Financial Statements. Whitemud Resources Inc. (A Development Stage Company) Three months ended March 31, 2007 Unaudited

Transcription

1 Financial Statements Whitemud Resources Inc. ended Unaudited

2 BALANCE SHEETS As at (Unaudited) December 31, 2006 ASSETS Current Cash and cash equivalents [note 3] 43,648,955 1,479,770 Accounts receivable 615, ,020 Deferred financing costs 210,687 Prepaids and deposits 236,675 6,576 44,501,199 1,919,053 Property, plant and equipment [note 5] 12,781,700 8,852,371 Mineral properties [note 6] 1,353,513 1,237,014 Restricted Cash [note 4] 4,000,000 62,636,412 12,008,438 LIABILITIES AND SHAREHOLDERS EQUITY Current Accounts payable and accrued liabilities 2,643,985 1,815,454 Commitments [notes 10 and 11] Shareholders equity Common shares [note 7] 63,426,724 13,113,604 Contributed surplus 23,600 23,600 Deficit (3,457,897) (2,944,220) Shareholders equity 59,992,427 10,192,984 Total Liabilities and Shareholders Equity 62,636,412 12,008,438 See accompanying notes to the financial statements On behalf of the Board: Director Director

3 STATEMENTS OF NET LOSS, COMPREHENSIVE LOSS AND DEFICIT (UNAUDITED) ended ended 2006 Cumulative from inception on April 28, 2005 to REVENUES Interest income 178,215 11, ,891 EXPENSES Salaries and benefits [note 12] 313, ,021 1,950,639 Professional fees 42,333 10, ,064 General and administration [note12] 170,790 40, ,420 Travel 118,319 6, ,499 Market development 16, ,665 Mineral properties leases 25,085 25,054 75,440 Depreciation 5,080 24, , ,686 3,736,788 Net loss and comprehensive loss (513,677) (210,482) (3,457,897) Deficit, beginning of period (2,944,220) (555,796) Deficit, end of period (3,457,897) (766,278) (3,457,897) Basic and Diluted Loss Per Common Share [note 8] (0.05) (0.03) (0.48) Weighted Average Number of Common Shares Outstanding [note 8] 11,366,633 6,342,500 7,254,626 See accompanying notes to the financial statements

4 STATEMENTS OF CASH FLOWS (UNAUDITED) ended ended 2006 Cumulative from inception on April 28, 2005 to 2006 Cash provided by/used in OPERATING ACTIVITIES Net loss (513,677) (210,482) (3,457,897) Items not requiring cash Depreciation 5,080 24,061 (508,597) (210,482) (3,433,836) Change in non cash working capital items [note 9] (2,039,024) (180,987) (452,166) Cash used in operating activities (2,547,621) (391,469) (3,886,002) INVESTING ACTIVITIES Purchase of property, plant and equipment (1,803,135) (44,759) (10,674,487) Mineral property costs capitalized (116,499) (252,771) (1,353,513) Restricted cash on property, plant and equipment (4,000,000) (4,000,000) Cash used in investing activities (5,919,634) (297,530) (16,028,000) FINANCING ACTIVITIES Issuance of common shares 50,636,440 63,562,957 Other financing costs 800 Cash provided by financing activities 50,636, ,562,957 Net increase (decrease) in cash and cash equivalents 42,169,185 (688,199) 43,648,955 Cash and cash equivalents, beginning of period 1,479,770 1,470,878 Cash and cash equivalents, end of period 43,648, ,679 43,648,955 Cash interest received 178,215 11, ,891 See accompanying notes to the financial statements

5 1. NATURE OF THE ORGANIZATION Whitemud Resources Inc. (the Company ) was originally incorporated as the General Partner of Whitemud Resources Limited Partnership ( the Partnership ) on April 28, 2005 under the laws of the Province of Alberta. The Company was restructured through an amalgamation between the Company and the Partnership under the laws of the Province of Alberta on July 27, The Company was formed to engage in the business of developing a process to mine and process kaolin into a High-Reactivity Metakaolin (HRM) that imparts beneficial properties to concrete mixtures containing up to 20% replacement of Portland cement. The Company has secured the rights to resources of kaolin over 13,481 acres in the Wood Mountain region of southern Saskatchewan. Since inception, the efforts of the Company have been devoted to the development of the process of producing metakolin and kaolin, developing market demand and planning production facilities to generate the product. To date, the Company has not earned significant revenues and is considered to be in the development stage with the future being dependent on raising of capital to support ongoing operations. The recoverability of amounts shown for mineral property assets is dependent upon the existence of economically recoverable reserves, securing and maintaining title and beneficial interest in certain properties, and the ability of the Company to obtain the necessary financing or cash flows to continue to develop its mineral properties. The Company closed an Initial Public Offering (IPO) by issuing a total of 6,775,000 common shares for gross proceeds of 54,200,000 in the quarter. On February 28,, the Company s shares were listed on the Toronto Venture Stock Exchange and commenced trading. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a) Basis of Presentation The financial statements of the Company have been prepared by management in accordance with Canadian generally accepted accounting principles. The financial statements have, in management's opinion, been properly prepared within reasonable limits of materiality and within the framework of the Company's accounting policies. These financial statements do not include all of the disclosures required in the annual financial statements and should be read in conjunction with the audited financial statements for the period ended December 31, The accounting policies applied in these financial statements are consistent with those outlined in the Company s annual financial statements, except as described below. b) Changes in Accounting Policy Effective January 1, Whitemud adopted the Canadian Institute of Chartered Accountants Handbook section 1530, Comprehensive Income; Section 3855, Financial Instruments Recognition and Measurement; Section 3861, Financial Instruments Disclosure and Presentation; and Section 3865 Hedges, retroactively without restatement. 1

6 Comprehensive Income Comprehensive income is the change in shareholders equity during a period from transactions and other events and circumstances from non-owners. Accumulated other comprehensive income, if applicable, is included in the shareholders equity section of the balance sheet. The components of the new category will include unrealized gains and losses on financial instruments classified as available-for-sale and the effective portion of cash flow hedges. Whitemud had no other comprehensive income/loss transactions during the three months ended. Financial Assets and Financial Liabilities To conform to the new standards, financial assets and financial liabilities are recognized initially at their fair value as at the adoption date of January 1,. Financial assets and financial liabilities must be classified into one of five categories: held-for trading; held-to maturity; loans and receivables; available-for-sale financial assets; or other financial liabilities. Their classification depends on the purpose for which the financial instruments were acquired and their characteristics. Whitemud has chosen to adopt the following classifications: 1. Cash is classified as held-for trading and measurement made subsequent to the adoption date of the new standard is at fair value; 2. Accounts receivable are classified as loans and receivables and measurements made subsequent to the adoption date of the new standard are recorded at amortized cost using the effective interest rate method. For Whitemud, this measurement generally corresponds to cost; and 3. Loans, accounts payable & accrued liabilities, income taxes payable and long-term debt are classified as other financial liabilities. Measurements made subsequent to the adoption date of this new standard are recorded at cost using the effective interest method. For Whitemud, this measurement generally corresponds to cost. Derivatives and Hedge Accounting Derivatives may be embedded in other financial instruments (the host instrument. Prior to the adoption of the new standards, such embedded derivatives were not accounted for separately from the host instrument. Under the new standards, embedded derivatives are treated as separate derivatives when their economic characteristics and risks are not clearly and closely related to those of the host instrument, the terms of the embedded derivative are the same as those of the stand-alone derivative and the combined contract is not held-for-trading or designated at fair value. A review of Whitemud s financial contracts determined that there were no embedded derivatives but in the event that Whitemud should enter into a contract that contains an embedded derivative, the embedded derivative will be measured at fair value with any subsequent changes recognized in income. 2

7 As at January 1, no transitional adjustments had been made to the opening balance of retained earnings or to the opening balance of accumulated other comprehensive income arising from the adoption of sections 1530, 3855 and CASH AND CASH EQUIVALENTS At, cash equivalents included 42,000,000 (December 31, nil) invested in money market instruments with 30 day terms at interest rates of 4.46%. 4. RESTRICTED CASH The Company was required to submit a 3,100,000 US irrevocable letter of credit to cover the final 35% value of the contract for major equipment components. This letter of credit has been provided by Canadian Western Bank on behalf of the Company and the letter of credit is secured by interest-bearing deposits of 4,000,000 maturing in October. 5. PROPERTY, PLANT AND EQUIPMENT Cost Accumulated Depreciation Net Book Value Land 224, ,157 Processing plant 12,275,070 12,275,070 Computer equipment 239,808 10, ,336 Furniture and equipment 45,065 6,795 38,270 Leasehold improvements 21,661 6,794 14,867 12,805,761 24,061 12,781,700 Cost December 31, 2006 Accumulated Depreciation Net Book Value Land 202, ,697 Processing plant 8,560,153 8,560,153 Computer equipment 60,625 7,750 52,875 Furniture and equipment 26,216 5,774 20,442 Leasehold improvements 21,661 5,457 16,204 8,871,352 18,981 8,852,371 3

8 Capitalized costs related to the processing plant have been excluded from the depreciation calculation until such time as the plant commences operations. 6. MINERAL PROPERTIES The Company holds a number of leases and exploration permits on mineral rights in southern Saskatchewan. At the Company held 26 (December 31, ) mineral leases covering 13,481 (December 31, ,481) acres. In addition, the Company also holds a quarry prospecting permit totaling 5,009 (December 31, ,009) acres. The Company has made the following expenditures related to developing the mineral properties. ended December 31, 2006 Cumulative from Inception on April 28, 2005 to Mineral Costs Capitalized Determination and testing of ore resource 105, , ,473 Travel 5, , ,140 Mine/quarry properties - 172, ,966 Environmental impact analysis - 176, ,258 Technical reserve report 6, , ,449 Process design - 164, ,473 Administration, freight and miscellaneous 33 72,721 72, ,499 1,237,014 1,353, SHAREHOLDERS EQUITY On formation of the Partnership on April 28, 2005, 4,000,000 partnership units were issued to founders of the Partnership at per partnership unit for gross proceeds of 4,000. On August 10, 2005, additional partnership units were issued through a private placement offering of 2,182,500 partnership units at 1 per partnership unit for gross proceeds of 2,182,500. On formation of the Company on April 28, 2005, 120,000 common shares were issued to founders of the Company at 0.01 per common share for gross proceeds of 1,200. On August 10, 2005, an additional 40,000 common shares were issued to an unrelated private investor at 1 per common share for gross proceeds of 40,000. On July 27, 2006 the Company restructured to a Canadian Controlled Private Corporation through an amalgamation with the Partnership (as discussed in note 1). The Company purchased from the partners of the Partnership all the issued and outstanding limited partnership units as of July 27, 4

9 on a basis of one common share in exchange for each partnership unit held. 100% acceptance by the Partnership unit holders was obtained to effect the transaction resulting in the issuance of 6,182,500 common shares. As a result of the transaction there was no change in the ultimate ownership of the net assets. Whitemud Resources Limited Partnership was dissolved on August 30, Prior to the transaction, Whitemud Resources Inc., served as the General Partner with four shareholders holding a total of 160,000 shares. These shares continued in effect in the restructured organization. On July 31, 2006 the Company closed a private equity placement offering of 2,050,200 common shares at 5 per common share for gross proceeds of 10,251,000. A second private equity placement offering was closed on August 24, 2006 for an additional 56,000 common shares at 5 per common share for additional gross proceeds of 280,000. On February 28,, The Company closed its IPO by issuing 6,250,000 common shares at 8.00 per share for gross proceeds of 50,000,000. Subsequently on March 22, the agent exercised their over allotment option for an additional 300,000 common shares at 8.00 per share for gross proceeds of 2,400,000. On March 30, the agent exercised a further over allotment of 225,000 shares at 8.00 per share for gross proceeds of 1,800,000. Total share issuance costs relating to the IPO and over allotment exercises totaled 3,891,880. Authorized Unlimited number of Partnership Units (until dissolution of the Partnership) Unlimited number of Common Shares without par value Unlimited number of Class B Common Shares without par value and non-voting Unlimited number of Preferred Shares 5

10 Issued Partnership Equity # Balance as at April 28, 2005 Partnership Units issued to Founders 4,000,000 4,000 Partnership Units issued in Private Placement 2,182,500 2,182,500 Unit issuance costs (7,493) Partnership Units as at December 31, ,182,500 2,179,007 Partnership Units retracted upon restructuring (6,182,500) (2,179,007) Partnership Units as at December 31, 2006 Common shares Balance as at April 28, 2005 Common shares issued to Founders 120,000 1,200 Common shares issued from Private Placement 40,000 40,000 Common shares as at December 31, ,000 41,200 Common shares issued in exchange for Partnership Unites 6,182,500 2,179,007 Common shares issued in Private Placements 2,106,200 10,531,000 Common shares issued on exercise of stock options 659,600 1,048,764 Shareholder loans on stock options (659,600) (659,600) Share issuance costs (26,767) Common shares as at December 31, ,448,700 13,113,604 Common shares issued in IPO 6,250,000 50,000,000 Common shares issued in first over allotment 300,000 2,400,000 Common shares issued in second over allotment 225,000 1,800,000 Shareholder loan on stock option repayment 5,000 5,000 Share issuance costs (3,891,880) Common shares as at 15,228,700 63,426,724 The Company has established a stock option plan that covers all officers, directors, employees and consultants of the Company (the Plan ). The Plan is administered by the Board of Director s who determine who options should be granted to, including the terms and the vesting periods of the options. The aggregated number of common shares issuable upon the exercise of all options granted under the Plan shall not exceed 10% of the issued and outstanding common shares of the Company at any given time. Under the Plan, stock options have a maximum five-year term, are exercisable at the designated common share price not to exceed the market price of shares at grant date, and normally vest over a three-year period. 6

11 # of Options Exercise Expiry Date Balance, as at December 31, 2005 Options granted during the period 699, Options exercised during the period (659,600) Outstanding options as at December 31, , Options granted during the period 1,030, Outstanding options as at 1,070, To assist employees in exercising the options granted, the Company established shareholder loans to employees for the sole purpose of exercising their stock options. These shareholder loans are interest free, secured by the associated shares received upon exercise and for a period not to exceed three years or until the associated shares are sold if earlier. A promissory note has been endorsed by all employees who made use of shareholder loans. A total of 659,600 was provided as loans to employees to exercise options during 2006 (December 31, Nil). During the quarter, 5,000 has been repaid by an employee who left the Company resulting in the shareholder loans outstanding totaling 654,600. These loans have been recorded as a reduction of the associated common equity. The Canadian Western Bank provided a letter of credit on behalf of the Company as required in their equipment contract with Air Preheater Company A Division of Alstom Power Inc. In connection with this letter of credit the Company granted 10,000 warrants to the Canadian Western Bank. These warrants have a strike price of 8.00 (value at time of closing the IPO) and are valid from three years from the IPO closing date. 8. LOSS PER SHARE Basic loss per share is calculated using the weighted-average number of shares outstanding for the period. Diluted loss per share amounts have not been calculated as the effect of common shares issuable upon exercise of share options is anti-dilutive. All of the Company s outstanding options are available for dilution in future periods. 7

12 9. SUPPLEMENTAL CASH FLOW DISCLOSURE Quarter ended Quarter ended 2006 Cumulative from inception on April 28, 2005 to Accounts receivable (393,550) (17,737) (615,570) Prepaids and deposits (230,099) (3,122) (236,675) Accounts payable and accrued liabilities 828,531 (160,128) 2,643, ,882 (180,987) 1,791,740 Less: increase in capital costs (2,131,273) payable (2,131,273) - Less: increased financing costs payable (112,633) - (112,633) Net change in non-cash working capital related to operations (2,039,024) (180,987) (452,166) 10. CONTRACTUAL OBLIGATIONS The Corporation entered into a contractual arrangement on August 10, 2006 (supplemented with a contract addendum October 16, 2006) with Air Preheater Company A Division of Alstom Power Inc. for the purchase of major equipment components associated with construction of its processing plant for a price of 7,593,000 USD. The contract called for 25% initial payment at time of signing the contract (translated to 2,088,089 CDN at the rate in effect at the time of payment). Subsequently, the Company entered into an addendum to the contract for upgraded size of equipment totaling an additional 1,489,000 USD. On November 8, 2006, the Company funded an additional progress payment on the total value of the original contract plus addendum for a total of 2,152,500 USD (translated to 2,435,956 CDN at the rate in effect at the time of payment). A further progress payment of 20% coinciding with the start of fabrication was made on December 21, 2006 for 2,021,441 USD (translated to 2,338,240 at the rate in effect at the time of payment). On December 29, 2006 the Corporation provided an irrevocable letter of credit in the amount of 3,100,000 USD for the remaining 35% of the cost of the equipment, (see note 4). 11. COMMITMENTS The Company s annual commitment under the operating lease for office premises as at is as follows: March 31 8

13 35, , RELATED PARTY TRANSACTIONS The Company has transactions with related parties in the normal course of business. Transactions are measured at the exchange amount which is the consideration established and agreed to by the related parties. The following amounts are included in the accounts of the Company that were paid to companies in which the CEO of Whitemud Resources Inc. is a shareholder. The charges relate to the Company s share of wages paid to staff common to both organizations and expenses paid by the other organization on behalf of the Company. ended ended 2006 Cumulative from inception on April 28, 2005 to Salaries and benefits 2,989 1,839 31,849 General and administration 7,296 1,349 27,026 To assist employees in exercising stock options, the Company established shareholder loans to employees for the sole purpose of exercising their stock options as described in note COMPARATIVE FIGURES Certain comparative figures have been reclassified to conform to the current financial statement presentation. 9