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:
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes:
☐
No:
☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes:
☐
No:
☒
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 12 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.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes:
☒
No:
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
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:
☒
The following is a glossary of symbols that are used in this annual report to describe our business.
PART I
Effective
February 1, 2010, the Company adopted International Financial Reporting Standards (“
IFRS
”), as issued by the International Accounting Standards Board (“
IASB
”). Unless otherwise stated, all information presented herein has been prepared in accordance with IFRS. Please note that our prior annual consolidated financial statements were previously prepared in accordance with Canadian generally accepted accounting principles and included a reconciliation to United States generally accepted accounting principles, which may not be comparable to IFRS. Please refer to our annual consolidated financial statements for the years ended January 31, 2010 and 2009 (previously filed with our Annual Reports on Form 20-F).
ITEM 1.
|
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|
Not applicable.
ITEM 2.
|
OFFER STATISTICS AND EXPECTED TIMETABLE
|
Not applicable.
3.A
Selected Financial Data
The summary consolidated financial information set forth below should be read in conjunction with, and is qualified in its entirety by reference to, our consolidated financial statements as of
January 31, 2018 and 2017 and for the years ended January 31, 2018, 2017 and 2016 together with the notes thereto, which appear elsewhere in this annual report. These consolidated financial statements have been audited by Smythe LLP, Chartered Professional Accountants.
The financial data set forth in this Annual Report is expressed in
Canadian dollars (“
Cdn
$”
,
“
CA
D
” or “$”) unless otherwise noted as reported in US dollars (
“
US
$” or “
US
D”
). During our 2010 fiscal year, we changed our reporting currency from the United States dollar to the Canadian dollar. The change was consistent with our change of business to the resource sector completed on April 24, 2008 and our continuance of jurisdiction from Wyoming, United States, to British Columbia, Canada, completed August 21, 2006.
The following financial data summarizes selected financial data for our company prepared in accordance with IFRS as issued by the IASB
as at January 31, 2018 and 2017 and for the three fiscal years ended January 31, 2018, 2017 and 2016. Such information is derived from our consolidated financial statements which were examined by our independent auditors. The information set forth below should be read in conjunction with our audited annual consolidated financial statements and related notes thereto included in this annual report, and with the information appearing under the heading “Item 5 – Operating and Financial Review and Prospects”.
|
Years Ended January 31
IFRS
|
|
201
8
Cdn$
|
201
7
Cdn$
|
201
6
Cdn$
|
201
5
Cdn$
|
2014
Cdn$
|
Revenue
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Net
l
oss
for the year
|
(
285,490)
|
(1,807,330)
|
(74,072)
|
(403,437)
|
(907,809)
|
Comprehensive loss for the year
|
(
285,490)
|
(1,807,330)
|
(74,072)
|
(395,222)
|
(902,298)
|
Basic and diluted loss per share
|
(0.
01)
|
(0.
09)
|
(0.
04)
|
(0.
07)
|
(0.20)
|
|
Year
s
Ended January 31
IFRS
|
|
201
8
Cdn$
|
201
7
Cdn$
|
201
6
Cdn$
|
201
5
Cdn$
|
2014
Cdn$
|
Total Assets
|
887,794
|
13,611
|
623
|
8,061
|
101,895
|
Total Liabilities
|
45,600
|
477,177
|
1,842,574
|
1,775,940
|
1,474,552
|
Capital Stock
|
61,238,557
|
59,647,307
|
56,461,592
|
56,461,592
|
56,461,592
|
Shareholders
’ Equity (Deficit)
|
(
842,194)
|
(463,566)
|
(1,841,951)
|
(1,767,879)
|
(1,372,657)
|
The weighted average outstanding shares used to calculate income (loss) per share for the following fiscal periods are:
33,862,676 for the year ended January 31, 2018, 23,389,296 for the year ended January 31, 2017, 4,491,518 for the year ended January 31, 2016, 4,491,518 for the year ended January 31, 2015, and 4,491,518 for the year ended January 31, 2014.
To date,
the Company has not generated any cash flow from its activities to fund on-going activities and cash commitments. The Company has financed operations principally through the sale of equity securities. The Company normally maintains sufficient cash and cash equivalents to meet the Company’s business requirements and at January 31, 2018, the cash balance of $873,863 is insufficient to meet the needs for the coming year. Therefore, the Company will be required to raise additional capital in order to fund its operations in fiscal 2018.
Exchange Rate Data
The Company maintains its accounts in Canadian dollars.
These consolidated financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the IASB.
The following table sets forth, for the periods indicated, certain exchange rates based on the intra-day high and low buying rates between 08:00 (ET) and 16:00 (ET) in Canadian dollars as reported by the Bank of Canada.
On March 23, 2018, the noon exchange rate was USD 1.00 per CAD 1.2856. The high and low exchange rates (CAD per USD 1.00) for each month during the previous six months were as follows:
|
High
|
Low
|
February 2018
|
1.2809
|
1.2288
|
January 2018
|
1.2535
|
1.2293
|
December 2017
|
1.2886
|
1.2545
|
November 2017
|
1.2888
|
1.2683
|
October 2017
|
1.2893
|
1.2472
|
September 2017
|
1.2480
|
1.2128
|
The average, year end, high and low exchange rates (CAD per USD 1.00) for the five most recent financial years were as follows:
|
For Years Ended January 31
|
|
2018
|
2017
|
2016
|
2015
|
2014
|
Average Rate during Year
(1)
|
1.2919
|
1.3176
|
1.2963
|
1.1144
|
1.0389
|
Year End
(1)
|
1.2293
|
1.3130
|
1.4080
|
1.2717
|
1.1225
|
High
(2)
|
1.3743
|
1.4006
|
1.4661
|
1.2799
|
1.1225
|
Low
(2)
|
1.2128
|
1.2544
|
1.1925
|
1.0620
|
0.9952
|
|
(1)
|
The average exchange rates and year-end exchange rates are based on the average of the noon buying rates (CAD per USD 1.00) in Canadian dollars as reported by the Bank of Canada on the last day of each month during such periods.
|
|
|
(2)
|
The high and low exchange rates are based on the intra-day high and low rates between 08:00 (ET) and 16:00 (ET) as reported by the Bank of Canada.
|
|
3.B
Capitalization and Indebtedness
Not applicable.
3.C
Reasons for the Offer and Use of Proceeds
Not applicable.
3.D
Risk Factors
The Company, and thus the securities of the Company, should be considered a speculative investment and investors should carefully consider all of the information disclosed in this Annual Report prior to making an investment in the Company. In addition to the other information presented in this Annual Report, the following risk factors should be given special consideration when evaluating an investment in any of the Company's securities.
Our independent auditors have expressed doubts about our ability to continue as a going concern.
The report of our independent auditors on our financial statements for the year ended January 31,
2018 includes a note stating that our ability to continue as a going concern is dependent upon our ability to generate profitable operations in the future and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. The outcome of these matters cannot be predicted with any certainty, at this time. We have historically satisfied our capital needs primarily by issuing equity securities. If we are unable to continue to fund our operations through the issuance of equity securities we would have to cease operations.
Risks Associated with Exploration
The Company has no known reserves on its interests in exploration propert
y
.
The Company has no mineral producing properties and has never generated any revenue from its operations. The majority of exploration projects do not result in the discovery of commercially mineable deposits of ore. Only those mineral deposits that the Company can economically and legally extract or produce, based on a comprehensive evaluation of cost, grade, recovery and other factors, are considered “resources” or “reserves.” The Company has no known bodies of commercial ore or economic deposits and has not defined or delineated any proven or probable reserves or resources on its propert
y. The Company may never discover any gold, silver or other minerals from mineralized material in commercially exploitable quantities and any identified mineralized deposit may never qualify as a commercially mineable (or viable) reserve. In addition, the Company is in its early stages of exploration and substantial additional work will be required in order to determine if any economic deposits exist on the Company’s property. Substantial expenditures are required to establish ore reserves through drilling and metallurgical and other testing techniques. No assurance can be given that any level of recovery of the ore reserves will be realized or that any identified mineral deposit will ever qualify as a commercial mineable ore body which can be legally and economically exploited.
The Company faces risks related to exploration and development, if warranted, of its propert
y
.
The level of profitability of the Company, if any, in future years will depend to a great degree on gold and silver prices and whether the Company
’s exploration stage property can be brought into production. The exploration for and development of mineral deposits involves significant risks. It is impossible to ensure that the current and future exploration programs and/or feasibility studies, if any, on the Company’s existing mineral property will establish reserves. Whether an ore body will be commercially viable depends on a number of factors, including, but not limited to: the particular attributes of the deposit, such as size, grade and proximity to infrastructure; metal prices, which cannot be predicted and which have been highly volatile in the past; mining, processing and transportation costs; perceived levels of political risk and the willingness of lenders and investors to provide project financing; labour costs and possible labour strikes; and governmental regulations, including, without limitation, regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting materials, foreign exchange, environmental protection, employment, worker safety, transportation, and reclamation and closure obligations.
The Company is also subject to the risks normally encountered in the mining industry, such as:
|
■
|
unusual or unexpected geological formations
;
|
|
■
|
fires, floods, earthquakes, volcanic eruptions, and other natural disasters;
|
|
■
|
power outages and water shortages;
|
|
■
|
cave-ins, landslides, and other similar mining hazards;
|
|
■
|
labour disruptions and labour disputes;
|
|
■
|
inability to obtain suitable or adequate machinery, equipment, or labour;
|
|
■
|
liability for pollution or other hazards; and
|
|
■
|
other known and unknown risks involved in the operation of mines and the conduct of exploration.
|
The development of interests in exploration properties is affected by many factors, including, but not limited to: the cost of operations, variations in the grade of ore, fluctuations in metal markets, costs of extraction and processing equipment, availability of equipment and labour, labour costs and possible labour strikes, and government regulations, including without limitation, regulations relating to taxes, royalties, allowable production, importing and exporting of minerals, foreign exchange, employment, worker safety, transportation, and environmental protection. Depending on the price of minerals, the Company may determine that it is impractical to commence, or, if commenced, continue, commercial production. Such a decision would negatively affect the Company
’s profits and may affect the value of its equity.
The Company
has only one mineral
propert
y
.
The Company
’s only current property of interest is the Deborah property located in Cajamarca Region, Peru. As a result, unless the Company acquires additional property interests, any adverse developments affecting this property could have a material adverse effect upon our business and would materially and adversely affect our potential mineral resource production, profitability, financial performance and results of operations.
The Company
’s propert
y
may be subject to unregistered agreements, transfers or claims and title may be adversely affected by undetected defects or aboriginal claims.
The Company has not conducted a legal survey of the boundaries of its propert
y, and therefore, in accordance with the laws of the jurisdictions in which this property is situated, its existence and area could be in doubt. The Company has obtained only limited formal title reports on its property and title to its property may be in doubt. The Company’s property may be subject to unregistered agreements, transfers or claims and title may be adversely affected by such undetected defects. If title is disputed, the Company may have to defend its ownership through the courts, and the Company cannot guarantee that a favourable judgment will be obtained. Any litigation could be extremely costly to the Company and could limit the available capital for use in other exploration and development activities. The Company may require additional financing to cover the costs of any litigation necessary to establish title. In the event of an adverse judgment with respect to its mineral property, the Company could lose its property rights and may be required to cease its exploration and development activities on its property. Mining operations may also be affected by claims of native peoples, any of which could have the effect of reducing or preventing the Company from exploiting any possible mineral reserves on its property.
Ownership, exploration and development of the Company
’s propert
y is
subject to government approvals and regulations.
The
exploration property held by the Company is located in Peru. The individuals and entities that granted the Company an option pursuant to the option agreement have obtained mining concessions with respect to the property covered by such option agreement. There can be no guarantee that the individuals and entities that granted the Company option will be able to maintain these mining concessions in good standing, nor is there any guarantee that the Company will be able to obtain and maintain these mining concessions.
Peruvian law also requires mining permits and licenses in order to undertake exploration activities or commence construction or operation of mine facilities on the Company
’s property. An exploration permit is required when the proposed exploration may have a significant impact on the environment, people or historical sites. The Company has required and anticipates that it will continue to require exploration permits in order to undertake exploration activities on its property.
There can be no guarantee that the Company will be able to obtain all necessary permits and approvals from the Peruvian Government or that such approvals, if obtained, will not later be revoked or amended in a manner adverse to the Company. If the Company or its optioner are unable to obtain and maintain required approvals, permits and licenses, the Company may be unable to undertake its intended exploration and development activities on such
property. Any of these developments could have a material adverse effect on the Company, and could require the Company to cease exploration and development activities on all or a portion of its property, or abandon or dispose of all or a portion of its property.
Mining operations are subject to a wide range of additional government regulations including, but not limited to: restrictions on production and production methods, price controls, tax increases, expropriation of property, import and export control, employment laws, worker safety regulations, environmental protection, protection of agricultural territory or changes in conditions under which minerals may be marketed. Any failure to comply with such regulations, adverse changes in such regulations or shifts in political conditions could have a material adverse effect on the Company and its business, or if significant enough, could make it impossible to continue to operate in the country.
Mineral operations are subject to market forces outside of the Company
’s control.
The marketability of minerals is affected by numerous factors beyond the Company
’s control. These factors include, but are not limited to, market fluctuations, government regulations relating to prices, taxes, royalties, allowable production, import restrictions applicable to equipment and supplies, export controls and supply and demand. One or more of these risk elements could have an impact on costs of an operation and, if significant enough, reduce the profitability of the operation and threaten its continuation.
The mining industry is highly competitive.
The business of the acquisition, exploration, and development of mineral properties is intensely competitive. The Company will be required to compete, in the future, directly with other corporations that have better access to potential mineral resources, more developed infrastructure, more available capital, better access to necessary financing, and more knowledgeable and available employees than the Company. The Company may encounter competition in acquiring mineral properties, hiring mining professionals or obtaining mining resources, such as manpower, drill rigs, and other mining equipment. Such corporations could outbid the Company for potential projects or produce minerals at lower costs. Increased competition could also affect the Company
’s ability to attract necessary capital funding or acquire suitable producing properties or prospects for mineral exploration in the future.
Mining and mineral exploration have substantial operational risks which are uninsured or uninsurable risks.
E
xploration, development and mining operations involve various hazards, including environmental hazards, industrial accidents, metallurgical and other processing problems, unusual or unexpected rock formations, structural cave-ins or slides, flooding, fires, metal losses and periodic interruptions due to inclement or hazardous weather conditions. These risks could result in damage to or destruction of mineral properties, facilities or other property, personal injury, environmental damage, delays in operations, increased cost of operations, monetary losses and possible legal liability. The Company may not be able to obtain insurance to cover these risks at economically feasible premiums or at all. The Company may elect not to insure where premium costs are disproportionate to its perception of the relevant risks. The payment of such insurance premiums and of such liabilities would reduce the funds available for exploration and production activities.
The prices of precious and base minerals and metals fluctuate widely and may not produce enough revenue to cover the Company
’s costs.
Even if commercial quantities of mineral deposits are discovered, there is no guarantee that a profitable market will exist for the sale of the metals produced. The Company
’s long-term viability and profitability depend, in large part, upon the market price of metals which have experienced significant movement over short periods of time, and are affected by numerous factors beyond the Company’s control, including international economic and political trends, expectations of inflation, currency exchange fluctuations, interest rates and global or regional consumption patterns, speculative activities and increased production due to improved mining and production methods. The supply of and demand for metals are affected by various factors, including political events, economic conditions and production costs in major producing regions. There can be no assurance that the price of any minerals produced from the Company’s property will be such that any such deposits can be mined at a profit.
Surface
r
ights and
a
ccess
Although the Company acquires the rights to some or all of the minerals in the ground subject to the tenures that it acquires, or has a right to acquire, in most cases it does not thereby acquire any rights to, or ownership of, the surface to the areas covered by its mineral tenures. In such cases, applicable mining
laws usually provide for rights of access to the surface for the purpose of carrying on mining activities, however, the enforcement of such rights can be costly and time consuming. In areas where there are no existing surface rights holders, this does not usually cause a problem, as there are no impediments to surface access. However, in areas where there are local populations or land owners, it is necessary, as a practical matter, to negotiate surface access. There can be no guarantee that, despite having the right at law to access the surface and carry on mining activities, the Company will be able to negotiate a satisfactory agreement with any such existing landowners/occupiers for such access, and therefore it may be unable to carry out mining activities. In addition, in circumstances where such access is denied, or no agreement can be reached, the Company may need to rely on the assistance of local officials or the courts in such jurisdiction. The Company has not yet been successful in negotiating any formal surface access agreements.
Risks Associated with
Regulatory Requirements
The Company is subject to significant environmental regulations that can change over time.
The activities of
the Company are subject to extensive and changing environmental legislation, regulation and actions. The Company cannot predict what environmental legislation, regulation or policy will be enacted or adopted in the future or how future laws and regulations will be administered or interpreted. The recent trend in environmental legislation and regulation, generally, is toward stricter standards and this trend is likely to continue in the future. This recent trend includes, without limitation, laws and regulations relating to air and water quality, mine reclamation, waste handling and disposal, the protection of certain species and the preservation of certain lands. These regulations may require the acquisition of permits or other authorizations for certain activities. These laws and regulations may also limit or prohibit activities on certain lands. Compliance with more stringent laws and regulations, as well as potentially more vigorous enforcement policies or stricter interpretation of existing laws, may necessitate significant capital outlays, may materially affect the Company’s results of operations and business, or may cause material changes or delays in the Company’s intended activities.
The Company
’s operations may require additional analysis in the future including environmental and social impact and other related studies. Certain activities require the submission and approval of environmental impact assessments. Environmental assessments of proposed projects carry a heightened degree of responsibility for companies and its directors, officers, and employees. There can be no assurance that the Company will be able to obtain or maintain all necessary permits that may be required to continue its operation or its exploration of its property or, if feasible, to commence development, construction or operation of mining facilities at such property on terms which enable operations to be conducted at economically justifiable costs.
The Company is subject to numerous regulatory
requirements
which it may not be able to comply
with
.
The Company
’s activities are subject to extensive regulations governing various matters, including management and use of toxic substances and explosives, management of natural resources, exploration, development of mines, production and post-closure reclamation, exports, price controls, taxation, regulations concerning business dealings with indigenous peoples, labour standards on occupational health and safety, including mine safety, and historic and cultural preservation.
Failure to comply with applicable laws and regulations may result in civil or criminal fines or penalties, enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions, any of which could result in the Company incurring significant expenditures. The Company may also be required to compensate those suffering loss or damage by reason of a breach of such laws, regulations or permitting requirements. It is also possible that future laws and regulations, or more stringent enforcement of current laws and regulations
by governmental authorities, could cause additional expense, capital expenditures, restrictions on or suspension of the Company’s operations and delays in the exploration and development of its mineral property.
Risks Related to Financing
The Company has a history of losses and no revenues
, and may never become profitable
.
The Company is a mineral exploration company without operations and has historically incurred losses. To date, the Company has not recorded any revenues from its operations nor has the Company commenced commercial production on its
property. The Company does not expect to receive revenues from operations in the foreseeable future, if at all. The Company expects to continue to incur losses unless and until such time as its property enters into commercial production and generates sufficient revenues to fund its continuing operations.
Until such time, the Company will be dependent upon future financing in order to meet its capital requirements and continue its plan of operations. Although the Company has raised additional private placement financing in prior fiscal years, these funds may not be sufficient to undertake all planned acquisition, exploration, and development programs of the Company. The Company cannot guarantee that it will obtain necessary financing. The development of the Company
’s property will require the commitment of substantial resources to conduct the time-consuming exploration and development of the property. The amounts and timing of expenditures will depend on the progress of on-going exploration, assessment and development, the results of consultants’ analyses and recommendations, the rate at which operating losses are incurred, the execution of any joint venture agreements with strategic partners, the Company’s acquisition of additional properties and other factors, many of which are beyond the Company’s control. The Company may never generate any revenues or achieve profitability.
The Company will require additional capital to meet its capital requirements for
fiscal
201
8
and for future fiscal years.
The Company does not have sufficient financial resources to undertake all of its planned acquisition and exploration programs for
fiscal 2018. The Company’s ability to continue its exploration, assessment, and development activities depends in part on the Company’s ability to obtain financing through joint ventures, debt financing, equity financing, production sharing arrangements or some combination of these or other means, and ultimately, commence operations and generate revenue. There can be no assurance that any such arrangements will be concluded and the associated funding obtained. There can be no assurance that the Company will commence operations and generate sufficient revenues to meet its obligations as they become due or will obtain necessary financing on acceptable terms, if at all. The failure of the Company to meet its on-going obligations on a timely basis could result in the loss or substantial dilution of the Company’s interest (as existing or as proposed to be acquired) in its property. In addition, should the Company incur significant losses in future periods, it may be unable to continue as a going concern, and realization of assets and settlement of liabilities in other than the normal course of business may be at amounts significantly different from those in the financial statements included in this Annual Report.
Currency fluctuation may affect the Company
’s operations and financial stability.
While engaged in the business of exploiting mineral properties, the Company
’s operations outside Canada make it subject to foreign currency fluctuation and such fluctuations may adversely affect the Company’s financial positions and results. Such fluctuations are outside the control of the Company and may be largely unpredictable. Management may not take any steps to address foreign currency fluctuations that will eliminate all adverse effects and, accordingly, the Company may suffer losses due to adverse foreign currency fluctuations.
Risks r
elating to an
i
nvestment in the
s
ecurities of the Company
The Company is dependent upon key management.
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 to design and carry out appropriate exploration programs on its mineral property; (ii) the ability to produce minerals from any mineral deposits that may be located on its property; (iii) the ability to attract and retain additional key personnel in exploration, marketing, mine development and finance; and (iv) the ability and the operating resources to develop and maintain the property 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 and its consultants and employees. There can be no assurance of success with any or all of these factors on which the Company’s operations will depend, or that the Company will be successful in finding and retaining the necessary employees, personnel and/or consultants in order to be able to successfully carry out such activities.
The Company
’s growth, if any, will require new personnel, which it will be required to recruit, hire, train and retain.
The Company expects significant growth in the number of employees required if it determines that a mine at its
property is commercially feasible, it is able to raise sufficient funding and it elects to develop the property. This growth will place substantial demands on the Company and its management, and the Company’s ability to assimilate new personnel will be critical to its performance. The Company will be required to recruit additional personnel and to train, motivate and manage employees. It will also have to adopt and implement new systems in all aspects of its operations. This will be particularly critical if the Company decides not to use contract miners at its property. There is no assurance that the Company will be able to recruit the personnel required to execute its programs or to manage these changes successfully.
The Company has limited experience with development stage mining operations.
The Company has limited experience in placing resource properties into production, and its ability to do so will be dependent upon using the services of appropriately experienced personnel or entering into agreements with other major resource companies that can provide such expertise. There can be no assurance that the Company will have available the necessary expertise when and if it places
its property into production.
Certain of the Company
’s directors and officers are also directors and/or officers and/or shareholders of potential competitors of the Company, giving rise to potential conflicts of interest.
Several of the Company
’s directors and officers are also directors, officers or shareholders of other companies. Some of the directors and officers of the Company are engaged and will continue to be engaged in the search for additional business opportunities on behalf of other corporations, and situations may arise where these directors and officers will be in direct competition with the Company. Such associations may give rise to conflicts of interest from time to time. Such a conflict poses the risk that the Company may enter into a transaction on terms which could place the Company in a worse position than if no conflict existed. Conflicts, if any, will be dealt with in accordance with the relevant provisions of the
Business Corporations Act
(British Columbia). The Board has resolved that any transaction either at the Company level or of a subsidiary level, with entities having directors, officers or significant shareholders in common, must be approved by disinterested Board members. The Company’s directors are required by law to act honestly and in good faith with a view to the best interests of the Company and to disclose any interest which they may have in any project or opportunity in respect of which the Company is proposing to enter into a transaction.
There are risks related to s
tock market price
s
and volume volatility.
The market for the Company
’s common shares (“
Common Shares
”) may be highly volatile for reasons both related to the performance of the Company or events pertaining to the industry (i.e., mineral price fluctuation/high production costs/accidents) as well as factors unrelated to the Company or its industry. In particular, market demand for products incorporating minerals in their manufacture fluctuates from one business cycle to the next, resulting in change of demand for the mineral and an attendant change in the price for the mineral. The Common Shares can be expected to be subject to volatility in both price and volume arising from market expectations, announcements and press releases regarding the Company’s business, and changes in estimates and evaluations by securities analysts or other events or factors. In recent years the securities markets in the United States and Canada have experienced a high level of price and volume volatility, and the market price of securities of many companies, particularly small-capitalization companies such as the Company, have experienced wide fluctuations that have not necessarily been related to the operations, performances, underlying asset values, or prospects of such companies. For these reasons, the price of the Common Shares can also be expected to be subject to volatility resulting from purely market forces over which the Company has no control. Further, despite the existence of a market for trading the Common Shares in Canada and the United States, stockholders of the Company may be unable to sell significant quantities of Common Shares in the public trading markets without a significant reduction in the price of the stock.
Shareholder interests may be diluted
through the granting of
incentive stock
options.
Because the success of the Company is highly dependent upon the performance of its directors, officers and consultants, the Company has granted
in the past, and will in the future grant, to some or all of its directors, officers and consultants, options to purchase its Common Shares as non-cash incentives. Those options may be granted at exercise prices below those for the Common Shares prevailing in the public trading market at the time or may be granted at exercise prices equal to market prices at times when the public market is depressed. To the extent that significant numbers of such options may be granted and exercised, the interests of the other stockholders of the Company may be diluted.
The Company
may be a
"passive foreign investment company"
under the U.S. Internal Revenue Code, which may result in material adverse U.S. federal income tax consequences to investors in Common Shares that are U.S. taxpayers.
Investors in
Common Shares that are U.S. taxpayers should be aware that the Company believes it constituted a passive foreign investment company (“
PFIC
”) during the tax year ended January 31, 2016, and may be a PFIC in the current and future tax years. If the Company is a PFIC for any year during a U.S. shareholder’s holding period, then such U.S. shareholder generally will be required to treat any gain realized upon a disposition of Common Shares, or any so-called “excess distribution” received on its Common Shares, as ordinary income, and to pay an interest charge on a portion of such gain or distributions, unless the shareholder makes a timely and effective "qualified electing fund" election (“
QEF Election
”) or a "mark-to-market" election with respect to the Common Shares. A U.S. shareholder who makes a QEF Election generally must report on a current basis its share of the Company's net capital gain and ordinary earnings for any year in which the Company is a PFIC, whether or not the Company distributes any amounts to its shareholders. However, U.S. shareholders should be aware that there can be no assurance that we will satisfy record keeping requirements that apply to a qualified electing fund, or that we will supply U.S. shareholders with information that such U.S. shareholders require to report under the QEF Election rules, in the event that we are a PFIC and a U.S. shareholder wishes to make a QEF Election.
Thus, U.S. shareholders may not be able to make a QEF Election with respect to their Common Shares. A U.S. shareholder who makes the mark-to-market election generally must include as ordinary income each year the excess of the fair market value of the Common Shares over the taxpayer’s basis therein. This paragraph is qualified in its entirety by the discussion below under the heading “Certain United States Federal Income Tax Considerations.” Each U.S. shareholder should consult its own tax advisor regarding the tax consequences of the PFIC rules and the acquisition, ownership, and disposition of our Common Shares.
Broker-Dealers may be discouraged from effecting transactions in the Common Shares because they are considered “Penny Stocks” and are subject to the Penny Stock Rules.
Rules 15g-1 through 15g-9 promulgated under the Securities Exchange Act of 1934, as amended (the “
Exchange Act
”) impose sales practice and disclosure requirements on certain broker-dealers who engage in certain transactions involving a "penny stock". Subject to certain exceptions, a penny stock generally includes any equity security that has a market price of less than US$5.00 per share. The market price of the Common Shares over the year ended January 31, 2017 and through May 24, 2017 was at all times below US$5.00 and the Common Shares are deemed penny stock for the purposes of the Exchange Act. The additional sales practice and disclosure requirements imposed upon broker-dealers may discourage broker-dealers from effecting transactions in the Common Shares, which could severely limit the market liquidity of the Common Shares and impede the sale of Common Shares in the secondary market.
Under the penny stock regulations, a broker-dealer selling penny stock to anyone other than an established customer or “accredited investor” (generally, an individual with net worth in excess of US$1,000,000 or an annual income exceeding US$200,000, or US$300,000 together with his or her spouse) must make a special suitability determination for the purchaser and must receive the purchaser's written consent to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt.
In addition, the penny stock regulations require the broker-dealer to deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the Securities and Exchange Commission relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt. A broker-dealer is also required to disclose commissions payable to the broker-dealer and the registered representative and current quotations for the securities. Finally, a broker-dealer is required to send monthly statements disclosing recent price information with respect to the penny stock held in a customer's account and information with respect to the limited market in penny stocks.
It may be difficult to enforce judgements against management or assets of the Company.
As many of the assets of the Company are located outside of Canada and the United States, and certain directors and officers of the Company are resident outside of Canada and/or the United States, it may be difficult or impossible to enforce judgements granted by a court in Canada or the United States against the assets of the Company or the directors and officers of the Company residing outside of such country.
The board of directors is currently comprised of
four
directors, on
ly
one
of whom is independent.
The Board is currently comprised of
four directors, only one of whom is independent. The Company is actively attempting to appoint an additional independent director to the Board in order to bring the Company into compliance with the corporate governance rules and regulations that it is subject to in Canada, however there is no assurance when this will occur, if at all. The lack of independent directors on the Board may weaken the quality of oversight of the Company’s management and compromise the Board’s effectiveness in carrying out its duties and responsibilities.
The
Company’s
mineral property is
located in
a
countr
y
where there may be significant political risk.
The Company has
a mineral property in Peru. In this country, mineral exploration and mining activities may be affected in varying degrees by political or economic instability, expropriation of property and changes in government regulations such as tax laws, business laws, environmental laws and mining laws. Any changes in regulations or shifts in political conditions are beyond the control of the Company and may materially adversely affect its business, or if significant enough, may make it impossible to continue to operate in that country. Operations may be affected in varying degrees by government regulations with respect to restrictions on production, price, controls, foreign exchange restrictions, export controls, income taxes, expropriation of property, environmental legislation and mine safety.
As a consequence of general economic conditions the Company may be faced with an inability to access capital in order to continue its operations.
Since 2008, the U.S. credit markets
have experienced serious disruption due to a deterioration in residential property values, defaults and delinquencies in the residential mortgage market (particularly, sub-prime and non-prime mortgages) and a decline in the credit quality of mortgage backed securities. These problems have led to a slow-down on residential housing market transactions, declining housing prices, delinquencies in non-mortgage consumer credit and a general decline in consumer confidence. These conditions caused a loss of confidence in the broader U.S. and global credit and financial markets and resulted in the collapse of, and government intervention in, major banks, financial institutions and insurers and created a climate of greater tighter credit conditions. Notwithstanding various actions by the U.S. and foreign governments, concerns about the general condition of the capital markets, financial instruments, banks, investment banks, insurers and other financial institutions caused the broader credit markets to further deteriorate and stock markets to decline substantially. In addition, general economic indicators have deteriorated, including declining consumer sentiment, increased unemployment and declining economic growth and uncertainty about corporate earnings.
U
nprecedented disruptions in the credit and financial markets have had a significant material adverse impact on a number of financial institutions and have limited access to capital and credit for many companies. These disruptions could, among other things, make it more difficult for the Company to obtain, or increase its cost of obtaining, capital and financing for its operations. The Company’s access to additional capital may not be available on terms acceptable to it or at all.
The Company does not intend to pay cash dividends and there is no assurance that it will ever declare cash dividends.
The Company intends to retain any future earnings to finance its business and operations and any future growth. Therefore, the Company does not anticipate paying any cash dividends in the foreseeable future.
ITEM 4.
|
INFORMATION ON THE COMPANY
|
4.A
History and Development of the Company
The Company was
incorporated under the laws of the Province of British Columbia on May 26, 1981 under the name "
Force Energy Ltd.
". On September 10, 1981, the Company changed its name to "
Force Resources Ltd.
". On December 1, 1994, the Company subsequently changed its name to "
Force Technologies Inc.
" in connection with a consolidation of its share capital on a five old shares for one new share basis. On October 1, 1997, the Company changed its name to "
Glassmaster Industries Inc.
" in connection with a split of its share capital on a one old share for two new shares basis.
Effective April 24, 1998,
the Company continued its jurisdiction of registration from British Columbia to the State of Wyoming by filing a Certificate of Registration and Articles of Continuance in the office of the Secretary of State of Wyoming.
On January 19, 2000,
the Company changed its name to "
Interlink Systems Inc.
" in connection with a consolidation of its share capital on a ten old shares for one new share basis. On August 14, 2000, the Company changed its name to "
iQuest Networks Inc
." in connection with the acquisition of its interest in iNoize.com Software Ltd. (a company involved in the development of music transfer software). The Company also concurrently effected a consolidation of its share capital on a one new share for two old shares basis.
On October 28, 2003, the Company ceased operations as a company involved in the development of music transfer software. Also e
ffective October 28, 2003, the Company’s shares were consolidated on the basis of one new share for every four old shares, and the authorized share capital was subsequently increased from 25,000,000 Common Shares to 100,000,000 Common Shares. In connection with the share consolidation, the Company changed its name to "
Quest Ventures Inc.
".
At a shareholders
’ meeting held on June 22, 2004, the Company’s shareholders approved a change of its primary business focus to other business opportunities, including the acquisition, exploration and development of natural resources properties. At the Company’s annual meeting held on July 19, 2005, the Company’s shareholders approved a consolidation of its shares and concurrent name change. Effective April 24, 2006, the Company’s shares were consolidated on the basis of one new share for each two old shares and the Company also changed its name to “
Dorato Resources Inc.
”.
Effective August 21, 2006,
the Company continued its jurisdiction of incorporation into British Columbia from Wyoming. The Company is governed by the
Business Corporations Act
(British Columbia) (“
BCBCA
”).
On October 18, 2007,
the Company commenced its present business of acquiring and exploring natural resource properties by entering into five agreements with several Peruvian nationals and a Peruvian company to acquire options to earn a 100% interest in 70 mineral claims located in Peru and to acquire certain mining concessions. On April 24, 2008, the TSX Venture Exchange (the “
TSX.V
”) accepted for filing the documentation related to these option contracts, and the Company’s listing was transferred from the NEX to the TSX.V, effective April 25, 2008.
On October 23, 2013, the Company completed the alteration of its share capital by way of a
consolidation of its issued share capital on the basis of one new share for every twenty old shares, thereby reducing the Company’s issued and outstanding Common Shares from 89,830,376 Common Shares to 4,491,518 Common Shares; and changed its name from “
Dorato Resources Inc.
”
to “
Xiana Mining Inc
.
”
.
Effective October 24, 2013, the Company commenced trading on the TSX.V under its new name and symbol
XIA
.
The Company
’s head office, registered and records office and address for service is located at #507 – 837 West Hastings Street, Vancouver, British Columbia, Canada, the phone number is (604) 685-1017 and the fax number is (604) 408-7499.
4.B
Business Overview
The Company is a mineral exploration company engaged in the acquisition, exploration of mineral properties. The Company currently has
the right to acquire an interest in a mineral property in Peru. The Company is in the exploration stage as its property has not yet reached commercial production and its property is beyond the preliminary exploration stage. There are currently no identified mineral resources or mineral reserves on the Company’s mineral property.
Deborah Gold Property, Cajamarca, Peru
The Company entered into an option agreement to earn a 100% interest in the Deborah Property. Peruvian Government approval is required prior to exercising the option to acquire this property.
On September 16, 2011, the Company entered into an option agreement to acquire a 100% interest in the Deborah Gold property, Cajamarca, Peru. Under the terms of the option agreement, the Company can acquire a 100% interest in the property in exchange for cumulative payments of US$6,000,000 over a minimum of 5 years. The detailed terms of the option agreement are summarized in the table below.
Event
|
US$ Cash Payments
|
TSX.V Approval
|
50,000 (paid)
|
On commencing drill-testing
|
200,000
|
1 year anniversary of drill date
|
400,000
|
2 year anniversary of drill date
|
600,000
|
3 year anniversary of drill date
|
900,000
|
4 year anniversary of drill date
|
1,200,000
|
5 year anniversary of drill date
|
2,650,000
|
|
6,000,000
|
The option agreement required an immediate payment of $50,000 on receipt of
TSX.V approval (“
Effective Date
”). This payment was made and the Company commenced systematic surface exploration of the property in early February 2012. A second payment of $200,000 is payable on the commencement of drilling (“
Drill Date
”) and all subsequent payments are tied to this Drill Date. In addition, a royalty of $4.00 per ounce of gold produced is payable to the underlying vendors, up to a maximum of $2,000,000. There was no finder’s fee paid by the Company in connection with the Option Agreement.
Although the Deborah Gold Property title is currently in good standing as at March 23, 2018, the
Company wrote-off the remaining $500,000 in carrying value of its exploration properties during the year ended January 31, 2014 (2013 - $5,459,566) due to the Company not having sufficient funds to perform further work on the Deborah Gold property and forfeiting the mineral leases on the other properties under option agreements.
Private Placements
During the year ended
January 31, 2018, the Company issued 16,000,000 common shares at $0.10 per share for gross proceeds of $1,600,000 and incurred $8,750 of share issuance costs.
Effects of Government Regulation
For a description of the material effects of government regulation on the Company
’s business, see the disclosure contained under Item 5.A.
Current State of Operations
The
Deborah Property is a ‘grassroots’ exploration project, meaning that there are no existing mine operations within the project area. Early stage exploration begins with review of satellite imagery and existing regional geology maps, followed by airborne geophysical surveys. Geophysical surveys are rapid assessment tools that help generate targets for further exploration. Advanced exploration is focused on initial drill-testing of these targets. This phase may involve anything from 5 to 50 drill holes depending on the type of mineral deposit encountered and the level of information required to make a decision to move forward. The ultimate aim is to discover a mineral deposit worthy of additional investigation.
Following advanced exploration, a project will move to resource definition if warranted. Drilling continues to define the deposit and ultimately an independent third party will calculate an initial resource. A project may go through several phases of drilling and resource estimation before a decision is made to move to more advanced studies.
Ultimately, a project would move through three phases of advanced studies called Preliminary Economic Assessment (also called a scoping study), Prefeasibility Study and a Feasibility Study. These studies may take several years. Ultimately on receipt of a positive feasibility study, a company is in a position to make a production decision
– this is the final decision to build a mine and begin development work.
4.C
Organizational Structure
The significant subsidiaries of
the Company are:
|
Country of Incorporation
|
Principal
Activity
|
Xiana
’s effective interest
at January 31, 2018 and 2017
|
Compania Minera la Luminosa S.A.C.
(
2
)
|
Peru
|
Holding company
|
99%
|
(1)
|
I
ncorporated
in Peru on April 25, 2007.
|
(2)
|
I
ncorporated in Peru on August 23, 2011
, which
holds the exploration rights on the Deborah property.
|
On May 27, 2016, the Company entered into a Share Purchase Agreement to sell a wholly-owned subsidiary in Peru, Dorato Peru S.A.C. (the “Subsidiary”) for a ca
sh consideration of USD30,000.
Assets held by the subsidiary has been written-down and total liabilities of USD170,800 and any contingent liabilities will be assumed by the buyer, resulting in a gain of disposal of USD200,800.
4.D
Property, Plants and Equipment
National Instrument 43-101 Compliance
Except as otherwise indicated, John Drobe, P.Geo.
, the Company’s former Vice-President of Exploration and a Qualified Person as defined by NI 43-101, has reviewed and is responsible for the technical information contained in this Annual Report on Form 20-F.
Deborah Property
On September 28, 2011, the Company announced that it entered into an option agreement to acquire a 100% interest in the Deborah Gold property, Cajamarca, Peru. The property is located only one hour east of the city of Cajamarca, with good access via paved and dirt roads, and is nestled between several major ore deposits including Anglo American
’s Michiquillay Copper-Gold Porphyry, located 6 kilometres to the southwest (631MT of 0.69% copper, 0.15 g/t gold, and 0.02% moly) and China Minmetals and Jiangxi Copper Corp’s El Galeno Copper-Gold Porphyry, located 6 kilometres to the north (661MT of 0.50% copper, 0.12 g/t gold), though it is not possible to determine if similar results will be obtained from the property.
Location and Regional Geology, Deborah Project
Regional Context
There are several major, large scale producing mines and significant development projects in the belt and, more importantly, in the immediate vicinity of the property. The geology between all local deposits is similar, with mineralization related to Miocene dacite porphyry stocks intruding Lower to Upper Cretaceous carbonate and sandstone units, though it is not possible to determine if the Deborah property will be similar.
The
Michiquillay
deposit (6 kilometres to the southeast) is controlled by Anglo American Plc., who acquired the deposit in 2007, having submitted the winning bid in a public auction process. Anglo acquired the property for $403 million. The deposit hosts 631 Mt grading 0.69% copper, 0.15 g/t gold, with 100–200 ppm molybdenum. Exploration and resource definition is on-going.
The
El Galeno
and
Hilorico
deposits are controlled by Lumina Copper S.A.C., jointly owned by China Minmetals (60%) and Jiangxi Copper Corp. (40%). Copper Bridge Acquisition Corp (“CBAC”) acquired the deposit from Northern Peru Copper Corporation in 2008 for $455M. At the time of sale, the prefeasibility study estimated probable reserves of 661Mt grading 0.50% copper, 0.12 g/t gold, and 0.013% molybdenum.
The gold breccia at
Hilorico
, 1 kilometre northeast of Galeno on the adjacent El Molino concession, may be the closest geological analogue to Deborah property, although this interpretation will have to be tested by future exploration. Northern Peru Copper completed 13,000 metres of drilling at Hilorico before the transaction with CBAC in 2008. Historic drill intersections of note include 213 metres of 1.04 g/t Au and 1.6 g/t Ag, and 82.5 metres of 1.04 g/t Au. According to the 2007 Prefeasibility study (NI 43-101 compliant), the deposit contains Inferred Resources of 19.4MT at 0.65 g/t gold and 3.3 g/t silver (407,000 ounces using a 0.3g/t gold cut-off in the oxide zone,), with additional sulphide resources of 21.3MT at 0.93 g/t gold and 4.8 g/t silver (641,000 ounces at 0.5g/t gold cut-off).
The technical information with respect to the above deposits was obtained through the respective companies
’ public disclosure documents, and has not been independently verified by the Company.
Deborah Exploration History
There are numerous exploration and small scale gold production adits on the Deborah property developed over the last 100 years targeting gold-rich structures, replacements and breccia bodies. Newmont Peru drilled 13 holes at Deborah in 2006 in the area of historic workings, targeting the down dip extension of the near vertical
mantos
(bedding parallel layer) of gold and silver-bearing sulphides and related SE trending breccia zones along the western edge and in the southeast corner of the concession. A large area of almost no outcrop in the centre of the property was not drill tested, nor surface sampled.
The underlying property vendors have provided historical exploration data from Newmont
’s exploration drill program. Gold and silver assay results include:
DRILL HOLE
|
THICKNESS (m)
|
GOLD (g/t)
|
SILVER (g/t)
|
DEB-002
|
9.20
|
1.26
|
2.6
|
DEB-003
|
51.35
|
0.51
|
3.4
|
and
|
44.00
|
0.73
|
12.3
|
DEB-004
|
47.75
|
0.59
|
18.0
|
DEB-005A
|
4.05
|
1.30
|
43.0
|
These holes appear to have targeted breccia in quartzite adjacent to an area of sulphide veining in the southwest corner of the concession, where surface channel samples returned anomalous precious metal values.
Deborah Geology
Thick-bedded to massive quartzite of the Late Jurassic Chicama Formation and/or Lower Cretaceous Chimu Formation is intruded by hornblende granodiorite and dacite porphyry, the latter of which forms a large recessively weathered central stock on the property
Carbonate of the Santa Formation is present in the northeast corner of the concession, apparently in fault contact across a 1-5m wide pyrite-bearing breccia. These units are the same as those hosting mineralization at El Galeno 6 km to the northwest, and Mich
iquillay 6 km to the southwest.
Exploration Potential
The 13 holes drilled by Minera Yanacocha (Newmont) are concentrated in the area of historic workings, and appear to have targeted the down dip extension of the near-vertical gold-silver rich replacement bodies and related southeast trending breccia along the western edge of the concession. None of the holes were drilled under an extensive recessive zone northeast of the main quartzite hill, and neither was the area covered in the surface rock sampling. Part of this area was mapped as dacite porphyry, though it is much more recessive than the dacite porphyry to the south.
Mineralization at the Galeno porphyry deposit is also recessive and forms a topographically low area in the surrounding resistive quartzite. The central recessive zone at Deborah is therefore considered a prospective area, as this is where highly fractured and mineralized zones might be expected to occur. The recessive zone is in fact on strike with the tectonic breccia related to the regional Punre fault, which geologically connects Deborah with the Hilorico gold-breccia target east of Galeno, and may represent a splay of the structure. Also, the carbonate could be an important unit in terms of hosting disseminated mineralization in permeable (decalcified) sandy horizons along strike and adjacent to the mineralized breccia. This target has yet to be drill tested.
Phase 1 Exploration Completed
The first phase of surface exploration commenced in February 2012 following receipt of approvals for surface access from the land title holders. Soil lines spaced 100 meters apart, with samples spaced 50 meters apart were covered a 120 Ha core area of the property. Outcrops within this area were also chip sampled, mostly over 1-2 meter lengths. Assay results from soils returned a maximum value of 1.78 g/t gold, with 20% of the soil samples returning >0.129 g/t gold and 10% returning >0.284 g/t gold. The sampling has defined two gold anomalies that are approximately 400 meters each in extent when contoured at the 0.1 g/t gold level. Both anomalies show a strong correlation with pathfinder elements arsenic and antimony, as well as silver and lead. Overburden, comprising quartzite talus from the main ridge, covers the area between the two anomalies and possibly mineralization linking them into a singular northeast-trending zone.
The central anomaly is a circular feature at the intersection of northwest- and southwest-trending structures, on the northeast flank of the main ridge. One artisanal working was discovered, and breccia within this assayed 0.43 g/t gold over 2 meters. The central anomaly has significantly less silver than the soil anomaly over the western breccias drilled by Newmont in 2006, suggesting a different type of mineralization. The north-eastern anomaly abuts the eastern boundary of the concession and is open to the north. One rock sample from the south edge of the anomaly returned 1.24 g/t gold over 1.5 meters.
The soil samples returned better gold values than the soil samples, supporting the exploration model that gold mineralization at Deborah is hosted by recessive, sulphide-rich material that does not crop out well and remains under-sampled.
Work Completed, Gold Soil Anomaly, Deborah Project
Work Plan
The second phase of surface work will be approximately 800 meters of hand-trenching on both central and northeast anomalies, with additional soil samples to close off the northeast anomaly. Some test pits will also be excavated in the area of talus to determine depth to bedrock, and sampled where appropriate. Results from the second phase of work will identify follow-up drill targets.
Qualified Person and QA/QC
John Drobe, P.Geo.,
the Company’s former Vice President of Exploration and a qualified person as defined by National Instrument 43-101, reviews and is responsible for the scientific and technical information that forms the basis of all public disclosures. Mr. Drobe is not independent of the Company as he is a former officer.
The Company has Quality Assurance/Quality Control (QA/QC) protocols in place for all drilling, geophysics, rock, soil, and stream sediment sampling programs as part of all geochemical sampling, sample preparation, sample shipping and sample analysis and compilation procedures.
Quality control and quality assurance is implemented in the field and results are monitored regularly throughout the sampling programs. Blind certified reference material, certified coarse blank material, quarter-core duplicates and preparation duplicates are inserted at regular intervals (1/20) into the sample sequence. On-site personnel rigorously collect and track samples which are then security sealed and trucked by a third party shipper to either the ACME affiliate preparation laboratory in Cuenca, Ecuador,
for the Cordillera del Condor project, or to ALS Laboratories in Lima, Peru, for the Deborah property. Here the samples’ weights are recorded and the samples are cross-referenced with the sampling list.
For samples sent to ACME, after coarse crushing and pulverizing to >80% passing 200 mesh, a 250g split is forwarded to ACME Analytical Laboratories (“ACME”) in Vancouver, BC, Canada for analysis. ACME's quality system complies with the requirements for the international standards ISO 9001:2008 and ISO 17025:2005. Samples are analysed for gold by fire assay (30g) and forty additional elements by four-acid digestion with an ICP-MS finish. Any sample over 10 g/t gold are re-analysed by gravimetric fire assay (30g) for gold and silver. Any sample returning over 1% copper, lead or zinc are re-analysed by the base metal assay method with an ICP-OES finish. Analytical accuracy and precision are also regularly monitored by the laboratory through the analysis of reagent blanks, reference material and replicate samples.
In addition, representative blind duplicate samples are routinely forwarded to an ISO-compliant third party laboratory for additional quality control.
Soil samples sent to ALS Peru are sieved to passing 180 microns (80 mesh) and then 25g (gold) and 0.5g (51 element) splits are dissolved using an aqua-regia digestion, followed by an ICP-MS finish. Rock samples are crushed to 70% passing 2mm , then 250g are pulverized to 75% passing 75 microns. They are then analysed for gold by fire assay (25g) and 33 elements by four-acid digestion with an ICP-AES finish (>1.0g). The ALS analytical laboratory in Lima is ISO 9001:2008 and ISO 17025:2005 certified.
ITEM 5.
|
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
|
The Company is in the business of acquiring, exploring and evaluating interests in mineral properties. The Company
’s current property interests are held for the purposes of exploration for precious and base metals.
5.A
Operating Results
Year ended January 31, 201
8
compared to the year ended January 31, 201
7
A net loss of $285,490 for the year ended
January 31, 2018 was incurred compared to a net loss of $1,807,330 in the prior year.
Consulting fees of $150,929 (2017 - $199,066) decreased as a res
ult of a consultant ceasing to work for the Company.
Loss on settlement of debt of $Nil (2017
– $1,738,603) due to a loss recognized from the settlement of debt with issuance of shares in the prior year.
Office and miscellaneous expenses of $58,395 (201
7 – $34,273) increased as a result of office rent and general office expenses in the current year.
Travel and promotion of $35,590 (2016
– $43,134) decreased due to less trips taken for business meetings during the current year.
Write-off of accounts pay
able of $25,107 (2017 - $Nil) due to outstanding debt which passed the statute of limitations
.
Year ended January 31,
201
7
compared to the year ended January 31,
201
6
A net loss of $
1,807
,330 for the year ended January 31, 2017 was incurred
, compared to a net loss of $74,072 in the same period last year.
Consulting fees of $
199
,066 (2016 - $157,870) increased due to an increase in activity during the current fiscal year compared to prior period.
Gain
on foreign exchange of $4,859 (2016 – loss of $22,964) decreased primarily due to a change in foreign exchange on the Peruvian accounts payable
.
Office
and miscellaneous expenses of $34
,273 (2016 - $22,010) increased primarily due to an increase in activity.
Professional fees of $
28
,240 (2016 - $14,550) increased primarily due to higher legal fees and accounting fees incurred by the Company in the current year
.
Regulatory fees of $
13
,985 (2016 - $19,868) decreased due to lower filing activity in the current year compared to prior year.
Travel and promot
ion of $43
,134 (2016 - $ 1,727) increased primarily due to more trips taken during the current year
.
The Company
’s
mineral rights in Peru are currently subject to regulations that may be subject to change, and may become subject to new regulations, which could impose significant costs and burdens.
Exploration activities in Peru depend on mining concessions for exploration and ultimately for exploitation works, obtained from the Geologic, Mining and Metallurgic Institute (Instituto Geológico Minero Metalúrgico), or the INGEMMET. In addition, operations in Peru depend on obtaining other administrative rights, such as provisional permits, from the Ministry of Energy and Mines, or the MEM, and for exploration rights on the area of a claim. In Peru, ownership of a mining concession by a foreign entity within 50 kilometr
es of the national border is subject to issuance of a Supreme Decree from the Peruvian Government. The Company’s option property is within 50 kilometres of the Peruvian national border. Thus, the Company must obtain a Supreme Decree from the Peruvian Government in respect of all of the mining concessions comprising the Company’s properties. In addition, the terms of the option agreement through which the Company hold its property interest require issuance of a Supreme Decree before the options can be exercised.
Under Peru
’s current regulatory regime, mining concessions for the exploration and exploitation of minerals have an indefinite term, subject to compliance by the titleholder with the obligations set forth by the General Mining Act (Ley General de Minería), or the LGM. Compliance with such obligations is required to maintain the mining concessions in good standing. Among such obligations are the payment of an Annual Concession Fee (equivalent to U.S.$3 per hectare) and compliance with a minimum annual production target. Failure to pay the Annual Concession Fee for any two consecutive or non-consecutive years may result in the cancellation of the relevant mining concession.
If the INGEMMET or the MEM revoke or cancel any of
the Company’s option concession, the Company’s financial condition and results of exploration activities could be adversely affected.
On June 24, 2004, the Peruvian Congress approved the Mining Royalty Law, which established a mining royalty that owners of mining concessions must pay to the Peruvian government for the exploitation of metallic and non-metallic resources. This royalty is calculated on a sliding scale with rates ranging from 1% to 3% over the value of mineral concentrates based on international market prices. As provided by the Mining Royalty Law, effective since January 26, 2007, the Peruvian Tax Authority is responsible for the collection of mining royalties.
There can be no assurance that the Peruvian government will not impose additional mining royalties or payments in the future or that they will not have an adverse effect on future operations
. The Company has no mining operations on its property.
Details of Regulatory and Supervisory Entities
In general terms, the principal regulator of mining activities in Peru is the Ministry of Energy and Mines, or the MEM, through its General Bureau of Mining (Dirección General de Minería), or DGM, and its General Bureau of Mining and Environmental Affairs (Dirección General de Asuntos Ambientales Mineros), or DGAAM. Other regulatory institutions are the Geological, Mining and Metallurgical Institute (Instituto Geológico Minero Metalúrgico), or the INGEMMET; the Supervisory Body of Investment in Energy and Mining (Organismo Supervisor de la Inversión en Energía Minería), or the OSINERGMIN; and the Assessment and Environment Supervising Agency (Organismo de Evaluación y Fiscalización Ambiental), or the OEFA, which was created in 2008 and entered into operation in 2010.
The DGM is the senior body of the MEM overseeing the mining industry. It reports directly to the Office of the Vice-Minister of Mining and is responsible for, among other things, the promotion of mining activities, the granting of beneficiation, ore transportation and general working concessions, the proposal of welfare, health and safety regulations.
The DGAAM has the following duties, among others: (i) propose policy and legal provisions for environmental conservation and protection in the mining sector; (ii) approve technical standards for the appropriate application of regulations on environmental conservation and protection to apply to activities of the mining sector; and (iii) assess environmental and social impacts derived from activities of the mining sector, establishing the preventive and corrective measures necessary to control such impacts.
The INGEMMET has the following duties, among others: (i) process mining claims, grant titles to mining concessions and act on applications relating to mining rights pursuant to law; (ii) keep the National Mining Land Register (Catastro Minero); administer and distribute the Annual Concession Fee, or ACF,
and collect any penalties for failure to meet minimum annual production targets; and (iii) cancel mining claims or mining concessions pursuant to applicable laws.
The OSINERGMIN supervises and inspects mining activities as regards matters of mine safety and health. Until July 2010, OSINERGMIN also oversaw the environmental compliance of mining activities.
Since July 2010, all supervising, inspecting and sanctioning duties regarding environmental matters have been undertaken by the Organization for Environmental Assessment (Organismo de Evaluación Ambiental), or the OEFA. The OEFA is also responsible for proposing to the Ministry of Environment the scale of penalties applicable to each type of infringement pursuant to the Environmental Act.
Details of Concessions
In accordance with the LGM, mining activities (except surveying, prospecting and trading) must be performed exclusively under the concession system. A concession confers upon its holder the exclusive right to develop a specific exploration activity within a defined area.
Mining concessions confer the right to explore and exploit the mineralization granted which is within a solid of undefined depth, limited by vertical planes corresponding to the sides of a square, rectangle or closed polygon, the vertices of which refer to Universal Transversal Mercator, or UTM, coordinates. A mining concession is a real property interest independent and separate from surface land located within the UTM coordinates of the concession. It is granted by the INGEMMET. Once the claimed area is subject to a mining concession, the titleholder must register its title with the Public Mining Registry (Registro de Derechos Mineros) administered by the National Superintendent of Public Registers (Superintendencia Nacional de Registros Públicos) where all the agreements, resolutions and acts thereto must also be registered.
Holders of mining concessions or pending claims for mining concessions must comply with several obligations, including payment of the ACF, which is equivalent to U.S.$3.00 per hectare per year. Default in payment of the ACF for two consecutive or non-consecutive years may result in cancellation of the relevant concession or claim.
Environmental
During the 1990s, a modern environmental practice that conforms to the international environmental standards was established and made generally applicable to most of the mining industry. In 1990, the Environmental Code was enacted, which established for the first time a legal and institutional system to preserve the environment. In 1993, the Environmental Protection Regulations for Mining and Metallurgical Activities were enacted. On October 15, 2005, the Environmental Act completely repealed and replaced the Environmental Code.
As of July 2010, OEFA, rather than OSINERGMIN, is responsible for performing periodic Environmental Audits to supervise compliance with the commitments undertaken in the respective EIAs and/or PAMA.
5.B
Liquidity and Capital Resources
Cash was $
873,863 as at January 31, 2018, compared to $956 as at January 31, 2017. As at January 31, 2018, the Company had a working capital of $842,194 compared to a working capital deficiency of $325,140 as of January 31, 2017.
During the year ended
January 31, 2018, the Company issued 16,000,000 common shares at $0.10 per share for gross proceeds of $1,600,000 and incurred $8,750 of share issuance costs.
The Company
’s consolidated financial statements for the year ended January 31, 2018 includes a note stating that its ability to continue as a going concern is dependent upon its ability to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due. At the present time, the Company anticipates that its current liquidity and capital resources will not be sufficient to fund its planned operations for the next year. The Company will
require additional financing to fund its planned exploration of its current exploration property and to continue its operations (including general and administrative expenses). There is significant uncertainty that the Company will be able to continue to secure additional financing in the current equity markets. The quantity of funds to be raised and the terms of any proposed equity financing that may be undertaken will be negotiated by management as opportunities to raise funds arise. No assurance can be provided that the efforts of management will be successful.
The Company has not entered into any long-term lease commitments nor is the Company subject to any mineral property commitments.
A
ll of the Company’s cash and cash equivalent reserves are on deposit with a major Canadian chartered bank. The Company does not believe that the credit, liquidity or market risks with respect thereto have increased as a result of current market conditions.
The Company has no revenue generating operations from which it can internally generate funds. To date, the Company
’s on-going operations have been predominantly financed by the sale of its equity securities by way of private placements and the subsequent exercise of share purchase warrants and options. When acquiring an interest in exploration properties through purchase or option the Company will from time to time issue Common Shares to the vendor or optionor of the property as partial or full consideration for the property interest in order to conserve its cash.
In June 2013,
as a result of its inability to raise sufficient funds to pay the outstanding property taxes owing on the properties comprising the Cordillera del Condor Project, the Company forfeited the mineral leases on these properties. The Company is conserving its working capital to the extent possible while still focusing on the development of its Peruvian mineral property.
During fiscal year 2015, a related party provided the Company with short-term loans of $29,924. The loans were non-interest bearing with no terms of repayment.
5.C
Research and Development, Patents and Licences, etc.
Not applicable.
5.D
Trend Information
None, except as disclosed elsewhere in this report.
5.E
Off-Balance Sheet Arrangements
We do not have any material off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
5.F
Tabular Disclosure of Contractual Obligations
No applicable obligations.
ITEM 6.
|
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|
6.A
Directors and Senior Management
The following table sets out the
current directors and executive officers of the Company and all positions and offices held with the Company.
Name
|
Position
|
Age
|
Date of First Election or
Appointment
|
Carlos Ballon
|
Chief Executive Officer &
Director
|
5
6
|
July 20, 2010
|
Anton J. Drescher
(1)
|
Chief Financial Officer & Director
|
5
9
|
October 1993
|
Robert Baxter
(1)
|
Director
|
57
|
September 27, 2013
|
Brian Kerzner
(1)
|
Director
|
56
|
August 17, 2015
|
Tim Moody
|
Director
|
55
|
January 29
, 2018
|
Mark Palmer
|
Director
|
58
|
January
29, 2018
|
(1)
|
Member of Audit Committee
|
Anton (Tony) J. Drescher
received a Diploma in Financial Management from the British Columbia Institute of Technology in June 1974 and obtained his Certified Management Accountant designation in October 1981. Mr. Drescher is the President and a director of Harbour Pacific Capital Corp. a company providing administrative and consulting services mainly to public companies. Mr. Drescher has served as director of the Company since December 1998, was President and Chief Executive Officer of the Company from August 21, 2006 to December 1 2008, and was Interim President and Chief Executive Officer from October 31, 2011 to March 2, 2012. On March 2, 2012 Mr. Drescher became the Chief Financial Officer of the Company. Mr. Drescher also currently serves as a director and/or officer of the following exchange listed companies: International Tower Hill Mines Ltd., Trevali Mining Corporation and Corvus Gold Inc., all Toronto Stock Exchange (“TSX”) listed companies and, Oculus VisionTech Inc., a TSX Venture Exchange listed company. Mr. Drescher is also a director of Ravencrest Resources Inc. and River Wild Exploration Inc., both of which are Canadian Securities Exchange (“CSE”) listed companies.
Carlos Ballon
is a graduate of Colorado School of Mines and an experienced mining engineer. Mr. Ballon managed the Santander Mine in Peru from 1985 to 1993 before revamping the project and vending it to Trevali Mining Corporation. More recently he was VP South America for Corriente Resources Ltd., a director of Thiess South America (Australia's largest contract miner) where he managed major engineering works at Tintaya and Yanacocha in Peru and a Manager South America for Cardero Resource Corp. Mr. Ballon is a director, SHC Groupe Pte Ltd and General Manager, Minera Koripampa del Peru S.A.
Robert Baxter
brings over 30 years of experience, principally in Latin America, in the mining industry. Mr. Baxter is the General Manager of Baxter Consultants Engineering, a consulting company located in Peru. From May 2000 to September 2000, he held the position of Business Development Coordinator Americas for North Limited, a senior Australian mining company acquired by Rio Tinto, PLC in October 2000. Also at North Limited, Mr. Baxter held the posts of Regional Geologist, Americas from June 1999 to May 2000 and Regional Manager (Chile/Argentina) from November 1996 to June 1999. Mr. Baxter was previously a director of Petaquilla Minerals Ltd. and was also a director of Chariot Resources Ltd. which was sold to China Sci Tech, a Hong Kong listed company. Mr. Baxter was the Chairman of the board of directors of Marcobre S.A.C., a 100% fully owned subsidiary of China Sci Tech, until September 2010. He was President, director and Chief Operating Officer of Norsemont Mining Inc. until March 2011 when the company was acquired by Hudbay Minerals. Mr. Baxter is also a director of Pan Global Resources Inc, Indico Resources Limited and Prism Resources Inc. Mr. Baxter has a Bachelor of Applied Science (Honours) degree from the University of New South Wales and is a Fellow of the Australian Institute of Mining and Metallurgy (FAusIMM).
Brian Kerzner
has been a successful entrepreneur in retailing and real estate since 1987. Mr. Kerzner is the Founder and President of Rocky Mountain Chocolate Factory Canada Inc., which operates retail chocolate stores from coast to coast in Canada. He has also founded several other private companies that have completed extensive residential and commercial development in Toronto, Phoenix, Whistler and Vancouver. Mr. Kerzner has been extensively involved in providing seed capital for many successful public and private companies in the resources, environmental and technology sectors. Mr. Kerzner is an Honours graduate of the University of Toronto, Bachelor of Commerce (B.Com) program (May, 1983). Mr. Kerzner is also a director of: Pan Global Resources Inc. (since February 2016); Indico Resources Ltd. (since October 2012); Prism Resources Inc. (since December 2011) and Norsemont Mining Inc. (since August 2005). He is also a member of the BC Children’s Hospital Circle of Care and is actively involved in many other charitable organizations.
Timothy C. Moody
is an Independent Director at Prism Resources, Inc. and a President, Chief Executive Officer & Director at Pan Global Resources, Inc. He is on the Board of Directors at Xiana Mining, Inc., Indico Resources Ltd., Prism Resources, Inc. and Pan Global Resources, Inc. Mr. Moody was previously employed as a Director-Business Development by Rio Tinto Minerals Development Ltd. He also served on the board at Baikal Mining Co. LLC. He received his undergraduate degree from the University of New England.
Mark Palmer
is Investment Director at Tembo Capital Management Ltd. Mark Palmer has a B.Sc. in Mining Geology from University College Cardiff and spent 12 years working in Australia, including 8 years with Dominion Mining. In 1994, Mark joined NM Rothschild & Sons Limited in the London mining project finance and hedging team assessing mines and projects globally. In 1997, he moved to the investment banking team at UBS to focus on global mergers and acquisitions, equity and debt financing in the mining sector. Mark ran the EMEA mining team at UBS for 8 years. In 2014, Mark joined Canaccord Genuity as Vice Chairman responsible for mining sector coverage.
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 we are conducting our operations. Such associations may give rise to conflicts of interest from time to time. Such a conflict poses the risk that we may enter into a transaction on terms which place us in a worse position than if no conflict existed. Our directors are required by law to act honestly and in good faith with a view to our best interests 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 following table identifies, as
of March 23, 2018, the name of each officer and director and any company (i) which employs such officer or director, (ii) for which such officer or director currently serves as an officer or director, or (iii) which is affiliated with such officer or director:
Name of Director
|
Name of Company
|
Description of Business
|
Position
|
Anton J. Drescher
|
Oculus VisionTech Inc.
International Tower Hill Mines Ltd.
Trevali Mining Corporation
RavenQuest BioMed
Inc.
Corvus Gold Inc.
River Wild Exploration Inc.
|
Video-on-Demand
Natural resource
Natural resource
Diversified cannabis
Natural resource
Natural resource
|
CFO, Sec
retary & Director
Director
Director
Dir
ector
Director
Director
|
Carlos Ballon
|
N/A
|
|
|
Robert Baxter
|
Pan Global Resources Inc.
Prism Resources Inc.
Indico Resources Ltd.
|
Natural resource
Natural resource
Natural resource
|
Director
President, CEO & Director
President, CEO & Director
|
Brian Kerzner
|
Pan Global Resources Inc.
Prism Resources Inc.
Indico Resources Ltd.
|
Natural resource
Natural resource
Natural resource
|
Director
Director
Director
|
Mark Palmer
|
Orion Minerals Ltd.
|
Natural resource
|
ASX/JSE
|
6.B
Compensation
Executive Compensation
For the fiscal year ending January 31,
2018, the Company paid or accrued an aggregate of $118,280 in cash compensation to directors and senior management as a group.
Under applicable Canadian securities laws, the Company is required to disclose the compensation paid to its
Chief Executive Officer (“
CEO
”) and Chief Financial Officer (“
CFO
”) and each of the three most highly compensated executive officers, or individuals acting in a similar capacity, as of the end of the Company’s most recently completed financial year, whose total compensation exceeded Cdn $150,000. In the case of the Company, only the compensation of the individuals serving as CEO and CFO as of the end of the Company’s most recently completed financial year is required to be disclosed (collectively, the CEO and CFO are referred to as the “
NEOs
”). The following table sets out the compensation paid to the NEOs for the fiscal years ended January 31, 2018, January 31, 2017 and January 31, 2016.
Name and principal
position
|
Fiscal
Year
Ended
|
Salary
and
Fees
|
Share-
based
awards
|
Option-
based
awards
|
Non-equity incentive
plan compensation
(Cdn$)
|
Pension
value
(Cdn$)
|
All other
compen
-
sation
|
Total
compen
-
sation
|
|
|
(Cdn$)
|
(Cdn$)
|
(Cdn$)
|
Annual
incentive
plans
|
Long-term incentive
plans
(1)
|
|
(Cdn$)
|
(Cdn$)
|
Carlos Ballon
(
4
)
Current CEO and President
|
201
8
2017
2016
|
86,780
118,360
115,870
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
86,780
118,360
115,870
|
Anton Drescher
(3)
CFO, Former
Interim
CEO and President
|
201
8
2017
2016
|
31
,500
42,000
42,000
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
Nil
Nil
Nil
|
31
,500
42,000
42,000
|
(1)
|
"LTIP" or "long term incentive plan" means any plan that provides compensation intended to motivate performance to occur over a period greater than one fiscal year, but does not include option or share-based awards. The Company does not have any such plans.
|
(2)
|
Rowland Perkins was appointed as Interim CEO and President on March 2, 201
2 and resigned on August 24, 2015.
|
(3)
|
Anton Drescher
was appointed
I
nterim President and Chief Executive Officer of the Company on October 31, 2011 and resigned as on March 2, 2012 and was
concurrently appointed as CFO.
|
(4)
|
Carlos Ballon was appointed as CEO and President on August 24, 2015.
|
During
the fiscal year ended January 31, 2018, no incentive stock options were granted to the Named Executive Officers.
The
Company had no stock option exercises during the fiscal year ended January 31, 2018 by the NEOs and there are currently no outstanding stock options in the Company.
The Company does not provide retirement benefits for directors or senior management.
D
irector Compensation
Except as noted below, the Company had no arrangements, standard or otherwise, pursuant to which directors were compensated by the Company for their services in their capacity as directors, or for committee participation, involvement in special assignments or for services as a consultant or expert during the fiscal year ended January 31,
2018.
On
December 1, 2008, the Board approved the payment of an annual retainer and meeting fees to the directors who are not also executive officers of the Company, in recognition of the fact that service as a director in an active resource exploration company such as the Company requires a significant commitment of time and effort, as well as the assumption of increasing liability. Directors who were not executive officers and did not receive any consulting fees from the Company received a monthly retainer fee of $2,000 ($24,000 per annum), plus an additional fee of $500 per Board or committee meeting attended in person or by conference telephone, with no additional compensation paid with respect to committee membership. Commencing July 2011, in effort to reduce costs of the Company the directors fees were reduced to $Nil until further notice.
Directors who are not also executive officers are also eligible to receive incentive stock options. No incentive stock options were granted during the financial year ended January 31,
2018 to the directors of the Company who were not executive officers.
6.C
Board Practices
The Board is elected at each annual general meeting of the shareholders. Each director elected will hold office until the next annual meeting or until his successor is duly elected or appointed, unless his office is earlier vacated in accordance with the BCBCA. See Item 6.A
– Directors and Senior Management - for dates directors were first elected to the Board. No director has a service contract with the Company or any of its subsidiaries providing for benefits upon termination of employment.
Audit Committee
The following directors are on the Audit Committee:
Anton J. Drescher
Robert Baxter
Brian Kerzner
At the
Board of Directors meeting following each annual general meeting, the directors must elect an audit committee to hold office until the next annual general meeting consisting of no fewer than three directors, of whom a majority must not be officers or employees or a “control person”, of the Company or of any affiliate or associate of the Company. A “control person” means any person that holds or is one of a combination of persons that holds a sufficient number of securities of the Company so as to affect materially the control of the Company or that holds 20% or more of the voting securities of the Company.
The primary duties and responsibilities of the Audit Committee are to:
|
●
|
Serve as an independent and objective party to monitor the financial reporting process and the system of internal controls of
the Company.
|
|
●
|
Monitor the independence and performance of the auditor of
the Company (the “
Auditor
”) and the internal audit function of the Company.
|
|
●
|
Provide an open avenue of communication among the Auditor, financial and senior management and the Board of Directors.
|
Before a financial statement that is to be submitted to an annual general meeting is considered by the directors, it must be submitted to the Audit Committee for review, and the report of the Audit Committee on the financial statements must be submitted to the directors thereafter.
The Company has no compensation or remuneration committee.
6.D
Employees
As at January 31,
2018, the Company had no employees. The Company retains consultants to perform administrative and financial accounting/bookkeeping services. The Company did not employ temporary employees during the fiscal year.
6.E
Share Ownership
The following table sets out
the beneficial ownership of Common Shares by the Company’s directors and NEOs listed in Item 6.B as of March 23, 2018.
Shareholder
Name
(1)
|
Common Shares Beneficially Owned
|
Percentage of
Issued
Common Shares
|
Carlos Ballon
|
23,994,734
(
2
)
|
48.50%
|
Anton J. Drescher
|
5,183,332
|
10.48%
|
Robert Baxter
|
1,595,260
|
3.22%
|
Brian Kerzner
|
Nil
|
N/A
|
Tim Moody
|
750,000
|
0.015%
|
Ndovu Capital XI B.V.
|
7,000,000
(
3
)
|
14.15%
|
All Executive Officers and Directors as a Group
|
38,523,326
|
76.36
%
|
Notes:
(1)
|
The above information was obtained from SEDI.
|
(2)
|
8,889,400 of these Common Shares are held on behalf of family members; 25,813 are held in the name of Minera Koripampa del Peru and 112,500 are held by Minera Pampa de Oro, both of which are companies in which Mr. Ballon is a major shareholder.
|
(3)
|
Ndovu Capital XI B.V. (“
Ndovu
”) purchased 7,000,000 Common Shares of the Company on January 22, 2018. Ndovu Capital XI B.V. is indirectly controlled and owned by Tembo Capital Mining Fund II LP, which is a fund of Tembo Capital Management Ltd. Mark Palmer is an Investment Director of Tembo Capital Management Ltd.
|
Incentive Stock Option Plan
At the annual general meeting held on July 30, 2008, the shareholders approved the 2008 Stock Option Plan of the Company (the “
Plan
”).
The purpose of the Plan is to recognize contributions made by directors, officers, consultants and employees of the Company and to provide for an incentive for their continuing relationship with the Company.
Pursuant to the policies of the TSX.V, we must seek shareholder approval for the Plan at each annual meeting as the Plan is considered a “
rolling plan”. The Plan was ratified by shareholders at the annual meeting held on September 27, 2013.
The
material terms of the Plan are as follows:
1.
|
Options may be granted to directors, officers, employees and consultants of, and to the employees of companies providing management services to, the Company and its affiliates.
|
2.
|
The aggregate number of shares which may be issued pursuant to options granted under the Plan, unless otherwise approved by shareholders, may not exceed that number which is equal to 10% of the Common Shares issued and outstanding at the time of the grant.
|
3.
|
The number of Common Shares subject to each option will be determined by the Board, or a duly appointed committee of the Board, provided that the aggregate number of shares reserved for issuance pursuant to options granted to:
|
|
(a)
|
any one person in any twelve month period may not exceed 5% of the issued Common Shares;
|
|
(b)
|
insiders (directors or officers) during any 12 month period may not exceed 10% of the Company
’s issued Common Shares;
|
|
(c)
|
issued to any one insider and his or her associates within any 12 month period may not exceed 5% of the Company
’s issued Common Shares;
|
|
(d)
|
any one individual during any 12 month period may not exceed 5% of the Company
’s issued Common Shares;
|
|
(e)
|
any one consultant during any 12 month period may not exceed 2% of the Company
’s issued Common Shares; and
|
|
(f)
|
all persons employed to provide investor relations activities (as a group) may not exceed 2% of the Company
’s issued Common Shares during any 12 month period; in each case calculated as at the date of grant of the option, including all other Common Shares under option to such person at that time.
|
4.
|
The exercise price of an option may not be set at less than the minimum price permitted by the TSX.V (currently the closing price of the Common Shares on the TSX.V on the day prior to an option grant less the maximum discount permitted by the TSX.V).
|
5.
|
Options may be exercisable for a period of up to five years from the date of grant.
|
6.
|
The options are non-assignable and non-transferable. The options can only be exercised by the optionee as long as the optionee remains an eligible optionee pursuant to the Plan or within a period of not more than 90 days after ceasing to be an eligible optionee (30 days in the case of a person engaged in investor relations activities) or, if the optionee dies, within one year from the date of the optionee
’s death.
|
7.
|
Options granted to consultants engaged to perform investor relations activities must be subject to a vesting requirement, whereby such options will vest over a period of not less than 12 months, with a maximum of 25% vesting in any 3 month period.
|
8.
|
On the occurrence of a takeover bid, issuer bid or going private transaction, the Board will have the right to accelerate the date on which any option becomes exercisable.
|
As
of March 23, 2018, there were no stock options outstanding; however, the Company may in the future grant options to eligible participants in accordance with the Plan. Based on the outstanding Common Shares, as at March 23, 2018, options with respect to 4,946,815 Common Shares are available for grant under the Plan.
The
re are currently no stock options held by our NEOs and directors listed in Item 6.B as of March 23, 2018.
ITEM 7.
|
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|
7.A
Major Shareholders
As
at March 23, 2018, to the knowledge of management, the following shareholders are the only persons who beneficially own 5% or more of the issued and outstanding Common Shares:
Shareholder
Name
(1)
|
Common Shares Beneficially Owned
|
Percentage of
Issued
Common Shares
|
Carlos Ballon
|
23,994,734
(
2
)
|
48.50%
|
Anton J. Drescher
|
5,183,332
|
10.48%
|
Ndovu Capital XI B.V.
|
7,000,000
(
3
)
|
14.15
%
|
Notes:
(1)
|
The above information was obtained from SEDI.
|
(2)
|
8,889,400 of these Common Shares are held on behalf of family members; 25,813 are held in the name of Minera Koripampa del Peru and 112,500 are held by Minera Pampa de Oro, both of which are companies in which Mr. Ballon is a major shareholder.
|
(3)
|
Ndovu Capital XI B.V. (“
Ndovu
”) purchased 7,000,000 Common Shares of the Company on January 22, 2018. Ndovu Capital XI B.V. is indirectly controlled and owned by Tembo Capital Mining Fund II LP, which is a fund of Tembo Capital Management Ltd. Mark Palmer is an Investment Director of Tembo Capital Management Ltd.
|
None of the shareholders disclosed above have any voting rights with respect to their respective Common Shares that are different from any other holder of Common Shares.
All of the Common Shares, both issued and unissued, are shares of the same class and rank equally as to dividends, voting powers and participation of powers. Accordingly, there are no special voting powers held by the Company’s major shareholders.
As
of March 23, 2018, there were 49,468,155 Common Shares issued and outstanding. The Company’s shareholder list as provided by Computershare Investor Services, Inc., the Company’s registrar and transfer agent, indicates that the Company had 36 registered shareholders owning Common Shares, of which 14 of these registered shareholders, holding approximately 1,288,618 (2.6%) Common Shares are residents of the United States and 8 of these registered shareholders, holding approximately 46,788,638 (94.58%) Common Shares, are residents of Canada.
Control by Foreign Government or Other Persons
To the best of our 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.
Change of Control
As of the date of this Annual Report, there are no arrangements known to us which may at a subsequent date result in a change of control.
7.B
Related Party Transactions
Except as noted below, there have been no transactions or loans since February 1, 2011 which are material to the Company or a related party, or are unusual in their nature or conditions, and have been entered into, or are proposed to be entered into, between the Company and (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, that is, those persons having authority and responsibility for planning, directing and controlling the activities of the Company, including directors and senior management of the Company and close members of such individuals’ families; and (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. This includes enterprises owned by directors or major shareholders of the Company and enterprises that have a member of key management in common with the Company. Close members of an individual’s family are those that may be expected to influence, or be influenced by, that person in their dealings with the Company. An associate is an unconsolidated enterprise in which the Company has a significant influence or which has significant influence over the Company. Significant influence over an enterprise is the power to participate in the financial and operating policy decisions of the enterprise but is less than control over those policies. Shareholders beneficially owning a 10% interest in the voting power of the Company are presumed to have a significant influence on the Company.
1)
|
Pursuant to an oral agreement, effective as and from
July 20, 2010, the Company retained Carlos Ballon, who is a director of the Company, to provide consulting services to the Company at a fee of US$15,000 (reduced to US$7,500 on July 1, 2011) per month. Pursuant to the agreement, Mr. Ballon serves as the general manager of the Company’s Peruvian operations. The arrangement is without a fixed term, and terminable by either party on 30 days notice. During the financial year ended January 31, 2017, the Company paid or accrued to Mr. Ballon an aggregate of $86,780 (2017 - $118,360, 2016 - $115,870).
|
2)
|
Pursuant to an oral agreement, effective as and from March 2, 2012, the Company retained Anton Drescher, Chief Financial Officer and a director of the Company, to provide management services to the Company comprised of all duties and responsibilities performed by Mr. Drescher as Chief Financial Officer of the Company, at a fee of $
3,500 per month. The arrangement is without a fixed term, and is terminable by either party on 30 days notice. During the financial year ended January 31, 2018, the Company paid or accrued to Mr. Drescher an aggregate of $31,500 (2017 - $42,000, 2016 - $42,000).
|
7.C
Interests of Experts and Counsel
Not applicable.
ITEM 8.
|
FINANCIAL INFORMATION
|
8.A
Consolidated Statements and Other Financial Information
See the Company
’s audited consolidated financial statements as of January 31, 2018 and 2017 and for the fiscal years ended January 31, 2018, 2017 and 2016, together with the notes thereto, attached to this annual report.
The Company is not aware of any current or pending material legal or arbitration proceeding to which we are or are likely to be a party or of which any of our properties are or are likely to be the subject.
The Company is not aware of any material proceeding in which any director, senior manager or affiliate is either a party adverse to us or our subsidiaries or has a material interest adverse to us.
The Company has not declared or paid any cash dividends on our capital stock. The Company does not currently expect to pay cash dividends in the foreseeable future.
8.B
Significant Changes
N/A
ITEM 9.
|
THE OFFER AND LISTING
|
9.A
Offer and Listing Details
The following table discloses the annual high and low sales prices in Canadian dollars for our
Common Shares for the five (5) most recent financial years as traded on the TSX Venture Exchange (“TSX.V):
Year
|
High
$
|
Low
$
|
2018
|
0.195
|
0.075
|
2017
|
0.21
|
0.095
|
2016
|
0.095
|
0.025
|
2015
|
0.10
|
0.04
|
2014
|
0.15
|
0.005
|
The following table discloses the high and low sales prices in Canadian dollars for our
Common Shares for each quarterly period within the two most recent fiscal years and any subsequent quarterly period as traded on the TSX.V:
Quarter Ended
|
High
$
|
Low
$
|
January 31, 2018
|
0.54
|
0.085
|
October 31, 2017
|
0.13
|
0.08
|
July 31, 2017
|
0.175
|
0.075
|
April 30, 2017
|
0.195
|
0.12
|
January 31, 2017
|
0.21
|
0.10
|
October 31, 2016
|
0.20
|
0.09
|
July 31, 2016
|
0.13
|
0.03
|
April 30, 2016
|
0.04
|
0.04
|
The following table discloses the monthly high and low sales prices in Canadian dollars for our
Common Shares for the most recent six months as traded on the TSX.V:
Month
|
High
$
|
Low
$
|
February 2018
|
0.56
|
0.38
|
January 2018
|
0.54
|
0.10
|
December 2017
|
0.095
|
0.085
|
November 2017
|
0.095
|
0.085
|
October 2017
|
0.13
|
0.08
|
September 2017
|
0.09
|
0.09
|
9.B
Plan of Distribution
Not applicable.
9.C
Markets
The Company
’s Common Shares are listed on the TSX.V, under the trading symbol “
XIA
.” There are currently no restrictions on the transferability of these shares under Canadian securities laws. We are also quoted on the Berlin Stock Exchange – Unofficial Regulated Market and the Frankfurt Stock Exchange under the symbol “DO5”.
9.D
Selling Shareholders
Not applicable.
9.E
Dilution
Not applicable.
9.F
Expenses of the Issue
Not applicable.
ITEM 10.
|
ADDITIONAL INFORMATION
|
10.A
Share Capital
Not applicable.
10.B
Memorandum and Articles of Association
Effective
August 21, 2006, we continued our jurisdiction of incorporation into British Columbia from Wyoming. Our new form of Articles, as approved by our shareholders at our annual meeting held on August 9, 2006 (adjourned from July 17, 2006), were adopted on the date of continuation.
Under the
BCBCA we are permitted to conduct any lawful business that we are not restricted from conducting by our Articles, which does not contain any restriction on the business we may conduct.
A director who, in any way, directly or indirectly, is interested in a proposed contract or transaction with us must disclose in writing the nature and extent of the director's interest at a meeting of directors and abstain from voting on approval of the matter. Our Articles permit an interested director to be counted in the quorum and the
BCBCA provides that a director of a company is not deemed to be interested in a proposed contract or transaction merely because the proposed contract or transaction relates, among other things, to an indemnity, liability insurance or the remuneration of a director in that capacity. Hence, directors can vote compensation to themselves or any of their members. The board of directors has the power to borrow, issue debt obligations and to charge our assets on the terms and conditions they consider appropriate, provided only that such power is exercised bona fide and in our best interests. There is no mandatory retirement age for directors. A director is not required to have any share qualification.
The Company has only one class of
Common Shares, without any special rights or restrictions. The dividend entitlement of a shareholder of record is fixed at the time of declaration by the board of directors. A vested dividend entitlement does not lapse, but unclaimed dividends are subject to a statutory six year contract debts limitation. Each common share is entitled to one vote on the election of each director. There are no cumulative voting rights, in consequence of which a simple majority of votes at the annual meeting can elect all of our directors. Each common share carries with it the right to share equally with every other common share in dividends declared and in any distribution of our surplus assets after payment to creditors on any winding up, liquidation or dissolution. There are no sinking fund provisions. All Common Shares must be fully paid prior to issue and are thereafter subject to no further capital calls by us. There exists no discriminatory provision affecting any existing or prospective holder of Common Shares as a result of such shareholder owning a substantial number of shares.
Under the
BCBCA, the rights of shareholders may be changed only by the shareholders passing a special resolution approved by 2/3 of the votes cast at a special meeting of shareholders, the notice of which is accompanied by an information circular describing the proposed action and its effect on the shareholders.
The Board of Directors must call an annual general meeting once in each calendar year and not later than 15 months after the last such meeting. The Board may call an extraordinary general meeting at any time. Notice of such meetings must be accompanied by an information circular describing the proposed business to be dealt with and making disclosures as prescribed by statute. A shareholder or shareholders having in the aggregate 5% of our issued shares may requisition a meeting and the Board is required to hold such meeting within four months of such requisition. Admission to such meetings is open to
registered shareholders and their duly appointed proxies. Others may be admitted subject to the pleasure of the meeting.
The Company
’s Notice of Articles and Articles contain no limitations on the rights of non-resident or foreign shareholders to hold or exercise rights on our shares. Except for the
Investment Canada Act
, which requires certain transactions to be approved by the Minister of Industry and/or the Minister of Canadian Heritage as being of net benefit to Canada before they may proceed, there is no limitation at law upon the right of a non-resident to hold shares in a Canadian company.
There are no provisions in our Articles that would have an effect of delaying, deferring or preventing a change in control and that would operate only with respect to a merger, acquisition or corporate restructuring involving us or any of our subsidiaries.
There is no provision in our Articles setting a threshold or requiring or governing disclosure of shareholder ownership above any level. Securities Acts, regulations and the policies and rules thereunder in the Provinces of Alberta and British Columbia and in the United States, where we are a reporting company, require any person holding or having beneficial ownership or control or direction of more than 10% of our issued shares to file insider and other reports disclosing such share holdings.
10.C
Material Contracts
T
he Company has not been a party to any material contracts for the two years immediately preceding the publication of this annual report is listed as an exhibit to this annual report.
10.D
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 our common stock. See “Taxation” below.
10.E
Taxation
Material Canadian Federal Income Tax Considerations
The following is a summary of the material anticipated tax consequences of an investment by an investor not resident
or deemed resident in Canada, under Canadian tax laws and any applicable bilateral income treaty. This summary does not apply to an investor that carries on, or is deemed to carry on, an insurance business in Canada or elsewhere or an “authorized foreign bank” as defined in the
Income Tax Act
(Canada).
The discussion of Canadian federal income considerations is not exhaustive of all possible Canadian federal income tax considerations and does not take into account provincial, territorial or foreign tax considerations. It is not intended to be, nor should it be construed to be, legal or tax advice to any particular holder of
Common Shares. Prospective purchasers of our Common Shares, including non-resident insurers carrying on business in Canada, are advised to consult with their advisors about the income tax consequences to them of an acquisition of Common Shares. The discussion of Canadian federal income considerations assumes that holders of Common Shares hold their Common Shares as capital property, deal at arm's length and are not affiliated with us, are not "
financial institutions
" or
"specified financial institutions"
as defined in the
Income Tax Act
, an interest in which would be a
"tax shelter investment"
as defined in the
Income Tax Act
, has not made an election under the
Income Tax Act
to determine their Canadian tax results in a foreign currency and do not use or hold their Common Shares in, or in the course of, carrying on a business in Canada and has not acquired them in one or more transactions considered to be an adventure in the nature of trade. The discussion of Canadian federal income considerations is based on the current provisions of the
Income Tax Act
and the regulations under the
Income Tax Act
, all proposed amendments to the
Income Tax Act
and the
Act
regulations announced by the Minister of Finance (Canada) as at the date hereof, the current administrative policies and assessing practices of the Canada Revenue Agency, and the current provisions of the published
Canada-U
nited States
Tax Convention (1980)
. It has been assumed that any proposed amendments to the
Income Tax Ac
t and the regulations thereto will be enacted in substantially their present form. This discussion does not take into account or anticipate any change in law, administrative policy or assessing practice, whether by legislature, regulatory, administrative, governmental or judicial decision or action, nor does it take into account the tax laws of any province or territory in Canada or of any jurisdiction outside of Canada, which may differ significantly from the Canadian Federal income tax considerations discussed therein.
The anticipated tax consequences may change, and any change may be retroactively effective. If so, this summary may be affected. Further, any variation or difference from the facts or representations recited here, for any reason, might affect the following discussion, perhaps in an adverse manner, and make this summary inapplicable.
Dividends on our Common Shares
Under the
Income Tax Act
, amounts paid or credited on account or in lieu of payment of, or in satisfaction of, dividends, including stock dividends, to holders of our Common Shares that are resident in a country other than Canada will be subject to Canadian withholding tax of 25% of the amount of the dividend. The rate of withholding tax may be reduced in accordance with the terms of a bilateral income tax treaty between Canada and the country in which a holder of Common Shares is resident.
Under the
Canada-U
nited States
Tax Convention
(1980)
, when the recipient of a dividend on the Common Shares is the beneficial owner of the dividend, does not have a "
permanent establishment
" in Canada, and is considered to be a resident of the United States and a "qualifying person" under the
Canada-U
nited States
Tax Convention
(1980)
, the rate of Canadian withholding tax on the dividends will generally be reduced to 15% of the gross amount of the dividends or, if the recipient is a corporation which owns at least 10% of our voting stock, to 5% of the gross amount of the dividends. Dividends paid or credited to a holder that is a United States tax-exempt organization, as described in Article XXI of the
Canada-U
nited
S
tates
Tax Convention
(1980)
, will not have to pay the Canadian withholding tax.
Disposition of Common Shares
A holder of
Common Shares will not be required to pay tax for a capital gain on the disposition of a common share unless the common share is "
taxable Canadian property
" of the holder as defined by the
Income Tax Act
, and no relief is afforded under the
Canada-U
nited States
Tax Convention
(1980)
. A common share will generally be taxable Canadian property to a holder if the common share is listed on a designated stock exchange within the meaning of the
Income Tax Act
(which includes the TSX.V) and at any particular time during the 60-month period that ends at that time (i) the holder, or persons with whom the holder did not deal at arm's length (within the meaning of the
Income Tax Act
), or any combination of these parties, owned 25% or more of the issued shares of any class of our shares, and (ii) more than 50% of the fair market value of the shares was derived directly or indirectly from one or any combination of real or immovable property situated in Canada, “Canadian resource properties”, “timber resource properties” (each as defined in the
Income Tax Act
and options in respect of or interests in, or for civil law rights in any such properties. Where a common share is taxable Canadian property to a U.S. resident holder who is a "qualifying person" for purposes of the
Canada-U
nited States
Tax Convention
(1980)
it will generally exempt such holder from tax on the disposition of the common share provided its value is not, at the time of the disposition, derived principally from real property situated in Canada. This relief under the
Canada-U
nited States
Tax Convention
(1980)
may not be available to a U.S. resident holder who had a "
permanent establishment
" available in Canada during the 12 months immediately preceding the disposition of the common share where the common share constitutes business property and where any gain on the disposition of the share is attributable to such permanent establishment.
Under the
Income Tax Act
, the disposition of a common share by a holder may occur in a number of circumstances including on a sale or gift of the share or upon the death of the holder. There are no Canadian federal estate or gift taxes on the purchase or ownership of the Common Shares.
Repurchase of Common Shares
If we repurchase our
Common Shares from a holder of our Common Shares (other than a purchase of Common Shares on the open market in a manner in which shares would be purchased by any member of the public in the open market), the amount paid by us that exceeds the "
paid-up capital
" of the shares purchased will be deemed by the
Income Tax Act
to be a dividend paid by us to the holder of our Common Shares. The paid-up capital of our Common Shares may be less than the holder's cost of its Common Shares. The tax treatment of any dividend received by a holder of our Common Shares has been described above under "
Dividends on
o
ur Common Shares
."
A holder of our
Common Shares will also be considered to have disposed of its Common Shares purchased by us for proceeds of disposition equal to the amount received or receivable by the holder on the purchase, less the amount of any dividend as described above. As a result, the holder of our Common Shares will generally realize a capital gain (or capital loss) equal to the amount by which the proceeds of disposition, net of any costs of disposition and adjusted for any deemed dividends, exceed (or are exceeded by) the adjusted cost base of these shares. The tax treatment of any capital gain or capital loss has been described above under "
Disposition of
Common
Shares.
"
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of certain U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership, and disposition of Common Shares.
This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a U.S. Holder arising from and relating to the acquisition, ownership, and disposition of Common Shares. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences to such U.S. Holder, including specific tax consequences to a U.S. Holder under an applicable tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any U.S. Holder. Each U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. federal alternative
minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences relating to the acquisition, ownership and disposition of Common Shares.
No legal opinion from U.S. legal counsel or ruling from the Internal Revenue Service (the “IRS”) has been requested, or will be obtained, regarding the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in this summary. In addition, because the authorities on which this summary is based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or more of the positions taken in this summary.
Scope of this Summary
Authorities
This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), Treasury Regulations (whether final, temporary, or proposed), published rulings of the IRS, published administrative positions of the IRS, the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the “Canada-U.S. Tax Convention”), and U.S. court decisions that are applicable and, in each case, as in effect and available, as of the date of this document.
Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied on a retroactive or prospective basis which could affect the U.S. federal income tax considerations described in this summary. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive or prospective basis.
U.S. Holders
For purposes of this summary, the term "U.S. Holder" means a beneficial owner of Common Shares that is for U.S. federal income tax purposes:
|
●
|
an individual who is a citizen or resident of the U.S.;
|
|
●
|
a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the U.S., any state thereof or the District of Columbia;
|
|
●
|
an estate whose income is subject to U.S. federal income taxation regardless of its source; or
|
|
●
|
a trust that (a) is subject to the primary supervision of a court within the U.S. and the control of one or more U.S. persons for all substantial decisions or (b) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.
|
Non-U.S. Holders
For purposes of this summary, a “non-U.S. Holder” is a beneficial owner of Common Shares that is not a U.S. Holder. This summary does not address the U.S. federal income tax consequences to non-U.S. Holders arising from and relating to the acquisition, ownership, and disposition of Common Shares. Accordingly, a non-U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences (including the potential application of and operation of any income tax treaties) relating to the acquisition, ownership, and disposition of Common Shares.
U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed
This summary does not address the U.S. federal income tax considerations applicable to U.S. Holders that are subject to special provisions under the Code, including the following U.S. Holders: (a) U.S. Holders that are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) U.S. Holders that are financial institutions, underwriters, insurance companies, real estate investment trusts, or regulated investment companies; (c) U.S. Holders that are broker-dealers, dealers, or traders in securities or currencies that elect to apply a mark-to-market accounting method; (d) U.S. Holders that have a “functional currency” other than the U.S. dollar; (e) U.S. Holders that own Common Shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other arrangement involving more than one position; (f) U.S. Holders that acquired Common Shares in connection with the exercise of employee stock options or otherwise as compensation for services; (g) U.S. Holders that hold Common Shares other than as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment purposes); (h) partnerships and other pass-through entities (and investors in such partnerships and entities); or (i) U.S. Holders that own or have owned (directly, indirectly, or by attribution) 10% or more of the total combined voting power of the outstanding shares of the Company. This summary also does not address the U.S. federal income tax considerations applicable to U.S. Holders who are: (a) U.S. expatriates or former long-term residents of the U.S.; (b) persons that have been, are, or will be a resident or deemed to be a resident in Canada for purposes of the Income Tax Act; (c) persons that use or hold, will use or hold, or that are or will be deemed to use or hold Common Shares in connection with carrying on a business in Canada; (d) persons whose Common Shares constitute “taxable Canadian property” under the Income Tax Act; or (e) persons that have a permanent establishment in Canada for the purposes of the Canada-U.S. Tax Convention. U.S. Holders that are subject to special provisions under the Code, including U.S. Holders described immediately above, should consult their own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences relating to the acquisition, ownership and disposition of Common Shares.
If an entity that is classified as a partnership (or “pass-through” entity) for U.S. federal income tax purposes holds Common Shares, the U.S. federal income tax consequences to such partnership and the partners of such partnership generally will depend on the activities of the partnership and the status of such partners (or owners). This summary does not address the tax consequences to any such partner. Partners of entities that are classified as partnerships for U.S. federal income tax purposes should consult their own tax advisor regarding the U.S. federal income tax consequences arising from and relating to the acquisition, ownership, and disposition of Common Shares.
Tax Consequences Not Addressed
This summary does not address the, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences to U.S. Holders of the acquisition, ownership, and disposition of Common Shares. Each U.S. Holder should consult its own tax advisor regarding the U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state and local, and foreign tax consequences of the acquisition, ownership, and disposition of Common Shares.
Tax Status of the Company
On August 21, 2006, the Company continued from its incorporation in the State of Wyoming to being a British Columbia, Canada corporation. Section 7874 of the Code was enacted in 2004 to address transactions whereby U.S. corporations migrate to a foreign jurisdiction to avoid U.S. federal income tax. Section 7874(b) provides generally that a corporation that migrates from the U.S. will nonetheless be considered a U.S. corporation and remain subject to U.S. tax on its worldwide income unless the migrating entity has “substantial business activities” in the foreign country to which it is migrating when compared to its total business activities. The Company has taken the position that at the time of its
continuance to Canada, it had “substantial business activities” in Canada when compared to its total business activities, and that Section 7874(b) of the Code does not apply to cause the Company to be treated as a U.S. corporation and be subject to U.S. income tax on its worldwide income. The position taken by the Company may be challenged by U.S. tax authorities with the result that the Company may be treated as a U.S. corporation and remain subject to U.S. federal income tax on its worldwide income. In addition to U.S. income taxes, were Section 7874(b) of the Code to apply to the Company, the Company could be subject to penalties for failure to file U.S. tax returns, late fees, and interest on past due taxes. The remainder of this summary assumes that Section 7874(b) of the Code does not apply to the Company.
Passive Foreign Investment Company Rules
If the Company were to constitute a “passive foreign investment company” under the meaning of Section 1297 of the Code (a “PFIC,” as defined below) for any year during a U.S. Holder
’s holding period, then certain different and potentially adverse rules will affect the U.S. federal income tax consequences to a U.S. Holder resulting from the acquisition, ownership and disposition of Common Shares. In addition, in any year in which the Company constitutes a PFIC, such holder would be required to file an annual report with the IRS containing such information as Treasury Regulations and/or other IRS guidelines may require U.S. Holders should consult their own tax advisors regarding the requirements of filing such information returns under these rules, including the requirement to file a IRS Form 8621.
PFIC Status of the Company
The Company generally will be a PFIC if, for a tax year, (a) 75% or more of the gross income of the Company for such tax year is passive income (the “income test”) or (b) 50% or more of the value of the Company
’s assets either produce passive income or are held for the production of passive income, based on the quarterly average of the fair market value of such assets (the “asset test”). “Gross income” generally includes all sales revenues less the cost of goods sold, plus income from investments and from incidental or outside operations or sources, and “passive income” generally includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions.
Active business gains arising from the sale of commodities generally are excluded from passive income if substantially all
(85% or more) of a foreign corporation’s commodities are stock in trade of such foreign corporation or other property of a kind which would properly be included in inventory of such foreign corporation, or property held by such foreign corporation primarily for sale to customers in the ordinary course of business, if such gains constitute more than 85% of the corporation’s total receipts and certain other requirements are satisfied.
For purposes of the PFIC income test and asset test described above, if the Company owns, directly or indirectly, 25% or more of the total value of the outstanding shares of another corporation, the Company will be treated as if it (a) held a proportionate share of the assets of such other corporation and (b) received directly a proportionate share of the income of such other corporation. In addition, for purposes of the PFIC income test and asset test described above, “passive income” does not include any interest, dividends, rents, or royalties that are received or accrued by the Company from a “related person” (as defined in Section 954(d)(3) of the Code), to the extent such items are properly allocable to the income of such related person that is not passive income.
In addition, under certain attribution rules, if the Company is a PFIC, U.S. Holders will be deemed to own their proportionate share of
the stock of any subsidiary of the Company which is also a PFIC (a ‘‘Subsidiary PFIC’’), and will be subject to U.S. federal income tax on their proportionate share of (a) a distribution on the stock of a Subsidiary PFIC and (b) a disposition or deemed disposition of the stock of a Subsidiary PFIC, both as if such U.S. Holders directly held the stock of such Subsidiary PFIC.
The Company believes that it constituted a PFIC during the tax year ended January 31, 201
3, and may be a PFIC in the current and future tax years. The determination of whether any corporation was, or will be, a PFIC for a tax year depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. In addition, whether any corporation will be a PFIC for any tax year depends on the assets and income of such corporation over the course of each such tax year and, as a result, cannot be predicted with certainty as of the date of this document. Accordingly, there can be no assurance that the IRS will not challenge any determination made by the Company (or a Subsidiary PFIC) concerning its PFIC status or that the Company (and each Subsidiary PFIC) was not, or will not be, a PFIC for any tax year. Each U.S. Holder should consult its own tax advisor regarding the PFIC status of the Company and each Subsidiary PFIC.
Default PFIC Rules Under Section 1291 of the Code
If the Company is a PFIC, the U.S. federal income tax consequences to a U.S. Holder of the acquisition, ownership, and disposition of Common Shares will depend on whether such U.S. Holder makes an election to treat the Company and each Subsidiary PFIC as a “qualified electing fund” or “QEF” under Section 1295 of the Code (a “QEF Election”) or a mark-to-market election under Section 1296 of the Code (a “Mark-to-Market Election”). A U.S. Holder that does not make either a QEF Election or a Mark-to-Market Election will be referred to in this summary as a “Non-Electing U.S. Holder.”
A Non-Electing U.S. Holder will be subject to the rules of Section 1291 of the Code with respect to (a) any gain recognized on the sale or other taxable disposition of Common Shares and (b) any excess distribution received on the Common Shares. A distribution generally will be an “excess distribution” to the extent that such distribution (together with all other distributions received in the current tax year) exceeds 125% of the average distributions received during the three preceding tax years (or during a U.S. Holder
’s holding period for the Common Shares, if shorter).
Under Section 1291 of the Code, any gain recognized on the sale or other taxable disposition of Common Shares, and any “excess distribution” received on Common Shares, must be ratably allocated to each day in a Non-Electing U.S. Holder
’s holding period for the respective Common Shares. The amount of any such gain or excess distribution allocated to the tax year of disposition or distribution of the excess distribution and to years before the entity became a PFIC, if any, would be taxed as ordinary income. The amounts allocated to any other tax year would be subject to U.S. federal income tax at the highest tax applicable to ordinary income in each such year, and an interest charge would be imposed on the tax liability for each such year, calculated as if such tax liability had been due in each such year. A Non-Electing U.S. Holder that is not a corporation must treat any such interest paid as “personal interest,” which is not deductible.
If the Company is a PFIC for any tax year during which a Non-Electing U.S. Holder holds Common Shares, the Company will continue to be treated as a PFIC with respect to such Non-Electing U.S. Holder, regardless of whether the Company ceases to be a PFIC in one or more subsequent tax years. A Non-Electing U.S. Holder may terminate this deemed PFIC status by electing to recognize gain (which will be taxed under the rules of Section 1291 of the Code discussed above) as if such Common Shares were sold on the last day of the last tax year for which the Company was a PFIC.
QEF Election
A U.S. Holder that makes a QEF Election for the first tax year in which its holding period of its Common Shares begins, generally, will not be subject to the rules of Section 1291 of the Code discussed above with respect to its Common Shares. However, a U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such U.S. Holder
’s pro rata share of (a) the net capital gain of the Company, which will be taxed as long-term capital gain to such U.S. Holder, and (b) the ordinary earnings of the Company, which will be taxed as ordinary income to such U.S. Holder. Generally, “net capital gain” is the excess of (a) net long-term capital gain over (b) net short-term capital loss, and “ordinary earnings” are the excess of (a) “earnings and profits” over (b) net capital gain. A U.S. Holder that makes a QEF Election will be subject to U.S. federal income tax on such amounts for each tax year in which the Company is a PFIC, regardless of whether such amounts are actually distributed to such U.S. Holder by the Company. However, for any tax year in which the Company is a PFIC and has no net income or gain, U.S. Holders that have made a QEF Election would not have any income inclusions as a result of the QEF Election. If a U.S. Holder that made a QEF Election has an income inclusion, such a U.S. Holder may, subject to certain limitations, elect to defer payment of current U.S. federal income tax on such amounts, subject to an interest charge. If such U.S. Holder is not a corporation, any such interest paid will be treated as “personal interest,” which is not deductible.
A U.S. Holder that makes a QEF Election generally (a) may receive a tax-free distribution from the Company to the extent that such distribution represents “earnings and profits” of the Company that were previously included in income by the U.S. Holder because of such QEF Election and (b) will adjust such U.S. Holder
’s tax basis in the Common Shares to reflect the amount included in income or allowed as a tax-free distribution because of such QEF Election. In addition, a U.S. Holder that makes a QEF Election generally will recognize capital gain or loss on the sale or other taxable disposition of Common Shares.
The procedure for making a QEF Election, and the U.S. federal income tax consequences of making a QEF Election, will depend on whether such QEF Election is timely. A QEF Election will be treated as “timely” if such QEF Election is made for the first year in the U.S. Holder
’s holding period for the Common Shares in which the Company was a PFIC. A U.S. Holder may make a timely QEF Election by filing the appropriate QEF Election documents at the time such U.S. Holder files a U.S. federal income tax return for such year.
A QEF Election will apply to the tax year for which such QEF Election is made and to all subsequent tax years, unless such QEF Election is invalidated or terminated or the IRS consents to revocation of such QEF Election. If a U.S. Holder makes a QEF Election and, in a subsequent tax year, the Company ceases to be a PFIC, the QEF Election will remain in effect (although it will not be applicable) during those tax years in which the Company is not a PFIC. Accordingly, if the Company becomes a PFIC in another subsequent tax year, the QEF Election will be effective and the U.S. Holder will be subject to the QEF rules described above during any subsequent tax year in which the Company qualifies as a PFIC.
U.S. Holders should be aware that there can be no assurances that the Company will satisfy the record keeping requirements that apply to a QEF, or that the Company will supply U.S. Holders with information that such U.S. Holders require to report under the QEF rules, in the event that the Company is a PFIC and a U.S. Holder wishes to make a QEF Election. Thus, U.S. Holders may not be able to make a QEF Election with respect to their Common Shares. Each U.S. Holder should consult its own tax advisor regarding the availability of, and procedure for making, a QEF Election.
Mark-to-Market Election
A U.S. Holder may make a Mark-to-Market Election only if the Common Shares are marketable stock. The Common Shares generally will be “marketable stock” if the Common Shares are regularly traded on (a) a national securities exchange that is registered with the Securities and Exchange Commission, (b) the national market system established pursuant to section 11A of the Securities and Exchange Act of 1934, or (c) a foreign securities exchange that is regulated or supervised by a governmental authority of the country in which the market is located, provided that (i) such foreign exchange has trading volume, listing, financial disclosure, and other requirements and the laws of the country in which such foreign exchange is located, together with the rules of such foreign exchange, ensure that such requirements are actually enforced and (ii) the rules of such foreign exchange ensure active trading of listed stocks. If such stock is traded on such a qualified exchange or other market, such stock generally will be “regularly traded” for any calendar year during which such stock is traded, other than in
de minimis
quantities, on at least 15 days during each calendar quarter.
A U.S. Holder that makes a Mark-to-Market Election with respect to its Common Shares generally will not be subject to the rules of Section 1291 of the Code discussed above with respect to such Common Shares. However, if a U.S. Holder does not make a Mark-to-Market Election beginning in the first tax year of such U.S. Holder
’s holding period for the Common Shares or such U.S. Holder has not made a timely QEF Election, the rules of Section 1291 of the Code discussed above will apply to certain dispositions of, and distributions on, the Common Shares.
A U.S. Holder that makes a Mark-to-Market Election will include in ordinary income, for each tax year in which the Company is a PFIC, an amount equal to the excess, if any, of (a) the fair market value of the Common Shares, as of the close of such tax year over (b) such U.S. Holder
’s tax basis in such Common Shares. A U.S. Holder that makes a Mark-to-Market Election will be allowed a deduction in an amount equal to the excess, if any, of (a) such U.S. Holder’s adjusted tax basis in the Common Shares, over (b) the fair market value of such Common Shares (but only to the extent of the net amount of previously included income as a result of the Mark-to-Market Election for prior tax years).
A U.S. Holder that makes a Mark-to-Market Election generally also will adjust such U.S. Holder
’s tax basis in the Common Shares to reflect the amount included in gross income or allowed as a deduction because of such Mark-to-Market Election. In addition, upon a sale or other taxable disposition of Common Shares, a U.S. Holder that makes a Mark-to-Market Election will recognize ordinary income or ordinary loss (not to exceed the excess, if any, of (a) the amount included in ordinary income because of such Mark-to-Market Election for prior tax years over (b) the amount allowed as a deduction because of such Mark-to-Market Election for prior tax years).
A Mark-to-Market Election applies to the tax year in which such Mark-to-Market Election is made and to each subsequent tax year, unless the Common Shares cease to be “marketable stock” or the IRS consents to revocation of such election. Each U.S. Holder should consult its own tax advisor regarding the availability of, and procedure for making, a Mark-to-Market Election.
Although a U.S. Holder may be eligible to make a Mark-to-Market Election with respect to the Common Shares, no such election may be made with respect to the stock of any Subsidiary PFIC that a U.S. Holder is treated as owning, because such stock is not marketable. Hence, the Mark-to-Market Election will not be effective to eliminate the interest charge described above with respect to deemed dispositions of Subsidiary PFIC stock or distributions from a Subsidiary PFIC.
Other PFIC Rules
Under Section 1291(f) of the Code, the IRS has issued proposed Treasury Regulations that, subject to certain exceptions, would cause a U.S. Holder that had not made a timely QEF Election to recognize gain (but not loss) upon certain transfers of Common Shares that would otherwise be tax-deferred (e.g., gifts and exchanges pursuant to corporate reorganizations). However, the specific U.S. federal income tax consequences to a U.S. Holder may vary based on the manner in which Common Shares are transferred.
Certain additional adverse rules will apply with respect to a U.S. Holder if the Company is a PFIC, regardless of whether such U.S. Holder makes a QEF Election. For example under Section 1298(b)(6) of the Code, a U.S. Holder that uses Common Shares as security for a loan will, except as may be provided in Treasury Regulations, be treated as having made a taxable disposition of such Common Shares.
Special rules also apply to the amount of foreign tax credit that a U.S. Holder may claim on a distribution from a PFIC.
Subject to such special rules, foreign taxes paid with respect to any distribution in respect of stock in a PFIC are generally eligible for the foreign tax credit. The rules relating to distributions by a PFIC and their eligibility for the foreign tax credit are complicated, and a U.S. Holder should consult with their own tax advisor regarding the availability of the foreign tax credit with respect to distributions by a PFIC.
The PFIC rules are complex, and each U.S. Holder should consult its own tax advisor regarding the PFIC rules and how the PFIC rules may affect the U.S. federal income tax consequences of the acquisition, ownership, and disposition of Common Shares.
U.S. Federal Income Tax Consequences of the Acquisition, Ownership, and Disposition of Common Shares
The following discussion is subject to the rules described above under the heading “Passive Foreign Investment Company Rules.”
Distributions on Common Shares
Subject to the PFIC rules discussed above, a U.S. Holder that receives a distribution, including a constructive distribution, with respect to a Common Share will be required to include the amount of such distribution in gross income as a dividend (without reduction for any Canadian income tax withheld from such distribution) to the extent of the current or accumulated “earnings and profits” of the Company, as computed for U.S. federal income tax purposes. A dividend generally will be taxed to a U.S. Holder at ordinary income tax rates. To the extent that a distribution exceeds the current and accumulated “earnings and profits” of the Company, such distribution will be treated first as a tax-free return of capital to the extent of a U.S. Holder's tax basis in the Common Shares and thereafter as gain from the sale or exchange of such Common Shares. (See “Sale or Other Taxable Disposition of Common Shares” below). However, the Company may not maintain the calculations of earnings and profits in accordance with U.S. federal income tax principles, and each U.S. Holder should therefore assume that any distribution by the Company with respect to the Common Shares will constitute ordinary dividend income. Dividends received on Common Shares generally will not be eligible for the “dividends received deduction”. In addition, the Company does not anticipate that its distributions will be eligible for the preferential tax rates applicable to long-term capital gains. The dividend rules are complex, and each U.S. Holder should consult its own tax advisor regarding the application of such rules.
Sale or Other Taxable Disposition of Common Shares
Subject to the PFIC rules discussed above, upon the sale or other taxable disposition of Common Shares, a U.S. Holder generally will recognize capital gain or loss in an amount equal to the difference between the amount of cash plus the fair market value of any property received and such U.S. Holder's tax basis in such Common Shares sold or otherwise disposed of. Subject to the PFIC rules discussed above, gain or loss recognized on such sale or other disposition generally will be long-term capital gain or loss if, at the time of the sale or other disposition, the Common Shares have been held for more than one year.
Preferential tax rates apply to long-term capital gain of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term capital gain of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under the Code.
Additional Considerations
Additional Tax on Passive Income
Certain U.S. Holders who are individuals, estates or trusts will be required to pay up to an additional 3.8% tax on, among other things, dividends and capital gains for tax years beginning after December 31, 2012. U.S. Holders should consult their own tax advisors regarding the effect, if any, of this tax on their ownership and disposition of Common Shares.
Receipt of Foreign Currency
The amount of any distribution paid to a U.S. Holder in foreign currency, or on the sale, exchange or other taxable disposition of Common Shares, generally will be equal to the U.S. dollar value of such foreign currency based on the exchange rate applicable on the date of receipt (regardless of whether such foreign currency is converted into U.S. dollars at that time). If the foreign currency received is not converted into U.S. dollars on the date of receipt, a U.S. Holder will have a basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Any U.S. Holder who receives payment in foreign currency and engages in a subsequent conversion or other disposition of the foreign currency may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and generally will be U.S. source income or loss for foreign tax credit purposes. Each U.S. Holder should consult its own U.S. tax advisor regarding the U.S. federal income tax consequences of receiving, owning, and disposing of foreign currency.
Foreign Tax Credi
Subject to the PFIC rules discussed above, a U.S. Holder that pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on the Common Shares generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax paid. Generally, a credit will reduce a U.S. Holder
’s U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder’s income subject to U.S. federal income tax. This election is made on a year-by-year basis and applies to all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year.
Complex limitations apply to the foreign tax credit, including the general limitation that the credit cannot exceed the proportionate share of a U.S. Holder
’s U.S. federal income tax liability that such U.S. Holder’s “foreign source” taxable income bears to such U.S. Holder’s worldwide taxable income. In applying this limitation, a U.S. Holder’s various items of income and deduction must be classified, under complex rules, as either “foreign source” or “U.S. source.” Generally, dividends paid by a foreign corporation should be treated as foreign source for this purpose, and gains recognized on the sale of stock of a foreign corporation by a U.S. Holder should be treated as U.S. source for this purpose, except as otherwise provided in an applicable income tax treaty, and if an election is properly made under the Code. However, the amount of a distribution with respect to the Common Shares that is treated as a “dividend” may be lower for U.S. federal income tax purposes than it is for Canadian federal income tax purposes, resulting in a reduced foreign tax credit allowance to a U.S. Holder. In addition, this limitation is calculated separately with respect to specific categories of income. The foreign tax credit rules are complex, and each U.S. Holder should consult its own U.S. tax advisor regarding the foreign tax credit rules.
Backup Withholding and Information Reporting
Under U.S. federal income tax law and Treasury Regulations, certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a foreign corporation. For example,
new U.S. return disclosure obligations (and related penalties) are imposed on U.S. Holders that hold certain specified foreign financial assets in excess of US$50,000. The definition of specified foreign financial assets includes not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by a non-U.S. person, any financial instrument or contract held for investment that has an issuer or counterparty other than a U.S. person and any interest in a foreign entity. U.S. Holders may be subject to these reporting requirements unless their Common Shares are held in an account at a domestic financial institution. Penalties for failure to file certain of these information returns are substantial. U.S. Holders should consult with their own tax advisors regarding the requirements of filing information returns, including the requirement to file an IRS Form 8938.
Payments made within the U.S. or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from the sale or other taxable disposition of, Common Shares generally may be subject to information reporting and backup withholding tax, at the rate of 28% (and increasing to 31% for payments made after December 31, 2012), if a U.S. Holder (a) fails to furnish such U.S. Holder
’s correct U.S. taxpayer identification number (generally on Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding tax. However, certain exempt persons, such as corporations, generally are excluded from these information reporting and backup withholding rules. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder’s U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner. Each U.S. Holder should consult its own tax advisor regarding the information reporting and backup withholding rules.
10.F
Dividends and Paying Agents
Not applicable.
10.G
Statement by Experts
Not applicable.
10.H
Documents on Display
Material contracts and publicly available corporate records may be viewed at our
head office located at Suite 507 – 837 West Hastings Street, Vancouver, British Columbia, V6C 3N7.
The Company
’s reports and other information, including this annual report and the exhibits thereto, as filed with the Securities and Exchange Commission in accordance with the Exchange Act, may be inspected and copied at the public reference facilities maintained by the Securities and Exchange Commission at Judiciary Plaza, 100 F Street NE, Washington, D.C. 20549. Copies of such material may also be obtained from the Public Reference Section of the Securities and Exchange Commission at 100 F Street NE, Washington, D.C. 20549, at prescribed rates. Information may be obtained regarding the Washington D.C. Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330 or by contacting the Securities and Exchange Commission over the Internet at its website at
http://www.sec.gov
.
10.I
Subsidiary Information
Not applicable.
ITEM 11.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to support future business opportunities. The Company defines its capital as shareholders
’ equity. The Board does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company’s management to sustain future development of the business.
The Company currently has no source of revenues; as such the Company is dependent upon external financings or the sale of assets (or an interest therein) to fund activities. In order to carry future projects and pay for administrative costs, the Company will spend its existing working capital and raise additional funds as needed. Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. There were no changes in the Company
’s approach to capital management during the year ended January 31, 2018. The Company is not subject to externally imposed capital requirements.
The Company classifies its cash as financial assets at fair value through profit or loss; accounts receivable as loans and receivables; accounts payable and accrued liabilities and due to related parties as other financial liabilities.
The carrying values of accounts payable and accrued liabilities
and amounts due to related parties approximate their fair values due to the expected maturity of the consolidated financial instruments.
The Company
’s risk exposure and the impact on the Company’s financial instruments are summarized below:
In respect to accounts receivable, the Company is not exposed to significant credit risk as the majority are due from governmental agencies.
Concentration of credit risk exists with respect to the Company
’s cash as all amounts are held at a single major Canadian financial institution. The Company’s concentration of credit risk and maximum exposure thereto in Canada follows.
Cash and equivalents
|
|
January 31, 201
8
|
|
|
January 31, 201
7
|
|
Held at a major Canadian financial institution
|
|
$
|
873,863
|
|
|
$
|
956
|
|
The credit risk associated with cash and cash equivalents is minimized substantially by ensuring that these financial assets are placed with major Canadian financial institutions with strong investment-grade ratings by a primary ratings agency.
Liquidity risk is the risk that the Company will encounter difficulty in satisfying financial obligations as they fall due. The Company
’s approach to managing liquidity risk is to provide reasonable assurance that it will have sufficient funds to meet liabilities when due. The Company manages its liquidity risk by forecasting cash flows required by operations and anticipated investing and financing activities. At January 31, 2018, the cash balance of $
873,863
is insufficient to meet the needs for the coming year. Therefore, the Company will be required to raise additional capital in order to fund its operations in fiscal 2019.
Liabilities as at January 31,
2018 are as follows:
Due in
|
|
0 to 3 months
|
|
|
3 to 6 months
|
|
|
6 to 12 months
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
45,600
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
45,600
|
|
|
|
$
|
45,600
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
45,600
|
|
Liabilities as at January 31,
2017 are as follows:
Due in
|
|
0 to 3 months
|
|
|
3 to 6 months
|
|
|
6 to 12 months
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
338,751
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
338,751
|
|
Due to related parties
|
|
|
-
|
|
|
|
-
|
|
|
|
138,426
|
|
|
|
138,426
|
|
|
|
$
|
338,751
|
|
|
|
-
|
|
|
|
138,426
|
|
|
$
|
477,177
|
|
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, foreign currency risk and other price risk.
Interest rate risk consists of the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates.
The Company manages interest rate risk by maintaining an investment policy that focuses primarily on preservation of capital and liquidity. The interest income earned on cash is minimal; therefore, the Company is not subject to interest rate risk.
|
(ii)
|
Foreign currency risk
|
The Company is not exposed to any significant foreign currency risk.
Other price risk is the risk that the fair or future cash flows of a financial instrument will fluctuate because of changes in market prices, other than those arising from interest rate risk or foreign currency risk. The Company is not exposed to any other price risk.
The Company
’s operations are not yet exposed to risks associated with commodity prices, interest rates and credit. Commodity price risk is defined as the potential loss that the Company may incur as a result of changes in the fair value of gold, silver, iron, copper or other metals that may be produced by the Company. Industry wide risks can, however, affect the Company’s general ability to finance exploration, and development of exploitable resources; however, such effects are not predictable or quantifiable.
ITEM 12.
|
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
|
Not applicable.