Merrex Gold Inc.
TSX VENTURE : MXI

Merrex Gold Inc.

December 05, 2006 16:47 ET

Merrex Gold Files Restated Third Quarter Statements

HALIFAX, NOVA SCOTIA--(CCNMatthews - Dec. 5, 2006) - Greg Isenor, President of Merrex Gold Inc., ("Merrex") (TSX VENTURE:MXI) makes the following announcement.

Restated Third Quarter Statements Filed

Merrex has filed restated third quarter unaudited financial statements primarily to adjust the pricing of shares issued for the acquisition of Jubilee Minerals Ltd. and the acquisition of the mineral exploration properties from High River Gold. The restated statements are appended hereto and are available at www.sedar.com. The third quarter statements issued July 31, 2006 should not be relied upon.

The restatement of the Balance Sheet resulted in reductions in cash to $1,606,959, in deferred exploration costs to $3,854,151, in total assets to $5,521,769 and in share capital to $15,500,020, and an increase in accounts payable to $664,639. The restatement of the Statement of Loss and Deficit resulted in a decrease of the net loss to $262,363 and the loss per share for the quarter to ($0.02) and for the nine months to ($0.03). The restatement of the Statement of Cash Flows resulted in decreases of the net loss to $262,363 and in cash to $1,606,959 and in increases in accounts payable and accrued liabilities to $497,529 and in expenditures on mineral properties to $1,390,982.

Overall, the ongoing business activities of the Corporation and the ambitious exploration plans management has for its properties will not be affected by these accounting adjustments.

Merrex Gold is a mineral resource exploration company focused on exploration for gold in Mali, West Africa, for zinc-lead in Cape Breton, Nova Scotia and for nickel in Voisey's Bay, Newfoundland. For further information interested parties are encouraged to contact either Greg Isenor, President, at the Halifax office (telephone 902-832-5555) or John Cumming, Director, at the Vancouver office (604-484-6613). Merrex Gold Inc. invites the public to visit its website at www.merrexgold.com or to email us at info@merrexgold.com to be added to the Company's email list for press releases and updates.

MERREX GOLD INC.

(formerly Merrex Resources Inc.)

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

MAY 31, 2006 Unaudited and Restated

These unaudited consolidated financial statements for the period ended May 31, 2006 have been prepared by management and have not been reviewed by the Company's auditor.



MERREX GOLD INC.
(formerly Merrex Resources Inc.)
INTERIM CONSOLIDATED BALANCE SHEET
(Unaudited)

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MAY 31 AUGUST 31
2006 2005
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(Unaudited) (Note 1)
(Note 1)

ASSETS

Current
Cash $ 1,606,959 $ 5,942
GST recoverable 58,164 15,432
---------------------------
1,665,123 21,374

Deferred exploration expense and property costs 3,854,151 -
Equipment, net 2,495 761
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$ 5,521,769 $ 22,135
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LIABILITIES

Current
Accounts payable and accrued liabilities $ 664,639 $ 196,736

SHAREHOLDERS' DEFICIENCY

Share Capital 15,500,020 10,090,126
Contributed Surplus 11,175
Deficit (10,654,065) (10,264,727)
---------------------------
4,857,130 (174,601)
---------------------------

$ 5,521,769 $ 22,135
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MERREX GOLD INC.
(formerly Merrex Resources Inc.)
INTERIM CONSOLIDATED STATEMENT OF LOSS AND DEFICIT
(Unaudited)

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THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31 MAY 31
2006 2005 2006 2005
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Administrative
Expenses
Filing and transfer
fees $ 32,049 $ 10,625 $ 41,442 $ 20,037
Printing and postage 3,611 - 8,419 -
Interest and bank
charges (1,804) 71 (1,665) 200
Management fees 27,925 7,500 42,925 22,500
Exploration management 9,250 - 25,250 -
Professional fees 26,288 984 68,153 14,942
Public relations 23,599 - 23,599 -
Office and rent 72,415 4,064 86,349 8,479
Travel and business
development 69,030 1,258 71,165 2,430
Indemnity bond - - 8,550 -
Amortization - 45 761 90
Financial guarantee
fee - - 14,390 -
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Net (Loss) For The
Period (262,363) (24,547) (389,338) (68,678)
Deficit, Beginning
Of Period (10,391,702) (10,204,462) (10,264,727) (10,160,331)
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Deficit, End Of
Period $ (10,654,065)$(10,229,009) $ (10,654,065) $(10,229,009)
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Earnings (Loss)
Per Share $ (0.02) $ (0.01) $ (0.03) $ (0.01)
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Weighted Average
Number Of Shares 15,100,986 5,923,610 11,373,124 5,411,888
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MERREX GOLD INC.
(formerly Merrex Resources Inc.)
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

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THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31 MAY 31
2006 2005 2006 2005
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Cash provided by
(used in)

Operating activities
Net income (loss)
for the period $ (262,363) $ (24,547) $ (389,338) $ (68,678)
Items not involving
cash:
Stock-based
compensation 11,175 - 11,175 -
Finders fees - - 14,390 -
Amortization - 45 761 90
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(251,188) (24,502) (363,012) (68,588)

Changes in non-cash
working capital
balances:
(Increase) decrease
in taxes
recoverable (23,705) (1,731) (42,732) (2,705)
(Increase) decrease
in prepaid expenses - (889) - (1,335)
Increase (decrease)
in accounts
payable and accrued
liabilities 497,529 (268) 577,903 10,993
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222,636 (27,390) 172,159 (61,635)
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Investing activities
Expenditures on
mineral properties - -
and related deferred
costs (1,390,982) (2,084,534)
Purchase of
equipment (2,495) - (2,495) (896)
------------------------------------------------------
(1,393,477) - (2,087,029) (896)
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Financing activities
Proceeds from
(repayment of)
loans (70,500) - - -
Issuance of share
capital 2,300,647 - 3,515,887 75,000
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2,230,147 - 3,515,887 75,000
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Net change in cash 1,059,306 (27,390) 1,601,017 12,469
Cash, Beginning of
period 547,653 40,668 5,942 809
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Cash, End of period $ 1,606,959 $ 13,278 $ 1,606,959 $ 13,278
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MERREX GOLD INC.
(formerly Merrex Resources Inc.)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS MAY 31, 2006
(Unaudited)


1. NATURE OF BUSINESS AND BASIS OF PRESENTATION

The interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in Canada. The interim financial statements have been prepared following the same accounting policies and methods of computation as the financial statements for the fiscal year ended August 31, 2005. The interim financial statements should be read in conjunction with the financial statements and the notes thereto in the Company's annual report for the year ended August 31, 2005.

The Company is in the process of exploring its mineral properties and has not yet determined whether these properties contain economically recoverable ore reserves. The recoverability of the amounts shown for mineral properties and related deferred costs is dependent upon the existence of economically recoverable reserves, the ability of the Company to obtain necessary financing to complete the development of the properties, and upon future profitable production.

The Company's financial statements have been prepared on the basis of accounting principles applicable to a going concern, which assume the realization of assets and discharge of liabilities in the normal course of business. The Company's ability to continue as a going concern is dependent upon successful completion of additional financing, continuing support of creditors and upon its ability to attain profitable operations. These financial statements do not give effect to any adjustments that would be necessary should the Company not be able to continue as a going concern.

2. SIGNIFICANT ACCOUNTING POLICIES

a) Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly- owned subsidiary, Jubilee Minerals Limited, incorporated under the laws of Nova Scotia. All significant intercompany transactions and balances have been eliminated.

b) Cash and Cash Equivalents

Cash and cash equivalents consist of cash and short term deposits with maturities of no more than ninety days when acquired.

c) Mineral Property Costs

The Company records its interest in mineral properties at cost, less option income realized. The cost of mineral properties and related exploration costs are deferred until the properties are brought into production, sold or abandoned. These deferred costs will be amortized on the unit-of-production basis over the estimated useful life of the properties following the commencement of production or are written off if the properties are sold, allowed to lapse or abandoned. Amounts shown for the mineral properties and their related deferred exploration costs represent costs incurred and are not intended to reflect present or future values.

Option payments received are treated as a reduction of the carrying value of the related deferred costs until the Company's costs are recovered. Option payments received in excess of costs incurred are credited to revenue.

The amount shown for mineral property interests represents costs incurred to date and the fair market value of common shares issued and does not necessarily reflect present or future value. Administrative expenditures are expensed in the year incurred. Property investigation costs, where a property interest is not acquired, are expensed as incurred.

Although the Company has taken steps to verify title to mineral properties, these procedures do not guarantee the Company's title. Property title may be subject to unregistered prior agreements or other impediments.

On an annual basis or when impairment indicators arise, the Company evaluates the future recoverability of its mineral property costs. Impairment losses or write downs are recorded in the event the net book value of such assets exceeds the estimated indicated future cash flows attributable to such assets.

d) Asset Retirement Obligations

The Company recognizes the fair value of a liability for an asset retirement obligation in the year in which it is incurred when a reasonable estimate of fair value can be made. The carrying amount of the related long-lived asset is increased by the same amount as the liability.

e) Capital Assets and Amortization

Capital assets are recorded at cost and amortized over their economic life using the declining balance method at the following rates:



Computer hardware 30%
Office furniture and equipment 20%
Leasehold improvements Over the remaining term of the lease


f) Financial Instruments

The Company's financial instruments include cash, GST recoverable and accounts payable and accrued liabilities.

Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments. The fair values of these financial instruments approximate their carrying values, unless otherwise noted.

g) Loss Per Share

Basic loss per share is calculated by dividing the loss for the period by the weighted average number of common shares issued and outstanding during the period. Diluted loss per share is calculated using the treasury stock method. Under the treasury stock method, the weighted average number of common shares outstanding used for the calculation of diluted loss per share assumes that the proceeds to be received on the exercise of dilutive stock options and warrants are used to repurchase common shares at the average market price during the period. Basic and fully diluted loss per share are equal for the periods represented herein as outstanding stock options and warrants were all anti-dilutive. As at May 31, 2006, there were 4,279,083 potentially issuable common shares.

h) Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from estimates and would impact future results of operations and cash flows. Significant estimates and assumptions include those related to the recoverability of mineral properties and deferred exploration expenditures, estimated useful lives of capital assets, determination as to whether costs are expensed or deferred, asset retirement obligations and stock based compensation valuations.

i) Stock Based Compensation

The Company measures all stock based payments using the fair value method of accounting and recognizes the compensation expense in their financial statements. The Company implemented this policy in their fiscal year ended August 31, 2004 on a prospective basis in accordance with the early adoption provisions of the CICA Handbood Section 3870 -- "Stock Based Compensation and Other Stock Based Payments". According to the transitional provisions, early adoption requires that compensation expense be calculated and recorded in the statement of operations for options granted on or after September 1, 2003.

The Company accounts for compensation expense based on the fair value of options granted, determined using the Black-Scholes option-pricing model. Compensation costs are expensed over the vesting period(s) with a corresponding increase to contributed surplus. Upon exercise of the stock options consideration paid by the option holder, together with the amount previously recognized in contributed surplus, is recorded as an increase to share capital.

As at May 31, 2006, there are 690,000 outstanding stock options.

j) Income Taxes

Income taxes are calculated using the liability method of accounting. Temporary differences arising from the difference between the tax basis of an asset or liability and its carrying amount on the balance sheet are used to calculate future income tax liabilities or assets. Future tax assets are recognized to the extent that they are considered more likely than not to be realized. Future income tax liabilities or assets are calculated using the tax rates anticipated to apply in the periods that the temporary differences are expected to reverse.

k) Foreign Currency Translation

Transactions recorded in foreign currencies have been translated into Canadian dollars using the temporal method as follows:



i) monetary items at the rate prevailing at the balance sheet date;
ii) non-monetary items at the historical exchange rate;
iii) revenue and expense at the average rate in effect during the
applicable accounting period.


Gains or losses arising on translation are included in the results of operations.

3. DEFERRED EXPLORATION EXPENSE

Jubilee Mineral Claims

The Company has acquired 100% of the issued shares of Jubilee Minerals Ltd. (Jubilee) for the performance of no less than $100,000 in exploration expenses on Jubilee's mineral claims (which has been done) and the issuance of 10,000,000 common shares of the Company valued at $750,000. Jubilee holds interest in 205 mineral claims located in Inverness and Victoria counties of Central Cape Breton, Nova Scotia. The Company issued 191,867 common shares as a finders fee valued at $14,390 and issued a further 850,000 common shares as finders fees valued at $63,750 on exercising the option. As at May 31, 2006 exploration expenditures of $186,779 have been incurred.

Mali Properties

The Company has entered into an agreement to acquire up to a 95% interest in certain mining concessions (the 'Siribaya Permit') located in the West African nation of Mali for payments aggregating $85,000 over two years and exploration expenses aggregating $750,000 over three years. As at May 31, 2006, the first cash payment of $10,000 has been made, and exploration expenditures of $751,008 have been incurred.

The Company further agreed to acquire up to an 80% interest in the Kakadian Permit of approximately 109 square kilometres located in Mali for cash payments over two years of $70,000. As at May 31, 2006, the first cash payment of $10,000 has been made, and exploration expenditures of $46,201 have been incurred.

High River Properties

The Company has acquired varying interests in certain exploration properties (including a 50% interest in 451 claims in West Voisey's Bay) from High River Gold Mines Ltd. for $361,415 and the issuance of 2,245,000 common shares valued at $898,000. As a condition of the acquisition three directors of the Company plus a fourth party guaranteed that a minimum of $217,000 would be repaid to High River by the guarantors if the Corporation failed to pay to High River the required $361,415. In consideration of the granting of these guarantees the Corporation has issued to the four named guarantors a total of 144,667 common shares valued at $57,867. As at May 31, 2006, $674,636 in exploration expenditures have been incurred.



4. SHARE CAPITAL

a) Authorized
unlimited common shares without par value

b) Issued and Outstanding
SHARES AMOUNT
Balance beginning of period 5,923,610 $10,090,126
Issued in period:
For cash:
Private placements 9,666,667 3,275,000
Warrants exercised 2,544,250 381,637
Share issue costs - (168,250)
For finder's fees 558,534 41,890
For settlement of debt 1,466,667 110,000
For resource properties 13,095,000 1,711,750
For guarantee fees 144,668 57,867

Balance May 31, 2006 33,399,396 $15,500,020


On November 18, 2005 the Company issued 3,666,667 common shares pursuant to a unit offering at a price of $0.075 per unit for cash of $275,000. Each unit consists of one common share and one share purchase warrant. Each warrant entitles the holder to purchase one additional common share at a price of $0.15 per share for a period of one year. The share issuance and warrants exercised will be one half flow through of exploration expense and one half not flow through. The Company also issued 366,667 common shares as a finder's fee for the offering at a deemed cost of $27,500.

On November 18, 2005 the Company issued 191,867 common shares as a finder's fee valued at $14,390 for the Jubilee mineral claims.

On November 18, 2005 the Company issued 1,466,667 units to settle accounts payable, advances payable, loans payable and amounts due to related parties totalling $110,000. Each unit consists of one common share and one share purchase warrant. Each warrant entitles the holder to purchase one additional common share at a price of $0.15 per share for a period of one year.

During the quarter ended February 28, 2006 the Company issued 1,160,000 shares of common stock for $174,000 on the exercise of warrants at $0.15 per share.

On May 24, 2006 the Company issued 6,000,000 common shares pursuant to a unit offering at a price of $0.50 per unit for cash of $3,000,000.

During the quarter ended May 31, 2006 the Company issued 1,384,250 shares of common stock for $207,637 on the exercise of warrants at $0.15 per share.

On May 24, 2006 the Company issued 10,850,000 common shares valued at $813,750 pursuant to acquiring the Jubilee mineral claims and issued 2,245,000 common shares valued at $898,000 pursuant to acquiring the High River mineral claims. In addition, the Company issued 144,668 common shares valued at $57,867 as a guarantee fee in respect of the acquisition.

c) Stock Options

On August 29, 2005 the Company granted 590,000 options to acquire common shares of the Company to directors, officers and employees of the Company exercisable at $0.11 per share for a term of five years. On December 5, 2005 the Company granted 100,000 options to acquire common shares exercisable at $0.45 per share for a term of five years.

d) Warrants

As at May 31, 2006 there were outstanding share purchase warrants as follows:

3,589,083 share purchase warrants exercisable at $0.15 per share expiring November 18, 2006.

5. RELATED PARTY TRANSACTIONS

Accounts payable and accrued liabilities include $127,433 (2005 - $77,920) owing to corporations owned by directors and officers.

During the quarter ended May 31, 2006, the Company paid or accrued the following amounts to related parties:

For management fees $16,750 (2005 - $7,500) to a director and officer of the Company and to a corporation of which a director and officer is a shareholder;

For exploration management $9,250 (2005 - $Nil) to a corporation of which a director and officer is a shareholder;

For office rent and related overhead expenses $4,011 (2005 - $1,625) to a corporation of which a director is a shareholder; and

For legal services $7,500 (2005 - $7,500) to a director and officer of the Company.

The Corporation issued 144,667 common shares to four directors as a guarantee fee in respect of the High River acquisition.

During the quarter, the Corporation repaid short-term loans totaling $70,500 made by two directors. The loans were made without interest and without specific terms of repayment.

6. RESTATEMENT

The Consolidated Balance Sheet, Consolidated Statement of Loss and Deficit and the Consolidated Statement of Cash Flows have been restated to properly account for the acquisition of Jubilee Minerals Ltd., the acquisition of the High River mineral properties, exploration and capital expenditures in the quarter, repayment of loans and stock-based compensation. The restatement resulted in a reduction in deferred exploration costs of $5,882,661, a reduction in cash of $500,000, an increase in equipment of $2,495, an increase in accounts payable of $430,794, a reduction in loans payable of $25,500, a reduction in share capital of $7,470,554 and a decrease in the net loss of $685,093. The basic and diluted loss per share for the quarter has been restated from $0.06 to $0.02. The basic and diluted loss per share for the nine months ended May 31, 2006 has been restated from $0.07 to $0.03.

7. SUBSEQUENT EVENTS

Stock Options

On June 1, 2006 the Company granted 2,100,000 options to acquire common shares of the Company to directors, officers and employees of the Company, exercisable at $0.75 per share for a term of five years.

Private Placement

Subsequent to May 31, 2006 the Company completed the following private placement financing:

1,222,833 units comprised of one share and one-half of one share purchase warrant at a price of $0.60 per unit yielding $733,700, and

$435,840 for the issuance of up to 622,629 flow-through common shares at a price of $0.70 per share yielding $435,840.

Each whole share purchase warrant entitles the holder to purchase one additional common share at a price of $0.75 per share for a period of one year.

THE TSX VENTURE EXCHANGE HAS NOT REVIEWED AND DOES NOT ACCEPT RESPONSIBILITY FOR THE ACCURACY OF THIS RELEASE.

Contact Information

  • Merrex Gold Inc. - Halifax office
    Greg Isenor
    President
    (902) 832-5555
    (902) 832-2223 (FAX)
    or
    Merrex Gold Inc. - Vancouver office
    John Cumming
    Director
    (604) 484-6613
    Email: info@merrexgold.com
    Website: www.merrexgold.com