Post Effective Amendment #2
As
filed
with the Securities and Exchange Commission on April 10, 2007
Registration
No. 333-129321
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
______________________________
Post-Effective
Amendment No. 2 to
Form
SB-2
REGISTRATION
STATEMENT
Under
THE
SECURITIES ACT OF 1933
GOLD
RESOURCE CORPORATION
(Name
of
small business issuer in its charter)
______________________________
Colorado
|
1041
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84-1473173
|
(State
or other jurisdiction of
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(Primary
Standard Industrial
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Classification
Code Number)
|
Identification
No.)
|
222
Milwaukee Street, Suite 301, Denver, Colorado 80206
(303)
320-7708
(Address
and telephone number of principal executive offices)
222
Milwaukee Street, Suite 301, Denver, Colorado 80206
(Address
of principal place of business or intended place of business)
William
W. Reid, President
Gold
Resource Corporation
222
Milwaukee Street, Denver, Colorado 80206
(303)
320-7708
(Name,
address and telephone number of agent for service)
With
a copy to:
David
J. Babiarz, Esq.
Jessica
M. Browne, Esq.
Dufford
& Brown, P.C.
1700
Broadway, Suite 2100
Denver,
Colorado 80290-2101
(303)
861-8013
Approximate
date of commencement of proposed sale to public: As soon as practical after
the
effective date of this Registration Statement.
If
any of
the securities being registered on this form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If
this
Form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. [ ]
If
this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. [ ]
If
delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
The
registrant hereby amends this registration statement on such date or dates
as
may be necessary to delay its effective date until the registrant shall file
a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the registration statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
The
information in this prospectus is not complete and may be changed.
These
securities may not be sold until the registration statement filed
with the
Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell these securities and is not
soliciting
an offer to buy these securities in any state where the offer or
sale is
not permitted.
|
SUBJECT
TO COMPLETION, DATED APRIL 9, 2007
PROSPECTUS
GOLD
RESOURCE CORPORATION
___________________
7,330,907
Shares
of
Common Stock
Offered
by
Selling
Shareholders
Certain
of our shareholders identified in the section of this prospectus titled "SELLING
SHAREHOLDERS" may offer and sell from time to time up to 7,330,907 shares
of our
common stock owned by those shareholders, their transferees, pledges, donees
or
successors in interest. The shares may be offered at prices prevailing in
the
market or at privately negotiated prices. We will not receive the proceeds
from
the sale of those shares. The selling shareholders may sell these securities
to
or through one or more underwriters, broker-dealers or agents, or directly
to
purchasers on a continuous or delayed basis. The names of any underwriters
or
agents will be included in a post-effective amendment to the registration
statement of which this prospectus is a part, as required. (See
"PLAN OF
DISTRIBUTION").
Our
common stock currently trades over the counter and is quoted on the Bulletin
Board maintained by the National Association of Securities Dealers, Inc.
(“OTCBB”) under the symbol “GORO.” On April 9, 2007, the closing price of our
common stock was $3.06.
___________________
Investing
in our common stock involves risks that are described in the "RISK FACTORS"
section beginning on page 4 of this prospectus.
__________________
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of our common stock or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
The
date of this prospectus is _______________, 2007
TABLE
OF CONTENTS
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Page
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Prospectus
Summary
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1
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Risk
Factors
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4
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Market
Information
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11
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Management's
Discussion and Analysis or Plan of Operation
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12
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Business
and Properties
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18
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Management
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31
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Security
Ownership of Certain Beneficial Owners and Management
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38
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Selling
Shareholders
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39
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Plan
of Distribution
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41
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Description
of Capital Stock
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42
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Shares
Eligible For Future Sale
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44
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Where
You Can Find More Information
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45
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Legal
Matters
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45
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Experts
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45
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Financial
Statements
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F-1
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About
This Prospectus
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Back
Cover
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Additional
Information
This
prospectus contains descriptions of certain contracts, agreements or other
documents affecting our business. These descriptions are not necessarily
complete. For the complete text of these documents, you can refer to the
exhibits filed with the registration statement of which this prospectus is
a
part. (See
"WHERE
YOU CAN FIND MORE INFORMATION").
You
should rely only on the information contained in this prospectus, or to which
we
have referred you. We have not authorized anyone to provide you with information
other than as contained or referred to in this prospectus. This document
may
only be used where it is legal to sell these securities. The information
in this
document may only be accurate as of the date of this
document.
Special
Note Regarding Forward-Looking Statements
Please
see the note under "RISK FACTORS" for a description of special factors
potentially affecting forward-looking statements included in this
prospectus.
SUMMARY
The
following summary highlights information contained elsewhere
in this
prospectus. It does not contain all of the information you
should consider
before investing in our stock. You should read the entire prospectus
carefully, including the sections entitled “RISK FACTORS” and “FINANCIAL
STATEMENTS.”
As
used in this prospectus, unless the context requires otherwise,
the terms
“Gold Resource,” “we,” “our” or “us” refer to Gold Resource Corporation
and where the context requires, our consolidated
subsidiaries.
Our
Company
We
are an exploration stage company organized in Colorado on August
24, 1998
to search for gold and silver. We currently have an interest
in four
properties located in Mexico. Our exploration efforts are primarily
focused at the site we refer to as the El
Aguila project,
which is comprised of parcels we refer to as the El
Aguila property
and the Las
Margaritas
property. We also have an interest in a prospect known as the
El
Rey property
and we recently acquired an interest in a prospect known as
the
Solaga
property.
In
October 2002, we leased a 100% interest in mineral claims covering
approximately 1,896 hectares (4,685 acres)1
and located in the historic San
Jose de Gracia
mining district in the State of Oaxaca which comprises the
El
Aguila
project. Since acquiring that interest, we have drilled approximately
10,400 meters (34,120 feet) of test holes in one section of
the property
and have encountered gold and silver mineralized material.
We are
continuing our exploration efforts on this property and recently
commenced
additional drilling on a section of the property.
In
2005, we obtained some additional mineral claims in the Mexican
State of
Oaxaca by filing mineral concessions with the Mexican government
for a
prospect which we call the El
Rey property.
In February 2007, we leased a 100% interest in a property we
refer to as
the Solaga
property. We have conducted very limited exploration of this
property to
date.
As
an exploration stage mining company, our activities include,
at various
times and to various degrees, exploration, land acquisition,
geological
evaluation and feasibility studies of properties, and where
warranted,
efforts to develop and construct mining and processing facilities
and to
mine and process gold, silver and other metals and
by-products.
________________
1
Please see the Glossary appearing at the end of the section
titled
"BUSINESS AND PROPERTIES" for a description of certain terms
used in this
prospectus, including conversion of metric units.
|
Our
operations in Mexico are conducted through our wholly-owned Mexican
subsidiaries, Don David Gold, S.A. de C.V. and Golden Trump S.A. de C.V.
All
references to us or our company in this prospectus include our subsidiaries.
Our
principal executive offices are located at 222 Milwaukee Street, Suite
301,
Denver, Colorado 80206, and our telephone number is (303) 320-7708.
Recent
Events
On
August
17, 2006, we closed our initial public offering (“IPO”), from which we received
net proceeds of $4,351,200. These proceeds enabled us to begin the third
stage
of our exploration program at the El
Aguila
project.
In October 2006, we signed a contract for a minimum of 3,333 meters (10,935
feet) of additional core drilling which commenced in November 2006, and
expect
to contract for additional drilling up to a total of 10,000 meters (32,808
feet). In September 2006, our stock began trading on the over the counter
Bulletin Board under the symbol “GORO.”
On
December 7, 2006, we completed a private placement of 4,322,000 shares
of our
common stock for $1.20 per share (“Private Placement”), from which we received
$4,928,700 in net proceeds. In connection with the Private Placement, we
paid
cash of $257,700 and issued 257,700 shares as finders’ fees. See“MANAGEMENT’S
DISCUSSION AND ANALYSIS” for additional information regarding this
offering.
The
Offering
Common
Stock outstanding before the Offering
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28,169,552
shares(1)(2)(3)
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Common
Stock outstanding after the Offering
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28,169,552
shares(1)(2)(3)
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Common
Stock offered by the Selling Shareholders
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7,330,907
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Use
of Proceeds
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We
will not receive any proceeds from the sale of common stock
by the selling
shareholders.
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Stock
Symbol
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“GORO”
on the OTCBB
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___________________________
(1) Adjusted
to reflect a two for one stock split effective February 21, 2005. All references
in this prospectus have been adjusted to reflect the results of that
split.
(2) Excludes
2,550,000 shares of common stock underlying options which are presently
exercisable.
(3) Includes
shares to be offered by the selling
shareholders.
Risk
Factors
An
investment in our common stock is subject to a number of risks. Risk factors
relating to our company include a history of operating losses, lack of
proven or
probable reserves, location of our properties in a foreign country and
dependence on key personnel. Risk factors relating to our common stock
include
our limited trading market, lack of dividends and volatility of our stock
price.
See“RISK
FACTORS” for a full discussion of these and other risks.
Summary
Financial Data
The
following tables present certain selected historical consolidated financial
data
about our company. Historical consolidated financial information as of
and for
the years ended December 31, 2006 and 2005 has been derived from our
consolidated financial statements, which have been audited by Stark Winter
Schenkein & Co., LLP, our independent registered public accounting firm. All
amounts included in these tables and elsewhere in this prospectus are stated
in
United States dollars. You should read the data set forth below in conjunction
with the section entitled "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF
OPERATION," our financial statements and related notes included elsewhere
in
this prospectus.
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Balance Sheet Data
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December
31,
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2006
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2005
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Cash
and Cash Equivalents
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$
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7,660,258
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$
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176,182
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Current
Assets |
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7,866,370
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191,159 |
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Total
Assets
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7,964,118
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246,980
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Current
Liabilities
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451,163
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33,607
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Total
Liabilities
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451,163
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33,607
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Shareholders’
Equity
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7,512,955
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213,373
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Operating Data
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Year
ended
December
31,
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Inception
to
December
31, 2006
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2006
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2005
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Other
Revenue
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$
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57,089
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$
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6,174
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$
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65,048
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General
and Administrative Expenses
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1,470,061
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286,219
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1,899,367
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Stock
Compensation
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626,900
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87,500
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1,214,400
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Property
Acquisition Related Costs
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100,000
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103,548
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458,681
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Exploration
Costs
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528,851
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739,570
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2,311,991
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Net
Comprehensive (Loss)
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(2,667,218
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)
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(1,217,711
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)
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(6,577,186
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)
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Net
(Loss) per Share
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$
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(0.13
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)
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$
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(0.08
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)
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RISK
FACTORS
Investment
in our common stock involves a high degree of risk and could result in a
loss of
your entire investment. Prior to making an investment decision, you should
carefully consider all of the information in this prospectus and, in particular,
you should evaluate the risk factors set forth below. Additional risks and
uncertainties not currently known to us or that we currently deem to be
immaterial may also impair our business operations. If we are unable to prevent
events that have a negative effect from occurring, then our business may
suffer.
Risks
Relating to Our Company
Since
we are a new business with no operating history, investors have no basis to
evaluate our ability to operate profitably. We
were
organized in 1998 but have had no revenue from operations since our inception.
Our activities to date have been limited to organizational efforts, raising
financing, acquiring mining properties and conducting limited exploration.
We
face all of the risks commonly encountered by other new businesses, including
the lack of an established operating history, need for additional capital and
personnel, and intense competition. There is no assurance that our business
plan
will be successful.
We
have no proved or probable reserves and the probability of an individual
prospect having reserves is extremely remote. Therefore, in all likelihood,
our
properties do not contain any reserves, and any funds spent by us on exploration
will probably be lost.
In order
to demonstrate the existence of proved or probable reserves, it will first
be
necessary for us to continue exploration to demonstrate the existence of
sufficient mineralized material followed by a positive feasibility study.
Exploration is inherently risky, with few properties ultimately proving
economically successful. A “reserve,” as defined by regulation of the Securities
and Exchange Commission (“SEC”), is that part of a mineral deposit which could
be economically and legally extracted or produced at the time of the reserve
determination.
A
reserve
requires a feasibility study demonstrating with reasonable certainty that
the
deposit can be economically extracted and produced. We have not carried out
any
feasibility study with regard to all or a portion of any of our properties.
Statistically, most mineral prospects do not contain reserves which can be
economically extracted. For this reason, it is unlikely that our properties
contain any reserves. The funds we have spent on exploration, as well as
funds
which we might spend in the future, will probably be lost.
We
have incurred substantial losses since our inception in 1998 and may never
be
profitable.
Since
our inception in 1998, we have not been profitable. As of December 31, 2006,
our
accumulated deficit was approximately $(6,597,000). To become profitable,
we
must identify mineralization and establish reserves at our mining property,
and
then either develop our property or locate and enter into agreements with
third
party operators. It could be years before we receive any revenues from gold
production, if ever. We may suffer significant additional losses in the future
and may never be profitable. We do not expect to receive revenue from operations
in the foreseeable future, if at all. Even if we do achieve profitability,
we
may not be able to sustain or increase profitability on a quarterly or annual
basis.
We
are dependent upon receipt of additional working capital to fund our business
plan. We
may
require additional capital for exploration of one or both of our existing
properties, or acquisition of additional properties. If our exploration program
proves successful, we will require significant additional capital to fund
development of the El
Aguila
project
and to construct a mill in order to place it into production. In addition,
we
will require additional working capital to fund operations pending sale of
any
gold or other precious metals.
At
the present time, we are totally dependent upon production of gold or other
precious metals from two properties, raising the risk if either or both of
those
properties should prove unproductive.
Since we
have never produced gold or other precious metals from either of our properties,
and since we have no proved or probable reserves, there is no assurance that
gold or other precious metals can be economically produced under existing and
future costs and expenses. If we are unable to economically produce gold from
either or both of these properties, we would be forced to identify and invest
substantial sums in one or more additional properties, and there is no assurance
that such properties would be available on terms favorable to us.
Our
properties are located in Mexico and are subject to changes in political
conditions and regulations in that country. Our
existing properties are located in Mexico. In the past, Mexico has been subject
to political instability, changes and uncertainties which may cause changes
to
existing government regulations affecting mineral exploration and mining
activities. Civil or political unrest could disrupt our operations at any time.
Our mineral exploration and mining activities in Mexico may be adversely
affected in varying degrees by changing governmental regulations relating to
the
mining industry or shifts in political conditions that increase the costs
related to our activities or maintaining our properties. Finally, Mexico's
status as a developing country may make it more difficult for us to obtain
required financing for our project.
Our
ability to continue exploration and extract any minerals that we discover
is
subject to payment of concession fees and if we fail to make these payments,
we
may lose our interest in the properties.
Mining
concessions in Mexico are subject to payment of concession fees to the federal
government or lease payments to the owner of the concessions. The payments
are
based on the size of the property we are exploring. Our failure or inability
to
pay the concession fees to the government may cause us to lose our interest
in
one or both of our properties.
Our
primary exploration target is subject to a lease in favor of a third party
which
provides for royalties on production.
We lease
our El
Aguila
property
from a third party. Our
lease
for the El
Aguila
project
is subject to a net smelter return royalty of 4% where production is sold
in
the
form of
gold/silver doré and 5% where production is sold in concentrate form. The
requirement to pay royalties to the owner of the lease at our El Aguila property
will reduce our profitability if we commence commercial production of gold
or
other precious
metals.
Our
ability to develop our property, even if warranted by exploration results,
is
subject to the rights of the Ejido (local inhabitants) to surface use for
agricultural purposes. If
we are
successful in discovering sufficient amounts of mineralized material to warrant
production, our ability to mine minerals is subject to making satisfactory
arrangements with the Ejido
for
access and surface disturbances. Ejidos
are
groups of local inhabitants who were granted rights to conduct agricultural
activities on the property. We must negotiate a satisfactory arrangement with
these inhabitants in order to disturb or discontinue their rights to farm.
Our
inability to successfully negotiate such agreements could impair or impede
our
ability to successfully mine the properties.
The
volatility of the price of gold could adversely affect our future operations
and, if warranted, our ability to develop our properties.
The
commercial feasibility of our properties and our ability to raise funding to
conduct continued exploration and development if warranted, is dependent on
the
price of gold and other precious metals. The price of gold may also have a
significant influence on the market price of our common stock and the value
of
our properties. Our decision to put a mine into production and to commit the
funds necessary for that purpose must be made long before the first revenue
from
production would be received. A decrease in the price of gold may prevent our
property from being economically mined or result in the write-off of assets
whose value is impaired as a result of lower gold prices. The price of gold
is
affected by numerous factors beyond our control, including inflation,
fluctuation of the United States Dollar and foreign currencies, global and
regional demand, the sale of gold by central banks, and the political and
economic conditions of major gold producing countries throughout the world.
During the last five years, the average annual market price of gold has
fluctuated between $310 per ounce and $604 per ounce, as shown in the table
below. Although it is possible for us to protect some price fluctuations by
hedging in certain circumstances, the volatility of mineral prices represents
a
substantial risk, which no amount of planning or technical expertise can
eliminate.
2002
|
2003
|
2004
|
2005
|
2006
|
$310
|
$364
|
$406
|
$445
|
$
604
|
Competition
in the mining industry is intense, and we have limited financial and personnel
resources with which to compete.
Competition in the mining industry for desirable properties, investment capital
and personnel is intense. Numerous companies headquartered in the United States,
Canada and elsewhere throughout the world compete for properties on a global
basis. We are an insignificant participant in the gold mining industry due
to
our limited financial and personnel resources. We may be unable to attract
the
necessary investment capital to fully explore and if warranted, develop our
properties and unable to acquire other desirable properties.
An
adequate supply of water may not be available to complete desired development
of
our property.
If we
make a discovery sufficient to warrant putting our property into production,
we
will require additional amounts of water for our operations. We would be
required to pump water from the Totolapan River to any facility we may construct
on our property. Water rights are owned by the Mexican nation and are
administered by a Mexican government agency. This agency has granted water
concessions to private parties throughout the area defined as the Oaxaca
Hydrologic Basin, however there is no assurance that we will be granted such
concessions. Accordingly, we may not have access to the amount of water needed
to operate a mine at the property.
Since
most of our expenses are paid in Mexican pesos, and we anticipate selling any
production from our properties in United States dollars, we are subject to
adverse changes in currency values that will be difficult to prevent.
Our
operations in the future could be affected by changes in the value of the
Mexican peso against the United States dollar. At the present time, since we
have no production, we have no plans or policies to utilize forward sales
contracts or currency options to minimize this exposure. If and when these
measures are implemented, there is no assurance they will be cost effective
or
be able to fully offset the effect of any currency
fluctuations.
Our
activities in Mexico are subject to significant environmental regulations,
which
could raise the cost of doing business.
Mining
operations are subject to environmental regulation by SEMARNAT, the
environmental protection agency of Mexico. Regulations require that an
environmental impact statement, known in Mexico as a Manifiestacion
de Impacto Ambiental,
be
prepared by a third party contractor for submission to SEMARNAT. Studies
required to support this impact statement include a detailed analysis of many
subject areas, including soil, water, vegetation, wildlife, cultural resources
and socio-economic impacts. We may also be required to submit proof of local
community support for a project to obtain final approval. Significant
environmental legislation exists in Mexico, including fines and penalties for
spills, release of emissions into the air, seepage and other environmental
damage.
The
nature of mineral exploration and production activities involves a high degree
of risk and the possibility of uninsured losses. Exploration
for minerals is highly speculative and involves greater risk than many other
businesses. Our operations are subject to all of the operating hazards and
risks
normally incident to exploring for mineral properties, such as, but not limited
to:
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•
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encountering
unusual or unexpected formations;
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•
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environmental
pollution;
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•
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personal
injury, flooding and landslides;
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•
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variations
in grades of ore;
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•
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labor
disputes; and
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•
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decrease
in reserves due to a lower gold
price.
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We
currently have no insurance to guard against any of these risks. If we determine
that capitalized costs associated with any of our mineral interests are not
likely to be recovered, we would incur a writedown on our investment in such
property interest. All of these factors may result in losses in relation to
amounts spent which are not recoverable.
We
depend upon a limited number of personnel and the loss of any of these
individuals could adversely affect our business.
If any
of our current employees or our principal consultant in Mexico were to die,
become disabled or leave the company, we would be forced to identify and
retain
individuals to replace them. Messrs. William, David and Jason Reid are our
only
employees at this time. Jose Perez Reynoso is our consultant in Mexico who
oversees our properties and operations. There is no assurance that we can
find
suitable individuals to replace them or to add to our employee base if that
becomes necessary. We are entirely dependent on these individuals as our
only
personnel at this time. We have no life insurance on any individual at this
time, and we may be unable to hire a suitable replacement for them on favorable
terms, should that become necessary.
In
the event of a dispute regarding title to our property or any facet of our
operations, it will likely be necessary for us to resolve the dispute in Mexico,
where we would be faced with unfamiliar laws and procedures.
The
resolution of disputes in foreign countries can be costly and time consuming,
similar to the situation in the United States. However, in a foreign country,
we
face the additional burden of understanding unfamiliar laws and procedures.
We
may not be entitled to a jury trial, as we might be in the United States.
Further, to litigate in any foreign country, we would be faced with the
necessity of hiring lawyers and other professionals who are familiar with the
foreign laws. For these reasons, we may incur unforeseen losses if we are forced
to resolve a dispute in Mexico or any other foreign country.
While
we believe we have adequate internal controls over financial reporting, we
will
be required to evaluate our internal controls under Section 404 of the
Sarbanes-Oxley Act of 2002 and any adverse results from such evaluation could
result in a loss of investor confidence in our financial reports and have
a
material adverse effect on the price of our common stock.
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, we expect that we will
be
required to furnish a report by our management on internal controls for the
fiscal year ending December 2007. Such a report must contain, among other
matters, an assessment of the effectiveness of our internal controls over
financial reporting, including a statement as to whether or not our internal
controls are effective. This assessment must include disclosure of any material
weaknesses in our internal controls over financial reporting identified by
our
management. Such a report must also contain a statement that our auditors
have
issued an attestation report on our management’s assessment of such internal
controls. While we believe our internal controls over financial reporting
are
effective, we are still constructing the system, processing documentation
and
performing the evaluations needed to comply with Section 404, which is both
costly and challenging. We may not be able to complete our evaluation, testing
and any required remediation in a timely fashion. If we are unable to assert
that our internal controls over financial reporting are effective, or if
we
disclose significant deficiencies or material weaknesses in our internal
controls, investors could lose confidence in the accuracy and completeness
of
our financial reports, which would have a material adverse effect on our
stock
price.
The
laws of the State of Colorado and our Articles of Incorporation may protect
our
directors from certain types of lawsuits. The
laws
of the State of Colorado provide that our directors will not be liable to
us or
our shareholders for monetary damages for all but certain types of conduct
as
directors of the company. Our Articles of Incorporation permit us to indemnify
our directors and officers against all damages incurred in connection with
our
business to the fullest extent provided or allowed by law. The exculpation
provisions may have the effect of preventing shareholders from recovering
damages against our directors caused by their negligence, poor judgment or
other
circumstances. The indemnification provisions may require us to use our limited
assets to defend our directors and officers against claims, including claims
arising out of their negligence, poor judgment, or other circumstances.
(See
“MANAGEMENT-Indemnification
and Limitation on Liability of Directors”).
Risks
Related to Our Common Stock
The
sale of a substantial number of shares of our common stock may cause the
price
of our common stock to decline.
In
addition to the approximately 7,330,907 shares of common stock that may be
offered by the selling shareholders from time to time under this prospectus,
we
filed a registration statement with the SEC that was declared effective on
February 2, 2007 to qualify the resale of 5,859,700 shares of common stock
from
time to time and completed our IPO last year during which we sold 4,600,000
shares. It is likely that market sales of large amounts of common stock (or
the
potential for those sales even if they do not actually occur) may cause the
market price of our common stock to decline, which may make it difficult
to sell
our common stock in the future at a time and price which we deem reasonable
or
appropriate and may also cause you to lose all or a part of your investment.
Since
there is presently a limited trading market for our common stock, purchasers
of
our common stock may have difficulty selling their shares, should they desire
to
do so.
Due to
a number of factors, including the lack of listing of our common stock on
a
national securities exchange, the trading volume in our common stock is limited.
Since we were approved for trading on the OTCBB on September 14, 2006, our
trading volume has averaged approximately 100,000 shares per day. As a result,
the sale of a significant amount of common stock by the selling shareholders
may
depress the price of our common stock and you may lose all or a portion of
your
investment.
A
small number of existing shareholders own a significant amount of our common
stock, which could limit your ability to influence the outcome of any
shareholder vote. Our
executive officers and directors beneficially own approximately 31.0% of
our
common stock as of the date of this prospectus. Under our Articles of
Incorporation and Colorado law, the vote of a majority of the shares outstanding
is generally required to approve most shareholder action. As a result, these
individuals will be able to influence the outcome of shareholder votes for
the
foreseeable future, including votes concerning the election of directors,
amendments to our Articles of Incorporation or proposed mergers or other
significant corporate transactions. We have no existing agreements or plans
for
mergers or other corporate transactions that would require a shareholder
vote at
this time. However, shareholders should be aware that they may have limited
ability to influence the outcome of any vote in the future. (See
“SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT”).
Since
our common stock is not presently listed on a national securities exchange,
trading in our shares will likely be subject to rules governing "penny stocks,"
which will impair trading activity in our shares. Our
common stock may be subject to rules adopted by the SEC regulating broker-dealer
practices in connection with transactions in penny stocks. Those disclosure
rules applicable to penny stocks require a broker-dealer, prior to a transaction
in a penny stock not otherwise exempt from the rules, to deliver a standardized
disclosure document required by the SEC. These rules also require a cooling
off
period before the transaction can be finalized. These requirements may have
the
effect of reducing the level of trading activity in any secondary market
for our
common stock. Many brokers may be unwilling to engage in transactions in
our
common stock because of the added disclosure requirements, thereby making
it
more difficult for stockholders to dispose of their shares. (See
"MARKET
INFORMATION").
Our
stock price may be volatile and as a result you could lose all or part of your
investment.
In
addition to volatility associated with over the counter securities in general,
the value of your investment could decline due to the impact of any of the
following factors upon the market price of our common stock:
·
|
Changes
in the worldwide price for gold;
|
·
|
Disappointing
results from our exploration efforts;
|
·
|
Failure
to meet our revenue or profit goals or operating
budget;
|
·
|
Decline
in demand for our common stock;
|
·
|
Downward
revisions in securities analysts' estimates or changes in general
market
conditions;
|
·
|
Technological
innovations by competitors or in competing
technologies;
|
·
|
Investor
perception of our industry or our prospects; and
|
·
|
General
economic trends.
|
In
addition, stock markets have experienced extreme price and volume fluctuations
and the market prices of securities have been highly volatile. These
fluctuations are often unrelated to operating performance and may adversely
affect the market price of our common stock. As a result, investors may be
unable to resell their shares at a fair price.
Issuances
of our stock in the future could dilute existing shareholders and adversely
affect the market price of our common stock.
We have
the authority to issue up to 60,000,000 shares of common stock, 5,000,000
shares
of preferred stock, and to issue options and warrants to purchase shares
of our
common stock without stockholder approval. Because our common stock is not
currently quoted in Nasdaq or listed on an exchange, we are not required
to
solicit shareholder approval prior to issuing large blocks of our stock.
These
future issuances could be at values substantially below the price paid for
our
common stock by our current shareholders. In addition, we could issue large
blocks of our common stock to fend off unwanted tender offers or hostile
takeovers without further stockholder approval. Because we believe that trading
in our common stock will initially be limited, the issuance of our stock
may
have a disproportionately large impact on its price compared to larger
companies.
We
have never paid dividends on our common stock and we do not anticipate paying
any in the foreseeable future.
We have
not paid dividends on our common stock to date, and we may not be in a position
to pay dividends for the foreseeable future. Our ability to pay dividends
will
depend on our ability to successfully develop one or more properties and
generate revenue from operations. Further, our initial earnings, if any,
will
likely be retained to finance our operations. Any future dividends will depend
upon our earnings, our then-existing financial requirements and other factors,
and will be at the discretion of our Board of Directors.
Forward-Looking
Statements
This
prospectus contains or incorporates by reference forward-looking statements
within the meaning of the United States Private Securities Litigation Reform
Act
of 1995 concerning our future business plans and strategies, the proposed
exploration and development of our property, the receipt of working capital,
future revenues and other statements that are not historical in nature. In
this
prospectus, forward-looking statements are often identified by the words
“anticipate,” “plan,” “believe,” “expect,” “estimate,” and the like. These
forward-looking statements reflect our current beliefs, expectations and
opinions with respect to future events, and involve future risks and
uncertainties which could cause actual results to differ materially from
those
expressed or implied.
In
addition to the specific factors identified under “RISK FACTORS” above, other
uncertainties that could affect the accuracy of forward-looking statements
include:
• decisions
of foreign countries and banks within those countries;
• technological
changes in the mining industry;
• our
costs;
• the
level
of demand for our products;
• changes
in our business strategy;
• interpretation
of drill hole results and the geology, grade and continuity of
mineralization;
• the
uncertainty of reserve estimates and timing of development expenditures;
and
• commodity
price fluctuations.
This
list, together with the factors identified under “RISK FACTORS,” is not
exhaustive of the factors that may affect any of our forward-looking statements.
You should read this prospectus completely and with the understanding that
our
actual future results may be materially different from what we expect. These
forward-looking statements represent our beliefs, expectations and opinions
only
as of the date of this prospectus. We do not intend to update these forward
looking statements except as required by law. We qualify all of our
forward-looking statements by these cautionary statements.
Prospective
investors are urged not to put undue reliance on forward-looking
statements.
Effective
September 14, 2006, our common stock began trading over the counter and is
quoted on the OTCBB under the symbol “GORO.” The table below sets forth the high
and low bid prices for our common stock as reflected on the OTCBB as reported
by
the Nasdaq Stock Market, Inc. for the period commencing September 14, 2006
to
date. Quotations represent prices between dealers, do not include retail
markups, markdowns or commissions, and do not necessarily represent prices
at
which actual transactions were effected.
Year Ending
|
|
High
|
|
Low
|
|
December
31, 2007
|
|
|
|
|
|
First
Quarter (to March 31, 2007)
|
|
$
|
3.97
|
|
$
|
1.30
|
|
Second
Quarter (to April 9, 2007)
|
|
|
3.20
|
|
|
2.96
|
|
|
|
|
|
|
|
|
|
December
31, 2006
|
|
|
|
|
|
|
|
Third
Quarter (commencing September 14)
|
|
$
|
1.15
|
|
$
|
0.90
|
|
Fourth
Quarter
|
|
|
1.90
|
|
|
1.00
|
|
On
April
9, 2007 the high and low sales prices of our common stock on the OTCBB were
$3.06 and $3.00, respectively, and we had approximately 90 holders of record
of
our common stock.
Penny
Stock Rules
Due
to
the price of our common stock, as well as the fact that we are not listed
on
Nasdaq or a national securities exchange, our stock is characterized as "penny
stock" under applicable securities regulations. Our stock will therefore
be
subject to rules adopted by the SEC regulating broker-dealer practices in
connection with transactions in penny stocks. The broker or dealer proposing
to
effect a transaction in a penny stock must furnish his customer a document
containing information prescribed by the SEC and obtain from the customer
an
executed acknowledgment of receipt of that document. The broker or dealer
must
also provide the customer with pricing information regarding the security
prior
to the transaction and with the written confirmation of the transaction.
The
broker or dealer must also disclose the aggregate amount of any compensation
received or receivable by him in connection with such transaction prior to
consummating the transaction and with the written confirmation of the trade.
The
broker or dealer must also send an account statement to each customer for
which
he has executed a transaction in a penny stock each month in which such security
is held for the customer's account. The existence of these rules may have
an
effect on the price of our stock, and the willingness of certain brokers
to
effect transactions in our stock.
Dividend
Policy
We
have
never declared or paid dividends on our common stock. Payment of future
dividends, if any, will be at the discretion of our Board of Directors after
taking into account various factors, including the terms of any credit
arrangements, our financial condition, operating results, current and
anticipated cash needs and plans for expansion. At the present time, we are
not
party to any agreement that would limit our ability to pay dividends.
OR
PLAN OF OPERATION
Introduction
The
following discussion updates our plan of operation for the foreseeable future.
Additional information about our exploration plans can be found in the section
titled “BUSINESS AND PROPERTIES.”
This
discussion also analyzes our financial condition at December 31, 2006 and
compares it to our financial condition at December 31, 2005. This
discussion summarizes the results of our operations for the year ended December
31, 2006 and compares those results to the year ended December 31, 2005.
On
February 21, 2005, we effected a two-for-one split of our outstanding common
stock. All of the financial information included in this discussion and in
the
financial statements appearing in this prospectus has been adjusted to reflect
the results of that stock split.
In
August
2006, we closed our IPO, from which we received net proceeds of $4,351,200
and
in December 2006, we completed the Private Placement of our common stock
for net
proceeds of $4,928,700. We expect to use $4,000,000 of the proceeds from
the
offerings for exploration purposes. In October 2006, we contracted with
Servicios de Perforacion Insemin S.A. de C.V., a Mexican subsidiary of R&R
Incorporated and commenced the third stage of our drilling program at the
El
Aguila project.
We believe the program will ultimately cover 10,000 meters (32,808 feet)
of core
drilling. We will be testing geological targets including areas which we
believe
have yielded favorable results during a recent geochemical survey. This drilling
program is expected to be complete in May 2007.
On
December 7, 2006, we completed a Private Placement of 4,322,000 shares of
our
common stock for $1.20 per share, from which we received net cash proceeds
of
$4,928,700. The shares were issued to United States holders pursuant to an
exemption from registration under Section 4(2) and to offshore holders in
accordance with Regulation S of the Securities Act. In connection with the
Private Placement, we issued 257,700 shares of our common stock and paid
a total
of $257,700 in cash to the finders.
Plan
of Operation
Our
plan
of operation is to continue exploration of the El
Aguila
project
until we discover sufficient mineralization to justify placing the property
into
production or alternatively, determine to abandon the lease. We also intend
to
undertake exploration of the El
Rey
property, a property that is in an earlier stage of exploration. In 2007,
we
leased a 100% interest in property we refer to as the Solaga
property. Our ultimate objective is to become a producer of gold and other
precious metals. We are unable at this time to predict when, if ever, that
objective will be achieved.
Exploration.
Exploration carried out by us to date at the El
Aguila
project
has included 143 drill holes totaling approximately 10,400 meters (34,120
feet).
The results so far suggest the presence of mineralized material in sufficient
grade and quantity to justify continued exploration.
Exploration
at the El
Aguila
project
will continue to be the central focus of our activities for the foreseeable
future. We have budgeted $3,000,000 of the public offering proceeds and
$1,000,000 from the Private Placement proceeds for continued exploration
of the
El
Aguila
project.
We completed a geochemical survey of a portion of the property and expect
to
conduct additional geological studies in the future. In response to what
we
perceived as positive results from the geochemical survey, we signed a drilling
contract in October 2006 for a minimum of 3,333 meters (10,935 feet) of
additional core drilling. We have the option to expand the drilling up to
10,000
meters (32,808 feet). This contract represents a minimum financial commitment
of
$300,000 and a maximum financial commitment of $1,000,000 over the term of
the
agreement. There are numerous exploration targets that will now be tested
with
the objective of delineating and expanding the previously identified
mineralization. Some new targets were developed and some old targets were
amplified by the recent geochemical survey.
We
believe our exploration results have been positive enough to warrant conducting
a feasibility study for the mineralization we have identified. This study
is
designed to determine the economic feasibility of placing the property into
production and producing gold and silver. It would analyze the estimated
quantity and quality of the mineralization discovered during the exploration
stage, present estimates of the cost of mining and processing the material
and
compares the estimated sales price of the finished product. We expect that
this
study would be conducted by one or more independent engineering firms on
our
behalf, for which we estimate a cost of approximately $1,000,000. Proceeds
from
the Private Placement will likely fund this feasibility study. If the results
of
the feasibility study are positive, and assuming the availability of necessary
capital, a decision will be made to place the property into production. The
timing of any production would be primarily a function of the timing of
acceptable exploration results, the availability of working capital and the
timing of required regulatory permits.
In
addition to our efforts at the El
Aguila
project,
we will begin limited exploration at our El
Rey
property. The program will be staged, whereby limited funds will be initially
spent to evaluate the property with increasing amounts spent if the results
are
positive.
Capital
Investment.
In
addition to expenses of exploration, we also anticipate making infrastructure
improvements at the El
Aguila
project.
Foremost among these expenses would be the construction of an improved road
to
the proposed mill site and camp improvements. We estimate costs of approximately
$1,000,000 to complete these improvements, and we would likely attempt to
acquire the surface rights to our property prior to making capital improvements.
We currently do not have any agreements in place regarding acquisition of
the
surface rights of either property and do not know when, if ever, such
arrangement will be made available to us.
If
a
decision is made to commence mining, we would incur significant capital costs
in
constructing a mill and acquiring necessary equipment. At present, our cash
position is not sufficient to fund these capital requirements and we would
anticipate obtaining such funding through additional equity financing, although
we have no specific plans at this time. Only after a mine and a mill are
constructed and operational could we expect any revenue.
Corporate
Overhead.
Included in our plan of operation are the expenses of overseeing our business
and paying other general and administrative expenses. These expenses primarily
include salaries and consulting fees, rent, travel and professional fees.
We
currently estimate these expenses at $90,000 per month based on existing
commitments and expectations. We expect these expenses will be paid from
our
cash position and future equity offerings, if necessary, until such time,
if
ever, we are successful in placing one or more of our properties in production.
Liquidity
and Capital Resources
As
discussed in the Introduction, we completed two sales of common stock during
2006. Cash proceeds from these sales significantly improved our liquidity
and
financial position. We received cash from financing activities of $9,339,900
during 2006, compared to $1,407,500 during 2005. As a result, our working
capital position at December 31, 2006 was $7,415,207. This represents an
improvement of $7,257,655 when compared to our working capital balance of
$157,552 as of December 31, 2005.
We
expect
that the proceeds from the financing activities will be used to fund our
exploration and operating expenses. At present, we have allocated approximately
$4,000,000 to future exploration. We do not anticipate the need to raise
more
funding in the next 12 months unless a decision is made to commence mining
operations. The most significant of our future operating expenses include
(i)
the amount of $4,000,000 in connection with our current exploration program;
(ii) approximately $90,000 per month for salaries and other corporate overhead;
and (iii) legal and accounting fees associated with our status as a publicly
traded company.
We
have
never received revenue from our operations. We have historically relied on
equity financings or loans from our officers to continue funding our operations.
We experienced net losses for the years ended December 31, 2006 and 2005
of
$(2,686,762) and $(1,217,911), respectively. We do not believe that we are
a
candidate for conventional debt financing and we have not made arrangements
to
borrow funds for working capital requirements. We will be dependent on
additional financing to expand our exploration efforts beyond current plans
and
to fund construction of gold processing facilities.
Due
to
our lack of proved or probable reserves at this time, all of our investment
in
mining properties has been expensed, and does not appear as an asset on our
balance sheet. Since inception, our spending on acquisition, exploration
and
evaluation of various mineral properties has totaled $2,770,662. The total
amount of expenses incurred during 2006 was $628,851, compared to $843,118
in
2005. Substantially all of our expenses in 2006 and 2005 were spent on the
El
Aguila
project.
As
of
December 31, 2006, our working capital of $7,415,207 was comprised of current
assets of $7,866,370 and current liabilities of $451,163. Our current assets
consist primarily of cash which is deposited in short term interest bearing
accounts. Current assets also include a refund of value added taxes that
have
been paid in Mexico.
Net
cash
used in operating activities was $1,795,858 during 2006, compared to $1,179,278
during 2005. As more fully explained in our plan of operation, we are using
the
proceeds from our equity financings to increase our exploration and corporate
efforts and we expect that our future expenditures will increase commensurate
with the increase in exploration of the El
Aguila
property.
Net
cash
used in investing activities was $59,966 in 2006 compared to $61,600 in 2005.
Consistent with our operating activity, we increased our purchases of office
furniture, computer equipment, trucks and other exploration equipment.
Net
cash
provided by financing activities was $9,339,900 in 2006 compared to $1,407,500
in 2005. In both years, all of the activities represent proceeds from the
sale
of common stock and the exercise of stock options.
Results
of Operations - Year Ended December 31, 2006 Compared to Year Ended December
31,
2005
During
the year ended December 31, 2006, we reported a net loss of $(2,686,762),
or
$(0.13) per share, compared to a net loss of $(1,217,911), or $(0.08) per
share,
for 2005. In neither year did we report any revenue except interest income.
We
expect to incur losses until such time, if ever, as we begin generating revenue
from operations.
We
are
considered an exploration stage company for accounting purposes, since we
have
not received any revenue from operations. We are unable to predict with any
degree of accuracy when that classification will change. Since we have not
identified any proved or probable mineral reserves on our property, all of
our
exploration costs are currently expensed, contributing to our reported losses
in
2006 and 2005.
Total
costs and expenses were $2,743,851 in 2006 compared to $1,224,085 in 2005,
an
increase of $1,519,766 or 124%. Mineral property acquisition costs approximated
$100,000 in each year. Mineral property exploration and evaluation costs
decreased by $210,719, from $739,570 in 2005 to $528,851 in 2006. We decreased
our rate of spending during the first half of 2006 pending completion of
our
initial public offering. During the latter part of 2006, we began to increase
our exploration spending and committed to an exploratory drilling contract
for
$300,000, with options to expand drilling up to $1,000,000. We expect to
further
increase exploration costs in 2007.
General
and administrative expense increased in 2006 compared to 2005. Total general
and
administrative expense was $1,470,061 in 2006 and $286,219 in 2005, an increase
of $1,183,842, or 414%. The main components of the increase were salaries
and
benefits, an increase of $710,056 from $140,434 to $850,490. The increase
reflects the impact of the employment contracts with our corporate officers
that
went into effect on January 1, 2006, and the impact of additional personnel.
Our
legal and accounting expense increased $132,609, from $73,856 to $206,465,
primarily representing the work required to prepare and audit our financial
information for investors and to prepare the registration statements required
to
sell our common stock. Similarly, investor relations expenses increased from
$11,038 to $130,583 as we disseminated information to potential investors.
Travel expenses increased from $22,393 to $103,241. Some of the increase
represents meetings with potential investors in the United States, Canada
and
Europe, and the remainder represents increased travel to the mineral property
in
Mexico.
Our
stock
compensation expense increased by $392,350, from $87,500 in 2005 to $479,850
in
2006. We issued 100,000 restricted shares of common stock valued at $1.00
per
share to a director as partial compensation for his service to the Board
of
Directors. We issued 35,000 shares of common stock valued at $1.71 to two
employees for their services. We issued 250,000 restricted shares of common
stock valued at $1.10 to a firm that provided investor relation services
and we
issued 30,000 shares of restricted common stock valued at $1.45 to a consultant
who provided investor relation services.
Effective
January 1, 2006, we implemented Statement of Financial Accounting Standards
(“SFAS”) No. 123(R), “Accounting for Stock-Based Compensation,” which requires
us to record an expense for the grant of stock options. We granted stock
options
to purchase 1,200,000 shares of common stock, of which 1,150,000 vested in
2006,
at an exercise price of $1.00 per share. We used an option pricing model
to
value these options at $147,050 and recorded an expense of $147,050 during
2006. There were no options granted during 2005.
Interest
income increased to $57,089 in 2006 compared to $6,174 in 2005, an increase
of
$50,915, or 825%. Proceeds from our 2006 financing have been deposited in
short
term interest bearing accounts. Monthly interest earnings from invested cash
is
expected to decline in future months as we utilize the cash balances for
operating and exploration activities.
Critical
Accounting Policies
We
believe the following more critical accounting policies are used in the
preparation of our consolidated financial statements:
Exploration
and Development Costs.
Mineral
property acquisition, exploration and related costs are expensed as incurred
unless proven and probable reserves exist and the property is a commercially
mineable property. If it is determined that a mineral property can be
economically developed, the costs incurred to develop such property, including
costs to further delineate the ore body and develop the property for production,
may be capitalized. In addition, we may capitalize previously expensed
acquisition and exploration costs if it is later determined that the property
can economically be developed. Interest costs, if any, allocable to the cost
of
developing mining properties and constructing new facilities would be
capitalized until operations commence. Mine development costs incurred either
to
develop new ore deposits, expand the capacity of operating mines, or to develop
mine areas substantially in advance of current production would also be
capitalized.
All
such
capitalized costs, and estimated future development costs, if any, are then
amortized using the units-of-production method over the estimated life of
the
ore body. Costs incurred to maintain current production or to maintain assets
on
a standby basis are charged to operations. Costs of abandoned projects are
charged to operations upon abandonment. We evaluate, at least quarterly,
the
carrying value of capitalized mining costs and related property, plant and
equipment costs, if any, to determine if these costs are in excess of their
net
realizable value and if a permanent impairment needs to be recorded. The
periodic evaluation of carrying value of capitalized costs and any related
property, plant and equipment costs are based upon expected future cash flows
and/or estimated salvage value in accordance with SFAS No. 144, "Accounting
for
Impairment or Disposal of Long-Lived Assets."
Property
Retirement Obligation.
We
implemented SFAS No. 143, "Accounting for Asset Retirement Obligations,"
effective January 1, 2003. SFAS No. 143 requires the fair value of a liability
for an asset retirement obligation to be recognized in the period that it
is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of
the
long-lived asset. We have determined that we have no property retirement
obligations as of December 31, 2006.
Stock
Compensation. Effective
January 1, 2006, we implemented SFAS No. 123(R), “Accounting for Stock-Based
Compensation,” which requires us to provide compensation costs for our stock
option plans determined in accordance with the fair value based method
prescribed in SFAS No. 123(R). We estimate the fair value of each stock option
at the grant date by using the Black-Scholes option-pricing model and provides
for expense recognition over the service period, if any, of the stock
option.
Prior
to
January 1, 2006, we applied APB Opinion 25, “Accounting for Stock Issued to
Employees,” and related interpretations in accounting for all stock option
plans. Under APB Opinion 25, no compensation cost was recognized for stock
options issued to employees as the exercise price of the stock options we
granted equaled or exceeded the market price of the underlying common stock
on
the date of grant.
Foreign
Operations.
Our
present activities are in Mexico. As with all types of international business
operations, currency fluctuations, exchange controls, restrictions on foreign
investment, changes to tax regimes, political action and political instability
could impair the value of our company's investments.
Foreign
Currency Translation.
The
local currency is the functional currency for our subsidiaries. Assets and
liabilities are translated using the exchange rate in effect at the balance
sheet date. Income and expenses are translated at the average exchange rate
for
the year. Translation adjustments are reported as a separate component of
stockholders' equity.
Estimates.
The
preparation of our consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires us to make estimates and assumptions that affect the amount of assets
and liabilities, the disclosure of contingent assets and liabilities at the
date
of the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Recent
Accounting Pronouncements
The
FASB
has issued FSP EITF 00-19-2. This FSP states that the contingent obligation
to
make future payments or other transfers of consideration under a registration
payment arrangement, issued as a separate agreement or included as a part
of a
financial instrument or other agreement, should be separately recognized
and
measured in accordance with SFAS No. 5. Also, a financial instrument subject
to
a registration payment arrangement should be accounted for in accordance
with
other applicable GAAP without regard to the contingent obligation to transfer
consideration pursuant to the registration payment arrangement. This FSP
was
adopted on October 1, 2006.
In
September 2006, the FASB issued Statement No. 157, “Fair Value
Measurements” (SFAS
No.
157). SFAS No. 157 defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles, and expands disclosures
about fair value measurements. The provisions of SFAS No. 157 are effective
for
our fiscal year beginning January 1, 2008. We are currently determining the
effect of this statement on our financial reporting.
In
June
2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes” (FIN 48). This interpretation prescribes a recognition threshold
and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return.
FIN
48 requires that we recognize in our financial statements the impact of a
tax
position if that position is more likely that not of being sustained upon
examination based on the technical merits of the position. This interpretation
also includes guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. The provisions
of FIN
48 are effective January 1, 2007 with the cumulative effect reported as an
adjustment to the opening balance of retained earnings for the fiscal year.
We
are currently determining the effect of this interpretation on our financial
reporting.
Our
History
We
were
organized under the laws of the State of Colorado in 1998 to engage in the
exploration of mining properties. From inception to 2000, we were essentially
dormant. In July 2000, we entered into a management agreement with US Gold
Corporation, an entity engaged in the exploration and mining business, with
shares listed on the American Stock Exchange. At that time, our officers,
directors and principal shareholders were also officers and directors of
US
Gold. The arrangement with US Gold was designed to supplement the management
services available to us while allowing that entity to participate in our
business as an equity owner. We issued US Gold a total of 2,560,000 shares
for
services rendered under the original management agreement through December
31,
2001.
Effective
January 1, 2002, the management agreement was amended to provide for cash
compensation to US Gold. As amended, the agreement provided us the following
services from US Gold:
• Executive
management, in the form of services provided by executive officers of US Gold,
including William Reid, David Reid and William Pass;
• Office
services, in the form of non-exclusive access to office facilities and
equipment;
• Consulting
services, in the form of advice regarding potential agreements with third
parties and the preparation of draft agreements on behalf of our Company;
• Financial
consulting, in the form of advice regarding potential contacts for financing
and
structure of that financing; and
• Other
administrative services.
We
agreed
to pay US Gold a monthly fee of $30,000 during the term of that agreement.
Prior
to termination of that agreement on December 31, 2002, we became indebted to
US
Gold in the amount of $330,000. In 2005, we satisfied the remaining obligation
of $330,000 by paying US Gold $10,000 in cash and issuing 1,280,000 shares
of
our common stock, valued at a fair market value of $0.25 per share.
In
July
2005, in connection with a change in control of US Gold, the employment
agreements of Messrs. William Reid, David Reid and William Pass with that entity
were terminated. In partial payment for the obligations of US Gold under those
agreements, that entity transferred our common stock to the three individuals
and no longer owns an interest in our company. The following table depicts
the
amount of our stock assigned to the three individuals and the value of that
stock, as determined and reported by US Gold:
Name
of Officer
|
|
Share
Distribution
(#
of shares)
|
|
Assigned
Value
|
William
W. Reid
|
|
2,439,606
|
|
$287,874
|
David
C. Reid
|
|
1,565,539
|
|
184,734
|
William
F. Pass
|
|
1,186,207
|
|
139,972
|
|
|
|
|
|
In
August
2001, we leased our first property, known as the Zimapan
project,
located in the State of Hidalgo, Mexico. After drilling approximately 1,800
meters (5,905 feet) of test holes, we abandoned that property. In connection
with the acquisition of the lease and our exploration activities on the
Zimapan
property, we spent approximately $294,000.
Our
Properties
We
currently have an interest in four properties, the El
Aguila
property
and the Las
Margaritas property
which we combine as part of the El
Aguila project,
the El
Rey
property
and the Solaga
property. We lease claims comprising the El
Aguila
project
from an individual who serves as our consultant in Mexico and the Solaga
property
from an entity partially owned by our consultant in Mexico. We own mining
concessions for the El
Rey
property. All of these properties are in the exploration stage and have no
proven or probable reserves.
The
El
Aguila Project
Background.
Effective October 14, 2002, we leased a prospective gold/silver property
comprised of three concessions, El
Aguila,
El
Aire
and
La
Tehuana,
from
Jose Perez Reynoso, a consultant to our company. The lease agreement is subject
to a 4% net smelter return royalty where production is sold in the form of
gold/silver dore and 5% for production sold in concentrate form. We have
made
periodic advance royalty payments under the lease totaling $260,000 and no
further advance royalty payments are due.
Under
Mexican mining laws, rights to minerals are obtained by filing concessions
and
fees are paid to the federal government for the privilege of holding these
concessions. The fees are based on the size of the concession, calculated
at the
rate of approximately $4 per hectare every six months, based on the exchange
rate at March 26, 2006. Based on the size of our concessions at the El
Aguila
project,
this amounts to approximately $7,600 every six months.
The
table
below summarizes the concessions that we have leased and that give us the right
to explore and mine the properties and the ensuing map shows their general
location. The mineral concessions making up the El
Aguila
project
are located within the San
Pedro Totolapam Ejido.
Concession
|
Type
|
Expediente/
Titulo
No.
|
Hectares
|
Acres
|
|
|
|
|
|
El
Aire
|
Exploitation
|
158272
|
72.00
|
177.92
|
El
Aguila
|
Exploitation
|
222844
|
899.00
|
2,221.47
|
La
Tehuana
|
Exploration
|
210029
|
925.00
|
2,285.72
|
|
|
Total
|
1,896.00
|
4,685.11
|
Location
Map for the El
Aguila
and El
Rey
Projects
Location
and Access. The
El
Aguila
project
is located in the Sierra
Madre del Sur
of
southern Mexico, in the central part of the State of Oaxaca. Access to the
property is by way of the Pan American Highway (Highway # 190), approximately
120 kilometers (75 miles) southeast of Oaxaca City, the state’s capital city. At
the village of San
Jose de Gracia,
a
gravel road goes approximately four kilometers northwest to the
property.
The
climate of the El
Aguila
area is
dry and warm to very warm with most rainfall occurring in the summer and annual
precipitation averaging only 423.7 mm (17 inches). The average yearly
temperature is 26.6 degrees centigrade (80° F). The area is very rocky with
scarce vegetation. Subsistence farming occurs and the main agricultural crop
is
agave cactus that is cultivated for the production of mescal.
Exploration
Activities.
The
early history of activity at the El
Aguila
property, as known by us, is prospecting and limited mining for gold and
silver
from the early 1900's to the mid 1960's. In 1998, Mr. Perez Reynoso acquired
the
concessions and leased them to Apex Silver Corporation of Denver, Colorado.
Apex
carried out an exploration program involving geologic mapping, surface sampling
and an 11-hole drilling program (1,242 meters, or 4,074 feet). The results
did
not meet Apex's expectations so it cancelled its lease on the property in
2002.
We leased the property from Mr. Perez Reynoso in October
2002.
In
August
2003, we entered into an exploration agreement with Canyon Resources Corporation
pertaining to our interest in the El
Aguila
property
whereby Canyon loaned us $500,000 for exploration costs, and subsequently
converted its note into 1,200,000 shares of our common stock in 2004. The
drilling program was completed in 2004 and included approximately 3,900 meters
(12,795 feet) of drilling in 69 holes focused on one target area of the
property. This exploration drilling encountered some gold intercepts which
required additional exploratory drilling in order to fully evaluate. Through
the
year ended December 31, 2006, we have spent or incurred approximately $1,978,200
in acquisition, exploration and related costs for the El
Aguila
project,
of which approximately $628,851 was spent during 2006.
We
have
carried out exploration on the project that has included geologic mapping,
surface sampling, geochemical sampling and two rounds of exploratory drilling.
We recently commenced a third round of exploratory drilling and have drilled
approximately 3,700 meters (12,100 feet). We anticipate drilling an additional
6,300 meters (20,790 feet) during spring 2007 for a total of 10,000 meters
(32,800 feet) of core drilling. We expect to undertake a feasibility study
in
the near future. We have contracted for an additional drill rig to accelerate
our current exploration program.
The
following table illustrates the results of our exploration program that were
available to us through January 2007:
[Space
intentionally blank]
EL
AGUILA PROJECT SELECTED DRILL HOLE
INTERCEPTS
|
|
|
Interval
Starting
At
|
Interval
Starting
At
|
Interval
Length
|
Interval
Length
|
Gold
|
Gold
|
Silver
|
Silver
|
Hole
No.
|
Drill
Type
|
(Meters)
|
(Feet)
|
(Meters)
|
(Feet)
|
g/t
|
oz./ton
|
g/t
|
oz./ton
|
|
|
|
|
|
|
|
|
|
|
301
|
RC
|
40
|
131.2
|
16
|
52.5
|
6.56
|
0.19
|
23
|
0.67
|
302
|
RC
|
30
|
98.4
|
6
|
19.7
|
16.65
|
0.49
|
112
|
3.27
|
303
|
RC
|
22
|
72.2
|
6
|
19.7
|
18.79
|
0.55
|
133
|
3.88
|
306
|
RC
|
4
|
13.1
|
4
|
13.1
|
14.58
|
0.43
|
74
|
2.16
|
and
|
|
24
|
78.7
|
6
|
19.7
|
8.99
|
0.26
|
76
|
2.22
|
307
|
RC
|
18
|
59
|
4
|
13.1
|
3.91
|
0.11
|
84
|
2.45
|
and
|
|
26
|
85.3
|
2
|
6.6
|
3.69
|
0.11
|
70
|
2.04
|
309
|
RC
|
56
|
183.7
|
2
|
6.6
|
3.79
|
0.11
|
37
|
1.08
|
311
|
RC
|
16
|
52.5
|
2
|
6.6
|
4.53
|
0.13
|
25
|
0.73
|
314
|
RC
|
6
|
19.7
|
2
|
6.6
|
6.89
|
0.2
|
69
|
2.01
|
326
|
RC
|
2
|
6.6
|
4
|
13.1
|
3.84
|
0.11
|
83
|
2.42
|
327
|
RC
|
8
|
26.2
|
8
|
26.2
|
3.54
|
0.1
|
136
|
3.97
|
327A
|
RC
|
12
|
39.4
|
8
|
26.2
|
3.97
|
0.12
|
78
|
2.28
|
330
|
RC
|
6
|
19.7
|
6
|
19.7
|
8.46
|
0.25
|
111
|
3.24
|
331
|
RC
|
50
|
164
|
4
|
13.1
|
54.71
|
1.6
|
701
|
20.47
|
332
|
RC
|
16
|
52.5
|
8
|
26.2
|
6.07
|
0.18
|
18
|
0.53
|
333
|
RC
|
2
|
6.6
|
2
|
6.6
|
3.67
|
0.11
|
63
|
1.84
|
and
|
|
8
|
26.2
|
6
|
19.7
|
15.69
|
0.46
|
101
|
2.95
|
334
|
RC
|
6
|
19.7
|
6
|
19.7
|
9.4
|
0.27
|
25
|
0.73
|
338
|
RC
|
20
|
65.6
|
10
|
32.8
|
3.71
|
0.11
|
65
|
1.9
|
343
|
RC
|
60
|
196.8
|
14
|
45.9
|
6.89
|
0.2
|
40
|
1.17
|
349
|
RC
|
34
|
111.5
|
6
|
19.7
|
7.5
|
0.22
|
78
|
2.28
|
354
|
RC
|
34
|
111.5
|
4
|
13.1
|
7.5
|
0.22
|
68
|
1.99
|
363
|
RC
|
4
|
13.1
|
6
|
19.7
|
11.63
|
0.34
|
100
|
2.92
|
365
|
RC
|
0
|
0
|
4
|
13.1
|
5.73
|
0.17
|
10
|
0.29
|
366
|
RC
|
0
|
0
|
4
|
13.1
|
3.74
|
0.11
|
100
|
2.92
|
509
|
CORE
|
20
|
65.6
|
6
|
19.7
|
10.38
|
0.3
|
329
|
9.61
|
511
|
CORE
|
40
|
131.2
|
12
|
39.4
|
10.18
|
0.3
|
20
|
0.58
|
512
|
CORE
|
34.6
|
113.5
|
12
|
39.4
|
4.67
|
0.14
|
74
|
2.16
|
523
|
CORE
|
1.5
|
4.9
|
1
|
3.3
|
7.7
|
0.22
|
918
|
26.81
|
and
|
|
6.4
|
21
|
8.1
|
26.6
|
1.39
|
0.04
|
146
|
4.26
|
530
|
CORE
|
24
|
78.7
|
10
|
32.8
|
0.96
|
0.03
|
387
|
11.3
|
601
|
CORE
|
31
|
101.7
|
5
|
16.4
|
0.82
|
0.02
|
72.2
|
2.11
|
602
|
CORE
|
27
|
88.6
|
1
|
3.3
|
1.22
|
0.04
|
20.2
|
0.59
|
603
|
CORE
|
38
|
124.7
|
3
|
9.8
|
1.22
|
0.04
|
34.6
|
1.01
|
603
|
CORE
|
45
|
147.6
|
6
|
19.7
|
3.65
|
0.11
|
231.7
|
6.75
|
and
|
|
47
|
154.2
|
3
|
9.8
|
5.54
|
0.16
|
404.3
|
11.79
|
604
|
CORE
|
29
|
95.1
|
2
|
6.6
|
5.49
|
0.16
|
180.3
|
5.26
|
605
|
CORE
|
35
|
114.8
|
6
|
19.7
|
0.81
|
0.02
|
90.1
|
2.63
|
606
|
CORE
|
21
|
68.9
|
15
|
49.2
|
5.6
|
0.16
|
59.7
|
1.74
|
607
|
CORE
|
40
|
131.2
|
3
|
9.8
|
5.5
|
0.16
|
41.1
|
1.2
|
608
|
CORE
|
46
|
150.9
|
2
|
6.6
|
3.8
|
0.11
|
33.6
|
0.98
|
609
|
CORE
|
55
|
180.4
|
1
|
3.3
|
0.75
|
0.02
|
17.4
|
0.51
|
610
|
CORE
|
Assays
Pending
|
|
|
|
|
|
|
611
|
CORE
|
47
|
154.2
|
19
|
62.3
|
1.45
|
0.04
|
22.2
|
0.65
|
and
|
|
47
|
154.2
|
4
|
|
3.9
|
0.11
|
77.5
|
2.26
|
612
|
CORE
|
69
|
226.4
|
2
|
13.1
|
3.55
|
0.1
|
45.6
|
1.33
|
612
|
CORE
|
78
|
255.9
|
1
|
3.3
|
0.04
|
0
|
354.0
|
10.32
|
613
|
CORE
|
89
|
292
|
1
|
3.3
|
0.05
|
0
|
97.4
|
2.84
|
|
|
|
|
|
|
|
|
|
|
RC:
Reverse Circulation Drilling
|
CORE:
Diamond Core Drilling
|
Facilities.
The
El
Aguila
project
does not have any plant or equipment at this time. Rudimentary access roads
have
been developed to various parts of the project for exploration activities.
The
federal power grid is located along the Pan American Highway and could be
utilized in operations, if any. Water would be available from the Totolapam
River and would require pumping to any facilities. Water rights are owned by
the
Mexican nation and administered by an agency of the federal government, the
Comision
Nacional de Agua ("CNA").
The CNA has granted water concessions to private parties throughout the defined
Oaxaca Hydrologic Basin and water concessions for development and operation
of
the El
Aguila
project,
if any, are expected to be available.
Geology
and Mineralization. The
El
Aguila
Project
is located in the San
Jose de Gracia
Mining
District in the Sierra
Madre del Sur of
southern Mexico. Multiple volcanic domes of various scales, and probably
non-vented intrusive domes, dominate the district geology. These volcanogenic
features are imposed on a prevolcanic basement of sedimentary rocks. Gold and
silver mineralization in this district is related to the manifestations of
this
classic volcanogenic system and is considered epithermal in character. This
geology suggests the presence of mineralization which our exploration program
is
designed to test and define.
The
deposits on the El
Aguila
property
are primarily hosted in a quartz rich, stratiform zone (manto). There appear
to
be several manto units on the property, one main manto and one or more lower
mantos. The main manto is comformable with the sedimentary and volcanic rock
above and below the manto. It varies in thickness from less than two meters
(6.6
feet) to more than 30 meters (98.4 feet).
Surface
sampling yielded anomalous gold and silver values from early district-wide
exploration where silicified zones were encountered. In addition, a small,
shallow adit and winze provided limited sampling underground, yielding
indications of gold values in a silicified, sub-horizontal manto. Based on
these
early anomalous exploration samples, a limited drilling program was carried
out
by us that in fact resulted in defining a central zone of continuous, shallow,
sub-horizontal mineralization. The fact that the mineralization is relatively
shallow would make mining less difficult and less expensive from an open pit
mine compared to an underground mine, if we determine to develop and mine the
property.
The
graphic image below depicts an underground cross section of the property in
which several holes have been drilled and an estimated area of mineralized
material which resulted from the drilling. It illustrates the outline of an
area
within the cross section estimated to contain at least one gram of gold per
ton.
Higher grade intercepts within the outline are separately indicated. Underground
workings are also depicted.
[Space
intentionally blank]
The
El
Rey
Property
Background.
We
have
acquired claims in another area of the Sierra
Madre del Sur
region
by filing concessions under the Mexican mining laws. The following table
summarizes the concessions that give us the right to the properties for
exploration and mining purposes and the map on page 11 shows their general
location. As of September 30, 2006, we have spent $8,431 in concession fees
and
other costs on this property, and we are required to pay continuing fees
which
we do not believe are material. The mineral concessions making up the
El
Rey
Property
are located within the San
Baltazar Chichicapan Ejido.
Concession
|
Type
|
Expediente/
Titulo
No.
|
Hectares
|
Acres
|
|
|
|
|
|
El
Rey
|
Exploration
|
225373
|
164.00
|
405.25
|
La
Reyna
|
Exploration
|
225401
|
700.00
|
1,729.73
|
El
Virrey
|
Exploration
|
629662
|
36.00
|
89.96
|
|
|
Total
|
900.00
|
2,224.94
|
Location
and Access. The
El
Rey
project
is an exploration stage property with no known reserves and is also located
in
the Sierra
Madre del Sur
region
of southern Mexico in the central part of the state of Oaxaca. Like the
El
Aguila project,
the property is presently undeveloped. Access to the property is by way of
the
Pan American Highway (Highway # 190) approximately 80 kilometers (49.7 miles)
southeast of the state's capital city, Oaxaca, where a right turn heads west
approximately 15 kilometers (9.3 miles) to the village of San
Baltazar Chichicapan.
At the
village, another gravel road leads another 3 kilometers (1.9 miles) to the
site.
(See
location
map on page 11).
Exploration
Activities.
The
El
Rey
property
is an exploration stage property and is undeveloped at this time. There is
no
plant or equipment on the property, and presently no roads. Electricity would
be
available from the village of San
Baltazar Chichicapam
approximately 3 kilometers (1.9 miles) from the property. Power is also
available from portable generators unless and until the need for a permanent
energy source arises.
Not
much
is known about this property by us and we have not yet undertaken any
exploration except for two surface samples from an existing waste dump to an
old
existing vertical shaft. The mine shaft appears to be left from prior
exploration on the property, although we do not know when it was dug, how deep
it is or whether it is caved, and we do not believe records exist to obtain
this
information.
Geology
and Mineralization.
The
El
Rey
project
concessions are underlain by Cretaceous mudstones and dolostones that are
mostly
covered by younger tertiary andesites and rhyolites. In this region the rocks
have been generally faulted in a northwest-southeast striking direction and
in
places block faults forming horsts and grabens are found along with cross
faults
striking northeast-southwest. No detailed geologic mapping has been done
on the
concession area yet but examining the rocks remaining at an old mine dump
on the
concession suggests that mineralizing solutions may have used these fault
contacts and intersections as pathways for migration and deposition. The
vein
materials found in the andesite host rock primarily consist of quartz with
minor
amounts of sulfides including pyrite. No visible gold or silver were noticed
in
hand specimen; however the assays of those rocks indicate they are present.
We
believe the property is located in volcanic terrain and the old dump possesses
quartz material. We intend to explore this property in the future with a
view to
evaluating the potential for gold mineralization.
If
exploration is successful, any mining would probably require an underground
mine
but any mineralized material could be processed at the El
Aguila
project
mill if one was to be built in the future. Hauling any El
Rey
material
to the El
Aguila
project
would be approximately 64.4 kilometers (40 miles).
The
Solaga
Property
We
recently leased a 100% interest in a parcel we refer to as Solaga
from an
entity partially owned by our consultant in Mexico. The lease is subject
to a 4%
net smelter return royalty on any production. The Solaga
property
consists of a 400 hectare property, located approximately 120 kilometers
(75
miles) from the El
Aguila
project.
A dormant silver mine is located on the Solaga
property
which was in production as recently as the 1980’s, however, we cannot estimate
if or when we will reopen the mine. We have not conducted exploration on
this
property to date, but we intend to explore this property in the future with
a
view to evaluating the potential for silver or other precious metal
mineralization.
Mineral
Concessions
Mineral
rights in Mexico belong to the Mexican government and are administered pursuant
to Article 27 of the Mexican Constitution. Exploration and exploitation
concessions may be granted or transferred to Mexican citizens and corporations.
Our leases or concessions are held by our Mexican subsidiaries. Exploration
concessions are granted for a term of six years, with the right to convert
to an
exploitation concession with a term of 50 years. Concessions grant the holder
the right to explore and exploit all minerals found in the ground. Maintenance
of concessions requires the semi-annual payment of mining duties (due in January
and July) and the performance of assessment work, on a calendar year basis,
with
assessment work reports required to be filed in the month of May for the
preceding calendar year. The amount of mining duties and annual assessment
are
set by regulation and may increase over the life of the concession (if the
concession changes from exploration to exploitation) and include periodic
adjustments for inflation. Mining concessions are registered at the Public
Registry of Mining in Mexico City and in regional offices in Mexico.
Ejido
Lands and Surface Right Acquisitions
Surface
lands in the El
Aguila
property
area are Ejido
lands
(agrarian cooperative lands granted by the federal government to groups of
Campesinos
pursuant
to Article 27 of the Mexican Constitution of 1917). Prior to January 1, 1994,
Ejidos
could
not transfer Ejido
lands
into private ownership. Amendments to Article 27 of the Mexican Constitution
in
1994 now allow individual property ownership within Ejidos
and
allow Ejidos
to enter
into commercial ventures with individuals or entities, including foreign
corporations. We have an agreement with the local San
Pedro Totolapam Ejido
allowing
exploration of the El
Aguila
property. In order to begin mining at the property, we will have to secure
surface rights agreements for all lands to be disturbed by, or adjacent to,
any
such proposed operation.
Mexican
law recognizes mining as a land use generally superior to agricultural. However,
the law also recognizes the rights of the Ejidos
to
compensation in the event mining activity interrupts or discontinues their
use
of the agricultural lands. Compensation is typically made in the form of a
cash
payment to the holder of the agricultural rights. The amount of such
compensation is generally related to the perceived value of the agricultural
rights as negotiated in the first instance between the Ejidos
and the
owner of the mineral rights. If the parties are unable to reach agreement on
the
amount of the compensation, the decision will be referred to the government.
At
this
time, due to the absence of any specific development plan, it is impossible
to
determine the potential amount of compensation that might be required to obtain
surface rights necessary to mine our property. However, we expect such amount
to
be low in relation to other anticipated cost of commencing operations.
Competition
The
exploration for, and the acquisition of gold and silver properties are subject
to intense competition. Due to our recent organization, limited capital and
personnel, we may be at a competitive disadvantage compared to other companies
with regard to exploration and, if warranted, development. In general,
properties with a higher grade of recoverable material or which are more readily
mineable afford the owner a competitive advantage. Our present limited funding
means that our ability to compete for properties to be explored and developed
is
limited. We believe that competition for acquiring mineral prospects will
continue to be intense in the future.
The
availability of funds for exploration is sometimes limited, and we may find
it
difficult to compete with larger and more well-known companies for capital.
Even
though we have the right to the minerals on our claims, there is no guarantee
we
will be able to raise sufficient funds in the future to maintain our mineral
claims in good standing. Therefore, if we do not have sufficient funds for
exploration, our claims might lapse and be staked by other mining interests.
We
might be forced to seek a joint venture partner to assist in the exploration
of
our mineral claims. In this case, there is the possibility that we might not
be
able to pay our proportionate share of the exploration costs and might be
diluted to an insignificant carried interest. Our inability to develop our
mining properties due to lack of funding, even if warranted, could have a
material adverse effect on our operation and financial position.
Government
Regulations and Permits
In
connection with mining, milling and exploration activities, we are subject
to
extensive Mexican federal, state and local laws and regulations governing the
protection of the environment, including laws and regulations relating to
protection of air and water quality, hazardous waste management and mine
reclamation as well as the protection of endangered or threatened species.
The
department responsible for environmental protection in Mexico is SEMARNAT,
which
is similar to the United States Environmental Protection Agency. SEMARNAT has
broad authority to shut down and/or levy fines against facilities that do not
comply with its environmental regulations or standards. Potential areas of
environmental consideration for mining companies, including ours if we are
successful in commencing mining operations, include acid rock drainage, cyanide
containment and handling, contamination of water courses, dust and noise.
Prior
to
the commencement of any mining operations at the El
Aguila
property, if any, we will have to secure various regulatory permits from
federal, state and local agencies. These governmental and regulatory permits
generally govern the processes being used to operate, the stipulations
concerning air quality and water issues, and the plans and obligations for
reclamation of the properties at the conclusion of operations. Regulations
require that an environmental impact statement, known in Mexico as a
Manifiestacion
de Impacto Ambiental
("MIA"),
be prepared by a third-party contractor for submission to SEMARNAT. Studies
required to support the MIA include a detailed analysis of these areas, among
others: soil, water, vegetation, wildlife, cultural resources and socio-economic
impacts. Although the regulatory process in Mexico has a public review
component, proof of local community support for a project is required to
gain
final MIA approval. A lack of support from the local community may make
obtaining an MIA difficult. A risk analysis must also be prepared in conjunction
with the MIA for approval by SEMARNAT.
The
most
significant other approvals that might be necessary for our operations would
be
permits to extract water from the Totolapam River and an explosives permit,
issued by the Mexican army, to purchase, store and use explosives. In Mexico,
water rights are managed by the CNA. According to Mexican water law, all
users
must pay for the right to use national waters regardless of how the rights
were
obtained, with the rates being determined by the availability of water and
the
method of extraction.
We
have
obtained, and will obtain at the appropriate time, environmental permits,
licenses or approvals required for potential operations, if any. We are not
aware of any material violations of environmental permits, licenses or approvals
issued with respect to our operations.
Glossary
Adit
|
A
more or less horizontal drive (walk-in mine) into a hill that is
usually
driven for the purpose of intersecting or mining an ore body. An
adit may
also be driven into a hill to intersect or connect a shaft for the
purpose
of dewatering. Adits were commonly driven on a slight incline to
enable
loaded mine trucks to have the advantage of a downhill run out, while
the
empty (lighter) truck was pushed uphill back into the hill. The incline
also allows water to drain out of the adit. An adit only becomes
a tunnel
if it comes out again on the hill somewhere, like a train
tunnel.
|
Andesite:
|
A
gray to black volcanic rock with between about 52 to 63 weight percent
silica (SiO2).
Andesite magma commonly erupts from stratovolcanoes as thick lava
flows,
some reaching several km in length.
|
Cretaceous
period:
|
Flowering
plants appeared and dinosaurs were at their height during the Cretaceous
period. 146-65 million years ago. There was a mass extinction (the
K-T
extinction) at the end of the Cretaceous, marking the end of the
dinosaurs
and many other species.
|
Dore:
|
Unrefined
gold and silver bars usually containing more than 90% precious
metal.
|
Epithermal:
|
Used
to describe gold deposits found on or just below the surface close
to
vents or volcanoes, formed at low temperature and
pressure.
|
Felsic:
|
The
minerals feldspar and quartz or an igneous rock or metamorphic rock
made
predominantly of feldspar and quartz; poor in iron and magnesium.
Light-colored.
|
Gram:
|
A
metric unit of weight and mass, equal to 1/1000th
of
a kilogram. One gram equals .035 ounces. One ounce equals 31.103
grams.
|
Hectare:
|
Another
metric unit of measurement, for surface area. One hectare equals
1/200th
of
a square kilometer, 10,000 square meters, or 2.47 acres. A hectare
is
approximately the size of a soccer field.
|
Horst-graben
|
Horst
and graben are formed by widespread block faults giving rise to a
mountain
and valley topography that owes its origin in part at least to regional
block faulting.
|
Kilometer:
|
Another
metric unit of measurement, for distance. The prefix "kilo" means
1000, so
one kilometer equals 1,000 meters, one kilometer equals 3,280.84
feet,
which equals 1,093.6 yards, which equals 0.6214 miles.
|
Manto:
|
A
mineralogy term meaning a layer or stratum.
|
Minerals
or Mineralized Material
|
Any
mass of host rock in which minerals of potential commercial value
occur.
|
Net
Smelter Return Royalty
|
A
share of the net revenue generated from the sale of metal produced
by the
mine.
|
Ore
or Ore Deposit
|
Rocks
that contain economic amounts of minerals in them and that are expected
to
be profitably mined.
|
Rhyolite:
|
A
type of volcanic lava or rock that is usually light in color: it
contains
greater than 68% silica, by weight, and is high in potassium and
sodium.
|
Silicified:
|
Is
combined or impregnated with silicon or silica.
|
Tertiary
period:
|
This
period lasted from 65 to 1.8 million years ago. It followed the Cretaceous
period (the end of the Mesozoic Era) and the K-T extinction. Many
mammals
developed then, including primitive whales, rodents, pigs, cats,
rhinos,
etc.
|
Tonne:
|
A
metric ton. One tonne equals 1000 kg.
It
is approximately equal to 2,204.62 pounds.
|
Volcanogenic:
|
Of
volcanic origin.
|
Volcanic
domes:
|
These
are mounds that form when viscous lava is erupted slowly and piles
up over
the vent, rather than moving away as lava flow. The sides of most
domes
are very steep and typically are mantled with unstable rock debris
formed
during or shortly after dome emplacement. Most domes are composed
of
silica-rich lava which may contain enough pressurized gas to cause
explosions during dome extrusion.
|
Winze:
|
Secondary
or tertiary vertical or near-vertical opening sunk from a point inside
a
mine for the purpose of connecting with a lower level or of exploring
the
ground for a limited depth below a
level.
|
Conversion Table
|
Metric
System
|
|
Imperial
System
|
1
meter (m)
|
=
|
3.2808
feet (ft)
|
1
kilometer (km)
|
=
|
0.6214
mile (mi)
|
1
square kilometer (km2)
|
=
|
0.3861
square mile (mi2)
|
1
square kilometer (km2)
|
=
|
100
hectares (has)
|
1
hectare (ha)
|
=
|
2.471
acres (ac)
|
1
gram (g)
|
=
|
0.0322
troy ounce (oz)
|
1
kilogram (kg)
|
=
|
2.2046
pounds (lbs)
|
1
tonne (t)
|
=
|
1.1023
tons (t)
|
1
gram/tonne (g/t)
|
=
|
0.0292
ounce/ton (oz/t)
|
Employees
We
currently have three full-time employees, two of whom serve as our executive
officers. These individuals devote all of their business time to our affairs.
We
also engage two consultants, one to oversee our property and activities in
Mexico and one to assist with our administrative and financial affairs. Our
consultant in Mexico serves on a full-time basis and the other as his services
are necessary. We engage independent contractors in connection with the
exploration of our mining properties.
Facilities
Effective
October 1, 2005, we leased approximately 1,000 square feet of office space
under
a three year agreement with an independent third party. Monthly rent equals
$1,428 the first year, $1,469 the second year and $1,490 the third year,
plus
our share of operating expense escalations. We believe this space is adequate
for our needs for the foreseeable future.
Legal
Proceedings
We
are
not currently subject to any legal proceedings, and to the best of our
knowledge, no such proceeding is threatened, the results of which would have
a
material impact on our properties, results of operation, or financial condition.
Nor, to the best of our knowledge, are any of our officers or directors involved
in any legal proceedings in which we are an adverse party.
Directors
and Executive Officers
The
following individuals presently serve as our officers and directors:
Name
|
|
Age
|
|
Positions
With the Company
|
|
Board
Position
Held Since
|
|
|
|
|
|
|
|
William
W. Reid
|
|
58
|
|
President,
Chief Executive Officer and Chairman
|
|
1998
|
|
|
|
|
|
|
|
David
C. Reid
|
|
57
|
|
Vice
President, Secretary, Treasurer and Director
|
|
1998
|
|
|
|
|
|
|
|
Bill
M. Conrad
|
|
50
|
|
Director
|
|
2006
|
|
|
|
|
|
|
|
Frank
L. Jennings
|
|
56
|
|
Chief
Financial Officer
|
|
N/A
|
|
|
|
|
|
|
|
Each
of
our directors is serving a term which expires at the next annual meeting of
shareholders and until his successor is elected and qualified or until he
resigns or is removed. Our officers serve at the will of our Board of Directors.
Messrs.
William and David Reid should be considered founders of our company, as each
has
taken initiative in the organization of our business. William Reid and David
Reid are brothers.
The
following information summarizes the business experience of each of our officers
and directors for at least the last five years:
William
W. Reid.
Mr. Reid
has served as a director and our President and Chief Executive Officer since
our
inception in 1998. Since August 2005, Mr. Reid has devoted all of his business
time to our affairs, averaging 40 hours per week. Mr. Reid received a Bachelor
of Science in physics in 1970 and a Master's in Economic Geology in 1972
from
Purdue University. From 1977 to August 18, 2005, he served as the President,
Chief Executive Officer and Chairman of the Board of Directors of US Gold
Corporation, a Colorado corporation engaged in the exploration of gold mining
properties. During his tenure with US Gold, that entity acquired, developed
and
produced gold from five different mines, but has not produced any revenue
since
1990.
David
C. Reid.
Mr.
David Reid has served as a director and our Vice President since our inception
in 1998. Since August 2005, he has devoted all of his time to our business
and
affairs, also averaging 40 hours per week. From 1977 to August 18, 2005,
he was
the Vice President and a director of US Gold during the time that it acquired,
developed and produced gold. Mr. Reid received a Bachelor of Science degree
in
geology from Ball State University in 1972.
Bill
M. Conrad.
Mr.
Conrad was elected to the Board of Directors on June 1, 2006. Mr. Conrad
is
presently the vice-president, secretary and a director of Blue Star Energy,
Inc., a private Colorado corporation engaged in the energy industry. Prior
to
that, he served as president and a director of Wyoming Oil & Minerals, Inc.,
a publicly traded Wyoming corporation, and New Frontier Energy, Inc., a publicly
traded Colorado corporation, both engaged in the oil and gas industry. The
securities of Wyoming Oil & Mineral and New Frontier Energy are quoted on
the OTCBB. Mr. Conrad’s term of office as a director of our company will expire
at the next annual meeting of shareholders and when his successor has been
elected and qualifies.
Frank
L. Jennings.
Mr.
Jennings was appointed to serve as our principal financial officer to replace
William F. Pass, who resigned from that position effective June 1, 2006.
Mr.
Jennings serves our company on a part-time basis as his services are deemed
necessary. Since 2001, Mr. Jennings has been a financial consultant and provides
management and financial consulting services primarily to smaller public
companies. From 2000 to 2005, he served as the chief financial officer and
a
director of Global Casinos, Inc., a publicly traded Utah corporation, and
from
2001 to 2005, he served as the chief financial officer and a director of
OnSource Corporation, now known as Ceragenix Pharmaceuticals, Inc., a publicly
traded Delaware corporation. During his tenure with Global Casinos and Ceragenix
Pharmaceuticals, each company was engaged in the gaming industry and each
had
common stock quoted on the OTCBB.
Other
Significant Employees or Consultants
In
addition to our officers and directors, we also utilize the services of the
following significant consultant:
Jose
Perez Reynoso.
Mr.
Reynoso, a Mexican national, has served our company as a full time consultant
since 2002. In that capacity, he oversees all our operations in Mexico, and
provides advice in relations with the Mexican Government. From 1995 to 2002,
he
was a consulting geologist for mining companies operating in Mexico. Mr.
Reynoso
received an undergraduate degree in geology and engineering in 1974 and a
master's degree in economic geology in 1979 from the National University
of
Mexico. We leased the El
Aguila
property
from Mr. Reynoso in 2002.
Board
Committees
Our
Board
of Directors established a standing Audit, Compensation and Nominating Committee
during 2006.
Audit
Committee.
The
Audit Committee, comprised of Bill Conrad as chairman and William Reid,
recommends the selection and appointment of our independent accountants to
the
Board of Directors and reviews the proposed scope, content and results of
the
audit performed by the accountants and any reports and recommendations made
by
them. Only Mr. Conrad meets the definition of “independent” as defined in Rule
4200(a)(15) of the Marketplace Rules of the NASDAQ Stock Market, Inc.
(“Marketplace Rules”), since William Reid also serves as our Chairman and Chief
Executive Officer. As of the date of this prospectus, the Audit Committee
has
not adopted a formal charter, however the committee expects to do so in the
near
future.
Our
Board
of Directors has determined that Bill Conrad, the chairman of the Audit
Committee, qualifies as an audit committee financial expert in that he has
(i)
an understanding of generally accepted accounting principles and financial
statements; (ii) the ability to assess the general application of such
principles in connection with the accounting for estimates, accruals and
reserves; (iii) experience preparing, auditing, analyzing or evaluating
financial statements that present a breadth and level of complexity of
accounting issues that are generally comparable to the breadth and complexity
of
issues that can reasonably be expected to be raised by our financial statements,
or experience actively supervising one or more persons engaged in such
activities; (iv) an understanding of internal controls over financial reporting;
and (v) an understanding of the audit committee functions. Mr. Conrad acquired
these attributes through experience in analyzing financial statements of
companies, and through his experience as an executive officer of other publicly
traded companies.
Nominating
Committee. The
Nominating Committee is responsible for identifying potential candidates
for the
Board of Directors. The committee will establish qualifications for candidacy,
assess potential candidates and make recommendations to the board, based
upon
the committee’s assessment of the candidate’s past business and management
experience, their special expertise in an area of strategic interest to our
business, the candidate’s ability to devote sufficient time and attention to our
business, and their willingness to serve and actively contribute to our
business. The Nominating Committee is comprised of two members, being David
Reid
as chairman, and William Reid. None of the members of the Nominating Committee
are independent within the meaning of Rule 4200(a)(15) of the Marketplace
Rules
since both members are also our executive officers.
Compensation
Committee. The
Compensation Committee, comprised of Bill Conrad as chairman and David Reid,
is
responsible for reviewing the compensation of our executive officers and
directors on an ongoing basis. In performing this function, the Compensation
Committee may consider, among other things, the types of compensation and
amounts paid to executives and directors of public companies of equivalent
size,
stage of development in the industry and activity levels. The findings of
this
compensation review are used to determine an appropriate level of compensation
for the executives and directors, reflecting the need to maintain
competitiveness and recruit and retain qualified personnel within the context
of
our financial and other resources. Mr. Conrad qualifies as independent under
Rule 4200(a)(15) of the Marketplace Rules.
Director
Compensation
In
June
2006, we retained Bill Conrad to serve on our Board of Directors. Mr. Conrad
is
independent under the definition set forth in Rule 4200(a)(15) of the
Marketplace Rules. In return for his service on our Board and its
committees, Mr.
Conrad receives cash compensation in the amount of $3,000 per month and also
received a stock grant of 100,000 shares of our common stock, valued at $1.00
per share and options to acquire up to 500,000 shares of stock on or before
March 9, 2009 for $1.00 per share. The table below summarizes the compensation
of our only director who is not also one of our executive officers and whose
compensation is not disclosed in the Summary Compensation Table, for the
fiscal
year ended December 31, 2006:
Director
Compensation Table
Name
|
|
Fees
Earned or
Paid
in Cash
|
|
|
Stock
Awards
|
|
Option
Awards
|
|
All
Other
Compensation
|
|
Total
|
Bill
M. Conrad
|
|
$
21,000
|
|
|
$
100,000
|
|
$
64,250(1)
|
|
$
—
|
|
$
185,250
|
|
|
|
|
|
|
|
|
|
|
|
|
______________________
(1) Calculated
in accordance with SFAS 123(R).
All
officers and directors are reimbursed for reasonable and necessary expenses
incurred in their capacities as such. Our company presently does not maintain
a
non-equity incentive compensation plan, thus such item has been omitted from
the
table above.
Executive
Compensation
The
following table summarizes the total compensation for the last two years
of all
persons who served as our chief executive officer during 2006 and the other
executive officer who was serving at fiscal year end December 31, 2006 (“Named
Executive Officers”) for the periods indicated. Our company did not award cash
bonus, stock awards, stock options or non-equity incentive plan compensation
to
any Named Executive Officer during the past two fiscal years, thus these
items
are omitted from the table below:
Summary
Compensation Table
Name and
Principal Position
|
|
Year
|
|
Salary
|
|
All
Other
Compensation
|
|
Total
|
|
William
W. Reid
|
|
|
2006
|
|
$
|
240,000
|
|
$
|
—
|
|
$
|
240,000
|
|
Chairman,
C.E.O.
|
|
|
2005
|
|
$
|
60,000
|
|
$
|
9,600(2)
|
|
$
|
69,600
|
|
and
President(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
C. Reid,
|
|
|
2006
|
|
$
|
170,000
|
|
$
|
—
|
|
$
|
170,000
|
|
Vice
President and
|
|
|
2005
|
|
$
|
42,500
|
|
$
|
9,600(2)
|
|
$
|
52,100
|
|
Director(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
______________________
(1) The
executive officer was not paid any additional compensation for his service
as a
director of our company.
(2) The
executive officer was paid this amount as a consultant during the year.
Effective
January 1, 2006, we entered into employment agreements with our executive
officers which extend for a three-year term. Pursuant to the terms of those
agreements, William Reid receives $240,000 and David Reid receives $170,000
annually as salary. Each individual also participates in health and other
insurance programs that we maintain. The employment agreements are automatically
renewable for one-year terms on each anniversary of the effective date unless
either party gives notice to the other that they do not wish to renew the
agreement, not less than 120 days prior to expiration.
Pursuant
to the terms of the employment agreements, the employee would be entitled
to
certain payments in the event their employment is terminated under certain
circumstances. If we terminate the agreement without cause, or either executive
officer terminates the agreement “with good reason,” we would be obligated to
pay two years of compensation in accordance with our regular pay periods.
Termination by an executive officer with good reason includes termination
after
a “change in control.”
In
addition to our executive officers, we engage two consultants on a regular
basis. Jose Perez Reynoso is the manager of our operations in Mexico and
is paid
at the rate of $9,000 per month. Frank Jennings, our financial consultant,
is
paid on an hourly basis, which we expect will not exceed $3,000 per month
in the
aggregate. We do not have a written agreement with either consultant.
Outstanding
Equity Awards at Fiscal Year-End
The
following table summarizes the amount of our Named Executive Officers’
equity-based compensation outstanding at the year ended December 31, 2006.
Our
company did not issue stock awards to our Named Executive Officers during
the
past two fiscal years, thus the information is omitted in the table below:
|
|
Option
Awards
|
|
Name
|
|
|
|
|
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options
|
|
Option
Exercise Price
|
|
Option
Expiration Date
|
|
Number
of Securities Underlying Unexercised Options
(Exercisable)
|
Number
of Securities Underlying Unexercised Options
(Unexercisable)
|
|
|
(#)
|
|
(#)
|
|
(#)
|
|
($)
|
|
|
|
William
W. Reid
|
|
400,000
|
|
0
|
|
0
|
|
$0.25
|
|
10/9/2013
|
|
William
W. Reid
|
|
400,000
|
|
0
|
|
0
|
|
$0.25
|
|
4/22/2014
|
|
David
C. Reid
|
|
400,000
|
|
0
|
|
0
|
|
$0.25
|
|
10/9/2013
|
|
David
C. Reid
|
|
200,000
|
|
0
|
|
0
|
|
$0.25
|
|
4/22/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We
did
not grant any options to our executive officers during 2006 or 2005. During
the
year ended December 31, 2004, we granted options to acquire a total of 700,000
shares of our common stock to our officers and a consultant, which represented
100% of the options we granted to our employees in that year. Our executive
officers did not exercise any stock options awarded in prior years during
2006.
Equity
Incentive Plan
Our
Non-Qualified Stock Option and Stock Grant Plan (also as referred to as the
"Plan") was adopted by us effective March 4, 1999. The Plan terminates by
its
terms on March 3, 2009. Under the Plan, as approved by shareholders on March
4,
2005, a total of 6,000,000 shares of common stock are reserved for issuance
thereunder. Set forth in the table below is information as of December 31,
2006
with respect to compensation plans (including individual compensation
arrangements) under which our equity securities are authorized for issuance.
During 2006, we issued 135,000 shares of common stock and 1,100,000 options
pursuant to the Plan.
Non-Qualified
Stock Option and Stock Grant Plan Information
Plan Category
|
|
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
(a)
|
|
Weighted-
average exercise
price of
outstanding
options,
warrants and
rights
(b)
|
|
Number of
securities remaining
available for future
issuance under
equity compensation
plans (excluding
securities reflected
in column (a))
(c)
|
|
Equity
compensation plans
approved
by shareholders
|
|
|
2,500,000
|
|
|
$0.58
per share
|
|
|
3,115,000
|
|
|
Equity
compensation plans
not
approved by shareholders
|
|
|
0
|
|
|
—
|
|
|
0
|
|
|
TOTAL
|
|
|
2,500,000
|
|
|
|
|
|
3,115,000
|
|
|
Under
the
Plan, non-qualified stock options and/or grants of our common stock may be
issued to key persons. Key persons include officers, directors, employees,
consultants and others providing service to us. The Plan was established to
advance the interests of our company and our stockholders by affording key
persons, upon whose judgment, initiative and efforts we may rely for the
successful conduct of our businesses, an opportunity for investment in our
company and the incentive advantages inherent in stock ownership in our company.
This Plan gives our Board of Directors broad authority to grant options and
make
stock grants to key persons selected by the Board while considering criteria
such as employment position or other relationship with us, duties and
responsibilities, ability, productivity, length of service or association,
morale, interest in us, recommendations by supervisors, and other matters,
and
to set the option price, term of option, and other broad authorities. Options
may not be granted at less than the fair market value at the date of grant
and
may not have a term in excess of 10 years.
Options
granted under the Plan do not generally give rise to taxable income to the
recipient or any tax consequence to us, since the Plan requires that the options
be issued at a price not less than the fair market value of the common stock
on
the date of grant. However, when an option is exercised, the holder is subject
to tax on the difference between the exercise price of the option and the fair
market value of the stock on the date of exercise. We receive a corresponding
deduction for income tax purposes. Recipients of stock grants are subject to
tax
on the fair market value of the stock on the date of grant and we receive a
corresponding deduction. The foregoing is intended as a summary of the income
tax consequences to an individual recipient of an option or stock grant, and
should not be construed as tax advice. Holders of stock options or common stock
should consult their own tax advisors.
Shares
issued upon exercise of options or upon stock grants under the Plan are
"restricted securities" as defined under the Securities Act, unless a
registration statement covering such shares is effective. Restricted shares
cannot be freely sold and must be sold pursuant to an exemption from
registration (such as Rule 144) which exemptions typically impose conditions
on
the sale of the shares.
Indemnification
and Limitation on Liability of Directors
Our
Articles of Incorporation and Bylaws provide that we must indemnify, to the
fullest extent permitted by Colorado law, any of our directors, officers,
employees or agents made or threatened to be made a party to a proceeding,
by
reason of the person serving or having served in a capacity as such, against
judgments, penalties, fines, settlements and reasonable expenses incurred
by the
person in connection with the proceeding if certain standards are met. At
present, there is no pending litigation or proceeding involving any of our
directors, officers, employees or agents where indemnification will be required
or permitted. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our directors, officers and controlling
persons pursuant to the foregoing provisions, or otherwise, we have been
advised
that in the opinion of the SEC, such indemnification is against public policy
as
expressed in the Securities Act and is, therefore, unenforceable.
The
Colorado Business Corporation Act (the "CBCA") allows indemnification of
directors, officers, employees and agents of a company against liabilities
incurred in any proceeding in which an individual is made a party because
he was
a director, officer, employee or agent of the company if such person conducted
himself in good faith and reasonably believed his actions were in, or not
opposed to, the best interests of the company, and with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. A person must be found to be entitled to indemnification under
this
statutory standard by procedures designed to assure that disinterested members
of the board of directors have approved indemnification or that, absent the
ability to obtain sufficient numbers of disinterested directors, independent
counsel or shareholders have approved the indemnification based on a finding
that the person has met the standard. Indemnification is limited to reasonable
expenses.
Our
Articles of Incorporation limit the liability of our directors to the fullest
extent permitted by the CBCA. Specifically, our directors will not be personally
liable for monetary damages for breach of fiduciary duty as directors, except
for:
· |
any
breach of the duty of loyalty to our company or our
stockholders;
|
· |
acts
or omissions not in good faith or that involved intentional misconduct
or
a knowing violation of law;
|
· |
dividends
or other distributions of corporate assets that are in contravention
of
certain statutory or contractual
restrictions;
|
· |
violations
of certain laws; or
|
· |
any
transaction from which the director derives an improper personal
benefit.
|
Liability
under federal securities law is not limited by the Articles.
Certain
Relationships and Related Transactions
Transactions
with Officers and Directors.
On
January 2, 2005, we issued a total of 1,750,000 shares to William and David
Reid
and William Pass for services rendered. William Pass was our financial
consultant, and the owner of more than five percent of our common stock at
that
time. Of that amount, 1,000,000 shares were issued to William Reid, 500,000
to
David Reid and 250,000 shares to William Pass. The shares were valued at
a total
of $437,500, or $0.25 per share, based on the contemporaneous sales of our
stock
to independent third parties. Messrs. William and David Reid were the only
members of our Board of Directors participating in the decision to issue
the
shares in these transactions. However, our Board determined that the
transactions were no less favorable than could have been obtained from an
unaffiliated third party.
Advances
by Officers. During
2005 and 2006, William Reid and David Reid each advanced money to us to meet
short-term working capital requirements. The loans were represented by
promissory notes totaling $160,000, which were non-interest bearing and due
on
demand. We used the proceeds of the IPO to repay the notes in 2006.
Subscription
with Heemskirk.
During
2005, we issued a total of 2,150,000 shares of our common stock to Heemskirk
Consolidated Limited, an Australian corporation. Heemskirk paid a total of
$1,075,000 for its stock, or $0.50 per share. Heemskirk is the former owner
of
more than five percent of our common stock. Under the terms of its agreement
with us, Heemskirk also has the first right to acquire all or a part, but
not
less than 25%, of any securities offered by us in the future and to participate
in any debt financing that we propose during the period until August 2008.
This
right does not apply to the securities offered by this prospectus. Heemskirk
also holds a first right of refusal to acquire any or all of our interest
in
mining properties located in Mexico if we receive an offer from a third party
and propose to sell our interest pursuant to that offer.
CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
As
of
April 9, 2007, there are a total of 28,169,552 shares of our common stock
outstanding, our only class of voting securities currently outstanding. The
following table describes the ownership of our voting securities by: (i)
each of
our officers and directors; (ii) all of our officers and directors as a group;
and (iii) each shareholder known to us to own beneficially more than 5% of
our
common stock. Unless otherwise stated, the address of each of the individuals
is
our address, 222 Milwaukee Street, Suite 301, Denver, Colorado 80206. All
ownership is direct, unless otherwise stated.
In
calculating the percentage ownership for each shareholder, we assumed that
any
options owned by an individual and exercisable within 60 days are exercised,
but
not the options owned by any other individual.
Name
and Address of
|
Shares
Beneficially Owned
|
|
Beneficial
Owner
|
Number
|
Percentage
(%)
|
William
W. Reid(1)
|
4,559,806(4)(5)
|
15.7%
|
|
|
|
David
C. Reid(1)
|
4,191,539(6)
|
14.6%
|
|
|
|
Bill
M. Conrad(2)
|
577,000(7)
|
2.0%
|
|
|
|
Frank
Jennings
(3)
|
0
|
0.0%
|
|
|
|
Beth
Reid
|
4,559,806(8)
|
15.7%
|
25
Downing Street, #1-501
|
|
|
Denver,
CO 80218
|
|
|
|
|
|
All
officers and directors as a group
|
|
|
(4
persons)
|
9,328,345(4)(5)(6)(7)
|
31.0%
|
___________________
(1) Officer
and director.
(2) Director.
(3) Officer.
(4)
Includes options to purchase 800,000 shares which are currently
exercisable.
(5)
Includes 1,540,200 shares owned by the reporting person's spouse, of which
he
disclaims beneficial ownership.
(6)
Includes options to purchase 600,000 shares which are currently
exercisable.
(7)
Includes options to purchase 500,000 shares which are currently
exercisable.
(8)
Includes 3,019,606 shares owned by the reporting person's spouse, of which
she
disclaims beneficial ownership.
Changes
in Control
One
of
our shareholders, Heemskirk Consolidated Limited, holds the first right to
acquire any stock offered by us until August 2008. While we presently have
no
plans to issue additional stock, to the extent we do and this entity exercises
its right to acquire all or a portion of that stock, its percentage ownership
interest in our company may increase. This may result in a change in
control.
On
behalf
of certain of our shareholders, we have agreed to file a registration statement
with the SEC covering the resale of our common stock as described in the table
below. The shares offered by the selling shareholders are all of our outstanding
shares that have been held by our shareholders for less than two years except
some of the shares held by our officers and a member of their family, which
are
not being offered. We have also agreed to use our best efforts to keep the
registration statement effective and update the prospectus until the securities
owned by the selling shareholders have been sold or may be sold without
registration or prospectus delivery requirements under the Securities Act of
1933. We will pay the costs and fees of registering the shares, but the selling
shareholders will pay any brokerage commissions, discounts or other expenses
relating to the sale of the shares.
The
registration statement which we have filed with the SEC, of which this
prospectus forms a part, covers the resale of our common stock by the selling
shareholders from time to time under Rule 415 of the Securities Act. Our
agreement with the selling shareholders is designed to provide those
shareholders some liquidity in their ownership of common stock and to permit
secondary public trading of our securities. The selling shareholders may
offer
our securities covered under this prospectus for resale from time to time.
The
selling shareholders may also sell, transfer or otherwise dispose of all
or a
portion of our securities in transactions exempt from the registration
requirements of the Securities Act. (See
"PLAN OF
DISTRIBUTION").
The
table
below presents information as of April 9, 2007 regarding the selling
shareholders and our common stock that the selling shareholders may offer
and
sell from time to time under this prospectus. The table is prepared based
on
information supplied to us by those shareholders. Although we have assumed,
for
purposes of the table below, that the selling shareholders will sell all
of the
securities offered by this prospectus, because they may offer all or some
of the
securities in transactions covered by this prospectus or in another manner,
no
assurance can be given as to the actual number of shares that will be resold
by
the selling shareholders. Information covering the selling shareholders may
change from time to time, and changed information will be presented in a
supplement to this prospectus if and when required. If there is a change
in the
selling shareholders, and the new selling shareholders, any pledges, donees
or
transferees wish to rely upon this prospectus in the resale of their shares,
we
will file an amendment to the registration statement of which this prospectus
is
a part. Except as described above, there are no agreements, arrangements
or
understandings with respect to resale of any of the securities covered by
this
prospectus.
|
|
Number
of
|
|
Number
of
|
|
Shares
Owned
After
Offering
|
|
|
Shares
Owned Prior
|
|
Shares
to be
|
|
Number
|
Percent
|
Name
of Selling Shareholder
|
|
to
the Offering
|
|
Offered(1)
|
|
(#)
|
(%)
|
Beth
Reid(2)
|
|
1,540,200
|
(3)
|
340,200
|
|
1,200,000
|
4.3
|
David
C. Reid(4)
|
|
3,591,539
|
(5)
|
880,000
|
|
2,711,539
|
9.6
|
Heemskirk
Consolidated Limited(6)
|
|
1,350,000
|
|
1,350,000
|
|
0
|
*
|
William
F. Pass(7)
|
|
1,321,207
|
(5)
|
1,321,207
|
|
0
|
*
|
ROYTOR
& CO.(8)
|
|
1,200,000
|
|
1,200,000
|
|
0
|
*
|
Jose
Perez Reynoso(9)
|
|
485,000
|
|
485,000
|
|
0
|
*
|
Don
I. and Dorothera Philips
|
|
480,000
|
|
240,000
|
|
240,000
|
*
|
Philip
Katz
|
|
400,000
|
|
400,000
|
|
0
|
*
|
David
F. Wersebe
|
|
256,000
|
|
176,000
|
|
80,000
|
*
|
Declan
J. Costelloe
|
|
218,500
|
|
178,500
|
|
40,000
|
*
|
J.
Paul Consulting Corporation(10)
|
|
200,000
|
|
200,000
|
|
0
|
*
|
Ciliamarie
F. McGinnis Trust(11)
|
|
120,000
|
|
20,000
|
|
100,000
|
*
|
Patrick
Bartz
|
|
52,000
|
|
40,000
|
|
12,000
|
*
|
Thomas
W. and Marjorie G. Clarke
|
|
50,000
|
|
50,000
|
|
0
|
*
|
Jeff
Bailey
|
|
75,000
|
|
15,000
|
|
60,000
|
*
|
Jack
Noble
|
|
40,000
|
|
40,000
|
|
0
|
*
|
Don
I. and Thomas Phillips
|
|
40,000
|
|
28,000
|
|
12,000
|
*
|
Virgil
and Jeane Lamb
|
|
40,000
|
|
40,000
|
|
0
|
*
|
Anthony
R. McGinnis
|
|
30,000
|
|
10,000
|
|
20,000
|
*
|
Lee
C. Pegorsch
|
|
20,000
|
|
20,000
|
|
0
|
*
|
R.
Brock Silverstein
|
|
20,000
|
|
20,000
|
|
0
|
*
|
Carolyn
P. McFarland
|
|
10,000
|
|
10,000
|
|
0
|
*
|
Allee
Messina
|
|
10,000
|
|
10,000
|
|
0
|
*
|
Jeffrey
R. Pass
|
|
37,000
|
|
37,000
|
|
0
|
*
|
Daniel
C. Pass
|
|
36,500
|
|
36,500
|
|
0
|
*
|
Molly
B. Pass
|
|
36,500
|
|
36,500
|
|
0
|
*
|
Claude
W. & Elizabeth Pass
|
|
5,000
|
|
5,000
|
|
0
|
*
|
John
T. Upmeier
|
|
2,500
|
|
2,500
|
|
0
|
*
|
Tim
Sullivan
|
|
15,000
|
|
15,000
|
|
0
|
*
|
Darleen
M. Upmeier
|
|
2,500
|
|
2,500
|
|
0
|
*
|
Jennifer
A.C. Eis
|
|
2,500
|
|
2,500
|
|
0
|
*
|
Deborah
M. Bangoli
|
|
2,500
|
|
2,500
|
|
0
|
*
|
Rebecca
Perez Reynoso
|
|
95,000
|
|
95,000
|
|
0
|
*
|
Kennith
D. & Martha E. Pearson
|
|
20,000
|
|
20,000
|
|
0
|
*
|
Sean
C. McGinnis
|
|
2,000
|
|
2,000
|
|
0
|
*
|
TOTAL:
|
|
|
|
7,330,907
|
|
|
|
____________________
* Less
than
1%
(1) Assumes
that all of the shares offered hereby are sold, of which there is no assurance.
(2) Beth
Reid
is the spouse of William Reid. William Reid has been an officer and director
of
our company since inception.
(3) Excludes
shares owned by the selling shareholder's spouse.
(4) David
Reid
has been an officer and director of our company since inception.
(5) Excludes
stock options owned by the selling shareholder.
(6) The
selling shareholder has identified Kevin Robinson as the individual with
the
power to vote and dispose of these shares.
(7) William
Pass is a former financial consultant to our company.
(8) ROYTOR
has
identified Frode Aschim as the individual with the power to vote and dispose
of
these shares.
(9) Jose
Perez
Reynoso acts as a consultant to our company.
(10) The
selling shareholder has identified Jeff Ploen as the individual with the
power
to vote and dispose of these shares.
(11) The
selling shareholder has identified Ciliamarie F. McGinnis as the individual
with
the power to vote and dispose of these shares.
___________________________
To
the
best of our knowledge, none of the selling shareholders are affiliates of
United
States broker-dealers, nor at the time of purchase did any of the selling
shareholders have any agreements or understandings, directly or indirectly,
with
any persons to distribute the securities.
The
selling shareholders and their pledgees, donees, transferees or other successors
in interest may offer the shares of our common stock from time to time after
the
date of this prospectus and will determine the time, manner and size of each
sale in the over the counter market, in privately negotiated transactions
or
otherwise. The shares may be offered at prices prevailing in the market or
at
privately negotiated prices. The selling shareholders may negotiate, and
may
pay, brokers or dealers commissions, discounts or concessions for their
services. In effecting sales, brokers or dealers engaged by the selling
shareholders may allow other brokers or dealers to participate. However,
the
selling shareholders and any brokers or dealers involved in the sale or resale
of the shares may qualify as "underwriters" within the meaning of Section
2(a)(11) of the Securities Act. In addition, the brokers' or dealers'
commissions, discounts or concessions may qualify as underwriters' compensation
under the Securities Act.
The
methods by which the selling shareholders may sell the shares of our common
stock include:
· |
A
block trade in which a broker or dealer so engaged will attempt to
sell
the shares as agent but may position and resell a portion of the
block, as
principal, in order to facilitate the
transaction;
|
· |
Sales
to a broker or dealer, as principal, in a market maker capacity or
otherwise and resale by the broker or dealer for its
account;
|
· |
Ordinary
brokerage transactions and transactions in which a broker solicits
purchases;
|
· |
Privately
negotiated transactions;
|
· |
Any
combination of these methods of sale;
or
|
· |
Any
other legal method.
|
In
addition to selling their shares under this prospectus, the selling shareholders
may transfer their shares in other ways not involving market makers or
established trading markets, including directly by gift, distribution, or other
transfer, or sell their shares under Rule 144 of the Securities Act rather
than
under this prospectus, if the transaction meets the requirements of Rule 144.
Any selling shareholder who uses this prospectus to sell his shares will be
subject to the prospectus delivery requirements of the Securities
Act.
Regulation
M under the Securities Exchange Act of 1934 provides that during the period
that
any person is engaged in the distribution of our shares of common stock, as
defined in Regulation M, such person generally may not purchase our common
stock. The selling shareholders are subject to these restrictions, which may
limit the timing of purchases and sales of our common stock by the selling
shareholders. This may affect the marketability of our common
stock.
The
selling shareholders may use agents to sell the shares. If this happens,
the
agents may receive discounts or commissions. The selling shareholders do
not
expect these discounts and commissions to exceed what is customary for the
type
of transaction involved. If required, a supplement to his prospectus will
set
forth the applicable commission or discount, if any, and the names of any
underwriters, brokers, dealers or agents involved in the sale of the shares.
The
selling shareholders and any underwriters, brokers, dealers or agents that
participate in the distribution of our common stock offered hereby may be
deemed
to be "underwriters" within the meaning of the Securities Act, and any profit
on
the sale of shares by them and any discounts, commissions, concessions or
other
compensation received by them may be deemed to be underwriting discounts
and
commissions under the Securities Act. The selling shareholders may agree
to
indemnify any broker or dealer or agent against certain liabilities relating
to
the selling of the shares, including liabilities arising under the Securities
Act.
Upon
notification by the selling shareholders that any material arrangement has
been
entered into with a broker or dealer for the sale of the shares through a block
trade, special offering, exchange distribution or secondary distribution or
a
purchase by a broker or dealer, we will file a supplement to this prospectus,
if
required, pursuant to Rule 424(b) under the Securities Act, disclosing the
material terms of the transaction.
Our
authorized capital consists of 60,000,000 shares of common stock, $.001 par
value per share, and 5,000,000 shares of preferred stock, $.001 per share.
As of
April 9, 2007, we had 28,169,552 shares of common stock issued and outstanding,
and no shares of preferred stock outstanding.
The
following discussion summarizes the rights and privileges of our capital stock.
This summary is not complete, and you should refer to our Articles of
Incorporation, as amended, which have been filed as an exhibit to the
registration statement of which this prospectus forms a part.
Common
Stock
The
holders of our common stock are entitled to one vote for each share held of
record on all matters submitted to stockholders, including the election of
directors. Cumulative voting for directors is not permitted. Except as provided
by special agreement, the holders of common stock are not entitled to any
preemptive rights and the shares are not redeemable or convertible. All
outstanding common stock is, and all common stock offered hereby will be, when
issued and paid for, fully paid and nonassessable. The number of authorized
shares of common stock may be increased or decreased (but not below the number
of shares then outstanding or otherwise reserved under obligations for issuance
by us) by the affirmative vote of a majority of shares cast at a meeting of
our
shareholders at which a quorum is present.
Our
Articles of Incorporation and Bylaws do not include any provision that would
delay, defer or prevent a change in control of our company. However, as a matter
of Colorado law, certain significant transactions would require the affirmative
vote of a majority of the shares eligible to vote at a meeting of shareholders
which requirement could result in delays to or greater cost associated with
a
change in control of the company.
The
holders of our common stock are entitled to dividends if, as and when declared
by our Board of Directors from legally available funds, subject to the
preferential rights of the holders of any outstanding preferred stock. Upon
any
voluntary or involuntary liquidation, dissolution or winding up of our affairs,
the holders of our common stock are entitled to share, on a pro rata basis,
all
assets remaining after payment to creditors and prior to distribution rights,
if
any, of any series of outstanding preferred stock.
Preferred
Stock
Our
Articles of Incorporation vest our Board of Directors with authority to divide
the preferred stock into series and to fix and determine the relative rights
and
preferences of the shares of any such series so established to the full extent
permitted by the laws of the State of Colorado and our Articles of Incorporation
in respect to, among other things, (i) the number of shares to constitute such
series and the distinctive designations thereof; (ii) the rate and preference
of
dividends, if any, the time of payment of dividends, whether dividends are
cumulative and the date from which any dividend shall accrue; (iii) whether
preferred stock may be redeemed and, if so, the redemption price and the terms
and conditions of redemption; (iv) the liquidation preferences payable on
preferred stock in the event of involuntary or voluntary liquidation; (v)
sinking fund or other provisions, if any, for redemption or purchase of
preferred stock; (vi) the terms and conditions by which preferred stock may
be
converted, if the preferred stock of any series are issued with the privilege
of
conversion; and (vii) voting rights, if any.
As
of the
date of this prospectus, we have not designated or authorized any preferred
stock for issuance.
Restrictions
on Future Sales of Our Common Stock
Under
the
terms of an agreement entered into with one holder of our common stock, we
are
obligated to offer that entity the first right to purchase our common stock
in
any future offering until August 2008. We do not believe the terms of this
arrangement will affect the market for our common stock, or our future
operations. However, it provides the holder the ability to preserve or increase
its percentage interest in our company.
Transfer
Agent
We
have
appointed Corporate Stock Transfer, Inc. ("CST") in Denver as transfer agent
for
our common stock. CST is located at 3200 Cherry Creek Drive South, Suite 430,
Denver, Colorado 80209 and its telephone number is (303) 282-4800.
Reports
to Shareholders
Following
the date of this prospectus, we will be required to file periodic reports with
the SEC, including quarterly and annual reports containing financial information
about our company. In the future, we may register our common stock with the
SEC
under the Securities Exchange Act of 1934. At that time, we would be required
to
deliver an annual report to our shareholders in conjunction with each annual
meeting of shareholders. Copies of the reports that we file with the SEC can
be
viewed on the SEC website. (See
"WHERE
YOU CAN FIND MORE INFORMATION").
We
may
also deliver quarterly or other periodic information to our shareholders.
Sales
of
substantial amounts of common stock (including shares issued upon the exercise
of outstanding options) in the public market after this offering could cause
the
market price of our common stock to decline. Those sales also might make it
more
difficult for us to sell equity-related securities in the future or reduce
the
price at which we could sell any equity-related securities.
In
May
2006, the SEC declared effective a registration statement covering the resale
of
approximately 8,900,000 shares of common stock by the selling shareholders
named
in this prospectus, as well as 4,600,000 shares sold by us. In February 2007,
the SEC also declared effective a registration statement covering the resale
of
approximately 5,860,000 shares of common stock by the selling shareholders
named
therein. Of the outstanding shares which were not registered in this prospectus
or the February 2007 registration, all except 30,000 shares are immediately
eligible for sale under Rule 144. As a result, almost all of our outstanding
shares of common stock are currently eligible for sale.
Rule
144
In
general, under Rule 144 as currently in effect, a person deemed to be our
affiliate, or a person holding restricted shares who beneficially owns shares
that were not acquired from us or our affiliate within the previous one year,
would be entitled to sell within any three-month period a number of shares
that
does not exceed the greater of:
· |
1%
of the then outstanding shares of our common stock,
or
|
· |
the
average weekly trading volume of our common stock during the four
calendar
weeks preceding the date on which notice of the sale is filed with
the SEC
if our common stock is listed on a national securities exchange
or quoted
on the automated quotation system of a national securities organization
at
the time of the proposed sale. Otherwise the volume limitation
is limited
to 1% of our then-outstanding common stock.
|
Sales
under Rule 144 are subject to requirements relating to manner of sale, notice
and availability of current public information about us.
Rule
144(k)
A
person
who is not deemed to have been our affiliate at any time during the 90 days
immediately preceding a sale and who owned shares for at least two years,
including the holding period of any prior owner who is not an affiliate,
would
be entitled to sell restricted shares following this offering under Rule
144(k)
without complying with the volume limitations, manner of sale provisions,
public
information or notice requirements of Rule 144.
You
may
read and copy any document we file at the SEC's Public Reference Rooms at 100
F
Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330
for
further information on the Public Reference Rooms. You can also obtain copies
of
our SEC filings by going to the SEC's website at http://www.sec.gov.
We
have
filed with the SEC a registration statement on Form SB-2 to register the shares
of our common stock. This prospectus is part of that registration statement
and,
as permitted by the SEC's rules, does not contain all of the information set
forth in the registration statement. For further information about us or our
common stock, you may refer to the registration statement and to the exhibits
filed as part of the registration statement. The description of all agreements
or the terms of those agreements contained in this prospectus are specifically
qualified by reference to the agreements, filed or incorporated by reference
in
the registration statement.
We
will
provide copies of our reports and other information which we file with the
SEC
without charge to each person who receives a copy of this prospectus. Your
request for this information should be directed to our President, William
Reid,
at our corporate office in Denver, Colorado. You can also review this
information at the public reference rooms of the SEC and on the SEC's website
as
described above.
We
have
been advised on the legality of the shares included in this prospectus by
Dufford & Brown, P.C., of Denver, Colorado.
Our
financial statements as of December 31, 2006 and for the two years then ended
included in this prospectus have been included in reliance on the report
of
Stark Winter Schenkein & Co., LLP, our independent registered public
accounting firm. These financial statements have been included on the authority
of this firm as an expert in auditing and accounting.
FINANCIAL
STATEMENTS
Index
to Financial Statements:
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
Consolidated
Balance Sheet at December 31, 2006
|
|
|
|
Consolidated
Statements of Operations for the years ended December 31, 2006
and
2005,
and for the period from Inception (August 24, 1998) to December
31,
2006
|
F-4
|
|
|
Consolidated
Statements of Changes in Shareholders’ Equity for the years ended December
31, 2006 and 2005,
and for the period from Inception (August 24, 1998) to December
31,
2006
|
F-5
|
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2006
and
2005,
and for the period from Inception (August 24, 1998) to December
31,
2006
|
F-6
|
|
|
Notes
to Consolidated Financial Statements
|
F-7
|
Board
of
Directors and Shareholders
Gold
Resource Corporation
Denver,
Colorado
We
have
audited the accompanying consolidated balance sheet of Gold Resource Corporation
as of December 31, 2006 and the related consolidated statements of operations,
changes in shareholders’ equity and cash flows for the years ended December 31,
2006 and 2005. These consolidated financial statements are the responsibility
of
the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based upon our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the financial position of Gold Resource Corporation
as
of December 31, 2006, and the results of its operations and its cash flows
for
the years ended December 31, 2006 and 2005, in conformity with accounting
principles generally accepted in the United States of
America.
/s/
Stark Winter Schenkein & Co., LLP
|
|
March
27, 2007
|
Denver,
Colorado
|
GOLD
RESOURCE CORPORATION AND SUBSIDIARIES
(An
Exploration Stage Company)
CONSOLIDATED
BALANCE SHEET
As
of December 31, 2006
ASSETS
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
$
|
7,660,258
|
|
Refundable
tax payments
|
|
|
|
|
|
193,271
|
|
Other
current assets
|
|
|
|
|
|
12,841
|
|
Total
current assets
|
|
|
|
|
|
7,866,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in mineral properties
|
|
-
|
|
Property
and equipment, net
|
|
96,279
|
|
Other
assets
|
|
1,469
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
|
|
$
|
7,964,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
|
|
$
|
451,163
|
|
Total
current liabilities
|
|
|
|
|
|
451,163
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
Preferred
stock - $0.001 par value, 5,000,000 shares authorized:
|
|
|
|
|
|
|
|
No
shares issued or outstanding
|
|
|
|
|
|
-
|
|
Common
stock - $0.001 par value, 60,000,000 shares authorized:
|
|
|
|
|
|
|
|
28,139,552
shares issued and outstanding
|
|
|
|
|
|
28,139
|
|
Additional
paid-in capital
|
|
|
|
|
|
14,062,002
|
|
Accumulated
(deficit) during the exploration stage
|
|
|
|
|
|
(6,596,869
|
)
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
Currency
translation adjustment
|
|
|
|
|
|
19,683
|
|
Total
shareholders' equity
|
|
|
|
|
|
7,512,955
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' equity
|
|
|
|
|
$
|
7,964,118
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
GOLD
RESOURCE CORPORATION AND SUBSIDIARIES
(An
Exploration Stage Company)
CONSOLIDATED
STATEMENTS OF OPERATIONS
For
the years ended December 31, 2006 and 2005
and
for the period from Inception (August 24, 1998) to December 31,
2006
|
|
|
|
|
|
Inception
|
|
|
|
|
|
|
|
(August
24, 1998) to
|
|
|
|
2006
|
|
2005
|
|
December
31, 2006
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Gold
sales
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and Expenses:
|
|
|
|
|
|
|
|
|
|
|
Property
exploration and evaluation
|
|
|
528,851
|
|
|
739,570
|
|
|
2,311,991
|
|
Property
acquisition
|
|
|
100,000
|
|
|
103,548
|
|
|
458,681
|
|
Management
contract - U. S. Gold, related party
|
|
|
-
|
|
|
-
|
|
|
752,191
|
|
General
and administrative
|
|
|
|
|
|
|
|
|
|
|
Salaries
and benefits
|
|
|
850,490
|
|
|
140,434
|
|
|
990,924
|
|
Legal
and accounting
|
|
|
206,465
|
|
|
73,856
|
|
|
318,551
|
|
Investor
relations
|
|
|
130,583
|
|
|
11,038
|
|
|
152,985
|
|
Travel
related
|
|
|
103,241
|
|
|
22,393
|
|
|
178,005
|
|
All
other general and administrative
|
|
|
179,282
|
|
|
38,498
|
|
|
258,902
|
|
Stock
Based Compensation
|
|
|
|
|
|
|
|
|
|
|
Stock
awards
|
|
|
479,850
|
|
|
87,500
|
|
|
1,067,350
|
|
Grant
of stock options
|
|
|
147,050
|
|
|
-
|
|
|
147,050
|
|
Depreciation
|
|
|
18,039
|
|
|
7,248
|
|
|
25,287
|
|
Total
costs and expenses
|
|
|
2,743,851
|
|
|
1,224,085
|
|
|
6,661,917
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
(loss)
|
|
|
(2,743,851
|
)
|
|
(1,224,085
|
)
|
|
(6,661,917
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
income:
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
57,089
|
|
|
6,174
|
|
|
65,048
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
before income taxes
|
|
|
(2,686,762
|
)
|
|
(1,217,911
|
)
|
|
(6,596,869
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss)
|
|
|
(2,686,762
|
)
|
|
(1,217,911
|
)
|
|
(6,596,869
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
Currency
translation gain (loss)
|
|
|
19,544
|
|
|
200
|
|
|
19,683
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
comprehensive (loss)
|
|
$
|
(2,667,218
|
)
|
$
|
(1,217,711
|
)
|
$
|
(6,577,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
$
|
(0.13
|
)
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
|
20,218,659
|
|
|
16,164,715
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
GOLD
RESOURCE CORPORATION AND SUBSIDIARIES
(An
Exploration Stage Company)
For
the period from Inception (August 24, 1998) to December 31, 2006
|
|
Number
of
|
|
Par
Value of
|
|
Additional
|
|
|
|
Comprehensive
|
|
Total
|
|
|
|
Common
|
|
Common
|
|
Paid
- in
|
|
Accumulated
|
|
Income
|
|
Shareholders'
|
|
|
|
Shares
|
|
Shares
|
|
Capital
|
|
(Deficit)
|
|
(Loss)
|
|
Equity
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at Inception, August 24, 1998
|
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
for contributed capital at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.005
per share - related parties
|
|
|
2,800,000
|
|
|
2,800
|
|
|
(1,400
|
)
|
|
-
|
|
|
-
|
|
|
1,400
|
|
Net
(loss)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,657
|
)
|
|
-
|
|
|
(1,657
|
)
|
Balance,
December 31, 1998
|
|
|
2,800,000
|
|
|
2,800
|
|
|
(1,400
|
)
|
|
(1,657
|
)
|
|
-
|
|
|
(257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
for contributed capital at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.005
per share - related parties
|
|
|
1,000,000
|
|
|
1,000
|
|
|
(500
|
)
|
|
-
|
|
|
-
|
|
|
500
|
|
Net
(loss)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(663
|
)
|
|
-
|
|
|
(663
|
)
|
Balance,
December 31, 1999
|
|
|
3,800,000
|
|
|
3,800
|
|
|
(1,900
|
)
|
|
(2,320
|
)
|
|
-
|
|
|
(420
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for management contract
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at
$0.17 per share - related party
|
|
|
1,226,666
|
|
|
1,226
|
|
|
202,578
|
|
|
-
|
|
|
-
|
|
|
203,804
|
|
Net
(loss)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(205,110
|
)
|
|
-
|
|
|
(205,110
|
)
|
Balance,
December 31, 2000
|
|
|
5,026,666
|
|
|
5,026
|
|
|
200,678
|
|
|
(207,430
|
)
|
|
-
|
|
|
(1,726
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for management contract
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at
$0.14 per share - related party
|
|
|
1,333,334
|
|
|
1,334
|
|
|
187,053
|
|
|
-
|
|
|
-
|
|
|
188,387
|
|
Conversion
of debentures at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.25
per share - related parties
|
|
|
200,000
|
|
|
200
|
|
|
49,800
|
|
|
-
|
|
|
-
|
|
|
50,000
|
|
Sale
of shares for cash at $0.25 per share
|
|
|
820,000
|
|
|
820
|
|
|
204,180
|
|
|
-
|
|
|
-
|
|
|
205,000
|
|
Net
(loss)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(346,498
|
)
|
|
-
|
|
|
(346,498
|
)
|
Balance,
December 31, 2001
|
|
|
7,380,000
|
|
|
7,380
|
|
|
641,711
|
|
|
(553,928
|
)
|
|
-
|
|
|
95,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for cash at $0.25 per share
|
|
|
392,000
|
|
|
392
|
|
|
97,608
|
|
|
-
|
|
|
-
|
|
|
98,000
|
|
Shares
issued for cash at $0.17 per share
|
|
|
1,351,352
|
|
|
1,351
|
|
|
223,322
|
|
|
-
|
|
|
-
|
|
|
224,673
|
|
Net
(loss)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(788,629
|
)
|
|
(17
|
)
|
|
(788,646
|
)
|
Balance,
December 31, 2002
|
|
|
9,123,352
|
|
|
9,123
|
|
|
962,641
|
|
|
(1,342,557
|
)
|
|
(17
|
)
|
|
(370,810
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for cash at $0.25 per share
|
|
|
577,000
|
|
|
577
|
|
|
143,673
|
|
|
-
|
|
|
-
|
|
|
144,250
|
|
Share
issuance costs forgiven
|
|
|
-
|
|
|
-
|
|
|
25,327
|
|
|
-
|
|
|
-
|
|
|
25,327
|
|
Net
(loss)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(496,046
|
)
|
|
29
|
|
|
(496,017
|
)
|
Balance,
December 31, 2003
|
|
|
9,700,352
|
|
|
9,700
|
|
|
1,131,641
|
|
|
(1,838,603
|
)
|
|
12
|
|
|
(697,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for cash at $0.25 per share
|
|
|
608,000
|
|
|
608
|
|
|
151,392
|
|
|
-
|
|
|
-
|
|
|
152,000
|
|
Shares
issued in repayment of loan related
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
exploration agreement at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.42
per share
|
|
|
1,200,000
|
|
|
1,200
|
|
|
498,800
|
|
|
-
|
|
|
-
|
|
|
500,000
|
|
Shares
issued as stock grant at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.25
per share
|
|
|
600,000
|
|
|
600
|
|
|
149,400
|
|
|
-
|
|
|
-
|
|
|
150,000
|
|
Net
(loss)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(853,593
|
)
|
|
(73
|
)
|
|
(853,666
|
)
|
Balance,
December 31, 2004
|
|
|
12,108,352
|
|
|
12,108
|
|
|
1,931,233
|
|
|
(2,692,196
|
)
|
|
(61
|
)
|
|
(748,916
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
grant at $0.25 per share
|
|
|
1,750,000
|
|
|
1,750
|
|
|
435,750
|
|
|
-
|
|
|
-
|
|
|
437,500
|
|
Stock
option exercised at $0.25 per share
|
|
|
10,000
|
|
|
10
|
|
|
2,490
|
|
|
-
|
|
|
-
|
|
|
2,500
|
|
Stock
issued for cash at $0.25 per share
|
|
|
276,000
|
|
|
276
|
|
|
68,724
|
|
|
-
|
|
|
-
|
|
|
69,000
|
|
Stock
issued for satisfaction of payables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at
$0.25 per share
|
|
|
1,280,000
|
|
|
1,280
|
|
|
318,720
|
|
|
-
|
|
|
-
|
|
|
320,000
|
|
Shares
issued for cash at $0.47 per share
|
|
|
2,728,500
|
|
|
2,729
|
|
|
1,272,271
|
|
|
-
|
|
|
-
|
|
|
1,275,000
|
|
Shares
issued for cash at $0.50 per share
|
|
|
122,000
|
|
|
122
|
|
|
60,878
|
|
|
-
|
|
|
-
|
|
|
61,000
|
|
Shares
issued for cash at $0.50 per share
|
|
|
30,000
|
|
|
30
|
|
|
14,970
|
|
|
-
|
|
|
-
|
|
|
15,000
|
|
Net
(loss)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,217,911
|
)
|
|
200
|
|
|
(1,217,711
|
)
|
Balance,
December 31, 2005
|
|
|
18,304,852
|
|
|
18,305
|
|
|
4,105,036
|
|
|
(3,910,107
|
)
|
|
139
|
|
|
213,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options exercised at $0.25 per share
|
|
|
240,000
|
|
|
240
|
|
|
59,760
|
|
|
-
|
|
|
-
|
|
|
60,000
|
|
Stock
options granted
|
|
|
-
|
|
|
-
|
|
|
147,050
|
|
|
-
|
|
|
-
|
|
|
147,050
|
|
Director
stock grant at $1.00 per share
|
|
|
100,000
|
|
|
100
|
|
|
99,900
|
|
|
-
|
|
|
-
|
|
|
100,000
|
|
Shares
issued for cash at $1.00 per share,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of issuance costs
|
|
|
4,600,000
|
|
|
4,600
|
|
|
4,346,600
|
|
|
-
|
|
|
-
|
|
|
4,351,200
|
|
Shares
issued for investor relations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
services
at $1.14 per share
|
|
|
280,000
|
|
|
280
|
|
|
319,720
|
|
|
-
|
|
|
-
|
|
|
320,000
|
|
Shares
issued for cash at $1.20 per share,
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
|
|
net
of issuance costs
|
|
|
4,322,000
|
|
|
4,322
|
|
|
4,924,378
|
|
|
-
|
|
|
-
|
|
|
4,928,700
|
|
Shares
issued for investment banking
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
services
at $1.20 per share
|
|
|
257,700
|
|
|
257
|
|
|
(257
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Employee
stock grants at $1.71 per share
|
|
|
35,000
|
|
|
35
|
|
|
59,815
|
|
|
-
|
|
|
-
|
|
|
59,850
|
|
Net
(loss)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,686,762
|
)
|
|
19,544
|
|
|
(2,667,218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
|
28,139,552
|
|
$
|
28,139
|
|
$
|
14,062,002
|
|
$
|
(6,596,869
|
)
|
$
|
19,683
|
|
$
|
7,512,955
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
GOLD
RESOURCE CORPORATION AND SUBSIDIARIES
(An
Exploration Stage Company)
For
the years ended December 31, 2006 and 2005
and
for the period from Inception (August 24, 1998) to December 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception
|
|
|
|
|
|
|
|
(August
24, 1998) to
|
|
|
|
2006
|
|
2005
|
|
December
31, 2006
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
(loss)
|
|
$
|
(2,686,762
|
)
|
$
|
(1,217,911
|
)
|
$
|
(6,596,869
|
)
|
Adjustments
to reconcile net (loss) to net cash
|
|
|
|
|
|
|
|
|
|
|
used
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
18,039
|
|
|
7,248
|
|
|
25,287
|
|
Stock
compensation
|
|
|
626,900
|
|
|
87,500
|
|
|
1,214,400
|
|
Management
fee paid in stock
|
|
|
-
|
|
|
-
|
|
|
392,191
|
|
Related
party payable paid in stock
|
|
|
-
|
|
|
320,000
|
|
|
320,000
|
|
Foreign
currency translation adjustment
|
|
|
19,544
|
|
|
200
|
|
|
19,683
|
|
Issuance
cost forgiven
|
|
|
-
|
|
|
-
|
|
|
25,327
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Operating
assets
|
|
|
(191,135
|
)
|
|
(11,446
|
)
|
|
(206,112
|
)
|
Accounts
payable and accrued liabilites
|
|
|
426,326
|
|
|
20,093
|
|
|
451,163
|
|
Other
liabilities - related parties
|
|
|
(8,770
|
)
|
|
(384,962
|
)
|
|
-
|
|
Other
|
|
|
-
|
|
|
-
|
|
|
(4,569
|
)
|
Total
adjustments
|
|
|
890,904
|
|
|
38,633
|
|
|
2,237,370
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash (used in) operating activities
|
|
|
(1,795,858
|
)
|
|
(1,179,278
|
)
|
|
(4,359,499
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(59,966
|
)
|
|
(61,600
|
)
|
|
(121,566
|
)
|
Net
cash (used in) investing activities
|
|
|
(59,966
|
)
|
|
(61,600
|
)
|
|
(121,566
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Cash
proceeds from initial public stock offering
|
|
|
4,351,200
|
|
|
-
|
|
|
4,351,200
|
|
Cash
proceeds from other sales of stock
|
|
|
4,928,700
|
|
|
1,405,000
|
|
|
7,177,623
|
|
Cash
proceeds from exercise of options
|
|
|
60,000
|
|
|
2,500
|
|
|
62,500
|
|
Proceeds
from debentures - founders
|
|
|
-
|
|
|
-
|
|
|
50,000
|
|
Proceeds
from exploration funding agreement - Canyon Resources
|
|
|
-
|
|
|
-
|
|
|
500,000
|
|
Net
cash provided by financing activities
|
|
|
9,339,900
|
|
|
1,407,500
|
|
|
12,141,323
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and equivalents
|
|
|
7,484,076
|
|
|
166,622
|
|
|
7,660,258
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and equivalents at beginning of year
|
|
|
176,182
|
|
|
9,560
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and equivalents at end of year
|
|
$
|
7,660,258
|
|
$
|
176,182
|
|
$
|
7,660,258
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Income
taxes paid
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
Conversion
of Canyon Resources funding into
|
|
|
|
|
|
|
|
|
|
|
common
stock
|
|
$
|
-
|
|
$
|
-
|
|
$
|
500,000
|
|
Conversion
of founders debentures into
|
|
|
|
|
|
|
|
|
|
|
common
stock
|
|
$
|
-
|
|
$
|
-
|
|
$
|
50,000
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
GOLD
RESOURCE CORPORATION AND SUBSIDIARIES
(An
Exploration Stage Company)
December
31, 2006
1. Summary
of Significant Accounting Policies
Basis
of Presentation: Gold
Resource Corporation (the “Company”) was organized under the laws of the State
of Colorado on August 24, 1998. The Company has been engaged in the
exploration for precious and base metals, primarily in Mexico, as an exploration
stage company. The Company has not generated any revenues from operations.
The
consolidated financial statements included herein are expressed in United
States
dollars, the Company's functional currency.
Basis
of Consolidation: The
consolidated financial statements include the accounts of the Company and
its
wholly owned Mexican corporation subsidiaries, Don David Gold S.A. de C.V.
and
Golden Trump S.A. de C.V. The expenditures of Don David Gold and Golden Trump
are generally incurred in Mexican pesos. Significant intercompany accounts
and
transactions have been eliminated.
Statements
of Cash Flows: The
Company considers cash in banks, deposits in transit, and highly liquid debt
instruments purchased with original maturities of three months or less to
be
cash and cash equivalents.
Exploration
and Development Costs: Mineral
property acquisition, exploration and related costs are expensed as incurred
unless proven and probable reserves exist and the property is a commercially
mineable property. When it has been determined that a mineral property can
be
economically developed, the costs incurred to develop such property, including
costs to further delineate the ore body and develop the property for production,
may be capitalized. In addition, the Company may capitalize previously expensed
acquisition and exploration costs if it is later determined that the property
can economically be developed. Interest costs, if any, allocable to the cost
of
developing mining properties and to constructing new facilities are capitalized
until operations commence. Mine development costs incurred either to develop
new
ore deposits, expand the capacity of operating mines, or to develop mine
areas
substantially in advance of current production are also capitalized. All
such
capitalized costs, and estimated future development costs, are then amortized
using the units-of-production method over the estimated life of the ore body.
Costs incurred to maintain current production or to maintain assets on a
standby
basis are charged to operations. Costs of abandoned projects are charged
to
operations upon abandonment. The Company evaluates, at least quarterly, the
carrying value of capitalized mining costs and related property, plant and
equipment costs, if any, to determine if these costs are in excess of their
net
realizable value and if a permanent impairment needs to be recorded. The
periodic evaluation of carrying value of capitalized costs and any related
property, plant and equipment costs are based upon expected future cash flows
and/or estimated salvage value in accordance with Statement of Financial
Accounting Standards (SFAS) No. 144, "Accounting for Impairment or Disposal
of Long-Lived Assets."
GOLD
RESOURCE CORPORATION AND SUBSIDIARIES
(An
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006
Property
and Equipment: All
items of property and equipment are carried at cost not in excess of their
estimated net realizable value. Normal maintenance and repairs are charged
to
earnings while expenditures for major maintenance and betterments are
capitalized. Gains or losses on disposition are recognized in operations.
Depreciation: Depreciation
of property and equipment is computed using straight-line methods over the
estimated economic lives, as follows:
Trucks
and autos
|
|
4
to 5 years
|
Office
furniture and equipment
|
|
5
to 10 years
|
Computer
hardware and software
|
|
3
years
|
Exploration
equipment
|
|
6
to 8 years
|
Property
Retirement Obligation: The
Company implemented SFAS 143, "Accounting for Asset Retirement
Obligations," effective January 1, 2003. SFAS 143 requires the fair
value of a liability for an asset retirement obligation to be recognized
in the
period that it is incurred if a reasonable estimate of fair value can be
made.
The
associated asset retirement costs are capitalized as part of the carrying
amount
of the long-lived asset. The Company has determined that it has no property
retirement obligations as of December 31, 2006.
Stock
Option Plans: Effective
January 1, 2006, the Company implemented SFAS 123, “Accounting for Stock-Based
Compensation,” requiring the Company to provide compensation costs for the
Company’s stock option plans determined in accordance with the fair value based
method prescribed in SFAS 123, as amended. The Company estimates the fair
value
of each stock option at the grant date by using the Black-Scholes option-pricing
model and provides for expense recognition over the service period, if any,
of
the stock option.
Prior
to
January 1, 2006, the Company applied APB Opinion 25, “Accounting for Stock
Issued to Employees,” and related interpretations in accounting for all stock
option plans. Under APB Opinion 25, no compensation cost was recognized for
stock options issued to employees as the exercise price of the Company's
stock
options granted equaled or exceeded the market price of the underlying common
stock on the date of grant.
Per
Share Amounts: SFAS 128,
"Earnings Per Share," provides for the calculation of "Basic" and "Diluted"
earnings per share. Basic earnings per share includes no dilution and is
computed by dividing income available to common shareholders by the
weighted-average number of shares outstanding during the period (20,218,659
for
2006 and 16,164,715 for 2005) . Diluted earnings per share reflect the potential
dilution of securities that could share in the earnings of the Company, similar
to fully diluted earnings per share. As of December 31, 2006 and 2005,
stock options are not considered in the computation of diluted earnings per
share as their inclusion would be antidilutive.
GOLD
RESOURCE CORPORATION AND SUBSIDIARIES
(An
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006
Income
Taxes: The
Company accounts for income taxes under SFAS 109, "Accounting for Income
Taxes". Temporary differences are differences between the tax basis of assets
and liabilities and their reported amounts in the financial statements that
will
result in taxable or deductible amounts in future years.
Use
of Estimates: The
preparation of the Company's consolidated financial statements in conformity
with generally accepted accounting principles requires the Company's management
to make estimates and assumptions that affect the amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date
of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Business
Risks: The
Company continually reviews the mining and political risks it encounters
in its
operations. It mitigates the likelihood and potential severity of these risks
through the application of high operating standards. The Company's operations
have been and in the future may be, affected to various degrees by changes
in
environmental regulations, including those for future site restoration and
reclamation costs. The Company's business is subject to extensive licensing,
permitting, governmental legislation, control and regulations. The Company
endeavors to be in compliance with these regulations at all times.
Fair
Value of Financial Instruments: SFAS 107,
"Disclosures About Fair Value of Financial Instruments," requires disclosure
of
fair value information about financial instruments. Fair value estimates
discussed herein are based upon certain market assumptions and pertinent
information available to management as of December 31, 2006.
The
respective carrying value of certain on-balance-sheet financial instruments
approximate their fair values. These financial instruments include cash,
cash
equivalents, refundable tax payments, accounts payable and accrued liabilities.
Fair values were assumed to approximate carrying values for these financial
instruments since they are short term in nature and their carrying amounts
approximate fair value, or they are receivable or payable on demand.
Concentration
of Credit Risk: The
Company's operating cash balances are maintained in two primary financial
institutions and periodically exceed federally insured limits. The Company
believes that the financial strength of these institutions mitigates the
underlying risk of loss. To date, these concentrations of credit risk have
not
had a significant impact on the Company’s financial position or results of
operations.
Foreign
Operations: The
Company's present activities are in Mexico. As with all types of international
business operations, currency fluctuations, exchange controls, restrictions
on
foreign investment, changes to tax regimes, political action and political
instability could impair the value of the Company's investments.
GOLD
RESOURCE CORPORATION AND SUBSIDIARIES
(An
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006
Foreign
Currency Translation: The
local currency, the Mexican peso, is the functional currency for the Company's
subsidiaries. Current assets and current liabilities are translated using
the
exchange rate in effect at the balance sheet date. Other assets and liabilities
are translated using historical exchange rates. Revenues and expenses are
translated at the average exchange rate for the year. Translation adjustments
are reported as a separate component of stockholders' equity.
Recent
Pronouncements: The
FASB has issued FSP EITF 00-19-2. This FSP states that the contingent obligation
to make future payments or other transfers of consideration under a registration
payment arrangement, issued as a separate agreement or included as a part
of a
financial instrument or other agreement, should be separately recognized
and
measured in accordance with SFAS 5. Also, a financial instrument subject
to a
registration payment arrangement should be accounted for in accordance with
other applicable GAAP without regard to the contingent obligation to transfer
consideration pursuant to the registration payment arrangement. This FSP
was
adopted on October 1, 2006.
In
September 2006, the FASB issued Statement No. 157, “Fair Value
Measurements” (SFAS
157). SFAS 157 defines fair value, establishes a framework for measuring
fair
value in generally accepted accounting principles, and expands disclosures
about
fair value measurements. The provisions of SFAS 157 are effective for the
Company’s fiscal year beginning January 1, 2008. We are currently determining
the effect of this statement on our financial reporting
In
June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes” (FIN 48). This interpretation prescribes a recognition threshold
and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return.
FIN
48 requires that the Company recognize in its financial statements the impact
of
a tax position if that position is more likely that not of being sustained
upon
examination based on the technical merits of the position. This interpretation
also includes guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. The provisions
of FIN
48 are effective January 1, 2007 with the cumulative effect reported as an
adjustment to the opening balance of retained earnings for the fiscal year.
We
are currently determining the effect of this interpretation on our financial
reporting.
GOLD
RESOURCE CORPORATION AND SUBSIDIARIES
(An
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006
2. Mineral
Properties
El
Aguila
Effective
November 1, 2002, the Company, through its subsidiary, Don David Gold S.A.
de C.V. leased a prospective gold/silver property located in the state of
Oaxaca, Mexico, designated the "El Aguila" property, from Jose Perez
Reynoso, a consultant to the Company. The El Aguila property is an
exploration stage property and incorporates approximately 4,685 acres as
of
December 31, 2006. The lease agreement for El Aguila is subject to a
4% net smelter return royalty to the lessor where production is sold in the
form
of gold/silver dore and 5% for production sold in concentrate form. The lease
agreement required the Company to make periodic advance royalty payments
at
various times through October, 2006. Aggregate advance royalties paid under
this
lease were $260,000 through December 31, 2006.
Through
December 31, 2006, the Company has spent or incurred approximately
$1,978,000 in acquisition, exploration and related costs for El Aguila of
which
approximately $629,000 was spent in 2006.
3. Property
and Equipment
At
December 31, 2006, property and equipment consisted of the following:
Trucks
and autos
|
|
$
|
60,203
|
|
Office
furniture and equipment
|
|
|
50,693
|
|
Exploration
equipment
|
|
|
10,670
|
|
Subtotal
|
|
|
121,566
|
|
Accumulated
depreciation
|
|
|
(25,287
|
)
|
Total
|
|
$
|
96,279
|
|
4. Income
Taxes
At
December 31, 2006, the Company has tax loss carryforwards approximating
$5,800,000 that expire at various dates through 2026. The principal difference
between the net loss for book purposes and the net loss for income tax purposes
relates to the $320,000 payment in shares to US Gold Corporation ("US Gold")
which is deductible for tax purposes when recognized as income by US Gold,
and
non cash compensation expense recorded for grants in the form of common stock
shares or options to purchase common stock shares. The non-deductible amount
of
such compensation was $1,523,000.
GOLD
RESOURCE CORPORATION AND SUBSIDIARIES
(An
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006
The
tax effects of temporary differences that give rise to significant portions
of
the deferred tax assets and deferred tax liabilities at December 31, 2006,
are presented below:
|
|
|
|
Deferred
tax assets:
|
|
|
|
Net
operating loss carryforwards
|
|
$
|
1,972,000
|
|
|
|
|
|
|
Less
valuation allowance
|
|
|
(1,972,000
|
)
|
Net
deferred tax asset
|
|
$
|
-
|
|
At
this time, the company is unable to determine if it will be able to benefit
from
its deferred tax asset. There are limitations on the utilization of net
operating loss carryforwards, including a requirement that losses be offset
against future taxable income, if any. In addition, there are limitations
imposed by certain transactions which are deemed to be ownership changes.
Accordingly, a valuation allowance has been established for the entire deferred
tax asset. The change in the valuation allowance was approximately $900,000
during 2006.
|
|
2006
|
|
2005
|
|
Tax
at statutory rates
|
|
$
|
(914,000
|
)
|
$
|
(421,000
|
)
|
Book
to tax adjustments:
|
|
|
|
|
|
|
|
Stock
and option grants
|
|
|
217,000
|
|
|
30,000
|
|
Net
operating loss
|
|
|
697,000
|
|
|
391,000
|
|
Tax
provision
|
|
$
|
-
|
|
$
|
-
|
|
5. Shareholders'
Equity (Deficit)
Effective
February 21, 2005, the Company declared and effected a 100% forward stock
split where one additional share of common stock, par value $.001, was issued
for each common share outstanding as of that date. All of the financial
information in this report has been adjusted to reflect the effect of this
two-for-one stock split and the increase in authorized shares.
The
Company was formed August 24, 1998 by William W. Reid and David C. Reid
(the "Founders"). During 1998 and 1999, the Founders received 3,800,000 shares
of common stock valued at $1,900 for administrative and organization expenses.
The Company remained generally inactive through 1999.
GOLD
RESOURCE CORPORATION AND SUBSIDIARIES
(An
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006
Commencing
July 1, 2000, the Company and US Gold, a publicly traded Colorado
corporation, entered into a management contract whereby US Gold provided
general
management of the business activities of the Company through December 31,
2001. Under this management contract, US Gold was issued 2,560,000 shares
of
common stock of the Company. The 2,560,000 shares were valued at $392,191
or
approximately $.15 per share. Through this arrangement the Company benefited
from experienced management without the need to raise cash funding for the
related cost of such management and administration. The Company was, however,
responsible for all additional funding needed.
During
2001, the Founders made convertible debenture loans to the Company and then
converted $50,000 in convertible debentures into 200,000 shares of common
stock
of the Company at a conversion price of $.25 per share.
In
September 2001, the Company commenced the sale of its common shares under
exemptions offered by federal and state securities regulations. During 2001
the
Company sold 820,000 shares at $.25 per share to various parties, and as
noted
above, Founders converted debenture debt of $50,000 into 200,000 shares at
$.25
per share.
During
2002, the Company sold 392,000 shares at $.25 per share ($98,000) to various
parties and 1,351,352 shares at approximately $.17 per share ($224,673) to
an
institutional investor, RMB International (Dublin) Limited ("RMB").
During
2003, the Company sold 577,000 shares at $.25 per share raising net proceeds
of
$144,250. Effective September 30, 2003, US Gold acquired the RMB shares in
exchange for US Gold shares, and terminated the obligation of the Company
to pay
RMB approximately $25,327 in transaction costs, which was added back into
paid-in-capital.
In
August 2003, the Company entered into an exploration agreement with Canyon
Resources Corporation, a public company with shares traded on the American
Stock
Exchange under symbol "CAU" ("Canyon"), whereby Canyon had the right to earn
a
50% interest in the El Aguila property from the Company in exchange for funding
$3.5 million in exploration and development costs at the El Aguila
property, or alternatively, Canyon could receive 1,200,000 shares of the
common
stock of the Company for funding $500,000 for exploration drilling at El
Aguila.
The $500,000 funding from Canyon was structured as a non-interest bearing
loan.
The drilling programs were completed in 2003 and included approximately 12,939
feet of drilling focused on one target area of the property. This exploration
drilling encountered some mineralization which will require additional
exploration drilling in order to fully evaluate. Effective September 1,
2004, Canyon elected to convert its loan of $500,000 into 1,200,000 shares
of
common stock of the Company.
Also,
during 2004, the Company sold 608,000 shares at $.25 per share raising net
proceeds of $152,000. Additionally, the Company made a stock grant of 600,000
shares at $.25 per share or $150,000 to a consultant of the Company, Jose
Perez
Reynoso.
GOLD
RESOURCE CORPORATION AND SUBSIDIARIES
(An
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006
Effective
January 2, 2005, the Company made common stock awards to its two executive
officers and a consultant of an aggregate 1,750,000 shares for services
performed during 2004 and 2005. The shares were valued at $437,500 (or $0.25
per
share) which was recorded as stock based compensation expense of $350,000
in
2004 and $87,500 in 2005. In this distribution of common stock, William W.
Reid
received 1,000,000 shares, David C. Reid received 500,000 shares and
William F. Pass received 250,000 shares. Also effective January 2, 2005, a
stock option agreement with William F. Pass covering 400,000 shares of
common stock at exercise price of $.25 per share was reduced by 250,000 shares
leaving 150,000 shares remaining subject to option.
During
2005 an individual exercised stock options for 10,000 shares for $2,500.
In June
2005, the Company issued 1,280,000 shares to US Gold Corporation in satisfaction
of $320,000 owed for a prior year management contract.
During
2005, the Company sold 428,000 shares to individual investors for cash proceeds
of $145,000 (276,000 shares at $0.25 per share and 152,000 shares at $0.50
per
share).
In
addition, during July and August 2005, the Company closed transactions under
a
Subscription Agreement and Stock Purchase Option Agreement with Heemskirk
Consolidated Limited ("Heemskirk"), an Australian global mining house, whereby
Heemskirk purchased 2,000,000 shares of common stock of the Company at $0.50
per
share. A finder’s fee of 140,000 shares was paid to a third party (resulting a
net value of $0.47 per share). Heemskirk had previously purchased (in April,
2005) 150,000 shares of common stock at $0.50 per share and the Company had
paid
a finder’s fee of 10,500 shares. The Company agreed to give Heemskirk a first
right of offer for any financings, including sale of equity, the Company
may
pursue, subject to the prior rights of Canyon discussed above. In a similar
transaction during August 2005, the Company sold 400,000 shares to another
investor raising $200,000 and paid a finder’s fee to a third party of 28,000
shares. These transactions resulted in the issuance of 2,728,500 shares for
net
cash proceeds of $1,275,000 ($0.47 per share).
During
2006, the Company sold 4,600,000 shares of common stock at $1.00 per share
in a
public offering under a Form SB-2 registration statement that was declared
effective on May 15, 2006. The Company received cash proceeds of $4,351,200
(net
of finders’ fees of $248,800).
During
2006, the Company completed a private placement of 4,322,000 shares of common
stock at $1.20 per share, and received net cash proceeds of $4,928,700, after
deducting finders’ fees of $257,700. The Company also issued 257,700 shares of
common stock as finders’ fees in connection with this private placement.
During
2006, the Company received cash proceeds of $60,000 pursuant to the exercise
of
options to purchase 240,000 shares at $0.25 per share.
GOLD
RESOURCE CORPORATION AND SUBSIDIARIES
(An
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006
In
May, 2006, the Company made a common stock award of 100,000 shares to a
director. These shares were valued at $100,000. In December, 2006, the Company
made a common stock award of 35,000 shares to two employees. These shares
were
valued at fair market value of $59,850. In October, 2006, the Company issued
250,000 shares of restricted common stock in exchange for investor relations
services. These shares were valued at fair market value of $275,000. The
Company
entered into an investor relations contract that required the issuance of
30,000
shares of restricted common stock during 2006. These shares were valued at
fair
market value of $45,000.
The
Company may continue to raise capital through the sale of its common shares
and
may also seek other funding or corporate transactions to achieve its business
objectives.
As
of December 31, 2006, the Founders beneficially own a total of 8,131,145
shares or approximately 29% of the outstanding shares.
The
Company has a non-qualified stock option and stock grant plan under which
stock
options and stock grants may be granted to key employees, directors and others
(the "Plan"). Options to purchase shares under the Plan must be granted at
fair
value as of the date of the grant. A total of 6,000,000 common shares have
been
reserved under the Plan.
Effective
January 1, 2006, the Company implemented the rules of SFAS 123(R), “Accounting
for Stock-Based Compensation,” which requires the Company to expense as
compensation the value of grants and options under the Company's stock option
plan as determined in accordance with the fair value based method prescribed
in
SFAS 123(R). The Company estimates the fair value of each stock option at
the
grant date by using the Black-Scholes option-pricing model.
During
the year ended December 31, 2006, stock options were granted to purchase
1,200,000 shares of common stock. Grants covering 1,100,000 shares were issued
to an employee and a director at an exercise price of $1.00 and a term of
thirty-three months. All options vested in 2006. Stock option compensation
expense of $141,350 was recorded based upon a fair value calculation using
the
following assumptions: expected life of 2.75 years, stock price of $1.00
at date
of grant, dividend yield of 0%, and interest rate of 5%. Grants covering
100,000
shares were issued to a service provider with an exercise price of $1.00
per
share and a term of twenty-four months. Options covering 50,000 shares vested
in
2006 and options covering 50,000 shares are expected to vest in 2007. Stock
option compensation expense of $5,700 was recorded based upon a fair value
calculation using the following assumptions: expected life of two years,
stock
price of $1.00 at date of grant, dividend yield of 0%, and interest rate
of 5%.
Prior
to January 1, 2006, the Company applied APB Opinion 25, “Accounting for Stock
Issued to Employees”, and disclosed pro-forma information regarding net income
and earnings per share as if stock based compensation cost had been determined
using a fair value based method. No stock options were granted in 2005, thus
pro-forma net (loss) and (loss) per share were the same as the actual amounts
reported.
GOLD
RESOURCE CORPORATION AND SUBSIDIARIES
(An
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006
|
|
2006
|
|
2005
|
|
|
|
Shares
|
|
Weighted
Average
Exercise
Prices
|
|
Shares
|
|
Weighted
Average
Exercise
Prices
|
|
Outstanding,
beginning of year
|
|
|
1,640,000
|
|
$
|
.25
|
|
|
1,900,000
|
|
$
|
.25
|
|
Granted
|
|
|
1,200,000
|
|
$
|
1.00
|
|
|
---
|
|
$
|
---
|
|
Terminated
|
|
|
---
|
|
$
|
---
|
|
|
(250,000
|
)
|
$
|
.25
|
|
Exercised
|
|
|
(240,000
|
)
|
|
.25
|
|
|
(10,000
|
)
|
|
.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
end of year
|
|
|
2,600,000
|
|
$
|
.60
|
|
|
1,640,000
|
|
$
|
.25
|
|
Options
exercisable, end of year
|
|
|
2,550,000
|
|
$
|
.59
|
|
|
1,640,000
|
|
$
|
.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average fair value of Option granted during year
|
|
$
|
.13
|
|
|
|
|
$
|
---
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6. Rental
Expense and Commitment and Contingencies
In
September 2005, the Company entered into a 3 year lease on office space in
Denver, Colorado. Required payments approximate $1,500 per month. Remaining
minimum lease obligations for future calendar years will be $17,700 in 2007
and
$13,400 in 2008. Rent expense for 2006 was $17,000.
Effective
January 1, 2006, the Company entered into employment agreements with its
executive officers which extend for a three-year term. Pursuant to the terms
of
those agreements, William Reid is being paid $240,000 and David Reid is being
paid $170,000 annually. Each individual also participates in health and other
insurance programs that the Company maintains. The employment agreements
are
automatically renewable for one-year terms unless either party gives notice
to
the other that they do not wish to renew the agreement, not less than
120 days prior to expiration.
Pursuant
to the terms of the employment agreements, the employee would be entitled
to
certain payments in the event his employment is terminated under certain
circumstances. If the Company terminates the agreement without cause, or
either
executive officer terminates the agreement "with good reason," the Company
would
be obligated to pay two years of compensation in accordance with its regular
pay
periods. Termination by an executive officer with good reason includes a
change
in control.
GOLD
RESOURCE CORPORATION AND SUBSIDIARIES
(An
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006
We
signed a drilling contract in October 2006 for a minimum of 11,000 feet of
additional core drilling. We have the option to expand the drilling up to
10,000
meters (approximately 33,000 feet). This contract represents a minimum financial
commitment of $300,000 and a maximum financial commitment of $1,000,000 over
the
term of the agreement. There are numerous exploration targets that will now
be
tested with the objective of delineating and expanding the previously identified
mineralization.
7. Related
Party Transactions:
US
Gold—
Effective
July 1, 2000, the Company and US Gold entered into a management contract
whereby US Gold provided general management of the business activities of
the
Company through December 31, 2001 in exchange for 2,560,000 shares of
common stock of the Company valued at $392,191 or approximately $.15 per
share,
representing the actual allocated internal costs recorded by US Gold in its
performance of the contract. Effective January 1, 2002, the Company and US
Gold entered into a second Management Contract with a duration of one year
(the
"2002 Management Contract"). Under the 2002 Management Contract, US Gold
provided general management of the business activities of the Company through
December 31, 2002 in exchange for payment of $30,000 per month to US Gold.
The Company paid US Gold $30,000 under the 2002 Management Contract and owed
US
Gold $330,000 at December 31, 2004. In June 2005, the Company paid
$10,000 and issued 1,280,000 shares to US Gold Corporation in satisfaction
of
$320,000 owed.
In
July 2005, in connection with a change in control of US Gold, the
employment agreements of Messrs. William Reid, David Reid and William Pass
with that entity were terminated. In partial payment of the obligations of
US
Gold under those agreements, that entity transferred all its shares in the
company to the two former US Gold employees and Mr. Pass and US Gold no
longer owns an interest in our Company.
Jose
Perez Reynoso—
The
Company has certain contractual business arrangements with Jose Perez Reynoso,
a
Mexican national and consultant to the Company. Mr. Reynoso has been
retained as a full-time consultant to the Company at $7,000 per month during
2005 and increased to $9,000 per month effective November 2006 under a
month-to-month arrangement. The Company also leased the El Aguila Property
from Mr. Reynoso, paying him $5,000 advance royalty during 2002, $25,000 in
2003, $20,000 in 2004, $105,000 in 2005, and $100,000 in 2006. Also as noted
in
Footnote 5 above, Mr. Reynoso was granted a stock bonus of 600,000 common
shares valued at $.25 per share for $150,000 during 2004.
GOLD
RESOURCE CORPORATION AND SUBSIDIARIES
(An
Exploration Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006
Other—
During
2005, the executive officers and Mr. Reynoso made certain cash advances to
the Company to allow payment of certain obligations. The net amount of such
advances was $8,770 as of December 31, 2005, all of which was repaid during
2006.
During
2006, Messrs. William Reid and David Reid each loaned $160,000 to the Company.
The loans were non-interest bearing and due on demand. These loans were paid
in
full during September, 2006.
8. Subsequent
Events—
Subsequent
to December 31, 2006, we issued 30,000 shares of our common stock to a
consultant performing investor relations work on our behalf.
In
February 2007, the Company leased a 100% interest in the Solaga property,
subject to a 4% net smelter return royalty on any production.
You
should rely only on the information contained in this
document or that we
have referred you to. We have not authorized anyone to
provide you with
information that is different. This prospectus is not
an offer to sell
common stock and is not soliciting an offer to buy common
stock in any
state where the offer or sale is not
permitted.
|
|
7,330,907
Shares
GOLD
RESOURCE
CORPORATION
|
|
|
|
|
|
|
|
|
|
TABLE
OF CONTENTS
|
|
|
|
|
|
Prospectus
Summary................................................
|
1
|
|
Risk
Factors............................................................
|
4
|
___________________
|
Market
Information..................................................
|
11
|
|
Management's
Discussion and Analysis
or Plan of
Operation............................................
|
12
|
PROSPECTUS
|
Business
and Properties...........................................
|
18
|
|
Management...........................................................
|
31
|
|
Security
Ownership of Certain Beneficial
Owners and Management...................................
|
38
|
|
Selling
Sharholders...................................................
|
39
|
|
Plan
of
Distribution..................................................
|
41
|
____________,
2007
|
Description
of Capital Stock.....................................
|
42
|
|
Shares
Eligible for Future
Sale.................................
|
44
|
|
Where
You Can Find More Information....................
|
45
|
|
Legal
Matters..........................................................
|
45
|
|
Experts...................................................................
|
45
|
|
Financial
Statements.................................................
|
F-1
|
|
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
24. Indemnification of Directors and Officers
Included
in the prospectus.
Item
25. Other Expenses of Issuance and Distribution.
We
will
pay all expenses in connection with the issuance and distribution of the
securities being registered except selling discounts and commissions of the
selling shareholders. The following table sets forth expenses and costs related
to this offering (other than underwriting discounts and commissions) expected
to
be incurred with the issuance and distribution of the securities described
in
this registration statement.
SEC
registration fee
|
|
$
|
1,703.73
|
|
Legal
fees
|
|
|
40,000.00
|
|
Accounting
fees
|
|
|
10,000.00
|
|
Blue
Sky filing fees and expenses
|
|
|
500.00
|
|
Printing
and engraving expenses
|
|
|
500.00
|
|
Transfer
Agent fees and expenses
|
|
|
1,000.00
|
|
Miscellaneous
|
|
|
6,296.27
|
|
|
|
|
|
|
Total
|
|
$
|
60,000.00
|
|
Item
26. RECENT SALES OF UNREGISTERED SECURITIES.
During
the preceding three years, we have issued an aggregate of 13,554,200 shares
of
our common stock and 1,900,000 options without registering those securities
under the Securities Act. The following information describes the transactions
in which those securities were issued.
Between
2004 and February 2005, we sold 1,006,000 shares of common stock to individuals
or entities, each of whom were friends, relatives or business contacts of
the
officers and directors of our company at a price of $0.25 per share, or a
total
of $251,500. We relied on the exemption from registration provided by Rule
504
of Regulation D of the Securities Act.
On
April
4, 2004, we issued 600,000 shares of our common stock to Jose Perez Reynoso
for
services rendered to the Company valued at $150,000, or $0.25 per share.
We
relied on the exemption provided by Section 4(2) of the Securities Act.
On
April
23, 2004, we issued 600,000 options to acquire our common stock to two employees
and 100,000 options to a former consultant. Since March 22, 2005, the former
consultant has exercised 250,000 options at a price of $0.25 per share, or
a
total of $62,500. All of these options and the shares were issued pursuant
to
the exemption from registration provided by Section 4(2) of the Securities
Act.
On
September 1, 2004, we issued 1,200,000 shares of our common stock to Canyon
Resources Corporation in connection with an exploration agreement executed
with
that entity. Canyon was afforded the opportunity to earn up to 50% of our
interest in the El
Aguila
project
in exchange for funding $3.5 million of exploration and, if warranted,
development costs. After funding a minimum of $500,000, Canyon exercised
an
option to convert its investment into 1,200,000 shares of our common stock
in
September 2004. We relied on the exemption provided by Section 4(2) of the
Securities Act in connection with this transaction.
II-1
On
January 2, 2005, we issued 1,750,000 shares of our common stock to our two
employees and a financial consultant for total consideration valued at $437,500,
or $0.25 per share. We relied on the exemption provided by Section 4(2) of
the
Securities Act in offering these shares.
On
February 21, 2005, our Board of Directors declared a two-for-one split of
all
outstanding common stock.
On
April
18, 2005, we issued 150,000 shares to Heemskirk Consolidated Limited, a natural
resource investment fund, for a total of $75,000, or $0.50 per share. On
July
15, 2005 and August 2, 2005, we sold an additional 600,000 and 1,400,000
shares
of our common stock, respectively, to Heemskirk, also at a price of $0.50
per
share. On August 5, 2005, we sold 400,000 shares to a single, accredited
investor, for a price of $0.50 per share. We relied on the exemption from
registration provided by Regulation 506 of Regulation D in connection with
these
transactions.
On
three
separate occasions in 2005, we issued as a finder's fee to Declan Costelloe
for
services rendered in connection with locating two investors in the placements
described in the immediately preceding paragraph. Those issuances equaled
10,500, 42,000 and 126,000 shares. In June 2005, we also issued 30,000 shares
to
David Wersebe for services rendered in connection with locating an investor.
We
relied on the exemption from registration provided by Section 4(2) of the
Securities Act in connection with these transactions.
On
June
3, 2005, we issued 1,280,000 shares of common stock to US Gold Corporation
in
exchange for services rendered in the amount of $320,000, or $0.25 per share.
Again, we relied on the exemption from registration provided by Section 4(2)
of
the Securities Act in connection with this transaction. The officers and
directors of our company were also officers of the directors of US Gold,
so US
Gold was provided the same type of information that would have been included
in
a registration statement.
On
May
30, 2006, we granted 100,000 shares of common stock to a director of our
company
valued at $100,000, or $1.00 per share. Additionally, we granted a total
of
1,100,000 options to acquire common stock to the director and a new employee
of
the company. All of these options and the shares were issued pursuant to
the
exemption from registration provided by Section 4(2) of the Securities Act.
On
October 12, 2006, we issued 250,000 shares of our common stock to an investor
relations firm for services rendered to our company valued at $275,000, or
$1.10
per share. We also granted options to acquire 100,000 shares of common stock,
50,000 of which were immediately vested, for $1.00 per share to a public
relations consultant. The remaining 50,000 options vest upon our mutual
agreement with this consultant to extend our contract for public relations
services for an additional six months beyond its expiration in April 2007.
We
relied on the exemption provided by Section 4(2) of the Securities Act for
each
of these transactions.
In
November 2006 and February 2007 we issued 30,000 shares of our common stock
to a
consultant performing investor relations work on our behalf for a total of
60,000 shares. The November 2006 shares were valued at $1.45 per share, or
$43,500. The February 2007 shares were valued at $2.428 per share, or $72,840.
We have agreed to issue 30,000 shares of our common stock each quarter to
this
consultant for one year. We relied on the exemption provided by Section 4(2)
of
the Securities Act.
II-2
On
December 7, 2006, we sold an aggregate of 4,322,000 shares of our common
stock
to subscribers in a private placement at a price of $1.20 per share, for
gross
proceeds of $5,186,400. We paid aggregate finder’s fees of $257,700 and 257,700
shares of common stock to certain finders in connection with the private
placement. We relied on the exemption from registration provided by Regulation
506 of Regulation D for sales made in the United States and Rule 903 of
Regulation S in connection with sales outside the United States. Each U.S.
investor was an “accredited investor” within the meaning of Rule 501.
Further, we did not engage in any general solicitation or advertising in
connection with the offering and exercised reasonable care in to ensure that
the
purchasers were not underwriters, including the placement of legends restricting
transfer on certificates representing the securities. The remainder of the
shares were sold to persons who were not in the United States at the time
of
purchase or who were not “U.S. persons” as defined in Rule 902. We did not
engage in any directed selling efforts in the United States in connection
with
the offering and placed legends on certificates representing the common stock
restricting transfer in accordance with Regulation S.
In
each
transaction where we relied on Rule 504 or 506, we did not engage in any
general
solicitation or advertising. In each case, the subscriber was provided with
a
subscription agreement detailing the restrictions on transfer of the shares.
Further, stop transfer restrictions were placed on each of the certificates
issued in connection with the offering. In each of the offerings conducted
pursuant to Rule 504, the offering price for the securities did not exceed
$1
million during the twelve months before the start of and during that offering.
In the offering conducted pursuant to Rule 506, each purchaser was reasonably
believed to be an "accredited investor" under Rule 501 of the Securities
Act.
In
each
case where we relied on the exemption provided by Section 4(2) of the Securities
Act, we had a preexisting relationship with the investor and the offering
was
made to a very limited number of individuals or entities. We also took steps
to
insure that the investors had available the same type of information that
would
be included in a registration statement. Finally, each of certificates
representing shares issued pursuant to that exemption has been inscribed
by the
restrictive legend required by Rule 144.
Item
27. EXHIBITS
The
following exhibits are filed with, or incorporated by reference in, this
registration statement:
Item
No.
Description
3.1
|
Articles
of Incorporation of the Company as filed with the Colorado
Secretary of
State on August 24, 1998 (incorporated by reference from
our registration
statement on Form SB-2 filed on October 28, 2005, Exhibit
3.1, File No.
333-129321).
|
3.1.1
|
Articles
of Amendment to the Articles of Incorporation as filed with
the Colorado
Secretary of State on September 16, 2005 (incorporated by
reference from
our registration statement on Form SB-2 filed on October
28, 2005, Exhibit
3.1.1, File No. 333-129321).
|
3.2
|
Bylaws
of the Company dated August 28, 1998 (incorporated by reference
from our
registration statement on Form SB-2 filed on October 28,
2005, Exhibit
3.2, File No. 333-129321).
|
4
|
Specimen
stock certificate (incorporated by reference from our amended
registration
statement on Form SB-2/A filed on March 27, 2006, Exhibit
4, File No.
333-129321).
|
II-3
10.1
|
Exploitation
and Exploration Agreement between the Company and Jose Perez
Reynoso dated
October 14, 2002 (incorporated by reference from our registration
statement on Form SB-2 filed on October 28, 2005, Exhibit
10.1, File No.
333-129321).
|
10.2
|
Non-Qualified
Stock Option and Stock Grant Plan (incorporated by reference
from our
registration statement on Form SB-2 filed on October 28,
2005, Exhibit
10.2, File No. 333-129321).
|
10.3
|
Form
of Stock Option Agreement (incorporated by reference from
our registration
statement on Form SB-2 filed on October 28, 2005, Exhibit
10.3, File No.
333-129321).
|
10.4
|
Lease
Agreement dated September 2005 (incorporated by reference
from our
registration statement on Form SB-2 filed on October 28,
2005, Exhibit
10.4, File No. 333-129321).
|
10.5 |
Agreement
dated July 28, 2003 between the Company and Canyon Resources
Corporation
(incorporated by reference from our registration statement
on Form SB-2
filed on October 28, 2005, Exhibit 10.5, File No. 333-129321).
|
10.6 |
Agreement
dated August 2, 2005 between the Company and Heemskirk Consolidated
Limited (incorporated by reference from our registration
statement on Form
SB-2 filed on October 28, 2005, Exhibit 10.6, File No.
333-129321).
|
10.7
|
Agreement
dated August 15, 2005 by and between the Company and Heemskirk
Consolidated Limited (incorporated by reference from our
registration
statement on Form SB-2 filed on October 28, 2005, Exhibit
10.7, File No.
333-129321).
|
10.8
|
Employment
Agreement between the Company and William W. Reid (incorporated
by
reference from our amended registration statement on Form
SB-2/A filed on
March 27, 2006, Exhibit 10.8, File No.
333-129321).
|
10.9
|
Employment
Agreement between the Company and David C. Reid (incorporated
by reference
from our amended registration statement on Form SB-2/A filed
on March 27,
2006, Exhibit 10.9, File No.
333-129321).
|
10.10
|
Promissory
Note in favor of David C. Reid (incorporated by reference
from our amended
registration statement on Form SB-2/A filed on May 1, 2006,
Exhibit 10.10,
File No. 333-129321).
|
10.11
|
Promissory
Note in favor of William W. Reid (incorporated by reference
from our
amended registration statement on Form SB-2/A filed on May
1, 2006,
Exhibit 10.11, File No. 333-129321).
|
10.12
|
Form
of Subscription Agreement between the Company and investors
in the
November 2006 private placement (incorporated by reference
from our report
on Form 8-K dated December 7, 2006, Exhibit 10.1, File No.
333-129321).
|
21
|
Subsidiaries
of the Company (incorporated by reference from our amended
registration
statement on Form SB-2/A filed on January 20, 2006, Exhibit
21, File No.
333-129321).
|
II-4
*23.1
|
Consent
of Stark Winter Schenkein & Co.,
LLP.
|
23.2
|
Consent
of Dufford & Brown, P.C. (included in Exhibit
5).
|
*24
|
Power
of Attorney (included on signature
page).
|
_______________
* Filed
with this amendment.
Item
28. UNDERTAKINGS.
The
undersigned registrant hereby undertakes that it will:
1. File,
during any period in which it offers or sells securities, a post-effective
amendment to this registration statement to:
i. Include
any prospectus required by section 10(a)(3) of the Securities
Act;
ii. Reflect
in the prospectus any facts or events which, individually or together, represent
a fundamental change in the information in the registration statement; and
notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed
that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in the volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
iii. Include
any additional or changed material information on the plan of
distribution.
2. For
determining liability under the Securities Act, treat each post-effective
amendment as a new registration statement of the securities offered, and the
offering of the securities at that time to be the initial bona fide offering.
3. File
a
post-effective amendment to remove from registration any of the securities
that
remain unsold at the end of the offering.
4. Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act
and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted
by such
director, officer or controlling person in connection with the securities
being
registered, the registrant will, unless in the opinion of its counsel the
matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question, whether such indemnification by it is against
public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
5. For
determining liability of the undersigned registrant under the Securities
Act to
any purchaser, the undersigned registrant undertakes:
i.
That
each prospectus filed by the undersigned pursuant to Rule 424(b)(3) shall
be
part of the registration statement as of the date the filed prospectus was
deemed part of and included in the registration statement;
and
ii.
Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7)
as
part of a registration statement in reliance on Rule 430B relating to an
offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose
of
providing the information required by section 10(a) of the Securities Act
shall
be deemed to be part of and included in the registration statement as of
the
earlier of the date such form of prospectus is first used after effectiveness
or
the date of the first contract of sale of securities in the offering described
in the prospectus. As provided in Rule 430B, for liability purposes of the
issuer and any person that is at that date an underwriter, such date shall
be
deemed to be a new effective date of the registration statement relating
to the
securities in the registration statement to which that prospectus relates,
and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof. Provided, however, that no statement made in
a
registration statement or prospectus that is part of the registration statement
or made in a document incorporated or deemed incorporated by reference into
the
registration statement or prospectus that is part of the registration statement
will, as to a purchaser with a time of contract of sale prior to such effective
date, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made
in
any such document immediately prior to such effective date.
iii.
Each
prospectus filed pursuant to Rule 424(b) as part of a registration statement
relating to an offering, other than registration statements relying on Rule
430B
or other than prospectuses filed in reliance on Rule 430A, shall be deemed
to be
part of and included in the registration statement as of the date it is first
used after effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration statement
or made in a document incorporated or deemed incorporated by reference into
the
registration statement or prospectus that is part of the registration statement
will, as to a purchaser with a time of contract of sale prior to such first
use,
supersede or modify any statement that was made in the registration statement
or
prospectus that was part of the registration statement or made in any such
document immediately prior to such date of first use.
SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of
the
requirements for filing on Form SB-2 and authorized this amendment to
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Denver, State of Colorado, on April 6,
2007.
|
|
|
|
GOLD
RESOURCE CORPORATION
(Registrant)
|
|
|
|
|
By: |
/s/
William W. Reid |
|
By:
William W. Reid
President
and Chief Executive Officer
|
|
|
POWER
OF ATTORNEY
We,
the
undersigned officers and directors of Gold Resource Corporation, do hereby
constitute and appoint William W. Reid to be our true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for each of us and in our name, place and stead, in any and all capacities,
to
sign any and all amendments (including post-effective amendments) to this
registration statement, and to file the same, with all exhibits thereto,
and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith and about the premises, as fully to all
intents and purposes as each of us might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or any of them or
their
or his substitute or substitutes, may lawfully do or cause to be done by
virtue
thereof.
In
accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the capacity
and on the dates stated.
|
|
|
/s/
William W. Reid
|
President,
|
April
6, 2007
|
William
W. Reid
|
Chief
Executive Officer and
|
|
|
Chairman
of the Board
|
|
|
|
|
|
|
|
/s/
Frank L. Jennings
|
Principal
Financial and
|
April
9, 2007
|
Frank
L. Jennings
|
Accounting
Officer
|
|
|
|
|
|
|
|
/s/
Bill M. Conrad
|
Director
|
April
5, 2007
|
Bill
M. Conrad
|
|
|
|
|
|
EXHIBIT
INDEX
The
following
Exhibits are filed or incorporated by reference as part of this post-effective
amendment to the registration statement on Form SB-2.
Item
No.
Description
3.1
|
Articles
of Incorporation of the Company as filed with the Colorado
Secretary of
State on August 24, 1998 (incorporated by reference from our
registration
statement on Form SB-2 filed on October 28, 2005, Exhibit 3.1,
File No.
333-129321).
|
3.1.1
|
Articles
of Amendment to the Articles of Incorporation as filed with
the Colorado
Secretary of State on September 16, 2005 (incorporated by reference
from
our registration statement on Form SB-2 filed on October 28,
2005, Exhibit
3.1.1, File No. 333-129321).
|
3.2
|
Bylaws
of the Company dated August 28, 1998 (incorporated by reference
from our
registration statement on Form SB-2 filed on October 28, 2005,
Exhibit
3.2, File No. 333-129321).
|
4
|
Specimen
stock certificate (incorporated by reference from our amended
registration
statement on Form SB-2/A filed on March 27, 2006, Exhibit 4,
File No.
333-129321).
|
10.1
|
Exploitation
and Exploration Agreement between the Company and Jose
Perez Reynoso dated
October 14, 2002 (incorporated by reference from our registration
statement on Form SB-2 filed on October 28, 2005, Exhibit
10.1, File No.
333-129321).
|
10.2
|
Non-Qualified
Stock Option and Stock Grant Plan (incorporated by reference
from our
registration statement on Form SB-2 filed on October 28,
2005, Exhibit
10.2, File No. 333-129321).
|
10.3
|
Form
of Stock Option Agreement (incorporated by reference from
our registration
statement on Form SB-2 filed on October 28, 2005, Exhibit
10.3, File No.
333-129321).
|
10.4
|
Lease
Agreement dated September 2005 (incorporated by reference
from our
registration statement on Form SB-2 filed on October 28,
2005, Exhibit
10.4, File No. 333-129321).
|
10.5 |
Agreement
dated July 28, 2003 between the Company and Canyon Resources
Corporation
(incorporated by reference from our registration statement
on Form SB-2
filed on October 28, 2005, Exhibit 10.5, File No. 333-129321).
|
10.6 |
Agreement
dated August 2, 2005 between the Company and Heemskirk
Consolidated
Limited (incorporated by reference from our registration
statement on Form
SB-2 filed on October 28, 2005, Exhibit 10.6, File No.
333-129321).
|
10.7
|
Agreement
dated August 15, 2005 by and between the Company and Heemskirk
Consolidated Limited (incorporated by reference from our
registration
statement on Form SB-2 filed on October 28, 2005, Exhibit
10.7, File No.
333-129321).
|
II-8
10.8
|
Employment
Agreement between the Company and William W. Reid (incorporated
by
reference from our amended registration statement on Form SB-2/A
filed on
March 27, 2006, Exhibit 10.8, File No.
333-129321).
|
10.9
|
Employment
Agreement between the Company and David C. Reid (incorporated
by reference
from our amended registration statement on Form SB-2/A filed
on March 27,
2006, Exhibit 10.9, File No.
333-129321).
|
10.10
|
Promissory
Note in favor of David C. Reid (incorporated by reference from
our amended
registration statement on Form SB-2/A filed on May 1, 2006,
Exhibit 10.10,
File No. 333-129321).
|
10.11
|
Promissory
Note in favor of William W. Reid (incorporated by reference
from our
amended registration statement on Form SB-2/A filed on May
1, 2006,
Exhibit 10.11, File No. 333-129321).
|
10.12
|
Form
of Subscription Agreement between the Company and investors
in the
November 2006 private placement (incorporated by reference
from our report
on Form 8-K dated December 7, 2006, Exhibit 10.1, File No.
333-129321).
|
21
|
Subsidiaries
of the Company (incorporated by reference from our amended
registration
statement on Form SB-2/A filed on January 20, 2006, Exhibit
21, File No.
333-129321).
|
*23.1
|
Consent
of Stark Winter Schenkein & Co.,
LLP.
|
23.2
|
Consent
of Dufford & Brown, P.C. (included in Exhibit
5).
|
*24
|
Power
of Attorney (included on signature
page).
|
___________________
* Filed
with this amendment.
II-9