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EX-32.1 - CERTIFICATION - GOLDEN QUEEN MINING CO LTD | exhibit32-1.htm |
EX-31.1 - CERTIFICATION - GOLDEN QUEEN MINING CO LTD | exhibit31-1.htm |
UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2010
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from _________to _________
0-21777
(Commission File Number)
GOLDEN QUEEN MINING CO. LTD.
(Exact name of registrant as specified in
its charter)
Province of British Columbia | Not Applicable |
(State or other jurisdiction of incorporation | (IRS Employer Identification) |
No.) |
6411 Imperial Avenue
West Vancouver,
British Columbia
V7W 2J5 Canada
(Address of principal executive offices)
Issuers telephone number, including area code: (604) 921-7570
Former name, former address and former fiscal year, if changed since last report: N/A
Check whether the registrant (1) filed all reports required to
be filed by sections 13 or 15(d) of the Securities and Exchange Act of 1934
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
[ ]
Check 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 (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
Yes
[X] No [ ]
Check 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 filed [
] Smaller reporting company [X]
Check whether the registrant is a shell company, as defined in
Rule 12b-2 of the Exchange Act.
Yes [ ]
No [X]
State the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date: As of September 30, 2010 the registrants outstanding common stock consisted of 94,128,383 shares.
EXPLANATORY NOTE
This quarterly report on Form 10-Q for the period ended September 30, 2010 discloses and discusses the impact and effect of restatements of our financial statements that were previously filed with Canadian securities regulators as at September 30, 2010 and the related interim consolidated balance sheets as at September 30, 2010 and the unaudited interim consolidated statements of loss and, stockholders equity and cash flows for the quarters ended September 30, 2010 and 2009 for the effects of the adoption of accounting pronouncement and bookkeeping error.
On December 7, 2010, we filed a Form 8-K disclosing that we would restate our historical financial statements as a result of an internal review by our management, auditors and Audit Committee of our accounting for our stock options and warrants. In addition, due to a bookkeeping error we also identified errors in the general and administrative expenses and share capital in our quarterly financial statements for the period ended September 30, 2010. Accordingly, management concluded, and our audit committee agreed, that our financial statements issued by us and filed with Canadian securities regulators relating to quarters ended September 30, 2010 and September 30, 2009 should no longer be relied upon.
As a result of the review, our Company also concluded that the new accounting pronouncement of ASC 815-40-15 was not properly adopted on January 1, 2009, and that certain expenses were not properly accounted for when the goods or services were received. Consequently the errors have affected the general and administrative expenses for the three-months ended September 30, 2010.
We are therefore including in this Form 10-Q restated financial statements that replace the previously issued financial statements that were filed with Canadian securities regulators, in order to properly record the period end amounts of general and administrative expenses, change in fair value in derivative liability, the amounts of net loss for the period and loss per share and the ending deficit for the period ended September 30, 2010 on the unaudited interim consolidated statement of loss, derivative liability on the unaudited interim consolidated balance sheet, the amounts of common shares and additional paid-in capital on the unaudited interim consolidated statement of shareholders equity. These adjustments result in an increase in net loss and comprehensive loss by $2,186,607 (2009 - $629,533) and $2,987,189 (2009 - $1,653,275) for the three and nine months period ended September 30, 2010, an increase in the ending deficit by $4,618,234, a decrease in share capital by $21,715 and a decrease in additional paid in capital by $2,398,528, and increase in total liabilities by $7,038,477. The restatement also affected our statements of cash flows; the cash flows used in operating activities were overstated by $21,715 and the cash flows provided by financing activities were overstated by $21,715.
As a result of the restatement noted above, we have also amended our disclosures previously filed with Canadian securities regulators regarding the controls and procedures, which are disclosed in Item 4 of this Form 10-Q.
This quarterly report on Form 10-Q for the quarter ended September 30, 2010 includes only restatements of the above disclosures for the quarter ended September 30, 2010 that were previously issued by the Company and filed with Canadian securities regulators. The restatements do not (i) modify or update disclosures in such prior filings except as required to reflect the effects of the restatement or (ii) make revisions to the Notes to the Consolidated Financial Statements except for those which are required by or result from the effects of the restatement. For additional information regarding the restatement, see Note 7 to our Interim Unaudited Consolidated Financial Statements included in Part I - Item 1.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GOLDEN QUEEN MINING CO. LTD.
(an exploration stage
company)
Interim Consolidated Financial Statements
September 30, 2010
(Unaudited -Restated)
(US dollars)
GOLDEN QUEEN MINING CO. LTD.
(an exploration stage
company)
Interim Consolidated Balance Sheets
(Unaudited)
September 30, 2010 | December 31, 2009 | |||||
(Restated Note 7) | (Restated Note 7) | |||||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 7,808,244 | $ | 2,433,202 | ||
Receivables | 31,754 | 24,604 | ||||
Prepaid expenses and other current assets | 27,031 | 19,490 | ||||
Total current assets | 7,867,029 | 2,477,296 | ||||
Property and equipment, net | 201,461 | 205,916 | ||||
Reclamation financial assurance | 286,653 | 286,653 | ||||
Total Assets | $ | 8,355,143 | $ | 2,969,865 | ||
Liabilities and Shareholders Equity (Capital Deficit) | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 364,453 | $ | 150,766 | ||
Accrued liabilities | - | 77,821 | ||||
Total current liabilities | 364,453 | 228,587 | ||||
Asset retirement obligations | 189,550 | 177,564 | ||||
Derivative liability (Note 7) | 7,038,477 | 2,695,602 | ||||
Total Liabilities | 7,592,480 | 3,101,753 | ||||
Shareholders Equity (Capital Deficit): | ||||||
Preferred
shares, no par value, 3,000,000 shares
authorized; no shares outstanding |
||||||
Common
shares, no par value, 150,000,000 shares
authorized; (September 30, 2010 94,128,383; December 31, 2009 88,378,383) shares issued and outstanding (Note 3) |
56,314,267 | 50,205,634 | ||||
Additional paid-in capital | 3,569,371 | 3,130,549 | ||||
Deficit accumulated during the exploration stage | (59,120,975 | ) | (53,468,071 | ) | ||
Total shareholders equity (capital deficit) | 762,663 | (131,888 | ) | |||
Total Liabilities and Shareholders Equity (Capital Deficit) | $ | 8,355,143 | $ | 2,969,865 | ||
Basis of presentation and ability to continue as a going concern (Note 1) | ||||||
Commitments and contingencies (Note 4) |
Approved by the Directors:
H. L. Klingmann | C. Shynkaryk | |
H. Lutz Klingmann, Director | Chester Shynkaryk, Director |
See Notes to Unaudited Interim Consolidated Financial Statements
2
GOLDEN QUEEN MINING CO. LTD.
(an exploration stage
company)
Interim Consolidated Statements of Loss
(Unaudited)
Cumulative | |||||||||||||||
Amounts From | |||||||||||||||
Date of Inception | |||||||||||||||
Three Months | Three Months | Nine Months | Nine Months | (November 21, | |||||||||||
Ended | Ended | Ended | Ended | 1985) Through | |||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | |||||||||||
2010(restated | 2009(restated | 2010(restated | 2009(restated | 2010(restated | |||||||||||
Note 7) | Note 7) | Note 7) | Note 7) | Note 7) | |||||||||||
General and administrative expenses | $ | (706,455 | ) | $ | (431,324 | ) | $ | (2,647,764 | ) | $ | (1,622,016 | ) | $ | (22,375,564 | ) |
Asset impairment loss | - | - | - | - | (32,135,592 | ) | |||||||||
Adjustment to asset
retirement obligation on changes in cash flow estimates |
- | - | - | - | 223,583 | ||||||||||
Accretion expense | (3,996 | ) | (3,353 | ) | (11,986 | ) | (10,059 | ) | (67,367 | ) | |||||
Increase in fair value of
derivative liability (Note 7) |
(2,429,443 | ) | (629,533 | ) | (3,008,904 | ) | (1,653,275 | ) | (5,104,205 | ) | |||||
Gain on settlement of debt | - | - | - | - | 136,627 | ||||||||||
Abandoned mineral property interests | - | - | - | - | (277,251 | ) | |||||||||
(3,139,894 | ) | (1,064,210 | ) | (5,668,654 | ) | (3,285,350 | ) | (59,599,769 | ) | ||||||
Interest expense | - | - | - | - | (913,098 | ) | |||||||||
Interest income | 14,767 | 7,061 | 15,750 | 9,968 | 1,615,736 | ||||||||||
Net loss and comprehensive
loss for the period |
$ | (3,125,127 | ) | $ | (1,057,149 | ) | $ | (5,652,904 | ) | $ | (3,275,382 | ) | $ | (58,897,131 | ) |
Loss per share, basic and diluted | $ | (0.03 | ) | $ | (0.01 | ) | $ | (0.06 | ) | $ | (0.04 | ) | |||
Weighted average number of
common shares outstanding |
94,093,057 | 87,273,763 | 91,244,500 | 86,191,158 |
See Notes to Unaudited Interim Consolidated Financial Statements
3
GOLDEN QUEEN MINING CO. LTD.
(an exploration stage
company)
Interim Consolidated Statement of Changes in Shareholders
Equity
(Unaudited)
Deficit | Total | |||||||||||||||||
Accumulated | Shareholders | |||||||||||||||||
Additional | During the | Equity | ||||||||||||||||
From the Date of Inception (November 21, | Common | Stock | Paid-in | Exploration | (Capital | |||||||||||||
1985) Through September 30, 2010 | Shares | Amount | Subscription | Capital | Stage | Deficit) | ||||||||||||
November 21, 1985 | ||||||||||||||||||
Issuance of common shares for cash | 1,425,001 | $ | 141,313 | $ | - | $ | - | $ | - | $ | 141,313 | |||||||
Net loss for the period | - | - | - | - | (15,032 | ) | (15,032 | ) | ||||||||||
Balance, May 31, 1986 | 1,425,001 | 141,313 | - | - | (15,032 | ) | 126,281 | |||||||||||
Issuance of common shares for cash | 550,000 | 256,971 | - | - | - | 256,971 | ||||||||||||
Issuance of common shares for
mineral property |
25,000 | 13,742 | - | - | - | 13,742 | ||||||||||||
Net loss for the year | - | - | - | - | (58,907 | ) | (58,907 | ) | ||||||||||
Balance, May 31, 1987 | 2,000,001 | 412,026 | - | - | (73,939 | ) | 338,087 | |||||||||||
Issuance of common shares for cash | 1,858,748 | 1,753,413 | - | - | - | 1,753,413 | ||||||||||||
Net income for the year | - | - | - | - | 38,739 | 38,739 | ||||||||||||
Balance, May 31, 1988 | 3,858,749 | 2,165,439 | - | (35,200 | ) | 2,130,239 | ||||||||||||
Issuance of common shares for cash | 1,328,750 | 1,814,133 | - | - | - | 1,814,133 | ||||||||||||
Issuance of common shares for
mineral property |
100,000 | 227,819 | - | - | - | 227,819 | ||||||||||||
Net loss for the year | - | - | - | - | (202,160 | ) | (202,160 | ) | ||||||||||
Balance, May 31, 1989 | 5,287,499 | 4,207,391 | - | - | (237,360 | ) | 3,970,031 | |||||||||||
Issuance of common shares for cash | 1,769,767 | 2,771,815 | - | - | - | 2,771,815 | ||||||||||||
Issuance of common shares for
mineral property |
8,875 | 14,855 | - | - | - | 14,855 | ||||||||||||
Net loss for the year | - | - | - | - | (115,966 | ) | (115,966 | ) | ||||||||||
Balance, May 31, 1990 | 7,066,141 | 6,994,061 | - | - | (353,326 | ) | 6,640,735 | |||||||||||
Net income for the year | - | - | - | - | 28,706 | 28,706 | ||||||||||||
Balance, May 31, 1991 | 7,066,141 | 6,994,061 | - | - | (324,620 | ) | 6,669,441 | |||||||||||
Net loss for the year | - | - | - | - | (157,931 | ) | (157,931 | ) | ||||||||||
Balance, May 31, 1992 | 7,066,141 | 6,994,061 | - | - | (482,551 | ) | 6,511,510 | |||||||||||
Net loss for the year | - | - | - | - | (285,391 | ) | (285,391 | ) | ||||||||||
Balance, May 31, 1993 | 7,066,141 | 6,994,061 | - | - | (767,942 | ) | 6,226,119 | |||||||||||
Issuance of common shares for cash | 5,834,491 | 1,536,260 | - | - | - | 1,536,260 | ||||||||||||
Share issuance costs | - | - | - | - | (18,160 | ) | (18,160 | ) | ||||||||||
Issuance of common shares for
mineral property |
128,493 | 23,795 | - | - | - | 23,795 | ||||||||||||
Net loss for the year | - | - | - | - | (158,193 | ) | (158,193 | ) | ||||||||||
Balance, May 31, 1994 | 13,029,125 | 8,554,116 | - | - | (944,295 | ) | 7,609,821 | |||||||||||
Issuance of common shares for cash | 648,900 | 182,866 | - | - | - | 182,866 | ||||||||||||
Net loss for the year | - | - | - | - | (219,576 | ) | (219,576 | ) | ||||||||||
Balance, May 31, 1995 | 13,678,025 | 8,736,982 | - | - | (1,163,871 | ) | 7,573,111 | |||||||||||
Issuance of common shares for cash | 2,349,160 | 2,023,268 | - | - | - | 2,023,268 | ||||||||||||
Issuance of common shares for debt | 506,215 | 662,282 | - | - | - | 662,282 | ||||||||||||
Issuance of 5,500,000 special warrants | - | 9,453,437 | - | - | - | 9,453,437 | ||||||||||||
Special warrants issuance costs | - | - | - | - | (100,726 | ) | (100,726 | ) | ||||||||||
Net loss for the year | - | - | - | - | (426,380 | ) | (426,380 | ) | ||||||||||
Balance, May 31, 1996 | 16,533,400 | $ | 20,875,969 | $ | - | $ | - | $ | (1,690,977 | ) | $ | 19,184,992 |
See Notes to Unaudited Interim Consolidated Financial Statements
4
GOLDEN QUEEN MINING CO. LTD.
(an exploration stage
company)
Interim Consolidated Statement of Changes in Shareholders
Equity
(Unaudited)
Deficit | Total | |||||||||||||||||
Accumulated | Shareholders | |||||||||||||||||
Additional | During the | Equity | ||||||||||||||||
From the Date of Inception (November 21, | Common | Stock | Paid-in | Exploration | (Capital | |||||||||||||
1985) Through September 30, 2010 | Shares | Amount | Subscription | Capital | Stage | Deficit) | ||||||||||||
Balance carried forward from previous page | 16,533,400 | $ | 20,875,969 | $ | - | $ | - | $ | (1,690,977 | ) | $ | 19,184,992 | ||||||
Issuance of common shares for cash | 18,000 | 10,060 | - | - | - | 10,060 | ||||||||||||
Issuance of common shares for
special warrants |
5,500,000 | - | - | - | - | - | ||||||||||||
Special warrants issuance costs | - | - | - | - | (123,806 | ) | (123,806 | ) | ||||||||||
Net loss for the period | - | - | - | - | (348,948 | ) | (348,948 | ) | ||||||||||
Balance, December 31, 1996 | 22,051,400 | 20,886,029 | - | - | (2,163,731 | ) | 18,722,298 | |||||||||||
Issuance of common shares for cash | 157,000 | 157,050 | - | - | - | 157,050 | ||||||||||||
Issuance of 3,500,000 special warrants | - | 5,287,315 | - | - | - | 5,287,315 | ||||||||||||
Issuance of common shares for
special warrants |
3,500,000 | - | - | - | - | - | ||||||||||||
Options to non-employee directors | - | - | - | 70,200 | - | 70,200 | ||||||||||||
Special warrants issuance costs | - | - | - | - | (163,313 | ) | (163,313 | ) | ||||||||||
Net loss for the year | - | - | - | - | (1,047,869 | ) | (1,047,869 | ) | ||||||||||
Balance, December 31, 1997 | 25,708,400 | 26,330,394 | - | 70,200 | (3,374,913 | ) | 23,025,681 | |||||||||||
Issuance of common shares
upon exercise of warrants |
1,834,300 | 857,283 | - | - | - | 857,283 | ||||||||||||
Issuance of common shares
through conversion of debt |
2,017,941 | 1,000,000 | - | - | - | 1,000,000 | ||||||||||||
Share issuance costs | - | - | - | - | (6,060 | ) | (6,060 | ) | ||||||||||
Issuance of common shares for cash | 5,236,000 | 2,439,753 | - | - | - | 2,439,753 | ||||||||||||
Options and re-priced options
to non- employee directors |
- | - | - | 107,444 | - | 107,444 | ||||||||||||
Net loss for the year | - | - | - | - | (971,595 | ) | (971,595 | ) | ||||||||||
Balance, December 31, 1998 | 34,796,641 | 30,627,430 | - | 177,644 | (4,352,568 | ) | 26,452,506 | |||||||||||
Issuance of 13,250,000 special warrants | - | 3,350,915 | - | - | - | 3,350,915 | ||||||||||||
Special warrants issuance costs | - | - | - | (166,620 | ) | (166,620 | ) | |||||||||||
Issuance of common shares
for special warrants |
13,250,000 | - | - | - | - | - | ||||||||||||
Net loss for the year | - | - | - | - | (564,657 | ) | (564,657 | ) | ||||||||||
Balance, December 31, 1999 | 48,046,641 | 33,978,345 | - | 177,644 | (5,083,845 | ) | 29,072,144 | |||||||||||
Cumulative effect of change
in accounting for stock options |
- | - | - | (177,644 | ) | - | (177,644 | ) | ||||||||||
Stock subscription | - | - | 200,000 | - | - | 200,000 | ||||||||||||
Net loss for the year | - | - | - | - | (28,708,276 | ) | (28,708,276 | ) | ||||||||||
Balance, December 31, 2000 | 48,046,641 | 33,978,345 | 200,000 | - | (33,792,121 | ) | 386,224 | |||||||||||
Issuance of common shares
through conversion of debt |
406,250 | 65,000 | - | - | - | 65,000 | ||||||||||||
Issuance of common shares
for conversion of stock subscription |
1,538,462 | 200,000 | (200,000 | ) | - | - | - | |||||||||||
Share issuance costs | - | - | - | - | (3,337 | ) | (3,337 | ) | ||||||||||
Net loss for the year | - | - | - | - | (262,059 | ) | (262,059 | ) | ||||||||||
Balance, December 31, 2001 | 49,991,353 | $ | 34,243,345 | $ | - | $ | - | $ | (34,057,517 | ) | $ | 185,828 |
See Notes to Unaudited Interim Consolidated Financial Statements
5
GOLDEN QUEEN MINING CO. LTD.
(an exploration stage
company)
Interim Consolidated Statement of Changes in Shareholders
Equity
(Unaudited)
Deficit | Total | |||||||||||||||||
Accumulated | Shareholders | |||||||||||||||||
Additional | During the | Equity | ||||||||||||||||
From the Date of Inception (November 21, | Common | Stock | Paid-in | Exploration | (Capital | |||||||||||||
1985) Through September 30, 2010 | Shares | Amount | Subscription | Capital | Stage | Deficit) | ||||||||||||
Balance carried forward from previous page | 49,991,353 | $ | 34,243,345 | $ | - | $ | - | $ | (34,057,517 | ) | $ | 185,828 | ||||||
Issuance of common shares
through exercise of options |
290,000 | 37,234 | - | - | - | 37,234 | ||||||||||||
Issuance of common shares through exercise of warrants |
1,520,836 | 243,334 | - | - | - | 243,334 | ||||||||||||
Stock option compensation | - | - | - | 21,456 | - | 21,456 | ||||||||||||
Share issuance costs | - | - | - | - | (4,216 | ) | (4,216 | ) | ||||||||||
Net loss for the year | - | - | - | - | (347,603 | ) | (347,603 | ) | ||||||||||
Balance, December 31, 2002 | 51,802,189 | 34,523,913 | - | 21,456 | (34,409,336 | ) | 136,033 | |||||||||||
Issuance of common shares
through exercise of options |
100,000 | 24,379 | - | - | - | 24,379 | ||||||||||||
Equity component of convertible notes | - | - | - | 375,000 | - | 375,000 | ||||||||||||
Stock option compensation | - | - | - | 127,326 | - | 127,326 | ||||||||||||
Net loss for the year | - | - | - | - | (744,516 | ) | (744,516 | ) | ||||||||||
Balance, December 31, 2003 | 51,902,189 | 34,548,292 | - | 523,782 | (35,153,852 | ) | (81,778 | ) | ||||||||||
Issuance of common shares for cash | 8,000,000 | 3,036,282 | - | - | - | 3,036,282 | ||||||||||||
Issuance of common shares
for convertible notes |
978,260 | 225,000 | - | - | - | 225,000 | ||||||||||||
Issuance of common shares through exercise of options |
200,000 | 55,861 | - | - | - | 55,861 | ||||||||||||
Share issuance costs | - | - | - | - | (38,975 | ) | (38,975 | ) | ||||||||||
Net loss for the year | - | - | - | - | (1,772,250 | ) | (1,772,250 | ) | ||||||||||
Balance, December 31, 2004 | 61,080,449 | 37,865,435 | - | 523,782 | (36,965,077 | ) | 1,424,140 | |||||||||||
Issuance of common shares through exercise of options |
110,000 | 21,049 | - | - | - | 21,049 | ||||||||||||
Stock option compensation | - | - | - | 48,592 | - | 48,592 | ||||||||||||
Net loss for the year | - | - | - | - | (1,476,324 | ) | (1,476,324 | ) | ||||||||||
Balance, December 31, 2005 | 61,190,449 | 37,886,484 | - | 572,374 | (38,441,401 | ) | 17,457 | |||||||||||
Issuance of common shares through private placement |
7,200,000 | 1,614,716 | - | 1,520,899 | - | 3,135,615 | ||||||||||||
Issuance of common shares
through exercise of options |
100,000 | 30,853 | - | - | - | 30,853 | ||||||||||||
Issuance of common shares through exercise of warrants |
8,978,260 | 4,659,173 | - | - | - | 4,659,173 | ||||||||||||
Issuance of common shares
for convertible notes |
652,174 | 150,000 | - | 39,917 | - | 189,917 | ||||||||||||
Stock option compensation | - | - | - | 814,810 | - | 814,810 | ||||||||||||
Modification of warrants | - | - | - | 889,117 | - | 889,117 | ||||||||||||
Share issuance costs | - | - | - | - | (62,888 | ) | (62,888 | ) | ||||||||||
Net loss for the year | - | - | - | - | (4,910,036 | ) | (4,910,036 | ) | ||||||||||
Balance, December 31, 2006 | 78,120,883 | 44,341,226 | - | 3,837,117 | (43,414,325 | ) | 4,764,018 | |||||||||||
Issuance of common shares for
exercise of options |
290,000 | 127,652 | - | - | - | 127,652 | ||||||||||||
Issuance of common shares for property | 30,000 | 24,600 | - | - | - | 24,600 | ||||||||||||
Net loss for the year | - | - | - | - | (2,006,482 | ) | (2,006,482 | ) | ||||||||||
Balance, December 31, 2007 | 78,440,883 | 44,493,478 | - | 3,837,117 | (45,420,807 | ) | 2,909,788 | |||||||||||
Issuance of common shares through exercise of warrants |
7,200,000 | 4,184,425 | - | - | - | 4,184,425 | ||||||||||||
Net loss for the year | - | - | - | - | (3,996,777 | ) | (3,996,777 | ) | ||||||||||
Balance, December 31, 2008 | 85,640,883 | $ | 48,677,903 | $ | - | $ | 3,837,117 | $ | (49,417,584 | ) | $ | 3,097,436 |
See Notes to Unaudited Interim Consolidated Financial Statements
6
GOLDEN QUEEN MINING CO. LTD.
(an exploration stage
company)
Interim Consolidated Statement of Changes in Shareholders
Equity
(Unaudited)
Deficit | Total | |||||||||||||||||
Accumulated | Shareholders | |||||||||||||||||
Additional | During the | Equity | ||||||||||||||||
From the Date of Inception (November 21, | Common | Stock | Paid-in | Exploration | (Capital | |||||||||||||
1985) Through September 30, 2010 | Shares | Amount | Subscription | Capital | Stage | Deficit) | ||||||||||||
Balance carried forward from previous page | 85,640,883 | $ | 48,677,903 | $ | - | $ | 3,837,117 | $ | (49,417,584 | ) | $ | 3,097,436 | ||||||
Cumulative effect of change
in accounting principle (Note 7) |
- | - | - | (863,402 | ) | 464,255 | (399,147 | ) | ||||||||||
Issuance of common shares
through private placement |
2,337,500 | 1,396,646 | - | - | - | 1,396,646 | ||||||||||||
Issuance of common shares
through exercise of options |
400,000 | 131,085 | - | - | - | 131,085 | ||||||||||||
Reclassification of derivative
liability on the exercise of stock options (Note 7) |
- | - | - | 156,834 | - | 156,834 | ||||||||||||
Net loss for the year, restated | - | - | - | - | (4,514,742 | ) | (4,514,742 | ) | ||||||||||
Balance, December 31, 2009 (restated) | 88,378,383 | 50,205,634 | - | 3,130,549 | (53,468,071 | ) | (131,888 | ) | ||||||||||
Issuance of common shares
through exercise of options |
750,000 | 246,600 | - | - | - | 246,600 | ||||||||||||
Reclassification of derivative liability
on the exercise of stock options (Note 7) |
- | - | - | 438,822 | - | 438,822 | ||||||||||||
Issuance of common shares
through private placement (Note 3) |
5,000,000 | 5,907,798 | - | - | - | 5,907,798 | ||||||||||||
Share issue costs | - | (45,765 | ) | - | - | - | (45,765 | ) | ||||||||||
Net loss for the period (Note 7) | - | - | - | - | (5,652,904 | ) | (5,652,904 | ) | ||||||||||
Balance, September 30, 2010 | 94,128,383 | $ | 56,314,267 | $ | - | $ | 3,569,371 | $ | (59,120,975 | ) | $ | 762,663 |
See Notes to Unaudited Interim Consolidated Financial Statements
7
GOLDEN QUEEN MINING CO. LTD.
(an exploration stage
company)
Interim Consolidated Statement of Cash Flows
(Unaudited)
Cumulative Amounts | |||||||||
From Date of | |||||||||
Inception | |||||||||
Nine Months | Nine Months | (November 21, | |||||||
Ended | Ended | 1985) Through | |||||||
September 30, | September 30, | September 30, | |||||||
2010(restated | 2009(restated | 2010(restated Note | |||||||
Note 7) | Note 7) | 7) | |||||||
Operating activities: | |||||||||
Net loss for the period | $ | (5,652,904 | ) | $ | (3,275,382 | ) | $ | (58,897,131 | ) |
Adjustments to reconcile net loss to cash
used in operating activities: |
|||||||||
Asset impairment loss | - | - | 32,135,592 | ||||||
Abandoned mineral property interests | - | - | 277,251 | ||||||
Amortization and depreciation | 4,455 | 4,518 | 466,256 | ||||||
Amortization of debt discount | - | - | 375,000 | ||||||
Adjustment to
asset retirement obligation based on changes in cash flow estimates |
- | - | (223,583 | ) | |||||
Accretion expense | 11,986 | 10,059 | 67,367 | ||||||
Change in fair value of derivative liability | 3,008,904 | 1,653,275 | 5,104,205 | ||||||
Gain on disposition of property and equipment | - | - | (10,032 | ) | |||||
Stock option compensation | 46,275 | 209,055 | 1,416,448 | ||||||
Financing charges related to modification of warrants | - | - | 889,117 | ||||||
Mineral property expenditures | - | - | (22,395,449 | ) | |||||
Changes in assets and liabilities: | |||||||||
Receivables | (7,150 | ) | (8,897 | ) | (31,754 | ) | |||
Prepaid expenses and other current assets | (7,541 | ) | (9,980 | ) | (113,940 | ) | |||
Accounts payable and accrued liabilities | 135,866 | (172,912 | ) | 404,370 | |||||
Royalty and mining rights payable | - | (48,034 | ) | - | |||||
Cash used in operating activities | (2,460,109 | ) | (1,638,298 | ) | (40,536,283 | ) | |||
Investing activities: | |||||||||
Purchase of mineral properties | - | - | (7,803,356 | ) | |||||
Deposits on mineral properties | - | - | (1,017,551 | ) | |||||
Purchase of reclamation bonds | - | (14,845 | ) | (286,653 | ) | ||||
Purchase of property and equipment | - | - | (1,313,838 | ) | |||||
Proceeds from sale of property and equipment | - | - | 47,153 | ||||||
Cash used in investing activities | - | (14,845 | ) | (10,374,245 | ) | ||||
Financing activities: | |||||||||
Borrowing under long-term debt | - | - | 3,918,187 | ||||||
Payment of long-term debt | - | - | (2,105,905 | ) | |||||
Proceeds from convertible debt | - | - | 440,000 | ||||||
Issuance of common shares for cash | 7,634,316 | 1,439,368 | 28,871,618 | ||||||
Share issuance costs | (45,765 | ) | - | (733,866 | ) | ||||
Issuance of special warrants | - | - | 18,091,667 | ||||||
Issuance of common shares upon exercise of stock options | 246,600 | 65,009 | 536,190 | ||||||
Issuance of common shares upon exercise of warrants | - | - | 9,700,881 | ||||||
Cash provided by financing activities | 7,835,151 | 1,504,377 | 58,718,772 | ||||||
Net change in cash and cash equivalents | 5,375,042 | (148,766 | ) | 7,808,244 | |||||
Cash and cash equivalents, beginning balance | 2,433,202 | 3,033,771 | - | ||||||
Cash and cash equivalents, ending balance | $ | 7,808,244 | $ | 2,885,005 | $ | 7,808,244 |
See Notes to Unaudited Interim Consolidated Financial Statements.
8
GOLDEN QUEEN MINING CO. LTD.
(an exploration stage
company)
Notes to Interim Consolidated Financial Statements
For the Nine Months Ended September 30, 2010
(Unaudited)
1. | Basis of Presentation and Ability to Continue as a Going Concern |
|
These unaudited interim consolidated financial statements are presented in accordance with United States generally accepted accounting principles for interim financial statements, and are stated in US dollars. They do not include all the note disclosures required for annual financial statements. It is suggested that these unaudited interim consolidated financial statements be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2009 and the notes thereto included in the Companys annual report for the year ended December 31, 2009. The Company follows the same accounting policies in the preparation of interim reports, except as disclosed under Note 2. |
||
The Company has had no revenues from operations since inception and as at September 30, 2010 has a deficit of $59,120,975 accumulated during the exploration stage. Management plans to control current costs and does not anticipate requiring additional financing to fund Company activities over the next twelve months. In addition, management plans to secure equity and/or debt or joint venture financing to fund construction of the operating facility at the Soledad property (Soledad) once a feasibility study has been concluded and a production decision has been made. The ability of the Company to obtain financing for its ongoing activities and thus maintain solvency, or to fund construction of the operating facility at Soledad, is dependent on equity market conditions, the market for precious metals, the willingness of other parties to lend the Company money or the ability to find a joint venture partner. While the Company has been successful at certain of these efforts in the past, there can be no assurance that future efforts will be successful. This raises substantial doubt about the Companys ability to continue as a going concern. |
||
These unaudited interim consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for the fair presentation of the information contained therein. The results for the three and nine months ended September 30, 2010 are not necessarily indicative of the results expected for any subsequent quarter or for the year ending December 31, 2010. |
||
2. | Significant Accounting Policy |
|
Recent Accounting Pronouncements |
||
(i) | In January 2010, the FASB issued ASU No. 2010-06, Improving Disclosures about Fair Value Measurements, which requires additional disclosures about the amounts of and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements. This standard also clarifies existing disclosure requirements related to the level of disaggregation of fair value measurements for each class of assets and liabilities and disclosures about inputs and valuation techniques used to measure fair value for both recurring and non-recurring Level 2 and Level 3 measurements. Since this new accounting standard only required additional disclosure, the adoption of the standard did not impact the Companys consolidated financial statements. This standard will require additional disclosure and require the Company to present disaggregated information about activity in Level 3 fair value measurements on a gross basis, rather than one net amount. |
|
(ii) | In February 2010, FASB issued Accounting Standards Update (ASU) 2010-09, Subsequent Event (Topic 855) Amendments to Certain Recognition and Disclosure Requirements. ASU 2010-09 removes the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of GAAP. All of the amendments in ASU 2010-09 are effective upon issuance of the final ASU, except for the use of the issued date for conduit debt obligors. That amendment is effective for interim or annual periods ending after June 15, 2010. The adoption of this standard did not have a material effect on the Companys interim consolidated financial statements. |
9
GOLDEN QUEEN MINING CO. LTD.
(an exploration stage
company)
Notes to Interim Consolidated Financial Statements
For the Nine Months Ended September 30, 2010
(Unaudited)
2. | Significant Accounting Policy (continued) |
Recent Accounting Pronouncements (continued) |
(iii) | In April 2010, the FASB issued Accounting Standards Update 2010-13, Compensation Stock Compensation (Topic 718). The objective of this update is to address the classification of an employee share-based payment award with an exercise price denominated in the currency of a market in which the underlying equity security trades. It provides guidance on the classification of a share-based payment award as either equity or a liability. A share-based payment award that contains a condition that is not a market, performance, or service condition is required to be classified as a liability. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The amendments in this update should be applied by recording a cumulative-effect adjustment to the opening balance of retained earnings. The cumulative- effect adjustment should be calculated for all awards outstanding as of the beginning of the fiscal year in which the amendments are initially applied, as if the amendments had been applied consistently since the inception of the award. The cumulative-effect adjustment should be presented separately. Earlier application is permitted. The Company is currently evaluating the impact of this update on the financial statements. |
|
(iv) | In June 2009, new guidance relating to the accounting for transfers of financial assets was issued. The new guidance, which was issued as, Accounting for Transfers of Financial Assets, has not yet been adopted into Codification. The new standard eliminates the concept of a qualifying special-purpose entity, changes the requirements for derecognizing financial assets, and requires additional disclosures in order to enhance information reported to users of financial statements by providing greater transparency about transfers of financial assets, including securitization transactions, and an entitys continuing involvement in and exposure to the risks related to transferred financial assets. The new guidance is effective for fiscal years beginning after November 15, 2009. The adoption of the standard did not have impact on the Companys financial statements. |
10
GOLDEN QUEEN MINING CO. LTD.
(an exploration stage
company)
Notes to Interim Consolidated Financial Statements
For the Nine Months Ended September 30, 2010
(Unaudited)
3. | Share Capital |
Common Shares |
|
In July 2009, the Company issued 2,337,500 common shares at C$0.65 per share for proceeds of $1,396,646 (C$1,519,375). |
|
During the three-month period from September to December 2009, 400,000 stock options were exercised and the Company issued 400,000 common shares at C$0.35 per share for proceeds of $131,085 (C$140,000). |
|
In January 2010, 700,000 stock options were exercised and the Company issued 700,000 common shares at C$0.35 per share for proceeds of $234,113 (C$245,000). |
|
On June 1, 2010, the Company issued 5,000,000 units at C$1.60 per unit for gross proceeds of $7,634,316 (C$8,000,000) and incurred professional fees of $45,765 as share issuance costs. Each unit consisted of one common share, one-quarter of one Class A purchase warrant and one-quarter of one Class B purchase warrant. Each whole Class A warrant is exercisable to acquire one additional common share of the Company at a price of C$1.75. Each Class B warrant is exercisable to acquire one additional common share of the Company at a price of C$2.00. Both Class A and Class B warrants expire December 1, 2011. The aggregate fair value of the Class A and B purchase warrants was $1,726,518 and the Company allocated the remaining proceeds of $5,907,798 to the common shares. The fair value of the warrants was determined using the Black-Scholes option pricing model with assumptions as set out below: |
September 30, 2010 | |
Expected life years | 1.5 |
Interest rate | 1.37% |
Volatility | 114% |
Dividend yield | Nil |
In September 2010, 50,000 stock options were exercised and the Company issued 50,000 common shares at C$0.26 per share for proceeds of $12,487 (C$13,000).
In connection with the guidance of ASC 815-40-15, as warrants are exercisable in a currency other than the functional currency of the Company and thus do not meet the fixed-for-fixed criteria of the guidance. As a result, the Company was required to separately account for the Class A and B warrants issued in connection with the private placement noted above as a derivative instrument liability.
11
GOLDEN QUEEN MINING CO. LTD.
(an exploration stage
company)
Notes to Interim Consolidated Financial Statements
For the Nine Months Ended September 30, 2010
(Unaudited)
3. | Share Capital (continued) |
Stock Options |
|
In April 2010, the Company granted 50,000 stock options to consultants, which are exercisable at C$1.24 per share and expire on April 18, 2015. The total fair value of the options granted was $46,275. |
Weighted | |||||||
Average | |||||||
Exercise Price | |||||||
Shares | Per Share | ||||||
Options outstanding and exercisable, December 31, 2008 | 2,300,000 | C$0.57 | |||||
Granted | 1,950,000 | C$0.26 | |||||
Exercised | (400,000 | ) | C$0.35 | ||||
Options outstanding and exercisable, December 31, 2009 | 3,850,000 | C$0.44 | |||||
Granted | 50,000 | C$1.24 | |||||
Exercised | (750,000 | ) | C$0.34 | ||||
Options outstanding and exercisable, September 30, 2010 | 3,150,000 | C$0.47 |
The following table summarizes information about stock options outstanding at September 30, 2010:
Weighted-Average | |||||
Weighted Average | Contractual Life | ||||
Number | Exercise Price | (Years) | Expiry Date | ||
1,200,000 | C$0.77 | 0.55 | April 20, 2011 | ||
1,900,000 | C$0.26 | 3.33 | January 28, 2014 | ||
50,000 | C$1.24 | 4.55 | April 18, 2015 | ||
3,150,000 | C$0.47 | 2.56 |
The Company applies the fair value method in accounting for its stock options granted to directors, officers and consultants using the Black-Scholes option pricing model. The stock-based compensation expense was $46,275 (2009 - $209,055). The fair value of stock options granted as above is calculated using the following weighted average assumptions:
September 30, | September 30, | |
2010 | 2009 | |
Expected life years | 5 | 5 |
Interest rate | 1.95% | 2.03% |
Volatility | 106% | 70.30% |
Dividend yield | 0% | 0% |
As at September 30, 2010, the aggregate intrinsic value of the outstanding exercisable options was approximately $4,797,000 (2009 - $1,560,000). The total intrinsic value of options exercised during the nine months ended September 30, 2010 was approximately $435,000 (2009 - $77,000).
12
GOLDEN QUEEN MINING CO. LTD.
(an exploration stage
company)
Notes to Interim Consolidated Financial Statements
For the Nine Months Ended September 30, 2010
(Unaudited)
3. | Share Capital (continued) Warrants |
The following is a summary of warrant status at September 30, 2010: |
Weighted- | Average | ||||||||||||
Average | Contract- | ||||||||||||
Exercise Price | ual Life | ||||||||||||
Shares | Per Share | (Years) | Expiry Date | ||||||||||
Outstanding and exercisable, January 1, 2010 | - | - | - | - | |||||||||
Issued: | |||||||||||||
Class A | 1,250,000 | C$1.75 | 1.50 | December 1, 2011 | |||||||||
Class B | 1,250,000 | C$2.00 | 1.50 | December 1, 2011 | |||||||||
Outstanding and exercisable, September 30, 2010 | 2,500,000 | C$1.88 | - |
As at September 30, 2010, the aggregate intrinsic value of the outstanding exercisable warrants was approximately $447,000 (2009 - $Nil).
13
GOLDEN QUEEN MINING CO. LTD.
(an exploration stage
company)
Notes to Interim Consolidated Financial Statements
For the Nine Months Ended September 30, 2010
(Unaudited)
4. | Commitments and Contingencies |
The Company has acquired a number of mineral properties outright and has acquired exclusive rights to explore, develop and mine the Property under various agreements with landowners. |
|
Agreements are typically subject to sliding scale royalties on either gross or net smelter returns ranging from 1.0% to 7.5%. |
|
The Company ceased making property payments and advance minimum royalty payments after successfully concluding moratorium agreements with a number of the landowners in 2000. The moratorium agreements expired toward the end of 2003. The total advance minimum royalty owing from 2003 to the end of 2008 was $714,137. The Company paid advance minimum royalties of $174,176 in 2009. The advance minimum royalty owing is estimated to be $153,000 for 2010. |
|
In 2007, the Company reached an agreement with a landowner to amend the terms of the lease agreement. Under the terms of the amendment, the Company has been granted an extension of twenty years and has paid $100,000 owed from 2005. In addition, the Company is not required to pay advance royalty during the two- year period until April 23, 2008 and the Company will receive a credit representing 50% of all advance minimum royalty paid and use it against the future production royalties. The Company recommenced the advance minimum royalty payment, and paid the landowner $100,000 in 2008 and $100,000 in 2009. |
|
A mining lease agreement with a group of landholders expired in 2004. The Company is currently in discussions with this group of landholders in an effort to reach a new agreement. |
|
The Company has agreed to issue 100,000 common shares as a finders fee upon commencement of commercial production on the Property in connection with certain property acquisitions. As of December 31, 2009, commercial production has not commenced and no shares have been issued. |
|
In 2004, the Company entered into an agreement with the President of the Company to issue 300,000 bonus shares upon completion of certain milestones. Upon receipt by the Company of a bankable feasibility study and the decision to place the Property into commercial production, a bonus of 150,000 common shares would be issued. Upon commencement of commercial production on the Property, a bonus of 150,000 common shares would be issued. In May 2010, the Company entered into an amendment to the agreement whereby the 300,000 bonus shares would alternatively be issuable upon a change of control transaction or upon a sale of all or substantially all of the Companys assets, having a value at or above $1.00 per share of the Company, with a further 300,000 bonus shares being issuable in the event the change of control transaction or asset sale occurred at a value at or above $1.50 per share. The agreement is for a term of three years and shall automatically renew for two years. As at September 30, 2010, the milestones had not been reached and no accrual was made in connection with these arrangements. |
|
5. | Related Party Transactions |
Except as noted elsewhere in these consolidated financial statements, related party transactions are disclosed as follows: |
|
For the three and nine months ended September 30, 2010, $ 32,500 and $102,600 (2009 - $30,900 and $87,300) was paid to Mr. H. L. Klingmann for services as President of the Company and $4,300 and $13,000 (2009 - $4,100 and $12,000) was paid to Mr. Chester Shynkaryk for consulting services to the Company. |
|
All of the above transactions and balances are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. |
14
GOLDEN QUEEN MINING CO. LTD.
(an exploration stage company)
Notes to Interim Consolidated Financial Statements
For the Nine Months Ended September 30, 2010
(Unaudited)
6. | Supplemental Disclosure Cash Flows Disclosure |
Cumulative | ||||||||||
Amounts From Date | ||||||||||
Nine-month | Nine-month | of Inception | ||||||||
period ended | period ended | (November 21, | ||||||||
September 30, | September 30, | 1985) through | ||||||||
2010 | 2009 | September 30, 2010 | ||||||||
Cash paid during year for: | ||||||||||
Interest | $ | - | $ | - | $ | 1,192,911 | ||||
Income taxes | $ | - | $ | - | $ | - | ||||
Non-cash financing and investing activities: | - | |||||||||
Reclassification
of derivative
liability for exercised stock options |
$ | 438,822 | $ | 78,533 | $ | 595,656 | ||||
Stock option compensation | $ | 46,275 | $ | 209,055 | $ | 1,416,448 | ||||
Financing charges
related
to modification of warrants term |
$ | - | $ | - | $ | 889,117 | ||||
Exchange of notes
for
common shares |
$ | - | $ | - | $ | 1,727,282 | ||||
Exchange of note
for future
royalty payments |
$ | - | $ | - | $ | 150,000 | ||||
Common shares
issued for
mineral property |
$ | - | $ | - | $ | 304,811 | ||||
Mineral property
acquired
through the issuance of long-term debt |
$ | - | $ | - | $ | 1,084,833 | ||||
Common shares
issued
upon conversion of convertible debt |
$ | - | $ | - | $ | 414,917 | ||||
Asset retirement obligations | $ | 11,986 | $ | 10,059 | $ | 189,550 |
15
GOLDEN QUEEN MINING CO. LTD.
(an exploration stage
company)
Notes to Interim Consolidated Financial Statements
For the Nine Months Ended September 30, 2010
(Unaudited)
7. | Restatements |
|
a) | Subsequent to the issuance of the Companys December 31, 2009 consolidated financial statements, and the unaudited interim consolidated financial statements for the period ended September 30, 2010, management discovered an error in connection with the guidance of ASC 815-40-15 in respect of the Companys outstanding stock options. As at January 1, 2009, the date on which the guidance of ASC 815-40-15 became effective for the Company, these stock options met the criteria of a derivative instrument liability because they were exercisable in a currency other than the functional currency of the Company and thus do not meet the fixed-for-fixed criteria of that guidance. As a result, the Company was required to separately account for the stock options as a derivative instrument liability recorded at fair value and marked-to-market each period with the changes in the fair value each period charged or credited to income. |
|
The transition provisions of ASC 815-40-15 require cumulative effect adjustments as of January 1, 2009 to reflect the amounts that would have been recognized if derivative fair value accounting had been applied from the original issuance date of an equity-linked financial instrument through the implementation date of the revised guidance. Thus, the Company calculated the value of the derivative liability associated with the stock options at the date of their issuances and recorded the change in the fair value of the derivative liability from the date of the grant of the options up to January 1, 2009. Additionally, in conjunction with the foregoing, the previously calculated amounts in respect of the additional paid-in capital were reversed. |
||
The cumulative effect of this change in accounting principle of $399,147 has been recognized as a decrease of the opening balance of the accumulated deficit of $464,255 and a decrease in the opening balance of additional paid-in capital of $863,402 as of January 1, 2009, with corresponding adjustments at January 1, 2009 to recognize a derivative liability of $399,147. |
||
Stock-based compensation of $357,989 in respect of stock options granted in 2009, previously recorded as additional paid-in capital, was reclassified as derivative liability in connection with the adoption of these pronouncements. |
||
During the year ended December 31, 2009, a total of 400,000 stock options included the derivative liability were exercised. Upon exercise of these options, the portion of the derivative liability that pertained to these options was re-measured and recorded at its fair value of $156,834, subsequent to which it was reclassified to additional paid-in capital. The Company measured the fair value of the derivative liability pertaining to the options exercised using the Black-Scholes pricing model with the following range of assumptions: expected volatility 100.45% - 108.23%, expected life 0.28 0.44 years, risk-free discount rate 1.23% - 1.52%, dividend yield 0.00%. |
||
As of December 31, 2009, the Company had re-measured the remaining outstanding options and determined the fair value of the derivative liability to be $2,695,602. |
16
GOLDEN QUEEN MINING CO. LTD.
(an exploration stage
company)
Notes to Interim Consolidated Financial Statements
For the Nine Months Ended September 30, 2010
(Unaudited)
7. | Restatements (continued) |
The consolidated balance sheet of the Company as at December 31, 2009 has been restated for the effect of this change as follows: |
As | ||||||||||
previously | ||||||||||
reported | Adjustment | Restated | ||||||||
Derivative liability | $ | - | $ | 2,695,602 | $ | 2,695,602 | ||||
Additional paid in capital | $ | 4,195,106 | $ | (1,064,557 | ) | $ | 3,130,549 | |||
Ending accumulated deficit | $ | (51,837,026 | ) | $ | (1,631,045 | ) | $ | (53,468,071 | ) |
The impact of the adoption of ASC 815-40-15 is of a non-cash nature. Therefore, there is no change in total operating, investing, and financing activities on the consolidated statement of cash flows.
The fair value of the derivative liability has been determined using the Black-Scholes option pricing model using the following assumptions:
December 31, 2009 | January 1, 2009 | ||
Risk-free interest rate | 1.47 to 2.77% | 1.09% | |
Expected life of derivative liability | 1 to 4.1years | 1.1 to 2.3 years | |
Expected volatility | 60% to 148% | 116% to 152% | |
Dividend rate | 0.00% | 0.00% |
17
GOLDEN QUEEN MINING CO. LTD.
(an exploration stage
company)
Notes to Interim Consolidated Financial Statements
For the Nine Months Ended September 30, 2010
(Unaudited)
7. | Restatement (continued) |
b) Restatement related to the unaudited interim consolidated financial statements for the period ended September 30, 2010 and 2009:
(i) | Subsequent to the issuance of the Companys unaudited interim consolidated financial statements for the period ended September 30, 2010, management discovered an error in the general and administrative expense. The Company has consumed and received goods and services of $237,944 for the three months period ended June 30, 2010 but did not record the amounts until for the three months period ended September 30, 2010. In addition, the Company had revised the stock based compensation expense from $41,383 to $46,275 for the three months ended September 30, 2010 when the amount should have been recorded for the three months ended June 30, 2010. As a result of these errors, general and administrative expense for the three months ended on September 30, 2010 was overstated by$242,836. |
|
(ii) | The Company had previously expensed share issuance costs of $21,715 as general and administrative expense for the three-month period ended June 30, 2010. As a result, general and administrative expense and share capital for the nine-month period ended September 30, 2010 were overstated by $21,715. |
|
(iii) | During the nine-month period ended September 30, 2010, a total of 750,000 stock options included in the derivative liability were exercised. Upon exercise of these options, the portion of the derivative liability that pertained to these options was re-measured and recorded at its fair value of $438,822. The Company measured the fair value of the derivative liability pertaining to the options exercised using the Black- Scholes pricing model with the following range of assumptions: expected volatility 33% - 78%, expected life 0.01 0.06 years, risk-free discount rate 1.17% - 1.29%, dividend yield 0.00%. |
|
(iv) | As explained in Note 7(a) above, management discovered an error in connection with the guidance of ASC 815-40-15 in respect of the Companys outstanding stock options and warrants. As at January 1, 2009, the date on which the guidance of ASC 815-40-15 became effective for the Company, these stock options and warrants met the criteria of a derivative instrument liability because they were exercisable in a currency other than the functional currency of the Company and thus do not meet the fixed-for-fixed criteria of that guidance. As a result, the Company was required to separately account for the stock options and warrants as a derivative instrument liability recorded at fair value and marked-to-market each period with the changes in the fair value each period charged or credited to income. |
|
As of September 30, 2010 and September 30, 2009, the Company had re-measured the remaining outstanding options and determined the fair value of the derivative liability to be $5,153,151 and $2,331,878 respectively using the Black-Scholes option pricing model using the following assumptions: |
September 30, 2010 | September 30, 2009 | ||
Risk-free interest rate | 1.36% -2.01% | 0.25% to 2.39% | |
Expected life of derivative liability | 0.55 to 4.55 years | 0.34 to 4.33 years | |
Expected volatility | 65% to 115% | 93% to 151% | |
Dividend rate | 0.00% | 0.00% |
18
GOLDEN QUEEN MINING CO. LTD.
(an exploration stage company)
Notes to Interim Consolidated Financial Statements
For the Nine Months Ended September 30, 2010
(Unaudited)
7. | Restatements (continued) |
b) Restatement related to the unaudited interim consolidated financial statements for the period ended September 30, 2010 and 2009 (continued): As of September 30, 2010, the Company had re-measured the remaining outstanding warrants and determined the fair value of the derivative liability to be $1,885,326 (2009 - $Nil) using the Black-Scholes option pricing model using the following assumptions:
September 30, 2010 | |
Risk-free interest rate | 1.36% |
Expected life of derivative liability | 1.17 years |
Expected volatility | 80% |
Dividend rate | 0.00% |
The unaudited interim consolidated balance sheet of the Company as at September 30, 2010 has been restated for the effect of this change as follows:
As previously | ||||||||||
reported | Adjustment | Restated | ||||||||
Derivative liability | $ | - | $ | 7,038,477 | $ | 7,038,477 | ||||
Share capital | $ | 56,335,982 | $ | (21,715 | ) | $ | 56,314,267 | |||
Additional paid in capital | $ | 5,967,899 | $ | (2,398,528 | ) | $ | 3,569,371 | |||
Ending accumulated deficit | $ | (54,502,741 | ) | $ | (4,618,234 | ) | $ | (59,120,975 | ) |
The unaudited interim consolidated statements of loss have been restated for the effect of this change as follows:
As previously | ||||||||||
reported | Adjustment | Restated | ||||||||
For the three months ended September 30, 2010: | ||||||||||
Increase in fair value of derivative liability | $ | - | $ | (2,429,443 | ) | $ | (2,429,443 | ) | ||
General and administrative expenses | $ | (949,291 | ) | $ | 242,836 | $ | (706,455 | ) | ||
Net loss and comprehensive loss for the period | $ | (938,520 | ) | $ | (2,186,607 | ) | $ | (3,125,127 | ) | |
Loss per share, basic and diluted | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.03 | ) | |
For the three months ended September 30, 2009: | ||||||||||
Increase in fair value of derivative liability | $ | - | $ | (629,533 | ) | $ | (629,533 | ) | ||
Net loss and comprehensive loss for the period | $ | (427,616 | ) | $ | (629,533 | ) | $ | (1,057,149 | ) | |
Loss per share, basic and diluted | $ | (0.01 | ) | $ | - | $ | (0.01 | ) |
19
GOLDEN QUEEN MINING CO. LTD.
(an exploration stage company)
Notes to Interim Consolidated Financial Statements
For the Nine Months Ended September 30, 2010
(Unaudited)
7. | Restatements (continued) |
b) Restatement related to the unaudited interim consolidated financial statements for the period ended September 30, 2010 and 2009 (continued):
The unaudited interim consolidated statements of loss have been restated for the effect of this change as follows (continued):
As previously | ||||||||||
reported | Adjustment | Restated | ||||||||
For the nine months ended September 30, 2010: | ||||||||||
Increase in fair value of derivative liability | $ | - | $ | (3,008,904 | ) | $ | (3,008,904 | ) | ||
General and administrative expenses | $ | (2,669,479 | ) | $ | 21,715 | $ | (2,647,764 | ) | ||
Net loss and comprehensive loss for the period | $ | (2,665,715 | ) | $ | ( 2,987,189 | ) | $ | (5,652,904 | ) | |
Cumulative amounts from date of
inception (November 21, 1985) through September 30, 2010 |
$ | (53,814,641 | ) | $ | (5,082,490 | ) | $ | (58,897,131 | ) | |
Loss per share, basic and diluted | $ | (0.03 | ) | $ | (0.03 | ) | $ | (0.06 | ) | |
For the nine months ended September 30, 2009: | ||||||||||
Increase in fair value of derivative liability | $ | - | $ | (1,653,275 | ) | $ | (1,653,275 | ) | ||
Net loss and comprehensive loss for the period | $ | (1,622,107 | ) | $ | (1,653,275 | ) | $ | (3,275,382 | ) | |
Loss per share, basic and diluted | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.04 | ) |
The impact of the adoption of ASC 815-40-15 is of a non-cash nature. Therefore, there is no change in total operating, investing, and financing activities on the consolidated statement of cash flows.
The unaudited interim consolidated statements of cash flows of the Company for the nine months ended September 30, 2010 has been restated for the effect of the errors described in Note 7(b) (ii) above:
As previously | ||||||||||
reported | Adjustment | Restated | ||||||||
Cash flows used in operating activities | $ | (2,481,824 | ) | $ | 21,715 | $ | (2,460,109 | ) | ||
Cash used in operating activities,
cumulative amount from date of inception (November 21, 1985) through September 30, 2010 |
$ | (40,557,998 | ) | $ | 21,715 | $ | (40,536,283 | ) | ||
Cash flows provided by financing activities | $ | 7,856,866 | $ | (21,715 | ) | $ | 7,835,151 | |||
Cash provided by financing activities, cumulative amount from date of inception (November 21, 1985) through September 30, 2010 |
$ | 58,740,487 | $ | (21,715 | ) | $ | 58,718,772 |
20
Item 2. Managements Discussion and Analysis or Plan of Operations
The following discussion of the operating results and financial position of Golden Queen Mining Co. Ltd. (the Company) is as at November 17, 2010 and should be read in conjunction with the consolidated financial statements of the Company for the quarter ended September 30, 2010 and the notes thereto.
The information in this Management Discussion and Analysis is prepared in accordance with U.S. generally accepted accounting principles and all amounts herein are in US$ unless otherwise noted.
The Soledad Mountain Project
The Company is proposing to develop a gold-silver, open pit, heap leach operation on its Soledad Mountain property (Property), located just outside the town of Mojave in Kern County in southern California. Every element of the Soledad Mountain Project (Project) has been rethought and reengineered in the past five years in an effort to find sound technical and cost-effective solutions that will ensure a viable mining operation at foreseeable gold and silver prices. The review has been supported and complimented by a substantial amount of work done by independent engineers and contractors. This phase of the technical work was completed toward the end of 2008.
Permitting Update
A detailed review of approvals and permits required for the Project is provided in the Companys latest Form 10-K filing with the SEC. The following is therefore only a note on the supplemental Environmental Impact Report (SEIR), which has been prepared for the Project.
The Company completed an Application for a revised Surface Mining and Reclamation Plan in April 2007. The Kern County Planning Department determined that changes proposed for the Project since the Conditional Use Permits were issued in 1997 constituted new information that required evaluation of potential impacts in a Supplemental Environmental Impact Report (SEIR). The draft SEIR was finally completed and distributed in January 2010. The Kern County Planning Commission formally considered the Project at its regularly scheduled meeting in Bakersfield on April 8. At the meeting, the Commission, consisting of a panel of three commissioners, unanimously approved the Project. Two appeals were subsequently filed against the Commissions decision and the Project was scheduled to be reconsidered before the Kern County Board of Supervisors on May 25. Both appeals were withdrawn before the day of the meeting and the decision made by the Planning Commission therefore became final.
The Lahontan Regional Water Quality Control Board (the Board) unanimously approved Waste Discharge Requirements and a Monitoring and Reporting Program (the WDRs) for the Soledad Mountain Project on July 14. The Board recommended adopting an order approving the WDRs, and the order was subsequently signed by the Executive Officer of the Board and is currently in effect. The order approving the WDRs is a critical authorization for the construction and operation of, and establishes the discharge and monitoring standards for, the heap leach pads, rock stockpiles and other activities that have the potential to affect surface and ground waters.
The Company also requires Authority to Construct permits to begin mining and processing operations on its Property. The Companys consulting engineers are completing applications for these permits and it is expected that these will be submitted to Eastern Kern Air Pollution Control District (EKAPCD) in early December 2010. ECAPCD can now prepare and issue Authority to Construct permits as the SEIR has been certified. The Authority to Construct permits are converted to a Permit To Operate after construction has been completed and subject to inspection by the ECAPCD.
It is important to note that the Bureau of Land Management (the BLM) has confirmed that its Record of Decision approving the Plan of Operations under NEPA in November 1997 remains valid and that no additional reviews or approvals are required from the BLM before GQM can proceed with the Project.
Results of Operations
Following are the results of operations for the three month period and nine month period ended September 30, 2010, and the corresponding periods ended September 30, 2009.
The Company had no revenue from operations.
During the quarter, the Company incurred general and administrative expenses of $706,455 (2009 - $431,324). For the nine month period ended September 30, 2010 the Company incurred general and administrative expenses of $22,647,764 (2009 - $1,622,016).
Costs were significantly higher for the quarter and nine month period ended September 30, 2010 when compared with the same period in 2009, due to the following non-recurring costs:
- Legal fees were incurred in support of ongoing efforts to secure permits for the Project, and
- Consulting engineering fees were higher due to the significant amount of detailed engineering completed for Project facilities. The detailed engineering allows contractors to provide cost estimates for construction of the facilities.
Interest income of $14,767 (2009 - $7,061) was higher by $7,706 as there was more cash on deposit. Interest rates remained low during the quarter. There was no interest expense during the quarter.
The Company incurred a net loss of $3,125,127 (or $0.03 per share) during the quarter and $5,668,654 (or $0.06 per share) during the nine month period ended September 30, 2010, as compared to a net loss of $1,057,149 (or $0.01 per share) during the third quarter of 2009 and $3,275,382 during the nine month period ended September 30, 2009 (or $0.04 per share).
Summary of Quarterly Results
Results for the eight most recent quarters are set out in the table below.
Results for the quarter ended on: | Sept. 30, 2010 | June 30, 2010 | March 31, 2010 | Dec. 31, 2009 |
Item | $ | $ | $ | $ |
Revenue | Nil | Nil | Nil | Nil |
Net loss for the quarter | 3,125,127 | 2,406,367 | 326,305 | 1,239,360 |
Net loss per share | 0.03 | 0.03 | 0.00 | 0.02 |
Results for the quarter ended on: | Sept. 30, 2009 | June 30, 2009 | March 31, 2009 | Dec. 31, 2008 |
Item | $ | $ | $ | $ |
Revenue | Nil | Nil | Nil | Nil |
Net loss for the quarter | 1,057,149 | 1,230,829 | 987,404 | 1,223,439 |
Net loss per share | 0.01 | 0.01 | 0.01 | 0.01 |
The results of operations can vary from quarter to quarter depending upon the nature, timing and cost of activities undertaken during the quarter and whether or not the Company incurs gains or losses on foreign exchange grants stock options or makes adjustments on quarterly or annual financial statements.
Reclamation Financial Assurance and Asset Retirement Obligation
The Company provided reclamation financial assurance in the form of an Irrevocable Payment Bond Certificate with Union Bank of California in the amount of $286,653 on October 21, 2009 for 2010. The financial assurance is reassessed annually and the estimate for reclamation of historical disturbances on the property is $283,809 for 2011.
The asset retirement obligation accrual is estimated at $189,550 and this is shown as a liability on the consolidated balance sheet. The actual obligation could differ materially from these estimates.
Advance Minimum Royalties
Advance minimum royalties of $22,167 were paid to landholders in the third quarter of 2010.
A mining lease agreement with one group of landholders expired in 2004 and the Company has prepared a new mining lease agreement for discussion with the group of landholders.
Mining lease agreements with groups of landholders expired in June and July of 2010 and discussions are under way with these groups of landholders for an extension of the agreements.
Off-balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Recently Issued Accounting Standards
(i) |
In January 2010, the FASB issued ASU No. 2010-06, Improving Disclosures about Fair Value Measurements, which requires additional disclosures about the amounts of and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements. This standard also clarifies existing disclosure requirements related to the level of disaggregation of fair value measurements for each class of assets and liabilities and disclosures about inputs and valuation techniques used to measure fair value for both recurring and non-recurring Level 2 and Level 3 measurements. Since this new accounting standard only required additional disclosure, the adoption of the standard did not impact the Companys consolidated financial statements. This standard will require additional disclosure and require the Company to present disaggregated information about activity in Level 3 fair value measurements on a gross basis, rather than one net amount. | |
(ii) |
In February 2010, FASB issued Accounting Standards Update (ASU) 2010-09, Subsequent Event (Topic 855) Amendments to Certain Recognition and Disclosure Requirements. ASU 2010-09 removes the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of GAAP. All of the amendments in ASU 2010-09 are effective upon issuance of the final ASU, except for the use of the issued date for conduit debt obligors. That amendment is effective for interim or annual periods ending after June 15, 2010. The adoption of this standard did not have a material effect on the Companys consolidated financial statements. | |
(iii) |
In April 2010, the FASB issued Accounting Standards Update 2010-13, Compensation Stock Compensation (Topic 718). The objective of this update is to address the classification of an employee share-based payment award with an exercise price denominated in the currency of a market in which the underlying equity security trades. It provides guidance on the classification of a share-based payment award as either equity or a liability. A share-based payment award that contains a condition that is not a market, performance, or service condition is required to be classified as a liability. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The amendments in this update should be applied by recording a cumulative-effect adjustment to the opening balance of retained earnings. The cumulative- effect adjustment should be calculated for all awards outstanding as of the beginning of the fiscal year in which the amendments are initially applied, as if the amendments had been applied consistently since the inception of the award. The cumulative-effect adjustment should be presented separately. Earlier application is permitted. The Company is currently evaluating the impact of this update on the financial statements. |
(iv) |
In June 2009, new guidance relating to the accounting for transfers of financial assets was issued. The new guidance, which was issued as, Accounting for Transfers of Financial Assets, has not yet been adopted into Codification. The new standard eliminates the concept of a qualifying special-purpose entity, changes the requirements for derecognizing financial assets, and requires additional disclosures in order to enhance information reported to users of financial statements by providing greater transparency about transfers of financial assets, including securitization transactions, and an entitys continuing involvement in and exposure to the risks related to transferred financial assets. The new guidance is effective for fiscal years beginning after November 15, 2009. The adoption of the standard did not have impact on the Companys financial statements. |
Stock Option Plan
The Companys current stock option plan (the Plan) was adopted by management of the Company in 2008 and approved by shareholders of the Company in 2009. The Plan provides a fixed number of 7,200,000 common shares of the Company that may be issued pursuant to the grant of stock options. The exercise price of stock options granted under the Plan shall be determined by the Companys Board of Directors, but shall not be less than the volume weighted average trading price of the Companys shares on the Toronto Stock Exchange for the five trading days immediately prior to the date of the grant. The expiry date of a stock option shall be the date so fixed by the Board subject to a maximum term of five years. The Plan provides that stock options will terminate on the earlier of the expiry of the term and (i) 12 months from the date an option holder dies, (ii) 90 days from the date from the date the option holder ceases to act as a director or officer of the Company, or (iii) 60 days from the date the option holder ceases to be employed, or engaged as a consultant, by the Company.
The Company granted 1,950,000 stock options to directors, officers and consultants of the Company pursuant to the Plan on January 28, 2009. The options are exercisable at a price of C$0.26 per share for a period of 5 years from the date of grant. The Company also granted 50,000 stock options to a consultant of the Company pursuant to the Plan on April 19, 2010. The options are exercisable at a price of C$1.24 per share for a period of 5 years from the date of grant.
Transactions with Related Parties
For the three and nine months ended September 30, 2010, $ 32,500 and $102,600 (2009 - $30,900 and $87,300) was paid to Mr. H. L. Klingmann for services as President of the Company and $4,300 and $13,000 (2009 - $4,100 and $12,000) was paid to Mr. Chester Shynkaryk for consulting services to the Company.
The Company amended a consulting services agreement originally entered into in 2004 with Mr. H. Lutz Klingmann, the President of the Company, in May of 2010. Under the original agreement, upon receipt by the Company of a bankable feasibility study and the decision to place the Property into commercial production, a bonus of 150,000 common shares would be issued and upon commencement of commercial production on the Property, a bonus of 150,000 common shares would be issued. Pursuant to the amended agreement, an alternative 300,000 bonus shares would be issuable upon a change of control transaction or upon a sale of all or substantially all of the Companys assets, having a value at or above C$1.00 per share of the Company, with a further 300,000 bonus shares being issuable in the event the change of control transaction or asset sale occurred at a value at or above C$1.50 per share. As at September 30, 2010, the milestones had not been reached and no accrual was made in connection with these arrangements.
Fair Value of Financial Instruments
The carrying amount reported in the balance sheets for cash and cash equivalents, receivables, accounts payable and accrued liabilities approximates fair value because of the immediate or short-term maturity of these financial instruments. The company does not hold any bank or non-bank asset-backed commercial paper. The fair value of the reclamation financial assurance approximates carrying value because the stated interest rate reflects recent market conditions. It is the opinion of management that the Company is not exposed to significant interest, currency or credit risk arising from the use of these financial instruments.
Private Placement
The Company completed a non-brokered private placement with Gammon Gold Inc. on June 1, 2010, whereby Gammon Gold purchased 5,000,000 units of the Company at a price of C$1.60 per unit for total proceeds of $7,634,316 (C$8,000,000). Each unit consists of one common share, one quarter of one Class A Warrant, and one quarter of one Class B Warrant. Each Class A Warrant entitles Gammon Gold to purchase a common share at a price of C$1.75 for a period of 18 months from the closing date. Each Class B Warrant entitles Gammon Gold to purchase one common share at a price of C$2.00 for a period of 18 months from the closing date. The aggregate fair value of the Class A and B purchase warrants was $1,726,518 and the amount has been recorded as derivative liability and the Company allocated the remaining proceeds of $5,907,798 to the common shares.
Subject to certain conditions, Gammon Gold Inc. was granted the right to participate in future financings to maintain its equity position in the Company.
Liquidity and Capital Resources
The Company held $7,808,244 in cash and cash equivalents on September 30, 2010.
Cash used in Operating Activities
During the period ended September 30, 2010, the Company incurred significant expenditures in legal fees in connection with permit approvals, and for detailed engineering fees in connection with Project facilities.
Cash from Financing Activities:
Cash was received from financing activities during the nine months ended September 30, 2010 and for the comparable period in 2009 as follows:
- $246,600 pursuant to the exercise of options on 750,000 shares @ C$0.35 and 50,000 shares @ $0.26 ($16,252 pursuant to the exercise of options on 100,000 shares @ C$0.35) and
- $7,634,316 pursuant to a private placement of units to Gammon Gold Inc. ($1,439,368 pursuant to a private placement of 2,337,500 shares to five placees).
Cash used in Investing Activities:
The Company did not incur expenditures in investing activities during the three and nine months ended September 30, 2010 and 2009.
Working Capital
The Company has no long-term debt.
Management does not expect that additional cash will be required beyond cash currently on hand for ongoing work on permits for the Project, for paying advance minimum royalties, for additional property purchases, for detailed engineering of facilities for the Project and ongoing work on site, and for general corporate purposes to the end of 2011. Refer also to Outlook below.
Outstanding Share Data
The number of shares issued and outstanding and the fully diluted share position are set out in the table below.
Golden Queen Mining Co. Ltd.
No. of | |||
Item | Shares | ||
Shares issued and outstanding on Dec. 31, 2009 | 88,378,383 | ||
Shares issued pursuant to the exercise of stock options | 700,000 | ||
Gammon Gold Inc. private placement | 5,000,000 | ||
Shares issued and outstanding on June 30, 2010 | 94,078,383 | ||
Shares issued pursuant to the exercise of stock options | 50,000 | ||
Shares issued and outstanding on September 30, 2010 | 94,128,383 | Exercise Price | Expiry Date |
Gammon Gold Inc. warrants | 2,500,000 | C1.75 & C2.00 | 1/12/2011 |
Director and employee stock options | 1,200,000 | C$0.77 | 20/04/11 |
Director and employee stock options | 1,950,000 | C$0.26 & C1.24 | 28/01/14 & 18/04/15 |
Shares to be issued as a finders fee | 100,000 | Not Applicable | Not Applicable |
Bonus shares to H.L. Klingmann | 600,000 | Not Applicable | Not Applicable |
Fully diluted on September 30, 2010 | 100,478,383 |
The company's authorized share capital is 150,000,000 common shares with no par value.
Outlook
The Company plans to put the Project into production as an open pit heap leach operation and to construct facilities to process ore at a rate of 4,500,000 tonnes (5,000,000 tons) per year and these have been reduced from the earlier planned mining rates. Projected life of the open pit heap leach operation has increased from 7 years to 12 years. The Company also plans to produce and sell aggregate for up to 30 years. These plans are subject to management making a production decision.
Management is evaluating financing options with a view to making a production decision as soon as all permits have been secured.
If permits are secured for the Project and a production decision is made, the Company will need significant additional financing to develop the Project into an operating mine. Capital costs for mining projects are increasing rapidly and the Company is currently re-estimating these costs. The Company believes that financing for the Project can be secured if gold and silver prices remain at or above $600.00/oz and $12.50/oz respectively and these are the prices used for the feasibility study base case cash flow projections that were released on December 14, 2007. Gold and silver prices averaged $972.35/oz and $14.67/oz in 2009 and closing prices on November 17, 2010 were $1,213.00/oz and $17.95/oz respectively.
It is not expected that the Company will hedge any of its gold or silver production.
The ability of the Company to put the Project into production is subject to numerous risks, certain of which are disclosed in the Company’s latest Form 10-K filing with the SEC and amendments thereto. Readers should evaluate the Company’s prospects in light of these and other risk factors.
Special Meeting of Shareholders
The Company held a special meeting of shareholders on September 1, 2010 at which the Company adopted new corporate Articles and increased its authorized capital to 150,000,000 common shares.
Application of Critical Accounting Estimates
The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States. Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates which have been made using careful judgment.
The financial statements have, in management’s opinion, been properly prepared within reasonable limits of materiality and within the framework of the significant accounting policies summarized below:
Mineral Property and Exploration Costs
Exploration costs are expensed as incurred. Development costs are expensed until it has been established that a mineral deposit is commercially mineable and a production decision has been made by the Company to implement a mining plan and develop a mine, at which point the costs subsequently incurred to develop the mine on the property prior to the start of mining operations are capitalized.
The Company capitalizes the cost of acquiring mineral property interests, including undeveloped mineral property interests, until the viability of the mineral interest is determined. Capitalized acquisition costs are expensed if it is determined that the mineral property has no future economic value. Exploration stage mineral interests represent interests in properties that are believed to potentially contain (i) other mineralized material such as measured, indicated or inferred resources with insufficient drill hole spacing to qualify as proven and probable mineral reserves and (ii) other mine-related or green field exploration potential that are not an immediate part of measured or indicated resources. The Company’s mineral rights are generally enforceable regardless of whether or not proven and probable reserves have been established. The Company has the ability and intent to renew mineral rights where the existing term is not sufficient to recover undeveloped mineral interests.
Capitalized amounts (including capitalized development costs) are also written down if future cash flows, including potential sales proceeds, related to the mineral property are estimated to be less than the property’s total carrying value. Management reviews the carrying value of each mineral property periodically, and, whenever events or changes in circumstances indicate that the carrying value may not be recoverable, makes the necessary adjustments. Reductions in the carrying value of a property would be recorded to the extent that the total carrying value of the mineral property exceeds its estimated fair value. A write-down of $167,898 in mineral property interests was recorded for the year ended December 31, 2009. There was no write-down in mineral property interests recorded for the nine months ended September 30, 2010.
Asset Retirement Obligations
In accordance with the Accounting for Asset Retirement Obligations, the fair value of an asset retirement cost, and corresponding liability, should be recorded as part of the cost of the related long-lived asset and subsequently allocated to expense using a systematic and rational method. The Company has recorded an asset retirement obligation to reflect its legal obligations related to future abandonment of its mineral property using estimated expected cash flow associated with the obligation and discounting the amount using a credit-adjusted, risk-free interest rate. At least annually, the Company reassesses the obligation to determine whether or not a change in any estimated obligation is necessary. The asset retirement obligation recorded as a liability on the Interim Consolidated Balance Sheet is $189,550 as at September 30, 2010 (2009 - $172,962).
Derivative Liabilities
Our stock options are denominated in a currency other than our functional currency and the instruments were required to be accounted for as separate derivative liabilities. These liabilities were required to be measured at fair value. These instruments were adjusted to reflect fair value at each period end. Any increase or decrease in the fair value was recorded in results of operations as change in fair value of derivative liabilities. In determining the appropriate fair value, we used the Black-Scholes pricing model.
Recently Issued Accounting Standards
A summary of Recently Issued Accounting Standards is provided in Item 7 of the Companys latest Form 10-K/A filing with the SEC.
Qualified Person and Caution With Respect to Forward-looking Statements
Mr. H. Lutz Klingmann, P.Eng., the president of the Company, is a qualified person for the purposes of National Instrument 43-101 and has reviewed and approved the technical information in this report.
This report contains certain forward-looking statements, which relate to the intent, belief and current expectations of the Companys management. These forward-looking statements are based upon numerous assumptions that involve risks and uncertainties and other factors that may cause actual results to differ materially from those indicated by such forward-looking statements. Such factors include among other things the receipt of required approvals and permits, the costs of and availability of sufficient capital to fund the projects to be undertaken by the Company, commodity prices and other factors. Readers are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date the statements were made.
Caution to U.S. Investors
Management advises U.S. investors that while the terms measured resources, indicated resources and inferred resources are recognized and required by Canadian regulations, the U.S. Securities and Exchange Commission does not recognize these terms. U.S. investors are cautioned not to assume that any part or all of the material in the mineral resource categories will be converted into mineral reserves. References to such terms are contained in the Companys Form 10-K and other publicly available filings. We further advise U.S. investors that the mineral reserve estimates are not compliant with the Securities and Exchange Commission Industry Guide 7 as a final bankable feasibility study has not been completed.
Additional Information
Further information on Golden Queen Mining Co. Ltd. is available on the SEDAR web site at www.sedar.com and on the Companys web site at www.goldenqueen.com.
Item 4. Controls and Procedures
Restatement
We have restated our financial statements for the periods ended September 30, 2010 and 2009 that were previously issued and filed with Canadian securities regulators. The restatements were to correct bookkeeping error in general and administrative expense as of September 30, 2010 and an error that was made in connection with the Companys adoption of a new accounting pronouncement, ASC 815-40-15 which came into effect on January 1, 2009 and for each of the reporting period thereafter.
Disclosure of Controls and Procedures
Disclosure controls and procedures and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management including our Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.
Evaluation of disclosure controls and procedures and remediation
A material weakness is a deficiency, or a combination of deficiencies, in our disclosure controls and procedures such that there is a reasonable possibility that a material misstatement of our companys annual or interim financial statements will not be prevented or detected on a timely basis.
In connection with the restatements, we identified material weaknesses in our disclosure controls and procedures and have noted as follows:
a. |
The Company does not review certain expenditures in a U.S. bank account on a regular basis; and | |
b. |
The Company does not have the proper procedure for recording and reporting changes in the US dollar to Canadian dollar. |
In connection with this quarterly report, as required by Rule 13a-15 under the Securities Exchange Act of 1934, we have carried out a re-evaluation of the effectiveness of the design and operation of our company's disclosure controls and procedures. This re-evaluation was carried out under the supervision and with the participation of our Company's management, including our Company's Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Company's Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2010, our disclosure controls and procedures were not effective as at the end of the period covered by this report.
On December 7, 2010, the Company announced that following an internal review by our Company and our independent auditors, the Company would include restated historical financial statements in this quarterly report for the period ended September 30, 2010. The historical financial statements were previously issued and filed with Canadian securities regulators. Our conclusion to restate the above period resulted in the company recognizing that its disclosure controls and procedures were not effective as of the period ended September 30, 2010 and constituted material weaknesses.
To address these material weaknesses, we will perform additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.
To remediate the material weakness in our disclosure controls and procedures identified above, in addition to working with our independent auditors, will continue to refine our internal procedures to alleviate this weakness and will consider adding human resources with experience in generally accepted accounting principles (GAAP) and are committed to ongoing education in this area as a well as a defined process to prepare such calculations.
Limitations on the effectiveness of disclosure controls and procedures
A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments, in decision making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of internal control is based in part upon certain assumptions above the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II OTHER INFORMATION
Item 6. Exhibits
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 11, 2011
GOLDEN QUEEN MINING CO. LTD.
(Registrant)
By: | /s/ Lutz Klingmann | |
Lutz Klingmann | ||
Principal Executive Officer and | ||
Principal Financial Officer |