KIRKLAND LAKE GOLD INC.
UNAUDITED FINANCIAL STATEMENTS
THREE AND NINE MONTH PERIOD ENDED JANUARY 31, 2007
(EXPRESSED IN CANADIAN DOLLARS)
The accompanying unaudited financial statements of Kirkland Lake Gold Inc. (the "Company") have been prepared by and are the responsibility of the Company's management.
These statements have been approved by the Audit Committee and the Board of Directors of the Company.
The Company's independent auditor has not performed a review of these financials statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of interim financials statements by an entity's auditor.
Kirkland Lake Gold Inc. | ||||||
Balance Sheet | ||||||
Unaudited | ||||||
As at January 31, 2007 and April 30, 2006 | ||||||
| (expressed in Canadian dollars, except per share amounts) | ||||||
January 31 | April 30 | |||||
2007 | 2006 | |||||
Assets | ||||||
Current assets: | ||||||
| Cash and cash equivalents | $ | 17,220,986 | $ | 9,411,925 | ||
| Accounts Receivable | 875,414 | 2,729,475 | ||||
| Inventories (Note 4) | 3,809,875 | 4,295,899 | ||||
| Prepaid Expenses and deposits | 238,860 | 70,250 | ||||
22,145,135 | 16,507,549 | |||||
Security Deposits (Note 3) | 225,612 | 725,000 | ||||
Mineral Properties (Note 5) | 33,315,106 | 29,986,447 | ||||
Property, plant and equipment (Note 6) | 11,743,352 | 11,504,100 | ||||
Mine closure bonds | 2,043,435 | 2,043,435 | ||||
69,472,640 | 60,766,531 | |||||
Liabilities | ||||||
Current Liabilities: | ||||||
| Accounts Payable and accrued liabilities | 8,500,479 | 9,852,880 | ||||
Other Liabilities | - | 85,500 | ||||
Asset Retirement Obligation (Note 7) | 1,928,841 | 1,845,780 | ||||
10,429,320 | 11,784,160 | |||||
Shareholders' Equity | ||||||
Capital Stock: (Note 8) | ||||||
| Authorized | ||||||
| Unlimited common shares without par value issued | ||||||
| Issued | ||||||
| 53,273,923 (2006 - 50,868,138) common shares | 126,886,219 | 110,088,761 | ||||
Options (Note 9) | 650,227 | 1,079,766 | ||||
Warrants (Note 10) | 879,467 | - | ||||
Contributed surplus (Note 11) | 2,803,822 | 2,797,768 | ||||
Deficit | (72,176,415 | ) | (64,983,924 | |||
59,043,320 | 48,982,371 | |||||
69,472,640 | 60,766,531 | |||||
Operations, going concern and measurement uncertainty (Note 1)
Approved by the Board of Directors:
(signed) "Brian E. Bayley" Director (signed) "S. Paul Kostuik" Director
Kirkland Lake Gold Inc. | |
Statement of Operations and Deficit | |
Unaudited | |
For the three and nine months ended January 31, 2007 and 2006 | |
| (expressed in Canadian dollars) | |
Three Month Period Ended January 31, 2007 | Three Month Period Ended January 31, 2006 | Nine Month Period Ended January 31, 2007 | Nine Month Period Ended January 31, 2006 | |||||||||
Mining revenue | 8,212,184 | 11,111,262 | 26,126,929 | 24,490,788 | ||||||||
Operating Expenses | ||||||||||||
| Operating costs | 8,998,040 | 6,045,426 | 25,061,112 | 21,490,720 | ||||||||
| Stock-based compensation for | ||||||||||||
| operational personnel | 428 | 48,950 | 16,871 | 116,106 | ||||||||
| Amortization and depletion | 783,323 | 676,048 | 2,466,826 | 1,868,088 | ||||||||
| Royalties | 341,960 | 332,503 | 1,025,409 | 734,353 | ||||||||
10,123,751 | 7,102,927 | 28,570,218 | 24,209,267 | |||||||||
Operating Margin | (1,911,567 | ) | 4,008,335 | (2,443,289 | ) | 281,521 | ||||||
Other Expenses | ||||||||||||
| General and administrative | 633,717 | 203,152 | 1,959,818 | 842,807 | ||||||||
| Stock-based compensation for | ||||||||||||
| administration personnel | 6,409 | - | 45,275 | 210,706 | ||||||||
| Exploration | 856,778 | 1,774,635 | 4,002,256 | 3,645,523 | ||||||||
| Interest and other income | (228,345 | ) | (279,305 | ) | (608,112 | ) | (424,009 | |||||
1,268,559 | 1,698,482 | 5,399,237 | 4,275,027 | |||||||||
Income (Loss) before future income | (3,180,126 | ) | 2,309,853 | (7,842,526 | ) | (3,993,506 | ||||||
tax recovery | ||||||||||||
Future income tax recovery | (650,035 | ) | - | (650,035 | ) | - | ||||||
Income (Loss) for the period | (2,530,091 | ) | 2,309,853 | (7,192,491 | ) | (3,993,506 | ||||||
Deficit - Beginning of Period | (69,646,324 | ) | (64,830,723 | ) | (64,983,924 | ) | (58,527,364 | |||||
Deficit - End of period | $ | (72,176,415 | ) | $ | (62,520,870 | ) | $ | (72,176,415 | ) | $ | (62,520,870 | |
Basic and diluted earnings (loss) per | $ | (0.05 | ) | $ | 0.05 | $ | (0.14 | ) | $ | (0.08 | ||
share | ||||||||||||
Weighted average number of shares outstanding | 53,152,804 | 49,157,954 | 52,824,238 | 47,449,983 | ||||||||
Statements of Cash Flow |
Unaudited |
For the three and nine months ended January 31, 2007 and 2006 |
| (expressed in Canadian dollars) |
Three Month Period Ended January 31, 2007 | Three Month Period Ended January 31, 2006 | Nine Month Period Ended January 31, 2007 | Nine Month Period Ended January 31, 2006 | |||||||||
Cash flows from operating activities | ||||||||||||
| Earnings (Loss) for the year | $ | (2,530,091 | ) | $ | 2,309,854 | $ | (7,192,491 | ) | $ | (3,993,506 | ||
| Items not affecting cash | ||||||||||||
| Amortization and depletion | 783,323 | 676,048 | 2,466,826 | 1,868,088 | ||||||||
| Stock-based compensation | 6,837 | 48,950 | 62,145 | 326,812 | ||||||||
| Asset Retirement Obligation | 27,687 | 31,920 | 83,061 | 95,758 | ||||||||
| Future income tax recovery | (650,035 | ) | - | (650,035 | ) | - | ||||||
(2,362,279 | ) | 3,066,772 | (5,230,494 | ) | (1,702,848 | |||||||
| Changes in non-cash working capital items | ||||||||||||
| Accounts receivable | (43,778 | ) | (2,953,186 | ) | 1,854,061 | (2,644,005 | ||||||
| Inventories | 134,295 | 165,017 | 486,024 | 68,574 | ||||||||
| Prepaid expenses and deposits | (41,460 | ) | (201,520 | ) | (168,610 | ) | (662,624 | |||||
| Accounts payable and accrued liabilities | ||||||||||||
| and other liabilities | 2,328,502 | 4,496,815 | (1,437,901 | ) | 2,072,809 | |||||||
15,281 | 4,573,898 | (4,496,919 | ) | (2,868,094 | ||||||||
Cash flows from financing activities | ||||||||||||
| Net proceeds from issuance of capital | ||||||||||||
| stocks & warrants | 1,792,630 | 435,124 | 17,841,332 | 14,383,608 | ||||||||
| Security deposits | (1,225 | ) | - | 499,388 | - | |||||||
1,791,405 | 435,124 | 18,340,720 | 14,383,608 | |||||||||
Cash flow applied to investing activities | ||||||||||||
| Purchase of property, plant and equipment | (304,695 | ) | (1,037,409 | ) | (1,610,898 | ) | (2,235,665 | |||||
| Additions to mineral properties | (948,079 | ) | (3,813,045 | ) | (4,423,839 | ) | (8,971,059 | |||||
(1,252,773 | ) | (4,850,454 | ) | (6,034,737 | ) | (11,206,724 | ||||||
Increase (decrease) in cash and cash | ||||||||||||
equivalents | 553,912 | 158,568 | 7,809,063 | 308,790 | ||||||||
Cash and cash equivalents - | ||||||||||||
Beginning of period | 16,667,074 | 8,782,769 | 9,411,923 | 8,632,547 | ||||||||
Cash and cash equivalents - | ||||||||||||
End of period | $ | 17,220,986 | $ | 8,941,337 | $ | 17,220,986 | $ | 8,941,337 | ||||
| Supplementary cash flow information (note 14) | ||||||||||||
KIRKLAND LAKE GOLD INC.
Notes to Unaudited Financial Statements
For the three and nine months ended January 31, 2007 and 2006
(expressed in Canadian dollars)
1. NATURE OF OPERATIONS AND GOING CONCERN
Operations
Kirkland Lake Gold Inc. (the company) owns gold mining and milling operations in Kirkland Lake, Canada, which were inactive when acquired in December 2001.
Going concern
These financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities during the normal course of business as they come due.
At January 31, 2007, the company has working capital of $13.8 million and has committed to spend $1.8 million on eligible flow-through expenditures before December 31, 2007. The funds required to continue operations and exploration activities during this period have been financed primarily from the issue of equity.
Management estimates that these funds, together with cash flow from targeted operations, will be sufficient to meet the company's obligations and capital expenditure plans for the coming year.
The company's ability to continue as a going concern, and the recoverability of its mineral properties and property, plant and equipment, is dependent on the gold price, its ability to fund its development and exploration programs, and manage and generate positive cash flows from operations. These financial statements do not reflect the adjustments to carrying values of assets and liabilities and the reported expenses and balance sheet classifications that would be necessary should the going concern assumption be inappropriate, and these adjustments could be material.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited interim financial statements are prepared in accordance with generally accepted accounting principals ("GAAP") in Canada. They do not include all of the information and disclosures required by Canadian GAAP for annual audited financial statements. In the opinion of management, all adjustments considered necessary for fair presentation have been included in these financial statements. The interim financial statements should be read in conjunction with the company's financial statements including the notes thereto for the year ended April 30, 2006.
3. SECURITY DEPOSITS
The company’s security deposits include $225,612 (2006 - $725,000) held as collateral to provide a letter of credit to the Independent Electricity Market Operator as security for payment in connection with ongoing electricity usage.
4. INVENTORIES
JANUARY 31 | APRIL 30 | ||||||
2007 | 2006 | ||||||
| Mine operating supplies | $ | 1,186,553 | $ | 1,147,502 | |||
| Gold in process | 2,623,322 | 2,657,417 | |||||
| Surface stockpile | - | 490,980 | |||||
$ | 3,809,875 | $ | 4,295,899 | ||||
5. MINERAL PROPERTIES
JANUARY 31 | APRIL 30 | ||||||
2007 | 2006 | ||||||
| Balance - Beginning of year | $ | 29,986,447 | $ | 20,227,298 | |||
| Additions: | |||||||
| Development costs | 4,423,839 | 11,867,437 | |||||
| Depletion | (1,095,180 | ) | (2,108,288 | ) | |||
| Balance - End of year | $ | 33,315,106 | $ | 29,986,447 | |||
ACCUMULATED | JANUARY 31 | APRIL 30 | |||||||||||
COST | AMORTIZATION | 2007 | 2006 | ||||||||||
| Acquisition allocation | $ | 795,648 | $ | 130,551 | $ | 665,097 | $ | 688,935 | |||||
| Underground development | 33,823,386 | 3,858,483 | 29,964,903 | 26,516,153 | |||||||||
| Underground pumping | 2,050,943 | 327,723 | 1,723,220 | 1,784,666 | |||||||||
| Mill & surface facilities | 149,371 | 24,589 | 124,782 | 129,617 | |||||||||
| Lakeshore property | 1,000,411 | 163,307 | 837,104 | 867,076 | |||||||||
$ | 37,819,759 | $ | 4,504,653 | $ | 33,315,106 | $ | 29,986,447 | ||||||
6. PROPERTY, PLANT AND EQUIPMENT
ACCUMULATED | JANUARY 31 | |||||||||
COST | AMORTIZATION | 2007 | ||||||||
NET | ||||||||||
| Computer equipment | $ | 555,756 | $ | 398,067 | $ | 157,689 | ||||
| Mine and mill equipment | 16,632,455 | 5,574,217 | 11,058,238 | |||||||
| Vehicles | 129,493 | 74,429 | 55,064 | |||||||
| Buildings | 688,926 | 216,565 | 472,361 | |||||||
| $ | 18,006,630 | $ | 6,263,278 | $ | 11,743,352 | |||||
ACCUMULATED | APRIL 30 | |||||||||
COST | AMORTIZATION | 2006 | ||||||||
NET | ||||||||||
| Computer equipment | $ | 433,471 | $ | 298,532 | $ | 134,939 | ||||
| Mine and mill equipment | 15,227,406 | 4,438,354 | 10,789,052 | |||||||
| Vehicles | 115,957 | 56,132 | 59,825 | |||||||
| Buildings | 688,926 | 168,642 | 520,284 | |||||||
| $ | 16,465,760 | $ | 4,961,660 | $ | 11,504,100 | |||||
7. ASSET RETIREMENT OBLIGATION
The company has assumed responsibility for the reclamation and site restoration plans originally filed with the Ontario Ministry of Northern Development and Mining (MNDM) in connection with the all the Kirkland Lake properties. The estimated total costs of reclamation and site restoration at January 31, 2007 are $2,711,670 and financial assurance has been provided to the MNDM by way of mine closure bonds in the amount of $2,043,435.
A reconciliation for asset retirement obligations is as follows:
JANUARY 31 | APRIL 30 | ||||||
2007 | 2006 | ||||||
| Balance - Beginning of year | $ | 1,845,780 | $ | 2,110,583 | |||
| Revision to timing of estimate mining life | - | (391,438 | ) | ||||
| Accretion | 83,061 | 126,635 | |||||
| Balance - End of period | $ | 1,928,841 | $ | 1,845,780 | |||
There were no liabilities incurred or settled during 2007 and 2006.
The provision for asset retirement obligations is based on the following key assumptions.
· The total undiscounted cash flow as at April 30, 2007 is $2,711,670.
· The expected settlement to be in 2016.
· A credit adjusted risk free rate at which the estimated payments have been discounted of 6%.
· An inflation rate of 2%.
8. CAPITAL STOCK
Number of | Stated | ||||||
shares | value | ||||||
| Balance - Beginning of period | 50,868,138 | $ | 110,088,761 | ||||
Exercise of options (Note 9) | 444,000 | 1,540,793 | |||||
Private placements (Note (8) a & b) | 1,961,785 | 18,300,849 | |||||
Share issuance costs | - | (1,514,691 | ) | ||||
Share proceeds allocated to warrants (Note 10) | - | (879,467 | ) | ||||
Renunciation of flow-through shares | - | (650,026 | ) | ||||
| Balance - End of period | 53,273,923 | $ | 126,886,219 | ||||
(a) On May 24 and 25, 2006 and June 2, 2006, the company completed a private placement of 1,793,500 units at a price of $9.20 per unit totaling $16,500,200 ($15,113,340 net). Each unit consisted of one common share and one-half of a share purchase warrant. Of the 896,750 share purchase warrants issued, 271,750 warrants are exercisable until May 24, 2007, 615,000 warrants are exercisable until May 25, 2007 and 10,000 warrants are exercisable until June 2, 2007 at a price of $10.50 per share. The share purchase warrants issued as part of this placement have been recorded at a fair value of $879,467.
(b) On December 29, 2006 the company closed a brokered private placement of 168,285 flow through shares at a price of $10.70 per share for gross proceeds of $1,800,649. The company incurred commissions, fees and legal costs totaling $127,028 in connection with this placement which were paid out of working capital.
9. OPTIONS
The company has adopted a stock option plan. The plan allows the company to grant options to directors, senior officers and employees of or consultants to the company or employees of a corporation providing management services to the company. The aggregate number of shares which were initially subject to issuance pursuant to options granted under this plan is 3,500,000 shares.
The plan provides that the exercise price of an option granted under the plan shall not be less than the market price at the time of granting the option. Options have a maximum term of 10 years and terminate on the 90th day after the optionee ceased to be any of a director, officer, consultant or employee; on the 30th day after the optionee ceased to be an employee or consultant if the optionee was engaged in providing investor relations services for the company; or the earlier of the 90th day and the third month after the optionee ceased to be an employee or officer if the optionee is subject to the tax laws of the United States of America.
Notwithstanding that options can have a maximum term of 10 years it is presently the policy of the company to issue options for terms of up to five years.
The changes in stock options during the 9 month period ended January 31, 2007 are as follows:
Number of shares | Weighted average exercise price | ||||||
| Options outstanding - May 1, 2006 | 737,124 | $ | 2.87 | ||||
| Granted | 385,000 | 8.68 | |||||
| Exercised | (441,500 | ) | 2.38 | ||||
| Forfeited | (2,500 | ) | 4.70 | ||||
| Options outstanding - January 31, 2007 | 678,124 | $ | 6.49 | ||||
Options exercisable - January 31, 2007 | 293,124 | $ | 3.55 | ||||
The following table summarizes information about stock options outstanding and exercisable at January 31, 2007:
| Exercise price | Options outstanding | Options exercisable | Outstanding options weighted average remaining life (years) | Exercisable options weighted average remaining life (years) |
| 1.60 | 624 | 624 | 0.19 | 0.19 |
| 2.20 | 55,500 | 55,500 | 0.94 | 0.94 |
| 2.45 | 35,000 | 35,000 | 0.35 | 0.35 |
| 2.80 | 10,000 | 10,000 | 1.54 | 1.54 |
| 3.95 | 106,500 | 106,500 | 1.82 | 1.82 |
| 4.70 | 85,500 | 85,500 | 2.65 | 2.65 |
| 8.65 | 365,000 | - | 5.00 | - |
| 9.30 | 20,000 | - | 0.92 | - |
| 1.60 - 9.30 | 678,124 | 293,124 | 3.45 | 1.71 |
The company grants all employee stock options with an exercise price equal to the market value of the underlying common shares on the date of grant. Compensation costs for all grants under the employee stock option plan have been determined by the fair value method. Compensation expense recorded for the three and nine months ended January 31, 2007 were $6,837 (2006 - $48,950) and $62,145 (2006 - $326,812), respectively.
The fair value of each option at the date of grant was estimated using the Black-Scholes option-pricing model.
Option pricing models require the input of highly subjective assumptions including the expected price volatility. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore, the existing models do not necessarily provide a reliable measure of the fair value of the company's stock options.
For the period ended January 31, 2007, the value ascribed to unexercised options recorded as a component of shareholders' equity is as follows:
JANUARY 31 2007 | APRIL 30 2006 | ||||||
| Balance - Beginning of year as restated | $ | 1,079,766 | $ | 1,184,062 | |||
| Accretion of options granted | 62,145 | 365,440 | |||||
| Exercise of options | (485,630 | ) | (456,217 | ) | |||
| Options forfeited | (6,054 | ) | (13,519 | ) | |||
| Balance - End of year | $ | 650,227 | $ | 1,079,766 | |||
10. WARRANTS
The changes in warrants are as follows:
Number of shares | Weighted average exercise price | ||||||
| Warrants outstanding - May 1, 2006 | - | $ | - | ||||
| Granted | 896,750 | 10.50 | |||||
| Warrants outstanding - January 31, 2007 | 896,750 | $ | 10.50 | ||||
The value ascribed to unexercised warrants recorded as a component of shareholders' equity is as follows:
JANUARY 31 | APRIL 30 | ||||||
2007 | 2006 | ||||||
| Balance - Beginning of year | $ | - | $ | 3,841,480 | |||
| Unit proceeds allocated to warrants | - | - | |||||
| Agents warrants issued in private placement (Note 8a) | 879,467 | 517,559 | |||||
| Exercise of warrants | - | (1,735,548 | ) | ||||
| Expiry of warrants | - | (2,623,491 | ) | ||||
| Balance - End of year | $ | 879,467 | $ | - | |||
11. CONTRIBUTED SURPLUS
JANUARY 31 | APRIL 30 | |
2007 | 2006 | |
| Balance - Beginning of year | $2,797,768 | $160,755 |
| Forfeited options (Note 9) | 6,054 | 13,522 |
| Forfeited warrants (Note 10) | - | 2,623,491 |
| Balance - End of year | $2,803,822 | $2,797,768 |
12. RELATED PARTY TRANSACTIONS
The following related party transactions occurred during the nine month period:
(a) The company paid office facilities and administration services to a company related by directors in common for the three and nine months ended January 31, 2007 in the amount of $10,500 (2006 - $10,500) and $31,500
(2006 - $31,500), respectively.
(2006 - $31,500), respectively.
(b) At January 31, 2007, accounts payable included $27,112 (2006 - $nil) owing to companies with directors in common. Amounts due to related parties are non-interest bearing and have no fixed terms of repayment.
These transactions were in the normal course of operations and were measured at the exchange value which represented the amount of consideration established and agreed to by the related parties.
13. SEGMENTED INFORMATION
The company has one operating segment consisting of a mining and milling operation located in Kirkland Lake, Canada. During the periods ended January 31, 2007 and 2006 all of the company's capital assets and operations were in Canada.
14. SUPPLEMENTAL CASH FLOW INFORMATION
During the three and nine month periods ended January 31, 2007 and 2006, the company conducted non-cash financing and investing activities as follows:
Three month period ended January 31, 2007 | Three month period ended January 31, 2006 | Nine month period ended January 31, 2007 | Nine month period ended January 31, 2006 | |||||||||
| Agent warrants issued as part of share placement (Note 10) | $ | - | $ | - | $ | 879,467 | $ | - | ||||