Migao Corporation (TSX:MGO), a China-based leading specialty potash fertilizer
producer, is pleased to report revenue of $76.5 million for the three-month
period ended December 31, 2008, representing a 210% increase compared to $24.7
million for the same quarter in 2007. EBITDA for the first quarter ended
December 31, 2008 was $14 million or 18% of revenue as compared to $4 million or
16% of revenue in the same period in 2007. Net income was $12 million or 16% of
revenue for the quarter compared to $3.1 million or 13% of revenue in the same
quarter in 2007. Basic earnings per share were $0.27 for the quarter, compared
to $0.08 per share in the same quarter in 2007.
"Demand for our products remains strong in the face of the global economic
downturn," said Mr. Liu Guocai, President and CEO of Migao. "Our quarterly
results are in line with our expectations. The results include very little
revenue contribution from the expansion of 60,000 tonnes per year of potassium
sulphate at Guangdong Migao, which worked up to full production levels in
January of this year and will be contributing at full production rates for the
balance of the year and beyond."
Gross margin remained in the target range at 22.6% of revenue. This is in line
with expectations as raw material costs and selling prices did not change
materially during the quarter as has been experienced in previous quarters.
Gross margin includes startup costs with no offsetting revenue associated with
the Guangdong Migao expansion of 60,000 tonnes of annual potassium sulphate
production. The price and supply of Migao's primary raw material, potassium
chloride, is currently being negotiated and the outcome of which will determine
the Company's selling prices for the rest of the year. It is expected that the
negotiations between China and the major potassium chloride producers will be
concluded in the next 60-90 days.
The increased revenue on a comparable period basis is a result of increased
production capacity as well as increased selling prices, which went into effect
in the summer of 2008 and have maintained since. Consumer demand for high value
fruits and vegetables and tobacco in China remains strong and is growing.
Certain crop customers of Migao have begun or increased the export of their
crops during 2008 and expect to expand their international sales in 2009.
At the end of the quarter, the Company had $46 million or approximately 60,000
tonnes of potassium chloride in inventory and $19 million of finished goods
inventory on hand. Subsequent to the end of the quarter, the Company signed a
purchase contract securing 70,000 tonnes of potassium chloride, further ensuring
no disruption to the supply of a critical raw material. At the current annual
run rate of 320,000 tonnes of specialty fertilizers, Migao requires
approximately 260,000 tonnes of potassium chloride, of which half has been
secured to date.
As at December 31, 2008, Migao reported cash of $18 million and working capital
of $117 million. At December 31, 2008, long-term debt was nil and current bank
debt was $17 million.
SUMMARY FINANCIAL STATEMENTS
3 months ended 3 months ended
December 31, 2008 December 31, 2007
($'000)
Sales 76,531 24,680
Gross Profit 17,313 5,840
Net Income 11,951 3,100
EBITDA 13,983 3,991
Basic EPS 0.27 0.08
Diluted EPS 0.27 0.08
Weighted average number of
shares (in millions of shares)
Basic 43.7 37.3
Diluted 43.9 40.1
Balance Sheet Highlights
($'000)
3 months ended 3 months ended
December 31, 2008 December 31, 2007
Current ratio 3.79:1 2.09:1
Cash 17,816 21,144
Working Capital 116,735 39,584
Total assets 249,709 124,870
Debt to Equity Ratio 0.20:1 0.41:1
Income tax during the quarter totaled $0.8 million compared to $0.4 million in
the quarter ended December 31, 2007. Each of Migao's wholly owned operating
subsidiaries qualify for a favourable tax program whereby the first two
profitable years are tax exempt and the next three years' tax rate is half of
the prescribed corporate rate. Increased income tax paid during the quarter is a
result of the subsidiaries entering the taxable years of the reduced rate
program.
On October 27, 2008, Migao announced that a 100,000 tonne per year compound
fertilizer facility was being constructed at Sichuan Migao. The new specialty
fertilizer will combine the Company's low-chloride potassium nitrate and or
potassium sulphate with other essential crop nutrients to be applied directly to
tobacco crops. This new facility makes the Company the largest provider of
specialty fertilizer to the tobacco industry in China. The decision to expand
the Company's line of business into compounding is a result of requests by
Migao's largest customer for compound fertilizer. The Company plans to expand
this line of business into other tobacco growing regions in China after the
Sichuan facility is fully established at full production levels. The
Sichuan-based facility is expected to begin full production in March 2009.
The Company recently announced that it will change its fiscal year end to March
31 from the current fiscal year end of September 30. The change in year end has
been made to better align Migao's financial reporting, tax planning, and
business cycles with customers and suppliers. The change takes effect
immediately and therefore Migao will report transitional fiscal 2009 financial
results for the six-month period ending March 31, 2009.
"Migao continues to meet its corporate revenue and profitability growth
objectives in an environment where many industries are experiencing revenue and
earnings declines," said Mr. Liu Guocai. "Migao is not immune to its industry's
pressures and challenges; we have however, been successful in anticipating areas
of pressure and preparing for challenges. For example, Migao's products are
currently subjected to a 105% export tariff, negating the opportunity for
international sales. As a result of this tariff, we have been exploring
opportunities to expand our production capacity outside of China and we look
forward to reporting on this progress as it develops."
Conference Call
Migao will be hosting a conference call to discuss the first quarter results
at 10:00am Friday February 13, 2009. The details are as follows:
Dial in number: 416-695-6320 or 1-866-852-2121
Taped replay (until February 20, 2009): 416-695-5800 or 1-800-408-3053
Taped replay access code: 3282707#
About Migao
Migao Corporation, through its wholly owned subsidiaries, owns and operates
fertilizer production plants in various strategic locations across China for the
production and sale of specialty potash fertilizers to China's agricultural
market. Migao Corporation is subject to, and complies with strict government
regulations that govern safety, quality and environmental protection. Please
visit www.migaocorp.com for further information.
Caution Regarding Forward-Looking Statements
This news release may include forward-looking statements within the meaning of
certain securities laws, including the "safe harbour" provisions of the
Securities Act (Ontario) and other provincial securities laws in Canada. These
forward-looking statements include, among others, statements with respect to our
objectives and goals, and strategies to achieve those objectives and goals, as
well as statements with respect to our beliefs, plans, objectives, expectations,
anticipations, estimates and intentions. The words "may", "will", "could",
"should", "would", "suspect", "outlook", "believe", "plan", "anticipate",
"estimate", "expect", "intend", "forecast", "objective", "continue" (or the
negative or grammatical variations thereof), and words and expressions of
similar meaning, are intended to identify forward-looking statements.
By their very nature, forward-looking statements involve inherent risks and
uncertainties, both general and specific, which give rise to the possibility
that predictions, forecasts, projections and other forward-looking statements
will not be achieved. Certain material factors or assumptions are applied in
making forward-looking statements and actual results may differ materially from
those expressed or implied in such statements. We caution readers not to place
undue reliance on these statements as a number of important factors, many of
which are beyond our control, could cause actual results to differ materially
from the beliefs, plans, objectives, expectations, anticipations, estimates and
intentions expressed in such forward-looking statements. These factors include,
but are not limited to: risks related to raw materials; execution of the
business plan; dependence on key personnel; key relationships; dependence on key
customers; dependence on key suppliers; competition; market factors and
volatility of commodity prices; environmental risks and hazards; operating
risks; proprietary rights; infrastructure; future capital requirements;
technical substitution; exchange rate fluctuation; insurance; foreign
operations; weather conditions and natural disasters; control by management;
seasonality; dividends; conflicts of interest; state ownership; government
sector intervention; foreign investment; repatriation of profit and currency
conversion; tax; shareholders' rights and enforcement of judgements; developing
legal system; protection of intellectual property rights; permits and business
licenses; appropriation; and availability of land. Should one or more of these
factors materialize, or should our estimates or underlying assumptions prove
incorrect, actual results, performance or achievements may vary materially from
those described in forward-looking statements.
We caution that the foregoing list of important factors that may affect our
future results is not exhaustive. When reviewing our forward-looking statements,
readers should carefully consider the foregoing factors and other uncertainties
and potential events. Additional information about factors that may cause actual
results to differ materially from expectations, and about material factors or
assumptions applied in making forward-looking statements, may be found under the
"Risk Factors" sections in our Annual Information Form and annual MD&A and
elsewhere in our filings with Canadian securities regulatory authorities. Except
as required by Canadian securities laws, we do not undertake to update any
forward-looking statements, whether written or oral, that may be made from time
to time by us or on our behalf; such statements speak only as of the date made.
We cannot assure readers that actual results will be consistent with these
forward-looking statements, and the differences may be material. The
forward-looking statements included herein are expressly qualified in their
entirety by this cautionary language.
To be added to Migao's email distribution list for news releases or to be
removed from the list, please send a request to info@migaocorp.com.
Migao Corporation
Interim Consolidated Financial Statements
First Quarter, Fiscal 2009
Ended December 31, 2008
(Unaudited)
Migao Corporation
----------------------------------------------------------------------------
Table of Contents
For the three months ended December 31, 2008
(Unaudited)
----------------------------------------------------------------------------
Page
Consolidated Financial Statements
Balance Sheets 1
Statements of Operations and Retained Earnings 2
Statements of Comprehensive Income 3
Statements of Cash Flows 4 - 5
Notes to Financial Statements 6 - 14
Migao Corporation
----------------------------------------------------------------------------
Interim Consolidated Balance Sheets
(in thousands of Canadian dollars)
----------------------------------------------------------------------------
December 31, September 30,
2008 2008
(Unaudited) (Audited)
----------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 17,816 $ 16,850
Accounts receivable 27,596 8,598
Prepayments, deposits and other receivables
(note 2) 43,872 31,859
Inventory (note 3) 69,273 78,430
Due from related party (note 4) - 36
Income taxes receivable - 526
Future income tax assets 80 60
----------------------------------------------------------------------------
158,637 136,359
Prepayments and deposits (note 2) 2,558 6,865
Plant and equipment (note 5) 46,129 34,303
Construction in progress 17,084 10,272
Land use rights (note 6) 24,570 21,077
Future income tax assets 731 518
----------------------------------------------------------------------------
$ 249,709 $ 209,394
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liabilities
Current liabilities
Bank loans (note 7) $ 16,604 $ 13,855
Accounts payable and accrued liabilities
(note 6) 8,560 10,902
Customer deposits 15,607 14,671
Income taxes payable 961 1,168
Future income tax liabilities 170 420
----------------------------------------------------------------------------
41,902 41,016
----------------------------------------------------------------------------
Shareholders' equity
Share capital (note 8) 94,608 94,608
Contributed surplus (note 8) 8,483 7,891
Retained earnings (note 9) 65,781 53,830
Accumulated other comprehensive income
(note 10) 38,935 12,049
----------------------------------------------------------------------------
207,807 168,378
Commitments (note 12)
Subsequent events (note 14)
----------------------------------------------------------------------------
$ 249,709 $ 209,394
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
Approved on behalf of the Board of Directors
Signed by "Guocai Liu" Signed by "Keith Attoe"
---------------------- -----------------------
Director Director
Migao Corporation
----------------------------------------------------------------------------
Interim Consolidated Statements of Operations and Retained Earnings
For the Three months ended December 31, 2008 and 2007
(in thousands of Canadian dollars, except per share amounts)
(Unaudited)
----------------------------------------------------------------------------
December 31, December 31,
2008 2007
----------------------------------------------------------------------------
Revenues $ 76,531 $ 24,680
Cost of goods sold 59,218 18,840
----------------------------------------------------------------------------
Gross profit 17,313 5,840
----------------------------------------------------------------------------
Operating expenses
Selling 1,708 1,175
General and administrative (notes 5 and 6) 2,114 910
Stock-based compensation (note 8) 592 227
Pre-operating costs 128 17
Finance costs 305 81
----------------------------------------------------------------------------
4,847 2,410
----------------------------------------------------------------------------
Income from operations 12,466 3,430
Other income 309 41
----------------------------------------------------------------------------
Income before income taxes 12,775 3,471
Provision for income taxes:
Current 1,307 371
Future (483) -
----------------------------------------------------------------------------
Net income for the period 11,951 3,100
Retained earnings, beginning of period 53,830 26,527
----------------------------------------------------------------------------
Retained earnings, end of period $ 65,781 $ 29,627
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Income per share:
Basic $ 0.27 $ 0.08
Diluted $ 0.27 $ 0.08
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Weighted average number of common shares
outstanding:
Basic 43,675,611 37,253,629
Diluted 43,883,557 40,088,755
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
Migao Corporation
----------------------------------------------------------------------------
Interim Consolidated Statements of Comprehensive Income
For the three months ended December 31, 2008 and 2007
(in thousands of Canadian dollars)
(Unaudited)
----------------------------------------------------------------------------
December 31, December 31,
2008 2007
----------------------------------------------------------------------------
Net income $ 11,951 $ 3,100
Other comprehensive income, net of tax:
Unrealized gains on translating financial
statements of self-sustaining foreign
operations 26,886 1,649
----------------------------------------------------------------------------
Comprehensive income $ 38,837 $ 4,749
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
Migao Corporation
----------------------------------------------------------------------------
Interim Consolidated Statements of Cash Flows
For the three months ended December 31, 2008 and 2007
(in thousands of Canadian dollars)
(Unaudited)
----------------------------------------------------------------------------
December 31, December 31,
2008 2007
----------------------------------------------------------------------------
Cash flows from operating activities
Net income $ 11,951 $ 3,100
Items not affecting cash:
Amortization 902 439
Stock-based compensation 592 227
Future income taxes (483) -
Changes in non-cash working capital items:
Accounts receivable (17,430) (1,276)
Prepayments, deposits, and other receivables 1,166 (14,035)
Inventory 13,421 (2,355)
Accounts payable and accrued liabilities (3,978) 3,408
Customer deposits (1,389) 14,052
Income taxes payable 525 659
----------------------------------------------------------------------------
5,277 4,219
----------------------------------------------------------------------------
Cash flows from investing activities
Purchase of plant and equipment (2,029) (602)
Payment on construction in progress (5,088) (1,773)
Payments for land use rights (186) -
Value-added tax refunds on plant and equipment 225 -
----------------------------------------------------------------------------
(7,078) (2,375)
----------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from bank loans 532 -
Repayment of advances from related party - (283)
Proceeds from exercise of warrants - 1,298
Proceeds from exercise of stock options - 171
----------------------------------------------------------------------------
532 1,186
----------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
Migao Corporation
----------------------------------------------------------------------------
Interim Consolidated Statements of Cash Flows - continued
For the three months ended December 31, 2008 and 2007
(in thousands of Canadian dollars)
(Unaudited)
----------------------------------------------------------------------------
December 31, December 31,
2008 2007
----------------------------------------------------------------------------
Foreign exchange gain on cash held in
foreign currency $ 2,235 $ 661
----------------------------------------------------------------------------
Increase in cash and cash equivalents 966 3,691
Cash and cash equivalents, beginning
of period 16,850 17,453
----------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 17,816 $ 21,144
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash and cash equivalents consist of:
Cash on hand $ 16,527 $ 20,843
Term deposit 40 40
Bank notes 1,249 261
----------------------------------------------------------------------------
$ 17,816 $ 21,144
----------------------------------------------------------------------------
Total interest paid during the three months ended December 31, 2008 was $300
(RMB 1.7 million) (December 31, 2007 - $79 or RMB 0.6 million). Total tax
paid during the three months ended December 31, 2008 was $1,094 (RMB 6.2
million) (December 31, 2007 - $Nil).
The accompanying notes are an integral part of these consolidated financial
statements.
Migao Corporation
----------------------------------------------------------------------------
Notes to Interim Consolidated Financial Statements
For the three months ended December 31, 2008 and 2007
(in thousands of Canadian dollars, except per share amounts)
(Unaudited)
1. Nature of Operations and Basis of Presentation
Nature of Operations
Migao Corporation ("the Company" or "Migao"), through its wholly-owned
Subsidiaries, is a manufacturer of specialty potash-based fertilizers, produced
at its four operational facilities in the People's Republic of China ("PRC").
The Company
Migao holds 100% of the issued and outstanding capital of H.K. Migao Industry
Limited ("H.K. Migao"), which in turn holds 100% of the issued and outstanding
capital of Sichuan Migao Chemical Fertilizer Industry Co., Ltd. ("Sichuan
Migao"), Guangdong Migao Chemical Co., Ltd. ("Guangdong Migao"), Liaoning Migao
Chemical Co., Ltd. ("Liaoning Migao"), Migao Chemical Industry (Shanghai) Co.,
Ltd. ("Shanghai Migao"), Migao Chemical (Changchun) Co., Ltd. ("Changchun
Migao"), and Migao Chemical (Tianjin) Co., Ltd. ("Tianjin Migao") (collectively,
the "Subsidiaries").
Basis of Presentation
These unaudited interim consolidated financial statements have been prepared by
management in accordance with Canadian generally accepted accounting principles
("GAAP") and include the accounts of the Company and its Subsidiaries in the
PRC. These unaudited interim consolidated financial statements have been
prepared by the management of the Company using the same accounting policies and
methods as the most recently audited annual financial statements of Migao,
except as disclosed below. These unaudited interim consolidated financial
statements do not contain all disclosures required by Canadian GAAP for annual
financial statements, and accordingly, these financial statements should be read
in conjunction with the audited financial statements of Migao for the year ended
September 30, 2008. Interim results are not necessarily indicative of the
results expected for the fiscal year.
Adoption of New Accounting Policies
Effective October 1, 2008, the Company adopted the following new accounting
standards.
Inventories
The new standard 3031 - Inventories provides guidance on the determination of
cost and its subsequent recognition as an expense, including any write-down to
net realizable value. It also provides guidance on the cost formulas that are
used to assign costs to inventories. This standard did not have a material
impact on its consolidated financial position, results of operations or cash
flows; however, the Company now carries raw materials inventory at the lower of
cost and net realizable value. Previously, the Company carried raw materials
inventory at the lower of cost and replacement cost.
Goodwill and Intangible Assets
The new standard 3064 - Goodwill and intangible assets replaces Section 3062 -
Goodwill and Other Intangible Assets and Section 3450- Research and Development
Costs. The new standard establishes revised standards for the recognition,
measurement, presentation and disclosure of goodwill and intangible assets. The
new standard also provides guidance for the treatment of preproduction and
start-up costs and requires that these costs be expensed as incurred.
The adoption of these new accounting standards did not impact the amounts
reported in the Company's consolidated financials statements.
Recent Accounting Pronouncements
International Financial Reporting Standards ("IFRS")
In 2006, the Canadian Accounting Standards Board ("AcSB") published a new
strategic plan that will significantly affect financial reporting requirements
for Canadian companies. The AcSB strategic plan outlines the convergence of
Canadian GAAP with IFRS over an expected five year transitional period. In
February 2008 the AcSB announced that 2011 is the changeover date for
publicly-listed companies to use IFRS, replacing Canadian GAAP for interim and
annual financial statements relating to fiscal years beginning on or after
January 1, 2011. The Company is required to adopt IFRS for the year beginning
April 1, 2011 and is required to restate the comparative figures. While the
Company has begun assessing and reviewing the impact of IFRS, and has engaged in
professional development for its adoption in 2011, the financial reporting
impact of the transition to IFRS cannot be reasonably estimated at this time.
2. Prepayments, Deposits, and Other Receivables
----------------------------------------------------------------------------
December 31, September 30,
2008 2008
(Unaudited) (Audited)
----------------------------------------------------------------------------
Current:
Prepayments for raw materials $ 38,018 $ 25,817
Prepayments for transportation services 334 357
Deposits for the supply of utilities 13 224
Deposits on obtaining sales contracts 941 777
VAT receivable 3,552 3,711
Other receivables and deposits 1,014 973
----------------------------------------------------------------------------
Prepayments, deposits, and other
receivables - current $ 43,872 $ 31,859
----------------------------------------------------------------------------
Long Term:
Prepayments for construction costs 1,229 5,485
Prepayments for machinery 1,329 1,380
----------------------------------------------------------------------------
Prepayments and deposits - long term $ 2,558 $ 6,865
----------------------------------------------------------------------------
----------------------------------------------------------------------------
3. Inventory
----------------------------------------------------------------------------
December 31, September 30,
2008 2008
(Unaudited) (Audited)
----------------------------------------------------------------------------
Raw materials $ 50,325 $ 66,313
Finished goods 18,511 11,795
Packing and other materials 437 124
Goods in transit - 198
----------------------------------------------------------------------------
$ 69,273 $ 78,430
----------------------------------------------------------------------------
----------------------------------------------------------------------------
During the quarter, the Company recorded no inventory write-downs and made no
reversals of previous inventory write-downs.
4. Related Party Balances
At the end of the quarter, the Company had the following related party balances:
----------------------------------------------------------------------------
December 31, September 30,
2008 2008
(Unaudited) (Audited)
----------------------------------------------------------------------------
Amount due from :
Migao New Energy (Sichuan) Co. Ltd. ("MNEC") $ - $ 36
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liaoning Yongcheng Economic and Trade Development Co. Ltd. ("LYEDC") contributed
services to the Company and because of the difficulty in determining the fair
market value, the values of these contributed services were not recognized in
the financial statements. In addition, LYEDC has provided corporate guarantees
on $7,180 of the Company's short-term bank loans outstanding as of December 31,
2008.
During the year ended September 30, 2008, the Company paid land evaluation and
business registration fees for a total of $36 on behalf of MNEC. These
transactions were in the normal course of business and were measured at the
exchange amounts, which are the amounts agreed upon by the parties.
MNEC and LYEDC are both controlled by an officer and director of Migao.
5. Plant and Equipment
----------------------------------------------------------------------------
December 31,
2008
(Unaudited)
----------------------------------------------------------------------------
Accumulated Net Book
Cost Amortization Value
----------------------------------------------------------------------------
Buildings and improvements $ 27,075 $ 2,207 $ 24,868
Machinery and equipment 25,153 5,116 20,037
Vehicles 1,414 632 782
Office equipment 713 271 442
----------------------------------------------------------------------------
$ 54,355 $ 8,226 $ 46,129
----------------------------------------------------------------------------
----------------------------------------------------------------------------
September 30,
2008
(Audited)
----------------------------------------------------------------------------
Accumulated Net Book
Cost Amortization Value
----------------------------------------------------------------------------
Buildings and improvements $ 20,772 $ 1,630 $ 19,142
Machinery and equipment 18,148 4,024 14,124
Vehicles 1,138 497 641
Office equipment 603 207 396
----------------------------------------------------------------------------
$ 40,661 $ 6,358 $ 34,303
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Amortization expense for the three months ended December 31, 2008 was $845
(December 31, 2007 - $406) and is included in cost of goods sold and general and
administrative expense.
During the quarter, Sichuan Migao was approved and paid by the local tax
authority for value-added tax refund totaling $225 (RMB 1.3 million) (December
31, 2007 - $Nil) on purchases of domestic equipment. The value-added tax refund
was recorded as a reduction of the cost of the related equipment.
6. Land Use Rights
----------------------------------------------------------------------------
December 31, September 30,
2008 2008
(Unaudited) (Audited)
----------------------------------------------------------------------------
Land use rights $ 25,120 $ 21,501
Less: accumulated amortization 550 424
----------------------------------------------------------------------------
$ 24,570 $ 21,077
----------------------------------------------------------------------------
----------------------------------------------------------------------------
As of December 31, 2008, the Company had fifteen land leases from the Chinese
government with terms of fifty years.
Amortization expense for the period ended December 31, 2008 was $57 (December
31, 2007 - $33), and is included in general and administrative expense.
As of December 31, 2008, the Company had not obtained the land use right
certificates for five of the land leases and approximately $4.8 million has been
accrued as the balance due on the issuance of the certificates.
It is common practice in the PRC that the land use right certificates are only
issued when the government has serviced the land ready for construction.
Under the PRC law, land use rights can be revoked and the tenants can be forced
to vacate at any time when re-development of the land is in the public interest.
7. Bank Loans
At December 31, 2008, the Company has short-term bank loans outstanding totaling
$16,604 (RMB 92.5 million) (September 30, 2008 - $13,855 or RMB 89.5 million)
for working capital purposes.
Interest
Rate at
Amount Due Date Interest Rate Quarter End Secured by
------- -------- ------------- ----------- ----------
$ 2,693 April 29, 2009 110% of prime 6.138% one land use right
rate in China
("PC")
$ 538 Nov. 18, 2009 110% of PC 6.138% one land use right
$ 3,590 June 20, 2009 PC 5.58% corporate
guarantees from
Sichuan Migao and
LYEDC
$ 3,590 June 25, 2009 PC 5.58% corporate
guarantees from
Sichuan Migao and
LYEDC
$ 3,590 Mar. 29, 2009 130% of PC 7.254% one land use right
and a building
$ 1,436 Aug. 13, 2009 110% of PC 6.138% one land use right
$ 1,167 Aug. 18, 2009 110% of PC 6.138% one land use right
--------
$ 16,604
Total carrying value of the security was $5,837 (RMB 32.5 million) (September
30, 2008 - $5,099 or RMB 32.9 million). Total interest paid during the three
months ended December 31, 2008 was $300 (RMB 1.7 million) (December 31, 2007 -
$79 or RMB 0.6 million)
8. Share Capital
(a) Authorized:
Unlimited common shares without par value.
(b) Issued common shares
Number of
Shares Amount
----------------------------------------------------------------------------
Balance - September 30, 2008 and December 31, 2008 43,675,611 $ 94,608
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(c) Contributed surplus
Amount
----------------------------------------------------------------------------
Balance - September 30, 2008 $ 7,891
Stock-based compensation expense 592
----------------------------------------------------------------------------
Balance - December 31, 2008 $ 8,483
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(d) Stock options
Under the Company's stock option plan, the Company may grant stock options to
directors, senior officers, employees and advisors and is authorized to issue
options to acquire up to 10% of the issued and outstanding shares of the
Company. The board of directors or such other persons designated by the board
administers the plan and determines the vesting and terms of each award.
The Black-Scholes option valuation model, used by the Company to determine fair
values, was developed for use in estimating the fair value of freely traded
options. This model requires the input of highly subjective assumptions
including future stock price volatility and expected time until exercise.
Changes in the subjective input assumptions can materially affect the fair value
estimate, and therefore the existing model does not necessarily provide a
reliable single measure of the fair value of the Company's stock options granted
during the period.
The following table summarizes the activity of the Company's stock option plan.
Weighted
average
Options exercise price
----------------------------------------------------------------------------
Outstanding - September 30, 2008 1,385,000 $ 5.78
Expired during the period (30,000) 8.46
----------------------------------------------------------------------------
Outstanding -- December 31, 2008 1,355,000 $ 5.72
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The following table summarizes the weighted average information about the
outstanding stock options.
As of December 31, 2008
-----------------------
Weighted average Exercise Price
Exercise Number remaining contractual Number for exercisable
price outstanding life (years) exercisable options
---------------------------------------------------------------------------
$2.85 750,000 2.38 361,666 $2.85
$7.69 60,000 3.50 20,000 $7.69
$8.46 30,000 3.50 10,000 $8.46
$9.93 40,000 4.00 NIL N/A
$9.48 300,000 4.42 50,000 $9.48
$9.48 175,000 4.42 NIL N/A
---------------------------------------------------------------------------
$5.78 1,355,000 3.22 441,666 $3.95
---------------------------------------------------------------------------
During the year ended September 30, 2008, a total of 515,000 options were issued
to an employee, officers, and directors of the Company. Each option entitles the
holder to purchase one common share of the Company at a weighted average price
of $9.51 per common share. Upon granting of the options, 50,000 options were
vested immediately and the balance of the options have vesting periods of up to
three years and an exercise period of up to five years, expiring between January
7, 2013 to June 1, 2013. The fair value of the options issued was estimated
using the Black-Scholes option pricing model on the date of issue with a
weighted average value of $7.10 per option. Weighted average assumptions used to
determine the value of the options were: dividend yield 0%; risk-free interest
rate 3.15%; expected volatility 97%; and expected life of 5 years. Stock-based
compensation expense on these options for the three months ended December 31,
2008 was $508 (December 31, 2007 - $Nil).
For the three months ended December 31, 2008, total stock-based compensation
expense on the options granted prior to the year ended September 30, 2008 was
$84 (December 31, 2007 - $227).
(e) Warrants
As at December 31, 2008, the following share purchase warrants were outstanding:
September 30, Exer- December 31, Exercise
2008 Issued cised Expired 2008 Price Expiry Date
----------------------------------------------------------------------------
2,603,300 - - - 2,603,300 $ 5.30 February 22, 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(f) Underwriters' Compensation Options
As at December 31, 2008, the following underwriters' compensation options were
outstanding:
September 30, December 31, Weighted
2008 2008 average
(outstanding (outstanding remaining
and and Exercise contractual
exercisable) Issued Exercised Expired exercisable) Price life (years)
---------------------------------------------------------------------------
120,500 - - - 120,500 $ 4.15 0.15
---------------------------------------------------------------------------
---------------------------------------------------------------------------
9. Retained Earnings
Under the laws of the PRC, all wholly-owned foreign investment entities have to
set aside a portion of their net income each year as a general reserve fund
until the fund has reached 50% of the entity's paid in capital. As of December
31, 2008, the total paid in capital of the Company's PRC entities is $96,863
(RMB 539.6 million; September 30, 2008 - $83,535 or RMB 539.6 million). The
Company is also required to set aside a portion of net income as an expansion
fund. These funds are allowed to be distributed to shareholders at the time of
winding up. The fund accumulated by the Company as at December 31, 2008 was
$8,568 (RMB 48.3 million; September 30, 2008 - $5,432 or RMB 38.1 million).
10. Accumulated Other Comprehensive Income
Unrealized gains on
translating financial
statements of
self-sustaining
foreign operations
-------------------------------------------------------------------------
Balance - September 30, 2008 $ 12,049
Unrealized foreign currency translation gains
during the period 26,886
-------------------------------------------------------------------------
Balance - December 31, 2008 $ 38,935
-------------------------------------------------------------------------
-------------------------------------------------------------------------
11. Segmented Information
The Company has one operating segment, being the production and sale of
specialty potash-based fertilizer, along with their associated by-products. All
of Company's assets and operations, with the exception of a corporate office in
Toronto, Canada, are located in the PRC.
12. Commitments
Purchase commitments for raw materials and supplies in the amount of
approximately $7.6 million (RMB 42.6 million) exist as of December 31, 2008
(September 30, 2008 - $23.5 million or RMB 151.7million). These contracts are
entered into in the normal course of business.
Commitments on capital expenditures in the amount of approximately $7.1 million
(RMB 39.3 million) exist as of December 31, 2008 (September 30, 2008 - $10.4
million or RMB 66.9 million). These contracts are entered into in the normal
course of business.
13. Financial Instruments and Risk Management
Market Risk
Foreign currency risk
At December 31, 2008, through its wholly-owned, self-sustaining subsidiaries,
the Company had cash and cash equivalents of $17,706, accounts receivable of
$27,596, other receivables of $4,578, accounts payable and accrued liabilities
of $8,407, and bank loans of $16,604, which were denominated in RMB. Gains and
losses arising upon translation of these amounts into Canadian dollars for
inclusion in the consolidated financial statements are recorded within other
comprehensive income, a component of shareholders' equity. A 10% change in the
average exchange rate between C$/RMB on the financial instruments would have a
$2,480 effect on the other comprehensive income in Canadian dollars.
Credit Risk
The following table provides information regarding the ageing of financial
assets that are past due but which are not impaired.
Carrying value on
Current 90 - 180 days 180 - 365 days 365 days + the balance sheet
--------------------------------------------------------------------------
$26,573 $435 $304 $284 $27,596
--------------------------------------------------------------------------
--------------------------------------------------------------------------
The definition of items that are past due is determined by reference to terms
agreed with individual customers. None of the amounts outstanding have been
challenged by the respective customer(s) and the Company continues to conduct
business with them on an ongoing basis. Accordingly, management expects that
this balance is fully collectible in the future.
14. Subsequent Events
Subsequent to the period end, the following transactions were completed:
On January 1, 2009, the Company signed a new purchase contract with Liaoning
Fulusi Agricultural Means of Production Co., Ltd. to purchase 70,000 tonnes of
potassium chloride.
Between January 1, 2009 and February 12, 2009, 70,750 warrants and 120,500
underwriters' compensation options were exercised for gross proceeds of
$875,050.
15. Change of Year End
Effective December 22, 2008, the Company's year end has been changed to March 31
from the current fiscal year end of September 30.
Vanadiumcorp Resource, Inc. (TSXV:PC)
Gráfico Histórico do Ativo
De Mai 2024 até Jun 2024
Vanadiumcorp Resource, Inc. (TSXV:PC)
Gráfico Histórico do Ativo
De Jun 2023 até Jun 2024
