CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS THREE MONTHS ENDED DECEMBER 31, 2011 and 2010 (expressed in Canadian Dollars)
NOTICE TO READERS Under National Instrument 51-102, Part 4.3 (3)(a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor. The accompanying unaudited interim consolidated financial statements of the Company for the period ending December 31, 2011 have been prepared in accordance with International Accounting Standard 34 for Interim Financial Reporting under International Financial Reporting Standards. These financial statements are the responsibility of the Company s management and have been approved by the Board of Directors. The Company s independent auditors have not performed an audit or review of these condensed interim consolidated financial statements. 1
CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS (Unaudited - expressed in Canadian dollars) December 31, 2011 September 30, 2011 October 1, 2010 ASSETS (note 9) (note 9) Current Cash $ 1,225,388 $ 63,381 $ 8,473 Receivables 8,083 5,263 5,804 Prepaid expenses and deposits 1,848-18,828 1,235,319 68,644 33,105 Marketable securities (note 4) 115,000 127,500 378,765 Mineral property interests (note 5) 1,391,283 1,365,750 1,359,363 Equipment - - 6,896 LIABILITIES AND SHAREHOLDERS EQUITY $ 2,741,602 $ 1,561,894 $ 1,778,129 Current liabilities Accounts payable and accrued liabilities $ 58,577 $ 36,012 $ 38,248 Flow through liability (note 9 (e)) 237,278 - - Due to related party (note 7) - 40,015 90,000 Shareholders equity (deficiency) 295,855 76,027 128,248 Share capital (note 6) 16,579,638 15,310,468 15,310,468 Subscriptions received (note 12) - 62,500 - Contributed surplus (note 6) 269,009 269,009 269,009 Accumulated other comprehensive loss 78,942 91,442 256,493 Deficit (14,478,842) (14,247,552) (14,186,089) 2,448,747 1,485,867 1,649,881 $ 2,744,602 $ 1,561,894 $ 1,778,129 Subsequent Events (note 9) On behalf of the Board: Ronald K. Netolitzky Director Robert V. Matthews Director Ronald K. Netolitzky Robert V. Matthews 2 The accompanying notes are an integral part of these consolidated financial statements.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited - expressed in Canadian dollars) For the three months ended December 31 2011 2010 Expenses Amortization $ - $ 345 Consulting fees (note 7) 7,275 10,500 Professional fees (note 7) 557 9,156 Investor relations 10,500 - Management fees (note 7) - 18,000 Office and administration 3,327 6,904 Rent (note 7) - 12,446 Shareholder communications 2,647 300 Transfer agent and listing fees 10,311 659 Loss before income taxes (34,617) (58,310) Deferred taxes on flow through premium (note 9 (e)) (196,673) - Net loss for the period (231,290) (58,310) Items of comprehensive income (loss) Unrealized loss on marketable securities (note 3) (12,500) (9,238) Comprehensive loss for the period $ (243,790) $ (67,548) Basic and diluted loss per share $ (0.02) $ (0.01) Weighted average number of common shares outstanding 11,648,651 10,952,887 3 The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY Accumulated Share Capital Subscriptions Contributed Other Comprehensive Total Shareholders Shares Amount Received Deficit Surplus Income Equity October 1, 2010 10,952,887 $ 15,310,468 $ - $ (14,186,089) $ 269,009 256,493 $ 1,649,881 Other comprehensive loss - - - - - (9,238) (9,238) Net loss for the three months - - - (58,310) - - (58,310) Balance at December 31, 2010 10,952,887 15,310,468 - (14,244,399) 269,009 247,255 1,582,333 Items of comprehensive gain - - - - - 24,532 15,294 Subscriptions received - - 62,500 - - - 62,500 Reversal of previously recognized unrealized gain (note 3) - - - - - (180,345) (180,345) Net loss for the nine months - - - (3,153) - - (61,463) Balance at September 30, 2011 10,952,887 15,310,468 62,500 (14,247,552) 269,009 91,442 1,485,867 Shares issued for cash Private placements 5,905,900 1,343,600 (62,500) - - - 1,281,100 Share issue costs - (33,825) - - - - (33,825) Premium on flow through shares (note 9 (e)) - (40,605) - - - - (40,605) Other of comprehensive loss (12,500) (12,500) Net loss for the three months - - - (231,290) - - (231,290) Balance at December 31, 2011 16,858,787 $ 16,579,638 $ - $ (14,478,842) $ 269,009 $ 78,942 $ 2,448,747 4 The accompanying notes are an integral part of these consolidated financial statements.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (Unaudited expressed in Canadian dollars) For the three months ended December 31, 2011 2011 2010 Operating activities Net loss for the year $ (231,290) $ (58,310) Items not involving cash Amortization - 345 Deferred taxes on flow through premium 196,673 - Net changes in non-cash working capital items Accounts receivable (2,820) (354) Prepaid expenses and deposits (1,848) (653) Accounts payable and accrued liabilities (1,608) 5,326 Cash used in operating activities (40,893) (53,646) Financing activities Advances from (repayments to) related party (40,015) 50,000 Proceeds from issue of capital stock 1,281,100 - Share issue costs (33,825) - Cash provided by financing activities 1,207,260 50,000 Investing activities Expenditures on mineral properties (4,360) (606) Cash provided by (used in) investing activities (4,360) (606) Increase (decrease) in cash during year 1,162,007 (4,252) Cash, beginning of period 63,381 8,473 Cash, end of period $ 1,225,388 $ 4,221 Supplementary information Income taxes paid $ - $ - Interest paid $ - $ - 5 The accompanying notes are an integral part of these consolidated financial statements.
1. Nature of operations and going concern Masuparia Gold Corporation (the Company or Masuparia ) was incorporated on July 7, 1981 under the Company Act (British Columbia). The Company s principal business activities include the acquisition, exploration and development of mineral resource properties in Canada. The Company s offices are located at 611 675 West Hastings Street, Vancouver, BC, V6B 1N2. The Company had a wholly-owned integrated subsidiary, Minera Masuparia, S.A. de C.V. ( Minera ), a Mexican corporation which was disposed of in April 2010. The Company is currently exploring its mineral properties and has not yet determined whether they contain resources that are economically recoverable. The recoverability of amounts capitalized for mineral properties is dependent upon the discovery of sufficient economically recoverable ore resources, confirmation of the Company s interest in the underlying mineral properties, the ability of the Company to arrange appropriate financing to complete the development of the mineral properties and upon future profitable production or proceeds from the sale of the mineral properties. These financial statements have been prepared on a going concern basis, which assumes the realization of assets and liquidation of liabilities in the normal course of business. 2. Significant accounting policies (a) Statement of Compliance The company prepares its financial statements in accordance with Canadian generally accepted accounting principles as set out in the Handbook of the Canadian Institute of Chartered Accountants ( CICA Handbook ). In 2010, the CICA Handbook was revised to incorporate International Financial Reporting Standards, and requires publicly accountable enterprises to apply such standards effective for years beginning on or after January 1, 2011. Accordingly, the company has reported on this basis in these interim consolidated financial statements. These condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting ( IAS 34 ) using accounting policies consistent with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ) and interpretations of the International Financial Reporting Interpretations Committee ( IFRIC ). These are the Company s first IFRS condensed interim financial statements for part of the period covered by the Company s first IFRS annual condensed financial statements for the year ending September 30, 2012. Previously, the Company prepared its annual and interim financial statements in accordance with Canadian Generally Accepted Accounting Principles ( Canadian GAAP ) which differs in some areas from IFRS. In preparing these condensed interim financial statements, management has amended certain accounting and measurement methods previously applied in the Canadian GAAP interim financial statements to comply with IFRS. The company has consistently applied the same accounting policies in its opening IFRS statement of financial position at October 1, 2010 and throughout all periods presented, as if these policies had always been in effect. There were no adjustments made on the transition from Canadian GAAP to IFRS. 6
2. Significant accounting policies (cont d ) (c) Statement of Compliance (cont d ) The policies applied in these condensed interim consolidated financial statements are based on IFRS issued and outstanding as of March 28, 2012, the date the Audit Committee on behalf of the Board of Directors approved the statements. Any subsequent changes to IFRS that are given effect in the company s annual consolidated financial statements for the year ending September 30, 2012 could result in restatement of these interim consolidated financial statements, including transition adjustments recognized on change-over to IFRS. The condensed consolidated interim financial statements should be read in conjunction with the company s Canadian GAAP annual financial statements for the year ended September 30, 2011. (d) Basis of presentation IAS 34.16 does not require that all significant accounting policies be disclosed in the first-time IFRS interim financial statements, unless those policies have changed materially from the most recent annual financial statements. The Companies significant accounting policies have not changed materially as a result of the adoption of IFRS but include the following policies for clarity. Significant Accounting Estimates and Judgments The preparation of these condensed consolidated interim statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual outcomes could differ from these estimates which, by their nature, are uncertain. The impacts of such estimates are pervasive throughout the condensed consolidated interim financial statements, and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and may affect both the period of revision and future periods. Significant assumptions about the future and other sources of estimation uncertainty that management has made at the statement of financial position date that could result in a material adjustment to the carrying amounts of assets and liabilities in the event that actual results differ from assumptions made, relate to, but are not limited to, the following: I. the recoverability of amounts receivable and prepayments which are included in the condensed consolidated interim statement of financial position; II. the carrying value and recoverable amount of mineral property interests; III. the estimated useful lives of equipment and the related depreciation included in the condensed consolidated interim statements of operations and comprehensive loss; IV. the recoverability and measurement of deferred tax assets and liabilities; V. the provisions for estimated site restoration obligations; VI. the inputs used in calculating share-based compensation expense in the condensed consolidation interim statements of operations and comprehensive loss; and VII. the allocation of proceeds for units between share capital and warrants. 7
3. Risk management and financial instruments The Company has classified its financial assets as follows: Financial assets December 31, 2011 September 30, 2011 Held-for-trading Available-for-sale Held-for-trading Available-for-sale Cash $ 1,225,388 $ - $ 63,381 $ - Marketable securities - 115,000-127,500 $ 1,225,388 $ 115,000 $ 63,381 $ 127,500 The financial assets are carried at fair value as at December 31, 2011 and September 30, 2011. The Company classifies its only financial liability, accounts payable and accrued liabilities, as other financial liabilities and carries it at amortized cost. The Company s financial instruments measured at fair value by level within the fair value hierarchy as at are as follows: December 31, 2011 Level 1 Level 2 Level 3 Total Financial assets Marketable securities $ 115,000 $ - $ - $ 115,000 September 30, 2011 Level 1 Level 2 Level 3 Total Financial assets Marketable securities $ 127,500 $ - $ - $ 127,500 The Company s risk exposure and the impact on the Company s financial instruments are summarized below: (a) Credit risk Credit risk is the risk that a counter party to a financial instrument will fail to discharge its contractual obligations. Financial instruments that potentially subject the Company to credit risk consist of cash and amounts due from related parties. The risk is minimized as cash has been placed with major Canadian financial institutions. (b) Currency risk The Company s functional currency is the Canadian dollar. The Company is exposed to foreign currency risk on fluctuations related to cash, receivables and accounts payable and accrued liabilities that are denominated in foreign currencies. Management believes the foreign exchange risk derived from currency conversions and relative exchange rate between Canadian dollars and the foreign currencies is negligible and therefore does not hedge its foreign exchange risk. 8
3. Risk management and financial instruments (cont d ) (c) Liquidity risk Liquidity risk is the risk that the Company will encounter difficulty satisfying financial obligations as they become due. The Company manages liquidity risk by forecasting cash flows from operations and anticipated investing and financing activities. The Company is subjected to liquidity risk to the extent of its accounts payable. These amounts, as shown in the Company s balance sheets, all mature within the next twelve months. (d) Market risk The Company is exposed to price risk with respect to commodity and equity prices. The ability of the Company to explore its mineral properties and the future profitability of the Company are directly related to the market price of gold and other precious metals. The Company monitors gold and other commodity prices to determine the appropriate course of action to be taken by the Company. (e) Other price risk Other price risk is the risk that the fair market value or future cash flows of a financial instrument will fluctuate due to changes in market prices, other than those arising from interest rate risk or foreign currency risk. The Company s marketable securities are carried at market value and are therefore directly affected by fluctuations in the market value of the underlying securities. The Company s sensitivity analysis suggests that a 24% (December 31, 2011 28%) change in market prices would change the value of the marketable securities by $32,200 (September 30, 2011 30,600). 4. Marketable securities As at December 31, 2011, the Company had available for sale 500,000 (2010-1,847,636) common shares of Goldbrook Ventures Inc. ( Goldbrook ), a public company traded on the TSX-Venture Exchange. During the quarter, pursuant to a takeover, Goldbrook offered its shareholders, cash of $0.39 per share which the Company has accepted and subsequent to the quarter, received the funds. Long-term investments were recorded at fair value as at December 31, 2011 and the year ended at September 30, 2011 as follows: December 31, 2011 September 30, 2011 Goldbrook shares, at market $ 115,000 $ 127,500 The Company recorded an unrealized loss on available-for-sale assets, net of future income taxes, of $12,500 (2010 - $9,238) to comprehensive income due to a decrease in fair value of the price of the remaining Goldbrook common shares. 9
5. Mineral properties The investment in and expenditures on mineral properties comprise a significant portion of the Company s assets. Realization of the Company s investment in these assets is dependent upon the establishment of legal ownership, the attainment of successful production from the properties or from the proceeds of their disposal. Mineral exploration and development is highly speculative and involves inherent risks. While the rewards if an ore body is discovered can be substantial, few properties that are explored are ultimately developed into producing mines. There can be no assurance that current exploration programs will result in the discovery of economically viable quantities of ore. The amounts shown for acquisition costs and deferred exploration expenditures represent costs incurred to date and do not necessarily reflect present or future values. These costs will be depleted over the useful lives of the properties upon commencement of commercial production or written off if the properties are abandoned or if the claims are allowed to lapse. Environmental The Company is subject to the laws and regulations relating to environmental matters in all jurisdictions in which it operates. The Company conducts its mineral exploration activities in compliance with applicable environmental protection legislation. The Company is not aware of any existing environmental problems related to any of its current or former properties that may result in material liability to the Company. Environmental legislation is becoming increasingly stringent and the expenses of regulatory compliance are increasing. The impact of new and future environmental legislation on the Company s operations may cause additional expenses and restrictions. If the restrictions adversely affect the scope of exploration and development on the mineral properties, the potential for production on the property may be diminished or negated. Title to mineral properties Although the Company has taken steps to verify the title to mineral property interests in which it has an interest, in accordance with industry standards for the current stage of exploration of such properties, these procedures do not guarantee the Company s title. Property title may be subject to unregistered prior agreements or transfers and may be affected by undetected defects. Greywacke - Saskatchewan In 2001, the Company earned a 51% interest in four mineral claims located in northern Saskatchewan for consideration of $10,000, the issuance of 16,665 common shares and incurring a minimum of $850,000 of exploration expenditures. On September 20, 2011, the Company entered into a Joint Venture Agreement with Golden Band Resources, the holder of the remaining 49% interest, to advance the property. Masuparia is the operator. 10
5. Mineral properties (cont d ) GREYWACKE MINERAL PROPERTY EXPENDITURES Balance, September 30, 2009 $ 1,359,363 Deferred exploration expenditures Assays 1,966 Consulting fees 4,000 Permits 421 6,387 Balance, September 30, 2010 1,365,750 Deferred exploration expenditures Assays 570 Field crew and supplies 3,160 Geology 15,147 Overhead and travel 2,866 Permits 3,790 25,533 Balance, December 31, 2011 $ 1,391,283 6. Share capital and contributed surplus (a) Authorized Unlimited number of common shares without par value (b) Private placements 5,905,900 units were issued on November 18, 2011 for gross proceeds of $1,343,600. The Company issued 3,248,400 units at $0.25 per unit for proceeds of $812,100, each unit consisting of one flowthrough common share and one-half of one flow-through share purchase warrant, with each whole warrant exercisable to acquire one flow-through common share at $0.35 until December 31, 2011 (none exercised to date) and at $0.45 until November 18, 2012. In addition, the Company issued 2,657,500 units at $0.20 per unit for proceeds of $531,500, each unit consisting of one common share and one share purchase warrant, with each whole warrant exercisable to acquire one common share at $0.35 until November 18, 2013. These warrants have an exercise acceleration clause such that if the Company s shares trade at or greater than $0.50 per share for 20 consecutive days, the remaining exercise period may be reduced, at the election of the Company and upon notice to the warrant holders, to 30 days from notice. Finders fees of $33,825 were incurred on a portion of the financing. Subscription receipts of $62,500 were received in the prior year. 11
6. Share capital and contributed surplus (cont d ) (d) Stock options and warrants The Company s registered stock option plan authorizes the Company to grant incentive stock options to executive officers, directors, employees and consultants enabling them to acquire up to 10% of the issued and outstanding common stock of the Company. Under the plan, the exercise price of each option equals the market price of the Company's stock on the date of grant. The options can be granted for a maximum term of five years. Stock options granted in relation to investor relations activities vest 25% every three months from the grant date; all other stock options vest immediately. Stock option and share purchase warrant transactions are summarized as follows: Number of Options Stock Options Weighted Average Exercise Price Number of Warrants Warrants Weighted Average Exercise Price Outstanding, September 30, 2010 33,000 $ 2.55 1,497,000 $ 1.00 Expired - - (1,497,000) $ (1.00) Outstanding, September 30, 2011 33,000 $ 2.55 - - Expired (33,000) $ (2.55) - - Outstanding, December 31, 2011 - - - - Number exercisable/fully vested - - - - 7. Related party transactions During the periods ended December 30, 2011 and 2010, the Company entered into the following transactions with companies owned by directors and/or officers: 2011 2010 Management fees $ - $ 18,000 Consulting fees 7,275 9,750 Professional fees - 4,500 Rent 3,000 5,859 $ 10,275 $ 38,109 These transactions, occurring in the normal course of operations, are measured at the exchange amount established and agreed to by the related parties. 12
7. Related party transactions (cont d ) During the quarter ended December 31, 2011, the Company repaid an advance of $40,015 to an officer and director of the Company. The advance payable was unsecured, without interest and payable on demand. During the year ended September 30, 2010, a company controlled by a former director of the Company advanced $90,000 of unsecured, without interest and payable on demand advances. During the year ended September 30, 2011, a further $75,000 was advanced on the same terms and the total amount of advances of $165,000 was repaid from the sale of marketable securities in the year ended September 30, 2011. 8. Capital risk management The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to support the acquisition and exploration of mineral properties. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company s management to sustain future development of the business. The Company defines capital that it manages as share capital, cash and marketable securities. The properties in which the Company currently has an interest are in the exploration stage; as such the Company has historically relied on the equity markets to fund its activities. The Company will continue to assess new properties and seek to acquire an interest in additional properties if it feels there is sufficient geologic or economic potential and if it has adequate financial resources to do so. Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. 9. First time adoption of IFRS As stated in Note 2, these are the Company s first condensed consolidated interim financial statements for the period covered by the first annual condensed consolidated financial statements prepared in accordance with IFRS. In preparing its opening IFRS consolidated statement of financial position and comparative information for the consolidated financial statements as at and for the year ended September 30, 2011, the Company did not find any amounts to adjust. IFRS 1 First-time Adoption of International Financial Reporting Standards sets forth guidance for the initial adoption of IFRS. Under IFRS 1, the standards are applied retrospectively at the transitional statement of financial position date with all adjustments to assets and liabilities charge or credited to retained earnings unless certain exemptions are applied. The Company has applied the following exemptions to its opening statement of financial position dated July 1, 2010: a) Business Combinations The Company elected under IFRS 1 as a first-time adopter not to apply IFRS 3 Business Combinations retrospectively to business combinations that occurred before the date of transition to IFRS. 13
9. First time adoption of IFRS (cont d ) b) Share-based payments The Company has elected not to apply IFRS 2 to awards that vested prior to July 1, 2010, which has been accounted for in accordance with Canadian GAAP. c) Compound financial instruments IAS 32 requires that a compound financial instrument at inception be split into separate liability and equity components. The Company has elected to take the IFRS 1 exemption to not require separation of these two portions since the liability component is no longer outstanding at the transition date. d) Estimates In accordance with IFRS 1, an entity s estimates under IFRS at the date of transition to IFRS must be consistent with estimates made for the same date under the previous GAAP applied, unless there is objective evidence that those estimates were in error. The Company s IFRS estimates as of July 1, 2010 are consistent with its Canadian GAAP estimates for the same date. IFRS employs a conceptual framework that is similar to Canadian GAAP. However, some differences exist in certain matters of recognition, measurement and disclosure. While adoption of IFRS has not changed the Company s actual cash flows, it has resulted in changes to the Company s reported financial position in order to allow the users of the condensed consolidated interim financial statements and operations and comprehensive loss, financial position and cash flows as at and for the six months ended December 31, 2010 and the year ended June 30, 2011 have been reconciled to IFRS, with the resulting differences explained, below. e) Notes on Canadian GAAP to IFRS Reconciliation Flow-through shares Flow-through shares are a unique Canadian tax incentive which is the subject of specific guidance under Canadian GAAP. Under Canadian GAAP, the Company accounted for the issue of flow-through shares by recording the funds received as share capital. At the time of the filing of the renunciation of the qualifying flow-through expenditures to investors, the Company recorded a deferred tax liability with a charge directly to shareholders equity. Also under Canadian GAAP, a portion of the deferred tax assets that were not recognized in previous years, due to the recording of a valuation allowance, are recognized as a recovery of income taxes in the statements of operations. IFRS does not contain explicit guidance pertaining to this tax incentive. Therefore, the Company has adopted a policy whereby the premium paid for flow-through shares in excess of the market value of the shares without the flow-through features at the time of issue is initially recorded as a flowthrough liability. Upon renouncement by the Company of the tax benefits associated with the related expenditures, a deferred tax liability is recognized and the flow-through liability is reversed, with any difference charged to the statements of operation as deferred tax expense. A portion of the deferred tax assets that were not recognized in previous years, due to the recording of a valuation allowance, will reduce the deferred tax liability and record a deferred tax recovery. 14
10. Subsequent events On January 18, 2012, the Company granted 1,200,000 incentive stock options exercisable at $0.22 for a period of five years until January 18, 2017. 11. Comparative figures The comparative consolidated financial statements have been reclassified to conform to the presentation of the current year. 15