EX-99.4 5 exhibit994.htm INTERIM FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED FEBRUARY 29, 2008 Exhibit 99.4

Exhibit 99.4

TSX-V: HGC

INTERIM FINANCIAL STATEMENTS

(Unaudited and Prepared by Management)

THREE MONTHS ENDED FEBRUARY 29, 2008


The accompanying unaudited interim consolidated financial statements of Hawthorne Gold Corp. for the three months ended February 29, 2008 have been prepared by management and approved by the Company’s Board of Directors and Audit Committee. These statements have not been reviewed by the Company’s external auditor.


Hawthorne Gold Corp.
 
Interim Consolidated Balance Sheets
(Unaudited and prepared by management)

              
    February 29,     November 30,  
    2008     2007  
ASSETS            
 
Current assets            
     Cash and cash equivalents $ 2,775,307   $ 2,749,637  
     Other receivables   93,138     179,747  
     Loan receivable (Note 7)   127,908     -  
     Prepaid expenses   170,234     250,958  
    3,166,587     3,180,342  
 
Plant and equipment (Note 2)   1,113,443     1,139,683  
Mineral properties (Note 3)   6,547,943     4,151,091  
 
  $ 10,827,973   $ 8,471,116  
 
 
LIABILITIES            
 
Current liabilities            
     Accounts payable and accrued liabilities $ 330,719   $ 719,610  
     Due to related parties (Note 6)   35,355     4,330  
     Capital lease obligation - current (Note 5)   164,368     164,368  
    530,442     888,308  
 
Capital lease obligation (Note 5)   261,141     289,360  
Asset retirement obligation (Note 3)   24,397     22,179  
    815,980     1,199,847  
 
SHAREHOLDERS' EQUITY            
 
Share capital (Note 4)   7,858,122     5,717,692  
Contributed surplus (Note 4(f))   3,092,418     2,152,424  
Deficit   (938,547 )   (598,847 )
 
    10,011,993     7,271,269  
 
  $ 10,827,973   $ 8,471,116  
 
Nature of continuance of operations (Note 1)            
Commitments (Note 11)            
Subsequent events (Note 12)            
 
The accompanying notes are an integral part of the consolidated financial statements.        
 
Approved by the Board:            
 
"Richard Barclay" "Harvey Brooks"        
Director Director        


Hawthorne Gold Corp.            
 
Interim Consolidated Statements of Operations and Deficit            
(Unaudited and prepared by management)            
 
 
    Three months     Three months  
    ended     ended  
    February 29,     February 28,  
    2008     2007  
 
Administrative expenses            
   Amortization $ 2,594   $ 607  
   Bank charges and interest   16,814     510  
   Filing fees and transfer agent   10,400     14,530  
   Investor relations   108,473     -  
   Professional fees   33,123     1,541  
   Rent and office expenses   55,469     12,087  
   Shareholder information   7,541     2,500  
   Stock based compensation   112,118     -  
   Travel and entertainment   2,148     1,718  
   Wages and benefits   30,046     10,712  
 
Loss before other income and income taxes   (378,726 )   (44,205 )
 
Other income            
   Interest income   39,026     1,724  
 
Loss before income taxes   (339,700 )   (42,481 )
 
Future income tax recovery   -     38,250  
 
Loss and comprehensive loss for the period   (339,700 )   (4,231 )
 
Deficit, beginning of the period   (598,847 )   (2,025 )
 
Deficit, end of the period $ (938,547 ) $ (6,256 )
 
Basic and diluted loss per common share   (0.02 )   (0.00 )
 
Weighted average number of common shares outstanding   15,978,819     7,223,111  
 
 
The accompanying notes are an integral part of the consolidated financial statements.        


Hawthorne Gold Corp.        
 
Interim Consolidated Statements of Cash Flows        
(Unaudited and prepared by management)        
 
  
  Three months   Three months  
  ended   ended  
  February 29,   February 28,  
  2008   2007  
 
Cash provided by (used for)        
 
Operating activities        
   Loss for the period (339,700 ) (4,231 )
   Items not involving cash:        
       Amortization 2,594   607  
       Stock based compensation 112,118   -  
       Future income tax recovery -   (38,250 )
   Net changes in non-cash working capital        
       Receivables and other current assets 167,333   (23,483 )
       Accounts payable and accrued liabilities 255,219   5,566  
       Due to related parties 35,355   1,714  
 
Net cash used in operating activities 232,919   (58,077 )
 
Investing activities        
   Plant and equipment (19,558 ) -  
   Mineral properties (2,944,906 ) (28,909 )
 
Net cash used in investing activities (2,964,464 ) (28,909 )
 
Financing activities        
   Shares issued, net of issuance costs 2,913,342   170,000  
   Loan receivable (127,908 ) -  
   Deferred financing cost -   (22,500 )
   Repayment of capital lease (28,219 ) -  
 
Net cash provided by financing activities 2,757,215   147,500  
 
Increase in cash 25,670   60,514  
 
Cash, beginning of the period 2,749,637   128,429  
 
Cash, end of the period 2,775,307   188,943  
 
Interest paid 15,901   -  
 
Income taxes paid -   -  
 
 
Supplemental disclosure with respect to cash flows (Note 8).        
 
The accompanying notes are an integral part of the consolidated financial statements.      


 
Hawthorne Gold Corp.
Notes to the Interim Consolidated Financial Statements
For the Three Months Ended February 29, 2008 and 2007
(unaudited and prepared by management)
 

1.      Nature and Continuance of Operations
 
  Hawthorne Gold Corp. (the “Company”) was incorporated under the laws of British Columbia on January 18, 2006. The Company’s principal business activities include the acquisition, exploration and development of mineral properties. The Company is listed as a Tier one issuer on the TSX Venture Exchange.
 
  These unaudited interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles following the same accounting policies and methods of application as the most recent annual financial statements dated November 30, 2007. These interim consolidated financial statements do not contain all of the information required by Canadian general accepted accounting principles for annual financial statements and therefore should be read in conjunction with the Company’s November 30, 2007 audited annual financial statements.
 
  As at February 29, 2008, the Company has no source of operating cash flows and has not yet achieved profitable operations, has accumulated losses since its inception, and expects to incur further losses in the development of its business, all of which casts substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations as they come due.
 
  These consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, 0811381 BC Ltd. All significant intercompany transactions and balances have been eliminated.
 
2.      Plant and Equipment
 
      February 29, November 30,
    Accumulated 2008 2007
  Cost Amortization Net Book Value Net Book Value
    $ $ $ $
   Office furniture 20,450 3,097 17,353 12,184
   Computer equipment 30,469 8,117 22,352 17,726
   Vehicles 135,391 28,940 106,451 115,082
   Buildings 940,255 69,344 870,911 893,243
   Site equipment 112,720 16,344 96,376 101,448
   
  1,239,285 125,842 1,113,443 1,139,683
   
   
  Included in buildings at February 29, 2008, was $507,489 (2007 – $nil) in capital leases. Amortization during the three months ended February 29, 2008 amounted to $38,629 (2007 - $607), which has been reflected in the financial statements as follows:
   
   Three months ended February 28,     2008 2007
   Mineral properties - balance sheet     36,035 -
   Amortization - statement of operations and deficit   2,594 607
   
   Total amortization recognized, credited to accumulated amortization 38,629 607


 
Hawthorne Gold Corp.
Notes to the Interim Consolidated Financial Statements
For the Three Months Ended February 29, 2008 and 2007
(unaudited and prepared by management)
 

3. Mineral Properties

  Frasergold Cassiar Carruthers  
  Property Property Property Total
    $ $ $ $
   
  Balance, November 30, 2006 31,457 - 138,391 169,848
   
  Acquisition and maintenance 273,284 - 10,000 283,284
  Amortization 78,594 - - 78,594
  Asset retirement obligation 22,179 - - 22,179
  Camp and expediting 809,766 - - 809,766
  Drilling 938,641 - - 938,641
  Equipment 171,538 - - 171,538
  Geochemical and metallurgical 109,891 - - 109,891
  Geological and geophysics 686,305 - 2,800 689,105
  Professional and consulting 72,356 - - 72,356
  Stock based compensation 161,695 - - 161,695
  Travel 82,985 - - 82,985
  Vehicle costs 33,193 - - 33,193
  Wages and benefits 528,016 - - 528,016
  Balance, November 30, 2007 3,999,900 - 151,191 4,151,091
   
  Acquisition and maintenance 28,513 1,256,538 - 1,285,051
  Amortization 36,035 - - 36,035
  Asset retirement obligation 2,218 - - 2,218
  Camp and expediting 161,481 24,660 - 186,141
  Drilling 144,556 - - 144,556
  Equipment 53,341 2,101 - 55,442
  Geochemical and metallurgical 218,735 - - 218,735
  Geological and geophysics 154,824 4,376 - 159,200
  Professional and consulting 5,400 13,500 - 18,900
  Stock based compensation 37,664 17,300 - 54,964
  Travel 6,143 5,898 - 12,041
  Vehicle costs 159 - - 159
  Wages and benefits 157,687 65,723 - 223,410
   
  Incurred during the period 1,006,756 1,390,096 - 2,396,852
   
Balance, February 29, 2008 5,006,656 1,390,096 151,191 6,547,943

Frasergold Property, British Columbia

At February 29, 2008, the Frasergold property is comprised of the following mineral claims:

Eureka Resources Inc.

In October 2006, the Company entered into in an option agreement with Eureka Resources, Inc. (“Eureka”) to earn up to a 60% interest in the Frasergold property by incurring the following:


 
Hawthorne Gold Corp.
Notes to the Interim Consolidated Financial Statements
For the Three Months Ended February 29, 2008 and 2007
(unaudited and prepared by management)
 

    Cash   Minimum work
      payments   commitments
   
  On signing (paid) $ 25,000 $ -
  September 30, 2007 (expended)   -   500,000
  October 31, 2007 (paid)   50,000   -
  April 30, 2008 (expended)   -   1,000,000
  October 31, 2008   50,000   -
  April 30, 2009 (expended)   -   1,000,000
  October 31, 2009   50,000   -
  April 30, 2010 (expended)   -   1,000,000
   
  $ 175,000 $ 3,500,000

In addition to the cash payments of $175,000 and exploration expenditures of $3,500,000, the Company must also complete a feasibility study by April 30, 2010 to earn its initial 51% interest. In the event the feasibility study cannot be completed by April 30, 2010, the Company can pay a cash penalty of $100,000 per quarter to Eureka until January 31, 2012. The Company can earn an additional 9% interest by arranging third party financing for not less than 70% of the estimated capital costs required for commercial production of the property for Eureka on the same terms and conditions as the Company. If the Company fails to arrange third party financing for production, Eureka can arrange third party financing and earn an additional 2% interest from the Company.

Dajin Resources Corp.

In May 2007, the Company entered into in an option agreement with Dajin Resources Corp. (“Dajin”) to earn up to a 70% interest in certain mineral claims by incurring the following:

             Cash   Minimum work
    payments   commitments
   
  On signing (paid) $ 100,000 $ -
  May 29, 2008 (expended)                -   150,000
  May 29, 2009                -   150,000
  November 30, 2010                -   200,000
   
  $ 100,000 $ 500,000

On the exercise of the option, Dajin may elect to either remain a 30% working interest partner or, for no additional consideration, convert its 30% working interest into a 2% NSR.

Bourdon Property

In June 2007, the Company entered into an option agreement with a property vendor to earn a 100% interest in a mineral claim by incurring the following:

    Cash   Share
      payments   payments
   
  On signing (paid and issued) $ 20,000   10,000
  May 29, 2008   30,000   15,000
  May 29, 2009   40,000   20,000
  November 30, 2010   50,000   25,000
    $ 140,000 $ 70,000


 
Hawthorne Gold Corp.
Notes to the Interim Consolidated Financial Statements
For the Three Months Ended February 29, 2008 and 2007
(unaudited and prepared by management)
 

In the event the Bourdon property is subject to a positive feasibility study, the Company will issue an additional 150,000 common shares. The property is subject to a two percent (2%) NSR of which fifty percent (50%) may be purchased for the sum of $1,000,000.

Addie Property

In September 2007, the Company acquired certain mineral claims by issuing 50,000 shares. The property is subject to a two percent (2%) NSR of which fifty percent (50%) may be purchased for the sum of $1,000,000.

Cassiar Property, British Columbia

Taurus

Pursuant to an option agreement, the Company can acquire 46 mineral claims near Cassiar, British Columbia from American Bonanza Gold Corp. in consideration of an aggregate $6 million over two years, consisting of $1 million by December 22, 2007 (paid), $2 million by June 22, 2008, $1.5 million by June 22, 2009 and $1.5 million by December 22, 2009. A further $3 million is payable upon completion of a positive feasibility study recommending production, or production, whichever comes first. Pursuant to the agreement, the Company is required to issue 250,000 common shares to Bonanza on or before December 22, 2008.

Carruthers Property, British Columbia

In May 2006, the Company entered into in an option agreement with Cariboo Rose Resources Ltd. (“Cariboo”) (formerly Wildrose Resources Ltd.) to earn a 60% interest in the Carruthers property by incurring the following:

    Cash   Minimum work
    payments    commitments
   
  April 25, 2007 (paid) $ 10,000 $                          -
  April 25, 2008 (work commitment fulfilled)   15,000                100,000
  April 25, 2009   15,000                            -
  April 25, 2010   20,000                            -
  April 25, 2011   30,000                            -
  April 25, 2012   50,000                900,000
    $ 140,000 $        1,000,000

The property is subject to back-in rights by the underlying claim owner, Phelps Dodge (“Phelps”), whereby Phelps can earn back a 60% interest in the property by incurring the greater of $1,500,000 or exploration expenditures that are 200% greater than expenditures to date by Cariboo and the Company. If Phelps earned back a 60% interest, the Company’s interest would be reduced to 24%. The back-in election must be made the earlier of June 2009 or completion of 2,500 meters of drilling. Phelps may earn an additional 10% by completing a feasibility study within three years of earning its back-in rights. If Phelps elects not to exercise its back-in rights, it will be entitled to a 2.5% NSR, which can be reduced to 1% by payment of $1,500,000.

Asset Retirement Obligation

A continuity of the asset retirement obligation relating to the mineral properties is as follows:


 
Hawthorne Gold Corp.
Notes to the Interim Consolidated Financial Statements
For the Three Months Ended February 29, 2008 and 2007
(unaudited and prepared by management)
 

    Three months ended   Year ended
    February 29,   November 30,
    2008   2007
 
  Asset retirement obligation - beginning of period        $ 22,179   -
  Liabilities incurred   -   22,179
  Accretion expense   2,218   -
Asset retirement obligation - ending of period        $ 24,397 $ 22,179

The total undiscounted amount of estimated cash flows required to settle the obligations is $57,527, which was adjusted for inflation at the rate of 2% and then discounted at 10%. Certain minimum amounts of asset retirement obligations will occur each year with the significant amounts to be paid on abandonment of the mineral property interests.

4.      Share Capital
 
  a)      Authorized
 
    Unlimited Class A common shares, without par value
 
  b)      Issued
 
  Three months ended   Year ended  
  February 29, 2008   November 30, 2007  
  Shares Amount   Shares Amount  
  # $   # $  
  Common shares            
  Balance, beginning of period 14,462,875 5,717,692   6,800,000 300,000  
  Private placements 1,875,000 2,224,857   3,964,375 3,917,270  
  Initial Public Offering - -   3,350,000 2,010,000  
  Mineral properties       60,000 93,500  
  Warrants exercised 6,375 6,056   4,000 3,800  
  Less:            
  - Finders' fees 92,813 -   284,500 (484,301 )
  - Share issue costs - (90,483 ) - (71,577 )
  - Tax benefits on renounced to subscribers - -   - (51,000 )
   
  Balance, end of period 16,437,063 7,858,122   14,462,875 5,717,692  

In December 2007, the Company closed a non-brokered private placement for gross proceeds of $3 million. The private placement consisted of 1,875,000 units priced at $1.60 per unit. Each unit consists of one common share and one-half warrant. Each whole warrant is exercisable for a period of 18 months from the date of closing, to acquire one common share at $2.25 per share. The Company paid a finder’s fee of 92,813 common shares, equivalent to 5% of the proceeds sourced by eligible finders in respect of certain units placed under the financing. The fair value of warrants was estimated using the Black-Scholes option pricing model (assumptions include a risk free rate of 4%, estimated volatility of 120%, expected life of 1.5 years and expected dividend yield of 0%) and $775,143 of the proceeds of the financing was credited to contributed surplus.

          c)      Warrants
 
  The continuity of warrants is as follows:
 

 
Hawthorne Gold Corp.
Notes to the Interim Consolidated Financial Statements
For the Three Months Ended February 29, 2008 and 2007
(unaudited and prepared by management)
 

        Weighted
  Number of     average
    common shares     exercise price
  Balance, November 30, 2007 1,973,188     $1.56
   
  Issued 937,500     2.25
  Exercised (6,375 )   0.60
   
Balance, Februrary 29, 2008 2,904,313     $1.91

The fair value of the 937,500 warrants issued in connection with the private placement has been estimated at $775,143 (2007 - $nil) using the Black-Scholes option pricing model with the following assumptions:

      2008   2007
  Risk free interest rate   4 % -
  Expected dividend yield   - %   -
  Stock price volatility   120 % -
  Expected life of warrants   1.5 years   -
  Fair value of warrants $ 0.83   -

          d)      Options
 
  The Company adopted a rolling stock option plan, whereby 10% of the Company's issued and outstanding share capital may be granted to officers, directors, employees and consultants of the Company.
 
  The continuity of options is as follows:
 
        Weighted
    Number of     average
    common shares     exercise price
  Balance, November 30, 2007 1,389,000   $ 0.86
   
  Cancelled (41,000 )   -
Balance, Februrary 29, 2008 1,348,000   $ 0.84

The exercise prices of all share purchase options granted were at the market price at the grant date. Using an option pricing model with the assumptions noted below, the estimated fair value of all options granted during the period ended February 29, 2008, which have been reflected in the financial statement as follows:

  Three months ended February 28, 2008 2007
  Mineral properties - balance sheet 54,964  -
  Stock based compensation - statement of oeprations and deficit 112,118  -
   
Total compensation cost recognized, credited to contributed surplus 167,082  -

The fair value of share options used has been estimated using the Black-Scholes option pricing model with the following assumptions:


 
Hawthorne Gold Corp.
Notes to the Interim Consolidated Financial Statements
For the Three Months Ended February 29, 2008 and 2007
(unaudited and prepared by management)
 

  Three months ended February 28,   2008   2007
  Risk free interest rate   4.25 %  -
  Expected dividend yield   - %    -
  Stock price volatility   111 %  -
  Expected life of warrants   4.71 years    -
Fair value of options   $0.64    -

        e)      Shares held in escrow
 
  As at February 29, 2008, there were 3,435,000 common shares (2007 – 4,580,000) of the Company held in escrow. The escrowed shares are released every six months and the length of the agreement is three years.
 
        f)      Contributed surplus
 
    Three months ended     Year ended  
    February 29,     November 30,  
      2008     2007  
  Balance, beginning of period        $ 2,152,424     -  
  Stock based compensation for stock options   167,082     529,193  
  Stock based compensation for broker warrants   -     116,901  
  Stock based compensation for warrants   775,143     1,507,730  
  Exercised of broker warrants   (2,231 )   (1,400 )
   
  Balance, end of period        $ 3,092,418   $ 2,152,424  

5. Capital Lease

The Company is committed to a capital lease for its camp facilities as follows:

      Capital lease  
 
    2008 $ 132,359  
    2009   176,479  
    2010   198,240  
  Total lease payments and buyout     507,078  
  Less: amount representing interest     (97,470 )
  Present value of minimum payments     409,608  

6.      Related Party Transactions
 
  a)      During the three months ended February 29, 2008, the Company paid rent of $12,000 (2007 - $3,000) to a company with common officers and directors.
 
  b)      Included in accounts payable at February 29, 2008, was $35,355 (November 30, 2007 - $4,330) payable to related parties without interest.
 
7.      Loan Receivable
 
  During the three months ended February 29, 2008, the Company loaned $127,000 to Cusac Gold Mine Ltd. (as described in Note 12) for its operating expenses. The loans are due on April 15, 2008 and bear interest of 8% per annum. At February 29, 2008, interest of $908 was accrued.
 

 
Hawthorne Gold Corp.
Notes to the Interim Consolidated Financial Statements
For the Three Months Ended February 29, 2008 and 2007
(unaudited and prepared by management)
 

8.      Supplemental Disclosure with Respect to Cash Flows
 
  The significant non-cash transaction for the three months ended February 29, 2008 was the inclusion in accounts payable of $68,250 (2007 - $16,201) in mineral property expenditures and $nil (2007 - $3,233) in plant and equipment expenditures.
 
  In conjunction with the December 2007 private placement, of the proceeds $2,970,000, the Company paid a finder’s fee of 5%, or $148,501, by issuing 92,813 common shares of the Company.
 
9.      Financial Instruments
 
  The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, prepaid expenses, accounts payable and accrued liabilities and due to related parties. It is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments. The fair values of these financial instruments approximate their carrying values, unless otherwise noted.
 
10.      Segmented Information
 
  The Company operates in one reportable operating segment, being the exploration and development of resource properties. All of the Company’s properties and equipment are located in Canada.
 
11.      Commitments
 
  The Company is committed to certain cash payments and exploration expenditures as described in Note 3.
 
12.      Subsequent events
 
  On April 15, 2008, the Company completed the statutory plan of arrangement (the “Arrangement”) pursuant to which, among other things, the Company acquired all of the outstanding common shares (the “Shareholders”) and debentures (the “Debentureholders”) of Cusac as more particularly described in the Cusac Information Circular dated February 13, 2008. Cusac became a wholly owned subsidiary of the Company. Under the terms of the Arrangement, Shareholders of Cusac received one (1) common share of the Company in exchange for each nineteen (19) Cusac common shares. In addition, for each two (2) dollars of principal and interest owed to each Cusac Debentureholder, the Company issued one (1) common share. The Company issued approximately 6.05 million common shares to Cusac Shareholders and Debentureholders. Cusac stock options and warrants were also assumed by the Company, using the effective nineteen (19) to one (1) ratio.
 
  On April 25, 2008, the Company closed a brokered private placement of $12,314,983. The private placement consisted of 3,443,009 units priced at $1.75 per unit for gross proceeds of $6,025,266. Each unit consists of one common share and one-half warrant. Each whole warrant is exercisable for a period of two years from closing to acquire one common share at a price of $2.25 per share. The private placement also consisted of 3,225,496 flow-through common shares priced at $1.95 per share for gross proceeds of $6,289,717. The Company paid a cash commission of $738,898 or 6% of the gross proceeds and issued 400,111 compensation options equal to 6% of the aggregate number of units and flow-through common shares. Each compensation option entitles the holder to purchase one common share at an exercise price of $1.75 per share for a year from the closing of the private placement.