EX-99.1 2 exhibit99-1.htm EXHIBIT 99.1 Endeavour Silver Corp. - Exhibit 99.1 - Filed by newsfilecorp.com

 


ENDEAVOUR SILVER CORP.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION
(unaudited – prepared by management)
(expressed in thousands of US dollars)

      September 30,      December 31,  
  Notes   20 18     2017  
ASSETS              
               
Current assets              
   Cash and cash equivalents   $ 28,60 4   $  38,277  
   Restricted cash     -     1,000  
   Other investm ents     10 8     168  
   Accounts receivable 4   36,174     34,012  
   Inventories 5   12,230     13,131  
   Prepaid expenses     1,870     1,911  
Total current assets     78,986     88,499  
               
Non-current deposits     60 9     610  
Deferred income tax asset     7,269     655  
Mineral properties, plant and equipment 7   89,50 5     88,816  
Total assets   $ 176,369   $  178,580  
               
LIABILITIES AND SHAREHOLDERS' EQUITY              
               
Current liabilit ies              
   Accounts payable and accrued liabilities   $ 18,927   $  19,068  
   Income taxes payable     2,639     3,185  
Total current liabilities     21,566     22,253  
               
Deferred lease inducem ent     224     236  
Provision for reclam ation and rehabilitation     8,0 95     7,982  
Deferred income tax liability     1,156     1,592  
Tot al liabilit ies     31,0 41     32,063  
               
Shareholders' equit y              
Common shares, unlimited shares authorized, no par value, issued
and outstanding 129,640,409 shares (Dec 31, 2017 - 127,488,410 shares)
Page 4   456,528     450,740  
Contributed surplus Page 4   9,144     8,747  
Accumulated other com prehensive incom e (loss) Page 4   -     127  
Retained earnings (deficit)     (320 ,344 )   (313,097 )
Total shareholders' equit y     145,328     146,517  
Total liabilities and shareholders' equity   $ 176,369   $  178,580  

Commitments and contingencies (Notes 7 and 13)

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

ENDEAVOUR SILVER CORP.  |  CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

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ENDEAVOUR SILVER CORP.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME
(unaudited – prepared by management)
(expressed in thousands of US dollars, except for shares and per share amounts)

      Three months ended     Nine months ended  
      September 30,     September 30,     September 30,     September 30,  
  Notes   2018     2017     2018     2017  
                           
Revenue   $  37,581   $  39,782   $  116,676   $  108,859  
Cost of sales:                          
  Direct production costs     27,574     27,400     77,100     74,931  
  Royalties     421     457     1,296     1,237  
  Share-based payments 8   -     63     (93 )   155  
  Depreciation and depletion     13,104     4,394     30,718     11,778  
  Write down of inventory to net realizable value 5   1,262     166     4,544     166  
      42,361     32,480     113,565     88,267  
Mine operating earnings (loss)     (4,780 )   7,302     3,111     20,592  
Expenses:                          
  Exploration 9   3,965     3,432     10,418     10,533  
  General and administrative 10   1,316     1,605     6,845     5,991  
      5,281     5,037     17,263     16,524  
Operating earnings (loss)     (10,061 )   2,265     (14,152 )   4,068  
Finance costs     62     166     160     610  
Other income (expense):                          
  Foreign exchange     1,906     (561 )   1,009     2,454  
  Investment and other     99     (170 )   311     119  
      2,005     (731 )   1,320     2,573  
Earnings (loss) before income taxes     (8,118 )   1,368     (12,992 )   6,031  
Income tax expense (recovery):                          
  Current income tax expense     291     882     2,944     1,726  
  Deferred income tax expense (recovery)     (2,957 )   (510 )   (7,158 )   (2,710 )
      (2,666 )   372     (4,214 )   (984 )
                           
Net earnings (loss) for the period     (5,452 )   996     (8,778 )   7,015  
                           
Other comprehensive income (loss), net of tax                          
  Realized (gain) loss on other investments     -     -     -     (72 )
  Unrealized gain (loss) on other investments     -     (35 )   -     145  
Total other comprehensive income (loss) for the period     -     (35 )   -     73  
                           
Comprehensive income (loss) for the period   $  (5,452 ) $  961   $  (8,778 ) $  7,088  
                           
Basic earnings (loss) per share based on net earnings   $  (0.04 ) $  0.01   $  (0.07 ) $  0.06  
Diluted earnings (loss) per share based on net earnings 8 (f) $  (0.04 ) $  0.01   $  (0.07 ) $  0.05  
                           
Basic weighted average number of shares outstanding     128,805,441     127,456,410     127,959,526     127,291,688  
Diluted weighted average number of shares outstanding 8 (f)   128,805,441     127,851,198     127,959,526     127,823,260  

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

ENDEAVOUR SILVER CORP.  |  CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

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ENDEAVOUR SILVER CORP.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(unaudited – prepared by management)
(expressed in thousands of US dollars, except share amounts)

                        Accumulated              
                        Comprehensive     Retained     Total  
      Number of     Share     Contributed     Income ("OCI")     Earnings     Shareholders'  
  Note   shares     Capital     Surplus     (Loss)     (Deficit)     Equity  
                                       
Balance at December 31, 2016     127,080,264   $  449,594   $  6,689   $  44   $  (323,068 ) $  133,259  
Exercise of options 8 (b)   28,000     109     (35 )   -     -     74  
Issued for performance share units 8 (e)   193,825     439     (439 )   -     -     -  
Issued on acquistion of mineral properties, net     154,321     500     -     -     -     500  
Share based compensation 8 (b)(e)   -     -     2,244     -     -     2,244  
Unrealized gain (loss) on other investments     -     -     -     145     -     145  
Realized (gain) loss on available for sale assets     -     -     -     (72 )   -     (72 )
Expiry and forfeiture of options     -     -     (86 )   -     86     -  
Earnings (loss) for the year     -     -     -     -     7,015     7,015  
Balance at September 30, 2017     127,456,410     450,642     8,373     117     (315,967 )   143,165  
                                       
Exercise of options 8 (b)   32,000     98     (30 )   -     -     68  
Share based compensation 8 (b)(e)   -     -     605     -     -     605  
Unrealized gain (loss) on other investments     -     -     -     10     -     10  
Expiry and forfeiture of options 8 (b)   -     -     (201 )   -     201     -  
Earnings (loss) for the year     -     -     -     -     2,669     2,669  
Balance at December 31, 2017     127,488,410     450,740     8,747     127     (313,097 )   146,517  
                                       
Public equity offerings, net of issuance costs 8 (a)   2,024,999     5,401     -     -     -     5,401  
Exercise of options 8 (b)   127,000     387     (131 )   -     -     256  
Share based compensation 8 (b)(e)   -     -     1,894     -     -     1,894  
Unrealized gain (loss) on other investments tranferred to retained earnings     -     -     -     (127 )   127     -  
Expiry and forfeiture of options 8 (b)   -     -     (1,404 )   -     1,404     -  
Realloction of performance share unit liability 3 (a)   -     -     38     -     -     38  
Earnings (loss) for the year     -     -     -     -     (8,778 )   (8,778 )
Balance at September 30, 2018     129,640,409   $  456,528   $  9,144   $  -   $  (320,344 ) $  145,328  

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

ENDEAVOUR SILVER CORP.  |  CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

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ENDEAVOUR SILVER CORP.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(unaudited – prepared by management)
(expressed in thousands of US dollars)

      Three months ended     Nine months ended  
      September 30,       September 30,     September 30,     September 30,  
  Notes   2018     2017     2018     2017  
                           
Operating activities                          
Net earnings (loss) for the year   $ (5,452 ) $  996   $  (8,778 ) $  7,015  
                           
Items not affecting cash:                          
   Share-based compensation 8   701     673     1,894     2,241  
   Depreciation and depletion 7   13,200     4,540     30,976     12,055  
   Deferred income tax expense (recovery)     (2,941 )   (535 )   (7,142 )   (2,554 )
   Unrealized foreign exchange loss (gain)     84     (150 )   432     (582 )
   Finance costs     38     166     113     610  
   Write off of mineral properties     -     -     -     233  
   Write down of inventory to net realizable value 5   1,262     -     4,544     -  
   Unrealized loss (gain) on other investments     14     -     60     (72 )
Net changes in non-cash working capital 11   (2,540 )   (1,092 )   (5,415 )   (8,957 )
Cash from operating activities     4,366     4,598     16,684     9,989  
                           
Investing activites                          
   Property, plant and equipment expenditures 7   (10,020 )   (10,836 )   (32,757 )   (31,575 )
   Proceeds from disposition of other investments     -     -     -     72  
   Redemption of (investment in) non-current deposits     -     -     1     (6 )
Cash used in investing activities     (10,020 )   (10,836 )   (32,756 )   (31,509 )
                           
Financing activities                          
   Repayment of credit facility     -     (2,500 )   -     (7,500 )
   Restricted cash     -     -     1,000     -  
   Interest paid     -     (101 )   -     (405 )
   Public equity offerings 8 (a)   3,529     -     5,600     -  
   Exercise of options 8 (b)   -     -     256     74  
   Share issuance costs     (507 )   -     (591 )   -  
Cash from (used in) financing activites     3,022     (2,601 )   6,265     (7,831 )
                           
Effect of exchange rate change on cash and cash equivalents     179     150     134     582  
                           
Increase (decrease) in cash and cash equivalents     (2,632 )   (8,839 )   (9,807 )   (29,351 )
Cash and cash equivalents, beginning of the period     31,057     52,237     38,277     72,317  
Cash and cash equivalents, end of the period   $ 28,604   $  43,548   $  28,604   $  43,548  

Supplemental cash flow information (Note 11)

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

ENDEAVOUR SILVER CORP.  |  CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

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ENDEAVOUR SILVER CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Three and nine months ended September 30, 2018 and 2017
(unaudited – prepared by management)
(expressed in thousands of US dollars, unless otherwise stated)

1.

CORPORATE INFORMATION

   

Endeavour Silver Corp. (the “Company” or “Endeavour Silver”) is a corporation governed by the Business Corporations Act (British Columbia). The Company is engaged in silver mining in Mexico and related activities including acquisition, exploration, development, extraction, processing, refining and reclamation. The Company is also engaged in exploration activities in Chile. The address of the registered office is #1130 – 609 Granville Street, Vancouver, B.C., V7Y 1G5.

   
2.

BASIS OF PRESENTATION

   

These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting and do not include all of the information required for full annual financial statements.

   

The Board of Directors approved the condensed consolidated interim financial statements for issue on October 30, 2018.

   

The preparation of consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

   

These consolidated financial statements are presented in the Company’s functional currency of US dollars and include the accounts of the Company and its wholly owned subsidiaries: Endeavour Management Corp., Endeavour Zilver SARL, Endeavour Gold Corporation S.A. de C.V., EDR Silver de Mexico S.A. de C.V. SOFOM , Minera Santa Cruz Y Garibaldi S.A de C.V., Metalurgica Guanaceví S.A. de C.V., Minera Plata Adelante S.A. de C.V., Refinadora Plata Guanaceví S.A. de C. V., Minas Bolañitos S. A. de C.V., Guanaceví Mining Services S.A. de C.V., Recursos Humanos Guanaceví S.A. de C.V., Recursos Villalpando S.A. de C.V., Servicios Administrativos Varal S.A. de C.V., Minera Plata Carina SPA, MXRT Holding Ltd., Compania Minera del Cubo S.A. de C.V., Minas Lupycal S.A. de C.V., Metales Interamericanos S.A. de C.V., Oro Silver Resources Ltd., Minera Oro Silver de Mexico S.A. de C.V., MXRT Holdings Ltd., Terronera Mining Company and Terronera Precious Metals S.A. de C.V. All intercompany transactions and balances have been eliminated upon consolidation of these subsidiaries.

   
3.

SIGNIFICANT ACCOUNTING POLICIES

   

The accounting policies applied in these condensed consolidated interim financial statements are the same as those applied in the Company’s annual audited consolidated financial statements as at and for the year ended December 31, 2017 except as described below.

   

In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the annual consolidated financial statements as at and for the year ended December 31, 2017 and accordingly, should be read in conjunction with the Company’s annual audited consolidated financial statements for the year ended December 31, 2017.

   

(a)    Accounting standards adopted during the year

   

Amendments to IFRS 2, Share-based Payment (“IFRS 2”)

   

On June 20, 2016, the IASB issued amendments to IFRS 2 clarifying how to account for certain types of share-based payment transactions. The amendments provide requirements on the accounting for: the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments; share-based transactions with a net settlement feature for withholding tax obligations; and a modification to the terms and conditions of a share-based payment that changes the classification of a transaction from cash-settled to equity settled.

   

The amendments apply for annual periods beginning on or after January 1, 2018. As a practical simplification, the amendments can be applied prospectively. Retrospective or early application is permitted if information is available without the use of hindsight. The Company has adopted the amendments to IFRS 2 in its financial statements for the annual period beginning on January 1, 2018 on a prospective basis.

   

The Company has Performance Share Units (“PSU”) with a net settlement feature, which permits cash settlement for withholding tax obligations. The expense for the PSUs has previously been bifurcated with the cash settlement portion of the expense recognized as a liability until settlement, and the remaining expense allocated to Contributed Surplus. Upon adoption of the amendments to IFRS 2, the PSU liability at January 1, 2018, the liability classified portion of $38 was reallocated to Contributed Surplus.


ENDEAVOUR SILVER CORP.  |  CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

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ENDEAVOUR SILVER CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Three and nine months ended September 30, 2018 and 2017
(unaudited – prepared by management)
(expressed in thousands of US dollars, unless otherwise stated)

IFRS 9 Financial Instruments (“IFRS 9”)

In November 2009, the IASB issued IFRS 9 as the first step in its project to replace IAS 39, Financial Instruments: Recognition and Measurement. On July 24, 2014 the IASB issued the complete IFRS 9. IFRS 9 retains but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets: amortized cost and fair value. The basis of classification depends on an entity’s business model and the contractual cash flows of the financial asset.

Classification is made at the time the financial asset is initially recognized, namely when the entity becomes a party to the contractual provisions of the instrument.

IFRS 9 amends some of the requirements of IFRS 7, Financial Instruments: Disclosures, including added disclosures about investments in equity instruments measured at fair value in other comprehensive income, and guidance on the measurement of financial liabilities and de-recognition of financial instruments. The mandatory effective date of IFRS 9 is for annual periods beginning on or after January 1, 2018 with early adoption permitted, and must be applied retrospectively with some exemptions permitted.

As a result of the adoption of IFRS 9, the Company has changed its accounting policy for financial instruments retrospectively. The change did not result in a change in carrying value of any of the Company’s financial instruments on transition date. IFRS 9 introduced a single expected credit loss impairment model, which is based on changes in credit quality since initial recognition. The adoption of the expected credit loss impairment model did not have a significant impact on the Company’s financial statements.

The Company’s financial instruments are accounted for as follows under IFRS 9 as compared to the Company’s previous policy in accordance with IAS 39.

  January 1, 2018
     
  IAS 39 IFRS 9
     
Assets    
Cash and cash equivalents Amortized cost Amortized cost
Restricted cash Amortized cost Amortized cost
Trade and other receivables (other than derivatives) Amortized cost Amortized cost
Trade receivables (derivative component) Fair value through profit or loss Fair value through profit or loss
Marketable securities Fair value through other comprehensive income Fair value through profit or loss
Liabilities    
Accounts payable and accrued liabilities Amortized cost Amortized cost

Under IFRS 9, the Company’s equity marketable securities are designated as financial assets at fair value through profit or loss. For equity instruments not held for trading, the Company may make an irrevocable election at initial recognition to recognize changes in fair value through other comprehensive income rather than profit or loss. The Company did not make any such election upon adoption of IFRS 9.

IFRS 9 does not require restatement of comparative periods. Accordingly, the Company has reflected the retrospective impact of the adoption of IFRS 9 due to the change in accounting policy for marketable securities as an adjustment to opening components of equity as at January 1, 2018.

The fair value of marketable securities is $168 under both IAS 39 and IFRS 9 as at January 1, 2018, the date of initial application of IFRS 9, and is presented in Other Investments in the consolidated balance sheet. On adoption, the unrealized gain in fair value of $127, previously recognized in accumulated other comprehensive income has been reallocated to retained earnings.

As a result of the adoption of IFRS 9, the Company’s accounting policy for financial instruments has been updated as follows:

Financial Instruments
The Company recognizes financial assets and financial liabilities on the date the Company becomes party to the contractual provisions of the instruments. A financial asset is derecognized either when the Company has transferred substantially all the risks and rewards of ownership of the financial assets or when cash flows expire. A financial liability is derecognized when the obligation specified in the contract is discharged, cancelled or expired.

ENDEAVOUR SILVER CORP.  |  CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

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ENDEAVOUR SILVER CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Three and nine months ended September 30, 2018 and 2017
(unaudited – prepared by management)
(expressed in thousands of US dollars, unless otherwise stated)

The Company classifies and measures financial assets (excluding derivatives) on initial recognition as described below:

 

Cash and equivalents and restricted cash include cash and term deposits with original maturities of less than 90 days are classified as financial assets at fair value through profit and loss and are measured at fair value. Unrealized gains and losses related to changes in fair value are reported in income;

 

Trade and other receivables are classified as and measured at amortized cost using the effective interest method, less impairment allowance, in any;

 

Investments in equity instruments are designated as financial assets through profit or loss and are recorded at fair value on settlement date, net of transaction costs. Subsequent to initial recognition, changes in fair value are recognized in income.

Derivative financial instruments, including embedded derivatives in trade receivables measured at amortized cost, are recorded in the consolidated balance sheets at fair value. Subsequent to initial recognition, changes in estimated fair value at each reporting date are recognized through profit or loss.

A financial liability is derecognized when the obligation specified in the contract is discharged, cancelled or expired. For financial liabilities, IFRS 9 retains most of the IAS 39 requirements and since the Company did not have any financial liabilities designated at fair value through profit or loss, the adoption of IFRS 9 did not impact our accounting policies for financial liabilities.

IFRS 15, Revenue from Contracts with Customers (“IFRS 15”)

On May 28, 2014, the IASB issued IFRS 15. The new standard is effective for annual periods beginning on or after January 1, 2018 with early adoption permitted. IFRS 15 replaces IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfer of Assets from Customers and SIC 31 Revenue – Barter Transactions Involving Advertising Services.

The standard contains a single model that applies to contracts with customers and two approaches to recognizing revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognized. New estimates and judgmental thresholds have also been introduced, which may affect the amount and/or timing of revenue recognized.

On April 12, 2016 the IASB issued Clarifications to IFRS 15, Revenue from Contracts with Customers, which is effective at the same time as IFRS 15. The clarifications to IFRS 15 provide additional guidance with respect to the five-step analysis, transition, and the application of the standard to licenses of intellectual property.

The Company adopted IFRS 15 and the clarifications effective January 1, 2018 with no impact on the consolidated financial statements.

Dore sales

IFRS 15 requires that revenue from contracts with customers be recognized upon the transfer of control over goods or services to the customer. The recognition of revenue upon transfer of control to the customer is consistent with the Company’s revenue recognition policy as set out in Note 3(l) of the 2017 Annual Financial Statements, as the condition is generally satisfied when title transfers to the customer. As such, upon adoption, this requirement under IFRS 15 resulted in no impact to the Company’s financial statements as the timing of revenue recognition on dore sales is unchanged.

Concentrate sales

The Company assessed all of its existing concentrate sales agreements and determined that there is no change in the timing of revenue recognition, as control transfers to the smelting companies at the time of delivery, consistent with the Company’s current accounting policy as set out in Note 3(l) of the 2017 Annual Financial Statements.

(b)    Changes in IFRS not yet adopted

IFRS 16, Leases (“IFRS 16”)

On January 13, 2016, the IASB published a new standard, IFRS 16, Leases, which replaces IAS 17 – Leases and its associated interpretive guidance. IFRS 16 applies a control model to the identification of leases, distinguishing between a lease and a service contract based on whether the customer controls the asset. For those assets determined to meet the definition of a lease, IFRS 16 introduces significant changes to the accounting by lessees, introducing a single, on-balance sheet accounting model that is similar to the current finance lease accounting, with limited exceptions for short-term leases or leases of low value assets. Lessor accounting remains similar to current accounting practice. The standard is effective for annual periods beginning on or after January 1, 2019. With early application permitted for entities that apply IFRS 15. A lessee can choose to apply IFRS 16 using either a full retrospective or a modified retrospective approach. The Company plans to apply IFRS 16 at the date it becomes effective and has selected the modified retrospective transition approach which does not require restatement of comparative periods, instead the cumulative impact of applying IFRS 16 will be accounted for as an adjustment to equity at the start of the accounting period in which it is first applied.

ENDEAVOUR SILVER CORP.  |  CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

PAGE 8

 

   

ENDEAVOUR SILVER CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Three and nine months ended September 30, 2018 and 2017
(unaudited – prepared by management)
(expressed in thousands of US dollars, unless otherwise stated)

Upon the adoption of IFRS 16, the Company anticipates it will record a material balance of lease assets and associated lease liabilities related to leases with a term of 12 months or more on the Consolidated Balance Sheet at January 1, 2019. Due to the recognition of additional lease assets and liabilities, a higher amount of depreciation expense and interest on lease liabilities will be recognized under IFRS 16 as compared to the current standard. Additionally, a reduction in production and/or corporate administration costs is expected. Lastly, the Company expects a reduction in operating cash outflows with a corresponding increase in financing cash outflows under IFRS 16.

   

The Company is currently assessing and quantifying the effect of this standard on our financial statements. During the third quarter, management has continued the scoping of contracts across our operations and has commenced a detailed review of contracts. At this time, it is not possible for the Company to make reasonable quantitative estimates of the effects of the new standard. The Company expects the time frame to develop and implement the accounting policies, estimates and processes will continue into the latter part of 2018.

   

IFRIC 23, Uncertainty over Income Tax Treatments (“IFRIC 23”)

   

On June 7, 2017, the IASB issued IFRIC Interpretation 23 Uncertainty over Income Tax Treatments. The Interpretation provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax treatments. The Interpretation is applicable for annual periods beginning on or after January 1, 2019.

   

The Interpretation requires an entity to contemplate whether uncertain tax treatments should be considered separately, or together as a group, based on which approach provides better predictions of the resolution and if it is probable that the tax authorities will accept the uncertain tax treatment. If estimated that it is not probable that the uncertain tax treatment will be accepted by authorities, the tax uncertainty would be measured based on the most likely amount or expected value, depending on whichever method better predicts the resolution of the uncertainty.

   

The Company intends to adopt the Interpretation in its financial statements for the annual period beginning on January 1, 2019. The extent of the impact of adoption of the Interpretation has not yet been determined.

   
4.

ACCOUNTS RECEIVABLE


             September 30     December 31  
      Note     2018     2017  
                     
  Trade receivables (1)     $ 8,426   $  8,114  
  IVA receivables (2)         21,222     19,989  
  Income taxes recoverable         5,536     5,549  
  Due from related parties   6     4     2  
  Other receivables         986     358  
           $ 36,174   $  34 ,012  

  (1)

The trade receivables consist of receivables from provisional silver and gold sales from the Bolañitos and El Cubo mines. The fair value of receivables arising from concentrate sales contracts that contain provisional pricing mechanisms is determined using the appropriate quoted closing price on the measurement date from the exchange that is the principal active market for the particular metal. As such, these receivables, which meet the definition of an embedded derivative, are classified within Level 2 of the fair value hierarchy (Note 14).

     
  (2)

The Company’s Mexican subsidiaries pay value added tax, Impuesto al Valor Agregado (“IVA”), on the purchase and sale of goods and services. The net amount paid is recoverable but is subject to review and assessment by the tax authorities. The Company regularly files the required IVA returns and all supporting documentation with the tax authorities, however, the Company has been advised that certain IVA amounts receivable from the tax authorities are being withheld pending completion of the authorities’ audit of certain of the Company’s third-party suppliers. Under Mexican law the Company has legal rights to those IVA refunds and the results of the third party audits should have no impact on refunds. A smaller portion of IVA refund requests are from time to time improperly denied based on the alleged lack of compliance of certain formal requirements and information returns by the Company’s third-party suppliers. The Company takes necessary legal action on the delayed refunds as well as any improperly denied refunds.


ENDEAVOUR SILVER CORP.  |  CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

PAGE 9

 

   

ENDEAVOUR SILVER CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Three and nine months ended September 30, 2018 and 2017
(unaudited – prepared by management)
(expressed in thousands of US dollars, unless otherwise stated)

These improper delays and denials have occurred within Compania Minera del Cubo (“El Cubo”) and Refinadora Plata Adelante S.A. de C.V. (“Guanaceví,”). At September 30, 2018, El Cubo holds $11,010 and Guanaceví holds $6,616 in IVA receivables which the Company and its advisors deem to be recoverable from tax authorities (December 31, 2017 – $10,392 and $8,812 respectively). The Company is in regular contact with the tax authorities in respect of its IVA filings and believes the full amount of its IVA receivables will ultimately be received; however, the timing of recovery of these amounts and the nature and extent of any adjustments to the Company’s IVA receivables remains uncertain.

5.

INVENTORIES


      September 30     December 31  
      2018     2017  
               
  Warehouse inventory $  8,465   $  7,809  
  Stockpile inventory   1,364     -  
  Work in process inventory (3)   388     496  
  Finished goods inventory (1)(2)   2,013     4,826  
    $  12,230   $  13,131  

  (1)

The Company held 102,775 silver ounces and 733 gold ounces as of September 30, 2018 (December 31, 2017 – 241,321 and 1,226, respectively). These ounces are carried at the lower of cost and net realizable value. As at September 30, 2018, the quoted market value of the silver ounces was $1,470 (December 31, 2017 - $4,070) and the quoted market value of the gold ounces was $870 (December 31, 2017 - $1,590).

  (2)

The finished goods inventory balance at September 30, 2018 includes a write down to net realizable value of $954 for finished goods inventory held at the Guanaceví mine. Of this amount $615 is comprised of cash costs and $339 relates to depreciation and depletion.

  (3)

The work in process inventory balance at September 30, 2018 includes a write down to net realizable value of $308 for work in process inventory held at the Guanaceví mine. Of this amount $189 is comprised of cash costs and $119 relates to depreciation and depletion.


6.

RELATED PARTY TRANSACTIONS

   

The Company shares common administrative services and office space with a company related by virtue of a common director and from time to time will incur third party costs on behalf of related parties on a full cost recovery basis. The charges for these costs totaled $7 and $14 for the three months and nine months ended September 30, 2018 respectively (September 30, 2017 - $5 and $21 respectively). The Company has a $4 net receivable related to these costs as of September 30, 2018 (December 31, 2017 – $2).

   

The Company was charged $43 and $162 for legal services for the three months and nine months ended September 30, 2018 respectively by a legal firm in which the Company’s corporate secretary is a partner (September 30, 2017 - $8 and $50 respectively). The Company has $Nil payable to the legal firm as at September 30, 2018 (December 31, 2017 - $Nil).


ENDEAVOUR SILVER CORP.  |  CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

PAGE 10

 

   

ENDEAVOUR SILVER CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Three and nine months ended September 30, 2018 and 2017
(unaudited – prepared by management)
(expressed in thousands of US dollars, unless otherwise stated)

7.

MINERAL PROPERTIES, PLANT AND EQUIPMENT

Mineral properties, plant and equipment comprise:


      Mineral           Machinery &           Transport &        
      properties     Plant     equipment     Building     office equipment     Total  
  Cost                                    
  Balance at December 31, 2016 $  457,401   $  94,871   $  61,812   $  10 ,671   $  9,595   $  634,350  
  Additions   28 ,682     3,177     5,386     1,19 1     2,038     40 ,474  
  Disposals   (233 )   (27 )   (4,354 )   -     (1,100 )   (5,714 )
  Balance at December 31, 2017   48 5,8 50     98 ,021     62,844     11,8 62     10 ,533     669,110  
  Additions   25,264     3,482     2,632     313     1,461     33,152  
  Disposals   -     -     -     -     -     -  
  Balance at September 30, 2018 $  511,114   $  101,503   $  65,476   $  12,175   $  11,994   $  702,262  
                                       
  Accumulated amortization and impairment                                    
  Balance at December 31, 2016 $  419,320   $  85,563   $  46,196   $  9,214   $  7,819   $  568,112  
  Amortization   12,16 1     1,672     2,682     18 8     947     17,650  
  Disposals   -     (26 )   (4,353 )   -     (1,089 )   (5,468 )
  Balance at December 31, 2017   431,48 1     87,209     44,525     9,40 2     7,677     580,294  
  Amortization   27,198     1,493     2,642     242     888     32,463  
  Disposals   -     -     -     -     -     -  
  Balance at September 30 , 2018 $  458 ,6 79   $  88,702   $  47,167   $  9 ,6 44   $  8,565   $  612,757  
  Net book value                                    
  At December 31, 2017 $  54,369   $  10,812   $  18,319   $  2,460   $  2,856   $  88,816  
  At September 30, 2018 $  52,435   $  12,801   $  18,309   $  2,531   $  3,429   $  89,505  

Included in Mineral properties is $10,781 in acquisition costs for exploration and evaluation properties (December 31, 2017 – $11,334).

As of September 30, 2018, the Company has $594 committed to capital equipment purchases.

ENDEAVOUR SILVER CORP.  |  CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

PAGE 11

 

   

ENDEAVOUR SILVER CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Three and nine months ended September 30, 2018 and 2017
(unaudited – prepared by management)
(expressed in thousands of US dollars, unless otherwise stated)

8. SHARE CAPITAL
   
(a)    Public Offerings
   

In April 2018, the Company filed a short form base shelf prospectus that qualifies for the distribution of up to CAN$150 million of common shares, debt securities, warrants or units of the Company comprising any combination of common shares and warrants (the “Securities”). The Company filed a corresponding registration statement in the United States registering the Securities under United States federal securities laws. The distribution of Securities may be effected from time to time in one or more transactions at a fixed price or prices, which may be changed, at market prices prevailing at the time of sale, or at prices related to such prevailing market prices to be negotiated with purchasers and as set forth in an accompanying prospectus supplement, including transactions that are deemed to be “At- The-Market” (“ATM”) distributions.

 

 

On June 13, 2018, the Company entered into an ATM equity facility with BMO Capital Markets (the lead agent), CIBC Capital Markets, H.C. Wainwright & Co., HSBC and TD Securities (together, the “Agents”). Under the terms of this ATM facility, the Company may, from time to time, sell common stock having an aggregate offering value of up to $35.7 million on the New York Stock Exchange. The Company determines, at its sole discretion, the timing and number of shares to be sold under the ATM facility. During the nine months ended September 30, 2018, the Company issued 2,024,999 common shares under the ATM facility at an average price of $2.77 per share for gross proceeds of $5,600, less commission of $126.

 

 

During the nine months ended September 30, 2018, the Company also recognized $73 of additional deferred transaction costs, related to the ATM financing as share issuance costs, which have been presented net of share capital.

 

 

Subsequent to September 30, 2018, the Company issued 913,467 common shares under the ATM facility at an average price of $2.40 per share for gross proceeds of $2,188, less commission of $49.

 

 

(b)    Purchase Options

 

 

Options to purchase common shares have been granted to directors, officers, employees and consultants pursuant to the Company’s current stock option plan, approved by the Company’s shareholders in fiscal 2009 and re-ratified in 2018, at exercise prices determined by reference to the market value on the date of grant. The stock option plan allows for, with approval by the Board, granting of options to its directors, officers, employees and consultants to acquire up to 7.0% of the issued and outstanding shares at any time.

 

 

The following table summarizes the status of the Company’s stock option plan and changes during the year:


      Nine Months Ended     Year Ended  
  Expressed in Canadian dollars   September 30, 2018     December 31, 2017  
                           
            Weighted           Weighted  
      Number     average     Number of     average  
      of shares     exercise price     shares     exercise price  
  Outstanding, beginning of year   5,792,800     $4.00     4,458,050     $3.93  
     Granted   1,262,500     $3.80     1,572,000     $4.32  
     Exercised   (127,000 )   $2.65     (60,000 )   $3.03  
     Cancelled   (940,500 )   $4.15     (177,250 )   $5.49  
  Outstanding, end of the period   5,987,800     $3.96     5,792,800     $4.00  
                           
  Options exercisable at the end of the period   4,448,600     $3.95     4,509,000     $3.91  

ENDEAVOUR SILVER CORP.  |  CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

PAGE 12

 

   

ENDEAVOUR SILVER CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Three and nine months ended September 30, 2018 and 2017
(unaudited – prepared by management)
(expressed in thousands of US dollars, unless otherwise stated)

The weighted-average fair values of stock options granted and the assumptions used to calculate the related compensation expense have been estimated using the Black-Scholes Option Pricing Model with the following assumptions:

    Nine Months Ended Year Ended
    September 30, 2018   December 31, 2017
  Weighted -average fair valu e of option in CAN $ $ 1.96 $2.30
  Risk -free interest rate 2.05% 0 .85%
  Expected dividend yield 0 % 0 %
  Expected stock price volatility 6 9% 73%
  Expected option life in years 3.79 3.86

The following table summarizes the information about stock options outstanding at September 30, 2018:

  Expressed in Canadian dollars                              
      Options Outstanding     Options exercisable  
                                 
                                 
      Number     Weighted Average     Weighted     Number     Weighted  
      Outstanding     Remaining     Average     Exercisable     Average  
  Price   as at     Contractual Life     Exercise     as at     Exercise  
  Intervals   September 30, 2018     (Number of Years)     Price     September 30, 2018     Price  
                                 
     $2.00 - $2.99   1,009,500     1.6   $2.65     1,009,500   $2.65  
     $3.00 - $3.99   1,250,500     4.6   $3.80     250,100   $3.80  
     $4.00 - $4.99   3,727,800     2.7   $4.37     3,189,000   $4.37  
      5,987,800     2.9   $3.96     4,448,600   $3.95  

During the three and nine months ended September 30, 2018, the Company recognized share-based compensation expense of $538 and $1,599 respectively (September 30, 2017 - $627 and $2,188 respectively) based on the fair value of the vested portion of options granted in the current and prior years.

(c)    Deferred Share Units

The Company has a Deferred Share Unit (“DSU”) plan whereby deferred share units may be granted to independent directors of the Company in lieu of compensation in cash or share purchase options. The DSUs vest immediately and are redeemable for cash based on the market value of the units at the time of a director’s retirement.

  Expressed in Canadian dollars   Nine Months Ended     Year Ended  
      September 30, 2018     December 31, 2017  
                           
            Weighted           Weighted  
      Number     Average Grant     Number     Average  
      of units     Price     of units     Grant Price  
  Outstanding, beginning of year   548,392   $ 3.44     510 ,560   $ 3.39  
     Granted   98,876   $ 3.72     37,832   $ 4.11  
     Redeemed   -     -     -     -  
  Outstanding, end of period   647,268   $ 3.49     548,392   $ 3.44  
                           
  Fair value at period end   647,268   $ 2.97     548,392   $ 3.02  

During the three months ended September 30, 2018, the Company recognized a recovery of director’s compensation expense of $510 and an expense of $170 for the nine months ended September 30, 2018 (September 30, 2017 –recovery of $305 and $513 respectively). DSU expenses, which are included in general and administrative salaries, wages and benefits, are based on the fair value of new grants and the change in the fair value of the DSUs granted in the current and prior periods. As of September 30, 2018, there are 647,268 deferred share units outstanding (December 31, 2017 – 548,392) with a fair market value of $1,489 (December 31, 2017 - $1,319) recognized in accounts payable and accrued liabilities.

ENDEAVOUR SILVER CORP.  |  CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

PAGE 13

 

   

ENDEAVOUR SILVER CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Three and nine months ended September 30, 2018 and 2017
(unaudited – prepared by management)
(expressed in thousands of US dollars, unless otherwise stated)

(d)    Share Appreciation Rights

As part of the Company’s bonus program, the Company grants share appreciation rights (“SARs”) to its employees in Mexico and Chile. The SARS are subject to vesting conditions and, when exercised, constitute a cash bonus based on the value of the appreciation of the Company’s common shares between the SARs grant date and the exercise date.

      Nine Months Ended     Year Ended  
      September 30, 2018     December 31, 2017  
            Weighted           Weighted  
      Number     Average Grant     Number     Average  
      of units     Price     of units     Grant Price  
  Outstanding, beginning of year   911,993   $ 3.8 0     579,660   $ 4.20  
     Granted   -     -     489,000   $ 3.30  
     Exercised   (96,661 ) $ 2.21     (46,668 ) $ 2.21  
     Cancelled   (101,332 ) $ 3. 6     (109,999 ) $ 4.38  
  Outstanding, end of period   714,000   $ 3.99     911,993   $ 3.80  
                           
  Exercisable at the end of the period   343,353   $ 4.29     212,672   $ 3.69  

During the three and nine months ended September 30, 2018, the Company recognized a recovery of SARs expense of $314 and $137, respectively (September 30, 2017 –recovery of $117 and $146 respectively). SARs expense, which is included in operation and exploration salaries, wages and benefits, is based on the fair value of new grants and the change in the fair value of the SARs granted in the current and prior periods. As of September 30, 2018, there are 714,000 SARs outstanding (December 31, 2017 – 911,993) with a fair market value of $131 (December 31, 2017 - $341) recognized in accounts payable and accrued liabilities.

(e)    Performance Share Units Plan

The Company has a Performance Share Unit (“PSU”) plan whereby performance share units may be granted to employees of the Company. Once performance conditions have been met, a PSU is redeemable into one common share entitling the holder to receive the common share for no additional consideration. The current maximum number of common shares authorized for issuance from treasury under the PSU plan is 1,000,000.

      Nine Months Ended     Year Ended  
      September 30, 2018     December 31, 207  
    Number of units     Number of units  
  Outstanding, beginning of year   200,000     325,000  
  Granted   446,000     200,000  
  Cancelled   (30,000 )   -  
  Settled for shares   -     (193,825 )
  Settled for cash   -     (131,175 )
  Outstanding, end of period   616,000     200,000  

A total of 446,000 PSUs were granted during the nine months ended September 30, 2018 (September 30, 2017 – 200,000) under the Company’s PSU plan. A total of 200,000 PSUs were granted on May 4, 2017 under the Company’s PSU plan. The 446,000 PSUs vest on May 3, 2021 and the 200,000 vest on May 3, 2020, subject to achievement of pre-determined performance criteria. The PSUs vest at the end of a three-year period if certain performance and vesting criteria, based on the Company’s share price performance relative to a representative group of other mining companies, has been met.

During the three and nine months ended September 30, 2018, the Company recognized share based compensation expense of $163 and $295 respectively related to the PSUs (September 30, 2017 –$46 and $53 respectively).

ENDEAVOUR SILVER CORP.  |  CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

PAGE 14

 

   

ENDEAVOUR SILVER CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Three and nine months ended September 30, 2018 and 2017
(unaudited – prepared by management)
(expressed in thousands of US dollars, unless otherwise stated)

(f)    Diluted Earnings per Share

      Three months ended  
      September 30,     September 30,  
      2018     2017  
  Net earnings (loss) $  (5,452 ) $  996  
  Basic weighted average number of shares outstanding   128,805,441     127,456,410  
  Effect of dilutive securities:            
   Stock options   -     194,788  
   Perform ance share units   -     200,000  
  Diluted weighted average number of share outstanding   128,805,441     127,851,198  
               
  Diluted earnings (loss) per share $  (0 .04 ) $  0.01  

      Nine months ended  
      September 30,     September 30,  
      2018     2017  
  Net earnings (loss) $  (8,778 ) $  7,015  
  Basic weighted average number of shares outstanding   127,959,526     127,291,688  
  Effect of dilutive securities:            
   Stock options   -     331,572  
   Perform ance share units   -     200,000  
  Diluted weighted average number of share outstanding   127,959,526     127,823,260  
               
  Diluted earnings (loss) per share $  (0 .07 ) $  0.05  

9.

EXPLORATION


      Three months ended     Nine months ended  
      September 30,     September 30,     September 30,     September 30,  
      2018     2017     2018     2017  
                           
  Depreciation and depletion $  29   $  34   $  76   $  102  
  Share-based compensation   128     59     246     197  
  Salaries, wages and benefits   641     633     2,074     1,884  
  Direct exploration expenditures   3,167     2,706     8,022     8,350  
    $  3,965   $  3,432   $  10 ,418   $  10,533  

ENDEAVOUR SILVER CORP.  |  CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

PAGE 15

 

   

ENDEAVOUR SILVER CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Three and nine months ended September 30, 2018 and 2017
(unaudited – prepared by management)
(expressed in thousands of US dollars, unless otherwise stated)

10.

GENERAL AND ADMINISTRATIVE


      Three months ended     Nine months ended  
      September 30     September 30     September 30     September 30  
      2018     2017     2018     2017  
                           
  Depreciation and depletion $  67   $  112   $  182   $  175  
  Share-based compensation   573     551     1,741     1,889  
  Salaries, wages and benefits   151     348     2,502     1,692  
  Direct general and administrative   525     594     2,420     2,235  
    $  1,316   $  1,605   $  6,845   $  5,991  

Included in salaries, wages and benefits is a $510 recovery in director’s deferred share unit expense for the three months ended September 30, 2018 (September 30, 2017 – recovery of $305) and an expense of $170 for the nine months ended September 30, 2018 (September 30, 2017 – recovery of $513).

   
11.

SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS


      Three months ended     Nine months ended  
      September 30,     September 30,     September 30,     September 30,  
      2018     2017     2018     2017  
                           
  Net changes in non-cash working capital:                        
   Accounts receivable $  (600 ) $  (4,782 ) $  (1,770 ) $  (9,755 )
   Inventories   (1,613 )   1,107     (3,025 )   255  
   Prepaid expenses   53     428     41     772  
   Accounts payable and accrued liabilities   (680 )   2,299     (115 )   2,683  
   Income taxes payable   300     (144 )   (546 )   (2,912 )
    $  (2,540 ) $  (1,092 ) $  (5,415 ) $  (8,957 )
                           
  Non-cash financing and investing activities:                        
   Fair value of exercised options allocated to share capital   -     -     131     35  
   Fair value of performance share units allocated to share capital   -     -     -     439  
   Fair value of shares issued on property acquisition   -     -     -     500  
                           
  Other cash disbursements:                        
   Income taxes paid   442     1,712     2,533     5,487  
   Special mining duty paid   -     -     1,012     2,020  

ENDEAVOUR SILVER CORP.  |  CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

PAGE 16

 

   


ENDEAVOUR SILVER CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Three and nine months ended September 30, 2018 and 2017
(unaudited – prepared by management)
(expressed in thousands of US dollars, unless otherwise stated)

12.

SEGMENT DISCLOSURES

   

The Company’s operating segments are based on internal management reports that are reviewed by the Company’s executives (the chief operating decision makers) in assessing performance. The Company has three operating mining segments, Guanaceví, Bolañitos and El Cubo, which are located in Mexico as well as Development, Exploration and Corporate segments. The Exploration segment consists of projects in the exploration and evaluation phases in Mexico and Chile.


  September 30, 2018      
    Corporate     Exploration     Guanaceví     Bolanitos     El Cubo     El Compas     Total  
                                           
Cash and cash equivalents $  9,538   $  1,332   $  5,366   $  2,983   $  9,309   $  76   $  28,604  
Other Investments   108     -     -     -     -     -     108  
Accounts receivables   202     2,564     9,932     4,535     16,065     2,876     36,174  
Inventories   -     -     5,493     2,610     3,015     1,112     12,230  
Prepaid expenses   755     91     461     93     171     299     1,870  
Non-current deposits   76     -     308     151     74     -     609  
Deferred income tax asset   -     -     6,616     653     -     -     7,269  
Mineral property, plant and equipment   630     11,278     35,168     9,176     13,266     19,987     89,505  
Total assets $  11,309   $  15,265   $  63,344   $  20,201   $  41,900   $  24,350   $  176,369  
                                           
Accounts payable and accrued liabilities $  4,990   $  778   $  6,396   $  2,197   $  3,903   $  663   $  18,927  
Income taxes payable   580     -     616     422     1,021     -     2,639  
Deferred lease inducement   224     -     -     -     -     -     224  
Provision for reclamation and rehabilitation   -     -     2,118     1,797     4,129     51     8,095  
Deferred income tax liability   -     200     -     729     227     -     1,156  
Total liabilities $  5,794   $  978   $  9,130   $  5,145   $  9,280   $  714   $  31,041  

  December 31, 2017      
    Corporate     Exploration     Guanaceví     Bolanitos     El Cubo     El Compas     Total  
                                           
Cash and cash equivalents $  20,884   $  1,034   $  6,212   $  2,360   $  7,594   $  193   $  38,277  
Restricted cash   1,000     -     -     -     -     -     1,000  
Other Investments   168     -     -     -     -     -     168  
Accounts receivables   341     893     12,115     4,100     15,602     961     34,012  
Inventories   -     -     8,476     2,178     2,477     -     13,131  
Prepaid expenses   1,090     128     125     77     176     315     1,911  
Non-current deposits   76     -     316     144     74     -     610  
Deferred income tax asset   -     -     -     655     -     -     655  
Mineral property, plant and equipment   691     11,285     42,264     6,766     15,929     11,881     88,816  
Total assets $  24,250   $  13,340   $  69,508   $  16,280   $  41,852   $  13,350   $  178,580  
                                           
Accounts payable and accrued liabilities $  5,965   $  225   $  4,484   $  1,774   $  5,721   $  899   $  19,068  
Income taxes payable   727     -     1,499     940     19     -     3,185  
Deferred lease inducement   236     -     -     -     -     -     236  
Provision for reclamation and rehabilitation   -     -     2,086     1,772     4,074     50     7,982  
Deferred income tax liability   -     200     528     637     227     -     1,592  
Total liabilities $  6,928   $  425   $  8,597   $  5,123   $  10,041   $  949   $  32,063  

ENDEAVOUR SILVER CORP.  |  CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

PAGE 17

 

   

ENDEAVOUR SILVER CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Three and nine months ended September 30, 2018 and 2017
(unaudited – prepared by management)
(expressed in thousands of US dollars, unless otherwise stated)

    Corporate     Exploration     Guanaceví     Bolanitos     El Cubo     Total  
                                     
    Three months ended September 30, 2018  
Silver revenue $  -   $  -   $  9,254   $  3,465   $  9,373   $  22,092  
Gold revenue   -     -     1,492     5,806     8,191     15,489  
Total revenue $  -   $  -   $  10,746   $  9,271   $  17,564   $  37,581  
                                     
 Salaries, wages and benefits:                                    
       mining $  -   $  -   $  1,334   $  1,312   $  1,941   $  4,587  
       processing   -     -     403     286     451     1,140  
       administrative   -     -     635     538     596     1,769  
       stock based compensation   -     -     -     -     -     -  
       change in inventory   -     -     302     21     11     334  
Total salaries, wages and benefits   -     -     2,674     2,157     2,999     7,830  
                                     
 Direct costs:                                    
       mining   -     -     4,987     2,867     3,440     11,294  
       processing   -     -     1,777     1,745     2,344     5,866  
       administrative   -     -     394     377     511     1,282  
       change in inventory   -     -     1,262     84     (44 )   1,302  
Total direct production costs   -     -     8,420     5,073     6,251     19,744  
                                     
 Depreciation and depletion:                                    
       depreciation and depletion   -     -     6,682     341     5,549     12,572  
       change in inventory   -     -     711     3     (182 )   532  
Total depreciation and depletion   -     -     7,393     344     5,367     13,104  
                                     
 Royalties   -     -     294     44     83     421  
 Write down of inventory to NRV   -     -     1,262     -     -     1,262  
                                     
Total cost of sales $  -   $  -   $  20,043   $  7,618   $  14,700   $  42,361  
                                     
Earnings (loss) before taxes $  627   $  (3,965 ) $  (9,297 ) $  1,653   $  2,864   $  (8,118 )
                                     
 Current income tax expense (recovery)   -     -     150     (212 )   353     291  
 Deferred income tax expense (recovery)   -     -     (2,736 )   (221 )   -     (2,957 )
Total income tax expense (recovery)   -     -     (2,586 )   (433 )   353     (2,666 )
                                     
Net earnings (loss) $  627   $  (3,965 ) $  (6,711 ) $  2,086   $  2,511   $  (5,452 )

The Exploration segment included $156 of costs incurred in Chile for the three months ended September 30, 2018 (September 30, 2017 - $167).

ENDEAVOUR SILVER CORP.  |  CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

PAGE 18

 

   

ENDEAVOUR SILVER CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Three and nine months ended September 30, 2018 and 2017
(unaudited – prepared by management)
(expressed in thousands of US dollars, unless otherwise stated)

    Corporate     Exploration     Guanaceví     Bolanitos     El Cubo     Total  
    Three months ended September 30, 2017  
Silver revenue $  -   $  -   $  9,469   $  4,421   $  8 ,025   $  21,915  
Gold revenue   -     -     1,785     8,544     7,538     17,867  
Total revenue $  -   $  -   $  11,254   $  12,965   $  15,563   $  39,782  
                                     
 Salaries, wages and benefits :                                    
       mining $  -   $  -   $  1,639   $  1,284   $  2,259   $  5,182  
       processing   -     -     546     243     438     1,227  
       administrative   -     -     728     624     761     2,113  
stockbased compensation   -     -     21     21     21     63  
       change in inventory   -     -     144     68     83     295  
Total salaries, wages and benefits   -     -     3,078     2,240     3,562     8,880  
                                     
 Direct costs:                                    
       mining   -     -     3,337     3,215     3,832     10,384  
       processing   -     -     1,592     1,997     2,343     5,932  
       administrative   -     -     484     601     708     1,793  
       change in inventory   -     -     226     163     85     474  
Total direct production costs   -     -     5,639     5,976     6,968     18,583  
                                     
 Depreciation and depletion :                                    
       depreciation and depletion   -     -     3,507     547     333     4,387  
       change in inventory   -     -     (17 )   17     7     7  
Total depreciation and depletion   -     -     3,490     564     340     4,394  
                                     
 Royalties   -     -     324     61     72     457  
 Write down of inventory to NRV   -     -     166     -     -     166  
                                     
Total cost of sales $  -   $  -   $  12,697   $  8,841   $  10,942   $  32,480  
                                     
Earnings (loss) before taxes $  (2,502 ) $  (3,432 ) $  (1,443 ) $  4,124   $  4,621   $  1,368  
                                     
Current income tax expense (recovery)   -     -     130     742     10     882  
 Deferred income tax expense (recovery)   -     -     (177 )   (333 )   -     (510 )
Total income tax expense (recovery)   -     -     (47 )   409     10     372  
                                     
Net earnings (loss) $  (2,502 ) $  (3,432 ) $  (1,396 ) $  3,715   $  4,611   $  996  

ENDEAVOUR SILVER CORP.  |  CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

PAGE 19

 

   

ENDEAVOUR SILVER CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Three and nine months ended September 30, 2018 and 2017
(unaudited – prepared by management)
(expressed in thousands of US dollars, unless otherwise stated)

    Corporate     Exploration     Guanaceví     Bolanitos     El Cubo     Total  
                                     
    Nine months ended September 30, 2018  
Silver revenue $  -   $  -   $  25,868   $  11,630   $  29,162   $  66,660  
Gold revenue   -     -     5,540     20,306     24,170     50,016  
Total revenue $  -   $  -   $  31,408   $  31,936   $  53,332   $  116,676  
                                     
 Salaries, wages and benefits:                                    
       mining $  -   $  -   $  3,649   $  3,799   $  6,215   $  13,663  
       processing   -     -     1,192     824     1,406     3,422  
       administrative   -     -     1,754     1,725     2,111     5,590  
       stock based compensation   -     -     (31 )   (31 )   (31 )   (93 )
       change in inventory   -     -     851     34     (41 )   844  
Total salaries, wages and benefits   -     -     7,415     6,351     9,660     23,426  
                                     
 Direct costs:                                    
       mining   -     -     13,775     8,001     10,182     31,958  
       processing   -     -     4,580     5,046     6,047     15,673  
       administrative   -     -     1,273     1,233     1,779     4,285  
       change in inventory   -     -     1,536     117     12     1,665  
Total direct production costs   -     -     21,164     14,397     18,020     53,581  
                                     
 Depreciation and depletion:                                    
       depreciation and depletion   -     -     17,876     1,002     11,428     30,306  
       change in inventory   -     -     765     (1 )   (352 )   412  
Total depreciation and depletion   -     -     18,641     1,001     11,076     30,718  
                                     
 Royalties   -     -     887     154     255     1,296  
 Write down of inventory to NRV   -     -     4,544     -     -     4,544  
                                     
Total cost of sales $  -   $  -   $  52,651   $  21,903   $  39,011   $  113,565  
                                     
Earnings (loss) before taxes $  (5,685 ) $  (10,418 ) $  (21,243 ) $  10,033   $  14,321   $  (12,992 )
                                     
 Current income tax expense (recovery)   -     -     448     1,462     1,034     2,944  
 Deferred income tax expense (recovery)   -     -     (7,143 )   (15 )   -     (7,158 )
Total income tax expense (recovery)   -     -     (6,695 )   1,447     1,034     (4,214 )
                                     
Net earnings (loss) $  (5,685 ) $  (10,418 ) $  (14,548 ) $  8,586   $  13,287   $  (8,778 )

The Exploration segment included $487 of costs incurred in Chile for the nine months ended September 30, 2018 (September 30, 2017 - $340).

ENDEAVOUR SILVER CORP.  |  CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

PAGE 20

 

   

ENDEAVOUR SILVER CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Three and nine months ended September 30, 2018 and 2017
(unaudited – prepared by management)
(expressed in thousands of US dollars, unless otherwise stated)

    Corporate     Exploration     Guanaceví     Bolanitos     El Cubo     Total  
                                     
    Nine months ended September 30, 2017  
Silver revenue $  -   $  -   $  28,276   $  10,777   $  21,856   $  60,909  
Gold revenue   -     -     4,641     24,323     18,986     47,950  
Total revenue $  -   $  -   $  32,917   $  35,100   $  40,842   $  108,859  
                                     
 Salaries, wages and benefits:                                    
       mining $  -   $  -   $  4,561   $  3,729   $  6,271   $  14,561  
       processing   -     -     1,526     724     1,252     3,502  
       administrative   -     -     2,250     1,775     2,132     6,157  
       stock based compensation   -     -     51     52     52     155  
       change in inventory   -     -     272     (74 )   (7 )   191  
Total salaries, wages and benefits   -     -     8,660     6,206     9,700     24,566  
                                     
 Direct costs:                                    
       mining   -     -     9,324     8,591     10,383     28,298  
       processing   -     -     5,114     5,017     6,251     16,382  
       administrative   -     -     1,673     1,407     2,007     5,087  
       change in inventory   -     -     883     (183 )   53     753  
Total direct production costs   -     -     16,994     14,832     18,694     50,520  
                                     
 Depreciation and depletion:                                    
       depreciation and depletion   -     -     9,899     1,577     993     12,469  
       change in inventory   -     -     (657 )   (20 )   (14 )   (691 )
Total depreciation and depletion   -     -     9,242     1,557     979     11,778  
                                     
 Royalties   -     -     886     163     188     1,237  
 Write down of inventory to NRV   -     -     166     -     -     166  
                                     
Total cost of sales $  -   $  -   $  35,948   $  22,758   $  29,561   $  88,267  
                                     
Earnings (loss) before taxes $  (4,028 ) $  (10,533 ) $  (3,031 ) $  12,342   $  11,281   $  6,031  
                                     
 Current income tax expense (recovery)   -     -     364     1,426     (64 )   1,726  
 Deferred income tax expense (recovery)   -     -     (1,791 )   (1,107 )   188     (2,710 )
Total income tax expense (recovery)   -     -     (1,427 )   319     124     (984 )
                                     
Net earnings (loss) $  (4,028 ) $  (10,533 ) $  (1,604 ) $  12,023   $  11,157   $  7,015  

ENDEAVOUR SILVER CORP.  |  CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

PAGE 21

 

   

ENDEAVOUR SILVER CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Three and nine months ended September 30, 2018 and 2017
(unaudited – prepared by management)
(expressed in thousands of US dollars, unless otherwise stated)

13.

INCOME TAXES

   

Tax Assessments

   

Minera Santa Cruz y Garibaldi SA de CV (“MSCG”), a subsidiary of the Company, received a MXN 238 million assessment on October 12, 2010 by Mexican fiscal authorities for failure to provide the appropriate support for certain expense deductions taken in MSCG’s 2006 tax return, failure to provide appropriate support for loans made to MSCG from affiliated companies, and deemed an unrecorded distribution of dividends to shareholders, among other individually immaterial items. MSCG immediately initiated a Nullity action and filed an administrative attachment to dispute the assessment.

   

In June 2015, the Superior Court ruled in favour of MSCG on a number of the matters under appeal; however, the Superior Court ruled against MSCG for failure to provide appropriate support for certain deductions taken in MSCG’s 2006 tax return. In June 2016, the Company received a MXN 122.9 million ($6,200) tax assessment based on the June 2015 ruling. The 2016 tax assessment comprised of MXN 41.8 million in taxes owed ($2,100), MXN 17.7 million ($900) in inflationary charges, MXN 40.4 million ($2,000) in interest and MXN 23.0 million ($1,200) in penalties. The 2016 tax assessment was issued for failure to provide the appropriate support for certain expense deductions taken in MSCG’s 2006 tax return, failure to provide appropriate support for loans made to MSCG from affiliated companies. The MXN 123 million assessment includes interest and penalties. If MSCG agrees to pay the tax assessment, or a lesser settled amount, it is eligible to apply for forgiveness of 100% of the penalties and 50% of the interest.

   

The Company filed an appeal against the June 2016 tax assessment on the basis certain items rejected by the courts were included in the new tax assessment, while a number of deficiencies exist within the assessment. Since issuance of the assessment interest charges of MXN 5.6 million ($300) and inflationary charges of MXN 8.5 million ($400) has accumulated.

   

Included in the Company’s consolidated financial statements, are net assets of $595, including $42 in cash, held by MSCG. Following the Tax Court’s rulings, MSCG is in discussions with the tax authorities with regards to the shortfall of assets within MSCG to settle its estimated tax liability. An alternative settlement option would be to transfer the shares and assets of MSCG to the tax authorities. As of September 30, 2018, the Company has recognized an allowance for transferring the shares and assets of MSCG amounting to $595. The Company is currently assessing MSCG’s settlement options based on on-going court proceedings and discussion with the tax authorities.

   
14.

FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

   

Financial assets and liabilities

   

As at September 30, 2018, the carrying and fair values of the Company’s financial instruments by category are as follows:


      Fair value                    
      through profit     Amortized     Carrying        
      or loss     cost     value     Fair value  
      $     $     $     $  
                           
  Financial assets:                        
  Cash and cash equivalents   28,604     -     28,604     28,604  
  Investments   108     -     108     108  
  Trade and other receivables   8,426     -     8,426     8,426  
  Total financial assets   37,138     -     37,138     37,138  
                           
  Financial liabilities:                        
  Accounts payable and accrued liabilities   1,620     17,307     18,927     18,927  
  Total financial liabilities   1,620     17,307     18,927     18,927  

ENDEAVOUR SILVER CORP.  |  CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

PAGE 22

 

   

ENDEAVOUR SILVER CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Three and nine months ended September 30, 2018 and 2017
(unaudited – prepared by management)
(expressed in thousands of US dollars, unless otherwise stated)

Fair value measurements

Fair value hierarchy

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (for example, interest rate and yield curves observable at commonly quoted intervals, forward pricing curves used to value currency and commodity contracts and volatility measurements used to value option contracts), or inputs that are derived principally from or corroborated by observable market data or other means. Level 3 inputs are unobservable (supported by little or no market activity). The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs.

Level 1:
Marketable securities are determined based on a market approach reflecting the closing price of each particular security at the reporting date. The closing price is a quoted market price obtained from the exchange that is the principal active market for the particular security. As a result, these financial assets have been included in Level 1 of the fair value hierarchy.

Deferred share units are determined based on a market approach reflecting the Company’s closing share price.

Level 2:
The Company determines the fair value of the embedded derivatives related to its trade receivables based on the quoted closing price obtained from the silver and gold metal exchanges.

The Company determines the fair value of the SARs liability using an option-pricing model.

Level 3:
The Company has no assets or liabilities included in Level 3 of the fair value hierarchy

There were no transfers between levels 1, 2 and 3 during the nine months ended September 30, 2018.

Assets and liabilities as at September 30, 2018 measured at fair value on a recurring basis include:

      Total     Level 1     Level 2     Level 3  
      $     $     $     $  
                           
  Financial assets:                        
  Investments   10 8     10 8     -     -  
  Trade receivables   8 ,426     -     8 ,426     -  
  Total financial assets   8 ,534     10 8     8 ,426     -  
                           
  Financial liabilities:                        
  Deferred share units   1,48 9     1,48 9     -     -  
  Share appreciation rights   131     -     131     -  
  Total financial liabilities   1,6 20     1,48 9     131     -  

ENDEAVOUR SILVER CORP.  |  CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

PAGE 23

 

   


ENDEAVOUR SILVER CORP.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Three and nine months ended September 30, 2018 and 2017
(unaudited – prepared by management)
(expressed in thousands of US dollars, unless otherwise stated)
 

  HEAD OFFICE Suite #1130, 609 Granville Street
    Vancouver, BC, Canada V7Y 1G5
    Telephone:          (604) 685-9775
                                  1-877-685-9775
    Facsimile: (604) 685-9744
    Website:              www.edrsilver.com
     
     
  DIRECTORS Geoff Handley
    Ricardo Campoy
    Bradford Cooke
      
    Kenneth Pickering
    Mario Szotlender
    Godfrey Walton
     
     
  OFFICERS Bradford Cooke - Chief Executive Officer
    Godfrey Walton - President and Chief Operating Officer
    Dan Dickson - Chief Financial Officer
    Nicholas Shakesby – Vice President, Operations
    Luis Castro - Vice-President, Exploration
    Dale Mah - Vice-President, Corporate Development
    Christine West – Vice-President, Controller
    Manuel Echevarria – Vice President, New Projects
    Bernard Poznanski - Corporate Secretary
     
     
  REGISTRAR AND Computershare Trust Company of Canada
  TRANSFER AGENT 3rd Floor - 510 Burrard Street
    Vancouver, BC, V6C 3B9
     
     
  AUDITORS KPMG LLP
    777 Dunsmuir Street
    Vancouver, BC, V7Y 1K3
     
     
  SOLICITORS Koffman Kalef LLP
    19th Floor – 885 West Georgia Street
    Vancouver, BC, V6C 3H4
     
     
  SHARES LISTED Toronto Stock Exchange
    Trading Symbol - EDR
     
    New York Stock Exchange
    Trading Symbol – EXK

ENDEAVOUR SILVER CORP.  |  CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

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