U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF
SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
SOUTH AMERICAN MINERALS, INC.
(Name of Small Business Issuer in its charter)
Nevada 59-3394111
(State or other jurisdiction (I.R.S. Employer ID No.)
of incorporation or organization)
76 Beaver Street, 26th Floor, New York, New York 10005-3402
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (212) 668-0842
Securities to be registered under Section 12(b) of the Act. None
Title of each class Name of each exchange on which
to be so registered each class is to be registered
Not applicable Not Applicable
Securities to be registered under Section 12(g) of the Act.
Common Stock, $.10 par value
----------------------------
Title of Class
SOUTH AMERICAN MINERALS, INC.
Table of Contents
Glossary (ii)
Conversion Factors And Abbreviations (iii)
PART I
Page
----
Item 1. Description of Business 2
Item 2. Management's Discussion and Analysis
of Financial Conditions and Results of Operation 18
Item 3. Description of Property 25
Item 4. Security Ownership of Certain Beneficial
Owners and Management 30
Item 5. Directors and Executive Officers, Promoters
and Control Persons 31
Item 6. Executive Compensation 32
Item 7. Certain Relationships and Related Transactions 33
Item 8. Description of Securities 34
PART II
Item 1. Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder Matters 34
Item 2. Legal Proceedings 36
Item 3. Changes in and Disagreements with Accountants 36
Item 4. Recent Sales of Unregistered Securities 37
Item 5. Indemnification of Directors and Officers 37
PART F/S
Financial Statements F-1
PART III
Item 1. Index to Exhibits 38
Item 2. Description of Exhibits 38
Signature Page 39
GLOSSARY OF TECHNICAL TERMS
Alluvial Placer Gold General term for gold mineralization deposited by a body
of water, that occurs in alluvial gravel material,
usually deposited during recent geological time
Mine mining is the process of transforming a reserve into
benefits for its owners (debt, equity and employees),
governments and communities. Exploration continues
during the mining process and, in many cases, reserves
are expanded during the life of the mine operations as
the exploration potential of the deposit is realized.
Amalgam gold that has been trapped by mercury.
Assay to analyze the proportions of metals in an ore.
Formation a distinct layer of sedimentary rock of similar
composition.
Geological mapping the recording of geologic information such as the
distribution and nature of rock units and the occurrence
of structural features, mineral deposits, and fossil
localities
Geophysics the study of the earth; in particular the physics of the
solid earth, the atmosphere and the earth's
magnetosphere
Greenstone a sequence of usually metamorphosed volcanic-sedimentary
rock assemblages
Grizzly a metal device used to separate gold bearing gravels
Laterite highly weathered residual surficial soils and decomposed
rocks, rich in iron and aluminum oxides that are
characteristically developed in tropical climates.
Mineral a naturally formed chemical element of compound having a
definite chemical composition and, usually, a
characteristic crystal form.
Mineralization a natural occurrence in rocks or soil of one or more
metalliferous minerals.
Outcrop that part of a geologic formation or structure that
appears at the surface of the earth.
PPMS a medium scale operations prospecting permit in Guyana.
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Probable Reserves Reserves for which quantity and grade and/or quality are
computed from information similar to that used for
proven (measure) reserves, but the sites for inspection,
sampling and measurement are farther apart or are
otherwise less adequately spaced. The degree of
assurance, although lower than that for proven
(measured) reserves, is high enough to assume continuity
between points of observation.
Proven Reserves Reserves for which (a) quantity is computed from
dimensions revealed in outcrops, trenches, workings or
drill holes; grade and/or quality are computed from the
results of detailed sampling and (b) the sites for
inspection, sampling and measurement are spaced so
closely and the geologic character is so well defined
that size, shape, depth, and mineral content of reserves
are well-established.
Reserve That part of a mineral deposit which could be
economically and legally extracted or produced at the
time of the reserve determination.
Shield a large area of exposed basement rocks often surrounded
by younger rocks, e.g. Guyana Shield.
Surficial situated, formed, or occurring on or close to the
earth's surface
Volcanics those originally molten rocks, generally fine grained,
that have reached or nearly reached the Earth's surface
before solidifying.
Weathering the destructive process constituting that part of
erosion whereby earthy and rock materials on exposure to
atmospheric agents at or near the Earth's surface are
changed in character with little or no transport of the
loosened or altered material.
CONVERSION FACTORS AND ABBREVIATIONS
For ease of reference, the following conversion factors are provided:
1 acre = 0.4047 hectare 1 mile = 1.6093 kilometer
20 dwt = 1.0 oz 12 oz = 1.00 pounds
1 foot = 0.3048 meter 1 troy ounce = 31.1035 grams
1 gram per tonne = 0.0292 ounce per short ton 1 square mile = 2.59 square kilometer
1 short ton (2000 pounds) = 0.9072 tonne 1 square kilometer = 100 hectares
The following abbreviations of measurements are used herein:
Au = gold m = meter
ct = carat m/2/ = square meter
ct/m/2/ = carats per square meter m/3/ = cubic meter
dwt = 24 grains mg = milligram
gm = gram mg/m/3/ = milligrams per cubic
g/t = grams per tonne t = metric tonne
ha = hectare oz = troy ounce
km = kilometer oz/t = troy ounces per ton
kg = kilogram ppb = parts per billion
Note: All units in the text are stated in metric measurements unless otherwise
noted.
iii
PART I
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
We caution readers that certain important factors may affect our actual
results and could cause such results to differ materially from any
"forward-looking statements" (as defined in Section 21E of the Securities and
Exchange Act of 1934) that we make in this registration statement. For this
purpose, any statements that are not statements of historical fact may be deemed
to be forward-looking statements. This Registration Statement contains
statements that constitute "forward-looking statements." These forward-looking
statements can be identified by the use of predictive, future-tense or
forward-looking terminology, such as "believes," "anticipates," "expects,"
"estimates," "plans," "may," "will," or similar terms. These statements appear
in a number of places in this Registration Statement, including but not limited
to the following sections:
o "Part I, Item 1. Description of Business" especially the disclosures set
out under the heading "Risk Factors"; and
o "Part I, Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
These statements include discussions regarding our intent, belief or current
expectations with respect to many things. Some of these things are:
o worldwide economic and political events affecting the supply of and demand
for gold;
o volatility in market prices for gold,
o the establishment, quantification and recovery of reserves and mineralized
material,
o the cost of fuel,
o the timing and scope of future dredging,
o results of future feasibility studies,
o financial market conditions, and the availability of debt or equity
financing on terms acceptable to us,
o political, economic and operational risks of foreign operations,
o force majeure events,
o competition,
o environmental regulations,
o uninsured risks,
o capitalization and commercial viability and expectation regarding the
receipt of permits and licenses, and
o gold exploration and development costs and results.
We caution readers that any such forward-looking statements are not guarantees
of future performance and involve significant risks and uncertainties. In fact,
actual results most likely will differ materially from those projected in the
forward-looking statements as a result of various factors.
1
You should carefully consider and evaluate all of these factors. In addition, we
do not undertake to update forward-looking statements after we file this
registration statement with the Securities and Exchange Commission, even if new
information, future events or other circumstances have made them incorrect or
misleading.
Item 1. Description of Business
General
We, South American Minerals, Inc., are a holding company and all of our
operations are conducted by our wholly-owned subsidiary, North American
Resources, Inc. Ltd., a corporation organized under the laws of the Government
of Guyana, South America ("NARIL"). All references in this registration
statement to "us" include NARIL, unless the text specifically indicates
otherwise.
We currently are engaged in dredging for alluvial placer gold on the Konawaruk
River in Guyana, South America on our own behalf and on behalf of the Venture in
which we currently hold a 65% interest (see "The Cuyuni River Venture" below).
For more detailed information about the properties in Guyana in which we hold
certain claims, licenses and permits, see "Part I. Item 3. Description of
Property."
Our principal executive office is located at 76 Beaver Street Suite 2600, New
York, New York. NARIL's operational offices are located at Lot 88 "C" "D"
Barrack Street, Kingston, Georgetown, Republic Of Guyana.
Current and Planned Activities During The Next 12 Months
Although we have rights to a number of properties in Guyana, at the present time
we are only producing gold in one location on the Konawaruk. For information
about this and other properties, please see the discussion below and in "Part I.
Item 3. "Description of Property."
At present we are engaged in dredging for alluvial placer gold in one location
on the Konawaruk River in Guyana, South America. We currently own two gold
dredging barges on our own behalf and the Venture in which we currently hold a
65% interest owns two gold dredging barges. At present we have three of these
barges operating. The fourth barge is under repair and we anticipate that it
will be returned to service in the near future. During the next 12 months,
provided we can obtain adequate financing, we hope to add a cutterhead dredge on
the Konawaruk River. The current operating dredges are standard river suction
dredges. A cutterhead dredge gives us the ability to penetrate and operate below
the cemented gravel layers (gravel deposits that underwent a cementation process
with iron oxide) of the river. From July 1999 to January 2004, we were dredging
on claims 1 through 5 (see the chart in see "Part I. Item 3. Description of
Property"). We stopped dredging at these locations because we need the ability
to penetrate and operate below the cemented gravel layers. For this we will need
a cutterhead
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dredge. We plan to recommence dredging on claims 1 through 5 if and when we
obtain a cutterhead dredge. Since January 2004, we have been dredging on
concession 26.
The Konawaruk River properties are our only river-based properties. During the
next 12 months we do not have any plans to with regard to our land based
properties.
The Cuyuni River Venture
Pursuant to a January 27, 1999 agreement, as amended, we and NARIL entered into
a Mining Joint Venture Agreement (the "Venture Agreement") in the Republic of
Guyana with Cuyuni River Venture No. 1, LLC, a Delaware limited liability
company ("Cuyuni LLC"), to explore and mine gold and other precious metals (the
"Venture"). NARIL is the managing member. Pursuant to the Venture agreement, we
provide and select the properties, prospects and/or claims to be mined by the
Venture. To the extent that we operate two or less barges in Guyana, all gold
and other mineral deposits mined from such operations is owned by the Venture.
To the extent that we operate more than two barges in Guyana, the gold and other
mineral deposits mined from all such barges is aggregated together and the
amount owned by the Venture is the quotient of two divided by the number of
operating barges. The balance of the gold and other mineral deposits is owned by
us. (See "Part I. Item 3. Description of Property" for a description of
properties).
Originally, we owned a 75% interest and Cuyuni LLC owned a 25% interest in the
Venture. As discussed below, the respective interests are now 65% and 35%.
Cuyuni LLC contributed $475,000 and we contributed $105,000 to the Venture.
These funds were used to purchase two large hydraulic suction barges; one small
barge and a D8 caterpillar earth moving tractor; construct roads and a base
camp; and accumulate geological data. In addition, Cuyuni LLC purchased 150,000
shares of our common stock for $1.00 per share.
The initial term of the Venture is 10 years, at which time it terminates unless
the parties agree to extend it or, if an independent geological report indicates
that there is sufficient mining opportunity to continue commercial production,
Cuyuni LLC has the right to extend the Venture.
Cuyuni LLC was to receive a guaranteed return on its 25% interest of $250,000 a
year for two years from commencement of dredging operations (deemed to be
September 1999). On November 21, 2000, the parties agreed that for the year
ending December 31, 2000 this requirement was satisfied by issuance to Cuyuni
LLC of an additional 150,000 shares of our common stock, and cash payments of
$38,000 of which, $20,000 was provided by the Venture and $18,000 by us. In
February 2002, the parties agreed that, for the year ending December 31, 2001,
this requirement was satisfied by issuance to Cuyuni LLC of an additional
300,000 shares of our common stock and by increasing Cuyuni LLC's interest in
the Venture to 35% and decreasing our interest to 65%.
In March 2003, Cuyuni LLC received 60,000 shares of our common stock in payment
of its share of distributions ($9,000) from the Venture for 2002.
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Guyana
Guyana is located on the northeast coast of South America and is bordered by
Suriname to the east, Brazil to the south and west, and Venezuela to the
northwest. It has a surface area of approximately 215,000 square kilometers or
83,000 square miles with a population of approximately 825,000. The official
language is English and the climate is tropical.
Guyana is now a democratic republic. A former Crown colony which gained
independence in 1966, and then became a co-operative Republic in 1970, Guyana is
a parliamentary democracy with an elected President. 65 member legislative
assembly, and an independent judiciary. Its legal system is based on the British
common law, except in land matters which are based on Roman-Dutch law.
There is a 35% corporate tax rate in Guyana. Consumption tax of 10% to 100% on
many goods does not apply to most exploration and mining equipment. NARIL is
permitted under Guyana law to offset 100% of its taxable income against net
operating losses. A 6.25% foreign dividends tax may be offset dollar for dollar
by exploration expenses on other properties. In addition, a royalty of from 3%
to 5% is payable to the Government of Guyana on the value of all gold extracted.
See "Royalties" in Part I. Item 3. Description of Property." below.
The Guiana Shield, which underlies eastern Venezuela, most of Guyana, Suriname,
French Guiana and the northern portion of Brazil, is considered to have
potential in renewable natural resources (hydro-electric energy and timber) and
minerals (similar to the shields of Canada, South Africa and Northern
Scandinavia). Mineral resources of the Guiana Shield include precious metals
(gold, platinum and silver), diamonds, metals that form iron-based alloys
(including manganese, nickel, chromium, titanium, cobalt and niobium) and
non-ferrous metals (including copper, zinc, cadmium and tin).
There are certain business and political risks inherent in doing business in
developing countries. In Particular, while the regulatory framework for
conducting mining and exploration activities in these countries, including the
tax and general fiscal regimes and the manner in which rights and title to
mineral properties are established and maintained, may be uncertain, incomplete,
in a state of flux or subject to change without notice. Even where, as in
Guyana, there are established frameworks, they are administered by government
functionaries who may not adhere to the strict ledger of the law. This could
lead to litigation to correct administrative errors. (See "Item 1. Business.
Risk Factors; Our property interests in Guyana are subject to the risks of doing
business in foreign countries.")
Acquisition of Mineral Rights of Guyana
In Guyana all mineral rights are vested in the state. The Prime Minister is the
Minister responsible for minerals. Grants of rights are issued by the Guyana
Geology and Mines Commission (the "GGMC") after the approval of the Prime
Minister. The GGMC is the agency
4
with responsibility for applying and enforcing the Mining Act and its
regulations. The Commissioner of the GGMC reports directly to the Prime
Minister. The Guyana Gold Board (the "GGB") was created by the Guyana Gold Board
Act (the "Gold Act") in 1981. By law, the GGB is the only body that may buy or
sell gold both within or outside Guyana, with one notable exception. The Gold
Act makes provision for private traders to be licensed to buy and sell gold
within Guyana, as well as to export it. Foreign companies operating in the gold
sector are required to sell to the GGB at the world spot price, less the royalty
payable to the State of Guyana, that portion of gold required to meet all of
their local current obligations, including Guyanese taxes. Any surplus may be
exported once the requisite license is obtained. NARIL would be eligible to be
issued a license, but the Directors do not regard this as feasible at the
present time because, as stated above, the GGB purchases gold produced at the
world spot price, less a royalty (currently 5%).
The procedure for exploration and mining in Guyana by foreign companies is
streamlined. The GGMC is the agency responsible for negotiating and entering
into agreements with foreign companies. A foreign company can explore in Guyana
without first forming a local company. Before mining can start, however, a
Guyanese company has to be formed. The local company then applies for a mining
license. The GGMC, with the approval of the President, may grant a mining
license for property containing an ore body for up to 20 years or the life of
the deposit, whichever is shorter. The continuation of the mining license is
conditional on payment of annual land rentals and adequate work progress.
Inspections are made and progress reports are required.
Application for Mineral Properties in Guyana and our Licensed Properties
Prospecting/Mining Permits.
The GGMC is the statutory body that processes all applications for mineral
properties in Guyana. The Mining Act, 1989 provides for three scales of
operation:
(i) Claims (small scale). Land claims having dimensions of 1,500 ft. x 800 ft.
and river claims consisting of one mile of a river along with 66 ft. of
each bank. Under the Mining Act, claims are reserved for local miners (who
are presumed to have limited capital and resources) and must be held in
the names of Guyanese citizens. These are non-transferable. However, the
law and the GGMC recognize joint ventures whereby the citizen is the
claimholder and engages the foreign company under an exclusive irrevocable
license to carry out prospecting and mining operations on his behalf. We
have the right to work five small claims; however, we are not working
these claims at the moment.
(ii) Prospecting and Mining Permits (medium scale). Prospecting permits are
referred to as PPMS (prospecting permits medium scale). These are issued
for areas between 150 and 1,200 acres each. The Mining Act also reserves
these for Guyanese citizens, so foreign companies must create joint
ventures as described above. Our properties at Meamu, Mowasi and New
Cuyuni are all PPMS. We are not working these properties at
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the moment. A miner may upgrade a PPMS to a MPMS (mining permit medium
scale). This involves the filing of a performance bond in $200,000 GYD
(approximately $1,000 USD at the current exchange rate) per permit with
the GGMC. On obtaining an MPMS a miner must file an Annual Report on work
done on the property each year.
(iii) Mining Permits (large scale). These are issued for areas that are 500
acres or greater. The Mining Act permits foreign companies to hold areas
under large scale mining permits. The rationale is that local miners will
not have the capital and resources to develop these areas. On application,
the GGMC grants Permissions for Geological and Geophysical Surveys and
mapping. These are reconnaissance surveys over large acreages with the
objective of applying for prospecting, and later mining, licenses over
favorable ground selected on the basis of results obtained from the aerial
and field reconnaissance surveys. We have neither applied for nor been
granted any permits of this type.
Prospecting and Mining
Under the Mining Act, at the smallest scale, permission to carry on prospecting
and mining activities is very rudimentary. The scale and level of complexity
increases as the scale of operation becomes larger, and obtaining grants of
permission requires very complex types of documentation at the largest scale.
Claims (small scale). All the claimholder must do is to purchase a prospecting
license from the GGMC by payment of the statutory fee. He then locates the
claim, has it verified, and is issued a claim-license. Once he has the
claim-license, mining operations can begin. At this level - as compared to
medium and large scale - there is no need to first prospect the area before
upgrading to a mining license.
Medium scale properties. Medium scale properties require one to apply for a PPMS
by submitting a standard form application and a surveyor's description of the
area. The initial term of the PPMS is three years from its date of issue, and it
is renewable annually. Once the PPMS is issued, prospecting operations may be
carried on. The GGMC renews the PPMS once the requisite fee is paid. Once the
prospecting program is completed, the results are used to apply for a MPMS. As
stated above, this involves lodging a Performance bond. MPMS are granted for
twenty years or the life of the deposit, whichever is the sooner. They are also
renewable. Annual Reports of work done on the property must be filed with the
GGMC.
Frequently, companies carry on actual mining under PPMS as it is not always
clear where prospecting operations stop and mining begins. This is well known to
the GGMC. Miners merely renew their PPMS annually for the life of the deposit.
One reason for this is that the fee for the MPMS is substantially greater than
the fee for a PPMS. Failure by the GGMC to strictly enforce the Mining Act,
however, does not constitute a waiver or relaxation of the statutory provisions,
and a PPMS or MPMS may be forfeited at any time for non-compliance.
6
Large scale properties. Large scale properties require application for a license
to carry out Geological and Geophysical Surveys and mapping. The results of
these are used for applications for mining licenses large scale. These
necessarily involve a great degree of documentation and are quite complex. As
stated above, we have none of these.
All but one of our river claims and most of our land claims are small scale
claims or medium scale properties. One of our river locations, the one that we
are currently operating on, is a mining concession under granted under the
previous Mining Act. Mining of Small Scale Claims and our one mining concession
is permitted without the necessity of obtaining a separate mining license.
However, mining of Medium Scale Properties requires a MPMS.
Factors Affecting Operations in Guyana.
Our operations in Guyana are affected by local conditions such as prevalence of
serious disease at dredging sites such as malaria and denge fever; security
concerns; increases in prices for fuel used by dredging and earth moving
equipment; import taxes and duties on fuel, equipment and spare parts;
unavailability of equipment and spare parts locally, and drought periods, all of
which have resulted in interruption of operations in the past. See "Business -
Dredging Operations."
Dredging Operations
River dredging operations are conducted using a pond dredging system. The pond
dredging system requires the use of temporary river diversions for mining of the
riverbanks, the use of tailings dams and clean water inflow channels. The gold
bearing gravel is recovered by suction using a suction dredge, which is
described below.
Suction dredge floating units consist of six rectangular shaped floating units
that have a combined measurement of 12 x 24 meters. Living quarters are built
inland near the dredging ground.
The suction end usually consists of a 10-inch steel pipe with a suction motor.
The capacity of suction varies from 30 to 50 cubic meters of solids, and the
pulp density varies from 10 to 50% solids. The material is thrown over a fixed
grizzly. A sluice box with carpets is placed below the fixed grizzly in order to
concentrate free gold. The sluice box is washed at regular periods of time,
usually every one to two days of continuous operation.
A powerful diesel engine with 150 to 250 hp moves all of the dredge's main and
ancillary equipment. The ancillary equipment consists of welding machines, power
tools and living quarters appliances.
The concentrates generated in the sluice box are placed in jig boxes made out of
steel. Mercury is then placed in the jig box and agitated with the use of an
electric motor with rubber pads.
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All black sands are then removed by manual panning. Mercury is reclaimed by the
use of retorts (chemical recovery sytems) and is recycled in the operations.
After removal of the black sands, the amalgam is placed in a cloth and squeezed
manually over a bucket until all free liquid mercury is removed. No mercury is
disposed in the environment during the entire gold recovery process. The
resulting amalgam, which contains relatively little mercury, is placed into
crucibles, which are sealed into retorts. The mercury vapor passes through a
water-cooled condensing tube and exits sub-aqueously as liquid mercury into a
collecting tray. The resulting gold is reasonably pure and only residual mercury
is left.
Permanent crews of four to five men plus a cook will operate the entire dredge
usually on four-hour shifts with two men at a time.
This gold is then stored in secure boxes prior to shipment to Georgetown.
Heavily armed security guards always accompany gold shipments until they reach
their final destination. Special arrangements can be obtained for shipment and
sales overseas.
Mined-out site reclamation will include decontamination, channel restoration,
stratigraphic restoration, landscape restoration, and revegetation.
During the next 12 months, provided that we can obtain adequate financing, we
plan to purchase or construct a cutterhead dredge. A cutterhead dredge would
give us the ability to penetrate and operate below the cemented gravel layers
(gravel deposits that underwent a cementation process with iron oxide) of the
river. This will permit us to recommence dredging on claims 1 through 5.
Economics of alluvial mining compared to hard rock mining:
Alluvial mining operations are conducted in unconsolidated materials, which were
transported by a watercourse and deposited usually in creeks or river channels.
These alluvial deposits contain free metallic gold particles that resulted from
the continued weathering of the primary rock source over prolonged periods of
time. Free gold usually occurs in the gravel layers of the alluvial deposits,
and usually does not require the use of crushing or milling facilities.
Alluvial mining operations require significantly lower start-up capital compared
to hard rock mining, due to the simplicity of the required mining equipment. In
addition, the required recovery plants for alluvial operations are much simpler
and highly mobile, which enables their use in more than one project, requiring
small modifications. Start-up time is much shorter compared to hard rock mining
operations, with cash flow obtained almost immediately. Most importantly,
operational costs of alluvial mining operations are generally lower than hard
rock mining.
8
Environmental Regulations
The Government of Guyana is currently proposing an amendment to its Mining
Regulations which is intended to deal primarily with environmental matters
relating to mining operations such as those conducted by us. While we have not
been advised of any violations of any current regulations, it is possible that,
in the future, we may be required to address matters, which may be included in
any such new regulations if they become law. These matters are expected to deal
with use of poisonous substances, management of the environment, establishment
of protected areas where mining is prohibited or limited, and pollution control.
Penalties for violation of any such regulations may include fines and
imprisonment for violators. If our activities violate any of these regulations
our operations may be materially adversely affected, making our continued
operations economically unfeasible. We use mercury during our final recovery
process. Under Guyanese environmental regulations, we are required to utilize a
retort (chemical recovery) system. We utilize such a system. The GGMC inspects
our facilities for compliance with these regulations.
Competition
We compete with major mining companies and other natural resource companies in
the acquisition, exploration, financing and development of prospects. Most of
these companies are more experienced, larger and better capitalized than us. Our
competitive position depends upon our ability to successfully and economically
explore, acquire and develop new and existing mineral prospects. Factors which
allow producers to remain competitive in the market over the long term are cost
of operations and proximity to market.
Employees
As of September 23, 2004, we had approximately 60 employees consisting of eight
office staff, approximately 42 dredging related workers and 10 security
personnel.
Risk Factors
Our business operations and our securities are subject to a number of
substantial risks, including those described below. If any of the these or other
risks actually occur, our business, financial condition and operating results,
as well as the trading price or value of our securities could be materially
adversely affected.
Risks related to our operations
We have a history of operating losses and we anticipated losses and negative
cash flow for the near future. We cannot assure if or when operations will
become profitable.
Although we generated $638,973 in revenues during the six months ended June 30,
2004, $1,192,779 in revenues during the year ended December 31, 2003 and
$959,960 during the year
9
ended December 31, 2002, we realized losses during the six months ended June 30,
2004 of $181,239 and losses during the two years ended December 31, 2003 and
2002 of $295,273 and $416,060, respectively. As of June 30, 2004, our
accumulated deficit was $6,247,804. To become profitable, we believe that we
will need to get more dredges into operations, locate areas containing higher
values of gold and/or increase the operating times for the dredges. To date the
dredges have only operated approximately 60% of the available time. In January
2004 we moved our dredging location to concession 26 and, since July 2004, our
gold production has increased. However, we cannot assure if or when we will
achieve profitable operations.
Our audited consolidated financial statements contain a "going concern"
explanatory paragraph. Our inability to continue as a going concern would
require a restatement of assets and liabilities on a liquidation basis, which
would differ materially and adversely from the going concern basis on which our
consolidated financial statements included in this report have been prepared.
Our consolidated financial statements for the year ended December 31, 2003
included herein have been prepared on the basis of accounting principles
applicable to a going concern. Our auditors' report on the financial statements
includes an additional explanatory paragraph following the opinion paragraph on
our ability to continue as a going concern. Note 3 to these financial statements
describes the reasons why there is substantial doubt about our ability to
continue as a going concern and our plans to address this issue. Our December
31, 2003 consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty. Our inability to continue as
a going concern would require a restatement of assets and liabilities on a
liquidation basis, which would differ materially and adversely from the going
concern basis on which our consolidated financial statements have been prepared.
All of our assets are pledged as security under a debenture that is payable on
demand. If we are unable to repay the debenture, we could lose all of our assets
and our business operations would be materially and adversely affected.
We have pledged all of our assets to secure repayment of loans pursuant to a
debenture that is payable on demand. As of September 22, 2004, the outstanding
balance on these loans was approximately $30,000 U.S. Please see "Part I. Item
2. Management's Discussion and Analysis of Financial Conditions and Results of
Operations; Liquidity and Capital Resources" for more information about this
loan. In the event that the Bank makes demand for repayment or NARIL defaults
under the debenture and NARIL is unable to repay the loan, the debenture holder
is empowered to take possession of and operate or sell NARIL's assets or appoint
a receiver to take such action. In such an event, our business operations would
be materially and adversely affected.
We most likely will require additional funding which may not be available. If we
are unable to obtain necessary financing on acceptable terms, our business may
be adversely affected.
We most likely will require additional funding to increase our current mining
operations, primarily to acquire additional dredges and heavy equipment. We also
will need funding to
10
explore our other properties and acquire new properties. We may seek to obtain
such funding for these activities through equity or debt financing, joint
ventures or from other sources. There can be no assurances that we will raise
adequate funds on acceptable terms from these or other sources, which may have a
material adverse effect on our ability to continue or expand our operations.
Operational hazards and responsibilities could adversely affect our operations
Our activities are subject to a number of risks and hazards including:
o environmental hazards,
o industrial accidents,
o labor disputes,
o unusual or unexpected geological or operating conditions,
o changes in the regulatory environment,
o natural phenomena such as inclement weather conditions, floods and
earthquakes and
o other hazards
These occurrences could result in damage to, or destruction of, mineral
properties or production equipment, personal injury or death, environmental
damage, delays in mining, monetary losses and possible legal liability. We may
incur liability as a result of pollution and other casualties. See the next risk
factor.
We are not insured against any losses or liabilities that could arise from our
operations either because insurance is unavailable or because the premium cost
is excessive. The payment of such liabilities could have a material adverse
effect on our financial position and, depending on the extent of such liability,
could result in the total loss of our assets and operations.
Exploration for and development of gold involves hazards, which could result in
our incurring substantial losses and liabilities to third parties for pollution,
accidents and other hazards. We are not insured against any losses or
liabilities that could arise from our operations either because insurance is
unavailable or because the premium cost is excessive. If we incur uninsured
losses or liabilities, the funds available for exploration and development will
be reduced and our assets may be jeopardized. The payment of such liabilities
may have a material adverse effect on our financial position and, depending on
the extent of such liability, could result in the total loss of our assets and
operations.
11
Our ability to discover viable and economic mineral reserves is subject to
numerous factors, most of which are beyond our control and are not predictable.
Exploration for gold is speculative in nature, involves many risks and is
frequently unsuccessful. Few properties that are explored are ultimately
developed into commercially producing mines. Our long-term profitability will
be, in part, directly related to the cost and success of exploration programs.
Any gold exploration program entails risks relating to
o the location of economic ore bodies,
o development of appropriate metallurgical processes,
o receipt of necessary governmental approvals and
o if land based, construction of mining and processing
facilities at any site chosen for mining.
The commercial viability of a mineral deposit is dependent on a number of
factors including:
o the price of gold,
o exchange rates,
o the particular attributes of the deposit, such as its
o size,
o grade and
o proximity to infrastructure,
o financing costs,
o taxation,
o royalties,
o land tenure,
o land use,
o water use,
o power use,
o importing and exporting gold and
o environmental protection.
The effect of these factors cannot be accurately predicted.
The mineral properties in which we have an interest or right are in the
exploration stages and are without reserves of gold or other minerals. Although
we have been extracting and selling gold from the Konawaruk River, we do not
have any feasibility studies with regard to gold reserves at these locations. We
cannot assure that current or proposed exploration or development on our claims
or properties in which we have an interest will result in the discovery of gold
mineralization reserves or will result in a profitable commercial mining
operation.
12
Our ability to become and remain profitable, should we become profitable, will
be dependent on our ability to find, explore, develop and mine additional
properties. There is intense competition for the acquisition of gold properties.
If we are unable to accomplish this, we most likely will not be able to be
profitable on a long-term basis.
Gold properties eventually become depleted or uneconomical to continue mining.
As a result, our long-term success is dependent on our ability to acquire,
explore, develop and mine new properties. The acquisition of gold properties and
their exploration and development are subject to intense competition. Companies
with greater financial resources, larger staffs, more experience and more
equipment for exploration and development may be in a better position than us to
compete for such mineral properties. If we are unable to find, develop and
economically mine new properties, we most likely will not be able to be
profitable on a long-term basis.
Our property interests in Guyana are subject to the risks of doing business in a
foreign country.
We face risks normally associated with any conduct of business in foreign
countries, including various levels of political and economic risk. The
occurrence of one or more of these events could have a material adverse impact
on our current and future operations which, in turn, could have a material
adverse impact on our future cash flows, earnings, results of operations and
financial condition. These risks include the following:
o labor disputes,
o uncertain or unpredictable political and economic environments,
o war and civil disturbances,
o changes in laws or policies,
o mining policies,
o monetary policies
o unlinking of rates of exchange to world market prices,
o environmental regulations,
o labor relations,
o return of capital,
o taxation,
o delays in obtaining or the inability to obtain necessary
governmental permits,
o governmental seizure of land or mining claims,
o limitations on ownership,
o institution of laws requiring repatriation of earnings,
o increased financial costs,
o import and export regulations and
o institution of foreign exchange controls.
Any such changes may affect our current operations and ability to undertake
exploration and development activities in respect of present and future
properties in the manner currently
13
contemplated, as well as our ability to continue to explore, develop and operate
those properties in which we have an interest or in respect of which we have
obtained exploration and development rights to date. Certain changes could
result in the taking of property by nationalization or expropriation without
fair compensation.
There are uncertainties as to title matters in the mining industry. We believe
that we have good title to our properties, prospects and/or claims; however,
defects in such title could have a material adverse effect on us.
We have investigated our rights to explore, exploit and develop our various
properties, prospects and/or claims in manners consistent with industry practice
and, to the best of our knowledge, those rights are in good standing. However,
we cannot assure that the title to or our rights of ownership of our properties,
prospects and/or claims will not be challenged or impugned by third parties. In
addition, there can be no assurance that the properties, prospects and/or claims
in which we have an interest are not subject to prior transfers or claims and
title may be affected by undetected defects. Past recordkeeping practices in
Guyana have not been meticulous. Any such defects could have a material adverse
effect on us.
Our current and planned operations require permits and licenses from various
governmental authorities.
Our current and planned operations require permits and licenses from various
governmental authorities. We believe that we hold or have applied for all
necessary licenses and permits to carry on the activities which we currently are
conducting under applicable laws and regulations in respect of our properties.
We also believe that we presently are complying in all material respect with the
terms of such permits and licenses. However, such permits and licenses are
subject to change in regulations and in various operating circumstances. As a
result, there can be no assurance that we will be able to obtain or maintain in
force all necessary permits and licenses that may be required to conduct further
exploration or commence construction or operation of mining facilities at
properties under exploration or to maintain continued operations at economically
justifiable costs. Further, many of our mineral rights and interests are subject
to government approvals. In all such cases such approvals are, as a practical
matter, subject to the discretion of the Guyana government or governmental
officials. Our management has no reason to believe that such approvals will be
denied. However, no assurance can be given that we will be successful in
obtaining any or all of such approvals.
Gold prices can fluctuate on a material and frequent basis due to numerous
factors beyond our control. Our ability to generate profits from operations
could be materially and adversely affected by such fluctuating prices.
The profitability of our current and future gold mining operations are
significantly affected by changes in the market price of gold. Between January
1, 2004 and September 23, 2004, the fixed price for gold on the London Exchange
has fluctuated between $373 and $428 per ounce. Gold
14
prices fluctuate on a daily basis and are affected by numerous factors beyond
our control, including:
o the level of interest rates,
o the rate of inflation,
o central bank sales and
o world supply of gold.
Each of these factors can cause significant fluctuations in gold prices. Such
external factors are in turn influenced by changes in international investment
patterns and monetary systems and political developments. The price of gold has
historically fluctuated widely and, depending on the price of gold, revenues
from mining operations may not be sufficient to offset the costs of such
operations.
Gold is sold in Guyana in U.S. and Guyana dollars and we incur a significant
amount of our expenses in Guyana dollars. If applicable currency exchange rates
fluctuate our revenues and results of operations may be materially and adversely
affected.
We sell gold to the Guyana Gold Board in both Guyana and U.S. dollars and we
incur a significant amount of our expenses in Guyana dollars. As a result, our
financial performance is affected by fluctuations in the value of the Guyana
dollar to the U.S. dollar. At the present time, we have no plan or policy to
utilize forward contracts or currency options to minimize this exposure, and
even if these measures are implemented there can be no assurance that such
arrangements will be available, be cost effective or be able to fully offset
such future currency risks.
The loss of Mr. Hassan would likely have an adverse effect on our business.
Our success depends to a great extent upon the continued successful performance
of Sheikh S. Hassan, President of our Guyana subsidiary and one of our
directors. Although we employ, and will likely employ in the future additional
qualified employees as well as retaining consultants having experience in mining
operations, if Mr. Hassan is unable to perform his duties for any reason, our
ability to operate in Guyana will be materially adversely effected. We do not
have a key man life insurance policy on the life of Mr. Hassan.
Risks related to ownership of our stock
There is a limited market for our common stock. If a substantial and sustained
market for our common stock does not develop, our stockholders' ability to sell
their shares may be materially and adversely affected.
Our common stock is tradable in the over-the-counter market and is quoted on the
"Pink Sheets." There is only a limited market for our common stock and there can
be no assurance that this market will be maintained or broadened. If a
substantial and sustained market for our common
15
stock does not develop, our stockholders ability to sell their shares may be
materially adversely affected.
Our Common Stock was quoted on the OTC Bulletin Board until it was removed as a
result of the 1999 amendments requiring companies to report their current
financial information to the Securities and Exchange Commission as a condition
to continuing to have their securities quoted on the OTC Bulletin Board. We have
filed this registration statement to register our common stock under the
Securities Exchange Act of 1934 to meet the current requirements for quotation
on the OTC Bulletin Board. We anticipate that:
o when the Securities and Exchange Commission has no further
substantive comments on our registration statement and
o a broker-dealer is willing to list our common stock on the OTC
Bulletin Board, as to which we can give no assurance,
our common stock will be quoted on the OTC Bulletin Board again.
Substantial Sales of our common stock could cause stock price to fall.
As of September 23, 2004, we had outstanding 13,352,700 shares of common stock
of which approximately 8,789,500 shares were "restricted securities" as that
term is defined under Rule 144 promulgated under the Securities Act of 1933.
These restricted shares are eligible for sale under Rule 144 at various times;
however, approximately 5,357,934 of these shares are currently eligible for sale
under Rule 144. No prediction can be made as to the effect, if any, that sales
of shares of common stock or the availability of such shares for sale will have
on the market prices prevailing from time to time. Nevertheless, the possibility
that substantial amounts of our common stock may be sold in the public market
may adversely affect prevailing market prices for the common stock and could
impair our ability to raise capital through the sale of our equity securities.
We have a significant number of shares authorized but unissued. These shares may
be issued without stockholder approval. Significant issuances of stock would
further dilute the percentage ownership of held by our current stockholders and
would likely have an adverse impact on the market price of the Common Stock.
As of September 20, 2004, we have an aggregate of 11,922,300 shares of Common
Stock authorized, but unissued and not reserved for issuance for specific
purposes. All of such shares of Common Stock may be issued without any action or
approval by our stockholders. Any shares issued would further dilute the
percentage ownership of held by our current stockholders and would likely have
an adverse impact on the market price of the Common Stock.
16
We do not intend to pay dividends in the near future.
Our board of directors determines whether to pay dividends on our issued and
outstanding shares. The declaration of dividends will depend upon our future
earnings, our capital requirements, our financial condition and other relevant
factors. Our board does not intend to declare any dividends on our shares for
the foreseeable future. We anticipate that we will retain any earnings to
finance the growth and development of our business and for general corporate
purposes.
Our common stock may be deemed to be a "penny stock." As a result, trading of
our shares may be subject to special requirements that could impede our
stockholders' ability to resell their shares.
Our common stock is a "penny stock" as that term is defined in Rule 3a51-1 of
the Securities and Exchange Commission because it is selling at a price below
five dollars per share. In the future, if we are unable to list our common stock
on NASDAQ or a national securities exchange or the per share sale price is not
at least $5.00, our common stock may continue to be deemed to be a "penny
stock". Penny stocks are stocks:
i. with a price of less than five dollars per share;
ii. that are not traded on a recognized national exchange;
iii. whose prices are not quoted on the NASDAQ automated quotation
system; or
iv. of issuers with net tangible assets equal to or less than
o -$2,000,000 if the issuer has been in continuous operation for
at least three years; or
o -$5,000,000 if in continuous operation for less than three
years, or
o of issuers with average revenues of less than $6,000,000 for
the last three years.
Section 15(g) of the Exchange Act, and Rule 15g-2 of the Securities and Exchange
Commission, require broker-dealers dealing in penny stocks to provide potential
investors with a document disclosing the risks of penny stocks and to obtain a
manually signed and dated written receipt of the document before effecting any
transaction in a penny stock for the investor's account. Moreover, Rule 15g-9 of
the Securities and Exchange Commission requires broker-dealers in penny stocks
to approve the account of any investor for transactions in such stocks before
selling any penny stock to that investor. This procedure requires the
broker-dealer:
i. to obtain from the investor information concerning his or her
financial situation, investment experience and investment
objectives;
ii. to determine reasonably, based on that information, that
transactions in penny stocks are suitable for the investor and that
the investor has sufficient knowledge and experience as to be
reasonably capable of evaluating the risks of penny stock
transactions;
iii. to provide the investor with a written statement setting forth the
basis on which the broker-dealer made the determination in (ii)
above; and
17
iv. to receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor's
financial situation, investment experience and investment
objectives.
Compliance with these requirements may make it more difficult for holders of our
common stock to resell their shares to third parties or to otherwise dispose of
them.
Our Corporate History
We were incorporated on July 27, 1967 in Nevada under the name "Silver
Resources, Incorporated". We were organized for the purpose of exploring,
developing and mining mineral properties.
In December 1968, we completed a public offering pursuant to an exemption
provided by Regulation A under the Securities Act of 1933 and raised gross
proceeds of $300,000. Thereafter, we engaged in exploration for natural
resources in the States of Arizona and Nevada but were unable to locate any
economically viable property and, in 1984, we ceased material operations.
In July 1996, we acquired NARIL, at which time, NARIL's owners became our
officers and directors and we changed our name to "South American Minerals,
Inc."
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
In this section, we explain our consolidated financial condition and results of
operations for the year ended December 31, 2003 and December 31, 2002 and the
six months ended June 30, 2004 and 2003. As you read this section, you may find
it helpful to refer to our Consolidated Financial Statements at the end of this
registration statement.
Selected Financial Data
The selected financial data set forth below with respect to our consolidated
statements of operations for the fiscal year in the period ended December 31,
2003 and with respect to the consolidated balance sheet as at December 31, 2003,
are derived from our audited consolidated financial statements included at the
end of this registration statement. The selected financial data set forth below
with respect to our consolidated statements of operations for the fiscal year in
the period ended December 31, 2002 and with respect to the consolidated balance
sheet as at December 31, 2002, are derived from our unaudited consolidated
financial statements included at the end of this registration statement. The
consolidated balance sheet data as of June 30, 2004 and consolidated statements
of operations data for the six months ended June 30, 2004 and June
18
30, 2003 are derived from our unaudited interim consolidated financial
statements also included at the end of this registration statement. The
unaudited consolidated financial statements as of and for the six months ended
June 30, 2004 reflect all adjustments which, in our opinion, are necessary for a
fair presentation of our results of operations and our financial position. You
should read the following selected financial data in conjunction with our
consolidated financial statements and the notes thereto.
Year Ended December 31, Six Months Ended June 30,
---------------------------- ----------------------------
2003 2002 2004 2003
----------- ----------- ----------- -----------
(unaudited) (unaudited)
Operations Data
Sales $ 1,136,898 $ 959,832 $ 638,376 $ 576,537
----------- ----------- ----------- -----------
Other Revenue $ 55,881 $ 128 $ 597 $ 60,289
----------- ----------- ----------- -----------
Total Revenues $ 1,192,779 $ 959,960 $ 638,973 $ 636,826
----------- ----------- ----------- -----------
Royalties $ 51,317 $ 41,465 $ 32,121 $ 28,377
----------- ----------- ----------- -----------
Mining expenses $ 807,475 $ 831,619 $ 501,199 $ 349,582
----------- ----------- ----------- -----------
General and administrative $ 462,186 $ 368,944 $ 225,046 $ 239,324
----------- ----------- ----------- -----------
Depreciation & Amortization $ 87,275 $ 104,786 $ 39,793 $ (44,256)
----------- ----------- ----------- -----------
Net (loss) $ (295,273) $ (416,060) $ (181,239) $ (54,105)
----------- ----------- ----------- -----------
Cash Flows Data
Net cash (used) in operations $ (108,418) $ (171,755) $ (115,271) $ (162,820)
----------- ----------- ----------- -----------
Net cash Provided (used) by investing activities $ (40,999) $ (2,822) $ (9,892) $ 60,895
----------- ----------- ----------- -----------
Net cash from financing activities $ 153,931 $ 116,195 $ 171,602 $ 41,806
----------- ----------- ----------- -----------
Effects of exchange rates on cash $ (19,474) $ 58,761 $ 3,008 $ 93,968
----------- ----------- ----------- -----------
Net increase (decrease) in cash $ (14,960) $ 379 $ 49,447 $ 33,849
----------- ----------- ----------- -----------
Balance Sheet Data
Cash $ 3,456 $ 18,416 $ 52,903 $ 52,265
----------- ----------- ----------- -----------
Total current assets $ 23,425 $ 16,823 $ 116,688 $ 33,342
----------- ----------- ----------- -----------
Equipment (net) $ 374,067 $ 366,944 $ 335,440 $ 313,774
----------- ----------- ----------- -----------
Total Assets $ 398,116 $ 409,479 $ 452,128 $ 402,102
----------- ----------- ----------- -----------
Total current liabilities $ 995,292 $ 826,955 $ 1,026,999 $ 883,150
----------- ----------- ----------- -----------
Stockholders' equity (deficiency) $ (488,260) $ (417,476) $ (467,460) $ (404,356)
----------- ----------- ----------- -----------
To date, our principal operations have been conducted in Guyana. Our revenues
are earned in Guyana dollars and a good portion of our expenses are incurred in
Guyana dollars. Our financial statements have been conformed to US GAAP and
presented in US dollars for purposes of this registration statement. The rates
of exchange between the Guyana dollar and U.S. dollar set out below were used to
convert the various financial statement balances from Guyana dollars to U.S.
dollars. In the following tables we set forth:
o the rates of exchange for the U.S. dollar, expressed in Guyana
dollars (GD), in effect at the end of each of the periods indicated;
o the average of the exchange rates in effect during such periods
19
Six Months ending June 30
2004 2003
Rate at end of Period 179.5344GD 180.0203GD
Average Rate During Period 179.5344GD 180.8521GD
Years ending December 31
2003 2002
Rate at end of Period 179.5344GD 179.5344GD
Average Rate During Period 179.5344GD 180.3250GD
Results of Operations
Six months ended June 30, 2004 compared to the six months ended June 30, 2003
Revenues
We generated approximately $638,400 in sales from dredging operations during the
six months ended June 30, 2004 compared to approximately $576,500 for the six
months ended June 30, 2003, an increase of approximately $61,900 (approximately
10.3%). This increase is primarily due to an increase in the price of gold. We
generated interest income during the six months ended June 30, 2004 of
approximately $600 compared to approximately $60 for the six months ended June
30, 2003. We also recognized the gain on the sale of a dredge of approximately
$55,900 during the six months ended June 30, 2003.
Cost and Expenses
Overall cost and expense during the six months ended June 30, 2004 ($816,100)
increased $135,700, approximately 20.0%, from the six months ended June 30, 2003
($680,400), primarily due to an increase in mining expenses.
Mining expenses for the six months ended June 30, 2004 ($501,200) increased by
approximately $151,600 from the six months ended June 30, 2003 ($349,600)
(approximately 43.4%). This increase is primarily due to increases in fuel
($27,000), spare parts and equipment maintenance
20
($46,000), labor ($10,000) and miscellaneous mine supplies ($69,000). Over the
past year, diesel fuel prices have increased by approximately 43%.
Selling, general and administrative expense during the six months ended June 30,
2004 ($225,000) decreased by $14,300 (approximately 6.0%) from the six months
ended June 30, 2003 ($239,300). This decrease was primarily due to a decrease in
general office expenses and travel.
Stock based compensation included in selling, general and administrative expense
was $600 for the six months ended June 30, 2004 compared to 0 for the six months
ended June 30, 2003.
Effects of Exchange Rates on Cash
The reporting currency for our financial statements is the United States dollar.
The functional currency for our operating subsidiary is the Guyana dollars.
Accordingly, the assets and liabilities of the subsidiary are included in the
financial statements by translating them from Guyana dollars to United States
dollars at the exchange rates applicable at the end of reporting period.
Revenues are in U.S. and Guyana dollars. Revenues in Guyana dollars and expenses
are translated from Guyana dollars to United States dollars at the average
monthly exchange rates during the year. Translation gains and losses are
accumulated as a separate component of stockholders' equity. During the six
months ended June 30, 2004, we recorded translation losses of $8,810 compared to
the $4,134 in translation losses we recorded during the six months ended June
30, 2003.
Net Loss
As a result, our net loss for the six months ended June 30, 2004 was $181,200
which was $127,100 more than our $54,100 loss for the six months ended June 30,
2003.
The year ended December 31, 2003 compared to the year ended December 31, 2002
Revenues
We generated approximately $1,136,900 in sales from dredging operations during
the year ended December 31, 2003 compared to approximately 959,800 in sales for
the year ended December 31, 2002, an increase of approximately $177,100
(approximately 18.5%). This increase is primarily due to an increase in the
price of gold. We generated interest income during the year ended December 31,
2003 of approximately $136 compared to approximately $128 for the year ended
December 31, 2002. We also recognized a gain on the sale of a dredge of
approximately $55,900 in the year ended December 31, 2003.
21
Cost and Expenses
Overall, cost and expense during the year ended December 31, 2003 ($1,452,600)
increased $66,800 (approximately 4.8%) from the year ended December 31, 2002
($1,385,800).
Mining expenses for the year ended December 31, 2003 ($807,500) decreased by
approximately $24,100 from December 31, 2002 ($831,600) (approximately 2.9%).
This decrease is primarily due to decreases in contract labor ($13,000) and
miscellaneous mine supplies ($11,000).
Selling, general and administrative expense during the year ended December 31,
2003 ($462,200) increased by $93,300 (approximately 20.2%) from the year ended
December 31, 2002 ($368,900). This increase is primarily due to an increases in
professional fees ($46,000), consultants ($13,000), travel ($14,000) and payroll
related costs ($20,300).
Stock based compensation included in selling, general and administrative
expenses was $15,000 for the year ended December 31, 2003 and December 31, 2002.
Effects of Exchange Rates on Cash
The reporting currency for our financial statements is the United States dollar.
The functional currency for our operating subsidiary is the Guyana dollars.
Accordingly, the assets and liabilities of the subsidiary are included in the
financial statements by translating them from Guyana dollars to United States
dollars at the exchange rates applicable at the end of reporting period.
Revenues are in U.S. and Guyana dollars. Revenues in Guyana dollars and expenses
are translated from Guyana dollars to United States dollars at the average
monthly exchange rates during the year. Translation gains and losses are
accumulated as a separate component of stockholders' equity. During the year
ended December 31, 2003, we recorded translation losses of $5,672 compared to
the $47,894 in translation gains we recorded during the year ended December 31,
2002.
Net Loss
As a result, our net loss for the year ended December 31, 2003 was $295,300
which was $120,800 less than our $416,100 loss for the year ended December 31,
2002.
Liquidity and Capital Resources
As of June 30, 2004 we had negative working capital of approximately of
$910,300, compared to negative working capital of approximately $971,900 as at
December 31, 2003. In January 2004 we moved our dredging location to concession
26 and, since July 2004 our gold production has increased. However, we cannot
assure that sufficient funds acquired during the next year or thereafter will be
generated from operations or that funds will be available from external sources
such as debt or equity from financing or other potential sources. The lack of
additional capital resulting from the inability to generate sufficient cash flow
from operations or to raise capital from external sources would force us to
substantially curtail or cease operations and would, therefore, have a material
effect on its business. Further, there can be no assurance that such
22
required funds if available, will be available on attractive terms or that they
will not have a significant dilutive effect on our existing stockholders.
Net cash used by operating activities decreased by approximately $48,000 from
the six months ended June 30, 2003 to six months ended June 30, 2004. This
decrease was primarily attributable to an increase in the net loss of
approximately $127,000 less a reduction in gain on sale of property and
equipment of approximately $60,000 offset by an increase in spare parts
($27,000) and an increase in liabilities ($21,000). Net cash used by operating
activities decreased by approximately $63,000 from the year ended December 31,
2002 to December 31, 2003. This decrease was primarily attributable to a
decrease in the net loss of approximately $121,000 less a gain on the sale of
property and equipment of $56,000.
Net cash used in investing activities during the six months ended June 30, 2004
of approximately $9,900 was a result of acquisitions of property and equipment.
Net cash used in investing activities during the year ended December 31, 2003 of
approximately of $41,000 was the result of a sale of a dredge of $75,000, less
other capital expenditures of $116,000.
Net cash provided by financing activities was approximately $172,000 for the six
months ended June 30, 2004 compared to net cash provided by financing activities
of approximately $42,000 for the six months ended June 30, 2003. This increase
was primarily attributed to increased issuances of our common stock of
approximately $183,000 offset by payments of liabilities. Net cash provided by
financing activities was approximately $154,000 for the year ended December 31,
2003 compared to net cash provided by financing activities of approximately
$116,000 for the year ended December 31, 2002. This increase was primarily
attributed to increased issuances of our common stock of approximately $15,000
and additional net borrowings of $23,000.
In March 2003, NARIL borrowed $10,000,000 Guyana dollars (approximately $55,600
U.S.) from and issued a Debenture to Demerara Bank Limited. Pursuant to the
Debenture, the loan bears interest at the rate of 17.5% per annum or such other
rate as the bank may fix from time to time on the amount of the loan outstanding
on the 25th day of each month in each year during the continuance of the
Debenture. Interest is payable monthly. The principal balance is due and payable
21 days after written demand (or immediately if the Bank determines that a delay
would be prejudicial to the Bank's security). Repayment of the loan is secured
by a first priority lien against all of NARIL's assets. The principal balance is
due immediately upon the following events: (i) failure to pay interest within 14
days of the date upon which an interest payment is due, provided the Bank
notifies NARIL of such failure in writing prior to payment of such interest; or
(ii) there is an order or resolution to wind up NARIL; (iii) if there is an
execution against any of NARIL's property, which execution is not discharged
within five days; (iv) a receiver is appointed for NARIL or any of its assets;
or (v) NARIL ceases or threatens to cease to carry on its business. Upon any
demand by the Bank for payment under the Debenture, the Bank is empowered to
take possession of and operate or sell NARIL's assets or appoint a receiver to
take such action. All proceeds shall be used first to pay the costs of such
actions and then to pay moneys owed under the Debenture. Any remaining funds
shall be paid to NARIL. All principal and interest shall become due immediately
upon an event of a default. Events of default include:
23
NARIL's default under the Debenture; certain events of reorganization (unless
not arising of insolvency), liquidation or dissolution; and any event that, in
the Bank's reasonable opinion, would make it likely that NARIL would be unable
to complete its project or that might seriously impair the future performance by
NARIL under the Debenture. At present the debenture consists of a $5,000,000
Guyana dollars revolving credit line and a $3,000,000 Guyana dollars term loan.
As of September 22, 2004, NARIL owed approximately $3,701,400 (approximately
$20,617 U.S.) Guyana dollars under the revolving line of credit and $1,700,750
(approximately $9,470 U.S.) under the term loan. NARIL has been using the
proceeds of this loan and credit line for general operating purposes.
During the next 12 months, we hope to acquire or build one cutterhead dredge
(see "Part I, Item 1. Business; Current and Planned Activities During The Next
12 Months" ). We anticipate that this will cost approximately $250,000. We may
seek to obtain the requisite funding through equity or debt financing, joint
ventures or from other sources. There can be no assurances that we will raise
adequate funds on acceptable terms from these or other sources, which may have a
material adverse effect on our ability to continue or expand our operations.
Off-Balance Sheet Transactions
We do not have any transactions, agreements or other contractual arrangements
that constitute off-balance sheet arrangements
Application Of Critical Accounting Policies
Our financial statements and accompanying notes are prepared in accordance with
accounting principles generally accepted in the United States of America.
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue,
and expenses. These estimates and assumptions are affected by management's
application of accounting policies. Critical accounting policies for us include
impairment of long-lived assets, accounting for stock-based compensation and
environmental remediation costs.
In accordance with SFAS 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of," we review our long-lived assets
for impairments. Impairment losses on long-lived assets are recognized when
events or changes in circumstances indicate that the undiscounted cash flows
estimated to be generated by such assets are less than their carrying value and,
accordingly, all or a portion of such carrying value may not be recoverable.
Impairment losses then are measured by comparing the fair value of assets to
their carrying amounts. During the year ended December 31, 2003, we performed a
review of our long lived assets and determined that an impairment loss should
not be recognized. We recognized no impairment loss during the six months ended
June 30, 2004 and 2003.
We account for stock-based compensation to our employees using the intrinsic
value method in accordance with provisions of the Accounting Principles Board
("APB") Opinion No. 25,
24
"Accounting for Stock Issued to Employees" and related interpretations which
requires the recognition of compensation expense over the vesting period of the
option when the exercise price of the stock option granted is less than the fair
value of the underlying common stock. Additionally, we comply with the
disclosure provisions of Statement of Financial Accounting Standards No. 123
"Accounting for Stock Based Compensation" ("SFAS 123") and provide pro forma
disclosure of net loss and loss per share as if the fair value method has been
applied in measuring compensation expense for stock options granted. Stock-based
compensation related to options granted to non-employees is recognized using the
fair value method in accordance with SFAS 123.
Environmental remediation costs are accrued based on estimates of known
environmental remediation exposure. Such accruals are recorded even if
significant uncertainties exist over the ultimate cost of the remediation. It is
reasonably possible that our estimates of reclamation liabilities, if any, could
change as a result of changes in regulations, extent of environmental
remediation required, means of reclamation or cost estimates. Ongoing
environmental compliance costs, including maintenance and monitoring costs, are
expensed as incurred. There were no environmental remediation costs accrued at
June 30, 2004.
Item 3. Description of Property
As of September 22, 2004, we held under agreements with property holders the
rights to prospect and mine the following mineral properties and claims located
in Guyana, in South America. Except as noted in the footnotes, our rights run
for the life of the properties.
25
Claim/ Permit
# Property Acreage Expiration
Name of Claim Royalty(1) Location Type Permit(2) Date(3)
---- -------- ---------- -------- ---- --------- -------
1 Again 27.33 -0- Konawaruk River/ Mining District 2 River Mar. 31, 2005
2 Again #1 27.33 -0- Konawaruk River/ Mining District 2 River Mar. 31, 2005
3 Again #2 27.33 -0- Konawaruk River/ Mining District 2 River Mar. 31, 2005
4 Again #3 27.33 -0- Konawaruk River/ Mining District 2 River Mar. 31, 2005
5 Bad 27.33 -0- Konawaruk River/ Mining District 2 River Mar. 31, 2005
6 (5) 1,117 5% Potaro/Mining District 2 Land 0418/1998 Dec. 22, 2004
7 (5) 1,117 5% Potaro/Mining District 2 Land 0430/1998 Dec. 22, 2004
8 (5) 1,117 5% Potaro/Mining District 2 Land 0431/1998 Dec. 22, 2004
9 (5) 1,200 Potaro/Mining District 2 Land 0226/2002 Apr. 2, 2003
10 (5) 1,075 Potaro/Mining District 2 Land 0168/2001 Mar. 13, 2005
11 (5) 1,200 Potaro/Mining District 2 Land 0169/2001 Mar. 13, 2005
12 (5) 1,078 Potaro/Mining District 2 Land 0170/2001 Mar. 13, 2005
13 (5) 1,012 Potaro/Mining District 2 Land 0171/2001 Mar. 13, 2005
14 (5) 1,012 Potaro/Mining District 2 Land 0172/2001 Mar. 13, 2005
15 (5) 1,152 Cuyuni/Mining District 4 Land 0166/2001 Mar. 7, 2005
16 (5) 1,088 Cuyuni/Mining District 4 Land 0167/2001 Mar. 13, 2005
17 (5) 1,200 Mazaruni/Mining District 3 Land 0173/2001 Mar. 27, 2005
18 (5) 1,000 Mazaruni/Mining District 3 Land 0174/2001 Mar. 27, 2005
19 (5) 1,036 Mazaruni/Mining District 3 Land 0175/2001 Mar. 27, 2005
20 (5) 1,150 Mazaruni/Mining District 3 Land 0176/2001 Apr. 5, 2005
21 (5) 1,152 Mazaruni/Mining District 3 Land 0177/2001 Mar. 27, 2005
22 (5) 1,152 Mazaruni/Mining District 3 Land 0178/2001 Apr. 1, 2005
23 (5) 1,152 Mazaruni/Mining District 3 Land 0179/2001 Apr. 1, 2005
24 (5) 1,152 Mazaruni/Mining District 3 Land 0180/2001 Apr. 1, 2005
25 (5) 1,152 Mazaruni/Mining District 3 Land 0181/2001 Apr. 1, 2005
26 (4)(5)(6) 24.9 Sq. miles 10% Potaro/Mining District 2 Land 0646/1990 Mar. 15, 2005
(1) Represents the % of the gross value of the minerals recovered from the
property payable to the property holder in minerals or cash, at the
property holder's discretion. Gross value means the actual value of the
gold recovered, exclusive of Government royalties and taxes. Does not
include the royalties payable to the Government of Guyana. See "Royalties"
below.
26
(2) Represents the PPMS permit held for the property. If there is no permit
number, the location is a small scale claim. See "Application for Mineral
Properties in Guyana and our Licensed Properties" in "Part I. Description
of Business" above.
(3) See "Application for Mineral Properties in Guyana and our Licensed
Properties" in "Part I. Description of Business" above. We renew these
annually.
(4) This Concession is currently being mined.
(5) NARIL has the right to operate these properties. These properties do not
have names.
(6) The right to work this property is held by Guyana Primary Resources.
NARIL's rights to prospect and mine on this property is non-exclusive and
currently runs through May 30, 2005, subject to up to nine annual
renewals. NARIL's rights are terminable by NARIL or the property holder on
three month's notice; sooner if there is a breach of the agreement. This
type of property is known as a mining concession. It is a type of mining
property which was formerly granted under the previous Mining Act, Chapter
65:01. With the enactment of the present Mining Act this type of property
is no longer granted. However, existing ones (of which this is one) are
valid.
As mentioned above in "Application for Mineral Properties in Guyana and our
Licensed Properties" in Part I, Item 1. Description of Business, under the
Mining Act, small scale and medium scale properties must be held in the names of
Guyanese citizens. Accordingly, all of the properties over which NARIL has the
right to prospect or mine, are held by Guyanese citizens. NARIL has license
agreements with these property holders.
Royalties
We are required to pay royalties on all gold produced during our operations.
These royalties are paid to the Government of Guyana on all gold sales whether
the gold is produced from properties where we are the original license holder or
from properties which are under license to third parties who have issued
sublicenses to us. The amount of the royalty varies from 3% to 5% depending on
the world market price of gold. The royalty is 3% when gold is below $265, 4%
when it is between $265 and under $285, and 5% when it is $285 or greater.
In addition, we may pay a royalty to the license holder from whom we have
received a sublicense. Such royalty may vary from 0% to 10%, depending on the
sublicense terms, and are set forth in the chart above.
Property History
A number of companies have explored the Konawaruk River since the 1950's. The
table below shows the most important exploration programs in the Konawaruk River
area:
DATE COMPANY EXPLORATION PROGRAM
1951 to 1953 B. G. Consolidated 600 banka drill holes - 6" diameter
1958 PATO Consolidated 51 banka drill holes - 6" diameter
1981 to 1982 RUDIS Yugoslavia 112 banka drill holes/ - 6"diameter
1992 to 2001 Mazda Limited Mine-front pitting before dredging
27
A compilation of all previously recorded gold production shows a total
production of approximately 10,000 kg of gold produced to date. It includes both
hand methods and dredging operation. The following is a brief description of the
most important historical mining operations:
DATE COMPANY MINING METHOD TOTAL Au
RECOVERED AND
DECLARED
1907 to 1927 Manual work + 2 dredges Manual 91,000 oz.
1958 BG Consolidated Bucket-wheel dredging 2,500 oz.
1992 to 2001 Mazda Limited Suction dredging 98,000 oz
NARIL has produced in excess of 16,000 ounces of gold in the Konawaruk River
Project since year 2000, using suction dredges. NARIL's operations are
concentrated in areas of the Konawaruk River alluvials that show the presence of
iron-cemented gold bearing gravel layers, which often show bonanza (rich) grade
gold mineralization.
Between January 1, 2004 and September 23, 2004, the fixed price for gold on the
London Exchange has fluctuated between $373 and $428 per ounce.
The gold produced by suction dredging in the Konawaruk River Gold Project stored
in secure boxes prior to shipment to Georgetown. Heavily armed security guards
always accompany gold shipments until it reaches its final destination. London
second fix prices are utilized if gold sales are conducted in Guyana.
Property Location
Claim/Properties Nos 1-8 and 26: The Konawaruk properties are located in north
central Guyana, Potaro Mining District #2, some 200 kilometers SW of the capital
Georgetown. Access to the area is among the best in Guyana, via 90 kilometers of
paved road to the city of Linden, followed by 140 kilometers of laterite capped
road (Mahdia road) to reach the Konawaruk River and the claims mentioned.
Alternatively, airplanes can be chartered from Georgetown to reach to the
Konawaruk National Service Centre airstrip, taking approximately 40 minutes.
Properties Nos 9-14: The Mowasi properties are located in north central Guyana,
Potaro Mining District #2, some 200 kilometers SW of the capital Georgetown.
Access to the area is among the best in Guyana, via 90 kilometers of paved road
to the city of Linden, followed by 170 kilometers of laterite capped road
(Mahdia road) to reach the Mowasi River and the PPMSs. Alternatively, airplanes
can be chartered from Georgetown to reach to the Konawaruk National Service
Centre airstrip, taking approximately 40 minutes.
28
Properties Nos 17-25: The Meamu properties are located in west Guyana, Mazaruni
Mining District #3, some 250 kilometers SW of the capital Georgetown. Access to
the area is among the best in Guyana, via jet boats with payload capacity of
5,000 lbs, taking approximately 8 hours. In addition, a combination of truck
transportation using the Issano Road for a total of 300 kilometers, followed by
cargo boat with payload capacity of 25,000 lbs can be used as well.
Properties Nos 15-16: The Oko properties are located in north central Guyana,
Cuyuni Mining District #4, some 200 kilometers SW of the capital Georgetown.
Access to the area is among the best in Guyana, via 90 kilometers of paved road
to the city of Linden, followed by 120 kilometers of laterite capped road
(Puruni road) to reach the Oko River and the PPMSs mentioned. Alternatively,
airplanes can be chartered from Georgetown to reach to the Oko airstrip, taking
approximately 35 minutes.
Geography
All of the properties in which we have an interest are situated in geologic
domains known as greenstone belts, which are ancient volcanic-sedimentary rock
assemblages. Greenstone belts are known to be favorable geologic environments
for gold mineralization and account for a significant proportion of the world's
gold production, for instance, the greenstone belts of the Canadian Shield in
Eastern Canada, the Pilbara and Yilgarn Blocks of Western Australia, the
greenstone belts of Each and West Africa and the Guiana and Brazilian Shields of
South America.
Gold exploration and mining have, in the past, been conducted within most of the
areas where our properties are located. However, with a few exceptions, the
areas have yielded comparatively few large scale mining infrastructure, and
until a few years ago, adverse political and business conditions. Although there
are, or have been numerous artisanal mining operations scattered throughout the
areas where our properties are located, with very few exceptions, these areas
had not until recently been fully explored with modern techniques and equipment.
Our executive office is located at 76 Beaver Street, 26th Floor, New York, New
York 10005. Telephone Number 212-668-0842. We sublet space at such location from
Capital Gold Corporation on a month-to-month bases. Current rent is $750 per
month.
NARIL's office facilities are located at 88 Barrack Street, Georgetown, Guyana
where it occupies 3,000 square feet of space, which it rents for $2,000 per
month from an unaffiliated party under a lease that expires on June 30, 2006.
NARIL provides housing quarters for Mr. Hassan, its chief executive officer and
one of our directors, in Georgetown, Guyana. The quarters occupy 2,000 square
feet of space, and are rented for $1,500 per month from an unaffiliated party
pursuant to a lease that expires on April 30, 2007.
29
Item 4. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of September 20, 2004, with
respect to
o any person known by us to own beneficially more than 5% of our
common stock;
o common stock beneficially owned by each of our officers and
directors and officers and directors of NARIL; and
o the amount of common stock beneficially owned by our officers and
directors and the officers and directors of NARIL as a group.
Approximate Percent
Name & Address of Number of Shares of Common Stock
Beneficial Owner Beneficially Owned Outstanding (1)
---------------- ------------------ ---------------
Sheikh S. Hassan*(2) 890,500 6.7%
Jack H. Paulsen*(3) 360,510 2.7%
Gifford A. Dieterle* 650,000 4.9%
Saul Horing*(4) 295,000 2.2%
Arthur Brown*(5) 584,500 4.4%
Joshua Summerland* -0- -0-%
All directors and executive
Officers as a group (6 persons) 2,780,510 20.8%
----------
* Executive Officer and Director.
(1) Based upon 13,352,700 shares of common stock issued and outstanding as of
September 20, 2004 and includes, for each person, the shares issuable upon
exercise of warrants owned by them.
(2) Includes 570,500 shares held by DePaco Holding Corp. controlled by Mr.
Hassan.
(3) Includes 78,910 shares held by a company controlled by Mr. Paulsen.
(4) Includes 60,000 shares owned jointly with his wife. Also includes 25,000
shares owned by his wife. Mr. Horing disclaims beneficial interest in the
shares owned by his wife and half of the shares jointly owned with his
wife.
(5) Includes 441,250 shares owned by Diet Group, Inc., a corporation
controlled by Mr. Brown.
30
Item 5. Directors and Executive Officers, Promoters and Control Persons
Name Age Position
---- --- --------
Saul Horing 75 Our President and a Director, and a Director
of NARIL
Sheikh S. Hassan 43 One of our Directors
and Chief Executive Officer,
Secretary and Chairman of the Board of
Directors of NARIL
Jack H. Paulsen 69 Our Vice President and a Director, and a
Director of NARIL
Gifford A. Dieterle 72 Our Executive Vice President, Secretary
and Treasurer, and a Director of NARIL
Joshua Summerland 48 One of our Directors, and a Director of NARIL
Arthur Brown 53 One of our Directors
Each director has been elected to serve until the next annual meeting of
stockholders, or until his earlier resignation, removal from office, death or
incapacity. Officers are elected by the directors at meetings called by the
directors for such purpose.
SAUL HORING has been one of our directors since 1996 and our president since
1998. He also served as our president from 1969 to 1996. He received a LLB
degree in 1954 and a JD degree in 1967 from Brooklyn Law School and is a
practicing attorney in New York.
GIFFORD A. DIETERLE, has been our executive vice president and
secretary-treasurer since 1997 and one of our directors since 1996. Mr. Dieterle
is president, treasurer and chairman of the board of directors of Capital Gold
Corporation, a public gold exploration company, where he has worked for more
than 20 years. From 1977 until 1993, he was chairman, treasurer and executive
vice-president of Franklin Consolidated Mining Company. From 1965 to 1987, he
was lecturer in geology at the City University of N.Y. (Hunter Division). Since
1962, he has been a consulting geologist engaged in the geological evaluation of
oil and mineral properties. He graduated from New York University with a BA in
geology in 1956 and with a MS in geology in 1959.
SHEIKH S. HASSAN, has been one of our directors since 1996 and chief executive
officer, secretary and chairman of the board of NARIL since 1995. He has
serviced mining claims in Guyana, and the dredging of gold in various rivers in
Guyana, as well as engaging in all facets of Guyana gold mining operations. Mr.
Hassan has been the treasurer of the Guyana Gold and Diamond Miners Association
for the past three years.
JACK H. PAULSEN, has been one of our directors and vice presidents since 1996.
Mr. Paulsen has been a consultant on mineral exploration in Liberia, West
Africa, French Guinea,
31
Brazil and Venezuela. He has been active in on-site operations for NARIL since
becoming one of our officers and directors.
JOSHUA SUMMERLAND, has been one of our directors since November 2003. Mr.
Summerland has been a sole practitioner in the accounting profession since 1979.
He is a member of the Registered Professional Accountants Association of
Alberta, Canada.
ARTHUR BROWN has been one of our directors since 1998.
Item 6. Executive Compensation
The following table shows all the cash compensation paid or to be paid by us or
NARIL, as well as certain other compensation paid or accrued, during the fiscal
years indicated, to our chief executive officer and to NARIL's chief executive
officer for such period in all capacities in which such officer served. No other
executive officer received total annual salary and bonus in excess of $100,000.
SUMMARY COMPENSATION TABLE
---------------------------------------------------------------------------------------------------------------------------
Long Term Compensation
---------------------------------------------------------------------------------------------------------------------------
Annual Compensation
---------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
---------------------------------------------------------------------------------------------------------------------------
Other Securities All
Name and Annual Restricted Underlying LTIP Other
Principal Compensa- Stock Options/ Payouts Compensa-
Position Year Salary($) Bonus($) tion ($) Award ($) SARs ($) tion
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Horing, Saul 2003 $24,000
Our CEO 2002 $24,000
2001 $24,000
---------------------------------------------------------------------------------------------------------------------------
Sheikh S. Hassan, 2003 $74,769 12,500
CEO, Secretary & 2002 $74,872 12,500
Chairman 2001 $69,686 12,500
---------------------------------------------------------------------------------------------------------------------------
Directors do not receive any compensation for serving as such or for attending
meetings of the Board; however, they are reimbursed their accountable expenses
for attending meetings. However, in September 2004, we issued 50,000 shares each
to four of our directors. The Board does not currently have a compensation
committee, audit committee of nominating committee.
Messrs. Horing, Dieterle and Paulsen serve on a month-to-month basis and receive
$2,000; $2,000 and $1,000 per month, respectively, for their services. No
officer devotes full time to our business. Mr. Hassan devotes most of his time
to the business of NARIL.
32
Pursuant to an employment agreement dated August 1, 2004 with NARIL, Mr. Hassan,
NARIL's chief executive office, secretary and Chairman, receives an annual
salary (August through July) of $90,000 in 2004 plus health and other benefits.
Mr. Hassan is also provided with living quarters, food supplies and a
housekeeper for which we incurred charges of approximately $30,000 in 2003. Upon
execution of the agreement, Mr. Hassan is to receive 100,000 shares of our
common stock and he is entitled to an annual bonus of 100,000 shares. The
initial 100,000 shares will be issued in September 2004. The agreement runs for
a period of one year and, thereafter, is terminable by either party upon the
occurrence of a material breach. Pursuant to a prior employment agreement, he
received 50,000 shares per year in 2001, 2002, 2003 and 2004.
Item 7. Certain Relationships and Related Transactions
From time to time, certain of our officers and/or their wives have made interest
bearing demand loans to us or NARIL, all of which were made prior to January 1,
2002. As of June 30, 2004, pursuant to these loans, we owed Mr. Horing and his
wife an aggregate of $39,275 and we owed Mr. Dieterle $6,990. These loans bear
interest at 8% per annum. In addition, as of June 30, 2004, pursuant to a
promissory note to Mr. Hassan and a company owned by Mr. Hassan, NARIL owes Mr.
Hassan an aggregate of 16,679,899 Guyana dollars (approximately $95,000 U.S.)
plus subsequent interest at the rate of 21.75% per annum for loans made by him
to NARIL. Principal and interest are payable on demand.
Pursuant to his current employment agreement, Mr. Hassan, President of our
Guyana subsidiary and one of our directors, will receive 100,000 shares of our
common stock in September 2004 and he is entitled to an annual bonus of 100,000
shares. Pursuant to a prior employment agreement, he received 50,000 shares per
year in 2001, 2002, 2003 and 2004.
Mr. Hassan is the holder of Claim/Property no.s 9-25. Mr. Hassan has granted
NARIL an exclusive and irrevocable license to enter upon, prospect and/or work
the areas covered by these PPMSs, provided that NARIL, by action or inaction,
does not cause any of the PPMSs to be forfeited and/or cancelled by Guyana.
In September 2004, we issued 50,000 shares each to our following officers and
directors for services rendered: Messrs Horing, Dieterle, Paulsen and Brown.
As disclosed in "Part I; Item 3. Description of Property," NARIL provides
housing quarters for Sheikh Hassan, its chief executive officer and one of our
directors, in Georgetown, Guyana. The quarters occupy 2,000 square feet of
space, and are rented for $1,500 per month from an unaffiliated party pursuant
to a lease that expires on April 30, 2007.
33
Item 8. Description of Securities
Common Stock
We are authorized to issue 25,000,000 shares of common stock, $.10 par value per
share. Each outstanding share is entitled to one vote, either in person or by
proxy, on all matters that may be voted upon by the owners thereof at meetings
of the stockholders.
At present, the holders of our common stock
o have equal ratable rights to dividends from funds legally
available therefor, when, and if declared by our board of
directors;
o are entitled to share ratably in all of our assets available
for distribution to holders of common stock upon our
liquidation, dissolution or winding up of the affairs;
o do not have preemptive, subscription or conversion rights, or
redemption or sinking fund provisions applicable thereto; and
o are entitled to one non-cumulative vote per share on all
matters on which stockholders may vote at all meetings of
stockholders.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters
(a) Marketing Information -- The principal U.S. market in which our common
stock, all of which are of one class, are traded or will trade is in the
over-the-counter market. The stock is quoted on the Pink Sheets under the
symbol: "SAMM" Our stock is not traded or quoted on any automated quotation
system.
The following tables set forth the range of high and low closing bid prices for
our common stock on a quarterly basis for the past two fiscal years. This
information was obtained from the Pink Sheets, LLC. The bid prices reflect
inter-dealer prices, without retail mark-up, mark-down, or commission and may
not necessarily represent actual transactions.
34
MARKET PRICE OF COMMON STOCK
BID
Quarter Ending High Low
---- ---
2002
First Quarter .15 .07
Second Quarter .25 .07
Third Quarter .20 .09
Fourth Quarter .15 .10
2003
First Quarter .20 .06
Second Quarter .25 .07
Third Quarter .15 .10
Fourth Quarter .35 .13
2004
First Quarter .35 .27
Second Quarter .35 .30
Holders. There were approximately 221 holders of record of our common stock as
of September 20, 2004 inclusive of those brokerage firms and/or clearing houses
holding our securities for their clientele, with each such brokerage house
and/or clearing house being considered as one holder. The aggregate number of
shares of common stock outstanding as of September 20, 2004 was 13,352,700
shares.
Dividends. We have not paid or declared any dividends upon our common stock
since inception and we do not anticipate paying dividends on our common stock in
the foreseeable future. We anticipate that we will retain any earnings to
finance the growth and development of our business and for general corporate
purposes.
35
The following table gives information about our common stock that may be issued
upon the exercise of options, warrants and rights under all of our equity
compensation plans as of December 31, 2003.
Number of Number of securities
Securities to be remaining available
issued upon Weighted-average for future issuance
exercise of exercise price of under equity
outstanding outstanding compensation plans
Options, warrants options, warrants (excluding securities
Plan Category And rights and rights reflected in column (a))
=========================================================== ================= ================= ========================
(a) (b) (c)
================= ================= ========================
Equity compensation plans approved by security holders: -- $ -- --
========= ========= =========
Equity compensation plans not approved by security holders: -- $ -- --
========= ========= =========
Total -- $ -- --
========= ========= =========
Item 2. Legal Proceedings
We are not presently a party to any material litigation. NARIL is a defendant in
a civil action titled Rajkumar Searwar v. NARIL, civil action number 29-W/2000
commenced in January 2000, in the High Court of Guyana in Guyana in which a the
plaintiff is seeking $53,650 U.S. in damages for alleged wrongful termination.
NARIL believes that it has good defenses and counterclaims. The matter was taken
off of the Court List in September 2000 due to the plaintiff's failure to file a
proper form and, as a result of the plaintiff's continued failure to file the
form, the matter was deemed abandoned in September 2001.
Item 3. Changes in and Disagreements with Accountants
There have been no changes in or disagreements with accountants with respect to
accounting and/or financial disclosure.
36
Item 4. Recent Sales of Unregistered Securities
During the year ended December 31, 2002, we issued 300,000 shares of common
stock to Cuyuni LLC in lieu of guaranteed Venture distributions. We also issued
890,000 shares of common stock to 10 individuals pursuant to a private placement
for gross proceeds of $89,000. We also issued 50,000 shares of common stock to
Mr. Hassan, NARIL'S chief executive officer, pursuant to his employment
agreement with NARIL and 25,000 shares of common stock to an unrelated party for
services. We also issued 25,000 shares for payment of accrued expenses and
issued common stock purchase options for 100,000 shares as consideration for
extending the due date of a loan.
During the year ended December 31, 2003, we issued 60,000 shares of common stock
to Cuyuni LLC in lieu of distributions. We also issued 1,070,000 shares of
common stock to 11 individuals pursuant to a private placement for gross
proceeds of $107,000. We also issued 50,000 shares of common stock to Mr. Hassan
pursuant to his employment agreement with NARIL. We also issued 25,000 shares of
common stock to an unrelated party for services. We also issued common stock
purchase options for 50,000 shares as consideration for extending the due date
of a loan.
Since January 1, 2004, we issued 1,740,000 shares of common stock to 18
individuals pursuant to a private placement for gross proceeds of $174,000. We
also issued an aggregate of 225,000 shares to certain of our directors and one
of our employees for services rendered. We also issued 255,566 shares of common
stock as consideration for the payment of a note payable in the amount of
$25,566. We also issued 6,000 shares to an unrelated party for services. The
Company also issued 150,000 shares of common stock upon exercise of options by
one person for proceeds of $17,500.
The issuance of these securities was deemed to be exempt from registration under
the Securities Act of 1933 in reliance on Section 4(2) of such Act as a
transaction by an issuer not involving a public offering.
Item 5. Indemnification of Directors and Officers
Our Restated Articles of Incorporation provide for the indemnification of our
officers and directors. The provisions are set forth in Article Ninth of our
Articles of Incorporation. These provisions are consistent with Nevada's General
Corporation Law pursuant to which we may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, except an action by or in the right of our company (such as a
shareholder derivative suit), by reason of the fact that such person is or was
one of our directors, officers, employees or agents, or is or was serving at our
request as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise. Such indemnification may
extend to expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonable incurred by such person in connection with
the action, suit or proceeding if he acted in good faith and in a manner which
he reasonable believed to be in or not opposed to our best interests, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful. Indemnification may not be made for any
37
claim, issue or matter as to which such a person has been adjudged by a court to
be liable to us or for amounts paid in settlement to us, unless the court in
which the action or suit was brought, or another court of competent
jurisdiction, determines that in view of all the circumstances, the person is
fairly and reasonably entitled to be indemnified for such expenses.
PART F/S
See our consolidated financial statements at the end of this registration
statement.
PART III
Items 1 & 2. Index to Exhibits and Description of Exhibits
Exhibits
--------
3.a. Our Restated Articles of Incorporation
3.b. Certificate of Amendment to our Articles of Incorporation
3.c. Our By-Laws
3.d. Certificate of Incorporation of North American Resources
Incorporated Limited.
3.e. Articles of Association North American Resources Incorporated
Limited
3.f. Memorandum of Association North American Resources Incorporated
Limited
3.g. Articles of Continuance of Incorporation of North American Resources
Incorporated Limited.
4.a. Text of Common Stock Certificate
10.a. Mining Joint Venture Agreement between us and Cuyuni River Venture
#1 LLC.
10.b. Amendment to Mining Joint Venture Agreement between us and Cuyuni
River Venture #1 LLC.
10.c. NARIL Agreement with Garfield Pollard dated July 26, 1999
10.d. NARIL Agreement with Edward Hopkinson dated March 25, 1999
10.e. NARIL Agreement with Sheikh Hassan dated April 4, 2002
10.f. NARIL Agreement with Guyana Primary Resources Inc. dated May 30,
2003
10.g. Hassan Employment Agreement with NARIL dated August 1, 2004.
38
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
SOUTH AMERICAN MINERALS, INC.
Dated: September 28, 2004 By: /s/ Saul Horing
----------------------------------
Saul Horing
President
39
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
South American Minerals Inc.
New York, New York
We have audited the accompanying consolidated balance sheet of South American
Minerals, Inc. and Subsidiaries (the "Company") as of December 31, 2003 and the
related consolidated statements of operations, stockholders' deficiency and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about 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. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of South
American Minerals, Inc. and Subsidiaries at December 31, 2003, and the
consolidated results of their operations and their consolidated cash flows for
the year ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 3 to the
consolidated financial statements, the Company has incurred significant
operating losses for the year ended December 31, 2003, and has significant
working capital and stockholders' deficiencies that raise substantial doubt
about its ability to continue as a going concern. Management's plans regarding
those matters are also described in Note 3. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
WOLINETZ, LAFAZAN & COMPANY, P.C.
Rockville Centre, New York
September 13, 2004
SOUTH AMERICAN MINERALS, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
June 30, December 31,
2004 2003
----------- ------------
(Unaudited)
Current Assets:
Cash and Cash Equivalents $ 52,903 $ 3,456
Spare Parts and Fuel 63,785 19,969
----------- -----------
Total Current Assets 116,688 23,425
----------- -----------
Property and Equipment, Net 335,440 374,067
----------- -----------
Other Assets:
Deferred Finance Costs, Net -- 624
----------- -----------
Total Assets $ 452,128 $ 398,116
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts Payable $ 97,878 $ 87,068
Accrued Expenses 319,649 312,218
Accrued Expenses - Related Parties 273,395 226,337
Current Portion of Long-Term Debt 4,860 4,881
Note Payable - Bank - Revolving Credit 30,087 34,608
Loan Payable - Other 130,663 155,860
Notes and Loans Payable - Related Parties 126,773 130,626
Loan Payable - Cuyuni Partner 43,694 43,694
----------- -----------
Total Current Liabilities 1,026,999 995,292
Long-Term Debt - Net of Current Portion 4,363 6,949
----------- -----------
Total Liabilities 1,031,362 1,002,241
----------- -----------
Commitments and Contingencies
Minority Interest (111,774) (115,865)
----------- -----------
Stockholders' Deficiency:
Common Stock, $.10 Par Value; Authorized 25,000,000 Shares, Issued and
Outstanding 13,077,700 Shares in 2004 and 10,976,051 Shares in 2003 1,307,770 1,097,605
Additional Paid-in-Capital 4,665,663 4,667,080
Accumulated Deficit (6,247,804) (6,068,666)
Other Comprehensive Income (Loss) (193,089) (184,279)
----------- -----------
Total Stockholders' Deficiency (467,460) (488,260)
----------- -----------
Total Liabilities and Stockholders' Deficiency $ 452,128 $ 398,116
=========== ===========
The accompanying notes are an integral part of these financial statements.
SOUTH AMERICAN MINERALS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended For the Years Ended
------------------------------ ------------------------------
June 30, December 31,
------------------------------ ------------------------------
2004 2003 2003 2002
------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited)
Revenues:
Sales - Net $ 638,376 $ 576,537 $ 1,136,898 $ 959,832
Other Income 597 60,289 55,881 128
------------ ------------ ------------ ------------
Total Revenues 638,973 636,826 1,192,779 959,960
------------ ------------ ------------ ------------
Costs and Expenses:
Royalty Expenses 32,121 28,377 51,317 41,465
Mining Expenses 501,199 349,582 807,475 831,619
General and Administrative Expenses 225,046 239,324 462,186 368,944
Depreciation and Amortization 39,793 44,256 87,275 104,786
Interest Expense 17,962 18,873 44,379 39,032
------------ ------------ ------------ ------------
Total Costs and Expenses 816,121 680,412 1,452,632 1,385,846
------------ ------------ ------------ ------------
Loss Before Minority Interest (177,148) (43,586) (259,853) (425,886)
Minority Interest (4,091) (10,519) (35,420) 9,826
------------ ------------ ------------ ------------
Net Loss $ (181,239) $ (54,105) $ (295,273) $ (416,060)
============ ============ ============ ============
Net Loss Per Share (Basic and Diluted) $ (.01) $ (.01) $ (.03) $ (.05)
============ ============ ============ ============
Weighted Average Shares Outstanding
(Basic and Diluted) 12,170,074 9,821,051 9,918,968 9,223,551
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
SOUTH AMERICAN MINERALS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
Accumulated
Common Stock Additional Other
-------------------------- Paid-In Comprehensive
Shares Amount Capital Deficit Income (Loss) Total
----------- ----------- ----------- ----------- ------------- -----------
Balance - January 1, 2002 8,481,051 $ 848,105 $ 4,612,651 $(5,357,333) $ (226,501) $ (123,078)
(Unaudited)
Issuance of Shares to Joint Venture
Partner as Distributions 300,000 30,000 30,000 -- -- 60,000
Issuance of Shares for Cash 890,000 89,000 -- -- -- 89,000
Shares Issued for Services
to a Related Party 50,000 5,000 7,500 -- -- 12,500
Shares Issued for Services 25,000 2,500 -- -- -- 2,500
Shares Issued in Payment
of Accrued Expenses 25,000 2,500 -- -- -- 2,500
Value of Options Granted as
Deferred Finance Costs -- -- 8,164 -- -- 8,164
-----------
51,586
-----------
Comprehensive Income (Loss)
Net Loss - December 31, 2002 -- -- -- (416,060) -- (416,060)
Other Comprehensive Income (Loss)
Equity Adjustment from Translation -- -- -- -- 47,894 47,894
-----------
Comprehensive Income (Loss) -- -- -- -- -- (368,166)
----------- ----------- ----------- ----------- ----------- -----------
Balance - (Unaudited)
December 31, 2002 9,771,051 977,105 4,658,315 (5,773,393) (178,607) (316,580)
Issuance of Shares to Joint Venture
Partner as Distributions 60,000 6,000 3,000 -- -- 9,000
Shares Issued for Cash 1,070,000 107,000 -- -- -- 107,000
Expense of Sale -- -- (2,484) -- -- (2,484)
Shares Issued for Services to a
Related Party 50,000 5,000 7,500 -- -- 12,500
Shares Issued for Services 25,000 2,500 -- -- -- 2,500
Value of Options Granted as
Deferred Finance Costs -- -- 749 -- -- 749
-----------
(187,315)
-----------
Comprehensive Income (Loss)
Net Loss - December 31, 2003 -- -- -- (295,273) -- (295,273)
Other Comprehensive Income (Loss)
Equity Adjustment from Translation -- -- -- -- (5,672) (5,672)
-----------
Comprehensive Income (Loss) -- -- -- -- -- (300,945)
----------- ----------- ----------- ----------- ----------- -----------
Balance - December 31, 2003 10,976,051 $ 1,097,605 $ 4,667,080 $(6,068,666) $ (184,279) $ (488,260)
=========== =========== =========== =========== =========== ===========
The accompanying notes are and integral part of these financial statements.
SOUTH AMERICAN MINERALS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six Months Ended For the Year Ended
June 30, December 31,
------------------------- ------------------------
2004 2003 2003 2002
---------- ---------- --------- ----------
(Unaudited) (Unaudited) (Unaudited)
Cash Flows from Operating Activities:
Net Loss $(181,239) $ (54,105) $(295,273) $(416,060)
Adjustments to Reconcile Net Loss to
Net Cash Used by Operating Activities:
Depreciation 39,793 44,256 87,275 104,786
Stock Based Compensation 600 -- 15,000 15,000
Minority Interest 4,091 10,519 35,420 (9,826)
Gain on Sale of Property and Equipment -- (60,289) (55,881) --
Changes in Operating Assets and Liabilities:
(Increase) Decrease in Spare Parts and Fuel, Oil
and Lubes (43,816) (16,535) 8,537 51,658
Increase in Accounts Payable 10,809 4,698 6,408 5,340
Increase (Decrease) in Accrued Expenses 54,491 (91,364) 90,096 77,347
--------- --------- --------- ---------
Net Cash Used by Operating Activities (115,271) (162,820) (108,418) (171,755)
--------- --------- --------- ---------
Cash Flows from Investing Activities:
Capital Expenditures (9,892) (14,105) (116,135) (2,822)
Proceeds from Sale of Property and Equipment -- 75,000 75,136 --
--------- --------- --------- ---------
Net Cash Provided (Used) by Investing Activities (9,892) 60,895 (40,999) (2,822)
--------- --------- --------- ---------
Cash Flows from Financing Activities:
Proceeds from Sale of Common Stock 186,500 -- 107,000 89,000
Expenses of Sale of Common Stock (3,917) -- (2,484) --
Proceeds of Loans from Cuyuni Partner -- -- 43,694 --
Proceeds of Notes and Loans from Related Parties -- 2,605 -- 21,349
Payments of Notes and Loans from Related Parties (3,853) -- -- --
Proceeds of Loans - Other -- 20,087 3,739 --
Proceeds of Note Payable - Bank -- 16,710 16,710 --
Payments of Note Payable - Bank (2,607) (3,541) (4,880) --
Proceeds of Note Payable - Bank - Revolving Credit -- 5,945 11,369 5,846
Payments of Note Payable - Bank - Revolving Credit (4,521) -- (21,217) --
--------- --------- --------- ---------
Net Cash Provided by Financing Activities 171,602 41,806 153,931 116,195
--------- --------- --------- ---------
Effect of Exchange Rate Changes 3,008 93,968 (19,474) 58,761
--------- --------- --------- ---------
Increase (Decrease) in Cash and Cash Equivalents 49,447 33,849 (14,960) 379
Cash and Cash Equivalents - Beginning 3,456 18,416 18,416 18,037
--------- --------- --------- ---------
Cash and Cash Equivalents - Ending $ 52,903 $ 52,265 $ 3,456 $ 18,416
========= ========= ========= =========
The accompanying notes are an integral part of the financial statements.
SOUTH AMERICAN MINERALS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
For the Six Months Ended For the Year Ended
June 30, December 31,
------------------------- ------------------------
2004 2003 2003 2002
---------- ---------- --------- ----------
(Unaudited) (Unaudited) (Unaudited)
Supplemental Cash Flow Information:
Cash Paid for Interest $ 2,142 $ 4,199 $ 9,704 $ 9,611
======== ======== ======== ========
Cash Paid for Income Taxes $ 1,252 $ 1,103 $ 1,103 $ 1,378
======== ======== ======== ========
Non-Cash Financing Activities:
Common Stock Issued to Cuyuni Partner in Connection
with Partnership Agreement $ -- $ 9,000 $ 9,000 $ 60,000
======== ======== ======== ========
Common Stock Issued as Payment of Notes and
Loans Payable - Other $ 25,566 $ -- $ -- $ --
======== ======== ======== ========
Common Stock Issued for Payment of Accrued Expenses $ -- $ -- $ -- $ 2,500
======== ======== ======== ========
Options Granted as Debt Issuance Expense $ -- $ -- $ 749 $ 8,164
======== ======== ======== ========
The accompanying notes are an integral part of the financial statements.
SOUTH AMERICAN MINERALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
(Information as of June 30, 2004 and for the six months ended June 30,
2004 and June 30, 2003 and the year ended December 31, 2002 is unaudited)
NOTE 1 - Description of Business
South American Minerals, Inc. ("SAMI") was organized in the state of
Nevada in 1967. All of our operations are conducted by our wholly-owned
subsidiary, North American Resources, Inc. Ltd., ("NARIL") a Corporation
organized under the laws of the Government of Guyana, South America.
SAMI and its wholly owned subsidiary NARIL are hereafter
collectively referred to as "the Company".
SAMI, through NARIL, is engaged in dredging for alluvial placer gold
on the Konawaruk River in Guyana, South America.
North American Resources, Inc. Ltd.
Pursuant to a January 27, 1999 agreement, as amended, SAMI and NARIL
entered into a Mining Joint Venture Agreement in the Republic of Guyana known as
The Cuyuni River Venture ("the Cuyuni Venture") with Cuyuni River Venture #1
LLC, a Delaware Limited Liability Company ("Cuyuni Partner") consisting of
unaffiliated stockholders. The principal activity of the Cuyuni Venture is that
of exploration and mining for gold and other precious metals.
The Cuyuni Venture operates a gold dredging operation on the
Konawaruk River in Guyana. NARIL is the managing member. Pursuant to the Cuyuni
Venture agreement, NARIL provides and selects the properties, prospects and/or
claims to be mined by the two barges owned by Cuyuni Venture. To the extent that
NARIL operates two or less barges in Guyana, all gold and other mineral deposits
mined from such operations is owned by the Cuyuni Venture. To the extent that
NARIL operates more than two barges in Guyana, the gold and other mineral
deposits mined from all such barges is aggregated together and the amount of
gold owned by the Cuyuni Venture is the quotient of two divided by the number of
operating barges. The balance of the gold and other mineral deposits is owned by
NARIL. NARIL owns two barges on its own.
Cuyuni Partner contributed $475,000 for a 25% capital and profit and
loss sharing interest and NARIL contributed $105,000 for a 75% capital and
profit and loss sharing interest in the Cuyuni Venture. The initial term of the
Cuyuni Venture is 10 years, at which time it terminates unless the parties agree
to extend it or, if an independent geological report indicates that there is
sufficient mining opportunity to continue commercial production, Cuyuni LLC has
the right to extend the Cuyuni Venture. In addition, the Cuyuni Venture is
terminable by one partner where the other partner ceases to exist, winds up,
enters receivership or bankruptcy or materially breaches the partnership
agreement.
In February 2002, SAMI issued 300,000 shares of its stock to Cuyuni
Partner and increased Cuyuni Partner's capital and profit and loss interest to
35%, while decreasing its own capital and profit and loss interest to 65%. This
was effected by mutual agreement of the parties to satisfy certain guaranteed
minimum requirements to the Cuyuni Partner under the Cuyuni Venture Partnership
Agreement for the year ended December 31, 2001.
SOUTH AMERICAN MINERALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
(Information as of June 30, 2004 and for the six months ended June 30,
2004 and June 30, 2003 and the year ended December 31, 2002 is unaudited)
NOTE 2 - Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of SAMI
and its wholly-owned and majority-owned subsidiaries. Significant intercompany
accounts and transactions have been eliminated in consolidation.
The Company accounts for the Cuyuni Venture (see Note 1) as a
subsidiary, since at June 30, 2004 and December 31, 2003 it owned 65% of the
Cuyuni Venture equity.
Cash and Cash Equivalents
The Company considers those short-term, highly liquid investments
with original maturities of three months or less as cash equivalents.
Property and Equipment
Property and equipment is recorded at cost. It is the Company's
policy to capitalize costs incurred to improve and develop the mining
properties. General exploration costs, repairs and maintenance and costs to
maintain rights and leases are expensed as incurred. Management of the Company
periodically reviews the recoverability of the capitalized mineral properties
and mining equipment. Management takes into consideration various information
including, but not limited to, historical production records taken from previous
mine operations, results of exploration activities conducted to date, estimated
future prices and reports and opinions of outside geologists, mine engineers,
and consultants. When it is determined that a project or property will be
abandoned or its carrying value has been impaired, a provision is made for any
expected loss on the project or property.
Revenue Recognition
Revenues from sales of minerals are recognized only upon receipt of
final settlement funds. The Company sells its gold to the Guyanese Gold Board at
world market prices.
Use of Estimates
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Income Taxes
The Company records deferred income taxes using the liability method
as prescribed under the provision of SFAS No. 109. Under the liability method,
deferred tax assets and liabilities are recognized for the expected future tax
consequences of temporary differences between the financial statement and income
tax bases of the Company's assets and liabilities. An allowance is recorded,
based upon currently available information, when it is more likely than not that
any or all of the deferred tax asset will not be realized. The provision for
income taxes includes taxes currently payable, if any, plus the net change
during the year in deferred tax assets and liabilities recorded by the Company.
SOUTH AMERICAN MINERALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
(Information as of June 30, 2004 and for the six months ended June 30,
2004 and June 30, 2003 and the year ended December 31, 2002 is unaudited)
NOTE 2 - Summary of Significant Accounting Policies (Continued)
Fair Value of Financial Instruments
The carrying amount of the Company's financial instruments,
including cash and cash equivalents, accounts payable, accrued expenses, loans
and notes payable approximated fair value because of the short maturity of these
instruments. The carrying amount of long-term debt approximates fair value
because the interest rates approximate current market rates for financial
instruments with similar maturities and terms.
Deferred Finance Costs
Deferred finance costs are carried at cost, less accumulated
amortization over the related life of the related debt.
Stock-Based Compensation
The Company accounts for stock-based compensation to its employees
using the intrinsic value method in accordance with provisions of the Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations which requires the recognition of
compensation expense over the vesting period of the option when the exercise
price of the stock option granted is less than the fair value of the underlying
common stock. Additionally, the Company complies with the disclosure provisions
of Statement of Financial Accounting Standards No. 123 "Accounting for Stock
Based Compensation" ("SFAS 123") and provides pro forma disclosure of net loss
and loss per share as if the fair value method has been applied in measuring
compensation expense for stock options granted. Stock-based compensation related
to options and warrants granted to non-employees is recognized using the fair
value method in accordance with SFAS 123 and Emerging Issues Task Force ("EITF")
No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services".
Compensation costs are amortized in a manner consistent with Financial
Accounting Standards Board Interpretation No. 28 (FIN No. 28), "Accounting for
Stock Appreciation Rights and Other Variable Stock Option or Award Plans". The
Company uses the Black-Scholes options pricing model to value options,
restricted stock grants and warrants granted to nonemployees.
Net Loss Per Common Share
Basic net loss per share is computed by dividing net loss for the
period by the weighted average number of common shares outstanding during that
period.
Because the Company is incurring losses, the effect of stock options
and warrants is antidilutive. Accordingly, the Company's presentation of diluted
net loss per share is the same as that of basic net loss per share.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consists principally of cash and cash
equivalents. The Company at times maintains cash balances at financial
institutions which exceed the Federal Deposit Insurance Corporation limit of
$100,000.
SOUTH AMERICAN MINERALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
(Information as of June 30, 2004 and for the six months ended June 30,
2004 and June 30, 2003 and the year ended December 31, 2002 is unaudited)
NOTE 2 - Summary of Significant Accounting Policies (Continued)
Environmental Remediation Costs
Environmental remediation costs are accrued based on estimates of
known environmental remediation exposure. Such accruals are recorded even if
significant uncertainties exist over the ultimate cost of the remediation. It is
reasonably possible that the Company's estimates of reclamation liabilities, if
any, could change as a result of changes in regulations, extent of environmental
remediation required, means of reclamation or cost estimates. Ongoing
environmental compliance costs, including maintenance and monitoring costs, are
expensed as incurred. There were no environmental remediation costs accrued to
date.
Foreign Currency Translation
Assets and liabilities of the Company's Guyanese subsidiaries are
translated to US dollars using the current exchange rate for assets and
liabilities. Amounts on the statement of operations are translated at the
average exchange rates during the period. Gains or losses resulting from foreign
currency translation are included as a component of other comprehensive income
(loss).
Comprehensive Income (Loss)
Comprehensive income (loss) which is reported on the accompanying
consolidated statement of stockholders' deficiency as a component of accumulated
other comprehensive income (loss) consists of accumulated foreign translation
gains and losses.
Recently Issued Accounting Pronouncements
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure". SFAS No. 148 amends SFAS
No. 123, "Accounting for Stock-Based Compensation" to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The provisions of SFAS No. 148 are effective for
financial statements for the year ended December 31, 2003. SFAS No. 148 did not
have a material impact on the Company's consolidated financial statements, as
the adoptions of this standard does not require the Company to change, and the
Company does not plan to change, to the fair value based method of accounting
for stock-based compensation.
NOTE 3 - Going Concern
Basis of Presentation
The Company incurred net losses of $295,273 and $416,060 during the
years ended December 31, 2003 and 2002, respectively. In addition, the Company
had a working capital deficiency of $971,867 at December 31, 2003. Furthermore,
the Company had a stockholders' deficiency of $488,260 at December 31, 2003.
These factors, amongst others, raise substantial doubt about the Company's
ability to continue as a going concern.
SOUTH AMERICAN MINERALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
(Information as of June 30, 2004 and for the six months ended June 30,
2004 and June 30, 2003 and the year ended December 31, 2002 is unaudited)
NOTE 3 - Going Concern (Continued)
Basis of Presentation (Continued)
There can be no assurance that sufficient funds required during the
next year or thereafter will be generated from operations or that funds will be
available from external sources such as debt or equity financings or other
potential sources. The lack of additional capital resulting from the inability
to generate cash flow from operations or to raise capital from external sources
would force the Company to substantially curtail or cease operations and would,
therefore, have a material adverse effect on its business. Further, there can be
no assurance that any such required funds, if available, will be available on
attractive terms or that they will not have a significant dilutive effect on the
Company's existing stockholders. Management's plans are discussed in Note 16.
The accompanying consolidated financial statements do not include
any adjustments related to the recoverability or classification of assets
carrying amounts or the amounts and classification or liabilities that may
result should the Company be unable to continue as a going concern.
NOTE 4 - Accrued Expenses - Related Parties
Accrued expenses to related parties consist of amounts owed to
certain officers and directors and their affiliates for salaries, interest and
other expenses.
NOTE 5 - Property and Equipment
Property and equipment consists of the following:
June 30, December 31, Estimated Useful
2004 2003 Lives
----------- ------------ ----------------
(Unaudited)
Mining Equipment $1,732,901 $1,768,547 5 Years
Furniture and Fixtures 51,482 51,443 7 Years
Motor Vehicles 27,930 28,646 5 Years
Boats and Pontoons 20,001 20,513 10 Years
---------- ----------
1,832,314 1,869,149
Less: Accumulated Depreciation 1,496,874 1,495,082
---------- ----------
$ 335,440 $ 374,067
========== ==========
Depreciation expense was $39,793 and $44,256 for the six months
ended June 30, 2004 and 2003, respectively and $87,275 and $104,786 for the
years ended December 31, 2003 and 2002, respectively.
SOUTH AMERICAN MINERALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
(Information as of June 30, 2004 and for the six months ended June 30,
2004 and June 30, 2003 and the year ended December 31, 2002 is unaudited)
NOTE 6 - Related Party Transactions
The Company sublets executive office space in New York from a
company whose president and chairman of the board of directors is one of our
officers and directors. The current rent is $750 per month on a month-to-month
basis. Rent expense was $4,500 for the six months ended June 30, 2004 and 2003,
respectively, and $9,000 and $7,000 for the years ended December 31, 2003 and
2002, respectively. The Company also incurred general office expenses paid to
the aforementioned party in the amounts of $0 and $1,786 for the six months
ended June 30, 2004 and 2003, respectively, and $5,393 and $110 for the years
ended December 31, 2003 and 2002, respectively. The Company was indebted to the
aforementioned party in the amounts of $26,348 and $28,503 at June 30, 2004 and
December 31, 2003, respectively for the above expenses.
The Company incurred interest expense on related party loans in the
amounts of $2,245 and $2,101 for the six months ended June 30, 2004 and 2003,
respectively, and $4,201 and $3,953 for the years ended December 31, 2003 and
2002, respectively.
NOTE 7 - Stockholders' Deficiency
Recapitalization
On February 22, 2002 SAMI effected a change in par value of its
common stock, and reduced from $.20 par value to $.10 par value and increased
its authorized common shares to 25,000,000 shares. All amounts have been
retroactively restated to reflect this par value change.
Options
The following table summarizes option activity during the following
periods:
Price of
Options Options Weighted Average
Outstanding Grant Exercise Price
----------- --------- ----------------
Outstanding at December 31, 2001
(Unaudited) 306,250 $1.00 $ 1.00
Expired in 2002 (56,250) $1.00 $ 1.00
Granted in 2002 100,000 $ .10 $ .10
--------
Outstanding at December 31, 2002
(Unaudited) 350,000 $ .10 $ .10
Expired in 2003 (250,000) $ .01 $ .01
Granted in 2003 50,000 $ .15 $ .13
Exercised in 2003 (150,000) $ .10-.15 $ .13
--------
Outstanding at December 31, 2003 --
========
Outstanding at June 30, 2004 (Unaudited) --
========
SOUTH AMERICAN MINERALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
(Information as of June 30, 2004 and for the six months ended June 30,
2004 and June 30, 2003 and the year ended December 31, 2002 is unaudited)
NOTE 7 - Stockholders Deficiency (Continued)
Common Stock
During the year ended December 31, 2002 the Company issued 300,000
shares of common stock valued at $60,000 to Cuyuni Partner in lieu of guaranteed
minimum distribution for 2001. The Company also issued 890,000 shares of common
stock pursuant to a private placement for gross proceeds of $89,000. The Company
issued 50,000 shares of common stock valued at $12,500 to NARIL's chief
executive officer pursuant to an employment agreement and 25,000 shares of
common stock valued at $2,500 to an unrelated party for services. The Company
issued 25,000 shares valued at $2,500 for payment of accrued expenses and issued
common stock purchase options for 100,000 shares as consideration for extending
the due date of a loan. The Company recorded $8,164 of deferred finance costs in
connection with the issuance of the stock option.
During the year ended December 31, 2003 the Company issued 60,000
shares of common stock valued at $9,000 to Cuyuni Partner as distributions. The
Company also issued 1,070,000 shares of common stock pursuant to a private
placement for gross proceeds of $107,000. The Company incurred expenses on the
sale of $2,484. The Company issued 50,000 shares of common stock valued at
$12,500 to NARIL's chief executive officer pursuant to an employment agreement.
The Company issued 25,000 shares of common stock valued at $2,500 to an
unrelated party for services. The Company issued common stock purchase options
for 50,000 shares as consideration for extending the due date of a loan. The
Company recorded deferred finance costs of $749 in connection with the issuance
of the stock option.
During the six months ended June 30, 2004 the Company issued
1,690,000 shares of common stock pursuant to a private placement for gross
proceeds of $169,000. The Company incurred expenses on the sale of $3,917. The
Company also issued 255,656 shares of common stock as consideration for the
payment of a note payable in the amount of $25,566. The Company issued 6,000
shares valued at $600 to an unrelated party for services. The Company also
issued 150,000 shares of common stock upon exercise of options by one person for
proceeds of $17,500.
NOTE 8 - Income Taxes
For the years ended December 31, 2003 and 2002, actual income tax
expense differed from the amount computed by applying the U.S. Federal corporate
income tax rate of 34% to pre-tax earnings, as a result of valuation allowances
netted against other potential deferred tax assets.
The tax effects of temporary differences that gave rise to the
deferred tax assets and deferred tax liabilities at December 31, 2003 and 2002
were primarily attributable to net operating loss carry-forwards.
For income tax purposes, the Company had available net operating
loss carryforwards ("NOL") at December 31, 2003 of approximately $292,000 to
reduce future federal taxable income, if any. The NOL's expire at various dates
through 2023. There may be certain limitations as to the future annual use of
the NOL's due to certain changes in the Company's ownership.
The Company had deferred tax assets of approximately $99,000 at
December 31, 2003 resulting primarily from net operating loss carryforwards. The
deferred tax assets have been fully offset by a valuation allowance resulting
from the uncertainty surrounding their future realization. The difference
between the federal statutory rate of 34% and the Company's effective tax rate
of 0% is due to an increase in the valuation allowance of approximately $65,000.
SOUTH AMERICAN MINERALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
(Information as of June 30, 2004 and for the six months ended June 30,
2004 and June 30, 2003 and the year ended December 31, 2002 is unaudited)
NOTE 9 - Other Comprehensive Income (Loss) - Supplemental Non-Cash Investing
Activities
Other Comprehensive income (loss) consists of accumulated foreign
translation gains and losses and is summarized as follows:
Balance - January 1, 2002 (Unaudited) $(226,501)
Equity Adjustment from Foreign Currency Translation 47,894
---------
Balance - December 31, 2002 (Unaudited) (178,607)
Equity Adjustments from Foreign Currency Translation (5,672)
---------
Balance - December 31, 2003 (184,279)
Equity Adjustments from Foreign Currency Translation (8,810)
---------
Balance - June 30, 2004 (Unaudited) $(193,089)
=========
NOTE 10 - Minority Interest
Minority interest in the Company's 65% owned Cuyuni Venture
subsidiary at June 30, 2004 and December 31, 2003 represents the excess of the
minority interest loss and distributions over its proportionate capital.
NOTE 11 - Note Payable - Bank - Revolving Credit
Note payable bank consists of the following:
June 30, December 31,
----------- ------------
2004 2003
----------- ------------
(Unaudited)
This represents an overdraft credit facility of up to
approximately $30,087 with the bank, with interest
at 17.5% per annum, payable on demand. The note is
secured by all the assets of the Company. Interest is
payable monthly. (see Note 15) $30,087 $34,608
======= =======
NOTE 12 - Loan Payable - Other
Loan payable to others consists of the following:
June 30, December 31,
----------- ------------
2004 2003
----------- ------------
(Unaudited)
Loan payable, at 8% simple interest, payable on demand $ 95,000 $ 95,000
Loan payable - other, with interest at 8% per annum,
Payable to the Estate of the Lender 35,663 35,439
Loan payable - other, with interest at 8% per annum,
due April 2004 -- 25,421
-------- --------
$130,663 $155,860
======== ========
SOUTH AMERICAN MINERALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
(Information as of June 30, 2004 and for the six months ended June 30,
2004 and June 30, 2003 and the year ended December 31, 2002 is unaudited)
NOTE 13 - Notes and Loans Payable - Related Parties
Notes and loans payable to related parties consist of the following:
June 30, December 31,
----------- ------------
2004 2003
----------- ------------
(Unaudited)
Notes payable - director's affiliate, with interest at 21.75% per
annum, payable on demand. (See Note 19) $ 80,508 $ 78,111
Loan payable - Director and President, with interest at 8% per
annum, payable on demand 35,525 35,525
Loan payable - wife of the Company's President, with interest
at 8% per annum, payable on demand 3,750 10,000
Loan payable - Executive Vice President, with interest at 8% per
annum, payable on demand 6,990 6,990
-------- --------
$126,773 $130,626
======== ========
NOTE 14 - Loans Payable - Cuyuni Partner
Loans payable to Cuyuni Partner consist of the following:
June 30, December 31,
----------- ------------
2004 2003
----------- ------------
(Unaudited)
Loans payable to Cuyuni Partner bearing interest at 8%
per annum and payable on demand $ 43,694 $ 43,694
======== ========
NOTE 15 - Long-Term Debt
Long-term debt consists of the following:
June 30, December 31,
----------- ------------
2004 2003
----------- ------------
(Unaudited)
Note payable - bank, with interest at 17.5% per annum,
payable March 2006. The loan is secured by all of
the assets in the Company. (See Note 11) $ 9,223 $ 11,830
Less current portion, above 4,860 4,881
-------- --------
$ 4,363 $ 6,949
======== ========
SOUTH AMERICAN MINERALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
(Information as of June 30, 2004 and for the six months ended June 30,
2004 and June 30, 2003 and the year ended December 31, 2002 is unaudited)
NOTE 15 - Long-Term Debt (Continued)
Scheduled maturities of long-term debt at December 31, 2003 are as
follows:
Year Ending December 31,
------------------------
2004 $ 4,881
2005 5,729
2006 1,220
-------
$11,830
=======
NOTE 16 - Liquidity and Going Concern Uncertainty
The Company has incurred net losses of $295,273 and $416,060 during
the years ended December 31, 2003 and 2002. This factor, among others, raises
substantial doubt about the Company's ability to continue as a going concern
(see Note 3).
Specific plans to obtain funding for an expanded mining operation in
Guyana include: (i) the obtaining of financing in order to proceed with the
operations, (ii) the raising of capital through the sale of the Company's common
stock, (iii) increased production and (iv) locate areas containing higher gold
values.
There is no assurance, however, that any of the Company's proposed
plans to obtain financing, raise capital and otherwise fund operations will
prove successful. The Company's ability to continue as a going concern is
dependent upon its ability to obtain sufficient funding as discussed above and
its inability to do so will delay or cease the Company's planned operations as
discussed above.
NOTE 17 - Commitments and Contingencies
The Company has various agreements with numerous permit holders to
perform mining activities upon their claims. The agreements have royalty
payments ranging from $0 to 10% of the gross value of gold, precious metals and
stones sold. These agreements expire at various times through July 31, 2005
On April 4, 2002 the Company entered into an agreement with NARIL's
Chief Executive Officer whereby he grants the Company, at no cost, the exclusive
rights to mine certain properties licensed to him.
The Company provides housing quarters for the Chief Executive
Officer of NARIL in Georgetown, Guyana. The current lease began on February 1,
2004 and terminates on January 31, 2007.
Approximate future minimum payments under this lease are as follows:
Year Ending
December 31,
------------
2004 $16,500
2005 18,000
2006 18,000
2007 1,500
-------
$54,000
=======
SOUTH AMERICAN MINERALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
(Information as of June 30, 2004 and for the six months ended June 30,
2004 and June 30, 2003 and the year ended December 31, 2002 is unaudited)
NOTE 17 - Commitments and Contingencies (Continued)
Rent expense under this and the prior lease was approximately
$8,900, $8,300, $15,000 and $15,000 for the six months ended June 30, 2004 and
2003 respectively, and for the years ended December 31, 2003 and 2002,
respectively.
The Company occupies office space in Georgetown, Guyana under an
operating lease with an unaffiliated third party that commenced on July 1, 2001
and terminates on June 30, 2006. In addition to base rent, the lease calls for
payment of utilities and has a five year renewal option.
Approximate future minimum payments under this lease are as follows:
Year Ending
December 31,
------------
2004 $24,000
2005 24,000
2006 12,000
-------
$60,000
=======
Rent expense under this lease was approximately $12,000, $12,000,
$24,000 and $24,000 for the six months ended June 30, 2004 and 2003,
respectively and for the years ending December 31, 2002 and 2003, respectively.
The Company is not insured against any losses or liabilities that
could arise from its operations. The payment of such liabilities could have a
material adverse effect on the Company's financial position and, depending on
the extent of such liability, could result in the total loss of its assets and
operations.
NOTE 18 - Litigation
The Company is not presently a party to any material litigation,
NARIL is a defendant in a civil action that commenced in January 2000. NARIL
believes that it has good defenses and counterclaims, and any outcome would not
have a material effect on these financial statement.
NOTE 19 - Subsequent Events
Employment Agreement - Hassan
On July 31, 2003 the Company's agreement with NARIL's chief
executive officer expired. It was extended by mutual agreement for an additional
year. Pursuant to its terms, Mr. Hassan was to be issued 50,000 shares of common
stock upon expiration of the contract.
In August 2004 the Company signed an employment agreement with the
chief executive officer of NARIL. It calls for compensation of $90,000 annually
plus health and other benefits. Upon execution of the agreement, 100,000 shares
of common stock are to be issued plus an annual bonus of 100,000 shares. The
Agreement runs for a one year period.
SOUTH AMERICAN MINERALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
(Information as of June 30, 2004 and for the six months ended June 30,
2004 and June 30, 2003 and the year ended December 31, 2002 is unaudited)
NOTE 19 - Subsequent Events (Continued)
Other
Notes payable - Director's affiliate (see Note 13), were combined
into one promissory note, during July 2004. The balance owed is approximately
$95,000 including accrued interest to date. The notes bear interest at the rate
of 21.75% per annum. Principal and interest are due on demand.
Stock Issuances
On September 1, 2004 the Company authorized the issuance of 200,000
shares of common stock to four of its Directors for services rendered and 25,000
shares to one of its employees for services rendered.