Emgold Mining Corporation (An Exploration Stage Company) |
| Condensed Interim Consolidated Financial Statements |
| For the Nine and Three Months Ended 30 September 2013 |
| Stated in United States Dollars |
NOTICE OF NO AUDITOR REVIEW OF CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
| The accompanying unaudited condensed interim consolidated financial statements of the Company have been prepared by and are the responsibility of the Company’s management. |
| The Company’s independent auditor has not performed a review of these condensed interim consolidated financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity’s auditor. |
Table of Contents
| Management’s Responsibility | | i | |
| Condensed Interim Consolidated Statement of Financial Position | | 1 | |
| Condensed Interim Consolidated Statement of Comprehensive Loss | | 2 | |
| Condensed Interim Consolidated Statement of Changes in Equity | | 3 | |
| Condensed Interim Consolidated Statement of Changes in Equity | | 4 | |
| Condensed Interim Consolidated Statement of Cash Flows | | 5 | |
| Notes to Consolidated Financial Statements | | | |
| 1 | ) | Nature of operations and going concern | | 6 | |
| 2 | ) | Basis of preparation – Statement of Compliance | | 6 | |
| 3 | ) | Summary of significant accounting policies | | 7 | |
| 4 | ) | Critical accounting judgments and key sources of estimation uncertainty | | 9 | |
| 5 | ) | Accounting standards issued but not yet effective | | 10 | |
| 6 | ) | Plant and equipment | | 11 | |
| 7 | ) | Exploration and evaluation assets | | 12 | |
| 8 | ) | Related party transactions | | 17 | |
| 9 | ) | Share capital | | 17 | |
| 10)Capital disclosures | | 21 | |
| 11)Segmented disclosure | | 21 | |
| 12)Contingent liability | | 22 | |
| 13)Gain on settlement liabilities | | 22 | |
| 14)Subsequent events | | 22 | |
Management’s Responsibility
To the Shareholders of Emgold Mining Corporation:
Management is responsible for the preparation and presentation of the accompanying unaudited condensed interim consolidated financial statements, including responsibility for significant accountingjudgments and estimates in accordance with International Financial Reporting Standards. This responsibility includes selecting appropriate accounting principles and methods, and making decisions affecting the measurement of transactions in which objective judgment is required.
In discharging its responsibilities for the integrity and fairness of the unaudited condensed interim consolidated financial statements, management designs and maintains the necessary accounting systems and related internal controls to provide reasonable assurance that transactions are authorized, assets are safeguarded and financial records are properly maintained to provide reliable information for the preparation of financial statements.
The Board of Directors and the Audit Committee are composed primarily of Directors who are neither management nor employees of the Company. The Board is responsible for overseeing management in the performance of its financial reporting responsibilities. The Board fulfills these responsibilities by reviewing the financial information prepared by management and discussing relevant matters with management and external auditors. The Audit Committee has the responsibility of meeting with management, and external auditors to discuss the internal controls over the financial reporting process, auditing matters and financial reporting issues. The Board is also responsible for recommending the appointment of the Emgold’s external auditors.
We draw attention to Note 1 in the unaudited condensed interim consolidated financial statements which indicates the existence of a material uncertainty that may cast significant doubt on the Company’s ability to continue as a going concern.
The Company’s independent auditor has not performed a review of these unaudited condensed interim consolidated financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of unaudited condensed interim consolidated financial statements by an entity’s auditor.
28 November 2013
| “David Watkinson” | | “Grant T. Smith” |
| David Watkinson, President & CEO | | Grant T. Smith, CFO |
| Emgold Mining Corporation | Statement 1 |
US Dollars (Unaudited) | |
Condensed Interim Consolidated Statement of Financial Position
| | | | | | As at | | As at |
| | Note | | | | 30September 2013 | | 31 December 2012 |
| Assets | | | | | | | |
| Current Assets | | | | | | | |
| Cash and cash equivalents | | | | $ | 90,227 | $ | 62,053 |
| Amounts receivable | | | | | 21,394 | | 85,178 |
| Prepaid amounts and deposits | | | | | 8,451 | | 34,908 |
| | | | | | 120,072 | | 182,139 |
| Non-current Assets | | | | | | | |
| Reclamation bonds | | | | | 20,625 | | 21,216 |
| Plant and equipment | (6) | | | | 3,969 | | 10,307 |
| Exploration and evaluation assets | (7) | | | | 1,227,563 | | 1,464,274 |
| | | | | $ | 1,372,229 | $ | 1,677,936 |
| Liabilities | | | | | | | |
| Current Liabilities | | | | | | | |
| Accounts payable and accrued liabilities | | | | $ | 79,476 | $ | 706,137 |
| Due to related parties | (8) | | | | 545,743 | | 388,519 |
| Warrant liability – current portion | (9) | | | | 8,000 | | 10,815 |
| | | | | | 633,219 | | 1,105,471 |
| Non-current Liabilities | | | | | | | |
| Warrant liability | | | | | - | | 19,596 |
| | | | | | 633,219 | | 1,125,067 |
| Equity | | | | | | | |
| Share capital | (9) | | | | 43,687,315 | | 43,390,203 |
| Warrants – contributed surplus | (9) | | | | 686,349 | | 686,349 |
| Options – contributed surplus | (9) | | | | 7,035,197 | | 7,035,197 |
| Deficit | | | | | (50,669,851) | | (50,558,880) |
| | | | | | 739,010 | | 552,869 |
| | | | | $ | 1,372,229 | $ | 1,677,936 |
| Nature of operations and going concern | (1) | Segmented disclosure | (11) |
| Basis of preparation – Statement of Compliance | (2) | Contingent liability | (12) |
| | | | | | | | | |
The condensed interim consolidated financial statements were approved by the Board of Directors on
28 November 2013 and were signed on its behalf by: |
| “David Watkinson” | | “Andrew MacRitchie” |
| David Watkinson, Director | | Andrew MacRitchie, Director |
| Emgold Mining Corporation | Statement 2 |
US Dollars (Unaudited) | |
Condensed Interim Consolidated Statement of Comprehensive Loss
| | | | Nine months ended | | Three months ended |
| | Note | | 30 September 2013 | | 30 September 2012 | | 30 September 2013 | | 30 September 2012 |
| Expenses | | | | | | | | | |
| Exploration and Evaluation | | | | | | | | | |
| Resource property expense | (7) | $ | 48,333 | | 694,788 | $ | (35,740) | | 349,221 |
| Stock-based compensation - exploration | | | - | | 41,400 | | - | | 41,400 |
| | | | 48,333 | | 736,188 | | (35,740) | | 390,621 |
| General and Administrative | | | | | | | | | |
| Management and consulting fees | | | 141,457 | | 19,158 | | 22,820 | | (1,710) |
| Salaries and benefits | | | 73,271 | | 169,698 | | 30,070 | | 60,655 |
| Professional fees | | | 65,599 | | 81,689 | | 22,923 | | 16,428 |
| Office and administration | | | 50,282 | | 155,307 | | 25,433 | | 68,980 |
| Shareholder communications | | | 22,253 | | 79,575 | | 3,567 | | 30,413 |
| Listing and filing fee | | | 18,137 | | - | | 639 | | - |
| Insurance | | | 18,016 | | 4,442 | | 8,671 | | 4,442 |
| Depreciation | | | 6,338 | | 13,083 | | 2,093 | | 7,497 |
| Banking and interest income | | | 773 | | (10,300) | | 163 | | (228) |
| Foreign exchange (gain) loss | | | (5,364) | | 1,800 | | 5,434 | | 8,153 |
| Gain on settlement liabilities | (13) | | (84,352) | | - | | - | | - |
| Stock-based compensation | | | - | | 133,797 | | - | | 16,700 |
| Travel | | | - | | 1,670 | | - | | (18) |
| | | | 354,743 | | 1,386,107 | | 86,073 | | 601,933 |
| Other Comprehensive (Income) Loss | | | | | | | | | |
| Gain on sale of equipment | | | (21,240) | | (3,850) | | - | | - |
| Gain on sale of land | | | (193,289) | | - | | (193,289) | | - |
| Unrealized (gain) loss on warrant liability | | | (29,243) | | (490,253) | | 1,000 | | (195,709) |
| Unrealized loss (gain) on marketable securities | | | - | | 6,432 | | - | | (102) |
| Net Loss and Comprehensive Loss (Gain) | | $ | 110,971 | $ | 898,436 | $ | (106,216) | $ | 406,122 |
| Net Loss per Common Share – Basic and Diluted | | $ | 0.00 | $ | (0.02) | $ | 0.00 | $ | (0.01) |
| Weighted Average Number of Shares Outstanding | | | 72,587,462 | | 58,797,679 | | 72,587,462 | | 58,835,047 |
| Emgold Mining Corporation | Statement 3A |
US Dollars (Unaudited) | |
Condensed Interim Consolidated Statement of Changes in Equity
| | | Shares | | Amount | Warrants | | Amount | Options | | Amount | | Deficit | Shareholders’ Equity |
| Balance at 01 January 2012 | | 58,714,504 | $ | 42,817,739 | 38,508,401 | $ | 1,219,617 | 2,872,665 | $ | 6,800,722 | $ | (50,183,149) | $ | 654,929 |
| Shares issued for property | | 100,000 | | 10,000 | - | | - | - | | - | | - | | 10,000 |
| Comprehensive gain for the period | | - | | - | - | | - | - | | - | | 24,437 | | 24,437 |
| Balance at 31 March 2012 | | 58,814,504 | $ | 42,827,739 | 38,508,401 | $ | 1,219,617 | 2,872,665 | $ | 6,800,722 | $ | (50,158,712) | $ | 689,366 |
| Warrants expired | | - | | - | (3,192,000) | | (21,146) | - | | 21,146 | | - | | - |
| Share based payments | | - | | - | - | | - | 2,700,000 | | 158,172 | | - | | 158,172 |
| Net loss for the period | | - | | - | - | | - | - | | - | | (516,751) | | (516,751) |
| Balance at 30 June 2012 | | 58,814,504 | $ | 42,827,739 | 35,316,401 | $ | 1,198,471 | 5,572,665 | $ | 6,980,040 | $ | (50,675,463) | $ | 330,787 |
| Warrant exercises | | 70,000 | | 7,000 | - | | - | - | | - | | - | | 7,000 |
| Fair value of warrants exercised | | - | | 203 | (70,000) | | (203) | - | | - | | - | | - |
| Warrants expired, unexercised | | - | | - | (112,000) | | (4,246) | - | | 4,246 | | - | | - |
| Share subscription | | - | | 114,289 | - | | - | - | | - | | - | | 114,289 |
| Share based compensation | | - | | - | - | | - | - | | 13,413 | | - | | 13,413 |
| Net loss for the period | | - | | - | - | | - | - | | - | | (406,122) | | (406,122) |
| Balance at 30 September 2012 | | 58,884,504 | $ | 42,949,231 | 35,134,401 | $ | 1,194,022 | 5,572,665 | $ | 6,997,699 | $ | (51,081,585) | $ | 59,367 |
| Private placement issuance | | 6,642,857 | | 452,041 | 3,321,428 | | - | - | | - | | - | | 452,041 |
| Warrant exercises | | 1,124,101 | | 112,410 | - | | - | - | | - | | - | | 112,410 |
| Fair value of warrants exercised | | - | | 3,260 | (1,124,101) | | (3,260) | - | | - | | - | | - |
| Fair value transfer on re-pricing | | - | | - | - | | (424,807) | - | | - | | - | | (424,807) |
| Warrants expired | | - | | - | (1,835,944) | | (79,606) | - | | 79,606 | | - | | - |
| Share issuance costs | | - | | (12,450) | - | | - | - | | - | | - | | (12,450) |
| Share subscription | | - | | (114,289) | - | | - | - | | - | | - | | (114,289) |
| Options expired | | - | | - | - | | - | (603,000) | | - | | - | | - |
| Share based compensation | | - | | - | - | | - | - | | (42,108) | | - | | (42,108) |
| Comprehensive gain for the period | | - | | - | - | | - | - | | - | | 522,705 | | 522,705 |
| Balance at 31 December 2012 | | 66,651,462 | $ | 43,390,203 | 35,495,784 | $ | 686,349 | 4,969,665 | $ | 7,035,197 | $ | (50,558,880) | $ | 552,869 |
| Emgold Mining Corporation | Statement 3B |
US Dollars (Unaudited) | |
Condensed Interim Consolidated Statement of Changes in Equity
| | | Shares | | Amount | Warrants | | Amount | Options | | Amount | | Deficit | Shareholders’ Equity |
| Balance at 01 January 2013 | | 66,651,462 | $ | 43,390,203 | 35,495,784 | $ | 686,349 | 4,969,665 | $ | 7,035,197 | $ | (50,558,880) | $ | 552,869 |
| Private placement issuances | | 5,700,000 | | 278,168 | 2,850,000 | | - | - | | - | | - | | 278,168 |
| Shares issued for property | | 236,000 | | 20,000 | - | | - | - | | - | | - | | 20,000 |
| Share issuance costs | | - | | (1,056) | - | | - | - | | - | | - | | (1,056) |
| Options forfeited | | - | | - | - | | - | (700,000) | | - | | - | | - |
| Net loss for the period | | - | | - | - | | - | - | | - | | (174,691) | | (174,691) |
| Balance at 31 March 2013 | | 72,587,462 | $ | 43,687,315 | 38,345,784 | $ | 686,349 | 4,269,665 | $ | 7,035,197 | $ | (50,733,571) | $ | 675,290 |
| Warrants expired | | - | | - | (3,336,884) | | - | - | | - | | - | | - |
| Options expired | | - | | - | - | | - | (97,500) | | - | | - | | - |
| Net loss for the period | | - | | - | - | | - | - | | - | | (42,496) | | (42,496) |
| Balance at 30 June 2013 | | 72,587,462 | $ | 43,687,315 | 35,008,900 | $ | 686,349 | 4,172,165 | $ | 7,035,197 | $ | (50,776,067) | $ | 632,794 |
| Warrants expired | | - | | - | (4,079,755) | | - | - | | - | | - | | - |
| Options expired | | - | | - | - | | - | - | | - | | - | | - |
| Net income for the period | | - | | - | - | | - | - | | - | | 106,216 | | 106,216 |
| Balance at 30 September 2013 | | 72,587,462 | $ | 43,687,315 | 30,929,145 | $ | 686,349 | 4,172,165 | $ | 7,035,197 | $ | (50,669,851) | $ | 739,010 |
| Emgold Mining Corporation | Statement 4 |
US Dollars (Unaudited) | |
Condensed Interim Consolidated Statement of Cash Flows
| | | | Nine months ended | | Three months ended |
| | | | 30 September 2013 | | 30September 2012 | | 30 September 2013 | | 30September 2012 |
| Operating Activities | | | | | | | | | |
| (Loss) Income for the Period | | $ | (110,971) | $ | (898,436) | $ | 106,216 | $ | (406,122) |
| Items not Affecting Cash | | | | | | | | | |
| Depreciation | | | 6,338 | | 13,083 | | 2,093 | | 7,497 |
| Foreign exchange loss (gain) | | | 591 | | 1,345 | | (290) | | 2,183 |
| Stock-based compensation | | | - | | 175,197 | | - | | 17,024 |
| Gain on write-off of accrued liabilities | | | (84,352) | | | | - | | - |
| Unrealized loss on securities | | | - | | 6,432 | | - | | (102) |
| Unrealized (gain) loss on warranty liability | | (29,243) | | (490,253) | | 1,000 | | (195,709) |
| (Gain) on sale of land | | | (193,289) | | - | | (193,289) | | - |
| (Gain) on sale of equipment | | | (21,240) | | (3,850) | | (21,240) | | - |
| | | | (432,166) | | (1,196,482) | | 105,510 | | (575,229) |
| Net Change in Non-cash Working Capital | | | | | | | | | |
| Accounts receivable | | | 63,784 | | 53,306 | | 1,452 | | (3,107) |
| Prepaid expenses and deposits | | | 26,457 | | (32,563) | | 15,701 | | (34,069) |
| Accounts payable and accrued liabilities | | (542,309) | | 161,348 | | (253,409) | | 240,870 |
| Due to/from related parties | | | 157,224 | | 251,066 | | (66,731) | | 111,259 |
| | | | (294,844) | | 433,157 | | (302,987) | | 314,953 |
| | | | (727,010) | | (763,325) | | (408,497) | | (260,276) |
| Investing Activities | | | | | | | | | |
| Resource property acquisition costs | | | - | | (34,498) | | - | | (6,845) |
| Proceeds from sale of equipment | | | 21,240 | | 3,850 | | 21,240 | | - |
| Proceeds from sale of land | | 450,000 | | - | | 450,000 | | - |
| Purchase of reclamation deposit | | | - | | 450 | | - | | - |
| Equipment additions | | | - | | (3,056) | | - | | - |
| | | | 471,240 | | (33,254) | | 471,240 | | (6,845) |
| Financing Activities | | | | | | | | | |
| Proceeds from share issuances | | | 285,000 | | - | | - | | - |
| Share purchase warrants issued for cash | | - | | 7,000 | | - | | 7,000 |
| Obligation to issue shares | | | - | | 114,289 | | - | | 114,289 |
| Share issuance costs | | | (1,056) | | - | | - | | - |
| | | | 283,944 | | 121,289 | | - | | 121,289 |
| Net Increase (Decrease) in Cash | | | 28,174 | | (675,290) | | 62,743 | | (145,832) |
| Cash position – beginning of period | | | 62,053 | | 965,102 | | 27,484 | | 435,644 |
| Cash Position – End of Period | | $ | 90,227 | $ | 289,812 | $ | 90,227 | $ | 289,812 |
| Schedule of Non-cash Investing and Financing Transactions | | | | | | |
| Shares issued for property acquisition | | $ | 20,000 | $ | - | $ | - | $ | - |
| Fair value transfer on exercise of options | $ | - | $ | 207,962 | $ | - | $ | 43,572 |
| Interest on debt capitalized as land costs | $ | - | $ | 19,066 | $ | - | $ | 6,321 |
| Retroactive change in share amount | | $ | - | $ | 40,420 | $ | - | $ | 40,420 |
| | | | | | | | | | | |
| Emgold Mining Corporation | |
US Dollars (Unaudited) | |
Notes to Consolidated Financial Statements
| 1) | Nature of operations and going concern |
Emgold Mining Corporation (“the Company”) is incorporated under the British Columbia Corporations Act and the principal place of business is located at 1010 - 789 West Pender Street, Vancouver, British Columbia, V6C 1H2. 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’s shares are traded on the TSX Venture Exchange (“TSX-V”) and the OTCQX.
These unaudited condensed interim consolidated financial statements have been prepared on the basis of the accounting principles applicable to a going concern, which assumes the Company’s ability to continue in operation for the foreseeable future and to realize its assets and discharge its liabilities in the normal course of operations.
There are several adverse conditions that cast significant doubt upon the soundness of this assumption. The Company has negative working capital, has incurred operating losses since inception, has no source of revenue, is unable to self-finance operations and has significant on-going cash requirements to meet its overhead requirements and maintain its mineral interests. Further, the business of mining and exploration involves a high degree of risk and there can be no assurance that current or future exploration programs will result in profitable mining operations. The recoverability of exploration and evaluation assets is dependent upon several factors. These include the discovery of economically recoverable reserves, the ability of the Company to obtain the necessary financing to complete the development of these properties, and future profitable production or proceeds from disposition of mineral properties.
For the Company to continue to operate as a going concern it must obtain additional financing; although the Company has been successful in the past at raising funds, there can be no assurance that this will continue in the future.
If the going concern assumption were not appropriate for these unaudited condensed interim consolidated financial statements then adjustments would be necessary to the carrying value of assets and liabilities, the reported expenses and the statement of financial position classifications used and such adjustments could be material.
| Rounded (‘000’s) | | 30 September 2013 | | 31 December 2012 |
| Working capital | $ | (513,000) | $ | (923,000) |
| Accumulated deficit | $ | (50,670,000) | $ | (50,559,000) |
| 2) | Basis of preparation – Statement of Compliance |
These condensed interim consolidated financial statements have been prepared in accordance with IFRS and related IFRS Interpretations Committee (“IFRIC’s”) as issued by the International Accounting Standards Board (“IASB”). The condensed interim consolidated financial statements have been prepared on a historical cost basis, except for financial instruments classified as financial instruments at fair value through profit and loss, which are stated at their fair value. In addition, these condensed interim consolidated financial statements have been prepared using the accrual basis of accounting except for cash flow information.
The policies set out were consistently applied to all the periods presented unless otherwise noted below. The preparation of condensed interim consolidated financial statements in accordance with IAS 1 requires the use of certain critical accounting estimates. It also requires management to exercise judgment in applying the Company’s accounting policies.
| Emgold Mining Corporation |
US Dollars (Unaudited) | |
The preparation of these unaudited condensed interim consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, profit and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on a periodic basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and further periods if the revision affects both current and future periods.
The functional and reporting currency of the Company is the United States dollar.
| 3) | Summary of significant accounting policies |
The accounting policies and methods of computation followed in preparing these condensed interim consolidated financial statements are the same as those followed in preparing the most recent audited annual consolidated financial statements, except as follows. For a complete summary of significant accounting policies, please refer to the Company’s audited annual consolidated financial statements for the year ended 31 December 2012.
| a) | IFRS 7, Financial Instruments: Disclosures |
The Standard has enhanced the disclosure requirements of offsetting assets and is effective for annual periods beginning on or after 01 January 2013, with earlier adoption permitted. Adoption of the standard had no material impact on these financial statements.
| b) | IFRS 10, Consolidated Financial Statements |
IFRS 10 establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. IFRS 10 supersedes IAS 27, Consolidated and Separate Financial Statements” and Standing Interpretation Committee (“SIC”)-12 “Consolidation – Special Purpose Entities,” and is effective for annual periods beginning on or after 01 January 2013. Adoption of the standard had no material impact on these financial statements. IFRS 10 establishes
| c) | IFRS 11, Joint Arrangements |
IFRS 11 establishes principles for financial reporting by parties to a joint arrangement. IFRS 11 supersedes current IAS 31,Interests in Joint Venturesand SIC-13,Jointly Controlled Entities-Non – Monetary Contributions by Venturersand is effective for annual periods beginning on or after 01 January 2013. Adoption of the standard had no material impact on these financial statements.
| d) | IFRS 12, Disclosure of Interests in Other Entities |
IFRS 12 applies to entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity. IFRS 12 is effective for annual periods beginning on or after 01 January 2013. Adoption of the standard had no material impact on these financial statements.
| Emgold Mining Corporation |
US Dollars (Unaudited) | |
| e) | IFRS 13, Fair Value Measurements |
IFRS 13 defines fair value, sets out a single IFRS framework for measuring value and requires disclosures about fair value measurements. IFRS 13 applies to IFRSs that require or permit fair value measurements or disclosures about fair value measurements (and measurements, such as fair value less costs to sell, based on fair value or disclosures about those measurements), except in specified circumstances. IFRS 13 is to be applied for annual periods beginning on or after 01 January 2013. Adoption of the standard had no material impact on these financial statements.
| f) | Amendments to IAS 1, Presentation of Financial Statements |
The amendments introduce changes to presentation of items of other comprehensive income. The amendments require that an entity present separately the items of other comprehensive income that would be reclassified to profit and loss in the future if certain conditions are met from those that would never be reclassified to profit and loss. The amendments are to be applied effective 01 July 2012 and may be early adopted. The amendments are to be applied retroactively in accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors. Adoption of the standard had no material impact on these financial statements.
| g) | IAS 19, Employee Benefits (amended standard) |
The amended standard introduces various changes in accounting and disclosure requirements for defined benefit plans. The amended standard also finalizes proposals on accounting for termination benefits; under the amended standard the termination benefits are recognized at the earlier of when the entity recognizes costs for a restructuring within the scope of IAS 37,Provisions, Contingent Liabilities and Contingent Assets, that includes the payment of a termination benefit, and when the entity can no longer withdraw the offer of the termination benefit. The amended standard is to be applied for periods beginning on or after 01 January 2013. Adoption of the standard had no material impact on these financial statements.
| h) | IAS 27 - Separate financial statements |
IAS 27, "Separate financial statements" (IAS 27) was re-issued by the IASB in May 2011 to only prescribe the accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements. The consolidation guidance will now be included in IFRS 10. The amendments to IAS 27 are effective for annual periods beginning on or after 01 January 2013. The standard does not impact the consolidated financial statements.
| i) | IAS 28, Investments in Associates and Joint Ventures (amended standard) |
The standard was updated to incorporate the accounting for joint ventures because the equity method is now applicable to both joint ventures and associates. The disclosure requirements from IAS 28 (as revised in 2003) have been included in IFRS 12. The amendments to the standard do not impact the Company’s condensed interim consolidated financial statements.
| Emgold Mining Corporation |
US Dollars (Unaudited) | |
| 4) | Critical accounting judgments and key sources of estimation uncertainty |
In the application of the Company’s accounting policies management is required to make judgments, estimates and assumptions about the carrying amount and classification of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revisions affect only that period, or in the period of the revision and future periods, if the revision affects both current and future periods.
The following are the critical judgments and areas involving estimates, that management have made in the process of applying the Company’s accounting policies and that have the most significant effect on the amount recognized in the condensed interim consolidated financial statements.
| a) | Critical judgments in applying accounting policies |
Going concern assumption
These condensed interim consolidated financial statements have been prepared on the basis of the accounting principles applicable to a going concern, which assumes the Company’s ability to continue in operation for the foreseeable future and to realize its assets and discharge its liabilities in the normal course of operations. There are several adverse conditions that cast significant doubt upon the soundness of this assumption. Refer to note 1 for more details.
Determination of functional currency
In accordance with IAS 21,The Effects of Changes in Foreign Exchange Rates, management determined that the functional currency of the Company and its wholly owned subsidiaries is the US dollar.
Mineral Properties
The company owns land and surface rights, which are part of the Idaho-Maryland property, valued as part of exploration and evaluation assets on the unaudited statement of financial statement at $490,508. This land is adjacent to the property covered by the BET agreement that expired on 1 February 2013. The BET Agreement, signed in 2002, originally had a five year term and has been extended three times. The Company is currently in discussions with the BET Trust to extend and/or negotiate a new agreement associated with the Project (note 7). The company assessed that no impairment was necessary on the land and surface rights that they own as they are still negotiating to extend the lease however if the lease were not extended the land will still be of value as its location is strategic to the BET owned property.
On 4 September 2013, Emgold announced it had sold 18 acres of land in Grass Valley for proceeds of $450,000. This acreage was considered as non-core property and not necessary for development of the Idaho-Maryland Project. The sale reduced the Company’s land holdings in Grass Valley from 52 to 34 acres.
| Emgold Mining Corporation |
US Dollars (Unaudited) | |
| b) | Key sources of estimation uncertainty |
Decommissioning liability
The estimated costs are reviewed annually by management including changes in the discount rate, estimated timing of decommissioning costs, or cost estimates.
Share based payments and fair value of warrants
Management assesses the fair value of stock options granted in accordance with the accounting policy stated in note 3 of the Company’s 31 December 2012 audited annual consolidated financial statements. The fair value of stock options granted is measured using the Black-Scholes option valuation model (“BkS”), which was created for use in estimating the fair value of freely tradable, fully transferable options. The Company’s stock options have characteristics significantly different from those of traded options, and changes in the highly subjective input assumptions can materially affect the calculated values. The fair value of stock options granted using the BkS do not necessarily provide a reliable measure of the fair value of the Company’s stock option awards. The same model is used by the Company in order to arrive at a fair value for the issuance of warrants.
Exploration and evaluation assets
The Company makes certain estimates and assumptions regarding the recoverability of the carrying values of exploration and evaluation assets. These assumptions are changed when conditions exist that indicate the carrying value may be impaired, at which time an impairment loss is recorded.
| 5) | Accounting standards issued but not yet effective |
The following accounting standards have been issued by the International Accounting Standards Board (“IASB”) but are not yet effective for the Company; both the effective date and the expected impact are noted, based on the information currently available.
| a) | IFRS 9, Financial Instruments |
The Standard is effective for annual periods beginning on or after 01 January 2015, with earlier adoption permitted. The standard is the first part of a multi-phase project to replace IAS 39,Financial Instruments: Recognition and Measurement. The Company has not early-adopted the standard and is currently assessing the impact it will have on the consolidated financial statements.
| b) | IAS 32, Financial instruments: Presentation |
IAS 32, “Financial Instruments: Presentation” provides further clarity around details relating to the right of set-off and the application of offsetting criteria under certain circumstances. The amendments to IAS 32 are effective for annual periods beginning on or after 01 January 2014. The Company is currently evaluating the impact of this standard on the consolidated financial statements.
| Emgold Mining Corporation |
US Dollars (Unaudited) | |
| | | Plant and Equipment | | Furniture and Equipment | | Computer Hardware | | Asset Under Capital Lease | | Total |
| Cost or Deemed Cost | | | | | | | | | | |
| Balance at 01 January 2012 | $ | 15,656 | $ | 46,164 | $ | 71,945 | $ | 38,833 | $ | 172,598 |
| Additions | | 3,056 | | - | | - | | - | | 3,056 |
| Balance at 31 December 2012 | $ | 18,712 | $ | 46,164 | $ | 71,945 | $ | 38,833 | $ | 175,654 |
| Balance at 01 January 2013 | $ | 18,712 | $ | 46,164 | $ | 71,945 | $ | 38,833 | $ | 175,654 |
| Additions | | - | | - | | - | | - | | - |
| Balance at 30 September 2013 | $ | 18,712 | $ | 46,164 | $ | 71,945 | $ | 38,833 | $ | 175,654 |
| Depreciation | | | | | | | | | | |
| Balance at 01 January 2012 | $ | 15,656 | $ | 39,485 | $ | 60,448 | $ | 38,833 | $ | 154,422 |
| Depreciation for the period | | 611 | | 3,712 | | 6,602 | | - | | 10,925 |
| Balance at 31 December 2012 | $ | 16,267 | $ | 43,197 | $ | 67,050 | $ | 38,833 | $ | 165,347 |
| Balance at 01 January 2013 | $ | 16,267 | $ | 43,197 | $ | 67,050 | $ | 38,833 | $ | 165,347 |
| Depreciation for the period | | 458 | | 985 | | 4,895 | | - | | 6,338 |
| Balance at 30 September 2013 | $ | 16,725 | $ | 44,182 | $ | 71,945 | $ | 38,833 | $ | 171,685 |
| Carrying Amounts | | | | | | | | | | |
| At 01 January 2012 | $ | - | $ | 6,679 | $ | 11,497 | $ | - | $ | 18,176 |
| At 31 December 2012 | $ | 2,445 | $ | 2,967 | $ | 4,895 | $ | - | $ | 10,307 |
| At 30 September 2013 | $ | 1,987 | $ | 1,982 | $ | - | $ | - | $ | 3,969 |
| Emgold Mining Corporation |
US Dollars (Unaudited) | |
| 7) | Exploration and evaluation assets |
| Property acquisition costs | | Idaho – Maryland | | Buckskin Rawhide and Koegel | | Stewart Property | | Rozan Property | | Total |
| Balance at 01 January 2012 | $ | 747,219 | $ | 39,052 | $ | 199,667 | $ | 49,225 | $ | 1,035,163 |
| Acquisitions | | - | | 420,059 | | 9,052 | | - | | 429,111 |
| Balance at 31 December 2012 | $ | 747,219 | $ | 459,111 | $ | 208,719 | $ | 49,225 | $ | 1,464,274 |
| Acquisitions | | - | | 20,000 | | - | | - | | 20,000 |
| Dispositions | | (256,711) | | - | | - | | - | | (256,711) |
| Balance at 30 September 2013 | $ | 490,508 | $ | 479,111 | $ | 208,719 | $ | 49,225 | $ | 1,227,563 |
| a) | Idaho-Maryland Property, California |
In fiscal 2002, the Company renegotiated a lease with the owners of the Idaho-Maryland Property (“BET properties”) and surrounding areas in the Grass Valley Mining District, California, which was extended three times and expired in February 2013.
The Lease Option to Purchase Agreement was for 91 acres of surface rights and 2,750 aces of mineral rights associated with the I-M Property (“BET properties”). The Company is in negotiations with the owners to extend this Agreement. Permitting activities for the Idaho-Maryland Project remain on hold.
Emgold has raised US $450,000 through the sale of 18 acres of land located in Nevada County, California. The sale decreases the land package owned by the Company related to the Idaho-Maryland Project from about 52 acres to 34 acres.
| b) | Buckskin Rawhide East Property, Nevada |
In November 2009 the Company entered into a lease and option to purchase agreement to acquire 100% of the rights to the Buckskin Rawhide East mineral claims (46 claims), a gold prospect located near Fallon, Nevada. The Company agreed to lease the property from Nevada Sunrise, LLC subject to the following advance royalty payments: $10,000 annually for the years 2009 to 2011; $20,000 in 2012; $40,000 in 2013, and $60,000 from 2014 to 2019. During the lease period, the Company could conduct exploration and, if warranted, complete a NI 43-101 compliant feasibility study. On completion of the feasibility study, the Company could acquire 100% ownership of the property by paying Nevada Sunrise, LLC an additional amount of $250,000. Nevada Sunrise, LLC was required to use these funds to purchase a retained 25% interest in the property from Maurice and Lorraine Castagne, pursuant to an underlying property agreement, and to transfer that title to the Company. Upon commercial production and after acquisition of 100% interest in the property, Nevada Sunrise, LLC would be entitled to a 2.5% NSR on production from the property. The annual lease payments of $10,000 due in December 2011 and 2010 were paid by the issuance of 106,290 and 49,424 common shares, respectively.
| Emgold Mining Corporation |
US Dollars (Unaudited) | |
On 11 April 2011, the Company announced it had staked six additional claims, increasing the size of the Buckskin Rawhide East Property to 52 claims.
On 14 and 19 November 2012, the Company announced a series of transactions involving its Buckskin Rawhide East Property in Nevada. The Company announced it had signed an Option Agreement to complete an early buyout of all underlying property rights, including royalty rights, for its Buckskin Rawhide East Property. The Option provides that Emgold will pay two arm’s length parties (Nevada Sunrise LLC and the Castagne) an aggregate of $510,000 to allow the Company to consolidate a 100% interest in the 52 unpatented mineral claims, totalling 835 acres, that make up Buckskin Rawhide East Property. The Company also announced that it had signed an Agreement with Rawhide Mining LLC (“RMC”) pursuant to which the Company would issue to RMC, on a private placement basis, shares and warrants in an amount of CDN$1.0 million, part of which would be used to fund the above transaction. Also pursuant to the Agreement, upon completion of the title transfer of the 100% of the Buckskin Rawhide East Property to Emgold, the Company will subsequently lease the property to RMC. This transaction is occurring in a number of steps.
On 28 December 2012, the Company announced the first step of the above transaction. The first tranche of the private placement was closed for proceeds totalling CDN$465,000. A total of $400,000 from this tranche of the financing was used to acquire a 100% interest in 6 unpatented mining claims and a 75% interest in 40 unpatented mineral claims, including royalty interests, from one of the underlying property owners mentioned above.
On 01 February 2013, Emgold announced the closing of the second step of the above transaction, which included a second private placement, for proceeds of CDN$285,000. The Company is currently working on the third step of the transaction, which will involve the acquisition of the remaining 25% of 40 unpatented mineral claims that make up part of the Buckskin Rawhide East Property. As part of this step, the remaining CDN$250,000 private placement will be completed with RMC, of which $110,000 will be used to acquire the 25% interest.
The fourth and final step with RMC will involve completion of a Lease Agreement. RMC has agreed to lease the Buckskin Rawhide East Property from Emgold based on the following terms:
- The Lease Term is 20 years.
- Advance royalty payments will be $10,000 per year, paid by RMC to Emgold, with the first payment due at signing and subsequent payments due on the anniversary of the Lease Agreement.
- During the Lease Term, RMC will make all underlying claim fees to keep the claims in good standing.
- RMC will conduct a minimum of US$250,000 in exploration activities by the end of Year 1.
- RMC will conduct an additional minimum of US$250,000 in exploration activities by the end of Year 3, for a total of US$500,000 in exploration activities by the end of Year 3.
- RMC will have the option of earning a 100% interest in the Property by bringing it into commercial production.
- Upon bringing the property into commercial production, RMC will make "Bonus Payments" to Emgold. Bonus Payments will be US$15 per ounce of gold when the price of gold ranges between US$1,200 per ounce and US$1,799 per ounce. If the price of gold exceeds US$1,800 per ounce, the Bonus Payment will increase to US$20 per ounce
- After meeting its exploration requirements, should RMC subsequently elect to drop the Property or decide not to advance it, the Property will be returned to Emgold. Should Emgold subsequently advance the Property into production, RMC shall then be entitled to the same type of Bonus Payments as contemplated in 7 above.
| Emgold Mining Corporation |
US Dollars (Unaudited) | |
The Company has met all commitments on this property as of the period ended 30 September 2013 and up to the date of this report. The Company issued 125,000 common shares during the quarter one for the property payment for the Buckskin Rawhide West property.
On 17 June 2013, Emgold announced that the 2013 proposed surface drilling program proposed for the Buckskin Rawhide East Property was approved by the Bureau of Land Management.
| c) | Buckskin Rawhide West Property, Nevada |
On 24 January 2012, the Company signed a Lease and Option to Purchase Agreement with Jeremy C. Wire to acquire the PC and RH mineral claims, located 0.3 miles west of Emgold’s existing Buckskin Rawhide Property, in Mineral County, Nevada. The PC and RH claims, called Buckskin Rawhide West, comprise 21 unpatented lode mining claims totalling 420 acres. Pursuant to the lease agreement, advance royalty payments will be payable by the Company to Jeremy C. Wire in the amount of $10,000 per year during years 2013 to 2014, $20,000 in 2015 and $30,000 per year in years 2016 to 2018. Payments may be made in cash or shares, based on the discretion of the Company or the owner, depending on the Year. The Company has met all commitments on this property as of the period ended 30 September 2013 and up to date of this report. The Company issued 125,000 common shares during the quarter one for the property payment for the Buckskin Rawhide West property.
| d) | Koegel Rawhide , Nevada |
On 13 February, 2013, the Company announced it had signed a Lease and Option to Purchase Agreement with Jeremy C. Wire to acquire the RHT and GEL claims, located four miles south of the Company’s Buckskin Rawhide Claims in Mineral County, Nevada. The RHT and GEL claims “Koegel Rawhide Property” comprise 19 unpatented lode mining claims totalling 380 acres. Pursuant to the lease agreement, advance royalty payment will be payable by the Company to Jeremy C. Wire in the amount of $10,000 per year during years 2013 to 2014, $20,000 in 2015 and $30,000 per year in years 2016 to 2018. Payments may be made in cash or shares, based on the discretion of the Company or the owner, depending on the Year. In 2012, consideration payable in the amounts of $5,000 cash and $5,000 equivalent in common shares (50,000 shares) were paid, as per the Agreement, upon TSX-Venture Exchange Approval.
On 15 February 2012, the Company announced it has staked an additional 17 unpatented claims to expand this property to 36 unpatented mineral claims totalling 720 acres.
The Company has met all commitments on this property as of the period ended 30 September 2013 and up to the date of this report. The Company issued 111,000 common shares during quarter one.
| Emgold Mining Corporation |
US Dollars (Unaudited) | |
| e) | Rozan Property, British Columbia |
In 2000, the Company entered into an option agreement to acquire the rights to the Rozan Property, a prospect located in British Columbia. The Company holds a 100% interest in the property, subject to a 3.0% NSR. The Company has the right to purchase 66% of the royalty for the sum of CDN$1,000,000 and has the first right of refusal to purchase the remaining 33%.
During the year ended 31 December 2010, the Company entered into a Lease and Option to Purchase Agreement (the “Agreement”) with Valterra Resource Corporation (“Valterra”). The Agreement called for cumulative work commitments of $1,000,000 over 5 years, with a commitment of $50,000 in 2010, $200,000 in 2011, and $250,000 in each of years 3 to 5.
In January 2012, after failing to meet its work commitments on the Rozan Property, Valterra announced that it has elected to terminate the Agreement with the Company and the property was returned to Emgold. In the year ended 31 December 2012 Emgold completed additional exploration of the property.
During the period ended 30 June 2013, the 2012 Assessment report was completed and filed.
| f) | Stewart Property, British Columbia |
Pursuant to an option agreement entered into in 2001 and completed in 2008, the Company acquired the rights to the Stewart mineral claims, a prospect located close to Nelson in south eastern British Columbia. The Company holds a 100% right, title and interest in and to the property, subject only to a 3% NSR payable to the optionors. The Company has the right to purchase 66% of the royalty for the sum of CDN$1,000,000 and has the first right of refusal to purchase the remaining 33%. The Company has staked 21 claims contiguous to the Stewart Property located in south-eastern British Columbia.
On 8 April, 2013, Emgold released the result of its 2012 exploration work on the Stewart Property. Results included discovery of a new gold exploration target called the Stewart Creek Gold Zone, discover of a new base metal target at the Free Silver Zone, and further expansion of the Stewart Moly Zone to depth. As at period ended 30 June 2013, the 2012 Assessment Report was completed and filed.
| Emgold Mining Corporation |
US Dollars (Unaudited) | |
| g) | Exploration and evaluation expenditures |
| | | | Nine months ended | | Year ended | | Cumulative total as at |
| | | | 30 September 2013 | | 31 December 2012 | | 30 September 2013 |
| Idaho – Maryland Property, California | | | | | | | |
| Geological and geochemical | | $ | - | $ | 279,912 | $ | 4,977,460 |
| Land lease and taxes | | | 18,948 | | 167,244 | | 1,846,298 |
| Mine planning | | | - | | 77,168 | | 4,819,000 |
| Transportation | | | - | | 9,330 | | 137,580 |
| Community relations | | | - | | 2,380 | | 82,941 |
| Assay and analysis | | | - | | 1,023 | | 101,163 |
| Site activities | | | - | | 827 | | 1,673,217 |
| Drilling | | | - | | - | | 1,039,920 |
| Consulting | | | - | | - | | 209,713 |
| Stock-based compensation | | | - | | 42,200 | | 642,144 |
| Incurred during the period | | $ | 18,948 | $ | 580,084 | $ | 15,529,436 |
| Buckskin Rawhide East, Buskin Rawhide West, and Koegel Properties, Nevada | | | | | | | |
| Geological and geochemical | | | 23,786 | | - | | 51,951 |
| Transportation | | | 11,553 | | - | | 11,553 |
| Site activities | | | - | | - | | 5,116 |
| Incurred during the period | | $ | 35,339 | $ | - | $ | 68,620 |
| Rozan Property, BC | | | | | | | |
| Drilling | | | - | | 221,721 | | 285,771 |
| Assays and analysis | | | (2,977) | | 63,052 | | 71,878 |
| Geological and geochemical | | | - | | 33,082 | | 156,470 |
| Site activities | | | - | | 175 | | 22,219 |
| Transportation | | | - | | 64 | | 12,418 |
| Stock-based compensation | | | - | | - | | 16,055 |
| Trenching | | | - | | - | | 4,666 |
| Assistance and recovery | | | - | | - | | (7,322) |
| Incurred during the period | | $ | (2,977) | $ | 318,094 | $ | 562,155 |
| Stewart Property, BC | | | | | | | |
| Drilling | | | - | | 227,913 | | 1,079,056 |
| Assays and analysis | | | (2,977) | | 3,036 | | 156,771 |
| Geological and geochemical | | | - | | 53,406 | | 376,399 |
| Claim fees | | | - | | 2,332 | | 2,332 |
| Transportation | | | - | | 1,796 | | 57,857 |
| Site activities | | | - | | 668 | | 32,013 |
| Stock-based compensation | | | - | | - | | 16,055 |
| Trenching | | | - | | - | | 19,318 |
| Assistance and recovery | | | - | | - | | (29,692) |
| Incurred during the period | | $ | (2,977) | $ | 289,151 | $ | 1,710,109 |
| Total Exploration Expenditures | | $ | 48,333 | $ | 1,187,329 | $ | 17,870,320 |
| Emgold Mining Corporation |
US Dollars (Unaudited) | |
| 8) | Related party transactions |
Related party transactions and balances not disclosed elsewhere in the condensed interim consolidated financial statements are as follows:
| Related Party Transaction | | | | | |
| Name and Principal Position | Period(i) | | Remuneration or fees(ii) | | Share-based awards |
| CEO and President – management fees | 2013 2012 | $ | 138,750 138,800 | $ | - 49,200 |
| A company of which the CFO is a director(iii) – management fees | 2013 2012 | | 28,560 3,000 | | - - |
| A company of which the CFO is a director(iii) – accounting | 2013 2012 | | 14,444 1,500 | | - - |
| 759924 Ontario Ltd.(iv) – consulting fees | 2013 2012 | | - 27,300 | | - 13,100 |
| Quorum Management | 2013 2012 | | - - | | - - |
| Directors | 2013 2012 | | - - | | - 52,400 |
i) For the nine month period ended 30 September 2013 and 2012.
ii) Amounts disclosed were paid or accrued to the related party.
iii) A company of which the CFO, Grant T. Smith, is a director.
iv) A company of which a director, Kenneth Yurichuk, is a director.
At 30 September 2013, fees of $500,247 (2012 – $323,800) payable to David Watkinson; fees of $18,210 (2012 –$4,000) payable to Clearline; fees of $27,286 (2012 – $27,286) payable to 759924 Ontario Ltd.; and fees of $Nil (2012 – $Nil ) refundable from Quorum Management and Administrative Services Inc. were included in accounts payable or due to related parties
Related party balances are non-interest bearing and are due on demand, with no fixed terms of repayment. These transactions occurred in the normal course of operations and are measured at their exchange amount, which is the amount of consideration established and agreed to by the related parties.
Unlimited - Number of common shares without par value.
Unlimited - Number of preference shares without par value.
| b) | Common shares, issued and fully paid |
On 01 February 2013, the Company announced that it closed a previously reported private placement for gross proceeds of CDN $285,000. The private placement involved the issuance of 5,700,000 units ("Units") to RMC at a price of CDN$0.05 per Unit. Each Unit consists of one common share (a "Share") of the Company and one half of one non-transferable share purchase warrant. Each full warrant entitles RMC to purchase, for a period of 24 months, one additional Share at a price of CDN$0.12. The Shares are subject to a minimum hold period of four months plus one day, expiring 02 June 2013, which has passed. No finder’s fees were paid as part of this private placement.
| Emgold Mining Corporation |
US Dollars (Unaudited) | |
Also on 01 February 2013, the Company issued 236,000 common shares in connection with its previously signed mineral property agreements.
In December 2012 the Company closed the first tranche of a private placement, issuing 6,642,857 Units at CDN$0.07 per Unit for gross proceeds of CDN$465,000. Each Unit consists of one common share of the Company and one half common share purchase warrant. Each full warrant entitles the holder to purchase, for a period of 24 months, one additional common share at a price of CDN$0.12 per share. No finder’s fees were payable in connection with this part of the financing. The share issued, along with any shares issued upon the exercise of warrants, will be subject to a four month and one day hold period, expiring 29 April 2013.
The Company has a rolling 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 10% of the issued and outstanding common shares.
Stock option activity during the period is summarized as follows:
| Stock option activity | 30 September 2013 | | Weighted average exercise price | 31 December 2012 | | Weighted average exercise price |
| Balance – beginning of period | 4,969,665 | $ | 0.19 | 2,872,665 | $ | 0.23 |
| Granted | - | | - | 2,700,000 | | 0.15 |
| Expired | (97,500) | | 0.10 | (603,000) | | 0.175 |
| Cancelled and forfeited | (700,000) | | 0.15 | - | | - |
| Balance – end of period | 4,172,165 | $ | 0.20 | 4,969,665 | $ | 0.19 |
Details of stock options outstanding as at 30 September 2013 are as follows:
| Expiry Date | | Exercise Price (CDN$) | 30 September 2013 | 31 December 2012 |
| 12 May 2013 | $ | 0.175 | - | 97,500 |
| 19 November 2013 | $ | 0.175 | 141,500 | 141,500 |
| 12 July 2014 | $ | 0.175 | 64,000 | 64,000 |
| 17 March 2015 | $ | 0.25 | 466,665 | 466,665 |
| 08 December 2015 | $ | 0.25 | 1,500,000 | 1,500,000 |
| 01 May 2017 | $ | 0.15 | - | 700,000 |
| 07 May 2017 | $ | 0.15 | 1,800,000 | 1,800,000 |
| 22 May 2017 | $ | 0.15 | 200,000 | 200,000 |
| | | | 4,172,165 | 4,969,665 |
The outstanding options have a weighted-average exercise price of $0.20 (31 December 2012 - $0.19) and the weighted-average remaining life of the options is 2.70 years (31 December 2012 – 2.51) years. As at
30 September 2013, a total of 4,172,165 (31 December 2012 – 4,969,665) of these outstanding options had vested. As at 30 September 2013, none (31 December 2012 – Nil) of the outstanding options were in the money.
Subsequent to the period ended 30 September 2013, 141,500 options expired unexercised.
| Emgold Mining Corporation |
US Dollars (Unaudited) | |
Warrant activity during the period is summarized as follows:
| Warrant Activity | 30 September 2013(i) | | Weighted Average exercise price | 31 December 2012(i) | | Weighted Average exercise price |
| Balance – beginning of period | 35,495,784 | $ | 0.25 | 38,508,401 | $ | 0.27 |
| Issued | 2,850,000 | | 0.12 | 3,321,428 | | 0.12 |
| Exercised | - | | - | (1,194,101) | | 0.10 |
| Expired | (7,416,639) | | 0.28 | (5,139,944) | | 0.33 |
| Balance – end of period | 30,929,145 | $ | 0.23 | 35,495,784 | $ | 0.25 |
| (i) | The number of warrants is expressed in equivalent number of common shares, which may be issuable upon exercise of the warrants. |
Details of warrants outstanding as at 30 September 2013 are as follows:
| Issued | Expiry | | Exercise Price | 30 September 2013 | 31 December 2012 |
| 09 September 2010 | 09 September 2015 | | 0.35 | 2,813,575 | 2,813,575 |
| 23 September 2010 | 23 September 2013(ii) | | 0.35 | - | 735,714 |
| 23 September 2010 | 23 September 2013(i) | | 0.15(iii) | - | 3,344,041 |
| 14 October 2010 | 14 October 2013(i) | | 0.15(iii) | 7,226,142 | 7,226,142 |
| 22 June 2011 | 22 June 2013 | | 0.25(iii) | - | 2,235,577 |
| 22 June 2011 | 23 June 2013 | | 0.15(iii) | - | 269,230 |
| 28 June 2011 | 28 June 2013 | | 0.20(iii) | - | 717,308 |
| 28 June 2011 | 28 June 2013 | | 0.20(iii) | - | 114,769 |
| 18 November 2011 | 18 November 2013 | | 0.15(iii) | 12,156,000 | 12,156,000 |
| 22 December 2011 | 22 December 2013 | | 0.15(iii) | 2,530,000 | 2,530,000 |
| 22 December 2011 | 22 December 2013 | | 0.15(iii) | 32,000 | 32,000 |
| 28 December 2012 | 28 December 2014 | | 0.15(iii) | 3,321,428 | 3,321,428 |
| 01 February 2013 | 01 February 2015 | | 0.12(iii) | 2,850,000 | - |
| | | | | 30,929,145 | 35,495,784 |
| (i) | The Company completed a re-pricing and extension of the expiry date of certain existing common share purchase warrants (“warrants”). A total of 11,764,284 warrants, the original exercise price of which was US$0.35, have been re-priced at CDN$0.15 per share and been given a 12 month extension. These re-priced warrants were also able to elect an early conversion option whereby they could convert their warrants to shares at CDN$0.10 per share, if exercised by 31 August 2012. A total of 1,194,101 warrants were exercised at CDN$0.10. No other warrants have been exercised subsequent to the re-price. |
| (ii) | These warrants were part of the extension as noted above, but were not re-priced. |
| (iii) | The exercise prices of these warrants are stated in Canadian funds. |
In accordance with IFRS, an obligation to issue shares for a price that is not fixed in the Company’s functional currency, and that does not qualify as a rights offering, must be classified as a derivative liability and measured at fair value with changes recognized in the condensed interim consolidated statement of comprehensive loss as they arise. In the period ended 30 September 2013, the Company recorded a warrant liability in the amount of $8,000 (31 December 2012 - $30,411). The warrants were valued and subsequently re-valued on the Company’s reporting dates using the Black-Scholes option pricing model, with the following assumptions: weighted average risk free rate of 1.25%, volatility factors of 50% - 70% and an expected life of 2 months – 16 months. An unrealized gain on warrant liability of $29,243 has been recorded for the period ended 30 September 2013.
Subsequent to the period ended 30 September 2013, 141,500 options expired unexercised and a further 3,000,000 options were granted to Directors, Officers, Employees, and Consultants of the Company.
| Emgold Mining Corporation |
US Dollars (Unaudited) | |
Movement related to the warrant liability is as follows:
| | 30 September 2013 | | 31 December 2012 |
| Warrant Liability | Number of Warrants(i) | | Fair Value | | Number of
Warrants(i) | | Fair Value |
| Balance – beginning of period | 31,946,495 | $ | 30,411 | | 19,350,337 | $ | 1,079,253 |
| Issued | 2,850,000 | | 6,832 | | 3,321,428 | | 18,449 |
| Warrants re-priced | - | | | | 11,764,284 | | 153,075 |
| Expired | (6,680,925) | | (29,243) | | (1,295,453) | | - |
| Fair value of warrants exercised | - | | - | | (1,194,101) | | (3,463) |
| Fair market value adjustment (gain) loss | - | | - | | - | | (1,492,098) |
| Reclassification of warrant liability from warrant reserve | - | | - | | - | | 275,195 |
| Balance – end of period | 28,115,570 | $ | 8,000 | | 31,946,495 | $ | 30,411 |
| (i) | Number of warrants priced in the Canadian Dollar |
| e) | Stock-based compensation |
For the period ended 30 September 2013 and the year ended 31 December 2012, the Company issued stock options to its directors, officers, employees, and consultants and recognized stock-based compensation as follows:
| | | | 30 September 2013 | | 31 December 2012 |
| Total options granted | | | - | | 2,700,000 |
| Average exercise price | | $ | - | $ | 0.15 |
| Estimated fair value of compensation | | $ | - | $ | 130,701 |
| Estimated fair value per option | | $ | - | $ | 0.05 |
The fair value of the stock-based compensation of options to be recognized in the accounts has been estimated using the Black-Scholes Model with the following weighted-average assumptions:
| | | | 30 September 2013 | | 31 December 2012 |
| Risk free interest rate | | | - | | 1.20% - 1.60% |
| Expected dividend yield | | | - | | 0.00% |
| Expected stock price volatility | | | - | | 112% |
| Expected option life in years | | | - | | 5 |
| Expected maturity rate | | | - | | 70-100% |
| Emgold Mining Corporation |
US Dollars (Unaudited) | |
Stock-based compensation for the options that vested during the period is as follows:
| | | | 30 September 2013 | | 31 December 2012 |
| Number of options vested | | | - | | 2,466,667 |
| Compensation recognized | | $ | - | $ | 130,701 |
The Black-Scholes Option Pricing Model was created for use in estimating the fair value of freely tradable, fully transferable options. The Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the highly subjective input assumptions can materially affect the calculated values, management believes that the accepted Black-Scholes model does not necessarily provide a reliable measure of the fair value of the Company’s stock option awards.
The Company’s objectives have not changed during the period ended 30 September 2013.
The Company operates in one operating segment, which is the acquisition, exploration, and development of mineral property interests. The following table provides segmented disclosure on assets and liabilities as reviewed by management regularly:
| Rounded to 000’s | | | Canada | | United States | | Total |
| 30 September 2013 | | | | | | | |
| Current assets | | $ | 62,000 | $ | 58,000 | $ | 120,000 |
| Long-term Assets | | | | | | | |
| Plant and equipment | | $ | - | $ | 4,000 | $ | 4,000 |
| Resource properties acquisition costs | | | 737,000 | | 491,000 | | 1,228,000 |
| Other | | | 18,000 | | 3,000 | | 21,000 |
| Liabilities | | | | | | | |
| Current liabilities | | $ | (106,000) | $ | (527,000) | $ | (633,000) |
| 31 December 2012 | | | | | | | |
| Current assets | | $ | 157,000 | $ | 25,000 | $ | 182,000 |
| Long-term Assets | | | | | | | |
| Plant and equipment | | $ | - | $ | 10,000 | $ | 10,000 |
| Resource properties acquisition costs | | | 717,000 | | 747,000 | | 1,464,000 |
| Other | | | 18,000 | | 3,000 | | 21,000 |
| Liabilities | | | | | | | |
| Current liabilities | | $ | (513,000) | $ | (582,000) | $ | (1,095,000) |
| Warrant liability | | | (10,000) | | - | | (10,000) |
| Emgold Mining Corporation |
US Dollars (Unaudited) | |
During the prior year the Company received services from Quorum Management and Administrative Services Inc. (“Quorum”). Quorum is a private company held jointly by the Company and other public companies, created to provide services on a full cost recovery basis to the various public entities currently sharing certain personnel costs, office space, and overhead with the Company. In April 2012, the partners of Quorum made the decision to wind up its administrative operations effective 31 August 2012. Management is aware of the possibility that there may be a future cost associated with the conclusion of this agreement. At the period ended 30 September 2013 and at the date of this report, the Company is unable to make a reliable estimate of the cost or likelihood of them being incurred. Accordingly, no provision has been made in these condensed interim consolidated financial statements.
| 13) | Gain on settlement liabilities |
During the period ended 30 September 2013, $84,352 of accrued liabilities became statue barred due to the lapse of time. This resulted in the write-off of the liability and the recovery of previously expensed amounts through the statement of comprehensive loss.
Subsequent to the period ended 30 September 2013, 141,500 options and 7,226,142 warrants expired unexercised.
On 11 October 2013, the Company announced the grant of 3,000,000 incentive stock options, pursuant to its Stock Option Plan, to Directors, Officers, Employees and Consultants of the Company. The options are exercisable at a price of $0.10 per share for a 5 year term, expiring 11 October 2018.
Any shares issued on the exercise of these stock options will be subject to a four-month hold period from
the date of the grant. This stock option grant is subject to approval of the TSX Venture Exchange.
