Toronto Stock Exchange: EDV
GEORGE TOWN, Grand Cayman, Feb. 12 /CNW/ - Endeavour Mining Capital Corp. ("Endeavour" or "Corporation") recorded net income of $1.5 million or $0.05 per share (or approximately CDN$0.05 per share) for the quarter ended December 31, 2007. This compares with net income of $32.3 million or $1.38 per share (or approximately CDN$1.61 per share) reported for the quarter ended December 31, 2006. The Corporation recorded $20.7 million of revenue from realised gains, interest and dividends and $17.3 million of financial advisory fees during the quarter. The realized revenue of $38.0 million was offset by an unrealised mark to market loss on the investment portfolio of $18.8 million, resulting in total revenue of $19.2 million.
Commenting, Neil Woodyer, Chief Executive Officer stated, "In this quarter, we earned $17.3 million of revenue from advisory fees and $1.9 million of net investment income from our proprietary capital investments. We are satisfied to have generated a positive amount of investment income given the overall weak conditions of the global equity markets during the quarter. We are very pleased with the advisory fee revenues which are primarily the result of Endeavour's role with two long-standing merchant banking clients, Northern Orion and Rusoro Mining. During the quarter we acted as an advisor to Northern Orion on its three-way merger with Yamana Gold and Meridian Gold to create one of the leading gold producers amongst the intermediates with a combined market value of $9.8 billion. Endeavour also acted as the advisor to Rusoro Mining on its acquisition of Gold Fields' Venezuelan gold assets in a transaction valued at $526 million. Most recently, Endeavour acted as the advisor to Petro Rubiales Energy on its acquisition of Pacific Stratus which closed in January 2008 to create the largest independent oil and gas company in Colombia. Due to the timing of the closing, the Petro Rubiales transaction will contribute to Q3 results. We are clearly seeing numerous benefits from the integrated merchant banking business strategy wherein we seek to maximise our earnings through advisory fees and timely capital investments. We are focused on creating value for our clients as we are often shareholders. We have, or have had, equity investments in each of Northern Orion, Yamana, Rusoro, Petro Rubiales and Pacific Stratus, to name a few."
Commenting on the results, Frank Holmes, Chairman said, "The resource markets have continued to experiencing a sharp sell off as investors scramble for liquidity due to the subprime debt crisis. Despite the sell off, Endeavour's net investment income was positive for the quarter at $1.9 million. We consider the proprietary capital investments to be well positioned in a very volatile market and we have no exposure to asset backed securities or subprime debt. Most importantly China's 11th five year plan is to double infrastructure spending and India has increased its five year investment plan by 130% to a record $500 billion to improve their infrastructure on the back drop of tight supplies for most metals."
Endeavour will host a conference call today to discuss this earnings announcement at 10:00 AM Eastern Standard Time. The meeting will be webcast by V-Call and can be accessed from the Corporation's website at www.endeavourminingcapital.com or by calling the operator at 201-689-8031 or toll free 1-877-407-8031 prior to the scheduled start time.
The conference call will be archived for later playback on the Corporation's website.
Endeavour Mining Capital Corp. is a publicly-traded merchant banking company offering integrated capital investment and financial advisory services to the global natural resources sector. The Corporation offers a unique combination of financial and intellectual capital to help build companies and create shareholder value. Our shares are listed on the Toronto Stock Exchange under the symbol EDV and offer a distinctly different way to invest in the natural resources sector.
For additional information, please visit our corporate website, www.endeavourminingcapital.com.
On behalf of Endeavour Mining Capital Corp.
"Bill Koutsouras"
Chief Financial Officer, Director & Secretary
The Toronto Stock Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release. The foregoing information may contain forward-looking statements relating to the future performance of Endeavour Mining Capital Corp. Forward-looking statements, specifically those concerning future performance, are subject to certain risks and uncertainties, and actual results may differ materially. These risks and uncertainties are detailed from time to time in the Corporation's filings with the appropriate securities commissions.
ENDEAVOUR MINING CAPITAL CORP.
Second Quarter Report
December 31, 2007
(Expressed in Thousands of United States Dollars)
ENDEAVOUR MINING CAPITAL CORP.
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Second Quarter Report - December 31, 2007 and 2006
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Introduction and business information
This discussion and analysis should be read in conjunction with the financial information included in the accompanying unaudited consolidated financial statements. The unaudited consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles. The functional currency of the business is the United States Dollar. All monetary values are expressed in United States Dollars, unless otherwise indicated. Tabular amounts are in thousands of United States Dollars, except per share amounts. This discussion and analysis is prepared as of February 12, 2008.
Endeavour Mining Capital Corp. ("Endeavour" or "Corporation") is a merchant banking company offering integrated capital investment and financial advisory services to the global natural resources sector. The Corporation actively grows new companies, provides advice to existing ones and makes strategic capital investments. The Corporation actively manages its investment capital base and earnings are generated through financial advisory fees and timely capital investments. The consolidated financial results include the operating results of Endeavour Financial for the five months since the date of the acquisition that was completed on July 30, 2007. The acquisition of Endeavour Financial has benefited the Corporation due to the growth opportunities arising from synergies as a result of the integration of the businesses and the fee derived revenue from the financial advisory services has resulted in revenue diversification. Prior to the acquisition the revenue of the Corporation was derived from the capital appreciation of its investments. The Corporation now offers a full range of financial advisory services including debt finance, corporate finance, mergers and acquisitions, technical evaluations and financial valuations. The Corporation currently has twenty-six client mandates and management is working closely with many of these client companies in advancing transactions that are expected to contribute to future advisory services revenue and add value to our capital investments.
Overall performance and business highlights
- The Corporation completed its acquisition of Endeavour Financial
Corporation on July 30, 2007, creating an integrated natural resource
merchant bank.
- Endeavour acted as the advisor on $10.3 billion of Mergers &
Acquisitions that were concluded during the quarter, including the
Northern Orion Resources three way business combination with Yamana
Gold and Meridian Gold. Endeavour also was the financial advisor to
Rusoro Mining in connection with Rusoro's acquisition of Gold Fields
Venezuelan assets.
- Recorded revenue from advisory services of $17.3 million for the
quarter ended December 31, 2007.
- Recorded net investment income of $1.9 million during the quarter
despite the overall weak conditions of the global equity markets
during the quarter.
- Earnings before interest, taxes, depreciation and amortization of
$4.0 million or $0.13 per share for the quarter ended December 31,
2007.
- Net income of $1.5 million or $0.05 per share for the quarter ended
December 31, 2007 compared to net income of $32.3 million or
$1.38 per share for the quarter ended December 31, 2006.
- The Corporation increased its annualized dividend payment by 80% and
increased the frequency of dividend payments from semi-annually to
monthly.
Critical accounting policies
A detailed description of all the Corporation's significant accounting policies is included in Note 2 to the annual consolidated financial statements for the year ended June 30, 2007 and Note 1 to the unaudited consolidated financial statements for the six month period ended December 31, 2007.
As an integrated merchant banking company the Corporation originates and invests in equity, equity linked and debt transactions where it can generate value through its business approach of making timely capital investments while also providing financial advisory services. The Corporation's revenue is derived from two sources (1) financial advisory services, and (2) investment income from its capital investments.
The Corporation's revenue recognition and investment valuation policy are critical to the understanding of the results described below.
Financial advisory fees from client mandates are comprised of monthly retainer fees and transaction success fees. Monthly advisory fees are recognized as services are rendered and collectibility is reasonably assured. Transaction success fees are recorded when all the services have been rendered, the related transaction has closed and collectibility is reasonably assured.
Net investment income is comprised of realized gains from the sale of investments, interest income and dividends and the change in the market value of investments. Investment transactions are accounted for on the day that a buy or sell order is executed. Dividend income, including stock dividends, is recorded on the ex-dividend date and interest income is recorded on the accrual basis. The change in market value of investments represents the aggregate of the difference between their average cost and fair value at the balance sheet date. The valuation policies applied to investments at each balance sheet date are described below.
For portfolio investments, securities, held in long or short positions, that are traded on a recognized securities exchange and for which no sales restrictions apply are recorded at carrying values based on the last quoted sales price at the balance sheet dates or the closing price on the last day the security traded if there were no trades at the balance sheet dates.
Securities that are traded on a recognized exchange but that are escrowed or otherwise restricted as to sale or transfer are recorded at amounts discounted from market value. In determining the discount for such investments, the Corporation considers the nature and length of the restriction, business risk of the investee company, its stage of development, market potential, relative trading volume and price volatility and any other factors that may be relevant to the ongoing and realizable value of the investments.
Securities in privately-held companies are recorded at cost unless an upward adjustment is considered appropriate and supported by persuasive and objective evidence such as a significant subsequent equity financing by an unrelated, professional investor at a transaction price higher than the Corporation's carrying value. Downward adjustments to carrying value are made when there is evidence of a decline in value as indicated by the assessment of the financial condition of the investment based on operational results, forecasts, financing and other developments since acquisition.
Included in the Corporation's investments are certain instruments that are
accounted for as follows:
- Loans are valued at the lesser of the loan value amount plus accrued
interest or the amount of the loan deemed to be recoverable.
- Convertible loans and debentures are valued at the greater of their
loan value amount as described above or as though converted to the
underlying securities.
- Warrants for public companies which are not listed or traded on a
national exchange are valued at the difference between the exercise
price and the quoted market price of the underlying shares, plus an
adjustment for time value.
- Options for public companies which are not listed or traded on a
national exchange are valued at the difference between the exercise
price and the quoted market price of the underlying shares.
- Options and warrants for private companies are valued at the
difference between the exercise price and the carrying value of the
underlying shares.
At each quarterly financial reporting period, the Corporation's management determines the valuation of investments based on the criteria above and reflects such valuations as corporate investments in the consolidated financial statements. The resulting values may differ from values that would be realized had a ready market existed. The amounts at which the Corporation's privately-held investments could be disposed of currently may differ from the carrying value assigned due to changes in valuation assumptions resulting from current market conditions. The amounts at which the Corporation's publicly-traded investments could be disposed of currently may differ from the carrying value based on market quotes as the value at which significant ownership positions are sold is often different than the quoted market price due to a variety of factors such as premiums paid for large blocks or discounts due to illiquidity.
Risks and Uncertainties associated with investing in Common Shares
Speculative Nature of Common Shares
The Corporation's Common Shares are speculative in nature and suitable only for investors able to sustain a total loss of their investment. Shareholders should not rely upon realizing any significant returns from Common Shares and should be aware that the value of Common Shares and the income from them could, in common with other shares and bonds, fluctuate. There is no assurance that the investment objectives of the Corporation will actually be achieved.
Risks Relating to the Corporation's Business
The Corporation depends on certain key professionals and the loss of any
of their services could have a material adverse effect on the revenues
and profitability.
Management believes the Corporation's performance is strongly correlated to the performance of certain key professionals and, accordingly, the retention of these individuals is crucial to the Corporation's future success. Certain of the key professionals have entered into consultancy agreements and into non-competition and non-solicitation agreements. The initial term of the agreements is three years from closing of the Endeavour Financial acquisition, however, there is no guarantee that these individuals will not resign or otherwise terminate their agreements. The Corporation's future earnings will also depend, among other things, on its ability to maintain intellectual capital. The Corporation's senior professionals possess experience and expertise, which may be difficult to replace and the Corporation may not be successful in its efforts to recruit additional personnel or retain current personnel.
Currency and Foreign Exchange Rate Fluctuations
The Corporation's results are reported in US dollars. It is anticipated that a substantial portion of the Corporation's investments will be made in securities denominated or quoted in foreign currencies. Therefore, changes in currency exchange rates as well as associated transaction costs could adversely affect profitability in any given period. In addition, the Corporation could also make investments in jurisdictions which may place restrictions on the repatriation of funds.
A portion of the Corporation's business is conducted by its subsidiaries in the United Kingdom and Canada and the associated overhead costs are denominated in UK pounds sterling and in Canadian dollars, respectively. Any fluctuations in the value of the pound sterling and the Canadian dollar relative to the US dollar may result in variations in the net income of the Corporation. The Corporation does not enter into hedging or derivative arrangements to manage its foreign exchange risk.
Reduced Revenues during Periods of Declining Resource Prices
The Corporation's revenue is likely to be lower during a period of declining natural resource market and commodity prices. The Corporation's advisory services are particularly dependent on the debt finance, equity and mergers and acquisitions markets for companies in the natural resource sector. A prolonged period of declining natural resource prices could cause a reduction in fee revenue from advisory services. The Corporation's investment income is driven in part by natural resource and commodity prices and a decline in resource prices could also cause a decrease in investment income.
Risk of Limited Number of Investments
The Corporation intends to participate in a limited number of core merchant banking investments and, as a consequence, the aggregate return of the Corporation may be adversely affected by the unfavourable performance of even a single investment. In addition, as the Corporation's investments are concentrated in the resource sector, their performance will be disproportionately subject to adverse developments in the resource sector.
Thinly Traded Securities
Certain publicly traded investments held by the Company are in equities that are characterized by thin, and sometimes uneven, trading volumes, and are potentially subject to highly volatile price swings. All publicly traded investments have been valued by the Company based on the last sales price. Due to the thinly traded nature of such investments, the prices at which the Company could have sold its holdings in such equities at the period end may have differed from the recorded values.
Resource Development Risks
Resource development involves a high degree of risk which cannot be avoided, even with a combination of careful evaluation, experience and knowledge. Although the Corporation will typically be investing in projects, or companies having projects, in later stages of development, there is no assurance that such projects will prove to be economically feasible and there is also no assurance that the projects owned by companies in which the funds of the Corporation may be invested will be brought into, or continue to be in, commercial production. Investee companies are also subject to government and political risk as well as volatility in commodity prices that can affect the economic feasibility of projects.
Summary of Quarterly Results
The following table summarizes the Corporation's results of the last eight reporting periods.
Q2 2008 Q1 2008 Q4 2007 Q3 2007
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Total assets $ 319,208 $ 309,487 $ 273,884 $ 218,504
Shareholder's Equity 311,193 307,978 255,328 210,986
Total revenue 19,213 2,881 57,455 32,043
Net income (loss) 1,518 (199) 44,645 24,525
Basic (loss) earnings
per share $ 0.05 $ (0.01) $ 1.92 $ 1.05
Diluted (loss) earnings
per share $ 0.05 $ (0.01) $ 1.83 $ 0.99
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Q2 2007 Q1 2007 June 2006(xx) Q3 2006
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Total assets $ 187,770 $ 155,847 $ 187,758 $ 195,210
Shareholder's Equity 186,676 155,487 172,032 178,073
Total revenue 34,885 (14,323) (7,115) 46,186
Net (loss) income 32,330 (15,874) (6,046) 35,599
Basic (loss) earnings
per share $ 1.38 $ (0.68) $ (0.25) $ 1.53
Diluted (loss) earnings
per share $ 1.33 $ (0.68) $ (0.25) $ 1.45
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(xx) The results in the fourth quarter of 2006 are for a one month period
as a result of the change in the Corporation's year end to June 30.
The Corporation marks its investments to market at each reporting period, and as a result experiences significant movements in its quarterly results which are substantially driven by changes in the unrealized appreciation and depreciation of its investments. The mark to market value of the Corporation's investments is affected by many factors but the primary forces include resource prices and investor sentiment. The Corporation's results are highly correlated to its core merchant banking investments.
Results from Operations
During the quarter ended December 31, 2007, revenue totaled $19.2 million and the Corporation recorded net income of $1.5 million (or $.05 per share - basic). Revenue for the quarter ended December 31, 2007 includes realized gains from the sale of investments totaling $20.4 million, interest and dividends of $0.3 million and financial advisory fee revenue of $17.3 million. Total revenue from the above noted items totaled $38.0 million however they were offset by a mark to market loss on the investment portfolio of $18.8 million. Net income for the quarter ended December 31, 2007 was reduced by non cash expenses totaling $4.9 million of which $2.8 million was attributable to stock based compensation and $2.1 million was attributable to amortization of intangible assets.
The financial advisory fees are generated from the active client base of the Corporation. The Corporation earned fees as the financial advisor on two significant transactions that closed during the quarter. They acted as the financial advisor to Northern Orion Resources on the three way business combination with Yamana Gold and Meridian Gold and also acted as the advisor to Rusoro Mining in connection with the acquisition of Gold Fields Venezuelan assets. The diversified revenue base from this fee derived business offset the unrealized mark to market loss on the portfolio during the quarter. The unrealized mark to market loss was a result of the resource markets experiencing a decline during the quarter which impacted the carrying value of the Corporation's investments. The net revenue from the capital investment business was $1.9 million.
During the quarter ended December 31, 2006 the Corporation recorded revenue of $34.9 million and net income of $32.3 million (or $1.38 per share - basic). The revenue was comprised of realized losses on the sale of investment of $.1 million, interest and dividends of $0.4 million and an unrealized mark to market gain on the investment portfolio of $34.6 million. The resources markets increased during this period and as a result had a positive impact on the carrying value of the investments resulting in the unrealised mark to market gain on the portfolio. There was no financial advisory fee revenue during this period since the Corporation's business was limited to capital investments prior to the acquisition of Endeavour Financial on July 30, 2007.
During the six month period ended December 31, 2007, revenue totaled $22.1 million and the Corporation recorded net income of $1.3 million (or $.05 per share - basic). Revenue for the six month period ended December 31, 2007 includes realized gains from the sale of investments totaling $36.0 million, interest and dividends of $0.7 million and financial advisory fee revenue of $19.3 million. Total revenue from the above noted items totaled $56.0 million however they were offset by an unrealised mark to market loss on the investment portfolio of $33.9 million. Net income for the six month period ended December 31, 2007 was reduced by non cash expenses totaling $5.7 million of which $2.8 million was attributable to stock based compensation and $2.9 million attributable to amortization of intangible assets.
During the six month period ended December 31, 2006 revenue totaled $20.6 million and the Corporation recorded net income of $16.5 million (or $0.71 per share - basic). The Corporation's revenue of $20.6 million was comprised of realized losses on the sale of investment of $1.6 million, interest and dividends of $0.7 million and an unrealised mark to market gain on the investment portfolio of $21.5 million.
Highlighted in the table below are sector breakdowns of the Corporation's portfolio holdings as at December 31, 2007 and June 30, 2007.
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Sector % of Total Assets
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December 31, 2007 June 30, 2007
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Gold 23% 15%
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Oil & Gas 22% 19%
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Copper 14% 11%
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Cash 11% 16%
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Platinum 7% 5%
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Other metals 7% 7%
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Other 6% 11%
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Silver 5% 6%
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Uranium 4% 5%
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Coal 1% 5%
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100% 100%
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The most significant change to the sector weightings when compared to June 30, 2007 is an increase in gold sector investments from 15% to 23%. The increase in gold investments as a percentage of total assets is a result of the Corporation having made additional capital investments in merchant banking client companies who operate in the gold sector.
The Corporation employs an operating style that has shown excellent results and allows it to add value quickly and efficiently. The Corporation offers a unique combination of financial and intellectual capital to help build companies and generate shareholder value. It invests in companies with the potential for significant future growth with aggressive management teams either in-place or brought in as part of the transaction.
The Corporation operates in a highly competitive financial marketplace that demands the utmost discretion and confidentiality. Accordingly, its practice is not to disclose sensitive details regarding individual transactions. This practice has been carefully considered with the primary objective of maximizing our potential returns by limiting the possibility of adverse market impacts caused by inopportune disclosure.
The Corporation has an investment advisory agreement with US Global Investors, Inc. (US Global), who is related to the Corporation by way of a director in common. In support of the Corporation's merchant banking business plan US Global's mandate is to actively manage the cash in the Corporation's portfolio and to identify and implement market trading opportunities to enhance the profitability of the Corporation. US Global is paid: (1) an investment advisory fee, calculated and payable monthly as 1/12th of 1% of net assets, and (2) an annualized performance fee of 10% of the Corporation's net income from operations in excess of an 8% return on the weighted average Shareholders' Equity during the fiscal period. The calculation of net assets and net income from operations remove the effect of goodwill and other intangibles and exclude the net assets and net income of Endeavour Financial. During the quarter ended December 31, 2007 the Corporation paid $0.6 million (December 31, 2006 - $0.4 million) of investment advisory fees to US Global and no performance fees were accrued. For the six month period ended December 31, 2007 $1.3 million of investment advisory were paid to US Global (six months ended December 31, 2006 - $0.9 million) and no performance fees were accrued (six months ended December 31, 2006 - $0.3 million). The higher advisory fees in the current quarter and the six month period are a result of the growth in the net assets of the Corporation.
Endeavour's management and staff are responsible for originating and sourcing client merchant banking investments and to continuously monitor, make investment decisions and determine exit strategies for these strategic investments. Prior to the acquisition of Endeavour Financial on July 30, 2007, the Corporation incurred an expense for amounts it paid to Endeavour Financial in fulfilling this role as an investment advisor. An investment advisory fee expense of $0.2 million was incurred during the six month period ended December 31, 2007 for the pre acquisition period which consisted of the month of July 2007. For the three and six month periods ended December 31, 2006 the amounts paid to Endeavour Financial are equivalent to the amounts paid to US Global.
Compensation expense totaled $7.7 million during the quarter ended December 31, 2007. For the six months ended December 31, 2007 the expense totaled $8.9 million. This expense relates to total compensation paid to consultants and employees of the Corporation since the date of the Endeavor Financial acquisition. There was no compensation expense for the quarter ended and six month period ended December 31, 2006 since the Corporation had no employees at the time.
General and administrative expenses during the quarter ended December 31, 2007 totaled $2.8 million (quarter ended December 31, 2006 - $0.5 million). For the six months ended December 31, 2007 the expense totaled $3.8 million (six months ended December 31, 2006 - $0.9 million). The increase in the current quarter and six month period is attributable to the addition of the Endeavour Financial operating expenses since the date of acquisition. This expense category includes professional fees, consulting fees, marketing, travel, rent and administrative costs for the consolidated group.
A foreign exchange loss of $1.2 million was recorded during the quarter ended December 31, 2007 compared to a foreign exchange loss of $0.5 million during the quarter ended December 31, 2006. For the six month period ended December 31, 2007 the foreign exchange loss totaled $0.5 million compared to $0.8 million for the six month period ended December 31, 2006. The foreign exchange losses are a result of the revaluation of foreign currencies and non cash working capital items denominated in foreign currencies.
The Corporation also recorded $2.1 million of amortization expense for the quarter ended December 31, 2007 and $2.9 million for the six month period ended December 31, 2007. No amortization expense was recorded for the three and six month periods ended December 31, 2006. This expense is the amortization of intangible assets such as customer relationships and customer contracts which were acquired as part of the Endeavour Financial acquisition, along with the amortization of capital assets. The intangibles are being amortized on a straight line basis over their useful lives.
Stock based compensation expense of $2.8 million was recorded for the three and six months periods ended December 31, 2007. No stock based compensation expense was recorded for the three and six month periods ended December 31, 2006. This expense relates to the vested portion of the stock options granted to directors, officers, employees, consultants and charities to purchase an aggregate of up to 2,612,500 common shares of the Corporation at an exercise price of CDN$10.00 per share, expiring on October 25, 2012. Using the Black-Scholes fair value method for stock-based compensation, the value of the vested portion of the stock options that were granted during the three and six months ended December 31, 2007 was $2.8 million of which $2.4 million relates to options issued to employees, directors and charities and $0.4 relates to options issued to consultants.
Liquidity and Capital Resources
At December 31, 2007, the Corporation had cash and cash equivalents of $42.1 million (June 30, 2007 - $44.0 million), investments of $225.6 million (June 30, 2007 - $229.8 million) and a working capital position of $262.2 million (June 30, 2007 - $255.3 million). The Corporation has adequate cash resources to settle outstanding liabilities and fund continuing operations. The increase of $55.9 million in Shareholders' Equity in the Corporation to $311.2 million at December 31, 2007 from $255.3 million at June 30, 2007 is primarily attributable to the shares issued in connection with the acquisition of Endeavour Financial. A total of 6,239,806 shares were issued up front and they were recorded in shareholders equity at $52.3 million.
Contractual Obligations
The Corporation is subject to operating lease commitments in connection with rented office premises. A summary of lease commitments is provided below.
Less than 1 - 3 4 - 5 After
Total 1 Year Years Years 5 Years
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Operating Leases $ 4,137 $ 725 $ 2,069 $ 701 $ 642
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Outstanding Share Data
As at February 12, 2008 the Corporation had the following number of issued
and outstanding shares:
Number of
Shares Total
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Voting shares
June 30, 2007 23,506,178 $ 53,180
Issued pursuant to the transaction(xx) 10,400,930 52,261
Stock options & warrants exercised 269,000 948
Shares repurchased (37,500) (313)
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Issued at December 31, 2007 34,138,608 106,076
Shares in escrow(xx) (3,467,601) -
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Issued and outstanding at February 12, 2008 30,671,007 $ 106,076
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(xx) The Corporation issued a total of 10,400,930 shares in connection
with the Endeavour Financial acquisition. 6,239,806 shares were issued
up-front and 4,161,124 shares have been placed in escrow and held
pursuant to the terms of an earn-out escrow agreement. The earn-out
escrow agreement provides for the escrowed shares to be released in equal
quarterly installments based on Endeavour Financial meeting a cumulative
EBITDA target of $3.0 million per quarter during the earn-out period
which commenced on August 1, 2007 and ends on June 30, 2010. The first
earn-out period commenced on August 1, 2007 and ended on December 31,
2007. The cumulative EBITDA target for this period was $6.0 million.
Endeavour Financial exceeded the EBITDA target and consequently 693,523
of the earn-out shares were issued subsequent to December 31, 2007 and
have been valued at $6.1 million. The balance of shares remaining in
escrow is 3,467,601.
The Corporation also has the following outstanding warrants and stock
options:
- 3,409,000 warrants outstanding and exercisable with a weighted
average exercise price of CDN$5.50 and weighted average remaining
contractual life of .86 years.
- 65,000 options outstanding and exercisable with an exercise price of
CDN$4.20 and remaining contractual life of .94 years.
- 2,612,500 options outstanding with an exercise price of CDN$10.00 and
remaining contractual life of 4.82 years, of which 885,834 are
exercisable.
During the six months ended December 31, 2007, 37,500 shares of the Corporation were repurchased for net proceeds of $0.3 million and 269,000 shares were issued from the exercise of options and warrants for net proceeds of $0.9 million.
Related Party Transactions
With the exception of the transactions with EFC and US Global, as described in 'Results from Operations' above, there have been no related party transactions for the three and six months ended December 31, 2007.
Controls and Procedures Certification
As a reporting issuer, the Corporation is required to comply with the requirements of Multilateral Instrument 52-109, "Certification of Disclosure in Annual and Interim Filings ("MI 52-109") issued by the Canadian Securities regulatory authorities (often referred to as Bill 198). The Corporation's senior management team monitors the disclosure and internal controls over financial reporting. The Corporation believes it has adequate human and financial resources in place in order to be able to meet all certification requirements required by the regulators.
In compliance with the requirements of MI 52-109, the Corporation's Chief Executive Officer (CEO) and Chief Financial Officer (CFO) have certified as to the fair presentation of the Corporation's MD&A and financial statements on a quarterly basis since the start of fiscal 2005. The Certifying officers have conducted an evaluation of the disclosure controls and procedures and are of the opinion that these controls and procedures provide reasonable assurance that all information considered necessary for appropriate disclosure has been accumulated and disclosed in the annual and quarterly filings and other reports submitted under applicable securities legislation.
Outlook
With the acquisition of Endeavour Financial, the Corporation is now an integrated natural resource merchant banking company. The Corporation expects to benefit from increased revenue diversification by the addition of the fee-derived revenue in addition to the growth opportunities arising from synergies as a result of the integration of the businesses. The outlook for the business is strong as the Corporation has several active client mandates
Our view is that strong, positive forces will continue driving the natural resources sector, which is expected to benefit the fully integrated business by creating increased opportunities to make both capital investments along with providing financial advisory services to companies in the resource sector. At the same time the Corporation believes it is well positioned to continue to grow its core merchant banking positions.
In this increasingly competitive environment, the Corporation is focused on opportunities where it sees a path to value creation. While earnings volatility should be anticipated, management believes that its superior deal flow and access to potentially high return transactions will result in the continued growth of the integrated business.
Additional information relating to the Corporation is available on the Corporation's web site at www.endeavourminingcapital.com and in the Corporation's Annual Information Form for the twelve month period ended June 30, 2007 on SEDAR at www.sedar.com.
ENDEAVOUR MINING CAPITAL CORP.
Consolidated Balance Sheets
(Expressed in Thousands of United States Dollars,
except per share amounts)
(Unaudited)
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December 31, June 30,
2007 2007
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ASSETS
Cash and cash equivalents $ 42,124 $ 43,980
Investments, at market (Note 3) 225,632 229,750
Accounts receivable and other assets 2,056 154
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269,812 273,884
Capital assets (Note 4) 600 -
Intangible assets (Note 5) 33,344 -
Goodwill (Note 2) 15,452 -
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$ 319,208 $ 273,884
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LIABILITIES
Performance fees payable $ - $ 17,988
Accounts payable and accrued liabilities 7,594 568
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7,594 18,556
Future income taxes (Note 7) 421 -
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8,015 18,556
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SHAREHOLDERS' EQUITY
Share capital (Note 6) 106,076 53,180
Contributed surplus (Note 6) 3,177 492
Retained earnings 201,940 201,656
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311,193 255,328
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$ 319,208 $ 273,884
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SUBSEQUENT EVENT (Note 2)
Approved by the Board:
"Neil Woodyer" Director "Wayne McManus" Director
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The accompanying notes are an integral part of these unaudited
consolidated financial statements
ENDEAVOUR MINING CAPITAL CORP.
Consolidated Statements of Operations, Comprehensive Income
and Retained Earnings
(Expressed in Thousands of United States Dollars,
except per share amounts)
(Unaudited)
-------------------------------------------------------------------------
Three months ended Six months ended
December 31, December 31,
2007 2006 2007 2006
----------- ----------- ----------- -----------
REVENUE
Net realized gain
(loss) on investments $ 20,413 (132) 36,022 $ (1,616)
Change in net
unrealized
appreciation
(depreciation) of
investments (18,793) 34,619 (33,915) 21,476
Interest and dividends 274 398 689 702
Financial advisory fees 17,319 - 19,298 -
-------------------------------------------------------------------------
19,213 34,885 22,094 20,562
-------------------------------------------------------------------------
EXPENSES
Performance fees - 683 - 683
Investment advisory fees 658 890 1,494 1,728
Compensation 7,747 - 8,925 -
General and
administrative 2,803 520 3,752 918
Foreign exchange loss 1,186 462 532 776
Stock-based compensation
(Note 6 (c)) 2,839 - 2,839 -
Amortization 2,110 - 2,885 -
-------------------------------------------------------------------------
17,343 2,555 20,427 4,105
-------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 1,870 32,330 1,667 16,457
-------------------------------------------------------------------------
Current income taxes (44) - (44) -
Future income taxes (308) - (303) -
-------------------------------------------------------------------------
NET INCOME AND
COMPREHENSIVE INCOME 1,518 32,330 1,320 16,457
RETAINED EARNINGS,
BEGINNING OF PERIOD 201,457 102,260 201,655 119,183
DIVIDENDS PAID (1,035) (1,004) (1,035) (2,054)
-------------------------------------------------------------------------
RETAINED EARNINGS, END
OF PERIOD $ 201,940 $ 133,586 $ 201,940 $ 133,586
-------------------------------------------------------------------------
-------------------------------------------------------------------------
BASIC EARNINGS PER SHARE $ 0.05 $ 1.38 $ 0.05 $ 0.71
-------------------------------------------------------------------------
-------------------------------------------------------------------------
DILUTED EARNINGS
PER SHARE $ 0.05 $ 1.33 $ 0.04 $ 0.68
-------------------------------------------------------------------------
-------------------------------------------------------------------------
WEIGHTED-AVERAGE COMMON
SHARES OUTSTANDING 29,983,285 23,362,913 28,919,565 23,333,935
-------------------------------------------------------------------------
-------------------------------------------------------------------------
DILUTED WEIGHTED-AVERAGE
COMMON SHARES
OUTSTANDING 31,383,147 24,289,259 30,365,719 24,362,281
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The accompanying notes are an integral part of these unaudited
consolidated financial statements
ENDEAVOUR MINING CAPITAL CORP.
Consolidated Statements of Cash Flows
(Expressed in Thousands of United States Dollars,
except per share amounts)
(Unaudited)
-------------------------------------------------------------------------
Three months ended Six months ended
December 31, December 31,
2007 2006 2007 2006
----------------------- -----------------------
OPERATING ACTIVITIES
Net income $ 1,518 $ 32,330 $ 1,320 $ 16,457
Adjustments to
reconcile net income
to net cash used in
operating activities:
Net realized (gain)
loss on investments (20,413) 132 (36,022) 1,616
Change in net
unrealized
depreciation
(appreciation)
of investments 18,793 (34,619) 33,915 (21,476)
Amortization 2,110 - 2,885 -
Stock-based
compensation
(Note 6 (c)) 2,839 - 2,839 -
Increase in future
income tax expense 308 - 303 -
Changes in non-cash
working capital:
Decrease (increase) in
accounts receivables
and other assets 355 (165) (738) (347)
Increase (decrease)
in performance fees
payable - 683 (8,994) (14,630)
Increase (decrease) in
accounts payable and
accrued liabilities 6,201 52 (30,346) (2)
Purchase of investments (50,694) (17,329) (73,993) (37,982)
Proceeds from the sale
of investments 38,982 3,066 80,179 7,358
-------------------------------------------------------------------------
(1) (15,850) (28,652) (49,006)
-------------------------------------------------------------------------
FINANCING ACTIVITIES
Received from the issue
of common shares - - 794 380
Repurchase of common
shares (107) (139) (313) (139)
Dividends paid (1,035) (1,004) (1,035) (2,054)
-------------------------------------------------------------------------
(1,142) (1,143) (554) (1,813)
-------------------------------------------------------------------------
INVESTING ACTIVITIES
Net cash received on
purchase of Endeavour
Financial - - 27,063 -
Purchase of capital
assets (27) - (105) -
-------------------------------------------------------------------------
(27) - 26,958 -
-------------------------------------------------------------------------
Effect of exchange rate
changes on cash and cash
equivalents 1,105 462 392 776
-------------------------------------------------------------------------
DECREASE IN CASH AND CASH
EQUIVALENTS (65) (16,531) (1,856) (50,043)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 42,189 26,279 43,980 59,791
-------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 42,124 $ 9,748 $ 42,124 $ 9,748
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
IS COMPRISED OF:
Cash in Bank $ 38,401 $ 9,748 $ 38,401 $ 9,748
Short Term Money Market
Instruments 3,723 - 3,723 -
-------------------------------------------------------------------------
$ 42,124 $ 9,748 $ 42,124 $ 9,748
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The accompanying notes are an integral part of these unaudited
consolidated financial statements
ENDEAVOUR MINING CAPITAL CORP.
Notes to the Unaudited Consolidated Financial Statements
For the Three and Six Month Periods Ended December 31, 2007
(Expressed in Thousands of United States Dollars,
except per share amounts)
-------------------------------------------------------------------------
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
These unaudited interim consolidated financial statements have been
prepared in accordance with Canadian generally accepted accounting
principles for interim financial statements. They follow the same
accounting policies and methods of application as the audited
consolidated financial statements of Endeavour Mining Capital Corp.
(the "Corporation") for the year ended June 30, 2007 except as noted
below. These unaudited interim consolidated financial statements do
not include all the information and note disclosures required by
generally accepted accounting principles for annual financial
statements and therefore should be read in conjunction with the most
recent annual audited consolidated financial statements.
As a result of the acquisition of Endeavour Financial Corporation
("Endeavour Financial") on July 30, 2007 (Note 2), the unaudited
interim consolidated financial statements include the results of
operations for Endeavour Financial and its subsidiaries for the five
month period following the date of the acquisition. In addition, the
following significant accounting policies have been adopted during
the six month period ended December 31, 2007:
a) Investments
The Corporation adopted the provisions of Sections 3855, Financial
Instruments - Recognition and Measurement, 3861 - Financial
Instruments - Disclosure and Presentation, 3251 - Equity, 3865 -
Hedges and 1530, Comprehensive Income, on July 1, 2007 which
address the classification, recognition and measurement of
financial instruments in the financial statements and the
inclusion of other comprehensive income. The adoption of these
standards did not have a material impact on the Company's
financial statements.
The Corporation has classified all investments in its portfolio,
including common shares, options and warrants in public and
private companies, loans, convertible loans and debentures, as
held for trading. The methods and significant assumptions used to
determine the fair value of the investments are disclosed in
Note 2 to the Company's audited annual consolidated financial
statements for the year ended June 30, 2007.
At each quarterly financial reporting period, the Corporation's
management determines the valuation of investments based on the
criteria as outlined in Note 2 to the Company's audited annual
consolidated financial statements for the year ended June 30, 2007
and reflects such valuations as corporate investments in the
consolidated financial statements. The resulting values may differ
from values that would be realized had a ready market existed. The
amounts at which the Corporation's privately-held investments
could be disposed of currently may differ from the carrying value
assigned due to changes in valuation assumptions resulting from
current market conditions. The amounts at which the Corporation's
publicly-traded investments could be disposed of currently may
differ from the carrying value based on market quotes as the value
at which significant ownership positions are sold is often
different than the quoted market price due to a variety of factors
such as premiums paid for large blocks or discounts due to
illiquidity.
b) Capital assets
Capital assets are recorded at cost. Amortization is recorded at
annual rates considered adequate to amortize the cost of the
assets on a straight-line basis over their estimated useful lives,
as follows:
Office equipment - 3 years
Furniture and fixtures - 5 years
Leasehold improvements - 5 years
When assets are retired or otherwise disposed of, the cost and
related accumulated amortization are removed from the accounts,
and any resulting gain or loss is reflected in the statement of
operations and retained earnings.
c) Goodwill and other intangible assets
Business combinations are accounted for using the purchase method.
Goodwill represents the excess of the purchase price paid for the
acquisition of subsidiaries over the fair value of the net
tangible and identified intangible assets acquired. Goodwill is
subject to an impairment test conducted at least on an annual
basis. Goodwill impairment is identified by comparing the carrying
value of the reporting unit to its fair value. If the carrying
value of the reporting unit exceeds its fair value, goodwill
impairment is calculated based on the fair value of the assets and
liabilities. Any impairment of goodwill will be recognized as an
expense in the period of impairment, and subsequent reversals of
impairment are prohibited.
Other intangible assets are amortized on a straight-line basis
over their estimated lives and tested for impairment when events
or circumstances indicate the carrying amounts may not be
recoverable. Customer relationships are amortized over 15 years.
Customer contracts and other intangible assets have amortization
periods of up to four years.
d) Revenue recognition
Financial advisory fee income consists of revenue generated from
structuring, arranging and managing various strategic initiatives
for clients and investee companies in the areas of debt finance,
corporate finance and mergers and acquisitions. Monthly advisory
fees are recognized as services are rendered and collectibility is
reasonably assured. Success fees are recorded when all the
services have been rendered, the related transaction has closed
and collectibility is reasonably assured.
e) Income taxes
The Corporation follows the liability method of accounting for
income taxes. Using this method, income tax liabilities and assets
are recognized for the estimated tax consequences attributable to
differences between the amounts reported in the financial
statements of the Company and their respective tax bases, using
enacted income tax rates. The effect of a change in income tax
rates on future tax liabilities and assets is recognized in income
in the period in which the change occurs. A future income tax
asset is recorded when the probability of the realization of the
asset is more likely than not. Income taxes are paid by the
Corporation's wholly owned subsidiaries in Canada and the United
Kingdom.
f) Foreign currency translation
Assets and liabilities of integrated foreign subsidiary operations
and foreign currency denominated assets and liabilities of
Canadian and United Kingdom operations are translated into United
States dollars (the reporting currency) at exchange rates
prevailing at the balance sheet date for monetary items and at
exchange rates prevailing at the transaction date for non-monetary
items. The revenues and expenses are converted at the average
exchange rate for the reporting period.
g) Stock-based compensation
The Corporation recognizes in operations, compensation costs for
the granting of all stock options and direct awards of stock over
the vesting period using the fair value method of accounting, with
a corresponding increase to contributed surplus. Upon the exercise
of stock options, consideration paid, together with the amount
previously recorded in contributed surplus is recorded as an
increase to share capital.
h) Segmented information
The Corporation operates in one segment being integrated merchant
banking focused on the global natural resources sector.
2. ACQUISITION OF ENDEAVOUR FINANCIAL
On June 8, 2007, the Corporation signed a definitive agreement to
acquire 100% of Endeavour Financial, a privately-held investment
banking firm that provides financial and strategic advisory services
to the global natural resources sector (the "Transaction"). The
Transaction was approved by the shareholders of the Corporation and
closed on July 30, 2007.
The shareholders of Endeavour Financial were issued 10,400,930 common
shares from treasury which valued Endeavour Financial at
$103 million. Approximately 40% of the consideration shares were
placed in escrow and are held pursuant to the terms of an earn-out
escrow agreement.
The earn-out agreement provides for the escrowed shares to be
released in equal quarterly installments based on Endeavour Financial
meeting a cumulative earnings (before interest, income taxes,
depreciation and amortization charges) ("EBITDA") target of
$3.0 million per quarter during the earn-out period which commenced
on August 1, 2007 and ends on June 30, 2010. In addition, 7,800,699
of the consideration shares are subject to resale restrictions with
equal tranches available for resale 6, 12 and 18 months from closing.
The 4,161,124 shares of the Corporation, which will be released upon
the achievement of certain future earnings targets, will be valued at
the fair value of the Corporation's shares when the contingency is
resolved and the additional consideration is released. Any additional
consideration will result in an increase to goodwill.
The first earn-out period commenced on August 1, 2007 and ended on
December 31, 2007. The cumulative EBITDA target for this period was
$6.0 million. Endeavour Financial exceeded the EBITDA target and
consequently 693,523 of the earn-out shares have been released from
escrow. The shares were released subsequent to December 31, 2007, and
have been valued at $6.1 million, being the market value of the
shares on December 31, 2007. The balance of shares remaining in
escrow is 3,467,601.
The business combination was accounted for as a purchase transaction,
with the Corporation being identified as the acquirer and Endeavour
Financial as the acquiree. The Corporation's shares issued in
exchange for the Endeavour Financial shares have been valued at a
price of $9.20 (C$9.79) being the weighted average trading price of
the Corporation's shares two days before, the day of and two days
after the date of the announcement.
The allocation of the purchase price is summarized as follows:
Purchase price:
6,239,806 Endeavour common shares(i) $ 52,261
Acquisition costs 1,532
---------------------------------------------------------------------
$ 53,793
---------------------------------------------------------------------
---------------------------------------------------------------------
Net assets acquired:
Cash $ 28,595
Investments 355
Receivables and other assets 10,738
Accounts payable and accruals (37,488)
Intangible assets 36,141
Goodwill 15,452
---------------------------------------------------------------------
$ 53,793
---------------------------------------------------------------------
---------------------------------------------------------------------
(i) A total of 10,400,930 were issued by EMCC, however the
4,161,124 shares which are contingent on future earnings targets
have not been included in the purchase price.
3. INVESTMENTS
Investments are comprised of the following:
December 31, 2007 June 30, 2007
--------------------- ---------------------
% of % of
Investments by location Value Investments Value Investments
----------------------- ---------- ---------- ---------- ----------
Equities:
North America $ 54,814 24.3% $ 56,114 24.4%
South America 73,800 32.7% 53,742 23.4%
Europe and Asia 19,443 8.6% 18,484 8.0%
Africa 20,241 9.0% 23,887 10.4%
Oceania 16,701 7.4% 8,235 3.6%
---------------------------------------------------------------------
Total equities 184,999 82.0% 160,462 69.8%
---------------------------------------------------------------------
Convertible Loans and
Debentures
North America 1,260 0.6% - 0.0%
South America - 0.0% 16,470 7.2%
---------------------------------------------------------------------
Total Convertible Loans
and Debentures 1,260 0.6% 16,470 7.2%
---------------------------------------------------------------------
Warrants
North America 10,590 4.7% 14,251 6.2%
South America 23,135 10.3% 31,525 13.7%
Europe and Asia 2,252 1.0% 3,454 1.5%
Africa 2,470 1.1% 2,848 1.2%
Oceania 926 0.3% 740 0.4%
---------------------------------------------------------------------
Total Warrants 39,373 17.4% 52,818 23.0%
---------------------------------------------------------------------
Total Investment
Portfolio $ 225,632 100.0% $ 229,750 100.0%
---------------------------------------------------------------------
---------------------------------------------------------------------
The cost of investments totaled $145,966 at December 31, 2007
(June 30, 2007 - $116,146).
The Corporation appoints directors to some of the companies in which
it invests. The market value of investments in companies for which
the Corporation has directors in common totaled $23,102 at
December 31, 2007 (June 30, 2007 - $51,582).
The carrying value of investments in privately-held companies totaled
$4,237 at December 31, 2007 (June 30, 2007 - $3,701).
4. CAPITAL ASSETS
Capital assets are comprised of the following:
June 30,
As at December 31, 2007 2007
-------------------------------- ----------
Accumu-
lated
amorti- Net book Net book
Cost zation value value
---------- ---------- ---------- ----------
Office equipment $ 411 $ (58) $ 353 $ -
Furniture and fixtures 75 (8) 67 -
Leasehold improvements 201 (21) 180 -
---------------------------------------------------------- ----------
$ 687 $ (87) $ 600 $ -
---------------------------------------------------------- ----------
---------------------------------------------------------- ----------
5. INTANGIBLE ASSETS
Intangible assets are comprised of the following:
June 30,
As at December 31, 2007 2007
-------------------------------- ----------
Accumu-
lated
amorti- Net book Net book
Cost zation value value
---------- ---------- ---------- ----------
Customer relationships $ 25,000 $ (694) $ 24,306 $ -
Customer contracts &
other intangible assets 11,141 (2,103) 9,038 -
---------------------------------------------------------- ----------
$ 36,141 $ (2,797) $ 33,344 $ -
---------------------------------------------------------- ----------
---------------------------------------------------------- ----------
6. SHARE CAPITAL
a) Voting shares
Authorized
1,000,000,000 voting shares of $0.01 par value
1,000,000,000 undesignated shares
Additional
Number of Paid In
Shares Par Value Capital Total
----------- ---------- ---------- ----------
Voting shares
June 30, 2007 23,506,178 $ 234 $ 52,946 $ 53,180
Issued pursuant to
the Transaction
(Note 2) 10,400,930 62 52,199 52,261
Stock options &
warrants exercised 269,000 3 945 948
Shares repurchased(i) (37,500) - (313) (313)
------------------------------------------------------------------
Issued at
December 31, 2007 34,138,608 299 105,777 106,076
Shares in
escrow(ii) (4,161,124) - - -
------------------------------------------------------------------
Issued and
outstanding at
December 31, 2007 29,977,484 $ 299 $ 105,777 $ 106,076
------------------------------------------------------------------
------------------------------------------------------------------
(i) During the six months ended December 31, 2007, the
Corporation re-purchased 37,500 of its Common Shares in the
market at a weighted average price of $8.35 per share
(CDN$8.62 per share). All of these shares have been returned
to treasury.
(ii) The shares are held in escrow pursuant to an earn-out escrow
agreement providing for the escrowed shares to be released in
equal quarterly installments based on Endeavour Financial
meeting a cumulative EBITDA target of $3.0 million per
quarter during the earn-out period which commenced on
August 1, 2007 and ends on June 30, 2010. The 4,161,124
shares of the Corporation, which will be released upon the
achievement of the EBITDA earnings targets, will be valued at
the fair value of the Corporation's shares when the
contingency is resolved and the additional shares are
released. As described in Note 2, 693,523 shares were
released subsequent to December 31, 2007 and have been valued
at $6.1 million.
b) Contributed Surplus
A summary of changes in contributed surplus is presented below:
June 30, 2007 $ 492
Stock options exercised (154)
Stock-based compensation (Note 6 (c)) 2,839
------------------------------------------------------------------
December 31, 2007 $ 3,177
------------------------------------------------------------------
------------------------------------------------------------------
c) Stock-based compensation
The Corporation has established a stock option plan whereby the
Corporation's directors may from time to time grant options to
directors, employees or consultants. The maximum term of any
option is ten years. The exercise price of an option is not less
than the closing price on the exchange on the last trading day
preceding the grant date. At December 31, 2007 there were
3,413,860 options available for grant under the plan (June 30,
2007 - 2,350,617).
On October 25, 2007, the Corporation granted stock options to its
directors, officers, employees, consultants and charities to
purchase an aggregate of up to 2,612,500 common shares of the
Corporation at an exercise price of CDN$10.00 per share, expiring
on October 25, 2012.
Using the Black-Scholes fair value method for stock-based
compensation, the value of the vested 2,612,500 stock options that
were granted during the six months ended December 31, 2007 was
$2,838,562 of which $2,373,585 relates to options issued to
employees, directors and charities and $464,977 relates to options
issued to consultants.
A summary of the changes in stock options is presented below:
Weighted
Options average
outstanding exercise
& price
exercisable (CDN$)
------------ ------------
At June 30, 2007 282,500 $ 2.93
Granted 2,612,500 10.00
Exercised (217,500) 2.55
------------------------------------------------------------------
At December 31, 2007 2,677,500 $ 9.86
------------------------------------------------------------------
------------------------------------------------------------------
The following table summarizes information about the stock options
outstanding as at December 31, 2007:
Weighted average
Weighted average remaining
exercise price contractual
Outstanding Exercisable (CDN$) life
------------ ------------ ---------------- -----------------
65,000 65,000 $ 4.20 .94 years
2,612,500 820,834 10.00 4.82 years
------------ ------------
2,677,500 885,834
------------------------------------------------------------------
------------------------------------------------------------------
The following weighted average assumptions were used for the
Black-Scholes valuation of stock options:
Risk-free interest rate 4.19%
Expected life 3 years
Annualized volatility 46%
Dividend rate 2%
Weighted average fair value per option $ 2.45
d) Warrants
A summary of the changes in warrants is presented below:
Weighted average
Warrants Weighted average remaining
outstanding exercise price contractual
& exercisable (CDN$) life
------------- --------------- -----------------
June 30, 2007 3,460,500 $ 5.50 1.37 years
Warrants exercised (51,500) 5.50
------------------------------------------------------------------
December 31, 2007 3,409,000 $ 5.50 .86 years
------------------------------------------------------------------
------------------------------------------------------------------
7. INCOME TAXES
Income taxes for the three and six months period ended December 31
are comprised of the following:
Three months ended Six months ended
December 31, December 31,
2007 2006 2007 2006
---------- ---------- ---------- ----------
Income from continuing
operations before
income taxes $ 1,870 $ 32,330 $ 1,667 $ 16,457
Statutory tax rate 0% 0% 0% 0%
---------------------------------------------------------------------
Income tax expense based
on above rates - - - -
Future income tax expense
on unrealized gains on
investments held by
subsidiaries in taxable
jurisdictions 308 - 303 -
Income tax on earnings
of subsidiaries in
taxable jurisdictions 44 - 44 -
---------------------------------------------------------------------
Income tax expense $ 352 $ - $ 347 $ -
---------------------------------------------------------------------
---------------------------------------------------------------------
The components of future income taxes are as follows:
December 31, June 30,
2007 2007
------------ ------------
Fair value of investments held in taxable
subsidiaries in excess of cost $ 1,203 $ -
Income tax rate 35% 0%
---------------------------------------------------------------------
Future income tax liability $ 421 -
---------------------------------------------------------------------
---------------------------------------------------------------------
8. RELATED PARTY TRANSACTIONS
The Corporation has an investment advisory agreement with US Global
Investors, Inc. ("US Global"), who is related to the Corporation by
way of a director in common. In support of the Corporation's merchant
banking business plan US Global's mandate is to actively manage the
cash in the Corporation's portfolio and to identify and implement
market trading opportunities to enhance the profitability of the
Corporation. US Global is paid: (1) an investment advisory fee,
calculated and payable monthly as 1/12th of 1% of net assets, and (2)
an annualized performance fee of 10% of the Corporation's income from
operations in excess of an 8% return on the weighted average
Shareholders' Equity during the fiscal period. The calculation of net
assets and income from operations remove the effect of goodwill and
other intangibles and exclude the net assets and income of Endeavour
Financial. During the six month period ended December 31, 2007, the
Corporation paid $1.3 million (December 31, 2006 - $0.9 million) of
investment advisory fees to US Global and no performance fees were
accrued. A total of $0.2 million is payable to US Global at
December 31, 2007 (June 30, 2007 - $9.2 million).
Endeavour's management and staff are responsible for originating and
sourcing client merchant banking investments and to continuously
monitor, make investment decisions and determine exit strategies for
these strategic investments. Prior to the acquisition of Endeavour
Financial on July 30, 2007, the Corporation incurred an expense for
amounts it paid to Endeavour Financial in fulfilling this role as an
investment advisor. An investment advisory fee expense of
$0.2 million was incurred during the six month period ended
December 31, 2007 for the pre acquisition period which consisted of
the month of July 2007. During the six month period ended
December 31, 2006, the Corporation paid $0.9 million of investment
advisory fees to Endeavour Financial and a total of $9.2 was payable
to Endeavour Financial at June 30, 2007.
