TORONTO, Oct. 17 /CNW/ - Coniagas Resources Limited (the "Company") announced today that the Ontario Securities Commission ("OSC") has completed its continuous disclosure review of the Company and of its financial statements for the periods up to and including June 30, 2008. The Company has indicated restated 2007 financial statement comparative figures included in the interim consolidated June 30, 2008 financial statements. The Management Discussion & Analysis ("MD&A") reported at that date also contains the restated figures related to the December 31, 2007 financial statements. Copies of these documents have been posted to www.sedar.com.
The financial statements were restated to address the prior period errors (See "Changes in Accounting Policies" and "Amendments to Financial Statements and MD&A - Prior Period Errors" below). The Company had not adopted the standards set out below when they became effective as it was determined at the time to be unpractical. These standards have now been implemented as of June 30, 2008 and have been applied retrospectively such that the December 31, 2007 balances included in the interim consolidated financial statements at June 30, 2008 included these restated amounts. As per Handbook Section 1506, Accounting Changes, "when an entity changes an accounting policy upon initial application of a primary source of GAAP that does not include specific transitional provisions applying to that change, or changes an accounting policy voluntarily, it shall apply the change retrospectively." As such, Coniagas has applied the changes in accounting policies retrospectively, as prescribed by Canadian GAAP, with an adjustment to "the opening balance of each affected component of equity for the earliest prior period presented, and the other comparative amounts disclosed for each prior period presented as if the new accounting policy had always been applied."
The MD&A was revised to reflect the changes to the financial statements, and to expand and rectify the overall presentation and disclosure contained therein.
Changes in Accounting Policies
(a) Capital Disclosures and Financial Instruments - Disclosures and
Presentation
On December 1, 2006, the Canadian Institute of Chartered Accountants (CICA) issued three new accounting standards for adoption relating to fiscal years beginning on or after October 1, 2007: Capital Disclosures (HB s.1535), Financial Instruments - Disclosures (HB s.3862), and Financial Instruments - Presentation (HB s.3863). These new standards became effective for the Company on January 1, 2008.
Capital Disclosures
Handbook Section 1535 specifies the disclosure of (i) an entity's objectives, policies and processes for managing capital; (ii) quantitative data about what the entity regards as capital; (iii) whether the entity has complied with any capital requirements; and (iv) if it has not complied, the consequences of such non-compliance. The Company has included disclosures recommended by the new Handbook Section in Note 12 to the June 30, 2008 interim consolidated financial statements.
Financial Instruments - Disclosure and Presentation
Handbook sections 3862 and 3863 replace HB s.3861, Financial Instruments - Disclosure and Presentation, revising and enhancing its disclosure requirements, and carrying forward unchanged its presentation requirements. These new sections place increased emphasis on disclosures about the nature and extent of risks arising from financial instruments and how the entity manages those risks. The Company has included disclosures recommended by the new Handbook section in Note 11 to the June 30, 2008 interim consolidated financial statements.
(b) Comprehensive Income and Financial Instruments - Recognition and
Measurement
The following accounting standards, issued by the CICA, became effective for interim and annual financial statements relating to fiscal years beginning on or after October 1, 2006, and relate to the accounting for and disclosure of financial instruments and comprehensive income:
Comprehensive Income
Section 1530 introduces the concept of comprehensive income to Canadian GAAP. Comprehensive income is the change in equity (net assets) of the Company during a reporting period from transactions and other events and circumstances from non-owner sources. It includes all changes to equity during a period except those resulting from investments by owners and distributions to owners. Comprehensive income is comprised of net income for the period and other comprehensive income.
Financial Instruments - Recognition and Measurement
Section 3855 - "Financial Instruments - Recognition and Measurement" prescribes when a financial asset, financial liability, or non-financial derivative should be recognized on the balance sheet as well as its measurement amount. This section also specifies how financial instruments gains and losses are to be presented.
Under Section 3855, financial instruments must be classified into one of these five categories: held-for-trading, held-to-maturity, loans and receivables, available-for-sale financial assets or other financial liabilities. All financial instruments, including derivatives, are measured in the balance sheet at fair value except for loans and receivables, held-to-maturity investments and other financial liabilities, which are measured at cost. Subsequent measurement and changes in fair value will depend on their initial classification, as follows: held-for-trading financial assets are measured at fair value and changes in fair value are recognized in net income; available-for-sale financial instruments are measured at fair value with changes in fair value recorded in other comprehensive income until the investment is derecognized or impaired at which time the amounts would be recorded in net income.
Upon adoption of these new standards, the Company designated cash and cash equivalents as held-for-trading and has recorded them at market value. Receivables are classified as loans and receivables and are recorded at amortized cost. Accounts payable and accrued liabilities are classified as other financial liabilities which are also recorded at amortized cost. Investments include securities held in other public companies and are designated as available-for-sale. They are recorded at their fair value with the unrealized gain or loss related to changes in market value being accounted for in other comprehensive income (OCI). The Company had no held-to-maturity instruments during the year ended December 31, 2007 or during the six months ended June 30, 2008.
(c) Stock-based Compensation and Other Stock-based Payments
The Company has a stock option plan and had issued warrants prior to January 1, 2008. As such, the CICA Handbook Section 3870, "Stock-based Compensation and Other Stock-based Payments," which became effective on January 1, 2002 was adopted retrospectively, with restatement to prior-period comparative financial statements. This standard prescribes that stock options be accounted for using the fair value method. Under this method, compensation expense for stock options and warrants, that are direct awards of stock granted since January 1, 2002, is measured at the fair value as of the grant date using the Black-Scholes valuation model and, for options, is recognized over the vesting period of the options granted. The offset to the recorded cost is to contributed surplus.
Coniagas first issued stock options in January 2004, and warrants were issued in fiscal 2007. The standard for valuing stock-based compensation was not implemented in 2004 as it was determined that, due to a low stock price and low trading volume combined with past trading history, a value determination at that time was impractical.
Amendments to Financial Statements and MD&A - Prior Period Errors
The Company has restated the December 31, 2007 financial statement comparative figures in its financial statements and its MD&A in the interim consolidated financial statements for the period ended June 30, 2008. A section was added to the June 30, 2008 interim financial statements entitled "Adjustment for Retrospective Change in Accounting Policy", which sets out the errors that were made and their quantitative effect on the financial statements for the six months then ended.
The MD&A as filed for the six months ended June 30, 2008 reflects revised figures related to the year ended December 31, 2007 as outlined in this press release due to changes in accounting policies applied retrospectively.
These restatements and amendments address the following:
(a) Issuance of Stock Options and Warrants
The Company corrected errors in warrant and stock option valuation and recognition. In 2004, the Company, under the terms of its existing incentive stock option plan, granted 275,000 options to purchase stock at $0.50 per share for a five-year period to January 15, 2009. Another 800,000 stock options were granted on November 2007 at an exercise price of $0.65 per share and expire in three years. No options were granted during the six months ended 2008 and, as such, no stock based compensation would have been recorded in the reported results for the three months ended March 31, 2008 or for the six months ended June 30, 2008. All of the stock options were granted pursuant to Coniagas' stock option plan. At June 30, 2008, a total of 1,075,000 options were outstanding.
During the first quarter of 2007 the Company completed a private placement of $150,000 through the sale of 1,000,000 units ("the units") at $0.15 per unit to two arms length parties. Each unit is comprised of one common share and one common share purchase warrant. Each share purchase warrant entitles the holder to purchase one common share of the Company on an exercise price of $0.175 per share for two years from March 9, 2007.
During the second quarter of 2007 the Company completed a private placement of $1,200,000 through the sale of 3,000,000 units ("the units") at $0.40 per unit. Each unit is comprised of one common share and one half common share purchase warrant. Each share purchase warrant entitles the holder to purchase one half of one additional common share of the Company on an exercise price of $0.50 in the first year following the closing (May 8, 2007) and for $0.60 in the second year following the closing after which they expire. The proceeds will be used for technical evaluations of possible acquisitions of mineral projects and for general corporate purposes.
In connection with this private placement Coniagas issued 87,500 compensation warrants (equal to 5% of the number of units sold) to certain arm's length persons by way of finder's fees. Each Compensation Warrant entitles the holder to purchase for $0.40 one unit consisting of one common share of the Company and one-half a common share purchase warrant entitling the holder to purchase one additional common share of the Company for $0.50 in the first year following closing and for $0.60 in the second year following closing after which they expire.
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Warrants Options
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Grant date February 10, May 8, January 15, November 12,
2007 2007 2004 2007
No. of
warrants/options 1,000,000 1,587,500 275,000 800,000
Exercise price $ 0.175 $ 0.50 $ 0.50 $ 0.65
Market price $ 0.230 $ 0.50 $ 0.50 $ 0.65
Expected life in years 2 2 5 3
Volatility 129.46% 135.45% 152.72% 119.43%
Risk-free interest rate 4.11% 4.20% 3.76% 3.99%
Fair value of options
granted $ 162,000 $ 537,000 $128,000 $ 369,000
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Total stock-based compensation costs for the issuance of stock options and warrants amounted to $1,196,000 as indicated in the table above. As part of the Adjustment for Retrospective Change in Accounting Policies ("retrospective adjustment"), this amount was recorded to deficit and contributed surplus in respect of stock based compensation expense for warrants and options issued in prior periods.
(b) Financial instruments
The Company has restated the December 31, 2007 balance of Investments to record changes for fluctuations in their fair market value in accordance with Handbook Section 3855. Investments include shares held in other public mining companies and are classified as available-for-sale. As at December 31, 2007, the investments had not been recorded at their fair value based on the published, prevailing market price as at that date. Included in the retrospective adjustment in Note 14 to the June 30, 2008 interim consolidated financial statements is an amount to bring the recorded value of the asset in line with its fair value at December 31, 2007. A total of $649,827 was recorded in investments and in other comprehensive income to bring the restated balance of investments to $685,345 as at that date. During 2008, the market value of investments increased by $60,299 to $745,644 for the three months ended March 31, 2008, and then decreased by $10,450 to $735,194 during the three months ended June 30, 2008. The fair market value change from December 31, 2007 to March 31, 2008 had not been reflected in the interim consolidated financial statements for the period ended March 31, 2008.
The following table summarizes the adjustments made to December 31, 2007 opening balances of corresponding equity accounts with respect to the adjustment for retrospective changes in accounting policies:
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Adjustment
Account Description to 31 Dec 07
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Contributed surplus Issuance of stock options and warrants $ 1,196,000
Deficit Issuance of stock options and warrants $(1,196,000)
Accumulated
comprehensive
income Fair value adjustment to investments $ (649,827)
Investments Fair value adjustment to investments $ 649,827
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This press release contains forward-looking statements which reflect the Company's current expectations regarding future events. The forward-looking statements involve risks and uncertainties. Actual results could differ materially from this projected herein. Although we believe that our expectations are based on reasonable assumptions, we can give no assurance that our expectations will materialize.
The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of the content of this release.