29th Mar 2006 07:01
European Goldfields Ltd29 March 2006 For Immediate Release 29 March 2006 European Goldfields Limited Consolidated Financial Statements (Audited) 31 December 2005 and 2004 Management's Responsibility for Consolidated Financial Statements The accompanying consolidated financial statements of European GoldfieldsLimited are the responsibility of management and have been approved by the Boardof Directors of the Company. The financial statements include some amounts thatare based on management's best estimate using reasonable judgment. The financial statements have been prepared by management in accordance withCanadian generally accepted accounting principles. Management maintains an appropriate system of internal controls to providereasonable assurance that transactions are authorised, assets safeguarded andproper records are maintained. The Audit Committee of the Board of Directors has met with the Company'sexternal auditors to review the scope and results of the annual audit and toreview the consolidated financial statements and related financial reportingmatters prior to submitting the consolidated financial statements to the Boardof Directors for approval. The financial statements have been audited by BDO Dunwoody LLP, CharteredAccountants, and their report follows. (s) David Reading (s) David Grannell------------------ ------------------David Reading David GrannellChief Executive Officer Chief Financial Officer Auditors' Report to the Shareholders of European Goldfields Limited We have audited the consolidated balance sheets of European Goldfields Limitedas at 31 December 2005 and 2004 and the consolidated statements of loss anddeficit, equity and cash flows for the years then ended. These financialstatements are the responsibility of the Company's management. Ourresponsibility is to express an opinion on these financial statements based onour audits. We conducted our audits in accordance with Canadian generally accepted auditingstandards. Those standards require that we plan and perform an audit to obtainreasonable assurance whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in allmaterial respects, the financial position of the Company as at 31 December 2005and 2004 and the results of its operations and its cash flows for the years thenended in accordance with Canadian generally accepted accounting principles. (s) BDO Dunwoody LLP--------------------Chartered AccountantsToronto, Canada, 24 February 2006 European Goldfields LimitedConsolidated Balance SheetsAs at 31 December 2005 and 2004(in thousands of US Dollars, except per share amounts) 2005 2004 Note $ $Assets Current assetsCash and cash equivalents 30,536 65,253Accounts receivable, prepaid expenses and supplies 5 5,352 2,047Inventory 6 1,865 - ----------------------- 37,753 67,300 ----------------------- Non current assetsPlant and equipment 7 19,374 13,687Deferred exploration and development costs 8Greek production stage mineral properties 10,129 -Greek development stage mineral properties 162,738 195,807 ----------------------- 172,867 195,807Romanian development stage mineral properties 27,843 26,332 ----------------------- 200,710 222,139 ----------------------- Restricted investment 9 3,543 - Future tax asset 10 5,238 2,415 ----------------------- 266,618 305,541 ======================= Liabilities Current liabilitiesAccounts payable and accrued liabilities 11 3,988 3,820 Non current liabilitiesFuture tax liability 10 43,261 48,256Non-controlling interest 14,239 18,036Asset retirement obligation 12 5,307 5,811 ---------------------- 62,807 72,103 ----------------------Shareholders' equityCapital stock 13 240,234 238,420Contributed surplus 13 6,197 5,589Cumulative translation adjustment (12,843) 8,964Deficit (33,765) (23,355) ---------------------- 199,823 229,618 ---------------------- 266,618 305,541 ====================== The accompanying notes are an integral part of these consolidated financial statements. Approved by the Board of Directors (s) David Grannell (s) Jeffrey O'Leary------------------ -------------------David Grannell, Director Dr Jeffrey O'Leary, Director European Goldfields LimitedConsolidated Statements of Loss and DeficitFor the years ended 31 December 2005 and 2004(in thousands of US Dollars, except per share amounts) 2005 2004 Note $ $ IncomeSales 1,521 - Cost of sales (including amortisation and depletion (1,367) -of $197 in 2005) -------------------Gross profit 154 - ------------------- Other income -------------------Interest income 1,263 500 ------------------- ExpensesHellas Gold water treatment expenses (for 3,848 1,472non-operating mines)Corporate administrative and overhead expenses 3,147 6,246Impairment of mineral properties 2,362 4,806Hellas Gold administrative and overhead expenses 2,113 296Equity based compensation expense 1,823 6,420Foreign exchange loss/(gain) 937 (510)Accretion of asset retirement obligation 12 267 24Amortisation 236 93Capital raising costs - Convertible loan notes - 1,122 ------------------- 14,733 19,969 ------------------- Share of loss in equity investment - 730 ------------------- Loss for the year before income tax 13,316 20,199 Income taxes 10 (1,694) (482) ------------------- Loss for the year after income tax 11,622 19,717 Non-controlling interest (1,212) (534) ------------------- Loss for the year 10,410 19,183 Deficit - Beginning of year 23,355 4,172 ------------------- Deficit - End of year 33,765 23,355 ------------------- Loss per share 4 0.09 0.39 Weighted average number of shares (in thousands) 112,098 49,246 The accompanying notes are an integral part of these consolidated financial statements. European Goldfields LimitedConsolidated Statements of EquityAs at 31 December 2005 and 2004(in thousands of US Dollars, except per share amounts) Cumulative Deficit Total Capital Contributed Translation $ $ Stock Surplus Adjustment $ $ $ -------------------------------------------------------Balance - 31 December 2003 27,302 2,374 5,404 (4,172) 30,908 ------------------------------------------------------- Shares issued as considerationfor shares in Hellas Gold 77,426 - - - 77,426Shares issued from brokeredprivate placements 75,729 - - - 75,729Shares issued from non-brokeredprivate placements 35,846 - - - 35,846Shares issued on conversion ofconvertible loan 14,920 (673) - - 14,247Warrants exercised 7,428 - - - 7,428Equity based compensation - 3,893 - - 3,893expenseMovement in cumulativetranslation adjustment - - 3,560 - 3,560Milestone shares issued as 1,802 725 2,527compensation Share options exercised 2,588 (652) - - 1,936Transfer of broker warrantrelated expense to share issuecost - (78) - - (78)Share issue costs (4,621) - - - (4,621)Loss for the period - - - (19,183) (19,183) -------------------------------------------------------- 211,118 3,215 3,560 (19,183) 198,710 -------------------------------------------------------- --------------------------------------------------------Balance - 31 December 2004 238,420 5,589 8,964 (23,355) 229,618 -------------------------------------------------------- Equity based compensation - 2,265 - - 2,265expenseRestricted share units vested 815 (815) - - -Share options exercised 287 (117) - - 170Milestone shares issued as 725 (725) - - -compensationShare issue costs (13) - - - (13)Movement in cumulativetranslation adjustment - - (21,807) - (21,807)Loss for the period - - - (10,410) (10,410) -------------------------------------------------------- 1,814 608 (21,807) (10,410) (29,795) -------------------------------------------------------- --------------------------------------------------------Balance - 31 December 2005 240,234 6,197 (12,843) (33,765) 199,823 -------------------------------------------------------- The accompanying notes are an integral part of these consolidated financial statements. European Goldfields LimitedConsolidated Statements of Cash FlowsFor the years ended 31 December 2005 and 2004(in thousands of US Dollars, except per share amounts) 2005 2004 Note $ $ Cash flows from operating activities Loss for the year (10,410) (19,183) Foreign exchange loss/(gain) 1,384 (510) Amortisation 364 93 Capital raising costs - Convertible loan notes - 1,122 Equity based compensation expense 1,956 6,420 Impairment of mineral properties 2,362 4,806 Accretion of asset retirement obligation 12 267 24 Future tax asset recognised (1,729) (528) Loss on disposal of equipment - 2 Non-controlling interest (1,212) (535) Depletion of mineral properties 8 69 - ----------------- (6,949) (8,289) Net changes in non-cash working capital 16 (4,769) 2,093 ------------------ (11,718) (6,196) ------------------ Cash flows from investing activities Deferred exploration and development costs - Romania (3,901) (5,971) Plant and equipment - Greece (7,839) - Deferred development costs - Greece (2,840) - Acquisition of Hellas Gold assets net of cash - (61,075)acquired Short term investment - 3,091 Restricted investment (3,543) - Proceeds from disposal of equipment 42 22 Purchase of equipment (219) (339) ------------------ (18,300) (64,272) ------------------ Cash flows from financing activities Proceeds from exercise of warrants - 7,428 Proceeds from brokered private placements - 75,729 Proceeds from non-brokered private placement - 35,846 Proceeds from exercise of share options 170 1,936 Share issue costs (14) (4,621) ------------------ 156 116,318 ------------------ Effect of foreign currency translation on cash (4,855) 4,405 ------------------ (Decrease)/Increase in cash and cash equivalents (34,717) 50,255 Cash and cash equivalents - Beginning of year 65,253 14,998 ------------------ Cash and cash equivalents - End of year 30,536 65,253 ------------------ The accompanying notes are an integral part of these consolidated financial statements. European Goldfields LimitedNotes to Consolidated Financial StatementsFor the years ended 31 December 2005 and 2004(in thousands of US Dollars, except per share amounts) 1. Nature of operations European Goldfields Limited (the "Company"), a company incorporated under theYukon Business Corporations Act, is a resource company involved in theacquisition, exploration and development of mineral properties in Greece,Romania and the Balkans. The Company's common shares are listed on the AIM Market of the London StockExchange and on the Toronto Stock Exchange (TSX) under the symbol "EGU". Greece - The Company holds a 65% interest in Hellas Gold S.A. ("Hellas Gold").Hellas Gold owns assets in northern Greece which consist of three depositswithin 70-year mining concessions covering a total area of 317 km(2). Thedeposits include the polymetallic projects of Stratoni and Olympias whichcontain gold, lead, zinc and silver, and the copper-gold porphyry body referredto as Skouries. The three deposits are located within a 10 km radius of each other. BothStratoni and Olympias were previously in production and have existing mining andplant infrastructure and a ship-loading facility on the Aegean Sea. HellasGold's assets also include potential revenue-generating stockpiles ofconcentrates located on the surface. In September 2005, Hellas Gold resumed production at Stratoni following theaward by the Greek state of all necessary environmental and mining permits.Hellas Gold is in the process of applying for similar permits for Olympias andSkouries, having met its first milestone by submitting business plans to theGreek government in January 2006. Romania - The Company holds five mineral properties located within the "GoldenQuadrilateral" area of Romania through an 80% interest in Deva Gold S.A. ("DevaGold") and a 100% interest in European Goldfields Deva SRL, which are in theprocess of exploring their mineral properties and have not yet determinedwhether those properties contain economic reserves. The Company's primary focusis to advance its 80%-owned Certej deposit. The Company has recently completedan in-house pre-feasibility study underpinning the value of the Certej deposit. The underlying value of the deferred exploration and development costs formineral properties is dependent upon the existence and economic recovery ofreserves in the future, and the ability to raise long-term financing to completethe development of the properties. For the coming year, the Company believes it has adequate funds available tomeet its corporate and administrative obligations and its planned expenditureson its mineral properties. These consolidated financial statements have been prepared on a going concernbasis, which assumes the Company will be able to realise assets and dischargeliabilities in the normal course of business for the foreseeable future. Theseconsolidated financial statements do not include the adjustments that would benecessary should the Company be unable to continue as a going concern. 2. Change in functional and reporting currency Effective 1 October 2004, the Company changed its functional currency from theCanadian dollar to the United States dollar. In general, this change resultedfrom a combination of a gradual increase in the operational exposure to theUnited States dollar and predominantly United States dollar based asset andinvestment base of the Company and from a gradual increase in the overallproportion of business activities conducted in United States dollars. Concurrentwith this change in functional currency, the Company adopted the United Statesdollar as its reporting currency. In accordance with accounting principlesgenerally accepted in Canada ("Canadian GAAP"), the change was effected bytranslating all assets and liabilities, at the end of the prior reportingperiods, at the existing United States/Canadian dollar foreignexchange spot rate, while income for those periods were translated at theaverage rate for each period. Equity transactions have been translated at thehistorical rates, with opening equity on 30 June 2000, restated at the rate ofexchange on that date. The resulting net translation adjustment has beencredited to the cumulative translation adjustment account in the equity sectionof the balance sheet. 3. Business combination - Acquisition of a controlling interest in Hellas Gold In February 2004, the Company acquired an initial 37.97% interest (30% on afully-diluted basis) in Hellas Gold for a total subscription price of €18million ($24.06 million) in cash. In November 2004, the Company completed the acquisition of additional shares inHellas Gold(the "Purchased Shares"), increasing its total interest from 37.97% to 55.70%,and assumed an obligation to subscribe to additional shares in Hellas Gold for asubscription price of $23.48 million (the "Subscription Obligation"), resultingin an interest of 65% on a fully-diluted basis (the "Acquisition"). The totalprice paid by the Company for the Purchased Shares and for the assumption of theSubscription Obligation was $125.35 million, satisfied as follows: (a) $77.43 million by the issue in November 2004 of 30,423,280 common shares tothe vendors at a deemed issue price of £1.75 (C$3.98) per share. This wasaccounted for at a price per share of£1.38 (C$3.14), representing the then fair market value of such shares; and (b) $47.92 million paid in cash to the vendors in December 2004. Transaction costs of $3.99 million were also accounted for as part of theAcquisition. In January 2005, the Company satisfied the Subscription Obligation for asubscription price ofUS$23.48 million. To fund the cash requirements relating to the Acquisition and provide additionalworking capital, the Company raised concurrently £40 million ($75.73 million)(before expenses) by the issue of29,629,630 common shares at a price of £1.35 (C$3.07) per share (the "Placing").The balance of the cash consideration required for the Acquisition was funded bya non-brokered private placement with Commerzbank A.G. completed in May 2004,where 5,882,000 common shares at a price of £1.70 (C$4.18) per share wereissued, for total subscription proceeds of £10 million ($17.76 million). The Acquisition was accounted for as a purchase and the results of operations ofHellas Gold were included in the consolidated statements of loss and deficitfrom 30 November 2004, the effective date of the Acquisition. From 9 February2004 to 30 November 2004, the Company's initial 37.97% interest (30% on afully-diluted basis) in Hellas Gold was accounted for as an equity investmentand the Company's share of loss in Hellas Gold was included in the consolidatedstatements of loss and deficit. A summary of the fair value of net assets acquired and consideration given is asfollows: $Cash and short term investments 14,270Net current assets 936Land 4,023Mines, farms and forest 3,994Other assets 5,102Asset retirement obligation (5,787)Future tax assets 1,104Mineral properties 195,807Future tax liabilities (47,473)Non-controlling interest (18,571) ------- 153,405 ------- Purchase consideration Cash paid 71,983 Shares issued (30,423,280 common shares) 77,426 Transaction costs 3,996 ------- Purchase price 153,405 ------- 4. Significant accounting policies These consolidated financial statements have been prepared on the going concernbasis in accordance with Canadian GAAP and reflect the following significantaccounting policies. Basis of consolidation Business acquisitions are accounted for under the purchase method and theresults of operations of these businesses are included in these consolidatedfinancial statements from the acquisition date. Investments in affiliatedcompanies over which the Company has significant influence are accounted forusing the equity method. Investments in other businesses are recorded at cost. These consolidated financial statements include the accounts of the Company andthe following subsidiaries: Company Country of incorporation Ownership European Goldfields (Services) England 100% ownedLimitedEuropean Goldfields Deva SRL Romania 100% ownedDeva Gold (Barbados) Ltd Barbados 100% ownedCastle Europa Ltd * Barbados 100% ownedDeva Gold S.A. Romania 80% ownedEuropean Goldfields Mining Netherlands 100% owned(Netherlands) B.V.European Goldfields (Greece) B.V. Netherlands 100% ownedGlobal Mineral Resources Limited * Barbados 100% ownedGlobal Mineral Resources Holdings Luxembourg 100% ownedS.a.r.l.Global Mineral Resources S.a.r.l. Luxembourg 100% ownedHellas Gold S.A. Greece 65% owned * Dissolved during the financial year ended 31 December 2005. The 20% minority interest held in the Company's 80% owned subsidiary, Deva Gold,is not accounted for in these consolidated financial statements. The basis forthis treatment is that the Company is required to fund 100% of all costs relatedto the exploration and development of the mineral properties held by Deva Gold.As a result, the Company is entitled to the refund of such costs (plus interest)out of future cash flows generated by Deva Gold, prior to any dividends beingdistributed to shareholders. Estimates, risks and uncertainties The preparation of financial statements in conformity with generally acceptedaccounting principles requires management to make estimates and assumptions thataffect the reported amount of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amount of revenues and expenses during the period. Significantestimates and assumptions include those related to the recoverability ofdeferred exploration and development costs for mineral properties.While management believes that these estimates and assumptions are reasonable,actual results could vary significantly. Income taxes Income taxes are calculated using the asset and liability method of taxaccounting. Under this method, current income taxes are recognised for theestimated income taxes payable for the current period.Future income tax assets and liabilities are determined based on differencesbetween the financial reporting and tax bases of assets and liabilities, and aremeasured using the substantially enacted tax rates and laws that will be ineffect when the differences are expected to reverse. The benefit of thetemporary differences is not recognised to the extent the recoverability offuture income tax assets is not considered more likely than not. Plant and equipment Plant and equipment are recorded at cost less accumulated amortisation.Amortisation is calculated on a straight-line basis based on a useful life ofthree years for office equipment, six years for vehicles, ten years forleasehold improvements, at rates varying between three and five years forexploration equipment and at rates varying between four and 20 years forbuildings. Amortisation for equipment used for exploration and development arecapitalised to mineral properties. Deferred exploration and development costs Acquisition costs of resource properties, together with direct exploration anddevelopment costs incurred thereon, are deferred and capitalised. Upon reachingcommercial production, these capitalised costs are transferred from explorationproperties to producing properties on the consolidated balance sheets and areamortised into operations using the unit-of-production method over the estimateduseful life of the estimated related ore reserves. Based on annual impairment reviews made by management, in the event that thelong-term expectation is that the net carrying amount of these capitalisedexploration and development costs will not be recovered such as would beindicated where: - Producing properties: • the carrying amounts of the capitalised costs exceed the related undiscounted net cash flows of reserves; - Exploration properties: • exploration activities have ceased; • exploration results are not promising such that exploration will not be planned for the foreseeable future; • lease ownership rights expire; or • insufficient funding is available to complete the exploration program; then the carrying amount is written down accordingly and the write-down amountcharged to operations. Foreign currency translation The Company's functional currency is the United States dollar. Monetary assetsand liabilities denominated in foreign currencies are translated at the exchangerate in effect at the balance sheet date. Non-monetary assets and liabilitiesand revenue and expenses arising from foreign currency transactions aretranslated at the exchange rate in effect at the date of the transaction.Exchange gains or losses arising from the translation are included inoperations. Integrated foreign subsidiaries are accounted for under the temporal method.Under this method, monetary assets and liabilities are translated at theexchange rate in effect at the balance sheet date. Non-monetary assets andliabilities are translated at historical rates. Revenue and expenses aretranslated at average rates for the period. Exchange gains or losses arisingfrom the translation are included in operations except for those related tomineral properties which are capitalised. The Company accounts for Deva Gold andEuropean Goldfields Deva SRL as integrated foreign subsidiaries. Self-sustaining foreign subsidiaries are accounted for under the current ratemethod. Under this method, all assets and liabilities are translated at theexchange rate in effect at the balance sheet date. Revenue and expenses aretranslated at average rates for the period. Exchange gains or losses arisingfrom the translation are recorded in equity in the cumulative translationadjustment account. The Company accounts for Hellas Gold as a self-sustainingforeign subsidiary. Revenue recognition Revenues from the sale of concentrates are recognised and are recorded at marketprices when title transfers and the rights and obligations of ownership pass tothe customer. A number of the Company's concentrate products are sold underpricing arrangements where final prices are determined by quoted market pricesin a period subsequent to the date of sale. These concentrates are provisionallypriced at the time of sale based on forward prices for the expected date of thefinal settlement. The terms of the contracts result in non-hedge derivativesthat do not qualify for hedge accounting treatment, because of the differencebetween the provisional price and the final settlement price. These embeddedderivatives, if material, are adjusted to fair value through revenue each perioduntil the date of final price determination. Subsequent variations in the priceare recognised as revenue adjustments as they occur until the price isfinalised. Loss per share ("LPS") LPS is calculated based on the weighted average number of common shares issuedand outstanding during 2005 being 112,098,010 (2004 - 49,245,920). Diluted pershare amounts are calculated using the treasury stock method whereby proceedsdeemed to be received on the exercise of share options and warrants and on thegranting of restricted share units in the per share calculation are applied toreacquire common shares. The effect of potential issuances of shares under shareoptions, warrants and restricted share units would be anti-dilutive, andaccordingly basic and diluted loss per share are the same. Financial instruments The Company's financial instruments consist of cash and cash equivalents,accounts receivable and accounts payable and accrued liabilities. Unlessotherwise noted, it is management's opinion that the Company is not exposed tosignificant interest or credit risks arising from these financial instruments.The fair values of these financial instruments approximate their carrying valuesunless otherwise noted. The Company's operations expose it to significant fluctuations in foreignexchange rates. The Company has monetary assets and liabilities denominated inBritish pounds sterling, Romanian lei, euros and Canadian dollars, which are,therefore, subject to exchange variations against the reporting currency, theUnited States dollar. Included in cash and cash equivalents is approximately$12.15 million denominated in euros. The Company does not currently have any hedging policies or practices in place. Equity-based compensation The Company operates a share option plan and a restricted share unit plan, whichare described in Note 14. The Company accounts for equity-based compensationgranted under such plans using the fair value method of accounting. Under suchmethod, the cost of equity-based compensation is estimated at fair value and isrecognised in the income statement as an expense, or capitalised to deferredexploration and development costs when the compensation can be attributed tomineral properties. This cost is amortised over the relevant vesting period forgrants to directors, officers and employees, and recorded in full on the date ofgrant for grants to non-employees. Any consideration received by the Company onexercise of share options is credited to share capital. Cash and cash equivalents Cash and cash equivalents include cash and deposits with original maturities ofthree months or less. Asset retirement obligation Effective 1 January 2004, the Company adopted the CICA Handbook Section 3110"Asset Retirement Obligations", which established standards for asset retirementobligations and the associated retirement costs related to reclamation andabandonment. The fair value of the liability of an asset retirement obligationis recorded when it is incurred and the corresponding increase to the asset isdepreciated over the life of the asset. The liability is increased over time toreflect an accretion element considered in the initial measurement at fairvalue. At 31 December 2005, the Company had an asset retirement obligationrelating to its mineral properties in Greece. Impairment of long-lived assets Effective 1 January 2004, the Company adopted the new recommendations of CICAHandbook Section 3063 "Impairment of Long-lived Assets" on a prospective basis.Section 3063 requires that long-lived assets and intangibles to be held and usedby the Company be reviewed for possible impairment whenever events or changes incircumstances indicate that the carrying amount of an asset may not berecoverable.If changes in circumstances indicate that the carrying amount of an asset thatan entity expects to hold and use may not be recoverable, future cash flowsexpected to result from the use of the asset and its disposition must beestimated. If the undiscounted value of the future cash flows is less than thecarrying amount of the asset, impairment is recognised based on the fair valueof the assets. Effective 31 December 2004, the Company relinquished its80%-owned exploitation license for the Zlatna perimeter in Romania and aprovision for the costs of this property has been recorded. Effective 31December 2005, the Company relinquished its 80%-owned exploitation license forthe Bolcana perimeter in Romania and a provision for the costs of this propertyhas been recorded. Inventory Inventories of ore mined and metal concentrates are valued at the lower ofcombined production cost and net realisable value. Production costs include thecosts directly related to bringing the inventory to its current condition andlocation, such as materials, labour, mine site overheads, related depreciationof mining and processing facilities, related depletion of mineral properties anddeferred exploration and development costs. Exploration supplies are valued atthe lower of cost and net realisable value . 5. Accounts receivable, prepaid expenses and supplies This balance comprises the following: 2005 2004 $ $Taxes recoverable 2,950 1,100Accounts receivable 2,236 701Prepaid expenses 129 204Exploration supplies 37 18Interest receivable - 24 ----------------- 5,352 2,047 ----------------- 6. Inventory This balance comprises the following: 2005 2004 $ $Ore mined 583 -Metal concentrates 1,274 -Material and supplies 8 - ----------------- 1,865 - ----------------- 7. Plant and equipment Exploration / office Land and Leasehold Total equipment Vehicles buildings Improvements $ $ $ $ $Cost - 2004 At 31 December 2003 352 433 - - 785 Additions 1,275 782 11,379 219 13,655Disposals (27) - - - (27)Currency translation 11 9 - - 20adjustmentTransfer to mineral (222) (103) - - (325)properties -------------------------------------------------At 31 December 2004 1,389 1,121 11,379 219 14,108 ------------------------------------------------- Accumulated amortisation - 2004 At 31 December 2003 171 128 - - 299 Provision for the year 137 85 16 11 249Disposals (3) - - - (3)Currency translation 4 3 - - 7adjustmentTransfer to mineral (177) 46 - - (131)properties -------------------------------------------------At 31 December 2004 132 262 16 11 421 ------------------------------------------------- Net book value at 31 1,257 859 11,363 208 13,687December 2004 ------------------------------------------------- Cost - 2005 At 31 December 2004 1,389 1,121 11,379 219 14,108 Additions 4,318 190 3,546 4 8,058Disposals - (42) - - (42)Currency translation (148) (135) (1,523) - (1,806)adjustment -------------------------------------------------At 31 December 2005 5,559 1,134 13,402 223 20,318 ------------------------------------------------- Accumulated amortisation - 2005 At 31 December 2004 132 262 16 11 421 Provision for the year 321 150 134 22 627Disposals - - - - -Currency translation (33) (40) (31) - (104)adjustment -------------------------------------------------At 31 December 2005 420 372 119 33 944 ------------------------------------------------- Net book value at 31 5,139 762 13,283 190 19,374December 2005 ------------------------------------------------- 8. Deferred exploration and development costs Romanian mineral properties: Baita- Certej Zlatna Bolcana Craciunesti Voia Cainel Total $ $ $ $ $ $ $ ---------------------------------------------------------------------Balance - 31 16,663 4,294 2,103 2,032 271 - 25,363 ---------------------------------------------------------------------December 2003 Drilling and 2,323 211 36 279 6 - 2,855assayingGeosciences and 458 48 20 45 34 - 605tech. consultingSamplers, miners and 122 26 5 24 9 - 186surveyingProject management 205 33 24 38 25 - 325Project overhead 696 65 14 81 100 - 956Amortisation 108 16 15 15 3 - 157Currency adjustment 456 113 62 53 7 - 691Impairment of - (4,806) - - - - (4,806)mineral properties --------------------------------------------------------------------- 4,368 (4,294) 176 535 184 - 969 --------------------------------------------------------------------- Balance - 31 21,031 - 2,279 2,567 455 - 26,332December 2004 --------------------------------------------------------------------- Drilling and 487 - 10 157 1 396 1,051assayingGeosciences and 429 - 20 48 25 189 711tech. consultingSamplers, miners and 89 - 8 6 - 153 256surveyingProject management 269 - 1 (8) 24 78 364Project overhead 995 - 31 165 7 161 1,359Amortisation 100 - 13 13 1 5 132Impairment of - - (2,362) - - - (2,362)mineral properties 2,369 - (2,279) 381 58 982 1,511 ---------------------------------------------------------------------Balance - 31 23,400 - - 2,948 513 982 27,843December 2005 --------------------------------------------------------------------- The Certej, Bolcana and Zlatna exploitation licences and the Baita- Craciunestiexploration licence are held by the Company's 80%-owned subsidiary, Deva Gold.Minvest S.A. (a Romanian state owned mining company), together with threeprivate Romanian companies, hold the remaining 20% interest in Deva Gold and theCompany holds the pre-emptive right to acquire such 20% interest. The Company isrequired to fund 100% of all costs related to the exploration and development ofthese properties. As a result, the Company is entitled to the refund of suchcosts (plus interest) out of future cash flows generated by Deva Gold, prior toany dividends being distributed to shareholders. The Voia and Cainel exploration licences are held by the Company's wholly-ownedsubsidiary, European Goldfields Deva SRL. Effective 31 December 2004, the Company relinquished its exploitation licensefor the Zlatna perimeter in Romania and a provision for the costs of thisproperty has been recorded. Effective 31 December 2005, the Company relinquishedits exploitation license for the Bolcana perimeter in Romania and a provisionfor the costs of this property has been recorded. Individual property spending commitments for each of the Company's Romanianlicences have been met as at 31 December 2005 and 2004. Greek mineral properties: Stratoni Skouries Olympias Total $ $ $ $ ------------------------------------------------Balance - 31 December 2004 11,376 73,517 110,914 195,807 ------------------------------------------------ Deferred development costs 421 687 1,939 3,047Depletion of mineral (168) - - (168)propertiesCurrency translation (1,500) (9,694) (14,625) (25,819)adjustment ------------------------------------------------- (1,247) (9,007) (12,686) (22,940) -------------------------------------------------Balance - 31 December 2005 10,129 64,510 98,228 172,867 ------------------------------------------------- The Stratoni, Skouries and Olympias properties are held by the Company's65%-owned subsidiary, Hellas Gold. In September 2005, the Stratoni propertycommenced production. Greek State Contract On 12 December 2003, Hellas Gold entered into a contract with the Greek State(the "Greek State Contract") pursuant to which Hellas Gold acquired the assetsreferred to in the preceding paragraph (the "Greek Assets"). The Greek StateContract was ratified by Greek parliament on 8 January 2004 and passed into lawon 28 January 2004. The purchase price paid by Hellas Gold to the Greek Statefor the Greek Assets was €11 million ($15 million) in cash. Under the GreekState Contract, among other things: a) Hellas Gold must prepare business plans for the development of the GreekAssets and construction/operation of a gold processing plant on or before 28January 2006, and the Greek state is committed to review the business planswithin two months of submission, and issue environmental and mining permits forthe projects within 10 months of receiving all necessary studies and reports forthe projects; b) Hellas Gold must commence preparatory work in respect of the Madem Lakkos andMavres Petres mines in order to allow recommencement of production activitieswithin a reasonable period of time; c) Hellas Gold must take all required actions and procedures to protect theenvironment as directed by the Minister of Development for Greece, including theadoption of measures for water re-treatment; d) Hellas Gold does not have any environmental liabilities arising before thedate of ratification of the Greek State Contract; e) all licences and approvals which were issued by an administrative or othergovernment authority and which expire before 31 December 2006 were automaticallyextended to 31 December 2006; f) if Hellas Gold is evicted from any of the transferred property, no claim canbe made by Hellas Gold in order to reduce the purchase price; and g) if either party breaches the terms of the Greek State Contract, thenon-defaulting party may terminate the contract and, on termination, all assetsare to be returned to the Greek government and the purchase price repaid withoutinterest. The non-defaulting party may be entitled to compensation for damagesresulting from the termination. 9. Restricted investment The balance consists of an amount of $3,543 (€3 million) pledged by Hellas Goldto the National Bank of Greece as collateral for a Letter of Guarantee issued bythe National Bank of Greece to the Greek Ministry of Development to guaranteeHellas Gold's environmental commitments under its mining permit at Stratoni. TheLetter of Guarantee expires on 31 December 2010. The investment bears a rate ofinterest of Euribor plus 0.8% per annum. 10. Income taxes The following table reconciles the expected income tax recovery at the Canadianstatutory income tax rate to the amounts recognised in the consolidatedstatements of loss and deficit: 2005 2004 $ $ ------------------Income tax rate 36.12% 37.12%Income taxes at statutory rates (4,373) (7,333)Tax rate difference from foreign jurisdictions 501 490Permanent differences 757 2,845Change in tax rate (64) (40)Currency translation adjustment - (144)Change in valuation allowance 1,451 3,667Large corporations tax 9 33Other 25 - ------------------ (1,694) (482) ------------------ The following table reflects future income tax assets: 2005 2004 $ $ ------------------Loss carry forwards 10,280 6,637Retirement obligation 1,388 783Plant and equipment 22 5Inventory 9 -Valuation allowance (6,461) (5,010) ------------------Future income tax recognised 5,238 2,415 ------------------ The following table reflects future income tax liabilities: 2005 2004 $ $ ------------------Mineral properties 41,213 48,256Plant and equipment 1,276 -Exploration and development expenditure 772 - ------------------ 43,261 48,256 ------------------ The tax liability arises as a result of the increase in value placed on themineral properties held by Hellas Gold on acquisition by the Company. Thisfuture tax liability will reverse as the corresponding mineral properties areamortised. The Company has available tax losses for income tax purposes of approximately$32,158 (2004 - $17,736) which may be carried forward to reduce taxable incomederived in future years. The non-capital losses will expire as follows: 2005 $ ------2007 1302008 3832009 7,2272010 9,5712014 6,4432015 2,605Non expiring losses 5,799 ------- 32,158 ------- In addition, the Company incurred share issue costs and other deductibletemporary differences, which have not yet been claimed for income tax purposes,totalling approximately $5,050 (2004 - $6,980). Subject to certain restrictions,exploration and development expenditures available to reduce taxable income inRomania is $23,405 (2004 - $25,641) A valuation allowance has been provided as a portion of the potential income taxbenefits of these carry-forward non-capital losses and deductible temporarydifferences and the realisation thereof is not considered more likely than not. 11. Accounts payable and accrued liabilities The balance principally comprises amounts outstanding for normal operations andongoing costs. The average credit period taken during the financial year ended31 December 2005 was 30 days(2004 - 30 days). 12. Asset retirement obligation Management has estimated the total future asset retirement obligation based onthe Company's net ownership interest in the Olympias, Skouries and Stratonimines and facilities. This includes all estimated costs to dismantle, remove,reclaim and abandon the facilities and the estimated time period during whichthese costs will be incurred in the future. The following table reconciles theasset retirement obligations for the financial years ended 31 December 2005 and2004: 2005 2004 $ $ ------------------Asset retirement obligation - Beginning of year 5,811 -Additional obligation - 5,787Currency translation adjustment (771) -Accretion expense 267 24 ------------------Asset retirement obligation - End of year 5,307 5,811 ------------------ The undiscounted amount of estimated cash flows required to settle theobligation is $5,970 (2004 - 16,850). The estimated cash flow has been discounted using a credit adjusted risk free rate of 5.04%. The expected period until settlement is six years. 13. Capital stock Authorised: - Unlimited number of common shares, without par value - Unlimited number of preferred shares, issuable in series, without par value Issued and outstanding (common shares - all fully paid): Number of Amount Shares $ -------------------Balance - 31 December 2003 22,021,126 27,302 ------------------- Shares issued on conversion of convertible loan notes 8,309,947 14,920(a)Shares issued from non-brokered private placement (b) 9,458,750 18,079Shares issued from non-brokered private placement (c) 5,882,000 17,767Shares issued from brokered private placement (d) 29,629,630 75,729Shares issued as consideration for shares in Hellas 30,423,280 77,426Gold S.A. (e)Share options exercised 1,350,000 2,588Milestone shares issued as compensation (f) 755,000 1,802Warrants exercised 3,918,975 7,428Share issue costs - (4,621) ------------------- 89,727,582 211,118 ------------------- Balance - 31 December 2004 111,748,708 238,420 -------------------- Restricted share units vested (Note 14) 425,000 815Milestone shares issued as compensation (f) 350,000 725Share options exercised (Note 14) 75,000 287Share issue costs - (13) -------------------- 850,000 1,814 -------------------- Balance - 31 December 2005 112,598,708 240,234 -------------------- a) In December 2003, the Company raised $14.92 million by way of abrokered private placement of convertible loan notes. Following the completionof certain transactions (the "Conversion Events"), the convertible loan noteswere automatically converted in March 2004 into 8,309,947 common shares of theCompany at a price of C$2.35 per share. The convertible loan notes werenon-interest bearing unless the Conversion Events did not occur by 31 March 2004or certain other events of default occurred, in which case they would have borninterest at a rate of 18% per annum thereafter. The present value of interestforgone, amounting to $751,928, attributable to the convertibility features ofthe convertible loan notes has been credited to contributed surplus. b) In February 2004, the Company raised $18.08 million by way of anon-brokered private placement of 9,458,750 special warrants at a price ofC$2.50 per warrant. The warrants were exercised in February 2004 into 9,458,750common shares of the Company. c) In May 2004, the Company completed a non-brokered private placementwith Commerzbank A.G. of 5,882,000 common shares of the Company at a price of£1.70 (C$4.18) per share for total subscription proceeds of £10 million ($17.76million). d) In November 2004, the Company raised $75.73 million by way of abrokered private placement of 29,629,630 common shares of the Company at a priceof £1.35 (C$3.07) per share. e) In November 2004, the Company issued 30,423,280 common shares at aprice of £1.75 (C$3.98) per share in partial payment ($95.83 million) of thepurchased price paid by the Company for the acquisition of a controllinginterest in Hellas Gold (Note 3). This was accounted for at a price per share of£1.38 (C$3.14) amounting to $77.43 million, representing the then fair marketvalue of such shares. f) During the financial year ended 31 December 2004, the Companyissued a total of 755,000 common shares to senior officers of the Company underits Milestone Share Compensation Plan, 250,000 of which at a fair value ofC$2.71 per share, 100,000 at a fair value of C$3.36 per share and 405,000 at afair value of £1.35 (C$3.07) per share. Furthermore, in July 2004, the Companyundertook to issue in March 2005 an additional 350,000 commons shares at a fairvalue of C$2.71 per share to a senior officer of the Company under its MilestoneShare Compensation Plan. Such shares were issued on17 March 2005. As at 31 December 2005, the Company had 30,423,280 common shares held in escrowor in respect of which trading restrictions applied, representing the commonshares of the Company issued to the vendors pursuant to the Acquisition (Note3). Of such shares, 7,500,000 were released from escrow on 7 February 2006. Theremaining shares will be released from escrow on the date on which the Companypublishes its audited consolidated financial statements for the year ended 31December 2005. The escrow agent is Computershare Trust Company of Canada. Contributed surplus: 2005 2004 $ $Equity based compensation expense 5,619 5,011Broker warrants 578 578 ----------------- 6,197 5,589 ----------------- 14. Share options, restricted share units and milestone shares Share Option Plan The Company operates a Share Option Plan (together with its predecessor, the"Share Option Plan") authorising the directors to grant options to acquirecommon shares of the Company to the directors, officers, employees andconsultants of the Company and its subsidiaries, on terms that the Board ofDirectors may determine, within the limitations of the Share Option Plan. As at 31 December 2005, the following share options were outstanding: Number of Exercise options price C$Expiry date2006 226,000 1.402006 64,000 2.502007 300,000 2.502008 175,000 2.202009 890,000 2.802009 265,000 3.202009 250,000 4.202009 625,000 3.072009 285,000 3.152010 1,379,333 2.002010 75,000 2.112010 150,000 2.40 ------------------- 4,684,333 2.58 ------------------- During the financial years ended 31 December 2005 and 2004, share options weregranted, exercised and cancelled as follows: Number of Weighted Options average exercise price C$ ---------------------Balance - 31 December 2003 2,690,000 1.96 --------------------- Options granted - 2004 3,260,000 3.05Options exercised - 2004 (1,350,000) 1.80Options cancelled - 2004 (585,000) 2.31 ---------------------Balance - 31 December 2004 4,015,000 2.85 --------------------- Options granted - 2005 1,626,000 2.04Options exercised - 2005 (75,000) 2.80Options cancelled - 2005 (881,667) 2.78 ---------------------Balance - 31 December 2005 4,684,333 2.58 --------------------- Of the 4,684,333 share options outstanding as at 31 December 2005, 3,443,889were fully vested and had a weighted average exercise price of C$2.70 per share. The weighted average grant-date fair value of the 1,626,000 share optionsgranted during 2005 (2004 - 3,260,000) was C$2.04 (2004 - C$3.05). An equity-based compensation cost of $1,324 (2004 - $4,858) has been recognised in the income statement for these share options. The fair value of the share options granted has been estimated at the date ofgrant using a Black-Scholes option pricing model with the following assumptions:weighted average risk free interest rate of 2.25%(2004 - 2.3%); volatility factor of the expected market price of the Company'sshares of 53.98% to 60.60% (2004 - 62.84%); and a weighted average expected lifeof the share options of five years(2004 - 4 to 5 years). Restricted Share Unit Plan The Company operates a Restricted Share Unit Plan (the "RSU Plan") authorisingthe directors, based on recommendations received from the CompensationCommittee, to grant Restricted Share Units ("RSUs") to designated directors,officers, employees and consultants. The RSUs are "phantom" shares that rise andfall in value based on the value of the Company's common shares and are redeemedfor actual common shares on the vesting dates determined by the Board ofDirectors when the RSUs are granted. The RSUs would typically become 100% vestedupon a change of control of the Company. The maximum number of common shares ofthe Company which may be reserved for issuance for all purposes under the RSUPlan shall not exceed 2.5% of the common shares issued and outstanding from timeto time. As at 31 December 2005, the following RSUs were outstanding: Number of Grant date RSUs fair value of underlying sharesVesting date C$ 31 December 2006 400,000 2.1931 December 2007 350,000 2.19 ------------------------ 750,000 2.19 ------------------------ During the financial years ended 31 December 2005 and 2004, RSUs were granted,vested and cancelled as follows: Weighted average grant date fair value of underlying Number of shares RSUs C$ -----------------------Balance - 31 December 2003 and 2004 - - ----------------------- RSUs granted - 2005 1,175,000 2.20RSUs vested - 2005 (425,000) 2.22RSUs cancelled - 2005 - - -----------------------Balance - 31 December 2005 750,000 2.19 ----------------------- The weighted average grant date fair value of underlying shares of the 1,175,000RSUs granted during 2005 (2004 - Nil) was C$2,573 (2004 - Nil). For the RSUsgranted during 2005, an equity-based compensation cost of $498 (2004 - Nil) hasbeen recognised in the income statement and $442 (2004 - Nil) has beencapitalised to deferred exploration and development costs. Milestone Share Compensation Plan Until the adoption of the RSU Plan in June 2005, the Company operated aMilestone Share Compensation Plan (the "Milestone Share Compensation Plan")authorising the directors, based on recommendations received from theCompensation Committee, to issue common shares of the Company to executiveofficers of the Company and its subsidiaries to recognise out of the ordinaryperformance in achieving corporate milestones set by the Board of Directors. Themaximum number of common shares of the Company which was reserved for issuanceunder the Milestone Share Compensation Plan could not exceed1,108,970 common shares. As at 31 December 2005, a total 1,105,000 common shares(2004 - 755,000 common shares) had been issued under the Milestone ShareCompensation Plan, at a weighted average fair value of C$2.90 per share. 15. Warrants During the financial years ended 31 December 2005 and 2004, warrants weregranted, exercised and expired as follows: Weighted average exercise Number of price warrants C$ ----------------------Balance - 31 December 2003 4,655,498 2.49 ---------------------- Warrants granted - 2004 - -Warrants exercised - 2004 (3,918,975) 2.50Warrants expired - 2004 (321,025) 2.50 ----------------------Balance - 31 December 2004 415,498 2.35 ---------------------- Warrants granted - 2005 - -Warrants exercised - 2005 - -Warrants expired - 2005 (415,498) 2.35 ----------------------Balance - 31 December 2005 - - ---------------------- As part of the compensation related to the December 2003 brokered privateplacement of convertible loan notes, the agents received 415,498 broker warrantsat an exercise price of C$2.35 for a period of eighteen months. The fair valueof the 415,498 broker warrants has been estimated using a Black-Scholes pricingmodel resulting in an amount of $309. Of this amount $293 has been debited todeferred financing costs and $15 has been debited to contributed surplus ascapital raising costs - convertible loan notes.The following assumptions were used in the Black-Scholes pricing model: weightedaverage risk free interest rate of 4.3%; volatility factor of the expectedmarket price of the Company's stock of 93.4%; and an expected life of thewarrants of eighteen months. 16. Supplementary cash flow information 2005 2004 $ $ ------------------Changes in non-cash operating accounts:Accounts receivable, prepaid expenses and supplies (3,305) (1,032)Accounts payable 169 3,125Inventory (1,633) - ------------------ (4,769) 2,093 ------------------ Supplemental cash flow information:Income taxes paid 34 47 Supplemental disclosure of non-cash transactions:Share options issued for non-cash consideration - 4,585Exercise of share options - Transfer from contributedsurplus (725) (653)to share capitalVesting of restricted share units (815) - 17. Commitments As at 31 December 2005, the Company had remaining spending commitments of $1,459(2004 - $1,517) over the remaining term of its Voia exploration licence inRomania which expires in March 2007. The Company has spending commitments of $187 per year (plus service charges andvalue added tax) for a term of ten years under the lease for its office inLondon, England, which commenced in April 2004. The rent will be reviewed on thefifth anniversary of the commencement of the term to reflect any increase inrents in the market. In November 2005, Hellas Gold entered into off-take agreements pursuant to whichHellas Gold agreed to sell the following quantities of metal concentratesproduced at the Stratoni mine during the financial years ending 31 December2006, 2007 and 2008: 2006 2007 2008 (dry metric tonnes) ------------------------ Zinc concentrates 42,700 51,000 15,000Lead/silver concentrates 25,000 26,000 20,000 ------------------------ 67,700 77,000 35,000 ------------------------ 18. Transactions with related parties As part of the Acquisition described in Note 3, the Company acquired fromcompanies owned by Frank Timis or over which he exercised control or direction,an obligation to subscribe for a 21% interest (on a fully-diluted basis) inHellas Gold for an aggregate subscription price $23.48 million (€18 million).Prior to the Acquisition, Frank Timis owned, or exercised control or directionover, approximately 9% of the issued and outstanding common shares of theCompany. After completion of the Acquisition and the Placing described in Note3, Frank Timis owned, or exercised control or direction over, approximately18.9% of the issued and outstanding common shares of the Company. As part of the Acquisition, the Company acquired a 14% interest (on afully-diluted basis) in Hellas Gold from Dimitrios Koutras. Prior to theAcquisition, Dimitrios Koutras owned, or exercised control or direction over,Nil% of the issued and outstanding common shares of the Company. Aftercompletion of the Acquisition and the Placing, Dimitrios Koutras owned, or exercised control or direction over, approximately 12.7% of the issued and outstanding common shares of the Company. The Acquisition was approved by the disinterested shareholders of the Company ata Special Meeting of Shareholders held on 26 November 2004, and was completedfollowing the rules of the TSX Venture Exchange and the AIM Market of the LondonStock Exchange. During the financial year ended 31 December 2005, Hellas Gold incurred costs of$9,657 (2004 - $3,645) for management, technical and engineering servicesreceived from a related party, Aktor S.A., a 35% shareholder in Hellas Gold. As at 31 December 2005, Hellas Gold had accounts payable of $1,466 (2004 - $1,366) to Aktor S.A. These expenses were contracted in the normal course of operations and are recorded at the exchange amount agreed by the parties. 19. Segmented information The Company has one operating segment: the acquisition, exploration anddevelopment of precious and base metal mineral resources properties located inGreece and Romania. Geographic segmentation of plant and equipment and deferred exploration anddevelopment costs and operating liabilities is as follows: 2005 2004 $ $ ------------------RevenueCanada - -Greece 1,521 -Romania - -United Kingdom - - ----------------- 1,521 - ----------------- Plant and equipment and deferred exploration and development costsCanada - -Greece 191,659 208,873Romania 28,081 26,543United Kingdom 344 410 ------------------- 220,084 235,826 ------------------- Operating liabilitiesCanada 214 387Greece 3,144 1,953Romania 310 286United Kingdom 320 1,194 ------------------ 3,988 3,820 ------------------ 20. Reconciliation to International Accounting Standards ("IAS") These financial statements have been prepared in accordance with Canadian GAAP. For Canadian GAAP, the Company has accounted for its investment in Hellas Goldfrom the parent entity perspective which, focuses on the parent entityshareholders and their interests in the subsidiary. For International FinancialReporting purposes, the Company would account for its investment in Hellas Goldfrom the economic entity perspective which views both the controlling andnon-controlling shareholders as equity holders in a consolidated entity thatshould be viewed as, and accounted for, as a whole. The effect of the differences between Canadian GAAP and IAS on the Company'sconsolidated balance sheets and statements of equity is summarised as follows: 2005 2004 $ $ --------------------Non current assetsGreek mineral properties under Canadian GAAP 172,867 195,807Adjustment for IAS 88,234 105,209 --------------------Greek mineral properties under IAS 261,101 301,016 -------------------- Non current liabilitiesNon current liabilities under Canadian GAAP 62,807 72,103Adjustment to future tax 22,069 27,780Adjustment for non-controlling interest (14,239) (18,036) -------------------Non current liabilities under IAS 70,637 81,847 ------------------- Shareholders' equityShareholders' equity under Canadian GAAP 199,823 229,618Adjustment to cumulative translation adjustment account (26,388) 5,658Non-controlling interest under IAS 72,706 85,176Additional depletion 41 - -------------------Shareholders' equity under IAS 246,182 320,452 ------------------- During the financial year ended 31 December 2004, the Company changed itsreporting currency from the Canadian dollar to the United States dollar. Inaccordance with Canadian GAAP, the change was effected retrospectively, withassets and liabilities translated at the end of the prior reporting periods (seeNote 2). Under IAS, a change in reporting currency is treated prospectively withassets and liabilities translated at the rate prevailing at the date of changein the functional currency. The impact of this difference on the balance sheetsof the prior periods has not been reported. Other than the differences noted above, management considers that there are nomaterial differences between amounts reported under Canadian GAAP and those thatwould result from the application of IAS. 21. Reclassification of comparative figures Certain comparative figures have been reclassified to conform to the currentyear's presentation. 22. Legal proceedings The Company, from time to time, is involved in various claims, legal proceedingsand complaints arising in the ordinary course of business. There are no legalproceedings to which the Company or any of its subsidiaries is a party or ofwhich any of their properties is the subject that would have a material adverseeffect on the consolidated financial condition or future results of the Company.There are no such proceedings known to the Company to be contemplated. 23. Post balance sheet event In January 2006, the Company granted 65,000 restricted share units ("RSUs")under the Company's Restricted Share Unit Plan. The RSUs were redeemed for anequal number of common shares of the Company on 31 January 2006. In March 2006,the Company granted 100,000 RSUs under the Company's Restricted Share Unit Plan.The RSUs are redeemable for an equal number of common shares of the Company on15 May 2006. In February 2006, the Company issued a total of 25,000 common shares pursuant tothe exercise of outstanding share options. Since 1 January 2006, 641,666outstanding share options expired and were cancelled. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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