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Form 10QSB for U S CANADIAN MINERALS INC
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6-Mar-2007
Quarterly Report
ITEM 2. MANAGEMENT'S PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS
This Form 10-QSB includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included or incorporated by reference in this Form 10-QSB which address activities, events or developments which the Company expects or anticipates will or may occur in the future, including such things as future capital expenditures (including the amount and nature thereof); finding suitable merger or acquisition candidates; expansion and growth of the Company's business and operations; and other such matters are forward-looking statements. These statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate under the circumstances. However, whether actual results or developments will conform with the Company's expectations and predictions is subject to a number of risks and uncertainties, including general economic, market and business conditions; the business opportunities (or lack thereof) that may be presented to and pursued by the Company; changes in laws or regulation; and other factors, most of which are beyond the control of the Company.
These forward-looking statements can be identified by the use of predictive, future-tense or forward-looking terminology, such as "believes," "anticipates," "expects," "estimates," "plans," "may," "will," or similar terms. These statements appear in a number of places in this Filing and include statements regarding the intent, belief or current expectations of the Company, and its directors or its officers with respect to, among other things: (i) trends affecting the Company's financial condition or results of operations for its limited history; (ii) the Company's business and growth strategies; and, (iii) the Company's financing plans. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. Such factors that could adversely affect actual results and performance include, but are not limited to, the Company's limited operating history, potential fluctuations in quarterly operating results and expenses, government regulation, technological change and competition.
Consequently, all of the forward-looking statements made in this Form 10-QSB are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequence to or effects on the Company or its business or operations. The Company assumes no obligations to update any such forward-looking statements.
GENERAL DESCRIPTION OF BUSINESS
U.S. Canadian Minerals is headquartered in Las Vegas, Nevada. On its own and through Joint Ventures, the Company is looking to expand and develop mining properties throughout North and South America. The Company has the following projects, which are in varying stages of development.
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Fort a La Corne
On January 20, 2004, the Company acquired from Nevada Minerals, Inc. a 20% interest in the mineral rights to 500,000 acres in Saskatchewan Canada near Fort a La Corne (the "fort a La Corne Property"). The Company issued 5,000,000 shares of its common stock to Nevada Minerals as consideration for such rights. Subsequently on July 18, 2004, Nevada Minerals conveyed an additional 20% interest in the mineral rights to the Fort a La Corne Property to the Company for 100,000 shares of Series A Preferred Stock, giving the Company an aggregate 40% of the mineral rights to the Fort a La Corne property. The mineral rights include the right to explore and exploit all minerals discovered in the Fort a La Corne property.
Lincoln County
The company acquired from Nevada Minerals, Inc. for nominal consideration, an option to purchase a mining operation and associated property located in Rachel, Lincoln county, Nevada, (the "Rachel Property") for an exercise price of $2,000,000. Nevada Minerals' title to the Rachel Property is the subject of litigation. Nevada Minerals acquired the Rachel Property in a foreclosure proceeding, and the person from which title to the Rachel Property was acquired in the foreclosure has filed a lawsuit against Nevada Minerals to have such title reinstated in it. While the company had initially formed an intention to exercise the option to acquire the Rachel Property, it no longer intends to do so because of its focus on its Ecuador projects described below and because it would have to spend $300,000 to build a processing facility on the property. The option does not expire until failure to exercise upon 10 days written notice of a bona fide offer to purchase the Rachel Property by a third property, however, and the Company may exercise the option to acquire the Rachel Property at any time that the Company concludes that it is in its best interest to do so. John Edgar Dhonau, who beneficially owns a majority of the Company's common stock owns all of and controls Nevada Minerals.
At the time the Company intended to exercise the option to acquire the Rachel Property, it entered into a land use agreement with Nevada Minerals that gave it the right to enter the property to begin building a processing facility.
Juina Mining Corporation
On March 23, 2004, the Company acquired 10 million shares of the Preferred Stock of Juina Mining Corporation, a Nevada corporation ("Juina"), in exchange for $116,000 in cash and a note in the principal amount of $84,000 (which note was subsequently paid in full). At the same time, the Company acquired 25 million, 5 million and 5 million shares of Juina common stock, respectively, from James D. McFadden, Mark Hutchison and Richard Taulli in exchange for 833,334 shares, 179,091 shares and 150,000 shares respectively, of the Company's common stock. Subsequently, the Company converted the preferred stock to 80 million shares of Juina common stock, giving the Company 77.1% of Juina's total outstanding common stock. At the time of this acquisition, there was an understanding between the Company and Mr. Hutchison that he would become a Director of the Company.
Juina owns 49% of a joint venture called Juina Mining Mineracao, Ltd. ("JMML"). The remaining 51% of JMML is owned by DIAGEM International Resources Corp., a Canadian corporation ("DIAGEM").
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The sole asset of JMML is an 86% working interesting the mineral and mining rights to 2,471 acres of land in the District of Juina, Mato Grosso, Brazil ("Property 1000") as well as the equipment and processing facility appurtenant thereto.
At present, there are no operations being conducted by JMML because, among other considerations, the required permits have not been issued by the relevant governmental agencies. Permits for mining were never obtained and plans for mining have been abandoned. Moreover, JMML is controlled by Diagem, which has publicly disclosed that it considers JMML to be inactive.
JMML, however, has entered into a Joint Venture Agreement with Mineradora ECO with respect to a 49.80 hectare parcel in the western portion of Property 1000. As part of the Joint Venture Agreement, Mineradora CEO is entitled to 50% of all revenue generated by the sale of diamonds produced from this portion of Property 1000. In return, Mineradora ECO will undertake the task of securing land owner permissions and all government permits and licenses in order to commence operations and act as the operator on the 49.80 hectare parcel. To date Mineradora ECO has been unsuccessful in obtaining these permits and licenses, and there is no assurance that it will ever do so. This agreement was never fulfilled and the project was abandoned.
Yellow River Mining
On March 22, 2004, Juina Mining issued 5,000,000 of its restricted common shares to acquire 80% of the issued and outstanding shares of Yellow River Mining S.A., which owned processing plants in the Provincia Del Oro (Province of Gold) in southwest Ecuador. Yellow River is an active mine with unproven reserves and has not produced significant amounts of revenue. Under the terms of the agreement, Yellow River S.A. is to receive 50% of the gold it extracts at its plants. The other 20% of Yellow River Mining S.A. is owned by an individual who is an Ecuadorian resident, from whom the company acquired its 80% interest. The Company anticipated using proceeds from subsequent offerings to construct and improve mining facilities at Yellow River.
CMKM Diamonds, Inc. owned a producing mine shaft near one of the Yellow River processing plants. The company has an agreement with CMKM Diamonds pursuant to which CMKM Diamonds must use that processing plant to extract the gold ore from that mine except for the extent the production of such ore exceeds the processing plants capacity. CMKM Diamonds was to pay Nevada Minerals a fee equal to 20% of its revenues from that mine. The Yellow River Mining Co. processed ore from the American Shaft in 2004 and 2005.
Subsequent to the quarter ended March 31, 2004, on August 3, 2005 the Company executed an Asset Purchase Agreement with Minera Compania Double Down S.A, which provided for the sale of 100% of the company's 80% interest in Yellow River Mining, S.A., an Ecuador corporation which owns certain mineral rights to land in Ecuador. From April 2005 to September 2005 the company's subsidiary Durangoro had an agreement to process Yellow River's ore and Durango received compensation from the sale of gold. The buyer holds 46.6% of the Company's common stock. As consideration for the Assets, the Buyer paid the Company $800,000 which included the assumption of a $127,000 debt owed by the Company to Nevada Minerals, Inc. and payment of various debts of the Company to various vendors associated with the construction and maintenance of the Yellow River Mining Co.'s assets. Full consideration was not transferred to the Company until September 9, 2005.
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COD Mine
On May 11, 2004, the Company entered into a joint venture agreement with El Capitan Precious Metals, Inc. to acquire an 80% ownership of mining claims located in Arizona. The Company was required to contribute 720,000 shares of its common stock to acquire the mining rights. The joint venture agreement entitled the Company to receive 50% of the anticipated profits from tailings and settlement ponds and gave the Company the obligation to provide operating capital for the first 90 days of operation. After this period, the joint venture partner (operator) bore the risk of excess losses and liability.
The reserves for which the Company obtained mineral rights through the El Capitan joint venture agreement were "proven or probable" that is, the Company had been provided an outside commercial appraisal of the estimated value of the property "as is" for $5,000,000. The estimated reserves at March 2001 were estimated to yield ground values of approximately $138,000,000 and eventual recovery of $120,000,000 in revenues. These estimates were based on gold (22% of total values), silver (28.4%), lead (15.5%), zinc(25%), as well as copper (4.0%) prices at February 27, 2001. The reserves are purported to have not been depleted since the date of the appraisal. No minerals were produced during the 3 months ended March 31, 2005.
CMKM Diamonds, Inc.
On July 18, 2004, the Company agreed to purchase a 5% interest in all current and future claim holdings and mineral interests of CMKM Diamonds, Inc. in exchange for 7,500,000 shares of the Company's common stock. The company also executed an option agreement to purchase up to an additional 10% of CMKM Diamonds, Inc. at a price of $1,500,000 for each 1% purchased. The Company had one year from the date of the agreement to execute all or part of the option in minimum 1% increments.
On July 18, 2004, the Company acquired 5% of all mineral holdings of CMKM Diamonds, Inc. ("CMKM") for 22,000,000 shares of common stock of the Company. On the same date, the Company acquired an option to purchase an additional 10% of such mineral holdings. The exercise price of this option was $15,000,000. On July 27, 2004, the Company made its initial exercise pursuant to this option in the amount of $3,000,000 which is equivalent to an additional 2% of such mineral holdings.
On September 9, 2004, the Company exercised an additional portion of the option agreement with CMKM in the amount of 1.66% for $2,5000,000. On September 9, 2004 the Company exercised an additional portion of the option agreement with CMKM in the amount of 5.33% for $8,000,000.
Most of CMKM Diamonds, Inc.'s holdings are in Saskatchewan, Canada in the general vicinity of the Company's Fort a La Corne and Smeaton holdings.
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Nevada Minerals
On July 19, 2004, the Company entered into an agreement with Nevada Minerals, a related party and affiliate of the Company, to purchase an additional 20% interest in 500,000 acres of Canadian property, which was subject to a joint venture between two entities. The property is located in Fort a La Corne, Saskatchewan, Canada (see above). The company acquired such interest for 100,000 preferred shares (pre forward 3:1 split). The interest purchased current and future mineral rights but did not include any real property interests. In 2005, an independent appraiser had valued the total mineral rights associated with the 500,000 acres at approximately $12,000,000. Subsequently management has determined that these mineral rights were impaired are valued based on the cost basis of the acquisition of such property rights by Nevada Minerals. Management states that this value is $127,000.
Juina Mining
On July 28, 2004, the Company entered into an asset purchase agreement with Juina Mining Corporation to purchase its entire investment in Yellow River Mining, SA in exchange for 50,000 shares of the Company's common stock. During the period July 28, 2004 through 2005, the Company commenced construction of the processing plant and facilities located at the Yellow River site. The Company made a significant investment in such construction. Subsequently, the Yellow River Mining Company, S.A. was transferred to our company. We held a majority interest in this investment but did not control this investment. It was later sold to Nevada Minerals, a related party and affiliate, for $800,000, as discussed previously. At December 31, 2004 and 2005, the value of our remaining interest in Juina is reported by management at cost of $151,000. At the date of our disposition of our interest in Juina is reported by management at cost of $151,000. At the date of our disposition of our interest in Juina in September 2006, the value of our interest in Juina is recorded at the lesser of cost or fair market value and is $151,000.
Langley Park Investment Trust
The Company also entered into a stock purchase agreement to sell 1,714,000 shares of common stock to an unrelated party at the average per share price of the closing bid of the Company's common stock for the 10 trading days immediately preceding July 30, 2004. The acquiring entity was to use its shares as consideration for the purchase. On August 8, 2004 the company issued 1,714,000 shares to Langley Park Investment Trust (LPIT) in exchange for shares of Langley Park Investment Trust. Langley Park Investment Trust is a mutual fund traded on the London AIM exchange investing primarily in microcap mining stocks. The Company received 4,958,896 shares of LPIT in exchange for 1,714,000 shares of company stock. In 2005 the Company sold 2,479,448 shares leaving 2,479,448 shares of LPIT in escrow upon which LPIT held a call option exercisable at 1 pence per share if the company's stock decreased in value by an agreed upon percentage. Due to the precipitous decline of the value of the company's stock in 2005, this option became exercisable in October, 2006. LPIT called the stock at 1 pence per share as per the 2004 acquisition agreement.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The Company has a limited operating history upon which an evaluation of the Company, its current business and its prospects can be based. The Company's prospects must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in their early stages of development. Such risks include inadequate funding the company's inability to anticipate and adapt to a developing market, the failure of the company's infrastructure, changes in laws that adversely affect the company's business, the ability of the Company to manage its operations, including the amount and timing of capital expenditures and other costs relating to the expansion of the company's operations, the introduction and development of different or more extensive communities by direct and indirect competitors of the Company, including those with greater financial, technical and marketing resources, the inability of the Company to attract, retain and motivate qualified personnel and general economic conditions.
The Company expects that its operating expenses will increase significantly, especially as it implements its business plan. To the extent that increases in its operating expenses precede or are not followed by commensurate increases in revenues, or that the Company is unable to adjust operating expense levels accordingly, the Company's business, results of operations and financial condition would be materially and adversely affected. There can be no assurances that the Company can achieve or sustain profitability or that the Company's operating losses will not increase in the future.
RESULTS OF OPERATIONS
The Company has achieved no significant revenue or profits to date, and the Company anticipates that it will continue to incur net losses for the foreseeable future. The Company incurred a net loss of approximately $ 675,101 for the three months ended March 31, 2005, compared with a net loss of $2,461,487 for the three months ended March 31, 2004.
The quarter's activities were financed primarily through sale of restricted common stock.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception the Company has had limited operating capital, and has relied heavily on debt and equity financing.
The financial statements as of and for the period ended on December 31, 2004 expressed their substantial doubt as to the Company's ability to continue as a going concern. Without additional capital, it is unlikely that the Company can continue as a going concern. The Company plans to raise operating capital via debt and equity offerings. However, there are no assurances that such offerings will be successful or sufficient to fund the operations of the Company. In the event the offerings are insufficient, the Company has not formulated a plan to continue as a going concern. Moreover, if such offerings are successful, they may result in substantial dilution to the existing shareholders.
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CRITICAL ACCOUNTING POLICIES
In Financial Reporting release No. 60, "CAUTIONARY ADVICE REGARDING DISCLOSURE ABOUT CRITICAL ACCOUNTING POLICIES" ("FRR 60"), the Securities and Exchange Commission suggested that companies provide additional disclosure and commentary on their most critical accounting policies. In FRR 60, the SEC defined the most critical accounting policies as the ones that are most important to the portrayal of a company's financial condition and operating results, and require management to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, our most critical accounting policies include:
non-cash compensation valuation that affects the total expenses reported in the current period and the valuation of shares and underlying mineral rights acquired with shares. The methods, estimates and judgments we use in applying these most critical accounting policies have a significant impact on the results we report in our financial statements.
Form 10QSB for U S CANADIAN MINERALS INC
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6-Mar-2007
Quarterly Report
ITEM 2. MANAGEMENT'S PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS
This Form 10-QSB includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included or incorporated by reference in this Form 10-QSB which address activities, events or developments which the Company expects or anticipates will or may occur in the future, including such things as future capital expenditures (including the amount and nature thereof); finding suitable merger or acquisition candidates; expansion and growth of the Company's business and operations; and other such matters are forward-looking statements. These statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate under the circumstances. However, whether actual results or developments will conform with the Company's expectations and predictions is subject to a number of risks and uncertainties, including general economic, market and business conditions; the business opportunities (or lack thereof) that may be presented to and pursued by the Company; changes in laws or regulation; and other factors, most of which are beyond the control of the Company.
These forward-looking statements can be identified by the use of predictive, future-tense or forward-looking terminology, such as "believes," "anticipates," "expects," "estimates," "plans," "may," "will," or similar terms. These statements appear in a number of places in this Filing and include statements regarding the intent, belief or current expectations of the Company, and its directors or its officers with respect to, among other things: (i) trends affecting the Company's financial condition or results of operations for its limited history; (ii) the Company's business and growth strategies; and, (iii) the Company's financing plans. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. Such factors that could adversely affect actual results and performance include, but are not limited to, the Company's limited operating history, potential fluctuations in quarterly operating results and expenses, government regulation, technological change and competition.
Consequently, all of the forward-looking statements made in this Form 10-QSB are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequence to or effects on the Company or its business or operations. The Company assumes no obligations to update any such forward-looking statements.
GENERAL DESCRIPTION OF BUSINESS
U.S. Canadian Minerals is headquartered in Las Vegas, Nevada. On its own and through Joint Ventures, the Company is looking to expand and develop mining properties throughout North and South America. The Company has the following projects, which are in varying stages of development.
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Fort a La Corne
On January 20, 2004, the Company acquired from Nevada Minerals, Inc. a 20% interest in the mineral rights to 500,000 acres in Saskatchewan Canada near Fort a La Corne (the "fort a La Corne Property"). The Company issued 5,000,000 shares of its common stock to Nevada Minerals as consideration for such rights. Subsequently on July 18, 2004, Nevada Minerals conveyed an additional 20% interest in the mineral rights to the Fort a La Corne Property to the Company for 100,000 shares of Series A Preferred Stock, giving the Company an aggregate 40% of the mineral rights to the Fort a La Corne property. The mineral rights include the right to explore and exploit all minerals discovered in the Fort a La Corne property.
Lincoln County
The company acquired from Nevada Minerals, Inc. for nominal consideration, an option to purchase a mining operation and associated property located in Rachel, Lincoln county, Nevada, (the "Rachel Property") for an exercise price of $2,000,000. Nevada Minerals' title to the Rachel Property is the subject of litigation. Nevada Minerals acquired the Rachel Property in a foreclosure proceeding, and the person from which title to the Rachel Property was acquired in the foreclosure has filed a lawsuit against Nevada Minerals to have such title reinstated in it. While the company had initially formed an intention to exercise the option to acquire the Rachel Property, it no longer intends to do so because of its focus on its Ecuador projects described below and because it would have to spend $300,000 to build a processing facility on the property. The option does not expire until failure to exercise upon 10 days written notice of a bona fide offer to purchase the Rachel Property by a third property, however, and the Company may exercise the option to acquire the Rachel Property at any time that the Company concludes that it is in its best interest to do so. John Edgar Dhonau, who beneficially owns a majority of the Company's common stock owns all of and controls Nevada Minerals.
At the time the Company intended to exercise the option to acquire the Rachel Property, it entered into a land use agreement with Nevada Minerals that gave it the right to enter the property to begin building a processing facility.
Juina Mining Corporation
On March 23, 2004, the Company acquired 10 million shares of the Preferred Stock of Juina Mining Corporation, a Nevada corporation ("Juina"), in exchange for $116,000 in cash and a note in the principal amount of $84,000 (which note was subsequently paid in full). At the same time, the Company acquired 25 million, 5 million and 5 million shares of Juina common stock, respectively, from James D. McFadden, Mark Hutchison and Richard Taulli in exchange for 833,334 shares, 179,091 shares and 150,000 shares respectively, of the Company's common stock. Subsequently, the Company converted the preferred stock to 80 million shares of Juina common stock, giving the Company 77.1% of Juina's total outstanding common stock. At the time of this acquisition, there was an understanding between the Company and Mr. Hutchison that he would become a Director of the Company.
Juina owns 49% of a joint venture called Juina Mining Mineracao, Ltd. ("JMML"). The remaining 51% of JMML is owned by DIAGEM International Resources Corp., a Canadian corporation ("DIAGEM").
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The sole asset of JMML is an 86% working interesting the mineral and mining rights to 2,471 acres of land in the District of Juina, Mato Grosso, Brazil ("Property 1000") as well as the equipment and processing facility appurtenant thereto.
At present, there are no operations being conducted by JMML because, among other considerations, the required permits have not been issued by the relevant governmental agencies. Permits for mining were never obtained and plans for mining have been abandoned. Moreover, JMML is controlled by Diagem, which has publicly disclosed that it considers JMML to be inactive.
JMML, however, has entered into a Joint Venture Agreement with Mineradora ECO with respect to a 49.80 hectare parcel in the western portion of Property 1000. As part of the Joint Venture Agreement, Mineradora CEO is entitled to 50% of all revenue generated by the sale of diamonds produced from this portion of Property 1000. In return, Mineradora ECO will undertake the task of securing land owner permissions and all government permits and licenses in order to commence operations and act as the operator on the 49.80 hectare parcel. To date Mineradora ECO has been unsuccessful in obtaining these permits and licenses, and there is no assurance that it will ever do so. This agreement was never fulfilled and the project was abandoned.
Yellow River Mining
On March 22, 2004, Juina Mining issued 5,000,000 of its restricted common shares to acquire 80% of the issued and outstanding shares of Yellow River Mining S.A., which owned processing plants in the Provincia Del Oro (Province of Gold) in southwest Ecuador. Yellow River is an active mine with unproven reserves and has not produced significant amounts of revenue. Under the terms of the agreement, Yellow River S.A. is to receive 50% of the gold it extracts at its plants. The other 20% of Yellow River Mining S.A. is owned by an individual who is an Ecuadorian resident, from whom the company acquired its 80% interest. The Company anticipated using proceeds from subsequent offerings to construct and improve mining facilities at Yellow River.
CMKM Diamonds, Inc. owned a producing mine shaft near one of the Yellow River processing plants. The company has an agreement with CMKM Diamonds pursuant to which CMKM Diamonds must use that processing plant to extract the gold ore from that mine except for the extent the production of such ore exceeds the processing plants capacity. CMKM Diamonds was to pay Nevada Minerals a fee equal to 20% of its revenues from that mine. The Yellow River Mining Co. processed ore from the American Shaft in 2004 and 2005.
Subsequent to the quarter ended March 31, 2004, on August 3, 2005 the Company executed an Asset Purchase Agreement with Minera Compania Double Down S.A, which provided for the sale of 100% of the company's 80% interest in Yellow River Mining, S.A., an Ecuador corporation which owns certain mineral rights to land in Ecuador. From April 2005 to September 2005 the company's subsidiary Durangoro had an agreement to process Yellow River's ore and Durango received compensation from the sale of gold. The buyer holds 46.6% of the Company's common stock. As consideration for the Assets, the Buyer paid the Company $800,000 which included the assumption of a $127,000 debt owed by the Company to Nevada Minerals, Inc. and payment of various debts of the Company to various vendors associated with the construction and maintenance of the Yellow River Mining Co.'s assets. Full consideration was not transferred to the Company until September 9, 2005.
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COD Mine
On May 11, 2004, the Company entered into a joint venture agreement with El Capitan Precious Metals, Inc. to acquire an 80% ownership of mining claims located in Arizona. The Company was required to contribute 720,000 shares of its common stock to acquire the mining rights. The joint venture agreement entitled the Company to receive 50% of the anticipated profits from tailings and settlement ponds and gave the Company the obligation to provide operating capital for the first 90 days of operation. After this period, the joint venture partner (operator) bore the risk of excess losses and liability.
The reserves for which the Company obtained mineral rights through the El Capitan joint venture agreement were "proven or probable" that is, the Company had been provided an outside commercial appraisal of the estimated value of the property "as is" for $5,000,000. The estimated reserves at March 2001 were estimated to yield ground values of approximately $138,000,000 and eventual recovery of $120,000,000 in revenues. These estimates were based on gold (22% of total values), silver (28.4%), lead (15.5%), zinc(25%), as well as copper (4.0%) prices at February 27, 2001. The reserves are purported to have not been depleted since the date of the appraisal. No minerals were produced during the 3 months ended March 31, 2005.
CMKM Diamonds, Inc.
On July 18, 2004, the Company agreed to purchase a 5% interest in all current and future claim holdings and mineral interests of CMKM Diamonds, Inc. in exchange for 7,500,000 shares of the Company's common stock. The company also executed an option agreement to purchase up to an additional 10% of CMKM Diamonds, Inc. at a price of $1,500,000 for each 1% purchased. The Company had one year from the date of the agreement to execute all or part of the option in minimum 1% increments.
On July 18, 2004, the Company acquired 5% of all mineral holdings of CMKM Diamonds, Inc. ("CMKM") for 22,000,000 shares of common stock of the Company. On the same date, the Company acquired an option to purchase an additional 10% of such mineral holdings. The exercise price of this option was $15,000,000. On July 27, 2004, the Company made its initial exercise pursuant to this option in the amount of $3,000,000 which is equivalent to an additional 2% of such mineral holdings.
On September 9, 2004, the Company exercised an additional portion of the option agreement with CMKM in the amount of 1.66% for $2,5000,000. On September 9, 2004 the Company exercised an additional portion of the option agreement with CMKM in the amount of 5.33% for $8,000,000.
Most of CMKM Diamonds, Inc.'s holdings are in Saskatchewan, Canada in the general vicinity of the Company's Fort a La Corne and Smeaton holdings.
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Nevada Minerals
On July 19, 2004, the Company entered into an agreement with Nevada Minerals, a related party and affiliate of the Company, to purchase an additional 20% interest in 500,000 acres of Canadian property, which was subject to a joint venture between two entities. The property is located in Fort a La Corne, Saskatchewan, Canada (see above). The company acquired such interest for 100,000 preferred shares (pre forward 3:1 split). The interest purchased current and future mineral rights but did not include any real property interests. In 2005, an independent appraiser had valued the total mineral rights associated with the 500,000 acres at approximately $12,000,000. Subsequently management has determined that these mineral rights were impaired are valued based on the cost basis of the acquisition of such property rights by Nevada Minerals. Management states that this value is $127,000.
Juina Mining
On July 28, 2004, the Company entered into an asset purchase agreement with Juina Mining Corporation to purchase its entire investment in Yellow River Mining, SA in exchange for 50,000 shares of the Company's common stock. During the period July 28, 2004 through 2005, the Company commenced construction of the processing plant and facilities located at the Yellow River site. The Company made a significant investment in such construction. Subsequently, the Yellow River Mining Company, S.A. was transferred to our company. We held a majority interest in this investment but did not control this investment. It was later sold to Nevada Minerals, a related party and affiliate, for $800,000, as discussed previously. At December 31, 2004 and 2005, the value of our remaining interest in Juina is reported by management at cost of $151,000. At the date of our disposition of our interest in Juina is reported by management at cost of $151,000. At the date of our disposition of our interest in Juina in September 2006, the value of our interest in Juina is recorded at the lesser of cost or fair market value and is $151,000.
Langley Park Investment Trust
The Company also entered into a stock purchase agreement to sell 1,714,000 shares of common stock to an unrelated party at the average per share price of the closing bid of the Company's common stock for the 10 trading days immediately preceding July 30, 2004. The acquiring entity was to use its shares as consideration for the purchase. On August 8, 2004 the company issued 1,714,000 shares to Langley Park Investment Trust (LPIT) in exchange for shares of Langley Park Investment Trust. Langley Park Investment Trust is a mutual fund traded on the London AIM exchange investing primarily in microcap mining stocks. The Company received 4,958,896 shares of LPIT in exchange for 1,714,000 shares of company stock. In 2005 the Company sold 2,479,448 shares leaving 2,479,448 shares of LPIT in escrow upon which LPIT held a call option exercisable at 1 pence per share if the company's stock decreased in value by an agreed upon percentage. Due to the precipitous decline of the value of the company's stock in 2005, this option became exercisable in October, 2006. LPIT called the stock at 1 pence per share as per the 2004 acquisition agreement.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The Company has a limited operating history upon which an evaluation of the Company, its current business and its prospects can be based. The Company's prospects must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in their early stages of development. Such risks include inadequate funding the company's inability to anticipate and adapt to a developing market, the failure of the company's infrastructure, changes in laws that adversely affect the company's business, the ability of the Company to manage its operations, including the amount and timing of capital expenditures and other costs relating to the expansion of the company's operations, the introduction and development of different or more extensive communities by direct and indirect competitors of the Company, including those with greater financial, technical and marketing resources, the inability of the Company to attract, retain and motivate qualified personnel and general economic conditions.
The Company expects that its operating expenses will increase significantly, especially as it implements its business plan. To the extent that increases in its operating expenses precede or are not followed by commensurate increases in revenues, or that the Company is unable to adjust operating expense levels accordingly, the Company's business, results of operations and financial condition would be materially and adversely affected. There can be no assurances that the Company can achieve or sustain profitability or that the Company's operating losses will not increase in the future.
RESULTS OF OPERATIONS
The Company has achieved no significant revenue or profits to date, and the Company anticipates that it will continue to incur net losses for the foreseeable future. The Company incurred a net loss of approximately $ 675,101 for the three months ended March 31, 2005, compared with a net loss of $2,461,487 for the three months ended March 31, 2004.
The quarter's activities were financed primarily through sale of restricted common stock.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception the Company has had limited operating capital, and has relied heavily on debt and equity financing.
The financial statements as of and for the period ended on December 31, 2004 expressed their substantial doubt as to the Company's ability to continue as a going concern. Without additional capital, it is unlikely that the Company can continue as a going concern. The Company plans to raise operating capital via debt and equity offerings. However, there are no assurances that such offerings will be successful or sufficient to fund the operations of the Company. In the event the offerings are insufficient, the Company has not formulated a plan to continue as a going concern. Moreover, if such offerings are successful, they may result in substantial dilution to the existing shareholders.
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CRITICAL ACCOUNTING POLICIES
In Financial Reporting release No. 60, "CAUTIONARY ADVICE REGARDING DISCLOSURE ABOUT CRITICAL ACCOUNTING POLICIES" ("FRR 60"), the Securities and Exchange Commission suggested that companies provide additional disclosure and commentary on their most critical accounting policies. In FRR 60, the SEC defined the most critical accounting policies as the ones that are most important to the portrayal of a company's financial condition and operating results, and require management to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, our most critical accounting policies include:
non-cash compensation valuation that affects the total expenses reported in the current period and the valuation of shares and underlying mineral rights acquired with shares. The methods, estimates and judgments we use in applying these most critical accounting policies have a significant impact on the results we report in our financial statements.
