-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WLqdXf9t25kp8SuOPbonudLTyC7GpIs++svkXxwE9DbKgCmm+fbv6FwKC6I7eh8b HY2MY1A5807jsRRv42Qcmg== 0000908177-04-000005.txt : 20040614 0000908177-04-000005.hdr.sgml : 20040611 20040614160653 ACCESSION NUMBER: 0000908177-04-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20040430 FILED AS OF DATE: 20040614 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STAR RESOURCES CORP CENTRAL INDEX KEY: 0000908177 STANDARD INDUSTRIAL CLASSIFICATION: MINING, QUARRYING OF NONMETALLIC MINERALS (NO FUELS) [1400] IRS NUMBER: 760195574 FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21968 FILM NUMBER: 04861602 BUSINESS ADDRESS: STREET 1: 2000 S DAIRY ASHFORD STREET 2: STE 510 CITY: HOUSTON STATE: TX ZIP: 77077 BUSINESS PHONE: 2818709882 MAIL ADDRESS: STREET 1: 2000 S DAIRY ASHFORD STREET 2: STE 510 CITY: HOUSTON STATE: TX ZIP: 77077 FORMER COMPANY: FORMER CONFORMED NAME: TEXAS STAR RESOURCES CORP DATE OF NAME CHANGE: 19930624 10-Q 1 doc1.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 30, 2004 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 0-21968 JAGUAR RESOURCES CORPORATION (Exact Name of Registrant as Specified in Its Charter) BRITISH COLUMBIA 76-0195574 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 800 Bering, Suite 208 Houston, Texas 77057 (Address of Principal Executive Offices, including Zip Code) (713) 785-1278 (Registrant's Telephone Number, Including Area Code) The registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___________ Shares of Registrant's Common Stock outstanding as of June 9, 2004: 36,305,792
JAGUAR RESOURCES CORPORATION FORM 10-Q TABLE OF CONTENTS PAGE PART I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets - January 31, 2004 and April 30, 2004 (Unaudited) . . . . . . . . . . . . . . . . . . . . 1 Interim Consolidated Statements of Operations and Deficit Accumulated During the Exploration Stage - Three Months Ended April 30, 2004 and 2003 (Unaudited). . . . . . . . . . . . . . . . . . 2 Interim Consolidated Statements of Cash Flows - Three Months Ended April 30, 2004 and 2003 (Unaudited). . . . . . . . . . . . . . . 3 Notes to Interim Consolidated Financial Statements (Unaudited) - April 30, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.. . . . . . . . . . . . . . . . . 10 Item 3. Quantitative and Qualitative Disclosures about Market Risk. . . 12 Item 4. Controls and Procedures . . . . . . . . . . . . . . . . . . . . 13 PART II. Other Information. Item 1. Legal Proceedings.. . . . . . . . . . . . . . . . . . . . . . . 13 Item 2. Changes in Securities and Use of Proceeds . . . . . . . . . . . 13 Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . 13 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . 13 Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . 13 Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . 13 SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
JAGUAR RESOURCES CORPORATION (AN EXPLORATION STAGE ENTERPRISE) CONSOLIDATED BALANCE SHEETS (UNAUDITED) April 30, 2004 January 31, 2004 --------------- ------------------ (In Canadian Dollars) ASSETS Current assets: Cash . . . . . . . . . . . . . . . . . . . . . . $ 1,346,236 $ 1,982,536 Accounts receivable. . . . . . . . . . . . . . . 169,455 109,468 ---------------- ------------------ Total current assets. . . . . . . . . . . . . . . . 1,515,691 2,092,004 ---------------- ------------------ Property, plant and equipment, at cost: Mineral properties and deferred expenditures (Note 3) . . . . . . . . . . . . . 1,196,137 714,283 Equipment and other . . . . . . . . . . . . . . . 76,496 68,788 Accumulated depreciation. . . . . . . . . . . . . (68,000) (63,472) ---------------- ------------------ Total property, plant and equipment, at cost. . . . 1,204,633 719,599 ---------------- ------------------ Other assets. . . . . . . . . . . . . . . . . . . . 8,081 7,826 ---------------- ------------------ Total assets. . . . . . . . . . . . . . . . . . . . $ 2,728,405 $ 2,819,429 ================ ================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities. . . . . $ 435,233 $ 369,714 ---------------- ------------------ Total current liabilities . . . . . . . . . . . . . 435,233 369,714 ---------------- ------------------ Commitments and contingencies (Note 6) Shareholders' equity: Common share capital, no par value: Authorized shares - 100,000,000 Issued and outstanding shares - 36,198,871 (35,748,871 at January 31, 2004) (Note 5). . 35,755,293 35,622,793 Contributed surplus (Note 8). . . . . . . . . . . 209,673 54,403 Deficit accumulated during the exploration stage. (33,671,794) (33,227,481) ---------------- ------------------ Total shareholders' equity. . . . . . . . . . . . . 2,293,172 2,449,715 ---------------- ------------------ Total liabilities and shareholders' equity. . . . . $ 2,728,405 $ 2,819,429 ================ ================== See accompanying notes.
1
JAGUAR RESOURCES CORPORATION (AN EXPLORATION STAGE ENTERPRISE) CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT ACCUMULATED DURING THE EXPLORATION STAGE (UNAUDITED) Three Months Ended April 30, 2004 2003 ------------- ------------- (In Canadian Dollars) Revenues: Interest income. . . . . . . . . . . . . . . . . . . . $ 234 $ 578 Gains on sales of plant and equipment (Note 2) . . . . - 446,647 ------------- ------------- 234 447,225 ------------- ------------- Expenses: General and administrative (Note 7). . . . . . . . . . 479,307 155,686 Finance charges. . . . . . . . . . . . . . . . . . . . 3,150 10,651 Interest expense . . . . . . . . . . . . . . . . . . . - 30,878 Translation (gains) losses . . . . . . . . . . . . . . (37,910) 8,401 ------------- ------------- 444,547 205,616 ------------- ------------- Income (loss) before provision for income taxes. . . . . (444,313) 241,609 Provision for income taxes . . . . . . . . . . . . . . . - - ------------- ------------- Net income (loss). . . . . . . . . . . . . . . . . . . . (444,313) 241,609 Deficit accumulated during the exploration stage at the beginning of the period. . . . . . . . . . . . . . . . (33,227,481) (32,435,553) ------------- ------------- Deficit accumulated during the exploration stage at the end of the period. . . . . . . . . . . . . . . . . . . $(33,671,794) $(32,193,944) ============= ============= Net income (loss) per common share - basic and diluted . $ (0.01) $ 0.01 ============= ============= Weighted-average common shares outstanding . . . . . . . 36,064,427 18,471,459 See accompanying notes.
2
JAGUAR RESOURCES CORPORATION (AN EXPLORATION STAGE ENTERPRISE) CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three Months Ended April 30, 2004 2003 (In Canadian Dollars) OPERATING ACTIVITIES: Net income (loss) . . . . . . . . . . . . . . . . . . . . $ (444,313) $ 241,609 Items not affecting cash: Depreciation . . . . . . . . . . . . . . . . . . . . . 4,528 4,111 Interest expense . . . . . . . . . . . . . . . . . . . - 30,878 Gains on sales of plant and equipment (Note 2) . . . . - (446,647) Stock based compensation (Note 8). . . . . . . . . . . 155,270 - Other. . . . . . . . . . . . . . . . . . . . . . . . . (255) (9) ----------- ---------- (284,770) (170,058) ----------- ---------- Changes in noncash working capital: Accounts receivable. . . . . . . . . . . . . . . . . . (59,987) 24,260 Accounts payable and accrued liabilities . . . . . . . 65,519 (30,571) 5,532 (6,311) ----------- ---------- Net cash used in operating activities . . . . . . . . . . . (279,238) (176,369) ----------- ---------- INVESTING ACTIVITIES: Property acquisition and exploration. . . . . . . . . . . (411,854) - Equipment and other . . . . . . . . . . . . . . . . . . . (7,708) - ----------- ---------- Net cash used in investing activities . . . . . . . . . . . (419,562) - ----------- ---------- FINANCING ACTIVITIES: Proceeds from issuances of common shares. . . . . . . . . 62,500 - Proceeds from sales of plant and equipment (Note 2) . . . - 521,978 ----------- ---------- Net cash provided by financing activities . . . . . . . . . 62,500 521,978 ----------- ---------- Increase (decrease) in cash and temporary cash investments. (636,300) 345,609 Cash and temporary cash investments, beginning of period. . 1,982,536 22,734 ----------- ---------- Cash and temporary cash investments, end of period. . . . . $1,346,236 $ 368,343 =========== ========== See accompanying notes.
3 JAGUAR RESOURCES CORPORATION (AN EXPLORATION STAGE ENTERPRISE) NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) APRIL 30, 2004 1. BASIS OF OPERATIONS Jaguar Resources Corporation ("the Company") is engaged in the business of exploring for and, if warranted, developing mineral properties. The accompanying interim unaudited consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles and comply in all material respects with United States generally accepted accounting principles except as discussed in Note 4. The consolidated financial statements are presented in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission for interim financial information. Accordingly, they do not include all of the information and footnotes required by Canadian and United States generally accepted accounting principles for complete financial statements. In the opinion of management all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended April 30, 2004 are not necessarily indicative of the results that may be expected for the year ended January 31, 2005. SIGNIFICANT ESTIMATES The nature of the Company's operations results in significant expenditures for the acquisition and exploration of properties. None of the Company's properties have been proven to have economically recoverable reserves or proven reserves at the current stage of exploration. Direct acquisitions, evaluation and exploration expenditures are capitalized, reduced by sundry income, to be amortized over the recoverable mineral reserves if a property becomes commercially developed. When an area is disproved or abandoned, the acquisition costs and related deferred expenditures are written off. Management's assessment of the net realizable value of mineral properties and deferred expenditures requires considerable judgment and estimates which could change significantly in the near term. All amounts are in Canadian dollars unless noted otherwise. For further information, refer to the consolidated financial statements and footnotes thereto. 2. MINERAL PROPERTIES AND DEFERRED EXPENDITURES BRAZILIAN PROPERTIES Tocantinzinho Properties In August 2003 the Company acquired a total of 28,275 hectares in the Tapaj s gold district in Para State, Brazil under an option agreement with two individuals. The option agreement entitles the Company to acquire a 100% interest in the Tocantinzinho Properties over a four-year period in consideration for the staged payment of US$465,000, the staged issuance of 2,600,000 shares of the Company and the expenditure of $1,000,000 (U.S.). The Company received approval for the acquisition from the TSX Venture Exchange in August 2003 and made the initial payment required by the option agreement to the optionors, consisting of 1,100,000 common shares of the Company and $75,000 (U.S.). The Company made the second option payment, consisting of 200,000 common shares of the Company and $30,000 (U.S.), in February 2004. The total commitment under the option agreement is as follows (all amounts are in U.S. dollars): $70,000 and 400,000 common shares of the Company, $40,000 and 200,000 common shares of the Company, $130,000 and 200,000 common shares of the Company, and $150,000 and 700,000 common shares of the Company for the 2005, 2006, 2007 and 2008 fiscal years, respectively. As of April 30, 2004, the Company has met the requirement under the option agreement to expend a total of $300,000 (U.S.) by July 31, 2004. 4 JAGUAR RESOURCES CORPORATION (AN EXPLORATION STAGE ENTERPRISE) NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) APRIL 30, 2004 2. Mineral Properties and Deferred Expenditures (continued) Additionally, the option agreement requires the Company to assume all existing obligations of the optionors to the owners of the mineral rights of the Tocantinzinho Properties (the "Underlying Agreements") totaling $1,600,000 (U.S.) over a four-year period. The lease commitments under the Underlying Agreements are as follows (all amounts are in U.S. dollars): $35,000, $80,000, $120,000, $160,000 and $1,205,000 in fiscal years 2004, 2005, 2006, 2007 and 2008, respectively. The Company paid the lease payments totaling $35,000 (U.S.) during fiscal 2004. One of the optionors entered into a consulting agreement with the Company for an 18-month period at a rate of $7,000(U.S.) per month. The payments under the option agreement, the Underlying Agreements and the consulting agreement are considered expenditures for purposes of meeting the required total and initial annual expenditures of $1,000,000 (U.S.) and $300,000 (U.S.) discussed above. The option agreement is cancelable by the Company without obligation other than the initial payment of $75,000 (U.S.) and 1,100,000 shares of the Company and the expenditure of $300,000 (U.S.) by July 31, 2004. The optionors are entitled to a sliding scale net smelter return royalty ranging from 2.5% for gold prices below $400 (U.S.) per ounce and 3.5% for gold prices in excess of $500 (U.S.) per ounce. Royalties will be reduced by the amount of any royalties payable to underlying owners and the Government of Brazil. Mamoal Property The Company acquired the 10,000 hectare Mamoal Property, located 30 kilometers southeast of the Company's Tocantinzinho Properties, in December 2003. The Company has an option to earn 100% of the Mamoal Property by payment of a total of US$300,000 over three and one half years. The Company may terminate the option agreement at any time without further obligation. The initial US$10,000 payment was made by the Company in December 2003, and the exploration research license has been transferred to Jaguar Resources do Brasil Ltda. The remaining lease commitments are as follows: US$25,000, US$45,000, US$65,000, and US$155,000 in fiscal years ending January 31, 2005, 2006, 2007 and 2008, respectively. The Company may acquire the Mamoal Property at any time by accelerating the lease payments. ARKANSAS PROPERTIES The Company maintained interests in several Arkansas Properties during the period from fiscal 1993 through fiscal 2003. In December 2002, based upon the cumulative exploration results obtained on the Arkansas Properties, the Company made the decision to cease operations in Arkansas. American Mine Property Pursuant to an agreement dated November 4, 1992, DEI was granted a permit to explore a mineral property located in Pike County, Arkansas. The Company's Plant was located on this leased property. The Company leased the property and conducted exploration activities during certain periods from 1992 to 2002. The lease payment of $47,500(U.S.) on the American Property, due November 1, 2002, was not made by the Company. In March 2003 the Company sold the Plant to a third party for $350,000 (U.S.). In conjunction with the sale, the third party paid the lessor of the American Mine Property $47,500 (U.S.) on behalf of the Company in order to extend the Company's lease on the property through October 31, 2003. The Company recorded a reserve for leasehold reclamation costs during the quarter ended April 30, 2003 of approximately $70,000, representing the estimated costs of the Company's obligation to restore the Arkansas properties to their original condition prior to lease expiration and to perform reclamation activities as required by Arkansas regulatory authorities. The reserve for leasehold reclamation was increased during the fourth quarter of fiscal 2004 to approximately $150,000 based upon a revision in the estimate discussed above. The Company allowed the lease to expire effective November 1, 2003. 5 JAGUAR RESOURCES CORPORATION (AN EXPLORATION STAGE ENTERPRISE) NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) APRIL 30, 2004 2. Mineral Properties and Deferred Expenditures (continued) Mineral properties and deferred expenditures were as follows:
BALANCE AT BALANCE AT JANUARY 31 IMPAIRED APRIL 30, 2004 ADDITIONS WRITE-OFFS 2004 ---------- --------- ---------- ---------- Brazilian Properties Tocantinzinho Properties: Acquisition costs. . $527,345 $137,285 $ - $ 664,630 Exploration costs. . 173,788 344,298 - 518,086 ---------- --------- ---------- ---------- 701,133 481,583 - 1,182,716 ---------- --------- ---------- ---------- Mamoal Property: Acquisition costs. . 13,150 271 - 13,421 Exploration costs. . - - - - ---------- --------- ---------- ---------- 13,150 271 - 13,421 ---------- --------- ---------- ---------- Total acquisition costs. . . 540,495 137,556 - 678,051 Total exploration costs. . . 173,788 344,298 - 518,086 ---------- --------- ---------- ---------- Total costs. . . . . . . . . $714,283 $481,854 $ - $1,196,137 ========== ========= ========== ==========
3. DEBENTURES In fiscal 2002, the Company completed the issuance of $1,278,595 principal amount of 10% secured convertible debentures ("the Debentures"). The Debentures were convertible into units at the rate of one unit for each $2.87 principal amount of the Debentures until February 16, 2003. Each unit was to consist of one common share of the Company and one share purchase warrant with an exercise price of $3.15, exercisable through August 16, 2003. The conversion and share purchase warrant prices above were adjusted to reflect the Company's seven for one share consolidation on November 27, 2001. On February 11, 2003, the holders of the Debentures approved the amendment of the conversion price of the units to $0.30 and the extension of the maturity date of the Debentures to February 16, 2004. As amended, each of the 4,261,976 units consisted of one common share of the Company and one share purchase warrant with an exercise price of $0.30, exercisable through February 16, 2004. Additionally, the terms of the Debenture were amended to include a mandatory conversion provision of all Debentures and exercise of all related warrants within 30 days after the closing price of the Company's common shares has exceeded $0.375 for ten consecutive trading days. Interest at the rate of 10% was payable on conversion or maturity in cash, or at the election of the Company, in common shares valued at the weighted average trading price of the common shares of the Company for the ten trading days preceding the interest payment date. The Debentures were secured by a general security interest in the Company's current and future assets and by the stock of Star U.S., Inc. ("Star"), a wholly owned subsidiary of the Company, and a wholly-owned subsidiary of Star. During fiscal 2004, several holders of the Debentures elected to convert a total of $197,000 principal amount and received 656,666 common shares and 656,666 common share purchase warrants with exercise prices of $0.30. Additionally, during the third quarter of fiscal 2004, a director of the Company elected to convert $97,000 principal amount and received 323,333 common shares. 6 JAGUAR RESOURCES CORPORATION (AN EXPLORATION STAGE ENTERPRISE) NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) APRIL 30, 2004 3. DEBENTURES (CONTINUED) Effective October 31, 2003 a total of $984,595 principal amount of Debentures were automatically converted into 3,281,977 units of the Company in accordance with the February 11, 2003 amendments discussed in the third preceding paragraph. Each unit consisted of one common share and one common share purchase warrant with exercise prices of $0.30. Additionally, under terms of the mandatory conversion provision, the expiration date of all warrants issued upon conversion of the Debentures was established as December 1, 2003. During the fourth quarter of fiscal 2004, the Company received a total of $937,593, representing the exercise price of 3,125,311 warrants, and issued 3,125,311 common shares. A total of 813,332 common share warrants expired unused on December 1, 2003.During fiscal 2004, a total of $335,075 of interest accrued on the principal amounts converted during fiscal 2004 was paid via the issuance of a total of 1,129,522 shares, representing the conversion of the interest amounts at weighted average prices from $0.17 to $0.33 per share. 4. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") The consolidated financial statements have been prepared in accordance with Canadian GAAP, which differs in some respects from United States GAAP. The material differences in respect to these financial statements between Canadian and United States GAAP, and their effect on the Company's financial statements, are summarized below. Mineral Properties and Deferred Expenditures Under United States GAAP, the preferred method for accounting for evaluation and exploration costs on properties without proven and probable reserves is to expense all costs incurred, other than acquisition costs, prior to the establishment of proven and probable reserves. The effect of the application of this method to the financial statements would be to increase net loss by approximately $344,000 for the three months ended April 30, 2004 and to decrease mineral properties and deferred expenditures by $344,000 as of April 30, 2004. The application of this method to the financial statements dated April 30, 2003 would not require adjustment to the financial statements. Foreign Currency Translation Under United States GAAP, shareholders' equity would reflect foreign currency translation gains of approximately $15,300 and $45,700 at January 31, 2004 and April 30, 2004, respectively. 5. SHARE CAPITAL On January 29, 2002 the Company completed a private placement of 5,691,376 units at a price of $0.20 per unit, each unit to consist of one common share and one share purchase warrant with an exercise price of $0.25 per unit. The share purchase warrants had an expiration date of January 29, 2003, which was extended during fiscal 2003 to January 29, 2004. A total of 5,669,101 warrants were exercised in January 2004, and the Company received total exercise proceeds of $1,417,275. A total of 22,275 warrants expired unused on January 29, 2004. On September 18, 2002, the Company completed a private placement of 2,819,774 units at a price of $0.20 per unit, each unit consisting of one common share and one share purchase warrant with an exercise price of $0.25 per unit. The share purchase warrants have an expiration date of September 18, 2004. The Company received a total of $563,955 during fiscal 2003 representing subscriptions for the private placement. Included in that amount was a total of $85,240 representing subscriptions for 426,200 units by three of the Company's directors. During the quarter ended April 30, 2004, 250,000 common share warrants were exercised, and the Company received total exercise proceeds of $62,500. As of April 30, 2004, 2,569,774 warrants were outstanding. 7 JAGUAR RESOURCES CORPORATION (AN EXPLORATION STAGE ENTERPRISE) NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) APRIL 30, 2004 5. SHARE CAPITAL (CONTINUED) As of April 30, 2004, the Company had a total of 4,449,054 options outstanding at prices ranging from $0.10 to $0.49. On June 10, 2004, employees and directors elected to exercise 950,000 common share options at prices ranging from $0.10 to $0.49, and the Company received exercise proceeds totaling approximately $580,000. On June 11, 2004, the Company issued a total of 950,000 common share options with a five-year term and an exercise price of $0.92 to employees, directors and consultants. 6. COMMITMENTS AND CONTINGENCIES Except as described below, there are no material pending legal proceedings to which the Company or any of its subsidiaries is a party or to which any of their property is subject. On May 15, 1998, a legal action styled James Cairns and Stewart Jackson vs. ------------------------------------ Texas Star Resources Corporation d/b/a Diamond Star, Inc. was filed in the 215th ----------------------------------------------------- Judicial District Court of Harris County, Texas, Cause No. 9822760 wherein the Plaintiffs allege, among other things, that the Company breached contractual agreements and committed fraud by not timely releasing or causing to be released from an escrow account required by Canadian law certain shares of the Company to which Plaintiffs allege that they were entitled to receive in calendar 1995 and, as a result of the Company's alleged actions with respect to the release of such shares, the Plaintiffs sought monetary damages for losses in share value, attorney's fees, court costs, expenses, interest and exemplary damages. In 1999, the litigation against the Company in Houston, Harris County, Texas, was dismissed by the court with prejudice, leaving only the claims of James M. Cairns, Jr. pending in British Columbia, which is generally described below. The legal action in Texas is similar to one filed against the Company in the Supreme Court of British Columbia, Canada, in August 1996 styled Cause No. C96493; James M. Cairns, Jr. vs. Texas Star Resources Corporation. In January ---------------------------------------------------------- 1993, the Plaintiffs were issued common stock of the Company in escrow which shares were to be released based on exploration expenditures by the Company on certain of its properties in Arkansas. The escrow requirements were imposed by the Vancouver Stock Exchange. Plaintiffs requested that all of the shares be released in 1995. At that time the Company believed that the release of said shares when requested by the Plaintiffs was inappropriate due to legal requirements and regulatory concerns. The shares were subsequently released to the Plaintiffs. The Company intends to vigorously defend the allegations of the Plaintiffs in the pending litigation in British Columbia and in Texas (if the case is appealed or refiled) and believes it has meritorious defenses to such claims. No proceedings in the action in British Columbia have been taken by the Plaintiff since March 30, 2000. However, the Company cannot provide any assurances that it will be successful, in whole or in part, with respect to its defense of the claims of the Plaintiffs. If the Company is not successful, any judgment obtained by Plaintiffs could have a material and adverse effect on its financial condition. (This portion of the page is intentionally left blank.) 8 JAGUAR RESOURCES CORPORATION (AN EXPLORATION STAGE ENTERPRISE) NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) APRIL 30, 2004 7. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses consisted of the following:
Three Months Ended April 30, 2004 2003 -------- -------- Consulting fees . . . . $ 77,349 $ 2,415 Depreciation expense. . 4,528 4,111 Entertainment . . . . . 4,564 3,703 Office expenses . . . . 22,852 7,770 Professional fees . . . 23,657 20,253 Rent. . . . . . . . . . 7,022 7,633 Repairs and maintenance - 4,501 Salary. . . . . . . . . 263,999 88,257 Shareholder relations . 53,500 831 Travel. . . . . . . . . 21,836 9,460 Utilities . . . . . . . - 6,752 -------- -------- Total . . . . . . . . $479,307 $155,686 ======== ========
8. STOCK BASED COMPENSATION Commencing February 1, 2004, in accordance with Handbook Section 3870 of the Canadian Institute of Chartered Accountants, the Company has recorded stock based compensation to employees, directors and consultants on a fair value basis, as follows:
2004 2003 Consulting $ 25,017 $ - Salaries . 130,253 - -------- -------- $155,270 $ - ======== ========
These amounts have been recorded using the Black Scholes valuation model with the following variables: risk-free interest rate, 3.5%; expected life, 3.5 years; volatility, 160%; weighted average fair value per option grant, $0.29. 9 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements in this Form 10-Q under "Part I - Item 1. Financial Information," "Part I - Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations," "Part II - Item 1. Legal Proceedings" and elsewhere constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions; competition; success of operating initiatives; the success (or lack thereof) with respect to the Company's exploration and development operations on its properties; the Company's ability to raise capital and the terms thereof; the acquisition of additional mineral properties; changes in business strategy or development plans; exploration and other property writedowns; the continuity, experience and quality of the Company's management; changes in or failure to comply with government regulations or the lack of government authorization to continue certain projects; the outcome of litigation matters, and other factors referenced from time to time in the Company's filings with the Securities and Exchange Commission. The use in this Form 10-Q of such words as "believes", "plans", "anticipates", "expects", "intends" and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. The success of the Company is dependent on the efforts of the Company, its employees and many other factors including, primarily, its ability to raise additional capital and establishing the economic viability of any of its exploration properties. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND ----------------------------------------------------------------- RESULTS OF OPERATIONS ----------------------- Results of Operations - For the Three Month Periods Ended April 30, 2004 and 2003 All dollar amounts referred to herein are in Canadian Dollars unless otherwise stated. As of June 9, 2004, the exchange rate is $1.00 (Canadian) = $0.7385 (U.S.) The Company is in the exploration stage and has no revenues from operations other than rental income related to the Diamond Recovery Plant, totaling approximately $1,079,000 from inception through March 2003, when the Plant was sold. None of its Properties have proven to be commercially developable to date and as a result the Company has not generated any revenue from these activities. The Company's existing Properties are gold prospects in Brazil, as discussed in Note 2, which were acquired during fiscal 2004. The Company capitalizes expenditures associated with the direct acquisition, evaluation and exploration of mineral properties. When an area is disproved or abandoned, the acquisition costs and related deferred expenditures are written-off. The net capitalized cost of each mineral property is periodically compared to management's estimation of the net realizable value and a write-down is recorded if the net realizable value is less than the cumulative net capitalized costs. As discussed in Note 2, during fiscal 2003 the Company decided to cease exploration activities in Arkansas due to disappointing exploration results, and the total of $3,141,726 of accumulated capitalized costs related to the Arkansas leases were written off. The Company has recorded cumulative write-offs of mineral properties of $15,306,613 during its exploration stage, a period of approximately fifteen years, and cumulative writedowns of property, plant and equipment of $3,614,952. During the quarter ended April 30, 2004, the Company's mineral properties and deferred expenditures increased to $1,196,137 from $714,283 primarily as a result of acquisition costs totaling $137,285 and exploration costs totaling $344,298 related to the activities on the Company's Tocantinzinho Properties. The Company completed its Phase One drilling program on the Tocantinzinho Properties in May 2004. The Phase One drilling program consisted of 8 inclined diamond drill holes totaling approximately 1700 meters. Based upon the positive results of the Phase One drilling program, which may be viewed in detail at the Company's website (www.jaguarresources.com), Company management commenced the second phase drilling program totaling 2000-3000 in the second fiscal quarter of 2005. 10 The Company had no significant revenues during the quarter ended April 30, 2004. The Company's revenues during the three months ended April 30, 2003 are primarily comprised of the gain from the sale of the diamond sorting and recovery plant ("the Plant"). The Plant was sold to a third party for US$350,000 and was fully depreciated at disposal. As discussed in Note 2, the Plant is located on the American Mine Property, and a reserve for leasehold improvements totaling approximately $150,000 is included in accounts payable and accrued liabilities as of April 30, 2004. The Company has not received any revenues from mining operations from inception. General and administrative expenses for the quarter ended April 30, 2004 increased by approximately $324,000 or 208% compared to the quarter ended April 30, 2003. This increase was primarily due to the increased activity surrounding the Phase One drilling program, which was in process throughout the first quarter of fiscal 2005. In contrast, during the first quarter of fiscal 2004, the Company was engaged in the acquisition of the Brazilian Properties and had not begun exploration activities. Another reason for the increase in general and administrative expenses from the quarter ended April 30, 2003 to the quarter ended April 30, 2004 was the stock compensation expense totaling $155,270, which was recorded in the first fiscal quarter of 2005 and is discussed in Note 8 above. The Company anticipates that general and administrative expenses during the remaining nine months of fiscal 2005 will remain consistent with the level experienced in the first quarter of fiscal 2005. FINANCIAL CONDITION; LIQUIDITY AND CAPITAL RESOURCES. As of April 30, 2004 and January 31, 2004, the Company had working capital of $1,080,458 and $1,722,290, respectively. At April 30, 2004, the Company had current assets of $1,515,691, including $1,346,236 in cash, compared to total current liabilities of $435,233. In the first quarter of fiscal 2002, the Company completed the issuance of $1,278,595 principal amount of 10% secured convertible debentures ("the Debentures"). The Debentures were convertible into units at the rate of one unit for each $2.87 principal amount of the Debentures until February 16, 2003. Each unit was to consist of one common share of the Company and one share purchase warrant with an exercise price of $3.15, exercisable through August 16, 2003. The conversion and share purchase warrant prices above were adjusted to reflect the Company's seven for one share consolidation on November 27, 2001. On February 11, 2003, the holders of the Debentures approved the amendment of the conversion price of the units to $0.30 and the extension of the maturity date of the Debentures to February 16, 2004. As amended, each of the 4,261,983 units would consist of one common share of the Company and one share purchase warrant with an exercise price of $0.30, exercisable through February 16, 2004. Upon conversion, $97,000 principal amount of the Debentures held by a director will be convertible only into common shares of the Company on the basis on one share for each $0.30 principal amount. Additionally, the terms of the Debenture were amended to include a mandatory conversion provision which will require conversion of all Debentures and exercise of all related warrants within 30 days after the closing price of the Company's common shares has exceeded $0.375 for ten consecutive trading days. Interest at the rate of 10% was payable on conversion or maturity in cash, or at the election of the Company, in common shares valued at the weighted average trading price of the common shares of the Company for the ten trading days preceding the interest payment date. The Debentures were secured by a general security interest in the Company's current and future assets and by the stock of Star U.S., Inc. ("Star"), a wholly owned subsidiary of the Company, and a wholly-owned subsidiary of Star. During fiscal 2004, several holders of the Debentures elected to convert a total of $197,000 principal amount and received 656,666 common shares and 656,666 common share purchase warrants with exercise prices of $0.30. Additionally, during the third quarter of fiscal 2004, a director of the Company elected to convert $97,000 principal amount and received 323,333 common shares. 11 Effective October 31, 2003 a total of $984,595 principal amount of Debentures were automatically converted into 3,281,977 units of the Company in accordance with the February 11, 2003 amendments discussed in the third preceding paragraph. Each unit consisted of one common share and one common share purchase warrant with an exercise price of $0.30. Additionally, under the terms of the mandatory conversion provision, the expiration date of all warrants issued upon conversion of the Debentures was established as December 1, 2003. During the fourth quarter of fiscal 2004, the Company received a total of $937,593, representing the exercise price of 3,125,311 warrants, and issued 3,125,311 common shares. A total of 813,332 common share warrants expired unused on December 1, 2003. During fiscal 2004, a total of $335,075 of interest accrued on the principal amounts converted in fiscal 2004 was paid via the issuance of a total of 1,122,522 shares, representing the conversion of the interest amounts at weighted average prices from $0.17 to $0.33 per share. The Company received $563,955 during fiscal 2003, representing subscriptions for a private placement of the Company's common shares. A total of 2,819,774 units were issued in the private placement at a price of $0.20 per unit, each unit to consist of one common share and one share purchase warrant with an exercise price of $0.25. The share purchase warrants have an expiration date of September 17, 2004. During the quarter ended April 30, 2004, 250,000 common share warrants were exercised, and the Company received total exercise proceeds of $62,500. As of April 30, 2004, 2,569,774 warrants were outstanding. The Company received approximately $1,138,000 during fiscal 2002 representing subscriptions for a private placement of the Company's common shares. A total of 5,691,376 units were issued at a price of $0.20 per unit, each unit to consist of one common share and one share purchase warrant with an exercise price of $0.25. The share purchase warrants originally had an expiration date of January 29, 2003, and that date was extended during fiscal 2003 to January 29, 2004. A total of 5,669,101 warrants were exercised in January 2004, and the Company received total exercise proceeds of $1,417,275. A total of 22,275 warrants expired unused on January 29, 2004. All financings described herein were private placements and were made pursuant to the private placement laws of Canada and pursuant to the exemptions provided by Section 4(2) and Regulation S under the United States Securities Act of 1933. The Debentures were offered to a limited number of accredited investors in the United States and Canada pursuant to Rule 506 of Regulation D and Regulation S. The Company has no properties that have proven to be commercially developable and has no revenues from mining operations other than the rentals received from the Plant and the proceeds from the sales of the Plant and related equipment. The rights and interests in the Tocantinzinho and Mamoal Properties in Brazil constitute the Company's current mineral holdings. The Company cannot estimate with any degree of certainty either the time or the amount of funds that will be required to acquire and conduct additional exploration activities on new prospects. The Company intends to seek additional equity financing during fiscal 2005, including the potential exercise of outstanding warrants and options. The inability of the Company to raise further equity financing will adversely affect the Company's business plan, including its ability to acquire additional properties and perform exploration activities on existing properties. If additional equity is not available, the Company may seek additional debt financing or seek exploration partners to assist in funding acquisition or exploration efforts. Historically, the Company has been able to successfully raise capital as required for its business needs; however, no assurances are made by the Company that it can continue to raise debt or equity capital for a number of reasons including its history of losses and property writedowns, the decline in the price of its common stock, the number of shares outstanding and the Company's limited and speculative asset base of exploration properties and prospects. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. ----------------------------------------------------------------- Not applicable. 12 ITEM 4. CONTROLS AND PROCEDURES. --------------------------- (a) Evaluation of disclosure controls and procedures. The term "disclosure controls and procedures" (defined in SEC rule 13a-14(c)) refers to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized and reported within required time periods. The Company's Chairman, who also serves as the Company's principal financial officer, has evaluated the effectiveness of the Company's disclosure controls and procedures as of a date within 90 days before the filing of this quarterly report, and he concluded that, as of such date, the Company's controls and procedures were effective. (b) Changes in internal controls. The Company maintains a system of internal accounting controls that are designed to provide reasonable assurance that its books and records accurately reflect its transactions and that established policies and procedures are followed. There were no significant changes to the Company's internal controls or in other factors that could significantly affect its internal controls subsequent to such evaluation. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. ------------------- Except as described in "Part I - Item 1 - Financial Information - Note 6 of Notes to Interim Consolidated Financial Statements (Unaudited)" which description is incorporated in its entirety by this reference into this part, there are no material pending legal proceedings to which the Company or any of its subsidiaries is a party or to which any of their property is subject. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. ------------------------------------------------ Any issuances or sales of equity securities resulting in cash proceeds to the Company described in "Part 1. Item 2. Liquidity and Capital Resources", were made in reliance on exemptions from registration provided by Regulation D, Regulation S and/or Section 4(2) of the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. ----------------------------------- Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. ------------------------------------------------------------ Not applicable. ITEM 5. OTHER INFORMATION. ------------------- Not applicable. - ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. -------------------------------------- (a) Exhibits. See Index of Exhibits. 13 (b) Reports on Form 8-K. None. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. JAGUAR RESOURCES CORPORATION (Registrant) Dated: June 14, 2004 By: /s/ Mark E. Jones, III -------------------------- MARK E. JONES, III Chairman (and principal financial officer) 14 CERTIFICATION ------------- I, Mark E. Jones, III, Chairman of Jaguar Resources Corporation, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Jaguar Resources Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report my conclusions about the effectiveness of the disclosure controls and procedures based on my evaluation as of the Evaluation Date; 5. I have disclosed, based on my most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of my most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: June 14, 2004 /s/ Mark E. Jones, III -------------------------- Mark E. Jones, III Chairman (and principal financial officer) 15 INDEX OF EXHIBITS
Exhibit No. Description of Exhibits - ----------- ----------------------- 99 Certification of Chairman pursuant to 18 U.S.C. Section 1350, as adopted pursuant to . . . . . Section 906 of the Sarbanes-Oxley Act of 2002.
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