1. Corporate information and going concern
EastCoal Inc. (the "Company") was incorporated on December 15, 1986 under the laws of the Province of British Columbia, CANADA. Its principal business activity is the acquisition and development of mineral properties and its registered address is 20th floor, 250 Howe Street, Vancouver, British Columbia, CANADA, V6C 3R8 and its head office is located at Suite 130, 889 Harbourside Drive, North Vancouver, British Columbia, CANADA, V7P 3S1.
The Company is focused on the Verticalnaya Mine located in the Donbass Region of Ukraine. The Verticalnaya Mine is an advanced anthracite coal project in the construction phase. Recovery of the carrying value of the Verticalnaya assets depends on the attainment of profitable production on time and within budget, its profitable disposition or the introduction of a joint venture partner. Due to operational failure and ongoing technical challenges the Board of Directors resolved on May 22, 2013 to place Inter-Invest LLC ("Inter-Invest"), the wholly owned subsidiary that owns the Menzhinsky operations, into liquidation.
The Company has experienced recurring operating losses and has accumulated a deficit of $60,438,343 at June 30, 2013. For the six month period ended June 30, 2013 the Company incurred a loss of $37,654,402 and used cash in operating activities totaling $6,426,616. The loss incurred includes losses relating to discontinued operations of $37,111,000, of which $26,070,000 represents impairment of assets and a further $4,747,000 of loan adjustments. The losses relating to impairment and loan adjustments do not have a cash flow impact on the business. The Company had cash and cash equivalents of $3,858,137 and a working capital deficit of $16,315,173 at June 30, 2013. The working capital deficit includes liabilities of $18,773,534 relating to the discontinued operations. Upon entering liquidation, it is expected that the liabilities of Inter-Invest will no longer be recognized in the Company's financial statements. Working capital is defined as current assets less current liabilities and provides a measure of the Company's ability to settle liabilities that are due within one year with assets that are also expected to be converted into cash within one year.
The Company's continued operations are dependent upon its ability to raise additional funding, the Verticalnaya mine being able to increase production on budget and on time, and Inter-Invest being successfully placed into liquidation. The Company is currently in the process of putting together a rights offering to existing shareholders, though there can be no certainty on the outcome of the rights offer. The Company does not have any financing facilities in place. Management has taken steps to mitigate the liabilities relating to Inter-Invest and it is expected that Inter-Invest will be placed into liquidation during September 2013. Upon entering liquidation, it is expected that the liabilities of Inter-Invest will no longer be recognized in the Company's financial statements resulting in a one-off gain for accounting purposes.
There are no assurances that the Company will be successful in securing further equity financing as and when required. As a result, there are material uncertainties that the entity will be able to continue as a going concern, and realize its assets and discharge its liabilities in the normal course of business. These consolidated financial statements do not include adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue as a going concern. These adjustments may be material.
Most Popular Stories
- NSA Defends Global Cellphone Tracking Legality
- Top Websites for U.S. Hispanics
- Networks Vie for U.S. Hispanic TV Viewers
- Ad Counts Rise in 2013 for Hispanic Magazines
- Apple Wants Samsung to Pay $22M for Patent Dispute Legal Bills
- Starbucks Gets Grinchy; No Gingerbread Lattes for Tampa Customers
- Jobs Report Brings Cheer As Unemployment Drops to Five-year Low
- Apple Paid Its Lawyers More Than $60MM to Defeat Samsung in Court
- Economic Bright Spots Not a Sure Boost for President Obama
- US Consumer Borrowing Rose $18.2B in Oct.