UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number
QUILCHENA RESOURCES, INC.
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(Name of small business issuer in its charter)
NEVADA 91-2006414
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(State or other jurisdiction of incorporation (I.R.S.
or organization) Employer Identification No.)
SUITE 3400 - 666 BURRARD STREET, VANCOUVER, BRITISH COLUMBIA, CANADA V6C 3M7
- - -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (604) 688-3929
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Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
Securities registered under Section 12(g) of the Exchange Act:
COMMON CAPITAL SHARES, PAR VALUE $0.001
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(Title of class)
<PAGE>
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $0
--
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
a specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.)
4,501,500 common shares @ $0.01(1) = $45,015
- - --------------------------------------------------
(1) Price at which common shares were sold to shareholders.
Note: If determining whether a person is an affiliate will involve an
unreasonable effort and expense, the issuer may calculate the aggregate market
value of the common equity held by non-affiliates on the basis of reasonable
assumptions, if the assumptions are stated.
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
5,000,000 common shares issued and outstanding as of February 29, 2000
- - --------------------------------------------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated: (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The listed
documents should be clearly described for identification purposes (e.g., annual
report to security holders for fiscal year ended December 24, 1990).
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ ]
<PAGE>
<TABLE>
<CAPTION>
GLOSSARY OF TERMS
<S> <C>
AMPHIBOLITE . . . . . . . . . . granular metamorphic rocks
ANDESITIC . . . . . . . . . fine-grained brown or greenish intermediate volcanic rocks
DACITIC . . . . . . . . fine-grained brown or greenish intermediate volcanic rocks, similar to andesitic rock
DIORITE . . . . . . . . . . . . coarse-grained plutonic igneous rocks containing quartz
GNEISSIC. . . . . . . . . . . . coarse grained metamorphic rock foliated by mineral layers
GREENSTONE. . . . . . . . . . . greenish igneous rock
LITHOLOGIES . . . . . . . . . . the general physical characteristics of rocks
MAGNETITE . . . . . . . . . . . magnetic iron oxide
MIGMATITES. . . . . . . . . . . composite rocks composed of igneous and metamorphic minerals
PELITES . . . . . . . . . . . . rocks composed of clay-like sediment
PERMIAN . . . . . . . . . . . . belonging to the last period of the Palaeozoic Era
PLUTONIC. . . . . . . . . . . . formed as igneous rock
PYRRHOTITE. . . . . . . . . . . minerals that form in magmatic igneous deposits; also found in highly metamorphic
rocks and in hydrothermal veins
PYROXENITE. . . . . . . . . . . any group of minerals
SCHIST. . . . . . . . . . . . . a foliated metamorphic rock composed of layers of different minerals which
split into thin, irregular plates
SUPRACRUSTALS . . . . . . . . . rocks that overlie basement rocks
TREMOLITE-ACTINOLITE. . . . . . a common mineral in metamorphic rocks, of which actinolite is the intermediate member
ULTRAMAFIC. . . . . . . . . . . intrusive rocks consisting of only dark colored minerals
VOLCANICLASTIC clastic rock (sediment composed of clasts which have been transported from their
place of origin, such as sandst
</TABLE>
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Introduction
Quilchena Resources, Inc. (hereinafter referred to as the "Company") is a
mineral exploration and development company. The Company's corporate and head
offices are located at #3400 - 666 Burrard Street, Vancouver, British Columbia
V6C 3M7. The telephone number is (604) 688-3929 and the facsimile number is
(604) 688-3927.
The Company's consolidated financial statements are stated in United States
Dollars (US$) and are prepared in accordance with United States Generally
Accepted Accounting Principles.
In this Annual Report, unless otherwise specified, all dollar amounts are
expressed in United States Dollars. Herein, all references to "CDN$" refer to
Canadian Dollars and all references to common shares refer to the common capital
shares in the capital stock of the Company.
Business Development of Issuer During Last Three Years
The Company was incorporated under the laws of the State of Nevada on March 3,
1999, and as such has had limited business development.
On July 20, 1999, the Company entered into an Assignment Agreement (the
"Assignment Agreement") with Wet Coast Capital Corporation ("Wet Coast"),
pursuant to which the Company paid Wet Coast the sum of $10,000 and in return,
was assigned Wet Coast's interest in an Option Agreement between Wet Coast and
Gerry Diakow, dated July 20, 1999 (the "Option Agreement"). Pursuant to the
Option Agreement, Mr. Diakow granted Wet Coast an option (the "Option") to
acquire a 100% undivided interest in property known as the "Hi-Ho 1 - 10 Mining
Claims", located in the New Westminster Mining Division, 121, 36 West Longitude
and 49 23, 30 North Latitude, British Columbia, Canada (the "Hi-Ho Claims").
Pursuant to the terms of the Assignment Agreement, in order to exercise the
Option, the Company must finance the work program on the Hi-Ho Claims (the "Work
Program"), as recommended by Douglas H. Hopper, Consulting Geologist, in his
report entitled "Exploration Potential of Hi-Ho Claims, Garnet Creek", dated
March 11, 1999 (the "Exploration Report"). A copy of the Exploration Report is
attached to this Annual Report as an exhibit, as is Mr. Hopper's consent to
utilize the Exploration Report for this purpose. In the Exploration Report, Mr.
Hopper estimates the total cost of the Work Program at CDN$8,495. Pursuant to
the terms of an Amending Agreement dated February 9, 2000 (the "Amending
Agreement"), between Gerry Diakow and the Company, the Work Program must be
financed by December 31, 2000.
In partial satisfaction of the Work Program and under the terms of the Option
Agreement, Gerry Diakow spent five (5) days between November 22, 1999 and
November 27, 1999 examining, mapping, hand trenching and sampling the Hi-Ho
Claims (the "Initial Reconnaissance"). As required by the Work Program, on
February 3, 2000, Mr. Diakow prepared the initial engineering report, entitled
"Prospecting Report on Rock Sampling over the Hi-Ho Property" (the "Prospecting
Report"). A copy of the Prospecting Report is attached to this Annual Report as
an exhibit, as is Mr. Diakow's consent to utilize the Prospecting Report for
this purpose. In order to fulfil the requirements of the Work Program, Mr.
Diakow will spend a further period of time (as yet undetermined), prior to
December 31, 2000, examining, mapping, hand trenching and sampling the Hi-Ho
Claims (the "Secondary Reconnaissance"). Following the Secondary
Reconnaissance, and within two months, Mr. Diakow will prepare a final
engineering report (the "Final Engineering Report"). The Final Engineering
Report, together with the Prospecting Report, will fulfil the terms of the Work
Program, as well as the requirements to hold the Hi-Ho Claims in good standing
for between 3 and 4 years. Depending upon the economics of developing either an
industrial mineral property or a precious metal property, a second phase of
exploration may be commenced. The determination with respect to a second phase
of exploration will be made by the President of the Company, Derek
<PAGE>
Herman. The Company anticipates that the Secondary Reconnaissance under the
Work Program will be completed by December 31, 2000.
The Company has not been involved in any bankruptcy, receivership or similar
proceedings, nor has it been a party to any material reclassification, merger,
consolidation or purchase or sale of a significant amount of assets not in the
ordinary course of its business.
Business of the Company
Since its incorporation, the Company has operated as a mineral exploration and
development company.
Business Strategy
The Company's objective is to explore, map, sample, develop and eventually mine
the Hi-Ho Claims. As a starting point, the Company has implemented the initial
stage of the Work Program, and the initial financing of same. The Work Program
must be completely financed by December 31, 2000, pursuant to the Amending
Agreement. Upon completion of the Work Program, the Company will evaluate the
findings made in the Prospecting Report and the Final Engineering Report, and
will determine its next course of action based upon the findings in both the
Prospecting Report and the Final Engineering Report.
Research and Development
To date, the Company has spent a minimal amount of money on the exploration of
the Hi-Ho Claims. Funds were expended in conjunction with seeking and securing
the Assignment Agreement ($10,000), and to facilitate the initial stage of the
Work Program (CDN$4,280). The Company must finance the Secondary Reconnaissance
by December 31, 2000, and anticipates that the cost to do so will be
approximately CDN$4,215. The Company does not anticipate that it will expend
any further funds through December 31, 2000.
Competition
The Company competes with mining companies and smaller natural resources
companies in the acquisition, exploration, financing and development of mineral
properties and projects. Many of these companies are larger, more experienced
and more well-established financially than the Company. The Company's economic
position will depend upon its ability to successfully and economically explore
and develop, if economically feasible, the Hi-Ho Claims and any other new
mineral resource properties or projects. The Company's ability to be
competitive in the market over the long term is dependent upon the quality and
amount of ore discovered, cost of production and proximity to its market. Due
to the large number of companies and variables involved in the mining industry,
it is not possible to pinpoint the Company's direct competition.
Risk Factors
Much of the information included in this Annual Report includes or is based upon
estimates, projections or other "forward-looking statements". Such
forward-looking statements include any projections or estimates made by the
Company and its management in connection with its business operations. While
these forward-looking statements, and any assumptions upon which they are based,
are made in good faith and reflect the Company's current judgment regarding the
direction of its business, actual results will almost always vary, sometimes
materially, from any estimates, predictions, projections, assumptions, or other
future performance suggested herein. The Company undertakes no obligation to
update forward-looking statements to reflect events or circumstances occurring
after the date of such statements.
Such estimates, projections or other "forward-looking statements" involve
various risks and uncertainties as outlined below. The Company cautions the
readers that important factors in some cases have affected and, in the future,
could materially affect actual results and cause actual results to differ
materially from the results expressed in any such estimates, projections or
other "forward-looking statements". In evaluating the Company, its business and
any investment in the Company, readers should carefully consider the following
factors.
<PAGE>
Risks of Exploration and Development
Resource exploration and development is by nature a speculative enterprise and
therefore involves a high degree of risk. The marketability of any natural
resources discovered by the Company will be affected by a number of factors
beyond its control, including commodity price, currency volatility, the
proximity and capacity of the natural resource markets and processing equipment,
government regulations with respect to prices, taxes, royalties, land tenure,
importing and exporting of minerals and environmental protection. In addition,
few mineral exploration properties become commercially viable mines, and there
cannot be any assurances that the exploration work carried out by the Company
will lead to the discovery of an ore body which will result in a commercially
viable or economically feasible mining operation. Although the exact effect of
these factors cannot be accurately predicted, a combination of these factors may
result in the Company not receiving adequate return on invested capital, and may
have an adverse impact on the Company's continued operations.
Recovery of Reserves
In carrying on its mineral exploration and development activities, the Company
may rely upon calculations as to potential ore reserves and corresponding ore
grades on the Company's prospects which, by their nature, are not exact. Until
the minerals are actually mined and processed, any ore reserves and ore grades
must be considered estimates only. As mineral prices have historically been
cyclical and dependent upon factors beyond the Company's control (including
changes in investment trends, international monetary systems, political events
and changes in the supply and demand for minerals on public and private
markets), the quantity of economic reserves will also vary. Any material
changes in reserves, ore grades or stripping ratios will further affect the
economic viability of any future prospects which may be developed. In addition,
short term operating factors relating to prospect development, including a need
for the orderly development and the processing of new or different mineral
grades may affect the Company's profitability at any given time. There can be
no assurances that mineral recovery rates predicted as a result of testing will
be duplicated on-site or during production.
Fluctuation of Mineral Prices
The Company's mining operations, if any are undertaken, will be subject to the
normal risks of mining. Profits are subject to fluctuations in mineral prices
and in particular the market price of the mineral being mined. The price of
minerals has fluctuated widely in the past and is affected by factors beyond the
Company's control, including international economic and political trends,
expectations of inflation, interest rates, global or regional consumptive
patterns, speculative activities and production methods. The effect of these
factors on the price of minerals cannot be accurately predicted.
Capitalization and Commercial Viability
The Company has limited financial resources and there can be no assurances that
additional funding will be available to the Company for further exploration or
development of the Hi-Ho Claims beyond the Work Program, or of any other
properties which may be acquired by the Company in the future. Although the
Company has been successful to date in obtaining financing through the sale of
its common shares, there can be no assurances that the Company will be
successful in doing so in the future. Failure to obtain additional financing
could result in delay or indefinite postponement of further exploration and
development of the Hi-Ho Claims or any future claims, with the possible loss of
exploration permits and/or the expiry of options in connection with such claims.
The commercial viability of production on a particular claim will be affected by
factors that are beyond the Company's control, including the attributes of any
particular deposit, the fluctuation in mineral prices, the costs of constructing
and operating a mine, processing facilities, the availability of economic
sources of energy, government regulations, including regulations relating to
prices, royalties, restrictions on production, quotas on exportation of mineral,
as well as the costs associated with environmental and agricultural land
protection. It is not possible to assess with any degree of certainty the
impact of these factors upon the Company's business.
<PAGE>
Uninsurable Risks
Mining operations generally involve a high degree of risk. Hazards such as
unusual or unexpected formations, power outages, labour disruptions, flooding,
explosions, cave-ins, landslides, and the inability to obtain suitable or
adequate machinery or labour may have an effect on the Company's ability to
explore and develop the Hi-Ho Claims and other claims in the future. The
Company may become subject to liability for pollution, cave-ins or hazards
against which it cannot insure or against which it may not elect to insure. The
payments with respect to these types of liability may have a material, adverse
effect on the Company's financial position and continuing operations.
Compliance with Government Regulations
The Company's explorations and operations are subject to mining, health, labour
and environmental regulations, changes in which may result in additional
expenditures, availability of capital, competition, reserve uncertainty,
potential conflicts of interest, title risks, dilution and restrictions and
delays in operations, the extent of which is not possible to predict.
The mining industry in Canada is subject to legislation at both the federal and
provincial levels, and is mainly related to the protection of the environment.
The Company is required to obtain and maintain compliance with a full range of
activities during exploration, development, production and closure and
reclamation. Existing and possible future legislation could cause additional
expense and capital expenditures, restrictions and delays in the development and
future operations of the Hi-Ho Claims, the extent of which cannot be predicted
by management of the Company. The Company may incur increased or decreased
costs and delays depending upon the nature of its future activities, and the
standards that are applied. It is possible that the costs and delays associated
with meeting such standards may become such that the Company would not proceed
with the further development or operation of a mine.
In British Columbia, mining activities are regulated by two statutes, the Mines
Act and the Mineral Tenure Act.
The Mines Act applies to all mines during exploration, development,
construction, production, closure, reclamation and abandonment, and sets out the
regulations surrounding the initial staking and reserving of a mining property.
Pursuant to the Mines Act, the owner, agent or manager must apply for a permit
and must provide a plan outlining the proposed work and a program for, among
other things, the protection and reclamation of the lands prior to the
commencement of any work on the mining property. In addition, a manager of the
mine must be appointed prior to the commencement of any work is commenced.
Finally, each manager is responsible for keeping accurate mine site plans at the
provincial mining office; the plans must be updated every three months.
The Mineral Tenure Act addresses such things as the administration of the office
of the provincial gold commissioner, the manner in which a claim must be
recorded and maintained, the preparation of reports on geological work completed
on a site, the issuance of mining leases and other miscellaneous items
pertaining to mining in the Province of British Columbia.
"Penny Stock" Rules
The Company's common shares are subject to rules promulgated by the SEC relating
to "penny stocks", which apply to companies whose shares are not traded on a
national stock exchange or on the NASDAQ system, trade at less than $5.00 per
share, or who do not meet certain other financial requirements specified by the
SEC. These rules require brokers who sell "penny stocks" to persons other than
established customers and "accredited investors" to complete certain
documentation, make suitability inquiries of investors, and provide investors
with certain information concerning the risks of trading in the such penny
stocks. These rules may discourage or restrict the ability of brokers to sell
the Company's common shares and may affect the secondary market for the
Company's common shares. These rules could also hamper the Company's ability to
raise funds in the primary market for the Company's common shares.
<PAGE>
Limited Operating History
As the Company was incorporated one year ago, on March 3, 1999, it has a limited
operating history on which to base an evaluation of its business and prospects.
The Company's prospects must be considered in light of the risks, uncertainties,
expenses and difficulties frequently encountered by companies in their early
stages of development. Some of these risks and uncertainties relate to the
Company's ability to explore, develop and exploit the Hi-Ho Claims, and other
claims in the future, and to attract, retain and motivate qualified personnel.
The Company cannot be sure that it will be successful in addressing these risks
and uncertainties, and its failure to do so could have a materially adverse
effect on its financial condition and continued operations. In addition, the
Company's operating results are dependent to a large degree upon factors outside
the Company's control, including among other things, the speculative nature of
resource exploration and development, inaccurate calculation of reserves and
difficulties associated with the recovery of same, fluctuation of mineral prices
and uninsurable risks. There are no assurances that the Company will be
successful in addressing these risks, and failure to do so may adversely affect
the Company's business and financial condition.
History of Losses
The Company has not achieved profitability and expects to continue to incur net
losses for the foreseeable future and may never become profitable. The Company
has incurred net losses of approximately $13,460 to December 31, 1999.
The Company's ability to generate significant revenues is uncertain. Its short
and long-term prospects depend upon the viability of the Hi-Ho Claims and any
claims it may acquire and develop in the future. The Company has projected that
a significant portion of its revenues will be generated from the exploration and
possible production of such minerals as nickel, copper, chromium, gold and
platinum from the Hi-Ho Claims. Accordingly, the Company's success is highly
dependent on developing the Hi-Ho Claims into a fully operational mine, which
may not prove to be commercially or economically viable, and the Company may
never generate significant revenues if the Hi-Ho Claims and any future claims do
not prove to be commercially or economically viable. In order for the Company
to make a profit, its revenues (of which it currently has none) must increase
proportionately to its exploration and development costs to cover those and
other future costs. Even if it becomes profitable, the Company may not sustain
or increase its profits on a quarterly or annual basis in the future.
Uncertain Ability to Manage Growth
The Company's ability to achieve its planned growth is dependent upon a number
of factors including, but not limited to, its ability to hire suitable
employees, the adequacy of the Company's financial resources and the Company's
ability to identify and develop the Hi-Ho Claims and any claims it may acquire
and develop in the future. In addition, there can be no assurance that the
Company will be able to achieve its anticipated goals or that it will be able to
manage successfully its operations. Failure to manage anticipated growth
effectively and efficiently could have a material adverse effect on the Company.
Need for Additional Financing
Based on its current operating plan, the Company anticipates that it will
require funds in the amount of approximately CDN$4,215 prior to December 31,
2000 in order to finance the Secondary Reconnaissance under the Work Program.
The funds required to do so are already in place. The Company does not
anticipate that it will require additional financing by the end of 2000;
however, the Company may need to raise additional capital sooner to fund more
rapid expansion, to conduct further exploration and/or to test the Hi-Ho Claims,
to develop new mineral claims or to respond to competitive pressures.
The Company's ability to continue in business in the future depends upon its
continued ability to obtain financing. There can be no assurance that any such
financing would be available upon terms and conditions acceptable to the
Company, if at all. The inability to obtain additional financing in a
sufficient amount when needed and upon acceptable terms and conditions could
have a material adverse effect upon the Company. Although the Company believes
that it can raise financing sufficient to meet its immediate needs, it will
require funds to finance its exploration and development activities in the
future. There can be no assurance that such funds will be available or
available on terms satisfactory to the Company. If additional funds are raised
by issuing equity securities, further dilution to existing or future
stockholders is likely to result. If adequate funds are not available on
acceptable terms
<PAGE>
when needed, the Company may be required to delay, scale-back or eliminate its
development. Inadequate funding also could impair the Company's ability to
compete in the marketplace and could result in its dissolution.
Dependence Upon Key Personnel
The Company's key personnel is limited at present to Derek Herman, the President
of the Company. Mr. Herman is currently the sole director, officer and employee
of the Company. The loss of Mr. Herman's services and the services of any
future employees, for any reason, may have a materially adverse effect on the
prospects of the Company. There can be no assurance that the Company would be
able to find a suitable replacement in the event that Mr. Herman's services or
the services of future key employees are lost. Furthermore, the Company does
not presently maintain "key man" life insurance on the live of Mr. Herman. To
the extent that the services of any key employee of the Company become
unavailable, the Company will be required to retain other qualified persons;
however, there can be no assurance that it will be able to employ qualified
persons upon acceptable terms.
Employees
As at February 29, 2000, the Company employs 1 person on a full-time basis, the
President and sole director the Company, Derek Herman.
Insider Control of Common Stock
As of February 29, 2000, the sole director and executive officer beneficially
owned approximately 10% of the outstanding common shares.
Volatility of Stock Price
The Company's common shares are not currently publicly traded. In the future,
the trading price of the Company's common shares may be subject to wide
fluctuations. Trading prices of the common shares may fluctuate in response to
a number of factors, many of which will be beyond the Company's control. In
addition, the stock market in general, and the market for natural resource and
mining companies in particular, has experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to the operating
performance of such companies. Market and industry factors may adversely affect
the market price of the common shares, regardless of the Company's operating
performance.
In the past, following periods of volatility in the market price of a company's
securities, securities class-action litigation has often been instituted. Such
litigation, if instituted, could result in substantial costs and a diversion of
management's attention and resources.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's executive and head offices are located at Suite 3400 - 666 Burrard
Street, Vancouver, British Columbia. The offices are extremely small in size
and are provided to the Company on a rent free basis by Sonora Capital
Corporation, a company with which the sole director and executive officer of the
Company, Derek Herman, has a relationship. The Company anticipates that its
office space will continue to be provided to it on a rent free basis through
December 31, 2000.
Assignment Agreement/Option to Purchase
The Company does not own any property outright. Pursuant to the Assignment
Agreement, it has an option to acquire an undivided 100% interest in the Hi-Ho
Claims. Prior to entering into the Assignment Agreement, Wet Coast warranted
that it paid the sum of CDN$7,500 to Gerry Diakow, pursuant to the terms of the
Option Agreement. The Company, in turn, paid the sum of $10,000 to acquire the
Option Agreement from Wet Coast. In order to exercise its option under the
Assignment Agreement, and pursuant to the Amending Agreement, the Company must
fund the Work Program in its entirety by December 31, 2000. The Option
Agreement and the Assignment Agreement expire on January 20, 2001.
<PAGE>
As set out in the Option Agreement and in accordance with the Work Program,
Gerry Diakow has completed the Initial Reconnaissance (5 days) and will spend a
further period of time (as yet undetermined) conducting the Secondary
Reconnaissance. Following the Initial Reconnaissance, the Prospecting Report
was completed. The Prospecting Report, together with the Final Engineering
Report, will fulfil the Work Program and the requirements to hold the Hi-Ho
Claims in good standing for between 3 and 4 years. Depending upon the economics
of developing either an industrial mineral property or a precious metal
property, a second phase of exploration may be commenced. At this time, the
Hi-Ho Claims are without known reserves and the Work Program and any further
programs are, at this time, exploratory in nature.
Location and Access
At present, the Company is at the "exploration stage" with respect to the Hi-Ho
Claims, and expects to remain at the exploration stage at least through December
31, 2000. The Hi-Ho Claims consist of 10 contiguous mineral claims comprising
225 hectares in the New Westminster Mining Division in southwestern British
Columbia, Canada. The Claims are located on Garnet Creek on the north side of
the Fraser River, approximately 13 kilometres west of Hope, British Columbia,
and are accessed by a dirt road which parallels the east side of Ruby Creek and
runs north from Highway 7 at a point 12 kilometres southwest of the juncture of
Highway 7 and the Trans Canada Highway.
Previous Operations
The Hi-Ho Claims are situated between two mining camps, each of which are within
10 miles of the Hi-Ho Claims. The first (the "Harrison Lake Group") is located
on the south slope of Bear Mountain approximately 4 miles west of the Hi-Ho
Claims. Considerable development work was done on the Harrison Lake Group
between 1915 and 1917, and approximately 181.4 tonnes of ore was shipped from
the property during 1916 and 1917. The second mining camp (the "Emory Creek
Mines") is located northeast of the Hi-Ho Claims, and has been developed since
the 1920's. The commodities include nickel, copper, chromium, gold, platinum
and palladium. Seventeen main ore bodies from these early works were later
mined by the Giant Nickel mine, which was in operation between 1958 and 1974.
Nickel and copper were the prime metallic products, with cobalt as a by-product.
Chrome oxide, platinum, gold and silver were also reported.
The earliest recorded work in the vicinity of the Hi-Ho Claims was conducted by
Black Mastoden Mining Ltd. on a mineral claim located one mile north of the
mouth of Ruby Creek. An area known as Doctor's Point, located on the southwest
shore of Harrison Lake approximately 45 kilometres north-northeast of Harrison
Hot Springs contains two deposits. The first (the Providence Mine) was worked
in the late 1800s/early 1900s and is covered by Crown (government) grants. The
second is the Nagy Gold Occurrence, in which area Mr. G. Nagy discovered
gold-silver mineralization during the 1970s. The Nagy claims were purchased in
1981 and a further exploration program was undertaken by Rhyolite Resources Inc.
Present Condition of the Hi-Ho Claims
Between November 22 and November 29, 1999, Gerry Diakow, a mineral exploration
technician, carried out the Initial Reconnaissance on Hi-Ho Claims #1, #2, #3
and #4. The sampling completed by Mr. Diakow resulted in 17 rock samples and 2
silt samples, which were sent for analysis to Acme Analytical Laboratories Ltd.
("Acme") in Vancouver, British Columbia. The results of this analysis are
contained in a Geotechnical Analysis Certificate prepared by Acme in January,
2000, which Certificate forms part of the Prospecting Report.
The Hi-Ho Claims have not been explored for approximately 10 years. The low
elevation and warm, wet climate encourages the rapid growth of foliage in the
area, which has effectively covered the known showing and previous grid work.
THE HI-HO CLAIMS ARE WITHOUT KNOWN RESERVES, AND THE COMPANY'S PROPOSED PLAN
WITH RESPECT TO THE HI-HO CLAIMS IS EXPLORATORY IN NATURE.
<PAGE>
Plant and Equipment
At this time, the Company does not have a plant or any equipment at the Hi-Ho
Claims. As the Company is in the early stages of exploration with respect to
the Hi-Ho Claims, it does not anticipate expending any capital on a plant or
related equipment at the Hi-Ho Claims through December 31, 2000.
Rock Formations and Mineralization
The following information was extracted from the Exploration Report, prepared by
Douglas H. Hopper, Consulting Geologist.
The words in BOLD PRINT in this section are defined at the beginning of this
Annual Report: See "Glossary of Terms".
The Harrison Lake fracture system forms a major, southeasterly trending
dislocation over 100 kilometres in length, which in part passes along, and
parallel to Harrison Lake. The system separates highly contrasting geological
regimes. To the northeast, the rocks include well-formed SUPRACRUSTALS of the
Pennsylvanian to Permian Chilliwack Group, as well as highly foliated GNEISSIC
rocks and some younger granites. By contrast, the rocks on the southwestern
side of the fracture are generally younger, are less deformed and have suffered
lower metamorphic grade. They include a variety of volcanic, VOLCANICLASTIC and
sedimentary rocks, as well as intrusive granite rocks and MIGMATITES. The most
important regarding gold mineralization are the Fire Lake and Harrison Lake
Groups which are well developed respectively northwest and southwest of Harrison
Lake. The Fire Lake Group comprises a variety of coarse to fine-grained
sedimentary rocks with lesser GREENSTONE volcanic rocks, while the Harrison Lake
Group is predominantly a volcanic sequence of ANDESITIC to DACITIC composition,
with smaller amounts of VOLCANICLASTIC and sedimentary rocks. Both groups are
intruded by younger PLUTONIC rocks ranging from granite to DIORITE.
The Harrison Lake fracture system is associated with regional hot spring
activity; this includes two hot springs along the Lillooet River valley,
northwest of the lake, as well as one situated at Harrison Hot Springs on the
southeastern extremity of the lake. The gold mineralization along the system is
hosted in rocks of various ages and LITHOLOGIES. The Fire Lake gold camp,
situated approximately 20 kilometres northwest of Harrison Lake, includes six
mineralized occurrences, all of which are found in quartz-rich veins that cut
the Fire Lake Group.
The Hi-Ho Claims are underlain mainly by lower Pennsylvanian to lower PERMIAN
basic volcanic rocks and PELITES of the Chilliwack Group. On the east side of
Ruby Creek, a small band of SCHIST and AMPHIBOLITE rocks are separated from the
Chilliwack volcanics by a north/south trending fault. A talc exposure 70 metres
thick with a strike length of 10 metres has been reported on the southwest bank
of Ruby Creek. The talc is believed to be completely altered ULTRAMAFIC body,
as many such bodies are seen in the vicinity, including a bluff of pyroxenite
north of the talc showing. In this section, the talc ore consists of 25%
TREMOLITE-ACTINOLITE and 5% MAGNETITE. PYRROHTITE, carrying values in nickel
and copper is also reported. Silver in amounts up to 100 grams per tonne was
obtained from pack rock drill samples.
ITEM 3. LEGAL PROCEEDINGS
The Company knows of no material, active or pending legal proceedings against
it, nor is the Company involved as a plaintiff in any material proceeding or
pending litigation. There are no proceedings in which any director, officer of
affiliate of the Company, or any registered or beneficial shareholder is an
adverse party or has a material interest adverse to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no public trading market for the Company's common shares.
The Company's common shares are issued in registered form. First American Stock
Transfer, Inc., 610 East Bell Road, #2 - 155, Phoenix, Arizona 85022-2393
(Telephone: (602) 485-1346 Facsimile: (602) 953-7482) is the registrar and
transfer agent for the Company's common shares.
On February 29, 2000, the shareholders' list for the Company's common shares
showed 32 registered shareholders and 5,000,000 shares outstanding. The Company
has researched indirect holdings registered to the various depository
institutions and stock brokerage firms, and estimates that there no additional
beneficial shareholders beyond the 32 registered shareholders at the above date.
The Company has not declared any dividends since incorporation and does not
anticipate that it will do so in the foreseeable future. Although there are no
restrictions that limit the ability to pay dividends on the Company's common
shares, the intention of the Company is to retain future earnings for use in its
operations and the expansion of its business.
Recent Sales of Unregistered Securities
In the past fiscal year, the Company has sold the following common shares
without registering such common shares under the Securities Act of 1933:
On March 15, 1999, the Company sold a total of 5,000,000 common shares at a
price of $0.01 per common share, for total cash consideration of $50,000 to the
following persons, relying on Rule 504 of Regulation D under the Securities Act
of 1933, as amended. The price per share was established arbitrarily by the
Company's management.
<TABLE>
<CAPTION>
NUMBER OF COMMON
CAPITAL SHARES NAME CONSIDERATION
<C> <S> <C>
497,500 Dream Weaver Investments Ltd.. $ 4,975
497,500 Cronwall Investments Ltd.. . . $ 4,975
- - ---------------- ------------------------------ --------------
497,500 Spirit Investments Ltd. (1). . $ 4,975
------------------------------ --------------
497,500 Lamplighter Investments Ltd. . $ 4,975
------------------------------ --------------
497,500 Strathburn Investments Ltd.. . $ 4,975
------------------------------ --------------
497,500 Dynamic Investments Ltd. . . . $ 4,975
------------------------------ --------------
497,500 Anchor Cove Investments Ltd. . $ 4,975
------------------------------ --------------
497,500 Aero Atlantic Ltd. . . . . . . $ 4,975
------------------------------ --------------
497,500 Sonora Capital Corp. . . . . . $ 4,975
------------------------------ --------------
497,500 Castaways Holdings . . . . . . $ 4,975
------------------------------ --------------
1,000 Farrel Barwin. . . . . . . . . $ 10
------------------------------ --------------
<PAGE>
1,000 Bill Turner. . . . . . . . . . $ 10
------------------------------ --------------
1,000 Derek Herman . . . . . . . . . $ 10
------------------------------ --------------
2,000 Zvi Mammon . . . . . . . . . . $ 20
------------------------------ --------------
1,000 Darryl Fain. . . . . . . . . . $ 10
------------------------------ --------------
1,000 Brandon Barwin . . . . . . . . $ 10
------------------------------ --------------
1,000 Phil DuBois. . . . . . . . . . $ 10
------------------------------ --------------
1,000 Michael O'Brien. . . . . . . . $ 10
------------------------------ --------------
1,000 Don Graham . . . . . . . . . . $ 10
------------------------------ --------------
1,000 Serena Sive. . . . . . . . . . $ 10
------------------------------ --------------
2,000 Norman Mammon. . . . . . . . . $ 20
------------------------------ --------------
1,000 Laurie Stringer. . . . . . . . $ 10
------------------------------ --------------
1,000 Matt Emery . . . . . . . . . . $ 10
------------------------------ --------------
1,000 Dan Isserow. . . . . . . . . . $ 10
------------------------------ --------------
1,000 Russ Isaac . . . . . . . . . . $ 10
------------------------------ --------------
1,000 Phillip Levinson . . . . . . . $ 10
------------------------------ --------------
1,000 Gary Treisman. . . . . . . . . $ 10
------------------------------ --------------
1,000 Kevin Ossip. . . . . . . . . . $ 10
------------------------------ --------------
1,000 Sydney Broer . . . . . . . . . $ 10
------------------------------ --------------
1,000 Kathy Robinson . . . . . . . . $ 10
------------------------------ --------------
1,000 Jonty McNair . . . . . . . . . $ 10
------------------------------ --------------
2,000 Gisele Decker. . . . . . . . . $ 20
================ ============================== ==============
<FN>
(1) Derek Herman is the authorized signatory for, but not the beneficial
owner of, the shares owned by Spirit Investments Ltd.
</TABLE>
<PAGE>
ITEM 6. PLAN OF OPERATION
General
The Company has completed the Initial Reconnaissance under the Work Program with
respect to the Hi-Ho Claims, and intends to implement the Secondary
Reconnaissance prior to December 31, 2000. As set out in the Option Agreement
and in accordance with the Work Program, Gerry Diakow will spend a further
period of time (as yet undetermined) conducting the Secondary Reconnaissance,
following which the Final Engineering Report will be completed. The Final
Engineering Report will fulfil the Work Program and the requirements to hold the
Hi-Ho Claims in good standing for between 3 and 4 years. Depending upon the
economics of developing either an industrial mineral property or a precious
metal property, a second phase of exploration may be commenced. A determination
with respect to a second phase of exploration will be made by the President of
the Company, Derek Herman, and will be dependent upon whether further
exploration of the Hi-Ho Claims is deemed to be economically and commercially
viable.
Cash Requirements
The Company's cash requirements for the period ending December 31, 2000 are
estimated at CDN$4,215 for completion of the Work Program. As the Company has
the funds to satisfy its cash requirements, it does not anticipate having to
raise additional funds over the next 12 months.
Exploration and Development
To date, the Company has not expended significant funds for exploration and
development. The Exploration Report was prepared prior to Company entering into
the Assignment Agreement. Pursuant to the Assignment Agreement, the Company
paid the sum of $10,000 to Wet Coast to acquire Wet Coast's interest in the
Option Agreement. The Company anticipates that it will spend approximately
CDN$4,215 on further exploration and development through December 31, 2000, in
the form of financing of the Final Reconnaissance under the Work Program. The
Company does not anticipate that it will expend further funds for exploration
and development through December 31, 2000, and will not know whether it will
expend any funds after that date until it receives and reviews the Final
Engineering Report.
Purchase of Significant Equipment
The Company does not intend to purchase any significant equipment through
December 31, 2000.
Employees
At this time, the Company does not anticipate a change in the number of
employees it retains (currently one employee).
ITEM 7. FINANCIAL STATEMENTS
The Company's consolidated financial statements are stated in United States
Dollars (US$) and are prepared in accordance with United States Generally
Accepted Accounting Principles.
The consolidated financial statements are attached hereto and found immediately
following the text of this Annual Report. The Auditor's Report of Davidson &
Company, for the audited interim financial statements for the quarters
<PAGE>
ended June 30, 1999, September 30, 1999 and December 31, 1999 are included
herein immediately preceding the audited consolidated financial statements.
Audited Consolidated Financial Statements and Financial Statement Schedules by
Davidson and Company:
Auditor's Report, dated February 1, 2000.
Consolidated Balance Sheet at December 31, 1999.
Consolidated Statements of Operations and Deficit for the Year Ended
December 31, 1999.
Consolidated Statement of Cash Flows for the Year Ended December 31, 1999.
Notes to Consolidated Financial Statements.
<PAGE>
QUILCHENA RESOURCES, INC.
(AN EXPLORATION STAGE COMPANY)
FINANCIAL STATEMENTS
(EXPRESSED IN UNITED STATES DOLLARS)
DECEMBER 31, 1999
<PAGE>
DAVIDSON & COMPANY
Chartered Accountants
A Partnership of Incorporated Professionals
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of
Quilchena Resources, Inc.
(An Exploration Stage Company)
We have audited the accompanying balance sheet of Quilchena Resources, Inc. as
at December 31, 1999 and the related statements of operations, stockholders'
equity and cash flows for the period from incorporation on March 3, 1999 to
December 31, 1999. 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 audit.
We conducted our audit in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and the 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, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1999 and the
results of its operations and its cash flows for the period from incorporation
on March 3, 1999 to December 31, 1999 in conformity with generally accepted
accounting principles in the United States of America.
The accompanying financial statements have been prepared assuming that
Quilchena Resources, Inc. will continue as a going concern. As discussed in
Note 2 to the financial statements, unless the Company attains further
profitable operations and/or obtains additional financing, there is substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regards to these matters are discussed in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
"DAVIDSON & COMPANY"
Vancouver, Canada Chartered Accountants
February 1, 2000
A Member of SC INTERNATIONAL
Suite 1200, Stock Exchange Tower, 609 Granville Street, P.O. Box 10372, Pacific
Centre, Vancouver, BC, Canada, V7Y 1G6
Telephone (604) 687-0947 Fax (604) 687-6172
<PAGE>
<TABLE>
<CAPTION>
QUILCHENA RESOURCES, INC.
(An Exploration Stage Company)
BALANCE SHEET
(Expressed in United States Dollars)
AS AT DECEMBER 31, 1999
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents $ 40,964
================================================= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities $ 4,424
---------
STOCKHOLDERS' EQUITY
Capital stock (Note 5)
Authorized
200,000,000 common shares, par value of $0.001
Issued and outstanding
5,000,000 . common shares 5,000
Additional paid in capital 45,000
Deficit accumulated during the exploration stage (13,460)
---------
Total stockholders' equity 36,540
---------
Total liabilities and stockholders' equity $ 40,964
================================================= =========
<FN>
HISTORY AND ORGANIZATION OF THE COMPANY (Note 1)
GOING CONCERN (Note 2)
ON BEHALF OF THE BOARD:
/s/ Derek Herman
Director
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
QUILCHENA RESOURCES, INC.
(An Exploration Stage Company)
STATEMENT OF OPERATIONS
(Expressed in United States Dollars)
PERIOD FROM INCORPORATION ON MARCH 3, 1999 TO DECEMBER 31, 1999
<S> <C>
EXPENSES
Incorporation costs . . . . . . . . . $ 640
Professional fees . . . . . . . . . . 1,924
Transfer agent fees . . . . . . . . . 896
Mineral property acquisition costs. . 10,000
-----------
LOSS FOR THE PERIOD. . . . . . . . . . $ (13,460)
====================================== ===========
BASIC AND FULLY DILUTED LOSS PER SHARE $ (0.01)
WEIGHTED AVERAGE SHARES OUTSTANDING. . 4,000,000
====================================== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
QUILCHENA RESOURCES, INC.
(An Exploration Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Expressed in United States Dollars)
PERIOD FROM INCORPORATION ON MARCH 3, 1999 TO DECEMBER 31, 1999
Deficit
Accumulated
Additional During the
Common Stock Paid-in Exploration
Shares Amount Capital Stage Total
--------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCORPORATION, MARCH 3, 1999 - $ - $ - $ - $ -
Shares issued for cash . . . 5,000,000 5,000 45,000 - 50,000
Loss for the period. . . . . - - - (13,460) (13,460)
--------- ------- -------- --------- ---------
BALANCE AT DECEMBER 31, 1999 5,000,000 $ 5,000 $ 45,000 $(13,460) $ 36,540
============================ ========= ======= ======== ========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
QUILCHENA RESOURCES, INC.
(An Exploration Stage Company)
STATEMENT OF CASH FLOWS
(Expressed in United States Dollars)
PERIOD FROM INCORPORATION ON MARCH 3, 1999 TO DECEMBER 31, 1999
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the period. . . . . . . . . . . . . . . . . $(13,460)
Changes in other operating assets and liabilities:
Increase in accounts payable . . . . . . . . . . . 4,424
---------
Net cash provided by operating activities. . . . . . (9,036)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of capital stock for cash . . . . . . . . . 50,000
---------
Net cash provided by financing activities. . . . . . 50,000
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash provided by investing activities. . . . . . -
---------
CHANGE IN CASH AND CASH EQUIVALENTS DURING THE PERIOD 40,964
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD. . . . -
---------
CASH AND CASH EQUIVALENTS, END OF PERIOD. . . . . . . $ 40,964
===================================================== =========
CASH PAID DURING THE PERIOD FOR:
Interest expense . . . . . . . . . . . . . . . . . . $ -
Income taxes . . . . . . . . . . . . . . . . . . . . -
===================================================== =========
<FN>
SUPPLEMENTAL DISCLOSURE FOR NON-CASH OPERATING, FINANCING AND INVESTING
ACTIVITIES (Note 6)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
QUILCHENA RESOURCES, INC.
(An Exploration Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
DECEMBER 31, 1999
1. HISTORY AND ORGANIZATION OF THE COMPANY
The Company was formed on March 3, 1999 under the Laws of the State of
Nevada and is in the business of exploration and development of mineral
properties. The Company has not yet determined whether its properties contain
mineral resources that may be economically recoverable. The Company therefore
has not reached the development stage and is considered to be an exploration
stage company.
2. GOING CONCERN
These 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 continued operations of the Company and the
recoverability of mineral property costs is dependent upon the existence of
economically recoverable reserves, confirmation of the Company's interest in the
underlying mineral claims, the ability of the Company to obtain necessary
financing to complete the development and upon future profitable production.
The Company has incurred operating losses and requires additional funds to meet
its obligations and maintain its operations. Management's plan in this regard
is to raise equity financing as required. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. These
financial statements do not include any adjustments that might result from this
uncertainty.
1999
-----
Deficit accumulated during the exploration stage $ (13,460)
Working capital 36,540
==============================================================================
3. SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments with original
maturities of three months or less. These are recorded at cost which
approximates market.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
accounts payable and accrued liabilities. Unless otherwise noted, it is
management's opinion that the Company is not exposed to significant interest,
currency or credit risks arising from these financial instruments. The fair
value of these financial instruments approximate their carrying values, unless
otherwise noted.
FOREIGN CURRENCY TRANSLATION
Amounts denominated in foreign currencies are translated into United States
currency at exchanges rates prevailing at transactions dates. Carrying values
of monetary assets and liabilities are adjusted at each balance sheet date to
reflect the exchange rate at that date. Gains and losses from restatement of
foreign currency monetary assets and liabilities are included in income.
<PAGE>
QUILCHENA RESOURCES, INC.
(An Exploration Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
DECEMBER 31, 1999
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd )
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133") which establishes accounting and reporting
standards for derivative instruments and for hedging activities. SFAS 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
In June 1999, the FASB issued SFAS 137 to defer the effective date of SFAS 133
to fiscal quarters of fiscal years beginning after June 15, 2000. The Company
does not anticipate that the adoption of the statement will have a significant
impact on its financial statements.
RESOURCE PROPERTIES
Costs of acquisition, exploration, carrying, and retaining unproven
properties are expenses as incurred. Costs incurred in proving and developing a
property ready for production are capitalized and amortized over the life of the
mineral deposit or over a shorter period if the property is shown to have an
impairment in value.
ENVIRONMENTAL REQUIREMENTS
At the report date, environmental requirements related to the mineral
claims acquired (Note 4) are unknown and therefore an estimate of any future
cost cannot be made.
INCOME TAXES
Income taxes are provided in accordance with Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes". A
deferred tax asset or liability is recorded for all temporary differences
between financial and tax reporting and net operating loss carryforwards.
Deferred tax expenses (benefit) result from the net change during the year of
deferred tax assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.
LOSS PER SHARE
Loss per share is computed based on the weighted average number of common
shares and common stock equivalents outstanding during each period, unless the
common stock equivalents are anti-dilutive. For the period ended December 31,
1999, the weighted average number of common shares outstanding was 4,000,000.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require, companies to record
compensation cost for stock-based employee compensation plans at fair value.
The Company has chosen to account for stock-based compensation using Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Accordingly compensation cost for stock options is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of the grant
over the amount an employee is required to pay for the stock.
COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards No. 130
("SFAS 130"), "Reporting Comprehensive Income". This statement establishes
rules for the reporting of comprehensive income and its components. The
adoption of SFAS 130 had no impact on total shareholders' equity as of December
31, 1999.
<PAGE>
QUILCHENA RESOURCES, INC.
(An Exploration Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in United States Dollars)
DECEMBER 31, 1999
4. MINERAL PROPERTY
On July 20, 1999, the Company acquired an option to earn a 100% interest in
the Hi-Ho 1-10 Mining claims located in the New Westminster Mining Division of
British Columbia for the price of $10,000 (paid). To exercise its option, the
Company must complete a recommended work program in the amount of CDN$8,495 by
July 20, 2000. As the claims do not contain any known reserves, the acquisition
costs have been expensed during the year.
5. CAPITAL STOCK
During the period, the Company issued 5,000,000 common shares under Rule
504 of Regulation D of the Securities Act of 1933, at a price per share of
$0.01, for total proceeds of $50,000.
6. SUPPLEMENTAL DISCLOSURE FOR NON-CASH OPERATING, FINANCING AND
INVESTING ACTIVITIES
There were no significant non-cash transactions during the period ended December
31, 1999.
7. INCOME TAXES
The Company's total deferred tax asset at December 31 is as follows:
1999
-----
Tax benefit of net operating loss carryforward $ 520
Valuation allowance (520)
------
$ -
======
The Company has a net operating loss carryforward of approximately $3,460.
The Company has provided a full valuation allowance on the deferred tax asset
because of the uncertainty regarding realizability.
8. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four digits to identify a year. Date-sensitive systems may
incorrectly recognize the Year 2000 as some other date, resulting in errors.
The effects of the Year 2000 Issue may be experienced before, on or after
January 1, 2000 and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
Company, including those related to the efforts of customers, suppliers or other
third parties, will be fully resolved.
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
OF 1934
The following table and text sets forth the name and age of the Company's sole
director, sole executive officer and sole significant employee as of February
29, 2000. The present director will serve until the next Annual General Meeting
of shareholders and until his successor(s) is/are elected and qualified, or
until his earlier death, retirement, resignation or removal. Also provided is a
brief description of the business experience of the sole director, executive
officer and significant employee during the past five years and an indication of
directorships held by the sole director in other companies subject to the
reporting requirements under the federal securities laws.
<TABLE>
<CAPTION>
1. Directors, executive officers and other significant employees:
DATE FIRST ELECTED OR
NAME POSITION HELD WITH THE COMPANY AGE APPOINTED
<S> <C> <C> <C>
President, Secretary, Treasurer and March 4, 1999 (as to
Derek Herman Director 46 all positions)
- - ------------ ----------------------------------- --- ----------------------
</TABLE>
During 1999 and 2000, Derek Herman was the Acting Chairman of Sportsprize
Entertainment Inc., an e-commerce sporting product sales company, and so acted
until Sportsprize's offices moved to California. Between 1996 and 2000, Mr.
Herman was the owner and President of TCD Technology Ltd. (Vancouver, British
Columbia), a developer, manufacturer and marketer of specialized computer
products. Prior to his employment at TCD Technology Ltd., Mr. Herman was the
owner of DH & Associates, a company located in Johannesburg, South Africa, which
began as a print marketing company and evolved over time to offer services
including electronic pre-press through to film imaging, print brokering, and
public relations. Mr. Herman completed his articled chartered accountant
training at Michelow Karlin & James Chartered Accounts in South Africa in 1973.
There are no arrangements or understandings between any two or more directors or
executive officers, pursuant to which Mr. Herman was selected to be a director
or executive officer.
The Company's sole director, executive officer, promoter and control person has
not been involved in any of the following events during the past five years:
1. 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;
2. any conviction in a criminal proceeding or being subject to a pending
criminal proceeding (excluding traffic violations and other minor offenses);
3. being 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
<PAGE>
4. being 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, and the judgment has not been
reversed, suspended, or vacated.
Section 16(a) Beneficial Ownership Reporting Compliance
<TABLE>
<CAPTION>
The sole officer and director of the Company, who beneficially owned more than
10% of the Company's common shares, made the following late filing:
NUMBER OF
TRANSACTIONS NOT
REPORTED ON A FAILURE TO FILE
NAME NUMBER OF LATE REPORTS TIMELY BASIS REQUESTED FORMS
- - ------------ ---------------------- ---------------- ---------------
<S> <C> <C> <C>
Derek Herman 1 1 Nil
- - ------------ ---------------------- ---------------- ---------------
</TABLE>
No Form 4s or Form 5s were required to be filed by the Company's sole director
and officer.
ITEM 10. EXECUTIVE COMPENSATION
The Company's chief executive officer (and sole director and executive officer)
did not receive any cash or other compensation during the year ended December
31, 1999.
There were no grants of stock options or stock appreciation rights made during
the fiscal year ended December 31, 1999 to the Company's sole executive officer
and sole director. There were no stock options outstanding as at February 29,
2000, and the Company has not granted options to its executive officer and
director. To date, the Company has granted no stock options to employee or
consultants.
The Company has no formal plan for compensating its directors for their service
in their capacity as directors although such directors have received from time
to time and are expected to receive in the future options to purchase common
shares as awarded by the Board of Directors or (as to future options) a
Compensation Committee which may be established. Directors are entitled to
reimbursement for reasonable travel and other out-of-pocket expenses incurred in
connection with attendance at meetings of the Board of Directors. The Board of
Directors may award special remuneration to any director undertaking any special
services on behalf of the Company other than services ordinarily required of a
director. Other than indicated below, no director received and/or accrued any
compensation for his services as a director, including committee participation
and/or special assignments.
There are no management agreements with the Company's sole director or sole
executive officer.
Other than as discussed above, the Company has no plans or arrangements in
respect of remuneration received or that may be received by the sole executive
officer of the Company to compensate such officer 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 US$60,000 per executive officer.
There are no arrangements or plans in which the Company provides pension,
retirement or similar benefits for directors or executive officers. Other than
the management agreements and advisory agreements discussed herein, the Company
has no material bonus or profit sharing plans pursuant to which cash or non-cash
compensation is or may be paid to the Company's directors or executive officers,
except that stock options have been and may be granted at the discretion of the
Board of Directors or a committee thereof.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Beneficial Ownership
As used in this section, the term "beneficial ownership" with respect to a
security is defined by Regulation 228.403 under the Securities Exchange Act of
1934, as amended, as consisting of: (1) any person who, directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise has
or shares voting power (which includes the power to vote, or to direct the
voting of such security) or investment power (which includes the power to
dispose, or to direct the disposition of, such security); and (2) any person
who, directly or indirectly, creates or uses a trust, proxy, power of attorney,
pooling arrangement or any other contract, arrangement or device with the
purpose or effect of divesting such person of beneficial ownership of a security
or preventing the vesting of such beneficial ownership.
Each person has sole voting and investment power with respect to the common
shares, except as otherwise indicated. Beneficial ownership consists of a
direct interest in the common shares, except as otherwise indicated.
As of February 29, 2000, 5,000,000 common shares, par value $0.001 were issued
and outstanding. The Company is authorized to issue 200,000,000 common shares,
par value $0.001.
<TABLE>
<CAPTION>
As of February 29, 2000, no person known to the Company was the beneficial owner
of more than five percent (5%) of the outstanding common shares of the Company
except the following:
NAME AND ADDRESS OF AMOUNT AND NATURE OF
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENTAGE OF CLASS(1)
<S> <C> <C> <C>
Dream Weaver Investments Ltd.
Common . . . . Glendenning House, 618 Wicklow Street,
Shares . . . . Dublin 2 Ireland 497,500 9.95%
Cronwall Investments Ltd.
Common . . . . Suite 95 East Bay Shopping Centre
Shares. . . . P.O. Box N-1836, Nassau, Bahamas 497,500 9.95%
- - -------------- --------------------------------------- -------------------- ----------------------
Spirit Investments Ltd. (2)
Common . . . . 16 Promenade Saint-Antoine
Shares. . . . 1204 Geneva, Switzerland 497,500 9.95%
--------------------------------------- -------------------- ----------------------
Lamplighter Investments Ltd.
Common . . . . 88 Ellis Road, Crowthorne Berks
Shares. . . . England RG45 6PN 497,500 9.95%
--------------------------------------- -------------------- ----------------------
Strathburn Investments Ltd.
Common . . . . Suite 95 East Bay Shopping Centre
Shares. . . . P.O. Box N-1836, Nassau, Bahamas 497,500 9.95%
--------------------------------------- -------------------- ----------------------
Dynamic Investments Ltd.
Penthouse Suite, Buckingham Square
Common . . . . West Bay Road, SMB,
Shares. . . . Grand Cayman, Cayman Islands, BWI 497,500 9.95%
--------------------------------------- -------------------- ----------------------
Anchor Cove Investments Ltd.
2 Elyston Court, Howard's Lane,
Common . . . . Putney, London,
Shares. . . . England SW15 6QH 497,500 9.95%
--------------------------------------- -------------------- ----------------------
Aero Atlantic Ltd.
Common . . . . Palm Chambers, P.O. Box 119
Shares. . . . Roadtown, Tortola, BVI 497,500 9.95%
--------------------------------------- -------------------- ----------------------
Sonora Capital Corp.
Common . . . . 1000 - 355 Burrard Street
Shares. . . . Vancouver, BC V6C 2G8 Canada 497,500 9.95%
--------------------------------------- -------------------- ----------------------
Castaways Holdings
Common . . . . Palm Chambers, P.O. Box 119
Shares. . . . Roadtown, Tortola, BVI 497,500 9.95%
============== ======================================= ==================== ======================
<FN>
(1) Based on 5,000,000 shares outstanding as of February 29, 2000.
(2) Derek Herman is the authorized signatory for, but not the beneficial owner of, the shares
owned by Spirit Investments Ltd.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The following table lists, as of February 29, 2000, the number of common shares
beneficially owned, and the percentage of the Company's common shares so owned, by the
sole director and officer.
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENTAGE OF
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS(1)
============== ================================ ===================== ==============
<S> <C> <C> <C>
Derek Herman
302 - 1825 West 8th Avenue
Common Shares. Vancouver, BC V5E 1E3 Canada 498,500(2) 10.0%
Common Shares. Directors and Officer as a group 498,500 10.0%
============== ================================ ===================== ==============
<FN>
(1) Based on 5,000,000 shares outstanding as of February 29, 2000 and, as to a
specific person, shares issuable pursuant to the conversion or exercise, as the case
may be, of currently exercisable or convertible debentures, share purchase warrants and
stock options.
(2) Spirit Investments Ltd. (16 Promenade Saint-Antoine, 1204 Geneva, Switzerland)
owns 497,500 of the total number of common shares held by Derek Herman. Mr. Herman is
the authorized signatory for, but not the beneficial owner of, the shares owned by
Spirit Investments Ltd.
</TABLE>
Changes in Control
The Company is unaware of any contract or other arrangement, the operation of
which may at a subsequent date result in a change of control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other than as disclosed above, there have been no transactions, or proposed
transactions, which have materially affected or will materially affect the
Company in which any director, executive officer, or beneficial holder of more
than 10% of the outstanding common stock, or any of their respective relatives,
spouses, associates or affiliates has had or will have any direct or material
indirect interest.
Derek Herman is the sole promoter of the Company. He subscribed for and was
issued 1,000 common shares of the Company at a price of $0.01 per share (see
Items 5 and 11).
<PAGE>
ITEM 13. FINANCIAL STATEMENTS AND EXHIBITS
Financial Statements Filed as Part of the Annual Report:
See Item 7 (Financial Statements)
Exhibits Required by Item 601 of Regulation S-B
Exhibit Description
Number
(3) Articles of Incorporation and By-laws:
3.1 Articles of Incorporation effective March 3, 1999 (incorporated. by
reference from the Company's Form 10-SB (amended), filed on March 30, 2000)
3.2 By-Laws effective March 4, 1999 (incorporated. by reference from
the Company's Form 10-SB (amended), filed on March 30, 2000)
(10) Material Contracts
10.1 Option Agreement dated July 20, 1999 (incorporated. by reference
from the Company's Form 10-SB (amended), filed on March 30, 2000)
10.2 Assignment Agreement dated July 20, 1999 (incorporated. by
reference from the Company's Form 10-SB (amended), filed on March 30, 2000)
10.3 Amending Agreement dated February 9, 2000 (incorporated. by
reference from the Company's Form 10-SB (amended), filed on March 30, 2000)
(21) Name of Subsidiaries
Nil.
(27) Financial Data Schedule
(99) Other
99.1 Report entitled "Exploration Potential of Hi-Ho Claims, Garnet
Creek", prepared March 11, 1999 by Douglas H. Hopper (incorporated. by reference
from the Company's Form 10-SB (amended), filed on March 30, 2000)
99.2 Report entitled "Prospecting Report on Rock Sampling over the
Hi-Ho Property, prepared February 3, 2000 by Gerry Diakow (incorporated. by
reference from the Company's Form 10-SB (amended), filed on March 30, 2000)
<PAGE>
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.
QUILCHENA RESOURCES, INC.
By: /s/ Derek Herman
------------------
Derek Herman, President
Date: March 30, 2000
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.
By: /s/ Derek Herman
------------------
Derek Herman, President
Date: March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 40964
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 40964
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 40964
<CURRENT-LIABILITIES> 40964
<BONDS> 0
0
0
<COMMON> 50000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 40964
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 13460
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (13460)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13460)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13460)
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
