================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
|X| ANNUAL REPORT AMENDED PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the year ended December 31, 1998
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number 0-26600
----------------------------------------------
NAPTAU GOLD CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 22-3386947
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5391 Blundell Road
Richmond BC
Canada V7C 1H3
(address of principal executive offices)
(604) 277-5252
(Issuer's telephone number)
------------------------------------------------------
(former address)
9551 Bridgeport Road
Richmond BC
Canada V6X 1S3
-----------------------------
(Former name, former address and former fiscal year
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes |_| No |X|
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 5,933,500 shares of Common
Stock, $.001 par value, were outstanding, as of March 31, 1999.
Transitional Small Business Disclosure Format (check one):
Yes |_| No |X|
================================================================================
<PAGE>
TABLE OF CONTENTS
ITEM 1. BUSINESS........................................................ 3
ITEM 2. DESCRIPTION OF PROPERTY........................................ 11
ITEM 3. LEGAL PROCEEDINGS.............................................. 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 12
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDERS MATTERS................................... 12
ITEM 6. PLAN OF OPERATION.............................................. 13
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................... 13
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE......................... 14
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT..... 14
ITEM 10. EXECUTIVE COMPENSATION......................................... 15
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT................................................. 16
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................. 17
APPENDIX A GLOSSARY OF CERTAIN MINING TERMS 18
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K............................... 24
-2-
<PAGE>
ITEM 1. BUSINESS
Naptau Gold Corporation ("Naptau" or the "Company") is engaged in the
acquisition, exploration and development of mineral properties, primarily gold
properties located in the Cariboo Mining District of British Columbia.
During 1995, the Company entered into an agreement (the "Exchange Agreement") to
acquire certain placer leases owned by Noble Metal Group Incorporated (a British
Columbia company) ("Noble") in exchange for 4 million common shares of the
Company, representing an initial 59.7% interest in the Company. During 1995 the
Company also acquired from Dorothy Dennis (the "Affiliate") an additional placer
lease contiguous with the placer leases acquired from Noble. The Company and
Noble also entered into an operating agreement (the "Operating Agreement")
whereby Noble will remain the operator for the mining activities on the placer
leases) for a term of ten years, with Noble having the option of renewing the
agreement for a further ten year term.
Pursuant to the Operating Agreement, proceeds from production from the
Placer Leases will be divided between the Company and Noble as follows:
(i) for the first $1,000,000 of proceeds or 2,500 ounces of raw gold
(converted to a dollar amount), whichever is less, 10% of such proceeds to
Noble;
(ii) for the next $1,000,000 of proceeds or 2,500 ounces of raw gold
(converted to a dollar amount), whichever is less, 17.5% of such proceeds to
Noble; and
(iii) for proceeds in excess of $2,000,000 or 5,000 ounces of raw gold
(converted to a dollar amount), whichever is less, 25% of such proceeds to
Noble.
As a result of certain extensions and modifications made to the Exchange
Agreement and Operating Agreement, the Company is obligated to (i) pay Noble
$954,000 together with interest thereon at the rate of 10% per annum from
December 31, 1995 through June 30, 1997, and 12% per annum thereafter; (ii)
deliver to Noble 4,561 ounces of gold from the Company's share of the gold
produced from the Placer Leases and (iii) deliver to Noble 300 ounces of gold in
satisfaction of the Company's obligations under the 1998 Extension Agreement.
The aggregate of such 4,861 ounces to be delivered in accordance with the
following schedule:
(i) the first 300 ounces of gold due to the Company from 1998 or 1999
mining operations will be paid to Noble (which, during 1998, was deferred until
anticipated 1999 mining operatation);
(ii) up to 40% of the balance of the number of ounces of gold due to the
Company from 1998 mining operations, until 4,561 ounces is reached, will be paid
to Noble(which, during 1998, was deferred until anticipated 1999 mining
operatation);
(iii) up to 50% of the balance of the number of ounces of gold due to the
Company from 1999 mining operations, until the balance, if any, of the 4,561
ounces is reached, will be paid to Noble;
(iv) up to 60% of the balance of the number of ounces of gold due to the
Company from the year 2000 and subsequent years mining operations, until the
balance, if any, of the 4,561 ounces is reached, will be paid to Noble.
The parties also agreed that Naptau shall not sell or assign its interest in the
Placer Leases until such time as these gold obligations are satisfied.
As a result of certain extensions and modifications made to the
Acquisition Agreement with Dorothy Dennis the Company is obligated to pay the
Affiliate $200,000, and deliver the Affiliate 150 ounces of gold.
-3-
<PAGE>
In May 1996 the Company recorded the Bill of Sale Absolute on placer claims Lou
1 and Lou 2 (the "Lou Claims") which were earlier staked by William G. Timmins
as agent for Naptau. The addition of these claims gives the Company comfort as
the projected route of the channels under exploration appear to extend into
these claim areas. The claims are adjacent to and contiguous with the present
claims owned.
Because of the inconsistency of placer golds, none of the Company's prospects or
properties may be defined as containing proven or probable reserves. The Company
has carried out extensive exploration and geological delineations of the placer
bearing channels on its properties to the extent that it is of the opinion
(supported by earlier recommendations from Lorimer, September 1980 and January
1982, and completion of the additional site preparation recommended by W.G.T.
Consultants Ltd., October 1986 and Davenport, November 1987) that enough placer
gravels have been identified with indicated economically recoverable gold
content to warrant commencing production.
Although the Company extracted approximately 591 ounces of gold during the
latter portion of the 1998 mining season, it has yet to generate sufficient
revenues to sustain its operations. The Company's ability to maintain its mining
operations is dependent upon its ability to raise substantial additional funds
(see Item 6 "Plan of Operation"). All of the Company's exploration activities to
date have been conducted with funds provided from Noble with the exception of
funds received from sale of placer gold recovered from the 1998 exploration
program. If the Company is unable to raise the funds necessary to commence
mining operations, the Company may be unable to realize on the investment in its
placer mining leases. At December 31, 1998 the Company had an accumulated
deficit of $2,339,027.
The financial statements of the Company contained herein have been prepared on a
going concern basis. If the Company were unable to raise the funds necessary to
commence mining operations or was unable to generate positive cash flow form
such operations, it might be forced to liquidate. In such event, it is unlikely
that the Company would realize the amounts indicated on the balance sheet upon
the sale of its placer properties.
For discussion of certain material risks involved in the Company's business, see
"Risk Factors" below.
Property, Location, Description
The Company's exploration properties are comprised of the Placer Mining Leases #
29, 1159, 1160, 1850, 2093 which were, on October 4, 1998, combined into a Lease
of Placer Minerals bearing Mineral Tenure # 365488 out of the Cariboo Mining
Division of British Columbia and the Staked Placer Claims Lou 1 and Lou 2
(collectively, the "Properties"). The Properties are adjacent properties which
are located at the confluence of Keithley Creek and Snowshoe Creek, 28 miles
northwest of Likely, British Columbia in the Cariboo Mining District, and are
accessible by gravel road. The town of Likely is about 64 miles northeast of
Williams Lake, British Columbia, and may be reached by paved highway or private
plane. (See "Item 3 - Description of Property").
Exploration Results and Potential Mineral Deposits
The Properties have been the object of considerable exploration and testing
which indicate gold-bearing gravels are present on the north branch of Keithley
Creek on the former Placer Lease #29. Although not homogeneous, the gold is
contained in zones of varying richness.
The "Tertiary Channel", a buried paleogulch channel on the former Placer Leases
#29 and #1850 which is a former course of Snowshoe Creek, was first identified
by a Seismic Refraction Survey in 1982. This Channel also contains gold bearing
gravels. It should be noted that, historically placer gold from Keithley Creek
in comparison to other creeks is of a very high fineness (pure gold is 1000
fine. The average fineness of placer gold obtained in California is 885 fine).
-4-
<PAGE>
Significant potential occurs in extensions of buried channels and additional
channels within the Properties. Preliminary interpretation of the results of a
Seismic Refraction Survey which was completed in May 1995 further define the
Tertiary Channel and its rim rock edges on the former Placer Leases #29 and
#1850. A second sub-parallel north trending channel (the "Eastern Channel") has
been located to the east of the known Tertiary Channel on the former Placer
Leases #29 and #1850. The two channels appear to converge to the north of the
former Placer Lease #1850. The width of each channel varies from 50 to 80 meters
and the Eastern Channel is shallower than the known Tertiary Channel to the
west.
The 1995 Seismic Refraction Survey also indicates the occurrence of a third,
sub-parallel channel (the "Third Channel") further to the east on the former
Placer Leases #1159, #1850 and #2093. Additional seismic work is required to
define this channel or fault structure.
Field results of a Seismic Refraction Survey completed in May 1995 on the former
Placer Lease #1160, traces the northern continuation of the known Tertiary
Channel on the former Placer Lease #29 through Placer Lease #1160. This Seismic
Refraction Survey also delineates the occurrence of a second placer channel on
this lease (the "1160 Channel") converging with the known Tertiary Channel at
the center of the former Placer Lease #1160.
Within the vicinity of the ancient Tertiary Channel near Keithley Creek on the
former Placer Lease #29, large gold nuggets up to 1.5 ounces were recovered from
gravel testing in 1994, thus providing an explanation for the occurrence of the
coarse gold well above the level of Keithley Creek, and significantly further
east of the known Tertiary Channel previously tested.
The newly delineated Channel on the former Placer Lease #1160 is estimated to be
85 meters in width at the southern boundary, 40 meters in width at the center of
the Lease, and runs some 200 to 250 meters north, where it converges with the
known Tertiary Channel of the former Placer Lease #29, which is approximately
the same width. The total width of the two merging channels at the center of the
former Placer Lease #1160 is about 85 meters, which extends a further 200 meters
through the northern boundary of the former Placer Lease #1160 onto the Lou
Claims. It is estimated that a minimum of 1,000,000 cubic yards of placer
gravels is contained on former Placer Lease #1160.
The Company believes that grades should be similar to the grades obtained on the
former Placer Lease #29, which were determined by various drilling programs,
trenching, other work and volume testing of the placer gravels. The recovery
from the testing ranged from 0.02 oz. gold or $7.00 to $11.40 per cubic yard.
Exploration and Development Activities on the Placer Leases
It is estimated that the Company and the prior owners of the Placer Leases have
expended an aggregate of approximately $4,000,000 in exploring and developing
the Properties. The former Placer Lease #29 was acquired by its original owner
in 1978. Additional placer leases were then staked by such entity in 1979 and
1980. Preliminary testing was first carried out in 1981. Prior to 1993, access
roads were constructed and upgraded, camp trailers installed and several
exploration programs, including seismic refraction surveys, geochemical soil
sampling analysis, trenching, percussion and sonic drilling, and various bulk
tests utilizing different types of equipment and recovery systems, were carried
out.
During 1993-1994 old roads were widened and new roads were constructed. Camp
facilities were expanded by the addition of for an office and map room and a
building for tools, supplies and drilling samples. Construction of the settling
and tailing ponds as well as a major water reservoir was commenced.
During the 1995 season the Company continued upgrading the physical site,
buildings and reinforcing roadways. Construction of the settling, tailing and
water reservoir ponds was completed. Clearing and raking of newly opened areas
continued as required. The Company also carried out geological, geophysical and
further Seismic Refraction surveys to delineate the channels and production
area. In total, for the year ended December 31, 1995, the Company expended
$398,926 on the above site and survey programs which was recorded as Mineral
Properties on the Balance Sheet.
-5-
<PAGE>
In 1996 an I.P. Survey was carried out on the most southerly tip of the Ancient
Tertiary Channel, and the Center and Eastern Channels of Keithley Creek.
The I.P. Survey resistivity values of the Center Channel revealed a narrow or
gulch-type depression in the bedrock. The resistivity values of the Eastern
Channel identified a pronounced depression in the bedrock with a magnitude of
some 75 meters in depth. These Channels were previously identified by the 1995
Seismic Refraction Survey.
A test program of the upper gravels in the Center and most Eastern Channel (the
Third Channel) verified the existence of fine gold averaging $5.70 per cubic
yard based on a gold price of $380.00 per ounce.
In May 1997 the Company moved a new $250,000 production plant on site with the
expectation of processing 150,000 to 200,000 cubic yards of material over the 5
to 6 month 1997 mining season. This represented an average operating level of
50% of the capacity of the plant. This conservative estimate was based on the
assumption that shakedown time would be required during start-up of production
and the necessity of processing marginal pay gravels while opening the main
channel deposits. Production did not commence during the 1997 mining season,
however, due to the failure of the manufacturer of the production plant to
deliver a turnkey plant. The Company spent the 1997 season and approximately
$100,000 bringing the plant to operating status. Concurrently with the
preparation of the production plant, the Company carried on further site
preparation in anticipation of an upcoming season of production.
At the commencement of the 1998 mining season the Company continued the
stripping and hauling of surface materials and the heavy blue clay which
overlies the channel deposits. The expected rich black/brown gravels, grey/green
gravels and boulders were found and are now exposed at the upper portion of the
channel pocket. The edges of the first placer pocket were exposed with the
pocket appearing to be 75 feet (25 meters) wide and, per the previous Seismic
Refraction Surveys, Induced Polarization Survey and past drilling, will drop off
sharply to a depth of some 135 feet (45 meters) of which 90 feet (30 meters)
extends below the level of Keithley Creek.
In May and June 1998 the Company initiated test runs of the production
plant using materials from the upper edges of the pocket yielding small flat and
rice sizes of gold. During the balance of the 1998 mining season the Company
continued with site preparation and in particular, during the later part of
August and the month of September, carried on larger and continued levels of
operation recovering a total of 591.90 oz. of raw placer gold.
The following table details the recovery
- --------------------------------------------------------------------------------
Days of Cubic Yds. Recovered Ounces Oz./Cu. Yd. $/Cu. Yd.
Processing Processed Grams
Between
Clean-Ups
- --------------------------------------------------------------------------------
3 900 473.3 15.22 0.017 3.87
6 1,580 2,092.7 67.28 0.049 11.05
3 672 1,696.7 54.55 0.081 16.91
4 1,814 4,063.3 130.65 0.072 17.34
5 1,642 2,976.0 95.68 0.058 14.33
7 2,360 6,716.4 215.93 0.091 24.17
- --------------------------------------------------------------------------------
"Clean-up" is the process of removing concentrated gold bearing materials
accumulated in a secure area of the processing plant and occurs at the
discretion of management, under the scrutiny of Company management personnel.
The Company, with the exception of 24 oz. of gold which is carried as
inventory, sold the gold recovered and applied the proceeds to the current
period's exploration costs.
As of the first week in October operations were suspended for the season
with the expectation that, weather permitting, the Company will return to the
site in early May 1999 to commence the new season.
Valuation of the former Noble Leases and the former PL # 1160 and Director
Lease by W.G.T. Consultants Ltd.
To assist the Company in determining the value of the Noble Leases and their
potential for future development, in June 1995, the Company obtained an opinion
(the "Noble Valuation") on the fair market value of the Noble Leases from W.G.T.
Consultants Ltd. ("W.G.T."), an independent mining consulting firm then
headquartered in Calgary, AB, Canada and subsequently relocated to Vancouver,
BC, Canada. In rendering the Noble Valuation, W.G.T. relied on published and
private reports, maps and data (the "Exploration Data") provided by the Company
and Noble and past visits by W.G.T. personnel to the Lease sites in 1985, 1986,
1994 and 1995. W.G.T. received a fee of $1,006.67 from the Company for the
preparation of the Noble Valuation and a fee of $1,712.00 from the Dorothy
Dennis for the preparation of the 1160 Valuation.
-6-
<PAGE>
In considering the foregoing, it should be noted that at present because of the
inconsistency of placer golds, none of the Company's prospects or properties may
be defined as containing proven or probable reserves. The Company and prior
owners have carried out extensive exploration and geological delineations of the
placer bearing channels to the extent that it is of the opinion (supported by
earlier recommendations from Lorimer, September 1980 and January 1982 and
completion of the additional site preparation recommended by W.G. T. Consultants
Ltd., October 1986 and Davenport, November 1987) that enough placer gravels have
been identified with indicated economically recoverable gold content.
Licenses and Permits
The gold exploration and mining industry in Canada operates under both federal
and provincial legislation governing exploration, development, production and
decommissioning of mines. Such legislation relates to the method of acquisition
and ownership of mineral rights, labor, health and safety standards, royalties,
mining and income taxes, exports, reclamation and rehabilitation of mining lands
and other matters.
The mining industry in Canada is also subject to legislation at both the federal
and provincial levels concerned with the protection of the environment. In
particular, such legislation imposes high standards on the mining industry to
reduce or eliminate the effects of wastes generated by extraction and processing
operations and subsequently deposited on the ground or emitted into the air or
water. Accordingly, the design of mines and mills and the conduct of overall
extraction and processing operations are subject to the restrictions contained
in such legislation. In addition, the construction, development and operation of
a mine, mill and refinery typically entail compliance with applicable
environmental legislation and/or review processes and the obtaining of land use
permits, water licenses, discharge approvals and similar authorizations from
various governmental agencies.
Failure to comply with the requirements of environmental legislation may result
in orders being issued thereunder which may result in the cessation, curtailment
or modification of operations or may require installation of additional
facilities or equipment to protect the environment. Violators may be required to
compensate those suffering loss or damage by reason of their mining activities
and such violators, including officers and directors thereof, may be fined or in
some cases imprisoned if convicted of an offense under such legislation.
Provincial mining legislation establishes requirements for the decommissioning,
reclamation and rehabilitation of mining properties in a state of temporary or
permanent closure. Such closure requirements relate to the protection and
restoration of the environment and the protection of public safety.
All the necessary licenses and permits that are required for the Company's
mining operations on the Placer Leases are in place and the Work (Mining) Permit
is valid until December 2001. The Hydraulic License, Water Use Permit and
Disposal Permit are renewable annually upon payment of the current years fees.
In addition, the Company maintains its "free miner certificate" from the
Province of British Columbia which is required in order to explore for minerals
or placer minerals or acquire a mineral or placer title in British Columbia.
-7-
<PAGE>
Equipment and Facilities
In accordance with the Operating Agreement, Noble has made available the
facilities and equipment necessary to conclude the Company's exploration program
and commence production. The composition and cost of such camp facilities and
equipment is agreed to by budget prior to the commencement of operations each
season. The Company is currently indebted to Noble in excess of $2,000,000 for
equipment and facilities provided to date.
Risk Factors
Limited Operations: Need for Additional Funds. To date, the Company has
extracted only 591 ounces of gold through its mining programs at the Properties.
However, the Company, has not generated any significant revenues and will not
generate significant revenues until the commencement of full scale placer mining
operations which are subject to the Company's abilities to raise the required
additional funds. Even though carrying costs to maintain the leases in good
standing are minimal, an inability to raise the required capital may result in
the Company being unable to realize a return on its investment in its placer
mining leases and, possibly, forfeiting its interest in the Placer Leases. At
December 31, 1998, the Company had an accumulated deficit of $2,339,027.
Preparation of Financial Statements. The financial statements of the Company
contained herein have been prepared on a going concern basis. If the Company
were unable to raise the funds necessary to commence mining operations or were
unable to generate positive cash flow from such operations, it might be forced
to liquidate. In such event, it is unlikely that the Company would realize the
amounts indicated on the balance sheet upon the sale of its mineral properties.
No Proven or Probable Reserves. The Company is in the exploration stage, and at
present, because of the inconsistency of placer golds, none of the Company's
prospects or properties may be defined as containing proven or probable
reserves. The Company and the prior owners of the Placer Leases have carried out
extensive exploration and geographical delineations of the placer bearing
channels to the extent that the Company is of the opinion (supported by earlier
recommendations from Lorimer, September 1980 and January 1982 and upon
completion of the additional site preparation recommended by W.G.T. Consultants
Ltd., October 1986 and Davenport, November 1987) that enough placer gravels have
been identified with indicated economically recoverable gold content to warrant
commencing production.
When the Company is able to establish proven and probable reserves through
sustained production, market price fluctuations of gold, increased production
costs, or reduced recovery rates may nevertheless render ore reserves containing
relatively lower grades of mineralization uneconomic and may ultimately result
in a restatement of ore reserves.
Feasibility Studies. The Company has relied heavily upon the study conducted by
W.G.T. Consultants, Lorimer, September 1980 and January 1982, Davenport,
November 1987 and the Company's exploratory activities in determining whether
the Properties can support full scale operations. Such evaluations may prove to
be unreliable.
Risks of Foreign Operations. The Company's operations in British Columbia,
Canada are subject to the risks normally associated with conducting business in
foreign countries, including foreign exchange controls and currency
fluctuations, foreign taxation, labor disputes and uncertain economic
environments or other risks which may limit or disrupt production in markets,
restrict the movement of funds or result in the depravation of contract rights
or the taking of property by nationalization or expropriation without fair
compensation. Although the Company has not experienced any problem in Canada
rising from nationalistic policies, political instability, economic instability,
labor disputes or currency fluctuations or restrictions, there can be no
assurance that such a problem will not arise in the future. Laws and policies of
the United States affecting foreign trade, investment and taxation may also
adversely affect the Company's operations and investments.
-8-
<PAGE>
Reliance on Third Parties for Exploration and Mining Services. The Company has
entered into the Operating Agreement with its principal stockholder, Noble,
pursuant to which Noble has agreed to provide all of the exploration and mining
services and lease the required equipment and facilities to the Company in order
to develop and operate the Properties. The loss of Noble's services could have a
material adverse affect on the Company.
Cautionary Statement for Purposes of The "Safe Harbor" Provisions of The Private
Securities Litigation Reform Act of 1995. The United States Private Securities
Litigation Reform Act of 1995 provides a new "safe harbor" for certain
forward-looking statements. The following factors set forth under "Risk Factors"
among others, could cause actual results to differ materially from those
contained in forward-looking statements made in this Form 10-KSB, future filings
by the Company with the SEC, in the Company's press releases and in oral
statements made by authorized officers of the Company. When used in this Form
10-KSB, the words "estimate," "project," "anticipate," "expect," "intend,"
"believe" and similar expressions are intended to identify forward-looking
statements.
Substantial Indebtedness to Related Parties. The Company owed an aggregate of
$2,280,741 to Noble and Dorothy Dennis in consideration of the transfer of the
Placer Leases and services rendered pursuant to the Operating Agreement. In
addition, Noble is entitled to retain a certain percentage of the gold produced
from the Placer Leases for services rendered and the Company has agreed to
deliver to Noble an aggregate of 4,861 ounces of gold from the Company's portion
of the gold produced at the Placer Leases. There can be no Assurance that the
Company will be able to satisfy its obligations to Noble and Dorothy Dennis.
Conflicts of Interest. The terms upon which the Company acquired the Placer
Leases and the terms of the Operating Agreement were determined by negotiations
between representatives of Noble and the Company. Noble currently owns more than
a majority of the outstanding shares of the Company. Therefore, the agreements
between Noble, Dorothy Dennis and the Company should not be deemed the product
of arms' length negotiations.
ITEM 2. DESCRIPTION OF THE PROPERTY
General
The Company holds a 100% interest in all of its Properties:
LPM (Lease of Placer Minerals) (Tenure #365488) formerly:
PL # 29 (Tenure #262692)
PL # 1159 (Tenure #282768)
PL # 1160 (Tenure #262769)
PL # 1850 (Tenure #262822)
PL # 2093 (Tenure #282832)
Placer Claims
Lou #1 (Tenure #337015)
Lou #2 (Tenure #337016)
The LPM is approximately 211 hectacres in area and constitutes a contiguous
mining site. The LPM is for a 10 year period and is renewable for further terms
of up to ten years each. To maintain the LPM in full force and effect during its
respective term, the Company is required to pay, in Canadian dollars, an annual
licensing expenditure of $1,060. The Placer Claims are renewable annually by
carrying out a minimum of $500.00 of qualified work or paying $500.00 in cash in
lieu of work and a $100.00 recording fee.
Except for the
-9-
<PAGE>
division of gold with Noble pursuant to the Operating Agreement, there are no
other third party fees or royalty interests payable with respect to the Placer
Leases. The fees payable by the Company with respect to the Placer Leases
aggregate to Cdn. $2,260, per annum, inclusive of payments in lieu of work.
The Company occupies office space provided by its President, E.D. Renyk, at 5391
Blundell Road, Richmond, BC, Canada, V7C 1H3. No rent is paid for the use of
this office. The space is adequate for the planned future conduct of the
Company's business over the next twelve months.
ITEM 3. LEGAL PROCEEDINGS
The Company is not the subject of any pending legal proceedings; and to the
knowledge of management, no proceedings are presently contemplated against the
Company by any federal, state or local governmental agency.
Further, to the knowledge of management, no director or executive officer is
party to any action in which any has an interest adverse to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
-11-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
A. Market Information.
At present, no market exists for the Company's securities and there is no
assurance that a regular trading market will ever develop or, if developed, that
it will be sustained. A purchaser of shares may, therefore, be unable to resell
the securities should he or she desire to do so. Furthermore, it is unlikely
that a lending institution will accept the Company's securities as pledged
collateral for loans unless a regular trading market develops.
B. Holders.
As of December 31, 1998, there were approximately 34 holders of the
Company's Common Stock.
C. Dividends.
The Company has never paid a cash dividend on its Common Stock and has no
present intention to declare or pay cash dividends on the Common Stock in the
foreseeable future. The Company intends to retain any earnings which it may
realize in the foreseeable future to finance its operations. Future dividends,
if any, will depend on earnings, financing requirements and other factors.
ITEM 6. PLAN OF OPERATION
In May 1997 the Company moved a new $250,000 production plant on site with the
expectation of processing 150,000 to 200,000 cubic yards of material over the 5
to 6 month 1997 mining season. This represented an average operating level of
50% of the capacity of the plant. This conservative estimate was based on the
assumption that shakedown time would be required during start-up of production
and the necessity of processing marginal pay gravels while opening the main
channel deposits. Production did not commence during the 1997 mining season due
to the failure of the manufacturer of the production plant to deliver a turnkey
plant. The Company spent the season and approximately $100,000 bringing the
plant to operating status. Concurrently with the preparation of the production
plant, the Company carried out further site preparation and refinement in
anticipation of an upcoming season of production.
At the end of the 1998 mining season the Company completed the tasks necessary
to commence production by successfully completing sustained test runs of the
production plant yielding quantities of gold as detailed above under the heading
Exploration and Development Activities on the Placer Leases.
The Company anticipates that it will commence to process materials through the
Plant by mid-May of the 1999 mining season, subject to weather conditions.
Currently, the Company anticipates that it will process approximately 300,000
cubic yards of material over the term of the 1999 mining season.
Subsequent to December 31, 1998, Noble Metal Group Incorporated requested and
the Company agreed that as consideration for granting an extension of the due
date of the remaining balance due to Noble, the Bill of Sale Absolute for the
Placer Leases be placed in trust with Noble's attorney until such time as the
Company has fulfilled all of its obligations to Noble with respect to repayment
of debt. Noble also agreed to convert 1,000,000 common shares of the Company
into an obligation to pay Noble 8,695 ounces of gold from the Company's share of
gold referred to in previous agreements in the following manner:
(i) for 1999, 33% of the ounces of gold remaining after fulfillment of
previous obligations to Noble; and
(ii) for 2000 and thereafter and until the 8,695 ounces have been paid to
Noble, 505 of the ounces of gold after fulfillment of previous obligations
to Noble.
The parties also agreed that the Company may at any time elect to pay Noble more
ounces of gold than the minimum levels specified above.
Also, subsequent to December 31, 1998 the Company entered into a further
agreement with the Affiliate (Dorothy Dennis) with respect to its contract
payable to the Affiliate of $200,000, whereby the Company agreed to pay the
Affiliate 200 ounces of gold instead of 150 ounces previously agreed, from the
Company's share of gold produced from mining operations on its placer leases, if
any, to extend the due date to December 31, 2001.
At December 31, 1998, the Company has a shareholders' deficiency of
approximately $749,000 and working capital deficiency in excess of $2,900,000, a
significant portion of which is due to related parties, all of whom have a
vested interest in ensuring the Company's continued existence. The Company's
continuing operations and ability to realize the amounts shown as mineral
properties on its balance sheet are dependent upon the Company's ability to
obtain the financing necessary to meet its obligations and continue its
exploration and development activities. To date, substantially all of the
financing for the Company's mining activities has been provided by Noble. There
is no assurance that Noble will continue to fund the Company or that necessary
financing will be made available by third parties or, if made available, be on
terms acceptable to the Company.
-12-
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Index to Financial Statements," Page 20.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
Name Positions Held With The Corporation
- ---- -----------------------------------
Edward D. Renyk Director, President & Chief
Financial Officer
John J. McIntyre Director, Secretary
Lloyd E. Mear Director
Warren W. Gayle Director
Murray A. Braaten Director
E. D. Renyk. Mr. Renyk has served as the President, Chief Financial Officer and
a Director of the Company since June 8, 1995. Mr. Renyk is a member of the
Canadian, Alberta and British Columbia Institutes of Chartered Accountants. He
has been a Chartered Accountant since 1962, managing and directing his own
practice for most of that period, specializing in consulting to both private and
publicly traded corporate firms. Prior to establishing his own practice and
subsequent to obtaining his designation as a Chartered Accountant he held
positions ranging from Controller to Vice President of Finance with various
corporations.
Mr. Renyk was admitted as a member of the Institute of Chartered Accountants of
Alberta in 1962.
J. J. McIntyre. Mr. McIntyre has served as Secretary and a Director of the
Company since June 8, 1995. Mr. McIntyre has recently founded his own law firm,
McIntyre Winteringham, after having practiced from 1984 to 1996 as a partner and
associate of Alexander Holburn Beaudin & Lang. Mr. McIntyre's current and former
firms are located in Vancouver, British Columbia. Previously, Mr. McIntyre was
employed as a Crown Counsel, also in Vancouver, for the Ministry of Attorney
General of British Columbia from 1981 - 1984. While primarily a litigator, Mr.
McIntyre has been involved in advising mining companies throughout his time in
private practice.
-13-
<PAGE>
Mr. McIntyre is a graduate of the University of Saskatchewan, located in
Saskatoon, Saskatchewan. He graduated with his LL.B. in 1980 and with his B.Sc.
(High Honors - Chemistry) in 1977.
Lloyd E. Mear. Mr. Mear has served as a Director of the Company since June 8,
1995. Mr. Mear has over thirty years of experience as a Civil Engineer including
fifteen years as an executive in the Mining Industry. From 1967 to date he has
served as the President and Chief Executive Officer of ReDev., Inc., a company
that extracts gold and platinum group metals from water sources throughout the
western United States and Canada.
Mr. Mear received a degree in Civil Engineering/Surveying in 1956 from
University of Alberta, Calgary, Alberta.
Warren W. Gayle. Mr. Gayle has served as a Director of the Company since October
5, 1995. Mr. Gayle owns a Consulting Firm in Vancouver specializing in
structured and tax driven financing for medium to large resource and
manufacturing based organizations. Prior to establishing his Company in 1991,
Mr. Gayle held various sales and management positions with multinational
corporations.
Mr. Gayle received a Bachelor of Commerce Degree - Finance in 1979 from the
University of British Columbia, Vancouver, British Columbia.
Murray A. Braaten. Mr. Braaten has served as a Director of the Company since
December 8, 1995. Mr. Braaten is a partner in the Vancouver law firm of Lando &
Co. He joined the firm as an Associate in 1981, became a partner two years
later, and has been the managing partner since 1987. Mr. Braaten has extensive
experience in business, business law, construction and real estate development.
Mr. Braaten graduated in 1980 with a Bachelor of Business Administration with
Distinction for the University of Regina and a Bachelor of Laws from the
University of Saskatchewan in Saskatoon.
Each director is elected for a period of one year at the Company's annual
meeting of shareholders and serves until his successor is duly elected and
qualified. Officers are appointed and serve at the will of the Board of
Directors.
To date the amount of time that Mr. Renyk has devoted to the business of the
Company has ranged from 40% to his full business time depending on the
activities at hand. Mr. McIntyre has expended approximately 25% of his business
time on Company affairs. It is anticipated that Mr. McIntyre will negotiate an
employment agreement with the Company when the demands on his time warrant it.
Messrs. Renyk and McIntyre expect their positions to graduate to full time as
the Company's financing and operations progress. Messrs. Mear, Gayle and Braaten
will expend such time as is required to fulfill their duties as Directors.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation for the fiscal years ended
December 31, 1996, 1997 and 1998 ("fiscal years") payable to Mr. Renyk, the
Company's President. No other officer received any compensation from the Company
in these fiscal years.
-14-
<PAGE>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Awards
Restricted Stock All Other
Salary(1) Awards Compensation
-------- ------ ------------
Edward Renyk 1996 $90,000 -- --
1997 $90,000 -- --
1998 $90,000 -- --
(1) On June 30, 1995, the Company entered into a five year employment
agreement with the President of the Company that provides for a salary of
$7,500 per month beginning July 1, 1995 (plus a cost of living adjustment
to be made on the first day of each calendar year). The agreement also
provides for additional incentive compensation equal to 1/2 of 1% of net
sales up to $5,000,000, 3/4 of 1% on the next $20,000,000 in net sales and
1 percent of net sales above $25,000,000.
Stock Options
The Company did not grant any stock options to any executive officer during
fiscal years 1996, 1997 and 1998.
Stock Option Plan and Stock Grant Program
In June 1995 the Company adopted a non-qualified stock option plan and a stock
grant program with the following provisions:
Stock Option Plan
The Company has reserved 300,000 shares of its authorized Common Stock for
issuance to key employees and consultants of the Company and affiliates.
Under this plan, no employee may receive more than 100,000 stock options.
Options are non-transferable and expire if not exercised within two years
from the date of issue.
The options are issuable to officers, key employees and consultants in
such amounts and prices as determined by the Board of Directors. As of
December 31, 1998, no options were granted pursuant to this plan.
Stock Grant Program
The Company has reserved 300,000 shares of its authorized Common Stock for
issuance to key employees and directors. Under this plan, no employee may
receive more than 100,000 shares. The program requires the employee to
remain in the employ of the Company for at least one year following the
grant and to agree not to engage in any activity which would be considered
in competition with the Company's business. If the employee violates any
one of these conditions the ownership of the shares issued under the
program shall revert back to the Company. The shares issued under the
program are non-transferable, except for transfers back to the Issuer, for
a period of one year from the date of issue. As of December 31, 1996, a
total of 100,000 shares had been granted to five directors pursuant to
this plan. No further grants have been made.
-15-
<PAGE>
Board Compensation
The Board, from time to time, is authorized to establish compensation for the
Directors, but none has been set at this date. All of the directors are
reimbursed for their expenses incurred in connection with their attendance at
Board of Directors meetings.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 31, 1999, by its executive
officers and directors, both individually and as a group, and by each person
known by the Company to own more than 5% of the outstanding Common Stock.
Number of Percentage of
Name Shares owned (1) Shares Owned (2)
Noble Metal Group Incorporated (3) 3,085,000 51.99%
801-409 Granville Street
Vancouver, BC, Canada V6C 1T2
Edward D. Renyk 390,000 6.57%
5391 Blundell Rd.
Richmond, BC, Canada V7C 1H3
Director, President
& Chief Financial Officer
John J. McIntyre 390,000 6.57%
McIntyre Winteringham
1501 - 543 Granville St.
Vancouver, BC, Canada V6C 1X8
Director & Secretary
Lloyd Mear 70,000 --
5391 Blundell Rd.
Richmond, BC, Canada V7C 1H3
Director
Dorothy Dennis 708,500 11.94%
705 - 588 Broughton St.
Vancouver, BC, Canada V6G 3E3
Warren W. Gayle 20,000 --
2081 Gordon Avenue
West Vancouver, BC, Canada V7V 1V8
Murray A. Braaten 20,000 --
708 W. 22nd Avenue
Vancouver, BC, Canada V5Z 1Z7
Officers and Directors 890,000 15.00%
as a Group (5 persons)
-16-
<PAGE>
-- Less than 1%
(1) Unless otherwise indicated all shares are held of record by the beneficial
holders named above.
(2) Based upon 5,933,500 shares of Common Stock outstanding on March 31, 1999.
(3) Noble Metal Group Incorporated is a corporation publicly traded on the
Vancouver Stock Exchange. As per their Notice of Annual General Meeting
dated February 16, 1998 the authorized capital was 100,000,000 shares
without par value, of which 29,676,119 were issued and outstanding. Known
owner(s) of 5% or more of the outstanding share capital was Dorothy Dennis
who held 3,463,047 shares representing 11.66%.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In February 1988 the Company issued 1,900,000 shares of Common Stock to James A.
Howell in consideration of $1,400 and certain organization expenses paid by Mr.
Howell on behalf of the Company. In May 1995 Mr. Howell transferred 350,000
shares to each of Mr. Renyk and Mr. McIntyre.
In June 1995 the Company issued 4,000,000 shares of Common Stock to Noble
pursuant to the Exchange Agreement. In April 1996 the Company issued an
additional 85,000 shares to Noble in partial consideration of its agreement to
extend the due date of certain amounts due under the Operating Agreement entered
into with respect to the Placer Leases.
In October 1995 the Company issued 800,000 shares of Common Stock to Dorothy
Dennis as partial consideration for the assignment of the former PL #1160 Lease
pursuant to the PL #1160 Agreement. In April 1996 the Company issued an
additional 8,500 shares to Dorothy Dennis in consideration of her agreement to
extend the due date of $200,000 payable pursuant to the PL #1160 Lease
Agreement. For a more complete description of the terms of the PL #1160 Lease
Agreement and certain related agreements between the Company and Dorothy Dennis,
see "Item 1. Business."
During 1995 certain officers and directors loaned the Company an aggregate of
$101,677 which loans were non-interest bearing and payable on demand. In 1996,
such officers and directors agreed to convert $96,000 of those loans into 40,000
shares of Common Stock at a conversion price of $2.40 per share.
In accordance with the Operating Agreement, the Company's principal stockholder,
Noble, has agreed to serve as the operator of the Company's mining activities.
The terms of the Operating Agreement are discussed in Item 1 -"Business."
-17-
<PAGE>
APPENDIX A
Glossary of Certain Mining Terms
alluvial 1. Deposited by a stream.
alluvial channels 2. Relating to deposits made by flowing water.
alluvial fan fan a cone-shaped deposit of alluvium made by a stream
where it runs out onto a level plain or meets a slower
stream. The fans generally form where streams issue from
mountains upon the lowland.
alluvial mining (placer mining) the recovery of heavy minerals (high
specific gravity) that have become concentrated in
secondary deposits, following separation by weathering
agencies from primary veins higher up the watershed.
alluvium a general term for all detrital deposits resulting from
the operations of modern rivers, thus including the
sediments laid down in river beds, flood plains, lakes,
fans at the foot of mountain slopes, and estuaries.
arenaceous rock resembling, made of, or containing sand or sandy
particles
argillaceous of, relating to, or containing clay or clay minerals
argillaceous rock
auriferous containing gold
bedrock the solid rock underlying auriferous gravel, sand,
clay, etc., and upon which the alluvial gold rests. In
placer use, the term bedrock may be generally applied
to any consolidated formation underlying the
goldbearing gravel. Bedrock may be composed of
igneous, metamorphic or sedimentary rock. See - False
bedrock
claim an area of land staked by a prospector or mining
company and then recorded (see <<staking")
clastic rocks made up of fragments of pre-existing rocks <a--sediment>
concessions: that in which the State or private owner of mining
alluvial concessions property has the right to grant concessions or leases
and rights to individuals or corporations at discretion, or under
grant concessions or leases to individuals or
development corporations at discretion, or under nationality or
concessions color, has the right to locate on discovery or
otherwise certain limited areas of ground and under
certain conditions to hold, work or dispose of the
same. (The "Claim" system).
confluence a junction or flowing together of streams; the place
where streams meet.
-18-
<PAGE>
detritus a general name for incoherent sediments, produced by the
wear and tear of rocks through the various geological
agencies. The name is from the Latin for "worn" rock
waste. A deposit of such material.
false bedrock a hard or relatively tight formation within a
placer deposit, at some distance above true bedrock,
upon which gold concentrations are found. Clay,
volcanic ash, caliche or "tight" gravel formations can
serve as false bedrocks. A deposit may have gold
concentration on one or more false bedrocks, with or
without a concentration on true bedrock.
fine gold 1. Pure gold, i.e., gold of 1,000-fineness. 2. Gold
occurring in small particles such as those which would
pass a 20-mesh screen but remain on 40-mesh.
fineness the proportion of pure gold in bullion or in a natural
alloy, expressed in parts per thousand. Natural gold
is not found in pure form; it contains varying
proportions of silver, copper and other substances.
For example, a piece of natural gold containing 150
parts of silver and 50 parts of copper per thousand,
and the remainder pure gold, would be 800-fine. The
average fineness of placer gold obtained in California
is 885.
fines 1. The sand or other small-size components of a placer
deposit. 2. The material passing though a screen
during washing or other processing steps of a placer
operation.
geochemical survey the search for mineral deposits, particularly
geochemical soil metalliferous deposits, by analyzing rocks, stream
sampling surveys silts, springs, soils, surface waters or organisms for
abnormal concentrations of elements.
geophysical survey Geophysical exploration, commonly called applied
geophysics or geophysical prospecting, is conducted to
locate economically significant accumulations of oil,
natural gas, and other minerals, including
groundwater. Surveys are generally identified by the
property being measured namely, electrical, gravity,
magnetic, seismic, thermal, or radioactive properties.
Used primarily in the search for oil, gas, and base
metals, electrical and electromagnetic surveys map
variations in the conductivity or capacitance of
rocks.
glacial periods pertaining to, characteristic of, produced or
deposited by, or derived from a glacier.
-19-
<PAGE>
gold-bearing gravels see "placers"
Hadrynian one of the three eras of the Proterozoic times which
is of, relating to, or being the eon of geologic time
or the corresponding system of rocks that includes the
interval between the Archean and Phanerozoic eons,
perhaps exceeds in length all of subsequent geological
time, and is marked by rocks that contain fossils
indicating the first appearance of eukaryotic
organisms (as algae).
homogenous 1 : of the same or a similar kind or nature; 2 : of
uniform structure or composition throughout
hydraulic operation mining in which a bank of gold-bearing earth
or gravel is washed away by a powerful jet of water and
carried into sluices, where the gold separates from the
earth by its specific gravity.
I.P. surveys (induced polarization) a method, the basis of which
is, when an electrical circuit is passed through
certain kinds of ground between electrodes placed at
the surface, is interrupted, the electrical potential
is reduced (decays) gradually and measurable. The
method has been most effective where grains of
metalliferous minerals are disconnected, with large
surface areas and large ionic effects, and where the
host rock has suitable resistivity.
lode a general term for metalliferous and some
non-metalliferous deposits in solid, consolidated (hard
rock) state as distinguished from unconsolidated
deposits such as placers.
metamorphic of, relating to, or produced by metamorphism
metamorphism the mineralogical and structural adjustment of solid
rocks to physical or chemical conditions differing from
those under which they were formed.
metasedimentary rocks later or more highly organized or specialized form of
sedimentary rock
micaceous quartzites mica - any of various colored or transparent
mineral silicates crystallizing in monoclinic forms that
readily separate into very thin leaves _ micaceous \
adj.
-20-
<PAGE>
mineral deposits Most minerals are found in veins, or tabular-shaped
deposits of nonsedimentary origin, often dipping at
high angles; in beds, or seams, which are tabular
deposits conforming to the stratification of enclosing
rocks; and as masses, or large ore bodies of irregular
shape standing at any angle. Gold, diamonds, tin, and
platinum are often found in placers, or deposits of
sand and gravel containing particles of the mineral.
ore reserve that part of a mineral deposit which could be
economically and legally extracted or produced at the
time of the reserve determination.
overburden worthless or low-grade surface material covering a
body of useful mineral.
oxidized 1. to change (a compound) by increasing the proportion
oxidized quartz of the electronegative part or change (an element or
ion) from a lower to a higher positive valence. 2.
remove one or more electrons from an atom, ion, or
molecule ~ vi : to become oxidized _ ox-i-diz-able
\, adj.
pale- or paleo- 1 : involving or dealing with ancient forms or
conditions <paleobotany>
2 : early : primitive : archaic <Paleolithic>
paleoalluvial fan see "alluvial fan"
paleochannel ancient channel
paleogulch ancient gulch (narrow valley setting)
paleozoic ancient geological era
placer an alluvial, marine, or glacial deposit containing
particles of valuable mineral and esp. of gold.
placers the term is applied to deposits of sand, gravel, and
other detrital or residual material containing a
valuable mineral which has accumulated through
weathering and mechanical concentration processes. The
term as used in this report applies to ancient
(Tertiary) gravels as well as to recent deposits, and
to underground (drift mines) as well as to surface
deposits.
-21-
<PAGE>
placer channels a stream-eroded depression in the bedrock, ordinarily
filled with gravel. See - Tertiary channel.
placer mining see "alluvial mining"
pre-glacial channel see "paleogulch"
proven ore reserves reserves for which (a) quantity is
computed from dimensions revealed in outcrops,
trenches, workings, or drill holes; grade and/or
quality are computed from the results of detained
sampling and (b) the sites for inspection, sampling
and measurements are spaced so closely and the
geologic character is so well defined that size,
shape, depth and mineral content of reserves are well
established.
probable ore reserves reserves for which quantity and grade/or quality are
computed from information similar to that used for
proven reserves, but the sites for inspection, sampling,
and measurement are further apart or are otherwise less
adequately spaced. The degree of assurance, although
lower than that for proven reserves, is high enough to
assume continuity between points of observation.
pyritic any of various metallic-looking sulfides of which
pyrite is the most common.
rim rock (or rim) the bedrock rising to form the boundary of a placer or
gravel deposit. (Fay)
seismic refraction a method which interprets the time interval between the
surveys initiation of elastic waves generated by man-made
explosions and the first and later disturbances of the
ground as detected by a seismometer at a known distance
from the source of energy.
staking the measuring and marking with stakes or posts of an
area on the ground to establish mineral rights.
tertiary the earlier of the two geologic periods(1 million to
60 million) comprised in the Cenozoic era (present day
back to 60 million years ago), in the classification
generally used. Also, the system of strata deposited
during that period. (AGI)
tertiary channels Ancient gravel deposits, often auriferous
(containing gold), composed of Tertiary stream alluvium.
-22-
<PAGE>
- - -zoic adj. comb form [Gk zoe life] : of, relating to, or
being a (specified) geological era <Archeozoic>
<Mesozoic>
-23-
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The following are filed as part of this Report:
3.1 Certificate of Incorporation of the Registrant (1)
3.2 Certificate of Amendment dated June 23, 1989 to Certificate of
Incorporation (1)
3.3 Certificate of Amendment dated June 1, 1995 to Certificate of
Incorporation (1)
3.4 Certificate for Renewal and Revival of Charter dated June 1, 1995 (1)
3.5 By-laws of the Registrant (1)
4.1 Form of Common Stock Certificate (1)
10.1 Agreement to Exchange Assets for Stock (1)
10.2 Operating Agreement (1)
10.3 Extension Agreement between the Registrant and Noble dated September 1,
1995 (1)
10.4 Second Extension Agreement between the Registrant and Noble dated April
30, 1996 (1)
10.5 Satisfaction of Debt with Stock-Noble Metal Group Incorporated (1)
10.6 Modification and Extension Agreement between Registrant and Noble dated
July 1996 canceling $1,000,000 obligation and further extending date for
payment of $954,500 in consideration for agreement to deliver 3,421 ounces
of gold (1)
10.7 Agreement of Business Combination by Exchange of Assets for Stock
Regarding Place Lease #1160 between the Registrant and Dorothy Dennis (1)
-24-
<PAGE>
10.8 Extension Agreement between the Registrant and Dorothy Dennis dated April
30, 1996 (1)
10.9 Satisfaction of Debt with Stock - Dorothy Dennis (1)
10.10 Satisfaction of Debt with Stock - E.D. Renyk (1)
10.11 Satisfaction of Debt with Stock - J.J. McIntyre (1)
10.12 Stock Option Program (1)
10.13 Stock Grant Program (1)
10.14 Employment Agreement of Edward D. Renyk (1)
10.15 Second Extension Agreement between Registrant and Dorothy Dennis dated
October 1996 (1)
10.16 Modification and Extension Agreement between the Registrant and Noble
Metal Group Incorporated dated March 9, 1999.
10.17 Extension Agreement between the Registrant and Dorothy Dennis dated March
30, 1999
24.1 Consent of W.G.T. Consultants Ltd. (1)
- -----------
(1) Incorporated by reference to the Company's Form 10-SB, Commission File No.
0-25786
-25-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: April 14, 1999
NAPTAU GOLD CORPORATION
(Registrant)
By: /s/ Edward D. Renyk
-----------------------
Edward D. Renyk, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Edward D. Renyk President, Director and April 14, 1999
- --------------------- Principal Accounting Officer
Edward D. Renyk
/s/ John J. McIntyre Director April 14, 1999
- ----------------------
John J. McIntyre
/s/ Lloyd E. Mear Director April 14, 1999
- -------------------
Lloyd E. Mear
/s/ Warren W. Gayle Director April 14, 1999
- ---------------------
Warren W. Gayle
/s/ Murray A. Braaten Director April 14, 1999
- -----------------------
Murray A. Braaten
<PAGE>
Financial Statements of
NAPTAU GOLD CORPORATION
(expressed in United States dollars)
Years ended December 31, 1998, 1997 and 1996
04/14/99
<PAGE>
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the balance sheets of Naptau Gold Corporation as at December 31,
1998 and 1997 and the statements of operations and deficit and cash flows for
each of the years in the three year period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing standards
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1998 and 1997
and the results of its operations and its cash flows for each of the years in
the three year period ended December 31, 1998 in accordance with generally
accepted accounting principles in the United States.
Chartered Accountants
Vancouver, Canada
March 29, 1999
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-U.S.
REPORTING DIFFERENCE
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by significant uncertainties such as that referred to in
the attached balance sheets as at December 31, 1998 and 1997 and as described in
note 1 to the financial statements. Our report to the shareholders dated March
29, 1999 is expressed in accordance with Canadian reporting standards which do
not permit a reference to such uncertainties in the auditors' report when the
uncertainties are adequately disclosed in the financial statements.
Chartered Accountants
Vancouver, Canada
March 29, 1999
04/14/99
<PAGE>
NAPTAU GOLD CORPORATION
Balance Sheets
(expressed in United States dollars)
December 31, 1998 and 1997
===============================================================================
1998 1997
- ------------------------------------------------------------------------------
(restated -
note 3)
Assets
Current assets:
Cash $ 2,734 $ --
Equipment 71,582 71,582
Mineral properties (note 4) 2,098,200 2,098,200
- -------------------------------------------------------------------------------
$ 2,172,516 $ 2,169,782
===============================================================================
Liabilities and Shareholders' Deficiency
Current liabilities:
Accounts payable and accrued liabilities
(note 5) $ 386,357 275,249
Contracts payable to related parties
(note 4) 2,506,843 1,921,395
Loans payable to related parties (note 5) 30,304 17,180
- -------------------------------------------------------------------------------
2,923,504 2,213,824
Shareholders' deficiency:
Capital stock (note 6):
Authorized:
5,000,000 preferred shares with a par
value of $0.001 per share
20,000,000 common shares with a par
value of $0.001 per share
Issued and outstanding:
6,933,500 common shares 6,934 6,934
Additional paid-in capital (note 6) 1,581,105 1,534,105
Deficit (2,339,027) (1,585,081)
- -------------------------------------------------------------------------------
(750,988) (44,042)
Continuing operations (note 1)
Commitments and contingencies (notes 4, 7 and 9)
- -------------------------------------------------------------------------------
$ 2,172,516 $ 2,169,782
===============================================================================
See accompanying notes to financial statements.
On behalf of the Board:
_________________________ Director
_________________________ Director
04/14/99
<PAGE>
NAPTAU GOLD CORPORATION
Statements of Operations and Deficit
(expressed in United States dollars)
================================================================================
Years ended December 31,
-----------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
(restated - (restated -
note 3) note 3)
Expenses:
Exploration and development, net
of gold recoveries $ 474,620 $ 242,736 $ 341,999
Interest and financing costs 119,053 112,280 149,725
Management salary (note 7) 90,000 90,000 90,000
Office and administrative 23,809 4,105 1,332
Professional fees 46,464 17,035 25,940
Write-off of deferred financing
costs -- 20,393 30,000
- -------------------------------------------------------------------------------
Loss for the year (753,946) (486,549) (638,996)
Deficit, beginning of year:
As previously reported (341,450) (207,882) (60,610)
Adjustment to reflect change in
accounting for exploration and
development expenditures, and
interest and financing costs on
contracts payable related to
such expenditures (note 3) (1,243,631) (890,650) (398,926)
----------------------------------------------------------------------------
As restated (1,585,081) (1,098,532) (459,536)
- -------------------------------------------------------------------------------
Deficit, end of year $(2,339,027) $(1,585,081) $(1,098,532)
===============================================================================
Loss per share $ (0.11) $ (0.07) $ (0.09)
===============================================================================
See accompanying notes to financial statements.
04/14/99
<PAGE>
NAPTAU GOLD CORPORATION
Statements of Cash Flows
(expressed in United States dollars)
================================================================================
Years ended December 31,
-----------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
(restated - (restated -
note 3) note 3)
Cash flows from operating activities:
Loss for the year $(753,946) $(486,549) $(638,996)
Adjustments to reconcile loss for
the year to net cash from (used
in) operating activities:
Write-off of deferred financing
costs -- 20,393 30,000
Non-cash operating expenses
(note 9) 606,848 352,981 487,830
Increase in accounts payable
and accrued liabilities 111,108 120,068 112,183
- -------------------------------------------------------------------------------
Net cash from (used in) operating
activities (35,990) 6,893 (8,983)
Cash flows from financing activities:
Deferred financing costs
(incurred) recovered -- (11,303) 910
Payment of contracts payable (21,400) (10,500) --
Loans payable to related parties 13,124 14,910 7,073
Additional paid in capital 47,000 -- --
----------------------------------------------------------------------------
Net cash from (used in) financing
activities 38,724 (6,893) 7,983
- -------------------------------------------------------------------------------
Increase (decrease) in cash 2,734 -- (1,000)
Cash, beginning of year -- -- 1,000
- -------------------------------------------------------------------------------
Cash, end of year $ 2,734 $ -- $ --
===============================================================================
Supplementary cash flow information (note 9)
See accompanying notes to financial statements.
04/14/99
<PAGE>
NAPTAU GOLD CORPORATION
Notes to Financial Statements
(expressed in United States dollars)
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
1. Continuing operations:
Naptau Gold Corporation (the "Company") was formed under the laws of the
State of Delaware on January 8, 1988 and was inactive until 1995 when it
entered into agreements to acquire certain mineral properties (note3). The
Company's principal business activity is the exploration and development
of mineral properties, with its principal mineral properties comprising
various placer leases in the Cariboo Mining Division of British Columbia,
Canada (the "Placer Leases").
These financial statements have been prepared on the basis of accounting
principles applicable to a going concern. At December 31, 1998, the
Company had a working capital deficiency in excess of $2,900,000 (1997 -
$2,200,000), a significant portion of which is due to related parties, and
has a shareholders' deficiency of approximately $751,000 (1997-$44,000).
The Company's continuing operations and the ability of the Company to
discharge its liabilities are dependent upon the continued financial
support of its related parties and the ability of the Company to obtain
the necessary financing to meet its liabilities as they come due.
The recoverability of the amounts shown as mineral properties is dependent
upon the existence of economically recoverable mineral reserves, the
ability of the Company to obtain the necessary financing to complete the
development of its mineral properties and upon future profitable
production or proceeds from the disposition thereof.
2. Significant accounting policies:
(a) Basis of presentation:
The financial statements have been prepared in accordance with
generally accepted accounting principles in the United States.
(b) Equipment:
Equipment is recorded at cost. Depreciation, which will be provided
using the straight-line method over 10 years, being the estimated
useful life of the assets, will commence once the assets have been
put in use.
(c) Mineral properties:
Mineral property acquisition costs and related interest and
financing costs are deferred until the property is placed into
production, sold or abandoned. These costs will be amortized on a
unit-of-production basis over the estimated proven and probable
reserves of the property following commencement of commercial
production or written off if the property is sold, allowed to lapse
or abandoned.
Mineral property acquisition costs include cash consideration and
the estimated fair value of common shares issued for mineral
properties, based on recent share issuances. Exploration and
development expenditures are expensed in the period incurred (note
3) until such time as the Company establishes the existence of
commercial feasibility, at which time these costs will be deferred.
Administrative expenditures are expensed in the period incurred.
04/14/99
<PAGE>
NAPTAU GOLD CORPORATION
Notes to Financial Statements, page 2
(expressed in United States dollars)
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
2. Significant accounting policies (continued):
(c) Mineral properties (continued):
On an on-going basis, the Company evaluates the status of its
mineral properties based on results to date to determine the nature
of exploration and development work that is warranted in the future.
If there is little prospect of further work on a property being
carried out, the deferred costs related to that property are written
down to their estimated recoverable amount.
The amounts shown for mineral properties represent costs incurred to
date and are not intended to reflect present or future values.
(d) Deferred financing costs:
The Company defers costs associated with specific financing
activities and charges those costs against the related share capital
or to operations if the financing activity is unsuccessful.
(e) Loss per share:
Loss per share has been calculated using the weighted average number
of common shares outstanding during the year. Diluted loss per share
has not been presented as the results would be anti-dilutive.
(f) Use of 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 amount of
revenues and expenses during the period. Significant areas requiring
the use of management estimates include impairment of assets and
useful lives for depreciation. Actual results may differ from those
estimates.
(g) Financial instruments:
With the exception of amounts due to related parties, as at December
31, 1998 and 1997, in all material respects the carrying amounts for
the Company's financial instruments approximated fair value due to
the short term nature of these financial instruments. The Company is
unable to determine the fair value of the amounts due to related
parties with sufficient reliability. Accordingly, information on the
characteristics of these balances is described in notes 4 and 5.
(h) Comparative figures:
Certain of the prior years comparative figures have been
reclassified, where necessary, to conform with the presentation
adopted during the current year.
04/14/99
<PAGE>
NAPTAU GOLD CORPORATION
Notes to Financial Statements, page 3
(expressed in United States dollars)
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
3. Change in accounting policy:
Prior to 1998, the Company's policy was to capitalize to mineral
properties, the mineral property exploration and development expenditures
and interest and financing costs on contracts payable related to such
expenditures, that were incurred during the period. Effective January 1,
1998, the Company changed its policy in this regard and began charging
exploration and development expenditures on its mineral properties, and
interest and financing costs on contracts payable related to such
expenditures, to operations as incurred. This change has been applied
retroactively and has reduced the amount previously reported for mineral
properties and increased the amount previously reported for deficit as at
December 31, 1997 by $1,243,631. This change also increased exploration
and development expenses for each of the years ended December 31, 1997 and
1996 by $242,736 and $341,999 respectively, increased interest and
financing costs for each of the years ended December 31, 1997 and 1996 by
$110,245 and $149,725 respectively, and has increased deficit as at
January 1, 1996 by $398,926.
4. Mineral properties:
============================================================================
1998 1997
----------------------------------------------------------------------------
Placer Leases, Cariboo Mining Division,
British Columbia:
Acquisition costs:
Placer Leases acquired from Noble (note
4(a)) $1,775,000 $1,775,000
Placer Leases acquired from an affiliate
of the Company (note 4(b)) 200,800 200,800
----------------------------------------------------------------------------
1,975,800 1,975,800
Deferred interest and financing costs:
Paid or accrued to Noble (note 4(a)) 102,000 102,000
Paid to an affiliate of the Company
(note 4(b)) 20,400 20,400
----------------------------------------------------------------------------
122,400 122,400
----------------------------------------------------------------------------
$2,098,200 $2,098,200
============================================================================
(a) Placer Leases acquired from Noble:
During 1995, the Company entered into an agreement to acquire
certain Placer Leases owned by Noble Metal Group Incorporated (a
British Columbia company) ("Noble") in exchange for 4 million common
shares of the Company, representing an initial 59.7% interest in the
Company. As Noble acquired control of the Company by this exchange,
it is considered a common control transaction and, accordingly, the
common shares have been accounted for at the carrying value of the
Placer Leases in the accounts of Noble at December 31, 1994 of
$1,775,000 (Noble, in association with limited partnerships, had
also expended an additional $550,000 on exploration of the Placer
Leases which was recovered from these limited partnerships and
accordingly, is not reflected in the aforementioned carrying value).
A British Columbia Mineral Tenure Act "Bill of Sale Absolute" held
by the Company relating to the Placer Leases has not yet been
registered with the appropriate authorities and as a result,
registration of the Placer Leases remains in the name of the
operator, Noble. The Company can, at any time and without any
restriction, apply to conclude registration in its name (also see
below).
04/14/99
<PAGE>
NAPTAU GOLD CORPORATION
Notes to Financial Statements, page 4
(expressed in United States dollars)
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
4. Mineral properties (continued):
(a) Placer Leases acquired from Noble (continued):
The Company and Noble also entered into an operating agreement
whereby Noble will remain the operator for the mining activities on
the Placer Leases for a term of ten years, with Noble having the
option of renewing the agreement for a further ten year term. The
Company agreed to pay Noble $1,000,000 as consideration for entering
into this operating agreement. In addition, the Company is obligated
to pay $1,000,000 in respect of 1995 exploration and development
expenditures and agreed to fund future annual operating expenditures
on the Placer Leases, including the lease of certain equipment and
facilities owned by Noble. These required payments have been accrued
in contracts payable (see below). However, as this is a common
control transaction, the amount of $1,602,661, being the excess of
these amounts over the estimated book value of the related assets in
the accounts of Noble, was charged against additional paid-in
capital during 1995. During 1996, this amount was reduced by $45,500
to reflect the actual book value of the related assets in the
accounts of Noble at December 31, 1995. To December 31, 1995, the
Company had advanced $45,500 to Noble with respect to exploration
and development expenditures on the Placer Leases which has been
recorded as a reduction in the Company's contracts payable.
During 1996, the Company entered into an extension agreement with
Noble with respect to its contract payable to Noble, whereby the
Company issued 85,000 common shares to Noble at an agreed price of
$2.40 per share and agreed to pay Noble 300 ounces of gold from the
Company's share of gold produced from mining operations on its
placer mining leases, if any, to initially extend the due date for
the amount outstanding under the contract payable to June 30, 1996.
The portion of the value ascribed to the common shares issued
relating to the operating agreement has been included in deferred
interest and financing costs in mineral properties and the portion
of the value ascribed to the common shares issued relating to the
outstanding 1995 exploration and development expenditures has been
charged to operations. The value of the gold to be paid to Noble was
not accrued during 1996 due to the uncertainty of ultimate payment.
The Company and Noble subsequently agreed to amend certain of the
terms of the operating agreement originally entered into whereby the
Company was obliged to pay $1,000,000 to Noble as consideration for
entering into the operating agreement. The amending agreement
cancelled the Company's obligation to pay $1,000,000 to Noble and
the Company agreed to pay Noble an additional 3,421 ounces of gold
from the Company's share of gold produced from mining operations on
its placer mining leases, if any. Noble also granted the Company an
extension to June 30, 1997 of the revised balance due of $954,500 as
at December 31, 1995 in consideration for the Company agreeing to
pay interest on such balance at a rate of 10% per annum. The Company
reduced contracts payable and increased additional paid-in capital
by $1,000,000 each during 1996 as a result of this amending
agreement. The value of the gold to be paid to Noble was not accrued
during 1996 due to the uncertainty of ultimate payment.
04/14/99
<PAGE>
NAPTAU GOLD CORPORATION
Notes to Financial Statements, page 5
(expressed in United States dollars)
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
4. Mineral properties (continued):
(a) Placer Leases acquired from Noble (continued):
In addition to funding future annual operating expenditures on the
Placer Leases, the original operating agreement provides that
proceeds from production from the Placer Leases, if any, will be
divided between the Company and Noble as follows:
o for the first $1,000,000 of proceeds or 2,500 ounces of gold
(converted to a dollar amount), whichever is lesser, 10% of
such proceeds to Noble;
o for the next $1,000,000 of proceeds or 2,500 ounces of gold
(converted to a dollar amount), whichever is lesser, 17.5% of
such proceeds to Noble; and
o for cumulative proceeds in excess of $2,000,000 or 5,000
ounces of gold (converted to a dollar amount), whichever is
lesser, 25% of such proceeds to Noble (also see below).
During 1997, the Company entered into an extension agreement with
Noble which granted the Company a further extension to December 31,
1998 to pay the revised balance of $954,500 due as at December 31,
1995, in consideration for the Company agreeing to pay interest on
such balance at a rate of 10% until June 30, 1997 and at a rate of
12% thereafter. In addition, the Company agreed to pay Noble 4,561
ounces of gold, instead of the 3,421 ounces previously agreed, from
the Company's share of gold produced from mining operations on its
placer mining leases, if any. The interest on the contracts payable
has been charged to operations. The value of the gold to be paid to
Noble was not accrued during 1997 due to the uncertainty of ultimate
payment.
This extension agreement also revised the division of gold produced
from the Placer Leases, if any, to incorporate the following:
(i) the first 300 ounces of gold due to the Company from
anticipated 1998 mining operations will be paid to Noble in
satisfaction of the terms of the 1996 extension agreement
(which, during 1998, was deferred until anticipated 1999
mining operations);
(ii) up to 40% of the balance of the number of ounces of gold due
to the Company from anticipated 1998 mining operations, until
the 4,561 ounces referred to above is reached, will be paid to
Noble (which, during 1998, was deferred until anticipated 1999
mining operations);
(iii) up to 50% of the balance of the number of ounces of gold due
to the Company from anticipated 1999 mining operations, until
the balance, if any, of the 4,561 ounces referred to above is
reached, will be paid to Noble; and
(iv) up to 60% of the balance of the number of ounces of gold due
to the Company from anticipated 2000 and subsequent years
mining operations, until the balance, if any, of the
4,561 ounces referred to above is reached, will be paid to
Noble.
04/14/99
<PAGE>
NAPTAU GOLD CORPORATION
Notes to Financial Statements, page 6
(expressed in United States dollars)
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
4. Mineral properties (continued):
(a) Placer Leases acquired from Noble (continued):
The parties also agreed that Naptau shall not sell or assign its
interest in the Placer Leases until such time as these gold
obligations are satisfied.
Subsequent to December 31, 1998, Noble requested and the Company
agreed that as consideration for granting an extension of the due
date of the remaining balance due to Noble, the Bill of Sale
Absolute for the Placer Leases be placed in trust with Noble's
attorney until such time as the Company has fulfilled all of its
obligations to Noble with respect to repayment of debt. Noble also
agreed to convert 1,000,000 common shares of the Company into the
Company's obligation to pay Noble 8,695 ounces of gold from the
Company's share of gold referred to in previous agreements in the
following manner:
(i) for 1999, 33% of the ounces of gold remaining after
fulfillment of previous obligations to Noble (see above); and
(ii) for 2000 and thereafter and until the 8,695 ounces have been
paid to Noble, 50% of the ounces of gold after fulfillment of
previous obligations to Noble.
The parties also agreed that the Company may at any time, elect to
pay Noble more ounces of gold than the minimum levels specified
above.
(b) Placer Leases acquired from an affiliate of the Company:
During 1995, the Company acquired a Placer Lease owned by an
affiliate of the Company (the "Affiliate"), for $200,000 (accrued
but not yet paid) and 800,000 common shares of the Company that have
been assigned their par value of $0.001 per share.
During 1996, the Company entered into extension agreements with the
Affiliate with respect to its contract payable to the Affiliate,
whereby the Company issued 8,500 common shares at an agreed price of
$2.40 per share to initially extend the due date for the amount
outstanding under the contract payable to June 30, 1996 and
subsequently agreed to pay the Affiliate 100ounces of gold from the
Company's share of gold produced from mining operations on all of
its placer mining leases, if any, for extending the due date to
October 12, 1997. The ascribed value for the common shares issued
has been included in deferred interest and financing costs in
mineral properties, however, the value of the gold to be paid to the
Affiliate was not accrued during 1996 due to the uncertainty of
ultimate payment.
During 1997, the Company entered into an extension agreement with
the Affiliate with respect to its contract payable to the Affiliate
of $200,000, whereby the Company agreed to pay the Affiliate 150
ounces of gold, instead of the 100 ounces previously agreed, from
the Company's share of gold produced from mining operations on its
placer mining leases, if any, to extend the due date to December 31,
1998. The value of the gold to be paid to the Affiliate was not
recorded during 1997 due to the uncertainty of ultimate payment.
04/14/99
<PAGE>
NAPTAU GOLD CORPORATION
Notes to Financial Statements, page 7
(expressed in United States dollars)
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
4. Mineral properties (continued):
(b) Placer Leases acquired from an affiliate of the Company (continued):
Subsequent to December 31, 1998, the Company entered into a further
extension agreement with the Affiliate with respect to its contract
payable to the Affiliate of $200,000, whereby the Company agreed to
pay the Affiliate 200 ounces of gold, instead of the 150 ounces
previously agreed, from the Company's share of gold produced from
mining operations on its placer leases, if any, to extend the due
date to December31, 2001.
5. Amounts payable to related parties:
Loans payable to related parties consist of amounts received from
directors and officers, are non-interest bearing and have no specific
terms of repayment. During 1996, the directors and officers converted
$96,000 of these loans into 40,000 shares at a price of $2.40 per share.
At December 31, 1998, accounts payable and accrued liabilities include
accruals totalling $315,000 (1997 - $225,000) for salaries to a director
and officer pursuant to an employment agreement (note 7), which are
included in management salary expense for the period. In addition, $5,916
is included in accounts payable for payment of professional services by a
director.
6. Capital stock:
(a) Issued:
The continuity of the Company's issued and outstanding capital stock
and additional paid-in capital is as follows:
===============================================================================
Common shares Additional
------------------- paid-in
Number Amount capital Total
- --------------------------------------------------------------------------------
Balance, December 31, 1995 6,700,000 $6,700 $ 168,339 $ 175,039
1996 Services under stock
grant program (note
6(c)(ii)) 100,000 100 -- 100
1996 On conversion of loans
payable to related
parties (note 5) 40,000 40 95,960 96,000
1996 As consideration for
extending the due dates
of contracts payable
(note 4) 93,500 94 224,306 224,400
1996 Increase in additional
paid-in capital resulting
from amendment to
operating agreement with
Noble (note 4(a)) -- -- 1,000,000 1,000,000
1996 Increase in additional
paid-in capital relating
to operating agreements
with Noble (note 4(a)) -- -- 45,500 45,500
- --------------------------------------------------------------------------------
Balance, December 31, 1996
and 1997 6,933,500 6,934 1,534,105 1,541,039
1998 Increase in additional
paid-in capital pursuant
to an agreement with a
shareholder (note 6(b)) -- -- 47,000 47,000
- --------------------------------------------------------------------------------
Balance, December 31, 1998 6,933,500 $6,934 $1,581,105 $1,588,039
===============================================================================
04/14/99
<PAGE>
NAPTAU GOLD CORPORATION
Notes to Financial Statements, page 8
(expressed in United States dollars)
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
6. Capital stock (continued):
(b) Additional paid-in capital:
During 1998, the Company agreed to assist with the placement of
625,000 shares of the Company held by an individual shareholder with
new investors willing to purchase such shares. In consideration for
providing this assistance, the parties agreed that any cash received
in excess of $0.072 per share on the sale of such shares would be
returned by the individual to the Company which amounted to $47,000.
(c) Stock option plan and stock grant program:
In June, 1995 the Company adopted a non-qualified stock option plan
and a stock grant program with the following provisions:
(i) Stock option plan:
The Company has reserved 300,000 shares of its authorized
common stock for issuance to key employees and consultants of
the Company and affiliates. Under this plan, no employee may
receive more than 100,000 stock options. Options are
non-transferable and expire if not exercised within two years.
The options may not be exercised by the employee until after
the completion of two years of employment with the Company.
The options are issuable to officers, key employees and
consultants in such amounts and prices as determined by the
Board of Directors. To December 31, 1998, no options were
granted pursuant to this plan.
(ii) Stock grant program:
The Company has reserved 300,000 shares of its authorized
common stock for issuance to key employees and directors.
Under this plan, no employee may receive more than 100,000
shares. The program requires the employee to remain in the
employ of the Company for at least one year following the
grant and to agree not to engage in any activity which would
be considered in competition with the Company's business. If
the employee violates any one of these conditions the
ownership of the shares issued under the program shall revert
back to the Company. The shares issued under the program are
non-transferable for two years. As of December 31, 1995, a
total of 100,000 shares had been granted to five directors
pursuant to this plan, which were issued in 1996. These shares
were recorded during the period granted at their par value of
$0.001 per share and were presented as shares allotted but
unissued as at December 31, 1995.
7. Commitments:
On June 30, 1995, the Company entered into a five year employment
agreement with the President of the Company that provides for a salary of
$7,500 per month beginning July 1, 1995 (plus a cost of living adjustment
to be made on the first day of each calendar year). The agreement also
provides for additional incentive compensation equal to 1/2 of 1% of net
sales up to $5,000,000, 3/4 of 1% on the next $20,000,000 in net sales and
1 percent of net sales above $25,000,000.
04/14/99
<PAGE>
NAPTAU GOLD CORPORATION
Notes to Financial Statements, page 9
(expressed in United States dollars)
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
8. Income taxes:
Under the asset and liability method of accounting for income taxes,
deferred income tax assets and liabilities are measured using enacted tax
rates for the future income tax consequences attributable to differences
between the financial statement carrying amount of existing assets and
liabilities and their respective tax bases.
For all periods presented, the Company has not recognized any deferred tax
assets or liabilities as the available benefits, primarily as a result of
resource deductions of approximately $4,003,000 and loss carry forwards of
approximately $506,000 arising in 1995 through 1998, are fully offset by a
valuation allowance of the same amount.
9. Supplementary cash flow information:
The following non-cash operating, financing and investing activities
occurred during the year:
================================================================================
Year ended December 31,
-------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
(restated - (restated-
note 3) (note 3)
Exploration and development expenses
by way of increase in contracts
payable $ 624,200 $242,736 $ 338,105
Interest and financing costs incurred
by way of increase in contracts
payable 114,540 110,245 149,725
Reduction of contracts payable by way
of gold resources received by Noble (131,892) -- --
- --------------------------------------------------------------------------------
606,848 352,981 487,830
Reduction of contracts payable on
amendment of operating agreement
with Noble and resulting increase in
additional paid-in capital -- -- 1,000,000
Acquisition of equipment for
contracts payable -- 71,582 --
Issue of common shares:
For mineral properties, net of
reduction of additional paid-in
capital relating to agreements
with Noble -- -- 269,900
On settlement of loans payable to
related parties -- -- 96,000
================================================================================
The Company did not pay any interest or income taxes during the years ended
December 31, 1998, 1997 or 1996.
04/14/99
<PAGE>
NAPTAU GOLD CORPORATION
Notes to Financial Statements, page 10
(expressed in United States dollars)
Years ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
10. Uncertainty due to the Year 2000 Issue:
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effect 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.
04/14/99
MODIFICATION AND EXTENSION AGREEMENT
BETWEEN:
NOBLE METAL GROUP INCORPORATED, a British Columbia Corporation having its
principal place of business at 801-409 Granville Street, Vancouver,
British Columbia, V6C 1T2 (herein "Noble")
AND:
NAPTAU GOLD CORPORATION, a Delaware Corporation, having its registered
offices at 11th Floor, Rodney Square North, 11th and Market Streets,
Wilmington, New Castle County, Delaware 19801 (herein "NAPTAU")
WITNESS THAT
WHEREAS
(1) Noble and Maritime Transport & Technology Ltd., a New York Corporation,
entered into an agreement on the 6th day of June, 1995 providing for the
acquisition by Naptau of certain assets of Noble, consisting of placer mining
leases in the Caribou Mining Division of British Columbia in the area of Likely,
British Columbia, Canada bearing placer lease numbers 29, 1159, 1850 and 2093
(collectively the "Placer Leases") (the said agreement being hereinafter
referred to as the Exchange Agreement");
(2) On the same date, Naptau entered into an agreement with Noble for the
operation by Noble of the Placer Leases on behalf of Naptau (the "Operating
Agreement");
(3) Under the terms of the Exchange Agreement, Noble received as partial
consideration for the transfer of assets consisting of the Placer Leases the
delivery of 4 million shares of Naptau, and Naptau was obligated to pay Noble
USD$1,000,000 by September 3, 1995 for the entering into of the Operating
Agreement, and was obligated to pay a further USD$1,000,000 by October 3, 1995
for the funding of the 1995 mining operations on the Placer Mining Leases;
(4) Naptau paid to Noble a total of USD$45,500 by December 31, 1995 for the
operating expenses relating to the 1995 mining operations on the Placer Leases
(5) Naptau was unable to pay the balance of the sums due and owing under the
Exchange Agreement and Operating Agreement until such time as the company had
been granted approval for its Registration Statement filed with the United
States Security and Exchange Commission on August 9, 1995, and was also granted
a listing on the NASDAQ Small Cap Market as soon as the listing requirements
were met;
(6) Both Noble and Naptau wished to have fulfilled the obligations of the
Exchange Agreement and Operating Agreement as soon as Naptau was in a position
to complete;
(7) By an agreement dated September 1, 1995, Naptau was previously granted an
<PAGE>
-2-
extension of the time for performance of its obligations under the Exchange
Agreement and Operating Agreement to December 31, 1995 (the "Extension
Agreement);
(8) By a second extension agreement dated April 30, 1996, Naptau was granted a
further extension for performance of its obligations under the Exchange
Agreement and Operating Agreement to June 30, 1996 (the "Second Extension
Agreement").
(9) By a third extension and modification agreement dated July 26, 1996, there
was a conversion of USD$1,000,000 debt to 3,241 ounces of raw gold at a deemed
price of USD$380 per ounce with a schedule for payments as set out in that
agreement with the balance of USD$954,500 owing under the terms of the Exchange
Agreement and the Operating Agreement for the deemed expenses of the 1995 mining
operations to be paid by June 30, 1997 (the "Third Extension Agreement");
(10) A further modification and extension agreement was entered into as of
December 31st, 1997 (the "Fourth Extension Agreement") . It was a term of that
agreement that Noble grant to Naptau a further extension of time until December
31, 1998, in which to pay the balance of USD$954,500 due and owing under the
terms of the Exchange Agreement and the Operating Agreement for the deemed
expenses of the 1995 mining operations on the Placer Leases. Compounded interest
was payable and calculated semi-annually on the above amount at the rate of 10%
per annum to June 30, 1997 and at the rate of 12% per annum thereafter. (The
principal and interest together referred to as the "Debt")
(11) A placer mining operating plant installed on the property in June 1997
(which is the subject of a legal dispute with the manufacturer) continued to be
tested and modified in 1998 in order to try and get the plant to meet the
manufacturer's representations. Towards the end of the 1998 mining season, it
appeared that Noble might have been successful in modifying the plant
sufficiently to allow the plant to function as originally intended. These
modifications and testing has resulted in a loss to both Noble and Naptau of
anticipated production from the Placer Leases for the 1997 and 1998 mining
seasons.
(12) The Placer Leases were on October 14, 1998 combined into a mineral tenure
lease for a term of ten years bearing Mineral Tenure #365488 out of the Cariboo
Mining Division of British Columbia (the "Mineral Tenure Lease").
(13) The Fourth Extension Agreement has now expired with the Debt still owing by
Naptau to Noble.
(14) Naptau with the concurrence of Noble is now seeking listing on the NASDAQ
Electronic Bulletin Board which is anticipated to be imminent. Such listing may
result in some or all of the shares held by Noble of Naptau stock being
restricted from trading for some period of time. Noble is therefore desirous of
more liquidity by being allowed to convert some of its shareholding to raw gold
in return for a further extension of time to pay the Debt being granted to
Naptau over a period of three years. As further security for Noble, Noble has
requested and Naptau has agreed to place any documents of title and bills of
sale for the Mineral Tenure Lease in trust with Noble's solicitor until such
time as Naptau has fulfilled all of its obligations to Noble including payment
of the Debt;
<PAGE>
-3-
(15) While the price of gold on the international market continues to trade
below USD$295 per ounce, recent testing has indicated a net value of USD$230 -
$235 per ounce may be obtained for the raw gold produced from the Placer Leases;
(16) The parties remain desirous of concluding their respective obligations
under their various agreements.
IT 1S NOW AGREED that in consideration of the payment of TEN DOLLARS ($10) by
Naptau to Noble, the receipt and sufficiency of which is hereby acknowledged,
and the further mutual covenants and agreements following, that:
1. Naptau hereby agrees to convert at a deemed price of USD$2.00 per share
1,000,000 common shares of Naptau presently held by Noble into 8695 ounces of
raw gold at a deemed value of USD$230 per ounce of raw gold.
2. Naptau hereby agrees that from its share of production from the Placer
Leases, as set out in previous agreements i.e. the Exchange Agreement, the
Operating Agreement, the Extension Agreement, the Second Extension Agreement,
the Third Extension Agreement and the Fourth Extension Agreement (collectively
the "Prior Agreements"), that it will pay to Noble from its share of production
remaining to it, the 8695 ounces of raw gold referred to in the previous
paragraph on the following basis:
a. for the 1999 mining season, 1/3 of the number of ounces of raw gold
remaining to Naptau after satisfaction of the obligations due under
the Prior Agreements;
b. for the years 2000 and 2001 mining seasons up to 50% of the balance
of the number of ounces of raw gold remaining to Naptau after
satisfaction of the obligations due under the Prior Agreements until
the 8695 ounces have been paid in full.
3. Noble hereby agrees that the Fourth Extension Agreement is hereby amended to
provide for the payment by Naptau to Noble of the Debt, by December 31st, 2001.
4. Naptau agrees to deliver up and place into trust with the solicitor for Noble
all documents of title relating to the Mineral Tenure Lease until such time as
the Debt is paid in full.
5. Naptau may at any time, at its option elect to pay to Noble more ounces of
raw gold than the minimum levels specified in the schedule set out in paragraph
2.
6. This Agreement is in addition to the Prior Agreements, which remain in full
force and effect save to the extent by which they have been modified by the
agreement herein.
7. This Agreement shall be construed in accordance with the laws of the Province
of British Columbia, Canada.
8. This Agreement may be executed in counterpart and by faxed signature and the
parties agree to deliver executed copies of the original document.
<PAGE>
-4-
IN WITNESS WHEREOF THE PARTIES HERETO, CORPORATE PARTIES HAVING BEEN DULY
AUTHORIZED BY THEIR RESPECTIVE BOARDS OF DIRECTORS, HAVE SET THEIR HANDS AND
SEALS AS OF THE 9TH DAY OF MARCH, 1999.
NOBLE METAL GROUP INCORPORATED
ORIGINAL SIGNED ORIGINAL SIGNED
- --------------------------- -----------------------------------
BY DOROTHY DENNIS, PRES. BY: WILLIAM C. JACKSON, DIRECTOR
ORIGINAL SIGNED
- ---------------------------
BY: IRVIN OLSEN, DIRECTOR
NAPTAU GOLD CORPORATION
ORIGINAL SIGNED
- ---------------------------
BY: EDWAD RENYK, PRES.
EXTENSION AGREEMENT
BETWEEN:
DOROTHY DENNIS, businesswoman (herein "Dennis"),
of #705 588 Broughton St., Vancouver, British Columbia, V60 3F3
AND:
NAPTAU GOLD CORPORATION, a Delaware Corporation (herein "NAPTAU"), having
its registered offices at 11th Floor, Rodney Square North, 11th and Market
Streets, Wilmington, New Castle County, Delaware 19801
WITNESS THAT
WHEREAS
(1) NAPTAU and Dennis entered into an agreement on the 12th day of October, 1995
for the acquisition by NAPTAU of Placer Lease #1160 in the Cariboo Mining
Division of British Columbia, in the area of Likely, British Columbia, Canada
(the "Agreement");
(2) Pursuant to the Agreement NAPTAU was obligated, in part, to pay the sum of
USD$200,000 to Dennis on or before December 12, 1995;
(3) By an agreement dated April 30, 1996, NAPTAU was granted an extension of the
time for performance of its obligation to make the above payment to October 12,
1996 (the "Extension Agreement"). The Extension Agreement also included terms
reflecting settlement of any interest due on the above sum;
(4) By an agreement dated October 30, 1996 a Second Extension Agreement was
entered into providing for the extension of the amount required to be paid in
paragraph 2 above to the 12th day of October, 1997 and further providing for the
payment by NAPTAU to Dennis of 100 ounces of raw gold from its share of the gold
produced from all of its placer mining operations in the Cariboo Mining Division
of British Columbia (the "Leases");
(5) By a Third Extension Agreement dated December 30th, 1997 the time for
payment of the money referred to in paragraph 2 was extended to December 31st
1998 and the number of ounces of raw gold required to be paid was increased to
150 ounces which was to be paid to Dennis from production from the Leases;
(6) For reasons known to Dennis, NAPTAU was unable to obtain sufficient
production of raw gold from the Leases in 1998 to meet its obligations to Dennis
referred to in the preceding paragraph;
(7) Placer Lease #1160 was on October 14, 1998 combined into a mineral tenure
lease bearing Mineral Tenure #365488 (the "Mineral Tenure Lease");
(8) The Extension Agreement, Second Extension Agreement and Third Extension
<PAGE>
Agreement has now expired and NAPTAU has not as yet made any of the monetary
payments above referred to; and
(9) Both Dennis and NAPTAU would like to further extend the time for payment of
the said principal sum on mutually satisfactory terms.
IT IS NOW AGREED that in consideration of the payment of TEN DOLLARS ($10) by
NAPTAU to Dennis, the receipt and sufficiency of which is hereby acknowledged,
and the further mutual covenants and agreements following that:
1. The amount agreed to be paid by NAPTAU to Dennis in para.2 above shall be
paid on or before the 31st day of December, 1999.
2. Instead of the 150 ounces of raw gold to be paid by NAPTAU to Dennis under
the Third Extension Agreement it is hereby agreed that Naptau will pay Dennis
200 ounces of raw gold from its share of the gold produced from the mining
operations on the Mineral Tenure Lease.
3. The total number of ounces of raw gold to be paid to Dennis under the terms
of this agreement shall be distributed to Dennis from NAPTAU's share of the raw
gold due to it for the 1999 placer mining operations on the Mineral Tenure
Lease, immediately following the accumulation by NAPTAU of sufficient ounces of
raw gold to meet its obligations and commitments to Noble Metal Group
Incorporated under prior agreements for the 1999 placer mining season, but in
advance of any other party including NAPTAU itself.
4. NAPTAU may not, without Dennis's consent substitute refined gold or its
equivalent in value for raw gold.
IN WITNESS WHEREOF THE PARTIES HERETO, IF CORPORATE PARTIES HAVING BEEN DULY
AUTHORIZED BY THEIR RESPECTIVE BOARDS OF DIRECTORS, HAVE SET THEIR HANDS AND
SEALS AS OF THE 3Oth DAY OF MARCH,1999.
NAPTAU GOLD CORPORATION
ORIGINAL SIGNED
- ------------------------------
BY: EDWARD D. RENYK, President
EXECUTED BY DOROTHY DENNIS )
IN THE PRESENCE OF: )
Name: ) ORIGINAL SIGNED AND WITNESSED
------------------------ )
Address: )
--------------------- ) -----------------------------
) DOROTHY DENNIS
- ------------------------------ )
Occupation: )
------------------ )
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,734
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,172,516
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,172,516
<CURRENT-LIABILITIES> 2,923,504
<BONDS> 0
0
0
<COMMON> 6,934
<OTHER-SE> 2,512,593
<TOTAL-LIABILITY-AND-EQUITY> 2,172,516
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 753,946
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 119,053
<INCOME-PRETAX> (753,946)
<INCOME-TAX> 0
<INCOME-CONTINUING> (753,946)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (753,946)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
