Exhibit 99.55
__________________________________________________________________
Grandview Gold Inc.
(An Exploration Stage Company)
Interim Consolidated Financial Statements
For the Three Months Ended August 31, 2010
(Expressed in Canadian Dollars)
(Unaudited)
___________________________________________________________________
Management’s Responsibility for Financial Reporting
The accompanying unaudited interim consolidated financial statements of Grandview Gold Inc. (A Development Stage Enterprise) were prepared by management in accordance with Canadian generally accepted accounting principles. The most significant of these accounting principles have been set out in the May 31, 2010 audited consolidated financial statements. Only changes in accounting policies have been disclosed in these unaudited interim consolidated financial statements. Management acknowledges responsibility for the preparation and presentation of the period end unaudited interim consolidated financial statements, including responsibility for significant accounting judgments and estimates and the choice of accounting principles and methods that are appropriate to the Company’s circumstances.
Management has established systems of internal control over the financial reporting process, which are designed to provide reasonable assurance that relevant and reliable financial information is produced.
The Board of Directors is responsible for ensuring that management fulfills its financial reporting responsibilities and for reviewing and approving the period end unaudited interim consolidated financial statements together with other financial information. An Audit Committee assists the Board of Directors in fulfilling this responsibility. The Audit Committee meets with management to review the internal controls over the financial reporting process and the period end unaudited interim consolidated financial statements together with other financial information of the Company. The Audit Committee reports its findings to the Board of Directors for its consideration in approving the period end unaudited interim consolidated financial statements together with other financial information of the Company for issuance to the shareholders.
Management recognizes its responsibility for conducting the Company’s affairs in compliance with established financial standards, and applicable laws and regulations, and for maintaining proper standards of conduct for its activities.
Management's Report on Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate control over financial reporting. Management conducted an evaluation of the effectiveness of internal control over financial reporting based on “Internal Control Over Financial Reporting –Guidance For Smaller Public Companies” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as at August 31, 2010.
Conclusion Relating to Disclosure Controls and Procedures
An evaluation was performed under the supervision of and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures as defined in the Multilateral Instrument 52-109. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the design and operation of the Company’s disclosure controls and procedures were effective as at August 31, 2010.
Notice to Reader
Under National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.
The accompanying unaudited 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 unaudited 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.
| (signed) | (signed) |
| Paul T. Sarjeant | Ernest Cleave |
| Chief Executive Officer | Chief Financial Officer |
| Toronto, Canada | |
| October 14, 2010 | |
| Grandview Gold Inc. | | | | | | |
| (An Exploration Stage Company) | | | | | | |
| Interim Consolidated Balance Sheets | | | | | | |
| (Expressed in Canadian Dollars) | | | | | | |
| | | August 31, | | | | |
| (Unaudited) | | 2010 | | | May 31, 2010 | |
| Assets | | | | | | |
| Current assets | | | | | | |
| Cash and cash equivalents | $ | 1,226,090 | | $ | 1,432,824 | |
| Short term investments | | 25,099 | | | 25,037 | |
| GST and sundry receivable | | 40,118 | | | 26,416 | |
| Prepaid expenses | | 12,777 | | | 12,876 | |
| | | 1,304,084 | | | 1,497,153 | |
| Reclamation bond (Note 5) | | 14,001 | | | 13,699 | |
| Mining interests (Note 6) | | 4,247,910 | | | 4,149,771 | |
| | $ | 5,565,995 | | $ | 5,660,623 | |
| Liabilities | | | | | | |
| Current liabilities | | | | | | |
| Accounts payable and accrued liabilities | $ | 78,612 | | $ | 89,284 | |
| Asset retirement obligation | | 14,001 | | | 13,699 | |
| | | 92,613 | | | 102,983 | |
| Shareholders' equity | | 5,473,382 | | | 5,557,640 | |
| | $ | 5,565,995 | | $ | 5,660,623 | |
Nature of operations and going concern (Note 1)
The notes to unaudited interim consolidated financial statements are an integral part of these statements.
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| Grandview Gold Inc. | | | | | | | | | |
| (An Exploration Stage Company) | | | | | | | | | |
| Interim Consolidated Statements of Operations and Comprehensive Loss | | | | | | | |
| (Expressed in Canadian Dollar) | | | | | | | | | |
| | | | | | | | | Cumulative | |
| | | | | | | | | from date of | |
| | | | | | | | | inception | |
| | | Three Months Ended | | | of the exploration | |
| | | August 31, | | | stage (March | |
| (Unaudited) | | 2010 | | | 2009 | | | 26, 2004 | ) |
| Expenses | | | | | | | | | |
| Share-based payments | $ | - | | $ | 368,500 | | $ | 4,479,616 | |
| Investor relations, business development and reporting issuer maintenance costs | | 13,509 | | | 17,393 | | | 1,916,672 | |
| Professional fees | | 31,169 | | | 42,438 | | | 1,397,167 | |
| Management services (Note 12) | | 27,750 | | | 20,000 | | | 1,469,690 | |
| Office and administration | | 9,499 | | | 11,934 | | | 747,744 | |
| Exploration evaluation expenses | | 2,394 | | | 60 | | | 27,279 | |
| Flow-through interest expense | | - | | | - | | | 188,801 | |
| Bad debt | | - | | | - | | | 1,235 | |
| | | 84,321 | | | 460,325 | | | 10,228,204 | |
| Loss before the under noted | | (84,321 | ) | | (460,325 | ) | | (10,228,204 | ) |
| Interest income | | 63 | | | (2,715 | ) | | 88,786 | |
| Write-down of marketable securities | | - | | | - | | | (25,000 | ) |
| Write-off of mineral properties | | - | | | - | | | (6,431,718 | ) |
| Impairment of mineral properties | | - | | | - | | | (1,557,112 | ) |
| Forgiveness of debt | | - | | | - | | | 35,667 | |
| Failed merger costs | | - | | | - | | | (170,000 | ) |
| Loss before income taxes | | (84,258 | ) | | (463,040 | ) | | (18,287,581 | ) |
| Future income tax recovery | | - | | | - | | | 1,675,990 | |
| Net loss and comprehensive loss for the period | $ | (84,258 | ) | $ | (463,040 | ) | $ | (16,611,591 | ) |
| Basic loss per share(Note 10) | $ | (0.00 | ) | $ | (0.01 | ) | | | |
| Diluted loss per share(Note 10) | $ | (0.00 | ) | $ | (0.01 | ) | | | |
The notes to unaudited interim consolidated financial statements are an integral part of these statements.
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| Grandview Gold Inc. | | | | | | | | | |
| (An Exploration Stage Company) | | | | | | | | | |
| Interim Consolidated Statements of Accumulated Deficit | | | | | | | | | |
| (Expressed in Canadian Dollars) | | | | | | | | | |
| | | | | | | | | Cumulative | |
| | | | | | | | | from date of | |
| | | | | | | | | inception | |
| | | | | | | | | of the | |
| | | Three Months Ended | | | exploration | |
| | | August 31, | | | stage (March | |
| (Unaudited) | | 2010 | | | 2009 | | | 26, 2004 | ) |
| Accumulated Deficit | | | | | | | | | |
| Balance at beginning of period | $ | (19,961,581 | ) | $ | (19,081,178 | ) | $ | ( 3,434,248 | ) |
| Net loss for the period | | (84,258 | ) | | (463,040 | ) | | (16,611,591 | ) |
| Balance at end of period | $ | (20,045,839 | ) | $ | (19,544,218 | ) | $ | (20,045,839 | ) |
The notes to unaudited interim consolidated financial statements are an integral part of these statements.
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| Grandview Gold Inc. | | | | | | | | | | | | | | | |
| (An Exploration Stage Company) | | | | | | | | | | | | | |
| Interim Consolidated Statements of Changes in Shareholders' Equity | | | | | | | | | | | | | |
| (Expressed in Canadian Dollars) | | | | | | | | | | | | | | | |
| | | | | | | | | Contributed | | | Accumulated | | | | |
| (Unaudited) | | Share Capital | | | Warrants | | | Surplus | | | Deficit | | | Total | |
| At May 31, 2008 | $ | 14,202,266 | | $ | 3,742,570 | | $ | 4,789,944 | | $ | (11,193,260 | ) | $ | 11,541,520 | |
| Mineral property acquisition | | 10,800 | | | - | | | - | | | - | | | 10,800 | |
| Private placement | | 416,666 | | | - | | | - | | | - | | | 416,666 | |
| Cost of issue - cash laid out | | (47,833 | ) | | - | | | - | | | - | | | (47,833 | ) |
| Cost of issue - broker warrants valuation | | (30,666 | ) | | 30,666 | | | - | | | - | | | - | |
| Flow-through cost of issue | | (120,833 | ) | | - | | | - | | | - | | | (120,833 | ) |
| Warrants expired | | - | | | (2,569,432 | ) | | 2,569,432 | | | - | | | - | |
| Net loss for the year | | - | | | - | | | - | | | (7,887,918 | ) | | (7,887,918 | ) |
| At May 31, 2009 | | 14,430,400 | | | 1,203,804 | | | 7,359,376 | | | (19,081,178 | ) | | 3,912,402 | |
| Share-based payments | | - | | | - | | | 449,491 | | | - | | | 449,491 | |
| Exercise of warrants | | 16,667 | | | - | | | - | | | - | | | 16,667 | |
| Fair value of warrants exercised | | 15,333 | | | (15,333 | ) | | - | | | - | | | - | |
| Mineral property acquisition | | 67,000 | | | - | | | - | | | - | | | 67,000 | |
| Private placement | | 2,000,000 | | | - | | | - | | | - | | | 2,000,000 | |
| Cost of issue – cash laid out | | (36,392 | ) | | - | | | - | | | - | | | (36,392 | ) |
| Cost of issue – broker warrant valuation | | (1,440,000 | ) | | 1,440,000 | | | - | | | - | | | - | |
| Debt conversion | | 28,875 | | | - | | | - | | | - | | | 28,875 | |
| Warrants expired | | - | | | (1,173,138 | ) | | 1,173,138 | | | - | | | - | |
| Net loss for the year | | - | | | - | | | - | | | (880,403 | ) | | (880,403 | ) |
| At May 31, 2010 | $ | 15,081,883 | | $ | 1,455,333 | | $ | 8,982,005 | | $ | (19,961,581 | ) | $ | 5,557,640 | |
| Net loss for the period | | - | | | - | | | - | | | (84,258 | ) | | (84,258 | ) |
| | | | | | | | | | | | | | | | |
| At August 31, 2010 | $ | 15,081,883 | | $ | 1,455,333 | | $ | 8,982,005 | | $ | (20,045,839 | ) | $ | 5,473,382 | |
The notes to unaudited interim consolidated financial statements are an integral part of these statements.
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| | | | | | | | | | |
| Grandview Gold Inc. | | | | | | | | | |
| (An Exploration Stage Company) | | | | | | | | | |
| Interim Consolidated Statements of Cash Flows | | | | | | | | | |
| (Expressed in Canadian Dollars) | | | | | | | | | |
| | | | | | | | | Cumulative | |
| | | | | | | | | from date of | |
| | | | | | | | | inception | |
| | | | | | | | | of the | |
| | | Three Months Ended | | | exploration | |
| | | August 31, | | | stage (March | |
| (Unaudited) | | 2010 | | | 2009 | | | 26, 2004 | ) |
| Cash flows from operating activities | | | | | | | | | |
| Net loss for the period | $ | (84,258 | ) | $ | (463,040 | ) | $ | (16,611,591 | ) |
| Items not involving cash: | | | | | | | | | |
| Write-down of marketable securities | | - | | | - | | | 25,000 | |
| Debt conversion | | - | | | - | | | (6,792 | ) |
| Write-off of bad debts | | - | | | - | | | 1,235 | |
| Share-based payments | | - | | | 368,500 | | | 4,479,616 | |
| Future income tax recovery | | - | | | - | | | (1,675,990 | ) |
| Accrued interest income | | (63 | ) | | - | | | (44,003 | ) |
| Write-off of mineral properties | | - | | | - | | | 6,431,718 | |
| Impairment of mineral properties | | - | | | - | | | 1,557,112 | |
| Changes in non-cash working capital items: | | | | | | | | | |
| GST and sundry receivable | | (13,702 | ) | | (4,377 | ) | | (39,628 | ) |
| Prepaid expenses | | 99 | | | 3,967 | | | (12,777 | ) |
| Due from a related party | | - | | | - | | | 90,000 | |
| Accounts payable and accrued liabilities | | (10,671 | ) | | 29,552 | | | 84,783 | |
| Cash flows used in operating activities | | (108,595 | ) | | (65,398 | ) | | (5,721,317 | ) |
| Cash flows from financing activities | | | | | | | | | |
| Loans from related parties | | - | | | - | | | (28,594 | ) |
| Share/warrant issuance | | - | | | - | | | 20,068,877 | |
| Cost of issuance | | - | | | - | | | (1,812,701 | ) |
| Proceeds from loan | | - | | | - | | | 175,000 | |
| Repayment of loan | | - | | | - | | | (75,000 | ) |
| Cash flows provided by financing activities | | - | | | - | | | 18,327,582 | |
| Cash flows from investing activities | | | | | | | | | |
| Purchase of reclamation bond | | - | | | - | | | (13,090 | ) |
| Redemption (purchase) of short term investments | | - | | | 407,493 | | | 18,903 | |
| Exploration advances | | - | | | - | | | - | |
| Expenditures on mining interests | | (98,139 | ) | | (124,034 | ) | | (11,295,988 | ) |
| Due from a related party | | - | | | - | | | (90,000 | ) |
| Cash flows provided by (used in)investing activities | $ | (98,139 | ) | $ | 283,459 | | $ | (11,380,175 | ) |
The notes to unaudited interim consolidated financial statements are an integral part of these statements.
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| Grandview Gold Inc. | | | | | | | | | |
| (An Exploration Stage Company) | | | | | | | | | |
| Interim Consolidated Statements of Cash Flows – Continued | | | | | | | |
| (Expressed in Canadian Dollars) | | | | | | | | | |
| | | | | | | | | Cumulative | |
| | | | | | | | | from date of | |
| | | | | | | | | inception | |
| | | | | | | | | of the | |
| | | Three Months Ended | | | exploration | |
| | | August 31, | | | stage (March | |
| (Unaudited) | | 2010 | | | 2009 | | | 26, 2004 | ) |
| Change in cash and cash equivalentsduring the period | $ | (206,734 | ) | $ | 218,061 | | $ | 1,226,090 | |
| Cash and cash equivalents,beginning of period | | 1,432,824 | | | 106,593 | | | - | |
| Cash and cash equivalents, end of period | $ | 1,226,090 | | $ | 324,654 | | $ | 1,226,090 | |
| Supplemental Schedule of Non-cash Transactions | | | | | | | | | |
| Share issuance included in mining interest | $ | - | | $ | 10,800 | | $ | 630,875 | |
| Warrant issuance included in mining interest | $ | - | | $ | - | | $ | 184,750 | |
| Share-based payments included in mining interest | $ | - | | $ | - | | $ | 111,475 | |
| Interest paid | $ | - | | $ | - | | $ | 45,159 | |
The notes to unaudited interim consolidated financial statements are an integral part of these statements.
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| Grandview Gold Inc. | | | | | | | | | |
| (An Exploration Stage Company) | | | | | | | | | |
| Interim Consolidated Statements of Mineral Properties | | | | | | | |
| (Expressed in Canadian Dollars) | | | | | | | | | |
| | | | | | | | | Cumulative | |
| | | | | | | | | from date of | |
| | | | | | | | | inception | |
| | | | | | | | | of the | |
| | | Three Months Ended | | | exploration | |
| | | August 31, | | | stage (March | |
| (Unaudited) | | 2010 | | | 2009 | | | 26, 2004 | ) |
| Red Lake Gold Camp, Ontario, Canada | | | | | | | | | |
| Balance, beginning of period | $ | 3,873,967 | | $ | 3,442,793 | | $ | - | |
| Drilling, assays and related field work | | - | | | 68,783 | | | 3,202,798 | |
| Property acquisition and holding costs | | 1,353 | | | - | | | 672,522 | |
| | | 1,353 | | | 68,783 | | | 3,875,320 | |
| Balance, end of period | $ | 3,875,320 | | $ | 3,511,576 | | $ | 3,875,320 | |
| Guilianita Property, Peru | | | | | | | | | |
| Balance, beginning of period | $ | 275,804 | | $ | - | | $ | - | |
| Drilling, assays and related field work | | 57,600 | | | 13,582 | | | 292,472 | |
| Project administration and general | | 39,186 | | | - | | | 39,186 | |
| Property acquisition and holding costs | | - | | | 41,669 | | | 40,932 | |
| | | 96,786 | | | 55,251 | | | 372,590 | |
| Balance, end of period | $ | 372,590 | | $ | 55,251 | | $ | 372,590 | |
| Total | $ | 4,247,910 | | $ | 3,566,827 | | $ | 4,247,910 | |
The notes to unaudited interim consolidated financial statements are an integral part of these statements.
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1. Nature of Operations and Going Concern
Grandview Gold Inc. (the "Company" or "Grandview") is a gold exploration company focused on exploring and developing gold properties in gold camps of North America.
The Company was incorporated under the laws of the Province of Ontario. The Company was previously in the business of investing significant equity interests in high-technology companies. As at March 26, 2004, the Company changed its direction to a gold exploration company. To date, the Company has not earned significant revenues from gold exploration and is considered to be in the exploration stage. As such, the Company will be applying Accounting Guideline 11 "Enterprises in the Development Stage" as required by the Canadian Institute of Chartered Accountants' ("CICA") Handbook effective March 26, 2004 onward.
The unaudited interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP"), as applicable to a going concern entity which contemplates the realization of its assets and the settlement of its liabilities in the normal course of operations. In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but is not limited to, twelve months from the end of the reporting period. The ability of the Company to continue operations is dependent upon obtaining the necessary financing to complete the development of a mineral property. Management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern, as described in the following paragraph. Accordingly, the unaudited interim consolidated financial statements do not give effect to adjustments that would be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and liquidate its liabilities and commitments in other than the normal course of business and at amounts different from those in the accompanying unaudited interim consolidated financial statements.
The Company's financing efforts to date, while substantial, are not sufficient in and of themselves to enable the Company to fund all aspects of its operations. Management expects that the Company, based upon the underlying value of its exploration projects, will be able to secure the necessary financing to meet the Company’s requirements on an ongoing basis. Nevertheless, there is no assurance that these initiatives will be successful.
2. Accounting Policies
The unaudited interim financial statements have been prepared by the Company in accordance with GAAP. The preparation of the unaudited interim consolidated financial statements is based on accounting policies and practices consistent with those used in the preparation of the audited annual consolidated financial statements except as noted below. The accompanying unaudited interim consolidated financial statements should be read in conjunction with the notes to the Company’s audited consolidated financial statements for the year ended May 31, 2010, since they do not contain all disclosures required by GAAP for annual financial statements. These unaudited interim consolidated financial statements reflect all normal and recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the respective unaudited interim periods presented.
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2. Accounting Policies (Continued)
Future Accounting Pronouncements
International Financial Reporting Standards [“IFRS”]
In January 2006, the CICA’s Accounting Standards Board ("AcSB") formally adopted the strategy of replacing Canadian GAAP with IFRS for Canadian enterprises with public accountability. The current conversion timetable calls for financial reporting under IFRS for accounting periods commencing on or after January 1, 2011. On February 13, 2008 the AcSB confirmed that the use of IFRS will be required in 2011 for publicly accountable profit-oriented enterprises. For these entities, IFRS will be required for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The Company is currently assessing the impact of IFRS on its consolidated financial statements.
Business Combinations, Consolidated Financial Statements and Non-Controlling Interests
The CICA issued three new accounting standards in January 2009: Section 1582, "Business Combinations", Section 1601, "Consolidated Financial Statements" and Section 1602, "Non-Controlling interests". These new standards will be effective for fiscal years beginning on or after January 1, 2011. Section 1582 replaces section 1581 and establishes standards for the accounting for a business combination. It provides the Canadian equivalent to IFRS 3 - Business Combinations. Sections 1601 and 1602 together replace section 1600, "Consolidated Financial Statements". Section 1601, establishes standards for the preparation of consolidated financial statements. Section 1602 establishes standards for accounting for a non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination. It is equivalent to the corresponding provisions of IFRS lAS 27 - Consolidated and Separate Financial Statements. The Company is in the process of evaluating the requirements of the new standards.
3.Capital Management
The Company considers its capital structure to consist of share capital, warrants, contributed surplus and accumulated deficit. When managing capital, the Company’s objective is to ensure the entity continues as a going concern as well as to achieve optimal returns to shareholders and benefits for other stakeholders. Management adjusts the capital structure as necessary in order to support the acquisition, exploration and development of its mineral properties. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company's management team to sustain the future development of the business.
The properties in which the Company currently has an interest are in the exploration stage. As such the Company is dependent on external financing to fund its activities. In order to carry out the planned exploration program and pay for administrative costs, the Company will spend its existing working capital and raise additional amounts when economic conditions permit it to do so.
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3.Capital Management (continued) Management has chosen to mitigate the risk and uncertainty associated with raising additional capital within current economic conditions by:
i) minimizing discretionary disbursements;
ii) reducing or eliminating exploration expenditures which are of limited strategic value; and
iii) exploring alternate sources of liquidity.
In light of the above, the Company will continue to assess new properties and seek to acquire an interest in additional properties if it believes there is sufficient potential and if it has adequate financial resources to do so.
There were no changes in the Company's approach to capital management during the three months period ended August 31, 2010. The Company is not subject to externally imposed capital requirements.
4.Risk Factors
The Company’s significant mineral properties are Red Lake Gold Camp, Ontario, Canada and Guilianta Property, Peru (called the "Properties"). A full description of these properties may be found in Note 7 of the May 31, 2010 audited consolidated financial statements.
Unless the Company acquires or develops additional significant properties, the Company will be solely dependent upon these Properties. If no additional mineral properties are acquired by the Company, any adverse development affecting the Properties would have a material adverse effect on the Company's financial condition and results of operations.
The Company's risk exposures and their impact on the Company's financial instruments are summarized below:
Fair Value
The following summarizes the methods and assumptions used in estimating the fair value of the Company's financial instruments where measurement is required. The fair value of short-term financial instruments approximates their carrying amounts due to the relatively short period to maturity. These include cash and cash equivalents and short-term investments. Fair value amounts represent point-in-time estimates and may not reflect fair value in the future. The measurements are subjective in nature, involve uncertainties and are a matter of significant judgment. The methods and assumptions used to develop fair value measurements, for those financial instruments where fair value is recognized in the balance sheet, have been prioritized into three levels as per the fair value hierarchy included in GAAP. Level one includes quoted prices (unadjusted) in active markets for identical assets or liabilities. Level two includes inputs that are observable other than quoted prices included in level one. Level three includes inputs that are not based on observable market data.
| | | Level One | | | Level Two | | | Level Three | |
| Cash and cash equivalents | $ | 1,226,090 | | $ | - | | $ | - | |
| Short-term investments | $ | 25,099 | | $ | - | | $ | - | |
| Reclamation bond | $ | 14,001 | | $ | - | | $ | - | |
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4. Risk Factors (continued)
Credit Risk
Credit risk is the risk of loss associated with a counterparty’s inability to fulfill its payment obligations. The Company's credit risk is primarily attributable to cash and cash equivalents, GST and sundry receivable and due from a related party. Cash and cash equivalents are held with a reputable Canadian chartered bank, from which management believes the risk of loss to be minimal.
Financial instruments included in GST and sundry receivable and due from a related party consist of sales tax receivable from government authorities in Canada, deposits held with service providers and a loan provided to the President and CEO of the Company. GST and sundry receivable and due from a related party are in good standing as of August 31, 2010. Management believes that the credit risk concentration with respect to financial instruments included in GST and sundry receivable and due from a related party is minimal.
Liquidity Risk
The Company's approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As at August 31, 2010, the Company had a cash and cash equivalents and short term investments balance of $1,251,189 (May 31, 2010 - $1,457,861) to settle current liabilities of $78,612 (May 31, 2010 - $89,284). All of the Company's financial liabilities have contractual maturities of less than 30 days and are subject to normal trade terms.
Market Risk
Market risk is the risk of loss that may arise from changes in interest rates, foreign exchange rates and commodity prices.
| (a) | Interest Rate Risk |
| | |
| The Company has cash balances and no interest-bearing debt. The Company's current policy is to invest excess cash in investment-grade short-term deposit certificates issued by the Company's Canadian chartered bank. The Company periodically monitors the investments it makes and is satisfied with the creditworthiness of its bank. |
| | |
| (b) | Foreign Currency Risk |
| | |
| The Company's functional and reporting currency is the Canadian dollar and major purchases are transacted in Canadian dollars. As a result, the Company's exposure to foreign currency risk is minimal. |
| | |
| (c) | Price Risk |
| | |
| The Company is exposed to price risk with respect to commodity prices. Commodity price risk is defined as the potential adverse impact on earnings and economic value due to commodity price movements and volatilities. The Company closely monitors commodity prices, as they relate to gold to determine the appropriate course of action to be taken by the Company. |
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4. Risk Factors (continued)
Sensitivity Analysis
The Company has, for accounting purposes, designated its cash and cash equivalents as held for trading, which is measured at fair value. GST and sundry receivable and due from a related party are classified for accounting purposes as loans and receivables, which are measured at amortized cost which equals fair value. Accounts payable and accrued liabilities are classified for accounting purposes as other financial liabilities, which are measured at amortized cost which also equals fair value.
As of August 31, 2010, the carrying and fair value amounts of the Company's financial instruments are approximately equivalent.
The sensitivity analysis shown in the notes below may differ materially from actual results.
Based on management's knowledge and experience of the financial markets, the Company believes the following movements are "reasonably possible" over a three month period:
| (i) | Short term investments are subject to floating interest rates. As at August 31, 2010, if interest rates had decreased/increased by 1% with all other variables held constant, the loss for the three months ended August 31, 2010 would have been approximately $63 higher/lower, as a result of lower/higher interest income from short term investments. As at August 31, 2010, reported shareholders' equity would have been approximately $63 lower/higher as a result of lower/higher interest income from short term investments. |
| | | |
| (ii) | The Company does not hold significant balances in foreign currencies to give rise to exposure to foreign exchange risk. |
| | | |
| (iii) | Commodity price risk could adversely affect the Company. In particular, the Company’s future profitability and viability of development depends upon the world market price of gold. Gold has fluctuated widely in recent years. There is no assurance that, even as commercial quantities of gold may be produced in the future, a profitable market will exist for gold. A decline in the market price of gold may also require the Company to reduce its mining interests, which could have a material and adverse effect on the Company’s value. As of August 31, 2010, the Company was not a gold producer. As a result, commodity price risk may affect the completion of future equity transactions such as equity offerings and the exercise of stock options and warrants. This may also affect the Company's liquidity and its ability to meet its ongoing obligations. |
| 5. | Reclamation Bond |
| | |
| The Company has posted reclamation bonds for its mining projects, as required by the United States, Department of the Interior Bureau of Land Management, to secure clean-up costs, if any, on projects that are abandoned or closed. |
| | |
| 6. | Mining Interests |
| | |
| On a quarterly basis, management of the Company reviews exploration expenditures to ensure mining interests include only costs and projects that are eligible for capitalization. |
| | |
| For a description of mining interests, refer to Note 7 of the audited financial statements as at May 31, 2010. |
- 13 -
| 7. | Share Capital |
| | | |
| (a) | Authorized |
| | | |
| Unlimited number of common shares |
| | | |
| Unlimited number of preference shares. The preference shares are without par value, redeemable, voting, non-participating, and are convertible into common shares at the rate of one common share for five preference shares (none currently issued and outstanding). |
| | | |
| (b) | Issued |
| | | | | | | |
| | | Number | | | | |
| | | of | | | | |
| | | shares | | | Amount | |
| Balance, May 31, 2004 and March 26, 2004 | | 3,270,998 | | $ | 3,378,444 | |
| Stock split (3 for 1) | | 6,541,996 | | | - | |
| Private placement | | 120,000 | | | 120,000 | |
| Private placement | | 150,000 | | | 150,000 | |
| Mineral property acquisition | | 400,000 | | | 4,000 | |
| Private placement | | 175,000 | | | 175,000 | |
| Private placement | | 1,005,000 | | | 1,005,000 | |
| Warrant valuation | | - | | | (138,188 | ) |
| Mineral property acquisition | | 118,500 | | | 159,975 | |
| Mineral property acquisition | | 70,000 | | | 86,800 | |
| Cost of issue - warrant valuation | | - | | | (35,200 | ) |
| Cost of issue - cash laid out | | - | | | (124,081 | ) |
| Balance, May 31, 2005 | | 11,851,494 | | $ | 4,781,750 | |
| Private placement | | 2,019,104 | | | 2,523,880 | |
| Debt conversion | | 80,000 | | | 100,000 | |
| Warrant valuation | | - | | | (178,023 | ) |
| Private placement | | 590,320 | | | 737,900 | |
| Warrant valuation | | - | | | (111,498 | ) |
| Shares issued for a finders' fee | | 160,000 | | | 200,000 | |
| Private placement | | 400,000 | | | 500,000 | |
| Private placement | | 3,985,974 | | | 4,384,571 | |
| Warrant valuation | | - | | | (1,335,301 | ) |
| Cost of issue - broker warrant valuation | | - | | | (462,173 | ) |
| Cost of issue - cash laid out | | - | | | (866,375 | ) |
| Flow-through cost of issue | | - | | | (731,430 | ) |
| Balance, May 31, 2006 | | 19,086,892 | | $ | $9,543,301 | |
- 14 -
7.Share Capital (Continued)
(b) Issued (Continued)
| | | | | | | | |
| | | | Number | | | | |
| | | | of | | | | |
| | | | shares | | | Amount | |
| Balance, May 31, 2006 | | | 19,086,892 | | $ | 9,543,301 | |
| Private placement | | | 2,399,998 | | | 1,559,999 | |
| Warrant valuation | | | - | | | (284,400 | ) |
| Mineral property acquisition | | | 50,000 | | | 34,500 | |
| Mineral property acquisition | | | 55,000 | | | 22,000 | |
| Private placement | | | 3,250,000 | | | 1,462,500 | |
| Warrant valuation | | | - | | | (339,625 | ) |
| Cost of issue - cash laid out | | | - | | | (249,300 | ) |
| Cost of issue - finder options valuation | | | - | | | (165,800 | ) |
| Flow-through cost of issue | | | - | | | (563,472 | ) |
| Balance, May 31, 2007 | | | 24,841,890 | | $ | 11,019,703 | |
| Private placement | | | 11,169,000 | | | 4,950,150 | |
| Warrant valuation | | | - | | | (940,212 | ) |
| Mineral property acquisition | | | 130,000 | | | 45,800 | |
| Exercise of warrants | | | 147,875 | | | 66,544 | |
| Exercise of warrants valuation | | | - | | | 36,673 | |
| Cost of issue - cash laid out | | | - | | | (488,720 | ) |
| Cost of issue - broker warrants valuation | | | - | | | (227,417 | ) |
| Flow-through cost of issue | | | - | | | (260,255 | ) |
| Balance, May 31, 2008 | | | 36,288,765 | | $ | 14,202,266 | |
| Mineral property acquisition | | | 30,000 | | | 10,800 | |
| Private placement | | | 8,333,333 | | | 416,666 | |
| Cost of issue - cash | | | - | | | (47,833 | ) |
| Cost of issue - broker warrants valuation | | | - | | | (30,666 | ) |
| Flow-through cost of issue | | | - | | | (120,833 | ) |
| Balance, May 31, 2009 | | | 44,652,098 | | $ | 14,430,400 | |
| Mineral property acquisition | | | 750,000 | | | 67,000 | |
| Debt conversion | | | 360,937 | | | 28,875 | |
| Exercise of warrants – cash | | | 333,333 | | | 16,667 | |
| Exercise of warrants – valuation | | | - | | | 15,333 | |
| Private placement | | | 26,666,665 | | | 2,000,000 | |
| Cost of issue – cash | | | - | | | (36,392 | ) |
| Cost of issue – broker warrant valuation | | | - | | | (1,440,000 | ) |
| Balance, May 31, 2010 and August 31, 2010 | | | 72,763,033 | | $ | 15,081,883 | |
| | | | | | | | |
- 15 -
8. Warrants
| | | | | | Weighted Average | |
| | | Number of Warrants | | | Exercise Price | |
| Balance, May 31, 2004 and March 26, 2004 | | - | | $ | - | |
| Issued | | 602,500 | | | 1.44 | |
| Expired/cancelled | | - | | | - | |
| Balance, May 31, 2005 | | 602,500 | | $ | 1.44 | |
| Issued | | 3,435,238 | | | 1.63 | |
| Expired/cancelled | | (602,500 | | | (1.44 | |
| Balance, May 31, 2006 | | 3,435,238 | | $ | 1.63 | |
| Issued | | 4,189,999 | | | 0.91 | |
| Expired/cancelled | | (1,043,654 | | | 1.60 | |
| Balance, May 31, 2007 | | 6,581,583 | | $ | 1.18 | |
| Issued | | 5,853,480 | | | 0.62 | |
| Issued | | 73,937 | | | 0.65 | |
| Exercised | | (147,875 | | | 0.45 | |
| Balance, May 31, 2008 | | 12,361,125 | | $ | 0.92 | |
| Expired | | (6,307,645 | | | (1.18 | |
| Issued | | 666,666 | | | 0.05 | |
| Balance, May 31, 2009 | | 6,720,146 | | $ | 0.59 | |
| Expired | | (6,053,480 | | | (0.60 | |
| Issued | | 26,666,665 | | | 0.12 | |
| Exercised | | (333,333 | | | (0.65 | |
| Balance, May 31, 2010 and August 31, 2010 | | 26,999,998 | | $ | 0.12 | |
The following are the warrants outstanding at August 31, 2010:
| | | | | | | | | | |
| Number of | | Fair | | | Exercise | | | Expiry | |
| Warrants | | Value | | | Price ($) | | | | |
| 333,333 | | 15,333 | | | 0.05 | | | December 4, 2010 | |
| 26,666,665 | | 1,440,000 | | | 0.12 | | | December 3, 2011 | |
| 26,999,998 | $ | 1,455,333 | | | | | | | |
- 16 -
9.Stock Options
| | | | | | |
| | | Number | | | Weighted Average | |
| | | of | | | Exercise | |
| | | Stock Options | | | Price | |
| Balance, May 31, 2004 and March 26, 2004 | | - | | $ | - | |
| Granted | | 1,225,000 | | | 1.01 | |
| Cancelled | | (100,000 | ) | | 1.00 | |
| Balance, May 31, 2005 | | 1,125,000 | | $ | 1.06 | |
| Granted | | 1,100,000 | | | 1.55 | |
| Balance, May 31, 2006 | | 2,225,000 | | $ | 1.28 | |
| Granted | | 1,250,000 | | | 1.06 | |
| Expired | | (375,000 | ) | | 1.00 | |
| Cancelled | | (250,000 | ) | | 1.19 | |
| Balance, May 31, 2007 | | 2,850,000 | | $ | 1.22 | |
| Granted | | 2,700,000 | | | 0.63 | |
| Expired | | (850,000 | ) | | 1.13 | |
| Cancelled | | (125,000 | ) | | 1.38 | |
| Balance, May 31, 2008 | | 4,575,000 | | $ | 0.89 | |
| Cancelled | | (175,000 | ) | | 0.68 | |
| Balance, May 31, 2009 | | 4,400,000 | | $ | 0.90 | |
| Granted | | 4,250,000 | | | 0.15 | |
| Expired | | (1,375,000 | ) | | 0.75 | |
| Forfeited | | (1,400,000 | ) | | 0.93 | |
| Balance, May 31, 2010 | | 5,875,000 | | $ | 0.38 | |
| Cancelled | | (225,000 | ) | | (0.15 | ) |
| Balance, August 31, 2010 | | 5,650,000 | | $ | 0.39 | |
- 17 -
9. Stock Options (Continued)
The following are the stock options outstanding and exercisable at August 31, 2010:
| | | | | | | | | | |
| | | Options outstanding | | | | | | Options exercisable | |
| | | | | | Weighted average | | | | | | | | | Weighted | |
| | | | | | remaining | | | Weighted | | | | | | average | |
| | | Number | | | contractual | | | average | | | Number | | | exercise | |
| Expiry Date | | of Options | | | life | | | exercise price | | | of options | | | price | |
| April 3, 2011 | | 250,000 | | | 0.84 | | | 1.80 | | | 250,000 | | | 1.80 | |
| December 9, 2014 | | 900,000 | | | 4.53 | | | 0.15 | | | 900,000 | | | 0.15 | |
| September 27, 2012 | | 1,825,000 | | | 2.33 | | | 0.68 | | | 1,825,000 | | | 0.68 | |
| June 23, 2014 | | 2,675,000 | | | 4.07 | | | 0.15 | | | 2,675,000 | | | 0.15 | |
| | | 5,650,000 | | | 3.44years | | $ | 0.39 | | | 5,650,000 | | | 0.39 | |
10. Basic and Diluted Loss Per Share
Basic loss per share is computed by dividing the loss for the year by the weighted-average number of common shares outstanding during the year, including contingently issuable shares which are included when the conditions necessary for issuance have been met. Diluted loss per share is calculated in a manner similar to basic loss per share, except the weighted-average shares outstanding are increased to include potential common shares from the assumed exercise of options and warrants, if dilutive. The number of additional shares included in the calculation is based on the treasury stock method for options and warrants.
| | | | |
| | | Three Months Ended | |
| | | August 31, | |
| | | 2010 | | | 2009 | |
| Numerator for basic loss per share | $ | (84,258 | ) | $ | (463,040 | ) |
| Numerator for diluted loss per share | $ | (84,258 | ) | $ | (463,040 | ) |
| Denominator: | | | | | | |
| Weighted average number of common shares - basic | | 72,763,033 | | | 44,652,098 | |
| Weighted average number of common shares - diluted | | 72,763,033 | | | 44,652,098 | |
| Basic and diluted loss per share | $ | (0.00 | ) | $ | (0.01 | ) |
Diluted loss per share reflects the maximum possible dilution from the potential exercise of outstanding stock options and warrants and the conversion of convertible securities. However, the effect of outstanding warrants and stock options has not been included as the effect would be anti-dilutive.
- 18-
11. Segmented Information
The Company's operations comprise a single reporting operating segment engaged in mineral exploration (2009 - same). As the operations comprise a single reporting segment, amounts disclosed in the consolidated financial statements for loss for the periods presented also represent segment amounts.
The Company operates in two geographic segments for the three months ended August 31, 2010, and year ended May 31, 2010 as follows.
| | | | | | | |
| | | August 31, | | | May 31, | |
| | | 2010 | | | 2010 | |
| Canada | $ | 5,167,437 | | $ | 5,372,915 | |
| Peru | | 398,558 | | | 287,708 | |
| Total assets | $ | 5,565,995 | | $ | 5,660,623 | |
12. Related Party Transactions Not Disclosed Elsewhere
| (i) | For three months period ended August 31, 2010, $37,500 (three months ended August 31, 2009 - $37,500) was paid to the President and CEO of the Company for consulting services. Included in this amount was $18,750 (three months ended August 31, 2009 - $26,500) capitalized to mining interests. |
| | | |
| (ii) | For three months period ended August 31, 2010, $9,000 (three months ended August 31, 2009 - $9,000) in consulting fees was also paid or accrued to the Chief Financial Officer of the Company. |
| | | |
| (iii) | The Company provided a loan of $90,000 to the President and CEO of the Company. The loan is unsecured, bears no interest and was due on October 31, 2009. The loan was paid down through the application of various bonuses issued to the President and CEO. |
| | | |
These transactions were in the normal course of operations and were measured at the exchange value which is represented by the amount of consideration established and agreed to by the related parties. |
- 19 -
13. Differences Between Canadian GAAP and US GAAP
The Company's unaudited interim consolidated financial statements have been prepared in accordance with Canadian GAAP. These principles, as they pertain to the Company's consolidated financial statements differ from US GAAP as follows:
Under Canadian GAAP, the Company accounted for its stock compensation plan as described in Note 2(j) in the fiscal 2010 consolidated financial statements under which CICA Handbook Section 3870 requires that compensation for option awards to employees and consultants be recognized in the consolidated financial statements at fair value for options granted in fiscal years beginning on or after January 1, 2004. The Company, as permitted by CICA Handbook Section 3870, has adopted this section prospectively for new option awards granted on or after June 1, 2003. Accordingly, a fair value compensation expense is reported for any options that were granted and vested during an interim or fiscal period. Prior to this accounting policy, no compensation expense was required to be recorded for stock option grants under Canadian GAAP for fiscal 2004. For US GAAP purposes, the Company has adopted the provisions of Financial Accounting Standards Board (FASB) Statement 148 effective as of June 1, 2003, which provisions allow the Company to record compensation expense for stock options granted in fiscal 2004 and all future periods based on the estimated fair value of such option, using the prospective method. In December 2004, FASB issued Statement 123 (Revised 2004), "Share- Based Payment," which mandates the recording of compensation expense based on the fair value of such options.
For the three months ended August 31, 2010, 2009, and 2008, the Company's accounting for stock option grants under US GAAP is substantially equivalent to the accounting under Canadian GAAP. As such, the expense recorded for US GAAP purposes would be equal to the expense recorded for Canadian GAAP purposes for the three months ended August 31, 2010, 2009, and 2008. Had the Company adopted (FASB) Statement 148 for fiscal 2004, there would be no affect on earnings since no stock options were issued in that year.
Under Canadian GAAP, the Company accounts for its exploration costs as described in Note 2(e) of the annual consolidated financial statements for May 31, 2010, while under US GAAP, exploration costs cannot be capitalized and are expensed as incurred. Mineral property rights relating to the properties are capitalized and they are tested for impairment.
Prior to June 1, 2007, under Canadian GAAP marketable securities and long-term investments are carried at the lower of cost or market, and adjustments to the carrying value are shown as an expense on the statement of operations. Under US GAAP marketable equity securities are carried at market value, and changes to the market value are shown as a component of shareholder's equity (if the securities are classified as available-for-sale securities) or as gain or loss in the statement of operations (if the securities are classified as trading securities). Effective June 1, 2007, the Company's accounting for financial instruments, equity and comprehensive income under US GAAP is substantially equivalent to the accounting under Canadian GAAP.
Canadian GAAP provides that a tax benefit be recorded in the statement of operations to reflect the recovery of future income taxes relating to the renunciation of resource property expenditures to the Company's flow-through share investors (see Note 12 of the annual consolidated financial statements for May 31, 2010). US GAAP has no such provision; consequently, the US GAAP statement of operations contains no such tax benefit.
Under Canadian GAAP, the Company does not impute interest on loans to related parties, while under US GAAP, imputed interest is required to be recorded for the purpose of preparing consolidated financial statements.
- 20 -
13. Differences Between Canadian GAAP and US GAAP (Continued)
Had the Company's consolidated balance sheets as at August 31, 2010 and May 31, 2010 been prepared using US GAAP, such consolidated balance sheets would be presented as follows:
| | | August 31, 2010 | | | May 31, 2010 | |
| Assets | | | | | | |
| Current assets | | | | | | |
| Cash | $ | 1,226,090 | | $ | 1,432,824 | |
| Short term investments | | 25,099 | | | 25,037 | |
| GST and sundry receivable | | 40,118 | | | 29,719 | |
| Prepaid expenses | | 12,777 | | | 12,876 | |
| Due from a related party | | 2,929 | | | - | |
| | | 1,307,013 | | | 1,500,456 | |
| Reclamation bond | | 14,001 | | | 13,699 | |
| Mineral property rights | | 713,454 | | | 712,101 | |
| | $ | 2,034,468 | | $ | 2,226,256 | |
| Liabilities | | | | | | |
| Current liabilities | | | | | | |
| Accounts payable | $ | 78,610 | | $ | 7,835 | |
| Accrued liabilities | | - | | | 81,449 | |
| | | 78,610 | | | 89,284 | |
| Assets retirement obligation | | 14,001 | | | 13,699 | |
| | | 92,611 | | | 102,983 | |
| Shareholders' Equity | | | | | | |
| Share capital | | | | | | |
| Authorized - unlimited common shares | | | | | | |
| Issued | | | | | | |
| Common shares | | 16,757,873 | | | 16,757,873 | |
| Additional paid in capital | | 4,390,914 | | | 4,390,914 | |
| Warrants | | 1,455,333 | | | 1,455,333 | |
| Cumulative adjustments to marketable securities | | (325,305 | ) | | (325,305 | ) |
| Deferred share-based payments | | 4,591,091 | | | 4,591,091 | |
| Deficit accumulated before change to an exploration stage company | | (3,133,943 | ) | | (3,133,943 | ) |
| Deficit accumulated during the exploration stage | | (21,794,106 | ) | | (21,612,690 | ) |
| | | 1,941,857 | | | 2,123,273 | |
| | $ | 2,034,468 | | $ | 2,226,256 | |
- 21 -
13. Differences Between Canadian GAAP and US GAAP (Continued)
Under US GAAP, exploration stage companies are required to provide cumulative-from-inception information relating to income statements, statements of cash flows, and statements of changes in shareholders' equity. Inception has been deemed to be March 26, 2004, the date on which the Company, at a shareholders' meeting, made the decision to return to the business of exploration as its primary business focus. The Company's statements of operations and comprehensive loss under US GAAP are as follows:
| Statements of Operations and Comprehensive Loss | | | | | | | | | | |
| | | | | | Three | | | | | | | |
| | | | | | Months | | | | | | Cumulative | |
| | | | | | Ended | | | | | | from date | |
| | | August 31, | | | August 31, | | | August 31, | | | of inception | |
| | | 2010 | | | 2009 | | | 2008 | | | ("March 26, 2004" | ) |
| Expenses | | | | | | | | | | | | |
| General exploration | $ | 99,552 | | $ | 82,425 | | $ | 234,766 | | $ | 9,390,898 | |
| Management services | | 27,750 | | | 388,500 | | | 74,214 | | | 5,254,111 | |
| Investor relations, business development and reporting issuer maintenance costs | | 13,509 | | | 17,393 | | | 16,824 | | | 1,960,570 | |
| Write-off of bad debts | | - | | | - | | | - | | | 1,235 | |
| Professional fees | | 31,169 | | | 42,438 | | | 30,729 | | | 1,254,813 | |
| Office and administration | | 9,499 | | | 11,934 | | | 17,185 | | | 678,637 | |
| Flow-through interest expense | | - | | | - | | | - | | | 188,801 | |
| Gain on forgiveness of debt | | - | | | - | | | - | | | (35,667 | ) |
| Failed merger costs | | - | | | - | | | - | | | 170,000 | |
| Loss before the under noted | | (181,479 | ) | | (542,690 | ) | | (373,718 | ) | | (18,863,398 | ) |
| Interest income | | 63 | | | (2,589 | ) | | 1,842 | | | 104,234 | |
| Write-off mineral property rights | | - | | | - | | | - | | | (90,144 | ) |
| Net loss for the period | | (181,416 | ) | | (545,279 | ) | | (371,876 | ) | | (18,849,308 | ) |
| Comprehensive (loss) items: | | | | | | | | | | | | |
| Write-down of marketable securities | | - | | | - | | | - | | | (25,000 | ) |
| Comprehensive loss for the period | $ | (181,416 | ) | $ | (545,279 | ) | $ | (371,876 | ) | $ | (18,874,308 | ) |
| Loss per common share | | | | | | | | | | | | |
| Basic | $ | (0.00 | ) | | (0.01 | ) | | (0.01 | ) | | | |
| Diluted | $ | (0.00 | ) | | (0.01 | ) | | (0.01 | ) | | | |
| Comprehensive loss per | | | | | | | | | | | | |
| common share | | | | | | | | | | | | |
| Basic | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.01 | ) | | | |
| Diluted | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.01 | ) | | | |
- 22 -
13. Differences Between Canadian GAAP and US GAAP (Continued)
Statements of Changes in Shareholders' Equity
The changes in common shares from March 26, 2004 (date the Company became a exploration stage enterprise) as required by US GAAP is disclosed below:
| | | | | | Amount | |
| | | | | | Under | |
| Common Shares | | Shares | | | US GAAP | |
| Common shares before change to a exploration stage company and as of March 26, 2004 | | 3,270,998 | | $ | 3,378,444 | |
| Stock split (3 for 1) | | 6,541,996 | | | - | |
| Private placement | | 120,000 | | | 120,000 | |
| Private placement | | 150,000 | | | 150,000 | |
| Mineral property acquisition | | 400,000 | | | 4,000 | |
| Private placement | | 175,000 | | | 175,000 | |
| Private placement | | 1,005,000 | | | 1,005,000 | |
| Warrant valuation | | - | | | (138,188 | ) |
| Mineral property acquisition | | 118,500 | | | 159,975 | |
| Mineral property acquisition | | 70,000 | | | 86,800 | |
| Cost of issue - warrant valuation | | - | | | (35,200 | ) |
| Cost of issue - cash laid out | | - | | | (124,081 | ) |
| Balance, May 31, 2005 | | 11,851,494 | | $ | 4,781,750 | |
| Private placement | | 2,019,104 | | | 2,523,880 | |
| Debt conversation | | 80,000 | | | 100,000 | |
| Warrant valuation | | - | | | (178,023 | ) |
| Private placement | | 590,320 | | | 737,900 | |
| Warrant valuation | | - | | | (111,498 | ) |
| Shares issued for a finders' fee | | 160,000 | | | 200,000 | |
| Private placement | | 400,000 | | | 500,000 | |
| Private placement | | 3,985,974 | | | 4,384,571 | |
| Warrant valuation | | - | | | (1,335,301 | ) |
| Cost of issue - broker warrant valuation | | - | | | (462,173 | ) |
| Cost of issue - cash laid out | | - | | | (866,375 | ) |
| Balance, May 31, 2006 | | 19,086,892 | | $ | 10,274,731 | |
| Private placement | | 2,399,998 | | | 1,559,999 | |
| Warrant valuation | | - | | | (284,400 | ) |
| Mineral property acquisition | | 50,000 | | | 34,500 | |
| Mineral property acquisition | | 55,000 | | | 22,000 | |
| Private placement | | 3,250,000 | | | 1,462,500 | |
| Warrant valuation | | - | | | (339,625 | ) |
| Cost of issue - cash laid out | | - | | | (249,300 | ) |
| Cost of issue - finder options valuation | | - | | | (165,800 | ) |
| Balance, May 31, 2007 | | 24,841,890 | | $ | 12,314,605 | |
- 23 -
| 13. Differences Between Canadian GAAP and US GAAP (Continued) | | | | | | |
| | | | | | Amount | |
| | | | | | Under | |
| Common Shares (continued) | | Shares | | | US GAAP | |
| Balance, May 31, 2007 | | 24,841,890 | | $ | 12,314,605 | |
| Private placements | | 11,169,000 | | | 4,950,150 | |
| Warrants valuation | | - | | | (940,212 | ) |
| Mineral property acquisition | | 130,000 | | | 45,800 | |
| Exercise of warrants | | 147,875 | | | 66,544 | |
| Exercise of warrants valuation | | - | | | 36,673 | |
| Cost of issue - cash laid out | | - | | | (488,720 | ) |
| Cost of issue - broker warrants valuation | | - | | | (227,417 | ) |
| Balance, May 31, 2008 | | 36,288,765 | | $ | 15,757,423 | |
| Mineral property acquisition | | 30,000 | | | 10,800 | |
| Private placement | | 8,333,333 | | | 416,666 | |
| Cost of issue - cash | | - | | | (47,833 | ) |
| Cost of issue - broker warrants valuation | | - | | | (30,666 | ) |
| Balance, May 31, 2009 | | 44,652,098 | | $ | 16,106,390 | |
| Private placements | | 26,666,665 | | | 2,000,000 | |
| Cost of issue – cash | | - | | | (36,392 | ) |
| Mineral property acquisition | | 750,000 | | | 67,000 | |
| Debt conversion | | 360,937 | | | 28,875 | |
| Exercise of warrants - valuation | | - | | | 15,333 | |
| Exercise of warrants – cash | | 333,333 | | | 16,667 | |
| Cost of issue - broker warrants valuation | | - | | | (1,440,000 | ) |
| Balance, May 31, 2010 and August 31, 2010 | | 72,763,033 | | $ | 16,757,873 | |
| | | | | | | |
| Other charges in shareholders’ equity are presented as follows: | | | | | | |
| | | | | | | |
| Additional Paid in Capital | | | | | | |
| Balance from inception and as of May 31, 2004 and 2005 | | | | $ | 25,000 | |
| Expired warrants | | | | | 173,388 | |
| Balance, May 31, 2006 | | | | $ | 198,388 | |
| Expired warrants | | | | | 449,956 | |
| Balance, May 31, 2007 and May 31, 2008 | | | | $ | 648,344 | |
| Expired warrants | | | | | 2,569,432 | |
| Balance, May 31, 2009 | | | | $ | 3,217,776 | |
| Expired warrants | | | | | 1,173,138 | |
| Balance, May 31, 2010 and August 31, 2010 | | | | $ | 4,390,914 | |
- 24 -
| 13. Differences Between Canadian GAAP and US GAAP (Continued) | | | |
| | | | |
| Warrants | | | |
| Balance from March 26, 2004 to May 31, 2004 | $ | - | |
| Issued | | 173,388 | |
| Balance, May 31, 2005 | $ | 173,388 | |
| Issued | | 2,086,995 | |
| Expired | | (173,388 | ) |
| Balance, May 31, 2006 | $ | 2,086,995 | |
| Issued | | 974,575 | |
| Expired | | (449,956 | ) |
| Balance, May 31, 2007 | $ | 2,611,614 | |
| Issued | | 1,167,629 | |
| Exercised | | (36,673 | ) |
| Balance, May 31, 2008 | $ | 3,742,570 | |
| Issued | | 30,666 | |
| Expired | | (2,569,432 | ) |
| Balance, May 31, 2009 | $ | 1,203,804 | |
| Issued | | 1,440,000 | |
| Exercised | | (15,333 | ) |
| Expired | | (1,173,138 | ) |
| Balance, May 31, 2010 and August 31, 2010 | $ | 1,455,333 | |
| | | | |
| Cumulative Adjustments to Marketable Securities | | | |
| Balance, June 1, 2001 | $ | (85,625 | ) |
| Comprehensive loss items | | (121,100 | ) |
| Balance, May 31, 2002 | $ | (206,725 | ) |
| Comprehensive loss items | | (88,580 | ) |
| Balance, May 31, 2003 | $ | (295,305 | ) |
| Comprehensive loss items | | (5,000 | ) |
| Balance, March 26, 2004 | $ | (300,305 | ) |
| Comprehensive loss items | | (15,234 | ) |
| Balance, May 31, 2004, 2005 and 2006 | $ | (315,539 | ) |
| Comprehensive loss items | | (9,766 | ) |
| Balance, May 31, 2007 | $ | (325,305 | ) |
| Comprehensive loss items | | - | |
| Balance, May 31, 2008, 2009, 2010 and August 31, 2010 | $ | (325,305 | ) |
- 25 -
13. Differences Between Canadian GAAP and US GAAP (Continued)
| | | | |
| Deferred Share-Based Payments | | | |
| Balance, May 31, 2004 | $ | - | |
| Vesting of stock options | | 775,613 | |
| Balance, May 31, 2005 | $ | 775,613 | |
| Vesting of stock options | | 573,700 | |
| Balance, May 31, 2006 | $ | 1,349,313 | |
| Vesting of stock options | | 1,358,687 | |
| Balance, May 31, 2007 | $ | 2,708,000 | |
| Vesting of stock options | | 1,433,600 | |
| Balance, May 31, 2008 and 2009 | $ | 4,141,600 | |
| Vesting of stock options | | 449,491 | |
| Balance, May 31, 2010 and August 31, 2010 | $ | 4,591,091 | |
| | | | |
| Deficit Accumulated During the Exploration Stage | | | |
| Balance, March 26, 2004 | $ | - | |
| Net loss | | 4,678 | |
| Comprehensive loss items | | (15,234 | ) |
| Balance, May 31, 2004 | $ | (10,556 | ) |
| Net loss | | (1,743,463 | ) |
| Balance, May 31, 2005 | $ | (1,754,019 | ) |
| Net loss | | (3,673,388 | ) |
| Balance, May 31, 2006 | $ | (5,427,407 | ) |
| Net loss | | (6,052,723 | ) |
| Balance, May 31, 2007 | $ | (11,480,130 | ) |
| Net loss | | (6,157,896 | ) |
| Balance, May 31, 2008 | $ | (17,638,026 | ) |
| Net loss | | (2,586,978 | ) |
| Balance, May 31, 2009 | $ | (20,225,004 | ) |
| Net loss | | (1,387,686 | ) |
| Balance, May 31, 2010 | $ | (21,612,690 | ) |
| Net loss | | (181,416 | ) |
| Balance, August 31, 2010 | $ | (21,794,106 | ) |
- 26 -
| 13. Differences Between Canadian GAAP and US GAAP (Continued) | | | | | | | |
| | | | | | | | |
| The Company's statements of cash flows under US GAAP are as follows: | | | | | | | |
| | | | | | | | |
| Statements of Cash Flows | | | | | | | | | | | | |
| | | | | | | | | | | | Cumulative | |
| | | | | | Three Months Ended | | | | | | from date | |
| | | August 31, | | | August 31, | | | August 31, | | | of inception | |
| | | 2010 | | | 2009 | | | 2008 | | | ("March 26, 2004" | ) |
| Cash flows from operating activities | | | | | | | | | | | | |
| Net loss for the period | $ | (181,416 | ) | $ | (545,279 | ) | $ | (371,876 | ) | $ | (18,849,308 | ) |
| Items not involving cash: | | | | | | | | | | | | |
| Forgiveness of debt | | - | | | - | | | - | | | (6,792 | ) |
| Write-off of bad debts | | - | | | - | | | - | | | 1,235 | |
| Share-based payments | | - | | | 368,500 | | | - | | | 4,479,616 | |
| Accrued Interest income | | - | | | (126 | ) | | (1,279 | ) | | (59,539 | ) |
| Write-off of mineral property rights | | - | | | - | | | - | | | 90,144 | |
| Change in non-cash operating working activities: | | | | | | | | | | | | |
| GST and sundry receivable | | (13,702 | ) | | (4,377 | ) | | 27,114 | | | (48,101 | ) |
| Prepaid expenses | | 99 | | | 3,967 | | | (28,456 | ) | | (7,107 | ) |
| Due from a related party | | - | | | - | | | - | | | 15,099 | |
| Accounts payable | | 70,775 | | | 72,994 | | | 143,889 | | | 149,629 | |
| Accrued liabilities | | (81,449 | ) | | (43,442 | ) | | (45,000 | ) | | (64,288 | ) |
| Cash flows used in operatingactivities | | (205,693 | ) | | (147,763 | ) | | (275,608 | ) | | (14,299,412 | ) |
| Cash flows from financing activities | | | | | | | | | | | | |
| Repayment of loans from related | | | | | | | | | | | | |
| parties | | - | | | - | | | - | | | (28,594 | ) |
| Share/warrant issuance | | - | | | - | | | - | | | 20,068,877 | |
| Cost of issue | | - | | | - | | | - | | | (1,812,701 | ) |
| Proceeds from loan | | - | | | - | | | - | | | 175,000 | |
| Repayment of loan | | - | | | - | | | - | | | (75,000 | ) |
| Cash flows provided by financingactivities | | - | | | - | | | - | | | 18,327,582 | |
| Cash flows from investing activities | | | | | | | | | | | | |
| Purchase of reclamation bond | | - | | | - | | | - | | | (13,090 | ) |
| Redemption (purchase) of short term investments | | (62 | ) | | 407,493 | | | 534,804 | | | 18,841 | |
| Exploration advances | | - | | | - | | | - | | | - | |
| Purchase of mineral property rights | | (979 | ) | | (41,669 | ) | | (85,135 | ) | | (2,807,832 | ) |
| Cash flows provided by (used in)investing activities | | (1,041 | ) | | 365,824 | | | 449,669 | | | (2,802,081 | ) |
| Change in cash during the period | | (206,734 | ) | | 218,061 | | | 174,061 | | | 1,226,089 | |
| Cash, beginning of period | | 1,432,824 | | | 106,593 | | | 84,856 | | | 1 | |
| Cash, end of period | $ | 1,226,090 | | $ | 324,654 | | $ | 258,917 | | $ | 1,226,090 | |
- 27 -
13. Differences Between Canadian GAAP and US GAAP (Continued)
Statements of Cash Flows (continued)
| | | | | | | | | | | | Cumulative | |
| | | Three Months Ended | | | | | | from date | |
| | | August 31, | | | August 31, | | | August 31, | | | of inception | |
| | | 2010 | | | 2009 | | | 2008 | | | ("March 26, 2004" | ) |
| Supplemental Schedule of Non-Cash Transaction | | | | | | | | | | | | |
| Share issuance included in mining Interest | $ | - | | $ | - | | $ | 10,800 | | $ | 563,875 | |
| Warrant issuance included in mining interest | $ | - | | $ | - | | $ | - | | $ | 184,750 | |
| Share-based payments included in mining interest | $ | - | | $ | - | | $ | - | | $ | 111,475 | |
| Interest paid | $ | - | | $ | - | | $ | - | | $ | 45,159 | |
14. Comparative Figures
Certain prior year figures have been reclassified to conform with the current period’s presentation.
- 28 -
