FILED PURSUANT TO RULE 424(b)(3)
SEC FILE NUMBERS 333-145978 and 333-146871
PROSPECTUS
|
October 19, 2007
|
LINCOLN GOLD CORPORATION
Suite 350, 885 Dunsmuir Street
Vancouver, B.C., Canada, V6C 1N5
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
A special meeting of the stockholders of Lincoln Gold Corporation
will be held on November 14, 2007, at 2:00 p.m. (Pacific Time), at the offices
of the Company located at Suite 350, 885 Dunsmuir Street, Vancouver, B.C., Canada,
V6C 1N5, for the purpose of voting upon a proposal to change the jurisdiction
of incorporation of our company from Nevada to Canada (the Continuation).
The Continuation will be accomplished through the adoption by the stockholders
of Lincoln Gold Corporation of certain resolutions and a plan of conversion
under Chapter 92A of the Nevada Revised Statutes which will authorize Lincoln
Gold Corporation to complete the Continuation. If Lincoln Gold Corporation completes
the Continuation, Lincoln Gold Corporation will be continued under the Canada
Business Corporations Act
and will cease to be incorporated in Nevada
and, as a result, will be governed by the Canada
Business Corporations Act
.
Only stockholders of record at the close of business on October 12, 2007 are
entitled to notice of and to vote at the meeting. Stockholders of record are
not entitled to appraisal rights of the fair value of their shares. If you do
not expect to attend in person, please sign and return the enclosed proxy card.
By Order of the Board of Directors of Lincoln Gold
Corporation,
“Paul Saxton”
Paul Saxton
President and Chief Executive Officer
LINCOLN GOLD CORPORATION
Suite 350, 885 Dunsmuir
Street
Vancouver, B.C., Canada, V6C 1N5
LETTER TO STOCKHOLDERS RESPECTING SPECIAL
MEETING
October 23, 2007
Dear Lincoln Gold Corporation stockholder:
You are cordially invited to attend a special meeting of stockholders
to be held on November 14, 2007, at 2 p.m (Pacific Time), at the offices of
the Company located at Suite 350, 885 Dunsmuir Street, Vancouver, B.C., Canada,
V6C 1N5. The purpose of the meeting is to allow you to vote on our proposed
continuation resolutions that would change Lincoln Golds domicile from
Nevada to Canada (the Continuation). If we complete the Continuation,
our company will be governed by the Canada
Business Corporations Act
(the CBCA). We believe that the Continuation will more accurately
reflect our operations, which are headquartered in and administered from Canada,
and our proposed trading market for our common shares, which is the TSX Venture
Exchange.
Our Board of Directors has declared the Continuation advisable
and recommends that you vote in favour of the Continuation of Lincoln Gold from
Nevada to Canada. Our officers and directors, who currently hold approximately
18% of our outstanding shares, have indicated that they intend to vote for the
approval of the Continuation. We are calling a special meeting of the stockholders
to vote on the Continuation and are soliciting proxies for use at the meeting.
The record date for voting at the meeting is October 12, 2007. Stockholders
of record are not entitled to appraisal rights of the fair value of their shares
if they vote against the Continuation.
SEE RISK FACTORS, BEGINNING ON PAGE - 8 - OF THIS PROXY
STATEMENT/PROSPECTUS FOR A DISCUSSION OF CERTAIN RISKS, INCLUDING TAX EFFECTS,
RELATING TO THE CONTINUATION AND THE OWNERSHIP OF COMMON SHARES IN LINCOLN
GOLD.
This proxy statement/prospectus is first being mailed to holders
of Lincoln Gold common stock on or about October 23, 2007.
PLEASE NOTE THAT NEITHER THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF
THESE SECURITIES OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS TRUTHFUL
OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS
PROXY STATEMENT/PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION
ABOUT LINCOLN GOLD THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS DOCUMENT.
THIS INFORMATION IS AVAILABLE WITHOUT CHARGE TO HOLDERS OF LINCOLN GOLD COMMON
STOCK UPON WRITTEN OR ORAL REQUEST. REQUESTS SHOULD BE MADE TO LINCOLN GOLD
AT THE FOLLOWING ADDRESS:
Lincoln Gold Corporation
Attention: Corporate Secretary
Suite 350, 885 Dunsmuir Street
Vancouver, B.C., Canada, V6C 1N5
Telephone: (604) 688-7377
TO OBTAIN TIMELY DELIVERY, YOU SHOULD REQUEST INFORMATION NO
LATER THAN NOVEMBER 1, 2007.
Sincerely,
“Paul Saxton”
Paul Saxton
President
ii
TABLE OF CONTENTS
iii
PART I
SUMMARY
THIS SUMMARY PROVIDES AN OVERVIEW OF THE INFORMATION CONTAINED
IN THIS PROXY STATEMENT/PROSPECTUS AND DOES NOT CONTAIN ALL OF THE INFORMATION
YOU SHOULD CONSIDER. YOU SHOULD READ THE MORE DETAILED INFORMATION SET FORTH IN
THIS DOCUMENT AND THE DOCUMENTS TO WHICH WE REFER YOU. WE HAVE INCLUDED PAGE
REFERENCES TO DIRECT YOU TO MORE COMPLETE DESCRIPTIONS OF THE TOPICS PRESENTED
IN THIS SUMMARY. IN THIS DOCUMENT THE SYMBOL CDN$ REFERS TO CANADIAN DOLLARS
AND THE SYMBOL $ REFERS TO UNITED STATES DOLLARS. IN THIS DOCUMENT REFERENCES
TO THE COMPANY, OUR COMPANY, LINCOLN GOLD, WE AND OUR REFER TO LINCOLN
GOLD CORPORATION
Lincoln Gold
We are engaged in the acquisition and exploration of mineral
properties. We hold interests in four groups of mineral properties in the
development stage, with three properties located in Nevada and one property
located in Mexico, as described below:
Name of
Property
|
Location
|
Hannah Property
|
Churchill County, Nevada
|
JDS Property
|
Eureka
County, Nevada
|
Pine Grove
Property
|
Yerrington, Nevada
|
La Bufa Property
|
Mexico
|
Our business is headquartered in Vancouver, British Columbia,
where the majority of our directors and officers reside and our head office is
located. Our shareholders are primarily located in Canada.
Our office is located at Suite 350, 885 Dunsmuir Street,
Vancouver, British Columbia, Canada, V6C 1N5, our telephone number is (604)
688-7377 and our facsimile number is (604) 688-0094.
We are currently incorporated under the corporate laws of
Nevada. We are proposing to change our jurisdiction of incorporation from Nevada
to the Canadian federal jurisdiction under the Canada
Business Corporations
Act
(the CBCA) through a process known as a conversion under Nevada
corporate law, and known as a continuation under Canada corporate law (the
Continuation or the Continuance). A continuance or continuation is a process
by which a corporation which is not incorporated under the laws of Canada may
change its jurisdiction of incorporation to Canada. Under the CBCA, if the laws
of its home jurisdiction allow for it, a company may be continued as a
Canadian corporation by filing Articles of Continuance with the Director under
the CBCA. We refer to this process in this proxy statement/prospectus as the
Continuation. In order to give effect to the Continuation, our board of
directors has adopted a plan of conversion under Chapter 92A of the Nevada
Revised Statutes (the Plan of Conversion) and has recommended that
shareholders approved and adopt this Plan of Conversion. After the completion of
the Continuation, Lincoln Gold will be a Canadian corporation governed by the
CBCA. We will continue to conduct the business in which we are currently
engaged. The Continuation will not result in any material effect on our
operations. The business and operations of Lincoln Gold following the
Continuation will be identical in most respects to our current business, except
that we will no longer be subject to the corporate laws of the State of Nevada
but will be subject to the CBCA. The Canadian company will be liable for all the
debts and obligations of the Nevada company, and the officers and directors of
the company will be the officers and directors of Lincoln Gold. The differences
between the laws will not materially affect our business but will affect your
rights as a stockholder. The differences between the applicable laws of the two
jurisdictions are discussed in greater detail under Comparative Rights of
Stockholders on page - 23 - of this proxy statement/prospectus.
- 1 -
Reference in this proxy statement/prospectus to Lincoln Gold
Nevada are to Lincoln Gold Corporation, a Nevada corporation, as we are
currently incorporated. Reference to Lincoln Gold Canada are to Lincoln Gold
Corporation, a Canadian corporation, as we would be continued/converted under
the CBCA if the Continuation is approved by our shareholders.
Upon effectiveness of the Continuation Lincoln Gold will plan
to apply for designation as a reporting issuer under the securities laws of
the Canadian provinces of British Columbia and Ontario. We also plan to seek a
listing on the TSX Venture Exchange (the TSX-V).
The special meeting
Matters to be voted on
Lincoln Gold stockholders will be asked to approve the Plan of
Conversion and the Continuation by way of special resolution. The complete text
of the proposed Continuation special resolutions to be considered at our special
meeting is attached to this proxy statement/prospectus as Appendix A (the
Continuation Special Resolutions). The Continuation will have the effect of
changing our domicile from Nevada to Canada. The Plan of Conversion is referred
to in the Continuation Special Resolutions and is attached hereto as Appendix B.
The forms of the Articles of Continuance and Bylaws to be adopted by the Lincoln
Gold Canada are attached hereto respectively as Appendix C and Appendix D.
Vote needed to approve the Continuation
Approval of the Continuation requires the affirmative vote of
our stockholders holding at least a majority of the outstanding shares of Lincoln
Gold common stock. The directors and executive officers of Lincoln Gold together
directly own approximately 18% of the total number of outstanding shares of
Lincoln Gold common stock. These stockholders have indicated that they intend
to vote all their shares for the approval of the Continuation.
Factors you should consider
Reasons for the Continuation
We believe that the Continuation to Canada will more accurately
reflect our operations, which have always been headquartered in and managed from
Canada, and our shareholder base, which is primarily located in Canada. We also
believe that Lincoln Gold should continue to Canada because it is the
jurisdiction in which we have traditionally raised financing to fund our
business operations and will facilitate Lincoln Gold gaining a listing on the
TSX-V which should enable us to reach a larger capital market. Further, the
Continuation will result in a four-month hold period under Canadian securities
laws attached to securities issued by us under subsequent financings, which is
shorter than the minimum one year hold period which would attach to any
securities we were to issue under our current incorporation. We believe that
this change in hold period will make our subsequently offered securities more
attractive to investors and enable us to reach a larger capital market.
Risk factors which may affect your vote
Factors such as possible adverse tax consequences of our common
stock following the Continuation may affect your vote on the Continuation and
your interest in owning Lincoln Gold common shares. In evaluating the merits of
the proposed Continuation, you should carefully consider the risk factors and
the other information included in this proxy statement/prospectus.
You are entitled to dissent from the proposed Continuation and,
as a dissenter, to tender your shares and receive the fair value, in cash, for
your tendered shares.
Material tax consequences for
stockholders
The following is a brief summary of the material tax
consequences the Continuation will have for stockholders. Stockholders should
consult their own tax advisers with respect to their particular circumstances. A
more detailed summary of the factors affecting the tax consequences for
stockholders is set out under Material United States
- 2 -
Federal Tax Consequences and Material Canadian Income Tax
Consequences on pages - 16 - and - 21 -, respectively, of this proxy
statement/prospectus.
United States federal tax consequences
The Continuance of Lincoln Gold from Nevada to Canada is, for
United States federal income tax purposes, treated as the transfer of the assets
of Lincoln Gold to a Canadian company in exchange for stock of the Canadian
company, followed by a distribution of the stock in the Canadian company to the
stockholders of Lincoln Gold, and then the exchange by Lincoln Gold Nevadas
stockholders of their Lincoln Gold Nevada stock for Lincoln Gold Canada stock.
Lincoln Gold must recognize a gain on the assets held by it at the time of the
Continuance to the extent that the fair market value of any assets exceeds its
respective basis. The calculation of any potential gain is made separately for
each asset held by Lincoln Gold Nevada. No loss will be allowed for any asset
that has a taxable basis in excess of its fair market value. Management of
Lincoln Gold does not believe the fair market value of any of its assets exceeds
their tax basis. Therefore, management is of the view that no gain should be
recognized by Lincoln Gold as a result of the Continuance.
The Continuance will be treated by shareholders as the exchange
by you, our shareholders, of your stock for stock of the Canadian company. The
shareholders will not be required to recognize any U.S. gain or loss on this
transaction. A shareholders adjusted basis in the shares of Lincoln Gold Canada
received in the exchange will be equal to such shareholders adjusted basis in
the shares of Lincoln Gold Nevada surrendered in the exchange. A shareholders
holding period in the shares of Lincoln Gold Canada received in the exchange
should include the period of time during which such shareholder held his or her
shares in Lincoln Gold Nevada. For a more complete discussion of the United
States income tax consequences, please see Material United States Federal Tax
Consequences on page 30 of this proxy statement/prospectus.
Canadian tax consequences
Lincoln Gold should not incur any liability for Canadian income
tax on Continuation. Lincoln Gold will become a resident of Canada as a result
of the Continuation, and consequently thereafter will be liable for Canadian
income tax on its world-wide taxable income, if any, subject to such relief, if
any, to which it may be entitled under any Canadian bilateral income tax treaty
that may apply to it.
No shareholder should incur any liability for Canadian income
tax on the Continuation, regardless of the shareholders fiscal residence.
Thereafter, Canadian rules on the taxation of dividends paid by taxable Canadian
corporations will apply to shareholders on dividends, if any, paid by Lincoln
Gold. For a more detailed summary of the Canadian tax consequences, please see
Material Canadian Income Tax Consequences on page - 21 - of this proxy
statement/prospectus.
How the Continuation will affect your rights as a
stockholder
You will continue to hold the same shares you now hold
following the continuation of the company to Canada. However, the rights of
stockholders under Nevada law differ in certain substantive ways from the rights
of stockholders under the Canada Business Corporations Act. Examples of some of
the changes in stockholder rights which will result from continuation are:
Under Nevada law, unless otherwise provided in the charter,
stockholders may act without a meeting by written consent of the majority of
the voting power of the outstanding common stock entitled to vote on the matter,
and notice need not be given to stockholders. Under Canadian law, stockholders
may only act by way of a resolution passed at a duly called meeting unless all
stockholders otherwise entitled to vote consent in writing.
Under Nevada law, a charter or bylaw amendment requires approval
by vote of the holders of a majority of the outstanding stock. Under Canadian
law, an amendment to a corporations charter requires approval by two-thirds
majority of the stockholders present and entitled to vote at a meeting of stockholders.
Dissenters rights are available to stockholders under
more circumstances under Canadian law than under Nevada law.
- 3 -
Stockholders have a statutory oppression remedy under Canadian
law that does not exist under Nevada statute. It is similar to the common law
action in Delaware for breach of fiduciary duty, but the Canadian remedy does
not require stockholders to prove that the directors acted in bad faith.
A minimum of 25% of the directors of a Canadian company must
reside in Canada. Nevada law does not contain a similar provision.
A directors liability may not be limited under Canadian
law as it may under Nevada law.
Price Volatility
We cannot predict what effect the Continuation will have on our
market price prevailing from time to time or the liquidity of our shares.
Accounting treatment of the Continuation
For United States accounting purposes, the Continuation of our
company from a Nevada corporation to a Canadian corporation represents a
non-substantive exchange to be accounted for in a manner consistent with a
transaction between entities under common control. All assets, liabilities,
revenues and expenses will be reflected in the accounts of Lincoln Gold Canada
based on existing carrying values at the date of the exchange. The historical
comparative figures of Lincoln Gold will be those of Lincoln Gold as a Nevada
company.
Reporting Obligations under Securities
Laws
Upon completion of the Continuation we will apply to become a
reporting issuer under securities legislation in a number of Canadian provinces.
As a Canadian reporting issuer, we will be subject to the securities laws of the
Canadian provinces as those laws apply to Canadian reporting issuers. As a
Canadian reporting issuer, we will be required to prepare our annual and interim
consolidated financial statements in accordance with Canadian generally accepted
accounting principles (Canadian GAAP).
We currently prepare our consolidated financial statements in
accordance with United States Generally Accepted Accounting Principles (US
GAAP) in the United States. We file our audited annual financial statements
with the SEC on Annual Reports on Form 10-KSB and our unaudited interim
financial statements with the SEC on Quarterly Reports on Form 10-QSB. Upon
completion of the Continuation, we anticipate that we will meet the definition
of a foreign private issuer in the United States under the Exchange Act. As a
reporting foreign private issuer, we anticipate that we will file an Annual
Report on Form 20-F (a Form 20-F Annual Report) each year with the SEC. The
Form 20-F Annual Report will include financial statements prepared in accordance
with Canadian GAAP with a reconciliation to US GAAP. We will not be required to
file interim quarterly reports on Form 10-QSB, however we will be required to
file our interim financial statements and management discussion and analysis
that we prepare as a reporting issuer under Canadian securities legislation with
the SEC on SEC Form 6-K. The interim financial statements will be prepared in
accordance with Canadian GAAP whereas our current Quarterly Reports on Form
10-QSB include interim financial statements prepared in accordance with US
GAAP.
In addition, as a foreign private issuer, our directors,
officers and 10% stockholders will not be subject to the insider reporting
requirements of Section 16(b) of the Exchange Act and we will not be subject to
the proxy rules of Section 14 of the Exchange Act. Furthermore, Regulation FD
does not apply to non-United States companies and will not apply to Lincoln Gold
upon completion of the Continuation.
Regulatory approvals
We will have to comply with Nevada and Canadian regulatory
requirements in order to complete the Continuation to Canada. Our board of
directors has approved the Plan of Conversion under Chapter 92A of the Nevada
Revised Statutes pursuant to which we will be converted into a corporation under
the CBCA. Our board of directors recommends the adoption of the Plan of
Conversion by the shareholders of the Company for the reasons set forth
herein.
- 4 -
Under Nevada law, we will have to:
-
receive approval of the Plan of Conversion from a majority of the shares
entitled to be voted;
-
file articles of conversion with the Nevada Secretary of State setting out,
among other things, the Plan of Conversion;
-
pay a filing fee of $350 to the Nevada Secretary of State.
In Canada, we will have to file articles of continuance with
the Director under the CBCA. Our Continuance to Canada would become effective
when:
Upon completion of the Continuance, our charter documents will
be comprised of the Articles of Continuance and the Bylaws, in the forms
attached hereto as Appendix C and Appendix D, respectively.
Increase to Authorized Capital
The Articles of Continuance of Lincoln Gold Canada, attached
hereto as Appendix C, will provide that the authorized capital of the Lincoln
Gold Canada will be an unlimited number of common shares without par value.
Lincoln Gold Nevadas articles of incorporation presently provide that our
authorized capital is 100,000,000 shares of common stock, par value $0.001 per
share.
Disclosure obligations
Even if we continue to Canada, we will still have to comply
with reporting requirements under United States securities laws. However, these
requirements would be reduced because we would no longer be a United States
company.
Whether or not we continue to Canada, we will remain subject to
Canadian disclosure requirements including publishing news releases, filing
information about major changes for Lincoln Gold, sending you quarterly and
annual financial statements and filing reports about trading in our shares by
our officers, directors and major shareholders.
Our recommendations to stockholders
Taking into consideration all of the factors and reasons for
the conversion set forth above and elsewhere in this proxy statement/prospectus,
the Board of Directors has approved the Plan of Conversion, the Continuation and
recommends that stockholders of Lincoln Gold vote FOR approval of Plan of
Conversion and the Continuance.
SUMMARY FINANCIAL INFORMATION
THE FOLLOWING SUMMARY CONTAINS UNAUDITED FINANCIAL INFORMATION
FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND AUDITED FINANCIAL INFORMATION FOR THE
YEARS ENDED DECEMBER 31, 2006 AND 2005 AND INCLUDES BALANCE SHEET AND STATEMENT
OF OPERATIONS DATA FROM THE UNAUDITED AND AUDITED FINANCIAL STATEMENTS OF
LINCOLN GOLD. THE INFORMATION CONTAINED IN THESE TABLES SHOULD BE READ IN
CONJUNCTION WITH MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS HEREIN BELOW AND THE FINANCIAL STATEMENTS AND
ACCOMPANYING NOTES INCLUDED HEREIN.
Our consolidated financial statements have been prepared in
accordance with US GAAP. The accompanying unaudited financial information
includes all adjustments considered necessary (consisting only of normal
recurring adjustments) for a fair presentation. Results for the six-month period
ended June 30, 2007 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2007, or any future period.
- 5 -
Consolidated Balance Sheets
(Expressed in U.S. dollars)
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
$
|
|
|
$
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash
|
|
201,997
|
|
|
21,961
|
|
Prepaid expenses
and deposits
|
|
-
|
|
|
4,893
|
|
Total Current Assets
|
|
201,997
|
|
|
26,854
|
|
Property and
Equipment
|
|
3,276
|
|
|
4,440
|
|
Total Assets
|
|
205,273
|
|
|
31,294
|
|
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
Accounts payable
|
|
51,283
|
|
|
35,467
|
|
Accrued liabilities
|
|
18,548
|
|
|
14,990
|
|
Due to related parties
|
|
6,641
|
|
|
6,760
|
|
Note payable
|
|
100,000
|
|
|
100,000
|
|
Total Liabilities
|
|
176,472
|
|
|
157,217
|
|
|
|
|
|
|
|
|
Total
Stockholders Equity (Deficit)
|
|
28,801
|
|
|
(125,923
|
)
|
Total Liabilities and Stockholders Equity (Deficit)
|
|
205,273
|
|
|
31,294
|
|
- 6 -
Consolidated Statements of Operations
(Expressed
in U.S. dollars)
(unaudited)
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 25,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
For the Three
|
|
|
For the Three
|
|
|
For the Six
|
|
|
For the Six
|
|
|
|
(Date of
|
|
|
Months
|
|
|
Months
|
|
|
Months
|
|
|
Months
|
|
|
|
Inception)
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
to June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Revenue
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
6,030
|
|
|
554
|
|
|
722
|
|
|
1,164
|
|
|
1,444
|
|
Foreign exchange loss
|
|
6,818
|
|
|
813
|
|
|
1,233
|
|
|
985
|
|
|
2,009
|
|
General and administrative (Note 5(a))
|
|
2,531,091
|
|
|
59,257
|
|
|
60,554
|
|
|
93,689
|
|
|
119,632
|
|
Impairment of mineral properties
|
|
93,350
|
|
|
27,600
|
|
|
-
|
|
|
31,350
|
|
|
10,000
|
|
Mineral exploration
|
|
946,308
|
|
|
38,616
|
|
|
3,743
|
|
|
46,804
|
|
|
16,475
|
|
Total Expenses
|
|
3,586,597
|
|
|
126,840
|
|
|
66,252
|
|
|
173,992
|
|
|
149,560
|
|
Loss From Operations
|
|
(3,586,597
|
)
|
|
(126,840
|
)
|
|
(66,252
|
)
|
|
(173,992
|
)
|
|
(149,560
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
(3,594,408
|
)
|
|
(128,756
|
)
|
|
(68,634
|
)
|
|
(178,651
|
)
|
|
(153,851
|
)
|
Comprehensive Loss
|
|
(3,592,958
|
)
|
|
(127,306
|
)
|
|
(68,634
|
)
|
|
(177,201
|
)
|
|
(153,851
|
)
|
- 7 -
RISK FACTORS
An investment in Lincoln Gold common stock involves certain
risks. In evaluating us and our business, investors should carefully consider
the following risk factors in addition to the other information included in this
proxy statement/prospectus.
You should read the first set of risk factors in deciding
whether to approve our Continuation from Nevada to Canada. You may also find it
helpful to read the subsequent risk factors so you understand more clearly the
risks associated with the business of Lincoln Gold.
This proxy statement/prospectus contains statements that plan
for or anticipate the future. We believe that some of these statements are
forward-looking statements. Forward-looking statements include statements
about the future of our industry, statements about future business plans and
strategies, and most other statements that are not historical in nature. In this
proxy statement/prospectus, forward-looking statements use words like
anticipate, plan, believe, expect, and estimate. However, because
forward-looking statements involve future risks and uncertainties, there are
factors, including those discussed below, that could cause actual results to
differ materially from those expressed or implied. We have attempted to identify
the major factors that could cause differences between actual and planned or
expected results, but we may not have identified all of those factors. You
therefore should not place undue reliance on forward-looking statements. Also,
we have no obligation to publicly update forward-looking statements we make in
this proxy statement/prospectus.
Risks related to the Continuance
Lincoln Gold may still be treated as a U.S. corporation
and taxed on its worldwide income after the Continuance.
The Continuance of Lincoln Gold from Nevada to Canada is for
corporate purposes a migration of Lincoln Gold from Nevada to Canada.
Transactions whereby a U.S. corporation migrates to a foreign jurisdiction are
considered by the United States Congress to be a potential abuse of the U.S. tax
rules because thereafter the foreign entity is not subject to U.S. tax on its
worldwide income. As a result, Section 7874(b) of the
Internal Revenue Code
of 1986
, as amended (the Code) was enacted in 2004 to address this
potential abuse. Section 7874(b) of the Code provides generally that a
corporation that migrates from the Untied States will nonetheless remain subject
to U.S. tax on its worldwide income unless the migrating entity has substantial
business activities in the foreign country in which it is migrating when
compared to its total business activities.
If Section 7874(b) of the Code were to apply to the migration
of Lincoln Gold from Nevada to Canada, it would cause Lincoln Gold Canada to be
subject to United States federal income taxation on its worldwide income.
Section 7874(b) of the Code will apply to the Lincoln Gold migration unless
Lincoln Gold Canada has substantial business activities in Canada when compared
to its total business activities. All but one of Lincoln Golds employees, its
head office and all of its administrative functions are located in Canada. Most
of Lincoln Golds shareholders reside in Canada, and historically most of its
funds have been raised in Canada. Additionally, because it will be easier to
raise additional funds as a Canadian entity (as a result of the shorter hold
period and possible TSX-V listing), the Continuance is material to the
achievement of Lincoln Golds overall business objectives. Lincoln Golds only
business activity relates to four early stage mining prospects, one in Mexico
and three in the United States. Accordingly, Lincoln Gold intends to take the
position that it has substantial business activity in Canada in relation to its
worldwide activities and that Section 7874(b) of the Code does not apply to
cause Lincoln Gold, after the migration, to be subject to U.S. income tax on its
worldwide income.
There is limited guidance as to what substantial business
activity is when compared to its total business activities. Accordingly, U.S.
tax counsel has not expressed any view with respect to this issue. The position
adopted by Lincoln Gold may be challenged by the U.S. tax authorities with the
result that Lincoln Gold may remain subject to U.S. federal income tax on its
worldwide income even after Continuation. In addition to U.S. income taxes, were
Section 7874(b) of the Code to apply to Lincoln Gold, Lincoln Gold could be
subject to penalties for failure to file U.S. tax returns, late fees and
interest on past due taxes.
- 8 -
We may owe additional United States taxes as a result of
the Continuation if our conclusions relating to the value of our assets are
incorrect.
Assuming Section 7874(b) of the Code, as described above, does
not apply, the Continuance of Lincoln Gold from Nevada to Canada is, for U.S.
federal income tax purposes, treated as the transfer of the assets of Lincoln
Gold to a Canadian company in exchange for stock of the Canadian company,
followed by a distribution of the stock in the Canadian company to the
stockholders of Lincoln Gold, and then the exchange by Lincoln Gold Nevadas
stockholders of their Lincoln Gold Nevada stock for Lincoln Gold Canada stock.
Lincoln Gold must recognize gain (but not loss) on the assets held by it at the
time of the Continuance to the extent that the fair market value of any assets
exceeds its respective basis. The calculation of any potential gain is made
separately for each asset held by Lincoln Gold Nevada. No loss will be allowed
for any asset that has a taxable basis in excess of its fair market value.
Management of Lincoln Gold does not believe the fair market value of any of its
assets exceeds their tax basis. Accordingly, Lincoln Gold intends to take the
position that no United States taxes will be owed as a result of the proposed
Continuation.
The valuation of Lincoln Golds assets may be challenged by the
United States Internal Revenue Service (IRS). Should the IRS disagree with the
valuation of Lincoln Golds assets, they could reassess the deemed proceeds on
the Continuance to a higher amount. It is possible on any such reassessment that
the tax liability could be significant and we may not have the available cash at
that time to settle the liability owing. Should we be unable to settle any such
liability, we may have to cease operations in which case our stockholders would
likely lose their investment in our company.
The stock price of our common shares may be volatile. In
addition, demand in the United States for our shares may be decreased by the
change in domicile.
The market price of our common shares may be subject to
significant fluctuations in response to variations in results of operations and
other factors. Developments affecting the mining industry generally, including
general economic conditions and government regulation, could also have a
significant impact on the market price for our shares. In addition, the stock
market has experienced a high level of price and volume volatility. Market
prices for the stock of many similar companies have experienced wide
fluctuations which have not necessarily been related to the operating
performance of such companies. These broad market fluctuations, which are beyond
the control of Lincoln Gold, could have a material adverse effect on the market
price of our shares. We cannot predict what effect, if any, the Continuation
will have on the market price prevailing from time to time or the liquidity of
our common shares. The change in domicile may decrease the demand for our shares
in the United States. The decrease may not be offset by increased demand for
Lincoln Golds shares in Canada.
Risks associated with our company
If we do not obtain additional financing, our business
plan will fail.
As of December 31, 2006, we had cash on hand of $21,961 and a
working capital deficit of $130,363. As of June 30, 2007, we had cash on hand of
$201,997 and working capital of $25,525. Our business plan calls for us to spend
approximately $845,000 in connection with the exploration of our mineral claims
during the next twelve months, the maintenance of our interests in our mineral
claims and our general and administrative expenses during the next twelve
months. Based on our cash and working capital position, we will require
additional financing in the approximate amount of $1,000,000 in order to
complete our plan of operations for the next twelve months. We currently do not
have any arrangements for financing and we may not be able to obtain financing
when required. Obtaining additional financing would be subject to a number of
factors, including the market price of gold. These factors may make the timing,
amount, terms or conditions of additional financing unavailable to us.
If we are unable to maintain our interests in our Nevada
mineral claims, then we will lose our interests in these mineral
claims.
We are required to make substantial payments in order to
maintain our interests in certain of our Nevada mineral claims. Over the next
twelve months, we must make payments totalling $22,000 in lease and option
payments in order to maintain our interests in our Hannah and La Bufa mineral
properties. We anticipate that our joint venture partner for the JDS mineral
property will make property payments on our behalf, however there is no
assurance that our joint venture partners will not drop their interests in these
properties with the result that we will have to make these payments. Our
inability to make these payments due to a lack of financing or our determination
not to make
- 9 -
these payments will result in our losing our interests in these
claims. If we are not able to maintain our interests in our mineral claims, then
we will not be able to carry out our plan of operations.
Because we have only recently commenced preliminary
exploration of our Nevada mineral claims, we face a high risk of business
failure and this could result in a total loss of your investment.
We have not begun the initial stages of exploration of our
mineral claims, and thus have no way to evaluate the likelihood whether we will
be able to operate our business successfully. To date, we have been involved
primarily in organizational activities, acquiring interests in mineral claims
and in conducting preliminary exploration of mineral claims. We have not earned
any revenues and have not achieved profitability as of the date of this
prospectus. Potential investors should be aware of the difficulties normally
encountered by new mineral exploration companies and the high rate of failure of
such enterprises. The likelihood of success must be considered in light of the
problems, expenses, difficulties, complications and delays encountered in
connection with the exploration of the mineral properties that we plan to
undertake. These potential problems include, but are not limited to,
unanticipated problems relating to exploration and additional costs and expenses
that may exceed current estimates. We have no history upon which to base any
assumption as to the likelihood that our business will prove successful, and we
can provide no assurance to investors that we will generate any operating
revenues or ever achieve profitable operations. If we are unsuccessful in
addressing these risks, our business will likely fail and you will lose your
entire investment.
Because we do not have any revenues, we expect to incur
operating losses for the foreseeable future.
We have never earned revenues and we have never been
profitable. Prior to completing exploration on the mineral property, we
anticipate that we will incur increased operating expenses without realizing any
revenues. We therefore expect to incur significant losses into the foreseeable
future. If we are unable to generate financing to continue the exploration of
our mineral claims, we will fail and you will lose your entire investment.
We have yet to attain profitable operations and because
we will need additional financing to fund our exploration activities, our
accountants believe there is substantial doubt about the companys ability to
continue as a going concern.
We have incurred a net loss of $3,594,408 for the period from
September 25, 2003 (inception) to June 30, 2007, and have no revenues to date.
Our ability to continue the exploration of our mineral claims is dependent upon
our ability to obtain financing. These factors raise substantial doubt that we
will be able to continue as a going concern.
Our consolidated financial statements included with this
prospectus have been prepared assuming that we will continue as a going concern.
Our auditors have made reference to the substantial doubt as to our ability to
continue as a going concern in their audit report on our audited financial
statements for the year ended December 31, 2006. If we are not able to achieve
revenues, then we may not be able to continue as a going concern and our
financial condition and business prospects will be adversely affected.
If our costs of exploration are greater than anticipated,
then we will not be able to complete our planned exploration programs for our
mineral claims without additional financing, of which there is no assurance that
we would be able to obtain.
We are proceeding with the initial stages of exploration on our
mineral claims. We have prepared budgets for our exploration programs. However,
there is no assurance that our actual costs will not exceed the budgeted costs.
Factors that could cause actual costs to exceed budgeted costs include increased
prices due to competition for personnel and supplies during the Nevada summer
exploration season, unanticipated problems in completing the exploration programs
and delays experienced in completing the exploration program. Increases in exploration
costs could result in us not being able to carry out our exploration programs
without additional financing. There is no assurance that we would be able to
obtain additional financing in this event.
- 10 -
Because of the speculative nature of exploration of mining
properties, there is substantial risk that no commercially exploitable minerals
will be found and our business will fail.
We are in the initial stages of exploration of our mineral claims,
and thus have no way to evaluate the likelihood that we will be successful in
establishing commercially exploitable reserves of gold or other valuable minerals
on our mineral claims. Potential investors should be aware of the difficulties
normally encountered by new mineral exploration companies and the high rate
of failure of such enterprises. The search for valuable minerals as a business
is extremely risky. We may not find commercially exploitable reserves of gold
or copper in any of our mineral claims. Exploration for minerals is a speculative
venture necessarily involving substantial risk. The expenditures to be made
by us on our exploration programs may not result in the discovery of commercial
quantities of ore. The likelihood of success must be considered in light of
the problems, expenses, difficulties, complications and delays encountered in
connection with the exploration of the mineral properties that we plan to undertake.
Problems such as unusual or unexpected formations and other conditions are involved
in mineral exploration and often result in unsuccessful exploration efforts.
In such a case, we would be unable to complete our business plan.
Because of the inherent dangers involved in mineral
exploration, there is a risk that we may incur liability or damages as we
conduct our business.
The search for valuable minerals involves numerous hazards. In
the course of carrying out exploration of our mineral claims, we may become
subject to liability for such hazards, including pollution, cave-ins and other
hazards against which we cannot insure or against which we may elect not to
insure. We currently have no such insurance nor do we expect to get such
insurance for the foreseeable future. If a hazard were to occur, the costs of
rectifying the hazard may exceed our asset value and cause us to liquidate all
of our assets, resulting in the loss of your entire investment.
If we discover commercial reserves of precious metals on
any of our mineral properties, we can provide no assurance that we will be able
to successfully advance the mineral claims into commercial
production.
Our mineral properties do not contain any known bodies of ore.
If our exploration programs are successful in establishing ore of commercial
tonnage and grade on any of our mineral claims, we will require additional funds
in order to advance the mineral claims into commercial production. In such an
event, we may be unable to obtain any such funds, or to obtain such funds on
terms that we consider economically feasible, and you may lose your entire
investment.
As we undertake exploration of our mineral claims, we
will be subject to compliance with government regulation that may increase the
anticipated time and cost of our exploration program.
There are several governmental regulations that materially
restrict the exploration of minerals. We will be subject to the mining laws and
regulations as contained in the Nevada Statutes and Nevada Administrative Code
as we carry out our exploration programs. We may be required to obtain work
permits, post bonds and perform remediation work for any physical disturbance to
the land in order to comply with these regulations. While our planned
exploration program budgets for regulatory compliance, there is a risk that new
regulations could increase our time and costs of doing business and prevent us
from carrying out our exploration program.
If we do not find a joint venture partner for the
continued exploration of our mineral claims, we may not be able to advance the
exploration work.
We may try to enter into joint venture agreements with potential
partners for the further exploration and possible production of our mineral
claims, particularly where we believe drilling of a mineral claim is warranted.
We would face competition from other junior mineral resource exploration companies
if we attempt to enter into a joint venture agreement with a partner. The possible
partner could have a limited ability to enter into joint venture agreements
with junior exploration programs and will seek the junior exploration companies
who have the properties that they deem to be the most attractive in terms of
potential return and investment cost. In addition, if we entered into a joint
venture agreement, we would likely assign a percentage of our interest in the
mineral claims to the joint venture partner. If we are unable to enter into
a joint venture agreement with a partner, we may not be able to complete certain
exploration work on certain of our properties, including planned drilling.
- 11 -
CONTINUATION PROPOSAL
Background to the Continuation proposal
The Board of Directors of Lincoln Gold has determined that it
is advisable for Lincoln Gold to continue from Nevada to Canada. Management
has determined that a Continuation will be the most effective means of achieving
the desired change of domicile. Nevada corporate law allows a corporation that
is incorporated under Nevada law to convert into a foreign entity pursuant to
a conversion approved by the stockholders of the Nevada corporation.
Under the proposed Continuation, if the stockholders approve
the Continuation, then articles of conversion will be filed with the Secretary
of State of Nevada. Articles of Continuance will also be filed with the Director
of Business Corporations in Canada. Upon the filing and subsequent receipt of a
Certificate of Continuance from the Director of Business Corporation in Canada,
Lincoln Gold will be continued as a Canadian corporation and will be governed by
the laws of Canada. The assets and liabilities of the Canadian corporation
immediately after the Continuation will be identical to the assets and
liabilities of the Nevada company immediately prior to the Continuation. The
current officers and directors of the Nevada company will be the officers and
directors of the Canadian corporation. The change of domicile will not result in
any material change to the business of Lincoln Gold and will not have any effect
on the relative equity or voting interests of our stockholders. Each previously
outstanding share of Lincoln Gold common stock will become one share of the
Canadian corporation. The change in domicile will, however, result in changes in
the rights and obligations of current Lincoln Gold stockholders under applicable
corporate laws. For an explanation of these differences see Comparative Rights
of Stockholders on page - 23 - of this proxy statement/prospectus. In addition,
the Continuation may have material tax consequences to stockholders which may or
may not be adverse to any particular stockholders depending on the stockholders
particular circumstances. For a more detailed explanation of the tax
consequences, see Material United States Federal Tax Consequences and
Material Canadian Income Tax Consequences on pages - 16 - and - 21 -,
respectively, of this proxy statement/prospectus.
Pursuant to NRS 92A.105, the board of directors of Lincoln Gold
has adopted the Plan of Conversion, which will be voted upon by the shareholders
of Lincoln Gold, the effect of which will be to change the domicile of Lincoln
Gold from Nevada to Canada. Such resolution shall be submitted to the
stockholders of Lincoln Gold at the special meeting. Due notice of the time,
place and purpose of the meeting shall be mailed to each holder of stock,
whether voting or non-voting, at the address of the stockholder as it appears on
the records of the corporation, at least 10 days prior to the date of the
meeting. At the meeting, the Plan of Conversion shall be considered and a vote
taken for its adoption or rejection. If the holders of a majority of the
outstanding shares of Lincoln Gold vote for the adoption of the Plan of
Conversion, we will then file articles of conversion with the Secretary of State
of Nevada. The current officers and directors of the Nevada company will be the
officers and directors of the Canadian company. Upon the filing of the articles
of conversion in accordance with the NRS 92A.205 and payment to the Nevada
Secretary of State of all fees prescribed thereto, together with the compliance
with all other requirements, the Continuation shall become effective in
accordance with the NRS 92A.240. Upon receipt of the Articles of Continuance and
payment of all applicable fees, the Director under the CBCA shall issue a
Certificate of Continuance, and the Continuance shall be effective on the date
shown in the Certificate of Continuance.
Reasons for the change in domicile
We believe that the Continuance to Canada will more accurately
reflect our operations, which have always been head quartered in and managed
from Canada, and the principal market for our common stock which is in Canada.
Our Board of Directors also believes that continuing Lincoln Gold to Canada more
accurately reflects the nature of our business because it is the jurisdiction
from which our business has always been financed. Furthermore, our executive
offices, as well as the majority of our officers and directors, are located in
Canada, and a majority of our issued and outstanding common stock is owned of
record by non-United States residents. Finally, the Continuance will improve our
ability to subsequently raise capital financing in that it will help facilitate
a listing on the TSX-V and will enable us to issue securities with a four month
hold period (for which we believe there is more demand than there is for
securities we can presently issue, which have a minimum twelve month hold
period).
Charter Documents following the
Continuance
Upon completion of the Continuance, our charter documents will
be comprised of the Articles of Continuance and the Bylaws, in the forms
attached hereto as Appendix C and D, respectively.
- 12 -
Increase to Authorized Capital in Connection with
Continuance
The Articles of Continuance of Lincoln Gold Canada will provide
that the authorized capital of the Lincoln Gold Canada will be an unlimited
number of common shares without par value. Lincoln Gold Nevadas articles of
incorporation presently provide that our authorized capital is 100,000,000
shares of common stock.
Financial Statement Reporting
Upon completion of the Continuation we will apply to become a
reporting issuer under securities legislation in a number of Canadian provinces.
As a Canadian reporting issuer, we will be subject to the securities laws of the
Canadian provinces as those laws apply to Canadian reporting issuers. As a
Canadian reporting issuer, we will be required to prepare our annual and interim
consolidated financial statements in accordance with Canadian GAAP.
We presently prepare our consolidated financial statements in
accordance with US GAAP in the United States. We file our audited annual
financial statements with the SEC on Annual Reports on Form 10-KSB and our
unaudited interim financial statements with the SEC on Quarterly Reports on Form
10-QSB. Upon completion of the Continuation, we anticipate that we will meet the
definition of a foreign private issuer in the United States under the Exchange
Act. As a reporting foreign private issuer, we anticipate that we will file a
Form 20-F Annual Report each year with the SEC. The Form 20-F Annual Report will
include financial statements prepared in accordance with Canadian GAAP with
reconciliation to US GAAP. We will not be required to file interim quarterly
reports on Form 10-QSB, however we will be required to file our interim
financial statements and management discussion and analysis that we prepare as a
reporting issuer under Canadian securities legislation with the SEC on SEC Form
6-K. The interim financial statements will be prepared in accordance with
Canadian GAAP whereas our current Quarterly Reports on Form 10-QSB include
interim financial statements prepared in accordance with US GAAP.
In addition, as a foreign private issuer, our directors,
officers and 10% stockholders will not be subject to the insider reporting
requirements of Section 16(b) of the Exchange Act and we will not be subject to
the proxy rules of Section 14 of the Exchange Act. Furthermore, Regulation FD
does not apply to non-United States companies and will not apply to Lincoln Gold
upon the conversion.
Effective time of the Continuation
The Continuation will become effective upon:
adoption of the Plan of Conversion and approval of the Continuation
Special Resolutions by the stockholders of Lincoln Gold at the special meeting
or any adjournment thereof;
the delivery of articles of conversion to the Nevada Secretary
of State in accordance with NRS 92A.205; and
the issuance of a Certificate of Continuance by the Director
of Business Corporations under the CBCA in accordance with Sections 187 and
262 of the CBCA.
We anticipate that the articles of conversion and Articles of
Continuance will be filed promptly after the special meeting of Lincoln Gold
stockholders.
Conditions to the consummation of the
Continuation
The Board of Directors of Lincoln Gold has adopted and approved
the Continuation. Therefore, the only condition required for Lincoln Gold to
adopt the Continuation and become continued into Canada is that the stockholders
must duly approve the Continuation pursuant to the proposed Continuation Special
Resolutions. The only material consent, approval or authorization of or filing
with any governmental entity required to consummate the Continuation are the
approval of the stockholders of Lincoln Gold in accordance with Nevada corporate
law, the filing of the articles of conversion with the Nevada Secretary of State
and the filing of Articles of Continuance with the Director of Business
Corporations under the CBCA.
- 13 -
Exchange of share certificates
No exchange of certificates that, prior to the Continuation,
represented shares of Lincoln Gold common stock is required with respect to the
Continuation and the transactions contemplated by it. Promptly after the
effective time of the Continuation, we shall mail to each record holder of
certificates that immediately prior to the effective time of the Continuation
represented shares of our common stock, a letter of transmittal and instructions
for use in surrendering those certificates. Upon the surrender of each
certificate formerly representing Lincoln Gold stock, together with a properly
completed letter of transmittal, we shall issue in exchange a share certificate
of Lincoln Gold, the Canadian company, and the stock certificate representing
shares in the Nevada company shall be cancelled. Until so surrendered and
exchanged, each Lincoln Gold stock certificate shall represent solely the right
to receive shares in the new company.
Warrants and stock options
As of the effective time of the Continuation, all warrants and
options to purchase shares of Lincoln Gold common stock granted or issued prior
to the effective time of the Continuation will remain warrants and options to
purchase shares in Lincoln Gold as continued under the CBCA.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE
CONTINUATION DESCRIBED IN THIS PROXY/PROSPECTUS AND RECOMMENDS THAT STOCKHOLDERS
APPROVE THE PLAN OF CONVERSION AND THE CONTINUATION.
In reaching its decision, the Board of Directors reviewed the
fairness to Lincoln Gold and its stockholders of the proposed Continuation and
considered, without assigning relative weights to, the following factors:
the fact that the majority of Lincoln Golds directors and executive officers
and our current principal executive office are currently located in Canada,
and always have been;
the majority of Lincoln Golds shareholders are resident in Canada;
the belief that there will be minimal United States tax consequences of the
proposed Continuation;
the belief that the proposed Continuation will gain Lincoln Gold access to
a larger capital market; and
the fact that the stockholders have an opportunity to vote on the proposed
Continuation.
Without relying on any single factor listed above more than any
other factor, but rather based upon their consideration of all such factors
taken as a whole, the Board of Directors have concluded that the Continuation
proposal is fair to Lincoln Gold and its stockholders. ACCORDINGLY, THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSED
CONTINUATION SPECIAL RESOLUTIONS CONTAINED IN THIS PROXY/PROSPECTUS.
VOTING AND PROXY INFORMATION
Special meeting
A special meeting of the stockholders of Lincoln Gold Corporation
will be held on November 14, 2007, at 2 p.m. (Pacific Time), at the offices
of the Company located at Suite 350, 885 Dunsmuir Street, Vancouver, B.C., Canada,
V6C 1N5 (or at any adjournments or postponements thereof) to consider and vote
on a proposal to effect the proposed Continuation, which will have the effect
of transferring the jurisdiction of incorporation of Lincoln Gold from the State
of Nevada to Canada, and to vote on any other matters that may properly come
before such meeting. The presence, in person or by proxy, of at least two stockholders
holding not less than 1% of the outstanding shares of Lincoln Gold common stock
will constitute a quorum. The vote of any stockholder who is represented at
the special meeting by proxy will be cast as specified in the proxy. If no vote
is specified in a duly executed and delivered proxy, such vote will be cast
for the proposal. Any stockholder of record who is present at the special meeting
in person will be
- 14 -
entitled to vote at the meeting regardless of whether the
stockholder has previously granted a proxy for the special meeting.
THE BOARD OF DIRECTORS OF LINCOLN GOLD HAS APPROVED THE
CONTINUANCE AND RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF ITS APPROVAL.
Proxy solicitation
The total cost of soliciting proxies will be borne by us.
Proxies may be solicited by officers and regular employees of Lincoln Gold
without extra remuneration, by personal interviews, telephone and by electronic
means. We anticipate that banks, brokerage houses and other custodians, nominees
and fiduciaries will forward soliciting material to stockholders and those
persons will be reimbursed for the related out-of-pocket expenses they incur.
Record date
Only those stockholders of record at the close of business on
October 12, 2007, as shown in Lincoln Golds records, will be entitled
to vote or to grant proxies to vote at the special meeting.
Vote required for approval
Approval of Lincoln Golds proposed Continuation Special
Resolutions require the affirmative vote of the stockholders of Lincoln Gold
holding the majority of the shares of Lincoln Gold common stock. Abstentions
and broker non-votes will have the effect of votes against the Continuation.
As of October 12, 2007, there were 53,391,666 shares of common stock issued
and outstanding. The directors and executive officers of Lincoln Gold directly
own, in the aggregate, 9,200,000 shares (approximately 18%) of the total number
of shares of Lincoln Gold common stock outstanding at the record date. These
persons have indicated that they will vote all of their shares for the approval
of the Continuation Special Resolutions.
Proxies instruction
Each Lincoln Gold stockholder as of October 12, 2007, will receive
a proxy card. A stockholder may grant a proxy to vote for or against, or to
abstain from voting on, the Continuation Special Resolutions by marking his/her
proxy card appropriately and executing it in the space provided.
Holders of our common stock whose names appear on the stock records
of Lincoln Gold should return their proxy card to our transfer agent, Pacific
Stock Transfer Company, by fax at (702) 433-1979 or by mail or by hand at 500
E. Warm Springs Road, Suite 240, Las Vegas, Nevada 89119, or at the address
of the office of the Company at Suite 350, 885 Dunsmuir Street, Vancouver, B.C.,
Canada, V6C 1N5, at any time up to and including the last business day that
precedes the day of the special meeting or, if the special meeting is adjourned,
the last business day that precedes any reconvening thereof, or to the chairman
of the special meeting on the day of the special meeting or any reconvening
thereof, or in any other manner provided by law, in the envelope provided with
the proxy card. Stockholders who hold their common stock in the name of a bank,
broker or other nominee should follow the instructions provided by their bank,
broker or nominee on voting their shares.
TO BE EFFECTIVE, A PROXY CARD MUST BE RECEIVED PRIOR TO THE
SPECIAL MEETING. ANY PROPERLY EXECUTED PROXY WILL BE VOTED IN ACCORDANCE WITH
THE SPECIFICATION INDICATED ON THE PROXY CARD. A PROPERLY EXECUTED AND RETURNED
PROXY CARD IN WHICH NO SPECIFICATION IS MADE WILL BE VOTED FOR THE CONTINUATION
SPECIAL RESOLUTIONS.
There will be no other matters presented at the special
meeting.
Proxy revocation
Holders of Lincoln Gold common stock whose names appear on the
stock records of Lincoln Gold may revoke their proxy card at any time prior
to its exercise by:
-
giving written notice of such revocation to the Secretary of Lincoln Gold;
- 15 -
Presence without voting at the special meeting will not automatically
revoke a proxy, and any revocation during the meeting will not affect votes
previously taken. Lincoln Gold stockholders who hold their Lincoln Gold common
stock in the name of a bank, broker or other nominee should follow the instructions
provided by their bank, broker or nominee in revoking their previously voted
shares.
Proxy validity
All questions as to the validity, form, eligibility (including
time of receipt), and acceptance of proxy cards will be determined by the
Lincoln Gold Board of Directors. Any such determination will be final and
binding. The Lincoln Gold Board of Directors will have the right to waive
any irregularities or conditions as to the manner of voting. Lincoln Gold
may accept proxies by any reasonable form of communication so long as Lincoln
Gold can be reasonably assured that the communication is authorized by the
Lincoln Gold stockholder.
DISSENTERS RIGHTS
Under Section 92A.120 of the Nevada Revised Statutes, the approval
of the board of directors of a company and the affirmative vote of the holders
of at least a majority-in-interest of its outstanding shares are required
to approve and adopt a plan of conversion. Our board of directors has approved
and adopted our Plan of Conversion by unanimous written consent, and we expect
our shareholders to approve the conversion after the effectiveness of the
registration statements of which this information statement/prospectus is
a part. If the conversion is completed, eligible holders of Lincoln Gold Nevada
common stock that follow the procedures summarized below will be entitled
to dissenters rights under Sections 92A.300 to 92A.500 of the Nevada
Revised Statutes.
The following is a discussion of the material provisions of the
law pertaining to dissenters rights under the Nevada Revised Statutes
as set forth in Sections 92A.300 to 92A.500 of the Nevada Revised Statutes,
a copy of which is attached hereto as Appendix E. You should read Appendix E
in its entirety. A person having a beneficial interest in shares of our common
stock held of record in the name of another person, such as a broker or nominee,
must act promptly to cause the record holder to follow the steps summarized
below properly and in a timely manner to perfect their dissenters rights.
Failure to properly demand and perfect dissenters rights in accordance
with Sections 92A.300 to 92A.500 of the Nevada Revised Statutes will result
in the loss of dissenters rights.
Eligible Lincoln Gold Nevada shareholders who wish to assert
dissenters rights must not consent to or approve the conversion proposal
and must follow the steps set forth in the dissenters notice described
below.
When the conversion/continuance is authorized by the shareholders,
Lincoln Gold Nevada will send a written dissenters notice to all eligible
shareholders who provided timely notice of their intent to demand payment
for their shares and who did not consent to the conversion/continuance, within
10 days after effectuation of the conversion/continuance. The notice will:
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state where the demand for payment must
be sent and where and when certificates for Lincoln Gold Nevada shares
are to be deposited;
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inform the holders of shares not represented
by certificates to what extent the transfer of shares will be restricted
after the demand for payment is received;
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supply a form for demanding payment;
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set a date by which we must receive the
demand for payment, which may not be less than 30 or more than 60 days
after the date the notice is delivered; and
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be accompanied by a copy of Sections 92A.300 through 92A.500
of the NRS;
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An eligible shareholder to whom a dissenters notice is
sent must, by the date set forth in the dissenters notice:
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demand payment;
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certify whether he or she acquired beneficial
ownership of the shares before the date required to be set forth in the
dissenters notice for this certification; and
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deposit his or her certificates in accordance with the terms
of the dissenters notice.
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Eligible shareholders who do not demand payment or deposit
their certificates where required, each by the date set forth in the dissenters
notice, will not be entitled to demand payment for their shares under Nevada
law governing dissenters rights.
Within 30 days after receipt of a valid demand for payment,
we will pay each dissenter who complied with the procedures described by the
Nevada dissenters rights statute the amount we estimate to be the fair
value of the shares, plus accrued interest. The payment will be accompanied
by:
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our balance sheet as of the end of a fiscal
year ending not more than 16 months before the date of payment, a statement
of income for that fiscal year, a statement of changes in shareholders
equity for that fiscal year and the latest available interim financial
statements, if any;
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a statement of our estimate of the fair
value of the shares;
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an explanation of how the interest was
calculated;
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a statement of dissenters rights
to demand payment under Section 92A.480 of the NRS; and
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a copy of Sections 92A.300 through 92A.500
of the NRS.
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An eligible dissenter may notify us in writing of the dissenters
own estimate of the fair value of the shares and interest due, and demand
payment based upon his or her estimate, less our estimated fair value payment,
or reject the offer for payment made by us and demand payment of the fair
value of the dissenters shares and interest due if the dissenter believes
that the amount paid or offered is less than the fair value of the dissenters
shares or that the interest due is incorrectly calculated. A dissenter waives
his right to demand such payment unless the dissenter notifies us of his demand
in writing within 30 days after we made or offered payment for the dissenters
shares.
If a demand for payment remains unsettled, we will commence
a proceeding within 60 days after receiving the demand for payment and petition
the court to determine the fair value of the shares of Lincoln Gold Nevada
common stock and accrued interest. If we do not commence the proceeding within
the 60-day period, we will be required to pay each dissenter whose demand
remains unsettled the amount demanded.
Each dissenter who is made a party to the proceeding is entitled
to a judgment:
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for the amount, if any, by which the court
finds the fair value of the dissenters shares, plus interest, exceeds
the amount paid by us; or
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for the fair value, plus accrued interest,
of the dissenters after-acquired shares for which we elected to
withhold payment pursuant to Nevada law.
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Under Nevada law, the fair value of shares of Lincoln Gold
Nevada common stock means the value of the shares immediately before the consummation
of the conversion, excluding any increase or decrease in value in anticipation
of the conversion unless excluding such increase or decrease is inequitable.
The value determined by the court for the Lincoln Gold Nevada common stock
could be more than, less than, or the same as the conversion consideration,
but the form of consideration payable as a result of the dissent proceeding
would be cash.
The court will determine all of the costs of the proceeding,
including the reasonable compensation and expenses of any appraisers appointed
by the court. The court will assess the costs against us, except that the
court may assess costs against all or some of the dissenters, in the amounts
the court finds equitable, to the extent that the court finds
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the dissenters acted arbitrarily, vexatiously or not in good
faith in demanding payment. The court may also assess the fees and expenses
of the counsel and experts for the respective parties, in amounts the court
finds equitable:
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against us in favor of all dissenters
if the court finds we did not substantially comply with the Nevada dissenters
rights statute; or
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against either us or a dissenter in favor
of any other party, if the court finds that the party against whom the
fees and expenses are assessed acted arbitrarily, vexatiously or not in
good faith with respect to the dissenters rights provided under
the Nevada dissenters rights statute.
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If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that
the fees for those services should not be assessed against us, the court may
award to those counsel reasonable fees to be paid out of the amounts awarded
to the dissenters who were benefited.
If a proceeding is commenced because we did not pay each dissenter
who complied with the procedures described by the Nevada dissenters
rights statute the amount we estimated to be the fair value of the shares,
plus accrued interest, within 30 days after receipt of a valid demand for
payment, the court may assess costs against us, except that the court may
assess costs against all or some of the dissenters who are parties to the
proceeding, in amounts the court finds equitable, to the extent the court
finds that such parties did not act in good faith in instituting the proceeding.
The assessment of costs and fees, if any, may also be affected by Nevada law
governing offers of judgment.
The foregoing summary of the material rights of eligible dissenting
shareholders does not purport to be a complete statement of such rights and
the procedures to be followed by shareholders desiring to exercise any available
dissenters rights. The preservation and exercise of dissenters
rights require strict adherence to the applicable provisions of Nevada law.
MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES
The following section summarizes the material United States
federal income tax consequences of the Continuance to Lincoln Gold to the
U.S. holders (as defined below) of Lincoln Gold. It does not purport
to discuss all of the United States consequences that may be relevant to stockholders,
nor will it apply to the same extent or in the same way to all stockholders.
The summary does not describe the effect of the U.S. federal estate tax laws
or the effects of any state or local tax law, rule or regulation, nor is any
information provided as to the effect of any other United States or foreign
tax law, other than the federal income tax laws of the United States to the
extent specifically set forth herein. Moran & Ozbirn, P.C., special United
States tax counsel to Lincoln Gold, has approved the Material United
States Federal Tax Consequences section set forth herein. Notwithstanding
that it has been approved by U.S. tax counsel, this discussion and any conclusions
contained therein neither bind the IRS or the courts nor preclude the IRS
nor a court from adopting a contrary position. In addition, no assurance can
be given that new or future legislation, regulations or interpretations will
not significantly change the tax considerations described below, and any such
change may apply retroactively. The tax discussion set forth below is based
upon the facts set out in this proxy statement/prospectus and upon additional
information possessed by the management of Lincoln Gold and upon representations
of the management of Lincoln Gold.
The tax discussion is included for general information purposes
only. It is not intended to be, nor should it be construed to be, legal or
tax advice to any particular stockholder and does not address all aspects
of taxation that may be relevant to individual circumstances and tax situation
of any particular shareholder.
You are strongly advised and are expected to consult with your
own legal and tax advisors regarding the United States income tax consequences
of the Continuance in light of your particular circumstances.
This discussion applies to Lincoln Gold and to stockholders
who are U.S. holders that own common shares of Lincoln Gold. U.S. holders
include individual citizens or residents of the United States, corporations
(or entities treated as corporations for U.S. federal income tax purposes)
organized under the laws of the United States or any State thereof or the
District of Columbia, U.S. trusts and U.S. estates. U.S. trusts are trusts
that are subject to U.S. federal income taxation regardless of source of income
and generally include trusts that are subject to the primary supervision of
a U.S. court and that are under the control of one or more U.S. persons with
respect to substantial trust decisions. A U.S. estate is an estate that is
subject to U.S. federal income taxation regardless of the source of
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the income. U.S. holders who own interests indirectly through
partnerships or through one or more non-U.S. entities or carry on business
outside the United States through a permanent establishment or fixed place
of business, or U.S. holders who hold an interest other than as a common shareholder,
should consult with their tax advisors regarding their particular tax consequences.
This discussion is based on the Internal Revenue Code of 1986,
as amended (the Code), adopted and proposed regulations thereunder,
Internal Revenue Service (IRS) rulings and pronouncements, and judicial decisions,
all of which are subject to change, perhaps with retroactive effect. Any such
change could alter the tax consequences discussed below. No ruling from the
IRS will be requested concerning the U.S. federal income tax consequences
of the Continuance. This discussion does not address all aspects of U.S. federal
income taxation that may be relevant to particular U.S. holders in light of
their personal circumstances or to U.S. holders subject to special treatment
under the U.S. Code, including, without limitation, banks, financial institutions,
insurance companies, tax-exempt organizations, broker-dealers, S corporations,
individual retirement and other deferred accounts, application of the alternative
minimum tax rules, holders who received our stock as compensation, persons
who hold notes or stock as part of a hedge, conversion, or constructive sale
transaction, straddle, or other risk-reduction transaction, persons that have
a functional currency other than the U.S. dollar, and persons
subject to taxation as expatriates. This summary does not address the material
U.S. federal income tax consequences to a U.S. holder of the ownership, exercise,
or disposition of any warrants or compensatory options.
U.S. tax consequences to Lincoln Gold
The Continuance of Lincoln Gold from Nevada to Canada is for
corporate purposes a migration of Lincoln Gold from Nevada to Canada. The
United States Congress considered transactions whereby U.S. corporations migrate
to a foreign jurisdiction to be a potential abuse of the U.S. tax rules because
thereafter the foreign entity is not subject to U.S. tax on its worldwide
income. As a result, Section 7874(b) of the Code was enacted in 2004 to address
this potential abuse. Section 7874(b) of the Code provides generally that
a corporation that migrates from the United States will nonetheless remain
subject to U.S. tax on its worldwide income unless the migrating entity has
substantial business activities in the foreign country in which it is migrating
when compared to its total business activities.
The term substantial business activities is defined
in Treasury Regulation Section 1.7874 -2T. The regulations state that the
determination as to whether a corporation has substantial business activities
in a particular country is to be made based on all the facts and circumstances,
but thereafter lists certain factors that are considered in determining whether
a company has substantial business activities in a country in question. Relevant
factors include (1) historical presence in the country in question, (2) operations
(including sales) in the country in question, (3) the presence of management
and performance of management services in the country in question, (4) ownership
by investors in the country in question, and (5) whether the existence of
business activities in the country in question are material to the achievement
of the companys overall business objections.
Section 7874(b) of the Code will apply to the Lincoln Gold
migration unless Lincoln Gold Canada has substantial business activities in
Canada when compared to its total business activities. All but one of Lincoln
Golds employees, its only permanent office and all of its administrative
functions are located in Canada. Lincoln Golds only business activity
relates to four early stage mining prospects, one in Mexico and three in the
United States. Lincoln Gold has only one employee in the United States. Most
of Lincoln Golds shareholders reside in Canada, and historically most
of its funds have been raised in Canada. Additionally, because it will be
easier to raise additional funds as a Canadian entity (as a result of the
shorter hold period and possible TSX-V listing), the Continuance is material
to the achievement of Lincoln Golds overall business objectives.
Lincoln Gold intends to take the position that it has substantial
business activity in Canada in relation to its worldwide activities and that
Section 7874(b) of the Code does not apply to cause Lincoln Gold, after the
migration, to be subject to U.S. income tax on its worldwide income. Because
of the inherently factual nature of the inquiry, U.S. tax counsel expresses
no view on whether Lincoln Gold has substantial business activities in Canada
in relation to its worldwide business activities and whether Section 7874(b)
of the Code will apply to the Continuation.
If Lincoln Gold does not have substantial business activities
in Canada, and if Section 7874(b) of the Code were to apply to the migration
of Lincoln Gold from Nevada to Canada, it would cause Lincoln Gold Canada
to be subject to United States federal income taxation on its worldwide income.
The position adopted by Lincoln Gold may be challenged by the U.S. tax authorities
with the result that Lincoln Gold may remain subject to U.S. federal income
tax on its worldwide income even after the Continuance. In addition to U.S.
income taxes, were Section 7874(b) of
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the Code to apply to Lincoln Gold, Lincoln Gold could be subject
to penalties for failure to file U.S. tax returns, late fees and interest
on past due taxes. The remainder of this discussion assumes that Section 7874(b)
of the Code does not apply to Lincoln Gold.
The Continuance of Lincoln Gold from Nevada to Canada is, for
U.S. federal income tax purposes, treated as the transfer of the assets of
Lincoln Gold to a Canadian company in exchange for stock of the Canadian company,
followed by a distribution of the stock in the Canadian company to the stockholders
of Lincoln Gold, and then the exchange by Lincoln Gold Nevadas stockholders
of their Lincoln Gold Nevada stock for Lincoln Gold Canada stock. Lincoln
Gold must recognize a gain on the assets held by it at the time of the Continuance
to the extent that the fair market value of any assets exceeds its respective
basis. The calculation of any potential gain is made separately for each asset
held by Lincoln Gold Nevada. No loss will be allowed for any asset that has
a taxable basis in excess of its fair market value. Management of Lincoln
Gold does not believe the fair market value of any of its assets exceeds their
tax basis. Therefore, management is of the view that no gain should be recognized
by Lincoln Gold as a result of the Continuance.
The valuation of Lincoln Golds assets may be challenged
by the IRS. Should the IRS disagree with the valuation of Lincoln Golds
assets, they could reassess the deemed proceeds on the Continuance to a higher
amount. It is possible on any such reassessment that the tax liability to
Lincoln Gold could be significant and Lincoln Gold may not have the available
cash at that time to settle the liability owing. Should Lincoln Gold be unable
to settle any such liability, Lincoln Gold may have to cease operations in
which case the stockholders of Lincoln Gold would likely lose their investment
in Lincoln Gold. Management believes that its determination of the fair market
value of its assets and liabilities and the methodology, estimates and assumptions
used in reaching such determination are reasonable and the most appropriate
in these circumstances.
U.S. tax consequences to U.S. and Canadian shareholders
The Continuance will be treated by shareholders as the exchange
by shareholders of stock in a Nevada company for stock of the Canadian company.
The shareholders will not be required to recognize any U.S. gain or loss on
this transaction. A shareholders adjusted basis in the shares of Lincoln
Gold Canada received in the exchange will be equal to such shareholders
adjusted basis in the shares of Lincoln Gold Nevada surrendered in the exchange.
A shareholders holding period in the shares of Lincoln Gold Canada received
in the exchange should include the period of time during which such shareholder
held his or her shares in Lincoln Gold Nevada. Because the Continuation qualifies
as an F reorganization under the Code, there are no U.S. tax consequences
to any of the current stockholders of our company. The rule applies whether
or not the stockholders are residents or citizens of the U.S. or of a country
other than the U.S.
Passive Foreign Investment Company considerations
After the Continuance, Lincoln Gold Canada and every U.S. shareholder
of Lincoln Gold Canada will need to annually evaluate whether Lincoln Gold
Canada is a Passive Foreign Investment Company (PFIC) under IRC
Sections 1291 - 1298. If, at any time after the Continuance, Lincoln Gold
Canada were considered a PFIC, Lincoln Gold and all U.S. shareholders of Lincoln
Gold Canada would need to consider various potential reporting requirements,
tax elections and tax liabilities imposed under the PFIC rules. In such situation,
the company and all U.S. shareholders should consult with their tax advisors
regarding their particular tax consequences. If Lincoln Gold Canada generates
revenues in any tax year that are at least 75% passive income (dividends,
interest, royalties, rents, annuities, foreign currency gains, and gains from
the sale of assets generating passive income), Lincoln Gold Canada will be
considered a PFIC for that year and for all future years. In addition, if
50% or more of the gross average value of Lincoln Gold Canadas assets
in any tax year consist of assets that would produce passive income (including
cash and cash equivalents held as working capital), Lincoln Gold Canada will
be considered a PFIC for that year and for all future years.
Post-Continuance sale of Lincoln Gold Canada shares
A U.S. shareholder who sells his or her shares of Lincoln Gold
Canada will generally recognize a long term capital gain (or loss) equal to
the amount by which the cash received pursuant to sale of the shares exceeds
(or is exceeded by) such holders adjusted basis in the shares surrendered.
If the U.S. shareholders holding period for the Lincoln Gold Canada
shares (which includes the holding period for the Lincoln Gold Nevada shares)
is less than one year, the U.S. shareholder will recognize a short term capital
gain (or loss) on the sale of his or her shares. Individuals are subject to
a lower rate of federal income tax (currently 15%) on long term capital gains,
while short term capital
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gains are subject to the same tax rate as is ordinary income.
There are limitations on the ability of taxpayers to utilize both long term
and short term capital losses.
Post-Continuance dividends on Lincoln Gold Canada shares
Any dividends received by U.S. shareholders of Lincoln Gold
Canada will, assuming Lincoln Gold is not a passive foreign investment company,
be qualified dividends. Individual shareholders are currently subject to United
States federal income tax on qualified dividends at a 15% rate. Any Canadian
tax withheld by Canada Customs & Revenue Agency on such dividends will
be available as a foreign tax credit to the U.S. shareholders. The amount
of the Canadian taxes that can be used as a foreign tax credit will depend
on the particular tax situation of each U.S. shareholder. Each U.S. shareholder
should consult with a tax advisor regarding the calculation of any available
foreign tax credit available in his or her particular tax consequences.
MATERIAL CANADIAN INCOME TAX CONSEQUENCES
In the opinion of Lang Michener LLP, Canadian tax counsel to
Lincoln Gold, the following fairly summarizes the principal Canadian federal
income tax consequences under the
Income Tax Act
(Canada) (the Canadian
Act) applicable to Lincoln Gold and its shareholders of the Continuation,
and thereafter of holding and disposing of common shares in the capital of
Lincoln Gold.
Comment is restricted to shareholders (each in this summary
a Holder) of Lincoln Gold each of whom is an individual (other
than a trust) or corporation who or which, at all material times for the purposes
of the Canadian Act, holds all common shares in the capital of Lincoln Gold
solely as capital property, acts at arms length with Lincoln Gold, and
is not, a financial institution to which the mark to market
rules apply, a specified financial institution, nor a shareholder
in respect of whom Lincoln Gold is a foreign affiliate under the
Canadian Act. Comment is further restricted, in the case of any Holder who
is not resident in Canada for Canadian income tax purposes (in this commentary,
a Non-resident Holder), to Non-resident Holders whose common shares
in the capital of Lincoln Gold are not used in or in the course of carrying
on a business in Canada, and will not constitute taxable Canadian property
at any particular time after the Continuation. In general, a Lincoln Gold
common share held by a Non-resident Holder will not constitute taxable Canadian
property at any particular time after the Continuation provided that neither
the Non-resident Holder, nor any one or more persons with whom the Nonresident
Holder does not deal at arms length, alone or in any combination held
or had a right to acquire 25% or more of the issued shares of any class in
the capital stock of Lincoln Gold at any time in the five years immediately
preceding the particular time.
This summary assumes that Lincoln Gold will not, at the time
of the Continuation, own shares of a corporation that is resident in Canada
for the purposes of the Canadian Act or any property that is taxable Canadian
property for such purposes, and will not elect pursuant to §128.1(2)(b)(i)
to increase the paid-up capital of shares in its capital is respect of the
Continuation.
Comment is based on the current provisions of the Canadian
Act and regulations, all amendments thereto publicly proposed by the Minister
of Finance of Canada to the date hereof, and counsels understanding
of the published administrative practices of the Canada Revenue Agency (CRA).
Unless otherwise expressly stated, it is assumed that all such amendments
will be enacted substantially as currently proposed, and that there will be
no other material change to any relevant law or administrative practice, although
no assurances can be given in these respects. Except to the extent otherwise
expressly provided, this summary does not take into account any provincial,
territorial or foreign tax law, nor any bilateral income tax treaty to which
Canada is a party.
This summary is of a general nature only and is not, and is
not to be construed as, Canadian income tax advice to any particular Holder.
Each Holder is urged to obtain independent advice as to the legal and Canadian
income tax implications of the Continuation, and thereafter of holding and
disposing of common shares in the capital of Lincoln Gold, applicable to the
Holders particular circumstances.
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The Continuation
Lincoln Gold
Lincoln Golds taxation year for Canadian tax purposes
will be deemed to have ended immediately before the Continuation. It will
be required to fix a new taxation year end for Canadian income tax purposes.
Lincoln Gold will also be deemed to have disposed of all its
assets immediately before the Continuation for proceeds of disposition, and
immediately thereafter to have acquired them at a cost, equal to their fair
market value at that time. Lincoln Gold should not thereby incur any liability
for Canadian income tax.
Lincoln Gold will become a resident of Canada for the purposes
of the Canadian Act as a result of the Continuation, and consequently thereafter
will be liable for Canadian income tax on its world-wide taxable income, if
any, computed in accordance with the Canadian Act, subject only to such relief,
if any, to which it may be entitled under any Canadian bilateral income tax
treaty that may apply to it.
Resident Holders and Non-resident Holders
The Continuation should not give rise to any liability for
Canadian income tax to any Holder, regardless of the Holders fiscal
residence.
Disposing of common shares
Canadian Resident Holders
The normal rules for the taxation of capital gains and losses
applicable before the Continuation to Holders who are resident in Canada for
the purposes of the Canadian Act (each a Resident Holder) will
continue to apply to Resident Holders in respect of a disposition of common
shares in the capital of Lincoln Gold after the Continuation.
In summary, these rules will provide that a Resident Holder
who disposes of such a common share after the Continuation will realize a
capital gain (capital loss) equal to the amount by which the proceeds received
by the Resident Holder on the disposition exceed (are exceeded by) the adjusted
cost base of the common share to the Resident Holder.
The Resident Holder will be required to include one half of
any such capital gain (taxable capital gain) in income to be taxed at normal
rates.
The Resident Holder may deduct one half of any such capital
loss (allowable capital loss) from taxable capital gains realized in the taxation
year of the Resident Holder in which the disposition occurs and, to the extent
not so deductible, from taxable capital gains realized in any of the three
preceding taxation years or any subsequent taxation year.
The Resident Holder, if a Canadian-controlled private
corporation as defined for the purposes of the Canadian Act, will be
required to include any taxable capital gain so arising in its aggregate
investment income and pay an additional refundable tax equal to 6 2/3%
of its aggregate investment income, and will be entitled to a refund of such
additional tax at the rate of CDN$1 of refund for every CDN$3 of taxable dividends
that it subsequently pays.
Non-resident Holders
A Non-resident Holder who disposes of a common share in the
capital of Lincoln Gold after the Continuation will be subject to the normal
rules for the taxation of capital gains and losses applicable after the Continuation
to Resident Holders as discussed above if, at the time of disposition, the
common share is not listed on a Canadian or foreign prescribed stock
exchange as defined in the Canadian Act, unless the Non-resident Holder
is relieved from such liability by an applicable tax treaty. The OTC Bulletin
Board is not such a prescribed stock exchange. The disposition will be subject
to capital gains tax unless exempted by an applicable tax treaty.
Generally, a Non-resident Holder who is a US resident for the
purposes of the Canada U.S. Income Tax Convention, 1980, as amended
(the Treaty) will not incur any tax liability provided that at
the time of disposition
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not more than 50% of the value of the common shares in the
capital of Lincoln Gold derives from real property situated in
Canada as defined for the purposes of the Treaty (which includes among other
things, any right to explore for or exploit mineral deposits and sources in
Canada and other natural resources in Canada, or any right to an amount computed
by reference to the production, including profit, from, or to the value of
production from, mineral deposits and sources in Canada and other natural
resources in Canada).
A Non-resident Holder who disposes of common shares in the
capital of Lincoln Gold after the Continuation will not incur any liability
for Canadian income tax in respect of any taxable capital gain so arising,
nor be permitted to deduct any allowable capital loss so arising from taxable
capital gains (if any) of the Non-resident Holder otherwise subject to Canadian
federal income tax if at the time of disposition such common shares are listed
on a Canadian or foreign prescribed stock exchange, including the TSX-V.
The Non-resident Holder will also be required to obtain a tax
clearance certificate from CRA in respect of the disposition unless at the
time of disposition the common shares in the capital of Lincoln Gold are listed
on a Canadian or foreign prescribed stock exchange.
Any Non-resident Holder who is contemplating disposing of common
shares in the capital of Lincoln Gold after the Continuation should obtain
Canadian tax advice as to whether the Non-resident Holder will be subject
to Canadian income tax, or be required to obtain a tax clearance certificate
from CRA, in respect of the disposition.
Dividends on common shares
Canadian Resident Holders
A Resident Holder who is an individual will be required to
include the amount of any dividend actually or deemed to have been received
after the Continuation on a common share in the capital of Lincoln Gold in
income, subject to the usual dividend gross-up and dividend tax credit rules
applicable to dividends paid by a taxable Canadian corporation.
A Resident Holder that is a corporation will be required to
include the amount of any dividend actually or deemed to have been received
by it after the Continuation on a common share in the capital of Lincoln Gold
in income, but generally will be entitled to deduct an equivalent amount in
computing its taxable income. The corporation, if it is a private corporation
as defined for the purposes of the Canadian Act, or a corporation controlled
by or for the benefit of an individual or any related group of individuals,
may be liable for a further 33 1/3% refundable tax (Part IV Tax) on any such
dividend to the extent that the dividend was deductible in computing its taxable
income, and will be entitled to a refund on such Part IV Tax at the rate of
CDN$1 of refund for every CDN$3 of taxable dividends that it subsequently
pays.
Non-resident Holders
Each Non-resident Holder will be required to pay Canadian withholding
tax on the amount of any dividend, including any stock dividend, paid or credited
or deemed to be paid or credited by Lincoln Gold after the Continuation to
the Non-resident Holder on a common share. The rate of withholding tax is
25% of the gross amount of the dividend, or such lesser rate as may be available
under an applicable income tax treaty. The rate of withholding tax under the
Treaty applicable to a dividend paid to a Non-resident Holder who is a resident
of the United States for the purposes of the Treaty is 5% if the Non-resident
Holder is a company that owns at least 10% of the voting stock of Lincoln
Gold, and 15% in any other case, of the gross amount of the dividend. Lincoln
Gold will be required to withhold any such tax from the dividend, and remit
the tax directly to CRA for the account of the Non-resident Holder.
COMPARATIVE RIGHTS OF STOCKHOLDERS
After the Continuation, the stockholders of the former Nevada
corporation will become the holders of shares in the capital of a Canadian
company organized under the Canada Business Corporations Act (CBCA).
Differences between the Nevada Revised Statutes and the CBCA, will result
in various changes in the rights of stockholders of Lincoln Gold. The following
is a summary description of the more significant differences. This summary
description is qualified by reference to the Nevada Revised Statutes and the
CBCA.
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Subject Matter
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Nevada
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Canada
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Inspection of Books and Records
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Under Nevada law, any person who has been
a stockholder of record of a corporation for at least six months immediately
preceding his demand, or any person holding, or thereunto authorized
in writing by the holders of, at least five percent of all of its outstanding
shares, upon at least five days written demand is entitled to
inspect in person or by agent or attorney, during usual business hours,
a corporations records and make copies therefrom.
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Similarly, under Canadian law, there is no
specific statutory provision regarding a stockholders right to
inspect the books and records of the company. Where a corporation has
previously distributed its shares to the public, shareholders and creditors
of a corporation may, on payment of a reasonable fee, require a corporation
to furnish a list setting out the names and addresses of the stockholders
of a corporation and the number of shares held by each stockholder.
In order to obtain such a list, an affidavit must also be provided confirming
that the list will only be used in connection with an effort to influence
voting of the stockholders, an offer to acquire securities of the corporation
or any other matter relating to the affairs of the corporation.
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Qualification of Directors
|
A director must be a natural person who is
at least 18 years of age. A company must have at least one director.
Unless otherwise provided in the articles of incorporation of the company,
directors need not be stockholders.
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A director must be a natural person who is
at least 18 years of age. Directors must not have the status of bankrupt,
and must not have been found to be of unsound mind by a court in Canada
or elsewhere. All Canada Business Act Corporation corporations must
have at least one director, and distributing corporations
must have at least three directors, at least two of which must not be
officers or employees of the corporation or its affiliates. Lincoln
Gold is a distributing corporation because it has filed
a registration statement in a jurisdiction other than Canada. There
are no other actions which must be taken by us in order to remain in
compliance with the CBCA.
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Amendments to the Articles
|
In order to amend the articles of incorporation
of a company, the board of directors must adopt a resolution setting
forth the proposed amendment and call a meeting of the stockholders
to vote on the amendment or direct that the proposed amendment be considered
at the next annual meeting of the stockholders entitled to vote on the
amendment. If it appears upon the canvassing of the votes that stockholders
holding shares entitling them to exercise at least a majority of the
voting power, or such greater proportion of the voting power as may
be required in the case of a vote by classes, or as may be required
by the provisions of the articles
|
In order to amend its articles, the shareholders
of a CBCA corporation must pass a special resolution approving the amendment.
A special resolution must be approved by two thirds of the votes cast
on the resolution. The holders of a class or series of shares are entitled
to vote as a separately as a class on any proposed amendment which would
increase or decrease any maximum number of authorized shares of that
class, or increase any maximum number of authorized shares of a class
having rights or privileges equal or superior to those of such class
or series; effect an exchange, reclassification or cancellation
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- 24 -
Subject Matter
|
Nevada
|
Canada
|
|
of incorporation, have voted in favour of
the amendment. The certificate setting forth the amendment and the vote
by which the amendment was adopted must be signed by an officer of the
company and filed with the secretary of state. If any proposed amendment
would adversely alter or change any preference or any other right given
to any class of outstanding shares, then the amendment must be approved
by the vote, in addition to the affirmative vote otherwise required,
of the holders of shares representing a majority of the voting power
of each class adversely affected by the amendment.
|
of all or part of the shares of that class;
add, change or remove the rights, privileges, restrictions or conditions
attached to the shares of that class; increased the rights or privileges
of any class of shares having rights or privileges equal or superior
to the shares of that class; create a new class of shares equal or superior
to the shares of that class; make any class of shares having rights
or privileges inferior to the shares of that class equal or superior
to the shares of that class; effect an exchange or create a right of
exchange of all or part of the shares of another class into the shares
of that class; or constrain the issue, transfer or ownership of the
shares of that class, or change or remove any such constraint. The right
of holders of a class of shares which would be affected in such a manner
to vote separately as a class will apply whether or not that class of
shares is otherwise entitled to vote. If authorized by the shareholders
in the special resolution amending the articles, the directors may revoke
the resolution before it is acted on without further approval of the
shareholders. If the directors do not revoke the resolution, the articles
of amendment must be filed with the Director under the CBCA, and the
Director will then issue a certificate of amendment.
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Election and Removal of Directors
|
Directors are elected at the annual meeting
of the stockholders by a plurality of the votes cast at the election
and any director, or the entire Board, may be removed with or without
cause, but only by the vote of not less than two thirds of the issued
and outstanding stock entitled to vote at a meeting called for that
purpose. The directors may fill vacancies on the board unless the bylaws
provide otherwise.
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Shareholders of a corporation shall, by ordinary
resolution at each annual meeting at which an election of directors
is required, elect directors to hold office. The shareholders of a corporation
may be ordinary resolution at a special meeting remove any director
or directors from office and may fill such vacancy at the meeting in
which the director was removed. If not so filled, a quorum of directors
may fill a vacancy among the directors.
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Inspection of Stockholders List
|
Under Nevada law, any stockholder of record
of a corporation who has held his shares for more than six months and
stockholders holding at least 5% of all of its outstanding shares, is
entitled to inspect, during normal business hours, the companys
stock ledger and make extracts therefrom. It also provides that a Nevada
company may condition such inspection right upon delivery of a written
|
Under Canadian law, where a corporation has
previously distributed its shares to the public, shareholders and creditors
of a corporation may, on payment of a reasonable fee require a corporation
to furnish a list setting out the names and addresses of the stockholders
of a corporation and the number of shares held by each stockholder.
In order to obtain such a
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- 25 -
Subject Matter
|
Nevada
|
Canada
|
|
affidavit stating that inspection is not
desired for any purpose not related to the stockholders interest
in the company.
|
list, an affidavit must also be provided
confirming that the list will only be used in connection with an effort
to influence voting of the stockholders, an offer to acquire securities
of the corporation or any other matter relating to the affairs of the
corporation.
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Transactions with Officers and Directors
|
Under Nevada law, contracts or transactions
in which a director or officer is financially interested are not automatically
void or voidable if (i) the fact of the common directorship, office
or financial interest is known to the board of directors or committee,
and the board or committee authorizes, approves or ratifies the contract
or transactions in good faith by a vote sufficient for the purpose,
without counting the vote or votes of the common or interested director
or directors, or (ii) the contract or transaction, in good faith, is
ratified or approved by the holders of a majority of the voting power,
(iii) the fact of common directorship, office or financial interest
known to the director or officer at the time of the transactions is
brought before the board of directors for actions, or (iv) the contract
or transaction is fair to the corporation at the time it is authorized
or approved. Common or interested directors may be counted to determine
presence of a quorum and if the votes of the common or interested directors
are not counted at the meeting, then a majority of directors may authorize,
approve or ratify a contract or transaction.
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Under Canadian law, a material contract or
transaction between a corporation and one or more of its directors or
officers, or between a corporation and another entity in which a director
or officer of the corporation is a director or officer or has a material
interest in, is not invalid if the director or officer has disclosed
the nature and extent of his interest and the contract or transaction
was approved by the directors. Even if such disclosure is not made,
a director or officer, acting honestly and in good faith, will not be
accountable to the corporation for any profit realized in such a transaction,
and the contract or transaction will not be invalid only by reason of
such interest, if the contract or transaction is approved by a special
resolution at a meeting of shareholders, disclosure of the interest
sufficient to indicate its nature was made before shareholder approval,
and the contract or transaction is reasonable and fair to the corporation
at the time it was approved.
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Limitation on Liability of Directors; Indemnification of Officers
and Directors
|
Nevada law provides for discretionary indemnification
made by the corporation only as authorized in the specific case upon
a determination that indemnification of the director, officer, employee
or agent is proper in the circumstances. The determination must be made
either: (i) by the stockholders; (ii) by the board of directors by majority
vote of a quorum consisting of directors who were not parties to the
actions, suit or proceeding; (iii) if a majority vote of a quorum consisting
of directors who were not parties to the actions, suit or proceeding
so orders, by independent legal counsel in a written opinion; or (iv)
if a quorum consisting of directors who were not parties to the actions,
suit or proceeding cannot be obtained, by independent legal
|
Canadian law provides that a corporation
may indemnify a director or officer or a former director or officer
of the corporation against all costs, charges and expenses, including
an amount paid to settle an action or satisfy a judgment, reasonably
incurred by the individual in respect of a proceeding to which such
person was a party by reason of being or having been a director or officer,
if the person: (i) acted honestly and in good faith with a view to the
best interests of the corporation; and (ii) in the case of a criminal
or administrative proceeding enforced by a monetary penalty, the individual
had reasonable grounds for believing that the individuals conduct was
lawful.
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- 26 -
Subject Matter
|
Nevada
|
Canada
|
|
counsel in a written opinion. The articles
of incorporation, the bylaws or an agreement made by the corporation
may provide that the expenses of officers and directors incurred in
defending a civil or criminal action, suit or proceeding must be paid
by the corporation as they are incurred and in advance of the final
disposition of the actions, suit or proceeding, upon receipt of an undertaking
by or on behalf of the director or officer to repay the amount if it
is ultimately determined by a court of competent jurisdiction that he
is not entitled to be indemnified by the corporation. The provisions
do not affect any right to advancement of expenses to which corporate
personnel other than directors or officers may be entitled under any
contract or otherwise by law. The indemnification and advancement of
expenses authorized in or ordered by a court pursuant to Nevada law
does not exclude any other rights to which a person seeking indemnification
or advancement of expenses may be entitled under the articles of incorporation
or any bylaw, agreement, vote of stockholders or disinterested directors
or otherwise, for either an action in his official capacity or an action
in another capacity while holding office, except that indemnification,
unless ordered by a court or for the advancement of expenses, may not
be made to or on behalf of any director or officer if his acts or omissions
involved intentional misconduct, fraud or a knowing violation of the
law and was material to the cause of action. In addition, indemnification
continues for a person who has ceased to be a director, officer, employee
or agent and inures to the benefit of the heirs, executors and administrators
of such a person.
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Voting Rights with respect to extraordinary corporate transactions
|
Approval of mergers and consolidations and
sales, leases or exchanges of all or substantially all of the property
or assets of a corporation, whether or not in the ordinary course of
business, requires the affirmative vote or consent of the holders of
a majority of the outstanding shares entitled to vote, except that,
unless required by the articles of incorporation, no vote of stockholders
of the corporation surviving a merger is necessary if: (i) the merger
does not amend the articles of
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Approvals of amalgamations (except amalgamations
between a corporation and wholly owned subsidiaries), consolidations,
and sales, leases or exchanges of substantially all the property of
a corporation, other than in the ordinary course of business of the
corporation requires approval by the stockholders by a two-thirds majority
vote at a duly called meeting.
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- 27 -
Subject Matter
|
Nevada
|
Canada
|
|
incorporation of the corporation; (ii) each
outstanding share immediately prior to the merger is to be an identical
share after the merger, and (iii) either no common stock of the corporation
and no securities or obligations convertible into common stock are to
be issued in the merger, or the common stock to be issued in the merger,
plus that initially issuable on conversion of other securities issued
in the merger does not exceed 20% of the common stock of the corporation
outstanding immediately before the merger.
|
|
Stockholders consent without a meeting
|
Unless otherwise provided in the articles
of incorporation or the bylaws, any actions required or permitted to
be taken at a meeting of the stockholders may be taken without a meeting
if, before or after taking the actions, a written consent is signed
by the stockholders holding at least a majority of the voting power,
except that if a different proportion of voting power is required for
such an action at a meeting, then that proportion of written consent
is required. In no instance where actions are authorized by written
consent, need a meeting of the stockholders be called or notice given.
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Any action required or permitted to be taken
at a meeting of the stockholders may be taken by a written resolution
signed by all the stockholders entitled to vote on such resolution.
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Stockholder Voting Requirements
|
Unless the articles of incorporation or bylaws
provide for different proportions, a majority of the voting power, which
includes the voting power that is present in person or by proxy, regardless
of whether the proxy has authority to vote on all matters, constitutes
a quorum for the transactions of business. In all matters other than
the election of directors, the affirmative vote of the majority of shares
present in person or represented by proxy at the meeting and entitled
to vote on the subject matter shall be the act of the stockholders.
Directors must be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled
to vote on the election of directors. Where a separate vote by a class
or series or classes or series is required, a majority of the voting
power of the class or series that is present or represented by proxy,
regardless of whether the proxy has authority to vote on all matters,
constitutes a quorum for the transaction of business. An act by the
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Unless the by-laws otherwise provide, a quorum
of stockholders is present for a meeting if the holders of a majority
of the shares entitled to vote at the meeting are present in person
or represented by proxy. Except where the CBCA requires approval by
a special resolution, being approval by a two-thirds majority of the
shares present in person or represented by proxy and entitled to vote
on the resolution, a simple majority or the shares present in person
or represented by proxy and entitled to vote on a resolution is required
to approve any resolution properly brought before the stockholders.
Where the articles of a corporation provide for cumulative voting, stockholders
voting at an election of directors have the right to a number of votes
equal to the votes attached to the shares held by such stockholder multiplied
by the number of directors to be elected and stockholders may cast all
such votes in favour of one candidate for director or may distribute
the votes among the candidates in any manner.
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- 28 -
Subject Matter
|
Nevada
|
Canada
|
|
stockholders of each class or series is
approved if a majority of the voting power of a quorum of the class
or series votes for the actions.
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The holders of a class or series of shares
are entitled to vote separately on proposals to amend the articles of
a corporation where such amendment affects the rights of such class
or series in a manner different than other shares of the corporation.
A vote to approve any such amendment is passed if approved by a two-thirds
majority of the voting power of the class or series represented in person
or by proxy at a meeting called to approve such amendment.
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Dividends
|
A corporation is prohibited from making
a distribution to its stockholders if, after giving effect to the distribution,
the corporation would not be able to pay its debts as they become due
in the usual course of business or the corporations total assets
would be less than its total liabilities (plus any amounts necessary
to satisfy any preferential rights).
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A corporation is prohibited from declaring
or paying a dividend if there are reasonable grounds for believing that
the corporation, is or would after the payment be, unable to pay its
liabilities as they become due or the realizable value of the corporations
assets would be less than the total of its liabilities and stated capital
of all classes.
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Anti-Takeover Provisions
|
Nevadas Acquisition of Controlling
Interest Statute applies to Nevada corporations that have at least
200 shareholders, with at least 100 shareholders of record being Nevada
residents, and that do business directly or indirectly in Nevada. Where
applicable, the statute prohibits an acquiror from voting shares of
a target companys stock after exceeding certain threshold ownership
percentages, until the acquiror provides certain information to the
company and a majority of the disinterested shareholders vote to restore
the voting rights of the acquirors shares at a meeting called
at the request and expense of the acquiror. If the voting rights of
such shares are restored, shareholders voting against such restoration
may demand payment for the fair value of their shares (which
is generally equal to the highest price paid in the transaction subjecting
the stockholder to the statute). The Nevada statute also restricts a
business combination with interested shareholders,
unless certain conditions are met, with respect to corporations which
have at least 200 shareholders of record. A combination
includes (a) any merger with an interested stockholder,
or any other corporation which is or after the merger would be, an affiliate
or associate of the interested stockholder, (b)
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There is no provision under Canadian law
similar to the Nevada Acquisition of Controlling Interest Statute.
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- 29 -
Subject Matter
|
Nevada
|
Canada
|
|
any sale, lease, exchange, mortgage, pledge, transfer
or other disposition of assets, to an interested stockholder,
having (i) an aggregate market value equal to 5% or more of the aggregate
market value of the corporations assets; (ii) an aggregate market
value equal to 5% or more of the aggregate market value of all outstanding
shares of the corporation; or (iii) representing 10% or more of the
earning power or net income of the corporation, (c) any issuance or
transfer of shares of the corporation or its subsidiaries, to the interested
stockholder, having an aggregate market value equal to 5% or more
of the aggregate market value of all the outstanding shares of the corporation,
(d) the adoption of any plan or proposal for the liquidation or dissolution
of the corporation proposed by the interested stockholder,
(e) certain transactions which would result in increasing the proportionate
percentage of shares of the corporation owned by the interested
stockholder, or (f) the receipt of benefits, except proportionately
as a stockholder, of any loans, advances or other financial benefits
by an interested stockholder. An interested stockholder
is a person who, together with affiliates and associates, beneficially
owns (or within the prior three years, did beneficially own) 10% or
more of the corporations voting stock. A corporation to which
this statute applies may not engage in a combination within
three years after the interested stockholder acquired its shares, unless
the combination or the interested stockholders acquisition of
shares was approved by the board of directors before the interested
stockholder acquired the shares. If this approval was not obtained,
then after the three year period expires, the combination may be consummated
if all applicable statutory requirements are met and either (a) (i)
the board of directors of the corporation approves, prior to such person
becoming an interested stockholder, the combination or the
purchase of shares by the interested stockholder or (ii)
the combination is approved by the affirmative vote of holders of a
majority of voting power not beneficially owned by the interested
stockholder at a meeting called no earlier than three years
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|
- 30 -
Subject Matter
|
Nevada
|
Canada
|
|
after the date the interested stockholder
became such or (b) (i) the aggregate amount of cash and the market value
of consideration other than cash to be received by holders of common
shares and holders of any other class or series of shares meets certain
minimum requirements set forth in the statutes and (ii) prior to the
consummation of the combination, except in limited circumstances,
the interested stockholder will not have become the beneficial
owner of additional voting shares of the corporation.
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Appraisal Rights;
Dissenters Rights
|
Under Nevada law, unless otherwise provided
in the articles of incorporation or the bylaws of the issuing corporation
in effect on the tenth day following an acquisition of a controlling
interest by an acquiring person, if control shares are accorded full
voting rights and the acquiring person has acquired control shares with
a majority or more of all the voting power, any stockholder, other than
the acquiring person, whose shares are not voted in favour of authorizing
voting rights for the control shares may dissent in and obtain payment
of the fair value of his shares. Also, Nevada law does not provide for
dissenters rights in the case of a sale of assets.
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Under the CBCA, the holders of shares of
any class of a corporation have the right to dissent when a company
amends its articles to change any provisions restricting or constraining
the issue, transfer or ownership of shares of that class. Stockholders
also have dissenters rights when a company proposes to amend its
articles to add, change or remove any restrictions on the business or
businesses that the corporation may carry on, amalgamate (other than
a vertical short-form amalgamation with a wholly-owned subsidiary),
continue to another jurisdiction, sell, lease or exchange all or substantially
all of its property, or carry out a going private or squeeze-out transaction.
A shareholder who properly exercises his or her rights of dissent is
entitled to be paid the fair market value of his or her shares in respect
of which he or she dissents.
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ACCOUNTING TREATMENT
For United States accounting purposes, the Continuation of
our company from a Nevada corporation to a Canadian corporation represents
a non-substantive exchange to be accounted for in a manner consistent with
a transaction between entities under common control. All assets, liabilities,
revenues and expenses will be reflected in the accounts of Lincoln Gold Canada
based on existing carrying values at the date of the exchange. The historical
comparative figures of Lincoln Gold will be those of Lincoln Gold as a Nevada
company.
We currently prepare our consolidated financial statements
in accordance with GAAP in the United States. After our Continuance to Canada,
as a Canadian domestic issuer, we plan to prepare our annual and interim consolidated
financial statements in accordance with Canadian GAAP. For the purpose of
our annual disclosure obligations in the United States, we will annually file
in the United States consolidated financial statements prepared in accordance
with Canadian GAAP together with a reconciliation to US GAAP. In addition,
as a foreign private issuer, Lincoln Gold will not have to file quarterly
reports with the SEC.
- 31 -
APPLICATION OF SECURITIES LAWS
Upon the effective date of the Continuation we will continue
to be subject to the securities laws of the provinces of Canada as those laws
apply to Canadian domestic issuers. We will qualify as a foreign private issuer
in the United States and, as a foreign private issuer, Lincoln Golds
directors, officers and 10% stockholders be no longer be subject to Section
16(b) of the Exchange Act and we will not be subject to the proxy rules of
Section 14 of the Exchange Act. Furthermore, Regulation FD does not apply
to non-United States companies and will not apply to Lincoln Gold upon the
Continuation.
DESCRIPTION OF BUSINESS
Corporation Organization
Incorporation
We were incorporated under the laws of the State of Nevada
as Braden Technologies, Inc. on February 17, 1999. We have been engaged in
the acquisition, exploration and development of mineral properties since our
inception.
Share Split
We completed a four-for-one split of our common stock effective
March 10, 2004. As a result of this stock-split, our authorized capital increased
from 25,000,000 shares to 100,000,000 shares of common stock. Concurrent with
our stock split, the number of our issued and outstanding shares increased
from 2,850,000 shares to 11,400,000 shares.
Acquisition of Lincoln Gold
We completed the acquisition of Lincoln Gold Corp. (Lincoln
Gold) a Nevada corporation effective March 26, 2004. This acquisition
was completed by our acquisition of all of the issued and outstanding shares
of Lincoln Gold from the former shareholders of Lincoln Gold On closing of
the acquisition, we issued 24,000,000 shares of our common stock to the shareholders
of Lincoln Gold. As a result of this issuance, the number of our issued and
outstanding shares increased from 11,400,000 shares to 35,400,000 shares,
of which approximately 67.80% was owned by the former shareholders of Lincoln
Gold upon the completion of the acquisition.
Merger with Lincoln Gold
Subsequent to our acquisition of Lincoln Gold, we merged
with Lincoln Gold in a parent/ subsidiary merger in April 2004 under Chapter
92A of the Nevada Revised Statutes. We completed the change of our name from
Braden Technologies Inc. to Lincoln Gold Corporation
as part of this merger process.
Overview
We are engaged in the acquisition and exploration of mineral
properties in the State of Nevada. Our plan of operations for the next twelve
months is to conduct exploration of our mineral properties in the State of
Nevada.
We are an exploration stage company. All of our projects are
at the exploration stage and there is no assurance that any of our mining
claims contain a commercially viable ore body. We plan to undertake further
exploration of our properties. We anticipate that we will require additional
financing in order to pursue full exploration of these claims. We do not have
sufficient financing to undertake full exploration of our mineral claims at
present and there is no assurance that we will be able to obtain the necessary
financing.
There is no assurance that a commercially viable mineral deposit
exists on any of our mineral properties. Further exploration beyond the scope
of our planned exploration activities will be required before a final evaluation
as to the economic and legal feasibility of mining of any of our properties
is determined. There is no assurance that further exploration will result
in a final evaluation that a commercially viable mineral deposit exists on
any of our mineral properties.
- 32 -
Mineral Properties and Plan of Operations
We presently hold interests in three groups of mineral properties
in Nevada and one in northern Mexico, as described below:
Name of Property
|
Location
|
Hannah
Property
|
Churchill County, Nevada
|
JDS Property
|
Eureka County, Nevada
|
La Bufa
|
State of Chihuahua, Mexico
|
Pine Grove Property
|
Yerrington, Nevada
|
Subsequent to the completion of our second quarter, we dropped
out interest in the Jenny Hill Property in the Mineral and Nye Counties of
Nevada as a result of unfavorable exploration results.
In addition, we are in the process of negotiating to acquire
a fourth property in Nevada. The property is known as the Pine Grove and is
near Yerington, Nevada. There are two patented claims associated with the
property and two claim holders. We are in the process of drawing up formal
agreements on the claims pursuant to negotiations that have been completed
to date. No expenditures have been made on the claims and none will be made
until the formal agreements are signed.
Our plan of operations is to carry out exploration of our mineral
properties. Our specific exploration plan for each of our mineral properties,
together with information regarding the location and access, history of operations,
present condition and geology of each of our properties, is presented in the
section of this Registration Statement entitled Description of Properties.
All of our exploration programs are preliminary in nature in that their completion
will not result in a determination that any of our properties contains commercially
exploitable quantities of mineralization.
Our exploration programs will be directed by our management
and will be supervised by Mr. Jeff Wilson, our vice-president of exploration.
We will engage contractors to carry out our exploration programs under Mr.
Wilsons supervision. Contractors that we plan to engage include project
geologists, geochemical sampling crews and drilling companies, each according
the specific exploration program on each property. Our budgets for our exploration
programs are set forth in the section of this Registration Statement entitled
Description of Properties. We plan to solicit bids from drilling
companies prior to selecting any drilling company to complete a drilling program.
We anticipate paying normal industry rates for reverse-circulation drilling.
We plan to complete our exploration programs within the periods
specified in the section of this Registration Statement entitled Description
of Properties. Key factors that could delay completion of our exploration
programs beyond the projected timeframes include the following:
(a) poor availability of drill
rigs due to high demand in Nevada and Mexico;
(b) delays caused by permitting
and bonding with the US Bureau of Land Management (BLM) with respect
to drilling programs;
(c) our inability to identify
a joint venture partner and conclude a joint venture agreement where we anticipate
a joint venture will be required due to the high costs of a drilling program;
(d) adverse weather, including
heavy snow; and
(e) our inability to obtain sufficient
funding.
Key factors that could cause our exploration costs to be greater
than anticipated include the following:
- 33 -
(a) adverse drilling conditions,
including caving ground, lost circulation, the presence of artesian water,
stuck drill steel and adverse weather precluding drill site access;
(b) increased costs for contract
geologists and geochemical sampling crews due to increased demand in Nevada;
and
(c) increased drill rig and crew
rental costs due to high demand in Nevada and Mexico.
Our board of directors will make determinations as whether
to proceed with the additional exploration of our Nevada and Mexico mineral
properties based on the results of the preliminary exploration that we undertake.
In completing these determinations, we will make an assessment as to whether
the results of the preliminary exploration are sufficiently positive to enable
us to achieve the financing that would be necessary for us to proceed with
more advanced exploration.
We may consider entering into joint venture arrangements on
several of our mineral properties to provide the required funding to pursue
drilling and advanced exploration of our mineral claims. If we entered into
a joint venture arrangement, we would likely have to assign a percentage of
our interest in our mineral claims to the joint venture partner. The assignment
of the interest would be conditional upon contribution by the joint venture
partner of capital to enable the advanced exploration on the mineral properties
to proceed. We are presently in the process of attempting to locate a joint
venture partner for our mineral claims, but we have not concluded any joint
venture agreements to date. There is no assurance that any third party would
enter into a joint venture agreement with us in order to fund exploration
of our mineral claims.
We plan to continue exploration of our mineral claims for so
long as the results of the geological exploration that we complete indicate
the further exploration of our mineral claims is recommended and we are able
to obtain the additional financing necessary to enable us to continue exploration.
We have renewed all of our Nevada mineral claims by making the required filings
with the BLM by September 1, 2006. We further plan to renew all of our mineral
claims by making the required filings with the BLM by September 1, 2007 except
where we determine to abandon exploration of any mineral claim prior to September
1, 2007. All exploration activities on our mineral claims are presently preliminary
exploration activities. Advanced exploration activities, including the completion
of comprehensive drilling programs, will be necessary before we are able to
complete any feasibility studies on any of our mineral properties. If our
exploration activities result in an indication that our mineral claims contain
potentially commercial exploitable quantities of gold, then we would attempt
to complete feasibility studies on our property to assess whether commercial
exploitation of the property would be commercially feasible. There is no assurance
that commercial exploitation of our mineral claims would be commercially feasible
even if our initial exploration programs show evidence of gold mineralization.
If we determine not to proceed with further exploration of
any of our mineral claims due to results from geological exploration that
indicate that further exploration is not recommended or due to our lack of
financing, we will attempt to acquire additional interests in new mineral
resource properties. Due to our limited finances, there is no assurance that
we would be able to acquire an interest in a new property that merits further
exploration. If we were to acquire an interest in a new property, then our
plan would be to conduct resource exploration of the new property. In any
event, we anticipate that our acquisition of a new property and any exploration
activities that we would undertake will be subject to our achieving additional
financing, of which there is no assurance.
Jenny Hill Property
Kinross completed the drilling of ten reverse circulation drill
holes on our Jenny Hill Property located in the Black Hills, Mineral County,
Nevada. This drilling work was carried out in March and April 2007 and although
gold mineralization was encountered in a majority of the holes the property
was returned to the Company by Kinross who stated that they would not carry
out any additional work. After reviewing the results of the drilling, we concluded
that the property was not meeting our expectations and returned the property
to its original owners. As a result, we no longer own any interest in the
Jenny Hill Property.
New Opportunities
We continue to review new prospective gold exploration opportunities
in Nevada, Utah, Arizona, California and Mexico. We plan to continue to review
new opportunities on a case-by-case basis.
- 34 -
Government Regulations
We will be required to obtain work permits from the United
States Bureau of Land Management (BLM) for any exploration work
on our Nevada mineral properties that results in a physical disturbance to
the land. We will not be required to obtain a work permit for any phase of
our proposed mineral exploration programs that does not involve any physical
disturbance to the mineral claims, such as data compilation, field work and
geochemical surveys. We will be required to obtain work permits for all drilling
operations that we plan to conduct on our mineral properties. Prior to commencing
drilling operations on any of our properties, we must submit a Notice
of Intent to Operate to the BLM and post a bond as security for our
obligation to complete reclamation activities. We will be required by the
Bureau of Land Management to undertake remediation work on any work that results
in physical disturbance to the mineral claims, including drilling programs.
We estimate that the cost of remediation work for our drilling programs will
be approximately $25,000 for each drilling program. The estimated amount of
remediation work is included within our budgets for our exploration programs.
The actual amount of reclamation cost will vary according to the degree of
physical disturbance.
We have made all current Bureau of Land Management filings
for our Nevada properties. All claims are in good standing until September
1, 2007. Applicable county fees have also been paid.
The La Bufa property is an exploration concession granted by
a branch of the Mexican government and is for a three year terms. Thereafter,
the La Bufa property may be converted into an exploitation concession that
would have a term of fifty years. The La Bufa property is presently beginning
the second year of the term of its exploration concession. An annual fee of
$1.25 pesos per hectare is due to the Mexican federal government. The net
area of the La Bufa exploration concession is 1040.75 hectares, thereby requiring
an annual payment of $1300.94 pesos. These amounts are subject to change and
adjustment by the Mexican authorities.
Competition
We are a junior mineral resource exploration company. We compete
with other mineral resource exploration companies for financing and for the
acquisition of new mineral properties. Many of the mineral resource exploration
companies with whom we compete have greater financial and technical resources
than those available to us. Accordingly, these competitors may be able to
spend greater amounts on acquisitions of mineral properties of merit, on exploration
of their mineral properties and on development of their mineral properties.
In addition, they may be able to afford more geological expertise in the targeting
and exploration of mineral properties. This competition could result in competitors
having mineral properties of greater quality and interest to prospective investors
who may finance additional exploration and development. This competition could
adversely impact on our ability to achieve the financing necessary for us
to conduct further exploration of our mineral properties.
We will also compete with other junior mineral exploration
companies for financing from a limited number of investors that are prepared
to make investments in junior mineral exploration companies. The presence
of competing junior mineral exploration companies may impact on our ability
to raise additional capital in order to fund our exploration programs if investors
are of the view that investments in competitors are more attractive based
on the merit of the mineral properties under investigation and the price of
the investment offered to investors.
We will also compete with other junior and senior mineral companies
for available resources, including, but not limited to, professional geologists,
camp staff, helicopter or float planes, mineral exploration supplies and drill
rigs.
Research and Development Expenditures
We have not spent any amounts on research and development activities
since our inception. Our planned expenditures on our exploration programs
are summarized under the section of this Registration Statement entitled Description
of Properties.
Employees
We have two employees, namely Paul Saxton, our chief executive
officer and chief financial officer, and Jeffrey Wilson, our vice-president
of exploration. We carry out our exploration programs through contracts with
third parties, including geologists, engineers, drilling companies.
- 35 -
Subsidiaries
We do not have any subsidiaries.
DESCRIPTION OF PROPERTIES
We maintain our head office located at Suite 350 885
Dunsmuir Street, Vancouver, B.C., V6C 1N5. These premises are located at the
business premises of our president, Mr. Paul Saxton. We pay a proportionate
share of rent and administrative expenses associated with these premises.
Our operations office is located at 325 Tahoe Drive, Carson
City, Nevada, 89703. Our operations office is located in the home of Mr. Jeff
Wilson, our vice-president of exploration. These premises are provided by
Mr. Wilson at no cost to us.
Our current four groups of mineral properties located in the
State of Nevada are described below:
HANNAH PROPERTY, CHURCHILL COUNTY, NEVADA
The Hannah Property is located approximately 55 miles east
of Reno, Nevada in the southern portion of the Trinity Range north of Interstate
80 in Churchill County. Access is east from Reno via Interstate 80 and then
north on gravel and dirt roads from Hot Springs Flat to the Property. A map
showing the location of and access to the Hannah property is presented below:
- 36 -
The Hannah property is comprised of twenty-three (23) unpatented
lode claims covering approximately 460 acres (0.72 sq. miles) in Churchill
County, Nevada.
We have an option to acquire a 100% interest in the claims
comprising the Hannah project, subject to a net smelter royalty, pursuant
to an option agreement dated December 24, 2003 between us and Larry and Susan
McIntosh of Gardnerville, Nevada, as optionors. We have the option to acquire
a 100% interest in the Hannah property by making aggregate payments to the
optionors in the amount of $210,000. We may exercise this option at any time
prior to the ten year anniversary of the effective date of the agreement,
being December 24, 2013. We are obligated to make the following option payments
in order to maintain our option agreement in good standing:
Date
of Payment
|
Amount of Option Payment
|
December 24, 2003
|
$5,000 (paid)
|
January 10, 2005
|
$5,000 (paid)
|
January 10, 2006
|
$10,000 (paid)
|
January 10, 2007
|
$15,000 (in quarterly payments) First
payment has been made
|
January 10, 2008
|
$25,000
|
January 10, 2009
|
$25,000
|
January 10, 2010
|
$25,000
|
January 10, 2011
|
$25,000
|
January 10, 2012
|
$25,000
|
January 10, 2013
|
$50,000
|
We will be deemed to have exercised the option upon completion
of the above option payments at which time we will be entitled to a 100% interest
in the Hannah property, subject to the payment of a net smelter royalty to
the optionors. The net smelter royalty will be calculated as 3% of net smelter
returns, as defined in the option agreement, if the price of gold is less
than or equal to $400 per ounce, and 4% of net smelter returns if the price
of gold is greater than $400 per ounce. If we exercise the option, we will
have the right to reduce the net smelter royalty by 1%, up to a maximum of
2%, upon the payment of $500,000 to the optionors for each 1% of reduction
as set out in the table below:
Gold Price ($ per ounce)
|
Net Smelter Royalty
payable on execution
of the Agreement
|
Net Smelter Royalty
payable after first
payment of $500,000
|
Net Smelter Royalty
payable after second
payment of $500,000
|
Less than or equal to $400
|
3%
|
2%
|
1%
|
Greater than $400
|
4%
|
3%
|
2%
|
If we complete a positive feasibility
study for the development or mining of mineral products on the Hannah property
and obtains all government approvals, consents, licenses and permits to construct,
develop or operate a mine on the Hannah property prior to January 10, 2013,
we will be obligated purchase the Hannah property prior to the commencement
of mining of mineral products. In this event, the purchase price for the Hannah
property shall be the sum of all unpaid option payments due to the optionors
through January 10, 2013.
We have the exclusive right to conduct exploration on the Hannah
property during the term of the option agreement, provided that we make the
required option payments. We are obligated to make all federal and county
claim maintenance fees in a timely manner to keep the claims in good standing
during the term of the option agreement.
- 37 -
In the event that we do not make any required option payment,
then the optionors will be entitled to terminate the agreement and we will
lose our interest in the property. However, we will not have any obligation
to make further option payments in the event of termination due to our inability
to make any required option payment. We may surrender our interest in the
property and terminate the agreement at our election upon written notice to
the optionors. In this event, the optionors will retain all option payments
paid pursuant to the agreement.
We have paid $3,075 for BLM and County annual claim maintenance
fees that were required to be paid by October 1, 2006. We will be required
pay approximately $3,075 for BLM and County annual claim maintenance fees
by September 1, 2007. We are not obligated to complete any minimum exploration
expenditures or other work commitment in order to maintain our option on the
Hannah property.
Various old shafts, adits, and numerous small prospects are
on the Hannah Property from prospecting in the early 1900s. Cominco
was active in the general area in the 1960s and Chevron drilled three
scattered holes on the claim block in the 1980s. None of Chevrons
holes tested the Hannah gold target. Four backhoe trenches were dug by Cordex
in the late 1990s, however no follow-up work was conducted. NDT Ventures
held the property in 2002 but conducted no significant work. A total of 50
soil samples and 329 rock-chip samples have been collected from the property
and assayed.
4.
|
Present Condition of the Property and Current State
of Exploration
|
The Hannah Property is in the early stage of exploration and
presently contains no known gold or silver resources. Our current state of
exploration consists of geologic mapping, soil and rock-chip sampling, a ground
magnetometer survey, and 11 reverse-circulation drill holes (4,815 ft) drilled
by the Company in 2005. Shallow ore-grade gold and silver mineralization is
present in two adjacent drill holes.
There is no plant or equipment on the Hannah Property other
than some scattered remnants of past prospecting. The property consists of
barren land with no improvements with the exception of dirt roads.
We have no formal reports on the Hannah Property. However,
we do have all soil and rock-chip sample maps and results, a preliminary geologic
map, a ground magnetometer map, and drill hole logs and assay results from
11 reverse-circulation drill holes.
During 2006, we conducted a ground magnetometer survey in the
vicinity of mineralized drill holes H-1 and H-11 which were drilled in a northwest-trending,
highly oxidized shear zone. Results show a magnetic high to the northwest
buried under pediment gravels and a magnetic low to the southeast beneath
alluvium. The abrupt transition area from low to high magnetic response offers
a possible structural intersection between contrasting rock types. Structural
intersections are potential gold-silver targets.
Provided adequate funding is available, we would like to conduct
offset drilling from the two holes that encountered ore-grade gold-silver
mineralization. However, we are also showing the property to multiple juniors
who have expressed potential interest in participating in a joint venture
on the Hannah Property. To date, we have not concluded any joint venture agreement
for the Hannah Property. It is important to note that there is no work
obligation in the property option agreement. Owing to this situation,
the property may sit idle until a joint venture partner is acquired, provided
that we continue to make the payments required under the option agreement.
We have determined that follow up drilling is warranted on
the Hannah Property based on the results of the initial eleven hole drilling
program that we completed on the Hannah Property. We did not complete any
exploration work on the Hannah property in the six months of 2007. We have
been talking to various potential joint venture candidates to take on the
work noted below to earn-in to the property. If we do not find a joint venture
partner this work will probably not be completed.
If we are successful in finding a joint venture partner, we
anticipate our plan of exploration for the Hannah Property will be as follows:
- 38 -
Description of Phase of Exploration
|
Description of Exploration Work Required
|
Acquire Joint Venture Partner
|
Execute an Exploration Agreement with Option
to Joint Venture with a potential joint venture partner (a JV
Partner)
|
Exploration Trenching
|
JV
Partner conducts trenching across target with an excavator
|
Phase 2 Drilling
|
JV
Partner drills 5 to 10 angle reverse circulation drill holes
|
Bottle Roll Metallurgical
Tests
|
JV
Partner conducts metallurgical tests on select drill cuttings
|
Data Evaluation
|
Evaluate results
|
The anticipated timetable and estimated budget for completion
for each stage of exploration is as follows:
Stage of Exploration
|
Anticipated Timetable for
Completion
|
Estimated Cost of
Completion
|
Acquire Joint
Venture Partner
|
4
th
Quarter 2007
|
$3,000
|
Exploration Trenching
|
4
th
Quarter 2007
|
$0
(Partners Cost)
|
Phase 2 Drilling
|
2
nd
Quarter 2008
|
$0
(Partners Cost)
|
Bottle-Roll Metallurgical
Tests
|
3
rd
Quarter 2008
|
$0
(Partners Cost)
|
Data Evaluation
|
3
rd
Quarter 2008
|
$2,000
|
All significant work is expected to be conducted by a joint
venture partner using qualified contractors.
The Hannah Property lies in exotic metamorphic terrain comprised
of Triassic metavolcancis (greenstones) and various Cretaceous intrusive rocks
and Tertiary lake beds (no formation names). A highly oxidized, northwesttrending,
gold-silver-bearing shear zone cuts the metavolcanic rocks and is exposed in an
outcrop approximately 50 to 100 ft wide and 300 ft long at the edge of the pediment.
Pediment and alluvial gravels cover the shear zone to the northwest and southeast.
The altered shear zone consists of hydrothermally altered breccia that contains
conspicuous iron-oxides and bleaching. Two drill holes cut the zone. Angle hole
H-1 (-45º) encountered 35 ft @ 0.016 opt gold from 40 to 75 ft and angle
hole H-2 (-60º) encountered 10 ft @ 0.094 opt gold + 5.1 opt silver from
15 to 25 ft. This mineralization is believed to continue under gravels to the
northwest and southeast. Similar, although much narrower, shear zones occur on
the property and extend up to 1,200 ft in strike length.
- 39 -
JDS PROPERTY, EUREKA COUNTY, NEVADA
The JDS property is located in central Nevada within the Cortez
Trend portion of the Battle Mountain-Eureka Mineral Belt, approximately
40 miles northwest of the small mining town of Eureka. The property is in Denay
Valley adjacent to the northern end of the Simpson Park Mountains. Access is
fair to good during good weather via the Tonkin Road (dirt/gravel)
that traverses through the property. A map showing the location of and access
to the JDS property is presented below:
We are the owner of the seventy-seven (77) unpatented lode
claims comprising the JDS project which covers approximately 1,540 acres (2.04
sq miles). We staked and recorded the mineral claims. These mineral claims
are registered in our name and are not subject to underlying lease payments
or royalties. The JDS property is subject only to annual claim maintenance
fees payable to the BLM and Eureka County. We must pay approximately $12,500
in BLM and Eureka County annual claim maintenance fees by September 1, 2007
in order to maintain our interest in these properties.
Effective May 15, 2006, we entered into a letter agreement
on the JDS property for an Exploration Agreement with Option to Form Joint
Venture with Golden Odyssey Exploration (TVX: GOE). The earn-in terms are
presented below:
Earn-In Period
|
Required Expenditures
|
Percent Earned Interest upon
Completion of Required
Expenditure
|
18 months from Letter Agreement
|
6000 ft of exploration drilling
|
51%
|
To be determined
|
$1,500,000
|
14%
|
To be determined
|
$2,000,000
|
10%
|
|
|
Total 75%
|
- 40 -
Under the terms of the letter agreement, Golden Odyssey is
obligated for all annual claim maintenance fees payable to the BLM and to Eureka
County.
There have been no previous operations of any type on the property.
4.
|
Present Condition of the Property and Current State
of Exploration
|
In 2005, we completed a mercury soil gas survey and a detail
gravity survey line over the northwest portion of the claim block. This area
is considered the most prospective for discovery of a Carlin-type gold deposit
hosted in lower plate carbonate rocks.
There is no plant or equipment of the JDS Property. The property
consists of barren land with no improvements other than a Eureka County dirt
road that crosses the property and various cattle fences.
We presently have one geologic report on the JDS property that
was written by Kenneth D. Cunningham, Nevada Professional Geologist PG-1636,
dated February 9, 2004. The report reviews the potential for Carlin type gold
deposits on the JDS Property. We have all raw data and maps for the mercury
soil gas survey and for the detail gravity survey line in the same general
area. We also have various summary maps and property diagrams.
Work in 2006 consisted largely of farm-out efforts by the Company
which were consummated in May 2006 when we entered into the letter agreement
with Golden Odyssey. Golden Odyssey has initiated drill permitting with the
BLM and have located an available drill rig. Golden Odyssey initiated the
drill program during the second quarter of 2007.
Property exploration during 2007 will be conducted by Golden
Odyssey Exploration.
Description of Phase of
Exploration
|
Description of Exploration Work Required
|
Phase 1 Drilling
|
Golden Odyssey to drill 6,000 ft of reverse-circulation
drilling in various locations
|
Data Evaluation
|
Evaluate drill data
|
The anticipated timetable and budget for the Companys
share of work is listed below:
Stage of Exploration
|
Anticipated Timetable for
Completion
|
Estimated Cost of Completion
|
Phase 1 Drilling
|
4
th
Quarter 2007 1
st
Quarter 2008
|
$0 (Golden Odysseys Cost)
|
Data Evaluation
|
2
nd
Quarter 2008
|
$5,000
|
The JDS Property lies within the Cortez Trend in the southern
portion of the Battle Mountain-Eureka Mineral Belt. Although covered by valley
fill, the geology of the JDS Property is believed to be an extension of favourable
lower plate rocks of the Roberts Mountains Thrust that are known
to host large Carlin-type gold deposits. Potential Devonian host rocks are
exposed in the nearby Simpson Park Mountains and are believed concealed under
shallow cover at JDS. Similar Devonian strata host very large gold deposits
at Pipeline and Cortez to the northwest of the JDS Property. Available gravity
data at JDS suggest shallow depth to bedrock and north-trending faults that
converge in the northwestern portion of the claim block. The combination of
favourable lower plate bedrock and converging faults indicate
exploration potential for Carlin-type gold deposit(s). A strong mercury soil
gas anomaly has also been identified in the northwest portion of the JDS Property.
- 41 -
LA BUFA PROPERTY, Chihuahua, Mexico
The La Bufa exploration concession is located in the southwest
extremity of the state of Chihuahua, Mexico and is centered on the small town
(mining district) of Guadalupe y Calvo in the Sierra Madre Occidental. The
single exploration concession adjoins and surrounds other concessions within
the district. Net area is 2,291.26 hectares (approximately 5,661.7 net acres).
The nearest commercial airport is in the city of Chihuahua, 480 km by road
from the property. All-season vehicle access to the property is excellent.
The town of Guadalupe y Calvo is the terminus of the paved, well-maintained
Mexico Highway 24 which winds 270 kilometers from mining town of Hidalgo del
Parral to the northeast. Access on the concession is via dirt roads. A map
showing the location and access to the La Bufa property is presented below.
The La Bufa Property consists of three contiguous Mexican Exploration
Concessions, La Bufa (No. 219036), La Bufa 1 (No. 222724), and La Bufa 2 (No.
223165) totalling 1,916.21 hectares, as follows:
Name
|
Type
|
Title
|
File
|
Area Hect.
|
Issued
|
Expires
|
Tax Rate
|
Pesos
|
$
|
La Bufa
|
Explor.
|
219036
|
16/31696
|
1040.7594
|
31/Jan/03
|
30-Jan-09
|
$6.0100
|
$6,256
|
$585
|
La
Bufa
|
Explor.
|
222724
|
16/32275
|
485.0000
|
27-Aug-04
|
26-Aug-10
|
$6.0100
|
$2,916
|
$273
|
La Bufa
|
Explor.
|
223165
|
16/32529
|
765.5000
|
28-Oct-04
|
27-Oct-10
|
$6.0100
|
$4,602
|
$430
|
The La Bufa Property consists of three contiguous Mexican concessions
issued by the Direccion General de Minas in 2003 and 2004 to Minera Gavilan,
S.A. de C.V., a Mexican subsidiary controlled 100% by Almaden Minerals Ltd.
a publicly traded Canadian junior listed on the Toronto Stock Exchange (AMM).
- 42 -
On August 8, 2005, we executed a letter of intent to joint
venture the property with Almaden whereby we can earn a 51% interest in the
property by undertaking exploration expenditures in the minimum amount of $2.0
million over 4 years. We can earn an additional 9% interest by undertaking exploration
expenditures in the minimum amount of an additional $1.0 million over a further
18 months. As consideration, we issued to Almaden 50,000 shares of our common
stock upon signing of the letter of intent and have agreed to issue to Almaden
60,000 shares on the first anniversary, 70,000 shares on the second anniversary,
80,000 shares on the third anniversary, 90,000 shares on the fourth anniversary,
and 100,000 shares upon our electing to acquire the additional 9% interest.
In all, we may acquire a 60% interest in the La Bufa property by undertaking
$3.0 million in exploration work and issuing 450,000 shares of our common stock
to Almaden, with Almaden retaining a 40% interest.
On April 12, 2007, we entered into an option agreement (the
Option Agreement) with Almaden to acquire a 60% interest in the
La Bufa Property. The Option Agreement supersedes and replaces the August
8, 2005 letter of intent to joint venture the property with Almaden.
Under the Option Agreement, we will be entitled to earn a 60%
interest in the La Bufa Property by (a) undertaking a work program on the
Bufa Property aggregating $3,500,000 in expenditures for mining work, and
(b) issuing an aggregate of 1,550,000 shares of our common stock to Almaden
pursuant to the terms of the Option Agreement.
The $3,500,000 of expenditures for mining work must be incurred
in accordance with the following schedule:
we must spend $500,000 in expenditures (which must include drilling) on the
La Bufa Property by the first anniversary of the effective date of the Option
Agreement (the Effective Date). This obligation is a firm commitment;
we must spend an additional $750,000 on the La Bufa Property by the second
anniversary of the Effective Date;
we must spend an additional $1,000,000 on the La Bufa Property by the third
anniversary of the Effective Date; and
we must spend an additional $1,250,000 on the La Bufa Property by the fourth
anniversary of the Effective Date.
The 1,550,000 shares must be issued in accordance with the following schedule:
150,000 shares within 5 business days from the Effective Date;
200,000 shares on or before the first anniversary of the Effective Date;
200,000 shares on or before the second anniversary of the Effective Date; and
1,000,000 shares on or before the fourth anniversary of the Effective Date.
During the term of the Option Agreement, we will be obligated
to maintain the La Bufa Property in good standing by completing and filing,
or making payment in lieu thereof, of all necessary assessment work on the
La Bufa Property and by paying all taxes.
Upon the completion of the expenditure requirements and the share
issue requirements as set forth in Option Agreement, we shall be deemed to have
earned an undivided 60% interest in the La Bufa Property. Upon our earning an
interest in the La Bufa property, all operations shall be conducted by us and
Almaden on a joint venture basis. The basic terms of the joint venture are prescribed
in the Option Agreement.
We have the right to terminate the Option Agreement at any time
by giving 30 days notice of termination to Almaden. Upon termination by us,
we will have no further obligation to issue any shares or incur any further
expenditures for mining work on the La Bufa Property, other than in respect
of obligations that had accrued to the date of termination.
The shares will be issued to Almaden in accordance with Rule
903 of Regulation S of the Securities Act of 1933 (the Act). We
have completed the issuance of the initial 150,000 shares to Almaden.
- 43 -
Gold was discovered in the Guadalupe y Calvo district in 1835
with extended periods of production up to 1939. The gold-silver veins were
exploited largely by underground operations. A mint was constructed in 1844
by the Mexican government to take advantage of the precious metals production
in the district.
Modern exploration work in the district has centered largely
in the area of past production which is surrounded completely by the La Bufa
concessions. Although the vein system extends beyond the area of the old workings,
little exploration work has been conducted. Asarco drilled two angle core
holes in the 1970s on La Bufa ground with both holes encountering ore-grade
gold and silver. A previous joint venture on the La Bufa Property between
Almaden Minerals Ltd. and Grid Capital Corporation resulted in the drilling
of five angle core holes (666.15 m) in three locations during December 2004.
Hole GUD04-03 returned encouraging gold-silver-lead-zinc assays from multiple,
narrow-vein intercepts (Almaden Minerals News Release, Jan. 24, 2005). However,
Grid Capital backed out of the joint venture for undisclosed reasons. We have
since entered into a new joint venture with Almaden to explore the La Bufa
concession.
4.
|
Present Condition of the Property and Current State
of Exploration
|
The La Bufa Property is in the early stage of exploration and
presently contains no known gold or silver resources. There is no plant or
equipment on the property. The concessions encompass the town of Guadalupe
y Calvo. Potential for gold-silver veins exists primarily along the eastern
side of the town in low, forested and brush-covered hills.
In 2006, the Company conducted aerial photography over the
entire district for the purpose of generating a topographic base map suitable
for detail geologic mapping. A Mexican survey crew was contracted to survey
control points required to produce the topographic maps. However, heavy snow
delayed the survey crew from access to the survey area. Surveying is now planned
for the 1
st
quarter of 2007.
The Company also conducted a soil sampling program over the
most prospective portion of the La Bufa Property in 2006. The survey covered
approximately 1600 meters (5,250 ft) of potential vein strike. Results reveal
at least eight significant gold anomalies that warrant follow-up work.
The 2007 exploration plan is presented in the following table:
Description of Phase of
Exploration
|
Description of Exploration Work Required
|
Base map construction
|
Obtain
ground control points; submit data; generate maps
|
Detail geologic
mapping
|
Map
& sample quartz veins and geology onto new base map
|
Select drill targets
|
Compile geologic mapping with soil & rock-chip geochem data
|
Acquire drilling
permit
|
Contract professional landman to acquire drill permit
|
Construct drill
pads
|
Hire
local labor and construct drill pads; recondition roads
|
Phase 1 core drilling
|
Hire
drill contractor and drill 8 angle core holes for 250 m each
|
Evaluate drilling
data
|
Compile drilling
data with surface data
|
- 44 -
The anticipated timetable and budget for the 2007 exploration
plan is presented in the following table.
Stage of Exploration
|
Anticipated Timetable for
Completion
|
Estimated Cost of Completion
|
Base map construction
|
2
nd
Quarter 2007
|
$14,000
|
Detail geologic
mapping
|
2
rd
Quarter 2007
|
$43,000
|
Select drill targets
|
3
rd
Quarter 2007
|
$3,000
|
Acquire drilling
permit
|
4
th
Quarter 2007
|
$10,000
|
Construct drill
pads
|
4
th
Quarter 2007
|
$16,000
|
Phase 1 core drilling
|
4
th
Quarter 2007
|
$287,000
|
Evaluate drilling
data
|
1
st
Quarter 2008
|
$7,000
|
|
|
Total: $380,000
|
There are several key factors that can delay completion of
the exploration program as follows:
Factors that could cause exploration costs to be greater than
anticipated are largely from drilling conditions and include the following:
The exploration program will be managed on site by Richard
Bybee, P. Geo. State of Nevada (PG-1505) with extensive experience in Latin
America. Our vice-president of exploration, Jeffrey L. Wilson, P. Geol. State
of Utah, will oversee the project. Additional seasoned geologists will be
used as warranted. No contracts have been let at this time.
The La Bufa Property lies within the Guadalupe y Calvo district which is one
of many epithermal gold-silver districts in the Sierra Madre Occidental of western
Mexico. The Sierra Madre Occidental is characterized by deeply incised mountains,
and has a total relief of about 3,000 meters. Most of the bedrock exposed in
the vicinity of Guadalupe y Calvo consists of an upper volcanic series of bedrock
which is commonly hundreds of meters in thickness. However, erosional exposures
of a lower volcanic series of rock, which is favourable to mineralization
and occurs in ranges up to 1,000 meters in thickness, are exposed
along the eastern flank and central portions of the northwest-trending Guadalupe
River Valley that traverses the La Bufa concession. The contact between the
upper and lower volcanic series of rock is rarely exposed.
District mineralization occurs as northwest-trending, epithermal
gold-silver-lead-zinc quartz veins and breccia veins with local attending stockworks.
The veins occur only in the lower volcanic series. Veins typically range from
1 to 3+ meters in true thickness and are generally steeply dipping but may also
have shallow dips. Historic production in the district encountered local mineralized
zones measuring tens of meters in thickness. Past mining on the Rosario vein
extended for a continuous strike length of over 600 meters on seven levels.
The vein system appears to consist of multiple strands and extends south-eastward
for a distance of at least 1700 meters across the La Bufa Concession. The main
paved road entering the town has a road cut that exposes a 70-meter zone containing
multiple quartz veins.
- 45 -
Asarco drill holes on the La Bufa Property encountered encouraging
results. Hole H-1 hit 1.4 meters grading 9.0 grams per tonne gold and 324 grams
per tonne silver. Hole H-2 hit 1.4 meters grading 6.3 grams per tonne gold and
280 grams per tonne silver. Grid Capital drilled four core holes with their
best intercept of 1.6 meters grading 9.0 grams per tonne gold and 447 grams
per tonne silver.
PINE GROVE PROPERTY
We have recently acquired 100% interest in two sets of patented
lode mining claims and one set of unpatented lode mining claims near Yerington,
Nevada. In addition, we have staked 90 claims that surround and encompass
these claims. The total claim block is being called the Pine Grove property
and is located approximately 20 miles south of Yerington and is accessed by
excellent roads in the foothills of the Basin and Range physiographic province.
Our interests in both the patented and unpatented lode mining claims are subject
to net smelter royalty interests and, in the case of the patented lode mining
claims, the obligation to make lease payments to the owners.
The Pine Grove property is located on the eastern flank of
the Pine Grove Hills, in Sec 36, T10N, R25E, and Sections 31 and 32, T10N,
R26E, Sections 5 and 6, T9N, R25E, Mount Diablo Base and Meridian, Toiyabe
National Forest, Lyon County, Nevada.
The property is located 20 miles due south of Yerington, NV
via State Highway 208 (paved) to the East Walker Road (gravel) to the Pine
Grove Canyon drainage. Lyon County is one of the leading agricultural counties
in Nevada, producing 23% of Nevada's agricultural products. At 4,380 feet
above sea level the area is typical of basin and range topography lush
farmland surrounded by high desert terrain.
A map showing the location of and access to the Pine Grove property
is presented below:
2.
|
Ownership Interest
|
|
|
Our interest in the Pine Grove property is comprised
of the following interests:
|
|
(i)
|
we are the owned of 90 unpatented contiguous lode claims
covering 1859.5 acres that were staked by us;
|
|
|
|
|
(ii)
|
we are party to a mining lease option agreement with
the Wheeler Mining Company, the legal owner of the so-called Pope Claims
comprising the Wheeler patent claim (73.705 ac) and the Wheeler Millsite
patent claim (4.989 ac). The terms of this agreement include advance royalty
payments of US$10,000 in the first year, and US$30,000 per year in subsequent
years, along with a sliding scale net smelter return (NSR) royalty ranging
from 3% at a gold price of US$450 to 7% at a gold price of US$701. Under
the terms of this agreement, we are obligated to deliver a feasibility
study within 24 months;
|
- 46 -
|
(iii)
|
we are party to a mining lease option agreement with
Lyon Grove, LLC, the legal owner of the so-called Bond Claims comprising
the Wilson patent claim (33.781 ac). The terms of this agreement include
advance royalty payments of US$10,000 in the first year, and US$25,000
per year in subsequent years, along with a sliding scale net smelter return
(NSR) royalty ranging from 3% at a gold price of US$450 to 7% at a gold
price of US$701. Under the terms of this agreement, we are obligated to
deliver a feasibility study within 24 months. This agreement includes
a 6 square mile area of interest that includes a 5% NSR payment on any
new claims put into production.
|
|
|
|
|
(iv)
|
we are the owners of the Harvest lode claim (20.66 ac),
the Winter Harvest lode claim (20.66 ac), and the Harvest fraction lode
claim (20.66) that we acquired pursuant to a purchase agreement with Harold
Votipka, the former legal owner of the so-called Harvest Claims comprising.
The purchase price was US$12,000 and includes a 5% NSR royalty on production.
|
The patented claims, named the Wheeler and the Wilson, have had
mining activity in the past. Gold was discovered in 1866 and the area was mined
extensively until 1872 with intermittent production until 1915.
In 1969, Quintana Minerals of Houston, TX reportedly was interested
in the copper potential of the property and undertook a program of surface mapping
and completed one drill hole. The results of that program are not known, and
the log/assays from the one drill hole are presently not available.
In 1981, Lacana Mining Corporation of Toronto, ON explored the
property for gold. This work consisted primarily of surface mapping. No further
details on Lacanas work program or results are available.
In 1988 the property was optioned by Teck Resources of Vancouver,
BC. Teck undertook the most extensive exploration program to date, drilling
185 holes for a total of 68,000 feet, and expenditures of US$2.2 million. Teck
dropped their option 1992.
The only records of drilling on the property relate to an exploration
program undertaken by Teck Resources from 1988 to 1992. During this period Teck
drilled some 160 surface reverse circulation holes comprising 53,000 ft. as
outlined in Table 13.1 below. Another 17 drill holes were drilled underground
at the Wheeler deposit, and reportedly another 16 surface holes were drilled
in the surrounding district although the logs and locations are unknown. The
drilling activity is summarized in the following table:
Table 13.1
Teck Resources Drilling at Pine Grove
Location
|
Type
|
No. of Holes
|
Total Footage
|
Wilson Mine
|
RC*
|
62
|
18,775
|
Wheeler Mine
|
RC
|
98
|
34,225
|
Underground
|
Unknown
|
17
|
3,000
|
Total
|
|
177
|
56,000
|
4.
|
Present Condition of the Property and Current State
of Exploration
|
The Pine Grove Property is in the early stage of exploration and presently contains
no known gold or silver resources. There is no plant or equipment on the property.
We are planning a drill program to test three target areas that
surround and are adjacent to the Wilson and Wheeler patented claim blocks. The
drill program is planned to start later this year. In addition, we plan to drill
four large sized holes to obtain material for metallurgical test work. The cost
of our planned drilling program is estimated at $400,000. In addition, we plan
to complete resource modelling work which we estimate will cost $100,00. The
resource modelling work will include constructing a geological model for the
deposits identified on the Pine Grove project based on the results of drilling
and geological mapping
- 47 -
Two deposits of mineralization have been identified on the Pine Grove property,
namely the Wheeler deposit and the Wilson deposit, as follows:
Wheeler Deposit Geology
The deposit at Wheeler comprises a elliptical shaped tabular
zone measuring some 400 m by 200 m in plan, by about 90 m in thickness. The
deposit consists of one to three subparallel, irregular zone of anomalous gold
mineralization from 3 m to over 15 m thick. Two sets of quartz veins have been
identified at the Wheeler deposit. The first set does not contain appreciable
gold mineralization, however, the second does.
Wilson Deposit Geology
Mineralization at Wilson is confined to discrete tabular zones.
Two or three, and in places up to six, separate, stacked mineralized zones from
3 to 20 m thick are separated by thicker, un-mineralized zones. The deposit
is traceable for 150 m down-dip, and the mineralized zones extend virtually
flat for at least another 350 m down-dip to the north where gold bearing veins
have been encountered in drill holes. The mineralization at Wilson is much less
disrupted than at Wheeler due to a lack of significant shearing events. Alteration
at Wilson is similar to that found at Wheeler, although the intensity is much
weaker.
GLOSSARY OF TECHNICAL TERMS
Mexico Property:
Term
|
Definition
|
Epithermal
|
A hydrothermal mineral deposit formed within
1 km of the surface at temperatures of 50°-200°C, occurring
mainly as veins
|
Quartz Breccia
|
Quartz
vein material that is broken into angular fragments
|
Quartz Stockworks
|
A three-dimensional network of planar to irregular
quartz veinlets closely enough spaced that the whole mass can be mined
|
gpt
|
Grams
per metric tonne
|
Volcanics
|
Generally finely crystalline or glassy igneous
rocks ejected explosively or extruded at or near the Earths surface
through volcanic action
|
Dacite
|
Fine-grained extrusive volcanic rock with the
same composition as andesite but having less calcic plagioclase and more
quartz
|
Andesite
|
A dark to grayish colored, fine-grained extrusive
volcanic rock that may contain phenocrysts of sodic plagioclase
|
Angular Unconformity
|
Contact between two groups of rocks where the
underlying rocks dip in a different angle that the younger overlying rocks
|
Tuff
|
A general
term for consolidated volcanic ash
|
Artesian Water
|
Ground
water under pressure
|
Caving Ground
|
A drilling term that refers to rock formations
that break when penetrated by a drill and produce rock fragments that
may block the borehole and/or contaminate the drill cuttings
|
Lost Circulation
|
The
loss of drilling fluids through open faults, fractures, and/or permeable
rock
|
- 48 -
Nevada Properties:
Term
|
Definition
|
Artesian water
|
Ground
water under pressure
|
Carboniferous
|
Geologic Period referring to rocks 286 to 360 million years
old
|
Carlin-type deposit
|
Gold deposits hosted in sedimentary rocks with
disseminated gold occurring as micron or submicron particles (invisible
gold), typically with very little to no silver very large deposits
of this type are found in the Carlin Trend in north-central
Nevada.
|
Caving ground
|
A drilling term that refers to rock formations
that break when penetrated by a drill and produce rock fragments that
may block the borehole and/or contaminate the drill cuttings
|
Cove-type deposit
|
Gold-silver deposits hosted in sedimentary rocks
with significant amounts of precious metals mineralization hosted in veinlets
the Cove deposit is located in the northern portion of the Battle
Mountain-Eureka Trend.
|
Cretaceous
|
Geologic Period referring to rocks 66.4 to 144 million years
old
|
Devonian
|
Geologic Period referring to rocks 360 to 408 million years
old
|
Dikes and sills
|
Generally narrow bodies of igneous rock implaced
as magma along faults across bedding (dike) or along zones parallel to
bedding (sill)
|
Geochemical survey
|
A sampling program focusing on trace elements
that are commonly found associated with mineral deposits common
trace elements for gold are mercury, arsenic, and antimony.
|
Geologic mapping
|
The process of mapping geologic formations, associated
rock characteristics and structural features
|
Geophysical survey
|
The systematic measurement of electrical, gravity,
seismic, magnetic, or other properties as a tool to help identify rock
type(s), faults, structures and minerals
|
Golconda thrust
|
A major,
flat-lying fault that has transposed older rocks over younger rocks
|
Gossanous
|
An iron-bearing material that typically overlies
a sulfide-bearing mineralized zone it forms by the oxidation and
leaching out of sulfur and most metals leaving hydrated iron oxides.
|
Gravimeter survey
|
A survey using a sensitive instrument that can
detect density differences in geologic formations
|
Hematite breccia
|
A rock composed of angular rock fragments with
conspicuous iron-oxide minerals in the matrix and fractures
|
Intrusive rock
|
Any
igneous rock (e.g. granite) that was implaced as a magma
|
- 49 -
Jurassic
|
Geologic Period referring to rocks 144 to 208 million years
old
|
Lost circulation
|
The loss
of drilling fluids through open faults, fractures, and/or permeable rock
|
Magnetometer survey
|
A survey using a sensitive instrument that can
detect the distortion of the Earths magnetic field by different geologic
formations
|
Mercury soil gas survey
|
A geochemical sampling survey in which mercury
vapor is sampled and measured mercury is typically associated with
gold deposits in the Great Basin and is a pathfinder for finding
gold deposits.
|
Metamorphic rock
|
Pre-existing rock that has been physically changed
by temperature, pressure, shearing stress, or chemical environment, generally
at depth in the Earths crust
|
Pathfinder elements
|
Trace elements that are typically associated with
gold deposits common pathfinder elements are mercury, arsenic and
antimony.
|
Penn-Permian
|
Geologic Periods referring to rocks ranging from 245 to 320
million years old
|
Permo-Triassic
|
Geologic Periods referring to rocks ranging from 208 to 286
million years old
|
Reverse-circulation drilling
|
A drilling method that minimizes contamination
of drill cuttings
|
Roberts Mountains
Thrust
|
A major,
flat-lying fault that has transposed older rocks over younger rocks
|
Rock-chip sampling
|
The process
of chipping off rock samples from outcrops for chemical analysis
|
Schist
|
A metamorphic rock that is highly foliated and
readily splits into flakes or slabs commonly due to a high content of mica
|
Skarn deposit
|
Mineralization formed at the flanks and in contact with intrusive
rocks
|
Stratigraphy
|
The sequence
of stratified rocks
|
Subcrop
|
Bedrock just below the surface and usually contributing
weathered rock material to the surficial debris
|
Tertiary
|
Geologic Period referring to rocks ranging in age from 1.6 to
66.4 million years old
|
Thrust sheet
|
A block of rock underlain by a flat-lying fault
that originated from compressional forces
|
Triassic
|
Geologic Period referring to rocks 208 to 245 million years
old
|
Tuff
|
Volcanic ash that has been solidified into rock
|
LEGAL PROCEEDINGS
We are not involved in any material pending litigation, nor are
we aware of any material pending or contemplated proceedings against us. We
know of no material legal proceedings pending or threatened, or judgments entered
into against any of our directors or officers in their capacity as such.
- 50 -
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward-looking statements
This proxy statement/prospectus contains certain forward-looking
statements. Much of the information included in this proxy statement/prospectus
includes or is based upon estimates, projections or other forward-looking
statements. Such forward-looking statements include any projections or estimates
made by us and our management in connection with our business operations.
While these forward-looking statements, and any assumptions upon which they
are based, are made in good faith and reflect our current judgment regarding
the direction of our business, actual results will almost always vary, sometimes
materially, from any estimates, prediction, projections, assumptions or other
future performance suggested herein. Future filings with the SEC, future press
releases and future oral or written statements made by us or with our approval,
which are not statements of historical fact, may contain forward-looking statements,
because such statements include risks and uncertainties. Actual results may
differ significantly from those expressed or implied in such forward-looking
statements.
Such estimates, projections or other forward looking
statements involve various risks and uncertainties as outlined below.
We caution the reader that important factors in some cases have affected and,
in the future, could materially affect actual results and cause actual results
to differ materially from the results expressed in any such estimates, projections
or other forward looking statements. All forward-looking statements
speak only as to the date on which they are made. We undertake no obligation
to update such statements to reflect events that occur or circumstances that
exist after the date on which they are made.
Plan of Operations
Our plan of operations for the next twelve months is to continue
with the exploration of our Nevada and Mexican Our planned exploration expenditures
for the next twelve months on our Nevada and Mexican mineral properties, together
with amounts due to maintain our interest in these claims, are summarized
as follows:
Name of Property
|
Planned
Exploration
Expenditures
|
Amounts of Claims
Maintenance
Due
|
Amount of
Property Payment
Due
|
Total
|
Exploration of
Hannah Property,
Nevada
|
$5,000
|
$6,000
|
$12,000
|
$23,000
|
Exploration of JDS
Property, Nevada
|
$5,000(1)
Being carried out by
Golden Odyssey
|
$Nil (1)
|
$Nil (1)
|
$5,000 (1)
|
Exploration of La
Bufa Property,
Mexico
|
$380,000
|
$7,000
|
$10,000
|
$397,000
|
Exploration of Pine
Grove Property,
Nevada
|
$500,000
|
$15,000
|
$20,000
|
$535,000
|
Administration
Nevada
|
$165,000
|
-
|
-
|
$165,000
|
Administration
Vancouver
|
$250,000
|
-
|
-
|
$250,000
|
Total
|
$1,305,000
|
$28,000
|
$42,000
|
$1,375,000
|
(1)
|
The exploration expenditures are to be undertaken
and paid for by Golden Odyssey pursuant to the letter of intent to joint
venture the property with Golden Odyssey. As with the Kinross JV, if
Golden Odyssey determines to return the property to us prior to the
time when the property payments and/or maintenance payments are due,
then we will be obligated to make the annual claim maintenance payments
to the BLM and local counties required to keep the property in good
standing.
|
- 51 -
Our general and administrative expenses will consist primarily
of professional fees for the audit and legal work relating to our regulatory
filings throughout the year, as well as transfer agent fees, management fees,
investor relations and general office expenses.
We had cash of $201,997 and working capital of $25,525 as of
June 30, 2007. An amount of $100,000 is included as a short term payable,
which is a debt payable to a shareholder who loaned $200,000 to the Company
on startup. Half of the amount plus interest has been repaid. Based on our
planned expenditures and our working capital deficit, we will require a minimum
of approximately $1,500,000 to proceed with our plan of operations over the
next twelve months. This includes payback of the $100,000. We will require
additional financing in order to pursue our exploration programs beyond the
preliminary exploration programs for our mineral properties that are outlined
above. During our second quarter, we raised funds by way of a private placement.
A total of $3,275,000 was raised upon the issue of 3,275,000 units at $0.10
per unit. We netted $308,075 after costs of $19,425 were deducted. We began
raising additional funds through a second tranche at $0.10 subsequent to the
end of the second quarter. At the time of writing this report the financing
had not been completed.
During the twelve month period following the date of this registration
statement, we anticipate that we will not generate any revenue. Accordingly
as noted in the above paragraph we will be required to obtain additional financing
in order to continue our plan of operations. We believe that debt financing
will not be an alternative for funding additional phases of exploration as
we do not have tangible assets to secure any debt financing. We anticipate
that additional funding will be in the form of equity financing from the sale
of our common stock. However, we do not have any financing arranged after
the one that is in progress now and we cannot provide investors with any assurance
that we will be able to raise sufficient funds from the sale of our common
stock to fund our exploration programs. In the absence of such financing,
we will not be able to continue exploration of our mineral claims. Even if
we are successful in obtaining equity financing to fund our exploration programs,
there is no assurance that we will obtain the funding necessary to pursue
any advanced exploration of our mineral claims following the completion of
preliminary exploration. If we do not continue to obtain additional financing,
we will be forced to abandon our properties and our plan of operations.
As we have done in the past, we may consider entering into joint
venture arrangements to provide the required funding to pursue drilling and
advanced exploration of our mineral claims. Even if we determined to pursue
a joint venture partner, there is no assurance that any third party would enter
into a joint venture agreement with us in order to fund exploration of our mineral
claims. If we entered into a joint venture arrangement, we would likely have
to assign a percentage of our interest in our mineral claims to the joint venture
partner.
Our exploration plans will be continually evaluated and modified
as exploration results become available. Modifications to our plans will be
based on many factors, including: results of exploration, assessment of data,
weather conditions, exploration costs, the price of gold and available capital.
Further, the extent of our exploration programs that we undertake will be dependent
upon the amount of financing available to us.
Basis of Presentation of Financial Statements
We were incorporated as Braden Technologies Inc. Effective March
26, 2004, we acquired 100% of the issued and outstanding shares of Lincoln Gold
Corp. by issuing 24,000,000 shares of our common stock. We subsequently merged
with Lincoln Gold Corp. and changed our name to Lincoln Gold Corporation. Since
the acquisition transaction resulted in the former shareholders of Lincoln Gold
Corp. owning the majority of our issued and outstanding shares, the transaction,
which is referred to as a reverse take-over, has been treated for
accounting purposes as an acquisition by Lincoln Gold Corp. of the net assets
and liabilities of Braden Technologies Inc. Under this purchase method of accounting,
the results of operations of Braden Technologies Inc. are included in these
consolidated financial statements from March 26, 2004. Our date of inception
is the date of inception of Lincoln Gold Corp., being September 25, 2003 and
our financial statements are presented with reference to the date of inception
of Lincoln Gold Corp.
Results of Operations
Our results of operations for the three and six months ended
June 30, 2007 are presented below:
- 52 -
|
|
Accumulated
From
September 25, 2003
(Date of
Inception)
to June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
Months
Ended
June 30,
|
|
|
For the Three
Months
Ended
June 30,
|
|
|
For the Six
Months
Ended
June 30,
|
|
|
For the Six
Months
Ended
June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Revenue
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
6,030
|
|
|
554
|
|
|
722
|
|
|
1,164
|
|
|
1,444
|
|
Foreign exchange loss
|
|
6,818
|
|
|
813
|
|
|
1,233
|
|
|
985
|
|
|
2,009
|
|
General and administrative
|
|
2,531,091
|
|
|
59,257
|
|
|
60,554
|
|
|
93,689
|
|
|
119,632
|
|
Impairment of mineral properties
|
|
93,350
|
|
|
27,600
|
|
|
-
|
|
|
31,350
|
|
|
10,000
|
|
Mineral exploration
|
|
946,308
|
|
|
38,616
|
|
|
3,743
|
|
|
46,804
|
|
|
16,475
|
|
Total Expenses
|
|
3,586,597
|
|
|
126,840
|
|
|
66,252
|
|
|
173,992
|
|
|
149,560
|
|
Loss From Operations
|
|
(3,586,597
|
)
|
|
(126,840
|
)
|
|
(66,252
|
)
|
|
(173,992
|
)
|
|
(149,560
|
)
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable written off
|
|
33,564
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Interest income
|
|
12,104
|
|
|
999
|
|
|
267
|
|
|
1,099
|
|
|
923
|
|
Interest expense
|
|
(53,479
|
)
|
|
(2,915
|
)
|
|
(2,649
|
)
|
|
(5,758
|
)
|
|
(5,214
|
)
|
Total Other Income
(Expense)
|
|
(7,811
|
)
|
|
(1,916
|
)
|
|
(2,382
|
)
|
|
(4,659
|
)
|
|
(4,291
|
)
|
Net Loss
|
|
(3,594,408
|
)
|
|
(128,756
|
)
|
|
(68,634
|
)
|
|
(178,651
|
)
|
|
(153,851
|
)
|
Our net loss increased marginally for the six month period ended
June 30, 2007 over the corresponding period in 2006. This increase is attributable
largely to our increased general and administrative activities during the second
quarter of 2007. We anticipate that, if we are able to obtain additional financing,
our expenses and net loss will continue to increase throughout the current fiscal
year in comparison with 2006 as a result of our planned exploration activities.
We anticipate continued professional fees as we comply with our obligations
as a reporting company under the Securities Exchange Act of 1934. We anticipate
that we will not earn any revenues during the current fiscal year or in the
foreseeable future as we are presently engaged in the exploration of our mineral
properties.
Year Ended December 31, 2006
Our results of operations for the year ended December 31, 2006
are as follows:
- 53 -
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
From
|
|
|
|
|
|
|
|
|
|
September 25,
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
(Date of
|
|
|
Year
|
|
|
Year
|
|
|
|
Inception)
|
|
|
Ended
|
|
|
Ended
|
|
|
|
to December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Revenue
|
|
-
|
|
|
-
|
|
|
-
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
4,866
|
|
|
2,888
|
|
|
1,978
|
|
Foreign exchange loss
|
|
5,833
|
|
|
2,043
|
|
|
2,115
|
|
General and administrative
|
|
2,437,402
|
|
|
294,656
|
|
|
730,433
|
|
Impairment of mineral properties
|
|
65,000
|
|
|
10,000
|
|
|
55,000
|
|
Mineral exploration
|
|
899,504
|
|
|
95,852
|
|
|
529,017
|
|
Total Expenses
|
|
3,412,605
|
|
|
405,439
|
|
|
1,318,543
|
|
Loss From Operations
|
|
(3,412,605
|
)
|
|
(405,439
|
)
|
|
(1,318,543
|
)
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
Accounts payable written off
|
|
33,564
|
|
|
-
|
|
|
33,564
|
|
Interest income
|
|
11,005
|
|
|
2,591
|
|
|
8,414
|
|
Interest expense
|
|
(47,721
|
)
|
|
(10,693
|
)
|
|
(17,981
|
)
|
|
|
(3,152
|
)
|
|
(8,102
|
)
|
|
23,997
|
|
Net Loss
|
|
(3,415,757
|
)
|
|
(413,541
|
)
|
|
(1,294,546
|
)
|
Net Loss Per Share
Basic and Diluted
|
|
|
|
|
(0.01
|
)
|
|
(0.03
|
)
|
Weighted Average Shares Outstanding
|
|
|
|
|
42,366,000
|
|
|
41,079,000
|
|
Both our net loss and exploration expenditures decreased substantially
for fiscal 2006 compared to fiscal 2005. These decreases are attributable
largely to our decreased exploration activities during fiscal 2006, as described
in detail in the section of this Registration Statement entitled Description
of Properties. We anticipate that our expenses and net loss will increase
throughout the current fiscal year in comparison with 2006 as a result of
our planned exploration activities and as a result of payments required to
maintain our interests in our mineral properties. In addition, we anticipate
continued increased professional fees as we comply with our obligations as
a reporting company under the Securities Exchange Act of 1934. We anticipate
that we will not earn any revenues during the current fiscal year or in the
foreseeable future as we are presently engaged in the exploration of our mineral
properties.
Liquidity and Capital Resources
Our cash position at June 30, 2007 was $201,997 compared to $21,961
as of December 31, 2006. We had working capital of $25,525 as of June 30, 2007
compared to a working capital deficit of $130,363 as of December 31, 2006.
Plan of Operations
We estimate that our total expenditures over the next twelve
months will be approximately $1,375,000 as outlined above under the heading
Plan of Operations. Based on our planned expenditures, we will require
approximately $1,500,000 to proceed with our plan of operations over the next
twelve months, including the pay down of a short term debt. In addition, we
anticipate that we will require additional financing in order to pursue our
exploration programs beyond the preliminary exploration programs for our mineral
properties that are outlined above.
If we are unable to achieve the necessary additional financing,
then we plan to reduce the amounts that we spend on our exploration activities
and administrative expenses in order to be within the amount of capital resources
that are available to us. Specifically, we anticipate that we would defer drilling
programs pending our obtaining additional financing.
Outstanding Payable
We arranged for a $200,000 convertible note during the fiscal
year ended December 31, 2004. On September 15, 2005 we completed an agreement
whereby we repaid $100,000 of the convertible note along with $35,000 accrued
interest and agreed to repay the remaining $100,000 within sixty days. With
the completion of the first payment the convertible note was deemed to be repaid
in full. The remaining $100,000 owed will be repaid when funds are available.
- 54 -
Going Concern
We have not attained profitable operations and are dependent
upon obtaining financing to pursue any extensive exploration activities. For
these reasons our auditors stated in their report that they have substantial
doubt we will be able to continue as a going concern.
Future Financings
We will require additional financing in order to proceed with
the exploration of our mineral properties. We plan to complete private placement
sales of our common stock in order to raise the funds necessary to pursue
our plan of operations and to fund our working capital deficit. Issuances
of additional shares will result in dilution to our existing shareholders.
We currently do not have any arrangements in place for the completion of any
private placement financings and there is no assurance that we will be successful
in completing any private placement financings.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that
have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is material
to stockholders.
Critical Accounting Policies
Use of Estimates
The preparation of consolidated financial statements in conformity
with U.S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting
period. We regularly evaluates estimates and assumptions related to the useful
life and recoverability of long-lived assets, stock-based compensation and deferred
income tax asset valuation allowances. We base our estimates and assumptions
on current facts, historical experience and various other factors that it believes
to be reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and liabilities and
the accrual of costs and expenses that are not readily apparent from other sources.
The actual results experienced by us may differ materially and adversely from
our estimates. To the extent there are material differences between the estimates
and the actual results, future results of operations will be affected.
Mineral Property Costs
We have been in the exploration stage since our formation on
September 25, 2003 and have not yet realized any revenues from our planned operations.
We are primarily engaged in the acquisition and exploration of mining properties.
Mineral property exploration costs are expensed as incurred. Mineral property
acquisition costs are initially capitalized when incurred using the guidance
in EITF 04-02, Whether Mineral Rights Are Tangible or Intangible Assets.
We assess the carrying costs for impairment under SFAS No. 144, Accounting
for Impairment or Disposal of Long Lived Assets at each fiscal quarter
end. When we have determined that a mineral property can be economically developed
as a result of establishing proven and probable reserves, the costs then incurred
to develop such property, are capitalized. Such costs will be amortized using
the units-of-production method over the estimated life of the probable reserve.
If mineral properties are subsequently abandoned or impaired, any capitalized
costs will be charged to operations. During the fiscal year ended December 31,
2006, mineral property costs totalling $10,000 were impaired as there are no
proven or probable reserves on these properties.
Stock Based Compensation
Prior to January 1, 2006, we accounted for stock-based awards
under the recognition and measurement provisions of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees using the
intrinsic value method of accounting, under which compensation expense was only
recognized if the exercise price of our employee stock options was less than
the market price of the underlying common stock on the date of grant. Effective
January 1, 2006, we adopted the fair value recognition provisions of SFAS No.
123R Share Based
- 55 -
Payments, using the modified prospective transition method.
Under that transition method, compensation cost is recognized for all share-based
payments granted prior to, but not yet vested as of January 1, 2006, based on
the grant date fair value estimated in accordance with the original provisions
of SFAS No. 123, and compensation cost for all share-based payments granted
subsequent to January 1, 2006, based on the grant-date fair value estimated
in accordance with the provisions of SFAS No. 123R. Results for prior periods
have not been restated. There was no effect on our reported loss from operations,
cash flows of loss per share as a result of adopting SFAS No. 123R.
All transactions in which goods or services are the consideration
received for the issuance of equity instruments are accounted for based on
the fair value of the consideration received or the fair value of the equity
instrument issued, whichever is more reliably measurable. Equity instruments
issued to employees and the cost of the services received as consideration
are measured and recognized based on the fair value of the equity instruments
issued.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Shares of our common stock are quoted on the OTC Bulletin Board
under the symbol LGCP. The following table indicates the high and low bid
prices of our common stock during the periods indicated:
QUARTER ENDED
|
HIGH BID
|
LOW BID
|
September 30, 2007
|
$0.23
|
$0.07
|
June 30, 2007
|
$0.12
|
$0.08
|
December 31, 2006
|
$0.14
|
$0.07
|
September 30, 2006
|
$0.19
|
$0.11
|
June 30, 2006
|
$0.31
|
$0.14
|
June 30, 2006
|
$0.35
|
$0.15
|
December 31, 2005
|
$0.27
|
$0.13
|
September 30, 2005
|
$0.54
|
$0.22
|
June 30, 2005
|
$0.78
|
$0.45
|
June 30, 2005
|
$1.00
|
$0.44
|
The source of the high and low bid information is the NASD
OTC Bulletin Board. The market quotations provided reflect inter-dealer prices,
without retail mark-up, markdown or commission and may not represent actual
transactions.
Penny Stock
Our common stock is considered penny stocks under
the rules the Securities and Exchange Commission (the SEC) under
the Securities Exchange Act of 1934. The SEC has adopted rules that regulate
broker-dealer practices in connection with transactions in penny stocks. Penny
stocks are generally equity securities with a price of less than $5.00, other
than securities registered on certain national securities exchanges or quoted
on the Nasdaq system, provided that current price and volume information with
respect to transactions in such securities is provided by the exchange or
quotation system. The penny stock rules require a broker-dealer, prior to
a transaction in a penny stock, to deliver a standardized risk disclosure
document prepared by the Commission, that: (a) contains a description of the
nature and level of risk in the market for penny stocks in both public offerings
and secondary trading; (b) contains a description of the brokers or
dealers duties to the customer and of the rights and remedies available
to the customer with respect to a violation to such duties or other requirements
of Securities laws; (c) contains a brief, clear, narrative description of
a dealer market, including bid and ask prices for penny stocks and the significance
of the spread between the bid and ask price; (d) contains a toll-free telephone
number for inquiries on disciplinary actions; (e) defines significant terms
in the disclosure document or in the conduct of trading in penny stocks; and
(f) contains such other information and is in such form, including language,
type, size and format, as the Commission shall require by rule or regulation.
The broker-dealer also must provide, prior to effecting any transaction in
a penny stock, the customer with: (a) bid and offer quotations for the penny
stock; (b) the compensation of the broker-dealer and its salesperson in the
transaction; (c) the number of shares to which such bid and ask prices apply,
or other comparable information relating to the depth and liquidity of the
market for such stock; and (d) a monthly account statements showing the market
value of each penny stock held in the customers account. In addition,
the penny stock rules require that prior to a transaction in a penny stock
not otherwise exempt from those rules; the broker-dealer must make a special
written determination that the penny stock is a suitable investment for the
purchaser and receive the purchasers written acknowledgement of the
receipt of a risk disclosure statement, a written agreement to transactions
involving penny stocks, and a signed and dated copy of a suitably written
statement.
- 56 -
These disclosure requirements may have the effect of reducing
the trading activity in the secondary market for our stock if it becomes subject
to these penny stock rules. Therefore, if our common stock becomes subject to
the penny stock rules, stockholders may have difficulty selling those securities.
Holders of Common Shares
As at October 12, 2007, we had 51,391,666 registered holders
of our common stock.
Dividends
There are no restrictions in our articles of incorporation
or bylaws that prevent us from declaring dividends. The Nevada Revised Statutes,
however, do prohibit us from declaring dividends where, after giving effect
to the distribution of the dividend:
we would not be able to pay our debts as they become due in
the usual course of business; or
our total assets would be less than the sum of our total liabilities
plus the amount that would be needed to satisfy the rights of shareholders
who have preferential rights superior to those receiving the distribution.
We have not declared any dividends and we do not plan to declare
any dividends in the foreseeable future.
Equity Compensation Plan Information
As at December 31, 2006, we had two equity compensation plans
under which our common shares have been authorized for issuance to our officers,
directors, employees and consultants, namely our 2004 Stock Option Plan and
our 2005 Stock Option Plan. Neither our 2004 Stock Option Plan nor our 2005
Stock Option Plan has not been approved by our shareholders. We do not have
any equity compensation plans that have been approved by our shareholders.
The following summary information is presented for our 2004 Stock
Option Plan and our 2005 Stock Option Plan as of December 31, 2006.
|
Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants and Rights
|
Weighted-Average
Exercise
Price
of
Outstanding
Options,
Warrants
and Rights
|
Number
of Securities
Remaining
Available for
Future Issuance Under
Equity
Compensation
Plans
(Excluding
Securities
Reflected in
column (a))
|
Plan Category
|
(a)
|
(b)
|
(c)
|
Equity Compensation Plans Approved By Security Holders
|
Not Applicable
|
Not Applicable
|
Not Applicable
|
Equity Compensation Plans Not Approved By Security
Holders
|
2,390,000 Shares of Common Stock
|
$0.60 per Share
|
2,110,000 Shares
|
- 57 -
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Our current executive officers and directors are:
Name
|
Age
|
Position
|
Andrew F. B. Milligan (1)
|
84
|
Director and Chairman of the
Board
|
Paul F. Saxton (1)
|
61
|
Director, President, Chief Executive Officer,
Chief Financial
|
|
|
Officer and Chief Operating Officer
|
James Chapman
|
54
|
Director
|
Andrew Bowering
|
47
|
Director
|
Jeffrey L. Wilson
|
59
|
Vice-President - Exploration
|
(1)
|
Member of our Audit Committee.
|
Set forth below is a brief description of the background and
business experience of each of our executive officers and directors for the
past five years:
Paul F. Saxton, President, Chief Executive Officer, Chief
Financial Officer, Chief Operating Officer and Director
Mr. Saxton was appointed as a director of the Company on March
26, 2004. Our board of directors also appointed Mr. Saxton as our chief executive
officer and our chief financial officer as of March 26, 2004. Paul Saxton is
a mining engineer who also holds an MBA from the University of Western Ontario.
He has been active in the mining industry since 1969, holding various positions
including mining engineer, mine superintendent, President and CEO of numerous
Canadian mining companies. Following 10 years with Cominco, Paul became Vice
President and President of Mascot Gold Mines Ltd., initially working on the
design and construction of the Nickel Plate mine in BC. Subsequently Paul became
a Vice-President of Corona Corporation where he was responsible for western
operations and exploration for the company and was instrumental in the re-opening
of the Nickel Plate. In 1989, Paul was appointed Senior Vice President of Viceroy
Resource Corporation where he was responsible for obtaining financing and the
construction and operations of the Castle Mountain mine in California. As President
of Loki Gold Corporation and Baja Gold Inc, Paul was responsible for bringing
the Brewery Creek Gold mine into production. Following his departure from Viceroy
in 1998, Paul became President of Standard Mining Corp., organizing the company
and supervising its exploration activities until 2001, when Standard Mining
Corp. was merged with Doublestar Resources Ltd.
Andrew F. B. Milligan, Chairman and Director
Mr. Andrew Milligan was appointed as one of our directors on
March 26, 2004. Our board of directors also appointed Mr. Milligan as our chairman
as of March 26, 2004. Mr. Milligan is a business executive who has concentrated
on mining ventures over the past 25 years. From 1984 to 1986 he was President
and Chief Executive Officer of Glamis Gold Ltd. In November 1986 he was appointed
President and Chief Executive Officer of Cornucopia Resources Ltd. In 1998 and
1999 Cornucopia disposed of its gold mining interests and subsequently merged
with three other companies to form Quest Investment Corporation. Mr. Milligan
was a director of Quest until June, 2003. He is currently a director of several
mining companies trading on both the American Stock Exchange and the TSX Venture
Exchange.
- 58 -
James Chapman, Director
Mr. Chapman was appointed as one of our directors on April
12, 2004. Mr. Chapman graduated from the University of British Columbia in
1976 with a B.Sc. Geology degree and has focused on mineral exploration primarily
for junior mining companies and consulting groups. This experience has incorporated
all aspects of the industry from property evaluation, project generation through
implementation and report preparation for owners, clients and regulatory authorities.
Since 1982 he has operated as an independent consulting geologist on projects
including precious and base metals, uranium, diamonds and phosphate, from
reconnaissance level projects to deposit definition drill programs. He is
a Qualified Person under Canadian regulations, as defined by National
Instrument Policy 43.101.
Andrew W. Bowering, Director
Mr. Andrew Bowering was appointed as a director of the Company
on August 20, 2004. Mr. Bowering is a corporate administrator with 17 years
experience in the financing and management of exploration, development and
start-up companies. He has held senior executive positions and directorships
in numerous public companies involved in mineral exploration in Canada, the
United States, Mexico and China. Mr. Bowering has directly raised over $25
million for mineral exploration and development. He has led several large
acquisition programs in Northwest British Columbia, Alberta and Central Mexico.
In addition to mineral exploration activities, Mr. Bowering was a founder
and principle of two publicly traded consumer product companies that operated
worldwide. He has an in-depth knowledge of securities markets, regulatory
affairs and investor/public relations.
Jeffrey L. Wilson, Vice-President - Exploration
Mr. Wilson has been appointed as our Vice President - Exploration
on May 25, 2004. Mr. Wilson has twenty-seven years of professional exploration
experience in the United States, Mexico and Central America with emphasis
on gold. He served as Director of Exploration for Echo Bay Exploration Inc.
for eleven years, first in western U.S. and later in Mexico and Central America.
He earlier served as Exploration Manager, Western U.S., with Tenneco Minerals
Company, with most projects in Nevada. Mr. Wilson earned his MSc. in Geology
from the University of Southern California.
We also have consulting relationships with other geologists
and persons that are included in our projects and properties from time to
time.
- 59 -
Term of Office
Our directors are elected to hold office until the next annual
meeting of our shareholders and until their respective successors have been
elected and qualified. Our executive officers are appointed by our board of
directors to hold office until their successors are appointed.
Audit Committee
We have an audit committee of our board of directors comprised
of Andrew Milligan, our chairman, Steven Chi and Paul Saxton, our president,
chief executive officer and chief financial officer. Mr. Saxton is not independent
of our management.
Code of Ethics
We have presently not adopted a code of ethics due to the fact
that we are in the early stage of our operations and have only recently acquired
our mineral properties. We have received a draft code of ethics prepared by
our legal counsel for our review and consideration. Our board of directors
is currently reviewing this draft code of ethics and anticipates adopting
a code of ethics during the current fiscal year.
Family Relationships
There are no family relationships among our directors or officers.
Involvement in Certain Legal Proceedings
Our directors, executive officers and control persons have
not been involved in any of the following events during the past five years:
1. any bankruptcy petition filed
by or against any business of which such person was a general partner or executive
officer either at the time of the bankruptcy or within two years prior to
that time;
2. any conviction in a criminal
proceeding or being subject to a pending criminal proceeding (excluding traffic
violations and other minor offences);
3. being subject to any order,
judgment, or decree, not subsequently reversed, suspended or vacated, of any
court of competent jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of business,
securities or banking activities; or
4. being found by a court of competent
jurisdiction (in a civil action), the Commission or the Commodity Futures Trading
Commission to have violated a federal or state securities or commodities law,
and the judgment has not been reversed, suspended, or vacated.
- 60 -
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth compensation information as to
our chief executive officer, Mr. Paul Saxton, for the our fiscal year ended
December 31, 2006. None of our executive officers earned more than $100,000
during our most recently completed fiscal year. Mr. Saxton is our named executive
officer. No other compensation was paid to any such officer or directors other
than the cash and stock option compensation set forth below.
Name
and
Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-
Equity
Incentive
Plan
Compen-
sation
($)
|
Non-
qualified
Deferred
Compen-
sation
Earnings
($)
|
All
Other
Compen-
sation
Compen-
sation
($)
|
Total
($)
|
Paul
Saxton
(1)
|
2006
|
$20,545
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
-
|
$20,545
|
(1)
|
Mr. Saxton was appointed as a director and as our
president, chief executive officer and chief financial officer on March
26, 2004.
|
Option Grants
We did not grant any stock options to our officers and directors
during our fiscal year ended December 31, 2006.
We granted options to purchase an aggregate of 2,450,000 shares
of common stock to certain officers, directors, employees and consultants
of the Company on September 25, 2007, including 2,000,000 options to insiders
of the Company as detailed below. All options granted are fully vested. The
options are exercisable for a three year term expiring on September 25, 2010
at a price of $0.25 per share. All options have been granted pursuant to and
are subject to our 2005 Stock Option Plan.
|
Name of Optionee
|
Number of Options
|
1.
|
Paul Saxton, President, Chief Executive Officer,
Chief Financial Officer, Treasurer, Secretary and Director
|
600,000
|
2.
|
James Chapman, Director
|
300,000
|
3.
|
Andrew Bowering, Director
|
300,000
|
4.
|
Andrew F. Milligan, Director
|
300,000
|
5.
|
Jeffrey L. Wilson, Chief Operating Officer
and Vice-President, Exploration
|
500,000
|
|
TOTAL
|
2,000,000
|
- 61 -
Outstanding Equity Awards
The following table summarizes the outstanding equity awards
as of December 31, 2006 for each of our officers and directors:
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
Option Awards
|
Stock Awards
|
Name
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Equity
Incentive
Plan
Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Number
of
Shares
or Units
of Stock
That
Have
Not
Vested
(#)
|
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($)
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#)
|
Equity
Incentive
Plan
Awards:
Market
or Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
($)
|
Paul Saxton
Director,
President,
Chief
Executive
Officer and
Chief
Financial
Officer
|
430,000
|
Nil
|
Nil
|
$0.60
|
May 25, 2007
|
N/A
|
N/A
|
N/A
|
N/A
|
Andrew
Milligan
Director
|
430,000
|
Nil
|
Nil
|
$0.60
|
May 25,2007
|
N/A
|
N/A
|
N/A
|
N/A
|
James
Currie
Director
|
200,000
|
Nil
|
Nil
|
$0.60
|
May 25,2007
|
N/A
|
N/A
|
N/A
|
N/A
|
James
Chapman
Director
|
200,000
|
Nil
|
Nil
|
$0.60
|
May 25,2007
|
N/A
|
N/A
|
N/A
|
N/A
|
Jeffrey
Wilson
Vice-
President
Exploration
|
430,000
|
Nil
|
Nil
|
$0.60
|
May 25, 2007
|
N/A
|
N/A
|
N/A
|
N/A
|
Compensation of Di
r
ectors
We do not currently pay our directors any fees or other compensation
for acting as directors. We have not paid any fees or other compensation to
any of our directors for acting as directors to date.
Long-Term Incentive Plans
We do not have any long-term incentive plans, pension plans,
or similar compensatory plans for our directors or executive officers.
Employment Contracts
We do not have any employment contracts with any of our officers
or directors.
RELATED PARTY TRANSACTIONS
None of the following persons has any direct or indirect material
interest in any transaction to which we were or are a party during the past
two years, or in any proposed transaction to which the Company proposes to
be a party:
- 62 -
-
any director or officer;
-
any proposed nominee for election as a director;
-
any person who beneficially owns, directly or indirectly, shares carrying
more than 5% of the voting rights attached to our common stock; or
-
any relative or spouse of any of the foregoing persons, or any relative
of such spouse, who has the same house as such person or who is a director
or officer of any parent or subsidiary.
SECURITY OWNERSHIP
As at August 15, 2007, we had 47,141,666 shares of common stock
issued and outstanding. We have no other classes of voting securities.
The following table sets forth certain information concerning
the number of our common shares owned beneficially as of August 15, 2007 by:
(i) each person (including any group) known to us to own more than five percent
(5%) of our common stock, (ii) each of our directors and by each of our executive
officers, and (iii) our executive officers and directors as a group. Unless
otherwise indicated, the shareholders listed possess sole voting and investment
power with respect to the shares shown.
Title of Class
|
Name and Address of Beneficial
Owner
|
Number of Shares of
Common
Stock
|
Percentage of
Common Stock
(1)
|
Directors and
Officers
|
|
|
|
Common Stock
|
Paul F. Saxton, Director, President,
Chief Executive Officer and Chief
Financial Officer
|
6,100,000
(2)
|
12.4%
|
Common Stock
|
Andrew
F.B. Milligan, Director
|
1,800,000
(3)
|
3.7%
|
Common Stock
|
James
Chapman, Director
|
1,000,000
(4)
|
2.0%
|
Common Stock
|
Andrew
Bowering, Director
|
300,000
(5)
|
0.5%
|
Common Stock
|
Jeffrey Wilson, Vice President
Exploration
|
1,250,000
(6)
|
2.4%
|
Common Stock
|
All Directors and Executive Officers
as a Group (6 persons)
|
10,750,000
(7)
|
22.1%
|
5% Stockholders
|
|
|
|
Common Stock
|
Joe Eberhard, Dorfstrasse #15, CH
8903, Birmensdorf, Switzerland
|
3,000,000 shares
Direct
|
6.4%
|
Common Stock
|
Michael Baybak
(8)
,
Suite
305, 4515
Ocean Blvd., La Canada, California
91011
|
3,166,666 shares
Indirect
|
6.7%
|
Common Stock
|
Sprott Asset Management Inc.
(9)
Suite
2700, South Tower, Royal Bank
Plaza, Toronto, Ontario M5J 2J1
Canada
|
3,400,000 shares
|
7.2%
|
- 63 -
(1)
|
Under Rule 13(d)(3), a beneficial owner of a security
includes any person who, directly or indirectly, through any contract,
arrangement, understanding, relationship, or otherwise has or shares:
(i) voting power, which includes the power to vote, or to direct the
voting of shares; and (ii) investment power, which includes the power
to dispose or direct the disposition of shares. Certain shares may be
deemed to be beneficially owned by more than one person (if, for example,
persons share the power to vote or the power to dispose of the shares).
In addition, shares are deemed to be beneficially owned by a person
if the person has the right to acquire the shares (for example, upon
exercise of an option) within 60 days of the date as of which the information
is provided. In computing the percentage ownership of any person, the
amount of shares outstanding is deemed to include the amount of shares
beneficially owned by such person (and only such person) by reason of
these acquisition rights. As a result, the percentage of outstanding
shares of any person as shown in this table does not necessarily reflect
the persons actual ownership or voting power with respect to the
number of shares of common stock actually outstanding on August 15,
2007.
|
|
|
(2)
|
Consists of 5,500,000 shares held by Mr. Saxton and
600,000 shares that can be acquired by Mr. Saxton upon exercise of options
to purchase shares held by Mr. Saxton within 60 days of the date hereof.
|
|
|
(3)
|
Consists of 1,500,000 shares held by Mr. Milligan
and 300,000 shares that can be acquired by Mr. Milligan upon exercise
of options to purchase shares held by Mr. Milligan within 60 days of
the date hereof.
|
|
|
(4)
|
Consists of 700,000 shares held by Mr. Chapman and
300,000 shares that can be acquired by Mr. Chapman upon exercise of
options to purchase shares held by Mr. Chapman within 60 days of the
date hereof.
|
|
|
(5)
|
Consists of 300,000 shares that can be acquired by
Mr. Bowering upon exercise of options to purchase shares held by Mr.
Bowering within 60 days of the date hereof.
|
|
|
(6)
|
Consists of 750,000 shares held by Mr. Wilson directly
and 500,000 shares that can be acquired by Mr. Wilson upon exercise
of options to purchase shares held by Mr. Wilson within 60 days of the
date hereof.
|
|
|
(7)
|
Consists of 8,750,000 shares held by our directors
and executive officers and 2,000,000 shares that can be acquired by
our directors and executive officers upon exercise of options to purchase
shares held by our directors and executive officers within 60 days of
the date hereof.
|
|
|
(8)
|
Windsor Capital Corporation owns directly 2,500,000
shares in the capital of the Company. Michael Baybak beneficially owns
a 100% interest in Windsor Capital Corporation.
|
|
|
(9)
|
Consists of 1,700,000 shares held by Sprott Asset
Management Inc. and 1,700,000 shares issuable upon exercise of 1,700,000
share purchase warrants held by Sprott Asset Management Inc. which are
exercisable within 60 days hereof.
|
Changes in Control
We are unaware of any contract, or other arrangement or provision
of our Articles or by-laws, the operation of which may at a subsequent date
result in a change of control of our company.
DESCRIPTION OF CAPITAL STOCK
Authorized Capital
We are currently authorized to issue 100,000,000 shares of
common stock with a par value of $0.001 per share. As at August 15, 2007,
we had 47,141,666 shares of our common stock issued and outstanding. We have
no other classes of voting securities.
Common Stock
Our common stock is entitled to one vote per share on all matters
submitted to a vote of the stockholders, including the election of directors.
Except as otherwise required by law or as provided in any resolution adopted
by our board of directors with respect to any series of preferred stock, the
holders of our common stock will possess all voting power. Generally, all matters
to be voted on by stockholders must be approved by a majority (or, in the case
of election of directors, by a plurality) of the votes entitled to be cast by
all shares of our common stock that are present in person or represented by
proxy, subject to any voting rights granted to holders of any preferred stock.
Holders of our common stock representing one-percent (1%) of our capital stock
issued, outstanding and entitled to vote, represented in person or by proxy,
are necessary to constitute a quorum at any meeting of our stockholders. A vote
by the holders of a majority of our outstanding shares is required to effectuate
certain fundamental corporate changes such as liquidation, merger or an amendment
to our Articles of Incorporation. Our Articles of Incorporation do not provide
for cumulative voting in the election of directors.
- 64 -
The holders of shares of our common stock will be entitled to
such cash dividends as may be declared from time to time by our board of directors
from funds available therefor. See Dividend Policy.
The holders of shares of our common stock will be entitled
to receive pro rata all of our assets available for distribution to such holders.
In the event of any merger or consolidation of our company
with or into another company in connection with which shares of our common
stock are converted into or exchangeable for shares of stock, other securities
or property (including cash), all holders of our common stock will be entitled
to receive the same kind and amount of shares of stock and other securities
and property (including cash).
Holders of our common stock have no pre-emptive rights, no
conversion rights and there are no redemption provisions applicable to our
common stock.
STOCKHOLDER PROPOSALS
Stockholders of Lincoln Gold may submit proposals to be considered
for stockholder action at the next annual meeting of stockholders if they do
so in accordance with applicable regulations of the SEC and the laws of the
State of Nevada. In order to be considered for inclusion in the proxy statement
for the meeting, the Secretary must receive proposals no later than by the deadline
to be provided by the Company. Stockholder proposals should be addressed to
the Secretary, at Suite 350, 885 Dunsmuir Street Vancouver, B.C., Canada, V6C
1N5.
EXPERTS
The financial statements for Lincoln Gold as at and for the
years ended December 31, 2006 and 2005, included in this proxy statement/prospectus
have been audited by Manning Elliott LLP, independent registered public accounting
firm, as set forth in their report, also incorporated herein by reference,
and are included herein in reliance upon such report and upon the authority
of said firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the issuance of common stock offered hereby
will be passed upon for Lincoln Gold by Lang Michener LLP, of Vancouver, British
Columbia, Canada. Material income tax consequences of the Continuance will
be passed upon for Lincoln Gold in Canada by Lang Michener LLP, and in the
United States by Moran & Ozbirn, P.C. of Dallas, Texas, U.S.A.
AVAILABLE INFORMATION
Lincoln Gold has been and is currently subject to the informational
requirements of the Exchange Act. In accordance with those requirements, we
file, and after the conversion will file reports and other information with
the SEC. Such reports and other information can be inspected and copied at the
public reference facilities maintained by the SEC in Room 1024, 450 Fifth Street,
NW, Washington, D.C. 20549. Copies of such material may also be obtained at
prescribed rates by writing to the SECs Public Reference Section, 100
F Street, N.E., Washington, D.C. 20549 upon payment of the fees prescribed by
the SEC. Please call the SEC at 1-800-SEC-0330 for more information on the operation
of its public reference rooms. The SEC also maintains a Web site that contains
reports, proxy and information statements and other materials that are filed
through the SECs Electronic Data Gathering, Analysis, and Retrieval (EDGAR)
system. This Web Site can be accessed at http://www.sec.gov. Our reports, registration
statements, proxy and information statements and other information that we file
electronically with the SEC are available on this site. This proxy statement/prospectus
does not contain all the information set forth in that registration statement
and the related exhibits. Statements herein concerning the contents of any contract
or other document are not necessarily complete, and in each instance reference
is made to such contract or other document filed with the SEC or included as
an exhibit, or otherwise, each such contract or document being qualified by
and subject to such reference in all respects. The Registration Statement and
any subsequent amendments, including exhibits filed as a part of the Registration
Statement, are available for inspection and copying as set forth above.
- 65 -
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Information included or incorporated by reference in this proxy
statement/prospectus may include forward-looking statements. This
information may involve known and unknown risks, uncertainties and other factors
which could cause actual results, financial performance, operating performance
or achievements expressed or implied by such forward-looking statements not
to occur or be realized. Such forward-looking statements generally are based
upon our best estimates of future results, performance or achievement and based
upon current conditions and the most recent results of operations. Forward-looking
statements may be identified by the use of forward-looking terminology such
as believes, could, possibly, probably,
anticipates, estimates, projects, expects,
may, will, or should or the negative thereof
or other variations thereon or comparable terminology. This proxy statement/prospectus
contains forward-looking statements, including statements regarding, among other
things, our projected sales and profitability, our growth strategies, anticipated
trends in our industry and our future plans. These statements may be found under
Business, as well as in this proxy statement/prospectus generally.
Our actual results or events may differ materially from the results discussed
in forward-looking statements as a result of various factors, including, without
limitation, the risks outlined under Risk Factors and elsewhere
in this proxy statement/ prospectus. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements. Moreover, we
do not assume responsibility for the accuracy or completeness of the forward-looking
statements after the date of this prospectus.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Engagement of Manning Elliott LLP
We engaged Manning Elliott LLP, Chartered Accountants as our
principal independent accountant effective May 4, 2005. We dismissed Amisano
Hanson, Chartered Accountants ("Amisano Hanson") as our principal independent
accountant effective May 4, 2005. The decision to change principal independent
accountants has been approved by our board of directors.
Amisano Hansons report dated April 14, 2005 on the balance
sheets of Lincoln Gold Corporation as at December 31, 2004 and 2003 and the
statements of operations, stockholders' deficiency and cash flows for the
year ended December 31, 2004 and for the periods from inception (September
25, 2003) to December 31, 2004 and 2003 did not contain any adverse opinion
or disclaimer of opinion, nor was it modified as to uncertainty, audit scope,
or accounting principles.
In connection with the audits of the two fiscal years ended
December 31, 2004 and 2003 and the subsequent interim period through to April
14, 2005, there were no disagreements with Amisano Hanson on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures, which disagreements if not resolved to the satisfaction
of Amisano Hanson would have caused them to make reference thereto in their
reports on our audited financial statements.
We provided Amisano Hanson with a copy of the foregoing disclosures
and requested in writing that Amisano Hanson furnish us with a letter addressed
to the Securities and Exchange Commission stating whether or not they agree
with such disclosures. We received the requested letter from Amisano Hanson
wherein they have confirmed their agreement to our disclosures. A copy of Amisano
Hansons letter has been filed as an exhibit to our Current Report on Form
8-K filed with the Securities and Exchange Commission on May 10, 2005.
Engagement of Amisano Hanson
We dismissed DeMello & Company, Chartered Accountants ("DeMello
& Company") as our principal independent accountant effective February 14,
2005. We engaged Amisano Hanson, Chartered Accountants as our principal independent
accountant effective February 14, 2005. The decision to change principal independent
accountants has been approved by our board of directors.
DeMello & Company's report dated February 23, 2004 on the
balance sheets of Braden Technologies Inc. as at December 31, 2003 and 2002
and the statements of operations, stockholders' deficiency and cash flows for
the years ended December 31, 2003 and 2002 did not contain any adverse opinion
or disclaimer of opinion, nor was it modified as to uncertainty, audit scope,
or accounting principles.
- 66 -
In connection with the audits of the two fiscal years ended December
31, 2003 and 2002 and the subsequent interim period through to February 14,
2005, there were no disagreements with DeMello & Company on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures, which disagreements if not resolved to the satisfaction
of the DeMello & Company would have caused them to make reference thereto
in their reports on our audited financial statements.
We provided DeMello & Company with a copy of the foregoing
disclosures and requested in writing that DeMello & Company furnish us
with a letter addressed to the Securities and Exchange Commission stating
whether or not they agree with such disclosures. We received the requested
letter from DeMello & Company wherein they have confirmed their agreement
to our disclosures. A copy of DeMello & Companys letter has been
filed as an exhibit to our Current Report on Form 8-K filed with the Securities
and Exchange Commission on February 17, 2005.
- 67 -
FINANCIAL STATEMENTS
The following consolidated financial statements of Lincoln
Gold listed below are included with this prospectus/ proxy statement. These
financial statements have been prepared on the basis of accounting principles
generally accepted in the United States and are expressed in U.S. dollars.
Audited Financial Statements
for the Year Ended December 31, 2006
|
|
F-1
|
Report of Independent Registered
Accounting Firm
|
|
F-2
|
Consolidated Balance Sheets as at
December 31, 2006 and 2005
|
|
F-3
|
Consolidated Statements of Operations
for the years ended December 31, 2006 and 2005 and for the period from
inception (September 25, 2003) to December 31, 2006
|
|
F-4
|
Consolidated Statements of Cash Flows
for the years ended December 31, 2006 and 2005 and for the period from
inception (September 25, 2003) to December 31, 2006
|
|
F-5
|
Consolidated Statements of Stockholders’
Equity (Deficit) for the period from inception (September 25, 2003)
to December 31, 2006
|
|
F-6
|
Notes to the Consolidated Financial
Statements
|
|
F-7
|
Unaudited Financial Statements
for the Six Months Ended June 30, 2007
|
|
F-16
|
Consolidated Balance Sheets as at
June 30, 2007 and December 31, 2006
|
|
F-17
|
Consolidated Statements of Operations
for the three months and six months ended June 30, 2007 and 2006 and
for the period from inception (September 25, 2003) to June 30, 2007
|
|
F-18
|
Consolidated Statements of Cash Flows
for the six months ended June 30, 2007 and 2006
|
|
F-19
|
Notes to Consolidated Financial Statements
|
|
F-20
|
- 68 -
Audited Financial Statements for the Year Ended December 31, 2006
|
PAGE
|
|
|
Report
of Independent Registered Accounting Firm
|
|
|
|
Consolidated
Balance Sheets, December 31, 2006 and 2005
|
|
|
|
Consolidated
Statements of Operations for the years ended December 31, 2006 and 2005
and for the period from inception (September 25, 2003) to December 31, 2006
|
|
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2006 and 2005
and for the period from inception (September 25, 2003) to December 31, 2006
|
|
|
|
Consolidated
Statements of Stockholders Equity (Deficit) for the period from inception
(September 25, 2003) to December 31, 2006
|
|
|
|
Notes
to the Consolidated Financial Statements
|
|
F-1
Report of Independent Registered Public Accounting Firm
To the Directors and Stockholders
Lincoln Gold Corporation
(An Exploration Stage Company)
We have audited the accompanying consolidated balance sheets
of Lincoln Gold Corporation as of December 31, 2006 and 2005, and the related
consolidated statements of operations, cash flows and stockholders' equity (deficit)
for the years then ended and accumulated from September 25, 2003 (Date of Inception)
to December 31, 2006. 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 the standards of the
Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Lincoln Gold Corporation
as of December 31, 2006 and 2005, and the results of its operations and its
cash flows for the years then ended and accumulated from September 25, 2003
(Date of Inception) to December 31, 2006 in conformity with accounting principles
generally accepted in the United States.
The accompanying financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has not generated any revenue, has a working
capital deficiency, and has incurred significant operating losses since inception.
These factors raise substantial doubt about the Companys ability to continue
as a going concern. Managements plans in regard to these matters are also
discussed in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Manning Elliott LLP
CHARTERED ACCOUNTANTS
Vancouver, Canada
March 22, 2007
F-2
Lincoln Gold Corporation
(An Exploration Stage Company)
Consolidated Balance Sheets
(Expressed in U.S. dollars)
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash
|
|
21,961
|
|
|
132,806
|
|
Prepaid
expenses and deposits
|
|
4,893
|
|
|
11,302
|
|
Total Current Assets
|
|
26,854
|
|
|
144,108
|
|
Property and Equipment
(Note 3)
|
|
4,440
|
|
|
7,328
|
|
Total Assets
|
|
31,294
|
|
|
151,436
|
|
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
Accounts payable
|
|
35,467
|
|
|
20,474
|
|
Accrued liabilities
|
|
14,990
|
|
|
12,097
|
|
Due to related parties (Note 5(b))
|
|
6,760
|
|
|
8,080
|
|
Note payable (Note 6)
|
|
100,000
|
|
|
100,000
|
|
Total Liabilities
|
|
157,217
|
|
|
140,651
|
|
Commitments and Contingencies (Note 1 and 4)
|
|
|
|
|
|
|
Stockholders Equity (Deficit)
|
|
|
|
|
|
|
Common Stock, 100,000,000 shares authorized,
$0.001 par value;
|
|
|
|
|
|
|
42,990,000 and 41,865,000 shares issued and outstanding,
respectively
|
|
42,990
|
|
|
41,865
|
|
Additional Paid-in Capital
|
|
3,294,863
|
|
|
3,092,488
|
|
Common Stock Subscribed (Note 7(a))
|
|
73,333
|
|
|
-
|
|
Deficit Accumulated During the Exploration Stage
|
|
(3,537,109
|
)
|
|
(3,123,568
|
)
|
Total Stockholders
Equity (Deficit)
|
|
(125,923
|
)
|
|
10,785
|
|
Total Liabilities and Stockholders Equity (Deficit)
|
|
31,294
|
|
|
151,436
|
|
F-3
(The accompanying notes are an integral part of these consolidated
financial statements)
Lincoln Gold Corporation
(An Exploration Stage Company)
Consolidated Statements of Operations
(Expressed in U.S. dollars)
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
From
|
|
|
|
|
|
|
|
|
|
September 25,
|
|
|
|
|
|
|
|
|
|
2003
|
|
|
Year
|
|
|
Year
|
|
|
|
(Date of Inception)
|
|
|
Ended
|
|
|
Ended
|
|
|
|
to December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Revenue
|
|
-
|
|
|
-
|
|
|
-
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
4,866
|
|
|
2,888
|
|
|
1,978
|
|
Foreign exchange loss
|
|
5,833
|
|
|
2,043
|
|
|
2,115
|
|
General and administrative
(Note 5(a))
|
|
2,437,402
|
|
|
294,656
|
|
|
730,433
|
|
Impairment of mineral properties (Note
2(h))
|
|
65,000
|
|
|
10,000
|
|
|
55,000
|
|
Mineral exploration
|
|
899,504
|
|
|
95,852
|
|
|
529,017
|
|
Total Expenses
|
|
3,412,605
|
|
|
405,439
|
|
|
1,318,543
|
|
Loss From Operations
|
|
(3,412,605
|
)
|
|
(405,439
|
)
|
|
(1,318,543
|
)
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
Accounts payable written
off
|
|
33,564
|
|
|
-
|
|
|
33,564
|
|
Interest income
|
|
11,005
|
|
|
2,591
|
|
|
8,414
|
|
Interest expense
|
|
(47,721
|
)
|
|
(10,693
|
)
|
|
(17,981
|
)
|
|
|
(3,152
|
)
|
|
(8,102
|
)
|
|
23,997
|
|
Net Loss
|
|
(3,415,757
|
)
|
|
(413,541
|
)
|
|
(1,294,546
|
)
|
Net Loss Per Share
Basic and Diluted
|
|
|
|
|
(0.01
|
)
|
|
(0.03
|
)
|
Weighted Average Shares Outstanding
|
|
|
|
|
42,366,000
|
|
|
41,079,000
|
|
F-4
(The accompanying notes are an integral part of these consolidated
financial statements)
Lincoln Gold Corporation
(An Exploration Stage Company)
Consolidated Statements of Cash Flows
(Expressed in U.S. dollars)
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
From
|
|
|
|
|
|
|
|
|
|
September 25, 2003
|
|
|
Year
|
|
|
Year
|
|
|
|
(Date of Inception)
|
|
|
Ended
|
|
|
Ended
|
|
|
|
to December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
(3,415,757
|
)
|
|
(413,541
|
)
|
|
(1,294,546
|
)
|
Adjustments to reconcile net loss
to net cash used
|
|
|
|
|
|
|
|
|
|
in operating activities:
|
|
|
|
|
|
|
|
|
|
Accounts
payable written off
|
|
(33,564
|
)
|
|
-
|
|
|
(33,564
|
)
|
Depreciation
|
|
4,866
|
|
|
2,888
|
|
|
1,978
|
|
Impairment
of mineral properties
|
|
65,000
|
|
|
10,000
|
|
|
55,000
|
|
Stock-based compensation
|
|
1,218,996
|
|
|
73,333
|
|
|
108,000
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and deposits
|
|
(4,893
|
)
|
|
6,409
|
|
|
(11,302
|
)
|
Account payable
and accrued liabilities
|
|
(18,349
|
)
|
|
17,886
|
|
|
(47,130
|
)
|
Due to related parties
|
|
6,760
|
|
|
(1,320
|
)
|
|
(219
|
)
|
Net Cash Used in Operating Activities
|
|
(2,176,941
|
)
|
|
(304,345
|
)
|
|
(1,221,783
|
)
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
Cash acquired on acquisition
of subsidiary
|
|
68
|
|
|
-
|
|
|
-
|
|
Mineral property acquisition costs
|
|
(55,000
|
)
|
|
-
|
|
|
(55,000
|
)
|
Purchase of property and equipment
|
|
(9,306
|
)
|
|
-
|
|
|
(9,306
|
)
|
Net Cash Flows Used
in Investing Activities
|
|
(64,238
|
)
|
|
-
|
|
|
(64,306
|
)
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
Advances from related parties
|
|
4,180
|
|
|
-
|
|
|
-
|
|
Repayment of advances from
related parties
|
|
(4,180
|
)
|
|
-
|
|
|
(4,180
|
)
|
Proceeds from loan payable
|
|
46,000
|
|
|
-
|
|
|
-
|
|
Repayment of loan payable
|
|
(46,000
|
)
|
|
-
|
|
|
(46,000
|
)
|
Issuance of note payable
|
|
100,000
|
|
|
-
|
|
|
(100,000
|
)
|
Proceeds from issuance
of common stock
|
|
2,226,850
|
|
|
215,000
|
|
|
1,483,500
|
|
Share
issuance costs
|
|
(63,710
|
)
|
|
(21,500
|
)
|
|
(42,210
|
)
|
Net Cash Flows Provided by Financing Activities
|
|
2,263,140
|
|
|
193,500
|
|
|
1,291,110
|
|
Increase (Decrease) in Cash
|
|
21,961
|
|
|
(110,845
|
)
|
|
5,021
|
|
Cash Beginning of Period
|
|
-
|
|
|
132,806
|
|
|
127,785
|
|
Cash End of
Period
|
|
21,961
|
|
|
21,961
|
|
|
132,806
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash Investing and Financing Activities
|
|
|
|
|
|
|
|
|
|
Shares issued for mineral property costs
|
|
10,000
|
|
|
10,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
35,000
|
|
|
-
|
|
|
35,000
|
|
Income tax paid
|
|
-
|
|
|
-
|
|
|
-
|
|
F-5
(The accompanying notes are an integral part of these consolidated
financial statements)
Lincoln Gold Corporation
(An Exploration Stage Company)
Consolidated Statements of Stockholders Equity (Deficit)
For the period from September 25, 2003 (Date of Inception) to December 31, 2006
(Expressed in U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common Stock
|
|
|
Stock
|
|
|
Additional
|
|
|
Common
|
|
|
During the
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriptions
|
|
|
Paid-in
|
|
|
Stock
|
|
|
Exploration
|
|
|
|
|
|
|
Number of
|
|
|
Amount
|
|
|
Receivable
|
|
|
Capital
|
|
|
Subscribed
|
|
|
Stage
|
|
|
Total
|
|
|
|
Shares
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 25, 2003 (Date of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Shares issued for cash at $0.001 per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share
|
|
850,000
|
|
|
850
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
850
|
|
Shares issued for cash at $0.01 per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share
|
|
1,550,000
|
|
|
1,550
|
|
|
-
|
|
|
13,950
|
|
|
-
|
|
|
-
|
|
|
15,500
|
|
Net loss for the
period
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(16,319
|
)
|
|
(16,319
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003
|
|
2,400,000
|
|
|
2,400
|
|
|
-
|
|
|
13,950
|
|
|
-
|
|
|
(16,319
|
)
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to number of shares issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and outstanding as a result of
the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
acquisition of Lincoln Gold Corp.:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remove shares of
Lincoln Gold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corp.
|
|
(2,400,000
|
)
|
|
(2,400
|
)
|
|
-
|
|
|
2,400
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Add shares of Lincoln
Gold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation (formerly
Braden
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technologies
Inc.)
|
|
11,400,000
|
|
|
11,400
|
|
|
-
|
|
|
(11,400
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Fair value of shares issued in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
connection
with the acquisition of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lincoln Gold Corp.
|
|
24,000,000
|
|
|
24,000
|
|
|
-
|
|
|
(4,950
|
)
|
|
-
|
|
|
(19,050
|
)
|
|
-
|
|
Net asset deficiency
of legal parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at date of reverse
take-over
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
transaction
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(102,302
|
)
|
|
(102,302
|
)
|
Shares issued for cash at $0.50 per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share
|
|
700,000
|
|
|
700
|
|
|
-
|
|
|
349,300
|
|
|
-
|
|
|
-
|
|
|
350,000
|
|
Shares issued for cash at $0.30 per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share
|
|
2,300,000
|
|
|
2,300
|
|
|
(528,000
|
)
|
|
687,700
|
|
|
-
|
|
|
-
|
|
|
162,000
|
|
Stock-based compensation
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,037,663
|
|
|
-
|
|
|
-
|
|
|
1,037,663
|
|
Net loss for the year
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,691,351
|
)
|
|
(1,691,351
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
38,400,000
|
|
|
38,400
|
|
|
(528,000
|
)
|
|
2,074,663
|
|
|
-
|
|
|
(1,829,022
|
)
|
|
(243,959
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from stock subscriptions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
receivable
|
|
-
|
|
|
-
|
|
|
528,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
528,000
|
|
Shares issued for cash at $0.30 per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share
|
|
3,145,000
|
|
|
3,145
|
|
|
-
|
|
|
940,355
|
|
|
-
|
|
|
-
|
|
|
943,500
|
|
Share issuance costs
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(42,210
|
)
|
|
-
|
|
|
-
|
|
|
(42,210
|
)
|
Shares issued for cash at $0.60 per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share pursuant to the exercise
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock options
|
|
20,000
|
|
|
20
|
|
|
-
|
|
|
11,980
|
|
|
-
|
|
|
-
|
|
|
12,000
|
|
Shares issued for services at $0.36 per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share
|
|
300,000
|
|
|
300
|
|
|
-
|
|
|
107,700
|
|
|
-
|
|
|
-
|
|
|
108,000
|
|
Net loss for the year
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,294,546
|
)
|
|
(1,294,546
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005
|
|
41,865,000
|
|
|
41,865
|
|
|
-
|
|
|
3,092,488
|
|
|
-
|
|
|
(3,123,568
|
)
|
|
10,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for mineral property at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.20 per share
|
|
50,000
|
|
|
50
|
|
|
-
|
|
|
9,950
|
|
|
-
|
|
|
-
|
|
|
10,000
|
|
Shares issued for cash at $0.20 per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share
|
|
1,075,000
|
|
|
1,075
|
|
|
-
|
|
|
213,925
|
|
|
-
|
|
|
-
|
|
|
215,000
|
|
Share issuance costs
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(21,500
|
)
|
|
-
|
|
|
-
|
|
|
(21,500
|
)
|
Shares to be issued
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
73,333
|
|
|
-
|
|
|
73,333
|
|
Net loss for the year
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(413,541
|
)
|
|
(413,541
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
42,990,000
|
|
|
42,990
|
|
|
-
|
|
|
3,294,863
|
|
|
73,333
|
|
|
(3,537,109
|
)
|
|
(125,923
|
)
|
F-6
(The accompanying notes are an integral part of these consolidated
financial statements)
Lincoln Gold Corporation
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2006
(Expressed in U.S. dollars)
1.
|
Nature of Operations and Continuance of Business
|
|
|
|
|
Lincoln Gold Corporation (the Company)
was incorporated in the State of Nevada, USA, on February 17, 1999 under
the name of Braden Technologies Inc. Effective March 26, 2004, the Company
acquired 100% of the issued and outstanding shares of Lincoln Gold Corp.,
a private company incorporated in the State of Nevada, USA, on September
25, 2003. On April 6, 2004, the Company and its subsidiary, Lincoln Gold
Corp., merged to form Lincoln Gold Corporation.
|
|
|
|
The Company is an Exploration Stage Company,
as defined by Statement of Financial Accounting Standard (SFAS)
No. 7 Accounting and Reporting by Development Stage Enterprises.
The Companys principal business is the acquisition and exploration
of mineral resources. The Company has not presently determined whether
its properties contain mineral reserves that are economically recoverable.
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These consolidated financial statements
have been prepared on a going concern basis, which implies the Company
will continue to realize its assets and discharge its liabilities in the
normal course of business. The Company has never generated revenues since
inception and has never paid any dividends and is unlikely to pay dividends
or generate earnings in the immediate or foreseeable future. The continuation
of the Company as a going concern is dependent upon the continued financial
support from its shareholders, the ability of the Company to obtain necessary
equity financing to continue operations and to determine the existence,
discovery and successful exploitation of economically recoverable reserves
in its resource properties, confirmation of the Companys interests
in the underlying properties, and the attainment of profitable operations.
As at December 31, 2006, the Company has never generated any revenues,
has accumulated losses of $3,415,756 since inception of the development
stage, and has a working capital deficiency of $130,363. These factors
raise substantial doubt regarding the Companys ability to continue
as a going concern. These financial statements do not include any adjustments
to the recoverability and classification of recorded asset amounts and
classification of liabilities that might be necessary should the Company
be unable to continue as a going concern.
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Management plans to complete private
placement sales of the Companys shares in order to raise the funds
necessary to pursue its plan of operation and fund working capital. The
Company filed an amended SB-2 Registration Statement with the U.S. Securities
and Exchange Commission, which was declared effective on July 14, 2006,
to register and offer up to 2,857,143 units at a price of $0.20 per unit.
Each unit consisted of one share of common stock, one-half Class A Warrant
and one Class B Warrant. The first tranche of this offering closed on
July 27, 2006 and consisted of 1,075,000 units at $0.20 per unit for net
proceeds of $193,500 after stock issuance costs of $21,500.
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2.
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Summary of Significant Accounting Policies
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a)
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Basis of Presentation
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These consolidated financial statements and related
notes are presented in accordance with accounting principles generally
accepted in the United States, and are expressed in U.S. dollars. The
Companys fiscal year-end is December 31.
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b)
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Use of Estimates
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The preparation of consolidated financial statements
in conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. The Company
regularly evaluates estimates and assumptions related to the useful life
and recoverability of long-lived assets, stock-based compensation and
deferred income tax asset valuation allowances. The Company bases its
estimates and assumptions on current facts, historical experience and
various other factors that it believes to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities and the accrual of costs and expenses
that are not readily apparent from other sources. The actual results experienced
by the Company may differ materially and adversely from the Companys
estimates. To the extent there are material differences between the estimates
and the actual results, future results of operations will be affected.
|
F-7
Lincoln Gold Corporation
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2006
(Expressed in U.S. dollars)
2.
|
Summary of Significant Accounting Policies (continued)
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c)
|
Basic and Diluted Net Income (Loss) Per Share
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The Company computes net income (loss) per share in
accordance with SFAS No. 128 Earnings per Share. SFAS No.
128 requires presentation of both basic and diluted earnings per share
(EPS) on the face of the consolidated statement of operations. Basic EPS
is computed by dividing net income (loss) available to common shareholders
(numerator) by the weighted average number of shares outstanding (denominator)
during the period. Diluted EPS gives effect to all dilutive potential
common shares outstanding during the period using the treasury stock method
and convertible preferred stock using the if-covered method. In computing
diluted EPS, the average stock price for the period is used in determining
the number of shares assumed to be purchased from the exercise of stock
options or warrants. Diluted EPS and the weighted average number of common
shares exclude all dilutive potential shares since their effect is anti
dilutive. Shares underlying these securities totaled 7,147,500 as of December
31, 2006.
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d)
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Comprehensive Loss
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SFAS No. 130, Reporting Comprehensive Income,
establishes standards for the reporting and display of comprehensive loss
and its components in the consolidated financial statements. As at December
31, 2006 and 2005 the Company has no items that represent a comprehensive
loss and, therefore, has not included a schedule of comprehensive loss
in the consolidated financial statements.
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e)
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Cash and Cash Equivalents
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The Company considers all highly liquid instruments
with maturity of three months or less at the time of issuance to be cash
equivalents.
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f)
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Property and Equipment
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Property and equipment consists of office equipment
and fixtures, computer software, and computer hardware and is recorded
at cost. Depreciation is based on a straight line basis over the following
periods: Office equipment and fixtures five years; computer software
two years; and computer hardware three years.
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g)
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Long-lived Assets
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In accordance with SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, the carrying value
of intangible assets and other long-lived assets is reviewed on a regular
basis for the existence of facts or circumstances that may suggest impairment.
The Company recognizes impairment when the sum of the expected undiscounted
future cash flows is less than the carrying amount of the asset. Impairment
losses, if any, are measured as the excess of the carrying amount of the
asset over its estimated fair value.
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h)
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Mineral Property Costs
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The Company has been in the exploration stage since
its formation on September 25, 2003 and has not yet realized any revenues
from its planned operations. It is primarily engaged in the acquisition
and exploration of mining properties. Mineral property exploration costs
are expensed as incurred. Mineral property acquisition costs are initially
capitalized when incurred using the guidance in EITF 04-02, Whether
Mineral Rights Are Tangible or Intangible Assets. The Company assesses
the carrying costs for impairment under SFAS No. 144, Accounting
for Impairment or Disposal of Long Lived Assets at each fiscal quarter
end. When it has been determined that a mineral property can be economically
developed as a result of establishing proven and probable reserves, the
costs then incurred to develop such property, are capitalized. Such costs
will be amortized using the units-of-production method over the estimated
life of the probable reserve. If mineral properties are subsequently abandoned
or impaired, any capitalized costs will be charged to operations. During
the fiscal year ended December 31, 2006, mineral property costs totaling
$10,000 were impaired as there are no proven or probable reserves on these
properties.
|
F-8
Lincoln Gold Corporation
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2006
(Expressed in U.S. dollars)
2.
|
Summary of Significant Accounting Policies (continued)
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i)
|
Financial Instruments
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The fair values of cash, accounts payable, accrued liabilities,
due to related parties and note payable approximate their carrying values
due to the immediate or short-term maturity of these financial instruments.
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j)
|
Income Taxes
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Potential benefits of income tax losses are not recognized
in the accounts until realization is more likely that not. The Company
has adopted SFAS No. 109 Accounting for Income Taxes as of
its inception. Pursuant to SFAS No. 109 the Company is required to compute
tax asset benefits for net operating losses carried forward. The potential
benefits of net operating losses have not been recognized in these consolidated
financial statements because the Company cannot be assured it is more
likely than not it will utilize the net operating losses carried forward
in future years.
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k)
|
Foreign Currency Translation
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The Companys functional and reporting currency
is the United States dollar. Foreign currency transactions are primarily
undertaken in Canadian dollars and are translated into United States dollars
using exchange rates at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are remeasured at each consolidated
balance sheet date at the exchange rate prevailing at the balance sheet
date. Foreign currency exchange gains and losses are charged to operations.
The Company has not, to the date of these consolidated financial statements,
entered into derivative instruments to offset the impact of foreign currency
fluctuations.
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l)
|
Stock-based Compensation
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Prior to January 1, 2006, the Company accounted for
stock-based awards under the recognition and measurement provisions of
Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees using the intrinsic value method of accounting,
under which compensation expense was only recognized if the exercise price
of the Companys employee stock options was less than the market
price of the underlying common stock on the date of grant. Effective January
1, 2006, the Company adopted the fair value recognition provisions of
SFAS No. 123R Share Based Payments, using the modified prospective
transition method. Under that transition method, compensation cost is
recognized for all share-based payments granted prior to, but not yet
vested as of January 1, 2006, based on the grant date fair value estimated
in accordance with the original provisions of SFAS No. 123, and compensation
cost for all share-based payments granted subsequent to January 1, 2006,
based on the grant-date fair value estimated in accordance with the provisions
of SFAS 123R. Results for prior periods have not been restated. There
was no effect on the Companys reported loss from operations, cash
flows of loss per share as a result of adopting SFAS No. 123R.
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All transactions in which goods or services are the
consideration received for the issuance of equity instruments are accounted
for based on the fair value of the consideration received or the fair
value of the equity instrument issued, whichever is more reliably measurable.
Equity instruments issued to employees and the cost of the services received
as consideration are measured and recognized based on the fair value of
the equity instruments issued.
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m)
|
Recent Accounting Pronouncements
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|
In February 2007, the Financial Accounting Standards
Board (FASB) issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities Including an Amendment
of FASB Statement No. 115. This statement permits entities to choose
to measure many financial instruments and certain other items at fair
value. Most of the provisions of SFAS No. 159 apply only to entities that
elect the fair value option. However, the amendment to SFAS No. 115 Accounting
for Certain Investments in Debt and Equity Securities applies to
all entities with available-for-sale and trading securities. SFAS No.
159 is effective as of the beginning of an entitys first fiscal
year that begins after November 15, 2007. Early adoption is permitted
as of the beginning of a fiscal year that begins on or before November
15, 2007, provided the entity also elects to apply the provision of SFAS
No. 157, Fair Value Measurements. The adoption of this statement
is not expected to have a material effect on the Company's financial statements.
|
F-9
Lincoln Gold Corporation
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2006
(Expressed in U.S. dollars)
2.
|
Summary of Significant Accounting Policies (continued)
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m)
|
Recent Accounting Pronouncements (continued)
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|
In September 2006, the SEC issued Staff Accounting Bulletin
(SAB) No. 108, Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements. SAB No. 108 addresses how the effects of prior year
uncorrected misstatements should be considered when quantifying misstatements
in current year financial statements. SAB No. 108 requires companies to
quantify misstatements using a balance sheet and income statement approach
and to evaluate whether either approach results in quantifying an error
that is material in light of relevant quantitative and qualitative factors.
SAB No. 108 is effective for periods ending after November 15, 2006. The
adoption of this statement did not have a material effect on the Company's
reported financial position or results of operations.
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In September 2006, the FASB issued SFAS No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement Plans
an amendment of FASB Statements No. 87, 88, 106, and 132(R).
This statement requires employers to recognize the overfunded or underfunded
status of a defined benefit postretirement plan (other than a multiemployer
plan) as an asset or liability in its statement of financial position
and to recognize changes in that funded status in the year in which the
changes occur through comprehensive income of a business entity or changes
in unrestricted net assets of a not-for-profit organization. This statement
also requires an employer to measure the funded status of a plan as of
the date of its year-end statement of financial position, with limited
exceptions. The provisions of SFAS No. 158 are effective for employers
with publicly traded equity securities as of the end of the fiscal year
ending after December 15, 2006. The adoption of this statement did not
have a material effect on the Company's reported financial position or
results of operations.
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In September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements. The objective of SFAS No. 157 is to increase
consistency and comparability in fair value measurements and to expand
disclosures about fair value measurements. SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements.
SFAS No. 157 applies under other accounting pronouncements that require
or permit fair value measurements and does not require any new fair value
measurements. The provisions of SFAS No. 157 are effective for fair value
measurements made in fiscal years beginning after November 15, 2007. The
adoption of this statement is not expected to have a material effect on
the Company's future reported financial position or results of operations.
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|
In June 2006, the FASB issued FASB Interpretation No.
48, Accounting for Uncertainty in Income Taxes, an interpretation
of FASB Statements No. 109 (FIN 48). FIN 48 clarifies
the accounting for uncertainty in income taxes by prescribing a two-step
method of first evaluating whether a tax position has met a more likely
than not recognition threshold and second, measuring that tax position
to determine the amount of benefit to be recognized in the consolidated
financial statements. FIN 48 provides guidance on the presentation of
such positions within a classified statement of financial position as
well as on derecognition, interest and penalties, accounting in interim
periods, disclosure, and transition. FIN 48 is effective for fiscal years
beginning after December 15, 2006. The adoption of this statement is not
expected to have a material effect on the Company's future reported financial
position or results of operations.
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In March 2006, the FASB issued SFAS No. 156, "Accounting
for Servicing of Financial Assets, an amendment of FASB Statement No.
140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities". This statement requires all separately recognized servicing
assets and servicing liabilities be initially measured at fair value,
if practicable, and permits for subsequent measurement using either fair
value measurement with changes in fair value reflected in earnings or
the amortization and impairment requirements of Statement No. 140. The
subsequent measurement of separately recognized servicing assets and servicing
liabilities at fair value eliminates the necessity for entities that manage
the risks inherent in servicing assets and servicing liabilities with
derivatives to qualify for hedge accounting treatment and eliminates the
characterization of declines in fair value as impairments or direct write-downs.
SFAS No. 156 is effective for an entity's first fiscal year beginning
after September 15, 2006. The adoption of this statement is not expected
to have a material effect on the Company's future reported financial position
or results of operations.
|
F-10
Lincoln Gold Corporation
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2006
(Expressed in U.S. dollars)
2.
|
Summary of Significant Accounting Policies (continued)
|
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m)
|
Recent Accounting Pronouncements (continued)
|
|
|
|
|
|
In February 2006, the FASB issued SFAS No. 155, "Accounting
for Certain Hybrid Financial Instruments-an amendment of FASB Statements
No. 133 and 140", to simplify and make more consistent the accounting
for certain financial instruments. SFAS No. 155 amends SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities", to permit fair value
re-measurement for any hybrid financial instrument with an embedded derivative
that otherwise would require bifurcation, provided that the whole instrument
is accounted for on a fair value basis. SFAS No. 155 amends SFAS No. 140,
"Accounting for the Impairment or Disposal of Long-Lived Assets", to allow
a qualifying special-purpose entity to hold a derivative financial instrument
that pertains to a beneficial interest other than another derivative financial
instrument. SFAS No. 155 applies to all financial instruments acquired
or issued after the beginning of an entity's first fiscal year that begins
after September 15, 2006, with earlier application allowed. The adoption
of this statement is not expected to have a material effect on the Company's
future reported financial position or results of operations.
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3.
|
Property and Equipment
|
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|
|
December 31,
|
|
|
December 31,
|
|
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|
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|
|
|
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|
|
2006
|
|
|
2005
|
|
|
|
|
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|
|
Accumulated
|
|
|
Net Carrying
|
|
|
Net Carrying
|
|
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|
|
Cost
|
|
|
Depreciation
|
|
|
Value
|
|
|
Value
|
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|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Computer hardware
|
|
4,676
|
|
|
2,461
|
|
|
2,215
|
|
|
3,774
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|
|
Computer software
|
|
1,345
|
|
|
1,289
|
|
|
56
|
|
|
729
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|
|
Office equipment and fixtures
|
|
3,285
|
|
|
1,116
|
|
|
2,169
|
|
|
2,825
|
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|
9,306
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|
|
4,866
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|
4,440
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|
|
7,328
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4.
|
Mineral Property Interests
|
|
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|
|
a)
|
Hannah Property
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On December 24, 2003, the Company entered
into an option agreement to acquire a 100% interest in twenty-three unpatented
lode claims situated in Churchill County, Nevada, USA. The option agreement
called for net smelter royalties of 1% to 4% upon production. Pursuant
to the option agreement, the Company is required to make option payments
totaling $210,000 as follows:
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$5,000 upon signing the agreement (paid);
$5,000 on January 10, 2005 (paid);
$10,000 on January 10, 2006 (paid);
$15,000 on January 10, 2007;
$25,000 on January 10
th
of each year from 2008 to 2012; and
$50,000 on January 10, 2013.
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Subsequent to December 31, 2006, the Company
amended the agreement whereby the $15,000 due on January 10, 2007 would
be paid in equal installments of $3,750 on January 10, 2007 (paid), April
10, 2007, July 10, 2007 and October 10, 2007
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b)
|
JDS Property
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|
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|
|
In fiscal 2004, the Company acquired, by staking,
a 100% interest in seventy-seven mineral claims in Eureka County, Nevada,
USA.
|
F-11
Lincoln Gold Corporation
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2006
(Expressed in U.S. dollars)
4.
|
Mineral Property Interests (continued)
|
|
c)
|
Buffalo Valley Property
|
|
|
|
|
|
|
On July 9, 2004, the Company entered into
a mining lease agreement with Nevada North Resources (U.S.A.) Inc. (Nevada
North) for a term of twenty years. The agreement called for the
Company to make advance minimum royalties to the Lessor over the term
as follows:
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|
|
|
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|
|
$10,000 upon exercise of the lease (paid);
$20,000 by July 9, 2005 (paid);
$20,000 by July 9, 2006 (lease terminated)
|
|
|
|
|
|
|
On July 26, 2005, the Company entered into
an agreement whereby it granted the right to earn up to a 75% interest
in the property to an Optionee. To earn a 60% interest, the Optionee had
a work commitment (includes maintaining the underlying leases and claims
in good standing) of $3,000,000 over a five-year period. Since exploration
results were considered poor, the option agreement was terminated. On
May 24, 2006, the Company terminated its lease agreement with Nevada North
and returned the property to them.
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|
|
|
|
|
d)
|
Jenny Hill Property
|
|
|
|
|
|
|
On September 28, 2004, the Company entered
into a mining lease and option to purchase agreement comprising ninety-seven
mineral claims situated in Mineral and Nye Counties, Nevada for a term
of seven years. The agreement calls for the Company to make option payments
$1,500,000 over a seven year period as follows:
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|
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|
|
$20,000 upon signing the agreement (paid);
$25,000 by September 28, 2005 (paid);
$30,000 by September 28, 2006 (paid by Optionee);
$60,000 by September 28, 2007;
$70,000 by September 28, 2008;
$80,000 by September 28, 2009;
$90,000 by September 28, 2010; and
$1,125,000 by September 28, 2011.
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|
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|
|
The Company must also complete a work program
on the property of $50,000, in the first lease year and $100,000 for the
second and each subsequent lease year until the option is completed. The
agreement is subject to a net smelter return of 2%.
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|
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|
|
|
|
On December 9, 2005, the Company entered into
a non-binding agreement whereby it offered the right to earn a 60% interest
in the property to an Optionee. The Optionee can earn a 60% interest by
spending $3,000,000 in exploration work on the property over a five-year
period with a minimum expenditure of $200,000 to be spent during the first
year. In addition, the Optionee can earn an additional 10% interest by
completing a feasibility study on the project and an additional 5% interest
(for a total of 75%) by arranging financing on behalf of the Company for
its share of the construction costs as a result of both parties reaching
a positive construction decision for a mine operation on the project.
A formal agreement is to be signed by both parties within ninety days
(extended).
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|
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|
|
|
e)
|
La Bufa Property
|
|
|
|
|
|
|
On August 5, 2005, the Company entered into
a Letter of Intent with Almaden Minerals Ltd. (Almaden) to
form a joint venture for the exploration and development of the La Bufa
property, located in Chihuahua, Mexico. Under the Letter of Intent, the
Company may acquire a 51% interest in the La Bufa property by spending
$2,000,000 on the property over four years and by issuing 350,000 shares
of the Company to Almaden over a five year period (50,000 shares issued
at a fair value of $10,000 on March 15, 2006). The Company is in the process
of issuing 60,000 shares which were due and payable August 5, 2006. In
addition, the Company may acquire another 9% of the property by spending
an additional $1,000,000 on the property. If production is achieved, the
Company will pay a bonus by issuing 100,000 of its shares. The Company
is committed to spend $100,000 in the first year.
|
F-12
Lincoln Gold Corporation
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2006
(Expressed in U.S. dollars)
5.
|
Related Party Transactions
|
|
|
|
|
a)
|
During the year ended December 31, 2006, the Company
paid management fees of $42,250 (2005 - $49,098) and rent of $3,300 (2005
- $3,000) to the Vice President of the Company and management fees of
$20,545 (2005 - $26,750) to a company owned by the President of the Company.
Management fees and rent are included in general and administrative expenses.
|
|
|
|
|
b)
|
As at December 31, 2006, the Company owed $6,760 (December
31, 2005 - $8,080) to various officers and directors and to a company
controlled by the President of the Company. These amounts are unsecured,
non-interest bearing and due on demand.
|
|
|
|
6.
|
Note Payable
|
|
|
|
|
On January 28, 2004, the Company issued a
$200,000 convertible note with 5,000,000 warrants to purchase common stock
of the Company at $0.04 per share which expires on January 28, 2006. The
note carries an interest rate of 10% compounded monthly and was due on
January 28, 2006. The interest is payable annually with the second year
interest payment due with the principal amount. The holder could convert
any portion of the debt to common stock at the value of $0.04 per share
until January 28, 2006. Warrants could be exercised in minimum amounts
of 1,000 shares at a conversion price of $0.04 per share. In accordance
with EITF 00-27 Application of Issue No. 98-5 to Certain Convertible
Instruments and EITF 98-5 Accounting for Convertible Securities
with Beneficial Conversion Features or Contingently Adjustable Conversion
Ratios, there was determined to be minimal fair value related to
the warrants issued and there was no beneficial conversion feature amount.
|
|
|
|
|
On September 15, 2005, the Company completed
an agreement whereby the Company repaid $100,000 of the convertible note
along with $35,000 accrued interest and agreed to repay the remaining
$100,000 within sixty days (outstanding). With the completion of the first
payment the conversion feature and warrants issued were cancelled.
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|
|
|
7.
|
Common Stock
|
|
|
|
|
a)
|
On December 31, 2006, the Company was obligated to issue
666,666 shares of common stock at a fair value of $0.11 per share for
consulting services rendered. The total fair value of $73,333 has been
recorded as common stock subscribed as at December 31, 2006. The shares
were issued subsequently.
|
|
|
|
|
b)
|
On July 27, 2006, the Company completed the first tranche
of a private placement and issued 1,075,000 units at $0.20 per unit for
gross proceeds of $215,000, with related stock issuance costs of $21,500.
Each unit consisted of one share of common stock and one-half of one Series
A warrant and one whole Series B warrant. Each whole Series A warrant
will be exercisable to acquire one share of common stock at $0.35 per
share for a term of one year from the issuance date. Each whole Series
B warrant will be exercisable to acquire one share of common stock at
$1.35 per share for a term of four years from the issuance date.
|
|
|
|
|
c)
|
On March 15, 2006, the Company issued 50,000 shares
of common stock at a fair value of $10,000 pursuant to a mineral property
option agreement. See Note 4(e).
|
|
|
|
|
d)
|
On August 15, 2005, the Company issued 300,000 shares
of common stock at a fair value of $108,000 to a consultant for investor
relations services rendered.
|
|
|
|
|
e)
|
On March 31, 2005, the Company issued 20,000 shares
of common stock at $0.60 per share for proceeds of $12,000 pursuant to
the exercise of stock options.
|
|
|
|
|
f)
|
On March 10, 2005, the Company issued 3,145,000 units
at $0.30 per unit for gross proceeds of $943,500 pursuant to a private
placement. Each unit consisted of one share of common stock and one share
purchase warrant entitling the holder to purchase one additional share
at $0.40 during the first year and at $0.50 per share during the second
year. The Company paid commissions of $42,210 in connection with this
private placement.
|
F-13
Lincoln Gold Corporation
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2006
(Expressed in U.S. dollars)
8.
|
Stock Options
|
|
|
|
In fiscal 2004, the Board of Directors approved the
2004 Stock Option Plan for a maximum of 2,500,000 shares available to
be granted to directors, officers, employees and consultants. The stock
option exercise price is set at the fair market value of the shares at
the date of grant. The term of the stock options, once granted, is not
to exceed ten years. The vesting period of the stock options is set at
the discretion of the Board of Directors.
|
|
|
|
On February 23, 2005, the Board of Directors approved
the 2005 Stock Option Plan for a maximum of 2,000,000 shares available
to be granted to directors, officers, employees and consultants. The stock
option exercise price is set at the fair market value of the shares at
the date of grant. The term of the stock options, once granted, is not
to exceed ten years. The vesting period of the stock options is set at
the discretion of the Board of Directors.
|
|
|
|
A summary of the Companys stock option activity
is as follows:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
Number of
|
|
|
Price
|
|
|
|
Options
|
|
|
$
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
2,410,000
|
|
|
0.60
|
|
Exercised
|
|
(20,000
|
)
|
|
0.60
|
|
|
|
|
|
|
|
|
Balance, December
31, 2005 and 2006
|
|
2,390,000
|
|
|
0.60
|
|
There are no unvested stock options as
at December 31, 2006.
Additional information regarding stock options outstanding
as at December 31, 2006 is as follows:
|
|
Outstanding
and Exercisable
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted Average
|
|
|
Average
|
|
|
|
Number of
|
|
|
Remaining
|
|
|
Exercise Price
|
|
Exercise price
|
|
Options
|
|
|
Contractual Life
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
$0.60
|
|
2,390,000
|
|
|
0.44 years
|
|
|
0.60
|
|
The aggregate intrinsic value of stock options outstanding
and vested as at December 31, 2006 is $262,900.
9.
|
Share Purchase Warrants
|
|
|
|
The following table summarizes the continuity of the
Companys share purchase warrants:
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
Number of
|
|
|
Price
|
|
|
|
|
Warrants
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2004
|
|
7,300,000
|
|
|
0.16
|
|
|
Issued
|
|
3,145,000
|
|
|
0.40
|
|
|
Cancelled
|
|
(5,000,000
|
)
|
|
0.04
|
|
|
Balance, December 31, 2005
|
|
5,445,000
|
|
|
0.44
|
|
|
Issued
|
|
1,612,500
|
|
|
1.02
|
|
|
Expired
|
|
(2,300,000
|
)
|
|
0.50
|
|
|
Balance, December 31, 2006
|
|
4,757,500
|
|
|
0.68
|
|
F-14
Lincoln Gold Corporation
(An Exploration Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2006
(Expressed in U.S. dollars)
9.
|
Share Purchase Warrants (continued)
|
|
|
|
As at December 31, 2006 the following share purchase
warrants were outstanding:
|
|
|
Exercise
|
|
|
Number of
|
Price
|
|
|
Warrants
|
$
|
Expiry Date
|
|
3,145,000
|
0.50
|
March 10, 2007
|
|
537,500
|
0.35
|
July 27, 2007
|
|
1,075,000
|
1.35
|
July 27, 2010
|
|
|
|
|
|
4,757,500
|
|
|
10.
|
Income Taxes
|
|
|
|
Potential benefits of income tax losses are not recognized
in the accounts until realization is more likely than not. The Company
has incurred cumulative net operating losses of approximately $2,186,000
which commence expiring in 2023. Pursuant to SFAS No. 109 the Company
is required to compute tax asset benefits for net operating losses carried
forward. The potential benefits of net operating losses have not been
recognized in these financial statements because the Company cannot be
assured it is more likely than not it will utilize the net operating losses
carried forward in future years. During the years ended December 31, 2006
and 2005, the valuation allowance established against the deferred tax
assets increased by $144,900 and $415,300, respectively.
|
|
|
|
The components of the net deferred tax asset as at December
31, 2006 and 2005, and the statutory tax rate, the effective tax rate
and the elected amount of the valuation allowance are indicated below:
|
|
2006
|
2005
|
|
$
|
$
|
Net Operating Losses
|
2,186,000
|
1,772,000
|
Statutory Tax Rate
|
35%
|
35%
|
Effective Tax Rate
|
|
|
Deferred Tax Asset
|
765,100
|
620,200
|
Valuation Allowance
|
(765,100)
|
(620,200)
|
Net Deferred Tax Asset
|
|
|
11.
|
Subsequent Events
|
|
|
|
Subsequent to December 31, 2006, the Company issued
666,666 shares of common stock for consulting services rendered in fiscal
2006. See Note 7(a).
|
F-15
Unaudited Financial Statements for the Six Months Ended June
30, 2007
F-16
Lincoln Gold Corporation
|
(An Exploration Stage Company)
|
Consolidated Balance Sheets
|
(Expressed in U.S. dollars)
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
$
|
|
|
$
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash
|
|
201,997
|
|
|
21,961
|
|
Prepaid
expenses and deposits
|
|
-
|
|
|
4,893
|
|
Total Current Assets
|
|
201,997
|
|
|
26,854
|
|
Property and Equipment
(Note 3)
|
|
3,276
|
|
|
4,440
|
|
Total Assets
|
|
205,273
|
|
|
31,294
|
|
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
Accounts payable
|
|
51,283
|
|
|
35,467
|
|
Accrued liabilities
|
|
18,548
|
|
|
14,990
|
|
Due to related parties (Note 5(b))
|
|
6,641
|
|
|
6,760
|
|
Note payable (Note 6)
|
|
100,000
|
|
|
100,000
|
|
Total Liabilities
|
|
176,472
|
|
|
157,217
|
|
Commitments and Contingencies (Notes 1 and
4)
|
|
|
|
|
|
|
Stockholders Equity (Deficit)
|
|
|
|
|
|
|
Common Stock, 100,000,000 shares authorized,
$0.001 par value;
|
|
|
|
|
|
|
47,141,666 and 42,990,000 shares issued and outstanding,
respectively
|
|
47,142
|
|
|
42,990
|
|
Additional Paid-in Capital
|
|
3,695,969
|
|
|
3,294,863
|
|
Common Stock Subscribed (Note 7(a))
|
|
-
|
|
|
73,333
|
|
Deficit Accumulated During the Exploration
Stage
|
|
(3,715,760
|
)
|
|
(3,537,109
|
)
|
Accumulated Other
Comprehensive Income
|
|
1,450
|
|
|
-
|
|
Total Stockholders Equity (Deficit)
|
|
28,801
|
|
|
(125,923
|
)
|
Total Liabilities
and Stockholders Equity (Deficit)
|
|
205,273
|
|
|
31,294
|
|
F-17
(The accompanying notes are an integral part of these consolidated
financial statements)
Lincoln Gold Corporation
|
(An Exploration Stage Company)
|
Consolidated Statements of Operations
|
(Expressed in U.S. dollars)
|
(unaudited)
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
|
|
|
For the Three
|
|
|
For the Three
|
|
|
For the Six
|
|
|
For the Six
|
|
|
|
September 25, 2003
|
|
|
Months
|
|
|
Months
|
|
|
Months
|
|
|
Months
|
|
|
|
(Date of Inception)
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
to June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Revenue
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
6,030
|
|
|
554
|
|
|
722
|
|
|
1,164
|
|
|
1,444
|
|
Foreign exchange loss
|
|
6,818
|
|
|
813
|
|
|
1,233
|
|
|
985
|
|
|
2,009
|
|
General and administrative
(Note 5(a))
|
|
2,531,091
|
|
|
59,257
|
|
|
60,554
|
|
|
93,689
|
|
|
119,632
|
|
Impairment of mineral properties
|
|
93,350
|
|
|
27,600
|
|
|
-
|
|
|
31,350
|
|
|
10,000
|
|
Mineral exploration
|
|
946,308
|
|
|
38,616
|
|
|
3,743
|
|
|
46,804
|
|
|
16,475
|
|
Total Expenses
|
|
3,586,597
|
|
|
126,840
|
|
|
66,252
|
|
|
173,992
|
|
|
149,560
|
|
Loss From Operations
|
|
(3,586,597
|
)
|
|
(126,840
|
)
|
|
(66,252
|
)
|
|
(173,992
|
)
|
|
(149,560
|
)
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable written
off
|
|
33,564
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Interest income
|
|
12,104
|
|
|
999
|
|
|
267
|
|
|
1,099
|
|
|
923
|
|
Interest expense
|
|
(53,479
|
)
|
|
(2,915
|
)
|
|
(2,649
|
)
|
|
(5,758
|
)
|
|
(5,214
|
)
|
Total Other Income
(Expense)
|
|
(7,811
|
)
|
|
(1,916
|
)
|
|
(2,382
|
)
|
|
(4,659
|
)
|
|
(4,291
|
)
|
Net Loss
|
|
(3,594,408
|
)
|
|
(128,756
|
)
|
|
(68,634
|
)
|
|
(178,651
|
)
|
|
(153,851
|
)
|
Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain
|
|
1,450
|
|
|
1,450
|
|
|
-
|
|
|
1,450
|
|
|
-
|
|
Comprehensive Loss
|
|
(3,592,958
|
)
|
|
(127,306
|
)
|
|
(68,634
|
)
|
|
(177,201
|
)
|
|
(153,851
|
)
|
Net Loss Per Share Basic and Diluted
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Weighted Average Shares
Outstanding
|
|
|
|
|
44,794,000
|
|
|
41,915,000
|
|
|
44,150,000
|
|
|
41,892,000
|
|
F-18
(The accompanying notes are an integral part of these consolidated
financial statements)
Lincoln Gold Corporation
|
(An Exploration Stage Company)
|
Consolidated Statements of Cash Flows
|
(Expressed in U.S. dollars)
|
(unaudited)
|
|
|
For the Six
|
|
|
For the Six
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
$
|
|
|
$
|
|
Operating Activities
|
|
|
|
|
|
|
Net loss
|
|
(178,651
|
)
|
|
(153,851
|
)
|
Adjustments to reconcile net loss
to net cash used
|
|
|
|
|
|
|
in operating activities:
|
|
|
|
|
|
|
Depreciation
|
|
1,164
|
|
|
1,444
|
|
Impairment of mineral properties
|
|
31,350
|
|
|
10,000
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
Prepaid expenses and deposits
|
|
4,893
|
|
|
4,902
|
|
Account payable
and accrued liabilities
|
|
19,374
|
|
|
15,878
|
|
Due to related parties
|
|
(119
|
)
|
|
4,804
|
|
Net Cash Used in Operating Activities
|
|
(121,989
|
)
|
|
(116,823
|
)
|
Investing Activities
|
|
|
|
|
|
|
Mineral property costs
|
|
(7,500
|
)
|
|
-
|
|
Net Cash Used in Investing
Activities
|
|
(7,500
|
)
|
|
-
|
|
Financing Activities
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
327,500
|
|
|
-
|
|
Share issuance costs
|
|
(19,425
|
)
|
|
-
|
|
Net Cash Flows Provided
by Financing Activities
|
|
308,075
|
|
|
-
|
|
Effect of Foreign Exchange Rates on Cash
|
|
1,450
|
|
|
-
|
|
Increase (Decrease) in Cash
|
|
180,036
|
|
|
(116,823
|
)
|
Cash Beginning of Period
|
|
21,961
|
|
|
132,806
|
|
Cash End of
Period
|
|
201,997
|
|
|
15,983
|
|
|
|
|
|
|
|
|
Non-cash Investing and Financing Activities
|
|
|
|
|
|
|
Shares issued for mineral property costs
|
|
23,850
|
|
|
10,000
|
|
|
|
|
|
|
|
|
Supplemental Disclosures
|
|
|
|
|
|
|
Interest paid
|
|
-
|
|
|
-
|
|
Income tax paid
|
|
-
|
|
|
-
|
|
F-19
(The accompanying notes are an integral part of these consolidated
financial statements)
Lincoln Gold Corporation
|
(An Exploration Stage Company)
|
Notes to the Consolidated Financial Statements
|
June 30, 2007
|
(Expressed in U.S. dollars)
|
(unaudited)
|
1.
|
Nature of Operations and Continuance of Business
|
|
|
|
|
Lincoln Gold Corporation (the Company)
was incorporated in the State of Nevada, USA, on February 17, 1999 under
the name of Braden Technologies Inc. Effective March 26, 2004, the Company
acquired 100% of the issued and outstanding shares of Lincoln Gold Corp.,
a private company incorporated in the State of Nevada, USA, on September
25, 2003. On April 6, 2004, the Company and its subsidiary, Lincoln Gold
Corp., merged to form Lincoln Gold Corporation. On September 12, 2006,
the Company incorporated a Mexican subsidiary, Minera Lincoln de Mexico
SA de CV.
|
|
|
|
|
The Company is an Exploration Stage Company,
as defined by Statement of Financial Accounting Standard (SFAS)
No. 7
Accounting and Reporting by Development Stage Enterprises
.
The Companys principal business is the acquisition and exploration
of mineral resources. The Company has not presently determined whether
its properties contain mineral reserves that are economically recoverable.
|
|
|
|
|
These interim consolidated financial statements
have been prepared on a going concern basis, which implies the Company
will continue to realize its assets and discharge its liabilities in the
normal course of business. The Company has never generated revenues since
inception and has never paid any dividends and is unlikely to pay dividends
or generate earnings in the immediate or foreseeable future. The continuation
of the Company as a going concern is dependent upon the continued financial
support from its shareholders, the ability of the Company to obtain necessary
equity financing to continue operations and to determine the existence,
discovery and successful exploitation of economically recoverable reserves
in its resource properties, confirmation of the Companys interests
in the underlying properties, and the attainment of profitable operations.
As at June 30, 2007, the Company has never generated any revenues and
has accumulated losses of $3,715,760 since inception of the exploration
stage. These factors raise substantial doubt regarding the Companys
ability to continue as a going concern. These financial statements do
not include any adjustments to the recoverability and classification of
recorded asset amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
|
|
|
|
|
Management plans to continue private placement
issuances of the Companys shares in order to raise the funds necessary
to pursue its plan of operation and fund working capital.
|
|
|
|
2.
|
Summary of Significant Accounting Policies
|
|
|
|
|
a)
|
Basis of Presentation
|
|
|
|
|
|
The consolidated financial statements include the accounts
of the Company and its wholly owned subsidiary. All significant inter-company
balances have been eliminated. These interim consolidated financial statements
and related notes are presented in accordance with accounting principles
generally accepted in the United States, and are expressed in U.S. dollars.
The Companys fiscal year-end is December 31.
|
|
|
|
|
b)
|
Interim Financial Statements
|
|
|
|
|
|
The interim unaudited consolidated financial statements
have been prepared in accordance with accounting principles generally
accepted in the United States for interim financial information and with
the instructions to Securities and Exchange Commission (SEC)
Form 10-QSB. They do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. Therefore, these financial statements should be read in conjunction
with the Companys audited consolidated financial statements and
notes thereto for the year ended December 31, 2006, included in the Companys
Annual Report on Form 10-KSB filed on April 2, 2007 with the SEC.
|
|
|
|
|
|
The consolidated financial statements included herein
are unaudited; however, they contain all normal recurring accruals and
adjustments that, in the opinion of management, are necessary to present
fairly the Companys consolidated financial position at June 30,
2007 and December 31, 2006, and the consolidated results of its operations
and cash flows for the six months ended June 30, 2007 and 2006. The results
of operations for the six months ended June 30, 2007 are not necessarily
indicative of the results to be expected for future quarters or the full
year.
|
F-20
Lincoln Gold Corporation
|
(An Exploration Stage Company)
|
Notes to the Consolidated Financial Statements
|
June 30, 2007
|
(Expressed in U.S. dollars)
|
(unaudited)
|
2.
|
Summary of Significant Accounting Policies
(continued)
|
|
|
|
|
c)
|
Comprehensive Income
|
|
|
|
|
|
SFAS No. 130,
Reporting Comprehensive Income
,
establishes standards for the reporting and display of comprehensive loss
and its components in the consolidated financial statements. As at June
30, 2007, the Companys only component of comprehensive loss consisted
of foreign currency translation adjustments.
|
|
|
|
|
d)
|
Use of Estimates
|
|
|
|
|
|
The preparation of consolidated financial statements
in conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The Company regularly evaluates estimates
and assumptions related to the useful life and recoverability of long-lived
assets, stock-based compensation and deferred income tax asset valuation
allowances. The Company bases its estimates and assumptions on current
facts, historical experience and various other factors that it believes
to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
and the accrual of costs and expenses that are not readily apparent from
other sources. The actual results experienced by the Company may differ
materially and adversely from the Companys estimates. To the extent
there are material differences between the estimates and actual results,
future results of operations will be affected.
|
|
|
|
|
e)
|
Basic and Diluted Net Income (Loss) Per Share
|
|
|
|
|
|
The Company computes net income (loss) per share in
accordance with SFAS No. 128
Earnings per Share
. SFAS
No. 128 requires presentation of both basic and diluted earnings per share
(EPS) on the face of the consolidated statement of operations. Basic EPS
is computed by dividing net income (loss) available to common shareholders
(numerator) by the weighted average number of shares outstanding (denominator)
during the period. Diluted EPS gives effect to all dilutive potential
common shares outstanding during the period using the treasury stock method
and convertible preferred stock using the if-covered method. In computing
diluted EPS, the average stock price for the period is used in determining
the number of shares assumed to be purchased from the exercise of stock
options or warrants. Diluted EPS and the weighted average number of common
shares exclude all dilutive potential shares since their effect is anti
dilutive. Shares underlying these securities totaled 5,287,500 as of June
30, 2007.
|
|
|
|
|
f)
|
Cash and Cash Equivalents
|
|
|
|
|
|
The Company considers all highly liquid instruments
with maturity of three months or less at the time of issuance to be cash
equivalents.
|
|
|
|
|
g)
|
Property and Equipment
|
|
|
|
|
|
Property and equipment consists of office equipment
and fixtures, computer software, and computer hardware and is recorded
at cost. Depreciation is based on a straight line basis over the following
periods: Office equipment and fixtures five years; computer software
two years; and computer hardware three years.
|
|
|
|
|
h)
|
Long-lived Assets
|
|
|
|
|
|
In accordance with SFAS No. 144,
Accounting
for the Impairment or Disposal of Long-Lived Assets
, the Company
tests long-lived assets or asset groups for recoverability when events
or changes in circumstances indicate that their carrying amount may not
be recoverable. Circumstances which could trigger a review include, but
are not limited to: significant decreases in the market price of the asset;
significant adverse changes in the business climate or legal factors;
accumulation of costs significantly in excess of the amount originally
expected for the acquisition or construction of the asset; current period
cash flow or operating losses combined with a history of losses or a forecast
of continuing losses associated with the use of the asset; and current
expectation that the asset will more likely than not be sold or disposed
significantly before the end of its estimated useful life.
|
|
|
|
|
|
Recoverability is assessed based on the carrying amount
of the asset and its fair value which is generally determined based on
the sum of the undiscounted cash flows expected to result from the use
and the eventual disposal of the asset, as well as specific appraisal
in certain instances. An impairment loss is recognized when the carrying
amount is not recoverable and exceeds fair value.
|
F-21
Lincoln Gold Corporation
|
(An Exploration Stage Company)
|
Notes to the Consolidated Financial Statements
|
June 30, 2007
|
(Expressed in U.S. dollars)
|
(unaudited)
|
2.
|
Summary of Significant Accounting Policies
(continued)
|
|
|
|
|
i)
|
Mineral Property Costs
|
|
|
|
|
|
The Company has been in the exploration stage since
its formation on September 25, 2003 and has not yet realized any revenues
from its planned operations. It is primarily engaged in the acquisition
and exploration of mining properties. Mineral property exploration costs
are expensed as incurred. Mineral property acquisition costs are initially
capitalized when incurred using the guidance in EITF 04-02,
Whether
Mineral Rights Are Tangible or Intangible Assets
. The Company
assesses the carrying costs for impairment under SFAS No. 144,
Accounting
for Impairment or Disposal of Long Lived Assets
at each fiscal
quarter end. When it has been determined that a mineral property can be
economically developed as a result of establishing proven and probable
reserves, the costs then incurred to develop such property, are capitalized.
Such costs will be amortized using the units-of-production method over
the estimated life of the probable reserve. If mineral properties are
subsequently abandoned or impaired, any capitalized costs will be charged
to operations.
|
|
|
|
|
j)
|
Financial Instruments
|
|
|
|
|
|
The fair values of cash, accounts payable, accrued liabilities,
due to related parties and note payable approximate their carrying values
due to the immediate or short-term maturity of these financial instruments.
|
|
|
|
|
k)
|
Income Taxes
|
|
|
|
|
|
Potential benefits of income tax losses are not recognized
in the accounts until realization is more likely that not. The Company
has adopted SFAS No. 109
Accounting for Income Taxes
as
of its inception. Pursuant to SFAS No. 109 the Company is required to
compute tax asset benefits for net operating losses carried forward. The
potential benefits of net operating losses have not been recognized in
these consolidated financial statements because the Company cannot be
assured it is more likely than not it will utilize the net operating losses
carried forward in future years.
|
|
|
|
|
l)
|
Foreign Currency Translation
|
|
|
|
|
|
The subsidiarys functional currency is the Mexican
Peso. The financial statements of the subsidiary are translated to United
States dollars under the current rate method in accordance with SFAS No.
52 Foreign Currency Translation. Under the current rate method,
all assets and liabilities are translated at the rates of exchange in
effect at the balance sheet date and revenues and expenses are translated
at the average rates of exchange during the year. The effect of this translation
is recorded in a separate component of stockholders equity. A cumulative
translation adjustment of $1,450 as of June 30, 2007 has been included
in accumulated other comprehensive income in the accompanying consolidated
balance sheet.
|
|
|
|
|
|
Transactions in foreign currencies are recorded at the
approximate rate of exchange at the transaction date. Assets and liabilities
resulting from these transactions are translated at the rate of exchange
in effect at the balance sheet date. All differences are recorded in the
results of operations.
|
|
|
|
|
m)
|
Stock-based Compensation
|
|
|
|
|
|
The Company records stock-based compensation in accordance
with SFAS No. 123R
Share Based Payments
, using the
fair value method. The Company has not issued any stock options since
its inception. All transactions in which goods or services are the consideration
received for the issuance of equity instruments are accounted for based
on the fair value of the consideration received or the fair value of the
equity instrument issued, whichever is more reliably measurable. Equity
instruments issued to employees and the cost of the services received
as consideration are measured and recognized based on the fair value of
the equity instruments issued.
|
|
|
|
|
|
All transactions in which goods or services are the
consideration received for the issuance of equity instruments are accounted
for based on the fair value of the consideration received or the fair
value of the equity instrument issued, whichever is more reliably measurable.
Equity instruments issued to employees and the cost of the services received
as consideration are measured and recognized based on the fair value of
the equity instruments issued.
|
F-22
Lincoln Gold Corporation
|
(An Exploration Stage Company)
|
Notes to the Consolidated Financial Statements
|
June 30, 2007
|
(Expressed in U.S. dollars)
|
(unaudited)
|
2.
|
Summary of Significant Accounting Policies
(continued)
|
|
|
|
|
n)
|
Recent Accounting Pronouncements
|
|
|
|
|
|
In February 2007, the Financial Accounting Standards
Board (FASB) issued SFAS No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities Including an Amendment
of FASB Statement No. 115. This statement permits entities to choose
to measure many financial instruments and certain other items at fair
value. Most of the provisions of SFAS No. 159 apply only to entities that
elect the fair value option. However, the amendment to SFAS No. 115 Accounting
for Certain Investments in Debt and Equity Securities applies to
all entities with available-for-sale and trading securities. SFAS No.
159 is effective as of the beginning of an entitys first fiscal
year that begins after November 15, 2007. Early adoption is permitted
as of the beginning of a fiscal year that begins on or before November
15, 2007, provided the entity also elects to apply the provision of SFAS
No. 157, Fair Value Measurements. The adoption of this statement
is not expected to have a material effect on the Company's financial statements.
|
|
|
|
|
|
In September 2006, the FASB issued SFAS No. 157,
Fair
Value Measurements
. The objective of SFAS No. 157 is to increase
consistency and comparability in fair value measurements and to expand
disclosures about fair value measurements. SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements.
SFAS No. 157 applies under other accounting pronouncements that require
or permit fair value measurements and does not require any new fair value
measurements. The provisions of SFAS No. 157 are effective for fair value
measurements made in fiscal years beginning after November 15, 2007. The
adoption of this statement is not expected to have a material effect on
the Company's future reported financial position or results of operations.
|
|
|
|
3.
|
Property and Equipment
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
Net Carrying
|
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Value
|
|
|
Value
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Computer hardware
|
|
4,676
|
|
|
3,240
|
|
|
1,436
|
|
|
2,215
|
|
|
Computer software
|
|
1,345
|
|
|
1,345
|
|
|
-
|
|
|
56
|
|
|
Office equipment and fixtures
|
|
3,285
|
|
|
1,445
|
|
|
1,840
|
|
|
2,169
|
|
|
|
|
9,306
|
|
|
6,030
|
|
|
3,276
|
|
|
4,440
|
|
4.
|
Mineral Property Interests
|
|
|
|
|
|
a)
|
Hannah Property
|
|
|
|
|
|
|
On December 24, 2003, the Company entered
into an option agreement to acquire a 100% interest in twenty-three unpatented
lode claims situated in Churchill County, Nevada, USA. The option agreement
called for net smelter royalties of 1% to 4% upon production. Pursuant
to the option agreement, the Company is required to make option payments
totaling $210,000 as follows:
|
|
|
|
|
|
|
|
$5,000 upon signing the agreement (paid);
|
|
|
|
$5,000 on January 10, 2005 (paid);
|
|
|
|
$10,000 on January 10, 2006 (paid);
|
|
|
|
$15,000 on January 10, 2007 (see below);
|
|
|
|
$25,000 on January 10
th
of each year from
2008 to 2012; and
|
|
|
|
$50,000 on January 10, 2013.
|
|
|
|
|
|
|
On January 7, 2007 the Company amended the
agreement whereby the $15,000 due on January 10, 2007 would be paid in
equal installments of $3,750 on January 10, 2007 (paid), April 10, 2007
(paid), July 10, 2007 and October 10, 2007.
|
|
|
|
|
|
b)
|
JDS Property
|
|
|
|
|
|
|
In fiscal 2004, the Company acquired, by staking,
a 100% interest in seventy-seven mineral claims in Eureka County, Nevada,
USA.
|
F-23
Lincoln Gold Corporation
|
(An Exploration Stage Company)
|
Notes to the Consolidated Financial Statements
|
June 30, 2007
|
(Expressed in U.S. dollars)
|
(unaudited)
|
c)
|
Jenny Hill Property
|
|
|
|
|
On September 28, 2004, the Company entered
into a mining lease and option to purchase agreement comprising ninety-seven
mineral claims situated in Mineral and Nye Counties, Nevada for a term
of seven years. The agreement calls for the Company to make option payments
$1,500,000 over a seven year period as follows:
|
|
|
|
|
|
$20,000 upon signing the agreement (paid);
|
|
|
$25,000 by September 28, 2005 (paid);
|
|
|
$30,000 by September 28, 2006 (paid by Optionee);
|
|
|
$60,000 by September 28, 2007;
|
|
|
$70,000 by September 28, 2008;
|
|
|
$80,000 by September 28, 2009;
|
|
|
$90,000 by September 28, 2010; and
|
|
|
$1,125,000 by September 28, 2011.
|
|
|
|
|
The Company must also complete a work program
on the property of $50,000, in the first lease year and $100,000 for the
second and each subsequent lease year until the option is completed. The
agreement is subject to a net smelter return of 2%.
|
|
|
|
c)
|
Jenny Hill Property (continued)
|
|
|
|
|
On December 9, 2005, the Company entered into
a non-binding agreement whereby it offered the right to earn a 60% interest
in the property to an Optionee. The Optionee can earn a 60% interest by
spending $3,000,000 in exploration work on the property over a five-year
period with a minimum expenditure of $200,000 to be spent during the first
year. In addition, the Optionee can earn an additional 10% interest by
completing a feasibility study on the project and an additional 5% interest
(for a total of 75%) by arranging financing on behalf of the Company for
its share of the construction costs as a result of both parties reaching
a positive construction decision for a mine operation on the project.
A formal agreement is to be signed by both parties within ninety days
(extended).
|
|
|
|
|
Drilling was carried out by the optionee in
the second quarter of 2007. A total of 11 holes were drilled and although
gold mineralization was encountered in a majority of the holes the property
was returned to the Company. After reviewing the results of the drilling
the Company concluded that the property was not meeting its expectations
and returned the property to its original owners.
|
|
|
|
d)
|
La Bufa Property
|
|
|
|
|
On August 5, 2005, the Company entered into
a Letter of Intent with Almaden Minerals Ltd. (Almaden) to
form a joint venture for the exploration and development of the La Bufa
property, located in Chihuahua, Mexico. Under the Letter of Intent, the
Company may acquire a 51% interest in the La Bufa property by spending
$2,000,000 on the property over four years and by issuing 350,000 shares
of the Company to Almaden over a five year period (50,000 shares issued
at a fair value of $10,000 on March 15, 2006). The Company issued 60,000
shares on April 16, 2007 which were due and payable August 5, 2006.
|
|
|
|
|
On April 12, 2007, the Company entered into
an option agreement with Almaden Minerals Ltd. (Almaden) to
acquire a 60% interest in the La Bufa property located in Chihuahua, Mexico.
This agreement replaces the prior Letter of Intent. The agreement calls
for the Company to undertake a work program on the property aggregating
$3,500,000 and issuing an aggregate of 1,550,000 shares as follows:
|
|
Work Program:
|
|
|
|
By April 12, 2008
|
$ 500,000 which must include drilling
|
|
|
By April 12, 2009
|
$ 750,000
|
|
|
By April 12, 2010
|
$1,000,000
|
|
|
By April 12, 2011
|
$1,250,000
|
|
Share issuances:
|
|
|
|
By April 19, 2007
|
150,000 shares (issued April 16, 2007)
|
|
|
By April 12, 2008
|
200,000 shares
|
|
|
By April 12, 2009
|
200,000 shares
|
|
|
By April 12, 2011
|
1,000,000 shares
|
F-24
Lincoln Gold Corporation
|
(An Exploration Stage Company)
|
Notes to the Consolidated Financial Statements
|
June 30, 2007
|
(Expressed in U.S. dollars)
|
(unaudited)
|
5.
|
Related Party Transactions
|
|
|
|
|
a)
|
During the six months ended June 30, 2007, the Company
paid management fees of $1,600 (2006 - $35,750) and rent of $1,500 (2006
- $1,800) to the Vice President of the Company and management fees of
$11,130 (2006 - $5,618) to a company owned by the President of the Company.
Management fees and rent are included in general and administrative expenses.
|
|
|
|
|
b)
|
As at March 31, 2007, the Company owed $6,641 (December
31, 2006 - $6,760) to various officers and directors and to a company
controlled by the President of the Company. These amounts are unsecured,
non-interest bearing and due on demand.
|
|
|
|
6.
|
Note Payable
|
|
|
|
|
On January 28, 2004, the Company issued a
$200,000 convertible note with 5,000,000 warrants to purchase common stock
of the Company at $0.04 per share which expires on January 28, 2006. The
note carries an interest rate of 10% compounded monthly and is due on
January 28, 2006. The interest is payable annually with the second year
interest payment due with the principal amount. The holder could convert
any portion of the debt to common stock at the value of $0.04 per share
until January 28, 2006. Warrants could be exercised in minimum amounts
of 1,000 shares at a conversion price of $0.04 per share. In accordance
with EITF 00-27
Application of Issue No. 98-5 to Certain Convertible
Instruments
and EITF 98-5
Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios
, there was determined to be minimal fair value
related to the warrants issued and there was no beneficial conversion
feature amount.
|
|
|
|
|
On September 15, 2005, the Company completed
an agreement whereby the Company repaid $100,000 of the convertible note
along with $35,000 accrued interest and agreed to repay the remaining
$100,000 within sixty days - (outstanding). With the completion of the
first payment, both the conversion of debt to common stock along with
the warrants was cancelled.
|
|
|
|
7.
|
Common Stock
|
|
|
|
|
a)
|
On February 16, 2007, the Company issued 666,666 shares
of common stock at a fair value of $0.11 per share for consulting services
rendered.
|
|
|
|
|
b)
|
On April 16, 2007 the Company issued 210,000 shares
of common stock to Almaden Minerals Ltd at a fair value of $23,850 pursuant
to a mineral option agreement. See Note 4(d).
|
|
|
|
|
c)
|
In May 29, 2007 the Company completed a private placement
and issued 3,275,000 units at $0.10 per unit for proceeds of $327,500.
Each unit consisted of one common share and one share purchase warrant
with each warrant exercisable to acquire one common share at $0.15 per
share for a term of two years. The Company incurred share issuance costs
of $19,425 in connection with this private placement.
|
|
|
|
8.
|
Stock Options
|
|
|
|
|
In fiscal 2004, the Board of Directors approved
the 2004 Stock Option Plan for a maximum of 2,500,000 shares available
to be granted to directors, officers, employees and consultants. The stock
option exercise price is set at the fair market value of the shares at
the date of grant. The term of the stock options, once granted, is not
to exceed ten years. The vesting period of the stock options is set at
the discretion of the Board of Directors.
|
|
|
|
|
On February 23, 2005, the Board of Directors
approved the 2005 Stock Option Plan for a maximum of 2,000,000 shares
available to be granted to directors, officers, employees and consultants.
The stock option exercise price is set at the fair market value of the
shares at the date of grant. The term of the stock options, once granted,
is not to exceed ten years. The vesting period of the stock options is
set at the discretion of the Board of Directors.
|
F-25
Lincoln Gold Corporation
|
(An Exploration Stage Company)
|
Notes to the Consolidated Financial Statements
|
June 30, 2007
|
(Expressed in U.S. dollars)
|
(unaudited)
|
8.
|
Stock Options (continued)
|
|
|
|
A summary of the Companys stock option activity
is as follows:
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Life
|
|
|
Intrinsic
|
|
|
|
|
Options
|
|
|
Price
|
|
|
(Years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2006
|
|
2,390,000
|
|
$
|
0.60
|
|
|
|
|
|
|
|
|
Expired
|
|
(1,990,000
|
)
|
|
0.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, June 30, 2007
|
|
400,000
|
|
$
|
0.60
|
|
|
0.17
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, June 30, 2007
|
|
400,000
|
|
$
|
0.60
|
|
|
0.17
|
|
$
|
-
|
|
9.
|
Share Purchase Warrants
|
|
|
|
The following table summarizes the continuity of the
Companys share purchase warrants:
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
average
|
|
|
|
|
|
|
|
exercise
|
|
|
|
|
Number of
|
|
|
price
|
|
|
|
|
shares
|
|
|
$
|
|
|
Balance, December 31, 2006
|
|
4,757,500
|
|
|
0.68
|
|
|
Granted
|
|
3,275,000
|
|
|
0.15
|
|
|
Expired
|
|
(3,145,000
|
)
|
|
0.50
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2007
|
|
4,887,500
|
|
|
0.44
|
|
As at June 30, 2007 the following share
purchase warrants were outstanding:
|
Number of
|
Exercise
|
|
|
Warrants
|
Price
|
Expiry
Date
|
|
537,500
|
$0.35
|
July 27, 2007
|
|
1,075,000
|
$1.35
|
July 27, 2010
|
|
3,275,000
|
$0.15
|
May 29, 2008
|
|
4,887,500
|
|
|
10.
|
Subsequent Events
|
|
|
|
|
a)
|
Subsequent to June 30, 2007, the Company granted 800,000
stock options to directors, employees and consultants at an exercise price
of $0.10 per share for a period of five years.
|
|
|
|
|
b)
|
Subsequent to June 30, 2007, the Company extended the
expiry date of 537,500 share purchase warrants to January 27, 2008 from
July 27, 2007.
|
F-26
APPENDIX A
Form of Continuation Special Resolutions
The following special resolutions, if approved by two-thirds
(2/3s) or more of the holders of the issued shares present and entitled to
vote on the issue at the meeting of the company (the Continuation Special
Resolutions), authorizes Lincoln Gold to complete the Continuation of
Lincoln Gold out of Nevada and the Continuation of Lincoln Gold into Canada
(the Continuation).
WHEREAS the company proposes to transfer out of the
State of Nevada under the jurisdiction of the
Nevada Revised Statutes:
Chapter 78
(NRS) and continue into Canada (the Continuation)
under the jurisdiction of the
Canada Business Corporations Act
(the
CBCA); AND WHEREAS the management proposes to present Continuation
Special Resolutions to the shareholders at the special meeting with respect
to the Continuation and may subsequently decide that it is not in the best
interests of the Company to proceed with such matters; RESOLVED, as Continuation
Special Resolutions, that:
the Plan of Conversion providing for the Continuation of
the Company out of Nevada and into the Canadian federal jurisdiction under
the CBCA is hereby approved;
the Company be and hereby is authorized to file articles
of conversion with the Nevada Secretary of State (the Nevada Secretary)
as required to give effect to the proposed transfer of the Company out of
Nevada and to the Director under the CBCA (the Canadian Director)
for approval of the proposed continuation of the Company into Canada continuing
the Company as if it had been incorporated under the CBCA;
the Company approve and, upon the Continuation, adopt the
Articles of Continuance (the Articles of Continuance) in the form
approved by the directors of the Company, the Articles of Continuance to come
into effect when the Canadian Director issues a Certificate of Continuation
continuing the Company as if it had been incorporated under the CBCA;
the Company approve and, upon the Continuation, adopt the
bylaws (the Canadian Bylaws) in the form approved by the directors
of the Company, the Canadian Bylaws to come into effect when the Canadian
Director issues a Certificate of Continuation continuing the Company as if
it had been incorporated under CBCA;
the directors of the Company be hereby authorized, in their
discretion, to abandon or amend the application for Continuation of the Company
under the CBCA without further approval of the shareholders; and
the directors and officers of the Company, or any one of
them, be hereby authorized and directed to perform all such acts, deeds and
things and execute, under the seal of the Company or otherwise, all such documents,
agreements and other writings as may be required to give effect to the true
intent of these special resolutions.
- 1 -
APPENDIX B
PLAN OF CONVERSION
OF
LINCOLN GOLD CORPORATION
(A Nevada Corporation)
INTO
LINCOLN GOLD CORPORATION
(A Company Organized Under the Laws of the Federal Jurisdiction of Canada)
Lincoln Gold Corporation, a Nevada
corporation (the Constituent Entity), hereby adopts the following
Plan of Conversion:
1.
The name of the Constituent Entity is: Lincoln Gold Corporation
2. The
name of the resulting entity (the Resulting Entity) is: Lincoln
Gold Corporation
3. The
jurisdiction of the law that governs the Constituent Entity is the State of
Nevada. The jurisdiction of the law that will govern the Resulting Entity
is the federal jurisdiction of Canada.
4. As
soon as is practicable following approval of this Plan of Conversion by the
shareholders of the Constituent Entity and all requisite corporate and regulatory
action in respect of the Resulting Entity has been taken, the Constituent
Entity will cause the conversion of the Constituent Entity into the Resulting
Entity (the Conversion) to be consummated by the filing of the
Articles of Conversion in the office of the Nevada Secretary of State in such
form as is required by, and signed in accordance with, the applicable provisions
of Chapter 92A of the Nevada Revised Statutes (NRS) and the execution
and filing of the Articles of Continuance with the Director of Industry Canada.
The date of the Certificate of Continuance issued by the Director of Industry
Canada shall be the effective date of the Conversion (the Conversion
Date).
5. As
of the Conversion Date:
(a) The
Constituent Entity shall be converted into the Resulting Entity which shall
possess all rights, privileges, powers and franchises of a public nature and
a private nature and shall be subject to all restrictions, disabilities and
duties of the Constituent Entity.
(b) The
title to all real estate vested by deed or otherwise under the laws of any
jurisdiction, and the title to all other property, real and personal, owned
by the Constituent Entity, and all debts due to the Constituent Entity on
whatever account, as well as all other things in action or belonging to the
Constituent Entity, shall in accordance with the NRS be vested in the Resulting
Entity without reservation or impairment.
(c) The
Resulting Entity shall have all of the debts, liabilities and duties of the
Constituent Entity, but all rights of creditors accruing and all liens placed
upon any property of the Constituent Entity up to the Conversion Date shall
be preserved unimpaired, and all debts, liabilities and duties of the Constituent
Entity shall attach to the Resulting Entity and may be enforced against it
to the same extent as if it had incurred or contracted such debts, liabilities
and duties.
(d) Any
proceeding pending against the Constituent Entity may be continued as if the
Conversion had not occurred or the Resulting Entity may be substituted in
the proceeding in place of the Constituent Entity.
(e) Any
surplus appearing on the books of the Constituent Entity shall be entered
as surplus on the books of the Resulting Entity and all such surplus shall
thereafter be dealt by the Resulting Entity in any lawful manner.
(f) Once
the Conversion is completed, the holders of shares of common stock of the
Constituent Entity instead will own one common share without par value of
the Resulting Entity for each share of common stock held immediately prior
to the Conversion. The currently outstanding options to purchase
- 1 -
shares of the Constituent Entity's
common stock will represent options to purchase an equivalent number of common
shares of the Resulting Entity for the equivalent purchase price per share
without other action by the Constituent Entity's option holders. Option holders
will not have to exchange their options. Option holders who are not shareholders
will not have a right to vote on the Conversion.
(g) The
Conversion, if approved, will effect a change in the legal jurisdiction of
incorporation of the Constituent Entity as of the effective date thereof,
but the Constituent Entity will not, as a result of the change in legal jurisdiction,
change its business or operations after the effective date of the Conversion
as the Resulting Entity.
(h) Paul
Saxton, Andrew Milligan, Andrew Bowering, James Chapman and Stephen Chi will
be elected to the board of directors of the Resulting Entity effective as
of the Conversion Date. As of the Conversion Date, the election, duties, resignation
and removal of the Constituent Entity directors and officers shall be governed
by the Canada Business Corporations Act, the Articles of Continuance and the
Bylaws of the Resulting Entity.
6. The
full text of the Articles of Continuance and Bylaws of the Resulting Entity
are attached hereto as Schedule A and Schedule B, respectively, and each is
incorporated herein by this reference.
7. The
Constituent Entity intends that this Plan of Conversion will constitute the
complete Plan of Conversion referred to in Section 92A.105 of the NRS.
- 2 -
APPENDIX C
|
Form of Articles of Continuance
|
Industry Canada
|
Industrie Canada
|
FORM 11
|
FORMULE 11
|
Canada Business
|
Loi canadienne sur les
|
ARTICLES OF CONTINUANCE
|
CLAUSES DE PROROGATION
|
Corporations Act
|
sociétés par actions
|
|
|
|
|
(SECTION 187)
|
(ARTICLE 187)
|
1
|
Name of Corporation
Lincoln Gold Corporation
|
2 Taxation Year End
M D
12
31
|
3
|
The province or territory in Canada where the
registered office is to be situated
|
|
|
|
Province of British Columbia
|
|
|
4
|
The classes and the maximum number of shares
that the corporation is authorized to issue
|
|
|
|
An
unlimited number of common shares
|
|
|
5
|
Restrictions, if any, on share transfers
|
|
|
|
None
|
|
|
6
|
Number (or minimum and maximum number) of directors
|
|
|
|
Minimum of three (3) and maximum of ten (10)
|
|
|
7
|
Restrictions, if any, on business the corporation
may carry on
|
|
|
|
None
|
8
|
(1)
|
If change of name effected, previous name
|
|
|
|
|
|
N/A
|
|
|
|
|
(2)
|
Details of incorporation
|
|
|
|
|
|
Incorporated
under the laws of the State of Nevada on February 17, 1999 under the
name Braden
Technologies Inc. (the Corporation).
The Corporation merged with Lincoln Gold Corp., a company
incorporated
under the laws of the State of Nevada on September 25, 2003. On April
6, 2004, the
Corporation merged with Lincoln Gold Corp. and changed
its name to Lincoln Gold Corporation under the
Nevada Revised
Statutes.
|
9
|
Other provisions, if any
|
|
|
|
See
Schedule "A" attached hereto.
|
Signature
|
Printed Name
|
10 Capacity of
|
11 Tel No.
|
FOR DEPARTMENTAL USE ONLY
|
|
IC 3247 (2004/12)
- 1 -
SCHEDULE "A"
The directors of the Corporation may, between annual meetings,
appoint one or more additional directors of the Corporation to serve until
the next annual meeting of the Corporation, but the number of additional directors
cannot at any time exceed one-third (1/3) of the number of directors who held
office at the expiration of the last annual meeting of the Corporation.
- 2 -
APPENDIX D
Form of Bylaws of Lincoln Gold Corporation, a Canadian Corporation
LINCOLN GOLD CORPORATION
BY LAW NO. 1
ADOPTED THIS * DAY OF *, 2007
LINCOLN GOLD CORPORATION
BY-LAW NO. 1
TABLE OF CONTENTS
- i -
- ii -
LINCOLN GOLD CORPORATION
BY-LAW NO. 1
PART 1
INTERPRETATION
Definitions
1.1
|
In the by-laws, except as the context otherwise
requires,
|
|
(a)
|
Act
means the
Canada Business Corporations
Act
, R.S.C. 1985, c. C-44 or any statute substituted therefor, as
amended, and the regulations made under it,
|
|
|
|
|
|
(b)
|
appoint
includes elect
and vice versa,
|
|
|
|
|
|
(c)
|
articles
means the articles of the
Corporation,
|
|
|
|
|
|
(d)
|
board
means the board of directors
of the Corporation,
|
|
|
|
|
|
(e)
|
by-laws
means this by-law and all other
by-laws of the Corporation,
|
|
|
|
|
|
(f)
|
Corporation
means the corporation which
adopts this by-law,
|
|
|
|
|
|
(g)
|
document
includes a contract, electronic
document or other instrument in writing,
|
|
|
|
|
|
(h)
|
instrument of transfer
means
|
|
|
|
|
|
|
(i)
|
such form of transfer as may appear on the back of the
share certificate evidencing the share proposed to be transferred, or
|
|
|
|
|
|
|
(ii)
|
such form of separate transfer document as is in general
use or adopted or permitted by the board,
|
|
|
|
|
|
(i)
|
meeting of shareholders
means an annual
or other meeting of shareholders of the Corporation, and a meeting of
holders of a class or series of shares in the Corporation, and
|
|
|
|
|
|
(j)
|
recorded address
means
|
|
|
|
|
|
|
(i)
|
in the case of a shareholder, the shareholders
address as recorded in the securities register,
|
|
|
|
|
|
|
(ii)
|
in the case of joint shareholders, the address appearing
in the securities register in respect of their joint holding, or the first
address so appearing if there is more than one, and
|
|
|
|
|
|
|
(iii)
|
in the case of a director, officer, or auditor, the
address of the director, officer or auditor recorded in the records of
the Corporation.
|
Interpretation
1.2
|
In the interpretation of these by-laws,
|
|
(a)
|
a word importing singular number includes the plural
and vice versa,
|
|
|
|
|
(b)
|
a word importing gender includes the masculine, feminine
and neuter,
|
- 1 -
|
(c)
|
a word importing a person includes an individual, a
body corporate, a partnership, a trust, an estate and an unincorporated
organization, and
|
|
|
|
|
(d)
|
a word or expression defined in the Act for the purposes
of the entire Act has the meaning so defined.
|
Headings
1.3 The division of a by-law into parts and the headings of parts
and sections will be considered as for convenience of reference only and will
not affect the construction or interpretation of the by-law.
PART 2
BUSINESS OF THE CORPORATION
Corporate Seal
2.1 The board may adopt a corporate seal for the Corporation
and adopt a new corporate seal in replacement of a corporate seal previously
adopted.
Reproduction of Seal
2.2 Any two persons each of whom is the chairperson, the chief
executive officer, the president, a vice-president, the secretary or the treasurer
may authorize a person engaged by the Corporation to engrave, lithograph or
print a document (including a negotiable instrument) on which a reproduction
of the signature of a director or officer of the Corporation is, in accordance
with the by-laws, printed or otherwise mechanically reproduced, to cause the
Corporations seal to be affixed to the document by the use of an unmounted
die reproducing the Corporations seal.
Affixation of Seal
2.3 The corporate seal of the Corporation will not be affixed
to a document except by or in the presence of
|
(a)
|
a person authorized to do so by a by-law or the board,
or
|
|
|
|
|
(b)
|
the secretary or an assistant secretary for the purpose
of certifying a copy of, or extract from, the articles or by-laws of the
Corporation, minutes of a meeting or resolution of the shareholders or
the board or a committee of the board, or a document executed or issued
by the Corporation.
|
Execution of Documents
2.4 A document requiring execution by the Corporation may be
signed on behalf of the Corporation by a person authorized by the board, which
authorization may be either generally or for a specific document.
Reproduced Signatures
2.5 A document on which the signature of an officer or director
of the Corporation that is, by authority of the board, printed or otherwise
mechanically reproduced will be as valid as if the signature had been placed
manually by such person and will be so valid notwithstanding that, at the time
of the issue or delivery of the document, the person is deceased, has ceased
to hold the office giving rise to such persons authority or is otherwise
unable to personally sign the document.
Fiscal Period
2.6 The fiscal period end of the Corporation will be as the board
determines.
- 2 -
Voting Rights in Other Bodies Corporate
2.7 To enable the Corporation to exercise voting rights attaching
to securities held by the Corporation, any two persons each of whom is the chairperson,
the chief executive officer, the president, a vice-president, the secretary
or the treasurer may execute and deliver proxies and arrange for the issuance
of voting certificates or other evidences of such rights in favour of the person
determined by the officers executing such proxies unless otherwise determined
by the board.
PART 3
BORROWING AND SECURITY
Borrowing Power
3.1 Without limiting the powers of the Corporation as set forth
in the Act, the board may cause the Corporation to
|
(a)
|
borrow money on the credit of the Corporation,
|
|
|
|
|
(b)
|
issue, reissue, sell, pledge or hypothecate bonds, debentures,
notes or other evidences of indebtedness or guarantee of the Corporation,
whether secured or unsecured,
|
|
|
|
|
(c)
|
give a guarantee on behalf of the Corporation to secure
performance of an obligation of a person, and
|
|
|
|
|
(d)
|
mortgage, hypothecate, pledge or otherwise create a
security interest in all or any property of the Corporation, owned or
subsequently acquired, to secure any obligation of the Corporation.
|
Delegation of Borrowing Authority
3.2 The board may delegate to a person any or all of the powers
conferred on the board by §3.1 to such extent and in such manner as it
determines.
PART 4
DIRECTORS
Calling of Meetings
4.1 The chairperson or the president may, and the secretary on
the request of a director will, convene a meeting of the board.
Notice of Meeting
4.2 Notice of the time and place of a meeting of the board must
be given to each director not less than forty-eight (48) hours before the time
when the meeting is to be held, but
|
(a)
|
the notice need not specify what matters are to be dealt
with at the meeting other than as required by the Act,
|
|
|
|
|
(b)
|
no notice will be necessary if all the directors are
present or those who are absent have signified consent to the holding
of the meeting, and
|
|
|
|
|
(c)
|
the period for notice of a meeting that begins within
forty-eight (48) hours after the appointment or election of a director
may be abridged for each such director to a period commencing at the time
of such directors appointment or election.
|
- 3 -
Quorum
4.3 The board may fix the quorum required for the transaction
of business at a meeting of the board and, if not so fixed, the quorum will
be a majority of those who are directors at the time of the meeting.
Chairperson of Meeting
4.4 The chairperson of a meeting of the board will be the first
of the chairperson, the president (if a director) and the lead director (if
appointed) who is present and willing to act as the chairperson, but if no such
director so willing is present within 15 minutes after the time appointed for
holding the meeting the directors present will choose one of their number to
be the chairperson.
Voting
4.5 A question arising at a meeting of the board will be decided
by a majority of the votes cast and in the case of an equality of votes the
chairperson may not exercise a second or casting vote.
Remuneration and Expenses
4.6 A director will be paid such remuneration for their services
to the Corporation as the board determines and will be reimbursed by the Corporation
for travelling and other expenses properly incurred in attending a meeting of
the board, a committee of the board or a meeting of shareholders.
Additional
Remuneration
4.7 Remuneration payable to a director who is also an officer
or employee of the Corporation, or who serves the Corporation in a professional
capacity, will be in addition to the directors salary as an officer or
employee or professional fees.
PART 5
COMMITTEES
Transaction of Business
5.1 Except as otherwise determined by the board, proceedings
of a committee of the board will be governed as follows:
|
(a)
|
the powers of the committee may be exercised by a meeting
at which a quorum of the committee is present;
|
|
|
|
|
(b)
|
a majority of the members of the committee will constitute
a quorum;
|
|
|
|
|
(c)
|
meetings of the committee may be held at any place within
or outside of Canada;
|
|
|
|
|
(d)
|
a question arising at a meeting will be determined by
a majority of the votes cast and in the case of an equality of votes the
chairperson of the meeting will not exercise a second or casting vote;
|
|
|
|
|
(e)
|
the committee may determine when it will hold and adjourn
meetings and may elect its chairperson, make rules for the conduct of
its business and appoint such assistants as it deems necessary;
|
|
|
|
|
(f)
|
the committee will keep regular minutes of its transactions
and report its transactions to the board as required by the board; and
|
|
|
|
|
(g)
|
a waiver of notice of a meeting of a committee may be
given in any manner and will be deemed to be given by a director with
respect to all business transacted after the director first attends the
meeting.
|
- 4 -
PART 6
PROTECTION OF DIRECTORS AND OTHERS
Contracts with the Corporation
|
(a)
|
no director is, by being a director, or by reason of
holding any other office or place of profit under the Corporation or under
a person in which the Corporation is a shareholder or is otherwise interested,
disqualified from entering into a contract, transaction or arrangement
with the Corporation either as vendor, purchaser or otherwise, or from
being concerned or interested in any manner in a contract, transaction
or arrangement made or proposed to be entered into with the Corporation,
|
|
(b)
|
no such contract, transaction or arrangement is thereby
void or liable to be avoided,
|
|
|
|
|
(c)
|
no director is liable to account to the Corporation
for profit arising from such office or place of profit or realized by
such contract, transaction or arrangement,
|
|
|
|
|
(d)
|
no director is obligated to make a declaration or disclosure
of interest or refrain from voting, and
|
|
|
|
|
(e)
|
no contract or transaction is invalid or voidable, and
no director is accountable to the Corporation or a shareholder in respect
of a contract or transaction, by reason that the director did not disclose
any interest.
|
Limitation of Liability
6.2 Except as otherwise provided in the Act, no director or officer
will be liable for
|
(a)
|
the acts, receipts, neglects or defaults of any other
person, or for joining in a receipt or act for conformity,
|
|
|
|
|
(b)
|
a loss, damage or expense happening to the Corporation
through the insufficiency or deficiency of title to property acquired
by, for, or on behalf of the Corporation,
|
|
|
|
|
(c)
|
the insufficiency or deficiency of a security in which
monies of the Corporation are invested or in the security or collateral
for a loan of monies of the Corporation,
|
|
|
|
|
(d)
|
a loss or damage arising from the bankruptcy, insolvency
or wrongful act of a person with whom money, security or other property
of the Corporation is lodged or deposited, or
|
|
|
|
|
(e)
|
any other loss, damage, or misfortune that arises out
of the execution of the duties of a director or in relation thereto.
|
Amplification of Rights
6.3 The provisions of this Part are in amplification of and in
addition to, and not by way of limitation of or in substitution for, such rights,
immunities and protections as are conferred on a director or officer by law
or otherwise.
PART 7
SHARES
Registration of Transfers
7.1 In order to effect a transfer of a share,
- 5 -
|
(a)
|
an instrument of transfer must be executed by the registered
holder of the share or the holders attorney,
|
|
|
|
|
(b)
|
the execution of the instrument of transfer
must be attested and validated as reasonably required by the board, and
|
|
|
|
|
|
(c)
|
there must be delivered to the Corporations
transfer agent for shares of that class or series or, if there is no such
transfer agent, to the registered office of the Corporation,
|
|
|
|
|
|
|
(i)
|
the certificate evidencing the share to be transferred,
if one was issued by the Corporation,
|
|
|
|
|
|
|
(ii)
|
the instrument of transfer, and
|
|
|
|
|
|
|
(iii)
|
if the instrument of transfer was executed by the holders
attorney, evidence of the attorneys authority satisfactory to the
transfer agent or the board.
|
Separate Instruments of Transfer
7.2 There must be a separate instrument of transfer for each
class or series of share proposed to be transferred.
Transfer Fee
7.3 In respect of the registration of a transfer or transmission
there must be paid to the Corporation or its transfer agent for such share such
fee as the board determines.
Replacement of Certificates
7.4 If a share certificate of the Corporation is worn out, defaced,
lost or destroyed, it may be replaced on payment of such charge and on provision
of such evidence and indemnity as the board determines.
PART 8
DIVIDENDS AND RIGHTS
Declaration
8.1 The board may, as permitted by law, declare dividends payable
to the shareholders according to their respective rights and interests in the
Corporation.
Interest
8.2 No dividend will bear interest against the Corporation.
Valuation of Non-Cash Dividends
8.3 The board will determine the value of a dividend not paid
in money.
Dividend Cheques
8.4 A dividend payable in money may be paid by cheque of the
Corporation or its paying agent to the order of the registered holder of the
share on which it is being paid and mailed by prepaid ordinary mail to the holder
at the holders recorded address or payable to such person and mailed to
such address as the holder directs, and the mailing of such a cheque in that
manner will, unless it is not paid on presentation, satisfy and discharge the
Corporation from the liability for the dividend to the extent of the sum represented
by the cheque plus the amount of any tax that the Corporation is required to
and does withhold.
- 6 -
Cheques to Joint Holders
8.5 In the case of joint holders, a cheque in payment of a dividend
will, unless they otherwise jointly direct, be made payable to the order of
all of them and mailed to them at their recorded address.
Non-receipt of Cheques
8.6 If a dividend cheque is not received by the person to whom
it is so sent or is lost, mutilated or destroyed, the Corporation will issue
a replacement cheque for a like amount on provision of such evidence of non-receipt,
loss, mutilation or destruction and of title, and such indemnity and reimbursement
of expense as the board prescribes, whether generally or in a particular case.
Unclaimed Dividends
8.7 A dividend unclaimed for six years after the date of record
for its payment will be forfeited and revert to the Corporation.
PART 9
MEETINGS OF SHAREHOLDERS
Chairperson of Meeting
9.1 The chairperson of a meeting of shareholders will be the
first of the chairperson, the president, the lead director (if appointed) and
the vice-presidents in order of seniority, who is present at the meeting and
is willing to act.
Choosing the Chairperson
9.2 If no such individual willing to act is present within 15
minutes after the time fixed for holding the meeting, the persons present and
entitled to vote may choose one of their number to be chairperson.
Secretary of Meeting
9.3 If the secretary of the Corporation is absent or unwilling
to act, the chairperson will appoint some person, who need not be a shareholder,
to act as secretary of the meeting.
Scrutineers
9.4 One or more scrutineers, who need not be shareholders, may
be appointed by resolution or by the chairperson with the consent of the meeting.
Meeting By Electronic Means
9.5 The board may determine that a meeting of shareholders called
by the board will be held, in accordance with the Act, entirely by means of
a telephonic, electronic or other communication facility that permits all participants
to communicate adequately with each other during the meeting.
Persons Entitled to be Present
9.6 The only persons entitled to be present at a meeting of shareholders
will be those entitled to vote at the meeting, the directors, the auditor of
the Corporation and any other person who, although not entitled to vote, is
entitled or required to be present under a provision of the Act or the articles
or by-laws, and any other person may be admitted only on the invitation of the
chairperson of the meeting.
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Quorum
9.7 A quorum for the transaction of business at a meeting of
shareholders is at least two individuals present at the commencement of the
meeting holding, or representing by proxy the holder or holders of, shares carrying
in the aggregate not less than five percent of the votes eligible to be cast
at the meeting.
No Proxy Lodged
9.8 The chairperson of a meeting of shareholders may, subject
to regulations made, in the chairpersons discretion accept such electronically
transmitted or other written communication as to the authority of anyone claiming
to vote on behalf of and to represent a shareholder notwithstanding that no
proxy conferring such authority has been lodged with the Corporation, and votes
given in accordance with such electronically transmitted or written communication
accepted by the chairperson will be valid and will be counted.
Joint Shareholders
9.9 If two or more of the joint holders of a share are present
in person or represented by proxy and vote, the vote of that one of them, or
of the proxy holder for that one of them, whose name appears first on the securities
register of the Corporation in respect of the share will be accepted to the
exclusion of the vote of another, or of the proxy holder for another, of them.
Votes to Govern
9.10 At a meeting of shareholders every question will, except
as otherwise required by the articles or by-laws, be determined by a majority
of the votes cast on it, and in the case of an equality of votes the chairperson
of the meeting will not be entitled to a second or casting vote.
Show of Hands
9.11 On a show of hands every person who is present and entitled
to vote will have one vote.
Result of Vote on Show of Hands
9.12 Whenever a vote by show of hands is taken on a question
then, unless a ballot is required or demanded, a declaration by the chairperson
of the meeting that the vote has been carried or carried by a particular majority
or not carried, and an entry to that effect in the minutes of the meeting, will
be prima facie evidence of the fact without proof of the number or proportion
of the votes recorded in favour of or against the question, and the result of
the vote so declared will be the decision of the shareholders on the question.
Demand for Ballot
9.13 A demand for a ballot may be withdrawn at any time before
the ballot is taken.
Vote by Ballot
9.14 If a ballot is taken each person present will be entitled
to one vote, or such other number of votes as the articles provide, in respect
of each share that such person is entitled to vote on the question at the meeting,
and the result of the ballot so taken will be the decision of the shareholders
upon the question.
Poll
9.15 A poll demanded on the election of a chairperson or on a
question of adjournment will be taken forthwith, and a poll demanded on any
other question will be taken at such time as the chairperson of the meeting
directs.
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Adjournment
9.16 The chairperson of a meeting of shareholders may, with the
consent of the meeting, adjourn the meeting.
Rulings by the Chairperson
9.17 The chairperson of a meeting of shareholders will have regard
to accepted rules of parliamentary procedure, and
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(a)
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the chairperson will have absolute authority over matters
of procedure and there will be no appeal from the ruling of the chairperson,
but if the chairperson, in the chairpersons absolute discretion,
deems it advisable to dispense with the rules of parliamentary procedure
at a meeting of shareholders or part of such meeting, the chairperson
will so state and will clearly state the rules under which the meeting
or the appropriate part of such meeting will be conducted,
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(b)
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a dispute as to the admission or rejection of a vote
will be determined by the chairperson and the chairpersons determination
will be final and conclusive,
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(c)
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if disorder arises that prevents continuation of the
business of a meeting, the chairperson may quit the chair and declare
the meeting to be adjourned, and upon the chairpersons so doing,
the meeting is, notwithstanding §9.16, immediately adjourned to a
time and place announced by the chairperson at the time of adjournment
or such other time and place described in a notice given not less than
seven days before the reconvened meeting to all persons who received notice
of the original meeting, and
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(d)
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subject to §9.6, the chairperson may ask or require
anyone who is not a registered shareholder entitled to vote at the meeting
or corporate representative or proxyholder representing such a shareholder
to leave the meeting.
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PART 10
NOTICES
Notice to Joint Shareholders
10.1 If two or more persons are registered as joint holders of
a share, a notice must be directed to all of them but need be delivered or addressed
only to their recorded address to be sufficient notice to all.
Signature to Notice
10.2 The signature to a notice to be given by the Corporation
may be written, stamped, typewritten or printed.
Effective Date of Notice
10.3 Subject to the Act, a notice sent by any means of electronic
transmission or any other form of recorded communication will be deemed to have
been given on the day when it is transmitted by the Corporation or, if transmitted
by another, on the day when it is dispatched or delivered to the appropriate
communication company or agency or its representative for dispatch, and a certificate
or declaration in respect of any thereof in writing signed by an officer or
by an employee of a transfer agent or registrar of the Corporation will be conclusive
evidence of the matters therein certified or declared.
Omissions and Errors
10.4 The accidental omission to give a notice to a shareholder,
director, officer, or auditor or the non-receipt of a notice by any such person
or an error in a notice not affecting its substance will not invalidate an action
taken at a meeting held pursuant to such notice or otherwise founded on it.
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Persons Entitled by Death or Operation of Law
10.5 A person who, by operation of law, transfer, death of a
shareholder or any other means, becomes entitled to a share will be bound by
every notice in respect of the share that is duly given to the shareholder from
whom the person derives title to the share before the persons name and
address is entered on the securities register (whether the notice is given before
or after the happening of the event upon which the person becomes so entitled)
and before the person furnishes to the Corporation the proof of authority or
evidence of entitlement prescribed by the Act.
Waiver of Notice
10.6 Subject to the Act, a shareholder (or the duly appointed
proxyholder of a shareholder), director, officer, auditor or member of a committee
of the board may at any time in writing waive, or consent to the abridgement
of the time for, a notice required to be given to that person under a provision
of the Act, the articles, the by-laws or otherwise, and such a waiver or consent,
if given before the meeting or other event of which notice is required to be
given, will cure a default in the giving or in the time of the notice, as the
case may be, to that person.
ENACTED BY THE BOARD OF DIRECTORS OF LINCOLN GOLD CORPORATION
ON <> AND CONFIRMED BY THE SHAREHOLDERS IN ACCORDANCE WITH THE PROVISIONS
OF THE CANADA BUSINESS CORPORATIONS ACT ON <>
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APPENDIX E
SECTIONS 92A.300 TO 92.A.500 OF THE NEVADA REVISED STATUTES
NRS 92A.300 Definitions.
As used in NRS 92A.300 to 92A.500,
inclusive, unless the context otherwise requires, the words and terms defined
in NRS 92A.305 to 92A.335, inclusive, have the meanings ascribed to them in
those sections. (Added to NRS by 1995, 2086)
NRS 92A.305 Beneficial shareholder defined.
Beneficial
shareholder means a person who is a beneficial owner of shares held in
a voting trust or by a nominee as the shareholder of record. (Added to NRS by
1995, 2087)
NRS 92A.310 Corporate action defined.
Corporate
action means the action of a domestic corporation. (Added to NRS by 1995,
2087)
NRS 92A.315 Dissenter defined.
Dissenter
means a shareholder who is entitled to dissent from a domestic corporations
action under NRS 92A.380 and who exercises that right when and in the manner
required by NRS 92A.400 to 92A.480, inclusive. (Added to NRS by 1995, 2087)
NRS 92A.320 Fair value defined.
Fair
value, with respect to a dissenters shares, means the value of the
shares immediately before the effectuation of the corporate action to which
he objects, excluding any appreciation or depreciation in anticipation of the
corporate action unless exclusion would be inequitable. (Added to NRS by 1995,
2087)
NRS 92A.325 Shareholder defined.
Shareholder
means a shareholder of record or a beneficial shareholder of a domestic corporation.
(Added to NRS by 1995, 2087)
NRS 92A.330 Shareholder of record defined.
Shareholder
of record means the person in whose name shares are registered in the
records of a domestic corporation or the beneficial owner of shares to the extent
of the rights granted by a nominees certificate on file with the domestic
corporation. (Added to NRS by 1995, 2087)
NRS 92A.335 Subject corporation defined.
Subject
corporation means the domestic corporation which is the issuer of the
shares held by a dissenter before the corporate action creating the dissenters
rights becomes effective or the surviving or acquiring entity of that issuer
after the corporate action becomes effective. (Added to NRS by 1995, 2087)
NRS 92A.340 Computation of interest.
Interest payable
pursuant to NRS 92A.300 to 92A.500, inclusive, must be computed from the effective
date of the action until the date of payment, at the average rate currently
paid by the entity on its principal bank loans or, if it has no bank loans,
at a rate that is fair and equitable under all of the circumstances. (Added
to NRS by 1995, 2087)
NRS 92A.350 Rights of dissenting partner of domestic limited
partnership.
A partnership agreement of a domestic limited partnership or,
unless otherwise provided in the partnership agreement, an agreement of merger
or exchange, may provide that contractual rights with respect to the partnership
interest of a dissenting general or limited partner of a domestic limited partnership
are available for any class or group of partnership interests in connection
with any merger or exchange in which the domestic limited partnership is a constituent
entity. (Added to NRS by 1995, 2088)
NRS 92A.360 Rights of dissenting member of domestic limited-liability
company.
The articles of organization or operating agreement of a domestic
limited-liability company or, unless otherwise provided in the articles of organization
or operating agreement, an agreement of merger or exchange, may provide that
contractual rights with respect to the interest of a dissenting member are available
in connection with any merger or exchange in which the domestic limited-liability
company is a constituent entity. (Added to NRS by 1995, 2088)
NRS 92A.370 Rights of dissenting member of domestic nonprofit
corporation.
1. Except as otherwise provided in subsection 2, and unless otherwise
provided in the articles or bylaws, any member of any constituent domestic nonprofit
corporation who voted against the merger may, without prior notice, but within
30 days after the effective date of the merger, resign from membership and is
thereby excused from all contractual obligations to the constituent or surviving
corporations which did not occur before his resignation and is thereby entitled
to those rights, if any, which would have existed if there had been no merger
and the membership had been terminated or the member had been expelled.
- 1 -
2. Unless otherwise provided in its articles of incorporation
or bylaws, no member of a domestic nonprofit corporation, including, but not
limited to, a cooperative corporation, which supplies services described in
chapter 704 of NRS to its members only, and no person who is a member of a domestic
nonprofit corporation as a condition of or by reason of the ownership of an
interest in real property, may resign and dissent pursuant to subsection 1.
(Added to NRS by 1995, 2088)
NRS 92A.380 Right of shareholder to dissent from certain corporate
actions and to obtain payment for shares.
1. Except as otherwise provided in NRS 92A.370 and 92A.390, a
shareholder is entitled to dissent from, and obtain payment of the fair value
of his shares in the event of any of the following corporate actions:
(a) Consummation of a plan of merger to which the domestic corporation
is a party:
(1) If approval by the shareholders is required for the merger
by NRS 92A.120 to 92A.160, inclusive, or the articles of incorporation and he
is entitled to vote on the merger; or
(2) If the domestic corporation is a subsidiary and is merged
with its parent under NRS 92A.180.
(b) Consummation of a plan of exchange to which the domestic
corporation is a party as the corporation whose subject owners interests
will be acquired, if he is entitled to vote on the plan.
(c) Any corporate action taken pursuant to a vote of the shareholders
to the event that the articles of incorporation, bylaws or a resolution of the
board of directors provides that voting or nonvoting shareholders are entitled
to dissent and obtain payment for their shares.
2. A shareholder who is entitled to dissent and obtain payment
under NRS 92A.300 to 92A.500, inclusive, may not challenge the corporate action
creating his entitlement unless the action is unlawful or fraudulent with respect
to him or the domestic corporation. (Added to NRS by 1995, 2087)
NRS 92A.390 Limitations on right of dissent: Shareholders
of certain classes or series; action of shareholders not required for plan of
merger.
1. There is no right of dissent with respect to a plan of merger
or exchange in favor of shareholders of any class or series which, at the record
date fixed to determine the shareholders entitled to receive notice of and to
vote at the meeting at which the plan of merger or exchange is to be acted on,
were either listed on a national securities exchange, included in the national
market system by the National Association of Securities Dealers, Inc., or held
by at least 2,000 shareholders of record, unless:
(a) The articles of incorporation
of the corporation issuing the shares provide otherwise; or
(b) The holders of the class
or series are required under the plan of merger or exchange to accept for the
shares anything except:
(1) Cash, owners interests
or owners interests and cash in lieu of fractional owners interests
of:
(I) The surviving or acquiring
entity; or
(II) Any other entity which, at the effective date of the plan
of merger or exchange, were either listed on a national securities exchange,
included in the national market system by the National Association of Securities
Dealers, Inc., or held of record by a least 2,000 holders of owners interests
of record; or
(2) A combination of cash and owners interests of the kind
described in sub-subparagraphs (I) and (II) of subparagraph (1) of paragraph
(b).
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2. There is no right of dissent for any holders of stock of the
surviving domestic corporation if the plan of merger does not require action
of the shareholders of the surviving domestic corporation under NRS 92A.130.
(Added to NRS by 1995, 2088)
NRS 92A.400 Limitations on right of dissent: Assertion as
to portions only to shares registered to shareholder; assertion by beneficial
shareholder.
1. A shareholder of record may assert dissenters rights
as to fewer than all of the shares registered in his name only if he dissents
with respect to all shares beneficially owned by any one person and notifies
the subject corporation in writing of the name and address of each person on
whose behalf he asserts dissenters rights. The rights of a partial dissenter
under this subsection are determined as if the shares as to which he dissents
and his other shares were registered in the names of different shareholders.
2. A beneficial shareholder may assert dissenters rights
as to shares held on his behalf only if:
(a) He submits to the subject corporation the written consent
of the shareholder of record to the dissent not later than the time the beneficial
shareholder asserts dissenters rights; and
(b) He does so with respect to all shares of which he is the
beneficial shareholder or over which he has power to direct the vote. (Added
to NRS by 1995, 2089)
NRS 92A.410 Notification of shareholders regarding right
of dissent.
1. If a proposed corporate action creating dissenters rights
is submitted to a vote at a shareholders meeting, the notice of the meeting
must state that shareholders are or may be entitled to assert dissenters
rights under NRS 92A.300 to 92A.500, inclusive, and be accompanied by a copy
of those sections.
2. If the corporate action creating dissenters rights is
taken by written consent of the shareholders or without a vote of the shareholders,
the domestic corporation shall notify in writing all shareholders entitled to
assert dissenters rights that the action was taken and send them the dissenters
notice described in NRS 92A.430. (Added to NRS by 1995, 2089; A 1997, 730)
NRS 92A.420 Prerequisites to demand for payment for shares.
1. If a proposed corporate action creating dissenters rights
is submitted to a vote at a shareholders meeting, a shareholder who wishes
to assert dissenters rights:
(a) Must deliver to the subject corporation, before the vote
is taken, written notice of his intent to demand payment for his shares if the
proposed action is effectuated; and
(b) Must not vote his shares in favor of the proposed action.
2. If a proposed corporate action creating dissenters rights
is taken by written consent of the shareholders, a shareholder who wishes to
assert dissenters rights must not consent to or approve the proposed corporate
action.
3. A shareholder who does not satisfy the requirements of subsection
1 or 2 and NRS 92A.400 is not entitled to payment for his shares under this
chapter.
NRS 92A.430 Dissenters notice: Delivery to shareholders
entitled to assert rights; contents.
1. The subject corporation shall deliver a written dissenters
notice to all shareholders entitled to assert dissenters rights.
2. The dissenters notice must be sent no later than 10
days after the effectuation of the corporate action, and must:
(a) State where the demand for payment must be sent and where
and when certificates, if any, for shares must be deposited;
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(b) Inform the holders of shares not represented by certificates
to what extent the transfer of the shares will be restricted after the demand
for payment is received;
(c) Supply a form for demanding payment that includes the date
of the first announcement to the news media or to the shareholders of the terms
of the proposed action and requires that the person asserting dissenters
rights certify whether or not he acquired beneficial ownership of the shares
before that date;
(d) Set a date by which the subject corporation must receive
the demand for payment, which may not be less than 30 nor more than 60 days
after the date the notice is delivered; and
(e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.
(Added to NRS by 1995, 2089)
NRS 92A.440 Demand for payment and deposit of certificates;
retention of rights of shareholder.
1. A shareholder to whom a dissenters notice is sent must:
(a) Demand payment;
(b) Certify whether he acquired beneficial ownership of
the shares before the date required to be set forth in the dissenters
notice for this certification; and
(c) Deposit his certificates, if any, in accordance with the
terms of the notice.
2. The shareholder who demands payment and deposits his certificates,
if any, before the proposed corporate action is taken retains all other rights
of a shareholder until those rights are canceled or modified by the taking of
the proposed corporate action.
3. The shareholder who does not demand payment or deposit his
certificates where required, each by the date set forth in the dissenters
notice, is not entitled to payment for his shares under this chapter. (Added
to NRS by 1995, 2090; A 1997, 730)
NRS 92A.450 Uncertificated shares: Authority to restrict transfer
after demand for payment; retention of rights of shareholder.
1. The subject corporation may restrict the transfer of shares
not represented by a certificate from the date the demand for their payment
is received.
2. The person for whom dissenters rights are asserted as
to shares not represented by a certificate retains all other rights of a shareholder
until those rights are canceled or modified by the taking of the proposed corporate
action. (Added to NRS by 1995, 2090)
NRS 92A.460 Payment for shares: General requirements.
1. Except as otherwise provided in NRS 92A.470, within 30 days
after receipt of a demand for payment, the subject corporation shall pay each
dissenter who complied with NRS 92A.440 the amount the subject corporation estimates
to be the fair value of his shares, plus accrued interest. The obligation of
the subject corporation under this subsection may be enforced by the district
court:
(a) Of the county where the corporations registered office
is located; or
(b) At the election of any dissenter residing or having its registered
office in this state, of the county where the dissenter resides or has its registered
office. The court shall dispose of the complaint promptly.
2. The payment must be accompanied by:
(a) The subject corporations balance sheet as of the end
of a fiscal year ending not more than 16 months before the date of payment,
a statement of income for that year, a statement of changes in the shareholders
equity for that year and the latest available interim financial statements,
if any;
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(b) A statement of the subject corporations estimate of
the fair value of the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenters rights to demand payment
under NRS 92A.480; and
(e) A copy of NRS 92A.300 to 92A.500, inclusive. (Added to NRS
by 1995, 2090)
NRS 92A.470 Payment for shares: Shares acquired on or
after date of dissenters notice.
1. A subject corporation may elect to withhold payment from a
dissenter unless he was the beneficial owner of the shares before the date set
forth in the dissenters notice as the date of the first announcement to
the news media or to the shareholders of the terms of the proposed action.
2. To the extent the subject corporation elects to withhold payment,
after taking the proposed action, it shall estimate the fair value of the shares,
plus accrued interest, and shall offer to pay this amount to each dissenter
who agrees to accept it in full satisfaction of his demand. The subject corporation
shall send with its offer a statement of its estimate of the fair value of the
shares, an explanation of how the interest was calculated, and a statement of
the dissenters right to demand payment pursuant to NRS 92A.480. (Added
to NRS by 1995, 2091)
NRS 92A.480 Dissenters estimate of fair value: Notification
of subject corporation; demand for payment of estimate.
1. A dissenter may notify the subject corporation in writing
of his own estimate of the fair value of his shares and the amount of interest
due, and demand payment of his estimate, less any payment pursuant to NRS 92A.460,
or reject the offer pursuant to NRS 92A.470 and demand payment of the fair value
of his shares and interest due, if he believes that the amount paid pursuant
to NRS 92A.460 or offered pursuant to NRS 92A.470 is less than the fair value
of his shares or that the interest due is incorrectly calculated.
2. A dissenter waives his right to demand payment pursuant to
this section unless he notifies the subject corporation of his demand in writing
within 30 days after the subject corporation made or offered payment for his
shares. (Added to NRS by 1995, 2091)
NRS 92A.490 Legal proceeding to determine fair value: Duties
of subject corporation; powers of court; rights of dissenter.
1. If a demand for payment remains unsettled, the subject corporation
shall commence a proceeding within 60 days after receiving the demand and petition
the court to determine the fair value of the shares and accrued interest. If
the subject corporation does not commence the proceeding within the 60-day period,
it shall pay each dissenter whose demand remains unsettled the amount demanded.
2. A subject corporation shall commence the proceeding in the
district court of the county where its registered office is located. If the
subject corporation is a foreign entity without a resident agent in the state,
it shall commence the proceeding in the county where the registered office of
the domestic corporation merged with or whose shares were acquired by the foreign
entity was located.
3. The subject corporation shall make all dissenters, whether
or not residents of Nevada, whose demands remain unsettled, parties to the proceeding
as in an action against their shares. All parties must be served with a copy
of the petition. Nonresidents may be served by registered or certified mail
or by publication as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced
under subsection 2 is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend a decision on the question
of fair value. The appraisers have the powers described in the order appointing
them, or any amendment thereto. The dissenters are entitled to the same discovery
rights as parties in other civil proceedings.
5. Each dissenter who is made a party to the proceeding is entitled
to a judgment:
(a) For the amount, if any, by which the court finds the fair
value of his shares, plus interest, exceeds the amount paid by the subject corporation;
or
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(b) For the fair value, plus accrued interest, of his after-acquired
shares for which the subject corporation elected to withhold payment pursuant
to NRS 92A.470. (Added to NRS by 1995, 2091)
NRS 92A.500 Legal proceeding to determine fair value:
Assessment of costs and fees.
1. The court in a proceeding to determine faibr value shall determine
all of the costs of the proceeding, including the reasonable compensation and
expenses of any appraisers appointed by the court. The court shall assess the
costs against the subject corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable,
to the extent the court finds the dissenters acted arbitrarily, vexatiously
or not in good faith in demanding payment.
2. The court may also assess the fees and expenses of the counsel
and experts for the respective parties, in amounts the court finds equitable:
(a) Against the subject corporation and in favor of all dissenters
if the court finds the subject corporation did not substantially comply with
the requirements of NRS 92A.300 to 92A.500, inclusive; or
(b) Against either the subject corporation or a dissenter in
favor of any other party, if the court finds that the party against whom the
fees and expenses are assessed acted arbitrarily, vexatiously or not in good
faith with respect to the rights provided by NRS 92A.300 to 92A.500, inclusive.
3. If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that
the fees for those services should not be assessed against the subject corporation,
the court may award to those counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefited.
4. In a proceeding commenced pursuant to NRS 92A.460, the court
may assess the costs against the subject corporation, except that the court
may assess costs against all or some of the dissenters who are parties to the
proceeding, in amounts the court finds equitable, to the extent the court finds
that such parties did not act in good faith in instituting the proceeding.
5. This section does not preclude any party in a proceeding commenced
pursuant to NRS 92A.460 or 92A.490 from applying the provisions of N.R.C.P.
68 or NRS 17.115. (Added to NRS by 1995, 2092)
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