Registration of Securities of a Foreign Private Issuer — Form 20-F
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 20FR12G Form 20-F Registration Statement 81 420K
5: EX-3.(I) Articles 26 114K
2: EX-3.(I) Certificate of Change of Name 2 6K
3: EX-3.(I) Special Resoultion and Altered Memorandum 3 9K
4: EX-3.(II) Memorandum 2 7K
6: EX-10 Documents Relating to Cinco Minas Property 17 68K
7: EX-10 Documents Relating to Gran Cabrera Properties 4 17K
9: EX-10 Heads of Agreement Relating to the Tinka Property 4 14K
8: EX-10 Letter of Intent Relating to the Tinka Property 2 9K
10: EX-21 List of Subsidiaries 2 6K
United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 20-F
(Mark One)
[ X ] Registration Statement Pursuant to Section 12(b) or (g) of the
Securities Exchange Act of 1934
or
[ ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________ to _________
Commission file number: ______________
TUMI RESOURCES LIMITED
(Exact name of Registrant as specified in its charter)
TUMI RESOURCES LIMITED
(Translation of Registrant's name into English)
British Columbia, Canada
(Jurisdiction of incorporation or organization)
1305 - 1090 West Georgia Street, Vancouver, British Columbia, V6E 3V7
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
None
Securities registered or to be registered pursuant to Section 12(g) of the Act.
Common Stock, No Par Value
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
Not Applicable
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the end of the Issuer's last fiscal year.
6,824,000 Common Shares outstanding as of December 31, 2002
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
------------ ----------
Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 X Item 18 Page 1 of 143
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General Information:
Unless otherwise indicated, all references herein are to Canadian dollars.
GLOSSARY
The following is a glossary of geological terms used in this report:
adularia a mineral, potassium aluminium silicate.
Ag the elemental symbol for silver.
Alteration usually referring to chemical reactions in a rock
mass resulting from the passage of hydrothermal
fluids.
amygdaloidal an igneous rock containing a gas cavity or
vesicle.
andesite a fine grained intermediate volcanic rock composed
of andesine and one or more mafic constituents.
anomalous an anomaly in which the amplitude is statistically
between that of a low contrast anomaly and a high
contrast anomaly in a given data set. Also called
moderate contrast anomaly.
anomaly any concentration of metal noticeably above or
below the average background concentration.
argentite silver sulphide
argillic a form of alteration characterised by the
alteration of original minerals to clays.
assay an analysis to determine the presence, absence or
quantity of one or more components.
Au the elemental symbol for gold.
axis an imaginary hinge line about which the fold limbs
are bent. The axis of a fold can be at the top or
bottom of the fold, can be tilted or horizontal.
basalts fine grained, sometimes glassy, igneous rock that
is almost always very dark grey, rarely very dark
brownish grey or greenish grey, composed mainly of
calcic plagioclase and pyroxenes.
batholith an intrusion, usually granitic, which has a large
exposed surface area and no observable bottom.
Usually associated with orogenic belts.
beneficiate to concentrate or enrich; often
applied to the preparation of iron ore for
smelting.
breccia rock consisting of more or less angular fragments
in a matrix of finer-grained material or cementing
material.
chalcedonic a rock containing cryptocrystalline quartz.
chalcopyrite copper sulphide
chert a hard, dense rock comprising mostly interlocking
cystals of quartz.
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chip sample a sample composed of discontinuous chips taken
along a surface across a given line.
claim that portion of public mineral lands, which a
party has staked or marked out in accordance with
provincial or state mining laws, to acquire the
right to explore for the minerals under the
surface.
clast a rock or mineral fragment in a sedimentary or
volcanic rock.
crystalline means the specimen is made up of one or more
groups of crystals.
cyanidation a method of extracting exposed gold or silver
grains from crushed or ground ore by dissolving it
in a weak cyanide solution. May be carried out in
tanks inside a mill or in heaps of ore out of
doors.
cymoid a vein that in cross-section forms a reverse
curve.
dacite a fine grained acid volcanic rock, similar to
rhyolite in which the feldspar is predominantly
plagioclase. Volcanic equivalent of granodiorite
and quartz diorite.
diamond drill a type of rotary drill in which the cutting is
done by abrasion using diamonds embedded in a
matrix rather than by percussion. The drill cuts a
core of rock which is recovered in long
cylindrical sections.
dilution results from the mixing in of unwanted gangue or
waste rock with the ore during mining.
dip geological measurement of the angle of maximum
slope of planar elements in rocks. Can be applied
to beddings, jointing, fault planes, etc.
disseminated deposit deposit in which the mineralization is scattered
through a large volume of host rock, sometimes as
separate mineral grains, or sometimes along joint
or fault surfaces.
epithermal hydrothermal mineral deposit formed within about 1
kilometer of the earth's surface and within a
temperature range of 50 to 200 degrees centigrade,
occurring mainly as veins.
fault a fracture in a rock where there has been
displacement of the two sides.
faults breaks in rocks with noticeable movement or
displacement of the rocks on either side of the
break.
feasibility study detailed study to determine if a property can be
mined at a profit and the best way to mine it.
feldspar a group of common rock-forming minerals.
felsic light colored silicate minerals, mainly quartz and
feldspar, or an igneous rock comprised largely of
felsic minerals (granite, rhyolite).
fracture breaks in a rock, usually due to intensive folding
or faulting.
g/t or gpt grams per tonne.
galena lead sulphide
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gangue term used to describe worthless minerals or rock
waste mixed in with the valuable minerals.
gossan the leached and oxidised near surface part of a
sulphide mineral deposit, usually consisting
largely of hydrated iron oxides left after copper
and other minerals have been removed by downward
leaching.
graben a downfaulted block of rock.
grade the concentration of each ore metal in a rock
sample, usually given as weight percent. Where
extremely low concentrations are involved, the
concentration may be given in grams per tonne
(g/t) or ounces per ton (oz/t). The grade of an
ore deposit is calculated, often using
sophisticated statistical procedures, as an
average of the grades of a very large number of
samples collected from throughout the deposit.
granite a coarse grained, plutonic igneous rock that is
normally pale pink, pale pink- brown, or pale
grey, and composed of quartz, alkali feldspar,
micas and accessory minerals.
hangingwall and footwall terms used in reference to faults where when
mining along a fault, your feet would be in the
footwall side of the fault and the other side
would be "hanging" over your head.
hectare a square of 100 meters on each side.
horst an upfaulted block of rock.
host rock the rock within which the ore deposit occurs.
igneous a rock formed by the cooling of molten silicate
material.
induced polarization the method used to measure various electrical
(I.P.) method responses to the passage of alternating currents
of different frequencies through near-surface
rocks or to the passage of pulses of electricity.
intermediate an igneous rock made up of both felsic and mafic
minerals (diorite).
intrusion general term for a body of igneous rock formed
below the surface.
jarosite hydrous potassium iron sulphate
joint venture agreement an agreement where the parties agree to the terms
on which a property will be explored, developed,
and mined.
kaolinized replacement or alteration of minerals to form
kaolin, a group of clay minerals.
latite an extrusive rock containing large crystals in a
fine-grained groundmass.
limestone sedimentary rock that is composed mostly of
carbonates, the two most common of which are
calcium and magnesium carbonates.
limonite hydrous iron oxide
mafic a term used to describe ferromagnesian minerals.
Rocks composed mainly of ferromagnesian minerals
are correctly termed melanocratic.
malachite hydrous copper carbonate
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massive implies large mass. Applied in the context of hand
specimens of, for example, sulphide ores, it
usually means the specimen is composed essentially
of sulphides with few, if any, other constituents.
metamorphic means any rock which is altered within the earth's
crust by the effects of heat and/or pressure
and/or chemical reactions.
mineral claim a legal entitlement to minerals in a certain
defined area of ground.
mineralization usually implies minerals of value occurring in
rocks.
NSR net smelter return. Often a form of royalty.
option agreement an agreement where the optionee can exercise
certain options to increase its interest in a
property by making periodic payments to the
optionor or by exploring, developing or producing
from the optionor's property.
ore a natural aggregate of one or more minerals which
may be mined and sold at a profit, or from which
some part may be profitably separated.
ore reserve the measured quantity and grade of all or part of
a mineralized body in a mine or undeveloped
mineral deposit for which the mineralization is
sufficiently defined and measured on three sides
to form the basis of at least a preliminary mine
production plan for economically viable mining.
outcrop means an exposure of rock at the earth's surface.
overburden a general term for any material covering or
obscuring rocks from view.
oz/t or opt ounces per ton.
phenocryst a relatively large, conspicuous crystal in a
porphyritic rock.
plunging (fold) when the axis of a fold is tilted, not horizontal,
then the fold is referred to as plunging and the
angle of the plunge of a fold can often be
measured or estimated.
pluton term for an igneous intrusion, usually formed from
a magma.
porphyry rock type with mixed crystal sizes, i.e.
containing phenocrysts of one or more minerals.
probable reserve the estimated quantity and grade of all or part of
a mineralized body for which sufficient
information on continuity, extent, grade
distribution, (mining method, dilution,
metallurgical process, mineral recovery,
infrastructure, environmental considerations,
operating costs and capital costs) is available to
form the basis of a study indicating an
economically viable operation at long-term
forecast average metal prices, but which has not
been measured in sufficient detail to allow it to
be classified as proven.
proven reserve the estimated quantity and grade of mineralized
body for which information is so well established,
with respect to size, distribution of values,
grade, deposit walls and thickness, that there is
the highest degree of confidence as to the
quantity and grade that can be mined at a profit.
pyrite iron sulphide
pyroclastic rock a rock of volcanic origin consisting of a highly
variable mixture of rock fragments, cinders and
ashes and bits of crystals and glass.
-5-
reserves a natural aggregate of one or more minerals which,
at a specified time and place, may be mined and
sold at a profit, or from which some part may be
profitably separated.
reverse circulation drill a rotary percussion drill in which the drilling
mud and cuttings return to the surface through the
drill pipe.
rhyolite the aphantic equivalent of a granite.
royalty interest a royalty interest is tied to some
production unit such as tonne of concentrate or
ounce of gold produced. A common form of royalty
interest is based on the net smelter return.
sample small amount of material that is supposed to be
absolutely typical or representative of the object
being sampled.
scarp an escarpment, cliff or steep slope along the
margin of a plateau, mesa or terrace.
sedimentary a rock formed from cemented or compacted
sediments.
sediments are composed of the debris resulting from the
weathering and breakup of other rocks that have
been deposited by or carried to the oceans by
rivers, or left over from glacial erosion or
sometimes from wind action.
shear zone where a fault affects a width of rock rather than
being a single clean break, the width of affected
rock is referred to as the shear zone. The term
implies movement, i.e. shearing.
silicate most rocks are made up of a small number of
silicate minerals ranging from quartz to more
complex minerals such as orthoclase feldspar or
hornblende.
silicified a rock altered by the introduction of silica.
sphalerite zinc sulphide
stope an excavation in a mine from which ore is, or has
been, extracted.
strike the direction of a horizontal line on the surface
of the bed, or other planar feature.
tailings material rejected from a mill after recoverable
valuable minerals have been extracted.
trachyte a group of fine-grained extrusive rocks.
tuff a finer grained pyroclastic rock made up mostly of
ash and other fine grained volcanic material.
veins the mineral deposits that are found filling
openings in rocks created by faults or replacing
rocks on either side of faults.
waste rock which is not ore. Usually referred to that
rock which has to be removed during the normal
course of mining in order to get at the ore.
Zn the elemental symbol for zinc.
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FORWARD LOOKING STATEMENTS
Pursuant to the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995 (the "PSLRA"), the Company cautions readers regarding forward
looking statements found in the following discussion and elsewhere in this
annual report and in any other statement made by, or on the behalf of the
Company, whether or not in future filings with the Securities Exchange
Commission (the "SEC"). Forward looking statements are statements not based on
historical information and which relate to future operations, strategies,
financial results or other developments. Forward looking statements are
necessarily based upon estimates and assumptions that are inherently subject to
significant business, economic and competitive uncertainties and contingencies,
many of which are beyond the Company's control and many of which, with respect
to future business decisions, are subject to change. These uncertainties and
contingencies can affect actual results and could cause actual results to differ
materially from those expressed in any forward looking statements made by or on
behalf of the Company. The Company disclaims any obligation to update forward
looking statements. Readers should also understand that under Section
27A(b)(2)(D) of the Securities Act, and Section 21E(b)(2)(D) of the Securities
Exchange Act, the "safe harbor" provisions of the PSLRA do not apply to
statements made in connection with an initial public offering.
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PART I
ITEM 1. DIRECTORS, SENIOR MANAGEMENT AND ADVISORS.
--------------------------------------------------------------------------------
Directors and Officers
----------------------
The following are the names, business addresses and positions of the directors
and officers of Tumi Resources Limited. (the "Company"), as of March 31, 2003.
NAME AND BUSINESS ADDRESS POSITION(S)
------------------------------- ---------------------------
David Henstridge President, CEO and Director
14 Beaver Street
Malvern East
Victoria, Australia 3145
Nick DeMare Director
1305 - 1090 West Georgia Street
Vancouver, British Columbia
V6E 3V7
Harvey Lim Director
1305 - 1090 West Georgia Street
Vancouver, British Columbia
V6E 3V7
Mariana Bermudez Corporate Secretary
2400 - 700 West Georgia Street
Vancouver, British Columbia
V7Y 1B3
Auditors
--------
Since the Company's inception, its auditors have been D & H Group, 10th Floor,
1333 West Broadway, Vancouver, British Columbia, V6H 4C1.
Legal Counsel
-------------
The Company's Canadian legal counsel is Gowling Lafleur Henderson LLP, 1055
Dunsmuir Street, Suite 2300, Vancouver, British Columbia V7X 1J1, Canada, and
its United States legal counsel is Dill Dill Carr Stonbraker & Hutchings, P.C.,
455 Sherman Street, Suite 300, Denver, Colorado.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE.
--------------------------------------------------------------------------------
Not applicable.
ITEM 3. KEY INFORMATION.
--------------------------------------------------------------------------------
Selected Financial Data
-----------------------
The selected financial data of the Company for the years ended December 31,
2002, 2001 and 2000, was derived from the financial statements of the Company
which have been audited by D & H Group, independent Chartered Accountants, as
indicated in their report which is included elsewhere in this registration
statement.
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The information in the following table was extracted from the more detailed
consolidated financial statements and related notes included herein and should
be read in conjunction with such financial statements and with the information
appearing under the heading "Item 5. Operating and Financial Review and
Prospects."
Reference is made to Note 12 of the Company's consolidated financial statements
included herein for a discussion of the material differences between Canadian
generally accepted accounting principles ("GAAP") and US GAAP, and their effect
on the Company's financial statements.
To date, the Company has not generated any cashflow from operations to fund
ongoing operational requirements and cash commitments. The Company has financed
its operations principally through the sale of its equity securities. The
Company currently has sufficient funds to maintain operations at its current
level of activity. It will continue to rely on the sale of its equity securities
to provide funds for its activities. However, there is no assurance that it will
be able to do so.
Year Ended December 31,
-------------------------------------
2002 2001 2000(1)
---------- ---------- ----------
Interest Income $5,459 $12,676 $10,126
General and Administrative Expenses $161,496 $22,875 $10,713
Net (Loss) $(253,757) $(10,199) $(587)
Total Assets $1,034,106 $307,897 $306,405
Net Assets $971,552 $304,797 $303,746
Capital Stock $1,218,726 $315,583 $304,333
Weighted Average Number of Shares 3,050,643 1,702,055 908,219
Dividends per Share Nil Nil Nil
Basic and Fully Diluted (Loss) per Share $(0.09) $(0.01) $(0.00)
NOTE:
(1) The Company was incorporated on January 11, 2000, therefore, the financial
year ended May 31, 2000 is for the period from January 11, 2000 to May 31,
2000.
Adjustment to United States Generally Accepted Accounting Principles
--------------------------------------------------------------------
Differences Between Canadian and United States Generally Accepted Accounting
Principles
The consolidated financial statements of the Company have been prepared
according to Canadian GAAP which differ in certain material respects from US
GAAP. Material differences between Canadian and US GAAP and their effect on the
Company's consolidated financial statements are summarized in the tables below.
The consolidated financial statements of the Company have been prepared in
accordance with Canadian GAAP which differ in certain material respects from US
GAAP. Material differences between Canadian and US GAAP and their effect on the
Company's consolidated financial statements are summarized in the tables below.
CONSOLIDATED STATEMENTS OF LOSS
[Enlarge/Download Table]
2002 2001 2000
$ $ $
Net loss under Canadian GAAP (253,757) (10,199) (587)
Mineral property costs for the period (i) (730,703) - -
Write-off of mineral property costs (i) 97,720 - -
Other compensation (iv) (12,420) - -
------------- ------------- -------------
Net loss under US GAAP (899,160) (10,199) (587)
============= ============= =============
Loss per share under US GAAP $(0.29) $(0.01) $(0.00)
============= ============= =============
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CONSOLIDATED BALANCE SHEETS
[Download Table]
2002 2001
$ $
Total assets under Canadian GAAP 1,034,106 307,897
Mineral property costs for the period (i) (632,983) -
Deferred tax asset (iii) 321,000 16,000
Less: Valuation allowance (iii) (321,000) (16,000)
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Total assets under US GAAP 401,123 307,897
============= =============
Total liabilities under Canadian GAAP 62,554 3,100
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Total liabilities under US GAAP 62,554 3,100
============= =============
Total shareholders' equity under Canadian GAAP 971,552 304,797
Mineral property costs for the period (i) (632,983) -
------------- -------------
Total shareholders' equity under US GAAP 338,569 304,797
============= =============
(i) Mineral property costs
In accordance with Canadian GAAP, mineral property costs are deferred
until the property to which they relate is placed into production,
sold or abandoned. The Company has determined for US GAAP purposes to
expense the acquisition and exploration costs relating to unproven
mineral properties as incurred. When proven and probable reserves are
determined for a property, subsequent exploration and development
costs of the property are capitalized. The capitalized costs of such
properties would then be measured, on a periodic basis, to ensure that
the carrying value can be recovered on an undiscounted cash flow
basis. If the carrying value cannot be recovered on this basis, the
mineral properties would be written down to net recoverable value on a
discounted cash flow basis.
(ii) The Company grants stock options which reserves common shares for
issuance to employees, directors and consultants. Effective January 1,
2002, the Company adopted, on a prospective basis, the provisions of
Section 3870 which is similar to the provisions of SFAS 123
"Accounting for Stock-Based Compensation" issued by the Financial
Accounting Standards Board ("FASB"). The calculations of the
stock-based compensation for the year ended December 31, 2002 has been
presented in Note 5 of the Company's consolidated financial
statements.
During the year ended December 31, 2001 and the period ended December
31, 2000, the Company granted stock options to its directors and
employees to purchase shares of the Company. No compensation cost has
been recognized for the options granted in 2001 and 2000. Had
compensation costs for the Company's stock options granted been
determined based on the fair value at the grant date for awards during
the periods ended December 31, 2001 and 2000 consistent with the
provisions of SFAS 123, the Company's loss and loss per share would
have been increased to the proforma amounts indicated below:
2001 2000
$ $
------- -------
Net loss under US GAAP (10,199) (587)
Net loss - proforma (13,419) (587)
Loss per share under US GAAP (0.01) (0.00)
Loss per share - proforma (0.01) (0.00)
The fair value of each option granted to an employee or director is
estimated on the date of grant using the Black-Scholes option pricing
model with the following assumptions used for grants during the
periods ended December 31, 2001 and 2000, except that during 2000, the
Company was a non-public entity. Accordingly, under SFAS 123, the fair
value of the stock options granted in 2000 was determined to be nil:
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2001 2000
--------- ---------
Risk-free interest rate 3.37% 6.08%
Expected volatility 80% 0.00%
Expected lives 1.5 years 2.5 years
(iii) Income Tax
Under Canadian GAAP, deferred income tax assets relating to the
potential benefit of income tax loss carryforwards are not recognized
unless there is virtual certainty of realization of the benefit. US
GAAP provides similar treatment, but requires the benefit be
recognized and a valuation allowance be recognized to fully offset the
deferred income tax asset.
As at December 31, 2002, the Company has fully reserved the $321,000
income tax benefit of operating loss carryforwards, by a valuation
allowance of the same amount, because the likelihood of realization of
the tax benefit cannot be determined. Of the total tax benefit,
$305,000 is attributable to the year ended December 31, 2002.
(iv) Private Placements of Common Stock
During the year ended December 31, 2002, the Company conducted the
majority of its equity financings pursuant to private placements.
Under the policies of the TSX Venture Exchange (the "TSX Venture"),
the Company may provide a discount off the market price of the
Company's common stock. US GAAP does not permit a discount from the
market price. US GAAP requires the recognition of the market value of
the Company's common stock as a credit to share capital, with a charge
to operations for the portion of the discount relating to equity
financings conducted with officers and directors of the Company and a
charge to shareholders' equity, as a capital distribution, for the
discount relating to the remaining portion of the equity financings.
Under US GAAP, loss and capital distributions for the year ended
December 31, 2002 would increase by $12,420 and $72,080, respectively,
and share capital, as at December 31, 2002 would increase by $84,500.
There is no net change to shareholders' equity.
The Company's consolidated statements of cash flow comply with US GAAP.
New Technical Pronouncements
----------------------------
In June 2001, FASB issued SFAS 143, "Accounting for Asset Retirement
Obligations." SFAS 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. SFAS 143 generally requires obligations
associated with asset retirements to be recognized earlier and displayed as
liabilities rather than as contra-assets. The pronouncement is effective for
financial statements issued for fiscal years beginning after June 15, 2002.
Management does not believe that the adoption of SFAS 143 will have any impact
on the Company's financial position or results of operations.
In June 2002, FASB issued SFAS 146, "Accounting for Costs Associated with Exit
or Disposal Activities." SFAS 146 addresses financial accounting and reporting
for costs associated with exit or disposal activities and nullifies Emerging
Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity." SFAS 146 generally
requires a liability for a cost associated with an exit or disposal activity to
be recognized and measured initially at its fair value in the period in which
the liability is incurred. The pronouncement is effective for exit or disposal
activities initiated after December 31, 2002. Management does not believe that
the adoption of SFAS 146 will have any impact on the Company's financial
position or results of operations.
In December 2002, FASB issued SFAS 148, "Accounting for Stock-Based Compensation
- Transition and Disclosure". This standard amends SFAS 123, "Accounting for
Stock-Based Compensation", to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, this statement amends the disclosure
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requirements of SFAS 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results.
Exchange Rate History
---------------------
The following table sets forth the average exchange rate for one Canadian dollar
expressed in terms of one U.S. dollar for the fiscal years ended December 31,
2002, 2001, and 2000.
Period Average
----------------------------------- -------
January 1, 2002 - December 31, 2002 0.6368
January 1, 2001 - December 31, 2001 0.6444
January 1, 2000 - December 31, 2000 0.6727
The following table sets forth high and low exchange rates for one Canadian
dollar expressed in terms of one U.S. dollar for the past six months:
Month High Low
------------- ------ ------
March 2003 0.6822 0.6709
February 2003 0.6720 0.6530
January 2003 0.6570 0.6349
December 2002 0.6461 0.6329
November 2002 0.6440 0.6288
October 2002 0.6407 0.6272
Exchange rates are based upon the noon buying rate in New York City for cable
transfers in foreign currencies as certified for customs purposes by the Federal
Reserve Bank of New York.
The noon rate of exchange on March 31, 2003, reported by the United States
Federal Reserve Bank of New York for the conversion of Canadian dollars into
United States dollars was CDN$1.4695 (US$0.6805 = CDN$1.00).
Capitalization and Indebtedness
-------------------------------
The following table sets forth the Company's current liabilities and
capitalization as of December 31, 2002.
$
Current Liabilities 62,554
------------
Stockholder's Equity
Common Shares, no par value, 100,000,000 common shares
authorized, 6,824,000 shares issued and outstanding 1,218,726
Contributed Surplus 17,369
Deficit (264,543)
------------
971,552
------------
Total Capitalization 1,034,106
============
Risk Factors
------------
The operations of the Company are speculative due to the high risk nature of its
business which involves the exploration of its mineral resource properties. The
following risk factors apply to the Company's operations:
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Exploration Stage Company with Limited Financial Resources
----------------------------------------------------------
Mineral exploration and development involve significant risk and few properties
that are explored are ultimately developed into producing mines. Substantial
expenditures may be required to establish ore reserves through drilling, to
develop metallurgical processes to extract the metals from the ore and to
construct the mining and processing facilities at any site chosen for mining. No
assurances can be given that current exploration programs will result in any
commercial mining operation. The Company's mineral properties are without a
known body of commercial ore and the proposed programs are an exploratory search
for ore. The Company is presently carrying out exploration with the objective of
establishing an economic body of ore. If the Company's exploration programs are
successful, additional funds will be required for the development of an economic
ore body and to place it into commercial production. The only sources of future
funds presently available to the Company are the sale of equity capital, the
exercise of warrants and options or the offering by the Company of an interest
in the property to be earned to another party or parties.
Financing Risks, Liquidity and Cash Flow
----------------------------------------
The Company has limited financial resources, has a history of losses, has no
source of operating cash flow and has no assurance that additional funding will
be available to it for further exploration and development of its exploration
properties or to fulfil its obligations under any applicable agreements. Failure
to obtain such additional financing could result in delay or indefinite
postponement of further exploration and development of its projects with the
possible loss of such properties. Historically, the only source of funds
available to the Company has been through the sale of its common shares. Any
further additional equity financing undertaken by the Company would cause
dilution to its shareholders.
As of December 31, 2002, the Company held $385,678 in cash and cash equivalents
and had working capital of $338,569. Subsequent to December 31, 2002, the
Company raised a further $516,540 from the sale of its common stock and
exercises of its stock options. The Company believes it has sufficient capital
and liquidity to finance current operations and its planned 2003 exploration
program. However, property acquisitions or changes in the scope of the Company's
operations may require additional financing. See "Item 4. Information on the
Company" and "Item 5. Operating and Financial Review and Prospects."
Price Fluctuations: Share Price Volatility
-------------------------------------------
In recent years, the securities markets in Canada have experienced a high level
of price and volume volatility, and the market price of securities of many
companies, particularly junior mineral exploration companies, have experienced
wide fluctuations in price which have not necessarily been related to the
operating performance, underlying asset values or prospects of such companies.
In particular, the per share price of the Company's common shares fluctuated
from a low of $0.17 to a high of $1.35 during the 12-month period ending March
31, 2003. There can be no assurance that continual fluctuations in price will
not occur.
Regulations Governing Operations
--------------------------------
Mining operations and exploration activities are also subject to national and
local laws and regulations governing prospecting, development, mining,
production, exports, taxes, labor standards, occupational health, waste
disposal, toxic substances, land use, environmental protection, mine safety, and
others which currently or in the future may have a substantial adverse impact on
the Company. In order to comply with applicable laws, the Company may be
required to make capital and operating expenditures or to close an operation
until a particular problem is remedied. Existing and possible future
environmental legislation, regulation and action could cause additional expense,
capital expenditures, restriction and delays in the activities of the Company,
the extent of which cannot be reasonably predicted. Violators may be required to
compensate those suffering loss or damage by reason of their mining activities
and may be fined if convicted of an offence under such legislation.
Amendments to current laws, regulations and permits governing operations and
activities of mining companies or more stringent implementation thereof could
require increases in capital expenditures, production costs, reduction in levels
of production of future mining operations, or require delays in development or
abandonment of new mining properties.
-13-
The Company's mining operations may be subject to foreign, federal, state,
provincial and local laws and regulations governing the protection of the
environment, including laws and regulations relating to air and water quality,
mine reclamation, waste disposal, and the protection of endangered or threatened
species. The Company's mining activities may be subject to foreign, federal,
state, provincial and local laws and regulations for protection of surface and
ground water. Prior to entering into any property agreements, the Company
conducts a review of prior exploration and development activity on the property
and, if necessary, conducts water and geological sampling and analysis to
identify any environmental concerns.
If the Company undertakes new mining activities, or significantly expands its
existing exploration activities, the Company may be required to obtain
pre-construction environmental and land use review and comply with permitting,
control and mitigation requirements of the jurisdiction in which such operations
are to be located. Compliance with new requirements could impose costs on the
Company in the future, the materiality of which cannot reasonably be predicted
at this time.
To the best of the Company's knowledge, it is in substantial compliance with all
material laws and regulations which currently apply to its activities. There can
be no assurance, however, that all permits which the Company may require for its
future operations will be obtainable on reasonable terms or that such laws and
regulations would not have an adverse effect on any mining project which the
Company might undertake.
To the best of the Company's knowledge, it has obtained all required permits
necessary to proceed with exploration and, when warranted, development of its
properties. If it were unable to obtain the necessary permits, the Company might
have to change its planned exploration/development for such non-permitted
properties and/or to seek other joint venture arrangements. If the Company were
unable to mitigate the problem, the Company might not be able to proceed with
exploration, development and/or production. In this event, the Company might
seek to mitigate any losses through sale of the property, prior to abandonment.
Foreign Countries and Regulatory Requirements
---------------------------------------------
The projects in which the Company has interests are located in Mexico and Peru.
Mineral exploration and mining activities in these foreign countries may be
affected in varying degrees by political instability and government regulations
relating to the mining industry. Any changes in regulations or shifts in
political conditions are beyond the control of the Company and may adversely
affect its business. Operations may be affected in varying degrees by government
regulations with respect to restrictions on production, price controls, export
controls, income taxes, expropriations of property, environmental legislation
and mine safety. The status of Mexico and Peru as developing countries may make
it more difficult for the Company to obtain any required exploration,
development and production financing for its projects. The effect of all of
these factors cannot be accurately predicted. Notwithstanding the progress
achieved in restructuring Mexican and Peruvian political institutions and
revitalizing their economies, there can be no assurance that the present
administrations, or any successor governments can sustain the progress achieved.
While the Mexican and Peruvian economies have experienced growth in recent
years, there can be no assurance that such growth will continue in the future at
similar rates or at all. The Company does not carry political risk insurance.
A substantial portion of the assets of the Company are located outside of
Canada, in Mexico and Peru. As a result, such assets may be affected by
government regulations and treaties, as well as by laws and policies of Canada
affecting foreign trade, investment and taxation. In addition, it may be
difficult to enforce judgments obtained in Canadian courts against assets
located outside of Canada.
Exploration and Mining Risks
----------------------------
The Company's exploration properties are without known ore bodies of commercial
ore. Development of the exploration properties depends on satisfactory
exploration results. Mineral exploration and development involves a high degree
of risk and few properties which are explored are ultimately developed into
producing mines. The long-term profitability of the Company's operations will
be, in part, directly related to the cost and success of its exploration
programs, which may be affected by a number of factors beyond the Company's
control.
-14-
Mineral exploration involves many risks, which even a combination of experience,
knowledge and careful evaluation may not be able to overcome. Operations in
which the Company has a direct or indirect interest will be subject to all the
hazards and risks normally incidental to exploration, development and production
of gold and other metals, any of which could result in work stoppages, damage to
property, and possible environmental damage.
The Company will continue to rely upon consultants and others for exploration
and development expertise. Substantial expenditures are required to establish
ore reserves through drilling, to develop metallurgical processes to extract the
metal from the ore and, in the case of new properties, to develop the mining and
processing facilities and infrastructure at any site chosen for mining. Although
substantial benefits may be derived from the discovery of a major mineralized
deposit, no assurance can be given that minerals will be discovered in
sufficient quantities to justify commercial operations or that funds required
for development can be obtained on a timely basis. The economics of developing
gold, silver and other mineral properties is affected by many factors including
the cost of operations, variations in the grade of ore mined, fluctuations in
metal markets, costs of processing equipment and such other factors as
government regulations, including regulations relating to royalties, allowable
production, importing and exporting of minerals and environmental protection.
Environmental Regulations
-------------------------
The Company's operations may be subject to environmental regulations promulgated
by government agencies from time to time. Environmental legislation provides for
restrictions and prohibitions on spills, releases or emissions of various
substances produced in association with certain mining industry operations, such
as seepage from tailings disposal areas, which would result in environmental
pollution. A breach of such legislation may result in the imposition of fines
and penalties. In addition, certain types of operations require the submission
and approval of environmental impact assessments. Environmental legislation is
evolving in a manner which means stricter standards, and enforcement, fines and
penalties for non-compliance are more stringent. Environmental assessments of
proposed projects carry a heightened degree of responsibility for companies and
directors, officers and employees. The cost of compliance with changes in
governmental regulations has a potential to reduce the profitability of
operations. The Company intends to comply with all environmental regulations in
Mexico and Peru. The Company does not have any properties on which commercial
mining operations are carried out.
Uninsurable Risks
-----------------
In the course of exploration, development and production of mineral properties,
certain risks, and in particular, unexpected or unusual geological operating
conditions including rock bursts, cave-ins, fires, flooding and earthquakes may
occur. It is not always possible to fully insure against such risks and the
Company may decide not to take out insurance against such risks as a result of
high premiums or other reasons. Should such liabilities arise, they could reduce
or eliminate any future profitability and result in increasing costs and a
decline in the value of the securities of the Company. The Company has obtained
Foreign Commercial General Liability insurance coverage of US$2 million on its
Peruvian operations. The coverage was required as a condition of the Company's
option agreement on the Los Lomas Properties. The Company has not obtained any
insurance coverage on its Mexican properties.
Supplies and Infrastructure
---------------------------
Some of the Company's property interests are not in developed areas and the
availability of infrastructure (water and power, and in some areas roads) at an
economic cost cannot be assured. Power is an integral requirement of any
production facility on the Company's properties.
Title to Properties
-------------------
The Company owns, leases or has under option, unpatented and patented mining
claims, mineral claims or concessions which constitute the Company's property
holdings. The ownership and validity of unpatented mining claims and concessions
are often uncertain and may be contested.
In those jurisdictions where the Company has property interests, the Company
makes a search of mining records in accordance with mining industry practices to
confirm that it has acquired satisfactory title to its properties but does not
-15-
obtain title insurance with respect to such properties. The possibility exists
that title to one or more of its properties, particularly title to undeveloped
properties, might be defective because of errors or omissions in the chain of
title, including defects in conveyances and defects in locating or maintaining
such claims, or concessions. Should any defect in title be discovered by or
disclosed to the Company, the Company would take all commercially reasonable
steps to perfect title to the particular claims or concessions in question. The
Company is not aware of any material defect in the title to its properties.
The boundaries of some of the Company's mining properties have not been surveyed
and, therefore, the precise location and area of these mining properties may be
in doubt. The Company is not aware of challenges to the location or area of its
unpatented mining claims.
The Company believes it has diligently investigated title to all of its mineral
properties and, to the best of its knowledge, title to all properties is in good
standing. However, the properties may be subject to prior unregistered
agreements or transfers and titles may be affected by undetected defects.
Permits and Licenses
--------------------
The Company may be required to obtain licenses and permits from various
governmental authorities. There can be no assurance that the Company will be
able to obtain all necessary licenses and permits that may be required to carry
out exploration, development and mining operations at its projects.
Competition
-----------
The mineral industry is intensely competitive in all its phases. The Company
competes with many companies possessing greater financial resources and
technical facilities than itself for the acquisition of mineral concessions,
claims, leases and other mineral interests as well as for the recruitment and
retention of qualified employees.
In addition, there is no assurance that even if commercial quantities of ore are
discovered, a ready market will exist for their sale. Factors beyond the control
of the Company may affect the marketability of any substances discovered. These
factors include market fluctuations, the proximity and capacity of natural
resource markets and processing equipment, government regulations, including
regulations relating to prices, taxes, royalties, land tenure, land use,
importing and exporting of minerals and environmental protection. The exact
effect of these factors cannot be accurately predicted, but the combination of
these factors may result in the Company not receiving an adequate return on
invested capital or losing its investment capital.
Currency Fluctuations
---------------------
The Company's operations in Mexico and Peru make it subject to foreign currency
fluctuation and such fluctuation may adversely affect the Company's financial
position and results. The Canadian dollar varies under market conditions. The
Company's foreign subsidiaries comprise a direct and integral extension of the
Company's operations. These subsidiaries are also entirely reliant upon the
Company to provide financing in order for them to continue their activities.
Consequently, the functional currency of these subsidiaries is considered by
management to be the Canadian dollar and accordingly exchange gains and losses
are included in net income. The Company maintains its cash and cash equivalent
amounts primarily in Canadian and U.S. denominated currencies. The Company does
not currently engage in hedging activities. See "Item 5. Operating and Financial
Review and Prospects."
Dilution
--------
The Company may in the future grant to some or all of its directors, officers,
insiders and key employees options to purchase the Company's common shares as
non-cash incentives to those employees. Such options may be granted at exercise
prices equal to market prices, or at prices as allowable under the policies of
the TSX Venture, when the public market is depressed. To the extent that
significant numbers of such options may be granted and exercised, the interests
of then existing shareholders of the Company will be subject to additional
dilution.
-16-
The Company is currently without a source of revenue and will most likely be
required to issue additional shares to finance its operations and, depending on
the outcome of its exploration programs, may issue additional shares to finance
additional exploration programs of any or all of its projects or to acquire
additional properties.
Conflicts of Interest
---------------------
Certain 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. Such associations may give rise to
conflicts of interest from time to time. Such a conflict poses the risk that the
Company may enter into a transaction on terms which place the Company in a worse
position than if no conflict existed. The directors and officers of the Company
are aware of the existence of laws governing accountability of directors and
officers for corporate opportunity and requiring disclosures by directors of
conflicts of interest and the Company will rely upon such laws in respect of any
directors' and officers' conflicts of interest or in respect of any breaches of
duty by any of its directors or officers. All such conflicts will be disclosed
by such directors or officers in accordance with the Company Act (British
Columbia) (the "Company Act") and they will govern themselves in respect thereof
to the best of their ability in accordance with the obligations imposed upon
them by law. Generally, the Company Act requires a director with a direct or
indirect interest in a contract or transaction to "disclose the nature and
extent of the director's interest at a meeting of the directors." A director
which has an interest in such a transaction is accountable to the corporation
for which the director serves for any profit the director receives as a result
of the transaction unless the director has previously disclosed the interest in
accordance with the Company Act, the board of directors subsequently approves
the transaction or contract, and the interested director does not vote on the
approval, or "the contract or transaction was reasonable and fair to the Company
at the time it was entered into, and after full disclosure of the nature and
extent of the director's interest, it is approved by special resolution."
If a conflict of interest arises at a meeting of the board of directors, any
director in a conflict will disclose his interest and abstain from voting on
such matter. In determining whether or not the Company will participate in any
project or opportunity, the board of directors will primarily consider the
degree of risk to which the Company may be exposed and its financial position at
that time.
The Company has no specific internal policy governing conflicts of interest. As
of the date of this registration statement other than as described in "Item 7.
Major Shareholders and Related Party Transactions", no material conflicts of
interest have arisen during fiscal 2002.
The following table identifies, as of March 31, 2003, the name of each director
of the Company and any public reporting company, for which such director
currently serves as an officer or director:
[Enlarge/Download Table]
NAME OF DIRECTOR NAME OF COMPANY POSITION TERM OF SERVICE
---------------- ------------------------------ -------- -----------------------
David Henstridge Argosy Minerals Inc. Chairman November 2001 - present
Director March 1999 - present
Tinka Resources Limited Director March 2003 - present
Nick DeMare Aguila American Resources Ltd. Director January 2003 - present
Aladdin Resources Corp. Director January 2001 - present
Andean American Mining Corp. Director August 2002 - present
Secretary December 1995 - present
California Exploration Ltd. Director October 2002 - present
Dial Thru International Inc. Director January 1991 - present
GGL Diamond Corp. Director May 1989 - present
Global Smartcards Inc. Director, President, September 2002 - present
CEO and Secretary
Golden Peaks Resources Ltd. Director January 1992 - present
Hilton Petroleum Ltd. Director October 1989 - present
Hydromet Technologies Limited Director September 2000 - present
Kookaburra Resources Ltd. Director June 1988 - present
Tinka Resources Limited Director, President October 2002 - present
Trimark Energy Ltd. Director January 1996 - present
-17-
[Enlarge/Download Table]
NAME OF DIRECTOR NAME OF COMPANY POSITION TERM OF SERVICE
---------------- ------------------------------ -------- -----------------------
Harvey Lim Hilton Petroleum Ltd. Secretary September 1995 - present
Trimark Energy Ltd. Secretary December 1988 - present
Health Matters
--------------
Certain of the properties in which the Company has an interest are in countries
where the presence of contagious diseases, including AIDS, cholera and various
other tropical diseases may affect the Company's ability to carry on operations
and obtain personnel.
Metal Prices
------------
Factors beyond the control of the Company may affect the marketability of any
substances discovered. The prices of various metals have experienced significant
movement over short periods of time, and are affected by numerous factors beyond
the control of the Company, 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 mineral producing
regions. Variations in the market prices of metal prices may impact on the
Company's ability to raise funding to continue exploration of its properties. In
addition, any significant fluctuations in metal prices will impact on the
Company's decision to accelerate or reduce its exploration activities.
Forward Looking Statements
--------------------------
Statements contained in this registration statement that are not historical
facts are forward-looking statements that involve risks and uncertainties. There
can be no assurance that such statements will prove to be accurate as actual
results and future events could differ materially from those anticipated in such
statements. Without limiting the generality of the foregoing, such risks and
uncertainties include interpretation of results and geology, results of
pre-feasibility and feasibility studies, recovery, accidents, equipment
breakdowns, labor disputes or other unanticipated difficulties with or
interruptions in production, delays in exploration or development activities,
political risks involving doing business in other nations and the policies of
these other nations, the inherent uncertainty of production fluctuations and
failure to obtain adequate financing on a timely basis.
Dependence on Key Personnel
---------------------------
The success of the operations and activities of the Company is dependent to a
significant extent on the efforts and abilities of its management. The loss of
services of any of its management could have a material adverse effect on the
Company. The Company has not entered into employment agreements with any of its
officers and is not expected to do so in the foreseeable future. The Company has
not obtained key-man life insurance on any of its officers or directors.
Notwithstanding the combined limited experience and time commitment of
management, loss of the services of any of these individuals would adversely
affect development of the Company's business and its likelihood of continuing
operations.
Absence of Dividends
--------------------
The Company has never declared or paid cash dividends on its common shares and
does not anticipate doing so in the foreseeable future. There can be no
assurance that the Company's Board of Directors will ever declare cash
dividends, which action is exclusively within its discretion. Investors cannot
expect to receive a dividend on the Company's common shares in the foreseeable
future, if at all.
"Penny Stock" Regulation of Broker-Dealer Sales of Company Securities
---------------------------------------------------------------------
The SEC has adopted rules that regulate broker-dealer practices in connection
with transactions in "penny stocks". Generally, penny stocks are equity
securities with a price of less than US$5.00 (other than securities registered
on certain national securities exchanges or quoted on the NASDAQ system). If the
Company's shares are traded for less
-18-
than US$5.00 per share, the shares will be subject to the SEC's penny stock
rules unless (1) the Company's net tangible assets exceed US$5,000,000 during
the Company's first three years of continuous operations or US$2,000,000 after
the Company's first three years of continuous operations; or (2) the Company has
had average revenue of at least US$6,000,000 for the last three years. The penny
stock rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document prescribed by the SEC that provides information about penny stocks and
the nature and level of risks in the penny stock market. The broker- dealer also
must provide the customer with current bid and offer quotations for the penny
stock, the compensation of the broker-dealer and its salesperson in the
transaction and monthly account statements showing the market value of each
penny stock held in the customer's account. In addition, the penny stock rules
require that prior to a transaction in a penny stock not otherwise exempt from
those rules, the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These requirements may have
the effect of reducing the level of trading activity in the secondary market for
a stock that becomes subject to the penny stock rules. Management believes the
Company's common stock will be subject to the penny stock rules and, as such,
holders of the common stock may find it difficult to sell the common stock of
the Company.
ITEM 4. INFORMATION ON THE COMPANY.
--------------------------------------------------------------------------------
History and Development of the Company
--------------------------------------
The Company was incorporated under the Company Act (British Columbia) on January
11, 2000 under the name "Planex Ventures Ltd." On May 22, 2002, the Company
changed its name to "Tumi Resources Limited".
The Company's registered, corporate and principal executive office is located at
Suite 1305 - 1090 West Georgia Street, Vancouver, British Columbia, Canada, V6E
3V7. The contact person is Nick DeMare, director. The telephone number is (604)
685-9316; the facsimile number is 604-683-1585. The Company does not have a
registered agent in the United States.
With the introduction of the Capital Pool Company Policy in November, 1999 (the
"CPC Policy"), the TSX Venture created a new category of listing, the capital
pool company, pursuant to which a company formed by individuals acceptable to
the TSX Venture could complete an initial public offering earlier in its
development than may be possible with a regular initial public offering.
Proceeds from the initial public offering must be used primarily to investigate
business opportunities for acquisition by the capital pool company. Only certain
acquisitions can be made by the capital pool company to satisfy the CPC Policy.
Such an acquisition is referred to as a qualifying transaction (the "Qualifying
Transaction").
The Company was initially formed to operate as a capital pool company, in
accordance with the CPC Policy. In January 2000, the Company completed its
initial financing and sold 1,684,000 common shares at a price of $0.075 per
share for proceeds of $126,300. During May 22, 2000, the Company completed an
initial public offering (the "IPO") and sold 1,700,000 common shares at a price
of $0.15 per share, for gross proceeds of $225,000. The proceeds from these
financings were used to investigate business opportunities.
In connection with the IPO, the Company and Research Capital Corporation
("Research Capital"), an unaffiliated company, executed an agreement (the
"Agency Agreement") dated February 28, 2000, as amended February 28, 2000
pursuant to which Research Capital agreed to act as the Company's agent in the
IPO. Research Capital was paid a corporate finance fee of $7,500 in connection
with the IPO. The Company also granted Research Capital warrants entitling
Research Capital to purchase up to 170,000 common shares at $0.15 per share
expiring December 22, 2001. On December 21, 2001, Research Capital exercised
warrants to acquire 75,000 common shares for $11,250 cash. The remaining
warrants expired.
Throughout the remainder of 2000 and during 2001, the Company reviewed a number
of potential business or asset acquisitions which would qualify as Qualifying
Transaction for regular listing as a Tier 2 company on the TSX Venture.
-19-
On February 28, 2002, the Company entered into an agreement (the "Heads of
Agreement") with Compania Minera Urumalqui S.A. ("MUSA") to acquire and develop
a resource property in Peru. The acquisition constituted a Qualifying
Transaction under the CPC Policy and qualified the Company for a Tier 2 listing.
Throughout the remainder of 2002, the Company entered into a number of
agreements to acquire mineral property interests. See "Item 4. Information on
the Company - Property, Plant and Equipment".
During 2002, the Company sold 2,450,000 shares of common stock through private
placements and issued 240,000 shares from the exercise of stock options and
warrants for total cash proceeds of $697,800. These funds were utilized for
resource property acquisitions and exploration, corporate overhead and general
working capital.
Business Overview
-----------------
The Company is a exploration stage mineral exploration company and, to date, has
not earned any production revenue, nor found any proved reserves on any of its
properties. Since the completion of its original option agreement on the Las
Lomas Properties, the Company has proceeded to enter into a number of option
agreements to acquire interests in resource properties located in Peru and
Mexico. See "Item 4. Information on the Company - Property, Plant and
Equipment".
The Company is currently focusing its financial resources in conducting an
exploration program on the Cinco Minas Property in Mexico.
Dispositions
------------
During fiscal 2002 the Company did not abandon, dispose, assign or joint-venture
any of its arrangements to earn interests in its mineral properties. In February
2003, the Company terminated its option agreement on the Los Lomas Properties
and farmed out its option agreement on the Tinka Property. See "Item 4.
Information on the Company. Property, Plant and Equipment - Other Properties".
Exploration Expenditures
------------------------
During fiscal 2002, the Company incurred $463,325 for mineral property
acquisition costs and $267,378 for exploration costs on its mineral property
interests. No mineral property acquisitions or exploration expenditures were
conducted in fiscal 2001.
2003 Exploration Budget
-----------------------
The Company has committed US$200,000 towards the Phase I drilling program to be
conducted on the Cinco Minas Property. Provided that the results are favorable,
the Company intends to follow-up with a Phase II scoping program, estimated at
approximately US$100,000. The Company may also conduct a US$100,000 geological
survey and sampling program at Gran Cabrera. However, any final decision will be
dependent on the results at the Cinco Minas Property and adequate financial
resources.
Sales and Revenue Distribution
------------------------------
As of the date of this registration statement, the Company has not generated any
revenues from its mineral properties.
Employees
---------
As of the date of this registration statement the Company had no employees. The
Company has retained Chase Management Ltd. ("Chase"), a private company
wholly-owned by Mr. Nick DeMare, to provide management, financial, accounting
and corporate administrative services. Chase provides its services to a number
of public and private companies and currently employs six full-time employees,
including Mr. Harvey Lim (excluding Mr. DeMare). In addition to the services
provided by Chase, Mr. David Henstridge provides his services as the President
of the Company. The Company also retains consultants to handle specific projects
on a case by case basis. See "Item 6. Directors, Senior Management and Employees
- Compensation".
-20-
Organizational Structure
------------------------
The following chart sets forth the names of the significant subsidiaries of the
Company, their respective jurisdictions of incorporation and the Company's
ownership interests therein as of the date of this registration statement.
Unless otherwise indicated herein, the term "Company" means collectively the
Company and its subsidiaries.
ORGANIZATION CHART
-------------------------
| TUMI RESOURCES LIMITED |
| (British Columbia) |
-------------------------
|
|
--------------------------------------------------------
| | |
| | |
---------------------------- ----------------- --------------------
| | | Compania Minera | | |
|TMXI Resources S.A. de C.V.| | Cinco Minas | | Tumi Resources S.A.|
| (Mexico) | | S.A. de C.V. | | (Peru) |
| 100% | | (Mexico) | | 100% |
| | | 60% | | |
---------------------------- ----------------- --------------------
Subsidiaries
------------
The Company has three subsidiaries:
(a) Compania Minera Cinco S.A. de C.V. ("Compania Cinco Minas") was
incorporated in Mexico on October 15, 2002. Although the Company is a
recorded holder of 60% of the issued and outstanding common shares of
Compania Cinco Minas , it has a 100% beneficial interest in the assets and
liabilities of Compania Cinco Minas until it has earned its 60% option on
either the Cinco Minas property or Gran Cabrera Properties, as described in
"Item 4. Information on the Company. Property, Plant and Equipment".
(b) TMXI Resources S.A. de C.V. ("TMXI") was incorporated in Mexico on October
15, 2002, as a 100% owned subsidiary. TMXI was set up to pursue the
Company's mining business activities in Mexico, outside of its activities
in Compania Cinco Minas.
(c) Tumi Resources S.A. ("Tumi Peru") was incorporated in Peru on July 8, 2002,
as a 100% owned subsidiary. Tumi Peru was set up to pursue the Company's
mining activities in Peru.
Principal Offices
-----------------
The Company's corporate and principal business office is located at Suite #1305,
1090 West Georgia Street, Vancouver, British Columbia, Canada. The office
facility is provided on a month-to-month basis by Chase as part of its agreement
with the Company. See "Item 7. Major Shareholders and Related Party Transactions
- Related Party Transactions."
Property, Plant and Equipment
-----------------------------
The Company's operations are focused on the exploration of its mineral
properties. As of the date of this registration statement, the Company did not
have any plant and equipment, mines or producing properties, nor had it located
any commercially viable reserves on its properties.
-21-
[MAP 1 - CINCO MINAS & GRAN CABRERA PROJECTS INDEX MAP]
-22-
[MAP 2 - TINKA AND LAS LOMAS PROJECT LOCATIONS]
-23-
PRINCIPAL PROPERTIES
a) Cinco Minas Property, Mexico
Property Agreements
-------------------
On July 6, 2002, the Company entered into a heads of agreement (the "Cinco
Minas HOA") with Minera San Jorge S.A. de C.V. ("Minera San Jorge"), an
arm's-length party, whereby the Company was granted an option to acquire up
to a 100% working interest in Minera San Jorge's rights, title and interest
in certain exploration and mining concessions (the "Cinco Minas Property")
located in Mexico. On August 14, 2002, the Company and Minera San Jorge
entered into a subsequent agreement (the "Cinco Minas Agreement"), which
formalized the terms of the Cinco Minas HOA. The Cinco Minas Property
consists of six mineral concessions totaling 527 hectares, located in
Jalisco, Mexico. The Company also has the option to acquire a 100% interest
in a further 10,862 hectares of concessions located with or near the Cinco
Minas Property.
Under the terms of the Cinco Minas Agreement the Company paid US$50,000
upon the signing of the agreement. In order to earn an initial 60%
interest, the Company must fund a total of US$2.5 million in exploration
expenditures, including option payments to concession holders and
government concession taxes, including the completion of a feasibility
study on or before May 23, 2005. As further consideration, the Company is
required to issue 1,100,000 shares of the Company's common stock, on the
following basis:
NUMBER
OF SHARES
---------
100,000 issued;
200,000 on the first anniversary of the Cinco Minas HOA;
300,000 on the second anniversary of the Cinco Minas HOA; and
500,000 on the third anniversary of the Cinco Minas HOA;
---------
1,100,000
=========
The Cinco Minas Agreement is subject to an underlying agreement (the "Fitch
Agreement") between Minera San Jorge and Pablo Antonio Fitch, dated August
2, 2002. The Fitch Agreement covers two concessions of approximately 73
hectares. Minera San Jorge has the right to purchase 100% interest in the
Fitch Concessions for a total of US$350,000 (US$10,000 has been paid by the
Company) over a period of six years.
Upon earning the initial 60% interest in the Cinco Minas Property, the
Company has the option to purchase the remaining 40% interest at a purchase
price based on a discounted net present value. Payment for the 40% interest
may be made in cash or by issuance of the equivalent amount in value in
shares of the Company's common stock. The Company holds a first right of
refusal should an outside party bid for Minera San Jorge's 40% interest.
Introduction
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The six properties under option to the Company are located in the
Hostotipaquillo Mining District, State of Jalisco, Mexico. The pertinent
claim statistics are itemized below:
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CONCESSION CONCESSION LICENSE TITLE HOLDER AREA
NAME TYPE EXPIRY DATE NO. 100% (HECTARES) TITLE STATUS
------------- -------------- ----------- ------- -------------- ---------- ------------
Consuelo Exploration Title pending 199598 Pablo Antonio 46.15 Option to
Issued 04/26/94 change to Fitch Parente purchase 100%
exploitation - interest
application made
July, 2000. This
application is for
50 years.
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[Enlarge/Download Table]
CONCESSION CONCESSION LICENSE TITLE HOLDER AREA
NAME TYPE EXPIRY DATE NO. 100% (HECTARES) TITLE STATUS
------------- -------------- ----------- ------- -------------- ---------- ------------
Lucerito Exploration Title pending 199590 Pablo Antonio 26.92 Option to
Issued 04/26/94 change to Fitch Parente purchase 100%
exploitation - interest
application made
July, 2000. This
application is for
50 years.
Los Ricos Exploration 29/03/2005 209337 Francisco Javier 62.15 Granted
Issued 03/30/99 Azpeitia J. & Exploration
Lourdes del C. Mining
El Rico Exploration 29/03/2005 209338 Francisco Javier 34.07 Granted
Issued 03/30/00 Azpeitia J. & Exploration
Lourdes del C. Mining
Milagros Exploration 08/04/2005 209461 Francisco Javier 258.18 Granted
Issued 04/09/01 Azpeitia J. & Exploration
Lourdes del C. Mining
San Jorge V Exploration 09/10/2003 205844 Minera San Jorge 100.00 Granted
Issued 10/09/97 S.A. de C.V. Exploration
Mining
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TOTAL AREA 527.47
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Taxes of approximately US$450 are due every six months, on or before
January 31st and July 31st. These taxes are for exploration and mining
rights only. Surface rights taxes are paid only by the surface owner;
mining rights to do not entitle surface rights. In the case of exploitation
titles, there is another tax owed according to the amount of ore that has
been mined.
Before, or on, May 30 of each year, a proof of the work that has been done
during the last year has to be presented to the Director of Mining for
Mexico. The report has to indicate the type of work that has been done in
the mining claim and the amounts expended. The invoices and receipts for
such expenses must exist and can cover surveying works, roads, sampling,
geology, lab invoices, etc.
Exploration titles are given after presenting an application for an
exploration concession and the assessment work done by a registered
surveyor. They are good for six years, and before the expiration date have
to be changed for an exploitation title. The assessment work has to show
the exact location of the claim, surface, and claims around it. The Cinco
Minas Property has been legally surveyed.
Exploitation titles are good for 50 years. They are given after presenting
the application for exploitation and the assessment work.
An explorer must submit an environmental impact report to the environmental
secretary and also apply for a change of soil use permit before exploration
can commence.
Permits that are required before exploration or exploitation can start
include the aforementioned environmental impact report and change of soil
use report, a land use permit from the surface owners, and where
applicable, use of explosives, use of water and use of electricity permits.
The Cinco Minas Property is accessible by either a four lane highway west
from Guadalajara, the third largest city in Mexico, or via an older
two-lane highway that passes through the town of Tequila on to the
community of Magdelana, a distance of about 70 kilometers. From Magdalena
the property is accessed by another 5 kilometers of paved road and then
another 20 kilometers of good gravel road. Access is adequate in a
two-wheel-drive vehicle
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with good tires. The topography on and around the property is fairly rugged
and steeply incised. Elevations on the property range from around 1,100
meters above sea level ("ASL") to 1,500 meters ASL, and the Cinco Minas
vein and workings occur at about the 1,300 meters level and somewhat higher
to the northwest.
Vegetation is sparse, consisting of thorn bushes, scrub oaks, a type of
cedar, cacti and various assorted shrubs and vines. The landscape looks
fairly bleak during the dry season between mid-October and mid-June, but it
lushes up with the advent of the rainy season during the summer months. The
climate is typically arid to semi-arid; temperatures are hot in the summer
months and mild in the winter. It is possible to work on the property on a
year- round basis, but seasonal rains may inhibit local access
occasionally.
There exists hydroelectric power (220 kv) on the site via a power line
built in the early part of last century from Guadalajara. This power line
serviced the Cinco Minas and Monte El Favor mines. There is water emanating
from the main haulage way of the Cinco Minas mine, and streams flow with
some water all year, while others only during the wet season. Rio Santiago
occurs just a few kilometers to the northeast but at about 1,000 meters
elevation. There is an adequate labor source in the community of Cinco
Minas and in nearby Hostotipaquillo as well as in the countryside around
the property.
History
-------
The Destajos, Famosa and Trinidad zones (levels) of the Cinco Minas vein
were exploited as early as Spanish colonial times in the early 1500's. The
next documented record of exploitation in the area was in 1824 when a
Coronel Schiaffino had the property. Subsequently, the property was worked
by a Mr. Luis Martinez of Guadalajara, but after him the mine was
significantly enlarged by the Cinco Minas Mining Company ("CMMC"), owned by
Marcus Daly, the co-founder of the Anaconda Copper Company. The exact date
when CMMC commenced development of the property is not shown in any
literature available. Letters from people working on the neighboring El
Aguila Mine are dated at 1911, so CMMC was probably in operation by that
time.
CMMC built the road to the mine and town and also brought in a 220 kv power
line that is still standing and functional today. CMMC bought the power
from the Chapala hydroelectric plant on Lake Chapala, just south of
Guadalajara.
The mine operated until 1930 when it was shut down partly due to depleted
reserves and the Depression and partly due to civil unrest in Mexico.
During its operation, CMMC developed and mined the El Abra zone ore shoot
on seventeen levels. The shoot was mined over a distance of about 700
meters vertically and horizontally over 450 meters near the top of the vein
and over about 100 meters at the lowest levels.
In 1916, during the visit by the Mexican government engineer, Villafana,
CMMC was operating a 300 tonne per day mill. A hand-written memo by an
unknown American engineer in 1930 states that the mine was operating at 500
tonnes per day.
After CMMC closed the mine, the mill and equipment was purchased by Henry
Wyman and used in the Wyman Copper property, Tepezalan, Aguascalientes.
Around 1930, local Mexicans formed a mining co-operative and exploited the
deposit at a reduced scale until 1953, sending their selected ore to custom
mills. During this time part of the Cinco Minas vein was mined as an open
pit. No recorded mining has been done on the property since that time.
The property was inactive for several years thereafter until Cia. Minera
Las Cuevas, S.A. ("MLC") operated an exploration program between 1981 and
1982. Their work included surface and underground mapping, sampling and
diamond drilling along an approximately 300 meters segment of the Cinco
Minas vein system.
There exists no known historical resource or reserve on the Cinco Minas
Property from the previous operators.
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Regional and Local Geology
--------------------------
The Hostotipaquillo mining district occurs within the approximate
intersection of two extensive calc-alkaline magmatic arcs, the older Sierra
Madre Occidental volcanic province and the younger Trans-Mexican volcanic
arc (or Neo-Volcanic Belt). The Sierra Madre Occidental volcanic province
trends northwest along the Pacific margin of Mexico and parallels the
western coastline. It extends for approximately 1,700 kilometers from the
USA border to the Mexican state of Guerrero. The later east-west trending
Trans-Mexican volcanic arc (Eje Neovolcanico) overlaps and partially
obscures the southern portion of the Sierra Madre Occidental volcanic
province.
The lithologies around Cinco Minas consist of mid-upper Cenozoic volcanics
consisting of Miocene age andesite flows and coeval tuffs and breccias,
Pliocene rhyolites comprised of lavas and small intrusions and finally
Miocene to Pliocene Holocene basalt flows. The rhyolitic stocks are
believed to be related to the mineralization found at the Cinco Minas mine.
Property Geology
----------------
Andesite occurs in various colors and textures. Northwest of the El Aguila
mine, near the bottom of the vein and in San Miguel Creek and the mouth of
La Calera Creek (location unknown), the andesite is greenish-grey in color
and has a very fine texture. It contains abundant quartz phenocrysts, and
previous investigators have classified it as a quartz andesite.
At the village of Cinco Minas occur outcroppings of the andesite that form
the hanging wall to the Cinco Minas vein. They are reddish-purple,
porphyritic and rest atop andesitic tuffs. These andesites have been
observed to occur in an open pit exposure at the El Abra workings. Large,
post-mineral fault has dragged these volcanics down the dip-slope of the
Cinco Minas vein such that they appear to rest conformably on the
vein/fault surface.
In the mine, rhyolites are observed overlying andesite in the lower parts
of the vein. On the surface, the rhyolites are found principally in
outcroppings above the vein and underlie most of the higher hills found to
the northeast of it. The rhyolites have various shades of pink and light
green and often contain quartz phenocrysts. The latter type was observed
along crosscuts connected to the La Formosa level haulage located in the
footwall of the Cinco Minas vein.
Two types of tuffs were observed: andesitic and rhyolitic. The former type
outcrop in Cinco Minas creek, are light green, fine grained and locally
have purplish interbands and show some signs of internal folding. The
latter type outcrops in the higher parts of the hillside in the extreme
northwest part of the Cinco Minas vein near the San Juan workings. Here
they have a pale pink color and contain abundant quartz and biotite
phenocrysts and phenocrysts of feldspars that are kaolinized.
Breccias occur above the rhyolite northeast of El Pitayo. They form
stratiform layers with a northwesterly strike and dip of 32(degree) to the
northeast. They consist of angular fragments of red and green volcanics 1
to 5 mm across. The orientation and distribution of clasts suggests a vent
source to the west. The matrix is of a rhyolitic origin.
Younger basalts overlay all the units mentioned above. Two types are
distinguished: one group occurs below the Cinco Minas vein. They overlay
the rhyolite northeast of El Capizayo and have a fine grained texture.
Petrographic analysis indicates that it is a porphyritic basalt containing
hornblende and enstatite. Their stratigraphic position suggests that they
were deposited early in the volcanic succession and possibly are part of a
bimodal suite which includes the rhyolite emissions. The other basalts
occur higher up and directly overlay the rhyolite tuffs. They have an
amygdaloidal texture and appear to be much younger than the other basalts.
Weathered, unwelded to partially welded tuffs are exposed at low elevations
west of the main Cinco Minas vein. These tuffs are poorly exposed on the
surface but are better exposed in the hanging wall of the El Troce adit
where they occur over about 100 meters true thickness. What was previously
mapped as gouge is in fact a weathered tuff that contained pyrite before
oxidation. The tuffs dip gently near the portal of the adit and much more
steeply next to the vein (all dipping to the southwest). At least some of
the six mappable units within the adit are separated by
-27-
angular unconformities. However, the steepening of the strata nearer the
vein could be due to the drag effect of the normal post-mineral fault. The
presence of oxidized pyrite suggests that this unit is pre-mineral.
Tuffs closer to the portal of the adit, containing abundant pumice, are
believed to be post-mineral. Outcrop west of the El Aguila section of the
vein consists of golden biotite bearing tuffs that appear to overlay
alluvium that contains boulders of vein material. Basalt overlies these
young tuffs.
Exploration
-----------
On November 13, 2002, the Company commenced an underground channel sampling
program at the Cinco Minas Property. The work program focused on sampling
of the un-mined hanging wall of the Cinco Minas vein.
In order to check the validity of open pit type resources in the un-mined
hanging wall of the El Abra ore shoot, the Company rehabilitated and
cleared the underground access of the historical Cinco Minas Mine. The
cleared areas of the workings were channel sampled using an electric hammer
drill. The previous miners systematically placed crosscuts through the
entire width of the vein but only mined the bonanza shoots. Channel samples
were taken across 2 meter intervals where possible and in excess of 15
kilograms per sample was generally collected for assay. The program was
supervised by Mr. John Nebocat, a consulting geologist and a qualified
person in accordance with Canadian legislation. Samples were crushed and
split by Chemex Laboratories in Mexico and shipped to Vancouver for assay.
It was not always possible to sample the entire width of the prospective
hanging-wall due to numerous blockages in the access tunnels and crosscuts.
Therefore due to the difficulty of rehabilitating access to some of the old
workings, it was decided to discontinue the underground sampling program
and commence a drill program.
Results received from the first and second phase of the channel sampling
program are:
LEVEL HORIZONTAL GOLD SILVER
(depth from surface) SECTION WIDTH (m) (g/t) (g/t)
-------------------- ------- ---------- ----- ------
El Abra (0m) 340W 2.50 1.17 71
352W 4.00 1.34 124
366W 8.80 1.67 88
384W 13.00 2.33 65
392W 4.50 0.56 53
397W 4.80 0.51 66
404W 9.40 0.90 132
423W 6.25 3.16 105
Sublevel 1 (-11m) 416W 5.75 1.26 117
425W 5.80 2.06 176
Sublevel 2 (-18m) 417W 1.75 2.69 189
Destajos (-28m) 420W 6.00 2.06 287
Sublevel 3 (-34m) 404W 2.30 1.26 299
Upper Trinidad (-71m) 460W 12.90 0.57 57
Trinidad (-87m) 408W 12.90 1.95 168
415W 12.50 1.83 340
424W 4.20 1.24 233
434W 7.87 0.52 177
466W 7.70 0.70 93
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While on the Trinidad level the sampling crews accessed a 35 meter long
stope running to the northwest within the vein. Eleven channel samples were
taken averaging 1.68 meters width with an average grade of 1.45 g/t gold
and 268 g/t silver. Similarly, four samples were taken from a stope running
20 meters to the southwest (located 15 meters below the Destajos level) and
these samples averaged 1.12 meters width grading 0.67 g/t gold and 125 g/t
silver.
Although the number of samples taken to date is small, the samples indicate
the potential for finding open pit type resources within the hanging-wall
of the Cinco Minas vein as well as confirming that the old data base is
reliable.
Of significance are the "El Abrita" and "Cerro Colorado" zones located
southeast along the vein from the historically rich El Abra ore shoot.
These zones have been examined and interpreted by several independent
consulting geologists as being potentially large ore shoots similar to the
El Abra ore zone. Little exploration has been done on these zones. An
initial surface inspection and sampling program has been undertaken at the
El Abrita zone, located about 660 meters to the southeast of El Abra. One
small adit driven into the footwall of the vein for a distance of 7.5m has
been sampled and it averages 1.1 g/t gold and 61 g/t silver. A quartz vein
intersected in the footwall rocks was channel sampled, averaging 0.2 g/t
gold and 94 g/t silver over 1.1 meters. At surface geologists sampled seven
silicified outcrops of vein located sporadically over a distance of 50
meters along the Cinco Minas vein (total width of vein unknown but known to
exceed 9.4 meters in places). From an average sample length of 1.32 meters
the seven samples averaged 3.4 g/t gold and 232 g/t silver.
At El Abrita a prospective strike length of 400 meters to 600 meters has
been traced by mapping float and plotting old workings. The structural
setting interpreted by the independent geologists suggests a cymoid loop
similar to that known at the historically rich El Abra ore shoot which
extends to a depth of 760 meters and has a strike length of 350 meters to
450 meters. As this cymoid loop with quartz-adularia alteration suite has
been recognised at both El Abrita and Cerro Colorado, it indicates that
there is the potential for discovering further bonanza grades of silver and
gold mineralization at both these zones.
A Phase 1 drilling program commenced in early March 2003. The program is
estimated at approximately US$200,000 and will comprise of 1,500 meters of
drilling on Al Abra, El Abrita and Cerro Colorado zones. Dependent on the
results from Phase 1, a Phase 2 follow-up drill program, estimated at
approximately US$100,000, will be conducted at Cinco Minas.
OTHER PROPERTIES
----------------
a) Gran Cabrera Properties, Mexico
On October 23, 2002, the Company and Minera San Jorge entered into a heads
of agreement (the "Gran Cabrera HOA") whereby the Company was granted an
option to acquire up to a 100% working interest in the Gran Cabrera
Properties. The Gran Cabrera Properties are located across the border of
two states, Nayarit and Jalisco, Mexico, and cover a group of historically
high-grade silver-gold mines.
Under the terms of the Gran Cabrera HOA, the Company may earn an initial
60% working interest by expending US$2.5 million, over three years, on the
Gran Cabrera or Cinco Minas properties and issuing an initial 250,000
shares (issued) and a further 500,000 shares over two years. At the Gran
Cabrera Properties, the Company has committed to incur minimum expenditures
of US$75,000, US$100,000 and US$150,000 over three years. The Company has
the right to purchase the remaining 40% interest in the Gran Cabrera
Properties should a development area be identified.
The Gran Cabrera Properties, totaling 3,950 hectares, are centered on three
large silver-gold epithermal systems associated with volcanic units
northwest of Guadalajara, Mexico. San Jose, Espada-La Deseada, and Las
Caridades are groupings of rich, historic, silver-gold mines located in the
historic Hostotipaquillo mining district. The Cabrera mega-system contains
stockworks, breccia hosted ore bodies, and large vein feeder sub-systems at
the intersection of the Sierra Madre and the Trans Mexican Volcanic Arc.
-29-
Within the property areas there are more than fifteen significant old
precious metals mines that historically produced high grade silver-gold ore
periodically over a period of more than 350 years beginning with their
discovery by early Spanish Conquistadors. The mines covered include the San
Jose, Esperanza, Creston, Espada, Deseada, Paloma, Dura, Esmeralda, Burro,
Concordia, Escondida, Banco, Peralta, Caridad, and Victoria mines.
There are four immediate primary target areas within the property areas,
Espada-Dura-Deseada- Esmeralda cluster; and the San Jose cluster (with the
Velazquez exploration adit driven at a lower level) including the Esperanza
and Creston mines, and the Caridad cluster of mines including the Banco,
Escondida, Concordia, la Caridad, Victoria, Burro and Paloma Mines, the
latter two along the Santiago River; and a fourth area around the Peralta
Mine and adjacent areas. All four areas show evidence of Spanish
exploration and mining as well as mining efforts conducted by American
mining interests into the early part of the 20th Century.
The Espada-Deseada-Dura-Esmeralda ("Espada Mines") cluster of old mine
workings represents the west-central part of the Gran Cabrera Mega-shear
which is known over a distance of approximately 15 kilometers. According to
engineering reports prepared by the American operators in the early 1900's
who opened small pits at three of the mines, the Espada ores were the
highest grade of gold and silver ores mined in the "Gran Cabrera" district.
The mines, which lie within a brecciated, extensive shear zone in
volcanics, are open pit targets and a breccia pipe may be represented at
Espada. The Dura and Deseada mineralization appears to lie within a large,
relatively rich stockwork. Within the prospective area, pervasive
alteration by quartz and vuggy silica in veins and stockworks produced very
hard, silicified host rocks which could not be economically mined and
processed either by the early Spanish miners or by the Americans in the
early part of the 20th Century. These zones are also immediate exploration
targets as modern mining practices can handle this type of ore.
At the San Jose mine, the Velazquez adit is 350 meters in length, and was
driven for exploration into the surrounding host rocks trying to cut high
grade ore shoots within the larger mega-shears, breccias and stockworks. It
remains unknown as to whether low grade mineralization was intersected by
these cross cuts simply because no records of sampling of the wall rocks
exist and lower grade mineralization would not have been of interest to the
miners driving those workings. Also at the San Jose Mine, another adit (the
Vida) has been developed for 380 meters and ores were found with grades
that can be beneficiated by cyanidation, and ore blocks were developed in
the mine estimated to be 100,000 tonnes, with an average grade of 1.5 g/t
Au and 500 g/t Ag.
As of the date of this registration statement, the Company is focusing its
resources on the exploration of the Cinco Minas Properties and, as a
result, has not committed any funds to conduct exploration on the Gran
Cabrera Properties. Management anticipates that it may conduct a US$100,000
geological and sampling program towards the latter part of fiscal 2003.
However, any decision will be dependent on the results at the Cinco Minas
Property and adequate financial resources.
b) Los Lomas Properties, Peru
On February 28, 2002, the Company entered into a heads of agreement (the
"Los Lomas HOA") covering the 13,100 hectare Los Lomas Properties located
in northern Peru. The property is owned by MUSA, a private Peruvian company
jointly owned by BHP Billiton Mining and Exploration Peru B.V. and Compaia
Minera San Ignacio de Moroacocha S.A. The Company had the option to earn a
70% interest in the properties by spending US$1 million over a four year
period on the following basis:
Expenditures Work Period
------------- -------------------------
US$ 100,000 Prior to February 1, 2003
US$ 200,000 Prior to February 1, 2004
US$ 200,000 Prior to February 1, 2005
US$ 500,000 Prior to February 1, 2006
-------------
US$ 1,000,000
=============
At MUSA's election, the Company would be also required to issue to MUSA up
to 250,000 common shares: 75,000 shares on receipt of TSX Venture approval
(issued), a further 50,000 shares on each of the first two anniversaries
-30-
and 75,000 on the third anniversary, provided that the Company has not
withdrawn from the option agreement. Upon having earned this interest, the
Company would give to MUSA the right to back-in for a 70% project interest
by funding all subsequent expenditure on the properties until the
commencement of commercial production. Alternatively, MUSA could elect to
convert its 30% project interest into a 1.5% net smelter return.
Historically, MUSA has conducted within the properties regional soil
sampling, mapping, structural interpretation, gravity, magnetic and
transient electro-magnetic ("TEM") ground surveys and reconnaissance
drilling. A number of significant volcanic massive sulphide indications
have been identified by MUSA and others within the Los Lomas properties and
include exhalative chert horizons, disseminated sulphides, stockwork
mineralization, barite, gossans, and altered volcanics.
The Company intended to undertake a program of follow-up ground gravity on
the geological targets defined by a Falcon(TM) airborne gravity survey, as
a prerequisite to a reconnaissance drilling campaign, to explore new target
areas. As part of the option agreement with MUSA, the Company had committed
to drill at least two of these large untested targets. Recent events,
including the results of the informal plebiscite held in the community of
Tambo Grande regarding the development of another mining company's deposit,
have resulted in opposition to mining activity in this area. This impacted
on the Company's ability to initiate its proposed drill program at Las
Lomas as access to the drill sites was denied by local officials and
landowners. As a result, the Company postponed its work program at Los
Lomas. In February 2003, the Company notified MUSA that it had terminated
the Los Lomas HOA. Accordingly, the Company wrote off $15,000 acquisition
costs and $82,720 exploration expenditures in fiscal 2002.
c) Tinka Property, Peru
On May 31, 2002, the Company signed a letter of intent ("LOI") with, Mr.
Robert O. Plenge, over the Tinka Prospect, located in southern coastal
Peru. Under the terms of the LOI, the Company may earn a 100% interest in
the 2 claims (1,800 hectares) by issuing 250,000 common shares of the
Company annually, over a three year period for a total of 750,000 shares
(250,000 shares issued). On completion of the earn-in, the vendor will
retain a 1% net smelter royalty ("NSR") over the project area. The NSR can
be acquired at any time by the Company for US$750,000.
On February 19, 2003, the Company entered into a heads of agreement (the
"Tinka HOA") with Tinka Resources Ltd. ("Tinka Resources"), a
publicly-traded company, of which certain of its directors and officers are
also directors of the Company, whereby the Company, upon receipt of
approval from the TSX Venture, has agreed to grant a 70% interest in the
option on the Tinka property. See "Item 7. Major Shareholders and Related
Party Transaction - Related Party Transactions". Under the option, Tinka
Resources has agreed to assume the Company's share issuance obligations
through the issuances of a total of 500,000 common shares of Tinka
Resources' share capital over three years. Tinka Resources must also fund a
total of US$2.5 million in exploration expenditures, including underlying
option payments and government taxes, over a three year period.
The Tinka Prospect is located approximately 300 kilometers south of Lima,
Peru and approximately 35 kilometers east of Ica and lies within the well
known Peruvian coastal copper belt. Locally to Tinka, the belt contains
strata bound replacement copper deposits and volcanic massive sulphide
deposits. Further to the south, the belt contains the Toquepala, Cuajone,
Quellaveco and Cerro Verde porphyry copper mines.
Although no drilling has been undertaken within the Tinka Prospect area,
significant surface exploration work programs have been undertaken over a
period of 30 years, including road construction, two programs of Induced
Polarization ("IP"), geological mapping and a trenching program in which
434 chip samples were taken from the weathered surface profile and
analyzed.
The Tinka Prospect area is underlain by rocks of the coastal batholith
where a complex suite of intrusive rocks has intruded andesitic to
rhyolitic volcanics and sediments. Of economic significance is that the
rocks within the claim areas have undergone intense deformation and
alteration as evidenced by stockwork fracturing and argillic and
quartz-sericite alteration. The results of the IP surveys conducted in 1972
and 1997 defined a very large, continuous IP anomaly extending
approximately 3,200 meters north-south by 1,400 meters east-west.
-31-
The rock chip samples were collected from trenches and roadcuts within the
area of the IP anomaly. A cumulative log probability plot of the copper and
gold results indicates that anomalous copper values are those greater than
about 750 parts per million ("Ppm") (86th percentile) and anomalous gold
values are those greater than about 0.250 Ppm (97th percentile). This
represents 60 and 11 samples, respectively. The samples were analyzed by
ITS/Bondar Clegg in Canada.
The IP and geochemical responses from within the area could be indicative
of either an underlying massive sulphide deposit (such as the known Raul
and Condestable deposits located to the south) or that the area is
underlain by a porphyry copper-gold complex.
Office Space
------------
The Company's corporate and principal business office is located at Suite 1305 -
1090 West Georgia Street, Vancouver, British Columbia, Canada. The office
facility is provided on a month-to-month basis as part of its agreement with the
Company. See "Item 7. Major Shareholders and Related Party Transactions -
Related Party Transactions".
Plan of Operation
-----------------
As of December 31, 2002, the Company had working capital of $338,569. With
proceeds of $516,540 received subsequent to December 31, 2002, on a private
placement of equity shares and exercise of stock options, the Company had
approximately $855,109 of working capital. The following table indicates the
principal purposes for which the Company proposes to spend the available funds
for the remainder of fiscal 2003:
[Download Table]
Description of Expenses $
-----------------------
1. Estimated general and administrative expenses 200,000
2. Phase I drilling program on Cinco Minas (US$200,000) 350,000
3. Phase II follow-up drilling program on Cinco Minas (US$100,000)(1) 150,000
4. Geological and sampling program on Gran Cabrera (US$100,000) 150,000
----------
850,000
==========
(1) Dependent upon the results obtained from Phase I.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.
--------------------------------------------------------------------------------
The following discussion of the financial position, changes in financial
position and results of operation of the Company for the fiscal years ended
December 31, 2002, 2001 and 2000 should be read in conjunction with the
accompanying audited consolidated financial statements of the Company and
related notes included therein.
The Company's consolidated financial statements are prepared in accordance with
Canadian GAAP, the application of which, in the case of the Company, conforms in
all material respects for the period presented with US GAAP except for the
differences noted in Note 12 of the consolidated financial statements of the
Company included herein. The noon rate of exchange on March 31, 2003, reported
by the United States Federal Reserve Bank of New York, for the conversion of
Canadian dollars into United States dollars was CDN$1.4695 (US$0.6805 -
CDN$1.00). The effects of inflation and price changes have not had a material
impact on the Company's operations since its incorporation.
The Company's consolidated financial statements were prepared on a going concern
basis which assumes that the Company will be able to realize its assets and
discharge liabilities in the normal course of business.
Overview
The Company was incorporated without significant cash, assets or operations.
Through the TSX Venture's policy relating to CPCs, the Company conducted an IPO
in June 2000 and obtained a listing on the TSX Venture. With the
-32-
completion of the agreement to earn an interest in the Los Lomas Properties, the
Company qualified for regular listing as a Tier 2 company on the TSX Venture.
Since its completion of the Qualifying Transaction, the Company has been
exclusively a natural resource company engaged in the business of exploration
for metals and minerals. At this stage of development, the Company has no
producing properties and, consequently, has no current operating income or cash
flow. The Company has not yet determined whether its properties contain ore
reserves that are economically recoverable. As a result, the Company is
considered an exploration stage company.
The Company is actively reviewing additional resource properties at various
stages of development and may make additional acquisitions through options,
purchases or joint ventures. If so, significant additional financing may be
required, and there is no assurance that funds would be available on terms
acceptable to the Company or at all.
The Company expects its properties will be moved toward determining individual
viability over the next two to three years. There is no assurance that any
property will prove to be mineable or, that if such a determination is made,
that the Company will be able to secure financing for capital costs.
Nearly all of the Company's activities are directed to such exploration and
future development programs. Yearly variations in individual property
expenditures generally reflect increases or decreases in specific exploration
and development costs based on previous results and the Company's decisions
regarding the allocation of exploration expenditures between properties.
The Company is presently exploring its properties for sufficient reserves to
justify production. None of its properties are yet in production and,
consequently, the properties do not produce any revenue. As a result there is
little variation expected in operating results from year to year and little is
to be expected until such time, if any, as a production decision is made on one
of its properties.
The Company derives interest income on its bank deposits and other short-term
deposits, which depend on the Company's ability to raise funds. Of most
significance would be further cash received from issuance of shares to fund
ongoing operations.
Through the exploration process, management periodically reviews results, both
internally and externally, through mining related professionals. Decisions to
abandon, reduce or expand exploration efforts are based upon many factors
including general and specific assessments of mineral deposits, the likelihood
of increasing or decreasing those deposits, land costs, estimates of future
mineral prices, potential extraction methods and costs, the likelihood of
positive or negative changes to the environment, permitting, taxation, labor and
capital costs. Geological and/or economic circumstances render each property
unique. Consequently, it is not possible to have any predetermined hold period.
Costs incurred for general exploration that do not result in the acquisition of
mineral properties with ongoing exploration or developmental potential are
charged to operations. Exploration costs relating to the Company's properties
are capitalized as mineral properties and deferred costs. Should the Company
abandon a property or project, the related deferred costs will be charged to
operations.
The recoverability of amounts shown for mineral properties and deferred costs is
dependent upon the discovery of economially recoverable reserves, completion of
positive feasibility studies, confirmation of the Company's interest in the
underlying mineral claims, the ability of the Company to obtain necessary
financing to complete exploration and development and future profitable
production or from the disposition of such properties.
On January 1, 2002, the Company adopted, on a prospective basis, the provisions
of new Section 3870 "Stock-Based Compensation and Other Stock Based Payments" of
the Canadian Institute of Chartered Accountants' (the "CICA") Handbook ("Section
3870"). Section 3870 establishes standards for the recognition, measurement and
disclosure of stock-based compensation and other stock-based payments. Section
3870 recommends that certain stock-based transactions, such as the grant of
stock options, be accounted for at fair value. The section is only applicable to
transactions that occurred on or after January 1, 2002.
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As permitted by Section 3870, the Company did not adopt the fair value method
for certain stock-based compensation granted to employees and directors. The
additional disclosure required by Section 3870 as a result of the Company not
adopting the fair value method is provided in Note 5 of the consolidated
financial statements of the Company included herein. As permitted by Section
3870, the additional disclosure for the 2002 fiscal year will not be presented
on a comparative basis.
RESULTS OF OPERATIONS
Fiscal Year Ended December 31, 2002
Compared to Fiscal Year Ended December 31, 2001
-----------------------------------------------
During the year ended December 31, 2002, the Company completed its Qualifying
Transaction and commenced activities in the exploration of mineral properties.
Accordingly the Company experienced a significant increase in activities and, in
2002, reported a loss of $253,757 ($0.09 per share) compared to a loss of
$10,199 ($0.01 per share) in 2001.
At this stage of its development, the Company has no source of operating
revenues. Interest income is derived solely from cash and cash equivalents held
by the Company. During 2002, the Company reported interest income of $5,459
compared to $12,676 in 2001, due to lower levels of each held throughout 2002
compared to 2001.
General and administrative expenses of $161,496 was reported in 2002, an
increase of $138,621 from $22,875 in 2001. Many of the Company's costs increased
due to increased accounting, consulting, legal, regulatory and other costs
associated with the Company's transition from that of a capital pool company to
a junior mineral exploration company. During 2002, the Company also commenced
the monthly payment of $2,000 to the President of the Company. During 2002,
$16,000 was paid, of which $10,500 was expensed and $5,500 was capitalized to
mineral property costs. Ongoing review of prospective property acquisitions also
attributed to increased costs in 2002. In addition, during 2002, the Company
adopted, on a prospective basis, the new CICA recommendations on accounting for
stock options. The Company recorded a non-cash charge of $20,212 relating to
options granted to consultants. In addition, as allowed by the CICA
recommendations, the Company has disclosed, on a pro-forma basis, a further
amount of $38,942 relating to the fair value of stock options granted to its
employees and directors.
Since its reorganization in May 2002, the Company has negotiated a number of
option agreements to earn various interests in mineral properties in Mexico and
Peru. During 2002, the Company incurred $528,203 on mineral property payments
and exploration expenditures. In addition, the Company issued 675,000 common
shares, with a value of $202,500, pursuant to mineral property option
agreements. During 2002, the Company wrote-off $97,720 in mineral property costs
relating to its abandonment of the Los Lomas option agreement.
Fiscal Year Ended December 31, 2001
Compared to Fiscal Year Ended December 31, 2000
-----------------------------------------------
During the year ended December 31, 2001, the Company reported a net loss of
$10,199, compared to a loss of $587 for the comparable period in 2000. The loss
in 2001 was comprised of general and administrative expenses totaling $22,875
and interest income of $12,676.
Interest income reported for 2001 was $12,676, an increase of $2,550 from the
$10,126 reported in 2000. The increase was due to increased levels of cash and
cash equivalents held throughout 2001 from the initial public offering proceeds.
General and administrative expenses of $22,875 were incurred for general
corporate administration of the Company, its public reporting requirements and
costs incurred in reviewing business opportunities during the year ended
December 31, 2001.
Liquidity and Capital Resources
-------------------------------
The Company's primary source of funds since incorporation has been the issuance
of common shares pursuant to various public and private financings. The Company
has had no revenue from mining operations to date and does not anticipate mining
revenues in the foreseeable future.
-34-
During the year ended December 31, 2002, the Company raised $697,800 cash from
the issuance of common shares from private placements conducted and options and
warrants exercised. These proceeds were utilized to conduct mineral property
acquisitions and exploration expenditures and to pay ongoing corporate costs. As
at December 31, 2002, the Company had a working capital of $338,569. Subsequent
to December 31, 2002, the Company announced that it had agreed to conduct a
private placement financing to raise up to $555,300. As of the date of this
registration statement the Company had completed an initial tranche for
$475,200. A further $41,340 was raised on the exercises of stock options.
The Company does not have any loans or bank debt and there are no restrictions
on the use of its cash resources.
The Company has budgeted US$200,000 towards a Phase I drilling program at the
Cinco Minas property, and dependent upon the results, a Phase II follow-up drill
program, estimated at US$100,000, will be conducted. The Company may also
conduct a US$100,000 geological and sampling program on the Gran Cabrera
Properties towards the latter part of fiscal 2003. However, any decision will be
dependent on the results at the Cinco Minas Property and adequate financial
resources.
In addition, the Company anticipates spending approximately $200,000 during 2003
for administrative and other operating expenditures.
The Company does not have any source of funds other than from the issuance of
capital stock and the exercise of options and warrants and the possible joint
venture or sale of its mineral properties. As of the date of this registration
statement the Company believes that it has sufficient financial resources to
conduct all of its currently planned exploration activities and meet its
anticipated administrative costs for the remainder of 2003. However, results
from its exploration programs and/or additional property acquisitions may result
in additional financial requirements. The Company plans to conduct additional
financings, however, there is no assurance that funding will be available on
terms acceptable to the Company or at all. If such funds cannot be secured, the
Company may be forced to curtail additional exploration efforts to a level for
which funding can be secured or relinquish certain of its properties.
Research and Development, Patents and Licenses, etc.
----------------------------------------------------
During fiscal 2002, the Company incurred $463,325 for mineral property
acquisition costs and $267,378 for exploration costs on its mineral property
interests.
Trend Information
-----------------
None of the Company's assets are currently in production or generate revenue.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.
--------------------------------------------------------------------------------
Directors and Senior Management
-------------------------------
The names, positions held with the Company and terms of office of each director
and officer of the Company as of the date of this report, are as follows:
POSITION TERM OF OFFICE
NAME WITH THE COMPANY (FOR EACH OFFICE HELD)
------------------- ---------------- -----------------------
DAVID HENSTRIDGE(1) President January 2000 to present
Director January 2000 to present
NICK DEMARE(1) Director January 2000 to present
HARVEY LIM(1) Director January 2000 to present
MARIANA BERMUDEZ Corporate Secretary January 2000 to present
(1) Member of the Audit Committee.
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Each officer's and director's term of office shall expire at the Company's next
annual general meeting. The Company does not have an executive committee or a
compensation committee. The Company's audit committee is responsible for
reviewing the Company's financial statements before they are approved by the
Company's directors.
There are no family relationships between any directors or executive officers of
the Company. To the best of the Company's knowledge, there are no arrangements
or understandings with major shareholders, customers, suppliers, or others,
pursuant to which any of the Company's officers or directors was selected as an
officer or director of the Company.
Set forth below are brief descriptions of recent employment and business
experience of the Company's officers and directors.
David Henstridge (Age 54), President and Director
-------------------------------------------------
David Henstridge graduated from Adelaide University, Australia, in 1971, with an
Honors Degree in geology. Mr. Henstridge is a fellow of the Australian Institute
of Mining and Metallurgy and a member of the Australian Institute of
Geoscientists and the Geological Society of Australia. From 1971 to 1987, Mr.
Henstridge held various positions with Central Pacific Minerals N.L. and managed
numerous advanced exploration projects throughout Australia, Europe and the
United States. Since 1987, Mr. Henstridge has worked for, and consulted to,
several companies on advanced exploration and feasibility projects in Australia,
Papua New Guinea, Fiji, China and North and South America. From 1993 to 2001,
Mr. Henstridge held the position of president and CEO of Peruvian Gold Limited
("Peruvian"). Since 1999, Mr. Henstridge has been a director of Argosy Minerals
Inc. ("Argosy"). In addition, since November 2001, Mr. Henstridge has also held
the position as non-executive Chairman of Argosy. Mr. Henstridge has co-authored
15 geological publications. See "Item 7. Major Shareholders and Related Party
Transactions - Related Party Transactions - Conflicts of Interest."
Nick DeMare (Age 48), Director
------------------------------
Mr. DeMare holds a Bachelor of Commerce degree from the University of British
Columbia and is a member in good standing of the Institute of Chartered
Accountants of British Columbia. Since May, 1991, Mr. DeMare has been the
President of Chase Management Ltd., a private company which provides a broad
range of administrative, management and financial services to private and public
companies engaged in mineral exploration and development, gold and silver
production, oil and gas exploration and production and venture capital. Mr.
DeMare owns 100% of Chase. Mr. DeMare currently serves as an officer and
director of other public reporting companies. See "Item 7. Major Shareholders
and Related Party Transactions - Related Party Transactions - Conflicts of
Interest."
Harvey Lim (Age 44), Director
-----------------------------
Mr. Lim holds a Bachelor of Commerce degree from the University of British
Columbia and is a member in good standing of the Institute of Chartered
Accountants of British Columbia. Mr. Lim was employed by Coopers & Lybrand (now
PricewaterhouseCoopers LLP) from 1981 to 1988. From 1988 to 1991, Mr. Lim was
employed as controller with Ingot Management Ltd. Since 1991, Mr. Lim has been
employed by Chase Management Ltd. as controller. Mr. Lim currently serves as an
officer and director of other public reporting companies. See "Item 7. Major
Shareholders and Related Party Transactions - Related Party Transactions -
Conflicts of Interest."
Mariana Bermudez (Age 28), Corporate Secretary
----------------------------------------------
From 1994 to 2001, Mariana Bermudez was the Executive Assistant to the CEO of
Peruvian. From March 2001 to September 2001, Ms. Bermudez was employed as a
legal assistant at Morton & Company. Since October 2001 she has been employed as
a legal secretary with Farris Vaughan Wills and Murphy. Ms. Bermudez attended
Capilano College from 1992 to 1994 where she obtained an Administrative
Assistant Certificate and has taken various courses related to the Securities
Industry.
-36-
Compensation
------------
During the fiscal year ended December 31, 2002, the directors and officers of
the Company, as a group, had received or charged the Company a total of $36,380
for services rendered by the directors and officers or companies owned by the
individuals. The Company does not have any retirement plans/benefits.
Executive Compensation
----------------------
The Company is required, under applicable securities legislation in Canada, to
disclose to its shareholders details of compensation paid to its directors and
officers. The following fairly reflects all material information regarding
compensation paid by the Company to its directors and officers, which
information has been disclosed to the Company's shareholders in accordance with
applicable Canadian law.
Named Executive Officers mean the Chief Executive Officer ("CEO") of the
Company, regardless of the amount of compensation of that individual and each of
the Company's four most highly compensated executive officers, other than the
CEO, who were serving as executive officers at the end of the most recent
financial year. In addition, disclosure is also required for any individual
whose total salary and bonus during the most recent financial year was at least
$100,000, whether or not they were an executive officer at the end of the
financial year.
During the Company's last completed financial year ended December 31, 2002, the
Company had one Named Executive Officer, Mr. David Henstridge.
The following table (presented in accordance with the regulations (the
"Regulations") made under the Securities Act (British Columbia)) sets forth all
annual and long term compensation for services in all capacities to the Company
for the financial years ended December 31, 2002, 2001 and 2000 (to the extent
required by the Regulations) in respect of the Named Executive Officer:
[Download Table]
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -------------
--------------------- NUMBER OF ALL OTHER
NAME AND PRINCIPAL YEAR ENDED SALARY BONUS SECURITIES(1) COMPENSATION
POSITION DECEMBER 31 ($) ($) UNDER OPTIONS ($)
------------------ ----------- ------ ----- ------------- ------------
David Henstridge 2002 Nil Nil 251,400 16,000
President 2001 Nil Nil 35,000 Nil
2000 Nil Nil 105,000 Nil
NOTE:
(1) Figures represent options granted during a particular year; see "Aggregate
Option" table for the aggregate number of options outstanding at year end.
Long Term Incentive Plan Awards
-------------------------------
The Company does not have any long term incentive plan awards ("LTIP") defined
as "any plan providing compensation intended to serve as an incentive for
performance to occur over a period longer than one financial year whether
performance is measured by reference to financial performance of the Company or
an affiliate, or the price of the Company's shares but does not include option
or SAR plans or plans for compensation through restricted shares or units."
Option/Stock Appreciation Right ("SAR")
Grants During the Most Recently Completed Financial Year
--------------------------------------------------------
The following table sets forth stock options granted by the Company during the
financial year ended December 31, 2002 to the Named Executive Officer of the
Company:
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[Enlarge/Download Table]
MARKET VALUE OF
SECURITIES % OF TOTAL SECURITIES
UNDER OPTIONS OPTIONS GRANTED EXERCISE OR UNDERLYING OPTIONS
GRANTED IN FINANCIAL BASE PRICE ON DATE OF GRANT
NAME (#) YEAR(1) ($/SECURITY)(2) ($/SECURITY) EXPIRATION DATE
---------------- ------------- --------------- --------------- ------------------ ---------------
David Henstridge 162,000 28.3% 0.23 0.30 Jul.15/05
59,400 10.3% 0.52 0.52 Dec.05/05
30,000 5.2% 0.55 0.69 Dec.19/05
------- ----
251,400 43.8%
======= ====
NOTES:
(1) Percentage of all options granted during the financial year.
(2) The exercise price of stock options was set according to the rules of the
TSX Venture. The exercise price of stock options may only be adjusted in
the event that specified events cause dilution of the Company's share
capital.
Aggregated Option Exercises During the Most Recently
Completed Financial Year and Financial Year-end Option/SAR Values
-----------------------------------------------------------------
The following table sets forth details of all exercises of stock options during
the financial year ended December 31, 2002 by the Named Executive Officer, and
the financial year end value of unexercised options on an aggregated basis:
[Enlarge/Download Table]
VALUE OF UNEXERCISED IN
UNEXERCISED OPTIONS AT THE MONEY OPTIONS AT
FINANCIAL YEAR END(3) FINANCIAL YEAR END
SECURITIES (#) ($)(3)(4)
ACQUIRED ON AGGREGATE VALUE
EXERCISE(1) REALIZED(2) EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
---------------- ----------- --------------- --------------------- -----------------------
David Henstridge 140,000 22,750 251,400/Nil 66,192/Nil
NOTES:
(1) Number of common shares of the Company acquired on the exercise of stock
options.
(2) Calculated using the closing price of common shares of the Company on the
TSX Venture.
(3) As freestanding SARs have not been granted, the number of shares relate
solely to stock options.
(4) Value of unexercised in-the-money options calculated using the closing
price of common shares of the Company on the TSX Venture on December 31,
2002 of $0.60 per share, less the exercise price of in-the-money stock
options.
Termination of Employment or Change of Control
----------------------------------------------
Other than as described in the Summary Compensation Table, the Company has no
plans or arrangements with respect to remuneration received or that may be
received by the Named Executive Officers during the Company's most recently
completed financial year or current financial year in view of compensating such
officers in the event of termination of employment (as a result of resignation,
retirement, change of control, etc.) or a change in responsibilities following a
change of control, where the value of such compensation exceeds $100,000 per
executive officer.
DIRECTOR COMPENSATION
Cash Compensation
-----------------
The Company does not compensate its directors in their capacities as such,
although directors of the Company are reimbursed for their expenses incurred in
connection with their services as directors.
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During the most recently completed financial year, directors received no
compensation for services provided to the Company in their capacities as
directors and/or employees and/or consultants. The Company has, however, paid
$20,380 for administrative, secretarial, accounting and bookkeeping services
provided by Chase Management Ltd. ("Chase"), a private company owned by Nick
DeMare, a director of the Company.
Non-Cash Compensation
---------------------
The following table sets forth stock options granted by the Company during the
financial year ended December 31, 2002 to the directors who are not the Named
Executive Officer of the Company:
[Enlarge/Download Table]
SECURITIES % OF TOTAL MARKET VALUE OF
UNDER OPTIONS OPTIONS GRANTED EXERCISE OR BASE SECURITIES UNDERLYING
GRANTED IN FINANCIAL PRICE OPTIONS ON DATE OF GRANT
NAME (#) YEAR(1) ($/SECURITY)(2) ($/SECURITY) EXPIRATION DATE
------------ ------------- --------------- ---------------- ------------------------ ---------------
Nick DeMare 41,000 07.1% 0.23 0.30 Jul. 15/05
20,000 03.5% 0.55 0.69 Dec. 19/05
------ ----
61,000 10.6%
====== ====
Harvey Lim 30,000 05.2% 0.23 0.30 Jul. 15/05
10,000 01.8% 0.55 0.69 Dec. 19/05
------ ----
40,000 07.0%
====== ====
NOTES:
(1) Percentage of all options granted during the financial year.
(2) The exercise price of stock options was set according to the rules of the
TSX Venture. The exercise price of stock options may only be adjusted in
the event that specified events cause dilution of the Company's share
capital.
The following table sets forth details of all exercises of stock options during
the financial year ended December 31, 2002 by the directors who are not the
Named Executive Officer, and the financial year end value of unexercised
options:
[Enlarge/Download Table]
VALUE OF UNEXERCISED IN
UNEXERCISED OPTIONS AT THE MONEY OPTIONS AT
FINANCIAL YEAR END(3) FINANCIAL YEAR END
SECURITIES (#) ($)(3)(4)
ACQUIRED ON AGGREGATE VALUE
EXERCISE(1) REALIZED(2) EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
----------- ----------- --------------- ---------------------- -----------------------
Nick DeMare 30,000 6,000 154,000/Nil 58,020/Nil
Harvey Lim 25,000 5,000 70,000/Nil 25,100/Nil
NOTES:
(1) Number of common shares of the Company acquired on the exercise of stock
options.
(2) Calculated using the closing price of common shares of the Company on the
TSX Venture.
(3) As freestanding SARs have not been granted, the number of shares relate
solely to stock options.
(4) Value of unexercised in-the-money options calculated using the closing
price of common shares of the Company on the TSX Venture on December 31,
2002 of $0.60 per share, less the exercise price of in-the-money stock
options.
Indebtedness of Directors and Senior Officers of the Company
------------------------------------------------------------
No director or senior officer of the Company, proposed management nominee for
election as a director of the Company or each associate or affiliate of any such
director, senior officer or proposed nominee is or has been indebted to the
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Company or any of its subsidiaries at any time during the Company's last
completed financial year, other than routine indebtedness.
Employment Agreements
---------------------
The Company has no formal management contract with any of its officers or
directors of the Company. Commencing May 1, 2002, the Company has paid Mr. David
Henstridge a monthly amount of $2,000 for his services as President and CEO of
the Company. The amount is a minimum monthly amount and may be increased as Mr.
Henstridge devotes more of his time to the activities of the Company. Chase, a
private company owned by Nick DeMare, also charges the Company for services. See
"Item 7. Majority Shareholders and Related Party Transactions - Related Party
Transactions".
BOARD PRACTICES
Audit Committee
---------------
The Company's Audit Committee must be comprised of at least three directors, the
majority of whom are not employees, control persons or members of management of
the Company or any of its associates or affiliates. The board of directors of
the Company, after each annual shareholder' meeting must appoint or re-appoint
an audit committee. As of the date of this annual report, the members of the
audit committee were Messrs. Henstridge, DeMare and Lim.
The Audit Committee must review the annual financial statements of the Company
before they are approved by the board of directors of the Company. The board of
directors of the Company must review, and if considered appropriate, approve the
annual financial statements of the Company before presentation to the
shareholders of the Company.
Remuneration Committee
----------------------
The Company does not have a separate remuneration committee. The full Board
reviews the terms and conditions of employment, management agreements and
remuneration levels for employees.
Employees
---------
As of the date of this registration statement the Company had no employees. The
Company has retained Chase to provide management, financial, accounting and
corporate administrative services. Chase provides its services to a number of
public and private companies and currently employs six full-time employees,
including Mr. Lim (excluding Mr. DeMare). In addition to the services provided
by Chase, Mr. Henstridge provides his services as the President of the Company.
The Company also retains consultants to handle specific projects on a case by
case basis.
Share Ownership
---------------
The following table sets forth certain information regarding ownership of the
Company's shares by the Company's officers and directors as of March 31, 2003.
[Download Table]
SHARES AND RIGHTS BENEFICIALLY PERCENT
TITLE OF CLASS NAME OF OWNER OWNED OR CONTROLLED (1) OF CLASS (1)
-------------- ----------------- ------------------------------- ------------
Common Stock David Henstridge 1,695,300(2) 20.53%
Common Stock Nick DeMare 1,173,200(3) 14.67%
Common Stock Harvey Lim 184,300(4) 2.40%
Common Stock Mariana Bermudez 42,000(5) 0.55%
NOTES:
(1) Where persons listed on this table have the right to obtain additional
shares of common stock through the exercise of outstanding options or
warrants, these additional shares are deemed to be outstanding for the
purpose of computing the
-40-
percentage of common stock owned by such persons, but are not deemed to be
outstanding for the purpose of computing the percentage owned by any other
person. Based on 7,570,000 shares of common stock outstanding as of March
31, 2002.
(2) Includes options to acquire 258,400 common shares and warrants to acquire
429,000 common shares.
(3) Includes 529,450 common shares held by Mr. DeMare directly and 214,750
common shares held by DNG Capital Corp. ("DNG"), a private company
wholly-owned by Mr. DeMare. Also includes options to acquire 159,000 common
shares, warrants to acquire 70,000 common shares and warrants held by DNG
to acquire 200,000 shares.
(4) Includes options to acquire 75,000 common shares and warrants to acquire
20,000 common shares.
(5) Includes options to acquire 20,000 common shares.
Stock Options
-------------
Stock options to purchase securities from the Company are currently granted to
directors, employees and consultants of the Company on terms and conditions
acceptable to the regulatory authorities in Canada, notably the TSX Venture.
Stock options must be approved by the Company's shareholders at an Annual
General Meeting. The Company has no formal written stock option plan.
Under the TSX Venture stock option program, stock options for up to 10% of the
number of issued and outstanding shares of common stock may be granted from time
to time, provided that stock options in favor of any one individual may not
exceed 5% of the issued and outstanding shares of common stock. No stock option
granted under the stock option program is transferable by the optionee other
than by will or the laws of descent and distribution, and each stock option is
exercisable during the lifetime of the optionee only by such optionee.
The exercise price of all stock options granted under the stock option program
must be at least equal to the fair market value of such shares of common stock
on the date of grant less a discount allowed by the TSX Venture, and the maximum
term of each stock option may not exceed five years.
As of March 31, 2003, the Company had granted an aggregate of 703,400 incentive
stock options to purchase shares of the Company's common stock to the following
persons:
NATURE NO. OF EXERCISE
OPTIONEE OF OPTION OPTIONS PRICE/SHARE EXPIRY DATE
---------------------- ---------- ------- ----------- -----------
$
Nick DeMare Director 33,000 0.15 Jun. 21/05
David Henstridge Director 100,000 0.23 Jul. 15/05
Nick DeMare Director 41,000 0.23 Jul. 15/05
Harvey Lim Director 30,000 0.23 Jul. 15/05
Nick Nicholas Consultant 60,000 0.52 Dec. 5/05
David Henstridge Director 59,400 0.52 Dec. 5/05
John Nebocat Consultant 40,000 0.55 Dec. 19/05
George Valdez Barnett Consultant 40,000 0.55 Dec. 19/05
David Henstridge Director 30,000 0.55 Dec. 19/05
Nick DeMare Director 20,000 0.55 Dec. 19/05
Harvey Lim Director 10,000 0.55 Dec. 19/05
David Henstridge Director 69,000 1.00 Jan. 14/06
Nick DeMare Director 65,000 1.00 Jan. 14/06
Harvey Lim Director 35,000 1.00 Jan. 14/06
Mariana Bermudez Officer 20,000 1.00 Jan. 14/06
Joseph Abbinante Consultant 20,000 1.00 Jan. 14/06
Linda Liu Employee 7,000 1.00 Jan. 14/06
Rosanna Wong Employee 7,000 1.00 Jan. 14/06
Arabella Smith Employee 7,000 1.00 Jan. 14/06
Betty Moody Employee 5,000 1.00 Jan. 14/06
Jacqueline Rowsell Employee 5,000 1.00 Jan. 14/06
-------
TOTAL: 703,400
=======
-41-
All of these options are non-transferable and currently terminate on the earlier
of the expiry date or the 30th day following the day on which the director,
officer or employee, as the case may be, ceases to be either a director,
officer, employee, or consultant of the Company.
As of March 31, 2003, the directors and officers of the Company, as a group (4
persons), held options to purchase 512,400 shares of the Company's common stock.
Proposed Stock Option Plan
--------------------------
In order to comply with recent amendments to the TSX Venture rules, the Company
proposes to adopt a stock option plan (the "Plan") at the next annual general
meeting of its shareholders. The purpose of the Plan will be to provide the
Company with a share related mechanism to enable the Company to attract, retain
and motivate qualified directors, officers, employees and other service
providers, to reward directors, officers, employees and other service providers
for their contribution toward the long term goals of the Company and to enable
and encourage such individuals to acquire shares of the Company as long term
investments.
The Plan will provide that it is solely within the discretion of the Board of
Directors (the "Board") to determine who should receive options and in what
amounts. The Board will be able to issue a majority of the options to insiders
of the Company. However, the Plan will provide that in no case will the Plan or
any existing share compensation arrangement of the Company result, at any time,
in the issuance to any option holder, within a one year period, of a number of
shares exceeding 5% of the Company's issued and outstanding share capital.
The following information is a brief description of the proposed Plan:
1. The maximum number of common shares that may be issued upon exercise of
stock options granted under the Plan will be that number of shares which is
10% of the issued and outstanding shares of the Company. As of March 31,
2003, the Company had 703,400 options outstanding which have been granted
prior to the adoption of the Plan. These options will form a part of the
foregoing 10%. The exercise price of the stock options, as determined by
the Board in its sole discretion, shall not be less than the closing price
of the Company's shares traded through the facilities of the TSX Venture on
the date prior to the date of grant, less allowable discounts, in
accordance with the policies of the TSX Venture or, if the shares are no
longer listed for trading on the TSX Venture, then such other exchange or
quotation system on which the shares are listed and quoted for trading.
2. The Board will not grant options to any one person which will, when
exercised, exceed 5% of the issued and outstanding shares of the Company.
3. Upon expiry of the option, or in the event an option is otherwise
terminated for any reason, without having been exercised in full, the
number of shares in respect of the expired or terminated option shall again
be available for the purposes of the Plan. All options granted under the
Plan may not have an expiry date exceeding ten years from the date on which
the Board grants and announces the granting of the option.
4. If the option holder ceases to be a director of the Company or ceases to be
employed by the Company (other than by reason of death), as the case may
be, then the option granted shall expire on the 90th day following the date
that the option holder ceases to be a director or ceases to be employed by
the Company, subject to the terms and conditions set out in the Plan.
The Plan may be administered by the Company's secretary or such other senior
officer or employee as may be designated by the Board from time to time. Upon
the approval of the Plan by the Company's shareholders, shareholder approval
will not be required or sought on a case-by-case basis for the purpose of the
granting of options to and the exercise of options by employees of the Company
regularly employed on a full-time or part-time basis, directors of the Company
and persons who perform services for the Company on an ongoing basis or who have
provided, or are expected to provide, services of value to the Company.
-42-
Warrants
--------
As of March 31, 2003, there were non-transferable common share purchase warrants
exercisable for the purchase of 3,049,000 common shares, which expire at various
times until December 13, 2004 and may be exercised at various prices ranging
from $0.20 per share to $0.40 per share, as follows:
COMMON SHARES ISSUABLE EXERCISE
ON EXERCISE OF WARRANTS PRICE/SHARE EXPIRY
----------------------- ------------ -----------------------
$
590,000 0.20 May 27/04
700,000 0.35 / 0.40 Oct. 15/03 / Oct. 15/04
1,150,000 0.35 / 0.40 Dec. 13/03 / Dec. 13/04
81,000 0.37 Dec. 13/04
528,000 1.00 / 1.05 Mar. 4/04 / Mar. 4/05
---------
3,049,000
=========
As of March 31, 2003, the directors and officers of the Company, as a group (4
persons), held warrants to purchase 719,000 shares of the Company's common
stock.
There are no assurances that the option or warrants described above will be
exercised in whole or in part.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.
--------------------------------------------------------------------------------
Principal Holders of Voting Securities
--------------------------------------
The following table sets forth certain information regarding ownership of the
Company's shares by the Company's officers and directors as a group, as well as
all persons who own greater than five percent (5%) of the Company's outstanding
shares, as of March 31, 2003.
[Enlarge/Download Table]
SHARES AND RIGHTS BENEFICIALLY
TITLE OF CLASS NAME AND ADDRESS OF OWNER OWNED OR CONTROLLED (1) PERCENT OF CLASS (1)
-------------- ---------------------------------------- ------------------------------ -------------------
Common Stock David Henstridge 1,695,300(2) 20.53%
Victoria, Australia
Common Stock Nick DeMare 1,173,200(3) 14.67%
Burnaby, British Columbia
Common Stock Prudent Bear Fund 1,000,000(4) 12.39%
Dallas, Texas
Common Stock Exploration Partners Limited Partnership 550,000(5) 7.12%
Las Vegas, Nevada
Common Stock Fairwood Ventures Inc. 500,000(6) 6.39%
Hongkong
NOTES:
(1) Where persons listed on this table have the right to obtain additional
shares of common stock through the exercise of outstanding options or
warrants, these additional shares are deemed to be outstanding for the
purpose of computing the percentage of common stock owned by such persons,
but are not deemed to be outstanding for the purpose of computing the
percentage owned by any other person. Based on 7,570,000 shares of common
stock outstanding as of March 31, 2003.
(2) Includes options to acquire 258,400 common shares and warrants to acquire
429,000 common shares.
-43-
(3) Includes 529,450 common shares held by Mr. DeMare directly and 214,750
common shares held by DNG Capital Corp. ("DNG"), a private company
wholly-owned by Mr. DeMare. Also includes options to acquire 159,000 common
shares, warrants to acquire 70,000 common shares and warrants held by DNG
to acquire 200,000 shares.
(4) Includes warrants to acquire 500,000 common shares.
(5) Includes warrants to acquire 150,000 common shares.
(6) Includes warrants to acquire 250,000 common shares.
None of the Company's principal shareholders have different voting rights than
any of the Company's other common shareholders.
Escrow Shares
-------------
Pursuant to the CPC Policy, all common shares which were issued prior to
completion of a qualifying transaction and were beneficially owned, directly or
indirectly, by a related party (a person who was a related party prior to the
completion of the Qualifying Transaction) are required to be held in escrow,
including common shares acquired by a related party prior to the Company's IPO
and common shares acquired by a related party pursuant to the Company's IPO. The
shares held in escrow may be voted by the owner of the shares. Any common shares
acquired in the secondary market prior to the Qualifying Transaction by a
control person of the Company, will also be held in escrow. Any common shares
acquired by any person prior to the offering at less than the initial public
offering price must also be held in escrow. Release of the common shares from
escrow is subject to completion by the Company of a Qualifying Transaction.
The Company has entered into a discount seed share capital escrow agreement
dated February 21, 2000 with Computershare Trust Company of Canada pursuant to
which 1,684,000 seed capital shares were originally held in escrow (the "Escrow
Agreement"). The Escrow Agreement provides that the common shares held in escrow
pursuant to its terms and the beneficial ownership thereof may not be sold,
assigned, hypothecated, transferred within escrow or otherwise dealt with in any
manner without the prior written consent of the TSX Venture. The CPC Policy
provides that the TSX Venture will generally permit a transfer of escrow shares
in an arm's length qualifying transaction to incoming principals of the Company.
In the event of the bankruptcy of an escrow shareholder, provided the TSX
Venture does not object, the escrowed shares may be transferred to the trustees
in the bankruptcy or such person legally entitled to the escrowed shares which
shares will remain in escrow subject to the Escrow Agreement. In the event of
the death of an escrow shareholder, provided the TSX Venture does not object,
the escrowed shares held by the escrow shareholder will be released from escrow.
As of the date of this registration statement, 421,000 common shares,
representing 25% of the original escrowed shares, have been released and the
following shares remain held in escrow:
NUMBER OF COMMON
NAME OF BENEFICIAL OWNER SHARES IN ESCROW
------------------------ ----------------
David Henstridge 489,375
Nick DeMare 459,375
Robert Atkinson 199,500
Harvey Lim 60,000
Robert O. Plenge 33,750
Mariana Bermudez 10,500
Joseph Abbinante 10,500
---------
Total: 1,263,000
=========
The remaining shares in escrow will be released, as to 252,600 common shares, on
each of the 12th, 18th, 24th, 30th and 36th month following the initial release
date of May 27, 2002.
Changes in Shareholdings
------------------------
There have been no significant changes to the above listed persons' ownership.
-44-
United States Shareholders
--------------------------
As of March 31, 2003, there were three registered holders of the Company's
common shares in the United States, with combined holdings of 576,550 shares,
representing 7.6% of the issued shares of the Company on March 31, 2003.
Control by Foreign Government or Other Persons
----------------------------------------------
To the best of the Company's knowledge, the Company is not directly or
indirectly owned or controlled by another corporation, any foreign government,
or any other natural or legal person.
Change of Control
-----------------
As of the date of this registration statement, there are no arrangements known
to the Company which may at a subsequent date result in a change of control of
the Company.
RELATED PARTY TRANSACTIONS
Other than as disclosed below, for the period from January 11, 2000 to December
31, 2000, years ended December 31, 2001 and 2002, and the period from January 1,
2003 to March 31, 2003, the Company has not entered into any transactions or
loans between the Company and any: (a) enterprises that directly or indirectly
through one or more intermediaries, control or are controlled by, or are under
common control with, the Company; (b) associates; (c) individuals owning,
directly or indirectly, an interest in the voting power of the Company that
gives them significant influence over the Company, and close members of any such
individuals' family; (d) key management personnel and close members of such
individuals' families; or (e) enterprises in which a substantial interest in the
voting power is owned, directly or indirectly by any person described in (c) or
(d) or over which such a person is able to exercise significant influence.
1. The Company has retained David Henstridge, the President, Chief Executive
Officer and a director of the Company, to provide consulting and management
services. See "Item 6. Directors, Senior Management and Employees -
Compensation." In consideration therefor, Mr. Henstridge is currently paid
a monthly fee of $2,000 and out-of-pocket disbursements incurred by Mr.
Henstridge on behalf of the Company. Management believes the arrangement
with Mr. Henstridge is fair to the Company. During the period from January
11, 2000 to December 31, 2002, years ended December 31, 2001 and 2002, and
the period from January 1, 2003 to March 31, 2003, the Company paid Mr.
Henstridge $nil, $nil, $16,000 and $6,000, respectively, on account of
professional services rendered by Mr. Henstridge.
2. The Company has retained Chase, a company wholly-owned by Mr. Nick DeMare,
a director of the Company, to provide office premises, administrative,
accounting and management services. In consideration therefor, Chase is
paid based on services provided, which are billed at rates which Chase
charges to unrelated third parties. Management believes the arrangement
with Chase is fair to the Company and similar to terms which could be
obtained from unrelated third parties. During the period from January 11,
2000 to December 31, 2002, years ended December 31, 2001 and 2002, and the
period from January 1, 2003 to March 31, 2003, the Company paid Chase
$2,050, $4,405, $20,380 and $11,600, respectively.
3. The Company has completed previous private placements of common stock, the
subscribers of which include companies wholly-owned by directors and
officers of the Company. The securities issued pursuant to such private
placements were issued in accordance with the pricing policies of the TSX
Venture. During the year ended December 31, 2002, and the period from
January 1, 2003 to March 31, 2003, the Company conducted the following
private placements of common stock:
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[Enlarge/Download Table]
PURCHASE MARKET
PARTICIPATION PRICE PRICE(1)
PLACEE BY INSIDERS $ $ COMMENTS
------------------------------- ------------- -------- -------- --------------------------
Subsequent to December 31, 2002
-------------------------------
528,000 units (one common share 0.90 1.00
and one warrant)
- David Henstridge 138,000
- DNG Capital Corp. 140,000 100% owned by Nick DeMare
-------
278,000
=======
Year Ended December 31, 2002
----------------------------
600,000 units (one common share
and one warrant) 0.18 0.20
- David Henstridge 131,000
=======
700,000 units (one common share 0.35 0.30
and one warrant)
- David Henstridge 100,000
- Nick DeMare 70,000
-------
170,000
=======
1,150,000 units (one common 0.35 0.35
share and one warrant)
- David Henstridge 60,000
- DNG Capital Corp. 60,000 100% owned by Nick DeMare
- Harvey Lim 20,000
-------
140,000
=======
(1) Quoted closing price on date of announcement of private placement.
4. On February 19, 2003, the Company entered into an agreement with Tinka
Resources, a public company in which Mr. Nick DeMare is a director and
President and Mr. Harvey Lim was the Corporate Secretary at the date of the
agreement. Both Messrs. DeMare and Lim are directors of the Company.
5. During the period from January 11, 2000 to December 31, 2000, the Company
paid $11,705 for legal services provided by a law firm, a partner of which
is a former officer of the Company.
See also "Item 6. Directors, Senior Management and Employees - Compensation."
Indebtedness of Directors, Officers, Promoters and Other Management
-------------------------------------------------------------------
During the fiscal year ended December 31, 2002, none of the directors, officers,
promoters or other members of management or their associates or affiliates of
the Company was indebted to the Company.
Conflicts of Interest
---------------------
See "Item 3. Key Information. Risk Factors - Conflict of Interest".
-46-
Interests of Experts and Counsel
--------------------------------
Not applicable.
ITEM 8. FINANCIAL INFORMATION.
--------------------------------------------------------------------------------
Description Page
----------- ----
Audited Consolidated Financial Statements
for the Years Ended December 31, 2002, 2001 and 2000 F-1
Significant Changes
-------------------
Subsequent to December 31, 2002, the Company completed a private placement
equity financing of 528,000 common shares for $475,200 cash proceeds.
Dividend Policy
---------------
The Company has not paid any dividends on its common shares and does not intend
to pay dividends on its common shares in the immediate future. Any decision to
pay dividends on its common shares in the future will be made by the board of
directors of the Company on the basis of earnings, financial requirements and
other such conditions that may exist at that time.
Legal Proceedings
-----------------
None.
ITEM 9. THE OFFER AND LISTING.
--------------------------------------------------------------------------------
Price History
-------------
The Company's common stock commenced trading on the TSX Venture on June 22,
2000. The Company's stock currently trades on the TSX Venture under the symbol
"TM" and CUSIP number 899694 10 3.
The following table sets forth the market price ranges and the aggregate volume
of trading of the common shares of the Company on the TSX Venture for the
periods indicated:
TSX VENTURE EXCHANGE STOCK TRADING ACTIVITY
SALES PRICE ($)
----------------------
YEAR ENDED VOLUME HIGH LOW
----------------- --------- ---- ----
December 31, 2002 1,006,511 0.69 0.17
December 31, 2001 380,000 0.24 0.09
December 31, 2000 1,975,000 0.36 0.21
-47-
SALES PRICE ($)
----------------------
QUARTER ENDED VOLUME HIGH LOW
------------------ --------- ---- ----
March 31, 2003 1,299,282 1.35 0.59
December 31, 2002 661,511 0.69 0.26
September 30, 2002 121,000 0.38 0.25
June 30, 2002 112,000 0.30 0.21
March 30, 2002 112,000 0.20 0.17
December 31, 2001 57,000 0.15 0.09
September 31, 2001 117,500 0.20 0.10
June 31, 2001 143,000 0.23 0.15
March 31, 2001 62,500 0.24 0.18
SALES PRICE ($)
----------------------
MONTH ENDED VOLUME HIGH LOW
----------------- --------- ---- ----
March 31, 2003 270,000 0.92 0.70
February 28, 2003 490,667 1.16 0.70
January 31, 2002 537,715 1.35 0.59
December 31, 2002 567,861 0.69 0.35
November 31, 2002 80,650 0.35 0.26
October 31, 2002 13,000 0.33 0.30
Registration, Transfer and Par Value
------------------------------------
The Company's common shares, no par value, are registered. The Company's
transfer agent is Computershare Trust Company of Canada, 4th Floor, 510 Burrard
Street, Vancouver, British Columbia, Canada, V6C 3B9.
Restrictions on Transferability
-------------------------------
In accordance with the CPC Policy, as of March 31, 2003, 1,263,000 shares of the
Company's common shares are subject to the Escrow Agreement. See "Item 7. Major
Shareholders and Related Party Transactions - Principal Holders of Voting
Securities". As such, none of the shares held in escrow can be transferred or
sold by the owners of such shares, except as provided by the release dates under
the Escrow Agreement or as consented to by the TSX Venture.
ITEM 10. ADDITIONAL INFORMATION.
--------------------------------------------------------------------------------
Share Capital
The following table sets forth information about the Company's share capital as
of December 31, 2002 and March 31, 2003:
December 31, March 31,
2002 2003
------------ -----------
Number of Common Shares Authorized 100,000,000 100,000,000
Par Value per Share None None
-48-
For the year ended December 31, 2002 and the period from January 1, 2003 to
March 31, 2003, the Company issued common shares, as follows:
NUMBER
OF SHARES
---------
Balance, January 11, 2000 -
---------
Issued during the period ended December 31, 2000
For cash
- private placement 1,684,000
- initial public offering 1,700,000
---------
3,384,000
---------
Balance, December 31, 2000 3,384,000
---------
Issued during the year ended December 31, 2001
For cash
- exercise of warrants 75,000
---------
75,000
---------
Balance, December 31, 2001 3,459,000
---------
Issued during the year ended December 31, 2002
For cash
- private placements 2,450,000
- exercise of options 230,000
- exercise of warrants 10,000
For mineral properties 675,000
---------
3,365,000
---------
Balance, December 31, 2002 6,824,000
---------
Issued during the period from January 1, 2003 to March 31, 2003
For cash
- private placement 528,000
- exercise of options 218,000
---------
746,000
---------
Balance, March 31, 2003 7,570,000
=========
See also "Item 6. Directors, Senior Management and Employees - Share Ownership".
Memorandum and Articles of Association
--------------------------------------
The Company was incorporated under the laws of British Columbia as Planex
Ventures Ltd. on January 11, 2000, by registration of its Memorandum and
Articles with the B.C. Registrar of Companies (the "BC Registrar") under the
incorporation number 599161. On May 24, 2002, the Company changed its name to
Tumi Resources Limited.
The Company is authorized to engage in any lawful business. The following is a
summary of all material provisions of the Company's Articles of Association and
Memorandum and certain provisions of the Company Act of the Province of British
Columbia (the "Company Act"), applicable to the Company:
A. Director's power to vote on a proposal, arrangement or contract in
which the director is materially interested.
----------------------------------------------------------------------
When a director holds a material interest in a proposed contract or
transaction with the Company. he must declare the nature and extend of
his interest in such contract or transaction or of any other possible
conflict, in accordance with the provisions of the Company Act. A
director who holds such material
-49-
interest may not vote on the transaction but will be counted in the
quorum present at the meeting at which such vote is taken. According
to the Company's Articles, these prohibitions do not apply, subject to
the provisions of the Company Act, to the following situations:
1. Any such contract or transaction relating to a loan to the
Company, which a director or a specified corporation or a
specified firm in which he has an interest has guaranteed or
joined in guaranteeing the repayment of the loan or any part of
the loan;
2. Any contract or transaction made to or to be made with, or for
the benefit of an affiliated corporation of which a director is a
director or officer;
3. Determining the remuneration of directors;
4. Purchasing and maintaining insurance to cover directors against
liability incurred by them as directors as specified under the
Company Act; or
5. The indemnification of any director by the Company as specified
under the Company Act.
B. Director's power, in the absence of an independent quorum, to vote
compensation to themselves or any members of their body.
----------------------------------------------------------------------
The compensation of the directors is decided by the directors unless
the Board of Directors requests approval to the compensation from the
shareholders. If the issuance of compensation to the directors is
decided by the directors, a quorum is the majority of the directors in
office.
C. Borrowing powers exercisable by the directors.
----------------------------------------------
The directors may, on behalf of the Company:
1. Borrow money in such manner and amount, on such security, from
such sources and upon such terms, and conditions as they think
fit, and may authorize the guaranteeing of any obligations of any
other person;
2. Issue bonds, debentures, and other debt obligations either
outright or as a security for any liability or obligation of the
Company or any other person; and
3. Mortgage, charge, whether by way of specific or floating charge,
or give other security on the undertaking, or on the whole or any
part of the property and assets, of the Company (both present and
future).
D. Retirement and non-retirement of directors under an age limit
requirement.
----------------------------------------------------------------------
There are no such provisions applicable to the Company under its
Articles of Association, Memorandum or the Company Act.
E. Number of shares required for a director's qualification.
---------------------------------------------------------
A director of the Company shall not be required to hold a share in the
capital of the Company as qualification for his office.
Description of Common Shares
----------------------------
The authorized capital of the Company consists of 100,000,000 common shares
without par value. A complete description is contained in the Company's
Articles.
Of the 100,000,000 authorized common shares, a total of 7,570,000 common shares
were issued and outstanding as of March 31, 2003. All of the common shares of
the Company rank equally as to voting rights, participation in a distribution of
the assets of the Company on a liquidation, dissolution or winding-up of the
Company and the entitlement to dividends. The holders of the common shares are
entitled to receive notice of all shareholder meetings and to attend and vote at
such meetings. Each common share carries with it the right to one vote. The
common shares do not have
-50-
preemptive or conversion rights. In addition, there are no sinking fund or
redemption provisions applicable to the common shares.
The declaration of dividends on the common shares of the Company is within the
discretion of the Company's Board of Directors. The Company has not paid any
dividends on its common shares and has no policy with respect to the payment of
dividends.
The Company's issued and outstanding common shares are not subject to further
capital calls by the Company and there are no provisions in the Company's
Articles of Association or Memorandum or the Company Act discriminating against
any existing or prospective holder of the Company's common shares as a result of
such shareholder owning a substantial number of shares.
Neither of the Articles of Association or Memorandum of the Company have any
limitations on non-resident or foreign ownership of the Company's common shares,
provisions governing the ownership threshold above which shareholder ownership
must be disclosed.
The Company Act provides that the rights and provisions attached to any class of
shares may not be prejudiced or interfered with unless consented to by separate
resolution passed by a majority of not less than 3/4 of the votes cast, in
person or by proxy, by holders of shares of that class.
Shareholder Meetings
--------------------
The Company's first annual general meeting must take place within fifteen months
of the date of its incorporation and thereafter an annual general meeting will
be held not later than thirteen months from its last meeting of shareholders, at
such time and place as may be determined by the directors.
A notice of record date advising of the Company's annual general meeting and the
date for which the determination of shareholders is to be fixed must be issued
seven days in advance of the record date. The notice of meeting, information
circular, financial statements and proxy are to be mailed to the shareholders
not less than 25 days prior to the meeting date. A quorum for the transaction of
business at a general meeting is two shareholders present in person or
represented by proxy.
Only members who are registered holders of the Company's shares at the close of
business on the record date (a date which is not more than 50 days, nor less
than 35 days prior to the date of the meeting) who either attend the meeting or
who have completed and delivered a form of proxy in the manner and subject to
the provisions described above shall be entitled to vote or to have their shares
voted at the meeting.
On a show of hands, every person who is present and entitled to vote shall have
one vote. Whenever a vote by show of hands shall have been taken upon a
question, unless a ballot thereon is so required or demanded, a declaration by
the Chairman of the meeting that the vote upon the question has been carried or
carried by a particular majority or not carried, an entry to that effect in the
minutes of the meeting shall be conclusive evidence of the fact without proof of
the number or proportion of the votes recorded in favor of or against any
resolution or other proceeding in respect of the said question, and the result
of the vote so taken shall be the decision of the members upon the said
question.
Material Contracts
------------------
The Company has not entered into any material contracts, which are still in
effect for the two years preceding this registration statement, except:
1. Cinco Minas HOA dated July 6, 2002, among the Company and Minera San Jorge.
2. Gran Cabrera HOA dated October 23, 2002, among the Company and Minera San
Jorge.
3. LOI dated May 31, 2002, among the Company and Mr. Robert O. Plenge.
4. Tinka HOA dated February 19, 2003, among the Company and Tinka Resources.
-51-
The terms, conditions and general nature of these contracts are described in
"Item 4. Information on the Company - Property, Plant and Equipment".
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 on the Company's
common stock. Any remittances of dividends to United States residents are,
however, subject to a 15% withholding tax (10% if the shareholder is a
corporation owning at least 10% of the outstanding common stock of the Company)
pursuant to Article X of the reciprocal tax treaty between Canada and the United
States. See "Item 10. Additional Information - Taxation."
Except as provided in the Investment Canada Act (the "Act"), there are no
limitations specific to the rights of non- Canadians to hold or vote the common
stock of the Company under the laws of Canada or in the charter documents of the
Company.
Management of the Company considers that the following general summary fairly
describes those material provisions of the Act pertinent to an investment by an
American investor in the Company.
The Act requires a non-Canadian making an investment which would result in the
acquisition of control of a Canadian business, the gross value of the assets of
which exceeds certain threshold levels or the business activity of which is
related to Canada's cultural heritage or national identity, to either notify, or
file an application for review with, Investment Canada, the federal agency
created by the Investment Canada Act.
The notification procedure involves a brief statement of information about the
investment of a prescribed form which is required to be filed with Investment
Canada by the investor at any time up to 30 days following implementation of the
investment. It is intended that investments requiring only notification will
proceed without government intervention unless the investment is in a specific
type of business activity related to Canada's cultural heritage and national
identity.
If an investment is reviewable under the Act, an application for review in the
form prescribed is normally required to be filed with Investment Canada prior to
the investment taking place and the investment may not be implemented until the
review has been completed and the Minister responsible for Investment Canada is
satisfied that the investment is likely to be of net benefit to Canada. If the
Minister is not satisfied that the investment is likely to be of net benefit to
Canada, the non-Canadian must not implement the investment or, if the investment
has been implemented, may be required to divest himself of control of the
business that is the subject of the investment.
The following investments by non-Canadians are subject to notification under the
Act:
(1) an investment to establish a new Canadian business; and
(2) an investment to acquire control of a Canadian business that is not
reviewable pursuant to the Act.
The following investments by a non-Canadian are subject to review under the Act:
(1) direct acquisitions of control of Canadian businesses with assets of $5
million or more unless the acquisition is being made by an American
investor;
(2) direct acquisitions of control of Canadian businesses with assets of
$152,000,000 or more by an American investor;
(3) indirect acquisitions of control of Canadian businesses with assets of $5
million or more if such assets represent more than 50% of the total value
of the assets of the entities, the control of which is being acquired,
unless the acquisition is being made by an American investor;
-52-
(4) indirect acquisitions of control of Canadian businesses with assets of
$152,000,000 or more by an American investor if such assets represent more
than 50% of the total value of the assets of the entities, the control of
which is being acquired;
(5) indirect acquisitions of control of Canadian businesses with assets of $50
million or more even if such assets represent less than 50% of the total
value of the assets of the entities, the control of which is being
acquired, unless the acquisition is being made by an American investor in
which case there is no review; and
(6) an investment subject to notification that would not otherwise be
reviewable if the Canadian business engages in the activity of publication,
distribution or sale of books, magazines, periodicals, newspapers, audio or
video music recordings, or music in print or machine-readable form.
Generally speaking, an acquisition is direct if it involves the acquisition of
control of the Canadian business or of its Canadian parent or grandparent and an
acquisition is indirect if it involves the acquisition of control of a
non-Canadian parent or grandparent of an entity carrying on the Canadian
business. Control may be acquired through the acquisition of actual or de jure
voting control of a Canadian corporation or through the acquisition of
substantially all of the assets of the Canadian business. No change of voting
control will be deemed to have occurred if less than one-third of the voting
control of a Canadian corporation is acquired by an investor.
An American, as defined in the Act includes an individual who is an American
national or a lawful, permanent resident of the United States, a government or
government agency of the United States, an American-controlled corporation,
limited partnership, trust or joint venture and a corporation, limited
partnership, trust or joint venture that is neither American-controlled or
Canadian-controlled of which two-thirds of its board of directors, general
partners or trustees, as the case may be, are any combination of Canadians and
Americans.
The higher thresholds for Americans do not apply if the Canadian business
engages in activities in certain sectors such as oil, natural gas, uranium,
financial services (except insurance), transportation services or media
activities.
The Act specifically exempts certain transactions from either notification or
review. Included among the category of transactions is the acquisition of voting
shares or other voting interests by any person in the ordinary course of that
person's business as a trader or dealer in securities. Given the nature of the
Company's business and the size of its operations, management does not believe
the Investment Canada Act would apply to an investment in the Company's shares
by a U.S. investor.
TAXATION
Material Canadian Federal Income Tax Consequences
-------------------------------------------------
Management of the Company considers that the following discussion fairly
describes the material Canadian federal income tax consequences applicable to a
holder of Common Stock of the Company who is a resident of the United States and
who is not a resident of Canada and who does not use or hold, and is not deemed
to use or hold, his shares of Common Stock of the Company in connection with
carrying on a business in Canada (a "non-resident shareholder").
This summary is based upon the current provisions of the Income Tax Act (Canada)
(the "ITA"), the regulations thereunder (the "Regulations"), the current
publicly announced administrative and assessing policies of Revenue Canada,
Taxation and all specific proposals (the "Tax Proposals") to amend the ITA and
Regulations announced by the Minister of Finance (Canada) prior to the date
hereof. This description is not exhaustive of all possible Canadian federal
income tax consequences and, except for the Tax Proposals, does not take into
account or anticipate any changes in law, whether by legislative, governmental
or judicial action.
Dividends
---------
Dividends paid on the common stock of the Company to a non-resident will be
subject to withholding tax. The Canada- U.S. Income Tax Convention (1980)
provides that the normal 25% withholding tax rate is reduced to 15% on dividends
paid on shares of a corporation resident in Canada (such as the Company) to
residents of the United States, and also
-53-
provides for a further reduction of this rate to 5% where the beneficial owner
of the dividends is a corporation which is a resident of the United States which
owns at least 10% of the voting shares of the corporation paying the dividend.
Capital Gains
-------------
In general, a non-resident of Canada is not subject to tax under the ITA with
respect to a capital gain realized upon the disposition of a share of a
corporation resident in Canada that is listed on a prescribed stock exchange.
For purposes of the ITA, the Company is listed on a prescribed stock exchange.
Non-residents of Canada who dispose of shares of the Company will be subject to
income tax in Canada with respect to capital gains if:
(a) the non-resident holder;
(b) persons with whom the non-resident holder did not deal with at arm's
length; or
(c) the non-resident holder and persons with whom the non-resident holder
did not deal with at arm's length,
owned not less than 25% of the issued shares of any class or series of the
Company at any time during the five-year period preceding the disposition. In
the case of a non-resident holder to whom shares of the Company represent
taxable Canadian property and who is resident in the United States, no Canadian
taxes will be payable on a capital gain realized on such shares by reason of the
Canada-U.S. Income Tax Convention (1980) (the "Treaty") unless the value of such
shares is derived principally from real property situated in Canada. However, in
such a case, certain transitional relief under the Treaty may be available.
Material United States Federal Income Tax Considerations
--------------------------------------------------------
The following discussion summarizes the material United States federal income
tax consequences, under current law, applicable to a U.S. Holder (as defined
below) of the Company's common stock. This discussion does not address
consequences peculiar to persons subject to special provisions of federal income
tax law, such as tax-exempt organizations, qualified retirement plans, financial
institutions, insurance companies, real estate investment trusts, regulated
investment companies, broker-dealers, nonresident alien individuals or foreign
corporations, and shareholders owning common stock representing 10% of the vote
and value of the Company. In addition, this discussion does not cover any state,
local or foreign tax consequences.
The following discussion is based upon the sections of the Internal Revenue Code
of 1986, as amended (the "Code"), Treasury Regulations, published Internal
Revenue Service ("IRS") rulings, published administrative positions of the IRS
and court decisions that are currently applicable, any or all of which could be
materially and adversely changed, possibly on a retroactive basis, at any time.
In addition, this discussion does not consider the potential effects, both
adverse and beneficial of recently proposed legislation which, if enacted, could
be applied, possibly on a retroactive basis, at any time. Holders and
prospective holders of the Company's common stock should consult their own tax
advisors about the federal, state, local and foreign tax consequences of
purchasing, owning and disposing of shares of common stock of the Company.
U.S. Holders
------------
As used herein, a "U.S. Holder" is defined as (i) citizens or residents of the
U.S., or any state thereof, (ii) a corporation or other entity created or
organized under the laws of the U.S., or any political subdivision thereof,
(iii) an estate the income of which is subject to U.S. federal income tax
regardless of source or that is otherwise subject to U.S. federal income tax on
a net income basis in respect of the common stock, or (iv) a trust whose
administration is subject to the primary supervision of a U.S. court and which
has one or more U.S. fiduciaries who have the authority to control all
substantial decisions of the trust, whose ownership of common stock is not
effectively connected with the conduct of a trade or business in the United
States and shareholders who acquired their stock through the exercise of
employee stock options or otherwise as compensation.
-54-
Distributions on Shares of Common Stock
---------------------------------------
U.S. Holders receiving dividend distributions (including constructive dividends)
with respect to the Company's common stock are required to include in gross
income for United States federal income tax purposes the gross amount of such
distributions to the extent that the Company has current or accumulated earnings
and profits, without reduction for any Canadian income tax withheld from such
distributions. Such Canadian tax withheld may be credited, subject to certain
limitations, against the U.S. Holder's United States federal income tax
liability or, alternatively, may be deducted in computing the U.S. Holder's
United States federal taxable income by those who itemize deductions. (See more
detailed discussion at "Foreign Tax Credit" below.) To the extent that
distributions exceed current or accumulated earnings and profits of the Company,
they will be treated first as a return of capital up to the U.S. Holder's
adjusted basis in the common stock and thereafter as gain from the sale or
exchange of such shares. Preferential tax rates for long-term capital gains are
applicable to a U.S. Holder which is an individual, estate or trust. There are
currently no preferential tax rates for long-term capital gains for a U.S.
Holder which is a corporation. Dividends paid on the Company's common stock will
not generally be eligible for the dividends received deduction provided to
corporations receiving dividends from certain United States corporations.
Foreign Tax Credit
------------------
A U.S. Holder who pays (or has withheld from distributions) Canadian income tax
with respect to the ownership of the Company's common stock may be entitled, at
the option of the U.S. Holder, to either a deduction or a tax credit for such
foreign tax paid or withheld. Generally, it will be more advantageous to claim a
credit because a credit reduces United States federal income taxes on a
dollar-for-dollar basis, while a deduction merely reduces the taxpayer's income
subject to tax. This election is made on a year-by-year basis and applies to all
foreign taxes paid by (or withheld from) the U.S. Holder during that year.
Subject to certain limitations, Canadian taxes withheld will be eligible for
credit against the U.S. Holder's United States federal income taxes. Under the
Code, the limitation on foreign taxes eligible for credit is calculated
separately with respect to specific classes of income. Dividends paid by the
Company generally will be either "passive" income or "financial services"
income, depending on the particular U.S. Holder's circumstances. Foreign tax
credits allowable with respect to each class of income cannot exceed the U.S.
federal income tax otherwise payable with respect to such class of income. The
consequences of the separate limitations will depend on the nature and sources
of each U.S. Holder's income and the deductions appropriately allocated or
apportioned thereto. The availability of the foreign tax credit and the
application of the limitations on the credit are fact specific and holders and
prospective holders of common stock should consult their own tax advisors
regarding their individual circumstances.
Disposition of Shares of Common Stock
-------------------------------------
A U.S. Holder will recognize gain or loss upon the sale of shares of common
stock equal to the difference, if any, between (i) the amount of cash plus the
fair market value of any property received; and (ii) the shareholder's tax basis
in the common stock. This gain or loss will be capital gain or loss if the
shares are a capital asset in the hands of the U.S. Holder, and such gain or
loss will be long-term capital gain or loss if the U.S. Holder has held the
common stock for more than one year. Gains and losses are netted and combined
according to special rules in arriving at the overall capital gain or loss for a
particular tax year. Deductions for net capital losses are subject to
significant limitations. For U.S. Holders who are individuals, any unused
portion of such net capital loss may be carried over to be used in later tax
years until such net capital loss is thereby exhausted. For U.S. Holders which
are corporations (other than corporations subject to Subchapter S of the Code),
an unused net capital loss may be carried back three years from the loss year
and carried forward five years from the loss year to be offset against capital
gains until such net capital loss is thereby exhausted.
Other Considerations
--------------------
The Company has not determined whether it meets the definition of a "passive
foreign investment company" (a "PFIC"). It is unlikely that the Company meets
the definition of a "foreign personal holding company" (a "FPHC") or a
"controlled foreign corporation" (a "CFC") under current U.S. law.
If more than 50% of the voting power or value of the Company were owned
(actually or constructively) by U.S. Holders who each owned (actually or
constructively) 10% or more of the voting power of the Company's common shares
("10% Shareholders"), then the Company would become a CFC and each 10%
Shareholder would be required to include in
-55-
its taxable income as a constructive dividend an amount equal to its share of
certain undistributed income of the Company. If (1) more than 50% of the voting
power or value of the Company's common shares were owned (actually or
constructively) by five or fewer individuals who are citizens or residents of
the United States and (2) 60% or more of the Company's income consisted of
certain interest, dividend or other enumerated types of income, then the Company
would be a FPHC. If the Company were a FPHC, then each U.S. Holder (regardless
of the amount of the Company's common shares owned by such U.S. Holder) would be
required to include in its taxable income as a constructive dividend its share
of the Company's undistributed income of specific types.
If 75% or more of the Company's annual gross income has ever consisted of, or
ever consists of, "passive" income or if 50% or more of the average value of the
Company's assets in any year has ever consisted of, or ever consists of, assets
that produce, or are held for the production of, such "passive" income, then the
Company would be or would become a PFIC. The Company has not provided assurances
that it has not been and does not expect to become a PFIC. Please note that the
application of the PFIC provisions of the Code to resource companies is somewhat
unclear.
If the Company were to be a PFIC, then a U.S. Holder would be required to pay an
interest charge together with tax calculated at maximum tax rates on certain
"excess distributions" (defined to include gain on the sale of stock) unless
such U.S. Holder made an election either to (1) include in his or her taxable
income certain undistributed amounts of the Company's income or (2) mark to
market his or her Company common shares at the end of each taxable year as set
forth in Section 1296 of the Code.
Information Reporting and Backup Withholding
--------------------------------------------
U.S. information reporting requirements may apply with respect to the payment of
dividends to U.S. Holders of the Company's shares. Under Treasury regulations
currently in effect, non-corporate holders may be subject to backup withholding
at a 31% rate with respect to dividends when such holder (1) fails to furnish or
certify a correct taxpayer identification number to the payor in the required
manner, (2) is notified by the IRS that it has failed to report payments of
interest or dividends properly or (3) fails, under certain circumstances, to
certify that it has been notified by the IRS that it is subject to backup
withholding for failure to report interest and dividend payments.
Inspection of Documents
-----------------------
Copies of the documents referred to in this registration statement may be
inspected at the Company's corporate office at Suite 1305 - 1090 West Georgia
Street, Vancouver, British Columbia V6E 3V7, during normal business hours.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
--------------------------------------------------------------------------------
Not applicable.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.
--------------------------------------------------------------------------------
Options and Other Rights to Purchase Securities
Stock options to purchase securities from the Company are currently granted to
directors and employees of the Company and independent consultants on terms and
conditions acceptable to the regulatory authorities in Canada, notably the TSX
Venture. Stock options must be approved by the Company's shareholders at an
Annual General Meeting (the "Current Stock Option Program"). The Company
currently has no formal written stock option plan. However, the Company proposes
to adopt a stock option plan, as described in "Item 6. Directors, Senior
Management and Employees - Proposed Stock Option Plan".
Under the Current Stock Option Program, stock options for up to 10% of the
number of issued and outstanding shares of common stock may be granted from time
to time, provided that stock options in favor of any one individual may not
exceed 5% of the issued and outstanding shares of common stock. No stock option
granted under the stock option
-56-
program is transferable by the optionee other than by will or the laws of
descent and distribution, and each stock option is exercisable during the
lifetime of the optionee only by such optionee.
The exercise price of all stock options granted under the Current Stock Option
Program must be at least equal to the fair market value of such shares of common
stock on the date of grant, and the maximum term of each stock option may not
exceed five years.
As of March 31, 2003, the Company had granted an aggregate of 703,400
non-transferable incentive stock options to purchase shares of the Company's
common stock. See "Item 6. Directors, Senior Management and Employees - Stock
Options."
PART II
ITEM 13. ITEM DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.
--------------------------------------------------------------------------------
Not applicable.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS.
--------------------------------------------------------------------------------
Not applicable.
ITEM 15. CONTROLS AND PROCEDURES.
--------------------------------------------------------------------------------
Not applicable.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
--------------------------------------------------------------------------------
Not applicable.
ITEM 16B. CODE OF ETHICS
--------------------------------------------------------------------------------
Not applicable.
PART III
ITEM 17. FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
See pages F-1 through F-22.
ITEM 18. FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
Not applicable.
-57-
ITEM 19. EXHIBITS.
--------------------------------------------------------------------------------
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
1.1 Certificate of Change of Name from
Planex Ventures Ltd. to Tumi Resources Limited 82
1.2 British Columbia Registrar of Companies Form 19
- Special Resolutions and Altered Memorandum 84
1.3 Memorandum and Articles of Planex Ventures Ltd. 87
1.4 Articles of Planex Ventures Ltd. 89
4.1 Documents Relating to the Option to Acquire a
100% Interest in the Cinco Minas Property 115
4.2 Heads of Agreement to the Option to Acquire a
60% Interest in the Gran Cabrera Properties 132
4.3 Letter of Intent to the Option to Acquire a 100%
Interest in the Tinka Property 136
4.4 Heads of Agreement to Grant a 70% Interest in the
Tinka Property 138
8.1 List of Subsidiaries 142
-58-
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorized the undersigned to sign
this registration statement on its behalf.
TUMI RESOURCES LIMITED
Dated: April 17, 2003 /s/ David Henstridge
------------------ ----------------------------------------
David Henstridge, President and Director
-59-
--------------------------------------------------------------------------------
TUMI RESOURCES LIMITED
(formerly Planex Ventures Ltd.)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2002 AND 2001 AND THE
PERIOD FROM JANUARY 11, 2000 (Date of Incorporation)
TO DECEMBER 31, 2000
(Expressed in Canadian Dollars, unless otherwise stated)
--------------------------------------------------------------------------------
F-1
-60-
AUDITORS' REPORT
To the Shareholders of
Tumi Resources Limited
Vancouver, B.C. /s/ D&H Group
March 4, 2003
Chartered Accountants
D & H Group
A Partnership of Corporations
A Member of BHD Association with affiliated offices across
Canada and Internationally 10th Floor, 1333 West Broadway, Vancouver,
BC V6H 4C1 WWW.DHGROUP.CA F 604-731-9923 T 604-731-5881
F-2
-61-
TUMI RESOURCES LIMITED
(formerly Planex Ventures Ltd.)
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31, 2002 AND 2001
(Expressed in Canadian Dollars, unless otherwise stated)
[Enlarge/Download Table]
2002 2001
$ $
A S S E T S
CURRENT ASSETS
Cash and cash equivalents 385,678 298,161
Amounts receivable and prepaids 15,445 9,736
------------- -------------
401,123 307,897
MINERAL PROPERTY COSTS (Note 4) 632,983 -
------------- -------------
1,034,106 307,897
============= =============
L I A B I L I T I E S
CURRENT LIABILITIES
Accounts payable and accrued liabilities 62,554 3,100
------------- -------------
S H A R E H O L D E R S ' E Q U I T Y
SHARE CAPITAL (Note 6) 1,218,726 315,583
CONTRIBUTED SURPLUS 17,369 -
DEFICIT (264,543) (10,786)
------------- -------------
971,552 304,797
------------- -------------
1,034,106 307,897
============= =============
NATURE OF OPERATIONS (Note 1)
SUBSEQUENT EVENTS (Note 13)
APPROVED BY THE DIRECTORS
/s/ David Henstridge , Director
-------------------------
/s/ Nick DeMare , Director
-------------------------
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
-62-
TUMI RESOURCES LIMITED
(formerly Planex Ventures Ltd.)
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 AND
THE PERIOD FROM JANUARY 11, 2000 (Date of Incorporation)
TO DECEMBER 31, 2000
(Expressed in Canadian Dollars, unless otherwise stated)
[Enlarge/Download Table]
Period From
January 11,
Year Ended Year Ended 2000 to
December 31, December 31, December 31,
2002 2001 2000
$ $ $
INCOME
Interest income 5,459 12,676 10,126
------------- ------------- -------------
EXPENSES
Accounting and administration 20,380 4,405 2,050
Audit 8,613 2,250 2,500
Consulting 17,200 150 500
Legal 21,759 3,830 2,183
Management fees 10,500 - -
Office 16,112 2,166 1,024
Regulatory 19,937 3,780 509
Shareholder costs 1,313 - -
Stock based compensation 20,212 - -
Transfer agent 6,380 3,345 1,947
Travel and related 19,090 2,949 -
------------- ------------- -------------
161,496 22,875 10,713
------------- ------------- -------------
LOSS BEFORE THE FOLLOWING ITEM (156,037) (10,199) (587)
WRITE-OFF OF MINERAL PROPERTY COSTS (note 4(a)) (97,720) - -
------------- ------------- -------------
LOSS FOR THE PERIOD (253,757) (10,199) (587)
DEFICIT - BEGINNING OF PERIOD (10,786) (587) -
------------- ------------- -------------
DEFICIT - END OF PERIOD (264,543) (10,786) (587)
============= ============= =============
LOSS PER SHARE - BASIC AND DILUTED $(0.09) $(0.01) $(0.00)
============= ============= =============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING - BASIC AND DILUTED 3,050,643 1,702,055 908,219
============= ============= =============
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
-63-
TUMI RESOURCES LIMITED
(formerly Planex Ventures Ltd.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 AND
THE PERIOD FROM JANUARY 11, 2000 (Date of Incorporation)
TO DECEMBER 31, 2000
(Expressed in Canadian Dollars, unless otherwise stated)
[Enlarge/Download Table]
Period From
January 11,
Year Ended Year Ended 2000 to
December 31, December 31, December 31,
2002 2001 2000
$ $ $
CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
Loss for the period (253,757) (10,199) (587)
Adjustment for items not involving cash
Stock-based compensation 20,212 - -
Write-off of mineral property costs 97,720 - -
Decrease (increase) in amounts receivable and prepaids (5,709) 3,340 (13,076)
Increase in accounts payable and accrued liabilities 59,454 441 2,659
------------- ------------- -------------
(82,080) (6,418) (11,004)
------------- ------------- -------------
FINANCING ACTIVITIES
Issuance of common shares 697,800 11,250 381,300
Share issue costs - - (76,967)
------------- ------------- -------------
697,800 11,250 304,333
------------- ------------- -------------
INVESTING ACTIVITY
Mineral property costs (528,203) - -
------------- ------------- -------------
INCREASE IN CASH DURING THE PERIOD 87,517 4,832 293,329
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 298,161 293,329 -
------------- ------------- -------------
CASH AND CASH EQUIVALENTS - END OF PERIOD 385,678 298,161 293,329
============= ============= =============
CASH AND CASH EQUIVALENTS IS COMPRISED OF:
Cash 385,678 48,161 3,329
Short-term deposits - 250,000 290,000
------------- ------------- -------------
385,678 298,161 293,329
============= ============= =============
SUPPLEMENTARY CASH FLOW INFORMATION (Note 10)
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
-64-
TUMI RESOURCES LIMITED
(formerly Planex Ventures Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 AND
THE PERIOD FROM JANUARY 11, 2000 (Date of Incorporation)
TO DECEMBER 31, 2000
(Expressed in Canadian Dollars, unless otherwise stated)
1. NATURE OF OPERATIONS
The Company was incorporated under the Company Act of British Columbia on
January 11, 2000, as Planex Ventures Ltd. The Company's shares were listed
on the TSX Venture Exchange (the "TSX Venture") as a capital pool company
until May 24, 2002, when it completed a qualifying transaction and was
upgraded to Tier II status. The Company also changed its name to Tumi
Resources Limited to reflect its business as a junior mineral exploration
company.
During the remainder of 2002, the Company entered into a number of option
agreements to acquire interests in mineral properties. As of December 31,
2002, the Company is in the process of exploring mineral properties located
in Mexico and Peru. On the basis of information to date, it has not yet
determined whether these properties contain economically recoverable ore
reserves. The underlying value of the mineral properties and related
deferred costs is entirely dependent on the existence of economically
recoverable reserves, the ability of the Company to obtain the necessary
financing to complete development and upon future profitable production.
Mineral property costs represent costs incurred to date, less amounts
amortized and/or written off, and do not necessarily represent present or
future values.
2. CHANGE IN ACCOUNTING POLICY
On January 1, 2002, the Company adopted, on a prospective basis, the
provisions of new Section 3870 "Stock- Based Compensation and Other Stock
Based Payments" of the Canadian Institute of Chartered Accountants'
Handbook ("Section 3870"). Section 3870 establishes standards for the
recognition, measurement and disclosure of stock-based compensation and
other stock-based payments. Section 3870 recommends that certain
stock-based transactions, such as the grant of stock options, be accounted
for at fair value. The section is only applicable to transactions that
occurred on or after January 1, 2002.
As permitted by Section 3870, the Company did not adopt the fair value
method for certain stock-based compensation granted to employees and
directors. The additional disclosure required by Section 3870 as a result
of the Company not adopting the fair value method is provided in Note 5. As
permitted by Section 3870, the additional disclosure for the 2002 fiscal
year will not be presented on a comparative basis.
F-6
-65-
TUMI RESOURCES LIMITED
(formerly Planex Ventures Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 AND
THE PERIOD FROM JANUARY 11, 2000 (Date of Incorporation)
TO DECEMBER 31, 2000
(Expressed in Canadian Dollars, unless otherwise stated)
3. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
The consolidated financial statements of the Company have been prepared by
management in accordance with Canadian generally accepted accounting
principles ("Canadian GAAP"). The significant differences between these
principles and those that would be accepted under United States generally
accepted accounting principles ("US GAAP") are disclosed in Note 12.
The preparation of financial statements in conformity with Canadian GAAP
requires management to make estimates and assumptions that affect the
reported amount of assets and liabilities and disclosure of contingent
liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reported period. Significant
areas requiring the use of management estimates relate to the determination
of environmental obligations, impairment of mineral claims and deferred
exploration expenditures and the related rate of depletion and
amortization. Actual results could differ from these estimates.
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries, TMXI Resources S.A. de C.V. (Mexico) and
Tumi Resources S.A. (Peru) and its 60% owned subsidiary, Compania Minera
Cinco Minas S.A. de C.V. (Mexico). Intercompany balances and transactions
are eliminated on consolidation.
Cash Equivalents
----------------
Cash includes cash and short-term deposits maturing within 90 days of the
original date of acquisition.
Mineral Property Costs
----------------------
Mineral property costs and exploration, development and field support costs
directly relating to mineral properties are deferred until the property to
which they relate is placed into production, sold or abandoned. The
deferred costs will be amortized over the life of the orebody following
commencement of production or written off if the property is sold or
abandoned. Administration costs and other exploration costs that do not
relate to any specific property are expensed as incurred.
On a periodic basis, management reviews the carrying values of deferred
mineral property acquisition and exploration expenditures with a view to
assessing whether there has been any impairment in value. In the event that
reserves are determined to be insufficient to recover the carrying value of
any property, the carrying value will be written down or written off, as
appropriate.
F-7
-66-
TUMI RESOURCES LIMITED
(formerly Planex Ventures Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 AND
THE PERIOD FROM JANUARY 11, 2000 (Date of Incorporation)
TO DECEMBER 31, 2000
(Expressed in Canadian Dollars, unless otherwise stated)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Although the Company has taken steps to verify title to mineral properties
in which it has an interest, according to the usual industry standards for
the stage of exploration of such properties, these procedures do not
guarantee the Company's title. Such properties may be subject to prior
agreements or transfers and title may be affected by undetected defects.
From time to time, the Company acquires or disposes of properties pursuant
to the terms of option agreements. Options are exercisable entirely at the
discretion of the optionee and, accordingly, are recorded as mineral
property costs or recoveries when the payments are made or received.
Translation of Foreign Currencies
---------------------------------
Integrated foreign operations are translated using the temporal method.
Under this method, the Company translates monetary items at the rate of
exchange in effect at the balance sheet date. Non-monetary items are
translated at average rates in effect during the period in which they were
earned or incurred. Gains and losses resulting from the fluctuation of
foreign exchange rates have been included in the determination of income.
Income Taxes
------------
Income tax liabilities and assets are recognized for the estimated income
tax consequences attributable to differences between the amounts reported
in the consolidated financial statements and their respective tax bases,
using enacted income tax rates. The effect of a change in income tax rates
on future income tax liabilities and assets is recognized in income in the
period that the change occurs. Future income tax assets are recognized to
the extent that they are considered more likely than not to be realized.
Earnings (Loss) Per Share
-------------------------
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding
during the period. The computation of diluted earnings per share assumes
the conversion, exercise or contingent issuance of securities only when
such conversion, exercise or issuance would have a dilutive effect on
earnings per share. The dilutive effect of convertible securities is
reflected in diluted earnings per share by application of the "if
converted" method. The dilutive effect of outstanding options and warrants
and their equivalents is reflected in diluted earnings per share by
application of the treasury stock method.
F-8
-67-
TUMI RESOURCES LIMITED
(formerly Planex Ventures Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 AND
THE PERIOD FROM JANUARY 11, 2000 (Date of Incorporation)
TO DECEMBER 31, 2000
(Expressed in Canadian Dollars, unless otherwise stated)
4. MINERAL PROPERTY COSTS
At December 31, 2002, mineral property costs are as follows:
Acquisition Exploration
Costs Expenditures Total
$ $ $
------------- ------------- -------------
Los Lomas - - -
Tinka 88,073 4,491 92,564
Cinco Minas 196,818 180,167 376,985
Gran Cabrera 163,434 - 163,434
------------- ------------- -------------
448,325 184,658 632,983
============= ============= =============
a) Los Lomas, Peru
On February 28, 2002, the Company entered into an option agreement
whereby the Company could earn a 70% interest in 15 mineral
concessions in Peru, covering 15,100 hectares, in consideration of
spending US$1 million of which a minimum of US$100,000 (the "Initial
Work Commitment") was required to be incurred prior to February 1,
2003, and the issuance of a total of 250,000 common shares (75,000
shares issued) over a four year period.
During fiscal 2002, the Company attempted to complete a drill program
in order to meet its Initial Work Commitment. The Company was unable
to gain access to the property to implement the work program. The
Company declared force majeure, as allowed by the option agreement
and, in February 2003, the Company formally informed the vendor that
it had decided to terminate the option agreement. Accordingly, during
the year ended December 31, 2002, the Company wrote off $97,720 of
mineral property costs.
b) Tinka, Peru
On May 31, 2002, the Company entered into a letter of intent whereby
the Company could earn a 100% interest, subject to a 1% NSR interest,
in two mineral claims in Ica, Peru, in consideration of the issuance
of 750,000 common shares (250,000 shares issued) of the Company over
two years, payment of US$7,500 for past property taxes (paid) and
payment of ongoing property holding costs, estimated at US$3,000 per
annum and completion of a drill program. The Company may purchase the
1% NSR at any time for US$750,000.
F-9
-68-
TUMI RESOURCES LIMITED
(formerly Planex Ventures Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 AND
THE PERIOD FROM JANUARY 11, 2000 (Date of Incorporation)
TO DECEMBER 31, 2000
(Expressed in Canadian Dollars, unless otherwise stated)
4. MINERAL PROPERTY COSTS (continued)
On February 19, 2003, the Company entered into an agreement (the
"Tinka HOA") with Tinka Resources Ltd. ("Tinka Resources"), a
publicly-traded company, the President of which is a director of the
Company, whereby the Company, upon regulatory approval, has agreed to
grant a 70% interest in the option on the Tinka property. Under the
Tinka HOA, Tinka Resources has agreed to assume the Company's share
issuance obligations through the issuances, over a three year period,
of a total of 500,000 common shares of Tinka Resources' share capital
and conducting exploration expenditures and making all property
holding costs totalling US$2.5 million over a three year period.
c) Cinco Minas, Mexico
By agreements dated July 6, 2002 and August 18, 2002, the Company
could earn a 60% interest in mineral claims covering approximately 600
hectares, located in Jalisco, Mexico, in consideration of US$50,000
cash (paid), conducting exploration expenditures and making underlying
property payments totalling US$2.5 million and issuing 1.1 million
common shares (100,000 shares issued) of the Company over a three year
period.
d) Gran Cabrera, Mexico
On October 23, 2002, the Company entered into an agreement whereby the
Company could earn a 60% interest in mineral claims covering
approximately 3,950 hectares, located in Jalisco, Mexico, in
consideration of making a US$45,500 payment for past property taxes
(paid), conducting exploration expenditures totalling US$2.5 million
and issuing 750,000 common shares (250,000 shares issued) of the
Company over a three year period.
5. STOCK BASED COMPENSATION
During the year ended December 31, 2002, the Company granted stock options
to employees, directors and consultants to purchase 573,400 shares of the
Company. The options are exercisable at prices ranging from $0.23 per share
to $0.55 per share and have a 3 year term to expiry.
The Company has recognized compensation expense of $20,212 for stock
options granted to consultants during the year.
F-10
-69-
TUMI RESOURCES LIMITED
(formerly Planex Ventures Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 AND
THE PERIOD FROM JANUARY 11, 2000 (Date of Incorporation)
TO DECEMBER 31, 2000
(Expressed in Canadian Dollars, unless otherwise stated)
5. STOCK BASED COMPENSATION (continued)
As the Company did not adopt the fair value method of accounting for stock
options granted to employees and directors, Section 3870 requires
disclosure of pro forma amounts that reflect the impact as if the Company
had adopted the fair value based method of accounting. Had compensation
costs for the Company's stock options granted to employees and directors
been accounted for under the fair value method, the Company's net loss and
loss per share would have increased as follows:
$
Net loss for the year
- as reported (253,757)
- compensation expense (38,942)
-------------
- pro-forma (292,699)
=============
Basic and diluted loss per share
- as reported (0.09)
- pro-forma (0.10)
The fair value of stock options granted to employees, directors and
consultants is estimated on the dates of grants using the Black-Scholes
option pricing model with the following assumptions used for the grants
made during the year:
Risk-free interest rate 3.46% - 3.55%
Estimated volatility 78% - 79%
Expected life 1.5 years
The weighted average fair value per share of stock options, calculated
using the Black-Scholes option pricing model, granted during the period to
the Company's employees, directors and consultants was $0.11 per share.
Option-pricing models require the use of estimates and assumptions
including the expected volatility. Changes in the underlying assumptions
can materially affect the fair value estimates and, therefore, existing
models do not necessarily provide reliable measure of the fair value of the
Company's stock options.
F-11
-70-
TUMI RESOURCES LIMITED
(formerly Planex Ventures Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 AND
THE PERIOD FROM JANUARY 11, 2000 (Date of Incorporation)
TO DECEMBER 31, 2000
(Expressed in Canadian Dollars, unless otherwise stated)
6. SHARE CAPITAL
Authorized: 100,000,000 common shares with no par value
Issued:
[Enlarge/Download Table]
2002 2001 2000
-------------------------- -------------------------- --------------------------
Shares Amount Shares Amount Shares Amount
$ $ $
Balance, beginning of period 3,459,000 315,583 3,384,000 304,333 - -
------------ ------------ ------------ ------------ ------------ ------------
Issued during the period
For cash
- initial public offering - - - - 1,700,000 255,000
- private placements 2,450,000 663,000 - - 1,684,000 126,300
- exercise of options 230,000 35,643 - - - -
- exercise of warrants 10,000 2,000 75,000 11,250 - -
For mineral properties 675,000 202,500 - - - -
------------ ------------ ------------ ------------ ------------ ------------
3,365,000 903,143 75,000 11,250 3,384,000 381,300
Share issue costs - - - - - (76,967)
------------ ------------ ------------ ------------ ------------ ------------
Balance, end of period 6,824,000 1,218,726 3,459,000 315,583 3,384,000 304,333
============ ============ ============ ============ ============ ============
(a) Stock Options
The Company grants stock options in accordance with the policies of
the TSX Venture. A summary of the Company's options at December 2002
and 2001 and the changes for the years ending on those dates is
presented below:
[Download Table]
2002 2001
--------------------------- ---------------------------
Weighted Weighted
Average Average
Options Exercise Options Exercise
Outstanding Price Outstanding Price
$ $
Balance, beginning of year 338,000 0.14 318,000 0.15
Granted 573,400 0.37 90,000 0.10
Exercised (230,000) 0.14 - -
Cancelled - (70,000) 0.15
------------ ------------
Balance, end of year 681,400 0.33 338,000 0.14
============ ============
F-12
-71-
TUMI RESOURCES LIMITED
(formerly Planex Ventures Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 AND
THE PERIOD FROM JANUARY 11, 2000 (Date of Incorporation)
TO DECEMBER 31, 2000
(Expressed in Canadian Dollars, unless otherwise stated)
6. SHARE CAPITAL (continued)
The following table summarizes information about the stock options
outstanding and exercisable at December 31, 2002:
Number of Options Number of Options
Exercise Outstanding at Exercisable at
Price December 31, 2002 December 31, 2002 Expiry Date
$
0.15 143,000 143,000 Jun. 21/05
0.23 279,000 279,000 Jul. 15/05
0.52 119,400 59,400 Dec. 05/05
0.55 140,000 140,000 Dec. 19/05
------- -------
681,400 621,400
======= =======
(b) Warrants
As at December 31, 2002, the Company had outstanding warrants issued
pursuant to private placements, which may be exercised to purchase
2,521,000 shares. The warrants expire at various times until December
13, 2004 and may be exercised at prices ranging from $0.20 per share
to $0.40 per share.
Details of warrants outstanding are as follows:
2002 2001
Number Number
of Warrants of Warrants
------------ ------------
Balance, beginning of year - -
Issued pursuant to private placements 2,531,000 -
Exercised (10,000) -
------------ ------------
Balance, end of year 2,521,000 -
============ ============
(c) As at December 31, 2002, 1,263,000 common shares are held in escrow
under the requirements of the TSX Venture and are released in equal
semi-annual instalments ending May 27, 2005.
(d) See also Note 13.
F-13
-72-
TUMI RESOURCES LIMITED
(formerly Planex Ventures Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 AND
THE PERIOD FROM JANUARY 11, 2000 (Date of Incorporation)
TO DECEMBER 31, 2000
(Expressed in Canadian Dollars, unless otherwise stated)
7. INCOME TAXES
Future income tax assets and liabilities of the Company as at December 31,
2002 and 2001 are as follows:
2002 2001
$ $
Future income tax assets (liabilities)
Losses carried forward 321,000 16,000
Other 12,000 18,000
Mineral property costs (209,000) -
------------ ------------
124,000 34,000
Valuation allowance (124,000) (34,000)
------------ ------------
Net future income tax asset - -
============ ============
2002 2001
$ $
Income tax rate reconciliation
Combined federal and provincial income tax rate 39.6% 39.6%
============ ============
Expected income tax recovery (100,500) (4,000)
Foreign income tax rate differences 42,000 -
Deductible mineral property cost additions (247,500) -
Other 2,000 (6,000)
Unrecognized benefit of income tax losses 304,000 10,000
------------ ------------
Actual income tax recovery - -
============ ============
As at December 31, 2002, the Company has accumulated non-capital losses and
accumulated resource pools for Canadian income tax purposes of
approximately $285,000, expiring from 2007 to 2009, and for Mexican income
tax purposes of approximately US$401,000, which are available for
application against future taxable income, the related benefits of which
have not been recognized in these financial statements.
F-14
-73-
TUMI RESOURCES LIMITED
(formerly Planex Ventures Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 AND
THE PERIOD FROM JANUARY 11, 2000 (Date of Incorporation)
TO DECEMBER 31, 2000
(Expressed in Canadian Dollars, unless otherwise stated)
8. RELATED PARTY TRANSACTIONS
During the year ended December 31, 2002, the Company:
(i) paid $36,380 (2001 - $4,405; 2000 - $2,050) for accounting,
administration and management services provided by the President of
the Company and a private corporation owned by a director of the
Company;
(ii) conducted private placements in which officers and directors of the
Company purchased 441,000 units for $116,580.
During the period ended December 31, 2000, the Company paid $11,705 for
legal services provided by a legal firm of which a former director of the
Company is a partner.
9. SEGMENTED INFORMATION
(a) The Company was a capital pool company until May 24, 2002, when it
completed its qualifying transaction. Substantially all of the
Company's operations are in one industry; the exploration for gold and
silver. Management reviews the financial results according to
expenditures by property. The Company's current mineral properties are
located in Peru and Mexico and its corporate assets are located in
Canada.
(b) Segment assets:
[Download Table]
2002
------------------------------------------------------------
Peruvian Mexican
Mineral Mineral
Corporate Operations Operations Total
$ $ $ $
Current assets 366,743 707 33,673 401,123
Mineral property costs - 92,564 540,419 632,983
------------ ------------ ------------ ------------
366,743 93,271 574,092 1,034,106
============ ============ ============ ============
F-15
-74-
TUMI RESOURCES LIMITED
(formerly Planex Ventures Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 AND
THE PERIOD FROM JANUARY 11, 2000 (Date of Incorporation)
TO DECEMBER 31, 2000
(Expressed in Canadian Dollars, unless otherwise stated)
9. SEGMENTED INFORMATION (continued)
(c) Segment profits and loss:
[Enlarge/Download Table]
2002
------------------------------------------------------------
Peruvian Mexican
Mineral Mineral
Corporate Operations Operations Total
$ $ $ $
Loss before the following item (153,957) (1,025) (1,055) (156,037)
Write-off of mineral
property costs - (97,720) - (97,720)
------------ ------------ ------------ ------------
Loss for the year (153,957) (98,745) (1,055) (253,757)
============ ============ ============ ============
10. SUPPLEMENTARY CASH FLOW INFORMATION
Non-cash investing and financing activities were conducted by the Company
as follows:
2002 2001
$ $
Non-cash investing activity
Shares issued for mineral properties (202,500) -
=========== ===========
2002 2001
$ $
Non-cash financing activities
Shares issued for mineral properties 202,500 -
Shares issued on exercise of options 2,843 -
Contributed surplus (2,843) -
----------- -----------
202,500 -
=========== ===========
Other supplementary cash flow information:
2002 2001
$ $
Interest paid in cash - -
=========== ===========
Income taxes paid in cash - -
=========== ===========
F-16
-75-
TUMI RESOURCES LIMITED
(formerly Planex Ventures Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 AND
THE PERIOD FROM JANUARY 11, 2000 (Date of Incorporation)
TO DECEMBER 31, 2000
(Expressed in Canadian Dollars, unless otherwise stated)
11. FINANCIAL INSTRUMENTS
Concentration of credit risk
Financial instruments that potentially subject the Company to a significant
concentration of credit risk are cash and cash equivalents and amounts
receivable. The Company limits its exposure to credit loss by placing its
cash and cash-equivalents with high credit quality financial institutions.
Fair value of financial instruments
The fair value of the Company's financial instruments consisting of cash
and cash equivalents, amounts receivable and accounts payable and accrued
liabilities approximate their carrying values.
12. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
(a) The consolidated financial statements of the Company have been
prepared in accordance with Canadian GAAP which differ in certain
material respects from US GAAP. Material differences between Canadian
and US GAAP and their effect on the Company's consolidated financial
statements are summarized in the tables below.
Consolidated Statements of Loss
[Enlarge/Download Table]
2002 2001 2000
$ $ $
Net loss under Canadian GAAP (253,757) (10,199) (587)
Mineral property costs for the period (i) (730,703) - -
Write-off of mineral property costs (i) 97,720 - -
Other compensation (iv) (12,420) - -
------------ ------------ ------------
Net loss under US GAAP (899,160) (10,199) (587)
============ ============ ============
Loss per share under US GAAP $(0.29) $(0.01) $(0.00)
============ ============ ============
F-17
-76-
TUMI RESOURCES LIMITED
(formerly Planex Ventures Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 AND
THE PERIOD FROM JANUARY 11, 2000 (Date of Incorporation)
TO DECEMBER 31, 2000
(Expressed in Canadian Dollars, unless otherwise stated)
12. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
Consolidated Balance Sheets
2002 2001
$ $
Total assets under Canadian GAAP 1,034,106 307,897
Mineral property costs
for the period (i) (632,983) -
Deferred tax asset (iii) 321,000 16,000
Less: Valuation allowance (iii) (321,000) (16,000)
------------ ------------
Total assets under US GAAP 401,123 307,897
============ ============
Total liabilities under Canadian GAAP 62,554 3,100
------------ ------------
Total liabilities under US GAAP 62,554 3,100
============ ============
Total shareholders' equity under
Canadian GAAP 971,552 304,797
Mineral property costs for the period (i) (632,983) -
------------ ------------
Total shareholders' equity under US GAAP 338,569 304,797
============ ============
(i) Mineral property costs
Mineral property costs are accounted for in accordance with
Canadian GAAP as disclosed in Note 3. The Company has determined
for US GAAP purposes to expense the acquisition and exploration
costs relating to unproven mineral properties as incurred. When
proven and probable reserves are determined for a property,
subsequent exploration and development costs of the property are
capitalized. The capitalized costs of such properties would then
be measured, on a periodic basis, to ensure that the carrying
value can be recovered on an undiscounted cash flow basis. If the
carrying value cannot be recovered on this basis, the mineral
properties would be written down to net recoverable value on a
discounted cash flow basis.
(ii) The Company grants stock options which reserves common shares for
issuance to employees, directors and consultants. As described in
Note 2, effective January 1, 2002, the Company adopted, on a
prospective basis, the provisions of Section 3870 which is
similar to the provisions of SFAS 123 "Accounting for Stock-Based
Compensation" issued by the Financial Accounting Standards Board
("FASB"). The calculations of the stock-based compensation for
the year ended December 31, 2002 has been presented in Note 5.
F-18
-77-
TUMI RESOURCES LIMITED
(formerly Planex Ventures Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 AND
THE PERIOD FROM JANUARY 11, 2000 (Date of Incorporation)
TO DECEMBER 31, 2000
(Expressed in Canadian Dollars, unless otherwise stated)
12. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
During the year ended December 31, 2001 and the period ended
December 31, 2000, the Company granted stock options to its
directors and employees to purchase shares of the Company. No
compensation cost has been recognized for the options granted in
2001 and 2000. Had compensation costs for the Company's stock
options granted been determined based on the fair value at the
grant date for awards during the periods ended December 31, 2001
and 2000 consistent with the provisions of SFAS 123, the
Company's loss and loss per share would have been increased to
the proforma amounts indicated below:
2001 2000
$ $
Net loss under US GAAP (10,199) (587)
Net loss - proforma (13,419) (587)
Loss per share under US GAAP (0.01) (0.00)
Loss per share - proforma (0.01) (0.00)
The fair value of each option granted to an employee or director
is estimated on the date of grant using the Black-Scholes option
pricing model with the following assumptions used for grants
during the periods ended December 31, 2001 and 2000, except that
during 2000, the Company was a non-public entity. Accordingly,
under SFAS 123, the fair value of the stock options granted in
2000 was determined to be nil:
2001 2000
Risk-free interest rate 3.37% 6.08%
Expected volatility 80% 0.00%
Expected lives 1.5 years 2.5 years
F-19
-78-
TUMI RESOURCES LIMITED
(formerly Planex Ventures Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 AND
THE PERIOD FROM JANUARY 11, 2000 (Date of Incorporation)
TO DECEMBER 31, 2000
(Expressed in Canadian Dollars, unless otherwise stated)
12. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
(iii)Income Tax
Under Canadian GAAP, deferred income tax assets relating to the
potential benefit of income tax loss carryforwards are not
recognized unless there is virtual certainty of realization of
the benefit. US GAAP provides similar treatment, but requires the
benefit be recognized and a valuation allowance be recognized to
fully offset the deferred income tax asset.
As at December 31, 2002, the Company has fully reserved the
$321,000 income tax benefit of operating loss carryforwards, by a
valuation allowance of the same amount, because the likelihood of
realization of the tax benefit cannot be determined. Of the total
tax benefit, $305,000 is attributable to the year ended December
31, 2002.
(iv) Private Placements of Common Stock
During the year ended December 31, 2002, the Company conducted
the majority of its equity financings pursuant to private
placements. Under the policies of the TSX Venture, the Company
may provide a discount off the market price of the Company's
common stock. US GAAP does not permit a discount from the market
price. US GAAP requires the recognition of the market value of
the Company's common stock as a credit to share capital, with a
charge to operations for the portion of the discount relating to
equity financings conducted with officers and directors of the
Company and a charge to shareholders' equity, as a capital
distribution, for the discount relating to the remaining portion
of the equity financings.
Under US GAAP, loss and capital distributions for the year ended
December 31, 2002 would increase by $12,420 and $72,080,
respectively, and share capital, as at December 31, 2002 would
increase by $84,500. There is no net change to shareholders'
equity.
(b) The Company's consolidated statements of cash flow comply with US
GAAP.
F-20
-79-
TUMI RESOURCES LIMITED
(formerly Planex Ventures Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 AND
THE PERIOD FROM JANUARY 11, 2000 (Date of Incorporation)
TO DECEMBER 31, 2000
(Expressed in Canadian Dollars, unless otherwise stated)
12. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
(c) New Technical Pronouncements
In June 2001, FASB issued SFAS 143, "Accounting for Asset Retirement
Obligations." SFAS 143 addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. SFAS 143 generally
requires obligations associated with asset retirements to be
recognized earlier and displayed as liabilities rather than as
contra-assets. The pronouncement is effective for financial statements
issued for fiscal years beginning after June 15, 2002. Management does
not believe that the adoption of SFAS 143 will have any impact on its
financial position or results of operations.
In June 2002, FASB issued SFAS 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS 146 addresses financial
accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity." SFAS 146 generally requires a
liability for a cost associated with an exit or disposal activity to
be recognized and measured initially at its fair value in the period
in which the liability is incurred. The pronouncement is effective for
exit or disposal activities initiated after December 31, 2002.
Management does not believe that the adoption of SFAS 146 will have
any impact on its financial position or results of operations.
In December 2002, FASB issued SFAS 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure". This standard amends SFAS
123, "Accounting for Stock-Based Compensation", to provide alternative
methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In
addition, this statement amends the disclosure requirements of SFAS
123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported
results.
F-21
-80-
TUMI RESOURCES LIMITED
(formerly Planex Ventures Ltd.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 AND
THE PERIOD FROM JANUARY 11, 2000 (Date of Incorporation)
TO DECEMBER 31, 2000
(Expressed in Canadian Dollars, unless otherwise stated)
13. SUBSEQUENT EVENTS
Subsequent to December 31, 2002, the Company:
(i) issued 218,000 shares on the exercise of stock options for $41,340
cash;
(ii) granted stock options to purchase 240,000 shares at a price of $1.00
per share, expiring January 14, 2006; and
(iii)announced a non-brokered private placement financing of up to 617,000
units, at a price of $0.90 per unit, to raise up to $555,300. To date
the Company has completed an initial tranche comprising of 528,000
units, for $475,200. Each unit consists of one common share and one
share purchase warrant. Each share purchase warrant entitles the
holder thereof to purchase one additional common share of the Company
for a period of two years for the exercise price of $1.00 in the first
year and $1.15 in the second year. A finder's fee of $6,300 was paid
on a portion of the private placement. Certain directors of the
Company have purchased 278,000 units of the private placement.
See also Note 4.
F-22
-81-
Dates Referenced Herein and Documents Incorporated by Reference
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