UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the month of APRIL, 2005.
Commission File Number: 0-30464
IMA EXPLORATION INC.
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(Translation of registrant's name into English)
#709 - 837 West Hastings Street, Vancouver, British Columbia, V6C 3N6, Canada
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(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F: FORM 20-F [X] FORM 40-F [ ]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1): _______
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7): _______
Indicate by check mark whether the registrant by furnishing the information
contained in this Form, is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
YES [ ] NO [X]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3- 2(b): 82-_____________
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf of the
undersigned, thereunto duly authorized.
IMA EXPLORATION INC.
-------------------------------------
Date: APRIL 29, 2005 /s/ Joseph Grosso
------------------------------ -------------------------------------
Joseph Grosso,
President & CEO
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2004, 2003 AND 2002
(Expressed in Canadian Dollars)
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements of the Company have been
prepared by management in accordance with accounting principles generally
accepted in Canada and reconciled to accounting principles generally accepted in
the United States as set out in Note 11, and contain estimates based on
management's judgement. Management maintains an appropriate system of internal
controls to provide reasonable assurance that transactions are authorized,
assets safeguarded, and proper records maintained.
The Audit Committee of the Board of Directors has met with the Company's
independent auditors to review the scope and results of the annual audit, and to
review the financial statements and related financial reporting matters prior to
submitting the financial statements to the Board for approval.
The Company's independent auditors, PricewaterhouseCoopers LLP, are appointed by
the shareholders to conduct an audit in accordance with generally accepted
auditing standards in Canada and the Public Company Accounting Oversight Board
(United States), and their report follows.
/s/ Joseph Grosso /s/ Art Lang
Joseph Grosso Art Lang
President Chief Financial Officer
April 21, 2005
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF
IMA EXPLORATION INC.
We have audited the consolidated balance sheets of IMA EXPLORATION INC. as at
December 31, 2004 and December 31, 2003 and the consolidated statements of
operations and deficit and cash flows for the years ended December 31, 2004,
2003 and 2002. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards and the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at December 31, 2004
and 2003 and the results of its operations and its cash flows for the years
ended December 31, 2004, 2003 and 2002 in accordance with Canadian generally
accepted accounting principles.
/s/ PriceWaterhouseCoopers LLP
CHARTERED ACCOUNTANTS
Vancouver, B.C., Canada
April 21, 2005
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-U.S. REPORTING DIFFERENCE
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when there are
changes in accounting principles that have a material effect on the
comparability of the company's financial statements, such as the change
described in note 3 to the financial statements. Our report to the shareholders
dated April 21, 2005 is expressed in accordance with Canadian reporting
standards which do not require a reference to such a change in accounting
principles in the auditors' report when the change is properly accounted for and
adequately disclosed in the financial statements. In our opinion, these
consolidated financial statements present fairly, in all material respects, the
financial position of the company as at December 31, 2004 and 2003 and the
results of its operations and its cash flows for the years ended December 31,
2004, 2003 and 2002 in accordance with Canadian generally accepted accounting
principles.
/s/ PriceWaterhouseCoopers LLP
CHARTERED ACCOUNTANTS
Vancouver, B.C., Canada
April 21, 2005
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31, 2004 AND 2003
(EXPRESSED IN CANADIAN DOLLARS)
2004 2003
$ $
ASSETS
CURRENT ASSETS
Cash and cash equivalents 5,227,354 4,422,334
Amounts receivable and prepaids 162,802 174,938
Marketable securities (Note 4) 186,000 -
Spin-off assets transferred (Notes 2 and 4) - 568,199
------------ ------------
5,576,156 5,165,471
EQUIPMENT AND LEASEHOLD IMPROVEMENTS (Note 5) 94,102 36,186
MINERAL PROPERTIES AND
DEFERRED COSTS (Notes 2, 3 and 9) 6,551,598 1,469,026
SPIN-OFF ASSETS TRANSFERRED (Note 2) - 6,749,193
------------ ------------
12,221,856 13,419,876
============ ============
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 523,378 418,234
------------ ------------
FUTURE INCOME TAX LIABILITIES (Note 9) 885,093 251,180
SPIN-OFF LIABILITIES TRANSFERED (Note 2) - 1,079,112
------------ ------------
1,408,471 1,748,526
------------ ------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 7) 36,982,307 27,707,597
CONTRIBUTED SURPLUS (Note 7) 3,428,382 1,541,116
DEFICIT (29,597,304) (17,577,363)
------------ ------------
10,813,385 11,671,350
------------ ------------
12,221,856 13,419,876
============ ============
NATURE OF OPERATIONS (Note 1)
CONTINGENCY (Note 6)
COMMITMENTS (Note 8)
SUBSEQUENT EVENTS (Note 13)
APPROVED BY THE BOARD
/s/ David Horton , Director
-----------------
/s/ R.S. Angus , Director
-----------------
The accompanying notes are an integral part of these consolidated
financial statements.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
2004 2003 2002
$ $ $
EXPENSES
Administrative and management services 240,084 119,921 51,556
Bank charges and interest 10,318 10,319 10,492
Corporate development and investor relations 290,680 173,693 57,368
Depreciation 26,665 13,257 5,239
General exploration 228,961 226,956 180,321
Office and sundry 70,695 28,542 8,011
Printing 27,307 22,844 5,131
Professional fees 894,780 198,876 39,759
Rent, parking and storage 90,629 35,552 16,625
Salaries and employee benefits 313,409 98,202 45,099
Stock based compensation (Note 7) 1,972,860 1,487,235 29,506
Telephone and utilities 34,165 18,681 7,906
Transfer agent and regulatory fees 57,743 34,078 35,831
Travel and accommodation 203,591 52,175 18,516
Cost recoveries (Note 8) (149,271) (17,290) (1,380)
------------ ------------ ------------
4,312,616 2,503,041 509,980
------------ ------------ ------------
LOSS BEFORE OTHER ITEMS (4,312,616) (2,503,041) (509,980)
------------ ------------ ------------
OTHER EXPENSE (INCOME)
Foreign exchange 195,285 12,763 1,936
Reorganization costs (Note 2) 346,103 -
Interest and other income (101,589) (66,561) (26,585)
Gain on options and disposition of mineral properties (328,346) - -
Write-down of marketable securities 99,762 - -
------------ ------------ ------------
211,215 (53,798) (24,649)
------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS (4,523,831) (2,449,243) (485,331)
Loss allocated to spin-off assets (Note 2) 131,232 969,175 954,775
------------ ------------ ------------
LOSS FOR THE YEAR (4,655,063) (3,418,418) (1,440,106)
DEFICIT - BEGINNING OF YEAR (17,577,363) (14,158,945) (12,718,839)
DISTRIBUTION OF EQUITY ON SPIN-OFF OF
ASSETS TO GOLDENARROW (Note 2) (7,364,878) - -
------------ ------------ ------------
DEFICIT - END OF YEAR (29,597,304) (17,577,363) (14,158,945)
============ ============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE
FROM CONTINUNG OPERATIONS $(0.11) $(0.08) $(0.02)
============ ============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE $(0.11) $(0.11) $(0.06)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDI G 40,939,580 32,251,753 23,188,485
============ ============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
2004 2003 2002
$ $ $
CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
Net loss for the year (4,655,063) (3,418,418) (1,440,106)
Net loss allocated to spin-off assets 131,232 969,175 954,775
------------ ------------ ------------
Net loss from continuing operations (4,523,831) (2,449,243) (485,331)
Items not affecting cash
Depreciation 26,665 13,257 5,239
Stock based compensation 1,972,860 1,487,235 29,506
Gain on options and disposition of mineral properties (328,346) - -
Write-down of marketable securities 99,762 - -
------------ ------------ ------------
(2,752,890) (948,751) (450,586)
Change in non-cash working capital balances 74,785 182,698 (17,137)
------------ ------------ ------------
(2,678,105) (766,053) (467,723)
Cash used in spin-off operations (283,629) (653,496) (838,488)
------------ ------------ ------------
(2,961,734) (1,419,549) (1,306,211)
------------ ------------ ------------
INVESTING ACTIVITIES
Expenditures on mineral properties and deferred costs (4,448,659) (1,069,228) (5,090)
Net mineral properties and marketable securities
cash flow related to spin-off assets 32,592 (781,533) (1,261,465)
Purchase of equipment (93,650) (21,875) (11,201)
------------ ------------ ------------
(4,509,717) (1,872,636) (1,277,756)
------------ ------------ ------------
FINANCING ACTIVITIES
Issuance of common shares 9,707,897 6,467,245 3,453,382
Share issuance costs (411,237) (188,850) (189,056)
------------ ------------ ------------
9,296,660 6,278,395 3,264,326
------------ ------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 1,825,209 2,986,210 680,359
CASH TRANSFERRED TO GOLDEN ARROW (Note 2) (1,020,189) - -
------------ ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 805,020 2,986,210 680,359
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 4,422,334 1,436,124 755,765
------------ ------------ ------------
CASH AND CASH EQUIVALENTS - END OF YEAR 5,227,354 4,422,334 1,436,124
============ ============ ============
CASH AND CASH EQUIVALENTS IS COMPRISED OF:
CASH 927,354 1,622,334 631,255
TERM DEPOSITS 4,300,000 2,800,000 804,869
------------ ------------ ------------
5,227,354 4,422,334 1,436,124
============ ============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED SCHEDULE OF MINERAL PROPERTY INTERESTS
FOR THE YEAR ENDED DECEMBER 31, 2004
(EXPRESSED IN CANADIAN DOLLARS)
GOLDEN ARROW
NAVIDAD SUBTOTAL RELATED
NAVIDAD AREAS IVA TAX NAVIDAD PROPERTIES TOTAL
$ $ $ $ $ $
Balance, beginning of year 1,253,391 16,178 199,457 1,469,026 6,744,907 8,213,933
------------- ------------ ------------ ------------ ------------ ------------
Expenditures during the year
Assays 567,364 - - 567,364 1,702 569,066
Contractors - surveying 994,912 2,949 - 997,861 2,339 1,000,200
Contractors - environmental 252,201 - - 252,201 65,166 317,367
Drilling 1,663,984 - - 1,663,984 - 1,663,984
Communications 13,729 - - 13,729 - 13,729
Supplies 147,422 529 - 147,951 - 147,951
Statutory fees and taxes 2,094 19,129 - 21,223 - 21,223
Travel 51,583 - - 51,583 - 51,583
Office 170,780 3,657 - 174,437 11,753 186,190
Other - - - - 37,045 37,045
Option payments 19,595 70,252 - 89,847 12,048 101,895
IVA Tax - - 468,479 468,479 - 468,479
------------- ------------ ------------ ------------ ------------ ------------
3,883,664 96,516 468,479 4,448,659 130,053 4,578,712
------------- ------------ ------------ ------------ ------------ ------------
Balance, before transfer 5,137,055 112,694 667,936 5,917,685 6,874,960 12,792,645
Future income tax (Note 9) 633,913 - - 633,913 - 633,913
Property transfer to Golden Arrow - - - - (6,874,960) (6,874,960)
------------- ------------ ------------ ------------ ------------ ------------
Balance, end of year 5,770,968 112,694 667,936 6,551,598 - 6,551,598
============= ============ ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED SCHEDULE OF MINERAL PROPERTY INTERESTS
FOR THE YEAR ENDED DECEMBER 31, 2003
(EXPRESSED IN CANADIAN DOLLARS)
GOLDEN ARROW
NAVIDAD SUBTOTAL RELATED
NAVIDAD AREAS IVA TAX NAVIDAD PROPERTIES TOTAL
$ $ $ $ $ $
Balance, beginning of year 5,090 - 143,528 148,618 6,707,184 6,855,802
------------- ------------ ------------ ------------ ------------ ------------
Expenditures during the year
Assays 62,232 - - 62,232 36,911 99,143
Contractors - surveying 113,518 - - 113,518 19,751 133,269
Contractors - environmental 40,664 - - 40,664 105,145 145,809
Drilling 222,259 - - 222,259 191,923 414,182
Geological 467,569 - - 467,569 245,659 713,228
Statutory fees and taxes 2,900 16,178 - 19,078 132,963 152,041
Travel 37,369 - - 37,369 48,824 86,193
Office 10,791 - - 10,791 147,065 157,856
Other 39,819 - - 39,819 37,651 77,470
Option payments - - - - 147,348 147,348
IVA Tax - - 55,929 55,929 - 55,929
------------- ------------ ------------ ------------ ------------ ------------
997,121 16,178 55,929 1,069,228 1,113,240 2,182,468
------------- ------------ ------------ ------------ ------------ ------------
Balance, before adjustments 1,002,211 16,178 199,457 1,217,846 7,820,424 9,038,270
Future income tax (Note 9) 251,180 - - 251,180 71,037 322,217
Cost recoveries - - - - (346,947) (346,947)
Write-off mineral properties - - - - (776,626) (776,626)
Proceeds on sale of mineral
properties - - - - (22,981) (22,981)
------------- ------------ ------------ ------------ ------------ ------------
Balance, end of year 1,253,391 16,178 199,457 1,469,026 6,744,907 8,213,933
============= ============ ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
1. NATURE OF OPERATIONS
The Company is a natural resource company engaged in the business of
acquisition, exploration and development of mineral properties in
Argentina. The Company presently has no proven or probable reserves and
on the basis of information to date, it has not yet determined whether
these properties contain economically recoverable ore reserves.
Consequently the Company considers itself to be an exploration stage
company. The amounts shown as mineral properties and deferred costs
represent costs incurred to date, less amounts amortized and/or written
off, and do not necessarily represent present or future values. The
underlying value of the mineral properties and deferred costs is
entirely dependent on the existence of economically recoverable
reserves, securing and maintaining title and beneficial interest in the
properties, the ability of the Company to obtain the necessary
financing to complete development, and future profitable production.
The Company considers that it has adequate resources to maintain its
core operations for the next fiscal year but currently does not have
sufficient working capital to fund all of its planned exploration and
development work. The Company will continue to rely on successfully
completing additional equity financing.
2. SPIN-OFF OF ASSETS
On July 7, 2004, the Company completed a corporate restructuring plan
(the "Reorganization") which resulted in dividing the Company's assets
and liabilities into two separate companies. Following the
Reorganization the Company continued to hold the Navidad project, while
all other mineral property interests, certain marketable securities and
cash were spun-off to Golden Arrow Resources Corporation ("Golden
Arrow"), a newly created company. The Navidad Property, located in the
province of Chubut Argentina, was staked by the Company in late 2002
and continues to be the focus of the Company's activities. The
Reorganization of the Company was accomplished by way of a statutory
plan of arrangement. The shareholders of the Company were issued shares
in Golden Arrow on the basis of one Golden Arrow share for ten shares
of the Company. On completion of the Reorganization, the Company
transferred to Golden Arrow:
i) all of the Company's investment in its mineral properties,
excluding the Navidad and Navidad Area properties and related
future income tax liabilities;
ii) the assets and liabilities of IMPSA Resources (BVI) Inc.,
Inversiones Mineras Argentinas Holdings (BVI) Inc., both
wholly-owned subsidiaries of the Company, and IMPSA Resources
Corporation, an 80.69% owned subsidiary of the Company;
iii) certain marketable securities at their recorded values; iv)
cash and cash equivalents
The aggregate carrying amount of the net assets transferred from the
Company to Golden Arrow is as follows:
DECEMBER 31,
2004 2003
$ $
Cash and cash equivalents 1,020,189 31,908
Marketable securities and other current
assets and liabilities 548,841 536,291
Mineral properties and deferred cost
and equipment 6,874,960 6,749,193
Future income tax liabilities (1,079,112) (1,079,112)
------------ ------------
7,364,878 6,238,280
============ ============
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
2. SPIN-OFF OF ASSETS (continued)
The Company's Statement of Loss and Deficit includes an allocation of
General and Administrative Expenses as Loss allocated to spin-off
assets. The allocation was calculated on the basis of the ratio of the
specific assets transferred to assets retained. Certain "Other Income
and Expense" items have been allocated to spin-off assets on the basis
of the nature of the income or expense.
3. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
These consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles
("Canadian GAAP"). The significant measurement differences between
those principles and those that would be applied under United States
generally accepted accounting principles ("US GAAP") as they affect the
Company are disclosed in Note 11.
USE OF ESTIMATES
The preparation of financial statements in conformity with Canadian
GAAP requires management to make estimates and assumptions that affect
the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the
period. Significant areas requiring the use of management estimates
relate to the determination of environmental obligations and assessment
of mineral properties and deferred cost carrying values. Actual results
may differ from these estimates.
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of the
Company and all its subsidiaries, all of which are wholly owned. The
Company's principal subsidiary is Inversiones Mineras Argentinas S.A..
All inter-company transactions and balances have been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and short-term investments
maturing within 90 days of initial investment.
MARKETABLE SECURITIES
Marketable securities are carried at the lower of cost or market.
MINERAL PROPERTIES AND DEFERRED COSTS
Direct costs related to the acquisition and exploration of mineral
properties held or controlled by the Company are deferred on an
individual property basis until the viability of a property is
determined. Administration costs and general exploration costs are
expensed as incurred. When a property is placed in commercial
production, deferred costs will be depleted using the
units-of-production method. Management of the Company periodically
reviews the recoverability of the capitalized mineral properties.
Management takes into consideration various information including, but
not limited to, results of exploration activities conducted to date,
estimated future
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
metal prices, and reports and opinions of outside geologists, mine
engineers and consultants. When it is determined that a project or
property will be abandoned then the costs are written-off, or if its
carrying value has been impaired, then the costs are written down to
fair value.
The Company accounts for foreign value added taxes paid as part of
mineral properties and deferred costs. The recovery of these taxes will
commence on the beginning of foreign commercial operations. Should
these amounts be recovered they would be treated as a reduction in
carrying costs of mineral properties and deferred costs.
Although the Company has taken steps to verify title to mineral
properties in which it has an interest, these procedures do not
guarantee the Company's title. Such properties may be subject to prior
agreements or transfers and title may be affected by undetected
defects.
From time to time, the Company acquires or disposes of properties
pursuant to the terms of option agreements. Options are exercisable
entirely at the discretion of the optionee and, accordingly, are
recorded as mineral property costs or recoveries when the payments are
made or received. After costs are recovered the balance of the payments
are recorded as a gain on option or disposition of mineral property.
EQUIPMENT
Equipment, which comprises leasehold improvements and office furniture
and equipment, is recorded at cost less accumulated depreciation
calculated using the straight-line method over their estimated useful
lives of five years.
ASSET RETIREMENT OBLIGATIONS
The fair value of a liability for an asset retirement obligation is
recognized when a reasonable estimate of fair value can be made. The
asset retirement obligation is recorded initially at fair value as a
liability with a corresponding increase to the carrying amount of the
related long-lived asset. In subsequent periods, the liability is
adjusted for the accretion of discount and any changes in the amount or
timing of the underlying cash flows. The related asset is adjusted only
as a result of changes in the amount or timing of the underlying cash
flows. The capitalized asset retirement cost is depreciated on the same
basis as the related asset; discount accretion is included in
determining the results of operations. As at December 31, 2004, the
Company does not have any asset retirement obligations.
LONG-LIVED ASSETS IMPAIRMENT
Long-lived assets are reviewed for impairment when events or changes in
circumstances suggest their carrying value has become impaired.
Management considers assets to be impaired if the carrying value
exceeds the estimated undiscounted future projected cash flows to
result from the use of the asset and its eventual disposition. If
impairment is deemed to exist, the assets will be written down to fair
value. Fair value is generally determined using a discounted cash flow
analysis.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
TRANSLATION OF FOREIGN CURRENCIES
The Company's foreign operations are integrated and are translated
using the temporal method. Under this method, the Company translates
monetary assets and liabilities denominated in foreign currencies at
period-end rates. Non-monetary assets and liabilities are translated at
historical rates. Revenues and expenses are translated at average rates
in effect during the period except for depreciation and amortization
which are translated at historical rates. The resulting gains or losses
are reflected in operating results in the period of translation.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a
significant concentration of credit risk consist primarily of cash and
cash equivalents and amounts receivable. The Company limits its
exposure to credit loss by placing its cash and cash-equivalents with
major financial institutions.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments consisting of
cash and cash equivalents, amounts receivable and accounts payable and
accrued liabilities approximate their carrying values due to the
short-term nature of those instruments. As of December 31, 2004, the
market value of marketable securities was $270,000 (2003 - $1,032,546).
INCOME TAXES
The Company uses the liability method of accounting for future income
taxes. Under this method of tax allocation, future income tax
liabilities and assets are recognized for the estimated tax
consequences attributable to differences between the amounts reported
in the consolidated financial statements and their respective tax
bases, using substantively enacted tax rates and laws that are expected
to be in effect in the periods in which the future income tax assets or
liabilities are expected to be settled or realized. The effect of a
change in income tax rates on future income tax liabilities and assets
is recognized in income in the period that the change occurs. Potential
future income tax assets are not recognized, as they are not considered
likely to be realized.
LOSS PER SHARE
Loss per share is calculated based on the weighted average number of
common shares issued and outstanding during the year. The effect of
potential issuances of shares under options and warrants would be
anti-dilutive and therefore basic and diluted losses per share are the
same. Information regarding securities that could potentially dilute
basic earnings per share in the future is presented in Note 7.
STOCK BASED COMPENSATION
Effective January 1, 2003, the Company prospectively adopted the
requirements of CICA Handbook Section 3870. Stock-based compensation is
accounted for at fair value as determined by the Black-Scholes option
pricing model using amounts that are believed to approximate the
volatility of the trading price of the Company's stock, the expected
lives of awards of stock-based compensation, the fair value of the
Company's stock and the risk-free interest rate. The estimated fair
value of awards of stock-based compensation is charged to expense as
awards vest, with offsetting amounts recognized as contributed surplus.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
COMPARATIVE FIGURES
Certain of the 2003 and 2002 fiscal year figures have been reclassified
to conform with the presentation used in fiscal 2004.
4. MARKETABLE SECURITIES
2004 2003
---------------------------- ----------------------------
QUOTED QUOTED
RECORDED MARKET RECORDED MARKET
VALUE VALUE VALUE VALUE
$ $ $ $
---------------------------- ----------------------------
Tinka Resources - 300,000 common shares 96,000 180,000 - -
Cons Pacific Bay Minerals - 900,000 common shares 90,000 90,000 - -
Ballad Gold & Silver Ltd. - 500,000 common shares - - 250,000 325,000
Amera Resources Corp. - 600,000 common shares - - 270,000 546,000
Other - - 23,460 161,546
------------ ------------ ------------ ------------
186,000 270,000 543,460 1,032,546
============
Less amounts allocated to spin-off assets transferred - - (543,460)
------------ ------------ ------------
186,000 270,000 -
============ ============ ============
The Company has entered into option and sale agreements on certain of
its non-core mineral property holdings in which the Company received
common shares of publicly-traded companies as partial consideration.
All securities associated with option and sale agreements for all
properties, other than Navidad and Navidad area properties were
transferred to Golden Arrow with a recorded value of $543,460 at
December 31, 2003 (see Note 2).
5. EQUIPMENT AND LEASHOLD IMPROVEMENTS
2004 2003
------------ ------------
$ $
Office equipment and computers 231,724 179,425
Leasehold improvements 96,634 62,812
------------ ------------
328,358 242,237
Less: Accumulated depreciation (234,256) (206,051)
------------ ------------
94,102 36,186
============ ============
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
6. CONTINGENCY
In March 2004, Aquiline Resources Inc. ("Aquiline") commenced an action
against the Company, seeking a constructive trust over the Navidad
properties and damages. The Company believes the Aquiline legal action
is without merit and continues to vigorously defend itself. A trial
date has been scheduled for October 2005. At this date the outcome is
not determinable. The Company has not made any provision for costs for
which it might become liable in what management considers the unlikely
event of an adverse judgment.
7. SHARE CAPITAL
Authorized - unlimited common shares without par value
- 100,000,000 preferred shares without par value
Issued - common shares
NUMBER $
------------ ------------
Balance, December 31, 2001 18,592,219 18,090,497
Private placements 5,703,026 2,552,870
Exercise of options 170,000 68,000
Exercise of warrants 2,085,361 837,512
Less share issue costs - (194,056)
------------ ------------
Balance, December 31, 2002 26,550,606 21,354,823
Private placement 2,900,000 2,610,000
Exercise of options 1,855,850 895,859
Exercise of warrants 4,969,066 2,940,428
Exercise of agent's options 105,930 95,337
Less share issue costs - (188,850)
------------ ------------
Balance, December 31, 2003 36,381,452 27,707,597
Private placements 1,500,000 4,650,000
Exercise of options 441,650 597,910
Exercise of agents' options 121,820 184,838
Contributed surplus reallocated
on exercise of options - 226,630
Exercise of warrants 5,371,285 4,275,149
Proceeds collected and paid on behalf
of Golden Arrow shares - (107,544)
Less share issue costs - (552,273)
------------ ------------
Balance, December 31, 2004 43,816,207 36,982,307
============ ============
(a) During fiscal 2004, the Company completed a brokered private
placement of 1,500,000 units at $3.10 per unit for proceeds of
$4,238,763, net of $339,000 agent's commission and $72,237 of
related issue costs. Each unit consisted of one common share
and one half non-transferable share purchase warrant. Each
whole warrant entitles the holder to purchase a common share
for $3.70 per share on or before February 23, 2005. The
Company also issued 200,000 compensation options to the agent
to acquire 200,000 shares at $3.25 per share and 100,000
warrants at $3.70 per share on or before February 23, 2005.
The compensation options granted were valued at $0.705 per
option using the Black-Scholes Option Pricing Model, for a
total value of $141,036, which has been recorded as share
issue costs with a corresponding increase to contributed
surplus. At December 31, 2004, a total of 32,000 compensation
options had been exercised. The balance of 168,000
compensation options were exercised subsequent to the
year-end.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
7. SHARE CAPITAL (continued)
(b) During fiscal 2003, the Company completed a brokered private
placement for 2,900,000 units at a price of $0.90 per unit,
for cash proceeds of $2,421,150, net of share issue costs of
$188,850. Each unit consisted of one common share of the
Company and one-half non-transferable common share purchase
warrant. One whole warrant entitles the holder to purchase one
common share for the exercise price of $1.10 per share on or
before April 28, 2004. Certain officers and directors of the
Company purchased 445,000 units of the private placement.
(c) During fiscal 2002, the Company completed the following
private placements:
i) 637,000 units at a price of $0.38 for cash proceeds of
$222,695, net of share issue costs of $19,365. Each
unit consisted of one common share of the Company and
one warrant. Two warrants entitled the holder to
purchase an additional common share for the exercise
price of $0.45 on or before March 31, 2003. The Company
also issued agents warrants to purchase 63,700 common
shares at a price of $0.45 on or before March 31, 2003;
ii) 1,777,778 units at a price of $0.45 per unit for cash
proceeds of $686,132, net of share issue costs of
$118,868. Each unit consisted of one common share of
the Company and one warrant. Two warrants entitled the
holder to purchase an additional common share at a
price of $0.54 per share on or before April 9, 2003.
The Company also issued 11,111 shares to the agents, at
a price of $0.45 per share. The Company also issued
agents warrants to purchase 355,556 common shares at a
price of $0.54 per share on or before April 9, 2003;
iii) 1,722,222 units at a price of $0.45 per unit, for cash
proceeds of $751,000 net of share issue costs of
$24,000. Each unit consisted of one common share of the
Company and one warrant. Each warrant entitled the
holder to purchase an additional common share of the
Company at a price of $0.53 per share on or before May
23, 2003 and $0.60 per share on or before May 23, 2004.
Certain directors purchased 191,111 units. The Company
also issued agents warrants to purchase 66,666 common
shares at a price of $0.53 per share on or before May
23, 2003; and
iv) 1,554,915 units at a price of $0.47 for cash proceeds
of $698,987, net of share issue costs of $31,823. Each
unit consisted of one common share of the Company and
one warrant. Each warrant entitled the holder to
purchase an additional common share of the Company at a
price of $0.55 per share on or before September 27,
2003 and $0.60 on or before September 27, 2004. Certain
directors purchased 325,000 units. The Company also
issued agents warrants to purchase 37,496 common shares
at a price of $0.50 per share on or before September
27, 2003.
v) In connection with the financing, the Company granted
the agent an option to purchase 195,750 units on the
same basis and terms as the private placement. The
agent has exercised options to purchase 195,750 units,
for $176,175 cash.
(d) Stock options and stock based compensation
The Company grants stock options in accordance with the
policies of the TSX Venture Exchange ("TSXV"). The stock
options vest over periods that vary from three months to one
year. A summary of the Company's outstanding options at
December 31, 2004, 2003 and 2002 and the changes for the years
ending on those dates is presented below:
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
7. SHARE CAPITAL (continued)
---------------------------- ---------------------------- ----------------------------
2004 2003 2002
---------------------------- ---------------------------- ----------------------------
OPTIONS WEIGHTED OPTIONS WEIGHTED OPTIONS WEIGHTED
OUTSTANDING AVERAGE OUTSTANDING AVERAGE OUTSTANDING AVERAGE
AND EXERCISE AND EXERCISE AND EXERCISE
EXERCISABLE PRICE EXERCISABLE PRICE EXERCISABLE PRICE
$ $ $
---------------------------- ---------------------------- ----------------------------
Balance,
Beginning of year 2,528,150 1.32 2,465,500 0.44 1,635,500 0.40
Granted 1,512,000 3.14 1,918,500 1.60 1,050,000 0.50
Exercised (441,650) 1.14 (1,855,850) 0.44 (170,000) 0.40
Cancelled (30,000) 3.10 - - (50,000) 0.40
------------ ------------ ------------
Balance,
End of year 3,568,500 2.10 2,528,150 1.32 2,465,500 0.44
============ ============ ============
Stock options outstanding and exercisable at December 31, 2004
are as follows:
-------------------------------------------------------------
NUMBER EXERCISE PRICE EXPIRY DATE
$
-------------------------------------------------------------
205,000 0.40 July 19, 2006
119,000 0.50 May 2, 2007
117,500 0.50 September 23, 2007
90,000 0.84 March 7, 2008
300,000 0.90 May 30, 2008
1,305,000 1.87 August 27, 2008
1,382,000 3.10 March 24, 2009
50,000 4.20 December 01, 2009
----------
3,568,500
==========
During fiscal 2004, the Company granted 1,512,000 stock
options (2003 - 1,918,500: 2002 - 1,050,000). The fair value
of stock options granted is estimated on the dates of grants
using the Black-Scholes Option Pricing Model with the
following assumptions used for the grants made during the
year:
2004 2003 2002
Risk-free interest rate 2.38% 3.76% - 4.16% 3.89% - 4.25%
Estimated volatility 77% 74% - 78 % 73% - 87%
Expected life 2.5 years 2.5 years 2.5 years
Expected dividend yield 0% 0% 0%
The weighted average fair value per share of stock options,
calculated using the Black-Scholes Option Pricing Model,
granted during the year was $1.28 per share (2003 - $0.63,
2002 - $0.26). Option pricing models require the use of
estimates and assumptions including the expected volatility.
Changes in the underlying assumptions can materially affect
the fair value estimates and, therefore, existing models do
not necessarily provide reliable measure of the fair value of
the Company's stock options.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
7. SHARE CAPITAL (continued)
During fiscal 2002, the Company granted 540,000 stock options
to its employees and directors and applied the intrinsic value
based method of accounting. Had the Company followed the fair
value based method of accounting in fiscal 2002, the Company
would have recorded an additional compensation expense of
$140,840 in respect of its employees and directors' stock
options. Pro-forma loss and loss per share information
determined under the fair value method in fiscal 2002 are as
follows:
$
Net loss for fiscal 2002
- as reported (1,440,106)
- compensation expense (140,840)
------------
- pro-forma (1,580,946)
============
Basic and diluted loss per share
- as reported (0.06)
- pro-forma (0.07)
(e) Warrants
A summary of the number of common shares reserved pursuant to
the Company's outstanding warrants and agents warrants
outstanding at December 31, 2004, 2003 and 2002 and the
changes for the years ending on those dates is as follows:
2004 2003 2002
------------ ------------ ------------
Balance, beginning of year 6,042,448 9,511,550 6,588,967
Issued 810,909 1,502,965 5,007,944
Exercised (5,371,285) (4,969,066) (2,085,361)
Cancelled (38,955) - -
Expired (21,100) (3,001) -
------------ ------------ ------------
Balance, end of year 1,422,017 6,042,448 9,511,550
============ ============ ============
Common shares reserved pursuant to warrants and agent warrants
outstanding at December 31, 2004 are as follows:
-------------------------------------------------------------
NUMBER EXERCISE PRICE EXPIRY DATE
$
-------------------------------------------------------------
663,667 0.90 March 16, 2005
758,350 3.70 February 23, 2005
-----------
1,422,017
===========
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
8. RELATED PARTY TRANSACTIONS
(a) During fiscal 2004, the Company paid $476,226 (2003 -
$330,600; 2002 - $136,276) to directors and officers or
companies controlled by directors and officers of the Company,
for accounting, management and consulting services provided.
(b) The Company has agreements with a company controlled by the
wife of the President of the Company for the rental of office
premises. During fiscal 2004, the Company paid $74,870 (2003 -
$60,924; 2002 - $60,924) for rent.
(c) The Company shares its office facilities with Amera Resources
Corporation "Amera" and Golden Arrow. All three companies are
public companies with common management. During fiscal 2004,
the Company received $66,390 (2003 - $35,110; 2002 - $6,000)
from Amera and $57,000 (2003 and 2002 - $Nil) from Golden
Arrow for shared rent and administration costs.
(d) The President of the Company provides his services on a
full-time basis under a contract with a private company
controlled by the President. The President is paid an annual
amount of $102,000. The contract also provides that, in the
event the services are terminated without cause or upon a
change in control of the Company, a termination payment would
include a bonus of $6,500 per month, retroactive to July 1,
1999, plus an additional three years of compensation at
$15,000 per month. If the termination had occurred on December
31, 2004, the amount under the agreement would be $969,000.
(e) Other related party transactions are disclosed elsewhere in
these consolidated financial statements.
9. INCOME TAXES
The recovery of income taxes shown in the consolidated statements of
operations and deficit differs from the amounts obtained by applying
statutory rates to the loss before provision for income taxes due to
the following:
2004 2003 2002
$ $ $
Statutory tax rate 35.62% 37.62% 39.62%
============ ============ ============
Loss for the year (4,655,063) (3,418,418) (1,440,106)
============ ============ ============
Provision for income taxes based on
statutory Canadian combined federal
and provincial income tax rates (1,658,133) (1,286,009) (570,570)
Differences in foreign tax rates (114,390) (383,116) (4,234)
Losses for which an income tax benefit
has not been recognized 1,722,523 1,669,125 574,804
------------ ------------ ------------
- - -
============ ============ ============
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
9. INCOME TAXES (continued)
The significant components of the Company's future tax assets are as
follows:
2004 2003
$ $
Future income tax assets
Financing costs 192,369 116,985
Operating loss carryforward 3,594,455 4,051,130
------------ ------------
3,786,824 4,168,115
Valuation allowance for future tax assets (3,786,824) (4,168,115)
------------ ------------
- -
============ ============
Future Income Tax Liabilities
For certain acquisitions and other payments for mineral property
interests, the Company records a future income tax liability and a
corresponding adjustment to the related asset carrying amount. During
the year ended December 31, 2004, the Company recorded a future income
tax liability of $633,913 (2003 - $251,180) and a corresponding
adjustment to mineral properties.
2004 2003
$ $
Future income tax liabilities 885,093 251,180
============ ============
The Company has Canadian non-capital loss carryforwards of $9,998,489
that may be available for tax purposes. The losses expire as follows:
EXPIRY DATE $
2005 1,173,356
2006 1,255,915
2007 1,261,932
2008 841,160
2009 1,317,729
2010 1,545,964
2014 2,602,433
------------
9,998,489
============
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
10. SEGMENTED INFORMATION
The Company is involved in mineral exploration and development
activities, which are conducted principally in Argentina. The Company
is in the exploration stage and, accordingly, has no reportable segment
revenues or operating results for each of fiscal 2004, 2003 and 2002.
The Company's total assets are segmented geographically as follows:
------------------------------------------------------------
2004
------------------------------------------------------------
CORPORATE ARGENTINA PERU TOTAL
$ $ $ $
------------------------------------------------------------
Current assets 5,438,079 138,077 - 5,576,156
Equipment 93,177 925 - 94,102
Mineral properties and deferred costs - 6,551,598 - 6,551,598
------------ ------------ ------------ ------------
5,531,256 6,690,600 - 12,221,856
============ ============ ============ ============
------------------------------------------------------------
2003
------------------------------------------------------------
CORPORATE ARGENTINA PERU TOTAL
$ $ $ $
------------------------------------------------------------
Current assets 5,075,092 65,637 24,742 5,165,471
Equipment 28,974 7,032 4,466 40,472
Mineral properties and deferred costs - 4,406,421 3,807,512 8,213,933
------------ ------------ ------------ ------------
5,104,066 4,479,090 3,836,720 13,419,876
============ ============ ============ ============
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
The consolidated financial statements of the Company have been prepared
in accordance with Canadian GAAP, which differ in certain material
respects from US GAAP.
The effects of significant measurement differences between Canadian
GAAP and US GAAP for certain items on the consolidated balance sheets,
statements of operations and deficit and statements of cash flows are
as follows:
--------------------------------------------
2004 2003 2002
$ $ $
--------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
Loss for the year under Canadian GAAP (4,655,063) (3,418,418) (1,440,106)
Mineral properties and deferred costs for the year (i) (5,212,625) (2,134,757) (1,551,841)
Future income tax recovery (i) 633,913 322,217 285,286
Write down of marketable securities 99,762 - -
Mineral properties and deferred costs written off -
during the year which would have been
expensed in the year incurred (i) 776,626 -
Stock-based compensation (iii) - (144,000) (102,150)
------------ ------------ ------------
Loss for the year under US GAAP (9,134,013) (4,598,332) (2,808,811)
Unrealized gains (losses) on available-for-
sale securities (ii) (387,160) 434,346 54,740
------------ ------------ ------------
Comprehensive loss (iv) (9,521,173) (4,163,986) (2,754,071)
============ ============ ============
Basic and diluted loss per share under US GAAP (0.22) (0.14) (0.12)
============ ============ ============
Weighted average number of common shares outstanding 40,939,580 32,251,753 23,188,485
============ ============ ============
----------------------------
2004 2003
$ $
----------------------------
SHAREHOLDERS' EQUITY
Balance per Canadian GAAP 10,813,385 11,671,350
Mineral properties and deferred costs expensed (i) (6,551,598) (8,213,933)
Future income tax recovery (i) 885,093 1,330,292
Accumulated other comprehensive income (ii) 84,000 489,086
------------ ------------
Balance per US GAAP 5,230,880 5,276,795
============ ============
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
----------------------------
2004 2003
$ $
----------------------------
MINERAL PROPERTIES AND DEFERRED COSTS
Balance per Canadian GAAP 6,551,598 8,213,933
Mineral properties and deferred costs
expensed under US GAAP (i) (6,551,598) (8,213,933)
------------ ------------
Balance per US GAAP - -
============ ============
----------------------------
2004 2003
$ $
----------------------------
FUTURE INCOME TAX LIABILITY
Balance per Canadian GAAP 885,093 1,330,292
Future income tax recovery (i) (885,093) (1,330,292)
------------ ------------
Balance per US GAAP - -
============ ============
--------------------------------------------
2004 2003 2002
$ $ $
--------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
OPERATING ACTIVITIES
Cash used per Canadian GAAP (2,961,734) (1,419,549) (1,306,211)
Mineral properties and deferred costs (i) (4,578,712) (1,850,761) (1,266,555)
------------ ------------ ------------
Cash used per US GAAP (7,540,446) (3,270,310) (2,572,766)
============ ============ ============
INVESTING ACTIVITIES
Cash used per Canadian GAAP (4,509,717) (1,872,636) (1,277,756)
Mineral properties and deferred costs (i) 4,578,712 1,850,761 1,266,555
------------ ------------ ------------
Cash used per US GAAP 68,995 (21,875) (11,201)
============ ============ ============
i) Mineral Properties and Deferred Costs
Mineral properties and deferred costs are accounted for in
accordance with Canadian GAAP as disclosed in Note 3. For US
GAAP purposes, the Company expenses acquisition and
exploration costs relating to unproven mineral properties as
incurred and in addition has a related future income tax
recovery. When proven and probable reserves are determined for
a property, subsequent exploration and development costs of
the property are capitalized. The capitalized costs of such
properties would then be assessed, on a periodic basis, to
determine whether the carrying value can be recovered on an
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
undiscounted cash flow basis. If the carrying value cannot be
recovered on this basis, the mineral properties would be
written down to fair value determined using discounted cash
flows.
ii) Investments
The Company's marketable securities are classified as
available-for-sale investments under US GAAP and carried at
the lower of cost and market value for Canadian GAAP purposes.
Such investments are not held principally for the purpose of
selling in the near term and, for US GAAP purposes, must have
holding gains and losses reported as a separate component of
shareholders'equity until realized or until an other than
temporary impairment in value occurs.
iii) Accounting for Stock-Based Compensation
For US GAAP purposes, the Company accounted for stock-based
employee compensation arrangements using the intrinsic value
method prescribed in Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees"
until December 31, 2003.Under US GAAP, when stock options are
cancelled and immediately reissued at a revised price (the
"Repricing"), these options are accounted for as variable
compensation from the date of the Repricing. Under this
method, following the repricing date, compensation expense is
recognized when the quoted market value of the Company's
common shares exceeds the amended exercise price. Should the
quoted market value subsequently decrease, a recovery of a
portion, or all of the previously recognized compensation
expense, will be recognized.
During fiscal 2004, for US GAAP purposes, the Company has
adopted the fair based method of accounting for stock-based
compensation on a modified prospective basis in accordance
with FAS 148. This application is consistent with the early
application of CICA 3870 under Canadian GAAP (Note 3).
Accordingly, effective January 1, 2004, there is no difference
on accounting for stock-based compensation under Canadian and
US GAAP.
iv) Comprehensive Income
US GAAP requires disclosure of comprehensive income (loss)
which is intended to reflect all other changes in equity
except those resulting from contributions by and payments to
owners.
v) Spin-Off of Assets to Golden Arrow
Under Canadian GAAP a spin-off of assets is accounted for and
disclosed in accordance with CICA Handbook Section 3475
"Disposal of Long-Lived Assets and Discontinued Operations".
Under US GAAP, such a spin-off would be accounted for and
disclosed as a dividend in kind and would not require separate
carve-out of results in the statements of operations and cash
flows nor separate balance sheet classification.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
vi) Recent Accounting Pronouncements
Consolidation of Variable Interest Entities
In January 2003, the Financial Accounting Standards Board or
"FASB" issued Interpretation No. 46, Consolidation of Variable
Interest Entities, and an Interpretation of Accounting
Research Bulletin No. 51 ("FIN 46"). FIN 46 establishes
accounting guidance for consolidation of variable interest
entities by the primary beneficiary. FIN 46 applies to any
business enterprise, public or private, that has a controlling
interest, contractual relationship or other business
relationship with a variable interest entity. In December
2003, the FASB issued Interpretation No. 46R ("FIN 46 R")
which supersedes FIN 46 and is effective for all Variable
Interest Entities ("VIEs") created after February 1, 2003 at
the end of the first interim or annual reporting period ending
December 15, 2003. FIN 46 R is applicable to all VIEs created
prior to February 1, 2003 by public entities at the end of the
first interim or annual reporting period ending after March
15, 2004. The Company has determined that it has no VIEs.
In June 2003, the CICA issued a new accounting guideline
ACG-15, "Consolidation of Variable Interest Entities" which is
effective for interim and annual periods beginning on or after
November 1, 2004. ACG-15 harmonizes the accounting treatment
for variable interest entities with the US GAAP treatment
under FIN 46R.
Exchanges of Non-Monetary Assets
In December 2004, the FASB issued Statement No. 153 ("SFAS
153") "Exchanges of Non-monetary Assets". SFAS 153 replaces
guidance previously issued under APB Opinion No. 29,
"Accounting for Non-monetary Transactions", which was based on
the principle that exchanges of non-monetary assets should be
measured based on the fair value of the assets exchanged. The
guidance in that Opinion, however, included certain exceptions
to that principle. SFAS 153 amends Opinion 29 to eliminate the
exception for non-monetary exchanges of similar productive
assets and replaces it with a general exception for exchanges
of non-monetary assets that do not have commercial substance.
A non-monetary exchange has commercial substance if the future
cash flows of the entity are expected to change significantly
as a result of the exchange. SFAS 153 is effective for
non-monetary exchanges occurring in fiscal periods beginning
after June 15, 2005. The Company will comply with this
guidance for any non-monetary transactions after the effective
date for U.S. GAAP purposes.
Whether Mineral Rights are Tangible or Intangible Assets
Effective for reporting periods beginning after April 29,
2004, the EITF released Issue 04-2, "Whether Mineral Rights
are Tangible or Intangible Assets". The consensus was that
mineral rights acquired on a business combination are tangible
assets and should be recorded as a separate component of
property, plant and equipment either on the face of the
financial statements or in the notes. The Company has not been
involved to date in a business combination but will comply
with the Issue in the future as required.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
Mining Assets: Impairment and Business Combinations
Effective for reporting periods beginning after March 31,
2004, the EITF released Issue No. 04-3, "Mining Assets:
Impairment and Business Combinations". The EITF reached
consensus that an entity should include value beyond proven
and probable reserves in the value allocated to mining assets
in a purchase price allocation to the extent a market
participant would include such value in determining the fair
market value of the asset. The EITF also reached consensus
that an entity should include the effects of anticipated
changes in market prices of minerals when determining the fair
market value of mining assets in a purchase price equation in
a manner consistent with expectations of the marketplace.
An entity should also include cash flows associated with value
beyond proven and probable reserves in estimates of future
cash flows for determining if a mining asset is impaired under
SFAS 144. An entity should also anticipate fluctuations in
market prices when determining these cash flows.
The Company will comply with this Issue for any future
business combinations and impairment reviews.
Financial Instruments
On January 27, 2005, the CICA issued Section 3855 of the
Handbook titled "Financial Instruments - Recognition and
Measurement". It expands Handbook section 3860, "Financial
Instruments - Disclosure and Presentation" by prescribing when
a financial instrument is to be recognized on the balance
sheet and at what amount. It also specifies how financial
instrument gains and losses are to be presented. All financial
instruments will be required to be classified into various
categories. Held to maturity investments loans and receivables
are measured at amortized cost with amortization of premium or
discounts and losses and impairment included in current period
interest income or expense. Held for trading financial assets
and liabilities are measured at fair market value with all
gains and losses included in net income in the period in which
they arise. All available for sale financial assets are
measured at fair market value with revaluation gains and
losses included in other comprehensive income until the asset
is removed from the balance sheet except that other than
temporary losses due to impairment are included in net income.
All other financial liabilities are to be carried at amortized
cost. This new Handbook section will bring Canadian GAAP more
in line with U.S. GAAP. The mandatory effective date is for
fiscal years beginning on or after October 1, 2006, with
optional early recognition for fiscal years beginning on or
after December 31, 2004. At present, the Company's most
significant financial instruments are cash, accounts
receivable and accounts payable. This new section requires
little difference in accounting for these financial
instruments from current standards.
Hedge Accounting
New Handbook Section 3865, "Hedges" provides alternative
treatments to Handbook Section 3855 for entities which choose
to designate qualifying transactions as hedges for accounting
purposes. The effective date of this section is for fiscal
years beginning on or after October 1, 2006, with optional
early recognition for fiscal years beginning on or after
December 31, 2004.
The Company does not currently have any hedging relationships.
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
11. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (continued)
Comprehensive Income
New Handbook Section 1530, "Comprehensive Income", introduces
a new requirement to temporarily present certain gains and
losses outside of income. Section 1530 defines comprehensive
income as a change in value of net assets that is not due to
owner activities. Assets that are classified as available for
sale will have revaluation gains and losses included in other
comprehensive income until the asset is removed from the
balance sheet.
At present, the Company has investments in shares of arm's
length corporations that may be classified as available for
sale investments. The Company would be required to recognize
unrealized gains and losses on these securities and include
these amounts in comprehensive income. The effective date of
this section is for fiscal years beginning on or after October
1, 2006, with optional early recognition for fiscal years
beginning on or after December 31, 2004. Implementation of
this section will more closely align Canadian GAAP with U.S.
GAAP.
12. SUPPLEMENTARY CASH FLOW INFORMATION
Non-cash investing and financing activities were conducted by the
Company as follows:
--------------------------------------------
2004 2003 2002
$ $ $
--------------------------------------------
Investing activities
Proceeds on disposition of mineral properties (252,000) (272,982) -
Acquisition of marketable securities 252,000 272,982 -
------------ ------------ ------------
- - -
============ ============ ============
Financing activities
Finder's fees payable - - (5,000)
Shares issued for payment of finder's fees - - 5,000
Shares issued on exercise of options 204,070 74,379 -
Contributed surplus (204,070) (74,379) -
------------ ------------ ------------
- - -
============ ============ ============
IMA EXPLORATION INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(EXPRESSED IN CANADIAN DOLLARS)
13. SUBSEQUENT EVENTS
a) Subsequent to December 31, 2004, the Company:
(i) granted 900,000 stock options for $4.16 per share to
its directors, employees and consultants for a period
of five years; and
(ii) issued 1,663,517 common shares for $4,267,345 on the
exercises of stock options and warrants.
b) Effective January 1, 2005, the Company engaged Grosso Group
Management Ltd., ("Grosso Group") to provide services and
facilities to the Company. As of April 21, 2005, a formal
agreement among the Company and the Grosso Group has not been
finalized. Until such time as the formal agreement has been
finalized, the Company and the Grosso Group intend to work
under the terms of the proposed Administration Services
Agreement by and among the Company and the Grosso Group. It is
anticipated that the formal agreement will have an effective
date of January 1, 2005. The Grosso Group is a private company
which will be owned by the Company, Golden Arrow, Amera and
Gold Point Exploration Ltd., each of which will own one share.
The Grosso Group will provide its shareholder companies with
geological, corporate development, administrative and
management services.
IMA EXPLORATION INC.
MANAGEMENT DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 2004
INTRODUCTION
The following management discussion and analysis and financial review, prepared
as of April 21, 2005, should be read in conjunction with the Company's
consolidated financial statements and related notes. The consolidated financial
statements have been prepared in accordance with Canadian generally accepted
accounting principles ("Canadian GAAP"). Except as otherwise disclosed all
dollar figures in this report are stated in Canadian dollars. Additional
information relevant to the Company can be found on the SEDAR website at
www.sedar.com.
FORWARD LOOKING STATEMENTS
Certain information included in this discussion may constitute forward-looking
statements. Forward-looking statements are based on current expectations and
entail various risks and uncertainties. These risks and uncertainties could
cause or contribute to actual results that are materially different than those
expressed or implied. The Company disclaims any obligation or intention to
update or revise any forward-looking statement, whether as a result of new
information, future events or otherwise.
OVERVIEW
The Company is a natural resource company engaged in the business of
acquisition, exploration and development of mineral properties in Argentina. At
present, the Company has no producing properties and consequently has no current
operating income or cash flow. As of this date the Company is an exploration
stage company and has not generated any revenues. The Company is entirely
dependent on the equity market for its source of funds. There is no assurance
that a commercially viable mineral deposit exists on any of the properties.
Further evaluation and exploration will be required before the economic
viability of any of the properties is determined.
During the year ended December 31, 2004 the Company completed its
reorganization, which had the effect of transferring all the non-Navidad mineral
properties and related assets to a new corporation, Golden Arrow Resources
Corporation ("Golden Arrow"). The reorganization allowed the Company to focus
all its efforts and resources on the Navidad project located in Chubut Province,
Argentina. A Phase I drilling program commenced in November 2003 and continued
into March 2004. Phase II commenced in May 2004 and was completed in September
2004. Phase III commenced in November 2004 and is ongoing. These drilling
programs have returned excellent results. In March 2005 the Company engaged the
services of Augusto Baertl of Lima Peru to determine the economic feasibility of
the Navidad Project, through a contract with Mr. Baertl's company, Gestora de
Negocios e Inversiones SA. The Company expects that, with Mr. Baertl's
assistance, a pre-feasibility study will be undertaken as a first step in the
determination of the economic viability of Navidad. Mr. Baertl's mandate is a
continuing one whose objective is ultimately the achievement of commercial
production.
In March 2004 Aquiline Resources Inc. ("Aquiline") commenced an action against
the Company seeking a constructive trust over the Navidad properties and
damages. The Company believes the Aquiline legal action is without merit and
continues to vigorously defend itself. A trial date has been scheduled for
October 2005. At this date the outcome is not determinable. The Company has not
made any provision for costs for which it might become liable in what management
considers the unlikely event of an adverse judgement.
PROPERTIES UPDATE
All mineral properties held by the Company, with the exception of the Navidad
property and the Navidad area properties discussed below, were transferred to
Golden Arrow in July 2004 on completion of the Company's reorganization.
-1-
NAVIDAD
On February 3, 2003 the Company announced the discovery of high-grade
silver-lead-copper mineralization at its 100% owned 10,000 hectare (24,700
acres) Navidad property in north central Chubut Province, Argentina. A Phase I
drilling program commenced in November, 2003 and was completed in late March
2004. A Phase II drill program commenced in late May 2004 and was completed in
September 2004. Subsequent to completion of the Phase II program, a program of
surface exploration including prospecting, geological mapping, ground geophysics
and soil sampling was commenced. A Phase III drilling program commenced in
November 2004 and, other than a break for Christmas, drilling continued to March
7, 2005. Subsequently the Company has announced that the Phase III program
budget has been increased to include an additional 10,000 metres of drilling and
drilling will resume in mid April 2005. In addition to its active exploration
program, the Company has an ongoing program of environmental baseline data
collection in the project area.
On May 25, 2004 the Company announced results of a resource estimation carried
out for the Galena Hill deposit and portions of the adjacent connector zone by
Snowden Mining Consultants Inc. The resource estimation for the Galena Hill
deposit, the first systematically drilled target on the Navidad property,
outlined an Indicated Resource of 207 million ounces of silver and 1.1 million
tonnes of lead at a 50 g/t silver equivalent cut-off grade (63.6 M tonnes at 101
g/t Silver and 1.76% lead). This resource includes a higher-grade core
containing117 million ounces of silver and 495,047 tonnes of lead at a 300 g/t
silver equivalent cut-off grade (13.2 M tonnes at 277 g/t silver and 3.76%
lead). Inferred Resources at Galena Hill total 36 million ounces of silver and
56,776 tonnes of lead at a 50 g/t silver equivalent cut-off grade (16.9 M tonnes
at 67 g/t silver and 0.3% lead).
Subsequent to the Phase II drill program, on December 1, 2004, the Company
announced the results of an updated resource estimate by Snowden Mining Industry
Consultants Inc. including the Navidad Hill and Connector Zone deposits. This
increased the overall project Indicated Resources by 61 million ounces of
contained silver using a 50 g/t silver equivalent cut-off grade. Resources
estimated to date on the project are presented in the table below.
--------------------------------------------------------------------------------
CONTAINED CONTAINED
TONNES SILVER SILVER LEAD SILVER LEAD
(m) (g/t) (oz/t) (%) (million (1,000
ounces) tonnes)
--------------------------------------------------------------------------------
GALENA HILL
Indicated 63.6 101 2.95 1.76 207 1,118
Inferred 5.8 43 1.26 0.56 8 33
--------------------------------------------------------------------------------
NAVIDAD HILL
Indicated 15.2 115 3.36 0.35 56 52
Inferred 3.4 97 2.83 0.74 11 25
--------------------------------------------------------------------------------
CONNECTOR ZONE
Indicated 2.1 74 2.16 0.27 5 6
Inferred 6.5 100 2.92 0.20 21 13
--------------------------------------------------------------------------------
PROJECT TOTAL
RESOURCES
Indicated 80.8 103 3.01 1.45 268 1,176
Inferred 15.7 78 2.28 0.45 39 71
--------------------------------------------------------------------------------
* Estimated using a 50 g/t silver equivalent cut-off grade
Detailed review of the geological interpretation and block model shows that the
Navidad Hill deposit and the Connector Zone remain open and insufficiently drill
tested in several areas. The Phase III drill program currently underway will
more fully test the boundaries of the Navidad Hill zone, with the intent to
increase the Indicated Resource at Navidad Hill and the Connector Zone.
The Phase I drill program at Navidad comprised 8,859.6 metres in 53 holes, 37 of
which were drilled on Galena Hill. Phase II drilling comprised 9,596.5 metres of
diamond core drilling in 67 holes. Drilling in the Phase II program focused on
the Esperanza Trend, the Barite Hill target, and on the Navidad Hill and
Connector Zone targets. Phase III drilling to date has comprised 9,526.2 metres
in 54 holes for a project total of 27,982.3 metres in 174 holes. Results from
the Phase III drilling have been described in news releases dated January 13,
March 4 and March 22, 2005. The Phase III drill program has focussed on drilling
in the Calcite Hill area and expansion and infill drilling on the Navidad Hill
and Connector Zone areas.
-2-
Galena Hill
The Galena Hill Deposit is hosted primarily within gently dipping
trachyandesitic volcanic breccias with a matrix of galena, pyrite, calcite, and
barite. These breccias are interpreted to have formed primarily by multiple
hydrothermal fluid pulses. Calcareous mudstones overlie the mineralized volcanic
breccias; these generally contain significant silver, lead and zinc values
within one to five metres of the volcanic-mudstone contact. Sulphides occur in
the mudstone both as crosscutting veinlets and as strataform beds suggesting a
syn-depositional timing for the mineralization event. The Galena Hill deposit
measures approximately 450 by 500 metres in plan view (at 50 g/t AgEq cut-off)
and is up to 125 metres thick in its centre. A total of 39 drillholes have been
completed to date to delineate the Galena Hill resource. Highlights from Phase I
drilling on Galena Hill include 115 metres of 497 g/t silver and 5.71% lead in
Drill Hole 14 and 63.0 metres of 418.4 g/t silver, including 20.6m of 703.0 g/t
silver, in Drill Hole 22.
Navidad Hill
A total of 53 drill holes have been completed to date at Navidad Hill. In
addition to the structurally controlled mineralization located on top of Navidad
Hill, near-surface stratigraphically controlled silver mineralization has now
been identified along the southwest and southeast flanks of Navidad Hill.
Intercepts of structurally controlled, near vertical mineralized bodies on the
top of Navidad Hill include hole NV04-110 which intersected 61.5 metres of 128
grams per tonne silver, including 5.34 metres of 1,006 grams per tonne silver.
Highlights of stratigraphically-controlled mineralization on the western flank
of the Navidad volcanic dome include the exceptional intercept from Drill Hole
NV04-90 that returned 35.8 metres of 2,850 grams per tonne (83.2 ounces per ton)
silver including 7.3 metres of 11,995 grams per tonne (350.3 ounces per ton)
silver starting from 16.5 metres depth. Drill Hole 90 was drilled at an
inclination of -45(degree) towards the northeast on the western flank of Navidad
Hill, approximately 275 metres northwest of Drill Holes 1 and 2 and in an area
of little or no outcrop. Bonanza-grade mineralization in Drill Hole 90 contains
semi-massive silver-copper-lead sulphides and/or sulphosalts. In several
locations native silver occurs as fine veinlets and grains up to 5 millimetres
in size. Further intercepts in the area include 28.15 metres of 1,115 grams per
tonne silver (32.6 ounces per ton) including 5.97 metres of 4,579 grams per
tonne (133.7 ounces per ton) in Drill Hole 117 and 58.68 metres of 208 grams per
tonne silver (6.1 ounces per ton) in Drill Hole 112.
Phase III drilling in the area of Drill Hole 90 included Drill Holes 139 to 142
which were completed to provide more detailed information on this zone of very
high-grade silver mineralization. Of these, Drill Holes 139 (17.8 metres of
1,037 g/t silver) and 142 (34.5 metres of 1,220 g/t silver) intersected
significantly higher grade than that predicted by the Snowden resource block
model. Drill Holes 157 to 161 were collared along the southern boundary of the
known resource at Navidad Hill and demonstrate that mineralization continues
beyond the limits of the Indicated portion of current resource estimation.
Connector Zone
At the Connector Zone 24 drill holes have been completed to date. Drilling has
demonstrated that both structurally and stratigraphically controlled high-grade
silver mineralization occurs in this area, as at Navidad Hill. In the
northwestern part of the Connector Zone (Drill Holes 40, 68, 105, 106, and 107),
the control on mineralization appears to be stratigraphic with the
mineralization occurring in the same stratigraphic position as at the Galena
Hill deposit and on the flank of Navidad Hill (Drill Hole 90). Highlights from
this mineralization style include 46.7 metres of 334 grams per tonne silver from
hole 107 and 13.3 metres of 545 grams per tonne silver from hole 105. In the
southeastern Connector Zone (Drill Holes 32, 86, 87, 108, 131, 153, 154, 155.
and 156), the controls on mineralization and the stratigraphic correlations are
less clear. Drill Hole 108 was drilled towards the east to cross a northerly
trending structural zone partially exposed on surface and intersected an
impressive 485 grams per tonne silver over 39.0 metres.
-3-
Phase III drilling at the Connector Zone (holes 153-156) has intersected silver
mineralization over long intervals outside of the current Indicated Resource.
Results include 88.8 metres of 107 g/t silver in Drill Hole 153 and 28.8m of 148
g/t silver in Drill Hole 154; both intercepts start at surface. Mineralization
in Drill Holes 153 and 154 is open to expansion to the north and northwest. Both
step-out and infill drilling is required in this area and an updated resource
estimate will be undertaken when this is completed.
Calcite Hill
Near the end of the Phase II program a single hole, NV04-88, was drilled to test
favourable stratigraphy on the edge of Calcite Hill in an area where there are
few indications of mineralization or geochemical anomalies at surface. The hole
intersected 72.3 metres averaging 202 grams per tonne silver and 3.45% lead from
70.3 to 142.6 metres depth and included a higher-grade interval containing 12.4
metres averaging 672 grams per tonne silver. Drill Holes 88 was located
approximately 400 metres west of the nearest holes on Navidad Hill. The major
Calcite Hill silver-lead soil anomaly is located a further 340 metres to the
northwest of Drill Hole 88. The mineralization in NV04-88 comprises galena,
calcite and barite with minor amounts of native silver and argentinte-acanthite
(native silver had not been observed in any of the drill core from the Navidad
Project prior to Drill Hole 88).
Phase III drilling has now defined a mineralized zone approximately 275 metres
long by 100 metres wide by 50 to 120 metres deep at Calcite Hill. Highlights
from Phase III drilling at Calcite Hill include: 122.6 metres of 195 g/t silver
in Drill Hole 124; 196.1 metres of 113 g/t silver in Drill Hole 126; 123.6
metres of 139 g/t silver in Drill Hole 138; 46.6 metres of 300 g/t silver
including 10.3 metres of 1,257 g/t silver in Drill Hole 143; 83.0 metres of 209
g/t silver in Drill Hole 148; and 80.2 metres of 246 g/t silver including 25.3m
of 476 g/t silver in Drill Hole 151.
Mineralization encountered to date at Calcite Hill is predominantly hosted
within trachyandesite volcanic rock and to a lesser degree within mudstone which
overlies the volcanic rock. The volumetrically most important style of
mineralization consists of calcite-barite veinlets and breccias with
argentite-acanthite, native silver and lesser galena and chalcopyrite. In
general, this style of mineralization contains high silver grades with minor
amounts of lead and copper. In the upper portions of the host volcanic unit, and
in the overlying mudstone, mineralization tends to be lead-rich and consists
predominantly of medium-grained galena with moderate silver values. The Calcite
Hill soil anomaly extends for 1.4 km to the northwest of current drilling. A
resource estimate has not yet been done for Calcite Hill.
Esperanza Trend
A total of 10 drill holes have been completed to date in two areas along the 6
kilometre Esperanza Trend. Highlights include 2.7 metres of 831 grams per tonne
silver in Drill Hole 62 and 2.6 metres of 513 grams per tonne silver in Drill
Hole 79. Interestingly, Drill Hole 79 shows signs of the mineralization being
stratigraphically rather than structurally controlled as had been interpreted to
date in this area. Drill Hole 63 intersected 45.8 metres of 94 grams per tonne
silver, including 4.0 metres of 246 grams per tonne silver, 800 metres to the
northwest. In the same area, Drill Hole 82 intersected 54.6 metres of 64 grams
per tonne silver, including 26.1 metres of 106 grams per tonne silver and also
6.0 metres of 140 grams per tonne silver. These results confirm the high grades
and potential for a significant structurally and/or stratigraphically controlled
zone at Esperanza. Significantly more drilling will be required to evaluate the
6-kilometre Esperanza Trend.
Barite Hill
A total of 8 holes were completed at Barite Hill in Phase II. Although many of
these holes contain significant near surface intersections of galena matrix
breccia similar in style to that at Galena Hill, they have generally lower
silver and lead values. The most significant intercept was from Drill Hole
NV04-76 that cut 22.1 metres of galena matrix breccia averaging 34 grams per
tonne silver and 0.63% lead in the upper part of the hole and then intersected a
different style of mineralization deeper in the hole that contained 21.7 metres
of 88 grams per tonne silver including 8.4 metres of 191 grams per tonne silver.
This deeper mineralization is associated with calcite veining within a
fine-grained muddy sedimentary rock and is characterized by high silver to base
metal ratios.
-4-
Loma de la Plata
The surface exploration program launched September 2004 resulted in the
discovery of the Loma de la Plata Zone, approximately 4 kilometres west of the
Galena Hill deposit, through grid soil sampling. At Loma de la Plata, an area of
approximately 400 x 400 metres has been systematically sampled with twelve lines
of continuous and semi-continuous channel samples; these sample lines range in
length from 12.5 to 135.9 metres. Highlights of channel samples include:
Line LP-1: 40.1 metres of 740 g/t silver
Line LP-3: 42.9 metres of 684 g/t silver
Line LP-4: 135.9 metres of 159 g/t silver
Line LP-7: 48.5 metres of 315 g/t silver
Line LP-2: 103.3 metres of 290 g/t silver
Line LP-9: 49.5 metres of 410 g/t silver
Line LP-10: 56.0 metres of 452 g/t silver
The Loma de la Plata zone is hosted within quartz-eye phyric trachyandesite
volcanic rocks that dip to the northeast at 15 to 45 degrees. Mineralization
occurs in micro-veinlets and breccia zones and consists primarily of minor
galena and copper oxides with common native silver. Preliminary geological
assessment indicates that the zone is hosted by a similar sequence of volcanic
and sedimentary rocks, in a similar stratigraphic position, to those that host
the Galena Hill deposit. The possibility of leaching, or alternatively
concentration, of silver values at or near surface cannot be determined from the
data available and drilling will be required to constrain this. No drilling has
been carried out on the Loma de la Plata zone to date.
Sector Zeta
At Sector Zeta, approximately 5 kilometres west of the Galena Hill Deposit,
seven sample lines ranging in length from 6.7 to 60.0 metres have been completed
covering an area of approximately 80 by 100 metres. Highlights of the Sector
Zeta results include:
Line Z-5: 8.0 metres of 105 g/t Silver and 1.14% Copper
Line Z-6: 12.0 metres of 112 g/t Silver and 1.13% Copper
Line Z-7: 12.0 metres of 133 g/t Silver and 3.27% Copper
Mineralization at Sector Zeta predominantly consists of green copper oxides
within argillicly altered latite volcanic rocks that are often brecciated. The
Company's geologists interpret that the volcanic rocks which host mineralization
here are part of the same volcanic unit that hosts mineralization at Galena and
Navidad Hills and also at Loma de la Plata. At present, the orientation of the
mineralized zone at Sector Zeta is unknown; drill data will be needed to
unambiguously define the geometry and size of the mineralization. The
possibility of leaching, or alternatively, concentration of silver and copper
values at or near surface, particularly at Sector Zeta in the case of copper,
cannot be determined from the data available to date and drilling will be
required; no drilling has been carried out in the Sector Zeta area.
Argenta Trend
On January 21, 2005 the Company released the results from a large expansion to
the soil sample grid and follow-up prospecting which uncovered a series of new
mineralized zones to the southeast of Loma de la Plata. The newly named "Argenta
Trend" includes Sector Zeta and Loma de la Plata and extends approximately six
kilometres to the southeast, parallel with the Esperanza and Navidad Trends.
A total of 1,366 new soil samples (including blanks and duplicates) were
collected at 50 metre intervals on lines spaced 200 metres apart and cover an
area of over 1,300 hectares to the south of the previous grid. The Argenta Trend
is highlighted by anomalous silver, lead and zinc values with subordinate and
sporadic anomalous copper. Prospecting and geological mapping along the Argenta
Trend has found several new zones of silver-lead, lead-silver, and silver-copper
mineralization. Results have been reported for 32 rock chip and grab samples
which range from below detection to high-grade silver, lead, and copper.
-5-
Highlights include eight samples containing over 100 g/t silver (up to 290 g/t
silver), ten samples with over 10% lead (up to 29.7% lead), and two samples with
over 1% copper (up to 1.42%).
NAVIDAD AREA PROPERTIES
The Company has 18 exploration properties in Chubut Province in addition to
Navidad, several of which are the subject of joint venture agreements.
Regalo
Work by Consolidated Pacific Bay Minerals Ltd. ("Pacific Bay") on the Regalo
Property, currently under option from the Company, has identified highly
anomalous gold in soils and silt samples over a large area. In Pacific Bay's
January 12, 2005 news release, they report that in one zone, "Yastekt South",
the strong gold anomalies are consistent over almost one square kilometre. The
Yastekt South anomaly comprises 98 soil analyses that average 299 ppb gold.
Normal, "background" gold values in the area are less than 5 ppb. Two of the 98
soil analyses returned values in excess of 3 grams per tonne gold. Pacific Bay
is exploring the property for epithermal gold deposits and is planning to carry
out a trenching program on the property in the near future.
Other parties to the joint venture agreements in the Navidad area have agreed
not to seek TSXV approval for the agreements until certain legal and political
uncertainties can be resolved. Accordingly the Company did not complete the
terms of the agreements in 2004.
SELECTED ANNUAL FINANCIAL INFORMATION
The following selected consolidated financial information is derived from the
audited consolidated financial statements and notes thereto. The information has
been prepared in accordance with Canadian GAAP.
---------------------------------------
YEARS ENDED DECEMBER 31,
---------------------------------------
2004 2003 2002
$ $ $
---------------------------------------
Total Assets 12,221,856 13,419,876 8,636,895
Long Term Financial Liabilities Nil Nil Nil
Total Revenues Nil Nil Nil
General and Administrative Expenses 4,312,616 2,503,041 509,980
Loss from Continuing Operations (4,523,831) (2,449,243) (485,331)
Loss per Common Share from
Continuing Operations (0.11) (0.08) (0.02)
Loss allocated to Spin-Off Assets (131,232) (969,175) (954,775)
Net Loss (4,655,063) (3,418,418) (1,440,106)
Net Loss per Common Share Basic
and Diluted (0.11) (0.11) (0.06)
---------------------------------------
Total assets decreased $1,198,021 from December 31, 2004 and 2003 as a result of
the transfer of assets to Golden Arrow offset by corresponding increases in the
Company's cash balance and in the Navidad property carrying value. The increase
between 2003 and 2002 was a result of the increase in the Company's cash balance
and property additions. General and adminstrative expenses have increased due to
the increases in the activity level related to continued exploration at the
Navidad project and the necessary support required.
-6-
SELECTED QUARTERLY FINANCIAL INFORMATION
The following selected consolidated financial information is derived from the
unaudited consolidated interim financial statements of the Company. The
information has been prepared in accordance with Canadian GAAP.
---------------------------------------------------- ----------------------------------------------------
2004 2003
---------------------------------------------------- ----------------------------------------------------
DEC. 31 SEP. 3 JUN. 30 MAR. 31 DEC. 31 SEP. 30 JUN. 30 MAR. 31
$ $ $ $ $ $ $ $
---------------------------------------------------- ----------------------------------------------------
Revenues Nil Nil Nil Nil Nil Nil Nil Nil
Loss from Continuing
Operations (1,164,504) (492,562) (466,021) (2,400,744) (1,436,078) (586,158) (243,728) (183,279)
Loss per Common Share
from Continuing
Operations (0.03) (0.01) (0.01) (0.06) (0.04) (0.02) (0.01) (0.01)
Income (Loss)
Allocated to
Spin-off Assets Nil (Nil) (355,252) 224,020 (702,420) 22,656 (163,658) (125,753)
Net Loss (1,164,955) (492,562) (821,273) (2,176,273) (2,138,498) (563,502) (407,386) (309,032)
Net Loss per Common
Share Basic
and Diluted (0.02) (0.01) (0.02) (0.06) (0.07) (0.02) (0.01) (0.01)
---------------------------------------------------- ----------------------------------------------------
In the quarter ended December 31, 2004 the Company recorded stock-based
compensation of $101,150 compared to $1,141,415 in the comparable 2003 period.
Legal costs were substantially greater in the current period compared to the
previous year.
SUMMARY OF FINANCIAL RESULTS
The Company reported a consolidated loss of $4,655,063 ($0.11 per share) in
2004, an increase of $1,236,645 from the loss of $3,418,418 ($0.11 per share) in
2003. The increase in the loss in 2004, compared to 2003, was due to a number of
factors of which $1,148,400 can be attributed to operating expenses and $88,245
to other expense items.
The Company's prior period financial statements have been reclassified in
accordance with Canadian GAAP. The net assets transferred to Golden Arrow are
described as "Spin-Off Assets Transferred" and the allocated expenses are
described as "Loss Allocated to Spin-Off Assets" in the consolidated financial
statements. This reclassification did not change previously reported total
losses. The allocation of expenses was calculated on the basis of the ratio of
the specific assets transferred to assets retained. The following discussion of
the 2004 expenses compared to the 2003 expenses is based on expenses as
originally reported.
RESULTS OF OPERATIONS
The Company's 2004 operating expenses were $4,312,616 an increase of $1,148,400
from the $3,164,216 originally reported for 2003. $661,175 of the 2003 operating
expense has been reclassified as "Loss Allocated to Spin-Off Assets" which
relate to the assets transferred to Golden Arrow. In 2004 $131,232 was allocated
to the Loss from Spin-Off Assets compared to $969,175 in 2003. The allocation
was calculated on the basis of the ratio of the specific assets transferred to
assets retained. Certain "Other Income and Expense" items have been allocated to
spin-off assets on the basis of the nature of the income or expense. In 2004
expenses increased as a result of increased activity at the Navidad project and
the support required at the corporate office.
Professional fees increased $597,017 to $894,780 in 2004, primarily due to legal
costs incurred in connection with the Aquiline legal action as well as increased
costs of compliance. During 2004 the Company recorded a non-cash expense of
$1,972,860 for stock based compensation for stock options granted to its
employees and directors, an increase of $485,625 from 2003. Other notable
changes in the operating expenses are: (i) Salaries increased $113,998 due to
staff increases (in 2004 the Company had an average of seven people on its
payroll compared to three in 2003); (ii) Travel increased $97,641due to travel
to conferences as well as to South America; (iii) Cost recoveries (for shared
administrative costs and rent) from Amera Resources Corporation and Golden Arrow
increased by $114,161; (iv) Corporate development and investor relations
decreased $62,026, as 2003 was a more active year in which the Company developed
investor awareness.
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In 2004 the Company recorded a gain of $328,346 on the optioning of certain
properties to other mining exploration companies (plus $433,960 of gains
relating to the Spin-Off Assets) compared to $481,779 in total in 2003. In 2004
a write-down of $99,762 (2003 - $nil) for the carrying value of marketable
securities was recognized. Reorganization costs of $346,103 were recorded in
2004. An expense of $195,285 for foreign exchange was recorded in 2004 compared
to $25,916 in 2003. The foreign exchange adjustment is as a result of the
continued strength of the Canadian dollar compared to the US dollar in which the
majority of the inter-company transactions are denominated; when the
inter-company accounts are eliminated the difference is charged to foreign
exchange. The Company wrote down the value of its mineral properties and
deferred costs by $776,626 in 2003. In 2004 there were no write offs of mineral
properties and deferred costs. Interest and other income was $101,589 in 2004,
an increase of $35,028 from 2003, primarily as a result of an increase of funds
on deposit.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position at December 31, 2004 was $5,227,354, an increase of
$805,020 from December 31, 2003. Total assets decreased from $13,419,876 at
December 31, 2003 to $12,221,856 at December 31, 2004. This decrease in assets
resulted from the transfer of $7,364,878 net assets to Golden Arrow on the
reorganization of the Company offset by the increases in cash balance and
Navidad carrying value. During the year ended December 31, 2004 the Company
completed a brokered private placement for 1,500,000 units at $3.10 per unit,
for proceeds of $4,238,763, net of $339,000 agent's commission and $72,237 of
related issue costs.
In addition during 2004, options and warrants were exercised which resulted in
cash proceeds of $5,057,897 during the year. The Company paid $107,544 to Golden
Arrow from the exercise of warrants that resulted in the issue of Golden Arrow's
shares as required by the terms of the reorganization.
The Company has received $4,267,345 from the exercise of warrants and options
from January 1 to April 21, 2005. As at April 21, 2005 the Company had working
capital of approximately $6,500,000.
The Company considers that it has adequate resources to maintain its ongoing
operations but currently does not have sufficient working capital to fund all of
its planned exploration and development work. The expanded work for Phase III of
the Navidad project has been approved in the amount of $2,000,000. The Company
will continue to rely on successfully completing additional equity financing to
further exploration and development of Navidad. There can be no assurance that
the Company will be successful in obtaining the required financing. The failure
to obtain such financing could result in the loss of or substantial dilution of
its interest in its properties.
The Company does not know of any trends, demand, commitments, events or
uncertainties that will result in, or that are reasonably likely to result in,
its liquidity either materially increasing or decreasing at present or in the
foreseeable future. Material increases or decreases in liquidity are
substantially determined by the success or failure of the exploration programs.
Effective January 1, 2005, the Company engaged Grosso Group Management Ltd.,
("Grosso Group") to provide services and facilities to the Company. As of April
21, 2005, a formal agreement among the Company and the Grosso Group has not been
finalized. Until such time as the formal agreement has been finalized, the
Company and the Grosso Group intend to work under the terms of the proposed
Administration Services Agreement by and among the Company and the Grosso Group.
This is not expected to result in a significant change to the Company's costs.
The Company does not now and does not expect to engage in currency hedging to
offset any risk of currency fluctuations.
OPERATING CASH FLOW
Cash outflow from operating activities in 2004 was $2,961,734, compared to cash
outflow in 2003 of $1,419,549 as a result of increases in activities.
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FINANCING ACTIVITIES
In 2004 the Company received $9,707,897 from the sale of common shares, less
costs of $411,237 and $107,544 paid to Golden Arrow, compared to $6,467,245,
less costs of $188,850, in 2003.
INVESTING ACTIVITIES
Investing activities required cash of $4,509,717 in 2004 (2003 - $1,872,636),
these investing activities were for additions to the Navidad properties in
Argentina and $93,650 (2003 - $21,875) for equipment.
RELATED PARTY TRANSACTIONS
During fiscal 2004, the Company paid $476,226 (2003 - $330,600; 2002 - $136,276)
to directors and officers or companies controlled by directors and officers of
the Company, for accounting, management and consulting services provided. The
Company has agreements with a company controlled by the wife of the President of
the Company for the rental of office premises. During fiscal 2004, the Company
paid $74,870 (2003 - $60,924; 2002 - $60,924) for rent. The President of the
Company provides his services on a full-time basis under a contract with a
private company controlled by the President. The President is paid an annual
amount of $102,000. The contract also provides that, in the event the services
are terminated without cause or upon a change in control of the Company, a
termination payment would include a bonus of $6,500 per month, retroactive to
July 1, 1999, plus an additional three years of compensation at $15,000 per
month. If the termination had occurred on December 31, 2004, the amount under
the agreement would be $969,000.
CRITICAL ACCOUNTING POLICIES
Reference should be made to the Company's significant accounting policies
contained in Note 3 of the Company's consolidated financial statements for the
year ended December 31, 2004. These accounting policies can have a significant
impact of the financial performance and financial position of the Company.
USE OF ESTIMATES
The preparation of financial statements in conformity with Canadian GAAP
requires management to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amount of
revenues and expenses during the period. Significant areas requiring the use of
management estimates relate to the determination of environmental obligations
and impairment of mineral properties and deferred costs. Actual results may
differ from these estimates.
MINERAL PROPERTIES AND DEFERRED COSTS
Consistent with the Company's accounting policy disclosed in Note 3 of the
annual consolidated financial statements, direct costs related to the
acquisition and exploration of mineral properties held or controlled by the
Company have been capitalized on an individual property basis. For certain
acquisitions and related payments for mineral property interests, the Company
records a future income tax liability and a corresponding adjustment to the
related asset carrying amount. It is the Company's policy to expense any
exploration associated costs not related to specific projects or properties.
Management of the Company periodically reviews the recoverability of the
capitalized mineral properties. Management takes into consideration various
information including, but not limited to, results of exploration activities
conducted to date, estimated future metal 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. In 2004 no
impairment of long-lived assets was identified. In 2003 a write down of $776,626
was recorded to reflect Barrick's notice that they would not be exercising their
option on either of certain properties and allocated to the Loss from Spin-Off
Assets.
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FINANCIAL INSTRUMENTS
The Company's financial instruments consisting of cash and cash equivalents,
amounts receivable, marketable securities and accounts payable and accrued
liabilities approximate their carrying values due to the short-term nature of
those instruments.
RISK FACTORS
The Company's operations and results are subject to a number of different risks
at any given time. These factors, include but are not limited to disclosure
regarding exploration, additional financing, project delay, titles to
properties, price fluctuations and share price volatility, operating hazards,
insurable risks and limitations of insurance, management, foreign country and
regulatory requirements, currency fluctuations and environmental regulations
risks. Exploration for mineral resources involves a high degree of risk. The
cost of conducting programs may be substantial and the likelihood of success is
difficult to assess.
Metal Price Risk: The Company's portfolio of properties have exposure to
predominantly silver and lead. The prices of these metals, especially silver,
greatly affect the value of the Company and the potential value of its
properties and investments.
Financial Markets: The Company is dependent on the equity markets as its sole
source of operating working capital and the Company's capital resources are
largely determined by the strength of the junior resource markets and by the
status of the Company's projects in relation to these markets, and its ability
to compete for the investor support of its projects.
Political Risk: Exploration is presently carried out in Argentina. This exposes
the Company to risks that may not otherwise be experienced if all operations
were domestic. Political risks may adversely affect the Company's existing
assets and operations. Real and perceived political risk in some countries may
also affect the Company's ability to finance exploration programs and attract
joint venture partners, and future mine development opportunities.
Currency Risk: Business is transacted by the Company in a number of currencies.
Fluctuations in exchange rates may have a significant effect on the cash flows
of the Company. Future changes in exchange rates could materially affect the
Company's results in either a positive or negative direction.
Environmental Risk: The Company seeks to operate within environmental protection
standards that meet or exceed existing requirements in the countries in which
the Company operates. Present or future laws and regulations, however, may
affect the Company's operations. Future environmental costs may increase due to
changing requirements or costs associated with exploration and the developing,
operating and closing of mines. Programs may also be delayed or prohibited in
some areas. Although minimal at this time, site restoration costs are a
component of exploration expenses.
Title Risk: Although the Company has taken steps to verify title to mineral
properties in which it has an interest, these procedures do not guarantee the
Company's title. Such properties may be subject to prior agreements or transfers
and title may be affected by undetected defects.
SHARE DATA INFORMATION
As of April 21, 2005 there were 45,479,724 common shares and 4,456,000 stock
options outstanding.
INVESTOR RELATIONS
The Company currently does not engage any outside investor relations consultant.
Mr. Sean Hurd is the Company's Vice-President, Investor Relations and
coordinates investor relations' activities.
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CERTIFICATION OF ANNUAL FILINGS DURING TRANSITION PERIOD
I, Joseph Grosso, President and Chief Executive Officer of IMA Exploration Inc.,
certify that:
1. I have reviewed the annual filings (as this term is defined in Multilateral
Instrument 52-109 Certification of Disclosure in Issuers' Annual and
Interim Filings) of IMA Exploration Inc. (the issuer) for the period ending
December 31, 2004.
2. Based on my knowledge, the annual filings do not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated or that is necessary to make a statement not misleading in light
of the circumstances under which it was made, with respect to the period
covered by the annual filings; and
3. Based on my knowledge, the annual financial statements together with the
other financial information included in the annual filings fairly present
in all material respects the financial condition, results of operations and
cash flows of the issuer, as of the date and for the periods presented in
the annual filings.
Date: April 29, 2005
/s/ Joseph Grosso
-------------------------------------
Joseph Grosso
President and Chief Executive Officer
IMA Exploration Inc.
CERTIFICATION OF ANNUAL FILINGS DURING TRANSITION PERIOD
I, Arthur Lang, Chief Financial Officer of IMA Exploration Inc., certify that:
1. I have reviewed the annual filings (as this term is defined in Multilateral
Instrument 52-109 Certification of Disclosure in Issuers' Annual and
Interim Filings) of IMA Exploration Inc. (the issuer) for the period ending
December 31, 2004.
2. Based on my knowledge, the annual filings do not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated or that is necessary to make a statement not misleading in light
of the circumstances under which it was made, with respect to the period
covered by the annual filings; and
3. Based on my knowledge, the annual financial statements together with the
other financial information included in the annual filings fairly present
in all material respects the financial condition, results of operations and
cash flows of the issuer, as of the date and for the periods presented in
the annual filings.
Date: April 29, 2005
/s/ Arthur Lang
-----------------------
Arthur Lang
Chief Financial Officer
IMA Exploration Inc.