Royal Coal Corp.

Royal Coal Corp.
Amalfi Capital Corporation
TSX VENTURE : ALI.P

August 20, 2010 22:47 ET

Royal Coal Corp. Announces Completion of Business Combination

TORONTO, ONTARIO--(Marketwire - Aug. 20, 2010) - Royal Coal Corp. ("Royal Coal" or the "Resulting Issuer") announces the completion of the amalgamation (the "Business Combination") of CDR Minerals Inc. ("CDR") with Royal Coal's wholly-owned subsidiary to continue as one company ("Amalco") under the Business Corporations Act (Ontario) (the "OBCA"). In connection with the completion of the Business Combination, Amalfi Capital Corporation ("Amalfi") (TSX VENTURE:ALI.P) continued under the OBCA, changed its name to "Royal Coal Corp." and consolidated its previously outstanding common shares on the basis of two common shares of Amalfi ("Amalfi Shares") for one common share of Royal Coal (the "Consolidation").

Concurrent with the closing of the Business Combination on August 12, 2010, CDR completed its previously announced private placement of $4,685,000 in gross proceeds, representing an aggregate of 23,425,000 units (the "CDR Units") at a price of $0.20 per Unit (the "Private Placement"). Each CDR Unit is comprised of one common share of CDR (the "CDR Shares") and one common share purchase warrant ("Warrant"). Each whole Warrant will entitle the holder to purchase one common share of CDR at a price of $0.20 for a period of five years from the closing of the Private Placement. Northern Securities Inc. and Salman Partners Inc. (collectively, the "Agents") acted as agents on a best efforts basis in connection with the brokered portion of the Private Placement. Pursuant to the terms of the Private Placement, the Agents, along with other placement agents, were paid an aggregate of $226,000 in cash commissions and were issued an aggregate of 1,030,300 broker warrants, each exercisable to purchase one CDR Unit at $0.20 for a period of 60 months from the closing of the Private Placement.

The Amalgamation became effective on August 12, 2010, the date the Certificate of Amalgamation was issued in respect of the Business Combination under the OBCA. Pursuant to the Amalgamation and after giving effect to the Consolidation: (i) each two (2) Amalfi Shares will be exchanged for one common share of Royal Coal ("Resulting Issuer Share") upon receipt of the required documentation from each shareholder; (ii) each CDR Share was exchanged for one Resulting Issuer Share; and (iii) each holder of a post-Consolidation Amalfi Share received 0.28235525 of a Royal Coal new common share purchase warrant ("Resulting Issuer New Warrant") for each Amalfi Share held, each whole warrant entitling the holder to acquire one Resulting Issuer Share at a price of $0.20 per share for two years from the closing of the Business Combination, resulting in the issuance of 1,657,143 Resulting Issuer New Warrants. In addition, the other outstanding convertible securities of each of Amalfi and CDR were replaced/continued into securities of the Royal Coal as disclosed below under the heading "Fully Diluted Share Capital of the Resulting Issuer".

Amendments to Debt Arrangements

Third Eye Capital Corporation ("TEC") and Juno Special Situations Corporation ("Juno") agreed to amend the note purchase agreement dated September 30, 2009 between Juno and TEC (the "TEC Loan") and the corresponding note purchase agreement dated September 30, 2009 between CDR and Juno (the "Juno Loan", and together with the TEC loan the "Indebtedness") to waive certain covenants that were not achieved by CDR, and establish updated financial and production, interest and repayment covenants. In accordance with such amendments, US$1,000,000 was paid to reduce the Indebtedness (the "Closing Repayment") from the proceeds from the Private Placement and US$450,000, representing unpaid waiver fees, was added to the Indebtedness. The outstanding amount of the Indebtedness after payment of the Closing Repayment was US$5,750,000, plus the US$2 per ton royalty capped at 3,105,000 tons referenced in the Filing Statement. The royalty payment commitment maturity date was extended from March 31, 2011 to January 31, 2012.

CDR also entered into an agreement with Juno, which amended the terms of the Juno Loan. In accordance with such agreement, Juno granted CDR an option to convert the principal amount of the Juno Loan into Resulting Issuer Shares at a conversion price equal to the greater of (i) $0.20 and (ii) the weighted average market price of the Resulting Issuer's shares for the 20 trading days prior to the date notice is received exercising the option. The option is exercisable at any time up until 20 days prior to the maturity date of the Juno Loan, which is March 31, 2011. CDR's option to convert is subject to CDR using its best efforts to find alternative financings to repay the Juno Loan in cash, CDR not being in default under the Juno Loan, and the payment of increased royalty payments to Juno of US$0.10 per ton of coal for each US$1,000,000 principal amount of the Juno Loan converted. CDR remains a guarantor of Juno's debt obligations to TEC, an arm's length lender, in respect of which CDR has granted a general security interest over its assets.

GC Global Capital Inc.'s convertible debenture with CDR in the amount of $375,000 was amended such that $25,000 was paid on closing of the Private Placement and the balance of the principal will be repaid over the period ending December 31, 2011.

Upon closing of the Private Placement, CDR paid Cheyenne Resources Inc. US$800,000 of the principal amount owing under its convertible debentures with CDR (the "CDR Cheyenne Debentures"). The principal amount of the CDR Cheyenne Debentures after this payment was US$4,200,000 and the maturity date of the CDR Cheyenne Debentures was extended to January 31, 2012.

CDR also entered into agreements (the "CDR Debt Settlement") with two arm's length third parties (the "Trade Creditors"), pursuant to which CDR has agreed to issue 4,125,000 CDR Units with an aggregate value of $825,000 to the Trade Creditors in exchange for the cancellation of $825,000 in outstanding trade payables.

Amendment to Previous Financing

In accordance with their agreements (the "January Unit Agreements") with CDR, investors who subscribed for an aggregate of 2,200,000 units of CDR at a price of $0.50 per unit in January 2010 received an additional 3,300,000 CDR Shares for no additional consideration (so, following the closing of the Business Combination, they held an aggregate of 5,500,000 Resulting Issuer Shares). In addition, the 2,200,000 share purchase warrants originally forming part of such units were cancelled and such investors instead received 5,500,000 common share purchase warrants of the Resulting Issuer (the "Resulting Issuer CDR 2010 Warrants"). Each whole Resulting Issuer CDR 2010 Warrant entitles the holder to acquire one Resulting Issuer Share at a price of $0.20 per share until August 12, 2015. One of the investors in the units was Juno, which received 1,800,000 additional CDR Shares and 3,000,000 Resulting Issuer CDR 2010 Warrants pursuant to the above-noted amendments. See Principal Securityholders of the Resulting Issuer below.

Filing Statement Amendments and Updated Financial Statements

The following information updates and replaces, as applicable, the disclosure about the Resulting Issuer, including disclosure about the Resulting Issuer's expected business objectives, milestones, pro forma consolidated capitalization, intended use of funds and fully diluted share capital, set out in Amalfi's filing statement dated March 29, 2010 (the "Filing Statement") which is available on SEDAR and Amalfi's press releases issued on May 17, May 31 and July 23, 2010. 

The interim financial statements of CDR for the three months ended March 31, 2010 are attached hereto and marked Exhibit "A" and the pro forma financial statements of the Resulting Issuer as at March 31, 2010 are attached hereto and marked Exhibit "B". The interim financial statements for the three months ended March 31, 2010 of Amalfi are available on SEDAR.

Capitalized terms used in the following sections that are not otherwise defined herein have the meanings assigned to them in the Filing Statement. 

OPERATIONS UPDATE

Mining at the Big Branch (Cheyenne) surface mine has been continuous since the acquisition of the mine on October 1, 2009. The Resulting Issuer has averaged coal production of 30,553 tons per month over the past 8 months and the proceeds of the CDR Private Placement will be used to increase production to a targeted 65,000 tons per month beginning October 2010. The Resulting Issuer intends to make capital expenditures of US$2,400,000 at the Big Branch (Cheyenne) surface mine as follows: US$950,000 will be expended on the current mining fleet to repair key components; the balance of US$1,450,000 will be used to acquire additional equipment enabling the production forecast of 65,000 tons per month beginning in October 2010.

BUSINESS OBJECTIVES

The Resulting Issuer will concentrate its efforts on developing an asset base in the central Appalachian coal producing region of the United States, and may expand internationally as opportunities allow. The central Appalachian area includes parts of West Virginia, Virginia, Kentucky, Ohio and Tennessee. Central Appalachia's history of producing large volumes of thermal and metallurgical coal, along with the under-utilized coal infrastructure already in place make the area ideal for the implementation of business model. Coal assets in the area can be acquired and brought into production relatively quickly. 

The Resulting Issuer's principal initial business objective is to utilize its available working capital and available cash flow from operations to achieve its principal milestones as described below.

MILESTONES

The principal milestones necessary to be achieved by Royal Coal in 2010 and 2011 in order for Royal Coal to achieve success in its business plan are:

Project Milestone   Target Date   Cost
Big Branch Add scheduled equipment and add fourth production spread of equipment to increase production   September 2010   US$ 1,450,000
           
  Own permit; post bonding   November 2011   US$ 1,000,000

WORKING CAPITAL OF THE RESULTING ISSUER

Based on current working capital projections, the Resulting Issuer's working capital available to fund ongoing operations, together with its revenue from operations and the proceeds of the Private Placement, is expected by management of the Resulting Issuer to meet its work program and administration costs for a minimum of 18 months without further additional capital. The projections of the Resulting Issuer assume the following factors: (a) coal production will be from the Big Branch (Cheyenne) mine only; (b) coal production from the Big Branch (Cheyenne) mine of 34,000 tons per month initially and increasing to 65,000 tons per month beginning October 2010; (c) further capital equipment expenditures of US$2,400,000 as described above; (d) average coal prices of US$61 for the balance of 2010 and US$69.50 in 2011 which are based on existing contracts and contract prices currently being negotiated by the Resulting Issuer. The price assumptions of the Resulting Issuer for 2011 are based on prevailing market prices and the forward price curve for the Resulting Issuer's grade of coal. The Resulting Issuer is currently negotiating coal sales contracts for 2011 at the projected prices; and (e) average mining costs per ton of US$54 for the balance of 2010 and US$50 in 2011, which are based on actual costs of the Resulting Issuer experienced to date and projected to the end of 2010. The average mining costs projected for 2010 are based on current costs of the Resulting Issuer adjusted for anticipated changes in materials and labour. Significant risks to be considered include, without limitation, the risk that the Resulting Issuer might not receive the prices for its coal that are used in its projections; the Resulting Issuer's production costs coming in higher than expected; the Resulting Issuer's production levels and availability (uptime) of the coal production equipment being lower than expected; the Resulting Issuer being unable to acquire necessary equipment for purchase or lease; non–cooperation of suppliers and management with respect to significant current and past due accounts payable and compensation owing; the Resulting Issuer not being able to renew its lease on the Charlene rail load-out facility it uses to ship coal; the Resulting Issuer not meeting its outstanding financial or payment covenants in relevant loan arrangements and related future production targets; and the other factors discussed under "Risk Factors" in the Filing Statement.

The minimum 18 month working capital projections of the Resulting Issuer assume that CDR will exercise its option in March 2011 to convert the principal amount of the Juno Loan into Resulting Issuer Shares.

As at March 31, 2010, Royal Coal will have a pro forma consolidated working capital deficiency of US$3,943,822. The opening pro forma consolidated working capital of Royal Coal was calculated after giving effect to the following:

  Pro forma as at March 31, 2010 after giving effect to the Qualifying Transaction
Expenses of CDR for the Amalgamation US$120,000
   
Expenses of Amalfi for the Amalgamation US$388,000
  US$508,000

In the three months ending March 31, 2010, CDR's cost of sales of $8.53 million exceeded its revenue of $5.76 million due to CDR's higher than expected costs of opening multiple mining areas on the Big Branch property and repairing and maintaining its used fleet of equipment. Royal Coal expects that its planned expenditures on capital equipment using proceeds from the Private Placement, as noted below, combined with improved equipment maintenance and mine planning will increase production to profitable levels.

USE OF CASH PROCEEDS FROM PRIVATE PLACEMENT

Royal Coal intends to, or will have used, the gross cash proceeds from the Private Placement (US$4,612,128), and the pro forma cash balance at March 31, 2010 ($5,271,478) as follows:

  Use of Cash Proceeds from Private Placement – US$(1)
   
Expenditures on capital equipment at Big branch Mining Operations $ 1,450,000
Payment in respect of the Indebtedness $ 1,000,000
Payment in respect of GC Global Capital Inc.'s convertible debenture $ 24,272
Payment in respect of the CDR Cheyenne Debentures $ 800,000
Expenses for the Business Combination $ 508,000
General and Administrative Expenses $ 829,856
 
Notes: 
 
(1) Notwithstanding its pro forma consolidated working capital deficiency of US$3,943,822 as at March 31, 2010, Royal Coal believes that it has sufficient funds to carry out its operations, based on the assumptions set out above under "Working Capital of the Resulting Issuer".

Royal Coal intends to spend the funds available to it on completion of the Qualifying Transaction to further its stated business objectives. However, there may be circumstances where, for sound business reasons, a reallocation of funds may be necessary in order for Royal Coal to achieve its stated business objectives.

Management of Royal Coal estimates that the aggregate monthly general and administrative expenses to be incurred by Royal Coal will be approximately US$167,000, for an aggregate of approximately US$2,040,000 per annum. These expenses are expected to be paid from available working capital and cash-flow from operations. Based on a management prepared budget, revenues from the operations of Royal Coal are expected to cover the estimated administration costs of Royal Coal upon the closing of the Amalgamation.

CONSOLIDATED CAPITALIZATION OF THE RESULTING ISSUER

The expected capitalization of the Resulting Issuer, after giving effect to the Qualifying Transaction and CDR Private Placement, is as follows:

Capital   Authorized   Outstanding in the Resulting Issuer After Giving Effect to the Qualifying Transaction and Certain Matters (1)
        (unaudited)
         
Long-term Debt   N/A   US$4,730,936 (2)
Current Portion of Long-Term Debt   N/A   US$369,167 (2)
Resulting Issuer Shares   Unlimited   US$14,261,329(3)
        (94,250,007)(4)(5)
Resulting Issuer special shares   Unlimited   Nil
   
Notes: 
   
(2) Pursuant to the Amalfi Stock Option Plan, the Resulting Issuer has reserved 11,291,331 Resulting Issuer Shares for stock options. 
   
(3) See the pro forma financial statements of the Resulting Issuer as at March 31, 2010 attached as Exhibit "B" hereto. Upon completion of the Qualifying Transaction, the Cheyenne Debentures and the CDR Global debentures are classified as long term debt, since the undiscounted face value of $4,550,000 is not payable within 12 months of the Qualifying Transaction. The Juno Loan maturity date of March 31, 2011 is less than 12 months from the Qualifying Transaction date, resulting in the $5,750,000 undiscounted face value of the Juno Loan being reclassified as current debt.  
   
(4) In accordance with generally accepted accounting principles for a reverse takeover transaction, the dollar value of the share capital of Resulting Issuer after the completion of the Amalgamation will be the dollar value of the share capital of CDR immediately prior to completion of the Amalgamation, together with the net value of Amalfi. In addition, the deficit of Resulting Issuer will be the deficit of CDR immediately prior to the completion of the Qualifying Transaction, which as at March 31, 2010 after the deduction of stock-based compensation costs, commissions, consultant fees and related expenses is (US$15,126,025).
   
(5) Not including any Resulting Issuer Shares issuable pursuant to the exercise of any convertible securities of the Resulting Issuer.  
   
(6) See Fully-Diluted Share Capital Table below.  

Fully Diluted Share Capital of the Resulting Issuer

The following table describes the expected the fully-diluted share capital of the Resulting Issuer, after giving effect to the Qualifying Transaction and CDR Private Placement.

Outstanding Resulting Issuer Shares   Number of Resulting Issuer Shares Assuming Completion of the Amalgamation Percentage Assuming Completion of the Amalgamation  
Resulting Issuer Shares issued after Completion of Amalgamation and Consolidation to former holders of Amalfi Shares   5,869,000 3.68 %
Resulting Issuer Shares issued after Completion of Amalgamation and Consolidation to former holders of CDR Shares   55,678,484 34.89 %
Additional Resulting Issuer Shares issued after Completion of Amalgamation to former holders of January Units(6)   3,300,000 2.07 %
Additional Resulting Issuer Shares issued after Completion of Amalgamation to holders of CDR Shares that exercised their CDR PKM MOU Rights   1,652,523 1.04 %
Resulting Issuer Shares issued after Completion of Amalgamation and Consolidation to Investors in the CDR Private Placement(1)   23,425,000 14.68 %
Resulting Issuer Shares issued after Completion of Amalgamation and Consolidation to Trade Creditors(1)(7)   4,125,000 2.58 %
Resulting Issuer Shares issued as finder's fee pursuant to the Qualifying Transaction   200,000 0.13 %
Subtotal   94,250,007    
         
         
Reserved Resulting Issuer Shares(2)        
Securities reserved for issuance pursuant to Resulting Issuer CDR New Warrants(1)(7)   27,550,000 17.26 %
         
Securities reserved for issuance pursuant to Resulting Issuer CDR Warrants   7,735,407 4.85 %
         
Securities reserved for issuance pursuant to Resulting Issuer CDR 2010 Warrants(6)   5,500,000 3.45 %
         
Securities reserved for issuance pursuant to Resulting Issuer CDR Broker Warrants   518,446 0.33 %
         
Securities reserved for issuance pursuant to Resulting Issuer CDR New Broker Warrants (including the underlying CDR Warrants) (3)   2,060,600 1.29 %
         
Securities reserved for issuance pursuant to Resulting Issuer CDR Options   8,050,000 5.04 %
         
Securities reserved for issuance pursuant to Resulting Issuer CDR Cheyenne Debentures(4)   8,400,000 5.26 %
         
Securities currently reserved for issuance pursuant to Resulting Issuer CDR Global Debentures(5)   700,000 0.44 %
         
Securities reserved for issuance pursuant to Resulting Issuer Amalfi Options   580,000 0.36 %
         
Securities reserved for issuance pursuant to Resulting Issuer New Warrants   1,657,143 1.04 %
         
Securities reserved for issuance pursuant to Resulting Issuer New Options(8)   2,661,331 1.67 %
         
Securities reserved for issuance pursuant to conversion of Juno Loan(9)   Number to be determined Number to be determined  
Total Fully-Diluted Resulting Issuer Shares   159,662,934 100 %
 
Notes:  
   
(1) Upon completion of the CDR Private Placement and the CDR Debt Settlement, the Resulting Issuer issued an additional 23,425,000 and 4,125,000 Resulting Issuer Units (27,550,000 in total), respectively, comprised of an aggregate of 27,550,000 Resulting Issuer Shares and 27,550,000 Resulting Issuer CDR New Warrants in replacement of the 27,550,000 CDR Units issued pursuant to the CDR Private Placement and the CDR Debt Settlement. Each Resulting Issuer CDR New Warrant entitles the holder to acquire one Resulting Issuer Share at a price of $0.20 per share until the date that is 60 months from the closing of the CDR Private Placement on August 12, 2010.  
   
(2) The Amalfi Agents Options previously disclosed in the Filing Statement have expired, and no Resulting Issuer Amalfi Agents' Options will be issued in connection with the Closing of the Business Combination.  
   
(3) The Resulting Issuer issued 1,030,300 Resulting Issuer CDR New Broker Warrants in replacement of the 1,030,300 CDR New Broker Warrants issued pursuant to the CDR Private Placement, each entitling the holder to acquire one Resulting Issuer Unit at a price of $0.20 per Unit until five years from the closing of the CDR Private Placement being comprised of 1,030,300 Resulting Issuer Shares and 1,030,300 Resulting Issuer CDR New Warrants.  
   
(4) The US$5,000,000 principal amount of CDR Cheyenne Debentures were issued pursuant to the Big Branch Acquisition and matured on April 1, 2011. They bear interest at 12% per annum and are convertible into CDR Shares on the basis of one CDR Share for each US$0.50 principal amount of debentures until maturity. For additional information see the notes to the financial statements for the three months ended March 31, 2010 of CDR attached as Exhibit "A" hereto and the notes to the pro forma financial statements of the Resulting Issuer as at March 31, 2010 attached as Exhibit "B" hereto. On closing, CDR paid US$800,000 principal amount of the CDR Cheyenne Debentures, resulting in a principal amount owing of US$4,200,000 under the CDR Cheyenne Debentures and the issuance on conversion of the remaining principal amount of up to 8,400,000 Resulting Issuer Shares.
   
(5) The $375,000 principal amount of CDR Global Debentures currently outstanding matures on December 31, 2010, bear interest at 12% per annum, and are convertible into CDR Shares on the basis of one CDR Share for each $0.50 (subject to the adjustment provisions in the CDR Global Debentures) principal amount of debentures until maturity. For additional information see the notes to the financial statements for the three months ended March 31, 2010 of CDR attached as Exhibit "A" hereto and the notes to the pro forma financial statements of the Resulting Issuer as at March 31, 2010 attached as Exhibit "B" hereto. On closing, CDR paid $25,000 principal amount of the CDR Global Debentures, resulting in principal amount owing of $350,000 under the CDR Global Debentures, and the issuance on conversion of the remaining principal amount of up to 700,000 Resulting Issuer Shares.  
   
(6) In accordance with the January Unit Agreements, investors who subscribed for an aggregate of 2,200,000 units of CDR at a price of $0.50 per unit in January 2010 received an additional 3,300,000 CDR Shares for no additional consideration (so, following the closing of the Business Combination, they held an aggregate of 5,500,000 Resulting Issuer Shares). In addition, the 2,200,000 share purchase warrants originally forming part of such units were cancelled and such investors instead received 5,500,000 Resulting Issuer CDR 2010 Warrants. Each whole Resulting Issuer CDR 2010 Warrant entitles the holder to acquire one Resulting Issuer Share at a price of $0.20 per share until August 12, 2015.
   
(7) CDR entered into a debt settlement agreement with two Trade Creditors, pursuant to which CDR agreed to issue 4,125,000 CDR Units with an aggregate value of $825,000 to the Trade Creditors in exchange for the cancellation of $825,000 in outstanding trade payables.  
   
(8) Assuming the maximum 2,661,331Resulting Issuer New Options are granted.  
   
(9) CDR entered into an agreement with Juno, which amended the terms of the Juno Loan. In accordance with such agreement, Juno granted CDR an option to convert the principal amount of the Juno Loan into Resulting Issuer Shares at a conversion price equal to the greater of (i) $0.20 and (ii) the weighted average market price of the Resulting Issuer Shares for the 20 trading days prior to the date notice is received exercising the option. The option is exercisable at any time up until 20 days prior to the maturity date of the Juno Loan, which is March 31, 2011. 

OPTIONS AND OTHER RIGHTS TO PURCHASE SECURITIES OF THE RESULTING ISSUER

The following table describes the options and other rights to purchase Resulting Issuer Shares outstanding, after giving effect to the Qualifying Transaction and CDR Private Placement.

Nature of Security   Holder   Number of Securities   Exercise Price   Expiry Date
Resulting Issuer New Options   Directors, Officers and Consultants of the Resulting Issuer   Up to 2,661,331   $0.20   Ten years from the date of grant
                 
Resulting Issuer Amalfi Options(1)   Directors and Officers of Amalfi   580,000   $0.20   August 12, 2011 and November 30, 2012
                 
Resulting Issuer CDR Options   Directors and Officers of CDR   2,500,000   $0.25   September 30, 2010 and October 25, 2012
                 
        5,550,000   $0.50   August 14, 2013, November 6, 2014, November 16, 2014 and December 10, 2014
                 
Resulting Issuer CDR Broker Warrants   Agents of CDR 2009 Private Placement and other financings   133,635   $1.25   November 28, 2010
        304,811   US$0.50   October 13, 2011 and November 2, 2011
                 
        80,000   $0.50   January 8, 2012
                 
Resulting Issuer CDR Warrants   Securityholders of CDR   1,744,600   $0.25   October 25, 2010
                 
        1,000,000   $0.50   October 21, 2011
                 
        4,354,445   US$0.50   June 25, 2011, July 7, 2011, July 10, 2011, July 15, 2011 and October 15, 2011
                 
        636,362   $1.25   November 28, 2010
                 
Resulting Issuer CDR 2010 Warrants   Securityholders of CDR   5,500,000   $0.20   Five years from the Closing Date
                 
Resulting Issuer New Warrants   Shareholders of Amalfi   1,657,143   $0.20   Two years from the Closing Date
                 
Resulting Issuer CDR New Warrants(2)   Securityholders of CDR   27,550,000   $0.20   Five years from the Closing Date
                 
Resulting Issuer CDR New Broker Warrants(3)   Agents of CDR Private Placement   1,030,000   $0.20   Five years from the Closing Date
 
Notes:  
   
(1) After giving effect to the Consolidation, there were 580,000 Amalfi Options outstanding (instead of 331,429 Amalfi Options as disclosed in the Filing Statement). Each Amalfi Option was exchanged/continued into one Resulting Issuer Amalfi Option, exercisable at a price of $0.20 per share (instead of $0.35 per share as disclosed in the Filing Statement) until (i) August 12, 2011, in the case of 446,500 Resulting Issuer Amalfi Options, and (ii) November 30, 2012 in the case of 133,500 Resulting Issuer Amalfi Options.
   
(2) Includes the 23,425,000 Resulting Issuer CDR New Warrants issued pursuant to the CDR Private Placement and the 4,125,000 Resulting Issuer CDR New Warrants issued pursuant to the CDR Debt Settlement.  
   
(3) The Resulting Issuer issued 1,030,300 Resulting Issuer CDR New Broker Warrants in replacement of the 1,030,300 CDR New Broker Warrants issued pursuant to the CDR Private Placement, each entitling the holder to acquire one Resulting Issuer Unit at a price of $0.20 per Unit until two years from the closing of the CDR Private Placement being comprised of 1,030,300 Resulting Issuer Shares and 1,030,300 Resulting Issuer CDR New Warrants. If the 1,030,300 CDR New Warrants underlying the Resulting Issuer CDR New Broker Warrants are exercised, an additional 1,030,000 Resulting Issuer Shares will be issuable.

There is no assurance that the options, warrants or other rights described above will be exercised in whole or in part.

ESCROWED SECURITIES OF THE RESULTING ISSUER

The following table sets out the number of securities of the Resulting Issuer which will be held subject to escrow:

Designation of Class   Number of Securities in Escrow after Completion of Qualifying Transaction   Percentage of Class after Completion of Qualifying Transaction(1)  
Resulting Issuer Shares   25,877,414(2)   27.45 %
           
Resulting Issuer CDR 2010 Warrants   3,000,000   54.54 %
           
Resulting Issuer CDR New Warrants   1,500,000   5.44  
           
Resulting Issuer CDR Warrants   1,000,000   12.92  
 
Notes: 
 
(1) Prior to the issuance of the Resulting Issuer Shares issuable upon exercise of any convertible securities of the Resulting Issuer, and not including any securities which may be issued pursuant to the CDR Private Placement.
 
(2) This number includes (i) 1,300,000 Resulting Issuer Shares issued in exchange for the escrowed securities of Amalfi, (ii) 22,910,749 New Escrowed Shares (defined below) after giving effect to the Amalgamation and the Consolidation, and (iii) 1,666,665 Resulting Issuer Shares held by arm's length parties of CDR.

In addition to the 1,300,000 Resulting Issuer Shares held in escrow pursuant to the Amalfi Escrow Agreement, certain shareholders listed below have entered into a Form 5D escrow agreement with CIBC Mellon and the Resulting Issuer (the "TSX Venture Escrow Agreement"), as required by the TSX Venture pursuant to which they have deposited 22,910,749 Resulting Issuer Shares described below (the "New Escrowed Shares") into escrow with CIBC Mellon. The TSX Venture Escrow Agreement is a value escrow agreement which will provide for a release of 10% of the New Escrowed Shares at the time of the final exchange notice accepting completion of the Amalgamation (the "Exchange Notice") and 15% every six (6) months thereafter. Pursuant to the TSX Venture Escrow Agreement, the New Escrowed Shares can only be transferred in accordance with the TSX Venture policies.

The following is disclosure regarding the escrowed securities of the Resulting Issuer:

Name and Municipality of Residence   Class   Prior to Amalgamation   After the Amalgamation  
               
        Number of Resulting Issuer Securities   Number and Percentage of Resulting Issuer Securities(3)  
Juno Special Solutions Corporation
Toronto, Ontario
  Common   14,200,000   16,000,000(4
(16.98
)
%)
               
    Resulting Issuer CDR 2010 Warrants   3,000,000   3,000,000
(54.54
 
%)
               
Michael L. Rousseau
Calgary, Alberta
  Common   600,000(1 ) 300,000(2
(0.32
)
%)
               
S. Raymond Ludwig
Calgary, Alberta
  Common   600,000(1 ) 300,000(2
(0.32
)
%)
               
Charles (Chip) D. Burgess
Calgary, Alberta
  Common   600,000(1 ) 300,000(2
(0.32
)
%)
               
Murray R. Hinz
Calgary, Alberta
  Common   600,000(1 ) 300,000(2
(0.32
)
%)
               
Douglas M. Stuve
Calgary, Alberta
  Common   200,000(1 ) 100,000(2
(0.11
)
%)
               
Michael J. Campbell
Mississauga, Ontario
  Common   233,333   233,333
(0.25
 
%)
               
    Resulting Issuer CDR Warrants   400,000   (5.17 %)
               
James Hannah
Toronto, Ontario
  Common   Nil   Nil  
               
James A. Flores
Noblesville, Indiana
  Common   Nil   Nil  
               
A. Thomas Griffis
Toronto, Ontario
  Common   1,955,557   1,955,557
(3.04
 
%)
               
Elia Crespo
Mississauga, Ontario
  Common   283,336   283,336
(0.48
 
%)
               
    Resulting Issuer CDR Warrants   600,000   (7.75 %)
               
Peter K. Moran
Mashpee, Massachusetts
  Common   1,788,523   1,788,523(5
(1.90
)
%)
               
Robert Heuler
Pittsburg, Pennsylvania
  Common   Nil   Nil  
               
James O'Neill
Ajax, Ontario
  Common   Nil   Nil  
               
Scott Hand
Toronto, Ontario
  Common   1,000,000   2,500,000(6
(2.65
)
%)
               
    Resulting Issuer CDR New Warrants   1,500,000   1,500,000
(5.44
 
%)
               
John Ellis
Spring Creek, Nevada
  Common   100,000   100,000
(0.11
 
%)
               
James Ladner
Kilchberg, Switzerland
  Common   50,000   50,000
(0.05
 
%)
               
Dino Titaro
Oakville, Ontario
  Common   Nil   Nil  
 
Notes: 
 
(1) Number of shares prior to the completion of the Consolidation.
   
(2) After completion of the Consolidation and the CDR Private Placement.
   
(3) Prior to the issuance of any Resulting Issuer Shares issuable upon exercise of any convertible securities of the Resulting Issuer.
   
(4) Includes the 1,800,000 Resulting Issuer Shares issued to Juno in connection with the January Unit Agreements, as described in the "Fully Diluted Share Capital of the Resulting Issuer" table above.
   
(5) Peter K. Moran, the Chief Operating Officer of the Resulting Issuer, holds 1,788,523 Resulting Issuer Shares indirectly through PKM Holdings LLC, which is a company controlled by Mr. Moran.
   
(6) Includes the 1,500,000 Resulting Issuer Shares issued to Scott Hand pursuant to the CDR Private Placement.

An additional 1,666,665 Resulting Issuer Shares issued in exchange for 1,666,665 CDR Shares held by arm's length parties of CDR are subject to escrow requirements under the TSX Venture seed share sale restrictions in accordance with the policies of the TSX Venture and are releasable under the same terms of the TSX Venture Escrow Agreement.

In accordance with the policies of the TSX Venture, 3,000,000 Resulting Issuer CDR 2010 Warrants, 1,500,000 Resulting Issuer CDR New Warrants and 1,000,000 Resulting Issuer CDR Warrants were also deposited into escrow with CIBC Mellon.

PRINCIPAL SECURITYHOLDERS OF THE RESULTING ISSUER

The following are the only Persons who will, directly or indirectly, own or direct control or direction over more than 10% of the Resulting Issuer Shares after the completion of the Amalgamation, the CDR Private Placement and after giving effect to the Consolidation.

Name and Municipality of Residence   Type of Ownership   Number of Resulting Issuer Securities   Percentage of Class(2)  
Juno Special Situations Corporation(3)
Toronto, Ontario
  Direct   16,000,000(1)
Common Shares
  16.98 %
               
    Direct   3,000,000(1) (4)
Resulting Issuer CDR 2010 Warrants
  54.54 %
 
Notes:  
 
(1) These Resulting Issuer Shares and 3,000,000 Resulting Issuer CDR 2010 Warrants are held in escrow pursuant to the TSX Venture Escrow Agreement. This amount does not include any Resulting Issuer Shares issuable to Juno in connection with the conversion of the Juno Loan.
   
(2) Prior to the issuance of Resulting Issuer Shares issuable upon exercise of any convertible securities of the Resulting Issuer. 
   
(3) No single shareholder of Juno or any shareholders acting jointly or in concert with one another owns more than 10% of the outstanding shares of Juno. 
   
(4) Each whole Resulting Issuer CDR 2010 Warrant entitles the holder to acquire one Resulting Issuer Share at a price of $0.20 per share until August 12, 2015. 

Trading of Resulting Issuer Shares

The completion of the Business Combination has received conditional approval of TSX Venture and is subject to its final approval, which Royal Coal expects to receive after completion of the required filings.

The Resulting Issuer Shares are expected to commence trading under the symbol "RDA" after TSX Venture issues its final bulletin, with trading expected to be reinstated on or about August 24, 2010. 

About Royal Coal

The board of directors of Royal Coal is comprised of A. Thomas Griffis, Elia Crespo, Michael Rousseau, Scott Hand, Dino Titaro, James Ladner and John Ellis.

Royal Coal is a coal exploration and production company, headquartered in Toronto, Ontario, Canada with a regional office in Hazard, Kentucky, U.S.A. whose primary business focus is developing producing surface coal mining operations in the Central Appalachian coal producing region of the United States, which includes parts of West Virginia, Virginia, Kentucky, Ohio, and Tennessee.

The completion of the Business Combination is subject to a number of conditions, including but not limited to, TSX Venture acceptance. There can be no assurance that the Business Combination will be completed as proposed or at all.

Investors are cautioned that any information released or received with respect to the Business Combination may not be accurate or complete and should not be relied upon. Trading in the securities of Royal Coal should be considered highly speculative.

Except for historical information contained herein, this news release contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those currently anticipated due to a number of factors and risks. The forward-looking statements contained in this press release are made as of the date hereof and Royal Coal undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws. 

EXHIBIT "A"

CDR Minerals Inc.
 
Consolidated Financial Statements
For the three months ended March 31, 2010
(expressed in US dollars)
(unaudited)

Notice of no Auditor Review – Financial Statements

Under National Instrument 51-102, Part 4, Subsection 4.3 (3)(a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.

The accompanying unaudited interim financial statements of the Corporation have been prepared by and are the responsibility of the Corporation's management. The Corporation's independent auditor has not performed a review of these financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements.

CDR MINERALS INC.
CONSOLIDATED BALANCE SHEETS
(expressed in US dollars)
As at March 31  December 31  
  2010  2009  
  (unaudited)  (audited)  
   
ASSETS  
Current            
Cash $ 440,844   $ 800,099  
Accounts receivable   1,116,402     243,093  
Prepaid expenses and other current assets   534,325     471,047  
Inventory   110,090     342,098  
Quebec tax credit and mining duties refundable   128,043     130,979  
Investment (note 3)   98,445     95,150  
    2,428,149     2,083,276  
   
Capital assets, net (note 4)   1,359,283     915,562  
Mineral properties (note 5)   13,373,015     13,525,484  
  $ 17,160,447   $ 16,524,322  
   
LIABILITIES  
Current            
Accounts payable and accrued liabilities (note 14) $ 6,285,272   $ 3,189,764  
Bank loan (note 6)   506,125     -  
Notes payable, current portion (note 7)   4,759,067     2,000,000  
Convertible debentures, current portion (note 8)   369,167     356,813  
    11,919,631     5,546,576  
   
Asset retirement obligation (note 10)   274,574     262,579  
Notes payable (note 7)   -     860,792  
Convertible debentures (note 8)   4,730,936     4,669,884  
    16,925,141     11,339,831  
   
SHAREHOLDERS' EQUITY  
Capital stock (note 9)   11,323,709     10,693,870  
Shares to be issued (note 9)   771,702     771,702  
Warrants (note 9)   1,250,540     864,016  
Contributed surplus (note 9)   2,149,150     1,602,603  
Equity portion of convertible debentures (note 8)   408,333     408,333  
Accumulated other comprehensive loss   (542,103 )   (542,103 )
Deficit (15,126,025 )   (8,613,929 )
    235,306     5,184,491  
  $ 17,160,447   $ 16,524,322  
Nature of operations and going concern (note 1)            
Commitments and subsequent events (notes 6, 7, 15 and 16)            
See accompanying notes to consolidated financial statements            
 
Approved by the board of directors "Tom Griffis" "Elia Crespo"
     
  Director Director
 
 
CDR MINERALS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS, DEFICIT, OTHER COMPREHENSIVE LOSS AND ACCUMULATED OTHER COMPREHENSIVE LOSS
(expressed in US dollars - unaudited)
For the three months ended March 31   2010     2009  
   
Revenues $ 5,756,212   $ -  
Cost of sales   8,531,558     -  
    (2,775,344 )   -  
   
Expenses            
Accretion on notes payable (note 7) and convertible debentures (note 8)   1,413,880     2,714  
Amortization   1,829     1,229  
General and administration   580,901     53,525  
Interest on notes payable (note 7) and convertible debentures (note 8)   400,678     17,820  
Management and consulting (note 12)   528,610     398,199  
Professional fees   116,631     11,787  
Stock-based compensation (note 9)   546,547     35,046  
Travel   26,186     40,794  
Write-off of mineral exploration properties (note 5)   -     32,052  
    3,615,262     593,167  
   
Loss before undernoted   (6,390,606 )   (593,167 )
Interest income   26,052     312  
Foreign exchange gain (loss)   (147,541 )   33,400  
Net loss and comprehensive loss for the period $ (6,512,094 ) $ (598,902 )
Basic and diluted net loss per share $ (0.12 ) $ (0.02 )
Weighted average shares outstanding   55,382,373     43,752,727  
   
Deficit            
Balance, beginning of period $ (8,613,930 ) $ (1,469,747 )
Net loss for the period   (6,512,094 )   (559,455 )
Balance, end of period $ (15,126,024 ) $ (2,029,202 )
   
Accumulated other comprehensive loss            
Balance, beginning of period $ (542,103 ) $ (1,198,858 )
Change in foreign exchange translation   -     (39,447 )
Balance, end of period $ (542,103 ) $ (1,238,305 )
             
See accompanying notes to consolidated financial statements        

 

CDR MINERALS INC.            
CONSOLIDATED STATEMENTS OF CASH FLOWS            
(expressed in US dollars - unaudited)            
             
For the three months ended March 31   2010     2009  
   
Cash provided by (used in)            
Operations            
Net loss $ (6,512,094 ) $ (559,455 )
Items not involving cash            
  Accretion on notes payable and convertible debentures   1,413,880     2,714  
  Accretion of provision for asset retirement obligation   11,995     -  
  Amortization and depletion   293,433     1,229  
  Unrealized foreign exchange gain (loss) on investments   3,295     -  
  Unrealized foreign exchange gain (loss)   159,013     -  
  Write-off of mineral exploration properties   -     32,052  
  Stock-based compensation   546,547     35,046  
    (4,083,931 )   (534,222 )
Net change in non-cash working capital            
  Accounts receivable   (873,309 )   -  
  Quebec tax credit and mining duties refundable   2,111     (28,649 )
  Prepaid expenses and other current assets   (63,278 )   (16,300 )
  Inventory   232,818     -  
  Accounts payable and accrued liabilities   2,795,508     234,905  
  Due to related parties   -     22,487  
    (1,990,082 )   (321,780 )
Investing            
Purchase of capital assets   (583,860 )   (13,182 )
Mineral exploration properties   -     (481,866 )
Deposit on capital assets   -     130,781  
    (583,860 )   (364,267 )
Financing            
Proceeds from share issuance, net   1,016,363     -  
Proceeds of notes payable, net   692,199     -  
Proceeds from bank loan   506,125     -  
Deferred financing charges   -     (16,292 )
    2,214,687     (16,292 )
Net change in cash   (359,255 )   (702,339 )
Cash, beginning of period   800,099     1,859,733  
Cash, end of period $ 440,844   $ 1,157,394  
   
Supplemental cash flow information (note 11)            
   
Interest paid $ 388,349   $ 2,192  
See accompanying notes to consolidated financial statements  

1. Nature of operations and going concern

CDR Minerals Inc. (the "Company") was incorporated under the laws of Ontario. The Company's principal business is the acquisition and development of high quality coal mining operations in the Central Appalachian Basin of the United States and base metal exploration in Quebec.

The Company was in the exploration stage until September 30, 2009 when it acquired and commenced coal mining operations at its Big Branch property near Hazard, Kentucky.

The Company has not yet determined whether it's Quebec mineral property interest contains reserves that are economically recoverable. The recoverability of amounts shown for mineral property interests is dependent upon the ability of the Company to obtain financing to complete the exploration and development of its mineral property interests, the existence of economically recoverable reserves and future profitable production, or alternatively, upon the Company's ability to recover its costs through a disposition of its mineral property interests. The amounts shown for mineral resource properties do not necessarily represent present or future value. Changes in future conditions could require a material change in the amount recorded for mineral property interests.

The Company is exposed to commodity price risk with respect to coal and base metal prices. A significant decline in coal and base metal prices may affect the Company's ability to obtain capital for the exploration and development of its mineral property interests.

The Company has not yet demonstrated profitable production at its Big Branch property and additional funding is required to finance its operations and the exploration of mineral resource properties. There is substantial doubt as to the Company's ability to continue as a going concern. The Company is actively seeking to raise the necessary capital to meet its funding requirements. Although the Company has been successful in raising funds to date, there can be no assurance that additional funding will be available in the future. As such, these consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will be able to continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. These consolidated financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and balance sheet classifications that would be necessary were the going concern assumption inappropriate, and these adjustments could be material.

2. Significant accounting policies

These unaudited interim financial statements of the Company have been prepared using accounting policies that are consistent with the policies used in preparing the Company's annual financial statements. Generally accepted accounting principles for interim financial statements do not conform in all respects to the disclosures required for annual financial statements, and accordingly, these unaudited interim financial statements should be read in conjunction with the annual financial statements.

Inventory

Coal inventory, valued at the lower of cost and net realizable value, is measured at the average production cost for extraction and is relieved on a first-in, first-out basis. Production costs include direct labour, benefits, direct materials and other direct production costs, including depletion and amortization. Given the significant costs in the first year of operations, the inventory costs exceeded the net realizable value and as such, the inventory has been written down to its net realizable value at December 31, 2009 and March 31, 2010.

Future accounting changes

On January 1, 2011, the Company will adopt CICA Handbook Section 1582, "Business Combinations", which will replace Section 1581, "Business Combinations". The new standard establishes standards for the recognition and measurement of identifiable assets acquired, liabilities assumed, non-controlling interest in the acquiree and goodwill acquired in a business combination.

On January 1, 2011, the Company will adopt CICA Handbook Sections 1601, "Consolidated Financial Statements" and Section 1602, "Non-controlling Interests", which together will replace section 1600, "Consolidated Financial Statements". Section 1601 establishes standards for the preparation of consolidated financial statements and Section 1602 establishes standards for accounting for a non- controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination.

The Company is in the process of evaluating the requirements of the new standards.

International Financial Reporting Standards ("IFRS"):

In February 2008, the CICA Accounting Standards Board confirmed that the changeover to IFRS from Canadian generally accepted accounting principles will be required for publicly accountable enterprises, effective for the interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. Accordingly, the Company will report interim and annual financial statements in accordance with IFRS commencing with the interim financial statements for the 3 months ended March 31, 2011. The transition date of January 1, 2011, will require the restatement for comparative purposes of amounts reported by the Company for the year ended December 31, 2010. While the Company has begun assessing the adoption of IFRS for 2011, the financial reporting impact of the transition to IFRS cannot be reasonably estimated at this time.

3. Investment

The Company owns 50,000 common shares of Royal Nickel Corporation, a Canadian private company, related by virtue of common directors, which is mainly engaged in the business of Nickel mining. The Canadian dollar investment cost of C$100,000 is translated to US dollars at the closing rate on the date of the balance sheet.

4. Capital assets

  March 31, December 31,
  2010 2009
  $ $
 
Mining equipment 1,477,460 877,966
Accumulated amortization 162,595 27,404
  1,284,865 850,562
 
Automobiles 43,500 43,500
Accumulated amortization 3,892 1,717
  39,608 41,783
 
Office furniture & equipment 41,622 27,256
Accumulated amortization 6,812 4,039
  34,810 23,217
 
  1,359,283 915,562

5.  Mineral properties

  31-Dec-09 Acquisitions & ARO* Exploration Write-off & Depletion***   Foreign Exchange 31-Mar-10
  $ $ $ $   $ $
Quebec nickel properties              
Grenville 1,509,961 783 - -   - 1,510,744
Haut Plateau 1,045,321 42 - -   - 1,045,363
Lac Pegma 3,974 - - -   - 3,974
  2,559,256 825 - -   - 2,560,081
 
US coal properties              
SID 2,700,843 - - -   - 2,700,843
Laurel Fork (Coty) 279,743 - - -   - 279,743
Big Branch 7,985,642 - - (153,294 ) - 7,832,348
  10,966,228 - - (153,294 ) - 10,812,934
 
  13,525,484 825 - (153,294 ) - 13,373,015
               
  31-Dec-08 Acquisitions & ARO* Exploration Write-off & Depletion***   Foreign Exchange** 31-Dec-09
  $ $ $ $   $ $
Quebec nickel properties              
Grenville 1,004,771 - 360,778 -   144,412 1,509,961
Haut Plateau 520,858 - 449,602 -   74,861 1,045,321
Lac Pegma 3,474 - - -   499 3,974
  1,529,103 - 810,380 -   219,772 2,559,256
US coal properties              
SID 2,080,498 304,708 - -   315,638 2,700,843
Laurel Fork (Coty) 166,815 92,716 - -   20,213 279,743
Candle Ridge - 23,017 13,693 (36,710 ) - -
Big Branch* - 8,046,162 22,500 (83,020 ) - 7,985,642
  2,247,313 8,466,603 36,193 (119,730 ) 335,851 10,966,228
 
  3,776,416 8,466,603 846,573 (119,730 ) 555,623 13,525,484

 

*Included in the 2009 acquisition value of Big Branch is the estimated asset retirement obligation (note 9)       
**The foreign exchange adjustments recognize the impact of the October 1, 2009 change in functional currency from Canadian dollars (CAD) to United States dollars (USD).       
***Depletion is included in cost of sales       

6. Bank loan

The Company received loan proceeds of $516,609 to finance mining equipment acquired and leased. The loan is repayable at $23,005 per month for 24 months and bears interest at 6.5% per annum. The loan is unsecured.

7. Notes payable

The Company received loan proceeds of $5,300,000 in 2009 and additional loan proceeds of $1,000,000 in March, 2010 from a company related by virtue of a common officer and director.

  March 31   December 31  
  2010   2009  
  $   $  
Loan proceeds 6,300,000   5,300,000  
   
Transaction costs        
  Cash 637,468   637,468  
  5,171,312 common shares 2,419,013   2,419,013  
   
  3,243,519   2,243,519  
Add accretion to date 1,515,548   617,273  
Less current portion (4,759,067 ) (2,000,000 )
   
  -   860,792  

The value of the debt will be accreted to $12,600,000, representing the loan proceeds of $6,300,000 and the Royalty of $6,300,000 outlined below, using an effective annual interest rate of 163.72%. The Company agreed to additional Notice and Amendment agreements, and Waiver agreements dated February 4, 2010, March 15, 2010, May 7, and June 2, 2010 which modified certain terms of the notes payable. The resulting terms are summarized as follows:

Maturity date   March 31, 2011
Interest   18% per annum payable monthly in arrears.
Additional compensation   5,000,000 common shares of the Company valued at $2,339,013; a royalty of $2.00 per short ton of coal mined, subject to a minimum of $150,000 per month commencing January 1, 2010, up to an aggregate maximum of $6,300,000 and the Company agrees to make any required payment to ensure that the aggregate royalties paid by March 31, 2011 shall be $6,300,000 ("Royalty"); and a royalty of $0.50 per short ton of coal mined for the life of the mines. An additional 171,312 common shares of the Company valued at $80,000 were issued to an agent; a waiver fee of $150,000 was incurred in February and satisfied by the issuance on March 31, 2010 of equivalent notes payable; and a waiver fee of $300,000 to be satisfied in cash on the earlier date of June 30, 2010 and the closing of an equity financing.
Security   A general security agreement over all of the assets of the Company.
 
Repayment   Payments of $2,150,000 on the earlier of completion of an equity financing transaction or June 30, 2010, and $500,000 on each of September 30 and December 31, 2010 and the remaining outstanding balance of $3,150,000 on March 31, 2011.
Redemption requirement   In the event the Company disposes of equipment, vehicles, contracts (including forward sales of production contracts) for cash proceeds of up to $1,000,000 per year, at least 25% of such cash proceeds are used to repay the notes.
Redemption option   The Company has the option to redeem all or part of the note at any time, without penalty or bonus.
Option to extend   The Company at its sole discretion has the option to extend the maturity date of the note until March 31, 2012.

Until the notes are repaid, the Company will comply with the following financial covenants:

  1. commencing on September 1, 2010, to maintain the ratio of Note Indebtedness to the Company's trailing 12-month Free Cash Flow to exceed (i) 1.3 in September 2010 and (ii) 1.0 for each month thereafter.
  2. commencing with the quarter ending June 30, 2010, to maintain its Fixed Charge Coverage of (i) 0.3 for the quarter ended June 30, 2010 and (ii) 1.1 for each quarter thereafter.
  3. maintain a gross 30-day production rate greater than 35,000 tons in November 2009, (ii) 50,000 tons in December 2009, (iii) 60,000 tons in January 2010 (waived), (iv) 65,000 tons in February 2010 (waived), (v) 37,000 tons in March 2010, (vi) 27,900 tons in April 2010, (vii) 27,500 tons in May 2010, (viii) 40,000 tons in June 2010, (ix) 60,000 tons in July, August and September, 2010, (x) 80,000 tons in October and November 2010, (xi) 90,000 tons in December 2010 and (xii) 100,000 tons from January 2011 and each month thereafter.

8. Convertible debentures

  March 31, 2010 December 31, 2009
  Convertible debentures Equity portion of convertible debentures Convertible debentures Equity portion of convertible debentures
  $ $ $ $
 
Global Capital ("GC") 369,167 21,493 356,813 21,493
Cheyenne (note 5) 4,730,936 386,840 4,669,884 386,840
 
  5,100,103 408,333 5,026,697 408,333
Less current portion 369,167 - 356,813 -
 
  4,730,936 408,333 4,669,884 408,333

Accretion expense in the three months ending March 31, 2010 due to the convertible debentures is $61,180 (2009 - $2,714).

GC

On March 13, 2010, the terms of the Debenture were amended to extend the maturity date from April 1, 2010 to July 15, 2010.

9. Capital stock, stock options, warrants and contributed surplus

Authorized
 
Unlimited common shares
Unlimited number of special shares, issuable in series
 
Issued
 
Share capital consists of the following issued and outstanding common shares:
   
       
  Number of shares $  
   
Balance, December 31, 2008 43,752,727 7,295,850  
Shares issued by private placement 4,354,445 1,962,658  
Issuance for financing transaction costs 5,246,312 2,461,827  
   
Share issue costs - (183,620 )
Fair value of warrants issued - (648,136 )
Fair value of broker warrants issued - (45,098 )
Renunciation on flow-through shares - (149,611 )
   
Balance, December 31, 2009 53,353,484 10,693,870  
   
Shares issued by private placement 2,200,000 1,054,716  
Share issue costs - (38,353 )
Fair value of warrants issued - (372,970 )
Fair value of broker warrants issued - (13,554 )
   
Balance, March 31, 2010 55,553,484 11,323,709  

On January 8, 2010 the Company completed a private placement completes a private placement of 2,200,000 units at a price of C$0.50 per unit for gross proceeds of C$1,100,000. Each unit consists of one common share and one common share purchase warrant entitling the holder to purchase one common share at a price of C$0.50 per common share until January 6, 2012 or January 8, 2012. A value of $372,970 was ascribed to these warrants based on their fair value as determined using the Black-Scholes option-pricing model with the following assumptions:

Risk-free interest rate 1.31-1.38 %
Expected volatility 63.16 %
Expected life of warrants 2 years  
Expected dividend yield Nil  

The Company paid cash commissions of $38,353 to brokers, along with 80,000 broker warrants with an exercise price of C$0.50 per broker warrant and each such broker warrant exercisable for one common share with an exercise price of C$0.50 per common share until January 8, 2012. A value of $13,554 was ascribed to these broker warrants based on their fair value as determined using the Black-Scholes option-pricing model with the following assumptions:

Risk-free interest rate 1.31 %
Expected volatility 63.16 %
Expected life of warrants 2 years  
Expected dividend yield Nil  
 
Shares to be issued    
     
  Number of shares $
 
Finder's fee on SID and Big Branch acquisitions 1,652,523 771,702

Stock options

Under the Company's stock option plan, the board of Directors may from time to time at their discretion grant to the Directors, employees and consultants options to subscribe for common shares. The exercise price of each option shall be determined on the basis of market price at the date of grant. Options shall not be granted for a term exceeding five years.

Stock option transactions and the number of stock options outstanding are as follows:

      Weighted-
      average
    Number of exercise
    options price - C$
 
Balance, December 31, 2008   5,719,600 0.33
Granted   4,075,000 0.50
 
Balance, December 31, 2009 and March 31, 2010 9,794,600 0.40
 
Exercisable number of options   7,077,934 0.36

A summary of the Company's outstanding stock options as at March 31, 2010 is presented below: 

Exercise price Expiry date Options outstanding Options exercisable
 
C$0.25 September 30, 2010 100,000 100,000
$0.25 October 25, 2010 519,600 519,600
$0.25 October 25, 2012** 1,225,000 1,225,000
C$0.25 October 25, 2012 2,400,000 2,400,000
C$0.50 August 14, 2013 1,475,000 1,475,000
C$0.50 November 6, 2014 2,000,000 666,667
C$0.50 November 16, 2014 1,250,000 416,667
C$0.50 December 10, 2014 825,000 275,000
 
    9,794,600 7,077,934

** On January 26, 2010 the Board extended the expiry date from October 25, 2010 to October 25, 2012

Warrants

A summary of the Company's warrants is presented below:

  Amount
$
Number
of
warrants
Weighted-
average
exercise
price
$
 
Balance, December 31, 2008 27,313 725,452 1.10
Issued 836,703 5,659,256 0.50
 
Balance, December 31, 2009 864,016 6,384,708 0.56
Issued 386,524 2,280,000 0.50
 
Balance, March 31, 2010 1,250,540 8,664,708 0.55

A summary of the Company's warrants outstanding listed by expiry date is presented below:

  Expiry date Warrants outstanding
C$0.50 November 28, 2010 89,090
C$1.00-C$1.25 November 28, 2010 636,362
$0.50 June 25, 2011 833,334
$0.50 July 7, 2011 50,000
$0.50 July 10, 2011 30,000
$0.50 July 15, 2011 2,241,111
$0.50 October 13, 2011 284,511
$0.50 October 15, 2011 1,200,000
C$0.50 October 21, 2011 1,000,000
$0.50 November 2, 2011 20,300
$0.50 January 6, 2012 810,000
$0.50 January 8, 2012 1,470,000
 
    8,664,708
 

Contributed surplus  

  $
 
Balance, December 31, 2008 889,407
Stock-based compensation 713,196
 
Balance, December 31, 2009 1,602,603
Stock-based compensation 546,547
 
Balance, March 31, 2010 2,149,150

10. Asset retirement obligations

The Company's asset retirement obligations result from its land rehabilitation commitments on the coal mining activities on its Big Branch property. At December 31, 2009 the total discounted obligation estimated to settle the asset retirement obligation using a credit adjusted risk free interest rate of 18% over the estimated five year life of the mine is $2,086,000. The sum of the undiscounted total cash flows anticipated to be incurred over 5 years ending December 31, 2014 is $3,228,876. The change in the balance for the three months ended March 31, 2010 represents the accretion ($11,995) on the obligation (YE December 31 2009 – additions $251,109 and accretion $11,470).

The estimate of the obligation is subject to significant estimates by management. The ultimate costs could be materially different from the amounts estimated, dependant on changes to applicable laws and regulations, discount rates and life of the mine operation. Future changes to the obligation will be treated as a change in accounting estimate in the period in which the change is known.

11. Segmented information

The Company operates in one reportable segment, mineral exploration, in Canada and the U.S. Financing and administrative functions are provided by the head office located in Canada. Segmented information on a geographic basis is as follows:

  March 31, December 31,
  2010 2009
  $ $
Mineral exploration properties by geographic area    
Quebec, Canada 2,560,081 2,559,288
Kentucky, USA 10,812,934 10,966,196
  13,373,015 13,525,484

All revenues are earned in the U.S. and all the capital assets are in the U.S.

12. Related party transactions and related balances

For the three month period ended March 31, 2010, the Company:

  1. Paid management fees of $60,523 (2009 - $50,589) of which $0 (December 31, 2009 - $14,271) remains unpaid to a company related by virtue a common officer and director of the Company. These amounts are included in management and consulting expense.
  2. Paid consulting fees of $0 (2009 - $16,540) to a company related by virtue of common directors. These amounts are included in management and consulting expense.
  3. Committed to issue 1,652,523 common shares (December 31, 2009 - Committed to issue 1,652,523 common shares) for services rendered to a company controlled by an officer of the Company. This amount is included in mineral property interests and shares to be issued.
  4. The Company received loan proceeds of $1,000,000 in March 2010 from a company related by virtue of a common officer and director. The details of the transaction are disclosed in note 6.
  5. Recorded royalty expenses of $504,563 (2009 - $Nil) due to a company related by virtue of a common officer and director and included $377,187 of this amount in accounts payable and accrued liabilities at March 31, 2010 (December 31, 2009 - $113,120).

These transactions were in the normal course of operations and were measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

13. Capital disclosures

Capital of the Company consists of the components of shareholders' equity. The Company's objective when managing capital is to safeguard the Company's ability to continue as a going concern so that it can continue to explore and develop its mineral property interests for the benefit of its shareholders. The Company manages its capital structure and makes adjustments based on the funds available to the Company in light of changes in economic conditions. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company's management to sustain the future development of the Company. Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable.

There were no changes in the Company's management of its capital during the three month period ended March 31, 2010.

The Company is subject to externally imposed capital requirements pursuant to notes payable and convertible debenture agreements.

14. Financial instruments and risk management

Fair value

Fair value represents the amount at which a financial instrument could be exchanged between willing parties, based on current markets for instruments with the same risk, principal and remaining maturity. Fair values estimates are based on quoted market values and other valuation methods.

Fair value represents the amount that would be exchanged in an arm's length transaction between willing parties and is best evidenced by a quoted market price, if one exists. The carrying and fair values of financial assets and liabilities as at March 31, 2010 and December 31, 2009 are summarized as follows:

  March 31, 2010 December 31, 2009
  Fair Value Carrying Value Fair Value Carrying Value
  $ $ $ $
 
Cash 440,844 440,844 800,099 800,099
Accounts receivable 1,116,402 1,116,402 243,093 243,093
Accounts payable and accrued liabilities 6,285,272 6,285,272 3,189,764 3,189,764
Bank loan 506,125 506,125 - -
Notes payable 11,448,953 4,759,067 9,653,993 2,860,792
Convertible debentures 5,100,103 5,100,103 5,026,697 5,026,697

The investment in a private company is classified as available-for-sale and is carried at its acquisition cost. The carrying value of the held-for-trading and loans and receivables financial instruments approximates fair value.

Risk disclosures

The main risks the Company's financial instruments are exposed to are credit, liquidity, and market risk (including currency and interest rate risk) each of which is discussed below.

Credit risk

Credit risk is the risk of an unexpected loss if a third party to a financial instrument fails to meet its contractual obligations The Company's exposure to credit risk includes cash and accounts receivable. The Company reduces its credit risk by maintaining its primary bank accounts at large international financial institutions. The Company assesses their credit risk based on general market knowledge and specific information obtained through its business relationships with each of customer. The maximum exposure to credit risk is equal to the carrying value of cash and accounts receivables. The Company made sales to its two major customers, as well as to five other customers in the period.

Liquidity risk

Liquidity risk is the risk that the company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk through the management of its capital structure as outlined in note 14 to the consolidated financial statements.

At March 31, 2010, the Company had current assets of $2,428,149, including cash of $440,844, (December 31, 2009 - $2,083,276 and $800,099, respectively) available to pay current liabilities of $11,919,631 (December 31, 2009 - $5,546,576). The following are the maturities, including interest payments and excluding the option to extend repayment of a portion of notes payable to March 31, 2012, and a possible early redemption of convertible debentures subject to terms disclosed in note 5, reflecting undiscounted future cash disbursements of the Company's financial liabilities based on years ending December 31:

  Payments Required/Settlement expected
  2010 2011
  $ $
 
Accounts payable and accrued liabilities 6,285,272 -
Bank loan 207,045 276,060
Notes payable 5,152,500 8,098,500
Convertible debentures 975,000 5,150,000
 
  12,619,817 13,524,560

Market risk

Market risk is the risk of less that may arise from changes in market factors, such as foreign exchange rates and interest rates.

(a) Foreign currency risk

The Company operates in Canada and the US giving rise to market risks from changes in foreign exchange rates. The Company periodically monitors foreign exchange rates, though it has not entered into any financial arrangements to hedge or protect the Company from unfavourable changes in foreign exchange rates. A ten percent (10%) fluctuation in the foreign exchange rate, based on the Company's foreign denominated financial instruments as of March 31, 2010, would result in a foreign exchange gain in the case of a decrease in the exchange rates or a loss in the case of an increase in the rates of approximately $140,000 (December 31, 2009 - $66,000).

(b) Interest rate risk

Interest rate risk refers to the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Cash is invested in high grade, highly liquid instruments and as such the Company manages its exposure to potential interest rate fluctuations to short term. A 1% fluctuation in the floating interest rate would affect the profitability of the Company by an immaterial amount.

15. Commitments

The Company, in connection with the acquisition of the Big Branch property, entered into an agreement to lease mining equipment for $232,677 per month for the two years ended September 29, 2011. At March 31, 2010 the Company's equipment and premises lease commitments totaled $3,205,627 for 2010 and $2,620,689 for 2011. None of these commitments extend beyond 2011.

Reverse takeover transaction

On January 5, 2010, Amalfi, CDR Coal Limited, a wholly-owned subsidiary of Amalfi ("CDR Coal") and the Company entered into an Amalgamation Agreement to complete a three-cornered amalgamation whereby the Company will amalgamate with CDR Coal and Amalfi will issue one common share for each common share of the Company outstanding ("Qualifying Transaction"). The completion of the Qualifying Transaction is subject to certain conditions, including obtaining all necessary regulatory approvals.

Pursuant to the Amalgamation Agreement:

  1. Amalfi will consolidate its shares on the basis of one common share for each 3 common shares presently outstanding, resulting in 3,886,666 post-consolidation common shares.
  2. Amalfi will replace its outstanding stock options by issuing 331,429 stock options entitling the holder to acquire one common share for $0.35 until November 30, 2012. Amalfi replaces its outstanding warrants by issuing 257,143 warrants entitling the holder to acquire one common share for $0.35 until May 6, 2010.
  3. Amalfi will issue 1,657,143 common share purchase warrants to its shareholders, on the basis of one- half common share purchase warrant for each post-consolidation common share held. Each whole common share purchase warrant shall entitle the holder to purchase one common share at a price of US$0.50 for 2 years from the closing of the amalgamation.
  4. Amalfi will issue 55,753,483 common shares to acquire a 100% interest in the Company on the basis of one common share for each common share of the Company outstanding.
  5. Amalfi will issue 9,794,600 stock options and 6,384,708 common share purchase warrants on the same terms to replace each of stock options and common share purchase warrants of the Company outstanding.
  6. Amalfi will issue US$5,000,000 principal amount convertible notes and $375,000 principal amount convertible notes, which shall be convertible on the same terms and conditions as the Company's convertible notes.

The Company will issue 200,000 common shares valued at $100,000 as a finder's fee.

16. Subsequent events

Notice of amendment agreements and waiver agreements

On May 12, 2010 and June 2, 2010 the Company agreed to notice of amendment agreements and waiver agreements ("the Agreements") to modify certain financial and production covenants of the notes payable (note 6). The Agreements are with a company related by virtue of a common officer and director. The terms of the Agreements are consistent with terms of corresponding agreements amongst the related company and its unrelated note holders and agent. The Agreements result in the following changes:

Additional compensation The Agreements resulted in additional fees and royalty commitments including:
  a) a $150,000 fee payable, in the form of additional notes payable, on the earlier of June 30, 2010 and the completion of an equity financing transaction and an increase of $150,000 to the aggregate royalty commitment due by March 31, 2011;
  b)  a $300,000 fee payable on the earlier of June 30, 2010 or the closing of an equity financing transaction; 
  c) a financing and waiver fee of $1,000,000 payable to the agent by installments of $300,000 on September 30, 2010, $350,000 on December 31, 2010 and $350,000 on March 31, 2011;
     
Additional notes payable Additional notes payable were issued in consideration a cash advance received on April 5 of $150,000 as a result of the March 15, 2010 notice of amendment detailed in Note 5.
   
Repayment The notes redemption schedule was modified to the following:
  a) $1,150,000 originally due on May 31, 2010 is due on the earlier of an equity financing closing and June 30, 2010;
  b) Quarterly redemptions of $500,000 originally due on March 31 and June 30, 2010 are due on the earlier of an equity financing closing and June 30, 2010;
     
Covenant changes Until the notes are repaid, the Company will comply with the following financial covenants, which were modified pursuant to the agreements:
  a) maintain a gross 30-day production rate greater than 35,000 tons in November 2009, (ii) 50,000 tons in December 2009, (iii) 60,000 tons in January 2010 (waived), (iv) 65,000 tons in February 2010 (waived), (v) 37,000 tons in March 2010, (vi) 27,900 tons in April 2010, (vii) 27,500 tons in May 2010, (viii) 40,000 tons in June 2010, (ix) 60,000 tons for each of July, August and September 2010; (x) 80,000 tons for each of October and November 2010; (xi) 90,000 tons for December 2010; and (xii) 100,000 tons for January 2011 and each month thereafter.

Private placement agent agreement

On May 10, 2010, the Company retained an agent in connection with a private placement (the "Offering") of up to C$15,000,000 in Units comprised of a bought deal commitment of C$7,000,000 in units provided by the agent and up to C$8,000,000 in units on a best efforts basis, pursuant to the general agreement and closing on May 28, 2010 or other date mutually agreed (the "Closing"). Each Unit will consist of one common share priced at C$0.40 each and a warrant exercisable into one common share for a period of 60 months from the Closing at C$0.50 per common share. The Offering commission of 8% of the aggregate gross proceeds of the Offering is payable at Closing. In addition, the Company will issue the agent, at Closing, a number of Broker Warrants equal to 10% of the number of Units sold pursuant to the offering. Each Broker Warrant will be exercisable into one Unit at a price of $0.40 at any time prior to 5 years from Closing. The Company will pay an engagement fee of $20,000 plus issue 125,000 common shares to the agent.

On June 21, 2010, the Offering was amended to: Each Unit will consist of one common share priced at C$0.35 each and two warrants, each exercisable into one common share for a period of 60 months from the Closing at C$0.40 per common share. The Closing will be completed on or about June 30, 2010.

EXHIBIT "B"

Amalfi Capital Corporation

Pro Forma Consolidated Balance Sheet at March 31, 2010

Amalfi Capital Corporation
Pro Forma Consolidated Balance Sheet
As at March 31, 2010
(expressed in US$ - unaudited)
 
  Amalfi
Capital
Corporation
Amalfi
Capital
Corporation
CDR Minerals Inc. Note   Pro forma adjustments US$   Pro forma
  Can$ US$ US$ Reference       US$
    $1.0158       $1.0158    
  Assets                
Current                
Cash 738,219 726,737 440,844 2(c ) 4,612,128   5,271,478
        2(d ) (508,231 )  
Accounts receivable     1,116,402 -   -   1,116,402
Prepaid expenses and other current assets 3,360 3,308 534,325 -   -   537,633
Inventory     110,090 -   -   110,090
Quebec tax credit and mining duties refundable     128,043 -   -   128,043
Deferred costs 130,622 128,590 - 2(j ) (128,590 ) -
Investment in securities, at cost     98,445 -   -   98,445
  872,201 858,635 2,428,149 -   3,975,307   7,262,091
Capital assets     1,359,283 -   -   1,359,283
Mineral property interests     13,373,015 -   -   13,373,015
 
  872,201 858,635 17,160,447 -   3,975,307   21,994,389

See accompanying notes to unaudited pro forma consolidated balance sheet

Amalfi Capital Corporation
Pro Forma Consolidated Balance Sheet
As at March 31, 2010
(expressed in US$ - unaudited)
                 
  Amalfi
Capital
Corporation
Amalfi
Capital
Corporation
CDR
Minerals
Inc.
Note   Pro
forma
adjustments
  Pro
forma
  Can$ US$ US$ Reference   US$   US$
    $ 1.0158       $ 1.0158    
 
Liabilities                
Current                
                 
Accounts payable and accrued liabilities 100,006 98,450 6,285,272 2(c ) (812,168 ) 5,571,554
 
Bank loan     506,125         506,125
Note payable     4,759,067     -   4,759,067
Current portion of convertible notes     369,167     -   369,167
 
  100,006 98,450 11,919,631     (812,168 ) 11,205,913
Asset retirement obligation     274,574     -   274,574
Convertible notes     4,730,936     -   4,730,936
 
  100,006 98,450 16,925,141     (812,168 ) 16,211,423
 

See accompanying notes to unaudited pro forma consolidated balance sheet

Amalfi Capital Corporation
Pro Forma Consolidated Balance Sheet
As at March 31, 2010
(expressed in US$ - unaudited)
 
  Amalfi   Amalfi   CDR              
  Capital   Capital   Minerals       Pro forma      
  Corporation   Corporation   Inc.   Note   adjustments   Pro forma  
  Can$   US$   US$   Reference   US$   US$  
      $ 1.0158           $ 1.0158      
   
Shareholders' equity                      
   
Capital stock 836,302   823,294   11,323,709   2(a ) 771,702   14,527,058  
              2(b ) 24,611      
              2(b ) (24,611 )    
              2(c ) 4,612,128      
              2(c ) (2,592,066 )    
              2(c ) 812,168      
              2(c ) (456,447 )    
              2(c ) (75,315 )    
              2(d ) (508,231 )    
              2(d ) 292,436      
              2(e ) 372,970      
              2(e ) (618,212 )    
              2(f ) 39,378      
              2(f ) (39,378 )    
              2(i ) (39,378 )    
              2(j ) (128,590 )    
              3(b ) 127,840      
              3(b ) (190,950 )    
Shares and warrants to be issued         771,702   2(a ) (771,702 )    
Warrants         1,250,540   2(c ) 2,592,066   4,366,552  
              2(c ) 456,447      
              2(c ) 75,315      
              2(d ) (292,436 )    
              2(e ) (372,970 )    
              2(e ) 618,212      
              2(i ) 39,378      
Contributed surplus 129,860   127,840   2,149,150   3(b ) (127,840 ) 2,149,150  
                         
Equity portion of convertible notes         408,333       -   408,333  
                         
Accumulated other comprehensive loss         (542,103 )     -   (542,103 )
Deficit (193,967 ) (190,950 ) (15,126,025 ) 3(b ) 190,950      
                      (15,126,025 )
   
   
  772,195   760,184   235,306       4,916,065   5,782,965  
   
  872,201   858,635   17,160,447       4,103,897   21,994,389  

1. Basis of presentation

Amalfi Capital Corporation ("Amalfi") is a capital pool corporation which has not commenced commercial operations.

On January 5, 2010, Amalfi, CDR Coal Limited, a wholly-owned subsidiary of Amalfi ("CDR Coal") and CDR Minerals Inc. ("CDR") entered into an Amalgamation Agreement to complete a three-cornered amalgamation whereby CDR will amalgamate with CDR Coal and Amalfi will issue one common share for each common share of CDR outstanding ("Qualifying Transaction"). The completion of the Qualifying Transaction is subject to certain conditions, including obtaining all necessary regulatory approvals.

The accompanying unaudited pro forma balance sheet has been prepared by management for inclusion in the Press release of Amalfi dated August 12, 2010 ("Press Release"). This pro forma balance sheet has been prepared from information derived from the unaudited balance sheet of Amalfi as at March 31, 2010, the unaudited consolidated balance sheet of CDR as at March 31, 2010 and the audited balance sheet of CDR as at December 31, 2009, together with other information available to the companies.

Management believes the pro forma balance sheet includes all adjustments necessary for fair presentation of the proposed transactions as described above.

The pro forma balance sheet may not be indicative either of the results that actually would have occurred if the events reflected herein had taken place on the dates indicated or of the results that may be obtained in the future. The pro forma balance sheet should be read in conjunction with the financial statements of Amalfi and CDR referred to above and the Filing Statement.

2. Pro forma assumptions and adjustments prior to the completion of the Qualifying Transaction

The pro forma balance sheet is prepared as if the transactions described above occurred on March 31, 2010. The pro forma assumptions and adjustments prior to the completion of the Qualifying Transaction are as follows:

a) CDR issues 1,652,523 common shares with a gross value of $771,702, which were committed to be issued prior to March 31, 2010.
   
b) CDR issues 125,000 common shares with a net value of $24,611 in consideration for broker services related to the August 12, 2010 private placement.
   
c) CDR completes a private placement of 27,550,000 units at a price of C$0.20 (US$0.1969 at March 31 2010 exchange rate of C$1.0158 = US$1.00) per unit for gross proceeds of C$5,510,000 or US$5,424,296. Each unit consists of one common share and one common share purchase warrant entitling the holder to purchase one common share at a price of C$0.20 per common share until August 12, 2015. In respect of the private placement, gross proceeds included $812,168 of accounts payable converted into 4,125,000 common shares valued at $355,721 and 4,125,000 warrants valued at $456,447. The fair value of the common shares and warrants, excluding those issued upon conversion of accounts payable, was $2,020,062 and $2,592,062, respectively. Company will issue 1,030,300 broker warrants, with a fair value of $75,315, entitling the holder to purchase one common share at a price of C$0.20 per common share until August 12, 2012.The fair value of the warrants and broker warrants was calculated using the Black-Scholes option pricing model with the following assumptions:
     
  Broker Warrants  
      Warrants  
Risk-free interest rate 1.60 % 2.44 %
Expected volatility 65.17 % 65.17 %
Expected life of warrants 2 years   5 years  
Expected dividend yield Nil   Nil  
         
d) Transaction costs of the August 12, 2010 private placement and amalgamation are $508,231, and $292,436 of the costs was allocated to the warrants.
   
e) CDR, pursuant to the January 2010 share purchase unit agreement, reduces the share purchase unit price from C$0.50 to C$0.20 per unit for units issued in January 2010 and issues 3,300,000 additional common shares; cancels 2,200,000 share purchase warrants; and issues 5,500,000 replacement share purchase warrants. The fair value of the original warrants was $372,970. The fair value of the replacement warrants of $618,212 was calculated using the Black-Scholes option pricing model with the following assumptions:
     
Risk-free interest rate 2.44 %
Expected volatility 65.17 %
Expected life of warrants 5 years  
Expected dividend yield Nil  
   
f) CDR issues 200,000 common shares valued at $39,378 as a finder's fee.
   
g) Amalfi consolidates its shares on the basis of one common share for each 2 common shares presently outstanding, resulting in 5,869,000 post-consolidation common shares.
   
h) Amalfi replaces its outstanding stock options by issuing 580,000 stock options entitling the holder to acquire one common share for C$0.20 until November 30, 2012.
   
i) Amalfi issues 1,657,143 common share purchase warrants to its shareholders, on the basis of 0.28635525 common share purchase warrant for each post-consolidation common share held. Each whole common share purchase warrant shall entitle the holder to purchase one common share at a price of C$0.20 for 2 years from the closing of the amalgamation. The fair value of the warrants of $39,378 was calculated using the Black-Scholes option pricing model with the following assumptions:
   
Risk-free interest rate 1.60 %
Expected volatility 65.17 %
Expected life of warrants 2 years  
Expected dividend yield Nil  
   
j) Deferred costs associated with the Qualifying Transaction are charged to equity.

3. Pro forma assumptions and adjustments following the completion of the Qualifying

Transaction

Following the completion of the Qualifying Transaction, all of the property and assets of each of CDR and CDR Coal will become the property and assets of a wholly-owned subsidiary of Amalfi, which subsidiary will be liable for all of the liabilities and obligations of each of CDR and CDR Coal. The name of the parent company will be Royal Coal Corp. or other name acceptable to CDR and applicable regulatory authorities. The outstanding stock options and warrants of Amalfi will be exchanged for stock options and warrants of CDR Coal with the same terms.

The Qualifying Transaction will be accounted for as a transaction that is not a business combination, in accordance with Abstract 10 of the Emerging Issues Committee:

a) the assets and liabilities of CDR and Amalfi are included in the pro forma balance sheet at their historical carrying values;
b) warrants, contributed surplus and deficit of Amalfi are eliminated by a charge to capital stock.

4. Pro forma share capital

Purchase warrants issued 2(i ) - (39,378 ) 39,378   -  
      5,869,000 783,916   39,378   127,840  
   
CDR                  
Balance, March 31, 2010     55,553,484 11,323,709   1,250,540   2,149,150  
Common shares committed to be issued prior to March 31, 2010 2(a ) 1,652,523 771,702          
Common shares issued for Broker services 2(b ) 125,000 24,611          
Transaction costs re common shares issued for Broker services 2(b )   (24,611 )        
Tranasaction costs private placement and amalgamation August 12 2(d )   (508,231 )        
Tranasaction costs allocated to warrants issued August 12 2(d ) - 292,436   (292,436 )    
Additional shares issued to holders of January units 2(e ) 3,300,000            
Cancellation of initial warrants issued to holders of January units 2(e )   372,970   (372,970 )    
Fair value of replacement warrants issued to holders of January units 2(e )   (618,212 ) 618,212      
Private placement August 12 2(c ) 23,425,000 4,612,128          
Fair value of warrants issued with private placement August 12 2(c )   (2,592,066 ) 2,592,066      
Private placement conversion of accounts payable 2(c ) 4,125,000 812,168          
Fair value of warrants issued on conversion of accounts payable 2(c )   (456,447 ) 456,447      
Fair value of broker warrants 2(c )   (75,315 ) 75,315      
Common shares issued for finder's fee 2(f ) 200,000 39,378          
Finder's fee 2(f )   (39,378 )        
Deferred costs of qualifying transaction 2(j )   (128,590 )        
      94,250,007 14,590,168   4,366,552   2,276,990  
   
Effect of reorganization including elimination of warrants, contributed surplus and deficit of Amalfi 3(b ) - (63,110 ) -   (127,840 )
Pro-forma balance, March 31, 2010     94,250,007 14,527,058   4,366,552   2,149,150  

Stock options

On a pro forma basis, the following stock options will be outstanding:

Exercise price Number of options Expiry date
 
C$0.25 100,000 September 30, 2010
US$0.25 519,600 October 25, 2010
US$0.25 1,225,000 October 25, 2010
C$0.25 2,400,000 October 25, 2012
C$0.50 (note 2(h)) 580,000 November 30, 2012
C$0.50 1,475,000 August 14, 2013
C$0.50 750,000 November 6, 2014
C$0.20 500,000 November 6, 2014
C$0.50 2,000,000 November 16, 2014
C$0.50 825,000 December 10, 2014
  10,374,600  

Included in stock options outstanding are 1,744,600 warrants issued. These warrants were not issued under the stock option plan and are correctly characterized as warrants. For financial statement presentation purposes only, these warrants are included with stock options.

Warrants

On a pro forma basis, the following warrants will be outstanding:

Exercise price Number of warrants Expiry date
 
$0.50 89,090 November-28-10
$1.00 until November 28, 2009 and $1.25 until November 28, 2010 636,362 November-28-10
US$0.50 833,334 June-25-11
US$0.50 50,000 July-07-11
US$0.50 30,000 July-10-11
US$0.50 2,241,111 July-15-11
US$0.50 284,511 October 13, 2011
US$0.50 1,200,000 October-15-11
$0.50 1,000,000 October-21-11
US$0.50 20,300 November-02-11
$0.20 (note 2(e)) 2,025,000 January-06-15
$0.20 (note 2(e)) 3,475,000 January-08-15
$0.50 (note 2(e)) 80,000 January-08-12
C$0.20 (note 2(i)) 1,657,143 August-12-12
C$0.20 (note 2(c)) 2,060,600 August-12-12
C$0.20 (note 2(c)) 27,550,000 August-12-15
  43,232,451  

Neither TSX Venture nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture) accepts responsibility for the adequacy or accuracy of this release.

Contact Information

  • Royal Coal
    Tom Griffis
    Chairman
    (416) 861-8775