Final Results
Galantas Gold Corporation
01 May 2008
GALANTAS GOLD CORPORATION
Consolidated Financial Statements
(Expressed in Canadian Dollars)
Final Results for the year ending 31 December 2007
Dated: 1 May 2008
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements of Galantas Gold Corporation
were prepared by management in accordance with Canadian generally accepted
accounting principles. Management acknowledges responsibility for the
preparation and presentation of the 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. The significant accounting policies of the Company are summarized
in Note 3 to the consolidated financial statements.
Management has established processes, which are in place to provide them
sufficient knowledge to support management representations that they have
exercised reasonable diligence that (i) the consolidated financial statements do
not contain any untrue statement of material fact or omit to state a material
fact required to be stated or that is necessary to make a statement not
misleading in light of the circumstances under which it is made, as of the date
of and for the periods presented by the consolidated financial statements and
(ii) the consolidated financial statements fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company, as of the date of and for the periods presented by the consolidated
financial statements.
The Board of Directors is responsible for reviewing and approving the
consolidated financial statements together with other financial information of
the Company and for ensuring that management fulfills its financial reporting
responsibilities. An Audit Committee assists the Board of Directors in
fulfilling this responsibility. The Audit Committee meets with management to
review the financial reporting process and the 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 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.
Roland Phelps Brent Routledge
President Chief Financial Officer
April 22, 2008
Toronto, Canada
AUDITORS' REPORT
To the Shareholders of
Galantas Gold Corporation
We have audited the consolidated balance sheets of Galantas Gold Corporation as
at December 31, 2007 and 2006 and the consolidated statements of operations and
deficit and cash flows for the years then ended. These financial statements are
the responsibility of the company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at December 31, 2007
and 2006 and the results of its operations and its cash flows for the years then
ended in accordance with Canadian generally accepted accounting principles.
Smith Nixon LLP
Chartered Accountants
Toronto, Ontario
April 22, 2008
GALANTAS GOLD CORPORATION
CONSOLIDATED BALANCE SHEETS
(Expressed in Canadian Dollars)
AS AT DECEMBER 31,
2007 2006
ASSETS
Current
Cash $ 21,308 $ 234,909
Accounts receivable and advances 578,831 397,953
Inventory (Note 4) 1,033,596 100,839
Future income taxes (Note 8(b)) 240,890 213,366
1,874,625 947,067
Property, plant and equipment (Note 5) 17,077,659 13,653,277
Future income taxes (Note 8(b)) 1,362,027 958,934
$ 20,314,311 $ 15,559,278
LIABILITIES
Current
Accounts payable and accrued liabilities $ 2,124,314 $ 1,499,678
Current portion of financing facility (Note 6) 495,217 253,529
Due to related party (Note 9) 552,569 -
Deferred revenue (Note 3) 201,743 -
3,373,843 1,753,207
Due to related party (Note 9) 971,782 -
Long-term portion of financing facility (Note 6) 532,403 379,773
4,878,028 2,132,980
SHAREHOLDERS' EQUITY
Share capital (Note 7(a)) 26,134,279 22,458,500
Warrants (Note 7(b)) 2,417,700 1,913,100
Contributed surplus 844,247 848,985
29,396,226 25,220,585
Deficit (13,959,943) (11,794,287)
15,436,283 13,426,298
$ 20,314,311 $ 15,559,278
Going concern (Note 1)
SIGNED ON BEHALF OF THE BOARD:
L.J. Gunter Roland Phelps
Director Director
GALANTAS GOLD CORPORATION
CONSOLIDATED STATEMENTS OF LOSS
(Expressed in Canadian Dollars)
YEARS ENDED DECEMBER 31, 2007 2006
Revenues
Gold sales $ 654,142 $ 45,928
Costs and expenses of mining operations
Cost of sales 972,022 12,948
Amortization 736,226 4,240
1,708,248 17,188
(Loss) income from mining operations (1,054,106) 28,740
Expenses and other (income)
Accounting and corporate 46,579 39,055
Bank charges and interest 64,307 14,293
Consulting fees 5,490 6,250
Foreign exchange loss 42,598 76,248
Legal and audit 109,024 223,749
Operating expenses 760,027 124,989
Shareholder communication and public relations 203,110 568,121
Stock-based compensation (Note 7(c)) 429,262 192,327
Transfer agent 22,892 25,202
General office 50,785 59,954
Loss on disposal of property, plant and equipment 33,507 -
Interest income (1,180) (10,698)
1,766,401 1,319,490
Loss before income taxes (2,820,507) (1,290,750)
Future income tax recovery (Note 8(a)) 654,851 295,500
Net loss for the year $ (2,165,656) $ (995,250)
Basic and diluted loss per share $ (0.01) $ (0.01)
Weighted average number of shares outstanding 168,849,926 145,930,481
GALANTAS GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Expressed in Canadian Dollars)
YEARS ENDED DECEMBER 31, 2007 2006
Share capital
Balance, beginning of year $ 22,458,500 $ 18,400,862
Issued under private placements 3,342,036 3,500,000
Warrants issued (504,600) (1,735,000)
Stock options exercised 590,000 -
Stock options exercised - valuation 434,000 -
Warrants exercised - 2,627,500
Warrants exercised - valuation - 175,166
Agent's compensation options granted - (178,100)
Share issue costs (185,657) (331,928)
Balance, end of year $ 26,134,279 $ 22,458,500
Warrants
Balance, beginning of year $ 1,913,100 $ 175,166
Issued 504,600 1,913,100
Exercised - (175,166)
Balance, end of year $ 2,417,700 $ 1,913,100
Contributed surplus
Balance, beginning of year $ 848,985 $ 656,658
Stock options granted 429,262 192,327
Stock options exercised (434,000) -
Balance, end of year $ 844,247 $ 848,985
Deficit
Balance, beginning of year $ (11,794,287) $ (10,799,037)
Net loss (2,165,656) (995,250)
Balance, end of year $ (13,959,943) $ (11,794,287)
GALANTAS GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in Canadian Dollars)
YEARS ENDED DECEMBER 31, 2007 2006
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net loss for the year $ (2,165,656) $ (995,250)
Adjustments for non-cash items:
Amortization 736,226 4,240
Stock-based compensation 429,262 192,327
Future income tax recovery (654,851) (295,500)
Foreign exchange 224,234 (107,000)
Loss on disposal of property, plant and equipment 33,507 -
Net change in non-cash working capital (Note 10(a)) (287,256) 949,191
(1,684,534) (251,992)
INVESTING ACTIVITIES
Purchase of property, plant and equipment (4,194,115) (6,439,984)
FINANCING ACTIVITIES
Issue of common shares 3,932,036 6,127,500
Share issue costs (185,657) (331,928)
Advances from financing facility 880,345 365,400
Repayments of financing facility (486,027) (102,969)
Advances from (repayment to) related party 1,524,351 (253,103)
5,665,048 5,804,900
NET CHANGE IN CASH (213,601) (887,076)
CASH, BEGINNING OF YEAR 234,909 1,121,985
CASH, END OF YEAR $ 21,308 $ 234,909
SUPPLEMENTAL CASH FLOW INFORMATION (Note 10)
GALANTAS GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
YEARS ENDED DECEMBER 31, 2007 AND 2006
1. GOING CONCERN
These consolidated financial statements have been prepared on a going concern
basis which contemplates that Galantas Gold Corporation (the 'Company') will be
able to realize assets and discharge liabilities in the normal course of
business. The recoverability of these consolidated amounts, which includes the
consolidated results of the Company's wholly-owned subsidiary Cavanacaw
Corporation (Cavanacaw), is dependent on the ability of the Company to obtain
future financing and to recover its investment in Omagh Minerals Limited
('Omagh'). Cavanacaw has a 100% shareholding in Omagh which is engaged in the
acquisition, exploration and development of gold properties, mainly in Omagh,
Northern Ireland.
As at December 31, 2001, studies performed on Omagh's mineral property confirmed
the existence of economically recoverable reserves. As of July 1, 2007, the
mineral property was in the production stage and the directors believe that the
capitalized development expenditures will be fully recovered by the future
operation of the mine. The recoverability of Omagh's capitalized development
costs is thus dependent on the ability to secure financing, future profitable
production or proceeds from the disposition of the mineral property.
Management is confident that it will be able to secure the required financing to
enable the Company to continue as a going concern. However, this is subject to
a number of factors including market conditions. These consolidated financial
statements do not reflect adjustments to the carrying value of assets and
liabilities, the reported expenses and balance sheet classifications used that
would be necessary if the going concern assumption was not appropriate. Such
adjustments could be material.
2. INCORPORATION AND NATURE OF OPERATIONS
The Company was formed on September 20, 1996 under the name Montemor Resources
Inc. on the amalgamation of 1169479 Ontario Inc. and Consolidated Deer Creek
Resources Limited. The name was changed to European Gold Resources Inc. by
articles of amendment dated July 25, 1997. On May 5, 2004, the Company changed
its name from European Gold Resources Inc. to Galantas Gold Corporation. The
Company was incorporated to explore for and develop mineral resource properties,
principally in Europe. In 1997, it purchased all of the shares of Omagh which
owns a mineral property in Northern Ireland, including a delineated gold
deposit. Omagh obtained full planning and environmental consents necessary to
bring its property into production.
The Company entered into an agreement on April 17, 2000, approved by
shareholders on June 26, 2000, whereby Cavanacaw, a private Ontario corporation,
acquired Omagh. Cavanacaw has established an open pit mine to extract the
Company's gold deposit near Omagh. Cavanacaw also has developed a premium
jewellery business founded on the gold produced under the name Galantas Irish
Gold Limited (Galantas).
As at July 1, 2007, the Company's Omagh mine began production.
The Company's operations include the consolidated results of Cavanacaw and its
wholly-owned subsidiaries Omagh and Galantas.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance with
Canadian generally accepted accounting principles ('Canadian GAAP'). The
preparation of financial statements in conformity with Canadian GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. The most
significant estimates and assumptions include the recovery of the deferred
development and exploration costs, the valuation of stock-based compensation and
other stock-based payments and the ability of the Company to continue as a going
concern (note 1). Actual results could differ from those estimates.
Principles of Consolidation
These consolidated financial statements include the accounts of the Company and
its subsidiaries. All material intercompany balances have been eliminated.
Foreign Currency Translation
The Company's operations expose it to significant fluctuations in foreign
exchange rates. Cavanacaw, Omagh and Galantas are denominated in British pounds
and are, therefore, subject to exchange variations against the reporting
currency, the Canadian dollar. They are integrated foreign operations, and as
such their financial statements have been translated into Canadian dollars using
the temporal method. All assets and liabilities are translated at exchange
rates effective at the end of each year and all non-monetary assets and
liabilities are translated at their historical rates. Income and expenses are
translated at the average exchange rate for the year. The foreign currency
translation gains and losses are included in the determination of net loss.
Inventory
Inventories are comprised of finished goods, concentrate inventory, work-in-
process amounts and stockpiled ore.
All inventories are recorded at the lower of production costs on a first-in,
first-out basis, and net realizable value. Production costs include costs
related to mining, crushing, mill processing, as well as depreciation on
production assets and certain allocations of mine-site overhead expenses
attributable to the manufacturing process.
Property, Plant and Equipment
The cost of property, plant and equipment is their purchase cost, together with
any related costs of acquisition. Amortization is calculated at the following
rates:
Buildings 4 % straight line
Plant and machinery 20 % declining balance
Motor vehicles 25 % declining balance
Office equipment 15 % declining balance
Moulds 25 % straight line
Freehold land 4 % straight line
Deferred development and exploration costs units of production
Prior to commencing production, the Company capitalized interest related to
financing of equipment.
Deferred development and exploration costs are capitalized until results of the
related projects, based on geographic areas, are known. If a project is
successful, the related expenditures will be amortized using the units-of-
production method over the estimated life of the ore body based on estimated
recoverable ounces or pounds mined from proven and probable reserves. Provision
for loss is made where a project is abandoned or considered to be of no further
interest to the company, or where the directors consider such a provision to be
prudent. As of July 1, 2007, the Company started production at the Omagh mine
and has begun amortization.
Asset Retirement Obligation
The Company is subject to the provisions of CICA Handbook Section 3110, Asset
Retirement Obligations, which require the estimated fair value of any asset
retirement obligations to be recognized as a liability in the period in which
the related environmental disturbance occurs and the present value of the
associated future costs can be reasonably estimated. As of December 31, 2007 and
2006, the Company has capitalized any asset retirement obligations in respect of
its mineral exploration property.
Revenue Recognition
Revenue from sales of finished goods is recognized at the time of shipment when
significant risks and benefits of ownership are considered to be transferred,
the terms are fixed or determinable, and collection is reasonably assured.
Revenue from sales of gold concentrate is recognized at the time of shipment
when significant risks and benefits of ownership are considered to be
transferred, the terms are fixed or determinable, and collection is reasonably
assured. The final revenue figure is subject to adjustments as a result of
final assay results and metal prices at the date of ultimate settlement. As the
Company is in the early stages of commercial production, appropriate estimates
of this final settlement amount is not able to be made. Accordingly, no revenue
is recognized until final settlement. Any payments received prior to settlement
have been reflected as deferred revenue.
In the future, should management be able to provide reasonable estimates of the
final assay results, the Company would record concentrate sale revenues based on
current spot prices at the time of shipment. Any differences between the initial
recognition and subsequent settlement amounts would be adjusted through revenue
at each subsequent financial statement date.
Long-Lived Assets
Long-lived assets, which comprise property, plant and equipment, are reviewed
for impairment if events or changes in circumstances indicate that the carrying
value may not be recoverable. If the sum of the undiscounted future cash flows
expected from use and residual value is less than carrying amount, the long-
lived asset is considered impaired. An impairment loss is measured as the amount
by which the carrying value of the long-lived assets exceeds its fair value.
Income Taxes
The asset and liability method is used for determining income taxes. Under this
method, future tax assets and liabilities are recognized for the estimated taxes
recoverable or payable that would arise if assets and liabilities were recovered
and settled at the financial statement carrying amounts. Future tax assets and
liabilities are measured using the substantively enacted tax rates expected to
be in effect when the tax assets or liabilities are recovered or settled,
respectively. Changes to these rates are recognized in income in the year in
which the changes occur. Future income tax assets are recognized to the extent
that it is more likely than not that the company will realize the benefit from
the asset.
Stock-Based Compensation
The fair value of any stock options granted to directors, officers, employees
and consultants is recorded as an expense over the vesting period with a
corresponding increase recorded to contributed surplus. The fair value of the
stock-based compensation is determined using the Black-Scholes option pricing
model and management's assumptions. Upon exercise of the stock options,
consideration paid by the option holder together with the amount previously
recognized in contributed surplus is recorded as an increase to share capital.
Other Stock-based Payments
The Company accounts for other stock-based payments based on the fair value of
the equity instruments issued in exchange for the receipt of goods and services
from non-employees or the fair value of the goods and services received,
whichever is the more reliable basis, by using the stock price and other
measurement assumptions as at the measurement date.
Per Share Information
Per share information is computed using the weighted average number of common
shares outstanding during the year. Diluted per share information is calculated
using the treasury stock method for options and warrants. The treasury stock
method assumes that any proceeds obtained upon exercise of options and warrants
would be used to purchase common shares at the average market price during the
year. For the purpose of calculating diluted earnings per share, no adjustment
to basic earnings per share is made if the result of these calculations is anti-
dilutive.
Accounting Changes
In July 2006, The Accounting Standards Board ('AcSB') issued a replacement of
The Canadian Institute of Chartered Accountants' Handbook ('CICA Handbook')
Section 1506, Accounting Changes. The new standard allows for voluntary changes
in accounting policy only when they result in the financial statements providing
reliable and more relevant information, requires changes in accounting policy to
be applied retrospectively unless doing so is impracticable, requires prior
period errors to be corrected retrospectively and calls for enhanced disclosures
about the effects of changes in accounting policies, estimates and errors on the
financial statements. The impact that the adoption of section 1506 will have on
the Company's results of operations and financial condition will depend on the
nature of future accounting changes.
Financial Instruments, Comprehensive Income (Loss) and Hedges
The Canadian Institute of Chartered Accountants ('CICA') issued Handbook
Sections 3855, 'Financial Instruments - Recognition and Measurement', 1530,
'Comprehensive Income', 3861 'Financial Instruments - Disclosure and
Presentation' and 3865, 'Hedges'. These new standards are effective for interim
and annual financial statements relating to fiscal years commencing on or after
October 1, 2006 and are adopted retrospectively without restatement;
accordingly, comparative amounts for prior periods have not been restated. The
Company has adopted these new standards effective January 1, 2007.
(a) Financial Instruments - Recognition and Measurement
Section 3855 prescribes when a financial instrument is to be recognized on the
balance sheet and at what amount. It also specifies how financial instrument
gains and losses are to be presented. This Section requires that:
• All financial assets be measured at fair value on initial
recognition and certain financial assets to be measured at fair value subsequent
to initial recognition;
• All financial liabilities be measured at fair value if
they are classified as held for trading purposes. Other financial liabilities
are measured at amortized cost using the effective interest method; and
• All derivative financial instruments be measured at fair
value on the balance sheet, even when they are part of an effective hedging
relationship.
(b) Comprehensive Income (loss)
Section 1530 introduces a new requirement to temporarily present certain gains
and losses from changes in fair value outside net income. It includes unrealized
gains and losses, such as: changes in the currency translation adjustment
relating to self-sustaining foreign operations; unrealized gains or losses on
available-for-sale investments; and the effective portion of gains or losses on
derivatives designated as cash flow hedges or hedges of the net investment in
self-sustaining foreign operations.
The Company had no other comprehensive income or loss transactions during the
year ended December 31, 2007. Accordingly, a statement of comprehensive income
has not been presented.
(c) Financial Statements and Non-Financial Derivatives
Section 3861 establishes standards for presentation of financial statements and
identifies the information that should be disclosed about financial instruments.
Under the new standards, the change in policy has been retrospectively adopted
without restatement of comparative figures.
(d) Impact upon adoption of Sections 1530, 3855, 3861 and 3865
Under adoption of these new standards, the Company designated its cash as held-
for-trading, which is measured at fair value. Accounts receivable and advances
are classified as loans and receivables, which is measured at amortized cost.
Accounts payable and accrued liabilities, financing facility and due to related
party are classified as other financial liabilities, which are measured at
amortized cost.
Accounting Policy Choice for Transaction Costs
On June 1, 2007, the Emerging Issues Committee of the CICA issued Abstract No.
166, Accounting Policy Choice for Transaction Costs (EIC-166). This EIC
addresses the accounting policy choice of expensing or adding transaction costs
related to the acquisition of financial assets and financial liabilities that
are classified as other than held-for-trading. Specifically, it requires that
the same accounting policy choice be applied to all similar financial
instruments classified as other than held-for-trading, but permits a different
policy choice for financial instruments that are not similar. The Company has
adopted EIC-166 effective September 30, 2007 and requires retroactive
application to all transaction costs accounted for in accordance with CICA
Handbook Section 3855, Financial Instruments- Recognition and Measurement.
Transaction costs are expensed as incurred for financial instruments. The
Company has evaluated the impact of EIC-166 and determined that no adjustments
are currently required.
Future Accounting Changes
Capital Disclosures and Financial Instruments - Disclosures and Presentation
On December 1, 2006, the CICA issued three new accounting standards: Handbook
Section 1535, Capital Disclosures, Handbook Section 3862, Financial Instruments
- Disclosures, and Handbook Section 3863, Financial Instruments - Presentation.
These new standards are effective for interim and annual consolidated financial
statements for the Company's reporting period beginning on January 1, 2008.
Section 1535 specifies the disclosure of (i) an entity's objectives, policies
and processes for managing capital; (ii) quantitative data about what the entity
regards as capital; (iii) whether the entity has complied with any capital
requirements; and (iv) if it has not complied, the consequences of such non-
compliance.
The new Sections 3862 and 3863 replace Handbook Section 3861, Financial
Instruments - Disclosure and Presentation, revising and enhancing its disclosure
requirements, and carrying forward unchanged its presentation requirements.
These new sections place increased emphasis on disclosures about the nature and
extent of risks arising from financial instruments and how the entity manages
those risks.
Inventory
Section 3031, Inventory, replaces Section 3030, and establishes standards for
the measurement of inventories, allocations of overhead, accounting for write-
downs and disclosures.
Going Concern
Section 1400 has been amended for new requirements relating to the assessment of
an entity's ability to continue as a going concern.
The Company is currently assessing the impact of these new accounting standards
on its consolidated financial statements.
4. INVENTORY
2007 2006
Concentrate inventory $ 703,606 $ -
Finished goods 329,990 100,839
$ 1,033,596 $ 100,839
5. PROPERTY, PLANT AND EQUIPMENT
2007
Accumulated
Cost Amortization Net
Deferred development and exploration costs $ 10,539,905 $ 209,216 $ 10,330,689
Freehold land and buildings 3,019,588 227,324 2,792,264
Plant and machinery 5,264,958 1,364,589 3,900,369
Motor vehicles 62,040 39,420 22,620
Office equipment 79,575 47,858 31,717
Moulds 81,802 81,802 -
$ 19,047,868 $ 1,970,209 $ 17,077,659
2006
Accumulated
Cost Amortization Net
Deferred development and exploration costs $ 7,542,920 $ - $ 7,542,920
Freehold land and buildings 2,962,629 32,999 2,929,630
Plant and machinery 3,773,982 657,702 3,116,280
Motor vehicles 61,438 31,851 29,587
Office equipment 77,303 42,443 34,860
Moulds 81,802 81,802 -
$ 14,500,074 $ 846,797 $ 13,653,277
Freehold land and buildings includes an asset retirement obligation of $101,900.
Included in deferred development and exploration costs are $298,584 (2006 -
$nil) in stripping costs related to the Omagh mine. These costs have been
amortized using the units of production basis. The related amortization is
$6,419 (2006 - $nil).
Since June 2005, the Company has held a Crown Mining Lease which grants the
Company the right to extract gold and silver from its property at Omagh, County
Tyrone, Northern Ireland. The Lease requires the Company to pay $46,000 (GBP
20,000) per year for the first three years with additional rent payable
calculated on gold output after the first three years. In July 2007, the Company
renewed its prospecting licenses for another two years expiring July 18, 2009 in
respect to gold, silver and other metals. The Lease and licenses contain certain
rights as to renewal providing that certain rent and royalty payments,
exploration expenditure and other terms have been met, including the provision
of a restoration bond.
In 2006, the Company purchased an adjoining property at a cost of $781,182 (GBP
377,073). The purchase includes only surface rights as rights to gold and silver
are already held by the Company through its Crown Mining Lease.
6. FINANCING FACILITY
(i) On May 27, 2005, the Company obtained financing from Barclays
Mercantile Business Finance Ltd. in the amount of $555,000 (238,700 GBP) for the
purchase of mining equipment. The loan is for a period of four years at 3.71%
with monthly principal and interest payments of $10,172 (5,071 GBP). The loan is
secured by certain plant and machinery.
(ii) On March 17, 2006, the Company obtained financing from Barclays
Mercantile Business Finance Ltd. in the amount of $365,400 (180,000 GBP) to
assist in the purchase of certain metallurgical equipment having a cost of
$728,770 (359,000 GBP). The loan is for a period of three years at 3.97% with
monthly principal and interest payments of $11,658 (5,578 GBP).
(iii) In June 2007, the Company obtained financing from Barclays Mercantile
Business Finance Ltd. in the amount of $390,345 (199,160 GBP) for the purchase
of mining equipment. The loan is for a period of four years at 4.03% with
monthly principal and interest payments of $8,812 (4,101 GBP), except for the
third payment, which was paid for the amount of $72,549 (33,764 GBP). The loan
is secured by certain plant and machinery.
(iv) In June 2007, the Company obtained a loan facility from Allied Irish
Bank plc in the amount of $490,000 (250,000 GBP). The term loan is for a period
of three years at bank base rate plus 2%.
Borrowings are secured by a legal mortgage charge over the land with a letter of
guarantee.
Amounts payable on the long term debt are as follows:
Interest 2007 2006
Financing facility (238,700 GBP) (i) 3.71% $ 160,949 $ 319,201
Financing facility (180,000 GBP) (ii) 3.97% 156,448 314,101
Financing facility (199,160 GBP) (iii) 4.03% 290,314 -
Term loan facility (250,000 GBP) (iv) 7.50% 419,909 -
1,027,620 633,302
Less current portion 495,217 253,529
$ 532,403 $ 379,773
Principal repayments over the next four years are as follows:
2008 $ 495,217
2009 347,047
2010 145,848
2011 39,508
$ 1,027,620
7. SHARE CAPITAL
(a) Authorized and issued
Authorized
Unlimited number of common and preference shares issuable in Series
Issued common shares
Number of Stated
Shares Value
Balance, December 31, 2005 126,335,189 $ 18,400,862
Issued under private placements (i) 14,000,000 3,500,000
Warrants issued - (1,735,000)
Agent's compensation options granted - (178,100)
Warrants exercised 17,516,666 2,627,500
Warrants exercised - valuation - 175,166
Share issue costs - (331,928)
Balance, December 31, 2006 157,851,855 22,458,500
Issued under private placements (ii)(iii) 12,924,000 3,342,036
Warrants issued - (504,600)
Stock options exercised 4,900,000 590,000
Stock options exercised - valuation - 434,000
Share issue costs - (185,657)
Balance, December 31, 2007 175,675,855 $ 26,134,279
(i) On July 26, 2006, the Company closed a private placement (the
'Offering') for gross proceeds of $3,500,000. Pursuant to this offering, the
Company issued 14,000,000 units of the Company (each a 'Unit') at the price of
$0.25 per Unit (including an over-allotment of 1,200,000 Units (the 'Over-
Allotment') and 2,000,000 Units for subscribers specifically identified by
management (the 'President's List'). Each Unit consisted of one common share of
the Company and one warrant of the Company. Each warrant entitles the purchaser
to purchase one common share at a price of $0.32 per share at any time until
July 26, 2008.
Union Securities Ltd., acting as agent (the 'Agent') was paid a cash fee of
$240,000 representing 8% in cash commission based on Units sold under the
Offering and the Over-Allotment Option (excluding Units sold pursuant to the
President's List) and $20,000 representing 4% in cash for Units sold pursuant to
the President's List. In addition, the Company issued to the Agent 1,300,000
compensation options (the 'Agent's Compensation Options') equal to 10% of all
Units sold pursuant to the Offering and the Over-Allotment Option (excluding
Units sold pursuant to the President's List) and 5% of all Units sold pursuant
to the President's List. Each Agent's Compensation Option entitles the Agent to
purchase one unit of the Company at $0.25 per Unit at any time prior to July 26.
2008. Each Unit consists of one common share of the Company and one warrant of
the Company.
Other costs associated directly with the private placement amounted to $71,928.
The fair value of the 14,000,000 warrants and 1,300,000 compensation options
(collectively 'the warrants') were estimated using the Black-Scholes option
pricing model with the following assumptions: dividend yield - 0%; volatility -
110%; risk-free interest rate - 4.15% and an expected life of 2 years. The fair
value attributed to the warrants was $1,735,000 and $178,100 respectively.
(ii) On March 2, 2007, the Company closed a placement of 5,284,000 units
for gross proceeds of $1,717,300. Each unit was priced at $0.325 and was
comprised of one common share and one warrant. Each warrant entitles the holder
to purchase one common share within 18 months from closing at a price of $0.45.
An arrangement fee of 5% for $85,865 was paid to the broker.
Other costs associated directly with the placement amounted to $12,737.
The shares were subject to a 4 month hold period which expired on July 3, 2007.
The fair value of the 5,284,000 warrants was estimated using the Black-Scholes
option pricing model with the following assumptions: dividend yield - 0%;
volatility - 79%; risk-free interest rate - 3.91% and an expected life of 1.5
years. The fair value attributed to the warrants was $453,420.
(iii) On September 4, 2007, the Company closed a placement of 7,640,000
units for gross proceeds of $1,624,736 (764,000 GBP). Each unit was priced at
approximately $0.21 (0.10 GBP) and was comprised of one common share and one
half warrant. Each warrant entitles the holder to purchase one common share
within 12 months from closing at a price of approximately $0.32 (0.15 GBP).
Total arrangement fee of $70,838 (33,000 GBP) was paid to the broker.
Other costs associated directly with the placement amounted to $16,217.
The shares were subject to a 4 month hold period that expired January 4, 2008.
The fair value of the 3,820,000 warrants was estimated using the Black-Scholes
option pricing model with the following assumptions: dividend yield - 0%;
volatility - 54%; risk-free interest rate - 4.36% and an expected life of 1
year. The fair value attributed to the warrants was $51,180.
(b) Warrants
The following table shows the continuity of warrants for the years ended
December 31, 2007 and 2006:
Weighted
Number Average
of Warrants Price
Balance, December 31, 2005 17,516,666 $ 0.15
Issued (Note 7(a)(i)) 15,300,000 0.32
Exercised (17,516,666) 0.15
Balance, December 31, 2006 15,300,000 0.32
Issued (Notes 7(a)(ii) and 7(a)(iii)) 9,104,000 0.40
Balance, December 31, 2007 24,404,000 $ 0.34
As at December 31, 2007, the following warrants were outstanding:
Number Fair Exercise Expiry
of Warrants Value ($) Price ($) Date
14,000,000 1,735,000 0.32 July 26, 2008
1,300,000 178,100 0.25 July 26, 2008
5,284,000 453,420 0.45 September 2, 2008
3,820,000 51,180 0.32 September 4, 2008
24,404,000 2,417,700
(c) Stock options
The Company has a stock option plan ('the Plan'), the purpose of which is to
attract, retain and compensate qualified persons as directors, senior officers
and employees of, and consultants to the Company and its affiliates and
subsidiaries by providing such persons with the opportunity, through share
options, to acquire an increased proprietary interest in the Company. The number
of shares reserved for issuance under the Plan cannot be more than a maximum of
10% of the issued and outstanding shares at the time of any grant of options.
The period for exercising an option shall not extend beyond a period of five
years following the date the option is granted.
Insiders of the Company are restricted on an individual basis from holding
options which when exercised would entitle them to receive more than 5% of the
total issued and outstanding shares at the time the option is granted. The
exercise price of options granted in accordance with the Plan must not be lower
than the closing price of the shares on the TSX Venture Exchange immediately
preceding the date on which the option is granted and in no circumstances be
less than the permissible discounting in accordance with the Corporate Finance
Policies of the Exchange.
The following table shows the continuity of options for the years ended December
31, 2007 and 2006:
Weighted
Average
Number of Options Price
Balance, December 31, 2005 7,900,000 $ 0.11
Granted (i) 1,000,000 0.26
Cancelled/Expired (1,400,000) 0.15
Balance, December 31, 2006 7,500,000 0.14
Granted (ii)(iii) 8,200,000 0.12
Exercised (4,900,000) 0.12
Cancelled/Expired (250,000) 0.26
Balance, December 31, 2007 10,550,000 $ 0.15
Stock-based compensation expense includes $49,124 (2006 - $118,542) relating to
stock options granted in previous years that vested during the year.
(i) On June 14, 2006, 1,000,000 stock options were granted to employees of
the Company to purchase common shares at a price of $0.26 per share until June
14, 2011. The options vest one-third upon grant, one-third on the first
anniversary of grant and one-third on the second anniversary of grant. The fair
value attributed to these options was $143,000 and will be expensed in the
statements of loss and credited to contributed surplus as the options vest.
Included in the stock-based compensation for 2007 is $95,867 (2006 - $73,785)
related to the vested portion of these stock options. 250,000 of these stock
options were cancelled in 2007.
(ii) On June 15, 2007, 500,000 stock options were granted to an employee of
the Company to purchase common shares at a price of $0.23 per share until June
15, 2012. The options vest one-third upon grant, one-third on the first
anniversary of grant and one-third on the second anniversary of grant. The fair
value attributed to these options was $96,000 and will be expensed in the
statements of loss and credited to contributed surplus as the options vest.
Included in the stock-based compensation for 2007 is $60,000 related to the
vested portion of these stock options.
(ii) On December 24, 2007, 7,700,000 stock options were granted to
employees, directors and officers of the Company to purchase common shares at a
price of $0.14 per share until December 24, 2012. The options vest one-third
upon grant, one-third on the first anniversary of grant and one-third on the
second anniversary of grant. The fair value attributed to these options was
$793,000 and will be expensed in the statements of loss and credited to
contributed surplus as the options vest. Included in the stock-based
compensation for 2007 is $271,938 related to the vested portion of these stock
options.
All granted stock options were valued on the date of grant using the Black-
Scholes option pricing model with the following weighted average assumptions:
2007 2006
Risk-free interest rate 3.98% - 4.63% 4.26%
Expected life of options 5 years 5 years
Annualized volatility 94% - 107% 110%
Dividend rate 0 % 0 %
As at December 31, 2007, the following stock options were outstanding:
Exercisable Number Exercise Expiry
Options of Options Price ($) Date
1,400,000 1,400,000 0.15 April 10, 2008
166,667 250,000 0.26 July 31, 2008
200,000 200,000 0.10 May 13, 2010
333,333 500,000 0.26 June 14, 2011
166,667 500,000 0.23 June 15, 2012
2,566,667 7,700,000 0.14 December 24, 2012
4,833,334 10,550,000
8. INCOME TAXES
(a) Provision for income taxes
A reconciliation of the expected tax recovery to actual is provided as follows:
2007 2006
Loss before income taxes $ (2,820,507) $ (1,290,750)
Expected tax recovery at statutory rate $ (871,700) $ (466,200)
Increase (decrease) resulting from:
Stock-based compensation 133,500 69,500
Share issue costs (63,400) (54,100)
Foreign exchange (682,451) 634,200
Tax amortization in excess of accounting (581,600) (877,600)
Non-capital losses not recognized 1,410,800 398,700
$ (654,851) $ (295,500)
(b) Future tax balances
The tax effects of temporary differences that give rise to future income tax
assets and future income tax liabilities are as follows:
2007 2006
Future income tax assets (liabilities)
Non-capital losses $ 4,825,700 $ 4,124,600
Share issue costs 131,800 54,100
Property, plant and equipment and deferred
development costs (1,878,500) (1,663,800)
Valuation allowance (1,476,083) (1,342,600)
1,602,917 1,172,300
Current portion 240,890 213,366
$ 1,362,027 $ 958,934
(c) Losses carried forward
As at December 31, 2007, the Company had non-capital losses carried forward of
$16,203,052 (2006 - $13,170,813) for income tax purposes as follows:
Expires 2008 $ 240,733
2009 94,158
2011 249,460
2014 426,803
2015 568,540
2026 1,073,616
2027 867,807
Indefinite 12,681,935
$ 16,203,052
A future tax asset for non-capital losses of $1,602,917 has been recognized as
at December 31, 2007, as it has been determined that it is more likely than not
that the benefit will be realized in the future.
9. RELATED PARTY TRANSACTIONS
The Company was charged $54,463 (2006 - $45,296) for accounting and corporate
secretarial services by companies associated to an officer of the Company in the
normal course of business at the exchange amount. Accounts payable includes
$52,385 (2006 - $5,568) owing to these companies.
Director fees of $28,750 (2006 - $25,250) were paid or accrued during the year
ended December 31, 2007.
Included in due to related party is $716,713 (365,670 GBP) (2006 - $nil) owing
to companies controlled by a director of the Company. The loan is unsecured and
bears interest at base rate plus 2%. $432,572 (220,700 GBP) is due over a period
of 3 years. At December 31, 2007, interest of $14,871 (7,587 GBP) was accrued
and included in accounts payable and accrued liabilities.
Also included in due to related party, the Company obtained a loan facility from
G&F Phelps, a company controlled by a director of the Company, in the amount of
$807,638 (412,600 GBP) for the financing of mining equipment. The term loan is
for a period of 4.25 years interest bearing at 4.04% flat with monthly payments
of $18,949 (8,793 GBP) and is secured by all equipment owned by the Company's
wholly-owned subsidiary Omagh.
Transactions with related parties were in the normal course of operations and
were measured at the exchange amounts.
10. SUPPLEMENTAL CASH FLOW INFORMATION
(a) Net change in non-cash working capital
2007 2006
Accounts receivable and advances $ (180,878) $ (253,226)
Inventory (932,757) 524
Accounts payable and accrued liabilities 624,636 1,201,893
Deferred revenue 201,743 -
$ (287,256) $ 949,191
(b) Supplemental information
2007 2006
Amortization capitalized to deferred development costs $ 407,839 $ 327,466
Interest paid $ 65,261 $ 57,848
Interest paid includes $65,261 (2006 - $43,555) of interest paid on the
financing facility. Of these amounts, $22,515 (2006 - $43,555) were charged to
deferred development costs and $42,746 (2006 - $nil) was expensed to the
statements of loss.
11. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Credit Risk
The Company is exposed to concentration of credit risk with one of its customers
representing 50% of the accounts receivable balance. The Company believes that
this credit risk is minimized due to the financial worthiness of this company.
Interest Rate Risk
Certain loans within the financing facility bear interest at a fixed rate of
interest, and as such is subject to interest rate price risk resulting from
changes in fair value from market fluctuations in interest rates. Certain other
loans bear interest at variable rates and are exposed to interest rate cash flow
risk.
Liquidity Risk
The Company manages liquidity risk by monitoring maturities of financial
commitments and maintaining adequate cash reserves and available borrowing
facilities to meet these commitments as they come due.
Market Risk
Market risk arises from the possibility that changes in market prices will
affect the value of the financial instruments of the Company. The Company is
exposed to fair value fluctuations on their fixed rate financing facilities. The
Company's short-term instruments (cash, accounts receivable, accounts payable)
are not subject to market risk.
Foreign Currency Risk
Certain of the Company's expenses and revenues are incurred and received in the
currencies of Northern Ireland and the United Kingdom and are therefore subject
to gains and losses due to fluctuations in these currencies against the Canadian
dollar.
Commodity Price Risk
The ability of the Company to develop its properties and the future
profitability of the Company is directly related to the market price of certain
minerals.
Fair value
The carrying value of cash, accounts receivable and advances, accounts payable
and accrued liabilities are considered to be representative of their respective
values due to their short-term nature. For the fixed term related party loans,
fair value approximates carrying value.
12. SEGMENT DISCLOSURE
The Company, after reviewing its reporting systems, has determined that it has
one reportable segment. The Company's operations are substantially all related
to its investment in Cavanacaw Corporation ('Cavanacaw') and its subsidiaries,
Omagh and Galantas. Substantially all of Cavanacaw's revenues, costs and assets
of the business that support these operations are derived or located in Northern
Ireland.
13. COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform with the current
year's presentation. Net loss previously reported has not been affected by this
reclassification.
14. SUBSEQUENT EVENTS
On March 31, 2008, a company controlled by a director, has agreed to expand the
existing loan arrangement by £75,000 to permit the purchase of the larger
generator and semi-mobile crusher and to include both in its existing equipment
security.
The Company has also arranged short term debt finance, up to the sum of £250,000
and on the same interest terms as that already arranged with First Trust Bank
(2% over Bank Base Rate). The loan, which is to be used for working capital
purposes, is repayable on demand and is from a director of the Company.
15. SALES TO MAJOR CUSTOMER
On January 13, 2007, the Company entered into a contract with Falconbridge
Limited ('Falconbridge') related to the sale of gold concentrate from its Omagh
mine in Northern Ireland. The agreement may be cancelled without penalty by
either party with a minimum of one full calendar year's written notice. Such
notice may not be given by either party prior to December 31, 2009.
The Company is required to sell the full production of the mine to Falconbridge,
but it may be reduced by up to 10% at the Company's option with prior written
notification during the month prior to each calendar month of shipment. During
2007, substantially all of the Company's sales were to Falconbridge.
Enquiries
Galantas Gold Corporation Telephone: +44(0)2882 241100
Roland Phelps, President and CEO E-mail: info@galantas.com
Jack Gunter, Chairman Website: www.galantas.com
Blomfield Corporate Finance Ltd. Telephone: +44(0) 2075120191
Nick Harriss
Lewis Charles Securities Limited Telephone: +44(0) 2074569100
Kealan Doyle
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