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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________________ to __________________
Commission file number: 001-31546
PACIFIC SPIRIT, INC.
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(Exact name of Registrant as specified in its charter)
Nevada 98-0349685
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11640 96A Avenue
Surrey, British Columbia, Canada V3V 2A1
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(Address of principal executive offices)
(604) 760 - 1400
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Registrant's telephone number, including area code
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be
registered
None None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $0.001
------------------------------
(Title of Class)
1
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes No
------------ ----------
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
Yes X No
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State issuer's revenues for its most recent fiscal year: Nil
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State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.)
$66,000 as at March 29, 2005
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State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
3,820,000 shares of common stock at March 29, 2005
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2
TABLE OF CONTENTS
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Page
ITEM 1: DESCRIPTION OF BUSINESS............................................4
ITEM 2: DESCRIPTION OF PROPERTY...........................................11
ITEM 3: LEGAL PROCEEDINGS.................................................11
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............11
ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..........11
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.........12
ITEM 7: FINANCIAL STATEMENTS..............................................12
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES..................................24
ITEM 9: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS......24
ITEM 10: EXECUTIVE COMPENSATION.............................................25
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.....26
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................26
ITEM 13: EXHIBITS AND REPORTS...............................................27
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES ........................... 27
3
PART I
ITEM 1: DESCRIPTION OF BUSINESS
In General
We are a pre-exploration stage company. We have acquired a mining lease on a
total of six unpatented lode mineral claims property located in the State of
Nevada and has not yet determined whether this property contains reserves that
are economically recoverable. A patented lode mineral claim is the highest form
mineral claim tenure. No additional assessment work is necessary to keep the
claims in good standing. All mineral rights, both surface and underground, are
included in the claim. An unpatented claim requires additional assessment work
before all mineral rights can be claimed.
The recoverability of minerals from the property will be dependent upon the
discovery of economically recoverable reserves, confirmation of the company's
interest in the underlying property, the ability of the company to obtain
necessary financing to satisfy the expenditure requirements under the property
agreement and to complete the development of the property and upon future
profitable production or proceeds for the sale thereof.
Mining Lease Agreement
By a lease agreement effective June 1, 2001 and amended June 25, 2002, November
25, 2002, and January 9, 2004 the Company was granted the exclusive right to
explore and mine the Del Oro and NP Claims located in Pershing County of the
State of Nevada. The term of this lease is for 30 years, renewable for an
additional 30 years so long as the condition of the lease is met. Minimum
payments and performance commitments are as follows:
Minimum Advance Royalty Payments:
The owner shall be paid a royalty of 4% of the net smelter returns from all
production. In respect to this royalty, the Company is required to pay minimum
advance royalty payments of the following: - $5,000 upon execution (paid) and
$4,500 (paid) for extension of the agreement; - $2,000 upon execution (paid) of
the amended agreement dated January 9, 2004; - $5,000 on July 9, 2004 (paid); -
$10,000 on January 9, 2005 (currently being renegotiated); and - each annual
payment thereafter of $50,000 plus an annual increase or decrease equivalent to
the rate of inflation designated by the Consumer Price Index for that year with
execution year as base year. Each such payment shall be made by January 9, of
each successive year of lease.
The advance royalty payment of $10,000 due by January 9, 2005 has not been made.
The Company is currently negotiating an amendment to the balance of the
scheduled advance royalty payments. As per the lease agreement, the landlord
must give written default notice and the Company has 15 days to cure the default
or the lease can be terminated. No notice has been received due to the current
negotiations.
4
The Company can reduce the net smelter return royalty to 0.5% by payment of a
buy-out price of $5,000,000. Advance royalty payments made to the date of the
buy-out will be applied to reduce the buy-out price.
Performance Commitment:
In the event that the Company terminates the lease after June 1 of any year, it
is required to pay all federal and state mining claim maintenance fees for the
next assessment year. The Company is required to perform reclamation work on the
property as required by federal, state and local law for disturbances resulting
from the Company's activities on the property.
Description of the Del Oro Property
The six unpatented lode mineral claims, referred to as the "Del Oro" property,
are located approximately 28 miles south of Winnemucca, Nevada.
Location and Access
The Del Oro Property is Located in Sections 29, 30, and 31, Township 31 North,
Range 38 East, MDB&M, Pershing County, Nevada. The claims are situated in the
Goldbanks Mining District approximately 28 miles south of Winnemucca, Nevada.
Access from Winnemucca is south along the Grass Valley paved / gravel road for
approximately 22 miles, turning southwest onto a dirt road toward the east range
about one mile north of Leach Hot Springs. The dirt road runs generally
down-slope toward the southwest for approximately four miles, then changes to a
south-southeast direction and begins upslope for approximately three miles here
the road enters unnamed drainage and continues approximately two and one half
miles southwest onto the north side line of the claims.
History of the Del Oro Property
In 1992, Equinox Resources assumed the operations of the wx Syndicate. The Del
Oro claims were leased in 1993 to Cameco U. S., Inc. which conducted magnetic
surveys, rock and limited soil sampling and then drilled 4,610 feet in eleven
reverse circulation drill holes. This drilling returned anomalous gold assays to
0.012 ounces per ton over 25 feet north of the present claim position. Cameco
surrendered their lease in 1994 to Nevada Mine Properties, Inc. (a subsidiary of
Hecla Mining Co.). Subsequently Nevada Mine Properties quit-claimed the property
to Nevada Mine Properties II, Inc (no association with Hecla).
In 1995 Newhawk Gold Mines LTD. acquired a land position in the area which
included a lease on the Del Oro Property. A regional soil grid survey in 1996
resulted in a three-hole 1,850 foot reverse circulation drill program testing
the roots beneath the previously drilled air track targets. Drill intercepts
returned 0.017 ounces per ton of gold over 15 feet. The leased property has been
maintained by Nevada Mine Properties II, Inc. since 1998. In June 2001, Pacific
Spirit Inc. leased the six claims from Nevada Mine Properties II, Inc.
5
Geological Report
Our business activities to date have been restricted to obtaining a report from
our mining engineer, Sam S. Arentz, III. According to Mr. Arentz's report, the
six Del Oro claims were staked in 1986 by wx syndicate who completed 12 shallow
air track drill holes which returned gold assays in the amount of 0.019 Ounces
per ton over 10 feet to 0.010 Ounces per ton over 50 feet.
Mr. Arentz recommends a two-phase program to explore the Del Oro Property. Phase
1 includes additional claim staking followed by geologic mapping and rock chip
and soil sampling. A five hole, 2,500 foot reverse circulation drill program is
proposed for phase 1. If drilling intersects gold values in the 0.05 to 0.10
Ounces per ton range over thicknesses of tens of feet, then consideration would
be given toward a phase 2 effort which would include an additional 5000 feet of
reverse circulation drilling.
PHASE 1 - PROPOSED BUDGET
ESTIMATED COSTS (US$)
---------------------
Claim Acquisition 2,000
Rock and Soil Sampling and Assays 2,500
Geologic Mapping 3,000
Drilling + Assays (2,500' @ $15 / Ft) 37,500
Reclamation 5,000
Report Preparation 3,000
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53,000
PHASE 2 - PROPOSED BUDGET
Drilling + Assays (5000' @ $15 / Ft) 75,000
Reclamation 5,000
Report Preparation 3,000
-----
83,000
Compliance with Government Regulation
We will secure all necessary permits for exploration and, if development is
warranted on the property, will file final plans of operation before we start
any mining operations. We anticipate no discharge of water into active stream,
creek, river, lake or any other body of water regulated by environmental law or
regulation. No endangered species will be disturbed. Restoration of the
disturbed land will be completed according to law. All holes, pits and shafts
will be sealed upon abandonment of the property. It is difficult to estimate the
cost of compliance with the environmental law since the full nature and extent
of our proposed activities cannot be determined until we start our operations
and know what will involve from an environmental standpoint.
6
The initial drill program outlined in Phase I will be conducted on B.L.M. lands.
The BLM will require the submittal of a plan of operation which would be used as
the basis for the bonding requirement, water permit and reclamation program. The
reclamation program could include both surface reclamation and drill hole
plugging and abandonment. The amount of the bonding would be based upon an
estimate by the BLM related to the cost of reclamation if done by an independent
contractor. It is estimated the bonding requirement would be $5,000. The water
permit and fee is included in the reclamation cost which is estimated to be
$1,000.
We would be subjected to the B.L.M. rules and regulations governing mining on
federal lands including a draft environmental impact statement or EIS, public
hearings and a final EIS. The final EIS would address county and state needs and
requirements and would cover issues and permit requirements concerning: air
quality, heritage resources, geology, energy, noise, soils, surface and ground
water, wetlands, use of hazardous chemicals, vegetation, wildlife, recreation,
land use, socioeconomic impact, scenic resources, health and welfare,
transportation and reclamation. Bonding requirements for mining are developed
from the final EIS.
We are in compliance with all laws and will continue to comply with the laws in
the future. We believe that compliance with the laws will not adversely affect
our business operations. Pacific Spirit, Inc. anticipates that it will be
required to post bonds in the event the expanded work programs involve extensive
surface disturbance.
Employees
We have no employees as of the date of this annual report other than Mr. Peter
Sotola, the president and sole director.
Research and Development Expenditures
We have not incurred any exploration expenditures to date. We have not incurred
any other research or development expenditures since our incorporation.
Subsidiaries
We do not have any subsidiaries.
Patents and Trademarks
We do not own, either legally or beneficially, any patents or trademarks.
Risk Factors
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In addition to the other information in this current report, the following
factors should be carefully considered in evaluating our business and prospects:
THE SOLE MINERAL PROPERTY IN WHICH WE HAVE AN INTEREST, THE DEL ORO PROJECT, HAS
NO RESERVES.
Our sole mineral property interest is the Del Oro Project. As this property is
in the pre-exploration stage, it has no reserves and does not generate any cash
flow. Accordingly, we have no means of producing any income. We anticipate
incurring losses for the foreseeable future.
7
IF WE DO NOT OBTAIN ADDITIONAL FINANCING, OUR BUSINESS WILL FAIL.
Our current operating funds are less than necessary to meet the terms of the
mining lease, and therefore we will need to obtain additional financing in order
to complete our business plan. As of December 31, 2004, we had cash in the
amount of $576. We currently do not have any operations and we have no income.
Our business plan for the next twelve months calls for significant expenses in
connection with the exploration of the Del Oro Property. In order to complete
phase one of the exploration program, we anticipate the costs to be $53,000. We
are also required to pay an additional $10,000 in order to keep our lease
agreement respecting the Del Oro Property in good standing. The royalty payment
of $10,000 due by January 9, 2005 has not been made. The Company is currently
negotiating an amendment to the balance of the scheduled advance royalty
payments. In addition, we anticipate incurring $10,000 in professional fees and
$15,000 in administrative expenses.
We will require additional financing in order to meet the anticipated
exploration costs and to sustain our business operations. We do not currently
have any arrangements for financing and we can provide no assurance to investors
that we will be able to find such financing if required. Obtaining additional
financing would be subject to a number of factors, including the market prices
for gold, copper, nickel and platinum group metals, investor acceptance of our
property and investor sentiment. These factors may make the timing, amount,
terms or conditions of additional financing unavailable to us.
The most likely source of future funds presently available to us is through the
sale of equity capital. Any sale of share capital will result in dilution to
existing shareholders. The only other anticipated alternative for the financing
of further exploration would be the offering by us of an interest in our
properties to be earned by another party or parties carrying out further
exploration thereof, which is not presently contemplated.
IF WE DO NOT COMPLETE THE REQUIRED COMMITMENTS OF THE MINING LEASE AGREEMENT, WE
WILL LOSE OUR INTEREST IN THE DEL ORO RESOURCE PROPERTY AND OUR BUSINESS MAY
FAIL.
We are obligated to incur minimum payments and performance commitments as
outlined in the Mining Lease Agreement mentioned in that section. If we fail to
meet the terms of the lease agreement, we will forfeit our interest in the Del
Oro Property. The lease may be terminated if the landlord gives written notice
of such default. After receipt of default, Pacific Spirit has 15 days to cure
the default. We will require substantial additional capital to fund phase one of
the exploration program. We have no agreements for additional financing and we
can provide no assurance to investors that additional funding will be available
to us on acceptable terms, or at all, to continue operations, to fund new
business opportunities or to execute our business plan. If we lose our interest
in the Del Oro Property, then there is a substantial risk that our business will
fail.
8
BECAUSE OF THE SPECULATIVE NATURE OF EXPLORATION OF MINERAL PROPERTIES, THERE IS
A SUBSTANTIAL RISK THAT OUR BUSINESS WILL FAIL.
The search for valuable minerals as a business is extremely risky. We can
provide investors with no assurance that the mineral property that we have
leased contains commercially exploitable reserves of copper, nickel, gold and
platinum group metals. Exploration for minerals is a speculative venture
necessarily involving substantial risk. The expenditures to be made by us in the
exploration of the optioned mineral properties may not result in the discovery
of commercial quantities of minerals. 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. As a result, we may
become subject to liabilities for such hazards, including pollution, cave-ins
and other hazards against which we cannot insure or against which we may elect
not to insure. The payment of such Liabilities may have a material adverse
effect on our financial position.
WE MAY NOT BE ABLE TO OPERATE AS A GOING CONCERN AND OUR BUSINESS MAY FAIL.
The Independent Auditor's Report to our audited financial statements for the
period ended December 31, 2004, indicates that there are a number of factors
that raise substantial doubt about our ability to continue as a going concern.
Such factors identified in the report are: we are in a net loss position; we
have not attained profitable operations; and we are dependent upon obtaining
adequate financing to fulfill our exploration activities. If we are not able to
continue as a going concern, it is likely investors will lose their investments.
IF WE BECOME SUBJECT TO BURDENSOME GOVERNMENT REGULATION OR OTHER LEGAL
UNCERTAINTIES, OUR BUSINESS WILL BE NEGATIVELY AFFECTED.
The legal and regulatory environment that pertains to the exploration of
minerals is uncertain and may change. Uncertainty and new regulations could
increase our costs of doing business and prevent us from exploring for mineral
deposits. The growth of demand for minerals may also be significantly slowed.
This could delay growth in potential demand for and limit our ability to
generate revenues. In addition to new laws and regulations being adopted,
existing laws may be applied to mining that have not as yet been applied. These
new laws may increase our cost of doing business with the result that our
financial condition and operating results may be harmed.
9
BECAUSE OUR SOLE DIRECTOR OWNS 65.44% OF OUR OUTSTANDING COMMON STOCK, THEY
COULD MAKE AND CONTROL CORPORATE DECISIONS THAT MAY BE DISADVANTAGEOUS TO
MINORITY SHAREHOLDERS.
Our sole director owns approximately 65.44% of the outstanding shares of our
common stock. Accordingly, he will have a significant influence in determining
the outcome of all corporate transactions or other matters, including mergers,
consolidations and the sale of all or substantially all of our assets, and also
the power to prevent or cause a change in control. The interests of our director
may differ from the interests of the other stockholders and thus result in
corporate decisions that are disadvantageous to other shareholders.
BECAUSE OUR PRESIDENT HAS OTHER BUSINESS INTERESTS, HE MAY NOT BE ABLE OR
WILLING TO DEVOTE A SUFFICIENT AMOUNT OF TIME TO OUR BUSINESS OPERATIONS,
CAUSING OUR BUSINESS TO FAIL.
Our president, Mr. Peter Sotola is presently required to spend only 15% of his
business time on business management services for our company. While Mr. Sotola
presently possesses adequate time to attend to our interests, it is possible
that the demands on Mr. Sotola from his other obligations could increase with
the result that he would no longer be able to devote sufficient time to the
management of our business. In addition, Mr. Sotola may not possess sufficient
time for our business if the demands of managing our business increased
substantially beyond current levels.
IF A MARKET FOR OUR COMMON STOCK DOES NOT DEVELOP, SHAREHOLDERS MAY BE UNABLE TO
SELL THEIR SHARES.
There is currently no market for our common stock and we can provide no
assurance that a market will develop. We expect to apply for listing of our
common stock on the over the counter bulletin board. However, we can provide
investors with no assurance that our shares will be traded on the bulletin board
or, if traded, that a public market will materialize. If no market is ever
developed for our shares, it will be difficult for shareholders to sell their
stock. In such a case, shareholders may find that they are unable to achieve
benefits from their investment.
IF A MARKET FOR OUR COMMON STOCK DEVELOPS, OUR STOCK PRICE MAY BE VOLATILE.
If a market for our common stock develops, we anticipate that the market price
of our common stock will be subject to wide fluctuations in response to several
factors, including:
(1) actual or anticipated variations in our results of operations;
(2) our ability or inability to generate new revenues;
(3) increased competition; and
(4) conditions and trends in the mineral exploration industry.
Further, if our common stock is traded on the NASD over the counter bulletin
board, our stock price may be impacted by factors that are unrelated or
disproportionate to our operating performance. These market fluctuations, as
well as general economic, political and market conditions, such as recessions,
interest rates or international currency fluctuations may adversely affect the
market price of our common stock.
10
Forward-Looking Statements
This Form 10-KSB contains forward-looking statements that involve risks and
uncertainties. We use words such as anticipate, believe, plan, expect, future,
intend and similar expressions to identify such forward-looking statements. You
should not place too much reliance on these forward-looking statements. Our
actual results are likely to differ materially from those anticipated in these
forward-looking statements for many reasons, including the risks faced by us
described in the above "Risk Factors" section and elsewhere in this document.
ITEM 2: DESCRIPTION OF PROPERTY
Our executive offices are located at 11640 96A Avenue, Surrey, British Columbia,
Canada. Our officers provided principal executive office space and telephone
service free of charge up to June 30, 2004. Effective July 31, 2004, the Company
was charged $250 per month for rent and telephone expenses. The costs associated
with the use of the telephone and mailing address were deemed by management to
be reasonable.
ITEM 3: LEGAL PROCEEDINGS
There are no legal proceedings pending or threatened against us.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of our fiscal year to a vote
of security holders, through the solicitation of proxies or otherwise.
PART II
ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our shares of common stock do not trade on any stock exchange or through the
facilities of any quotation system. While we intend to apply to have our shares
of common stock quoted on the National Association of Securities Dealers' OTC
Bulletin Board, there is no guarantee that we will be successful.
We have 27 shareholders of record as at the date of this annual report.
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:
1. we would not be able to pay our debts as they become due in the usual
course of business; or
11
2. 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.
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Plan of Operation
Our plan of operation for the twelve months following the date of this report is
to complete the recommended phase one exploration program on the Del Oro
Property in which we hold a leasehold interest. We anticipate that this program
will cost us $53,000.
In January 2004, we amended our mineral claims agreement regarding the Del Oro
Property located approximately 28 miles south of Winnemucca, Nevada. We paid the
lessor of the property $2,000 upon execution of the agreement. We also paid the
lessor $5,000 by July 9, 2004 as per the amended agreement. In order to keep the
lease in good standing, we must pay the lessor $10,000 by January 9, 2005, and
$50,000 per year thereafter. The royalty payment of $10,000 due by January 9,
2005 has not been made. The Company is currently negotiating an amendment to the
balance of the scheduled advance royalty payments.
In addition, we anticipate spending $10,000 on professional fees and $15,000 on
administrative expenses. Our cash on hand at December 31, 2004 was $576.
Accordingly, we will need to raise additional funds in order to complete the
recommended exploration program on the Del Oro Property and meet our other
expected expenses. We do not currently have any arrangements for raising
additional funding.
Results of Operations For the Year Ended December 31, 2004
We incurred a net loss of $23,338 for the year-ended December 31, 2004, as
compared to a loss of $12,962 in the same period in 2003. The increase in net
loss was primarily due to the increase in office and administrative services,
mineral property royalty payments, and filing fees. During fiscal year 2004, we
incurred legal fees of $1,000 (2003: $2,719), administrative services of $3,000
(2003: $500), accounting and audit fees of $6,550 (2003: $6,751), mineral lease
advance royalty of $7,805 (2003: $2,155), office and miscellaneous expenses of
$1,500 (2003: $231), and transfer agent and filing fees of $3,261 (2003: $414).
Effective July 2004, as per a management agreement, the president started to
charge $500 per month for administrative services. At year-end, we had cash on
hand of $576 (2003: $12,499). Our liabilities at the same date totalled $18,180
(2003: $6,698).
ITEM 7: FINANCIAL STATEMENTS
12
PACIFIC SPIRIT, INC.
(A Pre-exploration Stage Company)
FINANCIAL STATEMENTS
December 31, 2004 and 2003
(Stated in US Dollars)
13
TERRY AMISANO LTD. AMISANO HANSON
KEVIN HANSON LTD. CHARTERED ACCOUNTANTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders,
Pacific Spirit Inc.
We have audited the accompanying balance sheets of Pacific Spirit Inc. (A
Pre-exploration Stage Company) as of December 31, 2004 and 2003 and the related
statements of operations, cash flows and stockholders' equity (deficiency) for
the years ended December 31, 2004 and 2003 and the period May 4, 2001 (Date of
Incorporation) to December 31, 2004. 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 of America). Those standards require
that we plan and perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An audit includes
examining on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, these financial statements referred to above present fairly, in
all material respects, the financial position of Pacific Spirit Inc. as of
December 31, 2004 and 2003 and the results of its operations and its cash flows
for the years ended December 31, 2004 and 2003 and the period May 4, 2001 (Date
of Incorporation) to December 31, 2004, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements referred to above have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the financial statements, the Company is in the exploration stage, and has
no established source of revenue and is dependent on its ability to raise
capital from shareholders or other sources to sustain operations. These factors,
along with other matters as set forth in Note 1, raise substantial doubt that
the Company will be able to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Vancouver, Canada (sgd) "AMISANO HANSON"
March 3, 2005 Chartered Accountants
750 West Pender Street, Suite 604 Telephone: 604-689-0188
Vancouver Canada Facsimile: 604-689-9773
V6C 2T7 E-MAIL: amishan@telus.net
14
PACIFIC SPIRIT INC.
(A Pre-exploration Stage Company)
BALANCE SHEETS
December 31, 2004 and 2003
(Stated in US Dollars)
----------------------
ASSETS 2004 2003
------ ---- ----
Current
Cash $ 576 $ 12,499
Prepaid expenses 800 733
---------------- ----------------
$ 1,376 $ 13,232
================ ================
LIABILITIES
-----------
Current
Accounts payable and accrued liabilities - Note 3 $ 12,504 $ 6,698
Due to related party - Note 3 5,676 -
---------------- ----------------
18,180 6,698
---------------- ----------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock, $0.001 par value
10,000,000 shares authorized, none outstanding
Common stock, $0.001 par value
100,000,000 shares authorized
3,820,000 (2003: 3,820,000) shares outstanding 3,820 3,820
Paid-in capital 87,180 87,180
Deficit accumulated during the pre-exploration stage (107,804) (84,466)
---------------- ----------------
(16,804) 6,534
---------------- ----------------
$ 1,376 $ 13,232
================ ================
Nature and Continuance of Operations - Note 1
Commitments - Note 4
Subsequent Event - Note 4
SEE ACCOMPANYING NOTES
15
PACIFIC SPIRIT INC.
(A Pre-exploration Stage Company)
STATEMENTS OF OPERATIONS
for the years ended December 31, 2004 and 2003
and for the period May 4, 2001 (Date of Incorporation) to December 31, 2004
(Stated in US Dollars)
----------------------
May 4, 2001
(Date of
Incorporation)
Years ended to
December 31, December 31,
2004 2003 2004
---- ---- ----
Expenses
Accounting and audit fees $ 6,550 $ 6,751 $ 26,234
Administrative services - Note 3 3,000 500 20,500
Bank charges and interest 222 218 859
Exploration costs - - 1,747
Incorporation costs - - 900
Legal fees 1,000 2,719 32,206
Mineral lease advance royalty - Note 4 7,805 2,155 17,960
Office and miscellaneous 1,500 231 2,018
Transfer agent & filing fees 3,261 414 5,480
-------------- ------------- ---------------
Loss before other item (23,338) (12,988) (107,904)
Other item
Interest income - 26 100
-------------- ------------- ---------------
Net loss for the period $ (23,338) $ (12,962) $ (107,804)
============== ============= ===============
Basic loss per share $ (0.01) $ (0.00)
============== =============
Weighted Average Number of Shares Outstanding 3,820,000 3,820,000
============== =============
SEE ACCOMPANYING NOTES
16
PACIFIC SPIRIT INC.
(A Pre-exploration Stage Company)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 2004 and 2003
and for the period May 4, 2001 (Date of Incorporation) to December 31, 2004
(Stated in US Dollars)
----------------------
May 4, 2001
(Date of
Incorporation)
Years ended to
December 31, December 31,
2004 2003 2004
---- ---- ----
Cash Flows used Operating Activities
Net loss for the period $ (23,338) $ (12,962) $ (107,804)
Changes in non-cash working capital
items related to operations:
Prepaid expenses (67) (733) (800)
Accounts payable and accrued
liabilities 5,806 (1,789) 12,504
------------- -------------- ----------------
(17,599) (15,484) (96,100)
------------- ------------- ----------------
Cash Flows from Financing Activities
Capital stock issued - - 91,000
Advance from a director 5,676 - 5,676
------------- ------------- ----------------
5,676 - 96,676
------------- ------------- ----------------
Increase (decrease) in cash during the period (11,923) (15,484) 576
Cash, beginning of the period 12,499 27,983 -
------------- ------------- ----------------
Cash, end of the period $ 576 $ 12,499 $ 576
============= ============= ================
Supplemental disclosure of cash flow
information
Cash paid for:
Interest $ - $ - $ -
============= ============= ================
Income taxes $ - $ - $ -
============= ============= ================
SEE ACCOMPANYING NOTES
17
PACIFIC SPIRIT INC.
(A Pre-exploration Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
for the period May 4, 2001 (Date of Incorporation) to December 31, 2004
(Stated in US Dollars)
----------------------
Deficit
Accumulated
Additional During the
Common Shares Paid-in Pre-Exploration
--------------------------------
Number Par Value Capital Stage Total
------ --------- ------- ----- -----
Capital stock issued for cash - at $0.01 2,500,000 $ 2,500 $ 22,500 $ - $ 25,000
Net loss for the period - - - (40,255) (40,255)
--------------- --------------- --------------- ------------------ ---------------
Balance as at December 31, 2001 2,500,000 2,500 22,500 (40,255) (15,255)
Capital stock issued for cash - at $0.05 1,320,000 1,320 64,680 - 66,000
Net loss for the year ended
December 31, 2002 - - - (31,249) (31,249)
--------------- --------------- --------------- ------------------ ---------------
Balance as at December 31, 2002 3,820,000 3,820 87,180 (71,504) 19,496
Net loss for the year ended
December 31, 2003 - - - (12,962) (12,962)
--------------- --------------- --------------- ------------------ ---------------
Balance as at December 31, 2003 3,820,000 3,820 87,180 (84,466) 6,534
Net loss for the year ended
December 31, 2004 - - - (23,338) (23,338)
--------------- --------------- --------------- ------------------ ---------------
Balance as at December 31, 2004 3,820,000 $ 3,820 $ 87,180 $ (107,804) $ (16,804)
=============== =============== =============== ================== ===============
SEE ACCOMPANYING NOTES
18
PACIFIC SPIRIT INC.
(A Pre-exploration Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2004 and 2003
(Stated in US Dollars)
Note 1 Nature and Continuance of Operations
------------------------------------
The Company is in the pre-exploration stage. The Company has
entered into a lease agreement to explore and mine a property
located in the state of Nevada, United States of America and has
not yet determined whether this property contains reserves that
are economically recoverable. The recoverability of amounts from
the property will be dependent upon the discovery of economically
recoverable reserves, confirmation of the Company's interest in
the underlying property, the ability of the Company to obtain
necessary financing to satisfy the expenditure requirements under
the property agreement and to complete the development of the
property and upon future profitable production or proceeds for the
sale thereof.
The financial statements have been prepared using generally
accepted accounting principles in the United States of America
applicable for a going concern which assumes that the Company will
realize its assets and discharge its liabilities in the ordinary
course of business. The Company has a working capital deficiency
of $16,804 and as at December 31, 2004, has not yet attained
profitable operations and has accumulated a deficit of $107,804
since inception. Its ability to continue as a going concern is
dependent upon the ability of the Company to generate profitable
operations in the future and/or to obtain the necessary financing
to meet its obligations and repay its liabilities arising from
normal business operations when they come due. These financial
statements do not include any adjustments to the amounts and
classification of assets and liabilities that may be necessary
should the Company be unable to continue as a going concern. The
Company anticipates that additional funding will be in the form of
equity financing from the sale of common shares. The Company may
also seek to obtain short-term loans from the directors of the
company. There are no current arrangements in place for equity
funding or short-term loans.
The Company was incorporated in the State of Nevada, United States
of America on May 4, 2001.
Note 2 Summary of Significant Accounting Policies
------------------------------------------
The financial statements of the Company have been prepared in
accordance with generally accepted accounting principles in the
United States of America. Because a precise determination of many
assets and liabilities is dependent upon future events, the
preparation of financial statements for a period necessarily
involves the use of estimates that have been made using careful
judgement. Actual results may vary from these estimates.
The financial statements have, in management's opinion, been
properly prepared within the framework of the significant
accounting policies summarized below:
19
Note 2 Summary of Significant Accounting Policies - (cont'd)
------------------------------------------
Pre-exploration Stage Company
-----------------------------
The Company complies with Financial Accounting Standard Board
Statement No. 7 and The Securities and Exchange Commission Act
Guide 7 for its characterization of the Company as pre-exploration
stage.
Mineral Lease
-------------
Costs of lease acquisition, exploration, carrying and retaining
unproven mineral lease properties are expensed as incurred.
Environmental Costs
-------------------
Environmental expenditures that relate to current operations are
expensed or capitalized as appropriate. Expenditures that relate
to an existing condition caused by past operations, and which do
not contribute to current or future revenue generation, are
expensed. Liabilities are recorded when environmental assessments
and/or remedial efforts are probable, and the cost can be
reasonably estimated. Generally, the timing of these accruals
coincides with the earlier of completion of a feasibility study or
the Company's commitments to plan of action based on the then
known facts.
Income Taxes
------------
The Company uses the liability method of accounting for income
taxes pursuant to Statement of Financial Accounting Standards
("FAS"), No. 109 "Accounting for Income Taxes". Under the assets
and liability method of FAS 109, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to temporary differences between the financial
statements carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled.
Basic Loss Per Share
--------------------
The Company reports basic loss per share in accordance with the
FAS No. 128, "Earnings Per Share". Basic loss per share is
computed using the weighted average number of shares outstanding
during the year.
20
Note 2 Summary of Significant Accounting Policies - (cont'd)
------------------------------------------
Financial Instruments
---------------------
The carrying value of cash, accounts payable and accrued
liabilities and due to related party approximates fair value
because of the short maturity of these instruments. Unless
otherwise noted, it is management's opinion that the Company is
not exposed to significant interest, currency or credit risks
arising from these financial instruments.
New Accounting Standards
------------------------
Management does not believe that any recently issued, but not yet
effective accounting standards if currently adopted could have a
material effect on the accompanying financial statements.
Note 3 Related Party Transactions
--------------------------
The Company was charged the following by a director of the
Company:
May 2, 2001
(Date of
Incorporation)
Years ended to
December 31, December 31,
2004 2003 2004
---- ---- ----
Administrative services $ 3,000 $ - $ 3,000
============= ============= =================
These charges were measured by the exchange amount which is the
amount agreed upon by the transacting parties.
Included in accounts payable at December 31, 2004 is $3,000 (2003:
$Nil) consisting of unpaid management fees due to a director of
the Company.
The amount due to related party, a director of the Company,
consist of unpaid advances of $5,676. The amount due is unsecured,
non-interest bearing and has no specific terms for repayment.
21
Note 4 Commitments
-----------
Mineral Property
By a lease agreement effective June 1, 2001 and amended June 25,
2002, November 25, 2002 and January 9, 2004, the Company was
granted the exclusive right to explore and mine the Del Oro and NP
Claims located in Pershing County of the State of Nevada. The term
of this lease is for 30 years, renewable for an additional 30
years so long as the conditions of the lease are met. Minimum
payments and performance commitments are as follows:
Minimum Advance Royalty Payments:
The owner shall be paid a royalty of 4% of the net smelter returns
from all production. In respect to this royalty, the Company is
required to pay minimum advance royalty payments of the following:
- $5,000 upon execution (paid) and $4,500 (paid) for
extension of the agreement;
- $2,000 upon execution of the amended agreement dated
January 9, 2004 (paid);
- $5,000 on July 9, 2004 (paid);
- $10,000 on January 9, 2005;
- each January 9 thereafter, a payment of $50,000 plus an
annual increase or decrease equivalent to the date of inflation
designated by the Consumer Price Index for that year with the
execution year as the base year.
The advance royalty payment of $10,000 due January 9, 2005 has not
been made. The Company is currently negotiating an amendment to
the balance of the advance royalty payments due. As per the lease
agreement, the landlord must give written default notice to the
Company and the Company then has 15 days to cure the default or
the lease can be terminated. No notice has been received due to
current negotiations.
The Company can reduce the net smelter return royalty to 0.5% by
payment of a buy-out price of $5,000,000. Advance royalty payments
made to the date of the buy-out will be applied to reduce the
buy-out price.
22
Note 4 Commitments - (cont'd)
-----------
Performance Commitment:
In the event that the Company terminates the lease after June 1 of
any year, it is required to pay all federal and state mining claim
maintenance fees for the next assessment year. The Company is
required to perform reclamation work on the property as required
by federal, state and local law for disturbances resulting from
the Company's activities on the property.
Note 5 Deferred Tax Assets
-------------------
The following table summarizes the significant components of the
Company's deferred tax assets:
Total
Deferred tax assets
Non-capital loss carryforward $ 25,294
Less: valuation allowance (25,294)
---------------
$ -
===============
The amount taken into income as deferred tax assets must reflect
that portion of the income tax loss carryforwards that is more
likely than not to be realized from future operations. The Company
has chosen to provide an allowance of 100% against all available
income tax loss carryforwards, regardless of their time of expiry.
Note 6 Income Taxes
------------
No provision for income taxes has been provided for in these
financial statements due to the net loss. At December 31, 2004 the
Company has net operating loss carryforwards, which expire
commencing in 2021, totalling approximately $106,804, the benefit
of which has not been recorded in the financial statements.
23
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 8A: CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls
We evaluated the effectiveness of our disclosure controls and procedures as of
the end of the 2004 fiscal year. This evaluation was conducted with the
participation of our chief executive officer and our principal accounting
officer.
Disclosure controls are controls and other procedures that are designed to
ensure that information that we are required to disclosed in the reports we file
pursuant to the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported.
Limitations on the Effective of Controls
Our management does not expect that our disclosure controls or our internal
controls over financial reporting will prevent all error and fraud. A control
system, no matter how well conceived and operated, can provide only reasonable,
but no absolute, assurance that the objectives of a control system are met.
Further, any control system reflects limitations on resources, and the benefits
of a control system must be considered relative to its costs. These limitations
also include the realities that judgments in decision-making can be faulty and
that breakdowns can occur because of simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by
collusion of two or more people or by management override of a control. A design
of a control system is also based upon certain assumptions about potential
future conditions; over time, controls may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and may not be detected.
Conclusions
Based upon their evaluation of our controls, the chief executive officer and
principal accounting officer have concluded that, subject to the limitations
noted above, the disclosure controls are effective providing reasonable
assurance that material information relating to us is made known to management
on a timely basis during the period when our reports are being prepared. There
were no changes in our internal controls that occurred during the quarter
covered by this report that have materially affected, or are reasonably likely
to materially affect our internal controls.
PART III
ITEM 9: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Name Age Position with Registrant Served as a Director
or Officer since
Peter Sotola 58 President, Secretary, Treasurer, May 4, 2001
Chief Executive Officer, and
Director (Principal Executive Officer,
Principal Financial Officer, and Principal
Accounting Officer)
24
The following is a biographical summary of Mr. Peter Sotola:
Peter Sotola is the founder of our company. Mr. Sotola has been the President,
Secretary-Treasurer and Director since Pacific Spirit's inception on May 4,
2001. Between 1987 and 1999 Mr. Sotola was an account executive at Georgia
Pacific Securities, which has its principal offices in Vancouver, British
Columbia, and engages in the business of buying and selling public securities.
From 1999 to the present Mr. Sotola has been engaged in providing business
consulting services. He is expected to hold his position with our company until
the next annual meeting of shareholders. Mr. Sotola educational experience
includes attending the College of Hotel Management in Mareinbad, Czechoslovakia
between 1976 and 1980. From 1980 to 1982 he attended the Economic University in
Prague, Czechoslovakia where he majored in economics and political science.
All directors are elected annually by our shareholders and hold office until the
next Annual General Meeting. Each officer holds office at the pleasure of the
board of directors.
ITEM 10: EXECUTIVE COMPENSATION
The table below summarizes all compensation awarded to, earned by, or paid to
our executive officers by any person for all services rendered in all capacities
to us for the fiscal years ended December 31, 2004 and 2003.
Annual Compensation Long Term Compensation
------------------- ----------------------
Other Annual Restricted Stock Options/ LTIP All Other
Name (1) Title Year Salary Bonus Compensation Awarded SARs (#) payouts ($) Compensation
-------- ----- ---- ------ ----- ------------ ------- -------- ----------- ------------
Peter Sotola President/ 2004 $0 0 $3,000 0 0 0 0
Secretary/ 2003 $0 0 0 0 0 0 0
Treasurer
Section 16(A) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our executive officers and directors,
and persons who beneficially own more than 10% of our equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission. Officers, directors and greater than 10% shareholders are required
by SEC regulation to furnish us with copies of all Section 16(a) forms they
file. Based on our review of the copies of such forms we received, we believe
that during the fiscal year ended December 31, 2004 all such filing requirements
applicable to our officers and directors were complied with exception that
reports were filed late by the following persons:
Name and principal position Number of late Transactions not timely Known failures to file a
reports reported required form
Peter Sotola Nil Nil One
(President, Secretary, Treasurer,
and Director)
25
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial ownership of
our shares of common stock at March 14, 2005 by (i) each person known by us to
be the beneficial owner of more than 5% of our outstanding shares of common
stock, (ii) each of our directors, (iii) our executive officers, and (iv) by all
of our directors and executive officers as a group. Each person named in the
table, has sole voting and investment power with respect to all shares shown as
beneficially owned by such person and can be contacted at our executive office
address.
TITLE OF CLASS NAME OF BENEFICIAL OWNER SHARES OF COMMON STOCK PERCENT OF CLASS
------------------------- -------------------------------- ---------------------------- ---------------------------
Common Peter Sotola 2,500,000 65.44 %
------------------------- -------------------------------- ---------------------------- ---------------------------
Directors and Officers 65.44%
as a Group consisting
of one person
The percent of class is based on 3,820,000 shares of common stock issued and
outstanding as of the date of this annual report.
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal year ended December 31, 2004, we paid $3,000 to our president,
Peter Sotola for management services that he has provided to us.
Otherwise, neither our sole director or officer, nor any proposed nominee for
election as a director, nor any person who beneficially owns, directly or
indirectly, shares carrying more than 10% of the voting rights attached to all
of our outstanding shares, nor any promoter, nor any relative or spouse of any
of the foregoing persons has any material interest, direct or indirect, in any
transaction since our incorporation or in any presently proposed transaction
which, in either case, has or will materially affect us.
Our management is involved in other business activities and may, in the future
become involved in other business opportunities. If a specific business
opportunity becomes available, such persons may face a conflict in selecting
between our business and their other business interests. In the event that a
conflict of interest arises at a meeting of our directors, a director who has
such a conflict will disclose his interest in a proposed transaction and will
abstain from voting for or against the approval of such transaction.
26
ITEM 13: EXHIBITS AND REPORTS
3.1 Certificate and Articles of Incorporation*
3.2 By-Laws*
10.1 Lease Agreement dated June 1, 2001*
10.2 Lease Agreement dated June 25, 2002*
10.3 Lease Agreement dated November 25, 2002*
10.4 Lease amendment dated January 9, 2004**
31.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
* previously filed as an exhibit to our registration statement on Form SB-2,
as amended.
** previously filed as an exhibit to Form 10-KSB for the year ended
December 31, 2003
There were no reports filed on Form 8-K during the quarter ended December 31,
2004.
ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
Our principal accountants, Amisano Hanson, Chartered Accountants, billed the
following fees for the services indicated:
Fiscal year-ended
December 31, 2004 December 31, 2003
Audit fees $ 631 $ 3,110
Audit-related fees - -
Tax fees - -
All other fees $ 4,214 $ 2,610
Audit fees consist of fees related to professional services rendered in
connection with the audit of our annual financial statements. All other fees
relate to professional services rendered in connection with the review of the
quarterly financial statements.
Our audit committee's policy is to pre-approve all audit and permissible
non-audit services performed by the independent accountants. These services may
include audit services, audit-related services, tax services and other services.
Under our audit committee's policy, pre-approval is generally provided for
particular services or categories of services, including planned services,
project based services and routine consultations. In addition, the audit
committee may also pre-approve particular services on a case-by-case basis. Our
audit committee approved all services that our independent accountants provided
to us in the past two fiscal years.
SIGNATURES
Pursuant to the requirements of Section 13 and 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: March 29, 2005
Pacific Spirit, Inc.
/s/ Peter Sotola
------------------------------------
Peter Sotola
President, Secretary, Treasurer
Chief Executive Officer and Director
(Principal Executive Officer,
Principal Financial Officer and
Principal Accounting Officer)