Galantas Gold Regulatory News (GAL)

1 May 2008 07:01

Galantas Gold Corporation01 May 2008 GALANTAS GOLD CORPORATION Consolidated Financial Statements (Expressed in Canadian Dollars) Final Results for the year ending 31 December 2007 Dated: 1 May 2008 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING The accompanying consolidated financial statements of Galantas Gold Corporationwere prepared by management in accordance with Canadian generally acceptedaccounting principles. Management acknowledges responsibility for thepreparation and presentation of the consolidated financial statements, includingresponsibility for significant accounting judgments and estimates and the choiceof accounting principles and methods that are appropriate to the Company'scircumstances. The significant accounting policies of the Company are summarizedin Note 3 to the consolidated financial statements. Management has established processes, which are in place to provide themsufficient knowledge to support management representations that they haveexercised reasonable diligence that (i) the consolidated financial statements donot contain any untrue statement of material fact or omit to state a materialfact required to be stated or that is necessary to make a statement notmisleading in light of the circumstances under which it is made, as of the dateof and for the periods presented by the consolidated financial statements and(ii) the consolidated financial statements fairly present in all materialrespects the financial condition, results of operations and cash flows of theCompany, as of the date of and for the periods presented by the consolidatedfinancial statements. The Board of Directors is responsible for reviewing and approving theconsolidated financial statements together with other financial information ofthe Company and for ensuring that management fulfills its financial reportingresponsibilities. An Audit Committee assists the Board of Directors infulfilling this responsibility. The Audit Committee meets with management toreview the financial reporting process and the consolidated financial statementstogether with other financial information of the Company. The Audit Committeereports its findings to the Board of Directors for its consideration inapproving the consolidated financial statements together with other financialinformation of the Company for issuance to the shareholders. Management recognizes its responsibility for conducting the Company's affairs incompliance with established financial standards, and applicable laws andregulations, and for maintaining proper standards of conduct for its activities. Roland Phelps Brent RoutledgePresident Chief Financial Officer April 22, 2008 Toronto, Canada AUDITORS' REPORT To the Shareholders of Galantas Gold Corporation We have audited the consolidated balance sheets of Galantas Gold Corporation asat December 31, 2007 and 2006 and the consolidated statements of operations anddeficit and cash flows for the years then ended. These financial statements arethe responsibility of the company's management. Our responsibility is toexpress an opinion on these consolidated financial statements based on ouraudits. We conducted our audits in accordance with Canadian generally accepted auditingstandards. Those standards require that we plan and perform an audit to obtainreasonable assurance whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in allmaterial respects, the financial position of the company as at December 31, 2007and 2006 and the results of its operations and its cash flows for the years thenended in accordance with Canadian generally accepted accounting principles. Smith Nixon LLP Chartered Accountants Toronto, Ontario April 22, 2008 GALANTAS GOLD CORPORATIONCONSOLIDATED BALANCE SHEETS(Expressed in Canadian Dollars) AS AT DECEMBER 31, 2007 2006 ASSETSCurrentCash $ 21,308 $ 234,909Accounts receivable and advances 578,831 397,953Inventory (Note 4) 1,033,596 100,839Future income taxes (Note 8(b)) 240,890 213,366 1,874,625 947,067 Property, plant and equipment (Note 5) 17,077,659 13,653,277Future income taxes (Note 8(b)) 1,362,027 958,934 $ 20,314,311 $ 15,559,278 LIABILITIES Current Accounts payable and accrued liabilities $ 2,124,314 $ 1,499,678Current portion of financing facility (Note 6) 495,217 253,529Due to related party (Note 9) 552,569 -Deferred revenue (Note 3) 201,743 - 3,373,843 1,753,207 Due to related party (Note 9) 971,782 -Long-term portion of financing facility (Note 6) 532,403 379,773 4,878,028 2,132,980 SHAREHOLDERS' EQUITY Share capital (Note 7(a)) 26,134,279 22,458,500Warrants (Note 7(b)) 2,417,700 1,913,100Contributed surplus 844,247 848,985 29,396,226 25,220,585 Deficit (13,959,943) (11,794,287) 15,436,283 13,426,298 $ 20,314,311 $ 15,559,278 Going concern (Note 1) SIGNED ON BEHALF OF THE BOARD: L.J. Gunter Roland PhelpsDirector Director GALANTAS GOLD CORPORATIONCONSOLIDATED STATEMENTS OF LOSS(Expressed in Canadian Dollars) YEARS ENDED DECEMBER 31, 2007 2006Revenues Gold sales $ 654,142 $ 45,928Costs and expenses of mining operations Cost of sales 972,022 12,948 Amortization 736,226 4,240 1,708,248 17,188(Loss) income from mining operations (1,054,106) 28,740 Expenses and other (income) Accounting and corporate 46,579 39,055 Bank charges and interest 64,307 14,293 Consulting fees 5,490 6,250 Foreign exchange loss 42,598 76,248 Legal and audit 109,024 223,749 Operating expenses 760,027 124,989 Shareholder communication and public relations 203,110 568,121 Stock-based compensation (Note 7(c)) 429,262 192,327 Transfer agent 22,892 25,202 General office 50,785 59,954 Loss on disposal of property, plant and equipment 33,507 - Interest income (1,180) (10,698) 1,766,401 1,319,490Loss before income taxes (2,820,507) (1,290,750)Future income tax recovery (Note 8(a)) 654,851 295,500Net loss for the year $ (2,165,656) $ (995,250)Basic and diluted loss per share $ (0.01) $ (0.01)Weighted average number of shares outstanding 168,849,926 145,930,481 GALANTAS GOLD CORPORATIONCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY(Expressed in Canadian Dollars) YEARS ENDED DECEMBER 31, 2007 2006Share capital Balance, beginning of year $ 22,458,500 $ 18,400,862Issued under private placements 3,342,036 3,500,000Warrants issued (504,600) (1,735,000)Stock options exercised 590,000 -Stock options exercised - valuation 434,000 -Warrants exercised - 2,627,500Warrants exercised - valuation - 175,166Agent's compensation options granted - (178,100)Share issue costs (185,657) (331,928)Balance, end of year $ 26,134,279 $ 22,458,500 WarrantsBalance, beginning of year $ 1,913,100 $ 175,166Issued 504,600 1,913,100Exercised - (175,166)Balance, end of year $ 2,417,700 $ 1,913,100 Contributed surplusBalance, beginning of year $ 848,985 $ 656,658Stock options granted 429,262 192,327Stock options exercised (434,000) -Balance, end of year $ 844,247 $ 848,985 DeficitBalance, beginning of year $ (11,794,287) $ (10,799,037)Net loss (2,165,656) (995,250)Balance, end of year $ (13,959,943) $ (11,794,287) GALANTAS GOLD CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS(Expressed in Canadian Dollars) YEARS ENDED DECEMBER 31, 2007 2006 CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES Net loss for the year $ (2,165,656) $ (995,250)Adjustments for non-cash items:Amortization 736,226 4,240Stock-based compensation 429,262 192,327Future income tax recovery (654,851) (295,500)Foreign exchange 224,234 (107,000)Loss on disposal of property, plant and equipment 33,507 -Net change in non-cash working capital (Note 10(a)) (287,256) 949,191 (1,684,534) (251,992)INVESTING ACTIVITIESPurchase of property, plant and equipment (4,194,115) (6,439,984) FINANCING ACTIVITIESIssue of common shares 3,932,036 6,127,500Share issue costs (185,657) (331,928)Advances from financing facility 880,345 365,400Repayments of financing facility (486,027) (102,969)Advances from (repayment to) related party 1,524,351 (253,103) 5,665,048 5,804,900 NET CHANGE IN CASH (213,601) (887,076)CASH, BEGINNING OF YEAR 234,909 1,121,985CASH, END OF YEAR $ 21,308 $ 234,909 SUPPLEMENTAL CASH FLOW INFORMATION (Note 10) GALANTAS GOLD CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Expressed in Canadian Dollars)YEARS ENDED DECEMBER 31, 2007 AND 2006 1. GOING CONCERN These consolidated financial statements have been prepared on a going concernbasis which contemplates that Galantas Gold Corporation (the "Company") will beable to realize assets and discharge liabilities in the normal course ofbusiness. The recoverability of these consolidated amounts, which includes theconsolidated results of the Company's wholly-owned subsidiary CavanacawCorporation (Cavanacaw), is dependent on the ability of the Company to obtainfuture financing and to recover its investment in Omagh Minerals Limited("Omagh"). Cavanacaw has a 100% shareholding in Omagh which is engaged in theacquisition, exploration and development of gold properties, mainly in Omagh,Northern Ireland. As at December 31, 2001, studies performed on Omagh's mineral property confirmedthe existence of economically recoverable reserves. As of July 1, 2007, themineral property was in the production stage and the directors believe that thecapitalized development expenditures will be fully recovered by the futureoperation of the mine. The recoverability of Omagh's capitalized developmentcosts is thus dependent on the ability to secure financing, future profitableproduction or proceeds from the disposition of the mineral property. Management is confident that it will be able to secure the required financing toenable the Company to continue as a going concern. However, this is subject toa number of factors including market conditions. These consolidated financialstatements do not reflect adjustments to the carrying value of assets andliabilities, the reported expenses and balance sheet classifications used thatwould be necessary if the going concern assumption was not appropriate. Suchadjustments could be material. 2. INCORPORATION AND NATURE OF OPERATIONS The Company was formed on September 20, 1996 under the name Montemor ResourcesInc. on the amalgamation of 1169479 Ontario Inc. and Consolidated Deer CreekResources Limited. The name was changed to European Gold Resources Inc. byarticles of amendment dated July 25, 1997. On May 5, 2004, the Company changedits name from European Gold Resources Inc. to Galantas Gold Corporation. TheCompany was incorporated to explore for and develop mineral resource properties,principally in Europe. In 1997, it purchased all of the shares of Omagh whichowns a mineral property in Northern Ireland, including a delineated golddeposit. Omagh obtained full planning and environmental consents necessary tobring its property into production. The Company entered into an agreement on April 17, 2000, approved byshareholders on June 26, 2000, whereby Cavanacaw, a private Ontario corporation,acquired Omagh. Cavanacaw has established an open pit mine to extract theCompany's gold deposit near Omagh. Cavanacaw also has developed a premiumjewellery business founded on the gold produced under the name Galantas IrishGold Limited (Galantas). As at July 1, 2007, the Company's Omagh mine began production. The Company's operations include the consolidated results of Cavanacaw and itswholly-owned subsidiaries Omagh and Galantas. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements have been prepared in accordance withCanadian generally accepted accounting principles ("Canadian GAAP"). Thepreparation of financial statements in conformity with Canadian GAAP requiresmanagement to make estimates and assumptions that affect the reported amounts ofassets and liabilities at the date of the financial statements and the reportedamounts of revenue and expenses during the reporting period. The mostsignificant estimates and assumptions include the recovery of the deferreddevelopment and exploration costs, the valuation of stock-based compensation andother stock-based payments and the ability of the Company to continue as a goingconcern (note 1). Actual results could differ from those estimates. Principles of Consolidation These consolidated financial statements include the accounts of the Company andits subsidiaries. All material intercompany balances have been eliminated. Foreign Currency Translation The Company's operations expose it to significant fluctuations in foreignexchange rates. Cavanacaw, Omagh and Galantas are denominated in British poundsand are, therefore, subject to exchange variations against the reportingcurrency, the Canadian dollar. They are integrated foreign operations, and assuch their financial statements have been translated into Canadian dollars usingthe temporal method. All assets and liabilities are translated at exchangerates effective at the end of each year and all non-monetary assets andliabilities are translated at their historical rates. Income and expenses aretranslated at the average exchange rate for the year. The foreign currencytranslation gains and losses are included in the determination of net loss. Inventory Inventories are comprised of finished goods, concentrate inventory, work-in-process amounts and stockpiled ore. All inventories are recorded at the lower of production costs on a first-in,first-out basis, and net realizable value. Production costs include costsrelated to mining, crushing, mill processing, as well as depreciation onproduction assets and certain allocations of mine-site overhead expensesattributable to the manufacturing process. Property, Plant and Equipment The cost of property, plant and equipment is their purchase cost, together withany related costs of acquisition. Amortization is calculated at the followingrates: Buildings 4 % straight line Plant and machinery 20 % declining balance Motor vehicles 25 % declining balance Office equipment 15 % declining balance Moulds 25 % straight line Freehold land 4 % straight line Deferred development and exploration costs units of production Prior to commencing production, the Company capitalized interest related tofinancing of equipment. Deferred development and exploration costs are capitalized until results of therelated projects, based on geographic areas, are known. If a project issuccessful, the related expenditures will be amortized using the units-of-production method over the estimated life of the ore body based on estimatedrecoverable ounces or pounds mined from proven and probable reserves. Provisionfor loss is made where a project is abandoned or considered to be of no furtherinterest to the company, or where the directors consider such a provision to beprudent. As of July 1, 2007, the Company started production at the Omagh mineand has begun amortization. Asset Retirement Obligation The Company is subject to the provisions of CICA Handbook Section 3110, AssetRetirement Obligations, which require the estimated fair value of any assetretirement obligations to be recognized as a liability in the period in whichthe related environmental disturbance occurs and the present value of theassociated future costs can be reasonably estimated. As of December 31, 2007 and2006, the Company has capitalized any asset retirement obligations in respect ofits mineral exploration property. Revenue Recognition Revenue from sales of finished goods is recognized at the time of shipment whensignificant risks and benefits of ownership are considered to be transferred,the terms are fixed or determinable, and collection is reasonably assured. Revenue from sales of gold concentrate is recognized at the time of shipmentwhen significant risks and benefits of ownership are considered to betransferred, the terms are fixed or determinable, and collection is reasonablyassured. The final revenue figure is subject to adjustments as a result offinal assay results and metal prices at the date of ultimate settlement. As theCompany is in the early stages of commercial production, appropriate estimatesof this final settlement amount is not able to be made. Accordingly, no revenueis recognized until final settlement. Any payments received prior to settlementhave been reflected as deferred revenue. In the future, should management be able to provide reasonable estimates of thefinal assay results, the Company would record concentrate sale revenues based oncurrent spot prices at the time of shipment. Any differences between the initialrecognition and subsequent settlement amounts would be adjusted through revenueat each subsequent financial statement date. Long-Lived Assets Long-lived assets, which comprise property, plant and equipment, are reviewedfor impairment if events or changes in circumstances indicate that the carryingvalue may not be recoverable. If the sum of the undiscounted future cash flowsexpected from use and residual value is less than carrying amount, the long-lived asset is considered impaired. An impairment loss is measured as the amountby which the carrying value of the long-lived assets exceeds its fair value. Income Taxes The asset and liability method is used for determining income taxes. Under thismethod, future tax assets and liabilities are recognized for the estimated taxesrecoverable or payable that would arise if assets and liabilities were recoveredand settled at the financial statement carrying amounts. Future tax assets andliabilities are measured using the substantively enacted tax rates expected tobe in effect when the tax assets or liabilities are recovered or settled,respectively. Changes to these rates are recognized in income in the year inwhich the changes occur. Future income tax assets are recognized to the extentthat it is more likely than not that the company will realize the benefit fromthe asset. Stock-Based Compensation The fair value of any stock options granted to directors, officers, employeesand consultants is recorded as an expense over the vesting period with acorresponding increase recorded to contributed surplus. The fair value of thestock-based compensation is determined using the Black-Scholes option pricingmodel and management's assumptions. Upon exercise of the stock options,consideration paid by the option holder together with the amount previouslyrecognized in contributed surplus is recorded as an increase to share capital. Other Stock-based Payments The Company accounts for other stock-based payments based on the fair value ofthe equity instruments issued in exchange for the receipt of goods and servicesfrom non-employees or the fair value of the goods and services received,whichever is the more reliable basis, by using the stock price and othermeasurement assumptions as at the measurement date. Per Share Information Per share information is computed using the weighted average number of commonshares outstanding during the year. Diluted per share information is calculatedusing the treasury stock method for options and warrants. The treasury stockmethod assumes that any proceeds obtained upon exercise of options and warrantswould be used to purchase common shares at the average market price during theyear. For the purpose of calculating diluted earnings per share, no adjustmentto basic earnings per share is made if the result of these calculations is anti-dilutive. Accounting Changes In July 2006, The Accounting Standards Board ("AcSB") issued a replacement ofThe Canadian Institute of Chartered Accountants' Handbook ("CICA Handbook")Section 1506, Accounting Changes. The new standard allows for voluntary changesin accounting policy only when they result in the financial statements providingreliable and more relevant information, requires changes in accounting policy tobe applied retrospectively unless doing so is impracticable, requires priorperiod errors to be corrected retrospectively and calls for enhanced disclosuresabout the effects of changes in accounting policies, estimates and errors on thefinancial statements. The impact that the adoption of section 1506 will have onthe Company's results of operations and financial condition will depend on thenature of future accounting changes. Financial Instruments, Comprehensive Income (Loss) and Hedges The Canadian Institute of Chartered Accountants ("CICA") issued HandbookSections 3855, "Financial Instruments - Recognition and Measurement", 1530, "Comprehensive Income", 3861 "Financial Instruments - Disclosure andPresentation" and 3865, "Hedges". These new standards are effective for interimand annual financial statements relating to fiscal years commencing on or afterOctober 1, 2006 and are adopted retrospectively without restatement;accordingly, comparative amounts for prior periods have not been restated. TheCompany has adopted these new standards effective January 1, 2007. (a) Financial Instruments - Recognition and Measurement Section 3855 prescribes when a financial instrument is to be recognized on thebalance sheet and at what amount. It also specifies how financial instrumentgains and losses are to be presented. This Section requires that: • All financial assets be measured at fair value on initialrecognition and certain financial assets to be measured at fair value subsequentto initial recognition; • All financial liabilities be measured at fair value ifthey are classified as held for trading purposes. Other financial liabilitiesare measured at amortized cost using the effective interest method; and • All derivative financial instruments be measured at fairvalue on the balance sheet, even when they are part of an effective hedgingrelationship. (b) Comprehensive Income (loss) Section 1530 introduces a new requirement to temporarily present certain gainsand losses from changes in fair value outside net income. It includes unrealizedgains and losses, such as: changes in the currency translation adjustmentrelating to self-sustaining foreign operations; unrealized gains or losses onavailable-for-sale investments; and the effective portion of gains or losses onderivatives designated as cash flow hedges or hedges of the net investment inself-sustaining foreign operations. The Company had no other comprehensive income or loss transactions during theyear ended December 31, 2007. Accordingly, a statement of comprehensive incomehas not been presented. (c) Financial Statements and Non-Financial Derivatives Section 3861 establishes standards for presentation of financial statements andidentifies the information that should be disclosed about financial instruments.Under the new standards, the change in policy has been retrospectively adoptedwithout restatement of comparative figures. (d) Impact upon adoption of Sections 1530, 3855, 3861 and 3865 Under adoption of these new standards, the Company designated its cash as held-for-trading, which is measured at fair value. Accounts receivable and advancesare classified as loans and receivables, which is measured at amortized cost.Accounts payable and accrued liabilities, financing facility and due to relatedparty are classified as other financial liabilities, which are measured atamortized cost. Accounting Policy Choice for Transaction Costs On June 1, 2007, the Emerging Issues Committee of the CICA issued Abstract No.166, Accounting Policy Choice for Transaction Costs (EIC-166). This EICaddresses the accounting policy choice of expensing or adding transaction costsrelated to the acquisition of financial assets and financial liabilities thatare classified as other than held-for-trading. Specifically, it requires thatthe same accounting policy choice be applied to all similar financialinstruments classified as other than held-for-trading, but permits a differentpolicy choice for financial instruments that are not similar. The Company hasadopted EIC-166 effective September 30, 2007 and requires retroactiveapplication to all transaction costs accounted for in accordance with CICAHandbook Section 3855, Financial Instruments- Recognition and Measurement.Transaction costs are expensed as incurred for financial instruments. TheCompany has evaluated the impact of EIC-166 and determined that no adjustmentsare currently required. Future Accounting Changes Capital Disclosures and Financial Instruments - Disclosures and Presentation On December 1, 2006, the CICA issued three new accounting standards: HandbookSection 1535, Capital Disclosures, Handbook Section 3862, Financial Instruments- Disclosures, and Handbook Section 3863, Financial Instruments - Presentation.These new standards are effective for interim and annual consolidated financialstatements for the Company's reporting period beginning on January 1, 2008. Section 1535 specifies the disclosure of (i) an entity's objectives, policiesand processes for managing capital; (ii) quantitative data about what the entityregards as capital; (iii) whether the entity has complied with any capitalrequirements; and (iv) if it has not complied, the consequences of such non-compliance. The new Sections 3862 and 3863 replace Handbook Section 3861, FinancialInstruments - Disclosure and Presentation, revising and enhancing its disclosurerequirements, and carrying forward unchanged its presentation requirements.These new sections place increased emphasis on disclosures about the nature andextent of risks arising from financial instruments and how the entity managesthose risks. Inventory Section 3031, Inventory, replaces Section 3030, and establishes standards forthe measurement of inventories, allocations of overhead, accounting for write-downs and disclosures. Going Concern Section 1400 has been amended for new requirements relating to the assessment ofan entity's ability to continue as a going concern. The Company is currently assessing the impact of these new accounting standardson its consolidated financial statements. 4. INVENTORY 2007 2006 Concentrate inventory $ 703,606 $ -Finished goods 329,990 100,839 $ 1,033,596 $ 100,839 5. PROPERTY, PLANT AND EQUIPMENT 2007 Accumulated Cost Amortization Net Deferred development and exploration costs $ 10,539,905 $ 209,216 $ 10,330,689Freehold land and buildings 3,019,588 227,324 2,792,264Plant and machinery 5,264,958 1,364,589 3,900,369Motor vehicles 62,040 39,420 22,620Office equipment 79,575 47,858 31,717Moulds 81,802 81,802 - $ 19,047,868 $ 1,970,209 $ 17,077,659 2006 Accumulated Cost Amortization Net Deferred development and exploration costs $ 7,542,920 $ - $ 7,542,920Freehold land and buildings 2,962,629 32,999 2,929,630Plant and machinery 3,773,982 657,702 3,116,280Motor vehicles 61,438 31,851 29,587Office equipment 77,303 42,443 34,860Moulds 81,802 81,802 - $ 14,500,074 $ 846,797 $ 13,653,277 Freehold land and buildings includes an asset retirement obligation of $101,900. Included in deferred development and exploration costs are $298,584 (2006 -$nil) in stripping costs related to the Omagh mine. These costs have beenamortized using the units of production basis. The related amortization is$6,419 (2006 - $nil). Since June 2005, the Company has held a Crown Mining Lease which grants theCompany the right to extract gold and silver from its property at Omagh, CountyTyrone, Northern Ireland. The Lease requires the Company to pay $46,000 (GBP20,000) per year for the first three years with additional rent payablecalculated on gold output after the first three years. In July 2007, the Companyrenewed its prospecting licenses for another two years expiring July 18, 2009 inrespect to gold, silver and other metals. The Lease and licenses contain certainrights as to renewal providing that certain rent and royalty payments,exploration expenditure and other terms have been met, including the provisionof a restoration bond. In 2006, the Company purchased an adjoining property at a cost of $781,182 (GBP377,073). The purchase includes only surface rights as rights to gold and silverare already held by the Company through its Crown Mining Lease. 6. FINANCING FACILITY (i) On May 27, 2005, the Company obtained financing from BarclaysMercantile Business Finance Ltd. in the amount of $555,000 (238,700 GBP) for thepurchase of mining equipment. The loan is for a period of four years at 3.71%with monthly principal and interest payments of $10,172 (5,071 GBP). The loan issecured by certain plant and machinery. (ii) On March 17, 2006, the Company obtained financing from BarclaysMercantile Business Finance Ltd. in the amount of $365,400 (180,000 GBP) toassist in the purchase of certain metallurgical equipment having a cost of$728,770 (359,000 GBP). The loan is for a period of three years at 3.97% withmonthly principal and interest payments of $11,658 (5,578 GBP). (iii) In June 2007, the Company obtained financing from Barclays MercantileBusiness Finance Ltd. in the amount of $390,345 (199,160 GBP) for the purchaseof mining equipment. The loan is for a period of four years at 4.03% withmonthly principal and interest payments of $8,812 (4,101 GBP), except for thethird payment, which was paid for the amount of $72,549 (33,764 GBP). The loanis secured by certain plant and machinery. (iv) In June 2007, the Company obtained a loan facility from Allied IrishBank plc in the amount of $490,000 (250,000 GBP). The term loan is for a periodof three years at bank base rate plus 2%. Borrowings are secured by a legal mortgage charge over the land with a letter ofguarantee. Amounts payable on the long term debt are as follows: Interest 2007 2006 Financing facility (238,700 GBP) (i) 3.71% $ 160,949 $ 319,201Financing facility (180,000 GBP) (ii) 3.97% 156,448 314,101Financing facility (199,160 GBP) (iii) 4.03% 290,314 -Term loan facility (250,000 GBP) (iv) 7.50% 419,909 - 1,027,620 633,302 Less current portion 495,217 253,529 $ 532,403 $ 379,773 Principal repayments over the next four years are as follows: 2008 $ 495,217 2009 347,047 2010 145,848 2011 39,508 $ 1,027,620 7. SHARE CAPITAL (a) Authorized and issued Authorized Unlimited number of common and preference shares issuable in Series Issued common shares Number of Stated Shares Value Balance, December 31, 2005 126,335,189 $ 18,400,862Issued under private placements (i) 14,000,000 3,500,000Warrants issued - (1,735,000)Agent's compensation options granted - (178,100)Warrants exercised 17,516,666 2,627,500Warrants exercised - valuation - 175,166Share issue costs - (331,928)Balance, December 31, 2006 157,851,855 22,458,500Issued under private placements (ii)(iii) 12,924,000 3,342,036Warrants issued - (504,600)Stock options exercised 4,900,000 590,000Stock options exercised - valuation - 434,000Share issue costs - (185,657)Balance, December 31, 2007 175,675,855 $ 26,134,279 (i) On July 26, 2006, the Company closed a private placement (the"Offering") for gross proceeds of $3,500,000. Pursuant to this offering, theCompany issued 14,000,000 units of the Company (each a "Unit") at the price of$0.25 per Unit (including an over-allotment of 1,200,000 Units (the "Over-Allotment") and 2,000,000 Units for subscribers specifically identified bymanagement (the "President's List"). Each Unit consisted of one common share ofthe Company and one warrant of the Company. Each warrant entitles the purchaserto purchase one common share at a price of $0.32 per share at any time untilJuly 26, 2008. Union Securities Ltd., acting as agent (the "Agent") was paid a cash fee of$240,000 representing 8% in cash commission based on Units sold under theOffering and the Over-Allotment Option (excluding Units sold pursuant to thePresident's List) and $20,000 representing 4% in cash for Units sold pursuant tothe President's List. In addition, the Company issued to the Agent 1,300,000compensation options (the "Agent's Compensation Options") equal to 10% of allUnits sold pursuant to the Offering and the Over-Allotment Option (excludingUnits sold pursuant to the President's List) and 5% of all Units sold pursuantto the President's List. Each Agent's Compensation Option entitles the Agent topurchase one unit of the Company at $0.25 per Unit at any time prior to July 26.2008. Each Unit consists of one common share of the Company and one warrant ofthe Company. Other costs associated directly with the private placement amounted to $71,928. The fair value of the 14,000,000 warrants and 1,300,000 compensation options(collectively "the warrants") were estimated using the Black-Scholes optionpricing model with the following assumptions: dividend yield - 0%; volatility -110%; risk-free interest rate - 4.15% and an expected life of 2 years. The fairvalue attributed to the warrants was $1,735,000 and $178,100 respectively. (ii) On March 2, 2007, the Company closed a placement of 5,284,000 unitsfor gross proceeds of $1,717,300. Each unit was priced at $0.325 and wascomprised of one common share and one warrant. Each warrant entitles the holderto purchase one common share within 18 months from closing at a price of $0.45.An arrangement fee of 5% for $85,865 was paid to the broker. Other costs associated directly with the placement amounted to $12,737. The shares were subject to a 4 month hold period which expired on July 3, 2007. The fair value of the 5,284,000 warrants was estimated using the Black-Scholesoption pricing model with the following assumptions: dividend yield - 0%;volatility - 79%; risk-free interest rate - 3.91% and an expected life of 1.5years. The fair value attributed to the warrants was $453,420. (iii) On September 4, 2007, the Company closed a placement of 7,640,000units for gross proceeds of $1,624,736 (764,000 GBP). Each unit was priced atapproximately $0.21 (0.10 GBP) and was comprised of one common share and onehalf warrant. Each warrant entitles the holder to purchase one common sharewithin 12 months from closing at a price of approximately $0.32 (0.15 GBP).Total arrangement fee of $70,838 (33,000 GBP) was paid to the broker. Other costs associated directly with the placement amounted to $16,217. The shares were subject to a 4 month hold period that expired January 4, 2008. The fair value of the 3,820,000 warrants was estimated using the Black-Scholesoption pricing model with the following assumptions: dividend yield - 0%;volatility - 54%; risk-free interest rate - 4.36% and an expected life of 1year. The fair value attributed to the warrants was $51,180. (b) Warrants The following table shows the continuity of warrants for the years endedDecember 31, 2007 and 2006: Weighted Number Average of Warrants Price Balance, December 31, 2005 17,516,666 $ 0.15Issued (Note 7(a)(i)) 15,300,000 0.32Exercised (17,516,666) 0.15Balance, December 31, 2006 15,300,000 0.32Issued (Notes 7(a)(ii) and 7(a)(iii)) 9,104,000 0.40Balance, December 31, 2007 24,404,000 $ 0.34 As at December 31, 2007, the following warrants were outstanding: Number Fair Exercise Expiry of Warrants Value ($) Price ($) Date 14,000,000 1,735,000 0.32 July 26, 2008 1,300,000 178,100 0.25 July 26, 2008 5,284,000 453,420 0.45 September 2, 2008 3,820,000 51,180 0.32 September 4, 2008 24,404,000 2,417,700 (c) Stock options The Company has a stock option plan ("the Plan"), the purpose of which is toattract, retain and compensate qualified persons as directors, senior officersand employees of, and consultants to the Company and its affiliates andsubsidiaries by providing such persons with the opportunity, through shareoptions, to acquire an increased proprietary interest in the Company. The numberof shares reserved for issuance under the Plan cannot be more than a maximum of10% of the issued and outstanding shares at the time of any grant of options.The period for exercising an option shall not extend beyond a period of fiveyears following the date the option is granted. Insiders of the Company are restricted on an individual basis from holdingoptions which when exercised would entitle them to receive more than 5% of thetotal issued and outstanding shares at the time the option is granted. Theexercise price of options granted in accordance with the Plan must not be lowerthan the closing price of the shares on the TSX Venture Exchange immediatelypreceding the date on which the option is granted and in no circumstances beless than the permissible discounting in accordance with the Corporate FinancePolicies of the Exchange. The following table shows the continuity of options for the years ended December31, 2007 and 2006: Weighted Average Number of Options Price Balance, December 31, 2005 7,900,000 $ 0.11Granted (i) 1,000,000 0.26Cancelled/Expired (1,400,000) 0.15Balance, December 31, 2006 7,500,000 0.14Granted (ii)(iii) 8,200,000 0.12Exercised (4,900,000) 0.12Cancelled/Expired (250,000) 0.26Balance, December 31, 2007 10,550,000 $ 0.15 Stock-based compensation expense includes $49,124 (2006 - $118,542) relating tostock options granted in previous years that vested during the year. (i) On June 14, 2006, 1,000,000 stock options were granted to employees ofthe Company to purchase common shares at a price of $0.26 per share until June14, 2011. The options vest one-third upon grant, one-third on the firstanniversary of grant and one-third on the second anniversary of grant. The fairvalue attributed to these options was $143,000 and will be expensed in thestatements of loss and credited to contributed surplus as the options vest.Included in the stock-based compensation for 2007 is $95,867 (2006 - $73,785)related to the vested portion of these stock options. 250,000 of these stockoptions were cancelled in 2007. (ii) On June 15, 2007, 500,000 stock options were granted to an employee ofthe Company to purchase common shares at a price of $0.23 per share until June15, 2012. The options vest one-third upon grant, one-third on the firstanniversary of grant and one-third on the second anniversary of grant. The fairvalue attributed to these options was $96,000 and will be expensed in thestatements of loss and credited to contributed surplus as the options vest.Included in the stock-based compensation for 2007 is $60,000 related to thevested portion of these stock options. (ii) On December 24, 2007, 7,700,000 stock options were granted toemployees, directors and officers of the Company to purchase common shares at aprice of $0.14 per share until December 24, 2012. The options vest one-thirdupon grant, one-third on the first anniversary of grant and one-third on thesecond anniversary of grant. The fair value attributed to these options was$793,000 and will be expensed in the statements of loss and credited tocontributed surplus as the options vest. Included in the stock-basedcompensation for 2007 is $271,938 related to the vested portion of these stockoptions. All granted stock options were valued on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: 2007 2006 Risk-free interest rate 3.98% - 4.63% 4.26%Expected life of options 5 years 5 yearsAnnualized volatility 94% - 107% 110%Dividend rate 0 % 0 % As at December 31, 2007, the following stock options were outstanding: Exercisable Number Exercise ExpiryOptions of Options Price ($) Date 1,400,000 1,400,000 0.15 April 10, 2008166,667 250,000 0.26 July 31, 2008200,000 200,000 0.10 May 13, 2010333,333 500,000 0.26 June 14, 2011166,667 500,000 0.23 June 15, 20122,566,667 7,700,000 0.14 December 24, 20124,833,334 10,550,000 8. INCOME TAXES (a) Provision for income taxes A reconciliation of the expected tax recovery to actual is provided as follows: 2007 2006 Loss before income taxes $ (2,820,507) $ (1,290,750)Expected tax recovery at statutory rate $ (871,700) $ (466,200)Increase (decrease) resulting from:Stock-based compensation 133,500 69,500Share issue costs (63,400) (54,100)Foreign exchange (682,451) 634,200Tax amortization in excess of accounting (581,600) (877,600) Non-capital losses not recognized 1,410,800 398,700 $ (654,851) $ (295,500) (b) Future tax balances The tax effects of temporary differences that give rise to future income taxassets and future income tax liabilities are as follows: 2007 2006 Future income tax assets (liabilities) Non-capital losses $ 4,825,700 $ 4,124,600Share issue costs 131,800 54,100 Property, plant and equipment and deferred development costs (1,878,500) (1,663,800)Valuation allowance (1,476,083) (1,342,600) 1,602,917 1,172,300 Current portion 240,890 213,366 $ 1,362,027 $ 958,934 (c) Losses carried forward As at December 31, 2007, the Company had non-capital losses carried forward of$16,203,052 (2006 - $13,170,813) for income tax purposes as follows: Expires 2008 $ 240,733 2009 94,158 2011 249,460 2014 426,803 2015 568,540 2026 1,073,616 2027 867,807 Indefinite 12,681,935 $ 16,203,052 A future tax asset for non-capital losses of $1,602,917 has been recognized asat December 31, 2007, as it has been determined that it is more likely than notthat the benefit will be realized in the future. 9. RELATED PARTY TRANSACTIONS The Company was charged $54,463 (2006 - $45,296) for accounting and corporatesecretarial services by companies associated to an officer of the Company in thenormal course of business at the exchange amount. Accounts payable includes$52,385 (2006 - $5,568) owing to these companies. Director fees of $28,750 (2006 - $25,250) were paid or accrued during the yearended December 31, 2007. Included in due to related party is $716,713 (365,670 GBP) (2006 - $nil) owingto companies controlled by a director of the Company. The loan is unsecured andbears interest at base rate plus 2%. $432,572 (220,700 GBP) is due over a periodof 3 years. At December 31, 2007, interest of $14,871 (7,587 GBP) was accruedand included in accounts payable and accrued liabilities. Also included in due to related party, the Company obtained a loan facility fromG&F Phelps, a company controlled by a director of the Company, in the amount of$807,638 (412,600 GBP) for the financing of mining equipment. The term loan isfor a period of 4.25 years interest bearing at 4.04% flat with monthly paymentsof $18,949 (8,793 GBP) and is secured by all equipment owned by the Company'swholly-owned subsidiary Omagh. Transactions with related parties were in the normal course of operations andwere measured at the exchange amounts. 10. SUPPLEMENTAL CASH FLOW INFORMATION (a) Net change in non-cash working capital 2007 2006 Accounts receivable and advances $ (180,878) $ (253,226) Inventory (932,757) 524 Accounts payable and accrued liabilities 624,636 1,201,893 Deferred revenue 201,743 - $ (287,256) $ 949,191 (b) Supplemental information 2007 2006 Amortization capitalized to deferred development costs $ 407,839 $ 327,466Interest paid $ 65,261 $ 57,848 Interest paid includes $65,261 (2006 - $43,555) of interest paid on thefinancing facility. Of these amounts, $22,515 (2006 - $43,555) were charged todeferred development costs and $42,746 (2006 - $nil) was expensed to thestatements of loss. 11. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Credit Risk The Company is exposed to concentration of credit risk with one of its customersrepresenting 50% of the accounts receivable balance. The Company believes thatthis credit risk is minimized due to the financial worthiness of this company. Interest Rate Risk Certain loans within the financing facility bear interest at a fixed rate ofinterest, and as such is subject to interest rate price risk resulting fromchanges in fair value from market fluctuations in interest rates. Certain otherloans bear interest at variable rates and are exposed to interest rate cash flowrisk. Liquidity Risk The Company manages liquidity risk by monitoring maturities of financialcommitments and maintaining adequate cash reserves and available borrowingfacilities to meet these commitments as they come due. Market Risk Market risk arises from the possibility that changes in market prices willaffect the value of the financial instruments of the Company. The Company isexposed to fair value fluctuations on their fixed rate financing facilities. TheCompany's short-term instruments (cash, accounts receivable, accounts payable)are not subject to market risk. Foreign Currency Risk Certain of the Company's expenses and revenues are incurred and received in thecurrencies of Northern Ireland and the United Kingdom and are therefore subjectto gains and losses due to fluctuations in these currencies against the Canadiandollar. Commodity Price Risk The ability of the Company to develop its properties and the futureprofitability of the Company is directly related to the market price of certainminerals. Fair value The carrying value of cash, accounts receivable and advances, accounts payableand accrued liabilities are considered to be representative of their respectivevalues due to their short-term nature. For the fixed term related party loans,fair value approximates carrying value. 12. SEGMENT DISCLOSURE The Company, after reviewing its reporting systems, has determined that it hasone reportable segment. The Company's operations are substantially all relatedto its investment in Cavanacaw Corporation ("Cavanacaw") and its subsidiaries,Omagh and Galantas. Substantially all of Cavanacaw's revenues, costs and assetsof the business that support these operations are derived or located in NorthernIreland. 13. COMPARATIVE FIGURES Certain comparative figures have been reclassified to conform with the currentyear's presentation. Net loss previously reported has not been affected by thisreclassification. 14. SUBSEQUENT EVENTS On March 31, 2008, a company controlled by a director, has agreed to expand theexisting loan arrangement by £75,000 to permit the purchase of the largergenerator and semi-mobile crusher and to include both in its existing equipmentsecurity. The Company has also arranged short term debt finance, up to the sum of £250,000and on the same interest terms as that already arranged with First Trust Bank(2% over Bank Base Rate). The loan, which is to be used for working capitalpurposes, is repayable on demand and is from a director of the Company. 15. SALES TO MAJOR CUSTOMER On January 13, 2007, the Company entered into a contract with FalconbridgeLimited ("Falconbridge") related to the sale of gold concentrate from its Omaghmine in Northern Ireland. The agreement may be cancelled without penalty byeither party with a minimum of one full calendar year's written notice. Suchnotice may not be given by either party prior to December 31, 2009. The Company is required to sell the full production of the mine to Falconbridge,but it may be reduced by up to 10% at the Company's option with prior writtennotification during the month prior to each calendar month of shipment. During2007, substantially all of the Company's sales were to Falconbridge. Enquiries Galantas Gold Corporation Telephone: +44(0)2882 241100Roland Phelps, President and CEO E-mail: info@galantas.comJack Gunter, Chairman Website: www.galantas.com Blomfield Corporate Finance Ltd. Telephone: +44(0) 2075120191Nick Harriss Lewis Charles Securities Limited Telephone: +44(0) 2074569100Kealan Doyle This information is provided by RNS The company news service from the London Stock Exchange