U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
Annual Report Under
the Securities Exchange Act of 1934
For Year Ended: March 31, 2002
Commission File Number:
Prelude Ventures, Inc.
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(Exact name of small business issuer as specified in its charter)
Nevada
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(State or other jurisdiction of incorporation or organization)
98-0232018
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(IRS Employer Identification No.)
2585 West 14th Avenue
Vancouver, BC, Canada V6K 2W6
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(Address of principal executive offices)
None
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(Former name or former address, if changed since last report)
V6K 2W6
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(Zip Code)
(604) 817-8095
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(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 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 __X__ No ____.
The number of shares of the registrant's only class of common stock issued and
outstanding, as of March 31, 2002 was 1,000,000 common shares.
PART I
ITEM 1. FINANCIAL STATEMENTS.
The unaudited financial statements for the three-month period ended
September 30, 2001 are attached hereto.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with our audited
financial statements and notes thereto included herein. In connection with, and
because we desire to take advantage of, the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, we caution readers regarding
certain forward looking statements in the following discussion and elsewhere in
this report and in any other statement made by, or on our behalf, whether or not
in future filings with the Securities and Exchange Commission. Forward looking
statements are statements not based on historical information and which relate
to future operations, strategies, financial results or other developments.
Forward looking statements are necessarily based upon estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond our control and many
of which, with respect to future business decisions, are subject to change.
These uncertainties and contingencies can affect actual results and could cause
actual results to differ materially from those expressed in any forward looking
statements made by, or our behalf. We disclaim any obligation to update forward
looking statements.
OVERVIEW
History And Organization
Prelude Ventures, Inc. (the "Company") was incorporated under the laws of
the state of Nevada on May 24, 2000. We have not commenced business operations
and we are considered an exploration stage enterprise. To date, our activities
have been limited to organizational matters, obtaining a mining engineer's
report and the preparation and filing of the registration statement of which
this prospectus is a part. In connection with the organization of our company,
the founding shareholder of our company contributed an aggregate of $25,000 cash
in exchange for 1,000,000 shares of common stock. We have no significant assets,
and we are totally dependent upon the successful completion of this offering and
receipt of the proceeds there from, of which there is no assurance, for the
ability to commence our proposed business operations.
Proposed Business
On March 9, 2001, we acquired a 20 year mining lease from Steve
Sutherland, the owner of 24 unpatented lode mining claims, sometimes referred
to as the Medicine Project, located in Elko County, Nevada. An unpatented
claim is one in which more assessment work is necessary before all mineral
rights can be claimed. As the owner of the claims, Mr. Sutherland has the
right to lease the claims to a third party but he remains responsible for
compliance with all applicable federal, state and county laws and
regulations. Under the terms of our lease with Mr. Sutherland, we are
entitled to all of Mr. Sutherlands mineral rights and we are also made
responsible for compliance for all laws and regulations that apply to the
claims. We are presently in the pre-exploration stage and there is no assurance
that a commercially viable precious mineral deposit exists in our property
until appropriate geological exploration is done and a final comprehensive
evaluation concludes that there is economic and legal feasibility to conduct
mining operations.
The exploration program proposed by Prelude is designed to determine
whether mineralization exists to the extent that mining operations would be
economically feasible. It is uncertain at this time the precise quantity of
minerals in the property that would justify actual mining operations.
Prelude has leased the claims from Mr. Sutherland who is our
landlord. We also have the right to locate additional claims within one mile
of the claims which become part of the lease. Under the terms of the lease,
Prelude must pay a three percent production royalty and may extend the
initial term of 20 years for one additional period of 20 years provided that
all conditions of the lease have previously been met. Prelude has the
exclusive possession of the property for mining purposes during the term of
the lease.
Under the terms of the lease, Prelude must pay a three percent
annual production royalty and must pay an annual minimum royalty as follows,
of which the first payment of $5,000 has already been made:
Anniversary Date Amount
March 9, 2001 $ 5,000.00
March 9, 2002 $ 7,500.00
March 9, 2003 $10,000.00
March 9, 2004 $20,000.00
March 9, 2005 & thereafter $50,000.00
If Prelude fails to meet the above lease payments, the
lease may be terminated if the landlord gives written notice of such default.
After receipt of default, Prelude has 15 days to cure the default. In
addition, the lease may be terminated if Prelude fails to make federal,
state, and county maintenance payments or filing fees at least 15 days prior
to due date. In that event, the landlord must notify Prelude of a possible
default. After 10 days, if the default is not cured the landlord may initiate
payment on the claims. Prelude will be able to cure this default by
reimbursing all federal, state and county payments made by the landlord plus
a 20% penalty within 30 days.
Under applicable federal, state, and county laws and regulations,
annual mining claim maintenance or rental fees are required to be paid by
Prelude for the unpatented mining claims which constitute all or part of the
leased property, beginning with the annual assessment work period of September
1, 2001 to September 1, 2002. Prelude must timely and properly pay the federal,
state, and county annual mining claim maintenance or rental fees, and must
execute and record or file, as applicable, proof of payment of the federal,
state, and county annual mining claim maintenance or rental fees and the
landlord's intention to hold the unpatented mining claims. If Prelude does not
terminate the agreement before June 1 of any subsequent lease year, Prelude will
be obligated either to pay the federal, state, and local annual mining claim
maintenance or rental fees for the property due that year or to reimburse the
landlord.
Prelude also has the right to buy out the landlord's interest in
exchange for a payment of $5,000,000 from which royalty payments made up to the
time of the buyout may be deducted. If a buyout occurs, Prelude must also pay
the landlord a perpetual 0.5% royalty on all minerals recovered from the
property.
The lease may be terminated at any time by Prelude provided that we
give written notice 30 days prior to relinquishing the leased property. In the
event Prelude desires to terminate the agreement after June 1 of any year, we
are responsible for all federal, state, and county maintenance and filing fees
for the next assessment year regarding the leased property. In addition, we must
deliver to the landlord in reproducible form all data generated or obtained for
the leased property, whether factual or interpretive. Finally, we must quitclaim
to the landlord all claims located or acquired by us.
Our business activities to date have been restricted to obtaining a
report from our mining engineer, Edward P. Jucevic and preparing this
offering. Mr. Jucevic's report details the geological and mining history of
the claims leased by Prelude, including the land status, climate, geology and
mineralization. In preparing his report, Mr. Jucevic did not perform any
actual field work on the claims. Mr. Jucevic believes that based upon
previous mining activity in the area, sufficient evidence exists to warrant
further exploration on the leased property which could then lead to actual
mining operations.
The property leased by Prelude is located in Elko County, Nevada and
comprises 24 unpatented claims. Mr. Jucevic has concluded that the claims
demonstrate a potential for surface-mineable oxidized-zinc deposits and
surface-mineable heap leachable silver deposits. Heap leaching is a process
for the extraction of valuable minerals utilizing chemical solutions that
percolate through crushed ore. A two phase exploration and drilling program
has been proposed. Phase 1, including a recommendation to stake four
neighboring targets, with estimated costs of $50,000. No exploration work
will be performed until the additional claim staking has taken place. We have
not yet determined whether Mr. Jucevic will be commissioned to perform
additional research on the claims for us. That would be followed by Phase 2
with estimated costs of $100,000. The purpose of this offering is to finance
the implementation of Phase I.
Location and Access
The leased property is located in Elko County, Nevada, approximately
50 airline miles southeast of the town of Elko, Nevada. Access from Elko,
Nevada is obtained by driving 20 miles on I-80 to Halleck, Nevada and then
turning southeast on paved Highway 229 for forty-two miles through Secret
Pass across the Ruby Mountains and then proceeding about 24 miles south on
dirt roads to the property. The claims are in what is known as the Mud
Springs mining district.
Claim Status
The claims have been leased by Prelude form Steve Sutherland who
currently holds the property via 24 unpatented mining claims located during
the month of September 2000. The owner of the property is the United States
government. The land is administered by the Bureau of Land Management (BLM).
Mr. Sutherland has documentation that all requisite county and United States
Bureau of Land Management (BLM) papers have been filed and all fees paid. Two
claims not belonging to Mr. Sutherland lie within the claim boundary and are
held by a local prospector. Mr. Jucevic believes these two claims are most
likely available for lease under reasonable terms. We do intend to lease
these claims if possible. The local prospector who owns these two claims is
Jerry Baughman. He has no relationship to Prelude. At this time, he has not
been approached by us about leasing his two unpatented claims. We believe
that reasonable terms for the lease of these two claims would include a
standard mining lease including an anticipated $5,000 payment upon execution,
with an option to purchase priced at approximately $50,000 payable over a
period of five years. The Sutherland claim block comprises about 460 acres.
Climate And Local Resources
The claims leased by Prelude are located at elevations ranging from
5900 to 7950 feet in gently rolling hills covered with sagebrush and Pinion
pines. The climate is temperate with moderate snow cover from December to March.
No perennial streams exist on the property. However, groundwater is plentiful.
Power lines are located about three miles east of the property. The closest
population center is Bishop, located about 48 miles to the northwest.
History Of The Claims
Mr. Jucevic has examined the available literature on the claims.
According to these sources, base metals and silver were discovered on the
property in 1910. Production from high grade veins started as early as 1915.
Partial records indicate lead, silver and zinc were produced through 1956.
Recent exploration efforts were started in the 1980's by United States
Minerals Exploration (USMX), and Cominco American Inc. USMX made 105 drill
holes totaling 11,190 feet between 1980 and 1996 which defined a
mineralization of ore containing silver, lead and zinc. Cominco controlled
the property for a short time and conducted geophysical surveys which
identified potential mineralization through the claims area that extend north
of the claims.
Our Proposed Exploration Program
We must conduct exploration to determine what amount of minerals, if any,
exist on our properties, and if any minerals which are found can be economically
extracted and profitably processed. Our exploration program is designed to
economically explore and evaluate our claims.
We do not claim to have any minerals or reserves whatsoever at this time on
any of our claims. We intend to implement an exploration program and to proceed
in the following two phases:
Phase I will involve expanding our block of claims by locating
approximately 50 additional claims and acquiring third party claims within the
area. There has been no staking of additional claims at this time. The initial
work of Phase I will be centered on opportunities and targets within the
boundaries of the leased claims. However, it is anticipated that expansion of
the existing claim position will be advisable following completion of the
geological investigations in Phase I. For example, U. S. Minerals Exploration, a
previous explorer of the claims, calculated potential mineralization along the
northeast area of the leased claims. Therefore, it appears probable that
additional claim staking in northeast and southwest extensions off this trend
would capture neighboring mineralization, as well as northeast trending fault
zones within the claims. With respect to maintenance costs, the current 24
claims are subject to total annual fees of $2,580.00 Annual maintenance fees for
an additional 50 claims would be $5,375.00. No land status work has been
conducted on neighboring lands by Mr. Jucevic. We will also take 200 rock
samples and 300 soil samples and perform geological mapping and geophysical
surveys followed by a written analysis of this exploration. The cost of Phase I
will is estimated to be $50,000 and will take approximately two months to
complete.
Upon completion of Phase I, we will determine the cost effectiveness of
proceeding to Phase II. In making this determination, we will undertake to have
our data from Phase I independently verified for accuracy by an independent
registered engineer to confirm the existence of mineralization.
Phase II will consist of substantial test drilling of a total of 5,000
feet to determine the extent, depth and dip of ore discovered in Phase I. It is
anticipated that Phase II will cost $100,000 and will also take approximately
two months to complete. If we decide not to proceed to Phase II, we will
likely cancel the lease and search for other mineral exploration sites to
lease. As of the date of this prospectus, no such search has been undertaken.
Competitive Factors
The mineral industry is fragmented. We compete with other exploration
companies looking for a variety of mineral reserves. We may be one of the
smallest exploration companies in existence. Although we will be competing with
other exploration companies, there is no competition for the exploration or
removal of minerals from our property. Readily available markets exist in North
America and around the world for the sale of minerals. Therefore, we intend to
develop mining claims to the production point in which major mining production
companies would seriously consider pursuing the property as a valuable and
significant acquisition.
Regulations
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 that will involve from an environmental standpoint.
The initial drilling program outlined in Phase I will be
conducted on BLM 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. Bonding costs vary on case
by case basis. The scope of the proposed program determines amount of
reclamation bond required by the BLM. Among the factors considered are the
degree of proposed land disturbance, whether there have been previous
disturbances and the nature of previous reclamation efforts. Since there is a
substantial infrastructure of existing roads across the property the amount
of initial bonding would likely be reduced. In addition, the terrain is
relatively subdued which should further reduce the necessity for road
building. The estimate for Phase II reclamation and bonding would depend
upon the results of Phase I.
We would be subjected to the BLM rules and regulations governing
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 are developed
from the final EIS.
We are in compliance with the 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. Prelude anticipates that it will be required to
post bonds in the event the expanded work programs involve extensive surface
disturbance.
Employees
Initially, we intend to use the services of subcontractors for manual labor
exploration work on our properties. Prelude will consider hiring technical
consultants as funds from this offering and additional offerings or revenues
from operations in the future permit. At present, our only employee is William
Iverson.
Mr. Iverson has been the President, Secretary-Treasurer and Director since
our company's inception on May 24, 2000. Since November 1999, Mr. Iverson has
also been employed by First Quantum Minerals Corporation of Vancouver,
British Columbia where he performs corporate relations services, including
the preparation of corporate profiles, brochures and advertisements. From
November 1999 to February 2000 Mr. Iverson was also employed by Nevada
Pacific Gold, Ltd. From January 1996 to August 1997, Mr. Iverson was employed
by Treminco Resources, Ltd., an exploration stage company, located in
Vancouver, British Columbia, where he performed corporate development
services. In this capacity he acted as a liaison between Tremninco and the
financial community. From October 1997 to November 1998, Mr. Iverson was
employed by Cee Bee Natural Gas, Ltd. From January of 1988 until December of
1995 Mr. Iverson was also employed as a stockbroker with Georgia Pacific
Securities Corporation in Vancouver, British Columbia. Mr. Iverson will
continue to serve in his present positions with Prelude until the next annual
meeting of shareholders and devote approximately 15 hours per week of his
time to the Prelude. Mr. Iverson has no formal training or experience with
mineral exploration. Mr. Iverson completed two years of college in 1974 from
the University of Alberta but he did not obtain a degree. In addition, he was
formerly licensed as a stockbroker in Canada between 1995 and 1998. That
license, however, was allowed to lapse by Mr. Iverson in 1998 because he was
pursuing a career in corporate relations. Mr. Iversen's responsibilities with
Prelude consist mainly of communicating with the appropriate governmental
agencies to ensure the company claims are kept in good standing and
coordinating the filing of this offering. In addition, Phase I of the
company's business plan will be performed by subcontractors, the activities
of which will be managed by Mr. Iverson. It is anticipated that additional
officers will be hired if Phase I of our business plan is successful to
manage the company's day to day mineral exploration activities.
Executive Compensation
Our sole director does not currently receive and has never received
any compensation for serving as a director to date. In addition, at present,
there are no ongoing plans or arrangements for compensation of any of our
officers. However, we expect to adopt a plan of reasonable compensation to
our officers and employees when and if we become operational and profitable.
Employees and Employment Agreements
At present, we have no employees, other than Mr. Iverson, our president and
sole director who has received no compensation for his services. Mr. Iverson
does not have an employment agreement with us. We presently do not have pension,
health, annuity, insurance, stock options, profit sharing or similar benefit
plans; however, we may adopt plans in the future. There are presently no
personal benefits available to any employees.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
We are a start-up, exploration stage company and have not yet started our
business operations or generated or realized any revenues from our business
operations.
Our auditors have issued a going concern opinion. This means that our
auditors believe there is doubt that we can continue as an on-going business for
the next twelve months unless we obtain additional capital to pay our bills.
This is because we have not generated any revenues and no revenues are
anticipated until we begin removing and selling minerals. Accordingly, we must
raise cash from sources other than the sale of minerals found on our property.
Our only other source for cash at this time is investments by others in our
company. We must raise cash to implement our project and stay in business.
To meet our need for cash we are attempting to raise money from this
offering. There is no assurance that we will be able to raise enough money
through to stay in business. Whatever money we do raise will be
applied first to exploration and then to development, if development is
warranted. If we do not raise all of the money we need from this offering, we
will have to find alternative sources, like a second public offering, a private
placement of securities, or loans from our officers or others. At the present
time, we have not made any arrangements to raise additional cash, other than
through this offering. If we need additional cash and cannot raise it, we will
either have to suspend operations until we do raise the cash, or cease
operations entirely.
We will be conducting research in connection with the exploration of our
property. We are not going to buy or sell any plant or significant equipment. We
do not expect a change in our number of employees.
Limited Operating History; Need for Additional Capital
There is no historical financial information about our company upon which
to base an evaluation of our performance. We are an exploration stage company
and have not generated any revenues from operations. We cannot guarantee we will
be successful in our business operations. Our business is subject to risks
inherent in the establishment of a new business enterprise, including limited
capital resources, possible delays in the exploration of our properties, and
possible cost overruns due to price and cost increases in services. To
become profitable and competitive, we conduct research and exploration
of our properties. We are seeking equity financing to provide for the capital
required to implement our research and exploration phases.
We have no assurance that future financing will be available to us on
acceptable terms. If financing is not available on satisfactory terms, we may be
unable to continue, develop or expand our operations. Equity financing could
result in additional dilution to existing shareholders.
Results of Operations
From Inception on May 24, 2000
We just recently acquired our first interest in lode mining claims. At this
time we have not yet commenced the research and/or exploration stage of our
mining operations on that property. We have paid $5,000 for a mining lease. As
of March 31, 2002 we have experienced operating losses of $50,409.
Plan of Operations
Since inception, we have used our common stock to raise money for our
property acquisition, for corporate expenses and to repay outstanding
indebtedness. Net cash provided by financing activities from inception on May
24, 2000 to March 31, 2001 was $5,500 as a result of proceeds received from our
president and sole director. On April 11, 2001 we received additional cash
financing of $19,500 as a result of proceeds received from our president and
sole director. Our business activities to date have been restricted to obtaining
a mining engineer's report and preparing this offering.
Prelude's plan of operations for the next twelve months is to undertake
Phase I of our exploration program. We can commence Phase I assuming at least
50% of the offering is sold. However, the total cost of Phase I is estimated to
be $50,000.00 and therefore can not be completed unless nearly all of the
offering is sold. We have no plan to engage in any alternative business if
Prelude ceases or suspends operations as a result of not having enough money to
complete any phase of the exploration program.
Phase I will involve staking of 50 additional claims at a cost of
$15,000. Obtaining leases for third party claims in the area is estimated to
cost $5,000. We will then initiate rock sampling at a cost of $4,000 and soil
sampling at a cost of $6,000 in areas of potential interest that indicate the
presence of ore. Thereafter, geological mapping will be conducted that will cost
approximately $10,000 along with geophysical surveying that will cost
approximately $2,000. The total cost of Phase I will is estimated to be $50,000
and will take approximately two months to complete.
Upon completion of Phase I, we will determine the cost effectiveness of
proceeding to Phase II. We will undertake to have our data from Phase I
independently verified for accuracy by an independent registered engineer to
confirm the existence of mineral deposits.
Our public offering will only be adequate to finance Phase I. Assuming
we decide to proceed with Phase II, we will be required to obtain additional
financing. Phase II will consist of extensive drilling totaling approximately
5,000 feet which is estimated to cost $100,000 to determine the extent, depth
and dip of mineralization discovered in Phase I. Phase II will take
approximately two months to complete.
Liquidity and Capital Resources
As of the date of this report, we have yet to generate
any revenues from our business operations. Since our inception, Mr. Iverson has
paid $25,000 in cash in exchange for 1,000,000 shares of common stock. We have
also issued 1,500,000 shares of stock pursuant to our Form SB-2 registration
statement. This money has been utilized for organizational and start-up costs
and as operating capital. As of March 31, 2002 we had sustained operating losses
of $50,409.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings to which we (or any of our
officers and directors in their capacities as such) is a party or to which our
property is subject and no such material proceedings is known by our management
to be contemplated.
ITEM 2. CHANGES IN SECURITIES - NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -
NONE
ITEM 5. OTHER INFORMATION - NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -
(a) Exhibits - NONE
(b) Reports on Form 8-K - NONE
SIGNATURE
In accordance with the requirements of the Securities and Exchange Act of 1934,
as amended, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PRELUDE VENTURES, INC.
Dated: July 30, 2002 /s/ William Iverson
William Iverson
President
TERRY AMISANO LTD. AMISANO HANSON
KEVIN HANSON, C.A. CHARTERED ACCOUNTANTS
INDEPENDENT AUDITORS' REPORT
To the Stockholders,
Prelude Ventures, Inc.
We have audited the accompanying balance sheets of Prelude Ventures, Inc. (A
Pre-exploration Stage Company) as of March 31, 2002 and 2001 and the statements
of operations, stockholders' equity and cash flows for the year ended March 31,
2002 and for the period May 24, 2000 (Date of Incorporation) to March 31, 2001.
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 auditing standards generally accepted
in the 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 audit provides 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 Prelude Ventures, Inc. as at
March 31, 2002 and 2001 and the results of its operations and its cash flows for
the year ended March 31, 2002 and for the period from May 24, 2000 (Date of
Incorporation) to March 31, 2001, 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 pre-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 "AMISANO HANSON"
May 31, 2002 Chartered Accountants
750 WEST PENDER STREET, SUITE 604 TELEPHONE: 604-689-0188
VANCOUVER CANADA FACSIMILE: 604-689-9773
V6C 2T7 E-MAIL: amishan@telus
PRELUDE VENTURES, INC.
(A Pre-exploration Stage Company)
BALANCE SHEETS
March 31, 2002 and 2001
(Stated in US Dollars)
--------------------
ASSETS
------
2002 2001
----------- ----------
Current
Cash $ 7,495 $ 396
Stock subscription receivable - 19,500
----------- ----------
$ 7,495 $ 19,896
----------- ----------
LIABILITIES
------------
Current
Accounts payable $ 9,205 $ 2,197
----------- ----------
STOCKHOLDERS' EQUITY (DEFICIENCY)
-------------------------------------------------
Preferred stock, $0.001 par value
5,000,000 shares authorized, none outstanding
Common stock, $0.001 par value
45,000,000 shares authorized
1,000,000 (2001: 1,000,000) shares outstanding 1,000 1,000
Paid-in capital 24,000 24,000
Stock subscriptions received - Note 5 31,000 -
Deficit accumulated during the exploration stage (57,710) (7,301)
----------- ----------
(1,710) 17,699
----------- ----------
$ 7,495 $ 19,896
=========== ==========
Nature and Continuance of Operations - Note 1
Commitments - Note 5
Subsequent Event - Note 5
SEE ACCOMPANYING NOTES
PRELUDE VENTURES, INC.
(A Pre-exploration Stage Company)
STATEMENTS OF OPERATIONS
for the year ended March 31, 2002
and for the periods May 24, 2000 (Date of Incorporation) to March 31, 2002 and
2001
(Stated in US Dollars)
--------------------
May 24, 2000 May 24, 2000
(Date of (Date of incorp-
Year ended Incorporation), oration),
March 31, to March 31 to March 31
2002 2001 2002
---------- -------- -------
Expenses
Accounting and audit fees $ 4,991 $ 1,500 $ 6,491
Bank charges 225 104 329
Filing fees 7,160 - 7,160
Legal fees 22,381 697 23,078
Management fees 4,500 5,000 9,500
Office and miscellaneous 607 - 607
Resource property costs 9,080 - 9,080
Transfer agent fees 1,465 - 1,465
---------- -------- -------
Net loss for the period $ 50,409 $ 7,301 $57,710
========== ======== ========
Basic loss per share $ 0.05 $ 0.01
========== ========
Weighted average number of shares outstanding 1,000,000 549,839
========== ========
SEE ACCOMPANYING NOTES
PRELUDE VENTURES, INC.
(A Pre-exploration Stage Company)
STATEMENTS OF CASH FLOWS
for the year ended March 31, 2002
and for the periods May 24, 2000 (Date of Incorporation) to March 31, 2002 and
2001
(Stated in US Dollars)
--------------------
May 24, 2000 May 24, 2000
(Date of (Date of
Year ended Incorporation) Incorporation)
March 31, to March 31, to March 31,
2002 2001 2002
----------- ----------- -----------
Cash Flows from Operating Activities
Net loss for the period $ (50,409) $ (7,301) $ (57,710)
Changes in non-cash working capital item:
Accounts payable 7,008 2,197 9,205
----------- ----------- -----------
(43,401) (5,104) (48,505)
----------- ----------- -----------
Cash Flows from Financing Activities
Shares issued for cash - 25,000 25,000
Subscriptions receivable - (19,500) (19,500)
Stock subscriptions received 50,500 - 50,500
----------- ----------- -----------
50,500 15,500 56,000
----------- ----------- -----------
Increase in cash during the period 7,099 396 7,495
Cash, beginning of the period 396 - -
----------- ----------- -----------
Cash, end of the period $ 7,495 $ 396 $ 7,495
=========== =========== ===========
Supplementary disclosure of cash flow information
Cash paid for:
Interest $ - $ - $ -
=========== =========== ===========
Income taxes $ - $ - $ -
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SEE ACCOMPANYING NOTES
PRELUDE VENTURES, INC.
(A Pre-exploration Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
for the period May 24, 2000 (Date of Incorporation) to March 31, 2002
(Stated in US Dollars)
--------------------
Deficit
Accumulated
Additional During the
Common Shares Paid-in Share Exploration
Number Par Value Capital Subscriptions Stage Total
--------- ---------- -------- -------------- ----------- -----------
Capital stock subscribed for cash
- at $0.025 1,000,000 $ 1,000 $ 24,000 $ - $ - $ 25,000
Net loss for the period - - - - (7,301) (7,301)
--------- ---------- -------- -------------- ----------- -----------
Balance, as at March 31, 2001 1,000,000 1,000 24,000 - (7,301) 17,699
Stock subscriptions received - - - 31,000 - 31,000
Net loss for the year - - - - (50,409) (50,409)
--------- ---------- -------- -------------- ----------- -----------
Balance, as at March 31, 2002 1,000,000 $ 1,000 $ 24,000 $ 31,000 $ (57,710) $ (1,710)
========= ========== ======== =============== ========== ===========
SEE ACCOMPANYING NOTES
PRELUDE VENTURES, INC.
(A Pre-exploration Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
March 31, 2002 and 2001
(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.
These financial statements have been prepared on a going concern basis. The
Company has accumulated a deficit of $57,710 since inception and at March 31,
2002 has a working capital deficiency of $1,710. 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.
The Company was incorporated in Nevada on May 24, 2000.
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 which 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 reasonable limits of materiality and within the framework of the
significant accounting policies summarized below:
Pre-exploration Stage Company
-------------------------------
The Company complies with Financial Accounting Standard Board Statement No. 7
and the Securities and Exchange Commission's Exchange Act Guide 7 for its
characterization of the Company as pre-exploration stage.
Note 2 Summary of Significant Accounting Policies - (cont'd)
------------------------------------------
Mineral Lease
-------------
Costs of lease, acquisition, exploration carrying and retaining unproven mineral
lease properties are expenses 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, No. 109 "Accounting for Income
Taxes".
Basic Loss Per Share
--------------------
The Company reports basic loss per share in accordance with the Statement of
Financial Accounting Standards No. 128, "Earnings Per Share". Basic loss per
share is computed using the weighted average number of shares outstanding during
the period. Diluted loss per share has not been provided as it would be
antidilutive.
Fair Value of Financial Instruments
-----------------------------------
The carrying value of cash, share subscriptions receivable and accounts payable
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 Deferred Tax Assets
-------------------
The Financial Accounting Standards Board issued Statement Number 109 in
Accounting for Income Taxes ("FAS 109") which is effective for fiscal years
beginning after March 15, 1992. FAS 109 requires the use of the asset and
liability method of accounting of income taxes. Under the assets and liability
method of FAS 109, deferred tax assts 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.
The following table summarizes the significant components of the Company's
deferred tax assets:
Total
--------
Deferred Tax Assets
Non-capital loss carryforward $ 8,657
--------
Gross deferred tax assets $ 8,657
Valuation allowance for deferred tax asset (8,657)
--------
$ -
The amount taken into income as deferred tax assets must reflect that portion of
the income tax loss carryforwards that is likely 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 4 Income Taxes
------------
No provision for income taxes has been provided in these financial statements
due to the net loss. At March 31, 2002 the Company has net operating loss
carryforwards, which expire commencing in 2022, totalling approximately $57,710,
the benefit of which has not been recorded in the financial statements.
Note 5 Commitments
-----------
a) Mining Lease
By a lease letter agreement effective March 9, 2001 and amended March 4, 2002,
the Company was granted the exclusive right to explore, develop and mine the
Medicine Project property located in Elko County of the State of Nevada. The
term of the lease is for 20 years, with automatic extensions 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 3% of the net smelter returns from a
production. In respect to this royalty, the Company is required to pay minimum
advance royalty payments of the following:
- $5,000 upon execution (paid);
- $1,500 on March 9, 2002 (paid);
- $6,000 on September 9, 2002;
- $10,000 on March 9, 2003
- $20,000 on March 9, 2004
- $50,000 on March 9, 2005 and every March 9 thereafter
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 in
the property as required by federal state and local law for disturbances
resulting from the Company's activities on the property.
B) INITIAL PUBLIC OFFERING
The Company has filed a SB-2 registration statement, which includes an initial
public offering of 1,500,000 common shares at $0.05 per share. At March 31,
2002, the Company had received $31,000 in stock subscriptions and an additional
$41,000 was received subsequent to March 31, 2002.