Silvercorp Metals
Annual Report 2009

Plain-text annual report

SILVERCORP METALS INC. CONSOLIDATED FINANCIAL STATEMENTS March 31, 2009 (Expressed in thousands of US dollars, unless otherwise stated) Management's Responsibility for Financial Reporting Management of Silvercorp Metals Inc. is responsible for the integrity and fair presentation of the financial information contained in the accompanying consolidated financial statements. Where appropriate, the financial information, including financial statements, reflects amounts based on the best estimates and judgments of management. The financial statements have been prepared in accordance with accounting principles generally accepted in Canada. Financial information appearing throughout our management’s discussion and analysis is consistent with the consolidated financial statements. Management is responsible for establishing and maintaining adequate internal control over financial reporting. Any system of internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective, they can only provide reasonable assurance with respect to financial statement preparation and presentation. The Board of Directors oversees management's responsibility for financial reporting and internal control systems through an Audit Committee, which is composed entirely of independent directors. The Audit Committee meets periodically with management and the auditors to review the scope and results of the annual audit and to review the financial statements and related financial reporting and internal control matters before the financial statements are approved by the Board of Directors and submitted to the shareholders of the Company. Ernst & Young LLP, Chartered Accountants, have audited the Company's financial statements in accordance with Canadian generally accepted auditing standards and the Standards of the Public Company Accounting Oversight Board (the United States) and have expressed their opinion in the auditors’ report. (Signed) Rui Feng (Signed) Maria Tang Rui Feng Maria Tang Chairman and Chief Executive Officer Interim Chief Financial Officer REPORT OF INDEPENDENT AUDITORS To the Shareholders of Silvercorp Metals Inc. We have audited the consolidated balance sheets of Silvercorp Metals Inc. (the “Company”) as at March 31, 2009 and 2008 and the consolidated statements of operations, comprehensive income (loss), cash flows and shareholders’ equity for each of the years in the three-year period ended March 31, 2009. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the consolidated financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on financial the Company’s reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. internal control over the effectiveness of In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at March 31, 2009 and 2008 and the results of its operations and its cash flows for each of the years in the three-year period ended March 31, 2009 in conformity with Canadian generally accepted accounting principles. As discussed in Note 2(b) to the consolidated financial statements for the year ended March 31, 2008, the Company changed its reporting currency to U.S. dollars and as discussed in Note 2(c), the Company changed its method of accounting for comprehensive income and financial instruments during the year ended March 31, 2008. Vancouver, Canada June 3, 2009 Chartered Accountants SILVERCORP METALS INC. CONSOLIDATED BALANCE SHEETS (Expressed in thousands of US dollars) Notes March 31, 2009 March 31, 2008 5 4 6 3 17 15 7 8 4 9 10 17 4 14 17 15 17 11 12 14 13 $ 41,470 23,962 732 2,933 1,529 143 249 71,018 1,058 12,186 293 29,072 89,413 2,162 205,202 $ $ 8,533 1,290 658 2,564 3,041 7,353 23,439 $ 47,093 37,146 - 5,260 2,389 - 47 91,935 5,204 17,874 - 14,349 60,905 - 190,267 $ $ 7,027 2,573 - - 720 12,118 22,438 19,678 2,029 45,146 7,610 135,604 3,764 31,893 (10,167) (8,648) 152,446 6,346 1,226 30,010 11,265 78,334 1,722 2,078 14,122 52,736 148,992 $ 205,202 - $ 190,267 - ASSETS Current Assets Cash and cash equivalents Short term investments Restricted cash Accounts receivable, prepaids and deposits Inventories Current portion of future income tax assets Amounts due from related parties Long term prepaids Long term investments Restricted cash Property, plant and equipment Mineral rights and properties Future income tax assets LIABILITIES Current Liabilities Accounts payable and accrued liabilities Deposits received from customers Notes payable Dividends payable Income tax payable Amounts due to related parties Future income tax liabilities Asset retirement obligations Non-controlling interests SHAREHOLDERS' EQUITY Share capital Contributed surplus Reserves Accumulated other comprehensive income (loss) Retained earnings Approved on behalf of the Board: (Signed) Robert Gayton Director (Signed) Rui Feng Director SILVERCORP METALS INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Expressed in thousands of US dollars, except for share and per share figures) Sales Cost of sales Amortization and depletion Gross profit Expenses Accretion of asset retirement obligations Amortization Foreign exchange loss (gain) General exploration and property investigation expenses Impairment charges Investor relations General and administrative Professional fees Other income and expenses Equity loss in investment Gain (loss) on disposal of mineral rights and property Loss on disposal of property, plant and equipment Loss on disposal of long term investments Interest income Other income Income (loss) before income taxes and non-controlling interests Income tax expense (recovery) Current Future Income (loss) before non-controlling interests Non-controlling interests Net income (loss) Basic earnings (loss) per share Diluted earnings (loss) per share Weighted Average Number of Shares Outstanding - Basic Weighted Average Number of Shares Outstanding - Diluted Years ended March 31, Notes 2009 2008 2007 $ 83,523 $ 108,363 $ 39,777 11 3,7,8,9&10 8 10 9 17 17 12 29,322 6,365 35,687 47,836 123 817 (2,872) 2,325 50,707 550 9,319 1,488 62,457 (14,621) (1,455) (819) (328) - 1,342 478 (782) 20,114 3,208 23,322 7,738 1,190 8,928 85,041 30,849 62 517 612 1,817 - 284 7,254 2,134 12,680 72,361 (250) 563 (48) - 2,585 4,474 7,324 61 123 - 808 - 752 4,223 454 6,421 24,428 (222) - (4) (11) 1,715 3,858 5,336 (15,403) 79,685 29,764 6,988 (7,925) (937) 441 110 551 1,426 - 1,426 (14,466) 79,134 28,338 (1,531) (19,197) (6,315) $ (15,997) $ 59,937 $ 22,023 $ $ (0.11) (0.11) 152,350,041 152,350,041 $ $ 0.41 0.40 147,660,730 150,954,072 $ $ 0.15 0.15 143,913,693 149,674,056 SILVERCORP METALS INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Expressed in thousands of US dollars) Net income (loss) for the year Other comprehensive income (loss), net of taxes: Transition adjustment to opening balance upon adoption of new standards Unrealized loss on available for sale securities Unrealized exchange gain on translation of self-sustaining foreign operations Unrealized exchange gain (loss) on translation of functional currency to reporting currency Other comprehensive income (loss) Comprehensive income (loss) Years ended March 31, 2009 2008 2007 $ (15,997) $ 59,937 $ 22,023 - (155) 11,270 (35,404) (24,289) 9 (48) 3,972 9,709 13,642 - - 1,042 (920) 122 $ (40,286) $ 73,579 $ 22,145 SILVERCORP METALS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in thousands of US dollars) Cash provided by (used for) Operating activities Net income (loss) for the year Add (deduct) items not affecting cash : Accretion of asset retirement obligations Amortization and depletion Equity investment loss Future income tax expenses (recovery) Impairment charges Loss on disposal of long term investments Loss (gain) on disposal of mineral property Loss on disposal of property plant and equipment Non-cash other income Non-controlling interests Stock-based compensation Unrealized foreign exchange loss Net change in non-cash working capital Accounts receivable, prepaids and deposits Inventory Restricted cash Accounts payable and accrued liabilities Asset retirement obligations discharged upon payments Income tax payable Deposits received from customers Cash provided by operating activities Investing activities Acquisition of mineral rights and properties Acquisition of property, plant and equipment Purchase of long term investments Decrease (increase) of short term investments Increase in long term prepaids Proceeds from disposal of long term investments Proceeds from disposal of mineral rights and properties Proceeds from disposal of property, plant and equipment Non-controlling interest shareholder's contribution Cash used in investing activities Financing activities Repayment from (advance to) related parties Advance under notes payable Distribution to non-controlling interest shareholder Cash dividends distributed Share subscriptions for cash, net of commission and expenses Repurchase of shares to treasury for cancellation Cash provided (used) by financing activities Years ended March 31, Notes 2009 2008 2007 $ (15,997) $ 59,937 $ 22,023 122 7,182 1,455 (7,925) 50,707 - 819 328 - 1,531 2,103 4,378 44,703 2,513 496 (1,020) (734) - 2,300 (1,272) 46,986 (37,115) (12,697) (291) 12,982 (354) - 814 2 215 62 3,725 250 110 - - (563) 48 (4,388) 19,197 2,473 - 80,851 (3,627) (342) - 3,413 (514) (950) 955 79,786 (36,583) (7,452) (5,552) (29,489) (3,397) - 563 157 - 62 1,312 222 - - 11 - 4 (3,824) 6,315 1,956 - 28,081 (417) (1,708) - 1,804 (229) 1,474 1,047 30,052 (11,752) (6,325) (2,035) 2,304 (1,241) 209 - 9 - (36,444) (81,753) (18,831) (37) 656 (13,173) (5,466) 22,655 (9,473) (4,838) (1,429) - (3,371) (6,891) 2,294 - (9,397) 1,692 - - - 42,396 (4,890) 39,198 10 14(e) Effect of exchange rate changes on cash and cash equivalents (11,327) 5,128 (430) Increased (decrease) in cash and cash equivalents (5,623) (6,237) 49,989 Cash and cash equivalents, beginning of year 47,093 53,330 3,341 Cash and cash equivalents, end of year Supplemental information: Interest paid Income tax paid Non-cash investing activities: $ 41,470 $ 47,093 $ 53,330 $ 30 $ 87 $ 45 $ 4,796 $ 1,274 $ - Common shares issued for mineral rights and properties $ 36,484 $ - $ - Common shares of New Pacific Metals Corp. received as partial consideration for the Option Agreement related to Kang Dian Project $ - $ 4,388 $ 3,824 Construction in process transferred to mineral rights and properties $ - $ 1,314 $ - SILVERCORP METALS INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Expressed in thousands of US dollars, except for share figures) Balances, March 31, 2006 Options exercised Warrants exercised Private placement, net of issuance cost Value of options transferred upon exercised Contributed surplus transferred as per share cancellation Share cancellation under the Normal Course Issuer Bid Stock based compensation Earnings of the year Unrealized gain on translation of self-sustaining operation Unrealized loss on translation functional currency to reporting currency Balance, March 31, 2007 Transition adjustment to opening balance Options exercised Warrants exercised Cancellation of fraction shares Value of options transferred upon exercised Stock based compensation Unrealized loss on available for sale securities Appropriation to reserves Cash dividends declared and distributed Earnings of the year Unrealized gain on translation of self-sustaining operation Unrealized gain on translation functional currency to reporting currency Balance, March 31, 2008 Options exercised Shares issued for property Financing Share issuance costs Cancellation of shares under normal course issuer bid Value of options transferred upon exercised Stock based compensation Unrealized loss on available for sale securities Appropriation to reserves Cash dividends declared and distributed Loss of the year Unrealized gain on translation of self-sustaining operation Unrealized loss on translation functional currency to reporting currency Balance, March 31, 2009 Share capital Number of shares Amount Contributed surplus 135,186,471 2,961,717 1,567,500 7,503,750 - - (1,261,500) - - $ 31,752 781 2,144 39,471 1,010 4,068 (4,890) - - $ 4,076 - - - (1,010) (4,068) - 1,956 - Reserves (Note 13) $ - - - - - - - - - - - - - - - 74,336 - 2,225 68 - 1,705 - - - - - - 145,957,938 - 3,448,896 9,750 (108) - - - - - - - - 954 - - - - (1,705) 2,473 - - - - - - - - - - - - - - 2,078 - - - - - 78,334 22 36,485 24,205 (1,570) (1,885) 13 - - - - - - 149,416,476 4,482 4,532,543 10,000,000 - (2,366,500) - - - - - - - - 1,722 - - - - (47) (13) 2,102 - - - - - - 2,078 - - - - - - - - 29,815 - - - Accumulated other comprehensive income (loss) Retained earnings (deficit) Total shareholders' equity $ 358 - - - - - - - - 1,042 (920) 480 9 - - - - - (48) - - - 3,972 $ (20,255) - - - - - - - 22,023 $ 15,931 781 2,144 39,471 - - (4,890) 1,956 22,023 - 1,042 - 1,768 - - - - - - - (2,078) (6,891) 59,937 - 9,709 14,122 - - - - - - - (155) - - - 11,270 - 52,736 - - - - (7,542) - - - (29,815) (8,030) (15,997) - (920) 77,538 9 2,225 68 - - 2,473 (48) - (6,891) 59,937 3,972 9,709 148,992 22 36,485 24,205 (1,570) (9,474) - 2,102 (155) - (8,030) (15,997) 11,270 - 161,587,001 - $ 135,604 - $ 3,764 - $ 31,893 (35,404) (10,167) $ - $ (8,648) (35,404) 152,446 $ SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) 1. NATURE OF OPERATIONS Silvercorp Metals Inc., along with its subsidiary companies (collectively the “Company”), is engaged in the acquisition, exploration, development, and mining of precious and base metal mineral properties in the People’s Republic of China (“China”). 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Presentation and Principles of Consolidation The Company’s consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”), and are presented in thousands of US dollars. Note 21 reconciles the consolidated financial statements prepared in accordance with Canadian GAAP to financial statements prepared in accordance with United States generally accepted accounting principles (“US GAAP”). These consolidated financial statements include the accounts of Silvercorp Metals Inc. and its wholly owned subsidiaries: Silvercorp Metals China Inc., Fortune Mining Limited, Fortune Copper Limited, Fortress Mining Inc., Fortune Gold Mining Limited, Victor Resources Ltd., Victor Mining Ltd., Yangtze Mining Ltd., Yangtze Mining (H.K.) Ltd., 82% owned subsidiary, Qinghai Found Mining Company Ltd. (“Qinghai Found”), 70% (March 31, 2007 - 60%) owned subsidiary, Henan Huawei Mining Co. Ltd. (“Henan Huawei”), 77.5% owned subsidiary, Henan Found Mining Co. Ltd. (“Henan Found”), 95% owned subsidiary, Anhui Yangtze Mining Co. Ltd. and 95% owned subsidiary, Guangdong Found Mining Co. Ltd. All significant inter-company transactions and accounts have been eliminated upon consolidation. In the notes to these consolidated financial statements, “joint venture” is in the context of “the Law of the People’s Republic of China on Sino-Foreign Equity Joint Ventures”, which governs business conducted by foreigners in China. None of the Company’s subsidiary is currently accounted for using proportionate consolidation method in accordance with CICA Section 3055, “Interest in Joint Ventures” (b) Significant Accounting Policies (i) Use of estimates and measurement uncertainty The preparation of consolidated financial statements in accordance with Canadian GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of management estimates include assumptions and estimates relating to but not limited to, the recoverability of amounts receivable and investments, the determining of defined ore bodies, mineral Page 1 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) resources, fair values for purposes of impairment analysis, reclamation obligations, stock-based compensation and warrants, valuation allowances for future income tax assets, and future income tax liabilities. Actual results could differ from these estimates. (ii) Foreign currency translation The Company’s functional currency is the Canadian dollars. Effective April 1, 2007, the Company changed its reporting currency from Canadian dollars to the US dollars. The financial statements for all years presented have been translated into the US dollars using the current rate method. Under this method, the statements of operations and cash flows have been translated into the reporting currency using the average exchange rate prevailing during each reporting period. All assets and liabilities have been translated using the exchange rate prevailing at the balance sheet dates. Shareholders’ equity transactions since April 1, 2006 have been translated using the exchange rates in effect as of the dates of the various capital transactions, while shareholders’ equity balances on April 1, 2006 have been translated at the exchange rate on that date. All resulting exchange differences arising from the translation are recorded as exchange gain (loss) in a separate component of accumulated other comprehensive income (“AOCI”). All comparative financial information has been restated to reflect the Company’s results as if they had been reported in the US dollars. All subsidiaries, except its 77.5% owned subsidiary Henan Found and 70% owned subsidiary Henan Huawei, are considered to be integrated foreign operations and their financial statements are translated to Canadian dollars under the temporal method. Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rate in effect at the balance sheet date and non-monetary assets and liabilities at historical exchange rates. Revenues and expenses are translated at the average exchange rate in effect during the period. Realized and unrealized foreign exchange gains and losses are included in earnings. Henan Found is considered to be a self-sustaining operation. During the year ended March 31, 2008, Henan Huawei was reclassified as a self-sustaining operation from an integrated foreign operation and its financial statements are translated using the current rate method from temporal method because of the significant changes in the economic facts and circumstances of Henan Huawei. Assets and liabilities of Henan Found and Henan Huawei, which are dominated in Chinese yuan (“RMB¥”), are translated into Canadian dollars using the current rate method at period-end exchange rates and resulting translation adjustments are reflected in AOCI. Revenues and expenses of Henan Found and Henan Huawei are translated at average exchange rates for the period. (iii) Financial instruments The Company recognizes financial assets and liabilities on the balance sheets when becoming a party to the contractual provisions of the instrument. Page 2 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) Cash and cash equivalents, which are designated as held-for-trading financial assets and measured at fair value, include cash on account, demand deposits and money market investments with maturities from the date of acquisition of three months or less, which are readily convertible to known amounts of cash and are subject to insignificant changes in value. Short term investments and restricted cash which are designated as held-for-trading financial assets and measured at fair value, include bank notes, guaranteed investment certificates and term deposits with maturities of greater than three months, but less than one year, from the date of acquisition. Accounts receivables and amounts due from related parties are classified as loans and receivables and are initially measured at fair value. Subsequent measurements are recorded at amortized cost using the effective interest method. Long term investments for which the Company has no significant influence over investees are classified as available-for-sale securities and recorded at fair value. Fair value is determined by reference to quoted market prices at the balance sheet dates. Unrealized gains and losses on available-for-sale investments are recognized in other comprehensive income until investments are disposed of or when an other-than-temporary decline in value occurs. Realized gains or losses, including unrealized gains and losses previously recorded in other comprehensive income, on the available-for-sale securities are recognized in other income. Investment transactions are recognized on the transaction date with transaction costs included in the underlying balance. Accounts payable and accrued liabilities, deposits received from customers, dividends payable, amounts due to related parties and notes payable are classified as other financial liabilities. They are initially measured at their fair value and subsequently measured at amortized cost using the effective interest rate method. The amortized premium or discount is charged to the statements of operations. It is impractical to determine the fair value of the amounts due from and due to related parties with sufficient reliability due to the nature of the financial instruments, the absence of secondary markets and the significant cost of obtaining outside appraisals. (iv) Inventories Inventories include metals contained in concentrates, direct smelting ores, stockpile ores and operating materials and supplies. The classification of metals inventory is determined by the stage at which the ore is in the production process. Inventories of ore are sampled for metal content and are valued based on the lower of actual production costs incurred or estimated net realizable value based upon the period ending prices of contained metal. Mined material that does not contain a minimum quantity of metal to cover estimated processing expense to recover the contained metal is not classified as inventory and is assigned no value. Page 3 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) Material and supplies are valued at the lower of cost, determined on a weighted average cost basis, and net realizable value. Direct smelting ores and stockpiled ores are valued at the lower of mining cost and net realizable value. Mining cost includes the cost of raw material, mining contractor cost, direct labour costs, and applicable production overheads, based on normal operating capacity. Concentrate inventories are valued at the lower of cost and net realizable value. The cost of concentrate inventories includes the mining cost for stockpiled ores milled, freight charges to ship stockpile ores to mill sites from mine sites, and milling cost. Milling cost includes cost of materials and supplies, direct labour costs, and applicable production overheads cost, based on normal operation capacity. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. (v) Property, plant and equipment Property, plant and equipment are recorded at cost. Depreciation is computed using the straight-line method at the following rates, calculated to amortize the cost of the assets less their residual values over their estimated useful lives. Building Office equipment and furniture Land use right Leasehold improvement Machinery and equipment Motor vehicle 5% 20% 2% 20% 10% - 20% 20% (vi) Mineral rights and properties Acquisition costs, direct exploration and development expenditures, including costs incurred during production to increase future output by providing access to additional sources of mineral resource, are capitalized where these costs relate to specific properties for which resources exist, and it is expected that the expenditure can be recovered by future exploitation or sale. Upon commencement of commercial production, mineral properties and capitalized expenditures are amortized over the mine's estimated life using the units of production method calculated on the basis of measured and indicated resources. The Company reviews the carrying value of each property that is in the exploration and/or development stage by reference to the project economics including the timing of the exploration and/or development work, the work programs and the exploration results experienced by the Company and others. The review of the carrying value of each producing property will be made by reference to the estimated future operating results and net cash flows. The carrying amount will be written off if the Company decides to abandon the property. Page 4 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) (vii) Impairment of long-lived assets Management of the Company regularly reviews the carrying value of each long-lived asset. Where information is available and conditions suggest impairment, estimated future net cash flows are calculated using estimated future prices, resources, selling prices for mineral ores and concentrates, and operating, capital and reclamation costs on an undiscounted basis. Reductions in the carrying value of long-lived assets would be recorded to the extent the carrying value of the related assets exceeds their fair value, determined using discounted future cash flows. The impairment amount would correspond to the excess of the carrying value over the fair value. Management’s estimates of fair value are based on internal estimates of discounted future cash flows and the estimate of salvage value. (viii) Asset retirement obligations Asset retirement obligations ("ARO") represent the estimated discounted net present value of statutory, contractual or other legal obligations relating to site reclamation and restoration costs that the Company will incur on the retirement of assets and abandonment of mine and exploration sites. ARO are added to the carrying value of mineral rights and properties as such expenditures are incurred and amortized against income over the useful life of the related asset. ARO are determined in compliance with recognized standards for site closure and mine reclamation established by governmental regulation. Over the life of the asset, imputed interest on the ARO liability is charged to operations as accretion of asset retirement obligations on the consolidated statements of operations using the discount rate used to establish the ARO. The offset of accretion expense is added to the balance of the ARO balance. Where information becomes available that indicates a recorded ARO is not sufficient to meet, or exceeds, anticipated obligations, the obligation is adjusted accordingly and added to, or deducted from, the ARO. (ix) Revenue recognition Revenue is recognized in the accounts when the significant risks and rewards of ownership have passed. This is when persuasive evidence of an arrangement exists, upon delivery when title and risk of ownership of metals or metals bearing concentrate passes to the buyer, when amount can be reasonably determined and when collection is reasonably assured. The passing of title to the customer is based on the terms of the sales contract. (x) Stock-based compensation The Company accounts for stock options using the fair value method. Under this method, compensation expense for stock options granted to employees, officers, and directors is measured at fair value at the date of the grant using the Black-Scholes valuation model Page 5 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) and is expensed in the consolidated statements of operations over the vesting period of the options granted. The fair value of stock options granted to consultants is measured at the performance commitment date or the date that the service is delivered using the Black- Scholes valuation method. Forfeitures are accounted for as they occur. Upon the exercise of the stock option, consideration received and the related amount transferred from contributed surplus are recorded as share capital. (xi) Income taxes The Company uses the liability method of accounting for income taxes. Future income taxes are recognized for the future income tax consequences attributable to differences between the carrying values of assets and liabilities and their respective income tax bases on the balance sheet date. Future income tax assets and liabilities are measured using substantively enacted income tax rates expected to apply in the years in which temporary differences are expected to be recovered or settled. The effect on future tax assets and liabilities of a change in substantively enacted rates is included in operations. A future income tax asset is recorded when the probability of the realization is more likely than not. The Company records a valuation allowance against a portion of those future income tax assets that management believes will, more likely than not, fail to be realized. (xii) Non-controlling interests Non-controlling interests exist in the less than wholly-owned subsidiaries of the Company and represent the outside interest’s share of the carrying values of the subsidiaries. When the subsidiary company issues its own shares to outside interests, a dilution gain or loss arises as a result of the difference between the Company’s share of the proceeds and the carrying value of the underlying equity. (xiii) Earnings (loss) per share Basic earnings (loss) per share is computed by dividing net income or loss by the weighted average number of outstanding common shares for the year. The diluted earnings (loss) per share calculation are based on the weighted average number of common shares outstanding during the period, plus the effects of dilutive common share equivalents. This method requires that the dilutive effect of outstanding options and warrants issued should be calculated using the treasury stock method. This method assumes that all common share equivalents have been exercised at the beginning of the period (or at the time of issuance, if later), and that the funds obtained thereby were used to purchase common shares of the Company at the average trading price of common shares during the period, but only if dilutive. Page 6 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) (xiv) Investments in entities subject to significant influence Investments in which the Company has a significant influence are accounted for by the equity method, whereby the Company records its proportionate share of the investee’s income or loss. At each balance sheet date, the Company assess for any impairment in investment that is considered to be other than temporary, and records such impairment in the consolidated statements of operations for the year. (xv) Comparative figures Certain comparative figures have been reclassified to conform with the presentation adopted for the current year. (c) Adoption of New Accounting Standards On April 1, 2008, the Company adopted the recommendations included in the following Sections of the Canadian Institute of Chartered Accountants Handbook: Section 1400 (amended), “General Standards of Financial Statement Presentation”, Section 3862, Financial Instruments - Disclosure”, Section 3863, “Financial Instruments - Presentation”, Section 3031, “Inventories”, and Section 1535, “Capital Disclosures”. These new standards have no material impact on the classification and measurement in the Company’s consolidated financial statements. (i) General standards of financial statement presentation The Company has adopted amendments to CICA Handbook Section 1400, “General Standards of Financial Statement Presentation”, which was amended to include requirements to assess and disclose an entity’s ability to continue as a going concern. The adoption of this standard has no impact on the consolidated financial statements. (ii) Financial instrument standards Section 3862, “Financial Instruments - Disclosure” and Section 3863 “Financial Instruments - Presentation”, replace Section 3861 “Financial Instruments - Disclosure and Presentation”. Section 3862 Financial Instruments - Disclosure contains the required disclosures related to the significance of the financial instruments on the Company’s financial position and performance and the nature and extent of risks arising from financial instruments to which the Company is exposed and how the Company manages those risks. Section 3863 Financial Instruments - Presentation, describes the standards for presentation of financial instruments and non-financial derivatives and carries forward the presentation requirements of Section 3861 Financial Instruments - Disclosure and Presentation. Additional disclosure has been provided in Note 18 to the consolidated financial statements. Page 7 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) (iii) Inventories Section 3031, “Inventories”, replaces the existing inventories standard. The new standard requires inventory to be valued on a first-in, first-out or weighted average basis, which is consistent with the Company’s current treatment. The adoption of this standard does not have a material impact on the Company’s consolidated Financial Statements. (iv) Capital disclosures Section 1535, “Capital Disclosures”, establishes standards for disclosing information about an entity’s capital and how it is managed. These standards require a company to disclose their objectives, policies, and processes for managing capital along with summary quantitative data about what it manages as capital. In addition, disclosures are to include whether companies have complied with externally imposed capital requirements and when a company has not complied with capital requirements, the consequences of such non-compliance. Additional disclosures have been provided in Note 16 to the Company’s consolidated financial statements. (v) Credit risk and the fair value of financial assets and financial liabilities On January 20, 2009, the Emerging Issues Committee of the CICA issued EIC-173, “Credit Risk and Fair Value of Financial Assets and Financial Liabilities”, which establishes that an entity’s own credit risk and the credit risk of the counterparty should be taken into account in determining the fair value of financial assets and financial liabilities, including derivative instruments. EIC-173 should be applied retrospectively without restatement of prior years to all financial assets and liabilities measured at fair value in interim and annual financial statements for periods ending on or after January 20, 2009. The Company has applied this new abstract for the year ended March 31, 2009. There was no impact on the consolidated financial statements as a result of applying this abstract. (vi) Mining exploration costs On March 27, 2009, the Emerging Issues Committee of the CICA issued EIC-174, “Mining Exploration Costs", which provides guidance on capitalization of exploration costs related to mining properties in particular, and on impairment of long-lived assets in general. The Company has applied this new abstract for the year ended March 31, 2009. There was no impact on the consolidated financial statements as a result of applying this abstract. Page 8 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) (d) New Canadian Accounting Pronouncements (i) Convergence with IFRS In February 2008, the Canadian Accounting Standards Board confirmed that publicly accountable enterprises will be required to adopt International Financial Reporting Standards (“IFRS”) for fiscal years beginning on or after January 1, 2011, with earlier adoption permitted. Accordingly, the conversion to IFRS will be applicable to the Company’s reporting no later than in the first quarter ending June 30, 2011, with restatement of comparative information presented. The conversion to IFRS will impact the Company’s accounting policies, information technology and data systems, internal control over financial reporting, and disclosure controls and procedures. A diagnostic assessment of the Company’s current accounting policies, systems and processes to identify the differences between current Canadian GAAP and IFRS has been completed but the impact on our consolidated financial position and results of operations has not yet been determined. The Company intends to update the critical accounting policies and procedures to incorporate the changes required by converting to IFRS and the impact of these changes on its financial disclosures. (ii) Goodwill and Intangible Assets In February 2008, the CICA issued Section 3064, “Goodwill and Intangible Assets”, which replaces Section 3062, “Goodwill and Other Intangible Assets” and Section 3450, “Research and Development Costs”. Section 3064 clarifies that costs can be deferred only when they relate to an item that meets the definition of an asset. This new Section, which is applicable to the Company’s consolidated financial statements for its fiscal year beginning April 1, 2009, is not expected to materially impact our consolidated financial position or results of operations. (iii) Business Combinations and Related Sections In January 2009, the CICA issued Section 1582 “Business Combinations” to replace Section 1581. Prospective application of the standard is effective April 1, 2011, with early adoption permitted. This new standard effectively harmonizes the business combinations standard under Canadian GAAP with IFRS. The new standard revises guidance on the determination of the carrying amount of the assets acquired and liabilities assumed, goodwill and accounting for non-controlling interests at the time of a business combination. The CICA concurrently issued Section 1601 “Consolidated Financial Statements” and Section 1602 “Non-controlling Interests”, which replace Section 1600 “Consolidated Financial Statements”. Section 1601 provides revised guidance on the preparation of consolidated financial statements and Section 1602 addresses accounting for non- controlling interests in consolidated financial statements subsequent to a business combination. These standards are effective April 1, 2011, unless they are early adopted at the same time as Section 1582 “Business Combinations”. Page 9 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) The Company is currently assessing the impacts to its consolidated financial statements upon adoption of this new accounting guidance. 3. INVENTORIES Inventories consist of the following: Direct smelting ore and stockpile ore Concentrate inventory Total stockpile Material and supplies March 31, 2009 $ 396 154 550 979 $ 1,529 March 31, 2008 $ 952 468 1,420 969 $ 2,389 For the year ended March 31, 2009, a total of $493 (year ended March 31, 2008 - $nil) was charged to consolidated statements of operations and included in the impairment charges for inventory write-down relating to zinc concentrates. 4. RESTRICTED CASH As at March 31, 2009, a restricted cash of $732 (RMB¥5.0 million) (2008 - $nil) was pledged as a collateral for a bankers acceptance issued by the Company to a mining contractor. The bankers acceptance is non interest bearing, with face value of $658 (RMB¥4.5 million) (2008 - $nil) and maturing on June 4, 2009. The fair value of this bankers acceptance approximates their respective face value due to its short term nature. As at March 31, 2009, $293 (RMB¥2.0 million) term deposits are restricted for future utility charges. 5. SHORT TERM INVESTMENTS Short term investments consisted of bank notes, guaranteed investment certificates (“GIC”) and term deposits with maturity dates, from the date of acquisition, beyond three months, but less than one year. Page 10 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) As at March 31, 2009, short term investments consisted of the following: GIC Carrying value $ 23,962 Rate Maturity 1.80%-3.12% June 3, 2009- March 26, 2010 As at March 31, 2008, short term investments consisted of the following: Bank note GIC Term deposits Carrying value $ 3,288 2,444 31,414 $ 37,146 Rates 3.57% 4.10% 3.33% - 3.78% Maturity April 8, 2008 March 4, 2009 September 18, 2008 The fair value approximates their respective carrying value due to their short term nature. 6. ACCOUNTS RECEIVABLE, PREPAIDS AND DEPOSITS Accounts receivable, prepaids and deposits consisted of the following: Accounts receivable Interest receivable Deposits to contractors Prepaid expenses and deposits 7. LONG TERM PREPAIDS March 31, 2009 800 145 1,268 720 2,933 $ $ March 31, 2008 3,143 251 335 1,531 5,260 $ $ As of March 31, 2009, long term prepaids of $1,058 represented the prepayments for equipment. As of March 31, 2008, long term prepaid balance of $5,204 consisted of: (a) $1,973 prepayment for equipment; (b) $1,637 advanced to third parties to assist the Company in searching for potential mineral properties in China. This amount was written off and recorded as impairment charges on the consolidated statements of operations for the year ended march 31, 2009, and; (c) $1,594 of prepayment for acquiring an office apartment in Beijing, China. The apartment has been acquired and its cost was included in property, plant and equipment in the consolidated balance sheet as at March 31, 2009. Page 11 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) 8. LONG TERM INVESTMENTS Investments in companies subject to significant influence (a)(i) New Pacific Metals Inc. (a)(ii) Luoyang Yongning Smelting Co. Ltd. $ 5,285 $ 11,252 6,418 6,877 March 31, 2009 March 31, 2008 Investments “available for sale” Dajin Resources Corp. (b) 204 24 $ 12,186 $ 17,874 (a) Investment in companies subject to significant influence (i) New Pacific Metals Inc. (“NUX”) In 2004, the Company entered into a letter agreement with New Pacific Metals Corp. (“NUX”), a related party by way of a common director, whereby NUX had the option to acquire the Company’s previously wholly owned subsidiary SKN Nickel & Platinum Ltd. (“SNP”), by meeting SNP’s registered capital commitment of $2.5 million to a joint venture, funding an exploration project in the joint venture and issuance to the Company of 6.5 million common shares, which were subject to a three year escrow period with a portion of shares released quarterly. During the fiscal year 2007, NUX exercised its option to acquire 100% interest in SNP by fully contributing $2.5 million to SNP’s joint venture, fulfilling required funding to the exploration project and the issuance of the 6.5 million shares to the Company. During the fiscal year 2008, all of the 6,500,000 (March 31, 2007 - 4,087,501) NUX’s common shares were released to the Company from escrow. In March 2007, the Company participated in NUX’s private placement and subscribed for a total of 900,000 units at CAD$2.50 per unit. Each unit was comprised of one common share and one-half of one share purchase warrant. Each whole warrant entitles the Company to acquire an additional common share at CAD$3.00. On March 15, 2009, these warrants expired unexercised. As at March 31, 2009, the Company owned 7,400,000 common shares (March 31, 2008 - 7,400,000 common shares) of NUX, representing an ownership interest of 23.4% (March 31, 2008 - 23.4%). A $2,707 impairment charge was taken to write down the investment to the quoted market price of NUX’s common shares as the decline of value was considered as other than temporary decline. Page 12 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) The following is the summary of the investment in NUX and its market value: Balance, March 31, 2006 Shares released from escrow Private placement Equity in loss of investee company Foreign translation impact Balance, March 31, 2007 Shares released from escrow Equity in loss of investee company Foreign translation impact Balance, March 31, 2008 Equity in loss of investee company Impairment charge Foreign translation impact Balance, March 31, 2009 Number of shares 1,670,835 2,416,666 900,000 4,987,501 2,412,499 7,400,000 7,400,000 Amount $ 733 3,824 1,952 (222) (7) 6,280 4,388 (250) 834 11,252 (1,455) (2,707) (1,805) $ 5,285 Value of NUX’s common shares per quoted market price $ 2,462 3,824 1,952 14,925 4,388 14,758 $ 5,285 (ii) Luoyang Yongning Smelting Co. Ltd. (“Yongning”) Henan Found entered into an agreement in April 2007, subsequently amended in September, 2007, with two 3rd party partners, to custom built a 150,000 tonne per year lead-silver-gold smelter in Luoning County, Luoyang City, Henan Province, China. During fiscal year 2008, Yongning was incorporated, with a registered capital requirement of $21.4 million (RMB¥150 million) for this project. Henan Found earned its 30% equity interest in Yongning through contributing $6.6 million (RMB¥45 million). During the fiscal year 2009, the controlling shareholders of Yongning proposed to increase the registered capital to $58.6 million (RMB¥400 million) from $21.4 million (RMB¥150 million). Henan Found decided not to further participate in the proportionate capital contribution, except for paying an additional $0.3 million (RMB¥2 million) to Yongning. As at March 31, 2009, a total of $37.6 million (RMB¥257 million) was invested by the joint venture partners, of which $6.9 million (RMB¥47 million) was by Henan Found. The Company’s equity interest in Yonging was thus diluted to 18%. Page 13 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) (b) Available for sale investments March 31, 2009 Unrealized Gain (loss) March 31, 2008 Unrealized gain (loss) Cost basis Decline in market value Foreign exchange Fair value Cost basis Decline in market value Foreign exchange Fair value Dajin Resources Corp. $ 217 (200) 7 $ 24 $ 217 (40) 27 $ 204 9. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of: March 31, 2009 $ $ $ $ $ Accumulated Depreciation, Disposition and Impairment Charges (835) (414) (760) (444) (10) (39) - (2,502) Cost 13,912 1,203 7,804 1,272 822 236 6,325 31,574 Net Book Value 13,077 789 7,044 828 812 197 6,325 29,072 March 31, 2008 Accumulated Depreciation, Disposition and Impairment Charges (264) $ (358) (357) (302) - (29) - (1,310) $ Cost 8,237 1,738 3,132 1,269 496 114 673 15,659 Net Book Value 7,973 1,380 2,775 967 496 85 673 14,349 $ $ $ $ $ Building Office equipment and furniture Machinery Motor vehicle Land use right Leasehold improvement Construction in process Construction in process balance mainly represented capital expenditures in building a new mill at Henan Found. Page 14 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) 10. MINERAL RIGHTS AND PROPERTIES Mineral rights and properties are comprised of the following: Balance, March 31, 2006 Acquisition Capitalized expenditures Amortization Translation impact Balance, March 31, 2007 Acquisition Capitalized expenditures Amortization Translation impact Balance, March 31, 2008 Acquisition Capitalized expenditures Disposal Amortization Impairment charges Translation impact Ying $ 3,189 2,497 4,567 (1,128) 39 9,164 - 9,664 (1,527) 1,002 18,303 - 6,914 - (2,336) - 576 HPG $ - 5,633 - - - 5,633 1,603 3,356 (1,515) 656 9,733 - 1,835 - (1,352) (10,337) 121 NZ $ - 1,529 - - - 1,529 - 353 - 165 2,047 - - (1,819) - - (228) Nabao $ - - - - - - - 1058 - - 1,058 - 1,141 - - (2,005) (194) TLP $ - - - - - - 19,109 906 - - 20,015 - 2,533 - (311) (22,796) 559 GC &SMT LM $ - $ - - - - - - - - - - 7,176 2,573 - - 9,749 - 1,808 - (1,247) (10,556) 246 - - - - - - 80,044 1,251 - - - (15,339) Total $ 3,189 9,659 4,567 (1,128) $39 16,326 27,888 17,910 (3,042) 1,823 60,905 80,044 15,482 (1,819) (5,246) (45,694) (14,259) Balance, March 31, 2009 $23,457 $ - $ - $ - $ - $ - $ 65,956 $ 89,413 Although the Company has taken steps to verify title to the mineral properties in which it, through its subsidiaries, has an interest, in accordance with industry standards for the stage of exploration of such properties, those procedures do not guarantee the Company’s title. Property title may be subject to unregistered prior agreements and non-compliance with regulatory requirements. (a) Ying Property Ying property is held through its 77.5% interest subsidiary, Henan Found. Production of ore from Ying commenced on April 1, 2006. The land use right for Henan Found’s mine and mill has been purchased from the local owners, rezoning of these lands from agricultural to industrial use has been approved by Henan Provincial government. The application for transferring of the land title is currently in process. (b) HPG Property The Company, through its indirectly wholly owned subsidiary, Victor Resources Ltd., entered into an agreement to acquire a 60% interest of the HPG silver-gold-lead operating mine and property within the Ying Silver-Lead-Zinc Project, Henan Province, China for total consideration of approximately $5.7 million (RMB¥43.2 million). Henan Huawei Page 15 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) was established in January 2007 to hold the HPG gold-silver-lead property which consists of two adjacent mining licenses surrounded by one exploration permit within the Ying Silver-Lead-Zinc Project area in Henan, and a flotation mill and associated facilities. The Company was required to pay a total of $3.9 million (RMB¥30 million) to the joint venture partner directly while the remaining of $1.7 million (RMB¥13.2 million) was paid to Henan Huawei as its registered capital. During the year ended March 31, 2007, the Company fulfilled its obligation to earn a 60% interest in HPG and a total of $5,633 was capitalized as the acquisition cost of mineral rights and properties. On May 11, 2007, Victor Resources Ltd., signed an agreement to acquire a further 20% interest in Henan Huawei from its joint venture partner, in which 10% interest will be held in trust for a shareholder of the joint venture partner. Total consideration for the 20% interest is approximately $1.9 million (RMB¥13.3 million) with the Company’s share of approximately $950 (RMB¥6.65 million) paid in full. A total of $723 was capitalized as the acquisition cost of mineral rights and properties after offsetting against the non- controlling interest. As a result of a review of all mining and exploration assets in light of the global economic downturn and the associated declines in the outlook for metal prices, a total of $10,337 impairment charges were recorded during the year ended March 31, 2009. In March 2009, in response to the improving commodity price, the HPG mine operation was partially resumed. (c) NZ Property During the fiscal year 2007, the Company, through its 77.5% owned subsidiary, Henan Found, acquired NZ Gold-Silver property (the “NZ project”), for cash consideration of $1,099 (RMB¥8.5 million). The payment was capitalized as the acquisition of mineral rights and properties. In March 2009, the Company disposed of the NZ project to a third party for a total consideration of $1.0 million and a loss of $0.8 million (March 31, 2008 - $nil) was recorded. The disposition was conducted through selling the equity interest of an 100% owned subsidiary of Henan Found, in which there had been no significant activity other than holding NZ project. (d) Nabao Project In June 2007, the Company, through its wholly owned subsidiary, Fortress Mining Inc., entered into a collaborative development agreement with a Chinese party to form Qinghai Found Mining Company Ltd. ("Qinghai Found"), a joint venture, to explore and develop the Nabao silver-polymetallic Project (“Nabao Project”) in Qinghai Province, China. Under the development agreement, the Company has an 82% interest in Qinghai Found by investing approximately $4.0 million to fund exploration and development. The Page 16 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) Chinese party retains an 18% interest in Qinghai Found in exchange for transferring the three Nabao permits to Qinghai Found. During the year ended March 31, 2009, as a result of the unfavorable exploration results, and diminishing prospective of the property due to high elevation and decline metal price, the Company wrote off the Nabao Project with total of $2,005 impairment charge being recorded in the consolidate statements of operations. In May 2009, the Nabao Project was put into care and maintenance. (e) LM Mine In October 2007, the Company’s 70% owned subsidiary, Henan Huawei, entered into agreements to acquire 100% interest in the LM Silver-Lead Mine (“LM Mine”), which has a mining permit located just southeast of the Ying silver project, through the acquisition of 100% interest of a private Chinese company, Xinda Mineral Products Co. Ltd.(‘Xinda”), for approximately $3.6 million. The Company also agreed to compensate another $3.6 million (RMB¥25 million) to the original shareholders of Xinda for their previous work done on the LM Mine. $7.2 million was capitalized as the acquisition cost of mineral rights and properties. During the fiscal year 2009, a total of $10,556 impairment charges were made to LM Mine as a result of a review of its mining and exploration results in light of the economic events and the associated declines in the outlook for metal prices. In May 2009, in response to the improving commodity price, the LM mine operation was partially resumed. (f) TLP Mine In December 2007, the Company’s 77.5% owned subsidiary, Henan Found, successfully concluded contracts to acquire 100% interest of the TLP Silver-Lead Mine (“TLP Mine”) by paying approximately $11.4 million (RMB¥80 million) plus assuming debts, obligations and winding down of certain leasing agreements. The total acquisition cost of TLP Mine was at $19 million. During the fiscal year 2009, a total of $22,796 impairment charges were made to TLP Mine as a result of a review of its mining and exploration results in light of the economic events and the associated declines in the outlook for metal prices. In May 2009, in response to the improving commodity price, the TLP mine operation was partially resumed. Page 17 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) (g) GC & SMT Projects Pursuant to a share purchase agreement dated April 24, 2008, on June 6, 2008, the Company acquired a 95% interest in the Gaocheng and Shimentou silver, lead and zinc exploration permits (the “GC & SMT projects”) as well as certain assets associated with these two projects, for $60.8 million (CAD$61.95 million) through the acquisition of an 100% interest of Yangtze Mining Ltd. (“Yangtze Mining”) from Yangtze Gold Ltd. (“Yangtze Gold”). Both Yangtze Mining and Yangtze Gold are private companies and are related parties of the Company through common directorship. The consideration included a cash payments of $24.3 million and issuance of 4,532,543 common shares of the Company at a price of CAD$8.20 per share, which represented 60% of the purchase price, or $36.5 million, as agreed by both parties. Prior to the acquisition, Yangtze Mining held 95% of the equity interest in Anhui Yangtze Mining Co. Ltd. (“Anhui Yangtze”), which owns 100% of the GC & SMT projects located in Guangdong Province, China. Other than the GC & SMT projects and associated assets, certain other net assets (“Remaining Assets”) still remained in Anhui Yangtze, including Tong Shan Pai Copper Mine (“TSP Mine”). An Indemnification Agreement dated June 6, 2008 was executed between the Company and Yangtze Gold to the effect that Yangtze Gold would use its best efforts to transfer the TSP Mine. Also, effective June 6, 2008, Yangtze Gold and Anhui Yangtze entered into a declaration of trust wherein Anhui Yangtze (the “Trustee”) holds in trust all of the Remaining Assets for the benefit of Yangtze Gold. Based on the Indemnification Agreement and the Declaration of Trust, the Company is indemnified against any obligations that would arise subsequent to June 6, 2008, relating to the Remaining Assets. In December 2008, a joint venture, Guangdong Found Mining Co. Ltd. (“Guangdong Found”), designated as the operating company of the GC & SMT projects, was established in Guangdong Province. Guangdong Found owns 100% mineral properties and associated assets for the GC & SMT projects. Total required registered capital of Guangdong Found is $22 million (RMB¥150 million), which will be fully contributed by the Company (RMB¥ 142.5 million) and a third party (RMB¥ 7.5 million) over a two- year period. In the course of the reorganization, the Company is continually owning a 95% equity interest in Guangdong Found, while the third partly obtains 5%. As of March 31, 2009, the Company has fulfilled its first phase registered capital contribution obligation by funding $5.5 million to Guangdong Found. Upon the acquisition of the GC & SMT projects, a total of $19.2 million in future income tax liabilities were recognized and included in mineral rights and properties by applying a 25% tax rate to the excess of book value over tax basis of the mineral interest acquired. Page 18 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) 11. ASSET RETIREMENT OBLIGATIONS The following table presented the reconciliation of the beginning and ending obligations associated with the retirement of the properties: Balance, March 31, 2006 Obligation incurred Obligation discharged Accretion on ARO ARO reclassification Balance, March 31, 2007 Obligation incurred Obligation discharged ARO revision Accretion on ARO ARO reclassification Foreign exchange impact Balance, March 31, 2008 Obligation incurred ARO revision Accretion on ARO Foreign exchange impact Balance, March 31, 2009 Current portion $ - - - - 292 292 253 (516) - 11 (76) 36 - - - - - $ - Long term portion Total $ - $ - 1,127 1,127 (226) (226) 61 61 - (292) 962 670 694 441 (516) - (94) (94) 62 51 - 76 118 82 1,226 1,226 729 729 (139) (139) 123 123 90 90 $ 2,029 $ 2,029 Although the ultimate reclamation costs to be incurred for the existing mines are uncertain, the Company has estimated the undiscounted future values of these costs to be $3.11 million as at March 31, 2009 (March 31, 2008 - $1.74 million ), assuming the cash outflow will be at the end of mine lives, which range from 6 to 10 years. The aggregate accrued obligation as at March 31, 2009, representing the fair value of the future reclamation costs, was $2,029 (March 31, 2008 - $1,226). The fair value was estimated using a credit risk free discount rate of six percent. Page 19 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) 12. NON CONTROLLING INTERESTS The continuity of non controlling interests is summarized as follows: Balance, March 31, 2006 Non-controlling interest shareholder’s contribution Operation sharing for the year Foreign exchange impact Balance, March 31, 2007 Ownership transferred Operation sharing for the year Dividend declared Foreign exchange impact Balance, March 31, 2008 Addition upon acquisition Operation sharing for the year Dividend declared Non-controlling interest shareholder’s contribution Foreign exchange impact Henan Found $ 600 Huawei $ - Guangdong Found $ - Total $ 600 - 6,369 (71) 6898 - 16,810 (15,489) 779 8,998 - 3,975 (7,145) - 1,397 103 (54) 1 50 (186) 2,387 - 16 2,267 - (2,432) - - 165 - - - - - - - - - 172 (12) - 219 6 103 6,315 (70) 6,948 (186) 19,197 (15,489) 795 11,265 172 1,531 (7,145) 219 1,568 Balance, March 31, 2009 $ 7,225 $ - $ 385 $ 7,610 As at March 31, 2008, non-controlling interest in Henan Found, Henan Huawei and Guangdong Found were 22.5%, 30% and 5%, respectively. In June 2007, Henan Found declared dividends of $14,983 (RMB¥111 million) to its shareholders. The Company’s wholly owned subsidiary, Victor Mining Ltd., received its share (77.5%) of dividend payment of $11,612 (RMB¥86 million), and a total of $3,371 (RMB¥25 million) was paid to the non-controlling interests. In February 2008, Henan Found’s Board of Directors declared a dividend of $50,617 (RMB¥400 million) to its shareholders. Dividend payments were made during the year ended March 31, 2008. Victor Mining Ltd. received $38,499 (RMB¥310 million), and amount of $12,118 (RMB¥90 million) was paid to the non-controlling subsidiary shareholder. In February 2009, Henan Found’s Board of Directors declared a dividend of $31,594 (RMB¥218 million) to its shareholders. The distribution date has not been determined yet, and an amount of $7,145 (RMB¥49 million) distributable to the non-controlling subsidiary shareholder was recorded as due to related parties on the balance sheet as of March 31, 2009. The Company has not recorded non-controlling interest in Qinghai Found, as its ownership percentage represents only the profit sharing and working interests and the minority Page 20 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) shareholder is not responsible for any of the associated costs. As at March 31, 2009, Qinghai Found is still in the exploration stage and has not generated any revenue. 13. RESERVES Pursuant to Chinese company law applicable to foreign investment companies, the Company’s Chinese subsidiaries are required to maintain dedicated reserves, which include an Enterprise Reserve Fund and an Enterprise Expansion Fund. The amounts are appropriated at a percentage, at the discretion of the Board of Directors of each Chinese subsidiary, of their respective after tax net income. The dedicated reserves are recorded as a component of shareholders’ equity, and they are not available for distribution to shareholders other than in liquidation. Pursuant to the same Chinese company law, the Company’s Chinese subsidiaries are required to transfer, at the discretion of their Board of Directors, a certain amount of their respective after taxes net income to an Employee Welfare Fund, which shall be utilized for collective employee benefits. The amount was charged against income and the related provision was reflected as accrued liabilities in the consolidated balance sheets. Up to March 31, 2009, only Henan Found has appropriated the dedicated reserves and Employee Welfare Fund. The dedicated reserves and Employee Welfare Fund appropriated by Henan Found for the years ended March 31, 2009, 2008 and 2007, respectively, are as follows: Enterprise Reserve - 415 415 1,796 2,211 Enterprise Expansion - 1,663 1,663 28,019 29,682 Total dedicated reserves - 2,078 2,078 29,815 31,893 Employee Welfare Fund - 17 17 100 117 March 31, 2007 Addition March 31, 2008 Addition March 31, 2009 14. SHARE CAPITAL (a) Authorized Unlimited number of common shares without par value. (b) Normal Course Issuer Bid On June 13, 2006, the Board of Directors approved a Normal Course Issuer Bid (“NCIB”) to acquire up to 3,000,000 of its common shares, over a one year period. Purchases were made at the discretion of the Directors at prevailing market prices, through the facilities of the TSX Exchange. As of March 31, 2007, a total of 1,261,500 of its common shares were acquired and cancelled under this NCIB at a cost of $4,890 (CAD$5,499). This NCIB expired on June 12, 2007. Page 21 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) On March 20, 2008, the Company announced another NCIB to acquire up to 2,988,029 of its common shares. On October 20, 2008, the Company increased the maximum number of shares that may be acquired under this NCIB from 2,988,029 to 10,601,212 shares. As of March 31, 2009, a total of 2,366,500 of its common shares were acquired and cancelled under this NCIB at a cost of $9,474(CAD$9,947). This NCIB expired on March 27, 2009. (c) Equity Financing On April 26, 2006, the Company completed a short form prospectus financing which raised net proceeds of $39,471 (CAD$44,484) through the sale of 7,503,750 units at a price of CAD$6.37 per unit. Each unit is comprised of one common share of the Company and one half share purchase warrant. Each whole warrant was exercisable up to October 25, 2007 at a strike price of CAD$8 per common share. As of March 31, 2009, all warrants expired unexercised. On March 11, 2009, the Company completed a short form prospectus financing which raised net proceeds of $22,635 (CAD$29,235) through the sale of 10 million common shares, at a price of CAD$3.10 per share. (d) Stock Options The following is a summary of option transactions: Balance, March 31, 2006 Options granted Option exercised Options forfeited Balance, March 31, 2007 Options granted Option exercised Options forfeited Balance, March 31, 2008 Option granted Option exercised Option expired Option forfeited Balance, March 31, 2009 Number of shares 7,909,875 1,300,500 (2,961,717) (78,750) 6,169,908 1,081,200 (3,448,896) (567,527) 3,234,685 745,000 (4,482) (31,875) (418,625) 3,524,703 $ Weighted average exercise price per share CAD$ 0.36 4.44 0.30 4.35 1.19 7.11 0.73 2.60 3.42 5.46 4.81 0.75 5.31 3.65 $ During the year ended March 31, 2009, a total of 745,000 options were granted to directors, officers, employees, and consultants at exercise prices of CAD$3.05 - $9.05 per share subject to various vesting schedules. Of the 745,000 options granted, 10,000 options were granted to a consultant at an exercise price of CAD$5.99 per share with a life of two years and vesting entirely on January 2, 2010, while the remaining 735,000 options have a life of five years and are subject to a vesting schedule over a three year term with 8.333% options vesting every three months. Page 22 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) The following is the summary of assumptions used to estimate the fair value of each option granted using the Black-Scholes option pricing model. Year ended March 31, Risk free interest rate Expected life of option in years Expected volatility Expected dividend yield 2009 2008 0.95% to 2.95% 2.58% to 4.31% 2 to 5 years 52% to 117% 1% 2 to 5 years 55% to 90% 1% to 3% 2007 4.01% to 4.23% 1 to 3 years 95% to 119% 0% The weighted average grant date fair value of options granted during the year ended March 31, 2009 was CAD$3.05 (year ended March 31, 2008 - CAD$3.53). For the year ended March 31, 2009, a total of $2,103 (year ended March 31, 2008 and 2007 - $2,473 and $1,956, respectively) in stock-based compensation expenses was recorded and included in the general and administrative expenses on the consolidated statements of operations. The following table summarizes information about stock options outstanding at March 31, 2009: Exercise price in CAD$ $ 0.18 0.63 4.32 4.43 6.74 6.95 9.05 7.54 5.99 5.99 3.05 $ 0.18-9.05 Number of options outstanding at March 31, 2009 990,000 450,000 414,999 42,000 735,204 90,000 127,500 50,000 10,000 465,000 150,000 3,524,703 Weighted average remaining contractual life (YRS) 0.57 0.92 2.31 2.41 3.03 3.54 3.80 4.12 1.25 4.25 4.50 2.76 Weighted average exercise price in CAD$ $ 0.18 0.63 4.32 4.43 6.74 6.95 9.05 7.54 5.99 5.99 3.05 3.65 $ Number of options exercisable at March 31, 2009 Weighted average exercisable price in CAD$ 990,000 $ 0.18 0.63 450,000 4.32 345,831 4.43 35,000 6.74 490,134 6.95 44,998 9.05 42,498 7.54 12,500 5.99 – 5.99 77,497 3.05 13,333 2.68 2,501,791 $ Subsequent to March 31, 2009, a total of 1,081,000 options with an exercise price of CAD$2.65 were granted to directors, officers, employees and consultants. (e) Cash Dividends Declared and Distributed During the year ended March 31, 2008, a cash dividend of $6,891 or $0.05 per share (CAD$0.05 per share) (March 31, 2007 - $nil) was declared and distributed to shareholders of the Company. During the year ended March 31, 2009, quarterly cash dividends of CAD$0.02 per share, totaling $8,030 was declared, of which, $5,466 was paid during the year and $2,564 was paid in April 2009. Page 23 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) Subsequent to March 31, 2009, a quarterly cash dividend of CAD$0.02 per share, totaling $2,700 (CAD$3.22 million) was declared and will be paid in July 2009. All dividends declared were eligible dividends for Canadian tax purpose. (f) Stock split On September 28, 2007, shareholders approved a three-for-one stock split for its common shares. The record date for the stock split was set at the close of business on October 31, 2007. All share and per share information included in the consolidated financial statements and accompanying notes are presented on a post-split basis for all periods presented. 15. RELATED PARTY TRANSACTIONS Related party transactions not disclosed elsewhere in the financial statements are as follows: Amount due from related parties New Pacific Metals Corp. (a) Qinghai Non-ferrous Geology Bureau (c) Weigemingda Mining Co. Ltd.(i) Quanfa Exploration Consulting Services Ltd. (d) Amount due to related parties Henan Non-ferrous Geology Bureau (b) Quanfa Exploration Consulting Services Ltd. (d) R. Feng Consulting Ltd. (g ) Transactions with related parties New Pacific Metals Corp. (a) Henan Non-ferrous Geology Bureau (b) Qinghai Non-ferrous Geology Bureau (c) Quanfa Exploration Consulting Services Ltd. (d) Gao Consulting Ltd.(e) McBrighton Consulting Ltd.(f) R. Feng Consulting Ltd. (g) Directors (h) Weigemingda Mining Co. Ltd. (i) $ $ $ $ March 31, 2009 30 - 219 - 249 March 31, 2009 7,187 117 49 7,353 March 31, 2008 18 17 - 12 47 March 31, 2008 12,118 - - 12,118 $ $ $ $ 2009 Year ended March 31, 2007 2008 $ $ $ 2,080 19,263 17 66 114 108 334 99 219 22,300 302 12,118 17 66 202 - 271 94 - 13,070 322 - - 28 126 - 153 36 - 665 Page 24 $ $ $ SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) (a) New Pacific Metals Corp. is a publicly traded company with a director and officer in common with the Company. Further to a services and cost reallocation agreement between the Company and NUX, the Company will recover costs for services rendered to NUX and expenses incurred on behalf of NUX. During the year ended March 31, 2009, the Company recovered $209 (years ended March 31, 2008 and 2007 - $302 and $322, respectively) from NUX for services rendered and expenses incurred on behalf of NUX. The costs recovered from NUX were recorded as a direct reduction of general and administrative expenses on the consolidated statements of operations. On December 8, 2006, NUX entered into a Declaration of Trust Agreement (the “Trust Agreement”) with Yunnan JCJ, a formerly indirectly wholly owned subsidiary of the Company, to hold in trust for NUX, two exploration permits (“Huaiji Project”) located in Guangdong Province, China. Under the Trust Agreement, NUX was to advance cash to Yunnan JCJ to fund the exploration programs at the Huaji Project. During the year ended March 31, 2009, Yunnan JCJ incurred exploration expenditures of $1,841 (year ended March 31, 2008 - $38). On March 20, 2009, the Company entered agreement to dispose 100% shares of Lachlan Gold Ltd., the parent company of Yunnan JCJ, to NUX for $30 and terminated the Trust Agreement. The disposal was completed on March 31, 2009 and no gain or loss was recorded. (b) Henan Non-ferrous Geology Bureau (“Henan Geology Bureau”) is a 22.5% equity interest holder of Henan Found. During the year ended March 31, 2009, Henan Found paid $12.1 million dividend declared in 2008 to Henan Geology Bureau. During the year ended March 31, 2009, Henan Found’s Board of Directors declared a dividend of approximately $31.9 million (RMB¥218 million), of which $7.1 million (RMB¥49 million) was payable to Henan Geology Bureau. (c) Qinghai Non-ferrous Geology Bureau is an 18% equity interest holder of Qinghai Found. During the year ended March 31, 2009, Qinghai Non-ferrous Geology Bureau repaid $17 previously owed to the Company. (d) Quanfa Exploration Consulting Services Ltd. (“Quanfa”) is a private company with majority shareholders and management from the senior management of Henan Found and Henan Huawei. During the year ended March 31, 2009, the Company paid $66 (years ended March 31, 2008 and 2007 - $66 and $28, respectively) to Quanfa for its consulting services provided. During the year ended March 31, 2009, the Company also received mining consulting services for $204 (year ended March 31, 2008 - $nil). (e) During the year ended March 31, 2009, the Company paid $114 (years ended March 31, 2008 and 2007 - $202 and $126, respectively) to Gao Consulting Ltd., a private company controlled by a director of the Company for consulting services. Page 25 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) (f) During year ended March 31, 2009, the Company paid $108 (year ended March 31, 2008 - $nil) to McBrighton Consulting Ltd., a private company controlled by a director of the Company for consulting services. (g) During the year ended March 31, 2009, the Company paid $334 (years ended March 31, 2008 and 2007 - $271 and $153, respectively) to R. Feng Consulting Ltd., a private company controlled by a director of the Company for consulting services. (h) During the year ended March 31, 2009, the Company incurred director fees of $99 (years ended March 31, 2008 and 2007 - $94 and $36, respectively) payable to four independent directors of the Company. (i) During the year ended March 31, 2009, the Company advanced $219 to Weigemingda Mining Co. Ltd., a minority shareholder of Gaungdong Found. The transactions with related parties during the year are measured at the exchange amount, which is the amount of consideration established and agreed by the parties. The balances with related parties are unsecured, non-interest bearing, and due on demand. 16. CAPITAL DISCLOSURES The Company’s objectives of capital management are intended to safeguard the entity’s ability to support the Company’s normal operating requirement on an ongoing basis, continue the development and exploration of its mineral properties, and support any expansionary plans. The capital of the Company consists of the items included in shareholders’ equity. The Board of Directors does not establish a quantitative return on capital criteria for management but promotes year-over-year sustainable earnings growth targets. The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. The Company is not subject to externally imposed capital requirements. 17. INCOME TAXES (a) Income tax expense The Company’s 77.5% owned subsidiary, Henan Found, and 70% owned subsidiary, Henan Huawei, are considered as qualified Foreign Investment Enterprises (a “FIE”) in China and they are entitled to tax incentives of a five-year tax holiday (year one and two are tax exempt with years three to five at a reduced tax rate of 12.5%). Henan Found enjoyed a zero tax rate for the 2006 and 2007 calendar years. Starting from January 1, 2008 to December 31, 2010, a 12.5% income tax rate is applied. Page 26 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) Henan Huawei enjoys a zero income tax rate starting from January 1, 2007 and a 12.5% income tax rate for January 1, 2009 to December 31, 2011. Qinghai Found, Anhui Yangtze, and Guangdong Found are not entitled to any tax holiday under the current Chinese income tax laws. The provision for income taxes differs from the amount computed by applying the cumulative Canadian federal and provincial income tax rates to the loss before income tax provision due to the following: Express in Cdn. $ Income (loss) before non-controlling interest Canadian combined federal and provincial income tax rate Expected income tax recovery (expense) Difference in foreign tax rates Taxes recovery from prior year tax provision Withholding taxes Non-deductible items Non-taxable mineral property option income Change in valuation allowance Impact of tax rate change Impact of foreign exchange translation Others $ $ $ 2009 (15,403) 30.75% 4,737 1,015 - (1,585) (3,159) - (4,481) 3,037 1,339 34 937 2008 79,685 33.47% (26,667) 25,675 1,426 - (1,670) 743 554 (554) - (58) (551) 2007 29,764 34.12% (10,155) 8,855 - - (677) 657 - - - (106) (1,426) $ $ $ Page 27 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) (b) Future income tax The approximate tax effect of each type of temporary difference that gives rise to the Company’s future income tax assets is as follows: Non-capital loss carry forward Capital loss carry forward Excess tax value of assets over book value Share issued costs Asset retirement obligation and others Valuation allowance $ $ 2009 2,841 699 3,664 604 424 8,232 (5,927) 2008 1,287 7 1,132 663 211 3,300 (3,300) $ 2007 1,075 4 931 737 - 2,747 (2,747) $ Future income tax assets - current Future income tax assets - non current Total future income tax assets 143 2,162 2,305 $ - - $ - - - - $ Excess of accounting base over tax base relating mineral rights and properties Future income taxes liabilities 19,678 19,678 $ (6,346) (6,346) $ (1,405) (1,405) $ The Company has Canadian non-capital losses of approximately $7.5 million expiring from 2010 to 2029 if not applied against future Canadian income for Canadian tax purposes, and a Chinese non-capital losses of approximately $3.5 million expiring 2012 to 2013 if not applied against future Chinese income for Chinese tax purposes. The management of the Company believes it is unlikely the benefit of the future income tax assets arising from the non-capital losses in both Canada and China will be realized against future income for tax purposes. As a result, a valuation allowance was recorded against the future tax assets arising from the non- capital losses. 18. FINANCIAL INSTRUMENTS The Company manages its exposure to financial risks, including liquidity risk, foreign exchange rate risk, interest rate risk, and credit risk in accordance with its risk management framework. The Company’s Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework and reviews the Company’s policies on an ongoing basis. Page 28 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) (a) Fair value The fair values of financial instruments at March 31, 2009 and March 31, 2008 are summarized as follows: Financial Assets Held for trading Cash and cash equivalents Short term investments Restricted cash Loans and receivables Accounts receivables Amounts due from related parties Available for sale Long term investments Dajin Resources Corp. Financial Liabilities Other financial liabilities March 31, 2009 March 31, 2008 Carrying amount $ Fair value $ Carrying amount $ Fair value $ 41,470 23,962 293 2,213 249 41,470 23,962 293 2,213 249 47,093 37,146 - 3,393 47 47,093 37,146 - 3,393 47 24 24 204 204 Accounts payable and accrued liabilities Deposits received from customers Dividends payable Amounts due to related parties Notes payable 8,533 1,290 2,564 7,353 658 8,533 1,290 2,564 7,353 658 7,027 2,573 - 12,118 - 7,027 2,573 - 12,118 - The fair value of financial instruments represents the amounts that would have been received from or paid to counterparties to settle these instruments. The carrying amount of all financial instruments classified as current approximates their fair value because of the short maturities and normal trade term of these instruments. The fair value of the long term investment in Dajin Resources Corp. was based on the quoted market prices. (b) Liquidity risk The Company has in place a planning process to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis and its expansion plans. The Company ensures that there are sufficient funds to meet its short- term business requirements, taking into account its anticipated cash flows from operations and its holdings of cash and cash equivalents and short term investments. Page 29 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) In the normal course of business, the Company enters into contracts that give rise to commitments for future minimum payments. The following summarizes the remaining contractual maturities of the Company’s financial liabilities. March 31, 2009 March 31, 2008 Accounts payable and accrued liabilities Deposits received from customers Dividends payable Amount due to related parties Notes payable (c) Exchange risk $ $ $ Within a year 8,533 1,290 2,564 7,353 658 20,398 Total 8,533 1,290 2,564 7,353 658 20,398 7,027 2,573 - 12,118 - 21,718 $ $ $ The Company undertakes transactions in various foreign currencies, and reports its results of its operations in US Dollars while the Canadian dollar is considered its functional currency, and is therefore exposed to foreign exchange risk arising from transactions denominated in a foreign currency and the translation of functional currency to reporting currency. The Company conducts its mining operations in China and thereby the majority of the Company’s assets, liabilities, revenues and expenses are denominated in RMB, which was tied to the US Dollar until July 2005, and is now tied to a basket of currencies of China’s largest trading partners. The RMB is not a freely convertible currency. The Company currently does not engage in foreign currency hedging, and the exposure of the Company’s financial assets and financial liabilities to foreign exchange risk is summarized as follows: The amounts are expressed in US$ equivalents Canadian dollars March 31, 2009 43,111 $ $ March 31, 2008 39,232 United States dollars Chinese renminbi Hong Kong dollars Total financial assets Canadian dollars United States dollars Chinese renminbi Total financial liabilities 9,498 15,600 2 1,019 47,631 1 $ 68,211 $ 87,883 $ 3,092 $ 334 14 17,292 183 21,201 $ 20,398 $ 21,718 As at March 31, 2009, with other variables unchanged, a 1% strengthening (weakening) of the Chinese RMB against the Canadian dollar would have increased (decreased) net loss by approximately $0.2 million and increased (decreased) other comprehensive income (loss) by $0.2 million. Page 30 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) As at March 31, 2009, with other variables unchanged, a 1% strengthening (weakening) of the Canadian dollar against the US dollar would have increased (decreased) other comprehensive loss by $0.4 million. (d) Interest rate risk Interest risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Company’s cash equivalents and short term investments primarily includes highly liquid investments that earn interests at market rates that are fixed to maturity. The Company also holds a portion of cash and cash equivalents in bank accounts that earn variable interest rates. Because of the short- term nature of these financial instruments, fluctuations in market rates do not have significant impact on the fair values of the financial instruments as of March 31, 2009. (e) Credit risk The Company is exposed to credit risk primarily associated to accounts receivable from customers, cash and cash equivalents and short-term investments. The carrying amount of assets included on the balance sheet represents the maximum credit exposure. The Company undertakes credit evaluations on customers as necessary and has monitoring processes intended to mitigate credit risks. The Company has accounts receivables from clients primarily in China engaged in the mining and milling of base and polymetallic metals industry. The historical level of customer defaults is zero and aging of accounts receivable are less than 30 days, and, as a result, the credit risk associated with accounts receivable at March 31, 2009 is considered to be immaterial. 19. SEGMENTED INFORMATION (a) Industry information The Company operates in one reportable operating segment, being the acquisition, exploration, development, and operation of mineral properties. Page 31 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) (b) Geographic information (i) The following is the summary of certain long-term assets of each geographic segment: Balance sheet items: Canada March 31, 2009 China Ying HPG TLP LM GC & SMT Other Total Mineral rights and properties Property, plant and equipment Long term investments - $ 414 5,308 $ 23,457 21,404 6,878 - $ 1,132 - - $ 3,863 - - $ 273 - $ 65,956 320 - - $ 1,666 - $ 89,413 29,072 12,186 Balance sheet items: Canada March 31, 2008 Ying HPG China TLP LM GC & SMT Other Total Mineral rights and properties $ - $ 18,303 $ 9,732 $ 20,015 $ 9,749 $ - $ 3,106 $ 60,905 Property, plant and equipment Long term investments 439 11,456 12,329 6,418 956 - - - - - - - 625 - 14,349 17,874 Page 32 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) (ii) The following is a summary of operations for each geographic segment: Year ended March 31, 2009 Sales Cost of sales Amortization and depletion Gross Profit Canada - $ - - - $ Ying 67,504 (19,891) (3,434) 44,179 $ HPG 7,249 (3,670) (1,601) 1,978 $ China TLP 4,780 (3,303) (977) 500 $ LM GC & SMT - $ - - - 3,990 (2,458) (353) 1,179 Other - $ (78) - (78) BVI - $ - - - $ Total 83,523 (29,322) (6,365) 47,836 Expenses (7,748) (3,692) (912) (481) (976) (4,928) (507) 7,494 (11,750) Interest, option & other income Impairment charges Loss and other expenses Non controlling interest Income tax recovery (expenses) Net income (loss) 516 (2,707) (1,455) - - (11,394) $ 615 - (1,129) 913 (3,823) 37,063 572 (10,544) - 2,432 813 (5,661) $ 107 (23,053) - (4,889) 3,104 (24,712) 2 (10,583) - - 2,428 (7,950) $ $ 14 - - 13 - (4,901) (172) (3,820) (18) - - (4,595) $ 166 - - - (1,585) 6,075 $ 1,820 (50,707) (2,602) (1,531) 937 (15,997) $ $ $ Sales Cost of sales Amortization and depletion Gross Profit Canada - $ - - - $ Ying 96,329 (17,389) (1,703) 77,237 $ HPG 12,034 (2,725) (1,505) 7,804 China TLP - $ - - - LM - $ - - - GC & SMT - $ - - - Other - $ - - - BVI - $ - - - $ Total 108,363 (20,114) (3,208) 85,041 Year ended March 31, 2008 Expenses (10,892) (452) (645) Interest, option & other income Loss and other expenses Non controlling interest Income tax recovery (expenses) Net income (loss) 6,166 - - - (4,726) $ 900 - (16,810) (508) 60,367 $ 11 - (2,387) (43) 4,740 $ $ - - - - - - - - (285) (406) (12,680) - - - - $ - - - - - $ - 534 - - - 249 $ 11 (298) - - (693) $ 7,622 (298) (19,197) (551) 59,937 $ Sales Cost of sales Amortization and depletion Gross Profit Canada - $ - - - $ Ying 39,777 (7,738) (1,190) 30,849 HPG - $ - - - China TLP - $ - - - LM - $ - - - GC & SMT - $ - - - Other - $ - - - BVI - $ - - - $ Total 39,777 (7,738) (1,190) 30,849 Year ended March 31, 2007 Expenses (4,729) (1,359) (133) Interest, option & other income Loss and other expenses Non controlling interest Income tax recovery (expenses) Net income (loss) 5,481 (216) - - 536 $ 139 (30) (6,369) (1,426) 21,804 - - 54 - (79) $ $ $ - - - - - - - - (192) (8) (6,421) - - - - $ - - - - - $ - (18) - - - (210) $ - (20) - - (28) $ 5,602 (266) (6,315) (1,426) 22,023 $ Page 33 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) (c) Sales by metal The sales generated for the years ended March 31, 2009, 2008, and 2007 comprised of: Silver (Ag) Gold (Au) Lead (Pb) Zinc (Zn) Other (d) Major customers Years ended March 31, 2009 2008 2007 $ 42,583 1,154 34,424 5,362 - $ 83,523 $ 44,678 1,190 48,433 14,062 - $ 108,363 $ 17,998 69 14,069 7,636 5 $ 39,777 During the year ended March 31, 2008, there were four (year ended March 31, 2007 - four) major customers which individually accounted for 8% to 32% (year ended March 31, 2007 - 14% to 23%) and collectively, 76% (year ended March 31, 2007 - 72%) of the total sales of the Company. During the year ended March 31, 2009, three major customers accounted for 11% to 50% and collectively 82% of the total sales of the Company. 20. COMMITMENTS Commitments, not disclosed elsewhere in these financial statements, are as follows: The Company entered into two office rental agreements (the “Rental Agreements”), with total rental expense of $981 over the next five years as the follows: for years ending 2010: $188; 2011: $188; 2012: $205; 2013: $233; and 2014: $167. In connection with one of these Rental Agreements, the Company signed a sublease agreement commencing April 15, 2009 and expiring September 29, 2013, with annual rental income of $62. 21. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES These financial statements are prepared in accordance with accounting principles generally accepted in Canada (“Canadian GAAP”) which differ in certain material respects from accounting principles generally accepted in the United States (“US GAAP”). Material differences between Canadian and US GAAP and their effect on the Company’s consolidated financial statements are summarized in the following tables. Page 34 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) Consolidated summarized balance sheet Total assets under Canadian GAAP Mark to market adjustment to short term investment (c) Expense exploration and development expenditures (a) Adjust accumulated depletion of mineral rights and properties (b) Adjust impairment charges (d) Adjust equity investment (c) Adjust future income tax (g) Total assets under US GAAP Total liabilities under Canadian GAAP Adjust future income tax (g) Total liabilities under US GAAP Non-controlling interest under Canadian GAAP Minority interest effect of US GAAP adjustments (h) Minority Interest and Other Comprehensive Income Under US GAAP Shareholders' equity under Canadian GAAP Expense exploration and development expenditures (a) Adjust accumulated depletion of mineral rights and properties (b) Adjust future income tax (g) Increase equity investment loss (c) Adjust impairment charges (d) Adjustment to loss on disposal of mineral rights and properties (e) Adjustment to foreign exchange (f) Mark to market adjustment to short term investment (c) Minority interest effect of US GAAP adjustments (h) Adjustment to Accumulated other comprehensive income (l) Shareholders' equity under US GAAP $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2009 205,202 - (16,874) 2,013 7,035 (123) 1,435 198,688 45,146 (334) 44,812 7,610 (1,912) 5,698 152,446 (17,300) 2,003 1,771 (1,035) 8,233 353 (270) (314) 1,920 371 148,178 2008 190,267 101 (7,824) 1,045 - (852) - 182,737 30,010 (1,081) 28,929 11,265 (1,156) 10,109 148,992 (7,849) 1,039 1,085 (544) - - - (214) 1,162 28 143,699 $ $ Page 35 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) Consolidated summarized statements of operations Net Income (loss) under Canadian GAAP Expense exploration and development expenditures (a) Adjust accumulated depletion of mineral rights and properties (b) Adjust future income tax (g) Increase equity investment loss (c) Adjust impairment charges (d) Adjustment to loss on disposal of mineral rights and properties (e) Adjustment to foreign exchange (f) Mark to market adjustment to short term investment (c) Minority interest effect of US GAAP adjustments (h) Adjustment to stock based compensation (k) Net income (loss) under US GAAP 2009 (15,997) (9,451) 964 686 (491) 8,233 353 (270) (101) 758 (6) (15,322) $ $ 2008 59,937 (7,400) 439 1,108 (513) - - - (404) 1,196 197 2007 22,023 (923) 600 (23) (18) - - - 191 73 59 $ 54,560 $ 21,982 $ $ Basic income per share in accordance with US GAAP Diluted income per share in accordance with US GAAP $ $ (0.10) (0.10) $ 0.37 $ 0.15 $ 0.36 $ 0.15 Consolidated summarized statement of cash flows Operating activities Operating activities under Canadian GAAP Expense exploration and development expenditures (a) Operating activities under US GAAP Investing activities Investing activities under Canadian GAAP Expense exploration and development expenditures (a) Investing activities under US GAAP Financing activities Financing activities under Canadian GAAP Financing activities under US GAAP 2009 2008 2007 $ $ 46,986 (9,451) 37,535 $ $ 79,786 (7,824) 71,962 $ $ 30,052 (455) 29,597 $ $ (36,444) 9,451 (26,993) $ $ (81,753) 7,824 (73,929) $ $ (18,831) 455 (18,376) $ $ (4,838) (4,838) $ $ (9,397) (9,397) $ $ 39,198 39,198 (a) Exploration and development expenditures - in accordance with Canadian GAAP, exploration and development costs and costs of acquiring mineral rights are capitalized during the search for a commercially mineable body of ore. For US GAAP purposes, exploration and development expenditures, including incidental cost recoveries can only be deferred subsequent to the establishment of proven and probable reserves. For US GAAP purposes, the Company has therefore expensed its exploration and development expenditures. (b) Depletion of mineral rights and properties - The impact of the depletion of mineral rights and properties is mainly due to the GAAP differences discussed in adjustment (a) above related to the accounting for mineral rights and properties of. (c) Equity method investments - The equity investments include exploration costs incurred by NUX that have been capitalized during the search for a commercially mineable body of ore and start-up costs incurred by Yongning that have been capitalized during the pre- Page 36 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) operating period. For US GAAP purposes, the Company has therefore expensed the exploration and development expenditures and the start-up costs of its equity investments. Under US GAAP, the Company’s investment in NUX contained a free standing derivative (NUX’s warrants) which is required to be measured at fair value. Consequently, a total of $314, the fair value of the 450,000 NUX warrants to which the Company subscribed during NUX’s private placement in March 2007, was adjusted from the equity method investments to short term investments and a loss of $101 (2008 - a loss of $404 and 2007 - a gain of $191) was recorded as mark to market on the consolidated statements of operations. (d) Impairment charges - The impact on the impairment charges is mainly due to the carrying value differences of each asset immediately before the impairment arising from the GAAP differences discussed in adjustments (a), (b) and (c) above. (e) Loss on disposal of mineral rights and properties - The impact on the loss on disposal of mineral rights and properties is due to the carrying value difference of the NZ project immediately before the disposal arising from the GAAP differences discussed in adjustment (a) above. (f) Foreign exchange - Under Canadian GAAP, when a self-sustaining foreign operation subsidiary pays a dividend to the parent company and there has been a reduction in the net investment, a gain or loss equivalent to a proportionate amount of the exchange gain or loss accumulated in the accumulated other comprehensive income (loss) is recognized in the statements of operations. Under US GAAP, the foreign exchange gain or loss accumulated in the accumulated other comprehensive income is only recognized in income when the foreign subsidiary is sold, or the parent completely or substantially liquidates its investment. (g) Income tax effects - The impact on income tax expense of the GAAP differences discussed in adjustments (a), (b), and (d) above. (h) Minority interest adjustments - The impact on the minority interest expenses and balances of the GAAP differences related to the Company’s 77.5% owned subsidiary of Henan Found, 70% owned subsidiary of Henan Huawei, and 95% interest in the GC & SMT projects. Page 37 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) (i) Share purchase warrants - Under Canadian GAAP, residual approach was adopted to value the share purchase warrants attached to private placements issued. Under US GAAP, the share purchase warrants should be valued at fair value and the value should be recorded as an additional paid in capital under the shareholder equity section. Upon exercise, the value of the warrants exercised would be transferred to share capital from additional paid in capital. There is no impact on the shareholder equity section as a whole but individual accounts under the shareholder equity section are affected. The balances in the shareholders’ equity sections under US GAAP are as follows: Share capital Additional paid in capital Contributed surplus Reserves Accumulated other comprehensive income Retained earnings Total shareholders' equity under US GAAP $ $ 2009 130,490 7,485 3,502 31,893 (9,795) (15,397) 148,178 2008 73,221 7,485 1,453 2,078 14,149 45,313 143,699 $ $ (j) Uncertain tax positions - In June 2006, FASB issued Accounting for Uncertain Tax Positions - an Interpretation of FASB Statement No. 109, FIN 48 which prescribes a recognition and measurement model for uncertain tax positions taken or expected to be taken in the Company’s tax returns. FIN 48 provides guidance on recognition, classification, presentation and disclosure of unrecognized tax benefits. The adoption of this interpretation did not have a material impact on the Company’s Consolidated Financial Statements. The Company has not recorded any tax amounts as a result of this standard in the 2009 fiscal year. (k) Stock based compensation - Stock options are required to be accounted for using the fair value method under both Canadian GAAP and US GAAP. Canadian GAAP allows forfeitures to be estimated in advance or to be accounted for as they occur. The Company accounts for forfeitures as they occur. Under US GAAP, the compensation expense recognized for stock-based compensation awards must reflect an estimate of award forfeitures at the time of grant, which estimate is revised in subsequent periods, if necessary. (l) Accumulated other comprehensive income - The impact on the accumulated other comprehensive income is mainly due to difference discussed in adjustment (f) and the different exchange rates used to convert the adjustments on the consolidated balance sheet and the adjustments on consolidated statements of operations from functional currency to reporting currency using current rate method. Page 38 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) (m) Recently adopted accounting pronouncements Fair value accounting In February 2007, the FASB issued Statement of Financial Accounting Standard ("SFAS") No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115." SFAS No. 159 provides companies with an option to measure, at specified election dates, financial instruments and certain other items at fair value that are not currently measured at fair value. For those items for which the fair value option is elected, unrealized gains and losses will be recognized in earnings for each subsequent reporting period. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. This standard is effective for the Company’s fiscal year beginning April 1, 2008. The adoption of SFAS No. 159 did not have a material impact on the Company’s consolidated financial results. In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands fair value disclosures. This standard is effective for the Company’s fiscal year beginning April 1, 2008. The adoption of this SFAS No. 157 did not have a material impact on the Company’s consolidated financial results. In October 2008, the FASB issued FSP No. FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active”, which clarifies the application of FASB No. 157, “Fair Value Measurements”. FSP No. FAS 157-3 states that determining fair value in an inactive market depends on the facts and circumstances, requires the use of significant judgment and in some cases, observable inputs may require significant adjustments based on unobservable data. Regardless of the valuation technique used, and entity must include appropriate risk adjustments that market participants would make for nonperformance and liquidity risks when determining fair value of an asset in an inactive market. FSP No. FAS 157-3 was effective upon issuance. The Company has incorporated the principles of FSP No. FAS 157-3 in determining the fair value of financial assets. There are three levels of fair value hierarchy under FAS No. 157 that prioritize the inputs to valuation techniques used to measure fair value, with level 1 inputs having the highest priority. The levels and the valuation techniques used to value our financial assets and liabilities are described below: Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2 - Quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liabilities. Page 39 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) Level 3 - Unobservable (supported by little or no market activity). The following table sets forth the Company’s financial assets and liabilities that are measured at fair value on a recurring basis by level within the fair value hierarchy. Those financial assets and liabilities are classified in their entirety based on the level of input that is significant to the fair value measurement. Cash and cash equivalents Short term investments Investment in Dajin Resources Corp. Investment in Yongning Smelting Co. Ltd. Fair value at March 31, 2009 Level 1 41,470 23,962 24 - $65,456 Level 2 - - - 6,877 $6,877 Total Level 3 41,470 - 23,962 - 24 - 6,877 - $ - $72,333 The Company’s cash equivalents and short term investments, which comprised of bank notes, GIC and term deposits, are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. The Company’s long term investment in Dajin Resources Corp. is valued using quoted market prices in active markets and such are classified within Level 1 of the fair value hierarchy. The fair value of the investment is calculated as the quoted market price of the investment equity security multiplied by the quantity of share held by the Company. The Company’s long term investment in Yongning Smelting Co. Ltd. is included in Level 2 of the fair value hierarchy as they are valued using discounted cash flow model. This model require a variety of inputs, including, but not limited to, contractual terms, market prices, yield curves, inflation rates, and credit spreads. These inputs are obtained from or corroborated with the market where possible. The amount of unrealized losses on Available for Sale Securities for the year was included in accumulated other comprehensive income as a result of changes in market values and foreign exchange rates from April 1, 2008. (n) Recent accounting pronouncements SFAS 141R, Business combinations - In December 2007, the FASB issued SFAS No. 141(R), "Business Combination", which replaces SFAS No. 141 prospectively for business combinations consummated in the fiscal year commencing after the effective date of December 15, 2008. Early adoption is not permitted. Under SFAS No 141(R), business acquisitions are accounted for under the “acquisition method”, compared to the “purchase method” mandated by SFAS No. 141. SFAS No. 141(R) also presents revised guidance for recognizing and measuring identifiable assets and goodwill acquired, liabilities assumed, and any non-controlling interest in the acquiree. It also provides disclosure requirements to enable users of the financial statement to evaluate the nature Page 40 SILVERCORP METALS INC. Notes to the Consolidated Financial Statements For years ended March 31, 2009, 2008 and 2007 (Expressed in thousands of US dollars, unless otherwise stated) and financial effects of the business combination. SFAS No. 141(R) is effective for the Company’s fiscal year beginning April 1, 2009 and is to be applied prospectively. SFAS 160, Non-controlling interests - In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements - an amendment of Accounting Research Bulletin No. 51 (“SFAS No.160”). SFAS No. 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the non-controlling interest, changes in a parent’s ownership interest, and the valuation of retained non-controlling equity investments when a subsidiary is deconsolidated. SFAS No. 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. SFAS No. 160 is effective for the Company’s fiscal years beginning April 1, 2009. The Company is currently evaluating the potential impact of adopting this standard on the Company’s consolidated financial statements. SFAS 161, Disclosures about derivative instruments and hedging activities - In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS No. 161”). SFAS No. 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. SAFS No.161 is effective for the Company’s fiscal year beginning April 1, 2009. The Company does not expect the adoption of SFAS No. 161 has any impact on the Company’s consolidated financial statements as the Company currently is not holding any derivative instrument and conducting hedging activities. SFAS 162, the hierarchy of generally accepted accounting principles - In May 2008, the FASB issued SFAS No. 162. The Hierarchy of Generally Accepted Accounting Principles (“SFAS No. 162”). SFAS No. 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles (GAAP) for nongovernmental entities. SFAS No. 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company does not expect the adoption of SFAS No. 162 to have any impact on the Company’s consolidated financial statements. Page 41 

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