EMGOLD MINING CORPORATION
(an exploration stage company)
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended September 30, 2005 and 2004
(expressed in United States dollars)
The Company’s independent auditor has not performed a review of these consolidated financial statements.
1
The Company’s independent auditor has not performed a review of these consolidated financial statements.
EMGOLD MINING CORPORATION
(an exploration stage company)
Interim Consolidated Balance Sheets
(expressed in United States dollars)
See accompanying notes to consolidated financial statements.
Approved by the Directors
“Joel D. Schneyer”
“William J. Witte”
Joel D. Schneyer
William J. Witte
Director
Director
2
The Company’s independent auditor has not performed a review of these consolidated financial statements.
EMGOLD MINING CORPORATION
(an exploration stage company)
Consolidated Statements of Operations and Deficit
(expressed in United States dollars)
(Unaudited)
Three months ended | Nine months ended | |||
2005 | 2004 | 2005 | 2004 | |
Expenses | ||||
Amortization | $ 15,062 | $ 4,226 | $ 41,674 | $ 9,506 |
Accretion of debt portion of preference shares | 5,489 | 4,467 |
| 13,191 |
Ceramext™ process research (Note 8) | 324,531 | 170,689 | 915,996 | 770,521 |
Exploration expenses (Note 7) | 535,135 | 838,000 | 1,247,604 | 2,406,092 |
Foreign exchange loss / (gain) | 26,067 | (49,279) | 6,253 | 132,399 |
Finance expense | 11,504 | 10,573 | 33,186 | 31,218 |
Legal, accounting and audit | 36,589 | 43,508 | 79,133 | 75,100 |
Management and consulting fees | 6,263 | 5,684 | 18,452 | 16,865 |
Office and administration | 86,299 | 132,065 | 302,865 | 211,706 |
Salaries and benefits | 143,365 | 130,452 | 613,412 | 211,758 |
Shareholder communications | 63,158 | 70,423 | 228,371 | 177,080 |
Stock-based compensation | -- | 106,174 | 143,979 | 206,982 |
Travel | 32,101 | 7,622 | 73,034 | 40,815 |
Loss before interest income | 1,285,563 | 1,474,604 | 3,716,200 | 4,303,233 |
Interest income | (25,403) | (16,605) | (70,896) | (54,850) |
Loss for the period | 1,260,160 | 1,457,999 | 3,645,304 | 4,248,383 |
Deficit, beginning of period | 24,934,706 | 19,893,317 | 22,549,562 | 17,102,933 |
Deficit, end of period | $ 26,194,866 | $ 21,351,316 | $ 26,194,866 | $ 21,351,316 |
Loss per share – basic and diluted | $ 0.02 | $ 0.03 | $ 0.07 | $ 0.09 |
Weighted average number of common shares outstanding | 65,518,099 | 47,077,121 | 53,137,771 | 46,672,863 |
Total common shares outstanding at end of period |
|
|
|
|
See accompanying notes to consolidated financial statements.
3
The Company’s independent auditor has not performed a review of these consolidated financial statements.
EMGOLD MINING CORPORATION
(an exploration stage company)
Interim Consolidated Statements of Shareholders’ Equity
(expressed in United States dollars)
See accompanying notes to consolidated financial statements.
4
EMGOLD MINING CORPORATION
(an exploration stage company)
Consolidated Statements of Cash Flows
(expressed in United States dollars)
(Unaudited)
Three months ended | Nine months ended | ||||
2005 | 2004 | 2005 | 2004 | ||
Cash provided by (used for): | |||||
Operations: | |||||
Loss for the period | $ (1,260,160) | $ (1,457,999) | $ (3,645,304) | $ (4,248,383) | |
Items not involving cash | |||||
Amortization | 82,549 | 39,489 | 200,572 | 115,295 | |
Stock-based compensation | -- | 242,344 | 190,326 | 343,152 | |
Accretion of debt component of preference shares |
| 4,467 |
|
| |
Effect of currency translation | 30,747 | 29,370 | 20,015 | 14,848 | |
Changes in non-cash operating working capital | |||||
Accounts receivable | 27,102 | (16,458) | 52,764 | (21,348) | |
Due to/from related parties | (55,903) | (2,995) | 75,072 | (38,620) | |
Prepaid expenses and deposits | (84,181) | (53,387) | (114,982) | (81,205) | |
Accounts payable and accrued liabilities |
|
|
|
| |
(1,214,210) | (1,037,301) | (3,308,802) | (3,653,615) | ||
Investing activities: | |||||
Mineral property acquisition costs | (20,480) | (25,292) | (55,954) | (592,344) | |
Ceramext™ license agreement | -- | -- | -- | (100,000) | |
Equipment additions | (157,300) | (232,585) | (254,926) | (335,498) | |
(177,780) | (257,877) | (310,880) | (1,027,842) | ||
Financing activities: | |||||
Common shares issued for cash | (4,993) | 15,411 | 7,050,466 | 1,295,820 | |
Increase (decrease) in cash and cash equivalents during the period |
|
|
|
| |
Cash and cash equivalents, beginning of period |
|
|
|
| |
Cash and cash equivalents, end of period |
4,735,778 |
2,453,149 |
4,735,778 |
2,453,149 | |
Cash and cash equivalents is comprised of: | |||||
Cash and in bank | $ 648,188 | $ 903,218 | $ 648,188 | $ 903,218 | |
Short-term money market instruments | 4,087,590 | 1,549,931 | 4,087,590 | 1,549,931 | |
$ 4,735,778 | $ 2,453,149 | $ 4,735,778 | $ 2,453,149 | ||
See accompanying notes to consolidated financial statements.
5
EMGOLD MINING CORPORATION
(an exploration stage company)
Notes to the Interim Consolidated Financial Statements
Nine months ended September 30, 2005 and 2004
(expressed in United States dollars)
The accompanying consolidated financial statements for the interim periods ended September 30, 2005 and 2004, 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 consolidated 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 December 31, 2004.
1.
Going concern assumption:
These financial statements are 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 is in the process of exploring its mineral property interests and has not yet determined whether its mineral property interests contain mineral reserves that are economically recoverable. The Company is also developing and commercializing novel technology for the production of high value ceramic products from siliceous waste products. The Company’s continuing operations and the underlying value and recoverability of the amounts shown for mineral property interests and the Ceramext™ process are entirely dependent upon the existence of economically recoverable mineral reserves, the ability of the Company to obtain the necessary financing to complete the exploration and development of the mineral property interests, commercialization of the new ceramics technology and on future profitable production or proceeds from the disposition of the mineral property interests or new technology.
At September 30, 2005, the Company had working capital of $4,710,000 and a deficit of $26,194,866.
The Company has capitalized $853,910 in acquisition costs related to the Rozan, Stewart, Jazz and Idaho-Maryland mineral property interests.
The Company’s ability to continue operations is contingent on its ability to obtain additional financing. Management is confident that it will be able to secure the necessary financing; however, there is no assurance that management will be successful in achieving these objectives.
These financial statements do not reflect adjustments to the carrying value of assets and liabilities, the reported revenues and expenses and balance sheet classifications that would be necessary if the going concern assumption were not appropriate. Such adjustments could be material.
6
EMGOLD MINING CORPORATION
(an exploration stage company)
Notes to the Interim Consolidated Financial Statements
Nine months ended September 30, 2005 and 2004
(expressed in United States dollars)
2.
Equipment:
September 30, 2005 | December 31, 2004 | |||
Cost | Accumulated Depreciation | Net Book Value | Net Book Value | |
Plant and field equipment | $ 223,617 | $ 42,381 | $ 181,236 | $ 142,067 |
Office furniture and equipment | 54,856 | 12,058 | 42,798 | 27,373 |
Research equipment | 178,869 | 16,262 | 162,607 | 36,967 |
Computer hardware and software | 89,608 | 44,606 | 45,002 | 47,002 |
Leasehold improvements | 121,061 | 40,735 | 80,326 | 98,416 |
Total | $ 668,011 | $ 156,042 | $ 511,969 | $ 351,825 |
3.
Mineral property interests:
The cumulative acquisition costs of the Company’s interest in mineral property interests owned, leased or under option, consist of the following:
| September 30, 2005 | December 31, 2004 |
Idaho-Maryland Property, California | $ 587,328 | $ 582,428 |
Rozan Property, British Columbia | 94,734 | 74,160 |
Porph Claim, British Columbia | 6,910 | 6,910 |
Stewart Property, British Columbia | 143,527 | 123,047 |
Jazz Property, British Columbia | 21,411 | 11,411 |
$ 853,910 | $ 797,956 |
4.
Share capital:
Authorized
Unlimited number of common shares without par value
Unlimited number of preference shares without par value
7
EMGOLD MINING CORPORATION
(an exploration stage company)
Notes to the Interim Consolidated Financial Statements
Nine months ended September 30, 2005 and 2004
(expressed in United States dollars)
4.
Share capital (continued):
Preference shares
Series A First Preference Shares | Number of Shares | Amount |
Balance, September 30, 2005 (Unaudited) and |
|
90,902 |
| Nine months ended September 30, 2005 | Year ended December 31, 2004 |
Debt balance, beginning of period | $ 577,529 | $ 517,417 |
Accretion of debt | 12,241 | 17,659 |
Foreign exchange loss on debt | 20,015 | 42,453 |
Debt balance, end of period | $ 609,785 | $ 577,529 |
The Series A Preference shares rank in priority to the Company’s common shares and are entitled to fixed cumulative preferential dividends at a rate of 7% per annum. At September 30, 2005, $135,169 in dividends payable has been accrued and is classified as due to related party. The balance of $517,417 is the value included in debt as preference shares, with accretion and foreign exchange loss on debt to September 30, 2005, totalling $92,368
The shares are redeemable by the Company on 30 days written notice at a redemption price of Cdn$0.80 per common share, but are redeemable by the holder only out of funds available that are not in the Company’s opinion otherwise required for the development of the Company’s mineral property interest or to maintain a minimum of Cdn$2 million in working capital.
The Series A First Preference Shares are convertible into common shares at any time at a ratio of one common share for every four Series A First Preference Shares, which represents an effective conversion price of Cdn$0.80 per common share. The Preference Shares also have attached a gold redemption feature by which holders may elect at the time of any proposed redemption to receive gold in specie valued at $300 per ounce in lieu of cash, provided the Company has on hand at the time gold in specie having an aggregate value of not less than the redemption amount.
Stock options:
The Company has a fixed stock option plan for its directors and employees to acquire common shares of the Company at a price determined by the fair market value of the shares at the date of grant. The maximum aggregate number of common shares reserved for issuance pursuant to the plan is 6,551,810 common shares, of which 1,208,616 stock options are still available to be issued. There are currently 6,324,000 stock options outstanding exercisable for periods up to ten years. During the nine months ended September 30, 2005, 260,000 stock options were granted to employees at a price of Cdn$ 0.36, with an expiry date of June 28, 2010.
8
EMGOLD MINING CORPORATION
(an exploration stage company)
Notes to the Interim Consolidated Financial Statements
Nine months ended September 30, 2005 and 2004
(expressed in United States dollars)
5.
Related party transactions and balances:
Related party balances are non-interest bearing and are due on demand, with no fixed terms of repayment, with the exception of preference shares (Note 3).
For the nine months ended September 30, | ||
Services rendered: | 2005 | 2004 |
Legal fees (a) | $ 36,893 | $ 25,420 |
Lang Mining Corporation (d) | $ 17,409 | $ 18,685 |
Director and project consultant (b)) | $ 96,430 | $ 67,500 |
LMC Management Services Ltd. (c) | $ 578,732 | $ 461,392 |
| September 30, 2005 | December 31, 2004 |
LMC Management Services Ltd. | $ 203,752 | $ 229,682 |
Legal fees | (21,435) | -- |
Directors, officers and employees ((b) and Note 3) | (144,949) | (117,242) |
$ (166,384) | $ (117,242) |
Related party transactions not disclosed elsewhere in these consolidated financial statements are as follows:
(a)
Legal fees were paid to a law firm for which a director is an associate counsel.
(b)
A director of the Company receives consulting fees and has commenced receiving advance royalties on the Ceramext™ agreement.
(c)
Commencing August 1, 2001, 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. LMC is not related to Lang Mining Corporation. 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 equity value, as LMC does not retain any profits in connection with the services it provides.
(d)
Lang Mining Corporation (“Lang Mining”) is a private company controlled by a director of the Company. From January 1, 2003, until June 30, 2005, the Company paid Cdn$2,500 per month to Lang Mining for the services of Mr. Lang as chairman of the Company. A new chairman was appointed in June 2005, but fees are of Cdn$2,500 continue to be paid to Lang Mining Corporation as a severance for past services of Mr. Lang as chairman.
(e)
Related party balances are non-interest bearing and are due on demand, with no fixed terms of repayment, except for preference shares.
6.
Comparative figures:
Where necessary, comparative figures have been changed to conform to the current period’s presentation.
9
EMGOLD MINING CORPORATION
(an exploration stage company)
Notes to the Interim Consolidated Financial Statements
Nine months ended September 30, 2005 and 2004
(expressed in United States dollars)
7.
Consolidated schedules of exploration expenses:
Three months ended September 30, | Nine months ended September 30, | |||
2005 | 2004 | 2005 | 2004 | |
Idaho-Maryland Mine, California | ||||
Exploration costs | ||||
Assays and analysis | $ -- | $ 8,828 | $ 3,932 | $ 67,766 |
Drilling | -- | 254,266 | -- | 903,869 |
Geological and geochemical | 143,880 | 178,627 | 456,680 | 431,937 |
Land lease and taxes | 31,907 | 25,500 | 95,684 | 78,000 |
Marketing study for tailings disposal | 184,279 |
| 184,279 |
|
Mine planning | 103,290 | 85,190 | 326,407 | 399,548 |
Site activities | 54,959 | 137,154 | 132,102 | 333,685 |
Stock-based compensation | -- | 82,030 | 17,858 | 82,030 |
Transportation | 4,164 | 15,223 | 12,487 | 42,885 |
Incurred during the period | 522,479 | 786,818 | 1,229,429 | 2,339,720 |
Jazz Property, British Columbia | ||||
Exploration costs | ||||
Assays and analysis | -- | 4,547 | -- | 4,547 |
Drilling | -- | 9,305 | -- | 9,305 |
Geological and geochemical | 30 | 8,640 | 1,552 | 8,640 |
Site activities | -- | -- | 205 | -- |
Transportation | -- | 1,858 | -- | 1,858 |
Incurred during the period | 30 | 24,350 | 1,757 | 24,350 |
Rozan Property, British Columbia | ||||
Exploration costs | ||||
Assays and analysis | -- | -- | -- | -- |
Geological and geochemical | (107) | 9,104 | 1,550 | 12,281 |
Site activities | -- | 203 | 131 | 203 |
Stock-based compensation | -- | 4,922 | -- | 4,922 |
Transportation | -- | 1,460 | -- | 1,460 |
Incurred during the period | (107) | 15,689 | 1,681 | 18,866 |
Stewart Property, British Columbia | ||||
Exploration costs | ||||
Drilling | 11,250 | -- | 11,250 | -- |
Geological and geochemical | 104 | 5,343 | 2,003 | 15,859 |
Site activities | 989 | -- | 1,094 | -- |
Stock-based compensation | -- | 4,922 | -- | 4,922 |
Transportation | 390 | 868 | 390 | 2,375 |
Incurred during the period | 12,733 | 11,143 | 14,737 | 23,156 |
Incurred during the period | $ 535,135 | $ 838,000 | $
1,247,604 | $
2,406,092 |
10
The Company’s independent auditor has not performed a review of these consolidated financial statements.
EMGOLD MINING CORPORATION
(an exploration stage company)
Notes to the Interim Consolidated Financial Statements
Nine months ended September 30, 2005 and 2004
(expressed in United States dollars)
8.
Consolidated schedules of research costs:
Three months ended | Nine months ended | |||
2005 | 2004 | 2005 | 2004 | |
Ceramext™ Process Costs | ||||
Prototype materials for research | $ 25,838 | $ (51,635) | $ 68,039 | $ 147,792 |
Ceramext™ technology royalties and amortization of license fee and bench-scale research facility |
|
| 120,795 |
|
Consulting fees | 1,895 | -- | 4,189 | -- |
Consumable materials | 39 | -- | 38,843 | 10,297 |
Engineering costs | 182,136 | 99,237 | 481,020 | 353,020 |
Marketing and commercialization | 9,617 | -- | 13,446 | -- |
Sample preparation | 14,345 | 9,846 | 41,004 | 9,846 |
Site costs | 37,635 | 27,883 | 110,334 | 79,925 |
Stock-based compensation | -- | 44,296 | 28,489 | 44,296 |
Transportation | 5,173 | 5,799 | 9,837 | 19,556 |
Incurred during the period | $ 324,531 | $ 170,689 | $ 915,996 | $ 770,521 |
11
