(An Exploration Stage Company) Condensed Interim Financial Statements (Unaudited Prepared by Management) (Expressed in Canadian Dollars)

Transcription

1 Condensed Interim Financial Statements () Corporate Head Office West Hastings Street Vancouver, BC Canada V6E 2K3 Tel:

2 NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS Under National Instrument , Part 4, subsection 4.3(3(a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor. The accompanying unaudited condensed interim financial statements of the Company have been prepared by and are the responsibility of the Company s management. The Company s independent auditor has not performed a review of these condensed interim financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity s auditor. For further information, please contact: G. Ross McDonald, Chief Financial Officer Tel: (604) Fax: (604)

3 Unaudited Condensed Interim Financial Statements June 30, 2012 and 2011 INDEX Page Condensed Interim Financial Statements Condensed Interim Statements of Financial Position 1 Condensed Interim Statements of Operations and Comprehensive Income 2 Condensed Interim Statement of Changes in Equity 3 Condensed Interim Statements of Cash Flows 4 Notes to the Condensed Interim Financial Statements 5-12

4 CONDENSED INTERIM STATEMENTS OF FINANCIAL POSITION () ASSETS June 30, 2012 December 31, 2011 (Audited) Current assets Cash and cash equivalents $ 6,350,345 $ 9,823,614 Accounts receivable 7,143 8,052 Input tax credits receivable 541, ,981 Refundable tax credit (Note 6) 3,742,564 2,186,602 Marketable securities (Note 4) 1,281, ,000 Prepaid expenses 101,351 50,235 Other assets ,024,356 13,084,485 Property, plant and equipment 9,381 10,423 Exploration and evaluation assets advances (Note 5) 669,610 - Exploration and evaluation assets (Note 6) 15,675,845 12,778,555 $ 28,379,192 $ 25,873,463 Current liabilities Accounts payable and accrued liabilities (Note 9) $ 175,506 $ 272,637 Other liabilities (Note 10) 1,106, ,781 Shareholders equity (deficiency) 1,281,716 1,024,418 Capital stock (Note 7 and 11) 35,907,017 34,270,022 Share-based payments reserve 4,290,575 4,259,726 Accumulated other comprehensive income (loss) 515,143 (13,125) Deficit (13,615,259) (13,667,578) On behalf of the Board: 27,097,476 24,849,045 $ 28,379,192 $ 25,873,463 Lawrence W. Talbot Director Hendrik Van Alphen Director Lawrence W. Talbot Hendrik Van Alphen The accompanying notes are an integral part of these financial statements. 1

5 CONDENSED INTERIM STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME () For the three months ended For the six months ended June 30, 2012 June 30, 2011 June 30, 2012 June 30, 2011 EXPENSES Salaries and benefits (Note 12) $ 100,087 $ 747,196 $ 203,161 $ 815,635 Shareholder communication (Note 12) 134, , , ,941 Consulting fees (Note 12) 79, , , ,266 Professional fees (Note 12) 51,970 98,751 78, ,744 Office and miscellaneous 42,829 37,023 69,849 71,547 Travel and related costs 13,989 46,964 54,224 58,273 Filing and transfer agent s fees 47,088 22, ,320 46,246 Rent 18,202 14,299 32,501 20,599 Amortization , Loss before other items (488,321) (1,287,259) (927,702) (1,576,402) Other items Interest income 18,426 26,926 41,796 26,951 Unrealized gain (loss) on derivative investment 3,925 - (12,493) - Foreign exchange gain (loss) 8, ,681 (1,015) 31,035 26,956 38,984 25,936 Loss before income taxes (457,286) (1,260,303) (888,718) (1,550,466) Deferred income tax recovery 360, , ,037 1,008,275 Gain/(loss) and comprehensive gain (loss)for the period (96,612) (876,098) 52,319 (542,191) Deficit, beginning of period (13,518,647) (12,505,981) (13,667,578) (12,839,888) Deficit, end of period $(13,615,259) $(13,382,079) $(13,615,259) $(13,382,079) Earnings (loss) per common share: Basic and diluted $ 0.00 $ (0.01) $ 0.00 $ (0.01) Weighted average number of common shares outstanding: 72,155,888 65,079,892 71,327,683 63,998,027 The accompanying notes are an integral part of these financial statements. 2

6 CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY () Number of shares Capital stock The accompanying notes are an integral part of these financial statements. 3 Share-based payment reserve Accumulated other comprehensive income (loss) Deficit Total shareholders equity Balance, December 31, ,884,094 27,306,144 3,482,682 - (12,839,888) 17,948,938 Shares issued for cash: Private placements 1,435,600 2,275,426 2,275,426 Share issuance costs (312,205) 39,890 (272,315) Exercise of warrants 1,208,836 1,136,306 1,136,306 Cancelled escrow shares (18,475) (8,811) 8,811 (8,811) Reallocation from contributed surplus on exercise of warrants - 123,055 (123,055) - Share based payments 825, ,407 Net income for the period (542,191) (542,191) Balance, June 30, ,510,055 30,519,915 4,233,735 (13,328,079) 21,371,571 Shares issued for cash: Private placements 4,197,500 3,777, ,777,750 Property acquisition 50,000 45, ,000 Share issuance costs - (352,510) (352,510) Exercise of warrants 277, , ,850 Cancelled escrow shares - - (8,811) - 8,811 - Share based payments , ,819 Reclassification of contributed - - surplus on exercise of warrants - 19,017 (19,017) - Net loss for the period (294,310) (294,310) Unrealized loss on available-forsale investment (13,125) - (13,125) Balance, December 31, ,035,055 34,270,022 4,259,726 (13,125) (13,667,578) 24,849,045 Shares issued for cash: Private placements 2,000,000 1,820, ,820,000 Share issuance costs - (296,588) 30, (265,739) Exercise of warrants 120, , ,583 Net income for the period ,319 52,319 Unrealized gain on available-forsale investment , ,268 Balance, June 30, ,155,888 $ 35,907,017 $ 4,290,575 $ 515,143 $ (13,615,259) $ 27,097,476

7 CONDENSED STATEMENTS OF CASH FLOWS () Six months ended June 30, 2012 and OPERATING ACTIVITIES Net income (loss) for the period $ 52,319 $ (542,191) Items not affecting cash: Depreciation 1, Share-based payments 9, ,407 Unrealized loss on derivative investment 12,493 - Deferred income tax recovery (941,037) (1,008,275) Changes in non-cash working capital items: Accounts receivable (6,091) (532,388) Input tax credits receivable 284,271 Prepaid expenses (51,116) (62,295) Accounts payable and accrued liabilities (11,171) (71,836) Net cash flows used in operating activities (649,376) (1,391,427) FINANCING ACTIVITIES Shares issued for cash 3,153,583 4,136,710 Share issue costs (275,654) (272,314) Net cash flows provided by financing activities 2,877,929 3,864,396 INVESTING ACTIVITIES Investment in and expenditure on exploration and evaluation assets (5,201,822) (3,942,382) Purchase of marketable securities (500,000) - Net cash flows used in investing activities (5,701,822) (3,942,382) Decrease in cash (3,473,269) (1,469,413) Cash and cash equivalents, beginning of period 9,823,614 12,179,131 Cash and cash equivalents, end of period $ 6,350,345 $ 10,709,718 Cash and cash equivalents consist of the following: Cash $ 1,334,935 $ 10,709,718 Term deposits 5,015,410 - $ 6,350,345 $ 10,709,718 Supplemental Cash Flow Information Interest paid $ - $ - Income taxes paid $ - $ - Accounts receivable related to property expenditure $ - $ - Accounts payable related to property expenditure $ 4,967 $ - Refundable tax credit accrued for exploration and $ 1,555,962 $ - evaluation assets Share issued for finder s fees $ - $ 39,890 The accompanying notes are an integral part of these financial statements. 4

8 1. NATURE AND CONTINUANCE OF OPERATIONS Balmoral Resources Ltd. (the Company ) is incorporated under the laws of British Columbia, Canada, and is primarily engaged in the acquisition and exploration of mineral properties. To date, the Company has not earned significant revenues and is considered to be in the exploration stage. These financial statements have been prepared on the basis of accounting principles applicable to a going concern, which assumes that the Company will be able to continue in operation for the foreseeable future, and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. The Company had a net income of $52,319 for the six months ended June 30, 2012 (2011 a loss of $542,191). The Company has working capital as at June 30, 2012 of $10,742,640 (December 31, $12,060,067) and a deficit of $13,615,259 (December 31, $13,667,578). During the period ended June 30, 2012, the Company raised funds through a private placement for gross proceeds of $3,040,000 and $113,583 from conversion of warrants, together with the Company s previous cash balance provides sufficient funding for operations for the ensuing year. The business of mining and exploration involves a high degree of risk and there can be no assurance that exploration programs will result in profitable mining operations. The Company has significant cash to meet its requirements for administrative overhead, to conduct due diligence on exploration and evaluation acquisition targets, and to conduct exploration of its exploration and evaluation assets. The Company does not generate cash flows from operations to fund its activities and, therefore, relies principally upon the issuance of securities for financing. Future capital requirements will depend on many factors including the Company s ability to execute its business plan. The Company intends to continue relying upon the issuance of securities to finance its future activities but there can be no assurance that such financing will be available on a timely basis under terms acceptable to the Company. Although these condensed interim financial statements do not include any adjustments that may result from the inability to secure future financing, such a situation would have a material adverse effect on the Company s business, results of operations and financial condition. 2. BASIS OF PRESENTATION These condensed interim financial statements should be read together with the Company s annual financial statements for the year ended December 31, The Company s accounting policies are set out therein, and have been consistently applied to all periods presented in the preparation of these condensed interim financial statements. (a) Statement of compliance These condensed interim financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting, as issued by the International Accounting Standards Board ( IASB ) using accounting policies consistent with International Financial Reporting Standards as issued by the International Accounting Standards Board ( IFRS ). The Board of Directors approved these condensed interim financial statements on August 15,

9 2. BASIS OF PRESENTATION (Continued) (b) Use of estimates The preparation of financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the period. Significant areas requiring the use of estimates include the valuation of other assets and accruals, impairment and recoverability of exploration and evaluation assets, amounts of reclamation and environmental obligations, assumptions used to determine the fair value of share-based payments, and the determination of the recoverability of deferred income tax assets. While management believes the estimates to be reasonable, actual results could differ from those estimates and could impact future results of operations and cash flows. 3. RISK MANAGEMENT, CAPITAL MANAGEMENT AND FINANCIAL INSTRUMENTS The Company manages its capital structure and makes adjustments to it based on the funds available to the Company in order to support future business opportunities. The Company defines its capital as shareholders equity. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company s management to manage its capital to be able to sustain the future development of the Company s business. The Company currently has no source of revenues, and therefore is dependent upon external financings to fund activities. In order to carry future projects and pay for administrative costs, the Company will spend its existing working capital and raise additional funds as needed. Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. There were no changes in the Company s approach to capital management during the six months ended June 30, The Company is not subject to externally imposed capital requirements. The Company classified its cash and cash equivalents as financial assets at fair value through profit or loss; accounts receivable as loans and receivables; marketable securities as available for sale ( AFS ); share purchase warrants as held-for-trading; and accounts payable and accrued liabilities as other financial liabilities. The carrying values of accounts receivable and accounts payable and accrued liabilities approximate their fair values due to the short term to maturity of these financial instruments. 4. MARKETABLE SECURITIES As at June 30, 2012 the Company held 1,555,555 (December 31, ,000, 000) common shares of GTA Resources and Mining Inc. ( GTA ) with a fair value of $1,197,778 (December 31, 2011 $190,000). The Company classified these shares as available-for-sale. In addition, the Company holds 277,777 share purchase warrants of GTA that may be exercised to acquire 277,777 common shares of GTA at $1.25 per share on or before September 12, These warrants are considered to be derivative instruments, which are by definition classified as held-for-trading. As at June 30, 2012, the fair value of 277,777 GTA warrants was $83,464. Fair value adjustment for the period ended June 30, 2012 amounted to an unrealized loss of $12, EXPLORATION AND EVALUATION ASSETS ADVANCES The Company has made cash advances of $669,610 to an independent geological service provider for ongoing exploration of the Company s exploration and evaluation assets. 6

10 6. EXPLORATION AND EVALUATION ASSETS Fenelon N2 Martiniere Northshore Detour East Grasset Other Total Balance, December 31, 2010 $ 2,628,950 $ 1,617,701 $ 1,301,651 $ 970,423 $ 108,571 $ - $ - $ 6,627,296 Deferred exploration costs: Camp 302,549 2, , , ,997 1,486 1,236,207 Drilling and analysis 1,170,646-3,080, , ,655-5,147,927 Land maintenance and tenure 7,734 2,200 7,402 11,703 (9,065) 500 1,000 21,474 Personnel and geology, 244,513 99, ,797 2, , , ,850 2,019,547 Acquisition costs - 2,646 1,643-98,942 14,855 9, ,706 Total expenditures for the year 1,725, ,739 4,386,997 14,121 1,468, , ,956 8,552,861 Cost recoveries (215,000) (215,000) Refundable tax credit (448,560) (27,061) (1,140,053) - (356,132) (186,112) (28,684) (2,186,602) Balance, December 31, ,905,832 1,697,379 4,548, ,544 1,221, ,646 91,272 12,778,555 Exploration costs Camp 29, ,356 3,958 99, , ,294,952 Drilling and analysis - - 1,457, , ,101-2,174,919 Land maintenance and tenure 10,896 3,801 7, ,314 1,199 1,500 47,513 Personnel and geology 10,831 1, ,797 2, , , ,868 Acquisition costs Total expenditures for the period 51,011 4,878 2,760,261 7, ,866 1,217,550 2,039 4,453,252 Refundable tax credit (17,854) (1,707) (966,091) - (143,453) (426,143) (714) (1,555,962) Balance, June 30, 2012 $ 3,938,989 $ 1,700,550 $ 6,342,765 $ 777,191 $ 1,487,700 $ 1,336,053 $ 92,597 $ 15,675,845 7

11 7. CAPITAL STOCK (a) Common shares Authorized An unlimited number of common shares without par value. Share issuances i. During the six months ended June 30, 2012, the Company: (b) Warrants a. On March 13, 2012, the Company closed a brokered private placement comprised of 2,000,000 flow-through common shares of the Company at price of $1.52 per share, for gross proceeds of $3,040,000. In consideration of the agents services, the Company paid the agent a cash commission of 6% of the gross proceeds of the Offering and issued 120,000 warrants. Each Broker Warrant entitles the holder to acquire one non-flow through common share of the Company at price of $1.25 until March 13, b. Issued 120,833 common shares at $0.94 per share pursuant to the exercise of warrant issued on November 9, The following common share purchase warrants entitle the holders thereof the right to purchase one common share for each common share purchase warrant. Warrants transactions are summarized as follows: Number of Warrants Weighted Average Exercise Price Balance, December 31, ,182,046 $ 0.94 Exercise of warrants (1,486,336) $ (0.94) Issue of warrants 86,136 $ 1.90 Balance, December 31, ,781,846 $ 0.95 Exercise of warrants (120,833) $ (0.94) Expiry of warrants (86,136) $ (1.90) Issue of warrants 120,000 $ 1.25 Balance, June 30, ,694,877 $ 0.94 The weighted average remaining contractual life of warrants outstanding at June 30, 2012 was 0.36 year. 8

12 7. CAPITAL STOCK (Continued) (b) Warrants (Continued) As at June 30, 2012 and December 31, 2011, the Company had outstanding warrants as follows: June 30, 2012 December 31, 2011 Expiry Date Number of Warrants Exercise Price Number of Warrants Exercise Price November 9, ,224,667 $ ,345,500 $0.94 November 9, 2012 (agent warrants) 1,350,210 $0.94 1,350,210 $0.94 April 15, 2012 (agent warrants) - $ - 43,068 $1.90 April 18, 2012 (agent warrants) - $ - 43,068 $1.90 March 13, 2013 (agent warrants) 120,000 $ $ - 12,694,877 12,781,846 The fair value of agent warrants was determined using the Black-Scholes option pricing model based on the following assumptions: June 30, 2012 December 31, 2011 Expected life (years) 1 1 Interest rate 1.20% 1.77% Volatility (average) 74.79% 78.25% Dividend yield 0.00% 0.00% (c) Escrow shares 1,125,000 common shares were released from escrow on May 25, No common share is in escrow at June 30,

13 8. SHARE-BASED PAYMENTS Option plan details A summary of the status of the stock option plan and changes are presented below: Number of Options Weighted Average Exercise Price Balance, December 31, ,000,000 $ 1.00 Grant of stock options 985, Forfeiture of stock options (80,000) 1.00 Balance, December 31, ,905,000 $ 1.06 Grant of stock options - - Forfeiture of stock options (80,000) 1.00 Balance, June 30, ,825,000 $ 1.06 The weighted average remaining contractual life of options outstanding at June 30, 2012 was 3.48 years. Stock options outstanding are as follows: Expiry Date Exercise Price June 30, 2012 December 31, 2011 Number of Exercisable Exercise Number of Exercisable Options Price Options June 6, 2014 $ ,000 75,000 $ ,000 50,000 November 18, ,840,000 2,840, ,920,000 2,920,000 June 6, , , , ,000 3,825,000 3,800,000 3,905,000 3,855,000 10

14 9. RELATED PARTY TRANSACTIONS AND BALANCES During the six months ended June 30, 2012, the Company entered into the following transactions with related parties: Management compensation Short-term benefits $ 235,000 $ 206,054 Share-based payments - 335,759 Transactions with other related parties $ 235,000 $ 541,813 (a) Paid or accrued rent or other expenses of $10,147 ( $2,467) to Cardero Resource Corp ( Cardero ), a company with directors in common. (b) Amounts due from related parties, for technical or corporate secretary services provided, is comprised of $4,910 (December 31, $1,052) due from Abzu Gold Ltd. and $525 (December 31, $Nil) from Wealth Minerals Ltd., companies with officers and directors in common. (c) Amount due to related party of $10,147 (December 31, $27,456) are due to Cardero for reimbursement of office, telephone and prepaid trade show expenses and $ 1,454 (December 31, $4,772 due to the CEO of the Company for reimbursement of travel expenses. 11

15 10. OTHER LIABILITIES On issuance, the Company allocates the flow-through share into i) share capital, and ii) a flow-through share premium, equal to the estimated premium if any, investors pay for the flow-through feature, which is recognized as a liability. Upon expenses being incurred, the Company derecognizes the liability and recognizes a deferred tax recovery in income for the amount of tax reduction renounced to the shareholders. Other liabilities include the portion the premium on flow-through shares that at year end have not been used to incur qualifying exploration expenditures. The following is a continuity schedule of the liability portion of the flow-through shares issuances. Flow-through shares Balance at December 31, 2010 $ 750,416 Liability incurred on flow-through shares issued on April 15, ,366 Liability incurred on flow-through shares issued on April 18, ,612 Liability incurred on flow-through shares issued on November 1, ,500 Settlement of flow-through share liability on incurring expenditures (1,563,113) Balance at December 31, 2011 $ 751,781 Liability incurred on flow-through shares issued March 13, ,220,000 Settlement of flow-through share liability on incurring expenditures (865,571) Balance at June 30, 2012 $ 1,106,210 As at December 31, 2011, the Company fully fulfilled its commitment to incur exploration expenditures in relation to flow-through share financing in November 2010, and April 15 and 18, The Company had fulfilled $482,458 of its commitment to incur exploration expenditures in relation to flow-through share financing in November During the six months period, the Company fulfilled the balance of $4,134,792 of its commitment to incurred exploration expenditures in relation to flow-through share financing in November 2011, and partially fulfilled, $283,542, its commitment to incurred exploration expenditures in relation to flowthrough share financing in March As at June 30, 2012, $2,756,458 of exploration expenditures remains to be incurred. 11. EVENT AFTER THE REPORTING PERIOD 100,000 options exercisable at a price of $1.25 expired unexercised on July 14,