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EX-31.1 - EXHIBIT 31.1 - CIGMA METALS CORP | ex31_1.htm |
EX-32.1 - EXHIBIT 32.1 - CIGMA METALS CORP | ex32_1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
x
|
ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31,
2007
|
o
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____ TO
____
|
Commission
file
number
0-27355
CIGMA
METALS CORPORATION
|
|
(Exact
Name of registrant as specified in its charter)
|
|
Florida
|
98-0203244
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
|
|
18,
80 Furmanova Str, Almaty, Republic of Kazakhstan
|
|
(Address of principal executive offices) | (Zip Code) |
Registrant’s
telephone number, including area code
|
(+7)
327-2611 026
|
Securities
registered under Section 12(b) of the Exchange Act:
None
Securities
registered under Section 12 (g) of the Exchange Act:
Common
stock, par value $0.001 per share
|
Pink
Sheets
|
Title
of each class
|
Name
of each exchange on which
registered
|
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
o Yes
x No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
o Yes
x No
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
x Yes
o
No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
x Yes
o
No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
o Yes
x No
1
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer”, “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer: r
|
Accelerated
Filer: r
|
|
Non-accelerated
filer: r (Do not check if a smaller
reporting company)
|
Smaller
reporting company: þ
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
o Yes
x No
State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity, as of the last
business day of the registrant’s most recently completed second fiscal
quarter.
$19,056,000
as of June 30, 2007
Indicate
the number of shares outstanding of each of the issuer’s classes of common
equity, as of the latest practicable date: 53,500,000 shares of Common Stock
were outstanding as of February 17, 2010.
2
PART
I
BUSINESS
This
annual report contains statements that plan for or anticipate the future and are
not historical facts. In this Report these forward looking statements are
generally identified by words such as “anticipate,” “plan,” “believe,” “expect,”
“estimate,” and the like. Because forward-looking statements involve future
risks and uncertainties, these are factors that could cause actual results to
differ materially from the estimated results. These risks and uncertainties are
detailed in Item 1. “Description of Business,” Item 2. “Description of
Properties,” Item 7. “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” Item 8. “Financial Statements” and Item
13. “Certain Relationships and Related Transactions and Director
Independence”.
The
Private Securities Litigation Reform Act of 1995, which provides a “safe harbor”
for such statements, may not apply to this report.
Item
1.
|
Description
of Business
|
Business
Development
We were
incorporated under the laws of the State of Florida on January 13, 1989 as
"Cigma Ventures
Corporation". On April 17, 1999 we changed our name to “Cigma Metals Corporation” and
are in the business of location, acquisition, exploration and, if warranted,
development of mineral properties. Through our Russian subsidiary, we
are engaged in the exploration of gold and silver mining properties located in
the Russian Federation and the Republic of Kazakhstan, and have not yet
determined whether our properties contain mineral reserves that may be
economically recoverable.
Our
general business strategy is to acquire mineral properties either directly or
through the acquisition of operating entities. Our continued
operations and the recoverability of mineral property costs is dependent upon
the existence of economically recoverable mineral reserves, confirmation of our
interest in the underlying properties, our ability to obtain necessary financing
to complete the development and upon future profitable production.
Since
1999 we have acquired and disposed of a number of properties. We have not been
successful in any of our exploration efforts to establish reserves on any of the
properties that we owned or in which we have or have had an
interest.
We
currently have interest in three (3) properties none of which contain any
reserves. Please refer to “Description of Properties.” We
have no revenues, have sustained losses since inception, have been issued a
going concern opinion by our auditors and rely upon the sale of our securities
to fund operations. We will not generate revenues even if any of our exploration
programs indicate that a mineral deposit may exist on our properties.
Accordingly, we will be dependent on future financings in order to maintain our
operations and continue our exploration activities.
We have
not been involved in any bankruptcy, receivership or similar
proceedings.
Our
Principal Products and Their Markets
We are a
junior mineral exploration company. Our strategy is to concentrate our
investigations into: (i) existing operations where an infrastructure already
exists; (ii) properties presently being developed and/or in advanced stages of
exploration which have potential for additional discoveries; and (iii)
grass-roots exploration opportunities.
3
We are
currently concentrating our property exploration activities in the Russian
Federation and the Republic of Kazakhstan.
Our
properties are in the exploration stage only and are without a known body of
mineral reserves. Development of the properties will follow only if satisfactory
exploration results are obtained. Mineral exploration and development involves a
high degree of risk and few properties that are explored are ultimately
developed into producing mines. There is no assurance that our
mineral exploration and development activities will result in any discoveries of
commercially viable bodies of mineralization. The long-term profitability of our
operations will be, in part, directly related to the cost and success of our
exploration programs, which may be affected by a number of factors. Please refer to “Item 1A. Risks
Factors”
Significant
Developments in fiscal 2007 and Subsequent Events
For the
year ended December 31, 2007 we recorded exploration expenses of $1,412,265
compared to $618,085 in fiscal 2006. The following is a breakdown of the
exploration expenses by property: Republic of Kazakhstan $1,412,265 (2006 - $0)
and Russian Federation $0 (2006 - $618,085).
In
January 2007, the Company entered in an agreement with Eureka Mining PLC, a
company registered in the United Kingdom, to acquire an ownership interest in
the Dostyk Limited Liability Partnership, (the “Partnership” or "Dostyk"). The
Partnership holds the exploration rights to explore 14,000 square kilometers in
the Maykubensk area in the Pavodar Oblast of the Republic of Kazakhstan for
precious and base metals.
Under the
terms of the agreement with Eureka Mining PLC, the Company acquired a 51%
interest in the Partnership by paying US $300,000 (paid January 25, 2007) into
the charter capital of the Partnership. The acquisition is accounted for using
purchase accounting. As a result of the purchase, the Company acquired control
of Dostyk and consolidated the financial results of Dostyk including
consideration of a non-controlling interest. In June 2007, the Company increased
its ownership in the Partnership from 51% to 71% by contributing a further US
$700,000 (paid June 13, 2007) to the Partnership’s charter capital. On September
14, 2007, the Company increased its ownership interest in the Partnership from
71% to 90% by contributing a further US $1,000,000 to the Partnership’s charter
capital. In February 2008 the Company increased its ownership in the Partnership
from 90% to 100% by paying US $400,000 (paid February 13, 2008) to the owners of
the Partnership.
The
Company’s results of operations include Dostyk’s results of operations since the
date of acquisition. Pro forma results for the pre-consolidation period are not
presented as they are not materially different from the Company’s historical
consolidated financial statements.
As of
December 31, 2007, the Company held a 90% interest in Dostyk. The aggregate cost
of the acquisition through September 30, 2007 was $2,000,000. The following
represents a summary of the assets acquired and the liabilities assumed during
the year. Assets and liabilities at the dates of acquisition have been
translated from Dostyk’s functional currency, the Kazakhstan Tenge (“Tenge”).
The average effective exchange rate used was US$ 0.008462 to 1
Tenge.
Cash
|
$ | 1,040,115 | ||
Prepaids
and other assets
|
39,540 | |||
Mineral
properties
|
2,676,096 | |||
Equipment
|
119,341 | |||
Accounts
payable and accrued expenses
|
(46,806 | ) | ||
Long-term
debt
|
(1,168,818 | ) | ||
Minority
interest
|
(659,468 | ) | ||
Purchase
price paid in 2007
|
$ | 2,000,000 |
4
During
the three month period ended March 31, 2008, the Company acquired an additional
10% interest in Dostyk for a purchase price of US$400,000. At that date, the
balance of non-controlling interest was in excess of the purchase price by
$166,499. This amount was credited against the capitalized balance in mineral
properties. As of that date, the Company owned 100% of Dostyk.
The 2008
acquisition of the remaining 10% interest in Dostyk was accounted for using the
purchase method. The aggregate allocation of purchase price to mineral
properties was $2,509,597.
During
January 2010, subject to shareholder approval, the Company agreed to sell its
ownership interest in its Kazakhstan subsidiary to a third party for $1,500,000
and other consideration. The total value of the potential consideration to
be received has not been determined. The only significant asset owned by
the subsidiary is the mineral exploration license described in these financial
statements. Management continues to believe that the value of the mineral
property owned by the subsidiary has not been impaired, however an agreement for
the sale of the subsidiary for less than its carrying value of $2,509,597 as of
January 2010, would be an indication of impairment and result in the Company
recording a loss on the sale.
Distribution
Methods of Our Products and Services
We are a
mineral exploration company and are not in the business of distributing any
products or services.
Status
of Any Publicly Announced New Product or Service
We have
no plans for new products or services that we do not already offer.
Competitive
Business Conditions and Our Competitive Position in the Industry and Methods of
Competition
Vast
areas of Kazakhstan have been explored and in some cases staked through mineral
exploration programs. Vast areas also remain unexplored. The cost of
staking and re-staking new mineral claims and the costs of most phase one
exploration programs are relatively modest. Additionally, in many more
prospective areas, extensive literature is readily available with respect to
previous exploration activities. These facts make it possible for a junior
mineral exploration company such as ours to be very competitive with other
similar companies. In effect, we are also competitive with senior companies who
are doing grass roots exploration. In the event our exploration activities
uncover prospective mineral showings, we anticipate being able to attract the
interest of better financed industry partners to assist on a joint venture basis
in more extensive exploration. We are at a competitive disadvantage compared to
established mineral exploration companies when it comes to being able to
complete extensive exploration programs on claims which we hold or may hold in
the future. If we are unable to raise capital to pay for extensive claim
exploration, we will be required to enter into joint ventures with industry
partners which will result in our interest in our claims being substantially
diluted. Currently, we do not have sufficient funds for further
exploration.
As long
as management of our company remains committed to building a portfolio of
mineral exploration properties principally through their own efforts, we will be
able to continue operating on modest cash reserves for an extended period of
time. We are one small company in a large competitive industry with many other
junior exploration companies who are evaluating and re-evaluating prospective
mineral properties in Kazakhstan.
5
Sources
and Availability of Raw Materials and the Names of Principal
Suppliers
As a
mineral exploration company, we do not require sources of raw materials and do
not have principal suppliers in the way which applies to manufacturing
companies. Our raw materials are, in effect, mineral exploration
properties which we may stake or acquire from third parties. Our management team
seeks to assemble a portfolio of quality mineral exploration properties in
Brazil. Initially, we will operate in the field with our president,
Technical director and various consultants on an as needed basis. This
will enable us to assemble a portfolio of properties through grass roots
exploration and staking. We will also acquire new properties through
option agreements where new properties can be acquired on favorable
terms.
Dependence
on One or a Few Major Customers
We are in
the business of mining exploration. We are not selling any product or
service and therefore have no dependence on one or a few major
customers.
Patents,
Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or Labor
Contracts, Including Duration
Our
Company does not own any patents or trademarks. We are not party to any
labor agreements or contracts. Licenses, franchises, concessions and
royalty agreements are not part of our business.
Need
for any government approval of principal products or services
As a
mineral exploration company, we are not in a business which requires extensive
government approvals for principal products or services.
In the
event mining claims which we acquire in the future prove to host viable ore
bodies, we would likely sell or lease the deposit to a company whose business is
the extraction and treatment of ore. This company would undertake the sale of
metals or concentrates and pay us a net smelter royalty as specified in a future
lease agreement. All responsibility for government approvals pertaining to
mining methods, environmental impacts and reclamation would be the
responsibility of this contractor. All costs to obtain the necessary
government approvals would be factored into technical and viability studies in
advance of a decision being made to proceed with development of an ore
body.
The
mining industry in the Republic of Kazakhstan and the Russian Federation is
highly regulated. Our president and Technical director have extensive industry
experience and are familiar with government regulations respecting the initial
acquisition and early exploration of mining claims in the Republic of Kazakhstan
and the Russian Federation. The Company is required under law to meet
government standards relating to the protection of land and waterways, safe work
practices and road construction. We are unaware of any proposed or
probable government regulations which would have a negative impact on the mining
industry in The Republic of Kazakhstan and the Russian Federation. We propose to
adhere strictly to the regulatory framework which governs mining operations in
the Republic of Kazakhstan and the Russian Federation.
Effect
of existing or probable governmental regulations on our business.
Management
is unaware of any existing or probable government regulations which would have a
positive or negative impact on our company's business.
6
Costs
and effects of compliance with environmental laws (federal, state and
local)
At the
present time, our costs of compliance with environmental laws are minimal.
In the event that claims which we may acquire in the future host a viable
ore body, the costs and affects of compliance with environmental laws will be
incorporated in the exploration plan for these claims. These exploration
plans will be prepared by qualified mining engineers.
Number
of total employees and number of full time employees
As of
December 31, 2007 there were five part time employees.
Item
1A.
|
Risk
Factors
|
We
are an exploration stage company and have incurred substantial losses since
inception.
We have
never earned any revenues. In addition, we have incurred net losses of
$5,549,677 for the period from our inception (January 13, 1989) through December
31, 2007 and, based upon our current plan of operation, we expect that we will
incur losses for the foreseeable future.
Potential
investors should be aware of the difficulties normally encountered by mineral
exploration companies and the high rate of failure of such companies. We are
subject to all of the risks inherent to an exploration stage business
enterprise, such as limited capital mineralized materials, lack of manpower, and
possible cost overruns associated with our exploration programs. Potential
investors must also weigh the likelihood of success in light of any problems,
complications, and delays that may be encountered with the exploration of our
properties.
Because
we are small and do not have much capital, we must limit our exploration
activity. As such we may not be able to complete an exploration program that is
as thorough as we would like. In that event, an existing ore body may go
undiscovered. Without an ore body, we cannot generate revenues and you will lose
your investment.
Because
we do not have any revenues, we expect to incur operating losses for the
foreseeable future.
Our
independent auditors have added an explanatory paragraph to their audit opinion
issued in connection with the consolidated financial statements for the years
ended December 31, 2007 and 2006 relative to our ability to continue as a going
concern. Our ability to obtain additional funding will determine our ability to
continue as a going concern. Our consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
We have
never generated revenues and we have never been profitable. Prior to completing
exploration on our mineral properties, we anticipate that we will incur
increased operating expenses without realizing any revenues. We therefore expect
to incur significant losses into the foreseeable future. If we are unable to
generate financing to continue the exploration of our properties, we will fail
and you will lose your entire investment.
None
of the properties in which we have an interest or the right to earn an interest
have any known reserves.
We
currently have an interest or the right to earn an interest in three properties,
none of which have any reserves. Based on our exploration activities through the
date of this Form 10-K, we do not have sufficient information upon which to
assess the ultimate success of our exploration efforts. If we do not
establish reserves we may be required to curtail or suspend our operations, in
which case the market value of our common stock may decline and you may lose all
or a portion of your investment.
7
We have
only completed the initial stages of exploration of our properties, and thus
have no way to evaluate whether we will be able to operate our business
successfully. To date, we have been involved primarily in organizational
activities, acquiring interests in properties and in conducting preliminary
exploration of properties. We have not earned any revenues and have not achieved
profitability as of the date of this Form 10-K.
We
are subject to all the risks inherent to mineral exploration, which may have an
adverse affect on our business operations.
Potential
investors should be aware of the difficulties normally encountered by mineral
exploration companies and the high rate of failure of such enterprises. The
likelihood of success must be considered in light of the problems, expenses,
difficulties, complications and delays encountered in connection with the
exploration of the mineral properties that we plan to undertake. These potential
problems include, but are not limited to, unanticipated problems relating to
exploration and additional costs and expenses that may exceed current estimates.
If we are unsuccessful in addressing these risks, our business will likely fail
and you will lose your entire investment.
We are
subject to the numerous risks and hazards inherent to the mining industry and
resource exploration including, without limitation, the following:
|
·
|
interruptions
caused by adverse weather
conditions;
|
·
|
unforeseen
limited sources of supplies resulting in shortages of materials, equipment
and availability of experienced
manpower.
|
The
prices and availability of such equipment, facilities, supplies and manpower may
change and have an adverse effect on our operations, causing us to suspend
operations or cease our activities completely.
It
is possible that our title for the properties in which we have an interest will
be challenged by third parties.
We have
not obtained title insurance for our properties. It is possible that
the title to the properties in which we have our interest will be challenged or
impugned. If such claims are successful, we may lose our interest in such
properties.
Our
failure to compete with our competitors in mineral exploration for financing,
acquiring mining claims, and for qualified managerial and technical employees
will cause our business operations to slow down or be suspended.
Our
competition includes large established mineral exploration companies with
substantial capabilities and with greater financial and technical mineralized
materials than we have. As a result of this competition, we may be unable to
acquire additional attractive mining claims or financing on terms we consider
acceptable. We may also compete with other mineral exploration companies in the
recruitment and retention of qualified managerial and technical employees. If we
are unable to successfully compete for financing or for qualified employees, our
exploration programs may be slowed down or suspended.
8
Compliance
with environmental regulations applicable to our operations may adversely affect
our capital liquidity.
All phases of our operations in the
Republic of Kazakhstan and the Russian Federation, where our properties are
located, will be subject to environmental regulations. Environmental
legislation in the Republic of Kazakhstan and the Russian Federation is evolving
in a manner which will require stricter standards and enforcement, increased
fines and penalties for non-compliance, more stringent environmental assessments
of proposed projects and a heightened degree of responsibility for companies and
their officers, directors and employees. It is possible that future changes in
environmental regulation will adversely affect our operations as
compliance will be more burdensome and costly.
Because
we have not allocated any money for reclamation of any of our mining claims, we
may be subject to fines if the mining claims are not restored to its original
condition upon termination of our activities.
Our
executive officers devote and will continue to devote only a limited amount of
time to our business activities.
Mr. Lars
Pearl, our president and chief executive officer is engaged in other business
activities and devotes only a limited amount of his time (approximately 50%) to
our business. As we expand our activities, a need for full time
management may arise. In such an event, should Mr. Pearl be unwilling
to dedicate more of his time to our business or if we fail to hire additional
personnel, our business and results of operations would suffer a material
adverse effect.
Our
directors may face conflicts of interest in connection with our participation in
certain ventures because they are directors of other mineral mineralized
material companies.
Messrs.
Pearl, Gomez de Segura and Mueller, who serve as directors, may also be
directors of other companies (including mineralized material exploration
companies) and, if those other companies participate in ventures in which we may
participate, our directors may have a conflict of interest in negotiating and
concluding terms respecting the extent of such participation. It is
possible that due to our directors’ conflicting interests, we may be precluded
from participating in certain projects that we might otherwise have participated
in, or we may obtain less favourable terms on certain projects than we might
have obtained if our directors were not also directors of other participating
mineral mineralized materials companies. In an effort to balance
their conflicting interests, our directors may approve terms equally favourable
to all of their companies as opposed to negotiating terms more favourable to us
but adverse to their other companies. Additionally, it is possible
that we may not be afforded certain opportunities to participate in particular
projects because those projects are assigned to our directors’ other companies
for which the directors may deem the projects to have a greater
benefit.
Our
future performance is dependent on our ability to retain key personnel, loss of
which would adversely affect our success and growth.
Our
performance is substantially dependent on performance of our senior
management. In particular, our success depends on the continued
efforts of Mr. Pearl. The loss of his services could have a material adverse
effect on our business, results of operations and financial condition as our
potential future revenues would most likely dramatically decline and our costs
of operations would rise. We do not have employment agreements in
place with any of our officers or our key employees, nor do we have key person
insurance covering our employees.
9
The
value and transferability of our shares may be adversely impacted by the limited
trading market for our shares.
There is
only a limited trading market for our common stock on the Pink Sheets. This may
make it more difficult for you to sell your stock if you so desire.
Our
common stock is a penny stock and because "penny stock” rules will apply, you
may find it difficult to sell the shares of our common stock.
Our
common stock is a “penny stock” as that term is defined under Rule 3a51-1 of the
Securities Exchange Act of 1934. Generally, a "penny stock" is a common stock
that is not listed on a national securities exchange and trades for less than
$5.00 a share. Prices often are not available to buyers and sellers and the
market may be very limited. Penny stocks in start-up companies are among the
riskiest equity investments. Broker-dealers who sell penny stocks must provide
purchasers of these stocks with a standardized risk-disclosure document prepared
by the Securities and Exchange Commission. The document provides information
about penny stocks and the nature and level of risks involved in investing in
the penny stock market. A broker must also give a purchaser, orally or in
writing, bid and offer quotations and information regarding broker and
salesperson compensation, make a written determination that the penny stock is a
suitable investment for the purchaser, and obtain the purchaser's written
agreement to the purchase. Consequently, the rule may affect the ability of
broker-dealers to sell our securities and also may affect the ability of
purchasers of our stock to sell their shares in the secondary
market. It may also cause fewer broker dealers to make a market in
our stock.
Many
brokers choose not to participate in penny stock transactions. Because of the
penny stock rules, there is less trading activity in penny stock and you are
likely to have difficulty selling your shares.
In
addition to the "penny stock" rules promulgated by the Securities and Exchange
Commission, Financial Industry Regulatory Authority (the “FINRA”) has adopted
rules that require that in recommending an investment to a customer, a
broker-dealer must have reasonable grounds for believing that the investment is
suitable for that customer. Prior to recommending speculative low-priced
securities to their non-institutional customers, broker-dealers must make
reasonable efforts to obtain information about the customer's financial status,
tax status, investment objectives and other information. Under interpretations
of these rules, FINRA believes that there is a high probability that speculative
low priced securities will not be suitable for at least some customers. FINRA
requirements make it more difficult for broker-dealers to recommend that their
customers buy our common stock, which may limit your ability to buy and sell our
stock and have an adverse effect on the market for our shares.
Future
sales of shares by us may reduce the value of our stock.
If
required, we will seek to raise additional capital through the sale of our
common stock. Future sales of shares by us could cause the market
price of our common stock to decline and may result in further dilution of the
value of the shares owned by our stockholders.
Item
1B.
|
Unresolved
Staff Comments
|
Not
Applicable.
10
Item
2.
|
Description
of Properties
|
Office
Premises
We
conduct our activities from our principal and technical office located at 18, 80
Furmanova Str, Almaty, Republic of Kazakhstan. We believe that these offices are
adequate for our purposes. We do not own any real property or
significant assets. Management believes that this space will meet our needs for
the next 12 months.
Mining
Properties
Our
properties are in the preliminary exploration stage and do not contain any known
bodies of ore.
We
conduct exploration activities from our principal and technical office located
at 18, 80 Furmanova Str, Almaty, Republic of Kazakhstan. The telephone number is
(+7) 327-2611 026. We believe that these offices are adequate for our
purposes and operations.
Our
strategy is to concentrate our efforts on: (i) existing operations where an
infrastructure already exists; (ii) properties presently being developed and/or
in advanced stages of exploration which have potential for additional
discoveries; and (iii) grass-roots exploration opportunities.
We are
currently concentrating our property exploration activities in the Republic of
Kazakhstan and the Russian Federation.
Our
properties are in the exploration stage only and are without a known body of
mineral reserves. Development of the properties will follow only if satisfactory
exploration results are obtained. Mineral exploration and development involves a
high degree of risk and few properties that are explored are ultimately
developed into producing mines. There is no assurance that our
mineral exploration and development activities will result in any discoveries of
commercially viable bodies of mineralization. The long-term profitability of our
operations will be, in part, directly related to the cost and success of our
exploration programs, which may be affected by a number of factors. Please refer to “Item 1A. Risk
Factors.”
We
currently have an interest in three (3) projects, two located in the Tomask
Oblast region in the Russian Federation and one located in the Republic of
Kazakhstan. We have conducted only preliminary exploration activities
to date and may discontinue such activities and dispose of the properties if
further exploration work is not warranted.
Properties
Russian
Federation
Haldeevskaya
License
The
Haldeevskaya exploration license covers an area of 576 km2 and is located
approximately 16 kilometres NE from Tomsk via paved highway. Excellent
infrastructure is currently in place, including, maintained tarmac access roads,
high tension power lines at 500 kilowatts per line, gravel vehicular access
roads over the project area with close-spaced, 100 metre, cut lines over the
target areas. The area is also close to the railheads in Tomsk, with links to
the Trans Siberian Railway, and all infrastructures associated with a regional
centre.
11
Geology
of Haldeevskaya area is represented by the mid Devonian volcanogenic-sedimentary
sediments of the Mitrofan suite, terrigenous (“black shale”) sediments of the
Jurginsk, Pachinsk, Salamat suites of upper Devonian, and the Yarsk,
Lagernosadsk stratus of the lower Carboniferous age. The rock
formations are deformed into the linear folds with the north-north-eastern
strike and they are cut by the series of longitudinal, lateral and diagonal
fractures of different type and order. The area is located at the
front zone of the Tomsk thrust above the granitoid intrusions that are inferred
by geophysics. Dolerite and Monzonite dikes intrude Paleozoic rocks forming the
series of dike zones with a north-western trend with an echelon-like arrangement
of some dikes and their groups. Mineralisation is focussed into areas
associated with the thrusting. Towards the end of 19th and first half of the
20th centuries the region was one of the most prolific gold mining spots in
Russia. The coarse gold was panned from the Tom river and the numerous drainage
systems around the city of Tomsk. In late 1980 Geosphera made its first gold
discoveries in hard rock. As a result of the geochemical
and geophysical surveys a series of 6 highly prospective gold soil anomalies
have been outlined Of the 6 large anomalies the area currently
considered the most perspective are the Semiluzhenskoye, Verkhnekamensk and
Sukhorechenskoye prospects. The Verkhnekamensk anomaly is located in
the eastern part of the Haldeiskaja license on the tectonic contact between the
clay shales and volcanics. As a result of the litho-geochemical, geological and
geophysical studies, conducted by Cigma, two mineralized zones of east-west
strike have been outlined and plotted at 1:20,000. These zones were traced
across the area for 3 kilometres with widths ranging from 250 to 700 meters.
Within these zones 3 anomalies were found and appear prospective for gold
mineralization. The first diamond drilling program has outlined vast areas of
hydrothermal alteration, preliminary mineralogical investigations have
discovered free gold in drill core from the upper part of the mineralization
zone.
Tugojakovsk
License
The
Tugojakovsk exploration license covers an area of 164 km2 and
is located 25 kilometres SE from the regional centre of Tomsk via paved highway.
An excellent infrastructure is in place including excellent sealed roads, close
access to railheads and the infrastructure associated with the regional centre
of Tomsk.
The
geology of Tugojakovsk area is represented by the sedimentary rock formations of
Carboniferous age composed of carbonaceous shales, siltstones and sandstones
united under the common term "black shale". The rocks are deformed into linear
folds and cut by the series of longitudinal, lateral and diagonal faults. The
dolerite and monzonite dikes intrude Palaeozoic rocks forming a series of dike
zones controlling quartz stock works with gold mineralization.
The
Baturinsk occurrence, located within the Tugojakovsk license is composed of a
series silicified shear zones (mylonite zones) consisting of numerous, locally
intense, small quartz veinlets carrying gold. The surrounding geological units
are composed of mineralised carbonaceous shales.
Republic of
Kazakhstan
Dostyk
Area, Pavlodar Oblast
The
Company through its 90% subsidiary Dostyk LLP holds high potential Maykubinsk
exploration and mining license located in Pavlodar Oblast Region in
Kazakhstan. The Dostyk property covers and area of 14,000 square
kilometers, in northern Kazakhstan in a region which has been producing gold and
base metals for decades including Zinc, Copper, Nickel, Lead and Gold in various
geological environments. Geologically the area comprises granites,
granodiorite and monzonite with associated continental volcanogenic formations,
island arc formations and mafic and felsic intrusives. Currently,
over 130 known mineral occurrences occur on the property, and the Company has
selected 5 targets as the focus of the 2007 exploration campaign. The
area has a well-developed infrastructure including a network of railways and
power lines that service the needs of the entire country and parts of the Urals
in neighbouring Russia.
12
The
region’s economy of Central Kazakhstan is predicated on mining, power generation
and agriculture. Mining consists of giant coal mining at Karaganda, Ekibastuz
and Maikube, mining of polymetallic, gold-rich volcanogenic massive sulphide
deposits at Abyz, Maikain, Alpys and Souvenir. Roads and trails criss-cross the
region to serve the agriculture and mining areas. Numerous high-tension power
lines radiate out of several power generation stations in Ekibastuz to serve
Kazakhstan and for power export to Russia.
Regional Geology and
mineralization
Central
Kazakhstan geological structure is represented by strong folded and dislocated
Cambrian-Ordovician submarine volcanic and sedimentary rocks, covered by
Silurian-Devonian sediments and Devonian felsitic volcanic suites with a whole
series of stocks, dikes and sills of various ages. Late Paleozoic rocks are
represented by Carboniferous and Jurassic marine and continental
suites.
Mineral
deposits are related in time and space to the various lithologies:
-
|
Gold-rich
volcanogenic massive sulphide (VMS) deposits associated with Ordovician
submarine volcanic rocks.
|
-
|
Porphyry
gold-copper deposits associated with altered sub-volcanic dioritic
intrusives presumable of Ordovician
age.
|
-
|
Epithermal
gold deposits associated with quartz veins and quartz-sulphide stockworks
in Ordovician, Devonian and Permian intrusives of diorite to granite
composition.
|
-
|
Lead-zinc
mineralization associated with Silurian-Devonian siltstone and carbonate
beds.
|
-
|
Coal
deposits associated with Carboniferous marine and deltaic sedimentary
rocks.
|
-
|
Titanium
and zirconium-rich sands in Late Carboniferous beach
sands.
|
-
|
Bauxite
and nickel laterite deposits formed from modern weathering of Paleozoic
limestones and Cambrian ultramafic
rocks.
|
License and Contract
commitments
License
#785 of Central Kazakhstan area dated January 8, 1996 and Subsoil Contract #
759, dated Oct 11, 2001 belongs to Dostyk Ltd. Contract is valid until Jan 8,
2021. Exploration period expires on Dec 31, 2009. Dostyk has currently submitted
to Kazakh Government an application for exploration extension till Dec 2011. The
area of contract territory is at the present 2,774 sq km. The contract territory
will be returned to the State by December 2011 except areas, which Dostyk would
claim as commercial discoveries i.e. those prospects on which Kazakh style
resources of C1-C2 categories would be proved.
Exploration
Works 2007
After
reviewing historical data and first drilling results, the exploration works in
2007 were focused mainly on following prospects: Beskauga, Berezki East,
Quartzite Gorka, Ushtogan and Anino-Nikolaevo.
March
2007 Quarter was a time of transfer of the Dostyk project from previous
owner to the Company. At the same time the Dostyk exploration team gathered
historical geological and exploration data to establish an exploration program
for 2007.
13
June 2007
Quarter
Exploration
works on Dostyk project commenced in April 2007 with drilling on Berezki East
and Quartzite Gorka Prospects.
Dostyk
Total
|
June
30, 2007
|
|||||||||||
Volume
|
USD
|
|||||||||||
Drilling
(m)
|
m | 4,240 | 231,250 | |||||||||
Sample
processing & assays
|
sample
|
4,430 | 31,508 | |||||||||
Metallurgical
tests
|
sample
|
0 | ||||||||||
Surveys
|
$ | 320 | ||||||||||
Data
processing
|
$ | 1,296 | ||||||||||
Consulting
services, wages, taxes, administration & others
|
$ | 74,246 | ||||||||||
TOTAL
|
338,620 |
Works
completed on each prospect in quarter June 2007
|
||||||||||||||||||||||||||||
Prospect
|
Drill
holes
|
Meters
drilled
|
Sample
processing
|
Assays
|
Geological
mapping
|
USD
|
||||||||||||||||||||||
Fire
assay Au
|
ICP
|
km2
|
||||||||||||||||||||||||||
Berezki
East
|
4 | 1,458 | 1,520 | 1,520 | 6,080 | 0 | 115,689 | |||||||||||||||||||||
Berezki
Central
|
2 | 653 | 660 | 660 | 2,640 | 0 | 64,652 | |||||||||||||||||||||
Quartzite
Gorka
|
8 | 2,147 | 2,250 | 2,250 | 9,000 | 0 | 158,279 | |||||||||||||||||||||
TOTAL
|
14 | 4,258 | 4,430 | 4,430 | 17,720 | 0 | 338,620 |
Berezki
East Gold-Copper Prospect
Primary Geology &
Infrastructure
Berezki
East is a part of a large-scale K-OZEK gold-copper-porphyry system with total
area of 15km2.
The
K-OZEK area is composed by strongly hydrothermaly altered volcanic and intrusive
formations with numerous geochemical gold-copper anomalies. The gold-copper
mineralisation is associated with pyrite and chalcopyrite within wide-spread
zones of chlorite-epidotic alteration.
Dostyk
project is located in the North Eastern region of Kazakhstan near Russian and
Chinese border. Infrastructure is just perfect with roads and railways crossing
the license area. The region has been mined for gold, base metals, nickel, coal
and others. Power lines with voltage up to 1,150 kW cross the project
area.
Berezki
East is located 22km away from Ekibastuz with perfect roads connection, 19km by
sealed road and 3km by dirt road. Ekibastuz is a town with 110,000
population, a regional centre with well developed leaving infrastructure. It is
the largest coal industry centre in Central Asia with number of power stations
supplying energy to entire Kazakhstan and Asian part of Russia.
14
Exploration works &
results
In 2007
the Company has completed 9 diamond drill holes (DDH) for a total of 3,122
meters with an average drill hole depth of 330 meters.
Berezki
East 2007
|
|||||||||||
Volume
|
USD
|
||||||||||
Drill
holes
|
drill
holes
|
9 | |||||||||
meters
drilled
|
m | 3,122 | 309,078 | ||||||||
samples
treatment
|
sample
|
3,215 | |||||||||
Fire
assays
|
assay
|
3,215 | 68,241 | ||||||||
ICP
assays
|
assay
|
12,860 | |||||||||
Geol
mapping
|
sq
km
|
5 | 167 | ||||||||
Data
processing & administration
|
99,818 | ||||||||||
Berezki
East total cost 2007
|
477,304 |
The most
representative interceptions were obtained along drilling fence F2.
|
·
|
Drilling Fence
F2. The drill holes of drilling fence F2 extended the results of
the historical drilling by intercepting a bulk mineralization zone that is
characterized by impressive grades for the porphyry systems, proximity to
the surface and extension to the depth over
300m:
|
|
o
|
DDH Bz6,112m grading
1.11g/t gold and 0.2% copper from surface, including 17.2m at 4.07g/t gold
and 0.29% copper and 21.9m at 1.96g/t gold and 0.1%
copper
|
|
o
|
DDH Bz7, 78m grading
0.59g/t gold and 0.12% copper from 70m, including 28m at 1.04g/t gold and
0.18% copper
|
The
gold-copper mineralization remains open on both ends of the zones. The
mineralization is represented by the steeply dipping linear zone. It has been
traced down to a depth of 320 meters and remains open. The zone maintains a
consistent width from the top to the bottom of app. 70m and estimated length of
350 meters.
Quartzite
Gorka Gold-Copper Prospect
Primary Geology &
Infrastructure
Quartzite
Gorka is a part of a large-scale K-OZEK gold-copper-porphyry system with total
area of 15km2 .The
K-OZEK area is composed by strongly hydrothermaly altered volcanic and intrusive
formations with numerous geochemical gold-copper anomalies. The gold-copper
mineralisation is associated with pyrite and chalcopyrite within wide-spread
zones of chlorite-epidotic alteration. Beside Quartzite Gorka the K-OZEK area
comprises five other high-prospective gold-copper deposits with exploration
potential over three million ounces of gold equivalent.
Quartzite
Gorka is located 19 km away from Ekibastuz and 5 km away from Berezki East
Prospect with same infrastructure as Berezki East.
15
Exploration works &
results
In 2007
the Company has completed 9 diamond drill holes (DDH) for a total of 2,548
meters. The drilling program was intended to explore both the lateral and
vertical extension of the gold-copper mineralization controlled by north-west
trending zone of hydrothermaly altered granodiorites. The most representative
interceptions were observed along drilling fences F3 and F7.
Quartzite
Gorka 2007
|
||||||||||||
Volume
|
USD
|
|||||||||||
Drill
holes
|
drill
holes
|
9 | ||||||||||
meters
drilled
|
m | 2,548 | 252,252 | |||||||||
samples
treatment
|
sample
|
2,670 | ||||||||||
Fire
assays
|
assay
|
2,670 | 56,669 | |||||||||
ICP
assays
|
assay
|
10,680 | ||||||||||
Geol
mapping
|
sq
km
|
5 | 167 | |||||||||
Data
processing & administration
|
99,818 | |||||||||||
Quartzite
Gorka total cost 2007
|
408,906 |
|
·
|
Drilling
Fence F3
|
The drill
holes from fence F3 confirmed the results of historical drilling and also
extended the mineralization beneath previous drilling and returned:
|
o
|
DDH Q1 144.6m grading
0.42 g/t gold and 0.18% copper from 85.0m including 78m at 0.71 g/t gold
and 0.3% copper from 85.0m
|
◦ Drilling
Fence F7
The drill
holes (Q4, Q6, Q7) of fence F7 extended the mineralization zone to the South and
opened up great potential for the deposit by revealing extensive mineralization
zones where drill hole Q6 was almost completely stayed within the mineralization
and recorded the following interval:
|
o
|
DDH Q6, 238.0m grading
0.2 g/t gold and 0.2% copper from
220.0m
|
|
o
|
DDH Q4, 101.4m grading
0.35 g/t gold and 0.2% copper from 212.0m including 6.7m at 1.1 g/t gold
and 0.2% copper from 180.0m
|
|
o
|
DDH Q7, 130.0m grading
0.16 g/t gold and 0.06% copper from 160.0m and 9.6m grading 0.11 g/t gold
and 0.03% copper from 15m
|
The
gold-copper mineralization remains open on strike and depth with estimated
length over 1,000m, a width 80 to120 meters and length in dip direction over
300m.
Beskauga
Gold-Copper Prospect
Primary Geology &
Infrastructure
Beskauga
is a large gold-copper-porphyry system with an area of over 7
km2. The
deposit area is composed by strongly hydrothermaly altered volcanic and
intrusive rocks with numerous geochemical gold-copper anomalies. The occurrence
belongs to steeply dipping zones of sericite-pyrophyllite-quartz metasomatites
and quartzites developed upon granodiorites intrusions of Late-Ordovician and
Devonian age. Host rocks are volcanogenic sedimentary stratum of Middle-Upper
Ordovician age. The gold-copper mineralization is represented by pyrite and
chalcopyrite, some places by molybdenite. Beskauga prospect is located 25 km
from nearest rail way station and in vicinity from 1,150kW power
line.
16
Exploration works &
results
The
Company has carried out in 2007 on Beskauga following works:
Beskauga
2007
|
||||||||||||
Volume
|
USD
|
|||||||||||
Drill
holes
|
drill
holes
|
16 | ||||||||||
Meters
drilled
|
m | 4,715 | 466,785 | |||||||||
samples
treatment
|
sample
|
4,510 | ||||||||||
Fire
assays
|
assay
|
4,510 | 95,612 | |||||||||
ICP
assays
|
assay
|
13,530 | ||||||||||
Geol
mapping
|
sq
km
|
10 | 334 | |||||||||
Data
processing & administration
|
99,818 | |||||||||||
Beskauga
total cost 2007
|
662,549 |
The
drilling program of 2007 was targeting large geochemical anomalies of gold,
copper and molybdenum obtained by previous exploration. The drilling led to a
discovery of two large mineralization zones within aureole of hydrothermal
alteration on area over 7 km2. The
drilling confirmed over 2,000 meters of interrupted continuity for each
mineralization zone along strike with an average width of approximately 200
meters for the eastern zone and 60 meters for the western zone. The gold-copper
mineralization remains open on both ends of the zones. The mineralization is
characterized by a steep dipping. It has been traced down to a depth of 400
meters and remains open. Both zones maintain a consistent width from the top to
the bottom and vary only from one exploration fence to another from 70 to 440
meters in the eastern zone and 25m to 100m in the western zone.
The most representative interceptions
were obtained along drilling fences F11 and F12.
Drilling Fence
F11
The drill
holes of drilling fence F11 extended the results of the historical drilling by
intercepting a bulk mineralization zone that is characterized by impressive
dimensions:
|
—
|
Length
over 2,000m
|
|
—
|
Width
over 440m
|
|
—
|
Length
in dip direction over 350m
|
|
o
|
DDH Bg1, 263.9m grading
0.40g/t gold and 0.20% copper from 38m, including 71.9m at 0.50g/t gold
and 0.23% copper
|
|
o
|
DDH Bg2, 286.8m grading
0.39g/t gold and 0.17% copper from 38m, including 64m at 0.61g/t gold and
0.22% copper
|
17
|
·
|
Drilling Fence
F12
|
On fence
F12 the drill
holes have intersected down to a depth of 400 meters an extensive mineralization
zone consisting of three bodies. The total width of mineralization zone is 280
meters.
|
o
|
DDH Bg3, 66.7m at
0.77g/t gold and 0.70% copper from
38.0m
|
|
o
|
DDH Bg6, 61.7m grading
0.19g/t gold and 0.12% copper from 37m and 98.6m grading 0.13g/t gold and
0.11% copper from 122m
|
The
results of works 2007 was a discovery of bulk low-grade gold-copper
mineralization with extension over 1.5km and a length in dip direction over
350m. The mineralization remains open on strike and depth.
September 2007
Quarter
Works
completed on each prospect in quarter September 2007
|
||||||||||||||||||||||||||||
Prospect
|
Drill
holes
|
Meters
drilled
|
Sample
processing
|
Assays
|
Geological
mapping
|
USD
|
||||||||||||||||||||||
Fire
assay Au
|
ICP
|
km2
|
||||||||||||||||||||||||||
Berezki
East
|
1 | 306 | 315 | 315 | 1,260 | 5 | 88,635 | |||||||||||||||||||||
Quartzite
Gorka
|
1 | 401 | 420 | 420 | 1,680 | 5 | 101,873 | |||||||||||||||||||||
Anino-Nikolayevo
|
23 | 4,482 | 4,535 | 4,535 | 18,140 | 10 | 645,642 | |||||||||||||||||||||
Beskauga
|
5 | 1,367 | 1,300 | 1,300 | 3,900 | 10 | 228,826 | |||||||||||||||||||||
TOTAL
|
30 | 6,556 | 6,570 | 6,570 | 24,980 | 30 | 1,064,976 |
In
September 2007 quarter the company continued drilling on Berezki East, Quartzite
Gorka, Beskauga prospects and commenced drilling on Anino-Nikolaevo
prospect.
Anino-Nikolaevo
(AN) Copper-Gold Prospect
Primary Geology &
Infrastructure
Anino-Nikolaevo
is represented by two sections Anino & Nikolaevo located in same fault zone
and distanced from each other by 2.5km.
The Anino
mineralization is situated in a linear zone of brecciaed and silicified andesite
tuffs. The length of the zone at the surface is 230m by width 5 to 20m. Strong
malachite mineralization is presented at the surface and in historical trenches
and shallow pits.
Anino-Nikolaevo
is located 93km from Ekibastuz town and only 3km from bitumen road and high
voltage power line.
Exploration works &
results
The
interesting results have been achieved only in 2 out of 11 drill holes. DDH#2 on
Fence #2 has obtained and interval of 16.5 m at 2.65% copper. DDH #4 on Fence #3
has intersected 63m at 1.25% copper and was apparently drilled in dip direction.
The entire length of traced mineralization was only 70m. Thus the Anino zone is
represented by pocket-like copper accumulations and therefore is not interested
for further exploration.
18
Nikolaevo
zone is represented by bulk pyrite mineralization in andesite tuffs. Quite high
gold grades (up to 17g/t) were defined in grab and channel samples from historic
trenches. The company has drilled 12 diamond drill holes to trace these gold
grades. However in all drill holes the gold grades varied from 0.05g/t to 0.6g/t
only. Apparently high gold grades at the surface are related to sporadic gold
accumulations in weathering crust.
Anino-Nikolayevo
2007
|
||||||||||||
Volume
|
USD
|
|||||||||||
Drill
holes
|
drill
holes
|
23 | ||||||||||
meters
drilled
|
m | 4,482 | 443,718 | |||||||||
samples
treatment
|
sample
|
4,535 | ||||||||||
Fire
assays
|
assay
|
4,535 | 96,142 | |||||||||
ICP
assays
|
assay
|
18,140 | ||||||||||
Geol
mapping
|
sq
km
|
10 | 334 | |||||||||
Data
processing & administration
|
99,818 | |||||||||||
Anino-Nikolayevo
total cost 2007
|
640,012 |
December 2007
Quarter
Works
completed on each prospect in quarter December 2007
|
||||||||||||||||||||||||||||
Prospect
|
Drill
holes
|
Meters
drilled
|
Sample
processing
|
Assays
|
Met
tests
|
USD
|
||||||||||||||||||||||
Fire
assay Au
|
ICP
|
sample
|
||||||||||||||||||||||||||
Berezki
East
|
2 | 705 | 720 | 720 | 2,880 | 0 | 174,479 | |||||||||||||||||||||
Beskauga
|
11 | 3,348 | 3,210 | 3,210 | 9,630 | 0 | 594,761 | |||||||||||||||||||||
Ushtogan
|
2 | 22,956 | ||||||||||||||||||||||||||
TOTAL
|
13 | 4,053 | 3,930 | 3,930 | 12,510 | 2 | 792,196 |
In
December 2007 quarter the Company continued infill and extension drilling on
Berezki East and Beskauga prospects and collected two small (12kg each)
metallurgical samples on Ushtogan prospect.
Primary Geology &
Infrastructure
Ushtogan
is situated in South-West corner of the license area and is represented by
linear system of quartz veining with gold mineralization discovered and
partially explored by trenches and drilling still in Soviet
times.
19
Exploration works &
results
Geological
mapping carried out by Dostyk on Ushtogan was associated with re-sampling of
trenches. The assays have confirmed presence of gold in trenches on zone length
over 350m by width 2 to 14m. The gold grades vary from 0.1g/t to 12g/t averaging
2.5g/t. The prospect was prepared for drilling in 2008. Two small metallurgical
samples were processed for gold recovery by means of cyanidation. As
a results there have been achieved positive gold recovery of 81% and 82%
respectively by crushing size 200 mesh.
Item
3.
|
Legal
Proceedings
|
The
Company is not involved in any legal proceedings at this time.
Item
4.
|
Submission
of Matters to a Vote of Security
Holders
|
There
were no matters submitted to a vote of our security holders either through
solicitation of proxies or otherwise in the fourth quarter of the fiscal year
ended December 31, 2007.
PART
II
Item
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
Our
Common Stock is quoted on the Pink Sheets. The following table sets forth the
high and low bid prices for the Common Stock for the calendar quarters indicated
as reported by the NASD OTC Bulletin Board for the last two years. These prices
represent quotations between dealers without adjustment for retail mark-up,
markdown or commission and may not represent actual transactions.
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
|||||||||||||
2007
– High
|
$ | 0.900 | $ | 0.600 | $ | 0.680 | $ | 0.600 | ||||||||
2007
– Low
|
$ | 0.520 | $ | 0.390 | $ | 0.300 | $ | 0.200 | ||||||||
2006
– High
|
$ | 1.270 | $ | 1.600 | $ | 1.250 | $ | 1.010 | ||||||||
2006
– Low
|
$ | 0.575 | $ | 0.850 | $ | 0.870 | $ | 0.750 | ||||||||
2005
– High
|
$ | 1.525 | $ | 1.575 | $ | 1.550 | $ | 1.426 | ||||||||
2005
– Low
|
$ | 1.350 | $ | 1.450 | $ | 1.000 | $ | 1.010 | ||||||||
2004
– High
|
$ | 1.125 | $ | 1.125 | $ | 1.450 | $ | 1.500 | ||||||||
2004
– Low
|
$ | 0.505 | $ | 0.750 | $ | 0.655 | $ | 0.725 |
Our stock
is also quoted in the Frankfurt Exchange under the symbols “C9K.FSE,” and
“C9K.ETR”.
|
(1)
|
The
high and low bid prices for our Common Stock for the Fourth Quarter of
2007 were for the period October 1, 2007 to December 31,
2007.
|
As of
December 31, 2007, there were 9 holders of record of the Common
Stock.
20
No cash
dividends were paid in 2007 or 2006. No cash dividends have been paid subsequent
to December 31, 2007. The amount and frequency of cash dividends are
significantly influenced by metal prices, operating results and our cash
requirements.
We do not
have securities authorized for issuance under an equity compensation
plan.
No
securities were issued without registration under the Securities Act of 1933, as
amended (the "Act") during the fourth quarter of 2007.
We did
not effect any repurchases of our securities during the fourth quarter of Fiscal
2007.
Item
6.
|
Selected
Financial Data
|
The
Company has not generated any operating revenues to date. Since incorporation it
has been inactive as far as mining activities are concerned. The
Company’s plans, funding requirements, sources and alternatives relating thereto
are presented and discussed in “Item 7 - "Management’s Discussion and analysis
of Financial Condition and Results of Operations".
The
following table below sets forth, for the periods and the dates indicated
selected financial data for the Company. This information should be
read in conjunction with the Company's Audited Consolidated Financial Statements
and Notes thereto for the period ended December 31, 2007 and “Item 7 –
"Management’s Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein.
The
selected financial data provided below are not necessarily indicative of the
future results of operations or financial performance of the
Company. To date the Company has not paid any dividends on the Common
Shares and it does not expect to pay dividends in the foreseeable
future.
The
Financial Statements of the Company have been prepared in accordance with
accounting principles generally accepted in United States ("US
GAAP").
21
FIVE YEAR COMPARATIVE SUMMARY OF
SELECTED FINANCIAL DATA
(expressed
in U.S. dollars unless otherwise
indicated)
|
Period
Type
|
12
Months
|
12
Months
|
12
Months
|
12
Months
|
12
Months
|
|||||||||||||||
Fiscal
Year End
|
Dec
31, 2007
|
Dec
31, 2006
|
Dec
31, 2005
|
Dec
31, 2004
|
Dec
31, 2003
|
|||||||||||||||
Current
Assets
|
$ | 1,292,567 | $ | 3,248,741 | $ | 431,967 | $ | 566,160 | $ | 279,227 | ||||||||||
Total
Assets
|
4,084,372 | 3,248,741 | 431,967 | 566,160 | 279,227 | |||||||||||||||
Current
Liabilities
|
1,077,410 | 54,915 | 43,880 | 21,722 | 46,738 | |||||||||||||||
Long
term Liabilities
|
1,166,056 | - | - | - | - | |||||||||||||||
Minority
Interest
|
526,651 | - | - | - | - | |||||||||||||||
Common
Stock
|
6,814,444 | 6,718,444 | 2,051,600 | 1,701,600 | 701,600 | |||||||||||||||
Other
Equity
|
(5,500,189 | ) | (3,524,618 | ) | (1,963,513 | ) | (1,157,162 | ) | (469,111 | ) | ||||||||||
Total
Liability and Equity
|
4,084,372 | 3,248,741 | 431,967 | 566,160 | 279,227 | |||||||||||||||
Other
Expenses
|
1,909,808 | 1,545,617 | 888,224 | 657,031 | 17,631 | |||||||||||||||
Income
(Loss) Pre-tax
|
(1,909,808 | ) | (1,545,617 | ) | (888,224 | ) | (657,031 | ) | (17,631 | ) | ||||||||||
Net
Income (Loss)
|
(1,909,808 | ) | (1,545,617 | ) | (888,224 | ) | (657,031 | ) | (17,631 | ) | ||||||||||
EPS
Basic
|
(0.05 | ) | (0.04 | ) | (0.03 | ) | (0.02 | ) | (0.00 | ) | ||||||||||
EPS
Diluted
|
(0.05 | ) | (0.04 | ) | (0.03 | ) | (0.02 | ) | (0.00 | ) | ||||||||||
Common
Shares Issued and Outstanding
|
39,700,000 | 39,500,000 | 30,700,000 | 14,000,000 | 14,000,000 |
Item
7.
|
Management’s
Discussion and analysis of Financial Condition and results of
Operations
|
(A)
|
General
|
We are a
mineral exploration company engaged in the exploration of base, precious metals
and industrial minerals worldwide. We were incorporated under the
laws of the State of Florida on January 13, 1989, under the name "Cigma Ventures
Corporation." We conduct our exploration and property
acquisition activities through our head office which is located at is located at
18, 80 Furmanova Str, Almaty, Republic of Kazakhstan. The telephone number is
(+7) 327 – 2611 026.
We had no
revenues during fiscal 2007 and 2006. Funds raised in fiscal 2007 and 2006 were
used for exploration of our properties and general administration.
(B)
|
Results
of Operations
|
Year
Ended December 31, 2007 (Fiscal 2007) versus Year Ended December 31, 2006
(Fiscal 2006)
For the
year ended December 31, 2007 we recorded a loss of $1,909,808 or $0.05 per
share, compared to a loss of $1,545,617 or $0.04 per share in 2006.
General
and administrative expenses – For the year ended December 31, 2007 we recorded
general and administrative expenses of $712,642 (fiscal 2006 - $978,282). The
fiscal 2007 amount includes professional fees - accounting $14,070 (fiscal 2006
- $56,755) and legal $93,741 (fiscal 2006 - $196,012).
22
Exploration
expenditures - For the
year ended December 31, 2007, we recorded total exploration costs of $1,412,265
compared to $618,085 in fiscal 2006. Exploration expenses on the Haldeevskaya
mineral exploration license area located in the Tomsk Oblast region of the
Russian Federation totalled $0 (2006 - $288,635).
The
Company’s investment in the HaldeyGold partnership interest is as
follows:
January
13, 1989
(inception)
to
December
31, 2007
|
Year
ended
December
31, 2007
|
Year
ended
December
31, 2006
|
||||||||||
Capital
invested
|
$ | 986,862 | $ | - | $ | 289,833 | ||||||
Exploration
costs incurred
|
(796,261 | ) | (231,866 | ) | ||||||||
190,601 | - | 57,967 | ||||||||||
Write-down
of investment in partnership interest
|
(190,601 | ) | (57,967 | ) | ||||||||
Partnership
interest at end of year
|
$ | - | $ | - | $ | - |
Exploration
costs on the Tugojakovsk mineral exploration license area located in the Tomsk
Oblast region of the Russian Federation totalled $0 (2006 -
$329,450).
January
13, 1989
(inception)
to
December
31, 2007
|
Year
ended
December
31, 2007
|
Year
ended
December
31, 2006
|
||||||||||
Capital
invested
|
$ | 453,821 | $ | - | $ | 329,450 | ||||||
Exploration
costs incurred
|
(453,821 | ) | (329,450 | ) | ||||||||
Partnership
interest at end of year
|
$ | - | $ | - | $ | - |
Exploration
costs on the Dostyk area located in the Pavlodar Oblast region of Kazakhstan
totalled $1,412,265 (2006 - $0).
Depreciation
expense – For the year ended December 31, 2007 we recorded depreciation expense
of $11,010 compared to $0 in fiscal 2006.
(C)
|
Capital
Resources and Liquidity
|
December
31, 2007 versus December 31, 2006:
The
Company currently finances its activities primarily by the private placement of
securities. There is no assurance that equity funding will be accessible to the
Company at the times and in the amounts required to fund the Company’s
activities. There are many conditions beyond the Company’s control which have a
direct bearing on the level of investor interest in the purchase of Company
securities. The Company may also attempt to generate additional working capital
through the operation, development, sale or possible joint venture development
of its properties, however, there is no assurance that any such activity will
generate funds that will be available for operations. Debt financing has not
been used to fund the Company’s property acquisitions and exploration activities
and the Company has no current plans to use debt financing. The Company does not
have “standby” credit facilities, or off-balance sheet arrangements and it does
not use hedges or other financial derivatives. The Company has no agreements or
understandings with any person as to additional financing.
23
At
December 31, 2007, we had cash of $1,148,702 (2006 - $3,082,432) and working
capital of $215,157 (2006 working capital - $3,193,826) respectively. Total
liabilities as of December 31, 2007 were $2,243,466 as compared to $54,915 on
December 31, 2006, an increase of $2,188,551. In June 2007 the
Company issued 200,000 common shares valued at approximately $96,000 as a
finder’s fee in consideration for arranging property acquisitions in
Kazakhstan.
Our
general business strategy is to acquire mineral properties either directly or
through the acquisition of operating entities. Our consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles in the United States of America and applicable to a going concern
which contemplates the realization of assets and the satisfaction of liabilities
and commitments in the normal course of business. As discussed in note 1 to the
consolidated financial statements, the Company has incurred recurring operating
losses since inception, has not generated any operating revenues to date and
used cash of $981,114 from operating activities in 2007. The Company requires
additional funds to meet its obligations and maintain its
operations. We do not have sufficient working capital to (i) pay our
administrative and general operating expenses through December
31, 2007 and (ii) to conduct our preliminary exploration programs. Without cash
flow from operations, we may need to obtain additional funds (presumably through
equity offerings and/or debt borrowing) in order, if warranted, to implement
additional exploration programs on our properties. While we may attempt to
generate additional working capital through the operation, development, sale or
possible joint venture development of its properties, there is no assurance that
any such activity will generate funds that will be available for
operations. Failure to obtain such additional financing may result in
a reduction of our interest in certain properties or an actual foreclosure of
its interest. We have no agreements or understandings with any person as to such
additional financing.
Our
exploration properties have not commenced commercial production and we have no
history of earnings or cash flow from its operations. While we may attempt to
generate additional working capital through the operation, development, sale or
possible joint venture development of its property, there is no assurance that
any such activity will generate funds that will be available for
operations.
Cash
Flow
Operating
activities: The
Company used cash of $981,114 (used cash in 2006 - $548,455) through the year
ended December 31, 2007 and 2006. The following is a breakdown of cash used for
operating activities: Depreciation and amortization of $11,010 (2006 - $0),
stock compensation expense on stock option grants $0 (2006 - $366,844), expenses
satisfied with issuance of common stock $96,000 (2006 - $0), partnership
explorations costs of $0 (2006 - $561,316) and write-down of investment in
partnership interest of $0 (2006 – 57,967). Changes in prepaid expenses and
other assets resulted in an increase of $51,280 compared to no change in 2006.
There was an increase in accounts payable and accrued liabilities of $1,003,703
compared to an increase of $28,021 in 2006. There was no change in accounts
payable to related party in 2007 but a decrease of $16,986 in 2006.
Investing
Activities: During the year ended December 31, 2007
investing activities consisted of expenditures on the purchase of assets of
$126,719 (2006 - $0), acquisition of mineral property costs of $2,000,000 (2006
- $0). There was no investment in partnership interest for 2007 but there were
investments in 2006 totalling $619,283.
Financing
Activities: The Company intends to finance its activities
by raising capital through the equity markets. In fiscal 2007 the Company did
not issue any new common stock, during fiscal 2006 the Company issued 8,000,000
shares for net cash of $4,000,000. The Company’s subsidiary Dostyk had a loan
payable to Eureka Mining PLC. The loan is unsecured, non- interest bearing with
repayment to begin when the Company shall begin to generate profit as a direct
or non direct result of exploration. On March 15, 2007, Cigma and Eureka signed
an Assignment Agreement under which Cigma assumed responsibility for repayment
of all amounts due under the loan. The Company does not expect to generate funds
from Dostyk’s operations during the next five years to make any principal
repayments on the loan. No repayment of principal, interest and default interest
has been made under the Agreement. The loan balance at December 31, 2007 is
$1,166,056 (2006 - $0).
24
Dividends
The
Company has neither declared nor paid any dividends on its Common stock. The
Company intends to retain it’s earnings to finance growth and expand its
operations and does not anticipate paying any dividends on its Common shares in
the foreseeable future.
Asset-Backed
Commercial Paper
The
Company has no asset-backed commercial paper.
Financial
Instruments
Fair
value estimates of financial instruments are made at a specific point in time,
based on relevant information about financial markets and specific financial
instruments. As these estimates are subjective in nature, involving
uncertainties and matters of significant judgment, they cannot be determined
with precision. Changes in assumptions can significantly affect
estimated fair value. The carrying value of cash, accounts payable and accrued
expenses, accounts payable and accrued expenses – related parties, advances
payable – related party, loans payable and loan payable - related party
approximate their fair value because of the short-term nature of these
instruments. The carrying value of the convertible notes payable approximate
their fair value because interest rates of long-term convertible notes payable
approximate market interest rates. Management is of the opinion that the Company
is not exposed to significant interest or credit risks arising from these
financial instruments.
The
Company operates outside of the United States of America (primarily in
Kazakhstan) and is exposed to foreign currency risk due to the fluctuation
between the currency in which the Company operates in and the U.S.
dollar.
Share
Capital
At
December 31, 2007, the Company had:
◦
|
Authorized
share capital of 100,000,000 common shares with par value of $0.001
each.
|
◦
|
39,700,000
common shares were issued and outstanding as at December 31, 2007
(December 31, 2006 – 39,500,000). If the holders were to acquire all
800,000 shares issuable upon the exercise of all incentive stock options
and acquire all 8,000,000 warrants outstanding, the Company would receive
an additional $704,000 and $5,704,000
respectively.
|
◦
|
800,000
stock options outstanding under the Company’s incentive stock option plan.
The stock options are exercisable at of $0.88 per share, with expiry date
of November 30, 2008.
|
◦
|
8,000,000
warrants outstanding. The warrants are exercisable at of $0.713 per share,
with expiry date of May 12, 2008 for 6,540,000 warrants and May 26, 2008
for 1,460,000 warrants.
|
25
OUTLOOK
Capital
and Exploration Expenditures
We are
reviewing our capital and exploration spending in light of current market
conditions. As a result of our review, the Company may curtail a portion of its
capital and exploration expenditures during 2008/2009.
We are
currently concentrating our exploration activities in Kazakhstan and examining
data relating to the potential acquisition or joint venturing of additional
mineral properties in either the exploration or development stage.
Off-Balance
Sheet Arrangements
During
the year ended December 31, 2007, the Company was not a party to any
off-balance-sheet arrangements that have, or are reasonably likely to have, a
material current or future effect on the results of operations, financial
condition, revenues or expenses, liquidity, capital expenditures or capital
resources of the Company.
Market
Risk Disclosures
The
Company has not entered into derivative contracts either to hedge existing risks
or for speculative purposes.
Forward-Looking
Statements
This
annual report contains forward-looking statements as that term is defined in the
Private Securities Litigation Reform Act of 1995. These statements relate
to future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may", "should",
"expects", "plans", "anticipates", "believes", "estimates", "predicts",
"potential" or "continue" or the negative of these terms or other comparable
terminology. These statements are only predictions and involve known and
unknown risks, uncertainties and other factors, including the risks in the
section entitled “Risk Factors” that may cause our industry's actual results,
levels of activity, performance or achievements to be materially different from
any future results, levels of activity, performance or achievements expressed or
implied by these forward-looking statements.
Although
we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Except as required by applicable law, including the
securities laws of the United States, we do not intend to update any of the
forward-looking statements to conform these statements to actual
results.
Plans
for Next Twelve Months
The
following Plan of Operation contains forward-looking statements that involve
risks and uncertainties, as described below. The Company’s actual results
could differ materially from those anticipated in these forward-looking
statements. The following discussion should be read in conjunction with
the audited financial statements and notes thereto and the Plan of Operation
included in this Annual Report on Form 10-K for the fiscal year ended December
31, 2007.
Our
audited financial statements are stated in United States Dollars and are
prepared in accordance with United States Generally Accepted Accounting
Principles.
26
During
the next 12 months we intend to raise additional funds through equity offerings
and/or debt borrowing to meet our administrative/general operating expenses and
to conduct work on our exploration properties. There is, of course, no assurance
that we will be able to do so.
Our
exploration properties have not commenced commercial production and we have no
history of earnings or cash flow from its operations. While we may attempt to
generate additional working capital through the operation, development, sale or
possible joint venture development of its property, there is no assurance that
any such activity will generate funds that will be available for
operations.
We intend
to raise additional funds through equity offerings and/or debt borrowing to meet
our administrative/general operating expenses and to conduct work on our
exploration property. There is, of course, no assurance that we will be able to
do so.
In 2008
the Company intends to continue exploration works on prospects explored in 2007
and look for potential on further extensions as well as set a drill program on
Ushtogan prospect and others. We were planning also further metallurgical
studies to achieve commercial flotation concentrate. For purpose of resource
estimation proposed is a hydrogelogical study on three prospects submitted for
resource estimation. Additional employees will be hired on a consulting basis as
required by the exploration properties.
Dostyk
Exploration Program 2008
|
||||||||||||||||
Program
|
Units
|
Q-ty
|
Price
|
Total
US$
|
||||||||||||
Diamond
drilling
|
m | 12,500 | 107 | 1,342,975 | ||||||||||||
core
samples splitting, crushing, pulverization
|
sample
|
12,500 | 11.00 | 137,500 | ||||||||||||
Assays,
incl metallurgy
|
assay
|
12,500 | 15.60 | 195,000 | ||||||||||||
Metallurgical
test
|
sample
|
1 | 2,850.00 | 2,850 | ||||||||||||
Resource
estimation, JORC standard
|
prospect
|
3 | 25,000.00 | 75,000 | ||||||||||||
Transportation
|
month
|
12 | 4,500.00 | 54,000 | ||||||||||||
Hydrogeology
|
study
|
1 | 60,000.00 | 60,000 | ||||||||||||
Subtotal
drilling+assays+resource, etc
|
$ | 1,802,325 | ||||||||||||||
Exploration
staff salary
|
$ | 129,350 | ||||||||||||||
Other
on-site expenses
|
$ | 20,705 | ||||||||||||||
Total
exploration works
|
$ | 1,952,380 | ||||||||||||||
Overheads
|
$ | 46,380 | ||||||||||||||
Other
administration expenses
|
$ | 67,800 | ||||||||||||||
Sub
total
|
$ | 2,066,560 | ||||||||||||||
Sundries
5 %
|
$ | 100,339 | ||||||||||||||
Total
|
$ | 2,166,899 |
(D)
|
Application
of Critical Accounting Policies
|
The
accounting policies and methods we utilize in the preparation of our
consolidated financial statements determine how we report our financial
condition and results of operations and may require our management to make
estimates or rely on assumptions about matters that are inherently uncertain.
Our accounting policies are described in note 2 to our December 31, 2007
consolidated financial statements. Our accounting policies relating to mineral property and exploration
costs and depreciation and amortization of property, plant and equipment
are critical accounting policies that are subject to estimates and assumptions
regarding future activities.
27
Depreciation
is based on the estimated useful lives of the assets and is computed using the
straight-line method. Equipment is recorded at
cost. Depreciation is provided over the following useful
lives: vehicles 10 years and office equipment, furniture and fixtures
2 to 10 years.
Exploration
costs are charged to operations as incurred until such time that proven reserves
are discovered. From that time forward, the Company will capitalize all costs to
the extent that future cash flow from mineral reserves equals or exceeds the
costs deferred. The deferred costs will be amortized over the recoverable
reserves when a property reaches commercial production. As at December 31, 2007
and 2006, the Company did not have proven reserves.
Exploration
activities conducted jointly with others are reflected at the Company's
proportionate interest in such activities.
Costs related to site restoration programs are accrued
over the life of the project.
US GAAP
requires us to consider at the end of each accounting period whether or not
there has been an impairment of the capitalized property, plant and equipment.
This assessment is based on whether factors that may indicate the need for a
write-down are present. If we determine there has been an impairment, then we
would be required to write-down the recorded value of its property, plant and
equipment costs which would reduce our earnings and net assets.
(E)
|
Related
Party Transactions
|
During
the fiscal year 2007, consulting fees of $184,800 (2006 – $158,500) were paid to
directors of the Company and its subsidiary. The transactions were recorded at
the exchange amount, being the value established and agreed to by the related
parties.
(F)
|
Off-balance
Sheet Arrangements and Contractual
Obligations
|
We do not
have any off-balance sheet arrangements or contractual obligations that are
likely to have or are reasonably likely to have a material current or future
effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that have not been disclosed in our financial statements.
Item
7A.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
Our
exposure to market risk is confined to our cash equivalents and short-term
investments. We invest in high-quality financial instruments; primarily money
market funds, federal agency notes, and US Treasury obligations, with the
effective duration of the portfolio within one year which we believe are subject
to limited credit risk. We currently do not hedge interest rate exposure. Due to
the short-term nature of our investments, we do not believe that we have any
material exposure to interest rate risk arising from our
investments.
Item
8.
|
Consolidated
Financial Statements and Supplementary
Data
|
Our
audited financial statements are stated in United States dollars (US$) and are
prepared in accordance with United States Generally Accepted Accounting
Principles.
The
following audited financial statements are filed as part of this annual
report:
Report of
Independent Registered Public Accounting Firm, dated February 17,
2010
28
Report of
Independent Registered Public Accounting Firm, dated April 30, 2007
Consolidated
Balance Sheets as of December 31, 2007 and 2006
Consolidated
Statements of Operations from January 13, 1989 (commencement of operations) to
December 31, 2007 and for the years ended December 31, 2007 and
2006
Statements
of Stockholders’ Equity (Deficit) for period from January 13, 1989 (commencement
of operations) to December 31, 2007
Consolidated
Statements of Cash Flows for period from January 13, 1989 (commencement of
operations) to December 31, 2007 and for the years ended December 31, 2007 and
2006
Notes to
the Consolidated Financial Statements
29
CIGMA
METALS CORPORATION
(An
exploration stage enterprise)
Consolidated
Financial Statements
(Expressed
in U.S. Dollars)
December
31, 2007 and 2006
Index
Report of
Independent Registered Public Accounting Firm
Report of
Independent Registered Public Accounting Firm
Consolidated
Balance Sheets
Consolidated
Statements of Operations
Consolidated
Statement of Stockholders' Equity (Deficiency) and Comprehensive Income
(Loss)
Consolidated
Statements of Cash Flows
Notes to
Consolidated Financial Statements
F-1
CERTIFIED
PUBLIC ACCOUNTANTS
|
Tel 206.382.7777 Ÿ Fax
206.382.7700
|
601
UNION STREET, SUITE 2300
|
www.pscpa.com
|
SEATTLE,
WASHINGTON 98101
|
To the
Board of Directors and Shareholders
Cigma
Metals Corporation
We have
audited the accompanying consolidated balance sheet of Cigma Metals Corporation
(an exploration stage company) ("the Company") as of December 31,
2007, and the related consolidated statements of operations, stockholders'
equity (deficiency) and comprehensive income (loss), and cash flows for the year
then ended and for the period from January 13, 1989 (date of inception) to
December 31, 2007. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit. The Company’s consolidated financial statements for the period
from January 13, 1989 (date of inception) through December 31, 2006,
were audited by other auditors whose report, dated April 30, 2007,
expressed an unqualified opinion on those statements and included an explanatory
paragraph that referred to substantial doubt about the Company’s ability to
continue as a going concern. The financial statements for the period
from January 13, 1989 (date of inception) through December 31, 2006,
reflect a net loss of $3,509,130 of the accumulated deficit as of
December 31, 2007. The other auditors’ report has been furnished
to us, and our opinion, insofar as it relates to the amounts included for such
prior periods, is based solely on the report of such other
auditors.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company has determined that it is not required to have, nor were we engaged to
perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our
opinion, based on our audit and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Cigma Metals Corporation (an
exploration stage company) as of December 31, 2007, and the results of its
operations and its cash flows for the year then ended and for the period from
January 13, 1989 (date of inception) to December 31, 2007, in
conformity with accounting principles generally accepted in the United
States.
The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 1
to the consolidated financial statements, the Company has not generated revenue
and has experienced recurring losses from operations since inception, and has a
working capital deficit. These conditions raise substantial doubt
about the Company’s ability to continue as a going
concern. Management’s plans regarding these matters are also
described in Note 1. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/S/
PETERSON SULLIVAN LLP
Seattle,
Washington
February 17,
2010
F-2
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Stockholders and Board of Directors of Cigma Metals Corporation:
We have
audited the accompanying consolidated balance sheets of Cigma Metals Corporation
(the “Company”) (an exploration stage company) as at December 31, 2006 and 2005
and the consolidated statements of operations, stockholders’ equity, and cash
flows for the years then ended and the cumulative period from May 15, 1998
(inception) to December 31, 2006. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our
audits. The financial statements for the period from January 13, 1989
(inception) to December 31, 2004 were reported on by other auditors and reflect
a total net loss of $1,075,289 of the related cumulative totals. The
other auditors’ reports have been furnished to us, and our opinion, insofar as
it relates to amounts included for such prior periods, is based solely on the
reports of such other auditors.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, these consolidated financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 2006 and 2005
and the results of its operations and its cash flows and the changes in
stockholders’ equity for the years then ended and for the period from January
13, 1989 (inception) to December 31, 2006, in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1
to the financial statements, to date the Company has reported losses since
inception from operations and requires additional funds to meet its obligations
and fund the costs of its operations. These factors raise substantial
doubt about the Company’s ability to continue as a going
concern. Management’s plans in this regard are described in Note
1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
As
discussed in Note 11 to the financial statements, the Company has restated the
financial statements for the year ended December 31, 2005 to reflect the 2 for 1
forward stock split that occurred on May 15, 2006.
“DMCL”
DALE
MATHESON CARR-HILTON LABONTE LLP
CHARTERED
ACCOUNTANTS
Vancouver,
Canada
April 30,
2007
Vancouver
|
Suite
1500 – 1140 West Pender Street, Vancouver, B.C., Canada V6E 4G1, Tel: 604
687 4747 Ÿ
Fax: 604 689 2778 – Main Reception
|
South
Surrey
|
Suite
301 – 1656 Martin Drive, White Rock, B.C., Canada V4A 6E7, Tel: 604 531
1154 Ÿ Fax:
604 538 2613
|
Port
Coquitlam
|
Suite
700 – 2755 Lougheed Highway, Port Coquitlam, B.C., Canada V3B 5Y9, Tel:
604 941 8266 Ÿ Fax: 604 941
0971
|
F-3
CIGMA
METALS CORPORATION
(An
exploration stage enterprise)
|
||||||||
Consolidated
Balance Sheets
|
||||||||
December
31, 2007 and December 31, 2006
|
||||||||
(Expressed
in U.S. Dollars)
|
||||||||
December
31
|
December
31
|
|||||||
|
2007
|
2006
|
||||||
ASSETS
|
||||||||
Current
|
||||||||
Cash
|
$ | 1,148,702 | $ | 3,082,432 | ||||
Available-for-sale
securities
|
92,445 | 166,309 | ||||||
Prepaid expenses and other
assets
|
51,420 | - | ||||||
Total
current assets
|
1,292,567 | 3,248,741 | ||||||
Equipment,
net
|
115,709 | - | ||||||
Mineral properties
|
2,676,096 | - | ||||||
Total assets
|
4,084,372 | 3,248,741 | ||||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
liabilities
|
||||||||
Accounts payable and accrued
expenses
|
$ | 1,077,410 | $ | 54,915 | ||||
Total
current liabilities
|
1,077,410 | 54,915 | ||||||
Long-term debt
|
1,166,056 | - | ||||||
Total liabilities
|
2,243,466 | 54,915 | ||||||
Non-controlling
interest
|
526,651 | - | ||||||
Stockholders'
Equity
|
||||||||
Common
stock
|
||||||||
Authorized
|
||||||||
100,000,000
common shares, par value $0.0001
|
||||||||
Issued
and outstanding:
|
||||||||
39,700,000
(2006 - 39,500,000) common shares
|
3,970 | 3,950 | ||||||
Additional
paid in capital
|
6,810,474 | 6,714,494 | ||||||
Accumulated
deficit during the exploration stage
|
(5,418,938 | ) | (3,509,130 | ) | ||||
Accumulated other comprehensive income
(loss)
|
(81,251 | ) | (15,488 | ) | ||||
Stockholders' equity
|
1,314,255 | 3,193,826 | ||||||
Total liabilities and stockholders'
equity
|
$ | 4,084,372 | $ | 3,248,741 |
The
accompanying notes are an integral part of these consolidated financial
statements.
F-4
CIGMA
METALS CORPORATION
(An
exploration stage enterprise)
|
||||||||||||
Consolidated
Statements of Operations
|
||||||||||||
(Expressed in U.S. Dollars)
|
Cumulative January 13 1989 (inception) to December
31 2007
|
Year Ended December 31 2007
|
Year Ended December 31 2006
|
|||||||||
Expenses
|
||||||||||||
Administrative
and general
|
$ | 552,890 | $ | 269,499 | $ | 104,874 | ||||||
Exploration
costs
|
||||||||||||
-
HaldeyGold Project - partnership
|
796,261 | - | 231,866 | |||||||||
-
HaldeyGold Project - other
|
185,126 | - | 56,769 | |||||||||
-
Tugojakovsk Project
|
453,821 | - | 329,450 | |||||||||
-
Kazakhstan
|
1,412,265 | 1,412,265 | - | |||||||||
Interest,
bank charges and foreign currency
|
||||||||||||
exchange (gains)
losses
|
21,126 | 7,238 | 6,069 | |||||||||
Professional
fees
|
565,928 | 107,811 | 252,767 | |||||||||
Property
investigation costs
|
119,717 | - | 17,963 | |||||||||
Management and consulting
fees
|
1,336,419 | 328,094 | 596,609 | |||||||||
Total expenses
|
5,443,553 | 2,124,907 | 1,596,367 | |||||||||
Other
income (loss)
|
||||||||||||
Writedown
of available-for-sale securities
|
(148,180 | ) | - | - | ||||||||
Writedown
of investment in partnership interest
|
(190,601 | ) | - | (57,967 | ) | |||||||
Interest income
|
232,657 | 84,360 | 108,717 | |||||||||
Total other income (loss)
|
(106,124 | ) | 84,360 | 50,750 | ||||||||
Net
loss before non-controlling interest
|
(5,549,677 | ) | (2,040,547 | ) | (1,545,617 | ) | ||||||
Non-controlling interest
|
130,739 | 130,739 | - | |||||||||
Net income (loss) for the
period
|
$ | (5,418,938 | ) | $ | (1,909,808 | ) | $ | (1,545,617 | ) | |||
Basic and diluted loss per
share
|
$ | (0.05 | ) | $ | (0.04 | ) | ||||||
Weighted average number of common shares
outstanding
|
39,603,297 | 35,812,088 |
The
accompanying notes are an integral part of these consolidated financial
statements.
F-5
Cigma
Metals Corporation
(An
exploration stage enterprise)
Consolidated
Statements of Stockholders’ Equity (Deficiency)
January
13, 1989 (inception) to December 31, 2007
(Expressed
in U.S. Dollars)
CIGMA
METALS CORPORATION
|
||||||||||||||||||||||||||||||||
(An
exploration stage enterprise)
|
|
|||||||||||||||||||||||||||||||
Consolidated
Statements of Stockholders' Equity (Deficiency) and
|
|
|||||||||||||||||||||||||||||||
Comprehensive
Income (Loss)
|
||||||||||||||||||||||||||||||||
January
13, 1989 (inception) to December 31, 2007
|
||||||||||||||||||||||||||||||||
(Expressed in U.S. Dollars)
|
||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
Common
stock
|
Additional paid-in |
Compre- hensive |
Accumulated (deficit)
during |
Common stock |
Accumulated other |
Total stockholders' |
||||||||||||||||||||||||||
Shares
|
Amount
|
capital
|
(loss)
|
stage
|
to
be issued
|
income
(loss)
|
(deficiency)
|
|||||||||||||||||||||||||
Issuance
of common stock for
|
||||||||||||||||||||||||||||||||
-
for services on August 2, 1989
|
2,000,000 | $ | 200 | $ | 800 | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||||||
Components
of comprehensive income (loss)
|
||||||||||||||||||||||||||||||||
-
Net (loss) for the year
|
- | - | - | (1,000 | ) | (1,000 | ) | - | - | (1,000 | ) | |||||||||||||||||||||
Total
comprehensive (loss)
|
$ | (1,000 | ) | |||||||||||||||||||||||||||||
Balance,
December 31, 1991 to 1997
|
2,000,000 | 200 | 800 | (1,000 | ) | - | - | (1,000 | ) | |||||||||||||||||||||||
Issuance
of common stock for
|
||||||||||||||||||||||||||||||||
-
for mineral property rights on April 2, 1998
|
12,000,000 | 1,200 | (600 | ) | - | - | - | 600 | ||||||||||||||||||||||||
Components
of comprehensive income (loss)
|
||||||||||||||||||||||||||||||||
-
Net (loss) for the year
|
- | - | - | (600 | ) | (600 | ) | - | - | (600 | ) | |||||||||||||||||||||
Total
comprehensive (loss)
|
$ | (600 | ) | |||||||||||||||||||||||||||||
Balance,
December 31, 1998
|
14,000,000 | 1,400 | 200 | (1,600 | ) | - | - | - | ||||||||||||||||||||||||
Issuance
of common stock for
|
||||||||||||||||||||||||||||||||
-
cash on March 31, 1999
|
14,000,000 | 1,400 | 698,600 | - | - | - | 700,000 | |||||||||||||||||||||||||
Components
of comprehensive income (loss)
|
F-6
-
Net (loss) for the year
|
- | - | - | (141,392 | ) | (141,392 | ) | - | - | (141,392 | ) | |||||||||||||||||||||
Total
comprehensive (loss)
|
$ | (141,392 | ) | |||||||||||||||||||||||||||||
Balance,
December 31, 1999
|
28,000,000 | 2,800 | 698,800 | (142,992 | ) | - | - | 558,608 | ||||||||||||||||||||||||
Components
of comprehensive income (loss)
|
||||||||||||||||||||||||||||||||
-
Net (loss) for the year
|
- | - | - | (211,182 | ) | (211,182 | ) | - | - | (211,182 | ) | |||||||||||||||||||||
-
Unrealized losses on available-for-sale securities
|
- | - | - | (77,734 | ) | - | - | (77,734 | ) | (77,734 | ) | |||||||||||||||||||||
Total
comprehensive (loss)
|
$ | (288,916 | ) | |||||||||||||||||||||||||||||
Balance,
December 31, 2000
|
28,000,000 | 2,800 | 698,800 | (354,174 | ) | - | (77,734 | ) | 269,692 | |||||||||||||||||||||||
Components
of comprehensive income (loss)
|
||||||||||||||||||||||||||||||||
-
Net (loss) for the year
|
- | - | - | (25,510 | ) | (25,510 | ) | - | - | (25,510 | ) | |||||||||||||||||||||
-
Unrealized losses on available-for-sale securities
|
- | - | - | (17,803 | ) | - | - | (17,803 | ) | (17,803 | ) | |||||||||||||||||||||
Total
comprehensive (loss)
|
$ | (43,313 | ) | |||||||||||||||||||||||||||||
Balance,
December 31, 2001
|
28,000,000 | 2,800 | 698,800 | (379,684 | ) | - | (95,537 | ) | 226,379 | |||||||||||||||||||||||
Components
of comprehensive income (loss)
|
||||||||||||||||||||||||||||||||
-
Net (loss) for the year
|
- | - | - | (20,943 | ) | (20,943 | ) | - | - | (20,943 | ) | |||||||||||||||||||||
-
Unrealized losses on available-for-sale securities
|
- | - | - | 48,407 | - | - | 48,407 | 48,407 | ||||||||||||||||||||||||
Total
comprehensive (loss)
|
$ | 27,464 | ||||||||||||||||||||||||||||||
Balance,
December 31, 2002
|
28,000,000 | 2,800 | 698,800 | (400,627 | ) | - | (47,130 | ) | 253,843 | |||||||||||||||||||||||
Components
of comprehensive income (loss)
|
||||||||||||||||||||||||||||||||
-
Net (loss) for the year
|
- | - | - | (17,631 | ) | (17,631 | ) | - | - | (17,631 | ) | |||||||||||||||||||||
-
Unrealized losses on available-for-sale securities
|
- | - | - | (3,723 | ) | - | - | (3,723 | ) | (3,723 | ) | |||||||||||||||||||||
Total
comprehensive (loss)
|
$ | (21,354 | ) | |||||||||||||||||||||||||||||
Balance,
December 31, 2003
|
28,000,000 | 2,800 | 698,800 | (418,258 | ) | (50,853 | ) | 232,489 | ||||||||||||||||||||||||
Cash
advanced on stock subscriptions
|
- | - | - | - | 1,000,000 | - | 1,000,000 | |||||||||||||||||||||||||
Components
of comprehensive income (loss)
|
||||||||||||||||||||||||||||||||
-
Net (loss) for the year
|
- | - | - | (657,031 | ) | (657,031 | ) | - | - | (657,031 | ) | |||||||||||||||||||||
-
Unrealized losses on available-for-sale securities
|
- | - | - | (31,020 | ) | - | - | (31,020 | ) | (31,020 | ) | |||||||||||||||||||||
Total
comprehensive (loss)
|
$ | (688,051 | ) | |||||||||||||||||||||||||||||
Balance,
December 31, 2004
|
28,000,000 | 2,800 | 698,800 | (1,075,289 | ) | 1,000,000 | (81,873 | ) | 544,438 |
F-7
Issuance
of common stock for
|
||||||||||||||||||||||||||||||||
-
cash on May 20, 2005
|
2,000,000 | 200 | 999,800 | - | (1,000,000 | ) | - | - | ||||||||||||||||||||||||
-
cash on December 13, 2005
|
700,000 | 70 | 349,930 | - | - | - | 350,000 | |||||||||||||||||||||||||
Cash
advanced on stock subscriptions
|
- | - | - | - | 300,000 | - | 300,000 | |||||||||||||||||||||||||
Components
of comprehensive income (loss)
|
||||||||||||||||||||||||||||||||
-
Net (loss) for the year
|
- | - | - | (888,224 | ) | (888,224 | ) | - | - | (888,224 | ) | |||||||||||||||||||||
-
Recongnition of other than temporary decline in market value of
available-foe-sale securities
|
- | - | - | 81,873 | - | - | 81,873 | 81,873 | ||||||||||||||||||||||||
Total
comprehensive (loss)
|
$ | (806,351 | ) | |||||||||||||||||||||||||||||
Balance,
December 31, 2005
|
30,700,000 | 3,070 | 2,048,530 | (1,963,513 | ) | 300,000 | - | 388,087 | ||||||||||||||||||||||||
Issuance
of common stock for
|
||||||||||||||||||||||||||||||||
-
cash on March 30, 2006
|
800,000 | 80 | 299,920 | - | (300,000 | ) | - | - | ||||||||||||||||||||||||
-
cash on May 12, 2006
|
6,540,000 | 654 | 3,269,346 | - | - | - | 3,270,000 | |||||||||||||||||||||||||
-
cash on May 26, 2006
|
1,460,000 | 146 | 729,854 | - | - | - | 730,000 | |||||||||||||||||||||||||
Grant
of options to employees and directors
|
- | - | 366,844 | - | - | - | 366,844 | |||||||||||||||||||||||||
Components
of comprehensive income (loss)
|
||||||||||||||||||||||||||||||||
-
Net (loss) for the year
|
- | - | - | (1,545,617 | ) | (1,545,617 | ) | - | - | (1,545,617 | ) | |||||||||||||||||||||
-
Unrealized gains (losses) on available-for-sale
securities
|
- | - | - | (15,488 | ) | - | - | (15,488 | ) | (15,488 | ) | |||||||||||||||||||||
Total
comprehensive (loss)
|
$ | (1,561,105 | ) | |||||||||||||||||||||||||||||
Balance,
December 31, 2006
|
39,500,000 | 3,950 | 6,714,494 | (3,509,130 | ) | - | (15,488 | ) | 3,193,826 | |||||||||||||||||||||||
Issuance
of common stock for
|
||||||||||||||||||||||||||||||||
-
finders fee in June 2007
|
200,000 | 20 | 95,980 | - | - | - | 96,000 | |||||||||||||||||||||||||
Components
of comprehensive income (loss)
|
||||||||||||||||||||||||||||||||
-
Net (loss) for the period
|
- | - | - | (1,909,808 | ) | (1,909,808 | ) | - | - | (1,909,808 | ) | |||||||||||||||||||||
-
Accumulated translation adjustment
|
- | - | - | 8,101 | - | - | 8,101 | 8,101 | ||||||||||||||||||||||||
-
Unrealized gains (losses) on available-for-sale
securities
|
- | - | - | (73,864 | ) | - | - | (73,864 | ) | (73,864 | ) | |||||||||||||||||||||
Total
comprehensive (loss)
|
$ | (1,975,571 | ) | |||||||||||||||||||||||||||||
Balance,
December 31, 2007
|
39,700,000 | 3,970 | 6,810,474 | (5,418,938 | ) | - | (81,251 | ) | 1,314,255 |
The
accompanying notes are an integral part of these consolidated financial
statements.
F-8
CIGMA
METALS CORPORATION
(An
exploration stage enterprise)
|
||||||||||||
Consolidated
Statements of Cash Flows
|
||||||||||||
(Expressed in U.S. Dollars)
|
Cumulative January 13 1989 (inception) to December
31, 2007
|
Year Ended December 31 2007
|
Year Ended December 31 2006
|
|||||||||
Cash
flows used in operating activities
|
||||||||||||
Net
loss for the period
|
$ | (5,418,938 | ) | $ | (1,909,808 | ) | $ | (1,545,617 | ) | |||
Adjustments
to reconcile net loss to net cash used in operating
activities
|
||||||||||||
-
depreciation
|
11,010 | 11,010 | - | |||||||||
-
stock compensation expense on stock option grants
|
366,844 | - | 366,844 | |||||||||
-
issuance of common stock for mineral property rights
|
600 | - | - | |||||||||
-
expenses satisfied with issuance of common stock
|
97,000 | 96,000 | - | |||||||||
-
partnership exploration costs
|
1,125,711 | - | 561,316 | |||||||||
-
writedown of investment in partnership interest
|
190,601 | - | 57,967 | |||||||||
-
writedown of available for sale securities
|
148,180 | - | - | |||||||||
-
minority interest in income (loss) of subsidiary
|
(130,739 | ) | (130,739 | ) | - | |||||||
Changes
in operating assets and liabilities
|
||||||||||||
-
decrease (increase) in prepaid expenses and other assets
|
(51,280 | ) | (51,280 | ) | - | |||||||
-
increase (decrease) in accounts payables and accrued
liabilities
|
1,058,618 | 1,003,703 | 28,021 | |||||||||
- increase (decrease) in accounts payables related
party
|
- | - | (16,986 | ) | ||||||||
Net cash used in operating
activities
|
(2,602,393 | ) | (981,114 | ) | (548,455 | ) | ||||||
Cash
flows used in investing activities
|
||||||||||||
-
purchase equipment
|
(126,719 | ) | (126,719 | ) | - | |||||||
-
investment in available-for-sale securities
|
(329,977 | ) | - | - | ||||||||
-
investment in partnership interest
|
(1,316,312 | ) | - | (619,283 | ) | |||||||
- acquisition of mineral property
costs
|
(2,000,000 | ) | (2,000,000 | ) | - | |||||||
Net cash used in investing
activities
|
(3,773,008 | ) | (2,126,719 | ) | (619,283 | ) | ||||||
Cash
flows from financing activities
|
||||||||||||
-
issuance of common stock
|
6,350,000 | - | 4,000,000 | |||||||||
- loan proceeds
|
1,160,255 | 1,160,255 | - | |||||||||
Net cash provided by financing
activities
|
7,510,255 | 1,160,255 | 4,000,000 | |||||||||
Effect
of exchange rate changes on cash and cash
equivalents
|
13,848 | 13,848 | - | |||||||||
Increase
(decrease) in cash and cash equivalents
|
1,148,702 | (1,933,730 | ) | 2,832,262 | ||||||||
Cash, beginning of year
|
- | 3,082,432 | 250,170 | |||||||||
Cash and cash equivalents, end of
year
|
$ | 1,148,702 | $ | 1,148,702 | $ | 3,082,432 |
The
accompanying notes are an integral part of these consolidated financial
statements.
F-9
Cigma
Metals Corporation
Notes
to the Consolidated Financial Statements
December
31, 2007 and 2006
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1.
|
Nature
of Business and Going Concern
|
Cigma
Metals Corporation ("the Company") was formed on January 13, 1989 under the laws
of the State of Florida as Cigma Ventures Corporation. On April 17, 1999 the
Company changed its name to Cigma Metals Corporation and is in the business of
location, acquisition, exploration and, if warranted, development of mineral
properties. The Company’s focus is on the exploration and development
of its exploration properties located in the Pavlodar Oblast Region in
Kazakhstan and the Tomsk Oblast Region, of the Russian Federation (see Note 4).
The Company has not yet determined whether its properties contain mineral
reserves that may be economically recoverable and has not generated any
operating revenues to date.
These
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles applicable to a going concern which
contemplates the realization of assets and the satisfaction of liabilities and
commitments in the normal course of business. The general business
strategy of the Company is to acquire mineral properties either directly or
through the acquisition of operating entities. The Company has
incurred recurring operating losses since inception, has not generated any
operating revenues to date and used cash of $981,114 from operating activities
in 2007. The Company requires additional funds to meet its obligations and
maintain its operations. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in this regard are to raise equity financing through private or public equity
investment in order to support existing operations and expand its business.
There is no assurance that such additional funds will be available to the
Company when required or on terms acceptable to the Company. These consolidated
financial statements do not include any adjustments that might result from this
uncertainty.
2.
|
Significant
Accounting Policies
|
|
(a)
|
Principles
of Accounting
|
We follow
accounting standards set by the Financial Accounting Standards Board, commonly
referred to as the “FASB”. The FASB sets generally accepted accounting
principles (“GAAP”) that we follow to ensure we consistently report our
financial condition, results of operations, and cash flows. References to GAAP
issued by the FASB in these footnotes are to the FASB Accounting Standards
Codification, referred to as Codification or “ASC”. The FASB finalized the
codification effective for periods ending on or after September 15,
2009.
These
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America and
include the accounts of the Company and its wholly-owned subsidiary, Cigma
Metals BVI Limited ("Cigma BVI") and its 90% subsidiary share in Dostyk LLP.
During the year ended December 31, 2007, the Company acquired a 51% interest in
Dostyk on February 15, 2007, an additional 20% interest during the period ended
June 30, 2007 and an additional 19% during the period ended September 30, 2007.
Collectively, they are referred to herein as "the Company". Significant
inter-company accounts and transactions have been eliminated. Cigma BVI is
inactive.
F-10
Cigma
Metals Corporation
Notes
to the Consolidated Financial Statements
December
31, 2007 and 2006
2.
|
Significant
Accounting Policies (continued)
|
|
(b)
|
Accounting
Estimates
|
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates and assumptions.
|
(c)
|
Cash
Equivalents
|
Cash
equivalents comprise certain highly liquid instruments with a maturity of three
months or less when purchased. The Company did not have any cash
equivalents at December 31, 2007 and 2006. No amounts were paid for income taxes
in 2007 or 2006.
|
(d)
|
Marketable
securities
|
The
Company’s available-for-sale securities consist of shares of common stock of
three publicly traded companies at December 31, 2007 and 2006, and are stated at
fair value. The cost of these securities is $181,797, at December 31, 2007 (2006
- $181,797) and the net unrealized holding loss of $89,352 at December 31, 2007
(2006 - $15,488) is included in accumulated other comprehensive income (loss) at
December 31, 2007. If a loss in value in the available-for-sale securities is
considered to be other than temporary, it is recognized in the determination of
net income. All unrealized holding losses at December 31, 2007 are on securities
that have a fair market value of $92,445 at December 31, 2007. Cost is based on
the specific identification method for the individual securities to determine
realized gains or losses.
Fair
values determined by Level 1 inputs utilize quoted prices (unadjusted) in
active markets for identical assets or liabilities. The following
table presents information about the Company’s financial assets that have been
measured at fair value as of December 31, 2007 and 2006, and indicates the
fair value hierarchy of the valuation inputs utilized to determine such fair
value.
Description
|
Fair
Value at December 31, 2007
|
Quoted
Prices in Active Markets (Level 1)
|
||||||
Assets:
|
||||||||
Cash
|
$ | 1,148,702 | $ | 1,148,702 | ||||
Available-for-sale
securities
|
92,445 | 92,445 | ||||||
Assets measured at fair value at December 31,
2007
|
$ | 1,241,147 | $ | 1,241,147 |
F-11
Cigma
Metals Corporation
Notes
to the Consolidated Financial Statements
December
31, 2007 and 2006
2.
|
Significant
Accounting
Policies (continued)
|
(d)
|
Marketable
securities (continued)
|
Description
|
Fair
Value at December 31, 2006
|
Quoted
Prices in Active Markets (Level 1)
|
||||||
Assets:
|
||||||||
Cash
|
$ | 3,082,432 | $ | 3,082,432 | ||||
Available-for-sale
securities
|
166,309 | 166,309 | ||||||
Assets measured at fair value at December 31,
2006
|
$ | 3,248,741 | $ | 3,248,741 |
|
(e)
|
Equipment
|
Depreciation
is based on the estimated useful lives of the assets and is computed using the
straight-line method. Equipment is recorded at
cost. Depreciation is provided over the following useful
lives:
Vehicles
|
10
years
|
Office
equipment, furniture and fixtures
|
2
to 5 years
|
|
(f)
|
Mineral
Properties and Exploration Expenses
|
The
Company accounts for its mineral properties on a cost basis whereby all direct
costs, net of pre-production revenue, relative to the acquisition of the
properties are capitalized. All sales and option proceeds received
are first credited against the costs of the related property, with any excess
credited to earnings. Once commercial production has commenced, the net costs of
the applicable property will be charged to operations using the
unit-of-production method based on estimated proven and probable recoverable
reserves. The net costs related to abandoned properties are charged to
operations.
Exploration
costs are charged to operations as incurred until such time that proven reserves
are discovered. From that time forward, the Company will capitalize all costs to
the extent that future cash flow from mineral reserves equals or exceeds the
costs deferred. Exploration activities conducted jointly with others are
reflected at the Company's proportionate interest in such
activities.
The
Company reviews the carrying values of its mineral properties on a regular basis
by reference to the project economics including the timing of the exploration
and/or development work, the work programs and the exploration results
experienced by the Company and others. The review of the carrying value of any
producing property will be made by reference to the estimated future operating
results and net cash flows. When the carrying value of a property exceeds its
estimated net recoverable amount, provision is made for the decline in value.
The deferred costs will be amortized over the recoverable reserves when a
property reaches commercial production. As of December 31, 2007 and 2006, the
Company did not have proven reserves.
F-12
Cigma
Metals Corporation
Notes
to the Consolidated Financial Statements
December
31, 2007 and 2006
2.
|
Significant
Accounting
Policies (continued)
|
|
(f)
|
Mineral
Properties and Exploration Expenses
(continued)
|
The
recoverability of the amounts shown for mineral properties is dependent on the
confirmation of economically recoverable reserves, confirmation of the Company’s
interest in the underlying mineral claims, the ability of the Company to obtain
the necessary financing to successfully complete their development and the
attainment of future profitable operations or proceeds from
disposition.
Estimated
costs related to site restoration programs during the commercial development
stage of the property are accrued over the life of the project.
|
(g)
|
Share-Based
Payment
|
The
Company accounts for share-based payments under the fair value method of
accounting for stock-based compensation consistent with GAAP.
Under the
fair value recognition provisions of this statement, stock-based compensation
cost is measured at the grant date based on the fair value of the award and is
recognized as expense on a straight-line basis over the requisite service
period, which is generally the vesting period.
|
(h)
|
Foreign
Currency Translations and
Transactions
|
The
Company's reporting currency is the U.S. Dollar. Dosytk LLP is a
foreign operation and its functional currency is the Kazakhstan Tenge (Tenge).
Certain contractual obligations in these consolidated financial statements are
stated in Kazakhstan Tenges. The Kazakhstan Tenge to U.S. dollar exchange rate
at December 31, 2007 was U.S. $0.008442 to 1 Tenge.
The
Company translates foreign assets and liabilities of its subsidiaries, other
than those denominated in U.S. dollars, at the rate of exchange at the balance
sheet date. Income and Expenses are translated at the average rate of exchange
throughout the year. Gains or losses from these translations are reported as a
separate component of other comprehensive income (loss) until all or a part of
the investment in the subsidiaries is sold or liquidated. The translation
adjustments do not recognize the effect of income tax because the Company
expects to reinvest the amounts indefinitely in operations.
Transaction
gains and losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the local functional currency are included
in interest, bank charges, and foreign exchange loss in the consolidated
statements of operations and were not material in 2007 or 2006.
|
(i)
|
Concentration
of Credit Risk
|
The
Company places its cash with high credit quality financial institutions in
Canada. The Company did have funds deposited in banks beyond the insured limits
as of December 31, 2007 and 2006.
F-13
Cigma
Metals Corporation
Notes
to the Consolidated Financial Statements
December
31, 2007 and 2006
2.
|
Significant
Accounting
Policies (continued)
|
|
(j)
|
Long-Lived
Assets Impairment
|
Long-lived
assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable, in accordance with
GAAP. An impairment loss would be recognized when the carrying amount of an
asset exceeds the estimated undiscounted future cash flows expected to result
from the use of the asset and its eventual disposition.
The
amount of the impairment loss to be recorded is calculated by the excess of the
asset's carrying value over its fair value. Fair value is generally
determined using a discounted cash flow analysis. The Company has not recognized
any impairment losses through December 31, 2007.
|
(k)
|
Comprehensive
income
|
The
Company has adopted Reporting
Comprehensive Income, which establishes standards for reporting and
display of comprehensive income, its components and accumulated balances. The
Company is disclosing this information on its Consolidated Statement of
Stockholders’ Equity (Deficiency). Comprehensive income comprises equity except
those resulting from investments by owners and distributions to
owners.
Year
Ended
|
||||||||
Components
of comprehensive income (loss)
|
December 31
2007
$
|
December 31
2006
$
|
||||||
Net
income (loss) for the period
|
(1,909,808 | ) | (1,545,617 | ) | ||||
Foreign
currency translation adjustments
|
8,101 | - | ||||||
Unrealized losses on available-for-sale
securities
|
(73,864 | ) | (15,488 | ) | ||||
Total comprehensive income
(loss)
|
(1,975,571 | ) | (1,561,105 | ) |
|
(l)
|
Fair
Value of Financial Instruments and
Risks
|
Fair
value estimates of financial instruments are made at a specific point in time,
based on relevant information about financial markets and specific financial
instruments. As these estimates are subjective in nature, involving
uncertainties and matters of significant judgment, they cannot be determined
with precision. Changes in assumptions can significantly affect
estimated fair value.
The
carrying value of cash, accounts payable and accrued expenses, and accounts
payable - related parties approximate their fair value because of the short-term
nature of these instruments. Available for sale securities are recorded at the
current market value.
Management
is of the opinion that the Company is not exposed to significant interest or
credit risks arising from these financial instruments.
The
Company operates outside of the United States of America (primarily in
Kazakhstan) and is exposed to foreign currency risk due to the fluctuation
between the currency in which the Company operates in and the U.S.
dollar.
F-14
Cigma
Metals Corporation
Notes
to the Consolidated Financial Statements
December
31, 2007 and 2006
2.
|
Significant
Accounting
Policies (continued)
|
|
(m)
|
Income
Taxes
|
The
Company has adopted ASC 740, Accounting for Income Taxes,
which requires the Company to recognize deferred tax liabilities and assets for
the expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns using the liability
method. Under this method, deferred tax liabilities and assets are
determined based on the differences between the financial statement carry
amounts and tax bases of assets and liabilities using enacted tax rates in
effect in the years in which the differences are expected to
reverse.
In July
2006, the Financial Accounting Standards Board (“FASB”) issued an interpretation
which clarifies the accounting for uncertainty in income taxes recognized in a
company’s financial statements in accordance with GAAP. This
interpretation prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken in a
tax return. It also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. Recognition criterion to a tax position is effective
for fiscal years beginning after December 15, 2006. The adoption of
this interpretation did not have a material impact on the Company’s results of
operations or financial position. As such, the Company has not
recorded any liabilities for uncertain tax positions or any related interest and
penalties. The Company’s tax returns are open to audit for the years
ending December 31, 2003 to 2007.
|
(n)
|
Earnings
(Loss) Per Share
|
Earnings
(loss) per share is computed by dividing net income or loss available to common
stockholders by the weighted average number of common shares outstanding during
the year including common stock issued effective the date committed. Diluted
loss per common share is computed by dividing net loss by the sum of (a) the
basic weighted average number of shares of common stock outstanding during the
period and (b) additional shares that would have been issued and potentially
dilutive securities and is equivalent to basic loss per share for 2007 and 2006
because potentially dilutive securities were anti-dilutive due to the net losses
incurred in each year. Potentially dilutive securities outstanding consist of
800,000 stock options for 2007 (2006 – 900,000) and 8,000,000 warrants for 2007
(2006 – 8,000,000).
|
(o)
|
New
Accounting Pronouncements
|
In June
2007, the Emerging Issues Task Force of the FASB issued, Accounting for Nonrefundable Advance
Payments for Goods or Services to be Used in Future Research and Development
Activities, which is effective for fiscal years beginning after
December 15, 2007. This requires that nonrefundable advance payments for
future research and development activities be deferred and capitalized. Such
amounts will be recognized as an expense as the goods are delivered or the
related services are performed. The Company does not expect the adoption to have
a material impact on its financial results.
In
December 2007, the Emerging Issues Task Force of the FASB issued, Accounting for Collaborative
Arrangements, which is effective for fiscal years beginning after
December 15, 2008. This provides income statement classification and
related disclosure guidance for participants in a collaborative arrangement. The
Company does not expect the adoption to have a material impact on its financial
results.
F-15
Cigma
Metals Corporation
Notes
to the Consolidated Financial Statements
December
31, 2007 and 2006
2.
|
Significant
Accounting
Policies (continued)
|
|
(o)
|
New
Accounting Pronouncements
(continued)
|
In
December 2007, the FASB issued, Noncontrolling Interests in
Consolidated Financial Statements, which amends Accounting Research
Bulletin No. 51 to establish accounting and reporting standards for
the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. Noncontrolling Interests in Consolidated Financial Statements is
effective for the Company’s fiscal year beginning January 1, 2009. The Company does not expect
the adoption to have a material impact on its financial results.
In
December 2007, the FASB issued, Business Combinations, which
establishes principles and requirements for recognizing and measuring
identifiable assets and goodwill acquired, liabilities assumed, and any
noncontrolling interest in an acquisition, at their fair value as of the
acquisition date. This is effective for business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. This standard will change
the Company’s accounting treatment for business combinations on a prospective
basis.
3.
|
Available-for-sale
securities
|
Cost $ |
Gross Unrealized |
Gross Unrealized |
Net
Accumulated Unrecognized |
Market Value |
||||||||||||||||
December
31, 2006, equity securities
|
181,797 | 36,504 | (51,992 | ) | (15,488 | ) | 166,309 | |||||||||||||
Change during the year
|
- | - | (73,864 | ) | (73,864 | ) | (73,864 | ) | ||||||||||||
December 31, 2007, equity
securities
|
181,797 | 36,504 | (125,856 | ) | (89,352 | ) | 92,445 |
4.
|
Mineral
Properties and Exploration Expenses
|
The
Company, through its 90% owned subsidiary Dostyk LLP, holds the Maykubinsk
exploration and mining license located in the Pavlodar Oblast Region of
Kazakhstan and holds an interest in two mineral exploration licenses located in
the Tomsk Oblast Region, of the Russian Federation.
HaldeyGold
Project – Russian Federation
On August
30, 2004, the Company signed a Joint Activity Agreement with OOO Science
Industrial Corporation Geosphera ("Geosphera"), a company registered in Russia,
to form a partnership to explore the Haldeevskaya license located in the Tomsk
district of the Tomsk region of the Russian Federation, 25 km east of the city
of Tomsk. Geosphera will earn a 51% interest in the partnership by
contributing the license for the Haldeevskaya area and the geological
data. The license and the geological data have been valued at
US$52,000. The terms of the agreement provided that the Company was
to earn a 49% interest in the partnership by paying
US$50,000. However, the Company increased its interest in the
partnership to 80% (Geosphera - 20%) by funding US$350,000 of exploration
expenditures on the licensed property in 2004. Geosphera is the manager of the
project.
Pursuant
to the terms of the Joint Activity Agreement, and for the purpose of conducting
further financing and exploration work, a company, HaldeyGold Ltd.
(“HaldeyGold”), was registered with the Ministry of the Russian Federation for
Taxes and Levies on January 19, 2005. The Haldeevskaya mineral exploration
license along with all relevant geological data was transferred by the
partnership to HaldeyGold on March 16, 2005. The Company has an 80% (Geosphera
20%) interest in HaldeyGold.
F-16
Cigma
Metals Corporation
Notes
to the Consolidated Financial Statements
December
31, 2007 and 2006
4.
|
Mineral Properties and
Exploration Expenses (continued)
|
HaldeyGold
Project – Russian Federation (continued)
On April
22, 2005, December 31, 2005, July 7, 2006 and December 29, 2006 the Company and
Geosphera agreed to amendments to the Haldeevskaya Joint Activity Agreement
dated August 30, 2004 resulting in a revision of the 2006 exploration
expenditure commitment from $460,000 to $289,743 and the 2005 exploration
expenditure commitment from $300,000 to $250,000. The Company has also agreed to
fund $400,000 toward the 2007 HaldeyGold exploration budget.
Consistent
with the Company’s accounting policies, acquisition and exploration costs on
unproven reserves are charged to operating costs as incurred.
The
Company’s investment in the HaldeyGold partnership interest for the period
January 13, 1989 (inception to December 31, 2007 is as follows: Capital invested
- $986,862, Exploration expenses incurred - $796,261, write-down of investment
in partnership interest - $190,601.
Direct
exploration costs on the Haldeevskaya mineral exploration license area located
in the Tomsk Oblast region of the Russian Federation totalled $0, during the
year ended December 31, 2007 (2006 - $56,769).
Tugojakovks
Project
On June
17, 2005, as amended December 31, 2005, July 7, 2006 and December 29, 2006, the
Company signed a Joint Activity Agreement to form a partnership to explore the
Tugojakovsk Project, located in the Tomsk Oblast Region of the Russian
Federation. Under the terms of the agreement: (1) the Company
acquired an 80% share of the project in exchange for contributing $126,440 in
2005; and (2) the Company is committed to finance the project in 2006 by
providing $329,375 in accordance with an approved budget. The Company is
committed to finance the project in 2007 by providing $400,000 in accordance
with an approved budget. Geosphera’s ownership interest cannot be reduced below
20%.
Geosphera
will contribute the license for Tugojakovsk and all geological information on
this subsoil area which is owned by Geosphera, as well as professional
knowledge, skills and business contacts. The license and geological data was
valued at $100,000.
Pursuant
to the terms of the Joint Activity Agreement, a company will be registered in
the Russian Federation in order to conduct further financing and exploration
work on the Tugojakovsk license area. Once the joint venture company is
registered with the Ministry of the Russian Federation for Taxes and Levies, the
Partnership will transfer the Tugojakovsk mineral exploration license along with
all relevant geological data to the new joint venture company. The Company will
have an 80% (Geosphera 20%) interest in the new company. As of the
date of these financial statements the new company has not yet been
registered.
Exploration
costs on the Tugojakovsk mineral exploration license area located in the Tomsk
Oblast region of the Russian Federation totalled $0 during the year ended
December 31, 2007 (2006 – $329,450).
The
Company’s investment in the Tugojakovks project for the period January 13, 1989
(inception to December 31, 2007 is as follows: Capital invested - $453,821,
Exploration expenses incurred - $453,821.
F-17
Cigma
Metals Corporation
Notes
to the Consolidated Financial Statements
December
31, 2007 and 2006
4.
|
Mineral
Properties and Exploration Expenses
(continued)
|
Dostyk LLP -
Maykubensk area in the Pavodar Oblast of the Republic of
Kazakhstan
In
January 2007, the Company entered in an agreement with Eureka Mining PLC, a
company registered in the United Kingdom, to acquire an ownership interest in
the Dostyk Limited Liability Partnership, (the “Partnership” or "Dostyk"). The
Partnership holds the exploration rights to explore 14,000 square kilometers in
the Maykubensk area in the Pavodar Oblast of the Republic of Kazakhstan for
precious and base metals.
Under the
terms of the agreement with Eureka Mining PLC, the Company acquired a 51%
interest in the Partnership by paying US $300,000 (paid January 25, 2007) into
the charter capital of the Partnership. The acquisition is accounted for using
purchase accounting. As a result of the purchase, the Company acquired control
of Dostyk and consolidated the financial results of Dostyk including
consideration of a non-controlling interest. In June 2007, the Company increased
its ownership in the Partnership from 51% to 71% by contributing a further US
$700,000 (paid June 13, 2007) to the Partnership’s charter capital. On September
14, 2007, the Company increased its ownership interest in the Partnership from
71% to 90% by contributing a further US $1,000,000 to the Partnership’s charter
capital.
The
Company’s results of operations include Dostyk’s results of operations since the
date of acquisition. Pro forma results for the pre-consolidation period are not
presented as they are not materially different from the Company’s historical
consolidated financial statements.
As of
December 31, 2007, the Company held a 90% interest in Dostyk. The aggregate cost
of the acquisition through December 31, 2007 was $2,000,000. The following
represents a summary of the assets acquired and the liabilities assumed during
the year. Assets and liabilities at the dates of acquisition have been
translated from Dostyk’s functional currency, the Kazakhstan Tenge (“Tenge”).
The average effective exchange rate used was US$ 0.008442 to 1
Tenge.
Cash
|
$ | 1,040,115 | ||
Prepaids
and other assets
|
39,540 | |||
Mineral
properties
|
2,676,096 | |||
Equipment
|
119,341 | |||
Accounts
payable and accrued expenses
|
(46,806 | ) | ||
Long-term
debt
|
(1,168,818 | ) | ||
Minority
interest
|
(659,468 | ) | ||
Purchase
price paid in 2007
|
$ | 2,000,000 |
During
January 2010, subject to shareholder approval, the Company agreed to sell its
ownership interest in its Kazakhstan subsidiary to a third party for $1,500,000
and other consideration. The total value of the potential consideration to
be received has not been determined. The only significant asset owned by
the subsidiary is the mineral exploration license described in these financial
statements. Management continues to believe that the value of the mineral
property owned by the subsidiary has not been impaired, however an agreement for
the sale of the subsidiary for less than its carrying value of $2,509,597 as of
January 2010, would be an indication of impairment and result in the Company
recording a loss on the sale.
F-18
Cigma
Metals Corporation
Notes
to the Consolidated Financial Statements
December
31, 2007 and 2006
5.
|
Equipment
|
December
31
2007
$
|
December
31
2006
$
|
|||||||
Vehicles
|
67,359 | - | ||||||
Machinery
and equipment
|
48,219 | - | ||||||
Other
fixed assets
|
11,141 | - | ||||||
|
126,719 | - | ||||||
Accumulated
depreciation
|
(11,010 | ) | - | |||||
115,709 | - |
The
majority of equipment held at December 31, 2007 is located in
Kazakhstan.
6.
|
Long-term
debt
|
The
Company’s subsidiary Dostyk had a loan payable to Eureka Mining PLC. The loan is
unsecured, non- interest bearing with repayment to begin when the Company shall
begin to generate profit as a direct or non direct result of exploration. On
March 15, 2007, the Company and Eureka signed an Assignment Agreement under
which the Company assumed responsibility for repayment of all amounts due under
the loan. The Company does not expect to generate funds from Dostyk’s operations
during the next five years to make any principal repayments on the loan. No
repayment of principal, interest and default interest has been made under the
Agreement. The loan balance at December 31, 2007 is $1,166,056 (2006 -
$0).
7.
|
Share
Purchase Warrants
|
A summary
of the Company’s warrants outstanding at December 31, 2007 and December 31, 2006
and changes during year ended December 31, 2007 is presented below:
Number
of warrants to
Purchase
shares
|
Weighted
Average
Exercise
Price
|
|||||||
Balance,
December 31, 2006
|
8,000,000 | $ | 0.713 | |||||
Warrants
granted in 2007
|
- | - | ||||||
Balance,
December 31, 2007
|
8,000,000 | $ | 0.713 |
|
1.
|
Each
warrant entitling the holder to purchase one additional common share of
the Company at a price of US $0.675 per share for a period of one year
from the May 12, 2006, closing date of the placement, and at a price of US
$0.75 per share for a period of one year commencing on the first
anniversary of the Closing Date.
|
|
2.
|
Each
warrant entitling the holder to purchase one additional common share of
the Company at a price of US $0.675 per share for a period of one year
from the May 26, 2005, closing date of the placement, and at a price of US
$0.75 per share for a period of one year commencing on the first
anniversary of the Closing Date
|
F-19
Cigma
Metals Corporation
Notes
to the Consolidated Financial Statements
December
31, 2007 and 2006
8.
|
Stock
Options
|
Effective
December 1, 2006, subject to shareholder approval, the Board of Directors of the
Company ratified, approved and adopted a Stock Option Plan (“SOP”) for the
Company in order to provide additional incentive for its directors, officers,
employees and service providers. The maximum amount of shares that
can be issued under the SOP in any calendar year cannot exceed 20% of the issued
and outstanding common shares on a non-diluted basis; to any one optionee within
a 12 month period shall not exceed 5% of the of the issued and outstanding
common shares on a non-diluted basis; to any one consultant within a 12 month
period shall not exceed 2% in the aggregate of the issued and
outstanding common shares on the date of grant on a non-diluted basis;
and to all eligible participants who undertake investor relations
activities shall not exceed 2% in the aggregate of the total number of issued
and outstanding common shares on the date of grant on a non-diluted basis. The
exercise price of each such stock option shall not be less than the fair market
value of a share at the time of grant. The term of the options
granted under the plan shall not exceed five years from the date of the
grant.
On
December 1, 2006, 900,000 stock options were granted to directors at $0.88 per
share. The term of these options is two years. The options are exercisable at
any time from the grant date up to and including the 30th day
of November 2008. The effectiveness of any option granted prior to
the Company obtaining approval of the 2006 incentive Stock Option Plan by its
stockholders shall be specifically subject to the Company obtaining such
approval; and if such approval is not obtained the options shall be deemed null
and void. Expense related to these stock options was recognized in full in
2006.
The
following is a summary of stock option activity for the years ended December 31,
2007 and 2006.
Options
outstanding
|
||||||||||||||||
Weighted
average
|
Weighted
average
|
Aggregate
|
||||||||||||||
Number
of
|
exercise
price
|
remaining
contractual
|
Intrinsic
|
|||||||||||||
Options
|
per share
|
life (in years)
|
value
|
|||||||||||||
Balance, December 31, 2006
|
900,000 | $ | 0.88 | 1.92 | - | |||||||||||
Cancelled during the year
|
100,000 | 0.88 | - | - | ||||||||||||
Balance, December 31, 2007
|
800,000 | $ | 0.88 | 0.92 | - |
There
were no stock options granted during 2007 and 2006.
The
aggregate intrinsic value in the table above represents the total pretax
intrinsic value for all “in-the-money” options (i.e., the difference between the
Company’s closing stock price on the last trading day of 2007 and 2006 and the
exercise price, multiplied by the number of shares) that would have been
received by the option holders had all option holders exercised their options on
December 31, 2007 and 2006.
9.
|
Related
Party Transactions
|
Related
party transactions not disclosed elsewhere in these consolidated financial
statements:
|
a.
|
During
the fiscal year 2007, consulting fees of $184,800 (2006 – $158,500) were
paid to directors of the Company and its subsidiary. The transactions were
recorded at the exchange amount, being the value established and agreed to
by the related parties.
|
F-20
Cigma
Metals Corporation
Notes
to the Consolidated Financial Statements
December
31, 2007 and 2006
9.
|
Related
Party Transactions (continued)
|
|
b.
|
Due
to related party, as at December 31, 2007 represents amounts due to
directors of the Company for consulting fees and/or various expenses
incurred on behalf of the Company. All amounts owing to related parties
are unsecured, non-interest bearing and have no fixed terms of
repayment.
|
10.
|
Non-Cash
Investing and Financing Activities
|
In June
2007, Company issued 200,000 shares of common stock of the Company valued at
$96,000 to a consultant of the Company as consideration for arranging the
property acquisition in Kazakhstan.
11.
|
Income
Taxes
|
The
Company and its subsidiary operate in several tax jurisdictions, and its income
is subject to various rates of taxation. As of December 31, 2007 the Company has
net losses for tax purposes in the United States and Kazakhstan totaling
approximately $5,900,000 and $3,100,000, respectively, which may be applied
against future taxable income. Accordingly, there is no tax expense
for the years ended December 31, 2007 and 2006. The potential tax
benefits arising from these losses have not been recorded in the consolidated
financial statements as a full valuation allowance has been recorded against
them. The Company evaluates its valuation allowance requirements on an annual
basis based on projected future operations. When circumstances change and this
causes a change in management's judgment about the realizability of deferred tax
assets, the impact of the change on the valuation allowance is reflected in
current operations.
Utilization
of the Company's federal net operating loss carryforwards may be limited in any
one year if an ownership change, as defined in Section 382 of the Internal
Revenue Code, has occurred.
In
Kazakhstan, the Company recorded a full valuation allowance against the net
operating losses because the Company does not believe they will utilize the
credits prior to the expiration of the statutory carry-forward period beginning
in 2010.
A
reconciliation of the provision (benefit) for income taxes with amounts
determined by applying the statutory U.S. federal, foreign and state
income tax rates to income before income taxes is as
follows:
|
Year
Ended
|
Year
Ended
|
||||||
December 31, 2007
|
December 31, 2006
|
|||||||
Net
loss before taxes US
|
(778,333 | ) | (1,596,367 | ) | ||||
Net
loss before taxes foreign
|
(1,262,213 | ) | - | |||||
Federal
and State Statutory Rate
|
0.395 | 0.395 | ||||||
Foreign
Rate
|
0.20 | - | ||||||
Expected
tax recovery US
|
(307,441 | ) | (630,565 | ) | ||||
Expected
tax recovery Foreign
|
(252,443 | ) | - | |||||
(Decrease)
increase in taxes resulting from:
|
||||||||
Increase
in valuation allowance
|
559,884 | 630,565 |
F-21
Cigma
Metals Corporation
Notes
to the Consolidated Financial Statements
December
31, 2007 and 2006
11.
|
Income
Taxes (continued)
|
Income
tax expense (benefit) from continuing operations
|
$ | - | $ | - | ||||
Effective
income tax rate
|
0 | % | 0 | % | ||||
The
Company's tax effected deferred tax assets are as follows:
|
2007 | 2006 | ||||||
Loss
carry forward
|
2,369,277 | 1,294,226 | ||||||
Valuation
allowance
|
(2,369,277 | ) | (1,294,226 | ) | ||||
The
reconciliation of income tax computed at the federal statutory rate to
income tax expense is as follows:
|
||||||||
Year
Ended
|
Year
Ended
|
|||||||
December 31, 2007
|
December 31, 2006
|
|||||||
Federal
income tax provision at statutory rate
|
34.0 | % | 34.0 | % | ||||
State
income tax provision at statutory rate, net of federal income tax
effect
|
5.5 | 5.5 | ||||||
Less
valuation allowance
|
-39.5 | % | -39.5 | % | ||||
Total
income tax expense
|
$ | - | $ | - |
12.
|
Augustus
Minerals Limited
|
On June
29, 2007, the Company entered into an agreement (the Dostyk Agreement”) with
Augustus Minerals Limited (“Augustus”) to sell a 19% interest in the Company’s
Dostyk Project in Kazakhstan for US $1,000,000. Pursuant to the agreement, the
Company received $1,000,000 from Augustus in October 2007.
F-22
Item
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
There
have been no disagreements with our Accountants concerning accounting or
financial disclosure.
ITEM
9A
|
CONTROLS
AND PROCEEDURES
|
Attached
as exhibits to this Annual Report on Form 10-K are certifications of
our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), which
are required pursuant to Rule 13a-14 of the Exchange Act. This “Controls and
Procedures” section of this Annual Report on Form 10-K includes information
concerning the controls and controls evaluation referenced in the
certifications. This section of the Annual Report on Form 10-K should be read in
conjunction with the certifications for a more complete understanding of the
matters presented.
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Securities Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms, and that such information is accumulated and
communicated to our management, including our President and Chief Executive
Officer (Principal Executive Officer) and Chief Financial Officer (Principal
Financial Officer), as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, as ours are designed to do, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
Evaluation
of disclosure controls and procedures
We
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures as of December 31, 2007. Disclosure controls and
procedures are designed to ensure that information required to be disclosed in
our reports filed under the Exchange Act, is recorded, processed, summarized and
reported within the time periods specified by the SEC. Disclosure controls are
also designed to ensure that such information is accumulated and communicated to
our management, including the CEO and CFO, as appropriate, to allow timely
decisions regarding required disclosure.
Based on
the evaluation, our Chief Executive Officer and Chief Financial
Officer, after evaluating the effectiveness of our “disclosure controls and
procedures” (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), have
concluded that, subject to the inherent limitations noted below, as of December
31, 2007, our disclosure controls and procedures were not effective due to the
existence of several material weaknesses in our internal control over financial
reporting, as discussed below.
Management’s
annual report on internal control over financial reporting
Management
is responsible for establishing and maintaining internal control over financial
reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our
management evaluated, under the supervision and with the participation of
our Chief Executive Officer and Chief Financial Officer, the
effectiveness of our internal control over financial reporting as of
December 31, 2007.
Based on
its evaluation under the framework in Internal
Control—Integrated Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission, our management concluded that our
internal control over financial reporting was not effective as of December 31,
2007, due to the existence of significant deficiencies constituting material
weaknesses, as described in greater detail below. A material weakness
is a control deficiency, or combination of control deficiencies, such that there
is a reasonable possibility that a material misstatement of the annual or
interim financial statements will not be prevented or detected on a timely
basis.
30
This
annual report does not include an attestation report of the Company’s
independent registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by the
Company’s independent registered public accounting firm pursuant to temporary
rules of the SEC that permit the Company to provide only management’s report in
this annual report.
Limitations
on Effectiveness of Controls
Our
management, including our Chief Executive Officer and Chief
Financial Officer, does not expect that our disclosure controls or our
internal control over financial reporting will prevent all errors and all fraud.
A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of a simple
error or mistake. Additional controls can be circumvented by the individual acts
of some persons, by collusion of two or more people, or by management override
of the controls. The design of any system of controls also is based in part upon
certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions; over time, controls may become inadequate
because of changes in conditions, or the degree of compliance with the policies
or procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected.
Material
Weaknesses Identified
In
connection with the preparation of our consolidated financial statements for the
period ended December 31, 2007, certain significant deficiencies in internal
control became evident to management that represent material weaknesses,
including,
(i)
|
Lack
of a sufficient number of independent directors for our board and audit
committee. We currently only have one independent director on
our board, which is comprised of 3 directors, and on our audit
committee, which is comprised of 3 directors. As a publicly-traded
company, we should strive to have a majority of our board of directors be
independent.
|
(ii)
|
Lack
of an independent financial expert on our audit committee. We
currently do not have an independent audit committee financial expert on
our audit committee as defined by the SEC. Pursuant to Section
407, we are required to disclose whether we have at least one "audit
committee financial expert" on our audit committee in addition to whether
the expert is independent of management. Since we do not have an
independent audit committee financial expert, we have disclosed this fact;
however, it is still the expectation that we obtain a financial expert on
our audit committee.
|
(iii)
|
Insufficient
segregation of duties in our finance and accounting functions due to
limited personnel. During the period ended December 31, 2007,
we had one person on staff at our executive office and two
persons at our Kazakhstan office that performed nearly all aspects of our
financial reporting process, including, but not limited to, access to the
underlying accounting records and systems, the ability to post and record
journal entries and responsibility for the preparation of the financial
statements. This creates certain incompatible duties and a lack
of review over the financial reporting process that would likely result in
a failure to detect errors in spreadsheets, calculations, or assumptions
used to compile the financial statements and related disclosures as filed
with the SEC. These control deficiencies could result in a
material misstatement to our interim or annual consolidated financial
statements that would not be prevented or
detected.
|
31
(iv)
|
There
is a lack of sufficient supervision and review by our corporate management
of the accounting functions performed at the Company’s foreign subsidiary
in Kazakhstan.
|
(v)
|
Insufficient
corporate governance policies. Although we have a code of
ethics which provides broad guidelines for corporate governance, our
corporate governance activities and processes are not always formally
documented. Specifically, decisions made by the board to be
carried out by management should be documented and communicated on a
timely basis to reduce the likelihood of any misunderstandings regarding
key decisions affecting our operations and
management.
|
Plan
for Remediation of Material Weaknesses
We intend
to take appropriate and reasonable steps to make the necessary improvements to
remediate these deficiencies. We intend to consider the results of our
remediation efforts and related testing as part of our year-end 2007 assessment
of the effectiveness of our internal control over financial
reporting.
We have
implemented certain remediation measures and are in the process of designing and
implementing additional remediation measures for the material weaknesses. Such
remediation activities include the following:
•
|
We
continue to recruit one or more additional independent board members to
join our board of directors. We continue to recruit at least
one additional financial expert to join as an independent board member and
as an audit committee member.
|
•
|
In
addition to the foregoing remediation efforts, we will continue to update
the documentation of our internal control processes, including formal risk
assessment of our financial reporting
processes.
|
Changes
in Internal Controls over Financial Reporting
There
were no significant changes in the Company’s internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the quarter ended December 31, 2007 that materially
affected, or are reasonably likely to materially affect, our internal control
over financing reporting.
Item
9B.
|
Other
Information
|
None.
PART
III
Item
10.
|
Directors,
Executive Officers and Corporate
Governance
|
All
directors of our company hold office until the next annual meeting of the
stockholders or until their successors have been elected and qualified.
The officers of our company are appointed by our board of directors and
hold office until their death, resignation or removal from office. Our
directors, executive officers and significant employees, their ages, positions
held, and duration as such, are as follows:
32
As of
December 31, 2007, the directors and executive officers of the company were as
follows:
Name and Address
|
Age and Position
|
Lars
Pearl
1
Edith Place, Coolum Beach, Queensland, Australia 4573
|
Age
45, President, CEO, CFO, and Director since March 15,
2004.
|
Waldemar
K. Mueller
40
Ruffian Loop, Willetton, Western Australia, Australia 6155
|
Age
58, Director since March 15, 2004.
|
Agustin
Gomez de Segura
2
Tvezskaya – Yamskaya 54, Moscow, Russia
|
Age
52, Director since April 17, 1998.
|
Business
Experience
The
following is a brief account of the education and business experience during at
least the past five years of each director, executive officer and key employee,
indicating the principal occupation during that period, and the name and
principal business of the organization in which such occupation and employment
were carried out.
Our
officers and director will serve until the next annual meeting of the
shareholders or until his death, resignation, retirement, removal, or
disqualification, or until his successors have been elected. Vacancies in
the existing Board of Directors are filled by majority vote of the remaining
directors. Our officer serves at the will of the Board of Directors.
There are no family relationships between any executive officer or
director. No officer or director of our company has, during the past five
years, been named or involved in any bankruptcy proceedings, criminal
proceedings, securities or banking regulatory enforcement action or federal or
state securities or commodities law enforcement proceeding.
Agustin Gomez de Segura,
Director of Delta Capital, an investment company in Lichtenstein from April 1999
to present, Director and President of Eurasia Gold Fields Inc from November 1997
to present, Director and President of Soil Biogenics Limited from July 2003 to
present.
Waldemar Mueller, Geologist,
Chairman and Managing Director of Kiintas Mining Management PTY Ltd from 1998 to
present, Vice President of Exploration Lalo Ventures, Canada from January to
November 2004, Director of Central Asia Resources, Western Australia from March
2006 to present.
Lars M. Pearl, Contact
Resources Limited, Western Australia, technical consultant (2005 to 2006); self
employed as a geological consultant from 1994 to present.
There are
no family relationships between any of the directors or executive officers. No
director or executive officer has been involved in legal proceedings during the
past five years that are material to an evaluation of the ability or integrity
of any director or executive officer.
Involvement
in Certain Legal Proceedings
During
the past five years none of our directors, executive officers, promoters or
control persons has been:
|
(a)
|
the
subject of any bankruptcy petition filed by or against any business of
which such person was a general partner or executive officer either at the
time of the bankruptcy or within two years prior to that
time;
|
33
|
(b)
|
convicted
in a criminal proceeding or is subject to a pending criminal proceeding
(excluding traffic violations and other minor
offenses);
|
|
(c)
|
subject
to any order, judgment, or decree, not subsequently reversed, suspended or
vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining, barring, suspending or otherwise limiting his
involvement in any type of business, securities or banking activities;
or
|
|
(d)
|
found
by a court of competent jurisdiction (in a civil action), the Commission
or the Commodity Futures Trading Commission to have violated a federal or
state securities or commodities
law.
|
Compliance
with Section 16(a) Beneficial Ownership Reporting Compliance, of the Exchange
Act of 1934
Based on
information provided to the Company, it is believed that all of the Company’s
directors, executive officers and persons who own more than 10% of the Company’s
common stock were in compliance with Section 16(a) of the Exchange Act of 1934
during the last fiscal year. During the year ended December 31, 2007, all of the
Company’s directors, executive officers and Company’s common stock were in
compliance with section 16(a) of the Exchange Act of 1934.
Directors
Our Board
of directors consists of three members. Directors serve for a term of one year
and stand for election at our annual meeting of stockholders. Pursuant to our
Bylaws, any vacancy occurring in the Board of directors, including a vacancy
created by an increase in the number of directors, may be filled by the
stockholders or by the affirmative vote of a majority of the remaining directors
though less than a quorum of the Board of directors. A director elected to fill
a vacancy shall hold office only until the next election of directors by the
stockholders. If there are no remaining directors, the vacancy shall be filled
by the stockholders.
At a
meeting of stockholders, any director or the entire Board of directors may be
removed, with or without cause, provided the notice of the meeting states that
one of the purposes of the meeting is the removal of the director. A director
may be removed only if the number of votes cast to remove him exceeds the number
of votes cast against removal.
Committees
During
the years ended December 31, 2007 and 2006 and the subsequent period to February
15, 2010 our entire board of directors acted as our Executive, Audit,
Compensation and Benefits and Nominating and Corporate Governance Committees.
Agustin Gomez de Segura and Waldemar Mueller are the independent members of the
committees.
Compensation
of Directors
During
the fiscal year 2007 we paid Consulting Fees of $184,800 (2006 - $158,500) to
directors of the Company and its subsidiary for their services as officers of
the Company (see the Executive Compensation table on page 36. The transactions
were recorded at the exchange amount, being the value established and agreed to
by the related parties.
Standard
Arrangements
We do not
pay a fee to our outside, non-officer directors. We reimburse our directors for
reasonable expenses incurred by them in attending meetings of the Board of
Directors. During the year ended December 31, 2007, we paid non-officer
directors $0 (2006 - $0, 2005 - $0) in consulting fees.
34
Board
and Committee Meetings
The Board
of Directors of the Registrant held no formal meetings during the year ended
December 31, 2007. All proceedings of the Board of Directors were
conducted by resolutions consented to in writing by all the directors and filed
with the minutes of the proceedings of the directors. Such resolutions
consented to in writing by the directors entitled to vote on that resolution at
a meeting of the directors are, according to the Delaware General Corporate Law
and the By-laws of the Registrant, as valid and effective as if they had been
passed at a meeting of the directors duly called and held.
For the
year ended December 31, 2007 our only standing committee of the Board of
Directors was our audit committee.
Audit
Committee
Currently
our audit committee consists of our entire Board of Directors. We
currently do not have nominating, compensation committees or committees
performing similar functions. There has not been any defined policy or
procedure requirements for shareholders to submit recommendations or nomination
for directors.
During
fiscal 2007/2008, there were informal meetings held by this Committee. The
business of the Audit Committee was conducted by resolutions consented to in
writing by all the members and filed with the minutes of the proceedings of the
Audit Committee.
Audit
Committee Financial Expert
Our board
of directors has determined that it does not have a member of its audit
committee that qualifies as an "audit committee financial expert" as defined in
Item 401(e) of Regulation S-B, and is "independent" as the term is used in Item
7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act of 1934, as
amended.
We
believe that the members of our board of directors are collectively capable of
analyzing and evaluating our financial statements and understanding internal
controls and procedures for financial reporting. In addition, we believe
that retaining an independent director who would qualify as an "audit committee
financial expert" would be overly costly and burdensome and is not warranted in
our circumstances given the early stages of our development and the fact that we
have not generated any material revenues to date.
Corporate
Governance Principles / Code of Ethics
Effective
in 2004, our Company's board of directors adopted Corporate Governance
Principles / Code of Business Conduct and Ethics that applies to, among other
persons, all Officers, Directors, Employees and consultants of the company and
its affiliates
Our Code
of Business Conduct and Ethics requires, among other things, that all of our
company's Senior Officers commit to timely, accurate and consistent disclosure
of information; that they maintain confidential information; and that they act
with honesty and integrity.
In
addition, our Code of Business Conduct and Ethics emphasizes that all employees,
and particularly Senior Officers, have a responsibility for maintaining
financial integrity within our company, consistent with generally accepted
accounting principles, and federal and state securities laws. Any Senior
Officer, who becomes aware of any incidents involving financial or accounting
manipulation or other irregularities, whether by witnessing the incident or
being told of it, must report it to our company. Any failure to report
such inappropriate or irregular conduct of others is to be treated as a severe
disciplinary matter. It is against our company policy to retaliate against any
individual who reports in good faith the violation or potential violation of our
company's Code of Business Conduct and Ethics by another.
35
Our Code of Business Conduct and Ethics
was filed with the Securities and Exchange Commission as Exhibit 99.1 on
Form 10-KSB filed on
November 4, 2004 (SEC File No. 000-27355-041117794). We will provide a copy of the
Code of Business Conduct and Ethics to any person without charge, upon request.
Requests can be sent to: Cigma Metals Corporation 18, 80 Furmanova
Str, Almaty, Republic of Kazakhstan.
Item 11. Executive
Compensation
The
following table sets forth information concerning the compensation of the named
executive officers for each of the registrant's last two completed fiscal
years:
Annual
Compensation
|
Long-Term
Compensation
|
|||||||||||||||||||||||
Awards
|
Payments
|
|||||||||||||||||||||||
Name
And
Principal
Position
(a)
|
Year
(b)
|
Salary
($)
(c)
|
Bonuses
($)
(d)
|
Other
Annual
Compen-
sation
($)
(e)
|
Restricted
Stock
Award(s)
($)
(f)
|
Securities
Under-
Lying
Options/SARs
(#)
(g)
|
LTIP
Payouts
($)
(h)
|
All
other
Compen-
sation
($)
(i)
|
||||||||||||||||
Lars
M. Pearl
|
2007
|
79,800 | -0- | -0- |
None
|
None
|
None
|
-0- | ||||||||||||||||
President,
CEO and
|
2006
|
74,500 | -0- | -0- |
None
|
600,000 |
None
|
-0- | ||||||||||||||||
Director
|
2005
|
72,000 | -0- | -0- |
None
|
None
|
None
|
-0- | ||||||||||||||||
Waldemar
K Muller
|
2007
|
105,000 | -0- | -0- |
None
|
None
|
None
|
-0- | ||||||||||||||||
Vice-President,
and
|
2006
|
84,000 | -0- | -0- |
None
|
200,000 |
None
|
-0- | ||||||||||||||||
Director
|
2005
|
48,000 | -0- | -0- |
None
|
None
|
None
|
-0- |
None of
our officers or directors is a party to an employment agreement with
us.
Options/SAR
Grants Table
We
awarded no stock purchase options, or any other rights, to any of our directors
or officers during the current 2007 fiscal year. On December 1, 2006, 900,000
stock purchase options were granted to directors at $0.88 per
share.
A summary
of the options granted is as follows:
Optionee
|
Number
of Shares
Subject
to Option
|
Exercise
Price
|
Expiry
Date
|
|||
Lars
Pearl
|
600,000 |
$0.88
per share
|
November
30, 2008
|
|||
Waldemar
K. Mueller
|
200,000 |
$0.88
per share
|
November
30, 2008
|
|||
Total:
|
800,000 |
36
Aggregated
Option/SAR Exercises and Fiscal Year-End Option/SAR Value Table
At
December 31, 2007 we had 800,000 stock purchase options outstanding. We had
stock purchase options of 900,000 outstanding at December 31, 2006 and 0
outstanding options at December 31, 2005.
At no
time during the last completed fiscal year did we, while a reporting company
pursuant to Section 13(a) of 15(d) of the Exchange Act, adjust or amend the
exercise price of the stock options or SARs previously awarded to any of the
named executive officers, whether through amendment, cancellation or replacement
grants, or any other means.
Long-Term
Incentive Plans
There are
no arrangements or plans in which we provide pension, retirement or similar
benefits for directors or executive officers, except that our directors and
executive officers may receive stock options at the discretion of our board of
directors. We do not have any material bonus or profit sharing plans
pursuant to which cash or non-cash compensation is or may be paid to our
directors or executive officers, except that stock options may be granted at the
discretion of our board of directors.
We have
no plans or arrangements in respect of remuneration received or that may be
received by our executive officers to compensate such officers in the event of
termination of employment (as a result of resignation, retirement, change of
control) or a change of responsibilities following a change of control, where
the value of such compensation exceeds $60,000 per executive
officer.
Compensation
of Directors
We
reimburse our directors for reasonable travel and other out-of-pocket expenses
incurred in connection with attendance at meetings of our board of directors.
Our board of directors may award special remuneration to any director
undertaking any special services on our behalf other than services ordinarily
required of a director. No director received and/or accrued any
compensation for their services as a director, including committee participation
and/or special assignments. Incurred in connection with attending board meetings
in the year ended December 31, 2007.
Employment
Contracts
During
the fiscal year 2007, consulting fees of $184,800 (2006 - $158,500) were paid to
directors of the Company and its subsidiary for their services as officers of
the Company. The transactions were recorded at the exchange amount, being the
value established and agreed to by the related parties.
There are
no arrangements or plans in which we provide pension, retirement or similar
benefits for directors or executive officers. Our directors and executive
officers may receive stock options at the discretion of our board of directors.
We do not have any material bonus or profit sharing plans pursuant to
which cash or non-cash compensation is or may be paid to our directors or
executive officers, except that stock options may be granted at the discretion
of our board of directors.
We have
no plans or arrangements in respect of remuneration received or that may be
received by our executive officers to compensate such officers in the event of
termination of employment (as a result of resignation, retirement, change of
control) or a change of responsibilities following a change of control, where
the value of such compensation exceeds $60,000 per executive
officer.
37
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
The
following table sets forth certain information regarding the beneficial
ownership of our common stock as of January 14, 2010 by (i) each person who is
known by us to own beneficially more than five percent (5%) of our outstanding
common stock; (ii) each of the our directors and officers; and (iii) all of our
directors and officers as a group. As at December 31, 2007 there were
39,700,000 shares of common stock issued and outstanding.
Name
and Address of
Beneficial
Owner
|
Amount
and Nature of Beneficial Owner
|
Percentage
of Class
|
||||||
Carrington
International Limited (1)
Suite
2402, Bank of America Tower,
12
Harcourt Road, Hong Kong
|
3,200,000 | 8.10 | % | |||||
Officers
and Directors:
|
||||||||
Lars
Pearl (2)
1
Edith Place, Coolum Beach, Queensland, Australia 4573
|
0 | * | ||||||
Waldemar
K. Mueller (2)
40
Ruffian Loop, Willetton, Western Australia, Australia 6155
|
0 | * | ||||||
Agustin
Gomez de Segura (2)
2
Tvezskaya – Yamskaya 54, Moscow, Russia
|
0 | * | ||||||
Officers
and Directors (3 persons)
|
0 | * |
(1)
|
Dr.
Georg H Schnura, Avenida del Campo 10, E-28223 Madrid, Spain, is the 100%
beneficial owner of Carrington International
Ltd
|
(2)
|
Officer
and/or director
|
*
|
Less
than 1%.
|
Changes
in Control
There
were no arrangements during the last completed fiscal year or subsequent period
to December 31, 2007 which would result in a change in control. We do not
believe that the offer and sale by us of an aggregate of 200,000 shares between
January 1, 2007 and December 31, 2007 have resulted in a change of
control.
No
securities were authorized for issuance under equity compensation
plans.
38
Item
13.
|
Certain
Relationships and Related Transactions and Director
Independence
|
Certain
Relationships
Our
proposed business raises potential conflicts of interests between sum of our
officers and directors and the Company. Certain of our directors are directors
of other mineral resource companies and, to the extent that such other companies
may participate in ventures in which we may participate, our directors may have
a conflict of interest in negotiating and concluding terms regarding the extent
of such participation. In the event that such a conflict of interest
arises at a meeting of our directors, a director who has such a conflict will
abstain from voting for or against the approval of such participation or such
terms. In appropriate cases, we will establish a special committee of
independent directors to review a matter in which several directors, or
management, may have a conflict. From time to time, several companies
may participate in the acquisition, exploration and development of natural
resource properties thereby allowing for their participation in larger programs,
involvement in a greater number of programs and reduction of the financial
exposure with respect to any one program. It may also occur that a
particular company will assign all or a portion of its interest in a particular
program to another of these companies due to the financial position of the
company making the assignment.
In
determining whether we will participate in a particular program and the interest
therein to be acquired by it, the directors will primarily consider the
potential benefits to us, the degree of risk to which we may be exposed and its
financial position at that time. Other than as indicated, we have no
other procedures or mechanisms to deal with conflicts of interest. We
are not aware of the existence of any conflict of interest as described
herein.
Director
Independence
Our Company has three members
on its board of directors. We consider a director to be “independent” if
that person serves only as a member of our board of directors and is not
otherwise employed by our company as an employee, officer or consultant.
Mr. Lars Pearl serves as our company’s President, Chief Executive Officer
and Chief Financial Officer. Mr. Agustin Gomez de Segura is considered the
independent director.
Transactions
with Related Persons
Other
than as disclosed below, during the fiscal year ended December 31, 2007, none of
our current directors, officers or principal shareholders, nor any family member
of the foregoing, nor, to the best of our information and belief, any of our
former directors, senior officers or principal shareholders, nor any family
member of such former directors, officers or principal shareholders, has or had
any material interest, direct or indirect, in any transaction, or in any
proposed transaction which has materially affected or will materially affect
us.
There
have been no transactions or proposed transactions with officers and directors
during the last two years to which we are a party.
Corporate
Governance
The
Board of Directors has determined that to be considered independent, an outside
director may not have a direct or indirect material relationship with the
Company. A material relationship is one which impairs or inhibits --or has the
potential to impair or inhibit--a director's exercise of critical and
disinterested judgment on behalf of the Company and its stockholders. In
determining whether a material relationship exists, the Board consults with the
Company's counsel to ensure that the Board's determinations are consistent with
all relevant securities and other laws, recent relevant cases and regulations
regarding the definition of "independent director," including those set forth in
NASDAQ Marketplace Rule 4200(a)(15)as in effect from time to time. Consistent
with these considerations, the Board affirmatively has determined that as of
December 31, 2007 only Waldemar K Mueller is an independent
director.
39
Item
14.
|
Principal
Accountant Fees and Services
|
Audit Fees:
The
aggregate fees billed and expected to be billed for professional services by
Peterson Sullivan LLP for the audit of our annual consolidated financial
statements and review of consolidated financial statements included in our Form
10-Q (17 CFR 249.308b) or services that were normally provided by the accountant
in connection with statutory and regulatory filings or engagements for the 2007
fiscal year are $75,309 (2006 - $49,996).
Audit-Related
Fees:
The
aggregate fees billed to us for assurance and related services by Peterson
Sullivan LLP that are reasonably related to the performance of the audit or
review of our consolidated financial statements and are not reported under audit
fees for fiscal 2007 were $0 (2006 - $0).
Tax
Fees:
The
aggregate fees billed to us for professional services by Peterson Sullivan LLP
for tax compliance for fiscal 2007 were $5,176 (2006 - $6,156).
All
Other Fees:
The
aggregate fees billed to us for products and services provided by Peterson
Sullivan LLP, other than reported under Audit Fees, Audit-Related Fees and Tax
Fees for fiscal 2007 were $0 (2006 - $0).
The Audit
Committee pre-approves all services provided by our independent auditors.
All of the above services and fees were reviewed and approved by the Audit
Committee either before or after the respective services were
rendered.
The Audit
Committee has considered the nature and amount of fees billed by Peterson
Sullivan LLP and believes that the provision of services for activities
unrelated to the audit is compatible with maintaining the principal accountant's
independence.
PART
IV
Item 15. Exhibits,
Consolidated Financial Statement Schedules
(1)
|
The
following documents are filed as part of this
report:
|
(a)
|
Consolidated
Financial Statements: The following audited consolidated financial
statements and report of independent registered public accounting firm are
set forth in Part II, Item 8 of this
report:
|
Report of
Independent Registered Public Accounting Firm, dated February 17,
2010
Report of
Independent Registered Public Accounting Firm, dated April 30,
2007
40
Consolidated
Balance Sheets as of December 31, 2007 and 2006
Consolidated
Statements of Operations from January 13, 1989 (commencement of operations) to
December 31, 2007 and for the years ended December 31, 2007 and
2006
Statements
of Stockholders’ Equity (Deficit) for period from January 13, 1989 (commencement
of operations) to December 31, 2007
Consolidated
Statements of Cash Flows for period from January 13, 1989 (commencement of
operations) to December 31, 2007 to and for the years ended December 31, 2007
and 2006
Notes to
the Consolidated Financial Statements
(2)
|
Financial
statement schedules: Not
Applicable
|
(3)
|
Exhibit
Listing
|
3.1.1
|
Certificate
of Incorporation, incorporated by reference to the Form 10-SB12G filed on
September 16, 1999 (SEC File No. 000-27355-99712713).
*
|
3.1.2
|
Certificate
of Amendment to the Certificate of Incorporation, incorporated by
reference to the Form 10-SB12G filed on September 16, 1999 (SEC File No.
000-27355-99712713). *
|
3.2.1
|
By-laws,
incorporated by reference to the Form 10-SB12G filed on September 16, 1999
(SEC File No. 000-27355-99712713).
*
|
10.1.1
|
Haldeevskaya
Joint Activity Agreement dated August 30, 2004, incorporated by reference
to the Form 10-KSB filed on June 6, 2006 (SEC File No.
000-27355-06888704). *
|
10.1.2
|
Amendment
to Haldeevskaya Joint Activity Agreement dated April 22, 2005,
incorporated by reference to the Form 10-KSB filed on June 6, 2006 (SEC
File No. 000-27355-06888704). *
|
10.1.3
|
Amendment
to Haldeevskaya Joint Activity Agreement dated December 31, 2005,
incorporated by reference to the Form 10-KSB filed on June 6, 2006 (SEC
File No. 000-27355-06888704). *
|
10.1.4
|
Amendment
to Haldeevskaya Joint Activity Agreement dated July 7, 2006, incorporated
by reference to the Form 10-QSB filed on August 14, 2006 (SEC File No.
000-27355-061028644). *
|
10.1.5
|
Amendment
to Haldeevskaya Joint Activity Agreement dated December 31,
2006.
|
10.2.1
|
Tugoyakovka
Joint Activity Agreement dated June 17, 2005, incorporated by reference to
the Form 10-KSB filed on June 6, 2006 (SEC File No. 000-27355-06888704).
*
|
10.2.2
|
Amendment
to Tugoyakovka Joint Activity Agreement dated December 31, 2005,
incorporated by reference to the Form 10-KSB filed on June 6, 2006 (SEC
File No. 000-27355-06888704). *
|
10.2.3
|
Amendment
to Tugoyakovka Joint Activity Agreement dated July 7, 2006, incorporated
by reference to the Form 10-QSB filed on August 14, 2006 (SEC File No.
000-27355-061028644). *
|
10.2.4
|
Amendment
to Tugoyakovka Joint Activity Agreement dated December 31,
2006.
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of
2002
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of
2002
|
99.1
|
Corporate
Governance Principles, incorporated by reference to the Form 10-KSB filed
on November 4, 2004 (SEC File No. 000-27355-041117794).
*
|
--------
|
*
|
Previously
filed
|
41
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Cigma Metals Corporation
|
|||
Registrant
|
|||
Date:
|
February 17, 2010
|
BY:
|
/s/ Agustin Gomez de
Segura
|
Agustin
Gomez de Segura
|
|||
Director
|
|||
Date:
|
February 17, 2010
|
BY:
|
/s/ Waldemar Mueller
|
Waldemar
Mueller
|
|||
Director
|
|||
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
|
|||
Cigma Metals Corporation
|
|||
Registrant
|
|||
Date:
|
February 17, 2010
|
BY:
|
/s/ Agustin Gomez de
Segura
|
Agustin
Gomez de Segura
|
|||
President,
Chief Executive Officer, Chief Financial Officer and
Director
|
|||
|
|||
Date:
|
February 17, 2010
|
BY:
|
/s/ Waldemar Mueller
|
Waldemar
Mueller
|
|||
Director
|
42