CREAM MINERALS LTD.
(an exploration stage company)
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the three and six months ended September 30, 2007 and 2006
(The Company’s independent auditor has not performed a review of these interim consolidated financial statements)
The Company’s independent auditor has not performed a review of these interim consolidated financial statements.
CREAM MINERALS LTD.
(an exploration stage company)
Consolidated Interim Balance Sheets
(unaudited – prepared by management)
Going concern and nature of operations (Note 1)
Subsequent events (Notes 1, 3 and 8)
See accompanying notes to consolidated interim financial statements.
Approved on behalf of the board of Directors
/s/Frank A. Lang
/s/Robin Merrifield
Frank A. Lang
Robin Merrifield
2
The Company’s independent auditor has not performed a review of these interim consolidated financial statements.
CREAM MINERALS LTD.
(an exploration stage company)
Consolidated Interim Statements of Operations
(unaudited – prepared by management)
Interim Statement of Comprehensive Income
(Unaudited – prepared by management)
| Three months ended | Six months ended September 30, 2007 |
Loss for the period before comprehensive income | $ (317,574) | $ (688,388) |
Unrealized (losses) gains on investments | (20,027) | 2,868 |
Comprehensive loss | $ (337,601) | $ (685,520) |
See accompanying notes to interim consolidated financial statements.
3
The Company’s independent auditor has not performed a review of these interim consolidated financial statements.
CREAM MINERALS LTD.
(an exploration stage company)
Consolidated Interim Statements of Shareholders’ Equity
(unaudited – prepared by management)
See accompanying notes to interim consolidated financial statements.
4
The Company’s independent auditor has not performed a review of these interim consolidated financial statements.
CREAM MINERALS LTD.
(an exploration stage company)
Interim Consolidated Statements of Cash Flows
(unaudited – prepared by management)
| Three Months Ended | Six Months Ended | ||
| 2007 | 2006 | 2007 | 2006 |
Cash provided by (used for): |
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| ||||
Operations |
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|
|
|
Loss for the period | $ (317,574) | $ (175,630) | $ (688,388) | $ (354,975) |
Items not involving cash |
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Amortization | 103 | 371 | 420 | 743 |
Stock-based compensation | 108,082 | 18,045 | 279,067 | 47,322 |
Changes in non-cash working capital | ||||
Accounts receivable and prepaids | 9,427 | 60,117 | 22,397 | 2,948 |
Taxes recoverable | (17,740) | (6,442) | (55,457) | (10,246) |
Short term investments | -- | -- | 35,750 | -- |
Accounts payable and accrued liabilities | 785 | (3,872) | 14,064 | 2,331 |
| (216,917) | (107,411) | (392,147) | (311,877) |
Investing activities | ||||
Mineral property interests | ||||
Acquisition costs | (13,334) | (16,789) | (89,910) | (52,047) |
Exploration and development costs | (487,319) | (308,937) | (1,159,215) | (1,259,244) |
Equipment purchases | (29,589) | (98,056) | (116,664) | (151,144) |
| (530,242) | (423,782) | (1,365,789) | (1,462,435) |
Financing activities | ||||
Common shares issued for cash | 189,131 | 44,431 | 1,037,516 | 1,926,340 |
Due to / from related parties | 331,599 | 13,029 | 547,876 | 10,629 |
| 520,730 | 57,460 | 1,585,392 | 1,936,969 |
| ||||
Increase (decrease) in cash and cash equivalents during the period | (226,429) | (473,733) | (172,544) | 162,657 |
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Cash and cash equivalents, beginning of period | 256,371 | 1,035,205 | 202,486 | 398,815 |
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Cash and cash equivalents, end of period | $ 29,942 | $ 561,472 | $ 29,942 | $ 561,472 |
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Supplemental information |
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Adjustment to contributed surplus for stock option exercises | $ 129,252 | $ 62,571 | $ 140,434 | $ 73,753 |
Shares issued for mineral property interests | $ 13,166 | $ 8,667 |
13,166 |
164,167 |
Stock-based compensation included in mineral property interests |
$ 18,562 |
$ -- |
148,216 |
-- |
See accompanying notes to interim consolidated financial statements.
5
The Company’s independent auditor has not performed a review of these interim consolidated financial statements.
CREAM MINERALS LTD.
(an exploration stage company)
Notes to the Interim Consolidated Financial Statements
For the three and six months ended September 30, 2007 and 2006
(expressed in Canadian dollars)
(Unaudited – prepared by management)
1.
Going concern and nature of operations:
Cream Minerals Ltd. (the “Company”) is incorporated in the Province of British Columbia under the Business Corporations Act of British Columbia, and its principal business activity is the exploration of mineral properties, currently in Mexico, Sierra Leone and Canada.
These consolidated financial statements have been prepared on a going-concern basis, which implies that the Company will continue realizing its assets and discharging its liabilities in the normal course of business. Accordingly, they do not give effect to adjustments that would be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and liquidate its liabilities, contingent obligations and commitments in other than the normal course of business and at amounts different from those in these financial statements.
The Company had a loss of $688,388 for the six months ended September 30, 2007, and the Company had a working capital deficiency, defined as current assets less current liabilities, as at September 30, 2007, of $856,384, with an accumulated deficit of $19,283,554.
The Company has capitalized $5,414,934 (March 31, 2007 – $3,837,781) in acquisition and related exploration and development costs on its mineral properties. On the Nuevo Milenio property in Mexico, tax payments are required to be made twice yearly on an escalating basis, in January and July of each year, to maintain the concessions. In addition, the Company must make cash payments of $138,333 and issue 66,666 common shares in fiscal 2008 to maintain the mineral property interests held at March 31, 2007. During the period, cash payments of $13,333 have been made and 16,666 common shares have been issued. Subsequent to September 30, 2007, no cash payments have been made, and no common shares have been issued related to the Company’s mineral property interests.
Without additional external funding to meet existing obligations and to finance further exploration and development work on its mineral properties, there is substantial doubt as to the Company’s ability to continue as a going concern. Although the Company has been successful securing financing to date, there can be no assurance that additional funding will be available in the future. The financial statements do not reflect the adjustments to the carrying values of assets and liabilities that would be necessary if the Company were unable to achieve profitable mining operations or obtain adequate financing. Such adjustments could be material.
6
CREAM MINERALS LTD.
(an exploration stage company)
Notes to the Interim Consolidated Financial Statements
For the three and six months ended September 30, 2007 and 2006
(expressed in Canadian dollars)
(unaudited – Prepared by Management)
2.
Accounting policies:
Basis of presentation
The accompanying financial statements for the interim periods ended September 30, 2007 and 2006, are prepared on the basis of accounting principles generally accepted in Canada and are unaudited, but in the opinion of management, reflect all adjustments (consisting of normal recurring accruals) necessary for fair presentation of the financial position, operations and changes in financial results for the interim periods presented. The financial statements for the interim periods are not necessarily indicative of the results to be expected for the full year. These financial statements do not contain the detail or footnote disclosure concerning accounting policies and other matters, which would be included in full year financial statements, and therefore should be read in conjunction with the Company’s audited financial statements for the year ended March 31, 2007.
The accounting policies followed by the Company are set out in Note 2 to the audited financial statements for the year ended March 31, 2007, and have been consistently followed in the preparation of these financial statement except that the Company has adopted the following Canadian Institute of Chartered Accountants guidelines effective for the Company’s first interim period commencing April 1, 2007:
(a)
Section 3855 – Financial Instruments – Recognition and Measurement. Section 3855 requires that all financial assets, except those classified as held to maturity, and derivative financial instruments, must be measured at fair value. All financial liabilities must be measured at fair value when they are classified as held for trading; otherwise, they are measured at cost. Investments available for sale are reported at fair market value (or mark to market) based on quoted market prices with unrealized gains or losses excluded from earnings and reported as other comprehensive income or loss. Investments subject to significant influence are reported at cost and not adjusted to fair market value. All of the Company’s investments have been designated as available for sale.
(b)
Section 1530 – Comprehensive Income. Comprehensive income is the change in the Company’s net assets that result from transaction, events and circumstances from sources other than the Company’s shareholders and includes items that would not normally be included in earnings or loss such as unexercised gains or losses on available-for sale investments. Other comprehensive income includes the holding gains and losses from available-for-sale securities which are not included in earnings or losses until realized.
(c)
Transition adjustment to opening balance. The adoption of Sections 1530 and 3855 impacts the opening equity and losses of the Company. The unrealized gain on the available for sale securities from purchase to March 31, 2007, was $2,602, which is reported as an adjustment to the opening balance of accumulated other comprehensive income. The unrealized gain on the available for sale securities for the six months ended September 30, 2007, was $2,868, which is reported in the current period. There would be no tax impact resulting from adjustments arising from comprehensive income as there are unrecorded income tax assets that would result in no income tax being payable.
7
CREAM MINERALS LTD.
(an exploration stage company)
Notes to the Interim Consolidated Financial Statements
For the three and six months ended September 30, 2007 and 2006
(expressed in Canadian dollars)
(unaudited – Prepared by Management)
3.
Mineral property interests:
Detailed accumulated costs in respect to the Company’s mineral property interests owned, leased or under option are disclosed in Note 9. Property payments made on the Company’s mineral property interests during the six months ended September 30, 2007 are detailed below.
(a)
Stephens Lake Property
The Company has a one-third interest, along with Sultan Minerals Inc. and ValGold Resources Ltd. (“Sultan” and “ValGold” or the “Companies”) in its initial Mineral Exploration Licence Number 64 and staked claims to the north and contiguous in Manitoba (“the Stephens Lake property”).
The Company also, jointly with Sultan and ValGold, acquired an option on two staked claims, the Trout and Trout 1 claims, which are contiguous with and encompassed by the Stephens Lake Claim Group.
Under the terms of the Trout Claim Group agreement, the Companies agreed to make cash payments totaling $110,000 and issue 200,001 common shares (66,667 shares in the capital of each of the three companies) to the optionor over a 36-month period from July 22, 2004. At September 30, 2007, the Companies had earned the full interest in the property, by making the final cash payment of $13,333 and issuing 16,666 common shares. Having earned the 75% interest, the Companies and the optionor may enter into a 75:25 joint venture for the further exploration and development of the Trout Claim Group.
4.
Equipment:
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| Net Book Value September 30, 2007 |
|
| Net Book Value March 31, 2007 |
Vehicles | $ 102,382 | $ 39,505 | $ 62,877 | $ 57,283 | $ 33,745 | $ 23,538 |
Office equipment | 1,573 | 433 | 1,140 | 1,573 | 292 | 1,281 |
Computer equipment | 17,606 | 10,645 | 6,961 | 16,673 | 7,404 | 9,269 |
Field equipment | 243,276 | 73,838 | 169,438 | 192,833 | 48,923 | 143,910 |
| $ 364,837 | $ 124,421 | $ 240,416 | $ 268,362 | $ 90,364 | $ 177,998 |
8
CREAM MINERALS LTD.
(an exploration stage company)
Notes to the Interim Consolidated Financial Statements
For the three and six months ended September 30, 2007 and 2006
(expressed in Canadian dollars)
(unaudited – Prepared by Management)
5.
Investments:
|
Shares |
| Accumulated unrealized holding gains |
|
Publicly traded companies: |
| |||
ValGold Resources Ltd. | 100,000 | $30,000 | $3,500 | $33,500 |
Abitibi Mining Corp. | 7,000 | 210 | 840 | 1,050 |
Stingray Resources Ltd. | 2,016 | 698 | 814 | 1,512 |
Emgold Mining Corporation | 2,000 | 480 | (210) | 270 |
Sultan Minerals Inc. | 2,630 | 316 | 526 | 842 |
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| 31,704 | 5,470 | 37,174 |
Non-public companies: |
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Terra Gaia Inc. | 100,000 | 1 | -- | 1 |
LMC Management Services Ltd. (Note 7a) | 1 | 1 | -- |
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| $31,706 | $5,470 | $37,176 |
The quoted market value of the above listed publicly traded securities at March 31, 2007, was $34,306. Terra Gaia Inc. and LMC Management Services Ltd. are private companies.
6.
Share capital:
Authorized
Unlimited number of common shares without par value.
Issued and fully paid
See interim consolidated statements of equity.
Stock options
The Company has a stock option plan for its directors and employees to acquire common shares of the Company at a price determined by the fair market value of the shares at the date of grant. The Company may issue up to 7,752,268 common shares under the plan. At September 30, 2007, 5,226,150 (March 31, 2007, 3,770,400) stock options have been granted and are outstanding, exercisable for up to five years. The stock option plan provides for vesting of 25% on the date of grant and 25% every six months thereafter.
During the period ended September 30, 2007, the fair value of 1,855,000 stock options granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: Risk free interest rate – 4%; expected life in years – 3.25, and expected volatility of 82%. The fair value per option granted during the period was $0.28.
9
CREAM MINERALS LTD.
(an exploration stage company)
Notes to the Interim Consolidated Financial Statements
For the three and six months ended September 30, 2007 and 2006
(expressed in Canadian dollars)
(unaudited – Prepared by Management)
6.
Share capital (continued):
Stock options (continued)
The Company also granted 780,000 stock options for investor relations services. These options were granted as follows: 260,000 at a price of $0.75, 260,000 at a price of $0.85, and 260,000 at a price of $0.85, all with an expiry date of September 21, 2012. The fair value of the stock options granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: Risk free interest rate – 4.59%; expected life in years – 1.5, and expected volatility of 92%. The fair value per option at the time of grant was $0.13, $0.125 and $0.11 for the options granted at prices of $0.65, $0.75 and $0.85, respectively. These options will be revalued at each quarter end, and at September 30, 2007, have the same values as at the date of grant.
The following table summarizes information on stock options outstanding at September 30, 2007:
|
| Weighted Average Remaining Contractual Life |
$0.54 | 1,027,300 | 1.22 years |
$0.54 | 11,250 | 0.16 years |
$0.30 | 416,100 | 2.02 years |
$0.165 | 715,000 | 2.84 years |
$0.54 | 70,000 | 0.16 years |
$0.50 | 100,000 | 3.70 years |
$0.53 | 310,000 | 4.28 years |
$0.50 | 1,796,500 | 4.55 years |
$0.65 | 260,000 | 4.98 years |
$0.75 | 260,000 | 4.98 years |
$0.85 | 260,000 | 4.98 years |
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A summary of the changes in stock options for the six months ended September 30, 2007, is presented below:
|
| Weighted Average Exercise Price |
Balance, March 31, 2007 | 3,770,400 | $0.34 |
Exercised | (1,145,400) | $0.22 |
Unvested options cancelled | (33,750) | $0.50 |
Granted | 2,635,000 | $0.57 |
Balance, September 30, 2007 | 5,226,150 | $0.49 |
Exercisable at September 30, 2007 | 3,113,775 | $0.40 |
10
CREAM MINERALS LTD.
(an exploration stage company)
Notes to the Interim Consolidated Financial Statements
For the three and six months ended September 30, 2007 and 2006
(expressed in Canadian dollars)
(unaudited – Prepared by Management)
6.
Share capital (continued):
Share purchase warrants
As at September 30, 2007, the following share purchase warrants issued in connection with private placements were outstanding:
Number of Warrants | Exercise Price | Expiry Date |
1,000,000 | $0.40 | March 21, 2008 |
1,250,000 | $0.50 | February 21, 2009 |
2,250,000 |
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During the six months ended September 30, 2007, 164,200 warrants exercisable at a price of $0.45 expired unexercised, and 1,500,000 warrants exercisable at $0.75 expired, unexercised. During the six months ended September 30, 2007, 1,745,300 warrants were exercised at $0.45.
7.
Related party transactions and balances:
| Six months ended September 30, | |
| 2007 | 2006 |
Services rendered during the period: | ||
LMC Management Services Ltd. (a) | $ 155,365 | $ 120,991 |
Lang Mining Corporation (b) | 60,000 | 30,000 |
Kent Avenue Consulting Ltd. (d) | 7,000 | 10,000 |
Fred Holcapek (e) | US$51,000 | US$30,000 |
| September 30, 2007 | March 31, 2007 |
Balances receivable from: |
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LMC Management Services Ltd. (a) | $ -- | $ 11,999 |
Ainsworth Jenkins - Casierra project (c) | 79,382 | -- |
Directors | 177 | -- |
| $ 79,559 | $ 11,999 |
Balances payable to: | ||
Ainsworth Jenkins - Casierra project (c) | -- | 49,612 |
LMC Management Services Ltd. (a) | 33,289 | -- |
Directors | 545,160 | 47,042 |
| $ 578,449 | $ 96,654 |
(a)
Management, administrative, geological and other services are provided by LMC Management Services Ltd. (“LMC”), a private company held jointly by the Company and other public companies to provide services on a full cost recovery basis to the various public entities currently sharing office space with the Company. Currently the Company has a 25% interest in LMC. Three months of estimated working capital is required to be on deposit with LMC under the terms of the services agreement. There is no difference between the cost of $1 and the equity value.
(b)
Lang Mining Corporation (“Lang Mining”) is a private company controlled by Frank A. Lang, the president of the Company. Lang Mining provided management services at a rate of $5,000 per month from April 1 to October 31, 2006 and $10,000 per month since November 1, 2006.
11
CREAM MINERALS LTD.
(an exploration stage company)
Notes to the Interim Consolidated Financial Statements
For the three and six months ended September 30, 2007 and 2006
(expressed in Canadian dollars)
(unaudited – Prepared by Management)
7.
Related party transactions and balances (continued):
(c)
Frank A. Lang holds approximately 33% of the issued and outstanding shares of Casierra Diamond Corporation, incorporated in British Columbia and its wholly-owned subsidiary company, Casierra Development Fund Inc., also incorporated in British Columbia, which hold an interest in two prospecting licence areas for diamonds and other minerals and metals in Sierra Leone, West Africa.
(d)
Consulting fees were paid indirectly to Kent Avenue Consulting Ltd., a private company controlled by a director, Sargent H. Berner. These fees were paid through LMC, and are also included in the balance for services provided by LMC Management Services Ltd. Any amount owing to Kent Avenue Consulting Ltd. is owed to LMC, and so is included in the net receivable from LMC.
(e)
Fees were paid to Fred Holcapek, a director of the Company and an officer of the subsidiary in Mexico, at a rate of US$8,500 per month for administrative and geological services.
(f)
The Company’s investments in public companies include shares of Emgold Mining Corporation, Sultan, and ValGold, companies with directors and management in common with the Company. The Company also holds interests in the Stephens Lake property jointly with Sultan and ValGold.
(g)
Balances payable to related parties, and balances receivable from related parties are non-interest bearing and due on demand.
8.
Subsequent events:
Subsequent to September 30, 2007:
(a)
A financing announced and reported in the interim period ended June 30, 2007, of flow-through units was not completed; and
(b)
subject to regulatory approval, the Company will issue 411,764 common shares to Frank Lang, pursuant to a bonus agreement entered into relating to a loan agreement for funds advanced by Mr. Lang to the Company. The loan agreement is for a total of $700,000 to be repaid by October 26, 2008. Interest is to be paid at an annual rate of 6%, payable quarterly, commencing 90 days from the receipt of regulatory acceptance; and
(c)
subject to regulatory approval, the Company announced a non-brokered private placement at a price of $0.45 per unit. Each unit is to be comprised of one common share and one-half of one non-transferable share purchase warrant. Each whole share purchase warrant will entitle the holder to purchase one additional common share of Cream for a period of 24 months from closing at an exercise price of $0.55 per share in the first twelve (12) months and $0.65 per share for the balance of the two-year term.
12
CREAM MINERALS LTD.
(an exploration stage company)
Notes to the Interim Consolidated Financial Statements
For the three and six months ended September 30, 2007 and 2006
(expressed in Canadian dollars)
(unaudited – Prepared by Management)
8.
Subsequent events (continued):
(d)
the Company entered into an agreement, subject to regulatory approval, to acquire 100% interest in the Grand Nickel Project, being the Cedar 1, MB7355 and MEL 324B claims, located in the Thompson Nickel Belt, approximately 40 kilometres north-west of the town of Grand Rapids, Manitoba. The Company can earn its interest in the property by making payments to the optionor totaling $100,000 and issuing 200,000 common shares over a 48-month period from the date of regulatory approval. The Company must also incur exploration expenditures on the property totaling $5,000 within one year following the date of regulatory approval, $10,000 cumulative prior to the second anniversary of regulatory approval, $15,000 cumulative prior to the third anniversary of regulatory approval, and $20,000 cumulative prior to the fourth anniversary of regulatory approval. During the first year of the agreement, the Company is to pay $5,000 and issue 50,000 common shares to the optionor; and make a cash payment of $10,000 and issue an additional 50,000 common shares one year following the date of regulatory approval. Upon fulfilling the obligations set out above, the Company will earn a 100% right, title and interest in the property subject only to a 2.0% Net Smelter Return royalty (“NSR”) payable to the optionor from the production of gold, silver and all base metals and other minerals from the Property. The Company has the right to reduce the NSR to 1.0% by the payment of $1,000,000 to the optionor at any time up to and including the commencement of commercial production.
13
CREAM MINERALS LTD.
(an exploration stage company)
Notes to the Interim Consolidated Financial Statements
For the three and six months ended September 30, 2007 and 2006
(expressed in Canadian dollars)
(unaudited – Prepared by Management)
9.
Mineral property interests:
14
CREAM MINERALS LTD.
(an exploration stage company)
Notes to the Interim Consolidated Financial Statements
For the three and six months ended September 30, 2007 and 2006
(expressed in Canadian dollars)
(unaudited – Prepared by Management)
9.
Mineral property interests (continued):
|
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| Goldsmith and Other Properties, British Columbia |
|
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March 31, 2007 |
Acquisition costs | ||||||
Balance, beginning of year | $ 100,241 | $ 5,806 | $ 374,753 | $ 37,024 | $ -- | $ 517,824 |
Incurred during the year | 99,000 | 3,714 | 145,020 | 50,528 | -- | 298,262 |
Balance, end of year | 199,241 | 9,520 | 519,773 | 87,552 | -- | 816,086 |
| ||||||
Exploration and development costs | ||||||
Incurred during the year | ||||||
Assays and analysis | 3,409 | -- | 10,050 | -- | 13,348 | 26,807 |
Community relations | 41,327 | -- | -- | -- | -- | 41,327 |
Dredging and bulk sampling | 464,781 | -- | -- | -- | -- | 464,781 |
Drilling | -- | -- | -- | -- | 591,172 | 591,172 |
Geological and geophysical | 181,500 | 97,809 | 28,941 | 133 | 152,119 | 460,502 |
Site activities | 173,102 | 165 | 807 | 29,924 | 135,820 | 339,818 |
Stock-based compensation | -- | -- | -- | -- | 33,153 | 33,153 |
Travel and accommodation | 202,723 | 470 | 9,882 | -- | 44,906 | 257,981 |
| 1,066,842 | 98,444 | 49,680 | 30,057 | 970,518 | 2,215,541 |
Balance, beginning of year | 464,940 | 52,119 | 170,586 | 11,311 | 107,198 | 806,154 |
Balance, end of year | 1,531,782 | 150,563 | 220,266 | 41,368 | 1,077,716 | 3,021,695 |
Total Mineral Property Interests | $ 1,731,023 | $ 160,083 | $ 740,039 | $ 128,920 | $ 1,077,716 | $ 3,837,781 |
15
