| MAG SILVER CORP. Filed: August 25, 2006 |
A copy of this report will be provided to any shareholder who requests it
VANCOUVER OFFICE Suite 328 550 Burrard Street Vancouver, BC V6C 2B5 | 604 630 1399 phone 866 630 1399 toll free 604 484 4710 fax | TSX.V:MAG www.magsilver.com info@magsilver.com |
The attached interim financial statements have not
been reviewed by the Company’s auditor
MAG SILVER CORP.
(An exploration stage company)
Consolidated Balance Sheets
June 30, 2006 | Dec. 31, 2005 | |||||
ASSETS | ||||||
CURRENT | ||||||
Cash and cash equivalents | $ | 5,907,541 | $ | 7,560,193 | ||
Accounts receivable (Note 10) | 174,525 | 105,071 | ||||
Interest receivable | 91,200 | 26,412 | ||||
Prepaid expenses | 14,155 | 22,237 | ||||
TOTAL CURRENT ASSETS | 6,187,421 | 7,713,913 | ||||
EQUIPMENT AND LEASEHOLDS (Note 3) | 37,778 | 39,914 | ||||
MINERAL RIGHTS (Note 6) | 4,898,005 | 4,858,108 | ||||
DEFERRED EXPLORATION COSTS (Note 6) | 7,491,336 | 5,463,471 | ||||
TOTAL ASSETS | $ | 18,614,540 | $ | 18,075,406 | ||
LIABILITIES | ||||||
CURRENT | ||||||
Accounts payable and accrued liabilities | $ | 476,630 | $ | 393,621 | ||
TOTAL LIABILITIES | 476,630 | 393,621 | ||||
SHAREHOLDERS' EQUITY | ||||||
Share capital (Note 4) | ||||||
Authorized - 1,000,000,000 common shares, | ||||||
without par value | ||||||
Issued and outstanding at June 30, 2006 | ||||||
- 37,106,196 common shares (December 31, 2005 - | ||||||
36,191,648) | 22,185,215 | 20,812,185 | ||||
Contributed surplus | 2,476,456 | 915,979 | ||||
Deficit | (6,523,761 | ) | (4,046,379 | ) | ||
TOTAL SHAREHOLDERS' EQUITY | 18,137,910 | 17,681,785 | ||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 18,614,540 | $ | 18,075,406 |
CONTINUING OPERATIONS (Note 1)
ON BEHALF OF THE BOARD
(Signed) Dan MacInnis
Dan MacInnis, Director
(Signed) R. Michael Jones
Michael Jones, Director
See accompanying notes to the consolidated financial statements.
MAG SILVER CORP.
(An exploration stage company)
Consolidated Statements of Operations
For the | For the | For the | For the | |||||||||
three month | three month | six month | six month | |||||||||
period ended | period ended | period ended | period ended | |||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||
2006 | 2005 | 2006 | 2005 | |||||||||
EXPENSES | ||||||||||||
Accounting and audit | $ | 60,423 | $ | 24,835 | $ | 104,059 | $ | 39,835 | ||||
Amortization | 4,047 | 4,639 | 8,022 | 9,077 | ||||||||
Bank charges and interest | 513 | 427 | 1,156 | 838 | ||||||||
Filing and transfer agent fees | 9,497 | 14,840 | 27,886 | 25,903 | ||||||||
Foreign exchange (gain) loss | 15,991 | (19,135 | ) | 17,788 | (20,696 | ) | ||||||
Legal | 26,984 | 46,573 | 56,618 | 98,162 | ||||||||
Management and consulting fees | 106,050 | 69,470 | 249,785 | 148,085 | ||||||||
Non-resident corporation tax | 8,370 | - | 8,370 | - | ||||||||
Shareholder relations | 70,220 | 11,626 | 126,590 | 52,158 | ||||||||
Stock compensation expense | 1,092,079 | - | 1,719,706 | 474,000 | ||||||||
Telephone and office | 126,326 | 78,013 | 207,959 | 145,873 | ||||||||
Travel | 35,797 | 25,227 | 64,965 | 55,558 | ||||||||
1,556,297 | 256,515 | 2,592,904 | 1,028,793 | |||||||||
LOSS BEFORE THE FOLLOWING | (1,556,297 | ) | (256,515 | ) | (2,592,904 | ) | (1,028,793 | ) | ||||
INTEREST INCOME | 70,804 | 12,042 | 115,522 | 34,243 | ||||||||
NET LOSS FOR THE PERIOD | $ | (1,485,493 | ) | $ | (244,473 | ) | $ | (2,477,382 | ) | $ | (994,550 | ) |
BASIC AND DILUTED | ||||||||||||
LOSS PER SHARE | $ | (0.04 | ) | $ | (0.01 | ) | $ | (0.07 | ) | $ | (0.04 | ) |
WEIGHTED AVERAGE NUMBER | ||||||||||||
OF SHARES OUTSTANDING | 36,987,417 | 27,592,571 | 36,719,362 | 26,732,536 |
See accompanying notes to the consolidated financial statements.
MAG SILVER CORP.
(An exploration stage company)
Consolidated Statements of Shareholders' Equity
Deficit | ||||||||||||||||||||
accumulated | ||||||||||||||||||||
Common shares | Shares | Special | during the | Total | ||||||||||||||||
without par value | allotted but | warrants | Contributed | exploration | shareholders' | |||||||||||||||
Shares | Amount | not issued | Number | Amount | Surplus | stage | equity | |||||||||||||
Issued for cash | 1,500,000 | $ | 150,000 | $ | - | - | $ | - | $ | - | $ | - | $ | 150,000 | ||||||
Net loss | - | - | - | - | - | - | (4,279 | ) | (4,279 | ) | ||||||||||
Balance, October 31, 1999 | 1,500,000 | 150,000 | - | - | - | - | (4,279 | ) | 145,721 | |||||||||||
Net loss | - | - | - | - | - | - | (3,787 | ) | (3,787 | ) | ||||||||||
Balance, December 31, 1999 | 1,500,000 | 150,000 | - | - | - | - | (8,066 | ) | 141,934 | |||||||||||
Issued for cash | 1,500,000 | 240,222 | - | - | - | - | - | 240,222 | ||||||||||||
Net loss | - | - | - | - | - | - | (5,641 | ) | (5,641 | ) | ||||||||||
Balance, December 31, 2000 | 3,000,000 | 390,222 | - | - | - | - | (13,707 | ) | 376,515 | |||||||||||
Net loss | - | - | - | - | - | - | (279,639 | ) | (279,639 | ) | ||||||||||
Balance, December 31, 2001 | 3,000,000 | 390,222 | - | - | - | - | (293,346 | ) | 96,876 | |||||||||||
Issued for cash | - | 2,400,000 | 375,000 | - | - | 375,000 | ||||||||||||||
Net loss | - | - | - | - | - | - | (122,631 | ) | (122,631 | ) | ||||||||||
Balance, December 31, 2002 | 3,000,000 | 390,222 | - | 2,400,000 | 375,000 | - | (415,977 | ) | 349,245 | |||||||||||
Issued for cash | 11,500,000 | 5,109,766 | - | - | - | - | - | 5,109,766 | ||||||||||||
Conversion of special warrants | 2,400,000 | 375,000 | - | (2,400,000 | ) | (375,000 | ) | - | - | - | ||||||||||
Agent's administration | ||||||||||||||||||||
shares (Note 4 (a)) | 10,000 | 5,000 | - | - | - | - | - | 5,000 | ||||||||||||
Finders' fee shares (Note 7 (a)) | 500,000 | 250,000 | - | - | - | - | - | 250,000 | ||||||||||||
Issued to obtain mineral property | ||||||||||||||||||||
option rights | 200,000 | 100,000 | - | - | - | - | - | 100,000 | ||||||||||||
Issued on acquisition of | ||||||||||||||||||||
Lexington (Note 7 (b)) | 200,000 | 180,000 | - | - | - | - | - | 180,000 | ||||||||||||
Warrants exercised | 5,183,995 | 3,068,996 | - | - | - | - | - | 3,068,996 | ||||||||||||
Stock options exercised | 100,000 | 26,000 | - | - | - | - | - | 26,000 | ||||||||||||
Stock options granted to | ||||||||||||||||||||
consultants | - | - | - | - | - | 75,308 | - | 75,308 | ||||||||||||
Net loss | - | - | - | - | - | - | (837,539 | ) | (837,539 | ) | ||||||||||
Balance, December 31, 2003 | 23,093,995 | 9,504,984 | - | - | - | 75,308 | (1,253,516 | ) | 8,326,776 | |||||||||||
Cumulative effect of change in | ||||||||||||||||||||
accounting policy (Note 2 (h)) | - | - | - | - | - | 248,128 | (248,128 | ) | - | |||||||||||
Issued to obtain mineral property | ||||||||||||||||||||
option rights | 1,358,793 | 1,578,752 | - | - | - | - | - | 1,578,752 | ||||||||||||
Warrants exercised | 1,236,750 | 480,562 | - | - | - | - | - | 480,562 | ||||||||||||
Stock options exercised | 140,000 | 68,070 | - | - | - | (17,270 | ) | - | 50,800 | |||||||||||
Shares allotted to acquire mineral | ||||||||||||||||||||
property option rights | - | - | 9,467 | - | - | - | - | 9,467 | ||||||||||||
Net loss | - | - | - | - | - | - | (733,897 | ) | (733,897 | ) | ||||||||||
Balance, December 31, 2004 | 25,829,538 | 11,632,368 | 9,467 | - | - | 306,166 | (2,235,541 | ) | 9,712,460 | |||||||||||
Issued for cash (Note 4 (a)) | 7,201,176 | 6,771,672 | - | - | - | - | - | 6,771,672 | ||||||||||||
Issued to obtain mineral property | ||||||||||||||||||||
option rights | 1,654,679 | 1,337,289 | (9,467 | ) | - | - | - | - | 1,327,822 | |||||||||||
Warrants exercised | 1,400,755 | 1,046,566 | - | - | - | - | - | 1,046,566 | ||||||||||||
Stock options exercised | 105,500 | 24,290 | - | - | - | (1,540 | ) | - | 22,750 | |||||||||||
Stock options granted | - | - | - | - | - | 611,353 | - | 611,353 | ||||||||||||
Net loss | - | - | - | - | - | - | (1,810,838 | ) | (1,810,838 | ) | ||||||||||
Balance, December 31, 2005 | 36,191,648 | $ | 20,812,185 | $ | - | - | $ | - | $ | 915,979 | $ | (4,046,379 | ) | $ | 17,681,785 | |||||
Issued for cash (Note 4 (a)) | 245,716 | 577,433 | - | - | - | - | - | 577,433 | ||||||||||||
Warrants exercised | 252,832 | 341,323 | - | - | - | - | - | 341,323 | ||||||||||||
Stock options exercised | 416,000 | 454,274 | - | - | - | (159,229 | ) | - | 295,045 | |||||||||||
Stock options granted | - | - | - | - | - | 1,719,706 | - | 1,719,706 | ||||||||||||
Net loss | - | - | - | - | - | - | (2,477,382 | ) | (2,477,382 | ) | ||||||||||
Balance, June 30, 2006 | 37,106,196 | $ | 22,185,215 | $ | - | - | $ | - | $ | 2,476,456 | $ | (6,523,761 | ) | $ | 18,137,910 |
See accompanying notes to the consolidated financial statements.
MAG SILVER CORP.
(An exploration stage company)
Consolidated Statements of Cash Flows
For the | For the | For the | For the | |||||||||
three month | three month | six month | six month | |||||||||
period ended | period ended | period ended | period ended | |||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||
2006 | 2005 | 2006 | 2005 | |||||||||
OPERATING ACTIVITIES | ||||||||||||
Loss for the period | $ | (1,485,493 | ) | $ | (244,473 | ) | $ | (2,477,382 | ) | $ | (994,550 | ) |
Items not involving cash: | ||||||||||||
Amortization | 4,047 | 4,639 | 8,022 | 9,077 | ||||||||
Non-cash compensation expense | 1,092,079 | - | 1,719,706 | 474,000 | ||||||||
Changes in operating assets and liabilities | ||||||||||||
Accounts receivable | 29,156 | (74,509 | ) | (69,455 | ) | 110,812 | ||||||
Interest receivable | (35,200 | ) | 20,019 | (64,788 | ) | 17,194 | ||||||
Prepaid expenses | 7,106 | 5,507 | 8,082 | 11,014 | ||||||||
Accounts payable and accrued liabilities | (97,078 | ) | 125,404 | 83,009 | 91,813 | |||||||
(485,383 | ) | (163,413 | ) | (792,806 | ) | (280,640 | ) | |||||
INVESTING ACTIVITIES | ||||||||||||
Purchase of equipment and leasehold improvements | (720 | ) | (2,025 | ) | (5,885 | ) | (16,868 | ) | ||||
Mineral rights | (29,208 | ) | (30,631 | ) | (39,897 | ) | (30,631 | ) | ||||
Deferred exploration costs | (914,261 | ) | (333,185 | ) | (2,027,865 | ) | (478,058 | ) | ||||
(944,189 | ) | (365,841 | ) | (2,073,647 | ) | (525,557 | ) | |||||
FINANCING ACTIVITIES | ||||||||||||
Issue of share capital | 358,398 | 1,620,756 | 1,213,801 | 1,667,631 | ||||||||
Issue of special warrants | - | - | - | - | ||||||||
358,398 | 1,620,756 | 1,213,801 | 1,667,631 | |||||||||
INCREASE (DECREASE) IN CASH | (1,071,174 | ) | 1,091,502 | (1,652,652 | ) | 861,434 | ||||||
CASH AND EQUIVALENTS, BEGINNING OF PERIOD | 6,978,715 | 1,636,292 | 7,560,193 | 1,866,360 | ||||||||
CASH AND EQUIVALENTS, END OF PERIOD | ||||||||||||
(Note 2 (d)) | $ | 5,907,541 | $ | 2,727,794 | $ | 5,907,541 | $ | 2,727,794 | ||||
Issue of shares in exchange for mineral property | ||||||||||||
option rights | $ | - | $ | 1,215,000 | $ | - | $ | 1,227,713 |
See accompanying notes to the consolidated financial statements.
MAG SILVER CORP.
(An exploration stage company)
Period ended June 30, 2006 and 2005
1.
CONTINUING OPERATIONS
The Company was incorporated under the Company Act (British Columbia) on April 21, 1999 and its shares were listed on the TSX Venture Exchange on April 21, 2000.
The Company is an exploration company conducting work on mineral properties it has staked or acquired by way of option agreement principally in Mexico. The Company has not yet determined whether the properties on which it is conducting exploration contain any ore reserves that are economically recoverable. The Company defers all acquisition, exploration and development costs related to the properties on which it is conducting exploration. The recoverability of these amounts is dependent upon the existence of economically recoverable reserves, the ability of the Company to obtain the necessary financing to complete the development of the interests, and future profitable production, or alternatively, upon the Company’s ability to dispose of its interests on a profitable basis.
These consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assume that the Company will realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred losses from inception and does not currently have the financial resources to sustain operations in the long-term. The Company’s ability to continue as a going concern is dependent upon its ability in the future to achieve profitable operations and, in the meantime, to obtain the necessary financing to meet its obligations and repay its liabilities when they become due. External financing, predominantly by the issuance of equity to the public, will be sought to finance the operations of the Company.
Although the Company has taken steps to verify title to the properties on which it is conducting exploration and in which it has an interest, in accordance with industry standards for the current stage of exploration of such properties, these procedures do not guarantee the Company’s title. Property title may be subject to unregistered prior agreements and non-compliance with regulatory requirements.
MAG SILVER CORP.
(An exploration stage company)
Period ended June 30, 2006 and 2005
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”) and include the following significant policies outlined below.
(a)
Principles of consolidation
On January 15, 2003, the Company completed its acquisition of Minera Los Lagartos, SA de CV (Note 7 (a)) and on July 16, 2003, its acquisition of Lexington Capital Group Inc. (Note 7 (b)). The financial statements of entities which are controlled by the Company through voting equity interests, referred to as subsidiaries, are consolidated. Entities which are jointly controlled, referred to as joint ventures, are proportionately consolidated. Variable interest entities (“VIEs”), which include, but are not limited to, special purpose entities, trusts, partnerships, and other legal structures, as defined by the Accounting Standards Board in Accounting Guideline (“AcG”) 15,Consolidation of Variable Interest Entities (“AcG 15”), are entities in which equity investors do not have the characteristics of a “controlling financial interest” or th ere is not sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. VIEs are subject to consolidation by the primary beneficiary who will absorb the majority of the entities’ expected losses and/or expected residual returns. The Company does not believe that it has any VIEs subject to consolidation. All significant intercompany balances and transactions have been eliminated upon consolidation. The principal subsidiary at March 31, 2006 is Minera Los Lagartos, S.A. de C.V. which holds several properties in Mexico.
(b)
Measurement uncertainty
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reported period. Significant estimates used in preparation of these financial statements include estimates of the net realizable value of mineral properties and deferred exploration costs, asset retirement obligations, stock based compensation, income tax provisions and contingencies. Actual results may differ from those estimated.
MAG SILVER CORP.
(An exploration stage company)
Period ended June 30, 2006 and 2005
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c)
Financial instruments
The carrying values of cash and cash equivalents, accounts receivable, interest receivable and accounts payable and accrued liabilities reflected in the balance sheet approximate their respective fair values.
Price risk is the risk that the value of the Company’s financial instruments will vary because of fluctuations in foreign exchange rates and the degree of volatility of these rates. Certain of the Company’s accounts receivable, accounts payable and accrued liabilities are denominated in Mexican pesos. The Company does not use any derivative instruments to reduce its exposure to fluctuations in foreign exchange rates.
(d)
Cash and cash equivalents
Cash and cash equivalents consist of cash and short-term money market instruments which are readily convertible into cash and have original maturities of 90 days or less.
Details of cash and cash equivalents are as follows:
June 30, 2006 | Dec. 31, 2005 | Dec. 31, 2004 | ||||
Cash | $ | 507,541 | $ | 6,210,193 | $ | 66,360 |
Short-term deposits | 5,400,000 | 1,350,000 | 1,800,000 | |||
$ | 5,907,541 | $ | 7,560,193 | $ | 1,866,360 |
(e)
Mineral rights and deferred exploration costs
The Company is in the exploration stage with respect to its activities and accordingly follows the practice of capitalizing all costs relating to the acquisition, exploration and development of its mining rights and crediting all revenues received against the cost of the related interests. At such time as commercial production commences, these costs will be charged to operations on a units-of-production method based on proven and probable reserves. The carrying values related to abandoned interests are charged to operations at the time of any abandonment.
Mineral rights include costs to acquire options to acquire interests in unproven mineral properties.
Deferred exploration costs include direct exploration costs incurred by the Company in its effort to determine the existence of economically mineable ore including the cost of feasibility studies.
MAG SILVER CORP.
(An exploration stage company)
Period ended June 30, 2006 and 2005
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(e)
Mineral rights and deferred exploration costs (continued)
Management reviews the carrying value of mineral rights and deferred exploration costs at least quarterly for evidence of impairment. This review is generally made with reference to the timing of exploration work, work programs proposed, exploration results achieved by the Company and by others in the related area of interest, and an assessment of the likely results to be achieved from performance of further exploration. When the results of this review indicate that a condition of impairment exists, the Company estimates the net recoverable amount of the deferred exploration costs and related mining rights by reference to the potential for success of further exploration activity and/or the likely proceeds to be received from sale or assignment of the rights. When the carrying values of mining rights or deferred exploration costs are estimated to exceed their net recoverable amounts, a provision is made for the decline in value.
(f)
Equipment and leaseholds
Equipment and leaseholds are recorded at cost and are amortized on the declining balance basis at the following annual rates:
Computer equipment and software
30%
Field equipment
30%
The leasehold improvements are depreciated on a straight-line basis to amortize the costs over the three year term of the related lease.
(g)
Income taxes
Future income taxes relate to the expected future tax consequences of differences between the carrying amount of balance sheet items and their corresponding tax values. Future tax assets, if any, are recognized only to the extent that, in the opinion of management, it is more likely than not that the future income tax assets will be realized. Future income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment or substantive enactment.
MAG SILVER CORP.
(An exploration stage company)
Period ended June 30, 2006 and 2005
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(h)
Stock-based compensation
Effective January 1, 2004, the Company adopted the amended recommendations of the CICA Handbook Section 3870,Stock-based Compensation and Other Stock-based Payments. Under the amended standards of this Section, the fair value of all stock-based awards granted are estimated using the Black-Scholes model and are recorded in operations over their vesting periods. The compensation cost related to stock options granted after January 1, 2004 is recorded in operations.
Previously, the Company provided note disclosure of pro forma net earnings and pro forma earnings per share as if the fair value based method had been used to account for share purchase options granted to employees, directors and officers after January 1, 2002. The amended recommendations have been applied retroactively from January 1, 2002 without restatement of prior periods. As a result, as of January 1, 2004, the deficit was increased by $248,128, and contributed surplus was increased by $248,128.
The total compensation expense recognized in the statement of operations for share purchase options granted during 2006 amount to $1,719,706 (2005 - $474,000).
Had the same basis been applied to share purchase options granted in 2004 and 2003, net earnings for the year would have been as follows:
2004 | 2003 | |||||
Net loss | $ | 733,897 | $ | 837,539 | ||
Additional compensation expense | - | 248,128 | ||||
Pro forma net loss | $ | 733,897 | $ | 1,085,667 | ||
Pro forma basic and diluted loss per share | $ | (0.03 | ) | $ | (0.08 | ) |
For the year ended December 31, 2003, stock-based compensation expense was determined using an option pricing model assuming no dividends are to be paid, a weighted average volatility of the Company’s share price of 63%, an annual risk free interest rate of 3.76% and expected lives of five years. The weighted average fair value of share purchase options granted in 2003 was $0.33 per share.
No stock options were issued in the year ended December 31, 2004 and the fair value of the stock options issued in 2005 are described in Note 4 (b).
MAG SILVER CORP.
(An exploration stage company)
Period ended June 30, 2006 and 2005
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(i)
Foreign exchange translation
The accounts of the Company’s foreign operations are considered to be integrated with the operations of the Company and are translated into Canadian dollars as follows:
·
monetary assets and liabilities at the rate prevailing at the balance sheet date;
·
non-monetary assets and liabilities at historical rates; and
·
income and expenses at the average rate in effect during the year.
The resulting translation adjustment is included as a component of foreign exchange (gain) loss on the statement of operations.
(j)
Earnings (loss) per common share
Basic earnings (loss) per share calculations are based on the weighted average number of common shares outstanding, after excluding the shares held in escrow for which the conditions for their release were not satisfied (Note 4 (d)).
The Company uses the treasury stock method for the calculation of diluted earnings per share. Diluted earnings per share are computed using the weighted average number of common and common equivalent shares outstanding during the year. Common equivalent shares consist of the incremental common shares upon the assumed exercise of stock options and warrants, but are excluded from the computation if their effect is anti-dilutive.
Potentially dilutive securities totalling 6,249,990 for the period ended March 31, 2006 (2,665,000 and 3,584,990 shares arising from outstanding and exercisable stock options and share purchase warrants, respectively) and 4,366,755 shares for the period ended March 31, 2005 (2,000,000 and 2,366,755 shares arising from outstanding exercisable stock options and share purchase warrants, respectively) were not included as their effect would be anti-dilutive.
(k)
Asset retirement obligations
The Company records the present value of asset retirement obligations including reclamation costs when the obligation is incurred and it is recorded as a liability with a corresponding increase in the carrying value of the related mining assets. The carrying value is amortized over the life of the related mining asset on a units-of-production basis commencing with initial commercialization of the asset. The liability is accreted to the actual liability on settlement through charges each period in the statement of operations.
MAG SILVER CORP.
(An exploration stage company)
Period ended June 30, 2006 and 2005
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(l)
Comparative figures
Certain of the prior periods’ comparative figures have been reclassified to conform with the classifications used in June 30, 2006.
3.
FIXED ASSETS AND LEASEHOLDS
June 30, | December 31, | |||||||
2006 | 2005 | |||||||
Accumulated | Net book | Net book | ||||||
Cost | depreciation | value | value | |||||
Computer equipment | ||||||||
and software | $ | 27,774 | $ | 12,281 | $ | 15,493 | $ | 12,300 |
Field equipment | 34,806 | 18,771 | 16,035 | 18,864 | ||||
Leasehold improvements | 15,000 | 8,750 | 6,250 | 8,750 | ||||
$ | 77,580 | $ | 39,802 | $ | 37,778 | $ | 39,914 |
4.
SHARE CAPITAL
(a)
Issued and outstanding
On March 2, 2006 the Company closed a private placement subscribed to by Industrias Peñoles S.A. de C.V. (“Peñoles”) which consisted of 245,716 common shares of MAG Silver Corp. at $2.35. This equates to an investment of $577,433 (US$500,000). See Note 6 (a)(v).
On December 22, 2005, the Company raised gross proceeds of $6,494,749 from the sale of 6,494,749 units at a price of $1.00 per unit in a brokered, non-brokered financing. Each unit consisted of one common share and one-half of one share purchase warrant, with each whole warrant entitling the holder to purchase one share at a price of $1.35 per share for a period of 18 months until June 21, 2007. The Agents were granted warrants to purchase up to 295,190 shares of the Company at a price of $1.35 in partial payment of services rendered in connection with their portion of the financing. The commission paid to the Agents was $295,190, equal to 7% of the gross proceeds of the Offering, comprising of $210,340 in cash and $84,850 in units of the offering. Each unit consisted of one common share and one-half of one share purchase warrant. Corporate finance fees, legal fees, TSX fees and related expenditures totalled $113,802. The net proceeds to the Company from the financing were $6,170,607.
On June 29, 2005, the Company issued 750,000 shares with a value of $607,500 to the former option holder of the Don Fippi property to complete the acquisition of the property. See Note 6 (b).
On June 29, 2005, the Company issued 750,000 shares with a value of $607,500 to the former option holder of the Guigui property to complete the acquisition of the property. See Note 6 (c).
MAG SILVER CORP.
(An exploration stage company)
Period ended June 30, 2006 and 2005
4.
SHARE CAPITAL (Continued)
(a)
Issued and outstanding (continued)
On May 2, 2005 the Company closed the private placement subscribed to by Industrias Peñoles S.A. de C.V. (“Peñoles”) which consisted of 621,577 common shares of MAG Silver Corp. at $0.967. This equates to an investment of $601,065 (US$500,000). See Note 6 (a)(v).
On April 15, 2003, the Company raised gross proceeds of $5,750,000 from the sale of 11,500,000 units at a price of $0.50 per unit. Each unit consisted of one common share and one-half of one share purchase warrant, with each whole warrant entitling the holder to purchase one share at a price of $0.75 per share for a period of two years from the date of closing. The Agents were granted warrants to purchase up to 1,150,000 shares of the Company at the same price in partial payment of services rendered in connection with the financing. The commission paid to the Agents was $460,000, equal to 8% of the gross proceeds of the Offering, including the issue of 10,000 shares of the Company (the “Administration Shares”) as an administration fee in relation to the Offering, valued at $5,000. Corporate finance fees, legal fees and related expenditures totalled $175,234, of which $7,500 was incurred to December 31, 2002. Th e net proceeds to the Company from the financing were $5,109,766.
The prospectus issued in respect of the financing also qualified 2,400,000 common shares and non-transferable share purchase warrants to purchase up to 1,950,000 common shares of the Company issuable upon the exercise of special warrants issued by the Company in September and December, 2002, which shares and warrants have now been issued. The prospectus also qualified 500,000 finders’ fee shares issued in relation to property acquisitions, of which 200,000 common shares have been issued and 300,000 were initially issued in escrow.
(b)
Stock options
The Company has entered into Incentive Stock Option Agreements (“Agreements”) with directors, officers and employees. The maximum number of stock options which may be granted is limited to 10% of the issued and outstanding shares.
MAG SILVER CORP.
(An exploration stage company)
Period ended June 30, 2006 and 2005
4.
SHARE CAPITAL (Continued)
(b)
Stock options (continued)
At the date the Agreements are entered into, the exercise price of each option is set at the fair value of the common shares at the date of grant. The following table summarizes the Company’s options:
Weighted | Weighted | |||||||
Period ended | average | Year ended | average | |||||
June 30, | exercise | December 31, | exercise | |||||
2006 | price | 2005 | price | |||||
Balance outstanding, | ||||||||
beginning of year | 2,154,500 | $ | 0.84 | 1,030,000 | $ | 0.54 | ||
Activity during the period | ||||||||
Options granted | 960,000 | 3.16 | 1,240,000 | 1.03 | ||||
Options cancelled | - | - | (10,000 | ) | 1.06 | |||
Options exercised | (416,000 | ) | 0.71 | (105,500 | ) | 0.22 | ||
Balance outstanding, | ||||||||
end of period | 2,698,500 | $ | 1.68 | 2,154,500 | $ | 0.84 |
The following table summarizes options outstanding and exercisable at June 30, 2006:
Number outstanding | Weighted average | Weighted | |||
and exercisable at | remaining | average | |||
Exercise | June 30, | contractual life | exercise | ||
price | 2006 | (years) | price | ||
$ | 0.50 | 394,500 | 1.79 | $ | 0.50 |
0.70 | 220,000 | 1.86 | 0.70 | ||
0.75 | 80,000 | 4.10 | 0.75 | ||
1.00 | 110,000 | 4.42 | 1.00 | ||
1.02 | 25,000 | 4.45 | 1.02 | ||
1.06 | 878,000 | 3.55 | 1.06 | ||
1.14 | 37,500 | 4.26 | 1.14 | ||
1.55 | 18,500 | 4.53 | 1.55 | ||
3.00 | 650,000 | 4.60 | 3.00 | ||
3.56 | 25,000 | 4.72 | 3.56 | ||
4.04 | 210,000 | 4.75 | 4.04 | ||
2.00 | 50,000 | 4.96 | 2.00 | ||
2,698,500 | 3.62 | $ | 1.68 |
During the current period the Company granted 960,000 stock options (June 30, 2005 - 970,000). The Company has recorded $1,719,706 (2005 - $474,000) of compensation expense relating to stock options vested to employees and consultants in the period ended June 30, 2006.
MAG SILVER CORP.
(An exploration stage company)
Period ended June 30, 2006 and 2005
4.
SHARE CAPITAL (Continued)
(b)
Stock options (continued)
For the period ended June 30, 2006, stock-based compensation expense was determined using an option pricing model assuming no dividends are to be paid, a weighted average volatility of the Company’s share price of 86%, an annual risk free interest rate of 4.11% and expected lives of three years.
For the year ended December 31, 2005, stock-based compensation expense was determined using an option pricing model assuming no dividends are to be paid, a weighted average volatility of the Company’s share price of 80%, an annual risk free interest rate of 3.5% and expected lives of three years.
(c)
Share purchase warrants
Weighted | ||||
average | ||||
Number | exercise | |||
of warrants | price | |||
Balance at December 31, 2004 | 2,429,255 | 0.75 | ||
Issued in connection with issuance of common | ||||
shares | 3,584,990 | 1.35 | ||
Exercised and converted into common shares | (1,400,755 | ) | 0.75 | |
Expired | (1,028,500 | ) | 0.75 | |
Balance at December 31, 2005 | 3,584,990 | 1.35 | ||
Exercised and converted into common shares | (252,832 | ) | 1.35 | |
Balance at June 30, 2006 | 3,332,158 | $ | 1.35 |
The following table summarizes information about the warrants outstanding at June 30, 2006:
Exercise | Warrants | ||
price | outstanding | Expiry date | |
$ | 1.35 | 3,332,158 | June 21, 2007 |
(d)
Shares held in escrow
At the end of the period there are no shares held in escrow. All remaining escrow shares have been released during the period ended June 30, 2006. At April 21, 2006, the final 45,000 of the of the originally escrowed common shares issued in connection with the finders fee (Note 4 (a)) and 225,000 of the original 1,500,000 common shares issued to directors and officers of the company were released.
MAG SILVER CORP.
(An exploration stage company)
Period ended June 30, 2006 and 2005
5.
INCOME TAXES
The provision for income taxes reported differs from the amounts computed by applying the cumulative Canadian federal and provincial income tax rates to the pre-tax loss due to the following:
2005 | 2004 | 2003 | |||||||
Statutory tax rates | 34.87 | % | 35.60 | % | 37.60 | % | |||
Recovery of income taxes computed at | |||||||||
statutory rates | $ | 631,439 | $ | 261,267 | $ | 314,915 | |||
Non-deductible expenses | (215,930 | ) | (4,116 | ) | (28,316 | ) | |||
Lower effective tax rate on loss in | |||||||||
foreign jurisdictions | (6,363 | ) | (1,973 | ) | (1,603 | ) | |||
Future tax benefits not recognized in | |||||||||
the period that the loss arose | (409,146 | ) | (255,178 | ) | (284,996 | ) | |||
$ | - | $ | - | $ | - |
The approximate tax effect of each type of temporary difference that gives rise to the Company’s future income tax assets are as follows:
2005 | 2004 | |||||
Canadian operating loss carryforwards | $ | 1,023,908 | $ | 651,097 | ||
Mexican operating loss carryforwards | 1,669,599 | 1,223,600 | ||||
Canadian capital losses carried forward | 41,649 | 44,100 | ||||
Share issuance costs | 192,478 | 136,750 | ||||
Total future income tax assets | 2,927,634 | 2,055,547 | ||||
Less valuation allowance | (1,130,648 | ) | (831,947 | ) | ||
Net future income tax assets | 1,796,986 | 1,223,600 | ||||
Future income tax liability | ||||||
Excess of book value of mineral rights and deferred | ||||||
exploration costs over tax values | (1,796,986 | ) | (1,223,600 | ) | ||
Net future income tax assets | $ | - | $ | - |
At December 31, 2005, the Company has Canadian non-capital loss carryforwards aggregating $3,103,000, expiring between 2006 and 2015, available to offset future taxable income and capital loss carryforwards of $252,000 which are available only to offset future capital gains for tax purposes and may be carried forward indefinitely.
At December 31, 2005, the Company has Mexican tax loss carryforwards aggregating $5,962,000, expiring between 2012 and 2015, available to offset future taxable income.
MAG SILVER CORP.
(An exploration stage company)
Period ended June 30, 2006 and 2005
6.
MINERAL RIGHTS AND DEFERRED EXPLORATION COSTS
Six Month Period ended June 30, 2006 | |||||||||||||||
Sierra de | Cinco de | ||||||||||||||
Juanicipio | Don Fippi | Guigui | Lagartos | Ramirez | Adargas | Mayo | Total | ||||||||
Acquisition costs | |||||||||||||||
of mineral rights | |||||||||||||||
Bal., beginning of year | $919,458 | $1,422,672 | $1,571,172 | $39,629 | $329,854 | $289,387 | $285,936 | $4,858,108 | |||||||
Incurred during period | - | - | - | 10,689 | 29,208 | - | - | 39,897 | |||||||
Balance, end of period | $919,458 | $1,422,672 | $1,571,172 | $50,318 | $359,062 | $289,387 | $285,936 | $4,898,005 | |||||||
Deferred exploration costs | |||||||||||||||
Camp costs | $894 | $75,828 | $275 | $44,602 | $1,374 | $- | 13,010 | $135,983 | |||||||
Drilling | - | 281,069 | - | 807,894 | - | - | - | 1,088,963 | |||||||
Geochemical | 238 | 21,593 | - | 26,303 | - | - | 34,245 | 82,379 | |||||||
Geological | 34,802 | 204,310 | 5,543 | 183,633 | 15,258 | 1,035 | 78,407 | 522,988 | |||||||
Gov't fees and licenses | 6,019 | 525 | 4,684 | 94,509 | 8,631 | 622 | 2,375 | 117,365 | |||||||
Travel | 6,792 | 29,432 | 410 | 5,641 | 839 | 985 | 392 | 44,491 | |||||||
Transport and shipping | - | - | - | - | - | - | - | - | |||||||
Site administration | 2,781 | 21,138 | 2,499 | 7,877 | 100 | - | 1,301 | 35,696 | |||||||
51,526 | 633,895 | 13,411 | 1,170,459 | 26,202 | 2,642 | 129,730 | 2,027,865 | ||||||||
Bal., beginning of year | 2,026,094 | 1,240,889 | 1,265,194 | 399,192 | 88,536 | 307,779 | 135,787 | 5,463,471 | |||||||
Balance, end of period | $2,077,620 | $1,874,784 | $1,278,605 | $1,569,651 | $114,738 | $310,421 | 265,517 | $7,491,336 |
Three Month Period ended June 30, 2006 | |||||||||||||||
Sierra de | Cinco de | ||||||||||||||
Juanicipio | Don Fippi | Guigui | Lagartos | Ramirez | Adargas | Mayo | Total | ||||||||
Acquisition costs | |||||||||||||||
of mineral rights | |||||||||||||||
Bal., beginning of period | $919,458 | $1,422,672 | $1,571,172 | $50,318 | $329,854 | $289,387 | $285,936 | $4,868,797 | |||||||
Incurred during period | - | - | - | - | 29,208 | - | - | 29,208 | |||||||
Balance, end of period | $919,458 | $1,422,672 | $1,571,172 | $50,318 | $359,062 | $289,387 | $285,936 | $4,898,005 | |||||||
Deferred exploration costs | |||||||||||||||
Camp costs | $69 | $21,122 | $275 | $27,706 | $1,008 | $- | $12,224 | $62,404 | |||||||
Drilling | - | 2,058 | - | 474,004 | - | - | - | 476,062 | |||||||
Geochemical | 238 | 7,691 | - | 22,659 | - | - | 436 | 31,024 | |||||||
Geological | 23,044 | 79,101 | 4,853 | 127,690 | 8,681 | - | 70,929 | 314,298 | |||||||
Gov't fees and licenses | 1,166 | 67 | - | 2,718 | - | - | - | 3,951 | |||||||
Travel | 3,331 | 12,128 | - | 61 | 447 | - | - | 15,967 | |||||||
Transport and shipping | - | - | - | 4,546 | - | - | - | 4,546 | |||||||
Site administration | - | 4,528 | 212 | - | 47 | - | 1,222 | 6,009 | |||||||
27,848 | 126,695 | 5,340 | 659,384 | 10,183 | - | 84,811 | 914,261 | ||||||||
Bal., beginning of period | 2,049,772 | 1,748,089 | 1,273,265 | 910,267 | 104,555 | 310,421 | 180,706 | 6,577,075 | |||||||
Balence, end of period | $2,077,620 | $1,874,784 | $1,278,605 | $1,569,651 | $114,738 | $310,421 | $265,517 | $7,491,336 |
MAG SILVER CORP.
(An exploration stage company)
Period ended June 30, 2006 and 2005
6.
MINERAL RIGHTS AND DEFERRED EXPLORATION COSTS (Continued)
(a)
Juanicipio Property
The Company, through its subsidiary, Minera Los Lagartos, S.A. de C.V. (“Lagartos”), holds a 100% interest in an exploration concession on the Juanicipio property, located in the Fresnillo District, Zacatecas, Mexico.
On April 4, 2005 the Company announced the signing of a binding letter of agreement for the establishment of an exploration Joint Venture covering MAG’s wholly-owned 7,679 hectare Juanicipio Property in Zacatecas, Mexico with Industrias Peñoles, S.A. de C.V. (“Peñoles”). A formal agreement was signed with an anniversary date of July 1, 2005.
The principal features of the agreement are:
(i)
Peñoles can earn a 56% interest in Juanicipio upon completion of a US$5,000,000 exploration program on or before the end of year 4 of the agreement.
(ii)
During the first year, Peñoles shall incur an obligatory work commitment expenditure of at least US$750,000. Year 1 expenditures must include a minimum of 3,000 metres of diamond drilling. At December 31, 2005, Peñoles had spent US$622,440 and had completed 5,747 metres of diamond drilling.
(iii)
A flexible and staged exploration program is included in the contract. Exploration work will be supervised by a technical committee comprised of three representatives from Peñoles and two from MAG Silver. Peñoles and MAG Silver are obliged to share their information in the district. Part of the geological and exploration work will be conducted by MAG consultants and in-house personnel.
(iv)
Exploration results from Juanicipio will be published as appropriate on an ongoing basis, with both companies to agree on the content.
(v)
Peñoles subscribed for US$500,000 for a total of 621,577 MAG shares, at a price of $0.967 on signing, and on March 2, 2006 purchased an additional US$500,000 for a total of 245,716 MAG shares, at a price of $2.35, to continue the contract into the second year. This second year includes a commitment for Peñoles to spend a minimum of $1,000,000 on exploration.
MAG SILVER CORP.
(An exploration stage company)
Period ended June 30, 2006 and 2005
6.
MINERAL RIGHTS AND DEFERRED EXPLORATION COSTS (Continued)
(b)
Don Fippi Property
Under the terms of an option agreement, the Company has the right to explore and acquire a 100% interest in mining concessions located in the Batopilas, Chihuahua district of Mexico.
In 2005, MAG negotiated a buyout of the original agreement. Under the terms of the buyout agreement MAG issued the underlying agreement holders a total of 750,000 common shares of MAG for the Don Fippi property (Batopilas). This purchase gives MAG an undivided 100% interest in the property and eliminates an obligation to make further cash payments of US$450,000, satisfy work expenditure commitments of approximately US$3.41 million, and issue 673,822 additional shares under the original terms of the option agreement. The property will remain subject to royalties and other terms of the original option agreement.
(c)
Guigui Property
Under the terms of an option agreement, the Company has the right to explore and acquire a 100% interest in mining concessions located in the Santa Eulalia (Guigui), Chihuahua district of Mexico.
In 2005, MAG negotiated a buyout of the original agreement. Under the terms of the buyout agreement MAG issued the underlying agreement holders a total of 750,000 common shares of MAG for the Guigui property. This purchase gives MAG an undivided 100% interest in the property and eliminates an obligation to make further cash payments of US$450,000, satisfy work expenditure commitments of approximately US$1.84 million, and issue 604,003 additional shares under the original terms of the option agreement. The property will remain subject to royalties and other terms of the original option agreement.
(d)
Lagartos Property
The Company has acquired an exploration concession on mining claims (Lagartos) on the Fresnillo trend to the northwest and southeast of the Juanicipio property. This exploration concession enables the Company to explore the mining claim covered by the concession to December 2009, subject to the Company paying any applicable annual tax or other regulatory charges.
MAG SILVER CORP.
(An exploration stage company)
Period ended June 30, 2006 and 2005
6.
MINERAL RIGHTS AND DEFERRED EXPLORATION COSTS (Continued)
(e)
Sierra Ramirez Property
The Company has the right to explore and acquire a 100% interest in mining concessions located in the Sierra Ramirez district in Durango, Mexico. Under the terms of the related option agreement, the Company is obligated to:
(i)
make scheduled payments totalling US$1,505,000 plus applicable value added tax (of which US$255,000 has been paid) by December 14, 2008;
(ii)
incur exploration expenditures totalling US$750,000 by July 26, 2009 (of which US$92,000 has been incurred to June 30, 2006); and
(iii)
issue a finder’s fee of 25,000 common shares of the Company, of which the Company has issued a total of 21,637 common shares pursuant to the agreement approved by the TSX Venture exchange.
During the year ended December 31, 2004, the first tranche of 9,191 common shares were allotted and issued. During the year ended December 31, 2005, the second tranche of 12,446 common shares were issued; and the third tranche of 3,363 shares was issued subsequent to the end of the period.
(f)
Adargas Property
The Company has entered into an agreement which gives it the right to explore and acquire a 100% interest in the Adargas property (the “Adargas Property”), subject to a 2.5% net smelter returns royalty. Under the terms of the agreement, the Company is obligated to:
(i)
make scheduled payments totalling US$1,000,000 plus applicable value added tax (of which US$100,000 has been paid) by July 26, 2009;
(ii)
issue 75,000 common shares of the Company (all have been issued); and
(iii)
incur exploration expenditures totalling US$1,000,000 by July 26, 2009 (of which US$252,300 has been incurred to June 30, 2006).
During the year ended December 31, 2005, MAG and Minera Los Lagartos, S.A. de C.V. and Minera Cascabel, S.A. de C.V. amended terms of an option agreement dated February 26, 2004 whereby MAG has an option to acquire a 100% interest in the Adargas property in Mexico. Under the terms, half of each of the remaining property payments totalling US$975,000 (on or before July 26, 2009) may be paid in shares at a deemed price per share equal to the average trading price of MAG for 30 calendar days prior to the date of payment. To that end MAG paid cash of US$37,500 and issued 59,830 shares for the property payment due July 26, 2005. See subsequent events.
MAG SILVER CORP.
(An exploration stage company)
Period ended June 30, 2006 and 2005
6.
MINERAL RIGHTS AND DEFERRED EXPLORATION COSTS (Continued)
(g)
Cinco de Mayo Property
The Company has entered into an agreement which gives it the right to explore and acquire a 100% interest in the Cinco de Mayo property (the “Cinco de Mayo Property”), subject to a 2.5% net smelter returns royalty. Under the terms of the agreement, the Company is obligated to:
(i)
make scheduled payments totalling US$1,000,000 plus applicable value added tax (of which US$100,000 has been paid) by July 26, 2009;
(ii)
issue 75,000 common shares of the Company (all have been issued); and
(iii)
incur exploration expenditures totalling US$1,000,000 by July 26, 2009 (of which US$225,50000 has been incurred to June 30, 2006).
During the year ended December 31, 2005, MAG and Minera Los Lagartos, S.A. de C.V. and Minera Cascabel, S.A. de C.V. amended terms of an option agreement dated February 26, 2004 whereby MAG has an option to acquire a 100% interest in the Cinco de Mayo property in Mexico. Under the terms, half of each of the remaining property payments totalling US$975,000 (on or before July 26, 2009) may be paid in shares at a deemed price per share equal to the average trading price of MAG for 30 calendar days prior to the date of payment. To that end MAG paid cash of US$37,500 and issued 59,830 shares for the property payment due July 26, 2005. See subsequent events.
7.
ACQUISITIONS
(a)
Minera Los Lagartos, S.A. de C.V. (“Lagartos”)
The Company announced on November 25, 2002 that it was proceeding with the acquisition of a 99% interest in the issued and outstanding common shares of Lagartos. This acquisition was completed by the Company on January 15, 2003. The remaining 1% of Lagartos is held, in trust for the Company, by a director and officer of the Company. Upon acquisition by the Company, Lagartos held the interests in the Juanicipio concessions and the options to acquire interests in the Don Fippi and Guigui concessions.
The acquisition of Lagartos has been accounted for using the purchase method and the results of operations of Lagartos have been included in the Company’s results of operations from January 15, 2003.
MAG SILVER CORP.
(An exploration stage company)
Period ended June 30, 2006 and 2005
7.
ACQUISITIONS (Continued)
(a)
Minera Los Lagartos, S.A. de C.V. (“Lagartos”) (continued)
The total purchase price of Lagartos and its allocation to the fair value of net assets acquired is as follows:
Cash advanced to Lagartos in respect of option on Juanicipio property | ||
(US$50,000) paid in 2002 | $ | 78,750 |
Cash paid for the 100% interest in the common shares of Lagartos | ||
(US$5,000) | 7,500 | |
Finders’ fee | 250,000 | |
Advances to Lagartos prior to acquisition | 113,139 | |
$ | 449,389 | |
The fair value of net assets acquired | ||
Mineral rights | $ | 449,389 |
The Company issued 500,000 common shares with a fair value of $0.50 per share in connection with the completion of the transaction as a finders’ fee to two officers and a company with directors and officers in common.
There were no other significant assets or liabilities acquired in this transaction. As such, the total of the acquisition of Lagartos has been allocated to acquired mineral rights being the right or the underlying right to explore a mining property.
(b)
Lexington Capital Group Inc. (“Lexington”)
On October 9, 2005 the assets of Lexington were merged with Lagartos, so that all indirect interests in the Juanicipio I claim were held by one company.
On July 16, 2003, the Company completed the acquisition of Lexington whose main asset is its indirect interest in the Juanicipio I claim that encompasses the Company’s Juanicipio Project near Fresnillo, Zacatecas, Mexico. Under the terms of the agreement, the Company paid the vendor US$250,000 (Cdn$350,000) and 200,000 common shares of the Company.
The acquisition was accounted for using the purchase method. The allocation of the purchase price was as follows:
Cash | $ | 350,000 | |
200,000 common shares | 180,000 | ||
$ | 530,000 |
MAG SILVER CORP.
(An exploration stage company)
Period ended June 30, 2006 and 2005
7.
ACQUISITIONS (Continued)
(b)
Lexington Capital Group Inc. (“Lexington”) (continued)
Fair value of net assets acquired:
Cash | $ | 4,219 | |
Current liabilities | (13,196 | ) | |
Mineral property interests | 538,977 | ||
$ | 530,000 |
8.
RELATED PARTY TRANSACTIONS
For the period ended June 30, 2006 the Company’s president received $65,400 in compensation for management services (2005 - $55,750).
The Company is party to a Field Services Agreement, whereby it has contracted exploration services in Mexico with MINERA CASCABEL S.A. de C.V. (“Cascabel”) and IMDEX Inc. (“Imdex”). As of January 2006, these companies have a common director with the Company. During the period ended June 30, 2006 the Company accrued or paid Cascabel and IMDEX consulting fees totaling $64,334 and exploration fees totaling $565,735 under the Field Services Agreement.
During the year ended December 31, 2003, the Company entered into an office services agreement with Platinum Group Metals Ltd. (“PTM”), a company with a common director and common officer. During the period ended March 31, 2006 the Company accrued or paid PTM $67,768 under the common service agreement (2005 - $66,754).
During the year ended December 31, 2004, the Company entered into an office lease agreement with Anthem Works Ltd. (“Anthem”), a company with a common director. During the period ended June 30, 2006 the Company accrued or paid Anthem $31,167 under the office lease agreement (2005 - $31,167).
These transactions were incurred in the normal course of business and are measured at the exchange amount which was the consideration established and agreed to by the noted parties.
9.
CONTINGENCIES AND COMMITMENTS
The Company’s minimum payments under its office lease agreement which was entered into during the year ended December 31, 2004, is as follows:
2006 | $ | 31,167 |
2007 | 46,750 | |
$ | 77,917 |
MAG SILVER CORP.
(An exploration stage company)
Period ended June 30, 2006 and 2005
10.
AMOUNTS RECEIVABLE
June 30, 2006 | Dec. 31, 2005 | |||
Goods and services tax recoverable | $ | 14,197 | $ | 26,706 |
Mexican value added tax ("IVA") recoverable | 157,957 | 75,499 | ||
Other | 2,371 | 2,866 | ||
$ | 174,525 | $ | 105,071 |
11.
SUBSEQUENT EVENTS
Subsequent to June 30, 2006:
(a)
MAG Silver Corp. has issued 30,840 shares for half of the US$125,000 Adargas property payment due July 26, 2006. Under the terms of the agreement, half of each of the remaining property payments totaling US$900,000 (on or before July 26, 2009) may be paid in shares at a deemed price per share equal to the average trading price of MAG for 30 calendar days prior to the date of payment;
(b)
MAG Silver Corp. has issued 30,840 shares for half of the US$125,000 Cinco de Mayo property payment due July 26, 2006. Under the terms of the agreement, half of each of the remaining property payments totaling US$900,000 (on or before July 26, 2009) may be paid in shares at a deemed price per share equal to the average trading price of MAG for 30 calendar days prior to the date of payment;
(c)
Issued 3,363 common shares at $2.25 as a finders fee to the finder of the Sierra Ramirez property pursuant to the agreement approved by the TSX Venture exchange;
(d)
Issued 4,171 common shares at $1.35 on the exercise of warrants for proceeds of $5,631;