination payment provisions in the agreement with
Oxbow International Marketing Corp. dated July 1, 1999 for Mr. Grosso in
"Item 6. Directors, Senior Management and Employees - Compensation -
Management Contracts."
(4) During the year ended December 31, 2007 Mr. Lang's total compensation from
the Grosso Group was $150,000, of which $59,834 was allocated to the
Company as part of the Grosso Group fees for the year.
(5) During the year ended December 31, 2006 Mr. Lang's total compensation from
the Grosso Group was $134,000, of which $59,400 was allocated to the
Company as part of the Grosso Group fees for the year. Additionally, during
the year ended December 31, 2006 a bonus of $50,000 was paid to Mr. Lang
directly by the Company.
(6) During the year ended December 31, 2005 Mr. Lang's total compensation from
the Grosso Group was $94,667, of which $68,927 was allocated to the Company
as part of the Grosso Group fees for the year.
LONG TERM INCENTIVE PLAN AWARDS
Long Term Incentive Plan Awards ("LTIP") means any plan providing compensation
intended to serve as an incentive for performance to occur over a period longer
than one fiscal year whether performance is measured by reference to financial
performance of the Company or an affiliate of the Company, or the price of
shares of the Company but does not include option or stock appreciation rights
plans or plans for compensation through restricted shares or units. The Company
has not granted any LTIP's to the Named Executive Officers during the most
recently completed fiscal year.
OPTIONS AND STOCK APPRECIATION RIGHTS
Stock Appreciation Rights ("SAR's") means a right, granted by an issuer or any
of its subsidiaries as compensation for services rendered or in connection with
office or employment, to receive a payment of cash or an issue or transfer of
securities based wholly or in part on changes in the trading price of the shares
of the Company. No SAR's were granted to or exercised by the Named Executive
Officers or directors during the most recently completed fiscal year.
- 26 -
OPTION GRANTS
The following table sets forth stock options granted by the Company during the
financial year ended December 31, 2007 to the Named Executive Officers of the
Company:
-------------------------------------------------------------------------------------------------------------------
Market Value
% of Total Options of Securities
Securities Under Granted in Exercise or Underlying Options
Name Options Granted Financial Year(1) Base Price(2) on Date of Grant Expiration Date
(#) ($/Security) ($/Security)
-------------------------------------------------------------------------------------------------------------------
Joseph Grosso nil n/a n/a n/a n/a
-------------------------------------------------------------------------------------------------------------------
Arthur Lang nil n/a n/a n/a n/a
-------------------------------------------------------------------------------------------------------------------
(1) Percentage of all options granted during the financial year.
(2) The exercise price of stock options was set according to the rules of the
TSX-V. The exercise price of stock options may only be adjusted in the
event that specified events cause dilution of the Company's share capital.
AGGREGATED OPTION EXERCISES AND OPTION VALUES
The following table sets forth details of all exercises of stock options by the
Named Executive Officers during the most recently completed fiscal year and the
fiscal year-end value of unexercised options on an aggregated basis:
---------------------------------------------------------------------------------------------------------------------
Value of Unexercised
Securities Unexercised Options In-the-Money Options
Name Acquired on Aggregate Value at Fiscal Year-End Fiscal Year-End(2)
Exercise(1) Realized(2) Exercisable/Unexercisable Exercisable/Unexercisable
(#) ($) (#) ($)
---------------------------------------------------------------------------------------------------------------------
Joseph Grosso Nil Nil 548,000 / Nil $0 / N/A
---------------------------------------------------------------------------------------------------------------------
Arthur Lang Nil Nil 185,000 / Nil $0 / N/A
---------------------------------------------------------------------------------------------------------------------
(1) All options are exercisable to acquire the Company's Common Shares.
PENSION PLAN
The Company does not provide retirement benefits for directors or executive
officers.
TERMINATION OF EMPLOYMENT, CHANGES IN RESPONSIBILITY AND EMPLOYMENT CONTRACTS
The Company has no plans or arrangements in respect of remuneration received or
that may be received by the Named Executive Officers in the Company's most
recently completed fiscal year or current fiscal year in respect of compensating
such officers in the event of termination of employment (as a result of
resignation, retirement, change of control, etc.) or a change in
responsibilities following a change of control, where the value of such
compensation exceeds $100,000, except as disclosed in "Item 6. Directors, Senior
Management and Employees - Compensation - Management Contracts."
COMPENSATION OF DIRECTORS
There are no arrangements under which directors were compensated by the Company
during the most recently completed financial year ended December 31, 2007 for
their services in their capacity as directors.
During the last completed financial year ending December 31, 2007, the Company
paid directly $250,000 and indirectly $84,413 (as part of the allocated Grosso
Group monthly fees) to its directors who are not Named
- 27 -
Executive Officers, as a group, for salaries and professional services rendered.
See also "Item 6. Directors, Senior Management and Employees - Compensation -
Management Contracts."
Option Grants
The following table sets forth information concerning stock options granted to
directors, as a group, who are not Named Executive Officers during the most
recently completed fiscal year:
-------------------------------------------------------------------------------------------------------------------
% of Total Market Value
Securities Options Granted of Securities
Under Options in Exercise or Underlying Options
Name Granted(1) Financial Year(2) Base Price(3) on Date of Grant Expiration Date
(#) (%) ($/Security) ($/Security)
-------------------------------------------------------------------------------------------------------------------
Directors as a group Nil Nil N/A N/A N/A
who are not Named
Executive Officers
-------------------------------------------------------------------------------------------------------------------
(1) All options are for the Company's Common Shares.
(2) Percentage of all options granted in the year.
(3) The exercise price of the option is set at not less than the market value
of the Company's Common Shares on the date of grant, less a discount
allowed by the TSX-V. The exercise price may be adjusted under certain
circumstances, subject to regulatory acceptance.
Aggregated Option Exercises and Option Values
The following table sets forth details of all securities acquired, the aggregate
value realized and the fiscal year end number and value of unexercised
options/SARs held by directors, as a group, who are not Named Executive
Officers:
----------------------------------------------------------------------------------------------------------------------
Value of Unexercised
Securities Unexercised Options In-the-Money Options at
Name Acquired on Aggregate Value at Fiscal Year-End Fiscal Year-End(2)
Exercise(1) Realized Exercisable/Unexercisable Exercisable/Unexercisable
(#) ($) (#) ($)
----------------------------------------------------------------------------------------------------------------------
Directors, as a Nil Nil 865,000 / N/A $0 / N/A
group, who are not
Named Executive
Officers
----------------------------------------------------------------------------------------------------------------------
(1) All options are exercisable to acquire the Company Common Shares.
PROPOSED COMPENSATION
The Company has no bonus, profit sharing or similar plans in place pursuant to
which cash or non-cash compensation is proposed to be paid or distributed to the
Named Executive Officers in the current or subsequent fiscal years other than as
disclosed herein.
MANAGEMENT CONTRACTS
GROSSO GROUP MANAGEMENT LTD.
Pursuant to the terms of an Administration Services Agreement, the Company
engages Grosso Group Management Ltd. (the "Grosso Group") to provide services
and facilities to the Company. The Grosso Group is a private company owned by
the Company, Golden Arrow, Amera Resources Corporation ("Amera"), Astral Mining
Corporation ("Astral"), Gold Point Energy Corp. ("GPE") and Blue Sky Uranium
Corp. ("Blue Sky"), each of which owns one share. The Grosso Group provides its
shareholder companies with geological, corporate
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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 2007, the Company
incurred fees of $349,143 (2006: $724,902; 2005: $730,802) to the Grosso Group:
$330,305 (2006: $764,115; 2006: $764,012 ) was paid in twelve monthly payments
and $18,838 (2006: $39,213 included in amounts receivable; 2005: $33,210
included in amounts receivable) is included in accounts payable 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 (2006: $205,000; 2005: $205,000) deposit to the
Grosso Group for the purchase of equipment and leasehold improvements and for
operating working capital. Effective February 29, 2008, GPE withdrew from Grosso
Group.
The Administration Services Agreement may be terminated by a shareholder company
after January 1, 2007, upon 30 days written notice to the Grosso Group.
It is anticipated that upon termination of the Administration Services
Agreement, each of the shareholder companies will agree to resell its common
share back to the Grosso Group for $1.00 and the shareholder companies will not
be able to sell, transfer or otherwise dispose of or encumber such share during
the term of the Administration Services Agreement.
The Grosso Group's areas of experience encompass financing, marketing, property
acquisition, community relations, socioeconomic issues, regulatory compliance,
government relations, property exploration and investor relations. Additionally
the Grosso Group has a number of other support staff at its corporate office and
arrangements with contract providers of accounting and administrative services
at the country operations' offices in Argentina, Colombia and Peru.
The members of the board of directors of the Grosso Group are appointed by the
shareholder companies, with each shareholder company appointing one of its
directors to serve as a director of the Grosso Group. As of February 29, 2008,
the directors of the Grosso Group are Nikolaos Cacos, Joseph Grosso, Arthur
Lang, Manfred Kurschner and Sean Hurd. Messrs. Lang and Grosso are officers and
directors of the Company. Mr. Lang is also an officer and director of Golden
Arrow and an officer of Amera, Blue Sky and Astral. Mr. Grosso is also an
officer and director of Golden Arrow and of Amera. Mr. Cacos is an officer of
the Company and is also a director and officer of Golden Arrow and Amera and a
director of Blue Sky. Mr. Kurschner is an officer and director of Astral and a
director of Golden Arrow. Mr. Hurd is an officer of the Company and President
and Director of Blue Sky.
Each of the public company shareholders of the Grosso Group has its own separate
board of directors (whose members may include persons employed by the Grosso
Group); however, some directors will serve on multiple boards and on the board
of directors of companies which are not shareholders of the Grosso Group.
The Board of Directors of the Company approved the Administration Services
Agreement.
See ""Item 7. Major Shareholders and Related Party Transactions - Related Party
Transactions."
JOSEPH GROSSO
The Company is party to an agreement with Oxbow, effective as of July 1, 1999,
subsequently amended on May 1, 2006, pursuant to which Mr. Grosso provides
executive services as President and Chief Executive Officer of the Company. On
April 12, 2006 the Board accepted the recommendation from the Compensation
Committee to increase the monthly consulting fee effective May 1, 2006 to
$20,833 ($250,000 per annum) and to pay a bonus of $150,000. During the fiscal
year ended December 31, 2007, Oxbow was paid $250,000 (2006 - $350,667).
Pursuant to the terms of the agreement, in the event the agreement is terminated
by the Company as a result of Mr. Grosso's death or permanent disability while
providing services to the Company, or by Mr. Grosso as a result of a material
breach or default by the Company, Oxbow is entitled to a bonus payment in the
amount of $461,500.
In the event the agreement is terminated by the Company without cause or as a
result of a change of control, Oxbow is entitled to (i) any monthly compensation
due to the date of termination, (ii) options as determined by the
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Company's Board of Directors, (iii) three years of Mr. Grosso's monthly
compensation (which may be adjusted annually), and (iv) a bonus payment of
$461,500.
See ""Item 7. Major Shareholders and Related Party Transactions - Related Party
Transactions."
NIKOLAOS CACOS
As of January 2005, Mr. Cacos provides executive services to the Company as a
consultant of the Grosso Group. During the year ended December 31, 2007, Mr.
Cacos's total compensation from the Grosso Group was $22,500 (2006 - $22,500,
2005 - $22,500), of which $938 was allocated to the Company (2006 - $9,225, 2005
- $14,862) as part of the Grosso Group fees for the year.
See ""Item 7. Major Shareholders and Related Party Transactions - Related Party
Transactions."
SEAN HURD
As of January 2005, Mr. Hurd provides executive services to the Company as an
employee of the Grosso Group. During the year ended December 31, 2007, Mr.
Hurd's total compensation from the Grosso Group was $120,000 (2006 - $112,000,
2005 - $96,000), of which $25,497 was allocated to the Company (2006 - $45,920,
2005 - $72,216) as part of the Grosso Group fees for the year.
See ""Item 7. Major Shareholders and Related Party Transactions - Related Party
Transactions."
ARTHUR LANG
As of January 2005, Mr. Lang provides executive services to the Company as an
employee of the Grosso Group in January 2005. Effective May 1, 2005 Mr. Lang's
annual salary was increased to $102,000. During the year ended December 31,
2005, Mr. Lang's total compensation from the Grosso Group was $94,667, of which
$68,927 was allocated to the Company as part of the Grosso Group fees for the
year. On April 12, 2006 the Board accepted the recommendation from the
Compensation Committee to increase Mr. Lang's annual salary to $150,000
effective May 1, 2006 and to pay a bonus of $50,000. During the year ended
December 31, 2007, Mr. Lang's total compensation from the Grosso Group was
$150,000 of which $59,834 was allocated to the Company as part of the Grosso
Group fees and $Nil was paid directly as a bonus.
See ""Item 7. Major Shareholders and Related Party Transactions - Related Party
Transactions."
DAVID TERRY
As of January 1, 2005, Mr. Terry provides executive services to the Company as a
consultant of the Grosso Group. During the year ended December 31, 2005, Mr.
Terry's total compensation from the Grosso Group was $120,000, of which $63,600
was allocated to the Company as part of the Grosso Group fees during the year.
On April 12, 2006 the Board accepted the recommendation from the Compensation
Committee to increase Mr. Terry's monthly fee to $12,500 ($150,000 annually)
effective May 1, 2006 and to pay a bonus of $50,000. During the year ended
December 31, 2006, Mr. Terry's total compensation from the Company was $107,400
of which $57,400 was allocated to the Company as part of the Grosso Group fees
and $50,000 was paid directly as a bonus. On July 9, 2007 the Grosso Group
increased Mr. Terry's monthly fee to $16,667 ($200,000 annually) effective July
1, 2007. During the year ended December 31, 2007, Mr. Terry's total compensation
from the Grosso Group was $175,000 of which $24,579 was allocated to the Company
as part of the Grosso Group fees.
See ""Item 7. Major Shareholders and Related Party Transactions - Related Party
Transactions."
LINDA MCCLUSKY
Mrs. Linda McClusky provides executive services to the Company as an employee of
the Grosso Group. Mrs. McClusky was appointed Corporate Secretary effective
December 4, 2007. During the year ended December 31, 2007 Mrs. McClusky's total
compensation from the Grosso Group was $67,000 of which $18,358 was allocated to
the Company as part of the Grosso Group fees.
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CORPORATE CEASE TRADE ORDERS OR BANKRUPTCIES
Other than as disclosed herein, no director or officer of the Company is or has
been, within the preceding 10 years, a director or officer of any other issuer
that, while that person was acting in that capacity:
(a) was the subject of a cease trade order or similar order or an
order that denied the other issuer access to any exemptions
for a period of more than 30 consecutive days, or
(b) became bankrupt, made a proposal under any legislation
relating to bankruptcy or insolvency or was subject to or
instituted any proceedings, arrangement, or compromise with
creditors or had a receiver, receiver manager or trustee
appointed to hold its assets.
PENALTIES OR SANCTIONS
No director or officer of the Company is or has, within the past 10 years:
(a) been subject to any penalties or sanctions imposed by a court
relating to Canadian securities legislation or Canadian
securities regulatory authority or has entered into a
settlement agreement with a Canadian securities regulatory
authority, or
(b) been subject to any other penalties or sanctions imposed by a
court or regulatory body that would be likely to be considered
important to a reasonable investor making an investment
decision.
INDIVIDUAL BANKRUPTCIES
No director or officer of the Company is or has, within the preceding 10 years,
become bankrupt, made a proposal under any legislation relating to bankruptcy or
insolvency or been subject to or instituted any proceedings, arrangement, or
compromise with creditors or had a receiver, receiver manager or trustee
appointed to hold the assets of that individual.
BOARD PRACTICES
COMPENSATION COMMITTEE
The Board of Directors of the Company has adopted procedures to ensure that all
employment, consulting or other compensation agreements between the Company and
any director or senior officer of the Company or between any associate or
affiliate of the Company and any director or senior officer are considered and
approved by the disinterested members of the Board of Directors or a committee
of independent directors.
The Company's Compensation Committee must be comprised of at least two
independent directors, who are not employees, control persons or members of the
management of the Company or any of its associates or affiliates. As of the date
of this report, Messrs. Horton and Angus are members of the Compensation
Committee. The Board of Directors of the Company, after each annual
shareholder's meeting must appoint or re-appoint a compensation committee.
TERMS OF REFERENCE
FOR THE
COMPENSATION COMMITTEE
GENERAL
The Compensation Committee is a committee of the Board to which the Board has
delegated its responsibility for oversight of the Corporation's overall human
resources policies and procedures. This includes reviewing the adequacy and form
of the compensation paid to the Corporation's executives and key employees to
ensure that such compensation realistically reflects the responsibilities and
risks of such positions.
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The Compensation Committee's objectives are to assist the Board in meeting its
responsibilities in respect of overall human resources policies and procedures
including recruitment, performance management, compensation, benefit programs,
resignation/terminations, training and development, succession planning and
organizational planning and design, to ensure a broad plan of executive
compensation is established that is competitive and motivating in order to
attract, retain and inspire executive management and other key employees and to
review all compensation and benefit proposals for the Corporation's executives
and make recommendations to the Board.
COMPOSITION AND PROCESS
1. The Compensation Committee will be comprised of a minimum of two directors,
all of whom will be independent.
2. Compensation Committee members will be appointed by the Board on an annual
basis for a one-year term and may serve any number of consecutive terms,
which are encouraged to ensure continuity of experience.
3. The Chair of the Compensation Committee will be appointed by its members on
an annual basis for a one-year term and may serve any number of consecutive
terms. The Compensation Committee Chair will arrange for an alternate chair
for a specific meeting if he or she is planning to be absent.
4. The Compensation Committee Chair will establish the agenda for Compensation
Committee meetings and ensure that properly prepared agenda materials are
circulated to the members with sufficient time for review prior to the
meeting.
5. The Compensation Committee will meet at least twice per year and may call
special meetings as required. A quorum at meetings of the Compensation
Committee will be one of its members. The Compensation Committee may hold
its meetings, and members of the Compensation Committee may attend
meetings, by telephone conference call.
6. At all meetings of the Compensation Committee every question will be
decided by a majority of the votes cast. In case of an equality of votes,
the Compensation Committee Chair will forward the matter to the Board of
Directors for resolution.
7. The minutes of Compensation Committee meetings will document the date and
time of the meetings.
8. The Compensation Committee will have the authority to retain (or terminate)
any outside counsel, advisors or consultants it determines necessary to
assist it in discharging its functions, independently of the Board, Chair
or CEO. The Compensation Committee will be provided with the necessary
funding to compensate any counsel, advisors or consultants it retains.
9. The CEO may attend and participate in meetings of the Compensation
Committee, except when his compensation is the subject matter.
RESPONSIBILITIES
1. The Compensation Committee will review management prepared policies and
make recommendations to the Board regarding the following matters:
2. Compensation, philosophy, policies and guidelines for senior officers, as
well as supervisory and management personnel of the Corporation and any
subsidiary companies.
3. Corporate benefits for senior management (i.e. car insurance, life
insurance, retirement plan, expense accounts, etc.).
4. Incentive plans, along with global payment information as it applies to
senior management bonus and discretionary bonus plans.
5. Review and approval of Corporate goals and objectives relevant to CEO and
other senior management compensation.
6. Evaluation of the performance of the CEO and other senior management in
light of corporate goals and objectives and making recommendations with
respect to compensation levels based on such evaluations.
7. Policies regarding the Corporation's Incentive Stock Option Plan and the
granting of stock options to Directors, management and employees of the
Corporation.
- 32 -
8. Policies regarding the development and implementation of incentive
compensation plans and equity based compensation plans.
9. Compensation levels for directors and committee members, including the
compensation of the Chair and the Chair of any Board committees, to ensure
compensation realistically reflects the responsibilities and risk involved
in being an effective director. Compensation should be commensurate with
the time spent by directors in meeting their obligations and should be
transparent and easy for shareholders to understand.
10. Succession plan for the CEO and other executives and key employees of the
Corporation, in conjunction with the CEO.
11. Any material changes in human resources policy, procedure, remuneration and
benefits. 12. Review of executive compensation disclosure in all public
disclosure documents. 13. The Compensation Committee will review and assess
its effectiveness, contribution and these Terms of
Reference annually and recommend any proposed changes thereto to the Board.
14. Perform any other activities consistent with these Terms of Reference, as
the Compensation Committee or the Board deems necessary or appropriate.
15. The Compensation Committee will have the authority to delegate any specific
tasks to individual Compensation Committee members.
AUDIT COMMITTEE
TERMS OF REFERENCE
FOR THE
AUDIT COMMITTEE
General
The Company's Audit Committee must be comprised of at least three directors, who
are not employees, control persons or members of the management of the Company
or any of its associates or affiliates. As of the date of this report, Messrs.
Horton, Angus, Minni are members of the Audit Committee. The Board of Directors
of the Company, after each annual shareholder's meeting must appoint or
re-appoint an audit committee.
The Audit Committee must review the annual financial statements of the Company
before they are approved by the Board of Directors of the Company. The Board of
Directors of the Company must review, and if considered appropriate, approve the
annual financial statements of the Company before presentation to the
shareholders of the Company. In addition, the Audit Committee is responsible
for:
- retaining the external auditors and communicating to them that
they are ultimately accountable to the Committee and the Board as
the representatives of the shareholders;
- reviewing the external audit plan and the results of the audit,
approves all audit engagement fees and terms and pre-approves all
non-audit services to be performed by the external auditor;
- reviewing the Company's financial statements and related
management's discussion and analysis of financial and operating
results; and
- having direct communication channels with the Company's auditors.
The Audit Committee's mandate requires that all of the members be financially
literate and at least one member have accounting or related financial management
expertise. The mandate of the Committee empowers it to retain legal, accounting
and other advisors.
The Audit Committee's Charter is attached hereto as Exhibit 4.72.
EMPLOYEES
As of December 31, 2007, the Company uses the services of the Grosso Group,
which had 23 full-time employees and 2 part-time employees. The Company also has
two part-time employees in Argentina and Joseph Grosso through the contract with
Oxbow. See "Item 6. Directors, Senior Management and Employees - Compensation -
Management Contracts". Exploration activities are conducted by consultants,
laborers and technicians hired for the duration of the exploration program.
- 33 -
SHARE OWNERSHIP
As of February 29, 2008, the Company had 52,132,064 shares outstanding. The
following table sets forth details of all employee share ownership and includes
information regarding the date of expiration or any options or warrants held by
each employee; the exercise price of the particular option or warrant held; the
total number of options and warrants held by each employee; the total number of
shares held by each employee; and each employee's percentage of ownership:
The following table sets forth certain information regarding ownership of the
Company's shares by the Company's officers and directors as of February 29,
2008.
--------------------------------------------------------------------------------------------------------------------
TITLE OF CLASS NAME SHARES AND RIGHTS PERCENT OF CLASS(1)
BENEFICIALLY OWNED OR
CONTROLLED (1)
--------------------------------------------------------------------------------------------------------------------
Common Stock Joseph Grosso 1,744,667(2) 3.3%
Common Stock Nikolaos Cacos 188,151(3) 0.4%
Common Stock Sean Hurd 310,000(4) 0.6%
Common Stock Gerald Carlson (former director) 252,500(5) 0.6%
Common Stock David Terry 222,000(6) 0.4%
Common Stock Chet Idziszek 245,000(7) 0.5%
Common Stock Robert Stuart (Tookie) Angus 260,000(8) 0.5%
Common Stock Arthur Lang 195,000(9) 0.4%
Common Stock David Horton 160,300(10) 0.3%
Common Stock Leonard Harris 105,000(11) 0.2%
--------------------------------------------------------------------------------------------------------------------
Common Stock Officers and Directors (as a group, 10 persons) 3,682,618(12) 7.6%
--------------------------------------------------------------------------------------------------------------------
(1) Where persons listed on this table have the right to obtain additional
shares of common stock through the exercise of outstanding options, these
additional shares are deemed to be outstanding for the purpose of computing
the percentage of common stock owned by such persons, but are not deemed to
be outstanding for the purpose of computing the percentage owned by any
other person. Based on 52,132,064 shares of common stock outstanding as
February 29, 2008.
(2) Includes the following shares, options and warrants held by Mr. Grosso,
Evelyn Grosso (Mr. Grosso's wife) and Mr. Grosso's private companies:
(a) 703,219 shares held by Mr. Grosso;
(b) 348,448 shares held by Oxbow (50%);
(c) 75,000 Options held by Mr. Grosso's wife (50%)
(d) 548,000 Options held by Mr. Grosso to acquire 548,000 shares. See
"Item 6. Directors, Senior Management and Employees - Options,
Warrants and Other Rights to Acquire Securities - Stock Options."; and
(e) 70,000 shares held in Mr. Grosso's RRSP account.
(3) Includes 13,151 shares held by Mr. Cacos and 175,000 options held by Mr.
Cacos to acquire an additional 175,000 shares. See "Item 6. Directors,
Senior Management and Employees - Options, Warrants and Other Rights to
Acquire Securities - Stock Options."
(4) Includes 310,000 options held by Mr. Hurd to acquire an additional 310,000
shares. See "Item 6. Directors, Senior Management and Employees - Options,
Warrants and Other Rights to Acquire Securities - Stock Options."
(5) Includes 50,000 shares held by Mr. Carlson and 47,500 shares held by KGE
Management Ltd., a private company owned by Mr. Carlson and options held by
Mr. Carlson to acquire an additional 155,000 shares. See "Item 6.
Directors, Senior Management and Employees - Options, Warrants and Other
Rights to Acquire Securities - Stock Options."
(6) Includes 22,000 shares held by Mr. Terry and options held by Mr. Terry to
acquire an additional 200,000 shares. See "Item 6. Directors, Senior
Management and Employees - Options, Warrants and Other Rights to Acquire
Securities - Stock Options."
(7) Mr. Idziszek holds 245,000 options to acquire 245,000 shares. See "Item 6.
Directors, Senior Management and Employees - Options, Warrants and Other
Rights to Acquire Securities - Stock Options."
(8) 260,000 options held by Mr. Angus to acquire 260,000 shares. See "Item 6.
Directors, Senior Management and Employees - Options, Warrants and Other
Rights to Acquire Securities - Stock Options."
(9) Includes 10,000 shares and 185,000 options held by Mr. Lang to acquire
185,000 shares. See "Item 6. Directors, Senior Management and Employees -
Options, Warrants and Other Rights to Acquire Securities - Stock Options."
(10) Includes 200 shares and 160,000 options held by Mr. Horton to acquire
160,000 shares. Mr. Horton also holds 100 Warrants to acquire an additional
100 shares. See "Item 6. Directors, Senior Management and Employees -
Options, Warrants and Other Rights to Acquire Securities - Stock Options."
(11) Includes 5,000 shares and options held by Mr. Harris to acquire 100,000
shares. See "Item 6. Directors, Senior Management and Employees - Options,
Warrants and Other Rights to Acquire Securities - Stock Options."
- 34 -
(12) Includes the shares, options, and warrants set forth in footnotes 2 through
11 above. See "Item 6. Directors, Senior Management and Employees -
Options, Warrants and Other Rights to Acquire Securities - Stock Options."
(13) Effective March 19, 2008 Mr. Idziszek tendered his resignation as a
director.
OPTIONS, WARRANTS AND OTHER RIGHTS TO ACQUIRE SECURITIES
As of February 29, 2008, the Company had granted a number of stock options,
issued a number of warrants and entered into a number of agreements pursuant to
which up to 7,834,404 common shares of the Company may be issued. The following
is a brief summary of these stock options and warrants currently outstanding and
agreements.
STOCK OPTIONS
The TSX-V requires all TSX-V listed companies to adopt stock options plans, and
such plans must contain certain provisions. At the annual and extraordinary
general meeting of shareholders of the Company held on June 26, 2003, the
shareholders approved the Company's stock option plan (the "Stock Option Plan").
At the annual and extraordinary general meetings of shareholders of the Company
held on June 24, 2004, June 23, 2005, June 14, 2006 and December 4, 2007,
respectively, the shareholders approved and ratified by ordinary resolution the
2003 Stock Option Plan to make a total of up to 10% of the issued and
outstanding shares of IMA available for issuance. The purpose of the Stock
Option Plan is to provide incentive to the Company's employees, officers,
directors, and consultants responsible for the continued success of the Company.
The following is a summary of the Stock Option Plan.
ADMINISTRATION OF THE STOCK OPTION PLAN
The Stock Option Plan provides that it will be administered by the Company's
Board of Directors or by the Compensation Committee of the Company's Board of
Directors consisting of not less than two of its members. The Stock Option Plan
is currently administered by the Compensation Committee.
DESCRIPTION OF STOCK OPTION PLAN
The effective date (the "Effective Date") of the Stock Option Plan is June 2,
2003, the date the Board of Directors approved the Stock Option Plan, and it
will terminate ten years from the Effective Date.
The Stock Option Plan provides that options may be granted to any employee,
officer, director or consultant of the Company or a subsidiary of the Company.
The options issued pursuant to the Stock Option Plan will be exercisable at a
price not less than the market value of the Company's common shares at the time
the option is granted. "Market Value" means:
(a) for each organized trading facility on which the common shares are
listed, Market Value will be the closing trading price of the common
shares on the day immediately preceding the grant date less any
discounts permitted by the applicable regulatory authorities;
(b) if the Company's common shares are listed on more than one organized
trading facility, the Market Value shall be the Market Value as
determined in accordance with subparagraph (a) above for the primary
organized trading facility on which the common shares are listed, as
determined by the Board (or a committee thereof), subject to any
adjustments as may be required to secure all necessary regulatory
approvals;
(c) if the Company's common shares are listed on one or more organized
trading facilities but have not traded during the ten trading days
immediately preceding the grant date, then the Market Value will be
determined by the Board (or a committee thereof), subject to any
adjustments as may be required to secure all necessary regulatory
approvals; and
(d) if the Company's common shares are not listed for trading on a stock
exchange or over the counter market, the value which is determined by
the Board (or a committee thereof) to be the fair value of the
Company's common shares, taking into consideration all factors that the
Board (or a committee thereof) deems appropriate, including, without
limitation, recent sale and offer prices of the Company shares in
private transactions negotiated at arms' length.
- 35 -
Options granted under the Stock Option Plan will be granted for a term not to
exceed 10 years from the date of their grant, provided that if the Company is
then a "Tier 2" company listed on the TSX-V, the term of the option will be not
more than five years.
Options under the Stock Option Plan will be subject to such vesting schedule as
the Compensation Committee may determine. In the event that an option is to be
terminated prior to expiry of its term due to certain corporate events, all
options then outstanding shall become immediately exercisable for 10 days after
notice thereof, notwithstanding the original vesting schedule.
Options will also be non-assignable and non-transferable, provided that they
will be exercisable by an optionee's legal heirs, personal representatives or
guardians for up to 12 months following the death or termination of an optionee
due to disability, or up to 12 months following the death of an employee if the
employee dies within 12 months of termination due to disability. All such
options will continue to vest in accordance with their original vesting
schedule.
The maximum number of common shares to be reserved for issuance under the Stock
Option Plan, including options currently outstanding, will not exceed 10% of the
number of common shares of the Company issued and outstanding on the applicable
date of grant.
If a material alteration in the capital structure of the Company occurs as a
result of a recapitalization, stock split, reverse stock split, stock dividend,
or otherwise, the Compensation Committee shall make adjustments to the Stock
Option Plan and to the options then outstanding under it as the Compensation
Committee determines to be appropriate and equitable under the circumstances,
unless the Compensation Committee determines that it is not practical or
feasible to do so, in which event the options granted under the Stock Option
Plan will terminate as set forth above.
The TSX-V requires all TSX-V listed companies who have adopted stock option
plans which reserve a maximum of 10% of the number of common shares of the
Company issued and outstanding on the applicable date of grant, to obtain
shareholder approval to the Stock Option Plan on an annual basis.
As of February 29, 2007, the Company has issued 4,330,000 non-transferable
incentive stock options to purchase common shares outstanding to the following
persons:
----------------------------------------------------------------------------------------------------------------
MARKET VALUE ON
NATURE NUMBER EXERCISE EXPIRATION DATE OF GRANT
OPTIONEE OF OPTION(1) OF SHARES PRICE DATE OR REPRICING
----------------------------------------------------------------------------------------------------------------
N. Cacos Officer 110,000 $3.10 Mar. 24/09 $3.10
50,000 $4.16 Mar. 16/10 $4.16
15,000 $2.92 Nov. 16/10 $2.92
J. Grosso Director 200,000 $1.87 Aug. 27/08 $1.87
150,000 $3.10 Mar. 24/09 $3.10
150,000 $4.16 Mar. 16/10 $4.16
48,000 $3.21 Jun. 22/11 $3.21
S. Hurd Officer 100,000 $1.87 Aug. 27/08 $1.87
130,000 $3.10 Mar. 24/09 $3.10
60,000 $4.16 Mar. 16/10 $4.16
20,000 $2.92 Nov. 16/10 $2.92
G. Carlson Former Director 50,000 $1.87 Aug. 27/08 $1.87
85,000 $3.10 Mar. 24/09 $3.10
20,000 $4.16 Mar. 16/10 $4.16
N. DeMare Consultant 50,000 $1.87 Aug. 27/08 $1.87
50,000 $3.10 Mar. 24/09 $3.10
30,000 $4.16 Mar. 16/10 $4.16
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----------------------------------------------------------------------------------------------------------------
MARKET VALUE ON
NATURE NUMBER EXERCISE EXPIRATION DATE OF GRANT
OPTIONEE OF OPTION(1) OF SHARES PRICE DATE OR REPRICING
----------------------------------------------------------------------------------------------------------------
E. Grosso(2) Consultant 75,000 $3.10 Mar. 24/09 $3.10
K. Patterson Consultant 25,000 $3.10 Mar. 24/09 $3.10
25,000 $2.92 Nov. 16/10 $2.92
D. Terry Director 50,000 $3.1 0 Mar. 24/09 $3.10
80,000 $4.16 Mar. 16/10 $4.16
70,000 $2.92 Nov. 16/10 $2.92
C. Idziszek Director 150,000 $0.90 May 30/08 $0.90
75,000 $3.10 Mar. 24/09 $3.10
20,000 $4.16 Mar. 16/10 $4.16
W. Lee(3) Consultant 75,000 $1.87 Aug. 27/08 $1.87
30,000 $3.10 Mar. 24/09 $3.10
R. Angus Director 150,000 $0.90 May 30/08 $0.90
40,000 $3.10 Mar. 24/09 $3.10
30,000 $4.16 Mar. 16/10 $4.16
40,000 $3.21 Jun. 22/11 $3.21
D. Dorval Consultant 60,000 $3.10 Mar. 24/09 $3.10
30,000 $4.16 Mar. 16/10 $4.16
J. Denee Consultant 10,000 $3.10 Mar. 24/09 $3.10
5,000 $4.16 Mar. 16/10 $4.16
C. Sandoval Consultant 10,000 $3.10 Mar. 24/09 $3.10
15,000 $4.16 Mar. 16/10 $4.16
5,000 $3.21 Jun. 22/11 $3.21
C. D'Amico(5) Director (of 220,000 $1.87 Aug. 27/08 $1.87
subsidiary-exempted 75,000 $3.10 Mar. 24/09 $3.10
from reporting)
C. Timossi Consultant 75,000 $3.10 Mar. 24/09 $3.10
S. Phillips Consultant 300,000 $1.87 Aug. 27/08 $1.87
50,000 $3.10 Mar. 24/09 $3.10
J. Faccin Consultant 10,000 $3.10 Mar. 24/09 $3.10
M. De Simone Director (of 80,000 $3.10 Mar. 24/09 $3.10
subsidiary-exempted
from reporting)
D. Horton Director 100,000 $3.10 Mar. 24/09 $3.10
30,000 $4.16 Mar. 16/10 $4.16
30,000 $3.21 Jun. 22/11 $3.21
A. Lang Director 50,000 $3.10 Mar. 24/09 $3.10
75,000 $4.16 Mar. 16/10 $4.16
25,000 $2.92 Nov. 16/10 $2.92
35,000 $3.21 Jun. 22/11 $3.21
G. James Consultant 7,000 $3.10 Mar. 24/09 $3.10
A. Colucci Consultant 120,000 $1.87 Aug. 27/08 $1.87
- 37 -
----------------------------------------------------------------------------------------------------------------
MARKET VALUE ON
NATURE NUMBER EXERCISE EXPIRATION DATE OF GRANT
OPTIONEE OF OPTION(1) OF SHARES PRICE DATE OR REPRICING
----------------------------------------------------------------------------------------------------------------
P. Hedblom Consultant 30,000 $1.87 Aug. 27/08 $1.87
20,000 $2.92 Nov. 16/10 $2.92
J. Wong Consultant 25,000 $1.87 Aug. 27/08 $1.87
F. Riedl Consultant 30,000 $4.16 Mar. 16/10 $4.16
A. Baertl Consultant 150,000 $4.16 Mar. 16/10 $4.16
150,000 $2.92 Nov. 16/10 $2.92
I. Thomson Consultant 10,000 $4.16 Mar. 16/10 $4.16
L. Harris Director 50,000 $2.92 Nov. 16/10 $2.92
50,000 $3.21 Jun. 22/11 $3.21
C. Smyth Consultant 5,000 $2.92 Nov. 16/10 $2.92
L. McClusky Officer 10,000 $3.21 Jun. 22/11 $3.21
B. Dubowska Consultant 5,000 $3.21 Jun. 22/11 $3.21
G. Myers Consultant 100,000 $0.47 Oct. 23/12 $0.47
----------------------------------------------------------------------------------------------------------------
TOTAL 4,330,000
=========
----------------------------------------------------------------------------------------------------------------
Officers and directors, as a group (10 persons)(4) 2,193,000
=========
(1) Pursuant to the rules of the TSX-V, the Company has issued stock options to
employees, directors, officers and consultants. "Employee" refers to the
employees of the Grosso Group providing administrative and management
services to the Company.
(2) Evelyn Grosso is the wife of Joseph Grosso.
(3) The Company granted Mr. Lee options to acquire common shares during his
tenure as director. Mr. Lee resigned as an officer and director of the
Company effective April 2, 2004 and currently remains as a consultant to
the Company.
(4) Includes options held by Joseph Grosso's wife, Evelyn Grosso.
(5) The Company granted Mr. D'Amico options to acquire common shares during his
tenure as director of a subsidiary.
WARRANTS AND OTHER COMMITMENTS
As of February 29, 2008, there were 3,271,070 non-transferable common share
purchase warrants exercisable.
As of February 29, 2008, the Company's officers and directors, as a group,
including entities controlled or under significant influence of officers and
directors of the Company, held 100 warrants to purchase the Company's common
shares.
There are no assurances that the options, warrants or other rights described
above will be exercised in whole or in part.
- 38 -
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.
PRINCIPAL HOLDERS OF VOTING SECURITIES
To the best of the Company's knowledge, the following table sets forth certain
information regarding ownership of the Company's common shares by the Company's
major shareholders as of February 29, 2008.
-----------------------------------------------------------------------------------------------------------------
Shares and Rights
Beneficially
Title of Class Name and Address of Owner Owned or Controlled (1) Percent of Class (1)
-----------------------------------------------------------------------------------------------------------------
Common Exploration Capital Partners 2006 5,000,000 9.6%
Stock Limited Partnership (2)
7770 El Camino Real
Carlsbad, California 92009
Citizenship: California
-----------------------------------------------------------------------------------------------------------------
Resource Investment Management 5,000,000 9.6%
Corporation (2)
7770 El Camino Real
Carlsbad, California 92009
Citizenship: California
-----------------------------------------------------------------------------------------------------------------
Rule Family Trust udt 12/17/98 (2) 5,000,000 9.6%
7770 El Camino Real
Carlsbad, California 92009
Citizenship: California
-----------------------------------------------------------------------------------------------------------------
Arthur Richards Rule (2) 5,000,000 9.6%
7770 El Camino Real
Carlsbad, California 92009
Citizenship: California
-----------------------------------------------------------------------------------------------------------------
NOTES:
(1) Where persons listed on this table have the right to obtain additional
shares of common stock through the exercise of outstanding options or
warrants within 60 days from February 29, 2008, these additional shares are
deemed to be outstanding for the purpose of computing the percentage of
common stock owned by such persons, but are not deemed to be outstanding
for the purpose of computing the percentage owned by any other person.
Based on 52,132,064 shares of common stock outstanding as of February 29,
2008.
(2) These shares are held by affiliated entities as follows: (i) by Exploration
Capital Partners 2006 Limited Partnership, as the direct beneficial owner
of 5,000,000 Common Shares of the Issuer; (ii) by Resource Investment
Management Corporation by virtue of its position as General Partner of
Exploration Capital Partners 2006 Limited Partnership; (iii) by the Rule
Family Trust udt 12/17/98 by virtue of its indirect ownership and control
of Exploration Capital Partners 2006 Limited Partnership (as owner of 100%
of Resource Investment Management Corporation); and (iv) by Arthur Richards
Rule by virtue of his positions with Resource Investment Management
Corporation and ownership interest in the Rule Family Trust udt 12/17/98.
Mr. Rule is President and a Director of RIMC and, with his wife, is
co-Trustee of the Rule Family Trust udt 12/17/98, which owns 100% of
Resource Investment Management Corporation.
CHANGES IN OWNERSHIP BY MAJOR SHAREHOLDERS
To the best of the Company's knowledge there have been no changes in the
ownership of the Company's shares other than disclosed herein.
- 39 -
SHARES HELD IN THE UNITED STATES
As of February 29, 2008, there were approximately 189 registered holders of the
Company's shares in the United States, with combined holdings of 7,354,240
shares (14.14% of the Company's 52,013,065 outstanding shares at February 29,
2008).
CHANGE OF CONTROL
As of February 29, 2008, there were no arrangements known to the Company which
may, at a subsequent date, result in a change of control of the Company.
CONTROL BY OTHERS
To the best of the Company's knowledge, the Company is not directly or
indirectly owned or controlled by another corporation, any foreign government,
or any other natural or legal person, severally or jointly.
RELATED PARTY TRANSACTIONS
Other than as disclosed below, from January 1, 2007 through February 29, 2008,
the Company did not enter into any transactions or loans between the Company and
any (a) enterprises that directly or indirectly through one or more
intermediaries, control or are controlled by, or are under common control with
the Company; (b) associates; (c) individuals owning, directly or indirectly, an
interest in the voting power of the Company that gives them significant
influence over the Company, and close members of any such individual's family;
(d) key management personnel and close members of such individuals' families; or
(e) enterprises in which a substantial interest in the voting power is owned,
directly or indirectly by any person described in (c) or (d) or over which such
a person is able to exercise significant influence.
1. The Company engages Grosso Group Management Ltd. (the "Grosso Group")
to provide services and facilities to the Company. The Grosso Group is
a private company owned by the Company, Golden Arrow, Amera, Astral,
GPE and Blue Sky, 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 2007, the Company incurred fees of $349,143 (2006:
$724,902; 2005: $730,802) to the Grosso Group: $330,305 (2006:
$764,115; 2006: $764,012 ) was paid in twelve monthly payments and
$18,838 (2006: $39,213 included in amounts receivable; 2005: $33,210
included in amounts receivable) is included in accounts payable 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
(2006: $205,000; 2005: $205,000) deposit to the Grosso Group for the
purchase of equipment and leasehold improvements and for operating
working capital. Effective February 29, 2008, GPE withdrew from Grosso
Group. The Administration Services Agreement may be terminated by a
shareholder company after January 1, 2007, upon 30 days written notice
to the Grosso Group. See "Item 6. Directors, Senior Management and
Employees - Compensation - Management Contracts".
2. The Company is party to an agreement with Oxbow, pursuant to which Mr.
Grosso, an officer and director of the Company, provides executive
services to the Company. During the fiscal year ended December 31,
2007, Oxbow was paid $250,000 (2006 - $350,667, 2005 - $102,000). See
"Item 6. Directors, Senior Management and Employees - Compensation -
Management Contracts".
3. On July 7, 2004, the Company entered into an indemnity agreement, for
any costs or losses incurred by Golden Arrow in respect of the legal
action commenced by Minera Aquiline Argentina S.A. against the Company.
See "Item 8. Financial Information - Legal Proceedings."
4. The Company leased a portion of its office space from Beauregard, a
private company owned by Mr. Grosso's wife, Mrs. Evelina Grosso and
subleased these premises to the Grosso Group in 2005 and 2006, the
balance of the existing lease term, and recovered the 2006 and 2005
rent it had paid Effective January 1,
- 40 -
2007 Beauregard and Grosso Group executed a lease for the office
premises. During the fiscal years ended December 31, 2006 and 2005, the
Company paid rent to Beauregard in the amount of $141,203 and $128,722,
respectively. During the year ended December 31, 2007, the Company's
rent allocated from the Grosso Group was $32,966. - See "Item 4.
Information on the Company - Properties, Plants and Equipment -
Principal Office".
5. As of January 2005, Mr. Terry provides executive services to the
Company as a consultant of the Grosso Group. During the year ended
December 31, 2005, Mr. Terry's total compensation from the Grosso Group
was $120,000, of which $63,600 was allocated to the Company as part of
the Grosso Group fees during the year. On April 12, 2006 the Board
accepted the recommendation from the Compensation Committee to increase
Mr. Terry's monthly fee to $12,500 ($150,000 annually) effective May 1,
2006 and to pay a bonus of $50,000. During the year ended December 31,
2006, Mr. Terry's total compensation from the Grosso Group was
$140,000, of which $57,400 was allocated to the Company. On July 9,
2007 the Board accepted the recommendation from the Compensation
Committee to increase Mr. Terry's monthly fee to $16,667 ($200,000
annually) effective July 1, 2007. During the year ended December 31,
2007, Mr. Terry's total compensation from the Grosso Group was
$175,000, of which $24,579 was allocated to the Company. See "Item 6.
Directors, Senior Management and Employees - Compensation - Management
Contracts."
6. As of January 2005, Mr. Lang provides executive services to the Company
as an employee of the Grosso Group. Effective May 1, 2005, Mr. Lang's
annual salary was increased to $102,000. During the year ended December
31, 2005, Mr. Lang's total compensation from the Grosso Group was
$94,667, of which $68,927 was allocated to the Company as part of the
Grosso Group fees for the year. On April 12, 2006, the Board accepted
the recommendation from the Compensation Committee to increase Mr.
Lang's annual salary to $150,000 effective May 1, 2006 and to pay a
bonus of $50,000. During the year ended December 31, 2006, Mr. Lang's
total compensation from the Grosso Group was $134,000, of which $54,940
was allocated to the Company. During the year ended December 31, 2007,
Mr. Lang's total compensation from the Grosso Group was $151,000 of
which $59,834 was allocated to the Company. See "Item 6. Directors,
Senior Management and Employees - Compensation - Management Contracts."
7. As of January 2005, Mr. Cacos provides executive services to the
Company as a consultant of the Grosso Group. During the year ended
December 31, 2007, Mr. Cacos's total compensation from the Grosso Group
was $22,500 (2006 - $22,500, 2005 - $22,500), of which $938 was
allocated to the Company (2006 - $9,225, 2005 - $14,862) as part of the
Grosso Group fees for the year. See "Item 6. Directors, Senior
Management and Employees - Compensation - Management Contracts."
8. As of January 2005, Mr. Hurd provides executive services to the Company
as an employee of the Grosso Group. During the year ended December 31,
2007, Mr. Hurd's total compensation from the Grosso Group was $120,000
(2006 - $112,000, 2005 - $96,000), of which $25,497 was allocated to
the Company (2006 - $45,920, 2005 - $72,216) as part of the Grosso
Group fees for the year. See "Item 6. Directors, Senior Management and
Employees - Compensation - Management Contracts."
9. On February 14, 2006 and effective January 1, 2006, the Company entered
into an agreement with RSA Holdings Ltd., pursuant to which Mr. Angus,
a director of the Company, provides advisory services including
participation on various committees of the Company. A monthly fee of
US$5,000 for services is payable under this agreement for a minimum
period of six months. In 2007, the Company paid RSA $66,050 (2006 -
$68,350). This agreement was terminated by mutual agreement, effective
December 31, 2007.
- 41 -
ITEM 8. FINANCIAL INFORMATION.
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
FINANCIAL STATEMENTS
DESCRIPTION PAGE
----------- ----------
Consolidated Financial Statements for the Years Ended
December 31, 2007, 2006 and 2005. F-1 - F-27
SIGNIFICANT CHANGES
There are no significant changes to report between the year ended December 31,
2007 and the date of this annual report.
LEGAL PROCEEDINGS
There are no legal proceedings as at February 29, 2008.
DIVIDEND POLICY
The Company has not paid any dividends on its common shares and does not intend
to pay dividends on its common shares in the immediate future. Any decision to
pay dividends on its common shares in the future will be made by the Board of
Directors on the Company on the basis of earnings, financial requirements and
other such conditions that may exist at that time.
ITEM 9. THE OFFER AND LISTING
--------------------------------------------------------------------------------
PRICE HISTORY
The Company's common shares are listed on the TSX-V. From April 15, 1996 to
November 28, 1999, the Company's shares were listed on the Vancouver Stock
Exchange (the "VSE"). Effective November 29, 1999, the VSE and the Alberta Stock
Exchange (the "ASE") merged and began operations as the Canadian Venture
Exchange or CDNX. On August 1, 2001, the CDNX was acquired by the Toronto Stock
Exchange and became known as the TSX-V. The Company is classified as a Tier I
company on the TSX-V and trades under the symbol "IMR". Companies which satisfy
the minimum initial listing requirements of the TSX-V are designated as Tier II
companies and are subject to listing requirements which are stricter than those
for companies which are designated as Tier I companies.
The following table lists the volume of trading and high and low sales prices on
the TSX-V (or predecessor), for shares of the Company's common stock for the
last five fiscal years, each quarterly period during the last two fiscal years
and each month from September 2007 through February 2008.
TSX VENTURE EXCHANGE (OR PREDECESSOR) STOCK TRADING ACTIVITY
SALES PRICE
----------------------------
YEAR ENDED VOLUME HIGH LOW
December 31, 2007 39,182,400 $1.20 $0.355
December 31, 2006 52,243,300 $3.96 $0.49
December 31, 2005 18,584,000 $4.45 $2.56
December 31, 2004 37,199,200 $4.80 $1.73
December 31, 2003 50,625,400 $2.54 $0.49
- 42 -
SALES PRICE
----------------------------
QUARTER ENDED VOLUME HIGH LOW
December 31, 2007 3,506,800 $0.60 $0.39
September 30, 2007 5,725,900 $0.51 $0.42
June 30, 2007 25,684,600 $1.20 $.355
March 31, 2007 4,265,100 $0.95 $0.57
December 31, 2006 15,052,600 $0.66 $0.49
September 30, 2006 22,456,700 $3.49 $0.50
June 30, 2006 5,606,400 $3.75 $2.86
March 31, 2006 9,127,600 $3.96 $2.84
SALES PRICE
----------------------------
MONTH ENDED VOLUME HIGH LOW
February 29, 2008 1,801,100 $0.45 $0.365
January 31, 2008 2,305,700 $0.425 $0.37
December 31, 2007 1,696,600 $0.51 $0.39
November 30, 2007 818,400 $0.55 $0.45
October 31, 2007 991,800 $0.60 $0.43
September 30, 2007 866,800 $0.485 $0.43
AMERICAN STOCK EXCHANGE AND OVER-THE-COUNTER BULLETIN BOARD
STOCK TRADING ACTIVITY
As of July 6, 2005, the Company's shares started to trade on the American Stock
Exchange ("AMEX"). Prior to that the Company's shares were trading on the OTC
Bulletin Board operated by the National Association of Securities Dealers in the
United States from October 8, 2002. The Company currently trades on the AMEX
under the symbol "IMR". The following tables set forth the market price ranges
and the aggregate volume of trading of the common shares of the Company on the
AMEX or the OTC Bulletin Board system for the periods indicated:
SALES PRICE (US$)
----------------------------
YEAR ENDED VOLUME HIGH LOW
December 31, 2007 18,219,300 $1.30 $0.25
December 31, 2006 26,580,100 $3.48 $0.43
December 31, 2005 13,245,000 $3.68 $2.00
December 31, 2004 20,134,200 $4.05 $1.31
December 31, 2003 6,974,500 $1.89 $0.36
SALES PRICE (US$)
----------------------------
QUARTER ENDED VOLUME HIGH LOW
December 31, 2007 2,080,100 $0.62 $0.25
September 30, 2007 2,863,800 $0.52 $0.38
June 30, 2007 9,374,600 $1.30 $0.31
March 31, 2007 3,900,800 $.83 $0.48
December 31, 2006 4,592,600 $0.59 $0.43
September 30, 2006 9,104,900 $3.10 $0.44
June 30, 2006 5,606,700 $3.44 $2.57
March 31, 2006 7,275,900 $3.48 $2.43
SALES PRICE (US$)
----------------------------
MONTH ENDED VOLUME HIGH LOW
February 29, 2008 1,158,000 $0.45 $0.36
January 31, 2008 787,100 $0.44 $0.31
December 31, 2007 710,900 $0.50 $0.25
November 30, 2007 447,800 $0.58 $0.44
October 31, 2007 921,400 $0.62 $0.42
September 30, 2007 648,000 $0.48 $0.40
- 43 -
ITEM 10. ADDITIONAL INFORMATION.
--------------------------------------------------------------------------------
MEMORANDUM AND ARTICLES OF ASSOCIATION
The Company was incorporated under the COMPANY ACT (British Columbia) on
September 17, 1979, as Gold Star Resources Ltd. The Company's Incorporation
Number is 197061. On May 1, 1990, the Company filed an Altered Memorandum to
reflect its name change to EEC Marketing Corp. On January 13, 1992, the Company
filed an Altered Memorandum to reflect its name change to Amera Industries Corp.
On February 9, 1995, the Company filed an Altered Memorandum to reflect its name
change to International Amera Industries Corp. On February 20, 1996, the Company
filed an Altered Memorandum to reflect its name change to IMA Resource
Corporation. Effective July 7, 1998, the Company underwent a statutory plan of
arrangement (the "Arrangement") with Viceroy Resource Corporation ("Viceroy"),
changed its name to IMA Exploration Inc., consolidated its share capital on the
basis of four old shares for one new share and filed an Altered Memorandum to
give effect to the foregoing. See "Item 4. Information on the Company".
The Company's objects and purposes are not set forth in or prescribed by its
Articles or Memorandum. The Company is in the business of the acquisition,
exploration and development of mineral properties.
AMENDMENT OF NOTICE OF ARTICLES
On March 29, 2004, the new British Columbia Business Corporations Act came into
force in British Columbia (the "BCBCA The Board of Directors of the Company
approved the Transition of the Company and the Company filed a transition
application with the Registrar of Companies British Columbia and completed the
Transition on May 4, 2004.
In order to bring the Company's Articles in line with the BCBCA, the Company
deleted and replaced its Articles in their entirety. Accordingly, the
shareholders passed a special resolution removing the application of the
Pre-Existing Company Provisions at a meeting held on June 24, 2004.
SUMMARY OF MATERIAL PROVISIONS
The following is a summary of certain material provisions of the Company's
Articles of Association and Memorandum:
A. DIRECTOR'S POWER TO VOTE ON A PROPOSAL, ARRANGEMENT OR CONTRACT IN
WHICH THE DIRECTOR IS MATERIALLY INTERESTED.
Under the BCBCA, subject to certain exceptions, a director or senior
officer of the Company must disclose any material interest that he
personally has, or that he as a director or senior officer of another
corporation has in a contract or transaction that is material to the
Company and which the Company has entered into or proposes to enter
into.
A director or senior officer of the Company does not hold a disclosable
interest in a contract or transaction if:
1. the situation that would otherwise constitute a disclosable
interest arose before the coming into force of the BCBCA, or
the interest was disclosed and approved under, or was not
required to be disclosed under legislation that applied to the
Company before the coming into effect of the BCBCA;
2. both the Company and the other party to the contract or
transaction are wholly owned subsidiaries of the same
corporation;
3. the Company is a wholly owned subsidiary of the other party to
the contract or transaction;
4. the other party to the contract or transaction is a wholly
owned subsidiary of the Company ; or
5. the director or senior officer is the sole shareholder of the
Company or of a corporation of which the Company is a wholly
owned subsidiary.
- 44 -
A director or senior officer of the Company does not hold a disclosable
interest in a contract or transaction merely because:
1. the contract or transaction is an arrangement by way of a
security granted by the Company for money loaned to, or
obligations undertaken by, the director or senior officer, or
a person in whom the director or senior officer has a material
interest, for the benefit of the Company or an affiliate of
the Company;
2. the contract or transaction relates to an indemnity or
insurance under the BCBCA;
3. the contract or transaction relates to the remuneration of the
director or senior officer, or a person in whom the director
or senior officer, employee or agent of the Company or of an
affiliate of the Company;
4. the contract or transaction relates to a loan to the Company,
and the director or senior officer, or a person win whom the
director or senior officer has a material interest, is or is
to be a guarantor of some or all of the loan; or
5. the contract or transaction has been or will be made with or
for the benefit of a corporation that is affiliated with the
Company and the director or senior officer is also a director
or senior officer of that corporation or an affiliate of that
corporation.
A director or senior officer who holds such a material interest must
disclose such interest in writing. The disclosure must be evidenced in
writing in a consent resolution, the minutes of a meeting or any other
record deposited with the Company's record office. A director who has a
disclosable interest in a contract or transaction is not entitled to
vote of any directors' resolution to approve that contract or
transaction, but may be counted in the quorum at the directors' meeting
at which such vote is taken.
B. DIRECTOR'S POWER, IN THE ABSENCE OF AN INDEPENDENT QUORUM, TO VOTE
COMPENSATION TO THEMSELVES OR ANY MEMBERS OF THEIR BODY.
The compensation of the directors is decided by the directors unless
the Board of Directors requests approval of the compensation from the
shareholders. If the issuance of compensation to the directors is
decided by the directors, a quorum is the majority of the directors in
office.
C. BORROWING POWERS EXERCISABLE BY THE DIRECTORS AND HOW SUCH BORROWING
POWERS MAY BE VARIED.
The Company, if authorized by the directors, may:
1. borrow money in the manner and amount, on the security, from
the sources and on the terms and conditions that they consider
appropriate;
2. issue bonds, debentures and other debt obligations either
outright or as security for any liability or obligation of the
Company or any other person and at such discounts or premiums
and on such other terms as they consider appropriate;
3. guarantee the repayment of money by any other person or the
performance of any obligation of any other person; and
4. mortgage, charge, whether by way of specific or floating
charge, grant a security interest in, or give other security
on, the whole or any part of the present and future assets and
undertaking of the Company.
The borrowing powers may be varied by amendment to the Articles of the
Company which requires approval of the shareholders of the Company by
special resolution.
D. RETIREMENT AND NON-RETIREMENT OF DIRECTORS UNDER AN AGE LIMIT
REQUIREMENT.
There are no such provisions applicable to the Company under the Notice
of Articles, Articles (as existing or the new proposed Articles) or the
BCBCA.
- 45 -
E. NUMBER OF SHARES REQUIRED FOR A DIRECTOR'S QUALIFICATION.
A director of the Company is not required to hold a share in the
capital of the Company as qualification for his office.
DESCRIPTION OF SHARE CAPITAL
The authorized capital of the Company consists of an unlimited number of common
shares without par value and 100,000,000 Preferred shares without par value, of
which 18,283,053 have been designated as Preferred Shares, Series I.
COMMON SHARES
A total of 52,132,064 common shares were issued and outstanding as of February
29, 2008. All of the common shares are fully paid and not subject to any future
call or assessment. All of the common shares of the Company rank equally as to
voting rights, participation in a distribution of the assets of the Company on a
liquidation, dissolution or winding-up of the Company and the entitlement to
dividends. The holders of the common shares are entitled to receive notice of
all shareholder meetings and to attend and vote at such meetings. Each common
share carries with it the right to one vote. The common shares do not have
preemptive or conversion rights. In addition, there are no sinking fund or
redemption provisions applicable to the common shares or any provisions
discriminating against any existing or prospective holders of such securities as
a result of a shareholder owning a substantial number of shares.
PREFERRED SHARES
The Company is authorized to issue up to 100,000,000 preferred shares in one or
more series of which 18,283,053 have been designated as Preferred Shares, Series
I. The preferred shares are entitled to priority over the common shares with
respect to the payment of dividends and distribution in the event of the
dissolution, liquidation or winding-up of the Company. The holders of preferred
shares as a class shall not be entitled as such to receive notice of, to attend
or to vote at any meeting of the shareholders of the Company, other than at a
meeting of holders of Preferred Shares. As of February 29, 2008 there were no
issued or outstanding preferred shares.
CHANGES TO RIGHTS AND RESTRICTIONS OF SHARES
If the Company wishes to change the rights and restrictions of the common shares
or the preferred shares, the Company must obtain the approval of a special
resolution by 2/3 of the holders of the common shares, or 2/3 of the holders of
the preferred shares.
DIVIDEND RECORD
The Company has not paid any dividends on its common shares and has no policy
with respect to the payment of dividends.
OWNERSHIP OF SECURITIES AND CHANGE OF CONTROL
There are no limitations on the rights to own securities, including the rights
of non-resident or foreign shareholders to hold or exercise voting rights on the
securities imposed by foreign law or by the constituent documents of the
Company.
Any person who beneficially owns or controls, directly or indirectly, more than
10% of the Company's voting shares is considered an insider, and must file an
insider report with the British Columbia, Alberta and Ontario Securities
Commissions within ten days of becoming an insider disclosing any direct or
indirect beneficial ownership of, or control over direction over securities of
the Company. In addition, if the Company itself holds any of its own securities,
the Company must disclose such ownership.
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There are no provisions in the Company's Memorandum and Articles of Association
or Bylaws that would have an effect of delaying, deferring or preventing a
change in control of the Company operating only with respect to a merger,
acquisition or corporate restructuring involving the Company or its
subsidiaries.
MEETINGS OF THE SHAREHOLDERS
ANNUAL AND GENERAL MEETINGS
Under BCBCA and the Company's Articles, the Company's annual general meeting is
to be held once in each calendar year and not more than 15 months after the
previous meeting. No advance notice will be required to be published at a
meeting where directors are to be elected. The Company must give shareholders
not less than 21 days notice of any general meeting of the shareholders.
The Directors may fix in advance a date, which is no fewer than 35 days or no
more than 60 days prior to the date of the meeting. All the holders of common
shares as at that date are entitled to attend and vote at a general meeting.
QUORUM FOR SHAREHOLDER MEETING
The current Articles allow for quorum to be two persons who are, or who
represent by proxy, shareholders who, in the aggregate, hold at least five
percent (5%) of the issued shares entitled to be voted at the meeting.
SPECIAL MAJORITY FOR RESOLUTIONS
The Company's Articles require a majority of two-thirds of the votes cast on a
resolution.
INDEMNITY PROVISION
The Company's Articles allow the Company to indemnify directors, officers,
employees and agents, subject to the limits imposed under the BCBCA. Management
believes that it is in the best interests of the Company to allow the
indemnification of directors, officers, employees and agents, subject to the
limits and conditions of the BCBCA.
The directors, officers, employees and agents have entered into Indemnity
Agreements, as allowed under the Articles of the Company. However, under the
BCBCA, the Company will be prohibited from paying an indemnity if:
(a) the party did not act honestly and in good faith with a view
to the best interests of the Company;
(b) the proceeding was not a civil proceeding and the party did
not have reasonable grounds for believing that his or her
conduct was lawful; and
(c) the proceeding is brought against the party by the Company or
an associated corporation.
DIFFERENCES FROM REQUIREMENTS IN THE UNITED STATES
Except for the Company's quorum requirements, certain requirements related to
related party transactions and the requirement for notice of shareholder
meetings, discussed above, there are no significant differences in the law
applicable to the Company, in the areas outlined above, in Canada versus the
United States. In most states in the United States, a quorum must consist of a
majority of the shares entitled to vote. Some states allow for a reduction of
the quorum requirements to less than a majority of the shares entitled to vote.
Having a lower quorum threshold may allow a minority of the shareholders to make
decisions about the Company, its management and operations. In addition, most
states in the United States require that a notice of meeting be mailed to
shareholders prior to the meeting date. Additionally, in the United States, a
director may not be able to vote on the approval of any transaction in which the
director has an interest.
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MATERIAL CONTRACTS
The following are material contracts to which the Company is a party:
1. The Company is party to an agreement with Oxbow, effective as of July
1, 1999, subsequently amended on May 1, 2006, pursuant to which Mr.
Grosso provides executive services as President and Chief Executive
Officer of the Company. Pursuant to the terms of the agreement, in the
event the agreement is terminated by the Company as a result of Mr.
Grosso's death or permanent disability while providing services to the
Company, or by Mr. Grosso as a result of a material breach or default
by the Company, Oxbow is entitled to a bonus payment in the amount of
$461,500. In the event the agreement is terminated by the Company
without cause or as a result of a change of control, Oxbow is entitled
to (i) any monthly compensation due to the date of termination, (ii)
options as determined by the Company's Board of Directors, (iii) three
years of Mr. Grosso's monthly compensation (which may be adjusted
annually), and (iv) a bonus payment of $461,500. During the fiscal year
ended December 31, 2007, Oxbow was paid $250,000 (2006 - $350,667, 2005
- $102,000). See "Item 6. Directors, Senior Management and Employees -
Compensation - Management Contracts".
2. By agreement dated April 1, 2004, between the Company and KGE
Management Ltd. ("KGE"), a private company owned by Mr. Carlson, former
Chairman of the Board of Directors of the Company, this new agreement,
which replaced a prior agreement, provided for a monthly retainer of
$2,000 per month plus a fee of $600 per day for additional days in
excess of 3 days per month. This agreement expired March 31, 2005 and
was renewed for six months with the same terms. Effective January 1,
2006 the Company agreed to pay KGE a fee of $600 per day if services
were required and the former agreement was not renewed. During the
fiscal year ended December 31, 2007, the Company paid $Nil to KGE (2006
- $3,300 2005 - $24,000).
3. In July 2004, the Company entered into an indemnity agreement, for any
costs or losses incurred by Golden Arrow in respect of the legal action
commenced by a Minera Aquiline Argentina S.A. against the Company. See
"Item 8. Financial Information - Legal Proceedings."
4. Pursuant to the terms of an Administration Services Agreement dated
January 1, 2005, the Company engages the Grosso Group to provide
services and facilities to the Company. The Grosso Group is a private
company owned by the Company, Golden Arrow, Amera, Astral, Gold Point
and Blue Sky, 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 2007, the Company incurred fees of $349,143 (2006: $724,902;
2005: $730,802) to the Grosso Group: $330,305 was paid in twelve
monthly payments (2006: $764,115; 2006: $764,012) and $18,838 (2006:
$39,213 included in amounts receivable; 2005: $33,210 included in
amounts receivable) is included in accounts payable 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 deposit to the
Grosso Group for the purchase of equipment and leasehold improvements
and for operating working capital (2006: $205,000; 2005: $205,000).
Effective February 29, 2008, Gold Point withdrew from Grosso Group. The
Administration Services Agreement may be terminated by a shareholder
company after January 1, 2007, upon 30 days written notice to the
Grosso Group. See "Item 6. Directors, Senior Management and Employees -
Compensation - Management Contracts".
5. As of January 2005, Mr. Terry provides executive services to the
Company as a consultant of the Grosso Group. During the year ended
December 31, 2005, Mr. Terry's total compensation from the Grosso Group
was $120,000, of which $63,600 was allocated to the Company as part of
the Grosso Group fees during the year. On April 12, 2006 the Board
accepted the recommendation from the Compensation Committee to increase
Mr. Terry's monthly fee to $12,500 ($150,000 annually) effective May 1,
2006 and to pay a bonus of $50,000. During the year ended December 31,
2006, Mr. Terry's total compensation from the Grosso Group was
$140,000, of which $57,400 was allocated to the Company. On July 9,
2007 the Board accepted the recommendation from the Compensation
Committee to increase Mr. Terry's monthly fee to $16,667
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($200,000 annually) effective July 1, 2007. During the year ended
December 31, 2007, Mr. Terry's total compensation from the Grosso Group
was $175,000, of which $24,579 was allocated to the Company. See "Item
6. Directors, Senior Management and Employees - Compensation -
Management Contracts."
6. As of January 2005, Mr. Lang provides executive services to the Company
as an employee of the Grosso Group. Effective May 1, 2005, Mr. Lang's
annual salary was increased to $102,000. During the year ended December
31, 2005, Mr. Lang's total compensation from the Grosso Group was
$94,667, of which $68,927 was allocated to the Company as part of the
Grosso Group fees for the year. On April 12, 2006, the Board accepted
the recommendation from the Compensation Committee to increase Mr.
Lang's annual salary to $150,000 effective May 1, 2006 and to pay a
bonus of $50,000. During the year ended December 31, 2006, Mr. Lang's
total compensation from the Grosso Group was $134,000, of which $54,940
was allocated to the Company. During the year ended December 31, 2007,
Mr. Lang's total compensation from the Grosso Group was $151,000 of
which $59,834 was allocated to the Company. See "Item 6. Directors,
Senior Management and Employees - Compensation - Management Contracts."
7. As of January 2005, Mr. Cacos provides executive services to the
Company as a consultant of the Grosso Group. During the year ended
December 31, 2007, Mr. Cacos's total compensation from the Grosso Group
was $22,500 (2006 - $22,500, 2005 - $22,500), of which $938 was
allocated to the Company (2006 - $9,225, 2005 - $14,862) as part of the
Grosso Group fees for the year. See "Item 6. Directors, Senior
Management and Employees - Compensation - Management Contracts."
8. As of January 2005, Mr. Hurd provides executive services to the Company
as an employee of the Grosso Group. During the year ended December 31,
2007, Mr. Hurd's total compensation from the Grosso Group was $120,000
(2006 - $112,000, 2005 - $96,000), of which $25,497 was allocated to
the Company (2006 - $45,920, 2005 - $72,216) as part of the Grosso
Group fees for the year. See "Item 6. Directors, Senior Management and
Employees - Compensation - Management Contracts."
9. The Company leased a portion of its office space from Beauregard, a
private company owned by Mr. Grosso's wife, Mrs. Evelina Grosso and
subleased these premises to the Grosso Group in 2005 and 2006, the
balance of the existing lease term, and recovered the 2006 and 2005
rent it had paid Effective January 1, 2007 Beauregard and Grosso Group
executed a lease for the office premises. During the fiscal years ended
December 31, 2006 and 2005, the Company paid rent to Beauregard in the
amount of $141,203 and $128,722, respectively. During the year ended
December 31, 2007, the Company's rent from the Grosso Group was
$235,471, of which $32,966 was allocated to the Company. - See "Item 4.
Information on the Company - Properties, Plants and Equipment -
Principal Office".
10. On February 14, 2006 and effective January 1, 2006, the Company entered
into an agreement with RSA Holdings Ltd., pursuant to which Mr. Angus,
a director of the Company, provides advisory services including
participation on various committees of the Company. A monthly fee of
US$5,000 for services is payable under this agreement for a minimum
period of six months. In 2007, the Company paid RSA $66,050 (2006 -
$68,350). This agreement was terminated by mutual agreement, effective
December 31, 2007.
11. On October 18, 2006, the Company and Aquiline entered into the Interim
Agreement for the orderly conduct of the Navidad Project pending the
determination of the appeal by the Company against the judgment of the
trial court. The principal terms and conditions of the Interim
Agreement were as follows:
(i) control of the Navidad Project was transferred to Aquiline in
trust for the ultimately successful party in the appeal;
(ii) the Company and Aquiline 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 and
(iii) in the event that the Company was unsuccessful on appeal, the
Company was to be paid such $18,500,000 amount
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The effective date of the transfer of the Navidad project was November
16, 2006. A copy of the Interim Agreement is posted on the SEDAR
website as one of the Company's public documents and is titled "Interim
Project Development Agreement".
The Company's appeal of this judgment was heard by the British Columbia
Court of Appeal between April 10 and April 12, 2007. The Court of
Appeal dismissed the Company's appeal and released their reasons for
judgment on June 7, 2007. The Company filed an application for leave to
appeal to the Supreme Court of Canada in October 2007. On December 20,
2007, the Supreme Court of Canada denied the Company's appeal. This
brought the lawsuit to a close. As a result, the Navidad property has
been transferred to Aquiline. The Company was paid $18,500,000 as
consideration for these assets. The Company received the $7.5 million
held in trust on January 8, 2008, plus interest that had accrued in the
amount of $341,380. The $11 million balance was received on February
11, 2008. "Item 4. Information on the Company - History and Development
of the Company."
EXCHANGE CONTROLS
There are no governmental laws, decrees, or regulations in Canada relating to
restrictions on the export or import of capital, or affecting the remittance of
interest, dividends, or other payments to non-resident holders of the Company's
Common Stock. Any remittances of dividends to United States residents are,
however, subject to a 15% withholding tax (10% if the shareholder is a
corporation owning at least 10% of the outstanding Common Stock of the Company)
pursuant to Article X of the reciprocal tax treaty between Canada and the United
States. See "Item 10. Additional Information - Taxation".
Except as provided in the Investment Canada Act (the "Act"), there are no
limitations specific to the rights of non-Canadians to hold or vote the Common
Stock of the Company under the laws of Canada or the Province of British
Columbia or in the charter documents of the Company.
Management of the Company considers that the following general summary is
materially complete and fairly describes those provisions of the Act pertinent
to an investment by an American investor in the Company.
The Act requires a non-Canadian making an investment which would result in the
acquisition of control of a Canadian business, the gross value of the assets of
which exceed certain threshold levels or the business activity of which is
related to Canada's cultural heritage or national identity, to either notify, or
file an application for review with, Investment Canada, the federal agency
created by the Investment Canada Act.
The notification procedure involves a brief statement of information about the
investment of a prescribed form which is required to be filed with Investment
Canada by the investor at any time up to 30 days following implementation of the
investment. It is intended that investments requiring only notification will
proceed without government intervention unless the investment is in a specific
type of business activity related to Canada's cultural heritage and national
identity.
If an investment is reviewable under the Act, an application for review in the
form prescribed is normally required to be filed with Investment Canada prior to
the investment taking place and the investment may not be implemented until the
review has been completed and the Minister responsible for Investment Canada is
satisfied that the investment is likely to be of net benefit to Canada. If the
Minister is not satisfied that the investment is likely to be of net benefit to
Canada, the non-Canadian must not implement the investment or, if the investment
has been implemented, may be required to divest himself of control of the
business that is the subject of the investment.
The following investments by non-Canadians are subject to notification under the
Act:
(a) an investment to establish a new Canadian business; and
(b) an investment to acquire control of a Canadian business that is not
reviewable pursuant to the Act.
An investment is reviewable under the Act if there is an acquisition by a
non-Canadian of a Canadian business and the asset value of the Canadian business
being acquired equals or exceeds the following thresholds:
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(a) for non-WTO Investors, the threshold is $5,000,000 for a direct
acquisition and over $50,000,000 for an indirect acquisition. The
$5,000,000 threshold will apply however for an indirect acquisition of
the asset value of the Canadian business being acquired exceeds 50% of
the asset value of the global transaction;
(b) except as specified in paragraph (c) below, a threshold is calculated
for reviewable direct acquisitions by or from WTO Investors. The
threshold for 2005 is $250,000,000. Pursuant to Canada's international
commitments, indirect acquisitions by or from WTO Investors are not
reviewable; and
(c) the limits set out in paragraph (a) apply to all investors for
acquisitions of a Canadian business that:
(i) engages in the production of uranium and owns an interest in a
producing uranium property in Canada;
(ii) provides any financial services;
(iii) provides any transportation service; or
(iv) is a cultural business.
WTO Investor as defined in the Act means:
(a) an individual, other than a Canadian, who is a national of a WTO Member
or who has the right of permanent residence in relation to that WTO
Member;
(b) a government of a WTO Member, whether federal, state or local, or an
agency thereof;
(c) an entity that is not a Canadian-controlled entity, and that is a WTO
investor-controlled entity, as determined in accordance with the Act;
(d) a corporation or limited partnership:
(i) that is not a Canadian-controlled entity, as determined
pursuant to the Act;
(ii) that is not a WTO investor within the meaning of the Act;
(iii) of which less than a majority of its voting interests are
owned by WTO investors;
(iv) that is not controlled in fact through the ownership of its
voting interests; and
(v) of which two thirds of the members of its board of directors,
or of which two thirds of its general partners, as the case
may be, are any combination of Canadians and WTO investors;
(e) a trust:
(i) that is not a Canadian-controlled entity, as determined
pursuant to the Act;
(ii) that is not a WTO investor within the meaning of the Act;
(iii) that is not controlled in fact through the ownership of its
voting interests, and
(iv) of which two thirds of its trustees are any combination of
Canadians and WTO investors, or
(f) any other form of business organization specified by the regulations
that is controlled by a WTO investor.
WTO Member as defined in the Act means a member of the World Trade Organization.
Generally speaking, an acquisition is direct if it involves the acquisition of
control of the Canadian business or of its Canadian parent or grandparent and an
acquisition is indirect if it involves the acquisition of control of a
non-Canadian parent or grandparent of an entity carrying on the Canadian
business. Control may be acquired through the acquisition of actual or de jure
voting control of a Canadian corporation or through the acquisition of
substantially all of the assets of the Canadian business. No change of voting
control will be deemed to have occurred if less than one-third of the voting
control of a Canadian corporation is acquired by an investor.
The Act specifically exempts certain transactions from either notification or
review. Included among the category of transactions is the acquisition of voting
shares or other voting interests by any person in the ordinary course of that
person's business as a trader or dealer in securities.
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TAXATION
MATERIAL CANADIAN FEDERAL INCOME TAX CONSEQUENCES
Management of the Company considers that the following discussion describes the
material Canadian federal income tax consequences applicable to a holder of
Common Stock of the Company who is a resident of the United States and who is
not a resident of Canada and who does not use or hold, and is not deemed to use
or hold, his shares of Common Stock of the Company in connection with carrying
on a business in Canada (a "non-resident shareholder").
This summary is based upon the current provisions of the Income Tax Act (Canada)
(the "ITA"), the regulations thereunder (the "Regulations"), the current
publicly announced administrative and assessing policies of Revenue Canada,
Taxation and all specific proposals (the "Tax Proposals") to amend the ITA and
Regulations announced by the Minister of Finance (Canada) prior to the date
hereof. This description is not exhaustive of all possible Canadian federal
income tax consequences and, except for the Tax Proposals, does not take into
account or anticipate any changes in law, whether by legislative, governmental
or judicial action.
DIVIDENDS
Dividends paid on the common stock of the Company to a non-resident will be
subject to withholding tax. The Canada-U.S. Income Tax Convention (1980)
provides that the normal 25% withholding tax rate is reduced to 15% on dividends
paid on shares of a corporation resident in Canada (such as the Company) to
residents of the United States, and also provides for a further reduction of
this rate to 5% where the beneficial owner of the dividends is a corporation
which is a resident of the United States which owns at least 10% of the voting
shares of the corporation paying the dividend. In the event of the Company
declaring and paying dividends it would withhold any applicable taxes.
CAPITAL GAINS
In general, a non-resident of Canada is not subject to tax under the ITA with
respect to a capital gain realized upon the disposition of a share of a
corporation resident in Canada that is listed on a prescribed stock exchange.
For purposes of the ITA, the Company is listed on a prescribed stock exchange.
Non-residents of Canada who dispose of shares of the Company will be subject to
income tax in Canada with respect to capital gains if:
(a) the non-resident holder;
(b) persons with whom the non-resident holder did not deal at
arm's length; or
(c) the non-resident holder and persons with whom the non-resident
holder did not deal with at arm's length,
owned not less than 25% of the issued shares of any class or series of the
Company at any time during the five-year period preceding the disposition. In
the case of a non-resident holder to whom shares of the Company represent
taxable Canadian property and who is resident in the United States, no Canadian
taxes will be payable on a capital gain realized on such shares by reason of the
Canada-U.S. Income Tax Convention (1980) (the "Treaty") unless the value of such
shares is derived principally from real property situated in Canada. However, in
such a case, certain transitional relief under the Treaty may be available.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material United States federal income
tax consequences, under current law, applicable to a U.S. Holder (as defined
below) of the Company's common stock. This discussion does not address
consequences peculiar to persons subject to special provisions of federal income
tax law, such as tax-exempt organizations, qualified retirement plans, financial
institutions, insurance companies, real estate investment trusts, regulated
investment companies, broker-dealers, nonresident alien individuals or foreign
corporations, or shareholders owning common stock representing 10% of the vote
and value of the Company. In addition, this discussion does not cover any state,
local or foreign tax consequences.
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The following discussion is based upon the sections of the Internal Revenue Code
of 1986, as amended (the "Code"), Treasury Regulations, published Internal
Revenue Service ("IRS") rulings, published administrative positions of the IRS
and court decisions that are currently applicable, any or all of which could be
materially and adversely changed, possibly on a retroactive basis, at any time.
In addition, this discussion does not consider the potential effects, both
adverse and beneficial of recently proposed legislation which, if enacted, could
be applied, possibly on a retroactive basis, at any time. Holders and
prospective holders of the Company's Common Stock should consult their own tax
advisors about the federal, state, local and foreign tax consequences of
purchasing, owning and disposing of shares of Common Stock of the Company.
U.S. HOLDERS
As used herein, a "U.S. Holder" is defined as (i) citizens or residents of the
U.S., or any state thereof, (ii) a corporation or other entity created or
organized under the laws of the U.S., or any political subdivision thereof,
(iii) an estate the income of which is subject to U.S. federal income tax
regardless of source or that is otherwise subject to U.S. federal income tax on
a net income basis in respect of the common stock, or (iv) a trust whose
administration is subject to the primary supervision of a U.S. court and which
has one or more U.S. fiduciaries who have the authority to control all
substantial decisions of the trust, whose ownership of common stock is not
effectively connected with the conduct of a trade or business in the United
States and shareholders who acquired their stock through the exercise of
employee stock options or otherwise as compensation.
DISTRIBUTIONS ON SHARES OF COMMON STOCK
U.S. Holders receiving dividend distributions (including constructive dividends)
with respect to the Company's common stock are required to include in gross
income for United States federal income tax purposes the gross amount of such
distributions to the extent that the Company has current or accumulated earnings
and profits, without reduction for any Canadian income tax withheld from such
distributions. Such Canadian tax withheld may be credited, subject to certain
limitations, against the U.S. Holder's United States federal income tax
liability or, alternatively, may be deducted in computing the U.S. Holder's
United States federal taxable income by those who itemize deductions. (See more
detailed discussion at "Foreign Tax Credit" below.) To the extent that
distributions exceed current or accumulated earnings and profits of the Company,
they will be treated first as a return of capital up to the U.S. Holder's
adjusted basis in the common stock and thereafter as gain from the sale or
exchange of such shares. Preferential tax rates for long-term capital gains are
applicable to a U.S. Holder which is an individual, estate or trust. There are
currently no preferential tax rates for long-term capital gains for a U.S.
Holder which is a corporation. Dividends paid on the Company's common stock will
not generally be eligible for the dividends received deduction provided to
corporations receiving dividends from certain United States corporations.
FOREIGN TAX CREDIT
A U.S. Holder who pays (or has withheld from distributions) Canadian income tax
with respect to the ownership of the Company's common stock may be entitled, at
the option of the U.S. Holder, to either a deduction or a tax credit for such
foreign tax paid or withheld. Generally, it will be more advantageous to claim a
credit because a credit reduces United States federal income taxes on a
dollar-for-dollar basis, while a deduction merely reduces the taxpayer's income
subject to tax. This election is made on a year-by-year basis and applies to all
foreign taxes paid by (or withheld from) the U.S. Holder during that year.
Subject to certain limitations, Canadian taxes withheld will be eligible for
credit against the U.S. Holder's United States federal income taxes. Under the
Code, the limitation on foreign taxes eligible for credit is calculated
separately with respect to specific classes of income. Dividends paid by the
Company generally will be either "passive" income or "financial services"
income, depending on the particular U.S. Holder's circumstances. Foreign tax
credits allowable with respect to each class of income cannot exceed the U.S.
federal income tax otherwise payable with respect to such class of income. The
consequences of the separate limitations will depend on the nature and sources
of each U.S. Holder's income and the deductions appropriately allocated or
apportioned thereto. The availability of the foreign tax credit and the
application of the limitations on the credit are fact specific and holders and
prospective holders of common stock should consult their own tax advisors
regarding their individual circumstances.
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DISPOSITION OF SHARES OF COMMON STOCK
A U.S. Holder will recognize gain or loss upon the sale of shares of common
stock equal to the difference, if any, between (i) the amount of cash plus the
fair market value of any property received; and (ii) the shareholder's tax basis
in the common stock. This gain or loss will be capital gain or loss if the
shares are a capital asset in the hands of the U.S. Holder, and such gain or
loss will be long-term capital gain or loss if the U.S. Holder has held the
common stock for more than one year. Gains and losses are netted and combined
according to special rules in arriving at the overall capital gain or loss for a
particular tax year. Deductions for net capital losses are subject to
significant limitations. For U.S. Holders who are individuals, any unused
portion of such net capital loss may be carried over to be used in later tax
years until such net capital loss is thereby exhausted. For U.S. Holders which
are corporations (other than corporations subject to Subchapter S of the Code),
an unused net capital loss may be carried back three years from the loss year
and carried forward five years from the loss year to be offset against capital
gains until such net capital loss is thereby exhausted.
OTHER CONSIDERATIONS
The Company has not determined whether it meets the definition of a "passive
foreign investment company" (a "PFIC"). It is unlikely that the Company meets
the definition of a "foreign personal holding company" (a "FPHC") or a
"controlled foreign corporation" (a "CFC") under current U.S. law.
If more than 50% of the voting power or value of the Company were owned
(actually or constructively) by U.S. Holders who each owned (actually or
constructively) 10% or more of the voting power of the Company's common shares
("10% Shareholders"), then the Company would become a CFC and each 10%
Shareholder would be required to include in its taxable income as a constructive
dividend an amount equal to its share of certain undistributed income of the
Company. If (1) more than 50% of the voting power or value of the Company's
common shares were owned (actually or constructively) by five or fewer
individuals who are citizens or residents of the United States and (2) 60% or
more of the Company's income consisted of certain interest, dividend or other
enumerated types of income, then the Company would be a FPHC. If the Company
were a FPHC, then each U.S. Holder (regardless of the amount of the Company's
Common Shares owned by such U.S. Holder) would be required to include in its
taxable income as a constructive dividend its share of the Company's
undistributed income of specific types.
If 75% or more of the Company's annual gross income has ever consisted of, or
ever consists of, "passive" income or if 50% or more of the average value of the
Company's assets in any year has ever consisted of, or ever consists of, assets
that produce, or are held for the production of, such "passive" income, then the
Company would be or would become a PFIC. The Company has not provided assurances
that it has not been and does not expect to become a PFIC. Please note that the
application of the PFIC provisions of the Code to mining companies is somewhat
unclear.
If the Company were to be a PFIC, then a U.S. Holder would be required to pay an
interest charge together with tax calculated at maximum tax rates on certain
"excess distributions" (defined to include gain on the sale of stock) unless
such U.S. Holder made an election either to (1) include in his or her taxable
income certain undistributed amounts of the Company's income or (2) mark to
market his or her Company common shares at the end of each taxable year as set
forth in Section 1296 of the Internal Revenue Code of 1986, as amended. The
elections require certain conditions be met such as filing on or before the due
date, as extended, for filing the shareholder's income tax return for the first
taxable year to which the election will apply.
- 54 -
INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. information reporting requirements may apply with respect to the payment of
dividends to U.S. Holders of the Company's shares. Under Treasury regulations
currently in effect, non-corporate holders may be subject to backup withholding
at a 31% rate with respect to dividends when such holder (1) fails to furnish or
certify a correct taxpayer identification number to the payor in the required
manner, (2) is notified by the IRS that it has failed to report payments of
interest or dividends properly or (3) fails, under certain circumstances, to
certify that it has been notified by the IRS that it is subject to backup
withholding for failure to report interest and dividend payments.
DOCUMENTS ON DISPLAY
Documents concerning the Company and referred to in this report may be inspected
at the Company's principal office, located at #709 - 837 West Hastings Street,
Vancouver, British Columbia, V6C 3N6.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
--------------------------------------------------------------------------------
As of the date of this report, the Company does not have any material market
risk sensitive financial instruments.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.
--------------------------------------------------------------------------------
Not applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.
--------------------------------------------------------------------------------
Not applicable.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS.
--------------------------------------------------------------------------------
Not applicable.
ITEM 15T. CONTROLS AND PROCEDURES.
--------------------------------------------------------------------------------
DISCLOSURE CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the participation of
the Company's management, including Mr. Grosso, the Company's Chief Executive
Officer, and Mr. Lang, the Company's Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures pursuant to Rules 13a-15(b) and 15d-15(b) of the Securities
Exchange Act of 1934 (the "Exchange Act") as of December 31, 2007. As a result
of a material weakness identified and described in the accompanying Management's
Report on Internal Control over Financial Reporting, Messrs. Grosso and Lang,
have concluded that the design and operation of the Company's disclosure
controls and procedures were not effective at the time the material weakness was
identified.
The material weakness occurred because the Company did not initially reflect the
impact of the Realization of Navidad interest under U.S. GAAP as set forth in
Note 11 to the Company's audited financial statements. The material weakness was
limited solely to the Note 11 U.S. GAAP reconciliation and did not impact in any
way the Company's financial statements prepared in accordance with Canadian
GAAP. This material weakness has since been corrected and does not exist as of
the date of this filing.
- 55 -
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company's management, including Mr. Grosso, the Company's Chief Executive
Officer, and Mr. Lang, the Company's Chief Financial Officer, is responsible for
establishing and maintaining adequate internal control over the Company's
internal control over financial reporting, as such term is defined in Rule
13a-15(f) under the Exchange Act. The Company's internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation and fair presentation of
financial statements for external purposes in accordance with generally accepted
accounting principles. Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.
The Company's management, (with the participation of Mr. Grosso, the Company's
Chief Executive Officer, and Mr. Lang, the Company's Chief Financial Officer),
conducted an evaluation of the effectiveness of the Company's internal control
over financial reporting as of December 31, 2007. This evaluation was based on
the criteria set forth in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on this
evaluation, management identified a material weakness relating to the
preparation and review of the US GAAP reconciliation note and concluded that
because there was a material weakness in the Company's internal controls, its
internal control over financial reporting was not effective at the time the
material weakness was identified.
The material weakness occurred because the Company did not initially reflect the
impact of the Realization of Navidad interest under U.S. GAAP as set forth in
Note 11 to the Company's audited financial statements. The material weakness was
limited solely to the Note 11 U.S. GAAP reconciliation and did not impact in any
way the Company's financial statements prepared in accordance with Canadian
GAAP. This material weakness has since been corrected and does not exist as of
the date of this filing.
This Annual Report does not include an attestation report of the Company's
independent auditors regarding internal control over financial reporting.
Management's report was not subject to attestation by the Company's independent
auditors pursuant to temporary rules of the SEC that permit the Company to
provide only management's report in this Annual Report.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the fiscal year ended December 31, 2007, there were no changes in the
Company's internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT.
--------------------------------------------------------------------------------
The Board of Directors has determined that the Company has at least one audit
committee financial expert, Mr. David Horton. Mr Horton is an independent
director and serves on the Company's audit committee.
ITEM 16B. CODE OF BUSINESS CONDUCT AND ETHICS.
--------------------------------------------------------------------------------
The Board of Directors of the Company has adopted a Code of Business Conduct and
Ethics that outlines the Company's values and its commitment to ethical business
practices in every business transaction. This code applies to all directors,
officers, and employees of the Company and its subsidiaries and affiliates. A
copy of the Company's Code of Business Conduct and Ethics is available on the
Company's website at www.imaexploration.com/s/CorporateGovernance.asp.
- 56 -
HONEST AND ETHICAL CONDUCT
The Company expects a high level of personal integrity for each employee,
officer and director when interacting with investors, business partners,
shareholders, suppliers, consultants and other employees.
CONFLICT OF INTEREST
When possible, conflicts of interest between personal and professional
relationships should be avoided, however, unavoidable conflict of interest will
be handled in accordance with the Company's ethical standards.
A director, officer or employee may not represent the Company in any transaction
with a person or an entity in which the director, officer or employee has a
direct or indirect interest or from which the director, officer or employee may
derive personal benefit.
ACCURATE AND TIMELY DISCLOSURE
Full, fair, accurate, timely and understandable disclosure in reports or
documents submitted to the Securities and Exchange Commission and other
securities commissions across Canada as well as all public communications.
Employees and officers who prepare financial and other reports will exercise
diligence in ensuring that there are no false or misleading statements.
COMPLIANCE WITH APPLICABLE GOVERNMENTAL LAWS, RULES AND REGULATIONS
The Company is committed to compliance with all laws, rules and regulations,
including laws and regulations applicable to the Company's securities, as well
as any rules promulgated by any exchange on which the Company's shares are
listed.
PROMPT INTERNAL REPORTING OF VIOLATIONS
Employees and officers are responsible for the prompt internal reporting of any
violations of the Code to the Company's Compliance Officer.
PROTECTION AND PROPER USE OF COMPANY ASSETS AND OPPORTUNITIES
All employees have an obligation to protect the Company's assets and to ensure
that all opportunities available to the Company are brought to the attention of
the relevant officer or employee.
CONFIDENTIALITY OF COMPANY INFORMATION
It is the Company's policy that business affairs of the Company are confidential
and should not be discussed outside the Company except for information that has
already been made available to the public.
INSIDER TRADING
Management, employees, members of the Board of Directors and others who are in a
"special relationship" with the Company from time to time become aware of
corporate developments or plans which may affect the value of the Company's
shares (inside information) before these developments or plans are made public.
Company directors, officers and employees are prohibited from using inside
information themselves or disclosing this inside information to others who may
use the information to trade Company stock.
FAIR DEALING
Each employee should endeavour to respect the rights of, and deal fairly with,
our shareholders, investors, business partners, suppliers, competitors and
employees. No employee should take unfair advantage of anyone through
manipulation, concealment, abuse of privileged information, misrepresentation of
material facts, or any other unfair business practice.
- 57 -
REPORTING UNETHICAL AND ILLEGAL CONDUCT/ETHICS QUESTIONS
The Company is committed to taking prompt action against violations of the Code
of Business Conduct and Ethics and it is the responsibility of all directors,
officers and employees to comply with the Code and to report violations or
suspected violations to the Company's Compliance Officer. Employees may also
discuss their concerns with their supervisor who will then report suspected
violations to the Compliance Officer.
The Compliance Officer is appointed by the Board of Directors and is responsible
for investigating and resolving all reported complaints and allegations and
shall advise the President and CEO, the CFO and/or the Audit Committee.
The Compliance Officer can be reached via telephone at 1-866-921-6714 or via the
internet site located at http://www.whistleblowersecurity.com.
VIOLATIONS AND WAIVERS
The Compliance Officer will report suspected fraud or securities law violations
for review by the Audit Committee. The Audit Committee will report all
violations reviewed by the Audit Committee to the Board of Directors.
The Compliance Officer will report regularly to the Board of Directors on the
results and resolution of complaints and allegations concerning violations of
the Code.
No waivers of any provision of this Code of Business Conduct and Ethics may be
made except by the Board of Directors. Any waiver or amendment shall be reported
as required by law or regulation.
Only the Audit Committee may amend the Company's Code of Business Conduct and
Ethics.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
--------------------------------------------------------------------------------
AUDIT FEES
For the fiscal year ended December 31, 2007, the Company's auditor billed
approximately $39,000, and for the fiscal year ended December 31, 2006, the
Company's auditor billed approximately $44,500 for the audit of the Company's
annual financial statements or services that are normally provided by the
auditor in connection with statutory and regulatory filings or engagements for
those fiscal years.
AUDIT RELATED FEES
For the fiscal years ended December 31, 2007 and 2006, the Company's auditor
billed $Nil and billed $58,303, respectively, for assurance and related services
that were reasonably related to the performance of the audit or review of the
Company's financial statements outside of those fees disclosed above under
"Audit Fees"
TAX FEES
For the fiscal years ended December 31, 2007 and 2006, the Company's auditor
billed $Nil and billed $14,232, respectively, for tax compliance, tax advice and
tax planning services.
PRE-APPROVAL POLICIES AND PROCEDURES
Generally, in the past, prior to engaging the Company's auditors to perform a
particular service, the Company's audit committee has, when possible, obtained
an estimate for the services to be performed. The audit committee in accordance
with procedures for the Company approved all of the services described above.
Additionally, the auditors have been engaged to perform services by
non-independent directors of the Company pursuant to pre-approval policies and
procedures established by the audit committee (which are detailed as to the
particular service) and the audit committee has been informed of any such
engagement and service.
- 58 -
Beginning July 1, 2004, the Company's audit committee obtained estimates for
services to be performed, prior to engaging the Company's auditor to perform any
audit or non-audit related services, including those set forth above. The audit
committee also allowed the engagement of the auditor, by a non-independent
member of the Board of Directors, to render services pursuant to pre-approval
policies and procedures established by the audit committee (which are detailed
as to the particular service), provided the audit committee is informed of any
such engagement and service. The audit committee may delegate to one of its
members, who is also an independent director of the Company, the ability to
approve such services on behalf of the audit committee. Any approval by such
director shall be ratified by the audit committee at its next scheduled meeting.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.
--------------------------------------------------------------------------------
Not applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PERSONS.
--------------------------------------------------------------------------------
Not applicable.
PART III
ITEM 17. FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
See pages F-1 though F-27.
ITEM 18. FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
Not applicable.
--------------------------------------------------------------------------------
ITEM 19. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
1.1 Notice of Articles (8)
1.2 Articles (12)
4.1 Share Purchase Agreement Between Shareholders and 389863 B.C.
Ltd. (1)
4.2 Arrangement Agreement Between Viceroy Resource Corporation and
IMA Resource Corporation (1)
4.3 Consulting Services Agreement Between Oxbow International
Marketing Corp. and IMA Resource Corporation (1)
4.4 Employment Agreement with William Lee (1)
4.5 Consulting Services Agreement Between Nikolaos Cacos and IMA
Resource Corporation (1)
4.6 Consulting Agreement Between KGE Management Ltd. and IMA
Exploration Inc. dated April 1, 2004 (8)
4.7 Consulting Agreement Between Lindsay R. Bottomer and IMA
Exploration Inc. (1)
4.8 Exploration and Option Agreement with Barrick Exploraciones
Argentina S.A. (1)
- 59 -
EXHIBIT
NUMBER DESCRIPTION
4.9 Option Agreement with Juan Demetrio Lirio Jr. and Juan Demetrio
Lirio representing Lir-Fer Construcciones S.R.L. (1)
4.10 Option Agreement with Lirio and Lir-Fer Construcciones S.R.L.
(1)
4.11 Option Agreement with Oscar Garcia and others (1)
4.12 Purchase Agreement with Modesto Enrique Arasena (1)
4.13 Option Agreement with Hugo Arturo Bosque (1)
4.14 Option Agreement with Guillermo Munoz, Lydia Gonzalez, Ricardo
Sanchez and Antonio Monteleone (1)
4.15 Option Agreement with Jorge Ernesto Rodriguez and Gerardo
Javier Rodriguez (1)
4.16 Option Agreement with Jorge Ernesto Rodriguez and Raul Alberto
Garcia (1)
4.17 Purchase Agreement with Victor Ronchietto (1)
4.18 Option Agreement with Sociedad Minera de Responsabilidad
Limitado Nova JJ de Piura and Sociedad Minera de
Responsabilidad Limitada (SMR Ltd) Don Alberto JJ de Piura (1)
4.19 Amendment to Option Agreement with Hugo Arturo Bosque (2)
4.20 Amendment to Purchase Agreement with Victor Ronchietto (2)
4.21 Option Agreement with Dionisio Ramos (2)
4.22 Amendment to Consulting Services Agreement Between Oxbow
International Marketing Corp. and IMA Resource Corporation (2)
4.23 Amendment to consulting Agreement between IMA Exploration Inc.
and Nikolaos Cacos (3)
4.24 Agreement between the Company and Sean Hurd dated June 2, 2002
(3)
4.25 Option Agreement between Nestor Arturo and IMA S.A. (3)
4.26 Amendment to Option Agreement with Guillermo Munoz, Lydia
Gonzalez, Ricardo Sanchez and Antonio Monteleone (3)
4.27 Amendment to Option Agreement with Sociedad Minera de
Responsabilidad Limitado Nova JJ de Piura and Sociedad Minera
de Responsabilidad Limitada (SMR Ltda) Don Alberto JJ de Piura
(3)
4.28 Option Agreement with Rio Tinto Mining and Exploration Limited
(4)
4.29 Amendment to Exploration and Option Agreement with Barrick
Exploraciones Argentina S.A. (4)
4.30 Consulting Agreement between the Company and Lindsay Bottomer
dated April 1, 2002 (4)
4.31 Amendment to Option Agreement with Juan Demetrio Lirio Jr. and
Juan Demetrio Lirio representing Lir-Fer Construcciones S.R.L.
(4)
4.32 Amendment to Option Agreement with Juan Demetrio Lirio and
Lir-Fer Construcciones S.R.L. (4)
4.33 Amendment to Option Agreement with Sociedad Minera de
Responsabilidad Limitado Nova JJ de Piura and Sociedad Minera
de Responsabilidad Limitada (SMR Ltda) Don Alberto JJ de Piura
(4)
4.34 Amendment to Option Agreement between Nestor Arturo and IMA
S.A. (4)
4.35 Consulting Agreement Between KGE Management Ltd. and IMA
Exploration Inc. (4)
4.36 Amendment to Option Agreement with Juan Demetrio Lirio Jr. and
Juan Demetrio Lirio representing Lir-Fer Construcciones S.R.L.
(5)
4.37 Amendment to Option Agreement with Juan Demetrio Lirio and
Lir-Fer Construcciones S.R.L. (5)
4.38 Amendment to Option Agreement between Nestor Arturo and IMA
S.A. (5)
4.39 Amendment to Option Agreement with Sociedad Minera de
Responsabilidad Limitado Nova JJ de Piura and Sociedad Minera
de Responsabilidad Limitada (SMR Ltda) Don Alberto JJ de Piura
(5)
- 60 -
EXHIBIT
NUMBER DESCRIPTION
4.40 Short Form Offering Document (5)
4.41 Amendment to Consulting Services Agreement Between Oxbow
International Marketing Corp. and IMA Resource Corporation (5)
4.42 Amendment to Consulting Agreement Between KGE Management Ltd.
And IMA Exploration Inc. (5)
4.43 Amendment to Agreement between the Company and Sean Hurd (5)
4.44 Amendment to Exploration and Option Agreement with Barrick
Exploraciones Argentina S.A. dated March 26, 2003. (6)
4.45 Letter of Intent dated March 6, 2003 with Amera Resources
Corporation (6)
4.46 Letter Agreement with Amera Resources Corporation re:
reimbursement of office expenses (6)
4.47 Amendment to Option Agreement with Sociedad Minera de
Responsabilidad Limitado Nova JJ de Piura and Sociedad Minera
de Responsabilidad Limitada (SMR Ltda) Don Alberto JJ de Piura
dated December 23, 2002 (6)
4.48 Amendment to Option Agreement with Juan Demetrio Lirio Jr. and
Juan Demetrio Lirio representing Lir-Fer Construcciones S.R.L.
dated July 10, 2002 (6)
4.49 Amendment to Option Agreement with Juan Demetrio Lirio Jr. and
Juan Demetrio Lirio representing Lir-Fer Construcciones S.R.L.
dated December 27, 2002 (6)
4.50 Amendment to Consulting Services Agreement Between Oxbow
International Marketing Corp. and IMA Resource Corporation
dated July 15, 2002 (6)
4.51 Amendment to Consulting Agreement Between KGE Management Ltd.
And IMA Exploration Inc. dated June 14, 2002 (6)
4.52 Amendment to Consulting Agreement Between KGE Management Ltd.
And IMA Exploration Inc. dated October 3, 2002 (6)
4.53 Amendment to Agreement between the Company and Sean Hurd dated
June 10, 2002 (6)
4.54 Amendment to Consulting Services Agreement Between Oxbow
International Marketing Corp. and IMA Resource Corporation
dated April 17, 2003 (6)
4.55 Arrangement Agreement between IMA Exploration Inc., IMA
Holdings Corp. and Golden Arrow Resources Corporation dated May
14, 2004 (7)
4.56 Amendment to consulting Agreement with Nikolaos Cacos dated
January 5, 2004 (8)
4.57 Amendment to Agreement with Sean Hurd dated January 5, 2004 (8)
4.58 Financial Advisory Services Agreement with Endeavour Financial
Ltd. (8)
4.59 Agreement between the Company and Amera Resources Corporation
dated March 6, 2003 relating to the Lago Pico, Loma Alta and
Nueva Ruta properties (8)
4.60 Amendment to Letter of Intent with Amera Resources Corporation
dated September 30, 2003 (8)
4.61 Amendment to Letter of Intent with Amera Resources Corporation
dated April 8, 2004 (8)
4.62 Letter Agreement with Beauregard Holdings Corp. dated February
5, 2004 regarding office lease (8)
4.63 Option Agreement dated September 22, 2003, between the Company
and Cloudbreak Resources Ltd. (8)
4.64 Option Agreement dated August 12, 2003 between the Company and
Consolidated Pacific Bay Minerals Ltd. (8)
4.65 Option agreement dated June 11, 2003, between the Company and
Ballad Gold & Silver Ltd. (formerly Ballad Ventures Ltd.) (8)
- 61 -
EXHIBIT
NUMBER DESCRIPTION
4.66 Amendment to Option Agreement with Sociedad Minera de
Responsabilidad Limitado Nova JJ de Piura and Sociedad Minera
de Responsabilidad Limitada (SMR Ltda) Don Alberto JJ de Piura
dated August 15, 2003 (8)
4.67 Letter Agreement with Arthur Lang dated April 23, 2004 (8)
4.68 Arrangement Agreement by and among the Company, Golden Arrow
Resources Corporation and IMA Holdings Corp. dated May 14, 2004
(9)
4.69 Indemnity Agreement provided to Golden Arrow Resources
Corporation dated July 7, 2004 (9)
4.70 Administration Services Agreement with the Grosso Group
Management Ltd. dated January 1, 2005 (9)
4.71 Amendment to Consulting Agreement between KGE Management Ltd.
and IMA Exploration Inc. dated April 1, 2005 (9)
4.72 Audit Committee Charter (9)
4.73 Amendment to Consulting Agreement between KGE Management Ltd.
and IMA Exploration Inc. dated January 26, 2006 (10)
4.74 Advisory Services Agreement between RSA Holdings Ltd. and IMA
Exploration Inc. dated February 14, 2006 (10)
4.75 Interim Project Development Agreement between IMA Exploration
Inc. and Aquiline Resources Inc. dated October 18, 2006.(11)
4.76 Amended and restated Management Agreement between IMA and Oxbow
dated May 1, 2006
8.1 List of Subsidiaries (8)
12.1 Certification of Joseph Grosso Pursuant to Rule 13a-14(a)
12.2 Certification of Arthur Lang Pursuant to Rule 13a-14(a)
13.1 Certification of Joseph Grosso Pursuant to 18 U.S.C. Section
1350
13.2 Certification of Arthur Lang Pursuant to 18 U.S.C. Section 1350
(1) Previously filed as an exhibit to the Company's Registration Statement on
Form 20-F, filed with the Commission on January 6, 2000. File number
00-30464.
(2) Previously filed as an exhibit to the Company's Registration Statement on
Form 20-F/A Amendment No. 1 filed July 14, 2000. File Number 00-30464.
(3) Previously filed as an exhibit to the Company's Registration Statement on
Form 20-F/A Amendment No. 2 filed September 15, 2000. File Number 00-30464.
(4) Previously filed as an exhibit to the Company's Annual Report on Form 20-F
filed May 8, 2001. File Number 00-30464.
(5) Previously filed as an exhibit to the Company's Annual Report on Form 20-F
filed May 8, 2002. File Number 00-30464.
(6) Previously filed as an exhibit to the Company's Annual Report on Form 20-F
filed May 16, 2003. File Number 00-30464.
(7) Previously filed as with the Company's Report on Form 6-K filed June 18,
2004. File Number 00-30464.
(8) Previously filed as an exhibit to the Company's Annual Report on Form 20-F
filed June 23, 2004. File Number 00-30464.
(9) Previously filed as an exhibit to the Company's Annual Report on Form 20-F
filed June 7, 2005. File Number 00-30464.
(10) Previously filed as an exhibit to the Company's Annual Report on Form 20-F
filed May 8, 2006. File Number 01-32558.
(11) Previously filed as with the Company's Report on Form 6-K filed October 19,
2006. File Number 01-32558.
(12) Previously filed as an exhibit to the Company's Annual Report on Form 20-F
filed April 2, 2007. File Number 01-32558.
- 62 -
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.
IMA EXPLORATION INC.
Dated: March 25, 2008 /s/ Arthur Lang
-------------------------------------
Arthur Lang,
Chief Financial Officer, and Director
- 63 -
IMA EXPLORATION INC.
(An Exploration Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2007, 2006 AND 2005
(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 judgment. 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 28, 2008
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. (the
"Company") as at December 31, 2007 and 2006 and the consolidated statements of
loss, comprehensive loss and deficit, cash flows and changes in shareholders'
equity for each of the years in the three-year period ended December 31, 2007.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with 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, 2007
and 2006 and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 2007 in accordance with
Canadian generally accepted accounting principles.
(signed) PricewaterhouseCoopers LLP
CHARTERED ACCOUNTANTS
Vancouver, B.C.
March 19, 2008
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, 2007 AND 2006
(Expressed in Canadian Dollars)
2007 2006
$ $
ASSETS
CURRENT ASSETS
Cash 183,628 391,420
Short-term investments (Note 4) 6,813,462 8,500,000
Other receivables, prepaids and deposits (Note 8) 627,400 405,205
Navidad interest (Notes 2 and 13) 18,500,000 -
------------ ------------
26,124,490 9,296,625
NAVIDAD INTEREST (Note 2) - 17,949,521
------------ ------------
26,124,490 27,246,146
============ ============
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities (Note 8) 105,724 236,612
------------ ------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 6) 58,753,501 58,664,727
WARRANTS (Note 6) 1,281,946 1,281,946
CONTRIBUTED SURPLUS (Note 7) 6,157,412 6,152,265
DEFICIT (40,174,093) (39,089,404)
------------ ------------
26,018,766 27,009,534
------------ ------------
26,124,490 27,246,146
============ ============
NATURE OF OPERATIONS (Note 1)
NAVIDAD INTEREST (Notes 2 and 13)
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 LOSS, COMPREHENSIVE LOSS AND DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(Expressed in Canadian Dollars)
2007 2006 2005
$ $ $
EXPENSES
Administrative and management services 209,201 461,553 294,828
Corporate development and investor relations 167,817 328,779 496,538
General exploration 99,589 186,572 55,914
Office and sundry 238,220 181,913 148,015
Professional fees 1,022,321 1,124,144 2,212,190
Rent, parking and storage 49,023 96,263 72,791
Salaries and employee benefits 244,337 652,530 585,560
Stock-based compensation (Note 6) 34,421 393,120 1,800,000
Telephone and utilities 12,053 17,432 26,648
Transfer agent and regulatory fees 80,122 103,457 199,715
Travel and accommodation 35,230 93,392 256,035
Navidad holding costs (Note 2) 109,666 312,349 -
------------ ------------ ------------
2,302,000 3,951,504 6,148,234
------------ ------------ ------------
LOSS BEFORE OTHER ITEMS (2,302,000) (3,951,504) (6,148,234)
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Foreign exchange gain (loss) (8,324) (2,865) 232,954
Interest and other income 675,156 373,009 150,406
Navidad recovery (Note 2) 550,479 - -
------------ ------------ ------------
1,217,311 370,144 383,360
LOSS AND COMPREHENSIVE LOSS FOR THE YEAR (1,084,689) (3,581,360) (5,764,874)
DEFICIT - BEGINNING OF YEAR (39,089,404) (35,508,044) (29,597,304)
DISTRIBUTION OF EQUITY ON SPIN-OFF OF ASSETS
TO GOLDEN ARROW RESOURCES CORPORATION - - (145,866)
------------ ------------ ------------
DEFICIT - END OF YEAR (40,174,093) (39,089,404) (35,508,044)
============ ============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE $(0.02) $(0.07) $(0.12)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 52,099,787 51,263,575 46,197,029
============ ============ ============
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, 2007, 2006 AND 2005
(Expressed in Canadian Dollars)
2007 2006 2005
$ $ $
CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
Loss for the year (1,084,689) (3,581,360) (5,764,874)
Items not affecting cash
Stock-based compensation 34,421 393,120 1,800,000
Navidad recovery (Note 2) (550,479) - -
------------ ------------ ------------
(1,600,747) (3,188,240) (3,964,874)
Change in non-cash working capital
balances(Note 12) (353,083) (596,912) 115,256
------------ ------------ ------------
(1,953,830) (3,785,152) (3,849,618)
------------ ------------ ------------
INVESTING ACTIVITIES
Expenditures on mineral properties and
deferred costs - (4,491,524) (7,025,492)
Increase (decrease) in short-term investments 1,686,538 (920,000) (3,280,000)
Proceeds from sale of equipment - - 46,589
------------ ------------ ------------
1,686,538 (5,411,524) (10,258,903)
------------ ------------ ------------
FINANCING ACTIVITIES
Issuance of common shares 59,500 10,308,450 14,215,165
Share issuance costs - (871,749) (736,737)
------------ ------------ ------------
59,500 9,436,701 13,478,428
------------ ------------ ------------
INCREASE (DECREASE) IN CASH (207,792) 240,025 (630,093)
CASH TRANSFERRED TO GOLDEN ARROW
RESOURCES CORPORATION - - (145,866)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH (207,792) 240,025 (775,959)
CASH - BEGINNING OF YEAR 391,420 151,395 927,354
------------ ------------ ------------
CASH - END OF YEAR 183,628 391,420 151,395
============ ============ ============
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 STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Expressed in Canadian Dollars)
2007 2006 2005
$ $ $
SHARE CAPITAL
Balance at beginning of year 58,664,727 50,414,672 36,982,307
Private placements - 10,027,500 10,000,020
Warrant valuation - (1,298,981) -
Exercise of options 59,500 280,950 577,000
Contributed surplus reallocated on the
exercise of options 29,274 95,300 131,270
Exercise of warrants - - 3,784,011
Proceeds collected and paid on behalf of
Golden Arrow shares - - (145,866)
Share issue costs - (854,714) (914,070)
------------ ------------ ------------
Balance at end of year 58,753,501 58,664,727 50,414,672
------------ ------------ ------------
WARRANTS
Balance at beginning of year 1,281,946 - -
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 at end of year 1,281,946 1,281,946 -
------------ ------------ ------------
CONTRIBUTED SURPLUS
Balance at beginning of year 6,152,265 5,854,445 3,428,382
Contributed surplus as a result of
stock options granted 34,421 393,120 2,380,000
Warrant valuation from agent's warrants granted - - 177,333
Contributed surplus reallocated on the
exercise of stock options (29,274) (95,300) (131,270)
------------ ------------ ------------
Balance at end of year 6,157,412 6,152,265 5,854,445
------------ ------------ ------------
DEFICIT
Balance at beginning of year (39,089,404) (35,508,044) (29,597,304)
Loss for the year (1,084,689) (3,581,360) (5,764,874)
Distribution of equity on spin-off of assets to
Golden Arrow Resources Corporation - - (145,866)
------------ ------------ ------------
Balance at end of year (40,174,093) (39,089,404) (35,508,044)
------------ ------------ ------------
TOTAL SHAREHOLDERS' EQUITY 26,018,766 27,009,534 20,761,073
============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
IMA EXPLORATION INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(Expressed in Canadian Dollars)
1. NATURE OF OPERATIONS
IMA Exploration Inc. (the "Company") is a natural resource company
engaged in the business of acquisition, exploration and development of
mineral properties. 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, 2007 the Company had no
mineral property interests. The Company considers that it has adequate
resources to maintain its core operations for the next fiscal year.
2. NAVIDAD INTEREST
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."
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 were 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.
F-8
IMA EXPLORATION INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(Expressed in Canadian Dollars)
2. NAVIDAD INTEREST (continued)
The effective date of the transfer of the Navidad project was November
16, 2006.
The Company's appeal of this judgment was heard by the British Columbia
Court of Appeal between April 10 and April 12, 2007. The Court of
Appeal dismissed the Company's appeal and released their reasons for
judgment on June 7, 2007.
The Company filed an application for leave to appeal to the Supreme
Court of Canada in October 2007. On December 20, 2007 the Supreme Court
of Canada denied the Company's appeal. This brought the lawsuit to a
close. The Navidad property has been transferred to Aquiline.
As at December 31, 2007, the Company has recorded a Navidad interest
balance of $18,500,000, the components of which are as follows:
$
Mineral properties and deferred costs (i) 17,763,521
Marketable securities (ii) 186,000
------------
17,949,521
Navidad recovery (iii) 550,479
------------
Navidad interest 18,500,000
============
(i) The mineral property and deferred costs represent the carrying
value of the acquisition and exploration costs the Company has
incurred in the development of the Navidad project.
(ii) Marketable securities represents the carrying value of the
common shares of publicly traded companies the Company
received as partial consideration for entering into option and
sale agreements for certain of its non-core mineral property
holdings relating to the Navidad Project. Accordingly, these
marketable securities were subject to transfer to Aquiline in
relation to the July 2006 court order.
(iii) The Company has recorded an additional recovery of $550,479 to
bring the total Navidad interest amount recoverable to
$18,500,000.
The Company received the $7.5 million held in trust on January 8, 2008
plus interest that had accrued in the amount of $341,380. The balance
of $11 million was received on February 11, 2008.
The Company expensed Navidad holding costs of $109,666 in the year
ended December 31, 2007. These are costs the Company incurred in order
to maintain basic operations in Argentina subsequent to the transfer of
control of the Navidad project to Aquiline.
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.
F-9
IMA EXPLORATION INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(Expressed in Canadian Dollars)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
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 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.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and money market investments,
maturing less than 3 months from the date of initial investment.
SHORT-TERM INVESTMENTS
Short-term investments include money market investments maturing
between 3 and 12 months from the date of initial investment.
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.
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, any remaining balance of
the payments received is recorded as a gain on option or disposition of
mineral property.
F-10
IMA EXPLORATION INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(Expressed in Canadian Dollars)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
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, 2007 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.
INCOME TAXES
The Company uses the asset and 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.
F-11
IMA EXPLORATION INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(Expressed in Canadian Dollars)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
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 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.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2007, the Company adopted the following new
accounting standards issued by the Canadian Institute of Chartered
Accountants ("CICA").
(a) Section 3855, Financial Instruments - Recognition and
Measurement and Section 3861, Financial Instruments -
Disclosure and Presentation, prescribe the criteria for
recognition and presentation of financial instruments on the
balance sheet and the measurement of financial instruments
according to prescribed classifications. These sections also
address how financial instruments are measured subsequent to
initial recognition and how the gains and losses are
recognized.
The Company is required to designate its financial instruments
into one of the following five categories: held for trading;
available for sale; held to maturity; loans and receivables;
and other financial liabilities. All financial instruments are
to be initially measured at fair value. Financial instruments
classified as held for trading or available for sale are
subsequently measured at fair value with any change in fair
value recorded in net earnings and other comprehensive income,
respectively. All other financial instruments are subsequently
measured at amortized cost.
The Company has designated its financial instruments as
follows:
(i) Cash and short-term investments are classified as
"Available-for-sale". Due to their short-term nature,
their carrying value is equal to their fair value.
(ii) Amounts receivable and deposits are classified as
"Loans and Receivables". These financial assets are
recorded at values that approximate their amortized
cost using the effective interest method.
(iii) Accounts payable and accrued liabilities are
classified as "Other Financial Liabilities". These
financial liabilities are recorded at values that
approximate their amortized cost using the effective
interest method.
As a result of adopting Section 3855, on January 1, 2007
interest accrued from short-term investments in the amount of
$65,075 was reclassified from amounts receivable, prepaids and
deposits to short-term investments.
(b) Section 1530, Comprehensive Income, introduces a new financial
statement "Statement of Comprehensive Income" and provides
guidance for the reporting and display of other comprehensive
income. Comprehensive income represents the change in equity
of an enterprise during a period from transactions and other
events arising from non-owner sources including gains and
losses arising on translation of self-sustaining foreign
operations, gains and losses from changes in fair value of
available for sale financial assets and changes in the fair
value of the effective portion of cash flow hedging
instruments. The Company has not recognized any adjustments
through other comprehensive income for the year ended December
31, 2007.
F-12
IMA EXPLORATION INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(Expressed in Canadian Dollars)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
(c) Section 3865, Hedges specifies the criteria under which hedge
accounting may be applied, how hedge accounting should be
performed under permitted hedging strategies and the required
disclosures. This standard did not have an impact on the
Company for the year ended December 31, 2007.
Effective January 1, 2008, new accounting standards were issued by the
Canadian Institute of Chartered Accountants ("CICA") which may impact
the Company in the future as follows:
GENERAL STANDARDS ON FINANCIAL STATEMENT PRESENTATION
CICA Handbook Section 1400, General Standards on Financial Statement
Presentation, has been amended to include requirements to assess and
disclose a company's ability to continue as a going concern. The
changes are effective for interim and annual financial statements
beginning January 1, 2008. The Company does not expect the adoption of
these changes to have an impact on its financial statements.
ACCOUNTING CHANGES
Effective January 1, 2007, the Company adopted the revised CICA
Handbook Section 1506 "Accounting Changes", which requires that: (a) a
voluntary change in accounting principals can be made if, and only if,
the changes result in more reliable and relevant information, (b)
changes in accounting policies are accompanied with disclosures of
prior period amounts and justification for the change and (c) for
changes in estimates, the nature and amount of the change should be
disclosed. The Company has not made any voluntary change in accounting
principles since the adoption of the revised standard.
CAPITAL DISCLOSURES
CICA Handbook Section 1535, Capital Disclosures, establishes standards
for disclosing information about the company's capital and how it is
managed. Under this standard the Company will be required to disclose
the following, based on the information provided internally to the
company's key management personnel:
(i) qualitative information about its objectives,
policies and processes for managing capital.
(ii) summary quantitative data about what it manages as
capital.
(iii) whether during the period it complied with any
externally imposed capital requirements to which it
is subject.
(iv) when the company has not complied with such
externally imposed capital requirements, the
consequences of such non-compliance.
This standard is effective for interim and annual financial statements
beginning on January 1, 2008. The Company has not yet determined the
impact of the adoption of this change on the disclosure in our
financial statements.
F-13
IMA EXPLORATION INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(Expressed in Canadian Dollars)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
INVENTORIES
CICA Handbook Section 3031, Inventories prescribes the accounting
treatment for inventories and provides guidance on the determination of
costs and its subsequent recognition as an expense, including any
writedown to net realizable value. It also provides guidance on the
cost formulas that are used to assign costs to inventories.
This standard is effective for interim and annual financial statements
beginning on January 1, 2008. The Company has not yet determined the
impact of the adoption of this change on the disclosure in our
financial statements.
GOODWILL AND INTANGIBLE ASSETS
CICA Handbook Section 3064, Goodwill and Intangible Assets, establishes
revised standards for recognition, measurement, presentation and
disclosure of goodwill and intangible assets. Concurrent with the
introduction of this standard, the CICA withdrew EIC 27, Revenues and
Expenses during the preoperating period. As a result of the withdrawal
of EIC 27, companies will no longer be able to defer costs and revenues
incurred prior to commercial production at new mine operations. The
changes are effective for interim and annual financial statements
beginning January 1, 2009. The Company has not yet determined the
impact of the adoption of this change on the disclosure in our
financial statements.
FINANCIAL INSTRUMENTS DISCLOSURES
In March 2007, the CICA issued section 3862 Financial Instruments -
Disclosures and Section 3863 Financial Instruments - Presentation,
which together comprise a complete set of disclosure and presentation
requirements that revise and enhance current disclosure requirements.
Section 3862 requires disclosure of additional detail by financial
asset and liability categories. Section 3863 establishes standards for
presentation of financial instruments and non-financial derivatives.
The standard deals with the classification of financial instruments,
from the perspective of the issuer, between liabilities and equity, the
classification of related interest, dividends, losses and gains, and
the circumstances in which financial assets and financial liabilities
are offset. These sections are effective January 1, 2008 but are not
expected to have an impact on the Company's disclosure and
presentation.
4. SHORT-TERM INVESTMENTS
As at December 31, 2007 and 2006, the Company held short-term
investments comprised of the following:
DECEMBER 31, 2007
-------------------------------
PRINCIPAL
AND ACCRUED
MATURITY INTEREST
$
12 month term deposit
- 4.45% annual interest rate
($6,700,000 principal) August 13, 2008 6,813,462
--------------- ------------
6,813,462
============
F-14
IMA EXPLORATION INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(Expressed in Canadian Dollars)
4. SHORT-TERM INVESTMENTS (continued)
DECEMBER 31, 2006
--------------------------------
MATURITY PRINCIPAL
$
12 month term deposit
- 3.7% annual interest rate March 20, 2007 500,000
12 month term deposit
- 4.2% annual interest rate November 5, 2007 8,000,000
---------------- ------------
8,500,000
============
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. The principal and
interest are unconditionally guaranteed by the Bank of Montreal.
5. MARKETABLE SECURITIES
2007 2006 2005
------------ ------------ ----------------------------
QUOTED
RECORDED RECORDED 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 under to the July 2006 court order. Accordingly, at December
31, 2007, the carrying value of these marketable securities is a
component of the Navidad interest balance (see Note 2 above).
F-15
IMA EXPLORATION INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(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, 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
Exercise of options 119,000 59,500
Contributed surplus reallocated on
exercise of options - 29,274
------------ ------------
Balance, December 31, 2007 52,132,064 58,753,501
============ ============
(a) During fiscal 2007, 119,000 stock options were exercised at
$0.50 per share for proceeds of $59,500.
(b) 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
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, 2007, no warrants or agent's warrants had been
exercised.
F-16
IMA EXPLORATION INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(Expressed in Canadian Dollars)
6. SHARE CAPITAL (continued)
(c) 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, 2007, all of
underwriter's warrants expired unexercised.
(d) Stock options and stock-based compensation
The Company has established a rolling stock option plan (the
"Plan"), in which the maximum number of common shares which
can be reserved for issuance under the Plan is 10% of the
issued and outstanding shares of the Company. The exercise
price of the options is set at the Company's closing share
price on the grant date, less allowable discounts in
accordance with the policies of the TSX Venture Exchange. The
stock options granted during 2007 are subject to a four month
hold period and exercisable for a period of five years. A
summary of the Company's outstanding options at December 31,
2007, 2006 and 2005 and the changes for the years ending on
those dates is presented below:
--------------------- --------------------- ----------------------
2007 2006 2005
--------------------- --------------------- ----------------------
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 4,624,000 2.69 4,848,500 2.53 3,543,500 2.09
Granted 100,000 0.47 283,000 3.21 1,360,000 3.74
Exercised (119,000) 0.50 (315,000) 0.61 (20,000) 2.48
Cancelled/Forfeited (160,000) 3.66 (187,500) 2.96 (35,000) 4.16
Expired (115,000) 0.50 (5,000) 0.40 - -
------------ ------------ ------------
Balance, end of year 4,330,000 2.72 4,624,000 2.69 4,848,500 2.53
============ ============ ============
Stock options outstanding and exercisable at December 31, 2007
are as follows:
NUMBER EXERCISE PRICE EXPIRY DATE
$
25,000 0.84 March 7, 2008
300,000 0.90 May 30, 2008
1,170,000 1.87 August 27, 2008
1,347,000 3.10 March 24, 2009
785,000 4.16 March 16, 2010
380,000 2.92 November 16, 2010
223,000 3.21 June 22, 2011
100,000 0.47 October 23, 2012
-----------
4,330,000
===========
F-17
IMA EXPLORATION INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(Expressed in Canadian Dollars)
6. SHARE CAPITAL (continued)
During fiscal 2007, the Company granted 100,000 stock options
(2006 - 273,000; 2005 - 1,360,000).
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:
2007 2006 2005
Risk-free interest rate 4.21% 4.0% 3.3% - 3.7%
Estimated volatility 136% 70% 70% - 77%
Expected life 2.5 years 2.5 years 2.5 years
Expected dividend yield 0% 0% 0%
For 2007, stock-based compensation of $34,421 (2006: $393,120;
2005: $2,380,000) was recorded by the Company, of which
$34,421 (2006: $393,120; 2005: $1,800,000) is included in
expenses and Nil (2006: $Nil; 2005: $580,000l) 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 $0.34 per share (2006: $1.44;
2005: $1.76). 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 and 2007 1,281,946
============
A summary of the number of common shares reserved pursuant to
the Company's outstanding warrants and agents warrants
outstanding at December 31, 2007, 2006 and 2005 and the
changes for the years ending on those dates is as follows:
2007 2006 2005
Balance, beginning of year 3,504,404 1,900,004 1,422,017
Issued - 1,604,400 1,984,004
Exercised - - (1,485,517)
Expired (233,334) - (20,500)
------------ ------------ ------------
Balance, end of year 3,271,070 3,504,404 1,900,004
============ ============ ============
F-18
IMA EXPLORATION INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(Expressed in Canadian Dollars)
6. SHARE CAPITAL (continued)
Common shares reserved pursuant to warrants and agent warrants
outstanding at December 31, 2007 are as follows:
NUMBER EXERCISE PRICE EXPIRY DATE
$
1,666,670 3.45 September 14, 2009
171,900 3.80 March 21, 2008
1,432,500 3.80 March 21, 2010
-----------
3,271,070
===========
7. CONTRIBUTED SURPLUS
A continuity summary of contributed surplus is presented below:
$
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
Contributed Surplus as a result of stock options granted 34,421
Contributed Surplus reallocated on exercise of stock options (29,274)
------------
Balance, December 31, 2007 6,157,412
============
8. RELATED PARTY TRANSACTIONS
(a) The Company engages Grosso Group Management Ltd. (the "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, Amera Resources Corporation,
Astral Mining Corporation, Gold Point Energy Corp. 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 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 2007, the Company incurred fees of
$349,143 (2006: $724,902; 2005: $730,802) to the Grosso Group:
$330,305 (2006: $764,115; 2006: $764,012 ) was paid in twelve
monthly payments and $18,838 is included in accounts payable
(2006: $39,213 included in amounts receivable; 2005: $33,210
included in amounts receivable) 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
(2006: $205,000) deposit to the Grosso Group for the purchase
of equipment and leasehold improvements and for operating
working capital which is callable on demand.
(b) During fiscal 2007, the Company paid $353,283 (2006: $533,917;
2005: $241,088) to directors and officers or companies
controlled by directors and officers of the Company, for
accounting, management and consulting services provided.
F-19
IMA EXPLORATION INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(Expressed in Canadian Dollars)
8. RELATED PARTY TRANSACTIONS (continued)
(c) 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
from $8,500 and to pay a bonus of $150,000. The total
compensation paid to the President in 2007 was $250,000 (2006
- $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, 2007, 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.
Effective May 1, 2007, the Company negotiated agreements with
the five other shareholder companies of the Grosso Group for
the President of the Company to provide services for a monthly
fee. The agreements may be terminated at any time at the other
companies' discretion upon 30 days written notice. The Company
reserves its right to restrict services provided by the
President to the other shareholder companies based on its own
requirements for the President's services, at which time the
fee would be adjusted accordingly. For the year ended December
31, 2007, the Company received a total $66,667 from the other
shareholder companies which has been recorded as a reduction
in Administrative and management services expense. The fees
will be reviewed and adjusted on a periodic basis.
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.
9. INCOME TAXES
The recovery of income taxes shown in the consolidated statements of
loss, comprehensive loss and deficit differs from the amounts obtained
by applying statutory rates to the loss before provision for income
taxes due to the following:
2007 2006 2005
Statutory tax rate 34.12% 34.12% 34.12%
============ ============ ============
$ $ $
Loss for the year 1,084,689 (3,581,360) (5,764,874)
Provision for income taxes based on
statutory Canadian combined federal
and provincial income tax rates (370,096) (1,221,960) (1,966,975)
Differences in foreign tax rates (707) (526) -
Non-deductible differences 26,288 149,332 625,988
Losses for which an income tax benefit
has not been recognized 344,515 956,653 1,340,987
Other - 116,501 -
------------ ------------ ------------
- - -
============ ============ ============
F-20
IMA EXPLORATION INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(Expressed in Canadian Dollars)
9. INCOME TAXES (continued)
The significant components of the Company's future tax assets are as
follows:
2007 2006 2005
$ $ $
Future income tax assets
Operating loss carryforward 4,307,036 4,950,897 4,709,496
Share issue costs 288,455 509,317 472,437
Resource deductions 268,425 306,710 -
Other 22,150 45,442 -
------------ ------------ ------------
4,886,066 5,812,366 5,181,933
Valuation allowance for future tax assets (4,886,066) (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.
2007 2006 2005
$ $ $
Future income tax
liabilities - - 1,760,110
============ ============ ============
The Company has Canadian capital loss carryforwards of $161,172 and
non-capital loss carryforwards of $15,951,984 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 $
2008 841,160
2009 1,317,730
2010 1,545,964
2014 2,752,324
2015 4,708,790
2026 3,282,352
2027 1,503,664
------------
15,951,984
============
10. SEGMENTED INFORMATION
The Company is involved in mineral exploration and development
activities. The Company is in the exploration stage and, accordingly,
has no reportable segment revenues or operating results for each of
fiscal 2007 and 2006.
The Company's total assets are segmented geographically as follows:
F-21
IMA EXPLORATION INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(Expressed in Canadian Dollars)
10. SEGMENTED INFORMATION (continued)
DECEMBER 31, 2007
--------------------------------------------
CANADA ARGENTINA TOTAL
$ $ $
Current assets 26,102,160 22,330 26,124,490
------------ ------------ ------------
26,102,160 22,330 26,124,490
============ ============ ============
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
============ ============ ============
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:
2007 2006 2005
$ $ $
CONSOLIDATED STATEMENTS OF OPERATIONS
Loss for the year under Canadian GAAP (1,084,689) (3,581,360) (5,764,874)
Mineral properties and deferred costs for the year (i) - (4,491,524) (8,480,509)
Reversal of Future income tax liability (i) - - 875,017
Realization of Navidad interest (iv) 17,682,521 - -
------------ ------------ ------------
Income (loss) for the year under US GAAP 16,597,832 (8,072,884) (13,370,366)
Unrealized losses on available-for-sale securities (ii) - (3,000) -
------------ ------------ ------------
Comprehensive loss (iii) 16,597,832 (8,075,884) (13,370,366)
============ ============ ============
Basic and diluted income (loss) per share under US GAAP 0.32 (0.16) (0.29)
============ ============ ============
Weighted average number of common shares outstanding 52,099,787 51,263,575 46,197,029
============ ============ ============
2007 2006 2005
$ $ $
SHAREHOLDERS' EQUITY
Balance per Canadian GAAP 26,018,766 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 26,018,766 9,327,013 7,573,076
============ ============ ============
F-22
IMA EXPLORATION INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(Expressed in Canadian Dollars)
11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
2007 2006 2005
$ $ $
NAVIDAD INTEREST / MINERAL PROPERTIES
Balance per Canadian GAAP 18,500,000 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 18,500,000 267,000 -
============ ============ ============
2007 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 - - -
============ ============ ============
2007 2006 2005
$ $ $
CONSOLIDATED STATEMENTS OF CASH FLOWS
OPERATING ACTIVITIES
Cash used per Canadian GAAP (1,953,830) (3,785,152) (3,849,618)
Mineral properties and deferred costs (i)
(In 2006, classified as a component of Navidad
interest - Note 2) - (4,491,524) (7,025,492)
------------ ------------ ------------
Cash used per US GAAP (1,953,830) (8,276,676) (10,875,110)
============ ============ ============
2007 2006 2005
$ $ $
INVESTING ACTIVITIES
Cash used per Canadian GAAP (1,686,538) (5,411,524) (10,258,903)
Mineral properties and deferred costs (i)
(In 2006, classified as a component of Navidad
interest - Note 2) - 4,491,524 7,025,492
------------ ------------ ------------
Cash provided by (used) per US GAAP (1,686,538) (920,000) (3,233,411)
============ ============ ============
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.
F-23
IMA EXPLORATION INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(Expressed in Canadian Dollars)
11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
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. Subsequently, the marketable securities were
transferred to the Navidad interest balance (see Note 2
above).
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) Realization of Navidad interest
For US GAAP purposes the Company had previously expensed the
exploration and other costs that comprised the amount shown as
Navidad interest. Following the conlcusion of the appeal
process, the Company has recognized income of $17,682,521.
(See Note 2).
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 adopted the provisions of this Interpretation in its
fiscal 2007 year. This interpretation did not have an impact
on the Company for the year ended December 31, 2007.
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.
F-24
IMA EXPLORATION INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(Expressed in Canadian Dollars)
11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
RECENTLY ISSUED US GAAP ACCOUNTING STANDARDS:
i) In September 2006, FASB issued SFAS No. 157, "Fair
Value Measurement", effective for fiscal periods
beginning after November 15, 2007. SFAS defines fair
value, establishes a framework for measuring accepted
accounting principles, and expands disclosures about
fair value measurements. In December 2007, the FASB
issued SFAS157-b, which provided for a one year
deferral of the implementation of SFAS 157 for
non-financial assets and liabilities. However, SFAS
is still required to be adopted effective January 1,
2008 for financial assets and liabilities that are
carried at fair value. The Company is currently
evaluating the impact of the adoption of this
standard on its Consolidated Financial sv) Impact of
recently issued accounting standards.
ii) In February 2007, FASB issued SFAS No. 159, "Fair
value option for financial assets and liabilities"
which permits entities to choose to measure various
financial instruments and certain other items at fair
value. We do not expect the adoption of this
Interpretation to have a significant effect on the
Company's results of operations or financial
position.
iii) In December 2007, the FASB issued SFAS 160 a standard
on accounting for noncontrolling interests and
transactions with non-controlling interest holders in
consolidated financial statements. The standard is
converged with standards issued by the AcSB and IASB
on this subject. This statement specifies that
non-controlling interests are to be treated as a
separate component of equity, not as a liability or
other item outside of equity. Because non-controlling
interests are an element of equity, increases and
decreases in the parent's ownership interest that
leave control intact are accounted for as capital
transactions rather than as a step acquisition or
dilution gains or losses. The carrying amount of the
non-controlling interests is adjusted to reflect the
change in ownership interests, and any difference
between the amount by which the non-controlling
interests are adjusted and the fair value of the
consideration paid or received is recognized directly
inequity attributable to the controlling interest.
This standard requires net income and comprehensive
income to be displayed for both the controlling and
the non-controlling interests. Additional required
disclosures and reconciliations include a separate
schedule that shows the effects of any transactions
with the non-controlling interests on the equity
attributable to the controlling interest.
The statement is effective for periods beginning on
or after December 15, 2008. SFAS 160 will be applied
prospectively to all non-controlling interests,
including any that arose before the effective date.
The Company has not determined the effect of the
adoption of this Interpretation to the Company's
results of operations or financial position.
F-25
IMA EXPLORATION INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(Expressed in Canadian Dollars)
11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
iv) In December 2007, the FASB issued a revised standard
on accounting for business combinations, SFAS 141R.
The major changes to accounting for business
combinations are summarized as follows:
- all business acquisitions would be measured at
fair value.
- the existing definition of a business would be
expanded.
- pre-acquisition contingencies would be measured at
fair value.
- most acquisition-related costs would be recognized
as expense as incurred (they would no longer be
part of the purchase consideration).
- obligations for contingent consideration would be
measured and recognized at fair value at
acquisition date (would no longer need to wait
until contingency is settled).
- liabilities associated with restructuring or exit
activities be recognized only if they meet the
recognition criteria of SFAS 146, Accounting for
Costs Associated with Exit or Disposal Activities,
as of the acquisition date.
- non-controlling interests would be measured at
fair value at the date of acquisition (i.e. 100%
of the assets and liabilities would be measured at
fair value even when an acquisition is less than
100%).
- goodwill, if any, arising on a business
combination reflects the excess of the fair value
of the acquiree, as a whole, over the net amount
of the recognized identifiable assets acquired and
liabilities assumed. Goodwill is allocated to the
acquirer and the non-controlling interest.
- in accounting for business combinations achieved
in stages, commonly called step acquisitions, the
acquirer is to re-measure its pre-existing
non-controlling equity investment in the acquiree
at fair value as of the acquisition date and
recognize any unrealized gain or loss in income.
The statement is effective for periods beginning on or after
December 15, 2008. The Company does not expect the adoption of
this Interpretation to have a significant effect on the
Company's results of operations or financial position.
12. SUPPLEMENTARY CASH FLOW INFORMATION
Non-cash investing and financing activities were conducted by the
Company as follows:
2007 2006 2005
$ $ $
Investing activities
Expenditures on mineral properties and deferred costs - - (580,000)
Stock-based compensation capitalized - - 580,000
------------ ------------ ------------
- - -
============ ============ ============
F-26
IMA EXPLORATION INC.
(An Exploration Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
(Expressed in Canadian Dollars)
12. SUPPLEMENTARY CASH FLOW INFORMATION (continued)
2007 2006 2005
$ $ $
Financing activities
Shares issue costs - (95,893) (177,333)
Warrant issue costs - (14,271)
Warrants - 110,164
Shares issued on exercise of options 29,274 74,800 -
Contributed surplus (29,274) (74,800) 177,333
------------ ------------ ------------
- - -
============ ============ ============
13. SUBSEQUENT EVENTS
The Company received the funds representing the Navidad interest as
follows:
o $7.5 million, which was previously held in trust, on January
8, 2008 plus interest that had accrued in the amount of
$341,380
o The balance of $11 million was received on February 11, 2008.
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