sv4
As filed with the Securities and
Exchange Commission on October 26, 2006
Registration
No. 333-
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
U.S. Gold
Corporation
(Exact name of registrant as
specified in its charter)
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Colorado
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1041
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84-0796160
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(State or other jurisdiction
of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification No.)
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2201 Kipling Street,
Suite 100
Lakewood, Colorado
80215-1545
(303) 238-1438
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Ann S. Carpenter, President
U.S. Gold Corporation
2201 Kipling Street, Suite 100
Lakewood, Colorado 80215-1545
(303) 238-1438
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(Address, including zip code,
and telephone number,
including area code, of registrant’s principal executive
offices)
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(Name, address, including zip
code, and telephone number,
including area code, of agent for
service)
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US Gold Canadian Acquisition
Corporation
(Exact name of registrant as
specified in its charter)
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Alberta
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42-1701924
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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2201 Kipling Street,
Suite 100
Lakewood, Colorado
80215-1545
(303) 238-1438
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Fraser Milner Casgrain LLP
2900 Manulife Place, 10180-101 Street
Edmonton, Alberta, Canada T5J 3V5
(780) 423-7100
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(Address, including zip code,
and telephone number,
including area code, of registrant’s principal executive
offices)
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(Name, address, including zip
code, and telephone number,
including area code, of agent for service)
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with copies to:
George A. Hagerty, Esq.
Christopher J. Walsh, Esq.
Hogan & Hartson L.L.P.
One Tabor Center
1200 Seventeenth St.,
Suite 1500
Denver, CO 80202
Phone:
(303) 899-7300
Approximate date of commencement of proposed sale to the
public: As soon as practicable after this
registration statement becomes effective and upon consummation
of the transactions described herein
If the securities being registered on this form are being
offered in connection with the formation of a holding company
and there is compliance with General Instruction G, check
the following box: o
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering: o
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering: o
CALCULATION OF REGISTRATION
FEE
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Proposed Maximum
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Proposed Maximum
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Amount of
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Title of Each Class of
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Amount to be
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Offering
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Aggregate
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Registration
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Securities to be Registered(1)
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Registered(2)
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Price Per Unit
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Offering Price(3)
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Fee
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U.S. Gold Corporation common
stock, no par value
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24,256,827
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N/A
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$97,687,358.56
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$10,452.55
(4)
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US Gold Canadian Acquisition
Corporation exchangeable shares, no par value
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24,256,827
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N/A
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$97,687,358.56
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(5)
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(1)
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This registration statement relates
to the common stock of U.S. Gold Corporation, a Colorado
corporation, and an identical number of exchangeable shares of
US Gold Canadian Acquisition Corporation, a company incorporated
under the Business Corporations Act (Alberta) and a
wholly owned subsidiary of U.S. Gold Corporation, to be
issued: (a) in connection with an offer to purchase all of
the issued and outstanding common shares of White Knight
Resources Ltd., a corporation existing under the Business
Corporations Act (British Columbia), or White Knight;
(b) in connection with any contemplated subsequent
acquisition transaction to acquire any White Knight common
shares not acquired in the offer to purchase; and (c) upon
exercise of warrants to purchase shares of White Knight common
shares, which will be assumed and converted into warrants to
purchase exchangeable shares of US Gold Canadian Acquisition
Corporation in connection with any contemplated subsequent
acquisition transaction.
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(2)
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This amount is based upon the
registrants’ estimate of the maximum number of shares of
U.S. Gold Corporation common stock issuable upon the terms
described herein: (a) in exchange for the exchangeable
shares issued by US Gold Canadian Acquisition Corporation
pursuant to the offer to purchase all of the issued and
outstanding common shares of White Knight and any subsequent
acquisition transactions; and (b) in connection with the
assumption by US Gold Canadian Acquisition Corporation of
outstanding warrants to purchase White Knight common shares;
each of (a) and (b) based on the outstanding number of
White Knight common shares and outstanding warrants and
exercisable options to purchase White Knight common shares as
reported by White Knight as of October 19, 2006.
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(3)
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Covers all of the securities set
forth in footnote 2. Estimated solely for the purpose of
computing the amount of the registration fee pursuant to
Rule 457(f)(1) and Rule 457(c) under the Securities
Act of 1933, as amended (the “Securities Act”), based
on $1.48, the average of the high and low prices for White
Knight’s common shares as reported by the TSX Venture
Exchange on October 23, 2006, and 66,004,972, the estimated
maximum number of shares of White Knight that could be exchanged
in the offer.
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(4)
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Pursuant to Rule 457(p), the
registration fee payable in connection with this registration
statement is being offset by a portion of the registration fee
associated with a registration statement on
Form S-4
(Registration
No. 333-133726)
originally filed on May 2, 2006 by US Gold Holdings
Corporation and U.S. Gold Corporation, or the prior registration
statement. This reduces the unused portion of the registration
fee for the prior registration statement to $53,622.81. US Gold
Holdings Corporation and US Gold Canadian Acquisition
Corporation are wholly-owned subsidiaries of U.S. Gold
Corporation.
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(5)
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The registration fee for the
exchangeable shares of US Gold Canadian Acquisition Corporation
is reflected in the registration fee payable for the shares of
U.S. Gold Corporation common stock.
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The registrants hereby amend this registration statement on
such date or dates as may be necessary to delay its effective
date until the registrants shall file a further amendment which
specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a) may determine.
The
information contained in this prospectus may be changed. We may
not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is
not soliciting an offer to buy these securities in any state
where the offer or sale is not permitted.
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SUBJECT TO COMPLETION, DATED OCTOBER 26, 2006
U.S. GOLD CORPORATION
and
US GOLD CANADIAN ACQUISITION
CORPORATION
OFFER TO PURCHASE
all of the outstanding common
shares of
WHITE KNIGHT RESOURCES
LTD.
on the basis of
0.35 of an exchangeable share
of US Gold Canadian Acquisition Corporation
for each White Knight common
share
U.S. Gold Corporation (“U.S. Gold,”
“we,” “us,” or “our company”) and
its wholly-owned subsidiary, US Gold Canadian Acquisition
Corporation, or Canadian Exchange Co., hereby offer to purchase
all of the outstanding common shares of White Knight Resources
Ltd. The offer will be open for acceptance until the expiry
time, which is 5:00 p.m. (Vancouver time) on
[ ], 2006, unless extended or
withdrawn.
White Knight’s common shares are listed for trading on the
TSX Venture Exchange, or the TSX-V, under the symbol
“WKR-V.” Our common stock is traded over the counter
and traded on the Over the Counter Bulletin Board, or OTC BB,
under the symbol “USGL” and listed for trading on the
Toronto Stock Exchange, or the TSX, under the symbol
“UXG,” and we have made an application for listing our
common stock on the American Stock Exchange, or AMEX.
Under the offer, each White Knight common share that is tendered
pursuant to the offer and accepted for purchase will be
exchanged for 0.35 of an exchangeable share of Canadian Exchange
Co. The exchangeable shares of Canadian Exchange Co. will be
exchangeable for shares of common stock of U.S. Gold on a
one-for-one
basis and will have the rights, privileges, restrictions and
conditions described in this prospectus.
The offer is subject to certain conditions, each of which is set
forth in the section entitled “The Offer —
Conditions of the Offer” on page 42 of this prospectus.
The offer is being made only for White Knight’s common
shares and is not being made for any warrants, options or other
securities that may entitle the holder to acquire common shares
of White Knight. Any holder of these securities who wishes to
accept the offer must exercise or convert those securities
according to their terms and deposit the common shares received
upon exercise or conversion in accordance with the procedures
described in this prospectus for the offer under the sections
entitled “The Offer — Time for Acceptance”
and “The Offer — Manner of Acceptance” on
pages 44 and 46, respectively, of this prospectus. Any such
exercise or conversion must be sufficiently in advance of the
expiry time to permit the common shares acquired on the exercise
or conversion of those securities to be tendered pursuant to the
offer in accordance with these procedures. However, after
completion of the offer, we may implement a statuatory plan of
arrangement or similar transaction providing for the mandatory
exchange of all remaining outstanding White Knight common shares
for additional exchangeable Shares of Canadian Exchange Co. in
order to acquire full ownership of White Knight, which we expect
we would structure so that warrants to purchase White Knight
common shares would be exchanged for warrants to purchase
exchangeable shares of Canadian Exchange Co. and U.S. Gold
would assume or adopt the White Knight stock option plan so that
options under that plan would be exercisable for shares of
common stock of U.S. Gold. See the section entitled
“The Offer — Subsequent Acquisition
Transaction” on page 52 of this prospectus.
In this prospectus we are not asking you for, and you are
requested not to send us, a proxy. We are registering on the
registration statement, of which this prospectus is a part, the
exchangeable shares of Canadian Exchange Co. to be issued in the
offer, as well as the shares of common stock of U.S. Gold
issuable upon exchange of the exchangeable shares in accordance
with the terms described in this prospectus.
The securities offered in this prospectus involve certain
risks. For a discussion of risk factors that you should consider
in evaluating the offer, see the section entitled “Risk
Factors” beginning on page 19 of this prospectus.
Neither the Securities and Exchange Commission nor any
state securities commission has approved or disapproved of these
securities or passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal
offense.
The dealer managers for the offer are
GMP SECURITIES L.P.
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In Canada:
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In the United States:
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GMP SECURITIES
L.P.
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GRIFFITHS McBURNEY
CORP.
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The date of this prospectus
is ,
2006
TABLE OF
CONTENTS
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iv
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iv
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iv
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v
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v
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vi
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vii
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1
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1
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2
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2
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3
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3
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4
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4
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4
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5
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5
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5
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5
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5
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6
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6
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7
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8
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9
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11
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13
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15
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16
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16
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16
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17
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18
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18
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18
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18
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18
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i
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19
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19
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23
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25
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26
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29
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30
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31
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34
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34
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34
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42
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44
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44
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46
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47
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49
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49
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49
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50
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51
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51
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51
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56
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58
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61
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62
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63
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64
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74
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82
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90
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90
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91
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91
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92
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92
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92
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93
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93
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93
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94
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A-1
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B-1
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ii
ABOUT
THIS PROSPECTUS
We have filed with the SEC a registration statement on
Form S-4,
under the Securities Act of 1933, as amended, or the Securities
Act, with respect to the securities offered by this prospectus.
This prospectus, which constitutes part of the registration
statement, does not contain all of the business and financial
information about U.S. Gold set forth in the registration
statement, certain parts of which have been incorporated by
reference into the registration statement in accordance with the
rules and regulations of the SEC. You should review the
registration statement and the exhibits to the registration
statement for further information with respect to us and our
securities.
References to “us”, “we”, “our”
and similar terms refer to U.S. Gold.
IMPORTANT
NOTE
You should rely only on information contained or incorporated by
reference in this prospectus. We have not authorized anyone to
provide you with information different from that contained or
incorporated in this prospectus.
This document does not constitute an offer to sell or a
solicitation of an offer to buy any securities in any
jurisdiction in which such offer or solicitation is unlawful.
The offer is not being made or directed to, nor is this document
being mailed to, nor will deposits be accepted from or on behalf
of, shareholders in any jurisdiction in which the making or
acceptance of the offer would not be in compliance with the laws
of such jurisdiction. However, we may, in our sole discretion,
take such action as we may deem necessary to extend the offer to
shareholders in any such jurisdiction.
You should not assume that the information contained or
incorporated by reference in this prospectus is accurate as of
any date other than the date on the front of this prospectus or
the dates of the documents incorporated by reference.
WHERE YOU
CAN FIND MORE INFORMATION
We are subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended, or the Exchange Act, and we
file annual, quarterly and periodic reports and proxy statements
and file or furnish other information with the Securities and
Exchange Commission, or SEC. White Knight is subject to the
reporting requirements of the Exchange Act applicable to foreign
private issuers and accordingly files or furnishes reports,
including annual reports on
Form 20-F,
reports on
Form 6-K
and other information, with the SEC. The SEC maintains a web
site (http://www.sec.gov) on which these reports, proxy
statements and other information are made available. These
reports, proxy statements and other information may also be
inspected and copied at the public reference facilities
maintained by the SEC at 100 F Street, N.E., Room 1580,
Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330
for further information on the operation of the public reference
facilities.
THIS PROSPECTUS AND THE ACCOMPANYING LETTER OF ACCEPTANCE AND
TRANSMITTAL AND NOTICE OF GUARANTEED DELIVERY CONTAIN IMPORTANT
INFORMATION. YOU SHOULD CAREFULLY READ THESE DOCUMENTS IN THEIR
ENTIRETY BEFORE MAKING A DECISION WITH RESPECT TO THE OFFER.
iv
INCORPORATION
BY REFERENCE OF CERTAIN DOCUMENTS AND INFORMATION OF
U.S. GOLD FOR U.S. SHAREHOLDERS
The SEC allows us to “incorporate by reference”
certain information we have filed with them into this
prospectus. This means that we can disclose important
information about us by referring U.S. shareholders to
another document filed separately with the SEC. The information
incorporated by reference is considered to be part of this
prospectus, except for any information that is superseded by
information that is included directly in this document. For
U.S. shareholders, the prospectus incorporates important
business and financial information about us that is not included
in or delivered with this prospectus.
The following documents filed with the SEC are incorporated by
reference into this prospectus:
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Annual Report on
Form 10-KSB
for the fiscal year ended December 31, 2005, filed with the
SEC on April 7, 2006;
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Quarterly Report on
Form 10-QSB/A
for the quarterly period ended June 30, 2006, filed with
the SEC on August 24, 2006;
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Current Reports on
Form 8-K
filed with the SEC on February 27, March 6,
March 31, May 1, June 30, July 6,
July 7, July 25, August 8, August 9, August
29, September 6, and October 20, 2006 (except to the
extent any information contained in a current report is
furnished to, and not filed with, the SEC); and
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Any future filings made by us with the SEC under Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act until the earlier of the
date that the offer is consummated or the date the offer is
terminated.
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Statements contained in this prospectus as to the contents of
any contract or other documents are not necessarily complete,
and in each instance investors are referred to the copy of the
contract or other document filed as an exhibit to the
registration statement or incorporated by reference herein, each
such statement being qualified in all respects by such reference
and the exhibits and schedules thereto. You may review our
subsequent reports filed from time to time with the SEC on
Forms 10-KSB,
10-QSB and
8-K and any
amendments thereto. See the section entitled “Where You Can
Find More Information” on page iv of this prospectus.
You may request a copy of these filings incorporated herein by
reference, including exhibits to these documents that are
specifically incorporated by reference, at no cost to you, by
writing or calling us at the following address or telephone
number:
Corporate Secretary
U.S. Gold Corporation
2201 Kipling Street, Suite 1000
Lakewood, Colorado
80215-1545
303-238-1438
In order to obtain timely delivery, you must request the
information no later than [ ],
which is five business days before the proposed expiry date of
the offer.
INFORMATION
CONCERNING WHITE KNIGHT
We have not had complete access to the non-public books and
records of White Knight. We have obtained the information about
White Knight contained in or incorporated by reference into this
prospectus from White Knight and publicly available sources. In
addition to the information filed by White Knight with the SEC
under the Exchange Act, White Knight files audited annual
financial statements, unaudited interim financial statements,
management’s discussion and analysis, proxy statements or
information circulars and other information with the Canadian
Securities Administrators on the System for Electronic Document
Analysis and Retrieval, or SEDAR. The information concerning
White Knight contained in this prospectus, including
Appendix A (Information Concerning White Knight) has been
taken from White Knight’s annual report on
Form 20-F
for the fiscal year ended June 30, 2006 filed with the SEC
on October 20, 2006. The information contained in this
prospectus about White Knight, including Appendix A
(Information Concerning White Knight) and all reconciliations of
White Knights’ financial information, which White Knight
prepares in accordance with Canadian generally accepted
accounting
v
principles, or Canadian GAAP, to U.S. generally accepted
accounting principles, or U.S. GAAP, and from Canadian
dollars to U.S. dollars, included in the historical and
pro forma financial information contained in this
prospectus are based exclusively on information taken directly
from White Knight’s public reports and securities filings
or on information provided to us by White Knight, unless
expressly noted otherwise. Although we have no reason to doubt
the accuracy or completeness of the information relating to
White Knight, we are not in a position to independently assess
or verify this information, including White Knight’s
financial statements. See the section entitled “Risk
Factors — We have been unable to independently verify
the reliability of information about White Knight, Coral Gold,
Nevada Pacific and Tone Resources contained in this
prospectus” on page 20 of this prospectus.
FORWARD-LOOKING
STATEMENTS
Some of the information included in this prospectus and certain
other documents we filed or will file with the SEC (as well as
information included in other documents accompanying this
prospectus or included in other statements made by us, our
representatives, and information about White Knight, Coral Gold
Resources Ltd., or Coral Gold, Nevada Pacific Gold Ltd., or
Nevada Pacific, and Tone Resources Limited, or Tone Resources)
may contain forward-looking statements. Forward-looking
statements do not relate strictly to historical or current
facts, often will be phrased in the future-tense, and may
include the words “may,” “could,”
“should,” “would,” “believe,”
“expect,” “anticipate,”
“estimate,” “intend,” “plan” or
other words or expressions of similar meaning. Forward-looking
statements that relate to U.S. Gold or our business are
based on our beliefs and expectations about future events, and
include statements that reflect management’s plans,
objectives, goals, expectations, anticipations and intentions
with respect to our financial condition, results of operations,
future performance and business, including statements relating
to our business strategy and our current and future development
plans.
Although we believe that the expectations reflected in any
forward-looking statements are reasonable, any or all of the
forward-looking statements in this prospectus or in documents
accompanying this prospectus may prove to be incorrect. This may
occur as a result of inaccurate assumptions or as a consequence
of known or unknown risks and uncertainties. Many factors
discussed in this prospectus and in documents accompanying this
prospectus, some of which are beyond our control, will be
important in determining U.S. Gold’s future
performance following a combination, if any, of the businesses
or assets of U.S. Gold and White Knight, Coral Gold, Nevada
Pacific and Tone Resources, which we refer to in this prospectus
as the target companies. Consequently, actual results may differ
materially from those predicted in or that might be anticipated
from forward-looking statements. Therefore, you should not
regard such forward-looking statements as a representation that
the predictions or expectations reflected in the forward-looking
statements will be achieved, and you should not place undue
reliance on such forward-looking statements.
Uncertainties that could affect the accuracy of forward-looking
statements, besides the specific risk factors identified in the
section entitled “Risk Factors” beginning on
page 19 of this prospectus, include:
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decisions of foreign countries and banks within those countries;
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technological changes in the mining industry;
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the level of demand for our products;
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changes in our business strategy;
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interpretation of drill hole results and the geology, grade and
continuity of mineralization;
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the uncertainty of reserve estimates and timing of development
expenditures;
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unexpected changes in business and economic conditions;
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changes in interest rates and currency exchange rates;
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timing and amount of production;
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changes in mining, processing and overhead costs;
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access and availability of materials, equipment, supplies, labor
and supervision, power and water;
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vi
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results of current and future exploration activities;
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results of pending and future feasibility studies;
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local and community impacts and issues;
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•
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accidents and labor disputes; and
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•
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commodity price fluctuations.
|
We undertake no obligation to publicly update or revise
forward-looking statements, whether as a result of new
information, future events or otherwise, other than to reflect a
material change in the information previously disclosed, as
required by applicable law. You should review our subsequent
reports filed from time to time with the SEC on
Forms 10-KSB,
10-QSB and
8-K, and any
amendments thereto. As noted in the section entitled
“Incorporation by Reference of Certain Documents and
Information of U.S. Gold for U.S. Shareholders”
beginning on page v of this prospectus, several of these
reports are incorporated by reference into this prospectus.
REPORTING
CURRENCIES AND FINANCIAL PRINCIPLES
All references to “$” or “dollars” in this
document refer to United States dollars, unless otherwise
indicated. All financial information contained in this
prospectus is reported in U.S. dollars unless otherwise
noted. References to Canadian dollars in this prospectus are
indicated as “Cdn$”.
Our financial statements are prepared in accordance with
U.S. GAAP. The target companies’ audited consolidated
financial statements and the notes thereto are stated by each
respective target company to have been prepared in accordance
with Canadian GAAP. All reconciliations of the target
companies’ financial data from Canadian GAAP to
U.S. GAAP and, where applicable, from Canadian dollars to
U.S. dollars included in the historical and pro forma
financial information contained in this prospectus are based
on information taken directly from the target companies’
public reports and filings or provided to us by the target
companies unless expressly noted otherwise.
vii
SUMMARY
This summary highlights information more fully described
elsewhere in this prospectus and may not contain all the
information that is important to you. This summary is not
intended to be a substitute for the information contained in
this prospectus and is qualified in its entirety by the more
detailed descriptions provided elsewhere in this prospectus and
in the documents incorporated by reference, including the
section “Risk Factors” on page 19 of this
prospectus and our consolidated pro forma financial statements
and notes.
The
Offerors
U.S. Gold
We are engaged in the exploration for gold and other precious
metals. We hold a 100% interest in the Tonkin Springs property
in Eureka County, Nevada, subject to paramount title in the
United States. This property consists of approximately
36 square miles of unpatented lode mining claims and
millsite claims located on the Battle Mountain-Eureka Trend,
also known as the Cortez Trend, approximately 45 miles
northwest of the town of Eureka in north-central Nevada. We are
presently in the exploration stage at the Tonkin Springs
property. We have not generated revenue from mining operations
since 1990.
We were organized as a corporation under the laws of the State
of Colorado on July 24, 1979 under the name Silver State
Mining Corporation. On June 21, 1988, we changed our name
to U.S. Gold Corporation.
Our principal executive offices are located at 2201 Kipling
Street, Suite 100, Lakewood, Colorado, 80215 and our
telephone number is
(303) 238-1438.
Our website is www.usgold.com. Information contained on the
website is not incorporated by reference into this prospectus
and you should not consider information contained on the website
as part of this prospectus. Our common stock is listed on the
Toronto Stock Exchange, or TSX, under the symbol “UXG”
and is quoted on the
Over-the-Counter
Bulletin Board, or OTCBB, under the symbol
“USGL.” It is a condition of the offer that our common
stock also be approved for listing on AMEX, with respect to
which application has been made. We are subject to the reporting
requirements of the Exchange Act and, as such, file or furnish
reports and other information with the SEC from time to time.
In addition to this offer to purchase all of the outstanding
common shares of White Knight, we expect to commence separate
offers to purchase all of the outstanding common shares of each
of Coral Gold, Nevada Pacific and Tone Resources at the same
time as the offer or as soon as practicable following, among
other things, the completion or updating by Coral Gold, Nevada
Pacific and Tone Resources, respectively, of formal valuations
required and the consideration being offered to them under those
offers, under applicable Canadian law of their common shares,
obtaining any necessary consents from the respective auditors of
Coral Gold, Nevada Pacific and Tone Resources and satisfaction
of other regulatory requirements. Like White Knight, each of
these companies conducts mineral exploration activities in the
Cortez Trend in Nevada and has mineral exploration properties
that are adjacent to or near our Tonkin Springs property. We
believe the significant benefits to combining U.S. Gold,
White Knight, Coral Gold, Nevada Pacific and Tone Resources
include:
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•
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a larger land position within the Cortez Trend and a larger
exploration program;
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•
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a stronger cash position and reduced costs;
|
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•
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enhanced trading liquidity and better market focus; and
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•
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greater technical expertise.
|
Upon successful completion of the offers to purchase the
outstanding common shares of White Knight, Nevada Pacific, Coral
Gold and Tone Resources, which we refer to in this prospectus as
the strategic offers, our combined company would strive to
become the premier exploration company in Nevada. However, White
Knight shareholders should be aware that the successful
completion of any or all of our offers to purchase all of the
outstanding shares of Coral Gold, Nevada Pacific and Tone
Resources is not a condition of this offer. See the section
entitled “Intentions of the Offerors — Strategic
Rationale for the Offer” on page 58 of this prospectus.
1
Canadian
Exchange Co.
Our wholly-owned subsidiary, US Gold Canadian Acquisition
Corporation, or Canadian Exchange Co., is a corporation we
incorporated under the Business Corporations Act (Alberta)
solely for the purpose of making the strategic offers.
Canadian Exchange Co. has no significant assets and has not
engaged in any business or other activities to date.
In connection with this offer and the other strategic offers,
Canadian Exchange Co. will issue its exchangeable shares in
exchange for the validly tendered and not validly withdrawn
common shares of each of White Knight, Coral Gold, Nevada
Pacific and Tone Resources. The exchangeable shares are being
issued in connection with the offers to achieve intended tax
efficiencies, as described in the sections entitled
“Material Canadian Federal Income Tax Considerations”
and “Material U.S. Federal Income Tax
Considerations” on pages 64 and 74, respectively, of
this prospectus. The exchangeable shares are exchangeable into
shares of our common stock on a
one-for-one
basis and are intended to have, to the extent practicable, the
same economic, voting and other rights of our common stock.
Under the exchangeable/share provisions, the holders of the
exchangeable shares will be entitled to annually elect one of
the three directors of Canadian Exchange Co. See the section
entitled “The Offer — Exchangeable Shares”
on page 34 of this prospectus.
Canadian Exchange Co.’s executive office is located at 2900
Manulife Place, 10180-101 Street, Edmonton, Alberta, Canada T5J
3V5 and its telephone number is
(780) 423-7100.
White
Knight
White Knight is an exploration company active in finding and
generating new mineral prospects. White Knight’s portfolio
includes 18 properties, 15 of which are in Nevada’s Cortez
Trend. White Knight was incorporated under the laws of British
Columbia, Canada on December 18, 1986.
White Knight’s principal executive offices are located at
922, 510 West Hastings Street, Vancouver, British Columbia,
Canada V6B 1LB. White Knight’s common shares are listed on
the TSX-V, and it is subject to the reporting requirements of
the Exchange Act, and as such, files or furnishes reports with
the SEC.
The
Offer
White
Knight Common Shares
We are offering to purchase, upon the terms and subject to the
conditions of the offer, all of the outstanding common shares of
White Knight, including any common shares that may be issued
after the date of the offer and prior to its expiry time. Each
White Knight common share which is tendered in the offer and
accepted for purchase will be exchanged for 0.35 of an
exchangeable share of Canadian Exchange Co. The exchangeable
shares will, under the circumstances described in this
prospectus, be exchangeable for shares of common stock of
U.S. Gold on a
one-for-one
basis.
Your participation in the offer and the receipt of the
exchangeable shares may result in different tax consequences,
depending upon facts specific to you. You should carefully
review the description of the tax consequences of the proposed
transactions under the sections entitled “Material Canadian
Federal Income Tax Considerations” and “Material
U.S. Federal Income Tax Considerations,” on
pages 64 and 74, respectively, of this prospectus, and you
are encouraged to seek independent tax advice with respect to
your specific circumstances.
Warrants,
Options or Other Securities
The offer is being made only for common shares of White Knight
and is not being made for any warrants, options or other
securities that may entitle the holder to acquire common shares
of White Knight. Any holder of these securities who wishes to
accept the offer must first exercise those securities and tender
the common shares issued upon exercise in advance of the expiry
time of the offer in accordance with the procedures described
under the sections entitled “The Offer — Time for
Acceptance” and “— Manner of
Acceptance” on pages 44 and 46, respectively, of this
prospectus. However, after completion of the offer, we may
implement a subsequent acquisition transaction to acquire full
ownership of White Knight, which we expect we would structure so
that any White
2
Knight warrants would be exchanged for warrants to purchase
exchangeable shares of Canadian Exchange Co. and so that the
White Knight stock option plan would be assumed or adopted by us
and options to purchase White Knight common shares would entitle
the option holders to purchase shares of our common stock, in
each case with appropriate adjustments to the exercise price of
any warrant or option. See the section entitled “The
Offer — Subsequent Acquisition Transaction” on
page 52 of this prospectus.
Fractional
Shares
Fractional exchangeable shares will not be issued in the offer.
Instead, the number of exchangeable shares to be issued to each
tendering shareholder will be either rounded up (if the
fractional interest is 0.5 or more) or down (if the fractional
interest is less than 0.5) to the next whole number. For
purposes of this rounding, all White Knight common shares
deposited by a tendering shareholder will be aggregated.
Total
Expected Issuance of U.S. Gold Shares
The total number of outstanding common shares of White Knight
together with the number of outstanding warrants and options to
purchase White Knight common shares as reported by White Knight
as of October 19, 2006 is 66,004,972. Based on this number
and the exchange ratio of 0.35 of an exchangeable share of
Canadian Exchange Co., we expect to issue approximately
23,101,740 exchangeable shares of Canadian Exchange Co. in
connection with the offer. The disclosure in this prospectus
regarding the anticipated effects of the transactions on our
voting power and our shareholder’s ownership percentage in
us after giving effect to the proposed acquisition of White
Knight and the other target companies and upon the exchange of
the exchangeable shares for shares of our common stock is based
on this expectation.
Background
and Reason for the Issuance of the Exchangeable Shares
The exchangeable shares are being issued in connection with this
offer in lieu of U.S. Gold common stock to enable, to the
extent permissible and applicable, the White Knight shareholders
to take advantage of a full or partial tax deferral (rollover)
available under the Income Tax Act (Canada), as amended, or the
Tax Act as described in the sections entitled “The
Offer — Exchangeable Shares” on page 34 of
this prospectus, “Material Canadian Federal Income Tax
Considerations” on page 64 of this prospectus and
“Material U.S. Federal Income Tax Considerations”
on page 74 of this prospectus. The exchangeable shares, by
virtue of the redemption and exchange rights attaching to them
and the provisions of the Voting and Exchange
Trust Agreement and the Support Agreement described below,
are intended to provide the holders with the economic and voting
rights that are, as nearly as practicable, equivalent to those
of a share of common stock of U.S. Gold.
Conditions
of the Offer
The offer is subject to a number of conditions, which are
described below under the heading “Conditions of the
Offer” on page 42 of this prospectus and include that:
(i) at least the greater of
(1) 662/3%
of White Knight common shares deemed outstanding on a
fully-diluted basis or (2) 80% of the issued and
outstanding White Knight common shares shall have been validly
deposited at the time the White Knight common shares are
accepted for purchase under the offer;
(ii) White Knight shall not have entered into or
effectuated any agreement or transaction with any person or
entity having the effect of impairing our ability to acquire
White Knight or otherwise diminishing our expected economic
value of the acquisition of White Knight;
(iii) the shares of our common stock shall have been
approved for listing on the AMEX, the additional shares of
common stock of U.S. Gold issuable upon exchange of the
exchangeable shares offered under this offer shall have been
approved for listing on the TSX, and the exchangeable shares
shall have been approved for listing on the TSX and AMEX;
(iv) the registration statement of which this prospectus is
a part for the exchangeable shares and the shares of our common
stock that may be issued upon the exchange of the exchangeable
shares shall have become effective under the Securities Act, and
no stop order suspending the effectiveness of the registration
3
statement or a proceeding seeking a stop order shall have been
issued nor shall there have been proceedings for that purpose
initiated or threatened by the SEC;
(v) all necessary orders shall have been obtained from
relevant Canadian securities regulatory authorities in respect
of the exchangeable shares to be issued in the offer, the shares
of our common stock that may be issued upon the exchange of any
such exchangeable shares and the resale of the exchangeable
shares or shares of our common stock;
(vi) our shareholders shall have approved prior to the
expiry time (1) an amendment to our articles of
incorporation to create a new class of our stock comprised of
one share of preferred stock, designated Series A Special
Voting Preferred Stock, no par value, to be issued in connection
with the strategic offers; (2) the issuance of the
exchangeable shares of Canadian Exchange Co., in connection with
the strategic offers, and (3) the issuance of an equivalent
number of shares of common stock of U.S. Gold upon the
exchange of the exchangeable shares; and
(vii) all necessary approvals, consents, clearances or
waivers have been obtained or received from any governmental
regulatory agency, authority or commission in connection with
the offer and the subsequent acquisition transaction.
Time and
Manner of Acceptance
The offer is open for acceptance, unless withdrawn or extended
at our sole discretion, until 5:00 p.m. (Vancouver Time) on
[ ], 2006, or the expiry time. We
may extend or change the expiry time to any later time or times
and date or dates as we may fix from time to time, as described
under the heading “Extension of the Expiry Time or
Variation or Change of the Offer” on page 44 of this
prospectus.
You may accept the offer by depositing the originally executed
certificate or certificates representing White Knight common
shares you desire to tender, together with a duly completed and
signed letter of transmittal (printed on blue paper), at the
offices of Kingsdale Shareholder Services Inc., which is acting
as depositary, specified in the letter of transmittal at or
before the expiry time of the offer. The offer will be deemed to
be accepted only if the depositary has actually received these
documents at or before the expiry time of the offer. If your
shares are registered in the name of a broker, dealer, bank,
trust company or other nominee you should request your nominee
to effect the transaction. If your stock certificate for your
White Knight common shares is not immediately available or has
been lost, you may use the procedures for guaranteed delivery
set forth in the notice of guaranteed delivery (printed on green
paper). See the section entitled “Manner of
Acceptance” on page 46 of this prospectus.
Acceptance
for Purchase of, and Payment for, Deposited White Knight Common
Shares
If all conditions described in the section entitled
“Conditions of the Offer” on page 42 of this
prospectus have been satisfied or waived by us at the expiry
time, all White Knight common shares that have been properly
deposited and not withdrawn will be required to be accepted by
us for purchase promptly following the expiry time and, in any
event, not later than 10 days after the expiry time. The
exchangeable shares will be promptly issued to all holders of
White Knight common shares accepted for purchase and, in any
event, within three business days of having been accepted for
purchase. For the purposes of this prospectus, the term business
day means any day other than a Saturday, Sunday, a public
holiday or a day on which commercial banks are not open for
business in Toronto, Ontario or Denver, Colorado under
applicable law. See the section entitled “Acceptance for
Purchase of, and Payment for, Deposited White Knight Common
Shares” on page 47 of this prospectus.
Right to
Withdraw
All deposits of White Knight common shares under the offer are
irrevocable, unless withdrawn by a White Knight shareholder.
Shareholders may withdraw any deposited common shares before the
common shares are accepted by us, if we have not issued the
exchangeable shares in consideration for these shares within
three business days after having been accepted, and under
certain other circumstances. See the section entitled
“Right to Withdraw” on page 50 of this prospectus.
4
Risk
Factors
An investment in the exchangeable shares and the business
combination with White Knight are subject to certain risks. See
the section entitled “Risk Factors” on page 19 of this
prospectus.
Dissenters’
Rights
No dissenters’ rights are available in connection with the
offer. However, if after completion of the offer we determine to
acquire any remaining interests in White Knight by way of plan
of arrangement or other similar transaction, White Knight’s
remaining shareholders may have the right to dissent and demand
payment of the fair value of their common shares under
Section 238 of the Business Corporations Act
(British Columbia). If the statutory procedures are complied
with, this right could lead to a judicial determination of the
fair value required to be paid to such dissenting shareholders
for their common shares. This judicially determined fair value
of White Knight common shares could be more or less than the
amount paid per White Knight common share in the subsequent
acquisition transaction or in the offer. See the section
entitled “Dissenters’ Rights” on page 5 of
this prospectus.
Purpose
of the Offer
We are making the offer in order for us ultimately to acquire,
directly or indirectly, all of the issued and outstanding White
Knight common shares. If the conditions of the offer are
satisfied or waived and we accept for purchase and pay for White
Knight common shares validly tendered in the offer, we currently
intend to acquire, directly or indirectly, any remaining
outstanding White Knight common shares in accordance with
applicable law by way of a subsequent acquisition transaction.
See the section entitled “The Offer — Subsequent
Acquisition Transaction” on page 52 of this prospectus.
Subsequent
Acquisition Transaction
We or Canadian Exchange Co. intend to cause a special meeting of
White Knight shareholders to be held following completion of the
offer to consider a statutory plan of arrangement under which:
(i) all remaining outstanding White Knight common shares
would be exchanged for exchangeable shares of Canadian Exchange
Co. in order to acquire full ownership of White Knight;
(ii) warrants to purchase White Knight common shares would
be exchangeable for warrants to purchase exchangeable shares of
Canadian Exchange Co., with appropriate adjustments to the
exercise prices of these warrants;
(iii) White Knight shareholders who did not deposit their
common shares under the offer would be entitled to receive
exchangeable shares in the same exchange ratio offered in the
offer; and
(iv) the White Knight stock option plan would be assumed or
adopted by U.S. Gold so that options under that plan would
be exercisable for shares of U.S. Gold common stock with
appropriate adjustments to the exercise prices of these options.
See the section entitled “The Offer — Subsequent
Acquisition Transaction” on page 52 of this prospectus.
Plans for
White Knight
Upon successful completion of the offer and any subsequent
acquisition transaction, we intend to take appropriate actions
to optimize and rationalize the combined entities’ assets,
operations, management, personnel, general and administrative
functions and corporate structure. If permitted by applicable
law, subsequent to the completion of the offer and any
subsequent acquisition transaction, if necessary, we intend to
delist the White Knight common shares from the TSX-V and cause
White Knight to cease to be a reporting issuer under the
securities laws of all applicable jurisdictions.
5
Other
Target Companies
Each of the other target companies is an exploration stage
company based in Vancouver, British Columbia engaged in the
acquisition and exploration of mineral properties primarily
located on the major gold trends in the north-central region of
Nevada.
Coral Gold. Since Coral Gold’s 2002
fiscal year, Coral Gold has made aggregate principal
expenditures of Cdn$2,498,084 on the Robertson mining claims in
Nevada. We intend to offer to purchase all of the outstanding
shares of Coral Gold on the basis of 0.63 of an exchangeable
share for each common share of Coral Gold. Coral Gold’s
common shares are listed on the TSX-V under the symbol
“CGR-V” and on the OTCBB under the symbol
“CGREF.”
Nevada Pacific. Nevada Pacific owns an
exploratory property portfolio covering approximately
890 square miles of mineral rights in Mexico, including the
Magistral Gold Mine, ten properties in Nevada and one in Utah.
The Nevada property portfolio covers approximately
85 square miles, including portions of two significant gold
producing regions: the Battle Mountain/Eureka Trend/Cortez Trend
and the Carlin Trend. We intend to offer to purchase all of the
outstanding shares of Nevada Pacific on the basis of 0.23 of an
exchangeable share for each common share of Nevada Pacific.
Nevada Pacific’s common shares are listed on the TSX-V
under the symbol “NPG-V.”
Tone Resources. Tone Resources is focused on
gold and holds substantially all interests in eight projects (10
claim groups) in Elko, Eureka, Lander, and Pershing counties in
Nevada. All of Tone Resource’s properties are located near
infrastructure facilities of currently producing gold mines. We
intend to offer to purchase all of the outstanding shares of
Tone Resources on the basis of 0.26 of an exchangeable share for
each common share of Tone Resources. Tone Resources’ common
shares are listed on the TSX-V under the symbol
“TNS-V” and quoted on the Pink Sheets under the symbol
“TONRF.”
Audited financial statements and unaudited interim financial
statements of Coral Gold, Nevada Pacific and Tone Resources are
included in Appendices C, D and E, respectively, of this
prospectus.
Interests
of Certain Related Parties in the Offer
As of the date of this prospectus, Robert R. McEwen, our
Chairman and Chief Executive Officer, beneficially owns
9,552,427 White Knight common shares, which represents
approximately 16.1% of the outstanding White Knight common
shares as of October 19, 2006, or approximately 14.5% of
the outstanding shares as of October 19, 2006 on a
fully-diluted basis. Mr. McEwen also beneficially owns
1,250,000, 25,000,000 and 5,000,000 common shares of Coral Gold,
Nevada Pacific and Tone Resources, respectively (assuming full
exercise of all outstanding warrants), which represents
approximately 30%, 16% and 22%, respectively, of the outstanding
common shares of these companies based on information provided
to us by these companies. As a shareholder of each target
company and of U.S. Gold, Mr. McEwen may have
interests that differ from the holders of White Knight common
shares. See the section entitled “Relationships Between the
Offerors and White Knight” on page 62 of this
prospectus.
Certain
Effects of the Strategic Offers
If all of the strategic offers are successfully completed and
the subsequent acquisitions consummated to the extent necessary,
the voting power of our existing shareholders will be diluted.
It is expected that the former shareholders of White Knight,
Coral Gold, Nevada Pacific and Tone Resources will own, in the
aggregate exchangeable shares entitling them to approximately
48% of the aggregate voting power of U.S. Gold (or
approximately 47% on a fully-diluted basis). As a result of the
strategic offers, we may experience a change in control,
although it appears unlikely that will be the case upon issuance
of the shares due to Mr. McEwen’s ownership in the
target companies. See the section entitled “Relationships
Between the Offerors and White Knight — Beneficial
Ownership of and Trading in Securities of White Knight” on
page 62 of this prospectus. If all of the strategic offers
are successfully completed and the subsequent acquisitions
consummated to the extent necessary, the former shareholders of
White Knight, Coral Gold, Nevada Pacific and Tone Resources
other than Mr. McEwen will own, in the aggregate,
exchangeable shares entitling them to approximately 40% of the
aggregate voting power of U.S. Gold ) (or approximately 39%
on a fully-diluted basis).
6
Selected
Historical Financial Data of U.S. Gold
The following are selected consolidated financial data for
U.S. Gold for each of the years in the five-year period
ended December 31, 2005 and for the six months ended
June 30, 2006 and 2005. The information with respect each
of the years in the five-year period ended December 31,
2005 has been derived from and should be read in conjunction
with the audited consolidated financial statements and related
notes and Management’s Discussion and Analysis of Financial
Condition and Results of Operations included in our Annual
Reports on
Form 10-KSB
for the fiscal years ended December 31, 2005, and
December 31, 2004, filed with the SEC on April 7,
2006, and March 30, 2005, respectively. The information
with respect to the six-month periods ended June 30, 2006
and 2005 has been derived from and should be read in conjunction
with our unaudited consolidated financial statements and related
notes and Management’s Discussion and Analysis of Financial
Condition and Results of Operations included in our Quarterly
Report on
Form 10-QSB
for the quarter ended June 30, 2006, as filed with the SEC
on August 14, 2006 (and amended on
Form 10-QSB/A
on August 24, 2006). The unaudited financial statement data
includes, in our opinion, all adjustments (consisting only of
normal recurring adjustments) that are necessary for a fair
presentation of our financial position and results of operations
for these periods. Certain documents we filed with the SEC are
incorporated by reference into this prospectus. See the sections
entitled “The Offerors — U.S. Gold” on
page 31 and “Incorporation by Reference of Certain
Documents and Information of U.S. Gold for
U.S. Shareholders” on page v of this prospectus.
All of our historical financial data is presented in accordance
with U.S. GAAP. Historical results are not indicative of
the results to be expected in the future and results of interim
periods are not necessarily indicative of results for the entire
year.
This selected historical financial data should be read together
with the selected unaudited pro forma consolidated
financial information beginning on page 9 of this
prospectus.
U.S. Gold
Historical Financial Data
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Fiscal Year Ended
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|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
|
($ in thousands except share data)
|
|
|
Operating data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenue
|
|
$
|
488
|
|
|
$
|
526
|
|
|
$
|
1,052
|
|
|
$
|
39
|
|
|
$
|
636
|
|
|
$
|
56
|
|
|
$
|
560
|
|
Net loss from operations before
cumulative-effect gain on accounting change
|
|
$
|
(66,070
|
)
|
|
$
|
(431
|
)
|
|
$
|
(2,991
|
)
|
|
$
|
(794
|
)
|
|
$
|
(1,027
|
)
|
|
$
|
(1,375
|
)
|
|
$
|
(136
|
)
|
Net loss
|
|
$
|
(66,070
|
)
|
|
$
|
(431
|
)
|
|
$
|
(2,991
|
)
|
|
$
|
(794
|
)
|
|
$
|
(623
|
)
|
|
$
|
(1,375
|
)
|
|
$
|
(136
|
)
|
Basic and diluted loss per share
|
|
$
|
(1.98
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.12
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.01
|
)
|
Weighted average shares
|
|
|
33,296,755
|
|
|
|
20,485,915
|
|
|
|
25,931,172
|
|
|
|
20,028,173
|
|
|
|
17,696,098
|
|
|
|
15,334,157
|
|
|
|
14,011,400
|
|
Balance sheet data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short
term investments
|
|
$
|
30,066
|
|
|
$
|
107
|
|
|
$
|
678
|
|
|
$
|
75
|
|
|
$
|
198
|
|
|
$
|
4
|
|
|
$
|
72
|
|
Inventories
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Property, plant and equipment
|
|
|
102
|
|
|
|
90
|
|
|
|
53
|
|
|
|
104
|
|
|
|
8
|
|
|
|
15
|
|
|
|
25
|
|
Other assets
|
|
|
46,159
|
|
|
|
2,712
|
|
|
|
4,810
|
|
|
|
1,256
|
|
|
|
1,595
|
|
|
|
3,455
|
|
|
|
3,406
|
|
Total assets
|
|
$
|
76,327
|
|
|
$
|
2,909
|
|
|
$
|
5,541
|
|
|
$
|
1,435
|
|
|
$
|
1,801
|
|
|
$
|
3,474
|
|
|
$
|
3,503
|
|
Current liabilities
|
|
$
|
3,245
|
|
|
$
|
137
|
|
|
$
|
1,791
|
|
|
$
|
35
|
|
|
$
|
80
|
|
|
$
|
434
|
|
|
$
|
29
|
|
Long-term obligations
|
|
|
10
|
|
|
|
557
|
|
|
|
16
|
|
|
|
570
|
|
|
|
545
|
|
|
|
545
|
|
|
|
420
|
|
Other long-term liabilities and
deferred gain
|
|
|
136,073
|
|
|
|
1,760
|
|
|
|
1,201
|
|
|
|
0
|
|
|
|
0
|
|
|
|
1,826
|
|
|
|
1,826
|
|
Shareholders’ equity
|
|
$
|
(63,001
|
)
|
|
$
|
455
|
|
|
$
|
2,533
|
|
|
$
|
830
|
|
|
$
|
1,176
|
|
|
$
|
669
|
|
|
$
|
1,228
|
|
Total liabilities and
shareholders’ equity
|
|
$
|
76,327
|
|
|
$
|
2,909
|
|
|
$
|
5,541
|
|
|
$
|
1,435
|
|
|
$
|
1,801
|
|
|
$
|
3,474
|
|
|
$
|
3,503
|
|
7
Selected
Historical Financial Data of White Knight
The following selected historical financial data of White Knight
is derived from White Knight’s publicly filed audited
consolidated financial statements for each of the years in the
five-year period ended June 30, 2006. This summary data
should be read together with White Knight’s
Management’s Discussion and Analysis of Financial Condition
and Results of Operations included in Appendix A hereto
(Information Concerning White Knight) and White Knight’s
financial statements and the accompanying notes included in
Appendix B (Financial Statements of White Knight). White
Knight’s publicly filed financial statements are, according
to White Knight, prepared in accordance with Canadian GAAP,
which differs from U.S. GAAP in certain respects and are
presented in Canadian dollars, unless otherwise indicated. See
the sections entitled “Reporting Currencies and Financial
Principles” on page vii and “Differences Between
Canadian (“CDN”) and United States (“US”)
GAAP” contained in Appendix B (Financial Statements of
White Knight). Historical results are not indicative of the
results to be expected in the future and results of interim
periods are not necessarily indicative of results for the entire
year.
White
Knight Historical Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30,
|
|
Canadian GAAP
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
(Cdn$ in thousands except per share data)
|
|
|
Operating data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other revenue
|
|
$
|
266
|
|
|
$
|
262
|
|
|
$
|
98
|
|
|
$
|
8
|
|
|
$
|
24
|
|
Net loss
|
|
$
|
(3,307
|
)
|
|
$
|
(1,063
|
)
|
|
$
|
(1,664
|
)
|
|
$
|
(358
|
)
|
|
$
|
(1,679
|
)
|
Basic and diluted loss per share
|
|
$
|
(0.06
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.06
|
)
|
Balance sheet data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short
term investments
|
|
$
|
13,506
|
|
|
$
|
11,178
|
|
|
$
|
9,846
|
|
|
$
|
133
|
|
|
$
|
509
|
|
Inventories
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Property, plant and equipment
|
|
|
931
|
|
|
|
139
|
|
|
|
86
|
|
|
|
7
|
|
|
|
9
|
|
Mineral properties and deferred
exploration costs
|
|
|
6,664
|
|
|
|
3,965
|
|
|
|
2,487
|
|
|
|
1,611
|
|
|
|
1,367
|
|
Other assets
|
|
|
401
|
|
|
|
415
|
|
|
|
301
|
|
|
|
161
|
|
|
|
249
|
|
Total assets
|
|
$
|
21,502
|
|
|
$
|
15,697
|
|
|
$
|
12,720
|
|
|
$
|
1,912
|
|
|
$
|
2,134
|
|
Current liabilities
|
|
$
|
433
|
|
|
$
|
180
|
|
|
$
|
130
|
|
|
$
|
234
|
|
|
$
|
140
|
|
Long-term obligations
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Other long-term liabilities
|
|
|
166
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Shareholders’ equity
|
|
$
|
20,903
|
|
|
$
|
15,517
|
|
|
$
|
12,590
|
|
|
$
|
1,678
|
|
|
$
|
1,994
|
|
Total liabilities and
shareholders’ equity
|
|
$
|
21,502
|
|
|
$
|
15,697
|
|
|
$
|
12,720
|
|
|
$
|
1,912
|
|
|
$
|
2,134
|
|
8
Summary
Selected Unaudited Pro Forma Consolidated Financial Data
for U.S. Gold and White Knight
The following summary selected unaudited pro forma
consolidated financial data has been prepared to give effect
to our proposed acquisition of White Knight as if it had been
completed on January 1, 2005.
The selected unaudited pro forma consolidated financial
data presented below are presented in accordance with
U.S. GAAP and in U.S. dollars. Because White Knight
has a different fiscal year end than U.S. Gold and its
financial statements are prepared in accordance with Canadian
GAAP in Canadian dollars, we have prepared the following
unaudited pro forma financial data in U.S. dollars
and in accordance with U.S. GAAP based on quarterly
financial data, including reconciliations from Canadian GAAP to
U.S. GAAP, provided to us by White Knight. The selected
unaudited pro forma consolidated financial data presented
below are for illustrative purposes only and are not necessarily
indicative of the actual operating results or financial position
that would have resulted if we and White Knight had combined at
the beginning of the periods presented, nor is it necessarily
indicative of any future operating results or financial position
of U.S. Gold if combined with White Knight. To construct
the pro forma financial information, we allocated the
proposed purchase price of White Knight using our best estimates
of fair value. These estimates are based on the most recently
available information. To the extent there are significant
changes to the business of White Knight, the assumptions and
estimates reflected herein could change significantly.
Accordingly, the purchase accounting adjustments reflected in
the unaudited pro forma consolidated financial data below
are preliminary and subject to change. In addition, the selected
unaudited pro forma consolidated financial data presented
below does not reflect any potential operating efficiencies of
the combined entities. For additional information concerning the
basis of presentation of the pro forma consolidated
financial information, see the notes to the unaudited pro
forma consolidated financial statements set forth in
Appendix G (Unaudited Pro Forma Consolidated
Financial Statements of U.S. Gold) to this prospectus.
We have not had complete access to the non-public books and
records of White Knight. As a result, some of the historical
financial information regarding White Knight used by us in the
preparation of this summary has been derived from the publicly
filed documents of White Knight. Although we have no reason to
doubt the accuracy or completeness of White Knight’s
publicly filed documents or of the financial data it has
provided to us for purposes of preparing the following unaudited
pro forma consolidated financial data, we are not in a
position to independently assess or verify that information,
including its financial statements. See the section entitled
“Risk Factors — We have been unable to
independently verify the reliability of information in this
prospectus regarding White Knight, Coral Gold, Nevada Pacific
and Tone Resources” on page 20 of this prospectus.
This summary data should be read together with the unaudited
pro forma consolidated financial statements as at and for
the six months ended June 30, 2006 and for the year ended
December 31, 2005 included in Appendix G (Unaudited
Pro Forma Consolidated Financial Statements of
U.S. Gold) and in Appendix H (Unaudited Pro Forma
Consolidated Supplementary Financial Statements of
U.S. Gold), which are incorporated into and form part of
this prospectus.
Data for Canadian Exchange Co. has not been included because it
had not yet been formed and did not conduct business during any
of the periods discussed below.
9
U.S. Gold
and White Knight
Summary Selected Unaudited Pro Forma
Consolidated Financial Data
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
June 30,
|
|
U.S. GAAP
|
|
2005
|
|
|
2006
|
|
|
|
($ in thousands except per share data)
|
|
|
Operating data
|
|
|
|
|
|
|
|
|
Other revenue
|
|
$
|
1,400
|
|
|
$
|
682
|
|
Net loss from operations before
cumulative-effect gain on accounting change
|
|
$
|
(5,648
|
)
|
|
$
|
(69,037
|
)
|
Net loss
|
|
$
|
(5,648
|
)
|
|
$
|
(69,037
|
)
|
Basic and diluted loss per share
|
|
$
|
(0.12
|
)
|
|
$
|
(1.28
|
)
|
Weighted average shares
|
|
|
46,715,912
|
|
|
|
54,081,495
|
|
Balance sheet data
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short
term investments
|
|
|
—
|
|
|
$
|
42,264
|
|
Inventories
|
|
|
—
|
|
|
|
0
|
|
Property, plant and equipment
|
|
|
—
|
|
|
|
939
|
|
Mineral properties and deferred
exploration costs
|
|
|
—
|
|
|
|
160,965
|
|
Other assets
|
|
|
—
|
|
|
|
46,522
|
|
Total assets
|
|
|
—
|
|
|
$
|
250,690
|
|
Current liabilities
|
|
|
—
|
|
|
$
|
10,234
|
|
Long-term obligations
|
|
|
—
|
|
|
|
10
|
|
Other long-term liabilities and
deferred gain
|
|
|
—
|
|
|
|
171,480
|
|
Shareholders’ equity
|
|
|
—
|
|
|
$
|
68,966
|
|
Total liabilities and
shareholders’ equity
|
|
|
—
|
|
|
$
|
250,690
|
|
10
Summary
Selected Unaudited Pro Forma Consolidated Supplementary
Financial Data for U.S. Gold and White Knight, Coral Gold,
Nevada Pacific and Tone Resources
The following summary selected unaudited pro forma
consolidated supplementary financial data has been prepared
to give effect to all of our proposed acquisitions of White
Knight, Coral Gold, Nevada Pacific and Tone Resources as if all
of them had been completed on January 1, 2005.
The selected unaudited pro forma consolidated financial
data presented below are presented in accordance with
U.S. GAAP and in U.S. dollars and are constructed as a
result of each of the target companies having different fiscal
year ends than U.S. Gold. The selected unaudited pro
forma consolidated financial data presented below are for
illustrative purposes only and are not necessarily indicative of
the actual operating results or financial position that would
have resulted if we and any or all of the target companies had
combined at the beginning of the periods presented, nor is it
necessarily indicative of any future operating results or
financial position of U.S. Gold if combined with one or
more of the target companies. To construct the pro forma
financial information, we allocated the proposed purchase
price of each target company using our best estimates of fair
value. These estimates are based on the most recently available
information. To the extent there are significant changes to the
businesses of any of the target companies, the assumptions and
estimates reflected herein could change significantly.
Accordingly, the purchase accounting adjustments reflected in
the unaudited pro forma consolidated financial data below
are preliminary and subject to change. In addition, the selected
unaudited pro forma consolidated financial data presented
below does not reflect any potential operating efficiencies
resulting from the acquisitions. For additional information
concerning the basis of presentation of the pro forma
consolidated financial information, see the notes to the
unaudited pro forma consolidated financial statements set
forth in Appendix G (Unaudited Pro Forma
Consolidated Supplementary Financial Statements of
U.S. Gold) to this prospectus.
We have not had complete access to the non-public books and
records of White Knight, Coral Gold, Nevada Pacific and Tone
Resources. As a result, some of the historical financial
information regarding White Knight, Coral Gold, Nevada Pacific
and Tone Resources used by us in the preparation of this summary
has been derived in part from the publicly filed documents of
White Knight, Coral Gold, Nevada Pacific and Tone Resources. In
addition, because the target companies have different fiscal
year ends than U.S. Gold, and their respective financial
statements are prepared in accordance with Canadian GAAP and,
with the exception of Nevada Pacific, in Canadian dollars, we
have prepared the following unaudited pro forma financial
data in U.S. dollars and in accordance with U.S. GAAP
based on quarterly financial data, including reconciliations
from Canadian GAAP to U.S. GAAP, provided to us by White
Knight, Coral Gold, Nevada Pacific and Tone Resources. Although
we have no reason to doubt the accuracy or completeness of the
publicly filed documents of White Knight, Coral Gold, Nevada
Pacific and Tone Resources or of the financial data they have
provided to us for purposes of preparing the following unaudited
pro forma consolidated financial data, we are not in position to
independently assess or verify that information, including any
financial statements. See the section entitled “Risk
Factors — We have been unable to independently
verify the reliability of information in this prospectus
regarding White Knight, Coral Gold, Nevada Pacific and Tone
Resources” on page 20 of this prospectus.
This summary data should be read together with our unaudited
pro forma consolidated supplementary financial statements
as at December 31, 2005 and for the year then ended
included in Appendix G (Unaudited Pro Forma
Consolidated Supplementary Financial Statements of
U.S. Gold), and at June 30, 2006, included in
Appendix H (Unaudited Pro Forma Consolidated
Supplementary Financial Statements of U.S. Gold), which are
incorporated into and forms part of the prospectus.
Data for Canadian Exchange Co. has not been included because it
had not yet been formed and did not conduct business during any
of the periods discussed below.
11
Unaudited
Pro Forma
Consolidated Supplementary
for U.S. Gold and White Knight, Coral Gold,
Nevada Pacific and Tone Resources
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Six Months Ended
|
|
|
December 31,
|
|
June 30,
|
U.S. GAAP
|
|
2005
|
|
2006
|
|
|
($ in thousands except per share data)
|
|
Operating data
|
|
|
|
|
|
|
|
|
Mining revenue
|
|
$
|
8,881
|
|
|
$
|
2,943
|
|
Other revenue
|
|
$
|
1,511
|
|
|
$
|
743
|
|
Net loss from operations before
cumulative-effect gain on accounting change
|
|
$
|
(12,407
|
)
|
|
$
|
(75,588
|
)
|
Net loss
|
|
$
|
(12,407
|
)
|
|
$
|
(75,588
|
)
|
Basic and diluted loss per share
|
|
$
|
(0.17
|
)
|
|
$
|
(0.95
|
)
|
Weighted average shares
|
|
|
71,858,117
|
|
|
|
79,223,700
|
|
Balance sheet data
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short
term investments
|
|
|
—
|
|
|
$
|
51,263
|
|
Inventories
|
|
|
—
|
|
|
|
394
|
|
Property, plant and equipment
|
|
|
—
|
|
|
|
9,591
|
|
Mineral properties and deferred
exploration costs
|
|
|
—
|
|
|
|
379,528
|
|
Other assets
|
|
|
—
|
|
|
|
47,793
|
|
Total assets
|
|
|
—
|
|
|
$
|
488,569
|
|
Current liabilities
|
|
|
—
|
|
|
$
|
20,776
|
|
Long-term obligations
|
|
|
—
|
|
|
|
10
|
|
Other long-term liabilities and
deferred gain
|
|
|
—
|
|
|
|
222,478
|
|
Shareholders’ equity
|
|
|
—
|
|
|
$
|
245,305
|
|
Total liabilities and
shareholders’ equity
|
|
|
—
|
|
|
$
|
488,569
|
|
12
Unaudited
Historical and Pro Forma Comparative Per Share
Information
The following table summarizes unaudited per share information
for U.S. Gold and White Knight separately on a historical
basis and on an equivalent unaudited pro forma
consolidated basis to give effect to our acquisition of
White Knight as if it had been completed on January 1,
2005. This information should be read in conjunction with:
|
|
|
|
•
|
Our audited consolidated financial statements included in our
Annual Report on
Form 10-KSB
for the fiscal year ended December 31, 2005 and our
unaudited consolidated interim financial statements included in
our Quarterly Report on
Form 10-QSB/A
for the quarter ended June 30, 2006;
|
|
|
•
|
White Knight’s audited consolidated financial statements
for the fiscal year ended June 30, 2006 included in
Appendix B (Financial Statements of White Knight);
|
|
|
•
|
Our unaudited pro forma consolidated financial statements
as at December 31, 2005 and for the year then ended
included in Appendix G (Unaudited Pro Forma
Consolidated Financial Statements of U.S. Gold); and
|
|
|
•
|
Our unaudited pro forma consolidated supplementary
financial statements as at December 31, 2005 and
June 30, 2006, and for the year and interim period then
ended, respectively, included in Appendix H (Unaudited
Pro Forma Consolidated Supplementary Financial Statements
of U.S. Gold).
|
Each of the above is incorporated into and forms part of the
prospectus. See the section entitled “Incorporation by
Reference of Certain Documents and Information of U.S. Gold
for U.S. Shareholders” on page v of this
prospectus.
The pro forma information is presented for illustrative
purposes only and is not necessarily indicative of the actual
operating results or financial position that would have resulted
if we and White Knight, or we and any or all of the target
companies had combined at the beginning of the period presented,
nor is it necessarily indicative of the future operating results
or financial position of the combined company. The historical
book value per share is computed by dividing total
shareholders’ equity by the number of shares outstanding at
the end of the period. The unaudited pro forma
consolidated income per share is computed by dividing the
unaudited pro forma consolidated income from continuing
operations available to holders of common stock by the unaudited
pro forma consolidated weighted average number of shares
outstanding. The unaudited pro forma consolidated book
value per share is computed by dividing total unaudited pro
forma consolidated shareholders’ equity by the
unaudited pro forma consolidated number of common stock
outstanding at the end of the period. The historical per share
information of U.S. Gold and White Knight was derived from
our and White Knight’s respective historical annual
financial statements and are constructed as a result of White
Knight having a different fiscal year end and interim period
than U.S. Gold.
We have not had complete access to the non-public books and
records of White Knight. We have, however, obtained the
information contained in or incorporated herein relating to
White Knight from White Knight and from publicly available
sources. Although we have no reason to doubt the accuracy or
completeness of the public filings of White Knight, we
are not in a position to independently assess or verify that
information, including any financial statements. See the section
entitled “Risk Factors — We have been unable
to independently verify the reliability of information in this
prospectus regarding White Knight, Coral Gold, Nevada Pacific
and Tone Resources” on page 21 of this prospectus.
13
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
U.S. Gold —
Historical
|
|
|
|
|
|
|
|
|
Historical per common share:
|
|
|
|
|
|
|
|
|
Income per basic share
|
|
$
|
(1.98
|
)
|
|
$
|
(0.12
|
)
|
Income per diluted share
|
|
$
|
(1.98
|
)
|
|
$
|
(0.12
|
)
|
Dividends declared
|
|
$
|
0
|
|
|
$
|
0
|
|
Book value per share
|
|
$
|
(1.89
|
)
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
|
2006
|
|
|
White Knight —
Historical (Canadian GAAP and Cdn$)
|
|
|
|
|
Historical per common share:
|
|
|
|
|
Income per basic share
|
|
$
|
(0.06
|
)
|
Income per diluted share
|
|
$
|
(0.06
|
)
|
Dividends declared
|
|
$
|
0
|
|
Book value per share
|
|
$
|
0.35
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Unaudited Pro forma
Condensed Combined U.S. Gold and White Knight
(U.S. GAAP)
|
|
|
|
|
|
|
|
|
Unaudited pro forma
condensed combined per common share of U.S. Gold:
|
|
|
|
|
|
|
|
|
Income per basic share
|
|
$
|
(1.28
|
)
|
|
$
|
(0.12
|
)
|
Income per diluted share
|
|
$
|
(1.28
|
)
|
|
$
|
(0.12
|
)
|
Dividends declared
|
|
$
|
0
|
|
|
$
|
0
|
|
Book value per share
|
|
$
|
1.28
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Unaudited Pro forma
Condensed Combined U.S. Gold and White Knight, Coral
Gold, Tone Resources and Nevada Pacific
(U.S. GAAP)
|
|
|
|
|
|
|
|
|
Unaudited pro forma
condensed combined per common share of U.S. Gold:
|
|
|
|
|
|
|
|
|
Income per basic share
|
|
$
|
(0.95
|
)
|
|
$
|
(0.17
|
)
|
Income per diluted share
|
|
$
|
(0.95
|
)
|
|
$
|
(0.17
|
)
|
Dividends declared
|
|
$
|
0
|
|
|
$
|
0
|
|
Book value per share
|
|
$
|
3.10
|
|
|
$
|
—
|
|
14
Currency
Exchange Rates
The following table sets forth the rate of exchange for one
U.S. dollar expressed in Canadian dollars, for each period
indicated: (i) the exchange rate at the end of the period;
(ii) the average rate; and (iii) the high and low
rates for each year. For the purposes of this section, rate of
exchange means 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Year Ended December 31,
|
|
|
|
June 30,
|
|
|
(Cdn$)
|
|
|
|
2006
|
|
|
2005
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
2001
|
|
|
High rate during year
|
|
|
—
|
|
|
|
—
|
|
|
|
1.2703
|
|
|
|
1.3970
|
|
|
|
1.5750
|
|
|
|
1.6128
|
|
|
|
1.5849
|
|
Low rate during year
|
|
|
—
|
|
|
|
—
|
|
|
|
1.1560
|
|
|
|
1.1775
|
|
|
|
1.2923
|
|
|
|
1.5108
|
|
|
|
1.4933
|
|
Rate at end of period
|
|
|
1.1150
|
|
|
|
1.2256
|
|
|
|
1.1656
|
|
|
|
1.2034
|
|
|
|
1.2923
|
|
|
|
1.5800
|
|
|
|
1.5925
|
|
Average rate for period
|
|
|
1.1311
|
|
|
|
1.2354
|
|
|
|
1.2083
|
|
|
|
1.2984
|
|
|
|
1.3916
|
|
|
|
1.5702
|
|
|
|
1.5519
|
|
On March 3, 2006, the last trading day before the
announcement of our proposed business combination with White
Knight, the exchange rate for one U.S. dollar expressed in
Canadian dollars was Cdn$1.1352. On October 23, 2006, the
most recent trading day practicable before the filing of this
prospectus, the exchange rate for one U.S. dollar expressed
in Canadian dollars was Cdn$1.1281. The table below sets forth
the high and low exchange rate for one U.S. dollar
expressed in Canadian dollars for each month during the past six
months preceding the date of this offer.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
|
(Cdn$)
|
|
|
April 2006
|
|
|
1.1718
|
|
|
|
1.1203
|
|
May 2006
|
|
|
1.1233
|
|
|
|
1.0989
|
|
June 2006
|
|
|
1.1240
|
|
|
|
1.0991
|
|
July 2006
|
|
|
1.1514
|
|
|
|
1.1112
|
|
August 2006
|
|
|
1.1312
|
|
|
|
1.1078
|
|
September 2006
|
|
|
1.1272
|
|
|
|
1.1056
|
|
October 1, 2006 to
October 23, 2006
|
|
|
1.1384
|
|
|
|
1.1154
|
|
15
Comparative
Market Data
The White Knight common shares are currently traded on the TSX-V
under the symbol “WKR-V.” Our common stock is listed
on the TSX under the symbol “UXG” and on the OTCBB
under the symbol “USGL”. The following table sets
forth the closing prices of the White Knight common shares as
reported on the TSX-V and shares of our common stock as reported
on the TSX and the OTCBB on (1) March 3, 2006, the
last trading day preceding the public announcement of proposed
business combination with White Knight and
(2) October 23, 2006, the most recent trading day
practicable before the filing of this prospectus. Our common
stock first began trading on the TSX on August 30, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TSX
|
|
OTCBB
|
|
TSX-V
|
|
|
March 3,
|
|
October 23,
|
|
March 3,
|
|
October 23,
|
|
March 3,
|
|
October 23,
|
Issuer
|
|
2006
|
|
2006
|
|
2006
|
|
2006
|
|
2006
|
|
2006
|
|
|
(Cdn$)
|
|
($)
|
|
(Cdn$)
|
|
White Knight
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.79
|
|
|
|
1.53
|
|
U.S. Gold
|
|
|
—
|
|
|
|
4.70
|
|
|
|
5.65
|
|
|
|
4.25
|
|
|
|
—
|
|
|
|
—
|
|
Comparative
Per Share Market Price and Dividend Information
The following table sets forth, for each of the calendar
quarters ending on the dates indicated, the reported high and
low sales prices per share, and the average daily trading
volumes, reported by the TSX-V, the TSX and the OTCBB, as
applicable. Neither we nor White Knight declared dividends on
our respective shares during these periods.
Data for Canadian Exchange Co. has not been included because it
had not yet been formed and did not conduct business during any
of the periods discussed below. Our common stock began trading
on the TSX on August 30, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Gold
|
|
|
U.S. Gold
|
|
|
White Knight
|
|
|
|
OTCBB
|
|
|
TSX
|
|
|
TSX-V
|
|
|
|
|
|
|
|
|
|
Avg.
|
|
|
|
|
|
|
|
|
Avg.
|
|
|
|
|
|
|
|
|
Avg.
|
|
|
|
|
|
|
|
|
|
Daily
|
|
|
|
|
|
|
|
|
Daily
|
|
|
|
|
|
|
|
|
Daily
|
|
|
|
High
|
|
|
Low
|
|
|
Volume
|
|
|
High
|
|
|
Low
|
|
|
Volume
|
|
|
High
|
|
|
Low
|
|
|
Volume
|
|
|
|
($)
|
|
|
(Cdn$)
|
|
|
(Cdn$)
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
1.85
|
|
|
|
0.81
|
|
|
|
77,486
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.92
|
|
|
|
0.55
|
|
|
|
89,475
|
|
June 30
|
|
|
1.06
|
|
|
|
0.61
|
|
|
|
42,638
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.61
|
|
|
|
0.50
|
|
|
|
238,603
|
|
September 30
|
|
|
0.75
|
|
|
|
0.40
|
|
|
|
44,432
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.49
|
|
|
|
0.87
|
|
|
|
190,026
|
|
December 31
|
|
|
0.57
|
|
|
|
0.40
|
|
|
|
24,155
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.20
|
|
|
|
0.70
|
|
|
|
114,153
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
0.44
|
|
|
|
0.37
|
|
|
|
44,061
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.93
|
|
|
|
0.60
|
|
|
|
74,462
|
|
June 30
|
|
|
0.60
|
|
|
|
0.30
|
|
|
|
24,751
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0.92
|
|
|
|
0.55
|
|
|
|
28,696
|
|
September 30
|
|
|
2.82
|
|
|
|
0.35
|
|
|
|
304,298
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1.80
|
|
|
|
0.85
|
|
|
|
319,662
|
|
December 31
|
|
|
3.96
|
|
|
|
1.94
|
|
|
|
243,627
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2.10
|
|
|
|
1.31
|
|
|
|
158,204
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
9.09
|
|
|
|
3.48
|
|
|
|
276,535
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2.39
|
|
|
|
1.40
|
|
|
|
260,589
|
|
June 30
|
|
|
10.30
|
|
|
|
5.75
|
|
|
|
310,081
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3.10
|
|
|
|
1.66
|
|
|
|
234,505
|
|
September 30
|
|
|
9.20
|
|
|
|
3.95
|
|
|
|
242,550
|
|
|
|
7.50
|
|
|
|
4.48
|
|
|
|
18,005
|
|
|
|
2.45
|
|
|
|
1.46
|
|
|
|
82,446
|
|
Through October 23
|
|
|
5.10
|
|
|
|
4.05
|
|
|
|
181,431
|
|
|
|
6.06
|
|
|
|
4.61
|
|
|
|
11,587
|
|
|
|
1.80
|
|
|
|
1.39
|
|
|
|
44,780
|
|
Investment
Considerations
We believe that the consideration offered for the White Knight
common shares under the offer is fair. You are urged to consider
the following factors in making your decision to accept the
offer:
(i) the consideration offered represents a premium for
White Knight shareholders of approximately 25% based on the
closing prices of White Knight common shares on the TSX-V and
the shares of common stock of
16
U.S. Gold on the OTCBB on March 3, 2006, the last
trading day prior to the announcement of this offer, and a
premium for White Knight shareholders of approximately 9.7%
based on the closing prices of White Knight common shares on the
TSX-V and the shares of common stock of U.S. Gold on the
TSX and OTCBB on October 23, 2006, the most recent trading
day practicable before the filing of this prospectus;
(ii) we believe that there are significant benefits to
bringing together U.S. Gold with White Knight and with the
three other target companies exploring in the Cortez Trend in
Nevada;
(iii) the liquidity and trading price of the White Knight
common shares may be adversely affected if we are not successful
in acquiring 100% of the White Knight common shares; and
(iv) the White Knight common shares may fail to meet the
criteria for continued listing on the TSX-V even if we are not
successful in acquiring 100% of the outstanding White Knight
common shares. Additional factors we urge you to consider when
determining whether to accept the offer are set forth in the
section entitled “Investment Considerations” on
page 61 of this prospectus.
Income
Tax Considerations
Material
Canadian Federal Income Tax Considerations
The disposition of White Knight common shares (and ancillary
rights as defined in the section entitled “Material
Canadian Federal Income Tax Considerations — Receipt
of Ancillary Rights” on page 65 of this prospectus) in
the offer may be a taxable event to a Canadian resident White
Knight shareholder. However, a Canadian resident White Knight
shareholder who disposes of his or her White Knight common
shares for consideration that includes exchangeable shares (and
ancillary rights) and who makes a valid tax election with
Canadian Exchange Co., may obtain a full or partial tax deferral
(rollover) of any capital gains otherwise arising upon the
disposition of those shares. A White Knight shareholder who is
not a Canadian resident and for which the White Knight common
shares is not “taxable Canadian property” will not be
subject to tax under the Tax Act on the disposition of those
shares.
The exchangeable shares will be “qualified
investments” for certain deferred plans for Canadian income
tax purposes provided they are listed on a “prescribed
stock exchange” (which currently includes the TSX and AMEX).
A more detailed description of the Canadian federal income tax
consequences of the offer is set forth below under the heading
“Material Canadian Federal Income Tax Considerations”
on page 64 of this prospectus. White Knight’s Canadian
resident shareholders should be aware that the Canadian federal
income tax consequences of the offer may depend upon their own
individual situations, and that participating in the offer may
subject them to federal, provincial or foreign tax consequences
that are not discussed in this prospectus. You are urged to
consult your own tax advisor for a full understanding of the tax
consequences of participating in the offer.
Material
U.S. Federal Income Tax Considerations
The offer is structured with the intent to qualify as a
tax-deferred exchange under Sections 368 or 351 of the
U.S. Internal Revenue Code of 1986, as amended, referred to
herein as the “Code,” provided that certain conditions
and requirements are met. However, in its
Form 20-F
filed with the U.S. Securities and Exchange Commission on
October 20, 2006, White Knight has stated that it believes
that it has been and continues to be a “passive foreign
investment company” or “PFIC” within the meaning
of Section 1297 of the Code. We have not verified whether
this is the case. If White Knight is a PFIC, a
U.S. shareholder of White Knight who has not made certain
elections under the PFIC rules will be subject to tax under a
special tax regime applicable to PFICs on gain realized with
respect to the exchange of such shareholder’s White Knight
shares for exchangeable shares and will not be eligible for
tax-deferred treatment. Moreover, there is no direct authority
addressing the proper characterization of instruments similar to
the exchangeable shares and the exchange of common stock for
exchangeable shares for U.S. federal income tax purposes.
As a result, there is uncertainty concerning the treatment of
the exchange of White Knight common shares. No rulings from the
U.S. Internal Revenue Service or opinions of counsel will
be requested in connection with the offer on the U.S. tax
consequences of the offer.
You should be aware that the U.S. federal income tax
consequences of the offer may depend upon your individual
situation, including your situation with respect to the PFIC
rules, and that participating in the offer may
17
subject you to state, local or foreign tax consequences that are
not discussed in this prospectus. You are urged to consult
your own tax advisor for a full understanding of the tax
consequences of participating in the offer. See the section
entitled “Material U.S. Federal Income Tax
Considerations — U.S. Federal Income Tax
Consequences to U.S. Holders of White Knight Common
Shares” on page 75 of this prospectus.
Comparison
of Shareholder Rights
The governing documents and laws of the respective jurisdictions
of incorporation of U.S. Gold and White Knight vary;
therefore, holders of White Knight common shares who tender
their shares in the offer will have different rights once they
become our shareholders or holders of exchangeable shares. See
the section entitled “Comparison of Shareholder
Rights” on page 82 of this prospectus.
No White
Knight Shareholder Vote Required
Because we are offering to purchase White Knight’s common
shares directly from White Knight’s shareholders, there is
no vote required of either White Knight’s board of
directors or shareholders to complete this offer. A subsequent
vote of White Knight’s board and shareholders may be
required for any subsequent acquisition transaction that is
effected after the closing of the offer. At that time we would
control the vote of White Knight’s shareholders necessary
to effect any subsequent transaction requiring approval by White
Knight’s shareholders. In that event, White Knight’s
remaining shareholders would be entitled to dissenter’s
rights as described under the section entitled
“Dissenters’ Rights” on page 5 of this
prospectus.
Valuation
Requirements for Insider Bids
The offer is an “insider bid” within the meaning of
applicable Canadian securities legislation by virtue of Robert
R. McEwen’s equity interests in both U.S. Gold and
White Knight. As a result, a formal valuation of the White
Knight common shares and of the exchangeable shares being
offered in exchange for them under the offer is required in the
absence of waivers or exemptions from the Canadian insider bid
valuation requirements. Exemptions from the insider bid
valuation requirement are contained in Ontario Securities
Commission, or OSC
Rule 61-501
(“Insider Bids, Issuer Bids, Business Combinations and
Related Party Transactions”) and l’Agence nationale
d’encadrement du secteur financier for the Province of
Quebec, or AMF,
Regulation Q-27
(“Protection of Minority Securityholders in the Course of
Certain Transactions”) and may be relied upon if neither
the offeror nor any joint actor with the offeror has, or has had
within the preceding 12 months, any board or management
representation in respect of the offeree issuer or has knowledge
of any material information concerning the offeree issuer or its
securities that has not been generally disclosed. Neither we nor
any person acting jointly or in concert with us have had board
or management representation at White Knight or have any
knowledge of any material nonpublic information with respect to
White Knight. Accordingly, in making the offer, we are relying
upon the foregoing valuation exemptions. We have obtained
waivers of the valuation requirements in each of the other
Canadian provinces where a valuation would be otherwise
required. See the section entitled “Valuation Requirements
for Insider Bids” on page 17 of this prospectus.
Regulatory
Matters
Our obligation to accept for purchase and pay for White Knight
common shares tendered in the offer is conditioned upon
obtaining all governmental or regulatory consents or approvals
that U.S. Gold, in its sole discretion, views as necessary
or desirable to enable us to consummate the offer, on terms and
conditions satisfactory to us. See the section entitled
“Regulatory Matters” on page 90 of this
prospectus.
Accounting
Treatment
If consummated, the transactions described in this prospectus
will be accounted for as a purchase transaction, with
U.S. Gold as the acquirer of White Knight. See the section
entitled “Accounting Treatment” on page 91 of
this prospectus.
18
RISK
FACTORS
An investment in shares of our common stock or the
exchangeable shares of Canadian Exchange Co. involves certain
risks. You should consider the following discussion of risks in
addition to the other information in this prospectus before
depositing and exchanging your common shares of White Knight. In
addition to historical information, the information in this
prospectus contains “forward-looking” statements about
U.S. Gold’s future business and performance, as
described above in “Forward-Looking Statements.” Our
actual future business, operating results, financial performance
and the price of our common stock or the exchangeable shares of
Canadian Exchange Co. may be very different from what we expect
as of the date of this prospectus. The risks below address some
of the specific risks and uncertainties relating to the offer,
the subsequent acquisitions we have planned if all of the
conditions set forth in the section entitled “Conditions of
the Offer” are satisfied, the proposed integration of
U.S. Gold and White Knight, and the receipt and ownership
of shares of common stock of U.S. Gold or exchangeable
shares of Canadian Exchange Co. You should also consider the
risk factors set forth in U.S. Gold’s Annual Report on
Form 10-KSB
for the fiscal year ended December 31, 2005, which is
incorporated into and forms part of the prospectus. See the
section entitled “Incorporation by Reference of Certain
Documents and Information of U.S. Gold for
U.S. Shareholders” on page v of this
prospectus.
Business
Combination Risks
Shareholders
may receive securities with a market value lower than they
expected.
If you tender your White Knight common shares and we accept
those shares for purchase, you will receive 0.35 of an
exchangeable share of Canadian Exchange Co. for each of your
shares. The exchangeable shares of Canadian Exchange Co. will be
exchangeable for shares of common stock of U.S. Gold on a
one-for-one
basis and are expected to be roughly equal in value to shares of
U.S. Gold common stock. Based on the closing prices of
White Knight common shares on the
TSX-V and
the shares of common stock of U.S. Gold on the TSX and
OTCBB on March 3, 2006, the last trading day prior to the
announcement of this offer, the value of the exchangeable shares
of Canadian Exchange Co. being offered for your shares
represented a premium of approximately 25%. Based on the closing
prices of White Knight common shares on the
TSX-V and
the shares of common stock of U.S. Gold on the TSX and
OTCBB on October 23, 2006, the most recent trading day
practicable before the filing of this prospectus, the value of
the exchangeable shares of Canadian Exchange Co. being offered
for your shares represented a premium of approximately 9.7%.
However, if the market price of U.S. Gold common stock
declines before we accept your shares for purchase, the value of
the consideration you will receive for your shares of White
Knight will decline as well. The market price of our common
stock may decline as a result of changes in, or market
perceptions of changes in, the business, operations or prospects
of U.S. Gold, market assessments of the likelihood we will
be successful in completing the transactions described in this
prospectus, regulatory considerations, general market and
economic conditions and other factors over which we have no
control.
If we
are not successful in acquiring 100% of the common shares of
White Knight, the liquidity and trading price of White Knight
common shares not held by us may decline.
Our acquisition of any of the White Knight common shares will
reduce the number of publicly-traded White Knight shares and the
number of White Knight shareholders. Depending on the number of
White Knight shares that we successfully purchase in this offer,
between the period that we accept the shares tendered under this
offer for purchase and the time we complete the subsequent
transactions that will make White Knight a wholly-owned
subsidiary of U.S. Gold, the liquidity and market value of
the White Knight shares that we do not own would likely decrease.
The
exchange of your common shares in the offer could be taxable to
U.S. holders of White Knight common shares.
We have structured our offer with the intent that the exchange
of your White Knight common shares for exchangeable shares of
Canadian Exchange Co. will qualify as a tax-deferred exchange
under Sections 368 or 351 of the Code for U.S. federal
income tax purposes. There is, however, no authority or guidance
from the Internal Revenue Service addressing the particular
structure of the transaction. In addition, based upon its public
filings,
19
White Knight believes that it is a passive foreign investment
company, referred to as a “PFIC,” under
Section 1297 of the Code for U.S. federal income tax
purposes. We have not, however, independently assessed or
verified White Knight’s PFIC status. If White Knight is
considered to be a PFIC, a U.S. shareholder of White Knight
who has not made certain elections under the PFIC rules will be
subject to tax on gain realized with respect to the exchange of
such U.S. shareholder’s White Knight shares for
exchangeable shares under a special tax regime applicable to
PFICs and will not be eligible for tax-deferred treatment. You
should be aware that the U.S. federal income tax
consequences of the offer may depend upon your individual
situation, including your situation with respect to the PFIC
rules, and that participating in the offer may subject you to
state, local or foreign tax consequences that are not discussed
in this prospectus. We strongly urge you to consult your tax
advisor for advice on the tax implications of the exchange of
your shares of White Knight common shares for exchangeable
shares of Canadian Exchange Co.
In the event Canadian Exchange Co. waives its right to
withdraw or extend the offer where less than 80% of the issued
and outstanding White Knight common shares are validly accepted
for purchase or otherwise fails to obtain 80% of the issued and
outstanding White Knight common shares for exchangeable shares,
the offer will fail to qualify as a tax-deferred reorganization
and the exchange will be taxable to U.S. holders of White
Knight Common Shares.
The offer is subject to a number of closing conditions, which
may be waived by us and Canadian Exchange Co., including that at
least the greater of
(i) 662/3%
of White Knight common shares deemed outstanding on a
fully-diluted basis or (ii) 80% of the issued and
outstanding White Knight common shares shall have been validly
deposited at the time the White Knight common shares are
accepted for purchase under the offer. One of the requirements
that must be satisfied in order for an exchange of shares
pursuant to the offer to qualify as a tax-deferred
reorganization is that the Canadian Exchange Co. must acquire
ownership of at least 80 percent of White Knight shares
solely for voting stock. If Canadian Exchange Co. accepts the
shares tendered pursuant to the offer but obtains ownership of
less than 80 percent of White Knight stock, the exchange of
White Knight shares for exchangeable shares will not qualify as
a tax-deferred reorganization for U.S. shareholders of White
Knight and U.S. shareholders of White Knight shareholders will
be required to recognize gain if, any, realized from the
consummation of the offer.
If
enough White Knight shareholders sell their shares to us,
publicly available information about White Knight may
decrease.
After our purchase of White Knight shares in connection with
this offer, the number of White Knight shareholders may be
significantly reduced. If the number of White Knight
shareholders is sufficiently reduced, White Knight may no longer
be required to comply with the public reporting requirements
under applicable securities legislation in any country or
province. If White Knight is no longer required to comply with
public reporting requirements, the information you receive about
White Knight will be reduced, which could impact your ability to
make an investment decision regarding the White Knight shares.
White
Knight shares may fail to meet the criteria for continued
listing on the
TSX-V even
if we are unsuccessful in acquiring 100% of the outstanding
White Knight shares.
White Knight is currently listed on the
TSX-V. The
rules and regulations of the
TSX-V
establish certain criteria that, if not met, could lead to the
delisting of shares from the
TSX-V. Among
such criteria are the number of shareholders of the listed
company, the number of the listed company’s shares that are
publicly held and the aggregate market value of the listed
company’s shares that are publicly held. Depending on the
number of White Knight shareholders that deposit White Knight
shares and the number of White Knight shares we acquire, it is
possible that following the completion of this offer and prior
to the time that a subsequent acquisition transaction makes
White Knight a wholly-owned subsidiary of U.S. Gold, the
White Knight shares would fail to meet the criteria for
continued listing on the
TSX-V. If
this were to happen, White Knight shares could be delisted from
the TSX-V
and this could, in turn, adversely affect the market or result
in a lack of an established market for those shares. We intend
to cause White Knight to apply to delist the White Knight common
shares from the
TSX-V as
soon as practicable after the successful completion of this
offer and a subsequent acquisition transaction of White Knight.
20
We
have been unable to independently verify the reliability of
information about White Knight, Coral Gold, Nevada Pacific and
Tone Resources contained in this prospectus.
We have not had complete access to the non-public books and
records of White Knight, Coral Gold, Nevada Pacific or Tone
Resources. As a result, all historical information regarding
White Knight, Coral Gold, Nevada Pacific and Tone Resources
contained in this prospectus, including all historical financial
information used in connection with the preparation of the
pro forma financial information reflecting the pro
forma effects of a combination of (i) U.S. Gold
and White Knight and (ii) U.S. Gold and all of White
Knight, Coral Gold, Nevada Pacific and Tone Resources, has been
derived from publicly-available documents and certain
information the target companies have provided to us. We have no
reason to doubt the accuracy or completeness of these
publicly-available documents or other information. Nevertheless,
there could be inaccuracies or material omissions in the
publicly-available or other information about or relating to
White Knight, Coral Gold, Nevada Pacific or Tone Resources. If
there are such inaccuracies or material omissions, this
prospectus may also contain inaccuracies or material omissions,
which could result in unanticipated liabilities or expenses for
us, and may increase the cost of integrating the companies. This
would likely adversely affect the operational plans of the
combined company and its results of operations and financial
condition.
After
the consummation of the offer, White Knight would become a
majority-owned subsidiary of U.S. Gold and our interests as
a majority shareholder could differ from yours.
After the consummation of the offer, we expect to own a
sufficient number of White Knight common shares so that we would
have the power to elect the directors, appoint new management,
approve certain actions requiring the approval of White Knight
shareholders, including adopting certain amendments to White
Knight’s organizational and governing documents and
approving mergers or sales of White Knight’s assets. In
particular, after the consummation of the offer we intend to
acquire all of the White Knight common shares not deposited
under the offer in a subsequent acquisition transaction, or, if
subsequent acquisition transaction is not available, to
integrate White Knight and U.S. Gold by merger or other
transaction whereby the operations of White Knight and
U.S. Gold are combined. Our interests with respect to White
Knight may differ from those of any remaining minority
shareholders.
Change
of control provisions in agreements triggered upon the
acquisition of White Knight, Coral Gold, Nevada Pacific or Tone
Resources may lead to adverse business or financial
consequences.
Any of White Knight, Coral Gold, Nevada Pacific or Tone
Resources may be a party to agreements that contain change of
control provisions that may be triggered following our
acquisition of the majority of the common shares of those
companies. These change of control provisions, if triggered and
not waived by any beneficiaries of those provisions, could
result in termination of an agreement or in unanticipated
expenses following our acquisition of shares of the relevant
company and could adversely affect that company’s results
of operations and financial condition. As mentioned above, we
have not had complete access to the non-public books and records
of White Knight, Coral Gold, Nevada Pacific or Tone Resources
and do not know whether there are any change of control
agreements or provisions in the agreements of the target
companies, or the magnitude of payments or expenses or other
adverse consequences, if any.
We may
not be successful in completing the strategic offers described
in this prospectus.
We are unable to predict when, if ever, our acquisitions of
White Knight, Coral Gold, Tone Resources and Nevada Pacific will
be completed. Further, management of one or more of the target
companies may resist our efforts to complete those acquisitions.
In addition, our current estimates of the value of these
entities is based only on publicly available information, and we
may determine through due diligence investigation of any or all
of the target companies that acquiring one or more of them would
be less advantageous than we currently believe. As a result of
these or other factors, we may choose to terminate our
acquisition efforts with, or be unable for other reasons to
complete our acquisition of, one or more of the target
companies. If we do not consummate the acquisition of one or
more of those companies, the benefits of the acquisitions
described in this prospectus may not be realized.
21
The
integration of any target companies that we acquire will present
significant challenges and may disrupt and adversely impact our
business or may not occur as planned.
The offer for your White Knight common shares described in this
prospectus has been made with the expectation that its
successful completion will result in improved operations by
taking advantage of the synergies of consolidation and enhanced
growth opportunities of the combined company. These anticipated
benefits will depend in part on whether U.S. Gold’s
and White Knight’s operations can be integrated in an
efficient and effective manner. These integration efforts will
require the dedication of management resources, which will
temporarily divert attention from the
day-to-day
business of the combined company. Most operational and strategic
decisions, and certain staffing decisions, with respect to the
combined company have not yet been made. These decisions and the
integration of the two companies will present challenges to
management, including the integration of systems and personnel
of the two companies, and special risks, including possible
unanticipated liabilities, unanticipated costs, including costs
associated with complying with regulatory requirements we are
not currently subject to, and the loss of key employees. The
process of combining the organizations may cause an interruption
of, or a loss of momentum in, the activities of any or all of
the combined company’s business, which could have an
adverse effect on the revenues and operating results of the
combined company for an indeterminate period of time. The
failure to successfully complete this integration process may
prevent us from achieving the anticipated potential benefits of
any such acquisition. If we fail to realize the anticipated
benefits of any acquisition, the market value of our stock may
be adversely affected.
Our
shareholders may not approve the matters on which our offer is
conditioned.
Our offer to acquire your shares is conditioned upon the
approval by U.S. Gold shareholders, voting at a special
shareholders’ meeting, of proposals relating to the offer.
Among these proposals are the authorization and issuance of a
new class of preferred stock of U.S. Gold and approval of
the issuance of the stock of U.S. Gold that will be used as
consideration for your shares. These proposals will require the
affirmative vote of the holders of a majority of the shares of
common stock of U.S. Gold voting at the meeting where a
quorum is present. Our shareholders may not approve these
proposals. If any of these proposals are not approved, we would
not waive this condition to our offer and we would have no
obligation to purchase your shares. Although we are unaware of
any specific reason our shareholders would not approve these
proposals, we cannot predict the outcome of the shareholder vote.
We
will incur substantial costs in connection with the proposed
acquisitions even if they are never completed.
We expect to incur acquisition-related expenses of approximately
$6.5 million, consisting of investment banking, legal and
accounting fees and financial printing and other related charges
in connection with the proposed acquisitions. These amounts are
preliminary estimates and the actual amounts may be higher or
lower. Moreover, we are likely to incur additional expenses in
future periods in connection with the integration of any
acquired company’s business with our business. Some of
these expenses will be incurred even if we do not complete the
proposed acquisitions.
Completion
of one or more of the acquisitions would result in the issuance
of a significant amount of additional U.S. Gold common
stock which may in turn depress the trading price of our
stock.
While no formal agreement has been reached with regard to the
acquisition of one or more of the target companies, completion
of one or more of those acquisitions would result in the
issuance of a significant amount of our common stock. If all of
the offers were completed on the terms currently proposed, of
which there is no assurance, Canadian Exchange Co. would issue
up to 46,520,683 exchangeable shares in consideration for the
currently outstanding shares of the target companies, or up to
54,434,998 exchangeable shares if currently outstanding options
and warrants of the target companies are exercised and the
underlying common shares tendered in accordance with the offer.
If all of the exchangeable shares that may be issued in the
offers are exchanged for our common stock, it would represent an
increase in the outstanding shares of U.S. Gold common
stock of approximately 93% of the common stock we presently have
outstanding, or 109% if all outstanding options and warrants of
the target companies are exercised. The issuance of such a
significant amount of common stock could depress the trading
price of our common stock and you may lose all or a part of your
investment.
22
Operational
Risks
We
will require significant additional capital to continue our
exploration activities, and, if warranted, to develop mining
operations.
Upon completion of any of the acquisitions of White Knight,
Coral Gold, Nevada Pacific or Tone Resources, substantial
expenditures will be required to establish proven and probable
reserves through drilling and analysis, to develop metallurgical
processes to extract metal or develop the mining and processing
facilities and infrastructure at any of our newly-acquired
properties or mine sites. We will be required to expend
significant amounts for geological and geochemical analysis,
assaying, and, if warranted, feasibility studies with regard to
the results of our exploration. We may not benefit from these
investments if we are unable to identify commercially
exploitable mineralized material. If we are successful in
identifying reserves, we will require significant additional
capital to construct a mill and other facilities necessary to
extract those reserves. Our ability to obtain necessary funding,
in turn, depends upon a number of factors, including the state
of the national and worldwide economy and the price of gold. We
may not be successful in obtaining the required financing for
these or other purposes on terms that are favorable to us or at
all, in which case, our ability to continue operating would be
adversely affected. Failure to obtain such additional financing
could result in delay or indefinite postponement of further
exploration and the possible, partial or total loss of our
potential interest in certain properties.
The
ongoing operations and past mining activities of the target
companies are subject to environmental risks, which we will
assume after our acquisition of those companies and which could
expose us to significant liability and delay, suspension or
termination of our operations.
All phases of the operations of the target companies are subject
to federal, state and local environmental regulation. These
regulations mandate, among other things, the maintenance of air
and water quality standards and land reclamation. They also set
forth limitations on the generation, transportation, storage and
disposal of solid and hazardous waste. Environmental legislation
is evolving in a manner which will require stricter standards
and enforcement, increased fines and penalties for
non-compliance, more stringent environmental assessments of
proposed projects, and a heightened degree of responsibility for
companies and their officers, directors and employees. Future
changes in environmental regulation, if any, may adversely
affect our operations, make our operations prohibitively
expensive, or prohibit them altogether. Environmental hazards
may exist on the properties in which we may hold interests in
the future, including the properties of the target companies,
that are unknown to us at the present and that have been caused
by us, one of the target companies, or previous owners or
operators, or that may have occurred naturally. Under applicable
federal and state environmental laws, prior property owners may
be liable for remediating any damage that those owners may have
caused. Mining properties that the target companies may have
transferred may cause us to be liable for remediating any damage
that those companies may have caused. The liability could
include response costs for removing or remediating the release
and damage to natural resources, including ground water, as well
as the payment of fines and penalties.
We
depend on a limited number of personnel and the loss of any of
these individuals could adversely affect our
business.
Our company is dependent on three persons, namely our Chairman
and Chief Executive Officer, President and Chief Operating
Officer and Vice President and Chief Financial Officer. Robert
R. McEwen, our Chairman and Chief Executive Officer, is
responsible for strategic direction and the oversight of our
business. Ann S. Carpenter, our President and Chief Operating
Officer, is responsible for company management and overseeing
our exploration and regulatory compliance. William F. Pass, our
Vice President and Chief Financial Officer, is responsible for
our public reporting and administrative functions. We rely
heavily on these individuals for the conduct of our business.
The loss of any of our existing officers would significantly and
adversely affect our business and our ability to realize the
perceived benefits of the acquisitions of the target companies.
In that event, we would be forced to identify and retain an
individual to replace the departed officer. We may not be able
to replace one or more of these individuals on terms acceptable
to us. We have no life insurance on the life of any officer.
23
The
nature of mineral exploration and production activities involves
a high degree of risk and the possibility of uninsured losses
that could materially and adversely affect our
operations.
Exploration for minerals is highly speculative and involves
greater risk than many other businesses. Many exploration
programs do not result in the discovery of mineralization, and
any mineralization discovered may not be of sufficient quantity
or quality to be profitably mined. Few properties that are
explored are ultimately advanced to the stage of producing
mines. Our current exploration efforts are, and any future
development or mining operations we may elect to conduct will
be, subject to all of the operating hazards and risks normally
incident to exploring for and developing mineral properties,
such as, but not limited to:
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labor disputes;
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unanticipated variations in grade and other geologic problems;
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environmental hazards;
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water conditions;
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difficult surface or underground conditions;
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industrial accidents;
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metallurgical and other processing problems;
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mechanical and equipment performance problems;
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failure of pit walls or dams;
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personal injury, fire, flooding, cave-ins and
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decrease in reserves due to a lower gold price.
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Any of these risks can materially and adversely affect, among
other things, the development of properties, production
quantities and rates, costs and expenditures and production
commencement dates. We currently have no insurance to guard
against any of these risks. If we determine that capitalized
costs associated with any of our mineral interests are not
likely to be recovered, we would incur a writedown of our
investment in these interests. All of these factors may result
in losses in relation to amounts spent which are not recoverable.
We do
not insure against all risks to which we may be subject in our
planned operations.
While we currently maintain insurance to insure against general
commercial liability claims, our insurance will not cover all of
the potential risks associated with our operations. For example,
we do not have insurance on the mill at our Tonkin Springs
property and we do not have business interruption insurance. We
may also be unable to obtain insurance to cover other risks at
economically feasible premiums or at all. Insurance coverage may
not continue to be available, or may not be adequate to cover
liabilities. We might also become subject to liability for
environmental, pollution or other hazards associated with
mineral exploration and production which may not be insured
against, which may exceed the limits of our insurance coverage
or which we may elect not to insure against because of premium
costs or other reasons. Losses from these events may cause us to
incur significant costs that could materially adversely affect
our financial condition and our ability to fund activities on
our property. A significant loss could force us to reduce or
terminate our operations.
24
We
will be required to evaluate our internal control over financial
reporting under Section 404 of the Sarbanes-Oxley Act of
2002 and any adverse results from such evaluation could result
in a loss of investor confidence in our financial reports and
have a material adverse effect on the price of our common
stock.
Under Section 404 of the Sarbanes-Oxley Act of 2002, we
expect that we will be required to furnish a report by our
management on internal control over financial reporting for the
fiscal year ending December 31, 2007. Such a report must
contain, among other matters, an assessment of the effectiveness
of our internal control over financial reporting, including a
statement as to whether or not our internal control over
financial reporting is effective. This assessment must include
disclosure of any material weaknesses in our internal control
over financial reporting identified by our management. This
report must also contain a statement that our auditors have
issued an attestation report on our management’s assessment
of such internal control over financial reporting. While we
believe our internal control over financial reporting is
effective, we are still constructing the system and processing
documentation and performing the evaluations needed to comply
with Section 404, which is both costly and challenging. The
completion of the acquisition transactions described in this
prospectus and the subsequent integration of the target
companies into our operations may make it more difficult for us
to comply with Section 404. We may not be able to complete
our evaluation, testing and required remediation, if any, in a
timely fashion. If we are unable to assert that our internal
control over financial reporting is effective, or if we disclose
significant deficiencies or material weaknesses in our internal
control over financial reporting, investors could lose
confidence in the accuracy and completeness of our financial
reports, which would have a material adverse effect on our stock
price.
The
laws of the State of Colorado and our Articles of Incorporation
may protect our directors from certain types of
lawsuits.
The laws of the State of Colorado provide that our directors
will not be liable to us or our shareholders for monetary
damages for all but certain types of conduct as directors of the
company. Our articles of incorporation permit us to indemnify
our directors and officers against all damages incurred in
connection with our business to the fullest extent provided or
allowed by law. The exculpation provisions may have the effect
of preventing shareholders from recovering damages against our
directors caused by their negligence, poor judgment or other
circumstances. The indemnification provisions may require us to
use our limited assets to defend our directors and officers
against claims, including claims arising out of their
negligence, poor judgment, or other circumstances.
Market
Risks
A
market for the exchangeable shares may not
develop.
Because the shares of Canadian Exchange Co. may be exchanged,
under the circumstances described in this prospectus, for shares
of our common stock on a
one-for-one
basis, the economic value of those shares should be closely
linked to the trading value of our common stock. Nevertheless,
there can be no assurance that the exchangeable shares of
Canadian Exchange Co. will be valued similarly to our common
stock. If an active trading market in the exchangeable shares of
Canadian Exchange Co. does not develop, or if after the
exchangeable shares of Canadian Exchange Co. are listed on the
TSX and AMEX, the exchangeable shares do not continue to meet
the listing requirements of the TSX and/or AMEX, the market
price of those shares may decline. Furthermore, although the
exchangeable shares of Canadian Exchange Co. are exchangeable
for our common stock, under the circumstances described in this
prospectus, for an equivalent number of shares of common stock
of U.S. Gold, the exchangeable shares of Canadian Exchange
Co. have no trading history and will be less widely held than
our common stock. This may cause those shares to trade at a
lower market price, or to be less liquid, than either the White
Knight common shares or our common stock.
Fluctuating
gold prices could negatively impact our business
plan.
The potential for profitability of our gold mining operations
and the value of our mining property, currently and following
completion of any of the proposed acquisitions of the target
companies, are directly related to the market price of gold. The
price of gold may also have a significant influence on the
market price of our common stock. If we obtain positive drill
results and progress our property to a point where a commercial
production decision can be made, our decision to put a mine into
production and to commit the funds necessary for that purpose
must be made
25
long before any revenue from production would be received. A
decrease in the price of gold at any time during future
exploration and development may prevent our property from being
economically mined or result in the writeoff of assets whose
value is impaired as a result of lower gold prices. The price of
gold is affected by numerous factors beyond our control,
including inflation, fluctuation of the United States dollar and
foreign currencies, global and regional demand, the purchase or
sale of gold by central banks, and the political and economic
conditions of major gold producing countries throughout the
world.
During the last five years, the average annual market price of
gold has ranged between $271 per ounce and $445 per
ounce, as shown in the table below:
Average
Annual Market Price of Gold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
$271
|
|
$
|
310
|
|
|
$
|
364
|
|
|
$
|
406
|
|
|
$
|
445
|
|
Although it may be possible for us in the future to protect
against some price fluctuations by hedging if we identify
commercially minable reserves on our mining property, the
volatility of mineral prices represents a substantial risk,
which no amount of planning or technical expertise can fully
eliminate. In the event gold prices decline and remain low for
prolonged periods of time, we might be unable to develop our
property or produce any revenue.
Our
stock price may be volatile and as a result you could lose all
or part of your investment.
In addition to volatility associated with over the counter
securities in general, the value of your investment could
decline due to the impact of any of the following factors upon
the market price of our common stock:
|
|
|
|
•
|
changes in the worldwide price for gold;
|
|
|
•
|
disappointing results from our exploration or development
efforts;
|
|
|
•
|
failure to meet our revenue or profit goals or operating budget;
|
|
|
•
|
decline in demand for our common stock;
|
|
|
•
|
downward revisions in securities analysts’ estimates or
changes in general market conditions;
|
|
|
•
|
technological innovations by competitors or in competing
technologies;
|
|
|
•
|
investor perception of our industry or our prospects; and
|
|
|
•
|
general economic trends.
|
In addition, stock markets generally have experienced extreme
price and volume fluctuations and the market prices of
securities generally have been highly volatile. These
fluctuations are often unrelated to operating performance of a
company and may adversely affect the market price of our common
stock. As a result, investors may be unable to resell their
shares at a fair price.
Risks
Relating to Our Business
The
feasibility of mining our property has not been established,
meaning that we have not completed exploration or other work
necessary to determine if it is commercially feasible to develop
the property.
We are currently an exploration stage company. We have no proven
or probable reserves on our property, and neither do Coral Gold
or Tone Resources. A “reserve,” as defined by
regulation of the SEC, is that part of a mineral deposit which
could be economically and legally extracted or produced at the
time of the reserve determination. A reserve requires a
feasibility study demonstrating with reasonable certainty that
the deposit can be economically extracted and produced. We have
not carried out any feasibility study with regard to all or a
portion of our Tonkin Springs property. As a result, we
currently have no reserves and there are no assurances that we
will be able to prove that there are reserves or probable
reserves on our properties or any of the properties we will
acquire if the transactions described in this prospectus are
completed.
26
The mineralized material identified in the Cortez Trend does not
and may never have demonstrated economic viability. Substantial
expenditures are required to establish reserves through drilling
and there is no assurance that reserves will be established. The
feasibility of mining in the Cortez Trend has not been, and may
never be, established. Whether a mineral deposit can be
commercially viable depends upon a number of factors, including
the particular attributes of the deposit, including size, grade
and proximity to infrastructure; metal prices, which can be
highly variable; and government regulations, including
environmental and reclamation obligations. If we are unable to
establish some or all of our mineralized material as proven or
probable reserves in sufficient quantities to justify commercial
operations, we may not be able to raise sufficient capital to
develop a mine, even if one is warranted. If we are unable to
establish such reserves, the market value of our securities may
decline, and you may lose some or all of your investment.
We are
dependent upon production of gold or other precious metals from
a single property, have incurred substantial losses since our
inception in 1979, and may never be profitable.
Unless the offer for one or more of the target companies is
successful, we are dependent on our one existing property. Since
our inception in 1979, we have not been profitable. As of
June 30, 2006, our accumulated deficit was approximately
$104 million. To become profitable, we must identify
additional mineralization and establish reserves at our mining
property, and then either develop our property or locate and
enter into agreements with third party operators. It could be
years before we receive any revenues from gold production, if
ever. We may suffer significant additional losses in the future
and may never be profitable. We do not expect to receive revenue
from operations in the foreseeable future, if at all. Even if we
do achieve profitability, we may not be able to sustain or
increase profitability on a quarterly or annual basis.
Historical
production of gold at our Tonkin Springs property may not be
indicative of the potential for future development or
revenue.
Historical production of gold from our Tonkin Springs property
came from relatively shallow deposits, and in very limited
quantities for a very limited period of time. Although we intend
to explore deeper zones in an effort to identify additional
mineralized material, due to the uncertainties associated with
exploration, including variations in geology and structure,
there is no assurance that our efforts will be successful.
Investors in our securities should not rely on our historical
operations as an indication that we will ever place our mining
property into commercial production again. We expect to incur
losses unless and until such time as our property enters into
commercial production and generates sufficient revenue to fund
our continuing operations.
Our
continuing reclamation obligations at the Tonkin Springs
property could require significant additional
expenditures.
We are responsible for the reclamation obligations related to
disturbances located on the Tonkin Springs property. The current
estimate of reclamation costs for existing disturbances on the
property to the degree required by the Federal Bureau of Land
Management (BLM) and Nevada Division of Environmental Protection
is approximately $3.3 million. As required by applicable
regulations, we currently have in place a cash bond in the
amount of $3.1 million to secure the reclamation of the
property and anticipate increasing that amount by approximately
$376,000 upon approval of the revised reclamation plan filed in
September and bonding associated with the property-wide
exploration permit. Reclamation bond estimates are required to
be updated every three years or prior to new disturbances taking
place that are not already bonded. We updated the reclamation
obligation during September 2006 as noted above. There is a risk
that any cash bond, even if augmented upon update of the
reclamation obligations, could be inadequate to cover the costs
of reclamation which could subject us to additional costs for
the actual reclamation obligations. The satisfaction of bonding
requirements and continuing reclamation obligations will require
a significant amount of capital. There is a risk that we will be
unable to fund these additional bonding requirements, and
further that the regulatory authorities may increase reclamation
and bonding requirements to such a degree that it would not be
commercially reasonable to continue exploration activities.
27
Title
to mineral properties can be uncertain, and we are at risk of
loss of ownership of our property.
Our ability to explore and operate our property depends on the
validity of title to that property. The mineral properties
making up the Tonkin Springs property and the property of the
target companies consist of leases of unpatented mining claims
and unpatented millsite claims. Unpatented mining claims provide
only possessory title and their validity is often subject to
contest by third parties or the federal government, which makes
the validity of unpatented mining claims uncertain and generally
more risky. These uncertainties relate to such things as the
sufficiency of mineral discovery, proper posting and marking of
boundaries, assessment work and possible conflicts with other
claims not determinable from descriptions of record. Since a
substantial portion of all mineral exploration, development and
mining in the United States now occurs on unpatented mining
claims, this uncertainty is inherent in the mining industry. We
have not obtained a title opinion on our entire property, and do
not intend to obtain title opinions on any of the properties of
the target companies, with the attendant risk that title to some
claims, particularly title to undeveloped property, may be
defective. There may be valid challenges to the title to our
property which, if successful, could impair development
and/or
operations.
We remain at risk that the mining claims may be forfeited either
to the United States, or to rival private claimants due to
failure to comply with statutory requirements as to location and
maintenance of the claims or challenges to whether a discovery
of a valuable mineral exists on every claim.
A
significant portion of the lode claims comprising our Tonkin
Springs property are subject to a lease in favor of a third
party which may expire in 2009 and which provides for a 5%
royalty on production.
A total of 269 of our mining and millsite claims are subject to
this lease. The lease requires annual payments of $150,000 or
455 ounces of gold, whichever is greater, and payment of a
royalty of 5% of the gross sales price of gold or silver from
the property before deduction of any expenses from the gross
sales price. This lease may expire January 1, 2009. In the
event we are unable to extend the lease or purchase the claims
from the owner, we may be forced to forfeit the underlying
claims, which in turn may adversely affect our ability to
explore and develop the property. If we are successful in
identifying sufficient mineralization to warrant placing the
property into production, we will be obligated to pay the
leaseholder a royalty of 5% of the production. The payment of
this royalty, together with other royalties payable to third
parties in respect of certain claims, will reduce our potential
revenue.
We
cannot assure you that we will have an adequate supply of water
to complete desired exploration or development of our mining
property.
In accordance with the laws of the State of Nevada, we have
obtained permits to drill the water wells that we currently use
to service the Tonkin Springs property and we plan to obtain all
required permits for drilling water wells to serve other
property we may acquire in the future. However, the amount of
water that we are entitled to use from those wells must be
determined by the appropriate regulatory authorities. A final
determination of these rights is dependent in part on our
ability to demonstrate a beneficial use for the amount water
that we intend to use. Unless we are successful in developing
the property to a point where we can commence commercial
production of gold or other precious metals, we may not be able
to demonstrate such beneficial use. Accordingly, there is no
assurance that we will have access to the amount of water needed
to operate a mine at the property.
Estimates
of mineralized material at our Tonkin Springs property are based
on drill results from shallow deposits and are not necessarily
indicative of the results we may achieve from drilling at
greater depths.
Previous operators at the Tonkin Springs property were focused
on producing gold from shallow deposits in an effort to achieve
immediate revenue. Our proposed drilling program for the
remainder of 2006 and 2007 targets mineralization at greater
depths and at different locations on our property. Estimates of
mineralization in shallow zones is not necessarily indicative of
mineralization at greater depths. In addition, estimates of
mineralization are based on limited samples and many
assumptions, and are inherently imprecise. Our ability to
identify and delineate additional mineralization depends on the
results of our future drilling efforts and our ability to
properly interpret those results. We may be unable to identify
any additional mineralization or reserves.
28
Our
industry is highly competitive, attractive mineral lands are
scarce, and we may not be able to obtain quality
properties.
We compete with many companies in the mining industry, including
large, established mining companies with substantial
capabilities, personnel and financial resources. There is a
limited supply of desirable mineral lands available for
claim-staking, lease or acquisition in the United States, and
other areas where we may conduct exploration activities. We may
be at a competitive disadvantage in acquiring mineral
properties, since we compete with these individuals and
companies, many of which have greater financial resources and
larger technical staffs. From time to time, specific properties
or areas which would otherwise be attractive to us for
exploration or acquisition may be unavailable to us due to their
previous acquisition by other companies or our lack of financial
resources. Competition in the industry is not limited to the
acquisition of mineral properties but also extends to the
technical expertise to find, advance, and operate such
properties; the labor to operate the properties; and the capital
for the purpose of funding such properties. Many competitors not
only explore for and mine precious metals, but conduct refining
and marketing operations on a world-wide basis. Such competition
may result in our company being unable not only to acquire
desired properties, but to recruit or retain qualified employees
or to acquire the capital necessary to fund our operation and
advance our properties. Our inability to compete with other
companies for these resources would have a material adverse
effect on our results of operation and business.
Risks
Related to Our Securities
The
exercise of outstanding options and warrants and the future
issuances of our common stock will dilute current shareholders
and may reduce the market price of our common
stock.
As of October 23, 2006, we have outstanding options and
warrants to purchase a total of 11,259,500 shares of our
common stock, which if completely exercised, would dilute
existing shareholders’ ownership by approximately 23%. A
significant portion of the outstanding options are exercisable
at prices significantly below the current market price of our
common stock as of October 23, 2006. If the market price of
our stock remains at or above the exercise price, it is likely
that these options will be exercised. Our Board of Directors has
the authority to authorize the offer and sale of additional
securities without the vote of or notice to existing
shareholders. Based on the need for additional capital to fund
expected growth, it is likely that we will issue additional
securities to provide such capital and that such additional
issuances may involve a significant number of shares. Issuance
of additional securities underlying outstanding options as
authorized by our Board of Directors in the future will dilute
the percentage interest of existing shareholders and may reduce
the market price of our common stock.
A
small number of existing shareholders own a significant portion
of our common stock, which could limit your ability to influence
the outcome of any shareholder vote.
Our executive officers and directors, together with our largest
non-executive shareholder, beneficially own approximately 36.2%
of our common stock as of October 23, 2006. After the
completion of the transactions described in this prospectus, we
anticipate that our executive officers and directors, together
with our largest non-executive shareholder, will beneficially
own approximately 21.5% of our common stock. Under our articles
of incorporation and the laws of the State of Colorado, the vote
of a majority of the shares voting at a meeting at which a
quorum is present is generally required to approve most
shareholder action. As a result, these individuals and entities
will be able to significantly influence the outcome of
shareholder votes for the foreseeable future, including votes
concerning the election of directors, amendments to our articles
of incorporation or proposed mergers or other significant
corporate transactions.
We
have never paid a dividend on our common stock and we do not
anticipate paying any in the foreseeable future.
We have not paid a dividend on our common stock to date, and we
may not be in a position to pay dividends in the foreseeable
future. Our ability to pay dividends will depend on our ability
to successfully develop one or more properties and generate
revenue from operations. Further, our initial earnings, if any,
will likely be retained to finance our growth. Any future
dividends will depend upon our earnings, our then-existing
financial requirements and other factors, and will be at the
discretion of our Board of Directors.
29
Governmental
and Regulatory Risks
If we
are unable to satisfy the compliance order issued with regard to
our Tonkin Springs property, we may forfeit our mine
permit.
In May 2005, the Nevada Division of Environmental Protection
issued a notice of alleged violation relating to disturbances at
a portion of the Tonkin Springs property where mining was
formerly conducted under the mine permit. As a result of that
notice, we are under a compliance order to submit and implement
a final closure plan for the previous mining operation by
November 15, 2006. Our failure or inability to comply with
that order and satisfy other regulations affecting our property
could cause us to forfeit our existing permit and adversely
affect our ability to obtain additional necessary permits. We
anticipate completing the work requirements under the compliance
order by November 15, 2006, with the possible exception of
installation of certain equipment which is currently on order.
We continue to work with the state and federal regulators, and
we believe that the substantial compliance with the order would
satisfy the regulators and would not result in negative
implications to us.
We are
subject to changes in the regulatory environment where we
operate and may face additional regulatory requirements as a
result of the acquisition of the target companies.
Our mining operations and exploration activities are subject to
extensive regulation governing various matters, including
licensing, production, taxes, water disposal, toxic substances,
mine safety, development and permitting, exports and imports,
occupational health and safety, and environmental protections.
As a result of the proposed acquisition of the target companies,
we may face additional regulatory requirements that we are not
currently subject to. For example, Nevada Pacific conducts
mining operations in Mexico and is subject to Mexican
environmental laws and foreign investment regulations under the
Law of Foreign Investment, and must comply with the terms of
exploration and exploitation concessions granted by the Mexican
government in connection with its mining operations. Continued
compliance with the regulations currently applicable to us and
compliance with the new regulations that we may become subject
to as a result of the acquisition of the target companies are
expected to increase our costs, including the costs of planning,
designing, drilling, operating, developing, constructing, and
closure and reclamation. In addition, these laws and regulations
are subject to frequent change and reinterpretation. Amendments
to current laws and regulations governing operations and
activities of mining companies or more stringent implementation
or interpretation of these laws and regulations could have a
material adverse impact on us.
Our
operations are subject to permitting requirements which could
require us to delay, suspend or terminate our operations on our
mining property.
Our operations, including our ongoing two-year exploration
drilling program, require permits from the state and federal
governments. We may be unable to obtain these permits in a
timely manner, on reasonable terms, or at all. If we cannot
obtain or maintain the necessary permits, or if there is a delay
in receiving these permits, our timetable and business plan for
exploration of the Tonkin Springs property will be adversely
affected.
Legislation
has been proposed that would significantly affect the mining
industry.
Periodically, members of the U.S. Congress have introduced
bills which would supplant or alter the provisions of the
General Mining Law of 1872, which governs the unpatented claims
that we control with respect to our Tonkin Springs property. One
such amendment has become law and has imposed a moratorium on
patenting of mining claims, which reduced the security of title
provided by unpatented claims such as those on our Tonkin
Springs property. If additional legislation is enacted, it could
substantially increase the cost of holding unpatented mining
claims by requiring payment of royalties, and could
significantly impair our ability to develop mineral resources on
unpatented mining claims. Such bills have proposed, among other
things, to make permanent the patent moratorium, to impose a
federal royalty on production from unpatented mining claims and
to declare certain lands as unsuitable for mining. Although it
is impossible to predict at this time what royalties may be
imposed in the future, the imposition of such royalties could
adversely affect the potential for development of such mining
claims, and the economics of existing operating mines on federal
unpatented mining claims. Passage of such legislation could
adversely affect our business.
30
THE
OFFERORS
U.S. Gold
U.S. Gold is engaged in the exploration for gold and other
precious metals. We hold a 100% interest in the Tonkin Springs
property in Eureka County, Nevada, subject to paramount title in
the United States. This property consists of approximately
36 square miles of unpatented lode mining claims and
millsite claims located on the Battle Mountain-Eureka Trend,
also known as the Cortez Trend, approximately 45 miles
northwest of the town of Eureka in north-central Nevada. We are
presently in the exploration stage at the Tonkin Springs
property. We have not generated revenue from mining operations
since 1990.
U.S. Gold was organized under the laws of the State of
Colorado on July 24, 1979 under the name Silver State
Mining Corporation. On June 21, 1988, we changed our name
to U.S. Gold Corporation.
In July 2005, Robert R. McEwen became our largest shareholder by
purchasing 11,100,000 shares of our common stock,
representing 33.3% of our outstanding shares before the
financing discussed immediately below. In August 2005, he became
our Chairman and Chief Executive Officer. In November 2005, at a
meeting of our shareholders, nominees of Mr. McEwen were
elected as a majority of our board of directors. At that
meeting, our shareholders also approved an increase in our
authorized capital from 35,000,000 shares of common stock
to 250,000,000 shares.
On February 22, 2006, U.S. Gold completed a private
placement of 16,700,000 subscription receipts, with gross
proceeds to us of $75,150,000. As part of that private
placement, Mr. McEwen bought 667,000 subscription receipts,
including 667,000 shares of common stock and warrants to
purchase 333,500 shares of our common stock. As of the date
of this prospectus, Mr. McEwen owns 11,767,000 shares
of our common stock plus the 333,500 warrants, representing
24.2% of our outstanding shares (assuming the exercise of
Mr. McEwen’s warrants).
We intend to hold a special meeting of shareholders, to be held
at [ ] at
[ ], local time, on
[ ], 2006, at which U.S. Gold
shareholders, as of
[ ],
the record date, will be asked to vote on matters necessary to
enable us to acquire the target companies. An affirmative vote
of a majority of the votes cast at the special meeting is
required to approve the strategic offers. Abstentions and broker
non-votes will have no effect on the outcome of any of the
proposals voted at our special meeting. The number of shares of
our common stock outstanding and entitled to vote at the special
meeting is [ ]. Holders of our
common stock do not have dissenters’ rights under Colorado
law in connection with any of the matters to be acted on at the
special meeting.
Information regarding the qualifications and compensation of our
current directors and executive officers, such persons’
beneficial ownership of our securities and the existence of
certain relationships and transactions between such individuals
and us and our subsidiaries, can be found in our annual report
on
Form 10-KSB
for the fiscal year ended December 31, 2005, filed with the
SEC on April 7, 2006, which is incorporated into and forms
a part of this prospectus. See the section entitled
“Incorporation by Reference of Certain Documents and
Information of U.S. Gold for U.S. Shareholders” on
page v of this prospectus. Financial and other information
about U.S. Gold as of the end of the quarter ended
June 30, 2006 can be found in our quarterly report on
Form 10-QSB,
filed with the SEC on August 14, 2006, and amended on
August 24, 2006, which is incorporated into and forms part
of the prospectus. See the section entitled “Incorporation
by Reference of Certain Documents and Information of
U.S. Gold for U.S. Shareholders” on page v of
this prospectus.
Our principal executive offices are located at 2201 Kipling
Street, Suite 100, Lakewood, Colorado, U.S.A. 80215 and our
telephone number is
(303) 238-1438.
Our website is www.usgold.com. Information contained on the
website is not incorporated by reference into this prospectus,
and you should not consider information contained on the website
as part of this prospectus.
Description
of Our Capital Stock
Our authorized capital consists of 250,000,000 shares of
common stock, no par value per share. As of October 23,
2006, we had 49,996,755 shares of common stock issued and
outstanding.
31
The following discussion summarizes the rights and privileges of
our capital stock. This summary is not complete, and you should
refer to our articles of incorporation, as amended, which have
been filed or incorporated as an exhibit to our annual report on
Form 10-KSB
for the fiscal year ended December 31, 2005, which is
incorporated into and forms part of this prospectus.
The holders of our common stock are entitled to one vote for
each share held of record on all matters submitted to
stockholders, including the election of directors. Cumulative
voting for directors is not permitted. Except as provided by
special agreement, the holders of common stock are not entitled
to any preemptive rights and the shares are not redeemable or
convertible. All outstanding common stock is, and all common
stock issuable upon exercise of warrants will be, when issued
and paid for, fully paid and nonassessable. The number of
authorized shares of common stock may be increased or decreased
(but not below the number of shares then outstanding or
otherwise reserved for issuance by us) by the affirmative vote
of a majority of shares cast at a meeting of our security
holders at which a quorum is present.
The holders of our common stock are entitled to dividends if, as
and when declared by our board of directors from legally
available funds. Upon any voluntary or involuntary liquidation,
dissolution or winding up of our affairs, the holders of our
common stock are entitled to share, on a pro rata basis, all
assets remaining after payment to creditors and prior to
liquidation rights, if any, of any series of outstanding
preferred stock.
Pending shareholder approval at our special meeting in
connection with the strategic offers, our authorized share
capital will consist of 250,000,000 shares of common stock,
no par value, and one share of preferred stock, no par value,
designated Series A Special Voting Preferred Stock. See the
section entitled “The Offer — Voting and Exchange
Trust Agreement” on page 39 of this prospectus.
Our articles of incorporation and bylaws do not include any
provision that would delay, defer or prevent a change in control
of our company. However, pursuant to the laws of the State of
Colorado, certain significant transactions would require the
affirmative vote of a majority of the shares eligible to vote at
a meeting of shareholders, which requirement could result in
delays to or greater cost associated with a change in control of
the company.
Additional information regarding our business and operations,
description of property, management’s discussion and
analysis of financial condition and results of operations is
included in our annual report on
Form 10-KSB
for the fiscal year ended December 31, 2005, which is
incorporated into and forms part of the prospectus; our
quarterly report on
Form 10-QSB/A
for the quarter ended June 30, 2006, which is incorporated
into and forms part of the prospectus; Appendix F
(Unaudited Financial Statements of U.S. Gold Canadian
Acquisition Corporation); Appendix G (Unaudited Pro
Forma Consolidated Financial Statements of U.S. Gold);
Appendix H (Unaudited Pro Forma Consolidated
Supplementary Financial Statements of U.S. Gold) and
Appendix I (Rights, Privileges, Restrictions and Conditions
Attaching to the Exchangeable Shares of US Gold Canadian
Acquisition Corporation) are incorporated into and form part of
this prospectus. See the section entitled “Incorporation by
Reference of Certain Documents and Information of U.S. Gold
for U.S. Shareholders” on page v of this prospectus.
Canadian
Exchange Co.
US Gold Canadian Acquisition Corporation, or Canadian Exchange
Co., is a corporation incorporated under the Business
Corporation Act (Alberta) and is our wholly-owned
subsidiary. We formed Canadian Exchange Co. solely for the
purpose of making the strategic offers. It has no significant
assets or capitalization and has not engaged in any business or
other activities to date. In connection with the strategic
offers, among other things, Canadian Exchange Co. will acquire
the benefit of the Support Agreement between U.S. Gold and
Alberta ULC (see the section entitled “The
Offer — Subsequent Acquisition Transaction” on
page 52 of this prospectus for a description of Alberta
ULC); and Canadian Exchange Co., and, to the extent the
strategic offers are completed, will acquire common shares of
White Knight, Coral Gold, Nevada Pacific and Tone Resources and
incur liabilities in connection with the strategic offers.
Canadian Exchange Co.’s registered office is located at
2900 Manulife Place, 10180-101 Street, Edmonton, Alberta, Canada
T5J 3V5 and its telephone number is
(780) 423-7100.
Robert R. McEwen, Ann S. Carpenter and William F. Pass are the
current directors of Canadian Exchange Co. Each of
Mr. McEwen, Ms. Carpenter and Mr. Pass has served
as a director of Canadian Exchange Co. since
32
Canadian Exchange Co.’s incorporation on April 18,
2006. The term of office of each director will expire not later
than the close of the next annual meeting of shareholders of
Canadian Exchange Co. In addition, Mr. McEwen currently
serves as the Chairman and Chief Executive Officer,
Ms. Carpenter currently serves as the President, and
Mr. Pass currently serves as the Vice President, Secretary
and Treasurer, of Canadian Exchange Co. Additional information
regarding Mr. McEwen, Ms. Carpenter and Mr. Pass
is included in U.S. Gold’s Annual Report on
Form 10-KSB
for the fiscal year ended December 31, 2005, which is
incorporated into and forms part of the prospectus. See the
section entitled “Incorporation by Reference of Certain
Documents and Information of U.S. Gold for U.S.
Shareholders” on page v of this prospectus.
Additional information regarding Canadian Exchange Co. is
included in Appendix F (Unaudited Financial Statements of
U.S. Gold Canadian Acquisition Corporation), which is
incorporated into and forms part of this prospectus.
In addition to an unlimited number of common shares, Canadian
Exchange Co. is authorized to issue the exchangeable shares, as
described in the section entitled “Exchangeable
Shares — Description of Exchangeable Shares” on
page 35 of this prospectus, having substantially the
attributes set out in Appendix I (Rights, Privileges,
Restrictions and Conditions Attaching to the exchangeable shares
of US Gold Canadian Acquisition Corporation), which is
incorporated into and forms part of this prospectus.
33
THE
OFFER
Offer to
Purchase
Common
Shares
We hereby offer to purchase, upon the terms and subject to the
conditions of the offer, all of the outstanding White Knight
common shares, including any White Knight common shares that may
be issued after the date of the offer and prior to the expiry
time, on the basis of 0.35 of an exchangeable share of Canadian
Exchange Co. for each White Knight common share. Each
exchangeable share will, under the circumstances described
herein, be exchangeable for shares of common stock of
U.S. Gold on a
one-for-one
basis.
You are encouraged to consult your own advisors regarding the
tax consequences of the proposed transactions. You should
carefully review the description of the tax consequences of the
proposed transactions under the sections entitled “Material
Canadian Federal Income Tax Considerations” and
“Material U.S. Federal Income Tax Considerations”
on pages 64 and 74, respectively, of this prospectus and
you are encouraged to seek independent tax advice with respect
to your specific circumstances.
Warrants,
Options or Other Securities
Our offer is being made only for White Knight common shares and
is not being made for any warrants, options or other securities
that may entitle the holder to acquire White Knight common
shares. Any holder of such securities who wishes to accept the
offer must exercise those securities and deposit White Knight
common shares in accordance with the offer. Any such exercise
must be sufficiently in advance of the expiry time to permit
White Knight common shares acquired on the exercise of those
securities to be tendered in the offer in accordance with the
procedures described under the sections entitled
“— Time for Acceptance” and
“— Manner of Acceptance” on pages 44
and 46, respectively, of this prospectus. However, if, after
completion of the offer, we implement a subsequent acquisition
transaction, we intend to structure such transaction so that
warrants would be exchanged for warrants to purchase
exchangeable shares of Canadian Exchange Co. and the White
Knight stock option plan would be assumed or adopted by
U.S. Gold. See the section entitled
“— Subsequent Acquisition Transaction” on
page 52 of this prospectus.
Fractional
Shares
Fractional exchangeable shares will not be issued in the offer.
Instead, the number of exchangeable shares to be issued to each
tendering shareholder will be either rounded up (if the
fractional interest is 0.5 or more) or down (if the fractional
interest is less than 0.5) to the next whole number. For
rounding purposes, all White Knight common shares deposited by a
shareholder will be aggregated.
Total
Expected Issuance of U.S. Gold Shares
The total number of outstanding common shares of White Knight
together with the number of outstanding warrants and options to
purchase White Knight common shares as reported by White Knight
as of October 19, 2006 is 66,004,972. Based on this number
and the exchange ratio of 0.35 of an exchangeable share of
Canadian Exchange Co., we expect to issue approximately
23,101,740 exchangeable shares of Canadian Exchange Co. in
connection with the offer. The disclosure in this prospectus
regarding the anticipated effects of the transactions on our
voting power and our shareholder’s ownership percentage in
us after giving effect to the proposed acquisition of White
Knight and the other target companies and upon the exchange of
the exchangeable shares for shares of our common stock is based
on this expectation.
Exchangeable
Shares
Background
and Reason for the Issuance of Exchangeable Shares
The exchangeable shares being issued in connection with this
offer in lieu of U.S. Gold common stock to enable, to the
extent permissible and applicable, the White Knight shareholders
to take advantage of a full or partial tax deferral (rollover)
available under the Tax Act. The exchangeable shares by virtue
of the redemption and
34
exchange rights attaching to them and the provisions of the
Voting and Exchange Trust Agreement, which will be entered
into between U.S. Gold, Alberta ULC, Canadian Exchange Co.
and a trustee to be determined, and the Support Agreement, which
will be entered into between U.S. Gold, Alberta ULC, and
Canadian Exchange Co., are intended to provide the holders
thereof with the economic and voting rights that are, as nearly
as practicable, equivalent to those of a share of common stock
of U.S. Gold. See the section entitled “Material
Canadian Federal Income Tax Considerations” on page 64
of this prospectus.
You should be aware that, in the other strategic offers, it is
our intention that shareholders of Coral Gold, Nevada Pacific
and Tone Resources may also receive exchangeable shares in
exchange for their shares in such companies.
Description
of Exchangeable Shares
The exchangeable shares are exchangeable on a
one-for-one
basis at any time at the option of the holder of the
exchangeable shares into shares of U.S. Gold common stock.
The following is a summary description of the material
provisions of the rights, privileges, restrictions and
conditions attaching to the exchangeable shares and is qualified
in its entirety by reference to the full text of the share
provisions included in Appendix I (Rights, Privileges,
Restrictions and Conditions Attaching to the Exchangeable Shares
of US Gold Canadian Acquisition Corporation), which is
incorporated into and forms part of this prospectus.
Retraction
of Exchangeable Shares by Holders
Subject to the retraction call right described below, holders of
exchangeable shares will be entitled at any time to retract
(i.e., to require Canadian Exchange Co. to redeem) any or all
exchangeable shares held by them and to receive the retraction
price per exchangeable share to be satisfied by issuance of one
share of common stock of U.S. Gold, plus the dividend
amount, which for purposes of this prospectus we define as the
full amount of all declared and unpaid dividends on the
exchangeable shares and all dividends and distributions declared
on a share of common stock of U.S. Gold that have not yet
been declared on the exchangeable shares. Holders of
exchangeable shares may effect a retraction by presenting to
Canadian Exchange Co. or its transfer agent the certificate(s)
representing the exchangeable shares the holder desires to have
Canadian Exchange Co. redeem, together with such other documents
and instruments as may be required under the Business
Corporation Act (Alberta), the articles of Canadian Exchange
Co. or by its transfer agent, and a duly executed retraction
request specifying that the holder desires to have the number of
retracted shares specified therein redeemed by Canadian Exchange
Co.
Upon receipt by Canadian Exchange Co. of a retraction request,
Canadian Exchange Co. will promptly provide notice of such
request to us and Alberta ULC. Instead of Canadian Exchange Co.
redeeming the retracted shares, and provided that the retraction
request is not revoked by the holder in the manner described
below, we or Alberta ULC will have the right to purchase all but
not less than all of the shares covered by the retraction
request, which we refer to as our retraction call right. Under
the retraction call right, we or Alberta ULC, as the case may
be, will purchase from the holder and the holder will sell to us
or Alberta ULC, as the case may be, the retracted shares. The
retraction price per share will be equal to the current market
price of a share of our common stock, calculated as provided in
the share provisions included in Appendix I and
incorporated by reference herein as of the last business day
prior to the retraction date (described below), which shall be
satisfied by delivering to the holder one share of our common
stock plus the dividend amount, if any. The retraction date
means the fifth business day after the date on which the
retraction request is received by Canadian Exchange Co. See the
section entitled “— Call Rights” on
page 37 of this prospectus. In the event that we or Alberta
ULC do not exercise the retraction call right, and provided that
the retraction request is not revoked by the holder in the
manner described below, Canadian Exchange Co. will redeem the
retracted shares on the retraction date for the retraction price.
A holder of retracted shares may withdraw its retraction
request, by written notice to Canadian Exchange Co. before the
close of business on the business day immediately preceding the
retraction date, in which case the retraction request will be
null and void and the revocable offer will be deemed to have
been revoked.
If, as a result of solvency provisions of applicable law,
Canadian Exchange Co. is not permitted to redeem all
exchangeable shares tendered by a retracting holder, Canadian
Exchange Co. will redeem up to the maximum permissible number of
exchangeable shares tendered by the holder. We or Alberta ULC
will be required to purchase
35
any exchangeable shares not redeemed by Canadian Exchange Co. in
exchange for shares of our common stock on the retraction date
under the optional exchange right described below. See the
section entitled “— Voting and Exchange
Trust Agreement — Optional Exchange Upon Canadian
Exchange Co. Insolvency Event” on page 40 of this
prospectus.
Distribution
on Liquidation of Canadian Exchange Co.
In the event of the liquidation, dissolution or winding up of
Canadian Exchange Co. or any other distribution of its assets
among its shareholders for the purpose of winding up its
affairs, holders of exchangeable shares shall be entitled,
subject to applicable law, to receive from the assets of
Canadian Exchange Co. a liquidation payment that will be
satisfied by issuance of one share of our common stock plus the
dividend amount, if any for each exchangeable share. This
liquidation amount will be paid to the holders of exchangeable
shares before any distribution of assets of Canadian Exchange
Co. is made to the holders of the common shares or any other
shares of Canadian Exchange Co. ranking junior to the
exchangeable shares, and is subject to the exercise by us or
Alberta ULC of our or its liquidation call right described in
the section entitled “— Liquidation Call
Right” below.
Automatic
Exchange Upon Liquidation of U.S. Gold
Under the Voting and Trust Agreement, in the event of our
liquidation, all of the then outstanding exchangeable shares
will be automatically exchanged for shares of our common stock.
To effect an automatic exchange, we, or at our option, Alberta
ULC, will purchase all of the exchangeable shares from the
holders on the fifth business day prior to the effective date of
a liquidation. The purchase price payable for each exchangeable
share purchased in a liquidation of U.S. Gold will be
satisfied by the issuance of one share of our common stock plus
the dividend amount, if any. See the section entitled
“— Voting and Exchange
Trust Agreement — Automatic Exchange Right Upon
U.S. Gold Liquidation Event” on page 41 of this
prospectus.
Redemption
of Exchangeable Shares by Canadian Exchange Co.
The redemption date for the exchangeable shares will be the
earlier of: (i) the seventh anniversary of the date on
which exchangeable shares are first issued; and (ii) any
date established by the board of directors of Canadian Exchange
Co. for the redemption of exchangeable shares at such time as
there are fewer than 10% of the total number of exchangeable
shares issued in connection with the strategic offers (other
than exchangeable shares held by us or our or its subsidiaries
and subject to necessary adjustments to the number of shares to
reflect permitted changes to exchangeable shares) outstanding.
Notice of the redemption date will be sent to us and Alberta ULC
at the same time as it is sent to the holders of exchangeable
shares and, notwithstanding any proposed redemption of the
exchangeable shares, each of us and Alberta ULC will have a
redemption call right to purchase all, but not less than all, of
the outstanding exchangeable shares on the redemption date. The
redemption price per share will equal the current market price
of a share of our common stock, calculated as provided in the
share provisions included in Appendix I, on the last
business day prior to such redemption, which shall be satisfied
by delivering to the holder one share of our common stock plus
the dividend amount, if any. See the section entitled
“— Call Rights” below.
Unless the relevant Canadian tax legislation is amended, any
Canadian tax deferral obtained by a shareholder who receives
exchangeable shares under the offer will end on the exchange or
redemption of exchangeable shares for shares of our common
stock. Moreover, if our rights or the rights of Alberta ULC to
acquire exchangeable shares from the holders of exchangeable
shares, which we refer to as our or its call rights, are not
exercised upon a redemption (including a retraction) of the
exchangeable shares by Canadian Exchange Co., a holder of
exchangeable shares may realize a dividend for Canadian tax
purposes that may exceed the holder’s economic gain. A
holder of exchangeable shares will be subject to different
Canadian federal income tax consequences depending upon whether
the call rights are exercised or whether the relevant
exchangeable shares are redeemed by Canadian Exchange Co. under
the share provisions if the call rights are not exercised. See
the sections entitled “Risk Factors” and
“Material Canadian Federal Income Tax Considerations”
on pages 19 and 64, respectively, of this prospectus.
Subject to applicable law, and provided that we and Alberta ULC
have not exercised the redemption call right,
36
Canadian Exchange Co. will redeem all of the outstanding
exchangeable shares upon at least 60 days prior notice to
the holders of the exchangeable shares
Call
Rights
In the circumstances described below, we and Alberta ULC will
have certain overriding rights to acquire exchangeable shares
from the holders. A holder of exchangeable shares will be
subject to different Canadian federal income tax consequences
depending upon whether the call rights are exercised or whether
the relevant exchangeable shares are redeemed by Canadian
Exchange Co. if the call rights are not exercised. See the
section entitled “Material Canadian Federal Income Tax
Considerations” on page 64 of this prospectus.
Retraction
Call Right
Under the share provisions, each of we and Alberta ULC have an
overriding retraction call right to acquire all but not less
than all of the exchangeable shares that a holder of
exchangeable shares requests Canadian Exchange Co. to redeem.
Alberta ULC is only entitled to exercise its retraction call
right with respect to those holders of exchangeable shares, if
any, for which we have not exercised our retraction call right.
The purchase price under the retraction call right is equal to
the retraction call purchase price per share, which is the
current market price of a share of our common stock, calculated
as provided in the share provisions included in Appendix I,
on the last business day prior to the retraction date. The
purchase price will be satisfied by delivering to the holder one
share of our common stock plus the dividend amount, if any.
At the time of a retraction request by a holder of exchangeable
shares, Canadian Exchange Co. will promptly notify us and
Alberta ULC and either we or Alberta ULC must then advise
Canadian Exchange Co. within five business days if we choose to
exercise the retraction call right. If we or Alberta ULC do not
advise Canadian Exchange Co. within the five-business day
period, Canadian Exchange Co. will notify the holder as soon as
possible thereafter that neither of us will exercise the
retraction call right. Unless the holder revokes his or her
retraction request, on the retraction date the exchangeable
shares that the holder has requested Canadian Exchange Co. to
redeem will be acquired by us or Alberta ULC (assuming either we
or Alberta ULC exercise the retraction call right) or redeemed
by Canadian Exchange Co., as the case may be, in each case for
the retraction call purchase price as described in the preceding
paragraph.
Liquidation
Call Right
Under the share provisions, each of we and Alberta ULC have an
overriding liquidation call right, in the event of and
notwithstanding a proposed liquidation, dissolution or winding
up of Canadian Exchange Co., to acquire all but not less than
all of the exchangeable shares then outstanding. Alberta ULC is
only entitled to exercise its liquidation call right with
respect to those holders of exchangeable shares, if any, for
which we have not exercised our liquidation call right. The
purchase price under the liquidation call right is equal to the
liquidation call exercise price per share, which is the current
market price of a share of our common stock, calculated as
provided in the share provisions included in Appendix I, on
the last business day prior to the effective date of such
voluntary or involuntary liquidation, dissolution or winding up,
or the liquidation date. The purchase price will be satisfied by
delivering to the holder one share of our common stock plus the
dividend amount, if any. Upon the exercise by us or Alberta ULC
of the liquidation call right, the holders will be obligated to
transfer their exchangeable shares to us or Alberta ULC, as the
case may be. The acquisition by us or Alberta ULC of all of the
outstanding exchangeable shares upon the exercise of the
liquidation call right will occur on the effective date of the
voluntary or involuntary liquidation, dissolution or winding up
of Canadian Exchange Co.
To exercise the liquidation call right, we or Alberta ULC must
notify Canadian Exchange Co.’s transfer agent in writing,
as agent for the holders of the exchangeable shares, and
Canadian Exchange Co. of our or Alberta ULC’s intention to
exercise this right at least 55 days before the liquidation
date in the case of a voluntary liquidation, dissolution or
winding up of Canadian Exchange Co. and at least five business
days before the liquidation date in the case of an involuntary
liquidation, dissolution or winding up of Canadian Exchange Co.
The transfer agent will notify the holders of exchangeable
shares as to whether or not we or Alberta ULC have exercised the
liquidation call right promptly after the expiry of the date by
which the same may be exercised by us or Alberta ULC. If we or
37
Alberta ULC exercise the liquidation call right on the
liquidation date, we or Alberta ULC will purchase and the
holders will sell all of the exchangeable shares for an amount
equal to the liquidation call exercise price as described in the
preceding paragraph.
Redemption Call
Right
Under the share provisions, each of we and Alberta ULC have an
overriding redemption call right, notwithstanding the proposed
automatic redemption of the exchangeable shares by Canadian
Exchange Co. in the share provisions, to acquire all but not
less than all of the exchangeable shares then outstanding.
Alberta ULC is only entitled to exercise its redemption call
right with respect to those holders of exchangeable shares, if
any, for which we have not exercised our redemption call right.
The purchase price under the redemption call right is equal to
the redemption call purchase price, which is the current market
price of a share of our common stock, calculated as provided in
the share provisions included in Appendix I, on the last
business day prior to the redemption date. The purchase price
will be satisfied by delivering to the holder one share of our
common stock plus the dividend amount, if any. Upon the exercise
by us or Alberta ULC of the redemption call right, the holders
will be obligated to transfer their exchangeable shares to us or
Alberta ULC, as the case may be.
To exercise the redemption call right, we or Alberta ULC must
notify Canadian Exchange Co.’s transfer agent in writing,
as agent for the holders of the exchangeable shares, and
Canadian Exchange Co. of our or Alberta ULC’s intention to
exercise this right at least 30 days before the redemption
date. The transfer agent will notify the holders of exchangeable
shares as to whether or not we or Alberta ULC exercise the
redemption call right promptly after the date by which the same
may be exercised by us or Alberta ULC. If we or Alberta ULC
exercise the redemption call right on the redemption date, we or
Alberta ULC will purchase and the holders will sell all of the
exchangeable shares for an amount equal to the redemption call
purchase price as described in the preceding paragraph.
Effect
of Call Rights Exercise
If U.S. Gold or Alberta ULC exercise one or more of its
call rights, shares of our common stock will be directly issued
to holders of exchangeable shares and we or Alberta ULC, as the
case may be, will become the holder of the exchangeable shares.
We or Alberta ULC will not be entitled to exercise any voting
rights attached to the exchangeable shares that are acquired
from the holders. If we or Alberta ULC decline to exercise the
call rights when applicable, we will be required, under the
Support Agreement we will enter into with Alberta ULC and
Canadian Exchange Co., to issue shares of our common stock to
the holders of exchangeable shares. The Canadian tax
consequences resulting from the exercise by us or Alberta ULC,
as the case may be, of one or more of the call rights are
discussed in the section entitled “Material Canadian
Federal Income Tax Considerations” on page 64 of this
prospectus.
Voting
Rights
Under the Voting and Exchange Trust Agreement we will enter
into with Alberta ULC, Canadian Exchange Co. and a trust company
to be determined, holders of exchangeable shares will be
entitled to receive notice of and attend any meeting of our
shareholders and to vote at any meetings. See the section
entitled “— Voting and Exchange
Trust Agreement — Voting Rights in
U.S. Gold” on page 40 of this prospectus.
The number of directors of Canadian Exchange Co. will be fixed
at three and the exchangeable share provisions will entitle
holders of exchangeable shares to annually elect one director.
However, except as required by applicable law, or as provided in
the rights, privileges, restrictions and conditions of the
exchangeable shares, the holders of the exchangeable shares
shall not otherwise be entitled as such to receive notice of or
to attend any meeting of the shareholders of Canadian Exchange
Co. or to vote at any meeting held for any other purpose than
the annual election of directors.
Ranking
Holders of exchangeable shares will be entitled to a preference
over holders of any other common shares of Canadian Exchange Co.
and any other shares ranking junior to the exchangeable shares
with respect to the payment of dividends and the distribution of
assets in the event of the liquidation, dissolution or winding
up of Canadian
38
Exchange Co., whether voluntary or involuntary, or any other
distribution of the assets of Canadian Exchange Co. among its
shareholders for the purpose of winding up its affairs.
Dividends
Holders of exchangeable shares will be entitled to receive
dividends equivalent to the dividends, if any, paid from time to
time by us on shares of our common stock. The declaration date,
record date and payment date for dividends on the exchangeable
shares will be the same as that for any corresponding dividends
on shares of our common stock.
Certain
Restrictions
Except with the approval of the holders of the exchangeable
shares, Canadian Exchange Co. will not be permitted to:
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pay any dividends on common shares or any other shares of
Canadian Exchange Co. ranking junior to the exchangeable shares,
other than stock dividends payable in common shares or any such
other shares of Canadian Exchange Co. ranking junior to the
exchangeable shares, as the case may be;
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redeem or purchase or make any capital distribution in respect
of common shares or any other shares of Canadian Exchange Co.
ranking junior to the exchangeable shares;
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redeem or purchase any other shares of Canadian Exchange Co.
ranking equally with the exchangeable shares with respect to the
payment of dividends or the distribution of assets in the event
of the liquidation, dissolution or winding up of Canadian
Exchange Co., whether voluntary or involuntary, or any other
distribution of the assets of Canadian Exchange Co. among its
shareholders for the purpose of winding up its affairs; or
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issue any shares of stock other than exchangeable shares and any
other shares not ranking superior to the exchangeable shares,
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unless, in the case of the first three bullet points above, all
dividends on the outstanding exchangeable shares corresponding
to dividends declared and paid to date on the shares of our
common stock have been declared and paid on the exchangeable
shares.
Amendment
and Approval
Any approval required to be given by the holders of the
exchangeable shares to add to, change or remove any right,
privilege, restriction or condition attaching to the
exchangeable shares or any other matter requiring the approval
or consent of the holders of the exchangeable shares in
accordance with applicable law shall be deemed to have been
sufficiently given if it has been given in accordance with
applicable law, subject to a minimum requirement that such
approval be evidenced by a resolution passed by not less than
662/3%
of the votes cast on such resolution at a meeting of holders of
exchangeable shares duly called and held, excluding exchangeable
shares beneficially owned by us or any of our subsidiaries.
Voting
and Exchange Trust Agreement
The following is a summary description of the material
provisions of the Voting and Exchange Trust Agreement
between U.S. Gold, Alberta ULC, Canadian Exchange Co. and
the voting and exchange trustee. This summary is qualified in
its entirety by reference to the full text of the Voting and
Exchange Trust Agreement, which is attached as
Appendix J to this prospectus.
The purpose of the Voting and Exchange Trust Agreement will
be to create a trust for the benefit of the registered holders
from time to time of exchangeable shares (other than us or our
subsidiaries). A voting and exchange trustee to be determined,
will hold the one issued and outstanding share of U.S. Gold
Series A Special Voting Preferred Stock in order to enable
the voting and exchange trustee to exercise the voting rights
attached thereto and will hold exchange rights in order to
enable the voting and exchange trustee to exercise such rights,
in each case as trustee for and on behalf of such registered
holders.
39
Voting
Rights in U.S. Gold
Under the Voting and Exchange Trust Agreement, we will
issue to the voting and exchange trustee one share of
Series A Special Voting Preferred Stock to be held of
record by the voting and exchange trustee as trustee for and on
behalf of, and for the use and benefit of, the registered
holders from time to time of exchangeable shares (other than us
or our subsidiaries) and in accordance with the provisions of
the Voting and Exchange Trust Agreement. During the term of
the Voting and Exchange Trust Agreement, and under the
terms of the Support Agreement, we will not be permitted to
issue any additional shares of Series A Special Voting
Preferred Stock without the consent of the holders of
exchangeable shares.
Under the Voting and Exchange Trust Agreement, the voting
and exchange trustee will be entitled to all of the voting
rights, including the right to vote in person or by proxy,
attaching to the one share of Series A Special Voting
Preferred Stock on all matters that may properly come before our
shareholders at a meeting of shareholders. The share of
Series A Special Voting Preferred Stock will have that
number of votes, which may be cast by the voting and exchange
trustee at any meeting at which our shareholders are entitled to
vote, equal to the number of outstanding exchangeable shares
(other than shares held by us or our subsidiaries).
Each holder of an exchangeable share (other than us or our
subsidiaries) on the record date for any meeting at which our
shareholders are entitled to vote will be entitled to instruct
the voting and exchange trustee to exercise one of the votes
attached to the share of Series A Special Voting Preferred
Stock for such exchangeable share. The voting and exchange
trustee will exercise each vote attached to the share of
Series A Special Voting Preferred Stock only as directed by
the relevant holder and, in the absence of instructions from a
holder as to voting, the voting and exchange trustee will not
have voting rights with respect to such exchangeable share. A
holder of an exchangeable share may, upon instructing the voting
and exchange trustee, obtain a proxy from the voting and
exchange trustee entitling the holder to vote directly at the
relevant meeting the votes attached to the share of
Series A Special Voting Preferred Stock to which the holder
is entitled.
The voting and exchange trustee will send to the holders of the
exchangeable shares the notice of each meeting at which our
shareholders are entitled to vote, together with the related
meeting materials and a statement as to the manner in which the
holder may instruct the voting and exchange trustee to exercise
the votes attaching to the share of Series A Special Voting
Preferred Stock, at the same time as we send such notice and
materials to our shareholders. The voting and exchange trustee
will also send to the holders of exchangeable shares copies of
all information statements, interim and annual financial
statements, reports and other materials sent by us to our
shareholders at the same time we send those materials to our
shareholders. We will endeavor to obtain copies of materials
sent by third parties to our shareholders generally, including
dissident proxy circulars and tender and exchange offer
circulars, as soon as possible after those materials are first
sent to our shareholders and to deliver those materials to the
voting and exchange trustee, which will send those materials to
holders of exchangeable shares.
All rights of a holder of exchangeable shares to exercise votes
attached to the share of Series A Special Voting Preferred
Stock will cease upon the exchange of that holder’s
exchangeable shares for shares of our common stock.
Optional
Exchange Upon Canadian Exchange Co. Insolvency Event
We and Alberta ULC will agree in the Voting and Exchange
Trust Agreement that, upon the insolvency of Canadian
Exchange Co., a holder of exchangeable shares will be entitled
to instruct the voting and exchange trustee to exercise an
exchange right with respect to any or all of the exchangeable
shares held by the holder, thereby requiring us or Alberta ULC
to purchase the exchangeable shares from the holder. The
purchase price payable for each exchangeable share purchased
upon the insolvency of Canadian Exchange Co. will be satisfied
by the issuance of one share of our common stock plus an
additional amount equivalent to the full amount of all declared
and unpaid dividends, if any, on the exchangeable share and all
dividends and distributions declared on a share of common stock
that have not yet been declared on the exchangeable shares.
As soon as practicable following an event of insolvency of
Canadian Exchange Co. or any event that may, with the passage of
time or the giving of notice or both, result in the insolvency
of Canadian Exchange Co., Canadian Exchange Co. and we will give
written notice of the insolvency or other event to the voting
and exchange trustee. As
40
soon as practicable after receiving the notice, the voting and
exchange trustee will give notice to each holder of exchangeable
shares of the event and will advise the holder of its rights
with respect to the exchange right.
If, as a result of solvency provisions of applicable law,
Canadian Exchange Co. is unable to redeem all of a holder’s
exchangeable shares which the holder is entitled to have
redeemed in accordance with the share provisions, the holder
will be deemed to have exercised the optional exchange right
with respect to the unredeemed exchangeable shares and we or
Alberta ULC will be required to purchase those shares from the
holder in the manner set forth above.
Automatic
Exchange Right Upon U.S. Gold Liquidation Event
We will agree in the Voting and Exchange Trust Agreement
that we will notify the voting and exchange trustee, upon the
occurrence of either (a) a determination by our board of
directors to institute voluntary liquidation, dissolution or
winding up proceedings with respect to U.S. Gold or to
affect any other distribution of our assets among our
shareholders for the purpose of winding up our affairs, such
notice to be given at least 60 days prior to the proposed
effective date of such liquidation, dissolution, winding up or
other distribution, or (b) the earlier of (i) receipt
by us of notice of, and (ii) we otherwise become aware of
any threatened or instituted claim, suit, petition or other
proceeding with respect to involuntary liquidation, dissolution
or winding up or to effect any other distribution of our assets
among our shareholders for the purpose of winding up our affairs.
Immediately following receipt by the voting and exchange trustee
of notice of such an event or potential event of insolvency, the
voting and exchange trustee will give notice to each holder of
exchangeable shares of such event or potential event and will
advise the holder of its rights with respect to the automatic
exchange right.
On the fifth business day prior to the effective date of such
event of insolvency, we will automatically exchange all of the
then outstanding exchangeable shares (other than exchangeable
shares held by us or our subsidiaries) for a purchase price per
exchangeable share equal to one share of our common stock plus
the dividend amount.
Support
Agreement
The following is a summary description of the material
provisions of the Support Agreement, to be entered into between
U.S. Gold, Alberta ULC and Canadian Exchange Co., and is
qualified in its entirety by reference to the full text of the
Support Agreement, which is attached as Appendix K to this
prospectus.
Under the Support Agreement, we will covenant that, so long as
exchangeable shares not owned by us or our subsidiaries are
outstanding, we will, among other things: (a) not declare
or pay any dividend on the shares of our common stock unless
(i) on the same day Canadian Exchange Co. declares or pays,
as the case may be, an equivalent dividend on the exchangeable
shares and (ii) Canadian Exchange Co. has sufficient money
or other assets or authorized but unissued securities available
to enable the due declaration and the due and punctual payment,
in accordance with applicable law, of an equivalent dividend on
the exchangeable shares; (b) advise Canadian Exchange Co.
in advance of the declaration of any dividend on the shares of
our common stock and take other actions reasonably necessary to
ensure that the declaration date, record date and payment date
for dividends on the exchangeable shares are the same as those
for any corresponding dividends on the shares of our common
stock; (c) ensure that the record date for any dividend
declared on the shares of our common stock is not less than ten
(10) business days after the declaration date of such
dividend; and (d) take all actions and do all things
reasonably necessary or desirable to enable and permit Canadian
Exchange Co., in accordance with applicable law, to pay the
liquidation amount, the retraction price or the redemption price
to the holders of the exchangeable shares in the event of a
liquidation, dissolution or winding up of Canadian Exchange Co.,
a retraction request by a holder of exchangeable shares or a
redemption of exchangeable shares by Canadian Exchange Co., as
the case may be.
The Support Agreement will also provide that, without the prior
approval of Canadian Exchange Co. and the holders of
exchangeable shares, we will not distribute additional shares of
common stock of U.S. Gold or rights to subscribe therefor
or other property or assets to all or substantially all holders
of shares of our common stock, nor change any of the rights,
privileges or other terms of our common stock, unless the same
or an equivalent distribution on, or change to, the exchangeable
shares (or in the rights of the holders thereof) is made
simultaneously. In the event of any proposed tender offer, share
exchange offer, issuer bid, take-over bid or similar
41
transaction affecting our common stock, we will use reasonable
efforts to take all actions necessary or desirable to enable
holders of exchangeable shares to participate in such
transaction to the same extent and on an economically equivalent
basis as the holders of our common stock.
The Support Agreement will also provide that, as long as any
outstanding exchangeable shares are owned by any person or
entity other than us or any of our subsidiaries, we will, unless
approval to do otherwise is obtained from the holders of the
exchangeable shares, remain the direct or indirect beneficial
owner of all of the issued and outstanding common shares of
Canadian Exchange Co. and all issued and outstanding voting
shares of Alberta ULC.
With the exception of changes for the purpose of:
(i) adding to the covenants of any or all of the parties;
(ii) evidencing successors of U.S. Gold;
(iii) making certain necessary amendments or;
(iv) curing ambiguities or clerical errors (provided, in
each case, that our board of directors and the boards of
directors of each of Canadian Exchange Co. and Alberta ULC are
of the opinion that such amendments are not prejudicial to the
interests of the holders of the exchangeable shares), the
Support Agreement may not be amended without the approval of the
holders of the exchangeable shares.
Under the Support Agreement, each of us and Alberta ULC will not
exercise, and will prevent their affiliates from exercising, any
voting rights attached to the exchangeable shares owned by us or
Alberta ULC or their affiliates on any matter considered at
meetings of holders of exchangeable shares (including any
approval sought from such holders in respect of matters arising
under the Support Agreement).
Conditions
of the Offer
We may withdraw the offer (in which event Canadian Exchange Co.
shall not be required to accept for purchase
and/or pay
for any White Knight common shares tendered in the offer) or
extend the period of time during which the offer is open (in
which event the offerors may postpone accepting for purchase and
paying for any White Knight common shares tendered in the
offer), unless each of the following conditions has been
satisfied or has been waived by us at or prior to the expiry
time:
(a) there shall have been properly deposited and not
withdrawn that number of White Knight common shares that
constitutes at least the greater of
(1) 662/3%
of White Knight common shares deemed outstanding on a
fully-diluted basis or (2) 80% of the White Knight common
shares issued and outstanding on the date the shares are
accepted for purchase;
(b) White Knight shall not have entered into or effectuated
any agreement or transaction with any person or entity having
the effect of impairing our ability to acquire White Knight or
otherwise diminishing the expected economic value to us of the
acquisition of White Knight including, but not limited to, any
material issuance of securities of White Knight, transfer of
assets, the declaration of any extraordinary dividend, the
adoption of a shareholder rights plan or any other transaction
not in the ordinary course of White Knight’s business;
(c) the shares of our common stock shall have been approved
for listing on AMEX, the additional shares of common stock of
U.S. Gold issuable upon exchange of the exchangeable shares
offered under this offer shall have been approved for listing on
the TSX and AMEX and the exchangeable shares shall have been
approved for listing on the TSX and AMEX;
(d) the registration statement for the exchangeable shares
to be issued in the offer and the shares of our common stock
that may be issued upon the exchange of any exchangeable shares
shall have become effective under the Securities Act and no stop
order suspending the effectiveness of the registration statement
or a proceeding seeking a stop order shall have been issued nor
shall there have been proceedings for that purpose initiated or
threatened by the SEC and U.S. Gold and Canadian Exchange
Co. shall have received all necessary state securities law or
blue sky authorizations;
(e) all necessary orders shall have been obtained from
relevant Canadian securities regulatory authorities in respect
of the exchangeable shares to be issued in the offer, the shares
of our common stock that may be issued upon the exchange of any
such exchangeable shares and the resale of any exchangeable
shares or shares of our common stock;
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(f) U.S. Gold and Canadian Exchange Co. shall have
received waivers relating to any change of control provisions in
any note, bond, mortgage, indenture, license, lease, contract,
agreement or other instrument or obligation to which White
Knight or any of its subsidiaries is a party or by which any of
them or any of their properties or assets may be bound, except
such waivers the absence of which would not in the aggregate
materially adversely affect U.S. Gold, White Knight and our
and its respective subsidiaries;
(g) the holders of shares of our common stock, voting at a
meeting of such holders, shall have approved the following prior
to the expiry time:
(i) an amendment to our certificate of incorporation to
create a new class of stock comprised of one share of preferred
stock, designated Series A Special Voting Preferred Stock,
no par value, to be issued in connection with the strategic
offers;
(ii) the issuance, in connection with the strategic offers,
of the exchangeable shares, the U.S. Gold Series A
Special Voting Preferred Stock providing holders of the
exchangeable shares voting rights in U.S. Gold and the
shares of our common stock issuable upon exchange of the
exchangeable shares;
(h) the White Knight directors will have made commitments
reasonably satisfactory to U.S. Gold and Canadian Exchange
Co. to (i) effect an orderly transition of its board of
directors contemporaneously with or promptly after Canadian
Exchange Co. takes up and pays for the White Knight common
shares deposited under the offer to purchase, including, if
requested, resigning in favor of any nominees who may be
specified by us and Canadian Exchange Co. and (ii) release
White Knight from all claims as directors, other than existing
rights to indemnification and insurance and customary directors
fees and expenses for attendance at meetings of the board of
directors;
(i) there shall not be in effect or threatened as of the
expiry time, as it may be extended, any temporary restraining
order, preliminary or permanent injunction or other order or
decree issued by any court or agency of competent jurisdiction
or other legal restraint or prohibition challenging the offer or
preventing the completion of the offer or any of the other
transactions described in this offer, and there shall be no
statute, rule, regulation, order, injunction or decree enacted,
entered, promulgated or enforced by any court, administrative
agency or commission or other governmental authority or
instrumentality which requires consent or approval or
challenges, prohibits, restricts or makes illegal the completion
of the offer or the subsequent acquisition transaction;
(j) there shall not be pending or threatened any suit,
action or proceeding by any governmental entity:
(i) challenging the offer, seeking to restrain or prohibit
the completion of the offer or seeking to obtain from us or
White Knight or our respective subsidiaries any damages that are
material to White Knight and its subsidiaries, on a consolidated
basis, or us and our subsidiaries, on a consolidated basis;
(ii) seeking to prohibit or limit the ownership or
operation by us or White Knight or any of our subsidiaries of
any material portion of the business or assets of White Knight
or us or any of our subsidiaries or to compel White Knight or us
or any of our subsidiaries to dispose of or hold separate any
material portion of the business or assets of us or White Knight
or any of our subsidiaries as a result of the offer;
(iii) seeking to prohibit us from effectively controlling
in any material respect the business or operations of White
Knight; or
(iv) which otherwise is reasonably likely to have a
material adverse effect on us or our subsidiaries, on a
consolidated basis, or White Knight and its subsidiaries, on a
consolidated basis;
(k) there shall be no change or threatened change in the
business, properties, assets, liabilities, capitalization,
shareholders’ equity, condition (financial or otherwise),
operations, licenses or franchises, results of operations or
prospects of White Knight or any of its subsidiaries, on a
consolidated basis, that, in our reasonable judgment, has or may
have a material adverse effect on White Knight and its
subsidiaries, on a consolidated basis, and we shall not have
become aware of any fact that, in our reasonable judgment, has
or
43
may have a material adverse effect on White Knight and its
subsidiaries or their business or prospects or the value to us
of the common shares of White Knight;
(l) U.S. Gold and Canadian Exchange Co. shall have
obtained or received all approvals, consents, clearances or
waivers required to be obtained or received from any
governmental regulatory agency, authority or commission in
connection with the offer and the subsequent acquisition
transaction; and
(m) there shall not have occurred or been threatened:
(i) any general suspension of trading in, or limitation on
prices for, securities on any national securities exchange or in
the
over-the-counter
market in the United States or Canada;
(ii) any extraordinary or material adverse change in the
financial markets or major stock exchange indices in the United
States or Canada or in the market price of White Knight common
shares;
(iii) any change in the general political, market, economic
or financial conditions in the U.S. or Canada that could,
in our reasonable judgment, have a material adverse effect upon
the business, properties, assets, liabilities, capitalization,
shareholders equity, condition (financial or otherwise),
operations, licenses or franchises, results of operations or
prospects of White Knight or any of its subsidiaries;
(iv) any material change in U.S. dollar or Canadian
dollar exchange rates or a suspension of, or limitation on, the
markets therefor;
(v) a declaration of a banking moratorium or any suspension
of payments in respect of banks in the United States or Canada;
(vi) any limitation (whether or not mandatory) by any
government, domestic, foreign or supranational, or governmental
entity on, or other event that, in our reasonable judgment,
might affect the extension of credit by banks or other lending
institutions;
(vii) a commencement of war or armed hostilities or other
national or international calamity involving the U.S. or
Canada; or
(viii) in the case of any of the foregoing existing at the
time of the commencement of the offer, a material acceleration
or worsening thereof.
The conditions listed above are for the exclusive benefit of us
and Canadian Exchange Co., and we may assert them regardless of
the circumstances giving rise to any of the conditions. Unless
precluded from doing so by applicable law, we may, in our sole
discretion, waive any of these conditions in whole or in part.
The determination as to whether any condition has been satisfied
shall be final and binding on all parties.
The offerors reserve the right to terminate the offer on or
prior to the expiry time if any condition to the offer remains
unsatisfied or has not been waived or to comply with any
applicable law.
Time for
Acceptance
The offer is open for acceptance, unless withdrawn or extended
at our sole discretion, until the expiry time, being
5:00 p.m. (Vancouver Time) on [ ], 2006, or such later time
or times and date or dates as we may fix from time to time.
See the section entitled “Extension of the Expiry Time or
Variation or Change of the Offer” immediately below.
Extension
of the Expiry Time or Variation or Change of the Offer
The offer is open for acceptance until the expiry time, being
5:00 p.m. (Vancouver Time) on
[ ], 2006, unless earlier withdrawn.
We reserve the right at any time and from time to time to extend
the offer or to vary or change the terms of the offer by giving
written notice or other communication (confirmed in writing) of
such extension or variation to the
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depositary at its principal office in Toronto, and by causing
the depositary to provide as soon as practicable thereafter a
copy of such notice in the manner set forth in the section
entitled “Notices and Delivery” on page 49 of
this prospectus to all White Knight shareholders. We will make a
public announcement of the extension or variation as soon as
possible after giving notice of an extension or variation to the
depositary (and in the case of an extension of the offer, no
later than 9:00 a.m. (Vancouver time) on the day following
the expiry time) and provide a copy of the notice to the TSX-V
and AMEX, as applicable. Any notice of extension or variation
will be deemed to have been given and to be effective on the day
it is delivered or otherwise communicated in writing to the
depositary at its principal office in Toronto.
Where the terms of the offer are varied, the offer will not
expire before 10 business days after the notice of such
variation has been mailed to shareholders, unless otherwise
permitted by applicable law.
If, before the expiration of all rights of withdrawal with
respect to the offer, a material change occurs in the
information contained in this prospectus, as amended from time
to time, that would reasonably be expected to affect the
decision of a White Knight shareholder to accept or reject the
offer (other than a change that is not within the control of the
offerors or their affiliates), the offerors will give written
notice of such change to the depositary at its principal office
in Toronto, and will cause the depositary to promptly provide a
copy of such notice in the manner provided in the section
entitled “Notices and Delivery” on page 49 of
this prospectus to all shareholders, if required by applicable
law. As soon as practicable after giving notice of such a
material change to the depositary, we will make a public
announcement of the change in information and provide a copy of
the notice thereof to the
TSX-V in
accordance with the section entitled “Notices and
Delivery” on page 49 of this prospectus.
During any such extension or in the event of a material
variation or change in information, all White Knight common
shares previously deposited and not accepted for purchase or
withdrawn will remain subject to the offer and may be accepted
for purchase by us in accordance with the terms of the offer,
subject to the withdrawal rights described in the section
entitled “Right to Withdraw” below. An extension of
the expiry time, a variation of the terms of the offer or a
change in information does not constitute a waiver by any of the
offerors of any rights described above in the section entitled
“Conditions of the Offer” on page 42 of this
prospectus. If the consideration under the offer is increased,
the increased consideration will be paid to all depositing
shareholders whose White Knight common shares are accepted for
purchase under the offer.
We will follow any extension, termination, variation, amendment
or delay as promptly as practicable, with a public announcement.
In the case of an extension, variation or amendment, any related
announcement will be issued no later than 5:00 p.m.
(Vancouver time), on the date on which the expiry time
previously was to occur. Subject to applicable law and without
limiting the manner in which the offerors may choose to make any
public announcement, the offerors assume no obligation to
publish, advertise or otherwise communicate any public
announcement of this type other than in accordance with the
section entitled “Notices and Delivery” on
page 49 of this prospectus.
Acceptance
of the Offer by Certain Related Parties
To our knowledge, after reasonable inquiry, none of our
directors or senior officers nor any associate of our directors
or senior officers, nor any person or company holding more than
10 per cent of any class of our equity securities, nor any
person or company acting jointly or in concert with us, propose
to accept the offer, except Robert R. McEwen. On March 7,
2006, Mr. McEwen announced that, in his capacity as a
holder of White Knight common shares, he intended to support the
proposal of U.S. Gold to acquire each of White Knight,
Coral Gold, Nevada Pacific and Tone Resources. As of the date of
this prospectus Mr. McEwen beneficially owns 9,552,427
White Knight common shares, which, based on information provided
by White Knight on October 19, 2006, represents
approximately 16.1% of the outstanding White Knight common
shares. See the sections entitled “Background to the
Offer” and “Relationships Between the Offerors and
White Knight — Beneficial Ownership of and Trading in
Securities of White Knight” on pages 56 and 62,
respectively, of this prospectus.
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Manner of
Acceptance
Letter
of acceptance and transmittal
You may accept the offer by delivering to Kingsdale Shareholder
Services Inc., the depositary, at the office specified in the
letter of acceptance and transmittal, so as to arrive there not
later than the expiry time:
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the certificate(s) representing White Knight common shares you
desire to tender; AND
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a letter of acceptance and transmittal (printed on BLUE
paper) in the form accompanying the offer or a facsimile
thereof, properly completed and duly executed as required by the
instructions set out in the letter of acceptance and
transmittal; AND
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any other document required by the instructions set forth in the
letter of acceptance and transmittal.
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Except as otherwise provided in the instructions set out in the
letter of acceptance and transmittal or as may be permitted by
the offerors, the signature on the letter of acceptance and
transmittal must be guaranteed by an eligible institution.
Eligible institution means a Canadian Schedule I chartered
bank, a major trust company in Canada, a member of the
Securities Transfer Agents Medallion Program (STAMP), a member
of the Stock Exchanges Medallion Program (SEMP) or a member of
the New York Exchange, Inc. Medallion Signature Program (MSP).
If a letter of acceptance and transmittal is executed by a
person other than the registered holder of White Knight common
shares represented by the certificate(s) that are deposited, the
certificate(s) must be endorsed or be accompanied by an
appropriate share transfer power of attorney duly and properly
completed by the registered holder, with the signature on the
endorsement panel or share transfer power of attorney guaranteed
by an eligible institution.
Alternatively, White Knight common shares may be deposited in
compliance with the procedures set forth below for guaranteed
delivery not later than the expiry time.
Procedure
for Guaranteed Delivery
If you would like to deposit your White Knight common shares in
the offer and the certificate(s) representing White Knight
common shares are not immediately available or you cannot
deliver the certificate(s) and all other required documents to
the depositary at or prior to the expiry time, those White
Knight common shares may nevertheless be deposited if all of the
following conditions are met:
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the deposit is made by or through an eligible institution;
AND
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a notice of guaranteed delivery (printed on GREEN paper)
in the form accompanying the offer or a facsimile thereof,
properly completed and duly executed, including a guarantee by
an eligible institution in the form specified in the notice of
guaranteed delivery, is received by the depositary at the office
set out in the notice of guaranteed delivery, at or prior to the
expiry time; AND
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the certificate(s) representing the deposited White Knight
common shares in proper form for transfer together with a letter
of acceptance and transmittal in the form accompanying the offer
or a facsimile thereof, properly completed and duly executed,
with any required signature guarantees and all other documents
required by the letter of acceptance and transmittal, are
received by the depositary at the office set out in the notice
of guaranteed delivery at or prior to 5:00 p.m. (Vancouver
time) on the third trading day on the TSX-V after the expiry
time.
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The notice of guaranteed delivery may be delivered by hand or
courier, transmitted by facsimile or mailed to the depositary at
the office set out in the notice of guaranteed delivery and must
include a guarantee by an eligible institution in the form set
out in the notice of guaranteed delivery.
General
In all cases, payment for White Knight common shares deposited
and accepted for purchase by us will be made only after timely
receipt by the depositary of the certificate(s) representing
White Knight common shares, a letter of acceptance and
transmittal or a facsimile thereof, properly completed and duly
executed with the signatures
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guaranteed, if required, covering those White Knight common
shares in accordance with the instructions in the letter of
acceptance and transmittal, and any other required documents.
The method of delivery of certificates representing White
Knight common shares, the letter of acceptance and transmittal
and all other required documents is at the option and risk of
the person depositing them. The offerors recommend that all of
these documents be delivered by hand to the depositary and a
receipt obtained, or, if mailed, that registered mail, with
return receipt requested, be used and that proper insurance be
obtained.
If your White Knight common shares are registered in the name of
a nominee you should contact your broker, investment dealer,
bank, trust company or other nominee for assistance in
depositing your White Knight common shares under the offer.
All questions as to the validity, form, eligibility (including
timely receipt) and acceptance of any White Knight common shares
tendered in the offer will be determined by us in our sole
discretion. Depositing shareholders agree that such
determination shall be final and binding. We reserve the
absolute right to reject any and all deposits that we determine
not to be in proper form or that may be unlawful to accept under
the laws of any jurisdiction. We reserve the absolute right to
waive any defects or irregularities in the deposit of any White
Knight common shares. Neither we nor the depositary or any other
person will have any duty to give notice of any defects or
irregularities in any deposit, or any liability for failure to
give this notice. Our interpretation of the terms and conditions
of this prospectus, the letter of acceptance and transmittal and
the notice of guaranteed delivery will be final and binding.
No fee or commission will be payable by White Knight
shareholders who deliver their shares directly to the depositary
or utilizes the facilities of a soliciting dealer to accept the
offer.
The offerors reserve the right, in accordance with applicable
law, to permit a White Knight shareholder to accept the offer in
a manner other than as set out above.
Acceptance
for Purchase of, and Payment for, Deposited White Knight Common
Shares
If all conditions described in the section entitled
“Conditions of the Offer” on page 42 of this
prospectus have been satisfied or waived by us at the expiry
time, all White Knight common shares that have been properly
deposited and not withdrawn will be required to be accepted for
purchase promptly following the expiry time and, in any event,
not later than 10 days after the expiry time. All White
Knight common shares accepted for purchase under the offer will
be paid for promptly and, in any event, within three business
days of having been accepted for purchase.
Subject to applicable law, we expressly reserve the right to
delay accepting for purchase and paying for any White Knight
common shares. No White Knight common shares properly tendered
in the offer will be accepted for purchase unless all White
Knight common shares then properly tendered in the offer are
accepted for purchase.
White Knight common shares properly deposited and not withdrawn
in the offer will be deemed to have been accepted for purchase
and accepted for payment if, as and when we give written notice
or other communication confirmed in writing to the depositary at
its principal office in Toronto to that effect.
Canadian Exchange Co. will pay for White Knight common shares
properly tendered in the offer and not withdrawn by providing
the depositary with certificates for exchangeable shares, as
applicable, for transmittal to depositing shareholders. Under no
circumstances will interest accrue or be paid to persons
depositing White Knight common shares by any of us, Canadian
Exchange Co. or the depositary, regardless of any delay in
making payment for those shares.
Fractional shares will not be issued in the offer. Instead, the
number of exchangeable shares to be issued to each shareholder
will be rounded up (if the fractional interest is 0.5 or more)
or down (if the fractional interest is less than 0.5) to the
next whole number. For all rounding purposes, all White Knight
common shares deposited by a shareholder will be aggregated.
The depositary will act as the agent of the shareholders who
have properly deposited White Knight common shares under the
offer for the purposes of receiving payment under the offer and
transmitting that payment to those
47
shareholders, and receipt of payment by the depositary will be
deemed to constitute receipt of payment by those shareholders
who have properly deposited White Knight common shares.
Settlement with each White Knight shareholder who has properly
deposited White Knight common shares under the offer will be
made by the depositary by forwarding a certificate representing
the exchangeable shares, as payment for White Knight common
shares accepted for purchase. Unless otherwise specified by the
shareholder in the letter of acceptance and transmittal, share
certificates will be issued in the name of the registered holder
of White Knight common shares so deposited and forwarded by
first class mail to the address specified in the letter of
acceptance and transmittal. If no address is specified, share
certificates will be sent to the address of the shareholder as
shown on the register of shareholders maintained by or on behalf
of White Knight. Share certificates mailed in accordance with
this paragraph will be deemed to be delivered and payment will
be deemed to be made at the time of mailing.
If the consideration payable in the offer is increased before
the expiry time, the increased consideration will be paid for
all White Knight common shares acquired in the offer, regardless
of whether those shares were deposited before that increase in
the consideration.
Power of
Attorney
The execution of a letter of acceptance and transmittal by a
shareholder irrevocably appoints Canadian Exchange Co. or its
designees as the true and lawful agent, attorney and attorney in
fact of that shareholder with respect to White Knight common
shares deposited and purchased under the offer, and with respect
to any and all stock dividends, securities, rights, warrants or
other interests or distributions accrued, declared, paid,
issued, transferred, made or distributed on or in respect of the
purchased White Knight common shares on or after
[ ], 2006. This appointment is
effective from and after the date the purchased common shares
are accepted for purchase and paid for under the offer, which we
refer to as the effective date. This appointment affords
Canadian Exchange Co. full power of substitution (such power of
attorney being coupled with an interest being irrevocable), in
the name and on behalf of the holder who deposited those White
Knight common shares, to:
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register, record, transfer and enter the transfer of the
purchased common shares and any other securities of White Knight
on the books of White Knight;
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vote, execute and deliver any instruments of proxy,
authorizations and consents in form and on terms satisfactory to
Canadian Exchange Co. in respect of any purchased common shares
and any or all other securities of White Knight, revoke any such
instrument, authorization or consent given prior to or after the
effective date, designate in any such instruments of proxy any
person(s) as the proxy or the proxy nominee(s) of the
shareholder in respect of those purchased common shares and
those other securities for all purposes;
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execute, endorse and negotiate any cheques or other instruments
representing any distribution payable to the holder; and
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exercise any and all other rights of a holder of purchased
common shares and any other securities.
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In addition, a White Knight shareholder who executes a letter of
acceptance and transmittal agrees, from and after the date on
which the purchased common shares are accepted for purchase and
paid for under the offer:
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not to vote any of the purchased common shares or other
securities at any meeting of holders of those securities:
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not to exercise any other rights or privileges attached to any
of these securities; and
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to deliver to Canadian Exchange Co. any and all instruments of
proxy, authorizations or consents received in respect of all
those securities.
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All prior proxies given by a holder of purchased common shares
with respect to those purchased common shares and to those other
securities shall be revoked at the date on which the purchased
common shares are accepted for purchase and paid for under the
offer and no subsequent proxies may be given by that holder with
respect to those purchased common shares or other securities.
48
Depositing
Shareholders’ Representations and Warranties
The deposit of White Knight common shares in the offer will
create and constitute a binding agreement between the applicable
shareholder and each of U.S. Gold and Canadian Exchange Co.
upon the terms and subject to the conditions of the offer,
including the shareholder’s representation and warranty
that:
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such shareholder has full power and authority to deposit, sell,
assign and transfer White Knight common shares (and any other
securities) being deposited and has not sold, assigned or
transferred or agreed to sell, assign or transfer any of such
White Knight common shares (and other securities) to any other
person;
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the shareholder owns White Knight common shares (and any other
securities) being deposited within the meaning of applicable
securities laws;
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the deposit of those White Knight common shares (and any other
securities) complies with applicable securities laws; and
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when those White Knight common shares (and any other securities)
are accepted for purchase and paid for under the offer, Canadian
Exchange Co. will acquire good title thereto free and clear of
all liens, restrictions, charges, encumbrances and claims.
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Return of
White Knight Common Shares
If any White Knight common shares tendered in the offer are not
accepted for purchase in the offer, or certificates are
submitted for more White Knight common shares than are properly
deposited, certificates for those White Knight common shares
that are not accepted for purchase (or were not properly
deposited) will be returned to the depositing White Knight
shareholder without expense to the shareholder as soon as
practicable after the expiry time or withdrawal or termination
of the offer by sending certificates representing White Knight
common shares not purchased by first class mail in the name of
and to the address specified by the shareholder in the letter of
acceptance and transmittal or, if such name or address is not so
specified, in the name and to the address as shown on the share
register maintained by or on behalf of White Knight.
Mail
Service Interruption
Notwithstanding any other provisions of this offer, the letter
of acceptance and transmittal and the notice of guaranteed
delivery, share certificates and other relevant documents will
not be mailed if we or Canadian Exchange Co. determine, in our
reasonable discretion, that delivery by mail may be delayed by a
disruption of mail service. White Knight shareholders entitled
to share certificates
and/or other
relevant documents that are not mailed for this reason may take
delivery thereof at the office of the depositary at which they
deposited their White Knight common shares until such time as we
have determined, in our reasonable discretion, that delivery by
mail will no longer be delayed. Notwithstanding the section
entitled “Acceptance for Purchase of, and Payment for,
Deposited Common Shares” on page 47 of this
prospectus, but subject to the section entitled “Notices
and Delivery” on page 49 of this prospectus, share
certificates and other relevant documents not mailed for this
reason will, subject to applicable law, be conclusively deemed
to have been delivered on the first day upon which they are
available for delivery at the office of the depositary at which
White Knight common shares were deposited. Notice of any such
determination by U.S. Gold shall be given to holders of
White Knight common shares in accordance with the section
entitled “Notices and Delivery” on page 49 of
this prospectus.
Notices
and Delivery
Except as otherwise provided in this offer, any notice that we
or Canadian Exchange Co. or the depositary may provide, give or
cause to be given under the offer will be deemed to have been
properly given if mailed to the registered holders of White
Knight common shares at their respective addresses appearing in
the registers maintained in respect of such White Knight common
shares and will be deemed to have been delivered and received on
the mailing date. These provisions shall apply notwithstanding
any accidental omission to provide or give notice to any one or
more holders of White Knight common shares and notwithstanding
interruption of mail service in Canada, the United States or
elsewhere following mailing. In the event of any interruption of
mail service, we intend to make reasonable efforts to
disseminate the notice by other means, such as publication.
Subject to the
49
approval of applicable regulatory authorities, in the event of
any interruption of mail service, any notice that we or Canadian
Exchange Co. or the depositary may provide, give or cause to be
given under the offer will be deemed to have been properly
provided or given to or received by holders of White Knight
common shares if: (i) it is given to the TSX-V for
dissemination through their facilities; (ii) it is
published once in the National Edition of The Globe and Mail or
The National Post; or (iii) it is given to the Canada
Newswire Service or Dow Jones Newswire.
Right to
Withdraw
Except as indicated herein or as otherwise required by
applicable law, deposits of White Knight common shares are
irrevocable. White Knight common shares tendered in the offer
may be withdrawn by or on behalf of the depositing shareholder
(unless otherwise required or permitted by applicable law):
(a) at any time before White Knight common shares have been
accepted for purchase by the offerors under the offer;
(b) if the White Knight common shares have not been paid
for by us or Canadian Exchange Co. within three business days
after having been accepted for purchase; or
(c) at any time before the expiration of 10 days from
the date upon which either:
(i) a notice of change relating to a change in the
information contained in the offer, as amended from time to
time, that would reasonably be expected to affect the decision
of a White Knight shareholder to accept or reject the offer
(other than a change that is not within the control of us,
Canadian Exchange Co. or our affiliates, unless it is a change
in a material fact relating to the shares of our common stock or
the exchangeable shares), in the event that such change occurs
at or before the expiry time or after the expiry time but before
the expiry of all rights of withdrawal in respect of the
offer; or
(ii) a notice of variation concerning a variation in the
terms of the offer (other than a variation consisting solely of
an increase in the consideration offered for White Knight common
shares where the expiry time is not extended for more than
10 days);
is mailed, delivered, or otherwise properly communicated, but
subject to abridgement of that period pursuant to such order or
orders as may be granted by applicable courts or securities
regulatory authorities and only if such deposited shares have
not been accepted for purchase by the offerors at the date of
the notice.
Notice of withdrawal of deposited White Knight common shares
must:
(i) be made by a method that provides the depositary with a
written or printed copy of such notice (which includes a
facsimile);
(ii) be made by or on behalf of the depositing shareholder;
(iii) be signed by or on behalf of the shareholder who
signed the letter of acceptance and transmittal that accompanied
White Knight common shares being withdrawn;
(iv) specify such shareholder’s identity, the number
of White Knight common shares to be withdrawn, the name of the
registered shareholder of, and the certificate number shown on
each certificate evidencing, White Knight common shares being
withdrawn; and
(v) be actually received by the depositary within the
applicable time specified above. Any signature in the withdrawal
notice must be guaranteed in the same manner as in the letter of
acceptance and transmittal.
Withdrawals may not be rescinded. Any White Knight common shares
withdrawn will be deemed not properly deposited for the purposes
of the offer, but may be re-deposited at any time on or prior to
the expiry time by following the applicable procedures described
in the section entitled “Manner of Acceptance” on
page 46 of this prospectus.
50
In addition to the foregoing withdrawal rights, White Knight
shareholders in certain provinces of Canada are entitled to
statutory rights of rescission in certain circumstances. See the
section entitled “Offerees’ Statutory Rights” on
page 93 of this prospectus.
Dividends
and Distributions
If, on or after the date of the offer, White Knight should
subdivide, consolidate or otherwise materially change any of its
common shares or its capitalization or disclose that it has
taken any such action, we may make such adjustments as we deem
appropriate to reflect such subdivision, consolidation or other
change in the purchase price and other terms of the offer
including (without limitation) the type of securities offered to
be purchased and the amounts payable therefor.
White Knight common shares acquired in the offer shall be
acquired free and clear of all encumbrances, together with all
rights and benefits arising therefrom including the right to any
and all cash and stock dividends, securities, rights, warrants
or other interests or distributions which may be accrued,
declared, paid, issued, distributed, made or transferred on or
in respect of such White Knight common shares and which are made
payable or distributable to the holders of those White Knight
common shares of record on a date on or after the date of the
offer. If White Knight should declare or pay any cash or stock
dividend or make any other distribution on, or issue any
securities, rights, warrants or other interests or distributions
in respect of, deposited White Knight common shares after the
date of the offer, such dividend, distribution or rights will be
received and held by the depositing White Knight shareholder for
the account of Canadian Exchange Co., and:
(i) in the case of cash dividends, distributions or
payments, the amount of the dividends, distributions or payments
shall be received and held by the depositing shareholders for
their own account, and to the extent that such dividends,
distributions or payments do not exceed the value of the
consideration per White Knight common share payable by us or
Canadian Exchange Co. in the offer (as determined by us or
Canadian Exchange Co.), the consideration will be reduced by
that number of exchangeable shares having a value equal to the
amount of such dividend, distribution or payment;
(ii) in the case of non-cash dividends, distributions,
payments, rights or other interests, the whole of any such
non-cash dividend, distribution, payment, right or other
interest shall be delivered by depositing shareholders to the
depositary for the account of us or Canadian Exchange Co.,
accompanied by appropriate documentation of transfer; and
(iii) in the case of any cash dividends, distributions or
payments in an amount that exceeds the consideration per Common
Share payable by us or Canadian Exchange Co. (as determined by
us or Canadian Exchange Co.), the whole of any such cash
dividend, distribution or payment shall be received and held by
the depositing shareholders for the account of us or Canadian
Exchange Co. and shall be required to be promptly remitted and
transferred by the depositing shareholders to the depositary for
the account of us or Canadian Exchange Co., accompanied by
appropriate documentation of transfer.
Pending such remittance (in the case of (ii) and
(iii) above), we or Canadian Exchange Co. will be entitled
to all rights and privileges as owner of any such dividend,
distribution, payment, right or other interest and may withhold
all of the exchangeable shares, as applicable, otherwise
issuable by us or Canadian Exchange Co. to the non-remitting
shareholder in the offer or deduct from the number of
exchangeable shares with a value equal to the amount or value
equal to the amount or value of the dividend, distribution,
payment right or other interest, as determined by us or Canadian
Exchange Co. in our sole discretion.
Market
Purchases
Neither we nor Canadian Exchange Co. will acquire beneficial
ownership of White Knight common shares while the offer is
outstanding, other than in the offer.
Other
Terms
We reserve the right to transfer to one or more of our
affiliates the right to purchase all or any portion of White
Knight common shares tendered in the offer, but any such
transfer will not relieve us or Canadian Exchange Co. of
51
our and its obligations under the offer and will in no way
prejudice the rights of persons depositing White Knight common
shares to receive payment for White Knight common shares validly
deposited and accepted for payment in the offer.
No broker, dealer or other person has been authorized to give
any information or to make any representation or warranty on
behalf of us or Canadian Exchange Co. or any of our affiliates
in connection with the offer other than as contained in the
offer, and, if any such information, representation or warranty
is given or made, it must not be relied upon as having been
authorized.
The provisions of this prospectus, together with the letter of
acceptance and transmittal and the notice of guaranteed delivery
accompanying this prospectus collectively comprise the terms and
conditions of the offer.
We will determine in our reasonable discretion all questions
relating to the interpretation of this prospectus, the letter of
acceptance and transmittal and the notice of guaranteed
delivery, the validity (including time of receipt) of any
acceptance of the offer and any withdrawal of White Knight
common shares, including, without limitation, the satisfaction
or non-satisfaction of any condition, the validity, time and
effect of any deposit of White Knight common shares or notice of
withdrawal of White Knight common shares, and the due completion
and execution of the letter of acceptance and transmittal. Our
determination of such matters shall be final and binding for all
purposes. We and Canadian Exchange Co. each reserve the right to
waive any defect in acceptance with respect to any particular
White Knight common share or any particular shareholder. There
shall be no obligation on us, Canadian Exchange Co., the
soliciting dealers or the depositary to give notice of any
defects or irregularities in any acceptance or notice of
withdrawal and no liability shall be incurred by any of them for
failure to give any such notification.
This document does not constitute an offer or a solicitation to
any person in any jurisdiction in which such offer or
solicitation is unlawful. The offer is not being made to, nor
will deposits be accepted from or on behalf of, shareholders in
any jurisdiction in which the making or acceptance of the offer
would not be in compliance with the laws of any such
jurisdiction. However, we and Canadian Exchange Co. may, in our
and their sole discretion, take such action as we may deem
necessary to extend the offer to White Knight shareholders in
any such jurisdiction.
Dissenters’
Rights
No dissenters’ rights are available in connection with the
offer. However, any subsequent acquisition transaction may
result in shareholders having the right to dissent and demand
payment of the fair value of their White Knight common shares
under Section 238 of the BCBCA. If the statutory procedures
are complied with, this right could lead to a judicial
determination of the fair value required to be paid to such
dissenting shareholders for their White Knight common shares.
The fair value of White Knight common shares so determined could
be more or less than the amount paid per common share in the
subsequent acquisition transaction or the offer. See the section
entitled “The Offer — Subsequent Acquisition
Transaction” on page 52 of this prospectus.
Judicial
Developments
Prior to the pronouncement of Canadian OSC
Rule 61-501
(or its predecessor OSC Policy 9.1) and AMF
Regulation Q-27,
Canadian courts had, in a few instances, granted preliminary
injunctions to prohibit transactions which constituted going
private transactions or business combinations within the meaning
of OSC
Rule 61-501
and AMF
Regulation Q-27.
The offerors have been advised that more recent notices and
judicial decisions indicate a willingness to permit business
combinations to proceed subject to compliance with requirements
intended to ensure procedural and substantive fairness to the
minority shareholders.
Shareholders should consult their legal advisors for a
determination of their legal rights with respect to any
transaction that may constitute a business combination or going
private transaction.
Subsequent
Acquisition Transaction
If Canadian Exchange Co. accepts for purchase and pays for White
Knight common shares validly tendered in the offer, we or
Canadian Exchange Co. intend to take any necessary or advisable
actions, including causing a special meeting of White Knight
shareholders to be called to consider a transaction that would
enable us or an
52
affiliate to acquire all White Knight common shares not acquired
in the offer, or a subsequent acquisition transaction. We or
Canadian Exchange Co. currently intend to cause a special
meeting of White Knight shareholders to be called following the
completion of the offer to consider a statutory arrangement
whereby: (i) White Knight warrants would be exchangeable
for warrants to purchase exchangeable shares of Canadian
Exchange Co. at the rate of 0.35 of an exchangeable share for
each share of White Knight that the warrant holders had the
right to purchase; (ii) White Knight shareholders who did
not deposit their White Knight common shares under the offer
would receive exchangeable shares in the same exchange ratio
offered in the offer; and (iii) the White Knight stock
option plan would be assumed or adopted by us or Canadian
Exchange Co. The timing and details of any subsequent
acquisition transaction will depend on a number of factors,
including the number of White Knight common shares acquired in
the offer and the terms of White Knight’s warrant
indentures and stock option plan, and there can be no assurance
that any subsequent acquisition transaction will be proposed, or
if proposed, effected.
A subsequent acquisition transaction described above may
constitute a “business combination” or a “going
private transaction” within the meaning of certain
applicable Canadian securities legislation, including OSC
Rule 61-501
and AMF
Regulation Q-27.
Under OSC
Rule 61-501
and AMF
Regulation Q-27,
subject to certain exceptions, a subsequent acquisition
transaction may constitute a “business combination” or
a “going private transaction” if it would result in
the interest of a holder or beneficial owner of White Knight
common shares being terminated without such holder’s or
beneficial owner’s consent, irrespective of the nature of
the consideration provided in substitution therefor. We expect
that any subsequent acquisition transaction relating to White
Knight common shares will be a “business combination”
or a “going private transaction” under OSC
Rule 61-501
and AMF
Regulation Q-27.
In certain circumstances, the provisions of OSC
Rule 61-501
and AMF
Regulation Q-27
may also deem certain types of subsequent acquisition
transactions to be “related party transactions.”
However, if the subsequent acquisition transaction is a
“business combination” or a “going private
transaction” carried out in accordance with OSC
Rule 61-501
and AMF
Regulation Q-27
or an exemption therefrom, the “related party
transaction” provisions therein do not apply to such
transaction. We intend to carry out any such subsequent
acquisition transaction in accordance with OSC
Rule 61-501
and AMF
Regulation Q-27,
or any successor provisions, or exemptions therefrom, such that
the “related party transaction” provisions of OSC
Rule 61-501
and AMF
Regulation Q-27
will not apply to such subsequent acquisition transaction.
OSC
Rule 61-501
and AMF
Regulation Q-27
provide that unless exempted, a corporation proposing to carry
out a business combination or a going private transaction is
required to prepare a formal valuation of White Knight common
shares (and, subject to certain exceptions, any non-cash
consideration being offered therefor) and provide to the holders
of White Knight common shares a summary of such valuation or the
entire valuation. In connection therewith, we intend to rely on
any exemption then available or to seek waivers pursuant to OSC
Rule 61-501
and AMF
Regulation Q-27
exempting us or White Knight or their affiliates, as
appropriate, from the requirement to prepare a valuation in
connection with any subsequent acquisition transaction. An
exemption is available under OSC
Rule 61-501
and AMF
Regulation Q-27
for certain business combinations or going private transactions
completed within 120 days after the expiry of a formal
take-over bid where the consideration under such transaction is
at least equal in value to and is in the same form as the
consideration that tendering shareholders were entitled to
receive in the take-over bid, provided that certain disclosure
is given in the take-over bid disclosure documents. We currently
intend that the consideration offered under any subsequent
acquisition transaction proposed by us would be equal in value
to, and in the same form as, the consideration offered under the
offer and that such subsequent acquisition transaction will be
completed no later than 120 days after the expiry date and,
accordingly, we expect to rely on these exemptions.
Depending on the nature and the terms of the subsequent
acquisition transaction, the provisions of the BCBCA may require
the approval of at least
662/3%
of the votes cast by holders of the outstanding White Knight
common shares at a meeting duly called and held for the purpose
of approving a subsequent acquisition transaction. OSC
Rule 61-501
and AMF
Regulation Q-27
would in effect also require that, in addition to any other
required securityholder approval, in order to complete a
business combination or a going private transaction, the
approval of a majority of the votes cast by “minority”
holders of White Knight common shares must be obtained unless an
exemption is available or discretionary relief is granted by the
OSC and the AMF. In relation to any subsequent acquisition
transaction, the “minority” holders will be, subject
to any available exemption or discretionary relief
53
granted by the OSC and the AMF, as required, all White Knight
shareholders other than us, any “related party” of
ours or any other “interested party” (within the
meaning of OSC
Rule 61-501
and AMF
Regulation Q-27)
including any of our directors or senior officers, affiliate or
insiders or any of our directors or senior officers or any
person acting jointly or in concert with any of the foregoing.
OSC
Rule 61-501
and AMF
Regulation Q-27
also provide that we may treat White Knight common shares
acquired pursuant to the offer as “minority” shares
and vote them, or consider them voted, in favor of a subsequent
acquisition transaction that is a business combination or a
going private transaction, provided that, among other things:
(a) the business combination or going private transaction
is completed not later than 120 days after the expiry date;
(b) the consideration for each security in the subsequent
acquisition transaction is at least equal in value to and in the
same form as the consideration paid pursuant to the offer; and
(c) the White Knight shareholder who tendered such White
Knight common shares to the offer was not (i) acting
jointly or in concert with us in respect of the offer,
(ii) a direct or indirect party to any “connected
transaction” (as defined in OSC
Rule 61-501)
to the offer, or (iii) entitled to receive, directly or
indirectly, in connection with the offer, a “collateral
benefit” (as defined in OSC
Rule 61-501)
or consideration per security that is not identical in amount
and form to the entitlement of shareholders in Canada. We
currently intend that the consideration offered under any
subsequent acquisition transaction proposed by it would be equal
in value to, and in the same form as, the consideration offered
under the offer and that such subsequent acquisition transaction
will be completed no later than 120 days after the expiry
date and, accordingly, the offerors intend to cause White Knight
common shares acquired pursuant to the offer to be voted in
favor of such transaction and to be counted as part of any
minority approval required in connection with any such
transaction.
In addition, under OSC
Rule 61-501
and AMF
Regulation Q-27,
if, following the offer, U.S. Gold and our affiliates are
the registered holders of 90% or more of White Knight common
shares at the time the business combination or going private
transaction is initiated, the requirement for minority approval
under OSC
Rule 61-501
and AMF
Regulation Q-27
would not apply to the transaction if an enforceable right to
dissent and seek fair value or a substantially equivalent right
is made available to the minority White Knight shareholders.
Any subsequent acquisition transaction may also result in White
Knight shareholders having the right to dissent and demand
payment of the fair value of their White Knight common shares
under Section 238 of the BCBCA. If the statutory procedures
are complied with, this right could lead to a judicial
determination of the fair value required to be paid to such
dissenting shareholders for their White Knight common shares.
The fair value of White Knight common shares so determined could
be more or less than the amount paid per White Knight common
share pursuant to the subsequent acquisition transaction or the
offer.
The tax consequences to a White Knight shareholder of a
subsequent acquisition transaction may differ from the tax
consequences to such White Knight shareholder of accepting the
offer. See the section entitled “Material Canadian Federal
Income Tax Considerations” on page 64 of this
prospectus. Shareholders should consult their legal advisors for
a determination of their legal rights with respect to a
subsequent acquisition transaction if and when proposed.
The timing and details of any subsequent acquisition transaction
involving White Knight will necessarily depend on a variety of
factors, including the number of White Knight common shares
acquired pursuant to the offer. Although we currently intend to
propose a subsequent acquisition transaction on the same terms
as the offer, it is possible that, as a result of the number of
White Knight common shares acquired under the offer, delays in
our ability to effect such a transaction, information hereafter
obtained by us, changes in general economic, industry,
regulatory or market conditions or in the business of White
Knight, or other currently unforeseen circumstances, such a
transaction may not be so proposed or may be delayed or
abandoned. We expressly reserve the right not to propose a
subsequent acquisition transaction involving White Knight.
Rule 13e-3
under the Exchange Act is applicable to certain
“going-private” transactions in the United States and
may under certain circumstances be applicable to a subsequent
acquisition transaction. We believe that Rule
l3e-3 would
not be applicable to a subsequent acquisition transaction unless
the subsequent acquisition transaction is consummated more than
one year after the termination of the offer. If applicable,
Rule 13e-3
would require, among other things, that certain financial
information concerning White Knight and certain information
relating to
54
the fairness of the subsequent acquisition transaction, and the
consideration offered to minority shareholders be filed with the
SEC and distributed to minority shareholders before the
consummation of any such transaction.
The foregoing discussion of certain provisions of the Exchange
Act is not a complete description of the Exchange Act or such
provisions thereof and is qualified in its entirety by the
reference to the Exchange Act.
If we are unable or decide not propose a subsequent acquisition
transaction, or propose a subsequent acquisition transaction but
cannot obtain any required approvals or exemptions promptly, we
will evaluate other alternatives. These alternatives could
include, to the extent permitted by applicable law, purchasing
additional White Knight common shares in the open market, in
privately negotiated transactions, in another take-over bid or
exchange offer or otherwise, or from White Knight, or taking no
actions to acquire additional White Knight common shares.
Subject to applicable law, any additional purchases of White
Knight common shares could be at a price greater than, equal to,
or less than the price to be paid for White Knight common shares
under the offer and could be for cash, securities
and/or other
consideration. Alternatively, we may take no action to acquire
additional White Knight common shares, or may even sell or
otherwise dispose of any or all White Knight common shares
acquired in the offer, on terms and at prices then determined by
us, which may vary from the price paid for the White Knight
common shares. The failure to consummate the subsequent
acquisition transaction could adversely affect the U.S. tax
treatment of shareholders of White Knight who exchange their
White Knight shares for exchangeable shares in the offer.
55
BACKGROUND
TO THE OFFER
On June 28, 2005, Robert R. McEwen, prior to the time he
became our Chairman and Chief Executive Officer, purchased
5,681,705 White Knight common shares representing a 10.5%
ownership in White Knight. Mr. McEwen purchased such White
Knight common shares in a private purchase from Goldcorp Inc.
for an average purchase price of Cdn$0.81 per share.
On July 5, 2005, Mr. McEwen purchased 2,270,700 White
Knight common shares representing a 4.2% ownership in White
Knight. Following such purchase, Mr. McEwen held 7,952,427
White Knight common shares (or 14.7% of the outstanding White
Knight common shares). Mr. McEwen purchased such White
Knight common shares on the TSX-V for an average purchase price
of Cdn$0.91 per Common Share.
In July, 2005, Mr. McEwen was given a tour of certain of
the White Knight properties in Nevada by John M. Leask, the
Chairman of White Knight, Gordon P. Leask, a director of White
Knight, and certain members of White Knight management. During
this tour, Mr. McEwen engaged in preliminary discussions
with Messrs. Leask and Leask about consolidating the
companies’ properties located along the Cortez Trend in
Nevada.
On July 22, 2005, Mr. McEwen purchased 1,600,000 White
Knight common shares representing a 2.9% ownership in White
Knight. Following such purchase, Mr. McEwen held 9,552,427
White Knight common shares of White Knight (or 16.1% of the
outstanding White Knight common shares as of the date of this
prospectus). Mr. McEwen purchased such White Knight common
shares on the TSX-V for an average purchase price of
Cdn$1.26 per common share.
On August 11, 2005, Mr. McEwen, Ian Ball and Stefan
Spears, each a consultant to U.S. Gold, met with
Messrs. Leask and Leask and Brian Edgar, a director of
White Knight, at our office in Toronto, Ontario. On
November 16, 2005, Messrs. McEwen and Ball met with
Mr. John M. Leask and William Rand, an advisor to White
Knight and partner of Mr. Edgar, in Vancouver, British
Columbia. In addition, during the summer and fall of 2005,
Mr. McEwen and the representatives of White Knight engaged
in several telephone conversations. During these meetings and
telephone conversations, the representatives of each company
continued these earlier discussions about consolidating the
companies’ properties located along the Cortez Trend in
Nevada.
On March 5, 2006, we announced that we intended to acquire
in stock transactions, all of the outstanding White Knight
common shares of White Knight, Nevada Pacific, Coral Gold and
Tone Resources, each of which is exploring in the Cortez Trend
in Nevada. These proposals were made in letters sent on
March 5, 2006 by Mr. McEwen to the chief executive
officers of each of the target companies. We announced that our
proposal represented a premium of 25% to the closing stock
prices of each company’s shares on March 3, 2006 and
that our board of directors had formed a special committee to
evaluate the terms of each of the transactions in recognition
of, among other things, the equity interests of Mr. McEwen
in each of the four companies.
On March 6, 2006, White Knight announced that management
was evaluating our proposed offer.
On March 22, 2006, White Knight announced that the board of
directors of White Knight had engaged Genuity Capital Markets to
act as financial advisor, to provide a fairness opinion and to
assist in responding to the offer.
On March 27, 2006, our special committee of the board
retained Wellington West Capital Markets Inc. to provide its
opinion as to the fairness of the offer, from a financial point
of view, to our shareholders. Based upon and subject to the
matters described in their fairness opinion, Wellington West
Capital Markets Inc. concluded that, as at April 6, 2006,
the offer was fair, from a financial point of view, to our
shareholders.
During the week of April 24, 2006, there were a number of
discussions among Genuity, GMP Securities L.P. and Canadian
counsel to U.S. Gold and White Knight regarding, among
other things, the proposed timing and structure of this offer
and whether U.S. Gold would be prepared to enter into a
support agreement with White Knight in relation to the offer. We
responded through GMP that we would proceed with the offer as
originally contemplated.
On May 1, 2006, we announced the commencement of the offer.
We also announced that it intended to make formal offers to the
shareholders of Tone Resources, Coral Gold and Nevada Pacific
based on the same per share
56
exchange ratios announced by us on March 5, 2006 as soon as
practicable following the completion by each of the foregoing
companies of formal valuations required under applicable law.
On May 16, 2006, White Knight announced that it had filed
its directors’ circular with Canadian securities
authorities in response to the offer and mailed the
directors’ circular to holders of White Knight issued and
outstanding common shares. At the time, the board of directors
of White Knight made no recommendations to shareholders
regarding the offer. White Knight stated that while its board of
directors was generally supportive of the business proposition
of consolidating the land positions within the Cortez Trend,
aggressively pursuing exploration programs, the enhanced trading
liquidity and the stronger cash position for White Knight, based
on advice from its financial and legal advisors, the board of
directors would reserve judgment until issues were resolved with
respect to the timing of the offer, particularly with respect to
the timing of receiving appropriate clearances from the SEC and
the completion of satisfactory due diligence on U.S. Gold.
On June 5, 2006, we announced that, in view of certain
United States securities regulatory requirements, we had
terminated the offer to purchase White Knight common shares. We
stated that we intended to commence the strategic offers by
mailing new offer documents as soon as regulatory requirements
could be satisfied, including the receipt of necessary
information from each of the target companies.
During the months of August and September 2006, our management,
with the assistance of our financial and legal advisors,
obtained and analyzed certain publicly available information
regarding White Knight to evaluate the proposed acquisition of
White Knight. Management also worked with our financial and
legal advisors to consider various structuring and transaction
alternatives for the strategic offers.
On September 28, 2006, the law firm of Hogan &
Hartson L.L.P., our United States securities counsel, sent a
written request to White Knight’s outside counsel to
provide us and their advisors with certain due diligence
materials, including financial statements for the most recent
completed fiscal period, and requested that White Knight
instruct their independent auditors to provide a consent to the
inclusion of White Knight’s financial statements in this
proxy statement. On October 3, 2006, U.S. Gold sent a
follow-up
request to White Knight requesting the same information and
consent. Similar
follow-up
requests were made by our Canadian counsel.
57
INTENTIONS
OF THE OFFERORS
Strategic
Rationale for the Offer
We are engaged in the exploration for gold and other precious
metals. We hold a 100% interest in the Tonkin Springs gold
property in Eureka County, Nevada, subject to paramount title in
the United States. We have commenced an extensive two-year,
property-wide, integrated exploration program at the Tonkin
Springs gold property, focusing on evaluation of the structural
and stratigraphic setting of the project. Our objectives are to
expand the known mineralization and to discover mineralization
in areas previously untested, targeting deeper mineralization.
U.S. shareholders are cautioned that, although National
Instrument
43-101
requires disclosure in Canada of measured, indicated and
inferred mineral resources, the SEC does not recognize these
classification categories for U.S. reporting purposes.
White Knight is an exploration company active in identifying and
generating mineral prospects. White Knight has been exploring
for Carlin-type gold deposits in Nevada since 1993. Its
portfolio includes 18 properties (over 68,000 acres), 15 of
which are located in the Cortez Trend. Five are joint ventures
subject to earn-in agreements with the remainder 100% held by
White Knight (with White Knight having a net ownership position
of between 46,000 and 50,000 acres).
In addition to filing this prospectus, we expect to commence
take-over bids for all of the outstanding common shares of Coral
Gold, Nevada Pacific and Tone Resources as soon as practicable
following the completion by Coral Gold, Nevada Pacific and Tone
Resources of formal valuations required under applicable law. We
have also filed registration statements to register the
exchangeable shares, and shares of our common stock issuable
upon exchange of the exchangeable shares, which we intend to
issue to the holders of the other target companies in these
separate strategic offers. Like White Knight, each of the other
target companies is an exploration stage company engaged in the
acquisition and exploration of mineral properties primarily
located on the major gold trends in the north-central region of
Nevada and has mineral exploration properties that are adjacent
to or near our Tonkin Springs gold property.
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Coral Gold. Since Coral Gold’s 2002
fiscal year, Coral Gold has made aggregate principal
expenditures of Cdn$2,498,084 on the Robertson Mining Claims in
Nevada. We intend to offer to purchase all of the outstanding
shares of Coral Gold on the basis of 0.63 of an exchangeable
share for each common share of Coral Gold. Coral Gold’s
common shares are listed on the TSX-V under the symbol
“CGR-V” and on the OTCBB under the symbol
“CGREF.”
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Nevada Pacific. Nevada Pacific owns an
exploratory property portfolio covering approximately
890 square miles of mineral rights in Mexico, including the
Magistral Gold Mine, ten properties in Nevada and one in Utah.
The Nevada property portfolio covers approximately
85 square miles, including portions of two significant gold
producing regions: the Battle Mountain/Eureka Trend/Cortez Trend
and the Carlin Trend. We intend to offer to purchase all of the
outstanding shares of Nevada Pacific on the basis of 0.23 of an
exchangeable share for each common share of Nevada Pacific.
Nevada Pacific’s common shares are listed on the TSX-V
under the symbol “NPG-V.”
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Tone Resources. Tone Resources is focused on
gold and holds substantially all interests in eight projects (10
claim groups) in Elko, Eureka, Lander, and Pershing counties in
Nevada. All of Tone Resource’s properties are located near
infrastructure facilities of currently producing gold mines. We
intend to offer to purchase all of the outstanding shares of
Tone Resources on the basis of 0.26 of an exchangeable share for
each common share of Tone Resources. Tone Resources’ common
shares are listed on the TSX-V under the symbol
“TNS-V” and quoted on the Pink Sheets in the United
States under the symbol “TONRF.”
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If all of the strategic offers are successfully completed, the
voting power of our shareholders will be diluted and it is
expected that the shareholders of White Knight, Coral Gold,
Nevada Pacific and Tone Resources will own, in the aggregate,
approximately 48% of the outstanding shares and voting power of
U.S. Gold (or approximately 47% on a fully-diluted basis).
58
We believe that there are significant benefits to bringing
together U.S. Gold, White Knight, Coral Gold, Nevada
Pacific and Tone Resources, including that the combined company
will have:
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A larger land position within the Cortez Trend and a larger
exploration program. We hold a 100% interest in
the Tonkin Springs exploration gold property in Eureka County,
Nevada, subject to paramount title in the United States. This
property consists of approximately 36 square miles of
unpatented lode mining claims and millsite claims located on the
Battle Mountain-Eureka Trend, approximately 45 miles
northwest of the town of Eureka, in north-central Nevada. Upon
successful completion of the strategic offers, our land position
would increase by approximately 344% to approximately
160 square miles. Over the next two years, we have planned
400,000 feet of exploration drilling on our Tonkin Springs
exploration gold property at a cost of $30 million. If the
strategic offers are successfully completed, we intend to
aggressively explore the properties of White Knight, Coral Gold,
Nevada Pacific and Tone Resources over the next two years to
coincide with our exploration program at our Tonkin Springs
exploration gold property.
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A stronger cash position and reduced costs. On
February 22, 2006, we completed a private placement of
16,700,000 subscription receipts, with gross proceeds to us of
$75,150,000. Of the intermediate exploration companies currently
exploring for gold in Nevada, we have one of the strongest cash
positions. Successful completion of one or more of the strategic
offers will also give us access to any additional cash resources
of the companies acquired. Due to the strategic locations in
Nevada of the assets of each of Nevada Pacific, Coral Gold, Tone
Resources and White Knight and the elimination of redundant fees
and costs, we expect that U.S. Gold would realize lower
total costs than if each company were to remain a separate
entity.
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Enhanced trading liquidity and better market
focus. U.S. Gold and Canadian Exchange Co.
expect that the successful completion of the acquisition of the
target companies would result in increased market capitalization
and trading liquidity of the combined company, resulting in
better market focus. Because of the increased market
capitalization and liquidity of the combined company, we expect
that the combined company will have greater access to equity and
debt capital markets than U.S. Gold currently does, and
greater appeal to institutional investors. It is a condition to
the strategic offers that the shares of our common stock shall
have been approved for listing on the AMEX and the exchangeable
shares shall have been approved for listing on the TSX and AMEX.
We expect that the enhanced access to the equity and debt
capital markets resulting from the acquisition of the target
companies would provide management of the combined company
greater flexibility to execute its business plan under various
financial market conditions.
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Additional technical expertise. We believe
that one or more of Nevada Pacific, Coral Gold, Tone Resources
and White Knight has quality employees with good technical
expertise. We hope to retain at least some of these key
employees following the successful completion of the proposed
acquisitions to assist in our business and operations going
forward.
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Upon successful completion of the strategic offers, the combined
company would strive to become the premier exploration company
in Nevada. However, you should be aware that the successful
completion of any or all of our offers to purchase all of the
outstanding shares of Coral Gold, Nevada Pacific and Tone
Resources is not a condition of the offer.
Purpose
of the Offer
We are making the offer to acquire, directly or indirectly, all
of the outstanding White Knight common shares. If the conditions
of the offer are satisfied or waived and we accept for purchase
and pay for White Knight common shares validly tendered pursuant
to the offer, we currently intend to acquire, directly or
indirectly, all of the outstanding White Knight common shares in
accordance with applicable law by way of a subsequent
acquisition transaction. See the section entitled “The
Offer — Subsequent Acquisition Transaction” on
page 52 of this prospectus.
59
Plans for
White Knight
Upon successful completion of the offer and any subsequent
acquisition transaction, we intend to take appropriate actions
to optimize and rationalize the combined entities’ assets,
operations, management, personnel, general and administrative
functions and corporate structure.
If permitted by applicable law, subsequent to the completion of
the offer and, if necessary, any subsequent acquisition
transaction, we intend to delist White Knight common shares from
the TSX-V and cause White Knight to cease to be a reporting
issuer under the securities laws of the applicable jurisdictions.
60
INVESTMENT
CONSIDERATIONS
We believe that the consideration offered for White Knight
common shares under the offer is fair. You are urged to consider
the following factors in making your decision to accept the
offer.
The
consideration offered under the offer provides a significant
premium for White Knight’s shareholders.
We are offering to purchase, upon the terms and subject to the
conditions of the offer, all of the outstanding White Knight
common shares, including any White Knight common shares that may
be issued after the date of the offer and prior to the expiry
time, on the basis of 0.35 of an exchangeable share for each
White Knight common share. The exchangeable shares will, under
the circumstances described in this prospectus, be exchangeable
for shares of our common stock on a
one-for-one
basis. Based on the closing prices of White Knight common shares
on the TSX-V and shares of our common stock on the OTCBB on
March 3, 2006, the last trading day prior to the
announcement of U.S. Gold’s proposed business
combination with White Knight, this exchange ratio represented a
premium of approximately 25% to shareholders over the trading
price prior to the announcement of the offer. Based on the
closing prices of White Knight common shares on the TSX-V and
the shares of common stock of U.S. Gold on the OTCBB on
October 23, 2006, the most recent trading day practicable
before the filing of this prospectus, this exchange ratio
represented a premium of approximately 9.7% to shareholders over
the trading price before the filing of this prospectus.
We
believe that there are significant benefits to bringing together
U.S. Gold with four other companies exploring in the Cortez
Trend.
In addition to this prospectus, we expect to commence take-over
bids for all of the outstanding common shares of Coral Gold,
Nevada Pacific and Tone Resources as soon as practicable
following the completion by Coral Gold, Nevada Pacific and Tone
Resources of formal valuations required under applicable law.
Like White Knight, each of these companies is exploring in the
Cortez Trend in Nevada and has mineral exploration properties
that are adjacent to or near U.S. Gold’s Tonkin
Springs gold property. See the section entitled “Intentions
of the Offerors — Strategic Rationale for the
Offer” on page 58 of this prospectus. We believe that
there are significant benefits to bringing together
U.S. Gold, White Knight, Coral Gold, Nevada Pacific and
Tone Resources, including that the combined company will have:
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a larger land position within the Cortez Trend and a larger
exploration program;
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a stronger cash position and reduced costs;
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enhanced trading liquidity and better market focus; and
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greater technical expertise.
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Upon successful completion of the strategic offers, the combined
company would strive to become the premier exploration company
in Nevada. However, you should be aware that the successful
completion of any or all of our offers to purchase all of the
outstanding shares of Coral Gold, Nevada Pacific and Tone
Resources is not a condition of the offer.
The
liquidity and trading price of White Knight’s common shares
may be adversely affected if we are not successful in acquiring
100% of White Knight’s common shares.
Our acquisition of any White Knight common shares under the
offer will reduce the number of White Knight common shares that
might otherwise trade publicly, as well as the number of
shareholders. Depending on the number of shareholders depositing
and the number of White Knight common shares acquired by us
under the offer, following the completion of the offer and prior
to any subsequent acquisition transaction, the liquidity and
market value of the remaining White Knight common shares held by
the public would likely be adversely affected. After the
purchase of White Knight common shares under the offer, it may
be possible for White Knight to take steps towards the
elimination of any applicable public reporting requirements
under applicable securities legislation in any province in which
it has an insignificant number of shareholders.
61
The White
Knight common shares may fail to meet the criteria for continued
listing on the TSX-V even if the offerors are not successful in
acquiring 100% of White Knight common shares.
The rules and regulations of the TSX-V establish certain
criteria that, if not met, could lead to the delisting of White
Knight common shares from the TSX-V. Among such criteria are the
number of White Knight shareholders, the number of White Knight
common shares publicly held and the aggregate market value of
White Knight common shares publicly held. Depending on the
number of White Knight shareholders depositing White Knight
common shares and the number of White Knight common shares
acquired by us under the offer, it is possible that, following
the completion of the offer and prior to any subsequent
acquisition transaction, White Knight common shares would fail
to meet the criteria for continued listing on the TSX-V. If this
were to happen, White Knight common shares could be delisted and
this could, in turn, adversely affect the market or result in a
lack of an established market for such shares. We intend to
cause White Knight to apply to delist White Knight common shares
from the TSX-V as soon as practicable after the successful
completion of the offer and any subsequent acquisition
transaction.
RELATIONSHIPS
BETWEEN THE OFFERORS AND WHITE KNIGHT
Beneficial
Ownership of and Trading in Securities of White Knight
As at the date hereof, Robert R. McEwen, our Chairman and Chief
Executive Officer, beneficially owns 9,552,427 White Knight
common shares, which represents approximately 16.1% of the
outstanding White Knight common shares as of October 19,
2006, or 14.5% of the outstanding White Knight common shares on
a fully-diluted basis. Other than such securities, no securities
of White Knight, are owned beneficially, directly or indirectly,
nor is control or direction exercised over any securities of
White Knight, by our directors or executive officers or, to the
knowledge of such directors and executive officers after
reasonable inquiry, by any of our associates or affiliates, by
any associate of our directors or executive officers or by any
person or company owning, directly or indirectly, more than 10%
of any class of our securities. No person is acting jointly or
in concert with us and Canadian Exchange Co. with respect to the
offer.
Except for the purchases by Mr. McEwen of White Knight
common shares described in the section entitled “Background
to the Offer” on page 56 of this offer, no securities
of White Knight have been purchased or sold during the
12-month
period preceding the date of the offer by the offerors or the
offerors’ directors or executive officers or, to the
knowledge of such directors and executive officers after
reasonable inquiry, by any of the offerors’ associates or
affiliates, by any associate of the offerors’ directors or
executive officers or by any person or company owning, directly
or indirectly, more than 10% of any class of securities of the
offerors.
Commitments
to Acquire Securities of White Knight
Except in connection with the offer, neither of us, Canadian
Exchange Co. nor any of our directors or executive officers, nor
to the knowledge of our directors and executive officers after
reasonable inquiry, any of our associates or affiliates, any
associate of any of our directors or executive officers or any
person or company owning, directly or indirectly, more than 10%
of any class of our securities has entered into any commitments
to acquire any equity securities of White Knight.
Arrangements,
Agreements or Understandings
Except as described in this prospectus or in the attached
appendices or documents, neither we nor, to the best of our
knowledge, any of our directors, executive officers or other
affiliates have any contract, arrangement, understanding or
relationship with any other person with respect to any
securities of White Knight, including, but not limited to, any
contract, arrangement, understanding or relationship concerning
the transfer or the voting of any securities, joint ventures,
loan or option arrangements, puts or calls, guaranties of loans,
guaranties against loss or the giving or withholding of proxies.
Except as described in the offer, there have been no contacts,
negotiations or transactions between us or, to the best of our
knowledge, any of our directors, executive officers or other
affiliates on the one hand, and White Knight or its affiliates,
on the other hand, relating to any merger, consolidation or
acquisition, a tender offer or other acquisition of securities,
an election of directors, or a sale or other transfer of a
material amount of assets. Neither we, nor, to the best of our
knowledge, any of the our directors, executive officers
62
or other affiliates has had any transaction with White Knight or
any of its executive officers, directors or affiliates that
would require disclosure under the rules and regulations of the
SEC applicable to the offer.
There are no arrangements or agreements made or proposed to be
made between us and any of the directors or executive officers
of White Knight and no payments or other benefits are proposed
to be made or given by us to such directors or executive
officers as compensation for loss of office or as compensation
for remaining in or retiring from office if the offer is
consummated.
MATERIAL
CHANGES AND OTHER INFORMATION
Except for the offer and as otherwise disclosed publicly by
White Knight, U.S. Gold is not aware of any information
which indicates that any material change has occurred in the
affairs of White Knight since the date of the last available
published financial statements of White Knight.
63
MATERIAL
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Fraser Milner Casgrain LLP, Canadian counsel
to U.S. Gold and Canadian Exchange Co., the following is,
at the date hereof, a summary of the material Canadian federal
income tax considerations applicable to shareholders who dispose
of their White Knight common shares pursuant to the offer and
who, for purposes of the Tax Act and at all relevant times, hold
their White Knight common shares and will hold any exchangeable
shares and shares of common shares of U.S. Gold as capital
property and deal at arm’s length with, and are not
affiliated with, U.S. Gold, Canadian Exchange Co., Alberta
ULC and White Knight.
The White Knight common shares, the exchangeable shares and the
shares of common stock of U.S. Gold will be considered to
be capital property to a holder thereof provided such securities
are not held in the course of carrying on a business of buying
and selling securities and such securities are not acquired in a
transaction considered to be an adventure in the nature of
trade. A Canadian resident holder of White Knight common shares
or exchangeable shares may in certain circumstances make an
irrevocable election under subsection 39(4) of the Tax Act
to have his or her White Knight common shares and exchangeable
shares and every other “Canadian security” (as defined
in the Tax Act) owned by such holder in the taxation year of
election and in all subsequent taxation years deemed to be
capital property. Where a shareholder makes an election under
section 85 of the Tax Act in respect of the disposition of
White Knight common shares, as described below, the exchangeable
shares received in exchange will not be Canadian securities for
this purpose.
This summary is not applicable to a shareholder: (i) that
is a “financial institution” (as defined in the Tax
Act for purposes of the
mark-to-market
rules); (ii) an interest in which is a “tax shelter
investment” (as defined in the Tax Act); or (iii) with
respect to whom U.S. Gold is or will be a “foreign
affiliate” within the meaning of the Tax Act.
This summary is based on the facts set out in this prospectus,
the current provisions of the Tax Act, the regulations
thereunder and counsel’s understanding of the current
published administrative policies and assessment practices of
the Canada Revenue Agency, or the CRA. This summary also takes
into account all proposed amendments to the Tax Act and the
regulations thereunder publicly announced by or on behalf of the
Minister of Finance (Canada) before the date of the offer
(“Tax Proposals”). There can be no assurance that any
such Tax Proposals will be implemented in their current form or
at all. This summary is not exhaustive of all possible Canadian
federal income tax considerations and, except as mentioned
above, does not otherwise take into account or anticipate
changes in the law, whether by judicial, governmental or
legislative action or decision, or changes in the administrative
policies or assessment practices of the CRA, nor does it take
into account provincial, territorial or foreign income tax
legislation or considerations, which may differ from the
Canadian federal income tax considerations described herein.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED
TO BE, AND SHOULD NOT BE CONSTRUED AS, LEGAL OR TAX ADVICE TO
ANY PARTICULAR SHAREHOLDER. ACCORDINGLY, SHAREHOLDERS ARE
ENCOURAGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX
CONSEQUENCES OF DISPOSING OF THEIR COMMON SHARES PURSUANT
TO THE OFFER AND ACQUIRING, HOLDING AND DISPOSING OF
EXCHANGEABLE SHARES AND SHARES OF COMMON STOCK OF
U.S. GOLD, HAVING REGARD TO THEIR PARTICULAR
CIRCUMSTANCES.
For the purposes of the Tax Act, all amounts relating to the
acquisition, holding or disposition of exchangeable shares or
shares of common stock of U.S. Gold, including dividends,
adjusted cost base and proceeds of disposition, must be
converted into Canadian dollars using the
Canadian/U.S. dollar exchange rate prevailing at the time
such amounts arise.
Shareholders
Resident in Canada
The following portion of this summary is applicable to a
shareholder who, for the purposes of the Tax Act and any
applicable income tax treaty or convention, is or is deemed to
be a Canadian resident at all relevant times.
64
Receipt
of Ancillary Rights
A shareholder who receives exchangeable shares on a disposition
of White Knight common shares pursuant to the offer will also be
entitled to certain rights and benefits, referred to herein as
ancillary rights, under the Voting and Exchange
Trust Agreement, as discussed in the section entitled
“Exchangeable Shares — Voting and Exchange
Trust Agreement” on page 39 of this prospectus. A
shareholder will be required to account for the ancillary rights
in determining the proceeds of disposition of such holder’s
White Knight common shares and the cost of the exchangeable
shares received pursuant to the offer. U.S. Gold is of the
view that the ancillary rights have a nominal fair market value
given the other rights and benefits that shareholders will have
upon completion of the offer including, without limitation, the
right to exchange their exchangeable shares for shares of common
shares of U.S. Gold on a
one-for-one
basis. Any such determination of value is not binding upon the
CRA. Counsel expresses no opinion as to the appropriateness or
accuracy of this valuation. A reference to exchangeable shares
will be deemed to include a reference to ancillary rights, where
applicable.
Grant
of Call Rights
U.S. Gold is of the view that the liquidation call right,
the redemption call right and the retraction call right, as
discussed in the section entitled “— Call Rights”
on page 37 of this prospectus, have a nominal fair market
value and that accordingly, no amount should be allocated to the
call rights. Any such determination of value is not binding upon
the CRA. Counsel expresses no opinion as to the appropriateness
or accuracy of this valuation. Provided that the valuation with
respect to such call rights is correct, the granting of the call
rights will not result in any material adverse income tax
consequences to a shareholder. However, should the CRA challenge
this valuation and ultimately succeed in establishing that the
call rights have a fair market value in excess of a nominal
amount, a shareholder receiving exchangeable shares pursuant to
the offer will realize a capital gain in an amount equal to the
fair market value of the call rights. See the section entitled
“Taxation of Capital Gains or Capital Losses” below.
Exchange
of White Knight Common Shares for Exchangeable
Shares
No Election
Transaction. Subsection 85.1(1) of the Tax
Act provides that where a taxpayer exchanges shares, or the
exchanged shares, of any particular class of the capital stock
of a taxable Canadian corporation for shares of another taxable
Canadian corporation or the purchaser corporation, and receives
no consideration for the transfer of the exchanged shares other
than shares of the purchaser corporation, the taxpayer is deemed
to dispose of the exchanged shares for an amount equal to the
adjusted cost base of the exchanged shares to the taxpayer
immediately before the exchange and to acquire the shares of the
purchaser corporation at a cost then equal to the adjusted cost
base to the taxpayer of the exchanged shares immediately before
the exchange. Subsection 85.1(1) does not apply if the
taxpayer elects in the taxpayer’s return of income for the
year in which the exchange occurs to recognize any gain or loss
on the exchange or if the taxpayer makes a joint tax election
pursuant to subsection 85(1) or (2) with respect to
the exchanged shares. If section 85.1(1) applies to the
exchange by a shareholder of White Knight common shares for
exchangeable shares, the shareholder would dispose of White
Knight common shares for an amount equal to its adjusted cost
base of White Knight common shares immediately before the
exchange and receive exchangeable shares with a cost to the
shareholder equal to the adjusted cost base of White Knight
common shares immediately before the exchange. If the ancillary
rights represent consideration to the shareholders for the
disposition of White Knight common shares, section 85.1
would not apply to the exchange by a shareholder of White Knight
common shares for exchangeable shares. Shareholders are advised
to consult their tax advisors as to whether subsection 85.1
may apply to an exchange by them of their White Knight common
shares and whether they should make an election pursuant to
subsection 85(1) or (2) as described below under
“Section 85 Election.”
If subsection 85.1(1) does not apply to a shareholder, a
shareholder who exchanges White Knight common shares for
exchangeable shares will be considered to have disposed of such
White Knight common shares for proceeds of disposition equal to
the fair market value of the exchangeable shares (including the
value of the ancillary rights) acquired by such shareholder on
the exchange, unless such shareholder makes a joint tax election
under subsection 85(1) or 85(2) of the Tax Act. As a
result, such shareholder will realize a capital gain (or capital
loss) to the extent that such proceeds of disposition, net of
any reasonable costs of disposition, exceed (or are less than)
the adjusted cost base of such White Knight common shares. See
the section entitled “Taxation of Capital
65
Gains or Capital Losses” below. The cost to a holder of
exchangeable shares acquired on the exchange will be equal to
the fair market value thereof at the time of acquisition.
Election Transaction. A shareholder who
exchanges White Knight common shares for exchangeable shares may
make a joint tax election with Canadian Exchange Co. pursuant to
subsection 85(1) of the Tax Act (or, in the case of a
shareholder who is a partnership, pursuant to
subsection 85(2) of the Tax Act). Such election may result
in the full or partial deferral of capital gains otherwise
arising on the exchange of White Knight common shares as
described under “Non-Rollover Transaction.” Provided
that, on the effective date, the adjusted cost base of such
shareholder’s White Knight common shares equals or exceeds
the fair market value of the ancillary rights acquired by such
shareholder on the exchange, that shareholder may elect so as to
not realize a capital gain for the purposes of the Tax Act on
the exchange. The elected amount (as defined herein) will be
determined by each shareholder who makes such a joint tax
election, subject to the limitations under the Tax Act described
below under “Section 85 Election.”
Section 85
Election
Canadian Exchange Co. will make a joint tax election under
subsection 85(1) or subsection 85(2), as applicable,
of the Tax Act (and the corresponding provisions of any
applicable provincial tax legislation) with a shareholder who
receives exchangeable shares on the exchange of White Knight
common shares and at the amount elected by the shareholder,
subject to the limitations under the Tax Act. The joint tax
election allows a shareholder to elect an amount which, subject
to the limitations under the Tax Act described below, will be
treated for the purposes of the Tax Act as the
shareholder’s proceeds of disposition of his or her White
Knight common shares. Canadian Exchange Co. agrees only to
execute any properly completed election forms and to forward
such election forms by mail (within 30 days after the
receipt thereof by Canadian Exchange Co.) to the applicable tax
authorities with a copy to the shareholder. With the
exception of the execution and filing of the election by
Canadian Exchange Co., compliance with the requirements to
ensure the validity of a joint tax election will be the sole
responsibility of the shareholder making the election.
Accordingly, neither Canadian Exchange Co. nor the depositary
will be responsible or liable for taxes, interest, penalties,
damages or expenses resulting from the failure by anyone to
properly complete any election within the time prescribed and in
the form prescribed under the Tax Act (or the corresponding
provisions of any applicable provincial legislation).
The relevant Canadian federal tax election form is CRA
Form T2057 (or, in the event that White Knight common
shares are held as partnership property, CRA Form T2058).
For shareholders required to file in Québec, Québec
Form TP-518V
(or, in the event that White Knight common shares are held as
partnership property, Québec
Form TP-529V)
will also be required. A tax election package, consisting of
the relevant tax election forms, a tax election filing
authorization letter, and a letter of instructions, may be
obtained from the depositary. A shareholder interested in making
a joint tax election should so indicate on the letter of
acceptance and transmittal in the space provided therein and a
tax election package will be sent to such shareholder.
In order to make a joint tax election, a shareholder must
provide to the depository, at the address set forth on the back
page hereof, on behalf of Canadian Exchange Co., two signed
copies of the necessary election forms on or before the day
which is 90 days after the effective date, duly completed
with the details of the number of White Knight common shares
transferred and the applicable elected amount for the purposes
of the election. Certain Canadian provincial jurisdictions may
require that a separate joint tax election be filed for
provincial income tax purposes. Canadian Exchange Co. will also
make a Canadian provincial joint tax election with a shareholder
under the provision of any relevant Canadian provincial income
tax legislation with similar effect to subsection 85(1) or
subsection 85(2) of the Tax Act (and, if requested, an
election pursuant to sections 518 or 529 of the Taxation
Act (Quebec) or analogous provincial tax legislation).
Shareholders are encouraged to consult their own tax advisors to
determine whether separate election forms must be filed with any
Canadian provincial taxing authority. It will be the
responsibility of each shareholder who wishes to make such a
joint tax election to obtain the necessary Canadian provincial
election forms and to submit such forms to the depositary for
execution and filing by Canadian Exchange Co.
Where White Knight common shares are held in joint ownership and
two or more of the co-owners wish to elect, one of the co-owners
designated for such purpose should file the designation and a
copy of the CRA
66
Form T2057 (and where applicable, the corresponding
Québec form) for each co-owner, along with a list of all
co-owners electing, which list should contain each
co-owner’s percentage of ownership, the address and
Canadian social insurance number or tax account number of each
co-owner. Where White Knight common shares are held as
partnership property, a partner validly designated by the
partnership may file one copy of the CRA Form T2058 on
behalf of all members of the partnership (and where applicable,
the corresponding form in duplicate with the Québec
taxation authorities). Such CRA Form T2058 (and Québec
form, if applicable) must be accompanied by a letter signed by
each partner authorizing the designated partner to complete and
file the form, and a list containing the name, address, social
insurance number or tax account number of each partner.
Where a joint tax election is made, pursuant to the limitations
imposed by the Tax Act, the elected amount may not be:
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less than the fair market value of the ancillary rights received
on a disposition of White Knight common shares pursuant to the
offer;
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less than the lesser of: (a) the adjusted cost base to the
shareholder of the shareholder’s White Knight common shares
disposed of pursuant the offer, and (b) the fair market
value of White Knight common shares; and
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greater than the fair market value of White Knight common shares
so disposed of,
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in each case, determined immediately before the time of the
disposition. The amount elected by a shareholder in accordance
with the foregoing limitations is referred to herein as the
elected amount.
Elected amounts which do not comply with the foregoing
limitations will be automatically adjusted pursuant to the
provisions of the Tax Act.
Where a shareholder and Canadian Exchange Co. make a Canadian
joint tax election, the Canadian tax treatment to the
shareholder will be as follows:
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the shareholder will be deemed to have disposed of White Knight
common shares for proceeds of disposition equal to the elected
amount;
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if the proceeds of disposition of White Knight common shares are
equal to the aggregate of the adjusted cost base of the
shareholder’s White Knight common shares, determined
immediately before the time of the disposition, and any
reasonable costs of disposition, no capital gain or capital loss
will be realized by the shareholder;
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to the extent that the proceeds of disposition of White Knight
common shares exceed (or are less than) the aggregate of the
adjusted cost base to the shareholder of his or her White Knight
common shares, determined immediately before the time of the
disposition, and any reasonable costs of disposition, a capital
gain (or capital loss) will be realized by the
shareholder; and
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the cost to a shareholder of the exchangeable shares received in
exchange for White Knight common shares will be equal to the
amount by which the elected amount exceeds the fair market value
of the ancillary rights received on the disposition of White
Knight common shares pursuant to the offer.
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In order for the CRA (and, where applicable, the Ministère
du Revenu du Québec) to accept a joint tax election without
a late filing penalty being paid by the shareholder, the
election must be received by such revenue authorities on or
before the day that is the earliest of the days on or before
which either Canadian Exchange Co. or the shareholder is
required to file an income tax return for the taxation year in
which the exchange occurs. Canadian Exchange Co.’s taxation
year is scheduled to end on December 31. Thus, where the
exchange occurs prior to December 31, 2006, the tax
election will, in the case of a shareholder who is an individual
(other than a trust), generally have to be received by the
revenue authorities by April 30, 2007 (being generally the
last day for filing a tax return for the individual’s 2006
taxation year). Shareholders, other than individuals, are
encouraged to consult their own advisors as soon as possible
respecting the deadlines applicable to their own particular
circumstances. However, regardless of such deadline, the tax
election forms of a shareholder must be received by the
depositary, as indicated above, no later than the 90th day
after the effective date. If, for whatever reason, the
current taxation year of Canadian Exchange Co. were to terminate
before December 31, 2006, the joint tax election
67
may have to be filed earlier to avoid late filing penalties. In
such event, Canadian Exchange Co. has agreed to notify
forthwith, through the depositary, every shareholder who
received exchangeable shares on the exchange of their White
Knight common shares of such change.
Any shareholder who does not ensure that the depositary has
received a duly completed election form on or before the
90th day after the effective date, will not be able to
benefit from the joint tax election. Accordingly, all
shareholders who wish to enter into a joint tax election with
Canadian Exchange Co. should give their immediate attention to
this matter. The instructions for requesting a tax election
package are set out in the letter of acceptance and transmittal.
Shareholders are referred to Information Circular 76-19R3 and
Interpretation
Bulletin IT-291R3
issued by the CRA for further information respecting the joint
tax election. Joint tax election forms are also available from
the CRA and provincial tax authorities. Shareholders wishing to
make the joint tax election are encouraged to consult their own
tax advisors. The comments herein with respect to such elections
are provided for general assistance only. The law in this area
is complex and contains numerous technical requirements.
As discussed above, shareholders will be required to account for
the ancillary rights in determining the proceeds of disposition
of such shareholder’s White Knight common shares and the
cost of the exchangeable shares received pursuant to the offer.
U.S. Gold is of the view that the ancillary rights have a
nominal fair market value given the other rights and benefits
that shareholders also have upon completion of the offer
including, without limitation, the right to exchange their
exchangeable shares for shares of common stock of U.S. Gold
on a
one-for-one
basis. Any such determination of value is not binding upon the
CRA. Counsel expresses no opinion as to the appropriateness or
accuracy of this valuation. A reference to exchangeable shares
will be deemed to include a reference to ancillary rights, where
applicable.
Exchangeable
Shares/Shares of Common Stock of U.S. Gold
Dividends
on Exchangeable Shares
Dividends received or deemed to be received on exchangeable
shares by a shareholder who is an individual (including most
trusts) will be included in computing the individual’s
income for the taxation year in which such dividends are
received and will be subject to the
gross-up and
dividend tax credit rules generally applicable to taxable
dividends received from taxable Canadian corporations.
On June 29, 2006, the Minister of Finance (Canada) tabled
in the House of Commons a notice of Ways and Means Motion to
introduce an enhanced federal
gross-up and
dividend tax credit for “eligible dividends” paid
after 2005 and received by individuals resident in Canada. If
legislation is enacted as described in the notice of Ways and
Means Motion, dividends received or deemed to be received on the
exchangeable shares by a holder may qualify for the enhanced
gross-up and
dividend tax credit.
A shareholder that is a corporation will be required to include
in computing its income for a taxation year any dividends
received on the exchangeable shares and will generally be
entitled to deduct such dividends in computing its taxable
income.
A shareholder that is a “private corporation” as
defined in the Tax Act or any other corporation resident in
Canada and controlled or deemed to be controlled by or for the
benefit of an individual (other than a trust) or a related group
of individuals (other than trusts) may be liable to pay a
refundable tax under Part IV of the Tax Act equal to
331/3%
of dividends received or deemed to be received on the
exchangeable shares to the extent that such dividends are
deductible in computing the holder’s taxable income.
The exchangeable shares will be “taxable preferred
shares” and “short-term preferred shares” for
purposes of the Tax Act. Accordingly, Canadian Exchange Co. will
be subject to a tax under Part VI.1 of the Tax Act equal to
662/3%
(to be reduced to 50% under the Tax Proposals retroactively
effective to dividends paid by a corporation in its 2003 and
subsequent taxation years) of all dividends paid or deemed to be
paid on the exchangeable shares. Canadian Exchange Co. will also
be entitled to deduct 9/4 (to be increased to 3 times under the
Tax Proposal retroactively effective to dividends paid by a
corporation in its 2003 and subsequent taxation years) of any
Part VI.1 tax payable in computing its taxable income.
Dividends received or deemed to be received on the exchangeable
shares will not be subject to the 10% tax under Part IV.1
of the Tax Act.
68
Dividends
on Shares of Common Stock of U.S. Gold
Dividends received on shares of common stock of U.S. Gold
will be included in a shareholder’s income for the purposes
of the Tax Act. Such dividends received by a shareholder who is
an individual will not be subject to the
gross-up and
dividend tax credit rules in the Tax Act. A shareholder that is
a corporation will not be entitled to deduct the amount of such
dividends in computing its taxable income. A shareholder that is
a “Canadian-controlled private corporation” as defined
in the Tax Act may be liable to pay an additional refundable tax
of
62/3%
on its “aggregate investment income” for the year
which will include such dividends. Subject to the detailed rules
in the Tax Act, a shareholder may be entitled to a foreign tax
credit or deduction for any United States non-resident
withholding tax paid on dividends received on shares of common
stock of U.S. Gold.
Redemption
or Exchange of Exchangeable Shares
On the redemption (including a retraction) of an exchangeable
share by Canadian Exchange Co., the shareholder will be deemed
to have received a dividend equal to the amount, if any, by
which the redemption proceeds (being the fair market value at
that time of the share of common stock of U.S. Gold plus
the accrued and unpaid dividends, if any, received by the
shareholder on the redemption) exceeds the
paid-up
capital for purposes of the Tax Act of the exchangeable share at
the time of the redemption. A shareholder will be subject to tax
on the amount of any such deemed dividend in the manner
described above under the heading “Dividends on
Exchangeable Shares.” On the redemption, the shareholder
will also be considered to have disposed of the exchangeable
share for proceeds of disposition equal to the redemption
proceeds less the amount of such deemed dividend, and will
realize a capital gain (or a capital loss) equal to the amount
by which such proceeds of disposition, net of any reasonable
costs of disposition, exceed (or are less than) the adjusted
cost base of the exchangeable share to the shareholder. See the
section entitled “Taxation of Capital Gains or Capital
Losses” below. In some circumstances, the amount of any
such deemed dividend received by a shareholder that is a
corporation on the redemption of an exchangeable share may be
treated as proceeds of disposition and not as a dividend.
Where an exchangeable share is exchanged with U.S. Gold or
Alberta ULC for a share of common stock of U.S. Gold, the
shareholder will realize a capital gain (or a capital loss) to
the extent the proceeds of disposition of the exchangeable
share, net of any reasonable costs of disposition, exceed (or
are less than) the shareholder’s adjusted cost base of the
exchangeable share. For this purpose, the proceeds of
disposition will be the aggregate of the fair market value, at
the time of the exchange, of the shares of common stock of
U.S. Gold received on the exchange and any accrued and
unpaid dividends received by the shareholder as part of the
exchange consideration. See the section entitled “Taxation
of Capital Gains or Capital Losses” below.
Because of the existence of the call rights and certain
rights provided in the Voting and Exchange Trust Agreement,
a holder of exchangeable shares cannot control whether such a
holder will receive shares of common stock of U.S. Gold by
way of redemption of the exchangeable shares by Canadian
Exchange Co. or by way of a purchase of the exchangeable shares
by U.S. Gold or Alberta ULC. If the call rights are not
exercised on redemption or retraction of the exchangeable
shares, a holder of exchangeable shares may realize a dividend
for Canadian tax purposes that may exceed the holder’s
economic gain.
As described above, the Canadian federal income tax consequences
of a redemption by Canadian Exchange Co. differ from those of a
purchase by U.S. Gold or Alberta ULC.
Acquisition
and Disposition of Shares of Common Stock of
U.S. Gold
The cost of the shares of common stock of U.S. Gold
received on the retraction, redemption, exchange or purchase of
exchangeable shares will be equal to the fair market value of
such shares of common stock of U.S. Gold at that time and
will be averaged with the adjusted cost base of all other shares
of common stock of U.S. Gold held by the shareholder as
capital property at that time for the purposes of determining
the adjusted cost base of such shares of common stock of
U.S. Gold.
A disposition or deemed disposition of shares of common stock of
U.S. Gold by a shareholder will result in a capital gain
(or capital loss) to the extent that the proceeds of
disposition, net of any reasonable costs of disposition,
69
exceed (or are less than) the shareholder’s adjusted cost
base of such shares of common stock of U.S. Gold. See the
section entitled “Taxation of Capital Gains or Capital
Losses” below.
Taxation
of Capital Gains or Capital Losses
A shareholder will be required to include one-half of the amount
of any capital gain (a “taxable capital gain”) in
income, and will generally be required to deduct one-half of the
amount of any capital loss (an “allowable capital
loss”) against taxable capital gains realized by the
shareholder in the year of disposition. Allowable capital losses
not deducted in the taxation year in which they are realized may
be carried back and deducted in any of the three preceding
taxation years or carried forward and deducted in any subsequent
taxation year against taxable capital gains realized in such
years, to the extent and under the circumstances specified in
the Tax Act.
A shareholder that is a “Canadian-controlled private
corporation,” as defined in the Tax Act, may be liable to
pay an additional refundable tax of
62/3%
on its “aggregate investment income” for the year
which will include an amount in respect of taxable capital gains.
If the holder of exchangeable shares is a corporation, the
amount of any capital loss arising from a disposition or deemed
disposition of such shares may be reduced by the amount of any
dividends, including deemed dividends, which have been
previously received on such shares to the extent and under the
circumstances specified in the Tax Act. Similar rules may apply
where the corporation is a member of a partnership or
beneficiary of a trust that owns exchangeable shares or where
the trust or partnership of which a corporation is beneficiary
or a member is a member of a partnership or beneficiary of a
trust that owns exchangeable shares. Shareholders to whom these
rules may be relevant should consult their own tax advisors.
Alternative
Minimum Tax
Individuals and certain trusts that receive or are deemed to
receive taxable dividends on exchangeable shares, or realize a
capital gain on the disposition or deemed disposition of White
Knight common shares, the exchangeable shares or shares of
common stock of U.S. Gold, may realize an increase in their
liability for alternative minimum tax under the Tax Act.
Qualified
Investments
The exchangeable shares issued pursuant to the offer, will be
“qualified investments” under the Tax Act for trusts
governed by registered retirement savings plans, registered
retirement income funds, deferred profit sharing plans or
registered education savings plans, or deferred plans, as
defined in the Tax Act, provided the exchangeable shares are
listed on a “prescribed stock exchange” (which
currently includes the TSX and AMEX).
The ancillary rights will not be qualified investments under the
Tax Act for such deferred plans. However, U.S. Gold is of
the view that the ancillary rights have a nominal fair market
value. Counsel expresses no opinion as to the appropriateness or
the accuracy of this valuation. Any determination of value is
not binding on the CRA. Where plans acquire property that is not
a qualified investment, the plans are required to pay tax on the
income and capital gains in respect of such property in
accordance with the Tax Act. In addition, where a non-qualified
investment is acquired by a trust governed by a registered
retirement savings plan or a registered retirement income fund,
the fair market value of the non-qualified investment at the
time of acquisition will be included in the income of the
annuitant under the plan. Where a non-qualified investment is
acquired by a trust governed by a deferred profit sharing plan,
the trust will be liable for a tax equal to the fair market
value of the investment at the time the investment is acquired.
The registration of a registered education savings plan becomes
revocable if it acquires a non-qualified investment and,
accordingly, exchangeable shares (by reason of the attached
ancillary rights) are not suitable investments for trusts
governed by registered education savings plans.
The shares of common stock of U.S. Gold issued pursuant to
the offer, will be qualified investments under the Tax Act for
Plans, provided such shares are listed on a “prescribed
stock exchange” (which currently includes the TSX and AMEX).
70
Foreign
Property Information Reporting
A holder of exchangeable shares or shares of common stock of
U.S. Gold who is a “specified Canadian entity”
for a taxation year or a fiscal period and whose total cost
amount of “specified foreign property,” including such
exchangeable shares or shares of common stock of U.S. Gold,
at any time in the year or fiscal period exceeds Cdn$100,000
will be required to file an information return for the year or
period disclosing prescribed information.
Subject to certain exceptions, a taxpayer resident in Canada in
the year will be a specified Canadian entity. Holders are
encouraged to consult their tax advisors as to whether they must
comply with these rules.
Foreign
Investment Entity Status
On July 18, 2005, the Minister of Finance (Canada) released
revised draft legislation relating to the income tax treatment
of investments by Canadian residents in non-resident entities
that constitute “foreign investment entities”
(“FIEs”) applicable for taxation years commencing
after 2002 (the “FIE Tax Proposals”). The FIE Tax
Proposals, as currently drafted, would apply to require a
shareholder that holds a “participating interest”
(that is not an “exempt interest”) in a non-resident
entity that is an FIE at the entity’s taxation year-end to
take into account in computing the shareholder’s income for
the shareholder’s taxation year that includes such taxation
year-end: (i) an amount based on a prescribed rate of
return on the “designated cost” of such participating
interest held by a shareholder at the end of each month ending
in the holder’s taxation year at which time the
participating interest is held by the shareholder; (ii) in
certain limited circumstances, any gains and losses accrued on
such participating interest for the year; or (iii) in
certain limited circumstances, a shareholder’s
proportionate share of the FIE’s income (or loss) for the
year calculated using Canadian tax rules. For the purposes of
the FIE Tax Proposals, exchangeable shares and shares of common
stock of U.S. Gold will constitute participating interests
in U.S. Gold.
U.S. Gold will not be an FIE at the end of its taxation
year provided that, at that time, the “carrying value”
of all of U.S. Gold’s “investment property”
is not greater than one-half of the “carrying value”
of all its property. The determination of whether or not
U.S. Gold is an FIE must be made on an annual basis at the
end of each taxation year-end of U.S. Gold.
Even if U.S. Gold were an FIE at the end of one of its
taxation years, an exchangeable share or a share of common stock
of U.S. Gold, respectively, may be an exempt interest
provided that throughout the period that such a security is held
by a holder during such taxation year of U.S. Gold:
(i) U.S. Gold is resident in the United States for the
purposes of the Tax Act; (ii) the exchangeable share or the
share of common stock of U.S. Gold (as applicable) is
listed on a “prescribed stock exchange”; and
(iii) the exchangeable share or the share of common stock
of U.S. Gold (as applicable) constitutes an
“arm’s length interest” (as defined for the
purposes of the FIE Tax Proposals). It is expected that the
exchangeable shares and the shares of common stock of
U.S. Gold will be “arm’s length interests”
of a particular shareholder thereof for the purposes of the FIE
Tax Proposals provided that such shareholder (together with
entities and individuals with whom the holder does not deal at
arm’s length) does not hold, in the aggregate, more than
10% of the exchangeable shares or 10% of the shares of common
stock of U.S. Gold, as applicable, based on the fair market
value of such securities. In addition, an exchangeable share or
share of common stock of U.S. Gold will only constitute an
exempt interest at the end of U.S. Gold’s taxation
year if, at that time, it is reasonable to conclude that the
shareholder has no “tax avoidance motive” in respect
of such exchangeable share or share of common stock of
U.S. Gold. For this purpose, the shareholder will be
regarded as having a tax avoidance motive only if it is
reasonable to conclude that the main reasons for acquiring or
holding such exchangeable shares or shares of common stock of
U.S. Gold include directly or indirectly benefiting
principally from income, profits, gains or increases in value in
respect of investment property and from the deferral or
reduction of tax that would have been payable on such income,
profits or gains. Shareholders are encouraged to consult their
own tax advisors regarding the determination of whether or not
they have such a tax avoidance motive. The determination of
whether exchangeable shares or shares of common stock of
U.S. Gold constitute an exempt interest must be made on an
annual basis at the end of the taxation year of U.S. Gold
and no assurances can be given that the exchangeable shares or
shares of common stock of U.S. Gold will constitute an
exempt interest at any subsequent taxation year-end of
U.S. Gold.
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Economic
Statement of October 18, 2000
In the Economic Statement released on October 18, 2000 (the
“Economic Statement”), the Minister of Finance
(Canada) announced a proposal to formulate and introduce a rule
to permit shares of a Canadian corporation held by a Canadian
resident to be exchanged for shares of a foreign corporation on
a tax-deferred basis. This statement included no details of the
circumstances in which such tax-deferred
share-for-share
exchanges could occur but rather indicated that these rules
would be developed in consultation with the private sector. The
Economic Statement indicated that any such rules would not be
effective before the public release of draft legislation
including such rules. The Canadian Federal Budget of
February 18, 2003, reiterated the statements made in the
Economic Statement and indicated that draft legislative
proposals would be released in the near future for public review
and comment.
The Canadian Federal Budget of March 23, 2004 (the
“2004 Budget”) indicated that it is intended that
detailed proposals will be released for public comment within
months after the release of the 2004 Budget. The 2004 Budget
also indicated that the proposals are expected to be in the form
of draft legislation and there has been no indication as to an
effective date for the proposals.
It is not known whether the draft legislation containing the
proposed amendments described above will be released in time to
affect a subsequent exchange of exchangeable shares for shares
of common stock of U.S. Gold, and it is therefore possible
that such exchange of exchangeable shares may be achieved on a
tax-deferred basis. In any case, until such rules are developed
and released, it is not possible to state whether those rules
would apply to a shareholder who exchanges exchangeable shares
for shares of common stock of U.S. Gold. Shareholders are
encouraged to consult their own tax advisors once the draft
legislation is released, if at all, to determine how the draft
legislation might apply to the holder’s particular
circumstances.
Subsequent
Acquisition Transaction
If White Knight common shares validly tendered pursuant to the
offer are accepted for purchase and paid for, the offerors
currently intend to acquire, directly or indirectly, all of the
remaining outstanding White Knight common shares in accordance
with applicable law by way of a subsequent acquisition
transaction. The tax treatment of a subsequent acquisition
transaction to a shareholder will depend upon the exact manner
in which the subsequent acquisition transaction is carried out
and may be materially less favorable than would apply if White
Knight common shares were tendered pursuant to the offer.
Shareholders are encouraged to consult their own tax advisors
for advice with respect to the income tax consequences to them
of having their White Knight common shares acquired pursuant to
a subsequent acquisition transaction.
The replacement of the White Knight stock option plan with a
stock option plan of U.S. Gold will occur on a tax-deferred
basis.
Under the current administrative practice of the CRA,
shareholders who exercise their right of dissent in respect of a
merger should be considered to have disposed of their White
Knight common shares for proceeds of disposition equal to the
amount paid by the acquiring corporation to the dissenting
shareholder therefore, other than interest awarded by the court
(if any). Because of uncertainties under the relevant
legislation as to whether such amounts paid to a dissenting
shareholder would be treated entirely as proceeds of
disposition, or in part as the payment of a deemed dividend,
dissenting shareholders are encouraged to consult with their own
tax advisors in this regard.
Shareholders
Not Resident in Canada
The following portion of the summary is applicable to holders of
White Knight common shares who, for purposes of the Tax Act or
any applicable income tax treaty or convention, have not been
and will not be resident or deemed to be resident in Canada at
any time while they have held White Knight common shares or will
hold exchangeable shares
and/or
shares of common stock of U.S. Gold and who do not use or
hold or are not deemed to
72
use or hold such White Knight common shares, exchangeable shares
and/or
shares of common stock of U.S. Gold in carrying on a
business in Canada, or a non-resident shareholder. Special
rules, which are not discussed in this summary, may apply to a
non-resident that is an insurer carrying on business in Canada
and elsewhere.
Disposition
of White Knight Common Shares or Exchangeable
Shares
A non-resident shareholder will not be subject to capital gains
tax under the Tax Act on the disposition of White Knight common
shares pursuant to the offer or a disposition of exchangeable
shares unless White Knight common shares or exchangeable shares,
as the case may be, constitute “taxable Canadian
property” of the shareholder for purposes of the Tax Act
and the shareholder is not entitled to relief under an
applicable income tax treaty or convention.
Generally, White Knight common shares or the exchangeable
shares, as the case may be, will not be taxable Canadian
property at a particular time provided that such shares are
listed on a “prescribed stock exchange” (which
currently includes the TSX and AMEX), and the shareholder, alone
or together with persons with whom such shareholder does not
deal at arm’s length, has not owned 25% or more of the
issued shares of any class or series of shares in the capital of
White Knight or Canadian Exchange Co., as the case may be, at
any time during the five year period immediately preceding the
particular time.
A non-resident shareholder whose White Knight common shares
constitute taxable Canadian property may be eligible to make a
joint tax election with Canadian Exchange Co. See the section
entitled “Shareholders Resident in Canada —
Section 85 Election”. Non-resident shareholders whose
White Knight common shares or exchangeable shares constitute
taxable Canadian property should consult their own tax advisors
with respect to the Canadian tax consequences, including the
effects thereon of the provisions of any income tax treaty or
convention, of disposing of such shares.
Dividends
On Exchangeable Shares
Dividends paid or deemed to be paid to a non-resident
shareholder on exchangeable shares (including on a redemption of
such shares by Canadian Exchange Co.) will be subject to
Canadian withholding tax at the rate of 25% unless the rate is
reduced under the provisions of an applicable income tax treaty
or convention. See the section entitled “Shareholders
Resident in Canada — Redemption or Exchange of
Exchangeable Shares”. For example, under the Canada-United
States tax treaty, the withholding tax rate is generally reduced
to 15% in respect of a dividend paid to a person who is the
beneficial owner thereof and who is resident in the United
States for purposes of the Canada-United States tax treaty.
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MATERIAL
U.S. FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Hogan & Hartson L.L.P.,
U.S. special counsel to U.S. Gold and Canadian
Exchange Co., the following is, as of the date of the offer and
to the extent it describes applicable provisions of
U.S. federal income tax laws, an accurate summary of the
material U.S. federal income tax considerations applicable
to shareholders who dispose of their White Knight common shares
pursuant to the offer. This summary is included for general
information purposes only and does not purport to be a complete
technical analysis or listing of all potential U.S. tax
consequences that may be relevant to holders of White Knight
common shares. It is not intended to be, nor should it be
construed as being, legal or tax advice. For this reason,
holders of White Knight common shares should consult their own
tax advisors concerning the tax consequences of the proposed
transaction. Further, this summary does not address any tax
consequences arising under the income or other tax laws of any
state, local or foreign jurisdiction or any tax treaties.
This discussion is based upon the provisions of the Code, the
related Treasury regulations, administrative interpretations and
court decisions, in each case as in effect or available as of
the date of the offer, all of which are subject to change,
possibly with retroactive effect. Any such change could affect
the accuracy of the statements and the conclusions discussed
below and the tax consequences of the proposed transaction.
This discussion applies only to persons that hold their White
Knight common shares, and will hold their exchangeable shares,
as capital assets within the meaning of section 1221 of the
Code, and assumes (without verification by the offerors) that
White Knight is not, and has not been, a “controlled
foreign corporation” for U.S. federal income tax
purposes and that White Knight has never been treated as a
U.S. domestic corporation pursuant to Section 897(i)
of the Code. If White Knight is a controlled foreign corporation
or was a controlled foreign corporation during the period that
U.S. holders (defined below) have held their White Knight
common shares, special U.S. tax rules not discussed herein
may substantially affect the tax consequences of the proposed
transaction to U.S. holders. If White Knight is treated as
a U.S. domestic corporation pursuant to Section 897(i)
of the Code, the U.S. tax consequence of the proposed
transaction to non-U.S. holders may differ from those
described below. This summary does not address all aspects of
U.S. federal income taxation that may be relevant to
holders of White Knight common shares in light of their
particular circumstances or that may be applicable to them if
they are subject to special treatment under the
U.S. federal income tax laws. Specifically, this summary
does not address tax consequences that may apply to a holder of
White Knight common shares that is:
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a financial institution, thrift, insurance company or mutual
fund;
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a tax-exempt organization;
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an S corporation, an entity taxable as a partnership for
U.S. federal income tax purposes or other pass-through
entity or an owner thereof;
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a dealer in stocks and securities or foreign currencies or a
trader or an investor in White Knight common shares who elects
the
mark-to-market
method of accounting for such stock;
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a shareholder who received White Knight common shares from the
exercise of employee stock options, stock purchase plans or
otherwise as compensation, or from a tax-qualified retirement
plan, individual retirement account or other qualified savings
account;
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a U.S. holder (defined below) that has a functional
currency other than the U.S. dollar;
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an expatriate or former long-term resident of the United States;
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a shareholder that owns (or is deemed to own) shares
representing 10% or more of the voting power of White Knight;
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a shareholder that, immediately following completion of the
acquisition of White Knight by U.S. Gold (through Canadian
Exchange Co.), will own (or be deemed to own) exchangeable
shares representing 5% or more of the total voting power or
value of all shares of Canadian Exchange Co. stock; or
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a shareholder who holds White Knight common shares as part of a
hedge against currency risk, straddle or a constructive sale or
conversion transaction, or other risk reduction or integrated
investment transaction.
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U.S. Federal
Income Tax Consequences to U.S. Holders of White Knight
Common Shares
For purposes of this summary, the term
“U.S. holder” means a beneficial owner of White
Knight common shares who is (i) an individual who is a
citizen of the United States or who is resident in the United
States for U.S. federal income tax purposes; (ii) a
corporation or other entity taxable as a corporation for
U.S. federal income tax purposes, created or organized
under the laws of the United States, any state thereof or the
District of Columbia; (iii) a trust, if either (A) a
court within the United States is able to exercise primary
supervision over the administration of the trust and one or more
U.S. persons have the authority to control all substantial
decisions of the trust or (B) the trust has a valid
election in effect under applicable Treasury regulations to be
treated as a U.S. person; or (iv) an estate that is
subject to U.S. federal income tax on its income regardless
of its source.
An entity that is classified as a partnership for
U.S. federal income tax purposes is neither a
U.S. holder nor a
non-U.S. holder.
The U.S. federal income tax treatment of a partnership and
its partners depends upon a variety of factors not specifically
addressed herein, including the activities of the partnership
and the partners. Holders of White Knight common shares that are
partnerships for U.S. federal income tax purposes, and
partners in any such partnership, should consult their tax
advisors concerning the U.S. federal income tax
consequences of the exchange of White Knight common shares
pursuant to the offer and of owning and disposing of
exchangeable shares or shares of common stock of U.S. Gold.
In its
Form 20-F
filed with the U.S. Securities and Exchange Commission on
October 20, 2006, White Knight has stated that it believes
that it has been and continues to be a “passive foreign
investment company” or “PFIC” within the meaning
of Section 1297 of the Code. We have not verified whether
this is the case. The PFIC rules are highly complex, and the
U.S. federal income tax consequences to a U.S. holder
of White Knight common shares of the exchange of White Knight
shares for exchangeable shares of Canadian Exchange Co. will
vary substantially depending upon whether White Knight is a PFIC
and whether the holder has made certain elections potentially
available to a holder of White Knight shares under the PFIC
rules. Each U.S. holder of White Knight shares is therefore
strongly urged to consult with such holder’s tax advisor
regarding the consequences to such holder of the application of
the PFIC rules, taking into account such holder’s
particular situation. See the discussion of the consequences of
PFIC status under the heading “U.S. Federal Income Tax
Consequences Arising from the Exchange by a U.S. Holder of
White Knight Common Shares for Exchangeable Shares and Ancillary
Rights” below.
U.S. Federal
Income Tax Characterization of the Exchangeable
Shares
There is no direct authority addressing the proper
characterization and treatment of instruments with
characteristics similar to the exchangeable shares and the
ancillary rights for U.S. federal income tax purposes.
Because the exchangeable shares are exchangeable into shares of
U.S. Gold common stock, have dividend rights based on the
dividends paid with respect to U.S. Gold common stock, and
have the benefit of voting rights similar to the voting rights
attributable to the shares of common stock of U.S. Gold,
there is a significant chance that, for U.S. federal income
purposes, the U.S. Internal Revenue Service, or the IRS, or
the United States courts may treat the exchangeable shares as
shares of U.S. Gold rather than as shares of Canadian
Exchange Co. In the absence of specifically applicable authority
and in view of the voting and other rights that holders of
exchangeable shares have with respect to Canadian Exchange Co.,
the offerors intend to take the position that the exchangeable
shares constitute stock of Canadian Exchange Co., and not stock
of U.S. Gold, for U.S. federal income tax purposes.
However, this characterization is not binding on the IRS, and
the IRS or the courts could treat the exchangeable shares as
shares of U.S. Gold. The offerors have not requested, nor
do they intend to request, an opinion from United States legal
counsel or a ruling from the IRS regarding the U.S. federal
income tax classification of the exchangeable shares.
U.S. Federal
Income Tax Characterization of the Exchange by a
U.S. Holder of White Knight Common Shares for Exchangeable
Shares and Ancillary Rights
This summary assumes that, as contemplated, (i) the offer
will be consummated by Canadian Exchange Co., (ii) pursuant
to the offer, Canadian Exchange Co. will obtain at least
80 percent of the shares of the single class of outstanding
stock of White Knight, (iii) the sole consideration
received by the shareholders of White Knight for
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their shares of White Knight stock (pursuant to the offer or in
any other transaction that may be integrated with the offer for
U.S. federal income tax purposes) will be voting
exchangeable shares of Exchange Co, (iv) White Knight will
thereafter be a corporate subsidiary of Canadian Exchange Co.,
and (v) U.S. Gold will acquire additional shares of
common stock of Canadian Exchange Co. for cash in conjunction
with the consummation of the offer.
The offer will be effected under the applicable provisions of
Canadian law, which differ from analogous provisions of United
States law. Whether the offer will qualify as a generally tax
deferred transaction under Section 368(a) of the Code (a
“reorganization”) or under Section 351 of the
Code will depend on the resolution of numerous factual issues,
some of which will not be known until the effective time of
consummation of the offer. There is no United States legal
authority dealing with the tax consequences of a transaction
identical to the offer, nor is there authority addressing the
nature and status of securities like the exchangeable shares,
and we have not requested, nor do we intend to request, an
opinion from United States legal counsel or a ruling from the
IRS regarding the tax characterization or consequences of the
offer.
Based on current authority and the foregoing assumptions and
subject to the discussion below: (i) if the exchangeable
shares are regarded for U.S. federal income tax purposes as
shares of common stock of U.S. Gold, the offer should, more
likely than not, qualify as a reorganization for United States
federal income tax purposes pursuant to Section 368(a) of
the Code; and (ii) if the exchangeable shares are regarded
instead as shares of stock of Canadian Exchange Co. and provided
that the ancillary rights are not regarded as property rights
that are separate and distinct from the exchangeable shares, the
offer should, more likely than not, qualify as a reorganization.
If the ancillary rights are treated as property rights that are
separate from the exchangeable shares, the offer will not
qualify as a reorganization pursuant to Section 368(a) of
the Code, but exchanges pursuant to the offer are intended to
qualify, in conjunction with the contemporaneous exchanges of
exchangeable shares for shares in Nevada Pacific, Tone Resources
and Coral Gold and the acquisition of additional common shares
of Canadian Exchange Co. by U.S. Gold, as tax-deferred
transactions pursuant to Section 351 of the Code. We
believe that the ancillary rights should not be regarded as
property rights that are separate and distinct from the
exchangeable shares because, among other things, they are
central to the definition of the economic and voting rights of
the exchangeable shares and are not transferable apart from the
exchangeable shares, but no assurances can be given that the IRS
or the courts will agree with this position.
One of the requirements that must be satisfied in order for an
exchange of shares pursuant to the offer to qualify as a
reorganization is that Canadian Exchange Co. must acquire
ownership of at least 80 percent of White Knight shares
solely for voting stock. Under the terms of the offer, Canadian
Exchange Co. has the right to accept White Knight shares
tendered pursuant to the offer even if it does not thereby
obtain 80 percent or greater ownership of White Knight
stock. If Canadian Exchange Co. accepts the shares tendered
pursuant to the offer but fails for any reason to obtain
ownership of at least 80 percent of White Knight stock, the
exchange of White Knight shares for exchangeable shares will not
qualify as a reorganization.
U.S. Federal
Income Tax Consequences Arising from the Exchange by a
U.S. Holder of White Knight Common Shares for Exchangeable
Shares and Ancillary Rights
Subject to the discussion of the PFIC rules below, if the offer
qualifies as part of a reorganization, the following United
States federal income tax consequences will result to
U.S. holders, provided that the ancillary rights are not
regarded as property rights that are separate and distinct from
the exchangeable shares: (a) no gain or loss will be
recognized by a U.S. holder that exchanges White Knight
common shares for exchangeable shares pursuant to the offer;
(b) the tax basis of a U.S. holder in the exchangeable
shares acquired in exchange for White Knight common shares
pursuant to the offer will be equal to such
U.S. holder’s adjusted tax basis in White Knight
common shares exchanged; and (c) the holding period of a
U.S. holder for the exchangeable shares acquired in
exchange for White Knight common shares pursuant to the offer
will include such U.S. holder’s holding period for
White Knight common shares exchanged. As discussed above, it is
possible that the IRS may take the position that the ancillary
rights constitute property rights that are separate and distinct
from the exchangeable shares. In that case, the offer would not
qualify as a reorganization under Section 368(a) of the
Code, but the exchange of White Knight shares for exchangeable
shares is intended to qualify as a transfer coming within
Section 351 of the Code if the exchangeable shares are
regarded as shares of Canadian Exchange Co. stock. If so, then,
subject to the discussion of the PFIC rules below, the tax
consequences of the offer for a U.S. Holder will be the
same as those just described for a
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reorganization, except that the U.S. Holder would be
required to recognize gain (calculated as described in the
immediately following paragraph), if any, realized from the
consummation of the offer up to the fair market value of the
ancillary rights. The tax basis of such U.S. holder in the
exchangeable shares would in that case be equal to such
U.S. holder’s adjusted tax basis in the White Knight
common shares exchanged plus the amount of gain recognized minus
the fair market value of the ancillary rights received.
Subject to the discussion of the PFIC rules below, if the offer
qualifies neither as a reorganization under Section 368(a)
nor as a transfer coming within Section 351, a
U.S. holder who exchanges White Knight shares for
exchangeable shares will recognize gain or loss for
U.S. federal income tax purposes equal to the difference
between (1) the fair market value of the exchangeable
shares and ancillary rights such holder receives, and
(2) such holder’s adjusted tax basis for the White
Knight shares exchanged. Such gain or loss will generally be
capital gain or loss, and will be long-term capital gain or loss
if the U.S. holder’s holding period for the White
Knight shares is more than one year as of the date of the
exchange. In the case of a non-corporate holder of White Knight
shares, long-term capital gain will generally be taxed at a
maximum U.S. federal income tax rate of 15%. The
deductibility of capital losses is subject to limitations.
As mentioned above, in its
Form 20-F
recently filed with the U.S. Securities and Exchange
Commission, White Knight has stated that it believes that it has
been and continues to be a PFIC within the meaning of
Section 1297 of the Code. If so, the consequences to
U.S. holders of White Knight common shares of exchanges
pursuant to the offer will differ very significantly from those
described above. The PFIC rules are extremely complex, and
each U.S. Holder of White Knight shares is strongly urged
to consult with his or her tax advisor regarding the substantial
effect such rules may have on the tax consequences to such
U.S. Holder of an exchange of White Knight shares for
exchangeable shares pursuant to the offer and regarding certain
tax elections that may be available to such U.S. Holder
pursuant to the PFIC rules.
If White Knight is or has been a PFIC, the PFIC provisions of
the Code will generally override the rules described in the
preceding paragraphs regarding the tax treatment of
reorganizations under Section 368(a), transfers under
Section 351 and taxable transactions. Briefly, under the
PFIC rules, when a U.S. holder of White Knight shares
exchanges those shares for exchangeable shares, any gain
realized by the holder on such exchange (measured by the excess,
if any, of the fair market value of the exchangeable shares and
ancillary rights received by the holder over the holder’s
adjusted tax basis for his or her White Knight shares) is
allocated ratably to each day of such holder’s holding
period for such shares. The portion of the gain allocable to the
year in which the exchange occurs is taxed as ordinary income,
not as capital gain. Tax is calculated with respect to the
portions of the gain allocated to each of the prior years of the
shareholder’s holding period by multiplying the portion
allocable to each prior year by the highest tax rate applicable
to ordinary income in effect for such prior year. In addition,
interest is charged with respect to the tax attributable to the
gain allocated to such prior years. Thus, a U.S. holder who
exchanges White Knight shares will generally be subject to an
amount of tax equal to the sum of (i) the tax on the gain
allocable to the year in which the exchange occurs,
(ii) the tax on the gain allocable to each of the prior
years of his holding period, and (iii) an interest charge
with respect to such prior year tax amounts. These same rules
would apply if the U.S. holder of White Knight shares sold
those shares for cash.
As mentioned above, the provisions of Sections 368(a) and
351 of the Code that provide for tax-deferred treatment of
certain share-for-share exchanges do not generally apply in the
case of dispositions of shares of PFICs. Proposed
U.S. Treasury Regulations provide for two exceptions to
this general rule for certain specified types of dispositions of
PFIC shares, but the offer does not appear to come within these
exceptions.
The PFIC rules provide for certain tax elections that may be
utilized by a U.S. holder who wishes to rid his or her
shares of the “PFIC taint” so that these special,
generally adverse PFIC tax rules will not be applicable with
respect to sales or exchanges of those shares. The rules
governing the availability and consequences of these PFIC
elections are complex. Each U.S. holder of White Knight
shares is strongly urged to consult with his or her tax advisor
regarding the availability and consequences of the PFIC
elections in light of such holder’s specific
circumstances.
As discussed above, there are a number of areas of uncertainty
regarding the U.S. federal income tax treatment of
exchanges pursuant to the offer. Each U.S. holder is urged
to consult with his or her own tax advisor regarding these
matters.
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U.S. Federal
Income Tax Consequences Arising from Holding the Exchangeable
Shares.
Receipt
of Distributions
As discussed above, the offerors intend to take the position
that the exchangeable shares are shares of Canadian Exchange
Co., and not shares of U.S. Gold. Distributions, if any,
paid with respect to the exchangeable shares out of Canadian
Exchange Co.’s current or accumulated earnings and profits,
as determined for U.S. federal income tax purposes, will be
taxable as dividend income to U.S. holders. Dividends paid
with respect to the exchangeable shares are expected to qualify
for the lower tax rates applicable to net capital gains. To the
extent that the amount of any distribution exceeds Canadian
Exchange Co.’s current and accumulated earnings and profits
for a taxable year, the distribution will first be treated as a
tax-free return of capital to the extent of the
U.S. holder’s tax basis, and any excess will be
treated as capital gain. Subject to certain conditions and
limitations, Canadian income tax withheld on dividends with
respect to the exchangeable shares generally may be deducted in
determining a U.S. holder’s federal taxable income or
credited against a U.S. holder’s federal income tax
liability.
As also discussed earlier, the IRS may take the view that the
exchangeable shares should be treated as shares of
U.S. Gold for U.S. federal income tax purposes. In
that case, the determination of whether and to what extent a
distribution is taxable as a dividend would be made by reference
to the current and accumulated earnings and profits of
U.S. Gold, rather than Canadian Exchange Co. Furthermore,
the classification of the exchangeable shares as shares of
U.S. Gold rather than Canadian Exchange Co. may affect
adversely the calculation of the amount of Canadian withholding
tax that may be credited against a U.S. holder’s
federal income tax liability.
Dispositions
of Exchangeable Shares
Generally, a U.S. holder will recognize gain or loss on any
sale, exchange or other disposition of the exchangeable shares.
The amount of gain or loss recognized will equal the difference
between the holder’s adjusted tax basis in the exchangeable
shares and the amount realized from the sale, exchange or other
disposition, unless the disposition transaction qualifies for
non-recognition treatment. Gain or loss will be long-term
capital gain or loss if the U.S. holder’s holding
period is more than one year. In the case of U.S. holders
who are individuals, trusts or estates, any such long-term
capital gain may be taxed at preferential rates. The
deductibility of losses may be subject to limitations.
If a U.S. holder exchanges exchangeable shares for common
shares of U.S. Gold, the U.S. income tax consequences
of that exchange will depend upon whether the exchangeable
shares are classified as shares of Canadian Exchange Co. or as
shares of U.S. Gold for U.S. federal income tax
purposes. If they are regarded as shares of Canadian Exchange
Co., the exchange will be a taxable transaction, with the tax
consequences described in the immediately preceding paragraph.
If, on the other hand, the exchangeable shares are regarded as
shares of U.S. Gold, the exchange of exchangeable shares
for common stock of U.S. Gold should not be taxable.
Certain
Passive Foreign Investment Company Considerations
If Canadian Exchange Co. were treated as a “passive
foreign investment company” for U.S. federal income
tax purposes, this could have potentially adverse U.S. tax
consequences to U.S. holders who dispose of or receive
distributions with respect to exchangeable shares, which
consequences may be different from the consequences discussed
above under “U.S. Federal Income Tax Consequences
Arising from Holding the Exchangeable Shares — Receipt
of Distributions” and under “U.S. Federal Income
Tax Consequences Arising from Holding the Exchangeable
Shares — Dispositions of Exchangeable Shares.”
U.S. holders should consult their own tax advisors with
respect to the potential application of the rules governing
passive foreign investment companies. The offerors do not intend
or expect Canadian Exchange Co. to be a “passive foreign
investment company” as defined in Section 1297(a) of
the Code, but no assurances can be given in this regard.
U.S. Federal
Income Tax Consequences Arising from Holding the Shares of
Common Stock of U.S. Gold
Receipt
of Distributions
Distributions, if any, paid with respect to shares of common
stock of U.S. Gold out of U.S. Gold’s current or
accumulated earnings and profits, as determined for
U.S. federal income tax purposes, will be taxable as
dividend
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income to U.S. holders. In the case of U.S. holders
who are individuals, trusts or estates, any such dividend income
will be subject to tax at the same preferential rates as net
capital gains if the applicable requirements are satisfied. To
the extent that the amount of any distribution exceeds
U.S. Gold’s current and accumulated earnings and
profits for a taxable year, the distribution will first be
treated as a tax-free return of capital to the extent of the
U.S. holder’s tax basis, and any excess will be
treated as capital gain.
Dispositions
of Shares of Common Stock of U.S. Gold
Generally, a U.S. holder will recognize gain or loss on any
sale, exchange or other disposition of the shares of common
stock of U.S. Gold equal to the difference between the
U.S. holder’s adjusted tax basis in the shares of
common stock of U.S. Gold and the amount realized from the
sale, exchange or other disposition. Gain or loss will be
long-term capital gain or loss if the U.S. holder’s
holding period is more than one year. In the case of
U.S. holders who are individuals, trusts or estates, any
such long-term capital gain may be taxed at preferential rates.
The deductibility of losses may be subject to limitations.
U.S. Federal
Income Tax Consequences to
Non-U.S. Holders
of White Knight Common Shares
For purposes of this summary, the term
non-U.S. holder
means a beneficial owner of White Knight common shares that is
not treated as a partnership for U.S. federal income tax
purposes, and that is not a U.S. holder. (See the
discussion of partnerships under “U.S. Federal Income
Tax Consequences to U.S. Holders of White Knight Common
Shares,” above.)
As stated previously, this summary does not address the
U.S. federal income tax consequences to shareholders that
are subject to special rules. It also does not apply to a
non-U.S. holder
that is affected by the provisions of an income tax treaty to
which the United States is a party, and does not address
currency exchange issues. Any
non-U.S. holder
that may be subject to any of these tax rules is urged to
consult his or her own tax advisor to determine the tax
consequences to him or her of the exchange pursuant to the
offer.
U.S. Federal
Income Tax Consequences Arising from the Exchange of White
Knight Common Shares for Exchangeable Shares and from the
Exchange of Exchangeable Shares for Shares of Common Stock of
U.S. Gold
Generally, subject to the discussion below, a
non-U.S. holder
will not be subject to U.S. federal income tax on the
income or gain (if any) realized on the exchange of White Knight
common shares for exchangeable shares and ancillary rights, or
upon the exchange of exchangeable shares for shares of common
stock of U.S. Gold, unless:
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the income or gain is effectively connected with the conduct by
the
non-U.S. holder
of a trade or business, or, if a tax treaty applies,
attributable to a permanent establishment maintained by the
non-U.S. holder,
in the United States; or
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the
non-U.S. holder
is an individual who is present in the United States for
183 days or more in the taxable year of disposition and
certain other conditions are met, unless an applicable income
tax treaty provides otherwise.
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As noted above, if the exchangeable shares are regarded as
shares of U.S. Gold for U.S. federal income tax
purposes, the exchange of exchangeable shares for shares of
common stock of U.S. Gold should not be taxable in any
event.
U.S. Federal
Income Tax Consequences Arising from Holding the Exchangeable
Shares and Shares of Common Stock of
U.S. Gold.
Receipt
of Distributions on Exchangeable Shares
Assuming, as discussed above under “U.S. Federal
Income Tax Consequences to U.S. Holders of White Knight
Common Shares — U.S. Federal Income Tax
Characterization of the Exchangeable Shares,” that the
exchangeable shares are treated as shares of Canadian Exchange
Co. for U.S. federal income tax purposes, rather than
shares of common stock of U.S. Gold, dividends received by
a
non-U.S. holder
with respect to the exchangeable shares
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should not be subject to U.S. withholding tax. However, a
non-U.S. holder
will be taxed in the United States on the receipt of dividends
from Canadian Exchange Co. in the same manner as a
U.S. holder if the
non-U.S. holder
has an office or other fixed place of business within the United
States to which the dividends are attributable and the dividends
are either derived in the active conduct of a banking, financing
or similar business within the United States or received by a
corporation the principal business of which is trading stock or
securities for its account (unless otherwise provided in an
applicable treaty).
Receipt
of Distributions on Shares of Common Stock of
U.S. Gold
Dividends received by a
non-U.S. holder
with respect to shares of common stock of U.S. Gold (and
with respect to exchangeable shares if they are treated for
U.S. tax purposes as shares of U.S. Gold) could be
subject to U.S. withholding tax at a rate of 30%. The
withholding tax rate could be reduced by an applicable income
tax treaty in effect between the United States and the
non-U.S. holder’s
country of residence. For example, the withholding rate under
the Canada-United States tax treaty on dividends paid by a
U.S. corporation to residents of Canada is generally 15%.
In addition, (a) a
non-U.S. holder
will be taxed in the same manner as a U.S. holder on
dividends paid that are effectively connected with the
non-U.S. holder’s
conduct of a trade or business in the United States (unless
otherwise provided in an applicable treaty) and will not be
subject to the U.S. withholding tax provided that the
non-U.S. holder
provides the proper certification, and (b) a corporate
non-U.S. holder
may also be subject to an additional branch profits tax at a 30%
rate (or such lower rate as may be specified in an applicable
income tax treaty) on dividend income that is effectively
connected with a U.S. trade or business.
Dispositions
of Shares of Common Stock of U.S. Gold or Exchangeable
Shares
Subject to the rules discussed below, a
non-U.S. holder
will not be subject to U.S. federal income tax on gain (if
any) realized on the sale or exchange of exchangeable shares or
on the sale or exchange of shares of common stock of
U.S. Gold, unless:
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the gain is effectively connected with the conduct by the
non-U.S. holder
of a trade or business, or, if a tax treaty applies,
attributable to a permanent establishment maintained by the
non-U.S. holder,
in the United States; or
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such
non-U.S. holder
is an individual who is present in the United States for
183 days or more in the taxable year of disposition and
certain other conditions are met, unless an applicable income
tax treaty provides otherwise; or
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In addition, under the Foreign Investment in Real Property
Tax Act of 1980 (“FIRPTA”), if U.S. Gold is
treated as a “U.S. Real Property Holding
Corporation” (“USRPHC”) and the requirements set
forth below are satisfied, then gain or loss recognized by a
non-U.S. holder
on the sale or exchange of exchangeable shares or shares of
common stock of U.S. Gold will be subject to regular
U.S. federal income tax, as if such gain or loss were
effectively connected with the conduct of a U.S. trade or
business by the holder. U.S. Gold will be treated as a
USRPHC if at any time during the shorter of (x) the
five-year period ending on the date of the sale or exchange of
exchangeable shares or shares of common stock of U.S. Gold
(as the case may be) or (y) the period during which a
holder held exchangeable shares or shares of common stock of
U.S. Gold, the fair market value of U.S. Gold’s
United States real property interests equals or exceeds 50% of
the sum of the fair market values of all of its interests in
real property and all of its other assets used or held for use
in a trade or business (as defined in applicable regulations).
It is anticipated that U.S. Gold will be a USRPHC after
consummation of the proposed transaction.
If U.S. Gold is treated as a USRPHC after the consummation
of the proposed transaction, gain or loss from the sale or
exchange of exchangeable shares or shares of common stock of
U.S. Gold will be subject to tax under FIRPTA in the
following circumstances:
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•
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In the case of a
non-U.S. holder
who owns only shares of common stock of U.S. Gold (actually
and constructively), the shares of common stock of
U.S. Gold are treated as “regularly traded on an
established securities market” and the
non-U.S. holder
holds more than 5% of the total fair market value of the shares
of common stock of U.S. Gold outstanding (on a non-diluted
basis) at the relevant determination time;
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•
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In the case of a
non-U.S. holder
who owns only exchangeable shares (actually and constructively,
other than shares of common stock of U.S. Gold
constructively owned by reason of ownership of exchangeable
shares), either:
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•
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The exchangeable shares are treated as “regularly traded on
an established securities market” and such
non-U.S. holder
holds more than 5% of the total fair market value of the
exchangeable shares outstanding at the relevant determination
time, or
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•
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The exchangeable shares are not treated as “regularly
traded on an established securities market,” but the shares
of common stock of U.S. Gold are “regularly traded on
an established securities market,” and such
non-U.S. holder
holds exchangeable shares with a fair market value on the
relevant date of determination greater than 5% of the total fair
market value of the shares of common stock of U.S. Gold
outstanding (on a non-diluted basis) on such date;
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•
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In the case of a non-US holder who actually or constructively
owns shares of common stock of U.S. Gold or exchangeable
shares, such shares and exchangeable shares are not treated as
“regularly traded on an established securities market.”
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The offerors expect that the shares of common stock of
U.S. Gold will be traded on the American Stock Exchange, or
AMEX, and the TSX, and that the exchangeable shares will be
traded on the TSX and AMEX. AMEX and the TSX should each be
considered an “established securities market” for
FIRPTA purposes. Once U.S. Gold’s listing application
is approved, the shares of common stock of U.S. Gold
generally will be considered to be “regularly traded”
on AMEX for FIRPTA purposes for any calendar quarter during
which they are regularly quoted by brokers or dealers making a
market in such shares within the meaning of applicable Treasury
regulations.
If income from the sale or exchange of exchangeable shares or
shares of common stock of U.S. Gold is subject to tax based
on FIRPTA, the transferee of such shares may be required to
deduct and withhold a tax equal to 10 percent of the amount
realized on the disposition, unless certain exceptions apply.
Any tax withheld may be credited against the U.S. federal
income tax owed by the
non-U.S. holder
for the year in which the sale or exchange occurs.
The foregoing summary of the possible application of FIRPTA
rules to
non-U.S. holders
is only a summary of certain material aspects of these rules. If
at any time the exchangeable shares are traded on an established
securities market located in the United States, different rules,
not described herein, may apply. Because the U.S. federal
income tax consequences to a
non-U.S. holder
under FIRPTA may be significant and are complex and subject to
uncertainty,
non-U.S. holders
are urged to discuss those consequences with their tax advisors.
Backup
Withholding and Information Reporting
Information returns may be filed with the U.S. Internal
Revenue Service in connection with payments on the shares of
common stock of U.S. Gold or exchangeable shares and the
proceeds from a sale or other disposition of such stock. Holders
of shares of common stock of U.S. Gold or exchangeable
shares may be subject to U.S. backup withholding tax on
these payments if they fail to provide their taxpayer
identification numbers to the paying agent and comply with
certification procedures or otherwise establish an exemption
from backup withholding. The amount of any backup withholding
from a payment will be allowed as a credit against the
holder’s U.S. federal income tax liability and may
entitle the holder to a refund, provided that the required
information is timely furnished to the U.S. Internal
Revenue Service.
THE PRECEDING DISCUSSION OF U.S. FEDERAL INCOME TAX
CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND IS NOT LEGAL OR
TAX ADVICE. EACH SHAREHOLDER IS ENCOURAGED TO CONSULT ITS OWN
TAX ADVISOR AS TO PARTICULAR TAX CONSEQUENCES OF PARTICIPATING
IN THE OFFER AND TAX CONSEQUENCES OF THE OWNERSHIP AND
DISPOSITION OF EXCHANGEABLE SHARES OR SHARES OF COMMON
STOCK OF U.S. GOLD, INCLUDING THE APPLICABILITY AND EFFECT
OF ANY STATE, LOCAL OR
NON-U.S. TAX
LAWS, AND OF ANY PROPOSED CHANGES IN APPLICABLE LAWS.
81
COMPARISON
OF SHAREHOLDER RIGHTS
Comparison
of Rights of Holders of U.S. Gold Common Stock and White
Knight Common Shares
U.S. Gold is a corporation organized in the United States
and the rights of our shareholders are governed by the
Colorado Business Corporation Act, or the Colorado Act,
and our articles of incorporation, as amended, and bylaws. White
Knight is a corporation organized in the Province of British
Columbia and the rights of its shareholders are governed by the
Business Corporations Act (British Columbia), referred to
as the BCBCA, and other laws of Canada, and White Knight’s
articles and notice of articles. Following the consummation of
the offer, the subsequent acquisition transaction, and the
exchange of the exchangeable shares, White Knight’s
shareholders will become our shareholders and as such their
rights will be governed by the Colorado Act and our articles of
incorporation and bylaws.
The following is a summary of the material differences between
the rights of holders of White Knight shares and the rights of
holders of our shares. This summary is not a complete comparison
of rights that may be of interest, and you should therefore read
the full text of the respective corporate charters, articles and
bylaws, as applicable, of White Knight and U.S. Gold.
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White Knight Shareholder Rights
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U.S. Gold Shareholder Rights
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Authorized Capital
Stock
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White Knight’s authorized
capital share structure is an unlimited number of common shares
without par value.
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Following shareholder approval at
our special meeting in connection with the strategic offers, our
authorized capital stock will be 250,000,001 shares
consisting of 250,000,000 shares of common stock, no par
value, and one share of preferred stock, no par value,
designated Series A Special Voting Preferred Stock.
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Dividends
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Dividends may be declared at the
discretion of White Knight’s board, subject to the rights
of any shareholder holding shares with special rights to
dividends. Dividends may be paid in cash, property or shares of
capital stock.
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Our articles of incorporation
provide that, and pursuant to the Colorado Act, our board may
declare dividends. Dividends may be paid in cash, in property or
in shares of capital stock.
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Size of the
Board
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The BCBCA provides that a public
corporation must have at least three directors. White
Knight’s articles provide that the number of first
directors (those directors set forth in White Knight’s
notice of articles) is set at 5. The size of the board may be
increased or decreased by the shareholders from time to time by
ordinary resolution. If any director retires and no new director
is elected, the size of the board is set at the number of
directors who are actually in office.
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Our bylaws provide that there
shall be seven directors and the board may increase or decrease,
to not less than three, the number of directors by resolution.
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Removal and
Retirement of
Directors
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Under the BCBCA, a director may be removed before the expiration of his or her term by a special resolution. White Knight’s articles provide that the shareholders may by special resolution remove any director and by ordinary resolution appoint another person to fill the vacancy. If the shareholders do not elect or appoint a director to fill the vacancy simultaneously with the removal of a
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Under our bylaws, at a meeting
called for the purpose of removing directors, shareholders may,
remove the entire board or any lesser number of directors, with
or without cause by a majority vote of the shares entitled to
vote at an election of directors.
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White Knight Shareholder Rights
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U.S. Gold Shareholder Rights
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director, the remaining directors
or shareholders may elect or appoint a director to fill the
vacancy.
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Directors’
Term
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Under White Knight’s
articles, at each annual general meeting, shareholders entitled
to vote at the annual general meeting must elect the entire
board. If White Knight does not hold an annual general meeting,
the directors appointed at the last annual general meeting shall
continue in office until a director’s successor is elected
or appointed or the date on which a director otherwise no longer
holds office under the BCBCA or White Knight’s articles.
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Our bylaws, as amended, provide
that each director elected shall hold office until such
director’s successor is elected and qualified.
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Filling Vacancies on
the Board
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Under the BCBCA and White
Knight’s articles, the directors may appoint a person as a
director either to fill a vacancy on the board or as an addition
to the board. The number of additional directors so appointed,
however, cannot at any time exceed one-third of the number of
first directors or one-third of the number of current directors
who were elected or appointed pursuant to the articles. Any
additional director shall hold office until the next annual
general meeting, but shall be eligible for re-election at such
meeting. Under White Knight’s articles, if there are fewer
directors in office than the number set in the articles as a
quorum of directors (a majority of current directors or as set
by the board), the board may only act to appoint directors up to
the number set in the articles as a quorum of directors or may
call a shareholder meeting to fill those vacancies. If White
Knight has no directors or fewer directors in office than the
number set in White Knight’s articles as a quorum of
directors, shareholders may elect or appoint directors to fill
vacancies.
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Our bylaws provide that any
vacancy occurring in our board may be filled by the affirmative
vote of a majority of our remaining directors, even if less than
a quorum. A director elected to fill a vacancy shall be elected
for the unexpired term of such director’s predecessor in
office, and shall hold such office until his successor is duly
elected and shall qualify. If a directorship is to be filled by
reason of an increase in the number of directors, either a
majority of the directors then in office or a majority of
shareholders, may elect the successor. The director so chosen
shall hold office until the next annual meeting and until such
director’s successor has been elected and shall qualify.
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Required Vote for
Certain Transactions
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Under the BCBCA, certain extraordinary corporate actions, such as continuances, certain amalgamations, sales, leases or other dispositions of all, or substantially all of, the property of a corporation (other than in the ordinary course of business), liquidations, dissolutions and certain arrangements, are required to be approved by special resolution of the shareholders. For White Knight, a special resolution means a resolution passed at a general
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To effect a merger or share
exchange under the Colorado Act, a corporation’s board must
approve and adopt a plan of merger or plan of share exchange and
recommend such plan to the shareholders. Such plan must be
adopted by a majority of the shareholders of the corporation
entitled to vote thereon unless the articles of incorporation
require a greater vote. Under the Colorado Act, a corporation
may sell, lease, exchange or otherwise dispose of all, or
substantially all, of its
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White Knight Shareholder Rights
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U.S. Gold Shareholder Rights
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meeting by a majority of at least two- thirds of the votes cast on the resolution. In certain cases, an action that prejudices or interferes with a right or special right attached to issued shares of a class or series of shares must be approved separately by the holders of the class or series of shares being affected.
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property other than in the
regular course of business on the terms and conditions and for
the consideration determined by the board, if the board proposes
and a majority of the shareholders entitled to vote approve the
transaction. Our articles of incorporation and bylaws do not
require a greater vote.
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Calling a Meeting of
Shareholders
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Under White Knight’s articles, the directors have the power at any time to call special meetings of shareholders. Under the BCBCA, the holders of not less than 5% of the issued shares of a corporation that carry the right to vote at a general meeting may requisition that the directors call a meeting of shareholders. Upon meeting the technical requirements set out in the BCBCA, the directors must call a meeting of shareholders to be held not more than four months after receiving the requisition. If the directors do not call such meeting within 21 days after receiving the requisition, the requisitioning shareholders or any of them holding in aggregate not less than 2.5% of the issued shares of the corporation that carry the right to vote at general meetings may call the meeting.
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Our bylaws provide that a special
meeting of shareholders may be called at any time by the
president, by a majority of the board or upon written demand by
shareholders holding 10% or more of all the votes entitled to be
cast on any issue proposed to be considered at the meeting.
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Quorum of
Shareholders
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White Knight’s articles
provide that a quorum for the transaction of business at any
general meeting of shareholders is two shareholders or
proxyholders representing two shareholders, or one shareholder
and a proxyholder representing another shareholder, in both
cases personally present at the commencement of the meeting and
holding or representing by proxy in the aggregate not less than
5% of the issued shares of a class of shares the holders of
which are entitled to attend and vote at such meeting. If White
Knight only has one shareholder, a quorum is one person, who is,
or who represents by proxy, that shareholder.
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Our articles of incorporation
provide that the holders of one-third of our stock entitled to
vote at the meeting, present in person or represented by proxy,
constitutes a quorum at any meeting of our shareholders.
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If within one half hour from the time appointed for a general
meeting a quorum is not present, the general meeting, if
convened by requisition of the shareholders, shall be dissolved.
In any other case the meeting shall stand adjourned to the same
day in the next week at the same time and place. If at such
adjourned meeting a quorum is not present within one half
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White Knight Shareholder Rights
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U.S. Gold Shareholder Rights
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hour from the time appointed, the
person or persons present and being or representing by proxy, a
shareholder or shareholders entitled to attend and vote at the
meeting shall constitute a quorum.
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Notice of Meeting of
Shareholders
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Under the BCBCA, notices of the date, time and place of a general meeting of shareholders must be sent not less than 21 days nor more than two months before the meeting to each director and to each shareholder entitled to attend the meeting. Under White Knight’s articles, the notice for a shareholder meeting for which special business will be conducted must state the nature of the special business to be discussed or approved. If a document is being considered by shareholders, that document must be attached to the notice.
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The Colorado Act and our bylaws
provide that, whenever shareholders are required or permitted to
take any action at a meeting, a written notice of the meeting
stating, among other things, the place, date and time of the
meeting must be given not less than ten nor more than 60
days before the date of the meeting to each stockholder entitled
to vote at the meeting. Moreover, if the number of our
authorized shares is to be increased, at least 30 days
written notice of the shareholder meeting must be given.
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Record Date for
Notice of Meetings of
Shareholders
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The BCBCA and White Knight’s
articles provide that the directors may fix in advance a date as
the record date for the determination of shareholders entitled
to receive notice of and vote at a meeting of shareholders, but
such record date shall not precede the meeting date (i) by more
than two months or (ii) four months in the case of a
meeting requisitioned by shareholders. If White Knight is a
public company, the record date shall not be less than 21
days prior to the meeting date. If White Knight is not a public
company, the record date shall not be less than 10 days
prior to the meeting date. If no record date is fixed, the
record date for the determination of shareholders entitled to
receive notice of a meeting of shareholders shall be at 5:00
p.m. on the day immediately preceding the day on which
the notice is given or, if no notice is given, the beginning of
the meeting.
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Under the Act and our bylaws, our
board may fix in advance a date as the record date, provided
that such date is not less than 10 days nor more than 50
days prior to the meeting. If our board does not fix the
record date, the record date shall be 30 days prior to
the shareholder meeting.
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Dissenters’ or
Appraisal Rights
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The BCBCA provides that shareholders of a corporation are entitled to exercise dissent rights in respect of certain matters and to be paid the fair value of their shares in connection therewith. The dissent right is applicable where the corporation resolves to: • alter its articles to alter the restrictions on the powers of the corporation or on the business it its permitted to carry on; • approve certain amalgamations;
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The Colorado Act provides that a
holder of shares of any class or series has the right, in
certain circumstances, to dissent and obtain fair value of his
or her shares. The Colorado Act grants these dissenters’
rights in the case of mergers or consolidations and certain
sales or transfers of assets or a purchase of assets for stock.
No dissenters’ rights are available for shares of any class
or series that is listed on a national securities exchange or
designated as a national market system security on an
interdealer quotation system by the National Association of
Securities
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White Knight Shareholder Rights
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U.S. Gold Shareholder Rights
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• approve an arrangement, where the terms of the arrangement permit dissent; • sell, lease or otherwise dispose of all or substantially all of its undertaking; or
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Dealers, Inc. or held of record by more than 2,000 shareholders, unless the agreement of merger or consolidation requires the holders to accept for their shares anything other than: • shares of stock of the surviving corporation;
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• continue the corporation into another jurisdiction.
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• shares of stock of another corporation that are
either listed on a national securities exchange or designated as
a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc.
or held of record by more than 2,000 shareholders;
• cash in lieu of fractional shares of the stock
described in the two preceding bullets; or
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• any combination of the above.
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In addition, dissenters’ rights are not available to holders of shares of the surviving corporation if the merger did not require the vote of the shareholders of the surviving corporation.
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Indemnification of
Directors and
Officers
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Under the BCBCA, a corporation may indemnify an individual who is or was a director or officer of the corporation. However, indemnification is prohibited if: • such eligible party did not act honestly and in good faith with a view to the best interests of such corporation (or the other entity, as the case may be); and • in the case of a proceeding other than a civil proceeding, such eligible party did not have reasonable grounds for believing that such person’s conduct was lawful. The BCBCA allows for the corporation to pay the expenses actually and reasonably incurred by the eligible party, provided that, the corporation receives from such eligible party an undertaking to repay the amounts advanced if it is ultimately determined that such payment is prohibited. Despite the foregoing, on application of a corporation or eligible party, a court may:
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Our bylaws provide that we shall indemnify any person who is made or threatened to be made a party to any threatened, pending or completed action or suit or proceeding by reason of the fact that such person is or was a director, officer, employee or agent of U.S. Gold or is or was serving at our request as a director, officer, employee or agent of another entity against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner he or she reasonably believed to be in the best interests of U.S. Gold; but no indemnification shall be made by us in respect of any claim, issue, or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his or her duty to U.S. Gold unless and only to the extent that the court determines upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnification for such expenses which the court deems proper. Such
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• order a corporation to indemnify an eligible party in respect of an eligible proceeding;
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White Knight Shareholder Rights
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U.S. Gold Shareholder Rights
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• order a corporation to pay some or all of the expenses incurred by an eligible party in an eligible proceeding; • order enforcement of or any payment under an indemnification agreement; • order the corporation to pay some or all of the expenses actually and reasonably incurred by a person in obtaining the order of the court; and/or • make any other order the court considers appropriate. White Knight’s articles require White Knight to indemnify directors of White Knight, former directors of White Knight or alternate directors of White Knight and their heirs and legal personal representative against all judgments, penalties, fines or amounts paid in settlement to which that person is or may be liable, and White Knight must pay the expenses actually and reasonably incurred by that person after the final disposition of any legal proceeding or investigative action, whether current, threatened, pending or completed, for which the director, former director or alternate director of White Knight has been made a party or is found liable. White Knight’s articles also provide that White Knight may indemnify any other person. The failure of a director, alternate director or officer of White Knight to comply with the BCA or the articles will not invalidate any indemnity that person is entitled to under the articles.
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indemnification is authorized and conditioned upon a determination of a majority of our disinterested directors, or if no such quorum is available, by independent legal counsel in a written opinion, that the indemnification of such person is proper in the circumstances because such person has met the standard of conduct. Our bylaws also provide that to the extent a director, officer, employee or agent of U.S. Gold has been successful on the merits in defense of any action, suit or proceeding referred to above or defense of any claim, issue or matter, he or she shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with such defense. In addition, the Colorado Act and our bylaws allows for the advance payment of expenses of an officer or director who is indemnified prior to the final disposition of an action, provided that, in the case of a current director or officer, such person undertakes to repay any such amount advanced if it is later determined that such person is not entitled to indemnification with regard to the action for which the expenses were advanced. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrants pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
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Director
Liability
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Under the BCBCA, directors of a corporation who vote for or consent to a resolution that authorizes the corporation to do any of the following are jointly and severally liable to restore to the corporation any amount paid or distributed as a result and not otherwise recovered by the corporation: • carry on its business or exercise any power that it is restricted by its articles from carrying on or exercising; • pay a commission or allow a discount contrary to the provisions of the BCBCA;
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Our articles of incorporation
provide that directors shall not be personally liable to U.S.
Gold or our shareholders for monetary damages for breach
of fiduciary duty, except as prohibited by the Colorado Act, as
follows:
• for any breach of the director’s duty of
loyalty to U.S. Gold or its shareholders;
• for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law;
• for unlawful dividends under the Colorado Act;
or
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White Knight Shareholder Rights
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U.S. Gold Shareholder Rights
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• pay a dividend or acquire or redeem any of its
shares where there are reasonable grounds for believing that the
corporation is insolvent or the payment of the dividend or the
acquisition or redemption would render the corporation
insolvent; or
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• for any transaction from which the director
derived an improper personal benefit.
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• indemnify a person in contravention of the BCBCA.
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A director is not liable for the foregoing if the director relied, in good faith, on:
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• financial statements of the corporation represented to the director by an officer of the corporation or in a written report of the auditor of the corporation to fairly reflect the financial position of the corporation;
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• a written report of a lawyer, accountant, engineer, appraiser or other person whose profession lends credibility to a statement made by that person;
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• a statement of fact represented to the director by an officer of the corporation to be correct; or
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• any record, information or representation that the court considers provides reasonable grounds for the actions of the director, whether or not that record was forged, fraudulently made or inaccurate. Furthermore, a director is not liable if the director did not know and could not reasonably have known that the act done by the director or authorized by the resolution voted for or consented to by the director was contrary to the BCBCA.
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Interested
Shareholder
Transactions
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The rules or policies of certain
Canadian securities regulatory authorities, including Ontario
Securities Commission, or OSC, Rule
61-501 and
Policy Statement
Q-27 of the
Commission des valeues moblieres du Quebec, or AMF Regulation
Q-27,
contain requirements in connection with ‘‘related
party transactions.” A related party transaction means,
generally, any transaction by which an issuer, directly or
indirectly, completes one or more specified transactions with a
related party including purchasing or disposing of an asset,
issuing securities and assuming liabilities. A
‘‘related party” is defined in OSC Rule
61-501 and
AMF Regulation
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The Colorado Act and our articles
of incorporation and bylaws do not prevent us from engaging in a
transaction with an interested shareholder.
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White Knight Shareholder Rights
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U.S. Gold Shareholder Rights
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Q-27 and
includes directors and senior officers of the issuer and holders
of voting securities carrying more than 10% of the voting rights
attaching to all issued and outstanding voting securities or of
a sufficient number of any securities of the issuer to
materially affect control of the issuer.
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OSC Rule 61-501 and AMF Regulation Q-27 require more detailed disclosure in the proxy material sent to securityholders in connection with a related party transaction, and, subject to certain exceptions, the preparation of a formal valuation with respect to the subject matter of the related party transaction and any non cash consideration offered in connection therewith, and the inclusion of a summary of the valuation in the proxy material. OSC Rule 61-501 and AMF Regulation Q-27 also require that, subject to certain exceptions, an issuer shall not engage in a related party transaction unless approval of the disinterested shareholders of the issuer or the related party transaction has been obtained.
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Transactions with
Directors and
Officers
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Under the BCBCA, subject to
certain exceptions, a director or senior officer of a
corporation holds a ‘‘disclosable interest” in a
contract or transaction if: (i) the contract is material
to the corporation; (ii) the corporation has entered, or
proposes to enter, into the contract or transaction; and (iii)
the director or senior officer has a direct or indirect
material interest in the contract or transaction. Subject to
certain exceptions under the BCBCA and unless the court orders
otherwise, a director or senior officer of a corporation is
liable to account to the corporation for any profit that accrues
to the director or senior officer under or as a result of a
contract or transaction in which the director or senior officer
holds a disclosable interest. The exemptions from the
requirement to account to the corporation for any profit include
where the disclosable interest is disclosed to the directors of
the corporation and the directors approve of the contract or
transaction with any directors that hold a disclosable interest
abstaining or the contract is approved by a special resolution
of the shareholders. If all directors have a disclosable
interest in a contract or transaction, any or all of
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Under the Colorado Act and our
articles of incorporation, contracts and transactions between us
and one or more of our directors and officers, or between us and
any other entity in which one or more of our directors or
officers are directors or officers or have a financial interest
may be void or voidable unless: (i) the material facts of
the director’s or officer’s relationship or interest
are disclosed or known to the board or committee and the board
or committee authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors,
(ii) the material facts of the director’s or
officer’s relationship or interest are disclosed or known
to the shareholders and the contract or transaction is approved
in good faith by a vote of the shareholders, or (iii) the
contract or transaction is fair as to the corporation as of the
time it is authorized, approved or ratified by the board, a
committee or the shareholders.
Our articles of incorporation provide that the officers,
directors and other members of our management shall be subject
to the doctrine of ‘corporate opportunities‘ only
insofar as it applies to business
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White Knight Shareholder Rights
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U.S. Gold Shareholder Rights
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those directors may vote on a
directors’ resolution to approve the contract or
transaction. Directors with a disclosable interest may be
counted in the quorum at the directors’ meeting to approve
the contract or transaction whether or not such directors vote
at the directors’ meeting.
White Knight’s articles also provide that a director or
senior officer who holds any office or possesses any property
interest that conflicts materially with his or her duties or
interests as a director or senior officer must disclose the
nature of such conflict to the board.
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opportunities in which U.S.
Gold has expressed an interest as determined from time to
time by the board as evidenced by resolutions appearing in our
minutes. Once such areas of interest are delineated, all such
business opportunities within such area of interest which come
to the attention of the officers, directors, and other members
of our management shall be disclosed promptly to U.S.
Gold and made available to us. Our board may reject any business
opportunity presented to it and thereafter any officer, director
or other member of management may avail himself or herself of
such opportunity. Until such time as U.S. Gold, through
our board, has designated an area of interest, our officers,
directors and other member of management shall be free to engage
in such areas of interest on their own.
In addition, we adopted a corporate opportunity policy that
describes the business opportunities in which we have an
interest and prohibits our officers and directors from taking
advantage of those opportunities without the approval of a
majority of the disinterested directors or a committee of our
board appointed for that purpose.
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VALUATION
REQUIREMENTS FOR INSIDER BIDS
The offer is an “insider bid” within the meaning of
applicable provincial securities legislation by virtue of Robert
R. McEwen’s equity interests in both U.S. Gold and
White Knight. As a result, a formal valuation of White Knight
common shares and of the consideration being offered in exchange
for them under the offer is required in the absence of waivers
or exemptions. Exemptions from the insider bid valuation
requirement are contained in Canadian OSC
Rule 61-501
and AMF
Regulation Q-27
and may be relied upon if neither the offeror nor any joint
actor with the offeror has, or has had within the preceding
12 months, any board or management representation in
respect of the offeree issuer or has knowledge of any material
information concerning the offeree issuer or its securities that
has not been generally disclosed. Neither we nor any person
acting jointly or in concert with us have had board or
management representation at White Knight or have any such
knowledge with respect to White Knight. Accordingly, in making
the offer, we are relying upon the foregoing valuation
exemptions. We have obtained waivers of the valuation
requirements from the securities regulators of each of the other
provinces where a valuation would be otherwise required.
PRIOR
VALUATIONS
U.S. Gold and our directors and senior officers, after
reasonable inquiry, are not aware of any prior valuations, as
defined in applicable provincial legislation relating to insider
bids, of White Knight or of its material assets or securities
within the
24-month
period preceding the date of the offer.
90
EXPENSES
OF THE OFFER
We estimate the total amount of the fees and expenses related to
the strategic offers will be approximately $6.5 million.
REGULATORY
MATTERS
Our obligation to accept for purchase and pay for White Knight
common shares tendered pursuant to the offer is conditional
upon, among other things, obtaining all governmental or
regulatory consents or approvals that U.S. Gold, in our
sole discretion, views as necessary or desirable to enable us to
consummate the offer, on terms and conditions satisfactory to
us. See the section entitled “Conditions of the Offer”
on page 42 of this prospectus.
Competition
Act (Canada)
Our acquisition of White Knight common shares pursuant to the
offer is not a transaction which requires pre-merger
notification to the Commissioner of Competition appointed under
Part IX of the Competition Act (Canada), or the
Commissioner. Whether or not a pre-merger filing is required,
however, the Commissioner may apply to the Competition Tribunal,
a special-purpose quasi-judicial tribunal empowered to deal with
certain matters under the Competition Act (Canada), to
seek relief in respect of merger transactions (including share
acquisitions) and, if the Competition Tribunal finds that a
merger is likely to prevent or lessen competition substantially,
it may order that the merger not proceed or, in the event that
the merger has been completed, order its dissolution or the
disposition of some of the assets or shares involved.
Proceedings under the merger provisions of the Competition
Act (Canada) may be instituted by the Commissioner for a
period of three years after a merger transaction has been
substantially completed. We are not aware of any grounds upon
which such proceedings could be taken.
Investment
Canada Act
The acquisition of White Knight common shares by us pursuant to
the offer is not a transaction which is subject to governmental
review or notification pursuant to the Investment Canada Act
(Canada).
Hart-Scott-Rodino
Act
Under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and the rules
promulgated thereunder by the United States Federal Trade
Commission, or the FTC, certain transactions, including certain
tender offers, may not be consummated unless notification has
been given and certain information has been furnished to the FTC
and the Antitrust Division of the United States Department of
Justice and certain waiting period requirements have been
satisfied. We have determined that the offer is not subject to
the notification and reporting requirements of the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976.
Filings
Under Other Jurisdictions
We have determined that aside from the Canadian requirement
described herein, filings under foreign jurisdictions are not
required.
Canadian
Securities Regulatory Matters
The distribution of the shares of our common stock and
exchangeable shares under the offer is being made pursuant to
statutory exemptions from the prospectus qualification and
dealer registration requirements under applicable Canadian
securities laws.
Although the resale of shares of common stock of U.S. Gold
and exchangeable shares issued under the offer is subject to
restrictions under the securities laws of certain Canadian
jurisdictions, shareholders in such jurisdictions generally will
be able to rely on statutory exemptions from such restrictions.
91
United
States Securities Regulatory Matters
We have filed a registration statement with the SEC on
Form S-4
registering the issuance of shares of common stock of
U.S. Gold and exchangeable shares to be offered in
connection with the offer. One of the conditions of the offer is
that such registration statement has become and remains
effective until the expiry time. See the section entitled
“Conditions of the Offer” on page 42 of this
prospectus.
ACCOUNTING
TREATMENT
If consummated, the transaction described in this prospectus
will be accounted for as a purchase transaction, with
U.S. Gold as the acquirer of White Knight. The offer is
being made only for White Knight’s common shares and is not
being made for any warrants, options or other securities that
may entitle the holder to acquire common shares of White Knight.
After completion of the offer, we may implement a plan of
arrangement or similar transaction to acquire full ownership of
White Knight. We expect we would structure a subsequent
acquisition transaction so that warrants to purchase White
Knight common shares would be exchanged for warrants to purchase
exchangeable shares of Canadian Exchange Co. and U.S. Gold
would assume or adopt the White Knight stock option plan so that
options under that plan would be exercisable for shares of
common stock of U.S. Gold. As a result, for purposes of
preparing the financial statements attached as Appendix G
(Unaudited Pro Forma Consolidated Financial Statements of
U.S. Gold) and Appendix H (Unaudited Pro Forma
Consolidated Supplementary Financial Statements of
U.S. Gold), the options to be issued by U.S. Gold and
the warrants to purchase exchangeable shares of Canadian
Exchange Co have been included as part of the purchase price
consideration based on the outstanding warrants and options, as
disclosed in the most recent publicly available financial
statements of each of White Knight, Coral Gold, Nevada Pacific
and Tone Resources.
DEPOSITARY
We have engaged Kingsdale Shareholder Services Inc. to act as
depositary for the receipt of certificates in respect of White
Knight common shares and related letters of acceptance and
transmittal and notices of guaranteed delivery tendered pursuant
to the offer and for the payment for White Knight common shares
purchased by us under the offer. The depositary will receive
reasonable and customary compensation from us for its services
relating to the offer and will be reimbursed for certain
out-of-pocket
expenses. We have also agreed to indemnify the depositary
against certain liabilities and expenses in connection with the
offer, including certain liabilities under the securities laws
of Canada.
Questions and requests for assistance concerning the offer
should be made directly to the depositary.
DEALER
MANAGER AND SOLICITING DEALER GROUP; INFORMATION AGENT
We have retained GMP Securities L.P. as dealer manager in Canada
and Griffiths McBurney Corp. as dealer manager in the United
States in connection with the offer and to provide various
financial advisory services to U.S. Gold in connection with
the offer. The dealer manager will receive customary
compensation for their services in connection with the
transactions contemplated by the offer and will be reimbursed
for
out-of-pocket
expenses, including reasonable expenses of counsel and other
advisors. We have agreed to indemnify the dealer manager and its
affiliates against various liabilities and expenses in
connection with its services in connection with the transactions
contemplated by the offer, including various liabilities and
expenses under securities laws. From time to time, the dealer
manager and its affiliates may actively trade the debt and
equity securities of U.S. Gold and White Knight for their
own account or for the accounts of customers and, accordingly,
may hold a long or short position in those securities. The
dealer manager has in the past performed various investment
banking and financial advisory services for us for which it has
received customary compensation.
GMP Securities L.P. has the right to form a soliciting dealer
group comprised of members of the Investment Dealers Association
of Canada to solicit acceptances of the offer from persons who
are not resident in the United States and Griffiths McBurney
Corp. has the right to appoint sub-agents who are registered
under applicable United States securities laws to solicit
acceptances of the offer from persons who are resident in the
United States. Each
92
member of the soliciting dealer group, including the dealer
manager, is referred to herein as a soliciting dealer. We have
agreed to pay each soliciting dealer whose name appears in the
appropriate space in the letter of acceptance and transmittal
accompanying a deposit of White Knight common shares a fee of
$0.01 for each such common share deposited and accepted for
purchase by us under the offer. The aggregate amount payable to
any soliciting dealer with respect to any single depositing
holder of White Knight common shares will be not less than
$25.00 nor more than $1,500.00, provided that such holder
deposits no less than 1,000 White Knight common shares. If White
Knight common shares deposited and registered in a single name
are beneficially owned by more than one beneficial owner, the
minimum and maximum amounts will be applied separately in
respect of each such beneficial owner. We may require each
soliciting dealer to furnish evidence of such beneficial
ownership satisfactory to us at the time of deposit.
White Knight shareholders should contact the depositary, the
dealer manager or a broker or dealer for assistance in accepting
the offer and in depositing White Knight common shares with the
depositary.
We have retained Kingsdale Shareholder Services Inc. to act as
information agent in connection with the offer. The information
agent will receive reasonable and customary compensation from us
for services in connection with the offer, will be reimbursed
for certain
out-of-pocket
expenses and will be indemnified against certain liabilities,
including liabilities under securities laws and expenses
incurred in connection therewith.
Other than as set forth above, we will not pay any fees or
commissions to any broker, dealer or other person for soliciting
deposits of White Knight common shares pursuant to the offer. We
will reimburse brokers, dealers, commercial banks and trust
companies and other nominees, upon request, for customary
clerical and mailing expenses incurred by them in forwarding
offering materials to their customers.
OFFEREES’
STATUTORY RIGHTS
Securities legislation in certain of the provinces and
territories of Canada provides holders of White Knight common
shares with, in addition to any other rights they may have at
law, rights of rescission or to damages, or both, if there is
misrepresentation in a circular or a notice that is required to
be delivered to such shareholders. However, such rights must be
exercised within prescribed time limits. Holders of White Knight
common shares should refer to the applicable provisions of the
securities legislation of their province or territory for
particulars of those rights or consult with a lawyer.
DIRECTORS’
APPROVAL
The contents of this prospectus have been approved, and the
sending thereof to the shareholders has been authorized, by the
board of directors of each of U.S. Gold and Canadian
Exchange Co.
EXPERTS
Technical
Reports
The scientific and technical information in Appendix A
(Information Concerning White Knight) relating to White
Knight’s Gold Pick Property is based on a report prepared
by Mine Development Associates. The Qualified Persons for the
Gold Pick Property analysis are Neil Prenn, Registered
Professional Mining Engineer, and Peter Ronning, Professional
Engineer, each of Mine Development Associates.
Independent
Registered Accounting Firm
The consolidated financial statements of U.S. Gold
Corporation as and for the years ended December 31, 2005,
2004 and 2003, the unaudited balance sheet of U.S. Gold
Holdings Corporation as of June 30, 2006, and the balance
sheet of US Gold Canadian Acquisition Corporation as of
June 30, 2006, have been included in Appendices A, B and F,
respectively herein, in reliance upon the reports of Stark
Winter Schenkein Co., LLP, independent registered accounting
firm, appearing elsewhere herein and upon the authority of said
firm as experts in accounting and auditing.
93
LEGAL
MATTERS
Matters of Canadian law, including the legality of the
exchangeable shares offered hereby, will be passed upon on
behalf of the offerors by, and the opinion contained in the
section entitled “Material Canadian Federal Income Tax
Considerations” on page 64 of this prospectus has been
provided by, Fraser Milner Casgrain LLP. The legality of the
common stock of U.S. Gold offered hereby will be passed
upon on behalf of the offerors by Dufford &
Brown, P.C. The opinions contained in the section entitled
“Material U.S. Federal Income Tax Considerations”
on page 74 of this prospectus have been provided by
Hogan & Hartson L.L.P.
94
In addition to the information filed by White Knight with the
SEC under the Exchange Act, White Knight files audited annual
financial statements, unaudited interim financial statements,
management’s discussion and analysis, proxy statements or
information circulars and other information with the SEDAR. The
information concerning White Knight contained in this
Appendix A has been taken from White Knight’s annual
report on
Form 20-F,
for the fiscal year ended June 30, 2006, filed on
October 20, 2006. Although we have no reason to doubt the
accuracy or completeness of the information relating to White
Knight, we are not in a position to independently assess or
verify this information, including White Knight’s financial
statements. See the section entitled “Risk
Factors — We have been unable to independently
verify the reliability of information in this prospectus
regarding White Knight” on page 20 of this
prospectus.
The terms mineral reserve, proven mineral reserve and probable
mineral reserve under Canadian standards are different than the
definitions adopted by the SEC and applicable to
U.S. companies filing reports with the SEC. Further, the
terms mineral resource, measured mineral resource, indicated
mineral resource and inferred mineral resource are recognized
and required to be reported by Canadian regulations, but the SEC
does not recognize these terms. As a result, the information
contained in this Appendix A relating to mineral reserves
and mineral resources may not be comparable to similar
information publicly reported by U.S. companies. See the
section entitled “Appendix A — Terms
Relating to Mineral Reserves and Resources” on
page A-36 of this Appendix A.
Some terms used in this Appendix A may be unfamiliar to
you. We have provided a Glossary beginning on page A-34 for
your reference.
Overview
The legal and commercial name of White Knight is White Knight
Resources Ltd. White Knight is active in the mineral exploration
sector. From 1986 to 1993, White Knight explored various
properties in British Columbia and the Northwest Territories,
Canada. In 1993, White Knight began to acquire gold exploration
properties in Nevada and has focused solely on exploration of
properties in Nevada since that time.
White Knight is a British Columbia-based mineral resource
exploration company, engaged, through its subsidiaries, in the
acquisition and exploration of precious metals properties,
primarily gold. All of White Knight’s mineral exploration
operations are located in the State of Nevada, United States,
where White Knight’s operations have been based since 1993.
White Knight continues to explore for projects to acquire in
Nevada.
White Knight has been exploring for Carlin-type gold deposits in
Nevada since 1993. White Knight has continued to follow its
exploration plan whereby targets have been generated on a number
of its 100% owned properties. During the 2006 exploration
season, significant drill production difficulties have been
encountered by White Knight. Drill availability is at an all
time low and in an effort to alleviate this obstacle, White
Knight is in the process of building its own drill rig. It is
anticipated that this rig will be available in the near future.
To date, White Knight has had no revenue from its operations,
nor is it dependent upon any patents, licenses or manufacturing
processes. White Knight’s operations are dependent upon
mineral exploration and mining rights and claims as well as the
terms of option
and/or joint
venture agreements on those properties. White Knight currently
holds interests in 18 properties in Nevada.
The exploration operations of White Knight are subject to
regulation by several government agencies at the Federal, State,
and local levels. White Knight believes that it is in compliance
with all current regulatory requirements and does not anticipate
any significant changes to these regulations which will have a
material effect on White Knight’s operations.
A-1
Authorized
and Outstanding Share Capital of White Knight
White Knight is authorized to issue an unlimited number of
common shares without par value. Based on information contained
in White Knight’s management discussion and analysis for
the year ended June 30, 2006, dated September 30,
2006, there were:
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59,384,972 White Knight common shares issued and outstanding as
of September 30, 2006;
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5,120,000 White Knight common shares issuable upon exercise of
outstanding options as of June 30, 2006; and
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1,500,000 White Knight common shares issuable upon exercise of
outstanding warrants as of June 30, 2006.
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White Knight shareholders are entitled to receive notice of and
attend any meetings of shareholders and to one vote per common
share at all such meetings. Shareholders are entitled to receive
such dividends as White Knight’s board of directors may
declare from time to time, according to the number of shares
held and subject to the rights, privileges, restrictions and
conditions attaching to any other class of shares of White
Knight.
Dividends
and Dividend Policy
Based on publicly-available information, White Knight has never
declared any dividends on White Knight common shares. Further,
White Knight has not publicly stated that it has the intention
to pay dividends in the future.
History
and Development of White Knight
White Knight’s registered office is located at
Suite 3350, 1055 Dunsmuir Street, Vancouver, British
Columbia, Canada V7X 1L2 and its principal office is located at
922, 510 West Hastings Street, Vancouver, British Columbia,
Canada V6B 1L8. White Knight is a reporting issuer in the
Provinces of British Columbia and Alberta and files its
continuous disclosure documents with the securities regulatory
authorities in those provinces. These documents are available
without charge at www.sedar.com.
White Knight was incorporated under The Company Act of British
Columbia on December 18, 1986. White Knight’s articles
were amended on January 31, 1995 to increase the authorized
share capital from 10,000,000 White Knight common shares to
100,000,000 common shares without par value. White Knight
completed a mandatory transition to the Business Corporations
Act (British Columbia), or the BCBCA, on December 21,
2005. On March 29, 2004, the British Columbia legislature
enacted the BCBCA and repealed the former act, which previously
governed White Knight. The BCBCA removed many of the
restrictions contained in the former act, including restrictions
on the residency of directors, the place of annual general
meetings and limits on authorized share capital. The BCBCA also
uses new forms and terminology. Under the BCBCA, every company
incorporated, amalgamated or continued under the former act must
complete a mandatory transition rollover. Under the BCBCA, the
directors of White Knight were permitted to approve and complete
this mandatory transition rollover, effective June 20,
2005. At an annual general meeting held on November 26,
2005, White Knight’s shareholders approved, by a
three-quarter majority vote, the removal of pre-existing
restrictions based on the former act and no longer required
under the BCBCA. At this meeting shareholders also approved
amendments to White Knight’s Notice of Articles and
authorized share capital. In addition, the shareholders approved
new articles to bring White Knight’s charter documents into
line with the incorporated BCBCA, altered the authorized capital
of White Knight from 100,000,000 common shares without par value
to an unlimited number of common shares without par value. The
changes were effected under a new Notice of Articles on
December 21, 2005.
During the year ended June 30, 2006, White Knight received
Cdn$6,175,733 from the exercise of 4,940,586 warrants. During
the 2006 fiscal year, White Knight wrote off Cdn$143,783 and
invested cash of Cdn$288,777 in mineral property interests and
deferred exploration costs of Cdn$2,413,657. See the section
entitled “White Knight’s Mineral Properties” on
page A-3 of this Appendix A.
During the year ended June 30, 2006, White Knight issued
Cdn$6,345,433 in capital stock: 40,000 shares were issued
for mineral property interests at a deemed value of Cdn$72,000;
315,000 shares were issued on the exercise of stock options
for net proceeds of Cdn$169,700; and 4,940,586 shares were
issued pursuant to the exercise of warrants for net proceeds of
Cdn$6,175,733.
A-2
There are ongoing drilling programs on the Cottonwood, Celt,
Squaw Creek, New Pass and Patty properties. White Knight
anticipates spending $2,000,000 or more during 2006 on further
exploration of its properties.
White
Knight’s Organizational Structure
White Knight has three subsidiaries:
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CUN Minerals, Inc., incorporated in Nevada, 100% directly owned
by White Knight.
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White Knight Gold (U.S.) Inc., incorporated in Delaware, 100%
directly owned by White Knight.
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Quito Gold Corporation, incorporated in Nevada, 100% directly
owned by White Knight.
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White
Knight’s Mineral Properties
The following is a description of White Knight’s properties
and the nature of White Knight’s interests in such
properties. This section, entitled “White Knight’s
Mineral Properties” was reviewed and the contents have been
verified by White Knight’s Qualified Person, John M. Leask,
P.Eng. The Qualified Persons for the Gold Pick Property analysis
are Neil Prenn, Registered Professional Mining Engineer, and
Peter Ronning, Professional Engineer, each of Mine Development
Associates.
The
Patty Property (formerly Indian Ranch)
The Patty Property, formerly known as the Indian Ranch property
is located in Eureka County, Nevada and consists of 544
unpatented mining claims totaling 10,008 acres. White
Knight owns a 30% undivided interest in the Patty Property.
Chapleau Resources Ltd. owns a 10% undivided interest and Placer
Dome U.S. Inc. owns a 60% undivided interest in the Patty
Property. The Patty Property is without known mineral reserves
and is at the exploration stage. White Knight’s current
efforts are exploratory in nature.
Acquisition
of Patty Property
White Knight entered into an option agreement dated
February 10, 1994 with the Damele family on the Patty
Property. The agreement was subsequently amended through five
separate amendments with the Damele family. Under the agreement
and its amendments, White Knight earned a 100% leasehold
interest in the Patty Property by issuing to the Damele family
100,000 common shares and an annual work commitment of
5,000 feet of drilling. The
A-3
drill commitment was waived for the year ended February 10,
1996 in consideration of a $15,000 cash payment. Additionally,
the original net smelter royalty held by the Damele family was
amended for consideration of a $15,000 cash payment. Currently,
the Damele family retains a 6% net smelter royalty, but White
Knight may reduce the net smelter royalty to 3% in consideration
of a $500,000 payment. White Knight’s lease on the Patty
Property extends through February 10, 2014 or for so long
thereafter as exploration, development or mining activity is
being conducted on a continuous annual basis. White Knight has
met all the required terms under the agreement to date.
Under an agreement with Chapleau Resources Ltd. dated
May 26, 1997 and amended June 18, 2001, White Knight
granted Chapleau the right to earn an interest in the Patty
Property by making payments to White Knight totaling $400,000
and incurring exploration expenditures of $1,500,000. On
June 25, 2001, Chapleau vested a 25% interest, thus
reducing White Knight’s interest to 75%.
Under an agreement dated March 26, 2003 between White
Knight, Chapleau and Placer Dome U.S. Inc., White Knight
granted Placer Dome the right to earn an initial 60% interest in
the Patty Property by paying $55,000 and incurring a minimum of
$2,000,000 in work expenditures over a four-year period under
the following schedule:
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Expenditure
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Minimum Work
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Due Date
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Expenditures ($)
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March 25, 2004
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100,000
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March 25, 2005
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300,000
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March 25, 2006
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600,000
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March 25, 2007
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1,000,000
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Total
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2,000,000
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In August 2006, Placer Dome vested its 60% interest in the Patty
Property and declined to elect to earn an extra 15% by financing
a feasibility study. As a result of Placer Dome vesting its 60%
interest, the interests of White Knight and Chapleau were
reduced to 30% and 10%, respectively.
Location
of and Access to Patty Property
The Patty Property lies 10 miles southeast of the Gold
Acres-Cortez Window, and is located 17 air miles southeast of
the Pipeline/South Pipeline gold mines and 38 air miles
northwest of Eureka, Nevada. Access is via Nevada State Highway
278 south from Carlin for 48 miles, west on the JD Ranch
Road for
41/2
miles, south for 12 miles to the Tonkin Ranch site, and
then northwest for 5 miles. The south and central portions
of the Patty Property can be traversed by unimproved dirt roads,
and new roads are planned to provide drilling access to the
north.
Regional
and Property Geology of Patty Property
The Patty Property is located on the Cortez Trend. Lower-plate
Paleozoic sediments underlies shallow volcanic and alluvial
cover on much of the central and eastern portions of the Patty
Property. Lower-plate carbonate rocks are not exposed at the
surface, but drilling and mapping thus far indicate that about
10 square miles of the Patty Property is underlain by lower
plate Paleozoic carbonate rocks of the Roberts Mountains
Formation, Rabbit Hill Limestone, Nevada Group, or underlying
dolomites of the Hanson Creek Formation. This covered window of
Lower Plate rocks is present in the form of several uplifted or
hoisted blocks. Roberts Mountains Formation rocks occur in the
window and have been intersected in drill holes within
35 feet of the surface. Hydrothermal alteration is present
over large areas of the property, and thick (up to 600 feet
or more) zones of intense alteration in the form of
silicification, decalcification or sanding, and argillization
are present, as well as amorphous carbon or fine-grained
sulfides. Anomalous gold and associated hydrothermal alteration
is present across Patty in both Upper and Lower Plate rocks.
Previous
Exploration History of Patty Property
Prior to White Knight’s acquisition of its interest in the
Patty Property, Northern Dynasty Exploration Ltd. explored it in
1987. Northern Dynasty prepared a preliminary geologic map and
drilled 4 holes totaling 1,130 feet. Hycroft Resources and
Development Corporation then acquired the property and drilled
90 additional holes from
A-4
1988 to 1990 to an average depth of 114 feet. After White
Knight acquired the Patty Property in 1994, exploration was
conducted by Delta Gold Mining Corp. under an earn-in joint
venture agreement on a combined land package comprised of the
Patty Property and the Imperial property. Delta Gold completed
an induced polarization survey, a CSAMT survey, and drilled 10
holes to an average depth of 501 feet. This drilling
resulted in the discovery of an 80 foot wide zone of gold
mineralization averaging 0.012 oz/ton gold. Delta Gold also
intersected a higher-grade zone of 10 feet averaging 0.22
oz/ton gold. Delta Gold subsequently terminated the agreement.
Under the Chapleau option agreement, 20 holes were drilled
during 1997, 12 holes were drilled in 1998, four holes were
drilled in 1999, and 11 holes were drilled in 2000 for a total
of 45,100 feet in 47 holes. During 1999, a detailed gravity
survey and a soil sampling grid program were also completed.
Exploration expenditures under the Chapleau agreement totaled
$1,500,000.
In 2001, Kennecott Exploration Company entered an option
agreement with White Knight and Chapleau. Kennecott drilled 11
reverse circulation holes which intersected low-grade gold
mineralization three miles south of the previously identified
gold zones. Kennecott expended $531,100 before terminating the
agreement.
During the 2005 field season, Placer Dome completed reverse
circulation, or RC, drilling in three holes comprising 1,830
metres. As part of this campaign, Hole PIR 05-10 intersected a
broad zone of Carlin-type mineralization grading 0.32
grams/tonne over a thickness of 102 metres which included 9.1
metres grading 1.58 grams/tonne.
Several holes angled off the same drill pad also intersected
significant gold at what is interpreted to be the same host
sequence. Highlights of the program occurred in drill hole
PIR05-12 which was drilled at an angle of 70 ° and an
azimuth of 350 ° from PIR05-10 and returned the following
intervals: 676 ppb Au (0.023 oz/ton) from 1370 feet to
1460 feet (90 feet) including 15 feet grading
1,820 ppb Au (0.057 oz/ton) from 1380 feet to
1395 feet Drill holes PIR05-11, PIR05-13, PIR05-14 and
PIR05-15 were all drilled off the drill pad
set-up for
PIR05-10 and were lost above the target section. Drill hole
PIR05-16 also intersected anomalous gold in what is projected as
a down faulted block to the south of PIR05-10. The assay
interval from 2,620 feet to 2,720 feet returned 219
ppb gold over 100 feet with a high of 500 ppb gold over
5 feet.
Current
and Planned Exploration of Patty Property
In September 2006, Placer Dome commenced drilling on the Patty
Property with a planned program of 6,000 feet of reverse
circulation drilling in 3 to 4 holes.
A-5
Slaven
Canyon Property
The Slaven Canyon Property is located in Lander County, Nevada,
and totals 6,599 acres. White Knight has a 100% interest in
258 unpatented mining claims comprising 5,174 acres of the
Slaven Canyon Property and has a lease on the remaining
1,425 acres, which are subject to net smelter royalties.
The Slaven Canyon Property is without known mineral reserves and
is at the exploration stage. White Knight’s current efforts
are exploratory in nature.
Acquisition
of Slaven Canyon Property
Since September 2001, White Knight has staked 258 unpatented
mining claims comprising 5,174 acres. Since fiscal 2003,
White Knight has signed lease agreements on 1,425 acres
adjacent to White Knight’s staked claims. The leases called
for the payment of approximately $32,430 on signing and
escalating lease payments thereafter. The owners retain net
smelter returns ranging from one-half of one percent to three
and one-half percent with a buy down to one percent for
$1,500,000. Annual holding costs for the property are estimated
to be $81,885 for 2007, which includes $47,438 for the lease
payments and $34,447 in federal and county fees.
Location
of and Access to Slaven Canyon Property
The Slaven Canyon Property is located in the Northern Shoshone
Range, Lander County, Nevada, approximately 14 miles
southeast of Battle Mountain. The Slaven Canyon Property is
traversed by numerous unimproved dirt roads traveling south from
Battle Mountain.
Regional
and Property Geology of Slaven Canyon Property
Rock units on the Slaven Canyon Property are dominated by chert,
siltstone and limestone of the Ordovician Vinini Formation and
Devonian Slaven Chert, both units of the Upper Plate Roberts
Mountains Allochthon. These units are overlain on the east by
Miocene basalt of the Northern Nevada Rift. Major northeast
trending faults cut through the area and are believed to be a
regional control to the localization of gold mineralization. The
main zone
A-6
of gold mineralization on the property measures about
2,400 feet east-west by 300 to 500 feet north-south.
Select drill intercepts include:
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Interval (feet)
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|
Gold (ounces per ton)
|
|
60
|
|
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0.059
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|
35
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|
0.096
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60
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0.052
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|
100
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0.049
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40
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0.050
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45
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0.063
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25
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0.083
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|
Mineralization is open on the east and west end and to some
degree down dip. A second area of gold mineralization occurs on
the northern portion of the claims. The primary exploration
target is a Carlin-type gold deposit in lower plate carbonate
rocks or in carbonate units of the upper plate. Select drill
hole intercepts from here include:
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|
Interval (feet)
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|
Gold (ounces per ton)
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|
25
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|
0.066
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25
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|
|
0.054
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|
10
|
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0.063
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|
The zone of mineralization is a shallow, mostly oxide, shallowly
dipping tabular body hosted in upper plate siliclastic rocks.
Gold mineralization is probably controlled by a shallow angle
thrust fault. Alteration is dominantly argillization and
sanding. Most holes in the vicinity of the main zone are between
200 feet to 300 feet deep with the deepest being
700 feet.
Previous
Exploration History of Slaven Canyon Property
After the discovery of gold-bearing breccia outcrops, Resource
Associates of Alaska staked claims at Slaven Canyon in 1984.
Resource Associates conducted geologic mapping, rock and soil
sampling, and trenching from 1984 to 1987. Nerco Exploration
Company acquired Resource Associates in 1988 and Alta Gold
Company joint-ventured the claims with Nerco later that year.
Alta Gold began an aggressive drilling program and completed 59
shallow holes in 1988. An additional eight holes were drilled in
1989. Cyanide-shake metallurgical tests were conducted in 1990,
followed by the drilling of 17 holes in 1991. Uranerz
Exploration and Mining Limited leased the property in 1991 and
completed a 57-hole drilling program in 1992. Bottle-roll tests
were completed in 1993 after which a resource estimate was
completed. Cameco acquired Uranerz in 1994 and terminated the
lease. Cyprus Minerals Corp. leased the claims from Alta Gold
later that year and drilled nine holes in the northwest part of
the property before terminating the lease in 1995. Following
Cyprus’ withdrawal, Alta Gold retained the claims from 1996
through 1999 but performed no further work on the Slaven Canyon
Property. Alta Gold filed for bankruptcy in 2000 and
relinquished the claims shortly thereafter.
Current
and Future Exploration of Slaven Canyon Property
Work on the Slaven Canyon Property over recent seasons included
24 shallow reverse circulation holes and one deep core hole (DDH
SL-21). White Knight drilled the Slaven Canyon Property with two
exploration objectives: 1) to establish the existence of,
and depth to, lower-plate limestone host rocks, and 2) to
establish a better understanding of the structural controls for
the upper-plate hosted mineralization. Drill hole SL21, drilled
to a final depth of 2,583 ft, encountered several thrust fault
sequences. Deep in the hole, a 100 ft-thick, highly sheared
micritic limestone was encountered, which was interpreted to be
a piece of lower-plate, based on lithology. Diamond drill hole
SL25 was completed 3 months later and reached a total depth
of 3,088 ft. This hole was drilled through the known upper-plate
resource and confirmed the grade and disseminated nature of gold
mineralization, intersecting 50 ft @ 0.092 opt Au including 5 ft
@ 0.380 opt Au. The hole also drilled the same thrusted and
repeated sequences observed in DDH SL21. However, the hole,
which included some limestone interbeds similar to the limestone
A-7
drilled in DDH SL21, remained in upper-plate rocks to the total
depth drilled. White Knight believes that the shallow drilling
at the Slaven Canyon Property (less than 1,000 ft) established
strong exploration potential for a structurally controlled
deposit of significant size in upper-plate host rocks,
principally in quartzites which have yielded strong gold values
both in drill holes and in surface samples (e.g. 25 ft @ 0.122
opt Au in a roadcut).
It is White Knight’s intention to further explore the
Slaven Canyon Property when a drill rig becomes available.
Celt
Property
White Knight’s 100% owned Celt Property is located in
Eureka County, Nevada, and consists of 608 unpatented mining
claims totaling 12,569 acres. Teck Cominco American
Incorporated has an option to earn an initial 51% interest in
the Celt Property. The Celt Property is without known economic
mineral reserves and is at the exploration stage. White
Knight’s current efforts are exploratory in nature.
Acquisition
of Celt Property
White Knight has staked 608 unpatented mining claims located on
Bureau of Land Management land since September 2003. In October
2004, White Knight entered into a property acquisition agreement
with Teck whereby Teck was granted the option to earn an initial
51% interest in the Celt Property. The terms of the agreement
provide for exploration expenditures of $4,000,000 and cash
payments of $750,000 which must be incurred and paid to White
Knight’s U.S. subsidiary in annual increments prior to
December 31, 2008. Teck has completed a firm commitment to
incur $500,000 in exploration expenditures by December 31,
2005. Upon Teck vesting its 51% interest, Teck and White Knight
will form a joint venture to further develop the Celt Property.
When the joint venture completes the earlier of
$8.0 million in expenditures or a preliminary feasibility
study, Teck will have a one-time option to elect to earn an
additional 9% interest by funding and completing a feasibility
study. Upon Teck earning its additional interest and the
approval of a production plan, White Knight will have the option
to request that Teck arrange financing for White Knight’s
share of the capital costs required to develop the property. If
White Knight exercises this option Teck shall commit to use its
best efforts to arrange or provide project debt financing for
not less than 60% of projected capital costs on a limited
recourse basis after technical completion. If project costs
exceed the amount available for debt financing and the parties
elect nonetheless to put the property into production then at
White Knight’s election Teck shall also arrange or provide
White Knight’s share of equity financing on a subordinate
loan basis at LIBOR plus 4%. During the earn-in period, Teck is
responsible for all property holding costs.
A-8
Location
of and Access to Celt Property
The Celt Property lies along the southern portion of the Cortez
Trend. It is situated along the western edge of the Roberts
Mountains. Access is by a network of all-weather roads.
Regional
and Property Geology of Celt Property
The Celt Property lies over the Ordovician Vinini Formation
which is dominantly chert and shale, but includes some limestone
and greenstone units. The Celt Property follows more than four
miles of strike length of a north-northwest trending fault zone
where anomalous gold and pathfinder elements occur. The claims
were staked to cover the gravel-covered area to the west of the
fault.
Previous
Exploration History of Celt Property
Gold was discovered in jasperoids along the eastern edge of the
Celt Property in 1972 which led to prospecting and the staking
of blocks of claims between 1972 and 1978. After the discovery
of the nearby Gold Bar deposit in 1984, Atlas Precious Metals
staked the entire area, but the property was not drilled. Cordex
Syndicate leased Atlas’ claims in the area in 1994. Cordex
conducted geologic mapping and grid rock and soil sampling, and
drilled one exploration hole of less than 600 feet along
the range front of the property before dropping the claims.
During the 2005 field season, Teck executed gravity and induced
polarization surveys that defined a 7 kilometre long zone
interpreted as the faulted western edge of a lower-plate horst
block. Outcrops of dolomitized limestone along the zone are
confirmation of shallowly buried lower-plate lithologies. Teck
collected twenty-six rock chip samples of which ranged from no
gold detected to 6.17 grams/tonne gold. The five highest values
returned 6.17 grams/tonne, 5.02 grams/tonne, 2.28 grams/tonne,
0.82 grams/tonne and 0.26 grams/tonne. Teck’s
follow-up
2005 reverse circulation drilling program tested a
geophysical/geological series of targets in the central portion
of the property. Lower-plate carbonate host rocks were
encountered at relatively shallow depths under a veneer of
upper-plate siliclastics in 5 of 8 drill holes. Significant path
finder elements, as well as anomalous gold, were encountered.
After careful examination of the results, it is now believed
that the several kilometre-long gold soil/rock anomaly located
along the west Roberts Mountains rangefront, may be a part of a
gold system focused to the west.
Current
and Planned Exploration
Teck has just commenced a 6-10 hole, 8,000 foot reverse
circulation drill program on the Celt Property.
A-9
Cottonwood
Property
The Cottonwood Property is located in Eureka County, Nevada, and
consists of 113 unpatented mining claims totaling
2,178 acres. White Knight currently has a 100% interest in
107 unpatented mining claims and has an option to purchase 100%
interest in the other 6 unpatented mining claims. The Cottonwood
Property is without known economic mineral reserves and is at
the exploration stage. White Knight’s current efforts are
exploratory in nature.
Acquisition
of Cottonwood Property
White Knight has staked 107 unpatented mining claims in the
Cottonwood Property since October 2001. Under an agreement dated
February 1, 2002, White Knight has leased from Gregory McN.
French 6 adjacent unpatented mining claims known as the Jam
Claims. Under the agreement, White Knight is required make cash
payments and issue common shares to Mr. French under the
following schedule:
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Cash Option
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Common Share
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Payment Due Date
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Payments ($)
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Issuances
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Initial Payment
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1,000 (paid
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None
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February 1, 2003
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1,000 (paid
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)
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20,000 (issued)
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February 1, 2004
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2,000 (paid
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)
|
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|
20,000 (issued)
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|
|
|
|
February 1, 2005
|
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2,000 (paid
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)
|
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|
20,000 (issued)
|
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|
|
|
|
February 1, 2006
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3,000 (paid
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)
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20,000 (issued)
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February 1, 2007 and each
year thereafter
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5,000
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None
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|
Mr. French also retains a net smelter royalty on the Jam
Claims which varies by ounces produced and the price of gold. On
production greater than 50,000 ounces but less than 150,000
ounces, the net smelter royalty is 4%. For production of less
than 50,000 ounces and greater than 150,000 ounces, the net
smelter royalty varies from between 1% to 2%, depending upon the
price of gold. Mr. French also retains a 1.5% net smelter
royalty on minerals other than gold. White Knight has the option
to acquire the net smelter royalty and purchase the Jam Claims
from Mr. French for $50,000 at any time before the
10th anniversary date of the lease.
Annual holding costs for the Cottonwood Property are estimated
to be $15,085 for 2007 in federal and county fees.
A-10
Location
of and Access to Cottonwood Property
The Cottonwood Property is located at the headwaters of
Cottonwood Creek in the central Roberts Mountains, approximately
30 miles northwest of the town of Eureka, Nevada. Access is
by a network of improved all-weather roads.
Regional
and Property Geology of Cottonwood Property
The Cottonwood Property lies on the Cortez Trend and encompasses
a major north-northwest trending window-bounding fault where it
is intersected by a west-northwest trending belt of
mineralization which crosses the Roberts Mountains. The fault
places a block of thick Ordovician Vinini Formation on the west
in juxtaposition with Lower Plate Devonian carbonates on the
east. Gold bearing jasperoid is developed on the southeast
extension of this window bounding fault.
The Cottonwood Property contains the Pot Canyon mineralized
zone, the French Trail and South French Trail mineralized zones,
and the Wall mineralized zone. The Pot Canyon zone is still open
for expansion in two directions. Significant intercepts from
previous drilling at Pot Canyon include:
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Drill Hole
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Interval (feet)
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|
Gold (ounces per ton)
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|
114-29
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80
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|
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0.049
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|
114-34
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|
|
125
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|
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|
0.022
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|
114-36
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130
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|
|
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0.029
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|
At the South French Trail zone, about 3,000 feet north of
Gold Canyon, Atlas intersected gold mineralization grading 0.015
opt gold to 0.044 opt gold over widths of 10 feet to
20 feet in five holes.
Follow-up
drilling was not conducted. At the Wall prospect south of Pot
Canyon, Barrick intersected 30 feet of 0.048 opt gold in a
window-bounding fault and did no
follow-up
drilling.
The target is a large Carlin-type deposit hosted in Devonian
carbonate rocks along or east of the major window-bounding
fault. The convergence of the window-bounding fault, the Roberts
Mountains thrust fault, the east-west anticlinal axis, and the
west-northwest-trending belt of gold mineralization produces an
ideal exploration setting. Expansion of the Pot Canyon resource
and South French Trail mineralization are also targets.
Previous
Exploration History of Cottonwood Property
Barite occurrences in the area were prospected in the late
1970’s and in 1980, N.L Baroid Division of N.L. Industries,
Inc. located claims for barite in the central Cottonwood area.
Prospecting during the gold boom of the early 1980’s led to
claim groups being located by Chevron Resources Company in 1980
and by Mapco Minerals Corporation/Nerco in 1983 in the northern
and southern parts of the Cottonwood area respectively.
Chevron’s claims lapsed in 1983 and were restaked by Nerco.
American Copper and Nickel Company and Phelps Dodge later leased
and explored the claims staked by N.L. Baroid and Nerco. N.L.
Baroid discovered the Pot Canyon gold zone in 1985. The property
was acquired by Phelps Dodge in 1986 who continued to explore
the property through 1990 until Atlas acquired their holdings in
1991. Atlas acquired the Nerco claims in 1990. The French Trail
and South French Trail mineralized zones were drilled by Atlas
in 1993.
Cordex leased the northern part of the Cottonwood area in 1995
and drilled a few holes. In 1997, Barrick leased most of
Atlas’ claims in the area. Barrick drilled eight fairly
deep holes in 1998 and intersected gold mineralization at the
Wall prospect. Atlas’ claims were leased by Vengold (now
American Bonanza) in 1999 after Barrick terminated its lease but
conducted no work before relinquishing the property.
Drilling on the Cottonwood Property by previous operators
identified several gold zones, but little
follow-up
work was ever conducted. The Pot Canyon deposit remains open in
two directions, and gold mineralization discovered by drilling
the South French Trail and Wall prospect were never followed-up.
In 2005, White Knight completed five shallow holes on the
Cottonwood Property at the southern end of the target area where
a hole drilled by Barrick Gold in the late 1990’s was
reported to have significant gold in favorable host rocks. These
follow-up
drill holes around the Barrick hole failed to intersect
significant gold mineralization in this area.
A-11
Current
and Planned Exploration
White Knight is currently drilling on the Cottonwood Property.
The planned drill program consists of a four to eight hole,
5,000 to 10,000 ft campaign focusing along the Wall fault north
of the 2005 drilling, in the Pot Canyon and French Trail deposit
areas where significant gold mineralization has been drilled and
remains open for expansion, and at the Gold Ledge prospect along
the faulted gold-mineralized anticline east of the Wall fault.
Fye
Canyon Property
The Fye Canyon Property is located in Eureka County, Nevada and
comprises 345 unpatented mining claims on 6,320 acres.
White Knight currently has a 100% interest, although Teck is
holding an option to earn an initial 51% interest. The Fye
Canyon Property is without known economic mineral reserves and
is at the exploration stage. White Knight’s current efforts
are exploratory in nature.
Acquisition
of Fye Canyon Property
White Knight staked 231 unpatented mining claims after acquiring
114 unpatented mining claims upon the execution of a mining
lease agreement. Under the terms of the agreement, White Knight
must pay annual advance royalty payments starting at $5,000 upon
execution, and increasing by $5,000 per year to a maximum
of $50,000 per year. White Knight must expend a minimum of
$20,000 on exploration work on the property per year. The vendor
retains a 2% net smelter royalty payable on production up to
$1,000,000 after which it is reduced to 1% to a maximum of
$5,000,000.
In October 2004, White Knight and Teck entered into an agreement
which granted Teck an option to earn an initial 51% interest in
the property by making cash payments to White Knight totaling
$750,000 and incurring exploration expenditures of $4,000,000 in
annual increments prior to December 31, 2008. Upon Teck
earning a 51% interest in the property, Teck and White Knight
will form a joint-venture on the Fye Canyon Property. When the
joint-venture completes the earlier of $8.0 million in
expenditures or a preliminary feasibility study, Teck will have
the one-time option to elect to earn an additional 9% interest
(for 60% total) in the property by funding and completing a
feasibility study. Upon Teck earning its additional interest and
the approval of a production plan, White Knight will have the
option to request that Teck arrange financing for White
Knight’s share of the capital costs required to develop the
Fye Canyon Property. If White Knight exercises this option Teck
shall commit to use its best efforts to arrange or provide
project debt financing for not less than 60% of projected
capital costs on a limited recourse basis after technical
completion. If project costs exceed the amount available for
debt financing and
A-12
the parties elect nonetheless to put the property into
production then at White Knight’s election Teck shall also
arrange or provide White Knight’s share of equity financing
on a subordinate loan basis with an interest rate of the London
Interbank Offered Rate, or LIBOR, plus 4%.
During the earn-in period, Teck is responsible for all property
holding costs.
Location
of and Access to Fye Canyon Property
The Fye Canyon Property lies on the Cortez Trend and is adjacent
to White Knight’s Pat Canyon Property to the north. Access
is by a series of all-weather and dirt roads.
Regional
and Property Geology of Fye Canyon Property
The Fye Canyon Property lies along the southern projection of
the north-northwest by south-southeast-trending Cortez fault
zone, just south of a major northeast-trending cross-structure
which bounds the northern edge of Simpson Park Mountains. The
claims cover
31/2
miles of strike length of this splayed north-northwest fault
system. Upper-plate Ordovician Vinini Formation crops out in the
eastern part of the block and is overlain by scabs of felsic
Tertiary volcanics and thin Quaternary alluvium in the central
area with thicker gravels in the west part. Intermediate
Tertiary volcanics cover the southernmost part of the claim
block. The claim block lies along the projection of lower plate
carbonate rocks in the Cortez window to the northwest and the
Tonkin window to the southeast. On the property, hematite and
barite veined cherts and siltstones of the Vinini Formation are
highly anomalous in both mercury and arsenic.
Previous
Exploration History of Fye Canyon Property
A number of companies explored portions of the Fye Canyon claims
in the 1980’s and 1990’s. ECM Inc./Noranda Inc. staked
the Gap claims in 1985; ECM/Noranda drilled 4 shallow (less than
500 ft) holes in 1988; Kennecott drilled 4 holes (500 ft) in
1991; Rio Algom Ltd. leased the claims and drilled 1 hole in
1992; Lac Minerals Ltd. drilled one deep hole (1100 ft) in the
northeast corner of the property in 1995; Placer drilled one
hole in 1996; and Aquaterre Mineral Development Ltd. drilled 2
shallow holes from one pad in 1999. These holes targeted shallow
mineralization based on geochemical anomalies in outcropping
upper plate rocks and holes terminated in Vinini Formation.
During the 2005 exploration season, Teck undertook additional
gravity surveys and drilled four reverse circulation holes to
test certain structural and lithological targets generated by
the geophysical program. Elevated gold geochemistry (>20
ppb, up to 56 ppb) was encountered in hole F04-04.
Current
and Future Exploration
Teck has not yet advised White Knight of the details of their
upcoming planned drill program.
A-13
Gold
Pick Property
White Knight’s 100% owned Gold Pick Property is located in
Eureka County, Nevada, and consists of 27 unpatented mining
claims for 601 acres and patented mining claims for
193 acres for a total of 794 acres. The Gold Pick
Property is without known economic mineral reserves and is at
the exploration stage. White Knight’s current efforts are
exploratory in nature.
Acquisition
of Gold Pick Property
White Knight acquired the unpatented mining claims and patented
mining claims by staking and application since June 2002. Annual
holding costs for the property are estimated to be $3,604 for
2007 in federal and county fees.
Location
of and Access to Gold Pick Property
The Gold Pick Property is located on the Cortez Trend in the
southern Roberts Mountains approximately 30 miles northwest
of the town of Eureka, Nevada. Access is by all-weather
county-maintained roads to the past producing Gold Bar Mine
approximately six miles southwest of the property and then along
the Gold Bar haul road to the Gold Pick Property.
Regional
and Property Geology of Gold Pick Property
The Gold Pick Property is underlain by an east-dipping sequence
of Devonian carbonate rocks, comprising the Lone Mountain
Dolomite overlain by the McColley Canyon Formation and Denay
Formation. Located on the Gold Pick Property is the past
producing Gold Pick Mine, which contains two gold deposits, the
Gold Pick East and Gold Pick West. Also on the Gold Pick
Property is a portion of the formerly producing Gold Ridge gold
deposit. All of the known deposits lie along a subtle east-west
anticline, which crosses the Roberts Mountains and provides a
regional control to gold mineralization. Northeast and
northwest-trending faults cut the section in the vicinity of the
deposits and provide deposit-scale controls to gold
mineralization.
The main Gold Pick East deposit has a footprint of approximately
1,100 feet east-west by 1,200 feet north-south. The
deposit is typically 50 feet to 100 feet thick, but
can be up to 300 feet thick adjacent to controlling
structures. The southwest extension of the Gold Pick East
deposit measures about 1,200 feet in a west-southwest
A-14
direction and ranges from 75 feet to 200 feet in
width. Within this structurally controlled zone are at least two
pods of high-grade mineralization which include the following
drill intercepts:
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|
Drill Hole
|
|
Interval (feet)
|
|
Gold (ounces per ton)
|
|
33-578
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|
|
35
|
|
|
|
0.215
|
|
33-570
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|
|
30
|
|
|
|
0.209
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|
33-5
|
|
|
15
|
|
|
|
0.371
|
|
33-321
|
|
|
40
|
|
|
|
0.264
|
|
33-719
|
|
|
60
|
|
|
|
0.209
|
|
Higher-grade pods of gold mineralization also occur within the
main Gold Pick East deposit and include a drill intercept of
10 feet at 1.20 oz/ton gold beneath the southwest corner of
the pit.
The Gold Pick West deposit measures about 700 feet
north-south by 700-800 feet east-west. The deposit contains
at least two pods of +0.20 oz/ton gold mineralization. A third
higher-grade pod lies to the east of the main deposit. The Gold
Pick mine consists of two separate open pits: Gold Pick East and
Gold Pick West. Atlas Precious Metals considered mining the
high-grade mineralization in the southwest extension of Gold
Pick East by underground mining methods. In the late stages of
mining, an exploration adit was driven to better define reserves
in the north wall of the pit and to define underground reserves
in the southwest extension. However, the drift never reached the
southwest zone, and no underground reserves were delineated.
The Gold Pick East and West deposits have been tested with a
total of 877 drill holes. Despite the intensity of drilling,
potential to expand resources remains. The southwest extension
zone is open to the southwest, where it is cut off by a single
fence of three drill holes. Beyond that, only a handful of
widely spaced (approx. 300 foot) holes were drilled. The zone
could easily continue beyond the limits of drilling. A fairly
high-grade drill intercept (5 ft @ 0.202 oz/ton gold) near the
west end of the drilling suggests that the high-grade core of
the zone may extend further to the southwest along the
structure. The vast majority of drill holes have been vertical,
which could easily miss high-grade mineralization along
high-angle structures. There is potential to expand the
high-grade portions of the deposit by drilling angle holes,
especially in the area of higher-grade mineralized pods such as
the southwest extension zone. Drilling is also wide-spaced to
the northeast of the Gold Pick East open pit, and good potential
remains to expand resources in this direction as well.
The following disclosure was provided by Mine Development
Associates, or MDA, of Reno, Nevada. In April 2006, a technical
report was filed on the Gold Pick and Gold Ridge deposits, which
verified an indicated resource of 321,000 oz gold contained in
the Gold Pick and Gold Ridge deposits. During 1994, Donald
Tschabrun, a consulting geologist working for Atlas, estimated
resources for the deposits (Tschabrun Estimate) which were
audited by Mine Reserve Associates. The technical report
submitted by MDA completed work required to bring the Tschabrun
Estimate in compliance with
43-101
regulations. The deposits are drilled on a nominal 50 ft
spacing. The Tschabrun Estimate was completed by first outlining
mineralized areas on cross sections spaced at 50 ft intervals
and then transferred the mineralized outlines to plan view
benches on 10 ft intervals. Grades were interpolated into 25 x
25 x 10 ft blocks by inverse distance weighting methods. MDA
concluded that the Tschabrun Estimate is equivalent to Indicated
Resources. Atlas drill holes used to calculate the Tschabrun
Estimate total more than 1200 reverse circulation holes and
seven core holes. The following table summarizes the audited
indicated resource (after the Tschabrun Estimate):
|
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|
|
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|
|
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|
|
Gold Pick Deposit
|
|
|
|
Gold Ridge North Deposit
|
|
|
|
Totals
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
Ounces
|
|
|
|
|
|
|
|
|
|
|
|
Ounces
|
|
|
|
|
|
|
|
|
|
|
|
Ounces
|
|
|
|
|
Cutoff Grade
|
|
|
|
Tons
|
|
|
|
Grade
|
|
|
|
Au
|
|
|
|
Tons
|
|
|
|
Grade
|
|
|
|
Au
|
|
|
|
Tons
|
|
|
|
Grade
|
|
|
|
Au
|
|
Mineralization Type
|
|
|
Oz Au/t
|
|
|
|
000’s
|
|
|
|
Oz Au/t
|
|
|
|
000’s
|
|
|
|
000’s
|
|
|
|
Oz Au/t
|
|
|
|
000’s
|
|
|
|
000’s
|
|
|
|
Oz Au/t
|
|
|
|
000’s
|
|
Oxide
|
|
|
|
0.01
|
|
|
|
|
4,738
|
|
|
|
|
0.039
|
|
|
|
|
184.8
|
|
|
|
|
1,108
|
|
|
|
|
0.034
|
|
|
|
|
37.7
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|
|
|
|
5,846
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|
|
|
|
0.038
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|
|
|
|
222.5
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|
Carbonaceous
|
|
|
|
0.01
|
|
|
|
|
1,954
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|
|
|
|
0.049
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|
|
|
|
95.7
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|
|
|
|
74
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|
|
|
|
0.037
|
|
|
|
|
2.7
|
|
|
|
|
2,028
|
|
|
|
|
0.049
|
|
|
|
|
98.4
|
|
Totals
|
|
|
|
0.01
|
|
|
|
|
6,692
|
|
|
|
|
0.042
|
|
|
|
|
280.5
|
|
|
|
|
1,182
|
|
|
|
|
0.034
|
|
|
|
|
40.4
|
|
|
|
|
7,874
|
|
|
|
|
0.041
|
|
|
|
|
320.9
|
|
|
|
|
|
|
|
|
|
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|
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|
|
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|
Details of the audit and additional technical information on the
Gold Pick Property are contained in a
43-101
Technical Report completed by MDA which can be viewed at
www.sedar.com. The Qualified Persons
A-15
commissioned by MDA were Neil Prenn, Registered Professional
Mining Engineer, and Peter Ronning, Professional Engineer, who
conducted the site visit.
Previous
Exploration History of Gold Pick Property
After the discovery of the Gold Bar gold deposit in 1984, Atlas
began systematic exploration of the Roberts Mountains.
Gold-mineralized jasperoid was discovered in the Gold Ridge and
Gold Pick areas in 1986. Atlas drilled discovery holes in the
Gold Ridge deposit in 1986 and the Gold Pick deposit in 1987.
Open-pit mining of the Gold Ridge deposit commenced in 1991.
Approximately 96,000 ounces of gold were produced from the Gold
Ridge deposit until mining ceased in 1992. The Gold Pick deposit
was mined between 1992 and 1994, with production totaling
approximately 48,000 ounces of gold. Vengold Inc. (now American
Bonanza) leased the Atlas claim block in 1999. American Bonanza
dropped the claims in the Gold Pick and Gold Ridge areas in
September 2001.
Current
and Future Exploration Plans of Gold Pick Property
White Knight drilled a total of 18 reverse-circulation holes
(11,700 ft) at the Gold Pick Property in August and September of
2005. The results of the exploration campaign demonstrated grade
continuity in extensions of both the southwest feeder structure
(30 ft @ 0.062 opt Au, 25 ft @ 0.083 opt Au) and the northwest
feeder structure (25 ft @ 0.143 opt Au with 10 ft @ 0.226 opt
Au), indicating the potential to significantly increase the
dimensions of the gold deposit. In addition, the successful
extension of the feeder zones away from the pit area into
un-drilled terrain opens up the potential for discovery of a new
gold deposit. Geologic mapping in the Roberts Mountains District
in 2005 led to a recognition of local karsting within the
lower-plate host rocks in the area. The karsting presents strong
exploration targets as a number of Carlin type deposits in the
Carlin trend are related to solution collapse (karst) features.
Further work will be required to establish the geologic timing
of this karsting and its relevance to gold deposition. The drill
program at the Gold Pick Property was encouraging and a
follow-up
program is planned for late 2006.
McClusky
Pass Property
White Knight’s 100% owned McClusky Pass Property consists
of 243 unpatented mining claims totaling 5,175 acres
located in Eureka County, Nevada. The McClusky Pass Property is
without known economic mineral reserves and is at the
exploration stage. White Knight’s current efforts are
exploratory in nature.
A-16
Acquisition
of McClusky Pass Property
White Knight acquired the McClusky Pass Property by staking in
September, 2003. Annual holding costs for the property are
estimated to be $32,440 for 2007 in federal and county fees.
Location
of and Access to McClusky Pass Property
The McClusky Pass Property is located in Eureka County near the
intersection of the Roberts and Simpson Park Mountains,
approximately 30 miles northwest of Eureka, Nevada. Access
is by way of a series of improved all-weather roads.
Regional
and Property Geology of McClusky Pass Property
The McClusky Pass Property is located immediately south of the
convergence of the north-northeast trending Simpson Park
Mountains and the northwest-trending Roberts Mountains. The two
mountain ranges intersect along a major northwest-trending
fault. This fault zone is postulated to be a major regional
control of gold mineralization within the Cortez Trend.
The McClusky Pass Property is centered on the intersection of
this northwest fault zone with a major northeast-trending
cross-structure. The northeast-trending structural zone is
characterized by a broad northeast-trending magnetic low,
interpreted to reflect a zone of magnetic destruction. The zone
is also manifest as a northeast-trending gravel-covered
embayment into the range. The project area is nearly completely
covered by Quaternary and Tertiary gravels which fill the
northwest arm of Kobeh Valley. Intermediate-composition Tertiary
volcanics crop out in the north central and northeast parts of
the property. Thickness of the gravel deposits is unknown but
regional gravity data suggests that the basin becomes shallower
to the north towards McClusky Pass. Tertiary volcanic rocks in
the northeast portion of the property are bleached and
argillized, suggesting the possible presence of a hydrothermal
system.
Previous
Exploration History of McClusky Pass Property
Sections of the McClusky Pass Property were explored by
different exploration companies between 1984 and 1995. Atlas
staked claims covering the eastern portion of the current
property in 1984 as part of its larger Gold Bar claim block.
Atlas focused its exploration efforts on areas with outcrop and
thus conducted little work in the area of the property, although
a few shallow (200 feet or less) holes may have been
drilled. In 1988, ECM staked claims over the western portion of
the McClusky area immediately to the west of Atlas’ claims.
ECM drilled four or five shallow (500 feet deep) holes in
the north central part of the claim block, east of McClusky Pass
in 1990. ECM dropped its claims and the area was staked by MBM
Consultants in 1994. Battle Mountain Exploration Company leased
the claims and drilled an unknown number of holes in the north
central portion of the claim block in 1995. All previous claims
lapsed and White Knight staked the property in September 2003.
Current
and Future Exploration of McClusky Pass Property
White Knight commenced a drill program at the McClusky Pass
Property in September 2005. One diamond drill hole was completed
to a depth of 1,191 ft on the northern portion of the project
with only anomalous gold encountered. A reverse circulation hole
was attempted, but was lost at 775 ft, about 200 ft short of the
target. The holes were drilled approximately 1,000 ft apart to
test a geophysically interpreted uplifted block. Anomalous gold
and pathfinder elements, as well as intrusive dykes and strong
dolomitization, were encountered in the southern most
reverse-circulation drill hole. Both holes encountered chert and
siltstones with minor limestone interbeds which are interpreted
to be part of the Upper-plate. The depth to lower-plate on the
project is not known at this time. Additional work will be
performed on the McClusky Pass Property in late 2006 to generate
new drill targets.
A-17
New
Pass Property
The New Pass Property consists of 107 unpatented mining claims
totaling 2,232 acres located near the town of Austin in
Churchill County, Nevada. White Knight currently has a 100%
interest subject to an option agreement with Bonaventure
Enterprises Inc. who can earn an initial 50% interest in the New
Pass Property. The New Pass Property is without known economic
mineral reserves and is at the exploration stage. White
Knight’s current efforts are exploratory in nature.
Acquisition
of New Pass Property
In March 1998, White Knight acquired a 100% interest in the New
Pass Property from Quest USA Resources Inc. for $165,000 cash.
Quest maintained a 2.75% net smelter royalty which White Knight
purchased in March 2000, in exchange for 100,000 White Knight
common shares.
In September 2004, White Knight entered into an option agreement
with Consolidated Odyssey Exploration Inc., whereupon Odyssey
may earn an initial 50% interest in the New Pass Property. To
earn a 50% interest, Odyssey must make cash payments to White
Knight of $500,000, issue 500,000 of its common shares and
provide $2,000,000 in exploration expenditures, all over a
four-year period. Upon earning a 50% interest in the property,
Odyssey may earn an additional 10% interest in the property by
financing the completion of a feasibility study. Subsequently,
Odyssey assigned all rights under the option agreement to
Bonaventure. During the earn-in period, Bonaventure is
responsible for all property holding costs.
Location
of and Access to New Pass Property
The New Pass Property is located along the Austin-Lovelock
mineral belt in the New Pass Mining District, 27 miles west
of Austin, Nevada. Access is from Austin on US Highway 50 for
34 miles, north on the Edwards Valley Road for
5 miles, and east-southeast for
21/2
miles on an unimproved road to the center of the property.
Regional
and Property Geology of New Pass Property
Gold mineralization on the New Pass Property is hosted in silty
and carbonaceous limestones of the Triassic Lower Augusta
Mountain Formation. This unit consists of thin to medium bedded,
carbonaceous limestone with interbeds of platy, calcareous
siltstone, fine-grained sandstone, and bioclastic turbidites.
Impermeable, massive, cliff-forming limestones of the upper
Augusta Mountain sequence cap these rocks.
A-18
Previous
Exploration History of New Pass Property
Gold was discovered on the New Pass Property in 1980 by Dekalb
Mining Ltd. which was conducting
follow-up
work to a stream sediment survey. Dekalb transferred ownership
of the claims to Northern Illinois Coal, Oil and Resources
Mineral Ventures in 1982. Northern Illinois Coal explored the
New Pass Property from 1982 through 1992, and drilled a total of
165 holes. Consolidated Ramrod Gold (USA), Inc. acquired the New
Pass Property in 1993. In 1995, Santa Fe Pacific Gold
Corporation completed 11 holes on the property under an
exploration agreement with Ramrod. Ramrod was later reorganized
and renamed Quest which sold the property to White Knight in
1998. During 1998, White Knight completed 1:6000 scale mapping,
collected 250 rock chip samples, prepared geochemical overlays
for all surface rock chip data, constructed 100-foot cross
sections via an Interdex mining software program, and estimated
geologic resources on the main jasperoid.
Current
and Future Exploration of New Pass Property
During 2005, Bonaventure completed 28 drill holes totaling 9,140
ft of drilling. The results from this campaign, which include 75
ft @ 0.057 opt Au with 10 ft @ 0.307 opt Au and 30 ft @ 0.095
opt Au, confirm the exploration potential for the project.
Bonaventure has commenced its 2006 drill effort which will
involve further step out as well as infill drilling of the 2005
program. The Phase 2 angle drilling has begun in the
northern portion of the project drill grid using a reverse
circulation rig. The program includes 9,000-10,000 feet of
new drilling in 20-25 holes to expand the current resource. Hole
depths will be 250 feet to 650 feet deep. Drilling of
the untested portion of the current drill grid as well as up-dip
and down-dip offsets from previous drilling will be completed.
The Phase 2 drilling program will occur over a strike
length of approximately 3,200 feet. The angle hole program
will also test volcanic rocks above previous drilling that have
not been assayed and explore possible high grade feeder faults
below the deposit.
Squaw
Creek Property
The Squaw Creek Property is located on the northern portion of
the Carlin Trend, 42 miles north of the town of Battle
Mountain in Elko County, Nevada. The property consists of 151
unpatented mining claims totaling 3,040 acres. White Knight
currently has a 100% interest, subject to an agreement with
Bonaventure who can earn an initial 50% interest. The Squaw
Creek Property is without known economic mineral reserves and is
at the exploration stage. White Knight’s current efforts
are exploratory in nature.
A-19
Acquisition
of Squaw Creek Property
White Knight acquired the Squaw Creek Property by staking during
1996. In September 2004, White Knight entered into an option
agreement with Odyssey whereupon Odyssey may earn an initial 50%
interest by making cash payments to White Knight of $500,000,
issue 500,000 of its common shares and provide $2,000,000 in
exploration expenditures, all over a four-year period. Odyssey
may earn an additional 10% interest in the Squaw Creek Property
by financing the completion of a feasibility study.
Subsequently, Odyssey assigned all its rights under the option
agreement to Bonaventure. During the earn-in period, Bonaventure
is responsible for all property holding costs.
Location
of and Access to Squaw Creek Property
The Squaw Creek Property lies between the Midas and Ivanhoe
mining districts on the northern portion of the Carlin Trend.
Access to the property is achieved from the towns of Battle
Mountain, Elko, or Winnemucca, Nevada via highway and maintained
all-weather roads. Unimproved dirt roads provide access along
the pediment on the northern part of the Squaw Creek Property.
Regional
and Property Geology of Squaw Creek Property
The Squaw Creek Property is located directly on the Carlin
Trend, and strongly anomalous gold mineralization associated
with pyrite has been intersected in drill holes in an area more
than 3 miles long and 1 mile wide. Additional weakly
anomalous gold has been discovered within virtually all drill
holes over a much larger area. The anomalous gold occurs within
silicified and brecciated zones often more than 100 feet
thick in the sedimentary rocks of the Upper Plate or in the
overlying Miocene age volcanics. Zones of gold mineralization
are also hosted within silty dolomitic sediments of unknown age
and of unknown stratigraphic position. These silty dolomitic
sediments may be part of the Rodeo Creek Formation and possibly
indicate the presence of nearby auriferous Lower Plate sediments.
Exploration
History of Squaw Creek Property
During the 1970’s, the US Steel Company explored the
Ivanhoe District and by 1984 had defined a gold reserve on the
adjacent Ivanhoe Property. A series of companies explored the
Ivanhoe project which was expanded to cover the current Squaw
Creek Property. Touchstone Resources explored the Squaw Creek
Property by surface mapping, and drilled at least 4 holes.
Newmont Mining Corporation and Cornucopia Resources Ltd.
explored the Squaw Creek Property from 1992 until 1995, drilling
a total of 12 holes in the Sheep Corral Mine area before
dropping the outer claims, including the Squaw Creek Property.
White Knight drilled three holes in 1998, 14 holes in 1999, and
10 holes in 2000 funded by Chapleau which terminated its option
in August 2000 after incurring exploration expenditures totaling
$1,024,135.
Current
and Future Exploration of Squaw Creek Property
During the 2005 field season, Bonaventure completed controlled
source audio magnetotelluric surveys. A
follow-up
drill program has just commenced. The first of three
1,500 feet deep angle holes is approaching target depth.
The holes are pre-collared using a reverse circulation drill rig
to penetrate post-mineral rocks and completed using a core rig.
Holes SC-0601 and 0602 are a fence of holes designed to drill
across a large interpreted fault zone indicated in a CSMT
geophysical survey completed in 2005. The primary target at the
Squaw Creek Property is a high grade vein deposit like Ken
Snyder to the northwest or the deeper part of Hollister, located
to the southeast.
White
Knight’s Other Properties
South
Cabin Creek Property
White Knight’s 100% owned South Cabin Creek Property is
located in Eureka County, Nevada, and consists of 84 unpatented
mining claims totaling approximately 1,735 acres. The South
Cabin Creek Property is without known economic mineral reserves
and is at the exploration stage. White Knight’s current
efforts are exploratory in nature.
A-20
Acquisition
of South Cabin Creek Property
White Knight acquired the claims that make up the South Cabin
Creek Property by way of staking in October 2001. Annual holding
costs for the property are estimated to be $11,214 for 2007 in
federal and county fees.
Location
of and Access to South Cabin Creek Property
The South Cabin Creek Property is located approximately
three-quarters of a mile east of the past-producing Gold Pick
Mine, approximately 30 miles northwest of the town of
Eureka, Nevada. Access is via county maintained roads and then
along all-weather dirt roads.
Regional
and Property Geology of South Cabin Creek Property
The South Cabin Creek Property lies along the Cortez Trend. The
claims are underlain by an east-dipping fault-repeated section
of Silurian Lone Mountain Dolomite overlain by Devonian McColley
Canyon Formation and Denay Formation. The claims lie near the
Devonian dolomite line, a major facies boundary controlled by
regional Paleozoic-age structure along the continental margin.
The South Cabin Creek Property covers a small portion of the
Cabin Creek deposit, the South Cabin Creek mineralized zone, and
potential extensions of the Cabin Creek mineralizing structure.
The Cabin Creek deposit is an oxide gold deposit hosted in the
Bartine member of the McColley Canyon Formation. Drill
intercepts in the southernmost portion of the deposit on White
Knight’s claims include:
|
|
|
|
|
|
|
|
|
Drill Hole
|
|
Interval (feet)
|
|
Gold (ounces per ton)
|
|
92-41
|
|
|
70
|
|
|
|
0.058
|
|
SS-26
|
|
|
85
|
|
|
|
0.039
|
|
SS-19
|
|
|
90
|
|
|
|
0.057
|
|
SS-27
|
|
|
125
|
|
|
|
0.037
|
|
92-53
|
|
|
100
|
|
|
|
0.035
|
|
Mineralization in the Cabin Creek deposit consists of two ore
pods aligned in a northwest-southeast direction. The trend of
gold mineralization and the favourable host rock unit project
onto White Knight’s claims to the southeast of the Cabin
Creek deposit. The northeast-trending high-grade feeder
structure of the deposit also projects on to the northeast part
of White Knight’s claims.
Widely spaced drilling in the area south of the Cabin Creek
deposit by Atlas discovered the South Cabin Creek gold zone.
Anomalous drill intercepts at the South Cabin Creek mineralized
zone include:
|
|
|
|
|
|
|
|
|
Drill Hole
|
|
Interval (feet)
|
|
Gold (ounces per ton)
|
|
55-51
|
|
|
20
|
|
|
|
0.019
|
|
55-12
|
|
|
120
|
|
|
|
0.019
|
|
55-10
|
|
|
10
|
|
|
|
0.038
|
|
PD55-27
|
|
|
30
|
|
|
|
0.012
|
|
Exploration targets on the South Cabin Creek Property include
shallow small to moderate pods of mineralization in the South
Cabin Creek zone, high-grade mineralization along the projection
of the high-grade feeder structure, and potentially large
Carlin-type deposits concealed beneath gravel and volcanic cover
along the major north-northwest-trending fault zone (main
controlling structure) to the east of the Cabin Creek deposit.
Previous
Exploration History of South Cabin Creek Property
The area containing the South Cabin Creek Property was explored
by a number of companies from 1982 to 1992. Exxon Coal and
Minerals Company geologists first discovered gold-bearing
jasperoid rocks in the Cabin Creek area in 1982, and drilled the
first mineralized holes on the property. After Exxon
relinquished the claims, Nerco staked claims which include the
current property in 1982. American Copper and Nickel Company
leased the property and drilled the discovery hole at Cabin
Creek oxide gold deposit adjacent to White Knight’s current
property, which was later further defined by Phelps Dodge
Corporation and Atlas. Atlas also drilled holes to the
A-21
south and discovered the South Cabin Creek mineralization. From
1997 to 1998, Barrick Gold Corporation leased the claims but
conducted no work. American Bonanza Gold Mining Corporation (now
American Bonanza Gold) leased the claims in 1999, but conducted
no work before relinquishing the claims in September 2001.
Current
and Planned Exploration of South Cabin Creek Property
Due to the location and extension of a portion of the Cabin
Creek oxide deposit onto White Knight’s property,
exploration targets include potential high-grade mineralization
along the projection of the high-grade feeder structure, shallow
small to moderate pods of mineralization in the South Cabin
Creek zone, and possible Carlin-type deposits concealed beneath
gravel and volcanic cover along the major north-northwest
trending fault zone (main controlling structure) to the east of
the Cabin Creek deposit.
White Knight is currently seeking a joint-venture partner to
fund and conduct exploration on the South Cabin Creek Property.
Gold
Bar Horst Property
White Knight’s 100% owned Gold Bar Horst Property is
located in Eureka County, Nevada, and consists of 183 unpatented
mining claims totaling 3,652 acres. The Gold Bar Horst Property
is without known economic mineral reserves and is at the
exploration stage. White Knight’s current efforts are
exploratory in nature.
Acquisition
of Gold Bar Horst Property
White Knight acquired the 183 unpatented mining claims by way of
staking since September 2001. Annual holding costs for the
property are estimated to be $24,430 for 2007 in federal and
county fees.
Location
of and Access to Gold Bar Horst Property
The Gold Bar Horst Property is located in Eureka County on the
southwest flank of the Roberts Mountains, approximately
30 miles northwest of Eureka, Nevada. Access is by way of a
series of improved all weather roads.
Regional
and Property Geology of Gold Bar Horst Property
The claims were staked to cover the projection of a
northwest-trending horst of Lower Plate Devonian Carbonates. The
claims are in two noncontiguous blocks, covering the northern
and southern projections of the horst beyond the immediate past
producing Gold Bar Mine. The depth to bedrock under Quarternary
gravels, as indicated by CSAMT surveys, gravity surveys and
drilling varies from less than 500 feet to greater than
1,000 feet. Mineralization is controlled by a
north-northwest-trending fault and structural intersections with
northeast-trending cross faults.
Previous
Exploration History of Gold Bar Horst Property
Atlas discovered gold-anomalous jasperoid along the southwest
flank of the Roberts Mountains in 1983 and drilled 16 shallow
exploration holes, one of which intersected thin gold
mineralization. In 1984 Atlas discovered the Gold Bar deposit,
which lies between the 2 current portions of White Knight’s
property. Atlas mined the Gold Bar deposit beginning in 1987
before exhausting the economic reserves in 1994. Atlas
negotiated a series of joint-venture agreements with other
mining companies between 1994 and 1999 for further exploration
of the project which includes the claims encompassed by White
Knight’s current property boundaries. Homestake Mining
Company entered into a joint venture in 1994 for exploration of
the pediment area south and southeast of the Gold Bar mine.
Homestake conducted CSAMT surveys and drilled 17 exploration
holes on the area south of Gold Bar in 1995 and 1996. The joint
venture was terminated in 1996. Barrick joint-ventured all of
Atlas’ holdings in the Roberts Mountains, exclusive of the
mine areas, in 1997. Barrick drilled a series of widely-spaced
holes in the Millsite area and drilled seven deep holes to the
north before terminating the joint venture in 1999. Vengold (now
American Bonanza) leased all of Atlas’ holdings in the
Roberts Mountains later in 1999. When American Bonanza reduced
the size of its claim holdings in 2001 to concentrate on the
claims around the past producing Gold Bar mine,
A-22
White Knight staked the two noncontiguous claim groups bordering
the remaining claims at Gold Bar on the north and south which
currently comprise the Gold Bar Horst Property.
Current
and Planned Exploration of Gold Bar Horst Property
Future exploration is expected to target possible Carlin-style
gold mineralization beneath the gravel cover. North-northwest to
northwest-trending horst-bounding faults and crosscutting
northeast-trending faults are possible feeder structures. The
master feeder fault has not been tested. The majority of
previous drilling on the Gold Bar Horst Property is less than
350 feet deep and did not encounter bedrock. One deeper
drill hole located on the property encountered a mineralized
jasperoid which returned minor gold values from a depth of
1,160 feet to 1,255 feet. This mineralization may be
peripheral to other gold mineralization.
White Knight also initiated a nine hole reverse circulation
drill program on the southern portion of the property in June
2006. The objective of the program was to determine the areal
extent of lower-plate lithologies, explorable within reasonable
target depths. In addition, structural edges of the horsted
domain were targeted in attempts to extend the Gold Bar
“proper” mineralized system.
White Knight has completed the drilling program at the Gold Bar
Horst Property and is awaiting assay results.
Hunter
Property
The Hunter Property is located in Eureka County, Nevada, and
consists of 48 unpatented mining claims totaling
1,116 acres. White Knight has a 100% interest in 46 claims,
and has a lease agreement and an option to purchase a 100%
interest in the other two claims which make up the property. The
Hunter Property is without known economic mineral reserves and
is at the exploration stage. White Knight’s current efforts
are exploratory in nature.
Acquisition
of Hunter Property
White Knight acquired 46 unpatented mining claims of the Hunter
Property through staking in September 2001. In February 2002,
White Knight signed a lease agreement with Gregory McN. French
on two adjacent unpatented mining claims known as the HNT
Claims. Under the terms of the lease agreement, White Knight is
required to make lease payments and issue common shares to
Mr. French under the following schedule:
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Cash Option
|
|
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Common Share
|
|
Payment Due Date
|
|
Payments ($)
|
|
|
Issuances
|
|
|
Initial Payment
|
|
|
2,000(paid
|
)
|
|
|
20,000(issued)
|
|
February 1, 2003
|
|
|
2,000(paid
|
)
|
|
|
20,000(issued)
|
|
February 1, 2004
|
|
|
3,000(paid
|
)
|
|
|
20,000(issued)
|
|
February 1, 2005
|
|
|
3,000(paid
|
)
|
|
|
20,000(issued)
|
|
February 1, 2006
|
|
|
4,000(paid
|
)
|
|
|
20,000(issued)
|
|
February 1, 2007 and each
year thereafter
|
|
|
7,000
|
|
|
|
None
|
|
Mr. French also retains a net smelter royalty on the HNT
claims which varies from between one to two percent, depending
upon the price of gold. Mr. French retains a 1.5% net
smelter royalty on minerals other than gold. White Knight has
the option to acquire the net smelter royalty and purchase the
HNT Claims from Mr. French for $75,000 at any time before
the 10th anniversary date of the lease.
Annual holding costs for the property are estimated to be $6,408
for 2007 in federal and county fees.
Location
of and Access to Hunter Property
The Hunter Property is located on the Cortez Trend and lies
approximately three miles southeast of the Gold Pick Mine.
Access is via Highway 50, then approximately 13 miles along
county maintained gravel road and
11/2
miles along unimproved dirt road.
A-23
Regional
and Property Geology of Hunter Property
The Hunter Property encompasses an easterly dipping
fault-repeated section of Silurian Lone Mountain Dolomite
overlain by Devonian McColley Canyon Formation, Bay State
Dolomite and Devils Gate Limestone. Miocene basalts and minor
rhyolite overlay
and/or are
faulted against the Paleozoic section along both the western and
eastern parts of the claims. The western portion of the Hunter
Property is covered by pediment gravels, which masks the
Paleozoic and Tertiary rocks.
Previous
Exploration History of Hunter Property
Gold-bearing jasperiods were discovered in the Hunter area in
1983 and Mapco (now Nerco) staked claims over the prospective
ground. The claims were leased to American Copper and Nickel
Company in 1985. American Copper and Nickel Company conducted
geological mapping, rock-chip and soil sampling, geophysical
surveys, and drilled 39 shallow holes between 1985 and 1987.
Nerco conducted additional geologic and geochemical work and
drilled seven holes in
1988-1989.
Phelps Dodge acquired the Nerco claims in 1989 and conducted
more mapping and collected additional rock-chip samples as well
as drilling 21 exploration holes in 1990. Atlas acquired the
Nerco claims in 1991 and conducted additional drilling in 1993.
American Barrick leased all of Atlas’ claims in 1997,
including those at Hunter, but performed no work on the property
before terminating its lease in 1998. Vengold (now American
Bonanza) then leased the Atlas land holdings in 1999 but also
performed no work on the property before abandoning the claims
in September 2001.
Current
and Planned Exploration of Hunter Property
During the 2006 field season White Knight completed
800 feet of drilling in three holes. Assays are pending.
Pat
Canyon Property
The wholly owned Pat Canyon Property is located in Eureka
County, Nevada and consists of 178 unpatented mining claims
totaling 3,582 acres. The Pat Canyon Property is without
known mineral reserves and is at the exploration stage. White
Knight’s current efforts are exploratory in nature.
Acquisition
of Pat Canyon Property
White Knight acquired the Pat Canyon Property by staking in
November 2003. Annual holding costs for the property are
estimated to be $23,763 for 2007 in federal and county fees.
Location
of and Access to Pat Canyon Property
The Pat Canyon Property lies on the Cortez Trend and is adjacent
to White Knight’s Fye Canyon Property to the south. Access
is by a series of all-weather and dirt roads.
Regional
and Property Geology of Pat Canyon Property
The Pat Canyon Property lies along the southern projection of
the north-northwest-south-southeast-trending Cortez fault zone
just south of a major northeast-trending cross-structure which
bounds the northern edge of Simpson Park Mountains. The property
covers three and one-half miles of strike length of this splayed
north northwest fault system. Upper-plate Ordovician Vinini
Formation crops out in the eastern part of the block and is
overlaid by scabs of felsic Tertiary volcanics and thin
Quaternary alluvium in the central area with thicker gravels in
the west part. Intermediate Tertiary volcanics cover the
southernmost part of the claim block. The claim block lies along
the projection of lower plate carbonate rocks in the Cortez
window to the northwest and the Tonkin window to the southeast.
Current
and Future Exploration of Pat Canyon Property
White Knight is seeking a joint venture partner to further
explore the Pat Canyon Property.
A-24
Tonkin
Summit Property
The Tonkin Summit Property is located in Eureka County, Nevada,
adjacent to White Knight’s McClusky Pass Property to the
East. The 100% owned property consists of 186 unpatented mining
claims totaling 3,826 acres. The Tonkin Summit Property is
without known mineral reserves and is at the exploration stage.
White Knight’s current efforts are exploratory in nature.
Acquisition
of Tonkin Summit Property
White Knight acquired the Tonkin Summit Property by staking in
the spring 2004. Annual holding costs are estimated to be
$24,831 for 2007 in federal and county fees.
Location
of and Access to Tonkin Summit Property
The Tonkin Summit Property is located on the Cortez Trend at the
northwest end of the Roberts Mountains approximately
30 miles northwest of Eureka, Nevada. Access is by way of a
series of improved all weather roads.
Regional
and Property Geology of Tonkin Summit Property
The claims are underlain by upper plate Ordivician Vinini
Formation (chert, siltstone with some limestone beds) with minor
Tertiary volcanic and Quaternary gravel cover in the northwest
corners. Lower-plate carbonate rocks are projected to underlie
Vinini Formation at relatively shallow depths.
Current
and Planned Exploration of Tonkin Summit Property
The target is a Carlin-type disseminated gold deposit hosted in
lower plate carbonate units beneath the Roberts Mountains thrust
fault, alternatively similar bodies in limestone units of lower
Ordovician Vinini Formation. The depth to lower plate is unknown
as the property is unexplored below a 200 to 600 foot depth.
Lower plate Devonian limestones crop out within 2,000 feet
of the east side of the claim block. Scattered anomalous gold,
arsenic, antimony and mercury in rock chips and soils are on
trend from two mineralized northeast trending faults on an
adjacent property. White Knight is seeking a joint venture
partner to further explore the Tonkin Summit Property.
Miscellaneous
Since 2004, White Knight has acquired, by staking, a 100%
interest in four additional Nevada mineral exploration
properties comprised of unpatented mining claims located on the
Cortez Trend in Eureka County and one additional mineral
exploration property located on the Getchell Trend in Humboldt
County. The combined acreage of these properties totals
approximately 9,300 acres. The cumulative annual holding
cost for these properties is estimated to be $64,480 for 2007 in
federal and county fees. These properties are without known
mineral reserves and are at the exploration stage. White
Knight’s current efforts are exploratory in nature.
Sampling
and Analysis
The sampling method used by White Knight field personnel varies
with the purpose of the sample. Geologists doing initial
reconnaissance or prospecting may collect selected grab samples
from new discoveries. Such samples would be intended only to
determine if minerals of interest are present, not to estimate
grades for any volume of material.
For more systematic sampling, outcrops are cleaned off and in
some cases shallow hand trenches are dug. Continuous chip
samples are collected over intervals selected by a company
geologist. The manner of sampling is recorded in field notes and
is entered into the digital database of surface samples.
Core from drilling programs is photographed and logged on the
project site by contract geologists under the supervision of
White Knight’s project manager. Core is split by a contract
geotechnician in Eureka, Nevada. Split core is bagged, sealed
and shipped directly to assay labs in Elko, Nevada for sample
preparation, and then to Sparks, Nevada for analysis. All
samples are analyzed for gold and silver by fire-assay technique.
A-25
White Knight employs a quality control program consisting of
re-assaying of both mineralized (0.010 ounce per ton of gold)
and randomly selected coarse reject samples, insertion of coarse
standard samples and assaying of both random and mineralized
duplicate drilling samples through an umpire laboratory.
Drill-cuttings samples are bagged, sealed and shipped directly
to an assay laboratory in Elko, Nevada for sample preparation,
then to Sparks, Nevada for analysis. All samples are analyzed
for gold and silver by fire-assay technique.
Legal
Proceedings
White Knight is not and has not been, since July 1, 2005, a
party to any material legal or arbitration proceeding, nor is
any material governmental proceeding involving White Knight
pending or known to be contemplated.
Exchange
Controls
Other than as provided in the Investment Canada Act, as amended,
there are currently no limitations imposed by Canadian laws,
decrees or regulations that restrict the import or export of
capital, including foreign exchange controls, or that affect the
remittance of dividends to non-resident holders of White
Knight’s securities. However, any such remittances of
dividends paid to United States residents are subject to
withholding tax at a rate equal to a maximum of 15% of the
amount paid.
Management of White Knight considers that the following
summarizes the material features of the Investment Act, in its
present form, pertinent to a non-resident of Canada who proposes
to acquire common shares of White Knight. However, provisions of
the Investment Act are complex and any non-Canadian
contemplating an investment to acquire control of White Knight
should consult professional advisors as to whether and how the
Investment Act might apply.
The Investment Act regulates the acquisition of control of a
Canadian business by a non-Canadian, as defined under the
Investment Act. Under the Investment Act, an acquisition of
control is considered to be the acquisition of the majority of a
company’s common shares. However, if a non-Canadian
acquires more than one-third but less than a majority of White
Knight’s voting shares, there is a presumed acquisition of
control, unless it can be established that White Knight is not
in fact controlled by the acquirer. All acquisitions of control
of a Canadian business are notifiable, which requires that a
notification form be submitted to Investment Canada within
thirty days after the implementation of the investment, unless
the investment is reviewable. If the investment is reviewable,
the investment may not be implemented until the Minister
responsible for the Investment Act is satisfied that the
investment is likely to be of net benefit to Canada.
An investment is reviewable if there is an acquisition of a
Canadian business and the asset value of the Canadian business
being acquired equals or exceeds the following thresholds:
(a) for non-WTO investors (as defined below), the threshold
is Cdn$5 million for a direct acquisition and over
Cdn$50 million for an indirect acquisition; the
Cdn$5 million threshold will apply however for an indirect
acquisition if the asset value of the Canadian business being
acquired exceeds 50% of the asset value of the global
transaction;
(b) except as specified in paragraph (c) below, a
threshold is calculated annually for reviewable direct
acquisitions by or from WTO investors. The threshold for 2006 is
Cdn$265 million. Indirect acquisitions by or from WTO
investors are not reviewable.
(c) the limits set out in paragraph (a) above
apply to all investors for acquisitions of a Canadian business
that:
(i) engages in the production of uranium and owns an
interest in a producing uranium property in Canada;
(ii) provides any financial service;
A-26
(iii) provides any transportation service; or
(iv) is a cultural business.
Notwithstanding the above, any investment which is usually only
notifiable, including the establishment of a new Canadian
business, and which falls within a specific business activity
listed in the Regulations to Respecting Investment in Canada,
may be reviewed if an
Order-in-Council
directing a review if made and a notice is sent to the investor
within 21 days following the receipt of a certified
complete notification.
“WTO investor” as defined in the Investment Act
includes: an individual, other than a Canadian, who is a
national of a member of the World Trade Organization, or a WTO
Member, or who has the right of permanent residence in relation
to that WTO Member; a government or government agency of a WTO
investor-controlled corporation; corporation or limited
partnership; or trust that is neither WTO-investor 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 WTO investors.
Certain types of transactions are exempt from application of the
Investment Act including, among the transactions, acquisitions
of control of White Knight:
(a) by 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;
(b) in connection with the realization of security granted
for a loan or other financial assistance and not for any purpose
related to the Investment Act;
(c) for the purpose of facilitating its financing and not
for any purpose related to the Investment Act on the condition
that the acquirer divest itself of control within two years
after control was acquired or within such longer period as is
approved by the Minister; and
(d) by reason of an amalgamation, merger, consolidation or
corporate reorganization following which the ultimate direct or
indirect control in fact of White Knight through the ownership
of voting interests remains unchanged.
Except as provided in the Investment Act, there are currently no
limitations specific to the right of non-resident Canadians to
hold or vote the common shares of White Knight under Canadian
law or White Knight’s charter documents.
Taxation
For a discussion of the material Canadian federal income tax
consequences applicable to shareholders holding or disposing of
their common shares, and the exchangeable shares and shares of
common shares of U.S. Gold, see the sections entitled
“Material Canadian Federal Income Tax Considerations”
and “Material U.S. Federal Income Tax
Considerations” on pages 64 and 74, respectively, of
this prospectus.
A-27
SELECTED
FINANCIAL DATA OF WHITE KNIGHT
The selected financial data of White Knight for the years ended
June 30, 2006, 2005, 2004, 2003 and 2002 were derived from
the consolidated financial statements of White Knight that were
audited by Davidson & Company LLP, Chartered
Accountants. The selected financial data should be read in
conjunction with the consolidated financial statements contained
in Appendix B (Financial Statements of White Knight) and
other financial information included elsewhere in this
Appendix A.
White Knight has not declared any dividends on its common shares
since incorporation and does not anticipate that it will do so
in the foreseeable future. The present policy of White Knight is
to retain any future earnings for use in its operations and the
expansion of its business.
The following table is derived from the consolidated financial
statements of White Knight, which have been prepared in
accordance with generally accepted accounting principles in
Canada, or Canadian GAAP, which for White Knight’s
financial reporting conforms in all material respects for the
years presented with generally accepted accounting principles in
the U.S., or U.S. GAAP, except as disclosed in Note 16
to the consolidated financial statements. See Appendix B
(Financial Statements of White Knight). In this Appendix A,
unless otherwise specified, all dollar amounts are expressed in
United States dollars ($).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30
|
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
|
(Cdn$)
|
|
Revenue (in thousands)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Net Loss (in thousands)
|
|
|
(3,307
|
)
|
|
|
(1,063
|
)
|
|
|
(1,664
|
)
|
|
|
(357
|
)
|
|
|
(1,679
|
)
|
Net Loss Per Share
|
|
|
(0.06
|
)
|
|
|
(0.02
|
)
|
|
|
(0.04
|
)
|
|
|
(0.01
|
)
|
|
|
(0.06
|
)
|
Dividends Per Share
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Weighted Avg. Shares (in thousands
of shares)
|
|
|
58,855
|
|
|
|
53,091
|
|
|
|
39,038
|
|
|
|
28,958
|
|
|
|
26,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at June 30
|
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
|
(In thousands of Cdn$)
|
|
Working Capital
|
|
|
13,239
|
|
|
|
11,216
|
|
|
|
9,805
|
|
|
|
(87
|
)
|
|
|
384
|
|
Mineral Property Interests
|
|
|
2,800
|
|
|
|
2,456
|
|
|
|
1,754
|
|
|
|
1,105
|
|
|
|
959
|
|
Deferred Exploration Costs
|
|
|
3,864
|
|
|
|
1,509
|
|
|
|
733
|
|
|
|
506
|
|
|
|
408
|
|
Long-Term Debt
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Shareholders’ Equity
|
|
|
20,902
|
|
|
|
15,517
|
|
|
|
12,590
|
|
|
|
1,678
|
|
|
|
1,994
|
|
Total Assets
|
|
|
21,502
|
|
|
|
15,697
|
|
|
|
12,720
|
|
|
|
1,912
|
|
|
|
2,134
|
|
Had the consolidated financial statements of White Knight been
prepared in accordance with U.S. GAAP, certain selected
financial data would have been reported as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30
|
|
|
|
|
2005
|
|
2004
|
|
|
|
|
|
|
2006
|
|
Restated
|
|
Restated
|
|
2003
|
|
2002
|
|
|
(Cdn$)
|
|
Loss Per Share
|
|
|
(0.10
|
)
|
|
|
(0.05
|
)
|
|
|
(0.06
|
)
|
|
|
(0.02
|
)
|
|
|
(0.03
|
)
|
Shareholders’ Equity (in
thousands)
|
|
|
15,054
|
|
|
|
12,205
|
|
|
|
10,767
|
|
|
|
66
|
|
|
|
627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at June 30
|
|
|
|
|
2005
|
|
2004
|
|
|
|
|
|
|
2006
|
|
Restated
|
|
Restated
|
|
2003
|
|
2002
|
|
|
(Cdn$)
|
|
Mineral Property Interests
|
|
|
767
|
|
|
|
616
|
|
|
|
534
|
|
|
|
0
|
|
|
|
0
|
|
Deferred Exploration Costs
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Total Assets
|
|
|
15,654
|
|
|
|
12,385
|
|
|
|
10,767
|
|
|
|
300
|
|
|
|
767
|
|
A-28
OPERATING
AND FINANCIAL REVIEW AND PROSPECTS OF WHITE KNIGHT
Overview
White Knight’s consolidated financial statements are stated
in Cdn$ and are prepared in accordance with Canadian GAAP, the
application of which for White Knight’s financial
reporting, conforms in all material respects for the years
presented with U.S. GAAP, except as disclosed in
Note 16 to the consolidated financial statements. The value
of the US$ in relationship to the Cdn$ was $1.00 = Cdn$1.115 as
of June 30, 2006.
White Knight has since inception financed its activities through
the distribution of equity capital. While White Knight has
sufficient resources to meet its obligations for the foreseeable
future at its current level of activity, it is anticipated that
additional funds by equity issuance will be required in the
future, as all of White Knight’s properties are at the
exploration stage. The timing of such offerings is dependent
upon the success of White Knight’s exploration programs as
well as the general economic climate.
Results
of Operations
Year
Ended June 30, 2006 vs. Year Ended June 30,
2005
During the year ended June 30, 2006 White Knight received
Cdn$6,175,733 from the exercise of 4,940,586 warrants.
The loss for the year ended June 30, 2006 was
Cdn$3,307,465, or Cdn$0.06 per share, compared to a loss of
Cdn$1,063,474, or Cdn$0.02 per share, in the prior year.
The increased loss was due to higher expenses of Cdn$3,572,966
in 2006 compared to Cdn$1,100,746 in 2005, with the largest
increase occurring in stock-based compensation, which totaled
Cdn$2,275,298 compared to Cdn$148,543 in 2005. Other significant
changes in expenses occurred in audit fees which rose to
Cdn$116,362 from Cdn$48,696 as well as wages and benefits which
rose to Cdn$130,998 from Cdn$79,918 due to a higher level of
corporate activity. Consulting increased to Cdn$123,809 from
Cdn$116,588 in 2005, and travel and entertainment rose to
Cdn$108,044 in 2006 from Cdn$69,132 in 2005 as management and
consultants visited and reviewed existing properties in Nevada
as well as travel related to investor relations. Investor
relations and shareholder information rose to Cdn$175,427 in
2006 from Cdn$123,189 in 2005 as White Knight continued its
effort to better inform shareholders and the investment
community about White Knight’s activities.
White Knight also recorded the write-off of deferred exploration
costs of Cdn$143,783 in 2006 compared to Cdn$194,598 in 2005.
These write-offs are related to general exploration of
properties in Nevada. White Knight also recorded a loss on
foreign exchange of Cdn$11,574 in 2006 compared to a loss of
Cdn$60,377 in 2005 due to favorable changes in the Canadian/US
dollar exchange rate, a partial recovery of Cdn$2,749 of the
unrealized loss on temporary investments reported in 2004
compared to Cdn$31,404 in 2005 as well as a loss on disposal of
temporary investments of Cdn$23,927 (Cdn$0 in 2005). These
expenses were offset by an increase in interest income of
Cdn$442,036 in 2006 versus Cdn$261,600 in 2005, with the
increase due to higher cash balances in the current period.
Year
Ended June 30, 2005 vs. Year Ended June 30,
2004
During the year ended June 30, 2005, White Knight acquired
two additional mineral exploration properties on the Cortez
Trend. White Knight also completed a private placement of its
common shares, which provided net proceeds of Cdn$2,370,000.
In 2005, White Knight had a loss of Cdn$1,063,474 or
Cdn$0.02 per share as the result of interest on short-term
investments of Cdn$261,600, a loss on foreign exchange of
Cdn$60,377, a partial recovery of Cdn$31,404 of the unrealized
loss on temporary investments reported in 2004, a loss on
disposal of equipment of Cdn$757, a stock-based compensation
charge of Cdn$148,543 and costs of Cdn$952,203 before write-offs.
In 2004, White Knight had a loss of Cdn$1,664,257 or
Cdn$0.04 per share as a result of short-term investment
interest of Cdn$97,920, a loss on foreign exchange of Cdn$9,299,
an unrealized loss on temporary investments of Cdn$42,999, a
stock-based compensation charge of Cdn$840,005 and costs of
Cdn$628,325 before write-offs.
A-29
During the 2005 fiscal year, Cdn$194,598 of preliminary
exploration costs was written-off compared to Cdn$241,549 in
2004. The increase in administrative costs from Cdn$628,325 at
June 30, 2004 to Cdn$952,203 at June 30, 2005 was a
result of an increase in consulting fees, audit fees, investor
relations and shareholder information costs, management fees,
rent, amortization, office costs, telephone and travel expenses,
reflecting the costs associated with White Knight’s new
Reno office as well as the general increase in exploration
activities in Nevada.
Liquidity
and Capital Resources
White Knight’s working capital at June 30, 2006 was
Cdn$13,238,927 compared to Cdn$11,216,455 at June 30, 2005.
As at June 30, 2006, Cdn$2,107,699 was classified as
temporary investments compared to a reclassification to
Cdn$1,995,443 at June 30, 2005 while Cdn$11,397,885 was
classified as cash at June 30, 2006, compared to a
reclassification to Cdn$9,182,459 at June 30, 2005.
For the 2007 fiscal year, White Knight has budgeted $2,000,000
for its anticipated exploration activities. Property costs,
including land holding leases and fees, are estimated to total
$600,000, and administrative costs are estimated at
approximately $600,000. Therefore, White Knight estimates it has
sufficient capital resources for all planned expenditures
through fiscal 2007 and beyond.
Year
Ended June 30, 2006
White Knight had working capital of Cdn$13,238,927 as at
June 30, 2006 compared to Cdn$11,216,455 as at
June 30, 2005. During the year ended June 30, 2006
operating activities used cash of Cdn$605,920. Loss for the year
of Cdn$3,307,465 was reduced by items not affecting cash
including write-off of deferred exploration costs of Cdn$143,783
and a stock-based compensation charge of Cdn$2,275,298. Changes
in non-cash working capital items included an increase in
accounts payable and accrued liabilities of Cdn$75,709, a
decrease in receivables of Cdn$58,674, and an increase in
amounts due to related parties of Cdn$100,248.
Investing activities provided cash of Cdn$5,375,913, including
the reclassification of temporary investments to cash of
Cdn$8,806,566 offset by Cdn$288,777 in acquisition of mineral
property interests, Cdn$2,413,657 in deferred exploration costs
and acquisition of equipment in the amount of Cdn$696,458.
Financing activities provided cash of Cdn$6,345,433, resulting
from the issuance of 4,940,586 common shares pursuant to the
exercise of warrants (proceeds of Cdn$6,175,733) and 315,000
common shares pursuant to the exercise of stock options
(proceeds of Cdn$169,700). White Knight also issued 40,000
common shares for mineral property acquisitions at a deemed
value of Cdn$72,000.
During the year ended June 30, 2006, White Knight’s
cash position inclusive of temporary investments increased by
Cdn$2,327,682.
Year
Ended June 30, 2005
Operating activities for the year ended June 30, 2005 used
cash of Cdn$954,361, with the loss for the year of Cdn$1,063,474
reduced by items not affecting cash including stock-based
compensation of Cdn$148,543 and write-off of deferred
exploration costs of Cdn$194,598. Changes in non-cash working
capital items included increases in accounts receivable of
Cdn$103,457 and prepaid expenses of Cdn$26,214, and decreases in
accounts payable and accrued liabilities of Cdn$51,640, and
amounts due to related parties of Cdn$52,616.
Investing activities used cash of Cdn$4,972,207. The largest
component was the acquisition of temporary investments of
Cdn$3,413,215 as White Knight invested in highly liquid
short-term bonds. Acquisition of mineral property interests used
cash of Cdn$673,373, and deferred exploration costs used cash of
Cdn$816,648. Acquisition of equipment used cash of Cdn$86,486.
Financing activities provided cash of Cdn$3,813,500, with the
entire amount provided by the issuance of capital stock. During
the year, White Knight issued a total of 4,060,000 common
shares: 1,500,000 common shares were issued pursuant to a
private placement for proceeds of Cdn$2,370,000;
40,000 shares were issued for mineral property interests at
a deemed value of Cdn$28,400; 230,000 shares were issued on
the exercise of stock options for
A-30
net proceeds of Cdn$120,125; and 2,290,000 shares were
issued pursuant to the exercise of warrants for net proceeds of
Cdn$1,421,304.
During the year White Knight’s cash position decreased by
Cdn$2,113,068.
Year
Ended June 30, 2004
Operating activities for the year ended June 30, 2004 used
cash of Cdn$741,247, with the loss for the year of Cdn$1,664,257
reduced by items not affecting cash including stock-based
compensation of Cdn$840,005 and write-off of deferred
exploration costs of Cdn$241,549. Changes in non-cash working
capital items included an increase in accounts receivable of
Cdn$70,608, an increase in accounts payable and accrued
liabilities of Cdn$12,714, and a decrease in amounts due to
related parties of Cdn$153,168.
Investing activities used cash of Cdn$8,702,270. The largest
component was the acquisition of temporary investments of
Cdn$7,493,823. Acquisition of mineral property interests used
cash of Cdn$611,213, and deferred exploration costs used cash of
Cdn$442,661. Acquisition of equipment used cash of Cdn$89,321
and reclamation bonds were posted which used cash of Cdn$65,252.
Financing activities provided cash of Cdn$11,705,658, with the
entire amount provided by the issuance of capital stock. During
the year, White Knight issued a total of 20,870,734 common
shares: 12,486,926 common shares were issued pursuant to private
placements for gross proceeds of Cdn$9,599,998;
40,000 shares were issued for mineral property interests at
a deemed value of Cdn$31,200; 2,134,500 shares were issued
for the exercise of stock options for proceeds of Cdn$268,310;
6,084,308 shares were issued pursuant to the exercise of
warrants for net proceeds of Cdn$2,377,872; and 125,000 common
shares were issued for a finder’s fee.
During the year White Knight’s cash position increased by
Cdn$2,262,141.
U.S. GAAP Reconciliation
with Canadian GAAP
Under Canadian GAAP, mineral properties, including exploration,
development and acquisition costs, are carried at cost and
written down if the properties are abandoned, sold or if
management decides not to pursue the properties. Under
U.S. GAAP, all expenditures relating to mineral interests
prior to the completion of a definitive feasibility study, which
establishes proven and probable reserves, other than certain
capitalized costs related to the acquisition of mineral property
interests, must be expensed as incurred. Once a final
feasibility study has been completed, additional costs incurred
to bring a mine into production are capitalized as development
costs.
Under U.S. GAAP, Statements of Financial Accounting
Standards No. 123, “Accounting for Stock-Based
Compensation”, requires companies to establish a fair
market value based method of accounting for stock-based
compensation plans. White Knight has chosen to account for
stock-based compensation using Accounting Principles Board
Opinion No. 25, “Accounting for Stock Issued to
Employees.” Accordingly, compensation cost for stock
options is measured as the excess, if any, of the quoted market
price of White Knight’s stock at the date of grant over the
option price. Effective July 1, 2003, White Knight elected
to follow the fair value method of accounting for stock-based
compensation.
New accounting and disclosure standards were introduced under
Canadian GAAP for the fiscal year ending June 30, 2003.
Accordingly, there were no differences between Canadian GAAP and
United States GAAP for the years ended June 30, 2006, 2005
and 2004 other than those disclosed in the financial statements.
The reader is advised to consult White Knight’s audited
annual consolidated financial statements for the year ended
June 30, 2006, particularly Note 16, in
Appendix B (Financial Statements of White Knight), for
quantification of the differences.
Canadian
GAAP Conflict in Accounting for Mineral Property Interests
and Deferred Exploration Costs
In March 2000, the Accounting Standards Board of the Canadian
Institute of Chartered Accountants, or CICA, issued Accounting
Guideline No. 11 “Enterprises in the Development
Stage,” or AcG 11. AcG 11 addresses three distinct issues:
i) the capitalization of costs/expenditures;
ii) impairment; and iii) disclosure. Prior to its
issuance, development stage entities were exempt from following
certain aspects of Canadian GAAP. AcG 11 requires that all
A-31
companies account for transactions based on the underlying
characteristics of the transaction rather than the maturity of
the enterprise. In addition, AcG 11 requires specific disclosure
of information by development stage companies and is effective
no later than fiscal periods beginning on or after April 1,
2000, which in the case of White Knight, is the year ended
June 30, 2001.
In March 2002, the Emerging Issues Committee, or EIC, of the
CICA issued EIC-126 “Accounting by Mining Enterprises for
Exploration Costs,” or EIC-126, which interprets how AcG 11
affects mining companies with respect to the deferral of
exploration costs. EIC-126 refers to CICA Handbook
Section 3061 “Property, Plant and Equipment,” or
HB 3061, paragraph .21, which states that for a mineral property
interest, the cost of the asset includes exploration costs if
the enterprise considers that such costs have the
characteristics of property, plant and equipment.
EIC-126 then states that a mining enterprise that has not
established mineral reserves objectively, and therefore does not
have a basis for preparing a projection of the estimated cash
flow from the mineral property interest, is not precluded from
considering the exploration costs to have the characteristics of
property, plant and equipment. EIC-126 also sets forth the
EIC’s consensus that a mining enterprise in the development
stage is not required to consider the conditions in AcG 11
regarding impairment in determining whether exploration costs
may be initially capitalized. With respect to impairment of
capitalized exploration costs, EIC-126 sets forth the EIC’s
consensus that a mining enterprise in the development stage that
has not established mineral reserves objectively, and,
therefore, does not have a basis for preparing a projection of
the estimated cash flow from the property, is not obliged to
conclude that capitalized costs have been impaired. However,
such an enterprise should consider the conditions set forth in
AcG 11 and HB 3061 in determining whether a subsequent
write-down of capitalized exploration costs related to mineral
property interest is required.
As disclosed above, White Knight considers that its mineral
property interests and deferred exploration costs have the
characteristics of property, plant and equipment, and,
accordingly, White Knight has chosen to classify its mineral
property interests and deferred exploration costs as tangible
assets in accordance with its interpretation of Canadian GAAP.
Although White Knight believes its accounting policy is
appropriate and consistent with Canadian GAAP, there is an
alternative interpretation of Canadian GAAP that would consider
them to be intangible assets as a result of the issuance of CICA
Handbook Section 1581 “Business Combinations,” or
HB 1581, and CICA Handbook Section 3062 “Goodwill and
Other Intangible Assets,” or HB 3062.
This alternative interpretation under HB 1581 and HB 3062 would
provide for the capitalization of a contract based mining asset
as an intangible asset at its fair value at the time it was
acquired, either as an individual asset purchase or as part of a
business combination. For exploration stage mineral property
interests and deferred exploration costs such as those owned by
White Knight, the excess of the carrying value over the residual
value of the intangible assets would be amortized on a
straight-line basis over the period in which White Knight
expected to complete its exploration process or convert, develop
or further explore the underlying properties. For White Knight,
a reasonable estimate of this amortization period would be
5 years.
Consult White Knight’s audited annual consolidated
financial statements for the year ended June 30, 2006 for
the differences if White Knight had chosen to account for these
costs as intangible assets under HB 1581 and HB 3062 effective
July 1, 2001.
Variation
in Operating Results
White Knight derives interest income on its cash and temporary
investments, which depend on White Knight’s ability to
raise funds.
Periodically, White Knight’s management through the
exploration process, reviews results both internally and
externally through the use of mining related professionals. The
decision to abandon, reduce or expand exploration efforts is
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
A-32
costs. There cannot be a pre-determined hold period for any
property as geological or economic circumstances render each
property unique.
Research
and Development
White Knight conducts no research and development activities,
nor is it dependent upon any patents or licenses.
Trend
Information
White Knight knows of no trends, uncertainties, demands,
commitments or events that are reasonably likely to have a
material effect on White Knight’s operations or financial
condition.
Off-Balance
Sheet Arrangements
White Knight does not have any off-balance sheet arrangements
that have or are reasonably likely to have a current or future
effect on White Knight’s financial condition, changes in
financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources
that is material to investors.
Tabular
Disclosure of Contractual Obligations
White Knight has an interest in various exploration-stage
mineral properties located in the State of Nevada. Certain of
the underlying claims are leased from third-parties and have
lease payments due. Other claims are unpatented mining claims on
land owned by the Bureau of Land Management, or BLM, and have
annual lease fees payable. All claims have Nevada county taxes
due annually which vary by county.
Based upon its current and anticipated future claim holdings,
White Knight estimates its land holding costs for the next three
fiscal years to be the following:
Annual
Estimated Property Holding Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of Cost
|
|
2007
|
|
2008
|
|
2009
|
|
Leases
|
|
$
|
79,438
|
|
|
$
|
85,379
|
|
|
$
|
90,469
|
|
BLM Fees
|
|
$
|
444,750
|
|
|
$
|
444,750
|
|
|
$
|
444,750
|
|
County Fees
|
|
$
|
30,243
|
|
|
$
|
30,243
|
|
|
$
|
30,243
|
|
White Knight also maintains reclamation bonds for exploration
work on certain of its properties. These bonds are held by or in
trust for the responsible government body who oversees White
Knight’s exploration work. When exploration, development or
mining activities cease on that property, White Knight is
responsible for restoring the property as provided by law. If
White Knight either does not, or is not able, to comply with the
required restoration, the reclamation bond will be used to
provide funds for the required restoration work. However, if
White Knight completes the required restoration and the
applicable government body is satisfied all requirements have
been met, the reclamation bond for that property will be
returned to White Knight.
A-33
The following is a list of White Knight’s reclamation bonds
outstanding as of June 30, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
Government Body
|
|
$ Amount
|
|
Cdn$ Amount
|
Property
|
|
Status
|
|
Holding the Bond
|
|
of Bond
|
|
of Bond
|
|
Cottonwood
|
|
Exploration
|
|
Nevada Division of Minerals
|
|
$
|
30,885
|
|
|
$
|
—
|
|
Gold Bar Horst
|
|
Exploration
|
|
Nevada Division of Minerals
|
|
|
7,586
|
|
|
|
—
|
|
Gold Pick
|
|
Exploration
|
|
Nevada Division of Minerals
|
|
|
8,698
|
|
|
|
—
|
|
Hunter
|
|
Exploration
|
|
Nevada Division of Minerals
|
|
|
2,613
|
|
|
|
—
|
|
Patty (Indian Ranch)
|
|
Exploration
|
|
BLM
|
|
|
77,600
|
|
|
|
—
|
|
McClusky Pass
|
|
Exploration
|
|
BLM, Nevada Division of Minerals
|
|
|
2,114
|
|
|
|
—
|
|
New Pass
|
|
Exploration
|
|
BLM
|
|
|
5,982
|
|
|
|
—
|
|
Slaven Canyon
|
|
Exploration
|
|
BLM
|
|
|
12,997
|
|
|
|
|
|
Unallocated Nevada
|
|
Exploration
|
|
BLM
|
|
|
53,421
|
|
|
|
—
|
|
Quito
|
|
Dropped
|
|
US Forest Service
|
|
|
5,000
|
|
|
|
—
|
|
Lookout
|
|
Dropped
|
|
B.C. Minister of Finance
|
|
|
—
|
|
|
|
3,500
|
|
MGM
|
|
Dropped
|
|
B.C. Minister of Finance
|
|
|
—
|
|
|
|
2,000
|
|
DISCLOSURES
ABOUT WHITE KNIGHT’S MARKET RISK
White Knight’s mineral property interests are all currently
at the exploration stage and White Knight’s operations are
limited to exploring those properties. Therefore, White
Knight’s believes its market risks are minimal. White
Knight does, however, have future property payments due in
U.S. dollars, which we refer to herein as “$”. As
a Canadian company, White Knight’s cash balances are kept
in both Canadian and U.S. dollar funds. Therefore,
White Knight is exposed to some exchange rate risk. White Knight
considers the amount of risk to be manageable and does not
currently, nor is it likely in the foreseeable future, to
conduct hedging to reduce its exchange rate risk. A hypothetical
10% increase in the value of one Canadian dollar expressed in
U.S. dollars as at June 30, 2006 would have caused a
$404,000 increase in White Knight’s net assets as at
June 30, 2006, and an equivalent decrease in the value of
one Canadian dollar would have caused a $367,000 decrease in
White Knight’s net assets as at June 30, 2006.
Glossary
The following glossary and metric equivalents have been taken
from White Knight’s annual report on
Form 20-F
for the fiscal year ended June 30, 2006, filed with the SEC
on October 20, 2006. These definitions should be read in
conjunction with this Appendix, and do not apply to other
sections of this prospectus.
|
|
|
Adit |
|
A horizontal or nearly horizontal tunnel made for exploration or
mining with one opening. |
|
Alluvial |
|
Material deposited by the action of running water. |
|
Alteration |
|
Any change in the mineral composition of a rock brought about by
physical or chemical means. |
|
Argillization |
|
Alteration of the rock which produces clay minerals. |
|
Audiomagnetotelluric |
|
Geophysical technique which measures variations in the
earth’s own electromagnetic field. |
|
Au |
|
Gold. |
|
Barite |
|
Barium sulphate. |
|
Basalt |
|
A general term for dark-colored mafic igneous rocks, commonly
extrusive but locally intrusive. |
|
Bioclastic Turbidites |
|
Submarine debris flows. |
A-34
|
|
|
Breccia |
|
A rock in which angular fragments are surrounded by a mass of
fine-grained matrix. |
|
Carbonate |
|
A sediment formed by the organic or inorganic precipitation from
aqueous solution of carbonates of calcium, magnesium, or iron;
e.g., limestone and dolomite. |
|
Chert |
|
A hard, dense, sedimentary rock, consisting primarily of
cryptocrystaline quartz. |
|
CSAMT |
|
Controlled Source Audio Magnetotelluric — geophysical
method which measures the decay of an induced electromagnetic
field. |
|
Devonian |
|
Geologic era 360 million years to 410 million years. |
|
Dolomite |
|
A carbonate sedimentary rock consisting of carbonate and
magnesium. Often associated with and interbedded with limestone. |
|
Embayment |
|
Indentation in the profile of a coastline. |
|
Facies |
|
Environment in which a certain sedimentary rock unit is
deposited. |
|
Felsic |
|
Intrusive or volcanic rock with a high silica content. |
|
g/t |
|
Grams per metric tonne. |
|
Greenstone |
|
Metamorphosed intermediate to basic volcanics. |
|
Hematite |
|
An oxide of iron, and one of iron’s most common ore
minerals. |
|
Horst |
|
A relatively uplifted rock unit or block that is bounded by
faults on its long sides. |
|
Hydrothermal |
|
The products or the actions of heated waters in a rock mass such
as a mineral deposit precipitating from a hot solution. |
|
Induced Polarization |
|
Geophysical exploration method which measures decay of an
induced charge. |
|
Jasperoid |
|
A dense, usually gray, siliceous rock which contains quartz
instead of limestone or dolomite. |
|
Karsting |
|
The development of large open spaces (caves) by the process of
solution collapse. This usually takes place in limestones or
other calcium carbonate rich rocks. |
|
Lower-plate |
|
Generally refers to the eastern assemblage of northeastern
Nevada. |
|
Magnetotelluric Survey |
|
An electromagnetic survey in which natural electric and magnetic
fields are measured. |
|
Miocene |
|
Geologic era 23.7 Million years to 6.2 million years. |
|
Micritic |
|
Fine-grained carbonate rock. |
|
Opt |
|
Ounces per ton. |
|
Paleozoic |
|
Geologic era 570 million years to 245 million years. |
|
ppb |
|
Parts per billion. |
|
Pod |
|
A roughly cylindrically-shaped body of ore that decreases at the
ends. |
|
Quarternary |
|
The period of Earth’s history from about 2 million
years ago to the present; also, the rocks and deposits of that
age. |
A-35
|
|
|
Rhyolite |
|
A group of extrusive igneous rocks, typically porphyritic and
commonly exhibiting flow texture, with phenocrysts of quartz and
alkali feldspar in a glassy to cryptocrystalline groundmass;
also, any rock in that group; the extrusive equivalent of
granite. |
|
Sediments |
|
Solid fragmental material that originates from weathering of
rocks and is transported or deposited by air, water, or ice, or
that accumulates by other natural agents, such as chemical
precipitation from solution or secretion by organisms, and that
forms in layers on the Earth’s surface at ordinary
temperatures in a loose, unconsolidated form; e.g., sand,
gravel, silt, mud, alluvium. |
|
Siliclastic |
|
Sedimentary rock with a high silica content. |
|
Siltstone |
|
An indurated silt having the texture and composition of shale
but lacking its fine lamination or fissility; a massive mudstone
in which the silt predominates over clay. |
|
Tertiary |
|
Geologic era 57 million years to recent. |
|
Upper-plate |
|
Generally refers to the western assemblage of northeastern
Nevada. |
Terms
Relating to Mineral Reserves and Resources
The following terms used in this Appendix are Canadian mining
terms defined in accordance with National Instrument
43-101 under
the guidelines set out in Canadian Institute of Mining,
Metallurgy and Petroleum (CIM) Standards on Mineral
Resources and Mineral Reserves Definitions and Guidelines. The
definitions of the terms mineral reserve, proven mineral reserve
and probable mineral reserve under CIM standards are different
than the definitions adopted by the SEC and applicable to
U.S. companies filing reports with the SEC. It is the view
of the SEC’s staff that:
|
|
|
|
•
|
A final or bankable feasibility study is required to meet the
requirements to designate reserves.
|
|
|
•
|
A historic three year average price must be used in any reserve
or cash flow analysis to designate reserves.
|
|
|
•
|
To qualify as a reserve, the primary environmental analysis
should be submitted to governmental authorities.
|
In addition, while the terms mineral resource, measured mineral
resource, indicated mineral resource, and inferred mineral
resource are recognized and required to be reported by Canadian
regulations, the SEC does not recognize these terms. Information
contained in this Appendix concerning descriptions of
mineralization, resources and reserves may not be comparable to
similar information publicly reported by U.S. companies.
Resources classified as indicated mineral resource and inferred
mineral resource have an uncertain existence and uncertain as to
their economic and legal feasibility. You should not assume that
any part or all of an inferred resource exists, or is
economically mineable.
|
|
|
Mineral Reserve |
|
The economically mineable part of a measured or indicated
mineral resource demonstrated by a preliminary feasibility
study. This study must include adequate information on mining,
processing, metallurgical, economic and other relevant factors
that demonstrate, at the time of reporting, that economic
extraction can be justified. A mineral reserve includes diluting
materials and allowances for losses that might occur when the
material is mined. |
|
Proven Mineral Reserve |
|
The economically mineable part of a measured mineral resource
demonstrated by at least a preliminary feasibility study. This
study must include adequate information on mining processing,
metallurgical, economic, and other relevant factors that
demonstrate, at the time of reporting, that economic extraction
is justified. |
A-36
|
|
|
Probable Mineral Reserve |
|
The economically mineable part of an indicated, and in some
circumstances, a measured mineral resource demonstrated by at
least a preliminary feasibility study. This study must include
adequate information on mining, processing, metallurgical,
economic, and other relevant factors that demonstrate, at the
time of reporting, that economic extraction can be justified. |
|
Mineral Resource |
|
A concentration or occurrence of natural, solid, inorganic or
fossilized organic material in or on the Earth’s crust in
such form and quantity and of such a grade or quality that it
has reasonable prospects for economic extraction. The location,
quantity, grade, geological characteristics and continuity of a
mineral resource are known, estimated or interpreted form
specific geological evidence and knowledge. |
|
Measured Mineral Resource |
|
That part of a mineral resource for which quantity, grade or
quality, densities, shape and physical characteristics are so
well established that they can be estimated with confidence
sufficient to allow the appropriate application of technical and
economic parameters, to support production planning and
evaluation of the economic viability of the deposit. The
estimate is based on detailed and reliable exploration, sampling
and testing information gathered through appropriate techniques
from locations such as outcrops, trenches, pits, workings and
drill holes that are spaced closely enough to confirm both
geological and grade continuity. |
|
Indicated Mineral Resource |
|
That part of a mineral resource for which quantity, grade or
quality, densities, shape and physical characteristics can be
estimated with a level of confidence sufficient to allow the
appropriate application of technical and economic parameters, to
support mine planning and evaluation of the economic viability
of the deposit. The estimate is based on detailed and reliable
exploration and testing information gathered through appropriate
techniques from locations such as outcrops, trenches, pits,
workings and drill holes that are spaced closely enough for
geological and grade continuity to be reasonably assumed. |
|
Inferred Mineral Resource |
|
That part of a mineral resource for which quantity and grade or
quality can be estimated on the basis of geological evidence and
limited sampling and reasonably assumed, but not verified,
geological and grade continuity. The estimate is based on
limited information and sampling gathered through appropriate
techniques from locations such as outcrops, trenches, pits,
workings and drill holes. |
|
Preliminary Feasibility Study |
|
A comprehensive study of the viability of a mineral project that
has advanced to a stage where the mining method, in the case of
underground mining, or the pit configuration, in the case of an
open pit, has determined, and includes a financial analysis
based on reasonable assumptions of technical, engineering,
legal, operating, and economic factors and evaluation of other
relevant factors which are sufficient for a qualified person,
acting reasonably, to determine if all or part of the mineral
resource may be classified as a mineral reserve. |
A-37
Metric
Equivalents
The following formulas may be used to convert between metric
equivalents:
|
|
|
|
|
|
|
Metric Measurement
|
|
U.S. Equivalent
|
|
Multiply Metric Figure by:
|
|
Hectares
|
|
Acres
|
|
|
2.471
|
|
Meters
|
|
Feet (ft.)
|
|
|
3.281
|
|
Kilometers (km)
|
|
Miles
|
|
|
0.621
|
|
Tonnes
|
|
Tons (2000 pounds)
|
|
|
1.102
|
|
Grams/tonne
|
|
Ounces (troy/tonne)
|
|
|
0.029
|
|
A-38
INDEPENDENT
AUDITORS’ REPORT
To the Shareholders of
White Knight Resources Ltd.
We have audited the consolidated balance sheets of White Knight
Resources Ltd. as at June 30, 2006 and 2005 and the
consolidated statements of operations, shareholders’ equity
and cash flows for the years ended June 30, 2006, 2005 and
2004 and the cumulative amounts from inception on
December 18, 1986 to June 30, 2006. These financial
statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with Canadian generally
accepted auditing standards and with the standards of the Public
Company Accounting Oversight Board (United States). Those
standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present
fairly, in all material respects, the financial position of the
Company as at June 30, 2006 and 2005 and the results of its
operations and its cash flows for the years ended June 30,
2006, 2005 and 2004 and the cumulative amounts from inception on
December 18, 1986 to June 30, 2006 in accordance with
Canadian generally accepted accounting principles.
/s/ DAVIDSON & COMPANY LLP
Chartered Accountants
Vancouver, Canada
August 22, 2006
COMMENTS
BY AUDITORS FOR U.S. READERS ON CANADA
-U.S. REPORTING DIFFERENCE
In the United States, reporting standards for auditors require
the addition of an explanatory paragraph (following the
opinion paragraph) to identify circumstances when the financial
statements are affected by conditions and events that cast
substantial doubt on the Company’s ability to continue as a
going concern, such as those described in Note 1 to the
financial statements. Our report to the shareholders dated
August 22, 2006 is expressed in accordance with Canadian
reporting standards which do not permit a reference to such
events and conditions in the auditors’ report when these
are adequately disclosed in the financial statements.
/s/ DAVIDSON & COMPANY LLP
Chartered Accountants
Vancouver, Canada
August 22, 2006
A
Member of SC INTERNATIONAL
1200 — 609 Granville Street, P.O. Box 10372,
Pacific Centre, Vancouver, BC, Canada, V7Y 1G6
Telephone
(604) 687-0947
Fax
(604) 687-6172
B-2
WHITE
KNIGHT RESOURCES LTD.
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
As at June 30
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Expressed in Canadian Dollars)
|
|
|
ASSETS
|
Current
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
11,397,885
|
|
|
$
|
282,459
|
|
Temporary investments (Note 3)
|
|
|
2,107,699
|
|
|
|
10,895,443
|
|
Receivables (net of
allowance — $NIL; 2005 — $NIL)
|
|
|
117,490
|
|
|
|
176,164
|
|
Prepaid expenses
|
|
|
49,370
|
|
|
|
41,974
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
13,672,444
|
|
|
|
11,396,040
|
|
Mineral property interests
(Note 4)
|
|
|
2,799,619
|
|
|
|
2,456,147
|
|
Deferred exploration costs
(Note 5)
|
|
|
3,864,359
|
|
|
|
1,508,878
|
|
Equipment
(Note 6)
|
|
|
930,853
|
|
|
|
139,118
|
|
Restricted reclamation bonds
(Note 12)
|
|
|
234,783
|
|
|
|
196,692
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
21,502,058
|
|
|
$
|
15,696,875
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS’ EQUITY
|
Current
|
|
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities
|
|
$
|
315,515
|
|
|
$
|
161,831
|
|
Due to related parties
(Note 7)
|
|
|
118,002
|
|
|
|
17,754
|
|
|
|
|
|
|
|
|
|
|
Total current
liabilities
|
|
|
433,517
|
|
|
|
179,585
|
|
Asset retirement obligation
(Note 8)
|
|
|
165,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
599,502
|
|
|
|
179,585
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
|
|
|
|
|
|
Capital stock (Note 9)
|
|
|
|
|
|
|
|
|
Authorized: unlimited common
shares without par value
|
|
|
|
|
|
|
|
|
Issued and outstanding 59,384,972
(2005 — 54,089,386)
|
|
|
33,630,385
|
|
|
|
26,844,701
|
|
Contributed surplus
|
|
|
3,153,572
|
|
|
|
1,246,525
|
|
Deficit accumulated during the
exploration stage
|
|
|
(15,881,401
|
)
|
|
|
(12,573,936
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders’
equity
|
|
|
20,902,556
|
|
|
|
15,517,290
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
shareholders’ equity
|
|
$
|
21,502,058
|
|
|
$
|
15,696,875
|
|
|
|
|
|
|
|
|
|
|
Nature and continuance of
operations (Note 1)
|
|
|
|
|
|
|
|
|
Commitments
(Note 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On behalf of the
Board:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
|
|
Director
|
/s/ John M. Leask
|
|
|
|
/s/ Megan Cameron-Jones
|
|
|
|
|
|
|
|
|
|
John M. Leask
|
|
|
|
Megan Cameron-Jones
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements
B-3
WHITE
KNIGHT RESOURCES LTD.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30
|
|
|
|
Cumulative
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts from
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception on
|
|
|
|
|
|
|
|
|
|
|
|
|
December 18, 1986
|
|
|
|
|
|
|
|
|
|
|
|
|
to June 30, 2006
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Expressed in Canadian Dollars)
|
|
|
ADMINISTRATION COSTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
$
|
220,145
|
|
|
$
|
34,051
|
|
|
$
|
30,546
|
|
|
$
|
13,893
|
|
Audit
|
|
|
255,423
|
|
|
|
116,362
|
|
|
|
48,696
|
|
|
|
10,950
|
|
Bank charges and interest
|
|
|
26,349
|
|
|
|
7,464
|
|
|
|
5,762
|
|
|
|
1,520
|
|
Consulting
|
|
|
1,283,627
|
|
|
|
123,809
|
|
|
|
116,588
|
|
|
|
82,540
|
|
Consulting — stock-based
compensation (Note 9)
|
|
|
3,263,846
|
|
|
|
2,275,298
|
|
|
|
148,543
|
|
|
|
840,005
|
|
Investor relations and shareholder
information
|
|
|
665,974
|
|
|
|
175,427
|
|
|
|
123,189
|
|
|
|
52,889
|
|
Legal
|
|
|
641,631
|
|
|
|
120,155
|
|
|
|
26,958
|
|
|
|
23,196
|
|
Management fees —
related party (Note 7)
|
|
|
1,437,910
|
|
|
|
264,000
|
|
|
|
264,000
|
|
|
|
210,000
|
|
Office and miscellaneous
|
|
|
753,670
|
|
|
|
96,089
|
|
|
|
85,068
|
|
|
|
56,201
|
|
Rent
|
|
|
338,199
|
|
|
|
56,497
|
|
|
|
54,873
|
|
|
|
28,300
|
|
Telephone
|
|
|
204,215
|
|
|
|
21,183
|
|
|
|
16,444
|
|
|
|
8,898
|
|
Transfer agent and listing fees
|
|
|
305,597
|
|
|
|
43,589
|
|
|
|
31,029
|
|
|
|
55,506
|
|
Travel and entertainment
|
|
|
505,337
|
|
|
|
108,044
|
|
|
|
69,132
|
|
|
|
52,569
|
|
Wages and benefits
|
|
|
831,071
|
|
|
|
130,998
|
|
|
|
79,918
|
|
|
|
31,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before other
items
|
|
|
(10,732,994
|
)
|
|
|
(3,572,966
|
)
|
|
|
(1,100,746
|
)
|
|
|
(1,468,330
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER ITEMS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-off of deferred exploration
costs (Note 5)
|
|
|
(3,560,589
|
)
|
|
|
(143,783
|
)
|
|
|
(194,598
|
)
|
|
|
(241,549
|
)
|
Interest income
|
|
|
1,295,734
|
|
|
|
442,036
|
|
|
|
261,600
|
|
|
|
97,920
|
|
Option payments received (net)
|
|
|
633,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-off of mineral property
interests
|
|
|
(3,814,257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on foreign exchange
|
|
|
125,574
|
|
|
|
(11,574
|
)
|
|
|
(60,377
|
)
|
|
|
(9,299
|
)
|
Gain (loss) on disposal of
temporary investments
|
|
|
166,591
|
|
|
|
(23,927
|
)
|
|
|
|
|
|
|
|
|
Unrealized recovery (loss) on
temporary investments (Note 3)
|
|
|
(8,846
|
)
|
|
|
2,749
|
|
|
|
31,404
|
|
|
|
(42,999
|
)
|
Gain (loss) on disposal of
equipment
|
|
|
13,867
|
|
|
|
|
|
|
|
(757
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,148,407
|
)
|
|
|
265,501
|
|
|
|
37,272
|
|
|
|
(195,927
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the period
|
|
$
|
(15,881,401
|
)
|
|
$
|
(3,307,465
|
)
|
|
$
|
(1,063,474
|
)
|
|
$
|
(1,664,257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per
common share
|
|
|
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
common shares outstanding
|
|
|
|
|
|
|
58,855,176
|
|
|
|
53,091,304
|
|
|
|
39,038,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
B-4
WHITE
KNIGHT RESOURCES LTD.
(An Exploration Stage Company)
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Contributed
|
|
|
Exploration
|
|
|
|
|
|
|
Shares
|
|
|
Price
|
|
|
Amount
|
|
|
Surplus
|
|
|
Stage
|
|
|
Total
|
|
|
|
(Expressed in Canadian Dollars)
|
|
|
Balance, June 30,
1986
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Shares issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporation
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial offering
|
|
|
201,200
|
|
|
|
0.13
|
|
|
|
26,300
|
|
|
|
|
|
|
|
|
|
|
|
26,300
|
|
Loss for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,325
|
)
|
|
|
(17,325
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
1987
|
|
|
201,201
|
|
|
|
|
|
|
|
26,300
|
|
|
|
|
|
|
|
(17,325
|
)
|
|
|
8,975
|
|
Shares issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial offering
|
|
|
1,176,400
|
|
|
|
0.12
|
|
|
|
138,100
|
|
|
|
|
|
|
|
|
|
|
|
138,100
|
|
Loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49,793
|
)
|
|
|
(49,793
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
1988
|
|
|
1,377,601
|
|
|
|
|
|
|
|
164,400
|
|
|
|
|
|
|
|
(67,118
|
)
|
|
|
97,282
|
|
Loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44,166
|
)
|
|
|
(44,166
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
1989
|
|
|
1,377,601
|
|
|
|
|
|
|
|
164,400
|
|
|
|
|
|
|
|
(111,284
|
)
|
|
|
53,116
|
|
Shares issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral property interests
|
|
|
150,000
|
|
|
|
0.46
|
|
|
|
68,499
|
|
|
|
|
|
|
|
|
|
|
|
68,499
|
|
Exercise of stock options
|
|
|
332,680
|
|
|
|
0.40
|
|
|
|
133,072
|
|
|
|
|
|
|
|
|
|
|
|
133,072
|
|
Private placement
|
|
|
350,000
|
|
|
|
0.40
|
|
|
|
140,000
|
|
|
|
|
|
|
|
|
|
|
|
140,000
|
|
Private placement
|
|
|
250,000
|
|
|
|
0.50
|
|
|
|
125,000
|
|
|
|
|
|
|
|
|
|
|
|
125,000
|
|
Flow-through private placement
|
|
|
279,905
|
|
|
|
0.54
|
|
|
|
150,100
|
|
|
|
|
|
|
|
|
|
|
|
150,100
|
|
Exercise of agent’s warrants
|
|
|
105,000
|
|
|
|
0.40
|
|
|
|
42,000
|
|
|
|
|
|
|
|
|
|
|
|
42,000
|
|
Private placement expenses
|
|
|
|
|
|
|
|
|
|
|
(30,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(30,000
|
)
|
Loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(282,410
|
)
|
|
|
(282,410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
1990
|
|
|
2,845,186
|
|
|
|
|
|
|
|
793,071
|
|
|
|
|
|
|
|
(393,694
|
)
|
|
|
399,377
|
|
Shares issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
50,000
|
|
|
|
0.90
|
|
|
|
45,000
|
|
|
|
|
|
|
|
|
|
|
|
45,000
|
|
Exercise of stock options
|
|
|
262,250
|
|
|
|
0.28
|
|
|
|
73,430
|
|
|
|
|
|
|
|
|
|
|
|
73,430
|
|
Private placement
|
|
|
600,000
|
|
|
|
0.15
|
|
|
|
90,000
|
|
|
|
|
|
|
|
|
|
|
|
90,000
|
|
Private placement
|
|
|
263,158
|
|
|
|
0.95
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
250,000
|
|
Flow-through private placement
|
|
|
286,666
|
|
|
|
0.15
|
|
|
|
43,000
|
|
|
|
|
|
|
|
|
|
|
|
43,000
|
|
Loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(119,275
|
)
|
|
|
(119,275
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
1991
|
|
|
4,307,260
|
|
|
|
|
|
|
$
|
1,294,501
|
|
|
$
|
|
|
|
$
|
(512,969
|
)
|
|
$
|
781,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B-5
WHITE
KNIGHT RESOURCES LTD.
(An Exploration Stage Company)
CONSOLIDATED STATEMENT OF SHAREHOLDERS’
EQUITY — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Contributed
|
|
|
Exploration
|
|
|
|
|
|
|
Shares
|
|
|
Price
|
|
|
Amount
|
|
|
Surplus
|
|
|
Stage
|
|
|
Total
|
|
|
|
(Expressed in Canadian Dollars)
|
|
|
Balance, June 30,
1991
|
|
|
4,307,260
|
|
|
$
|
|
|
|
$
|
1,294,501
|
|
|
$
|
|
|
|
$
|
(512,969
|
)
|
|
$
|
781,532
|
|
Shares issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral property interests
|
|
|
100,000
|
|
|
|
0.29
|
|
|
|
29,000
|
|
|
|
|
|
|
|
|
|
|
|
29,000
|
|
Exercise of stock options
|
|
|
245,000
|
|
|
|
0.15
|
|
|
|
36,750
|
|
|
|
|
|
|
|
|
|
|
|
36,750
|
|
Debt settlement
|
|
|
114,308
|
|
|
|
0.53
|
|
|
|
60,869
|
|
|
|
|
|
|
|
|
|
|
|
60,869
|
|
Private placement
|
|
|
55,555
|
|
|
|
0.18
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
Finder’s fee
|
|
|
9,000
|
|
|
|
0.33
|
|
|
|
2,970
|
|
|
|
|
|
|
|
|
|
|
|
2,970
|
|
Private placement
|
|
|
300,000
|
|
|
|
0.33
|
|
|
|
99,000
|
|
|
|
|
|
|
|
|
|
|
|
99,000
|
|
Private placement
|
|
|
122,222
|
|
|
|
0.45
|
|
|
|
55,000
|
|
|
|
|
|
|
|
|
|
|
|
55,000
|
|
Exercise of warrants
|
|
|
460,000
|
|
|
|
0.20
|
|
|
|
92,000
|
|
|
|
|
|
|
|
|
|
|
|
92,000
|
|
Exercise of warrants
|
|
|
75,000
|
|
|
|
0.33
|
|
|
|
24,750
|
|
|
|
|
|
|
|
|
|
|
|
24,750
|
|
Loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(164,398
|
)
|
|
|
(164,398
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
1992
|
|
|
5,788,345
|
|
|
|
|
|
|
|
1,704,840
|
|
|
|
|
|
|
|
(677,367
|
)
|
|
|
1,027,473
|
|
Shares issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral property interests
|
|
|
250,000
|
|
|
|
0.20
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
Exercise of stock options
|
|
|
189,999
|
|
|
|
0.15
|
|
|
|
28,500
|
|
|
|
|
|
|
|
|
|
|
|
28,500
|
|
Exercise of stock options
|
|
|
395,000
|
|
|
|
0.20
|
|
|
|
79,000
|
|
|
|
|
|
|
|
|
|
|
|
79,000
|
|
Private placement
|
|
|
500,000
|
|
|
|
0.40
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
Private placement
|
|
|
20,000
|
|
|
|
0.45
|
|
|
|
9,000
|
|
|
|
|
|
|
|
|
|
|
|
9,000
|
|
Private placement
|
|
|
28,000
|
|
|
|
0.50
|
|
|
|
14,000
|
|
|
|
|
|
|
|
|
|
|
|
14,000
|
|
Loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(115,290
|
)
|
|
|
(115,290
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
1993
|
|
|
7,171,344
|
|
|
|
|
|
|
|
2,085,340
|
|
|
|
|
|
|
|
(792,657
|
)
|
|
|
1,292,683
|
|
Shares issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral property interests
|
|
|
190,000
|
|
|
|
0.24
|
|
|
|
46,000
|
|
|
|
|
|
|
|
|
|
|
|
46,000
|
|
Exercise of stock options
|
|
|
15,000
|
|
|
|
0.15
|
|
|
|
2,250
|
|
|
|
|
|
|
|
|
|
|
|
2,250
|
|
Exercise of stock options
|
|
|
132,000
|
|
|
|
0.21
|
|
|
|
27,720
|
|
|
|
|
|
|
|
|
|
|
|
27,720
|
|
Private placement
|
|
|
600,000
|
|
|
|
0.15
|
|
|
|
90,000
|
|
|
|
|
|
|
|
|
|
|
|
90,000
|
|
Private placement
|
|
|
300,000
|
|
|
|
0.23
|
|
|
|
67,500
|
|
|
|
|
|
|
|
|
|
|
|
67,500
|
|
Loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,051,873
|
)
|
|
|
(1,051,873
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
1994
|
|
|
8,408,344
|
|
|
|
|
|
|
|
2,318,810
|
|
|
|
|
|
|
|
(1,844,530
|
)
|
|
|
474,280
|
|
B-6
WHITE
KNIGHT RESOURCES LTD.
(An Exploration Stage Company)
CONSOLIDATED STATEMENT OF SHAREHOLDERS’
EQUITY — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Contributed
|
|
|
Exploration
|
|
|
|
|
|
|
Shares
|
|
|
Price
|
|
|
Amount
|
|
|
Surplus
|
|
|
Stage
|
|
|
Total
|
|
|
|
(Expressed in Canadian Dollars)
|
|
|
Shares issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral property interests
|
|
|
70,000
|
|
|
$
|
0.17
|
|
|
$
|
11,900
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
11,900
|
|
Loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(84,711
|
)
|
|
|
(84,711
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
1995
|
|
|
8,478,344
|
|
|
|
|
|
|
|
2,330,710
|
|
|
|
|
|
|
|
(1,929,241
|
)
|
|
|
401,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
1995
|
|
|
8,478,344
|
|
|
|
|
|
|
|
2,330,710
|
|
|
|
|
|
|
|
(1,929,241
|
)
|
|
|
401,469
|
|
Shares issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral property interests
|
|
|
130,000
|
|
|
|
0.50
|
|
|
|
65,000
|
|
|
|
|
|
|
|
|
|
|
|
65,000
|
|
Exercise of stock options
|
|
|
4,000
|
|
|
|
0.62
|
|
|
|
2,480
|
|
|
|
|
|
|
|
|
|
|
|
2,480
|
|
Exercise of stock options
|
|
|
580,000
|
|
|
|
0.22
|
|
|
|
127,600
|
|
|
|
|
|
|
|
|
|
|
|
127,600
|
|
Exercise of stock options
|
|
|
265,000
|
|
|
|
0.30
|
|
|
|
79,500
|
|
|
|
|
|
|
|
|
|
|
|
79,500
|
|
Private placement
|
|
|
650,000
|
|
|
|
0.30
|
|
|
|
195,000
|
|
|
|
|
|
|
|
|
|
|
|
195,000
|
|
Private placement
|
|
|
1,800,000
|
|
|
|
0.15
|
|
|
|
270,000
|
|
|
|
|
|
|
|
|
|
|
|
270,000
|
|
Private placement
|
|
|
500,000
|
|
|
|
0.46
|
|
|
|
230,000
|
|
|
|
|
|
|
|
|
|
|
|
230,000
|
|
Private placement
|
|
|
2,000,000
|
|
|
|
0.68
|
|
|
|
1,360,000
|
|
|
|
|
|
|
|
|
|
|
|
1,360,000
|
|
Exercise of warrants
|
|
|
10,000
|
|
|
|
0.30
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
3,000
|
|
Exercise of warrants
|
|
|
600,000
|
|
|
|
0.17
|
|
|
|
102,000
|
|
|
|
|
|
|
|
|
|
|
|
102,000
|
|
Exercise of warrants
|
|
|
300,000
|
|
|
|
0.26
|
|
|
|
78,000
|
|
|
|
|
|
|
|
|
|
|
|
78,000
|
|
Loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(288,538
|
)
|
|
|
(288,538
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
1996
|
|
|
15,317,344
|
|
|
|
|
|
|
|
4,843,290
|
|
|
|
|
|
|
|
(2,217,779
|
)
|
|
|
2,625,511
|
|
Shares issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
205,000
|
|
|
|
0.78
|
|
|
|
159,900
|
|
|
|
|
|
|
|
|
|
|
|
159,900
|
|
Exercise of stock options
|
|
|
9,500
|
|
|
|
0.62
|
|
|
|
5,890
|
|
|
|
|
|
|
|
|
|
|
|
5,890
|
|
Private placement
|
|
|
100,000
|
|
|
|
1.40
|
|
|
|
140,000
|
|
|
|
|
|
|
|
|
|
|
|
140,000
|
|
Private placement
|
|
|
3,600,000
|
|
|
|
1.00
|
|
|
|
3,600,000
|
|
|
|
|
|
|
|
|
|
|
|
3,600,000
|
|
Exercise of warrants
|
|
|
470,000
|
|
|
|
0.30
|
|
|
|
141,000
|
|
|
|
|
|
|
|
|
|
|
|
141,000
|
|
Exercise of warrants
|
|
|
225,000
|
|
|
|
0.15
|
|
|
|
33,750
|
|
|
|
|
|
|
|
|
|
|
|
33,750
|
|
Exercise of warrants
|
|
|
500,000
|
|
|
|
0.46
|
|
|
|
230,000
|
|
|
|
|
|
|
|
|
|
|
|
230,000
|
|
Loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(477,124
|
)
|
|
|
(477,124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
1997
|
|
|
20,426,844
|
|
|
|
|
|
|
|
9,153,830
|
|
|
|
|
|
|
|
(2,694,903
|
)
|
|
|
6,458,927
|
|
Shares issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral property interests
|
|
|
70,000
|
|
|
|
1.32
|
|
|
|
92,700
|
|
|
|
|
|
|
|
|
|
|
|
92,700
|
|
Exercise of warrants
|
|
|
1,575,000
|
|
|
|
0.17
|
|
|
|
267,750
|
|
|
|
|
|
|
|
|
|
|
|
267,750
|
|
Loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,063,932
|
)
|
|
|
(1,063,932
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
1998
|
|
|
22,071,844
|
|
|
|
|
|
|
|
9,514,280
|
|
|
|
|
|
|
|
(3,758,835
|
)
|
|
|
5,755,445
|
|
B-7
WHITE
KNIGHT RESOURCES LTD.
(An Exploration Stage Company)
CONSOLIDATED STATEMENT OF SHAREHOLDERS’
EQUITY — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Contributed
|
|
|
Exploration
|
|
|
|
|
|
|
Shares
|
|
|
Price
|
|
|
Amount
|
|
|
Surplus
|
|
|
Stage
|
|
|
Total
|
|
|
|
(Expressed in Canadian Dollars)
|
|
|
Shares issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private placement
|
|
|
3,708,132
|
|
|
$
|
0.38
|
|
|
$
|
1,409,090
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,409,090
|
|
Mineral property interests
|
|
|
70,000
|
|
|
|
0.41
|
|
|
|
28,500
|
|
|
|
|
|
|
|
|
|
|
|
28,500
|
|
Management bonus
|
|
|
500,000
|
|
|
|
0.30
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
Loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,173,417
|
)
|
|
|
(2,173,417
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
1999
|
|
|
26,349,976
|
|
|
|
|
|
|
|
11,101,870
|
|
|
|
|
|
|
|
(5,932,252
|
)
|
|
|
5,169,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
1999
|
|
|
26,349,976
|
|
|
|
|
|
|
|
11,101,870
|
|
|
|
|
|
|
|
(5,932,252
|
)
|
|
|
5,169,618
|
|
Shares issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral property interests
|
|
|
170,000
|
|
|
|
0.27
|
|
|
|
46,300
|
|
|
|
|
|
|
|
|
|
|
|
46,300
|
|
Loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,234,438
|
)
|
|
|
(1,234,438
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
2000
|
|
|
26,519,976
|
|
|
|
|
|
|
|
11,148,170
|
|
|
|
|
|
|
|
(7,166,690
|
)
|
|
|
3,981,480
|
|
Loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(642,586
|
)
|
|
|
(642,586
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
2001
|
|
|
26,519,976
|
|
|
|
|
|
|
|
11,148,170
|
|
|
|
|
|
|
|
(7,809,276
|
)
|
|
|
3,338,894
|
|
Shares issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral property interests
|
|
|
20,000
|
|
|
|
0.20
|
|
|
|
4,000
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
Exercise of stock options
|
|
|
300,000
|
|
|
|
0.10
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
Private placement
|
|
|
1,764,706
|
|
|
|
0.17
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
300,000
|
|
Finder’s fee
|
|
|
176,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,679,183
|
)
|
|
|
(1,679,183
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
2002
|
|
|
28,781,152
|
|
|
|
|
|
|
|
11,482,170
|
|
|
|
|
|
|
|
(9,488,459
|
)
|
|
|
1,993,711
|
|
Shares issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral property interests
|
|
|
40,000
|
|
|
|
0.20
|
|
|
|
8,000
|
|
|
|
|
|
|
|
|
|
|
|
8,000
|
|
Exercise of stock options
|
|
|
337,500
|
|
|
|
0.10
|
|
|
|
33,750
|
|
|
|
|
|
|
|
|
|
|
|
33,750
|
|
Loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(357,746
|
)
|
|
|
(357,746
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
2003
|
|
|
29,158,652
|
|
|
|
|
|
|
|
11,523,920
|
|
|
|
|
|
|
|
(9,846,205
|
)
|
|
|
1,677,715
|
|
B-8
WHITE
KNIGHT RESOURCES LTD.
(An Exploration Stage Company)
CONSOLIDATED STATEMENT OF SHAREHOLDERS’
EQUITY — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Contributed
|
|
|
Exploration
|
|
|
|
|
|
|
Shares
|
|
|
Price
|
|
|
Amount
|
|
|
Surplus
|
|
|
Stage
|
|
|
Total
|
|
|
|
(Expressed in Canadian Dollars)
|
|
|
Shares issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral property interests
|
|
|
40,000
|
|
|
$
|
0.78
|
|
|
$
|
31,200
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
31,200
|
|
Exercise of stock options
|
|
|
1,712,500
|
|
|
|
0.10
|
|
|
|
171,250
|
|
|
|
|
|
|
|
|
|
|
|
171,250
|
|
Exercise of stock options
|
|
|
422,000
|
|
|
|
0.23
|
|
|
|
97,060
|
|
|
|
|
|
|
|
|
|
|
|
97,060
|
|
Private placement
|
|
|
2,500,000
|
|
|
|
0.40
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
Finder’s fee
|
|
|
125,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private placement
|
|
|
7,764,704
|
|
|
|
0.85
|
|
|
|
6,599,998
|
|
|
|
|
|
|
|
|
|
|
|
6,599,998
|
|
Private placement
|
|
|
2,222,222
|
|
|
|
0.90
|
|
|
|
2,000,000
|
|
|
|
|
|
|
|
|
|
|
|
2,000,000
|
|
Exercise of warrants
|
|
|
3,708,132
|
|
|
|
0.44
|
|
|
|
1,631,578
|
|
|
|
|
|
|
|
|
|
|
|
1,631,578
|
|
Exercise of warrants
|
|
|
1,941,176
|
|
|
|
0.25
|
|
|
|
485,294
|
|
|
|
|
|
|
|
|
|
|
|
485,294
|
|
Exercise of warrants
|
|
|
435,000
|
|
|
|
0.60
|
|
|
|
261,000
|
|
|
|
|
|
|
|
|
|
|
|
261,000
|
|
Private placement expenses
|
|
|
|
|
|
|
|
|
|
|
(896,428
|
)
|
|
|
355,906
|
|
|
|
|
|
|
|
(540,522
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
840,005
|
|
|
|
|
|
|
|
840,005
|
|
Loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,664,257
|
)
|
|
|
(1,664,257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
2004
|
|
|
50,029,386
|
|
|
|
|
|
|
|
22,904,872
|
|
|
|
1,195,911
|
|
|
|
(11,510,462
|
)
|
|
|
12,590,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
2004
|
|
|
50,029,386
|
|
|
|
|
|
|
|
22,904,872
|
|
|
|
1,195,911
|
|
|
|
(11,510,462
|
)
|
|
|
12,590,321
|
|
Shares issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral property interests
|
|
|
40,000
|
|
|
|
0.71
|
|
|
|
28,400
|
|
|
|
|
|
|
|
|
|
|
|
28,400
|
|
Exercise of stock options
(Note 9)
|
|
|
230,000
|
|
|
|
0.30
|
|
|
|
120,125
|
|
|
|
|
|
|
|
|
|
|
|
120,125
|
|
Exercise of warrants (Note 9)
|
|
|
1,965,000
|
|
|
|
0.60
|
|
|
|
1,179,000
|
|
|
|
|
|
|
|
|
|
|
|
1,179,000
|
|
Exercise of broker’s warrants
(Note 9)
|
|
|
325,000
|
|
|
|
0.60
|
|
|
|
242,304
|
|
|
|
|
|
|
|
|
|
|
|
242,304
|
|
Private placement
|
|
|
1,500,000
|
|
|
|
1.58
|
|
|
|
2,370,000
|
|
|
|
|
|
|
|
|
|
|
|
2,370,000
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
148,543
|
|
|
|
|
|
|
|
148,543
|
|
Less: Fair market value of stock
options and broker’s warrants exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(97,929
|
)
|
|
|
|
|
|
|
(97,929
|
)
|
Loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,063,474
|
)
|
|
|
(1,063,474
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
2005
|
|
|
54,089,386
|
|
|
|
|
|
|
|
26,844,701
|
|
|
|
1,246,525
|
|
|
|
(12,573,936
|
)
|
|
|
15,517,290
|
|
B-9
WHITE
KNIGHT RESOURCES LTD.
(An Exploration Stage Company)
CONSOLIDATED STATEMENT OF SHAREHOLDERS’
EQUITY — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Contributed
|
|
|
Exploration
|
|
|
|
|
|
|
Shares
|
|
|
Price
|
|
|
Amount
|
|
|
Surplus
|
|
|
Stage
|
|
|
Total
|
|
|
|
(Expressed in Canadian Dollars)
|
|
|
Shares issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral property interests
|
|
|
40,000
|
|
|
$
|
1.80
|
|
|
$
|
72,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
72,000
|
|
Exercise of stock options
(Note 9)
|
|
|
315,000
|
|
|
|
0.54
|
|
|
|
298,384
|
|
|
|
|
|
|
|
|
|
|
|
298,384
|
|
Exercise of warrants (Note 9)
|
|
|
4,397,057
|
|
|
|
1.25
|
|
|
|
5,496,321
|
|
|
|
|
|
|
|
|
|
|
|
5,496,321
|
|
Exercise of broker’s warrants
(Note 9)
|
|
|
543,529
|
|
|
|
1.25
|
|
|
|
918,979
|
|
|
|
|
|
|
|
|
|
|
|
918,979
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,275,298
|
|
|
|
|
|
|
|
2,275,298
|
|
Less: Fair market value of stock
options and broker’s warrants exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(368,251
|
)
|
|
|
|
|
|
|
(368,251
|
)
|
Loss for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,307,465
|
)
|
|
|
(3,307,465
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30,
2006
|
|
|
59,384,972
|
|
|
|
|
|
|
$
|
33,630,385
|
|
|
$
|
3,153,572
|
|
|
$
|
(15,881,401
|
)
|
|
$
|
20,902,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
B-10
WHITE
KNIGHT RESOURCES LTD.
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30
|
|
|
|
Cumulative
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts from
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception on
|
|
|
|
|
|
|
|
|
|
|
|
|
December 18,
|
|
|
|
|
|
|
|
|
|
|
|
|
1986 to
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Expressed in Canadian Dollars)
|
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the period
|
|
$
|
(15,881,401
|
)
|
|
$
|
(3,307,465
|
)
|
|
$
|
(1,063,474
|
)
|
|
$
|
(1,664,257
|
)
|
Items not affecting cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
220,145
|
|
|
|
34,051
|
|
|
|
30,546
|
|
|
|
13,893
|
|
Write-off of mineral property
interests
|
|
|
3,814,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-off of deferred exploration
costs
|
|
|
3,560,589
|
|
|
|
143,783
|
|
|
|
194,598
|
|
|
|
241,549
|
|
Loss (gain) on disposal of
equipment
|
|
|
(13,867
|
)
|
|
|
|
|
|
|
757
|
|
|
|
|
|
Stock-based compensation
|
|
|
3,263,846
|
|
|
|
2,275,298
|
|
|
|
148,543
|
|
|
|
840,005
|
|
Unrealized loss (recovery) on
temporary investments
|
|
|
8,846
|
|
|
|
(2,749
|
)
|
|
|
(31,404
|
)
|
|
|
42,999
|
|
Loss (gain) on disposal of
investments
|
|
|
(166,591
|
)
|
|
|
23,927
|
|
|
|
|
|
|
|
|
|
Shares issued for management bonus
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in non-cash working
capital items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in receivables
|
|
|
(117,490
|
)
|
|
|
58,674
|
|
|
|
(103,457
|
)
|
|
|
(70,608
|
)
|
Increase in prepaid expenses
|
|
|
(49,370
|
)
|
|
|
(7,396
|
)
|
|
|
(26,214
|
)
|
|
|
(4,374
|
)
|
Increase (decrease) in accounts
payable and accrued liabilities
|
|
|
298,409
|
|
|
|
75,709
|
|
|
|
(51,640
|
)
|
|
|
12,714
|
|
Increase (decrease) in due to
related parties
|
|
|
118,002
|
|
|
|
100,248
|
|
|
|
(52,616
|
)
|
|
|
(153,168
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating
activities
|
|
|
(4,794,625
|
)
|
|
|
(605,920
|
)
|
|
|
(954,361
|
)
|
|
|
(741,247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of capital stock
|
|
|
32,724,773
|
|
|
|
6,345,433
|
|
|
|
3,813,500
|
|
|
|
11,705,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing
activities
|
|
|
32,724,773
|
|
|
|
6,345,433
|
|
|
|
3,813,500
|
|
|
|
11,705,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of mineral property
interests
|
|
|
(6,046,712
|
)
|
|
|
(288,777
|
)
|
|
|
(673,373
|
)
|
|
|
(611,213
|
)
|
Deferred exploration costs
|
|
|
(7,339,341
|
)
|
|
|
(2,413,657
|
)
|
|
|
(816,648
|
)
|
|
|
(442,661
|
)
|
Restricted reclamation bond
refunded (posted)
|
|
|
(228,453
|
)
|
|
|
(31,761
|
)
|
|
|
15,547
|
|
|
|
(65,252
|
)
|
Acquisition (disposal) of
temporary investments (net)
|
|
|
(1,909,954
|
)
|
|
|
8,806,566
|
|
|
|
(3,413,215
|
)
|
|
|
(7,493,823
|
)
|
Proceeds from disposal of equipment
|
|
|
58,141
|
|
|
|
|
|
|
|
1,968
|
|
|
|
|
|
Acquisition of equipment
|
|
|
(1,065,944
|
)
|
|
|
(696,458
|
)
|
|
|
(86,486
|
)
|
|
|
(89,321
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
investing activities
|
|
|
(16,532,263
|
)
|
|
|
5,375,913
|
|
|
|
(4,972,207
|
)
|
|
|
(8,702,270
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
during the period
|
|
|
11,397,885
|
|
|
|
11,115,426
|
|
|
|
(2,113,068
|
)
|
|
|
2,262,141
|
|
Cash, beginning of
period
|
|
|
|
|
|
|
282,459
|
|
|
|
2,395,527
|
|
|
|
133,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
11,397,885
|
|
|
$
|
11,397,885
|
|
|
$
|
282,459
|
|
|
$
|
2,395,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures with respect to cash flows (Note 13)
The accompanying notes are an integral part of these
consolidated financial statements.
B-11
WHITE
KNIGHT RESOURCES LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
JUNE 30, 2006
|
|
1.
|
NATURE
AND CONTINUANCE OF OPERATIONS
|
White Knight Resources Ltd. (the “Company”) is a
Canadian company incorporated in British Columbia. The Company
is primarily engaged in the acquisition and exploration of
mineral property interests.
At the date of these consolidated financial statements, the
Company has not been able to identify a known body of commercial
grade ore on any of its mineral property interests. The ability
of the Company to realize the costs it has incurred to date on
these mineral property interests is dependent upon the Company
being able to lever its property interests and cash, by way of
exploration activities and option/joint ventures, into assets of
greater value or to identify a commercial ore body, to finance
its exploration costs and to resolve any environmental,
regulatory or other constraints which may hinder the successful
development of the mineral property interest. To date, the
Company has not earned revenues and is considered to be in the
exploration stage.
These consolidated financial statements have been prepared
assuming the Company will continue on a going concern basis. The
Company has incurred losses since inception and the ability of
the Company to continue as a going-concern depends upon its
ability to develop profitable operations and to continue to
raise adequate financing. Management is actively targeting
sources of additional financing through alliances with
financial, exploration and mining entities, or other business
and financial transactions which would assure continuation of
the Company’s operations and exploration programs. In order
for the Company to meet its liabilities as they come due and to
continue its operations, the Company is solely dependent upon
its ability to generate such financing. The Company has
sufficient resources to meet its obligations for the foreseeable
future at its current level of activity.
There can be no assurance that the Company will be able to
continue to raise funds in which case the Company may be unable
to meet its obligations. Should the Company be unable to realize
on its assets and discharge its liabilities in the normal course
of business, the net realizable value of its assets may be
materially less than the amounts recorded on the consolidated
balance sheets.
All amounts are in Canadian dollars unless otherwise stated.
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Working capital
|
|
$
|
13,238,927
|
|
|
$
|
11,216,455
|
|
Deficit
|
|
|
(15,881,401
|
)
|
|
|
(12,573,936
|
)
|
|
|
2.
|
SIGNIFICANT
ACCOUNTING POLICIES
|
These consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting
principles (“Canadian GAAP”). The significant
accounting policies adopted by the Company are as follows:
Use of
estimates
The preparation of financial statements in accordance with
Canadian GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amount
of revenues and expenses during the year. Actual results could
differ from these estimates.
B-12
WHITE
KNIGHT RESOURCES LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Principles
of consolidation
These consolidated financial statements include the accounts of
the Company and the following subsidiaries, all of which are
100% owned:
White Knight Gold (U.S.) Inc.
CUN Minerals Inc.
Quito Gold Corp.
All material inter-company transactions have been eliminated
upon consolidation.
Cash
Cash consists of cash on hand and highly liquid investments with
original maturities of three months or less. At June 30,
2006 and 2005, cash consisted of cash and guaranteed investment
certificates held in financial institutions.
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash. The
Company places its cash with high quality financial
institutions, thereby minimizing exposure for deposits in excess
of federally insured amounts. The Company believes that credit
risk associated with cash is remote.
Temporary
investments
Temporary investments are recorded at the lower of cost or
market on an aggregate basis. For temporary investments in which
unrealized losses had been recognized in a previous year, any
subsequent recoveries in market value are recorded up to
original cost. This occurred during fiscal 2006 and 2005.
Mineral
property interests and deferred exploration costs
The Company records mineral property interests, which consist of
the right to explore for mineral deposits, at cost. The Company
records deferred exploration costs, which consist of costs
attributable to the exploration of mineral property interests,
at cost. All direct and indirect costs relating to the
acquisition and exploration of these mineral property interests
are capitalized on the basis of specific claim blocks until the
mineral property interests to which they relate are placed into
production, the mineral property interests are disposed of
through sale or where management has determined there to be an
impairment. If a mineral property interest is abandoned, the
mineral property interest and deferred exploration costs will be
written off to operations in the period of abandonment.
On an ongoing basis, the capitalized costs are reviewed on a
property-by-property
basis to consider if there is any impairment on the subject
mineral property interest. Management’s determination for
impairment is based on: i) whether the Company’s
exploration programs on the mineral property interests have
significantly changed, such that previously identified resource
targets are no longer being pursued; ii) whether
exploration results to date are promising and whether additional
exploration work is being planned in the foreseeable future or
iii) whether remaining lease terms are insufficient to
conduct necessary studies or exploration work. As at
June 30, 2006 and 2005, management believes that no
impairment relating to the mineral property interests and
deferred exploration costs was required.
The recorded cost of mineral property interests and deferred
exploration costs is based on cash paid and the assigned value
of share consideration issued for mineral property interest
acquisitions and exploration costs incurred. The recorded amount
may not reflect recoverable value as this will be dependent on
future development programs, the nature of the mineral deposit,
commodity prices, adequate funding and the ability of the
Company to bring its projects into production.
B-13
WHITE
KNIGHT RESOURCES LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Canadian
GAAP Conflict in Accounting for Mineral Property Interests
and Deferred Exploration Costs
In March 2000, the Accounting Standards Board of the Canadian
Institute of Chartered Accountants (“CICA”) issued
Accounting Guideline No. 11 “Enterprises in the
Development Stage” (“AcG 11”). AcG 11 addresses
three distinct issues: i) the capitalization of
costs/expenditures; ii) impairment; and
iii) disclosure. Prior to its issuance, development stage
entities were exempt from following certain aspects of Canadian
GAAP. AcG 11 requires that all companies account for
transactions based on the underlying characteristics of the
transaction rather than the maturity of the enterprise. In
addition, AcG 11 requires specific disclosure of information by
development stage companies.
In March 2002, the Emerging Issues Committee (“EIC”)
of the CICA issued EIC-126 “Accounting by Mining
Enterprises for Exploration Costs” (“EIC-126”)
which interprets how AcG 11 affects mining companies with
respect to the deferral of exploration costs. EIC-126 refers to
CICA Handbook Section 3061 “Property, Plant and
Equipment” (“HB 3061”), paragraph .21, which
states that for a mineral property interest, the cost of the
asset includes exploration costs if the enterprise considers
that such costs have the characteristics of property, plant and
equipment.
EIC-126 then states that a mining enterprise that has not
established mineral reserves objectively, and therefore does not
have a basis for preparing a projection of the estimated cash
flow from the mineral property interest, is not precluded from
considering the exploration costs to have the characteristics of
property, plant and equipment.
EIC-126 also
sets forth the EIC’s consensus that a mining enterprise in
the development stage is not required to consider the conditions
in AcG 11 regarding impairment in determining whether
exploration costs may be initially capitalized. With respect to
impairment of capitalized exploration costs, EIC-126 sets forth
the EIC’s consensus that a mining enterprise in the
development stage that has not established mineral reserves
objectively, and, therefore, does not have a basis for preparing
a projection of the estimated cash flow from the property, is
not obliged to conclude that capitalized costs have been
impaired. However, such an enterprise should consider the
conditions set forth in AcG 11 and HB 3061 in determining
whether a subsequent write-down of capitalized exploration costs
related to mineral property interests is required.
As disclosed above, the Company considers that its mineral
property interests and deferred exploration costs have the
characteristics of property, plant and equipment, and,
accordingly, the Company has chosen to classify its mineral
property interests and deferred exploration costs as tangible
assets in accordance with its interpretation of Canadian GAAP.
Although the Company believes its accounting policy is
appropriate and consistent with Canadian GAAP, there is an
alternative interpretation of Canadian GAAP that would consider
them to be intangible assets as a result of the issuance of CICA
Handbook Section 1581 “Business Combinations”
(“HB 1581”) and CICA Handbook Section 3062
“Goodwill and Other Intangible Assets” (“HB
3062”).
This alternative interpretation under HB 1581 and HB 3062 would
provide for the capitalization of a contract based mining asset
as an intangible asset at its fair value at the time it was
acquired, either as an individual asset purchase or as part of a
business combination. For exploration stage mineral property
interests and deferred exploration costs such as those owned by
the Company, the excess of the carrying value over the residual
value of the intangible assets would be amortized on a
straight-line basis over the period in which the Company
expected to complete its exploration process or convert, develop
or further explore the underlying properties. For the Company, a
reasonable estimate of this amortization period would be
5 years.
In September, 2004, the CICA amended the guidance in HB 3062 to
remove the example of mineral rights as this reference may have
implied that mineral rights are necessarily an intangible asset.
This amendment confirmed the Company’s current method of
accounting for mineral property interests. Unless alternative
guidance is provided, the Company expects to continue accounting
for these assets as tangible assets.
B-14
WHITE
KNIGHT RESOURCES LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Asset
retirement obligations
Effective July 1, 2004, the Company recognizes the fair
value of a liability for an asset retirement obligation in the
year in which it is incurred when a reasonable estimate of fair
value can be made. The carrying amount of the related long-lived
asset is increased by the same amount as the liability. Changes
in the liability for an asset retirement obligation due to the
passage of time will be measured by applying an interest method
of allocation. The amount will be recognized as an increase in
the liability and an accretion expense in the statement of
operations. Changes resulting from revisions to the timing or
the amount of the original estimate of undiscounted cash flows
are recognized as an increase or a decrease in the carrying
amount of the liability for an asset retirement obligation and
the cost of the related long-lived asset.
Impairment
of long-lived assets and long-lived assets to be disposed
of
Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount
of an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of
the carrying amount and the fair value less costs to sell.
Risk
management
The Company’s largest non-monetary assets are its mineral
property interests in the United States of America. The Company
could accordingly be at risk for foreign currency fluctuations
and developing legal and political environments.
The Company does not maintain significant cash or other monetary
assets or liabilities in the United States.
The Company relies on local consultants for the management of
its exploration activities and for legal and accounting matters.
Equipment
and amortization
Equipment is recorded at cost and amortization is calculated at
the following rates per annum using the declining-balance method:
|
|
|
|
|
Vehicles and technical equipment
|
|
|
30
|
%
|
Office equipment
|
|
|
20
|
%
|
Foreign
currency translation
The Company’s subsidiaries are integrated foreign
operations and its operating results are translated into
Canadian dollar equivalents using the temporal method. Monetary
items are translated at the exchange rate in effect at the
balance sheet date; non-monetary items are translated at
historical exchange rates. Income and expense items are
translated at the average exchange rate for the period.
Translation gains and losses are reflected in loss for the year.
Stock-based
compensation
The Company has an employee stock option plan. The Company
recognizes an expense arising from stock options granted to both
employees and non-employees using the fair value method. The
fair value of option grants is generally established at the date
of grant using the Black Scholes option pricing model and the
compensation amount, equal to the option’s fair value, is
then recognized over the options vesting periods.
B-15
WHITE
KNIGHT RESOURCES LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Future
income taxes
Future income taxes are recorded using the asset and liability
method. Under the asset and liability method, future tax assets
and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Future tax assets and liabilities are
measured using the enacted or substantively enacted tax rates
expected to apply when the asset is realized or the liability
settled. The effect on future tax assets and liabilities of a
change in tax rates is recognized in income in the period that
substantive enactment or enactment occurs. To the extent that
the Company does not consider it more likely than not that a
future tax asset will be recovered, it provides a valuation
allowance against the excess.
Loss
per share
The Company uses the treasury stock method to compute the
dilutive effect of options, warrants and similar instruments.
Under this method, the dilutive effect on earnings per share is
recognized on the use of the proceeds that could be obtained
upon exercise of options, warrants and similar instruments. It
assumes that the proceeds would be used to purchase common
shares at the average market price during the year. The weighted
average number of common shares outstanding at June 30,
2006 of 58,855,176 (2005 — 53,091,304;
2004 — 39,038,472) does not include the 1,500,000
(2005 — 9,808,233; 2004 — 11,964,899)
warrants outstanding and the 5,120,000 (2005 —
3,385,000; 2004 — 3,665,000) stock options outstanding.
Basic loss per share is calculated using the weighted-average
number of shares outstanding during the year.
Comprehensive
income (loss)
SFAS No. 130 “Reporting Comprehensive
Income” establishes standards for the reporting and display
of comprehensive loss and its components in the financial
statements. As at June 30, 2006, the Company has no items
that represent comprehensive loss, and therefore has not
included a schedule of comprehensive loss in the financial
statements.
Comparative
figures
Certain comparative figures have been reclassified to conform
with the current year’s presentation.
Temporary investments consist of highly liquid bonds with a
carrying value at June 30, 2006 of $2,107,699 and a fair
value of $2,155,981. The recovery reported in the consolidated
financial statements of $2,749 (2005 — $31,404)
related to temporary investments is a partial recovery of the
unrealized loss on temporary investments reported in fiscal 2004
of $42,999.
B-16
WHITE
KNIGHT RESOURCES LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
4.
|
MINERAL
PROPERTY INTERESTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2005
|
|
|
Additions
|
|
|
Recovery
|
|
|
2006
|
|
|
Nevada Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benmark
|
|
$
|
61,163
|
|
|
$
|
19,955
|
|
|
$
|
|
|
|
$
|
81,118
|
|
Celt
|
|
|
283,867
|
|
|
|
1,052
|
|
|
|
|
|
|
|
284,919
|
|
Cottonwood
|
|
|
93,403
|
|
|
|
66,811
|
|
|
|
|
|
|
|
160,214
|
|
Fye Canyon
|
|
|
173,778
|
|
|
|
47
|
|
|
|
|
|
|
|
173,825
|
|
Gold Bar Horst
|
|
|
120,828
|
|
|
|
28,409
|
|
|
|
|
|
|
|
149,237
|
|
Gold Pick
|
|
|
19,555
|
|
|
|
5,001
|
|
|
|
|
|
|
|
24,556
|
|
Goldstone
|
|
|
22,684
|
|
|
|
9,625
|
|
|
|
|
|
|
|
32,309
|
|
Hunter
|
|
|
88,788
|
|
|
|
48,103
|
|
|
|
|
|
|
|
136,891
|
|
Ian
|
|
|
18,930
|
|
|
|
12,387
|
|
|
|
|
|
|
|
31,317
|
|
Knolls
|
|
|
58,154
|
|
|
|
27,948
|
|
|
|
|
|
|
|
86,102
|
|
McClusky Pass
|
|
|
96,737
|
|
|
|
37,723
|
|
|
|
|
|
|
|
134,460
|
|
New Pass
|
|
|
419,727
|
|
|
|
1,062
|
|
|
|
(1,057
|
)
|
|
|
419,732
|
|
Pat Canyon
|
|
|
81,163
|
|
|
|
27,634
|
|
|
|
|
|
|
|
108,797
|
|
Patty (formerly Indian Ranch)
|
|
|
108,402
|
|
|
|
|
|
|
|
|
|
|
|
108,402
|
|
Slaven Canyon
|
|
|
254,556
|
|
|
|
110,871
|
|
|
|
|
|
|
|
365,427
|
|
South Cabin Creek
|
|
|
34,349
|
|
|
|
13,040
|
|
|
|
|
|
|
|
47,389
|
|
Squaw Creek
|
|
|
377,471
|
|
|
|
1,498
|
|
|
|
(108,708
|
)
|
|
|
270,261
|
|
Tonkin Summit
|
|
|
100,788
|
|
|
|
28,875
|
|
|
|
|
|
|
|
129,663
|
|
Other
|
|
|
41,804
|
|
|
|
13,196
|
|
|
|
|
|
|
|
55,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Nevada Properties
|
|
$
|
2,456,147
|
|
|
$
|
453,237
|
|
|
$
|
(109,765
|
)
|
|
$
|
2,799,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B-17
WHITE
KNIGHT RESOURCES LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2004
|
|
|
Additions
|
|
|
Recovery
|
|
|
2005
|
|
|
Nevada Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benmark
|
|
$
|
24,922
|
|
|
$
|
36,241
|
|
|
$
|
|
|
|
$
|
61,163
|
|
Celt
|
|
|
106,057
|
|
|
|
194,427
|
|
|
|
(16,617
|
)
|
|
|
283,867
|
|
Cottonwood
|
|
|
58,016
|
|
|
|
35,387
|
|
|
|
|
|
|
|
93,403
|
|
Fye Canyon
|
|
|
119,889
|
|
|
|
57,559
|
|
|
|
(3,670
|
)
|
|
|
173,778
|
|
Gold Bar Horst
|
|
|
82,543
|
|
|
|
38,285
|
|
|
|
|
|
|
|
120,828
|
|
Gold Pick
|
|
|
10,811
|
|
|
|
8,744
|
|
|
|
|
|
|
|
19,555
|
|
Goldstone
|
|
|
19,846
|
|
|
|
2,838
|
|
|
|
|
|
|
|
22,684
|
|
Hunter
|
|
|
62,830
|
|
|
|
25,958
|
|
|
|
|
|
|
|
88,788
|
|
Ian
|
|
|
|
|
|
|
18,930
|
|
|
|
|
|
|
|
18,930
|
|
Knolls
|
|
|
|
|
|
|
58,154
|
|
|
|
|
|
|
|
58,154
|
|
McClusky Pass
|
|
|
56,194
|
|
|
|
40,543
|
|
|
|
|
|
|
|
96,737
|
|
New Pass
|
|
|
402,981
|
|
|
|
17,888
|
|
|
|
(1,142
|
)
|
|
|
419,727
|
|
Pat Canyon
|
|
|
34,965
|
|
|
|
46,198
|
|
|
|
|
|
|
|
81,163
|
|
Patty (formerly Indian Ranch)
|
|
|
108,402
|
|
|
|
|
|
|
|
|
|
|
|
108,402
|
|
Slaven Canyon
|
|
|
163,314
|
|
|
|
91,242
|
|
|
|
|
|
|
|
254,556
|
|
South Cabin Creek
|
|
|
17,426
|
|
|
|
16,923
|
|
|
|
|
|
|
|
34,349
|
|
Squaw Creek
|
|
|
426,563
|
|
|
|
25,511
|
|
|
|
(74,603
|
)
|
|
|
377,471
|
|
Tonkin Summit
|
|
|
59,615
|
|
|
|
41,173
|
|
|
|
|
|
|
|
100,788
|
|
Other
|
|
|
|
|
|
|
41,804
|
|
|
|
|
|
|
|
41,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Nevada Properties
|
|
$
|
1,754,374
|
|
|
$
|
797,805
|
|
|
$
|
(96,032
|
)
|
|
$
|
2,456,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B-18
WHITE
KNIGHT RESOURCES LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2003
|
|
|
Additions
|
|
|
Recovery
|
|
|
2004
|
|
|
Nevada Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benmark
|
|
$
|
|
|
|
$
|
24,922
|
|
|
$
|
|
|
|
$
|
24,922
|
|
Celt
|
|
|
|
|
|
|
106,057
|
|
|
|
|
|
|
|
106,057
|
|
Cottonwood
|
|
|
30,692
|
|
|
|
27,324
|
|
|
|
|
|
|
|
58,016
|
|
Fye Canyon
|
|
|
|
|
|
|
119,889
|
|
|
|
|
|
|
|
119,889
|
|
Gold Bar Horst
|
|
|
61,700
|
|
|
|
20,843
|
|
|
|
|
|
|
|
82,543
|
|
Gold Pick
|
|
|
8,202
|
|
|
|
2,609
|
|
|
|
|
|
|
|
10,811
|
|
Goldstone
|
|
|
|
|
|
|
19,846
|
|
|
|
|
|
|
|
19,846
|
|
Hunter
|
|
|
36,203
|
|
|
|
26,627
|
|
|
|
|
|
|
|
62,830
|
|
McClusky Pass
|
|
|
400
|
|
|
|
55,794
|
|
|
|
|
|
|
|
56,194
|
|
New Pass
|
|
|
387,381
|
|
|
|
15,600
|
|
|
|
|
|
|
|
402,981
|
|
Pat Canyon
|
|
|
|
|
|
|
34,965
|
|
|
|
|
|
|
|
34,965
|
|
Patty (formerly Indian Ranch)
|
|
|
108,402
|
|
|
|
|
|
|
|
|
|
|
|
108,402
|
|
Slaven Canyon
|
|
|
54,177
|
|
|
|
109,137
|
|
|
|
|
|
|
|
163,314
|
|
South Cabin Creek
|
|
|
13,052
|
|
|
|
4,374
|
|
|
|
|
|
|
|
17,426
|
|
Squaw Creek
|
|
|
404,550
|
|
|
|
22,013
|
|
|
|
|
|
|
|
426,563
|
|
Tonkin Summit
|
|
|
|
|
|
|
59,615
|
|
|
|
|
|
|
|
59,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Nevada Properties
|
|
$
|
1,104,759
|
|
|
$
|
649,615
|
|
|
$
|
|
|
|
$
|
1,754,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Title to mineral property interests involves certain inherent
risks due to the difficulties of determining the validity of
certain claims as well as the potential for problems arising
from the frequently ambiguous conveyancing history
characteristic of many mineral claims. The Company has
investigated title to all of its mineral property interests and,
to the best of its knowledge, expects title to all of its
interests to be in good standing. The mineral property interests
in which the Company has committed to earn an interest are
located in the United States and the Company is therefore
relying on advice by legal counsel who are basing such advice on
the laws of the United States.
Celt,
Eureka County, Nevada
In fiscal 2004, the Company acquired the property by staking.
During the 2005 fiscal year, the Company entered into a
Financing and Acquisition Agreement with Teck Cominco American
Incorporated (“TCAI”) whereby TCAI was granted the
option to earn an initial 51% interest in the property.
The terms of the agreement provide for exploration expenditures
of US$4,000,000 and cash payments of US$750,000 (US$50,000 paid)
which must be incurred and paid to the Company’s
U.S. subsidiary in annual increments prior to
December 31, 2008. TCAI has made a firm commitment to incur
US$500,000 in exploration expenditures by December 31, 2005
(completed). Upon TCAI vesting its 51% interest, TCAI and the
Company will form a joint venture to further develop the
property. When the joint venture completes the earlier of
US$8.0 million in expenditures or a preliminary feasibility
study, TCAI will have a one-time option to elect to earn an
additional 9% interest in the property by funding and completing
a feasibility study. Upon TCAI earning its additional interest
and the approval of a production plan, the Company will have the
option to request that TCAI arrange financing for the
Company’s share of the capital costs required to develop
the property. If the Company exercises this option TCAI shall
commit to use its best efforts to arrange or provide project
debt financing for not less than 60% of projected capital costs
on a limited recourse basis after technical completion. If
project costs exceed the amount available for debt financing and
the parties elect nonetheless to put the property into
production then at the Company’s election TCAI shall also
B-19
WHITE
KNIGHT RESOURCES LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
arrange or provide the Company’s share of equity financing
on a subordinate loan basis at LIBOR plus 4%. The property is
comprised of 608 claims.
Cottonwood,
Eureka County, Nevada
In fiscal 2002, the Company staked 56 claims and executed a
mining lease agreement to acquire six adjacent claims. Under the
terms of the agreement, the Company has made lease payments
totalling US$9,000 and has issued 80,000 common shares of the
Company at a value of $69,800. The Company is required to make
further annual lease payments of US$5,000. The Company has
staked an additional 57 claims in the surrounding area.
Fye
Canyon, Eureka County, Nevada
In fiscal 2004, the Company executed a mining lease agreement to
acquire 114 claims (the “Underlying Fye Agreement”).
Under the terms of the agreement, the Company has made an
initial lease payment of US$5,000 which will increase by
US$5,000 per year to a maximum of US$50,000 per year.
The underlying royalty retained by the owner is 2% of net
smelter returns up to a maximum of US$1,000,000 after which it
is reduced to 1% of net smelter returns to a maximum of
US$5,000,000. During the 2005 fiscal year, the Company entered
into a Financing and Acquisition Agreement with TCAI whereby
TCAI was granted the option to earn an initial 51% interest in
the property. The terms of the agreement provide for exploration
expenditures of US$4,000,000, cash payments of US$750,000
(US$50,000 paid) which must be incurred and paid to the
Company’s U.S. subsidiary in annual increments prior
to December 31, 2008, and the assumption of all obligations
under the Underlying Fye Agreement. TCAI completed a firm
commitment to incur US$500,000 in exploration expenditures by
December 31, 2005. Upon TCAI vesting its 51% interest, TCAI
and the Company will form a joint venture to further develop the
property. When the joint venture completes the earlier of
US$8.0 million in expenditures or a preliminary feasibility
study, TCAI will have a one-time option to elect to earn an
additional 9% interest in the property by funding and completing
a feasibility study. Upon TCAI earning its additional interest
and the approval of a production plan, the Company will have the
option to request that TCAI arrange financing for the
Company’s share of the capital costs required to develop
the property. If the Company exercises this option TCAI shall
commit to use its best efforts to arrange or provide project
debt financing for not less than 60% of projected capital costs
on a limited recourse basis after technical completion. If
project costs exceed the amount available for debt financing and
the parties elect nonetheless to put the property into
production then at the Company’s election TCAI shall also
arrange or provide the Company’s share of equity financing
on a subordinate loan basis at LIBOR plus 4%. An additional 231
claims have been staked in the area of interest.
Hunter,
Eureka County, Nevada
In fiscal 2002, the Company staked 46 claims and executed a
mining lease agreement to acquire two adjacent claims. Under the
terms of the agreement, the Company has made lease payments
totalling US$14,000 and issued 100,000 common shares of the
Company at a value of $73,800. The Company is required to make
further annual lease payments of US$7,000.
Patty
(formerly Indian Ranch), Eureka County, Nevada
In fiscal 1994, the Company entered into a lease agreement for a
100% interest in 48 claims by issuing 100,000 common shares of
the Company. The agreement is subject to a 6% net smelter return
royalty payable to the lessee. The agreement was amended during
a prior year whereby the Company secured the ability to buy down
the 6% net smelter return royalty to 3% by making a payment of
US$500,000 and extending the lease term to 2014. The Company
holds an additional 496 claims within the area of interest.
B-20
WHITE
KNIGHT RESOURCES LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In fiscal 1997, the Company entered into an option agreement
with Chapleau Resources Ltd. (“Chapleau”). Pursuant to
the terms of the agreement and the subsequent amendment,
Chapleau was vested a 40% undivided interest in the property in
2001.
In fiscal 2001, the Company and Chapleau entered into an option
agreement with Kennecott Exploration Company
(“Kennecott”) whereby Kennecott could earn a 60%
interest in the property by making certain option payments and
incurring certain exploration expenditures. After paying the
Company certain option payments, Kennecott terminated the
agreement in November 2001. Upon termination of the Kennecott
agreement, Chapleau’s interest in the property was reduced
to a 25% undivided interest, leaving the Company with a 75%
undivided interest in the property.
In fiscal 2003, the Company and Chapleau entered into an
option-joint venture agreement with Placer Dome U.S. Inc.
(“PDUS”). Under the terms of the agreement, PDUS may
earn a 60% interest in the property by incurring minimum work
expenditures of US$2.0 million over a four year period and
reimbursing the companies for their 2002 claim filing costs.
During fiscal 2005, PDUS provided notice that it had completed
the work expenditure requirement and was exercising its right to
vest its 60% ownership. The Company now owns an undivided 30%
interest.
New
Pass, Churchill County, Nevada
In fiscal 1998, the Company purchased a 100% interest in the
property from Quest USA Resources Inc. by making payments
totalling US$165,000, subject to a 2.75% net smelter return
royalty. In fiscal 2000, the Company purchased the 2.75% net
smelter return royalty by issuing 100,000 common shares of its
capital stock to the vendor. In fiscal 2005, the Company granted
Consolidated Odyssey Exploration Inc. (“ODE”) an
option to earn an initial 50% interest in the property. The
Company paid a finders fee of $10,000 with respect to the ODE
agreement. In February 2005, ODE assigned all of its rights
under the agreement to Bonaventure Enterprises Inc.
(“Bonaventure”). Under the terms of the agreement,
Bonaventure must incur US$2,000,000 in exploration expenditures,
issue 500,000 shares and make option payments totalling
US$500,000 over a
4-year
period (US$125,000 and 200,000 shares valued at $44,617
received). Upon vesting a 50% interest, Bonaventure may elect to
earn an additional 10% interest by financing the completion of a
feasibility study. The property is comprised of 107 claims.
Slaven
Canyon, Lander County, Nevada
In fiscal 2002, the Company acquired 51 claims by staking. In
fiscal 2003, the Company acquired 17 claims by staking and
acquired an additional 642 acres of land contiguous to the
Company’s claims by executing three lease agreements which
provide for escalating lease payments. In fiscal 2004, the
Company acquired an additional 190 claims by staking and
acquired an additional 350 acres of land contiguous to the
Company’s claims by executing seven lease agreements which
provide for cash payments totalling US$7,400 on signing and
escalating lease payments thereafter. The underlying royalty
retained by the owners ranges from
1/2%
of net smelter returns to
31/2%
of net smelter returns with a buy-down provision allowing the
Company to reduce the underlying royalty to a 2% net smelter
return by paying US$1,500,000. In July, 2005, the Company
acquired an additional 320 acres of land contiguous to the
Company’s claims by executing a lease agreement which
provides for a cash payment of US$7,619 and re-imbursement of
fees of US$15,000 upon signing (both payments made), and
escalating lease payments thereafter. The underlying royalty
retained by the owner is 2.75%.
Squaw
Creek, Elko County, Nevada
Since 1996, the Company has held a 100% interest in 151 claims
located in Elko County which were acquired by staking. During
the 2005 fiscal year, the Company granted ODE an option to earn
an initial 50% interest in the property. The Company paid a
finders fee of $10,000 with respect to the ODE agreement. In
February 2005, ODE assigned all of its rights under the
agreement to Bonaventure. Under the terms of the agreement,
Bonaventure must
B-21
WHITE
KNIGHT RESOURCES LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
incur US$2,000,000 in exploration expenditures, issue
500,000 shares and make option payments totaling US$500,000
over a
4-year
period (US$125,000 and 200,000 shares at a value of $44,617
received). Upon vesting a 50% interest, Bonaventure may elect to
earn an additional 10% interest by financing the completion of a
feasibility study.
Other
Nevada Properties
In fiscal 2002, the Company acquired a 100% interest by staking
the South Cabin Creek and Gold Bar Horst properties. In fiscal
2003, the Company acquired a 100% interest in the Gold Pick
property by staking. In fiscal 2004, the Company acquired the
McClusky Pass, Pat Canyon, Tonkin Summit, Benmark, and Goldstone
properties. During the 2005 fiscal year, the Company acquired
the Ian and Knolls properties.
|
|
5.
|
DEFERRED
EXPLORATION COSTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
Balance at
|
|
|
|
June 30,
|
|
|
|
|
|
June 30,
|
|
By Type of Cost
|
|
2005
|
|
|
Additions
|
|
|
2006
|
|
|
Assays
|
|
$
|
713,694
|
|
|
$
|
170,016
|
|
|
$
|
883,710
|
|
Consulting
|
|
|
2,875,000
|
|
|
|
573,571
|
|
|
|
3,448,571
|
|
Drafting and report preparation
|
|
|
431,177
|
|
|
|
12,385
|
|
|
|
443,562
|
|
Drilling
|
|
|
3,103,814
|
|
|
|
1,474,859
|
|
|
|
4,578,673
|
|
Field operations
|
|
|
847,547
|
|
|
|
151,922
|
|
|
|
999,469
|
|
Reclamation
|
|
|
191,795
|
|
|
|
176,375
|
|
|
|
368,170
|
|
Recording
|
|
|
80,079
|
|
|
|
|
|
|
|
80,079
|
|
Supervision
|
|
|
374,039
|
|
|
|
17,668
|
|
|
|
391,707
|
|
Surveys
|
|
|
740,154
|
|
|
|
70,595
|
|
|
|
810,749
|
|
Trenching and site preparation
|
|
|
397,332
|
|
|
|
75,376
|
|
|
|
472,708
|
|
Recovery
|
|
|
(4,998,875
|
)
|
|
|
(223,503
|
)
|
|
|
(5,222,378
|
)
|
Write-off
|
|
|
(3,246,878
|
)
|
|
|
(143,783
|
)
|
|
|
(3,390,661
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,508,878
|
|
|
$
|
2,355,481
|
|
|
$
|
3,864,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B-22
WHITE
KNIGHT RESOURCES LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
Balance at
|
|
|
|
June 30,
|
|
|
|
|
|
June 30,
|
|
By Type of Cost
|
|
2004
|
|
|
Additions
|
|
|
2005
|
|
|
Assays
|
|
$
|
681,131
|
|
|
$
|
32,563
|
|
|
$
|
713,694
|
|
Consulting
|
|
|
2,577,377
|
|
|
|
297,623
|
|
|
|
2,875,000
|
|
Drafting and report preparation
|
|
|
416,202
|
|
|
|
14,975
|
|
|
|
431,177
|
|
Drilling
|
|
|
2,753,845
|
|
|
|
349,969
|
|
|
|
3,103,814
|
|
Field operations
|
|
|
771,641
|
|
|
|
75,906
|
|
|
|
847,547
|
|
Reclamation
|
|
|
179,489
|
|
|
|
12,306
|
|
|
|
191,795
|
|
Recording
|
|
|
80,079
|
|
|
|
|
|
|
|
80,079
|
|
Supervision
|
|
|
356,723
|
|
|
|
17,316
|
|
|
|
374,039
|
|
Surveys
|
|
|
497,305
|
|
|
|
242,849
|
|
|
|
740,154
|
|
Trenching and site preparation
|
|
|
368,921
|
|
|
|
28,411
|
|
|
|
397,332
|
|
Recovery
|
|
|
(4,897,361
|
)
|
|
|
(101,514
|
)
|
|
|
(4,998,875
|
)
|
Write-off
|
|
|
(3,052,280
|
)
|
|
|
(194,598
|
)
|
|
|
(3,246,878
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
733,072
|
|
|
$
|
775,806
|
|
|
$
|
1,508,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
Balance at
|
|
|
|
June 30,
|
|
|
|
|
|
June 30,
|
|
By Type of Cost
|
|
2003
|
|
|
Additions
|
|
|
2004
|
|
|
Assays
|
|
$
|
680,604
|
|
|
$
|
527
|
|
|
$
|
681,131
|
|
Consulting
|
|
|
2,342,159
|
|
|
|
235,218
|
|
|
|
2,577,377
|
|
Drafting and report preparation
|
|
|
393,336
|
|
|
|
22,866
|
|
|
|
416,202
|
|
Drilling
|
|
|
2,753,845
|
|
|
|
|
|
|
|
2,753,845
|
|
Field operations
|
|
|
739,812
|
|
|
|
31,829
|
|
|
|
771,641
|
|
Reclamation
|
|
|
178,609
|
|
|
|
880
|
|
|
|
179,489
|
|
Recording
|
|
|
80,079
|
|
|
|
|
|
|
|
80,079
|
|
Supervision
|
|
|
356,177
|
|
|
|
546
|
|
|
|
356,723
|
|
Surveys
|
|
|
320,921
|
|
|
|
176,384
|
|
|
|
497,305
|
|
Trenching and site preparation
|
|
|
368,921
|
|
|
|
|
|
|
|
368,921
|
|
Recovery
|
|
|
(4,897,361
|
)
|
|
|
|
|
|
|
(4,897,361
|
)
|
Write-off
|
|
|
(2,810,731
|
)
|
|
|
(241,549
|
)
|
|
|
(3,052,280
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
506,371
|
|
|
$
|
226,701
|
|
|
$
|
733,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B-23
WHITE
KNIGHT RESOURCES LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
By Property
|
|
2005
|
|
|
Additions
|
|
|
Recoveries
|
|
|
Write-offs
|
|
|
2006
|
|
|
Nevada Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benmark
|
|
$
|
6,743
|
|
|
$
|
25,388
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
32,131
|
|
Celt
|
|
|
70,920
|
|
|
|
4,729
|
|
|
|
(58,144
|
)
|
|
|
|
|
|
|
17,505
|
|
Cottonwood
|
|
|
105,702
|
|
|
|
351,546
|
|
|
|
|
|
|
|
|
|
|
|
457,248
|
|
Fye Canyon
|
|
|
78,139
|
|
|
|
816
|
|
|
|
(58,144
|
)
|
|
|
|
|
|
|
20,811
|
|
Gold Bar Horst
|
|
|
54,943
|
|
|
|
92,504
|
|
|
|
|
|
|
|
|
|
|
|
147,447
|
|
Gold Pick
|
|
|
75,290
|
|
|
|
389,571
|
|
|
|
|
|
|
|
|
|
|
|
464,861
|
|
Goldstone
|
|
|
3,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,864
|
|
Hunter
|
|
|
24,926
|
|
|
|
9,260
|
|
|
|
|
|
|
|
|
|
|
|
34,186
|
|
Ian
|
|
|
625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
625
|
|
Knolls
|
|
|
9,636
|
|
|
|
11,723
|
|
|
|
|
|
|
|
|
|
|
|
21,359
|
|
McClusky Pass
|
|
|
71,157
|
|
|
|
458,007
|
|
|
|
|
|
|
|
|
|
|
|
529,164
|
|
New Pass
|
|
|
162,063
|
|
|
|
9,301
|
|
|
|
(107,215
|
)
|
|
|
|
|
|
|
64,149
|
|
Pat Canyon
|
|
|
22,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,846
|
|
Patty (formerly Indian Ranch)
|
|
|
24,223
|
|
|
|
92,487
|
|
|
|
|
|
|
|
|
|
|
|
116,710
|
|
Slaven Canyon
|
|
|
730,729
|
|
|
|
1,075,530
|
|
|
|
|
|
|
|
|
|
|
|
1,806,259
|
|
South Cabin Creek
|
|
|
34,106
|
|
|
|
4,539
|
|
|
|
|
|
|
|
|
|
|
|
38,645
|
|
Tonkin Summit
|
|
|
32,966
|
|
|
|
53,583
|
|
|
|
|
|
|
|
|
|
|
|
86,549
|
|
General exploration
|
|
|
|
|
|
|
143,783
|
|
|
|
|
|
|
|
(143,783
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Nevada Properties
|
|
$
|
1,508,878
|
|
|
$
|
2,722,767
|
|
|
$
|
(223,503
|
)
|
|
$
|
(143,783
|
)
|
|
$
|
3,864,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B-24
WHITE
KNIGHT RESOURCES LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
By Property
|
|
2004
|
|
|
Additions
|
|
|
Recoveries
|
|
|
Write-offs
|
|
|
2005
|
|
|
Nevada
Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benmark
|
|
$
|
2,091
|
|
|
$
|
4,652
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,743
|
|
Celt
|
|
|
24,295
|
|
|
|
46,625
|
|
|
|
|
|
|
|
|
|
|
|
70,920
|
|
Cottonwood
|
|
|
30,807
|
|
|
|
74,895
|
|
|
|
|
|
|
|
|
|
|
|
105,702
|
|
Fye Canyon
|
|
|
31,495
|
|
|
|
46,644
|
|
|
|
|
|
|
|
|
|
|
|
78,139
|
|
Gold Bar Horst
|
|
|
40,975
|
|
|
|
13,968
|
|
|
|
|
|
|
|
|
|
|
|
54,943
|
|
Gold Pick
|
|
|
60,933
|
|
|
|
14,357
|
|
|
|
|
|
|
|
|
|
|
|
75,290
|
|
Goldstone
|
|
|
2,920
|
|
|
|
944
|
|
|
|
|
|
|
|
|
|
|
|
3,864
|
|
Hunter
|
|
|
23,028
|
|
|
|
1,898
|
|
|
|
|
|
|
|
|
|
|
|
24,926
|
|
Ian
|
|
|
|
|
|
|
625
|
|
|
|
|
|
|
|
|
|
|
|
625
|
|
Knolls
|
|
|
|
|
|
|
9,636
|
|
|
|
|
|
|
|
|
|
|
|
9,636
|
|
McClusky Pass
|
|
|
21,506
|
|
|
|
49,651
|
|
|
|
|
|
|
|
|
|
|
|
71,157
|
|
New Pass
|
|
|
237,246
|
|
|
|
11,919
|
|
|
|
(87,102
|
)
|
|
|
|
|
|
|
162,063
|
|
Pat Canyon
|
|
|
13,007
|
|
|
|
9,839
|
|
|
|
|
|
|
|
|
|
|
|
22,846
|
|
Patty (formerly Indian Ranch)
|
|
|
12,395
|
|
|
|
11,828
|
|
|
|
|
|
|
|
|
|
|
|
24,223
|
|
Slaven Canyon
|
|
|
199,521
|
|
|
|
531,208
|
|
|
|
|
|
|
|
|
|
|
|
730,729
|
|
South Cabin Creek
|
|
|
26,322
|
|
|
|
7,784
|
|
|
|
|
|
|
|
|
|
|
|
34,106
|
|
Squaw Creek
|
|
|
2,227
|
|
|
|
12,185
|
|
|
|
(14,412
|
)
|
|
|
|
|
|
|
|
|
Tonkin Summit
|
|
|
4,304
|
|
|
|
28,662
|
|
|
|
|
|
|
|
|
|
|
|
32,966
|
|
General exploration
|
|
|
|
|
|
|
194,598
|
|
|
|
|
|
|
|
(194,598
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Nevada Properties
|
|
$
|
733,072
|
|
|
$
|
1,071,918
|
|
|
$
|
(101,514
|
)
|
|
$
|
(194,598
|
)
|
|
$
|
1,508,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B-25
WHITE
KNIGHT RESOURCES LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
June 30,
|
|
|
|
|
|
|
|
|
June 30,
|
|
By Property
|
|
2003
|
|
|
Additions
|
|
|
Write-offs
|
|
|
2004
|
|
|
Nevada Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benmark
|
|
$
|
|
|
|
$
|
2,091
|
|
|
$
|
|
|
|
$
|
2,091
|
|
Celt
|
|
|
|
|
|
|
24,295
|
|
|
|
|
|
|
|
24,295
|
|
Cottonwood
|
|
|
30,807
|
|
|
|
|
|
|
|
|
|
|
|
30,807
|
|
Fye Canyon
|
|
|
|
|
|
|
31,495
|
|
|
|
|
|
|
|
31,495
|
|
Gold Bar Horst
|
|
|
40,975
|
|
|
|
|
|
|
|
|
|
|
|
40,975
|
|
Gold Pick
|
|
|
47,939
|
|
|
|
12,994
|
|
|
|
|
|
|
|
60,933
|
|
Goldstone
|
|
|
|
|
|
|
2,920
|
|
|
|
|
|
|
|
2,920
|
|
Hunter
|
|
|
23,028
|
|
|
|
|
|
|
|
|
|
|
|
23,028
|
|
McClusky Pass
|
|
|
7,266
|
|
|
|
14,240
|
|
|
|
|
|
|
|
21,506
|
|
New Pass
|
|
|
229,959
|
|
|
|
7,287
|
|
|
|
|
|
|
|
237,246
|
|
Pat Canyon
|
|
|
|
|
|
|
13,007
|
|
|
|
|
|
|
|
13,007
|
|
Patty (formerly Indian Ranch)
|
|
|
10,099
|
|
|
|
2,296
|
|
|
|
|
|
|
|
12,395
|
|
Slaven Canyon
|
|
|
88,532
|
|
|
|
110,989
|
|
|
|
|
|
|
|
199,521
|
|
South Cabin Creek
|
|
|
26,322
|
|
|
|
|
|
|
|
|
|
|
|
26,322
|
|
Squaw Creek
|
|
|
1,444
|
|
|
|
783
|
|
|
|
|
|
|
|
2,227
|
|
Tonkin Summit
|
|
|
|
|
|
|
4,304
|
|
|
|
|
|
|
|
4,304
|
|
General exploration
|
|
|
|
|
|
|
241,549
|
|
|
|
(241,549
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Nevada Properties
|
|
$
|
506,371
|
|
|
$
|
468,250
|
|
|
$
|
(241,549
|
)
|
|
$
|
733,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
|
Vehicles
|
|
$
|
93,552
|
|
|
$
|
40,476
|
|
|
$
|
53,076
|
|
|
$
|
76,745
|
|
|
$
|
24,156
|
|
|
$
|
52,589
|
|
Technical equipment
|
|
|
847,526
|
|
|
|
20,602
|
|
|
|
826,924
|
|
|
|
41,041
|
|
|
|
14,221
|
|
|
|
26,820
|
|
Office equipment
|
|
|
79,378
|
|
|
|
28,525
|
|
|
|
50,853
|
|
|
|
76,884
|
|
|
|
17,175
|
|
|
|
59,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,020,456
|
|
|
$
|
89,603
|
|
|
$
|
930,853
|
|
|
$
|
194,670
|
|
|
$
|
55,552
|
|
|
$
|
139,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.
|
RELATED
PARTY TRANSACTIONS
|
During the year ended June 30, 2006, the Company entered
into the following transactions with related parties:
a) Paid or accrued $264,000 (2005 — $264,000;
2004 — $210,000) in management fees to directors and
officers of the Company and to companies controlled by directors
of the Company.
b) Paid or accrued $127,504 (2005 — $111,223;
2004 — $115,879) in consulting fees to directors and
officers of the Company and to companies controlled by directors
of the Company, of which $111,636 (2005 — $111,223;
2004 — $115,879) is included in or written-off to
deferred exploration costs.
c) Paid or accrued $117,770 (2005 — $8,815;
2004 — $NIL) in administrative fees to officers and a
company controlled by a director of the Company.
B-26
WHITE
KNIGHT RESOURCES LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
At June 30, 2006, there is $118,002 (2005 —
$17,754) payable to directors and officers of the Company and to
companies controlled by directors of the Company. The amounts
are unsecured and non-interest bearing.
The Company entered into consulting agreements with directors
and officers of the Company and to companies controlled by
directors of the Company. The annual consulting fee commitments
are as follows:
|
|
|
|
|
2007
|
|
$
|
324,000
|
|
2008
|
|
|
162,000
|
|
|
|
|
|
|
|
|
$
|
486,000
|
|
|
|
|
|
|
The amounts charged to the Company for the services provided
have been determined by negotiation among the parties and are
covered by signed agreements. These transactions were in the
normal course of operations and were measured at the exchange
value which represented the amount of consideration established
and agreed to by the related parties.
|
|
8.
|
ASSET
RETIREMENT OBLIGATION
|
The following table presents the aggregate carrying amount of
the obligation associated with the retirement of the properties:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Asset retirement obligation
|
|
$
|
165,985
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The undiscounted amount of cash flows, required over the
estimated reserve life of the underyling assets, to settle the
obligation, adjusted for inflation, is estimated at $196,768
(2005 — $NIL). The obligation was calculated using a
credit-adjusted risk free discount rate of 4% and an inflation
rate of 4.1%. It is expected that this obligation will be funded
from general Company resources at the time the costs are
incurred with the majority of costs expected to occur when the
properties are disposed of.
Share
issuances
During the 2006 fiscal year the Company had no share issuances
other than those issued for mineral property interests, exercise
of warrants and stock options.
During the 2005 fiscal year the Company completed a private
placement of 1,500,000 units at $1.58, each unit consisting
of one common share and one non-transferable share purchase
warrant, each warrant entitling the holder to purchase an
additional share at $2.50 for one year.
During the 2004 fiscal year the Company completed three private
placements:
a) 2,500,000 units at $0.40, each unit consisting of
one common share and one non-transferable share purchase
warrant, each warrant entitling the holder to purchase an
additional share at $0.60 for two years (435,000 warrants
exercised during the year) with an additional provision that if
the closing price of the Company’s shares exceeds $0.95 for
a period of more than 20 business days, the warrants must be
exercised within two weeks of notice (triggered subsequent to
year end). A finder’s fee of 125,000 units were issued
as well as finder’s warrants valued at $47,304 entitling
the holder to acquire 200,000 shares of the Company at a
price of $0.60 for one year; subject to the same additional
provision as for the placees (triggered subsequent to year end);
b) 7,764,704 units at $0.85, each unit consisting of
one common share and one non-transferable share purchase
warrant, each warrant entitling the holder to purchase an
additional share at $1.25 for 18 months.
B-27
WHITE
KNIGHT RESOURCES LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Brokers’ warrants valued at $239,567 were issued entitling
the holder to acquire 543,529 shares of the Company at a
price of $1.25, exercisable for 18 months; and
c) 2,222,222 units at $0.90, each unit consisting of
one common share and one-half non-transferable share purchase
warrant, each one warrant entitling the holder to purchase an
additional share at $1.25 for one year. Brokers’ warrants
valued at $69,035 were issued entitling the holder to acquire
155,555 shares of the Company at a price of $1.25,
exercisable for 1 year.
d) Share issuance costs related to private placements
during the year totalled $540,522.
Stock
options
Under the Company’s stock option plan effective
November 4, 2002 and amended December 12, 2003, the
Company may grant options for up to 7,072,935 common shares to
directors, employees and consultants at exercise prices to be
determined by the market value on the date of grant. Vesting of
options is made at the discretion of the Board of Directors at
the time the options are granted with the exception of options
granted in relation to investor relations. Options granted to
consultants engaged in investor relations activities vest no
earlier than as to one-quarter upon the grant date and a further
one-quarter after each of the following three three-month
periods. The options can be granted for a maximum term of
10 years.
At June 30, 2006, the following incentive stock options
were outstanding:
|
|
|
|
|
|
|
|
|
Number
|
|
Exercise
|
|
|
of Options
|
|
Price
|
|
Expiry Date
|
|
|
755,500
|
|
|
$
|
0.23
|
|
|
January 23, 2008
|
|
2,074,500
|
|
|
|
0.41
|
|
|
September 23, 2008
|
|
150,000
|
|
|
|
0.75
|
|
|
March 1, 2009
|
|
50,000
|
|
|
|
0.85
|
|
|
March 21, 2010
|
|
40,000
|
|
|
|
0.67
|
|
|
April 6, 2010
|
|
50,000
|
|
|
|
1.50
|
|
|
October 19, 2010
|
|
2,000,000
|
|
|
|
1.91
|
|
|
January 10, 2011
|
|
|
|
|
|
|
|
|
|
|
5,120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B-28
WHITE
KNIGHT RESOURCES LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Stock option transactions and the number of stock options
outstanding are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number
|
|
|
Exercise
|
|
|
|
of Options
|
|
|
Price
|
|
|
Balance, June 30, 2003
|
|
|
3,075,000
|
|
|
$
|
0.15
|
|
Options granted
|
|
|
2,724,500
|
|
|
|
0.51
|
|
Options exercised
|
|
|
(2,134,500
|
)
|
|
|
0.13
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2004
|
|
|
3,665,000
|
|
|
|
0.43
|
|
Options granted
|
|
|
150,000
|
|
|
|
0.73
|
|
Options expired/cancelled
|
|
|
(200,000
|
)
|
|
|
1.25
|
|
Options exercised
|
|
|
(230,000
|
)
|
|
|
0.30
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2005
|
|
|
3,385,000
|
|
|
|
0.41
|
|
Options granted
|
|
|
2,050,000
|
|
|
|
1.90
|
|
Options exercised
|
|
|
(315,000
|
)
|
|
|
0.54
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2006
|
|
|
5,120,000
|
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
|
|
Number of options currently
exercisable
|
|
|
4,920,000
|
|
|
$
|
0.96
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of
options granted during the year
|
|
|
2004
|
|
|
$
|
0.39
|
|
|
|
|
2005
|
|
|
|
0.56
|
|
|
|
|
2006
|
|
|
|
1.16
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
The following assumptions were used in the Black-Scholes
valuation of stock options and warrants granted during the years
presented:
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Weighted average risk-free
interest rate
|
|
3.9%
|
|
3.7%
|
|
4.2%
|
Expected life of options and
warrants
|
|
5 years
|
|
5 years
|
|
1 year-5 years
|
Weighted average annualized
volatility
|
|
71%
|
|
101%
|
|
118%
|
Dividend
|
|
0.00%
|
|
0.00%
|
|
0.00%
|
B-29
WHITE
KNIGHT RESOURCES LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Warrants
Warrant transactions are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Exercise
|
|
|
|
|
|
|
of Warrants
|
|
|
Price
|
|
|
Expiry Date
|
|
|
Balance, June 30, 2003
|
|
|
5,649,308
|
|
|
|
|
|
|
|
|
|
Warrants exercised
|
|
|
(3,708,132
|
)
|
|
$
|
0.44
|
|
|
|
November 18, 2003
|
|
Warrants exercised
|
|
|
(1,941,176
|
)
|
|
|
0.25
|
|
|
|
June 27, 2004
|
|
Warrants granted
|
|
|
200,000
|
|
|
|
0.60
|
|
|
|
October 24, 2004
|
|
Warrants granted
|
|
|
2,625,000
|
|
|
|
0.60
|
|
|
|
August 3, 2004
|
|
Warrants exercised
|
|
|
(435,000
|
)
|
|
|
0.60
|
|
|
|
August 3, 2004
|
|
Warrants granted
|
|
|
7,719,998
|
|
|
|
1.25
|
|
|
|
July 29, 2005
|
|
Warrants granted
|
|
|
588,235
|
|
|
|
1.25
|
|
|
|
August 3, 2005
|
|
Warrants granted
|
|
|
1,266,666
|
|
|
|
1.25
|
|
|
|
June 25, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2004
|
|
|
11,964,899
|
|
|
|
|
|
|
|
|
|
Warrants exercised
|
|
|
(2,290,000
|
)
|
|
|
0.60
|
|
|
|
August 3, 2004
|
|
Warrants expired
|
|
|
(100,000
|
)
|
|
|
0.60
|
|
|
|
August 3, 2004
|
|
Warrants expired
|
|
|
(1,266,666
|
)
|
|
|
1.25
|
|
|
|
June 25, 2005
|
|
Warrants granted
|
|
|
1,500,000
|
|
|
|
2.50
|
|
|
|
December 20, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2005
|
|
|
9,808,233
|
|
|
|
|
|
|
|
|
|
Warrants exercised
|
|
|
(4,352,351
|
)
|
|
|
1.25
|
|
|
|
July 29, 2005
|
|
Warrants exercised
|
|
|
(588,235
|
)
|
|
|
1.25
|
|
|
|
August 3, 2005
|
|
Warrants expired
|
|
|
(3,367,647
|
)
|
|
|
1.25
|
|
|
|
July 29, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2006
|
|
|
1,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The number of warrants outstanding at June 30, 2006 is
summarized as follows:
|
|
|
|
|
|
|
|
|
Number
|
|
Exercise
|
|
|
of Warrants
|
|
Price
|
|
Expiry Date
|
|
|
1,500,000
|
|
|
$
|
2.50
|
|
|
December 20, 2006
|
A reconciliation of income tax recovery at statutory rates with
the reported income tax recovery is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Loss before income tax recovery
|
|
$
|
(3,307,465
|
)
|
|
$
|
(1,063,474
|
)
|
|
$
|
(1,664,257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax recovery
|
|
$
|
(1,227,731
|
)
|
|
$
|
(378,597
|
)
|
|
$
|
(618,241
|
)
|
Non-deductible expenses
|
|
|
1,144,086
|
|
|
|
14,884
|
|
|
|
315,842
|
|
Differences in foreign tax rates
|
|
|
13,135
|
|
|
|
32,371
|
|
|
|
1,810
|
|
Tax loss benefit not recognized
for book purposes
|
|
|
70,510
|
|
|
|
331,342
|
|
|
|
300,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual income tax recovery
|
|
$
|
NIL
|
|
|
$
|
NIL
|
|
|
$
|
NIL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B-30
WHITE
KNIGHT RESOURCES LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The significant components of the Company’s future tax
assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Net operating loss carry forwards
|
|
$
|
2,413,320
|
|
|
$
|
2,338,680
|
|
|
$
|
2,517,008
|
|
Mineral properties and other assets
|
|
|
681,280
|
|
|
|
590,427
|
|
|
|
618,517
|
|
Share issuance costs
|
|
|
80,257
|
|
|
|
117,590
|
|
|
|
158,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,174,857
|
|
|
|
3,046,697
|
|
|
|
3,293,738
|
|
Less: valuation allowances
|
|
|
(3,174,857
|
)
|
|
|
(3,046,697
|
)
|
|
|
(3,293,738
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net future tax assets
|
|
$
|
NIL
|
|
|
$
|
NIL
|
|
|
$
|
NIL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has non-capital losses of approximately $6,853,000
which may be carried forward and applied against taxable income
in future years. These losses, if unutilized, will begin to
expire in 2007. Subject to certain restrictions, the Company has
further resource development and exploration expenditures
totalling approximately $1,709,000 available to reduce taxable
income of future years. Future tax benefits which may arise as a
result of these non-capital losses and resource deductions have
not been recognized in these financial statements and have been
offset by a valuation allowance.
|
|
11.
|
SEGMENTED
INFORMATION
|
The Company’s one reportable operating segment is the
exploration and development of mineral properties. Geographic
information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
|
|
|
|
|
|
|
|
|
|
|
Interests and
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Exploration
|
|
|
Other
|
|
|
|
Assets
|
|
|
Equipment
|
|
|
Costs
|
|
|
Assets
|
|
|
June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
$
|
13,637,654
|
|
|
$
|
24,639
|
|
|
$
|
|
|
|
$
|
13,613,015
|
|
United States
|
|
|
7,864,404
|
|
|
|
906,214
|
|
|
|
6,663,978
|
|
|
|
294,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,502,058
|
|
|
$
|
930,853
|
|
|
$
|
6,663,978
|
|
|
$
|
13,907,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
$
|
11,377,473
|
|
|
$
|
30,799
|
|
|
$
|
|
|
|
$
|
11,346,674
|
|
United States
|
|
|
4,319,402
|
|
|
|
108,319
|
|
|
|
3,965,025
|
|
|
|
246,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,696,875
|
|
|
$
|
139,118
|
|
|
$
|
3,965,025
|
|
|
$
|
11,592,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Loss before other items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
$
|
3,338,256
|
|
|
$
|
893,992
|
|
|
$
|
1,366,939
|
|
United States
|
|
|
234,710
|
|
|
|
206,754
|
|
|
|
101,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,572,966
|
|
|
$
|
1,100,746
|
|
|
$
|
1,468,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.
|
RESTRICTED
RECLAMATION BONDS
|
The Company has secure funds in place with the United States
government, a Canadian bank and a United States bank as
security for reclamation bonds on its mineral properties. These
restricted reclamation
B-31
WHITE
KNIGHT RESOURCES LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
bonds were required by the local jurisdictions at the time
exploration activities commenced on the properties and do not
represent an asset retirement obligation (Note 2). Interest on
the certificates of deposit with Canadian and United States
banks is paid on a periodic basis to the Company.
|
|
13.
|
SUPPLEMENTAL
DISCLOSURES WITH RESPECT TO CASH FLOWS
|
Significant non-cash transactions during the years ended
June 30, 2006, June 30, 2005 and June 30, 2004
include the Company issuing 40,000 common shares each year at a
value in the current year of $72,000 (2005 — $28,400;
2004 — $31,200) for the acquisition of mineral
property interests. In the year ended June 30, 2004, the
Company issued 125,000 units as a finder’s fee related
to a private placement. Included in accounts payable are $93,378
(2005 — $153,756) relating to deferred exploration
costs, $129,328 (2005 — $NIL) relating to equipment,
$6,330 (2005 — $NIL) relating to restricted
reclamation bonds and $2,695 (2005 — $NIL) relating to
mineral property interests.
The Company has entered into lease agreements for its premises
in Canada and the United States. The annual lease commitments
are as follows:
|
|
|
|
|
2007
|
|
$
|
38,295
|
|
2008
|
|
|
22,500
|
|
|
|
|
|
|
|
|
$
|
60,795
|
|
|
|
|
|
|
|
|
15.
|
FINANCIAL
INSTRUMENTS
|
The Company’s financial instruments consist of cash,
temporary investments, receivables, restricted reclamation
bonds, accounts payable and accrued liabilities, and due to
related parties. It is management’s opinion that the
Company is not exposed to significant interest, currency or
credit risks arising from its financial instruments. The fair
values of these financial instruments approximate their carrying
values, unless otherwise noted.
The Company has its cash primarily in one commercial bank in
Vancouver, British Columbia, Canada and one commercial bank in
Reno, Nevada, United States.
|
|
16.
|
DIFFERENCES
BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
|
These financial statements have been prepared in accordance with
Canadian GAAP. Material variations in the accounting principles,
practices and methods used in preparing these financial
statements from principles, practices and methods accepted in
the United States (“United States GAAP”) are described
and quantified below.
B-32
WHITE
KNIGHT RESOURCES LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The impact of the differences between Canadian GAAP and United
States GAAP on the consolidated balance sheets would be as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
Balance,
|
|
|
|
|
|
Balance,
|
|
|
Balance,
|
|
|
|
|
|
Balance,
|
|
|
|
Canadian
|
|
|
|
|
|
United States
|
|
|
Canadian
|
|
|
|
|
|
United States
|
|
|
|
GAAP
|
|
|
Adjustments
|
|
|
GAAP
|
|
|
GAAP
|
|
|
Adjustments
|
|
|
GAAP
|
|
|
Temporary investments
|
|
$
|
2,107,699
|
|
|
$
|
48,282
|
|
|
$
|
2,155,981
|
|
|
$
|
10,895,443
|
|
|
$
|
36,224
|
|
|
$
|
10,931,667
|
|
Other current assets
|
|
|
11,564,745
|
|
|
|
|
|
|
|
11,564,745
|
|
|
|
500,597
|
|
|
|
|
|
|
|
500,597
|
|
Mineral property interests
|
|
|
2,799,619
|
|
|
|
(2,032,127
|
)
|
|
|
767,492
|
|
|
|
2,456,147
|
|
|
|
(1,839,607
|
)
|
|
|
616,540
|
|
Deferred exploration costs
|
|
|
3,864,359
|
|
|
|
(3,864,359
|
)
|
|
|
|
|
|
|
1,508,878
|
|
|
|
(1,508,878
|
)
|
|
|
|
|
Equipment
|
|
|
930,853
|
|
|
|
|
|
|
|
930,853
|
|
|
|
139,118
|
|
|
|
|
|
|
|
139,118
|
|
Restricted reclamation bonds
|
|
|
234,783
|
|
|
|
|
|
|
|
234,783
|
|
|
|
196,692
|
|
|
|
|
|
|
|
196,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,502,058
|
|
|
$
|
(5,848,204
|
)
|
|
$
|
15,653,854
|
|
|
$
|
15,696,875
|
|
|
$
|
(3,312,261
|
)
|
|
$
|
12,384,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
433,517
|
|
|
$
|
|
|
|
$
|
433,517
|
|
|
$
|
179,585
|
|
|
$
|
|
|
|
$
|
179,585
|
|
Asset retirement obligation
|
|
|
165,985
|
|
|
|
|
|
|
|
165,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
20,902,556
|
|
|
|
(5,848,204
|
)
|
|
|
15,054,352
|
|
|
|
15,517,290
|
|
|
|
(3,312,261
|
)
|
|
|
12,205,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,502,058
|
|
|
$
|
(5,848,204
|
)
|
|
$
|
15,653,854
|
|
|
$
|
15,696,875
|
|
|
$
|
(3,312,261
|
)
|
|
$
|
12,384,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The impact of the differences between Canadian GAAP and United
States GAAP on the consolidated statements of operations would
be as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts from
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception on
|
|
|
|
|
|
|
|
|
|
|
|
|
December 18, 1986
|
|
|
|
|
|
|
|
|
|
|
|
|
to June 30, 2006
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Loss for the period, Canadian GAAP
|
|
$
|
(15,881,401
|
)
|
|
$
|
(3,307,465
|
)
|
|
$
|
(1,063,474
|
)
|
|
$
|
(1,664,257
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral property interests
|
|
|
(2,032,127
|
)
|
|
|
(192,520
|
)
|
|
|
(619,497
|
)
|
|
|
(556,945
|
)
|
Deferred exploration costs
|
|
|
(3,864,359
|
)
|
|
|
(2,355,481
|
)
|
|
|
(775,806
|
)
|
|
|
(226,701
|
)
|
Increase in temporary investments
|
|
|
48,282
|
|
|
|
22,634
|
|
|
|
36,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the period, United States
GAAP
|
|
$
|
(21,723,605
|
)
|
|
$
|
(5,832,832
|
)
|
|
$
|
(2,422,553
|
)
|
|
$
|
(2,447,903
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share,
United States GAAP
|
|
|
|
|
|
$
|
(0.10
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common
shares outstanding, United States GAAP
|
|
|
|
|
|
|
58,855,176
|
|
|
|
53,091,304
|
|
|
|
39,038,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B-33
WHITE
KNIGHT RESOURCES LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The impact of the differences between Canadian GAAP and United
States GAAP on the consolidated statements of cash flows would
be as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
from Inception on
|
|
|
|
|
|
|
|
|
|
|
|
|
December 18, 1986
|
|
|
|
|
|
|
|
|
|
|
|
|
to June 30, 2006
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Cash flows used in operating
activities, Canadian GAAP
|
|
$
|
(4,794,625
|
)
|
|
$
|
(605,920
|
)
|
|
$
|
(954,361
|
)
|
|
$
|
(741,247
|
)
|
Acquisition of mineral property
interests
|
|
|
(5,449,802
|
)
|
|
|
(209,852
|
)
|
|
|
(619,497
|
)
|
|
|
(556,945
|
)
|
Deferred exploration costs
|
|
|
(7,339,941
|
)
|
|
|
(2,413,657
|
)
|
|
|
(816,648
|
)
|
|
|
(442,661
|
)
|
Acquisition (disposal) of
temporary investments (net)
|
|
|
(1,909,954
|
)
|
|
|
8,806,566
|
|
|
|
(3,413,215
|
)
|
|
|
(7,493,823
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in)
operating activities, United States GAAP
|
|
|
(19,494,322
|
)
|
|
|
5,577,137
|
|
|
|
(5,803,721
|
)
|
|
|
(9,234,676
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by financing
activities, Canadian GAAP and United States GAAP
|
|
|
32,724,773
|
|
|
|
6,345,433
|
|
|
|
3,813,500
|
|
|
|
11,705,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in)
investing activities, Canadian GAAP
|
|
|
(16,532,263
|
)
|
|
|
5,375,913
|
|
|
|
(4,972,207
|
)
|
|
|
(8,702,270
|
)
|
Acquisition of mineral property
interests
|
|
|
5,449,802
|
|
|
|
209,852
|
|
|
|
619,497
|
|
|
|
556,945
|
|
Deferred exploration costs
|
|
|
7,339,941
|
|
|
|
2,413,657
|
|
|
|
816,648
|
|
|
|
442,661
|
|
Acquisition (disposal) of
temporary investments (net)
|
|
|
1,909,954
|
|
|
|
(8,806,566
|
)
|
|
|
3,413,215
|
|
|
|
7,493,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows used in investing
activities, United States GAAP
|
|
|
(1,832,566
|
)
|
|
|
(807,144
|
)
|
|
|
(122,847
|
)
|
|
|
(208,841
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash during
the period
|
|
|
11,397,885
|
|
|
|
11,115,426
|
|
|
|
(2,113,068
|
)
|
|
|
2,262,141
|
|
Cash, beginning of period
|
|
|
|
|
|
|
282,459
|
|
|
|
2,395,527
|
|
|
|
133,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
11,397,885
|
|
|
$
|
11,397,885
|
|
|
$
|
282,459
|
|
|
$
|
2,395,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral
property interests and deferred exploration costs
In accordance with
EITF 04-02,
the Company classifies the costs of acquiring its mineral
interests as tangible assets resulting in no difference between
Canadian and United States GAAP.
Under United States GAAP exploration costs on mineral
properties, other than acquisition costs, prior to the
establishment of proven or probable reserves are expensed as
incurred. Under Canadian GAAP these costs may be deferred.
Under United States GAAP, the Company performs evaluations of
its investment in mineral properties to assess the
recoverability and the residual value of its investments in
these assets. All mineral properties are reviewed for impairment
whenever events or circumstances change which indicates the
carrying amount of an asset may not
B-34
WHITE
KNIGHT RESOURCES LTD.
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
be recoverable, utilizing established guidelines based on
undiscounted future net cash flows from the asset or upon the
determination that certain exploration properties do not have
sufficient potential for economic mineralization.
Asset
retirement obligations
The Company adopted new accounting and disclosure standards
under Canadian GAAP (Note 2) since the 2005 fiscal
year. Accordingly there were no differences between Canadian
GAAP and United States GAAP as at June 30, 2006 and 2005.
Under Canadian GAAP, the Company was not required to record
asset retirement obligations as at June 30, 2005. The
Company determined there were no asset retirement obligations as
at June 30, 2005.
Temporary
Investments
Under Canadian GAAP, temporary investments are carried at the
lower of aggregate cost or current market value, with any
unrealized gain or loss included in the statement of operations.
Long-term investments are carried on the cost or equity basis
and are only written down when there is evidence of a decline in
value that is other than temporary.
Under United States GAAP, SFAS 115 requires that certain
debt and equity investments must be classified into
available-for-sale
or trading securities and stated at fair market values. Any
unrealized holding gains or losses are reported as a separate
component of shareholders’ equity until realized for
available-for-sale
securities, and included in earnings for trading securities. For
United States GAAP purposes, the Company’s investment in
debt securities have been classified as trading securities.
Under SFAS 115, for the 2004 fiscal year there was no
difference under Canadian GAAP or United States GAAP as these
debt securities have been written down to their fair market
value, with an unrealized loss of $42,999 included in the
consolidated statement of operations. For the 2006 fiscal year,
an excess holding gain of $48,282 (2005 — $36,224)
would be recognized under United States GAAP.
New
accounting pronouncements
In May 2005, the Financial Accounting Standards Board (FASB)
issued SFAS No. 154, “Accounting Changes and
Error Corrections — A Replacement of APB Opinion
No. 20 and SFAS No. 3”. SFAS 154
changes the requirements for the accounting for and reporting of
a change in accounting principle and applies to all voluntary
changes in accounting principle. It also applies to changes
required by an accounting pronouncement in the unusual instance
that the pronouncement does not include specific transition
provisions. SFAS 154 requires retrospective application to
prior periods’ financial statements of changes in
accounting principle, unless it is impracticable to determine
either the period-specific effects or the cumulative effect of
the change. The provisions of SFAS No. 154 are
effective for accounting changes and correction of errors made
in fiscal years beginning after December 15, 2005. The
adoption of this standard is not expected to have a material
effect on the Company’s results of operations or financial
position.
The FASB has also issued SFAS No. 155
“Accounting for Certain Hybrid Financial
Instruments” and SFAS No. 156
“Accounting for Servicing of Financial Assets”,
but they will not have any relationship to the operations of
the Company. Therefore a description and its impact for each on
the Company’s operations and financial position have not
been disclosed.
The adoption of these new pronouncements is not expected to have
a material effect on the Company’s consolidated financial
position or results of operations.
B-35
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Coral Gold
Resources Ltd.
We have audited the accompanying consolidated balance sheet of
Coral Gold Resources Ltd. (an exploration stage
enterprise) as of January 31, 2006, and the related
consolidated statements of operations and deficit, cash flows
and mineral properties for the year then ended, and for the
period January 22, 1981 (inception) through
January 31, 2006. These consolidated financial statements
are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audit. The consolidated
financial statements as of January 31, 2005, and for the
period January 22, 1981 (inception) through
January 31, 2005, were audited by other auditors whose
report dated April 13, 2005 except note 14, which is
as of July 21, 2005 expressed an unqualified opinion on
those statements. The consolidated financial statements for the
period January 22, 1981 (inception) through
January 31, 2005 prior to restatement, as described below,
included total revenues and net loss of $2,176,079 and
$20,510,872, respectively. Our opinion on the consolidated
statements of operations and deficit, and cash flows for the
period January 22, 1981 (inception) through
January 31, 2006, insofar as it relates to amounts for
prior periods through January 31, 2005 before restatement
is based solely on the report of other auditors.
We conducted our audit in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatements. We were not engaged to perform an audit
of the Company’s internal control over financial reporting.
Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audit and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other
auditors, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Coral Gold Resources Ltd., at
January 31, 2006, and the results of its operations and its
cash flows for the year then ended and the period from
January 22, 1981 (inception) through January 31, 2006,
in conformity with accounting principles generally accepted in
the United States.
The consolidated financial statements of Coral Gold Resources
Ltd. as of January 31, 2005 and for the years ended
January 31, 2005 and 2004 were audited by other auditors
who have ceased operations and whose report dated April 13,
2005 except note 14, which is as of July 21, 2005
expressed an unqualified opinion on those statements before the
restatement adjustment described in Note 2.
As discussed above, the consolidated financial statements of
Coral Gold Resources Ltd. as of January 31, 2005 and
for the years ended January 31, 2005 and 2004 were audited
by other auditors who have ceased operations. As described in
Note 2, the Company recorded a prior period adjustment to
account for an unrecorded future income tax liability arising
from prior years. We audited the adjustment that was applied to
restate the future income tax liability and deficit. Our
procedures included (a) agreeing the future income tax
liability recorded to a computation obtained from management and
to underlying tax documents, and (b) testing the
mathematical accuracy of the restated future income tax
liability and deficit. In our opinion, such adjustment is
appropriate and has been properly applied. However, we were not
engaged to audit, review, or apply any procedures to the 2005
consolidated financial statements of the Company other than with
respect to such adjustment and, accordingly, we do not express
an opinion or any other form of assurance on the 2005
consolidated financial statements taken as a whole.
/s/ Ernst & Young LLP
Chartered Accountants
Vancouver, Canada,
May 31, 2006
C-3
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Restated
|
|
|
|
|
|
|
(Note 2)
|
|
|
|
(In Canadian Dollars)
|
|
|
ASSETS
|
Current
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
663,071
|
|
|
$
|
1,472,146
|
|
Advances receivable
(note 13(a))
|
|
|
62,358
|
|
|
|
78,101
|
|
Prepaid expenses
|
|
|
69,856
|
|
|
|
12,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
795,285
|
|
|
|
1,562,894
|
|
Investment securities
(note 5)
|
|
|
147,408
|
|
|
|
129,934
|
|
Loan receivable
(note 13(g))
|
|
|
83,000
|
|
|
|
50,000
|
|
Equipment
(note 6)
|
|
|
3,634
|
|
|
|
4,543
|
|
Mineral properties
(note 7)
|
|
|
10,095,609
|
|
|
|
8,472,255
|
|
Reclamation deposit
(note 8)
|
|
|
260,976
|
|
|
|
518,057
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,385,912
|
|
|
$
|
10,737,683
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Current
|
|
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities (note 13(h))
|
|
$
|
696,810
|
|
|
$
|
85,937
|
|
Advances payable to related
parties (note 13(b))
|
|
|
61,956
|
|
|
|
76,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
758,766
|
|
|
|
162,289
|
|
|
|
|
|
|
|
|
|
|
Site restoration obligation
(note 14)
|
|
|
16,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Future income tax liability
(notes 3 and 15)
|
|
|
1,448,662
|
|
|
|
318,000
|
|
|
|
|
|
|
|
|
|
|
Non-controlling
interest
|
|
|
10,320
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’
EQUITY
|
Subscriptions received in
advance (note 9)
|
|
|
60,000
|
|
|
|
—
|
|
Share subscriptions
receivable
|
|
|
—
|
|
|
|
(11,945
|
)
|
Share capital
(note 10)
|
|
|
31,560,337
|
|
|
|
30,754,678
|
|
Contributed surplus
(note 11)
|
|
|
1,428,173
|
|
|
|
343,533
|
|
Deficit
|
|
|
(23,896,346
|
)
|
|
|
(20,828,872
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
9,152,164
|
|
|
|
10,257,394
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,385,912
|
|
|
$
|
10,737,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
(note 12)
|
|
|
|
|
Approved by the
Directors:
|
|
/s/ Matthew Wayrynen
|
|
/s/ Louis Wolfin
|
|
|
Matthew Wayrynen
|
|
Louis Wolfin
|
The accompanying notes form an integral part of these financial
statements.
C-4
CORAL
GOLD RESOURCES LTD.
Years
Ended January 31, 2006, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
|
|
|
|
|
|
|
|
|
|
January 22,
|
|
|
|
|
|
|
|
|
|
|
|
|
1981
|
|
|
|
|
|
|
|
|
|
|
|
|
(Inception) to
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
|
|
|
|
|
|
|
(Note 2)
|
|
|
(Note 2)
|
|
|
|
(In Canadian Dollars)
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
2,176,079
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Cost of Sales
|
|
|
(5,383,348
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,207,269
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative services
|
|
|
1,058,598
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Amortization
|
|
|
2,728
|
|
|
|
909
|
|
|
|
1,136
|
|
|
|
684
|
|
Consulting fees (note 13(c))
|
|
|
227,528
|
|
|
|
40,603
|
|
|
|
41,480
|
|
|
|
29,262
|
|
Directors fees (note 13(e))
|
|
|
75,763
|
|
|
|
12,000
|
|
|
|
14,000
|
|
|
|
24,000
|
|
Investor relations and shareholder
Information
|
|
|
1,901,480
|
|
|
|
85,283
|
|
|
|
74,075
|
|
|
|
143,217
|
|
Legal and accounting
|
|
|
2,599,764
|
|
|
|
208,314
|
|
|
|
74,308
|
|
|
|
80,571
|
|
Listing and filing fees
|
|
|
137,275
|
|
|
|
17,532
|
|
|
|
20,428
|
|
|
|
43,626
|
|
Management fees (note 13(d))
|
|
|
354,500
|
|
|
|
105,000
|
|
|
|
75,000
|
|
|
|
90,000
|
|
Office and miscellaneous
|
|
|
2,036,612
|
|
|
|
82,007
|
|
|
|
93,910
|
|
|
|
118,872
|
|
Salaries and benefits
|
|
|
921,759
|
|
|
|
625,351
|
|
|
|
79,929
|
|
|
|
55,437
|
|
Stock-based compensation
|
|
|
1,399,633
|
|
|
|
1,056,100
|
|
|
|
343,533
|
|
|
|
—
|
|
Transfer agent fees
|
|
|
52,056
|
|
|
|
9,124
|
|
|
|
12,470
|
|
|
|
11,437
|
|
Travel
|
|
|
931,194
|
|
|
|
59,760
|
|
|
|
35,816
|
|
|
|
43,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,698,890
|
|
|
|
2,301,983
|
|
|
|
866,085
|
|
|
|
640,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before the
following
|
|
|
(14,906,159
|
)
|
|
|
(2,301,983
|
)
|
|
|
(866,085
|
)
|
|
|
(640,502
|
)
|
Other items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
854,290
|
|
|
|
20,454
|
|
|
|
33,786
|
|
|
|
15,184
|
|
Foreign exchange gain (loss)
|
|
|
(251,286
|
)
|
|
|
(20,401
|
)
|
|
|
(46,520
|
)
|
|
|
(140,623
|
)
|
Gain realized on disposition of
option on property
|
|
|
143,552
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Gain on sale of investment
|
|
|
17,692
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Recovery (writedown) of advances
receivable
|
|
|
(348,323
|
)
|
|
|
12,467
|
|
|
|
—
|
|
|
|
36,320
|
|
Financing costs
|
|
|
(341,006
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Writedown of investment securities
|
|
|
(809,828
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(19,007
|
)
|
Loss on equipment disposals
|
|
|
(32,784
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Writedown of equipment
|
|
|
(16,335
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Writedown of mineral properties
|
|
|
(7,110,148
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,968
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the year before future
income taxes and non-controlling interest (balance carried
forward)
|
|
$
|
(22,800,335
|
)
|
|
$
|
(2,289,463
|
)
|
|
$
|
(878,819
|
)
|
|
$
|
(753,596
|
)
|
Loss for the year before future
income taxes and non-controlling interest (balance carried
forward)
|
|
$
|
(22,800,335
|
)
|
|
$
|
(2,289,463
|
)
|
|
$
|
(878,819
|
)
|
|
$
|
(753,596
|
)
|
Future income tax expense
(note 15)
|
|
|
1,096,000
|
|
|
|
778,000
|
|
|
|
—
|
|
|
|
—
|
|
Non-controlling interest
loss
|
|
|
11
|
|
|
|
11
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the period
|
|
$
|
(23,896,346
|
)
|
|
|
(3,067,474
|
)
|
|
|
(878,819
|
)
|
|
|
(753,596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit,
beginning of the period
|
|
|
|
|
|
|
(20,828,872
|
)
|
|
|
(19,950,053
|
)
|
|
|
(19,196,457
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit,
end of the period
|
|
|
|
|
|
$
|
(23,896,346
|
)
|
|
$
|
(20,828,872
|
)
|
|
$
|
(19,950,053
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
|
|
|
|
$
|
(0.64
|
)
|
|
$
|
(0.19
|
)
|
|
$
|
(0.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
common shares outstanding
|
|
|
|
|
|
|
4,789,881
|
|
|
|
4,629,892
|
|
|
|
3,686,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C-5
CORAL
GOLD RESOURCES LTD.
Years
Ended January 31, 2006, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
|
|
|
|
|
|
|
|
|
|
January 22,
|
|
|
|
|
|
|
|
|
|
|
|
|
1981
|
|
|
|
|
|
|
|
|
|
|
|
|
(Inception) to
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
(Note 2)
|
|
|
|
|
|
|
(In Canadian Dollars)
|
|
|
Cash flows from (used in)
operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the period
|
|
$
|
(23,896,346
|
)
|
|
$
|
(3,067,474
|
)
|
|
$
|
(878,819
|
)
|
|
$
|
(753,596
|
)
|
Adjustments for items not involving
cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— amortization
|
|
|
2,728
|
|
|
|
909
|
|
|
|
1,136
|
|
|
|
684
|
|
— writedown of equipment
|
|
|
16,335
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
— stock based compensation
|
|
|
1,399,633
|
|
|
|
1,056,100
|
|
|
|
343,533
|
|
|
|
—
|
|
— non-controlling interest
|
|
|
11
|
|
|
|
11
|
|
|
|
—
|
|
|
|
—
|
|
— future income tax
expense
|
|
|
1,096,000
|
|
|
|
778,000
|
|
|
|
—
|
|
|
|
—
|
|
— writedown of investment
securities
|
|
|
809,828
|
|
|
|
—
|
|
|
|
—
|
|
|
|
19,007
|
|
— writedown of mineral
properties
|
|
|
7,110,148
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,968
|
|
— writedown of advances
receivable
|
|
|
348,323
|
|
|
|
12,467
|
|
|
|
—
|
|
|
|
(36,320
|
)
|
— loss on equipment
disposals
|
|
|
32,784
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
— gain on sales of
investments
|
|
|
(17,692
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
— gain realized on
disposition of option on property
|
|
|
(143,552
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Change in non-cash working capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— (increase) decrease in
advances receivable
|
|
|
(410,681
|
)
|
|
|
3,276
|
|
|
|
(21,556
|
)
|
|
|
(19,258
|
)
|
— (increase) decrease
prepaid expenses
|
|
|
(69,856
|
)
|
|
|
(57,209
|
)
|
|
|
(1,671
|
)
|
|
|
(10,976
|
)
|
— investment securities
|
|
|
(119,174
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
— increase (decrease) in
accounts payable and accrued liabilities
|
|
|
696,810
|
|
|
|
610,873
|
|
|
|
7,590
|
|
|
|
(152,419
|
)
|
— (decrease) increase in
advances payable
|
|
|
61,956
|
|
|
|
(14,396
|
)
|
|
|
(6,397
|
)
|
|
|
(73,985
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,082,745
|
)
|
|
|
(677,443
|
)
|
|
|
(556,184
|
)
|
|
|
(1,021,895
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from (used in)
investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral properties acquisition and
exploration expenditures incurred
|
|
|
(16,023,742
|
)
|
|
|
(584,880
|
)
|
|
|
(897,908
|
)
|
|
|
(420,054
|
)
|
Acquisition of Marcus Corporation
|
|
|
(14,498
|
)
|
|
|
(14,498
|
)
|
|
|
—
|
|
|
|
—
|
|
Proceeds on sale of equipment
|
|
|
92,732
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Loan receivable
|
|
|
(83,000
|
)
|
|
|
(33,000
|
)
|
|
|
(50,000
|
)
|
|
|
—
|
|
Purchase of equipment
|
|
|
(145,485
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,943
|
)
|
Purchase of investments
|
|
|
(939,776
|
)
|
|
|
(17,474
|
)
|
|
|
—
|
|
|
|
—
|
|
Advances receivable recovered
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
36,320
|
|
Decrease (increase) in reclamation
deposit amounts
|
|
|
(260,976
|
)
|
|
|
257,081
|
|
|
|
33,662
|
|
|
|
651,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,374,745
|
)
|
|
|
(392,771
|
)
|
|
|
(914,246
|
)
|
|
|
264,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriptions received in advance
|
|
|
60,000
|
|
|
|
60,000
|
|
|
|
—
|
|
|
|
791,720
|
|
Cash from share subscriptions
receivable
|
|
|
—
|
|
|
|
11,945
|
|
|
|
58,700
|
|
|
|
—
|
|
Issuance of shares for cash, net
|
|
|
31,031,432
|
|
|
|
189,194
|
|
|
|
316,720
|
|
|
|
2,196,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,091,432
|
|
|
|
261,139
|
|
|
|
375,420
|
|
|
|
2,988,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
and cash equivalents
|
|
|
633,942
|
|
|
|
(809,075
|
)
|
|
|
(1,095,010
|
)
|
|
|
2,231,122
|
|
Cash and cash equivalents,
beginning of year
|
|
|
29,129
|
|
|
|
1,472,146
|
|
|
|
2,567,156
|
|
|
|
336,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents,
end of year
|
|
$
|
663,071
|
|
|
$
|
663,071
|
|
|
$
|
1,472,146
|
|
|
$
|
2,567,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Paid during the Year for:
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Interest
|
|
$
|
40
|
|
|
$
|
145
|
|
|
$
|
730
|
|
Income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C-6
CORAL
GOLD RESOURCES LTD.
Years
Ended January 31, 2006, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds of
|
|
|
|
|
|
|
Acquisition
|
|
|
Exploration
|
|
|
Interest
|
|
|
|
|
|
|
Cost
|
|
|
Expenditures
|
|
|
Disposed of
|
|
|
Total
|
|
|
|
(In Canadian Dollars)
|
|
|
Robertson Property
(note 7(a) (i)
and 7(a)(iii))
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 31, 2004
|
|
$
|
801,956
|
|
|
$
|
8,675,800
|
|
|
$
|
(1,937,625
|
)
|
|
$
|
7,540,131
|
|
2005 transactions, net
|
|
|
—
|
|
|
|
890,292
|
|
|
|
—
|
|
|
|
890,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 31, 2005
|
|
|
801,956
|
|
|
|
9,566,092
|
|
|
|
(1,937,625
|
)
|
|
|
8,430,423
|
|
2006 transactions, net
|
|
|
—
|
|
|
|
1,623,354
|
|
|
|
—
|
|
|
|
1,623,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 31, 2006
|
|
$
|
801,956
|
|
|
$
|
11,189,446
|
|
|
$
|
(1,937,625
|
)
|
|
$
|
10,053,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ruf and Norma Sass Properties
(note 7(a)(ii))
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 31, 2004
|
|
$
|
—
|
|
|
$
|
73,514
|
|
|
$
|
(39,301
|
)
|
|
$
|
34,213
|
|
2005 transactions, net
|
|
|
—
|
|
|
|
7,616
|
|
|
|
—
|
|
|
|
7,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 31, 2005
|
|
|
—
|
|
|
|
81,130
|
|
|
|
(39,301
|
)
|
|
|
41,829
|
|
2006 transactions, net
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 31, 2006
|
|
$
|
—
|
|
|
$
|
81,130
|
|
|
$
|
(39,301
|
)
|
|
$
|
41,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eagle Property
(note 7(b))
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 31, 2004,
2005 and 2006
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ludlow Property
(note 7(c))
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 31, 2004,
2005 and 2006
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JDN Property
(note 7(d))
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 31, 2004,
2005 and 2006
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Properties
|
|
$
|
801,959
|
|
|
$
|
11,270,576
|
|
|
$
|
(1,976,926
|
)
|
|
$
|
10,095,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C-7
CORAL
GOLD RESOURCES LTD.
Years Ended January 31, 2006, 2005 and 2004
(In Canadian Dollars)
|
|
1.
|
Nature of
Business and Going Concern
|
These consolidated financial statements have been prepared on a
going-concern basis, which assumes that the Company will be able
to realize its assets and discharge its liabilities in the
normal course of business in the foreseeable future. The Company
is in the process of exploring its mineral interests and has not
yet determined whether these properties contain ore reserves
that are economically recoverable. The continued operations of
the Company and the recoverability of mineral property costs is
dependent upon the discovery of economically recoverable mineral
reserves, the ability of the Company to obtain necessary
financing to complete the development and upon future profitable
production. Management’s plan in this regard is to raise
equity financing as required.
|
|
2.
|
Prior
Period Adjustment
|
During the year the Company recorded a prior period adjustment
to account for an unrecorded future income tax liability arising
from prior years. The effect of the restatement is that future
income tax liability and deficit increased by $318,000 at
January 31, 2005. The unrecorded future income tax
liability pertained to periods prior to February 1, 2003,
and as a result, the deficit, beginning of the period as
disclosed in the consolidated statements of operations and
deficit for the years ended January 31, 2005 and 2004 also
increased by $318,000. The unrecorded future income tax
liability did not change the Company’s loss for the period
for either of the years ended January 31, 2005 or 2004.
|
|
3.
|
Marcus
Corporation Acquisition
|
During the year ended January 31, 2006, the Company
completed the following acquisition which was accounted for by
the purchase method with effect from the date of acquisition.
On September 15, 2005, the Company acquired 98.49% of the
issued and outstanding capital of Marcus Corporation
(“Marcus”). The Company acquired the shares at a total
cost, including costs of acquisition of $15,992, of $660,997.
Consideration for the acquisition was paid through the issuance
of common shares of the Company totalling 347,964, and 173,975
common share purchase warrants. The common shares were valued at
$1.52 per share. The warrants were valued at $116,100 using
the Black-Scholes option pricing model. The consideration has
been allocated to identifiable assets acquired and liabilities
assumed based on their estimated fair values with the excess
consideration recorded to goodwill, as follows:
|
|
|
|
|
Cash
|
|
$
|
1,494
|
|
Mineral Properties
|
|
|
1,022,231
|
|
Future Income taxes
|
|
|
(352,662
|
)
|
Non-controlling interest
|
|
|
(10,066
|
)
|
|
|
|
|
|
|
|
$
|
660,997
|
|
|
|
|
|
|
|
|
4.
|
Significant
Accounting Policies
|
|
|
(a)
|
Basis
of Consolidation
|
These consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, Coral Resources,
Inc. and Coral Energy Corporation of California and its 98.49%
owned subsidiary Marcus. Significant inter-company accounts and
transactions have been eliminated.
These consolidated financial statements are prepared in
accordance with Canadian generally accepted accounting
principles (“Canadian GAAP”), which are in conformity
with United States generally accepted
C-8
CORAL
GOLD RESOURCES LTD.
Notes to
Consolidated Financial
Statements — (Continued)
accounting principles (“US GAAP”), except as described
in note 18 to these consolidated financial statements. All
figures are in Canadian dollars unless otherwise stated.
The Company is in the exploration stage and defers all
expenditures related to its mineral properties until such time
as the properties are put into commercial production, sold or
abandoned. Under this method, all amounts shown as mineral
properties represent costs incurred to date less amounts
amortized
and/or
written off and do not necessarily represent present or future
values.
If the properties are put into commercial production, the
expenditures will be depleted based upon the proven and probable
reserves available. If the properties are sold or abandoned, the
expenditures will be charged to operations. The Company does not
accrue the estimated future costs, such as land taxes, of
maintaining in good standing its mineral properties.
The carrying values of mineral interests, on a
property-by-property
basis, will be reviewed by management at least annually to
determine if they have become impaired. If impairment is deemed
to exist, the mineral property will be written down to its fair
value. The ultimate recoverability of the amounts capitalized
for the mineral properties is dependent upon the delineation of
economically recoverable ore reserves, the Company’s
ability to obtain the necessary financing to complete their
development and realize profitable production or proceeds from
the disposition thereof. Management’s estimates of
recoverability of the Company’s investment in various
projects have been based on current conditions. However, it is
reasonably possible that changes could occur in the near term
which could adversely affect management’s estimates and may
result in future writedowns of capitalized property carrying
values.
|
|
(c)
|
Investment
Securities
|
The investments in Mill Bay Ventures Inc. (formerly First
International Metals Corp.) and Levon Resources Ltd. are carried
at cost less writedowns determined to be other than temporary.
They will be written down to their net realizable value if and
when it has been determined that an other than temporary
impairment to their value has occurred.
|
|
(d)
|
Fair
Value of Financial Instruments
|
The respective carrying value of certain on-balance-sheet
financial instruments approximated their fair values. These
financial instruments include cash and cash equivalents,
advances receivable, share subscriptions receivable, accounts
payable and accrued liabilities and advances payable to related
parties. Fair values were assumed to approximate carrying values
for these financial instruments, except where noted, since they
are short term in nature and their carrying amounts approximate
fair values or they are receivable or payable on demand.
Management is of the opinion that the Company is not exposed to
significant interest, credit or currency risks arising from
these financial instruments.
At January 31, 2006 and 2005, the Company had approximately
$nil and $nil, respectively, in cash balances at financial
institutions which were in excess of the insured limits.
Therefore, the company is not exposed to significant
concentrations of credit risk.
|
|
(e)
|
Foreign
Currency Translation
|
Assets and liabilities denominated in foreign currencies are
translated into Canadian dollars at exchange rates in effect at
the balance sheet date for monetary items and at exchange rates
prevailing at the transaction dates for non-monetary items.
Revenues and expenses are translated at the average exchange
rates prevailing during the year except for amortization, which
is translated at historical exchange rates. Gains and losses on
translation is included as income (loss) for the year.
C-9
CORAL
GOLD RESOURCES LTD.
Notes to
Consolidated Financial
Statements — (Continued)
The preparation of financial statements in conformity with
Canadian GAAP requires management to make estimates and
assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amount
of revenues and expenses during the period. Actual results may
differ from those estimates.
|
|
(g)
|
Impairment
of Long-term Assets
|
The Company re-evaluates the recoverability of long-term assets,
including loan receivable, equipment, mineral properties, and
investment securities, based upon estimates using factors such
as future asset utilization, business climate and future
undiscounted cash flows expected to result from the use of the
related assets or be realized on sale. The Company’s policy
is to write-down assets to their fair value in the period when
it is determined that the carrying amount of the asset is not
likely to be recovered.
Equipment is recorded at historical cost less accumulated
amortization. Amortization is charged to earnings in amounts
sufficient to allocate the costs over their estimated useful
lives on a straight-line basis using the following annual rates
pro-rated from initial utilization:
|
|
|
|
|
Computer hardware
|
|
|
20
|
%
|
Equipment
|
|
|
20
|
%
|
|
|
(i)
|
Cash
and Cash Equivalents
|
Cash and cash equivalents include cash on deposit with banks,
and highly liquid short-term interest bearing securities with
maturities at the purchase date of three months or less.
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Cash
|
|
$
|
663,071
|
|
|
$
|
122,146
|
|
Cash equivalents
|
|
|
—
|
|
|
|
1,350,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
663,071
|
|
|
$
|
1,472,146
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share amounts are calculated giving effect to
the potential dilution that would occur if securities or other
contracts to issue common shares were exercised or converted to
common shares. The treasury stock method is used to determine
the dilutive effect of stock options and other dilutive
instruments. The treasury stock method assumes that proceeds
received from the exercise of stock options and warrants are
used to repurchase common shares at the prevailing market rate.
Basic loss per share is computed using the weighted average
number of common shares outstanding during the year.
Income taxes are accounted for using the liability method
pursuant to Section 3465, Income Taxes, of The Handbook
of the Canadian Institute of Chartered
Accountants. Future taxes are recognized for the tax
consequences of “temporary differences” by applying
enacted or substantively enacted statutory tax rates applicable
to future years to differences between the financial statement
carrying amounts and the tax basis of existing assets and
liabilities. The effect on future taxes for a change in tax
rates is recognized in income in the period that includes the
C-10
CORAL
GOLD RESOURCES LTD.
Notes to
Consolidated Financial
Statements — (Continued)
date of enactment or substantive enactment. In addition,
Section 3465 requires the recognition of future tax
benefits to the extent that realization of such benefits is more
likely than not.
|
|
(l)
|
Asset
Retirement Obligation
|
Asset retirement obligations are accounted for pursuant to
Section 3110, of the Handbook of the Canadian Institute of
Chartered Accountants. It requires the recognition of the fair
value of a liability for asset retirement obligations in the
year in which such a liability is incurred; when a reasonable
estimate can be made. At such time the present value of the
asset retirement obligation (referred to as “site
restoration obligations”) are to be added to the
capitalized cost of the mineral property, and recorded as a
liability at the equivalent amount. In periods subsequent to
initial measurement, the asset retirement obligation is adjusted
for both the passage of time and revisions to the original
estimate. The site restoration obligations included in the
capitalized cost of the property, as adjusted from time to time,
are to be amortized to operations on the
unit-of-production
basis together with total mineral property costs capitalized.
|
|
(m)
|
Stock-Based
Compensation
|
The Company adopted Section 3870 (“CICA 3870”),
Stock-based compensation and other stock-based payments,
of the Handbook of the Canadian Institute of Chartered
Accountants, which establishes standards for the recognition,
measurement and disclosure of stock-based compensation and other
stock-based payments made in exchange for goods and services.
Section 3870 sets out a fair value based method of
accounting that is required for all stock-based transactions.
Under the recommendation, direct awards of stock granted to
employees and directors are recorded at fair value on the date
of grant and the associated expense is amortized over the
vesting period.
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Levon Resources Ltd.
|
|
|
|
|
|
|
|
|
967,571 common shares
(2005 — 967,571)
|
|
$
|
77,117
|
|
|
$
|
77,117
|
|
Mill Bay Ventures Inc.
(formerly First International Metals Corp.)
|
|
|
|
|
|
|
|
|
518,731 common shares
(2005 — 324,565)
|
|
|
70,291
|
|
|
|
52,817
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
147,408
|
|
|
$
|
129,934
|
|
|
|
|
|
|
|
|
|
|
Levon Resources Ltd. (“Levon”) and Mill Bay Ventures
Inc. (“Mill Bay”) are related to the Company by way of
common management and directors. The fair market value of the
Mill Bay and Levon common shares as at January 31, 2006
were $46,688 (2005 — $38,948), and $91,910
(2005 — $96,757), respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
|
Computer hardware
|
|
$
|
5,926
|
|
|
$
|
2,536
|
|
|
$
|
3,390
|
|
Equipment
|
|
|
436
|
|
|
|
192
|
|
|
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,362
|
|
|
$
|
2,728
|
|
|
$
|
3,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C-11
CORAL
GOLD RESOURCES LTD.
Notes to
Consolidated Financial
Statements — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
Value
|
|
|
Computer hardware
|
|
$
|
5,926
|
|
|
$
|
1,688
|
|
|
$
|
4,238
|
|
Equipment
|
|
|
436
|
|
|
|
131
|
|
|
|
305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,362
|
|
|
$
|
1,819
|
|
|
$
|
4,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has certain interests in 724 patented and unpatented
load mining claims located in the Bullion Mining District,
Lander County, Nevada, subject to NSR’s ranging from 4% to
10%, and which certain leases provide for advance royalty
payments. The Robertson group is recorded under three separate
claims groups known as the Core Claims (100% owned), the
Carve-out Claims (39% carried interest) and the Norma Sass/Ruff
Claims (66.67% owned).
(i) Carve-out
Claims — 39% carried interest
By an Agreement dated May 16, 1996, the Company granted
Amax Gold Exploration Inc. (“Amax”) an option to
purchase a 51% interest in 200 claims. Amax exercised the option
by paying twice the amount the Company had incurred in
exploration expenditures on the property. Under the terms of the
Agreement, the Company could elect, and did elect, to have the
49% of its interest reverted to a 39% carried interest.
The Carve-out Claims Option Agreement was assignable by the
Company or Amax. On September 13, 1995, the Company
optioned 50% of its interest in 54 claims (subsequent known as
the Ruff/Sass Claims — see Note 7(a)(ii)) to
Levon Resources Ltd., and on March 24, 1997 Amax assigned
it’s Option to Placer Dome Inc. (“Placer”). On
July 11, 1997, Placer exercised its right to acquire a 51%
interest in the claims by making a payment to the Company of
US$615,359. The claims, that Placer had acquired a 51% interest
in, excluded the Ruff/Sass claims as these were released back to
the Company by Placer. Pursuant to the terms under the option
agreement, the parties entered into an Exploration and Mining
Venture Agreement dated July 11, 1997, and the Company
exercised its right to have Placer advance the Company’s
share of venture costs from inception of the Venture to
commencement of commercial production in exchange for an
additional undivided 10% interest in the properties.
(ii) Ruff/Norma
Sass — 66.67% owned
By an amended Option Agreement dated September 13, 1995,
the Company had granted Levon Resources Ltd.
(“Levon”), a company related by common directors, an
option to purchase a 50% interest in 54 claims known as the
Ruff/Sass Claims. On December 31, 2002, the Agreement was
amended whereby Levon earned a 33.33% interest in the claims by
the issuance to the Company of 300,000 common shares in Levon
(received during previous fiscal years) and incurring $350,294
in exploration on the Property (incurred during prior years).
A third party holds a 3% net smelter returns royalty on the
production from some of these mining claims, up to a limit of
USD$1,250,000.
By an Option Agreement dated December 4, 2002 the Company
granted Goldfranchise Corporation
(“Goldfranchise”) an Option to acquire a
331/3%
interest in the Ruff/Norma Sass claims. In order to earn the
interest, Goldfranchise must:
a) Pay to Coral US$38,391.50;
|
|
|
|
b)
|
Incur minimum expenditures on the property in the amount of
US $300,000, of which $100,000 on or before
December 4, 2003, and the balance of $200,000 on or before
December 4, 2004; and
|
|
|
c)
|
Pay to Coral
331/3%
of all land fees, taxes, advance royalties required to keep the
claims in good standing.
|
C-12
CORAL
GOLD RESOURCES LTD.
Notes to
Consolidated Financial
Statements — (Continued)
This Option Agreement with Goldfranchise has been terminated due
Goldfranchise not fulfilling their obligations under the
Agreement.
By way of an agreement dated December 30, 2004, the Company
and Levon have assigned, sub-leased and granted a mining lease
to a subsidiary of Agnico-Eagle Mines Ltd. (“AGE”) on
the following properties: the Blue Nugget; the Blue Nugget #1
to #8; the Lander Ranch; the Lander Ranch #1 to the
Lander Ranch #25 and the Lander Ranch Extension; the Blue
Jay; the T and S; the Norma and the Norma #1 to the
Norma #23; the Sass and the Sass #1 to the
Sass #10; the DM #1 to the DM #8; the BA #1
to the BA #12; the PC #1 to the PC #20; and the
PM #1 to the PM #12, in consideration for the
following minimum advance royalty payments (in US dollars) and
minimum work commitments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advance
|
|
|
|
|
|
|
|
|
Royalty
|
|
|
|
Date
|
|
|
|
|
(US$)
|
|
|
Minimum Work
|
|
Execution of the Agreement
|
|
|
December 30, 2004
|
|
|
$
|
25,000
|
|
|
—
|
First Anniversary
|
|
|
December 30, 2005
|
|
|
$
|
30,000
|
|
|
13,000 ft of drilling
|
Second Anniversary
|
|
|
December 30, 2006
|
|
|
$
|
50,000
|
|
|
15,000 ft of drilling
|
Third Anniversary
|
|
|
December 30, 2007
|
|
|
$
|
75,000
|
|
|
17,000 ft of drilling
|
Fourth Anniversary
|
|
|
December 30, 2008
|
|
|
$
|
75,000
|
|
|
—
|
Fifth Anniversary
|
|
|
December 30, 2009
|
|
|
$
|
150,000
|
|
|
—
|
A minimum of 13,000 ft of exploration drilling was completed as
part of the first year’s minimum work commitment. The
initial advance royalty payment has been paid and received and
the first anniversary payment has been received as well. Upon
making the second and third year’s anniversary advance
royalty payments, AGE will be obligated to complete the
associated minimum work commitment for that year. After the
third anniversary, or at anytime after the completion of at
least 45,000 ft of drilling, AGE will have earned a 51% interest
in the Norma Sass Property.
AGE, at its option, may provide the funds to acquire the leased
claims from the underlying owners of such claims for the benefit
of AGE, the Company and Levon, to earn an additional 24%
interest (bringing AGE’s total interest to 75%). AGE will
then have the option of acquiring the remaining 25% interest by
producing a positive feasibility study and making a positive
production decision.
At the fifth anniversary and every year thereafter until
production occurs, the advance royalty payment will be
$150,000 per annum. All advance royalty payments will be
credited towards AGE’s payment of a royalty of 2.5% net
smelter returns from production to the Company and Levon. AGE
has reserved the right to purchase 1% of this net smelter
returns royalty (to reduce the royalty to the Company and Levon
to 1.5%) for a cash payment of USD$1.0 million. The Company
and Levon have agreed to share in any benefits from the
agreement with AGE in proportion to their current respective
interests in the Norma Sass Property.
(iii) Core
claims — 100% owned
By an Option Agreement dated January 31, 1999 the Company
granted Placer an option to acquire up to a 70% interest in the
entire Robertson Property’s 724 claims. Under the terms of
the Option, Placer guaranteed a Reclamation Bond required to be
posted by the Company for previous exploration work on the Core
Claims. The Option Agreement terminated on December 31,
1999. The Company was obligated under the terms of the Option to
replace Placer’s guarantee. Subsequent to January 31,
2004, the Company replaced the guarantee by posting a cash bond
(note 8).
(iv) Marcus
Corporation
By way of an agreement dated September 15, 2005, the
Company has purchased 1,391,860 shares of Marcus
Corporation (“Marcus”), representing 98.49% of the
total issued shares of Marcus. Marcus owns the Marcus mining
C-13
CORAL
GOLD RESOURCES LTD.
Notes to
Consolidated Financial
Statements — (Continued)
claims, consisting of 39 unpatented lode claims and two Placer
claims, and which comprise a portion of the Company’s
Robertson Property. By acquiring Marcus, the Company will
control Marcus, and own an indirect interest in the mining lease
between the Company and Marcus, which provides for an annual
advanced royalty to Marcus of US$12,000, and a 5% net smelter
returns royalty up to a maximum payment of US$2.5 million.
The mining lease with Marcus expires in 2007.
The Company holds a 50% interest in 45 lode mineral claims
located at Corral Canyon in Lander County, Nevada, USA. During
the year ended January 31, 2001, the Company decided to
defer exploration on the property and to reduce the carrying
value to a nominal amount.
The Company owns a mineral property consisting of approximately
128 acres in the San Bernadino County, California, USA.
During the year ended January 31, 2001, the Company decided
to defer exploration on the property and to reduce the carrying
value to a nominal amount.
The Company holds a 50% interest in 34 lode mineral claims
located in Lander County, Nevada USA. The JDN claims are located
approximately three miles north of the Robertson Property.
During the year ended January 31, 2001, the Company decided
to defer exploration on the property and to reduce the carrying
value to a nominal amount.
Ownership in mineral properties involves certain inherent risks
due to the difficulties in determining the validity of certain
claims, as well as the potential for problems arising from the
frequently ambiguous conveyancing history characteristics of
many mineral interests. The Company has investigated ownership
of its mineral interests and, to the best of its knowledge,
ownership of its properties is in good standing.
Under the laws of the State of Nevada, the Company is required
to have a reclamation deposit which covers the cost to reclaim
the ground disturbed. The Company’s obligation at
January 31, 1999 had been assumed by Placer as part of the
Exploration and Development Option Agreement [note 7(a)].
As the Agreement was terminated on December 31, 1999, the
Company was required to post its own security to guarantee
performance under the Reclamation Bond.
During the year, a revised Reclamation Plan for the purposes of
reducing the performance bond was approved by the Bureau of Land
Management (the “Bureau”), reducing the required
deposit to $260,976 (US$228,205) (2005 — $518,057).
Coral Resources Inc., as principal, placed the funds in trust
with a fully secured standby letter of credit lodged as
collateral in support of the bond.
|
|
9.
|
Subscriptions
Received in Advance
|
During the year, the Company received $60,000 (2005 —
$nil) towards private placements of 20,000 shares
(2005 — nil). These shares were issued subsequent to
year-end as part of the private placement that closed on
March 4, 2006 (note 17(a)).
(a) Authorized: Unlimited common shares without par value.
C-14
CORAL
GOLD RESOURCES LTD.
Notes to
Consolidated Financial
Statements — (Continued)
(b) Issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit
|
|
|
Balance, January 31,
2003
|
|
|
3,470,993
|
|
|
$
|
27,379,052
|
|
|
$
|
(19,196,457
|
)
|
2004 share issuances for cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
Private placements
|
|
|
721,882
|
|
|
|
1,897,068
|
|
|
|
|
|
Exercise of warrants
|
|
|
149,310
|
|
|
|
357,368
|
|
|
|
|
|
Exercise of stock options
|
|
|
19,500
|
|
|
|
48,750
|
|
|
|
|
|
Share issuance costs
|
|
|
—
|
|
|
|
(36,000
|
)
|
|
|
|
|
2004 loss
|
|
|
|
|
|
|
|
|
|
|
(753,596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 31,
2004
|
|
|
4,361,685
|
|
|
|
29,646,238
|
|
|
|
(19,950,053
|
)
|
2005 share issuances for cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
Private placements
|
|
|
255,220
|
|
|
|
1,039,464
|
|
|
|
|
|
Exercise of warrants
|
|
|
1,600
|
|
|
|
4,960
|
|
|
|
|
|
Exercise of stock options
|
|
|
30,400
|
|
|
|
76,000
|
|
|
|
|
|
Share issuance costs
|
|
|
|
|
|
|
(11,984
|
)
|
|
|
|
|
2005 loss
|
|
|
|
|
|
|
|
|
|
|
(878,819
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 31,
2005
|
|
|
4,648,905
|
|
|
|
30,754,678
|
|
|
|
(20,828,872
|
)
|
2006 share issuances for cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of warrants
|
|
|
9,397
|
|
|
|
25,944
|
|
|
|
|
|
Exercise of stock options
|
|
|
102,500
|
|
|
|
174,250
|
|
|
|
|
|
Shares returned to treasury
|
|
|
(2,500
|
)
|
|
|
(11,000
|
)
|
|
|
|
|
Fair value of stock options
exercised
|
|
|
—
|
|
|
|
87,560
|
|
|
|
|
|
Shares issued for Marcus Corp
purchase
|
|
|
347,964
|
|
|
|
528,905
|
|
|
|
|
|
2006 loss
|
|
|
|
|
|
|
|
|
|
|
(3,067,474
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 31,
2006
|
|
|
5,106,266
|
|
|
$
|
31,560,337
|
|
|
$
|
(23,896,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) At January 31, 2006, the following director,
officer and employee stock options are outstanding and
exercisable enabling the holders to acquire additional common
shares as follows:
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Exercise Price
|
|
Expiry Date
|
|
|
300,400
|
|
|
$
|
1.70
|
|
|
December 1, 2009
|
|
32,500
|
|
|
$
|
1.70
|
|
|
April 12, 2010
|
|
365,000
|
|
|
$
|
3.55
|
|
|
December 12, 2010
|
C-15
CORAL
GOLD RESOURCES LTD.
Notes to
Consolidated Financial
Statements — (Continued)
The Company has granted founders, directors, officers and
certain employees stock options. Stock option activity is
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number
|
|
|
Exercise
|
|
|
|
of Shares
|
|
|
Price
|
|
|
Balance outstanding,
January 31, 2003
|
|
|
202,750
|
|
|
$
|
2.50
|
|
2004 — Cancelled
|
|
|
(10,000
|
)
|
|
|
2.50
|
|
2004 — Exercised
|
|
|
(19,500
|
)
|
|
|
2.50
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding,
January 31, 2004
|
|
|
173,250
|
|
|
|
2.50
|
|
2005 — Granted
|
|
|
412,900
|
|
|
|
1.70
|
|
2005 — Cancelled
|
|
|
(20,250
|
)
|
|
|
1.71
|
|
2005 — Exercised
|
|
|
(30,400
|
)
|
|
|
2.50
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding,
January 31, 2005
|
|
|
535,500
|
|
|
|
1.91
|
|
2006 — Granted
|
|
|
407,500
|
|
|
|
3.36
|
|
2006 — Expired
|
|
|
(142,600
|
)
|
|
|
2.50
|
|
2006 — Exercised
|
|
|
(102,500
|
)
|
|
|
1.70
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding,
January 31, 2006
|
|
|
697,900
|
|
|
$
|
2.67
|
|
|
|
|
|
|
|
|
|
|
The Company in fiscal 2005 adopted a formal stock option plan
which provides for the granting of options to directors,
officers, employees and consultants for a maximum of
706,000 shares (representing approximately 20% of the
issued share capital of the Company as at the date of approval
of the Plan by the Board). The Company recorded compensation
expense of $1,056,100 (2005 — $343,533) with respect
to stock options granted. The weighted average fair value of the
options granted as at January 31, 2006 was $2.59 per
share (2005 — $0.83 per share).
The fair value of options granted was estimated at the date of
granting using the Black-Scholes option pricing model with the
following assumptions: risk-free interest rates of 4.09% and
4.42%, dividend yield of 0.0%, volatility factors of 104.23% and
101.41, and a life of 5 years.
The Black-Scholes valuation model was developed for use in
estimating the fair value of traded options, which are fully
transferable and freely traded. In addition, option valuation
models require the input of highly subjective assumptions
including the expected stock price volatility, changes in the
subjective input assumptions can materially affect the fair
value estimate.
(d) At January 31, 2006, the Company has outstanding
share purchase warrants enabling the holders to acquire
additional common shares as follows. Subsequent to year-end, the
warrants with expiry dates of February 16 and 17, 2006
expired without being exercised:
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Exercise Price
|
|
Expiry Date
|
|
|
104,380
|
|
|
$
|
4.80
|
|
|
February 16, 2006
|
|
148,340
|
|
|
$
|
5.50
|
|
|
February 17, 2006
|
|
391,900
|
|
|
$
|
3.10
|
|
|
October 12, 2006
|
|
200,000
|
|
|
$
|
3.60
|
|
|
November 17, 2006
|
|
100,000
|
|
|
$
|
3.90
|
|
|
December 19, 2006
|
|
171,078
|
|
|
$
|
2.00
|
|
|
September 15, 2007
|
|
|
|
|
|
|
|
|
|
|
1,115,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C-16
CORAL
GOLD RESOURCES LTD.
Notes to
Consolidated Financial
Statements — (Continued)
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Balance, beginning of the year
|
|
$
|
343,533
|
|
|
$
|
—
|
|
Stock-based compensation expense
|
|
|
1,056,100
|
|
|
|
343,533
|
|
Warrants issued on acquisition of
Marcus Corporation
|
|
|
116,100
|
|
|
|
—
|
|
Fair value of stock options
exercised
|
|
|
(87,560
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,428,173
|
|
|
$
|
343,533
|
|
|
|
|
|
|
|
|
|
|
(a) The Company entered into a new cost-sharing agreement
during 2005 to reimburse a related party for a variable
percentage (2005 fixed percentage — 20%; 2004 fixed
percentage — 20%) of its overhead expenses, to
reimburse 100% of its
out-of-pocket
expenses incurred on behalf of the company, and to pay a
percentage fee based on the total overhead and corporate
expenses referred to above. The agreement may be terminated with
one-month notice by either party.
A total of $166,203 (2005 — $135,140; 2004 —
$107,393) was charged to operations in relation to the cost
sharing agreement.
(b) The Company entered into a 12 month Investor
Relations Agreement on July 1, 2005 with Investors
Relations Services Group John Mullen & Partners
(“IRS”) to provide investor relations services in
Europe. In consideration for the services rendered, the Company
has agreed to pay IRS fees totalling $18,000 plus expenses
(2005 — $nil; 2004 — $nil).
|
|
13.
|
Related
Party Transactions
|
Related party transactions not disclosed elsewhere in the
financial statements are as follows:
(a) Included in advances receivable are amounts due from
related parties, as well as third party receivables. These
amounts due from related parties include $28,003
(2005 — $28,003) due from a joint venture with common
management and common directors; $7,850 (2005 — $Nil)
from a company controlled by a Director; $1,430
(2005 — $Nil) from a director of the Company and
$13,124 (2006: $89,992 less an allowance for bad debt of
$76,868; 2005: $122,048 less an allowance for bad debt of
$90,621) with two companies with common management and common
directors.
(b) Advances payable include $31,620 (2005 —
$31,333) due to Directors in regards to past directors’
fees; $26,922 (2005 — $10,695) due to a company with
common management in regards to the cost sharing agreement for
overhead expenses; $nil (2005 — $32,540) to a company
with common management and directors and $3,414
(2005 — $1,784) to a company controlled by a Director.
(c) Consulting fees of $30,000 (2005 — $30,000;
2004 — $22,500) were paid to a company owned by a
director.
(d) Management fees of $105,000 (2005 — $75,000;
2004 — $90,000) were paid to a company owned by a
director.
(e) Directors’ fees of $12,000 (2005 —
$14,000; 2004 — $24,000) were paid to directors of the
Company.
(f) An allowance in the amount of $209,840
(2005 — $209,840; 2004 — $209,840) has been
accrued in respect of advances made to a Company with common
management.
C-17
CORAL
GOLD RESOURCES LTD.
Notes to
Consolidated Financial
Statements — (Continued)
(g) The loan receivable of $83,000 (2005 —
$50,000) is due from a subsidiary of a related company with
common management that provides drilling services. The amount
due is non-interest bearing, unsecured and due on demand.
(h) Included in accounts payable and accrued liabilities
are bonuses payable to a director of the Company in the amount
of $525,000 (2005 — $Nil).
These transactions are in the normal course of operations and
are measured at the exchange amount, which is the consideration
established and agreed to by the related parties, unless
otherwise noted.
|
|
14.
|
Site
Restoration Obligation
|
Management has assessed their site restoration obligations and
the associated liability to be recognized in the current period.
Management has estimated that the costs would approximate
$16,000 (2005 — $nil). Management will continue to
assess their site restoration obligations and the associated
liability as further information becomes known.
The reconciliation of the future income tax recovery (expense)
rate to the statutory rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
|
|
|
|
(Note 2)
|
|
|
(Note 2)
|
|
|
Loss before taxes
|
|
$
|
(2,289,463
|
)
|
|
$
|
(878,819
|
)
|
|
$
|
(753,596
|
)
|
Income tax rate
|
|
|
34.75
|
%
|
|
|
35.62
|
%
|
|
|
35.62
|
%
|
Income tax recovery at the
statutory rate
|
|
|
795,474
|
|
|
|
313,035
|
|
|
|
268,431
|
|
Permanent differences
|
|
|
(354,610
|
)
|
|
|
(166,879
|
)
|
|
|
(49,269
|
)
|
Expiration of losses
|
|
|
(1,018,575
|
)
|
|
|
(158,065
|
)
|
|
|
(285,593
|
)
|
Share issuance costs
|
|
|
—
|
|
|
|
4,269
|
|
|
|
12,823
|
|
Changes in income tax rates
|
|
|
(95,008
|
)
|
|
|
(185
|
)
|
|
|
(498
|
)
|
Foreign exchange differences
|
|
|
86,719
|
|
|
|
19,125
|
|
|
|
48,807
|
|
Change in the valuation allowance
|
|
|
(192,000
|
)
|
|
|
(11,300
|
)
|
|
|
5,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net future income tax recovery
(expense)
|
|
$
|
(778,000
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of the future income tax assets (liabilities) are
as follows:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Restated
|
|
|
|
|
|
|
(Note 2)
|
|
|
Future income assets:
|
|
|
|
|
|
|
|
|
Non-capital loss carry-forwards
|
|
$
|
2,758,000
|
|
|
$
|
3,351,000
|
|
Resource interests
|
|
|
775,000
|
|
|
|
809,000
|
|
Other
|
|
|
112,338
|
|
|
|
141,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,645,338
|
|
|
|
4,301,000
|
|
Less:
valuation allowance
|
|
|
(2,181,000
|
)
|
|
|
(1,989,000
|
)
|
|
|
|
|
|
|
|
|
|
Net future income tax
asset
|
|
$
|
1,464,338
|
|
|
$
|
2,312,000
|
|
Future income tax
liability:
|
|
|
|
|
|
|
|
|
Resource interests
|
|
|
(2,913,000
|
)
|
|
|
(2,630,000
|
)
|
|
|
|
|
|
|
|
|
|
Net future income tax
liability
|
|
$
|
(1,448,662
|
)
|
|
$
|
(318,000
|
)
|
|
|
|
|
|
|
|
|
|
C-18
CORAL
GOLD RESOURCES LTD.
Notes to
Consolidated Financial
Statements — (Continued)
The valuation allowance reflects the Company’s estimate
that the tax assets, more likely than not, will not be realized.
At January 31, 2006, the Company had, for Canadian tax
purposes, operating losses aggregating approximately $3,798,000.
These losses are available to reduce taxable incomes earned by
the Canadian operations of future years and expire as follows:
|
|
|
|
|
2007
|
|
$
|
420,000
|
|
2008
|
|
|
243,000
|
|
2009
|
|
|
231,000
|
|
2010
|
|
|
527,000
|
|
2011
|
|
|
627,000
|
|
2015
|
|
|
522,000
|
|
2016
|
|
|
1,228,000
|
|
|
|
|
|
|
|
|
$
|
3,798,000
|
|
|
|
|
|
|
The net operating losses available to offset revenues of the US
operations are approximately US$3,648,000 (2005 —
US$4,700,000) and expire at various times through 2017.
|
|
16.
|
Segmented
Information
|
The Company is involved in mineral exploration and development
activities principally in United States. The Company is in the
development stage and, accordingly, has no reportable segment
revenues or operating results for each of the 2006, 2005 and
2004 fiscal year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
Canada
|
|
|
USA
|
|
|
Total
|
|
|
Current assets
|
|
$
|
695,738
|
|
|
$
|
99,547
|
|
|
$
|
795,285
|
|
Investment in securities
|
|
|
74,833
|
|
|
|
72,575
|
|
|
|
147,408
|
|
Loan Receivable
|
|
|
83,000
|
|
|
|
—
|
|
|
|
83,000
|
|
Equipment
|
|
|
3,634
|
|
|
|
—
|
|
|
|
3,634
|
|
Mineral properties
|
|
|
—
|
|
|
|
10,095,609
|
|
|
|
10,095,609
|
|
Reclamation deposit
|
|
|
—
|
|
|
|
260,976
|
|
|
|
260,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
857,205
|
|
|
$
|
10,528,707
|
|
|
$
|
11,385,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
Canada
|
|
|
USA
|
|
|
Total
|
|
|
Current assets
|
|
$
|
1,511,905
|
|
|
$
|
50,989
|
|
|
$
|
1,562,894
|
|
Investment in securities
|
|
|
57,359
|
|
|
|
72,575
|
|
|
|
129,934
|
|
Loan Receivable
|
|
|
50,000
|
|
|
|
—
|
|
|
|
50,000
|
|
Equipment
|
|
|
4,543
|
|
|
|
—
|
|
|
|
4,543
|
|
Mineral properties
|
|
|
—
|
|
|
|
8,472,255
|
|
|
|
8,472,255
|
|
Reclamation deposit
|
|
|
—
|
|
|
|
518,057
|
|
|
|
518,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,623,807
|
|
|
$
|
9,113,876
|
|
|
$
|
10,737,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C-19
CORAL
GOLD RESOURCES LTD.
Notes to
Consolidated Financial
Statements — (Continued)
(a) The Company closed a non-brokered private placement of
1,500,000 shares at a price of $3.00 per share on
March 4, 2006.
(b) The Company announced on March 6, 2006 that it has
received an offer by U.S. Gold Corporation to acquire all
of the Company’s outstanding common shares. Under the
proposal, U.S. Gold Corporation would offer 0.63 share
of U.S. Gold common stock for each outstanding common share
of the Company. To date this transaction has not closed.
|
|
18.
|
Differences
Between Canadian And United States Generally Accepted Accounting
Principles (Canadian GAAP And U.S. GAAP)
|
These consolidated financial statements and the selected
financial data have been prepared under Canadian GAAP.
For each year of presentation, the modifications necessary in
order for these consolidated financial statements to conform to
U.S. GAAP have been suitably provided as follows:
|
|
(a)
|
Reconciliation
of Consolidated Balance Sheet items:
|
(i) Reconciliation
of Total Assets and Liabilities
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Restated
|
|
|
|
|
|
|
(Note 2)
|
|
|
Total assets per CDN GAAP
|
|
$
|
11,385,912
|
|
|
$
|
10,737,683
|
|
Mineral properties
(note 18(h))
|
|
|
(9,057,135
|
)
|
|
|
(8,472,255
|
)
|
Investment securities
|
|
|
(8,810
|
)
|
|
|
5,771
|
|
|
|
|
|
|
|
|
|
|
Total assets per US GAAP
|
|
$
|
2,319,967
|
|
|
$
|
2,271,199
|
|
|
|
|
|
|
|
|
|
|
Total liabilities per US/CDN GAAP
|
|
$
|
2,233,748
|
|
|
$
|
450,289
|
|
|
|
|
|
|
|
|
|
|
(ii) Reconciliation
of Deficit under U.S. GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
Restated
|
|
|
Restated
|
|
|
|
|
|
|
(Note 2)
|
|
|
(Note 2)
|
|
|
Deficit end of year per CDN GAAP
|
|
$
|
(23,896,346
|
)
|
|
$
|
(20,828,872
|
)
|
|
$
|
(19,950,053
|
)
|
Stock compensation expense
|
|
|
(60,000
|
)
|
|
|
(60,000
|
)
|
|
|
(60,000
|
)
|
Deferred exploration expenditures,
net
|
|
|
(9,057,135
|
)
|
|
|
(8,472,255
|
)
|
|
|
(7,574,347
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit end of year per US GAAP
|
|
$
|
(33,013,481
|
)
|
|
$
|
(29,361,127
|
)
|
|
$
|
(27,584,400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C-20
CORAL
GOLD RESOURCES LTD.
Notes to
Consolidated Financial
Statements — (Continued)
|
|
(b)
|
Reconciliation
of Consolidated Statement of Income items:
|
Reconciliation
of Net Loss under U.S. GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
January 31,
|
|
|
January 31,
|
|
|
January 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
Restated
|
|
|
|
|
|
|
|
|
|
(Note 2)
|
|
|
|
|
|
Net loss for the year per CDN GAAP
|
|
$
|
(3,067,474
|
)
|
|
$
|
(878,819
|
)
|
|
$
|
(753,596
|
)
|
Deferred exploration expenditures
|
|
|
(584,880
|
)
|
|
|
(897,908
|
)
|
|
|
(420,054
|
)
|
Writedown of deferred exploration
expenditures
|
|
|
—
|
|
|
|
—
|
|
|
|
4,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year per
U.S. GAAP
|
|
$
|
(3,652,354
|
)
|
|
$
|
(1,776,727
|
)
|
|
$
|
(1,168,682
|
)
|
Unrealized gain (loss) on
investment securities
|
|
|
(14,581
|
)
|
|
|
5,771
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net comprehensive loss for the
year per U.S. GAAP
|
|
$
|
(3,696,935
|
)
|
|
$
|
(1,770,956
|
)
|
|
$
|
(1,168,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
Loss
Per Share U.S. GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
January 31,
|
|
|
January 31,
|
|
|
January 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Loss Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
— basic and diluted
|
|
$
|
(0.76
|
)
|
|
$
|
(0.38
|
)
|
|
$
|
(0.32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Financial Accounting Standards No. 130
requires the reporting of comprehensive income in addition to
net earnings. Comprehensive income includes net income plus
other comprehensive income; specifically, all changes in equity
of a company during a period arising from non-owner sources.
C-21
CORAL
GOLD RESOURCES LTD.
Notes to
Consolidated Financial
Statements — (Continued)
Under US GAAP, a statement of changes in shareholders’
equity and comprehensive income in the following format would
form a part of the annual consolidated financial statements:
Consolidated
Statement of Changes in Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compre-
|
|
|
|
|
|
Compre-
|
|
|
Total
|
|
|
|
Share Capital
|
|
|
|
|
|
|
|
|
Additional
|
|
|
hensive
|
|
|
|
|
|
hensive
|
|
|
Share-
|
|
|
|
Number of
|
|
|
|
|
|
Share
|
|
|
|
|
|
Paid in
|
|
|
Income
|
|
|
|
|
|
Income
|
|
|
holders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Subscriptions
|
|
|
Warrants
|
|
|
Capital
|
|
|
(Loss)
|
|
|
Deficit
|
|
|
(Loss)
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated
|
|
|
|
|
|
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Note 2)
|
|
|
|
|
|
|
|
|
Balance forward, January 31,
2003
|
|
|
3,470,994
|
|
|
$
|
27,379,052
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
60,000
|
|
|
|
|
|
|
$
|
(26,415,718
|
)
|
|
$
|
—
|
|
|
$
|
1,023,334
|
|
Share subscriptions
|
|
|
—
|
|
|
|
—
|
|
|
|
791,720
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
791,720
|
|
Issuance of shares (see
Note 10(b))
|
|
|
890,691
|
|
|
|
2,267,186
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,267,186
|
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— net income (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,168,682
|
)
|
|
|
(1,168,682
|
)
|
|
|
—
|
|
|
|
(1,168,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,168,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 31, 2004
|
|
|
4,361,685
|
|
|
$
|
29,646,238
|
|
|
$
|
791,720
|
|
|
$
|
—
|
|
|
$
|
60,000
|
|
|
|
|
|
|
$
|
(27,584,400
|
)
|
|
$
|
—
|
|
|
$
|
2,913,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance forward, January 31,
2004
|
|
|
4,361,685
|
|
|
$
|
29,646,238
|
|
|
$
|
791,720
|
|
|
$
|
—
|
|
|
$
|
60,000
|
|
|
|
|
|
|
$
|
(27,584,400
|
)
|
|
$
|
—
|
|
|
$
|
2,913,558
|
|
Share subscriptions
|
|
|
—
|
|
|
|
—
|
|
|
|
(791,720
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(791,720
|
)
|
Issuance of shares (see
Note 10(b))
|
|
|
287,220
|
|
|
|
1,108,440
|
|
|
|
(11,945
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,096,495
|
|
Stock-based compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
343,533
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
343,533
|
|
Components of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— net income (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,776,727
|
)
|
|
|
(1,776,727
|
)
|
|
|
—
|
|
|
|
(1,776,727
|
)
|
— change in unrealized
gain (loss) of marketable securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,771
|
|
|
|
—
|
|
|
|
5,771
|
|
|
|
5,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,770,956
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 31, 2005
|
|
|
4,648,905
|
|
|
$
|
30,754,678
|
|
|
$
|
(11,945
|
)
|
|
$
|
—
|
|
|
$
|
403,533
|
|
|
|
|
|
|
$
|
(29,361,127
|
)
|
|
$
|
5,771
|
|
|
$
|
1,790,910
|
|
Share subscriptions
|
|
|
—
|
|
|
|
—
|
|
|
|
71,945
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
71,945
|
|
Issuance of shares (see
Note 10(b))
|
|
|
457,361
|
|
|
|
805,659
|
|
|
|
—
|
|
|
|
116,100
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
921,759
|
|
Stock-based compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,056,100
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,056,100
|
|
Fair value of stock option exercises
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(87,560
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(87,560
|
)
|
Components of Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— net income (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,652,354
|
)
|
|
|
(3,652,354
|
)
|
|
|
—
|
|
|
|
(3,652,354
|
)
|
— change in unrealized
gain (loss) of marketable securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(14,581
|
)
|
|
|
—
|
|
|
|
(14,581
|
)
|
|
|
(14,581
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(3,696,935
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 31, 2006
|
|
|
5,106,266
|
|
|
$
|
31,560,337
|
|
|
$
|
60,000
|
|
|
$
|
116,100
|
|
|
$
|
1,372,073
|
|
|
|
|
|
|
$
|
(33,013,481
|
)
|
|
$
|
(8,810
|
)
|
|
$
|
86,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C-22
CORAL
GOLD RESOURCES LTD.
Notes to
Consolidated Financial
Statements — (Continued)
|
|
(e)
|
Supplemental
Financial Information
|
(i) Reconciliation
of Cash Flows Under U.S. GAAP
Cash
Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Cash provided by (used in)
operating activities per CDN GAAP
|
|
$
|
(677,443
|
)
|
|
$
|
(556,184
|
)
|
|
$
|
(1,021,895
|
)
|
Deferred exploration expenditures
|
|
|
(584,880
|
)
|
|
|
(897,908
|
)
|
|
|
(420,054
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in)
operating activities per US GAAP
|
|
$
|
(1,262,323
|
)
|
|
$
|
(1,454,092
|
)
|
|
$
|
(1,441,949
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Cash provided by (used in)
investing activities per CDN GAAP
|
|
$
|
(392,771
|
)
|
|
$
|
(914,246
|
)
|
|
$
|
264,756
|
|
Deferred exploration expenditures
|
|
|
584,880
|
|
|
|
897,908
|
|
|
|
420,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in)
investing activities per US GAAP
|
|
$
|
192,109
|
|
|
$
|
(16,338
|
)
|
|
$
|
684,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(f)
|
Additional
Disclosure Required by U.S. GAAP
|
(i) Operations
in a Foreign Country
The Company is subject to numerous factors relating to
conducting business in a foreign country (including, without
limitation, economic, political and currency risk), any of which
could have a significant impact on the Company’s operation.
The Company’s U.S. subsidiaries, Coral Resources,
Inc., Marcus Corporation and Coral Energy Corporation of
California are subject to U.S. corporation tax on profits.
|
|
(g)
|
Additional
Disclosure Required by SEC
|
The SEC requires that related party transactions be disclosed as
a separate line in the financial statements. Under this
requirement, the following related party transactions would have
been shown separately as related party balances in the financial
statements:
(i) Included in advances receivable are related party
transactions of, $28,003 (2005 — $28,003;
2004 — $28,003) due from a joint venture with common
management and common directors; $7,850 (2005 — $Nil;
2004 — $Nil) from a company controlled by a Director;
$1,430 (2005 — $Nil; 2004 — $Nil) from a
director of the Company and $13,124 (2006: $89,992 less an
allowance for bad debt of $76,868; 2005: $122,048 less an
allowance for bad debt of $90,621; 2004: $90,621) with two
companies with common management and common directors.
(ii) Consulting fees of $30,000 (2005 — $30,000;
2004 — $22,500) were paid to a company owned by a
director.
(iii) Management fees of $105,000 (2005 —
$75,000; 2004 — $90,000) were paid to a company owned
by a director.
(iv) Directors’ fees of $12,000 (2005 —
$14,000; 2004 — $24,000) were paid to directors of the
Company.
C-23
CORAL
GOLD RESOURCES LTD.
Notes to
Consolidated Financial
Statements — (Continued)
(v) An allowance in the amount of $209,840
(2005 — $209,840) has been accrued in respect of
advances made to a company with common management.
(vi) The loan receivable of $83,000 (2005 —
$50,000) is due from a subsidiary of a related company that
provides drilling services. The amount due is non-interest
bearing, unsecured and due on demand.
(vii) Included in accounts payable are $525,000
(2005 — $Nil) of amounts due to a Director of the
Company, as a bonus.
(viii) Investment securities and marketable securities
would be noted as a related party on the balance sheet.
|
|
(h)
|
Deferred
Exploration Expenditures
|
The Company follows the policy of deferring all acquisition and
exploration costs relating to the mineral properties held. Under
US GAAP, the deferred exploration expenditures would have been
expensed in the year they were incurred (see note 7(a) to
7(d)).
C-24
CORAL
GOLD RESOURCES LTD.
Consolidated
Balance Sheets
(Prepared
by Management)
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|
January 31,
|
|
|
|
2006
|
|
|
2006
|
|
|
ASSETS
|
Current
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,974,850
|
|
|
$
|
663,071
|
|
Advances receivable
(note 7(b))
|
|
|
71,854
|
|
|
|
62,358
|
|
Interest receivable
|
|
|
12,585
|
|
|
|
—
|
|
Prepaid expenses
|
|
|
81,417
|
|
|
|
69,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,140,706
|
|
|
|
795,285
|
|
Investment securities
|
|
|
147,408
|
|
|
|
147,408
|
|
Loan receivable
(note 7(f))
|
|
|
83,000
|
|
|
|
83,000
|
|
Equipment
|
|
|
3,272
|
|
|
|
3,634
|
|
Mineral properties
(note 5)
|
|
|
10,632,985
|
|
|
|
10,095,609
|
|
Reclamation deposit
|
|
|
263,182
|
|
|
|
260,976
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,270,553
|
|
|
$
|
11,385,912
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Current
|
|
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities (note 7(d))
|
|
$
|
390,902
|
|
|
$
|
696,810
|
|
Advances payable (note 7(c))
|
|
|
46,037
|
|
|
|
61,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
436,939
|
|
|
|
758,766
|
|
|
|
|
|
|
|
|
|
|
Site restoration
obligation
|
|
|
16,000
|
|
|
|
16,000
|
|
|
|
|
|
|
|
|
|
|
Future income tax
liability
|
|
|
1,448,662
|
|
|
|
1,448,662
|
|
|
|
|
|
|
|
|
|
|
Non-controlling
interest
|
|
|
10,317
|
|
|
|
10,320
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’
EQUITY
|
Subscriptions received in
advance
|
|
|
—
|
|
|
|
60,000
|
|
Share capital
(note 6)
|
|
|
36,413,491
|
|
|
|
31,560,337
|
|
Contributed surplus
|
|
|
1,428,173
|
|
|
|
1,428,173
|
|
Deficit
|
|
|
(24,483,029
|
)
|
|
|
(23,896,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
13,358,635
|
|
|
|
9,152,164
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,270,553
|
|
|
$
|
11,385,912
|
|
|
|
|
|
|
|
|
|
|
NOTE 1 —
NATURE OF OPERATIONS
Approved by the Directors:
|
|
|
|
|
|
|
|
|
Director
|
|
/s/ Gary Robertson
|
|
Director
|
C-25
CORAL
GOLD RESOURCES LTD.
Consolidated
Interim Statements of Operations and Deficit
(Unaudited —
Prepared by Management)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31,
|
|
|
Six Months Ended July 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
43,930
|
|
|
$
|
2,461
|
|
|
$
|
70,968
|
|
|
$
|
5,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
181
|
|
|
|
159
|
|
|
|
362
|
|
|
|
443
|
|
Consulting fees
|
|
|
57,500
|
|
|
|
10,020
|
|
|
|
92,300
|
|
|
|
20,020
|
|
Directors fees
|
|
|
—
|
|
|
|
—
|
|
|
|
50,000
|
|
|
|
—
|
|
Investor relations and shareholder
information
|
|
|
53,669
|
|
|
|
23,089
|
|
|
|
69,072
|
|
|
|
39,426
|
|
Legal and accounting
|
|
|
188,356
|
|
|
|
14,922
|
|
|
|
225,468
|
|
|
|
51,612
|
|
Listing and filing fees
|
|
|
2,440
|
|
|
|
4,381
|
|
|
|
31,411
|
|
|
|
7,581
|
|
Management fees
|
|
|
32,800
|
|
|
|
22,500
|
|
|
|
60,475
|
|
|
|
45,000
|
|
Office and miscellaneous
|
|
|
18,458
|
|
|
|
17,137
|
|
|
|
40,227
|
|
|
|
34,921
|
|
Salaries and benefits
|
|
|
18,071
|
|
|
|
25,614
|
|
|
|
37,203
|
|
|
|
49,735
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
36,400
|
|
Transfer agent fees
|
|
|
6,844
|
|
|
|
3,136
|
|
|
|
10,544
|
|
|
|
4,890
|
|
Travel
|
|
|
27,325
|
|
|
|
17,498
|
|
|
|
38,643
|
|
|
|
39,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
405,644
|
|
|
|
138,456
|
|
|
|
655,705
|
|
|
|
329,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(361,714
|
)
|
|
|
(135,995
|
)
|
|
|
(584,737
|
)
|
|
|
(323,546
|
)
|
Other items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recovery of bad debt
|
|
|
3,464
|
|
|
|
—
|
|
|
|
3,464
|
|
|
|
—
|
|
Foreign exchange gain (loss)
|
|
|
(4,897
|
)
|
|
|
(13,822
|
)
|
|
|
(5,413
|
)
|
|
|
(6,740
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the period before
non-controlling interest
|
|
$
|
(363,147
|
)
|
|
$
|
(149,817
|
)
|
|
$
|
(586,686
|
)
|
|
$
|
(330,286
|
)
|
Non-controlling interest
gain
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the period
|
|
|
(363,147
|
)
|
|
|
(149,817
|
)
|
|
|
(586,683
|
)
|
|
|
(330,286
|
)
|
Deficit,
beginning of period
|
|
|
(24,119,882
|
)
|
|
|
(20,691,341
|
)
|
|
|
(23,896,346
|
)
|
|
|
(20,510,872
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit,
end of period
|
|
$
|
(24,483,029
|
)
|
|
$
|
(20,841,158
|
)
|
|
$
|
(24,483,029
|
)
|
|
$
|
(20,841,158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
$
|
(0.05
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
common shares outstanding
|
|
|
6,719,932
|
|
|
|
4,651,155
|
|
|
|
6,425,173
|
|
|
|
4,650,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C-26
CORAL
GOLD RESOURCES LTD.
Consolidated
Interim Statements of Cash Flows
(Unaudited —
Prepared by Management)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31,
|
|
|
Six Months Ended July 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Cash flows from (used in)
operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the year
|
|
$
|
(363,147
|
)
|
|
$
|
(149,817
|
)
|
|
$
|
(586,683
|
)
|
|
$
|
(330,286
|
)
|
Adjustments for items not
involving cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— amortization
|
|
|
181
|
|
|
|
159
|
|
|
|
362
|
|
|
|
443
|
|
— stock based
compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
36,400
|
|
— non-controlling
interest
|
|
|
—
|
|
|
|
—
|
|
|
|
(3
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(362,966
|
)
|
|
|
(149,658
|
)
|
|
|
(586,324
|
)
|
|
|
(293,443
|
)
|
Change in non-cash working capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— increase (decrease) in
advances receivable
|
|
|
(19,172
|
)
|
|
|
(7,779
|
)
|
|
|
(9,496
|
)
|
|
|
4,378
|
|
— increase (decrease)
prepaid expenses
|
|
|
(3,370
|
)
|
|
|
(18,457
|
)
|
|
|
(11,561
|
)
|
|
|
(15,090
|
)
|
— (increase) decrease in
share subscription receivable
|
|
|
—
|
|
|
|
11,000
|
|
|
|
—
|
|
|
|
11,945
|
|
— increase (decrease) in
accounts payable and accrued liabilities
|
|
|
17,289
|
|
|
|
59,673
|
|
|
|
(305,908
|
)
|
|
|
51,220
|
|
— decrease (increase) in
advances payable
|
|
|
(34,692
|
)
|
|
|
(363
|
)
|
|
|
(15,919
|
)
|
|
|
(6,305
|
)
|
— increase (decrease) in
subscriptions received in advance
|
|
|
—
|
|
|
|
—
|
|
|
|
(60,000
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(402,911
|
)
|
|
|
(105,584
|
)
|
|
|
(989,208
|
)
|
|
|
(247,295
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from (used in)
investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral properties acquisition and
exploration expenditures incurred
|
|
|
(413,977
|
)
|
|
|
(206,753
|
)
|
|
|
(537,376
|
)
|
|
|
(285,811
|
)
|
Interest receivable
|
|
|
(12,585
|
)
|
|
|
—
|
|
|
|
(12,585
|
)
|
|
|
—
|
|
Loan receivable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(33,000
|
)
|
Decrease (increase) in reclamation
deposit amounts
|
|
|
(2,206
|
)
|
|
|
12,702
|
|
|
|
(2,206
|
)
|
|
|
5,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(428,768
|
)
|
|
|
(194,051
|
)
|
|
|
(552,167
|
)
|
|
|
(313,496
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares for cash, net
|
|
|
192,749
|
|
|
|
900
|
|
|
|
4,853,154
|
|
|
|
900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
and cash equivalents
|
|
|
(638,930
|
)
|
|
|
(298,735
|
)
|
|
|
3,311,779
|
|
|
|
(559,891
|
)
|
Cash and cash
equivalents, beginning
of period
|
|
|
4,613,780
|
|
|
|
1,210,990
|
|
|
|
663,071
|
|
|
|
1,472,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents, end of
period
|
|
$
|
3,974,850
|
|
|
$
|
912,255
|
|
|
$
|
3,974,850
|
|
|
$
|
912,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C-27
CORAL
GOLD RESOURCES LTD.
Notes to
Consolidated Interim Financial Statements
July 31, 2006
(Unaudited — Prepared by Management)
These consolidated financial statements have been prepared on a
going-concern basis, which assumes that the Company will be able
to realize its assets and discharge its liabilities in the
normal course of business in the foreseeable future. The Company
is in the process of exploring its mineral interests and has not
yet determined whether these properties contain ore reserves
that are economically recoverable. The continued operations of
the Company and the recoverability of mineral property costs is
dependent upon the discovery of economically recoverable mineral
reserves, the ability of the Company to obtain necessary
financing to complete the development and upon future profitable
production. Management’s plan in this regard is to raise
equity financing as required.
These unaudited interim financial statements have been prepared
in accordance with the instructions for the preparation of such
financial statements contained in the CICA Handbook
Section 1751. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such instructions. These
unaudited interim financial statements should be read in
conjunction with the audited financial statements and
accompanying notes thereto for the fiscal year ended
January 31, 2006. These interim financial statements have
not been reviewed by an auditor.
In the opinion of the Company’s management, all adjustments
considered necessary for a fair presentation of these unaudited
financial statements have been included and all such adjustments
are of a normal recurring nature. Operating results for the six
month period ended July 31, 2006 is not necessarily
indicative of the results that can be expected for the year
ended January 31, 2007.
|
|
3.
|
Basis of
Consolidation
|
These consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, Coral Resources,
Inc. and Coral Energy Corporation of California and its 98.49%
owned subsidiary Marcus. Significant inter-company accounts and
transactions have been eliminated.
Certain of the comparative figures for 2005 have been
reclassified, where applicable, to conform to the presentation
adopted for the current year.
C-28
CORAL
GOLD RESOURCES LTD.
Notes to
Consolidated Interim Financial
Statements — (Continued)
The following is a summary of mineral property expenditures for
the six months ended July 31, 2006:
|
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
|
|
|
|
|
$
|
10,095,609
|
|
Robertson
Property
|
|
|
|
|
|
|
|
|
Assays
|
|
$
|
48,950
|
|
|
|
|
|
Consulting
|
|
|
172,140
|
|
|
|
|
|
Drilling
|
|
|
240,671
|
|
|
|
|
|
Field supplies and other
|
|
|
4,999
|
|
|
|
|
|
Lease payments
|
|
|
53,300
|
|
|
|
|
|
Reclamation
|
|
|
9,376
|
|
|
|
|
|
Water analysis
|
|
|
481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenditures for
Robertson Property
|
|
|
|
|
|
|
537,376
|
|
|
|
|
|
|
|
|
|
|
Balance,
end of period
|
|
|
|
|
|
$
|
10,632,985
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Authorized
Unlimited common shares without par value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Balance,
January 31,
|
|
|
5,106,266
|
|
|
$
|
31,560,337
|
|
|
|
4,648,905
|
|
|
$
|
30,754,678
|
|
Private placements
|
|
|
1,500,000
|
|
|
|
4,500,000
|
|
|
|
—
|
|
|
|
—
|
|
Exercise of warrants
|
|
|
58,212
|
|
|
|
160,064
|
|
|
|
—
|
|
|
|
—
|
|
Exercise of stock options
|
|
|
14,500
|
|
|
|
28,350
|
|
|
|
—
|
|
|
|
—
|
|
Warrants returned to treasury
|
|
|
(2,000
|
)
|
|
|
(11,000
|
)
|
|
|
—
|
|
|
|
—
|
|
Share issuance costs
|
|
|
—
|
|
|
|
(17,009
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
April 30,
|
|
|
6,676,978
|
|
|
$
|
36,220,742
|
|
|
|
4,648,905
|
|
|
$
|
30,754,678
|
|
Exercise of warrants
|
|
|
67,232
|
|
|
|
173,624
|
|
|
|
—
|
|
|
|
—
|
|
Exercise of stock options
|
|
|
11,250
|
|
|
|
19,125
|
|
|
|
7,000
|
|
|
|
11,900
|
|
Cancelled shares
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,500
|
)
|
|
|
(11,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
July 31,
|
|
|
6,755,460
|
|
|
$
|
36,413,491
|
|
|
|
4,653,405
|
|
|
$
|
30,755,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C-29
CORAL
GOLD RESOURCES LTD.
Notes to
Consolidated Interim Financial
Statements — (Continued)
|
|
(c)
|
Share
Purchase Warrants
|
A summary of share purchase warrants transactions for the year
to date is as follows:
|
|
|
|
|
|
|
Number of
|
|
|
|
Underlying
|
|
|
|
Shares
|
|
|
Balance,
January 31, 2006
|
|
|
1,115,698
|
|
Granted
|
|
|
—
|
|
Exercised
|
|
|
(58,212
|
)
|
Returned to treasury
|
|
|
2,000
|
|
Expired
|
|
|
(252,720
|
)
|
|
|
|
|
|
Balance,
April 30, 2006
|
|
|
806,766
|
|
Granted
|
|
|
—
|
|
Exercised
|
|
|
(67,232
|
)
|
|
|
|
|
|
Balance,
July 31, 2006
|
|
|
739,534
|
|
|
|
|
|
|
As at July 31, 2006, the following share purchase warrants
were outstanding:
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
Underlying
|
|
|
|
|
Shares
|
|
Exercise Price
|
|
Expiry Date
|
|
|
333,900
|
|
|
$
|
3.10
|
|
|
October 12, 2006
|
|
192,500
|
|
|
$
|
3.60
|
|
|
November 17, 2006
|
|
100,000
|
|
|
$
|
3.90
|
|
|
December 19, 2006
|
|
113,134
|
|
|
$
|
2.00
|
|
|
September 15, 2007
|
|
|
|
|
|
|
|
|
|
|
739,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the six months ended July 31, 2006, there were no
stock options granted by the Company.
A summary of the stock options granted and exercised at the
period ended July 31, 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Weighted Average
|
|
|
|
of Options
|
|
|
Exercise Price
|
|
|
Balance,
January 31, 2006
|
|
|
697,900
|
|
|
$
|
2.67
|
|
Exercised
|
|
|
(14,500
|
)
|
|
$
|
1.96
|
|
|
|
|
|
|
|
|
|
|
Balance,
April 30, 2006
|
|
|
683,400
|
|
|
$
|
2.68
|
|
Exercised
|
|
|
(11,250
|
)
|
|
$
|
1.70
|
|
|
|
|
|
|
|
|
|
|
Balance,
July 31, 2006
|
|
|
672,150
|
|
|
$
|
2.70
|
|
|
|
|
|
|
|
|
|
|
A summary of stock options outstanding and exercisable at the
period ended July 31, 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
Exercise
|
|
Number
|
|
|
Contractual
|
|
|
Exercise
|
|
Price
|
|
Outstanding
|
|
|
Life (yr)
|
|
|
Price
|
|
|
$1.70
|
|
|
309,150
|
|
|
|
3.37
|
|
|
$
|
1.70
|
|
$3.55
|
|
|
363,000
|
|
|
|
4.37
|
|
|
$
|
3.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C-30
CORAL
GOLD RESOURCES LTD.
Notes to
Consolidated Interim Financial
Statements — (Continued)
|
|
7.
|
Related
Party Transactions
|
Related party transactions not disclosed elsewhere in these
statements are as follows:
a) During the six months ended July 31, 2006, the
Company paid, or made provision for the future payment, of the
following amounts to related parties:
i) $58,281 (2005 — $92,006) for administrative
expenses to a private Company beneficially owned by the Company
and a number of other public companies related through common
Directors;
ii) $45,000 (2005 — $45,000) to a private company
controlled by a Director for management fees;
iii) $15,000 (2005 — $15,000) in consulting fees
to a private company owned by a Director; and
iv) $50,000 (2005 — $nil) in directors fees to
directors of the Company.
b) Included in advances receivable are amounts due from
related parties, as well as third party receivables. These
amounts due from related parties include $28,003
(2005 — $28,003) due from a joint venture with common
management and common directors; $1,414 (2005 — $nil)
due from a company controlled by a Director and $13,124
(2005 — $31,427) due from a public company with common
management and common directors.
c) Advances payable include $17,000 (2005 —
$19,333) due to Directors in regards to past directors’
fees; $22,676 (2005 — $32,540) due to the private
company that provides administrative services as disclosed in
note 7(a)(i) above; $5,325 (2005 — $nil) to an
officer of the Company in regards to management fees and $1,036
(2005 — $nil) due to a private company controlled by a
Director of the Company for expense reimbursements.
d) Of the $525,000 included in accounts payable and accrued
liabilities as at January 31, 2006 and payable to a
director of the Company, $300,000 has been paid to the director
in the six month period ending July 31, 2006. The balance
still owing and included in accounts payable and accrued
liabilities as of July 31, 2006 is $225,000.
e) The loan receivable of $83,000 (2005 —
$83,000) is due from a subsidiary of a related company with
common management that provides drilling services. The amount
due is non-interest bearing, unsecured and due on demand.
These transactions are in the normal course of operations and
are measured at the exchange amount, which is the consideration
established and agreed to by the related parties, unless
otherwise noted.
The Company entered into a cost-sharing agreement during 2005 to
reimburse a related party for a variable percentage of its
overhead expenses, to reimburse 100% of its
out-of-pocket
expenses incurred on behalf of the company, and to pay a
percentage fee based on the total overhead and corporate
expenses referred to above. The agreement may be terminated with
one-month notice by either party.
The Company entered into a 3 month Investor Relations
Agreement on August 30, 2006 with Agoracom Investor
Relations Corp. (“Agoracom”), to provide online
marketing services. In consideration for the services rendered,
the Company has agreed to pay Agoracom fees totaling $9,000 and
grant Agoracom the option to purchase 20,000 common shares at a
price of $3.92 per share.
Subsequent to July 31, 2006 the Company renewed a
12 month Investor Relations Agreement with Investor
Relations Group Inc., formerly called Investors Relations
Services Group John Mullen & Partners
(“IRS”), to
C-31
CORAL
GOLD RESOURCES LTD.
Notes to
Consolidated Interim Financial
Statements — (Continued)
provide investor relations services in Europe. In consideration
for the services rendered, the Company has agreed to pay IRS
fees totaling $18,000 plus expenses.
Subsequent to July 31, 2006 the Company granted incentive
stock options for the purchase of up to 280,000 shares at a
price of $3.92 per share exercisable on or before
September 5, 2011 to directors, officers, employees and
consultants of the Company.
Subsequent to July 31, 2006 the Company has had
1,000 share purchase warrants exercised for total proceeds
of $3,100.
|
|
10.
|
Differences
Between Canadian (“CDN”) and United States
(“US”) GAAP
|
These consolidated financial statements and the selected
financial data have been prepared under CDN GAAP.
For each period of presentation, the modifications necessary in
order for these consolidated financial statements to conform to
US GAAP have been suitably provided as follows:
|
|
(a)
|
Reconciliation
of Consolidated Balance Sheet items:
|
(i) Reconciliation
of Total Assets and Liabilities
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|
July 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Total assets per CDN GAAP
|
|
$
|
15,270,553
|
|
|
$
|
10,501,557
|
|
Mineral properties
|
|
|
(9,594,511
|
)
|
|
|
(7,956,107
|
)
|
Investment securities
|
|
|
5,711
|
|
|
|
(49,160
|
)
|
|
|
|
|
|
|
|
|
|
Total assets per US GAAP
|
|
$
|
5,681,753
|
|
|
$
|
2,496,290
|
|
|
|
|
|
|
|
|
|
|
Total liabilities per CDN and US
GAAP
|
|
$
|
1,911,918
|
|
|
$
|
207,204
|
|
|
|
|
|
|
|
|
|
|
Total equity per CDN GAAP
|
|
$
|
13,358,635
|
|
|
$
|
10,294,353
|
|
Mineral properties
|
|
|
(9,594,511
|
)
|
|
|
(7,956,107
|
)
|
Investment securities
|
|
|
5,711
|
|
|
|
(49,160
|
)
|
|
|
|
|
|
|
|
|
|
Total equity per US GAAP
|
|
$
|
3,769,835
|
|
|
$
|
2,289,086
|
|
|
|
|
|
|
|
|
|
|
(ii) Reconciliation
of Deficit under U.S. GAAP
|
|
|
|
|
|
|
|
|
|
|
July 31,
|
|
|
July 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Deficit end of period per CDN GAAP
|
|
$
|
(24,483,029
|
)
|
|
$
|
(21,159,158
|
)
|
Stock compensation expense
|
|
|
(60,000
|
)
|
|
|
(60,000
|
)
|
Deferred exploration expenditures,
net
|
|
|
(9,594,511
|
)
|
|
|
(7,956,107
|
)
|
|
|
|
|
|
|
|
|
|
Deficit end of period per US GAAP
|
|
$
|
(34,137,540
|
)
|
|
$
|
(29,175,265
|
)
|
|
|
|
|
|
|
|
|
|
C-32
CORAL
GOLD RESOURCES LTD.
Notes to
Consolidated Interim Financial
Statements — (Continued)
|
|
(b)
|
Reconciliation
of Consolidated Statement of Income items:
|
Reconciliation
of Net Loss under US GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31,
|
|
|
Six Months Ended July 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Net loss for the period per CDN
GAAP
|
|
$
|
(363,147
|
)
|
|
$
|
(149,817
|
)
|
|
$
|
(586,683
|
)
|
|
$
|
(330,286
|
)
|
Deferred exploration expenditures
|
|
|
(413,977
|
)
|
|
|
(206,753
|
)
|
|
|
(537,376
|
)
|
|
|
(285,811
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period under US
GAAP
|
|
|
(777,124
|
)
|
|
|
(356,570
|
)
|
|
|
(1,124,059
|
)
|
|
|
(616,097
|
)
|
Unrealized gain (loss) on
investment securities
|
|
|
(151,721
|
)
|
|
|
(224,066
|
)
|
|
|
14,521
|
|
|
|
(57,824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net comprehensive income (loss)
for the period per US GAAP
|
|
$
|
(928,845
|
)
|
|
$
|
(580,636
|
)
|
|
$
|
(1,109,538
|
)
|
|
$
|
(673,921
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per share under US
GAAP
|
|
$
|
(0.14
|
)
|
|
$
|
(0.12
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
(0.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
Supplemental
Financial Information
|
Reconciliation
of Cash Flows under US GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31,
|
|
|
Six Months Ended July 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Cash Flows from Operating
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in)
operating activities per CDN GAAP
|
|
$
|
(402,911
|
)
|
|
$
|
(105,584
|
)
|
|
$
|
(989,208
|
)
|
|
$
|
(247,295
|
)
|
Deferred exploration expenditures
|
|
|
(413,977
|
)
|
|
|
(206,753
|
)
|
|
|
(537,376
|
)
|
|
|
(285,811
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in)
operating activities per US GAAP
|
|
$
|
(816,888
|
)
|
|
$
|
(312,337
|
)
|
|
$
|
(1,526,584
|
)
|
|
$
|
(533,106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in)
investing activities per CDN GAAP
|
|
$
|
(428,768
|
)
|
|
$
|
(194,051
|
)
|
|
$
|
(552,167
|
)
|
|
$
|
(313,496
|
)
|
Deferred exploration expenditures
|
|
|
413,977
|
|
|
|
206,753
|
|
|
|
537,376
|
|
|
|
285,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in)
investing activities per US GAAP
|
|
$
|
(14,791
|
)
|
|
$
|
12,702
|
|
|
$
|
(14,791
|
)
|
|
$
|
(27,685
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by financing
activities per CDN and US GAAP
|
|
$
|
192,749
|
|
|
$
|
900
|
|
|
$
|
4,853,154
|
|
|
$
|
900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(d)
|
Additional
Disclosure Required by US GAAP
|
(i) Operations
in a Foreign Country
The Company is subject to numerous factors relating to
conducting business in a foreign country (including, without
limitation, economic, political and currency risk), any of which
could have a significant impact on the Company’s operation.
The Company’s U.S. subsidiaries, Coral Resources,
Inc., Marcus Corporation and Coral Energy Corporation of
California are subject to U.S. corporation tax on profits.
C-33
CORAL
GOLD RESOURCES LTD.
Notes to
Consolidated Interim Financial
Statements — (Continued)
|
|
(e)
|
Additional
Disclosure Required by SEC
|
The SEC requires that related party transactions be disclosed as
a separate line in the financial statements. Under this
requirement, the following related party transactions would have
been shown separately as related party balances in the financial
statements:
(i) Included in advances receivable are related party
transactions of, $28,003 (2005 — $28,003;
2004 — $28,003) due from a joint venture with common
management and common directors; $1,414 (2005 — $nil;
2004 — $nil) from a company controlled by a Director
and $13,124 (2005 — $31,427; 2004: $11,299) with two
companies with common management and common directors.
(ii) Consulting fees of $15,000 (2005 — $15,000;
2004 — $15,000) were paid to a company owned by a
director.
(iii) Management fees of $45,000 (2005 — $45,000;
2004 — $45,000) were paid to a company owned by a
director.
(iv) Directors’ fees of $50,000 (2005 —
$nil; 2004 — $nil) were paid to directors of the
Company.
(v) An allowance in the amount of $209,840
(2005 — $209,840; 2004 — $209,840) has been
accrued in respect of advances made to a company with common
management.
(vi) The loan receivable of $83,000 (2005 —
$50,000; 2004 — $nil) is due from a subsidiary of a
related company that provides drilling services. The amount due
is non-interest bearing, unsecured and due on demand.
(vii) Advances payable include $17,000 (2005 —
$19,333) due to Directors in regards to past directors’
fees; $22,676 (2005 — $18,174; 2004 — $nil)
due to the private company that provides administrative
services; $5,325 (2005 — $nil; 2004 — $nil)
to an officer of the Company in regards to management fees and
$1,036 (2005 — $nil; 2004 — $nil) due to a
private company controlled by a Director of the Company for
expense reimbursements.
(viii) Included in accounts payable is $225,000
(2005 — $nil; 2004 — $nil) of amounts due to
a Director of the Company, as a bonus.
(ix) Investment securities would be noted as a related
party on the balance sheet.
(x) Administrative expenses of $58,281 (2005 —
$92,006; 2004 — $46,490) were paid to a private
Company beneficially owned by the Company and a number of other
public companies related through common Directors
Deferred
Exploration Expenditures
The Company follows the policy of deferring all acquisition and
exploration costs relating to the mineral properties held. Under
US GAAP, the deferred exploration expenditures would have been
expensed in the year they were incurred.
C-34
MANAGEMENT’S
RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements and the
information contained in the management discussion and analysis
have been prepared by the management of the Company. The
financial statements have been prepared in accordance with
Canadian generally accepted accounting principles and reconciled
to United States generally accepted accounting principles as set
out in note 17 and, where appropriate, reflect
management’s best estimates based on currently available
information. A system of internal accounting control is
maintained to provide reasonable assurance that financial
information is accurate and reliable.
The Company’s independent auditors, PricewaterhouseCoopers
LLP, who have been appointed by the shareholders, conduct an
audit in accordance with generally accepted auditing standards
in Canada to allow them to express an opinion on the financial
statements.
The Audit Committee of the Board of Directors meets periodically
with management and the independent auditors to review the scope
and results of the annual audit, and to review the financial
statements and related reporting matters prior to submission to
the Board.
|
|
|
/s/ David Hottman
|
|
/s/ W.R. (Bill) Franklin
|
David Hottman,
|
|
W. R. (Bill) Franklin,
|
President & Chief
Executive Officer
|
|
Chief Financial Officer
|
September 28, 2006
|
|
September 28, 2006
|
D-2
Report of
Independent Registered Public Accounting Firm
To the Shareholders of
Nevada Pacific Gold Ltd.
We have audited the consolidated balance sheets of Nevada
Pacific Gold Ltd. (the “Company”) as at
June 30, 2006 and 2005 and the consolidated statements of
operations, deficit, cash flows and mineral property
expenditures for each of the three years ended June 30,
2006. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally
accepted auditing standards and the standards of the Public
Company Accounting Oversight Board (United States of America).
Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present
fairly, in all material respects, the financial position of the
Company as at June 30, 2006 and 2005 and the results of its
operations and its cash flows for each of the three years ended
June 30, 2006 in accordance with Canadian generally
accepted accounting principles.
/s/ Pricewaterhouse Coopers LLP
Chartered Accountants
Vancouver, British Columbia
September 28, 2006
Comments
by the Auditors for U.S. Readers on
Canadian-U.S. Reporting Conflict
In the United States, reporting standards for auditors require
the addition of an explanatory paragraph (following the
opinion paragraph) when the financial statements are affected by
significant conditions and events that cast substantial doubt on
the Company’s ability to continue as a going concern, such
as those described in note 1 to the consolidated financial
statements. Reporting standards for auditors in the United
States also require the addition of an explanatory paragraph
when there is a change in accounting principle that has a
material affect on the comparability of the Company’s
financial statements, such as the change in accounting for stock
based compensation described in note 2 to the financial
statements. Our report to the directors dated September 28,
2006 is expressed in accordance with Canadian reporting
standards which do not permit a reference to such events and
conditions and such changes in accounting policy in the
auditors’ report when these are adequately disclosed in the
financial statements.
/s/ Pricewaterhouse Coopers LLP
Chartered Accountants
Vancouver, British Columbia
September 28, 2006
D-3
NEVADA
PACIFIC GOLD LTD.
CONSOLIDATED
BALANCE SHEETS
As at
June 30th
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Expressed in US Dollars)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,659,738
|
|
|
$
|
957,251
|
|
Accounts receivable
|
|
|
180,697
|
|
|
|
273,165
|
|
Product inventory and stockpiled
ore (Note 4)
|
|
|
109,074
|
|
|
|
4,112,633
|
|
Supplies inventory
|
|
|
285,152
|
|
|
|
414,366
|
|
Prepaid expenses
|
|
|
239,424
|
|
|
|
223,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,474,085
|
|
|
|
5,980,787
|
|
Property, plant and equipment
(Note 5)
|
|
|
13,306,314
|
|
|
|
13,388,954
|
|
Mineral properties (Note 6)
|
|
|
4,661,805
|
|
|
|
3,106,357
|
|
Reclamation bonds
|
|
|
96,363
|
|
|
|
93,228
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,538,567
|
|
|
$
|
22,569,326
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities
|
|
$
|
1,194,495
|
|
|
$
|
1,783,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,194,495
|
|
|
|
1,783,277
|
|
Other liabilities
|
|
|
112,397
|
|
|
|
175,217
|
|
Asset retirement obligation
(Note 7)
|
|
|
1,684,812
|
|
|
|
1,567,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,797,209
|
|
|
|
1,742,484
|
|
|
SHAREHOLDERS’
EQUITY
|
Share capital (Note 8)
|
|
|
30,955,143
|
|
|
|
25,920,223
|
|
Contributed capital (Note 9)
|
|
|
1,490,594
|
|
|
|
1,001,674
|
|
Deficit
|
|
|
(12,898,874
|
)
|
|
|
(7,878,332
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
19,546,863
|
|
|
|
19,043,565
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,538,567
|
|
|
$
|
22,569,326
|
|
|
|
|
|
|
|
|
|
|
Nature of operations and Going
Concern (Note 1)
|
|
|
|
|
|
|
|
|
Commitments (Note 15)
|
|
|
|
|
|
|
|
|
Subsequent Events (Note 18)
|
|
|
|
|
|
|
|
|
Approved by the Board:
|
|
|
/s/ Michael Beley
|
|
/s/ Gary Nordin
|
|
|
|
Michael Beley,
|
|
Gary Nordin,
|
Director
|
|
Director
|
See accompanying notes to consolidated financial statements
D-4
NEVADA
PACIFIC GOLD LTD.
CONSOLIDATED
STATEMENTS OF OPERATIONS
For the
years ended
June 30th
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Expressed in US Dollars)
|
|
|
GOLD SALES
|
|
$
|
6,649,300
|
|
|
$
|
5,175,235
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF SALES
|
|
|
7,903,654
|
|
|
|
3,347,153
|
|
|
|
—
|
|
DEPRECIATION AND
DEPLETION
|
|
|
734,618
|
|
|
|
727,815
|
|
|
|
—
|
|
ROYALTIES
|
|
|
381,572
|
|
|
|
262,197
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,019,844
|
|
|
|
4,337,165
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS (LOSS) FROM MINING
OPERATIONS
|
|
|
(2,370,544
|
)
|
|
|
838,070
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES AND OTHER
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
1,944,511
|
|
|
|
2,084,400
|
|
|
|
1,538,190
|
|
Interest and financing costs
|
|
|
—
|
|
|
|
22,378
|
|
|
|
1,159
|
|
Stock-based compensation
|
|
|
611,572
|
|
|
|
559,963
|
|
|
|
39,120
|
|
Foreign exchange losses
|
|
|
36,904
|
|
|
|
115,796
|
|
|
|
117,226
|
|
Other income
|
|
|
(57,349
|
)
|
|
|
(37,942
|
)
|
|
|
(89,433
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,535,638
|
|
|
|
2,744,595
|
|
|
|
1,606,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE THE UNDERNOTED
ITEMS
|
|
|
4,906,182
|
|
|
|
1,906,525
|
|
|
|
1,606,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-down of mineral properties
|
|
|
114,360
|
|
|
|
630,332
|
|
|
|
330,285
|
|
Gain on disposal of mining
equipment
|
|
|
—
|
|
|
|
(155,199
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FOR THE YEAR
|
|
$
|
5,020,542
|
|
|
$
|
2,381,658
|
|
|
$
|
1,936,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per
share
|
|
$
|
0.08
|
|
|
$
|
0.05
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
shares outstanding
|
|
|
60,304,369
|
|
|
|
51,295,350
|
|
|
|
30,305,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
D-5
NEVADA
PACIFIC GOLD LTD.
CONSOLIDATED
STATEMENTS OF DEFICIT
For the
years ended
June 30th
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Expressed in US Dollars)
|
|
|
DEFICIT,
Beginning of year
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported
|
|
$
|
7,878,332
|
|
|
$
|
5,209,298
|
|
|
$
|
3,272,751
|
|
Change in accounting policy
(Note 2 — Stock Compensation)
|
|
|
—
|
|
|
|
287,376
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As restated
|
|
|
7,878,332
|
|
|
|
5,496,674
|
|
|
|
3,272,751
|
|
Loss for the year
|
|
|
5,020,542
|
|
|
|
2,381,658
|
|
|
|
1,936,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEFICIT,
End of year
|
|
$
|
12,898,874
|
|
|
$
|
7,878,332
|
|
|
$
|
5,209,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
D-6
NEVADA
PACIFIC GOLD LTD.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For the
years ended
June 30th
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Expressed in US Dollars)
|
|
|
CASH PROVIDED BY (USED FOR)
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the period
|
|
$
|
(5,020,542
|
)
|
|
$
|
(2,381,658
|
)
|
|
$
|
(1,936,547
|
)
|
Items not affecting cash
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion &
amortization
|
|
|
758,435
|
|
|
|
750,867
|
|
|
|
15,978
|
|
Accretion of asset retirement
obligation
|
|
|
117,545
|
|
|
|
44,540
|
|
|
|
—
|
|
Stock based compensation
|
|
|
611,572
|
|
|
|
559,963
|
|
|
|
39,120
|
|
Write-off of mineral properties
|
|
|
114,360
|
|
|
|
630,332
|
|
|
|
330,285
|
|
Gain on disposal of mining
equipment
|
|
|
—
|
|
|
|
(155,199
|
)
|
|
|
—
|
|
Severance expense
|
|
|
(27,820
|
)
|
|
|
61,106
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,446,450
|
)
|
|
|
(490,049
|
)
|
|
|
(1,551,164
|
)
|
Changes in non-cash working
capital items (Note 12)
|
|
|
2,970,312
|
|
|
|
(4,357,410
|
)
|
|
|
720,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(476,138
|
)
|
|
|
(4,847,459
|
)
|
|
|
(830,574
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
(25,700
|
)
|
|
|
(3,987,643
|
)
|
|
|
(1,889,409
|
)
|
Proceeds from disposal of equipment
|
|
|
—
|
|
|
|
200,199
|
|
|
|
—
|
|
Acquisition of Pangea Resources
Inc (Note 3)
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,323,753
|
)
|
Reclamation bonds
|
|
|
(3,135
|
)
|
|
|
(45,256
|
)
|
|
|
(47,972
|
)
|
Expenditures on mineral
properties, net of recoveries
|
|
|
(1,704,808
|
)
|
|
|
(1,321,555
|
)
|
|
|
(1,223,327
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,733,643
|
)
|
|
|
(5,154,255
|
)
|
|
|
(7,484,461
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
On private placements
|
|
|
4,541,507
|
|
|
|
10,262,635
|
|
|
|
7,871,295
|
|
On warrant conversion
|
|
|
93,952
|
|
|
|
591,200
|
|
|
|
920,243
|
|
On option exercise
|
|
|
369,826
|
|
|
|
200,020
|
|
|
|
343,933
|
|
Share issue costs and
finder’s fees
|
|
|
(93,017
|
)
|
|
|
(692,741
|
)
|
|
|
(310,303
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,912,268
|
|
|
|
10,361,114
|
|
|
|
8,825,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE IN CASH AND CASH
EQUIVALENTS
|
|
|
2,702,487
|
|
|
|
359,400
|
|
|
|
510,133
|
|
CASH AND CASH EQUIVALENTS,
Beginning of year
|
|
|
957,251
|
|
|
|
597,851
|
|
|
|
87,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH
EQUIVALENTS, End of year
|
|
$
|
3,659,738
|
|
|
$
|
957,251
|
|
|
$
|
597,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary information on
non-cash transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued and applied to notes
payable (Note 3)
|
|
$
|
—
|
|
|
$
|
500,000
|
|
|
$
|
—
|
|
Warrants issued to Underwriter
(Note 9)
|
|
$
|
—
|
|
|
$
|
131,020
|
|
|
$
|
—
|
|
See accompanying notes to consolidated financial statements
D-7
NEVADA
PACIFIC GOLD LTD.
CONSOLIDATED
STATEMENTS OF MINERAL PROPERTY EXPENDITURES
For the
years ended
June 30th
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Limousine
|
|
|
Carlin
|
|
|
|
|
|
|
|
|
|
|
|
Timber
|
|
|
Nevada
|
|
|
Mexican
|
|
|
|
|
|
|
Butte
|
|
|
Project
|
|
|
Keystone
|
|
|
BMX
|
|
|
Cornerstone
|
|
|
Creek
|
|
|
Properties
|
|
|
Properties
|
|
|
Total
|
|
|
|
(Expressed in US Dollars)
|
|
|
Total as at June 30, 2003
|
|
$
|
473,912
|
|
|
$
|
756,611
|
|
|
$
|
117,277
|
|
|
$
|
11,215
|
|
|
$
|
—
|
|
|
$
|
40,061
|
|
|
$
|
88,016
|
|
|
$
|
—
|
|
|
$
|
1,487,092
|
|
Exploration salaries &
wages
|
|
|
45,833
|
|
|
|
2,927
|
|
|
|
26,025
|
|
|
|
9,728
|
|
|
|
1,612
|
|
|
|
2,255
|
|
|
|
87,527
|
|
|
|
18,871
|
|
|
|
194,778
|
|
Land holding costs
|
|
|
45,900
|
|
|
|
7,864
|
|
|
|
52,434
|
|
|
|
97,306
|
|
|
|
10,049
|
|
|
|
37,547
|
|
|
|
82,836
|
|
|
|
86,398
|
|
|
|
420,334
|
|
Surveying
|
|
|
—
|
|
|
|
—
|
|
|
|
9,480
|
|
|
|
3,689
|
|
|
|
—
|
|
|
|
4,461
|
|
|
|
18,413
|
|
|
|
11,572
|
|
|
|
47,615
|
|
Environmental
|
|
|
225
|
|
|
|
—
|
|
|
|
14
|
|
|
|
2,847
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,430
|
|
|
|
—
|
|
|
|
19,516
|
|
Geology
|
|
|
3,952
|
|
|
|
190
|
|
|
|
2,119
|
|
|
|
34,949
|
|
|
|
23
|
|
|
|
677
|
|
|
|
135,474
|
|
|
|
35,035
|
|
|
|
212,419
|
|
Surface geochemistry
|
|
|
1,564
|
|
|
|
—
|
|
|
|
643
|
|
|
|
16,906
|
|
|
|
—
|
|
|
|
3,354
|
|
|
|
3,290
|
|
|
|
9,506
|
|
|
|
35,263
|
|
Geophysics
|
|
|
—
|
|
|
|
—
|
|
|
|
15,835
|
|
|
|
2,000
|
|
|
|
—
|
|
|
|
6,000
|
|
|
|
48,100
|
|
|
|
—
|
|
|
|
71,935
|
|
Road work & trenching
|
|
|
3,788
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,653
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,668
|
|
|
|
—
|
|
|
|
13,109
|
|
Drilling
|
|
|
153,386
|
|
|
|
—
|
|
|
|
—
|
|
|
|
126,218
|
|
|
|
—
|
|
|
|
—
|
|
|
|
264,776
|
|
|
|
—
|
|
|
|
544,380
|
|
Other
|
|
|
3,995
|
|
|
|
—
|
|
|
|
1,176
|
|
|
|
6,422
|
|
|
|
—
|
|
|
|
403
|
|
|
|
13,523
|
|
|
|
6,763
|
|
|
|
32,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenditures
|
|
|
258,643
|
|
|
|
10,981
|
|
|
|
107,726
|
|
|
|
303,718
|
|
|
|
11,684
|
|
|
|
54,697
|
|
|
|
676,037
|
|
|
|
168,145
|
|
|
|
1,591,631
|
|
Cost recoveries
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(293,304
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(293,304
|
)
|
Property write-offs
|
|
|
—
|
|
|
|
(245,196
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(85,089
|
)
|
|
|
—
|
|
|
|
(330,285
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total as at June 30, 2004
|
|
|
732,555
|
|
|
|
522,396
|
|
|
|
225,003
|
|
|
|
21,629
|
|
|
|
11,684
|
|
|
|
94,758
|
|
|
|
678,964
|
|
|
|
168,145
|
|
|
|
2,455,134
|
|
Exploration salaries &
wages
|
|
|
10,650
|
|
|
|
—
|
|
|
|
14,734
|
|
|
|
2,855
|
|
|
|
40,824
|
|
|
|
14,825
|
|
|
|
155,136
|
|
|
|
23,964
|
|
|
|
262,988
|
|
Land holding costs
|
|
|
56,678
|
|
|
|
9,616
|
|
|
|
68,312
|
|
|
|
74,662
|
|
|
|
32,772
|
|
|
|
37,704
|
|
|
|
84,217
|
|
|
|
57,077
|
|
|
|
421,038
|
|
Surveying
|
|
|
—
|
|
|
|
—
|
|
|
|
4,028
|
|
|
|
6,145
|
|
|
|
11,638
|
|
|
|
7
|
|
|
|
23,980
|
|
|
|
6,728
|
|
|
|
52,526
|
|
Environmental
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
|
|
8
|
|
|
|
8,398
|
|
|
|
—
|
|
|
|
8,410
|
|
Geology
|
|
|
22
|
|
|
|
—
|
|
|
|
497
|
|
|
|
3,450
|
|
|
|
5,148
|
|
|
|
2,353
|
|
|
|
14,181
|
|
|
|
53,607
|
|
|
|
79,258
|
|
Surface geochemistry
|
|
|
—
|
|
|
|
—
|
|
|
|
4,446
|
|
|
|
—
|
|
|
|
27,893
|
|
|
|
—
|
|
|
|
11,666
|
|
|
|
81,382
|
|
|
|
125,387
|
|
Geophysics
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,350
|
|
|
|
52,550
|
|
|
|
57,736
|
|
|
|
113,636
|
|
Road work & trenching
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23,169
|
|
|
|
61,627
|
|
|
|
84,796
|
|
Drilling
|
|
|
1,020
|
|
|
|
—
|
|
|
|
5,460
|
|
|
|
—
|
|
|
|
22
|
|
|
|
—
|
|
|
|
148,140
|
|
|
|
150,621
|
|
|
|
305,263
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
40,100
|
|
|
|
40,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenditures
|
|
|
68,370
|
|
|
|
9,616
|
|
|
|
97,477
|
|
|
|
87,112
|
|
|
|
118,301
|
|
|
|
58,247
|
|
|
|
521,437
|
|
|
|
532,842
|
|
|
|
1,493,402
|
|
Cost recoveries
|
|
|
(56,500
|
)
|
|
|
—
|
|
|
|
(78,720
|
)
|
|
|
(76,627
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(211,847
|
)
|
Property write-offs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(630,332
|
)
|
|
|
—
|
|
|
|
(630,332
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total as at June 30, 2005
|
|
|
744,425
|
|
|
|
532,012
|
|
|
|
243,760
|
|
|
|
32,114
|
|
|
|
129,985
|
|
|
|
153,005
|
|
|
|
570,069
|
|
|
|
700,987
|
|
|
|
3,106,357
|
|
Exploration salaries &
wages
|
|
|
2,960
|
|
|
|
—
|
|
|
|
17,782
|
|
|
|
15,505
|
|
|
|
53,181
|
|
|
|
18,132
|
|
|
|
93,121
|
|
|
|
107,129
|
|
|
|
307,810
|
|
Land holding costs
|
|
|
—
|
|
|
|
9,639
|
|
|
|
20
|
|
|
|
80,587
|
|
|
|
43,009
|
|
|
|
48,151
|
|
|
|
58,234
|
|
|
|
207,803
|
|
|
|
447,443
|
|
Surveying
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
991
|
|
|
|
6,716
|
|
|
|
4,966
|
|
|
|
1,726
|
|
|
|
14,399
|
|
Geology
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,226
|
|
|
|
212
|
|
|
|
666
|
|
|
|
1,453
|
|
|
|
43,381
|
|
|
|
46,938
|
|
Surface geochemistry
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,199
|
|
|
|
—
|
|
|
|
3,962
|
|
|
|
55,230
|
|
|
|
61,391
|
|
Geophysics
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,300
|
|
|
|
18,950
|
|
|
|
5,524
|
|
|
|
29,774
|
|
Road work & trenching
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,110
|
|
|
|
31,880
|
|
|
|
7,200
|
|
|
|
222
|
|
|
|
21,207
|
|
|
|
69,619
|
|
Drilling
|
|
|
—
|
|
|
|
—
|
|
|
|
91,724
|
|
|
|
71,202
|
|
|
|
248,629
|
|
|
|
236,916
|
|
|
|
36,541
|
|
|
|
—
|
|
|
|
685,012
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
19,042
|
|
|
|
19,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenditures
|
|
|
2,960
|
|
|
|
9,639
|
|
|
|
109,526
|
|
|
|
177,630
|
|
|
|
380,101
|
|
|
|
323,081
|
|
|
|
217,449
|
|
|
|
461,042
|
|
|
|
1,681,428
|
|
Cost recoveries
|
|
|
—
|
|
|
|
—
|
|
|
|
(11,620
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(11,620
|
)
|
Property write-offs
|
|
|
—
|
|
|
|
(23
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(114,337
|
)
|
|
|
—
|
|
|
|
(114,360
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total as at June 30, 2006
|
|
$
|
747,385
|
|
|
$
|
541,628
|
|
|
$
|
341,666
|
|
|
$
|
209,744
|
|
|
$
|
510,086
|
|
|
$
|
476,086
|
|
|
$
|
673,181
|
|
|
$
|
1,162,029
|
|
|
$
|
4,661,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
D-8
NEVADA
PACIFIC GOLD LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the years ended
June 30th
2006 and 2005
(expressed in US Dollars)
|
|
1.
|
Nature of
Operations and Going Concern
|
Nevada Pacific Gold Ltd. (“the Company”) was
incorporated under the laws of the Province of British Columbia.
Its principal business activities consist of the production of
gold and silver in Mexico and exploring for and developing gold
and silver properties in Mexico and the western United States,
primarily Nevada.
These consolidated financial statements have been prepared on
the basis of accounting principles applicable to a going
concern, which assumes the realization of assets and discharge
of liabilities in the normal course of business. The Company has
recorded losses from operations since its inception. The
Company’s ability to continue as a going concern is
dependent upon the ability of the Company to obtain additional
financing to develop its mineral properties, the future
performance of the Magistral Gold Mine, which is currently in a
leach only phase, the existence of economically recoverable
reserves, and upon its ability to attain profitable operations.
Management continues to seek additional financing necessary to
permit the Company to continue operations. There can be no
assurance that management will be successful in all these
activities. Because of this uncertainty, there is substantial
doubt about the ability of the Company to continue as a going
concern. These consolidated financial statements do not give
effect to any adjustments that would be necessary should the
Company not be able to continue as a going concern. Such
adjustments could be material.
|
|
2.
|
Significant
Accounting Policies
|
Basis
of presentation and principles of consolidation
These consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting
principles (“CDN GAAP”). The significant differences
between those principles and those that would be applied under
U.S. generally accepted accounting principles (“US
GAAP”) are disclosed in Note 17.
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, Nevada Pacific
Gold (US), Inc., Pangea Resources Inc. and Compania Minera
Pangea, S.A. de C.V. All inter-company transactions and balances
have been eliminated.
Use of
estimates
The preparation of financial statements in conformity with
Canadian generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts reported in these consolidated financial statements.
Significant estimates by management include the carrying value
of property, plant and equipment, useful lives of such assets,
reserves and resources, the asset retirement provision, future
income tax valuation allowance, inventory valuation and
stock-based compensation valuation assumptions. These estimates
are reviewed and adjusted regularly to ensure that they are
reasonable. The estimates may vary from actual results.
Property,
plant and equipment
(a) Plant
and equipment
Plant and equipment are depreciated over the estimated lives of
the assets on a
unit-of-production
or straight-line basis as appropriate. Amortization of property,
plant and equipment at the Magistral Gold Mine commenced upon
commercial production on a
unit-of-production
basis.
(b) Mineral
properties and deferred costs
The acquisition cost of mineral properties and related
exploration and development costs, as well as directly
attributable general and administrative support costs and
salaries, are deferred. When a mineral property is sold,
D-9
NEVADA
PACIFIC GOLD LTD.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
abandoned, or deemed not to contain economic reserves, all costs
are written-off. The amounts shown for mineral properties
represent costs to date and do not necessarily reflect present
or future values.
Deferred costs include operating costs, net of revenues, prior
to the commencement of commercial production of the Magistral
Gold Mine. Deferred costs are, upon commencement of commercial
production, amortized over the estimated life of the ore body to
which they relate, on a
unit-of-production
basis, or are written off if the property is abandoned or
written down if there is considered to be a permanent impairment
in value.
Asset
retirement obligations
Effective July 1, 2004, the Company adopted CICA Handbook
Section 3110 “Asset Retirement Obligations”. The
accounting standard applies to future asset retirement
requirements and requires that the fair value of liabilities for
asset retirement obligations are recorded in the period in which
they occur. The liability is accreted over time through periodic
charges to earnings. The asset retirement cost is capitalized as
part of the carrying value of the asset and is amortized over
the useful life of the asset.
Cash
and cash equivalents
The Company considers cash and cash equivalents to be cash on
deposit and highly liquid short-term interest bearing securities
with maturities at the date of purchase of three months or less.
Interest earned is recognized immediately in operations.
Inventories
Inventories include gold dore, stockpiled ore and supplies
inventories. Gold poured, in transit and at refineries, is
recorded at the lower of cost and net realizable value,
stockpiled ore is valued at the lower of cost and net realizable
value and includes amortization, depreciation and depletion and
supplies inventory is carried at the lower of cost and
replacement cost.
Revenue
recognition
Revenue from the sale of metals is recognized in the accounts
upon delivery of the product to the customer when title
transfers and the rights and obligations of ownership pass to
the buyer. Revenue from the sale of metals may be subject to
adjustment upon final settlement of estimated metal prices,
weights and assays.
Foreign
currency translation
The Company and its subsidiaries are considered to be integrated
foreign operations. Their financial statements and transaction
amounts denominated in foreign currencies are translated into
U.S. dollars as follows:
|
|
|
|
•
|
monetary items are translated at the rate of exchange in effect
at the balance sheet date,
|
|
|
•
|
non-monetary items are translated at the historical exchange
rates,
|
|
|
•
|
revenue and expense items are translated at the average rate for
the period, except for items for which amortization is
charged, and
|
|
|
•
|
foreign currency translation gains and losses are included in
operations.
|
Income
taxes
The Company follows the liability method of accounting for
income taxes. Using this method, income tax liabilities and
assets are recognized for the estimated tax consequences
attributable to differences between the amounts reported in the
financial statements of the Company and their respective tax
bases, using substantively enacted income tax rates. The effect
of a change in income tax rates on future tax liabilities and
assets is recognized
D-10
NEVADA
PACIFIC GOLD LTD.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
in income in the period in which the change occurs. A future
income tax asset is recorded when the probability of the
realization is more likely than not.
Stock
based compensation
Effective July 1, 2004, the Company adopted provisions of
CICA Handbook Section 3870 on “Stock-Based
Compensation and Other Stock-Based Payments”. The Company
is required to employ the fair value method of accounting for
all stock based awards. The Company has applied the new
provisions retroactively, without restatement. The Company
recorded a cumulative increase to deficit and a corresponding
increase to contributed capital of $287,376 on July 1, 2004
with respect to stock options granted during the years ended
June 30, 2003 and 2004.
Loss
per share
Loss per share is calculated using the weighted-average number
of shares outstanding during the year. The Company follows the
“treasury stock” method in its calculation of diluted
earnings per share.
Variable
interest entities
Effective January 1, 2005, the Company has adopted CICA
Accounting Guideline 15, “Consolidation of Variable
Interest Entities” (AcG-15). The new standard provides
guidance on the application of consolidation principles to
certain entities that are subject to control on a basis other
than ownership of voting rights. The adoption of this guideline
did not have any impact on the consolidated financial statements
of the Company.
|
|
3.
|
Acquisition
of Pangea Resources Inc.
|
On February 2, 2004, the Company acquired all of the
outstanding shares of Pangea Resources Inc. (“Pangea”)
whereby the Company acquired 100% of the Magistral Gold Mine and
related assets beneficially owned by Compania Minera Pangea S.A.
de C.V. (“Minera Pangea”) in Mexico, a wholly owned
subsidiary of Pangea. Under the purchase agreement, the Company
acquired Pangea for $4,000,000 cash and 2,000,000 common shares
of the Company with an estimated fair value of $1.00 CDN per
share with a further $3,000,000 note payable due on or before
August 2, 2004. A general security agreement was put in
place on the assets of the Company. The Company incurred
acquisition costs of $370,699. The acquisition has been
accounted for using the purchase method.
During the year ended June 30, 2005 the Company’s
$3,000,000 note payable was settled by the payment of
$2,522,116, including $22,116 in accrued interest, and the
issuance of 669,485 shares of the Company, valued at
$500,000. All security granted by the Company has been returned
to the Company.
Management does not consider that the Magistral Gold Mine was
operating at commercial levels at the time the mine was
acquired. Prior to commercial production, effective
January 1, 2005, pre-production expenditures, net of
revenue, were capitalized to property. Included in the
liabilities assumed on the purchase is an estimated tax
liability for the Magistral Gold Mine of $600,000, which is
included in accounts payable and accrued liabilities. There is a
degree of uncertainty associated with the measurement of this
estimated Mexican tax liability. This amount may change as a
result of the resolution of certain Mexican tax issues arising
from the acquisition.
|
|
4.
|
Product
inventory and stockpiled ore
|
|
|
|
|
|
|
|
|
|
|
|
June 30
|
|
|
June 30
|
|
|
|
2006
|
|
|
2005
|
|
|
Stockpiled ore
|
|
$
|
—
|
|
|
$
|
3,788,972
|
|
Gold dore
|
|
|
109,074
|
|
|
|
323,661
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
109,074
|
|
|
$
|
4,112,633
|
|
|
|
|
|
|
|
|
|
|
D-11
NEVADA
PACIFIC GOLD LTD.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
5.
|
Property,
plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30
|
|
|
June 30
|
|
|
June 30
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Magistral Gold Mine
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant and equipment
|
|
$
|
2,760,526
|
|
|
$
|
2,760,526
|
|
|
$
|
1,841,972
|
|
Property and deferred costs
|
|
|
10,245,081
|
|
|
|
10,240,243
|
|
|
|
7,172,689
|
|
Asset retirement obligation asset
|
|
|
1,477,593
|
|
|
|
1,477,593
|
|
|
|
1,477,593
|
|
Accumulated amortization and
depletion
|
|
|
(1,220,546
|
)
|
|
|
(1,136,023
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,262,654
|
|
|
|
13,342,339
|
|
|
|
10,492,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other equipment
|
|
|
136,776
|
|
|
|
115,914
|
|
|
|
114,245
|
|
Accumulated amortization
|
|
|
(93,116
|
)
|
|
|
(69,299
|
)
|
|
|
(46,247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,660
|
|
|
|
46,615
|
|
|
|
67,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,306,314
|
|
|
$
|
13,388,954
|
|
|
$
|
10,560,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limousine
Butte
The Limousine Butte property is located northwest of Ely, Nevada
in White Pine County, and was staked by the Company such that
the Company controls the mineral rights to the property. The
property is subject to a sliding scale net smelter return
royalty of 1.5% to 2.5% on all production from the property,
with an advance payment of $1,000,000 to be made at the
commencement of commercial production and to be credited against
future royalty payments.
On September 7, 2004, the Company signed a binding letter
agreement with Placer Dome U.S. Inc. (“Placer
Dome”), a wholly owned subsidiary of Placer Dome Inc.,
whereby Placer Dome had the right to earn a 60% interest in the
Company’s Limousine Butte project by spending $4,000,000 on
exploration over a five-year period. On April 26, 2006 the
Company received notification from Placer Dome of its election
to terminate the letter agreement. All rights to the properties
and all exploration data relating to the properties have been
returned to the Company.
South
Carlin Project
The Company’s principal interest in the South Carlin
project is the Woodruff Creek property. The Woodruff Creek
property is located within Elko County, Nevada. In January 2001,
the Company completed its acquisition of a 100% interest in the
property from Kennecott Exploration Company
(“Kennecott”) by incurring over $500,000 in
exploration expenditures over a four-year period and by paying
$50,000 to Kennecott. Kennecott retains an uncapped 1% net
smelter return royalty on the project.
Keystone
The Company acquired the Keystone project in Nevada through
staking and the purchase of two patented claims in 1999 and
expanded the property in 2002 through the staking of 109
unpatented mining claims.
On September 7, 2004, the Company signed a binding letter
agreement with Placer Dome, whereby Placer Dome had the right to
earn a 60% interest in the Company’s Keystone project by
spending $5,000,000 on exploration over a five-year period. On
April 26, 2006 the Company received notification from
Placer Dome of its election to terminate the letter agreement.
All rights to the properties and all exploration data relating
to the properties have been returned to the Company.
D-12
NEVADA
PACIFIC GOLD LTD.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
BMX
During the year ended June 30, 2003, the Company acquired
mineral rights to the Battle Mountain (BMX) project. The project
has been staked by the Company, through the location of
unpatented Federal lode mining claims and is 100% owned by the
Company.
On November 27, 2002, the Company signed a binding letter
of agreement with Placer Dome whereby Placer Dome had the right
to earn a 60% interest in the BMX project by paying the Company
$200,000 on signing and expending $4,000,000 on exploration on
the project over a five-year period. On October 21, 2005,
the Company received notification from Placer Dome of its
election to terminate the letter agreement. All rights to the
properties and all exploration data relating to the properties
have been returned to the Company.
Bluebird
Gold Property
The Bluebird property lies within the area of interest of the
Company’s BMX project. On April 30, 2003, the Company
signed a
10-year
mining lease agreement with exploration rights with the owner of
the Bluebird property. The lease is renewable in
5-year
increments with the owner retaining a 3% net smelter return. The
property is located at the northern end of the Battle Mountain
Trend, Lander County, Nevada and consists of 10 unpatented
mining claims. The Company can purchase 1.5% of the net smelter
return at any time for $500,000 per percentage point.
Advanced annual royalties are payable to the owners of
$10,000 per year for the first nine years and
$25,000 per year for subsequent years.
Cornerstone
(Pat Canyon)
In May 2004, the Company signed a
10-year
renewable mining lease agreement to acquire the exploration
rights to the Cornerstone property, which is located less than
three miles east of the Company’s Keystone project in
Eureka County, Nevada and consists of 106 mineral claims. The
owners retain a 3-4% sliding scale gross production royalty and
advanced royalties payable to the owners were $10,000 on signing
of the lease. This amount increases annually to a maximum of
$50,000 per year over the term of the lease.
|
|
7.
|
Asset
retirement obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Asset retirement
obligation — beginning of year
|
|
$
|
1,567,267
|
|
|
$
|
1,477,593
|
|
|
$
|
—
|
|
Obligations incurred during the
year
|
|
|
—
|
|
|
|
—
|
|
|
|
1,477,593
|
|
Accretion expense
|
|
|
117,545
|
|
|
|
89,674
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset retirement
obligation — end of year
|
|
$
|
1,684,812
|
|
|
$
|
1,567,267
|
|
|
$
|
1,477,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s asset retirement obligation arises from it
obligations for site reclamation and remediation in connection
with the Magistral Gold Mine. Under Mexican regulations no
deposits are required to secure these obligations.
The total undiscounted asset retirement obligation is
$2,332,864, which is expected to be expended in 2013. In
determining the carrying value of the asset retirement
obligation, the Company has assumed a credit-adjusted risk-free
rate of 7.5% and an inflation rate of 2.75%.
D-13
NEVADA
PACIFIC GOLD LTD.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Authorized
Unlimited Preferred Shares without par value, with rights to be
determined upon issue Unlimited Common Shares without par value
|
|
|
|
|
|
|
|
|
Issued and Outstanding
|
|
Number of Shares
|
|
|
Amount
|
|
|
Balance as at June 30, 2003
|
|
|
20,142,503
|
|
|
$
|
4,857,823
|
|
Private Placements
|
|
|
13,821,352
|
|
|
|
7,849,847
|
|
On acquisition of Pangea Resources
Inc.
|
|
|
2,000,000
|
|
|
|
1,491,333
|
|
On exercise of warrants
|
|
|
2,394,998
|
|
|
|
920,243
|
|
On exercise of options
|
|
|
775,000
|
|
|
|
343,933
|
|
Finder’s fee
|
|
|
80,000
|
|
|
|
21,448
|
|
Share issue costs
|
|
|
—
|
|
|
|
(310,303
|
)
|
|
|
|
|
|
|
|
|
|
Balance as at June 30, 2004
|
|
|
39,213,853
|
|
|
$
|
15,174,324
|
|
Private Placements
|
|
|
5,533,655
|
|
|
|
4,091,285
|
|
Underwritten offering
|
|
|
7,586,712
|
|
|
|
6,171,350
|
|
Issued for payment on note payable
|
|
|
669,485
|
|
|
|
500,000
|
|
On exercise of warrants
|
|
|
1,723,801
|
|
|
|
591,200
|
|
On exercise of options
|
|
|
715,000
|
|
|
|
200,020
|
|
Fair value of options exercised
|
|
|
—
|
|
|
|
15,805
|
|
Finder’s fee
|
|
|
—
|
|
|
|
(681,734
|
)
|
Share issue costs
|
|
|
—
|
|
|
|
(142,027
|
)
|
|
|
|
|
|
|
|
|
|
Balance as at June 30, 2005
|
|
|
55,442,506
|
|
|
$
|
25,920,223
|
|
Private Placement — (i)
|
|
|
12,500,000
|
|
|
|
4,431,286
|
|
Private Placement — (ii)
|
|
|
200,000
|
|
|
|
110,221
|
|
On exercise of warrants
|
|
|
89,515
|
|
|
|
93,952
|
|
On exercise of options
|
|
|
740,000
|
|
|
|
369,826
|
|
Fair value of options exercised
|
|
|
—
|
|
|
|
122,652
|
|
Share issue costs
|
|
|
—
|
|
|
|
(93,017
|
)
|
|
|
|
|
|
|
|
|
|
Balance as at June 30, 2006
|
|
|
68,972,021
|
|
|
$
|
30,955,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
On December 9, 2005, the Company announced that it had
entered into an agreement with Mr. Robert McEwen to issue
12,500,000 units at a price of $0.40 CDN per unit for
aggregate proceeds of $5,000,000 CDN. Each unit consisted of one
common share and one common share purchase warrant with each
warrant exercisable to acquire one common share of the Company
at an exercise price of $0.50 CDN for a term of two years. As a
result of the private placement, Mr. McEwen holds
approximately 18.2% of the outstanding shares of the Company
and, in event of the exercise of all the warrants,
Mr. McEwen will hold approximately 30.8% of the outstanding
common shares of the Company. In accordance with the rules of
the TSX Venture Exchange, as this constitutes a “change in
control”, the placement closed in two tranches. The first
tranche, consisting of 6,921,213 units was completed on
December 14, 2005. The second tranche for the balance of
the units was conditional upon receiving shareholder approval.
The Company called an extraordinary general meeting of the
shareholders on January 23, 2006 and the shareholders
approved the transaction, which was completed on May 11,
2006. The shares and warrants comprising the units and the
shares underlying such warrants are subject to a four-month hold
period. No finder’s fees are payable on this placement. |
D-14
NEVADA
PACIFIC GOLD LTD.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
(ii) |
|
On January 13, 2006, the Company issued 200,000 units
to an officer of the Company. Each unit was issued at a price of
$0.64 CDN for gross proceeds of $128,000 CDN. Each unit is
comprised of one common share of the Company and one share
purchase warrant with each purchase warrant entitling the holder
to purchase one common share of the Company at $0.80 CDN until
January 13, 2008. The shares and warrants comprising the
units and the shares underlying such warrants are subject to a
four-month hold period. No finder’s fees were paid on this
issue. |
Stock
options
The Company has a stock option plan (the “Stock Option
Plan”) which provides for equity participation in the
Company by its directors, officers, employees and consultants
through the acquisition of common shares pursuant to the grant
of options to purchase common shares. The maximum aggregate
number of common shares to be reserved and authorized, to be
issued pursuant to options granted under the Stock Option Plan
is 5,496,000 common shares.
The exercise price for options granted under the Stock Option
Plan is determined by committee upon grant provided the price is
not less than the closing trading price on the day immediately
preceding the date of grant, less any discounts permitted by the
TSX Venture Exchange or such other stock exchange on which the
common shares are listed. Options granted under the Stock Option
Plan are subject to a minimum one year vesting schedule whereby
25% of each option will vest on each of the three month
anniversaries of the date of grant, up to and including the end
of the first year after such grant, or such other more
restrictive vesting schedule as the administrator of the Stock
Option Plan may determine. Options are non-assignable and are
exercisable for a period of up to five years from the date the
option is granted, or up to ten years from the date of grant if
permitted by applicable stock exchanges, subject to earlier
termination after certain events such as the optionee’s
cessation of service to the Company or death.
The Company accounts for its grants in accordance with the fair
value method of accounting for stock-based compensation. For the
year ended June 30, 2006, the Company recognized $611,572
in stock based compensation for employees, directors and
consultants. For the year ended June 30, 2005, the company
recognized $559,963 in stock based compensation for employees,
directors and consultants. For the year ended June 30,
2004, the company recognized $39,120 in stock based compensation
for consultants. As permitted by Canadian generally accepted
accounting principles, the Company did not use the fair value
method of accounting for stock options granted to employees and
directors for the year ended June 30, 2004. Had the Company
followed the fair value method of accounting, the Company would
have recorded a compensation expense of $278,002 in respect of
its employee and director stock options.
Pro forma earnings for 2004 determined under the fair value
method of accounting for stock options are as follows:
|
|
|
|
|
|
|
2004
|
|
|
Loss for the year as reported
|
|
$
|
1,936,547
|
|
Stock option expense
|
|
|
278,002
|
|
|
|
|
|
|
Pro forma net loss
|
|
$
|
2,214,549
|
|
|
|
|
|
|
Loss per share — basic
and diluted
|
|
|
|
|
As reported
|
|
$
|
0.06
|
|
Pro forma
|
|
$
|
0.07
|
|
|
|
|
|
|
D-15
NEVADA
PACIFIC GOLD LTD.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The fair value of the options granted has been calculated using
the Black-Scholes option-pricing model, based on the following
assumptions:
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Risk free interest rate
|
|
3.4 to 4%
|
|
4%
|
|
4%
|
Expected life
|
|
1 to 3 years
|
|
1 to 3 years
|
|
3 years
|
Expected volatility
|
|
55% to 77%
|
|
55% to 77 %
|
|
85% to 97%
|
Dividend yield rate
|
|
nil
|
|
nil
|
|
nil
|
Option-pricing models require the input of highly subjective
assumptions regarding the expected volatility and expected life.
Changes in assumptions can materially affect the fair value
estimate, and therefore, the existing models do not necessarily
provide a reliable measure of the fair value of the
Company’s stock options at the date of grant.
A summary of changes to stock options during the period are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2006
|
|
|
June 30, 2005
|
|
|
June 30, 2004
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
Number
|
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
|
|
of Shares
|
|
|
Exercise Price
|
|
|
of Shares
|
|
|
Exercise Price
|
|
|
of Shares
|
|
|
Exercise Price
|
|
|
Outstanding at beginning of year
|
|
|
3,328,500
|
|
|
$
|
0.86 CDN
|
|
|
|
2,965,000
|
|
|
$
|
0.69 CDN
|
|
|
|
1,925,000
|
|
|
$
|
0.43 CDN
|
|
Granted(i) (ii) (iii)
|
|
|
1,712,500
|
|
|
$
|
1.05 CDN
|
|
|
|
1,223,500
|
|
|
$
|
1.00 CDN
|
|
|
|
1,825,000
|
|
|
$
|
0.91 CDN
|
|
Exercised
|
|
|
(740,000
|
)
|
|
$
|
0.57 CDN
|
|
|
|
(715,000
|
)
|
|
$
|
0.34 CDN
|
|
|
|
(775,000
|
)
|
|
$
|
0.58 CDN
|
|
Forfeited
|
|
|
(461,000
|
)
|
|
$
|
0.94 CDN
|
|
|
|
(145,000
|
)
|
|
$
|
1.01 CDN
|
|
|
|
(10,000
|
)
|
|
$
|
0.61 CDN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of the year
|
|
|
3,840,000
|
|
|
$
|
0.99 CDN
|
|
|
|
3,328,500
|
|
|
$
|
0.86 CDN
|
|
|
|
2,965,000
|
|
|
$
|
0.69 CDN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at the end of
the year
|
|
|
2,263,750
|
|
|
$
|
0.95 CDN
|
|
|
|
1,782,125
|
|
|
$
|
0.74 CDN
|
|
|
|
1,355,000
|
|
|
$
|
0.38 CDN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(i) |
|
On August 30, 2005 the Company granted to consultants
50,000 stock options with an exercise price of $0.80 CDN. These
options have a term of one year and vest in equal amounts every
three months for 1 year. The fair value of these options
was estimated at approximately $0.16 per option at grant
date. |
|
(ii) |
|
On March 2, 2006 the Company granted to directors,
employees and consultants 1,462,500 stock options with an
exercise price of $0.99 CDN. These options have a term of ten
years and vest in equal amounts every three months for
1 year. The fair value of these options was estimated at
approximately $0.45 per option at grant date. |
|
(iii) |
|
On June 1, 2006 the Company granted to a director 200,000
stock options with an exercise price of $1.54 CDN. These options
have a term of ten years and vest in equal amounts every three
months for 1 year. The fair value of these options was
estimated at approximately $0.66 per option at grant date. |
Stock options outstanding as at June 30, 2006 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
Weighted-
|
|
|
Number
|
|
Average
|
|
Average
|
|
|
Outstanding
|
|
Life Remaining
|
|
Exercise Price
|
Range of Exercise Prices ($)
|
|
at June 30, 2006
|
|
(Years)
|
|
($)
|
|
0.53 - 1.00 CDN
|
|
|
3,095,000
|
|
|
|
7.59
|
|
|
|
0.90 CDN
|
|
1.01 - 1.54 CDN
|
|
|
745,000
|
|
|
|
8.28
|
|
|
|
1.36 CDN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,840,000
|
|
|
|
7.72
|
|
|
|
0.99 CDN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D-16
NEVADA
PACIFIC GOLD LTD.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Warrants
A summary of changes to warrants during the period are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2006
|
|
|
June 30, 2005
|
|
|
June 30, 2004
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
Number
|
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
|
|
of Warrants
|
|
|
Exercise Price
|
|
|
of Warrants
|
|
|
Exercise Price
|
|
|
of Warrants
|
|
|
Exercise Price
|
|
|
Outstanding at beginning of the year
|
|
|
6,420,841
|
|
|
$
|
1.19 CDN
|
|
|
|
5,255,676
|
|
|
$
|
1.05 CDN
|
|
|
|
699,998
|
|
|
$
|
0.65 CDN
|
|
Granted
|
|
|
12,700,000
|
|
|
$
|
0.50 CDN
|
|
|
|
6,420,841
|
|
|
$
|
1.19 CDN
|
|
|
|
6,950,676
|
|
|
$
|
0.91 CDN
|
|
Exercised
|
|
|
(89,515
|
)
|
|
$
|
1.20 CDN
|
|
|
|
(1,723,801
|
)
|
|
$
|
0.45 CDN
|
|
|
|
(2,394,998
|
)
|
|
$
|
0.51 CDN
|
|
Expired
|
|
|
(4,324,426
|
)
|
|
$
|
1.18 CDN
|
|
|
|
(3,531,875
|
)
|
|
$
|
1.35 CDN
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of the year
|
|
|
14,706,900
|
|
|
$
|
0.60 CDN
|
|
|
|
6,420,841
|
|
|
$
|
1.19 CDN
|
|
|
|
5,255,676
|
|
|
$
|
1.05 CDN
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share purchase warrants outstanding at June 30, 2006 were
as follows:
|
|
|
|
|
|
|
Number
|
|
Exercise Price
|
|
Expiry Date
|
|
|
1,874,400
|
|
|
$1.20 CDN
|
|
August 17, 2006 (iv)
|
|
132,500
|
|
|
$1.20 CDN
|
|
September 22, 2006 (iv)
|
|
6,921,213
|
|
|
$0.50 CDN
|
|
December 14, 2007
|
|
200,000
|
|
|
$0.80 CDN
|
|
January 13, 2008
|
|
5,578,787
|
|
|
$0.50 CDN
|
|
May 11, 2008
|
|
|
|
|
|
|
|
|
14,706,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(iv) |
|
On August 9, 2005 these warrants were extended by an
additional twelve months. The original expiry date for the
1,936,900 warrants was August 17, 2005 and for the 159,515
was September 22, 2005. (See note 18) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Contributed capital —
beginning of year
|
|
$
|
1,001,674
|
|
|
$
|
39,120
|
|
|
$
|
—
|
|
Retained earning adjustment (See
Note 2)
|
|
|
—
|
|
|
|
287,376
|
|
|
|
—
|
|
Fair value of share purchase
options vesting during year
|
|
|
611,572
|
|
|
|
559,963
|
|
|
|
39,120
|
|
Fair value of underwriter’s
warrants issued during year
|
|
|
—
|
|
|
|
131,020
|
|
|
|
—
|
|
Fair value of share purchase
options exercised during year
|
|
|
(122,652
|
)
|
|
|
(15,805
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed capital —
end of year
|
|
$
|
1,490,594
|
|
|
$
|
1,001,674
|
|
|
$
|
39,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.
|
Related
party transactions
|
Payments to related parties were made in the normal course of
operations and were valued at fair value as determined by
management. Amounts due to or from related parties are
unsecured, non-interest bearing and due on demand.
During the year ended June 30, 2006, a total of $149,730
(2005 — $129,055, 2004 — $129,952) was
charged for fees by a legal firm of which the Company’s
corporate secretary is a partner. At June 30, 2006, $17,352
(2005 — $5,112, 2004 — $32,345) was owing to
this legal firm.
In May, 1999, the Company became the leaseholder of the head
office premises. During the year ended June 30, 2001, the
Company entered into a separate sub-lease agreement with Portal
Resources Ltd. of which the Company’s Chairman is a
director. During the year ended June 30, 2006, a total of
$60,340 (2005 — $47,781, 2004 — $14,350)
D-17
NEVADA
PACIFIC GOLD LTD.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
was charged by the Company for rent and common office costs. At
June 30, 2006, $Nil (2005 — $4,425,
2004 — $13,804) was receivable from this company.
|
|
11.
|
Financial
Instruments
|
The Company’s consolidated financial instruments include
cash and cash equivalents, accounts receivable, reclamation
bonds and accounts payable. The fair values of these financial
instruments approximate their carrying values due to their
relatively short periods to maturity.
|
|
12.
|
Supplemental
cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Changes in non-cash working capital
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
92,468
|
|
|
$
|
238,376
|
|
|
$
|
90,069
|
|
Product inventory and stockpiled
ore
|
|
|
3,353,464
|
|
|
|
(1,452,205
|
)
|
|
|
(139,417
|
)
|
Supplies inventory
|
|
|
129,214
|
|
|
|
(218,344
|
)
|
|
|
(21,709
|
)
|
Prepaid expenses
|
|
|
(16,052
|
)
|
|
|
2,655
|
|
|
|
(184,570
|
)
|
Accounts payable and accrued
liabilities
|
|
|
(588,782
|
)
|
|
|
(427,892
|
)
|
|
|
976,217
|
|
Note payable
|
|
|
—
|
|
|
|
(2,500,000
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,970,312
|
|
|
$
|
(4,357,410
|
)
|
|
$
|
720,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.
|
Segmented
information
|
The Company has reportable segments in three geographic areas:
gold mining operations and exploration in Mexico, exploration
and development in the United States and corporate in Canada.
Gold mining operations consist of the Magistral Gold Mine in
Mexico, acquired on February 2, 2004, which commenced
commercial production on January 1, 2005.
D-18
NEVADA
PACIFIC GOLD LTD.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold Mining
|
|
|
|
|
|
|
Corporate
|
|
|
Exploration
|
|
|
& Exploration
|
|
|
|
|
|
|
(Canada)
|
|
|
(U. S.)
|
|
|
(Mexico)
|
|
|
Total
|
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Property, plant and
equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2006
|
|
|
29,610
|
|
|
|
14,050
|
|
|
|
13,262,654
|
|
|
|
13,306,314
|
|
June 30, 2005
|
|
|
38,590
|
|
|
|
8,025
|
|
|
|
13,342,339
|
|
|
|
13,388,954
|
|
June 30, 2004
|
|
|
56,203
|
|
|
|
11,795
|
|
|
|
10,492,254
|
|
|
|
10,560,252
|
|
Property, plant and
equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2006
|
|
|
9,492
|
|
|
|
11,370
|
|
|
|
4,838
|
|
|
|
25,700
|
|
June 30, 2005
|
|
|
769
|
|
|
|
900
|
|
|
|
3,985,974
|
|
|
|
3,987,643
|
|
June 30, 2004
|
|
|
61,125
|
|
|
|
11,458
|
|
|
|
10,492,254
|
|
|
|
10,564,837
|
|
Mineral Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2006
|
|
|
—
|
|
|
|
3,499,776
|
|
|
|
1,162,029
|
|
|
|
4,661,805
|
|
June 30, 2005
|
|
|
—
|
|
|
|
2,405,370
|
|
|
|
700,987
|
|
|
|
3,106,357
|
|
June 30, 2004
|
|
|
—
|
|
|
|
2,286,989
|
|
|
|
168,145
|
|
|
|
2,455,134
|
|
Mineral Properties:
expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2006
|
|
|
—
|
|
|
|
1,243,766
|
|
|
|
461,042
|
|
|
|
1,704,808
|
|
June 30, 2005
|
|
|
—
|
|
|
|
788,713
|
|
|
|
532,842
|
|
|
|
1,321,555
|
|
June 30, 2004
|
|
|
—
|
|
|
|
1,055,182
|
|
|
|
168,145
|
|
|
|
1,223,327
|
|
Net income (loss) for the year
ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2006
|
|
|
(2,327,532
|
)
|
|
|
(314,215
|
)
|
|
|
(2,378,795
|
)
|
|
|
(5,020,542
|
)
|
June 30, 2005
|
|
|
(2,529,225
|
)
|
|
|
(834,873
|
)
|
|
|
982,440
|
|
|
|
(2,381,658
|
)
|
June 30, 2004
|
|
|
(1,475,170
|
)
|
|
|
(461,377
|
)
|
|
|
—
|
|
|
|
(1,936,547
|
)
|
Gold revenues for the year
ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2006
|
|
|
—
|
|
|
|
—
|
|
|
|
6,649,300
|
|
|
|
6,649,300
|
|
June 30, 2005
|
|
|
—
|
|
|
|
—
|
|
|
|
5,175,235
|
|
|
|
5,175,235
|
|
June 30, 2004
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Depreciation, depletion and
amortization for the year ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2006
|
|
|
18,472
|
|
|
|
5,345
|
|
|
|
734,618
|
|
|
|
758,435
|
|
June 30, 2005
|
|
|
18,382
|
|
|
|
4,670
|
|
|
|
1,136,023
|
|
|
|
1,159,075
|
|
June 30, 2004
|
|
|
12,633
|
|
|
|
3,345
|
|
|
|
—
|
|
|
|
15,978
|
|
D-19
NEVADA
PACIFIC GOLD LTD.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
A reconciliation of income taxes at statutory rates with the
reported taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Loss before income taxes
|
|
$
|
(5,020,542
|
)
|
|
$
|
(2,381,658
|
)
|
|
$
|
(1,936,547
|
)
|
Canadian federal and provincial
income tax rates
|
|
|
34.12
|
%
|
|
|
35.62
|
%
|
|
|
37.62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected income taxes (recovery)
|
|
|
(1,713,009
|
)
|
|
|
(848,347
|
)
|
|
|
(728,529
|
)
|
Non-deductible (deductible)
expenses for tax purposes
|
|
|
571,904
|
|
|
|
291,156
|
|
|
|
20,438
|
|
Foreign exchange
|
|
|
(32,940
|
)
|
|
|
109,249
|
|
|
|
84,417
|
|
Foreign income subject to
different tax rates
|
|
|
6,880
|
|
|
|
(50,656
|
)
|
|
|
(12,099
|
)
|
Valuation allowance
|
|
|
1,167,165
|
|
|
|
498,598
|
|
|
|
635,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future income taxes arise from temporary difference in the
recognition of income and expenses for financial reporting and
tax purposes. The significant components of the future income
tax assets and liabilities are as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Future income tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax losses
|
|
$
|
8,344,447
|
|
|
$
|
6,763,379
|
|
|
$
|
4,550,213
|
|
Mineral property expenditures
|
|
|
240,561
|
|
|
|
176,871
|
|
|
|
149,388
|
|
Other temporary differences
|
|
|
474,112
|
|
|
|
243,850
|
|
|
|
65,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future income tax assets before
valuation allowance
|
|
|
8,922,607
|
|
|
|
7,184,100
|
|
|
|
4,764,973
|
|
Less: valuation allowance
|
|
|
(8,922,607
|
)
|
|
|
(7,184,100
|
)
|
|
|
(4,764,973
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net future income tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has estimated tax losses available for Canadian
income tax purposes of approximately $7,551447, which expire
between 2007 and 2026, $6,310,330 for U.S. tax purposes
that expire between 2012 and 2021 and $13,065,607 for Mexican
tax purposes that expire between 2006 and 2015.
The Company has obligations under operating leases for its
corporate offices. Future minimum lease payments for
non-cancellable leases with initial or remaining lease terms in
excess on one year at June 30, 2006 for the fiscal years
ended June 30 are:
2007 — $101,822
2008 — $67,881
The Magistral Gold Mine production is subject to a net smelter
return royalty of 1% for the first 30,000 ounces of gold, 3.5%
on the next 350,000 ounces of gold and 1% thereafter. The
Company is currently paying net smelter royalties at 3.5%. As at
June 30, 2006 the life of mine production is not
anticipated to exceed 380,000 ounces.
The Company’s mining and exploration activities are subject
to various federal, provincial and state laws and regulations
governing the protection of the environment. These laws and
regulations are continually changing and generally becoming more
restrictive. The Company conducts its operations so as to
protect public health and the environment and believes its
operations are materially in compliance with all applicable laws
and regulations. The Company has made, and expects to make in
the future, expenditures to comply with such laws and
regulations. The
D-20
NEVADA
PACIFIC GOLD LTD.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
ultimate amount of reclamation and other future site restoration
costs to be incurred for existing mining interests is uncertain.
|
|
17.
|
Differences
Between Canadian and United States Generally Accepted Accounting
Principles
|
The Company prepares its consolidated financial statements in
accordance with Canadian generally accepted accounting
principles (“CDN GAAP”) which differ in certain
respects from those principles that the Company would have
followed had its consolidated financial statements been prepared
in accordance with United States generally accepted accounting
principles (“US GAAP”).
Applying US GAAP, the consolidated balance sheet at
June 30, 2006 would be as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
Balance
|
|
|
|
CDN GAAP
|
|
|
Adjustments
|
|
|
U.S. GAAP
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,659,738
|
|
|
$
|
|
|
|
$
|
3,659,738
|
|
Accounts receivable
|
|
|
180,697
|
|
|
|
|
|
|
|
180,697
|
|
Product inventory and stockpiled
ore
|
|
|
109,074
|
|
|
|
|
|
|
|
109,074
|
|
Supplies inventory
|
|
|
285,152
|
|
|
|
|
|
|
|
285,152
|
|
Prepaid expenses
|
|
|
239,424
|
|
|
|
|
|
|
|
239,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,474,085
|
|
|
|
—
|
|
|
|
4,474,085
|
|
Property, plant and equipment[a]
|
|
|
13,306,314
|
|
|
|
(4,657,846
|
)
|
|
|
8,648,468
|
|
Mineral properties[a]
|
|
|
4,661,805
|
|
|
|
(4,661,805
|
)
|
|
|
—
|
|
Reclamation bonds
|
|
|
96,363
|
|
|
|
|
|
|
|
96,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,538,567
|
|
|
$
|
(9,319,651
|
)
|
|
$
|
13,218,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities
|
|
$
|
1,194,495
|
|
|
$
|
|
|
|
$
|
1,194,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,194,495
|
|
|
|
|
|
|
|
1,194,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
112,397
|
|
|
|
|
|
|
|
112,397
|
|
Asset retirement obligation
|
|
|
1,684,812
|
|
|
|
|
|
|
|
1,684,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,797,209
|
|
|
|
—
|
|
|
|
1,797,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Capital
|
|
|
30,955,143
|
|
|
|
|
|
|
|
30,955,143
|
|
Contributed capital[b]
|
|
|
1,490,594
|
|
|
|
(287,376
|
)
|
|
|
1,203,218
|
|
Deficit[a][b]
|
|
|
(12,898,874
|
)
|
|
|
(9,032,275
|
)
|
|
|
(21,931,149
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,546,863
|
|
|
|
(9,319,651
|
)
|
|
|
10,227,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,538,567
|
|
|
$
|
(9,319,651
|
)
|
|
$
|
13,218,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D-21
NEVADA
PACIFIC GOLD LTD.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Applying US GAAP, the consolidated balance sheet at
June 30, 2005 would be as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
Balance
|
|
|
|
CDN GAAP
|
|
|
Adjustments
|
|
|
U.S. GAAP
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
957,251
|
|
|
$
|
|
|
|
$
|
957,251
|
|
Accounts receivable
|
|
|
273,165
|
|
|
|
|
|
|
|
273,165
|
|
Product inventory and stockpiled
ore[a]
|
|
|
4,112,633
|
|
|
|
(154,743
|
)
|
|
|
3,957,890
|
|
Supplies inventory
|
|
|
414,366
|
|
|
|
|
|
|
|
414,366
|
|
Prepaid expenses
|
|
|
223,372
|
|
|
|
|
|
|
|
223,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,980,787
|
|
|
|
(154,743
|
)
|
|
|
5,826,044
|
|
Property, plant and equipment[a]
|
|
|
13,388,954
|
|
|
|
(4,684,518
|
)
|
|
|
8,704,436
|
|
Mineral properties[a]
|
|
|
3,106,357
|
|
|
|
(3,106,357
|
)
|
|
|
—
|
|
Reclamation bonds
|
|
|
93,228
|
|
|
|
|
|
|
|
93,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,569,326
|
|
|
$
|
(7,945,618
|
)
|
|
$
|
14,623,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities
|
|
$
|
1,783,277
|
|
|
$
|
|
|
|
$
|
1,783,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,783,277
|
|
|
|
—
|
|
|
|
1,783,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
175,217
|
|
|
|
|
|
|
|
175,217
|
|
Asset retirement obligation
|
|
|
1,567,267
|
|
|
|
|
|
|
|
1,567,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,742,484
|
|
|
|
—
|
|
|
|
1,742,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Share Capital
|
|
|
25,920,223
|
|
|
|
|
|
|
|
25,920,223
|
|
Contributed capital[b]
|
|
|
1,001,674
|
|
|
|
(287,376
|
)
|
|
|
714,298
|
|
Deficit[a][b]
|
|
|
(7,878,332
|
)
|
|
|
(7,658,242
|
)
|
|
|
(15,536,574
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,043,565
|
|
|
|
(7,945,618
|
)
|
|
|
11,097,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,569,326
|
|
|
$
|
(7,945,618
|
)
|
|
$
|
14,623,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D-22
NEVADA
PACIFIC GOLD LTD.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The effect of measurement differences between CDN GAAP and US
GAAP on the Company’s net loss for the year ended
June 30, 2006 is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CDN
|
|
|
|
|
|
US
|
|
|
|
|
|
|
GAAP
|
|
|
Adjustments
|
|
|
GAAP
|
|
|
|
|
|
GOLD SALES[a]
|
|
$
|
6,649,300
|
|
|
$
|
—
|
|
|
$
|
6,649,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF SALES[a]
|
|
|
7,903,654
|
|
|
|
55,251
|
|
|
|
7,958,905
|
|
|
|
|
|
DEPRECIATION AND DEPLETION[a]
|
|
|
734,618
|
|
|
|
(236,666
|
)
|
|
|
497,952
|
|
|
|
|
|
ROYALTIES[a]
|
|
|
381,572
|
|
|
|
—
|
|
|
|
381,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,019,844
|
|
|
|
(181,415
|
)
|
|
|
8,838,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM MINING OPERATIONS
|
|
|
(2,370,544
|
)
|
|
|
(181,415
|
)
|
|
|
(2,189,129
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES AND OTHER INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
1,944,511
|
|
|
|
|
|
|
|
1,944,511
|
|
|
|
|
|
Interest and financing costs
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
Stock-based compensation
|
|
|
611,572
|
|
|
|
|
|
|
|
611,572
|
|
|
|
|
|
Foreign exchange losses
|
|
|
36,904
|
|
|
|
|
|
|
|
36,904
|
|
|
|
|
|
Other income
|
|
|
(57,349
|
)
|
|
|
|
|
|
|
(57,349
|
)
|
|
|
|
|
Write-down of mineral properties[a]
|
|
|
114,360
|
|
|
|
(114,360
|
)
|
|
|
—
|
|
|
|
|
|
Exploration cost[a]
|
|
|
—
|
|
|
|
1,669,808
|
|
|
|
1,669,808
|
|
|
|
|
|
Gain on disposal of mining
equipment
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,649,998
|
|
|
|
1,555,448
|
|
|
|
4,205,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FOR THE YEAR
|
|
$
|
5,020,542
|
|
|
$
|
1,374,033
|
|
|
$
|
6,394,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
0.08
|
|
|
|
|
|
|
$
|
0.11
|
|
|
|
|
|
Weighted average number of common
shares outstanding
|
|
|
60,304,369
|
|
|
|
|
|
|
|
60,304,369
|
|
|
|
|
|
D-23
NEVADA
PACIFIC GOLD LTD.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The effect of measurement differences between CDN GAAP and US
GAAP on the Company’s net loss for the year ended
June 30, 2005 is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CDN
|
|
|
|
|
|
US
|
|
|
|
GAAP
|
|
|
Adjustments
|
|
|
GAAP
|
|
|
GOLD SALES[a]
|
|
$
|
5,175,235
|
|
|
$
|
2,915,992
|
|
|
$
|
8,091,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF SALES[a]
|
|
|
3,347,153
|
|
|
|
6,582,479
|
|
|
|
9,929,632
|
|
DEPRECIATION AND DEPLETION [a]
|
|
|
727,815
|
|
|
|
149,657
|
|
|
|
877,472
|
|
ROYALTIES[a]
|
|
|
262,197
|
|
|
|
264,729
|
|
|
|
526,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,337,165
|
|
|
|
6,996,865
|
|
|
|
11,334,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS (LOSS) FROM MINING
OPERATIONS
|
|
|
838,070
|
|
|
|
(4,080,873
|
)
|
|
|
(3,242,803
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES AND OTHER INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
2,084,400
|
|
|
|
|
|
|
|
2,084,400
|
|
Interest and financing costs
|
|
|
22,378
|
|
|
|
|
|
|
|
22,378
|
|
Stock-based compensation
|
|
|
559,963
|
|
|
|
|
|
|
|
559,963
|
|
Foreign exchange losses
|
|
|
115,796
|
|
|
|
|
|
|
|
115,796
|
|
Other income
|
|
|
(37,942
|
)
|
|
|
|
|
|
|
(37,942
|
)
|
Write-down of mineral properties[a]
|
|
|
630,332
|
|
|
|
(630,332
|
)
|
|
|
—
|
|
Exploration cost[a]
|
|
|
—
|
|
|
|
1,281,555
|
|
|
|
1,281,555
|
|
Gain on disposal of mining
equipment
|
|
|
(155,199
|
)
|
|
|
|
|
|
|
(155,199
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,219,728
|
|
|
|
651,223
|
|
|
|
3,870,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FOR THE YEAR
|
|
$
|
2,381,658
|
|
|
$
|
4,732,096
|
|
|
$
|
7,113,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
0.05
|
|
|
|
|
|
|
$
|
0.14
|
|
Weighted average number of common
shares outstanding
|
|
|
51,295,350
|
|
|
|
|
|
|
|
51,295,350
|
|
D-24
NEVADA
PACIFIC GOLD LTD.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The effect of measurement differences between CDN GAAP and US
GAAP on the Company’s net loss for the year ended
June 30, 2004 is summarized below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CDN
|
|
|
|
|
|
US
|
|
|
|
GAAP
|
|
|
Adjustments
|
|
|
GAAP
|
|
|
GOLD SALES[a]
|
|
$
|
—
|
|
|
$
|
2,654,492
|
|
|
$
|
2,654,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF SALES[a]
|
|
|
—
|
|
|
|
3,145,048
|
|
|
|
3,145,048
|
|
DEPRECIATION AND DEPLETION[a]
|
|
|
—
|
|
|
|
202,809
|
|
|
|
202,809
|
|
ROYALTIES[a]
|
|
|
—
|
|
|
|
65,023
|
|
|
|
65,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
3,412,880
|
|
|
|
3,412,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM MINING OPERATIONS
|
|
|
—
|
|
|
|
(758,388
|
)
|
|
|
(758,388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES AND OTHER INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
1,538,190
|
|
|
|
|
|
|
|
1,538,190
|
|
Interest and financing costs
|
|
|
1,159
|
|
|
|
|
|
|
|
1,159
|
|
Stock-based compensation
|
|
|
39,120
|
|
|
|
|
|
|
|
39,120
|
|
Foreign exchange losses
|
|
|
117,226
|
|
|
|
|
|
|
|
117,226
|
|
Other income
|
|
|
(89,433
|
)
|
|
|
|
|
|
|
(89,433
|
)
|
Write-down of mineral properties[a]
|
|
|
330,285
|
|
|
|
(330,285
|
)
|
|
|
—
|
|
Exploration cost[a]
|
|
|
—
|
|
|
|
1,298,327
|
|
|
|
1,298,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,936,547
|
|
|
|
968,042
|
|
|
|
2,904,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FOR THE YEAR
|
|
$
|
1,936,547
|
|
|
$
|
1,726,430
|
|
|
$
|
3,662,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
0.06
|
|
|
|
|
|
|
$
|
0.12
|
|
Weighted average number of common
shares outstanding
|
|
|
30,305,758
|
|
|
|
|
|
|
|
30,305,758
|
|
D-25
NEVADA
PACIFIC GOLD LTD.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The effect of measurement differences between CDN GAAP and US
GAAP on the Company’s cash flow for the year ended
June 30, 2006 is summarized below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CDN
|
|
|
|
|
|
US
|
|
|
|
GAAP
|
|
|
Adjustments
|
|
|
GAAP
|
|
|
CASH PROVIDED BY (USED FOR)
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the period[a]
|
|
$
|
(5,020,542
|
)
|
|
$
|
(1,374,033
|
)
|
|
$
|
(6,394,575
|
)
|
Items not affecting cash
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion &
amortization[a]
|
|
|
758,435
|
|
|
|
(236,666
|
)
|
|
|
521,769
|
|
Accretion of asset retirement
obligation[a]
|
|
|
117,545
|
|
|
|
|
|
|
|
117,545
|
|
Stock based compensation
|
|
|
611,572
|
|
|
|
|
|
|
|
611,572
|
|
Write-off of mineral properties[a]
|
|
|
114,360
|
|
|
|
(149,360
|
)
|
|
|
(35,000
|
)
|
Gain on disposal of property,
plant & equipment
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
Severance expenses
|
|
|
(27,820
|
)
|
|
|
|
|
|
|
(27,820
|
)
|
Changes in non-cash working
capital items[a]
|
|
|
2,970,312
|
|
|
|
55,251
|
|
|
|
3,025,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(476,138
|
)
|
|
|
(1,704,808
|
)
|
|
|
(2,180,946
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment[a]
|
|
|
(25,700
|
)
|
|
|
—
|
|
|
|
(25,700
|
)
|
Proceeds from disposal of equipment
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
Reclamation deposits
|
|
|
(3,135
|
)
|
|
|
|
|
|
|
(3,135
|
)
|
Expenditures on mineral
properties, net of recoveries[a]
|
|
|
(1,704,808
|
)
|
|
|
1,704,808
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,733,643
|
)
|
|
|
1,704,808
|
|
|
|
(28,835
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
On private placements
|
|
|
4,541,507
|
|
|
|
|
|
|
|
4,541,507
|
|
On warrant conversion
|
|
|
93,952
|
|
|
|
|
|
|
|
93,952
|
|
On option exercise
|
|
|
369,826
|
|
|
|
|
|
|
|
369,826
|
|
Share issue costs and
finder’s fees
|
|
|
(93,017
|
)
|
|
|
|
|
|
|
(93,017
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,912,268
|
|
|
|
—
|
|
|
|
4,912,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE IN CASH AND CASH
EQUIVALENTS
|
|
|
2,702,487
|
|
|
|
—
|
|
|
|
2,702,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS,
beginning of year
|
|
|
957,251
|
|
|
|
|
|
|
|
957,251
|
|
CASH AND CASH EQUIVALENTS, end of
year
|
|
$
|
3,659,738
|
|
|
$
|
—
|
|
|
$
|
3,659,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D-26
NEVADA
PACIFIC GOLD LTD.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The effect of measurement differences between CDN GAAP and US
GAAP on the Company’s cash flow for the year ended
June 30, 2005 is summarized below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CDN
|
|
|
|
|
|
US
|
|
|
|
GAAP
|
|
|
Adjustments
|
|
|
GAAP
|
|
|
CASH PROVIDED BY (USED FOR)
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the period[a]
|
|
$
|
(2,381,658
|
)
|
|
$
|
(4,732,096
|
)
|
|
$
|
(7,113,754
|
)
|
Items not affecting cash
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion &
amortization[a]
|
|
|
750,867
|
|
|
|
149,657
|
|
|
|
900,524
|
|
Accretion of asset retirement
obligation[a]
|
|
|
44,540
|
|
|
|
45,134
|
|
|
|
89,674
|
|
Stock based compensation
|
|
|
559,963
|
|
|
|
|
|
|
|
559,963
|
|
Write-off of mineral properties[a]
|
|
|
630,332
|
|
|
|
(670,332
|
)
|
|
|
(40,000
|
)
|
Gain on disposal of property,
plant & equipment
|
|
|
(155,199
|
)
|
|
|
|
|
|
|
(155,199
|
)
|
Severance expenses
|
|
|
61,106
|
|
|
|
|
|
|
|
61,106
|
|
Changes in non-cash working
capital items[a]
|
|
|
(4,357,410
|
)
|
|
|
872,580
|
|
|
|
(3,484,830
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,847,459
|
)
|
|
|
(4,335,057
|
)
|
|
|
(9,182,516
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment[a]
|
|
|
(3,987,643
|
)
|
|
|
3,013,502
|
|
|
|
(974,141
|
)
|
Proceeds from disposal of equipment
|
|
|
200,199
|
|
|
|
|
|
|
|
200,199
|
|
Reclamation deposits
|
|
|
(45,256
|
)
|
|
|
|
|
|
|
(45,256
|
)
|
Expenditures on mineral
properties, net of recoveries[a]
|
|
|
(1,321,555
|
)
|
|
|
1,321,555
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,154,255
|
)
|
|
|
4,335,057
|
|
|
|
(819,198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
On private placements
|
|
|
10,262,635
|
|
|
|
|
|
|
|
10,262,635
|
|
On warrant conversion
|
|
|
591,200
|
|
|
|
|
|
|
|
591,200
|
|
On option exercise
|
|
|
200,020
|
|
|
|
|
|
|
|
200,020
|
|
Share issue costs and
finder’s fees
|
|
|
(692,741
|
)
|
|
|
|
|
|
|
(692,741
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,361,114
|
|
|
|
—
|
|
|
|
10,361,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE IN CASH AND CASH
EQUIVALENTS
|
|
|
359,400
|
|
|
|
—
|
|
|
|
359,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS,
beginning of year
|
|
|
597,851
|
|
|
|
|
|
|
|
597,851
|
|
CASH AND CASH EQUIVALENTS, end of
year
|
|
$
|
957,251
|
|
|
$
|
—
|
|
|
$
|
957,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D-27
NEVADA
PACIFIC GOLD LTD.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The effect of measurement differences between CDN GAPP and US
GAAP on the Company’s cash flow for the year ended
June 30, 2004 is summarized below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CDN
|
|
|
|
|
|
US
|
|
|
|
GAAP
|
|
|
Adjustments
|
|
|
GAAP
|
|
|
CASH PROVIDED BY (USED FOR)
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the period[a]
|
|
$
|
(1,936,547
|
)
|
|
$
|
(1,726,430
|
)
|
|
$
|
(3,662,977
|
)
|
Items not affecting cash
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion &
amortization[a]
|
|
|
15,978
|
|
|
|
202,809
|
|
|
|
218,787
|
|
Stock based compensation
|
|
|
39,120
|
|
|
|
|
|
|
|
39,120
|
|
Write-off of mineral properties[a]
|
|
|
330,285
|
|
|
|
(255,285
|
)
|
|
|
75,000
|
|
Severance expenses[a]
|
|
|
|
|
|
|
17,478
|
|
|
|
17,478
|
|
Changes in non-cash working
capital items[a]
|
|
|
720,590
|
|
|
|
(964,479
|
)
|
|
|
(243,889
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(830,574
|
)
|
|
|
(2,725,907
|
)
|
|
|
(3,556,481
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment[a]
|
|
|
(1,889,409
|
)
|
|
|
1,502,580
|
|
|
|
(386,829
|
)
|
Acquisition of Pangea Resources
Inc.
|
|
|
(4,323,753
|
)
|
|
|
|
|
|
|
(4,323,753
|
)
|
Reclamation deposits
|
|
|
(47,972
|
)
|
|
|
|
|
|
|
(47,972
|
)
|
Expenditures on mineral
properties, net of recoveries[a]
|
|
|
(1,223,327
|
)
|
|
|
1,223,327
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,484,461
|
)
|
|
|
2,725,907
|
|
|
|
(4,758,554
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
On private placements
|
|
|
7,871,295
|
|
|
|
|
|
|
|
7,871,295
|
|
On warrant conversion
|
|
|
920,243
|
|
|
|
|
|
|
|
920,243
|
|
On option exercise
|
|
|
343,933
|
|
|
|
|
|
|
|
343,933
|
|
Share issue costs and
finder’s fees
|
|
|
(310,303
|
)
|
|
|
|
|
|
|
(310,303
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,825,168
|
|
|
|
—
|
|
|
|
8,825,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE IN CASH AND CASH
EQUIVALENTS
|
|
|
510,133
|
|
|
|
—
|
|
|
|
510,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS,
beginning of year
|
|
|
87,718
|
|
|
|
|
|
|
|
87,718
|
|
CASH AND CASH EQUIVALENTS, end of
year
|
|
$
|
597,851
|
|
|
$
|
—
|
|
|
$
|
597,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[a]
Property, plant and equipment/Mineral properties
(i) Under US GAAP, mineral properties and exploration costs
related to mineral properties for which commercial feasibility
has not yet been established are expensed as incurred. Under CDN
GAAP, exploration expenditures may be capitalized as incurred.
(ii) For mineral properties where commercial feasibility
has been established, under US GAAP,
start-up
costs are expensed as incurred in accordance with AICPA
Statement of Position 98-5, Reporting on the Cost of
Start-up
Activities.
Under CDN GAAP, these
start-up
costs are deferred and amortized over the estimated life of the
property following the commencement of the commercial
production, or written off if the property is sold, allowed to
lapse,
D-28
NEVADA
PACIFIC GOLD LTD.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
abandoned or impaired. Under CDN GAAP, deferred
start-up
costs include operating costs, net of revenue, prior to the
commencement of commercial production.
Under CDN GAAP the Magistral Gold Mine began commercial
production on January 1, 2005 and therefore from
acquisition on February 2, 2004 to January 1, 2005 all
operating costs, net of revenue for the Magistral Gold Mine were
deferred to property, plant and equipment.
Accordingly, gold sales, cost of sales, depreciation and
depletion and royalties are included in the loss for the year
for US GAAP and were deferred to property plant and equipment
for CDN GAAP.
The differences in the amounts deferred to pad inventory and
property, plant and equipment are cumulative and affect the
opening balances for each period following June 30, 2004.
[b] Stock
based compensation
Under US GAAP, accounting for stock-based compensation plan is
recognized and measured in accordance with FASB Statement No
123, Accounting for Stock-based Compensation
(SFAS 123). The statement recommends companies to
follow a fair market value based method of accounting for
stock-based compensation plan. SFAS 123 also allows
companies to continue to measure compensation cost using
intrinsic value based method of accounting prescribed by APB
Opinion No. 25, Accounting for stock Issued to
Employees. Under the fair value based method, compensation
cost is measured at the grant date based on value of the award
and recognized over the service period, which is usually the
vesting period. Under the intrinsic method, cost of stock
options is measured as the excess, if any, of the quoted market
price of the Company’s stock at the date of grant over the
option price.
Under CDN GAAP, CICA 3870, Stock-Based Compensation and Other
Stock — Based Payments, recommends companies to
adopt the fair valued base method of accounting for all
stock-based compensation. The section permitted companies to
continue to measure stock-based compensation using intrinsic
value method of accounting but requires pro-forma disclosure of
earnings and earnings per share as if the fair value method had
been adopted.
Effective July 1, 2004, the Company adopted the fair value
method of accounting for stock-based compensation in accordance
with CICA 3870. This change in accounting policy was applied
retroactively without restatement of prior years’ financial
statements. The Company recorded a cumulative increase of
$287,376 to opening deficit and contributed capital.
For US GAAP purposes, the Company has chosen to adopt the fair
value based method on a modified prospective basis from
July 1, 2004 as permitted by SFAS 148, Accounting
for Stock-Based Compensation — Transition and
Disclosure, an amendment of SFAS 123. The balance sheet
difference between US GAAP and CDN GAAP occurs as a result of
the modified prospective adoption of the fair value method under
SFAS 148.
[c]
Comprehensive Income
Under US GAAP, comprehensive income is recognized and measured
in accordance with Financial Accounting Standards Board
(“FASB”) Statement No. 130 Reporting
Comprehensive Income. Comprehensive income includes all
changes in equity other than those resulting from investment by
owners and distributions to owners. Comprehensive income
includes two components, net income and other comprehensive
income. Other comprehensive income includes amounts that are
recorded as an element of shareholders’ equity but are
excluded from net income as these transactions or events are
attributable to changes from non-owner sources. These items
include holding gains and losses on certain investments, gains
and losses on certain derivative instruments and foreign
exchange gains and losses related to self-sustaining foreign
operations (cumulative translation adjustment). A standard for
comprehensive income and other comprehensive income is not yet
effective under Canadian GAAP. Under US GAAP comprehensive
income is equal to net income for the Company for the years
presented.
D-29
NEVADA
PACIFIC GOLD LTD.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
[d]
Recent accounting pronouncements
In June 2005, the AcSB issued CICA 3831, Non-monetary
Transactions, replacing the former CICA 3830. This statement
will be effective for fiscal periods beginning after
January 1, 2006. Earlier application is permitted for
non-monetary asset exchanges executed in periods beginning on or
after July 1, 2005. Retroactive application is prohibited.
The new Canadian standard is, in all material respects,
consistent with the related US standard.
In April 2005, the AcSB issued CICA 1530, Comprehensive
Income, which introduces new rules for reporting and display
of comprehensive income. Comprehensive income, which is
currently reported under US GAAP, is the change in
shareholders’ equity of an enterprise during a reporting
period from transactions and other events and circumstances from
non-owner sources. It includes all changes in equity during a
period except those resulting from investment by owners and
distributions to owners. These items include holding gains and
losses on certain investments, gain and losses on certain
derivative instruments and foreign currency gains and losses
related to self — sustaining foreign operations
(cumulative translation adjustment). CICA 1530 is effective for
fiscal years beginning on or after October 1, 2006.
In April 2005, the AcSB issued CICA 3865, Hedges, which
is applicable when a company chooses to designate a hedging
relationship for accounting purposes. It builds on the existing
Accounting Guideline AcG-13, Hedging Relationships, and
Section 1650 Foreign Currency Translation, by
specifying how hedge accounting is applied and what disclosures
are necessary when it is applied.
In April 2005, the CICA issued Handbook Sections 3855,
Financial Instruments — Recognition and
Measurement. This standard prescribes when a financial
asset, financial liability, or non-financial derivative is to be
recognized on the balance sheet and whether fair value or
cost-based measures are used. It also specifies how financial
instrument gains and losses are to be presented.
On March 30, 2005, the FASB ratified the Emerging Issues
Task Force (EITF) consensus in
Issue 04-06
that post-production stripping costs are a component of mineral
inventory costs subject to provisions of AICPA Accounting
Research Bulletin No. 43, Restatement and Revision of
Accounting Research Bulletins, Chapter 4, Inventory
Pricing (ARB43). In the mining industry, the costs of
removing overburden and waste materials to access mineral
deposits are referred to as “stripping costs”. It is
the accounting for costs incurred during the production stage of
the mine, or the post-production stripping costs, that are
addressed in
Issue 04-06.
Based upon this consensus, post production stripping costs
should be considered costs of extracted minerals under a full
absorption costing system and recognized as a component of
inventory to be recognized in costs of sales in the same period
as the revenue from the sale of the inventory. Additionally,
capitalization of such costs would be appropriate only to the
extent inventory exists at the end of the reporting period. The
guidance in this consensus will be effective for financial
statements issued for fiscal years beginning after
December 15, 2005 with early adoption permitted. The
consensus can be adopted either prospectively through a
cumulative effect adjustment through opening retained earning or
retrospectively by restating prior periods. On March 2,
2005, AcSB issued EIC 160, which addresses the accounting
treatment of stripping costs. EIC 160 is applicable to fiscal
years beginning on or after July 1, 2006. The Company has
not determined the method of adoption or the impact of
EITF 04-06
or EIC 160, if any, on the Company’s financial position or
results from operation. The Company currently has no deferred
stripping costs.
On June 1, 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections, a replacement
of APB Opinion No. 20, Accounting Changes, and FASB
Statement No. 3, Reporting Accounting Changes in Interim
Financial Statements. SFAS 154 requires retrospective
application to prior periods’ financial statements of a
change in accounting principles unless it is impracticable to do
so. This is a change from the existing practice that requires
most accounting changes to be accounted for by including in net
income in the period of the change the cumulative effect of
changing to the new accounting principle. SFAS 154 will be
effective for accounting changes and corrections of errors made
in fiscal years beginning after December 15, 2005.
In July 2006, the Financial Accounting Standards Board
(“FASB”) released FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, and
interpretation of FASB Statement No. 108 (FIN 48).
FIN 48
D-30
NEVADA
PACIFIC GOLD LTD.
NOTES TO
THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
prescribes a comprehensive model for how a company should
recognize, measure, present, and disclose in its financial
statements uncertain tax positions that the company has taken or
expects to take on a tax return (including a decision whether to
file or not file a return in a particular jurisdiction). Under
the Interpretation, the financial statements will reflect
expected future tax consequences of such positions presuming the
taxing authorities’ full knowledge of the position and all
relevant facts, but without considering time values. The
Interpretation also revises disclosure requirements and
introduces a prescriptive, annual, tabular roll-forward of the
unrecognized tax benefits. It is effective for fiscal years
beginning after December 15, 2006.
Subsequent to June 30, 2006, there were 1,418,150 warrants
exercised at $1.20 CDN for gross proceeds of $1,701,780 CDN and
175,000 stock options exercised at an average price of $0.64 CDN
for gross proceeds of $111,500 CDN.
D-31
|
|
A
Partnership of Incorporated Professionals |
Amisano
Hanson |
Chartered
Accountants
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Directors,
Tone Resources Limited
(An Exploration Stage Company)
We have audited the consolidated balance sheets of Tone
Resources Limited as at August 31, 2005 and 2004 and the
consolidated statements of loss, cash flows and
stockholders’ equity for the three years then ended. These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally
accepted auditing standards and the standards of the Public
Company Accounting Oversight Board (United States of America).
Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present
fairly, in all material respects, the financial position of the
Company as at August 31, 2005 and 2004 and the results of
its operations and its cash flows for the three years then ended
in accordance with Canadian generally accepted accounting
principles.
/s/ AMISANO HANSON
Chartered Accountants
Vancouver, Canada
December 22, 2005
COMMENTS
BY AUDITOR FOR US READERS ON CANADA — US REPORTING
CONFLICT
In the United States, reporting standards for auditors require
the addition of an explanatory paragraph (following the
opinion paragraph) when there is substantial doubt about a
company’s ability to continue as a going concern. The
accompanying consolidated financial statements have been
prepared on the basis of accounting principles applicable to a
going concern which assumes the realization of assets and
discharge of liabilities in the normal course of business. As
discussed in Note 1 to the financial statements, the
Company has losses from operations and the recoverability of
amounts shown for mineral property costs is dependent upon
whether the properties contain reserves that are economically
recoverable, which raises substantial doubt about the
Company’s ability to continue as a going concern. The
consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Our report to the shareholders dated December 22, 2005, is
expressed in accordance with Canadian reporting standards which
do not permit a reference to such uncertainty in the
auditors’ report when the uncertainty is adequately
disclosed in the financial statements.
/s/ AMISANO HANSON
Chartered Accountants
Vancouver, Canada
December 22, 2005
|
|
750
WEST PENDER STREET, SUITE 604
|
TELEPHONE:
604-689-0188
|
|
|
VANCOUVER
CANADA
|
FACSIMILE:
604-689-9773
|
|
|
V6C
2T7
|
E-MAIL:
amishan@telus.net
|
E-2
TONE
RESOURCES LIMITED
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
August 31, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
(Stated in Canadian Dollars)
|
|
|
ASSETS
|
Current
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
5,069
|
|
|
$
|
372,760
|
|
GST recoverable
|
|
|
6,508
|
|
|
|
2,711
|
|
Prepaid expenses and
advances — Note 6
|
|
|
2,558
|
|
|
|
16,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,135
|
|
|
|
392,191
|
|
Reclamation bonds —
Note 3
|
|
|
34,584
|
|
|
|
37,865
|
|
Mineral property costs —
Notes 4 and 6 and Schedule 1
|
|
|
1,124,298
|
|
|
|
905,596
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,173,017
|
|
|
$
|
1,335,652
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Current
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
51,861
|
|
|
$
|
29,884
|
|
Due to related parties —
Note 6
|
|
|
77,204
|
|
|
|
12,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
129,065
|
|
|
|
42,269
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
Share capital —
Notes 5, 6, 7 and 9
|
|
|
2,927,262
|
|
|
|
2,566,492
|
|
Contributed surplus —
Note 5
|
|
|
621,849
|
|
|
|
376,251
|
|
Deficit
|
|
|
(2,505,159
|
)
|
|
|
(1,649,360
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
1,043,952
|
|
|
|
1,293,383
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,173,017
|
|
|
$
|
1,335,652
|
|
|
|
|
|
|
|
|
|
|
Nature and Continuance of
Operations — Note 1
|
|
|
|
|
|
|
|
|
Commitments —
Notes 4, 5 and 9
|
|
|
|
|
|
|
|
|
Subsequent Events —
Note 9
|
|
|
|
|
|
|
|
|
See accompanying notes
E-3
TONE
RESOURCES LIMITED
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF LOSS
for the years ended August 31, 2005, 2004 and 2003
and for the period October 31, 2001 (Date of Inception) to
August 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 (Date of
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception) to
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2005
|
|
|
|
(Stated in Canadian Dollars)
|
|
|
General and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounting and audit
fees — Note 6
|
|
$
|
35,808
|
|
|
$
|
62,012
|
|
|
$
|
56,768
|
|
|
$
|
161,783
|
|
Advertising and promotion
|
|
|
32,937
|
|
|
|
28,174
|
|
|
|
681
|
|
|
|
74,602
|
|
Consulting fees
|
|
|
—
|
|
|
|
—
|
|
|
|
7,747
|
|
|
|
7,747
|
|
Filing fees
|
|
|
16,769
|
|
|
|
29,450
|
|
|
|
8,764
|
|
|
|
54,983
|
|
Finance fees
|
|
|
10,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,000
|
|
Investor relations
|
|
|
68,000
|
|
|
|
79,435
|
|
|
|
13,500
|
|
|
|
160,935
|
|
Legal fees — Note 6
|
|
|
59,192
|
|
|
|
179,391
|
|
|
|
35,644
|
|
|
|
288,480
|
|
Management fees —
Note 6
|
|
|
151,581
|
|
|
|
181,036
|
|
|
|
189,295
|
|
|
|
587,482
|
|
Office and miscellaneous
|
|
|
13,334
|
|
|
|
14,971
|
|
|
|
11,617
|
|
|
|
49,417
|
|
Rent — Note 6
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
12,000
|
|
|
|
52,665
|
|
Stock-based
compensation — Note 6
|
|
|
282,409
|
|
|
|
368,313
|
|
|
|
7,938
|
|
|
|
658,660
|
|
Secretarial — Note 6
|
|
|
11,389
|
|
|
|
13,462
|
|
|
|
11,240
|
|
|
|
38,146
|
|
Telephone
|
|
|
13,679
|
|
|
|
16,046
|
|
|
|
13,188
|
|
|
|
48,681
|
|
Transfer agent fees
|
|
|
8,213
|
|
|
|
6,912
|
|
|
|
4,236
|
|
|
|
19,361
|
|
Travel
|
|
|
37,865
|
|
|
|
82,241
|
|
|
|
63,578
|
|
|
|
185,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before other items
|
|
|
(756,176
|
)
|
|
|
(1,076,443
|
)
|
|
|
(436,196
|
)
|
|
|
(2,398,323
|
)
|
Other items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange loss
|
|
|
(17,389
|
)
|
|
|
(7,440
|
)
|
|
|
(4,265
|
)
|
|
|
(29,450
|
)
|
Interest income
|
|
|
535
|
|
|
|
1,203
|
|
|
|
2,763
|
|
|
|
5,383
|
|
Write-off of mineral property
costs — Note 4
|
|
|
(82,769
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(82,769
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year
|
|
$
|
(855,799
|
)
|
|
$
|
(1,082,680
|
)
|
|
$
|
(437,698
|
)
|
|
$
|
(2,505,159
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(0.06
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares
outstanding
|
|
|
13,168,002
|
|
|
|
11,478,821
|
|
|
|
6,547,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
E-4
TONE
RESOURCES LIMITED
(An Exploration Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended August 31, 2005, 2004 and 2003
and for the period October 31, 2001 (Date of Inception) to
August 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 (Date of
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception) to
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2005
|
|
|
|
(Stated in Canadian Dollars)
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year
|
|
$
|
(855,799
|
)
|
|
$
|
(1,082,680
|
)
|
|
$
|
(437,698
|
)
|
|
$
|
(2,505,159
|
)
|
Add items not affecting cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
282,409
|
|
|
|
368,313
|
|
|
|
7,938
|
|
|
|
658,660
|
|
Write-off of mineral property costs
|
|
|
82,769
|
|
|
|
—
|
|
|
|
—
|
|
|
|
82,769
|
|
Changes in non-cash working
capital accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GST recoverable
|
|
|
(3,797
|
)
|
|
|
11,305
|
|
|
|
(14,016
|
)
|
|
|
(6,508
|
)
|
Prepaid expenses and advances
|
|
|
13,162
|
|
|
|
2,275
|
|
|
|
32,608
|
|
|
|
(2,558
|
)
|
Accounts payable
|
|
|
71,921
|
|
|
|
(43,132
|
)
|
|
|
62,622
|
|
|
|
101,805
|
|
Due to related parties
|
|
|
65,819
|
|
|
|
5,617
|
|
|
|
11,162
|
|
|
|
77,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(343,516
|
)
|
|
|
(738,302
|
)
|
|
|
(337,384
|
)
|
|
|
(1,593,787
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special warrants issued
|
|
|
—
|
|
|
|
—
|
|
|
|
262,773
|
|
|
|
—
|
|
Common shares issued
|
|
|
220,015
|
|
|
|
1,280,135
|
|
|
|
576,473
|
|
|
|
2,786,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
220,015
|
|
|
|
1,280,135
|
|
|
|
839,246
|
|
|
|
2,786,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclamation bonds
|
|
|
3,281
|
|
|
|
(2,900
|
)
|
|
|
(18,165
|
)
|
|
|
(34,584
|
)
|
Mineral property costs
|
|
|
(247,471
|
)
|
|
|
(455,870
|
)
|
|
|
(347,435
|
)
|
|
|
(1,153,067
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(244,190
|
)
|
|
|
(458,770
|
)
|
|
|
(365,600
|
)
|
|
|
(1,187,651
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash during
the year
|
|
|
(367,691
|
)
|
|
|
83,063
|
|
|
|
136,262
|
|
|
|
5,069
|
|
Cash, beginning of the year
|
|
|
372,760
|
|
|
|
289,697
|
|
|
|
153,435
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of the year
|
|
$
|
5,069
|
|
|
$
|
372,760
|
|
|
$
|
289,697
|
|
|
$
|
5,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash
flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash Transactions —
Note 7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
E-5
TONE
RESOURCES LIMITED
(An Exploration Stage Company)
for the years ended August 31, 2005, 2004 and 2003
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Special
|
|
|
Contributed
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares
|
|
|
Amount
|
|
|
Warrants
|
|
|
Surplus
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
(Stated in Canadian dollars)
|
|
|
Balance, October 31, 2001
|
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
For cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of founders shares
|
|
— at $0.0001
|
|
|
5,000,000
|
|
|
|
500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
500
|
|
Issuance of special warrants
|
|
— at $0.15
|
|
|
—
|
|
|
|
—
|
|
|
|
446,611
|
|
|
|
—
|
|
|
|
—
|
|
|
|
446,611
|
|
Net loss for the period
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(128,982
|
)
|
|
|
(128,982
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2002
|
|
|
|
|
5,000,000
|
|
|
|
500
|
|
|
|
446,611
|
|
|
|
—
|
|
|
|
(128,982
|
)
|
|
|
318,129
|
|
For cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial public offering
|
|
— at $0.50
|
|
|
1,532,700
|
|
|
|
766,350
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
766,350
|
|
Issuance of special warrants
|
|
— at $0.15
|
|
|
—
|
|
|
|
—
|
|
|
|
31,426
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31,426
|
|
|
|
— at $0.50
|
|
|
—
|
|
|
|
—
|
|
|
|
231,347
|
|
|
|
—
|
|
|
|
—
|
|
|
|
231,347
|
|
Less: share issue costs —
Note 6
|
|
|
|
|
—
|
|
|
|
(189,877
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(189,877
|
)
|
Conversion of special warrants
|
|
|
|
|
3,649,606
|
|
|
|
709,384
|
|
|
|
(709,384
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Stock-based compensation
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,938
|
|
|
|
—
|
|
|
|
7,938
|
|
Net loss for the year
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(437,698
|
)
|
|
|
(437,698
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2003
|
|
|
|
|
10,182,306
|
|
|
|
1,286,357
|
|
|
|
—
|
|
|
|
7,938
|
|
|
|
(566,680
|
)
|
|
|
727,615
|
|
For cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pursuant to private placements
|
|
— at $0.47
|
|
|
1,081,670
|
|
|
|
508,385
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
508,385
|
|
|
|
— at $0.50
|
|
|
1,543,500
|
|
|
|
771,750
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
771,750
|
|
Stock-based compensation
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
368,313
|
|
|
|
—
|
|
|
|
368,313
|
|
Net loss for the year
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,082,680
|
)
|
|
|
(1,082,680
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2004
|
|
|
|
|
12,807,476
|
|
|
|
2,566,492
|
|
|
|
—
|
|
|
|
376,251
|
|
|
|
(1,649,360
|
)
|
|
|
1,293,383
|
|
For cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pursuant to private placements
|
|
— at $0.40
|
|
|
175,412
|
|
|
|
70,165
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
70,165
|
|
|
|
— at $0.40
|
|
|
250,000
|
|
|
|
100,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
100,000
|
|
Pursuant to exercise of options
|
|
— at $0.30
|
|
|
67,500
|
|
|
|
20,250
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,250
|
|
|
|
— at $0.50
|
|
|
59,200
|
|
|
|
29,600
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
29,600
|
|
Shares for debt
|
|
— at $0.45
|
|
|
110,986
|
|
|
|
49,944
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
49,944
|
|
Mineral property costs
|
|
— at $0.45
|
|
|
120,000
|
|
|
|
54,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
54,000
|
|
Stock-based compensation
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
282,409
|
|
|
|
—
|
|
|
|
282,409
|
|
Stock based compensation charge on
stock options exercised
|
|
|
|
|
—
|
|
|
|
36,811
|
|
|
|
—
|
|
|
|
(36,811
|
)
|
|
|
—
|
|
|
|
—
|
|
Net loss for the year
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(855,799
|
)
|
|
|
(855,799
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2005
|
|
|
|
|
13,590,574
|
|
|
$
|
2,927,262
|
|
|
$
|
—
|
|
|
$
|
621,849
|
|
|
$
|
(2,505,159
|
)
|
|
$
|
1,043,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
E-6
Schedule
1
TONE
RESOURCES LIMITED
(An Exploration Stage Company)
CONSOLIDATED SCHEDULE OF MINERAL PROPERTY COSTS
August 31, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Big
|
|
|
Crescent
|
|
|
|
|
|
|
|
|
|
South
|
|
|
Roberts
|
|
|
|
|
|
Kent
|
|
|
Red
|
|
|
Battle
|
|
|
Gold Bar
|
|
|
Antelope
|
|
|
Valley
|
|
|
|
|
|
|
|
|
|
Keystone
|
|
|
Creek
|
|
|
Kobeh
|
|
|
Springs
|
|
|
Ridge
|
|
|
Mountain
|
|
|
North
|
|
|
Springs
|
|
|
North
|
|
|
2005
|
|
|
2004
|
|
|
|
(Eureka)
|
|
|
(Eureka)
|
|
|
(Eureka)
|
|
|
(Pershing)
|
|
|
(Elko)
|
|
|
(Lander)
|
|
|
(Eureka)
|
|
|
(Lander)
|
|
|
(Eureka)
|
|
|
Total
|
|
|
Total
|
|
|
|
(Stated in Canadian Dollars)
|
|
|
Property acquisition and
maintenance costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2004
|
|
$
|
25,522
|
|
|
$
|
53,772
|
|
|
$
|
123,284
|
|
|
$
|
7,440
|
|
|
$
|
54,226
|
|
|
$
|
51,927
|
|
|
$
|
14,583
|
|
|
$
|
6,385
|
|
|
$
|
—
|
|
|
$
|
337,139
|
|
|
$
|
201,505
|
|
Cash
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,243
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,243
|
|
|
|
27,913
|
|
Common
shares — Note 6
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
54,000
|
|
|
|
54,000
|
|
|
|
—
|
|
Claims
maintenance — Note 6
|
|
|
3,693
|
|
|
|
7,122
|
|
|
|
17,540
|
|
|
|
1,319
|
|
|
|
35,318
|
|
|
|
9,891
|
|
|
|
2,506
|
|
|
|
6,571
|
|
|
|
28,769
|
|
|
|
112,729
|
|
|
|
96,718
|
|
Title opinions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2005
|
|
|
29,215
|
|
|
|
60,894
|
|
|
|
140,824
|
|
|
|
8,759
|
|
|
|
93,787
|
|
|
|
61,818
|
|
|
|
17,089
|
|
|
|
12,956
|
|
|
|
82,769
|
|
|
|
508,111
|
|
|
|
337,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred exploration costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2004
|
|
|
13,766
|
|
|
|
88,848
|
|
|
|
191,259
|
|
|
|
125
|
|
|
|
143,538
|
|
|
|
130,286
|
|
|
|
525
|
|
|
|
110
|
|
|
|
—
|
|
|
|
568,457
|
|
|
|
248,221
|
|
Assaying
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,062
|
|
|
|
—
|
|
|
|
4,884
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21,946
|
|
|
|
59,771
|
|
Consulting fees
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,754
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,754
|
|
|
|
7,507
|
|
Drilling
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
87,196
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
87,196
|
|
|
|
224,653
|
|
Field costs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,760
|
|
|
|
—
|
|
|
|
2,046
|
|
|
|
729
|
|
|
|
—
|
|
|
|
7,535
|
|
|
|
18,784
|
|
Reclamation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,068
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,068
|
|
|
|
9,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2005
|
|
|
13,766
|
|
|
|
88,848
|
|
|
|
191,259
|
|
|
|
125
|
|
|
|
260,624
|
|
|
|
130,286
|
|
|
|
13,209
|
|
|
|
839
|
|
|
|
—
|
|
|
|
698,956
|
|
|
|
568,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-off mineral
property — Note 4
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(82,769
|
)
|
|
|
(82,769
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
42,981
|
|
|
$
|
149,742
|
|
|
$
|
332,083
|
|
|
$
|
8,884
|
|
|
$
|
354,411
|
|
|
$
|
192,104
|
|
|
$
|
30,298
|
|
|
$
|
13,795
|
|
|
$
|
—
|
|
|
$
|
1,124,298
|
|
|
$
|
905,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
E-7
TONE
RESOURCES LIMITED
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2005 and 2004
(Stated in Canadian Dollars)
|
|
Note 1
|
Nature
and Continuance of Operations
|
The Company was incorporated on October 31, 2001 in the
Yukon Territory. On March 1, 2005, the Company was
continued to British Columbia from the Yukon Territory. The
Company’s business is the exploration and development of
its mineral properties located in Nevada, USA. The
Company’s shares are publicly listed on the TSX Venture
Exchange.
These consolidated financial statements have been prepared in
accordance with generally accepted accounting principles
applicable to a going concern which assume that the Company will
realize its assets and discharge its liabilities in the normal
course of business. At August 31, 2005, the Company has a
working capital deficiency if $114,930, has not yet achieved
profitable operations and has accumulated losses of $2,505,159
since incorporation. No assurances can be given that the Company
will be able to continue as a going concern. Its ability to
continue as a going concern is dependent upon the ability of the
Company to generate profitable operations in the future
and/or to
obtain the necessary financing to meet its obligations and repay
its liabilities arising from normal business operations when
they come due. These financial statements do not include any
adjustments to the amounts and classification of assets and
liabilities that might be necessary should the Company be unable
to continue its operations and therefore be required to realize
its assets and discharge its liabilities in other than its the
normal course of operations and at amounts different from those
reflected in the financial statements. The Company has
historically satisfied its capital needs primarily by issuing
equity securities. Management plans to continue to provide for
its capital needs during the year ended August 31, 2006, by
the issuance of common stock and through loans.
The recoverability of amounts shown for mineral property costs
is dependent upon the discovery of economically recoverable
reserves and the ability to obtain the necessary financing to
complete their exploration and development.
|
|
Note 2
|
Significant
Accounting Policies
|
These consolidated financial statements have been prepared in
accordance with generally accepted accounting principles
(“GAAP”) in Canada and are stated in Canadian dollars.
Except as disclosed in Note 10, these financial statements
conform in all material respects with GAAP in the United States
of America. Because a precise determination of many assets and
liabilities is dependent upon future events, the preparation of
financial statements for a period necessarily involves the use
of estimates, which have been made using careful judgement.
Actual results may differ from these estimates.
The financial statements have, in management’s opinion,
been properly prepared within the framework of the significant
accounting policies summarized below:
a) Principles
of Consolidation
These consolidated financial statements include the accounts of
the Company and its wholly owned United States subsidiary, Tone
Resources (US) Inc., which was incorporated on June 27,
2002 in the State of Nevada. All inter-company transactions and
balances have been eliminated.
E-8
TONE
RESOURCES LIMITED
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
b) Mineral
Property Costs and Depletion
Property
Acquisition Costs
Acquisitions of mineral properties are initially recorded at
cost. Producing resource properties are depleted over their
estimated useful lives based upon a method relating recoverable
resource reserves to production. Non-producing resource
properties that the Company abandons interest in are written off
in the year of abandonment.
Deferred
Exploration Costs
The Company capitalizes all exploration expenses that result in
the acquisition and retention of mineral properties or an
interest therein. The accumulated costs including applicable
exploration expenses relative to non-productive resource
properties that the Company abandons interest in are written
off. Otherwise, the exploration expenses are depleted over the
estimated useful lives of the producing resource properties on a
method relating recoverable reserves to production.
The Company is in the process of exploring and developing its
mineral properties and has not yet determined the amount of
reserves available. Management reviews the carrying values of
mineral properties on a periodic basis and will recognize
impairment in value based upon current exploration results, the
prospect of further work being carried out by the Company, the
assessment of future probability of profitable revenues from the
property or from the sale of the property. Write-downs due to
impairment in value are charged to operations. Amounts shown for
properties represent costs incurred net of write-downs and
recoveries, and are not intended to represent present or future
values.
c) Environmental
Costs
Environmental expenditures that relate to current operations are
expensed or capitalized as appropriate. Expenditures that relate
to an existing condition caused by past operations and which do
not contribute to current or future revenue generation are
expensed. Liabilities are recorded when environmental
assessments
and/or
remedial efforts are probable, and the cost can be reasonably
estimated. Generally, the timing of these accruals coincides
with the earlier of completion of a feasibility study or the
Company’s commitment to a plan of action based on the then
known facts.
d) Financial
Instruments
The carrying values of cash, accounts payable and due to related
parties approximate fair value because of the short-term
maturity of those instruments. It is management’s opinion
that the Company is not exposed to significant interest or
credit risks arising from these financial instruments.
The Company’s mineral exploration activities are located in
the United States of America and expenditures are in
U.S. dollars. Consequently some assets and liabilities are
exposed to foreign currency fluctuations. As at August 31,
2005, cash of $868 (2004: $229,870) and accounts payable of
$15,830 (2004: $17,108) denominated in U.S. dollars are
included in these financial statements.
e) Foreign
Currency Translation
Monetary assets and liabilities denominated in a foreign
currency are translated into Canadian dollars at exchange rates
prevailing at the balance sheet date and non-monetary assets and
liabilities are translated at exchange rates prevailing at the
transaction dates. Foreign currency denominated revenues and
expenses are translated at exchange rates prevailing at the
transaction dates. Gains or losses arising from the translations
are recognized in the current year.
E-9
TONE
RESOURCES LIMITED
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
f) Basic
and Diluted Loss Per Share
Basic earnings per share are computed by dividing the loss for
the year by the weighted average number of common shares
outstanding during the year. Diluted earnings per share reflect
the dilution that would occur if potentially dilutive securities
were exercised or converted to common shares. The dilutive
effect of options and warrants and their equivalent is computed
by application of the treasury stock method and the effect of
convertible securities by the “if converted” method.
Fully diluted amounts are not presented when the effect of the
computations are anti-dilutive due to the losses incurred.
Accordingly, there is no difference in the amounts presented for
basic and diluted loss per share.
g) Income
Taxes
The Company accounts for income taxes by the asset and liability
method. Under this method, current income taxes are recognized
for the estimated income taxes payable for the current year.
Future income tax assets and liabilities are recognized in the
current year for temporary differences between the tax and
accounting basis of assets and liabilities as well as for the
benefit of losses available to be carried forward to future
years for tax purposes that are more likely than not to be
realized.
h) Stock-based
Compensation
The Company has a stock-based compensation plan as disclosed in
Note 5. During the year ended August 31, 2004, the
Company adopted CICA Handbook Section 3870 —
“Stock-based Compensation and Other Stock-based
Payments”. This change in accounting policy has been
applied prospectively with no restatement of prior periods
presented for the statements of loss and cash flows.
Under this standard, the Company must account for compensation
expense based on the fair value of options granted under its
stock-based compensation plan. Costs attributable to stock
options granted to directors, employees or consultants are
measured at fair value at the grant date, and expensed when
vested with a corresponding increase to contributed surplus.
Upon exercise of stock options, consideration paid by the option
holder, together with the amount previously recognized in
contributed surplus, is recorded as an increase to share capital.
Previously, the Company accounted for stock-based compensation
using the settlement method. No compensation expense was
recorded in the financial statements for stock options granted
to directors and employees as the options had no intrinsic value
at the date of grant. Consideration paid on the exercise of
stock options was credited to share capital.
The Company has certificates of deposit that earn interest at
approximately 1% per annum. These deposits represent
restricted cash as they are pledged as security to the Bureau of
Land Management and are only released to the Company after the
Company meets inspection requirements. Reclamation costs are
added to mineral property costs as incurred.
|
|
Note 4
|
Mineral
Property Costs
|
The Company holds 410 mining claims in Nevada, USA. The
properties are located in Eureka, Pershing, Elko and Lander
counties and are subject to royalties of 1% to 4% of net smelter
returns. Certain of the royalties are payable to a company with
a director in common.
E-10
TONE
RESOURCES LIMITED
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In addition, the Company holds two leased mineral rights located
in Elko county, Nevada. Lease payments are due as follows for
the years ended:
|
|
|
|
|
August 31, 2003
|
|
|
US$ 12,000
|
(paid)
|
August 31, 2004
|
|
|
12,000
|
(paid)
|
August 31, 2005
|
|
|
12,000
|
(paid)
|
August 31, 2006
|
|
|
20,000
|
(paid $10,000)
|
August 31, 2007
|
|
|
30,000
|
|
August 31, 2008
|
|
|
35,000
|
|
August 31, 2009
|
|
|
40,000
|
|
August 31, 2010
|
|
|
45,000
|
|
August 31, 2011
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
US$256,000
|
|
|
|
|
|
|
On March 9, 2004, the Company entered into an agreement
with Teck Cominco. The agreement grants Teck Cominco the option
to earn interests of up to 75% in any two of the Company’s
current properties located in north-central Nevada as well as
any other properties acquired by the Company until March 9,
2006 in this defined area of interest in Nevada. Teck Cominco
has a first right of refusal on the Red Ridge property. Teck
Cominco may earn the interests by completing expenditure
requirements totalling $3,000,000 and preparing feasibility
reports.
By an agreement dated October 19, 2004, the Company entered
into a mining lease with a company with a common director to
acquire 76 mining claims known as the Crescent Valley North
claims located in Nevada in exchange for 120,000 common shares
of the Company (issued). The claims were subject to a 4% net
smelter return royalty. In addition, the claims required the
following lease payments:
|
|
|
US$12,000
|
|
Upon execution of the agreement
(paid)
|
US$25,000
|
|
Anniversaries 1 through 4
|
US$50,000
|
|
Anniversaries 5 through 9
|
US$75,000
|
|
Thereafter
|
During the year ended August 31, 2005, the Company
abandoned its interest in these claims and wrote-off related
mineral property costs in the amount of $82,769.
|
|
Note 5
|
Share
Capital — Notes 6 and 9
|
a) Authorized:
An unlimited number of common shares without par value
b) Escrow:
At August 31, 2005 there were 1,542,000 common shares held
in escrow by the Company’s transfer agent. These shares
will be released from escrow as follows:
|
|
|
|
|
November 16, 2005
(subsequently released)
|
|
|
771,000
|
|
May 16, 2006
|
|
|
771,000
|
|
|
|
|
|
|
|
|
|
1,542,000
|
|
|
|
|
|
|
E-11
TONE
RESOURCES LIMITED
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
c) Commitments:
i) Stock-based
Compensation Plan
Stock options are granted with an exercise price equal to the
market price of the Company’s stock on the date of the
grant. Pursuant to the stock-based compensation plan, options
may not be granted at an exercise price of less than
$0.10 per share. Stock options have a maximum term of five
years. The Company’s options vest 25% on the date of the
grant with the remaining 75% vesting over the next
18 months at a rate of 12.5% per quarter based on the
original amount granted.
A summary of the status of the Company’s stock option plan
as of August 31, 2005 and 2004 and the changes during the
years then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Number
|
|
|
Exercise
|
|
|
Number
|
|
|
Exercise
|
|
|
|
of Shares
|
|
|
Price
|
|
|
of Shares
|
|
|
Price
|
|
|
Options outstanding, beginning of
year
|
|
|
1,850,000
|
|
|
$
|
0.50
|
|
|
|
2,000,000
|
|
|
$
|
0.50
|
|
Granted
|
|
|
1,099,732
|
|
|
$
|
0.41
|
|
|
|
550,000
|
|
|
$
|
0.50
|
|
Exercised
|
|
|
(126,700
|
)
|
|
$
|
0.39
|
|
|
|
—
|
|
|
|
—
|
|
Cancelled
|
|
|
(150,000
|
)
|
|
$
|
0.50
|
|
|
|
(700,000
|
)
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, end of year
|
|
|
2,673,032
|
|
|
$
|
0.50
|
|
|
|
1,850,000
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, end of year
|
|
|
2,115,291
|
|
|
$
|
0.50
|
|
|
|
1,459,375
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following stock options were outstanding as at
August 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
Expiry
|
Number
|
|
Price
|
|
Date
|
|
|
1,165,800
|
|
|
$
|
0.50
|
|
|
May 16, 2008
|
|
50,000
|
|
|
$
|
0.50
|
|
|
June 09, 2008
|
|
25,000
|
|
|
$
|
0.50
|
|
|
July 21, 2008
|
|
300,000
|
|
|
$
|
0.50
|
|
|
November 14, 2008
|
|
100,000
|
|
|
$
|
0.50
|
|
|
December 18, 2008
|
|
321,500
|
|
|
$
|
0.30
|
|
|
September 2, 2009
|
|
484,732
|
|
|
$
|
0.50
|
|
|
February 1, 2010
|
|
226,000
|
|
|
$
|
0.40
|
|
|
July 26, 2010
|
|
|
|
|
|
|
|
|
|
|
2,673,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At August 31, 2005, 557,741 of the above outstanding
options were not yet vested with the optionees. These options
will vest with the optionees over the period from
September 2, 2005 to January 26, 2007.
Non-cash compensation charges totalling $282,409 (2004:
$368,313) associated with vested options granted to directors,
employees and consultants were recognized in the consolidated
financial statements of the Company.
E-12
TONE
RESOURCES LIMITED
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
These compensation charges have been determined under the fair
value method using the Black-Scholes option pricing model with
the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
Years Ended August 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
Expected dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected volatility
|
|
|
99.2
|
%
|
|
|
90.0
|
%
|
Risk-free interest rate
|
|
|
2.0
|
%
|
|
|
2.0
|
%
|
Expected term in years
|
|
|
5 years
|
|
|
|
5 years
|
|
The weighted average fair value at the date of grant of the
stock options granted was as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended August 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
Weighted average fair value
|
|
$
|
0.29
|
|
|
$
|
0.32
|
|
Total options granted
|
|
|
1,099,732
|
|
|
|
550,000
|
|
Total fair value of options granted
|
|
$
|
314,972
|
|
|
$
|
178,500
|
|
Total fair value of options vested
|
|
$
|
282,409
|
|
|
$
|
368,313
|
|
ii) Share
Purchase Warrants
At August 31, 2005, there were 2,837,876 share
purchase warrants outstanding entitling the holders thereof the
right to purchase one common share for each warrant held as
follows:
|
|
|
|
|
|
|
Number
|
|
Exercise Price
|
|
Expiry Date
|
|
|
1,026,387
|
|
|
$0.50
|
|
December 8, 2005
|
|
55,283
|
|
|
$0.50
|
|
January 15, 2006
|
|
1,000,000
|
|
|
$0.75
|
|
March 31, 2006
|
|
543,500
|
|
|
$0.75
|
|
July 5, 2006
|
|
87,706
|
|
|
$0.60
|
|
May 26, 2006
|
|
|
|
|
or at $0.80
|
|
November 26, 2006
|
|
125,000
|
|
|
$0.60
|
|
June 14, 2006
|
|
|
|
|
|
|
|
|
|
|
|
or at $0.80
|
|
December 14, 2006
|
|
2,837,876
|
|
|
|
|
|
|
|
|
|
|
|
|
E-13
TONE
RESOURCES LIMITED
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
Note 6
|
Related
Party Transactions — Notes 4, 5, 8 and
9
|
The Company incurred the following charges from directors and
officers of the Company, a company with a director in common
with the Company and the daughter of a director of the Company
for the years ended August 31, 2005, 2004 and 2003 and for
the period October 31, 2001 (Date of Inception) to
August 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 (Date of
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception) to
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2005
|
|
|
Accounting fees
|
|
$
|
13,725
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13,725
|
|
Legal fees
|
|
|
30,209
|
|
|
|
41,945
|
|
|
|
6,353
|
|
|
|
78,507
|
|
Management fees
|
|
|
151,581
|
|
|
|
181,036
|
|
|
|
189,295
|
|
|
|
587,482
|
|
Mineral property costs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
87,247
|
|
Mineral property acquisition costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— common shares
|
|
|
54,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
54,000
|
|
— cash
|
|
|
15,717
|
|
|
|
—
|
|
|
|
47,043
|
|
|
|
15,717
|
|
Rent
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
12,000
|
|
|
|
52,665
|
|
Share issue costs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
74,275
|
|
Stock-based compensation
|
|
|
197,763
|
|
|
|
286,813
|
|
|
|
—
|
|
|
|
484,576
|
|
Secretarial
|
|
|
11,389
|
|
|
|
13,462
|
|
|
|
11,090
|
|
|
|
37,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
489,384
|
|
|
$
|
538,256
|
|
|
$
|
340,056
|
|
|
$
|
1,486,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These charges were measured by the exchange amount, which is the
amount agreed upon by the transacting parties.
Included in prepaid expenses and advances is $Nil (2004: $7,750)
representing prepayment of management fees and rent to a
director of the Company.
Amounts due to related parties are due to directors and officers
of the Company and representing unpaid fees and expenses. These
amounts are unsecured, non-interest bearing and have no specific
terms of repayment.
During the year ended August 31, 2005, the Company issued
151,700 common shares for cash proceeds of $59,850 and 120,000
common shares for mineral property acquisition costs of $54,000
to directors of the Company and to a company with a director in
common with the Company.
During the year ended August 31, 2004, the Company issued
110,000 common shares for cash proceeds of $52,000 to directors
of the Company.
|
|
Note 7
|
Non-cash
Transactions
|
Investing and financing activities that do not have a direct
impact on current cash flows are excluded from the statements of
cash flows. During the year ended August 31, 2005, the
Company issued 120,000 common shares at $0.45 totalling $54,000
as a property acquisition cost pursuant to a mining lease. In
addition, the Company issued 110,986 common shares at $0.45 to
settle a debt of $49,944. These transactions have been excluded
from the statement of cash flows.
During the year ended August 31, 2003, the company
converted 3,649,606 special warrants to
3,649,606 common shares at a value of $709,384. This
transaction has been excluded from the statement of cash flows.
E-14
TONE
RESOURCES LIMITED
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Significant components of the Company’s future tax assets
and liabilities, after applying enacted corporate income tax
rates, are as follows:
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
Future income tax assets
|
|
|
|
|
|
|
|
|
Tax losses carried forward
|
|
$
|
1,022,523
|
|
|
$
|
772,122
|
|
Less: valuation allowance
|
|
|
(1,022,523
|
)
|
|
|
(772,122
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
The Company recorded a valuation allowance against its future
income tax assets based on the extent to which it is more
likely-than-not
that sufficient taxable income will not be realized during the
carry forward periods to utilize all the future tax assets.
At August 31, 2005, the Company and its subsidiary have
accumulated losses totalling $2,870,643, which may be carried
forward to reduce future years income for federal and state
income tax purposes. These losses, the potential benefit of
which have not been recognized in these financial statements,
expire as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
|
|
|
|
Canada
|
|
|
of America
|
|
|
Total
|
|
|
2009
|
|
$
|
100,542
|
|
|
$
|
—
|
|
|
$
|
100,542
|
|
2010
|
|
|
377,116
|
|
|
|
—
|
|
|
|
377,116
|
|
2011
|
|
|
661,076
|
|
|
|
—
|
|
|
|
661,076
|
|
2015
|
|
|
432,271
|
|
|
|
—
|
|
|
|
432,271
|
|
2022
|
|
|
—
|
|
|
|
96,061
|
|
|
|
96,061
|
|
2023
|
|
|
—
|
|
|
|
352,776
|
|
|
|
352,776
|
|
2024
|
|
|
—
|
|
|
|
487,178
|
|
|
|
487,178
|
|
2025
|
|
|
—
|
|
|
|
363,623
|
|
|
|
363,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,571,005
|
|
|
$
|
1,299,638
|
|
|
$
|
2,870,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 9
|
Subsequent
Events — Note 5
|
a) On October 7, 2005, the Company issued 88,000
common shares at $0.30 per share to a director of the
Company for proceeds of $26,400 pursuant to the exercise of
share purchase options outstanding at August 31, 2005.
b) On November 18, 2005, the Company granted a
director of the Company 100,000 share purchase options
entitling him to purchase one common share for each option held
at $0.20 per share until November 18, 2010.
c) On December 1, 2005, the Company granted a director
of the Company 50,000 share purchase options entitling him
to purchase one common share for each option held at
$0.35 per share until December 1, 2010.
d) On December 8, 2005, the Company issued 103,058
common shares (80,000 to a director of the Company) at
$0.50 per share for proceeds of $51,529 pursuant to the
exercise of share purchase warrants outstanding at
August 31, 2005. The remaining 923,329 warrants expired.
e) On December 19, 2005, the Company issued
2,570,000 units (1,840,000 to directors of the Company) at
$0.20 per unit pursuant to private placement agreements for
total proceeds of $514,000. Each unit consists of one common
share and one share purchase warrant entitling the holder
thereof the right to purchase an additional
E-15
TONE
RESOURCES LIMITED
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
common share at $0.25 per share until December 19,
2007. The Company received regulatory approval for the issuance
of a total 3,300,000 units at $0.20 per unit. The
remaining 730,000 units are subject to disinterested
shareholder approval at the Company’s next annual general
meeting.
f) On December 20, 2005, the Company issued 25,000
common shares at $0.40 per share for proceeds of $10,000
pursuant to the exercise of share purchase options outstanding
at August 31, 2005.
|
|
Note 10
|
Differences
Between Canadian and United States Accounting
Principles
|
These consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in
Canada which differ in certain respects with those principles
and practices that the Company would have followed had its
financial statements been prepared in accordance with accounting
principles and practices generally accepted in the United States.
The Company’s accounting principles generally accepted in
Canada differ from accounting principles generally accepted in
the United States as follows:
a) Mineral
Property Costs and Deferred Exploration Costs
Under accounting principles generally accepted in Canada
(“Canadian GAAP”) resource property acquisition and
exploration costs may be deferred and amortized to the extent
they meet certain criteria. Under accounting principles
generally accepted in the United States (“US GAAP”)
resource property acquisition and exploration costs must be
expensed as incurred. Therefore an additional expense is
required under US GAAP.
E-16
TONE
RESOURCES LIMITED
(An Exploration Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
b) The impact of the above on the consolidated financial
statements is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Net Loss and Loss Per
Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year per Canadian
GAAP
|
|
$
|
(855,799
|
)
|
|
$
|
(1,082,680
|
)
|
|
$
|
(437,698
|
)
|
Write-off of mineral property costs
|
|
|
82,769
|
|
|
|
—
|
|
|
|
—
|
|
Mineral property costs
|
|
|
(301,471
|
)
|
|
|
(455,870
|
)
|
|
|
(347,435
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year per US GAAP
|
|
$
|
(1,074,501
|
)
|
|
$
|
(1,538,550
|
)
|
|
$
|
(785,133
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
per US GAAP
|
|
$
|
(0.08
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets and
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets per Canadian GAAP
|
|
$
|
1,173,017
|
|
|
$
|
1,335,652
|
|
|
|
|
|
Mineral property costs
|
|
|
(1,124,298
|
)
|
|
|
(905,596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets per US GAAP
|
|
$
|
48,719
|
|
|
$
|
430,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities per Canadian and
US GAAP
|
|
$
|
129,065
|
|
|
$
|
42,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit, end of the year, per
Canadian GAAP
|
|
$
|
(2,505,159
|
)
|
|
$
|
(1,649,360
|
)
|
|
|
|
|
Mineral property costs
|
|
|
(1,124,298
|
)
|
|
|
(905,596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit, end of the year, per US
GAAP
|
|
|
(3,629,457
|
)
|
|
|
(2,554,956
|
)
|
|
|
|
|
Capital stock per Canadian and US
GAAP
|
|
|
2,927,262
|
|
|
|
2,566,492
|
|
|
|
|
|
Contributed surplus per Canadian
and US GAAP
|
|
|
621,849
|
|
|
|
376,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
(deficiency) per US GAAP
|
|
$
|
(80,346
|
)
|
|
$
|
387,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Cash
Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities per Canadian
GAAP
|
|
$
|
(343,516
|
)
|
|
$
|
(738,302
|
)
|
|
$
|
(337,384
|
)
|
Mineral property costs
|
|
|
(247,471
|
)
|
|
|
(455,870
|
)
|
|
|
(347,435
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities per US GAAP
|
|
$
|
(590,987
|
)
|
|
$
|
(1,194,172
|
)
|
|
$
|
(684,819
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities per Canadian
and US GAAP
|
|
$
|
220,015
|
|
|
$
|
1,280,135
|
|
|
$
|
839,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities per Canadian
GAAP
|
|
$
|
(244,190
|
)
|
|
$
|
(458,770
|
)
|
|
$
|
(365,600
|
)
|
Mineral property costs
|
|
|
247,471
|
|
|
|
455,870
|
|
|
|
347,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities per US GAAP
|
|
$
|
3,281
|
|
|
$
|
(2,900
|
)
|
|
$
|
(18,165
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 11
|
Comparative
Figures
|
Certain comparative figures as at August 31, 2004 and for
the years ended August 31, 2004 and 2003 have been
reclassified in order to comply with the financial statement
presentation adopted for the year ended August 31, 2005.
E-17
TONE
RESOURCES LIMITED
(An Exploration Stage Company)
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2006
(Unaudited)
(Stated in Canadian Dollars)
E-18
TONE
RESOURCES LIMITED
(An Exploration Stage Company)
Interim Consolidated Balance Sheets
May 31, 2006 and August 31, 2005
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
May 31,
|
|
|
August 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Stated in Canadian Dollars)
|
|
|
ASSETS
|
Current
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,304,315
|
|
|
$
|
5,069
|
|
GST recoverable
|
|
|
14,717
|
|
|
|
6,508
|
|
Prepaid expenses and advances
|
|
|
10,630
|
|
|
|
2,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,329,662
|
|
|
|
14,135
|
|
Reclamation bonds
|
|
|
32,742
|
|
|
|
34,584
|
|
Mineral property costs —
Notes 3 and 5 and Schedule 1
|
|
|
1,254,834
|
|
|
|
1,124,298
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,617,238
|
|
|
$
|
1,173,017
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Current
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
115,873
|
|
|
$
|
51,861
|
|
Due to related parties —
Note 5
|
|
|
17,562
|
|
|
|
77,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133,435
|
|
|
|
129,065
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
Share capital —
Notes 4, 5, and 7
|
|
|
5,348,694
|
|
|
|
2,927,262
|
|
Contributed surplus —
Note 4
|
|
|
438,876
|
|
|
|
621,849
|
|
Deficit
|
|
|
(3,303,767
|
)
|
|
|
(2,505,159
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
2,483,803
|
|
|
|
1,043,952
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,617,238
|
|
|
$
|
1,173,017
|
|
|
|
|
|
|
|
|
|
|
Nature and Continuance of
Operations — Note 2
|
|
|
|
|
|
|
|
|
Commitments —
Notes 3, 4 and 7
|
|
|
|
|
|
|
|
|
Subsequent Events —
Note 7
|
|
|
|
|
|
|
|
|
See accompanying notes
APPROVED BY
THE DIRECTORS:
|
|
|
/s/ Dan
Huber
|
|
Director
|
|
|
|
|
|
|
/s/ Scott
Baxter
|
|
Director
|
|
|
|
E-19
TONE
RESOURCES LIMITED
(An Exploration Stage Company)
Interim Consolidated Statements of Loss
for the three and nine months periods ended May 31, 2006
and 2005
and for the period October 31, 2001 (Date of Inception)
to May 31, 2006
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 (Date of
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
Inception) to
|
|
|
|
May 31,
|
|
|
May 31,
|
|
|
May 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
|
(Stated in Canadian Dollars)
|
|
|
General and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounting and audit
fees — Note 5
|
|
$
|
60,828
|
|
|
$
|
8,000
|
|
|
$
|
122,963
|
|
|
$
|
22,454
|
|
|
$
|
284,746
|
|
Advertising and promotion
|
|
|
15,834
|
|
|
|
6,472
|
|
|
|
50,042
|
|
|
|
29,493
|
|
|
|
124,644
|
|
Consulting fees
|
|
|
75,000
|
|
|
|
—
|
|
|
|
75,000
|
|
|
|
—
|
|
|
|
75,000
|
|
Filing fees
|
|
|
5,932
|
|
|
|
1,298
|
|
|
|
21,938
|
|
|
|
15,464
|
|
|
|
76,921
|
|
Investor relations
|
|
|
22,500
|
|
|
|
12,966
|
|
|
|
67,000
|
|
|
|
22,000
|
|
|
|
227,935
|
|
Legal fees — Note 5
|
|
|
118,447
|
|
|
|
18,028
|
|
|
|
118,756
|
|
|
|
40,042
|
|
|
|
407,236
|
|
Management fees —
Note 5
|
|
|
71,272
|
|
|
|
47,156
|
|
|
|
130,202
|
|
|
|
157,939
|
|
|
|
717,684
|
|
Office and miscellaneous
|
|
|
1,690
|
|
|
|
1,495
|
|
|
|
5,908
|
|
|
|
7,096
|
|
|
|
67,689
|
|
Rent — Note 5
|
|
|
3,750
|
|
|
|
3,750
|
|
|
|
11,250
|
|
|
|
11,250
|
|
|
|
63,915
|
|
Stock-based
compensation — Note 5
|
|
|
36,627
|
|
|
|
48,945
|
|
|
|
123,870
|
|
|
|
160,884
|
|
|
|
782,530
|
|
Secretarial — Note 5
|
|
|
3,435
|
|
|
|
1,798
|
|
|
|
8,743
|
|
|
|
8,833
|
|
|
|
46,889
|
|
Telephone
|
|
|
2,636
|
|
|
|
1,231
|
|
|
|
9,329
|
|
|
|
9,279
|
|
|
|
58,010
|
|
Transfer agent fees
|
|
|
2,297
|
|
|
|
3,091
|
|
|
|
9,633
|
|
|
|
7,550
|
|
|
|
28,994
|
|
Travel
|
|
|
16,374
|
|
|
|
12,493
|
|
|
|
32,306
|
|
|
|
25,165
|
|
|
|
217,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before other items
|
|
|
(436,622
|
)
|
|
|
(166,723
|
)
|
|
|
(786,940
|
)
|
|
|
(517,449
|
)
|
|
|
(3,179,880
|
)
|
Other items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange gain (loss)
|
|
|
(8,767
|
)
|
|
|
(1,414
|
)
|
|
|
(11,668
|
)
|
|
|
(2,623
|
)
|
|
|
(41,118
|
)
|
Write-off of mineral property costs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(82,769
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
$
|
(445,389
|
)
|
|
$
|
(168,137
|
)
|
|
$
|
(798,608
|
)
|
|
$
|
(520,072
|
)
|
|
$
|
(3,303,767
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares
outstanding
|
|
|
18,535,489
|
|
|
|
13,151,582
|
|
|
|
16,043,936
|
|
|
|
13,077,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
E-20
TONE
RESOURCES LIMITED
(An Exploration Stage Company)
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three and nine months periods ended May 31, 2006
and 2005
and for the period October 31, 2001 (Date of Inception) to
February 28, 2006
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 (Date of
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
Inception) to
|
|
|
|
May 31,
|
|
|
May 31,
|
|
|
May 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
|
(Stated in Canadian Dollars)
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
$
|
(445,389
|
)
|
|
$
|
(168,137
|
)
|
|
$
|
(798,608
|
)
|
|
$
|
(520,072
|
)
|
|
$
|
(3,303,767
|
)
|
Add items not affecting cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-off of mineral property costs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
82,769
|
|
Stock-based compensation
|
|
|
36,627
|
|
|
|
48,945
|
|
|
|
123,870
|
|
|
|
160,884
|
|
|
|
782,530
|
|
Changes in non-cash working
capital accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GST recoverable
|
|
|
(772
|
)
|
|
|
9,213
|
|
|
|
(8,209
|
)
|
|
|
13
|
|
|
|
(14,717
|
)
|
Subscriptions receivable
|
|
|
3,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Prepaid expenses and advances
|
|
|
14,977
|
|
|
|
12,788
|
|
|
|
(8,072
|
)
|
|
|
13,432
|
|
|
|
(10,630
|
)
|
Accounts payable
|
|
|
42,787
|
|
|
|
25,911
|
|
|
|
64,012
|
|
|
|
13,998
|
|
|
|
115,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(348,270
|
)
|
|
|
(71,280
|
)
|
|
|
(627,007
|
)
|
|
|
(331,745
|
)
|
|
|
(2,347,942
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share subscriptions
|
|
|
—
|
|
|
|
13,110
|
|
|
|
—
|
|
|
|
68,664
|
|
|
|
—
|
|
Common shares issued
|
|
|
1,490,587
|
|
|
|
70,530
|
|
|
|
2,114,589
|
|
|
|
215,325
|
|
|
|
4,922,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,490,587
|
|
|
|
83,640
|
|
|
|
2,114,589
|
|
|
|
283,989
|
|
|
|
4,922,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in reclamation
bonds
|
|
|
1,154
|
|
|
|
—
|
|
|
|
1,842
|
|
|
|
2,278
|
|
|
|
(32,742
|
)
|
Mineral property costs
|
|
|
(6,378
|
)
|
|
|
(9,134
|
)
|
|
|
(130,536
|
)
|
|
|
(234,288
|
)
|
|
|
(1,254,834
|
)
|
Increase (decrease) in due to
related parties
|
|
|
(24,030
|
)
|
|
|
—
|
|
|
|
(59,642
|
)
|
|
|
—
|
|
|
|
17,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,254
|
)
|
|
|
(9,134
|
)
|
|
|
(188,336
|
)
|
|
|
(232,010
|
)
|
|
|
(1,270,014
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH DURING
THE PERIOD
|
|
|
1,113,063
|
|
|
|
3,226
|
|
|
|
1,299,246
|
|
|
|
(279,766
|
)
|
|
|
1,304,315
|
|
Cash, beginning of the period
|
|
|
191,252
|
|
|
|
89,768
|
|
|
|
5,069
|
|
|
|
372,760
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH, END OF THE PERIOD
|
|
$
|
1,304,315
|
|
|
$
|
92,994
|
|
|
$
|
1,304,315
|
|
|
$
|
92,994
|
|
|
$
|
1,304,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash
flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash Transactions —
Note 6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
E-21
TONE
RESOURCES LIMITED
(An Exploration Stage Company)
INTERIM CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
for the period October 31, 2001 (Date of Inception) to
May 31, 2006
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
Special
|
|
|
Contributed
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Warrants
|
|
|
Surplus
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
(Stated in Canadian Dollars)
|
|
|
Balance, October 31, 2001
|
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
For cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of founders shares
|
|
— at $0.0001
|
|
|
5,000,000
|
|
|
|
500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
500
|
|
Issuance of special warrants
|
|
— at $0.15
|
|
|
—
|
|
|
|
—
|
|
|
|
446,611
|
|
|
|
—
|
|
|
|
—
|
|
|
|
446,611
|
|
Net loss for the period
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(128,982
|
)
|
|
|
(128,982
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2002
|
|
|
|
|
5,000,000
|
|
|
|
500
|
|
|
|
446,611
|
|
|
|
—
|
|
|
|
(128,982
|
)
|
|
|
318,129
|
|
For cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial public offering
|
|
— at $0.50
|
|
|
1,532,700
|
|
|
|
766,350
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
766,350
|
|
Issuance of special warrants
|
|
— at $0.15
|
|
|
—
|
|
|
|
—
|
|
|
|
31,426
|
|
|
|
—
|
|
|
|
—
|
|
|
|
31,426
|
|
|
|
— at $0.50
|
|
|
—
|
|
|
|
—
|
|
|
|
231,347
|
|
|
|
—
|
|
|
|
—
|
|
|
|
231,347
|
|
Less: share issue costs —
Note 6
|
|
|
|
|
—
|
|
|
|
(189,877
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(189,877
|
)
|
Conversion of special warrants
|
|
|
|
|
3,649,606
|
|
|
|
709,384
|
|
|
|
(709,384
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Stock-based compensation
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,938
|
|
|
|
—
|
|
|
|
7,938
|
|
Net loss for the year
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(437,698
|
)
|
|
|
(437,698
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2003
|
|
|
|
|
10,182,306
|
|
|
|
1,286,357
|
|
|
|
—
|
|
|
|
7,938
|
|
|
|
(566,680
|
)
|
|
|
727,615
|
|
For cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pursuant to private placements
|
|
— at $0.47
|
|
|
1,081,670
|
|
|
|
508,385
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
508,385
|
|
|
|
— at $0.50
|
|
|
1,543,500
|
|
|
|
771,750
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
771,750
|
|
Stock-based compensation
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
368,313
|
|
|
|
—
|
|
|
|
368,313
|
|
Net loss for the year
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,082,680
|
)
|
|
|
(1,082,680
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2004
|
|
|
|
|
12,807,476
|
|
|
|
2,566,492
|
|
|
|
—
|
|
|
|
376,251
|
|
|
|
(1,649,360
|
)
|
|
|
1,293,383
|
|
For cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pursuant to private placements
|
|
— at $0.40
|
|
|
175,412
|
|
|
|
70,165
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
70,165
|
|
|
|
— at $0.40
|
|
|
250,000
|
|
|
|
100,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
100,000
|
|
Pursuant to exercise of options
|
|
— at $0.30
|
|
|
67,500
|
|
|
|
20,250
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,250
|
|
|
|
— at $0.50
|
|
|
59,200
|
|
|
|
29,600
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
29,600
|
|
Shares for debt
|
|
— at $0.45
|
|
|
110,986
|
|
|
|
49,944
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
49,944
|
|
Mineral property costs
|
|
— at $0.45
|
|
|
120,000
|
|
|
|
54,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
54,000
|
|
Stock-based compensation
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
282,409
|
|
|
|
—
|
|
|
|
282,409
|
|
Stock based compensation charge on
stock options exercised
|
|
|
|
|
—
|
|
|
|
36,811
|
|
|
|
—
|
|
|
|
(36,811
|
)
|
|
|
—
|
|
|
|
—
|
|
Net loss for the year
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(855,799
|
)
|
|
|
(855,799
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2005
|
|
|
|
|
13,590,574
|
|
|
|
2,927,262
|
|
|
|
—
|
|
|
|
621,849
|
|
|
|
(2,505,159
|
)
|
|
|
1,043,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
E-22
TONE
RESOURCES LIMITED
(An Exploration Stage Company)
INTERIM CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
for the period October 31, 2001 (Date of Inception) to
May 31, 2006
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Contributed
|
|
|
|
|
|
|
|
|
|
Common Shares
|
|
|
Amount
|
|
|
Surplus
|
|
|
Deficit
|
|
|
Total
|
|
|
|
(Stated in Canadian Dollars)
|
|
|
Balance, August 31, 2005
|
|
|
13,590,574
|
|
|
|
2,927,262
|
|
|
|
621,849
|
|
|
|
(2,505,159
|
)
|
|
|
1,043,952
|
|
For cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pursuant to a private
placement — at $0.20
|
|
|
3,300,000
|
|
|
|
660,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
660,000
|
|
Pursuant to exercise of
options — at $0.20
|
|
|
60,000
|
|
|
|
12,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,000
|
|
—
at $0.30
|
|
|
301,999
|
|
|
|
90,600
|
|
|
|
—
|
|
|
|
—
|
|
|
|
90,600
|
|
—
at $0.35
|
|
|
22,500
|
|
|
|
7,875
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,875
|
|
—
at $0.40
|
|
|
105,000
|
|
|
|
42,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
42,000
|
|
—
at $0.50
|
|
|
579,800
|
|
|
|
289,900
|
|
|
|
—
|
|
|
|
—
|
|
|
|
289,900
|
|
Pursuant to exercise of
warrants — at $0.25
|
|
|
95,000
|
|
|
|
23,750
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23,750
|
|
—
at $0.50
|
|
|
158,341
|
|
|
|
79,170
|
|
|
|
—
|
|
|
|
—
|
|
|
|
79,170
|
|
—
at $0.60
|
|
|
146,531
|
|
|
|
87,919
|
|
|
|
—
|
|
|
|
—
|
|
|
|
87,919
|
|
—
at $0.75
|
|
|
1,148,500
|
|
|
|
861,375
|
|
|
|
—
|
|
|
|
—
|
|
|
|
861,375
|
|
Less: share issue costs
|
|
|
—
|
|
|
|
(40,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(40,000
|
)
|
Stock based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
123,870
|
|
|
|
—
|
|
|
|
123,870
|
|
Stock based compensation charge on
options exercised
|
|
|
—
|
|
|
|
306,843
|
|
|
|
(306,843
|
)
|
|
|
—
|
|
|
|
—
|
|
Net loss for the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(798,608
|
)
|
|
|
(798,608
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, May 31, 2006
|
|
|
19,508,245
|
|
|
$
|
5,348,694
|
|
|
$
|
438,876
|
|
|
$
|
(3,303,767
|
)
|
|
$
|
2,483,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
E-23
Schedule 1
TONE
REOURCES LIMITED.
(An Exploration Stage Company)
INTERIM CONSOLIDATED SCHEDULE OF MINERAL PROPERTY COSTS
for the nine months ended May 31, 2006
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Big
|
|
|
Crescent
|
|
|
|
|
|
|
South
|
|
|
Roberts
|
|
|
|
|
|
Kent
|
|
|
Red
|
|
|
Battle
|
|
|
Gold Bar
|
|
|
Antelope
|
|
|
Valley
|
|
|
|
|
|
|
Keystone
|
|
|
Creek
|
|
|
Kobeh
|
|
|
Springs
|
|
|
Ridge
|
|
|
Mountain
|
|
|
North
|
|
|
Springs
|
|
|
North
|
|
|
|
|
|
|
(Eureka)
|
|
|
(Eureka)
|
|
|
(Eureka)
|
|
|
(Pershing)
|
|
|
(Elko)
|
|
|
(Lander)
|
|
|
(Eureka)
|
|
|
(Lander)
|
|
|
(Eureka)
|
|
|
Total
|
|
|
|
(Stated in Canadian Dollars)
|
|
|
Property acquisition and
maintenance costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2004
|
|
$
|
25,522
|
|
|
$
|
53,772
|
|
|
$
|
123,284
|
|
|
$
|
7,440
|
|
|
$
|
54,226
|
|
|
$
|
51,927
|
|
|
$
|
14,583
|
|
|
$
|
6,385
|
|
|
$
|
—
|
|
|
$
|
337,139
|
|
Cash
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,243
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,243
|
|
Common shares —
Note 5
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
54,000
|
|
|
|
54,000
|
|
Claims maintenance —
Note 5
|
|
|
3,693
|
|
|
|
7,122
|
|
|
|
17,540
|
|
|
|
1,319
|
|
|
|
35,318
|
|
|
|
9,891
|
|
|
|
2,506
|
|
|
|
6,571
|
|
|
|
28,769
|
|
|
|
112,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2005
|
|
|
29,215
|
|
|
|
60,894
|
|
|
|
140,824
|
|
|
|
8,759
|
|
|
|
93,787
|
|
|
|
61,818
|
|
|
|
17,089
|
|
|
|
12,956
|
|
|
|
82,769
|
|
|
|
508,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred exploration costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2004
|
|
|
13,766
|
|
|
|
88,848
|
|
|
|
191,259
|
|
|
|
125
|
|
|
|
143,538
|
|
|
|
130,286
|
|
|
|
525
|
|
|
|
110
|
|
|
|
—
|
|
|
|
568,457
|
|
Assaying
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,062
|
|
|
|
—
|
|
|
|
4,884
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21,946
|
|
Consulting fees
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,754
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,754
|
|
Drilling
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
87,196
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
87,196
|
|
Field costs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,760
|
|
|
|
—
|
|
|
|
2,046
|
|
|
|
729
|
|
|
|
—
|
|
|
|
7,535
|
|
Reclamation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,068
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2005
|
|
|
13,766
|
|
|
|
88,848
|
|
|
|
191,259
|
|
|
|
125
|
|
|
|
260,624
|
|
|
|
130,286
|
|
|
|
13,209
|
|
|
|
839
|
|
|
|
—
|
|
|
|
698,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-off mineral
property — Note 4
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(82,769
|
)
|
|
|
(82,769
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
42,981
|
|
|
$
|
149,742
|
|
|
$
|
332,083
|
|
|
$
|
8,884
|
|
|
$
|
354,411
|
|
|
$
|
192,104
|
|
|
$
|
30,298
|
|
|
$
|
13,795
|
|
|
$
|
—
|
|
|
$
|
1,124,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
E-24
Schedule 1
Continued
TONE
REOURCES LIMITED.
(An Exploration Stage Company)
INTERIM CONSOLIDATED SCHEDULE OF MINERAL PROPERTY COSTS
for the nine months ended May 31, 2006
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Big
|
|
|
|
|
|
|
South
|
|
|
Roberts
|
|
|
|
|
|
Kent
|
|
|
Red
|
|
|
Battle
|
|
|
Gold Bar
|
|
|
Antelope
|
|
|
|
|
|
|
Keystone
|
|
|
Creek
|
|
|
Kobeh
|
|
|
Springs
|
|
|
Ridge
|
|
|
Mountain
|
|
|
North
|
|
|
Springs
|
|
|
|
|
|
|
(Eureka)
|
|
|
(Eureka)
|
|
|
(Eureka)
|
|
|
(Pershing)
|
|
|
(Elko)
|
|
|
(Lander)
|
|
|
(Eureka)
|
|
|
(Lander)
|
|
|
Total
|
|
|
|
(Stated in Canadian Dollars)
|
|
|
Property acquisition and
maintenance costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2005
|
|
$
|
29,215
|
|
|
$
|
60,894
|
|
|
$
|
140,824
|
|
|
$
|
8,759
|
|
|
$
|
93,787
|
|
|
$
|
61,818
|
|
|
$
|
17,089
|
|
|
$
|
12,956
|
|
|
$
|
425,342
|
|
Cash — lease payments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,593
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,593
|
|
Claims maintenance —
Note 5
|
|
|
1,088
|
|
|
|
2,080
|
|
|
|
5,121
|
|
|
|
401
|
|
|
|
2,577
|
|
|
|
2,886
|
|
|
|
746
|
|
|
|
932
|
|
|
|
15,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, May 31, 2006
|
|
|
30,303
|
|
|
|
62,974
|
|
|
|
145,945
|
|
|
|
9,160
|
|
|
|
107,957
|
|
|
|
64,704
|
|
|
|
17,835
|
|
|
|
13,888
|
|
|
|
452,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred exploration costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, August 31, 2005
|
|
|
13,766
|
|
|
|
88,848
|
|
|
|
191,259
|
|
|
|
125
|
|
|
|
260,624
|
|
|
|
130,286
|
|
|
|
13,209
|
|
|
|
839
|
|
|
|
698,956
|
|
Assaying
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,389
|
|
|
|
—
|
|
|
|
11,389
|
|
Consulting fees
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
853
|
|
|
|
—
|
|
|
|
853
|
|
Drilling
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
87,749
|
|
|
|
—
|
|
|
|
87,749
|
|
Field costs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,121
|
|
|
|
—
|
|
|
|
3,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, May 31, 2006
|
|
|
13,766
|
|
|
|
88,848
|
|
|
|
191,259
|
|
|
|
125
|
|
|
|
260,624
|
|
|
|
130,286
|
|
|
|
116,321
|
|
|
|
839
|
|
|
|
802,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
44,069
|
|
|
$
|
151,822
|
|
|
$
|
337,204
|
|
|
$
|
9,285
|
|
|
$
|
368,581
|
|
|
$
|
194,990
|
|
|
$
|
134,156
|
|
|
$
|
14,727
|
|
|
$
|
1,254,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
E-25
TONE
RESOURCES LIMITED
(An Exploration Stage Company)
Notes to the Interim Consolidated Financial Statements
May 31, 2006
(Unaudited)
(Stated in Canadian Dollars)
|
|
Note 1 —
|
Interim
Financial Statements
|
While the information presented in the accompanying interim
three and nine months consolidated financial statements is
unaudited, it includes all adjustments which are, in the opinion
of management, necessary to present fairly the financial
position, results of operations and cash flows for the interim
periods presented in accordance with the accounting principles
generally accepted in Canada. These financial statements are
inconformity with generally accepted accounting principles in
the United States of America, except as described in Note 8
to the consolidated financial statements. These interim
financial statements follow the same accounting policies and
methods of their application as the Company’s
August 31, 2005 annual consolidated financial statements.
All adjustments are of a normal recurring nature. It is
suggested that these interim financial statements be read in
conjunction with the Company’s August 31, 2005 annual
financial statements.
Operating results for the three and nine months ended
May 31, 2006 are not necessarily indicative of the results
that can be expected for the year ended August 31, 2006.
|
|
Note 2 —
|
Nature
and Continuance of Operations
|
The Company was incorporated on October 31, 2001 in the
Yukon Territory. On March 1, 2005, the Company was
continued to British Columbia from the Yukon Territory. The
Company’s business is the exploration and development of
its mineral properties located in Nevada, USA. The
Company’s shares are publicly listed on the TSX Venture
Exchange.
These financial statements have been prepared in accordance with
generally accepted accounting principles applicable to a going
concern, which assumes that the Company will be able to meet its
obligations and continue its operations for its next twelve
months. Realization values may be substantially different from
carrying values as shown and these financial statements do not
give effect to adjustments that would be necessary to the
carrying values and classification of assets and liabilities
should the Company be unable to continue as a going concern. At
May 31, 2006, the Company had not yet achieved profitable
operations, has accumulated losses of $3,303,767 since its
inception and had working capital of $1,196,227 which may not be
sufficient to sustain operations over the next twelve months and
expects to incur further losses in the development of its
business, all of which casts substantial doubt about the
Company’s ability to continue as a going concern. The
Company’s ability to continue as a going concern is
dependent upon its ability to generate future profitable
operations
and/or to
obtain the necessary financing to meet its obligations and repay
its liabilities arising from normal business operations when
they come due.
The recoverability of amounts shown for mineral property costs
is dependent upon the discovery of economically recoverable
reserves and the ability to obtain the necessary financing to
complete their exploration and development.
|
|
Note 3 —
|
Mineral
Property Costs
|
The Company holds 410 mining claims in Nevada, USA. The
properties are located in Eureka, Pershing, Elko and Lander
counties and are subject to royalties of 1% to 4% of net smelter
returns. Certain of the royalties are payable to a company with
a director in common.
E-26
TONE
RESOURCES LIMITED
(An Exploration Stage Company)
Notes to the Interim Consolidated Financial Statements
(Unaudited) — (Continued)
In addition, the Company holds two leased mineral rights located
in Elko county, Nevada. Lease payments are due as follows for
the years ended:
|
|
|
|
|
August 31, 2003
|
|
|
US$ 12,000
|
(paid)
|
August 31, 2004
|
|
|
12,000
|
(paid)
|
August 31, 2005
|
|
|
12,000
|
(paid)
|
August 31, 2006
|
|
|
20,000
|
(paid $10,000)
|
August 31, 2007
|
|
|
30,000
|
|
August 31, 2008
|
|
|
35,000
|
|
August 31, 2009
|
|
|
40,000
|
|
August 31, 2010
|
|
|
45,000
|
|
August 31, 2011
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
US$256,000
|
|
|
|
|
|
|
On March 9, 2004, the Company entered into an agreement
with Teck Cominco. The agreement grants Teck Cominco the option
to earn interests of up to 75% in any two of the Company’s
current properties located in north-central Nevada as well as
any other properties acquired by the Company until March 9,
2006 in this defined area of interest in Nevada. Teck Cominco
has a first right of refusal on the Red Ridge property. Teck
Cominco may earn the interests by completing expenditure
requirements totalling $3,000,000 and preparing feasibility
reports.
|
|
Note 4 —
|
Share
Capital — Notes 5 and 7
|
a) Authorized:
An unlimited number of common shares without par value
b) Escrow:
At May 31, 2006 there were no common shares held in escrow
by the Company’s transfer agent.
c) Commitments:
i) Stock-based Compensation Plan
Stock options are granted with an exercise price equal to the
market price of the Company’s stock on the date of the
grant. Pursuant to the stock-based compensation plan, options
may not be granted at an exercise price of less than
$0.10 per share. Stock options have a maximum term of five
years. The Company’s options vest 25% on the date of the
grant with the remaining 75% vesting over the next
18 months at a rate of 12.5% per quarter based on the
original amount granted.
E-27
TONE
RESOURCES LIMITED
(An Exploration Stage Company)
Notes to the Interim Consolidated Financial Statements
(Unaudited) — (Continued)
A summary of the status of the Company’s stock option plan
as of August 31, 2005 and May 31, 2006 and the changes
during the periods then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 31,
|
|
|
August 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Number
|
|
|
Exercise
|
|
|
Number
|
|
|
Exercise
|
|
|
|
of Shares
|
|
|
Price
|
|
|
of Shares
|
|
|
Price
|
|
|
Options outstanding, beginning of
the period
|
|
|
2,673,032
|
|
|
$
|
0.50
|
|
|
|
1,850,000
|
|
|
$
|
0.50
|
|
Granted
|
|
|
150,000
|
|
|
$
|
0.25
|
|
|
|
1,099,732
|
|
|
$
|
0.41
|
|
Exercised
|
|
|
(1,069,299
|
)
|
|
$
|
0.41
|
|
|
|
(126,700
|
)
|
|
$
|
0.39
|
|
Cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
(150,000
|
)
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, end of the
period
|
|
|
1,753,733
|
|
|
$
|
0.48
|
|
|
|
2,673,032
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, end of the
period
|
|
|
1,523,695
|
|
|
$
|
0.49
|
|
|
|
2,115,291
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following stock options were outstanding as at May 31,
2006:
|
|
|
|
|
|
|
|
|
Number
|
|
Exercise Price
|
|
Expiry Date
|
|
|
1,190,000
|
|
|
$
|
0.50
|
|
|
May 16, 2008
|
|
50,000
|
|
|
$
|
0.50
|
|
|
June 09, 2008
|
|
25,000
|
|
|
$
|
0.50
|
|
|
July 21, 2008
|
|
100,000
|
|
|
$
|
0.50
|
|
|
November 14, 2008
|
|
12,000
|
|
|
$
|
0.30
|
|
|
September 2, 2009
|
|
188,232
|
|
|
$
|
0.50
|
|
|
February 1, 2010
|
|
121,000
|
|
|
$
|
0.40
|
|
|
July 26, 2010
|
|
40,000
|
|
|
$
|
0.20
|
|
|
November 18, 2010
|
|
27,500
|
|
|
$
|
0.35
|
|
|
December 2, 2010
|
|
|
|
|
|
|
|
|
|
|
1,753,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At May 31, 2006, 230,037 of the above outstanding options
were not yet vested with the optionees. These options will vest
with the optionees over the period from June 2, 2006 to
June 2, 2007.
Non-cash compensation charges associated with vested options
granted to directors, employees and consultants for the nine
months ended May 31, 2006 were $123,870 (May 31, 2005:
$160,884). These compensation charges were determined under the
fair value method using the Black-Scholes option pricing model
with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
May 31,
|
|
May 31,
|
|
|
2006
|
|
2005
|
|
Expected dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Expected volatility
|
|
|
94.9
|
%
|
|
|
100.5
|
%
|
Risk-free interest rate
|
|
|
2.0
|
%
|
|
|
2.0
|
%
|
Expected term in years
|
|
|
5 years
|
|
|
|
5 years
|
|
E-28
TONE
RESOURCES LIMITED
(An Exploration Stage Company)
Notes to the Interim Consolidated Financial Statements
(Unaudited) — (Continued)
The weighted average fair value at the date of grant of the
stock options granted was as follows:
|
|
|
|
|
|
|
|
|
|
|
May 31,
|
|
|
May 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Weighted average fair value
|
|
$
|
0.18
|
|
|
$
|
0.29
|
|
Total options granted
|
|
|
150,000
|
|
|
|
873,732
|
|
Total fair value of options granted
|
|
$
|
27,000
|
|
|
$
|
249,432
|
|
ii) Share Purchase Warrants
At May 31, 2006, there were 3,676,175 share purchase
warrants outstanding entitling the holders thereof the right to
purchase one common share for each warrant held as follows:
|
|
|
|
|
|
|
|
|
Number
|
|
Exercise Price
|
|
Expiry Date
|
|
|
405,000
|
|
|
$
|
0.75
|
|
|
July 5, 2006
|
|
2,475,000
|
|
|
$
|
0.25
|
|
|
December 19, 2007
|
|
41,175
|
|
|
$
|
0.80
|
|
|
November 26, 2006
|
|
25,000
|
|
|
$
|
0.60
|
|
|
June 14, 2006
|
|
|
|
|
or at $
|
0.80
|
|
|
December 14, 2006
|
|
730,000
|
|
|
$
|
0.25
|
|
|
March 3, 2008
|
|
|
|
|
|
|
|
|
|
|
3,676,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent to May 31, 2006, 200,000 share purchase
warrants exercisable at $0.75 per warrant expired on
July 5, 2006.
|
|
Note 5 —
|
Related
Party Transactions — Notes 3, 4 and
7
|
The Company incurred the following charges from directors and
officers of the Company, a company with a director in common
with the Company and the daughter of a director of the Company
for the three and nine months ended May 31, 2006 and 2005
and for the period October 31, 2001 (Date of Inception) to
May 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 (Date of
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
Inception) to
|
|
|
|
May 31,
|
|
|
May 31,
|
|
|
May 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
Accounting fees
|
|
$
|
29,476
|
|
|
$
|
8,000
|
|
|
$
|
74,387
|
|
|
$
|
16,561
|
|
|
|
88,112
|
|
Legal fees
|
|
|
13,616
|
|
|
|
6,185
|
|
|
|
56,669
|
|
|
|
20,606
|
|
|
|
135,176
|
|
Management fees
|
|
|
71,000
|
|
|
|
39,000
|
|
|
|
129,500
|
|
|
|
118,400
|
|
|
|
716,982
|
|
Mineral property acquisition costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87,247
|
|
— common shares
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
54,000
|
|
|
|
54,000
|
|
— claims maintenance
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,717
|
|
|
|
15,717
|
|
Rent
|
|
|
3,750
|
|
|
|
3,750
|
|
|
|
11,250
|
|
|
|
11,250
|
|
|
|
63,915
|
|
Stock-based compensation
|
|
|
23,206
|
|
|
|
24,337
|
|
|
|
89,516
|
|
|
|
81,478
|
|
|
|
574,092
|
|
Share issue costs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
74,275
|
|
Secretarial
|
|
|
3,435
|
|
|
|
1,798
|
|
|
|
8,743
|
|
|
|
8,833
|
|
|
|
46,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
144,483
|
|
|
$
|
83,070
|
|
|
$
|
370,065
|
|
|
$
|
326,845
|
|
|
$
|
1,856,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E-29
TONE
RESOURCES LIMITED
(An Exploration Stage Company)
Notes to the Interim Consolidated Financial Statements
(Unaudited) — (Continued)
These charges were measured by the exchange amount, which is the
amount agreed upon by the transacting parties.
Amounts due to related parties are due to directors and officers
of the Company and represent unpaid fees and expenses. These
amounts are unsecured, non-interest bearing and have no specific
terms of repayment.
During the year ended August 31, 2005, the Company issued
151,700 common shares for cash proceeds of $59,850 and 120,000
common shares for mineral property acquisition costs of $54,000
to directors of the Company and to a company with a director in
common with the Company. During the nine months ended
May 31, 2006, the Company issued 2,806,803 common shares to
directors of the Company for cash proceeds of $787,917 pursuant
to exercise of share purchase options (629,800 common shares),
warrants (336,283 common shares) and a private placement
(1,840,000 common shares). The Company issued 730,000 units
to a director of the Company at $0.20 per unit pursuant to
a private placement agreement for total proceeds of $146,000.
Each unit consisted of one common share and one share purchase
warrant entitling the holder thereof the right to purchase an
additional common share at $0.25 per share until
March 3, 2008.
|
|
Note 6 —
|
Non-cash
Transactions
|
Investing and financing activities that do not have a direct
impact on current cash flows are excluded from the statements of
cash flows. During the nine months ended May 31, 2005, the
Company issued 120,000 common shares at $0.45 totalling $54,000
as a property acquisition cost pursuant to a mining lease and
110,986 common shares at $0.45 to settle a debt of $49,944.
These transactions have been excluded from the statements of
cash flows.
|
|
Note 7 —
|
Subsequent
Events — Notes 4 and 5
|
Subsequent to May 31, 2006:
a) the Company issued 146,000 common shares (113,500 to
directors of the Company) for proceeds of $70,125 ($54,875 from
directors of the Company) pursuant to the exercise of share
purchase options outstanding at May 31, 2006.
b) the Company issued 400,000 common shares for proceeds of
$211,250 pursuant to the exercise of share purchase warrants
outstanding at May 31, 2006.
c) by a letter dated March 5, 2006, the Company
received an offer from US Gold Corporation to acquire 100% of
the issued securities of the Company. Shareholders of the
Company will receive 0.26 of a share of US Gold Corporation (or
0.26 Exchangeable Shares of US Gold Canadian Acquisition
Corporation) for each share of the Company. Management of the
Company is evaluating the offer. The proposed offer is subject
to shareholder and regulatory approval.
|
|
Note 8 —
|
Differences
Between Canadian and United States Accounting
Principles
|
These consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in
Canada which differ in certain respects with those principles
and practices that the Company
E-30
TONE
RESOURCES LIMITED
(An Exploration Stage Company)
Notes to the Interim Consolidated Financial Statements
(Unaudited) — (Continued)
would have followed had its financial statements been prepared
in accordance with accounting principles and practices generally
accepted in the United States.
a) The Company’s accounting principles generally
accepted in Canada differ from accounting principles generally
accepted in the United States as follows:
Mineral Property Costs and Deferred Exploration Costs
Under accounting principles generally accepted in Canada
(“Canadian GAAP”) mineral property acquisition and
exploration costs may be deferred and amortized to the extent
they meet certain criteria. Under accounting principles
generally accepted in the United States (“US GAAP”)
mineral property acquisition and exploration costs must be
expensed as incurred. Therefore an additional expense is
required under US GAAP.
b) The impact of the above on the consolidated financial
statements is as follows:
|
|
|
|
|
|
|
|
|
|
|
May 31,
|
|
|
August 31,
|
|
Total Assets and Liabilities
|
|
2006
|
|
|
2005
|
|
|
Total assets per Canadian GAAP
|
|
$
|
2,617,238
|
|
|
$
|
1,173,017
|
|
Mineral property costs
|
|
|
(1,254,834
|
)
|
|
|
(1,124,298
|
)
|
|
|
|
|
|
|
|
|
|
Total assets per US GAAP
|
|
$
|
1,362,404
|
|
|
$
|
48,719
|
|
|
|
|
|
|
|
|
|
|
Total liabilities per Canadian and
US GAAP
|
|
$
|
133,435
|
|
|
$
|
129,065
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity
|
|
|
|
|
|
|
|
|
Deficit, end of the year, per
Canadian GAAP
|
|
$
|
(3,303,767
|
)
|
|
$
|
(2,505,159
|
)
|
Mineral property costs
|
|
|
(1,254,834
|
)
|
|
|
(1,124,298
|
)
|
|
|
|
|
|
|
|
|
|
Deficit, end of the year, per US
GAAP
|
|
|
(4,558,601
|
)
|
|
|
(3,629,457
|
)
|
Capital stock per Canadian and US
GAAP
|
|
|
5,348,694
|
|
|
|
2,927,262
|
|
Contributed surplus per Canadian
and US GAAP
|
|
|
438,876
|
|
|
|
621,849
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
(deficiency) per US GAAP
|
|
$
|
1,228,969
|
|
|
$
|
(80,346
|
)
|
|
|
|
|
|
|
|
|
|
E-31
TONE
RESOURCES LIMITED
(An Exploration Stage Company)
Notes to the Interim Consolidated Financial Statements
(Unaudited) — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
May 31,
|
|
|
May 31,
|
|
Net Loss and Loss Per Share
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Net loss for the year per Canadian
GAAP
|
|
$
|
(445,389
|
)
|
|
$
|
(168,137
|
)
|
|
$
|
(798,608
|
)
|
|
$
|
(520,072
|
)
|
Mineral property costs
|
|
|
(6,378
|
)
|
|
|
(9,134
|
)
|
|
|
(130,536
|
)
|
|
|
(234,288
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year per US GAAP
|
|
$
|
(451,767
|
)
|
|
$
|
(177,271
|
)
|
|
$
|
(929,144
|
)
|
|
$
|
(754,360
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
per US GAAP
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Cash
Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities per Canadian
GAAP
|
|
$
|
(348,270
|
)
|
|
$
|
(71,280
|
)
|
|
$
|
(627,006
|
)
|
|
$
|
(331,745
|
)
|
Mineral property costs
|
|
|
(6,378
|
)
|
|
|
(9,134
|
)
|
|
|
(130,536
|
)
|
|
|
(234,288
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities per US GAAP
|
|
$
|
(354,648
|
)
|
|
$
|
(80,414
|
)
|
|
$
|
(757,542
|
)
|
|
$
|
(566,033
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities per Canadian
and US GAAP
|
|
$
|
1,490,587
|
|
|
$
|
83,640
|
|
|
$
|
2,114,589
|
|
|
$
|
283,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities per Canadian
GAAP
|
|
$
|
(29,254
|
)
|
|
$
|
(9,134
|
)
|
|
$
|
(188,336
|
)
|
|
$
|
(232,010
|
)
|
Mineral property costs
|
|
|
6,378
|
|
|
|
9,134
|
|
|
|
130,536
|
|
|
|
234,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities per US GAAP
|
|
$
|
(22,876
|
)
|
|
$
|
—
|
|
|
$
|
(57,800
|
)
|
|
$
|
2,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
E-32
UNAUDITED
FINANCIAL STATEMENTS OF
US GOLD CANADIAN ACQUISITION CORPORATION
INDEX
|
|
|
|
|
Balance Sheet as of April 30,
2006
|
|
|
F-3
|
|
Notes to Balance Sheet
|
|
|
F-4
|
|
F-2
US GOLD
CANADIAN ACQUISITION CORPORATION
UNAUDITED
BALANCE SHEET
|
|
|
|
|
|
|
As of
|
|
|
|
April 30, 2006
|
|
|
Assets
|
Current Assets:
|
|
|
|
|
Cash
|
|
$
|
1.00
|
|
Total current assets
|
|
$
|
1.00
|
|
|
|
|
|
|
Liabilities and
Shareholder’s Equity
|
Liabilities
|
|
$
|
—
|
|
|
|
|
|
|
Shareholder’s equity Common
shares, authorized — unlimited, issued and
outstanding — 1 share
|
|
$
|
1.00
|
|
|
|
|
|
|
Total shareholder’s equity
|
|
$
|
1.00
|
|
|
|
|
|
|
The accompanying notes are an integral part of this unaudited
balance sheet.
F-3
US GOLD
CANADIAN ACQUISITION CORPORATION
NOTES TO
UNAUDITED BALANCE SHEET
Note 1 —
Nature of Business:
US Gold Canadian Acquisition Corporation was incorporated on
April 18, 2006 for the purpose of making an offer to
purchase the outstanding common shares in the capital of each of
Coral Gold Resources Ltd., Nevada Pacific Gold Ltd., Tone
Resources Limited and White Knight Resources Ltd.
US Gold Canadian Acquisition Corporation is a wholly-owned
subsidiary of U.S. Gold Corporation and has no material
assets or liabilities and no operating history.
Note 2 —
Basis of Reporting:
The balance sheet of US Gold Canadian Acquisition Corporation is
prepared in accordance with accounting principles generally
accepted in the United States of America under the accrual
method of accounting.
The presentation of a statement of income, a statement of
changes in shareholder’s equity and a statement of cash
flows is not included as there has been no activity, except for
the sale of one common share to U.S. Gold Corporation on
April 18, 2006 for $1.00.
F-4
U.S. Gold
Corporation
Unaudited
Pro Forma Consolidated Balance Sheet
June 30,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Reported
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
White
|
|
|
|
|
|
|
|
|
White
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Knight
|
|
|
|
|
|
|
|
|
Knight
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
Resources
|
|
|
|
|
|
|
|
|
Resources
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
U.S. Gold
|
|
|
Ltd. (Cdn
|
|
|
US GAAP
|
|
|
|
|
|
Ltd. (US
|
|
|
Transaction
|
|
|
|
|
|
U.S. Gold
|
|
|
|
Corporation
|
|
|
GAAP)
|
|
|
Adjustments
|
|
|
Notes
|
|
|
GAAP)
|
|
|
Adjustments
|
|
|
Notes
|
|
|
Corporation
|
|
|
|
(Expressed in United States dollars unless otherwise
stated)
|
|
|
ASSETS
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
30,065,618
|
|
|
$
|
10,258,097
|
|
|
|
|
|
|
|
|
|
|
$
|
10,258,097
|
|
|
|
|
|
|
|
|
|
|
$
|
40,323,715
|
|
Temporary investments
|
|
|
—
|
|
|
|
1,896,929
|
|
|
$
|
43,454
|
|
|
|
2
|
(i)
|
|
|
1,940,383
|
|
|
|
|
|
|
|
|
|
|
|
1,940,383
|
|
Accounts receivable
|
|
|
133,743
|
|
|
|
105,741
|
|
|
|
|
|
|
|
|
|
|
|
105,741
|
|
|
|
|
|
|
|
|
|
|
|
239,484
|
|
Other current assets —
prepaid expenses
|
|
|
74,793
|
|
|
|
44,433
|
|
|
|
|
|
|
|
|
|
|
|
44,433
|
|
|
|
|
|
|
|
|
|
|
|
119,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
30,274,154
|
|
|
|
12,305,200
|
|
|
|
43,454
|
|
|
|
|
|
|
|
12,348,654
|
|
|
|
|
|
|
|
|
|
|
|
42,622,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
101,629
|
|
|
|
837,768
|
|
|
|
|
|
|
|
|
|
|
|
837,768
|
|
|
|
|
|
|
|
|
|
|
|
939,397
|
|
Mineral property interests
|
|
|
—
|
|
|
|
2,519,657
|
|
|
|
(1,828,914
|
)
|
|
|
2
|
(ii)
|
|
|
690,743
|
|
|
|
|
|
|
|
|
|
|
|
690,743
|
|
Deferred exploration costs
|
|
|
—
|
|
|
|
3,477,923
|
|
|
|
(3,477,923
|
)
|
|
|
2
|
(ii)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
Acquired mineral property interests
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
$
|
160,273,810
|
|
|
|
3&4
|
(a)
|
|
|
160,273,810
|
|
Offering costs, net
|
|
|
2,991,684
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
2,991,684
|
|
Restrictive time deposits for
reclamation bonding
|
|
|
3,102,454
|
|
|
|
211,305
|
|
|
|
|
|
|
|
|
|
|
|
211,305
|
|
|
|
|
|
|
|
|
|
|
|
3,313,759
|
|
Escrow funding
|
|
|
38,009,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
38,009,105
|
|
Long-lived asset — asset
retirement
|
|
|
1,068,353
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
1,068,353
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inactive milling equipment
|
|
|
777,819
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
777,819
|
|
Other assets
|
|
|
2,125
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
2,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
779,944
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
779,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
76,327,323
|
|
|
$
|
19,351,853
|
|
|
$
|
(5,263,383
|
)
|
|
|
|
|
|
$
|
14,088,470
|
|
|
$
|
160,273,810
|
|
|
|
|
|
|
$
|
250,689,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities
|
|
$
|
1,961,514
|
|
|
$
|
283,964
|
|
|
|
|
|
|
|
|
|
|
$
|
283,964
|
|
|
$
|
6,598,362
|
|
|
|
3&4
|
(b)
|
|
$
|
8,843,840
|
|
Installment purchase contracts
|
|
|
48,164
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
48,164
|
|
Due to related parties
|
|
|
—
|
|
|
|
106,202
|
|
|
|
|
|
|
|
|
|
|
|
106,202
|
|
|
|
|
|
|
|
|
|
|
|
106,202
|
|
Retirement obligation (reclamation
activities)
|
|
|
1,235,776
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
1,235,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,245,454
|
|
|
|
390,166
|
|
|
|
|
|
|
|
|
|
|
|
390,166
|
|
|
|
6,598,362
|
|
|
|
|
|
|
|
10,233,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Installment purchase contracts,
long-term
|
|
|
10,444
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
10,444
|
|
Retirement obligation
|
|
|
1,389,107
|
|
|
|
149,387
|
|
|
|
|
|
|
|
|
|
|
|
149,387
|
|
|
|
|
|
|
|
|
|
|
|
1,538,494
|
|
Future income tax liability
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
35,257,120
|
|
|
|
3&4
|
(c)
|
|
|
35,257,120
|
|
Other permit obligations
|
|
|
72,511
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
72,511
|
|
Escrow account
|
|
|
38,009,105
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
38,009,105
|
|
Derivative liabilities
|
|
|
96,601,884
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
96,601,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
139,328,505
|
|
|
|
539,553
|
|
|
|
|
|
|
|
|
|
|
|
539,553
|
|
|
|
41,855,482
|
|
|
|
|
|
|
|
181,723,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’
EQUITY
|
Capital stock
|
|
|
41,339,239
|
|
|
|
28,926,147
|
|
|
|
|
|
|
|
|
|
|
|
28,926,147
|
|
|
|
(28,926,147
|
)
|
|
|
4
|
(d)
|
|
|
163,969,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122,629,966
|
|
|
|
3
|
|
|
|
|
|
Options and warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
9,337,279
|
|
|
|
3
|
|
|
|
9,337,279
|
|
Other equity accounts
|
|
|
—
|
|
|
|
3,600,678
|
|
|
|
|
|
|
|
|
|
|
|
3,600,678
|
|
|
|
(3,600,678
|
)
|
|
|
4
|
(d)
|
|
|
—
|
|
Deficit
|
|
|
(104,340,421
|
)
|
|
|
(13,714,525
|
)
|
|
$
|
(5,263,383
|
)
|
|
|
2
|
(iii)
|
|
|
(18,977,908
|
)
|
|
|
18,977,908
|
|
|
|
4
|
(d)
|
|
|
(104,340,421
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
(deficiency)
|
|
|
(63,001,182
|
)
|
|
|
18,812,300
|
|
|
|
(5,263,383
|
)
|
|
|
|
|
|
|
13,548,917
|
|
|
|
118,418,328
|
|
|
|
|
|
|
|
68,966,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY
|
|
$
|
76,327,323
|
|
|
$
|
19,351,853
|
|
|
$
|
(5,263,383
|
)
|
|
|
|
|
|
$
|
14,088,470
|
|
|
$
|
160,273,810
|
|
|
|
|
|
|
$
|
250,689,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma consolidated
financial statements.
G-2
U.S. Gold
Corporation
Unaudited
Pro Forma Consolidated Statement of Operations
For the
six months ended June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Reported
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
White Knight
|
|
|
|
|
|
|
|
|
White Knight
|
|
|
Consolidated
|
|
|
|
U.S. Gold
|
|
|
Resources
|
|
|
US GAAP
|
|
|
|
|
|
Resources
|
|
|
U.S. Gold
|
|
|
|
Corporation
|
|
|
Ltd. (Cdn GAAP)
|
|
|
Adjustments
|
|
|
Notes
|
|
|
Ltd. (US GAAP)
|
|
|
Corporation
|
|
|
|
(Expressed in United States dollars unless otherwise
stated)
|
|
|
OTHER REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other items
|
|
$
|
488,378
|
|
|
$
|
191,339
|
|
|
$
|
16,228
|
|
|
|
2
|
(i)
|
|
$
|
207,567
|
|
|
$
|
695,945
|
|
Gain (loss) on foreign exchange
|
|
|
—
|
|
|
|
(13,868
|
)
|
|
|
|
|
|
|
|
|
|
|
(13,868
|
)
|
|
|
(13,868
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other revenue
|
|
|
488,378
|
|
|
|
177,471
|
|
|
|
16,228
|
|
|
|
|
|
|
|
193,699
|
|
|
|
682,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES General and
administrative
|
|
|
1,449,070
|
|
|
|
624,458
|
|
|
|
|
|
|
|
|
|
|
|
624,458
|
|
|
|
2,073,528
|
|
Proposed acquisitions
|
|
|
3,384,378
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
3,384,378
|
|
Property holding costs
|
|
|
781,853
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
781,853
|
|
Exploration costs
|
|
|
1,000,423
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
1,000,423
|
|
Stock compensation expense
|
|
|
—
|
|
|
|
1,947,693
|
|
|
|
|
|
|
|
|
|
|
|
1,947,693
|
|
|
|
1,947,693
|
|
Interest
|
|
|
3,442
|
|
|
|
3,695
|
|
|
|
|
|
|
|
|
|
|
|
3,695
|
|
|
|
7,137
|
|
Stock option expense
|
|
|
536,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
536,000
|
|
Accretion of asset retirement
obligation
|
|
|
135,989
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
135,989
|
|
Change in value of derivatives
|
|
|
59,026,884
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
59,026,884
|
|
Write-off of deferred exploration
costs
|
|
|
—
|
|
|
|
73,676
|
|
|
|
509,207
|
|
|
|
2
|
(ii)
|
|
|
582,883
|
|
|
|
582,883
|
|
Write-off (recovery) of mineral
property costs
|
|
|
—
|
|
|
|
—
|
|
|
|
(13,046
|
)
|
|
|
2
|
(ii)
|
|
|
(13,046
|
)
|
|
|
(13,046
|
)
|
Amortization of offering cost
|
|
|
228,066
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
228,066
|
|
Depreciation
|
|
|
12,594
|
|
|
|
14,817
|
|
|
|
|
|
|
|
|
|
|
|
14,817
|
|
|
|
27,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
66,558,699
|
|
|
|
2,664,339
|
|
|
|
496,161
|
|
|
|
|
|
|
|
3,160,500
|
|
|
|
69,719,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(66,070,321
|
)
|
|
|
(2,486,868
|
)
|
|
|
(479,933
|
)
|
|
|
|
|
|
|
(2,966,801
|
)
|
|
|
(69,037,122
|
)
|
Provision for income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(66,070,321
|
)
|
|
$
|
(2,486,868
|
)
|
|
$
|
(479,933
|
)
|
|
|
|
|
|
$
|
(2,966,801
|
)
|
|
$
|
(69,037,122
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per
share (Note 6)
|
|
$
|
(1.98
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares
outstanding — basic and diluted (Note 6)
|
|
|
33,296,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,081,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma consolidated
financial statements.
G-3
U.S. Gold
Corporation
Unaudited
Pro Forma Consolidated Statement of Operations
For the
Twelve Months Ended December 31, 2005
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As Reported
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White Knight
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White Knight
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Pro Forma
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U.S. Gold
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Resources
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US GAAP
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Resources
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Consolidated U.S.
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Corporation
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Ltd. (Cdn GAAP)
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Adjustments
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Notes
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Ltd. (US GAAP)
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Gold Corporation
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(Expressed in United States dollars unless otherwise
stated)
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OTHER REVENUE
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Earnest money forfeited
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$
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200,000
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$
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200,000
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Interest and other items
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32,032
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$
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294,563
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$
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51,599
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2
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(i)
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$
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346,162
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378,194
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Management fee
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330,000
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—
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—
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330,000
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Realized gain from disposition of
shares
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520,428
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—
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—
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520,428
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Gain (loss) on sale of assets
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(29,982
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—
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—
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(29,982
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Gain (loss) on foreign exchange
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—
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1,634
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1,634
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1,634
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Total other revenue
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1,052,478
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296,197
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51,599
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347,796
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1,400,274
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COSTS AND EXPENSES General and
administrative
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1,027,194
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808,304
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808,304
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1,835,498
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Write-off of purchase price
receivable
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182,748
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—
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—
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182,748
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Property holding costs
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761,081
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—
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—
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761,081
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Employment termination payments
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1,423,824
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—
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—
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1,423,824
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Stock compensation expense
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294,400
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174,760
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174,760
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469,160
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Equity share of subsidiary loss
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58,888
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—
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—
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58,888
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Realization reserve —
stock
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168,960
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—
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—
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168,960
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Interest
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3,011
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5,016
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5,016
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8,027
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Accretion of asset retirement
obligation
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110,243
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—
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—
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110,243
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Write-off of deferred exploration
costs
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—
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107,296
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1,692,739
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2
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(ii)
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1,800,035
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1,800,035
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Write-off of mineral property costs
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—
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—
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189,718
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2
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(ii)
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189,718
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189,718
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Depreciation
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12,850
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27,329
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27,329
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40,179
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Total costs and expenses
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4,043,199
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1,122,705
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1,882,457
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3,005,162
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7,048,361
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Loss before income taxes
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(2,990,721
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(826,508
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(1,830,858
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(2,657,366
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(5,648,087
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Provision for income taxes
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—
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—
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—
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—
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—
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NET LOSS
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$
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(2,990,721
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$
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(826,508
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$
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(1,830,858
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$
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(2,657,366
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$
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(5,648,087
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Basic and diluted net loss per
share (Note 6)
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$
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(0.12
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$
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(0.12
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Weighted average number of shares
outstanding — basic and diluted (Note 6)
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25,931,172
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46,715,912
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See accompanying notes to unaudited pro forma consolidated
financial statements.
G-4
U.S. GOLD
CORPORATION
NOTES TO
THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS
(Expressed in United States dollars unless otherwise
stated)
June 30, 2006 and December 31, 2005
(Unaudited)
On March 5, 2006 U.S. Gold Corporation
(“U.S. Gold” or the “Company”)
announced that it intends to acquire, in stock transactions, all
of the outstanding common shares of White Knight Resources Ltd.,
Nevada Pacific Gold Ltd, Coral Gold Resources Ltd and Tone
Resources Limited. This proposal was made in letters sent on the
same day by Mr. Robert R. McEwen, Chairman and Chief
Executive Officer of U.S. Gold, to the chief executive
officers of each of the subject companies.
These unaudited pro forma consolidated financial
statements have been prepared to give effect to the
Company’s acquisition of White Knight (the
“Acquisition”). These unaudited pro forma
consolidated financial statements have been prepared on the
basis that each shareholder will receive shares of common stock
of U.S. Gold in exchange for their White Knight common
shares. The combined effects of the proposed transactions with
each of the four companies have been presented separately under
“Unaudited Pro Forma Consolidated Supplementary
Financial Statements,” included elsewhere in this document.
Each of these acquisitions is not conditional on the other three
and the Company may or may not be successful in acquiring all of
the target companies.
These unaudited pro forma consolidated financial
statements have been compiled from and include:
(a) An unaudited pro forma consolidated balance
sheet combining the unaudited balance sheet of U.S. Gold as
at June 30, 2006 with the audited balance sheet of White
Knight as at June 30, 2006, giving effect to the
transaction as if it occurred on June 30, 2006.
(b) An unaudited pro forma consolidated statement of
operations combining the audited statement of operations of the
Company for the year ended December 31, 2005 with the
unaudited constructed statement of operations of White Knight
for the twelve months ended December 31, 2005, giving
effect to the transaction as if it occurred on January 1,
2005. White Knight’s statement of operations for the twelve
months ended December 31, 2005 has been constructed by
adding together (a) the results for the six months ended
June 30, 2005 (derived from White Knight’s audited
financial statements for the year ended June 30, 2005 and
the unaudited interim results for the six months ended
December 31, 2004) and (b) the unaudited interim
results for the six months ended December 31, 2005.
(c) An unaudited pro forma consolidated statement of
operations combining the unaudited statement of operations of
the Company for the six months ended June 30, 2006 with the
unaudited constructed statement of operations of White Knight
for the six months ended June 30, 2006 (derived from White
Knight’s audited financial statements for the year ended
June 30, 2006 and the unaudited interim results for the six
months ended December 31, 2005), giving effect to the
transaction as if it occurred on January 1, 2005.
The unaudited pro forma consolidated balance sheet and
statements of operations have been presented on the above basis
to ensure that the unaudited pro forma consolidated
financial statements reflect the acquired business financial
statements for a period that is no more than 93 days from
U.S. Gold’s year-end, as required pursuant to
pro forma presentation requirements contained in the
securities rules.
The unaudited pro forma consolidated financial statements
have been compiled using the significant accounting policies as
set out in the audited financial statements of U.S. Gold
for the year ended December 31, 2005 which are included
elsewhere in this document. The unaudited pro forma
consolidated financial statements should be read in conjunction
with the historical financial statements and notes thereto of
the Company and White Knight described above.
Management of U.S. Gold has consolidated certain line items
from White Knight’s financial statements in an attempt to
conform to the presentation of the Company’s financial
statements. It is management’s opinion that these unaudited
pro forma consolidated financial statements include all
adjustments necessary for the fair presentation of the
transactions described in Note 3 in accordance with United
States generally accepted accounting principles.
G-5
U.S. GOLD
CORPORATION
NOTES TO
THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
White Knight prepares its financial statements in accordance
with Canadian GAAP and in Canadian dollars. These financial
statements have been translated to United States GAAP, as more
fully described in note 2. The conversion from Canadian
dollars to U.S. dollars has been reflected at the rates
described in the following table.
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As at June 30, 2006
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0.90
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Average for the six months ended
June 30, 2006
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0.88
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Average for the twelve months
ended December 31, 2005
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0.83
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For restatement in U.S. dollars, the Company followed the
method suggested by the Emerging Issues Committee
(“EIC”) in release number EIC-130 which conforms in
all material respects with Statement of Financial Accounting
Standards No. 52 Foreign Currency Translation. The
consensus of the EIC was that financial statements for all prior
years should be translated using the current rate method.
The unaudited pro forma consolidated financial statements
are not intended to reflect the results of operations or the
financial position of the Company which would have actually
resulted had the proposed transactions been effected on the
dates indicated. Further, the unaudited pro forma
financial information is not necessarily indicative of the
results of operations that may be obtained in the future. The
pro forma adjustments and allocations of the purchase
price for White Knight are based in part on estimates of the
fair value of the assets acquired and liabilities assumed. The
final purchase price allocation will be completed after asset
and liability valuations are finalized. The final valuation will
be based on the actual net tangible and intangible assets of
White Knight that exist as of the date of the completion of the
acquisition. Any final adjustments may change the allocation of
purchase price which could affect the fair value assigned to the
assets and liabilities and could result in a change to the
unaudited pro forma consolidated financial
statements. In addition, the impact of integration activities,
the timing of completion of the acquisition and other changes in
White Knight’s net tangible and intangible assets prior to
the completion of the acquisition, which have not been
incorporated into these unaudited pro forma consolidated
financial statements, could cause material differences in the
information presented.
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2.
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Reconciliation
to United States Generally Accepted Accounting
Principles
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(i)
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Temporary
Investments
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Under Canadian GAAP, temporary investments are carried at the
lower of aggregate cost or current market value, with any
unrealized gain or loss included in the statement of operations.
Long-term investments are carried on the cost or equity basis
and are only written down when there is evidence of a decline in
value that is other than temporary.
Under United States GAAP, SFAS 115 requires that certain
debt and equity investments must be classified into
available-for-sale
or trading securities and stated at fair market values. Any
unrealized holding gains or losses are reported as a separate
component of shareholders’ equity until realized for
available-for-sale
securities, and included in earnings for trading securities. For
United States GAAP purposes, the Company’s investments in
debt securities have been classified as trading securities.
The effects of the foregoing differences are summarized as
follows:
Pro forma balance sheet at June 30, 2006
The US GAAP statement reflects $1,940,383 balance of temporary
investments ($1,896,929 under Canadian GAAP).
Pro forma statements of operations
The US GAAP statements reflect changes in the fair value of
temporary investments amounting to $16,228 and $51,599 for the
6 months ended June 30, 2006 and 12 months ended
December 31, 2005 respectively.
G-6
U.S. GOLD
CORPORATION
NOTES TO
THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(ii) Mineral
property interests and deferred exploration costs
Under United States GAAP exploration costs on mineral
properties, other than acquisition costs, prior to the
establishment of proven or probable reserves are expensed as
incurred. Under Canadian GAAP these costs may be deferred.
Under United States GAAP, the Company performs evaluations of
its investment in mineral properties to assess the
recoverability and the residual value of its investments in
these assets. All mineral properties are reviewed for impairment
whenever events or circumstances change which indicates the
carrying amount of an asset may not be recoverable, utilizing
established guidelines based on undiscounted future net cash
flows from the asset or upon the determination that certain
exploration properties do not have sufficient potential for
economic mineralization.
The effects of the foregoing differences are summarized as
follows:
Pro forma balance sheet at June 30, 2006
The US GAAP statement reflects $690,743 balance for Mineral
Property Interests ($2,519,657 under Canadian GAAP) and nil
balance for Deferred Exploration Costs ($3,477,923 under
Canadian GAAP).
Pro forma statements of operations
Under US GAAP Mining and Exploration Expenditures amounts
to $496,161 ($509,207 for Deferred Exploration Costs less
$13,046 for Mineral Property Interests) for the 6 months
ended June 30, 2006 and $1,882,457 ($1,692,739 for Deferred
Exploration Costs and $189,718 for Mineral Property Interests)
for the 12 months ended December 31, 2005. These
expenditures are capitalized for Canadian GAAP purposes but are
expensed under US GAAP.
(iii) Deficit
The US GAAP pro forma balance sheet at June 30, 2006
reflects increase in deficit of $5,263,383 due to changes in the
fair value of temporary investments and the write-off of
deferred mining and exploration expenses described above.
The business combination will be accounted for as a purchase
transaction, with U.S. Gold as the acquirer of White Knight.
In consideration for the acquisition of White Knight, the
Company will issue 0.35 shares of U.S. Gold common
stock for each outstanding common share of White Knight totaling
approximately 20,784,740 common shares to shareholders of White
Knight, representing approximately $122.6 million total
value based on the closing price of U.S. Gold’s common
stock. For accounting purposes, the measurement of the purchase
consideration in the unaudited pro forma consolidated
financial statement information is based on the market prices of
U.S. Gold common shares over a
2-day period
before and after the announcement date and is estimated at
$5.90 per each U.S. Gold share.
Each White Knight warrant or stock option which gives the holder
the right to acquire shares in the common stock of White Knight
when presented for execution will be exchanged for a warrant or
stock option which will give the holder the right to acquire
shares in the common stock of U.S. Gold on the same basis
as the exchange of White Knight common shares for U.S. Gold
common shares. The initial exchange will not include the White
Knight options and warrants. However, they have been included as
part of the purchase price consideration as U.S. Gold
intends to acquire these in a subsequent transaction. These
options and warrants have been included in the purchase
consideration at their fair value of approximately
$9.3 million based on the Black-Scholes pricing model.
G-7
U.S. GOLD
CORPORATION
NOTES TO
THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The principal assumptions used in applying the Black-Scholes
option pricing model were as follows:
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Risk-free interest rate
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4.82
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%
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Dividend yield
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N/A
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Volatility factor
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102
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%
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Expected life — options
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3-4 years
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Remaining period to expiry
date — warrants (weighted average)
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6 months
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The value of the purchase consideration for accounting purposes
may differ from the amount assumed in the unaudited pro forma
consolidated financial statement information due to any
future changes in the negotiation process.
After reflecting the pro forma purchase adjustments, the
excess of the purchase consideration over the adjusted book
values of White Knight’s assets and liabilities has been
allocated in full to Acquired Mineral Property Interests. Upon
consummation of the proposed acquisition of White Knight, the
fair value of all identifiable assets and liabilities acquired
will be determined. On completion of valuations, with a
corresponding adjustment to the historic carrying amounts of
property, plant and equipment, or on recording of any finite
life intangible assets on acquisition, these adjustments will
impact the measurement of amortization recorded in consolidated
income statements of U.S. Gold for periods after the date
of acquisition. Typically, any increase in the values assigned
by U.S. Gold to White Knight’s capital assets would
result in increased amortization charges. The fair value of the
net assets of White Knight to be acquired will ultimately be
determined after the closing of the transaction. Therefore, it
is likely that the fair values of assets and liabilities
acquired will vary from those shown below and the differences
may be material. The preliminary purchase price allocation is
subject to change and is summarized as follows:
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Purchase price:
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Shares issued on acquisition
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$
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122,629,966
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Options
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8,533,504
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Warrants
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803,775
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Acquisition costs (estimated at 5%
of purchase price)
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6,598,362
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$
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138,565,607
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Net assets acquired:
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Cash and cash equivalents
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$
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10,258,097
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Temporary investments
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1,940,383
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Accounts receivable
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105,741
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Other current assets —
prepaid expenses
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44,433
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Property and equipment, net
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837,768
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Mineral property interests
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690,743
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Restrictive time deposits for
reclamation bonding
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211,305
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Accounts payable and accrued
liabilities
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(283,964
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Due to related parties
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(106,202
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Retirement obligation
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(149,387
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Future income tax liability
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(35,257,120
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Acquired mineral property interests
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160,273,810
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$
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138,565,607
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G-8
U.S. GOLD
CORPORATION
NOTES TO
THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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4.
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Pro
forma
assumptions
and adjustments
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The unaudited pro forma consolidated financial statements
incorporate the following pro forma assumptions:
(a) The purchase price for the Acquisition has been
allocated to the acquired assets and liabilities on a proforma
basis as described in Note 3.
(b) Transaction costs have been assumed to be $6,598,362
representing 5 per cent of the total fair value of the
purchase price of the Acquisition.
(c) Future income taxes have been taken into consideration
in connection with the purchase price allocation where assumed
fair values are not the same as the carry forward book values.
(d) Represents elimination of acquired business capital
stock, equity accounts and accumulated deficit.
|
|
5.
|
Pro
forma
share
capital
|
Pro forma share capital as at June 30, 2006 has been
determined as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Issued common shares of
U.S. Gold
|
|
|
33,296,755
|
|
|
$
|
41,339,239
|
|
Shares issued for acquisition of
White Knight
|
|
|
20,784,740
|
|
|
|
122,629,966
|
|
|
|
|
|
|
|
|
|
|
Pro forma balance
|
|
|
54,081,495
|
|
|
$
|
163,969,205
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Pro
forma
loss
per share
|
Pro forma basic loss per share for the six months ended
June 30, 2006 and the year ended December 31, 2005
have been calculated based on actual weighted average number of
U.S. Gold common shares outstanding for the respective
periods and the assumed number of U.S. Gold common shares
issued to White Knight shareholders being effective on
January 1, 2006 and January 1, 2005 respectively.
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
June 30, 2006
|
|
|
December 31, 2005
|
|
|
|
(Shares or US dollars)
|
|
|
Actual weighted average number of
U.S. Gold common shares outstanding
|
|
|
33,296,755
|
|
|
|
25,931,172
|
|
Assumed number of U.S. Gold
common shares issued to White Knight shareholders
|
|
|
20,784,740
|
|
|
|
20,784,740
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average number
of U.S. Gold common shares outstanding
|
|
|
54,081,495
|
|
|
|
46,715,912
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
$
|
(69,037,122
|
)
|
|
$
|
(5,648,087
|
)
|
Pro forma adjusted basic loss per
share
|
|
$
|
(1.28
|
)
|
|
$
|
(0.12
|
)
|
G-9
APPENDIX H —
UNAUDITED PRO FORMA CONSOLIDATED SUPPLEMENTARY FINANCIAL
STATEMENTS OF U.S. GOLD
U.S. Gold
Corporation
Unaudited Pro Forma Consolidated Supplementary Balance Sheet
June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro
|
|
|
|
|
|
|
|
|
Pro
|
|
|
|
|
|
|
U.S. GAAP
|
|
|
Forma
|
|
|
|
|
|
|
|
|
Forma
|
|
|
|
|
|
|
White
|
|
|
Nevada
|
|
|
Coral
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
As Reported
|
|
|
Knight
|
|
|
Pacific
|
|
|
Gold
|
|
|
Tone
|
|
|
(before
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
U.S. Gold
|
|
|
Resources
|
|
|
Gold
|
|
|
Resources
|
|
|
Resources
|
|
|
transaction
|
|
|
Transaction
|
|
|
|
|
|
Gold
|
|
|
|
Corporation
|
|
|
Ltd.
|
|
|
Ltd.
|
|
|
Ltd.
|
|
|
Limited
|
|
|
adjustments)
|
|
|
Adjustments
|
|
|
Notes
|
|
|
Corporation
|
|
|
|
(Expressed in United States dollars unless otherwise
stated)
|
|
|
ASSETS
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
30,065,618
|
|
|
$
|
10,258,097
|
|
|
$
|
3,659,738
|
|
|
$
|
4,152,402
|
|
|
$
|
1,186,927
|
|
|
$
|
49,322,782
|
|
|
|
|
|
|
|
|
|
|
$
|
49,322,782
|
|
Temporary investments
|
|
|
—
|
|
|
|
1,940,383
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,940,383
|
|
|
|
|
|
|
|
|
|
|
|
1,940,383
|
|
Accounts receivable
|
|
|
133,743
|
|
|
|
105,741
|
|
|
|
180,697
|
|
|
|
47,414
|
|
|
|
13,392
|
|
|
|
480,987
|
|
|
|
|
|
|
|
|
|
|
|
480,987
|
|
Product inventory and stockpiled ore
|
|
|
—
|
|
|
|
—
|
|
|
|
109,074
|
|
|
|
—
|
|
|
|
—
|
|
|
|
109,074
|
|
|
|
|
|
|
|
|
|
|
|
109,074
|
|
Supplies inventory
|
|
|
—
|
|
|
|
—
|
|
|
|
285,152
|
|
|
|
—
|
|
|
|
—
|
|
|
|
285,152
|
|
|
|
|
|
|
|
|
|
|
|
285,152
|
|
Other current assets —
prepaid expenses
|
|
|
74,793
|
|
|
|
44,433
|
|
|
|
239,424
|
|
|
|
70,242
|
|
|
|
9,673
|
|
|
|
438,565
|
|
|
|
|
|
|
|
|
|
|
|
438,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
30,274,154
|
|
|
|
12,348,654
|
|
|
|
4,474,085
|
|
|
|
4,270,058
|
|
|
|
1,209,992
|
|
|
|
52,576,943
|
|
|
|
|
|
|
|
|
|
|
|
52,576,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
101,629
|
|
|
|
837,768
|
|
|
|
8,648,468
|
|
|
|
3,108
|
|
|
|
—
|
|
|
|
9,590,973
|
|
|
|
|
|
|
|
|
|
|
|
9,590,973
|
|
Mineral property interests
|
|
|
—
|
|
|
|
690,743
|
|
|
|
—
|
|
|
|
934,626
|
|
|
|
—
|
|
|
|
1,625,369
|
|
|
|
|
|
|
|
|
|
|
|
1,625,369
|
|
Acquired mineral property interests
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
377,902,746
|
|
|
|
3&4
|
|
|
|
377,902,746
|
|
Offering costs, net
|
|
|
2,991,684
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,991,684
|
|
|
|
|
|
|
|
|
|
|
|
2,991,684
|
|
Restrictive time deposits for
reclamation bonding
|
|
|
3,102,454
|
|
|
|
211,305
|
|
|
|
96,363
|
|
|
|
234,878
|
|
|
|
29,795
|
|
|
|
3,674,795
|
|
|
|
|
|
|
|
|
|
|
|
3,674,795
|
|
Escrow funding
|
|
|
38,009,105
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
38,009,105
|
|
|
|
|
|
|
|
|
|
|
|
38,009,105
|
|
Long-lived asset — asset
retirement
|
|
|
1,068,353
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,068,353
|
|
|
|
|
|
|
|
|
|
|
|
1,068,353
|
|
Other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inactive milling equipment
|
|
|
777,819
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
777,819
|
|
|
|
|
|
|
|
|
|
|
|
777,819
|
|
Other assets
|
|
|
2,125
|
|
|
|
—
|
|
|
|
—
|
|
|
|
349,055
|
|
|
|
—
|
|
|
|
351,180
|
|
|
|
|
|
|
|
|
|
|
|
351,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
779,944
|
|
|
|
—
|
|
|
|
—
|
|
|
|
349,055
|
|
|
|
—
|
|
|
|
1,128,999
|
|
|
|
—
|
|
|
|
|
|
|
|
1,128,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
76,327,323
|
|
|
$
|
14,088,470
|
|
|
$
|
13,218,916
|
|
|
$
|
5,791,725
|
|
|
$
|
1,239,787
|
|
|
$
|
110,666,221
|
|
|
$
|
377,902,746
|
|
|
|
|
|
|
$
|
488,568,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities
|
|
$
|
1,961,514
|
|
|
$
|
283,964
|
|
|
$
|
1,194,495
|
|
|
$
|
336,252
|
|
|
$
|
105,444
|
|
|
$
|
3,881,669
|
|
|
$
|
15,415,301
|
|
|
|
4
|
|
|
$
|
19,296,970
|
|
Installment purchase contracts
|
|
|
48,164
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
48,164
|
|
|
|
|
|
|
|
|
|
|
|
48,164
|
|
Due to related parties
|
|
|
—
|
|
|
|
106,202
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,981
|
|
|
|
122,183
|
|
|
|
|
|
|
|
|
|
|
|
122,183
|
|
Advances payable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
72,656
|
|
|
|
—
|
|
|
|
72,656
|
|
|
|
|
|
|
|
|
|
|
|
72,656
|
|
Retirement obligation (reclamation
activities)
|
|
|
1,235,776
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,235,776
|
|
|
|
|
|
|
|
|
|
|
|
1,235,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,245,454
|
|
|
|
390,166
|
|
|
|
1,194,495
|
|
|
|
408,908
|
|
|
|
121,425
|
|
|
|
5,360,448
|
|
|
|
15,415,301
|
|
|
|
|
|
|
|
20,775,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Installment purchase contracts,
long-term
|
|
|
10,444
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,444
|
|
|
|
|
|
|
|
|
|
|
|
10,444
|
|
Retirement obligation
|
|
|
1,389,107
|
|
|
|
149,387
|
|
|
|
1,684,812
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,223,306
|
|
|
|
|
|
|
|
|
|
|
|
3,223,306
|
|
Future income tax liability
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,303,796
|
|
|
|
—
|
|
|
|
1,303,796
|
|
|
|
83,131,251
|
|
|
|
4
|
|
|
|
84,435,047
|
|
Other permit obligations
|
|
|
72,511
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
72,511
|
|
|
|
|
|
|
|
|
|
|
|
72,511
|
|
Escrow account
|
|
|
38,009,105
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
38,009,105
|
|
|
|
|
|
|
|
|
|
|
|
38,009,105
|
|
Derivative liabilities
|
|
|
96,601,884
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
96,601,884
|
|
|
|
|
|
|
|
|
|
|
|
96,601,884
|
|
Other liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
112,397
|
|
|
|
23,685
|
|
|
|
—
|
|
|
|
136,082
|
|
|
|
|
|
|
|
|
|
|
|
136,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
139,328,505
|
|
|
|
539,553
|
|
|
|
2,991,704
|
|
|
|
1,736,389
|
|
|
|
121,425
|
|
|
|
144,717,576
|
|
|
|
98,546,552
|
|
|
|
|
|
|
|
243,264,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital stock
|
|
|
41,339,239
|
|
|
|
28,926,147
|
|
|
|
30,955,143
|
|
|
|
30,836,785
|
|
|
|
4,594,291
|
|
|
|
136,651,605
|
|
|
|
(95,312,366
|
)
|
|
|
4
|
|
|
|
312,308,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
270,968,976
|
|
|
|
3
|
|
|
|
|
|
Options and warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
37,337,045
|
|
|
|
3
|
|
|
|
37,337,045
|
|
Other equity accounts
|
|
|
—
|
|
|
|
3,600,678
|
|
|
|
1,203,218
|
|
|
|
2,014,036
|
|
|
|
487,445
|
|
|
|
7,305,377
|
|
|
|
(7,305,377
|
)
|
|
|
4
|
|
|
|
—
|
|
Deficit
|
|
|
(104,340,421
|
)
|
|
|
(18,977,908
|
)
|
|
|
(21,931,149
|
)
|
|
|
(28,795,485
|
)
|
|
|
(3,963,374
|
)
|
|
|
(178,008,337
|
)
|
|
|
73,667,916
|
|
|
|
4
|
|
|
|
(104,340,421
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
|
(63,001,182
|
)
|
|
|
13,548,917
|
|
|
|
10,227,212
|
|
|
|
4,055,336
|
|
|
|
1,118,362
|
|
|
|
(34,051,355
|
)
|
|
|
279,356,194
|
|
|
|
|
|
|
|
245,304,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND
SHAREHOLDERS’ EQUITY
|
|
$
|
76,327,323
|
|
|
$
|
14,088,470
|
|
|
$
|
13,218,916
|
|
|
$
|
5,791,725
|
|
|
$
|
1,239,787
|
|
|
$
|
110,666,221
|
|
|
$
|
377,902,746
|
|
|
|
|
|
|
$
|
488,568,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma consolidated
supplementary financial statements.
H-1
U.S. Gold
Corporation
Unaudited Pro Forma Consolidated Supplementary Statement of
Operations
For the six months ended June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GAAP
|
|
|
|
|
|
|
|
|
|
White
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
As Reported
|
|
|
Knight
|
|
|
Nevada
|
|
|
Coral Gold
|
|
|
Tone
|
|
|
Consolidated
|
|
|
|
U.S. Gold
|
|
|
Resources
|
|
|
Pacific Gold
|
|
|
Resources
|
|
|
Resources
|
|
|
U.S. Gold
|
|
|
|
Corporation
|
|
|
Ltd.
|
|
|
Ltd.
|
|
|
Ltd.
|
|
|
Limited
|
|
|
Corporation
|
|
|
|
(Expressed in United States dollars unless otherwise
stated)
|
|
|
SALES
|
|
|
|
|
|
|
|
|
|
$
|
2,943,367
|
|
|
|
|
|
|
|
|
|
|
$
|
2,943,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF SALES
|
|
|
|
|
|
|
|
|
|
|
3,347,211
|
|
|
|
|
|
|
|
|
|
|
|
3,347,211
|
|
DEPRECIATION AND DEPLETION
|
|
|
|
|
|
|
|
|
|
|
175,797
|
|
|
|
|
|
|
|
|
|
|
|
175,797
|
|
ROYALTIES
|
|
|
|
|
|
|
|
|
|
|
171,026
|
|
|
|
|
|
|
|
|
|
|
|
171,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,694,034
|
|
|
|
|
|
|
|
|
|
|
|
3,694,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS (LOSS) FROM MINING
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
(750,667
|
)
|
|
|
|
|
|
|
|
|
|
|
(750,667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other items
|
|
$
|
488,378
|
|
|
$
|
207,567
|
|
|
|
51,326
|
|
|
$
|
43,853
|
|
|
|
|
|
|
|
791,124
|
|
Gain (loss) on foreign exchange
|
|
|
—
|
|
|
|
(13,868
|
)
|
|
|
(37,154
|
)
|
|
|
12,768
|
|
|
$
|
(9,416
|
)
|
|
|
(47,670
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other revenue
|
|
|
488,378
|
|
|
|
193,699
|
|
|
|
14,172
|
|
|
|
56,621
|
|
|
|
(9,416
|
)
|
|
|
743,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
1,449,070
|
|
|
|
624,458
|
|
|
|
1,149,356
|
|
|
|
911,743
|
|
|
|
497,519
|
|
|
|
4,632,146
|
|
Proposed acquisitions
|
|
|
3,384,378
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,384,378
|
|
Property holding costs
|
|
|
781,853
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
781,853
|
|
Exploration costs
|
|
|
1,000,423
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,000,423
|
|
Stock compensation expense
|
|
|
—
|
|
|
|
1,947,693
|
|
|
|
494,015
|
|
|
|
876,942
|
|
|
|
70,468
|
|
|
|
3,389,118
|
|
Interest
|
|
|
3,442
|
|
|
|
3,695
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,137
|
|
Stock option expense
|
|
|
536,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
536,000
|
|
Accretion of asset retirement
obligation obligation
|
|
|
135,989
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
135,989
|
|
Change in value of derivatives
|
|
|
59,026,884
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
59,026,884
|
|
Write-off of deferred exploration
costs
|
|
|
—
|
|
|
|
582,883
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
582,883
|
|
Write-off of mineral property costs
|
|
|
—
|
|
|
|
(13,046
|
)
|
|
|
948,500
|
|
|
|
141,802
|
|
|
|
102,011
|
|
|
|
1,179,267
|
|
Amortization of offering cost
|
|
|
228,066
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
228,066
|
|
Depreciation
|
|
|
12,594
|
|
|
|
14,817
|
|
|
|
—
|
|
|
|
380
|
|
|
|
—
|
|
|
|
27,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
66,558,699
|
|
|
|
3,160,500
|
|
|
|
2,591,871
|
|
|
|
1,930,867
|
|
|
|
669,998
|
|
|
|
74,911,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(66,070,321
|
)
|
|
|
(2,966,801
|
)
|
|
|
(3,328,366
|
)
|
|
|
(1,874,246
|
)
|
|
|
(679,414
|
)
|
|
|
(74,919,148
|
)
|
Provision for future income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
669,080
|
|
|
|
—
|
|
|
|
669,080
|
|
Provision for income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(66,070,321
|
)
|
|
$
|
(2,966,801
|
)
|
|
$
|
(3,328,366
|
)
|
|
$
|
(2,543,326
|
)
|
|
$
|
(679,414
|
)
|
|
$
|
(75,588,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per
share (Note 6)
|
|
$
|
(1.98
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.95
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares
outstanding — basic and diluted (Note 6)
|
|
|
33,296,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,223,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma consolidated
supplementary financial statements.
H-2
U.S. Gold
Corporation
Unaudited Pro Forma Consolidated Supplementary Statement of
Operations
For the twelve months ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. GAAP
|
|
|
|
|
|
|
|
|
|
White
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
As Reported
|
|
|
Knight
|
|
|
Nevada
|
|
|
Coral Gold
|
|
|
Tone
|
|
|
Consolidated
|
|
|
|
U.S. Gold
|
|
|
Resources
|
|
|
Pacific Gold
|
|
|
Resources
|
|
|
Resources
|
|
|
U.S. Gold
|
|
|
|
Corporation
|
|
|
Ltd.
|
|
|
Ltd.
|
|
|
Ltd.
|
|
|
Limited
|
|
|
Corporation
|
|
|
|
(Expressed in United States dollars unless otherwise
stated)
|
|
|
SALES
|
|
|
|
|
|
|
|
|
|
$
|
8,881,168
|
|
|
|
|
|
|
|
|
|
|
$
|
8,881,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF SALES
|
|
|
|
|
|
|
|
|
|
|
8,420,437
|
|
|
|
|
|
|
|
|
|
|
|
8,420,437
|
|
DEPRECIATION AND DEPLETION
|
|
|
|
|
|
|
|
|
|
|
804,215
|
|
|
|
|
|
|
|
|
|
|
|
804,215
|
|
ROYALTIES
|
|
|
|
|
|
|
|
|
|
|
472,743
|
|
|
|
|
|
|
|
|
|
|
|
472,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,697,395
|
|
|
|
|
|
|
|
|
|
|
|
9,697,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS (LOSS) FROM MINING
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
(816,227
|
)
|
|
|
|
|
|
|
|
|
|
|
(816,227
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnest money forfeited
|
|
$
|
200,000
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
Interest and other items
|
|
|
32,032
|
|
|
$
|
346,162
|
|
|
|
27,205
|
|
|
$
|
15,270
|
|
|
$
|
439
|
|
|
|
421,108
|
|
Management fee
|
|
|
330,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
330,000
|
|
Realized gain from disposition of
shares
|
|
|
520,428
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
520,428
|
|
Gain (loss) on sale of assets
|
|
|
(29,982
|
)
|
|
|
—
|
|
|
|
155,199
|
|
|
|
(3,296
|
)
|
|
|
—
|
|
|
|
121,921
|
|
Gain (loss) on foreign exchange
|
|
|
—
|
|
|
|
1,634
|
|
|
|
(67,043
|
)
|
|
|
(15,576
|
)
|
|
|
(1,723
|
)
|
|
|
(82,708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other revenue
|
|
|
1,052,478
|
|
|
|
347,796
|
|
|
|
115,361
|
|
|
|
(3,602
|
)
|
|
|
(1,284
|
)
|
|
|
1,510,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
1,027,194
|
|
|
|
808,304
|
|
|
|
1,800,234
|
|
|
|
480,660
|
|
|
|
374,644
|
|
|
|
4,491,036
|
|
Write-off of purchase price
receivable
|
|
|
182,748
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
182,748
|
|
Property holding costs
|
|
|
761,081
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
761,081
|
|
Employment termination payments
|
|
|
1,423,824
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,423,824
|
|
Stock compensation expense
|
|
|
294,400
|
|
|
|
174,760
|
|
|
|
472,707
|
|
|
|
311,545
|
|
|
|
233,415
|
|
|
|
1,486,827
|
|
Equity share of subsidiary loss
|
|
|
58,888
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
58,888
|
|
Realization reserve —
stock
|
|
|
168,960
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
168,960
|
|
Interest
|
|
|
3,011
|
|
|
|
5,016
|
|
|
|
246
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,273
|
|
Accretion of asset retirement
obligation obligation
|
|
|
110,243
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
110,243
|
|
Write-off of deferred exploration
costs
|
|
|
—
|
|
|
|
1,800,035
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,800,035
|
|
Write-off of mineral
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
property costs
|
|
|
—
|
|
|
|
189,718
|
|
|
|
1,642,479
|
|
|
|
642,993
|
|
|
|
93,206
|
|
|
|
2,568,396
|
|
Depreciation
|
|
|
12,850
|
|
|
|
27,329
|
|
|
|
—
|
|
|
|
764
|
|
|
|
—
|
|
|
|
40,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
4,043,199
|
|
|
|
3,005,162
|
|
|
|
3,915,666
|
|
|
|
1,435,962
|
|
|
|
701,265
|
|
|
|
13,101,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(2,990,721
|
)
|
|
|
(2,657,366
|
)
|
|
|
(4,616,532
|
)
|
|
|
(1,439,564
|
)
|
|
|
(702,549
|
)
|
|
|
(12,406,732
|
)
|
Provision for income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(2,990,721
|
)
|
|
$
|
(2,657,366
|
)
|
|
$
|
(4,616,532
|
)
|
|
$
|
(1,439,564
|
)
|
|
$
|
(702,549
|
)
|
|
$
|
(12,406,732
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per
share (Note 6)
|
|
$
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares
outstanding — basic and diluted (Note 6)
|
|
|
25,931,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,858,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma consolidated
supplementary financial statements.
H-3
NOTES TO
THE UNAUDITED PRO FORMA CONSOLIDATED SUPPLEMENTARY
FINANCIAL STATEMENTS
(Expressed in United States dollars unless otherwise stated)
June 30, 2006 and December 31, 2005
(Unaudited)
On March 5, 2006 U.S. Gold Corporation
(“U.S. Gold” or the “Company”)
announced that it intends to acquire, in stock transactions, all
of the outstanding common shares of White Knight Resources Ltd.
(“White Knight”), Nevada Pacific Gold Ltd.
(“Nevada Pacific”), Coral Gold Resources Ltd.
(“Coral Gold”) and Tone Resources Limited (“Tone
Resources”) (together, the “Target Companies” or
“Targets”). This proposal was made in letters sent on
the same day by Mr. Robert R. McEwen, Chairman and Chief
Executive Officer of U.S. Gold, to the chief executive
officers of each of the subject companies.
The combined effects of the proposed transactions with each of
the Target Companies have been presented in these Unaudited
Pro Forma Consolidated Supplementary Financial
Statements. The unaudited pro forma consolidated
financial statements giving effect to the Company’s
acquisition of each of Coral Gold, Nevada Pacific, Tone
Resources and White Knight have been presented separately in the
document. These unaudited pro forma consolidated
supplementary financial statements have been prepared on the
basis that each shareholder of the target Companies will receive
shares of common stock of U.S. Gold Corporation in exchange
for their Target Companies common shares.
These unaudited pro forma consolidated supplementary
financial statements have been compiled from and include:
(a) An unaudited pro forma consolidated
supplementary balance sheet combining the unaudited balance
sheet of U.S. Gold as at June 30, 2006 with the
unaudited consolidated balance sheet of Coral Gold as at
April 30, 2006, the audited consolidated balance sheet of
Nevada Pacific as at June 30, 2006, the unaudited
consolidated balance sheet of Tone Resources as at May 31,
2006 and the audited consolidated balance sheet of White Knight
as at June 30, 2006, giving effect to the transactions as
if they occurred on June 30, 2006.
(b) An unaudited pro forma consolidated
supplementary statement of operations combining the audited
statement of operations of the Company for the year ended
December 31, 2005 with unaudited constructed statement of
operations of Coral Gold for the twelve months ended
October 31, 2005, the unaudited constructed statement of
operations of Nevada Pacific for the twelve months ended
December 31, 2005, the unaudited constructed statement of
operations of Tone Resources for the twelve months ended
November 30, 2005 and the unaudited constructed statement
of operations of White Knight for the twelve months ended
December 31, 2005, giving effect to the transactions as if
they occurred on January 1, 2005.
(c) An unaudited pro forma consolidated statement of
operations combining the unaudited statement of operations of
the Company for the six months ended June 30, 2006 with
unaudited constructed statement of operations of Coral Gold for
the six months ended April 30, 2006, the unaudited
constructed statement of operations of Nevada Pacific for the
six months ended June 30, 2006, the unaudited constructed
statement of operations of Tone Resources for the six months
ended May 31, 2006 and the unaudited constructed statement
of operations of White Knight for the six months ended
June 30, 2006, giving effect to the transactions as if they
occurred on January 1, 2005.
The unaudited pro forma consolidated supplementary
balance sheet and statements of operations have been presented
on the above basis to ensure that the unaudited pro forma
consolidated supplementary financial statements reflect the
acquired business financial statements for a period that is no
more than 93 days from U.S. Gold’s year-end, as
required pursuant to pro forma presentation requirements
contained in the securities rules.
The unaudited pro forma consolidated supplementary
financial statements should be read in conjunction with the
historical financial statements and notes thereto of the Company
and the financial statements of the Target Companies. Management
of U.S. Gold has consolidated certain line items from the
Target Companies financial
H-4
NOTES TO
THE UNAUDITED PRO FORMA CONSOLIDATED SUPPLEMENTARY
FINANCIAL STATEMENTS — (Continued)
statements in an attempt to conform to presentation of the
Company’s financial statements, and also to conform the
Target’s accounting policies to United States generally
accepted accounting principles.
It is management’s opinion that these unaudited pro
forma consolidated supplementary financial statements
include all adjustments necessary for the fair presentation of
the transactions described in Note 3 in accordance with
United States generally accepted accounting principles.
The unaudited pro forma consolidated supplementary
financial statements are not intended to reflect the results of
operations or the financial position of the Company which would
have actually resulted had the proposed transactions been
effected on the dates indicated. Further, the unaudited pro
forma consolidated supplementary financial information is
not necessarily indicative of the results of operations that may
be obtained in the future. The pro forma adjustments and
allocations of the purchase price for the Target Companies are
based in part on estimates of the fair value of the assets
acquired and liabilities assumed. The final purchase price
allocation will be completed after asset and liability
valuations are finalized. The final valuation will be based on
the actual net tangible and intangible assets of the Target
Companies that exist as of the date of the completion of the
acquisition. Any final adjustments may change the allocation of
purchase price which could affect the fair value assigned to the
assets and liabilities and could result in a change to the
unaudited pro forma consolidated supplementary financial
statements. In addition, the impact of integration activities,
the timing of completion of the acquisitions and other changes
in the Target Companies net tangible and intangible assets prior
to the completion of the acquisitions, which have not been
incorporated in these unaudited pro forma consolidated
supplementary financial statements, could cause material
differences in the information presented.
|
|
2.
|
Summary
of significant accounting policies
|
The unaudited pro forma consolidated supplementary
financial statements have been compiled using the significant
accounting policies as set out in the audited financial
statements of U.S. Gold for the year ended
December 31, 2005 which are included elsewhere in this
prospectus.
The business combination will be accounted for as a purchase
transaction, with U.S. Gold as the acquirer of the Target
Companies.
In consideration for the acquisition of Coral Gold, the Company
will issue 0.63 shares of U.S. Gold common stock for
each outstanding common share of Coral Gold totaling
approximately 4,206,496 common shares to shareholders of Coral
Gold, representing approximately US$24.8 million. In
addition, the options and warrants to be issued by
U.S. Gold will amount to approximately $3.3 million.
In consideration for the acquisition of White Knight, the
Company will issue 0.35 shares of U.S. Gold common
stock for each outstanding common share of White Knight totaling
approximately 20,784,740 common shares to shareholders of White
Knight, representing approximately US$122.6 million. In
addition, the options and warrants to be issued by
U.S. Gold will amount to approximately $9.3 million.
In consideration for the acquisition of Nevada Pacific, the
Company will issue 0.23 shares of U.S. Gold common
stock for each outstanding common share of Nevada Pacific
totaling approximately 15,863,565 common shares to shareholders
of Nevada Pacific, representing approximately
US$93.6 million. In addition, the options and warrants to
be issued by U.S. Gold will amount to approximately
$17.7 million.
In consideration for the acquisition of Tone Resources the
Company will issue 0.26 shares of U.S. Gold common
stock for each outstanding common share of Tone Resources
totaling approximately 5,072,144 common shares to shareholders
of Tone Resources, representing approximately
US$29.9 million. In addition, the options and warrants to
be issued by U.S. Gold will amount to approximately
$7 million.
H-5
NOTES TO
THE UNAUDITED PRO FORMA CONSOLIDATED SUPPLEMENTARY
FINANCIAL STATEMENTS — (Continued)
The measurement of the purchase consideration in the unaudited
pro forma consolidated supplementary financial statement
information is based on the market prices of U.S. Gold
common shares over a
2-day period
before and after the announcement date. The value of the
purchase consideration for accounting purposes may differ from
the amount assumed in the unaudited pro forma
consolidated supplementary financial statement information
due to any future changes in the negotiation process.
Each Target warrant or stock option which gives the holder the
right to acquire shares in the common stock of the Target when
presented for execution will be exchanged for a warrant or stock
option which will give the holder the right to acquire shares in
the common stock of U.S. Gold on the same basis as the
exchange of the Target common shares for U.S. Gold common
shares. The initial exchange will not include the Target options
and warrants. However, they have been included as part of the
purchase price consideration as U.S. Gold intends to
acquire these in a subsequent transaction. These options and
warrants have been included in the purchase consideration at
their fair value of approximately $37.3 million based on
the Black-Scholes pricing model.
The principal assumptions used in applying the Black-Scholes
option pricing model were as follows:
|
|
|
|
|
Risk-free interest rate
|
|
|
4.82
|
%
|
Dividend yield
|
|
|
N/A
|
|
Volatility factor
|
|
|
102
|
%
|
Expected life — options
|
|
|
2-4 years
|
|
Remaining periods to expiration
dates — warrants (weighted average)
|
|
|
6-19 months
|
|
After reflecting the pro forma purchase adjustments, the
excess of the purchase consideration over the adjusted book
values of the Targets’ assets and liabilities has been
allocated in full to Acquired Mineral Property Interests. Upon
consummation of the proposed acquisitions of the Targets, the
fair value of all identifiable assets and liabilities acquired
will be determined. On completion of valuations, with a
corresponding adjustment to the historic carrying amounts of
property, plant and equipment, or on recording of any finite
life intangible assets on acquisition, these adjustments will
impact the measurement of amortization recorded in consolidated
income statements of U.S. Gold for periods after the date
of acquisition. Typically, any increase in the values assigned
by U.S. Gold to the Targets’ capital assets would
result in increased amortization charges. The fair value of the
net assets of the Targets to be acquired will ultimately be
determined after the closing of the transaction. Therefore, it
is likely that the fair values of assets and liabilities
acquired will vary from the preliminary purchase allocation and
the differences may be material.
|
|
4.
|
Pro forma
assumptions and adjustments
|
The unaudited pro forma consolidated supplementary
financial statements incorporate the following pro forma
assumptions:
(a) After reflecting the pro forma purchase
adjustments, the excess of the purchase consideration over the
adjusted book values of the Targets’ assets and liabilities
has been allocated in full to Acquired Mineral Property
Interests, together with the related future income tax liability.
(b) Transaction costs have been assumed to be 5 per
cent of the total fair value of the purchase price of the
acquisition of the Targets.
(c) Represents elimination of acquired business capital
stock, other equity accounts and accumulated deficit.
H-6
NOTES TO
THE UNAUDITED PRO FORMA CONSOLIDATED SUPPLEMENTARY
FINANCIAL STATEMENTS — (Continued)
A breakdown of the transaction related adjustments has been
provided in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
White Knight
|
|
|
Nevada Pacific
|
|
|
Coral Gold
|
|
|
Tone Resources
|
|
|
|
|
|
|
Resources Ltd.
|
|
|
Gold Ltd.
|
|
|
Resources Ltd.
|
|
|
Limited
|
|
|
Total
|
|
|
Acquired mineral property interests
|
|
$
|
160,273,810
|
|
|
$
|
136,711,293
|
|
|
$
|
32,682,236
|
|
|
$
|
48,235,406
|
|
|
$
|
377,902,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities
|
|
$
|
6,598,362
|
|
|
$
|
5,564,985
|
|
|
$
|
1,407,053
|
|
|
$
|
1,844,901
|
|
|
$
|
15,415,301
|
|
Future income tax liability
|
|
|
35,257,120
|
|
|
|
30,073,825
|
|
|
|
7,189,456
|
|
|
|
10,610,850
|
|
|
|
83,131,251
|
|
Capital stock reversal
|
|
|
(28,926,147
|
)
|
|
|
(30,955,143
|
)
|
|
|
(30,836,785
|
)
|
|
|
(4,594,291
|
)
|
|
|
(95,312,366
|
)
|
USG shares issued
|
|
|
122,629,966
|
|
|
|
93,595,034
|
|
|
|
24,818,326
|
|
|
|
29,925,650
|
|
|
|
270,968,976
|
|
Options and warrants issued
|
|
|
9,337,279
|
|
|
|
17,704,661
|
|
|
|
3,322,737
|
|
|
|
6,972,367
|
|
|
|
37,337,045
|
|
Other equity accounts reversal
|
|
|
(3,600,678
|
)
|
|
|
(1,203,218
|
)
|
|
|
(2,014,036
|
)
|
|
|
(487,445
|
)
|
|
|
(7,305,377
|
)
|
Deficit reversal
|
|
|
18,977,908
|
|
|
|
21,931,149
|
|
|
|
28,795,485
|
|
|
|
3,963,374
|
|
|
|
73,667,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
160,273,810
|
|
|
$
|
136,711,293
|
|
|
$
|
32,682,236
|
|
|
$
|
48,235,406
|
|
|
$
|
377,902,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
|
Pro forma
share capital
|
Supplementary pro forma share capital as at June 30,
2006 has been compiled as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Issued common shares of
U.S. Gold
|
|
|
33,296,755
|
|
|
$
|
41,339,239
|
|
Shares issued for acquisitions of
Targets
|
|
|
45,926,945
|
|
|
|
270,968,976
|
|
|
|
|
|
|
|
|
|
|
Pro forma balance
|
|
|
79,223,700
|
|
|
$
|
312,308,215
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Pro forma
loss per share
|
Supplementary pro forma basic loss per share for the six
months ended June 30, 2006 and the year ended
December 31, 2005 have been calculated based on actual
weighted average number of U.S. Gold common shares
outstanding for the respective periods and the assumed number of
U.S. Gold common shares issued to the Target shareholders
being effective on January 1, 2006 and January 1, 2005
respectively.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Year Ended
|
|
|
|
June 30, 2006
|
|
|
December 31, 2005
|
|
|
|
(Shares or US dollars)
|
|
|
Actual weighted average number of
U.S. Gold common shares outstanding
|
|
|
33,296,755
|
|
|
|
25,931,172
|
|
Assumed number of U.S. Gold
common shares issued to Targets
|
|
|
45,926,945
|
|
|
|
45,926,945
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average number
of U.S. Gold common shares outstanding
|
|
|
79,223,700
|
|
|
|
71,858,117
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
$
|
(75,588,228
|
)
|
|
$
|
(12,406,732
|
)
|
Pro forma adjusted basic loss per
share
|
|
$
|
(0.95
|
)
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
|
H-7
APPENDIX I
RIGHTS,
PRIVILEGES, RESTRICTIONS AND CONDITIONS ATTACHING TO THE
EXCHANGEABLE SHARES OF US GOLD CANADIAN ACQUISITION
CORPORATION
Exchangeable
Shares
The rights, privileges, restrictions and conditions attaching to
the Exchangeable Shares are as follows:
ARTICLE 1
INTERPRETATION
For the purposes of these share provisions, unless something in
the subject matter or context is inconsistent therewith:
“ABCA” means the Business Corporations Act
(Alberta), as amended from time to time.
“AMEX” means the American Stock Exchange.
“Alberta ULC” means US Gold Alberta ULC, an
unlimited liability corporation existing and governed by the
laws of the Province of Alberta.
“Board of Directors” means the board of
directors of the Corporation.
“Business Day” means any day other than a
Saturday, Sunday, a public holiday or a day on which commercial
banks are not open for business in Toronto, Ontario or Denver,
Colorado under applicable law.
“Canadian Dollar Equivalent” means in respect
of an amount expressed in a currency other than Canadian dollars
(the “Foreign Currency Amount”) at any date the
product obtained by multiplying:
(a) the Foreign Currency Amount; by
(b) the noon spot exchange rate on such date for such
foreign currency expressed in Canadian dollars as reported by
the Bank of Canada or, in the event such spot exchange rate is
not available, such spot exchange rate on such date for such
foreign currency expressed in Canadian dollars as may be deemed
by the Board of Directors to be appropriate for such purpose.
“Common Shares” means the common shares in the
capital of the Corporation.
“Corporation” means US Gold Canadian
Acquisition Corporation a company incorporated under the
Business Corporations Act (Alberta).
“Current Market Price” means, in respect of a
share of US Gold Common Stock on any date, the Canadian Dollar
Equivalent of the average closing sales price (computed and
rounded to the third decimal point) on the TSX or the AMEX
during a period of 20 consecutive trading days ending not more
than five trading days prior to such date or, if the shares of
US Gold Common Stock are not then listed on the TSX or the AMEX,
on such other stock exchange or automated quotation system on
which the shares of US Gold Common Stock are listed or quoted,
as the case may be, as may be selected by the Board of Directors
for such purpose; provided, however, that if in the opinion of
the Board of Directors the public distribution or trading
activity of shares of US Gold Common stock during such period is
inadequate to create a market that reflects the fair market
value of a share of US Gold Common Stock, then the Current
Market Price of a share of US Gold Common Stock shall be
determined by the Board of Directors based upon the advice of
such qualified independent financial advisors as the Board of
Director may deem to be appropriate, and provided further that
any such selection, opinion or determination by the Board of
Directors shall be conclusive and binding.
“Dividend Amount” means an amount equal to the
full amount of all dividends and distributions declared and
unpaid on each Exchangeable Share and all dividends and
distributions declared on a share of US Gold Common
I-1
Stock that have not been declared on each Exchangeable Share in
accordance with Section 3.1, in each case with a record
date prior to the effective date of the purchase, redemption or
other acquisition of such Exchangeable Share pursuant to
ARTICLE 5, ARTICLE 6 or ARTICLE 7.
“Exchangeable Shares” means the exchangeable
shares in the capital of the Corporation, having the rights,
privileges, restrictions and conditions set forth in these Share
Provisions.
“LCR Exercising Party” has the meaning set out
in Section 5.2(1).
“Liquidation Amount” has the meaning ascribed
thereto Section 5.1(1).
“Liquidation Call Purchase Price” has the
meaning set out in Section 5.2(1).
“Liquidation Call Right” has the meaning
ascribed thereto in Section 5.2(1).
“Liquidation Date” has the meaning ascribed
thereto in Section 5.1(1).
“Person” includes any individual, firm,
partnership, limited partnership, joint venture, venture capital
fund, limited liability company, unlimited liability company,
association, trust, trustee, executor, administrator, legal
personal representative, estate, group, body corporate,
corporation, unincorporated association or organization,
governmental entity, syndicate or other entity, whether or not
having legal status.
“RCR Exercising Party” has the meaning set out
in Section 6.2(1).
“Redemption Call Purchase Price” has the
meaning set out in Section 7.2(1).
“Redemption Call Right” has the meaning
ascribed thereto in Section 7.2(1).
“Redemption CR Exercising Party” has the
meaning set out in Section 7.2(1).
“Redemption Date” means the earlier of
(i) the seventh anniversary of the date on which
Exchangeable Shares are first issued; and (ii) the date
established by the Board of Directors for the redemption by the
Corporation of all but not less than all of the outstanding
Exchangeable Shares on which there are outstanding fewer than
that number of Exchangeable Shares equal to 10% of the total
number of Exchangeable Shares issued in connection with the
offers to purchase all of the outstanding common shares of Coral
Gold Resources Ltd., Nevada Pacific Gold Ltd., Tone Resources
Limited and White Knight Resources Ltd. outstanding (other than
Exchangeable Shares held by US Gold or its Subsidiaries), and as
such number of shares may be adjusted as deemed appropriate by
the Board of Directors to give effect to any subdivision,
combination or consolidation of or stock dividend on the
Exchangeable Shares, any issue or distribution of rights to
acquire Exchangeable Shares or securities exchangeable for or
convertible into Exchangeable Shares, any issue or distribution
of other securities or rights or evidences of indebtedness or
assets, or any other capital reorganization or other transaction
affecting the Exchangeable Shares.
“Redemption Price” has the meaning
ascribed thereto in Section 7.1(1).
“Retracted Shares” has the meaning ascribed
thereto in Section 6.1(1).
“Retraction Call Purchase Price” has the
meaning set out in Section 6.2(1).
“Retraction Call Right” has the meaning
ascribed thereto in Section 6.2(1).
“Retraction Date” has the meaning ascribed
thereto in Section 6.1(1).
“Retraction Price” has the meaning ascribed
thereto in Section 6.1(1).
“Retraction Request” has the meaning ascribed
thereto in Section 6.1(1).
“Share Provisions” means the rights,
privileges, restrictions and conditions set out herein.
“Subsidiary” means, when used with reference to
US Gold, any corporation more than 50% of the outstanding stock
of which is owned, directly or indirectly, by US Gold, by one or
more other Subsidiaries of US Gold, or by US Gold and one or
more other Subsidiaries of US Gold.
“Support Agreement” means a support agreement
to be entered into prior to the issuance by the Corporation of
any Exchangeable Shares among US Gold, Alberta ULC and the
Corporation, the purpose of which will be for US
I-2
Gold (for itself and on behalf of Alberta ULC) and the
Corporation to covenant to do all things reasonably necessary
and desirable to enable and permit the Corporation or Alberta
ULC to perform its obligations hereunder.
“Transfer Agent” means any Person as may from
time to time be appointed by the Corporation as the registrar
and transfer agent for the Exchangeable Shares.
“Trustee” means the trustee chosen by US Gold
to act as trustee under the Voting and Exchange
Trust Agreement, being a corporation organized and existing
under the laws of Canada or any Province thereof and authorized
to carry on the business of a trust company in all the provinces
of Canada, and any successor trustee appointed under the Voting
and Exchange Trust Agreement.
“TSX” means the Toronto Stock Exchange.
“US Gold Call Notice” has the meaning ascribed
thereto in Section 6.2(2).
“US Gold Common Stock” means the shares of
common stock of US Gold, no par value, having voting rights of
one vote per share, and any other securities into which such
shares may be changed or for which such shares may be exchanged
(whether or not US Gold shall be the issuer of such securities)
or any other consideration which may be received by the holders
of such shares pursuant to a recapitalization, reconstruction,
reorganization or reclassification of, or amalgamation, merger,
liquidation or similar transaction affecting, such shares.
“US Gold Dividend Declaration Date” means the
date on which the board of directors of US Gold declares any
dividend or other distribution on the shares of US Gold Common
Stock.
“US Gold” means U.S. Gold Corporation, a
corporation existing under the laws of Colorado.
“Voting and Exchange Trust Agreement”
means the agreement to be entered into prior to the issuance
by the Corporation of any Exchangeable Shares made between US
Gold, Alberta ULC, the Corporation and the Trustee, the purpose
of which will be to create a trust for the benefit of the
registered holders of Exchangeable Shares that will enable the
Trustee to exercise voting rights on behalf of the holders of
Exchangeable Shares similar to those of holders of US Gold
Common Stock.
|
|
1.2
|
Sections
and Headings
|
The division of these Share Provisions into articles and
sections and the insertion of headings are for reference
purposes only and shall not affect the interpretation of these
Share Provisions. Unless otherwise indicated, any reference in
these Share Provisions to an article or section refers to the
specified article or section of these Share Provisions.
|
|
1.3
|
Number
Gender and Persons
|
In these Share Provisions, unless the context otherwise
requires, words importing the singular number include the plural
and vice versa, words importing any gender include all genders
and words importing persons include individuals, corporations,
partnerships, companies, associations, trusts, unincorporated
organizations, governmental bodies and other legal or business
entities of any kind.
All payments to be made hereunder shall be made without interest
and less any tax required by Canadian law to be deducted and
withheld.
In these Share Provisions, unless stated otherwise, all dollar
amounts are in Canadian dollars.
I-3
ARTICLE 2
RANKING OF
EXCHANGEABLE SHARES
The Exchangeable Shares shall be entitled to a preference over
the Common Shares, and any other shares ranking junior to the
Exchangeable Shares with respect to the payment of dividends as
and to the extent provided in ARTICLE 3 and with respect to
the distribution of assets in the event of the liquidation,
dissolution or
winding-up
of the Corporation, whether voluntary or involuntary, or any
other distribution of the assets of the Corporation among its
shareholders for the purpose of winding up its affairs as and to
the extent provided in ARTICLE 5.
ARTICLE 3
DIVIDENDS
A holder of an Exchangeable Share shall be entitled to receive
and the Board of Directors shall, subject to applicable law, on
each US Gold Dividend Declaration Date, declare a dividend on
each Exchangeable Share:
(a) in the case of a cash dividend or distribution declared
on the shares of US Gold Common Stock, in an amount in cash for
each Exchangeable Share equal to the Canadian Dollar Equivalent
of the cash dividend or distribution declared on each share of
US Gold Common Stock on the US Gold Dividend Declaration Date;
(b) in the case of a stock dividend or distribution
declared on the shares of US Gold Common Stock to be paid in
shares of US Gold Common Stock, by the issue or transfer by the
Corporation of such number of Exchangeable Shares for each
Exchangeable Share as is equal to the number of shares of US
Gold Common Stock to be paid on each share of US Gold Common
Stock; or
(c) in the case of a dividend or distribution declared on
the shares of US Gold Common Stock in property other than cash
or shares of US Gold Common Stock, in such type and amount of
property for each Exchangeable Share as is the same as or
economically equivalent to (to be determined by the Board of
Directors as contemplated by Section 3.5 hereof) the type
and amount of property declared as a dividend or distribution on
each share of US Gold Common Stock.
Such dividends shall be paid out of the assets of the
Corporation properly applicable to the payment of dividends, or
out of authorized but unissued shares or other securities of the
Corporation, as applicable. The holders of Exchangeable Shares
shall not be entitled to any dividends other than or in excess
of the dividends referred to in this Section 3.1.
Cheques of the Corporation payable at par at any branch of the
bankers of the Corporation shall be issued in respect of any
cash dividends or distributions contemplated by
Section 3.1(a) hereof and the sending of such cheque to
each holder of an Exchangeable Share shall satisfy the cash
dividend represented thereby unless the cheque is not paid on
presentation. Certificates registered in the name of the
registered holder of Exchangeable Shares shall be issued or
transferred in respect of any stock dividends or other
distributions contemplated by Section 3.1(b) hereof and the
sending of such a certificate to each holder of an Exchangeable
Share shall satisfy the stock dividend or other distribution
represented thereby. Such other type and amount of property in
respect of any dividends or distributions contemplated by
Section 3.1(c) hereof shall be issued, distributed or
transferred by the Corporation in such manner as it shall
determine and the issuance, distribution or transfer thereof by
the Corporation to each holder of an Exchangeable Share shall
satisfy the dividend or other distribution represented thereby.
No holder of an Exchangeable Share shall be entitled to recover
by action or other legal process against the Corporation any
dividend that is represented by a cheque that has not been duly
presented to the Corporation’s bankers for payment or that
otherwise remains unclaimed for a period of six years from the
date on which such dividend was payable.
I-4
|
|
3.3
|
Record
and Payment Dates
|
The record date for the determination of the holders of
Exchangeable Shares entitled to receive payment of, and the
payment date for, any dividend or distribution declared on the
Exchangeable Shares under Section 3.1 hereof shall be the
same dates as the record date and payment date, respectively,
for the corresponding dividend or distribution declared on the
shares of US Gold Common Stock.
If on any payment date for any dividends or distributions
declared on the Exchangeable Shares under Section 3.1
hereof the dividends or distributions are not paid in full on
all of the Exchangeable Shares then outstanding, any such
dividends that remain unpaid shall be paid on a subsequent date
or dates determined by the Board of Directors on which the
Corporation shall have sufficient moneys or other assets
properly applicable to the payment of such dividends or
distributions.
For the purposes of Section 3.1 hereof, the Board of
Directors shall determine, acting in good faith and in its sole
discretion (with the assistance of such reputable and qualified
independent financial advisors
and/or other
experts as the board may require), economic equivalence and each
such determination shall be conclusive and binding on the
Corporation and its shareholders. In making each such
determination, the following factors shall, without excluding
other factors determined by the Board of Directors to be
relevant, be considered by the Board of Directors:
(a) in the case of any stock dividend or other distribution
payable in shares of US Gold Common Stock, the number of such
shares issued in proportion to the number of shares of US Gold
Common Stock previously outstanding;
(b) in the case of the issuance or distribution of any
rights, options or warrants to subscribe for or purchase shares
of US Gold Common Stock (or securities exchangeable for or
convertible into or carrying rights to acquire shares of US Gold
Common Stock), the relationship between the exercise price of
each such right, option or warrant and the Current Market Price
of a share of US Gold Common Stock;
(c) in the case of the issuance or distribution of any
other form of property (including, without limitation, any
shares or securities of US Gold of any class other than US Gold
Common Stock, any rights, options or warrants other than those
referred to in Section 3.5(b), any evidences of
indebtedness of US Gold or any assets of US Gold), the
relationship between the fair market value (as determined by the
Board of Directors in the manner above contemplated) of such
property to be issued or distributed with respect to each
outstanding share of US Gold Common Stock and the Current Market
Price of a share of US Gold Common Stock;
(d) in the case of any subdivision, redivision or change of
the then outstanding shares of US Gold Common Stock into a
greater number of shares of US Gold Common Stock or the
reduction, combination, consolidation or change of the then
outstanding shares of US Gold Common Stock into a lesser number
of shares of US Gold Common Stock or any amalgamation, merger,
reorganization or other transaction affecting the US Gold Common
Stock, the effect thereof upon the then outstanding shares of US
Gold Common Stock; and
(e) in all such cases, the general taxation consequences of
the relevant event to holders of Exchangeable Shares to the
extent that such consequences may differ from the taxation
consequences to holders of shares of US Gold Common Stock as a
result of differences between taxation laws of Canada and the
United States (except for any differing consequences arising as
a result of differing marginal taxation rates and without regard
to the individual circumstances of holders of Exchangeable
Shares).
I-5
ARTICLE 4
CERTAIN
RESTRICTIONS
(1) Except as provided in Section 4.1(2), so long as
any of the Exchangeable Shares are outstanding, the Corporation
shall not at any time without, but may at any time with, the
approval of the holders of the Exchangeable Shares given as
specified in Section 9.2 hereof:
(a) pay any dividends on the Common Shares or any other
shares ranking junior to the Exchangeable Shares with respect to
the payment of dividends, other than stock dividends payable in
Common Shares or in any such other shares ranking junior to the
Exchangeable Shares, as the case may be;
(b) redeem or purchase or make any capital distribution in
respect of Common Shares or any other shares ranking junior to
the Exchangeable Shares with respect to the distribution of the
assets in the event of the liquidation, dissolution or winding
up of the Corporation;
(c) redeem or purchase any other shares of the Corporation
ranking equally with the Exchangeable Shares with respect to the
payment of dividends or the distribution of assets in the event
of the liquidation, dissolution or
winding-up
of the Corporation, whether voluntary or involuntary, or any
other distribution of the assets of the Corporation among its
shareholders for the purpose of winding up its affairs; or
(d) issue any shares other than (i) Exchangeable
Shares, (ii) Common Shares, and (iii) any other shares
not ranking superior to the Exchangeable Shares.
(2) The restrictions in Sections 4.1(1)(a), 4.1(1)(b)
and 4.1(1)(c) hereof shall not apply if all dividends and
distributions on the outstanding Exchangeable Shares
corresponding to dividends and distributions declared and paid
to date on the shares of US Gold Common Stock shall have been
declared and paid in full on the Exchangeable Shares.
ARTICLE 5
LIQUIDATION
|
|
5.1
|
Participation
Upon Liquidation, Dissolution or Winding Up of the
Corporation
|
(1) Subject to applicable law and the due exercise by US
Gold or Alberta ULC of a Liquidation Call Right, in the event of
the liquidation, dissolution or winding up of the Corporation or
any other distribution of the assets of the Corporation among
its shareholders for the purpose of winding up its affairs, a
holder of Exchangeable Shares shall be entitled to receive from
the assets of the Corporation in respect of each Exchangeable
Share held by such holder on the effective date of such
liquidation, dissolution or winding up or other distribution
(the “Liquidation Date”), before any
distribution of any part of the assets of the Corporation among
the holders of the Common Shares or any other shares ranking
junior to the Exchangeable Shares, an amount per share equal to
(a) the Current Market Price of a share of US Gold Common
Stock on the last Business Day prior to the Liquidation Date,
which shall be satisfied in full by the Corporation causing to
be delivered to such holder one share of US Gold Common Stock,
plus (b) the Dividend Amount, if any (collectively, the
“Liquidation Amount”).
(2) In the case of a distribution on Exchangeable Shares
under this Section 5.1 and provided the Liquidation Call
Right has not been exercised, on or promptly after the
Liquidation Date, the Corporation shall cause to be delivered to
the holders of the Exchangeable Shares the Liquidation Amount
for each such Exchangeable Share upon presentation and surrender
of the certificates representing such Exchangeable Shares,
together with such other documents and instruments as may be
required to effect a transfer of Exchangeable Shares under the
ABCA and the Articles of the Corporation and such additional
documents and instruments as the Transfer Agent and the
Corporation may reasonably require, at the registered office of
the Corporation or at any office of the Transfer Agent as may be
specified by the Corporation by notice to the holders of the
Exchangeable Shares. Payment of the aggregate Liquidation Amount
for such Exchangeable Shares shall be made by causing to be
delivered to each
I-6
holder, at the address of the holder recorded in the securities
register of the Corporation for the Exchangeable Shares or by
holding for
pick-up by
the holder at the registered office of the Corporation or at any
office of the Transfer Agent as may be specified by the
Corporation by notice to the holders of Exchangeable Shares,
certificates representing the aggregate number of shares of US
Gold Common Stock deliverable by the Corporation to such holder
(which shares shall be duly issued as fully paid and
non-assessable and shall be free and clear of any lien, claim,
encumbrance, security interest or adverse claim) and a cheque of
the Corporation payable at par at any branch of the bankers of
the Corporation in payment of the Dividend Amount, if any,
payable to such holder, without interest (less any amounts
withheld on account of tax required to be deducted and withheld
therefrom). On and after the Liquidation Date, the holders of
the Exchangeable Shares shall cease to be holders of such
Exchangeable Shares and shall not be entitled to exercise any of
the rights of holders in respect thereof (including any rights
under the Voting and Exchange Trust Agreement), other than
the right to receive the Liquidation Amount, unless payment of
the total Liquidation Amount for such Exchangeable Shares shall
not be made upon presentation and surrender of share
certificates in accordance with the foregoing provisions, in
which case the rights of the holders shall remain unaffected
until the Liquidation Amount has been paid in the manner
hereinbefore provided. The Corporation shall have the right at
any time after the Liquidation Date to transfer or cause to be
issued or transferred, and deposited in a custodial account with
any chartered bank or trust company in Canada named in such
notice, the Liquidation Amount in respect of the Exchangeable
Shares represented by certificates that have not at the
Liquidation Date been surrendered by the holders thereof, such
Liquidation Amount to be held by such bank or trust company as
trustee for and on behalf of, and for the use and benefit of,
such holders. Upon such deposit being made, the rights of a
holder of Exchangeable Shares after such deposit shall be
limited to receiving its proportionate part of the Liquidation
Amount for such Exchangeable Shares so deposited, without
interest, and when received by such bank or trust company, all
dividends and other distributions with respect to the shares of
US Gold Common Stock to which such holder is entitled with a
record date after the date of such deposit and before the date
of transfer of such shares of US Gold Common Stock to such
holder (in each case less any amounts withheld on account of tax
required to be deducted and withheld therefrom) against
presentation and surrender of the certificates for the
Exchangeable Shares held by them in accordance with the
foregoing provisions. Upon such payment or deposit of the total
Liquidation Amount (less any amounts withheld on account of tax
required to be deducted and withheld therefrom), the holders of
the Exchangeable Shares shall thereafter be considered and
deemed for all purposes to be holders of the US Gold Common
Stock delivered to them or the custodian on their behalf.
(3) After the Corporation has satisfied its obligations to
pay the holders of the Exchangeable Shares the total Liquidation
Amount pursuant to this Section 5.1, such holders shall not
be entitled to share in any further distribution of the assets
of the Corporation.
|
|
5.2
|
Liquidation
Call Rights
|
(1) Subject to the limitations set forth in
Section 5.2(2), including that Alberta ULC shall only be
entitled to exercise its Liquidation Call Right with respect to
those holders of Exchangeable Shares, if any, in respect of
which US Gold has not exercised its Liquidation Call Right, US
Gold and Alberta ULC shall each have the overriding right (a
“Liquidation Call Right”), in the event of and
notwithstanding the proposed liquidation, dissolution or winding
up of the Corporation pursuant to Section 5.1 hereof, to
purchase from all but not less than all of the holders of
Exchangeable Shares on the Liquidation Date (other than US Gold
and its Subsidiaries) all but not less than all of the
Exchangeable Shares held by each such holder on payment by
whichever of US Gold or Alberta ULC is exercising such right
(the “LCR Exercising Party”) of an amount per
share equal to (a) the Current Market Price of a share of
US Gold Common Stock on the last Business Day prior to the
Liquidation Date, which shall be satisfied in full by delivery
to such holder of one share of US Gold Common Stock, plus
(b) the Dividend Amount, if any (collectively, the
“Liquidation Call Purchase Price”). In the
event of the exercise of a Liquidation Call Right, each holder
of Exchangeable Shares (other than Alberta ULC and its
Subsidiaries) shall be obligated to sell all the Exchangeable
Shares held by such holder to the LCR Exercising Party on the
Liquidation Date on payment by the LCR Exercising Party to the
holder of the Liquidation Call Purchase Price for each such
share and the Corporation shall have no obligation to pay any
Liquidation Amount to the holders of such shares so purchased by
the LCR Exercising Party.
I-7
(2) Alberta ULC shall only be entitled to exercise its
Liquidation Call Right with respect to those holders of
Exchangeable Shares, if any, in respect of which US Gold has not
exercised its Liquidation Call Right. In order to exercise its
Liquidation Call Right, an LCR Exercising Party must notify in
writing the Transfer Agent, as agent for the holders of
Exchangeable Shares, the Trustee and the Corporation of its
intention to exercise such right at least 55 days before
the Liquidation Date in the case of a voluntary liquidation,
dissolution or winding up of the Corporation and at least five
Business Days before the Liquidation Date in the case of an
involuntary liquidation, dissolution or winding up of the
Corporation. The Transfer Agent will notify the holders of
Exchangeable Shares as to whether or not a Liquidation Call
Right has been exercised (such notice to specify the LCR
Exercising Party) forthwith after the expiry of the date by
which the same may be exercised, such form of notice to be
provided by US Gold to the Transfer Agent. If an LCR Exercising
Party exercises its Liquidation Call Right in accordance with
this Section 5.2, all obligations of the Corporation under
Section 5.1 shall terminate and on the Liquidation Date
such LCR Exercising Party will purchase and the holders of
Exchangeable Shares (other than US Gold and its Subsidiaries)
will sell all of their Exchangeable Shares then outstanding for
a price per share equal to the Liquidation Call Purchase Price.
(3) For the purposes of completing a purchase of the
Exchangeable Shares pursuant to the exercise of a Liquidation
Call Right, the LCR Exercising Party shall deposit with the
Transfer Agent, on or before the Liquidation Date, certificates
representing the total number of shares of US Gold Common Stock
deliverable by the LCR Exercising Party (which shares shall be
duly issued as fully paid and non-assessable and shall be free
and clear of any lien, claim, encumbrance, security interest or
adverse claim) in payment of the total Liquidation Call Purchase
Price and a cheque in the amount of the remaining portion, if
any, of the total Liquidation Call Purchase Price and any
interest allowed on such deposit shall belong to the LCR
Exercising Party. Provided that the total Liquidation Call
Purchase Price has been so deposited with the Transfer Agent, on
and after the Liquidation Date the rights of each holder of
Exchangeable Shares (other than US Gold and its Subsidiaries)
will be limited to receiving such holder’s proportionate
part of the total Liquidation Call Purchase Price payable by the
LCR Exercising Party, without interest, and when received by the
Transfer Agent, all dividends and other distributions with
respect to the shares of US Gold Common Stock to which such
holder is entitled with a record date after the date of such
deposit and before the date of transfer of such shares of US
Gold Common Stock to such holder (in each case less any amounts
withheld on account of tax required to be deducted and withheld
therefrom) against presentation and surrender of the
certificates for the Exchangeable Shares held by them in
accordance with the following provisions. Upon surrender to the
Transfer Agent of a certificate representing Exchangeable
Shares, together with such other documents and instruments as
may be required to effect a transfer of Exchangeable Shares
under the ABCA and such additional documents and instruments as
the Transfer Agent and the Corporation may reasonably require,
the holder of such surrendered certificate shall be entitled to
receive in exchange therefor, and the Transfer Agent on behalf
of the LCR Exercising Party shall deliver to such holder, a
certificate representing the shares of US Gold Common Stock to
which such holder is entitled and a cheque in payment of the
Dividend Amount, if any, without interest (less any amounts
withheld on account of tax required to be deducted and withheld
therefrom). If neither US Gold nor Alberta ULC exercises its
Liquidation Call Right in the manner described above, on the
Liquidation Date the holders of Exchangeable Shares shall be
entitled to receive in exchange therefor the Liquidation Amount
otherwise payable by the Corporation in connection with the
liquidation, dissolution or winding up of the Corporation
pursuant to Section 5.1 hereof.
ARTICLE 6
RETRACTION
AT OPTION OF HOLDER
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6.1
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Retraction
at Option of Holder
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(1) Subject to applicable law and the due exercise by
either US Gold or Alberta ULC of a Retraction Call Right, a
holder of Exchangeable Shares shall be entitled at any time to
require the Corporation to redeem, on the fifth Business Day
after the date on which the Retraction Request is received by
the Corporation (the “Retraction Date”), any or
all of the Exchangeable Shares registered in the name of such
holder for an amount per share equal to (a) the Current
Market Price of a share of US Gold Common Stock on the last
Business Day prior to the Retraction Date, which shall be
satisfied in full by the Corporation causing to be delivered to
such holder one share of US Gold
I-8
Common Stock, plus (b) the Dividend Amount, if any
(collectively, the “Retraction Price”). The
holder must give notice of a requirement to redeem by presenting
and surrendering at the registered office of the Corporation or
at any office of the Transfer Agent as may be specified by the
Corporation by notice to the holders of Exchangeable Shares the
certificate representing the Exchangeable Shares that the holder
desires to have the Corporation redeem, together with such other
documents and instruments as may be required to effect a
transfer of Exchangeable Shares under the ABCA and such
additional documents and instruments as the Transfer Agent and
the Corporation may reasonably require, together with a duly
executed statement (the “Retraction Request”)
in the form of Schedule A hereto or in such other form as
may be acceptable to the Corporation specifying that the holder
desires to have all or any number specified therein of the
Exchangeable Shares represented by such certificate (the
“Retracted Shares”) redeemed by the Corporation.
(2) In the case of a redemption of Exchangeable Shares
under this Section 6.1, upon receipt by the Corporation or
the Transfer Agent in the manner specified in
Section 6.1(1) hereof of a certificate representing the
number of Exchangeable Shares which the holder desires to have
the Corporation redeem, together with a Retraction Request, and
provided that the Retraction Request is not revoked by the
holder in the manner specified in Section 6.1(5) and that
neither US Gold or Alberta ULC has exercised a Retraction Call
Right, the Corporation shall redeem the Retracted Shares
effective at the close of business on the Retraction Date. On
the Retraction Date, the Corporation shall deliver or cause to
be delivered to the relevant holder, at the address of the
holder recorded in the securities register of the Corporation
for the Exchangeable Shares or at the address specified in the
holder’s Retraction Request or by holding for
pick-up by
the holder at the registered office of the Corporation or at any
office of the Transfer Agent, as may be specified by the
Corporation by notice to the holders of Exchangeable Shares, a
certificate representing the number of shares of US Gold Common
Stock to which such holder is entitled (which shares shall be
duly issued as fully paid and non-assessable and shall be free
and clear of any lien, claim, encumbrance, security interest or
adverse claim) registered in the name of the holder or in such
other name as the holder may request in payment of the
Retraction Price and a cheque of the Corporation payable at par
at any branch of the bankers of the Corporation in payment of
the remaining portion, if any, of the aggregate Retraction Price
to which such holder is entitled (less any amounts withheld on
account of tax required to be deducted and withheld therefrom)
and such delivery of such certificate and cheque by or on behalf
of the Corporation by the Transfer Agent shall be deemed to be
payment of and shall satisfy and discharge all liability for the
Retraction Price to the extent that the same is represented by
such share certificates and cheque, unless such cheque is not
paid on due presentation. If only a part of the Exchangeable
Shares represented by any certificate is redeemed, a new
certificate for the balance of such Exchangeable Shares shall be
issued to the holder at the expense of the Corporation.
(3) On and after the close of business on the Retraction
Date, the holder of the Retracted Shares shall cease to be a
holder of such Retracted Shares and shall not be entitled to
exercise any of the rights of a holder in respect thereof, other
than the right to receive its proportionate part of the total
Retraction Price, unless upon presentation and surrender of
certificates in accordance with the foregoing provisions,
payment of the aggregate Retraction Price payable to such holder
shall not be made, in which case the rights of such holder shall
remain unaffected until such aggregate Retraction Price has been
paid in the manner hereinbefore provided. On and after the close
of business on the Retraction Date, provided that presentation
and surrender of certificates and payment of such aggregate
Retraction Price has been made in accordance with the foregoing
provisions, the holder of the Retracted Shares so redeemed by
the Corporation shall thereafter be considered and deemed for
all purposes to be a holder of the shares of US Gold Common
Stock delivered to such holder.
(4) Notwithstanding any other provision of this
Section 6.1, the Corporation shall not be obligated to
redeem Retracted Shares specified by a holder in a Retraction
Request to the extent that such redemption of Retracted Shares
would be contrary to solvency requirements or other provisions
of applicable law. If the Corporation believes that on any
Retraction Date it would not be permitted by any of such
provisions to redeem the Retracted Shares tendered for
redemption on such date, and neither US Gold nor Alberta ULC
shall have exercised its Retraction Call Right with respect to
the Retracted Shares, the Corporation shall only be obligated to
redeem Retracted Shares specified by a holder in a Retraction
Request to the extent of the maximum number that may be so
redeemed (rounded down to a whole number of shares) as would not
be contrary to such provisions and shall notify the holder at
least two Business Days prior to the Retraction Date as to the
number of Retracted Shares which will not be redeemed by the
Corporation. In any case in which the redemption by the
Corporation of Retracted Shares would be
I-9
contrary to solvency requirements or other provisions of
applicable law and more than one holder has delivered a
Retraction Request, the Corporation shall redeem Retracted
Shares in accordance with Section 6.1(2) on a pro rata
basis and shall issue to each such holder of Retracted Shares a
new certificate, at the expense of the Corporation, representing
the Retracted Shares not redeemed by the Corporation pursuant to
Section 6.1(2) hereof. If the Retraction Request is not
revoked by the holder in the manner specified in
Section 6.1(5) and neither US Gold nor Alberta ULC shall
have exercised its Retraction Call Right in respect of any such
Retracted Shares, an Insolvency Event (as defined in the Voting
and Exchange Trust Agreement) shall, to the extent it has
not theretofore occurred, be deemed thereupon to have occurred
and the holder of any such Retracted Shares not redeemed by the
Corporation pursuant to Section 6.1(2) as a result of
solvency requirements or other provisions of applicable law
shall be deemed by giving the Retraction Request to have
exercised its Exchange Right (as defined in the Voting and
Exchange Trust Agreement) so as to require US Gold or, at
the option of US Gold, Alberta ULC to purchase the unredeemed
Retracted Shares from such holder on the Retraction Date or as
soon as practicable thereafter on payment by US Gold or, at the
option of US Gold, Alberta ULC to such holder of the Retraction
Price, all as more specifically provided in the Voting and
Exchange Trust Agreement.
(5) A holder of Retracted Shares may, by notice in writing
given by the holder to the Corporation before the close of
business on the Business Day immediately preceding the
Retraction Date, withdraw its Retraction Request in which event
such Retraction Request shall be null and void and, for greater
certainty, the revocable offer constituted by the Retraction
Request to sell the Retracted Shares to US Gold or Alberta ULC
shall be deemed to have been revoked.
(6) Notwithstanding any other provision of this
ARTICLE 6, if:
(a) exercise of the rights of the holders of the
Exchangeable Shares, or any of them, to require the Corporation
to redeem any Exchangeable Shares pursuant to this
ARTICLE 6 on any Retraction Date would require listing
particulars or any similar document to be issued in order to
obtain the approval of AMEX or TSX to the listing and trading
(subject to official notice of issuance) of, the shares of US
Gold Common Stock that would be required to be delivered to such
holders of Exchangeable Shares in connection with the exercise
of such rights; and
(b) as a result of (a) above, it would not be
practicable (notwithstanding the reasonable endeavours of US
Gold) to obtain such approvals in time to enable all or any of
such shares of US Gold Common Stock to be admitted to listing
and trading by AMEX or TSX (subject to official notice of
issuance) when so delivered, that Retraction Date shall,
notwithstanding any other date specified or otherwise deemed to
be specified in any relevant Retraction Request, be deemed for
all purposes to be the earlier of (i) the second business
day immediately following the date the approvals referred to in
Section 6.1(6)(a) are obtained, and (ii) the date
which is 30 Business Days after the date on which the relevant
Retraction Request is received by the Corporation, and
references in these share provisions to such Retraction Date
shall be construed accordingly.
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6.2
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Retraction
Call Rights
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(1) In the event that a holder of Exchangeable Shares
delivers a Retraction Request pursuant to Section 6.1 and
subject to the limitations set forth in Section 6.2(2),
including that Alberta ULC shall only be entitled to exercise
its Retraction Call Right with respect to those holders of
Exchangeable Shares, if any, in respect of which US Gold has not
exercised its Retraction Call Right, US Gold and Alberta ULC
shall each have the overriding right (a “Retraction Call
Right”), notwithstanding the proposed redemption of the
Exchangeable Shares by the Corporation pursuant to
Section 6.1 hereof, to purchase from such holder on the
Retraction Date all but not less than all of the Retracted
Shares held by such holder on payment by whichever of US Gold or
Alberta ULC is exercising such right (the “RCR
Exercising Party”) of an amount per share equal to
(a) the Current Market Price of a share of US Gold Common
Stock on the last Business Day prior to the Retraction Date,
which shall be satisfied in full by the RCR Exercising Party
causing to be delivered to such holder one share of US Gold
Common Stock, plus (b) the Dividend Amount, if any (the
“Retraction Call Purchase Price”). In the event
of the exercise of a Retraction Call Right, a holder of
Exchangeable Shares who has delivered a Retraction Request shall
be obligated to sell all the Retracted Shares to the RCR
Exercising Party on the Retraction Date on payment by the RCR
Exercising Party of an amount per share equal to the Retraction
Call Purchase Price for each such share.
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(2) Upon receipt by the Corporation of a Retraction
Request, the Corporation shall promptly notify US Gold and
Alberta ULC thereof. Alberta ULC shall only be entitled to
exercise its Retraction Call Right with respect to those holders
of Exchangeable Shares, if any, in respect of which US Gold has
not exercised its Retraction Call Right. In order to exercise
its Retraction Call Right, the RCR Exercising Party must notify
the Corporation in writing of its determination to do so (a
“US Gold Call Notice”) within five Business
Days of notification to such RCR Exercising Party by the
Corporation of the receipt by the Corporation of the Retraction
Request. If either US Gold or Alberta ULC does not so notify the
Corporation within such five Business Day period, the
Corporation shall notify the holder as soon as possible
thereafter that neither will exercise the Retraction Call Right.
If either US Gold or Alberta ULC delivers a US Gold Call Notice
within such five Business Day period and duly exercises its
Retraction Call Right in accordance with this Section 6.2,
the obligation of the Corporation to redeem the Retracted Shares
shall terminate and, provided that the Retraction Request is not
revoked by the holder in the manner specified in
Section 6.1(5), the RCR Exercising Party shall purchase
from such holder and such holder shall sell to the RCR
Exercising Party on the Retraction Date the Retracted Shares for
the Retraction Call Purchase Price. Provided that the aggregate
Retraction Call Purchase Price has been so deposited with the
Transfer Agent as provided in Section 6.2(3), the closing
of the purchase and sale of the Retracted Shares pursuant to the
Retraction Call Right shall be deemed to have occurred as at the
close of business on the Retraction Date and, for greater
certainty, no redemption by the Corporation of such Retracted
Shares shall take place on the Retraction Date. In the event
that neither US Gold nor Alberta ULC delivers a US Gold Call
Notice within such five Business Day period, and provided that
the Retraction Request is not revoked by the holder in the
manner specified in Section 6.1(5), the Corporation shall
redeem the Retracted Shares on the Retraction Date and in the
manner otherwise contemplated in Section 6.1.
(3) For the purpose of completing a purchase of
Exchangeable Shares pursuant to the exercise of a Retraction
Call Right, the RCR Exercising Party shall deliver or cause to
be delivered to the relevant holder, at the address of the
holder recorded in the securities register of the Corporation
for the Exchangeable Shares or at the address specified in the
holder’s Retraction Request or by holding for
pick-up by
the holder at the registered office of the Corporation or at any
office of the Transfer Agent as may be specified by the
Corporation by notice to the holders of Exchangeable Shares, a
certificate representing the number of shares of US Gold Common
Stock to which such holder is entitled (which shares shall be
duly issued as fully paid and non-assessable and shall be free
and clear of any lien, claim, encumbrance, security interest or
adverse claim) registered in the name of the holder or in such
other name as the holder may request in payment of the
Retraction Call Purchase Price and a cheque of the RCR
Exercising Party payable at par and in Canadian dollars at any
branch of the bankers of US Gold, Alberta ULC or of the
Corporation in Canada in payment of the remaining portion, if
any, of such aggregate Retraction Call Purchase Price (less any
amounts withheld on account of tax required to be deducted and
withheld therefrom) and such delivery of such certificate and
cheque on behalf of the RCR Exercising Party by the Transfer
Agent shall be deemed to be payment of and shall satisfy and
discharge all liability for the Retraction Call Purchase Price
to the extent that the same is represented by such share
certificates and cheque, unless such cheque is not paid on due
presentation.
(4) On and after the close of business on the Retraction
Date, the holder of the Retracted Shares shall not be entitled
to exercise any of the rights of a holder in respect thereof,
other than the right to receive its proportionate part of the
total Retraction Call Purchase Price unless upon presentation
and surrender of certificates in accordance with the foregoing
provisions, payment of the aggregate Retraction Call Purchase
Price payable to such holder shall not be made, in which case
the rights of such holder shall remain unaffected until such
aggregate Retraction Call Purchase Price has been paid in the
manner hereinbefore provided. On and after the close of business
on the Retraction Date, provided that presentation and surrender
of certificates and payment of such aggregate Retraction Call
Purchase Price has been made in accordance with the foregoing
provisions, the holder of the Retracted Shares so purchased by
the RCR Exercising Party shall thereafter be considered and
deemed for all purposes to be a holder of the shares of US Gold
Common Stock delivered to such holder.
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ARTICLE 7
REDEMPTION BY
THE CORPORATION
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7.1
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Redemption
by the Corporation
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(1) Subject to applicable law and the due exercise by
either US Gold or Alberta ULC of a Redemption Call Right,
the Corporation shall on the Redemption Date redeem all of
the then outstanding Exchangeable Shares for an amount per share
equal to (a) the Current Market Price of a share of US Gold
Common Stock on the last Business Day prior to such
Redemption Date, which shall be satisfied in full by the
Corporation causing to be delivered one share of US Gold Common
Stock, plus (b) the Dividend Amount, if any (collectively,
the “Redemption Price”).
(2) In any case of a redemption of Exchangeable Shares
under this Section 7.1, the Corporation shall, at least
60 days before the Redemption Date, send or cause to
be sent to each holder of Exchangeable Shares a notice in
writing of the redemption by the Corporation or the purchase by
US Gold or Alberta ULC under its Redemption Call Right, as
the case may be, of the Exchangeable Shares held by such holder
(other than US Gold and its Subsidiaries in the case of a
purchase by US Gold or Alberta ULC). Such notice shall set out
the formula for determining the Redemption Price or the
Redemption Call Purchase Price, as the case may be, such
Redemption Date and, if applicable, particulars of the
Redemption Call Right.
(3) On or after the Redemption Date and subject to the
exercise by US Gold or Alberta ULC of a Redemption Call
Right, the Corporation shall cause to be delivered to the
holders of the Exchangeable Shares to be redeemed the
Redemption Price for each such Exchangeable Share upon
presentation and surrender at the registered office of the
Corporation or at any office of the Transfer Agent as may be
specified by the Corporation in such notice of the certificates
representing such Exchangeable Shares, together with such other
documents and instruments as may be required to effect a
transfer of Exchangeable Shares under the ABCA and such
additional documents and instruments as the Transfer Agent and
the Corporation may reasonably require. Payment of the aggregate
Redemption Price for Exchangeable Shares held by a holder
shall be made by delivery to such holder, at the address of such
holder recorded in the securities register of the Corporation or
by holding for
pick-up by
the holder at the registered office of the Corporation or at any
office of the Transfer Agent as may be specified by the
Corporation in such notice, of a certificate representing the
aggregate number of shares of US Gold Common Stock deliverable
by the Corporation to such holder (which shares shall be duly
issued as fully paid and non- assessable and shall be free and
clear of any lien, claim, encumbrance, security interest or
adverse claim) and a cheque of the Corporation payable at par at
any branch of the bankers of the Corporation in respect of the
remaining portion, if any, of such aggregate
Redemption Price (less any amounts withheld on account of
tax required to be deducted and withheld therefrom). On and
after the Redemption Date, the holders of the Exchangeable
Shares called for redemption shall not be entitled to exercise
any of the rights of holders in respect thereof, other than the
right to receive their proportionate part of the total
Redemption Price, unless payment of the aggregate
Redemption Price deliverable to a holder for Exchangeable
Shares shall not be made upon presentation and surrender of
share certificates in accordance with the foregoing provisions,
in which case the rights of the holder shall remain unaffected
until the aggregate Redemption Price deliverable to such
holder has been paid in the manner hereinbefore provided.
(4) The Corporation shall have the right at any time after
the sending of notice of its intention to redeem the
Exchangeable Shares as aforesaid to deposit or cause to be
deposited the total Redemption Price of the Exchangeable
Shares so called for redemption, or of such of the said
Exchangeable Shares represented by certificates that have not at
the date of such deposit been surrendered by the holders thereof
in connection with such redemption, in a custodial account with
any chartered bank or trust company in Canada named in such
notice and any interest allowed on such deposit shall belong to
the Corporation. Provided that such total Redemption Price
has been so deposited prior to the Redemption Date, on and
after the Redemption Date, the Exchangeable Shares shall be
redeemed and the Rights of the holders thereof after the
Redemption Date shall be limited to receiving their
proportionate part of the total Redemption Price for such
Exchangeable Shares so deposited, against presentation and
surrender of the said certificates held by them, respectively,
in accordance with the foregoing provisions. Upon such payment
or deposit of the total Redemption Price, the holders of
the Exchangeable Shares shall thereafter be considered and
deemed for all purposes to be holders of the shares of US Gold
Common Stock delivered to them.
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7.2
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Redemption Call
Rights
|
(1) Subject to the limitations set forth in
Section 7.2(2), including that Alberta ULC shall only be
entitled to exercise its Redemption Call Right with respect
to those holders of Exchangeable Shares, if any, in respect of
which US Gold has not exercised its Redemption Call Right,
US Gold and Alberta ULC shall each have the overriding right (a
“Redemption Call Right”), notwithstanding the
proposed redemption of the Exchangeable Shares by the
Corporation pursuant to Section 7.1 hereof, to purchase
from all but not less than all of the holders of Exchangeable
Shares (other than US Gold and its Subsidiaries) on the last
Business Day prior to the Redemption Date in respect of
which the Redemption Call Right is exercised all but not
less than all of the Exchangeable Shares held by each such
holder on payment by whichever of US Gold or Alberta ULC is
exercising such right (the “Redemption CR
Exercising Party”) of an amount per share equal to
(a) the Current Market Price of a share of US Gold Common
Stock on the last Business Day prior to such
Redemption Date, which shall be satisfied in full by
causing to be delivered to such holder one share of US Gold
Common Stock plus (b) the Dividend Amount, if any
(collectively, the “Redemption Call Purchase
Price”). In the event of the exercise of a
Redemption Call Right, each holder of Exchangeable Shares
(other than US Gold and its Subsidiaries) shall be obligated to
sell all the Exchangeable Shares held by such holder to the
Redemption CR Exercising Party on the last Business Day
prior to such Redemption Date on payment by the Redemption
CR Exercising Party to such holder of the Redemption Call
Purchase Price for each such share.
(2) Alberta ULC shall only be entitled to exercise its
Redemption Call Right with respect to those holders of
Exchangeable Shares, if any, in respect of which US Gold has not
exercised its Redemption Call Right. In order to exercise
its Redemption Call Right, a Redemption CR Exercising
Party must notify in writing the Transfer Agent, as agent for
the holders of Exchangeable Shares and the Corporation of its
intention to exercise such right at least 30 days before
the Redemption Date. The Transfer Agent will notify the
holders of Exchangeable Shares as to whether or not a
Redemption Call Right has been exercised (such notice to
specify the Redemption CR Exercising Party) forthwith after
the expiry of the date by which the same may be exercised, such
form of notice to be provided by US Gold to the Transfer Agent.
If a Redemption CR Exercising Party duly exercises its
Redemption Call Right in accordance with this
Section 7.2, the right of the Corporation to redeem any
Exchangeable Shares pursuant to Section 7.1 on the
Redemption Date shall terminate at such time and on the
last Business Day prior to such Redemption Date such
Redemption CR Exercising Party will purchase and the
holders of Exchangeable Shares (other than US Gold and its
Subsidiaries) will sell all of their Exchangeable Shares then
outstanding for a price per share equal to the
Redemption Call Purchase Price.
(3) For the purposes of completing a purchase of the
Exchangeable Shares pursuant to the exercise of a
Redemption Call Right, the Redemption CR Exercising
Party shall deposit with the Transfer Agent, on or before the
last Business Day prior to the Redemption Date,
certificates representing the total number of shares of US Gold
Common Stock deliverable by the Redemption CR Exercising
Party (which shares shall be duly issued as fully paid and
non-assessable and shall be free and clear of any lien, claim,
encumbrance, security interest or adverse claim) in payment of
the total Redemption Call Purchase Price and a cheque in
the amount of the remaining portion, if any, of the total
Redemption Call Purchase Price, without interest (less any
amounts withheld on account of tax required to be deducted and
withheld therefrom) and any interest allowed on such deposit
shall belong to the Redemption CR Exercising Party.
Provided that the total Redemption Call Purchase Price has been
so deposited with the Transfer Agent, on and after the last
Business Day prior to the Redemption Date the rights of
each holder of Exchangeable Shares (other than US Gold and its
Subsidiaries) will be limited to receiving such holder’s
proportionate part of the total Redemption Call Purchase
Price payable by the Redemption CR Exercising Party upon
presentation and surrender by such holder of certificates
representing the Exchangeable Shares held by such holder in
accordance with the following provisions and such holder shall
on and after the last Business Day prior to such
Redemption Date be considered and deemed for all purposes
to be the holder of the shares of US Gold Common Stock delivered
to such holder. Upon surrender to the Transfer Agent of a
certificate representing Exchangeable Shares, together with such
other documents and instruments as may be required to effect a
transfer of Exchangeable Shares under the ABCA and such
additional documents and instruments as the Transfer Agent and
the Corporation may reasonably require, the holder of such
surrendered certificate shall be entitled to receive in exchange
therefor, and the Transfer Agent on behalf of the
Redemption CR Exercising Party shall deliver to such
holder, a certificate representing the shares of US Gold Common
Stock to which such holder is entitled and a cheque in payment
of the remaining
I-13
portion, if any, of the holder’s proportionate part of the
total Redemption Call Purchase Price, without interest
(less any amounts withheld on account of tax required to be
deducted and withheld therefrom). If neither US Gold nor Alberta
ULC exercises the Redemption Call Right in the manner described
above, on the Redemption Date a holder of Exchangeable
Shares shall be entitled to receive in exchange therefor the
Redemption Price otherwise payable by the Corporation in
connection with the redemption of the Exchangeable Shares
pursuant to Section 7.1 hereof.
ARTICLE 8
VOTING RIGHTS
Except as required by applicable law and by the provisions of
Sections 8.2, 9.1, 10.1 and 11.2 hereof, the holders of the
Exchangeable Shares shall not be entitled as such to receive
notice of or to attend any meeting of the shareholders of the
Corporation or to vote at any such meeting.
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8.2
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Election
or Appointment of Single Director
|
With respect to the rights of the shareholders to elect or
appoint directors as outlined in the ABCA, the rights attaching
to the Exchangeable Shares provided by these Share Provisions
shall give the holders of the Exchangeable Shares the limited
right to vote (and each holder thereof shall be entitled to
one (1) vote per share in person or by proxy) on the
election or appointment of one (1) out of the
three (3) directors of the Corporation, and, for
clarification, the holders of the Exchangeable Shares shall have
no right to vote on the election or appointment of the remaining
two (2) directors of the Corporation, which is a right
attaching to the Class A Shares.
ARTICLE 9
AMENDMENT
AND APPROVAL
The rights, privileges, restrictions and conditions attaching to
the Exchangeable Shares may be added to, changed or removed only
with the approval of the holders of the Exchangeable Shares
given as hereinafter specified.
Any approval given by the holders of the Exchangeable Shares to
add to, change or remove any right, privilege, restriction or
condition attaching to the Exchangeable Shares or any other
matter requiring the approval or consent of the holders of the
Exchangeable Shares shall be deemed to have been sufficiently
given if it shall have been given in accordance with applicable
law, subject to a minimum requirement that such approval be
evidenced by resolution passed by not less than two-thirds of
the votes cast on such resolution at a meeting of holders of
Exchangeable Shares duly called and held at which the holders of
at least 10% of the outstanding Exchangeable Shares at that time
are present or represented by proxy; provided that such approval
must be given also by the affirmative vote of holders of more
than two-thirds of the Exchangeable Shares represented in person
or by proxy at the meeting excluding Exchangeable Shares
beneficially owned by US Gold or any of its Subsidiaries. If at
any such meeting the holders of at least 10% of the outstanding
Exchangeable Shares at that time are not present or represented
by proxy within one-half hour after the time appointed for such
meeting, then the meeting shall be adjourned to such date not
less than five days thereafter and to such time and place as may
be designated by the Chairman of such meeting. At such adjourned
meeting the holders of Exchangeable Shares present or
represented by proxy thereat may transact the business for which
the meeting was originally called and a resolution passed
thereat by the affirmative vote of not less than two-thirds of
the votes cast on such resolution at such meeting excluding
Exchangeable Shares beneficially owned by US Gold or any of its
Subsidiaries shall constitute the approval or consent of the
holders of the Exchangeable Shares.
I-14
ARTICLE 10
RECIPROCAL
CHANGES, ETC. IN RESPECT OF US GOLD COMMON STOCK
(1) Each holder of an Exchangeable Share acknowledges that
the Support Agreement provides, in part, that US Gold will not,
except as provided in the Support Agreement, without the prior
approval of the Corporation and the prior approval of the
holders of the Exchangeable Shares given in accordance with
Section 9.2 hereof:
(a) issue or distribute shares of US Gold Common Stock (or
securities exchangeable for or convertible into or carrying
rights to acquire US Gold Common Stock) to the holders of all or
substantially all of the then outstanding shares of US Gold
Common Stock, by way of stock dividend or other distribution,
other than an issue of shares of US Gold Common Stock (or
securities exchangeable for or convertible into or carrying
rights to acquire US Gold Common Stock) to holders of shares of
US Gold Common Stock who exercise an option to receive dividends
in shares of US Gold Common Stock (or securities exchangeable
for or convertible into or carrying rights to acquire US Gold
Common Stock) in lieu of receiving cash dividends;
(b) issue or distribute rights, options or warrants to the
holders of all or substantially all of the then outstanding
shares of US Gold Common Stock entitling them to subscribe for
or to purchase shares of US Gold Common Stock (or securities
exchangeable for or convertible into or carrying rights to
acquire shares of US Gold Common Stock); or
(c) issue or distribute to the holders of all or
substantially all of the then outstanding shares of US Gold
Common Stock:
(i) shares or securities (including evidence of
indebtedness) of US Gold of any class other than US Gold Common
Stock (other than shares convertible into or exchangeable for or
carrying rights to acquire US Gold Common Stock);
(ii) rights, options or warrants other than those referred
to in Section 10.1(1)(b) above; or
(iii) assets of US Gold,
unless the economic equivalent on a per share basis of such
rights, options, securities, shares, evidences of indebtedness
or other assets is issued or distributed simultaneously to
holders of the Exchangeable Shares.
(2) Each holder of an Exchangeable Share acknowledges that
the Support Agreement further provides, in part, that US Gold
will not, except as provided in the Support Agreement, without
the prior approval of the Corporation and the prior approval of
the holders of the Exchangeable Shares given in accordance with
Section 9.2 hereof:
(a) subdivide, redivide or change the then outstanding US
Gold Common Stock into a greater number of shares of US Gold
Common Stock;
(b) reduce, combine, consolidate or change the then
outstanding shares of US Gold Common Stock into a lesser number
of shares of US Gold Common Stock; or
(c) reclassify or otherwise change the shares of US Gold
Common Stock or effect an amalgamation, merger, reorganization
or other transaction affecting the US Gold Common Stock,
unless the same or an economically equivalent change shall
simultaneously be made to, or in, the rights of the holders of
the Exchangeable Shares.
The Support Agreement further provides, in part, that the
aforesaid provisions of the Support Agreement shall not be
changed without the approval of the holders of the Exchangeable
Shares given in accordance with Section 9.2 hereof.
I-15
ARTICLE 11
ACTIONS BY
THE CORPORATION UNDER SUPPORT AGREEMENT
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11.1
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Actions
by the Corporation
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The Corporation will take all such actions and do all such
things as shall be necessary or advisable to perform and comply
with and to facilitate performance and compliance by US Gold and
Alberta ULC with all provisions of the Support Agreement
applicable to US Gold, Alberta ULC and the Corporation,
respectively, in accordance with the terms thereof including,
without limitation, taking all such actions and doing all such
things as shall be necessary or advisable to enforce to the
fullest extent possible for the direct benefit of the
Corporation all rights and benefits in favour of the Corporation
under or pursuant to such agreement.
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11.2
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Changes
to Support Agreement
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The Corporation shall not agree to or otherwise give effect to
any amendment to, or waiver or forgiveness of its rights or
obligations under, the Support Agreement without the approval of
the holders of the Exchangeable Shares given in accordance with
Section 9.2 hereof other than such amendments, waivers
and/or
forgiveness as may be necessary or advisable for the purposes of:
(a) adding to the covenants of the other parties to such
agreement for the protection of the Corporation or the holders
of the Exchangeable Shares;
(b) making such provisions or modifications not
inconsistent with such agreement as may be necessary or
desirable with respect to matters or questions arising
thereunder which, in the opinion of the Board of Directors, it
may be expedient to make, provided that the Board of Directors
shall be of the good faith opinion, after consultation with
counsel, that such provisions and modifications will not be
prejudicial to the interests of the holders of the Exchangeable
Shares; or
(c) making such changes in or corrections to such agreement
which, on the advice of counsel to the Corporation, are required
for the purpose of curing or correcting any ambiguity or defect
or inconsistent provision or clerical omission or mistake or
manifest error contained therein, provided that the Board of
Directors shall be of the good faith opinion, after consultation
with counsel, that such provisions and modifications will not be
prejudicial to the interests of the holders of the Exchangeable
Shares.
ARTICLE 12
LEGEND; CALL
RIGHTS; WITHHOLDING RIGHTS
The certificates evidencing the Exchangeable Shares shall
contain or have affixed thereto a legend in form and on terms
approved by the Board of Directors, with respect to the Support
Agreement and the Voting and Exchange Trust Agreement
(including, but not limited to the provisions with respect to
the call rights, voting rights and exchange rights thereunder).
Each holder of an Exchangeable Share, whether of record or
beneficial, by virtue of becoming and being such a holder shall
be deemed to acknowledge each of the Liquidation Call Right, the
Retraction Call Right and the Redemption Call Right, in
each case, in favour of US Gold and Alberta ULC, and the
overriding nature thereof in connection with the liquidation,
dissolution or
winding-up
of the Corporation or any other distribution of the assets of
the Corporation among its shareholders for the purpose of
winding up its affairs, or the retraction or redemption of
Exchangeable Shares, as the case may be, and to be bound thereby
in favour of US Gold or Alberta ULC, as the case may be, as
herein provided.
I-16
US Gold, Alberta ULC, the Corporation and the Transfer Agent
shall be entitled to deduct and withhold from any consideration
otherwise payable under to any holder of Exchangeable Shares
such amounts as US Gold, Alberta ULC, the Corporation or the
Transfer Agent is required to deduct and withhold with respect
to such payment under the Income Tax Act (Canada) or
United States tax laws or any provision of provincial, state,
federal, local or foreign tax law, in each case as amended or
succeeded. The Transfer Agent may act and rely on the advice of
counsel with respect to such matters. To the extent that amounts
are so withheld, such withheld amounts shall be treated for all
purposes as having been paid to the holder of the Exchangeable
Shares in respect of which such deduction and withholding was
made, provided that such withheld amounts are actually remitted
to the appropriate taxing authority. To the extent that the
amount so required to be deducted or withheld from any payment
to a holder exceeds the cash portion of the consideration
otherwise payable to the holder, US Gold, Alberta ULC, the
Corporation and the Transfer Agent are hereby authorized to sell
or otherwise dispose of such portion of the consideration as is
necessary to provide sufficient funds to US Gold, Alberta ULC,
the Corporation or the Transfer Agent, as the case may be, to
enable it to comply with such deduction or withholding
requirement and US Gold, Alberta ULC, the Corporation or the
Transfer Agent shall notify the holder thereof and remit to such
holder any unapplied balance of the net proceeds of such sale.
ARTICLE 13
NOTICES
Subject to applicable law, any notice, request or other
communication to be given to the Corporation by a holder of
Exchangeable Shares shall be in writing and shall be valid and
effective if given by mail (postage prepaid) or by telecopy or
by delivery to the registered office of the Corporation and
addressed to the attention of the Secretary of the Corporation.
Any such notice, request or other communication, if given by
mail, telecopy or delivery, shall only be deemed to have been
given and received upon actual receipt thereof by the
Corporation.
Any presentation and surrender by a holder of Exchangeable
Shares to the Corporation or the Transfer Agent of certificates
representing Exchangeable Shares in connection with the
liquidation, dissolution or
winding-up
of the Corporation or the retraction or redemption of
Exchangeable Shares shall be made by registered mail (postage
prepaid) or by delivery to the registered office of the
Corporation or to such office of the Transfer Agent as may be
specified by the Corporation, in each case, addressed to the
attention of the Secretary of the Corporation. Any such
presentation and surrender of certificates shall only be deemed
to have been made and to be effective upon actual receipt
thereof by the Corporation or the Transfer Agent, as the case
may be. Any such presentation and surrender of certificates made
by registered mail (postage prepaid) shall be at the sole risk
of the holder mailing the same.
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13.3
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Notices
to Shareholders
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Subject to applicable law, any notice, request or other
communication to be given to a holder of Exchangeable Shares by
or on behalf of the Corporation shall be in writing and shall be
valid and effective if given by mail (postage prepaid) or by
delivery to the address of the holder recorded in the resister
of shareholders of the Corporation or, in the event of the
address of any such holder not being so recorded, then at the
last known address of such holder. Any such notice, request or
other communication, if given by mail, shall be deemed to have
been given and received on the fifth Business Day following the
date of mailing and, if given by delivery, shall be deemed to
have been given and received on the date of delivery. Accidental
failure or omission to give any notice, request or other
communication to one or more holders of Exchangeable Shares, or
any defect in such notice, shall not invalidate or otherwise
alter or affect any action or proceeding to be taken by the
Corporation pursuant thereto.
In the event of any interruption of mail service immediately
prior to a scheduled mailing or in the period following a
mailing during which delivery normally would be expected to
occur, the Corporation will make
I-17
reasonable efforts to disseminate any notice by other means,
such as publication. Except as otherwise required or permitted
by law, if post offices in Canada or the United States are not
open for the deposit of mail, any notice which the Corporation
or the Transfer Agent may give or cause to be given will be
deemed to have been properly given and to have been received by
holders of Exchangeable Shares if (i) it is given to the
TSX for dissemination or (ii) it is published once in the
National Edition of The Globe and Mail and in the daily
newspapers of general circulation in each of the French and
English languages in the City of Montreal, provided that if the
National Edition of The Globe and Mail is not being generally
circulated, publication thereof will be made in any other daily
newspaper of general circulation published in the City of
Toronto.
Notwithstanding any other provisions of these share provisions,
notices, other communications and deliveries need not be mailed
if the Corporation determines that delivery thereof by mail may
be delayed. Persons entitled to any deliveries (including
certificates and cheques) which are not mailed for the foregoing
reason may take delivery thereof at the office of the Transfer
Agent to which the deliveries were made, upon application to the
Transfer Agent, until such time as the Corporation has
determined that delivery by mail will no longer be delayed. The
Corporation will provide notice of any such determination not to
mail made hereunder as soon as reasonably practicable after the
making of such determination and in accordance with this
Section 13.3. Such deliveries in such circumstances will
constitute delivery to the persons entitled thereto.
I-18
SCHEDULE A
RETRACTION
REQUEST
To: U.S. Gold Corporation, US Gold Alberta ULC and US Gold
Canadian Acquisition
Corporation, c/o the Trustee
This notice is given pursuant to ARTICLE 6 of the
provisions (the “Share Provisions”) attaching to the
share(s) represented by this certificate and all capitalized
words and expressions used in this notice that are defined in
the Share Provisions have the meanings ascribed to such words
and expressions in such Share Provisions.
The undersigned hereby notifies the Corporation that, subject to
the Retraction Call Right referred to below, the undersigned
desires to have the Corporation redeem in accordance with
ARTICLE 6 of the Share Provisions:
o all share(s)
represented by this certificate; or
o share(s)
only represented by this certificate.
The undersigned acknowledges the Retraction Call Right of US
Gold and Alberta ULC to purchase all but not less than all the
Retracted Shares from the undersigned and that this notice is
and shall be deemed to be a revocable offer by the undersigned
to sell the Retracted Shares to US Gold or Alberta ULC in
accordance with the Retraction Call Right on the Retraction Date
for the Retraction Call Purchase Price and on the other terms
and conditions set out in Section 6.2 of the Share
Provisions. If neither US Gold or Alberta ULC determines to
exercise its Retraction Call Right, the Corporation will notify
the undersigned of such fact as soon as possible. This
Retraction Request, and this offer to sell the Retracted Shares
to US Gold or Alberta ULC, may be revoked and withdrawn by the
undersigned only by notice in writing given to the Corporation
at any time before the close of business on the Business Day
immediately preceding the Retraction Date.
The undersigned acknowledges that if, as a result of solvency
provisions of applicable law, the Corporation is unable to
redeem all Retracted Shares and provided that neither US Gold
nor Alberta ULC has exercised the Retraction Call Right with
respect to the Retracted Shares, the undersigned will be deemed
to have exercised the Exchange Right (as defined in the Voting
and Exchange Trust Agreement) so as to require US Gold or,
at the option of US Gold, Alberta ULC to purchase the unredeemed
Retracted Shares.
The undersigned hereby represents and warrants to the
Corporation, US Gold and Alberta ULC that the undersigned has
good title to, and owns, the share(s) represented by this
certificate to be acquired by the Corporation, US Gold or
Alberta ULC, as the case may be, free and clear of all liens,
claims, encumbrances, security interests and adverse claims.
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(Date)
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(Signature of Shareholder)
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(Guarantee of Signature)
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Please check box if the securities and any cheque(s) resulting
from the retraction or purchase of the Retracted Shares are to
be held for
pick-up by
the shareholder at the principal transfer office of the Transfer
Agent in Toronto, failing which such securities and any cheque
will be mailed to the last address of the shareholder as it
appears on the register.
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NOTE: |
This panel must be completed and this certificate, together with
such additional documents as the Transfer Agent and the
Corporation may require, must be deposited with the Transfer
Agent at its principal transfer office in Toronto. The
securities and any cheque resulting from the retraction or
purchase of the Retracted Shares will be issued and registered
in, and made payable to respectively, the name of the
shareholder as it appears on the register of the Corporation and
the securities and cheque resulting from such retraction or
purchase will be delivered to such shareholder as indicated
above, unless the form appearing immediately below is duly
completed, all exigible transfer taxes are paid and the
signature of the registered holder is guaranteed by a Canadian
chartered bank or trust company, member of a recognized stock
exchange in Canada or a member of the Securities Transfer
Association Medallion (STAMP) Program.
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Date:
I-19
Name of Person in Whose Name Securities or Cheque(s)
Are to be Registered, Issued or Delivered (please print)
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Street
Address or P.O. Box
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Signature
of Shareholder
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City,
Province and Postal Code
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Signature
Guaranteed by
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NOTE: |
If this Retraction Request is for less than all of the share(s)
represented by this certificate, a certificate representing the
remaining share of the Corporation will be issued and registered
in the name of the shareholder as it appears on the register of
the Corporation, unless the Share Transfer Power on the share
certificate is duly completed in respect of such share(s).
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I-20
APPENDIX J
FORM OF
VOTING AND EXCHANGE TRUST AGREEMENT
AGREEMENT made as
of ,
2006, among U.S. Gold Corporation (“US
Gold”), a corporation existing under the laws of
Colorado, US Gold Alberta ULC (“Alberta ULC”),
an unlimited liability corporation existing under the laws of
Alberta, US Gold Canadian Acquisition Corporation
(“Canadian Exchange Co.”), a corporation
existing under the laws of Alberta,
and ,
a trust company incorporated under the laws of Canada
(hereinafter referred to as “Trustee”).
RECITALS:
WHEREAS US Gold, together with Canadian Exchange Co., has
offered, each by way of a public take-over bid, to acquire all
of the outstanding common shares of each of White Knight
Resources Ltd., Coral Gold Resources Ltd., Nevada Pacific Gold
Ltd. and Tone Resources Ltd. in consideration for exchangeable
shares (“Exchangeable Shares”) of Canadian
Exchange Co.;
AND WHEREAS holders of Exchangeable Shares will be entitled to
require Canadian Exchange Co. to redeem such Exchangeable Shares
and upon such redemption each Exchangeable Share shall be
exchanged for one share of common stock of US Gold (“US
Gold Common Stock”);
AND WHEREAS the parties desire to make appropriate provision and
to establish a procedure whereby (i) voting rights in US
Gold shall be exercisable by Beneficiaries (as hereinafter
defined) from time to time by and through the Trustee, which
will hold legal title to the Special Voting Share (as
hereinafter defined) to which voting rights attach for the
benefit of Beneficiaries, and (ii) the rights to require
US Gold or, at the option of US Gold, Alberta ULC, to
purchase Exchangeable Shares from the Beneficiaries shall be
exercisable by Beneficiaries from time to time of Exchangeable
Shares by and through the Trustee, which will hold legal title
to such rights for the benefit of the Beneficiaries;
AND WHEREAS these recitals and any statements of fact in this
agreement are made by US Gold, Alberta ULC and Canadian Exchange
Co. and not by the Trustee;
NOW THEREFORE, in consideration of the respective covenants and
agreements provided in this agreement and for other good and
valuable consideration (the receipt and sufficiency of which are
hereby acknowledged), the parties agree as follows:
ARTICLE 1
DEFINITIONS
AND INTERPRETATION
In this agreement, each initially capitalized term and the terms
used and not otherwise defined herein shall have the meaning
ascribed thereto in the rights, privileges, restrictions and
conditions (collectively, the “Share
Provisions”) attaching to the Exchangeable Shares as
set out in the articles of Canadian Exchange Co. and the
following terms shall have the following meanings:
“Automatic Exchange Right” has the meaning
ascribed thereto in Section 5.11(2).
“Beneficiaries” mean the registered holders
from time to time of Exchangeable Shares, other than
US Gold and its Subsidiaries.
“Beneficiary Votes” has the meaning ascribed
thereto in Section 4.2.
“Exchange Right” has the meaning ascribed
thereto in Section 5.1.
“including” means “including without
limitation” and “includes” means
“includes without limitation”.
“Indemnified Parties” has the meaning ascribed
thereto in Section 8.1.
J-1
“Insolvency Event” means (i) the
institution by Canadian Exchange Co. of any proceeding to be
adjudicated a bankrupt or insolvent or to be dissolved or wound
up, or the consent of Canadian Exchange Co. to the institution
of bankruptcy, insolvency, dissolution or
winding-up
proceedings against it, or (ii) the filing by Canadian
Exchange Co. of a petition, answer or consent seeking
dissolution or
winding-up
under any bankruptcy, insolvency or analogous laws, including,
without limitation, the Companies Creditors’ Arrangement
Act (Canada) and the Bankruptcy and Insolvency Act
(Canada), and the failure by Canadian Exchange Co. within
15 days of becoming aware thereof, or the consent by
Canadian Exchange Co. to the filing of any such petition or to
the appointment of a receiver, or (iii) the making by
Canadian Exchange Co. of a general assignment for the benefit of
creditors, or the admission in writing by Canadian Exchange Co.
of its inability to pay its debts generally as they become due,
or (iv) Canadian Exchange Co. not being permitted, pursuant
to solvency requirements of applicable law, to redeem any
Retracted Shares pursuant to Section 6.1(4) of the Share
Provisions specified in a retraction request delivered to
Canadian Exchange Co. in accordance with Article 6 of the
Share Provisions.
“List” has the meaning ascribed thereto in
Section 4.6.
“Officer’s Certificate” means, with
respect to US Gold, Alberta ULC or Canadian Exchange Co., as the
case may be, a certificate signed by any one of the Chairman of
the Board, the President, any Vice-President or any other senior
officer of US Gold, Alberta ULC or Canadian Exchange Co., as the
case may be.
“Retracted Shares” has the meaning ascribed
thereto in Section 5.7.
“Special Voting Share” means the one share of
special voting preference stock with no par value, issued by US
Gold to and deposited with the Trustee, which entitles the
holder of record to a number of votes at meetings of holders of
US Gold Common Stock equal to the number of Exchangeable Shares
outstanding from time to time that are held by Beneficiaries.
“Trust” means the trust created by this
agreement.
“Trust Estate” means the Special Voting
Share, any other securities, the Exchange Right and any money or
other rights or assets that may be held by the Trustee from time
to time pursuant to this agreement.
“Trustee” means <> and, subject to the
provisions of Article 9, includes any successor trustee.
“US Gold Consent” has the meaning ascribed
thereto in Section 4.2.
“US Gold Liquidation Event” has the meaning
ascribed thereto in Section 5.11(1).
“US Gold Liquidation Event Effective Date” has
the meaning ascribed thereto in Section 5.11(3).
“US Gold Meeting” has the meaning ascribed
thereto in Section 4.2.
“Voting Rights” means the voting rights
attached to the Special Voting Share.
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1.2
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Interpretation
Not Affected by Headings, etc.
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The division of this agreement into articles and sections and
the insertion of headings are for reference purposes only and
shall not affect the interpretation of this agreement. Unless
otherwise indicated, any reference in this agreement to an
“Article” or “Section” refers to the
specified Article or Section of this agreement.
In this agreement, unless the context otherwise requires words
importing the singular number include the plural and vice versa.
Words importing any gender shall include all genders and words
importing persons include individuals, corporations,
partnerships, companies, associations, trusts, unincorporated
organizations, governmental bodies and other legal or business
entities of any kind.
J-2
If any date on which any action is required to be taken under
this agreement is not a Business Day, such action shall be
required to be taken on the next succeeding Business Day.
All payments to be made hereunder will be made without interest
and less any tax required by Canadian law to be deducted and
withheld.
ARTICLE 2
TRUST
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2.1
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Establishment
of Trust
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The purpose of this agreement is to create the Trust for the
benefit of the Beneficiaries, as herein provided. The Trustee
will hold the Special Voting Share in order to enable the
Trustee to exercise the Voting Rights and will hold the Exchange
Right in order to enable the Trustee to exercise such right and
will hold the other rights granted in or resulting from the
Trustee being a party to this agreement in order to enable the
Trustee to exercise or enforce such rights, in each case as
trustee for and on behalf of the Beneficiaries as provided in
this agreement.
ARTICLE 3
SPECIAL
VOTING SHARE
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3.1
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Issue and
Ownership of the Special Voting Share
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Simultaneously with the execution and delivery of this
agreement, US Gold will issue to and deposit with the Trustee
the Special Voting Share to be hereafter held of record by the
Trustee as trustee for and on behalf of, and for the use and
benefit of, the Beneficiaries and in accordance with the
provisions of this agreement. US Gold hereby acknowledges
receipt from the Trustee as trustee for and on behalf of the
Beneficiaries of good and valuable consideration (and the
adequacy thereof) for the issuance of the Special Voting Share
by US Gold to the Trustee. During the term of the Trust and
subject to the terms and conditions of this agreement, the
Trustee shall possess and be vested with full legal ownership of
the Special Voting Share and shall be entitled to exercise all
of the rights and powers of an owner with respect to the Special
Voting Share provided that the Trustee shall: (a) hold the
Special Voting Share and the legal title thereto as trustee
solely for the use and benefit of the Beneficiaries in
accordance with the provisions of this agreement; and
(b) except as specifically authorized by this agreement,
have no power or authority to sell, transfer, vote or otherwise
deal in or with the Special Voting Share and the Special Voting
Share shall not be used or disposed of by the Trustee for any
purpose other than the purposes for which this Trust is created
pursuant to this agreement.
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3.2
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Legended
Share Certificates
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Canadian Exchange Co. will cause each certificate representing
Exchangeable Shares to bear an appropriate legend notifying the
Beneficiaries of their right to instruct the Trustee with
respect to the exercise of the Voting Rights in respect of the
Exchangeable Shares of the Beneficiaries.
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3.3
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Safe
Keeping of Certificate
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The certificate representing the Special Voting Share shall at
all times be held in safe keeping by the Trustee or its agent.
J-3
ARTICLE 4
EXERCISE OF
VOTING RIGHTS
The Trustee, as the holder of record of the Special Voting
Share, shall be entitled to all of the Voting Rights, including
the right to consent to or vote in person or by proxy the
Special Voting Share, on any matter, question, proposal or
proposition whatsoever that may properly come before the
stockholders of US Gold at a US Gold Meeting or in connection
with a US Gold Consent. The Voting Rights shall be and remain
vested in and exercised by the Trustee. Subject to
Section 6.15 hereof, the Trustee shall exercise the Voting
Rights only on the basis of instructions received pursuant to
this Article 4 from Beneficiaries entitled to instruct the
Trustee as to the voting thereof at the time at which the US
Gold Consent is sought or the US Gold Meeting is held. To the
extent that no instructions are received from a Beneficiary with
respect to the Voting Rights to which such Beneficiary is
entitled, the Trustee shall not exercise or permit the exercise
of such Voting Rights.
With respect to all meetings of stockholders of US Gold at which
holders of shares of US Gold Common Stock are entitled to vote
(each, a “US Gold Meeting”) and with respect to
all written consents sought from the holders of shares of US
Gold Common Stock (a “US Gold Consent”), each
Beneficiary shall be entitled to instruct the Trustee to cast
and exercise, in the manner instructed, one vote for each
Exchangeable Share owned of record by such Beneficiary on the
record date established by US Gold or by applicable law for such
US Gold Meeting or US Gold Consent, as the case may be (the
“Beneficiary Votes”), in respect of each
matter, question, proposal or proposition to be voted on at such
US Gold Meeting or to be consented to in connection with such US
Gold Consent.
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4.3
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Mailings
to Shareholders
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(1) With respect to each US Gold Meeting and US Gold
Consent, the Trustee will mail or cause to be mailed (or
otherwise communicate in the same manner as US Gold utilizes in
communications to holders of US Gold Common Stock, subject to
the Trustee being advised in writing of such manner and provided
that such manner of communications is reasonably available to
the Trustee) to each of the Beneficiaries named in the List at
the Beneficiaries’ respective addresses as set forth in the
List, on the same day as the initial mailing or notice (or other
communication) with respect thereto is given by US Gold to its
stockholders:
(a) a copy of such notice, together with any related
materials, including any circular or information statement or
listing particulars, to be provided to shareholders of US Gold
but excluding proxies to vote US Gold Common Stock;
(b) a statement that such Beneficiary is entitled to
instruct the Trustee as to the exercise of the Beneficiary Votes
with respect to such US Gold Meeting or US Gold Consent, as the
case may be, or, pursuant and subject to Section 4.7, to
attend such US Gold Meeting and to exercise personally the
Beneficiary Votes thereat;
(c) a statement as to the manner in which such instructions
may be given to the Trustee, including an express indication
that instructions may be given to the Trustee to give:
(i) a proxy to such Beneficiary or his, her or its designee
to exercise personally such holder’s Beneficiary
Votes; or
(ii) a proxy to a designated agent or other representative
of the management of US Gold to exercise such Beneficiary Votes;
(d) a statement that if no such instructions are received
from the Beneficiary, the Beneficiary Votes to which such
Beneficiary is entitled will not be exercised;
(e) a form of direction whereby the Beneficiary may so
direct and instruct the Trustee as contemplated herein; and
J-4
(f) a statement of (i) the time and date by which such
instructions must be received by the Trustee in order to be
binding upon it, which in the case of a US Gold Meeting shall
not be later than the close of business on the second Business
Day prior to such meeting, and (ii) the method for revoking
or amending such instructions.
(2) The materials referred to in this Section 4.3 are
to be provided to the Trustee by US Gold, and the materials
referred to in Sections 4.3(1)(c), 4.3(1)(e) and 4.3(1)(f)
shall (if reasonably practicable to do so) be subject to
reasonable comment by the Trustee in a timely manner; provided,
however, that the Trustee shall have no obligation to review
such materials. Subject to the foregoing, US Gold shall ensure
that the materials to be provided to the Trustee are provided in
sufficient time to permit the Trustee to comment as aforesaid
and to send all materials to each Beneficiary at the same time
as such materials are first sent to holders of US Gold Common
Stock. US Gold agrees not to communicate with holders of US Gold
Common Stock with respect to the materials referred to in this
Section 4.3 otherwise than by mail unless such method of
communication is also reasonably available to the Trustee for
communication with the Beneficiaries.
(3) For the purpose of determining Beneficiary Votes to
which a Beneficiary is entitled in respect of any US Gold
Meeting or US Gold Consent, the number of Exchangeable Shares
owned of record by the Beneficiary shall be determined at the
close of business on the record date established by US Gold or
by applicable law for purposes of determining stockholders
entitled to vote at such US Gold Meeting or to give written
consent in connection with such US Gold Consent. US Gold will
notify the Trustee of any decision of the board of directors of
US Gold with respect to the calling of any US Gold Meeting or
the seeking of any US Gold Consent and shall provide all
necessary information and materials to the Trustee in each case
promptly and in any event in sufficient time to enable the
Trustee to perform its obligations contemplated by this
Section 4.3.
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4.4
|
Copies of
Shareholder Information
|
US Gold will deliver to the Trustee copies of all proxy
materials (including notices of US Gold Meetings but excluding
proxies to vote US Gold Common Stock), information statements,
reports (including all interim and annual financial statements)
and other written communications that, in each case, are to be
distributed by US Gold from time to time to holders of US Gold
Common Stock in sufficient quantities and in sufficient time so
as to enable the Trustee to send or cause to be sent those
materials to each Beneficiary at the same time as such materials
are first sent to holders of US Gold Common Stock. The Trustee
will mail or otherwise send, or cause to be mailed or otherwise
sent, to each Beneficiary, at the expense of US Gold, copies of
all such materials (and all materials specifically directed to
the Beneficiaries or to the Trustee for the benefit of the
Beneficiaries by US Gold) received by the Trustee from US Gold
contemporaneously with the sending of such materials to holders
of US Gold Common Stock. The Trustee will also make available
for inspection by any Beneficiary at the Trustee’s
principal office in Toronto, Ontario all proxy materials,
information statements, reports and other written communications
that are:
(a) received by the Trustee as the registered holder of the
Special Voting Share and made available by US Gold
generally to the holders of US Gold Common Stock; or
(b) specifically directed to the Beneficiaries or to the
Trustee for the benefit of the Beneficiaries by US Gold.
Immediately after receipt by US Gold or stockholders of US Gold
of any material sent or given by or on behalf of a third party
to holders of US Gold Common Stock generally, including, without
limitation, dissident proxy and information circulars (and
related information and material) and take-over bid and
securities exchange take-over bid circulars (and related
information and material), US Gold shall use its reasonable
efforts to obtain and deliver to the Trustee copies thereof in
sufficient quantities so as to enable the Trustee to forward or
cause to be forwarded such material (unless the same has been
provided directly to Beneficiaries by such third party) to each
Beneficiary as soon as possible thereafter. As soon as
reasonably practicable after receipt thereof, the Trustee will
mail or otherwise send, or cause to be mailed or otherwise sent,
to each Beneficiary, at the expense of US Gold, copies of all
such materials received by the Trustee from US Gold. The Trustee
will also make available for inspection by any Beneficiary at
the Trustee’s principal office in Toronto, Ontario copies
of all such materials.
J-5
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4.6
|
List of
Persons Entitled To Vote
|
Canadian Exchange Co. shall, (a) prior to each annual,
general and special US Gold Meeting or the seeking of any US
Gold Consent and (b) forthwith upon each request made at
any time by the Trustee in writing, prepare or cause to be
prepared a list (a “List”) of the names and
addresses of the Beneficiaries arranged in alphabetical order
and showing the number of Exchangeable Shares held of record by
each such Beneficiary, in each case at the close of business on
the date specified by the Trustee in such request or, in the
case of a List prepared in connection with a US Gold Meeting or
a US Gold Consent, at the close of business on the record date
established by US Gold or pursuant to applicable law for
determining the holders of US Gold Common Stock entitled to
receive notice of
and/or to
vote at such US Gold Meeting or to give consent in connection
with a US Gold Consent. Each such List shall be delivered to the
Trustee promptly after receipt by Canadian Exchange Co. of such
request or the record date for such meeting or seeking of
consent, as the case may be, and, in any event, within
sufficient time as to enable the Trustee to perform its
obligations under this agreement. US Gold agrees to give
Canadian Exchange Co. written notice (with a copy to the
Trustee) of the calling of any US Gold Meeting or the seeking of
any US Gold Consent, together with the record date therefor,
sufficiently prior to the date of the calling of such meeting or
seeking such consent so as to enable Canadian Exchange Co. to
perform its obligations under this Section 4.6.
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4.7
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Entitlement
To Direct Votes
|
Any Beneficiary named in a List prepared in connection with any
US Gold Meeting or any US Gold Consent will be entitled
(a) to instruct the Trustee in the manner described in
Section 4.3 hereof with respect to the exercise of the
Beneficiary Votes to which such Beneficiary is entitled or
(b) to attend such meeting and personally to exercise
thereat (or to exercise with respect to any written consent), as
the proxy of the Trustee, the Beneficiary Votes to which such
Beneficiary is entitled or (c) to appoint a third party as
the proxy of the Trustee to attend such meeting and exercise
thereat the Beneficiary’s voting rights to which such
Beneficiary is entitled except, in each case, to the extent that
such Beneficiary has transferred the ownership of any
Exchangeable Shares in respect of which such Beneficiary is
entitled to Beneficiary Votes after the close of business on the
record date for such meeting or seeking of consent.
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4.8
|
Voting By
Trustee and Attendance of Trustee Representative at
Meeting
|
(1) In connection with each US Gold Meeting and US Gold
Consent, the Trustee shall exercise, either in person or by
proxy, in accordance with the instructions received from a
Beneficiary pursuant to Section 4.3 hereof, the Beneficiary
Votes as to which such Beneficiary is entitled to direct the
vote (or any lesser number thereof as may be set forth in the
instructions); provided, however, that such written instructions
are received by the Trustee from the Beneficiary prior to the
time and date fixed by the Trustee for receipt of such
instruction in the notice sent or caused to be sent by the
Trustee to the Beneficiary pursuant to Section 4.3.
(2) The Trustee shall cause such representatives who are
empowered by it to sign and deliver, on behalf of the Trustee,
proxies for Voting Rights enabling a Beneficiary to attend each
US Gold Meeting. Upon submission by a Beneficiary (or its
designee) named in the List prepared in connection with the
relevant meeting of identification satisfactory to the
Trustee’s representative, and at the Beneficiary’s
request, such representative shall sign and deliver to such
Beneficiary (or its designee) a proxy to exercise personally the
Beneficiary Votes as to which such Beneficiary is otherwise
entitled hereunder to direct the vote, if such Beneficiary
either (i) has not previously given the Trustee
instructions pursuant to Section 4.3 in respect of such
meeting or (ii) submits to such representative written
revocation of any such previous instructions. At such meeting,
the Beneficiary (or its designee) exercising such Beneficiary
Votes shall have the same rights in respect of such Beneficiary
Votes as the Trustee to speak at the meeting in respect of any
matter, question, proposal or proposition, to vote by way of
ballot at the meeting in respect of any matter, question,
proposal or proposition, and to vote at such meeting by way of a
show of hands in respect of any matter, question or proposition.
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4.9
|
Distribution
of Written Materials
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Any written materials distributed by the Trustee to the
Beneficiaries pursuant to this agreement shall be sent by mail
(or otherwise communicated in the same manner as US Gold
utilizes in communications to holders of US Gold
J-6
Common Stock subject to the Trustee being advised in writing of
such manner and provided such manner of communications is
reasonably available to the Trustee) to each Beneficiary at its
address as shown on the register of holders of Exchangeable
Shares maintained by the registrar of the Exchangeable Shares.
Canadian Exchange Co. shall provide or cause to be provided to
the Trustee for purposes of communication, on a timely basis and
without charge or other expense:
(a) a current List; and
(b) upon the request of the Trustee, mailing labels to
enable the Trustee to carry out its duties under this agreement.
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4.10
|
Termination
of Voting Rights
|
Except as otherwise provided in the Share Provisions, all of the
rights of a Beneficiary with respect to the Beneficiary Votes
exercisable in respect of the Exchangeable Shares held by such
Beneficiary, including the right to instruct the Trustee as to
the voting of or to vote personally such Beneficiary Votes,
shall be deemed to be surrendered by the Beneficiary to US Gold
or Alberta ULC, as the case may be, and such Beneficiary Votes
and the Voting Rights represented thereby shall cease
immediately upon the delivery by such holder to the Trustee of
the certificates representing such Exchangeable Shares in
connection with the exercise by the Beneficiary of the Exchange
Right or the occurrence of the automatic exchange of
Exchangeable Shares for US Gold Common Stock, as specified in
Article 5 hereof, or upon the retraction or redemption of
Exchangeable Shares pursuant to Article 6 or Article 7
of the Share Provisions, or upon the effective date of the
liquidation, dissolution or
winding-up
of Canadian Exchange Co. or any other distribution of the assets
of Canadian Exchange Co. among its shareholders for the purpose
of winding up its affairs pursuant to Article 5 of the
Share Provisions, or upon the purchase of Exchangeable Shares
from the holder thereof by US Gold or Alberta ULC pursuant to
the exercise by US Gold or Alberta ULC of the Retraction Call
Right, the Redemption Call Right or the Liquidation Call
Right (unless US Gold shall not have delivered the requisite US
Gold Common Stock and cheque, if any, delivered in exchange
therefor to the Trustee pending delivery to the Beneficiaries).
ARTICLE 5
EXCHANGE
RIGHT, AUTOMATIC EXCHANGE RIGHT AND US GOLD SUPPORT
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5.1
|
Grant and
Ownership of the Automatic Exchange Right and the Exchange
Right
|
US Gold, and Alberta ULC, in the case of the Exchange Right,
hereby grant to the Trustee as trustee for and on behalf of, and
for the use and benefit of, the Beneficiaries: (i) the
Automatic Exchange Right, and (ii) the right (the
“Exchange Right”), upon the occurrence and
during the continuance of an Insolvency Event, to require US
Gold or Alberta ULC to purchase from each or any Beneficiary all
or any part of the Exchangeable Shares held by the Beneficiary,
all in accordance with the provisions of this agreement. US Gold
hereby acknowledges receipt from the Trustee, as trustee for and
on behalf of the Beneficiaries, of good and valuable
consideration (and the adequacy thereof) for the grant of the
Automatic Exchange Right and the Exchange Right by US Gold to
the Trustee. Alberta ULC hereby acknowledges receipt from the
Trustee, as trustee for and on behalf of the Beneficiaries, of
good and valuable consideration (and the adequacy thereof) for
the grant of the Exchange Right by Alberta ULC to the Trustee.
During the term of the Trust and subject to the terms and
conditions of this agreement, the Trustee shall possess and be
vested with full legal ownership of the Automatic Exchange Right
and the Exchange Right and shall be entitled to exercise all of
the rights and powers of an owner with respect to the Automatic
Exchange Right and the Exchange Right, provided that the Trustee
shall:
(a) hold the Automatic Exchange Right and the Exchange
Right and the legal title thereto as trustee solely for the use
and benefit of the Beneficiaries in accordance with the
provisions of this agreement; and
(b) except as specifically authorized by this agreement,
have no power or authority to exercise or otherwise deal in or
with the Automatic Exchange Right and the Exchange Right, and
the Trustee shall not exercise such right for any purpose other
than the purposes for which this Trust is created pursuant to
this agreement.
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5.2
|
Legended
Share Certificates
|
Canadian Exchange Co. will cause each certificate representing
Exchangeable Shares to bear an appropriate legend notifying the
Beneficiaries of the Automatic Exchange Right, the Exchange
Right and of their right to instruct the Trustee with respect to
the exercise of the Exchange Right in respect of the
Exchangeable Shares held by a Beneficiary.
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5.3
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Exercise
of Exchange Right
|
The Exchange Right shall be and remain vested in and exercisable
by the Trustee. Subject to Section 6.15 hereof, the Trustee
shall exercise the Exchange Right only on the basis of
instructions received pursuant to this Article 5 from
Beneficiaries entitled to instruct the Trustee as to the
exercise thereof. To the extent that no instructions are
received from a Beneficiary with respect to the Exchange Right,
the Trustee shall not exercise or permit the exercise of the
Exchange Right.
The purchase price payable by US Gold or Alberta ULC for each
Exchangeable Share to be purchased by US Gold or Alberta
ULC under the Exchange Right shall be an amount per share equal
to (a) the Current Market Price of a share of US Gold
Common Stock on the last Business Day prior to the day of
closing of the purchase and sale of such Exchangeable Share
under the Exchange Right, which shall be satisfied in full by
causing to be delivered to such holder one share of US Gold
Common Stock, plus (b) the Dividend Amount, if any. The
purchase price for each such Exchangeable Share so purchased may
be satisfied only by US Gold or Alberta ULC delivering or
causing to be delivered to the Trustee, on behalf of the
relevant Beneficiary, one share of US Gold Common Stock and a
cheque for the balance, if any, of the purchase price without
interest (less any amount required to be withheld under the
Income Tax Act (Canada) or United States tax laws, or any
provision of any federal, provincial, state, local or foreign
tax laws).
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5.5
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Exercise
Instructions
|
Subject to the terms and conditions herein set forth, a
Beneficiary shall be entitled, upon the occurrence and during
the continuance of an Insolvency Event, to instruct the Trustee
to exercise the Exchange Right with respect to all or any part
of the Exchangeable Shares registered in the name of such
Beneficiary on the books of Canadian Exchange Co. To cause the
exercise of the Exchange Right by the Trustee, the Beneficiary
shall deliver to the Trustee, in person or by certified or
registered mail, at its principal office in Toronto, Ontario or
at such other places in Canada as the Trustee may from time to
time designate by written notice to the Beneficiaries, the
certificates representing the Exchangeable Shares which such
Beneficiary desires US Gold or Alberta ULC to purchase, duly
endorsed in blank, and accompanied by such other documents and
instruments as may be required to effect a transfer of
Exchangeable Shares under the Business Corporations Act
(Alberta), other applicable laws, if any, and the by-laws of
Canadian Exchange Co. and such additional documents and
instruments as the Trustee or Canadian Exchange Co. may
reasonably require together with (a) a duly completed form
of notice of exercise of the Exchange Right, contained on the
reverse of or attached to the Exchangeable Share certificates,
stating (i) that the Beneficiary thereby instructs the
Trustee to exercise the Exchange Right so as to require US Gold
or Alberta ULC to purchase from the Beneficiary the number of
Exchangeable Shares specified therein, (ii) that such
Beneficiary has good title to and owns all such Exchangeable
Shares to be acquired by US Gold or Alberta ULC free and clear
of all liens, claims and encumbrances, (iii) the names in
which the certificates representing US Gold Common Stock
issuable in connection with the exercise of the Exchange Right
are to be issued and (iv) the names and addresses of the
persons to whom such new certificates should be delivered and
(b) payment (or evidence satisfactory to the Trustee,
Canadian Exchange Co. and US Gold of payment) of the taxes (if
any) payable as contemplated by Section 5.8 of this
agreement. If only a portion of the Exchangeable Shares
represented by any certificate delivered to the Trustee are to
be purchased by US Gold or Alberta ULC under the Exchange Right,
a new certificate for the balance of such Exchangeable Shares
shall be issued to the holder at the expense of Canadian
Exchange Co.
J-8
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5.6
|
Delivery
of US Gold Common Stock; Effect of Exercise
|
Promptly after receipt of the certificates representing the
Exchangeable Shares that a Beneficiary desires US Gold or
Alberta ULC to purchase under the Exchange Right (together with
such documents and instruments of transfer and a duly completed
form of notice of exercise of the Exchange Right) duly endorsed
for transfer to US Gold or Alberta ULC, the Trustee shall
notify US Gold, Alberta ULC and Canadian Exchange Co. of its
receipt of the same, which notice to US Gold, Alberta ULC and
Canadian Exchange Co. shall constitute exercise of the Exchange
Right by the Trustee on behalf of the holder of such
Exchangeable Shares, and US Gold or Alberta ULC shall
immediately thereafter deliver to the Trustee, for delivery to
the Beneficiary of such Exchangeable Shares (or to such other
persons, if any, properly designated by such Beneficiary), a
certificate for the number of shares of US Gold Common
Stock deliverable in connection with such exercise of the
Exchange Right (which shares shall be duly issued as fully paid
and non-assessable and shall be free and clear of any lien,
claim or encumbrance, security interest or adverse claim) and a
cheque for the balance, if any, of the purchase price therefor;
provided, however, that no such delivery shall be made unless
and until the Beneficiary requesting the same shall have paid
(or provided evidence satisfactory to the Trustee, Canadian
Exchange Co., Alberta ULC and US Gold of the payment of) the
taxes (if any) payable as contemplated by Section 5.8 of
this agreement. Immediately upon the giving of notice by the
Trustee to US Gold, Alberta ULC and Canadian Exchange Co. of the
exercise of the Exchange Right, as provided in this
Section 5.6, the closing of the transaction of purchase and
sale contemplated by the Exchange Right shall be deemed to have
occurred, and the Beneficiary of such Exchangeable Shares shall
be deemed to have transferred to US Gold (or, at US Gold’s
option, to Alberta ULC) all of its right, title and interest in
and to such Exchangeable Shares and the related interest in the
Trust Estate and shall not be entitled to exercise any of
the rights of a holder in respect thereof, other than the right
to receive its proportionate part of the total purchase price
therefor, unless the requisite number of shares of US Gold
Common Stock (together with a cheque for the balance, if any, of
the total purchase price therefor) is not delivered by US Gold
or Alberta ULC to the Trustee, for delivery to such Beneficiary
(or to such other persons, if any, properly designated by such
Beneficiary), within five Business Days of the date of the
giving of such notice by the Trustee, in which case the rights
of the Beneficiary shall remain unaffected until such shares of
US Gold Common Stock are so delivered and any such cheque is so
delivered and paid. Concurrently with the closing of the
transaction of purchase and sale contemplated by the Exchange
Right, such Beneficiary shall be considered and deemed for all
purposes to be the holder of the shares of US Gold Common Stock
delivered to it pursuant to the Exchange Right. Notwithstanding
the foregoing until the requisite number of shares of Common
Stock of US Gold and the cheque for the balance, if any, of the
total purchase price therefore, is delivered to a Beneficiary,
the Beneficiary shall be deemed to still be a holder of the sold
Exchangeable Shares for purposes of voting rights with respect
thereto under this agreement.
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5.7
|
Exercise
of Exchange Right Subsequent to Retraction
|
In the event that a Beneficiary has exercised its retraction
right under Article 6 of the Share Provisions to require
Canadian Exchange Co. to redeem any or all of the Exchangeable
Shares held by the Beneficiary (the “Retracted
Shares”) and is notified by Canadian Exchange Co.
pursuant to Section 6.1(4) of the Share Provisions that
Canadian Exchange Co. will not be permitted as a result of
solvency requirements of applicable law to redeem all such
Retracted Shares, subject to receipt by the Trustee of written
notice to that effect from Canadian Exchange Co. and provided
that neither US Gold nor Alberta ULC shall have exercised its
Retraction Call Right with respect to the Retracted Shares and
that the Beneficiary shall not have revoked the retraction
request delivered by the Beneficiary to Canadian Exchange Co.
pursuant to Section 6.1(5) of the Share Provisions, the
retraction request will constitute and will be deemed to
constitute notice from the Beneficiary to the Trustee
instructing the Trustee to exercise the Exchange Right with
respect to those Retracted Shares that Canadian Exchange Co. is
unable to redeem. In any such event, Canadian Exchange Co.
hereby agrees with the Trustee and in favour of the Beneficiary
immediately to notify the Trustee of such prohibition against
Canadian Exchange Co. redeeming all of the Retracted Shares and
immediately to forward or cause to be forwarded to the Trustee
all relevant materials delivered by the Beneficiary to Canadian
Exchange Co. or to the Transfer Agent (including without
limitation a copy of the retraction request delivered pursuant
to Section 6.1(1) of the Share Provisions) in connection
with such proposed redemption of the Retracted Shares and the
Trustee will thereupon exercise the Exchange Right with respect
to the Retracted Shares that Canadian Exchange Co. is not
permitted to redeem and will require US Gold or, at US
Gold’s option, Alberta ULC, to purchase such shares in
accordance with the provisions of this Article 5.
J-9
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5.8
|
Stamp or
Other Transfer Taxes
|
Upon any sale of Exchangeable Shares to US Gold or Alberta ULC
pursuant to the Exchange Right or the Automatic Exchange Right,
the share certificate or certificates representing US Gold
Common Stock to be delivered in connection with the payment of
the total purchase price therefor shall be issued in the name of
the Beneficiary of the Exchangeable Shares so sold or in such
names as such Beneficiary may otherwise direct in writing
without charge to the holder of the Exchangeable Shares so sold,
provided, however, that such Beneficiary (a) shall pay (and
none of US Gold, Alberta ULC, Canadian Exchange Co. or the
Trustee shall be required to pay) any documentary, stamp,
transfer or other similar taxes that may be payable in respect
of any transfer involved in the issuance or delivery of such
shares to a person other than such Beneficiary or (b) shall
have established to the satisfaction of the Trustee, US Gold,
Alberta ULC and Canadian Exchange Co. that such taxes, if any,
have been paid.
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5.9
|
Notice of
Insolvency Event
|
Immediately upon the occurrence of an Insolvency Event or any
event that with the giving of notice or the passage of time or
both would be an Insolvency Event, Canadian Exchange Co. and US
Gold shall give written notice thereof to the Trustee. As soon
as practicable after receiving notice from Canadian Exchange Co.
or US Gold or from any other person of the occurrence of an
Insolvency Event, the Trustee will mail to each Beneficiary, at
the expense of US Gold, a notice of such Insolvency Event in the
form provided by US Gold, which notice shall contain a brief
statement of the right of the Beneficiaries with respect to the
Exchange Right.
The Liquidation Call Right, the Redemption Call Right, the
Retraction Call Right, the Automatic Exchange Right and the
Exchange Right are hereby agreed, acknowledged, consented to and
confirmed, and it is agreed and acknowledged that such rights
are granted as part of the consideration for the obligations of
US Gold under this agreement.
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5.11
|
Automatic
Exchange Right
|
(1) US Gold shall give the Trustee written notice of each
of the following events (each a “US Gold Liquidation
Event”) at the time set forth below:
(a) in the event of any determination by the board of
directors of US Gold to institute voluntary liquidation,
dissolution or winding up proceedings with respect to US Gold or
to effect any other distribution of assets of US Gold among its
stockholders for the purpose of winding up its affairs, at least
60 days prior to the proposed effective date of such
liquidation, dissolution, winding up or other distribution; and
(b) immediately, upon the earlier of (i) receipt by US
Gold of notice of and (ii) US Gold otherwise becoming aware
of any threatened or instituted claim, suit, petition or other
proceeding with respect to the involuntary liquidation,
dissolution or winding up of US Gold or to effect any other
distribution of assets of US Gold among its stockholders
for the purpose of winding up its affairs.
(2) Immediately following receipt by the Trustee from US
Gold of notice of any US Gold Liquidation Event contemplated by
Section 5.11(1)(a) or 5.11(1)(b), the Trustee will give
notice thereof to the Beneficiaries. Such notice shall be
provided by US Gold to the Trustee and shall include a brief
description of the automatic exchange of Exchangeable Shares for
shares of US Gold Common Stock provided for in
Section 5.11(4) below (the “Automatic Exchange
Right”).
(3) In order that the Beneficiaries will be able to
participate on a pro rata basis with the holders of US Gold
Common Stock in the distribution of assets of US Gold in
connection with a US Gold Liquidation Event, immediately prior
to the effective date (the “US Gold Liquidation Event
Effective Date”) of a US Gold Liquidation Event all of
the then outstanding Exchangeable Shares (other than
Exchangeable Shares held by US Gold or its Subsidiaries)
shall be automatically exchanged for shares of US Gold Common
Stock. To effect such automatic exchange, US Gold shall purchase
each Exchangeable Share outstanding on the immediately prior to
the US Gold Liquidation Event Effective Date and held by a
Beneficiary, and each such Beneficiary shall sell the
J-10
Exchangeable Shares held by it at such time, for a purchase
price per share equal to (a) the Current Market Price of a
share of US Gold Common Stock on the immediately prior to the US
Gold Liquidation Event Effective Date, which shall be satisfied
in full by US Gold delivering to such holder one share of US
Gold Common Stock, plus (b) the Dividend Amount, if any.
(4) On the immediately prior to the US Gold Liquidation
Event Effective Date, the closing of the transaction of purchase
and sale contemplated by the automatic exchange of Exchangeable
Shares for US Gold Common Stock shall be deemed to have
occurred, and each Beneficiary shall be deemed to have
transferred to US Gold all of such Beneficiary’s right,
title and interest in and to such Exchangeable Shares and shall
cease to be a holder of such Exchangeable Shares and US Gold
shall deliver or cause to be delivered to the Trustee, for
delivery to such holders, the certificates for the number of
shares of US Gold Common Stock deliverable upon the automatic
exchange of Exchangeable Shares for US Gold Common Stock (which
shares shall be duly issued as fully paid and non-assessable and
shall be free and clear of any lien, claim or encumbrance,
security interest or adverse claim) and a cheque for the
balance, if any, of the total purchase price for such
Exchangeable Shares and any interest on such deposit shall
belong to US Gold. Concurrently with each such Beneficiary
ceasing to be a holder of Exchangeable Shares, such Beneficiary
shall be considered and deemed for all purposes to be the holder
of the shares of US Gold Common Stock delivered to it, or to the
Trustee on its behalf, pursuant to the automatic exchange of
Exchangeable Shares for shares of US Gold Common Stock and the
certificates held by such Beneficiary previously representing
the Exchangeable Shares exchanged by such Beneficiary with US
Gold pursuant to such automatic exchange shall thereafter be
deemed to represent the shares of US Gold Common Stock delivered
to such Beneficiary by US Gold pursuant to such automatic
exchange. Upon the request of any Beneficiary and the surrender
by such Beneficiary of Exchangeable Share certificates deemed to
represent shares of US Gold Common Stock, duly endorsed in blank
and accompanied by such instruments of transfer as US Gold may
reasonably require, the Trustee shall deliver or cause to be
delivered to such Beneficiary certificates representing the
shares of US Gold Common Stock of which such Beneficiary is the
holder and a cheque in payment of the remaining portion, if any,
of the purchase price (less any amount required to be withheld
under the Income Tax Act (Canada) or United States tax
laws, or any provision of any federal, provincial, state, local
or foreign tax laws). Notwithstanding the foregoing until each
Beneficiary is actually entered on the register of holders of US
Gold Common Stock, such Beneficiary shall be deemed to still be
a holder of the transferred Exchangeable Shares for purposes of
all voting rights with respect thereto under this agreement.
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5.12
|
US Gold
Common Stock
|
The obligations of US Gold to issue shares of US Gold Common
Stock pursuant to the Automatic Exchange Right or the Exchange
Right are subject to all applicable laws and regulatory or stock
exchange requirements.
US Gold, Alberta ULC, Canadian Exchange Co. and the Trustee
shall be entitled to deduct and withhold from any consideration
otherwise payable under this agreement to any holder of
Exchangeable Shares or US Gold Common Stock such amounts as US
Gold, Alberta ULC, Canadian Exchange Co. or the Trustee is
required to deduct and withhold with respect to such payment
under the Income Tax Act (Canada) or United States tax
laws or any provision of provincial, state, local or foreign tax
law, in each case as amended or succeeded. The Trustee may act
and rely on the advice of counsel with respect to such matters.
To the extent that amounts are so withheld, such withheld
amounts shall be treated for all purposes as having been paid to
the holder of the shares in respect of which such deduction and
withholding was made, provided that such withheld amounts are
actually remitted to the appropriate taxing authority. To the
extent that the amount so required to be deducted or withheld
from any payment to a holder exceeds the cash portion of the
consideration otherwise payable to the holder, US Gold, Alberta
ULC, Canadian Exchange Co. and the Trustee are hereby authorized
to sell or otherwise dispose of such portion of the
consideration as is necessary to provide sufficient funds to US
Gold, Alberta ULC, Canadian Exchange Co. or the Trustee, as the
case may be, to enable it to comply with such deduction or
withholding requirement and US Gold, Alberta ULC, Canadian
Exchange Co. or the Trustee shall notify the holder thereof and
remit to such holder any unapplied balance of the net proceeds
of such sale.
J-11
ARTICLE 6
CONCERNING
THE TRUSTEE
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6.1
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Powers
and Duties of the Trustee
|
(1) The rights, powers, duties and authorities of the
Trustee under this agreement, in its capacity as trustee of the
Trust, shall include: (a) receipt and deposit of the
Special Voting Share from US Gold as trustee for and on behalf
of the Beneficiaries in accordance with the provisions of this
agreement;
(a) granting proxies and distributing materials to
Beneficiaries as provided in this agreement;
(b) voting the Beneficiary Votes in accordance with the
provisions of this agreement;
(c) receiving the grant of the Exchange Right and the
Automatic Exchange Right from US Gold and, in the case of the
Exchange Right, Alberta ULC, as trustee for and on behalf of the
Beneficiaries in accordance with the provisions of this
agreement;
(d) exercising the Exchange Right and enforcing the benefit
of the Automatic Exchange Right, in each case in accordance with
the provisions of this agreement, and in connection therewith
receiving from Beneficiaries any requisite documents and
distributing to such Beneficiaries shares of US Gold Common
Stock and cheques, if any, to which such Beneficiaries are
entitled pursuant to the exercise of the Exchange Right or the
Automatic Exchange Right, as the case may be;
(e) holding title to the Trust Estate;
(f) investing any moneys forming, from time to time, a part
of the Trust Estate as provided in this agreement;
(g) taking action at the direction of a Beneficiary or
Beneficiaries to enforce the obligations of US Gold, Alberta ULC
and Canadian Exchange Co. under this agreement and under the
Share Provisions; and
(h) taking such other actions and doing such other things
as are specifically provided in this agreement.
(2) In the exercise of such rights, powers, duties and
authorities the Trustee shall have (and is granted) such
incidental and additional rights, powers and authority not in
conflict with any of the provisions of this agreement as the
Trustee, acting in good faith and in the reasonable exercise of
its discretion, may deem necessary, appropriate or desirable to
effect the purpose of the Trust. Any exercise of duties or of
discretionary rights, powers and authorities by the Trustee
shall be final, conclusive and binding upon all persons. For
greater certainty, the Trustee shall have only those duties as
set out specifically in this agreement.
(3) The Trustee in exercising its rights, powers, duties
and authorities hereunder shall act honestly and in good faith
and with a view to the best interests of the Beneficiaries and
shall exercise the care, diligence and skill that a reasonably
prudent trustee would exercise in comparable circumstances.
(4) The Trustee shall not be bound to give notice or do or
take any act, action or proceeding by virtue of the powers
conferred on it hereby unless and until it shall be specifically
required to do so under the terms hereof; nor shall the Trustee
be required to take any notice of, or to do or to take any act,
action or proceeding as a result of any default or breach of any
provision hereunder, unless and until notified in writing of
such default, which notice shall distinctly specify the default
or breach desired to be brought to the attention of the Trustee,
and in the absence of such notice the Trustee may for all
purposes of this agreement conclusively assume that no default
or breach has been made in the observance or performance of any
of the representations, warranties, covenants, agreements or
conditions contained herein.
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6.2
|
No
Conflict of Interest
|
The Trustee represents to US Gold, Alberta ULC and Canadian
Exchange Co. that at the date of execution and delivery of this
agreement there exists no material conflict of interest in the
role of the Trustee as a fiduciary hereunder and the role of the
Trustee in any other capacity. The Trustee shall, within
90 days after it becomes aware that such material conflict
of interest exists, either eliminate such material conflict of
interest or resign in the manner
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and with the effect specified in Article 9. If,
notwithstanding the foregoing provisions of this
Section 6.2, the Trustee has such a material conflict of
interest, the validity and enforceability of this agreement
shall not be affected in any manner whatsoever by reason only of
the existence of such material conflict of interest. If the
Trustee contravenes the foregoing provisions of this
Section 6.2, any interested party may apply to the Superior
Court of Justice (Ontario) for an order that the Trustee be
replaced as trustee hereunder.
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6.3
|
Dealings
With Transfer Agents, Registrars, Etc.
|
(1) Each of US Gold, Alberta ULC and Canadian Exchange Co.
irrevocably authorizes the Trustee, from time to time, to:
(a) consult, communicate and otherwise deal with the
respective registrars and transfer agents, and with any such
subsequent registrar or transfer agent, of the Exchangeable
Shares and US Gold Common Stock; and
(b) requisition, from time to time, from any such registrar
or transfer agent any information readily available from the
records maintained by it, which the Trustee may reasonably
require for the discharge of its duties and responsibilities
under this agreement.
(2) Each of US Gold and Alberta ULC covenant that it will
supply the Trustee or the Transfer Agent, as the case may be, in
a timely manner with duly executed share certificates for the
purpose of completing the exercise from time to time of all
rights to acquire US Gold Common Stock hereunder, under the
Share Provisions and under any other security or commitment
given to the Beneficiaries pursuant thereto, in each case
pursuant to the provisions hereof or of the Share Provisions or
otherwise.
The Trustee shall keep available for inspection by US Gold,
Alberta ULC and Canadian Exchange Co. at the Trustee’s
principal office in Toronto, Ontario correct and complete books
and records of account relating to the Trustee’s actions
under this agreement, including, without limitation, all
information relating to mailings and instructions to and from
Beneficiaries and all transactions pursuant to the Voting Rights
and the Exchange Right, for the term of this agreement. On or
before February 15, 2007, and on or before February 15 in
every year thereafter, so long as the Special Voting Share is
registered in the name of the Trustee, the Trustee shall
transmit to US Gold, Alberta ULC and Canadian Exchange Co. a
brief report, dated as of the preceding December 31st, with
respect to:
(a) the property and funds comprising the Trust Estate as
of that date;
(b) the number of exercises of the Exchange Right, if any,
and the aggregate number of Exchangeable Shares received by the
Trustee on behalf of Beneficiaries in consideration of the
issuance and delivery by US Gold or Alberta ULC of shares
of US Gold Common Stock in connection with the Exchange Right,
during the calendar year ended on such
December 31st; and
(c) all other actions taken by the Trustee in the
performance of its duties under this agreement that it had not
previously reported.
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6.5
|
Income
Tax Returns and Reports
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The Trustee shall, to the extent necessary and as advised by
counsel, prepare and file, or cause to be prepared and filed, on
behalf of the Trust appropriate United States and Canadian
income tax returns and any other returns or reports as may be
required by applicable law or pursuant to the rules and
regulations of any securities exchange or other trading system
through which the Exchangeable Shares are traded. In connection
therewith, the Trustee may obtain the advice and assistance of
such experts or advisors as the Trustee considers necessary or
advisable. US Gold shall retain qualified experts or
advisors for the purpose of providing such tax advice or
assistance.
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6.6
|
Indemnification
Prior To Certain Actions By Trustee
|
(1) The Trustee shall exercise any or all of the rights,
duties, powers or authorities vested in it by this agreement at
the request, order or direction of any Beneficiary upon such
Beneficiary furnishing to the Trustee reasonable funding,
security and indemnity against the costs, expenses and
liabilities which may be incurred by the
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Trustee therein or thereby, provided that no Beneficiary shall
be obligated to furnish to the Trustee any such funding,
security or indemnity in connection with the exercise by the
Trustee of any of its rights, duties, powers and authorities
with respect to the Special Voting Share pursuant to
Article 4, subject to Section 6.15 and with respect to
the Exchange Right pursuant to Article 5, subject to
Section 6.15, and with respect to the Automatic Exchange
Right pursuant to Article 5.
(2) None of the provisions contained in this agreement
shall require the Trustee to expend or risk its own funds or
otherwise incur financial liability in the exercise of any of
its rights, powers, duties, or authorities unless funded, given
security and indemnified as aforesaid.
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6.7
|
Action of
Beneficiaries
|
No Beneficiary shall have the right to institute any action,
suit or proceeding or to exercise any other remedy authorized by
this agreement for the purpose of enforcing any of its rights or
for the execution of any trust or power hereunder unless the
Beneficiary has requested the Trustee to take or institute such
action, suit or proceeding and furnished the Trustee with the
funding, security and indemnity referred to in Section 6.6
and the Trustee shall have failed to act within a reasonable
time thereafter. In such case, but not otherwise, the
Beneficiary shall be entitled to take proceedings in any court
of competent jurisdiction such as the Trustee might have taken;
it being understood and intended that no one or more
Beneficiaries shall have any right in any manner whatsoever to
affect, disturb or prejudice the rights hereby created by any
such action, or to enforce any right hereunder, including,
without limitation, under the Voting Rights, the Exchange Right
or the Automatic Exchange Right, except subject to the
conditions and in the manner herein provided, and that all
powers and trusts hereunder shall be exercised and all
proceedings at law shall be instituted, had and maintained by
the Trustee, except only as herein provided, and in any event
for the equal benefit of all Beneficiaries.
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6.8
|
Reliance
By Trustee Upon Declarations
|
The Trustee shall not be considered to be in contravention of
any of its rights, powers, duties and authorities hereunder if,
when required, it acts and relies in good faith upon lists
(including any Lists), notices, statutory declarations,
certificates, (including share certificate and officers
certificates), opinions or reports or other papers or documents
furnished pursuant to the provisions hereof or required by the
Trustee to be furnished to it in the exercise of its rights,
powers, duties and authorities hereunder if such lists
(including any Lists), notices, statutory declarations,
certificates, opinions or reports comply with the provisions of
Section 6.9, if applicable, and with any other applicable
provisions of this agreement.
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6.9
|
Evidence
and Authority To Trustee
|
(1) US Gold, Alberta ULC
and/or
Canadian Exchange Co. shall furnish to the Trustee evidence of
compliance with the conditions provided for in this agreement
relating to any action or step required or permitted to be taken
by US Gold, Alberta ULC
and/or
Canadian Exchange Co. or the Trustee under this agreement or as
a result of any obligation imposed under this agreement,
including, without limitation, in respect of the Voting Rights
or the Exchange Right and the taking of any other action to be
taken by the Trustee at the request of or on the application of
US Gold, Alberta ULC
and/or
Canadian Exchange Co. forthwith if and when:
(a) such evidence is required by any other section of this
agreement to be furnished to the Trustee in accordance with the
terms of this Section 6.9; or
(b) the Trustee, in the exercise of its rights, powers,
duties and authorities under this agreement, gives US Gold,
Alberta ULC
and/or
Canadian Exchange Co. written notice requiring it to furnish
such evidence in relation to any particular action or obligation
or matter specified in such notice.
(2) Such evidence shall consist of an Officer’s
Certificate of US Gold, Alberta ULC
and/or
Canadian Exchange Co. or a statutory declaration or a
certificate made by persons entitled to sign an Officer’s
Certificate stating that any such condition has been complied
with in accordance with the terms of this agreement.
(3) Whenever such evidence relates to a matter other than
the Voting Rights or the Exchange Right or the Automatic
Exchange Right and except as otherwise specifically provided
herein, such evidence may consist of a
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report or opinion of any solicitor, attorney, auditor,
accountant, appraiser, valuer or other expert or any other
person whose qualifications give authority to a statement made
by such person, provided that if such report or opinion is
furnished by a director, officer or employee of US Gold, Alberta
ULC and/or
Canadian Exchange Co. it shall be in the form of an
Officer’s Certificate or a statutory declaration.
(4) Each statutory declaration, Officer’s Certificate,
opinion or report furnished to the Trustee as evidence of
compliance with a condition provided for in this agreement shall
include a statement by the person giving the evidence:
(a) declaring that such person has read and understands the
provisions of this agreement relating to the condition in
question;
(b) describing the nature and scope of the examination or
investigation upon which such person based the statutory
declaration, certificate, statement or opinion; and
(c) declaring that such person has made such examination or
investigation as such person believes is necessary to enable
them to make the statements or give the opinions contained or
expressed therein.
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6.10
|
Experts,
Advisers and Agents
|
The Trustee may:
(a) in relation to these presents act and rely on the
opinion or advice of or information obtained from any solicitor,
attorney, auditor, accountant, appraiser, valuer or other
expert, whether retained by the Trustee or by US Gold, Alberta
ULC and/or
Canadian Exchange Co. or otherwise, and may retain or employ
such assistance as may be necessary to the proper determination
and discharge of its powers and duties and determination of its
rights or duties hereunder and may pay proper and reasonable
compensation for all such legal and other advice or assistance
as aforesaid;
(b) employ such agents and other assistance as it may
reasonably require for the proper determination
and/or
discharge of its powers and duties hereunder; and
(c) pay reasonable remuneration for all services performed
for it (and shall be entitled to receive reasonable remuneration
for all services performed by it) in the discharge of the trusts
hereof and compensation for all reasonable disbursements, costs
and expenses made or incurred by it in the discharge of its
duties hereunder and in the management of the Trust.
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6.11
|
Investment
of Moneys Held By Trustee
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Unless otherwise provided in this agreement, any moneys held by
or on behalf of the Trustee which under the terms of this
agreement may or ought to be invested or which may be on deposit
with the Trustee or which may be in the hands of the Trustee may
be invested or reinvested in the name or under the control of
the Trustee in securities in which, under the laws of the
Province of Ontario, trustees are authorized to invest trust
moneys, provided that such securities are stated to mature
within two years after their purchase by the Trustee and the
Trustee shall so invest such money on the written direction of
Canadian Exchange Co. Pending the investment of any money as
herein provided such moneys may be deposited in the name of the
Trustee in any chartered bank in Canada or, with the consent of
Canadian Exchange Co., in the deposit department of the Trustee
or any other loan or trust company authorized to accept deposits
under the laws of Canada or any province thereof at the rate of
interest then current on similar deposits.
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6.12
|
Trustee
Not Required to Give Security
|
The Trustee shall not be required to give any bond or security
in respect of the execution of the trusts, rights, duties,
powers and authorities of this agreement or otherwise in respect
of the premises.
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6.13
|
Trustee
Not Bound to Act on Request
|
Except as in this agreement otherwise specifically provided, the
Trustee shall not be bound to act in accordance with any
direction or request of US Gold, Alberta ULC
and/or
Canadian Exchange Co. or of the respective directors thereof
until a duly authenticated copy of the instrument or resolution
containing such direction or request shall have been delivered
to the Trustee, and the Trustee shall be empowered to act upon
any such copy purporting to be authenticated and believed by the
Trustee to be genuine.
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6.14
|
Authority
to Carry on Business
|
The Trustee represents to US Gold, Alberta ULC and Canadian
Exchange Co. that at the date of execution and delivery by it of
this agreement it is authorized to carry on the business of a
trust company in each of the provinces and territories of Canada
but if, notwithstanding the provisions of this
Section 6.14, it ceases to be so authorized to carry on
business, the validity and enforceability of this agreement and
the Voting Rights, the Exchange Right, the Automatic Exchange
Right and the other rights granted in or resulting from the
Trustee being a party to this agreement shall not be affected in
any manner whatsoever by reason only of such event but the
Trustee shall, within 90 days after ceasing to be
authorized to carry on the business of a trust company in any
province or territory of Canada, either become so authorized or
resign in the manner and with the effect specified in
Article 9.
(1) If conflicting claims or demands are made or asserted
with respect to any interest of any Beneficiary in any
Exchangeable Shares, including any disagreement between the
heirs, representatives, successors or assigns succeeding to all
or any part of the interest of any Beneficiary in any
Exchangeable Shares, resulting in conflicting claims or demands
being made in connection with such interest, then the Trustee
shall be entitled, in its sole discretion, to refuse to
recognize or to comply with any such claims or demands. In so
refusing, the Trustee may elect not to exercise any Voting
Rights, Exchange Right, Automatic Exchange Right or other rights
subject to such conflicting claims or demands and, in so doing,
the Trustee shall not be or become liable to any person on
account of such election or its failure or refusal to comply
with any such conflicting claims or demands. The Trustee shall
be entitled to continue to refrain from acting and to refuse to
act until:
(a) the rights of all adverse claimants with respect to the
Voting Rights, Exchange Right, Automatic Exchange Right or other
rights subject to such conflicting claims or demands have been
adjudicated by a final judgement of a court of competent
jurisdiction; or
(b) all differences with respect to the Voting Rights,
Exchange Right or other rights subject to such conflicting
claims or demands have been conclusively settled by a valid
written agreement binding on all such adverse claimants, and the
Trustee shall have been furnished with an executed copy of such
agreement.
(2) If the Trustee elects to recognize any claim or comply
with any demand made by any such adverse claimant, it may in its
discretion require such claimant to furnish such surety bond or
other security satisfactory to the Trustee as it shall deem
appropriate to fully indemnify it as between all conflicting
claims or demands.
The Trustee hereby accepts the Trust created and provided for,
by and in this agreement and agrees to perform the same upon the
terms and conditions herein set forth and to hold all rights,
privileges and benefits conferred hereby and by law in trust for
the various persons who shall from time to time be
Beneficiaries, subject to all the terms and conditions herein
set forth.
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ARTICLE 7
COMPENSATION
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7.1
|
Fees and
Expenses of the Trustee
|
The Trustee will invoice US Gold for its fees and expenses under
this agreement. US Gold, Alberta ULC and Canadian Exchange Co.
jointly and severally agree to pay the Trustee reasonable
compensation for all of the services rendered by it under this
agreement and will reimburse the Trustee for all reasonable
expenses (including, but not limited to, taxes other than taxes
based on the net income or capital of the Trustee, fees paid and
disbursements reimbursed to legal counsel and other experts and
advisors and agents and assistants, and travel expenses) and
disbursements, including the cost and expense of any suit or
litigation of any character and any proceedings before any
governmental agency, and including fees and expenses for
attendance at any US Gold Meeting, reasonably incurred by the
Trustee in connection with its duties under this agreement;
provided that US Gold, Alberta ULC and Canadian Exchange
Co. shall have no obligation to reimburse the Trustee for any
expenses or disbursements paid, incurred or suffered by the
Trustee in any suit or litigation or any such proceedings in
which the Trustee is determined to have acted in bad faith or
with fraud, negligence, recklessness or wilful misconduct.
ARTICLE 8
INDEMNIFICATION
AND LIMITATION OF LIABILITY
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8.1
|
Indemnification
of the Trustee
|
(1) US Gold, Alberta ULC and Canadian Exchange Co. jointly
and severally agree to indemnify and hold harmless the Trustee
and each of its directors, officers, employees and agents
appointed and acting in accordance with this agreement
(collectively, the “Indemnified Parties”)
against all claims, losses, damages, reasonable costs,
penalties, fines and reasonable expenses (including reasonable
expenses of the Trustee’s legal counsel) which, without
fraud, negligence, recklessness, wilful misconduct or bad faith
on the part of such Indemnified Party, may be paid, incurred or
suffered by the Indemnified Party by reason or as a result of
the Trustee’s acceptance or administration of the Trust,
its compliance with its duties set forth in this agreement, or
any written or oral instruction delivered to the Trustee by US
Gold, Alberta ULC or Canadian Exchange Co. pursuant hereto.
Notwithstanding the foregoing, in no case will the Trustee be
indemnified for consequential damages.
(2) In no case shall US Gold, Alberta ULC or Canadian
Exchange Co. be liable under this indemnity for any claim
against any of the Indemnified Parties unless US Gold, Alberta
ULC and Canadian Exchange Co. shall be notified by the Trustee
of the written assertion of a claim or of any action commenced
against the Indemnified Parties, promptly after any of the
Indemnified Parties shall have received any such written
assertion of a claim or shall have been served with a summons or
other first legal process giving information as to the nature
and basis of the claim. Subject to (ii) below, US Gold,
Alberta ULC and Canadian Exchange Co. shall be entitled to
participate at their own expense in the defence and, if US Gold,
Alberta ULC and Canadian Exchange Co. so elect at any time after
receipt of such notice, either of them may assume the defence of
any suit brought to enforce any such claim. The Trustee shall
have the right to employ separate counsel in any such suit and
participate in the defence thereof, but the fees and expenses of
such counsel shall be at the expense of the Trustee unless:
(i) the employment of such counsel has been authorized by
US Gold, Alberta ULC or Canadian Exchange Co.; or (ii) the
named parties to any such suit include both the Trustee and US
Gold, Alberta ULC or Canadian Exchange Co. and the Trustee shall
have been advised by counsel acceptable to US Gold, Alberta ULC
or Canadian Exchange Co. that there may be one or more legal
defences available to the Trustee that are different from or in
addition to those available to US Gold, Alberta ULC or Canadian
Exchange Co. and that, in the judgement of such counsel, would
present a conflict of interest were a joint representation to be
undertaken (in which case US Gold, Alberta ULC and Canadian
Exchange Co. shall not have the right to assume the defence of
such suit on behalf of the Trustee but shall be liable to pay
the reasonable fees and expenses of counsel for the Trustee).
The indemnities contained in this Article 8 shall survive
the termination of the Trust and the resignation or removal of
the Trustee.
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8.2
|
Limitation
of Liability
|
The Trustee shall not be held liable for any loss which may
occur by reason of depreciation of the value of any part of the
Trust Estate or any loss incurred on any investment of
funds pursuant to this agreement, except to the extent that such
loss is attributable to the fraud, negligence, recklessness,
wilful misconduct or bad faith on the part of the Trustee.
ARTICLE 9
CHANGE OF
TRUSTEE
The Trustee, or any trustee hereafter appointed, may at any time
resign by giving written notice of such resignation to US Gold,
Alberta ULC and Canadian Exchange Co. specifying the date on
which it desires to resign, provided that such notice shall not
be given less than sixty (60) days before such desired
resignation date unless US Gold, Alberta ULC and Canadian
Exchange Co. otherwise agree and provided further that such
resignation shall not take effect until the date of the
appointment of a successor trustee and the acceptance of such
appointment by the successor trustee. Upon receiving such notice
of resignation, Canadian Exchange Co. shall promptly appoint a
successor trustee, which shall be a corporation organized and
existing under the laws of Canada and authorized to carry on the
business of a trust company in all provinces and territories of
Canada, by written instrument in duplicate, one copy of which
shall be delivered to the resigning trustee and one copy to the
successor trustee. Failing the appointment and acceptance of a
successor trustee, a successor trustee may be appointed by order
of a court of competent jurisdiction upon application of one or
more of the parties to this agreement. If the retiring trustee
is the party initiating an application for the appointment of a
successor trustee by order of a court of competent jurisdiction,
US Gold, Alberta ULC and Canadian Exchange Co. shall be jointly
and severally liable to reimburse the retiring trustee for its
legal costs and expenses in connection with same.
The Trustee, or any trustee hereafter appointed, may (provided a
successor trustee is appointed) be removed at any time on not
less than sixty (60) days’ prior notice by written
instrument executed by US Gold, Alberta ULC and Canadian
Exchange Co., in duplicate, one copy of which shall be delivered
to the trustee so removed and one copy to the successor trustee,
provided that such removal shall not take effect until the date
of acceptance of appointment by the successor trustee.
Any successor trustee appointed as provided under this agreement
shall execute, acknowledge and deliver to US Gold, Alberta ULC
and Canadian Exchange Co. and to its predecessor trustee an
instrument accepting such appointment. Thereupon the resignation
or removal of the predecessor trustee shall become effective and
such successor trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers,
duties and obligations of its predecessor under this agreement,
with the like effect as if originally named as trustee in this
agreement. However, on the written request of US Gold, Alberta
ULC and Canadian Exchange Co. or of the successor trustee, the
trustee ceasing to act shall, upon payment of any amounts then
due to it pursuant to the provisions of this agreement, execute
and deliver an instrument transferring to such successor trustee
all the rights and powers of the trustee so ceasing to act. Upon
the request of any such successor trustee, US Gold, Alberta ULC,
Canadian Exchange Co. and such predecessor trustee shall execute
any and all instruments in writing for more fully and certainly
vesting in and confirming to such successor trustee all such
rights and powers.
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9.4
|
Notice of
Successor Trustee
|
Upon acceptance of appointment by a successor trustee as
provided herein, US Gold, Alberta ULC and Canadian Exchange Co.
shall cause to be mailed notice of the succession of such
trustee hereunder to each Beneficiary specified in a List. If US
Gold, Alberta ULC or Canadian Exchange Co. shall fail to cause
such notice to
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be mailed within 10 days after acceptance of appointment by
the successor trustee, the successor trustee shall cause such
notice to be mailed at the expense of US Gold, Alberta ULC and
Canadian Exchange Co.
ARTICLE 10
AMENDMENTS
AND SUPPLEMENTAL TRUST AGREEMENTS
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10.1
|
Amendments,
Modifications, etc.
|
Subject to Section 10.2 thereof, this agreement may not be
amended or modified except by an agreement in writing executed
by US Gold, Alberta ULC, Canadian Exchange Co. and the Trustee
and approved by the Beneficiaries in accordance with
Section 9.2 of the Share Provisions.
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10.2
|
Ministerial
Amendments
|
Notwithstanding the provisions of Section 10.1, the parties
to this agreement may in writing, at any time and from time to
time, without the approval of the Beneficiaries, amend or modify
this agreement for the purposes of:
(a) adding to the covenants of any or all parties hereto
for the protection of the Beneficiaries hereunder provided that
the board of directors of each of Canadian Exchange Co., Alberta
ULC and US Gold shall be of the good faith opinion (confirmed in
writing by each to the Trustee) that such additions will not be
prejudicial to the rights or interests of the Beneficiaries;
(b) making such amendments or modifications not
inconsistent with this agreement (as confirmed in writing by
Canadian Exchange Co. which may be relied upon by the Trustee),
as may be necessary or desirable with respect to matters or
questions which, in the good faith opinion of the board of
directors of each of US Gold, Alberta ULC and Canadian
Exchange Co. (confirmed in writing by each to the Trustee) and
in the opinion of the Trustee, in reliance upon a certificate of
Canadian Exchange Co., having in mind the best interests of the
Beneficiaries, it may be expedient to make, provided that such
boards of directors (confirmed in writing by each to the
Trustee) and the Trustee, acting in reliance upon a certificate
of Canadian Exchange Co., shall be of the opinion that such
amendments and modifications will not be prejudicial to the
rights or interests of the Beneficiaries as a whole; or
(c) making such changes or corrections which, on the advice
of counsel to US Gold, Alberta ULC, Canadian Exchange Co. and
the Trustee, are required for the purpose of curing or
correcting any ambiguity or defect or inconsistent provision or
clerical omission or mistake or manifest error.
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10.3
|
Meeting
To Consider Amendments
|
Canadian Exchange Co., at the request of US Gold, shall call a
meeting or meetings of the Beneficiaries for the purpose of
considering any proposed amendment or modification requiring
approval pursuant hereto. Any such meeting or meetings shall be
called and held in accordance with the by-laws of Canadian
Exchange Co., the Share Provisions and all applicable laws.
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10.4
|
Changes
in Capital of US Gold and Canadian Exchange Co.
|
At all times after the occurrence of any event contemplated
pursuant to Section 2.7 or 2.8 of the Support Agreement or
otherwise, as a result of which either US Gold Common Stock or
the Exchangeable Shares or both are in any way changed, this
agreement shall forthwith be amended and modified as necessary
in order that it shall apply with full force and effect, mutatis
mutandis, to all new securities into which US Gold Common Stock
or the Exchangeable Shares or both are so changed and the
parties hereto shall execute and deliver a supplemental trust
agreement giving effect to and evidencing such necessary
amendments and modifications.
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10.5
|
Execution
of Supplemental Trust Agreements
|
Notwithstanding Section 10.1, from time to time Canadian
Exchange Co. (when authorized by a resolution of its Board of
Directors), US Gold (when authorized by a resolution of its
board of directors) and the Trustee may,
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subject to the provisions of these presents, and they shall,
when so directed by these presents, execute and deliver by their
proper officers, trust agreements or other instruments
supplemental hereto, which thereafter shall form part hereof. In
executing or accepting the supplemental trusts created by any
supplemental indenture permitted by this Article 10, the
Trustee will be entitled to receive and (subject to
Article 6) will be fully protected in relying upon an
Officer’s Certificate and opinions of counsel stating that
the execution of such supplemental indenture is authorized or
permitted in this agreement.
ARTICLE 11
TERMINATION
The Trust created by this agreement shall continue until the
earliest to occur of the following events:
(a) no outstanding Exchangeable Shares are held by a
Beneficiary;
(b) each of US Gold, Alberta ULC and Canadian Exchange Co.
elects in writing to terminate the Trust and such termination is
approved by the Beneficiaries in accordance with
Section 9.2 of the Share Provisions; and
(c) 21 years after the death of the last survivor of
the descendants of His Majesty King George VI of Canada and the
United Kingdom of Great Britain and Northern Ireland living on
the date of the creation of the Trust.
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11.2
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Survival
of Agreement
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This agreement shall survive any termination of the Trust and
shall continue until there are no Exchangeable Shares
outstanding held by a Beneficiary; provided, however, that the
provisions of Article 7 and Article 8 shall survive
any termination of this agreement.
ARTICLE 12
GENERAL
If any term or other provision of this agreement is invalid,
illegal or incapable of being enforced by reason of any rule or
law, or public policy, all other conditions and provisions of
this agreement shall nevertheless remain in full force and
effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that
any term or other provision is invalid, illegal or incapable of
being enforced, the parties hereto shall negotiate in good faith
to modify this agreement so as to effect the original intent of
the parties as closely as possible in an acceptable manner to
the end that the transactions contemplated hereby are fulfilled
to the fullest extent possible.
This agreement shall be binding upon and enure to the benefit of
the parties hereto and their respective successors and permitted
assigns and, subject to the terms hereof, to the benefit of the
Beneficiaries.
J-20
Any notice and other communications required or permitted to be
given pursuant to this agreement shall be in writing and shall
be deemed sufficiently given if delivered in person or if sent
by facsimile transmission (provided such transmission is
recorded as being transmitted successfully) at or to the address
or facsimile telephone number set forth beneath the name of such
party below:
If to Canadian Exchange Co. or Alberta ULC:
2900 Manulife Place
10180-101 Street
Edmonton, Alberta
T5J 3V5
Facsimile No.:
(780) 423-7276
Attention: Corporate Secretary
If to US Gold:
2201 Kipling Street
Suite 100
Lakewood, Colorado
80215
Facsimile No.:
(303) 238-1438
Attention: William F. Pass
In the case of Canadian Exchange Co., Alberta ULC and US Gold,
with copy to:
Fraser Milner Casgrain LLP
1 First Canadian Place
100 King Street West, Suite 3900
Toronto, Ontario
M5X 1B2
Attention: Michael Melanson
Fax:
(416) 863-4592
If to the Trustee:
[<>]
Attention: [<>]
Fax: [<>]
or at such other address as the party to which such notice or
other communication is to be given has last notified the party
giving the same in the manner provided in this section. Any
notice given shall be deemed to have been received on the date
of such delivery or sending. Provided that if any notice or
other communication to which this section applies is given or
delivered by facsimile transmission and is recorded as having
been transmitted successfully after 5:00 pm (local time of
recipient) on a business day or at any time on a day that is not
a business day, such notice or other communication shall be
deemed to have been given or delivered and received on the
following business day.
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12.4
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Notice to
Beneficiaries
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Any notice, request or other communication to be given to a
Beneficiary shall be in writing and shall be valid and effective
if given by mail (postage pre-paid or by delivery, to the
address of the holder recorded in the securities register of
Canadian Exchange Co. or, in the event of the address of any
such holder not being so recorded, then at the last known
address of such holder. Any such notice, request or other
communication, if given by mail, shall be deemed to have been
given and received on the fifth day following the date of
mailing and, if given by delivery, shall
J-21
be deemed to have been given and received on the date of
delivery. Accidental failure or omission to give any notice,
request or other communication to one or more holders of
Exchangeable Shares, or any defect in such notice, shall not
invalidate or otherwise alter or affect any action or proceeding
to be taken pursuant thereto.
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12.5
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Risk of
Payments By Post
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Whenever payments are to be made or certificates or documents
are to be sent to any Beneficiary by the Trustee or by Canadian
Exchange Co., Alberta ULC, US Gold or by such Beneficiary to the
Trustee or to US Gold or Alberta ULC or Canadian Exchange Co.,
the making of such payment or sending of such certificate or
document sent through the post shall be at the risk of Canadian
Exchange Co., in the case of payments made or documents by the
Trustee or Canadian Exchange Co. or Alberta ULC or US Gold and
the Beneficiary, in the case of payments made or documents by
the Beneficiary.
This agreement may be executed in counterparts (by facsimile or
otherwise), each of which shall be deemed an original, but all
of which taken together shall constitute one and the same
instrument.
This agreement shall be construed and enforced in accordance
with the laws of the Province of Ontario and the laws of Canada
applicable therein.
Each of the Trustee, US Gold, Alberta ULC and Canadian Exchange
Co. agrees that any action or proceeding arising out of or
relating to this agreement or any of the transactions
contemplated by this agreement may be instituted in the courts
of Ontario, waives any objection which it may have now or
hereafter to the venue of any such action or proceeding,
irrevocably submits to the non-exclusive jurisdiction of the
said courts in any such action or proceeding, agrees to be bound
by any judgement of the said courts and not to seek, and hereby
waives, any review of the merits of any such judgement by the
courts of any other jurisdiction, and each of US Gold and
Alberta ULC hereby appoint Canadian Exchange Co. at its
registered office in the Province of Alberta as attorney for
service of process.
J-22
IN WITNESS WHEREOF the parties hereto have caused this agreement
to be duly executed as of the date first above written.
U.S. GOLD CORPORATION
Name:
US GOLD ALBERTA ULC
Name:
US GOLD CANADIAN ACQUISITION
CORPORATION
Name:
[<>] (Trustee)
Name:
Name:
J-23
APPENDIX K
FORM OF
SUPPORT AGREEMENT
AGREEMENT made as
of ,
2006, between U.S. Gold Corporation, a corporation existing
under the laws of Colorado (“US Gold”), US Gold
Alberta ULC, a corporation existing under the laws of Alberta
(“Alberta ULC”) and US Gold Canadian
Acquisition Corporation, a corporation existing under the laws
of Alberta (“Canadian Exchange Co.”).
WHEREAS US Gold, together with Canadian Exchange Co. has
offered, by way of a public take-over bid, to acquire all of the
outstanding common shares of each of White Knight Resources
Ltd., Coral Gold Resources Ltd., Nevada Pacific Gold Ltd. and
Tone Resources Ltd. in consideration for exchangeable shares
(“Exchangeable Shares”) of Canadian Exchange
Co.;
AND WHEREAS holders of Exchangeable Shares will be entitled to
require Canadian Exchange Co. to redeem such Exchangeable Shares
and upon such redemption each Exchangeable Share shall be
exchanged by Canadian Exchange Co. for one share of common stock
of US Gold (“US Gold Common Stock”);
AND WHEREAS US Gold intends to grant to and in favour of
Non-Affiliated Holders (as hereinafter defined) from time to
time of Exchangeable Shares the right to require US Gold or, at
the option of US Gold, Alberta ULC, to purchase from each
Non-Affiliated Holder all or any part of the Exchangeable Shares
held by the Non-Affiliated Holder;
AND WHEREAS the parties desire to make appropriate provision and
to establish a procedure whereby US Gold will take certain
actions and make certain payments and deliveries necessary to
ensure that Canadian Exchange Co. and Alberta ULC will be able
to make certain payments and to deliver or cause to be delivered
shares of US Gold Common Stock in satisfaction of the
obligations of Canadian Exchange Co.
and/or
Alberta ULC under the Share Provisions (as hereinafter defined)
and this agreement;
NOW THEREFORE, in consideration of the respective covenants and
agreements provided in this agreement and for other good and
valuable consideration (the receipt and sufficiency of which are
hereby acknowledged),the parties agree as follows:
ARTICLE 1
DEFINITIONS
AND INTERPRETATION
In this agreement, each initially capitalized term and the terms
used and not otherwise defined herein shall have the meaning
ascribed thereto in the rights, privileges, restrictions and
conditions (collectively, the “Share
Provisions”) attaching to the Exchangeable Shares as
set out in the articles of Canadian Exchange Co. and the
following terms shall have the following meanings:
“Effective Date” means the earliest date on
which Canadian Exchange Co. first takes up shares of White
Knight Resources Ltd., Coral Gold Resources Ltd., Nevada Pacific
Gold Ltd. or Tone Resources Ltd. under the offers to purchase
pursuant to the take-over bids referred to in the Recitals
hereto.
“including” means “including without
limitation” and “includes” means
“includes without limitation”.
“Non-Affiliated Holders” means the registered
holders of Exchangeable Shares other than US Gold and its
Subsidiaries.
“Special Voting Share” means the one share of
special voting preference stock par value US$1.00, issued by US
Gold to and deposited with the Trustee, which entitles the
holder of record to a number of votes at meetings of holders of
US Gold Common Stock equal to the number of Exchangeable Shares
outstanding from time to time that are held by Non-Affiliated
Holders.
K-1
“Trustee”
means
and, subject to the provisions of the Voting and Exchange
Trust Agreement, includes any successor trustee or
permitted assigns.
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1.2
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Interpretation
Not Affected By Headings
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The division of this agreement into articles, sections and other
portions and the insertion of headings are for convenience of
reference only and do not affect the construction or
interpretation of this agreement. Unless otherwise specified,
references to an “Article” or
“Section” refer to the specified Article or
Section of this agreement.
In this agreement, unless the context otherwise requires words
importing the singular number include the plural and vice versa.
Words importing any gender shall include all genders and words
importing persons include individuals, corporations,
partnerships, companies, associations, trusts, unincorporated
organizations, governmental bodies and other legal or business
entities of any kind.
If any date on which any action is required to be taken under
this agreement is not a Business Day, such action shall be
required to be taken on the next succeeding Business Day.
All payments to be made hereunder will be made without interest
and less any tax required by Canadian law to be deducted and
withheld.
ARTICLE 2
COVENANTS OF
US GOLD AND CANADIAN EXCHANGE CO.
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2.1
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Covenants
Regarding Exchangeable Shares
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So long as any Exchangeable Shares owned by Non-Affiliated
Holders are outstanding, US Gold will:
(a) not declare or pay any dividend on the US Gold Common
Stock unless Canadian Exchange Co. shall (i) simultaneously
declare or pay, as the case may be, an equivalent dividend on
the Exchangeable Shares (an “Equivalent
Dividend”), and (ii) have sufficient money or
other assets or authorized but unissued securities available to
enable the due declaration and the due and punctual payment, in
accordance with applicable law, of any such Equivalent Dividend;
(b) advise Canadian Exchange Co. sufficiently in advance of
the declaration by US Gold of any dividend on the US Gold Common
Stock and take all such other actions as are reasonably
necessary, in co-operation with Canadian Exchange Co., to ensure
that the respective declaration date, record date and payment
date for an Equivalent Dividend on the Exchangeable Shares shall
be the same as the declaration date, record date and payment
date for the corresponding dividend on the US Gold Common Stock
and that such dividend on the Exchangeable Shares shall comply
with any requirements of the stock exchange on which the
Exchangeable Shares are listed;
(c) ensure that the record date for determining
shareholders entitled to receive any dividend declared on the US
Gold Common Stock is not less than 10 Business Days after the
declaration date for such dividend or such shorter period as may
be permitted under applicable law;
(d) take all such actions and do all such things as are
reasonably necessary or desirable to enable and permit Canadian
Exchange Co., in accordance with applicable law, to pay and
otherwise perform its obligations with respect to the
satisfaction of the Liquidation Amount, in respect of each
issued and outstanding Exchangeable Share upon the liquidation,
dissolution or
winding-up
of Canadian Exchange
K-2
Co. or any other distribution of the assets of Canadian Exchange
Co. among its shareholders for the purpose of winding up its
affairs including, without limitation, all such actions and all
such things as are necessary or desirable to enable and permit
Canadian Exchange Co. to cause to be delivered shares of US Gold
Common Stock to the holders of Exchangeable Shares in accordance
with the provisions of Article 5 of the Share Provisions;
(e) take all such actions and do all such things as are
reasonably necessary or desirable to enable and permit Canadian
Exchange Co., in accordance with applicable law, to pay and
otherwise perform its obligations with respect to the
satisfaction of the Retraction Price and the
Redemption Price, including, without limitation, all such
actions and all such things as are necessary or desirable to
enable and permit Canadian Exchange Co. to cause to be delivered
shares of US Gold Common Stock to the holders of Exchangeable
Shares, upon the retraction or redemption of Exchangeable Shares
in accordance with the provisions of Article 6 or
Article 7 of the Share Provisions, as the case may be;
(f) take all such actions and do all such things as are
reasonably necessary or desirable to enable and permit Alberta
ULC or US Gold, in accordance with applicable law, to perform
its obligations arising upon the exercise by it of the
Liquidation Call Right, the Retraction Call Right or the
Redemption Call Right, including all such actions and all
such things as are necessary or desirable to enable and permit
Alberta ULC or US Gold to cause to be delivered shares of US
Gold Common Stock to the holders of Exchangeable Shares in
accordance with the provisions of the Liquidation Call Right,
the Retraction Call Right or the Redemption Call Right, as
the case may be; and
(g) not exercise its vote as a shareholder to initiate the
voluntary liquidation, dissolution or winding up of Canadian
Exchange Co. or any other distribution of the assets of Canadian
Exchange Co. among its shareholders for the purpose of winding
up its affairs, nor take any action or omit to take any action
that is designed to result in the liquidation, dissolution or
winding up of Canadian Exchange Co. or any other distribution of
the assets of Canadian Exchange Co. among its shareholders for
the purpose of winding up its affairs.
US Gold will cause Canadian Exchange Co. to deposit a sufficient
amount of funds in a separate account of Canadian Exchange Co.
and segregate a sufficient amount of such other assets and
property as is necessary to enable Canadian Exchange Co. to pay
or otherwise satisfy the applicable dividends, Liquidation
Amount, Retraction Price or Redemption Price, once such
amounts become payable under the terms of this agreement or the
Share Provisions, in each case for the benefit of Non-Affiliated
Holders from time to time of the Exchangeable Shares, and to use
such funds and other assets so segregated exclusively for the
payment of dividends and the payment or other satisfaction of
the Liquidation Amount, the Retraction Price or the
Redemption Price, as applicable net of any corresponding
withholding tax obligations and for the remittance of such
withholding tax obligations.
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2.3
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Reservation
of US Gold Common Stock
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US Gold hereby represents, warrants and covenants in favour of
Canadian Exchange Co. and Alberta ULC that US Gold has reserved
for issuance and will, at all times while any Exchangeable
Shares are outstanding, keep available, free from pre-emptive
and other rights, out of its authorized and unissued capital
stock such number of shares of US Gold Common Stock (or other
shares or securities into which US Gold Common Stock may be
reclassified or changed as contemplated by Section 2.7):
(a) as is equal to the sum of (i) the number of
Exchangeable Shares issued and outstanding from time to time and
(ii) the number of Exchangeable Shares issuable upon the
exercise of all rights to acquire Exchangeable Shares
outstanding from time to time; and (b) as are now and may
hereafter be required to enable and permit each of US Gold,
Alberta ULC and Canadian Exchange Co. to meet its obligations
under the Voting and Exchange Trust Agreement, under the
Share Provisions and under any other security or commitment
pursuant to which US Gold, Alberta ULC and Canadian Exchange Co.
may now or hereafter be required to issue
and/or
deliver shares of US Gold Common Stock to the Non-Affiliated
Holders.
K-3
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2.4
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Notification
of Certain Events
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In order to assist US Gold to comply with its obligations
hereunder and to permit Alberta ULC to exercise the Liquidation
Call Right, Retraction Call Right and Redemption Call
Right, Canadian Exchange Co. will notify US Gold of each of the
following events at the time set forth below:
(a) in the event of any determination by the board of
directors of Canadian Exchange Co. to institute voluntary
liquidation, dissolution or
winding-up
proceedings with respect to Canadian Exchange Co. or to effect
any other distribution of the assets of Canadian Exchange Co.
among its shareholders for the purpose of winding up its
affairs, at least 60 days prior to the proposed effective
date of such liquidation, dissolution,
winding-up
or other distribution;
(b) immediately, upon the earlier of (i) receipt by
Canadian Exchange Co. of notice of, and (ii) Canadian
Exchange Co. otherwise becoming aware of, any threatened or
instituted claim, suit, petition or other proceedings with
respect to the involuntary liquidation, dissolution or
winding-up
of Canadian Exchange Co. or to effect any other distribution of
the assets of Canadian Exchange Co. among its shareholders for
the purpose of winding up its affairs;
(c) immediately, upon receipt by Canadian Exchange Co. of a
Retraction Request;
(d) at least 30 days prior to any Redemption Date
determined by the board of directors of Canadian Exchange Co. in
accordance with the Share Provisions; and
(e) as soon as practicable upon the issuance by Canadian
Exchange Co. of any Exchangeable Shares or rights to acquire
Exchangeable Shares.
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2.5
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Delivery
of US Gold Common Stock
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Upon notice of any event that requires Canadian Exchange Co. or
Alberta ULC to cause to be delivered US Gold Common Stock to any
holder of Exchangeable Shares, US Gold shall, in any manner
deemed appropriate by it, provide such shares or cause such
shares to be provided to Canadian Exchange Co. or Alberta ULC,
as appropriate, which shall forthwith deliver or cause to be
delivered the requisite number of US Gold Common Stock to or for
the benefit of the former holder of the surrendered Exchangeable
Shares. All such shares of US Gold Common Stock shall be duly
authorized and validly issued as fully paid, non-assessable,
free of pre-emptive rights and shall be free and clear of any
lien, claim, encumbrance, security interest or adverse claim. In
consideration for the issuance and delivery of each such share
of US Gold Common Stock, Canadian Exchange Co. or Alberta ULC,
as the case may be, shall subscribe a cash amount or pay a
purchase price equal to the fair market value of the shares of
US Gold Common Stock.
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2.6
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Qualification
of US Gold Common Stock
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US Gold covenants that it will make such filings and seek such
regulatory consents and approvals as are necessary so that the
shares of US Gold Common Stock to be issued to holders of
Exchangeable Shares pursuant to the terms of the Share
Provisions, the Voting and Exchange Trust Agreement and
this agreement will be issued in compliance with the applicable
securities laws in Canada and the United States and may be
freely traded thereafter (other than by reason of a holder being
a “control person” of US Gold for purposes of Canadian
securities laws or by holders who are Affiliates of US Gold
within the meaning of U.S. securities laws). US Gold will
in good faith expeditiously take all such actions and do all
such things as are reasonably necessary or desirable to cause
all shares of US Gold Common Stock to be delivered hereunder to
be listed, quoted or posted for trading on all stock exchanges
and quotation systems on which outstanding shares of US Gold
Common Stock have been listed by US Gold and remain listed and
are quoted or posted for trading at such time.
K-4
(a) US Gold will not without prior approval of Canadian
Exchange Co. and the prior approval of the holders of the
Exchangeable Shares given in accordance with Section 9.2 of
the Share Provisions:
(i) issue or distribute shares of US Gold Common Stock (or
securities exchangeable for or convertible into or carrying
rights to acquire shares of US Gold Common Stock) to the holders
of all or substantially all of the then outstanding US Gold
Common Stock by way of stock dividend or other distribution,
other than an issue of shares of US Gold Common Stock (or
securities exchangeable for or convertible into or carrying
rights to acquire shares of US Gold Common Stock) to holders of
shares of US Gold Common Stock who exercise an option to receive
dividends in US Gold Common Stock (or securities exchangeable
for or convertible into or carrying rights to acquire US Gold
Common Stock) in lieu of receiving cash dividends; or
(ii) issue or distribute rights, options or warrants to the
holders of all or substantially all of the then outstanding
shares of US Gold Common Stock entitling them to subscribe for
or to purchase shares of US Gold Common Stock (or securities
exchangeable for or convertible into or carrying rights to
acquire shares of US Gold Common Stock); or
(iii) issue or distribute to the holders of all or
substantially all of the then outstanding shares of US Gold
Common Stock (A) shares or securities (including
evidences of indebtedness) of US Gold of any class other than
US Gold Common Stock (or securities convertible into or
exchangeable for or carrying rights to acquire shares of US Gold
Common Stock), or (B) rights, options or warrants other
than those referred to in Section 2.7(a)(ii) above, or
(C) assets of US Gold;
unless (x) Canadian Exchange Co. is permitted under
applicable law to issue or distribute the economic equivalent on
a per share basis of such rights, options, securities, shares,
evidences of indebtedness or other assets to holders of the
Exchangeable Shares and (y) Canadian Exchange Co. shall
issue or distribute such rights, options, securities, shares,
evidences of indebtedness or other assets simultaneously to
holders of the Exchangeable Shares.
(b) US Gold will not without the prior approval of Canadian
Exchange Co. and the prior approval of the holders of the
Exchangeable Shares given in accordance with Section 9.2 of
the Share Provisions:
(i) subdivide, redivide or change the then outstanding
shares of US Gold Common Stock into a greater number of shares
of US Gold Common Stock; or
(ii) reduce, combine, consolidate or change the then
outstanding shares of US Gold Common Stock into a lesser number
of shares of US Gold Common Stock; or
(iii) reclassify or otherwise change the shares of US Gold
Common Stock or effect an amalgamation, merger, reorganization
or other transaction affecting the shares of US Gold Common
Stock;
unless (x) Canadian Exchange Co. is permitted under
applicable law simultaneously to make the same or an
economically equivalent change to, or in the rights of holders
of, the Exchangeable Shares, and (y) the same or an
economically equivalent change is made to, or in the rights of
the holders of, the Exchangeable Shares.
(c) US Gold will ensure that the record date for any event
referred to in Section 2.7(a) or Section 2.7(b), or
(if no record date is applicable for such event) the effective
date for any such event, is not less than ten Business Days
after the date on which such event is declared or announced by
US Gold (with simultaneous notification thereof by US Gold to
Canadian Exchange Co.).
(d) The board of directors of Canadian Exchange Co. shall
determine, acting in good faith and in its sole discretion (with
the assistance of such reputable and qualified independent
financial advisors
and/or other
experts as the board may require), economic equivalence for the
purposes of any event referred to in Section 2.7(a) or
Section 2.7(b) and each such determination shall be
conclusive and binding on US Gold. In making each such
K-5
determination, the following factors shall, without excluding
other factors determined by the board of directors of Canadian
Exchange Co. to be relevant, be considered by the board of
directors of Canadian Exchange Co.:
(i) in the case of any stock dividend or other distribution
payable in shares of US Gold Common Stock, the number of such
shares issued in proportion to the number of shares of US Gold
Common Stock previously outstanding;
(ii) in the case of the issuance or distribution of any
rights, options or warrants to subscribe for or purchase shares
of US Gold Common Stock (or securities exchangeable for or
convertible into or carrying rights to acquire shares of US Gold
Common Stock), the relationship between the exercise price of
each such right, option or warrant and the Current Market Price
of a share of US Gold Common Stock;
(iii) in the case of the issuance or distribution of any
other form of property (including, without limitation, any
shares or securities of US Gold of any class other than US Gold
Common Stock, any rights, options or warrants other than those
referred to in Section 2.7(d)(ii), any evidences of
indebtedness of US Gold or any assets of US Gold), the
relationship between the fair market value (as determined by the
board of directors of Canadian Exchange Co. in the manner above
contemplated) of such property to be issued or distributed with
respect to each outstanding share of US Gold Common Stock and
the Current Market Price of a share of US Gold Common Stock;
(iv) in the case of any subdivision, redivision or change
of the then outstanding shares of US Gold Common Stock into a
greater number of shares of US Gold Common Stock or the
reduction, combination, consolidation or change of the then
outstanding shares of US Gold Common Stock into a lesser number
of shares of US Gold Common Stock or any amalgamation, merger,
reorganization or other transaction affecting the US Gold Common
Stock, the effect thereof upon the then outstanding shares of US
Gold Common Stock; and
(v) in all such cases, the general taxation consequences of
the relevant event to holders of Exchangeable Shares to the
extent that such consequences may differ from the taxation
consequences to holders of shares of US Gold Common Stock as a
result of differences between taxation laws of Canada and the
United States (except for any differing consequences arising as
a result of differing marginal taxation rates and without regard
to the individual circumstances of holders of Exchangeable
Shares).
In the event that a cash offer, share exchange offer, issuer
bid, take-over bid or similar transaction with respect to US
Gold Common Stock (an “Offer”) is proposed by
US Gold or is proposed to US Gold or its shareholders and is
recommended by the board of directors of US Gold, or is
otherwise effected or to be effected with the consent or
approval of the board of directors of US Gold, US Gold will use
reasonable efforts (to the extent, in the case of an Offer by a
third party, within its control) expeditiously and in good faith
to take all such actions and do all such things as are necessary
or desirable to enable and permit holders of Exchangeable Shares
to participate in such Offer to the same extent and on an
economically equivalent basis as the holders of shares of US
Gold Common Stock, without discrimination. Without limiting the
generality of the foregoing, US Gold will use reasonable efforts
expeditiously and in good faith to ensure that holders of
Exchangeable Shares may participate in each such Offer without
being required to retract Exchangeable Shares as against
Canadian Exchange Co. (or, if so required, to ensure that any
such retraction, shall be effective only upon, and shall be
conditional upon, the closing of such Offer and only to the
extent necessary to tender or deposit to the Offer). Nothing
herein shall affect the right of Canadian Exchange Co. to
redeem, or US Gold or Alberta ULC to purchase pursuant to the
Redemption Call Right, Exchangeable Shares.
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2.9
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US Gold
and Affiliates Not To Vote Exchangeable Shares
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US Gold covenants and agrees that it will appoint and cause to
be appointed proxyholders with respect to all Exchangeable
Shares held by it and its Subsidiaries for the sole purpose of
attending each meeting of holders of Exchangeable Shares in
order to be counted as part of the quorum for each such meeting.
US Gold further covenants and agrees that it will not, and will
cause its Subsidiaries not to, exercise any voting rights that
may be exercisable by
K-6
holders of Exchangeable Shares from time to time pursuant to the
Share Provisions or pursuant to the provisions of the (or any
successor or other corporate statute by which Canadian Exchange
Co. may in the future be governed) with respect to any
Exchangeable Shares held by it or by its Subsidiaries in respect
of any matter considered at any meeting of holders of
Exchangeable Shares.
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2.10
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Stock
Exchange Listing
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US Gold covenants and agrees in favour of Canadian Exchange Co.
that US Gold will use its best efforts to maintain a listing of
the Exchangeable Shares on the Toronto Stock Exchange or another
stock exchange in Canada prescribed under the Income Tax Act
(Canada).
On and after the Effective Date, US Gold shall, and shall cause
Alberta ULC to, duly and timely perform all of its obligations
provided for herein and that may arise under the Share
Provisions, and US Gold shall be responsible for the due
performance of all of such obligations hereunder and under the
Share Provisions.
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2.12
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Issue of
Additional Shares
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During the term of this agreement, US Gold will not issue any
Special Voting Shares other than the one Special Voting Share to
be issued to the Trustee.
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2.13
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Ownership
of Outstanding Shares
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Without the prior approval of Canadian Exchange Co. and the
prior approval of the holders of the Exchangeable Shares given
in accordance with Section 11.2 of the Share Provisions, US
Gold covenants and agrees in favour of Canadian Exchange Co.
that, as long as any outstanding Exchangeable Shares are owned
by Non-Affiliated Holders, US Gold will be and remain the direct
or indirect beneficial owner of all issued and outstanding
common shares in the capital of Canadian Exchange Co. and all of
the issued and outstanding common shares in the capital of all
of the issued and outstanding voting shares in the capital of
Alberta ULC.
ARTICLE 3
US GOLD
SUCCESSORS
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3.1
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Certain
Requirements in Respect of Combination, etc.
|
US Gold shall not enter into any transaction (whether by way of
reconstruction, reorganization, consolidation, arrangement,
merger, transfer, sale, lease or otherwise) whereby all or
substantially all of its undertaking, property and assets would
become the property of any other person or, in the case of a
merger, of the continuing corporation resulting therefrom
unless, but may do so if:
(a) such other person or continuing corporation (the
“US Gold Successor”) by operation of law,
becomes, without more, bound by the terms and provisions of this
agreement or, if not so bound, executes, prior to or
contemporaneously with the consummation of such transaction, an
agreement supplemental hereto and such other instruments (if
any) as are necessary or advisable to evidence the assumption by
the US Gold Successor of liability for all moneys payable and
property deliverable hereunder and the covenant of such US Gold
Successor to pay and deliver or cause to be delivered the same
and its agreement to observe and perform all the covenants and
obligations of US Gold under this agreement; and
(b) such transaction shall be upon such terms and
conditions as substantially to preserve and not to impair in any
material respect any of the rights, duties, powers and
authorities of the other parties hereunder or the holders of the
Exchangeable Shares.
K-7
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3.2
|
Vesting
of Powers in Successor
|
Whenever the conditions of Section 3.1 have been duly
observed and performed, the parties, if required by
Section 3.1, shall execute and deliver the supplemental
agreement provided for in Section 3.1(a) and thereupon the
US Gold Successor and such other person that may then be the
issuer of the US Gold Common Stock shall possess and from time
to time may exercise each and every right and power of US Gold
under this agreement in the name of US Gold or otherwise and any
act or proceeding by any provision of this agreement required to
be done or performed by the board of directors of US Gold or any
officers of US Gold may be done and performed with like force
and effect by the directors or officers of such US Gold
Successor.
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3.3
|
Wholly-Owned
Subsidiaries
|
Nothing herein shall be construed as preventing the amalgamation
or merger of any wholly-owned Subsidiary of US Gold with or into
US Gold or the winding-up, liquidation or dissolution of any
wholly-owned Subsidiary of US Gold, provided that all of the
assets of such Subsidiary are transferred to US Gold or another
wholly-owned Subsidiary of US Gold, and any such transactions
are expressly permitted by this Article 3.
ARTICLE 4
GENERAL
This agreement shall come into force and be effective as of the
date hereof and shall terminate and be of no further force and
effect at such time as no Exchangeable Shares (or securities or
rights convertible into or exchangeable for or carrying rights
to acquire Exchangeable Shares) are held by Non-Affiliated
Holders.
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4.2
|
Changes
in Capital of US Gold and Canadian Exchange Co.
|
Notwithstanding the provisions of Section 4.4 hereof, at
all times after the occurrence of any event contemplated
pursuant to Section 2.7 and Section 2.8 hereof or
otherwise, as a result of which either the US Gold Common Stock
or the Exchangeable Shares or both are in any way changed, this
agreement shall forthwith be amended and modified as necessary
in order that it shall apply with full force and effect, mutatis
mutandis, to all new securities into which the US Gold Common
Stock or the Exchangeable Shares or both are so changed and the
parties hereto shall execute and deliver a supplemental
agreement in writing giving effect to and evidencing such
necessary amendments and modifications.
Notwithstanding the provisions of Section 4.4 hereof, if
any term or other provision of this agreement is invalid,
illegal or incapable of being enforced by any rule or law, or
public policy, all other conditions and provisions of this
agreement shall nevertheless remain in full force and effect so
long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to
modify this agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the
end that the transactions contemplated hereby are fulfilled to
the fullest extent possible.
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4.4
|
Amendments,
Modifications
|
(a) Subject to Section 4.2, Section 4.3, and
Section 4.5 of this agreement may not be amended or
modified except by an agreement in writing executed by Canadian
Exchange Co., Alberta ULC and US Gold and approved by the
holders of the Exchangeable Shares in accordance with
Section 9.2 of the Share Provisions.
K-8
(b) No amendment or modification or waiver of any of the
provisions of this agreement otherwise permitted hereunder shall
be effective unless made in writing and signed by all of the
parties hereto.
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4.5
|
Ministerial
Amendments
|
Notwithstanding the provisions of Section 4.4 hereof, the
parties to this agreement may in writing at any time and from
time to time, without the approval of the holders of the
Exchangeable Shares, amend or modify this agreement for the
purposes of:
(a) adding to the covenants of any or all of the parties
hereto for the protection of the Non-Affiliated Holders;
(b) evidencing the succession of US Gold Successors and the
covenants of and obligations assumed by each such US Gold
Successor in accordance with the provisions of Article 3;
(c) making such amendments or modifications not
inconsistent with this agreement as may be necessary or
desirable with respect to matters or questions which, in the
opinion of the board of directors of each of Canadian Exchange
Co., Alberta ULC and US Gold, having in mind the best interests
of the Non-Affiliated Holders as a whole, it may be expedient to
make, provided that each such board of directors shall be of the
opinion that such amendments or modifications will not be
prejudicial in any material respect to the rights or interests
of the Non-Affiliated Holders as a whole of the Exchangeable
Shares; or
(d) making such changes or corrections which, on the advice
of counsel to Canadian Exchange Co., Alberta ULC and US Gold,
are required for the purpose of curing or correcting any
ambiguity or defect or inconsistent provision or clerical
omission or mistake or manifest error, provided that the boards
of directors of each of Canadian Exchange Co., Alberta ULC and
US Gold shall be of the opinion that such changes or corrections
will not be prejudicial in any material respect to the rights or
interests of the Non-Affiliated Holders.
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4.6
|
Meeting
to Consider Amendments
|
Canadian Exchange Co., at the request of US Gold, shall call a
meeting or meetings of the holders of Exchangeable Shares for
the purpose of considering any proposed amendment or
modification requiring approval pursuant to Section 4.4
hereof. Any such meeting or meetings shall be called and held in
accordance with the bylaws of Canadian Exchange Co., the Share
Provisions and all applicable laws.
This agreement shall be binding upon and enure to the benefit of
the parties hereto and their respective successors and assigns.
Any notice and other communications required or permitted to be
given pursuant to this agreement shall be sufficiently given if
delivered in person or if sent by facsimile transmission
(provided such transmission is recorded as being transmitted
successfully) to the parties at the following addresses:
(a) in the case of US Gold, to the following address:
2201 Kipling Street
Suite 100
Lakewood, Colorado
80215
Facsimile No.:
(303) 238-1438
Attention: William F. Pass
with a copy to:
Fraser Milner Casgrain LLP
1 First Canadian Place
100 King Street West, Suite 3900
Toronto, Ontario
M5X 1B2
K-9
Attention: Michael Melanson
Fax:
(416) 863-4592
(b) in the case of Alberta ULC, to the following address:
2900 Manulife Place
10180-101 Street
Edmonton, Alberta
T5J 3V5
Facsimile No.:
(780) 423-7276
Attention: Corporate Secretary
with a copy to:
Fraser Milner Casgrain LLP
1 First Canadian Place
100 King Street West, Suite 3900
Toronto, Ontario
M5X 1B2
Attention: Michael Melanson
Fax:
(416) 863-4592
(c) in the case of Canadian Exchange Co., to the following
address:
2900 Manulife Place
10180-101 Street
Edmonton, Alberta
T5J 3V5
Facsimile No.:
(780) 423-7276
Attention: Corporate Secretary
with a copy to:
U.S. Gold Corporation
2201 Kipling Street
Suite 100
Lakewood, Colorado
80215
Facsimile No.:
(303) 238-1438
Attention: William F. Pass
or at such other address as the party to which such notice or
other communication is to be given has last notified the party
given the same in the manner provided in this Section, and if
not given the same shall be deemed to have been received on the
date of such delivery or sending.
This agreement may be executed in counterparts (by facsimile or
otherwise), each of which shall be deemed an original, and all
of which taken together shall constitute one and the same
instrument.
This agreement shall be construed and enforced in accordance
with the laws of the Province of Ontario and the laws of Canada
applicable therein. Each party hereto irrevocably submits to the
non-exclusive jurisdiction of the courts of the Province of
Ontario with respect to any matter arising hereunder or related
hereto.
K-10
IN WITNESS WHEREOF, the parties hereto have caused this
agreement to be duly executed as of the date first above written.
U.S. GOLD CORPORATION
Name:
US GOLD ALBERTA ULC
Name:
US GOLD CANADIAN ACQUISITION
CORPORATION
Name:
K-11
The
depositary for the offer is
KINGSDALE SHAREHOLDER SERVICES INC.
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For Delivery by Mail:
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For Delivery by Courier or by Hand:
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The Exchange Tower
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The Exchange Tower
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130 King Street West
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130 King Street West
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Suite 2950, P.O. Box 361
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Suite 2950
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Toronto, Ontario
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Toronto, Ontario
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M5X 1E2
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M5X 1C7
|
The dealer manager for the offer is
GMP SECURITIES L.P. (Canada)
GRIFFITHS MCBURNEY CORP. (United States)
145 King Street West
Suite 300
Toronto, Ontario
M5H 1J8
Telephone:
(416) 367-8600
Toll Free: 888-301-3244
Fax:
(416) 367-8164
The information agent for the offer is:
The Exchange Tower
130 King Street West
Suite 2950, P.O. Box 361
Toronto, Ontario
M5X 1E2
Any questions and requests for assistance may be directed to
Kingsdale
Shareholder Services Inc. at the telephone numbers set out
below:
North America Toll Free Telephone:
1-866-639-8026
Fax:
(416) 867-2271
Toll Free Fax: 1-866-545-5580
Bankers and Brokers call collect:
(416) 867-2272
E-Mail:
shareholder@kingsdalecapital.com
PART II
INFORMATION
NOT REQUIRED IN THE PROSPECTUS
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ITEM 20.
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INDEMNIFICATION
OF DIRECTORS AND OFFICERS
|
US Gold
Canadian Acquisition Corporation
US Gold Canadian Acquisition Corporation, or Canadian Exchange
Co., is a corporation incorporated under the Business
Corporation Act (Alberta) or the ABCA. Under the ABCA,
Canadian Exchange Co. may indemnify a present or former director
or officer or a person who acts or acted at Canadian Exchange
Co.’s request as a director or officer of a body corporate
of which Canadian Exchange Co. is or was a shareholder or
creditor, and his heirs and legal representatives, against all
costs, charges and expenses, including an amount paid to settle
an action or satisfy a judgment, reasonably incurred by him in
respect of any civil, criminal or administrative action or
proceeding to which he is made a party by reason of being or
having been a director or officer of Canadian Exchange Co. or
that body corporate, if the director or officer acted honestly
and in good faith with a view to the best interests of Canadian
Exchange Co., and, in the case of a criminal or administrative
action or proceeding that is enforced by a monetary penalty, had
reasonable grounds for believing that his conduct was lawful.
Such indemnification may be in connection with a derivative
action only with court approval. A director or officer is
entitled to indemnification from Canadian Exchange Co. as a
matter of right if he or she was substantially successful on the
merits, fulfilled the condition set forth above, and is fairly
and reasonably entitled to indemnity.
The articles of Canadian Exchange Co. provide that Canadian
Exchange Co. shall, in all circumstances and to the fullest
extent permitted by the ABCA, indemnify a director or officer of
Canadian Exchange Co., a former director or officer of Canadian
Exchange Co., or a person who acts or acted at Canadian Exchange
Co.’s request as a director or officer of a body corporate
of which Canadian Exchange Co. is or was a shareholder or
creditor, and his heirs and legal representatives.
U.S. Gold
Corporation and its Subsidiaries (including US Gold Canadian
Acquisition Corporation)
Section 7-108-402
of the Colorado Business Corporation Act, or the Act,
provides, generally, that the articles of incorporation of a
Colorado corporation may contain a provision eliminating or
limiting the personal liability of a director to the corporation
or its shareholders for monetary damages for breach of fiduciary
duty as a director; except that any such provision may not
eliminate or limit the liability of a director (i) for any
breach of the director’s duty of loyalty to the corporation
or its shareholders, (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing
violation of law, (iii) acts specified in
Section 7-108-403
(concerning unlawful distribution), or (iv) any transaction
from which a director directly or indirectly derived an improper
personal benefit. Such provision may not eliminate or limit the
liability of a director for any act or omission occurring prior
to the date on which such provision becomes effective.
Article XII of U.S. Gold’s bylaws contain a
provision eliminating liability as permitted by the statute.
Section 7-109-103
of the Act provides that a Colorado corporation must indemnify a
person (i) who is or was a director of the corporation or
an individual who, while serving as a director of the
corporation, is or was serving at the corporation’s request
as a director, officer, partner, trustee, employee or fiduciary
or agent of another corporation or other entity or of any
employee benefit plan, or a director, or officer of the
corporation and (ii) who was wholly successful, on the
merits or otherwise, in defense of any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative and whether formal or informal,
or a proceeding, in which he was a party, against reasonable
expenses incurred by him in connection with the proceeding
unless such indemnity is limited by the corporation’s
articles of incorporation. U.S. Gold’s articles of
incorporation do not contain any such limitation.
Section 7-109-102
of the Act provides, generally, that a Colorado corporation may
indemnify a person made a party to a proceeding because the
person is or was a director against any obligation incurred with
respect to a proceeding to pay a judgment, settlement, penalty,
fine (including an excise tax assessed with respect to an
employee benefit plan) or reasonable expenses incurred in the
proceeding if the person conducted himself or herself in good
faith and the person reasonably believed, in the case of conduct
in an official capacity with the corporation,
II-1
that the person’s conduct was in the corporation’s
best interests and, in all other cases, his conduct was at least
not opposed to the corporation’s best interests and, with
respect to any criminal proceedings, the person had no
reasonable cause to believe that his conduct was unlawful.
U.S. Gold’s articles of incorporation and its bylaws
provide for such indemnification. A corporation may not
indemnify a director in connection with any proceeding by or in
the right of the corporation in which the director was adjudged
liable to the corporation or, in connection with any other
proceeding charging the director derived an improper personal
benefit, whether or not involving actions in an official
capacity, in which proceeding the director was judged liable on
the basis that he derived an improper personal benefit. Any
indemnification permitted in connection with a proceeding by or
in the right of the corporation is limited to reasonable
expenses incurred in connection with such proceeding.
Under
Section 7-109-107
of the Act, unless otherwise provided in the articles of
incorporation, a Colorado corporation may indemnify an officer,
employee, fiduciary, or agent of the corporation to the same
extent as a director and may indemnify such a person who is not
a director to a greater extent, if not inconsistent with public
policy and if provided for by its bylaws, general or specific
action of its board of directors or shareholders, or contract.
U.S. Gold’s bylaws provide for indemnification of
officers, employees and agents of U.S. Gold to the same
extent as its directors.
The foregoing discussion of U.S. Gold’s articles of
incorporation, bylaws and of the Act is not intended to be
exhaustive and is qualified in its entirety by such articles of
incorporation; bylaws and the Act.
See the section entitled “— Comparison of
Shareholder Rights — Indemnification of Directors and
Officers — U.S. Gold” on page 82 of
this prospectus.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the “Act”) may be permitted to
directors, officers and controlling persons of the small
business issuers pursuant to the foregoing provisions, or
otherwise, the small business issuers have been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
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ITEM 21.
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EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
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(a) Exhibits.
The following exhibits are included as exhibits to this
registration statement:
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Item No.
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Description
|
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3
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.1
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Articles of Incorporation of
U.S. Gold (f/k/a Silver State Mining Corporation) filed
with the Secretary of State of Colorado on June 24, 1979
(incorporated by reference from the Report on
Form 10-KSB
dated March 27, 1996, Exhibit 3.1, File
No. 000-09137).
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3
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.2
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Articles of Amendment to the
Articles of Incorporation of U.S. Gold filed with the
Secretary of State of Colorado on June 22, 1988
(incorporated by reference from Report on
Form 10-K
for the year ended December 31, 1988, Exhibit 3.1,
File
No. 000-09137).
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3
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.3
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Articles of Amendment to the
Articles of Incorporation of U.S. Gold filed with the
Secretary of State of Colorado on July 5, 1988
(incorporated by reference from Report on
Form 10-K
for the year ended December 31, 1988, Exhibit 3.2,
File
No. 000-09137).
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3
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.4
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Articles of Amendment to the
Articles of Incorporation of U.S. Gold filed with the
Secretary of State of Colorado on December 20, 1991
(incorporated by reference from Report on
Form 10-K
for the year ended December 31, 1991, Exhibit 3.3,
File
No. 000-09137).
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3
|
.5
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Articles of Amendment to the
Articles of Incorporation of U.S. Gold filed with the
Secretary of State of Colorado on November 15, 2005
(incorporated by reference filed with U.S. Gold’s
Annual Report for the fiscal year ended December 31, 2005,
Exhibit 3.1.5, File
No. 000-9137).
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3
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.6
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Bylaws of U.S. Gold, as
amended June 22, 1988 (incorporated by reference from the
Report on
Form 10-KSB
for the year ended December 31, 1996 Exhibit 3.1, File
No. 000-09137).
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3
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.7
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Amendment to the Bylaws of
U.S. Gold effective as of October 3, 2005
(incorporated by reference filed with U.S. Gold’s
Annual Report for the fiscal year ended December 31, 2005,
Exhibit 3.2.1, File
No. 000-09137).
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*3
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.8
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Articles of Incorporation of US
Gold Canadian Acquisition Corporation.
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II-2
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Item No.
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Description
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*3
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.9
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Form of Articles of Amendment to
US Gold Canadian Acquisition Corporation.
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*3
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.10
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Bylaws of US Gold Canadian
Acquisition Corporation.
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**5
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.1
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Opinion of Dufford &
Brown, P.C.
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*5
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.2
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Opinion of Fraser Milner Casgrain
LLP.
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*8
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.1
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Opinion of Hogan &
Hartson LLP as to certain tax matters.
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*23
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.1
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Consent of Stark Winter
Schenkein & Co., LLP.
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23
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.2
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Consent of Dufford &
Brown, P.C. (included in Exhibit 5.1).
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23
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.3
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Consent of Fraser Milner Casgrain
LLP (included in Exhibit 5.2).
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23
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.4
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Consent of Hogan &
Hartson L.L.P. (included in Exhibit 8.1).
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*23
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.5
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Consent of Davidson &
Company LLP.
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**23
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.6
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Consent of Ernst & Young
LLP.
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**23
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.7
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Consent of Pricewaterhouse Coopers
LLP.
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**23
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.8
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Consent of Amisano Hanson,
Chartered Accountants.
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24
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.1
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Power of Attorney (included on
signature page).
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*99
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.1
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Form of Letter of Acceptance and
Transmittal.
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*99
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.2
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Form of Notice of Guaranteed
Delivery.
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* |
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Filed herewith. |
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** |
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To be filed by amendment. |
(b) Financial Statement Schedules.
Schedules are omitted because they are not required or are not
applicable, or the required information is shown in the
financial statements or notes thereto.
(a) Each of the undersigned registrants hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by
section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum
aggregate offering price set forth in the “Calculation of
Registration Fee” table in the effective registration
statement; and
(iii) To include any additional or changed material
information on the plan of distribution;
II-3
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, treat each post-effective
amendment as a new registration statement of the securities
offered, and the offering of such securities at that to be
deemed to be the initial bona fide offering thereof.
(3) To file a post-effective amendment to remove from
registration any of the securities being registered which remain
unsold at the end of the offering.
(b) For determining liability of the registrants under the
Securities Act to any purchaser in the initial distribution of
the securities, the registrants undertakes that in a primary
offering of securities of the undersigned small business issuer
pursuant to this registration statement, regardless of the
underwriting method used to sell the securities to the
purchaser, if the securities are offered or sold to such
purchaser by means of any of the following communications, the
registrants will be a seller to the purchaser and will be
considered to offer or sell such securities to such purchaser:
(i) any preliminary prospectus or prospectus of the
registrants relating to the offering required to be filed
pursuant to Rule 424;
(ii) any free writing prospectus relating to the offering
prepared by or on behalf of the registrants or used or referred
to by the registrants;
(iii) the portion of any other free writing prospectus
relating to the offering containing material information about
the registrants or its securities provided by or on behalf of
the registrants; and
(iv) any other communication that is an offer in the
offering made by the Registrant to the purchaser.
(c) Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers
and controlling persons of the registrants pursuant to the
foregoing provisions, or otherwise, the registrants have been
advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the registrants of expenses incurred or paid by a director,
officer or controlling person of the registrants in the
successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the registrants
will, unless in the opinion of their counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question, whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.
(d) Each of the undersigned registrants hereby undertakes
to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11
or 13 of this Form, within one business day of receipt of
request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of
the registration statement through the date of responding to the
request.
(e) Each of the undersigned registrants hereby undertakes
to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in
the registration statement when it became effective.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act, each of the
co-registrants has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Lakewood, State of Colorado, on
October 26, 2006.
U.S. GOLD CORPORATION
(Registrant)
William F. Pass, Vice President,
Secretary and Treasurer
US GOLD CANADIAN ACQUISITION
CORPORATION
(Registrant)
Robert R. McEwen,
Chief Executive Officer
II-5
POWER OF
ATTORNEY
We, the undersigned officers and directors of U.S. Gold
Corporation and US Gold Canadian Acquisition Corporation, do
hereby constitute and appoint William F. Pass to be our true and
lawful
attorney-in-fact
and agent, with full power of substitution and resubstitution,
for each of us and in our name, place and stead, in any and all
capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement, and
to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange
Commission, granting unto said
attorney-in-fact
and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
connection therewith and about the premises, as fully to all
intents and purposes as each of us might or could do in person,
hereby ratifying and confirming all that said
attorney-in-fact
and agent, or any of them or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this registration statement was signed by the following
persons in the capacities and on the dates stated:
U.S. Gold
Corporation Officers and Directors:
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/s/ Robert
R. McEwen
Robert
R. McEwen
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Chief Executive Officer and
Chairman (Principal Executive Officer)
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October 26, 2006
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/s/ Ann
S. Carpenter
Ann
S. Carpenter
|
|
President, Chief Operating Officer
and Director Vice President, Secretary and Treasurer
|
|
October 26, 2006
|
|
|
|
|
|
/s/ William
F. Pass
William
F. Pass
|
|
(Principal Financial and
Accounting Officer)
|
|
October 26, 2006
|
|
|
|
|
|
/s/ Michele
L. Ashby
Michele
L. Ashby
|
|
Director
|
|
October 26, 2006
|
|
|
|
|
|
/s/ Leanne
M. Baker
Leanne
M. Baker
|
|
Director
|
|
October 26, 2006
|
|
|
|
|
|
/s/ Declan
J. Costelloe
Declan
J. Costelloe
|
|
Director
|
|
October 26, 2006
|
|
|
|
|
|
/s/ Peter
Bojtos
Peter
Bojtos
|
|
Director
|
|
October 26, 2006
|
|
US Gold Canadian Acquisition
Corporation Officers and Directors:
|
|
|
|
|
|
/s/ Robert
R. McEwen
Robert
R. McEwen
|
|
Chief Executive Officer and
Director (Principal Executive Officer)
|
|
October 26, 2006
|
|
|
|
|
|
/s/ Ann
S. Carpenter
Ann
S. Carpenter
|
|
President and Director
|
|
October 26, 2006
|
|
|
|
|
|
/s/ William
F. Pass
William
F. Pass
|
|
Vice President, Secretary,
Treasurer and Director (Principal Accounting Officer)
|
|
October 26, 2006
|
II-6
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
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|
|
|
|
Item No.
|
|
Description
|
|
|
3
|
.1
|
|
Articles of Incorporation of
U.S. Gold (f/k/a Silver State Mining Corporation) filed
with the Secretary of State of Colorado on June 24, 1979
(incorporated by reference from the Report on
Form 10-KSB
dated March 27, 1996, Exhibit 3.1, File
No. 000-09137).
|
|
3
|
.2
|
|
Articles of Amendment to the
Articles of Incorporation of U.S. Gold filed with the
Secretary of State of Colorado on June 22, 1988
(incorporated by reference from Report on
Form 10-K
for the year ended December 31, 1988, Exhibit 3.1,
File
No. 000-09137).
|
|
3
|
.3
|
|
Articles of Amendment to the
Articles of Incorporation of U.S. Gold filed with the
Secretary of State of Colorado on July 5, 1988
(incorporated by reference from Report on
Form 10-K
for the year ended December 31, 1988, Exhibit 3.2,
File
No. 000-09137).
|
|
3
|
.4
|
|
Articles of Amendment to the
Articles of Incorporation of U.S. Gold filed with the
Secretary of State of Colorado on December 20, 1991
(incorporated by reference from Report on
Form 10-K
for the year ended December 31, 1991, Exhibit 3.3,
File
No. 000-09137).
|
|
3
|
.5
|
|
Articles of Amendment to the
Articles of Incorporation of U.S. Gold filed with the
Secretary of State of Colorado on November 15, 2005
(incorporated by reference filed with U.S. Gold’s
Annual Report for the fiscal year ended December 31, 2005,
Exhibit 3.1.5, File
No. 000-9137).
|
|
3
|
.6
|
|
Bylaws of U.S. Gold, as
amended June 22, 1988 (incorporated by reference from the
Report on
Form 10-KSB
for the year ended December 31, 1996 Exhibit 3.1, File
No. 000-09137).
|
|
3
|
.7
|
|
Amendment to the Bylaws of
U.S. Gold effective as of October 3, 2005
(incorporated by reference filed with U.S. Gold’s
Annual Report for the fiscal year ended December 31, 2005,
Exhibit 3.2.1, File
No. 000-09137).
|
|
*3
|
.8
|
|
Articles of Incorporation of US
Gold Canadian Acquisition Corporation.
|
|
*3
|
.9
|
|
Form of Articles of Amendment to
US Gold Canadian Acquisition Corporation.
|
|
*3
|
.10
|
|
Bylaws of US Gold Canadian
Acquisition Corporation.
|
|
**5
|
.1
|
|
Opinion of Dufford &
Brown, P.C.
|
|
*5
|
.2
|
|
Opinion of Fraser Milner Casgrain
LLP.
|
|
*8
|
.1
|
|
Opinion of Hogan &
Hartson LLP as to certain tax matters.
|
|
*23
|
.1
|
|
Consent of Stark Winter
Schenkein & Co., LLP.
|
|
23
|
.2
|
|
Consent of Dufford &
Brown, P.C. (included in Exhibit 5.1)
|
|
23
|
.3
|
|
Consent of Fraser Milner Casgrain
LLP (included in Exhibit 5.2).
|
|
23
|
.4
|
|
Consent of Hogan &
Hartson L.L.P. (included in Exhibit 8.1).
|
|
*23
|
.5
|
|
Consent of Davidson &
Company LLP.
|
|
**23
|
.6
|
|
Consent of Ernst & Young
LLP.
|
|
**23
|
.7
|
|
Consent of Pricewaterhouse Coopers
LLP.
|
|
**23
|
.8
|
|
Consent of Amisano Hanson,
Chartered Accountants.
|
|
24
|
.1
|
|
Power of Attorney (included on
signature page).
|
|
*99
|
.1
|
|
Form of Letter of Acceptance and
Transmittal.
|
|
*99
|
.2
|
|
Form of Notice of Guaranteed
Delivery.
|
|
|
|
* |
|
Filed herewith. |
|
** |
|
To be filed by amendment. |