UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
Re: For the period ended November 15, 2007
COMMISSION FILE NUMBER: 0-22216
Suite 1710 - 650 West Georgia Street
Vancouver, British Columbia
Canada V6B 4N9
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-For Form 40-F
Form 20-F þ | Form 40-F ¨ |
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Yes¨ | No þ |
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Yes ¨ | No þ |
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 13g3-2(b) under the Securities Exchange Act of 1934.
Yes ¨ | No þ |
If ‘Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):
EXHIBIT LIST | |
SIGNATURES | ||
Pursuant to the requirements of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | ||
CANADIAN ZINC CORPORATION | ||
Date: November 16, 2007 | By: | /s/ John F. Kearney |
John F. Kearney | ||
President and Chairman |
Financial Statements
(Unaudited)
(A Development Stage Company)
September 30, 2007
Index
Balance Sheets
Statements of Operations, Comprehensive Income and Deficit
Statements of Cash Flows
Notes to Financial Statements
The Company’s auditors have not reviewed these financial statements for the period ended September 30, 2007.
(a development stage company)
Balance Sheets (Unaudited)
September 30, | December 31, | |||||||
2007 | 2006 | |||||||
(unaudited) | (audited) | |||||||
ASSETS | ||||||||
Current | ||||||||
Cash and cash equivalents | $ | 14,800,094 | $ | 13,608,364 | ||||
Short-term investments (Note 3) | 17,181,426 | 15,478,718 | ||||||
Marketable securities (Note 4) | 100,000 | 250,000 | ||||||
Other receivables and prepaid expenses | 304,595 | 269,426 | ||||||
Total Current Assets | 32,386,115 | 29,606,508 | ||||||
Resource interests (Note 5) | 35,806,301 | 26,700,256 | ||||||
Plant and equipment (Note 6) | 389,880 | 455,422 | ||||||
Total Assets | $ | 68,582,296 | $ | 56,762,186 | ||||
LIABILITIES | ||||||||
Current | ||||||||
Accounts payable | $ | 2,122,287 | $ | 451,098 | ||||
Accrued liabilities | 156,736 | 13,249 | ||||||
Total Current Liabilities | 2,279,023 | 464,347 | ||||||
Asset retirement obligation (Note 7) | 1,437,801 | 1,380,120 | ||||||
Future income tax (Note 11) | 3,863,600 | 1,134,000 | ||||||
Total Liabilities | 7,580,424 | 2,978,467 | ||||||
SHAREHOLDERS' EQUITY | ||||||||
Share capital (Note 8) | 66,316,292 | 59,993,621 | ||||||
Contributed surplus (Note 9) | 7,610,974 | 6,478,846 | ||||||
Accumulated other comprehensive income | - | - | ||||||
Deficit | (12,925,394 | ) | (12,688,748 | ) | ||||
Total Shareholders’ Equity | 61,001,872 | 53,783,719 | ||||||
Total Liabilities and Shareholders’ Equity | $ | 68,582,296 | $ | 56,762,186 | ||||
Subsequent events (Note 12) | ||||||||
Approved by the Board of Directors:
“John F. Kearney” | “Robert Gayton” | ||||
Director | Director |
See accompanying notes to the interim financial statements.
1
CANADIAN ZINC CORPORATION
(a development stage company)
Statements of Operations, Comprehensive Income and Deficit
(Unaudited)
Three Months ended September 30, 2007 | Three Months ended September 30, 2006 | Nine Months ended September 30, 2007 | Nine Months ended September 30, 2006 | |||||||||||||
Income Interest Income | $ | 375,231 | $ | 237,104 | $ | 1,026,339 | $ | 643,955 | ||||||||
Expenses | ||||||||||||||||
Amortization of furniture and equipment | 1,054 | 1,111 | 2,975 | 3,293 | ||||||||||||
Listing and regulatory fees | 9,502 | 3,069 | 54,605 | 33,226 | ||||||||||||
Management compensation | 58,500 | 59,000 | 185,700 | 254,600 | ||||||||||||
Office and general | 131,512 | 115,099 | 291,120 | 288,652 | ||||||||||||
Professional fees | 57,658 | 48,188 | 219,173 | 178,775 | ||||||||||||
Project evaluation | - | - | 39,009 | 29,506 | ||||||||||||
Shareholder and investor communications | 92,775 | 49,386 | 320,403 | 184,471 | ||||||||||||
Stock based compensation | - | - | - | 191,473 | ||||||||||||
Write down on marketable securities (Note 4) | 25,000 | - | 150,000 | - | ||||||||||||
376,001 | 275,853 | 1,262,985 | 1,163,996 | |||||||||||||
Net loss | (770 | ) | (38,749 | ) | (236,646 | ) | (520,041 | ) | ||||||||
Other comprehensive income/(loss) | - | - | - | - | ||||||||||||
Comprehensive loss | $ | (770 | ) | $ | (38,749 | ) | $ | (236,646 | ) | $ | (520,041 | ) | ||||
Deficit, beginning of period | $ | (12,924,624 | ) | $ | (11,683,624 | ) | $ | (12,688,748 | ) | $ | (11,202,332 | ) | ||||
Net loss | (770 | ) | (38,749 | ) | (236,646 | ) | (520,041 | ) | ||||||||
Deficit, end of period | $ | (12,925,394 | ) | $ | (11,722,373 | ) | $ | (12,925,394 | ) | $ | (11,722,373 | ) | ||||
Loss per share - basic and diluted | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | ||||
Weighted average number of common shares outstanding– basic and diluted | 117,266,961 | 94,625,611 | 111,094,708 | 92,872,557 |
See accompanying notes to the interim financial statements.
2
CANADIAN ZINC CORPORATION
(a development stage company)
Statements of Cash Flows
(Unaudited)
Three Months ended September 30, 2007 | Three Months ended September 30, 2006 | Nine Months ended September 30, 2007 | Nine Months ended September 30, 2006 | |||||||||||||
Operating Activities | ||||||||||||||||
Loss for the period | $ | (770 | ) | $ | (38,749 | ) | $ | (236,646 | ) | $ | (520,041 | ) | ||||
Adjustment for items not involving cash: | ||||||||||||||||
- Amortization of furniture and equipment | 1,054 | 1,111 | 2,975 | 3,293 | ||||||||||||
- write down on marketable securities | 25,000 | - | 150,000 | - | ||||||||||||
- Stock based compensation | - | - | - | 191,473 | ||||||||||||
Change in non-cash working capital items: | ||||||||||||||||
- other receivables and prepaid expenses | (109,491 | ) | (45,037 | ) | (35,169 | ) | (109,540 | ) | ||||||||
- accounts payable and accrued liabilities | 1,220,755 | 226,016 | 1,814,676 | 1,257,192 | ||||||||||||
1,136,548 | 143,341 | 1,695,836 | 822,377 | |||||||||||||
Financing Activities | ||||||||||||||||
Capital stock issued and subscribed, net of issuance costs | 9,770,659 | 157,853 | 10,184,398 | 9,850,960 | ||||||||||||
Investing Activities | ||||||||||||||||
Purchase of equipment | (8,341 | ) | (97,171 | ) | (39,973 | ) | (176,206 | ) | ||||||||
Short-term investments | 7,818,468 | - | (1,702,708 | ) | - | |||||||||||
Reclamation security deposits | - | - | (30,000 | ) | (205,000 | ) | ||||||||||
Deferred exploration and development costs, excluding amortization and accretion | (4,867,385 | ) | (3,079,116 | ) | (8,915,823 | ) | (4,636,100 | ) | ||||||||
2,942,742 | (3,176,287 | ) | (10,688,504 | ) | (5,017,306 | ) | ||||||||||
Increase (decrease) in cash and cash equivalents | 13,849,949 | (2,875,093 | ) | 1,191,730 | 5,656,031 | |||||||||||
Cash and cash equivalents, beginning of period | 950,145 | 24,595,000 | 13,608,364 | 16,063,876 | ||||||||||||
Cash and cash equivalents, end of period | $ | 14,800,094 | $ | 21,719,907 | $ | 14,800,094 | $ | 21,719,907 | ||||||||
Supplemental Information: | ||||||||||||||||
Interest paid | $ | - | $ | - | $ | - | $ | - | ||||||||
Income taxes paid | $ | - | $ | - | $ | - | $ | - |
See accompanying notes to the interim financial statements.
3
CANADIAN ZINC CORPORATION
(a development stage company)
Notes to Financial Statements
For the Nine Months ended September 30, 2007
(Unaudited)
1. | Basis of Presentation |
These unaudited financial statements have been prepared in accordance with Canadian generally accepting accounting principles (“Canadian GAAP”) for interim financial information and follow the same accounting policies and methods of application as the most recent audited financial statements of the Company for the year ended December 31, 2006. These interim financial statements do not include all the information and note disclosures required by Canadian GAAP for annual financial statements and therefore should be read in conjunction with the Company's audited financial statements and the notes thereto for the year ended December 31, 2006. In management's opinion, all adjustments considered necessary for fair presentation have been included in these financial statements. Interim results are not necessarily indicative of the results expected for the fiscal year. Certain comparative figures have been reclassified to conform to the current period's presentation.
2. Changes in Accounting Policy
On January 1, 2007, the Company adopted the recommendations included in the following Sections of the Canadian Institute of Chartered Accountants Handbook: Section 1530, “Comprehensive Income,” Section 3251, “Equity,” Section 3855, “Financial Instruments – Recognition and Measurement,” Section 3861, “Financial Instruments – Disclosure and Presentation” and Section 3865, “Hedges.” These new accounting standards provide the requirements for the recognition, measurement, disclosure and presentation of financial instruments, the use of hedge accounting and also establish standards for reporting and presenting comprehensive income. The standards were adopted retroactively without restating prior periods. The Company also adopted, effective January 1, 2007, Section 1506, “Accounting Changes.”
(a) | Section 1530, “Comprehensive Income” and Section 3251, “Equity” |
Section 1530, “Comprehensive Income” requires the presentation of comprehensive income and its components in a new financial statement. Comprehensive income is the change in the net assets of a company arising from transactions, events and circumstances not related to shareholders. Section 3251, “Equity,” establishes standards for the presentation of equity and changes in equity during the reporting period.
The Company had no other comprehensive income or loss transactions for the three and nine month periods ended September 30, 2007 and no opening or closing balances of accumulated other comprehensive income or loss as at January 1, 2007.
(b) | Section 3855, “Financial Instruments – Recognition and Measurement” |
Section 3855 establishes standards for recognizing and measuring financial assets, financial liabilities and non-financial derivatives. All financial instruments are required to be measured at fair value on initial recognition, except for certain related party transactions. Measurement in subsequent periods depends on whether the financial instrument has been classified as loans and receivables, held for trading, held-to-maturity, available-for-sale or other liabilities. The classification depends on the purpose for which the financial instruments were acquired, their characteristics and/or management’s intent. Management determines the classification of financial assets and financial liabilities at initial recognition and, except in very limited circumstances, the classification is not changed subsequent to such initial recognition.
4
CANADIAN ZINC CORPORATION
(a development stage company)
Notes to Financial Statements
For the Nine Months ended September 30, 2007
(Unaudited)
2. Changes in Accounting Policy (continued)
(b) | Section 3855, “Financial Instruments – Recognition and Measurement” (continued) |
Loans and receivables
Loans and receivables are initially recognized at fair value including direct and incremental transaction costs and are subsequently measured at amortized cost, using the effective interest method. The classification of the Company’s other receivables did not have any impact on the interim financial statements.
Held for trading
Financial assets and liabilities that are purchased and incurred with the intention of generating income in the near term are classified as held-for-trading. Financial instruments included in this category are initially recognized at fair value and transaction costs are taken directly to net income along with gains and losses arising from changes in fair value. The Section also permits a company to designate any financial instrument irrevocably on initial recognition as held for trading.
Short term investments and cash equivalents totaling approximately $29.1 million were classified as held for trading on January 1, 2007. The classification did not have a material impact on the interim financial statements.
On January 1, 2007, the Company also designated its marketable securities (see Note 4) as held for trading in the amount of $250,000. The classification did not have a material impact on the interim financial statements at that time.
Held-to-maturity
Held-to-maturity investments are financial assets with fixed or determinable payments that the Company has the intention and ability to hold to maturity. These are initially recognized at fair value including direct and incremental transaction costs and are subsequently valued at amortized cost using the effective interest rate method. The Company did not classify any financial assets as held-to-maturity on January 1, 2007.
Available-for-sale
Available-for-sale assets are financial assets that are designated as available-for-sale and are not categorized into any other categories as described above. These assets are initially recognized at fair value including direct and incremental transaction costs and are subsequently held at fair value with gains and losses arising from changes in fair value included in other comprehensive income until ultimate sale when the cumulative gain or loss is transferred to net income. The Company had no financial assets designated as available-for-sale on January 1, 2007.
Other liabilities
If not classified as held for trading, financial liabilities are classified as other liabilities. After initial measurement at fair value, other liabilities are measured at amortized cost using the effective interest rate method. Gains or losses are recognized in net income in the period when the liability is derecognized. The classification of the Company’s accounts payable and accrued liabilities as other liabilities had no material impact on the interim financial statements.
5
CANADIAN ZINC CORPORATION
(a development stage company)
Notes to Financial Statements
For the Nine Months ended September 30, 2007
(Unaudited)
2. Changes in Accounting Policy (continued)
(c) | Section 3861, “Financial Instruments – Disclosure and Presentation” |
Section 3861 establishes standards for the disclosure and presentation of financial instruments as determined in accordance with Section 3855 above. The new disclosure requirements are extensive and include methods and significant assumptions used to determine fair value and disclosure by fair value source such as quoted market prices, valuation techniques with observable inputs and valuation techniques with certain inputs that are not observable.
(d) | Section 3865, “Hedges” |
Section 3865 sets out standards that are applicable for a company that chooses to designate a hedging relationship for accounting purposes. This Section specifies how hedge accounting is applied and what disclosures are required if it is applied. The recommendations of this Section are optional and are only required if applying hedge accounting. The adoption of this Section has no impact to the Company’s financial statements as no hedge accounting has been applied.
(e) | Section 1506, “Accounting Changes” |
Section 1506 establishes criteria for changing accounting policies together with the accounting treatment and disclosure of changes in accounting policies and estimates, and correction of errors. Under the new standard, accounting changes should be applied retrospectively unless otherwise permitted or required by the transitional provisions of a primary source of GAAP or where impracticable to determine. In addition, voluntary changes in accounting policy are made only when the change results in more relevant and reliable information. The Company has not made any voluntary changes in accounting policies since the adoption of the revised standard.
3. Short-term Investments
Short-term investments, which consist primarily of investments in Bankers Acceptances and Guaranteed Investment Certificates, are investments with maturities of three months or more when purchased. As at September 30, 2007, short-term investments were valued at $17,181,426 (December 31, 2006 - $15,478,718).
4. Marketable Securities
On December 21, 2006, the Company participated in a private placement and subscribed to 5,000,000 Units of Ste. Genevieve Resources Ltd. at $0.05 per Unit for a total of $250,000. Each Unit consists of one common share and one common share purchase warrant entitling the holder to acquire an additional common share at a price exercisable at $0.06 on or before December 29, 2008. The market value as at September 30, 2007 was $100,000 (December 31, 2006 - $300,000). The loss in market value has been recorded in the Statement of Operations in accordance with the Company’s designation of the marketable securities as held for trading assets.
6
CANADIAN ZINC CORPORATION
(a development stage company)
Notes to Financial Statements
For the Nine Months ended September 30, 2007
(Unaudited)
5. | Resource Interests |
The Company’s resource interests comprise the Prairie Creek Mine Property:
September 30, 2007 | December 31, 2006 | |||
Acquisition costs: | ||||
- mining lands | $ | 3,158,000 | $ | 3,158,000 |
- plant and mill | 500,000 | 500,000 | ||
3,658,000 | 3,658,000 | |||
Reclamation security deposits | 425,000 | 395,000 | ||
Increase from asset retirement obligations | 650,090 | 746,630 | ||
Exploration and development costs (see table below) | 31,073,211 | 21,900,626 | ||
$ | 35,806,301 | $ | 26,700,256 |
Exploration and development costs incurred in 2007 are detailed below:
Three Months ended September 30, 2007 | Nine Months ended September 30, 2007 | Year ended December 31, 2006 | ||||||||||
Exploration and development costs | ||||||||||||
Assaying and metallurgical studies | $ | 63,241 | $ | 274,232 | $ | 275,514 | ||||||
Camp operation and project development | 1,101,598 | 2,346,983 | 1,963,577 | |||||||||
Drilling and underground development | 3,114,193 | 5,032,489 | 4,226,350 | |||||||||
Insurance, lease rental | 58,411 | 93,052 | 73,384 | |||||||||
Permitting and environmental | 201,441 | 487,058 | 578,952 | |||||||||
Transportation and travel | 328,501 | 682,009 | 753,717 | |||||||||
4,867,385 | 8,915,823 | 7,871,494 | ||||||||||
Amortization – asset retirement obligations | 32,180 | 96,540 | 128,720 | |||||||||
Amortization – mining plant and equipment | 34,675 | 102,541 | 50,714 | |||||||||
Asset retirement accretion | 19,227 | 57,681 | 77,908 | |||||||||
86,082 | 256,762 | 257,342 | ||||||||||
Total exploration and development costs for the period | 4,953,467 | 9,172,585 | 8,128,836 | |||||||||
Exploration and development costs, beginning of period | 26,119,744 | 21,900,626 | 13,771,790 | |||||||||
Exploration and development costs, end of period | $ | 31,073,211 | $ | 31,073,211 | $ | 21,900,626 |
7
CANADIAN ZINC CORPORATION
(a development stage company)
Notes to Financial Statements
For the Nine Months ended September 30, 2007
(Unaudited)
5. | Resource Interests (continued) |
Prairie Creek Mine
The Company holds a 100% interest in the Prairie Creek Mine property, plant and equipment located in the Northwest Territories, Canada.
In 1996, the Company concluded a Co-operation Agreement with the Nahanni Butte Dene Band (“Nahanni”), part of the Deh Cho First Nations. In return for co-operation and assistance undertakings given by Nahanni towards the development of the Prairie Creek Project, the Company granted the following net profit interest and purchase option to Nahanni:
(i) | A 5% annual net profits, before taxation, interest in the Prairie Creek Project, payable following the generation of profits after taxation equivalent to the aggregate cost of bringing the Prairie Creek Project into production and establishing the access road; and |
(ii) | An option to purchase either a 10% or a 15% interest in the Prairie Creek Project at any time prior to the expiry of three months following permitting for the Project, for the cash payment of either $6 million or $9 million, subject to price adjustment for exploration expenditure and inflation, respectively. |
In October 2003 Nahanni informed the Company that Nahanni considers the Agreement terminated. Such termination is not in accordance with the provisions of the Agreement. The Company is currently re-negotiating the Agreement with Nahanni.
During 2003 the Company renewed two surface leases granted by the Federal Government relating to the operation and care and maintenance of the Prairie Creek Mine Property for a period of ten years terminating September 30, 2012. The Company paid $100,000 upon execution of the lease and is obligated to pay $30,000 per year for five years to a maximum of $250,000 (the final amount of which was paid in the quarter ended March 31, 2007), as a security deposit for the performance of abandonment and reclamation obligations under the leases.
On September 10, 2003 the Company was granted a Type A Land Use Permit and a Type B Water Licence (reissued February 2006) by the Mackenzie Valley Land and Water Board for a period of five years commencing September 10, 2003 for underground development and exploration and for metallurgical testing.
On June 12, 2006, under the terms of the Land Use Permit (MV2001C0023 Part 3C, Section 38) and Water Licence (MV2001L2-0003, Part B, Section 2) the Company contributed $30,000 and $70,000, respectively, as security deposits for reclamation obligations.
On May 11, 2006 the Mackenzie Valley Land and Water Board issued a Land Use Permit for the Phase 3 Exploration Drilling Program. The Land Use Permit (MV2004C0030) is valid for five years and allows surface exploration and diamond drilling at up to 60 sites. Under the terms of the Permit (Part C, Section 56), a security deposit for $75,000 was made on June 12, 2006.
On April 10, 2007, the Mackenzie Valley Land and Water Board issued a Land Use Permit for use of the road which connects the Prairie Creek Mine with the Liard Highway. The Land Use Permit (MV2003F0028) is valid for five years to April 10, 2012. Under the terms of the Permit (Condition #38; 26 (1)(I)) a security deposit in the amount of $100,000 is payable prior to the first use of the road.
8
CANADIAN ZINC CORPORATION
(a development stage company)
Notes to Financial Statements
For the Nine Months ended September 30, 2007
(Unaudited)
5. | Resource Interests (continued) |
On June 7, 2007, the Company applied to the Mackenzie Valley Land and Water Board for a Class B water licence (MV2007L8-0026) needed to rehabilitate a portion of the road in the proximity of the mine site and sought authorization from the Department of Fisheries and Oceans to carry out the work. On June 29, 2007, the Company applied to Indian and Northern Affairs Canada for a quarrying permit to obtain rock to be used in the road rehabilitation. These applications are pending.
During the nine months ended September 30, 2007, the Company has engaged in an active exploration program at the Prairie Creek Mine Property in order to gain further knowledge about the property and to facilitate the completion of a Technical Report to NI43-101 standards, which report was completed subsequent to September 30, 2007.
6. | Plant and Equipment |
September 30, 2007 | December 31 2006 | |||||||||||||||||||||||
Cost | Accumulated Amortization | Net Book Value | Cost | Accumulated Amortization | Net Book Value | |||||||||||||||||||
Mining equipment | $ | 653,923 | $ | 311,803 | $ | 342,120 | $ | 619,287 | $ | 217,610 | $ | 401,677 | ||||||||||||
Pilot plant | 108,161 | 79,409 | 28,752 | 108,161 | 71,062 | 37,099 | ||||||||||||||||||
Furniture, fixtures & equipment | 97,415 | 78,407 | 19,008 | 92,078 | 75,432 | 16,646 | ||||||||||||||||||
$ | 859,499 | $ | 469,619 | $ | 389,880 | $ | 819,526 | $ | 364,104 | $ | 455,422 |
7. | Asset Retirement Obligation |
September 30, 2007 | December 31, 2006 | |||||||
Balance – beginning of the period | $ | 1,380,120 | $ | 1,302,212 | ||||
Accretion expense | 57,681 | 77,908 | ||||||
Balance – end of the period | $ | 1,437,801 | $ | 1,380,120 |
The Company’s asset retirement obligation arises from its obligations to undertake site reclamation and remediation in connection with its Prairie Creek Mine Site infrastructure and development.
The total undiscounted amount of the estimated cash flows required to settle the Company’s reclamation and remediation obligations, as at September 30, 2007, is estimated to be $1,958,209 (December 31, 2006 - $1,958,209). While it is anticipated that some expenditures will be incurred during the life of the operation to which they relate (should mining activity commence), a significant component of this expenditure will only be incurred at the end of the mine life. In determining the fair value of the asset retirement obligation, the Company has assumed a long-term inflation rate of 2.5%, a credit-adjusted risk-free discount rate of 6.5% and a weighted average useful life of production facilities and equipment of ten years. Elements of uncertainty in estimating this amount include changes in the projected mine life, reclamation expenditures incurred during ongoing operations and reclamation and remediation requirements and alternatives.
9
CANADIAN ZINC CORPORATION
(a development stage company)
Notes to Financial Statements
For the Nine Months ended September 30, 2007
(Unaudited)
8. Share Capital
Authorized: Unlimited (2006 – unlimited) common shares with no par value.
Shares issued and outstanding:
Number of Shares | Amount | |||||||
Balance, December 31, 2006 | 107,590,212 | $ | 59,993,621 | |||||
Stock options exercised at $0.23 per share (including $27,000 from contributed surplus attributed to stock-based compensation) | 450,000 | 130,500 | ||||||
Income tax effect on flow-through share renouncement (Note 11) | - | (2,729,600 | ) | |||||
Balance, March 31, 2007 | 108,040,212 | $ | 57,394,521 | |||||
Stock options exercised at $0.89 per share (including $63,824 from contributed surplus attributed to stock-based compensation) | 100,000 | 152,824 | ||||||
Broker warrants exercised at between $0.72 and $0.93 per share (including $139,228 from contributed surplus attributed to the fair value of warrants attached to private placements issued in prior periods) | 302,738 | 360,467 | ||||||
Balance, June 30, 2007 | 108,442,950 | $ | 57,907,812 | |||||
Private Placement at $0.85 per Unit ($233,918 issuance costs) | 11,765,000 | 9,766,332 | ||||||
Value of share purchase warrants added to contributed surplus | (1,365,667 | ) | ||||||
Broker warrants exercised at $0.72 per share (including $3,487 from contributed surplus attributed to the fair value of warrants attached to private placements issued in prior periods) | 6,012 | 7,815 | ||||||
Balance, September 30, 2007 | 120,213,962 | $ | 66,316,292 |
On July 23, 2007 the Company completed a private placement of 11,765,000 Units at a price of $0.85 per unit for total proceeds of $10,000,250. Each Unit consists of one common share and one-half of one common share purchase warrant. Each whole Warrant entitles the holder to purchase one common share at a price of $1.20 per Warrant Share, until July 23, 2009. A value of $1,365,667 was assigned to the warrants issued and added to contributed surplus. The fair value of the warrants was calculated at $0.23 each (see Note 9(b)).
10
CANADIAN ZINC CORPORATION
(a development stage company)
Notes to Financial Statements
For the Nine Months ended September 30, 2007
(Unaudited)
9. Stock Options, Warrants and Contributed Surplus
(a) Stock Options
The Company has an incentive stock option plan in place under which it is authorized to grant stock options to directors, executive officers, employees and consultants. At September 30, 2007, the Company was allowed to grant up to 10% of the issued share capital of the Company as stock options. Stock options are exercisable once they have vested under the terms of the grant. A summary of the Company’s options at September 30, 2007 and the changes for the three and nine month periods then ended is presented below:
Three months ended September 30, | ||||||||||||||||
2007 | 2006 | |||||||||||||||
Number of Options | Weighted Average Exercise Price | Number of Options | Weighted Average Exercise Price | |||||||||||||
Outstanding, beginning of period | 4,170,000 | $ | 0.69 | 3,610,000 | $ | 0.58 | ||||||||||
Cancelled | - | - | (30,000 | ) | 0.89 | |||||||||||
Outstanding, end of period | 4,170,000 | $ | 0.69 | 3,580,000 | $ | 0.58 |
Nine months ended September 30, | ||||||||||||||||
2007 | 2006 | |||||||||||||||
Number of Options | Weighted Average Exercise Price | Number of Options | Weighted Average Exercise Price | |||||||||||||
Outstanding, beginning of period | 4,780,000 | $ | 0.66 | 4,000,000 | $ | 0.56 | ||||||||||
Granted | - | - | 300,000 | 0.89 | ||||||||||||
Cancelled | (60,000 | ) | 0.89 | (30,000 | ) | 0.89 | ||||||||||
Exercised | (550,000 | ) | 0.35 | (690,000 | ) | 0.60 | ||||||||||
Outstanding, end of period | 4,170,000 | $ | 0.69 | 3,580,000 | $ | 0.58 |
11
CANADIAN ZINC CORPORATION
(a development stage company)
Notes to Financial Statements
For the Nine Months ended September 30, 2007
(Unaudited)
9. Stock Options, Warrants and Contributed Surplus
(a) Stock Options (continued)
As at September 30, 2007, the Company has outstanding stock options (all fully vested and exercisable) to purchase an aggregate 4,170,000 common shares as follows:
Number | Weighted Average Exercise Price | Expiry Date |
2,860,000 | $0.60 | January 14, 2010 |
110,000 | $0.89 | June 27, 2011 |
1,200,000 | $0.90 | December 13, 2011 |
4,170,000 | $0.69 |
Using the fair value method for stock-based compensation, the Company recorded a charge of $Nil during the three month period ended September 30, 2007 (three months to September 30, 2006 - $Nil) and $Nil for the nine months to September 30, 2007 (nine months to September 30, 2006 - $191,473). No stock options have been granted in the nine month period ended September 30, 2007.
(b) Warrants
A summary of the Company’s warrants issued and outstanding as at September 30, 2007 is as follows:
Balance of Warrants Outstanding at December 31, 2006 | Number of Warrants Expired/ Exercised during 2007 | Issued During 2007 | Balance of Warrants Outstanding at September 30, 2007 | Exercise Price Per Warrant | Expiry Date | Warrant Value |
6,666,666 | - | - | 6,666,666 | $1.00 | January 30, 2008 | $ 2,263,858 |
814,093 | (293,194) | - | 520,899 | $0.72 | January 30, 2008 | 372,623 |
666,666 | - | - | 666,666 | $1.00 | January 30, 2008 | 319,999 |
2,777,778 | - | - | 2,777,778 | $1.15 | November 23, 2008 | 845,077 |
194,444 | - | - | 194,444 | $1.15 | November 23, 2008 | 73,362 |
486,957 | - | - | 486,957 | $1.15 | November 23, 2008 | 183,723 |
388,889 | (15,556) | - | 373,333 | $0.93 | November 23, 2008 | 159,887 |
- | - | 5,882,500 | 5,882,500 | $1.20 | July 23, 2009 | 1,365,667 |
11,995,493 | (308,750) | 5,882,500 | 17,569,243 | $ 5,584,196 |
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CANADIAN ZINC CORPORATION
(a development stage company)
Notes to Financial Statements
For the Nine Months ended September 30, 2007
(Unaudited)
9. Stock Options, Warrants and Contributed Surplus
(b) Warrants (continued)
The fair value of the warrants issued during the nine months ended September 30, 2007 was determined using the Black-Scholes option pricing model based upon the following terms and assumptions: dividend yield of 0%, risk free interest rate of 3.96%, volatility of 67% and expected life of 2 years. Following the Black-Scholes model valuation, the fair value of the warrants was determined by bifurcating the warrant value and the closing share price from the amount per unit in the private placement offering (see Note 8).
(c) Contributed Surplus
A summary of the contributed surplus account is presented below:
Options | Warrants | Unexercised Options and Warrants | Total | |||||||||||||
Balance, December 31, 2006 | $ | 2,004,303 | $ | 4,361,244 | $ | 113,299 | $ | 6,478,846 | ||||||||
Options cancelled | (38,295 | ) | - | 38,295 | - | |||||||||||
Exercise of options | (90,824 | ) | - | - | (90,824 | ) | ||||||||||
Warrants issued | 1,365,667 | 1,365,667 | ||||||||||||||
Broker warrants exercised | - | (142,715 | ) | - | (142,715 | ) | ||||||||||
Balance, September 30, 2007 | $ | 1,875,184 | $ | 5,584,196 | $ | 151,594 | $ | 7,610,974 |
10. Related Party Transactions
The Company incurred the following expenses to directors and corporations controlled by directors of the Company:
Three months ended September 30, 2007 | Three months ended September 30, 2006 | Nine months ended September 30, 2007 | Nine months ended September 30, 2006 | |||||||||||||
Executive and director compensation | $ | 100,500 | $ | 104,342 | $ | 313,700 | $ | 469,251 | ||||||||
Rent | 3,000 | 3,300 | 9,000 | 9,900 | ||||||||||||
$ | 103,500 | $ | 107,642 | $ | 322,700 | $ | 479,151 |
All transactions with related parties were within the normal course of business. These transactions have been recorded at amounts agreed to by the transacting parties.
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CANADIAN ZINC CORPORATION
(a development stage company)
Notes to Financial Statements
For the Nine Months ended September 30, 2007
(Unaudited)
11. | Income Taxes |
The Company’s future income tax liability arises from the renunciation of mineral exploration expenditures on flow-through shares issued to investors. During the year ended December 31, 2006, the Company renounced to subscribers of 6,956,522 flow-through shares Canadian Exploration Expenditures (CEE) of $8,000,000. The Company has applied the accounting treatment recommended by the Canadian Institute of Chartered Accountants Emerging Issues Committee Recommendation 146 which requires the recognition of an additional future income tax liability of $2,729,600, representing the tax effect of the renunciation, and a corresponding reduction in shareholders’ equity to be recorded in the quarter ended March 31, 2007.
Flow-through shares entitle a company that incurs certain resource expenditures in Canada to renounce such exploration expenditure to the subscribers allowing the expenditures to be deducted for income tax purposes by the investors who purchased the shares. A future income tax liability arises from the renunciation of mineral exploration costs to investors of flow-through shares.
Funds raised through the issuance of flow-through shares are required to be expended on qualified Canadian mineral exploration expenditures, as defined pursuant to Canadian income tax legislation. The flow-through gross proceeds less the qualified expenditures made to date represent the funds received from flow-through shares issuances which have not been spent and which are held by the Company. As at September 30, 2007, all of the flow-through proceeds have been expended.
12. | Subsequent events |
On October 15, 2007, the Company granted stock options to purchase an aggregate of 695,000 common shares at $0.94 per share to an officer and to employees and contractors of the Company. 595,000 stock options vest on February 15, 2008 and 100,000 stock options vest on October 15, 2008. The stock options expire October 15, 2012 and each option entitles the holder to acquire one common share of the Company.
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