UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
September 30, 2008
FORM 20-F
AMENDMENT NO. 2
(Mark One)
[ ]
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[x]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2007
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ……………………………… to ………………………………
Commission file number 050031
OR
[ ]
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report ……………………………………………
ACREX VENTURES LTD.
(Exact name of Registrant as specified in its charter)
Acrex Ventures Ltd. is variously referred to in this Report
as “Acrex”, “the Corporation” or “the Company”
Canada
(Jurisdiction of incorporation or organization)
1400 – 570 Granville Street, Vancouver, BC, Canada V6C 3P1
(Address of principal executive offices)
Carl R. Jonsson, 1710-1177 West Hastings Street,
Vancouver, BC V6E 2L3, Canada; tel: (604) 640-6357; fax: (604) 681-0139
email: jonsson@securitieslaw.bc.ca
(Name, telephone, email and/or facsimile number and address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
(Title of Class)
(Title of Class)
Securities registered or to be registered pursuant to Section 12(g) of the Act
Title of each class
Name of each exchange on which registered
Common shares
TSX Venture Exchange
NASD OTC Bulletin Board
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the closing of the period covered by the annual report
40,610,447
Indicate by check mark if the registration is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
No x
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
No x
Note – checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days
Yes
x
No
Indicate by check mark whether the 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 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ______ Accelerated filer
Non-accelerated filer x
2
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP …… International Financial Reporting Standards as issued by the International Accounting Standards Board
Other:
Canadian GAAP
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow
Item 17
x
Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
No
x
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes
No
NOTE: All references to monies herein are to Canadian dollars unless otherwise specifically indicated
This Form 20-F Amendment No. 2, together with exhibits filed herewith, are being filed to clarify and expand on certain information contained in the original Form 20-F filed on May 5, 2008 and Amendment No. 1 which amended and restated the original Form 20-F. Unless otherwise specifically noted herein, it does not bring the information up to date.
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TABLE OF CONTENTS
Definitions
6
PART I
6
Item 1.
Identity of Directors, Senior Management and Advisers
6
Item 2.
Offer Statistics and Expected Timetable
6
A.
Selected financial data
7
B.
Capitalization and indebtedness
8
C.
Reasons for the offer and use of proceeds
8
D.
Risk factors
8
Item 4.
Information on the Company
14
A.
History and development of the Company
14
B.
Business overview and description
16
C.
Plan of Operations
33
D.
Property, plants and equipment
33
Item 5.
Operating and Financial Review and Prospects
33
A.
Operating results
33
B.
Liquidity and capital resources
35
C.
Contractual Obligations
35
D.
Research and development, patents and licences
35
E.
Trend information
35
Item 6.
Directors, Senior Management and Employees
36
A.
Directors and senior management
36
B.
Compensation
40
C.
Board practices
41
D.
Employees
41
E.
Share ownership
42
Item 7.
Major Shareholders and Related Party Transactions
42
A.
Major shareholders
42
B.
Related party transactions
43
Item 8.
Financial Information
43
A.
Financial Statements and Other Financial Information
43
B.
Significant Changes
43
Item 9.
The Offer and Listing
43
Item 10.
Additional Information
44
A.
Share capital
44
B.
Memorandum and Articles of Association
45
C.
Material contracts
46
D.
Exchange controls
47
E.
Taxation
47
F.
Dividends and paying agents
48
G.
Statements by Experts
48
H.
Documents on display
48
Item 11.
Quantitative and Qualitative Disclosures About Market Risk
48
Item 12.
Description of Securities Other than Equity Securities
49
PART II
49
Item 13.
Defaults, Dividend Arrears and Delinquencies
49
4
Item 14.
Material Modifications to the Rights of Security Holders and Use of
49
Proceeds
49
Item 15.
Controls and Procedures
49
Item 16A.
Audit Committee financial expert
50
Item 16B.
Code of Ethics
51
Item 16C.
Principal Accountant Fees and Services
51
Item 16D.
Exemptions from the Listing Standards for Audit Committees
51
Item 16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
51
PART III
51
Item 17.
Financial Statements
51
Item 18.
Financial Statements and Exhibits
52
SIGNATURE
52
Exhibit Index
53
Certifications
53
Audited Financial Statements – December 31, 2007
56
FORWARD LOOKING STATEMENTS
The Company cautions readers regarding forward looking statements found in this Annual Report and in any other statement made by, or on behalf of the Company, whether or not in future filings with the United States Securities Exchange Commission. Forward looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company’s control and many of which, with respect to future business decisions, are subject to change. See “Item 3. Key Information - D. Risk Factors”. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially fro m those expressed in any forward looking statements made by or on behalf of the Company. The Company disclaims any obligation to update forward looking statements.
5
Definitions
All references in this document to Items, Sections and sub-clauses are to Items, Sections or sub-clauses of this document. The following names or words used in this Statement have the following described meaning:
“Company” – means Acrex Ventures Ltd.
“Don’s Lake Property” – means the Ontario mineral property described in Item 4.B.3.
“Exchange” – means the TSX Venture Exchange, the stock exchange upon which the shares of the Company are listed for trading – which is a successor to the Canadian Venture Exchange, which was, in turn, a successor to the Vancouver Stock Exchange.
“Honeymoon Property” means British Columbia mineral claims described in Item 4.B.4.
“Michaud Joint Venture” means the Joint Venture comprised of the Company and Moneta.
“Michaud Property” means the Michaud Property described in Item 4.B.1.
“Michaud Project” – means the exploration programme which the Company is carrying out on the Michaud Property as described in Item 4.B.1.
“Moneta” means Moneta Porcupine Mines Inc.
“Moneta Agreement” means the agreement between the Company and Moneta relating to the Michaud Property.
“Properties” means the Michaud, and Spanish Mountain, Don’s Lake and Honeymoon Properties – and other property interests the Company has held in the past.
“Shares” – means the voting common shares of the Company, both issued and unissued.
“Spanish Mountain Property” - means the Spanish Mountain property described in Item 4.B.2.
PART I
Item 1.
Identity of Directors, Senior Management and Advisers
Not applicable for Annual Report – see Item 6A.
Item 2.
Offer Statistics and Expected Timetable
Not applicable. The Company is not making, or proposing to make, an offering of its securities.
6
Item 3.
Key Information
A.
Selected financial data
The following information is provided as of the various dates specified. The Company’s fiscal year-end is December 31.
| Year ended Dec. 31, 2007 $ | Year ended Dec. 31, 2006 $ | Year ended Dec. 31, 2005 $ | Year ended Dec. 31, 2004 $ | Year ended Dec. 31, 2003 $ |
Net sales/operating revenues | Nil | Nil | Nil | Nil | Nil |
Income (loss) from operations (before extraordinary items) | (669,224) | (531,360) | (510,027) | (409,347) | (453,279) |
Net income (loss) | (669,224) | (531,360) | (510,027) | (409,347) | (453,279) |
Net income (loss) from operations per share | (0.02) | (0.02) | (0.03) | (0.03) | (0.05) |
Total assets | 4,471,840 | 2,433,851 | 1,588,692 | 1,316,305 | 1,717,723 |
Net shareholder’s equity | 4,439,570 | 2,415,859 | 1,555,386 | 1,261,593 | 1,618,740 |
Capital Stock | 9,275,791 | 7,019,882 | 5,629,706 | 4,931,283 | 4,879,083 |
Dividends declared per share | Nil | Nil | Nil | Nil | Nil |
Accumulated deficit | 5,492,301 | 4,823,077 | 4,291,717 | 3,781,690 | 3,372,343 |
No. of shares issued | 40,510,447 | 26,908,936 | 20,115,991 | 13,417,616 | 13,167,616 |
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The financial statements of the Company are denominated in Canadian currency and the above data is provided in Canadian currency.
Table 3A (ii) - Summary of Exchange Rates for the 5-year Period - 2003 to 2007
The following table sets forth, for each of the years indicated, the exchange rate of the United States dollar into Canadian currency at the end of such year, the average exchange rate during each such year and the range of high and low rates for each such year as supplied by the Bank of Canada.
Exchange Rate | 2007 | 2006 | 2005 | 2004 | 2003 |
Rate at the End of the Period(1) | 1.0120 | 1.1654 | 1.1630 | 1.2020 | 1.2965 |
Average Rate (2) | 1.0748 | 1.342 | 1.2114 | 1.3000 | 1.4015 |
High Rate (1) | 1.1878 | 1.1794 | 1.2585 | 1.3957 | 1.5777 |
Low Rate (1) | 0.9066 | 1.0948 | 1.1630 | 1.1759 | 1.2839 |
Notes:
(1)
The rate of exchange is the Bank of Canada closing rate for the period.
(2)
The average rate means the average of the exchange rates during the year.
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The rates of exchange for each of the 6 months from October 2007 to March 2008 are as follows:
Oct. 2007 | Nov. 2007 | Dec. 2007 | Jan. 2008 | Feb. 2008 | March 2008 |
0.9752 | 0.9671 | 1.0031 | 1.0111 | 0.9991 | 1.0020 |
B.
Capitalization and indebtedness
Omitted – not required for Annual Report
C.
Reasons for the offer and use of proceeds
This item is not applicable as the Company is not involved in making, or proposing to make, an offering of its securities.
D.
Risk factors
The securities of the Company must be considered speculative, generally because of the nature of the Company’s business and its stage of development. In addition to the other information in this Annual Report the following risks should be considered:
(a)
Mineral exploration is a highly risky and speculative business
The Properties are in the exploration stage and without a known body of – or reserves of -commercial ore. Development of a Property will only proceed upon obtaining satisfactory exploration results. Mineral exploration involves a high degree of risk and few properties which are explored are ultimately developed into producing mines. There is no assurance that even if a body of commercial ore is discovered on the Properties, a mine will be brought into commercial production. The feasibility of developing a mineral deposit once discovered is dependent on a number factors, including the particular attributes of the deposit, such as size, grate and proximity to infrastructure, metal prices and government regulations.
The long-term profitability of the Company’s operations will be in part directly related to the cost and success of its exploration programmes, which may be affected by a number of factors which are beyond the control of the Company.
(b)
The Properties contain no known economically mineable mineral reserves
The Properties contain no known economically mineable mineral reserves. It is possible that the Properties will not be found to contain commercially mineable ore reserves and that the funds spent on exploration of the Properties will be lost.
(c)
Mineral exploration involves many operating hazards and risks
Mineral exploration involves many risks, which even a combination of experience, knowledge and careful evaluation may not be able to overcome. The operations which the Company proposes to
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undertake will be subject to all the hazards and risks normally incidental to exploration - which could result in work stoppages and damage to persons or property or the environment and possible legal liability for any and all damage. Fires, power outages, labour disruptions, flooding, explosions, cave-ins, land slides and the inability to obtain suitable or adequate machinery, equipment or labour are some of the risks involved in the operation of mines and the conduct of exploration programmes. Although the Company will, when appropriate, secure additional liability insurance in an amount which it considers adequate, the nature of these risks is such that liabilities might exceed policy limits, the liabilities and hazards might not be insurable, or the Company might elect not to insure itself against such liabilities due to high premium costs or other reasons, in which event the Company could in cur significant costs or uninsured losses that could have a material adverse effect upon its financial condition.
(d)
The economics of exploring and developing mineral properties is uncertain and unpredictable due to many factors that can vary
Substantial expenditures are required to establish reserves through drilling, to develop metallurgical processes to extract metal from ore and to develop the mining and processing facilities and infrastructure at any site chosen for mining. Although substantial benefits may be derived from the discovery of a major mineralized deposit, no assurance can be given that minerals will be discovered in sufficient quantities or grades to justify development of the deposit, or that the funds required for development can be obtained on a timely basis.
The marketability of any minerals acquired or discovered may be affected by numerous factors which are beyond the Company’s control and which cannot be predicted, such as metal price and market fluctuations, the proximity and capacity of milling facilities, mineral markets and processing equipment, and such other factors as government regulations, including regulations relating to royalties, allowable production, importing and exporting of minerals, and environmental protection. Depending on the price of minerals produced, the Company may determine that it is not commercially feasible to commence or continue commercial production.
(e)
All phases of the Company’s work on its properties will be subject to environmental and other Government regulation
All phases of the Company’s operations will subject to environmental regulation – pursuant to the laws and regulations of the Provinces of British Columbia and Ontario, Canada. Environmental legislation is evolving in a manner which requires 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. There is no assurance that future changes in environmental regulations, if any, will not adversely affect the Company’s operations. There is no assurance that regulatory and environmental approvals will be obtained on a timely basis or at all. The cost of compliance with changes in governmental regulations has the potential to reduce the profitability of operations or to preclude entirely the economic development of a p roperty. Environmental hazards may exist on the Property which are unknown to the Company at present which have been caused by previous or existing owners or operators of the Property.
The exploration programmes carried on by the Company on the Properties in the past - and to be carried out on the Properties through 2008 – do not entail significant environmental risk and no
9
separate amount is budgeted to comply with environmental requirements. It is not possible to, at this date, calculate what, if any, costs might be incurred in subsequent years to comply with environmental regulations. In basic mineral exploration complying with environmental regulations is carried out as part of the regular work and no special or separate efforts are required or undertaken.
The primary environmental requirements while the Company is carrying on surface exploration are that land disturbed be returned, so far as possible, to its previous state, that chemicals not be discharged onto the land or into lakes or streams, that permits be obtained – which are routinely available – before work is commenced which will require trees to be cut or land surfaces to be disturbed, and that exploration sites be cleaned up following the completion of work.
If the Company elects to continue its work by developing underground operations it will have to obtain additional permits. The difficulty and cost of getting the further permits cannot be predicted or calculated until the features and location of the underground workings are determined. The Company will likely have to post a bond to cover the costs of the eventual clean-up of the underground works – but the size of – and the cost of obtaining – the bond can also not be predicted at this date.
(f)
Activities by the Company beyond mid-2008 will require the raising of additional financing which the Company may not be able to raise
The Company had, at March 31, 2008, working capital of approximately $1,740,000. Management anticipates that this funding will be sufficient to pay all of the costs of maintaining the Company through at least December 31, 2008 - and to pay all of the costs that are anticipated on exploration work on the Properties until June 30, 2008. The exploration of the Properties beyond June 30, 2008 will therefore depend on the Company’s ability to obtain additional required financing. The Company has limited financial resources and there is no assurance that additional funding will become available to allow the Company to fulfill its obligations on the Properties. If the Company’s exploration programmes are successful, additional financing will be required to develop the Properties and to place them into commercial production. The ongoing exploration of the Properties is, therefore, dependent upon the Co mpany’s ability to obtain financing through the joint venturing of projects, debt financing, equity financing or other means. Failure to obtain additional financing could result in delay or indefinite postponement of further exploration and the possible loss of the Company’s interests in the Properties.
(g)
Fluctuations in metal prices may have an adverse effect on the Company’s ability to raise more funding and on the trading price of the Company’s stock and future mineral prices may not support corporate profits
The Company’s revenues, if any, are expected to be in large part derived from the mining and sale of gold and base metals or interests related thereto. The price of those commodities has fluctuated widely, particularly in recent years, and is affected by numerous factors beyond the Company’s control including international economic and political conditions, expectations of inflation, international currency exchange rates, interest rates, global or regional consumption patterns, speculative activities, levels of supply and demand, increased production due to new mine developments and improved mining and production methods, availability and costs of metal substitutes, metal stock levels maintained by producers and others and inventory carrying costs. The
10
effect of these factors on the price of base and precious metals, and therefore the economic viability of the Company’s operations cannot be accurately predicted.
(h)
The Company and other parties the Company may deal with are subject to industry competition
The resource industry is intensively competitive in all of its phases, and the Company competes with many companies possessing far greater financial resources and technical facilities than itself. Competition could adversely affect the Company’s ability to acquire suitable properties for exploration in the future.
The Company may, in the future, be unable to meet its share of costs incurred under agreements to which it is a party and the Company may, as a result, have its interest in the properties subject to such agreements reduced as a result. Furthermore, if other parties to such agreements do not meet their share of such costs, the Company may be unable to finance the cost required to complete recommended programmes.
(i)
Existing and future Governmental regulations may limit the Company’s activities or make them economically unattractive
Exploration of the Property will be affected to varying degrees by: (i) government regulations relating to such matters as environmental protection, health, safety and labour; (ii) mining law; (iii) restrictions on production; price controls; tax increases; (iv) maintenance of claims; (v) tenure; and (vi) expropriation of property. There is no assurance that future changes in such regulation, if any, will not adversely affect the Company’s operations.
Government approvals and permits are required in connection with the exploration activities proposed for the Property. To the extent such approvals are required and not obtained, the Company’s planned exploration activities may be delayed, curtailed, or cancelled entirely.
Failure to comply with applicable laws, regulations and requirements may result in enforcement action against the Company, including orders calling for the curtailment or termination of operations on the Property, or calling for corrective or remedial measures requiring considerable capital investment. Parties engaged in mineral exploration and mining activities may be subject to civil and criminal liability as a result of failure to comply with applicable laws and regulations.
Amendments to current laws, regulations and permitting requirements affecting mineral exploration and mining activities could have a material adverse impact on the Company’s operations and prospects.
It is not possible to, at this date, calculate what, if any, separate costs might be incurred by the Company in subsequent years to comply with government regulations. Compliance with governmental regulations is included in the Company’s regular performance of its work and the Company has no separate budget for, nor undertakes any separate or special efforts to, regulation compliance.
11
(j)
The Company has no guarantee of clear title to its mineral claims – and they may be subject to aboriginal claims
Aboriginal rights may be claimed with respect to Crown properties or other types of tenure with respect to which mining rights have been conferred. The Company is not aware of any aboriginal land claims having been asserted or any legal actions relating to aboriginal issues having been instituted with respect to the Properties. The Company is aware of the mutual benefits afforded by co-operative relationships with indigenous people in conducting exploration activity and is supportive of measures established to achieve such cooperation.
Other parties may dispute the Company’s title to the interests held by it in the Properties and the Properties may be subject to prior unregistered agreements or transfers or land claims by aboriginal peoples, and title may be affected by undetected encumbrances or defects or government actions.
The Company’s mining claims have not been surveyed and accordingly the precise location of the boundaries of the claims and ownership of mineral rights on specific tracts of lands comprising the claims may be in doubt.
(k)
Management of the Company may be inadequate to support expanded future efforts by the Company
The Company does not have any employees and its affairs are managed by its officers with the assistance of its non-executive directors. Development of the Company will be dependent upon it having the funds necessary to, and being successful in, employing and retaining skilled personnel. The Company does not have employment contracts with its officers – nor does it maintain key-man life insurance on them. If Company efforts are expanded, it will have to engage additional support for Management.
(l)
Dilution of existing shareholders will occur if the Company does additional equity financing at prices lower than current trading prices
Because all of the Company’s outstanding share purchase options and warrants are exercisable for amounts in excess of the present net book value of the Company’s shares, the exercise of the warrants or options will not result in any dilution of the net book value of the outstanding shares. If the Company, to raise required additional capital, issues shares at prices at less than those prevailing at the time, dilution of the value of the shareholders’ interests will occur.
(m)
Conflicts of Interest potentially exist as a result of Company’s Directors serving as directors or officers of other mineral exploration companies
There are no existing material conflicts of interest between the Company and any of its directors or officers. However, all of the directors and officers of the Company (except Mr. Powell) are directors, officers and/or shareholders of other companies, including companies engaged in mineral exploration. To the extent that such other companies may be interested or participate in or be affected by opportunities or transactions involving the Company, these directors and officers of the Company may have conflicting interests in negotiating and settling terms of such transactions. Conflicts of interest affecting the directors and officers of the Company will be governed by the Business CorporationsAct (British Columbia) and other applicable laws. In the event that such a conflict of interest arises at a meeting of the Board of Directors of the Company, a director who has
12
such a conflict must disclose the nature and extent of his interest and abstain from voting for or against matters concerning the venture.
(n)
Difficulties will exist for U.S. Investors to effect process of service against the Company to enforce the civil liabilities of the Company
Investors may encounter difficulties in enforcing civil liabilities in Canada against the Company and its Directors and Officers. Because the Company has no establishment or Registered Agent in the United States, and because none of its directors or officers are residents of the United States, Investors residing in the United States will encounter difficulties in enforcing their rights against the Company and its directors and officers and, in particular:
(i)
Service in Canada can be done by serving the required documentation on the Company’s registered office address. To effect service on directors or officers would require personal service on the individuals to be served; provided that in case an individual director or officer appears to be avoiding service an Order might be obtained from the Supreme Court of British Columbia providing for some appropriate alternative form of service;
(ii)
As a practical matter, investors resident in the United States would not be able to enforce judgments obtained in United States courts based on the civil liability provisions of the U.S. Federal Securities laws so long as neither the Company nor its directors or officers have any presence in – or assets in – the United States.
(iii)
Investors resident in the United States who obtain United States judgments based on the civil liability provisions of the US Federal Securities laws can enforce those judgments against the Company or its directors or officers in the jurisdiction in which they reside – presently British Columbia, Canada – by registering the judgment with the Supreme Court of British Columbia.
(iv)
A United States investor can bring an original action against the Company or its directors or officers in the Supreme Court of British Columbia, in Canada, to enforce liabilities against the Company or its directors or officers based on the civil liability provisions of the U.S. Federal Securities laws. In this instance, investors might be required to prove again the validity of their claims, and may not be able to rely solely on the holding of a United States judgment.
(v)
In either of the instances described in sub-clauses (iii) or (iv) the Company or directors or officers named in the process will be entitled to dispute the process pursuant to their normal rights to dispute any process brought against them.
(vi)
To bring action to enforce a U.S. judgment or to commence an original action in Canada would require the engagement of Canadian legal counsel and the incurring of the costs of doing so.
(o)
History of volatility of the common stock share prices
In recent years, securities markets in Canada have experienced a high level of price and volume volatility, and the market price of many resource companies, particularly those considered
13
speculative exploration companies, have experienced wide fluctuations in price. The trading market for mineral exploration companies is characteristically volatile, with wide fluctuation of price and volume only in part related to progress of exploration. There can be no assurance that continued fluctuations in the Company’s share price and volume will not occur.
Item 4.
Information on the Company
A.
History and development of the Company
1.
Organization and incorporation of Company
The Company was incorporated under the British Columbia Companies Act August 1, 1969 under the name St. Elias Explorations Ltd. (N.P.L.). The Company’s name was changed to Cutlass Exploration Ltd. (N.P.L.) on October 6, 1972, and to Great Hercules Resources Inc. (N.P.L.) on April 27, 1977. The name was further changed to Pacific Coast Funding & Resources Inc. April 4, 1979, and then to Alliance Resources Ltd. June 12, 1986. On February 7, 1994 the name was changed to the present name, Acrex Ventures Ltd.
The Head Office of the Company is located at 1400 - 570 Granville Street, Vancouver, B.C. V6C 3P1, telephone No. (604) 618-1758. The Records and Registered Offices of the Company are located at 1710 – 1177 West Hastings Street, Vancouver, B.C. V6E 2L3.
The authorized capital of the Company consists of an unlimited number of common shares without par value. All of the shares of the Company rank equally as to dividends, voting rights and as to any distribution of assets on winding-up or liquidation. There are no indentures or agreements limiting the payment of dividends and there are no conversion rights, special liquidation rights, pre-emptive rights or subscription rights attached to the common shares of the Company. None of the Company’s currently outstanding common shares are subject to any call or assessment.
The only principal capital expenditures by the Company since January 1, 2001 are the:
(a)
Michaud Property – on which the Company expended $81,015 on exploration during the fiscal year ending December 31, 2007;
(b)
Spanish Mountain – on which the Company had expended $79,586 as acquisition costs and $536,432 on exploration during the fiscal year ending December 31, 2007;
(c)
Don’s Lake Property. As the Company acquired its option on this property after the year end no amount was spent on its acquisition or exploration in the fiscal year 2007; and
(d)
Honeymoon Property. As the Company acquired its option on this property after the year end no amount was spent on its acquisition or exploration in the fiscal year 2007.
The Company has had two principal divestitures since January 1, 2004, being:
(a)
The Company formerly held an option on a British Columbia mining property known as the “Referendum Property”. The Company paid $5,000 to the optionor upon the signing of the agreement. After doing exploration work on the Referendum property - at a cost of $92,383 - Management made a decision that the property did not have sufficient merit to warrant
14
making further expenditures or paying further option payments pursuant to the Option Agreement. Accordingly, the option was terminated in August, 2005.
(b)
The Company, in 2003, had acquired, by paying the costs of staking, a group of 150 mineral claims located in the Ungava Region of northern Quebec, Canada. Pursuant to agreements dated in 2003 and 2004 the Company sold its interests in the mineral claims to Resolve Ventures Inc. (“Resolve”), an arm’s-length company, for $85,000 and 650,000 shares in the capital of Resolve. The Company, pursuant to the agreement with Resolve, has retained the right to receive, if there shall ever be mineral production from the claims, a 3% net smelter royalty entitlement. The 650,000 shares of Resolve have been consolidated on a 1:10 basis to 65,000 shares. The Company has not sold its 65,000 shares.
The Company has voluntarily registered its shares under the United States Securities Exchange Act of 1934 to provide more information to United States persons who are shareholders of the Company, and to brokers, dealers or persons who might be interested in effecting secondary trades of issued Shares with additional information about the Company.
2.
General Development of the Business
Over the past 5 years the Company has not carried on any active business. Until it opened the negotiations, in July 2001, which successfully resulted in the Company signing the Moneta Agreement, the Company had sought to acquire business assets and funding – essentially without any long-term success. After signing the Agreement relative to the Michaud Property, the Company and its management devoted all of their efforts to raising funding to satisfy its operating requirements and to enable it to initiate an exploration programme on the Property. Since July 2001 it has carried out exploration and drilling work on the Moneta Property and concluded the agreements with Moneta described in Item 4.B.1 below.
Since 2002 the Company has acquired, and in some cases disposed of or surrendered, various interests in various mineral properties in Canada.
The Company acquired its option on the Spanish Mountain Property pursuant to an Option Agreement dated July 23, 2005. Since that date the Company has conducted exploration programs on the Property as is described in detail in sub-clause B.2 below.
The Company presently has public liability insurance coverage of $2,000,000 (Cdn.) for injury, property damage and fire fighting costs.
The Company has a web site atwww.acrexventures.com.
3.
Funding during 2007
In mid-August, the Company completed a Private Placement sale of 12,800,000 Units of which 5,000,000 Units were “Flow-Through” (“FT”) and 7,800,000 were Non-Flow Through (“NFT”). The FT Units were sold at $0.22 each and the NFT Units were sold at $0.18 each – so that the Company received gross proceeds of $2,504,000. Each Unit consisted of one share of the Company and one-half of a two year Share Purchase Warrant. The warrants are all exercisable at $0.50 per Share and none have been exercised.
15
The broker which handled the placement on behalf of the Company on a “best efforts” basis was PI Financial Corp. of Vancouver, B.C., Canada (“PI”). PI, pursuant to the Agency Agreement with the Company was entitled to 7.0% of the gross proceeds – which would have been $175,280. However PI elected to take only $76,008.02 in cash and to take satisfaction of the balance of its commission by accepting 551,511 Units at a deemed price of $0.18 each. In further compensation for its efforts in handling the placement for the Company, PI was entitled to receive agents’ warrants on a number of shares equal to 8% of the number of Units sold. In this regard, PI received 1,024,000 agents’ warrants each of which is exercisable for a 2 year period to purchase an additional share of the Company for $0.23. Both the warrants issued as part of the Units and the agent 46;s warrants have exercise dead lines between August 14 and August 16, 2009. None of the warrants or agent’s warrants have been exercised.
B.
Business overview and description
The Company is considered to have only one reportable industry segment – namely mineral exploration - and two geographic segments - namely British Columbia and Ontario, Canada.
1.
The Michaud Project – Moneta Porcupine Mines Inc. agreement
The Company’s interest in the Michaud Property – except the three claims known as the “Dyment Claims” is held pursuant to an agreement dated September 1, 2001, as amended on January 17, 2003 (the “Moneta Agreement”) with Moneta Porcupine Mines Inc. (“Moneta”) of Timmins, Ontario, Canada pursuant to which the Company had to spend $1,000,000 on exploration of the Property within 36 months of the filing date of the original agreement in order to earn a 50% interest in the Property. The Company exercised its rights under the Moneta Agreement by spending more than $1,000,000 on the Property, and thereby acquired a 50% joint venture interest in what was previously described as the westerly portion of the Property.
The Company and Moneta signed a Joint Venture Agreement dated November 26, 2004, which governs the operations of the joint venture interests of the parties, creating the Moneta Joint Venture. It provides, among other details, that Moneta is the operator of the Moneta Joint Venture so long as it maintains its 50% interest, and that the Company will become the operator if Moneta’s interest in the joint venture declines below 50% - which would result in the Company’s interest simultaneously increasing to more than 50%. If Moneta or the Company wish to sell any of their interests in the Michaud Property the other will have a 30-day first right of refusal to purchase such interests.
The Joint Venture Agreement contains provisions pursuant to which the Company and Moneta can settle on exploration programmes to be carried on on the Michaud Property. The Agreement also contains provisions that provide that if one of the parties do not pay its share of work programme expenditures its interests will be diluted. Further, if a party is, as a result of non-payment of its share of joint ventures costs, diluted to the point where its interest is reduced to 15% its interest will be automatically converted from a participating joint venture interest in the Michaud Property to a 15% net profits royalty interest. To date both the Company and Moneta have paid their 50% share of all costs, and their interests in the Joint Venture continue to be 50% each.
In a supplemental Agreement dated March 31, 2006 the Company and Moneta agreed that Moneta would assign to the Company a 50% interest in an adjoining group of three mineral claims known as the “Dyment 3” claims, giving the Company a net 37.5% interest. The interests are held subject to an agreement between Moneta and St. Andrew Goldfields Ltd. pursuant to which that company has retained a 25% carried interest in the claims and a 2.0% net smelter royalty interest. The Company
16
paid Moneta $50,000 for the assignment. Moneta and the Company have agreed that the interests now held jointly by them are included in their Joint Venture.
The Company has expended $1,325,327 on the Michaud Property as of December 31, 2007 - being $75,000 of acquisition costs and $1,250,327 of exploration costs.
Lease 105465 expires November 30, 2010 and Lease 105466 expires December 31, 2010. Ontario Mineral Leases are subject to renewal by fulfillment of conditions mandated by a department of the Ontario government. Minimal rent and land taxes are payable of which the Company’s share is $446.56 per year.
Staked Claims, to be maintained in valid existence, require the performance on them of $400 each of exploration assessment work. The Company’s share of the annual work requirement is $10,850.
The Michaud Property is without known reserves and the work the Company proposes to conduct on it will be exploratory in nature.
The Company’s Qualified Person, pursuant to Canada’s National Instrument 43-101, for the Michaud Property is Rainer Skeries, P.Geo.
(a)
PROPERTY DESCRIPTION and LOCATION
The Michaud Property optioned by the Company consists of 62 contiguous whole or partial claims situated within the southern part of Michaud Township in the Larder Lake Mining Division about 100 kilometres east of Timmins and 30 kilometres west of the Ontario-Quebec border in east-central Ontario. The group is comprised of 24 whole or partial leased claims covered by Ontario Government Leases 105465 and 105466, and 22 whole or partial staked claims. The Propert covers 1,108 hectares (approximately 2,738 acres). A central point within the claims block corresponds to 480 28’ North Latitude and 800 05’ West Longitude.
The various claims comprising the Michaud property are:
Whole or partial Claims held under Leases 105465 and 105466 | Staked Claims |
L521394 L521396 L521398 L653636 L653637 L653638 L653639 L591315 L591314 L521408 L521406 L591305 L591306 L591307 | L1199994 L1226673 L1226789 L1226791 L1235305 L1235308 L1235309 L1235312 L1235314 L1238680 L1243890 L1243891 L1243892 L1247523 |
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L591309 L591310 L772975 L772976 L767348 L772744 L772745 L772746 L772747 L772748 | L1247524 L1247525 L1240789 L1240790 L1248410 Dyment Staked Claims: L1225544 L1199892 L1167280 |
Figure 1 shows the location of the claims within the Province of Ontario, Canada. The configurations of the various claims are shown in Figure 2. The central 3 unhatched claims are privately owned and excluded from the Property.
(b)
ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE and PHYSIOGRAPHY
The property is easily accessible by truck from Timmins (100km to the west). Locally it lies approximately 32 km easterly along Highway 101 from Matheson, and thence southerly over an extensive network of logging and drilling roads that cover the greater area of the claims. The area is primarily muskeg and comprised of low stands of spruce, fir, alder and birch. Drilling operations are best carried out over the winter months from January to April when the ground is frozen.
18
19
20
Climate is typical of northeastern Ontario with below freezing temperatures (-50 to 400 C) from November to April and brief periods of hot weather in the summer from 100to 300C. Precipitation averages 80 centimetres a year, with a substantial portion in the form of snow averaging 2.4 metres per year.
Topography is generally flat with less than 25 metres of relief. The southern portion of the property is swampy whereas the northern portion, overlain by sands and outwash from an esker, has slightly higher relief.
A skilled labour force for mining and exploration is available in Matheson, Kirkland Lake andTimmins. Timmins and Kirkland Lake are also major supply and service centers for the mining industry.
Communications and power are available along highway 101.
The Perry Lake Lodge on Highway 101 provides accommodations and meals.
(c)
GEOLOGICAL SETTING AND REGIONAL GEOLOGY
Michaud Township is situated within the western part of the Abitibi Greenstone Belt that is here comprised of mafic to ultramafic volcanic assemblages that contain or are bounded by sedimentary basins. Syn-volcanic to post tectonic felsic to ultramafic instrusives are abundant in the volcano-sedimentary assemblage.
The Destor Porcupine Fault Zone (DPFZ) is a most prolific gold-bearing structure in this part of the belt.
The Property is located within Archean Timiskaming-type elastic strata south of the main east-west DPFZ. This regional structural break is an important geological feature, which hosts numerous and geologically varied gold deposits in this part of the Abitibi greenstone belt.
(d)
HISTORY
The first recorded claims in the area of the Property were staked in 1944 as a consequence of an Ontario Department of Mines report which suggested that the DPFZ passes through Michaud Township. Various portions of the Property have been held and tested by a succession of companies since that time. Moneta’s land position was primarily acquired through staking and by a series of joint venture agreements in the late 1980’s. Subsequent to 1998, Moneta assumed a 100% interest.
The following is a copy of the Press Release of the Company dated May 10, 2007which announced results of a 2007 programme on the Michaud Property:
Acrex Ventures Ltd. (“Acrex”) and Moneta Porcupine Mines Inc. (“Moneta”) are pleased to report preliminary results from the Michaud Joint Venture (the “Joint Venture”) drill program conducted in February and March 2007. The program consisted of five drill holes totaling 1,426 metres completed primarily on the Dyment 3 property acquired by the Joint Venture in early 2007.
The holes were located 2.5 kilometres along strike to the west of the 55 Zone. In 2005 drilling on the 55 Zone in this same geologic setting intersected multiple zones of gold mineralization with exceptional intersections noted in four holes: 11.23 g/t gold over 1.70 metres in hole MA-05-27, 5.81
21
g/t gold over 7.40 metres in hole MA-05-30, 10.90 g/t gold over 2.00 metres in hole MA-05-31, and 9.04 g/t gold over 5.90 metres in hole MA-05-32, all over drilled widths.
The current program’s assay results, shown in the following table, continued to confirm the pervasive nature of gold mineralization in the Timiskaming sediments in contact with ultramafic volcanics immediately south of the Destor-Porcupine Fault Zone (the “Destor”). This geological setting hosts several nearby discoveries including Moneta’s inferred 624,500 ounceSouthwest Zone, the Joint Venture’s “55” and Western Zones, and Newmont Mining Windjammer South.
.
DDH | From (metres) | To (metres) | Width (metres) | Gold (g/t) |
|
|
|
|
|
MA07-35X | 85.7 | 88.4 | 2.7 | 1.04 |
Including | 85.7 | 86.4 | 0.7 | 2.08 |
| 102.9 | 103.9 | 1.0 | 2.18 |
| 117.4 | 117.6 | 0.2 | 2.73 |
| 123.1 | 123.5 | 0.4 | 5.04 |
| 129.3 | 130.0 | 0.7 | 2.10 |
| 206.0 | 209.2 | 3.2 | 1.06 |
Including | 206.0 | 206.6 | 0.6 | 3.12 |
MA07-39 | 160.7 | 161.6 | 0.9 | 1.29 |
| 167.6 | 168.3 | 0.9 | 1.79 |
| 262.9 | 263.7 | 0.8 | 1.31 |
|
|
|
|
|
MA07-40 | 164.6 | 165.1 | 0.5 | 1.43 |
|
|
|
|
|
MA07-41 | 95.1 | 96.6 | 1.5 | 4.70 |
| 176.3 | 176.6 | 0.3 | 2.01 |
| 187.0 | 187.7 | 0.7 | 1.19 |
|
|
|
|
|
MA07-42 | 181.00 | 182.00 | 1.0 | 1.50 |
| 310.90 | 311.80 | 0.90 | 1.30 |
| 335.50 | 335.97 | 0.47 | 4.69 |
The Dyment 3 drill holes were spaced approximately 60 metres apart along the strike of the ultramafic contact, and drill collars were staggered to intersect the targeted sedimentary corridor at depths ranging from approximately 75 to 200 metres. The results reported above reflect quartz and quartz-carbonate veins and stringers of varying widths and orientations, often hosted within larger alteration zones with elevated gold values in the range of 0.25 to 0.50 grams per tonne (g/t).
Core samples were split with one-half of the core retained in storage. The other half of the core was sent to Swastika Laboratories in Swastika, Ontario, near Kirkland Lake, for sample preparation and assaying using a standard 30 gram fire assay technique. For quality control purposes, sample batches included a series of blanks and standards, and up to 15% of the samples were run as duplicates at a different assay laboratory.
Dyment 3 consists of three claim units west-southwest of the “55 Zone” in Michaud Township and is under option by the Joint Venture from St Andrew Goldfields Ltd. requiring expenditures of $150,000 over the four years ending September 2008 to earn a 75% interest. The recent program brought total expenditures on Dyment 3 to approximately $160,000 which completes the option.
Future Joint Venture drilling is planned for the area west of the current drilling between Dyment 3 and the Western Zone, and to the east to evaluate the potential down-dip extension of the55 Zone.
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Rainer Skeries, P.Geo., is the Qualified Person for the purposes of National Instrument 43-101.
In January, 2008 the Company and Moneta commenced a further drilling program on the Property. The following is a copy of a Press Release of the Company dated January 16, 2008 commencing on the drilling program:
Acrex Ventures and Moneta Porcupine Mines are pleased to announce that a winter drilling program has begun to better define the “55” Zone on the Michaud Gold Property in Ontario. Drill holes are being laid out to generate additional data points and complete sections within the zone facilitating the completion of a resource estimate to NI 43-101 standards. A minimum of 2000m of diamond drilling has been allocated.
Previous drilling returned such notable intersections as in MA-04-25 (12.76 g/t Au over 4.30m within 11.50m of 5.86 g/t Au), MA-02-06 (4.81 g/t Au over 12.0m within 7.54 g/t Au over 6.50m). More recently MA-05-30 returned an intercept of 8.99 g/t Au over 4.50m within a 7.40m alteration zone averaging 5.81 g/t gold.
The “55 Zone” is hosted by altered Timiskaming greywackes and sandstones along the ultramafic/ Timiskaming sedimentary contact and on strike with Moneta’sSouthwest Zone (624,500 oz.; historical Barrick gold resource) to the east-northeast. To date only 18 drill holes have been completed in the “55 Zone” (Michaud JV: 6, Acrex: 7, Barrick: 5) with significant gold mineralized intervals reported previously.
This drilling is subject to the Moneta-Acrex Ventures Ltd. (50/50) joint venture. The program is managed by Moneta with R.Skeries, P.Geo., as the "Qualified Person" for the purpose of National Instrument 43-101.
R. Skeries, P.Geo., is the "Qualified Person" for the Michaud Property for the purposes of National Instrument 43-101.
(e)
SAMPLING AND QUALITY CONTROL
Drill core samples are prepared at Moneta’s core logging and storage facility, a gated area outside Timmins, Ontario, where all core from drilling is stored. A permanent insulated building, suitable for winter operations, is available for core logging and sample preparation including two diamond saws, office area and core logging and display areas.
All mineralized sections of drill core considered significant are split after being marked and tagged using a diamond saw with one half being retained as a reference sample and the other being used for assay purposes as directed by the project geologist. Sample intervals and corresponding sample numbers are entered into the standardized core log sheets by computer. The samples selected for assay are individually bagged and shipped to Swastika Laboratories in Swastika, near Kirkland Lake, Ontario or other labs such as Laboratoire Expert in Rouyn-Noranda, Quebec.
At the Laboratory core samples are dried, crushed by jaw crusher and further reduced to about 6 mesh using Sturtevant rolls. The rolls are cleaned with a wire brush and air jet. A Jones riffle is used to take a 400-gram sub-sample for pulverizing. The remaining reject portion is bagged and stored. After reducing a nominal –100 mesh with a Braun pulverizer, the sample is thoroughly blended and sent to the fire assay department. A 1 assay ton portion (29.166 g) is used for fire assaying. This process results in a particle of gold, that in the normal assay method, is weighed on a Cahn Electrobalance.
For geochemical analysis or where lower detection is required, the gold is dissolved and determined by Atomic Absorption Spectrophotometry. This is done after collecting the precious metals with a fire assay fusion.
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External commercial standards and local blanks are inserted on a regular basis into the sample stream monitoring laboratory accuracy and sample preparation. Repeat or check assays are done regularly on original pulp and occasionally on second pulp prepared from the stored reject. Selected samples, on the basis of determining significant discrepancies, defining zones, and noting visible gold during logging, are reprocessed internally by the laboratory using metallic assay methodologies. Up to 15% of pulps displaying a range of values, are re-assayed by ALS Chemex or Laboratoire Expert as checks using internal standards. Rejects and pulps are stored for any additional analytical work.
2.
Spanish Mountain Property
By an Option Agreement dated July 23, 2005 (“Option Agreement”) the Company secured an option to earn a 100% interest in the mineral claims comprising the Spanish Mountain Property (“Property”). To complete the earning of the 100% interest, the Company must pay to the Optionor a total of $100,000 cash over a period running to mid-2009 - of which $40,000 has been paid. The Company must also issue to the Optionor 200,000 shares in its capital by instalments over a period ending in mid-2008 - of which 150,000 shares have been issued. A further 200,000 shares will have to be issued to the Optionor if and when the Company receives a positive feasibility study on the Property. If the Company earns a 100% interest in the Property it will be subject to the reservation to the Optionor of a 3.0% net smelter return entitlement; provided that the Company will have the right to purchase 66.666% of the NSR for $1,000,000 upon the commencement of commercial production of mineral products from the Property.
Acrex negotiated to acquire the Option Agreement on the Property after encouraging results of exploration on adjoining properties, particularly those reported by the joint venture work of Wildrose Resources Ltd. and Skygold Ventures Ltd.
Effective February 6, 2007 the Company purchased two adjoining mineral claims from arm’s-length vendors for $10,000 and the issuance of 200,000 shares of the Company.
The Company’s total cost to December 31, 2006 with respect to the property is $1,080,165 - being $957,331 on exploration work and $122,834 for the acquisition and maintenance of the interests in the Property.
The Property is without known reserves and the work the Company proposes to conduct on it will be exploratory in nature.
The Company’s Qualified Person for the Spanish Mountain Property is Perry Grunenberg, P.Geo.
(a)
PROPERTY DESCRIPTION AND LOCATION
The Spanish Mountain Property is located in the Cariboo Mining Division and consists of 2 claim blocks comprised of 10 claims totaling 1,473.76 hectares – approximately 3,642 acres. The Property is located approximately 5 kilometres from the village of Likely and 70 kilometres northeast of Williams Lake, BC. Figure 4 shows the location of the claims within British Columbia and Figure 3 shows more details of the shape and location of the claims.
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FIGURE 4 – Property Location
25
FIGURE 3 – Spanish Mountain Claims
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The Claims comprising the Property are listed in Table I, below. All claims are located on crown land. The claims have not been surveyed. The Golden Airport, Gold Trend, Goldie, Gold and Gold 3 are referred to as the “Hepburn Lake group” in this document, and the Spanish 1, 2, and 3 are referred to as the “Spanish Mountain group”.
CLAIM INFORMATION
CLAIM NAME | RECORD NUMBER | CLAIM AREA (Ha) | ANNIVERSARY DATE |
GOLDEN AIRPORT | 510115 | 274.821 | 2006/04/03 |
GOLD TREND | 514947 | 117.755 | 200/606/21 |
GOLDIE | 517056 | 58.900 | 2006/07/12 |
GOLD | 517007 | 19.635 | 2006/0/712 |
GOLD 3 | 517098 | 39.261 | 2006/07/12 |
SPANISH 1 | 502372 | 491.331 | 2006/01/12 |
SPANISH 2 | 502608 | 157.233 | 2006/01/12 |
SPANISH 3 | 503338 | 196.584 | 2006/01/14 |
MOOREHEAD 12 | 537371 | 78.52 | 2007/07/18 |
MOOREHEAD 13 | 537372 | 39.72 | 2007/07/18 |
(b)
ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY
The Property covers the flanks and flat areas surrounding Spanish Mountain, to the south and west of Spanish Lake. Elevations range from approximately 910 metres at Spanish Lake to 1470 metres on Spanish Mountain. Outcrop is evident at higher elevations on hillslopes but is less exposed in the flat-lying lower elevations.
Access to the Property from 150 Mile house is by paved road for 85 kilometres to Likely, then by the Spanish Lake-Abbott Creek forestry road. An extensive network of logging and mining access roads bisects both of the claim blocks. These are in variable condition depending on the level of maintenance provided by on-going activities.
Climate is typical of central British Columbia with cold, snowy winters and long warm summers. The area receives approximately 40 centimetres of annual precipitation, most of which falls as winter snow.
The village of Likely is located within 10 kilometres of the property and provides basic amenities such as motel, corner store, restaurant and fuel. The area has a history of placer mining and heavy equipment is available for exploration work. The larger city of Williams Lake, located approximately 70 kilometres south, provides further support for exploration and mining in the area.
The Property is located within the Quesnel Highland of the Interior Plateau. The Quesnel River drainage includes Spanish and Cedar Creeks, which drain the property area. Most valley bottoms contain thick glacial cover attributed to Quaternary glaciation.
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Hillsides support heavy growths of hemlock, balsam and cedar on northern slopes with spruce and pine on higher ridges. Some of the Property has been historically logged and contains various states of regenerated growth.
(c)
GEOLOGICAL SETTING
REGIONAL GEOLOGY
The Quesnel and Horsefly rivers of central British Columbia traverse the northwesterly trending axis of the central Quesnel belt, known as the 'Quesnel Trough'. Recent economic interest has been concentrated on the Mount Polly (Cariboo-Bell) alkalic porphyry copper-gold deposit, the QR intrusion-related propylite-type gold deposit and the Frasergold and CPW (Spanish Mountain) auriferous quartz vein prospects in the black phyllite basal map unit.
Studies in the area, all within 'Quesnel Terrane', confirm the presence of a regional synclinal structure formed within a Triassic continent-margin basin. It was infilled first with Triassic sediments and then Triassic to Jurassic volcanic rocks. Together these rocks constitute the Quesnel Trough. The basal lithologic units consist of mid-Triassic siliceous rocks to mainly younger pelitic, thinly bedded deposits with overlying, more massive volcaniclastic sediments. The younger epiclastic units pass upward or interfinger with Upper Triassic subaqueous volcanic deposits, mainly volcanic flow and breccia units. They are overlain in turn by subaqueous to subaerial Lower Jurassic volcanic flow and pyroclastic rocks and overlapping lower to Middle Jurassic sedimentary assemblages. The volcanic rocks, and some Early Jurassic plutons, form the extensive magmatic edifice that defines the medial axis of the Quesnel island arc.
LOCAL GEOLOGY
The Spanish Mountain area is underlain by a northwest trending assemblage of phyllite, shale and siltstone interbedded with volcanic tuff and debris flows. Grey lithic tuff is the most abundant rock type with black graphite siltstones containing rounded fragments of light grey tuffaceious rocks thought to be the result of debris flows. Other rocks include carbonate rich volcanic wackes and mariposite altered crystal tuff. Dykes and minor intrusioins of diorite and rhyolite porphyry have been noted on the property. Black graphite shales and massive siltstone are the dominant rock types on the north slopes of Spanish Mountain with minor interbedded intermediate to felsic pyroclastics. Volcanic rocks form the upper part of Spanish Mountain and its souther slopes.
(d)
DEPOSIT TYPES
The Quesnel Trough hosts a wide variety of mineral deposits. The area contains 82 mineral occurrences recorded up to 1989 in the government files. Fifty-six of these are bedrock hosted base and precious metal deposits with the remainder being placer deposits or other deposits including industrial minerals.
The main properties of economic significance are alkalic intrusion-related porphyry copper-gold deposits and gold-bearing propylitic altered zones formed in volcanic rocks peripheral to intrusions.
These include the Mount Polley and Boss Mountain Mines, located to the west of the Spanish Mountain area.
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Other important targets are the gold-bearing quartz veins hosted within black phyllite metasedimentary rocks, such as those explored by the Skygold-Wildrose joint venture adjacent to the Property.
Gold bearing quartz veins in black phyllite include two similar looking but possibly genetically distinctive types. The veins in some black phyllite members have potential to be mined as large tonnage, low grade deposits. Other veins systems exhibit the potential for high-grade production, with apparent low-temperature quartz-calcite veins indicating potential epithermal deposition.
The black phyllites that underlie the Property have the potential to host both high-grade and bulk tonnage gold vein deposits. The two styles of mineralization are thought to be similar in age with orogenic derivation. The formation of quartz veins was synchronous with regional metamorphism and deformation. Deformed and undeformed veins occur on all scales along the limbs and within the hinge zones of regional folds. Vein fillings are likely the product of fluids that were generated during dewatering reactions during late Jurassic metamorphic events. The fluids would have migrated along cleavage surfaces and deposited as veins in dilations zones. Recent exploration indicates that where fluids migrated marginal to more porous wacke bedding, they may have deposited as replacements within these layers, creating broad zones with potential disseminated gold mineralization.
(e)
MINERALIZATION
Skygold Ventures Ltd. has reported that gold has been noted in a number of different modes and occurrences. These include: axial plane shear zones that contain quartz veinlets with disseminated pyrite and anomalous gold; quartz veins near fold crests that contain more base metals (galena and sphalerite) and coarse visible gold; anastomising quartz stockworks that occupy shear zones in shaley siltstone with gold found as residual particles and wires within pyrite boxworks; quartz-carbonate-sericite veins mineralized with pyrite, galena, chalcopyrite, sphalerite and native gold within more competent siltstones and tuffs; and disseminated gold deposition in graphitic shale and siltstone with pyrite.
A British Columbia Government Bulletin reports that the Spanish Mountain quartz veins contain gold and minor base metals. Much of the area is affected by pervasive carbonate-silica replacements and listwanite alteration associated with quartz veins or fractures. Gold occurs in quartz veins that range from less than 1 up to 4 metres in width. The fracture-controlled style of mineralization suggests that the veins postdate metamorphism and deformation. The mineralized zones are located on the northeast limb of a northwest trending anticline that is cut by numerous northwest trending thrust faults. The northwest trending structures are crosscut by a series of prominent northeast to east trending normal faults. These cross-cutting structures were found to control the mineralization.
(f)
HISTORY
The Cariboo region has a history as one of the most productive placer gold mining districts in British Columbia. This includes rich discoveries of placer gold at Quesnel Forks near Likely, and in bench deposits along Cedar Creek in the Spanish Mountain area in 1921.
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In 1933, gold was discovered in quartz veins on the northwest flank of Spanish Mountain. Extensive exploration on – and in the area of – the Property is reported to have been conducted in the decades since then. Ultimately the mineral claims which are essentially between the two blocks of claims held by the Company were acquired by Skygold Ventures Ltd. and Wildrose Resources Ltd. who formed a Joint Venture to own and control their claims. Skygold, Wildrose and latterly their Joint Venture have reported work on their claims since 2002.
During 2004 and 2005, the Skygold and Wildrose Joint Venture continued exploration of their joint venture property, including diamond and reverse circulation drilling. In a November 25, 2005 news release, the companies announced that step-out drilling dramatically extended the bulk tonnage mineralized corridor by over 450 metres to the north on their Spanish Mountain property. Drill holes from within the central portion of the known zone continued to significantly expand the tonnage potential with some of the longest continuous intercepts received to date.
The Hepburn Lake Group soil geochemistry indicates strong gold values over a 1,000 by 800 metre area through the southern portion of the grid. The general values and orientation of the gold in soils geochemistry is consistent with those found within the adjacent Skygold-Wildrose joint venture property to the east. The gold-in-soil elevated values indicate a trend that is open to the east, west and south. The northern boundary of the grid is cut off by Hepburn Lake.
The valley bottom along the Spanish Creek corridor contains a significant amount of historic and current placer gold mining. There is a documented presence of fluvial, glacial and glaciofluvial deposition along the valley bottom and margins. Care is required when exploring for bedrock gold occurrences to ensure that values obtained are not due to the presence of gold in the overlying unconsolidated materials. However, the on-going exploration within the valley, including that undertaken by the Skygold Wildrose Joint Venture, indicates that some of the best intersections of gold in bedrock occur within or in close proximity to some of the actively mined placer channels located along the slopes of Spanish Mountain.
(g)
EXPLORATION WORK CONDUCTED IN 2007 BY ACREX
Diamond drilling was completed on the Hepburn Lake area of the Spanish Mountain Property. A total of 15 widely spaced drill holes drilled in 2006 were designed to test extensive soil geochemical anomalies previously outlined by sampling. Based on the results a 2007 drill program was conducted. The following is a copy of a Press Release issued by the Company on November 15, 2007.
Acrex Ventures Ltd. ("Acrex") is pleased to provide an update of the 2007 drill program on its Spanish Mountain property, located near Likely, BC. The drilling program is being carried out on Acrex's Hepburn Lake claim block approximately 2.0 km northwest of the Spanish Mountain Joint Venture gold project of Skygold Ventures Ltd. and Wild Rose Resources Ltd. Over the last two years drilling and compilation work by the Spanish Mountain Joint Venture has outlined a large tonnage, potentially bulk mineable, sediment hosted gold system with average gold grades of greater than 1.0 g/t. The Main mineralized zone measures 1,200 metres x 500 metres and is up to 135 metre thick. The deposit remains open in all directions.
Acrex's consultants, PBG Geoscience of Kamloops, BC, advise that 10 of the proposed 11 drill holes have been completed on the property. The maximum hole depth completed in the 10 holes is 309 metres (1015 feet). The drilling has sampled several different target areas on the Hepburn Lake portion of the property. These include targets defined by the
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results of an airborne geophysical survey completed earlier this year. The airborne survey indicated a number of strong electromagnetic (resistivity) zones that trend from the Main Gold Zone on the Skygold-Wildrose Joint Venture property onto the Acrex claims. As well, the current drilling will further test the area around the gold-bearing intersections returned from drill hole 06SpM-15, completed in the fall of 2006 (see Acrex news release dated January 17, 2007). This drill hole returned significant gold-bearing intersections, including 2.54 grams per tonne over 1.51 metres and 2.29 grams per tonne over 1.52 metres.
A total of 1,600 metres (5250 feet) of diamond drilling have been completed in the first 10 drill holes of the 2007 program. All core is being logged and sampled at a facility located near to the property. Samples are being split from the core and are shipped to Assayers Canada Laboratory in Vancouver BC. Results of analysis are expected to be completed within the next 30 to 60 days. The remaining half of the core is stored in the Company's core storage facility in Likely, BC.
Results of the current program will be used in preparing for a major drill program planned for the Spanish Mountain property in 2008. In 2008 drilling will continue to test the Hepburn Lake area and will also test the Spanish Mountain area to the southeast. Soil sampling was completed earlier this year to extend coverage on the Hepburn Lake area, and on the Spanish Mountain block. Laboratory results from soil samples are expected in the weeks ahead. The 2008 drill program will follow-up results of the 2007 drilling, and will also test new targets defined by the airborne geophysical survey and the soil geochemical surveys. Data compilation, leading to target definition on this property, is planned for the winter months.
Mr. Perry Grunenberg, P.Geo. of PBG Geoscience is the Company's supervisor for the Spanish Mountain Project and "Qualified Person" for the purpose of National Instrument 43-101.
3.
Don’s Lake Property
Effective February 4, 2008 the Company signed an Option on the Don’s Lake mineral claims with the owner Optionor”). The following is a copy of the Press Release of the Company dated February 12, 2008 which announced the acquisition of the Option on the Property:
Acrex Ventures Ltd. (the “Company”) has entered into an agreement to option a 100% interest in the Don’s Lake mineral property in northwestern Ontario.
To exercise the option the Company will be obliged to pay the Optionor a total of $190,000 by way of payments of $4,000 upon the signing of the Agreement, $30,000 by February 28, 2008, with three additional tranches as of May 29th in each of 2009, 2010 and 2011. The Company will also have to issue the Optionor 200,000 shares with the first 50,000 shares being issuable on February 28, 2008, and with three blocks of 50,000 shares each being issuable on May 29th in each of 2009, 2010 and 2011. To maintain the option the Company will also have to expend not less than $1,300,000 on work on the property by May 29, 2012 - the first amount being $300,000 on or before May 29, 2009. If the Company obtains a positive feasibility report on the property it must issue a further 200,000 shares to the Optionor within 30 days of the receipt of the report.
The acquisition of the 100% interest will be subject to the reservation to the Optionor of a 2.0% net smelter return royalty. The Company will have a first right of refusal on a 1.0% net smelter return royalty if the Optionor desires to sell the said 1.0%.
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The property is comprised of 18 contiguous mineral claims containing 84 claim units and covers an area of approximately 1,344 hectares (approximately 3,321 acres). The claims are located between the Red Lake and Pickle Lake gold camps approximately 120 kilometres north of Sioux Lookout and 108 kilometres west of Pickle Lake.
The property covers a 5 km - long Fault Zone referred to as the Don’s Lake Shear Zone shown by lighogeochemistry to be prospective for gold and uranium.
Since 1953, the property has been held almost continuously by several mining companies and prospectors in search of uranium and gold. Previous exploration has included VLF-EM and magnetometer surveys, geological mapping, lithogeochemistry, prospecting, and 20 diamond drill holes.
Eight of the 20 diamond drill holes intersected the prospective shear zone. Among these eight holes, three holes are reported to have intersected good gold grades.
In 1978 trenching by Urangesellschaft is reported to have returned positive U308 and gold assays from three trenches located just south of the Don’s Lake Shear Zone .
Acrex plans to explore the mineralization with a ground geophysical survey followed by a winter diamond drill program.
4.
Honeymoon Property
Effective February 4, 2008 the Company signed an option on the Honeymoon Property mineral claims with the owner (“Optionor”). The following is a copy of the Press Release of the Company dated February 28, 2008 which announced the acquisition of the Option on the Property:
Acrex Ventures Ltd. (the “Company”) has entered into an agreement to option a 100% interest in the Honeymoon Area Mineral Claims.
To exercise the option the Company will pay $5,000 and issue 50,000 shares forthwith after the date of the acceptance of the Agreement by the TSX Venture Exchange (“Approval Date”). The Company must also pay $60,000 in periodic annual payments on the first, second and third anniversaries of the Approval Date. To exercise the option the Company will also be obliged to issue three blocks of 50,000 shares each on the first, second and third anniversaries of the Approval Date. A 2.0% net smelter return (“NSR”) has been reserved to the Optionor, David J. Piggin and the Company will have the right to purchase back a 1.0% NSR for $500,000. The Agreement is subject to the acceptance for filing by the TSX Venture Exchange.
The road accessible property is located in south-central British Columbia, approximately 80 kilometres northeast of the city of Kamloops, B.C.
The property lies 25 km south of the Harper Creek, volcanogenic sulphide deposit of Yellowhead Mining Inc. The Harper Creek Deposit has a NI 43-101 measured and indicated resource of 450.9 million tonnes grading 0.32% copper and an additional Inferred resource of 142.2 million tonnes grading 0.33% copper (Ref.:www.yellowheadmining.com).
Prospecting by the Optionor has located several malachite stained mineral showings on the Honeymoon property that carry copper and silver values. Grab samples from four of the showings were assayed by the Optionor and found to carry copper values ranging from 0.62% to 0.86% copper with elevated silver values ranging from 5.88 to 35.3 g/tonne. Petrographic studies completed by Acrex’s geologist show the mineralization, comprised of chalcopyrite and pyrite, occurs in a metasedimentary rock and may be of syngenetic origin. Syngenetic suphide deposits found elsewhere in the world have large tonnage potential.
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The company is currently planning an exploration program to assess this large property that will initially focus on investigating the recently discovered copper mineralization. The program will consist of geological mapping, geochemical sampling and geophysical surveying. Where warranted, targets will be further tested with a program of trenching and diamond drilling.
The technical information has been reviewed by the company's consulting geologist, Perry Grunenberg, P.Geo, of PBG Geoscience. Mr. Grunenberg is the Company's project supervisor and "Qualified Person" for the purpose of National Instrument 43-101.
5.
Permitting
The Company foresees no permitting obstacles for the work that it might conduct on its various properties in 2008. If and when larger programmes are undertaken various permits will be required from the applicable governmental authorities - which will include permits from the Departments concerned with preventing damage to the environment or to fisheries. All of the permits that the Company will require in the foreseeable future are permits which are normally available upon making the properly supported application and paying whatever may be the relatively nominal government fees.
C.
Plan of Operations
The Company, under the guidance of its Directors Gregory Crowe P.Geo. and Arthur Troup, P.Eng., and geological consultants it engages from time to time, will continue with the exploration work on the Properties which has been recommended – all of which will be done by contractors. As results from the various work programmes and drilling are received there will be ongoing analysis of those results and the proposed work programmes will be adjusted from time to time based on the results received, the interpretation of those results and the funds then available.
D.
Property, plants and equipment
The Company does not own any property, plant or equipment – other than minor incidental office equipment items.
E.
General
The Company does not have any employees – other than its President, T.J. Malcolm Powell, who is engaged under a service contract on a part-time basis and one junior employee who works in the Company’s office. All other efforts on behalf of the Company are done by consultants and contractors – or by directors and officers. The Company does not anticipate engaging any employees in the foreseeable future.
The Company does not have any subsidiaries.
Item 5.
Operating and Financial Review and Prospects
A.
Operating results
Because the Company has not carried on any business operations and has had no income generating activities no meaningful discussion and analysis can be done of the Company's operations. Because the Company has not carried on any income generating activity during the past three fiscal years its
33
financial statements do not reflect meaningful revenue or income. The Company has incurred expense each year to maintain itself in existence, to maintain itself in good standing under the requirements of the applicable securities regulatory authorities and, latterly, to negotiate various agreements with respect to its Properties and to conduct exploration work on the Michaud and Spanish Mountain Properties.
Year Ended December 31, 2007
The major components of the Company’s exploration expenditures during 2007 were $81,015, being the Company’s 50% share of the costs of a small drilling programme on the Michaud Property, and $536,432 on a drilling programme and other exploration on the Company’s optioned Spanish Mountain Property. The Company also made an annual payment of $20,000 pursuant to the Option Agreement held by it on the Spanish Mountain property. With respect to the general and administration expenses incurred by the Company during fiscal year 2007 there were no significant component changes from the 2006 figures. The total net general and administrative costs for 2007 were $490,377 compared with $554,310 for 2006.
There were, in the 2007 fiscal year, no other factors, unusual or infrequent events, or new developments which materially impacted the Company’s loss from operations.
Year Ended December 31, 2006
Net loss for the year ended December 31, 2006 was $531,360 or $0.02 per share compared to a net loss of $510,027 or $0.03 per share in the prior year. Interest income totaled $38,370 compared to $9,444 for the prior year as a result of larger cash balances earning interest during the year. Expenses totaled $569,730 compared to $511,234 for the prior year. The increase in expenses is attributable to the increased activity of the Company in relation to its mineral properties and the increase in equity financings conducted during the year. The largest expenses for the year were $138,000 in management fees paid to directors of the Company, $127,849 in investor relations fees, $68,038 in promotion and travel, and $51,596 in general office expenses.
Year Ended December 31, 2005
Net loss for the year ended December 31, 2005 was $510,027 or $0.03 per share. Expenses totaled $511,234. The largest expenses were $138,000 in management fees paid to directors of the Company, $73,884 in stock based compensation relating to stock options granted during the year, $61,419 in investor relations fees, and loss on termination of mineral property options of $97,383. The expenses for the year were partially offset by a gain on sale of a mineral property interest of $94,999, interest income of $9,444 and a future income tax recovery of $22,263.
The Company’s annual audited financial statements, which are attached, are stated in Canadian dollars and are prepared in accordance with Canadian Generally Accepted Accounting Principles (“GAAP”), the application of which, in the case of the Company, conforms, in all material respects for the years presented in the financial statements, with United States GAAP except as disclosed in Note 11 to the financial statements.
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B.
Liquidity and capital resources
Because of the “start-up” status of the Company it does not have liquidity, either short or long term. It does not have any material unused sources of liquidity.
The Company had working capital at December 31, 2007 of $2,034,078 - and as of March 31, 2008 of approximately $1,740,000. The current working capital is the balance left from the proceeds of its equity fundings, after deducting the costs of raising that funding, payment of outstanding accounts payable, payment of the Company’s general and administrative costs, and the monies which have been spent acquiring and exploring the Properties. The Company’s working capital is considered by the Company’s Management to be sufficient to meet the Company’s expenditure requirements during the current fiscal year.
The Company does not have any material commitments for capital expenditures. The Company does not have any debt instruments outstanding. The Company does not anticipate having to commit to undertake any significant capital expenditures in the foreseeable future.
The Company’s expenditures to date have satisfied the various conditions necessary to maintain the Company’s 50% interest in the Michaud Joint Venture and to maintain the Company’s rights pursuant to the option agreement it holds on the Spanish Mountain property.
C.
Contractual Obligations
(a)
To pay its 50% share of any expenditures agreed upon by the Michaud Joint Venture;
(b)
To pay the Company’s President, T.J.M. Powell, $9,000 per month for his management services to the Company and to pay the Company’s Chairman $2,500 per month as fees for his acting as a director of the Company - pursuant to unwritten agreements.
(c)
To pay for auditing, accounting, legal, geological or other services rendered to the Company – and for all office costs – pursuant to unwritten agreements.
The Company’s liabilities as of December 31, 2007 were only its normal year-end accounts payable of $32,270.
The Company has no contingent liabilities.
D.
Research and development, patents and licences
The Company has not carried on any research and development during the past three years and has no research and development policies.
E.
Trend information
The Company cannot identify any significant trends which are applicable to it or its plans. The Company’s principal focus in exploring the Property is to discover deposits of gold-bearing ores which would be economically mineable. The potential economics of a gold mining property are entirely dependent on the price at which gold trades from time to time on the international gold
35
market. In the period since early 2002 there has been an upward movement in the international price of gold – but Management of the Company is not in a position to predict how long that trend will continue.
The Company can never be assured that its future mineral exploration activities will produce the favourable results that would be necessary to justify the Company continuing its exploration activities or to retain the properties on which the work is performed. Further, the Company cannot be assured that if it wishes to undertake significant exploration or development work on its properties in the future it can raise the necessary funding. Otherwise, the Company cannot identify any specific uncertainties, demands, commitments or possible events which would be likely to have a material effect on its operating results, liquidity or capital resources – or which would cause the Company’s reported financial information to be not necessarily indicative of future results or financial conditions.
Item 6.
Directors, Senior Management and Employees
A.
Directors and senior management
Name, age and countries of residence | Offices held with the Company | Principal business activities outside the Company |
T.J. Malcolm Powell Age 68 Canada | Director, Promoter and President and Chief Executive Officer of the Company since August 3, 2000 | Engaged as public relations and business consultant through his wholly owned company, Arbutus Enterprises Ltd. Since November, 1998 investor, shareholder and public relations agent for the Lang Group of Companies in Vancouver, B.C. |
Frank A. Lang Age 84 Canada | Director and Chairman of the Board since October 2, 2001 | Director and President or Chairman of the various companies comprising the Lang Group of Companies; President and CEO of Cream Minerals Ltd. and Chairman of Sultan Minerals Inc. |
Carl R. Jonsson Age 73 Canada | Director since November 30, 1998. Secretary since August 3, 2000. Chief Financial Officer | Principal/Partner of Vancouver law firm Tupper Jonsson & Yeadon, Solicitors for the Company. Director of various public companies |
Gregory G. Crowe Age 53 Canada | Director since July 25, 2001 | P.Geol. P.Geo. Self-employed as geological consultant. Employee, Director and Executive Officer of Yuma Copper Corp. from 1994 to December, 1997. Director, President and CEO of Entreé Gold Ltd. since July, 2002 |
Arthur G. Troup Age 64 Canada | Director since September 25, 2001 | Since January 1997 Vice-President Exploration of the companies comprising the Lang Group of Companies. Prior to that, self-employed as consultant |
Robin M. Merrifield Age 65 Canada | Director since December 5, 2005 | Director of Corporate Communications for Sultan Minerals Inc. March 2004 - March 2006; Chief Financial Officer, Gulf International Minerals Ltd., London, England - October 2004 - September 2005; Senior Vice-President and Chief Financial Officer of UrAsia Energy Ltd.
April, 2006 – April, 2007. Senior Vice-President and Chief Financial Officer of UrAsia Energy Ltd. April 2007 to present. |
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The Lang Group of Companies are publicly traded companies controlled by Frank A. Lang. They are ValGold Resources Ltd., Emgold Mining Corporation, Sultan Minerals Inc., and Cream Minerals Ltd.
The following additional information is provided with respect to the Directors and Officers of the Company:
T.J. Malcolm Powell Mr. Powell, as President, is responsible for managing and leading the Company. He was appointed Chief Executive Officer November 30, 2001. Mr. Powell does not work full-time for the Company and considers that he spends – and will spend in the foreseeable future – approximately 50% of his time on the affairs of the Company. Mr. Powell, his wholly owned company Arbutus Enterprises Ltd. (“Arbutus”) and the Company signed a Management Services Agreement dated September 1, 2007. It provides principally that: (a) for a term of two years Arbutus will supply the services of Mr. Powell to the Company for 60% of his time; (b) Arbutus will be paid $9,000 per month, subject to review after one year; (c) If Mr. Powell is removed from his positions with the Company, or the Agreement is terminated without legal cause, Arbutus will be paid compensation equal to 12 times the then monthly fee. Mr. Powell has, since November, 1998, acted in an independent contractor capacity, as the person responsible for shareholder, investor and public relations for the various companies comprising the Lang Group of Companies – on a full-time basis until November 30, 2001, and since then on a part-time basis. Mr. Powell is able to achieve this arrangement as he, the Company and the Lang Group of Companies share office space. Mr. Powell has been a director and the president of various small public companies since 1985, some of which engaged in minor mineral exploration activities. While Mr. Powell has no significant experience in managing mineral exploration programs, or a mineral exploration company, he shares office facilities with – or near to - Company Directors Frank A. Lang, Gregory C. Crowe and Arthur G. Troup – all of whom have extensive experience managing mineral exploration programs and mineral exploration companies. With the advice and input of Messrs. Lang, Crowe and Troup being available to Mr. Powell, for his guidance and assistance, it is not considered that Mr. Powell’s relative lack of experience is a risk to the Company or its shareholders. Mr. Powell also has regular and constant access to and contact with Carl Jonsson who also has experience with respect to mineral exploration and the management of mineral exploration companies. |
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Frank A. Lang, M.A., P.Eng. Mr. Lang has no assigned responsibilities except to act as the Chairman of the Board and provide incidental public Company and mineral exploration advice to the Board of the Company and to members of the Company’s management. Mr. Lang was appointed to his positions with the Company on October 2, 2001 and does not expend, or consider that he will be expected to expend, more than 1% of his time on the affairs of the Company. Mr. Lang has no contractual relationship with the Company. He is currently paid a Director’s fee of $2,500 per month. During the past 5 years Mr. Lang’s full-time occupation has been to act as a director and President, CEO and/or Chairman of the Board of the various companies which have comprised the Lang Group of Companies, all of which are involved in mineral exploration. Mr. Lang has been involved, in one capacity or another, in mineral exploration activities for more than 20 years. |
Carl R. Jonsson, LL.B.
Mr. Jonsson’s responsibilities are primarily as the lawyer for the Company, and it is incidental to that capacity that he also holds positions as a Director and the Secretary of the Company. He was also appointed Chief Financial Officer November 30, 2001. Mr. Jonsson holds a Bachelor of Laws Degree and is a member of the Law Society of British Columbia. Other than attending at meetings of the Board of Directors and time spent as the Company’s Chief Financial Officer, Mr. Jonsson’s services are rendered to the Company as a principal of the law firm of Tupper Jonsson & Yeadon. Mr. Jonsson does not have any other contractual relationship with the Company. He estimates that he spends 5% of his time on the affairs of the Company – not including the time he spends as the Company’s lawyer.
Mr. Jonsson’s principal occupation during the past 5 years has been acting as a lawyer and many of his clients have, during that period, been involved in aspects of mineral and natural resource exploration. Many of Mr. Jonsson’s functions during that period have been to advise his clients as to the requirements of the securities regulatory authorities having jurisdiction over them and the stock exchanges upon which their shares have been listed for trading. Mr. Jonsson has acted primarily as a corporate and securities lawyer for in excess of 35 years and holds directorships in various publicly traded companies, some of which are, or have been, in mineral exploration.
Mr. Jonsson’s directorships include positions as a director – and as a member of the Audit Committees – of Comaplex Minerals Corp. (“Comaplex”), Bonterra Energy Income Trust (Bonterra”) and Pine Cliff Energy Ltd. (“Pine Cliff”) – all of which are head-officed in Calgary, Alberta, Canada. Comaplex, the shares of which trade on the TSX Stock Exchange, conducts mineral exploration on a number of properties in Iqaluit (one of the Northwest Territories of Canada). Bonterra, the Trust Units of which trade on the TSX Stock Exchange, is an oil and gas producer. Pine Cliff is listed for trading on the TSX Venture Exchange and is involved in oil and gas exploration in Canada and South America. Mr. Jonsson is also a Director of Caledonia Mining Corporation, the shares of which trade on the TSX Stock Exchange, the NASD Over-the-Counter Bulletin Board in the United States and th e AIM market in London, and is head officed in Johannesburg, South Africa. It is carrying on exploration activities in South and East Africa, and has also carried on extensive mining exploration activities (during the period Mr. Jonsson has been a director) in Northern Canada, Scotland, Spain, South Africa and East Africa. Caledonia has
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operated mines in Spain and South Africa and is presently operating a mine in Zimbabwe. Because of Mr. Jonsson’s experience, through being a director of mineral exploration companies, he is able to provide legal, management and financial advice to the Company’s Board of Directors and, in particular, to Mr. Powell.
Mr. Jonsson could have potential conflicts of interest relating to his functioning as outside counsel for the Company and his role as a director and officer of the Company. If Mr. Jonsson or any other director or officer of the Company perceives a conflict of interest Mr. Jonsson would disqualify himself from acting as counsel for the Company and advise the Company to seek independent outside counsel. To this date, such a situation has never arisen. Mr. Jonsson would also, as a result of the ethical rules applicable to him as a lawyer in Canada, be required to disqualify himself from acting for the Company in the case of a conflict of interest.
Gregory C. Crowe, M.Sc., P.Geo., P.Geol. Mr. Crowe, as a Director of the Company, has no responsibilities except to participate as a Director of the Company and to provide advice to the Board and to Management on occasion – primarily of a geological nature. Mr. Crowe is a registered P.Geol. in the Province of Alberta and a registered P.Geo. in the Province of British Columbia. Mr. Crowe, until May, 2002, devoted an estimated 10% of his time to the Company. For the period between June, 2002 and mid-July, 2002 he was employed full-time in supervising and conducting work on or in relation to the Property. He earlier, for a period, acted as Vice-President Exploration of the Company. He does not have a written contractual relationship with the Company. During the past several years Mr. Crowe has acted as a geological consultant to various companies involved in mineral exploration and has served on the Board of Directors of several junior resource companies. Since July , 2002 Mr. Crowe has been the President and Chief Executive Officer of Entree Gold Inc. - which is conducting mineral exploration programs on properties in Mongolia and Arizona. Mr. Crowe has been active in mineral exploration for 20 years. For the period between October, 1994 and December 1997, Mr. Crowe was a director, officer and employee of Yuma Copper Corporation. |
Arthur G. Troup, M.Sc., P.Eng. Mr. Troup, as a Director of the Company, has no responsibilities except to participate as a Director of the Company and to provide advice to the Board and to Management on occasion – primarily of a geological nature. Mr. Troup is a registered Professional Engineer. Mr. Troup has, since his appointment September 25, 2001, devoted an estimated 5% of his time to the Company. He does not have a contractual relationship with the Company. During the past 5 years Mr. Troup has been the Vice-President Exploration of the Lang Group of Companies. For more than the past 5 years his principal activity has been as President and Chief Executive Officer of Sultan Minerals Ltd. - a member of the Lang Group. Sultan Minerals Ltd. is conducting advanced exploration on a mineral property in British Columbia, Canada. Mr. Troup has been active in mineral exploration for more than 30 years. |
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Robin M. Merrifield
Mr. Merrifield, as a Director of the Company, has no responsibilities except to participate as a Director of the Company and to act as a member of its Audit Committee, and to provide advice to the Board and to Management on occasion - primarily of an administrative or financial nature. Mr. Merrifield is a member of the South African Institute of Chartered Accountants. Since his appointment he has devoted an estimated 2% of his time to the Company. He does not have a contractual relationship with the Company.
During the past 5 years Mr. Merrifield’s employment - except during the period between September 2001 and February 2004, when he was retired - has been as a Chief Financial Officer or Vice-President of Finance of companies involved in mining and mineral exploration in various countries - Canada and elsewhere. Mr. Merrifield has been qualified as a South African Chartered Accountant since 1969.
B.
Compensation
(a)
T.J. Malcolm Powell is paid $9,000 per month for his management services to the Company. The funds are paid to him indirectly through the payment of his wholly owned private company, Arbutus Enterprises Ltd.
(b)
Arthur Troup, Gregory Crowe and Robin Merrifield are not paid for their services to the Company as a Director or member of the Audit Committee - although Gregory Crowe was in earlier years paid fees for occasional geological services rendered to the Company.
(c)
Carl R. Jonsson is not paid for his services as a director and officer of the Company, per se. However, he is a senior principal of Tupper Jonsson & Yeadon, the Vancouver, Canada law firm which provides legal services to the Company – which are primarily provided by Mr. Jonsson. Mr. Jonsson therefore indirectly benefits from the legal fees which the Company pays to Tupper Jonsson & Yeadon.
(d)
Mr. Troup does not receive any cash or cash equivalent compensation for acting as Director of the Company.
(e)
Frank Lang is paid a fee of $2,500 per month for acting as a Director of the Company.
(f)
All of the Directors have been granted share purchase incentive options entitling them to purchase the numbers of common shares of the Company as follows:
T.J. Malcolm Powell | 340,000 shares exercisable until November 4, 2008 at $0.28 per share; 360,000 shares exercisable until July 7, 2010 at $0.12 per share; 200,000 shares exercisable until July 2, 2012 at $0.16 per share; and 350,000 shares exercisable until December 17, 2012 at $0.16 per share. | Total – 1,250,000 |
Frank Lang | 25,000 shares exercisable until November 4, 2008 at $0.28 per share; and 25,000 shares exercisable until July 7, 2010 at $0.12 per share; 100,000 shares exercisable until July 2, 2012 at $0.16 per share; and 100,000 shares exercisable until December 17, 2012 at $0.16 per share. | Total – 250,000 |
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Gregory Crowe | 75,000 shares exercisable until November 4, 2008 at $0.28 per share; and 25,000 shares exercisable until July 7, 2010 at $0.12 per share; 150,000 shares exercisable until July 2, 2012 at $0.16 per share; and 100,000 shares exercisable until December 17, 2012 at $0.16 per share. | Total - 350,000 |
Arthur Troup | 100,000 shares exercisable until November 4, 2008 at $0.28 per share; 100,000 shares exercisable until October 13, 2010 at $0.12 per share; and 50,000 shares exercisable until July 7, 2010 at $0.12 per share; 50,000 shares exercisable until July, 2010 at $0.12 per share; 100,000 shares exercisable until July, 2012 at $0.16 per share; and 350,000 shares exercisable until December, 2012 at $0.16 per share | Total - 700,000 |
Carl Jonsson | 25,000 shares exercisable until November 4, 2008 at $0.28 per share; and 25,000 shares exercisable until July 7, 2010 at $0.12 per share; 50,000 shares exercisable until July 2, 2012 at $0.16 per share; and 100,000 shares exercisable until December 17, 2012 at $0.16 per share. | Total - 200,000 |
Robin Merrifield | 100,000 shares exercisable until December 5, 1010 at $0.12 per share and 100,000 shares exercisable until December 17, 2012 at $0.16 per share. | Total - 200,000 |
| TOTALS: | 2,950,000 |
The Company does not provide any pension, retirement or similar benefits to its Directors or Officers – nor is it accruing any liability to them with respect to any such benefits.
C.
Board practices
1.
The Company’s Board of Directors has only one committee – the Audit Committee. The members of the Audit Committee do not have any fixed terms for holding their positions and are appointed and replaced from time to time by resolution of the Board of Directors.
2.
All Directors, when elected or appointed, are to hold office until the next Annual General Meeting of the Shareholders that is held, at which time it is deemed that they all cease to hold office and are subject to reappointment at the Meeting. The next Annual General Meeting of the Shareholders of the Company has been scheduled to be held June 25, 2008.
3.
None of the service contracts under which Directors supply services to the Company have any provisions for individuals receiving benefits on any termination of such contracts.
4.
The members of the Audit Committee – currently comprised of Directors Frank Lang, Arthur Troup and Robin Merrifield – receive no separate remuneration for acting as a member of the Committee, nor are their appointments for any fixed term. Their appointments are not subject to any specific terms of reference.
D.
Employees
The Company does not have any employees – nor has it ever had any employees.
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E.
Share ownership
The Directors and Officers of the Company hold, as at the date of this Statement, the numbers of Shares set opposite their names below – which are the percentage of the Company’s issued shares (as of March 31, 2008) also set opposite their names:
| Shares held – directly and indirectly | Percentage of issued shares - % |
T.J. Malcolm Powell | 1,313,415 | 3.23 |
Frank A. Lang | 371,833 | 0.92 |
Carl R. Jonsson | 275,525 | 0.68 |
Greg Crowe | 23,196 | 0.06 |
Arthur G. Troup | 35,100 | 0.09 |
Robin M. Merrifield | Nil | Nil |
TOTAL | 2,019,069 | 4.98 |
Of the shares shown held by Mr. Powell, a portion is held by him directly and a portion is held by Mr. Powell’s wholly owned company Arbutus Enterprises Ltd.
During the last completed fiscal year – January 1, 2007 to December 31, 2007 - the Company has issued shares on a number of different dates for different prices and consideration – as detailed in Item 10.A.3 below. As of the Company’s fiscal year-end there were 40,510,447 shares issued of which the Directors and Officers owned 2,019,069 shares (being 4.97% of the issued shares). During the period between December 31, 2007 and March 31, 2008 the Company issued 100,000 shares pursuant to the option agreements pursuant to the Don’s Lake and Honeymoon Properties.
During the past three years there was no change in the voting rights attached to the Shares – nor any other special rights or restrictions attached or changed. All of the Shares comprising the Company’s authorized and issued capital are voting common shares, with each share carrying 1 non-cumulative vote. All decisions with respect to the issuance of Shares and the terms thereof are by resolution of the Board of Directors of the Company.
Item 7.
Major Shareholders and Related Party Transactions
A.
Major shareholders
1.
To the best of the knowledge of the Company and its management no shareholder holds, directly or indirectly, more than 5% of the issued shares of the Company. This does not constitute any significant change in the percentage ownership held by any major shareholders during the past three years.
2.
The Company is not, to the best of the best of the knowledge of the Company and its Directors and Officers, directly or indirectly owned or controlled by another corporation or by any foreign government.
3.
The Company's outstanding shares are in registered form but it is known to the Company and its management that the registered holders of the outstanding shares are, in large part, not the beneficial owners of the outstanding shares and that significant numbers of the outstanding shares are held registered in the names of various nominees on behalf of the beneficial owners of such shares. As a result it is not possible for the Company or its
42
management to know who are all of the beneficial owners of its outstanding shares or how many outstanding shares may be beneficially owned by any single shareholder. As at March 31, 2008 the Company had 204 shareholders of record of which 185 were resident outside of the United States holding between them 38,729,708 shares, and 19 were resident in the U.S.A. holding between them 1,880,739 shares.
4.
There are no arrangements known to the Company, the operation of which may at a subsequent date result in a change in the control of the Company.
B.
Related party transactions
(a)
There have not been any material related party transactions between the Company and any of the directors, officers, associates or major shareholders of the Company since January 1, 2007.
(b)
Certain directors have received compensation – as disclosed in Item 6A above.
Item 8.
Financial Information
A.
Financial Statements and Other Financial Information
1.
Exhibited hereto are the following financial statements prepared as at the last fiscal year-end, December 31, 2007, with comparative figures shown as of December 31, 2006 and 2005, with attached audit report;
2.
The Company does not have any sales and accordingly the financial statements show no sales revenues.
3.
The Company does not have a dividend policy.
B.
Significant Changes
No significant changes have occurred since the various dates of the financial statements which are exhibited.
Item 9.
The Offer and Listing
A.
The Company is not proposing any offering of its securities. This Statement is not filed or issued with respect to any proposed offering or listing of its securities, or other distribution of its securities.
B.
The principal market on which the Company’s shares trade is the TSX Venture Exchange. The following trading information is given, for the following periods since then, for trades on the Exchange.
Periods | High - $ | Low - $ |
January 1, 2003 - December 31, 2003 January 1, 2004 - March 31, 2004 April 1, 2004 - June 30, 2004 July 1, 2004 - September 30, 2004 October 1, 2004 - December 31, 2004 January 1, 2005 - March 31, 2005 April 1, 2005 - June 30, 2005 | 0.40 0.315 0.27 0.275 0.245 0.20 0.145 | 0.135 0.20 0.14 0.15 0.185 0.115 0.095 |
43
July 1, 2005 - September 30, 2005 October 1, 2005 – December 31, 2005 January 1, 2006 – March 31, 2006 April 1, 2006 to June 30, 2006 July 1, 2006 – September 30, 2006 October 1, 2006 – December 31, 2006 January, 2007 February, 2007 March, 2007 April, 2007 May, 2007 June, 2007 July, 2007 August, 2007 September, 2007 October, 2007 November, 2007 December, 2007 January, 2008 February, 2008 March, 2008 | 0.14 0.18 0.225 0.46 0.44 0.38 0.265 0.245 0.245 0.24 0.25 0.18 0.24 0.255 0.25 0.25 0.21 0.17 0.18 0.14 0.115 | 0.095 0.086 0.11 0.18 0.25 0.24 0.135 0.18 0.18 0.17 0.16 0.16 0.16 0.195 0.195 0.20 0.16 0.13 0.12 0.09 0.08 |
The shares of the Company also trade on the NASD Over The Counter Bulletin Board in the United States.
Item 10.
Additional Information
A.
Share capital
1.
The authorized capital of the Company consists of an unlimited number of common voting shares without par value. As at the close of business on March 31, 2008 there are 40,610,447 shares issued – all of which were issued as fully paid shares. Each Share has attached to it one non-cumulative vote. There are no persons who hold any preferential or pre-emptive rights for purchasing any additional Shares in the Company other than the holders of the share purchase warrants and share purchase options detailed in sub-clause 2. below. Certain of the options are held by Company Directors as detailed in Item 6.B above.
There have not been, during the past three years, any changes in the rights attaching to the Company’s shares. There are no resolutions, authorizations or approvals in existence or outstanding pursuant to which any further shares or securities convertible to shares, will be created or issued.
2.
As of the date of this Statement there are share purchase warrants and options (including those held by Directors as disclosed in Item 6.B above) outstanding pursuant to which the holders will be entitled to purchase the following numbers of shares at the following prices on or before the following dates:
Number of shares issuable upon exercise of warrants and options | Warrant exercise price per share | Expiry dates |
Options: 565,000 | $0.28 | November 4, 2008 |
44
485,000 100,000 100,000 100,000 50,000 100,000 650,000 1,400,000 3,550,000 TOTAL Warrants: 4,030,755 624,000 2,645,000 400,000 7,699,755 TOTAL | $0.12 $0.12 $0.12 $0.30 $0.30 $0.20 $0.16 $0.16 $0.50 $0.23 $0.50 $0.23 | July 7, 2010 October 13, 2010 December 5, 2010 June 19, 2011 June 29, 2011 February 7, 2012 July 2, 2012 December 17, 2012 August 14, 2009 August 14, 2009 August 16, 2009 August 16, 2009 |
3.
During the fiscal year ended December 31, 2007 and during the period since then to March 31, 2008 the Company issued shares as follows:
No. of Shares issued | Dates, Terms and Conditions |
13,351,511 | Issued August 15, 2007 pursuant to private placement financing for proceeds of $2,504,000. |
200,000 | Issued for purchase of additional Spanish Mountain claims, February 7, 2007. |
50,000 | Issued to Lloyd Adie, Optionor of the Spanish Mountain Property, July 5, 2007. |
50,000 | Issued to Donald Brown, Optionor of the Don’s Lake Property, February 27, 2008. |
50,000 | Issued to David Pippin, Optionor of the Honeymoon Property, March 13, 2008. |
B.
Memorandum and Articles of Association
1.
The Company was incorporated in British Columbia, Canada, on August 1, 1969. The Company does not have any stated “objects” or “purposes” as such are not required by the corporate laws of the Province of British Columbia. Rather, the Company is, by such corporate laws, entitled to carry on any activities whatsoever which are not specifically precluded by other statutory provisions of the Province of British Columbia. The Memorandum and Articles of the Company can be viewed at its Registered Office in Vancouver, Canada.
2.
The powers and functioning of the Directors are set forth in the Articles of the Company. They provide:
(a)
subject to the obligation of a Director to disclose his potential interest in a proposal, arrangement or contract being considered by the Company, a Director may vote with respect to such matter in certain instances and in certain instances shall not vote;
(b)
the Directors may, in the absence of an independent quorum, vote compensation to themselves;
45
(c)
there are no limitations on the exercise by the Directors of the Company’s borrowing powers;
(d)
there are no provisions for the retirement or non-retirement of Directors under an age limit;
(e)
there is no requirement for a Director to hold any shares in the Company.
3.
As all of the Company’s authorized and issued shares are of one class there are no special rights or restrictions of any nature or kind attached to any of the shares.
4.
To alter the rights of holders of issued shares of the Company such alteration must be approved by the majority vote of 66.666% of the issued shares of the Company attending and voting, and in a separate meeting by a 66.666% majority of the shares that are the subject of the proposed alterations attending and voting at the meeting.
5.
Annual General Meetings are called and scheduled upon decision by the Board of Directors. The Directors may convene an extraordinary general meeting of the shareholders. The holders of not less than 5% of the issued shares of the Company may requisition an extraordinary meeting of the shareholders. All meetings of the shareholders may be attended by registered shareholders or persons who hold powers of attorney or proxies given to them by registered shareholders.
6.
There are no limitations prohibiting shares being held by non-residents, foreigners or any other group.
7.
There are no provisions in the Company’s Articles or charter documents that would have an effect of delaying, deferring or preventing a change in the control of the Company, or that would operate with respect to any proposed merger, acquisition or corporate restructuring of the Company.
8.
There are no bylaw provisions requiring share ownership to be disclosed. The securities laws of the Province of British Columbia require disclosure of shareholdings by insiders who are generally directors, officers, employees or others holding more than 10% of the issued shares of the company and their affiliates.
9.
There are no provisions in the Company’s Memorandum or Articles governing changes in the Company’s capital which are more stringent than required by law.
C.
Material contracts
The only material contracts which the Company has entered into, and which are not in the ordinary course of its business within the past 2 years, are:
1.
Joint Venture Agreement dated November 26, 2004 between the Company and Moneta Porcupine Mines Inc. relating to the Michaud Property - described in Item 4.B.1;
2.
Option Agreement dated July 23, 2005 with Lloyd Addie relating to the Spanish Mountain property - described in Item 4.B2.
3.
Option Agreement dated February 4, 2008 with Donald D. Brown relating to the Don’s Lake property – described in Item 4.B.3.
46
4.
Option Agreement dated February 4, 2008 with David Piggin relating to the Honeymoon Property described in Item 4.B.4.
D.
Exchange controls
There are no Canadian laws, decrees, regulations or exchange controls which would affect the import or export of capital or the availability of cash for use by the Company, nor the remittance of dividends, interest or other payments to non-resident holders of the Company’s securities.
E.
Taxation
(i)
Canadian Federal Income Tax Considerations
The following summary of the material Canadian federal income tax consequences is based upon the provisions of the Income Tax Act of Canada and the regulations thereunder (the “Tax Act”) and the Canada-United States Tax Convention (the “Tax Convention”)) as at the date of this Statement. The summary is restricted to the case of a holder (a “Holder”) of one or more common shares of the Company (“Common Shares”) who for the purposes of the Tax Act is a non-resident of Canada, is a United States person, holds his Common Shares as capital property and deals at arm’s length with the Company.
Dividends. A holder will be subject to Canadian withholding tax (“Part XIII Tax”) equal to 25%, or such lower rates as may be applicable, of the gross amount of any dividend paid or deemed to be paid on his Common Shares. Under the Tax Convention, the rate of Part XIII Tax applicable to a dividend on Common Shares paid to a Holder who is a resident of the United States is, if the Holder is a company that beneficially owns at least 10% of the voting stock of the Company, 5% and, in any other case, 15% of the gross amount of the dividend. The Company will be required to withhold the applicable amount of Tax from each dividend paid and remit it to the Receiver General for Canada for the account of the Holder.
Disposition of Common Shares. A Holder who disposes of Common Shares, including by deemed disposition on death, will not be subject to Canadian tax on any capital gain thereby realized unless the Common Shares constituted “taxable Canadian property” as defined by the Tax Act. Generally, a common share of a public corporation will not constitute taxable Canadian property of a Holder unless he held the common share as capital property used by him carrying on a business in Canada, or he or persons with whom he did not deal at arm’s length alone or together held or held options to acquire, at any time within the 60 months preceding the disposition, 25% or more of the issued shares of any class of the capital stock of the company.
A Holder who is a resident of the United States and realizes a capital gain on disposition of Common Shares that was taxable Canadian property will nevertheless, by virtue of the Treaty, generally be exempt from Canadian tax unless (a) more than 50% of the value of the Common Shares is derived from, or from an interest in, Canadian real estate, including Canadian mineral resources properties, (b) the Common Shares formed part of the business property of a permanent establishment that the Holder has or had in Canada within the 12 months preceding disposition, or (c) the Holder (i) was a resident of Canada at any time within the 10 years immediately preceding the disposition, and for a total of 120 months during any period of 20 consecutive years, preceding the disposition, and (ii) owned the Common Shares when he ceased to be resident in Canada.
A Holder who is subject to Canadian tax in respect of a capital gain realized on disposition of Common Shares must include one-half of the capital gain (“taxable capital gain”) in computing his
47
taxable income earned in Canada, subject to the deduction of certain capital losses that may have been sustained by the Holder.
(ii)
United States Taxation
For federal income tax purposes, an individual who is a citizen or resident of the United States or a domestic corporation (“U.S. Taxpayer”) will recognize a gain or loss on the sale of the Company’s shares equal to the difference between the proceeds from such sale and the adjusted tax basis of the shares. The gain or loss will be a capital gain or capital loss if the Company’s shares are a capital asset in the hands of the U.S. Taxpayer.
For federal income tax purposes, a U.S. Taxpayer will be required to include in gross income dividends received on the Company’s shares. A U.S. Taxpayer who pays Canadian tax on a dividend on shares will be entitled, subject to certain limitations, to a credit (or alternatively, a deduction) against federal income tax liability. A domestic corporation that owns at least 10% of the voting shares of the Company should consult its tax advisor as to applicability of the deemed paid foreign tax credit with respect to dividends paid on the Company’s shares.
Under a number of circumstances, a U.S. Taxpayer acquiring shares of the Company may be required to file an information return with the Internal Revenue Service Centre where they are required to file their tax returns with a duplicate copy to the Internal Revenue Service Centre, Philadelphia, PA 19255. In particular, any United States Taxpayer who becomes the owner, directly or indirectly, of 10% or more of the shares of the Company will be required to file such a return. Other filing requirements may apply. Holders and prospective holders should therefore consult their own tax advisors with respect to their particular circumstances and the requirements applicable to them.
There may be a possibility of the Company being deemed, for United States tax purposes, a Foreign Personal Holding Company, a Foreign Investment Company, a Passive Foreign Investment Company or a Controlled Foreign Corporation. If that should happen U.S. Taxpayers holding or selling Company Shares, or receiving dividends on Company Shares, will be subject to U.S. taxation at possibly adverse or higher rates and under a system that may be complicated and unfamiliar to them.
F.
Dividends and paying agents
Omitted – not required for Annual Report
G.
Statements by Experts
Omitted – not required for Annual Report
H.
Documents on display
Any of the documents referred to above can be viewed at the Company’s Registered Office, which is located at Suite 1710, 1177 West Hastings Street, Vancouver, B.C., Canada V6E 2L3. All of the documents referred to above are in English.
Item 11.
Quantitative and Qualitative Disclosures About Market Risk
(a)
The Company is not presently involved in borrowing money and does not have any dealings in, nor plan to have any dealings in, derivatives or other financial instruments, and does not carry on business which makes it specifically sensitive to currency exchange variations. If and when
48
the Company borrows money it will have to consider the interest rates that would then be applicable to it.
(b)
As the Company is only still in a “start-up” mode and has undertaken no business activities or the sale of its products or services, it is not in a position to do any quantitative analysis of either general risk factors applicable to it or risk factors applicable to its potential markets.
(c)
The Company has identified risk factors that are applicable to it, which are described in Item 3.D above.
Item 12.
Description of Securities Other than Equity Securities
The Company is not, by this Statement, registering any debt securities or other securities – other than its voting common shares.
PART II
Item 13.
Defaults, Dividend Arrears and Delinquencies
(a)
The Company has not committed any default in the payment of any principal, interest, sinking or purchase fund installment, or any other indebtedness.
(b)
As the Company has never declared any dividends it is not in arrears with respect to the payment of dividends, nor is it in any deficiency with respect to any rights or obligations outstanding with respect to its issued shares.
Item 14.
Material Modifications to the Rights of Security Holders and Use of
Nil
Item 15.
Controls and Procedures
(a)
Evaluation of disclosure controls and procedures.
The Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of December 31, 2007, pursuant to the certification requirements of Canadian Multilateral Instrument 52-109 and the requirements of the SEC.
The CEO and CFO concluded, based on their evaluation, and because the original version of this 20-F Annual Report did not contain Management’s annual report on internal control over financial reporting, that the Company’s disclosure controls and procedures were not effective as of December 31, 2007. After communicating with SEC staff, Management engaged the services of additional outside advisors to obtain more specific and detailed advice as to the requirements for disclosure controls and procedures. Management believes that the Company now has in place, as of the date of filing this Amendment, effective disclosure controls and procedures.
The Company has a Disclosure Committee consisting of three Directors, and has disclosure controls and procedures which it follows in an attempt to ensure that it complies with all required disclosures on an adequate and timely basis. The Company’s Directors and Management, and the Disclosure Committee, are making all reasonable efforts to ensure that the Company’s disclosures are made in full compliance with the applicable rules and requirements. All reasonable efforts are also being made to ensure that the Company’s disclosure controls and procedures provide reasonable assurance that the material information relating to the Company, including its consolidated subsidiaries, is made known
49
to the Company’s Certifying Officers by others within those entities and to allow timely decisions regarding required disclosures.
(b)
Management’s annual report on internal control over financial reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting by the Company. The Company’s internal control over financial reporting is a process designed 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. The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) 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 company are being made on ly in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, and that the degree of compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007 based on the criteria established in “Internal Control - Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and by the use of external consulting experts. Based on such assessment and criteria, management has concluded that control weaknesses exist due to lack of segregation of duties and controls over submission of filings with the SEC. However, Management has concluded that the weaknesses identified are not material and that the internal controls over financial reporting that are in place were effective as of December 31, 2007. Management’s conclusion is based on its determination that the noted weaknesses do not create a reasonable possibility that material misstatements in financial statements will not be prevented or detected on a timely basis.
(c)
Attestation Report of registered public accounting firm
This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only Management’s report in this Annual Report.
(d)
Changes in internal controls over financial reporting. There were no significant changes in the Company’s internal controls over financial reporting identified in connection with the evaluation required by paragraph (d) of 17 CFR 240.13a-15 or 240.15d-15 that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting. See also the information given in section 5A with respect to critical accounting policies.
Item 16A.
Audit Committee financial expert
(a)
The registrant’s board of directors has determined that the registrant has at least one audit committee financial expert serving on its audit committee.
50
(b)
The financial expert serving on the audit committee is Mr. Robin M. Merrifield.
Item 16B.
Code of Ethics
The Company has not adopted a Code of Ethics. It has not considered a Code of Ethics necessary due to the small size of its exploration activities and financing – and the small number of persons comprising its Board and Management.
Item 16C.
Principal Accountant Fees and Services
(a)
For 2007 the Company’s auditor’s fees were $34,600. The auditor’s fees for 2006 were $13,750.
(b)
Nil.
(c)
Nil.
(d)
Nil.
(e)
Prior to the start of the audit process, the Company’s audit committee receives an estimate of the costs from its auditors and reviews such costs for their reasonableness. After their review and pre-approval of the fees, the audit committee recommend to the board of directors to accept the estimated audit fees given by the auditors.
(f)
Not applicable.
Item 16D.
Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The Company has never repurchased any of its issued securities.
PART III
Item 17.
Financial Statements
The financial statements of the Company which are furnished and attached hereto are prepared according to Canadian Generally Accepted Accounting Principles and in the Accountant’s Report attached thereto, and in the Notes thereto, reference is made to the material variations in accounting principles, practices and methods used in preparing financial statements pursuant to Canadian Generally Accepted Accounting Principles in comparison to United States Generally Accepted Accounting Principles.
51
Item 18.
Financial Statements and Exhibits
Index of Exhibits attached: Financial Statements audited as at December 31, 2007 - with comparative figures for 2006 and 2005 attached. The Statements include U.S. oriented Comments by the Auditors and Note 13 dealing with U.S. Generally Accepted Accounting Principles.
SIGNATURE
The registrant 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 registration statement on its behalf.
ACREX VENTURES LTD.
“Carl R. Jonsson”
Carl R. Jonsson,
Secretary and Chief Financial Officer
Date:
September 30, 2008
The following exhibits are attached to and form part of this Annual Report
Exhibit Index
Exhibit Nos. |
|
Exhibit 12 | Certifications by Company Chief Executive Officer and Chief Financial Officer |
Exhibit 13(a) | Certifications pursuant to Sarbanes-Oxley Act of 2002 |
52
EXHIBIT 12
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, T.J. Malcolm Powell , certify that:
1.
I have reviewed this amended annual report on Form 20-F of Acrex Ventures Ltd. (the “Company”).
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4.
The Company’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the Company, and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c.
Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is likely to materially affect, the company’s internal control over financial reporting; and
5.
The Company’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the Audit Committee of the Company’s Board of Directors (or persons performing the equivalent function);
a.
All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
b.
Any, fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.
Date:
September 30, 2008
(signed)T.J. Malcolm Powell
President and Chief
Executive Officer
53
EXHIBIT 12
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Carl R. Jonsson,certify that:
1.
I have reviewed this amended annual report on Form 20-F of Acrex Ventures Ltd. (the “Company”).
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
The Company’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the Company, and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c.
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is likely to materially affect, the Company’s internal control over financial reporting; and
5.
The Company’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent function);
a.
All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
b.
Any, fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.
Date: September 30, 2008
(signed) Carl R Jonsson
Vice- President Finance and Chief
Financial Officer
54
Exhibit 13(a)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the amended Annual Report on Form 20-F of Acrex Ventures Ltd. (the “Company”) for the year ended December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), that I, T.J. Malcolm Powell , President and Chief Executive Officer of the Company, certify, pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code 18 U.S.C.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1.
The Report fully complies with the requirements of Rule 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Report.
By:
(signed)T.J. Malcolm Powell
T.J. Malcolm Powell, President and Chief Executive Officer
Acrex Ventures Ltd.
Date:
September 30, 2008
A signed original of this written statement required by Section 906 has been provided by T.J. Malcolm Powell and will be retained by Acrex Ventures Ltd. and furnished to the Securities and Exchange Commission or its staff upon request.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the amended Annual Report on Form 20-F of Acrex Ventures Ltd. (the “Company”) for the year ended December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), that I, Carl R. Jonsson, Chief Financial Officer of the Company, certify, pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code 18 U.S.C.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
1
The Report fully complies with the requirements of Rule 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Report.
By: (signed)Carl R. Jonsson
Carl R. Jonsson, Chief Financial Officer
Acrex Ventures Ltd.
Date:
September 30, 2008
A signed original of this written statement required by Section 906 has been provided by Carl R. Jonsson and will be retained by Acrex Ventures Ltd. and furnished to the Securities and Exchange Commission or its staff upon request.
55
FINANCIAL STATEMENTS
ACREX VENTURES LTD.
(An Exploration Stage Company)
VANCOUVER, BRITISH COLUMBIA, CANADA
December 31, 2007, 2006 and 2005
1. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
2. BALANCE SHEETS
3. STATEMENTS OF OPERATIONS AND DEFICIT
4. STATEMENTS OF STOCKHOLDERS' EQUITY
5. STATEMENTS OF CASH FLOWS
6. NOTES TO FINANCIAL STATEMENTS
BDO Dunwoody LLP Chartered Accountants | #604 – 750 West Pender Street Vancouver, BC, Canada V6C 2T7 | |
Telephone: (604) 689-0188 Fax: (604) 689-9773 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of
Acrex Ventures Ltd.
(An Exploration Stage Company)
We have audited the balance sheets of Acrex Ventures Ltd. (An Exploration Stage Company) as at December 31, 2007 and 2006 and the statements of operations and deficit, cash flows and stockholders’ equity for the years ended December 31, 2007, 2006 and 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2007 and 2006 and the results of its operations and its cash flows for the years ended December 31, 2007, 2006 and 2005 in accordance with Canadian generally accepted accounting principles.
(signed) (BDO Dunwoody LLP”
Chartered Accountants |
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Vancouver, Canada |
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April 4, 2008 |
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COMMENTS BY AUDITOR FOR U.S. READERS ON CANADA – U.S. REPORTING DIFFERENCES
In the United States of America, reporting standards for auditors under Public Company Accounting Oversight Board (United States) require the addition of an explanatory paragraph (following the opinion paragraph) when there is substantial doubt about a company’s ability to continue as a going concern. The accompanying financial statements have been prepared on the basis of accounting principles applicable to a going concern which assumes the realization of assets and discharge of liabilities in the normal course of business. As discussed in Note 1 to the accompanying financial statements, the Company is in the exploration stage, has not yet achieved profitable operations, has substantial accumulated losses since its inception and expects to incur further losses which raises substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not i nclude any adjustments that might result from the outcome of these uncertainties. PCAOB reporting standards also require the addition of an explanatory paragraph when changes in accounting policies, such as those described in Note 3, have a material effect on the financial statements.
Our report to the shareholders dated April 4, 2008 is expressed in accordance with Canadian reporting standards which do not permit a reference to such uncertainty in the auditors’ report when the uncertainty is adequately disclosed in the financial statements.
(signed) “BDO Dunwoody LLP”
Chartered Accountants |
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Vancouver, Canada |
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April 4, 2008 |
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BDODunwoodyLLPisa LimitedLiabilityPartnershipregistered in Ontario
1
ACREX Ventures Ltd.
(An Exploration Stage Company)
BALANCE SHEETS
December 31, 2007 and 2006
Expressed in Canadian dollars
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| 2006 |
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ASSETS |
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Current |
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Cash and cash equivalents (Note 8) | $ | 1,987,393 | $ | 662,965 |
Marketable securities (Note 3) |
| 15,535 |
| 16,000 |
Other receivables |
| 63,420 |
| 42,420 |
Deposit and prepaid expenses |
| – |
| 4,007 |
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Total current assets |
| 2,066,348 |
| 725,392 |
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Mineral properties (Notes 4 and 7) |
| 2,405,492 |
| 1,708,459 |
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Total assets | $ | 4,471,840 | $ | 2,433,851 |
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LIABILITIES |
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Current |
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Accounts payable and accrued expenses | $ | 32,270 | $ | 17,992 |
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STOCKHOLDERS' EQUITY |
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Share capital (Notes 5 and 9) |
| 9,275,791 |
| 7,019,882 |
Contributed surplus (Note 6) |
| 656,080 |
| 219,054 |
Deficit |
| (5,492,301) |
| (4,823,077) |
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Total stockholders' equity |
| 4,439,570 |
| 2,415,859 |
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Total liabilities and stockholders' equity | $ | 4,471,840 | $ | 2,433,851 |
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Nature of Operations and Ability to Continue as a Going Concern (Note 1)
Commitments (Notes 4, 5, 7, 8 and 9)
Subsequent Events (Note 11)
APPROVED ON BEHALF OF THE BOARD:
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“T.J. Malcolm Powell” | Director |
| “Carl R. Jonsson” | Director |
T.J. Malcolm Powell |
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| Carl R. Jonsson |
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SEE ACCOMPANY NOTES2
ACREX Ventures Ltd.
(An Exploration Stage Company)
STATEMENTS OF OPERATIONS AND DEFICIT
Years ended December 31, 2007, 2006 and 2005
Expressed in Canadian dollars
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| 2007 |
| 2006 |
| 2005 |
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EXPENSES |
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Directors fees - stock-based compensation (Note 7) | $ | 222,142 | $ | – | $ | 73,884 |
Management fees (Note 9) |
| 138,000 |
| 138,000 |
| 138,000 |
Consulting |
| 12,640 |
| 21,575 |
| 400 |
Investor relations (Note 7) |
| 120,646 |
| 127,849 |
| 61,419 |
Office and general (Note 9) |
| 44,288 |
| 51,593 |
| 37,102 |
Accounting |
| 60,595 |
| 31,250 |
| 33,630 |
Promotion and travel |
| 36,585 |
| 68,038 |
| 41,785 |
Legal (Note 9) |
| 34,392 |
| 34,914 |
| 53,802 |
Advertising |
| 15,599 |
| 30,007 |
| 23,432 |
Transfer agent fees |
| 12,724 |
| 10,936 |
| 9,151 |
Filing fees |
| 7,928 |
| 24,259 |
| 23,065 |
Rent (Note 9) |
| 4,680 |
| 13,380 |
| 10,680 |
Insurance |
| 2,300 |
| 2,500 |
| 2,500 |
Gain on sale of interest in mineral property |
| – |
| – |
| (94,999) |
Loss on termination of mineral property option |
| – |
| 15,429 |
| 97,383 |
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Loss before other items |
| (712,519) |
| (569,730) |
| (511,234) |
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OTHER ITEMS |
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Interest income |
| 43,760 |
| 38,370 |
| 9,444 |
Unrealized loss on marketable securities (Note 3) |
| (465) |
| – |
| (30,500) |
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| 43,295 |
| 38,370 |
| (21,056) |
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Loss before income taxes |
| (669,224) |
| (531,360) |
| (532,290) |
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Future income tax recovery |
| - |
| – |
| 22,263 |
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NET AND COMPREHENSIVE LOSS FOR THE YEAR |
| (669,224) |
| (531,360) |
| (510,027) |
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DEFICIT, BEGINNING OF YEAR |
| (4,823,077) |
| (4,291,717) |
| (3,781,690) |
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DEFICIT, END OF YEAR | $ | (5,492,301) | $ | (4,823,077) | $ | (4,291,717) |
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NET LOSS PER SHARE – BASIC AND DILUTED | $ | (0.02) | $ | (0.02) | $ | (0.03) |
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WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING |
| 32,161,073 |
| 24,484,995 |
| 17,585,434 |
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SEE ACCOMPANY NOTES3
ACREX Ventures Ltd.
(An Exploration Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 2007, 2006 and 2005
Expressed in Canadian dollars
| Common Stock |
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| Accumulated |
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| Shares |
| Amount |
| Surplus |
| Deficit |
| Total |
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Balance, December 31, 2004 | 13,417,616 | $ | 4,931,283 | $ | 112,000 | $ | (3,781,690) | $ | 1,261,593 |
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2005 |
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Common stock issued for: |
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Cash (net of issue costs) | 6,587,500 |
| 736,568 |
| – |
| – |
| 736,568 |
Mineral properties | 100,000 |
| 14,000 |
| – |
| – |
| 14,000 |
Finance fee | 10,875 |
| 1,631 |
| – |
| – |
| 1,631 |
Agents' options and warrants | – |
| (31,513) |
| 31,513 |
| – |
| – |
Future income taxes on expenditures renounced to shareholders | – |
| (22,263) |
| – |
| – |
| (22,263) |
Stock-based compensation | – |
| – |
| 73,884 |
| – |
| 73,884 |
Net loss | – |
| – |
| – |
| (510,027) |
| (510,027) |
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Balance, December 31, 2005 | 20,115,991 |
| 5,629,706 |
| 217,397 |
| (4,291,717) |
| 1,555,386 |
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2006 |
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Common stock issued for: |
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Private placements | 3,000,000 |
| 705,000 |
| – |
| – |
| 705,000 |
Mineral properties | 50,000 |
| 17,000 |
| – |
| – |
| 17,000 |
Options | 663,630 |
| 79,636 |
| – |
| – |
| 79,636 |
Warrants | 3,079,315 |
| 550,988 |
| – |
| – |
| 550,988 |
Agents' options and warrants |
| 37,552 |
| (37,552) |
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Stock-based compensation | – |
| – |
| 39,209 |
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| 39,209 | |
Net loss | – |
| – |
| – |
| (531,360) |
| (531,360) |
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Balance, December 31, 2006 | 26,908,936 |
| 7,019,882 |
| 219,054 |
| (4,823,077) |
| 2,415,859 |
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2007 |
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Common stock issued for: |
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Private placements | 12,800,000 |
| 2,504,000 |
| – |
| – |
| 2,504,000 |
Mineral properties | 250,000 |
| 48,000 |
| – |
| – |
| 48,000 |
Agents’ fees | 551,511 |
| 123,378 |
| – |
| – |
| 123,378 |
Share issuance costs | – |
| (260,237) |
| – |
| – |
| (260,237) |
Agent’s options and warrants |
| (159,232) |
| 159,232 |
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Stock-based compensation | – |
| – |
| 277,794 |
| – |
| 277,794 |
Net loss | – |
| – |
| – |
| (669,224) |
| (669,224) |
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Balance, December 31, 2007 | 40,510,447 | $ | 9,275,791 | $ | 656,080 | $ | (5,492,301) | $ | 4,439,570 |
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SEE ACCOMPANY NOTES4
ACREX Ventures Ltd.
(An Exploration Stage Company)
STATEMENTS OF CASH FLOWS
Years ended December 31, 2007, 2006 and 2005
Expressed in Canadian dollars
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| 2007 |
| 2006 |
| 2005 |
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OPERATIONS |
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Net loss for the year | $ | (669,224) | $ | (531,360) | $ | (510,027) |
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Add (deduct) items not involving cash: |
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Loss on termination of mineral property option |
| – |
| 15,429 |
| 97,383 |
Unrealized loss on marketable securities |
| 465 |
| – |
| 30,500 |
Stock-based compensation |
| 245,117 |
| 39,209 |
| 73,884 |
Future income tax recovery |
| – |
| – |
| (22,263) |
Gain on sale of interest in mineral property |
| – |
| – |
| (94,999) |
Changes in non-cash working capital balances: |
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Other receivables |
| (21,000) |
| (30,753) |
| 4,563 |
Deposits and prepaid expenses |
| 4,007 |
| (4,007) |
| – |
Accounts payable and accrued expenses |
| 14,278 |
| (15,314) |
| (21,406) |
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CASH USED IN OPERATIONS |
| (426,357) |
| (526,796) |
| (442,365) |
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FINANCING |
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Shares issued |
| 2,367,141 |
| 1,335,624 |
| 738,199 |
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CASH PROVIDED BY FINANCING |
| 2,367,141 |
| 1,335,624 |
| 738,199 |
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INVESTING |
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Proceeds on sale of mineral property |
| – |
| – |
| 65,000 |
Increase in mineral properties |
| (616,356) |
| (554,195) |
| (181,733) |
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CASH USED IN INVESTING |
| (616,356) |
| (554,195) |
| (116,733) |
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INCREASE IN CASH |
| 1,324,428 |
| 254,633 |
| 179,101 |
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CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |
| 662,965 |
| 408,332 |
| 229,231 |
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CASH AND CASH EQUIVALENTS, END OF YEAR | $ | 1,987,393 | $ | 662,965 | $ | 408,332 |
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SUPPLEMENTAL CASH FLOW INFORMATION |
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Cash paid during the year for interest | $ | – | $ | – | $ | – |
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Cash paid during the year for income taxes | $ | – | $ | – | $ | – |
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Non-cash Transactions (Note 10)
SEE ACCOMPANY NOTES5
ACREX VENTURES LTD.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2007, 2006 and 2005
Expressed in Canadian dollars
1. NATURE OF OPERATIONS
ACREX Ventures Ltd., incorporated in British Columbia, is a public company listed on the TSX Venture Exchange ("TSX") in Canada and on the NASD over-the-counter Bulletin Board ("OTCBB") in the U.S.
The Company is in the exploration stage and its principal business activity is the sourcing and exploration of mineral properties in Canada.
At December 31, 2007 the Company was in the process of exploring its principal mineral properties and has not yet determined whether the properties contain ore reserves that are economically recoverable. The recoverability of amounts shown for mineral properties and related deferred exploration costs is dependent upon the discovery of economically recoverable reserves, confirmation of the Company's interest in the underlying mineral claims, the ability of the Company to obtain necessary financing to complete the development and upon future profitable production or proceeds from the disposition thereof.
These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern prepared on a going concern basis, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal year. Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. At December 31, 2007, the Company had not yet achieved profitable operations, has accumulated loss es of $5,492,301 since its inception and expects to incur further losses in the development of its business, all of which casts substantial doubt about the Company’s ability to continue as a going concern. Management has no formal plan in place to address this concern but considers that the Company will be able to obtain additional funds by equity financing and/or related party advances, however there is no assurance of additional funding being available.
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in Canada and, except as described in Note 13, conform in all material respects with accounting principles generally accepted in the United States of America. Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates which have been made using careful judgement. Actual results may differ from these estimates.
The financial statements have, in management's opinion, been properly prepared within reasonable limits of materiality and within the framework of the significant accounting policies summarized below:
Cash and cash equivalents -Include cash on deposit with banks or highly liquid short-term interest bearing securities that are readily convertible to known amounts of cash and those that have maturities of three months or less when acquired and which are subject to an insignificant risk of changes in value.
Mineral properties - The Company accounts for mineral property costs in accordance with the Canadian Institute of Chartered Accountants Handbook Section 3061, “Property, plant and equipment” (“CICA 3061”), and abstract EIC-126, “Accounting by Mining Enterprises for Exploration Costs” (“EIC-126”) of the Emerging Issues Committee. CICA 3061 provides for the capitalization of the acquisition and exploration costs of a mining property where such costs are considered to have the characteristics of property, plant and equipment. EIC-126 provides that a mining enterprise is not precluded from considering exploration costs to have the characteristics of property, plant and equipment when it has not established mineral reserves objectively and therefore does not have a basis for preparing a projection of the estimated future net cash flow from the property.
ACREX VENTURES LTD.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2007, 2006 and 2005
Expressed in Canadian dollars
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Mineral properties (continued)
Mineral property costs include initial acquisition costs and related option payments, which are recognized when paid. Exploration and development costs are capitalized until properties are brought into production, when costs are amortized on a unit-of-production basis over economically recoverable reserves. Option payments are credited against mineral property costs when received. No gain or loss on disposition of a partial interest is recorded until all carrying costs of the interest have been offset by proceeds of sale or option payments received.
CICA 3061 also provides that property, plant and equipment be written down when the long-term expectation is that the net carrying amount will not be recovered. EIC-126 states that a mining enterprise which has not objectively established mineral reserves and therefore does not have a basis for preparing a projection of the estimated future cash flow from a property is not obliged to conclude that the capitalized costs have been impaired. However, EIC-126 references certain conditions that should be considered in determining subsequent write-downs, such as changes or abandonment of a work program or poor exploration results, and management reviews such conditions to determine whether a write-down of capitalized costs is required. When the carrying value of a property exceeds its net recoverable amount, provision is made for the impairment in value.
Accounting standards subsequently issued by the Canadian Institute of Chartered Accountants (“CICA”) dealing with Intangible Assets (CICA 1581 and CICA 3062) include reference to “Use rights such as drilling, water, air, mineral, timber cutting, and route authorities” as examples of intangible assets. CICA 3062 also states,inter alia, that intangible assets should be amortized over their useful life and tested for impairment. Management has reviewed this potential reporting conflict with the previously issued standards and is of the opinion that it is appropriately accounting for its mineral properties as having the characteristics of property, plant and equipment.
The Company is an exploration stage company as defined in Accounting Guidelines No. 11 (“AcG 11”). The Company is devoting its present efforts to exploring and developing its mineral properties and none of its planned principal operations have commenced. All losses accumulated since inception have been considered as part of the Company's exploration stage activities.
Property Option Agreements- Property options payments are recorded as resource property costs or recoveries when the payments are made or received, respectively. Where the Company has entered into option agreements to acquire interests in mineral properties that provide for periodic payments or periodic share issuances, amounts unpaid and un-issued are not recorded as liabilities since they are payable and issuable entirely at the Company’s option. Option payments are recorded as mineral property costs when the payments are made and the share issuances are recorded as mineral property costs using the fair market value of the Company’s common shares at the date the counterparty’s performance is complete or the issuance date, whichever is more determinable
Asset Retirement Obligations - The fair value of obligations associated with the retirement of tangible long-lived assets are recorded in the period the asset is put into use, with a corresponding increase to the carrying amount of the related asset. The obligations recognized are statutory, contractual or legal obligations. The liability is accreted over time for changes in the fair value of the liability through charges to accretion, which is included in depletion, depreciation and accretion expense. The costs capitalized to the related assets are amortized in a manner consistent with the depletion and depreciation of the related asset. The Company, where possible, has estimated asset retirement obligations based on current best practice. These estimates, made by management, are subject to change as a result of change in regulations, the extent of environmental remediation required, the means of reclamation, or cost estimates. Changes in es timates are accounted for prospectively from the period the estimate is revised. At December 31, 2007, the fair value of the mineral properties’ site restoration costs are not significant.
ACREX VENTURES LTD.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2007, 2006 and 2005
Expressed in Canadian dollars
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock-based compensation - The Company has a stock option plan which is described in Note 7. The Company follows the recommendations of CICA Handbook Section 3870, "Stock-Based Compensation and Other Stock-Based Payments", which provides standards for the recognition, measurement and disclosure of stock-based compensation and other stock-based payments made in exchange for goods and services. In accordance with these recommendations, the Company measures stock based compensation at the measurement date, based on the estimated fair value of the award over the requisite service period or the period the options are earned. For non-employee options, options are re-valued at each balance sheet date. Agents’ options and warrants issued in connection with common share placements are recorded at their fair value on the date of issue as share issuance costs. On the exercise of stock options and agents’ options and warrants, share capital is credited for consideration received and for fair value amounts previously credited to contributed surplus. The Company uses the Black-Scholes option pricing model to estimate the fair value of stock-based compensation.
Loss per share - Basic loss per share is computed by dividing earnings available to common shareholders by the weighted average number of common shares outstanding during the year. Diluted earnings per share reflect the potential dilution of securities that could share in earnings of an entity. In a loss year, potentially dilutive common shares are excluded from the loss per share calculation as the effect would be anti-dilutive. Basic and diluted loss per share are the same for the years presented.
For the years ended December 31, 2007, 2006 and 2005 the existence of warrants and options affects the calculation of loss per share on a diluted basis. As the effect of this dilution is to reduce the reported loss per share, these potentially dilutive common shares were not included in the computation of loss per share for the years presented.
Income taxes - Future income taxes relate to the expected future tax consequences of differences between the carrying amount of balance sheet items and their corresponding tax values. Future income tax assets, if any, are recognized only to the extent that, in the opinion of management, it is more likely-than-not that future income tax assets will be realized. Future income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates at the date of enactment or substantive enactment. A valuation allowance is recorded to the extent that future assets are more likely than not to be realized.
Flow-through shares - The Company has financed a portion of its exploration activities through the issuance of flow-through shares. Under the terms of the flow-through share agreements, the tax attributes of the related exploration expenditures are renounced to subscribers. To recognize the foregone tax benefits to the Company, the carrying value of the shares issued is reduced by the tax effect of the tax benefits renounced to subscribers.
The Company follows the recommendations of the EIC of CICA with respect to flow-through shares, as outlined in EIC-146 “Flow-through Shares”. The application of EIC-146 requires the recognition of the future income tax liability related to the foregone tax benefit on the date the Company renounces the tax credits associated with the exploration expenditures, provided there is reasonable assurance that the expenditures will be made.
Mining tax credits –Mining tax credits are recorded in the accounts when there is reasonable assurance that the Company has complied with, and will continue to comply with, all conditions needed to obtain the credits. These non-repayable mining tax credits are earned in respect to exploration costs incurred in British Columbia, Canada and are recorded as a reduction of the related deferred exploration expenditures.
Use of estimates - The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses for the years reported. Significant areas requiring the use of management estimates include the determination of the recoverability of mineral property deferred costs, asset retirement obligations, future income tax assets and liabilities and assumptions used in valuing options and warrants in stock-based compensation calculations. Actual results could differ from these estimates.
ACREX VENTURES LTD.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2007, 2006 and 2005
Expressed in Canadian dollars
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent accounting pronouncements - The CICA has issued the following new Handbook sections which are effective for interim and financial statements for the Company’s reporting period beginning on January 1, 2008:
Section 3862 - Financial Instruments — Disclosures, describes the required disclosure for the assessment of the significance of financial instruments for an entity’s financial position and performance and of the nature and extent of risks arising from financial instruments to which the entity is exposed and how the entity manages those risks. The Company does not expect that the adoption of this new section will have a significant effect on its financial statements.
Section 3863 - Financial Instruments — Presentation, establishes standards for presentation of the financial instruments and non-financial derivatives. It carries forward the presentation related requirements of Section 3861 ‘Financial Instruments — Disclosure and Presentation”. The Company does not expect that the adoption of this new section will have a significant effect on its financial statements.
Section 1535 - Capital Disclosures, establishes standards for disclosing information about an entity’s capital and how it is managed. It describes the disclosure of the entity’s objectives, policies and processes for managing capital, the quantitative data about what the entity regards as capital, whether the entity has complied with any capital requirements, and, if it has not complied, the consequences of such non-compliance. The Company is currently evaluating the impact of the adoption of this new section.
Section 3031 – Inventories - Replaces Section 3030 and harmonizes the Canadian standard related to inventories with International Financial Reporting Standards. This Section provides more extensive guidance on the determination of cost, including allocation of overhead; narrows the permitted cost formulas; requires impairment testing; and expands the disclosure requirements to increase transparency. This Section applies to interim and annual financial statements relating to fiscal years beginning on or after January 1, 2008, and is not expected to have a material impact on the Company’s financial statements
International Financial Reporting Standard -“IFRS” - The CICA plans to converge Canadian Generally Accepted Accounting Principles with International Financial Reporting Standards ("IFRS") over a transition period expected to end in 2011. The impact of the transition to IFRS on the Company's financial statements has yet to be determined.
3. CHANGES IN ACCOUNTING POLICIES
In July 2006, the CICA revised Section 1506 “Accounting Changes” which requires that (1) voluntary changes in accounting policy are made only if they result in the financial statements providing reliable and more relevant information; (2) changes in accounting policy are generally applied retrospectively; and (3) prior period errors are corrected retrospectively. Section 1506 is effective for fiscal years beginning on or after January 1, 2007. The implementation of this guidance did not have a material impact on the Company’s financial statements.
Effective on January 1, 2007, the Company adopted the recommendations of CICA Handbook Section 1530 - Comprehensive Income (“Section 1530”), Section 3855 - Financial Instruments - Recognition and Measurement (“Section 3855”) and Section 3865 – Hedges (“Section 3865”). These sections provide standards for recognition, measurement, disclosure and presentation of financial assets, financial liabilities and derivatives financial instruments. Under the new standards, policies followed for periods prior to the effective date generally are not reversed and therefore, the comparative figures have not been restated.
Section 1530 provides standards for the reporting and presentation of comprehensive income, which represents the change in equity from transactions and other events and circumstances from non-owner sources. Other comprehensive income refers to items recognized in comprehensive income that are excluded from net income calculated in accordance with Canadian GAAP.
ACREX VENTURES LTD.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2007, 2006 and 2005
Expressed in Canadian dollars
3. CHANGES IN ACCOUNTING POLICIES (continued)
Under Section 3855, financial instruments must be classified into one of these five categories: held-for trading, held-to-maturity, loans and receivables, available-for sale financial assets or other financial liabilities.
Section 3865 specifies the criteria under which hedge accounting can be applied and how hedge accounting may be executed. The Company has not designated any hedging relationships.
All financial instruments, including derivatives, are recognized at fair value on their initial recognition, except for those arising from certain related party transactions which are accounted for at the transferor’s carrying amount or exchange amount in accordance with the Canadian Institute of Chartered Accountant Handbook Section 3840 - Related Party Transactions. Subsequent measurement and changes in fair value will depend on their initial classification, as follows: held-for trading financial assets are measured at fair value and changes in fair value are recognized in net income; available-for-sale financial instruments are measured at fair value with changes in fair value recorded in other comprehensive income until the investment is derecognized or impaired at which time the amounts would be recorded in net income; financial assets classified as held-to-maturity, loans and receivables, and financial liabilities other than those classified as held-for tr ading are measured at amortized cost, using the effective interest method of amortization. This new section also requires that transaction costs incurred in connection with the issuance of financial instruments either be capitalized and presented as a reduction of the carrying value of the related financial instrument or expensed as incurred. If capitalized, transaction costs must be amortized to income using the effective interest method. This section does not permit the restatement of financial statements of prior periods.
Upon adoption of these new standards, the Company designated its financial instruments to these five categories as follows:
Cash and cash equivalents | held-for- trading |
Marketable securities | held-for- trading |
Accounts payable | other financial liabilities |
On January 1, 2007, the Company designated its marketable securities as held-for-trading. As of December 31, 2007, the fair value of the marketable securities was $15,535. This classification resulted in a loss in market value of $465 that was recorded to the statement of operations and deficit.
In addition, the Company has elected to account for transaction costs related to the issuance of financial instruments as a reduction of the carrying value of the related financial instruments. The Company did not have any available for sale financial assets, held to maturity instruments and outstanding contracts with embedded derivatives at December 31, 2007.
The adoption of this new section did not result in any significant adjustments to the carrying values of the Company’s previously recognized financial assets and liabilities at January 1, 2007. The adoption of these Handbook Sections had no impact on opening deficit.
As at December 31, 2007, the Company’s financial instruments consist of cash and cash equivalents, other receivables, marketable securities and accounts payables. The fair values of these financial instruments are their carrying values because of their current nature, except for marketable securities which are measured at fair value on each balance sheet date. The Company is not exposed to derivative financial instruments. It is management’s opinion that the Company is not exposed to significant interest risks arising from its financial instruments and their fair values approximate their carrying values.
Financial instruments that potentially subject the Company to concentration of credit risks consist principally of cash and cash equivalents. To minimize the credit risk the Company places these instruments with high credit quality financial institutions.
ACREX VENTURES LTD.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2007, 2006 and 2005
Expressed in Canadian dollars
4. MINERAL PROPERTIES
December 31, 2006: |
| Michaud |
| Spanish Mountain |
| Nachako Finger Lake |
| Total |
|
|
|
|
|
|
|
|
|
Acquisition costs |
|
|
|
|
|
|
|
|
Balance, beginning of year | $ | 25,000 | $ | 10,500 | $ | – | $ | 35,500 |
Option payments |
| 50,000 |
| 32,748 |
| 9,781 |
| 92,529 |
Less: termination of |
|
|
|
| ||||
Mineral property option |
| – |
| – |
| (9,781) |
| (9,781) |
|
|
|
|
| ||||
Balance, end of year |
| 75,000 |
| 43,248 |
| – |
| 118,248 |
|
|
|
|
| ||||
Exploration costs |
|
|
|
| ||||
Balance, beginning of year |
| 1,101,538 |
| 15,655 |
| – |
| 1,117,193 |
Drilling |
| 50,003 |
| 254,416 |
| – |
| 304,419 |
Assays |
| 2,535 |
| 72,387 |
| 1,570 |
| 76,492 |
Other |
| – |
| 39,489 |
| 376 |
| 39,865 |
Consulting |
| 7,370 |
| 18,675 |
| 2,200 |
| 28,245 |
Vehicles |
| – |
|
| 1,502 |
| 11,438 | |
Support |
| 7,866 |
| 9,936 |
| – |
| 7,866 |
Security deposit |
| – |
| 3,500 |
| – |
| 3,500 |
Lodging |
| – |
| 6,841 |
| – |
| 6,841 |
Less: termination of |
|
|
|
| ||||
Mineral property option |
|
| – |
| (5,648) |
| (5,648) | |
|
|
|
|
| ||||
Balance, end of year |
| 1,169,312 |
| 420,899 |
| – |
| 1,590,211 |
|
|
|
|
| ||||
| $ | 1,244,312 | $ | 464,147 | $ | – | $ | 1,708,459 |
December 31, 2007: |
| Michaud |
| Spanish Mountain |
| Total |
|
|
|
|
|
|
|
Acquisition costs |
|
|
|
|
|
|
Balance, beginning of year | $ | 75,000 | $ | 43,248 | $ | 118,248 |
Option payments |
| – |
| 79,586 |
| 79,586 |
|
|
|
| |||
Balance, end of year |
| 75,000 |
| 122,834 |
| 197,834 |
|
|
|
| |||
Exploration costs |
|
|
| |||
Balance, beginning of year |
| 1,169,312 |
| 420,899 |
| 1,590,211 |
Drilling |
| 60,684 |
| 256,412 |
| 317,096 |
Surveying and line-cutting |
| – |
| 135,526 |
| 135,526 |
Assays |
| – |
| 16,458 |
| 16,458 |
Consulting (Note 7) |
| 13,477 |
| 67,736 |
| 81,213 |
Support |
| 6,854 |
| - |
| 6,854 |
Security deposit |
| – |
| 3,500 |
| 3,500 |
Other |
| – |
| 56,800 |
| 56,800 |
|
|
|
| |||
Balance, end of year |
| 1,250,327 |
| 957,331 |
| 2,207,658 |
|
|
|
| |||
| $ | 1,325,327 | $ | 1,080,165 | $ | 2,405,492 |
ACREX VENTURES LTD.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2007, 2006 and 2005
Expressed in Canadian dollars
4. MINERAL PROPERTIES (continued)
Michaud gold claims, Ontario, Canada - Pursuant to an Agreement dated September 1, 2001 and amended January 17, 2003 and February 17, 2004 (“Agreement”) with Moneta Porcupine Mines Inc. (“Moneta”), the Company acquired an option to earn interests in 65 mineral claims in the Michaud Township, Ontario, Canada (the “Property”). The Property is divided into two areas.
Pursuant to the Agreement the Company could have earned a 60% interest in the first area by expending a minimum of $1,000,000 on exploration of the area by May 15, 2005 and completing a bankable feasibility study on the area by May 15, 2007. The Company was required to give notice to Moneta by December 31, 2004 of its intention to conduct further exploration on this area. The notice was not provided and as a result the Company lost all of its rights to earn any interest in the first area.
During 2004 the Company fulfilled the requirements to earn a 50% interest in the second area. On November 26, 2004, the Company entered into a Joint Venture Agreement with Moneta to engage in the exploration, development and mining of the second area. The agreement also includes terms for the acquisition of additional mining or mineral claims or other real property interests within the area of interest.
The Agreement also includes terms for the acquisition of additional mineral claims within the area of interest. Pursuant to these provisions, the Company agreed with Moneta to acquire 50% of the net 75% interest (i.e. a net 37.5% interest) in three adjoining mineral claims known to the parties as the Dyment Claims - which cover approximately 48 hectares. The Company paid $50,000 to reimburse Moneta for its costs of the original acquisition of interests in the Dyment Claims.
Spanish Mountain claims, British Columbia, Canada- On July 23, 2005, the Company entered into an Option Agreement (the "Agreement") to acquire a 100% interest in the Spanish Mountain property, consisting of 8 mineral claims covering approximately 1,350 hectares located near Likely in Northeastern British Columbia, Canada.
Acrex may earn the interest by making certain cash payments and issuing shares to the Optionor as follows:
|
| Cash |
| Share |
Due Date |
| Payment |
| Issuance |
|
|
|
|
|
July 25, 2005 (completed) | $ | 5,000 |
| 50,000 |
April 25, 2006 (completed) |
| 5,000 |
| – |
July 25, 2006 (completed) |
| 10,000 |
| 50,000 |
July 25, 2007 (completed) |
| 20,000 |
| 50,000 |
July 25, 2008 |
| 20,000 |
| 50,000 |
July 25, 2009 |
| 40,000 |
| – |
|
|
|
|
|
| $ | 100,000 |
| 200,000 |
|
|
|
|
|
In addition, 200,000 shares of the Company are to be issued upon receipt of a positive feasibility study.
The Agreement is subject to a 3% net smelter return (“NSR”). The Company has the right to purchase 66.67% of the NSR for $1,000,000 upon commencement of commercial production of the property.
During the year ended December 31, 2007, the Company issued 50,000 common shares and paid $20,000 pursuant to the agreement.
ACREX VENTURES LTD.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2007, 2006 and 2005
Expressed in Canadian dollars
4. MINERAL PROPERTIES (continued)
On February 6, 2007, the Company acquired a 100% interest of two mineral tenures immediately to the west and south of the Company's existing claim group. As consideration, the Company paid $10,000 and issued 200,000 shares.
Nachako claims, British Columbia, Canada – On January 26, 2006 the Company signed a Letter of Intent (the “Letter”) with a prospector (the “Optionor”) giving it a right to negotiate option agreements on certain mineral claims, covering a total of approximately 1,200 Units (approximately 25,000 hectares) in the north central area of British Columbia. The Company earned the rights by paying the costs (aggregating $9,781) of the Optionor filing mineral claims over the areas. During the year ended December 31, 2006, the Company terminated its option on the Nachako claims.
5. SHARE CAPITAL
The Company has authorized share capital of an unlimited number of common voting shares without par value.
Common shares issued during the years ended December 31, 2007 and 2006 are as follows:
a)
On February 2, 2007, the Company issued 200,000 commons shares for payment of certain mineral properties, as described in Note 4. The fair value of these shares was $40,000.
b)
On July 5, 2007, the Company issued 50,000 common shares and paid $20,000 for payment of the Spanish Mountain claims pursuant to the Option Agreement, as described in Note 4. The fair value of the shares was $8,000.
c)
In August, 2007, the Company completed a private placement consisting 5,000,000 flow-through units at a price of $0.22 per unit, and 7,800,000 non flow-through units at a price of $0.18 per unit, for gross proceeds of $2,504,000. Each unit consisted of one common share and one half of one common share purchase warrant. Each whole warrant may be exercised to acquire a further common share at $0.50 per share until August 14 or August 16, 2009. The Company paid agent’s commission of $76,008 and other share issue costs of $60,851. The Company issued agent’s units of 551,511 non flow-through units with the same terms. The agent also received agent’s warrants to acquire 1,024,000 non flow-through common shares at an exercise price of $0.23 per share for a period of 2 years until August 14 or August 16, 2009. The fair value of the agent’s warrants was determined to be $159,232. Proceeds from the priv ate placement have been allocated 100% to common shares and $Nil to the warrants.
d)
On May 1, 2006 the Company issued 3,000,000 units at $0.235 per unit for gross proceeds of $705,000 under a non-brokered private placement. Each unit consisted of one common share and one common share purchase warrant. Each full warrant entitled the holder to acquire an additional common share for $0.30 until May 1, 2007.
e)
On October 18, 2005, the Company issued 650,000 units at $0.12 per unit for gross proceeds of $78,000 under a non-brokered private placement. Each unit consisted of one common share and one-half common share purchase warrant. Each full warrant entitles the holder to acquire an additional common share for $0.18 per share until October 18, 2006.
f)
On May 16, 2005, the Company issued 4,336,500 units at $0.12 per unit for gross proceeds of $520,380. Each unit consisted of one common share and one-half common share purchase warrant. Each full warrant entitles the holder to acquire an additional common share for $0.18 per share until May 16, 2006. The agent received a commission of $52,038 and an option to acquire 520,380 units at $0.12 per unit until May 16, 2006. The Company has recognized the fair value of the agent's options as a share issue cost.
ACREX VENTURES LTD.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2007, 2006 and 2005
Expressed in Canadian dollars
5.
SHARE CAPITAL (continued)
g)
On March 24, 2005, the Company issued 1,200,000 units at $0.15 per unit for gross proceeds of $180,000 under a brokered private placement. Each unit consisted of one common share and one-half common share purchase warrant. Each full warrant entitles the holder to acquire an additional common share for $0.20 until March 24, 2006. The agents received fees and commissions of $15,400, 10,875 shares and 190,875 warrants exercisable at $0.15 per share until March 24, 2006. The Company has recognized the fair value of the agents' warrants as a share issue cost.
h)
On March 10, 2005, the Company issued 401,000 units at $0.15 per unit for gross proceeds of $60,150 under a non-brokered private placement. Each unit consisted of one common share and one-half common share purchase warrant. Each full warrant entitles the holder to acquire an additional common share for $0.20 per share until March 10, 2006.
Warrants - The Company has stock purchase warrants outstanding and exercisable as follows:
|
|
|
|
|
|
|
| Outstanding |
|
|
| Outstanding |
|
Exercise | December 31, |
|
|
| December 31, |
|
Price | 2006 | Issued | Exercised | (Expired) | 2007 | Expiry date |
|
|
|
|
|
|
|
$0.30 | 3,000,000 | - | - | (3,000,000) | - | May 1, 2007 |
$0.50 | - | 4,030,755 | - | - | 4,030,755 | August 14, 2009 |
$0.23 | - | 624,000 | - | - | 624,000 | August 14, 2009 |
$0.50 | - | 2,645,000 | - | - | 2,645,000 | August 16, 2009 |
$0.23 | - | 400,000 | - | - | 400,000 | August 16, 2009 |
|
|
|
|
|
|
|
| 3,000,000 | 7,699,755 | - | (3,000,000) | 7,699,755 |
|
|
|
|
|
|
|
|
| Outstanding |
|
|
| Outstanding |
|
Exercise | December 31, |
|
|
| December 31, |
|
Price | 2005 | Issued | Exercised | (Expired) | 2006 | Expiry date |
|
|
|
|
|
|
|
$0.20 | 200,500 | - | (125,250) | (75,250) | - | March 10, 2006 |
$0.20 | 600,000 | - | - | (600,000) | - | March 24, 2006 |
$0.15 | 190,875 | - | (190,875) | - | - | March 24, 2006 |
$0.18 | 2,428,440 | - | (2,428,440) | - | - | May 15, 2006 |
$0.18 | 325,000 | - | (325,000) | - | - | October 18, 2006 |
$0.30 | - | 3,000,000 | - | - | 3,000,000 | May 1, 2007 |
|
|
|
|
|
|
|
| 3,744,815 | 3,000,000 | (3,069,565) | (675,250) | 3,000,000 |
|
ACREX VENTURES LTD.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2007, 2006 and 2005
Expressed in Canadian dollars
5. SHARE CAPITAL (continued)
During the year ended December 31, 2007, the Company issued a total of 1,024,000 share purchase warrants as agents’ warrants (Note (c) above). The fair value of these agents’ warrants issued was determined to be $159,232 using the Black-Scholes pricing model, using the following weighted average assumptions:
| Year Ended December 31, 2007 |
|
|
Risk free interest rate | 4.3% |
Expected dividend yield | 0% |
Expected stock price volatility | 116% |
Warrant life | 2 year |
The weighted average fair value of share purchase warrants granted during the year ended December 31, 2007 was $0.16 per warrant.
6. CONTRIBUTED SURPLUS
|
| 2007 |
| 2006 |
|
|
|
|
|
Balance - beginning of year | $ | 219,054 | $ | 217,397 |
Stock-based compensation – stock options granted |
| 277,794 |
| 39,209 |
Agent’s warrants granted |
| 159,232 |
| – |
Options and warrants exercised |
| – |
| (37,552) |
|
|
|
|
|
Balance - end of year | $ | 656,080 | $ | 219,054 |
|
|
|
|
|
7. STOCK OPTION PLAN AND STOCK - BASED COMPENSATION
The Company has established a stock option plan for directors, employees, and consultants. The following table summarizes the stock options outstanding and exercisable at December 31, 2007:
|
| Number |
| Number |
|
|
Price |
| Outstanding |
| Exercisable |
| Expiry Date |
|
|
|
|
|
|
|
$0.28 |
| 565,000 |
| 565,000 |
| November 4, 2008 |
$0.12 |
| 485,000 |
| 485,000 |
| July 7, 2010 |
$0.12 |
| 100,000 |
| 100,000 |
| October 13, 2010 |
$0.12 |
| 100,000 |
| 100,000 |
| December 5, 2010 |
$0.30 |
| 100,000 |
| 100,000 |
| June 19, 2011 |
$0.30 |
| 50,000 |
| 50,000 |
| June 29, 2011 |
$0.20 |
| 100,000 |
| 100,000 |
| February 7, 2012 |
$0.16 |
| 650,000 |
| 650,000 |
| July 2, 2012 |
$0.16 |
| 1,400,000 |
| 1,325,000 |
| December 17, 2012 |
|
|
|
|
|
|
|
|
| 3,550,000 |
| 3,475,000 |
|
|
|
|
|
|
|
|
|
Under the Company's April 2007 amended stock option plan, the exercise price of each option is determined by the Board, subject to the pricing policies of the TSX Venture Exchange. Options vest immediately when granted and expire five years from the date of the grant, unless the Board establishes more restrictive terms. Of the 1,400,000 options issued in December 2007, 75,000 options vest in three equal instalments in 2008.
ACREX VENTURES LTD.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2007, 2006 and 2005
Expressed in Canadian dollars
7. STOCK OPTION PLAN AND STOCK - BASED COMPENSATION (continued)
The aggregate number of shares issuable pursuant to options granted under the plan is limited to 10% of the Company's issued shares at the time the options are granted. The aggregate number of options granted to any one optionee in a 12-month year is limited to 5% of the issued shares of the Company.
A summary of the changes in the Company's stock options for the year ended December 31, 2007 and 2006 is presented below:
|
| 2007 |
|
| 2006 |
|
|
|
|
|
| Weighted Average |
|
| Weighted Average |
|
| Number |
| Exercise Price | Number |
| Exercise Price |
|
|
|
|
|
|
|
|
Outstanding, beginning of year |
| 2,000,000 | $ | 0.23 | 2,520,380 | $ | 0.22 |
Granted |
| 2,150,000 |
| 0.16 | 150,000 |
| 0.30 |
Exercised |
| – |
| – | (663,630) |
| 0.12 |
Expired |
| (600,000) |
| 0.30 | (6,750) |
| 0.12 |
|
|
|
|
|
| ||
Outstanding, end of year |
| 3,550,000 | $ | 0.18 | 2,000,000 | $ | 0.23 |
|
|
|
|
|
|
|
|
The Company uses the Black-Scholes option pricing model to value stock options granted. The model requires management to make estimates, which are subjective and may not be representative of actual results. Changes in assumptions can materially affect estimates of fair values. The weighted average fair value of share purchase options granted at $0.13 (2006: $0.26; 2005: $0.09) per option has been determined using the Black-Scholes option pricing model with the following assumptions:
| 2007 | 2006 |
|
|
|
Risk free interest rate | 4.10% | 4.32% |
Expected dividend yield | 0% | 0% |
Expected stock price volatility | 122% | 127% |
Expected life | 5 years | 5 years |
Total stock-based compensation expense in respect of stock options granted for the year ended December 31, 2007 was director’s fees of $222,142 (2006: $Nil; 2005: $67,608), investor relations of $22,975 (2006: $39,209; 2005: $6,276) and exploration consulting costs of $32,677 (2006: $nil; 2005: $nil) totaling $277,794.
ACREX VENTURES LTD.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2007, 2006 and 2005
Expressed in Canadian dollars
8. CORPORATION INCOME TAXES
A reconciliation of the income tax provision computed at statutory rates to the reported income tax provision is as follows:
| 2007 | 2006 |
|
|
|
Statutory tax rates | 34.12% | 34.12% |
|
|
|
Loss before income taxes | $ (669,224) | $ (531,360) |
|
|
|
Expected income tax recovery | 228,000 | 181,000 |
Increase (decrease) in income tax recovery resulting from: |
|
|
Resource allowance adjustment | - | (15,000) |
Non-deductible stock-based compensation | (95,000) | (13,000) |
Other non-deductible items | (3,000) | (3,000) |
Effect of reduction in statutory rates | (184,000) | - |
Change in the valuation allowance for future income tax assets | 54,000 | (150,000) |
|
|
|
| $ - | $ - |
The significant components of the Company’s future income tax assets and liabilities are as follows:
| 2007 | 2006 |
|
|
|
Future income tax assets: |
|
|
Non-capital losses carry forward | $ 719,000 | $ 775,000 |
Share issue costs | 77,000 | 58,000 |
Canadian development and exploration expenditures | - | (190,000) |
|
|
|
| 796,000 | 643,000 |
Less: valuation allowance | (796,000) | (643,000) |
|
|
|
Net long-term future income tax assets | $ - | $ - |
The valuation allowance as at December 31, 2007 was increased by $68,000 (2006: $28,000) representing the tax effect of share issuance costs incurred in the year.
At December 31, 2007, the Company has accumulated Canadian exploration and development expenditures of $ 1,815,000 and has accumulated non-capital losses totalling $2,768,000, which are available to reduce taxable income of future years. The non-capital losses expire as follows:
2008 | $ 92,000 |
2009 | 271,000 |
2010 | 396,000 |
2014 | 446,000 |
2015 | 509,000 |
2026 | 504,000 |
2027 | 550,000 |
|
|
| $ 2,768,000 |
At December 31, 2007, cash and cash equivalents included $621,000 (2006: $nil) to be used for qualifying exploration expenditures.
ACREX VENTURES LTD.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2007, 2006 and 2005
Expressed in Canadian dollars
9. RELATED PARTY TRANSACTIONS
The Company incurred share issuance costs of $15,401 (2006: $Nil; 2005: $Nil) and legal fees of $33,509 (2006: $34,914; 2005: $53,802) from a law firm of which a director is a principal.
The Company incurred management fees of $108,000 (2006: $108,000; 2005: $108,000) and equipment rental charges (included under office and general) of $11,808 (2006: $11,396; 2005: $10,063) from a company owned by a director and management fees of $30,000 (2006: $30,000; 2005: $30,000) from a company owned by another director of the Company.
The Company incurred rent expense of $4,680 (2006: $13,380; 2005: $10,680) from a company which has a common director.
All transactions with related parties were within the normal course of business. These charges were measured by the exchange amount, which is the amount agreed upon by the transacting parties.
During the year ended December 31, 2007, the Company and the president entered into a management agreement for a period of 2 years commencing September 1, 2007 for $9,000 a month. The Company may terminate this agreement by paying twelve times the monthly fee at the time of termination.
10. NON-CASH TRANSACTIONS
Investing and financing activities that do not have a direct impact on current cash flows are excluded from the statements of cash flows.
During the year ended December 31, 2007, the following transactions were excluded from the statements of cash flows:
i)
The Company issued 551,511 shares at a fair value of $123,378 for finder’s fee in connection with the private placements.
ii)
The company issued 250,000 shares at a fair value of $48,000 for mineral properties.
iii)
Included in mineral properties is $32,677 (2006 - $nil) relating to stock-based compensation (Note 7)
During the year ended December 31, 2006, the following transaction was excluded from the statements of cash flows:
i)
The Company issued 50,000 shares at a fair value of $17,000 for mineral properties.
During the year ended December 31, 2005, the following transactions were excluded from the statements of cash flows:
i)
The Company issued 100,000 shares at a value of $14,000 for mineral properties.
ii)
The Company issued 10,875 common shares at a value of $1,631 as agent’s fees; and
iii)
The Company received 500,000 common shares of Resolve Ventures Inc. at a value of $30,000 as partial consideration for the sale of the Raglan Ungava claims.
ACREX VENTURES LTD.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2007, 2006 and 2005
Expressed in Canadian dollars
11. SUBSEQUENT EVENTS
a)
Pursuant to an agreement dated February 4, 2008, the Company acquired an option to earn a 100% interest in mineral claims in the Fry Lake area located in northwestern Ontario. As consideration, the Company had agreed to pay a total of $190,000 ($34,000 paid), issue 200,000 common shares (50,000 issued) payable in tranches by May 29, 2011 and expend $1,300,000 in exploration by May 29, 2012. The claims are subject to a 2% Net Smelter Return Royalty. Upon completion of a feasibility study, a further 200,000 common shares will be issued.
b)
Pursuant to an agreement dated February 4, 2008, the Company acquired an option to earn a 100% interest in the Honeymoon property located near Kamloops, British Columbia. As consideration, the Company had agreed to pay a total of $65,000 ($5,000 paid) and issue 200,000 common shares (50,000 issued) over a three year period.
c)
The Company issued 100,000 common shares pursuant to the above two option agreements.
12. COMPARATIVE FIGURES
Certain comparative figures for the year ended December 31, 2007 had been reclassified to conform with current year’s presentation.
13. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
These financial statements prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”) conform to those generally accepted in the United States (“U.S. GAAP”), in all material respects, except as noted below:
Mineral properties - Under Canadian GAAP, acquisition and exploration costs are capitalized. Under U.S. GAAP, costs are expensed as incurred unless commercial feasibility is established.
Under U.S. GAAP, mineral properties are reviewed by management for impairment whenever circumstances change which could indicate that the carrying amount of these assets may not be recoverable. Such review has not been completed as there are no capitalized properties for U.S. GAAP purposes.
Flow-through shares - Under U.S. GAAP, proceeds from the issuance of flow-through shares are allocated amongst the fair value of the stock issued and the price the investor pays. The difference between the fair value and the price paid is recognized as a liability for accounting purposes. The liability is relieved and the corresponding future tax liability is recorded when the Company renounces its exploration expenditures to the flow-through share investors. A future tax liability of $200,000 was recorded in respect to the flow-through shares issued during the year ended December 31, 2007. Under U.S. GAAP, unexpended flow-through funds at balance sheet date are separately classified as restricted cash. Under Canadian GAAP, this classification is only encouraged.
Income taxes - Under Canadian GAAP, future income taxes are calculated based on enacted or substantively enacted tax rates applicable to future years. Under U.S. GAAP, only enacted rates are used in the calculation of future income taxes. This difference in GAAP did not result in a difference in the financial positions, results of operations or cash flows of the Company for the years presented.
ACREX VENTURES LTD.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2007, 2006 and 2005
Expressed in Canadian dollars
13. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued)
Reconciliation of losses reported to U.S. GAAP:
|
| 2007 |
| 2006 |
| 2005 |
|
|
|
|
|
|
|
Net loss as reported in accordance with Canadian GAAP | $ | (669,224) | $ | (531,360) | $ | (510,027) |
Adjustments: |
|
|
|
|
|
|
Mineral property costs expensed |
| (697,033) |
| (555,766) |
| (98,349) |
Future income tax benefit related to flow-through shares |
| – |
| – |
| (14,763) |
|
|
|
|
|
|
|
Net loss under U.S. GAAP | $ | (1,366,257) | $ | (1,087,126) | $ | (623,139) |
|
|
|
|
|
|
|
Net loss per share under U.S. GAAP | $ | (0.04) | $ | (0.04) | $ | (0.04) |
Reconciliation of total assets, liabilities, and shareholder equity to U.S. GAAP:
|
| 2007 |
| 2006 |
|
|
|
|
|
Total assets under Canadian GAAP | $ | 4,471,840 | $ | 2,433,851 |
Adjustments to U.S. GAAP Mineral properties | (2,405,492) |
| (1,708,459) | |
|
|
|
| |
Total assets under U.S. GAAP | $ | 2,066,348 | $ | 725,392 |
|
|
|
| |
|
|
|
| |
Total liabilities under Canadian GAAP | $ | 32,270 | $ | 17,992 |
Adjustments to U.S. GAAP |
|
|
| |
Deferred tax liability | 200,000 |
| - | |
|
|
|
| |
Total liabilities under U.S. GAAP | $ | 232,270 | $ | 17,992 |
|
|
|
| |
Total stockholders' equity under Canadian GAAP | $ | 4,439,570 | $ | 2,415,859 |
Adjustments to U.S. GAAP |
|
|
| |
Mineral properties | (2,405,492) |
| (1,708,459) | |
Deferred tax liability | (200,000) |
| - | |
|
|
|
| |
Total equity under U.S. GAAP | $ | 1,834,078 | $ | 707,400 |
|
|
|
| |
Total equity and liabilities under U.S. GAAP | $ | 2,066,348 | $ | 725,392 |
ACREX VENTURES LTD.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2007, 2006 and 2005
Expressed in Canadian dollars
13. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued)
Reconciliation of statements of cash flows to U.S. GAAP:
|
| 2007 |
| 2006 |
| 2005 |
|
|
|
|
|
|
|
Cash used in operating activities under Canadian GAAP | $ | (426,357) | $ | (526,796) | $ | (442,365) |
Adjustments to U.S. GAAP: |
|
|
|
|
|
|
Exploration expenses for the period |
| (616,356) |
| (554,195) |
| (181,733) |
|
|
|
|
|
|
|
Cash used in operating activities under U.S. GAAP | $ | (1,042,713) | $ | (1,080,991) | $ | (624,098) |
|
|
|
|
|
|
|
Cash used in investing activities under Canadian GAAP | $ | (616,356) | $ | (554,195) | $ | (116,733) |
Adjustments to U.S. GAAP: |
|
|
|
|
|
|
Restricted cash from flow-through offering |
| 621,000 |
| - |
| - |
Exploration expenses for the period |
| 616,356 |
| 554,195 |
| 181,733 |
|
|
|
|
|
|
|
Cash flow from investing activities under U.S. GAAP | $ | 621,000 | $ | – | $ | 65,000 |
|
|
|
|
|
|
|
Cash flow from financing activities under Canadian GAAP | $ | 2,367,141 | $ | 1,335,624 | $ | 738,199 |
Adjustments to U.S. GAAP: |
| – |
| – |
| – |
|
|
|
|
|
|
|
Cash flow from financing activities under U.S. GAAP | $ | 2,367,141 | $ | 1,335,624 | $ | 738,199 |
|
|
|
|
|
|
|
Cash and cash equivalents, end of year under Canadian GAAP | $ | 1,987,393 | $ | 662,965 | $ | 408,332 |
Adjustments to U.S. GAAP |
|
|
|
|
|
|
Restricted cash from flow-through offering | (621,000) |
| - |
| - | |
|
|
|
|
|
|
|
Cash and cash equivalents, end of year under U.S. GAAP | $ | 1,366,393 | $ | 662,965 | $ | 408,332 |
Under U.S. GAAP, the Company must provide a reconciliation of the numerators and the denominators of basic and diluted earnings per share:
|
| 2007 |
| 2006 |
| 2005 |
|
|
|
|
|
|
|
Numerator |
|
|
|
|
|
|
Net loss | $ | (1,366,257) | $ | (1,087,126) | $ | (623,139) |
Denominator |
|
|
|
|
|
|
Weighted average number of common shares outstanding |
| 32,161,073 |
| 24,484,995 |
| 17,585,434 |
|
|
|
|
|
|
|
Basic and diluted net loss per share | $ | (0.04) | $ | (0.04) | $ | (0.04) |
Diluted net loss per share reflects the potential dilution of securities that could result from the exercise of dilutive options and warrants. As of December 31, 2007, the Company had 3,550,000 (2006: 2,000,000, 2005: 2,520,380) stock options outstanding and 7,699,755 (2006:3,000,000, 2005: 3,744,815) warrants outstanding which have not been included in the calculation of diluted net loss per share because their effect would have been anti-dilutive.
Newly Adopted Accounting Pronouncements – On January 1, 2007, the Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"). This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
ACREX VENTURES LTD.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2007, 2006 and 2005
Expressed in Canadian dollars
13. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued)
There was no impact to opening retained earnings under U.S. GAAP upon the adoption of FIN 48. The Company has no unrecognized tax benefits and does not expect any significant changes to this position within 12 months of this reporting date.
The Company is subject to Canadian federal income tax as well as income tax of several provincial jurisdictions. The tax years 2000 and beyond remain subject to examination by the Canada Revenue Agency
Recently issued accounting pronouncements –In March 2008, the FASB issued SFAS 161 “Disclosures about Derivative Instruments and Hedging Activities – an amendment of SFAS 130. This Statement requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This Statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption.
In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141 (revised 2007) “Business Combinations”. SFAS No. 141 (revised 2007) establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141 (revised 2007) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption of this statement is not expected to have a ma terial effect on the Company’s future reported financial position or results of operations.
In December 2007, the FASB issued SFAS No. 160 “Non-controlling Interests in Consolidated Financial Statements- an amendment of ARB No. 51”. SFAS No. 160 establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The adoption of this statement is not expected to have a material effect on the Company’s future reported financial position or results of operations.
In December 2007, the Securities Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 110 which amends SAB 107 to allow for the continued use, under certain circumstances, of the “simplified” method in developing an estimate of the expected term of so-called “plain vanilla” stock options accounted for under FAS 123R, “Share-Based Payment.” When SAB 107 was published, the staff believed that more information about employee exercise behavior (e.g., employee exercise patterns by industry or other categories of companies) would become available. Therefore, the staff stated in SAB 107 that it would not expect the simplified method to be used for stock option grants after December 31, 2007. The staff now understands that such information will not be widely available by December 31, 2007. Accordingly, the SEC staff will accept, under certain circumstances, the use of the simplified method beyond December 31, 20 07 for "plain vanilla" options (as described in SAB 110). The Company does not believe that SAB 110 will have a significant impact on its financial statements.
ACREX VENTURES LTD.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 2007, 2006 and 2005
Expressed in Canadian dollars
13. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (continued)
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115”. This statement permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities” applies to all entities with available-for-sale and trading securities. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provision of SFAS No. 157, “Fair Value Measurements”. The ad option of this statement is not expected to have a material effect on the Company’s future reported financial position or results of operations.
Recently issued accounting pronouncements (continued)
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. The objective of SFAS No 157 is to increase consistency and comparability in fair value measurements and to expand disclosures about fair value measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. The provisions of SFAS No. 157 are effective for fair value measurements made in fiscal years beginning after November 15, 2007. The adoption of this statement is not expected to have a material effect on the Company’s future reported financial position or results of operations.