Interim Results
Galantas Gold Corporation
15 August 2006
NOTICE TO SHAREHOLDERS
FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 2006
GALANTAS GOLD CORPORATION
(A Development Stage Company)
Responsibility for Consolidated Financial Statements
The accompanying consolidated financial statements for Galantas Gold Corporation
have been prepared by management in accordance with Canadian generally accepted
accounting principles consistently applied. The most significant of these
accounting principles have been set out in the December 31, 2005 audited
consolidated financial statements. Only changes in accounting information have
been disclosed in these consolidated financial statements. These statements are
presented on the accrual basis of accounting. Accordingly, a precise
determination of many assets and liabilities is dependent upon future events.
Therefore, estimates and approximations have been made using careful judgment.
Recognizing that the Company is responsible for both the integrity and
objectivity of the consolidated financial statements, management is satisfied
that these consolidated financial statements have been fairly presented.
Auditors' involvement
The auditors of Galantas Gold Corporation have not performed a review of the
unaudited consolidated financial statements for the three and six months ended
June 30, 2006 and June 30, 2005.
GALANTAS GOLD CORPORATION
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS (PREPARED BY MANAGEMENT)
June 30, December 31,
2006 2005
(Unaudited) (Audited)
Assets
Current
Cash $ 321,659 $ 1,121,985
Accounts receivable and advances 243,849 144,727
Inventory 98,516 101,363
Future income taxes 302,900 302,900
966,924 1,670,975
Property, plant and equipment (Note 2(a)) 4,426,734 2,903,165
Deferred development costs (Note 2(b)) 5,619,033 4,314,368
Future income taxes 466,900 466,900
$ 11,479,591 $ 9,355,408
Liabilities
Current
Accounts payable and accrued liabilities $ 536,456 $ 297,785
Current portion of financing facility (Note 3) 218,706 99,207
Due to directors - 253,103
755,162 650,095
Long-term portion of financing facility (Note 3) 444,533 271,664
1,199,695 921,759
Shareholders' Equity
Share capital (Note 4) 21,203,528 18,400,862
Warrants (Note 5) - 175,166
Contributed surplus (Note 7) 820,324 656,658
22,023,852 19,232,686
Deficit (11,743,956) (10,799,037)
10,279,896 8,433,649
$ 11,479,591 $ 9,355,408
GALANTAS GOLD CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(PREPARED BY MANAGEMENT)
(UNAUDITED)
Cumulative since
development stage on Three Months Ended Six Months Ended
January 1, 2003 June 30, June 30,
June 30, 2006 2006 2005 2006 2005
Sales $ 468,438 $ 11,047 $ 15,623 $ 14,892 $ 36,120
Cost of goods sold 519,208 4,277 18,671 5,900 43,166
(50,770) 6,770 (3,048) 8,992 (7,046)
Expenses
Accounting and corporate 90,931 10,575 11,100 22,855 19,630
Bank charges and interest 21,564 1,563 3,553 3,334 3,553
Consulting 64,757 14,007 16,250 14,007 19,500
Foreign exchange (gain)loss (101,629) 13,036 33,675 22,191 20,236
Legal and audit 378,296 123,176 36,384 180,434 66,018
Management fees 247,500 - 25,000 - 50,000
Operating expenses 1,230,475 26,407 157,914 51,049 231,953
Shareholder communication
and public relations 679,519 172,261 - 448,073 -
Stock-based compensation 686,266 51,666 214,200 163,666 214,200
Transfer agent 80,732 11,419 7,496 16,954 8,750
Travel and general office 186,764 (6,325) 10,396 31,348 30,157
3,565,175 417,785 515,968 953,911 663,997
Loss before income taxes (3,615,945) (411,015) (519,016) (944,919) (671,043)
Income tax recovery 769,800 (9,200) - - -
Loss for the period (2,846,145) (420,215) (519,016) (944,919) (671,043)
DEFICIT, beginning of
period (8,897,811) (11,323,741) (10,912,632) (10,799,037) (10,760,605)
DEFICIT, end of period $(11,743,956) $(11,743,956) $(11,431,648) $(11,743,956) $(11,431,648)
Loss per share $ 0.00 $ 0.00 $ 0.01 $ 0.01
Weighted average number
of shares outstanding 143,177,902 123,293,089 135,744,586 107,297,472
GALANTAS GOLD CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (PREPARED BY MANAGEMENT)
(UNAUDITED)
Cumulative since
development stage on Three Months Ended Six Months Ended
January 1, 2003 June 30, June 30,
June 30, 2006 2006 2005 2006 2005
CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES
Net loss for the
period $ (2,846,145) $ (420,215) $ (519,016) $ (944,919) $ (671,043)
Adjustment for
Amortization 165,975 1,599 24,479 3,017 41,025
Stock-based compensation 686,266 51,666 214,200 163,666 214,200
Future income taxes (769,800) 9,200 - - -
Net change in non-cash
working capital (Note 10) 143,864 (143,605) (97,301) 142,396 (25,445)
(2,619,840) (501,355) (377,638) (635,840) (441,263)
INVESTING ACTIVITIES
Purchase of property,
plant and equipment (2,871,582) (1,133,957) (545,932) (1,664,350) (545,932)
Deferred development
costs (2,165,794) (731,563) - (1,166,901) -
Marketable securities 2,096 - - - -
(5,035,280) (1,865,520) (545,932) (2,831,251) (545,932)
FINANCING ACTIVITIES
Issue of common shares
for cash 7,764,053 1,757,583 2,413,783 2,627,500 3,279,283
Share issue costs (360,400) - - - -
Advances from financing
facility 920,400 - 461,498 365,400 454,168
Repayments of financing
facility (313,303) (51,989) - (73,032) -
Advances to directors (127,140) (104,303) (387,482) (253,103) (318,861)
7,883,610 1,601,291 2,487,799 2,666,765 3,414,590
NET CHANGE IN CASH 228,490 (765,584) 1,564,229 (800,326) 2,427,395
CASH, beginning of period 93,169 1,087,243 996,922 1,121,985 133,756
CASH, end of period $ 321,659 $ 321,659 $ 2,561,151 $ 321,659 $ 2,561,151
GALANTAS GOLD CORPORATION
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (PREPARED BY MANAGEMENT)
(UNAUDITED)
Shares issued and subscribed Warrant Contributed
(#) of Shares Share Value Value Surplus Deficit Total
Balance at
January 1, 2003 71,115,222 $ 13,082,493 $ - $ 1,420 $ (8,897,811) $ 4,186,102
Shares issued
on exercise of
warrants 250,000 27,461 - - - 27,461
Common shares
issued, net of
issue costs 8,707,860 1,048,524 - - - 1,048,524
Common shares
issued for
debt settlement 7,416,395 741,640 - - - 741,640
Valuation of
agents options - - - 20,751 - 20,751
Valuation of
warrants issued - (78,537) 78,537 - - -
Loss for the
year - - - - (676,142) (676,142)
Balance at
December 31, 2003 87,489,477 14,821,581 78,537 22,171 (9,573,953) 5,348,336
Shares issued
on exercise of
warrants 945,554 159,089 - - - 159,089
Common shares
issued, net of
issue costs 2,866,825 395,318 - - - 395,318
Valuation of
stock options
granted - - - 287,649 - 287,649
Valuation of
warrants issued - (71,671) 71,671 - - -
Valuation of
warrants exercised
or expired - 17,570 (78,537) 60,967 - -
Loss for the
year - - - - (1,186,652) (1,186,652)
Balance at
December 31, 2004 91,301,856 15,321,887 71,671 370,787 (10,760,605) 5,003,740
Common shares
issued, net
of issue costs 35,033,333 3,254,141 - - - 3,254,141
Valuation of
warrants issued - (175,166) 175,166 - - -
Valuation of
warrants expired - - (71,671) 71,671 - -
Valuation of
stock options
granted - - - 214,200 - 214,200
Loss for the year - - - - (38,432) (38,432)
Balance at
December 31,2005 126,335,189 18,400,862 175,166 656,658 (10,799,037) 8,433,649
Shares issued on
exercise of
warrants 17,516,666 2,627,500 - - - 2,627,500
Valuation of
warrants
exercised - 175,166 (175,166) - - -
Valuation of
stock options
granted - - - 163,666 - 163,666
Loss for the
period - - - - (944,919) (944,919)
Balance at
June 30, 2006 143,851,855 $ 21,203,528 $ - $ 820,324 $(11,743,956) $10,279,896
GALANTAS GOLD CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (PREPARED BY MANAGEMENT)
THREE AND SIX MONTHS ENDED JUNE 30, 2006
(UNAUDITED)
1. NATURE OF OPERATIONS AND 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. The Company is considered to be in the development stage as it
has yet to earn substantial revenues and it is devoting substantially all of its
efforts toward the development of this process.
As at December 31, 2001, studies performed on Omagh's mineral property confirmed
the existence of economically recoverable reserves. The mineral property is
currently in the development stage of operation 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. These
development expenditures will be amortized over the estimated life of the ore
body.
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 of 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.
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. Its first exploration project was a property in
Portugal. 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').
Cavanacaw operations include the consolidated results of Cavanacaw and its
wholly-owned subsidiaries Omagh and Galantas.
The unaudited consolidated financial statements have been prepared in accordance
with Canadian generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and notes
to the consolidated financial statements required by Canadian generally accepted
accounting principles for annual consolidated financial statements. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and six month periods ended June 30, 2006 may not
necessarily be indicative of the results that may be expected for the year
ending December 31, 2006.
GALANTAS GOLD CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (PREPARED BY MANAGEMENT)
THREE AND SIX MONTHS ENDED JUNE 30, 2006
(UNAUDITED)
1. NATURE OF OPERATIONS AND GOING CONCERN (Continued)
The consolidated balance sheet at December 31, 2005 has been derived from the
audited consolidated financial statements at that date but does not include all
of the information and footnotes required by Canadian generally accepted
accounting principles for complete consolidated financial statements. The
interim consolidated financial statements have been prepared by management in
accordance with the accounting policies described in the Company's annual
consolidated financial statements for the year ended December 31, 2005. For
further information, refer to the consolidated financial statements and notes
for the year ended December 31, 2005.
New accounting pronouncement
In January 2005, the Canadian Institute of Chartered Accountants issued four new
accounting standards: Handbook Section 1530, Comprehensive Income, Handbook
Section 3251, Equity, Handbook Section 3855, Financial Instruments -
Recognition and Measurement and Handbook Section 3865, Hedges. These standards
are effective for interim and annual consolidated financial statements for the
Company's fiscal years beginning January 1, 2007. As of June 30, 2006, the
impact of implementing these new standards is not yet determinable.
2. PROPERTY, PLANT AND EQUIPMENT AND DEFERRED DEVELOPMENT COSTS
(a) Property, plant and equipment
2006 2005
Accumulated
Cost Amortization Net Net
Freehold land and buildings $ 3,009,697 $ 36,243 $ 2,973,454 $ 1,743,967
Plant and machinery 1,885,322 470,850 1,414,472 1,115,756
Motor vehicles 34,511 28,124 6,387 7,214
Office equipment 71,275 38,854 32,421 36,228
Moulds 81,802 81,802 - -
$ 5,082,607 $ 655,873 $ 4,426,734 $ 2,903,165
GALANTAS GOLD CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (PREPARED BY MANAGEMENT)
THREE AND SIX MONTHS ENDED JUNE 30, 2006
(UNAUDITED)
2. PROPERTY, PLANT AND EQUIPMENT AND DEFERRED DEVELOPMENT COSTS (Continued)
(b) Deferred development costs
Three months Six months
ended ended
June 30, 2006 June 30, 2006
Opening balance $ 4,811,687 $ 4,314,368
Additions during the period:
Leases 153,375 153,527
Consultants 53,809 124,218
Fuel 53,147 80,441
Wages 174,385 364,530
Interest 12,883 19,889
Travelling 41,699 68,676
Repairs and maintenance 25,750 72,582
Construction 194,510 246,301
General 22,003 36,737
Amortization of plant equipment 75,785 137,764
807,346 1,304,665
Total deferred development costs $ 5,619,033 $ 5,619,033
3. FINANCING FACILITY
On March 17, 2006, the Company received a loan from Barclays Mercantile Business
Finance Ltd. in the amount of $365,400 (180,000 GBP)(i) 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% (flat interest) with
monthly blended installments of $11,132 (5,578 GBP).
Amounts payable on the long term debt are as follows:
June 30, December 31,
Interest 2006 2005
Financing facility 3.71% $ 324,975 $ 370,871
Financing facility (i) 3.97% 338,264 -
663,239 370,871
Less current portion 218,706 99,207
$ 444,533 $ 271,664
Principal repayments over the next three years are as follows:
2007 $ 218,706
2008 235,899
2009 208,634
$ 663,239
GALANTAS GOLD CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (PREPARED BY MANAGEMENT)
THREE AND SIX MONTHS ENDED JUNE 30, 2006
(UNAUDITED)
4. SHARE CAPITAL
(a) AUTHORIZED
Unlimited number of common and preference shares issuable in Series
(b) COMMON SHARES ISSUED
NUMBER OF STATED
SHARES VALUE
Balance, January 1, 2006 126,335,189 $ 18,400,862
Warrant exercise 17,516,666 2,627,500
Warrant exercise - valuation - 175,166
Balance, June 30, 2006 143,851,855 $ 21,203,528
5. WARRANTS
During the period, 11,666,666 warrants expiring April 4, 2006 and 5,850,000
warrants expiring April 15, 2006 were exercised for gross proceeds of
$2,627,500.
As of June 30, 2006, there were no warrants outstanding.
6. STOCK OPTIONS
The Company has a stock option plan as detailed in Note 7(c) of the December 31,
2005 audited consolidated financial statements.
Number of Weighted Average
Stock Options Exercise Price
$
Balance, January 1, 2006 7,900,000 0.11
Options granted 1,000,000 0.26
Expired/cancelled (1,400,000) 0.15
Balance, June 30, 2006 7,500,000 0.14
Details of the stock options outstanding as of June 30, 2006 are:
Exercisable Number Exercise Expiry
Options of Options Price Date
$
1,500,000 1,500,000 0.12 May 17, 2007
2,800,000 2,800,000 0.15 April 10, 2008
2,000,000 2,000,000 0.10 April 1, 2009
133,334 200,000 0.10 May 13, 2010
333,334 1,000,000 0.26 June 14, 2011
6,766,668 7,500,000
GALANTAS GOLD CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (PREPARED BY MANAGEMENT)
THREE AND SIX MONTHS ENDED JUNE 30, 2006
(UNAUDITED)
6. STOCK OPTIONS (Continued)
During the period, 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 fair value of these stock options was estimated using the Black-
Scholes option pricing model with the following assumptions: dividend yield -
0%; volatility - 60%; risk-free interest rate - 4.26% and an estimated life of 5
years. The estimated fair value of $143,000 will be expensed in the statement of
operations and deficit and credited to contributed surplus as the options vest
over a three year period. Stock-based compensation includes $47,666 related to
the vested portion of these stock options.
Stock-based compensation also includes $116,000 relating to 733,333 options that
have vested from previous stock option grants.
On February 13, 2006, 1,000,000 stock options at an exercise price of $0.15
expired and 400,000 options at an exercise price of $0.15 expiring April 10,
2008 were cancelled.
7. CONTRIBUTED SURPLUS
The following table reflects the continuity of contributed surplus:
Contributed
Surplus
Balance, January 1, 2006 $ 656,658
Stock-based compensation charged to
the statement of operations and
deficit (Note 6) 163,666
Balance, June 30, 2006 $ 820,324
8. RELATED PARTY TRANSACTIONS
As at June 30, 2006, the Company was indebted to directors in the amount of $nil
(2005 - $110,850). This amount represents amounts paid by the directors on
behalf of the Company along with unpaid management fees. These amounts are
interest-free and there are no fixed terms of repayment.
During the period, the Company was charged $nil (2005 - $50,000) by directors of
the Company for management services which are in the normal course of operations
and are measured at the exchange amount established and agreed to by the related
parties. Accounts payable includes $nil (2005 - $50,000) owing to these
directors for management services and repayment of expenses incurred on behalf
of the Company.
The Company was charged $24,926 (2005 - $19,630) for accounting and corporate
secretarial services by companies associated to an officer of the Company.
Accounts payable includes $12,494 (2005 - $1,738) owing to these companies.
9. 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 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.
GALANTAS GOLD CORPORATION
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (PREPARED BY MANAGEMENT)
THREE AND SIX MONTHS ENDED JUNE 30, 2006
(UNAUDITED)
10. SUPPLEMENTAL CASH FLOW INFORMATION
(a) Net change in non-cash working capital
Three months Three months Six months Six months
ended ended ended ended
June 30, 2006 June 30, 2005 June 30, 2006 June 30, 2005
Accounts receivable and
advances $ (12,140) $ (81,510) $ (99,122) $ (48,326)
Inventory 3,006 13,925 2,847 25,837
Accounts payable and
accrued liabilities (134,471) (29,716) 238,671 (2,956)
$ (143,605) $ (97,301) $ 142,396 $ (25,445)
(b) Supplemental information
Interest paid $ 14,447 $ 3,553 $ 23,223 $ 3,553
Interest paid includes $19,889 (2005 - $nil) of interest paid on the financing
facility. This amount was charged to deferred development costs.
11. OTHER INFORMATION
Effective March 31, 2006 the Company's shares were successfully admitted to
trading on the Alternative Investment Market ('AIM') of the London Stock
Exchange. As a result, the Company is dual-listed on both AIM and the TSX
Venture Exchange in Canada.
12. SUBSEQUENT EVENT
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 consists 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. The shares will carry a 4-month
minimum hold period. An application will be made to admit any new shares issued
under the placing to trading on AIM on the same day that they become eligible
for trading on the TSX Venture Exchange.
Union Securities Ltd., acting as agent (the 'Agent') was paid a cash fee of
$260,000 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 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.
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