UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington,WASHINGTON, D.C. 20549
FORM 20-F
¨[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934
For the fiscal year endedMarch 31, 2004 (with other information to July 19, 2004 except where noted)2007
OR
¨[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934
OR
[ ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________to _______________ to _______________
CIK # 1175596
Commission file number0-49869
AMARC RESOURCES LTD.
(Exact name of Registrant specified in its charter)
AMARC RESOURCES LTD(Translation of Registrant's name into English)
BRITISH COLUMBIA, CANADA
(Jurisdiction of incorporation or organization)
Suite 1020, - 800 West Pender Street
Vancouver, British Columbia, Canada, V6C 2V6
(Address of principal executive offices)
COMMON SHARES WITHOUT PAR VALUE
(Title of Class)
Securities registered or to be registered pursuant to Section 12(b) of the Act.Act:
Title of Each Class:Not applicable Name of each exchange on which registered:Not applicable
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Securities registered or to be registered pursuant to Section 12(g) of the Act
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Common Shares without Par Value(Title of Class)shares, no par value
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. Act:None
NumberIndicate the number of outstanding shares of Amarc's only classeach of the issuer’s classes of capital or common stock as onof the close of the period covered by the annual report:
62,949,473 common shares as of March 31, 2004.44,173,641 Common Shares Without Par Value2007
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
[ ] Yes [ x ] No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
[ ] Yes [ x ] No
Indicate by check mark whether Registrantregistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934during the preceding 12 months (or for such shorter period that Registrantregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.NOT APPLICABLE
[ x ] Yes [ ] No
Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 126-2 of the Exchange Act. (check one):
Large accelerated [ ] Filer Accelerated Filer [ ] Non-accelerated Filer [ x ]
Indicate by check mark which financial statement item Registrant has elected to follow:
Item 17 [ x ] Item 18 ¨[ ]
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
IndicateIf this is an annual report, indicate by check mark whether Registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d)registrant is a shell company (as defined in Rule 126-2 of theSecurities Exchange Act of 1934subsequent to the distribution of securities under a plan confirmed by a court.NOT APPLICABLEAct).
Currency and Exchange Rates
All monetary amounts contained in this Annual Report are, unless otherwise indicated, expressed in Canadian dollars. On July 19, 2004, the Bank of Canada noon rate for Canadian Dollars was US$1.00=Cdn$ 1.3079 (see Item 3 for further historical exchange rate information).Yes [ ] No [ x ]
T A B L E O F C O N T E N T S- 3 -
TABLE OF CONTENTS
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GENERAL
In this Annual Report on Form 20-F, all references to “we”, “Amarc” and the following terms have“Company” refer to Amarc Resources Ltd. and its consolidated subsidiaries.
The Company uses the meaningsCanadian dollar as its reporting currency. All references in this document to “dollars” or “$” are expressed in Canadian dollars, unless otherwise indicated. See alsoItem 3 – “KeyInformation” for more detailed currency and conversion information.
Except as noted, the information set forth herein:in this Annual Report is as of September 24, 2007 and all information included in this document should only be considered correct as of such date.
A. Geological/Exploration TermsGLOSSARY OF TERMS
Certain terms used herein are defined as follows:
Epithermal Deposit | Deposit of mineralization formed by natural processes in the earth at low temperature, 50-200oC often within structurally controlled veins. Low sulphidation deposits are developed near-to the surface of the earth, at depths of ~1 km to surficial hotspring settings, and are characterized by quartz veins, vein stockworks and breccias. Mineralization includes gold, silver, electrum, argentite and pyrite with lesser and variable amounts of other sulphide minerals. |
Induced Polarization | A geophysical survey used to identify a feature that appears to be different from the typical or background survey results when tested for levels of electro-conductivity; IP detects both chargeable, pyrite-bearing rock and non-conductive rock that has a high content of quartz. |
Magnetic Survey | Magnetic surveys detect sulphide-bearing rocks by inducing magnetic fields, then identifying a feature that appears to be different from the typical or background survey results. |
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Mineral Reserve | Securities and Exchange Commission Industry Guide 7Description ofProperty by Issuers Engaged or to be Engaged in Significant MiningOperationsof the Securities and Exchange Commission defines a ‘reserve’ as that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. Reserves consist of: |
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Mineral Resource | National Instrument 43-101Standards of Disclosure for Mineral Projects of the Canadian Securities Administrators defines a “Mineral Resource” as a concentration or occurrence of natural, solid, inorganic or fossilized organic material in or on the Earth’s crust in such form and quantity and of such a grade or quality that it has reasonable prospects for economic extraction. The location, quantity, grade, geological characteristics and continuity of a mineral resource are known, estimated or interpreted from specific geological evidence and knowledge. |
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Mineral Symbols | As – arsenic; Au – gold; Ag – silver; Cu – copper; Fe – iron; Hg – mercury; Mo – molybdenum; Na – sodium; Ni – nickel; O – oxygen; Pd - palladium; Pt – platinum; Pb – lead; S – sulphur; Sb – antimony; Zn – zinc. |
Net Smelter Return (NSR) | Monies actually received for concentrate delivered to a smelter net of metallurgical recovery losses, transportation costs, smelter treatment- refining charges and penalty charges. |
Polymetallic | Pertaining to more than one, or many, metals. |
Porphyry Deposit | Mineral deposit characterized by widespread disseminated or veinlet- hosted sulphide mineralization, characterized by large tonnage and moderate to low grade. |
Pluton, sill, dyke | A body of igneous rock that has been formed beneath the surface of the earth by consolidation of magma. A pluton is a rounded to irregularly- shaped plug-like body. A sill is a horizontal intrusion. A dyke cross cuts the country rocks. |
Quartz-feldspar Porphyry Dyke | A quartz-feldspar porphyry dyke is a linear intrusion in which large quartz and feldspar crystals occur in a fine groundmass of quartz, feldspar and other minerals. |
Sulphide | |
A compound of sulphur with another element, typically a metallic element or compound. | |
Sulphide (VMS) deposit | Mineral deposits, with a high content of sulphide minerals, formed by volcanic processes. |
Vein | A tabular or sheet-like mineral deposit with identifiable walls, often filling a fracture or fissure. |
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B. Currency and Measurement
All currency amounts in this Annual Report are stated in Canadian dollars unless otherwise indicated.
Conversion of metric units into imperial equivalents is as follows:
Metric Units | Multiply by | Imperial Units | |
hectares | 2.471 | = acres | |
meters | 3.281 | = feet | |
kilometers | 0.621 | = miles (5,280 feet) | |
grams | 0.032 | = | |
tonnes | 1.102 | = | |
grams/tonne | 0.029 | = |
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FORWARD LOOKING STATEMENTS
This Annual Report on Form 20-F contains statements that constitute “forward-looking statements” within the meaning of Section 27A of theSecurities Act of 1933 and Section 21E of theSecurities Exchange Act of 1934. These statements appear in a number of different places in this Annual Report and can be identified by words such as “anticipates”, “estimates”, “projects”, “expects”, “intends”, “believes”, “plans”, or their negatives or other comparable words. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the Company's actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. The statements, including the statements contained inItem 3D “Risk Factors”,Item 4B “Business Overview”,Item 5“Operating and Financial Review and Prospects” andItem 11 “Quantitative and Qualitative DisclosuresAbout Market Risk”, are inherently subject to a variety of risks and uncertainties that could cause actual results, performance or achievements to differ significantly. Forward-looking statements include statements regarding the outlook for the Company's future operations, plans and timing for the Company's exploration programs, statements about future market conditions, supply and demand conditions, forecasts of future costs and expenditures, the outcome of legal proceedings, and other expectations, intentions and plans that are not historical facts. You are cautioned that any such forward-looking statements are not guarantees and may involve risks and uncertainties. The Company's actual results may differ materially from those in the forward-looking statements due to risks facing us or due to actual facts differing from the assumptions underlying the Company's predictions. Some of these risks and assumptions include:
general economic and business conditions, including changes in interest rates;
prices of natural resources, costs associated with mineral exploration and other economic conditions;
natural phenomena;
actions by government authorities, including changes in government regulation;
uncertainties associated with legal proceedings;
changes in the resources market;
future decisions by management in response to changing conditions;
the Company’s ability to execute prospective business plans; and misjudgments in the course of preparing forward-looking statements.
The Company advises you that these cautionary remarks expressly qualify, in their entirety, all forward-looking statements attributable to Amarc or persons acting on the Company's behalf. The Company assumes no obligation to update the Company's forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such statements. You should carefully review the cautionary statements and risk factors contained in this and other documents that the Company files from time to time with the Securities and Exchange Commission.
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PART 1
PART I |
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ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS |
A. | DIRECTORS AND SENIOR MANAGEMENT |
ITEM 1 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSNot applicable.
B. | ADVISORS |
Not applicable.
C. | AUDITOR |
Not applicable.
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ITEM 2 OFFER STATISTICS AND EXPECTED TIMETABLE
ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE |
Not applicable.Applicable.
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ITEM 3 KEY INFORMATION
A. Selected Financial Data
ITEM 3. | KEY INFORMATION |
A. | SELECTED FINANCIAL DATA |
The following constitutestables summarize selected financial data for Amarc Resources Ltd. ("Amarc" or "the Company")extracted from the Company's audited consolidated financial statements for the last five fiscal years ended March 31, 2007, 2006, 2005, 2004 in Canadian dollars, presentedand 2003.
The Company’s annual financial statements have been audited by its current independent registered public accounting firm, De Visser Gray LLP, Chartered Accountants. The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP"(“Canadian GAAP”). Note 11 to the 2007 annual consolidated financial statements provides descriptions of the material measurement differences between Canadian GAAP and United States GAAP.generally accepted accounting principles (“US GAAP”) as they relate to Amarc and a reconciliation to US GAAP of Amarc’s consolidated financial statements.
(Cdn$) | Year ended March 31 | ||||||||||||||
Balance Sheet Data | 2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||
Total assets according to | |||||||||||||||
financial statements (CDN GAAP) | $ | 14,187,517 | $ | 1,019,106 | $ | 2,558,418 | $ | 4,421,777 | $ | 4,570,430 | |||||
Total assets (US GAAP) | 14,272,015 | 1,019,106 | 2,558,418 | 4,421,777 | 4,570,430 | ||||||||||
Total liabilities | 182,759 | 256,001 | 221,320 | 17,454 | 25,209 | ||||||||||
Share capital | 20,638,830 | 8,635,675 | 8,360,752 | 6,541,359 | 6,499,359 | ||||||||||
Deficit (CDN GAAP) | (7,047,240 | ) | (7,878,375 | ) | (6,023,654 | ) | (2,137,036 | ) | (1,954,137 | ) | |||||
Deficit (US GAAP) | (6,962,742 | ) | (7,878,375 | ) | (6,023,654 | ) | (2,137,036 | ) | (1,954,137 | ) | |||||
(Cdn$ except for | |||||||||||||||
common shares) | As at | ||||||||||||||
Period End Balances | 2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||
Working capital (CDN GAAP) | $ | 13,870,641 | $ | 615,880 | $ | 2,246,107 | $ | 4,401,888 | $ | 4,539,113 | |||||
Working capital (US GAAP) | 13,955,139 | 615,880 | 2,246,107 | 4,401,888 | 4,539,113 | ||||||||||
Equipment, net | 60,188 | 77,225 | 20,991 | 2,435 | 6,108 | ||||||||||
Reclamation deposit | -- | 70,000 | 70,000 | -- | -- | ||||||||||
Mineral property interests | 73,929 | -- | -- | -- | -- | ||||||||||
Shareholders' equity | 14,004,758 | 763,105 | 2,337,098 | 4,404,323 | 4,545,222 | ||||||||||
Number of common shares | |||||||||||||||
outstanding (thousands) | 44,174 | 15,469 | 14,770 | 9,770 | 9,650 |
No cash or other dividends have ever been declared.The following selected financial data is presented in Canadian dollars.
BALANCE SHEET DATA
(C$000) | As at March 31, | ||||||||||||||
2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||
Plant and Equipment, Net | |||||||||||||||
Canadian and US GAAP | $ | 25 | $ | 37 | $ | 47 | $ | 60 | $ | 77 | |||||
Mineral Property Interests | |||||||||||||||
Canadian and US GAAP | – | 98 | 156 | 74 | – | ||||||||||
Total Assets | |||||||||||||||
Canadian GAAP | 8,768 | 5,007 | 8,091 | 14,188 | 1,019 | ||||||||||
US GAAP | 8,768 | 5,007 | 8,100 | 14,272 | 1,019 | ||||||||||
Total Liabilities | |||||||||||||||
Canadian and US GAAP | 78 | 38 | 871 | 183 | 256 | ||||||||||
Working Capital | |||||||||||||||
Canadian GAAP | 8,665 | 4,834 | 7,017 | 13,871 | 616 | ||||||||||
US GAAP | 8,665 | 4,834 | 7,025 | 13,955 | 616 | ||||||||||
Share Capital | |||||||||||||||
Canadian and US GAAP | 27,287 | 23,997 | 22,388 | 20,639 | 8,636 | ||||||||||
Contributed Surplus | |||||||||||||||
Canadian and US GAAP | 2,295 | 488 | 507 | 413 | 6 | ||||||||||
Deficit | |||||||||||||||
Canadian GAAP | (20,892 | ) | (19,515 | ) | (15,675 | ) | (7,047 | ) | (7,878 | ) | |||||
US GAAP | $ | (20,892 | ) | $ | (19,515 | ) | $ | (15,667 | ) | $ | (6,963 | ) | $ | (7,878 | ) |
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(C$000) | As at March 31, | ||||||||||||||
2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||
Net Assets | |||||||||||||||
Canadian GAAP | $ | 8,690 | $ | 4,969 | $ | 7,220 | $ | 14,005 | $ | 763 | |||||
US GAAP | 8,690 | 4,969 | 7,229 | 14,089 | 763 | ||||||||||
Shareholders’ Equity | |||||||||||||||
Canadian GAAP | 8,690 | 4,969 | 7,220 | 14,005 | 763 | ||||||||||
US GAAP | $ | 8,690 | $ | 4,969 | $ | 7,229 | $ | 14,089 | $ | 763 |
STATEMENT OF OPERATIONS DATA
(C$000, except per share amounts) | Year Ended March 31, | ||||||||||||||
2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||
Interest and other income | $ | (334 | ) | $ | (130 | ) | $ | (243 | ) | $ | (75 | ) | $ | (5 | ) |
General and administrative expenses | 615 | 819 | 719 | 418 | 789 | ||||||||||
Exploration expenditures | 1,033 | 3,012 | 7,554 | 460 | 405 | ||||||||||
Stock based compensation (recovery) | – | (16 | ) | 496 | 407 | 6 | |||||||||
Foreign exchange (gain) loss | (38 | ) | 3 | 8 | 10 | 65 | |||||||||
Loss (gain) on marketable securities | |||||||||||||||
Canadian GAAP | – | (92 | ) | (82 | ) | (2,053 | ) | 20 | |||||||
US GAAP | – | (84 | ) | (6 | ) | (2,137 | ) | – | |||||||
Loss on sale of equipment | 2 | – | – | – | – | ||||||||||
Write down of accounts receivable | – | 45 | – | – | – | ||||||||||
Write down of mineral property interest | 98 | 10 | 76 | – | – | ||||||||||
Write down of marketable securities | – | 190 | 7 | – | 581 | ||||||||||
Interest expense on flow-through shares | – | – | 93 | – | – | ||||||||||
Net loss (income) for the year | |||||||||||||||
Canadian GAAP | 1,376 | 3,841 | 8,628 | (831 | ) | 1,855 | |||||||||
US GAAP | $ | 1,376 | $ | 3,849 | $ | 8,704 | $ | (916 | ) | $ | 1,855 | ||||
Basic and diluted net income (loss) per | |||||||||||||||
share | |||||||||||||||
Canadian GAAP | (0.03 | ) | (0.08 | ) | (0.19 | ) | 0.04 | (0.12 | ) | ||||||
US GAAP | (0.03 | ) | (0.08 | ) | (0.19 | ) | 0.04 | (0.12 | ) | ||||||
Weighted average number of common | |||||||||||||||
shares outstanding | 54,557,473 | 49,880,651 | 45,168,411 | 21,421,096 | 15,170,448 |
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(Cdn$) | Year ended March 31 | ||||||||||||||
Statement of Operations | |||||||||||||||
Data | 2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||
Investment and other income | $ | 65,269 | $ | (59,646 | ) | $ | 436,492 | $ | 215,404 | $ | 203,819 | ||||
Gain (loss) on sale of marketable securities | 2,052,596 | (19,500 | ) | -- | -- | -- | |||||||||
Other comprehensive income (US GAAP) | 84,498 | -- | -- | -- | -- | ||||||||||
General and administrative expenses | 418,815 | 789,235 | 587,271 | 398,302 | 228,906 | ||||||||||
Stock-based compensation | 407,363 | 5,805 | -- | -- | -- | ||||||||||
Write-down of mineral property interests and | |||||||||||||||
investments | -- | (581,010 | ) | -- | -- | -- | |||||||||
Exploration expenditures | 460,252 | 405,330 | 3,735,839 | -- | -- | ||||||||||
Gain (loss) for the year (CDN GAAP) | 831,135 | (1,854,721 | ) | (3,886,618 | ) | (182,898 | ) | (25,087 | ) | ||||||
Gain (loss) for the year (US GAAP) | 915,633 | (1,854,721 | ) | (3,886,618 | ) | (182,898 | ) | (25,087 | ) | ||||||
Gain (loss) from continuing operations per | |||||||||||||||
common share | $ | 0.04 | $ | (0.12 | ) | $ | (0.37 | ) | $ | (0.02 | ) | $ | (0.00 | ) | |
Gain (loss) per common share (US GAAP) | $ | 0.04 | $ | (0.12 | ) | $ | (0.37 | ) | $ | (0.02 | ) | $ | (0.00 | ) |
Notes:
SeeItem 17 for accompanying consolidated financial statements reconciled to United Statesprepared in accordance with Canadian generally accepted accounting principles for further details.details, including note 11, which reconciles Canadian GAAP to US GAAP.
The Company has not declared or paid any cash or other dividends.
Currency and Exchange Rates
On September 24, 2007, the Federal Reserve noon rate for Canadian Dollars was US$1.00 to Cdn$1.0012. The following table setstables set out the exchange rates, based on noon rates as the noon buying rate, providednominal quotations by the Bank of Canada website,www.bankofcanada.cafor the conversion of Canadian dollarsDollars into United States dollarsU.S. Dollars.
For year ended March 31 | |||||||||||||||
2007 | 2006 | 2005 | 2004 | 2003 | |||||||||||
End of Period | $ | 1.1529 | $ | 1.1671 | $ | 1.2096 | $ | 1.3105 | $ | 1.4693 | |||||
Average for the Period | $ | 1.1417 | $ | 1.1933 | $ | 1.2786 | $ | 1.3530 | $ | 1.5492 | |||||
High for the Period | $ | 1.1878 | $ | 1.2555 | $ | 1.3783 | $ | 1.4585 | $ | 1.5814 | |||||
Low for the Period | $ | 1.0948 | $ | 1.1489 | $ | 1.1961 | $ | 1.2960 | $ | 1.4759 |
Monthly High and Low Exchange Rate (Canadian Dollars per US Dollar) | ||||||
High | Low | |||||
September 2007 (until September 24, 2007) | 1.0595 | 0.9960 | ||||
August 2007 | 1.0701 | 1.0341 | ||||
July 2007 | 1.0660 | 1.0341 | ||||
June 2007 | 1.0760 | 1.0536 | ||||
May 2007 | 1.1163 | 1.0666 | ||||
April 2007 | 1.1600 | 1.1048 |
B. | Capitalization and Indebtedness |
Not applicable.
C. | Reasons for the Offer and Use of Proceeds |
Not applicable.
D. | Risk Factors |
An investment in effect at the endCompany's common shares is highly speculative and subject to a number of risks. Only those persons who can bear the risk of the entire loss of their investment should participate. An investor should carefully consider the risks described below and the other information that the Company files with the Securities and Exchange Commission and with Canadian securities regulators before investing in the Company's common shares. The risks described below are not the only ones faced by the Company. Additional risks that management is aware of or that the Company currently believes are immaterial may indeed become important factors that affect the Company's business. If any of the following periods,risks occur, or if others occur, the Company's business, operating results and financial condition could be seriously harmed and the average exchange rates (based on the averageinvestor may lose all of the exchange rates on the last day of the month in such periods) and the range of high and low exchange rates for such periods.
Year ended March 31 | ||||||||||
2004 | 2003 | 2002 | 2001 | 2000 | ||||||
End of Period | 1.31 | 1.47 | 1.60 | 1.58 | 1.45 | |||||
Average for Period | 1.35 | 1.55 | 1.57 | 1.50 | 1.47 | |||||
High Period | 1.49 | 1.60 | 1.61 | 1.58 | 1.51 | |||||
Low for Period | 1.27 | 1.46 | 1.51 | 1.45 | 1.43 |
B. Capitalization and Indebtedness
Not applicable.his investment.
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C. ReasonsThe exploration for the Offer and Usedevelopment of Proceeds
Not applicable.
D. Risk Factors
Amarc's Properties Contain No Known Reserves of Ore and No Ore May be Discovered.mineral deposits involves significant risks.
Amarc is currently focusing onResource exploration in British Columbia, Canada. The Company is assembling a portfolio of key projects through option agreements and ground staking and is carrying out field surveys on high priority targets, focused on finding large-scale gold-copper deposits. The properties are largely early stage prospects, therefore, extensive additional exploration work is required before Amarc can ascertain if any mineralization may be economic. Exploration for minerals is a speculative venture necessarily involving substantialbusiness and involves a high degree of risk. IfThere is no known body of commercial ore on any of the Company's mineral properties and there is no certainty that the expenditures to be made by Amarc makes on thesein the exploration of the Company's mineral properties do notwill result in discoveries of commercial quantities of minerals. The exploration for and development of mineral deposits involves significant risks, which even a combination of careful evaluation, experience and knowledge may not eliminate. Although the discovery of an ore body may result in substantial rewards, few properties explored are ultimately developed into producing mines. Significant expenditures may be required to locate and establish ore reserves, to develop metallurgical processes and to construct mining and processing facilities at a particular site. It is impossible to ensure that the valuecurrent exploration programs planned by Amarc will result in a profitable commercial mining operation. Significant capital investment is required to achieve commercial production from successful exploration efforts.
The commercial viability of a mineral deposit is dependent upon a number of factors. These include deposit attributes such as size, grade and proximity to infrastructure, current and future metal prices (which can be cyclical), and government regulations, including those relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and necessary supplies and environmental protection. The complete effect of these factors, either alone or in combination, cannot be entirely predicted, and their impact may result in Amarc not receiving an adequate return on invested capital.
The Company does not currently have any properties on which mineral resources or mineral reserves have been outlined.
Amarc’s properties have not produced any commercial reserves or ore body.
All of the Company's mineral projects are in the exploration stage as opposed to the development stage and have no known body of economic mineralization. The known mineralization at these projects has not been determined to be economic ore. There can be no assurance that a commercially mineable ore body exists on any of the Company's properties. There is no certainty that any expenditure made in the exploration of the Company's mineral properties will result in discoveries of commercially recoverable quantities of ore. Such assurance will require completion of final comprehensive feasibility studies and, possibly, further associated exploration and other work that concludes a potential mine at each of these projects is likely to be economically viable. In order to carry out exploration and development programs of any economic ore body and place it into commercial production, the Company will be required to raise substantial additional funding.
As the Company does not have revenues, the Company will be dependent upon future financings to continue the Company's plan of operation.
Amarc has not generated any revenues from the Company's business activities since the Company's incorporation. The Company's plan of operations involves the completion of exploration and acquisition expendituresprograms on the Company's mineral properties. There is no assurance that these exploration activities will be totally lost andresult in the valueestablishment of Amarc stockcommercially exploitable mineral deposits on the Company's mineral properties. Even if commercially exploitable mineral deposits are discovered, the Company will be severely negatively impacted.
Ongoing Funding will be Needed to Continue Exploration.
Amarc's means of generating funds is through the issuance of common shares, and Amarc will need to continue to find investors for its treasury sharesrequire substantial additional financing in order to generate sufficient fundscarry out the full exploration and development of the Company's mineral properties before the Company is able to allow Amarcachieve revenues from sales of mineral resources that the Company is able to conduct further exploration on its exploration properties in British Columbia. If Amarc cannot fund exploration, its share value will be severely negatively impacted. At March 31, 2004 working capital was approximately $13.9 million. In March 2004, Amarc farmed out its Inde propertyextract.
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The loss of management or other key personnel could harm the Company's business.
The success of the Company's activities is dependent to Minera Bugambilias SA de CV, which will make option paymentsa significant extent on the Inde Property. At the present time, Amarc has sufficient working capitalefforts and abilities of management and other key personnel. Investors must be willing to fund is operationsrely to a significant extent on their discretion and exploration on all of its properties in 2005.judgment.
Uncertain Project Realization ValuesThe Company has no history of earnings and no foreseeable earnings..
Amarc capitalizes acquisition costs incurred in connection with its mineral property interests. While Amarc believes these costs are realizable notwithstanding the lackhas a history of certainty whether the mineralized material of its projects is currently economically viable or may be classified as ore,losses and there can be no assurance that Amarc could disposethe Company will ever be profitable. The Company anticipates that the Company will retain future earnings and other cash resources for the future operation and development of its mineral interests for their financial statement carrying values which would mean a diminutionthe Company's business. The Company has not paid dividends since incorporation and the Company does not anticipate paying dividends in the book valueforeseeable future. Payment of shareholder equity. Costs not associated with a direct acquisitionany future dividends is at the discretion of a mineral property interest are expensed.the Company's board of directors after taking into account many factors including the Company's operating results, financial conditions and anticipated cash needs.
General Mining Risks.
The mining industry in general is intensely competitive andCompany's consolidated financial statements have been prepared assuming the Company will continue on a going concern basis, but there iscan be no assurance that even if commercial quantitiesthe Company will continue as a going concern.
Although at March 31, 2007 the Company had working capital of oreapproximately $8.7 million, the costs required to complete exploration and development of the Company's projects may be well in excess of this amount. Accordingly, unless additional funding is obtained, the going concern assumption may have to change. If Amarc is unable to obtain adequate additional financing, the Company will be required to curtail operations and exploration activities. Furthermore, failure to continue as a going concern would require that Amarc’s assets and liabilities be restated on a liquidation basis which could differ significantly from the going concern basis.
A substantial or extended decline in gold or copper prices would have a material adverse effect on the Company's business.
The Company's business is dependent on the prices of gold and copper, which are discovered,affected by numerous factors beyond the Company's control. Factors tending to put downward pressure on the prices of gold and copper include:
Sales or leasing of gold by governments and central banks;
A strong U.S. dollar;
Global and regional recession or reduced economic activity;
Speculative trading;
Decreased demand for industrial uses, use in jewellery or investment;
High supply from production, disinvestment and scrap;
Sales by producers in forward transactions and other hedging transactions; and
Devaluing local currencies (relative to gold priced in U.S. dollars) leading to lower production costs and higher production in certain regions.
The Company may experience asset impairments as a profitable marketresult of low gold or copper prices in the future.
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In addition, sustained low gold or copper prices can:
Reduce revenues further through production cutbacks due to cessation of the mining of deposits or portions of deposits that have become uneconomic at the then-prevailing gold or copper price;
Halt or delay the development of new projects;
Reduce funds available for exploration, with the result that depleted reserves are not replaced; or
Reduce existing reserves, by removing ores from reserves that cannot be economically mined or treated at prevailing prices.
Mining operations generally involve a high degree of risk.
Amarc’s operations are subject to all the hazards and risks normally encountered in the exploration, development and production of minerals. These include unusual and unexpected geological formations, rock falls, flooding and other conditions involved in the drilling and removal of material, any of which could result in damage to, or destruction of, mines and other producing facilities, damage to life or property, environmental damage and possible legal liability. Although adequate precautions to minimize risk will be taken, milling operations are subject to hazards such as equipment failure or failure of retaining dams which may result in environmental pollution and consequent liability which will have a material adverse effect on the Company's business and results of operation and financial condition.
The Company’s business could be adversely affected by government regulations related to mining.
Amarc’s exploration activities are regulated in all countries in which the Company operates under various federal, state, provincial and local laws relating to the protection of the environment, which generally includes air and water quality, hazardous waste management and reclamation. Environmental hazards may exist on the properties in which the Company holds interests which are unknown to Amarc at present and which have been caused by previous or existing owners or operators of the properties. Environmental legislation is evolving in a manner that will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. Delays in obtaining or failure to obtain government permits and approvals may adversely impact the saleCompany's operations. The regulatory environment in which the Company operates could change in ways that would substantially increase costs to achieve compliance, or otherwise could have a material adverse effect on the Company's operations or financial position. In particular, the Company's operations and exploration activities in British Columbia are subject to national and provincial laws and regulations governing protection of minerals produced by the Company. Factors beyond the control of Amarc will affect the marketability of any substances discovered. Mineral prices have fluctuated widelyenvironment. These laws are continually changing and, in recent years. Government regulations relating to price, royalties, allowable production and importing and exporting of minerals can adversely affect Amarc.general, are becoming more restrictive. There can be no certainty that Amarcthe Company will be able to obtain all necessary licenses and permits that may be required to carry out exploration, development and operations at the Company's projects.
Although the Company has no reason to believe that the existence and extent of any of the Company's properties is in doubt, title to mining properties is subject to potential claims by third parties claiming an interest in them.
Amarc’s mineral properties may be subject to previous unregistered agreements or transfers, and title may be affected by undetected defects or changes in mineral tenure laws. The Company's mineral interests consist of mineral claims, which have not been surveyed, and therefore, the precise area and location of such claims or rights may be in doubt. The failure to comply with all applicable laws and regulations, including the failure to pay taxes or to carry out and file assessment work, may invalidate title to portions of the properties where the Company's mineral rights are held.
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The Company is not able to obtain insurance for many of the risks that the Company faces.
In the course of exploration, development and production of mineral properties, several risks and, in particular, unexpected or unusual geological or operating conditions, may occur. It is not always possible to fully insure against such risks, and the Company may decide not to take out insurance against such risks as a result of high premiums or other reasons. Should such liabilities arise they could reduce or eliminate any future profitability and result in an increase in costs and a decline in value of the Company's securities.
The Company is not insured against environmental risks. Insurance against environmental risks (including potential liability for pollution or other hazards as a result of the disposal of waste products occurring from exploration and production) has not been generally available to companies within the industry. The Company will periodically evaluate the cost and coverage of the insurance against certain environmental risks that is available to determine if it would be appropriate to obtain such insurance. Without such insurance, and if the Company becomes subject to environmental liabilities, the payment of such liabilities would reduce or eliminate the Company's available funds or could exceed the funds the Company has to pay such liabilities and result in bankruptcy. Should the Company be unable to fund fully the remedial cost of an environmental problem, the Company might be required to enter into interim compliance measures pending completion of the required remedy.
The Company is dependent on its projects. Environmental concerns aboutjoint venture partners for the development of certain of the Company's properties.
Amarc holds a portion of the Company's assets in the form of participation interests in joint ventures. The Company's interest in these projects is subject to the risks normally associated with the conduct of joint ventures. The existence or occurrence of one or more of the following circumstances and events could have a material adverse impact on the Company's profitability or the viability of the interests held through joint ventures, which could have a material adverse impact on the Company's future cash flows, earnings, results of operations and financial condition: (i) disagreement with joint venture partners on how to proceed with exploration programs and how to develop and operate mines efficiently; (ii) inability of joint venture partners to meet their obligations to the joint venture or third parties; and (iii) litigation between joint venture partners regarding joint venture matters.
The industry in which the Company operates is highly competitive, and the Company may be unable to compete effectively with other companies.
The mineral exploration and mining business is competitive in general continue to be a significant challenge for Amarc, as they are for all mining companies.of its phases. The Company competes with manynumerous other companies possessing farand individuals, including competitors with greater financial, technical and other resources, in the search for and technical facilities than itself for the acquisition of attractive mineral concessions, claims, leasesproperties. Amarc's ability to acquire properties in the future will depend not only on the Company's ability to develop its present properties, but also on the Company's ability to select and otheracquire suitable producing properties or prospects for mineral interests as well as for the recruitment and retention of qualified employees.
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Environmental Risks.
Unexpected environmental damage from spills, accidents and severe acts of nature such as earthquakes are risks which may not be fully insurable and if catastrophic could mean the total loss of shareholders' equity.
Amarc Has No History of Earnings and No Foreseeable Earnings.
Amarc has a long history of losses and there can beexploration. There is no assurance that Amarcthe Company will evercontinue to be profitable. Amarc has paid no dividends onable to compete successfully with its shares since incorporation and does not anticipate payingcompetitors in the foreseeable future.acquiring such properties or prospects.
Going Concern Assumption.
Amarc's consolidated financial statements haveThe Company’s share price has historically been prepared assuming Amarc will continue on a going-concern basis; however unless additional funding is obtained this assumption may have to change and Amarc's assets may have to be written down to asset prices realizable in insolvency or distress circumstances.
Amarc's Share Price is Volatile.volatile.
The market price of a publicly traded stock, especially a junior resource issuer like the Company,Amarc, is affected by many variables not directly related to the Company's exploration success, of the Company, including the market for junior resource stocks, the strength of the economy generally, the availability and attractiveness of alternative investments, and the breadth of the public market for the stock. The effect of these and other factors on
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the market price of the common shares on the TSX Venture Exchange andstock exchanges on which the OTCBB suggestsCompany trade, suggest the Company's shares will continue to be volatile.
Significant Potential Equity DilutionAmarc’s directors and End of Lock-ups.
A summary of the Company's diluted share capital isofficers are part-time and serve as follows:
At July 19, 2004 there were 2,170,500 options and 20,645,416 warrants of the Company in-the-money. These options and warrants, along with an additional 2,000,000 warrants out-of-the-money, will likely act as an upside damper on the trading range of the Company's shares. As a consequence of the passage of time since the date of their original sale and issuance, nil shares of the Company remain subject to any hold period restrictions in Canada or the United States as of July 19, 2004. The resale of outstanding shares from the exercise of dilutive securities would have a depressing effect on the market for the Company's shares. Dilutive securities represent approximately 55% of the Company's currently issued and outstanding common shares.
The Company's Directors and Officers are Part-Time and Serve as Directors and Officers of Other Companies.
All of the directors and officers of other companies.
Some of the Company serve asCompany's directors and officers and/or directors of other resource exploration companies and are engaged, in and will continue to be engaged, in the search for additional resourcebusiness opportunities on their own behalf and on behalf of other companies, and situations may arise where these directors and officers will be in direct competition with the Company. Such potential conflicts,us. Conflicts, if any, will be dealt with in accordance with the relevant provisions of theBusiness Corporations Act(British Columbia corporate and common law.Columbia). In order to avoid the possible conflict of interest which may arise between the directors'directors’ duties to the CompanyAmarc and their duties to the other companies on whose boards they serve, the Company's directors and officers of the Company expecthave agreed that participation in exploration prospectsother business ventures offered to the directorsthem will be allocated between the various companies that they serve on the basis of prudent business judgementjudgment, and the relative financial abilities and needs of the companies to participate.
There is no assurance that the Company will be successful in obtaining the funding required for the Company's operations.
Amarc’s operations consist almost exclusively of cash consuming activities given that the Company's main mineral projects are in the exploration stage. The successfurther development and exploration of the
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various mineral properties in which the Company and its ability to continue to carry on operationshold interests is dependent upon itsthe Company's ability to retain the services of certain key employees and members of its board of directors.obtain financing through debt financing, equity financing or other means.
Likely PFIC Status Has Possible Adverse Tax ConsequencesIf the Company raises additional funding through equity financings, then the Company's current shareholders will suffer dilution.
The Company will require additional financing in order to complete full exploration of the Company's mineral properties. Management anticipates that the Company will have to sell additional equity securities including, but not limited to, its common stock, share purchase warrants or some form of convertible security. The effect of additional issuances of equity securities will result in the dilution of existing shareholders’ percentage ownership interests.
Amarc’s status as a passive foreign investment company has consequences for US Investors.U.S. investors.
Potential investors who are USU.S. taxpayers should be aware that the Company expects to be a passive foreign investment company ("PFIC"(“PFIC”) for the current fiscal year, and may also have been a PFIC in prior years and may also be a PFIC in subsequentfuture years. If the Company is a PFIC for any year during a US taxpayer'sU.S. taxpayer’s holding period, then such USU.S. taxpayer, generally, will be required to treat any so-called "excess distribution"“excess distribution” received on its common shares, or any gain realized upon a disposition of common shares, as ordinary income and to pay an interest charge on a portion of such distribution or gain, unless the taxpayer makes a qualified electing fund ("QEF"(“QEF”) election or a mark-to-market election with respect to the shares of the Company.Company's shares. In certain circumstances, the sum of the tax and the interest charge may exceed the amount of the excess distribution received, or the amount of proceeds of disposition realized, by the taxpayer. A USU.S. taxpayer who makes a QEF election generally must report on a current basis its share of the Company's net capital gain and ordinary earnings for any year in which the Company is a PFIC, whether or not the Company distributes any amounts to itsthe Company's shareholders. A USU.S. taxpayer who makes the mark-to-market election, generally, must include as ordinary income in each year, the excess of the fair market value of the common shares over the taxpayer'staxpayer’s tax basis therein. U.S. taxpayers are advised to seek advice from their professional tax advisors.
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SharesThe Company’s shareholders could face significant potential equity dilution.
As of September 24, 2007, Amarc has no share purchase options outstanding and 10,140,000 share purchase warrants outstanding. However, Amarc does have a share purchase option plan which allows the management to issue options to its employees and non employees based on the policies of the CompanyCompany. If the options are issued, they will likely act as an upside damper on the trading range of the Company's shares. As a consequence of the passage of time since the date of their original sale and issuance, none of the Company's shares remain subject to any hold period restrictions in Canada or the United States. The unrestricted resale of outstanding shares from the exercise of dilutive securities may be Affected Adversely by have a depressing effect on the market for the Company's shares.
Penny Stock Rules.Classification Could Affect the Marketability of the Company's Common Stock and Shareholders Could Find It Difficult to Sell Their Stock.
The Company'spenny stock may be subjectrules require a broker-dealer, prior to US "Penny Stock" rules, which may make the stock more difficult to trade on the open market. The Company's common shares have traded on the TSX Venture Exchange since August 1995 and on the OTCBB since June 2004. For further details on the market performance of the Company's common stock, see "Item 5 Nature of Trading Market." Although the Company's common stock trades on the TSX Venture Exchange ("TSX Venture") and the OTCBB, the Company's stock may be subject to US "penny stock" rules. A "penny stock" is defined by regulations of the US Securities and Exchange Commission ("SEC") as an equity security with a market price of less than $5.00 per share. However, an equity security with a market price under $5.00 will not be consideredtransaction in a penny stock if it fits within anynot otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the following exceptions:
If an investor buysbroker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or sellsin writing prior to effecting the transaction and must be given to the customer in writing before or with the customer's confirmation.
Further, the penny stock rules require that prior to a transaction in a penny stock SEC regulations require thatnot otherwise exempt from such rules; the investor receive, prior to the transaction, a disclosure explaining the penny stock market and associated risks. Furthermore, trading in the Company's common stock is currently subject to Rule 15g-9 of the Exchange Act, which relates to non-NASDAQ and non-exchange listed securities. Under this rule, broker/dealers who recommend the Company's securities to persons other than established customers and accredited investorsbroker-dealer must make a special written suitability determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to a transaction prior to sale. Securities are exempt from this rule if theirthe transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market price is at least $5.00 per share.
Penny stock regulations will tend to reduce market liquidity offor the Company's common stock, because they limitshares in the broker/dealers' ability to trade,United States and a purchaser's abilityshareholders may find it more difficult to sell the stock in the secondary market. The low price of the Company's common stock has a negative effect on the amount andtheir shares.
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percentage of transaction costs paid by individual shareholders. The low price of the Company's common stock also limits the Company's ability to raise additional capital by issuing additional shares. There are several reasons for these effects. First, the internal policies of certain institutional investors prohibit the purchase of low-priced stocks. Second, many brokerage houses do not permit low-priced stocks to be used as collateral for margin accounts or to be purchased on margin. Third, some brokerage house policies and practices tend to discourage individual brokers from dealing in low-priced stocks. Finally, broker's commissions on low-priced stocks usually represent a higher percentage of the stock price than commissions on higher priced stocks. As a result, the Company's shareholders pay transaction costs that are a higher percentage of their total share value than if the Company's share price were substantially higher.
The rules described above concerning penny stocks may adversely affect the market liquidity of the Company's securities. The Company can provide no assurances concerning the market liquidity of its stock or that its stock will not be subject to "penny stock" rules. For more information about penny stocks, contact the Office of Filings, Information and Consumer Services of the US Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, or by telephone at (202) 272-7440.
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Amarc is a corporation registered inincorporated pursuant to the laws of the Province of British Columbia, Canada. There is no law or governmental decree or regulation in Canada that restricts the export or import of capital, or affects the remittance of dividends, interest or other payments to a non-resident holder of Common Shares,common shares, other than withholding tax requirements. Any such remittances to United States residents are generally subject to withholding tax.tax, however no such remittances are likely in the foreseeable future. See "Taxation"“Taxation”, below.
There is no limitation imposed by the laws of Canada or by the charter or other constituent documents of Amarc on the right of a non-resident to hold or vote the Common Shares,its common shares, other than as provided in theInvestment Canada Act (Canada) (the "Investment Act"“Investment Act”). The following discussion summarizes the
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material features of theInvestment Act for a non-resident who proposes to acquire a controlling number of Common Shares.Amarc’s common shares. It is general only,only; it is not a substitute for independent advice from an investor'sinvestor’s own advisor, and it does not anticipate statutory or regulatory amendments. Amarc does not believe theInvestment Act will have any affect on it or on its non-Canadian shareholders due to a number of factors including the nature of its operations and Amarc'sAmarc’s relatively small capitalization.
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TheInvestment Act generally prohibits implementation of a reviewable“reviewable” investment by an individual, government or agency thereof, corporation, partnership, trust or joint venture (each an "entity"“entity”) that is not a "Canadian"“Canadian” as defined in theInvestment Act (a "non-Canadian" (i.e. a “non-Canadian”), unless after review the Director of Investments appointed by the ministerMinister responsible for theInvestment Act is satisfied that the investment is likely to be of net benefit to Canada. The size and nature of a proposed transaction may give rise to an obligation to notify the Director to seek an advance ruling. An investment in the Common SharesAmarc’s common shares by a non-Canadian other(other than a "WTO Investor" (as“WTO Investor” as that term is defined in theInvestment Act and which term includes entities which are nationals of or are controlled by nationals of member states of the World Trade Organization) when Amarc was not controlled by a WTO Investor, would be reviewable under theInvestment Act if it was an investment to acquire control of Amarc and the value of the assets of Amarc, as determined in accordance with the regulations promulgated under the Investment Act, was over $5 million, or more, or if an order for review was made by the federal cabinet on the grounds that the investment related to Canada'sCanada’s cultural heritage or national identity, regardless of the value of the assets of Amarc. An investment in the Common Sharescommon shares of Amarc by a WTO Investor, or by a non-Canadian when Amarc was controlled by a WTO Investor, would be reviewable under theInvestment Act if it was an investment to acquire control of Amarc and the value of the assets of Amarc, as determined in accordance with the regulations promulgated under the Investment Act, was not less than a specified amount, which for 2003 exceeded Cdn$2132007 is $281 million. A non-Canadian would acquire control of Amarc for the purposes of theInvestment Act if the non-Canadian acquired a majority of the Common Shares.common shares. The acquisition of less than a majority but one-third or more of the Common Sharescommon shares would be presumed to be an acquisition of control of Amarc unless it could be established that, on the acquisition, Amarc was not controlled in fact by the acquiroracquirer through the ownership of the Common Shares.common shares.
The foregoing assumes AmarcContinental will not engage in the production of uranium or own an interest in a producing uranium property in Canada, or provide any financial service or transportation service or is a cultural business, as the rules under theInvestment Actgoverning thesethose businesses are different.
Certain transactions relating to the Common Sharescommon shares of the Company would be exempt from theInvestment Act,, including including:
(a) | an acquisition of the | |
(b) | an acquisition of control of Amarc in connection with the realization of security granted for a loan or other financial assistance and not for a purpose related to the provisions of theInvestment | |
(c) | an acquisition of control of Amarc by reason of an amalgamation, merger, consolidation or corporate reorganization following which the ultimate direct or indirect control in fact of Amarc, through the ownership of the |
E. Taxation- 61 -
Material Canadian Federal Income Tax Consequences for United States Residents
E. | Taxation |
The following, in management's understanding, summarizes the material Canadian federal income tax consequences generally applicable to the holding and disposition of Common Sharescommon shares by a holder (in this summary, a "US"U.S. Holder") who, (a) for the purposes of the Income Tax Act (Canada) (the "Tax Act"), is not resident in Canada, deals at arm's length with Amarc, holds the Common Sharescommon shares as capital property and does not use or hold the Common Sharescommon shares in the course of carrying on, or otherwise in connection with, a business in Canada, and (b) for the purposes of the Canada-United States Income Tax Convention, 1980 (the "Treaty"), is a resident solely of the United States, has never been a resident of Canada, and has not held or used (and does not hold or use) Common Sharescommon shares in connection with a permanent establishment or fixed base in Canada. This summary does not apply to traders or dealers in securities,
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limited liability companies, tax-exempt entities, insurers, financial institutions (including those to which the mark-to-market provisions of the Tax Act apply), or any other USU.S. Holder to which special considerations apply.
This summary is based on the current provisions of the Tax Act, including all regulations thereunder, the Treaty, all proposed amendments to the Tax Act, the regulations and the Treaty publicly announced by the Government of Canada to the date hereof, and the current administrative practices of the Canada Customs and Revenue Agency. It has been assumed that all currently proposed amendments will be enacted as proposed and that there will be no other relevant change in any governing law or administrative practice, although no assurances can be given in these respects. This summary does not take into account provincial, US,U.S., state or other foreign income tax law or practice. The tax consequences to any particular USU.S. Holder will vary according to the status of that holder as an individual, trust, corporation, partnership or other entity, the jurisdictions in which that holder is subject to taxation, and generally according to that holder's particular circumstances. Accordingly, this summary is not, and is not to be construed as, Canadian tax advice to any particular USU.S. Holder.
Dividends
Dividends paid or deemed to be paid to a USU.S. Holder by Amarc will be subject to Canadian withholding tax. Under the Treaty, the rate of withholding tax on dividends paid to a USU.S. Holder is generally limited to 15% of the gross amount of the dividend (or 5% if the USU.S. Holder is a corporation and beneficially owns at least 10% of Amarc's voting shares). Amarc will be required to withhold the applicable withholding tax from any such dividend and remit it to the Canadian government for the USU.S. Holder's account.
Disposition
A USU.S. Holder is not subject to tax under the Tax Act in respect of a capital gain realized on the disposition of a Common Sharecommon share in the open market unless the share is "taxable“taxable Canadian property"property” to the holder thereof and the USU.S. Holder is not entitled to relief under the Treaty. A Common Sharecommon share will be taxable Canadian property to a USU.S. Holder if, at any time during the 60 months preceding the disposition, the USU.S. Holder or persons with whom the USU.S. Holder did not deal at arm's length alone or together owned, or had rights to acquire, 25% or more of Amarc's issued shares of any class or series.
A USU.S. Holder whose Common Sharescommon shares do constitute taxable Canadian property, and who might therefore be liable for Canadian income tax under the Tax Act, will generally be relieved from such liability under the Treaty unless the value of such shares at the time of disposition is derived principally from real property situated in Canada. Management of Amarc believes that the value of Amarc's Common Shares is not currently derived principally from real property situated in Canada.
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United States Tax Consequences
United States Federal Income Tax Consequences
Based on management's discussions with its professional advisors, it believes theThe following is, in management's understanding, a discussion of material United States federal income tax consequences, under current law, generally applicable to a USU.S. Holder (as hereinafter defined) of common shares of Amarc. This discussion does not address all potentially relevant federal income tax matters and it does not address consequences peculiar to persons subject to special provisions of federal income tax law, such as those described below as excluded from the definition of a USU.S. Holder. In addition, this discussion does not cover any state, local or foreign tax consequences.consequences (see "Taxation"Taxation –Canadian Federal Income Tax Consequences" above).Accordingly, holders and prospective holders of common shares of Amarc should consult their own tax advisors about the specific federal, state, local, and foreign tax consequences to them of purchasing, owning and disposing of common shares of Amarc, based upon their individual circumstances.
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The following discussion is based upon the sections of the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations, published Internal Revenue Service ("IRS") rulings, published administrative positions of the IRS and court decisions that are currently applicable, any or all of which could be materially and adversely changed, possibly on a retroactive basis, at any time and which are subject to differing interpretations. This discussion does not consider the potential effects, both adverse and beneficial, of any proposed legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time.
USU.S. Holders
As used herein, a "US"U.S. Holder" means a holder of common shares of Amarc who is a citizen or individual resident of the United States, a corporation or partnership created or organized in or under the laws of the United States or of any political subdivision thereof, an entity created or organized in or under the laws of the United States or any political subdivision thereof which has elected to be treated as a corporation for United States income tax purposes (under Treasury Regulation section 301.7701 -3), an estate whose income is taxable in the United States irrespective of source or a trust subject to the primary supervision of a court within the United States and control of a United States fiduciary as described Section 7701(a)(30) of the Code. This summary does not address the tax consequences to, and USU.S. Holder does not include, persons subject to specific provisions of federal income tax law, such as tax-exempt organizations, qualified retirement plans, individual retirement accounts and other tax-deferred accounts, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, non-resident alien individuals, persons or entities that have a "functional currency" other than the USU.S. dollar, shareholders subject to the alternative minimum tax, shareholders who hold common shares as part of a straddle, hedging or conversion transaction, and shareholders who acquired their common shares through the exercise of employee stock options or otherwise as compensation for services. This summary is limited to USU.S. Holders who own common shares as capital assets and who own (directly and indirectly, pursuant to applicable rules of constructive ownership) no more than 5% of the value of the total outstanding stock of Amarc. This summary does not address the consequences to a person or entity holding an interest in a shareholder or the consequences to a person of the ownership, exercise or disposition of any options, warrants or other rights to acquire common shares. In addition, this summary does not address special rules applicable to United States persons (as defined in Section 7701(a)(30) of the Code) holding common shares through a foreign partnership or to foreign persons holding common shares through a domestic partnership.
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Distribution on Common Shares of Amarc
In general, USU.S. Holders receiving dividend distributions (including constructive dividends) with respect to common shares of Amarc are required to include in gross income for United States federal income tax purposes the gross amount of such distributions, equal to the USU.S. dollar value of such distributions on the date of receipt (based on the exchange rate on such date), to the extent that Amarc has current or accumulated earnings and profits, without reduction for any Canadian income tax withheld from such distributions. Such Canadian tax withheld may be credited, subject to certain limitations, against the USU.S. Holder's federal income tax liability or, alternatively, may be deducted in computing the USU.S. Holder's federal taxable income by those who itemize deductions. (See more detailed discussion at "Foreign Tax Credit" below). To the extent that distributions exceed current or accumulated earnings and profits of Amarc, they will be treated first as a return of capital up to the USU.S. Holder's adjusted basis in the common shares and thereafter as gain from the sale or exchange of property. Preferential tax rates for long-term capital gains are applicable to a USU.S. Holder which is an individual, estate or trust. There are currently no preferential tax rates for long-term capital gains for a USU.S. Holder which is a corporation.
In the case of foreign currency received as a dividend that is not converted by the recipient into USU.S. dollars on the date of receipt, a USU.S. Holder will have a tax basis in the foreign currency equal to its USU.S. dollar value on the date of receipt. Generally, any gain or loss recognized upon a subsequent sale or other disposition of the foreign currency, including the exchange for USU.S. dollars, will be ordinary income or loss. However, an individual whose realized gain does not exceed $200 will not recognize that gain,
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provided that there are no expenses associated with the transaction that meet the requirements for deductibility as a trade or business expense (other than travel expenses in connection with a business trip) or as an expense for the production of income.
Dividends paid on the common shares of Amarc generally will not be eligible for the dividends received deduction provided to corporations receiving dividends from certain United States corporations. A USU.S. Holder which is a corporation and which owns shares representing at least 10% of the voting power and value of Amarc may, under certain circumstances, be entitled to a 70% (or 80% if the USU.S. Holder owns shares representing at least 20% of the voting power and value of Amarc) deduction of the United States source portion of dividends received from Amarc (unless Amarc qualifies as a "foreign personal holding company" or a "passive foreign investment company," as defined below). Amarc does not anticipate that it will earn any United States income, however, and therefore, does not anticipate that any USU.S. Holder will be eligible for the dividends received deduction.
Under current Treasury Regulations, dividends paid on Amarc'sAmarc common shares, if any, generally will not be subject to information reporting and generally will not be subject to USU.S. backup withholding tax. However, dividends and the proceeds from a sale of Amarc'sAmarc common shares paid in the USU.S. through a USU.S. or USU.S. related paying agent (including a broker) will be subject to USU.S. information reporting requirements and may also be subject to the 31% US28% U.S. backup withholding tax, unless the paying agent is furnished with a duly completed and signed Form W-9. Any amounts withheld under the USU.S. backup withholding tax rules will be allowed as a refund or a credit against the USU.S. Holder's USU.S. federal income tax liability, provided the required information is furnished to the IRS.
Foreign Tax Credit
A USU.S. Holder who pays (or has withheld from distributions) Canadian income tax with respect to the ownership of common shares of Amarc may be entitled, at the option of the USU.S. Holder, to either receive a deduction or a tax credit for such foreign tax paid or withheld. Generally, it will be more advantageous to claim a credit because a credit reduces United States federal income taxes on a dollar-for-dollar basis, while a deduction merely reduces the taxpayer's income subject to tax. This election is made on a year-by-yearyear-
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by-year basis and generally applies to all foreign taxes paid by (or withheld from) the USU.S. Holder during that year. There are significant and complex limitations which apply to the credit, among which is the general limitation that the credit cannot exceed the proportionate share of the USU.S. Holder's United States income tax liability that the USU.S. Holder's foreign source income bears to his or its worldwide taxable income. In the determination of the application of this limitation, the various items of income and deduction must be classified into foreign and domestic sources. Complex rules govern this classification process. In addition, this limitation is calculated separately with respect to two specific classes of income such asincome: "passive income, "high withholding tax interest," "financial services income," "shipping income," and certain other classifications of income."general income". Dividends distributed by Amarc will generally constitute "passive income" or, in the case of certain US Holders, "financial services income" for these purposes. Prior to January 1, 2007, there were nine specific classes of income rather than the two stated here. The availability of the foreign tax credit and the application of the limitations on the credit are fact specific, and USU.S. Holders of common shares of Amarc should consult their own tax advisors regarding their individual circumstances.
Disposition of Common Shares of Amarc
In general, USU.S. Holders will recognize gain or loss upon the sale of common shares of Amarc equal to the difference, if any, between (i) the amount of cash plus the fair market value of any property received, and (ii) the shareholder's tax basis in the common shares of Amarc. Preferential tax rates apply to long-term capital gains of USU.S. Holders which are individuals, estates or trusts. In general, gain or loss on the sale of common shares of Amarc will be long-term capital gain or loss if the common shares are a capital asset in the hands of the USU.S. Holder and are held for more than one year. Deductions for net capital losses are subject to significant limitations. For USU.S. Holders which are not corporations, any unused portion of such
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net capital loss may be carried over to be used in later tax years until such net capital loss is thereby exhausted. For USU.S. Holders that are corporations (other than corporations subject to Subchapter S of the Code), an unused net capital loss may be carried back three years and carried forward five years from the loss year to be offset against capital gains until such net capital loss is thereby exhausted.
Other Considerations
Set forth below are certain material exceptions to the above-described general rules describing the United States federal income tax consequences resulting from the holding and disposition of common shares:
Foreign Personal Holding Company
If at any time during a taxable year more than 50% of the total combined voting power or the total value of Amarc's outstanding shares is owned, directly or indirectly (pursuant to applicable rules of constructive ownership), by five or fewer individuals who are citizens or residents of the United States and 60% or more of Amarc's gross income for such year is derived from certain passive sources (e.g., from certain interest and dividends), Amarc may be treated as a "foreign personal holding company." In that event, US Holders that hold common shares would be required to include in gross income for such year their allocable portions of such passive income to the extent Amarc does not actually distribute such income. Amarc does not believe that it currently qualifies as a foreign personal holding company. However, there can be no assurance that Amarc will not be considered a foreign personal holding company for the current or any future taxable year.
Foreign Investment Company
If 50% or more of the combined voting power or total value of Amarc's outstanding shares is held, directly or indirectly, by citizens or residents of the United States, United States domestic partnerships or corporations, or estates or trusts other than foreign estates or trusts (as defined by the Code Section 7701(a)(31)), and Amarc is found to be engaged primarily in the business of investing, reinvesting, or trading in securities, commodities, or any interest therein, it is possible that Amarc may be treated as a "foreign investment company" as defined in Section 1246 of the Code, causing all or part of any gain realized by a US Holder selling or exchanging common shares to be treated as ordinary income rather than capital gain. Amarc does not believe that it currently qualifies as a foreign investment company. However, there can be no assurance that Amarc will not be considered a foreign investment company for the current or any future taxable year.
Passive Foreign Investment Company
United States income tax law contains rules governing "passive foreign investment companies" ("PFIC") which can have significant tax effects on USU.S. Holders of foreign corporations. These rules do not apply to non-USnon-U.S. Holders. Section 1297 of the Code defines a PFIC as a corporation that is not formed in the United States if, for any taxable year, either (i) 75% or more of its gross income is "passive income," which includes interest, dividends and certain rents and royalties or (ii) the average percentage, by fair market value (or, if the corporation is not publicly traded and either is a controlled foreign corporation or makes an election, by adjusted tax basis), of its assets that produce or are held for the production of "passive income" is 50% or more. In the event that Amarc appears to have been a PFIC for the fiscal year ended October 31, 1999, and at least certain prior fiscal years. In addition, Amarc expects to qualifyqualifies as a PFIC for the fiscal year ending OctoberMarch 31, 2000 and may also qualify as a PFIC2007, or in future fiscal years. Each USyears, each U.S. Holder of Amarc is urged to consult a tax advisor with respect to how the PFIC rules affect such USU.S. Holder's tax situation.
Each USU.S. Holder who holds stock in a foreign corporation during any year in which such corporation qualifies as a PFIC is subject to United States federal income taxation under one of three alternative tax
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regimes at the election of such USU.S. Holder. The following is a discussion of such alternative tax regimes applied to such USU.S. Holders of Amarc. In addition, special rules apply if a foreign corporation qualifies as both a PFIC and a "controlled foreign corporation" (as defined below) and a USU.S. Holder owns,
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actually or constructively, 10% or more of the total combined voting power of all classes of stock entitled to vote of such foreign corporation (See more detailed discussion at "Controlled Foreign Corporation" below).
A USU.S. Holder who elects to treat Amarc as a qualified electing fund ("QEF") will be subject, under Section 1293 of the Code, to current federal income tax for any taxable year to which the election applies in which Amarc qualifies as a PFIC on his pro rata share of Amarc's (i) "net capital gain" (the excess of net long-term capital gain over net short-term capital loss), which will be taxed as long-term capital gain, and (ii) "ordinary earnings" (the excess of earnings and profits over net capital gain), which will be taxed as ordinary income, in each case, for the shareholder's taxable year in which (or with which) Amarc's taxable year ends, regardless of whether such amounts are actually distributed. A USU.S. Holder's tax basis in the common shares will be increased by any such amount that is included in income but not distributed.
The procedure a USU.S. Holder must comply with in making an effective QEF election, and the consequences of such election, will depend on whether the year of the election is the first year in the USU.S. Holder's holding period in which Amarc is a PFIC. If the USU.S. Holder makes a QEF election in such first year, i.e., a "timely" QEF election, then the USU.S. Holder may make the QEF election by simply filing the appropriate documents at the time the USU.S. Holder files his tax return for such first year. If, however, Amarc qualified as a PFIC in a prior year during the USU.S. Holder's holding period, then, in order to avoid the Section 1291 rules discussed below, in addition to filing documents, the USU.S. Holder must elect to recognize under the rules of Section 1291 of the Code (discussed herein), (i) any gain that he would otherwise recognize if the USU.S. Holder sold his stock on the qualification date or (ii) if Amarc is a controlled foreign corporation, the USU.S. Holder's pro rata share of Amarc's post-1986 earnings and profits as of the qualification date. The qualification date is the first day of Amarc's first tax year in which Amarc qualified as a QEF with respect to such USU.S. Holder. For purposes of this discussion, a USU.S. Holder who makes (i) a timely QEF election, or (ii) an untimely QEF election and either of the above-described gain-recognition elections under Section 1291 is referred to herein as an "Electing USU.S. Holder." A USU.S. Holder who holds common shares at any time during a year of Amarc in which Amarc is a PFIC and who is not an Electing USU.S. Holder (including a USU.S. Holder who makes an untimely QEF election and makes neither of the above-described gain-recognition elections) is referred to herein as a "Non-Electing US Holder."U.S. Holder". An Electing USU.S. Holder (i) generally treats any gain realized on the disposition of his CompanyAmarc common shares as capital gain; and (ii) may either avoid interest charges resulting from PFIC status altogether, or make an annual election, subject to certain limitations, to defer payment of current taxes on his share of Amarc's annual realized net capital gain and ordinary earnings subject, however, to an interest charge. If the USU.S. Holder is not a corporation, any interest charge imposed under the PFIC regime would be treated as "personal interest" that is not deductible.
In order for a USU.S. Holder to make (or maintain) a valid QEF election, Amarc must provide certain information regarding its net capital gains and ordinary earnings and permit its books and records to be examined to verify such information. Amarc intends to make the necessary information available to USU.S. Holders to permit them to make (and maintain) QEF elections with respect to Amarc. Amarc urges each USU.S. Holder to consult a tax advisor regarding the availability of, and procedure for making, the QEF election.
A QEF election, once made with respect to Amarc, applies to the tax year for which it was made and to all subsequent tax years, unless the election is invalidated or terminated, or the IRS consents to revocation of the election. If a QEF election is made by a USU.S. Holder and Amarc ceases to qualify as a PFIC in a subsequent tax year, the QEF election will remain in effect, although not applicable, during those tax years in which Amarc does not qualify as a PFIC. Therefore, if Amarc again qualifies as a PFIC in a subsequent tax year, the QEF election will be effective and the USU.S. Holder will be subject to the rules described above for Electing USU.S. Holders in such tax year and any subsequent tax years in which Amarc
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qualifies as a PFIC. In addition, the QEF election remains in effect, although not applicable, with respect to an Electing USU.S. Holder even after such USU.S. Holder disposes of all of his or its direct and indirect interest in the shares of Amarc. Therefore, if such USU.S. Holder reacquires an interest in Amarc, that USU.S. Holder will be subject to the rules described above for Electing USU.S. Holders for each tax year in which Amarc qualifies as a PFIC.
In the case of a Non-Electing USU.S. Holder, special taxation rules under Section 1291 of the Code will apply to (i) gains realized on the disposition (or deemed to be realized by reasons of a pledge) of his CompanyAmarc common shares and (ii) certain "excess distributions," as defined in Section 1291(b), by Amarc.
A Non-Electing USU.S. Holder generally would be required to pro rate all gains realized on the disposition of his CompanyAmarc common shares and all excess distributions on his CompanyAmarc common shares over the entire holding period for the common shares. All gains or excess distributions allocated to prior years of the USU.S. Holder (excluding any portion of the holder's period prior to the first day of the first year of Amarc (i) which began after December 31, 1986, and (ii) for which Amarc was a PFIC) would be taxed at the highest tax rate for each such prior year applicable to ordinary income. The Non-Electing USU.S. Holder also would be liable for interest on the foregoing tax liability for each such prior year calculated as if such liability had been due with respect to each such prior year. A Non-Electing USU.S. Holder that is not a corporation must treat this interest charge as "personal interest" which, as discussed above, is wholly non-deductible. The balance, if any, of the gain or the excess distribution will be treated as ordinary income in the year of the disposition or distribution, and no interest charge will be incurred with respect to such balance. In certain circumstances, the sum of the tax and the PFIC interest charge may exceed the amount of the excess distribution received, or the amount of proceeds of disposition realized, by the USU.S. Holder.
If Amarc is a PFIC for any taxable year during which a Non-Electing USU.S. Holder holds CompanyAmarc common shares, then Amarc will continue to be treated as a PFIC with respect to such CompanyAmarc common shares, even if it is no longer definitionally a PFIC. A Non-Electing USU.S. Holder may terminate this deemed PFIC status by electing to recognize gain (which will be taxed under the rules discussed above for Non-Electing USU.S. Holders) as if such CompanyAmarc common shares had been sold on the last day of the last taxable year for which it was a PFIC.
Effective for tax years of USU.S. Holders beginning after December 31, 1997, USU.S. Holders who hold (actually or constructively) marketable stock of a foreign corporation that qualifies as a PFIC may elect to mark such stock to the market annually (a "mark-to-market election"). If such an election is made, such USU.S. Holder will generally not be subject to the special taxation rules of Section 1291 discussed above. However, if the mark-to-market election is made by a Non-Electing USU.S. Holder after the beginning of the holding period for the PFIC stock, then the Section 1291 rules will apply to certain dispositions of, distributions on and other amounts taxable with respect to Amarc common shares. A USU.S. Holder who makes the mark-to market election will include in income for each taxable year as ordinary income for which the election is in effect an amount equal to the excess, if any, of the fair market value of the common shares of Amarc as of the close of such tax year over such USU.S. Holder's adjusted basis in such common shares. In addition, the USU.S. Holder is allowed a deduction for the lesser of (i) the excess, if any, of such USU.S. Holder's adjusted tax basis in the common shares over the fair market value of such shares as of the close of the tax year, or (ii) the excess, if any, of (A) the mark-to-market gains for the common shares in Amarc included by such USU.S. Holder for prior tax years, including any amount which would have been treated as a mark-to-market gain for any prior tax year but for the Section 1291 rules discussed above with respect to Non-Electing USU.S. Holders, over (B) the mark-to-market losses for shares that were allowed as deductions for prior tax years. A USU.S. Holder's adjusted tax basis in the common shares of Amarc will be adjusted to reflect the amount included in or deducted from income as a result of a mark-to-market election. A mark-to-market election applies to the taxable year in which the election is made and to each subsequent taxable year, unless Amarc common shares cease to be marketable, as specifically
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defined, or the IRS consents to revocation of the election. Because the IRS has not established procedures for making a mark-to-market election, USU.S. Holders should consult their tax advisor regarding the manner of making such an election.
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No view is expressed regarding whether common shares of Amarc are marketable for these purposes or whether the election will be available.
Under Section 1291(f) of the Code, the IRS has issued Proposed Treasury Regulations that, subject to certain exceptions, would treat as taxable certain transfers of PFIC stock by Non-Electing USU.S. Holders that are generally not otherwise taxed, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death. Generally, in such cases the basis of Amarc common shares in the hands of the transferee and the basis of any property received in the exchange for those common shares would be increased by the amount of gain recognized. Under the Proposed Treasury Regulations, an Electing USU.S. Holder would not be taxed on certain transfers of PFIC stock, such as gifts, exchanges pursuant to corporate reorganizations, and transfers at death. The transferee's basis in this case will depend on the manner of the transfer. In the case of a transfer by an Electing USU.S. Holder upon death, for example, the transferee's basis is generally equal to the fair market value of the Electing USU.S. Holder's common shares as of the date of death under Section 1014 of the Code. The specific tax effect to the USU.S. Holder and the transferee may vary based on the manner in which the common shares are transferred. Each USU.S. Holder of Amarc is urged to consult a tax advisor with respect to how the PFIC rules affect his or its tax situation.
Whether or not a USU.S. Holder makes a timely QEF election with respect to common shares of Amarc, certain adverse rules may apply in the event that both Amarc and any foreign corporation in which Amarc directly or indirectly holds shares is a PFIC (a "lower-tier PFIC"). Pursuant to certain Proposed Treasury Regulations, a USU.S. Holder would be treated as owning his or its proportionate amount of any lower-tier PFIC shares, and generally would be subject to the PFIC rules with respect to such indirectly-held PFIC shares unless such USU.S. Holder makes a timely QEF election with respect thereto. Amarc intends to make the necessary information available to USU.S. Holders to permit them to make (and maintain) QEF elections with respect to each subsidiary of Amarc that is a PFIC.
Under the Proposed Treasury Regulations, a USU.S. Holder who does not make a timely QEF election with respect to a lower-tier PFIC generally would be subject to tax (and the PFIC interest charge) on (i) any excess distribution deemed to have been received with respect to his or its lower-tier PFIC shares and (ii) any gain deemed to arise from a so-called "indirect disposition" of such shares. For this purpose, an indirect disposition of lower-tier PFIC shares would generally include (i) a disposition by Amarc (or an intermediate entity) of lower-tier PFIC shares, and (ii) any other transaction resulting in a diminutiondilution of the USU.S. Holder's proportionate ownership of the lower-tier PFIC, including an issuance of additional common shares by Amarc (or an intermediate entity)entity or the lower tier PFIC). Accordingly, each prospective USU.S. Holder should be aware that he or it could be subject to tax even if such USU.S. Holder receives no distributions from Amarc and does not dispose of its common shares.
Amarc strongly urges each prospective USU.S. Holder to consult a tax advisor with respect to the adverse rules applicable, under the Proposed Treasury Regulations, to USU.S. Holders of lower-tier PFIC shares.
Certain special, generally adverse, rules will apply with respect to CompanyAmarc common shares while Amarc is a PFIC unless the USU.S. Holder makes a timely QEF election. For example under Section 1298(b)(6) of the Code, a USU.S. Holder who uses PFIC stock as security for a loan (including a margin loan) will, except as may be provided in regulations, be treated as having made a taxable disposition of such shares.
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Controlled Foreign Corporation
If more than 50% of the total combined voting power of all classes of shares entitled to vote or the total value of the shares of Amarc is owned, actually or constructively, by citizens or residents of the United States, United States domestic partnerships or corporation, or estates or trusts other than foreign estates or trusts (as defined by the Code Section 7701(a)(31)), each of which own, actually or constructively, 10% or more of the total combined voting power of all classes of shares entitled to vote of Amarc ("United States Shareholder"), Amarc could be treated as a controlled foreign corporation ("CFC") under Subpart F of the Code. This classification would effectaffect many complex results, one of which is the inclusion of
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certain income of a CFC which is subject to current USU.S. tax. The United States generally taxes United States Shareholders of a CFC currently on their pro rata shares of the Subpart F income of the CFC. Such United States Shareholders are generally treated as having received a current distribution out of the CFC's Subpart F income and are also subject to current USU.S. tax on their pro rata shares of increases in the CFC's earnings invested in USU.S. property. The foreign tax credit described above may reduce the USU.S. tax on these amounts. In addition, under Section 1248 of the Code, gain from the sale or exchange of shares by a USU.S. Holder of common shares of Amarc which is or was a United States Shareholder at any time during the five-year period ending on the date of the sale or exchange is treated as ordinary income to the extent of earnings and profits of Amarc attributable to the shares sold or exchanged. If a foreign corporation is both a PFIC and a CFC, the foreign corporation generally will not be treated as a PFIC with respect to United States Shareholders of the CFC. This rule generally will be effective for taxable years of United States Shareholders beginning after 1997 and for taxable years of foreign corporations ending with or within such taxable years of United States Shareholders. Special rules apply to United States Shareholders who are subject to the special taxation rules under Section 1291 discussed above with respect to a PFIC. Because of the complexity of Subpart F, a more detailed review of these rules is outside of the scope of this discussion. Amarc does not believe that it currently qualifies as a CFC. However, there can be no assurance that Amarc will not be considered a CFC for the current or any future taxable year.
F. Dividends and Paying Agents
F. | Dividends and Paying Agents |
Not applicable.
G. Statement by Experts
G. | Statement by Experts |
Not applicable.
H. Documents on Display
H. | Documents on Display |
Exhibits attached to this Form 20-F are also available for viewing on EDGAR, or at the offices of Amarc, Suite 1020 –- 800 West Pender Street, Vancouver, British Columbia V6C 2V6 or on request of Amarc at 604-684-6365, attentionattention: Shirley Main. Copies of Amarc'sAmarc’s financial statements and other continuous disclosure documents required under the British ColumbiaSecurities Act are available for viewing on the internet at www.sedar.com.www.sedar.com.
I. Subsidiary Information
I. | Subsidiary Information |
Not applicable.
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ITEM 11 | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
(a) | Transaction Risk and Currency Risk Management |
ITEM 11 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(a) Transaction Risk and Currency Risk Management
Amarc'sAmarc’s operations do not employ financial instruments or derivatives which are market sensitive and Amarc does not have financial market risks.
(b) | Exchange Rate Sensitivity |
(b) Exchange Rate Sensitivity
In the normal courseAmarc’s administrative operations are in Canada. The Company typically holds most of business, the Company enters into transactions for the purchase of supplies and services denominatedits funds in Canadian Dollarsdollars and Mexican Pesos. In addition,typically acquires foreign currency on an as-needed basis and hence it is not significantly affected by exchange rate risk. The Company does however, from time to time, the Company has cash and certain liabilitiesinvest in US$ denominated in United States Dollars. As a result, theshort term investments. The Company is subjectexposed to foreign currency exchange risk from fluctuations in foreign exchange rates.
(c) Exchange Controlson such investments.
The Company operates primarilycurrently does not engage in Canada, and from time to time conducts transactions in Mexico. Like other foreign entities operating in Mexico, the Company is subject to any currency exchange controls which may be administered by the Mexican Reserve Bank, the country's central bank.hedging.
(d) Interest Rate Risk and Equity Price Risk
(c) | Interest Rate Risk and Equity Price Risk |
Amarc is equity financed and does not have any debt, whichother than routine accounts payable. As such, the Company is not subject to interest rate change risks.
(e) Commodity Price Risk
(d) | Commodity Price Risk |
While the value of Amarc'sAmarc’s resource properties can always be said to relate to the price of the minerals for which it is exploringcopper and gold metals and the outlook for same, Amarc does not have any operating mines and hence does not have any hedging or other commodity based operational risks respecting its operations.business activities.
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ITEM 12 DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A. Debt Securities
ITEM 12 | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
Not applicable.
B. Warrants and Rights
Not applicable. Amarc's warrants are non-transferable and no market exists for them. Amarc has issued no rights.
C. Other Securities
Not applicable.
D. American Depositary Shares
Not applicable.- 71 -
PART II
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ITEM 13 DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
ITEM 13 | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
Not applicable.
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ITEM 14 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
ITEM 14 | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERSAND USE OF PROCEEDS |
Not applicable.
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ITEM 15 CONTROLS AND PROCEDURES
ITEM 15 | CONTROLS AND PROCEDURES |
As required by Rule 13a-15 under theSecurities Exchange Act of 1934 (the "Exchange Act"“Exchange Act”), the Company carried out an evaluation of the effectiveness of the design and operation of the Company'sCompany’s disclosure controls and procedures as of July 15, 2004.March 31, 2007. This evaluation was carried out under the supervision and with the participation of the Company'sCompany’s Chief Executive Officer, Ronald W. Thiessen, and the Company'sCompany’s Chief Financial Officer, Jeffrey R. Mason. Based upon that evaluation, the Company'sCompany’s Chief Executive Officer and Chief Financial Officer concluded that the Company'sCompany’s disclosure controls and procedures are effective in timely alerting management to materialensure that information relating to the Company required to be includeddisclosed by Amarc in the Company's periodic SEC filings.reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Securities and Exchange Commission (the “SEC”). There have been no significant changes in the Company'sCompany’s internal controls, or in other factors that significantly affected or could significantly affect internal controls, subsequent to the date the Company carried out itsthe evaluation.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Company'sCompany’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission'sSEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the Company'sCompany’s reports filed under the Exchange Act is accumulated and communicated to management, including the Company'sCompany’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
During the Company'sCompany’s most recently completed fiscal year ended March 31, 2004,2007, there were no changes in the Company'sCompany’s internal control over financial reporting that have materially affected, or are reasonably likely to affect, its internal control over financial reporting.
The term "internal“internal control over financial reporting"reporting” is defined as a process designed by, or under the supervision of, the registrant'sregistrant’s principal executive and principal financial officers, or persons performing similar functions, and effected by the registrant'sregistrant’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
(1) | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the registrant; |
(2) | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant; and |
(3) | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the |
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ITEM 16 AUDIT COMMITTEE, CODE OF ETHICS, ACCOUNTANT FEES AND EXEMPTIONS
A. Audit Committee Financial Expert
ITEM 16 | AUDIT COMMITTEE, CODE OF ETHICS, ACCOUNTANT FEES ANDEXEMPTIONS |
A. | Audit Committee Financial Expert |
The board of directors has determined that Mr. Ronald W. Thiessen, isPresident and Chief Executive Officer of the Company and a member of the audit committee of the Company, who qualifies as a "financial expert"“financial expert” based on his education and experience. Mr. Thiessen is the chief executive office of the Company and therefore is not "independent"“independent”, as thethat term is defined by the rules of the American Stock Exchange whichExchange. Mr. Thiessen is a national securities exchange.an accredited Chartered Accountant in Canada.
B. Code of Ethics
B. | Code of Ethics |
The Company has adopted a codeCode of ethicsEthics that applies to the Company'sCompany’s chief executive officer, the chief financial officer, and other members of senior management. The Company's Code of Ethics is appended as an exhibit to this Form 20-F.can be viewed at the Company’s website,www.amarcresources.com.
C. Principal Accountant Fees and Services
C. | Principal Accountant Fees and Services |
The following table discloses the aggregate fees billed for each of the last two fiscal years for professional services rendered by the Company'sCompany’s audit firm, De Visser Gray LLP for various services.
Services: | Year ended | |||
March 31, | March 31, | |||
2004 | 2003 | |||
Audit Fees | $ 7,750 | $ 7,000 | ||
Audit Related Fees | – | – | ||
Tax Fees | 1,000 | 1,000 | ||
All Other Fees | – | 3,000 | ||
$ 8,750 | $ 11,000 |
Services: | Year ended March 31, 2007 | Year ended March 31, 2006 |
Audit Fees(1) Audit-Related Fees(2) Tax Fees(3) All Other Fees(4) | $ 14,000 | $ 13,500 |
– | ||
1,500 | 1,450 | |
– | – | |
$ 15,500 | $ 14,950 |
Audit related fees comprise of fees billed for assurance and advisory services related to the annual audit.Notes:
(1) | “Audit Fees” include fees necessary to perform the annual audit and quarterly reviews of the Company’s consolidated financial statements. Audit Fees include fees for review of tax provisions and for accounting consultations on matters reflected in the financial statements. Audit Fees also include audit or other attest services required by legislation or regulation, such as comfort letters, consents, reviews of securities filings and statutory audits. |
(2) | “Audit-Related Fees” include services that are traditionally performed by the auditor. These audit-related services include employee benefit audits, due diligence assistance, accounting consultations on proposed transactions, internal control reviews and audit or attest services not required by legislation or regulation. |
(3) | "Tax Fees" include fees billed for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning. The specific services received included a review of the annual corporate tax return for tax compliance, together with a review of the tax structure related to the Company's Chinese operations. |
(4) | "All Other Fees" include fees billed for products and services provided by the principal accountant, other than the services reported in (1), (2) or (3) above. |
From time to time, management of the Company recommends to and requests approval from the audit committee for non-audit services to be provided by the Company'sCompany’s auditors. The audit committee routinely considers such requests at committee meetings, and if acceptable to a majority of the audit committee members, pre-approves such non-audit services by a resolution authorizing management to engage the Company'sCompany’s auditors for such non-audit services, with set maximum dollar amounts for each itemized service. During such deliberations, the audit committee assesses, among other factors, whether
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the services requested would be considered "prohibited services"“prohibited services” as contemplated by the US Securities and Exchange Commission,SEC, and whether the services requested and the fees related to such services could impair the independence of the auditors. No material non-audit services were provided by the Company’s auditors during the year ended March 31, 2007.
D. Exemptions from Listing Standards for Audit Committees
D. | Exemptions from Listing Standards for Audit Committees |
Not applicable.
E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
None.
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PART III
- 6478 -
ITEM 17 FINANCIAL STATEMENTS
ITEM 17 | FINANCIAL STATEMENTS |
The following attached financial statements are incorporated herein:
(1) | Report of Independent Registered Public Accounting Firm on the consolidated balance sheets as at March 31, |
(2) | Consolidated balance sheets as at March 31, |
(3) | Consolidated statements of operations |
(4) | Consolidated statements of deficit for the periods referred to in (3) above; |
(5) | Consolidated statements of cash flows for the periods referred to in (3) above; and |
Notes to the consolidated financial |
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ITEM 18 | FINANCIAL STATEMENTS |
ITEM 18 FINANCIAL STATEMENTS
NOT APPLICABLE.Not applicable. SeeItem 17.17.
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ITEM 19 EXHIBITS
Key to the following document types:
Exhibits attached as an Appendix to the initial Registration Statement on Form 20-F filed in June 2002 are as follows:
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Type of | ||
Document | Description | Pages |
4B(i) | Geological Management and Administration Services Agreement dated for reference December 31, 1996 between Amarc and Hunter Dickinson Inc. ("HDI") (See Item 7 "Interest of Management in Certain Transactions".) | 169 - 176 |
4A | Mineral Properties Transfer Agreement with Hunter Dickinson Group | 177 - 237 |
4B(i) | Inc. ("HDGI") dated November 15, 2001 and Partnership | |
4B(iii) | Capitalization Agreement of the same date whereby Amarc succeeded to the option on the Inde Prospect and an affiliate quit claimed its interest in the Fox River Prospect leaving Amarc with 100% of the equity of PELP which held the Fox River Project options from Falconbridge | |
4A | Partnership Capitalization Amendment Agreement dated November 27, 2001 whereby Amarc amended its interest in PELP. | 238 - 245 |
4B(i) | ||
4B(iii) | ||
10 | Consent of US Tax Expert, Kempisty & Co., Certified Public Accountants, dated June 7, 2002 | 246 |
10 | Consent of Auditors, De Visser Gray, Chartered Accountants, dated June 7, 2002 | 247 |
10 | Consent of Canadian counsel, Lang Michener, dated June 7, 2002 | 248 |
10 | Consent of geological expert, Peter A. Christopher, Ph.D., P.Eng., dated June 7, 2002 | 249 |
10 | Consent of geological expert, Norm Halden, Ph.D., P.Geo., dated June 7, 2002 | 250 |
Exhibits to Form 20-FA dated October 11, 2002 and Filed October 11, 2002
Exhibit | Type of | ||
No. | Document | Description | Pages |
1 | 4A | Inde Option First Amending Agreement dated August 22, 2002 | 1-12 |
4B(i) | |||
4B(iii) | |||
2 | 4A | Inde Option Second Amending Agreement dated September 6, 2002 | 13-24 |
4B(i) | |||
4B(iii) | |||
10 | Consents of Experts | ||
3 | 10 | (a) Gernot Wober, B.Sc, P.Geo– Geological Matters, dated October 11, 2002 | 25 |
4 | 10 | (b) Peter Christopher Ph.D. - Geological Matters, dated October 11, 2002 | 26 |
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Exhibit | Type of | ||
No. | Document | Description | Pages |
5 | 10 | (c) Kempisty & Co. – US Tax Matters, dated October 11, 2002 | 27 |
6 | 10 | (d) DeVisser Gray, Chartered Accountants, Audit consent dated October 11, 2002 | 28 |
7 | 10 | (e) Lang Michener, Canadian Legal Matters, dated October 11, 2002 | 29 |
Exhibits to Form 20-FA dated November 27, 2002 and Filed November 28, 2002
Exhibit | Type of | ||
No. | Document | Description | Pages |
10 | Consents of Experts | ||
1 | 10 | (a) Gernot Wober, B.Sc, P.Geo– Geological Matters, dated November 27, 2002 | 1 |
2 | 10 | (b) Daniel B. Kilby - Geological Matters, dated November 27, 2002 | 2 |
3 | 10 | (c) DeVisser Gray, Chartered Accountants, Audit consent dated November 27, 2002 | 3 |
Exhibits to Form 20-F Annual Report for the year ended March 31, 2003 filed August 2003
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The following exhibits are filedincluded with this Annual Report on Form 20-F:
Exhibit | Type of | |
No. | Document | Description |
4.A | 4A | Bugambilias Agreement |
4.B | 4A | Iskut Agreement |
10 | 10 | Code of Ethics |
12.1 | 10 | Section 302 Certification – CEO |
12.2 | 10 | Section 302 Certification – CFO |
13.1 | 10 | Section 906 Certification – CEO and CFO |
23.1 | 10 | De Visser Gray, Auditor's consent letter dated October 4, 2004 |
99.1 | 99 | Audited Financial Statements |
Exhibit | Description of Exhibit |
Number | |
1.1 | Notice of Articles of Incorporation of Amarc |
4.1 | Geological, Management and Administration Services Agreement between Amarc and Hunter Dickinson Inc. dated December 31, 1996. |
4.2 | Amended Share Incentive Plan dated September 21, 2004 |
4.3 | Promissory Note from Rockwell Diamonds Inc., dated January 26, 2007 |
4.4 | Mineral property option agreement re acquisition of the Bodine property, dated November 14, 2006. |
4.5 | Tulox property sale agreement, dated May 7th, 2007 |
11.1 | Code of Ethics |
12.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
12.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
13.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 |
13.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 |
99.1 |
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SIGNATURES
The Registrantregistrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual reportAnnual Report on its behalf.
AMARC RESOURCES LTD.
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