-----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, C38JvbWYU6uMtWBobkA5ld+RHm6C4F/e3yjnhbJImXAfkFT1FSEhiOG4hw0/F9Ok NEV3EjH6HXDeQF9dU+7Mrw== 0000908177-05-000006.txt : 20050615 0000908177-05-000006.hdr.sgml : 20050614 20050614210133 ACCESSION NUMBER: 0000908177-05-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20050430 FILED AS OF DATE: 20050615 DATE AS OF CHANGE: 20050614 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRAZAURO 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: 05896203 BUSINESS ADDRESS: STREET 1: 800 BERING STREET 2: STE 208 CITY: HOUSTON STATE: TX ZIP: 77057 BUSINESS PHONE: 7137851278 MAIL ADDRESS: STREET 1: 800 BERING STREET 2: STE 208 CITY: HOUSTON STATE: TX ZIP: 77057 FORMER COMPANY: FORMER CONFORMED NAME: STAR RESOURCES CORP DATE OF NAME CHANGE: 19970529 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, 2005 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 0-21968 BRAZAURO 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) 1500 - 701 West Georgia Street Vancouver, BC, Canada V7Y 1C6 (Address of Principal Executive Offices, including Zip Code) (604) 689-1832 (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, 2005: 45,527,208
BRAZAURO RESOURCES CORPORATION FORM 10-Q TABLE OF CONTENTS PAGE PART I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets - January 31, 2005 and April 30, 2005 (Unaudited). . . . . . . . . . . . . . . . . . . 1 Interim Consolidated Statements of Operations - Three Months Ended April 30, 2005 and 2004 (Unaudited) . . . . . . . . . . . . . . . . 2 Interim Consolidated Statements of Shareholders' Equity - January 31, 2004, January 31, 2005 and April 30, 2005 (Unaudited) 3 Interim Consolidated Statements of Cash Flows - Three Months Ended April 30, 2005 and 2004 (Unaudited) . . . . . . . . . . . . . 4 Notes to Interim Consolidated Financial Statements (Unaudited) - April 30, 2005 and 2004 . . . . . . . . . . . . . . . . . . . . . . 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . . . . . . 13 Item 3. Quantitative and Qualitative Disclosures about Market Risk . . 15 Item 4. Controls and Procedures. . . . . . . . . . . . . . . . . . . . 15 PART II. Other Information. Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 15 Item 2. Changes in Securities and Use of Proceeds. . . . . . . . . . . 16 Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . . 16 Item 4. Submission of Matters to a Vote of Security Holders. . . . . . 16 Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . 16 Item 6. Exhibits and Reports on Form 8-K.. . . . . . . . . . . . . . . 16 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
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BRAZAURO RESOURCES CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) April 30, 2005 January 31, 2005 ---------------- ------------------ (In Canadian Dollars) ASSETS Current assets: Cash and cash equivalents . . . . . . . . . . $ 2,937,137 $ 3,557,214 Accounts receivable . . . . . . . . . . . . . 88,122 87,443 ---------------- ------------------ Total current assets . . . . . . . . . . . . . . 3,025,259 3,644,657 ---------------- ------------------ Property and equipment, at cost: Mineral properties and deferred expenditures (Note 2). . . . . . . . . . . . 3,126,295 2,817,746 Equipment and other. . . . . . . . . . . . . . 58,279 80,887 Accumulated depreciation . . . . . . . . . . . (21,367) (70,561) ---------------- ------------------ Total property and equipment, at cost. . . . . . 3,163,207 2,828,072 ---------------- ------------------ Other assets . . . . . . . . . . . . . . . . . . 7,415 8,874 ---------------- ------------------ Total assets . . . . . . . . . . . . . . . . . . $ 6,195,881 $ 6,481,603 ================ ================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities . . . $ 130,895 $ 206,011 Asset retirement obligations . . . . . . . . . 142,395 142,554 ---------------- ------------------ Total current liabilities. . . . . . . . . . . . 273,290 348,565 ---------------- ------------------ Commitments and contingencies (Note 4) Shareholders' equity: Common share capital, no par value: Authorized shares - 100,000,000 Issued and outstanding shares - 45,517,208 (44,869,716 at January 31, 2005) (Note 3) 41,869,737 41,536,205 Contributed surplus (Note 6) . . . . . . . . . 2,863,696 2,131,304 Deficit (38,810,842) (37,534,471) ---------------- ------------------ Total shareholders' equity . . . . . . . . . . . 5,922,591 6,133,038 ---------------- ------------------ Total liabilities and shareholders' equity . . . $ 6,195,881 $ 6,481,603 ================ ================== See accompanying notes.
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BRAZAURO RESOURCES CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended April 30, 2005 2004 ------------ ------------ (In Canadian Dollars) Revenues: Interest income. . . . . . . . . . . . . . . $ 13,885 $ 234 Gain on sale of equipment. . . . . . . . . . 1,202 - ------------ ------------ 15,087 234 ------------ ------------ Expenses: General and administrative (Notes 5 and 6) . 1,314,926 479,307 Finance charges. . . . . . . . . . . . . . . 6,204 3,150 Foreign exchange translation (gains) losses. (29,672) (37,910) ------------ ------------ 1,291,458 444,547 ------------ ------------ Net loss before provision for income taxes . . (1,276,371) (444,313) ------------ ------------ Provision for income taxes . . . . . . . . . . - - ------------ ------------ Net loss for the period. . . . . . . . . . . . $(1,276,371) $ (444,313) ============ ============ Basic and diluted net loss per common share. . $ (0.03) $ (0.01) Weighted-average common shares outstanding . . 45,195,594 36,064,427 See accompanying notes.
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BRAZAURO RESOURCES CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED) (In Canadian Dollars) Total Common Shares Contributed Shareholders' Number Amount Surplus Deficit Equity -------------- ------------ --------------- ------------- -------------- Balance at January 31, 2004 . . 35,748,871 $ 35,819,799 $ 423,232 $(33,793,316) $ 2,449,715 Issued for cash, net of share issue cost. . . . . . . . . . 4,262,500 3,848,675 - - 3,848,675 Issued for property acquisition 400,000 270,000 - - 270,000 Issued on exercise of warrants. 2,819,774 704,943 - - 704,943 Stock-based compensation. . . . - - 2,123,283 - 2,123,283 Issued on exercise of stock options . . . . . . . . . . . 1,638,571 892,788 (415,211) - 477,577 Net loss for the year . . . . . - - - (3,741,155) (3,741,155) -------------- ------------ --------------- ------------- ------------ Balance at January 31, 2005 . . 44,869,716 41,536,205 2,131,304 (37,534,471) 6,133,038 Issued on exercise of warrants. 44,635 46,867 - - 46,867 Stock-based compensation. . . . - - 865,748 - 865,748 Issued on exercise of stock options . . . . . . . . . . . 602,857 286,665 (133,356) - 153,309 Net loss for the period . . . . - - - (1,276,371) (1,276,371) -------------- ------------ --------------- ------------- ------------ Balance at April 30, 2005 . . . 45,517,208 $ 41,869,737 $ 2,863,696 $(38,810,842) $ 5,922,591 ============== ============ =============== ============= ============ See accompanying notes.
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BRAZAURO RESOURCES CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three Months Ended April 30, 2005 2004 ------------- -------------- (In Canadian Dollars) Operating activities: Net loss. . . . . . . . . . . . . . . . . . . . $(1,276,371) $ (444,313) Items not affecting cash: Depreciation . . . . . . . . . . . . . . . . 1,880 4,528 Gain on sale of equipment. . . . . . . . . . (1,202) - Stock based compensation (Note 6). . . . . . 865,748 155,270 ------------ ----------- (409,945) (284,515) ------------ ----------- Changes in noncash working capital: Accounts receivable. . . . . . . . . . . . . 2,037 (54,629) Accounts payable and accrued liabilities . . (77,843) 54,382 ------------ ----------- (75,806) (247) ------------ ----------- Net cash used in operating activities . . . . . . (485,751) (284,762) Investing activities: Mineral property acquisition and exploration. . (308,549) (411,854) Equipment and other . . . . . . . . . . . . . . (28,466) (7,708) ------------ ----------- Net cash used in investing activities . . . . . . (337,015) (419,562) ------------ ----------- Financing activities: Proceeds from issuances of common shares. . . . 200,176 62,500 Proceeds from sale of equipment . . . . . . . . 1,202 - ------------ ----------- Net cash provided by financing activities . . . . 201,378 62,500 Effect of exchange rate changes on cash . . . . . 1,311 5,524 ------------ ----------- Decrease in cash and cash equivalents. (620,077) (636,300) Cash and cash equivalents, beginning of period. . 3,557,214 1,982,536 ------------ ----------- Cash and cash equivalents, end of period. . . . . $ 2,937,137 $1,346,236 ============ =========== See accompanying notes. See Note 9 for supplemental cash flow disclosure and non-cash investing and financing activities.
4 BRAZAURO RESOURCES CORPORATION NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN CANADIAN DOLLARS) APRIL 30, 2005 AND 2004 1. BASIS OF OPERATIONS Brazauro 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 7. 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. This report on Form 10-Q should be read in conjunction with the Company's financial statements and notes thereto included in the Company's Form 10-K for the fiscal year ended January 31, 2005. The Company assumes that the users of the interim financial information herein have read or have access to the audited financial statements for the preceding fiscal year and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. 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, 2005 are not necessarily indicative of the results that may be expected for the year ended January 31, 2006. 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. The recoverability of the carrying value of mineral properties and deferred expenditures is dependent upon a number of factors including the existence of recoverable reserves, the ability of the Company to obtain financing to renew leases and continue exploration and development, and the discovery of recoverable reserves. GOING CONCERN The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company anticipates that cash and cash equivalents as of April 30, 2005 will be sufficient to satisfy the Company's cash needs for general and administrative expenses during the remaining three quarters of fiscal 2006. The Company has incurred operating losses and will require additional cash to obtain new leases and fund exploration activities during the remaining three quarters of fiscal 2006. If continued financial support or additional financing is not available, there would be doubt about the Company's ability to continue as a going concern. These consolidated financial statements do not include any adjustments that may be required in the event that the Company is unable to realize its assets and settle its liabilities in the normal course of operations. Certain amounts in the financial statements for the quarter ended April 30, 2004 have been reclassified to conform to the presentation as of April 30, 2005. All amounts are in Canadian dollars unless noted otherwise. For further information, refer to the consolidated financial statements and footnotes thereto. 5 BRAZAURO RESOURCES CORPORATION NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) (IN CANADIAN DOLLARS) APRIL 30, 2005 AND 2004 2. MINERAL PROPERTIES AND DEFERRED EXPENDITURES The Company cannot guarantee title to all of its Properties as the Properties may be subject to prior unregistered agreements or transfers or native land claims, and title may be affected by undetected defects. The Company does not maintain title insurance on its properties. BRAZILIAN PROPERTIES Tocantinzinho Properties In August 2003 the Company entered into an option to acquire exploration rights to a total of 28,275 hectares in the Tapajos 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 exploration rights to such area (referred to herein as 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.) on exploration ($300,000 (U.S.) by July 31, 2004). 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. In August 2004, the Company made the third option payment of 200,000 common shares of the Company and $40,000 (U.S.). As of April 30, 2005, the total commitment remaining under the option agreement is as follows (all amounts are in U.S. dollars): $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 2006, 2007 and 2008 fiscal years, respectively. 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. At April 30, 2005, the remaining payment commitments under the Underlying Agreements are as follows (all amounts are in U.S. dollars): $65,000, $160,000 and $1,205,000 in fiscal years 2006, 2007 and 2008, respectively. The Company made payments totaling $35,000 (U.S.), $80,000 and $55,000 (U.S.) in respect of the Underlying Agreements during fiscal 2004, 2005 and 2006, respectively. 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 which expired during fiscal 2005. 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.), respectively, discussed above. During fiscal 2005 the Company met the requirement under the option agreement to expend a total of $300,000 (U.S.) and met the requirement to expend $1,000,000 (U.S.) on exploration. The Company has met its first year commitments under the option agreement, and the option agreement is cancelable by the Company without further obligations. The optionors are entitled to a sliding scale gross revenues royalty ranging from 2.5% for gold prices below $400 (U.S.) per ounce to 3.5% for gold prices in excess of $500 (U.S.) per ounce. The Company has filed applications for exploration licenses with the regulatory authorities in Brazil and has received final approval on several claim areas. The Company anticipates it will receive final approval on the remaining claim areas in fiscal 2006. In May 2004 the Company applied for exploration permits for an additional 16,000 hectares adjacent to the above Tocantinzinho Properties. The Company has agreed to make payments totaling $300,000 (U.S.) over a period of approximately four 6 BRAZAURO RESOURCES CORPORATION NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) (IN CANADIAN DOLLARS) APRIL 30, 2005 AND 2004 2. MINERAL PROPERTIES AND DEFERRED EXPENDITURES (CONTINUED) years to an individual as a finder's fee related to this 16,000 hectare property. This additional property is not subject to the option agreement and therefore is not subject to the royalty. Mamoal Property The Company entered into an option agreement under which it may acquire the exploration license to 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 $300,000 (U.S.) over three and one half years. The Company may terminate the option agreement at any time without further obligation. An initial $10,000 (U.S.) payment was made by the Company in December 2003, and the exploration research license has been transferred to Jaguar Resources do Brasil Ltda. During fiscal 2005, the Company made payments under the option agreement totaling $25,000 (U.S.). The remaining option payments are as follows (all amounts are in U.S. dollars): $45,000, $65,000, and $155,000 in fiscal years ending January 31, 2006, 2007 and 2008, respectively. The Company may acquire the Mamoal Property at any time by accelerating the option payments. The Company has received the exploration license from the Brazilian regulatory authority. Batalha Property In September, 2004 the Company applied for an exploration license to the 9800 hectare Batalha Property, located in the Tapajos gold province in northern Brazil. The property, host to a well known "garimpo" or artisanal mine, lies at the western end of the Tocantinzinho trend. The Company has agreed to pay the original holder of artisanal mining rights of Batalha, who controls over 1,700 hectares lying within the exploration license and directly over the Batalha zone, the equivalent of approximately $91,000 Canadian dollars in Brazilian reals over a 42 month period with a buyout after 4 years of $250,000 (U.S.) (if the project is deemed economic by the Company) and an additional sum based on the number of ounces of gold in the proven and probable (or measured and indicated) categories at Batalha as set out in a pre-feasibility or feasibility study. The per ounce payment amount ranges in a sliding scale from US$1 per ounce for the first one million ounces up to $10 (U.S.) per ounce for each ounce over four million ounces. The 9,800 hectare exploration license lies over top of this area, covering extensions to north, south and west. If after four years the Company, in its sole opinion, has not found an economic ore body, the area and all collected data will be returned to the vendor. (This portion of the page is intentionally left blank.) 7 BRAZAURO RESOURCES CORPORATION NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) (IN CANADIAN DOLLARS) APRIL 30, 2005 AND 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, 2005 ADDITIONS WRITE-OFFS 2005 Brazilian Properties Tocantinzinho Properties: Acquisition costs . . . . . . . $1,042,977 $ 95,827 $ - $1,138,804 Exploration costs: Drilling . . . . . . . . . . 607,334 - - 607,334 Field expenses . . . . . . . 701,236 112,886 - 814,122 Geological . . . . . . . . . 181,445 24,079 - 205,524 Assay. . . . . . . . . . . . 111,870 28,574 - 140,444 ---------- ---------- ---------- ---------- Total exploration costs. . . . 1,601,885 165,539 - 1,767,424 ---------- ---------- ---------- ---------- Total Tocantinzinho Properties 2,644,862 261,366 - 2,906,228 ---------- ---------- ---------- ---------- Mamoal Property: Acquisition costs . . . . . . . 45,288 - - 45,288 Exploration costs: Field expenses . . . . . . . 105,258 26,836 - 132,094 Geological . . . . . . . . . 10,901 14,954 - 25,855 Assay. . . . . . . . . . . . 4,138 - - 4,138 ---------- ---------- ---------- ---------- Total exploration costs. . . . 120,297 41,790 - 162,087 ---------- ---------- ---------- ---------- Total Mamoal Property. . . . . 165,585 41,790 - 207,375 Batalha Property Acquisition costs . . . . . . . 7,299 5,393 - 12,692 Exploration costs . . . . . . . - - - - ---------- ---------- ---------- ---------- 7,299 5,393 - 12,692 ---------- ---------- ---------- ---------- Total acquisition costs . . . . . . . . 1,095,564 101,220 - 1,196,784 Total exploration costs . . . . . . . . 1,722,182 207,329 - 1,929,511 ---------- ---------- ---------- ---------- Total costs . . . . . . . . . . . . . . $2,817,746 $308,549 $ - $3,126,295 ========== ========== ========== ==========
3. SHARE CAPITAL 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 had 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. During the last three quarters of fiscal year 2005, the remaining 2,569,774 common share warrants were exercised, and the Company received additional exercise proceeds of $642,443. In November 2004, the Company completed a private placement of 2,112,500 common shares of the Company at a price of $0.85 per share and received proceeds totaling $1,795,625. In consideration for assistance with the private placement, the Company paid finders' fees of $96,950 in cash and issued 113,000 share purchase warrants entitling the finders to purchase 113,000 common shares of the Company at $1.05 per share until November 2, 2005. In March, 2005, a holder of the share purchase warrants elected to exercise 44,635 warrants and the Company received proceeds of approximately $47,000. 8 BRAZAURO RESOURCES CORPORATION NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) (IN CANADIAN DOLLARS) APRIL 30, 2005 AND 2004 3. SHARE CAPITAL (CONTINUED) In December 2004, the Company completed a private placement of 2,150,000 common shares of the Company at a price of $1.00 per share and received proceeds of $2,150,000. In the first quarter of fiscal 2006, the Company granted incentive options as follows:
DATE OF EXERCISE EXPIRATION NUMBER. GRANT PRICE DATE 100,000 February 15, 2005 $ 1.15 February 15, 2010 600,000 March 22, 2005 1.30 March 22, 2010 500,000 April 1, 2005 1.30 April 1, 2010
As of April 30, 2005, the Company had a total of 7,200,715 common stock options outstanding at prices ranging from $0.10 to $1.30. A total of 203,572 options included in that total are subject to shareholder approval prior to exercise. In the first quarter of fiscal 2006, employees, directors and consultants of the Company exercised a total of 602,857 common share options at prices ranging from $0.10 to $0.40, and the Company received exercise proceeds of $153,309. In May 2005 the Company issued to a director 300,000 common share options with an exercise price of $1.25. The 300,000 options expire on May 31, 2010 and are subject to shareholder approval prior to exercise. 4. 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. 9 BRAZAURO RESOURCES CORPORATION NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) (IN CANADIAN DOLLARS) APRIL 30, 2005 AND 2004 5. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses consisted of the following:
Three Months Ended April 30, ---------------------------- 2005 2004 ---------- ---------- Consulting fees . . . . $ 128,526 $ 77,349 Depreciation expense. . 1,880 4,528 Entertainment . . . . . 17,770 4,564 Office expenses . . . . 68,423 22,852 Professional fees . . . 59,360 23,657 Rent. . . . . . . . . . 8,622 7,022 Repairs and maintenance 3,747 - Salary. . . . . . . . . 966,334 263,999 Shareholder relations . 22,723 53,500 Travel. . . . . . . . . 37,541 21,836 ---------- ---------- Total . . . . . . . . $1,314,926 $479,307 ========== ==========
6. STOCK BASED COMPENSATION Stock-based compensation related to options granted to employees and non-employees increased the following expenses in the consolidated financial statements of the Company in the three months ended April 30, 2005 and 2004:
THREE MONTHS ENDED APRIL 30, 2005 2004 Consulting $ 56,299 $ 25,017 Salary . . 809,449 130,253 ---------- ---------- Total. . . $865,748 $155,270 ========== ==========
These amounts have also been recorded as contributed surplus on the balance sheet. The fair value of each option granted has been estimated as of the date of grant using the Black-Scholes option-pricing model with the following assumptions:
2006 2005 Expected dividend yield . . 0% 0% Expected volatility . . . . 150% 160% Risk-free interest rate . . 3.64% 4.00% Expected life . . . . . . . 3 years 3.5 years Weighted average fair value of options granted. . . . $ 1.05 $ 0.86
10 BRAZAURO RESOURCES CORPORATION NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) (IN CANADIAN DOLLARS) APRIL 30, 2005 AND 2004 7. 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 Canadian GAAP, companies have the option to defer mineral exploration expenditures on prospective properties until such time as it is determined that further work is not warranted, at which point property costs would be written off. Under United States GAAP, all exploration expenditures are expensed until an independent feasibility study has determined that the property is capable of commercial production. At this stage, the Company has not yet identified economically recoverable reserves on any of its properties. Accordingly, under United States GAAP, all exploration costs incurred are expensed. The significant differences in the consolidated statements of loss relative to US GAAP were:
Three months ended April 30 -------------------------- 2005 2004 ------------ ------------ Net loss in accordance with Canadian GAAP. . . . . . . . . . . . $(1,276,371) $ (444,313) Deduct: Deferred exploration expenditures capitalized during the period. (207,329) (344,298) ------------ ------------ Net loss in accordance with United States GAAP . . . . . . . . . $(1,483,700) $ (788,611) ============ ============ Basic and diluted net loss per share (United States GAAP). . . . $ (0.03) $ (0.02) ============ ============ Weighted average shares outstanding (United States GAAP) . . . . 45,195,594 36,064,427 ============ ============
The significant differences in the consolidated balance sheet relative to US GAAP were:
April 30, January 31, 2005 2005 ------------ ------------ Shareholders' equity - Canadian GAAP . . . . . . . . . . $ 5,922,591 $ 6,133,038 Mineral properties and deferred exploration expenditures (1,929,511) (1,722,182) ------------ ------------ Shareholders' equity - United States GAAP. . . . . . . . $ 3,993,080 $ 4,410,856 ============ ============ Mineral properties and deferred exploration expenditures - - Canadian GAAP. . . . . . . . . . . . . . . . . . . . . $ 3,126,295 $ 2,817,746 Mineral properties and deferred exploration expenditures expensed per United States GAAP . . . . . . . . . . . . (1,929,511) (1,722,182) ------------ ------------ Acquisition costs of mineral properties - United States GAAP. . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,196,784 $ 1,095,564 ============ ============
11 BRAZAURO RESOURCES CORPORATION NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) (IN CANADIAN DOLLARS) APRIL 30, 2005 AND 2004 7. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") (CONTINUED) The significant differences in the consolidated statement of cash flows relative to US GAAP were:
Three months ended April 30, 2005 2004 ---------- ---------- NET CASH USED IN OPERATIONS Canadian GAAP. . . . . . . . . . . . . . . . . . . . . . $(485,751) $(284,762) Mineral properties and deferred exploration expenditures (207,329) (344,298) ---------- ---------- US GAAP. . . . . . . . . . . . . . . . . . . . . . . . . (693,080) (629,060) ---------- ---------- NET CASH USED IN INVESTING ACTIVITIES Canadian GAAP. . . . . . . . . . . . . . . . . . . . . . (337,015) (419,562) Mineral properties and deferred exploration expenditures 207,329 344,298 ---------- ---------- US GAAP. . . . . . . . . . . . . . . . . . . . . . . . . (129,686) (75,264) ---------- ---------- NET CASH USED IN FINANCING ACTIVITIES Canadian GAAP and U.S. GAAP. . . . . . . . . . . . . . . 201,378 62,500 ---------- ----------
8. RELATED PARTY TRANSACTIONS The chairman has significant share ownership of the Company. Accounts receivable at April 30, 2005 and January 31, 2005 includes $3,650 and $55,900, respectively, receivable from the chairman of the Company. Amounts totaling $37,388 and $147,683 were paid by the Company during the first quarter of fiscal 2006 and fiscal 2005, respectively, to a law firm in which a director is a partner. As of January 31, 2005 an amount of $4,781 was due to that law firm. 9. SUPPLEMENTAL CASH FLOW AND NON-CASH INVESTING AND FINANCING DISCLOSURE
Three months ended April 30, ------------------ 2005 2004 ------------------ Supplemental cash flow disclosure: Interest paid in cash. . . . . . . . $ - $ - Income taxes paid. . . . . . . . . . - - Non-cash investing activities: Shares issued for mineral properties $ - $70,000
12 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, 2005 and 2004 All dollar amounts referred to herein are in Canadian Dollars unless otherwise stated. As of June 9, 2005 the exchange rate is $1.00 (Canadian) = $0.7969 (U.S.) The Company is engaged in the business of exploring for and, if warranted, developing mineral properties and is concentrating its current acquisition and exploration efforts on those properties which the Company believes have large scale gold potential. The Company leases interests in properties located in the Tapajos Gold District of Brazil's northerly Para State (collectively the "Properties"). The Company has had no significant revenues from mining operations. 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 3, which were acquired during fiscal 2004 and 2005. 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. The Company's mineral properties and deferred expenditures increased to $3,126,295 at April 30, 2005 from $2,817,746 at January 31, 2005 as a result of acquisition costs totaling $101,220 and exploration costs totaling $207,329 related to the activities on the Company's Brazilian Properties as further described in Note 3. The increases were primarily due to the acquisition and exploration efforts of the Company related to its Tocantinzinho Properties. The Company completed a 20 hole diamond drill program (approximately 4000 meters) at the Tocantinzinho Properties during fiscal 2005 in which 19 of 20 holes encountered mineralization and which outlined a mineralized body that is at least 500 meters in strike length, with a true width of approximately 110 meters, and open at 290 meters vertical depth. Drill programs planned for fiscal 2006 are designed to significantly expand the known dimensions of this 13 mineralization. Additionally, the Company completed both a ground magnetic survey and metallurgical testing of drill core samples of the Tocantinzinho Properties during fiscal 2005 and the first quarter of fiscal 2006 and was encouraged by the results. Detailed results of the above testing, including maps of the ground magnetics and drill hole mineralization, are located at the company's website, www.brazauroresources.com. In fiscal 2005 the Company carried out a regional soil auger sampling program on its Mamoal Property, in conjunction with channel-sampling of old pits and rock-chip sampling. The results were so encouraging that grid soil auger sampling has been planned for the 2006 fiscal year followed by drilling of the best anomalies. The Company's revenues during the first quarters of fiscal 2006 and 2005 were primarily comprised of interest income and gains on sales of equipment. The Company has not received any revenues from mining operations since inception. General and administrative expenses totaled approximately $1,315,000 during the first quarter of fiscal 2006 as compared to approximately $479,000 during the first quarter of fiscal 2005, representing an increase of approximately $836,000 or 175%. Included in general and administrative expenses during the first quarters of fiscal 2006 and 2005 were approximately $866,000 and $155,000, respectively, of stock compensation expense recorded using the fair value method, which was an increase of approximately $711,000 in stock compensation expense from fiscal 2005 to fiscal 2006. The remaining increase in general and administrative expenses was primarily related to the increased activities surrounding the exploration program underway in Brazil during fiscal 2006. The Company anticipates that general and administrative expenses during the remaining three quarters of fiscal 2006 will increase from the level experienced in the first quarter of fiscal 2006. The Company expects to incur additional consulting and exploration expenditures related to the Brazilian Properties as drilling activities commenced in the second quarter of fiscal 2006 on the Company's Tocantinzinho Properties. FINANCIAL CONDITION; LIQUIDITY AND CAPITAL RESOURCES. As of April 30, 2005, the Company had working capital of $2,751,969 as compared to working capital of $3,296,092 at January 31, 2005. At April 30, 2005, the Company had current assets of $3,025,259, including $2,937,137 in cash and $88,122 in accounts receivable compared to total current liabilities of $273,290. In September, 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 had an expiration date of September 18, 2004. The Company received a total of $563,955 during fiscal 2003 representing subscriptions for the private placement. During fiscal year 2005, all 2,819,774 common share warrants were exercised, and the Company received total exercise proceeds of $704,943. In November 2004, the Company completed a private placement of 2,112,500 common shares of the Company at a price of $0.85 per share and received proceeds totaling $1,795,625. In consideration for assistance with the private placement, the Company paid finders' fees of $96,950 in cash and issued 113,000 share purchase warrants entitling the finders to purchase 113,000 common shares of the Company at $1.05 per share until November 2, 2005. In March, 2005, a holder of the share purchase warrants elected to exercise 44,635 warrants and the Company received proceeds of approximately $47,000. In December 2004, the Company completed a private placement of 2,150,000 common shares of the Company at a price of $1.00 per share and received proceeds of $2,150,000. During the quarter ended April 30, 2005, the Company received cash proceeds of $153,309 representing the exercise of 602,857 stock options, respectively, by officers, directors, employees and consultants at exercise prices from $0.10 to $0.40. 14 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 significant revenues from mining operations. The rights and interests in the Tocantinzinho, Mamoal and Batalha 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 2006, including the potential exercise of outstanding 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. 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 4 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. 15 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. (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. BRAZAURO RESOURCES CORPORATION (Registrant) Dated: June 14, 2005 By: /s/ Mark E. Jones, III -------------------------- MARK E. JONES, III Chairman (and principal financial officer) 16 INDEX OF EXHIBITS
Exhibit No. Description of Exhibits - ----------- ------------------------------------------------------------------------------------ 31 Certification of Chairman pursuant to Rule 13a-14(a)/15d-14(a) of the Securities . . . . . Exchange Act of 1934. 32 Certification of Chairman pursuant to 18 U.S.C. Section 1350, as adopted pursuant to . . . . . Section 906 of the Sarbanes-Oxley Act of 2002.
17 EX-31 2 doc2.txt Exhibit 31 CERTIFICATION ------------- I, Mark E. Jones, III, Chairman of Brazauro Resources Corporation, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Brazauro 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, 2005 /s/ Mark E. Jones, III -------------------------- Mark E. Jones, III Chairman (and principal financial officer) EX-32 3 doc3.txt EXHIBIT 32 1350 CERTIFICATION Pursuant to Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. 1350, as adopted), Mark E. Jones, III, the Chief Executive Officer (and principal financial officer) of Brazauro Resources Corporation (the "Company") hereby certifies that, to the best of his knowledge: The Company's Quarterly Report on Form 10-Q for the period ended April 30, 2005, to which this Certification is attached as Exhibit 32 (the "Periodic Report"), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and the information contained in the Periodic Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Periodic Report and results of operations of the Company for the period covered by the Periodic Report Dated: June 14, 2005 /s/ Mark E. Jones, III -------------------------- Mark E. Jones, III Chief Executive Officer (and principal financial officer) -----END PRIVACY-ENHANCED MESSAGE-----