EMGOLD MINING CORPORATION
(an exploration stage company)
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the three and six months ended June 30, 2006 and 2005
(expressed in United States dollars)
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.
EMGOLD MINING CORPORATION
(an exploration stage company)
Interim Consolidated Balance Sheets
(expressed in United States dollars)
| | |
| |
June 30,
2006
|
December 31,
2005
|
| | | |
Assets | | |
| | | |
Current assets | | |
Cash and cash equivalents | $ 731,785 | $ 3,423,939 |
Accounts receivable | 21,195 | 40,240 |
Due from related party (Note 5) | 132,999 | 131,224 |
Prepaid expenses and deposits | 120,998 | 142,300 |
| | 1,006,977 | 3,737,703 |
| |
|
|
Other | 7,271 | 7,019 |
Equipment | 507,552 | 523,090 |
Mineral property interests(Note 2) | 895,522 | 859,531 |
| |
|
|
| | $ 2,417,322 | $ 5,127,343 |
| |
|
|
Liabilities and Shareholders’ Equity |
|
|
| |
|
|
Current liabilities |
|
|
Accounts payable and accrued liabilities | $ 264,272 | $ 427,870 |
Due to related parties (Note 5) | 189,930 | 173,273 |
Capital lease obligation | 4,152 | -- |
| | 458,354 | 601,143 |
| |
|
|
Capital lease obligation(Note 3) | 34,681 | -- |
Preference shares(Notes 4 and 5) | 646,979 | 613,871 |
| | 1,140,014 | 1,215,014 |
| |
|
|
Shareholders’ equity |
|
|
Share capital | 29,925,205 | 29,874,576 |
Preference shares (Note 4) | 90,902 | 90,902 |
Cumulative translation adjustment | (577,456) | (577,456) |
Contributed surplus | 2,305,468 | 2,319,034 |
Deficit | (30,466,811) | (27,794,727) |
| | 1,277,308 | 3,912,329 |
| |
|
|
| | $ 2,417,322 | $ 5,127,343 |
Going concern (Note 1)
See accompanying notes to interim consolidated financial statements.
Approved by the Directors
“Robin A. W. Elliott”
“William J. Witte”
2
- -A
The Company’s independent auditor has not performed a review of these interim consolidated financial statements.
EMGOLD MINING CORPORATION
(an exploration stage company)
Interim Consolidated Statements of Operations and Deficit
(expressed in United States dollars)
| | | | |
| | Three months ended
June 30, | Six months ended
June 30, |
| | 2006 | 2005 | 2006 | 2005 |
| | | | | |
Expenses | | | | |
Amortization | $ 20,507 | $ 14,377 | $ 42,484 | $ 26,613 |
Accretion of debt portion of preference shares |
3,628 |
2,976 |
7,191 |
6,752 |
Ceramext™ research costs (Note 9) | 390,124 | 374,325 | 719,993 | 591,463 |
Exploration expenses (Note 8) | 384,625 | 307,279 | 882,102 | 712,471 |
Foreign exchange (gain) loss | 27,094 | (22,777) | 23,411 | (19,814) |
Finance expense | 12,190 | 11,110 | 24,160 | 21,683 |
Legal, accounting and audit | 31,133 | 12,857 | 48,587 | 42,544 |
Management and consulting fees | 27,946 | 6,071 | 42,261 | 12,189 |
Office and administration | 167,329 | 130,956 | 287,604 | 216,565 |
Other consulting | -- | -- | 28,309 | -- |
Salaries and benefits | 195,091 | 237,681 | 396,567 | 470,047 |
Shareholder communications | 53,863 | 91,389 | 119,459 | 165,212 |
Stock-based compensation | -- | 143,979 | -- | 143,979 |
Travel | 27,081 | 22,743 | 85,850 | 40,932 |
| | 1,340,611 | 1,332,966 | 2,707,978 | 2,430,636 |
Other expenses and income |
|
|
|
|
Interest income | 12,790 | 42,651 | 35,894 | 45,492 |
Loss for the period | (1,327,821) | (1,290,315) | (2,672,084) | (2,385,144) |
| | | |
|
|
Deficit, beginning of period | (29,138,990) | (23,644,391) | (27,794,727) | (22,549,562) |
| | | | | |
Deficit, end of period | $ (30,466,811) | $ (24,934,706) | $ (30,466,811) | $ (24,934,706) |
| | | | | |
Loss per share – basic and diluted | $ (0.02) | $ (0.02) | $ (0.04) | $ (0.05) |
| | | | | |
Weighted average number of common shares outstanding | 65,650,967 |
52,646,451
|
65,594,845
| 49,917,436 |
| | |
|
|
Total common shares outstanding at end of period |
65,691,099
|
65,518,099
|
65,691,099
|
65,518,099
|
See accompanying notes to consolidated financial statements.
3
The Company’s independent auditor has not performed a review of these interim consolidated financial statements.
EMGOLD MINING CORPORATION
(an exploration stage company)
Interim Consolidated Statements of Shareholders’ Equity
Six months ended June 30, 2006 and 2005
(expressed in United States dollars)
| | | | | | | |
| | Common Shares
Without Par Value |
Preference Shares
|
Contributed Surplus
| Cumulative Translation Adjustment |
Deficit
|
Total Shareholders’ Equity
|
Shares | Amount |
Balance, December 31, 2004 | 47,158,099 | $ 22,819,677 | $ 90,902 | $ 2,128,708 | $ (577,456) | $ (22,549,562) | $ 1,912,269 |
Shares issued for cash: |
|
|
|
| | |
|
Private placement at Cdn$0.50 | 18,360,000 | 7,050,466 | -- | -- | -- | -- | 7,050,466 |
Stock options exercised | 20,000 | 4,433 | -- | -- | -- | -- | 4,433 |
Stock-based compensation | -- | -- | -- | 190,326 | -- | -- | 190,326 |
Loss for the year | -- | -- | -- | -- | -- | (5,245,165) | (5,245,165) |
Balance, December 31, 2005 | 65,538,099 | 29,874,576 | 90,902 | 2,319,034 | (577,456) | (27,794,727) | 3,912,329 |
Shares issued for cash: |
|
|
|
|
|
|
|
Stock options exercised | 153,000 | 37,063 | -- | -- | -- | -- | 37,063 |
Fair-value of stock options exercised | -- | 13,565 | -- | (13,565) | -- | -- | -- |
Loss for the period | -- | -- | -- | -- | -- | (2,672,084) | (2,672,084) |
Balance, June 30, 2006 | 65,691,099 | $ 29,925,204 | $ 90,902 | $ 2,305,469 | $ (577,456) | $ (30,466,811) | $ 1,277,308 |
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.
EMGOLD MINING CORPORATION
(an exploration stage company)
Interim Consolidated Statements of Cash Flows
(expressed in United States dollars)
| | | | | |
| | Three months ended
June 30, | Six months ended
June 30, |
| | 2006 | 2005 | 2006 | 2005 |
Cash provided by (used for): | | | | |
Operations: | | | | |
Loss for the period | $ (1,327,821) | $ (1,290,315) | $ (2,672,084) | $ (2,385,144) |
Items not involving cash | |
| | |
Amortization | 42,745 | 42,053 | 86,003 | 89,552 |
Stock-based compensation | -- | 190,326 | -- | 190,326 |
Accretion of debt component of preference shares |
3,628 |
2,976 |
7,191 |
6,752 |
Unrealized
foreign exchange loss (gain) |
28,309 |
(7,408) |
25,665 |
(10,732) |
| |
|
|
|
|
Changes in non-cash operating working capital |
|
|
|
|
Accounts receivable | (987) | 46,332 | 19,045 | 25,662 |
Due to/from related parties | (45,523) | (126,230) | 14,882 | 130,975 |
Prepaid expenses and deposits | 37,547 | (51,976) | 21,302 | (30,801) |
Accounts payable and accrued liabilities |
2,202 |
(120,363) |
(163,598) |
(139,653) |
Capital lease obligations | 4,152 | -- | 4,152 | -- |
| | (1,255,748) | (1,314,605) | (2,657,442) | (2,123,063) |
| |
|
|
|
|
Investing activities: |
|
|
|
|
Mineral property acquisition costs | (35,897) | (35,474) | (35,991) | (35,474) |
Equipment additions | (20,630) | (70,640) | (35,784) | (69,155) |
| | (56,527) | (106,114) | (71,775) | (104,629) |
| |
|
|
|
|
Financing activities: |
|
|
|
|
Common shares issued for cash | 37,063 | 7,055,459 | 37,063 | 7,055,459 |
| |
|
|
|
|
Increase (decrease) in cash and cash equivalents during the period | (1,275,212) |
5,634,740
| (2,692,154) |
4,827,767
|
Cash and cash equivalents, beginning of period | 2,006,997 |
498,021
| 3,423,939 |
1,304,994
|
Cash and cash equivalents, end of period | $ 731,785 |
$
6,132,761 | $ 731,785 | $ 6,132,761 |
Cash and cash equivalents is comprised of: | | | | |
Cash and in bank | $ 334,327 | $ 941,259 | $ 334,327 | $ 941,259 |
Short-term money market instruments |
397,458
|
5,191,502
|
397,458
|
5,191,502
|
| | $ 731,785 | $ 6,132,761 | $ 731,785 | $ 6,132,761 |
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.
EMGOLD MINING CORPORATION
(an exploration stage company)
Notes to the Interim Consolidated Financial Statements
Six months ended June 30, 2006 and 2005
(expressed in United States dollars)
The accompanying consolidated financial statements for the interim periods ended June 30, 2006 and 2005, 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, 2005.
1.
Going concern assumption
These financial statements have been prepared using Canadian generally accepted accounting principles applicable to a going-concern, which implies that the Company will continue realizing its assets and discharging its liabilities in the normal course of business. As at June 30, 2006, the Company has no source of operating cash flow and has an accumulated deficit of $30,466,811. In addition, the Company has working capital of $548,623 and has capitalized $895,522 in acquisition costs related to the Rozan, Stewart, Jazz and Idaho-Maryland mineral property interests. The Company had a loss of $2,672,084 for the period ended June 30, 2006. Operations for the period ended June 30, 2006, have been funded primarily from net changes in working capital balances.
The current financial position and past results of operations indicate that there is substantial doubt about the appropriateness of the going concern assumption.
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 a system of proprietary technologies for the production of high value ceramic products from siliceous minerals and waste materials. The Company’s continuing operations and the underlying value and recoverability of the amounts shown for mineral property interests or development of the proprietary technologies 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 and novel technology, and on future profitable production or proceeds from the disposition of the mineral property interests or the new technology.
The Company’s ability to continue operations is contingent on its ability to obtain additional financing. Although there are no assurances that management’s plan will be realized, management is confident that it will be able to secure the necessary financing to continue operations into the future.
These financial statements do not reflect adjustments to the amounts 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
The Company’s independent auditor has not performed a review of these interim consolidated financial statements.
EMGOLD MINING CORPORATION
(an exploration stage company)
Notes to the Interim Consolidated Financial Statements
Six months ended June 30, 2006 and 2005
(expressed in United States dollars)
2.
Mineral property interests
The cumulative acquisition costs of the Company’s interest in mineral properties owned or under option, consist of the following:
| | |
Mineral property acquisition costs
| June 30,
2006 | December 31, 2005 |
Idaho-Maryland Property, California | $ |
589,276
$ 589,276 | Porph Claims, British Columbia | 6,910 | 6,910 |
Rozan Gold Property, British Columbia | 120,726 | 94,735 |
Jazz Property, British Columbia | 31,828 | 21,828 |
Stewart Property, British Columbia | 146,782 | 146,782 |
| | $ 895,522 | $ 859,531 |
Idaho-Maryland Property, California
The Company maintains a lease and option to purchase the Idaho-Maryland Property and surrounding areas in the Grass Valley Mining District, California. The lease and option to purchase remain in good standing and expire on May 31, 2007.
Rozan Gold Property, British Columbia
In 2000 the Company entered into an option agreement to acquire the rights to the Rozan Gold Property, a prospect located south of the community of Nelson in the Red Mountain area of southeastern British Columbia. The Company earned a 100% interest in the property by making stepped payments totalling Cdn$100,000 and issuing 200,000 common shares by April 1, 2006. The property is subject to a 3% net NSR. The Company has the right to purchase 2/3 of the NSR from the optionor for Cdn$1,000,000 and has the first right of refusal to purchase the remaining 33 1/3%.
Jazz Property, British Columbia
In April 2004, the Company entered into an option agreement to acquire a 100% interest in the Jazz Property consisting of twenty-four mineral claims (24 units) located in the Nelson Mining Division near Nelson, British Columbia. The property is contiguous to the Stewart Property and covers approximately 600 hectares. Under the terms of the agreement, the Company has agreed to make total cash payments of $215,000 to the optionor over a ten-year period. Cash payments to June 30, 2006, totalled $30,000. In exchange for the above cash payments, the Company will have the exclusive right and option to earn 100% interest in the property, subject only to the payment to the optionor of a 3.0% NSR and the completion of Cdn$75,000 (completed) in exploration work on the property within 2 years from the date of the agreement. The Company will have the right to purchase 2/3 of the NSR from the optionor for $1,000,000 at any time up to and including the commencement of commercial production.
3.
Obligations under capital lease
The Company leases a vehicle under a capital lease which expires in 2012 and bears simple interest at a rate of 8.69%. At June 30, 2006, future minimum lease payments under capital leases are $50,150, including $11,316 of anticipated interest payments, payable at $697 monthly, for a total annual payment of $8,364.
7
The Company’s independent auditor has not performed a review of these interim consolidated financial statements.
EMGOLD MINING CORPORATION
(an exploration stage company)
Notes to the Interim Consolidated Financial Statements
Six months ended June 30, 2006 and 2005
(expressed in United States dollars)
4.
Share capital
Authorized:
Unlimited number of common shares without par value
Unlimited number of first preference shares without par value
Preference shares:
| | |
| | Number of Shares | Amount |
Equity portion of Class A Convertible Preference Shares, June 30, 2006 and December 31, 2005 |
3,948,428
|
$
90,902 |
Debt portion of Class A Preference Shares
| June 30,
2006 | December 31, 2005 |
Balance, beginning of period | $ 613,871 | $ 577,529 |
Accretion of debt | 7,191 | 16,448 |
Foreign exchange loss on debt | 25,917 | 19,894 |
Balance, end of period | $ 646,979 | $ 613,871 |
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 June 30, 2006, Cdn$198,621 in dividends payable has been accrued in accounts payable.
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 interests 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 6,553,810 common shares, of which 489,810 stock options are still available to be issued. At June 30, 2006, 6,151,000 stock options are outstanding, exercisable for periods up to ten years.
8
The Company’s independent auditor has not performed a review of these interim consolidated financial statements.
EMGOLD MINING CORPORATION
(an exploration stage company)
Notes to the Interim Consolidated Financial Statements
Six months ended June 30, 2006 and 2005
(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 4).
| | |
Balances receivable from (f): | June 30, 2006 | December 31, 2005 |
LMC Management Services Ltd. | $ 132,999 | $ 131,224 |
Balances payable to (f): |
|
|
Directors, officers and employees | $ 189,930 | $ 173,273 |
Related party transactions in these interim consolidated financial statements are as follows:
(a)
Ross Guenther, a director of the Company to June 22, 2006, is the developer of the Ceramext™ process. Under the terms of the agreement, the Company agreed to pay the following minimum advance royalty payments: $5,000 per quarter in the year ended December 2005, $10,000 per quarter in fiscal 2006; $20,000 per quarter in fiscal 2007; and $40,000 per quarter thereafter. He is also a consultant at the Idaho-Maryland Property, and received consulting fees of $45,000.
(b)
During the six months ended June 30, 2006, $454,428 (2005 - $445,660) was paid in management, administrative, geological and other services 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 equity value, as LMC does not retain any profits in connection with the services it provides.
(c)
Legal fees of $NIL (2005 - $14,654) were paid to a law firm of which a director, Sargent H. Berner, was an associate counsel until April 1, 2006.
(d)
Consulting fees of Cdn$15,062 (2005 – Nil) were paid indirectly to Kent Avenue Consulting Ltd., a private company controlled by a director, Sargent H. Berner. These amounts are included in the services provided in (b) above.
(e)
Lang Mining Corporation (“Lang Mining”) is a private company controlled by Frank A. Lang, a director of the Company to June 22, 2006. Commencing January 1, 2003, and expiring June 30, 2006, the Company agreed to pay Cdn$2,500 per month to Lang Mining for the services of the chairman of the Company. The Company appointed a new chairman in June 2005, and approved a one-year extension of payments to the Lang Mining contract. Mr. Lang and Lang Mining Corporation are the holders of preference shares, which are described in Note 4.
(f)
Related party balances are non-interest bearing and are due on demand, with no fixed terms of repayment, except for preference shares, which are described in Note 4.
6.
Comparative figures
Where necessary, comparative figures have been changed to conform to the current period’s presentation.
9
The Company’s independent auditor has not performed a review of these interim consolidated financial statements.
EMGOLD MINING CORPORATION
(an exploration stage company)
Notes to the Interim Consolidated Financial Statements
Six months ended June 30, 2006 and 2005
(expressed in United States dollars)
7.
Subsequent event
Subsequent to June 30, 2006, the Company announced a private placement financing of up to 7,500,000 units at a price of Cdn$0.60 per unit. Each unit will be comprised of one common share and one-half warrant. Two half-warrants and Cdn$1.00 will purchase one common share for a two year period. The private placement was announced on August 22, 2006, and as of the date of the filing of these interim financial statements, the private placement had not closed, but as of August 29, 2006, Cdn$1.3 million in share subscriptions have been received.
8.
Exploration expenses
| | | | | |
| | Three months ended June 30, | Six months ended June 30, |
| | 2006 | 2005 | 2006 | 2005 |
Idaho-Maryland Mine, California | | | | |
Exploration costs | | | | |
Assays and analysis | $ -- | $ 998 | $ 539 | $ 3,932 |
Geological and geochemical | 193,183 | 158,954 | 390,925 | 312,800 |
Land lease and taxes | 30,270 | 31,000 | 60,540 | 63,787 |
Mine planning | 91,512 | 49,804 | 254,397 | 223,116 |
Site activities | 58,294 | 40,571 | 161,672 | 77,139 |
Stock-based compensation | -- | 17,858 | -- | 17,858 |
Transportation | 10,948 | 6,395 | 12,200 | 8,320 |
Incurred during the period | 384,207 | 305,580 | 880,273 | 706,952 |
Rozan Property, British Columbia |
|
|
|
|
Exploration costs |
|
|
|
|
Geological and geochemical | 126 | 1,433 | 210 | 1,788 |
Incurred during the period | 126 | 1,433 | 210 | 1,788 |
Stewart Property, British Columbia |
|
|
|
|
Exploration costs |
|
|
|
|
Geological and geochemical | 207 | 40 | 1,535 | 2,004 |
Incurred during the period | 207 | 40 | 1535 | 2,004 |
Jazz Property, British Columbia |
|
|
|
|
Exploration costs |
|
|
|
|
Geological and geochemical | 84 | 226 | 84 | 1,727 |
Incurred during the period | 84 | 226 | 84 | 1,727 |
| |
|
|
|
|
Exploration costs incurred during the period |
$
384,624 |
$
307,279 |
$
882,102 |
$
712,471 |
10
The Company’s independent auditor has not performed a review of these interim consolidated financial statements.
EMGOLD MINING CORPORATION
(an exploration stage company)
Notes to the Interim Consolidated Financial Statements
Six months ended June 30, 2006 and 2005
(expressed in United States dollars)
9.
Research costs
| | | | |
| | Three months ended
June 30, | Six months ended
June 30, |
| | 2006 | 2005 | 2006 | 2005 |
Ceramext™ Process Costs | | | | |
Prototype materials for research | $ 53,897 | $ 15,164 | $ 105,565 | $ 42,201 |
Ceramext™ technology royalties and amortization of license fee and bench-scale research facility |
10,000
|
32,676
|
20,000
|
72,939
|
Ceramext professional fees | 9,654 | -- | 14,089 | -- |
Commercialization costs | 1,546 | 2,287 | 5,753 | 3,060 |
Consumable materials | 17,762 | 22,753 | 27,126 | 38,804 |
Engineering costs | 224,987 | 191,766 | 417,501 | 293,279 |
Sample preparation | 17,022 | 13,470 | 35,466 | 26,441 |
Site costs | 55,256 | 63,997 | 94,493 | 81,588 |
Stock-based compensation | -- | 28,489 | -- | 28,489 |
Transportation | -- | 3,723 | -- | 4,662 |
Incurred during the period | $ 390,124 | $ 374,325 | $ 719,993 | $ 591,463 |
11
