4 Aug 2011 07:30
FOR RELEASE: 7.30 AM, 4 August 2011
CIC Mining Resources Ltd
("CIC Mining Resources", the "Company", or "CICR")
CONSOLIDATED FINANCIAL STATEMENTS
for the twelve months ended January 31, 2011
(Expressed in Canadian dollars, unless otherwise stated)
Management's responsibility for financial reporting
The accompanying consolidated financial statements of The Company were prepared by management in accordance with International Financial Reporting Standards ("IFRS"). Management acknowledges responsibility for the preparation and presentation of the consolidated financial statements, including responsibility for significant accounting judgments and estimates and the choice of accounting principles and methods that are appropriate to the Company's circumstances. The significant accounting policies of the Company are summarized in Note 2 to the consolidated financial statements.
Management has established systems of internal control over the financial reporting process, which are designed to provide reasonable assurance that relevant and reliable financial information is produced.
The Board of Directors is responsible for reviewing and approving the consolidated financial statements and for ensuring that management fulfills its financial reporting responsibilities. An Audit Committee assists the Board of Directors in fulfilling this responsibility. The majority members of the Audit Committee are not officers of the Company. The Audit Committee meets with management as well as with the independent auditors to review the internal controls over the financial reporting process, the consolidated financial statements and the auditors' report. The Audit Committee also reviews the Annual Report to ensure that the financial information reported therein is consistent with the information presented in the financial statements. The Audit Committee reports its findings to the Board of Directors for its consideration in approving the consolidated financial statements for issuance to the shareholders.
Management recognizes its responsibility for conducting the Company's affairs in compliance with established financial standards, and applicable laws and regulations, and for maintaining proper standards of conduct for its activities.
Stuart J. Bromley
Chairman
Hu Ye
Chief Financial Officer
July 31, 2011
CIC Mining Resources Ltd
The Company is a consulting and advisory company, operating primarily in the mining and energy infrastructure sectors. The Company seeks to provide consulting and advisory services to entities operating at various stages of resource development, and the exclusive right to control the public listing process of any client company if the client company is an unlisted company.
Mining and energy infrastructure companies or projects will include those involved in the exploration for, and extraction of, base metals, precious metals, bulk commodities, thermal and metallurgical coals, industrial metals, hydrocarbons, renewables and new technologies, including single-asset as well as diversified natural resources companies.
The core services provided by CIC Mining Resources are: the Advisory Service which provides a range of technical, project management, strategic and commercial services; the Strategic Investment Service which helps companies source investment from industry partners for which the Company will typically receive an equity interest; and Advice on Listings where the Company helps the client realize value by listing on a Stock Exchange. www.cicresources.com
Forward-Looking Statements
This news release includes certain forward-looking statements that are based upon current expectations, which involve risks and uncertainties associated with the Company's business and the environment in which the business operates. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking, including those identified by the expressions "anticipate", "believe", "plan", "estimate", "expect", "intend", and similar expressions to the extent they relate to the Company or its management. The forward-looking statements are not historical facts, but reflect management's current expectations regarding future results or events. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations, including the matters discussed under "Risk Factors" in the Company's Admission Document which can be found at the Company's profile on SEDAR www.sedar.com. The Company assumes no obligation to update the forward-looking statements, or to
Update the reasons why actual results could differ from those reflected in the forward-looking statements.
The full report and accounts have been sent to shareholders and are available on the Company's website: www.cicresources.com.
FOR FURTHER INFORMATION PLEASE CONTACT:
CIC Mining Resources Ltd
Stuart J. Bromley
+86 136 0113 1912
OR
GTH Communications
Toby Hall
+44 (0) 20 3103 3903
Cautionary Statement
No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein.
CIC MINING RESOURCES LTD. CONSOLIDATED BALANCE SHEETS As at January 31, 2011 and 2010 (In Canadian Dollars)
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2011 | 2010 | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash | $ | 4,851 | $ | 45,280 | ||||
Amounts receivable | 31,722 | 15,541 | ||||||
Marketable securities (Note 5) | 2,652 | 14,788 | ||||||
Prepaid expenses and deposits | 56,652 | 124,485 | ||||||
95,877 | 200,094 | |||||||
Property and equipment (Note 6) | 9,246 | 18,973 | ||||||
$ | 105,123 | $ | 219,067 | |||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
Current Liabilities | ||||||||
Accounts payable and accrued liabilities | $ | 2,077,707 | $ | 849,877 | ||||
Income taxes payable (Note 8) | 98,440 | 86,559 | ||||||
Due to related parties (Note 7) | 907,800 | 293,571 | ||||||
3,083,947 | 1,230,007 | |||||||
Shareholder's Equity | ||||||||
Share capital (Note 9) | 24,592,434 | 27,491,066 | ||||||
Contributed surplus (Note 9) | 4,646,153 | 1,457,391 | ||||||
29,238,587 | 28,948,457 | |||||||
Deficit | (32,576,010) | (30,228,835) | ||||||
Accumulated other comprehensive income | 358,599 | 269,438 | ||||||
(32,217,411) | (29,959,397) | |||||||
(2,978,824) | (1,010,940) | |||||||
$ | 105,123 | $ | 219,067 | |||||
Nature of Operations and Going Concern - Note 1 | ||||||||
Commitments - Note 10 | ||||||||
Contingencies - Note 11 | ||||||||
Subsequent Event - Note 12 | ||||||||
APPROVED ON BEHALF OF THE BOARD: | ||||||||
"Hu Ye " | Director | |||||||
"Kevin Li " | Director | |||||||
See Accompanying Notes to the Consolidated Financial Statements | ||||||||
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CIC MINING RESOURCES LTD. |
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STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS |
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For the Years Ended January 31, 2011 and 2010 (In Canadian Dollars) |
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2011 | 2010 |
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Revenue |
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Consulting and advisory services (Note 13) | $ | 446,878 | $ | - |
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General and administrative costs |
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Amortization | 9,221 | 475,004 |
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Bank charges and interest on outstanding taxes | 180,426 | 3,280 |
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Consulting fees | - | 70,854 |
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Filing fees and transfer agent | 28,716 | 24,063 |
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Director insurance | 5,000 | - |
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Management fees (Note 7) | 338,011 | 301,979 |
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Meals and entertainment | 2,631 | 14,949 |
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Office and administration | 108,429 | 242,733 |
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Professional fees | 210,572 | 261,283 |
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Rent | 284,630 | 548,534 |
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Salaries | 160,250 | 200,343 |
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Stock based compensation | 285,130 | 62,984 |
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AIM listing expenses (Notes 1 and 12) | 1,076,669 | - |
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Travel and promotion | 75,743 | 76,188 |
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Total general and administrative costs | 2,765,428 | 2,282,194 |
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Loss before other items | (2,318,550) | (2,282,194) |
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Other income (expense) |
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Gain (loss) on sale of marketable securities (Note 5) | (14,329) | 360,952 |
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Impairment of intangible assets | - | (930,000) |
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Impairment of resource properties | - | (40) |
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Loss before income taxes | (2,332,879) | (2,851,282) |
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Income tax (Note 8) | 14,296 | 87,867 |
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Net loss for the year | $ | (2,347,175) | $ | (2,939,149) |
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Other comprehensive income (loss) | $ | (97,838) | $ | 474,035 |
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Comprehensive loss | $ | (2,445,013) | $ | (2,465,114) |
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Basic and fully diluted loss per share | $ | (0.02) | $ | (0.02) |
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Weighted average number of shares outstanding | 153,600,803 | 126,331,161 |
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See Accompanying Notes to the Consolidated Financial Statements |
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CIC MINING RESOURCES LTD. STATEMENTS OF CASH FLOWS For the Years Ended January 31, 2011 and 2010 (In Canadian Dollars)
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2011 | 2010
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Operating Activities | ||||||
Net loss for the year | $ | (2,347,175) | $ | (2,939,149) | ||
Items not affecting cash: | ||||||
Service revenue compensated in shares (Note 13) | (210,496) | - | ||||
Amortization | 9,221 | 475,004 | ||||
Loss (gain) from disposal of marketable securities | 14,329 | (360,952) | ||||
Stock based compensation for consultants | - | 1,975 | ||||
Stock based compensation | 285,130 | 62,984 | ||||
Write down of resource properties | - | 40 | ||||
Write down of intangible asset | - | 930,000 | ||||
(2,248,991) | (1,830,098) | |||||
Changes in operating assets and liabilities: | ||||||
Amounts receivable | (16,181) | (3,128) | ||||
Prepaid expenses | 67,833 | 150,326 | ||||
Income tax payable | 11,881 | - | ||||
Accounts payable and accrued liabilities | 1,276,440 | (180,728) | ||||
Cash provided by (used in) operating activities | (909,018) | (1,836,628) | ||||
Financing Activities | ||||||
Proceeds from share issuance | 5,000 | - | ||||
Increase in amounts due to related parties | 662,839 | 1,350,941 | ||||
Cash provided by financing activities | 667,839 | 1,350,941 | ||||
Investing Activity | ||||||
Proceeds from disposal of marketable securities | 200,750 | 555,362 | ||||
Cash provided by investing activities | 200,750 | 555,362 | ||||
Increase (decrease) in cash during the year | (40,429) | 42,675 | ||||
Cash, beginning of the year | 45,280 | 2,605 | ||||
Cash, end of the year | $ | 4,851 | $ | 45,280 | ||
Supplemental disclosure of cash flow information: | ||||||
Cash paid for: | ||||||
Interest | $ | - | $ | - | ||
Income taxes | $ | - | $ | - | ||
Non-cash transactions - Note 13 See Accompanying Notes to the Consolidated Financial Statements |
CIC MINING RESOURCES LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended January 31, 2011 and 2010
(In Canadian Dollars)
Number of shares | Amount | Contributed Surplus | AccumulatedDeficit | Accumulated Other Comprehensive Loss | |||
Balance, January 31, 2009 | 110,045,322 | $ 24,014,849 | $ 1,392,432 | $ (27,289,686) | $ (204,597) | ||
Issued for cash | |||||||
Pursuant to private placement | 34,762,170 | 3,476,217 | - | - | - | ||
Stock-based compensation | - | - | 64,959 | - | - | ||
Net loss for the year | - | - | - | (2,939,149) | - | ||
Foreign exchange translation | - | - | - | - | 523,100 | ||
Reversal of unrealized gain on securities disposal | - | - | - | - | (58,199) | ||
Unrealized gain on available for sale securities | - | - | - | - | 9,134 | ||
Balance, January 31, 2010 | 144,807,492 | $ 27,491,066 | $ 1,457,391 | $ (30,228,835) | $ 269,438 | ||
Issued for cash | |||||||
Pursuant of private placement | 350,000 | 17,500 | |||||
Share subscription receivable | - | (12,500) | - | - | - | ||
Top up of January 31, 2010 private placement | 25,294,285 | - | - | - | - | ||
Cancellation of shares in escrow | (18,000,000) | (2,903,632) | 2,903,632 | - | - | ||
Stock based compensation | - | - | 285,130 | ||||
Net loss for the year | - | - | - | (2,347,175) | - | ||
Foreign exchange translation | - | - | - | - | 96,713 | ||
Reversal of unrealized gain on securities disposal | - | - | - | - | (8,677) | ||
Unrealized gain on available for sale securities | - | - | - | - | 1,125 | ||
Balance, January 31, 2011 | 152,451,777 | $ 24,592,434 | $ 4,646,153 | $ (32,576,010) | $ 358,599 |
CIC Mining Resources Ltd.
Notes to the Consolidated Financial Statements
For the Years Ended January 31, 2011 and 2010
1. NATURE of operations
CIC Mining Resources Ltd. (the "Company") is a public company incorporated on June 20, 2003 under the Canada Business Corporations Act listed on the Canadian National Stock Exchange (CNSX) and is a consulting and advisory company, operating preliminary in the mining and energy infrastructure sectors. Its strategy is to assist in finding pre-IPO funding for its client companies and to assist them in identifying suitable potential investors and/or strategic partners for their projects. In November 2010, the Company's primary listing moved to the AIM market of the London Stock Exchange. The Company also trades on the Frankfurt Stock Exchange. The Company subsequently de-listed its shares from trading on the CNSX as of June 24, 2011 (see also Note 12).
These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal year. Values ultimately realized for assets carried in the consolidated financial statements may be substantially different from the carrying values shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classifications of assets and liabilities should the Company be unable to continue as a going concern. At January 31, 2011, the Company had an accumulated deficit of $32,576,010 since its inception, had a working capital deficiency of $2,988,070 and expects to incur further losses in the development of its business, all of which casts substantial doubt about the Company's ability to continue as a going concern. The Company's ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due.
2. Significant Accounting Policies
Presentation and Consolidation
These consolidated financial statements have been presented in Canadian dollars and include the accounts of the Company and its wholly-owned subsidiaries, China CIC Mining Resources Limited Beijing Representative Office ("CICMR"), and Top Ten Mining Investment Limited ("Top Ten"). Prior to the January 31, 2008 fiscal year, these two subsidiaries were considered inactive and all transactions related to the Company's PRC operations were recorded directly by CIC Mining Resources Ltd. in its own accounts. Effective February 1, 2008 the Company used these subsidiaries to conduct the majority of its operations in PRC and they became active. Accordingly, the assets, obligations and operations of these subsidiaries were consolidated with those of the Company from that date forward. All significant inter-company transactions and balances have been eliminated upon consolidation.
Use of Estimates
The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and could impact future results of operations and cash flows.
Marketable Securities
Marketable securities include shares of a public company received as part of service revenue. These shares have been categorized as available for sale financial instruments and as such are carried at fair value. Adjustments to fair value are recorded in other comprehensive income unless there is a loss in value that is other than temporary, in which case the adjustment to fair value is included in income and not reversed for future fair value changes.
Foreign Currency Translation
The Company's functional currency is the Canadian dollar. The functional currency of the Company's wholly-owned subsidiaries, CICMR and Top Ten is the PRC Renminbi ("RMB"). On February 1, 2008 the Company changed its foreign currency translation policy from the temporal to the current rate translation method because the primary business focus of the company had changed and there were significant changes to the facts and circumstances primarily affecting the Company's foreign exchange exposure. Prior to February 1, 2008 the Company considered itself to be an exploration stage resource company focused on acquiring and exploring mineral properties in PRC, and was considered to be dependent on financing from outside PRC to sustain its exploration activities.
Effective February 1, 2008, the Company changed its primary focus to being a consultant and facilitator for the negotiation, development, promotion and financing of PRC resource projects in exchange for fees. As a result, the majority of the Company's activities are not only carried out in PRC but it also receives consideration from its PRC clients in the form of cash, equity participation, royalty participation, or other rights, and it is no longer dependent on its Canadian operation for financial backing. In addition, the majority of the Company's costs of operations are primarily local PRC costs and the majority of its consulting services are performed in PRC. Accordingly, management considers these PRC operations to be self-sustaining foreign operations and accordingly, the financial statements of CICMR and Top Ten are translated into Canadian dollars using the current rate method, as follows:
i) Assets and liabilities, at the rate of exchange in effect as at the balance sheet date;
ii) Revenues and expenses items (including amortization), at the rate of exchange in effect on the dates on which such items are recognized in income during the period.
Exchange gains and losses arising from the translation of the financial statements are recognized in a separate component of other comprehensive income.
Revenue Recognition
The Company earns its revenue by using its expertise to perform consulting, advisory, and facilitation services to development and exploration stage resource companies and projects in PRC. Consideration received by the Company may include cash, shares, securities or options of other companies, royalty participation or other rights, or options to acquire properties, rights or projects.
Service revenue is generally recognized when persuasive evidence of an arrangement exists, the value is fixed or determinable, performance has occurred and there is reasonable assurance of collection.
The Company's policy for recognizing revenues is as follows:
i) Cash consideration is recognized once the service has been performed, the consideration has been earned, the cash has either been received or there is reasonable assurance of prompt collection, any obligation to return or refund the consideration has lapsed or been waived, and a formal arrangement between the parties exists.
ii) Shares or options received as consideration are recognized when the services have been performed or the agreed effort has been expended, pursuant to a contract or agreement, the securities have been received by the Company, and the value of the securities received is measurable with reasonable accuracy.
iii) Royalty participation or other rights are recognized only once it is established that a royalty has been received or a right has been realized, generally when the right is sold or otherwise liquidated, a contract or arrangement exists, and the consideration received is measurable.
iv) Options to acquire properties or projects received as consideration are recognized once the option is sold or once the option has been exercised and the resulting assets obtained are liquidated or otherwise disposed.
Stock-based Compensation
The Company has a stock option plan, which is described in Note 9. The Company recognizes stock-based compensation expense in accordance with CICA Handbook Section 3870, "Stock-Based Compensation and Other Stock-Based Payments". When stock or stock options are issued to employees, compensation expense is recognized based on the fair value of the stock or stock options issued on the date of grant, over the vesting period of the stock or stock options. Stock-based payments to non-employees are measured at the fair value of the consideration received, or the fair value of the equity instruments issued, or liabilities incurred, whichever is more reliably measurable. The fair value of stock-based payments to non-employees is periodically re-measured until counterparty performance is complete, and any change therein is recognized over the period and in the same manner as if the Company had paid cash instead of paying with or using equity instruments. The cost of stock-based payments to non-employees that are fully vested and non-forfeitable at the grant date is measured and recognized at that date. On the exercise of stock options, share capital is credited for consideration received and for fair value amounts previously credited to contributed surplus.
Property and Equipment
Property and equipment are recorded at cost. Amortization is provided using the straight-line method to write off the costover the estimated useful lives of the assets as follows:
Office, furniture and computer equipment 5 Years
The Company reviews the carrying values of its property and equipment for impairment whenever events or changes in circumstances indicate their carrying values may exceed their estimated net recoverable amounts determined by reference to estimated future operating results and undiscounted net cash flows. An impairment loss is recognized when the carrying value of those assets exceeds their fair value.
Comprehensive Income
This standard requires the presentation of a statement of comprehensive income and its components. Comprehensive income includes both net earnings and other comprehensive income. Other comprehensive income includes holding gains and losses on available for sale investments, gains and losses on certain derivative financial instruments and foreign currency gains and losses relating to self-sustaining foreign operations.
Future Income Taxes
Future income taxes are recorded using the asset and liability method whereby future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using the enacted or substantively enacted tax rates expected to apply when the asset is realized or the liability settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that substantive enactment or enactment occurs. To the extent that the Company does not consider it more likely than not that a future tax asset will be recovered, it provides a valuation allowance against the excess.
Basic and Diluted Loss Per Share
Basic loss per share is computed by dividing the loss for the year by the weighted average number of common shares outstanding during the year. Diluted loss per share reflects the potential dilution that could occur if potentially dilutive securities were exercised or converted to common shares. The dilutive effect of options and warrants and their equivalent is computed by application of the treasury stock method. Common equivalent shares consisting of shares issuable on the exercise of common share purchase options and warrants were not included in the computation of diluted loss per share because the effect was anti‑dilutive.
Recent Accounting Pronouncements
In October 2009, the Accounting Standards Board issued a third and final IFRS Omnibus Exposure Draft confirming that publicly accountable enterprises will be required to apply IFRS, in full and without modifications, for all financial periods beginning January 1, 2011. The Company's adoption of IFRS on February 1, 2011 requires the restatement, for comparative purposes, of amounts reported by the Company for the year ended January 31, 2011, including the opening balance sheet as at February 1, 2010.
3. CAPITAL MANAGEMENT
The Company's objectives for the management of capital are to safeguard the Company's ability to continue as a going concern including the preservation of capital and to achieve reasonable returns on invested cash after satisfying the objective of preserving capital.
The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. The Company considers its cash to be its manageable capital. The Company's policy is to maintain sufficient cash to cover operating costs over a reasonable future period. There are no external restrictions on management of capital.
4. FINANCIAL INSTRUMENTS AND CREDIT RISK
Classification
Financial instruments are classified into one of five categories: held-for-trading, held-to-maturity investments, loans and receivables, available-for-sale financial assets or other financial liabilities. All financial instruments are measured at fair value except for loans and receivables, held-to-maturity investments and other financial liabilities which are measured at amortized cost. Subsequent measurement and accounting for changes in the values of these investments will depend on their initial classification as follows: held-for-trading financial assets are measured at fair value with changes in fair value recognized in operations. Available-for-sale financial instruments are measured at fair value with changes in fair value recorded in other comprehensive income until the change in value is realized or the instrument is derecognized or permanently impaired.
The Company has classified its cash as held-for-trading. Amounts receivable are classified as loans and receivables and are measured at amortized cost with a subsequent measurement reduction for an allowance for doubtful accounts or a provision for impairment. Accounts payable, short-term loan payable, and amounts due to related parties are classified as other liabilities.
The following table summarizes information regarding the carrying values of the Company's financial instruments:
2011 | 2010 | |||
Held for trading (i)
| $ | 4,851 | $
| 45,280 |
Loans and receivables (ii)
| 31,722 | 15,541 | ||
Other financial liabilities (iii)
| 2,985,507 | 742,182 | ||
Available for sale (iv) | 2,652 | 5,654 |
(i) Cash
(ii) Amounts receivable
(iii) Accounts payable, short-term loan payable and amounts due to related parties
(iv) Marketable securities
Fair values
The Company's financial instruments consist of cash, marketable securities, amounts receivable, accounts payable, and amounts due to related parties. The carrying amounts of these financial instruments are a reasonable estimate of their fair values because of their current nature. The marketable securities are carried at fair values based on quoted market prices.
The Company classifies its fair value measurements in accordance with an established hierarchy that prioritizes the inputs in valuation techniques used to measure fair value as follows:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 - Inputs other than quoted prices that are observable for the asset or liability either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3 - Inputs that are not based on observable market date.
The following table sets forth the Company's financial assets measured at fair value by level within the fair value hierarchy:
Level 1 | Level 2 | Level 3 | Total 2011 | |
Cash and cash equivalents | 4,851 | - | - | 4,851 |
Marketable securities | 2,652 | - | - | 2,652 |
7,503 | - | - | 7,503 |
Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and amounts receivable. To minimize its credit risk the Company deposits its cash in bank accounts with financial institutions. Transaction costs are expensed as incurred.
Financial assets past due
At January 31, 2011, the Company did not have any amounts receivable considered doubtful.
The Company reviews financial assets past due on an ongoing basis with the objective of identifying potential matters which could delay the collection of funds at an early stage. Once items are identified as being past due, contact is made with the respective company to determine the reason for the delay in payment and to establish an agreement to rectify the breach of contractual terms. At January 31, 2011, the Company had no provision for doubtful accounts.
Liquidity Risk
The Company does not have sufficient cash to meet its short-term general and administrative expenditures and its current liabilities. All of the Company's financial liabilities have contractual maturities of 30 days or are due on demand.
Market Risk
Market risk is the risk to the Company that the fair value or future cash flows of financial instruments will fluctuate due to changes in interest rates and foreign currency exchange rates. Market risk arises as a result of the Company generating revenues and incurring expenses in foreign currencies, holding cash and cash equivalents which earn interest, and having operations based in countries using currencies other than the Canadian dollar.
Interest Rate Risk
The Company does not currently have financial instruments that expose the Company to interest rate risk.
Foreign Exchange Risk
The Company's financial instruments are substantially all denominated in Chinese RMB and the Canadian dollar. Fluctuations in the exchange rates between the RMB and Canadian dollar could have a material effect on the Company's business and on the reported amounts of various financial instruments. The Company does not utilize any financial instruments or cash management policies to mitigate the risks arising from changes in foreign currency rates.
At January 31, 2011, approximately 83% of the Company's net liabilities are denominated in Chinese RMB and are exposed to foreign exchange risk.
Sensitivity Analysis
The Company has completed a sensitivity analysis to estimate the impact on net income that a change in foreign exchange rates or interest rates would have had in the 2011 year. This sensitivity analysis includes the following assumptions:
·; Changes in individual foreign exchange rates do not cause foreign exchange rates in other countries to alter
·; Changes in market interest rates do not cause a change in foreign exchange rates
The results of the foreign exchange rate sensitivity analysis would not have affected net income significantly, but would have affected other comprehensive income and accumulated other comprehensive income only.
Limitations of sensitivity analysis
The above table demonstrates the effect of either a change in foreign exchange rates or interest rates in isolation. In reality, there is a correlation between the two factors.
Additionally, the financial position of the Company may vary at the time that a change in either of these factors occurs, causing the impact on the Company's results to differ from that shown above.
5. Marketable securities
In 2009, the Company received 6,000,000 shares from Sirius Exploration PLC ("Sirius"), a Company listed on the Alternative Investment Market of the London Stock Exchange, for assisting Sirius in obtaining a 3% Net Profit Interest in the Bishop Tungsten Mine in China. In 2010, the Company disposed of 5,800,000 shares and recognized a capital gain on disposal of marketable securities of $360,952. In September 2010, the Company received a further 2,000,000 shares from Sirius for services in assisting Sirius to facilitate a Memorandum of Understanding ("MOU") with Chinese Potash Company Sino-Agri Mining Industry Co., Ltd. These shares, along with 190,000 of the shares that remained at January 31, 2010, were sold during the year for a combined capital loss of $14,329. There are 10,000 shares remaining as at year end.
6. PROPERTY AND EQUIPMENT
2011 | 2010 | |||
Cost | Accumulated Amortization | Net Book Value | Net Book Value | |
Office, furniture and equipment | $ 36,856 | $ 27,610 | $ 9,246 | $ 18,973 |
7. Related Party Transactions
The Company incurred the following expenses with directors or companies related by way of officers in common and with a company with whom a director is associated. These costs were measured at the amounts agreed upon by the parties.
2011 | 2010 | |
Management fees | $ 338,011 | $ 301,979 |
$ 338,011 | $ 301,979 |
These entities are owed $907,800 as at January 31, 2011 (2010 - $293,571) and these amounts are non-interest bearing, unsecured and have no fixed terms of repayment.
8. income taxes
Portions of the PRC operations are taxable on a notional determination of taxable income at prescribed rates using statutory calculations based on certain actual expenditures, which gives rise to a PRC tax provision. A reconciliation of income taxes at statutory rates to the reported income tax provision is as follows:
2011 | 2010 | ||||
Basic Canadian statutory and provincial income tax rates | 28.5% | 31.0% | |||
Expected tax recovery on net loss, before income tax | $ | 280,826 | $ | 883,000 | |
Permanent differences | (222,835) | (47,000) | |||
Effect of change in statutory tax rate | 17,143 | - | |||
Difference related to PRC tax on notional taxable income | 570 | (87,867) | |||
Increase in valuation allowance | (90,000) | (836,000) | |||
$ | (14,296) | $ | (87,867) | ||
The components of future income tax assets are as follows: | |||||
2011 | 2010 | ||||
Future income tax assets | |||||
Non-capital loss carry-forwards | $ | 2,230,000 | $ | 2,195,000 | |
Share issue costs | - | 8,000 | |||
Exploration and development expenses | 4,391,000 | 4,390,000 | |||
Intangibles and cumulative eligible capital | 496,000 | 496,000 | |||
7,117,000 | 7,089,000 | ||||
Less: valuation allowance | (7,117,000) | (7,089,000) | |||
- | $ | - |
The valuation allowance reflects the Company's estimate that the tax assets, more likely than not, will not be realized. The Company has available non-capital losses that may be carried forward to apply against future years' income for Canadian income tax purposes. These losses expire as follows: | |||||
Expiry Date | |||||
2015 | 121,000 | ||||
2016 | 554,000 | ||||
2027 | 1,985,000 | ||||
2028 | 1,541,000 | ||||
2029 | 2,711,000 | ||||
2030 | 1,748,000 | ||||
2031 | 260,000 | ||||
8,920,000 |
9. share capital
Authorized:
Unlimited common shares without par value.
Issued and allotted shares outstanding:
Number of shares |
Amount | ||
Balance, January 31, 2009 | 110,045,322 | $ | 24,014,849 |
Issued for conversion of debt | |||
Pursuant to private placement of shares and units | 34,762,170 | 3,476,217 | |
Balance, January 31, 2010 | 144,807,492 | $ | 27,491,066 |
Issued for cash | |||
Pursuant to private placements of shares and units | 350,000 | 17,500 | |
Shares issued but unpaid | - | (12,500) | |
Issued for top up of previous private placement | 25,294,285 | - | |
Cancellation of escrow shares | (18,000,000) | (2,903,632) | |
Balance, January 31, 2011 | 152,451,777 | $ | 24,592,434 |
a) On February 4, 2008, the Company issued 13,620,000 units at US$0.20 per unit pursuant to a private placement. Each unit consists of one share and one share purchase warrant. Each warrant entitles the holder to purchase one common share at US$0.25 per share until February 4, 2010. The amounts due from the placement were paid directly by the purchaser to certain creditors of the Company. The Company has not allocated any of the consideration received to the warrants as they did not have any intrinsic value at the issue date.
b) On February 4, 2008, the Company issued 2,000,000 common shares valued at US$0.11 per share in accordance with the Benxi agreement (Notes 6(d)).
c) On February 12, 2008, the Company issued 500,000 units at US$0.10 per unit pursuant to a private placement. Each unit consists of one common share and one warrant exercisable for two years ending February 12, 2010 at US$0.15 per share for the first year and US$0.20 per share for the second year. The Company has not allocated any of the consideration received to the warrants as they did not have any intrinsic value at the issue date.
d) On October 14, 2008, the Company issued 500,000 units at CAD$0.10 per unit and 500,000 units at CAD$0.06 pursuant to private placements. The Company has not allocated any of the consideration received to the warrants as they did not have any intrinsic value at the issue date.
e) On October 29, 2008, the Company issued 500,000 units at CAD$0.10 per unit pursuant to a private placement. The Company has not allocated any of the consideration received to the warrants as they did not have any intrinsic value at the issue date.
f) On July 13, 2009, the Company issued 34,762,170 units at CAD$0.10 per unit pursuant to a private placement. Each unit consists of one common share and one share purchase warrant, each warrant entitling the holder thereof to purchase an additional common share of the Company at a price of CAD$0.15 per common share for 24 months from the date of issuance. The units were issued in exchange for conversion of short term loans payable to a shareholder, into shares. No value was allocated to the warrants as they had no intrinsic value at the issue date.
g) On July 14, 2010, the Company issued 350,000 units and their associated warrants. Of these units, CAD$5,000 have been paid, the remaining CAD$12,500 are considered subscription receivable from the shareholders.
h) On July 24, 2010, the Company issued 25,294,285 shares as a top up of the previous January 31, 2010 private placement as a result of settling a dispute over the trading value of the shares at the time of the original private placement. The additional top up shares issued have no assigned value, as they serve only to compensate the shareholder for excess payments already made to the Company by the shareholder as consideration for these shares.
i) On October 29, 2010, the Company cancelled the 18,000,000 escrow shares that remained at January 31, 2010, the amount of $2,903,632 paid with these shares was transferred to contributed surplus.
Escrow:
At January 31, 2011, no common shares were held in escrow (January 31, 2010: 18,000,000). The 18,000,000 units held in escrow at January 31, 2010 were cancelled on October 29, 2010.
Warrants:
The following is the summary of the changes in the Company's outstanding warrants at January 31, 2011 and 2010:
2011 | 2010 | |||
Warrants | Weighted Average Exercise Price |
Warrants | Weighted Average Exercise Price | |
Balance of warrants at beginning of the period | 50,382,170 | $ 0.18 | 17,482,545 | $ 0.24 |
Issued | 350,000 | 0.10 | 34,762,170 | 0.15 |
Expired | (2,000,000) | 0.28 | (1,862,545) | 0.15 |
Expired | (13,620,000) | 0.25 | - | - |
Balance of warrants at end of the period | 35,112,170 | $ 0.15 | 50,382,170 | $ 0.18 |
At January 31, 2011, the Company had 35,112,170 (January 31, 2010 - 50,382,170) warrants outstanding. Each warrant entitles the holder thereof the right to purchase one common share for each warrant held as follows:
Expiry date |
Exercise price | 2011 Number of warrants | 2010 Number of warrants |
February 4, 2010 | $0.28 | - | 2,000,000 |
February 4, 2010 | $0.25 | - | 13,620,000 |
July 13, 2011 | $0.15 | 34,762,170 | 34,762,170 |
July 14, 2012 | $0.10 | 350,000 | |
35,112,170 | 50,382,170 |
Share Purchase Options:
The Company has a stock option plan which authorizes the board of directors to grant incentive stock options to directors, officers and employees. The exercise price and vesting provisions of the options are determined by the board based on the market values of the shares using the closing price on the date prior to date of the grant. The continuity of options outstanding is as follows:
2011 | 2010 | |||
Stock Options | Weighted Average Exercise Price |
Stock Options | Weighted Average Exercise Price | |
Balance, beginning of year | 5,175,000 | $0.32 | 5,175,000 | $0.32 |
Granted | 10,600,000 | 0.05 | - | - |
Balance, end of year | 15,775,000 | $0.09 | 5,175,000 | $0.32 |
Exercisable, end of year | 15,775,000 | 5,062,500 |
On November 14, 2010, the Company changed the exercise price for 2,700,000 previously vested stock options. The exercise price for 1,000,000 stock options was changed to $0.05 from $0.75, 750,000 stock options was changed to $0.05 from $0.11, and 950,000 stock options was changed to $0.05 from $0.10.
On November 15, 2010, 9,900,000 stock options were granted to directors for their services to the Company and 700,000 stock options were granted to consultants for their legal and advisory services. All of these stock options vested immediately, expire on November 15, 2013, and have an exercise price of $0.05 per share.
As at January 31, 2011, there were 15,775,000 employee, director and consultant options outstanding. The weighted average remaining life for outstanding options is 1.68 years, and weighted average exercise price is $0.09.
Expiry date | Weighted average remaining life |
Exercise price | Options Outstanding | Options Exercisable |
August 9, 2011 | 0.52 | $0.75 | 1,625,000 | 1,625,00 |
May 23, 2012 | 1.31 | $0.68 | 100,000 | 100,000 |
October 17, 2012 | 1.79 | $0.10 | 1,600,000 | 1,600,000 |
September 24, 2012 | 1.73 | $0.10 | 150,000 | 150,000 |
February 7, 2013 | 2.02 | $0.10 | 1,700,000 | 1,700,000 |
November 15, 2013 | 1.79 | $0.05 | 10,600,000 | 10,600,000 |
1.68 | $0.09 | 15,775,000 | 15,775,000 |
The fair value of the options granted and the options repriced during the year was $285,130. The assumptions usedin the Black-Scholes model and the resulting grant date fair value for the 10,600,000 options granted during the 2011 fiscal year are indicated below.
Risk-free interest rate | 1.75% |
Expected dividend yield | 0% |
Expected option life (years) | 3.00 |
Expected stock price volatility | 216% |
Issue date fair value per option | $0.025 |
The assumptions used in the Black-Scholes model and resulting grant date fair value for the 2,700,000 options repriced during the 2011 fiscal year are indicated below.
Risk-free interest rate | 1.56% |
Expected dividend yield | 0% |
Expected option life (years) | 1.21 |
Expected stock price volatility | 222% |
Issue date fair value per option | $0.02 |
10. COMMITMENTS
The Company entered into operating leases expiring in February, 2014 for office premises and equipment located in China. Minimum annual lease payments required are approximately as follows:
Year Ending January 31, 2012 | $ 140,600 |
Year Ending January 31, 2013 | 140,600 |
Year Ending January 31, 2014 | 140,600 |
11. CONTINGENCIES
a) During the year ended January 31, 2007, the Company received invoices for additional drilling expenditures on the Golden Harvest property (formerly Tao Jin property) totalling $805,776 from CIC Resources Limited (Hong Kong), a private company controlled by a director of the Company. CIC Resources Limited (Hong Kong) had an agreement with Major Drilling China to carry out drilling on the Golden Harvest Property. A number of drilling problems were identified and CIC Resources Limited (Hong Kong) has accepted all liability for any monies owing to Major Drilling. The Company does not intend to pay CIC Resources Limited (Hong Kong) for any liabilities arising from any arbitration related to this dispute as CIC Resources Limited (Hong Kong) holds the contract with Major Drilling and the Company is of the opinion that it has no liability in this regard. Accordingly, no amounts have been accrued in relation to these matters and any amounts payable will be recognized if or when those amounts are quantifiable.
b) The Company and certain of its directors are defendants in an action in the Supreme Court of British Columbia commenced on June 26, 2005 whereby various parties have sought various damages from the Company and certain of its directors and a declaration that the Company has no interest in the properties known as the Golden Harvest property located in Li County, Long Nan District, Gansu Province, PRC, also known as the 25 Zone Lease and No. 5 Lease forming part of the Liba Project. The plaintiffs in this action also applied for leave to pursue a derivative action in the Supreme Court of British Columbia to cancel the 40,000,000 shares originally subject to the escrow agreement.The 40,000,000 escrow shares were cancelled before January 31, 2011.
The Company continues to incur costs to defend this action but is unable to predict its outcome.
All costs associated with defending this action are expensed as incurred and the Company has not recorded any accruals for damages after those direct costs incurred to date.
12. SUBSEQUENT EVENTS
a) On March 21, 2011, the Company entered into a construction contract with an arm's length party to renovate its office premise located in China. The contract price for the renovation is $137,986 (RMB 909,600)
b) On May 31, 2011, the Company became subject to a management initiated Cease Trade Order for not being able to timely file its audited consolidated financial statements.
c) On June 24, 2010, the Company obtained approval from the securities exchange to de-list from the Canadian National Stock Exchange (see also Note 1).
13. NON-CASH TRANSACTIONS
Investing and financing activities that do not affect cash flows are excluded from the statements of cash flows.
During the year ended January 31, 2011, the Company received shares of marketable securities valued at $210,496 at the time of receipt, in exchange for services rendered.