U.S.
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 3
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2011
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________to _______________
000-54416
(Commission File Number)
EMC METALS CORP.
(Name of
registrant in its charter)
| British Columbia, Canada | 98-1009717 |
| (State or other jurisdiction | (IRS Employer |
| of incorporation or organization) | Identification No.) |
| 1430 Greg Street, Suite 501, Sparks, Nevada | 89431 |
| (Address of principal executive offices) | (Zip Code) |
Issuer’s telephone number: (775) 355-9500
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under section 12(g) of the Exchange Act: Common shares without par value
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No
[X]
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in part III of this Form 10-K
or any amendment to this Form 10-K.
[X]
| Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. | |
| Large Accelerated Filer [ ] | Accelerated Filer [ ] |
| Non-Accelerated Filer [ ] | Smaller Reporting Company[ x ] |
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $19,517,255 as at June 30, 2011.
Indicate the number of shares outstanding of each of the registrant’s classes of common equity, as of the latest practicable date: 150,678,713 as at June 25, 2012.
DOCUMENTS INCORPORATED BY REFERENCE
None.
EXPLANATORY NOTE
This Amendment No. 3 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2011, which was filed with the Securities and Exchange Commission (the “SEC”) on February 14, 2012, as amended on April 30, 2012, and June 5, 2012, is being filed to re-file Item 8 in its entirety to correct the missing conforming signature on the audit report filed with the original Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company and the notes thereto are attached to this report following the signature page and Certifications.
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES
Financial Statements
| Description | Page |
| Financial statements for the years ended December 31, 2011 and 2010 and audit report thereon. | F-1 |
Exhibits
The following table sets out the exhibits filed herewith or incorporated herein by reference.
| Exhibit | Description |
| 3.1* | Certificate of Incorporation, Certificate of Name Change, Notice of Articles |
| 3.2* | Corporate Articles |
| 10.1* | 2008 Stock Option Plan |
| 10.3** | Stock Purchase Agreement dated November 19, 2009 between EMC Metals Corp., Willem P.C. Duyvesteyn, and Irene G. Duyvesteyn |
| 10.4* | Exploration Joint Venture Agreement dated February 5, 2010 between EMC Metals Corp. and Jervois Mining Limited |
| 10.5* | Services Agreement between EMC Metals Corp. and George Putnam dated May 1, 2010 |
| 10.6* | Extension Agreement dated September 29, 2010 between EMC Metals Corp. and Jervois Mining Limited |
| 10.7* | Stock Purchase Agreement dated November 16, 2010 between EMC Metals Corp. and Golden Predator US Holding Corp. |
| 21.1* | List of Subsidiaries |
| 31.1 | Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the U.S. Securities Exchange Act of 1934 – Principal Executive Officer |
| 31.2 | Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the U.S. Securities Exchange Act of 1934 – Principal Financial Officer |
2
| 32.1 |
Section 1350 Certification of the Principal Executive Officer |
| 32.2 |
Section 1350 Certification of the Principal Financial Officer |
| * |
Previously filed as exhibits to the Form 10 filed May 24, 2011 and incorporated herein by reference. |
| ** |
Previously filed as an exhibit to the Form 10/A filed July 22, 2011 and incorporated herein by reference. |
3
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
EMC METALS CORP.
| By: | /s/ George Putnam | |
| George Putnam | ||
| President and Principal Executive Officer | ||
| Date: | July 5, 2012 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | |
| /s/ George Putnam | President, Principal Executive Officer, and Director | July 5, 2012 | |
| George Putnam | |||
| /s/ William Harris | Chairman and Director | July 5, 2012 | |
| William Harris | |||
| /s/ Willem Duyvesteyn | Director | July 5, 2012 | |
| Willem Duyvesteyn | |||
| /s/ Barry Davies | Director | July 5, 2012 | |
| Barry Davies | |||
| /s/ Warren Davis | Director | July 5, 2012 | |
| Warren Davis | |||
| /s/ Edward Dickinson | Principal Financial Officer and Principal Accounting Officer | July 5, 2012 | |
| Edward Dickinson |
4
(An Exploration Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2011
| EMC Metals Corp. |
| (An Exploration Stage Company) |
| CONSOLIDATED BALANCE SHEETS |
| (Expressed in Canadian Dollars) |
| December 31, 2011 | December 31, 2010 | |||||
| ASSETS | ||||||
| Current | ||||||
| Cash | $ | 804,892 | $ | 4,126,424 | ||
| Investments in trading securities, at fair value (Note 4) | 2,250 | 2,250 | ||||
| Prepaid expenses and receivables (net of allowance of $Nil (2010 - $Nil)) | 192,158 | 133,082 | ||||
| Subscription receivable | - | 210,249 | ||||
| Total Current Assets | 999,300 | 4,472,005 | ||||
| Restricted cash (Note 5) | 159,400 | - | ||||
| Property, plant and equipment (Note 6) | 30,676,426 | 34,289,873 | ||||
| Mineral interests (Note 7) | 679,711 | 503,020 | ||||
| Total Assets | $ | 32,514,837 | $ | 39,264,898 | ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
| Current | ||||||
| Accounts payable and accrued liabilities | $ | 550,081 | $ | 412,849 | ||
| Derivative liability (Note 9) | - | 228,741 | ||||
| Current portion of promissory notes payable (Note 10) | 529,752 | 500,000 | ||||
| Total Current Liabilities | 1,079,833 | 1,141,590 | ||||
| Promissory notes payable (Note 10) | 3,813,750 | 3,750,000 | ||||
| Total Liabilities | 4,893,583 | 4,891,590 | ||||
| Stockholders’ Equity | ||||||
| Capital stock (Note 11)
(Authorized: Unlimited number of shares; Issued
and outstanding: 150,678,713 (2010 – 149,059,412)) |
88,578,045 | 88,138,487 | ||||
| Treasury stock (Note 13) | (1,343,333 | ) | (2,087,333 | ) | ||
| Additional paid in capital (Note 11) | 1,476,285 | 2,003,345 | ||||
| Deficit accumulated during the exploration stage | (61,089,743 | ) | (53,681,191 | ) | ||
| Total Stockholders’ Equity | 27,621,254 | 34,373,308 | ||||
| Total Liabilities and Stockholders’ Equity | $ | 32,514,837 | $ | 39,264,898 |
Nature and continuance of operations (Note 1)
The accompanying notes are an integral part of these consolidated financial statements.
F-2
| EMC Metals Corp. |
| (An Exploration Stage Company) |
| CONSOLIDATED STATEMENTS OF OPERATIONS |
| (Expressed in Canadian Dollars) |
| Cumulative amounts | |||||||||
| from incorporation | |||||||||
| on July 17, 2006 to | Year ended | Year ended | |||||||
| December 31, 2011 | December 31, 2011 | December 31, 2010 | |||||||
| EXPENSES | |||||||||
| Amortization | $ | 2,284,219 | $ | 327,954 | $ | 455,227 | |||
| Consulting | 2,272,241 | 96,615 | 57,243 | ||||||
| Exploration | 14,425,705 | 2,079,997 | 489,397 | ||||||
| General and administrative | 7,281,463 | 634,092 | 437,198 | ||||||
| Insurance | 957,878 | 67,101 | 147,351 | ||||||
| Professional fees | 3,051,016 | 214,214 | 263,917 | ||||||
| Research and development | 3,474,068 | - | - | ||||||
| Salaries and benefits | 6,709,189 | 840,288 | 732,617 | ||||||
| Stock-based compensation (Note 11) | 5,413,675 | 292,899 | 795,268 | ||||||
| Travel and entertainment | 1,609,967 | 186,193 | 107,601 | ||||||
| Loss before other items | (47,479,421 | ) | (4,739,353 | ) | (3,485,819 | ) | |||
| OTHER ITEMS | |||||||||
| Foreign exchange gain (loss) | 525,637 | (57,531 | ) | 205,218 | |||||
| Loss on transfer of marketable securities | (3,115,889 | ) | - | - | |||||
| Gain on settlement of convertible debentures | 1,449,948 | - | - | ||||||
| Gain on sale of marketable securities | 1,836,011 | - | (70,583 | ) | |||||
| Write-off of mineral interests | (18,091,761 | ) | - | (1,138,432 | ) | ||||
| Write-off of land and water rights | (3,100,000 | ) | (3,100,000 | ) | - | ||||
| Gain on insurance proceeds | 972,761 | - | - | ||||||
| Interest income (expense) | 247,218 | (223,008 | ) | (301,244 | ) | ||||
| Other income | 502,965 | - | 53,723 | ||||||
| Gain on disposition of assets | 959,281 | 482,599 | 37,256 | ||||||
| Change in fair value of derivative liability (Note 9) | 485,358 | 228,741 | (22,874 | ) | |||||
| Unrealized gain on marketable securities | 53,830 | - | - | ||||||
| (17,274,641 | ) | (2,669,199 | ) | (1,236,936 | ) | ||||
| Loss before income taxes | (64,754,062 | ) | (7,408,552 | ) | (4,722,755 | ) | |||
| Deferred income tax recovery | 6,522,138 | - | - | ||||||
| Loss and comprehensive loss for the period | |||||||||
| $ | (58,231,924 | ) | $ | (7,408,552 | ) | $ | (4,722,755 | ) | |
| Basic and diluted loss per common share | (0.05 | ) | (0.04 | ) | |||||
| Weighted average number of common shares outstanding |
150,404,210 | 121,344,723 |
The accompanying notes are an integral part of these consolidated financial statements.
F-3
| EMC Metals Corp. |
| (An Exploration Stage Company) |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| (Expressed in Canadian Dollars) |
| Cumulative | |||||||||
| amounts from | |||||||||
| incorporation on | |||||||||
| July 17, 2006 to | Year ended | Year ended | |||||||
| December 31, | December 31, | December 31, | |||||||
| 2011 | 2011 | 2010 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||
| Loss for the period | $ | (58,231,924 | ) | $ | (7,408,552 | ) | $ | (4,722,755 | ) |
| Items not affecting cash: | |||||||||
| Amortization | 2,284,219 | 327,954 | 455,227 | ||||||
| Research and development | 3,474,068 | - | - | ||||||
| Consulting paid with common shares | 10,711 | - | - | ||||||
| Gain on disposal of assets | (959,281 | ) | (482,599 | ) | (37,256 | ) | |||
| Convertible debenture costs | (1,312,878 | ) | - | - | |||||
| Unrealized foreign exchange | 787,112 | 72,250 | (220,672 | ) | |||||
| Stock-based compensation | 5,413,675 | 292,899 | 795,268 | ||||||
| Unrealized gain on marketable securities | (53,830 | ) | - | - | |||||
| Realized gain on marketable securities | (1,836,011 | ) | - | 70,583 | |||||
| Write-off of mineral properties | 18,091,761 | - | 1,138,432 | ||||||
| Write-off of land and water rights | 3,100,000 | 3,100,000 | - | ||||||
| Realized loss on transfer of marketable securities | 3,115,889 | - | - | ||||||
| Change in fair value of derivative liability | (485,358 | ) | (228,741 | ) | 22,874 | ||||
| Deferred income tax recovery | (6,522,138 | ) | - | - | |||||
| Accrued interest expense | 21,252 | 21,252 | - | ||||||
| Accrued interest income | (2,809 | ) | (2,809 | ) | - | ||||
| (33,105,542 | ) | (4,308,346 | ) | (2,498,299 | ) | ||||
| Changes in non-cash working capital items: | |||||||||
| Increase in prepaids and receivables | (125,608 | ) | (56,267 | ) | 142,678 | ||||
| Decrease in accounts payable and accrued liabilities | (512,828 | ) | 335,565 | (94,913 | ) | ||||
| Increase in due to related parties | 1,163,028 | - | 762,028 | ||||||
| Asset retirement obligations | (1,065,891 | ) | - | - | |||||
| (33,646,841 | ) | (4,029,048 | ) | (1,688,506 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||
| Cash acquired from subsidiary | 4,857,012 | - | - | ||||||
| Cash paid for Subsidiary | (11,359,511 | ) | - | (557,523 | ) | ||||
| Spin-out of Golden Predator Corp. | (76,388 | ) | - | - | |||||
| Restricted cash | (159,400 | ) | (159,400 | ) | - | ||||
| Reclamation bonds | 795,785 | - | - | ||||||
| Proceeds from sale of marketable securities, net | (4,135,798 | ) | - | - | |||||
| Proceeds from sale of property, plant and equipment | 675,742 | 15,406 | 109,797 | ||||||
| Purchase of property, plant and equipment | (21,255,448 | ) | (40,335 | ) | (90,252 | ) | |||
| Proceeds from sale of mineral interests | 500,000 | 500,000 | - | ||||||
| Additions to unproven mineral interests | (3,173,518 | ) | (182,003 | ) | (300,000 | ) | |||
| (33,331,524 | ) | 133,668 | (837,978 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||
| Common shares issued | 55,521,421 | 210,249 | 4,746,172 | ||||||
| Share issuance costs | (1,277,713 | ) | - | - | |||||
| Special warrants | 13,000,000 | - | - | ||||||
| Options exercised | 384,900 | 43,000 | 230,300 | ||||||
| Warrants exercised | 11,164,849 | 320,599 | 1,092,000 | ||||||
| Notes payable | (9,966,000 | ) | - | - | |||||
| Payment of promissory note | (1,260,700 | ) | - | - | |||||
| Advances from related party | 216,500 | - | - | ||||||
| Loans advanced to Midway | (2,000,000 | ) | - | - | |||||
| Loan repayment from Midway | 2,000,000 | - | - | ||||||
| 67,783,257 | 573,848 | 6,068,472 | |||||||
| Change in cash during the period | 804,892 | (3,321,532 | ) | 3,541,988 | |||||
| Cash, beginning of period | - | 4,126,424 | 584,436 | ||||||
| Cash, end of period | $ | 804,892 | $ | 804,892 | $ | 4,126,424 |
Supplemental disclosure with respect to cash flows (Note 15)
The accompanying notes are an integral part of these consolidated financial statements.
F-4
| EMC Metals Corp. |
| (An Exploration Stage Company) |
| CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY |
| (Expressed in Canadian Dollars) |
| Capital Stock | Deficit | |||||||||||||||||
| Accumulated | ||||||||||||||||||
| Additional | During the | |||||||||||||||||
| Number of | Paid in | Treasury | Exploration | |||||||||||||||
| Shares | Amount | Capital | Stock | Stage | Total | |||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||
| Balance, July 17, 2006 | - | - | - | - | - | - | ||||||||||||
| Private placements | 5,000,000 | 3,500,000 | - | - | - | 3,500,000 | ||||||||||||
| Excess of exchange amount over carrying amount of Springer Mining Company |
- | - | - | - | (2,857,819 | ) | (2,857,819 | ) | ||||||||||
| Loss for the period | - | - | - | - | (357,670 | ) | (357,670 | ) | ||||||||||
| Balance, December 31, 2006 | 5,000,000 | 3,500,000 | - | - | (3,215,489 | ) | 284,511 | |||||||||||
| Private placements | 17,577,500 | 35,155,000 | - | - | - | 35,155,000 | ||||||||||||
| Conversion of special warrants | 5,390,000 | 5,390,000 | - | - | - | 5,390,000 | ||||||||||||
| Exercise of warrants | 50,000 | 75,000 | - | - | - | 75,000 | ||||||||||||
| Share issuance costs – broker’s fees | - | (1,215,074 | ) | 99,000 | - | - | (1,116,074 | ) | ||||||||||
| Share issuance costs – shares issued | 100,000 | 100,000 | - | - | - | 100,000 | ||||||||||||
| Shares issued for mineral properties | 100,000 | 100,000 | - | - | - | 100,000 | ||||||||||||
| Stock-based compensation | 40,000 | 40,000 | 489,562 | - | - | 529,562 | ||||||||||||
| Loss for the year | - | - | - | - | (6,128,912 | ) | (6,128,912 | ) | ||||||||||
| Balance, December 31, 2007 | 28,257,500 | 43,144,926 | 588,562 | - | (9,344,401 | ) | 34,389,087 | |||||||||||
| Private placements | 5,322,500 | 10,645,000 | - | - | - | 10,645,000 | ||||||||||||
| Conversion of special warrants | 7,610,000 | 7,610,000 | - | - | - | 7,610,000 | ||||||||||||
| Share issuance costs – broker’s fees | - | (261,638 | ) | - | - | - | (261,638 | ) | ||||||||||
| Shares issued for mineral properties | 110,000 | 210,000 | - | - | - | 210,000 | ||||||||||||
| Acquisition of Gold Standard Royalty | 2,050,000 | 4,100,000 | 143,017 | - | - | 4,243,017 | ||||||||||||
| Corp. Acquisition of Great American Minerals | 1,045,775 | 2,091,550 | 426,672 | - | - | 2,518,222 | ||||||||||||
| Inc. Acquisition of Fury Explorations Ltd. | 10,595,814 | 13,774,558 | 7,787,783 | (2,087,333 | ) | - | 19,475,008 | |||||||||||
| Exercise of stock options | 6,637,224 | 10,027,915 | (184,265 | ) | - | - | 9,843,650 | |||||||||||
| Shares issued for repayment of promissory note |
4,728,000 | 2,364,000 | - | - | - | 2,364,000 | ||||||||||||
| Stock-based compensation | - | - | 2,324,458 | - | - | 2,324,458 | ||||||||||||
| Loss for the year | - | - | - | - | (17,968,454 | ) | (17,968,454 | ) | ||||||||||
| Balance, December 31, 2008 | 66,356,813 | 93,706,311 | 11,086,227 | (2,087,333 | ) | (27,312,855 | ) | 75,392,350 | ||||||||||
| Private placements | 14,500,000 | 1,190,000 | - | - | - | 1,190,000 | ||||||||||||
| Exercise of stock options | 101,000 | 126,186 | (105,986 | ) | - | - | 20,200 | |||||||||||
| Shares issued for mineral properties | 2,765,643 | 367,695 | - | - | - | 367,695 | ||||||||||||
| Settlement of convertible debentures | 7,336,874 | 2,934,752 | 62,903 | - | - | 2,997,655 | ||||||||||||
| Shares issued for consulting | 89,254 | 10,711 | - | - | - | 10,711 | ||||||||||||
| Shares issued for acquisition of TTS | 19,037,386 | 2,094,112 | - | - | - | 2,094,112 | ||||||||||||
| Stock-based compensation before spin-out | - | - | 836,240 | - | - | 836,240 | ||||||||||||
| Spin-out of GPD | - | (18,540,194 | ) | (11,879,384 | ) | - | - | (30,419,578 | ) | |||||||||
| Stock-based compensation after spin-out | - | - | 979,611 | - | - | 979,611 | ||||||||||||
| Loss for the year | - | - | - | - | (21,645,581 | ) | (21,645,581 | ) | ||||||||||
| Balance, December 31, 2009 | 110,186,970 | 81,889,573 | 979,611 | (2,087,333 | ) | (48,958,436 | ) | 31,823,415 | ||||||||||
| Private placements | 30,252,442 | 4,700,312 | 454,768 | - | - | 5,155,080 | ||||||||||||
| Exercise of stock options | 1,320,000 | 456,602 | (226,302 | ) | - | - | 230,300 | |||||||||||
| Exercise of warrants | 7,300,000 | 1,092,000 | - | - | - | 1,092,000 | ||||||||||||
| Stock-based compensation | - | - | 795,268 | - | - | 795,268 | ||||||||||||
| Loss for the year | - | - | - | - | (4,722,755 | ) | (4,722,755 | ) | ||||||||||
| Balance, December 31, 2010 | 149,059,412 | 88,138,487 | 2,003,345 | (2,087,333 | ) | (53,681,191 | ) | 34,373,308 | ||||||||||
| Exercise of stock options | 250,000 | 118,959 | (75,959 | ) | - | - | 43,000 | |||||||||||
| Exercise/expiry of warrants | 1,369,301 | 320,599 | (744,000 | ) | 744,000 | - | 320,599 | |||||||||||
| Stock-based compensation | - | - | 292,899 | - | - | 292,899 | ||||||||||||
| Loss for the year | - | - | - | - | (7,408,552 | ) | (7,408,552 | ) | ||||||||||
| Balance, December 31, 2011 | 150,678,713 | 88,578,045 | 1,476,285 | (1,343,333 | ) | (61,089,743 | ) | 27,621,254 | ||||||||||
F-5
| EMC Metals Corp. |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| December 31, 2011 |
| (Expressed in Canadian Dollars) |
| 1. | NATURE AND CONTINUANCE OF OPERATIONS |
EMC Metals Corp. (the “Company”) is incorporated under the laws of the Province of British Columbia. The Company is focused on specialty metals exploration and production and has recently acquired various metallurgical technologies and licenses that it is utilizing to gain access to a number of specialty metals opportunities. |
|
The Company’s principal properties are located in the state of Nevada, Australia, and Norway. The Company’s principal asset, the Springer Tungsten mine and mill, is currently on care and maintenance pending a sustained improvement in tungsten prices. To December 31, 2011, the Company has not commenced production and has generated no revenue. The Company’s remaining properties are in the exploration or pre-exploration stage. As such, the Company is in the exploration stage and anticipates incurring significant expenditures prior to commencement of contract milling operations. |
|
These consolidated financial statements have been prepared on a going concern basis that contemplates the realization of assets and discharge of liabilities at their carrying values in the normal course of business for the foreseeable future. These financial statements do not reflect any adjustments that may be necessary if the Company is unable to continue as a going concern. |
|
The Company currently earns no operating revenues and will require additional capital in order to refit its Springer tungsten mill and earn its 50% interest in the Nyngan property. The Company’s ability to continue as a going concern is uncertain and is dependent upon the generation of profits from mineral properties, obtaining additional financing or maintaining continued support from its shareholders and creditors. The Company is currently working on securing additional financing to meet its needs, including a US$500,000 payment due in June 2012; however there is no guarantee that these efforts will be successful. In the event that additional financial support is not received or operating profits are not generated, the carrying values of the Company’s assets may be adversely affected. The inability to raise additional financing may affect the future assessment of the Company as a going concern. |
|
| 2. | SIGNIFICANT ACCOUNTING POLICIES |
a. Basis of presentation |
|
These consolidated financial statements have been prepared in conformity with generally accepted accounting principles of the United States of America (“US GAAP”). |
|
These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated on consolidation. |
|
b. Use of estimates |
|
The preparation of consolidated financial statements in conformity with US GAAP 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 reporting period. Actual results could differ from those estimates. |
|
c. Investment in trading securities |
|
The Company’s trading securities are reported at fair value, with unrealized gains and losses included in earnings. |
|
d. Property, plant and equipment |
|
Property, plant and equipment are recorded at cost less accumulated amortization, calculated as follows: |
| Plant and equipment | 5% straight line |
| Building | 5% straight line |
| Computer equipment | 30% straight line |
| Small tools and equipment | 20% straight line |
| Office equipment | 20% straight line |
| Automobile | 30% straight line |
| Leasehold improvements | Over life of the lease |
e. Mineral properties and exploration and development costs
The costs of acquiring mineral rights are capitalized at the date of acquisition. After acquisition, various factors can affect the recoverability of the capitalized costs. If, after review, management concludes that the carrying amount of a mineral property is impaired, it will be written down to estimated fair value. Exploration costs incurred on mineral properties are expensed as incurred. Development costs incurred on proven and probable reserves will be capitalized. Upon commencement of production, capitalized costs will be amortized using the unit-of-production method over the estimated life of the ore body based on proven and probable reserves (which exclude non-recoverable reserves and anticipated processing losses).
F-6
| EMC Metals Corp. |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| December 31, 2011 |
| (Expressed in Canadian Dollars) |
f. Asset retirement obligations
The Company records the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development, and/or normal use of the long-lived assets. The Company also records a corresponding asset which is amortized over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation is adjusted at the end of each period to reflect the passage of time (accretion expense) and changes in the estimated future cash flows underlying the obligation (asset retirement cost).
g. Long-lived assets
Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, the recoverability test is performed using undiscounted net cash flows related to the long-lived assets. If such assets are considered to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
h. Income taxes
The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under the asset and liability method the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some part or all of the deferred tax asset will not be recognized.
i. Loss per share
Basic loss per common share is computed using the weighted average number of common shares outstanding during the year. To calculate diluted loss per share, the Company uses the treasury stock method and the if converted method. As of December 31, 2011, there were Nil warrants (2010 – 23,792,485) and 11,848,750 options (2010 – 11,473,750) outstanding which have not been included in the weighted average number of common shares outstanding as these were anti-dilutive.
j. Foreign exchange
The Company's functional currency is the Canadian dollar. Any monetary assets and liabilities that are in a currency other than the Canadian dollar are translated at the rate prevailing at year end. Revenue and expenses in a foreign currency are translated at rates that approximate those in effect at the time of translation. Gains and losses from translation of foreign currency transactions into Canadian dollars are included in current results of operations.
k. Stock-based compensation
The Company accounts for stock-based compensation under the provisions of Accounting Standard Codification (“ASC”) 718, “Compensation-Stock Compensation”. Under the fair value recognition provisions, stock-based compensation expense is measured at the grant date for all stock-based awards to employees and directors and is recognized as an expense over the requisite service period, which is generally the vesting period. The Black-Scholes option valuation model is used to calculate fair value.
l. Financial instruments
The Company’s financial instruments consist of cash, investments in trading securities, subscriptions receivable, receivables, accounts payable and accrued liabilities, and promissory notes payable. It is management's opinion that the Company is not exposed to significant interest, currency or credit risks arising from its financial instruments. The fair values of these financial instruments approximate their carrying values unless otherwise noted. The Company has its cash primarily in one commercial bank in Vancouver, British Columbia, Canada.
m. Concentration of credit risk
The financial instrument which potentially subjects the Company to concentration of credit risk is cash. The Company maintains cash in bank accounts that, at times, may exceed federally insured limits. As of December 31, 2011 and 2010, the Company has exceeded the federally insured limit. The Company has not experienced any losses in such amounts and believes it is not exposed to any significant risks on its cash in bank accounts.
n. Comparative figures
Certain comparative figures have been reclassified to conform with the current year’s presentation.
F-7
| EMC Metals Corp. |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| December 31, 2011 |
| (Expressed in Canadian Dollars) |
o. Fair value of financial assets and liabilities
The Company measures the fair value of financial assets and liabilities based on US GAAP guidance which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.
The Company classifies financial assets and liabilities as held-for-trading, available-for-sale, held-to-maturity, loans and receivables or other financial liabilities depending on their nature. Financial assets and financial liabilities are recognized at fair value on their initial recognition, except for those arising from certain related party transactions which are accounted for at the transferor’s carrying amount or exchange amount.
Financial assets and liabilities classified as held-for-trading are measured at fair value, with gains and losses recognized in net income. Financial assets classified as held-to-maturity, loans and receivables, and financial liabilities other than those classified as held-for-trading are measured at amortized cost, using the effective interest method of amortization. Financial assets classified as available-for-sale are measured at fair value, with unrealized gains and losses being recognized as other comprehensive income until realized, or if an unrealized loss is considered other than temporary, the unrealized loss is recorded in income.
Financial instruments, including receivables, subscriptions receivable, accounts payable and accrued liabilities, and promissory notes payable are carried at cost, which management believes approximates fair value due to the short term nature of these instruments. Investments in trading securities are classified as held for trading, with unrealized gains and losses being recognized in income.
The following table presents information about the assets that are measured at fair value on a recurring basis as of December 31, 2011, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and included situations where there is little, if any, market activity for the asset:
Fair value of financial assets and liabilities
| Quoted Prices | Significant Other | Significant | |||||||||||
| December 31, | in Active Markets | Observable Inputs | Unobservable Inputs | ||||||||||
| 2011 | (Level 1) | (Level 2) | (Level 3) | ||||||||||
| Assets: | |||||||||||||
| Cash and restricted cash | $ | 964,292 | $ | 964,292 | $ | — | $ | — | |||||
| Investments in trading securities | $ | 2,250 | $ | 2,250 | $ | — | $ | — | |||||
| Total | $ | 966,542 | $ | 966,542 | $ | — | $ | — |
The fair values of cash, restricted cash and investments in trading securities are determined through market, observable and corroborated sources. |
|
| 3. | RECENT ACCOUNTING PRONOUNCEMENTS |
Recent accounting pronouncements that the Company has adopted or will be required to adopt in the future are summarized below. |
|
In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”, which is intended to improve comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. generally, accepted accounting principles and International Financial Reporting Standards. This standard clarifies the application of existing fair value measurement requirements including (1) the application of the highest and best use valuation premise, (2) the methodology to measure the fair value of an instrument classified in a reporting entity’s shareholders’ equity, (3) disclosure requirements for quantitative information on Level 3 fair value measurements and (4) guidance on measuring the fair value of financial instruments managed within a portfolio. In addition, the standard requires additional disclosures of the sensitivity of fair value to changes in unobservable inputs for Level 3 securities. This standard is effective for interim and annual reporting periods ending on or after December 15, 2011. Based on the Company’s evaluation of the ASU, the adoption of ASU 2011-04 will not have material impact on the Company’s financial statements. |
|
In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income”, which requires that comprehensive income be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The standard also requires entities to disclose on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net earnings. This standard no longer allows companies to present components of other comprehensive income only in the statement of equity. This standard is effective for interim and annual reporting periods beginning after December 15, 2011. The adoption of this guidance is not expected to have a significant impact on the Company’s financial statements other than the prescribed change in presentation. |
F-8
| EMC Metals Corp. |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| December 31, 2011 |
| (Expressed in Canadian Dollars) |
In September 2011, the FASB issued ASU No. 2011-08, “Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment” (“ASU 2011-08”). ASU 2011-08 is intended to simplify how entities, both public and nonpublic, test goodwill for impairment. ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is “more likely than not” that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two- step goodwill impairment test described in Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Although early adoption is permitted, the Company will adopt ASU 2011-08 as of January 1, 2012. Based on the Company’s evaluation of this ASU, the adoption of ASU 2011-08 will not have a material impact on the Company’s financial statements. |
|
In December 2011, the FASB issued ASU No. 2011-11, “Balance Sheet (Topic 210)—Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). The update requires entities to disclose information about offsetting and related arrangements of financial instruments and derivative instruments. ASU 2011-11 is effective for the Company in the first quarter of its fiscal year ending June 30, 2014 (“fiscal 2014”). The Company currently believes there will be no significant impact on its financial statements. |
|
In December 2011, the FASB issued ASU 2011-12, “Comprehensive Income (Topic 220) – Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. ASU 2011-12 defers only those changes in Update No. 2011-05 that relate to the presentation of the reclassification adjustments. Under the amendments in Update No. 2011-05, entities are required to present reclassification adjustments and the effect of those reclassification adjustments on the face of the financial statements where net income presented, by component of net income, and on the face of the financial statements where other comprehensive income is presented, by component of other comprehensive income. In addition, the amendments in Update No. 2011-05 require that reclassification adjustments be presented in interim financial periods. This standard is effective for interim and annual reporting periods beginning after December 15, 2011. The adoption of this guidance is not expected to have a significant impact on the Company’s financial statements other than the prescribed change in presentation. |
|
| 4. | INVESTMENTS IN TRADING SECURITIES |
At December 31, 2011, the Company held investments classified as trading securities, which consisted of various equity securities. All trading securities are carried at fair value. As of December 31, 2011, the fair value of trading securities was $2,250 (2010 – $2,250). |
|
| 5. | RESTRICTED CASH |
The Company has a Bank of Montreal line of credit of up to $159,400 as a deposit on the Company’s Vancouver office lease and is secured by a short-term investment of $159,400 bearing interest at prime less 2.05% maturing on May 8, 2012. |
|
| 6. | PROPERTY, PLANT AND EQUIPMENT |
| December 31, 2011 | December 31, 2010 | ||||||||||||||||||
| Accumulated | Net Book | Accumulated | Net Book | ||||||||||||||||
| Cost | Amortization | Value | Cost | Amortization | Value | ||||||||||||||
| Land and water rights | $ | 4,673,958 | $ | - | $ | 4,673,958 | $ | 7,972,291 | $ | - | $ | 7,972,291 | |||||||
| Plant and equipment | 25,618,528 | - | 25,618,528 | 25,618,528 | - | 25,618,528 | |||||||||||||
| Cosgrave plant and equipment | 375,763 | 303,308 | 72,455 | 375,763 | 228,155 | 147,608 | |||||||||||||
| Building | 222,685 | 46,438 | 176,247 | 222,685 | 35,304 | 187,381 | |||||||||||||
| Automobiles | 179,767 | 159,432 | 20,335 | 172,542 | 172,542 | - | |||||||||||||
| Computer equipment | 364,697 | 363,888 | 809 | 364,697 | 357,985 | 6,712 | |||||||||||||
| Small tools and equipment | 963,537 | 863,583 | 99,954 | 963,537 | 680,482 | 283,055 | |||||||||||||
| Office equipment | 134,691 | 120,551 | 14,140 | 278,561 | 204,263 | 74,298 | |||||||||||||
| Leasehold improvements | - | - | - | 13,083 | 13,083 | - | |||||||||||||
| $ | 32,533,626 | $ | 1,857,200 | $ | 30,676,426 | $ | 35,981,687 | $ | 1,691,814 | $ | 34,289,873 | ||||||||
Land and water rights are in respect of properties in Nevada. The plant and equipment is comprised of the Springer Plant and Mill in Nevada which is currently under care and maintenance.
Impairment of land and water rights
During the year ended December 31, 2011, the Company has reviewed the carrying value of its land and water rights for impairment and compared the carrying value to the estimated recoverable amount and has written down its land and water rights by $3,100,000.
F-9
| EMC Metals Corp. |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| December 31, 2011 |
| (Expressed in Canadian Dollars) |
| 7. | MINERAL INTERESTS |
| December 31, 2011 | Other | Tungsten | Total | |||||||
| Acquisition costs | ||||||||||
| Balance, December 31, 2010 | $ | 300,000 | $ | 203,020 | $ | 503,020 | ||||
| Additions | 182,260 | 2,534 | 184,794 | |||||||
| Sold | - | (8,103 | ) | (8,103 | ) | |||||
| Balance, December 31, 2011 | $ | 482,260 | $ | 197,451 | $ | 679,711 |
| December 31, 2010 | Other | Gold | Tungsten | Total | |||||||||
| Acquisition costs | |||||||||||||
| Balance, December 31, 2009 | $ | - | $ | 1,343,173 | $ | 203,020 | $ | 1,546,193 | |||||
| Additions | 300,000 | - | - | 300,000 | |||||||||
| Written-off | - | (1,138,432 | ) | - | (1,138,432 | ) | |||||||
| Sold | - | (204,741 | ) | - | (204,741 | ) | |||||||
| Balance, December 30, 2010 | $ | 300,000 | $ | - | $ | 203,020 | $ | 503,020 |
Title to mineral property interests involves certain inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyancing history characteristic of many mineral property interests. The Company has investigated title to all of its mineral property interests and, to the best of its knowledge, title to all of its properties is in good standing.
Impairment of mineral properties
During the year ended December 31, 2010, the Company reviewed the carrying value of its mineral properties for impairment and compared the carrying value to the future cash flows in the case of its tungsten properties, and fair market value in respect of its remaining properties, and has written down its gold properties by $1,138,432. The Company sold these properties during the year ended December 31, 2010.
TUNGSTEN PROPERTY
Springer Property
On November 21, 2006, the Company acquired all outstanding and issued shares of Springer Mining Company (“Springer”). Included in the assets of Springer and allocated to property, plant and equipment (Note 5) are the Springer Mine and Mill located in Pershing County, Nevada.
Fostung Property
The Company held a 100% interest certain mineral claims known as the Fostung Property, Ontario. During the year ended December 31, 2011, the Company sold these claims for $500,000 and recorded a gain on the sale of $491,897.
SCANDIUM PROPERTY
Nyngan, New South Wales Property
On February 5, 2010, the Company entered in to an agreement with Jervois Mining Limited (“Jervois”) whereby it would acquire a 50% interest in certain properties located in New South Wales, Australia. In order for the Company to earn its interest which is subject to a 2% Net Smelter Royalty (NSR), the Company paid the sum of $300,000 into escrow, that was released to Jervois upon satisfaction of certain conditions precedent, including verification of title to the Nyngan property and approval of the Toronto Stock Exchange, and must:
F-10
| EMC Metals Corp. |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| December 31, 2011 |
| (Expressed in Canadian Dollars) |
| a) | Incur exploration and metallurgical work of A$500,000 (CAD$466,000) within 180 business days of the conditions precedent being satisfied, or pay cash in lieu thereof. On September 29, 2010 the Company received a six month extension to complete its exploration commitment. In the event that the Company wishes to continue the joint venture, the Company must deliver a feasibility study within 480 (extended to February 28, 2012) business days of the conditions precedent being satisfied, failing which the agreement will terminate. |
|
| b) | Upon delivering the feasibility study to Jervois, pay to Jervois an additional A$1,300,000 plus GST at which time it will be granted a 50% interest in the joint venture. The joint venture agreement provides for straight-line dilution, with interests diluted below 10% being converted into a 2% NSR royalty. |
Tordal and Evje properties, Norway |
|
The Company has entered into an earn-in agreement with REE Mining AS (“REE”), whereby the Company has an option to earn up to a 100% interest in the Tordal and Evje properties. To earn its interest, the Company must pay REE US$630,000, including an initial cash payment of US$130,000 (paid) and issue 1,000,000 common shares. |
|
The Company is also required to incur US$250,000 of exploration work to be completed over 18 months from the date of closing in order to acquire its interest. The Company shall also issue 250,000 common shares upon releasing the second of two full feasibility studies on the two properties. |
|
Fairfield property, Utah |
|
The Company has entered into an earn-in agreement with Mineral Exploration Services LLC, whereby the Company has an option to earn a 100% interest in a patented mining claim and former scandium property known as The Little Green Monster near Fairfield, Utah. |
|
The Company is required to pay US$380,000 over a 3 year period from the date of closing in order to acquire its interest. Mineral Exploration Services LLC maintains a production right of US$5 per ton of resource mined up to US$500,000. |
|
Hogtuva property, Norway |
|
The Company has entered into an earn-in agreement with REE Mining AS (“REE”), whereby the Company has an option to earn a 100% interest in three scandium and beryllium exploration sites in Norway. To earn 100% of the exploration rights, the Company must pay REE US$150,000 over 18 months, including an initial cash payment of US$50,000 (paid) and issue up to 200,000 common shares. In consideration for paying the Company US$200,000, REE may elect to accelerate the Company’s option to earn a 100% interest in the properties. |
|
| 8. | RELATED PARTY TRANSACTIONS |
No related party transactions occurred during the year ended December 31, 2011. |
|
During fiscal 2010, the Company paid or accrued consulting fees of $46,175 to the former CEO of the Company and paid or accrued consulting fees of $137,247 to the current CEO and president of the Company. |
|
The above transactions occurred in the normal course of operations and were measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. Amounts payable to related parties have no specific terms of repayment, are unsecured, and have no interest rate. |
|
During fiscal 2010, the Company sold software with a net book value of $103,134 to a company with previously common directors. |
|
| 9. | DERIVATIVE LIABILITY |
The Company evaluated the application of SFAS 133 and EITF 00-19 for the settlement of convertible debentures through the issuance of shares and warrants. Based on the guidance in SFAS 133 and EITF 00-19, the Company concluded that the warrants were required to be accounted for as derivatives. The warrants issued pursuant to the settlement were in a functional currency different than that of the Company and therefore met the attributes of a liability. The Company is required to record the fair value of these warrants on its balance sheet at fair value with changes in the values of these derivatives reflected in the statement of operations. |
F-11
| EMC Metals Corp. |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| December 31, 2011 |
| (Expressed in Canadian Dollars) |
The Company uses the Black-Scholes valuation model for calculation of the fair value of derivative liabilities. The Company uses volatility rates based upon the closing stock price of its common stock. The Company uses a risk-free interest rate which is the bank of Canada rate with a maturity that approximates the estimated expected life of a derivative. The Company uses the closing market price of the common stock on the date of issuance of a derivative or at the end of a quarter when a derivative is valued at fair value. The volatility was 100%, the risk-free interest rate was 1%, a dividend rate of 0%, and the expected life was 0.17 respectively, during the year ending December 31, 2010. |
|
During the year ended December 31, 2011, the warrants expired and the derivative liability was valued at $Nil resulting in a change in fair value of $228,741 realized through the statement of operations. |
|
| 10. | PROMISSORY NOTES PAYABLE |
| 2011 | 2010 | |||||||
Promissory note with a principal balance of
US$500,000, bearing interest at prime per annum, maturing June 30, 2012
due to a director of the Company secured by the stock of a subsidiary
company. |
$ | 529,752 | $ | 500,000 | ||||
Promissory note with a principal balance of US$ 3,750,000, bearing interest at 6% per annum, maturing July 3, 2013 and secured by land and water rights. During fiscal 2008 the Company entered into a promissory note for US$6,750,000 as consideration for the acquisition of land and water rights. The Company subsequently made principal payments of US$3,000,000 consisting of a cash payment of US$1,000,000 and 4,728,000 units of the Company equity valued at US$2,000,000. Each unit consisted of one common share and one-half share purchase warrant exercisable at CDN$0.75 each and exercisable for a period of two years. |
3,813,750 | 3,750,000 | ||||||
| 4,343,502 | 4,250,000 | |||||||
| Less: current portion | (529,752 | ) | (500,000 | ) | ||||
| $ | 3,813,750 | $ | 3,750,000 |
| 11. | CAPITAL STOCK AND ADDITIONAL PAID IN CAPITAL |
On December 3, 2010, the Company issued 18,929,740 common shares at a value of $0.19 per common share for total proceeds of $3,596,651. A total of $210,249 was received during fiscal 2011. |
|
On November 25, 2010, the Company issued 6,100,000 units at a value of $0.10 per unit for total proceeds of $610,000. Each unit consisted of one common share and one-half of one share purchase warrant exercisable at $0.18 expiring on November 25, 2011. The warrants have a calculated total fair value of $142,358 using the Black-Scholes pricing model with a volatility of 142.52%, risk- free rate of 1.73%, expected life of 1 year, and a dividend rate of 0%. |
|
On June 30, 2010, the Company issued 2,947,702 units at a value of $0.10 per unit for total proceeds of $294,770. Each unit consisted of one common share and one-half of one share purchase warrant exercisable at $0.18 until June 30, 2011. The warrants have a calculated total fair value of $35,638 using the Black-Scholes pricing model with a volatility of 123.84%, risk-free rate of 1.39%, expected life of 1 year, and a dividend rate of 0%. |
|
On February 17, 2010, the Company issued 2,275,000 units at a value of $0.20 per unit for total proceeds of $455,000. Each unit consisted of one common share and one-half of one share purchase warrant exercisable at $0.25 until February 17, 2011. The warrants have a calculated total fair value of $78,113 using the Black-Scholes pricing model with a volatility of 131.19%, risk-free rate of 1.34%, expected life of 1 year, and a dividend rate of 0%. All of the warrants were exercised during fiscal 2011. |
|
On November 17, 2009, the Company issued 13,000,000 units at a value of $0.08 per unit for total proceeds of $1,040,000. Each unit consisted of one common share and one-half of one share purchase warrant. Each full warrant entitled the holder to purchase an additional share at $0.15 per share until November 17, 2010. |
|
On October 13, 2009, the Company issued 500,000 common shares at a value of $45,000 for the Fostung Tungsten project. |
|
On August 27, 2009, the Company issued 1,500,000 units at a value of $0.10 per unit, pursuant to a non-brokered private placement for proceeds of $150,000. Each unit consisted of one common share and one-half of one share purchase warrant. Each full warrant entitled the holder to purchase an additional share at $0.15 per share until August 27, 2010. |
|
On May 13, 2009, the Company issued 89,254 common shares at a value of $0.12 per share to a consultant for settlement of consulting fees for Fury Explorations Ltd. (“Fury”), a subsidiary of GPD, under the plan of Arrangement of spin-out. |
|
On April 21, 2009, the Company issued 51,859 common shares at a value of $0.10 per share for the Platte River property. |
F-12
| EMC Metals Corp. |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| December 31, 2011 |
| (Expressed in Canadian Dollars) |
On January 21, 2009, the Company issued 66,784 common shares at a value of $0.20 per share for the Guijoso property for Fury.
On January 6, 2009, the Company issued 2,147,000 common shares at a value of US$250,000 for the Adelaide and Tuscarora projects for Golden Predator Mines US Inc., a wholly owned subsidiary of the Company prior to the spin-out.
On November 17, 2008, the Company issued 76,274 common shares in connection with the acquisition of the subsidiary, Great American Minerals Inc.
On October 18, 2008, the Company issued 4,728,000 units to Cosgrave for repayment of a promissory note at a value of US$2,000,000. Each unit consisted of one common share of the Company and one-half of one common share purchase warrant with a two year life and exercisable at $0.75.
In July 2008, the Company completed a private placement consisting of 2,500,000 common shares at $2.00 per share for proceeds of $5,000,000. In connection with this private placement the Company paid a finder’s fee of $250,000.
In January 2008, the Company completed a private placement consisting of 2,822,500 units at $2.00 per unit for gross proceeds of $5,645,000. Included in the proceeds was $3,620,000 received in advance as of December 31, 2007. Each unit consisted of one common share and one half of one share purchase warrant. Each whole warrant entitled the holder to acquire one additional common share at $3.00 for a period of 12 months.
In November 2007, the Company completed private placements consisting of 17,577,500 units at $2.00 per unit for proceeds of $35,155,000. Each unit consisted of one common share and one half of one common share purchase warrant. Each whole warrant entitled the holder to acquire one additional common share at $3.00 for a period of 12 months following the closing of the placement.
In December 2007, the Company issued 5,390,000 common shares pursuant to the conversion of special warrants. The Company paid $1,016,074 and issued 100,000 common share valued at $100,000 as issuance costs and finder’s fees. The Company also granted warrants to acquire 300,000 common shares exercisable at $1.50 expiring September 22, 2008. The warrants were valued at $99,000 with the Black-Scholes option pricing model using an expected volatility of 115%, life of one year, a risk free interest rate of 4% and a dividend yield of 0%.
In December 2006, the Company issued 5,000,000 common shares at $0.70 per common share for gross proceeds of $3,500,000.
Stock Options and Warrants
The Company established a stock option plan (the “Plan”) under which it is authorized to grant options to executive officers and directors, employees and consultants and the number of options granted under the Plan shall not exceed 15% of the shares outstanding. Under the Plan, the exercise period of the options may not exceed five years from the date of grant and vesting is determined by the Board of Directors.
Stock option and share purchase warrant transactions are summarized as follows:
| Warrants | Stock Options | ||||||||||||
| Weighted average | Weighted average | ||||||||||||
| Number | exercise price | Number | exercise price | ||||||||||
| Outstanding, December 31, 2009 | 27,795,135 | $ | 1.66 | 9,534,725 | $ | 0.24 | |||||||
| Granted | 5,661,350 | 0.19 | 6,300,000 | 0.14 | |||||||||
| Cancelled | (2,364,000 | ) | 0.60 | (3,040,975 | ) | 0.27 | |||||||
| Exercised | (7,300,000 | ) | 0.15 | (1,320,000 | ) | 0.17 | |||||||
| Outstanding, December 31, 2010 | 23,792,485 | 1.82 | 11,473,750 | 0.18 | |||||||||
| Granted | - | - | 1,470,000 | 0.28 | |||||||||
| Cancelled | (22,423,184 | ) | 1.97 | (845,000 | ) | 0.22 | |||||||
| Exercised | (1,369,301 | ) | 0.24 | (250,000 | ) | 0.17 | |||||||
| Outstanding, December 31, 2011 | - | $ | - | 11,848,750 | $ | 0.19 | |||||||
| Number currently exercisable | - | $ | - | 10,598,750 | $ | 0.19 | |||||||
F-13
| EMC Metals Corp. |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| December 31, 2011 |
| (Expressed in Canadian Dollars) |
As at December 31, 2011, incentive stock options were outstanding as follows:
| Number of | Exercise | |||||||||
| options | Price | Expiry Date | ||||||||
| Options | 332,500 | $ | 0.200 | July 26, 2012 | ||||||
| 5,000 | 1.000 | July 26, 2012 | ||||||||
| 40,000 | 0.200 | October 4, 2012 | ||||||||
| 15,000 | 1.000 | October 4, 2012 | ||||||||
| 220,000 | 0.390 | January 18, 2013 | ||||||||
| 152,500 | 0.200 | February 25, 2013 | ||||||||
| 100,000 | 2.000 | February 25, 2013 | ||||||||
| 100,000 | 0.200 | March 4, 2013 | ||||||||
| 115,000 | 0.200 | May 13, 2013 | ||||||||
| 5,000 | 2.150 | May 13, 2013 | ||||||||
| 50,000 | 0.200 | June 2, 2013 | ||||||||
| 30,000 | 0.200 | August 20, 2013 | ||||||||
| 725,000 | 0.200 | October 31, 2013 | ||||||||
| 997,500 | 0.300 | January 23, 2014 | ||||||||
| 50,000 | 0.300 | February 26, 2014 | ||||||||
| 1,395,000 | 0.160 | June 16, 2014 | ||||||||
| 225,000 | 0.120 | August 27, 2014 | ||||||||
| 50,000 | 0.160 | December 14, 2014 | ||||||||
| 200,000 | 0.105 | December 16, 2014 | ||||||||
| 1,071,250 | 0.250 | January 4, 2015 | ||||||||
| 4,800,000 | 0.100 | November 5, 2015 | ||||||||
| 120,000 | 0.310 | April 27, 2013 | ||||||||
| 250,000 | 0.315 | May 4, 2016 | ||||||||
| 500,000 | 0.250 | May 16, 2016 | ||||||||
| 300,000 | 0.155 | September 15, 2016 | ||||||||
| 11,848,750 |
As at December 31, 2011 there were no purchase warrants outstanding.
Stock-based compensation
During the year ended December 31, 2011, the Company recognized stock-based compensation of $292,899 (2010 - $795,268) in the statement of operations as a result of shares for services and incentive stock options granted and vested. The weighted average fair value of the options granted was $0.31 (2010 - $0.12) per share.
The fair value of all compensatory options and warrants granted is estimated on grant date using the Black-Scholes option pricing model. The weighted average assumptions used in calculating the fair values are as follows:
| 2011 | 2010 | |||||
| Risk-free interest rate | 2.33% | 2.75% | ||||
| Expected life | 4.39 years | 3 years | ||||
| Volatility | 126.61% | 123.93% | ||||
| Forfeiture rate | 0.00% | 0.00% | ||||
| Dividend rate | 0.00% | 0.00% |
F-14
| EMC Metals Corp. |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| December 31, 2011 |
| (Expressed in Canadian Dollars) |
| 12. | DEFERRED INCOME TAXES |
A reconciliation of income taxes at statutory rates with the reported taxes is as follows: |
| 2011 | 2010 | ||||||
| Loss before income taxes | $ | (7,408,552 | ) | $ | (4,722,755 | ) | |
| Expected income tax expense (recovery) | (2,291,000 | ) | (1,339,466 | ) | |||
| Other items | 1,004,000 | 226,651 | |||||
| Write-off of mineral properties | - | 324,453 | |||||
| (1,287,000 | ) | (788,362 | ) | ||||
| Unrecognized benefit of non-capital losses | 1,287,000 | 788,362 | |||||
| Income tax recovery | $ | - | $ | - |
The income tax effects of temporary differences that give rise to significant components of deferred income tax assets and liabilities are as follows:
| 2011 | 2010 | ||||||
| Deferred income tax assets (liabilities) | |||||||
| Non-capital losses available for future periods | $ | 4,647,000 | $ | 8,421,245 | |||
| Capital losses available for future periods | 1,381,000 | - | |||||
| Share issuance costs | 14,000 | 82,718 | |||||
| Mineral interests and property, plant and equipment | 1,496,000 | (253,132 | ) | ||||
| 7,538,000 | 8,250,831 | ||||||
| Less: valuation allowance | (7,538,000 | ) | (8,250,831 | ) | |||
| Net deferred income tax liability | $ | - | $ | - |
At December 31, 2011, the Company has Canadian non-capital loss carry forwards of approximately $9,600,000 and United States’ operating losses of approximately $6,450,000. The Canadian non-capital loss carry forwards and United States’ operating losses expire at various dates from 2026 to 2031. The potential income tax benefits related to the Canadian loss carry forwards and the United States’ operating losses have not been reflected in the accounts. |
|
| 13. | TREASURY STOCK |
| Number | Amount | ||||||
| Treasury shares | 1,033,333 | $ | 1,343,333 | ||||
| 1,033,333 | $ | 1,343,333 |
Treasury shares comprise shares of the Company which cannot be sold without the prior approval of the TSX.
F-15
| EMC Metals Corp. |
| (An Exploration Stage Company) |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
| December 31, 2011 |
| (Expressed in Canadian Dollars) |
| 14. | SEGMENTED INFORMATION |
The Company’s mineral properties are located in Norway, Canada, Australia, and the United States and its capital assets’ geographic information is as follows: |
| December 31,2011 | Norway | Australia | Canada | United States | Total | |||||||||||
| Property, plant and equipment | $ | - | $ | - | $ | - | $ | 30,676,426 | $ | 30,676,426 | ||||||
| Mineral properties | 182,260 | 300,000 | - | 197,451 | 679,711 | |||||||||||
| $ | 182,260 | $ | 300,000 | $ | - | $ | 30,873,877 | $ | 31,408,082 |
| December 31, 2010 | Australia | Canada | United States | Total | |||||||||
| Property, plant and equipment | $ | - | $ | 61,935 | $ | 34,227,938 | $ | 34,289, 873 | |||||
| Mineral properties | 300,000 | - | 203,020 | 503,020 | |||||||||
| $ | 300,000 | $ | 61,935 | $ | 34,340,958 | $ | 34,792,893 |
| 15. | SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS |
| 2011 | 2010 | ||||||
| Cash paid during the year for interest | $ | 258,186 | $ | 301,244 | |||
| Cash paid during the year for income taxes | $ | - | $ | - |
There were no significant non cash transactions for the year ended December 31, 2011.
Significant non cash transactions for the year ended December 31, 2010 included:
| a) | Transferred a net value of $103,134 of property, plant, and equipment to GPD for a reduction in accounts payable. |
|
| b) | Transferred marketable securities with a value of $131,749 to GPD for a reduction in due to related parties. |
|
| c) | The Company sold its subsidiary, Great American Minerals Inc. for $225,000 to GPD for an increase in due to related parties. |
|
| d) | A revaluation of warrants with a fair value of $198,659 from GPD for a reduction in due to related parties. |
F-16