EX-99.1 2 exhibit99-1.htm EXHIBIT 99.1 Endeavour Silver Corp.: Exhibit 99.1 - Filed by newsfilecorp.com

 


Condensed Consolidated Interim Financial Statements

Prepared by Management

First Quarter Report
Three Months Ended March 31, 2017 and 2016

 

 

 


ENDEAVOUR SILVER CORP.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION
(unaudited – prepared by management)
(expressed in thousands of US dollars)

          March 31,     December 31,  
    Notes     2017     2016  
ASSETS                  
                   
Current assets                  
   Cash and cash equivalents       $  70,485   $  72,317  
   Investments         102     85  
   Accounts receivable   4     26,633     25,560  
   Inventories   5     12,688     13,431  
   Prepaid expenses         1,774     2,037  
Total current assets         111,682     113,430  
                   
Non-current deposits         659     659  
Deferred income tax asset         1,042     183  
Mineral properties, plant and equipment   7     70,990     66,238  
Total assets       $  184,373   $  180,510  
                   
LIABILITIES AND SHAREHOLDERS' EQUITY                  
                   
Current liabilities                  
   Accounts payable and accrued liabilities       $  20,179   $  18,229  
   Income taxes payable         3,307     4,631  
   Credit facility   8     6,500     9,000  
Total current liabilities         29,986     31,860  
                   
Provision for reclamation and rehabilitation         7,867     7,846  
Deferred income tax liability         6,739     7,545  
Total liabilities         44,592     47,251  
                   
Shareholders' equity                  
Common shares, unlimited shares authorized, no par value, issued
  and outstanding 127,108,264 shares (Dec 31, 2016 - 127,080,264 shares) 		 
Page 4 		   
449,703 		   
449,594 		 
Contributed surplus   Page 4     7,050     6,689  
Accumulated comprehensive income (loss)   Page 4     61     44  
Retained earnings (deficit)         (317,033 )   (323,068 )
Total shareholders' equity         139,781     133,259  
Total liabilities and shareholders' equity       $  184,373   $  180,510  

Subsequent event (Note 9(c))

Commitments and contingencies (Notes 7 and 14)

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

Endeavour Silver Corp. Page - 2 -


ENDEAVOUR SILVER CORP.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited – prepared by management)
(expressed in thousands of US dollars, except for shares and per share amounts)

        Three Months Ended  
        March 31,     March 31,  
    Notes   2017     2016  
                 
Revenue     $  36,441   $  41,541  
                 
Cost of sales:                
         Direct production costs       24,048     29,844  
         Royalties       440     209  
         Share-based compensation   9 (b)   -     56  
         Depreciation and depletion       4,113     5,154  
        28,601     35,263  
                 
Mine operating earnings       7,840     6,278  
                 
Expenses:                
     Exploration   10   3,336     1,199  
     General and administrative   11   1,955     2,028  
        5,291     3,227  
                 
Operating earnings (loss)       2,549     3,051  
                 
Finance costs       236     287  
                 
Other income (expense):                
     Foreign exchange       2,147     514  
     Investment and other       77     (141 )
        2,224     373  
                 
Earnings (loss) before income taxes       4,537     3,137  
                 
Income tax expense (recovery):                
     Current income tax expense       299     1,411  
     Deferred income tax expense (recovery)       (1,797 )   (103 )
        (1,498 )   1,308  
Net earnings (loss) for the period       6,035     1,829  
                 
Other comprehensive income (loss), net of tax:                
     Unrealized gain (loss) on available-for-sale financial assets       17     162  
Total other comprehensive income (loss) for the period       17     162  
                 
Comprehensive income (loss) for the period     $  6,052   $  1,991  
                 
Basic earnings (loss) per share based on net earnings     $  0.05   $  0.02  
Diluted earnings (loss) per share based on net earnings   9 (d) $  0.05   $  0.02  
                 
Basic weighted average number of shares outstanding       127,095,764     104,646,404  
Diluted weighted average number of shares outstanding   9 (d)   128,523,833     105,071,404  

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

Endeavour Silver Corp. Page - 3 -


ENDEAVOUR SILVER CORP.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(unaudited – prepared by management)
(expressed in thousands of U.S. dollars, except share amounts)

                          Accumulated     Retained     T otal  
        Number of     Share     Contributed      Comprehensive      Earnings     Shareholders'  
    Note   shares     Capital     Surplus     Income (Loss)     (Deficit)     Equity  
                                         
Balance at December 31, 2015       102,776,470   $ 368,898   $  9,465   $  (145 ) $  (327,343 ) $  50,875  
                                         
Public equity offerings, net of issuance costs   9 (a)   4,997,806     8,636                       8,636  
Exercise of options   9 (b)   15,500     45     (14 )               31  
Share based compensation   9 (b)(c)               457                 457  
Unrealized gain (loss) on available for sale assets                         431           431  
Realized gain (loss) on available for sale assets                         (269 )         (269 )
Earnings (loss) for the year                               1,829     1,829  
Balance at March 31, 2016       107,789,776     377,579     9,908     17     (325,514 )   61,990  
                                         
Public equity offerings, net of issuance costs   9 (a)   12,465,666     44,322                       44,322  
Exercise of options   9 (b)   3,479,500     15,920     (5,403 )               10,517  
Issued on acquistion of mineral properties, net       3,345,322     11,773                       11,773  
Share based compensation   9 (b)(c)               2,549                 2,549  
Unrealized gain (loss) on available for sale assets                         (511 )         (511 )
Realized gain (loss) on available for sale assets                         538           538  
Expiry and forfeiture of options                   (365 )         365     -  
Earnings (loss) for the year                               2,081     2,081  
Balance at December 31, 2016       127,080,264     449,594     6,689     44     (323,068 )   133,259  
                                         
Exercise of options   9 (b)   28,000     109     (35 )               74  
Share based compensation   9 (b)(c)               396                 396  
Unrealized gain (loss) on available for sale assets                         17           17  
Earnings (loss) for the period                               6,035     6,035  
Balance at March 31, 2017       127,108,264   $ 449,703   $  7,050   $  61   $  (317,033 ) $  139,781  

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

Endeavour Silver Corp. Page - 4 -


ENDEAVOUR SILVER CORP.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(unaudited – prepared by management)
(expressed in thousands of U.S. dollars)

        Three Months Ended  
        March 31,     March 31,  
    Notes   2017     2016  
                 
Operating activities                
Net earnings (loss) for the period     $ 6,035   $  1,829  
Items not affecting cash:                
   Share-based compensation   9 (b)(c)   337     457  
   Depreciation and depletion   7   4,182     5,222  
   Deferred income tax expense (recovery)       (1,665 )   (103 )
   Unrealized foreign exchange loss (gain)       (462 )   (242 )
   Loss on available for sale assets       -     269  
   Finance costs       236     63  
   Write off of exploration property       233     -  
Net changes in non-cash working capital   12   771     (10,324 )
Cash from operating activities       9,667     (2,829 )
                 
Investing activites                
   Property, plant and equipment expenditures   7   (9,368 )   (3,087 )
   Proceeds from disposition of available for sale assets       -     448  
   Redemption of long term deposits       -     133  
Cash used in investing activities       (9,368 )   (2,506 )
                 
Financing activities                
   Repayment of credit facility   8   (2,500 )   (3,000 )
   Repayment of obligation under finance lease       -     (226 )
   Debt issuance costs       -     (304 )
   Interest paid   8   (167 )   (174 )
   Public equity offerings   9 (a)   -     9,098  
   Exercise of options   9 (b)   74     31  
   Share issuance costs       -     (278 )
Cash used in financing activites       (2,593 )   5,147  
                 
Effect of exchange rate change on cash and cash equivalents       462     160  
                 
Increase (decrease) in cash and cash equivalents       (2,294 )   (188 )
Cash and cash equivalents, beginning of period       72,317     20,413  
Cash and cash equivalents, end of period     $  70,485   $  20,385  
                 
Supplemental cash flow information   12            

The accompanying notes are an integral part of these consolidated financial statements.

Endeavour Silver Corp. Page - 5 -


ENDEAVOUR SILVER CORP.
Notes to the Condensed Consolidated Interim Financial Statements
Three months ended March 31, 2017 and 2016
(unaudited – prepared by management)
(expressed in thousands of US dollars, unless otherwise stated)

1.

CORPORATE INFORMATION

     

Endeavour Silver Corp. (the “Company” or “Endeavour Silver”) is a corporation governed by the Business Corporations Act (British Columbia). The Company is engaged in silver mining in Mexico and related activities including acquisition, exploration, development, extraction, processing, refining and reclamation. The Company is also engaged in exploration activities in Chile. The address of the registered office is #301 – 700 West Pender Street, Vancouver, B.C., V6C 1G8.

     
2.

BASIS OF PRESENTATION

     

These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting and do not include all of the information required for full annual financial statements.

     

The Board of Directors approved the consolidated financial statements for issue on May 2, 2017.

     

The preparation of consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expense. Actual results may differ from these estimates.

     

These consolidated financial statements are presented in the Company’s functional currency of US dollars and include the accounts of the Company and its wholly owned subsidiaries: Endeavour Management Corp., Endeavour Zilver SARL, Endeavour Gold Corporation S.A. de C.V., EDR Silver de Mexico S.A. de C.V. SOFOM ENR (Formerly Endeavour Capital S. A. de C.V.), Minera Santa Cruz Y Garibaldi S.A de C.V., Metalurgica Guanaceví S.A. de C.V., Minera Plata Adelante S.A. de C.V., Refinadora Plata Guanaceví S.A. de C. V., Minas Bolañitos S. A. de C.V., Guanaceví Mining Services S.A. de C.V., Recursos Humanos Guanaceví S.A. de C.V., Recursos Villalpando S.A. de C.V., Servicios Administrativos Varal S.A. deC. V., Minera Plata Carina SPA, MXRT Holding Ltd., Compania Minera del Cubo S.A. de C.V., Minas Lupycal S.A. de C.V., Metales Interamericanos S.A. de C.V., Oro Silver Resources Ltd. and Minera Oro Silver de Mexico S.A. de C.V. All intercompany transactions and balances have been eliminated upon consolidation of these subsidiaries.

     
3.

SIGNIFICANT ACCOUNTING POLICIES

     

The accounting policies applied in these condensed consolidated interim financial statements are the same as those applied in the Company’s annual audited consolidated financial statements as at and for the year ended December 31, 2016.

     

In preparing these condensed consolidated interim financial statements, the significant judgments made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the annual consolidated financial statements as at and for the year ended December 31, 2016 and accordingly, should be read in conjunction with the Company’s annual consolidated financial statements for the year ended December 1, 2016.

     

(a) Accounting standards adopted during the year

Amendments to IAS 7, Statement of Cash Flows (“IAS 7”)

On January 7, 2016, the IASB issued amendments to IAS 7. The amendments apply prospectively for annual periods beginning on or after January 1, 2017 with early adoption permitted. The amendments require disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flow and non-cash changes. The Company adopted these amendments in its financial statements for the annual period beginning on January 1, 2017 with no material impact on the financial statements.

     

Amendments to IAS 12, Income Taxes (“IAS 12”)

On January 19, 2016, the IASB issued amendments to IAS 12. The amendments apply retrospectively for annual periods beginning on or after January 1, 2017 with early adoption permitted. The amendments clarify that the existence of a deductible temporary difference depends solely on a comparison of the carrying amount of an asset and its tax basis at the end of the reporting period, and is not affected by possible future changes in the carrying amount or expected manner of recovery of the asset. The amendments also clarify the methodology to determine future income tax profits used for assessing the utilization of deductible temporary differences. The Company adopted these amendments in its financial statements for the annual period beginning on January 1, 2017 with no material impact on the financial statements.


Endeavour Silver Corp. Page - 6 -


ENDEAVOUR SILVER CORP.
Notes to the Condensed Consolidated Interim Financial Statements
Three months ended March 31, 2017 and 2016
(unaudited – prepared by management)
(expressed in thousands of US dollars, unless otherwise stated)

(b) Changes in IFRS not yet adopted

Amendments to IFRS 2, Share-based Payment (“IFRS 2”)
On June 20, 2016, the IASB issued amendments to IFRS 2 clarifying how to account for certain types of share-based payment transactions. The amendments provide requirements on the accounting for: the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments; share-based transactions with a net settlement feature for withholding tax obligations; and a modification to the terms and conditions of a share-based payment that changes the classification of a transaction from cash-settled to equity settled.

The amendments apply for annual periods beginning on or after January 1, 2018. As a practical simplification, the amendments can be applied prospectively. Retrospective, or early, application is permitted if information is available without the use of hindsight. The Company intends to adopt the amendments to IAS 2 in its financial statements for the annual period beginning on January 1, 2018 on a prospective basis. The Company has begun a preliminary assessment however, the Company is not able at this time to estimate reasonably the impact that the amendments will have on the financial statements.

IFRS 9 Financial Instruments (“IFRS 9”)
In November 2009, the IASB issued IFRS 9 as the first step in its project to replace IAS 39, Financial Instruments: Recognition and Measurement. On July 24, 2014 the IASB issued the complete IFRS 9. IFRS 9 retains but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets: amortized cost and fair value. The basis of classification depends on an entity’s business model and the contractual cash flows of the financial asset.

Classification is made at the time the financial asset is initially recognized, namely when the entity becomes a party to the contractual provisions of the instrument.

IFRS 9 amends some of the requirements of IFRS 7, Financial Instruments: Disclosures, including added disclosures about investments in equity instruments measured at fair value in other comprehensive income, and guidance on the measurement of financial liabilities and de-recognition of financial instruments. The mandatory effective date of IFRS 9 is for annual periods beginning on or after January 1, 2018 with early adoption permitted, and must be applied retrospectively with some exemptions permitted.

The Company intends to adopt IFRS 9 effective January 1, 2018 on a prospective basis. The Company has begun a preliminary assessment however, the Company is not able at this time to estimate reasonably the impact that the amendments will have on the financial statements.

IFRS 15, Revenue from Contracts with Customers (“IFRS 15”)
On May 28, 2014, the IASB issued IFRS 15. The new standard is effective for annual periods beginning on or after January 1, 2018 with early adoption permitted. IFRS 15 will replace IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfer of Assets from Customers and SIC 31 Revenue – Barter Transactions Involving Advertising Services.

The standard contains a single model that applies to contracts with customers and two approaches to recognizing revenue: at a point in time or over time. The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognized. New estimates and judgmental thresholds have also been introduced, which may affect the amount and/or timing of revenue recognized.

On April 12, 2016 the IASB issued Clarifications to IFRS 15, Revenue from Contracts with Customers, which is effective at the same time as IFRS 15. The clarifications to IFRS 15 provide additional guidance with respect to the five-step analysis, transition, and the application of the standard to licenses of intellectual property.

The Company intends to adopt IFRS 15 and the clarifications in its consolidated financial statements for the annual period beginning on January 1, 2018. The Company has begun a preliminary assessment however, the Company is not able at this time to estimate reasonably the impact that the amendments will have on the financial statements.

IFRS 16, Leases (“IFRS 16”)
On January 13, 2016, the IASB published a new standard, IFRS 16, Leases, eliminating the current dual accounting model for lessees, which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases. Under the new standard, a lease becomes an on-balance sheet liability that attracts interest, together with a new right-of-use asset. In addition, lessees will recognize a front-loaded pattern of expense for most leases, even when cash rentals are constant. IFRS 16 is effective for annual periods beginning on or after January 1, 2019, with earlier adoption permitted. The Company has not yet begun an assessment of the impact of this standard on its consolidated financial statements.

Endeavour Silver Corp. Page - 7 -


ENDEAVOUR SILVER CORP.
Notes to the Condensed Consolidated Interim Financial Statements
Three months ended March 31, 2017 and 2016
(unaudited – prepared by management)
(expressed in thousands of US dollars, unless otherwise stated)

4.

ACCOUNTS RECEIVABLE


            March 31     December 31  
      Note     2017     2016  
                     
  Trade receivables (1)       $  6,758   $  6,703  
  IVA receivables         15,605     14,556  
  Income taxes recoverable         4,143     4,197  
  Due from related parties   6     3     4  
  Other receivables         124     100  
          $  26,633   $  25,560  

  (1)

The trade receivables consist of receivables from provisional silver and gold sales from the Bolañitos and El Cubo mines. The fair value of receivables arising from concentrate sales contracts that contain provisional pricing mechanisms is determined using the appropriate quoted closing price on the measurement date from the exchange that is the principal active market for the particular metal. As such, these receivables, which meet the definition of an embedded derivative, are classified within Level 2 of the fair value hierarchy (see note 15).


5.

INVENTORIES


      March 31     December 31  
      2017     2016  
               
  Warehouse inventory $  8,471   $  7,873  
  Stockpile inventory (1)   139     -  
  Work in process inventory   564     656  
  Finished goods inventory (2)   3,514     4,902  
    $  12,688   $  13,431  

  (1)

The Company has 2.575 stockpiled tonnes of mined ore as of March 31, 2017 (December 31, 2016 – Nil).

  (2)

The Company held 149,103 silver ounces and 1,056 gold ounces as of March 31, 2017 (December 31, 2016 – 330,587 and 883, respectively). These ounces are carried at the lower of cost and net realizable value. As at March 31, 2017, the quoted market value of the silver ounces was $2,693 (December 31, 2016 - $5,369) and the quoted market value of the gold ounces was $1,315 (December 31, 2016 - $1,023).


6.

RELATED PARTY TRANSACTIONS

   

The Company shares common administrative services and office space with a company related by virtue of a common director and from time to time will incur third party costs on behalf of the related parties on a full cost recovery basis. The charges for these costs totaled $10 for the three months ended March 31, 2017 (March 31, 2016 - $12). The Company has a $3 net receivable related to these costs as of March 31, 2017 (December 31, 2016 – $4).

   

The Company was charged $11 for legal services for the three months ended March 31, 2017 by a legal firm in which the Company’s corporate secretary is a partner (March 31, 2016 - $38). The Company has $Nil payable to the legal firm as at March 31, 2017 (December 31, 2016 - $Nil).


Endeavour Silver Corp. Page - 8 -


ENDEAVOUR SILVER CORP.
Notes to the Condensed Consolidated Interim Financial Statements
Three months ended March 31, 2017 and 2016
(unaudited – prepared by management)
(expressed in thousands of US dollars, unless otherwise stated)

7.

MINERAL PROPERTY, PLANT AND EQUIPMENT

(a) Mineral properties, plant and equipment comprise:


                  Machinery &                    
                  equipment and                    
      Mineral           assets under           Transport &        
      property     Plant     finance lease     Building     office equipment     Total  
  Cost                                    
                                       
  Balance at December 31, 2015 $  429,629   $  93,775   $  60,257   $  10,479   $  8,525   $  602,665  
                                       
  Additions   27,772     1,096     1,567     192     1,133     31,760  
  Disposals   -     -     (12 )   -     (63 )   (75 )
  Balance at December 31, 2016   457,401     94,871     61,812     10,671     9,595     634,350  
                                       
  Additions   6,550     564     1,427     212     494     9,247  
  Disposals   (233 )   -     -     -     (160 )   (393 )
  Balance at March 31, 2017 $  463,718   $  95,435   $  63,239   $  10,883   $  9,929   $  643,204  
                                   
  Accumulated amortization and impairment                                
                                       
  Balance at December 31, 2015 $  411,334   $  83,877   $  43,206   $  8,949   $  7,374   $  554,740  
                                       
  Amortization   7,986     1,686     3,002     265     508     13,447  
  Disposals   -     -     (12 )   -     (63 )   (75 )
  Balance at December 31, 2016   419,320     85,563     46,196     9,214     7,819     568,112  
                                       
  Amortization   3,021     470     556     53     160     4,260  
  Disposals   -     -     -     -     (158 )   (158 )
  Balance at March 31, 2017 $  422,341   $  86,033   $  46,752   $  9,267   $  7,821   $  572,214  
                                       
  Net book value                                    
  At December 31, 2016 $  38,081   $  9,308   $  15,616   $  1,457   $  1,776   $  66,238  
  At March 31, 2017 $  41,377   $  9,402   $  16,487   $  1,616   $  2,108   $  70,990  

Included in Mineral property is $17.6 in acquisition costs for exploration and evaluation properties.

As of March 31, 2017, the Company has $484 committed to capital equipment purchases.

8.

CREDIT FACILITY

   

On January 19, 2016, the Company signed an amended and restated credit facility (“the Amended Facility”) which became effective April 1, 2016 to convert the remaining outstanding balance under the existing revolving credit facility into a two year term loan amortized quarterly maturing on December 31, 2017. The Amended Facility is principally secured by a pledge of the Company’s equity interests in its material operating subsidiaries, including Refinadora Plata Guanaceví SA de CV, Minas Bolañitos SA de CV and Compania Minera del Cubo SA de CV. The interest rate margin on the Facility is 4.5% over LIBOR and the Company agreed to pay a fee of $300 upon signing. The Facility is subject to various qualitative and quantitative covenants, including a debt to EBITDA leverage ratio, an interest service coverage ratio, a tangible net worth calculation, capital and exploration expenditure limits.

   

At March 31, 2017, the Company had $6,500 outstanding on the Amended Facility (December 31, 2016 $9,000), which is due within 9 months of the balance sheet date. The Company recognized $138 of interest expense during the period in financing costs (March 31, 2016 - $186).


Endeavour Silver Corp. Page - 9 -


ENDEAVOUR SILVER CORP.
Notes to the Condensed Consolidated Interim Financial Statements
Three months ended March 31, 2017 and 2016
(unaudited – prepared by management)
(expressed in thousands of US dollars, unless otherwise stated)

      Facility Financial     March 31,     Dec. 31,  
  Facility Financial Covenants   Requirements     2017     2016  
 

Leverage Ratio

  < 3.00:1     0.21     0.29  
  Interest Service Coverage Ratio   > 4.00:1     48     45  
  Tangible Net Worth   > 45,900     139,720     133,215  

9.

SHARE CAPITAL

     
(a) Public Offerings
     

In July 2014, the Company filed a short form base shelf prospectus (the “Base Shelf”) that qualified for the distribution, including transactions that are deemed to be “at-the-market” (“ATM”) distributions, of up to CAN$ 200 million of common shares, warrants or units of the Company comprising any combination of common shares and warrants (the “Securities”). The Company filed a corresponding registration statement in the United States registering the Securities under United States federal securities laws.

     

On November 25, 2015, the Company entered into an ATM equity facility with Cowen and Company, LLC, acting as sole agent. Under the terms of this ATM facility, the Company sold common stock having an aggregate offering value of US$16.5 million on the New York Stock Exchange. The Company determined, at its sole discretion, the timing and number of shares sold under the ATM facility. During the second quarter of 2016, the Company completed this ATM program issuing 7,218,125 common shares under the ATM facility at an average price of $2.13 per share for proceeds of $14,893, net of commission.

     

In May 2016, the Company filed a short form base shelf prospectus that qualifies for the distribution of up to CAN$ 175 million of common shares, warrants or units of the Company comprising any combination of common shares and warrants (the “Securities”). The Company filed a corresponding registration statement in the United States registering the Securities under United States federal securities laws. The distribution of Securities may be effected from time to time in one or more transactions at a fixed price or prices, which may be changed, at market prices prevailing at the time of sale, or at prices related to such prevailing market prices to be negotiated with purchasers and as set forth in an accompanying prospectus supplement, including transactions that are deemed to be ATM distributions.

     

On May 5, 2016, the Company entered into an ATM equity facility with Cowen and Company, LLC, acting as sole agent. Under the terms of this ATM facility, the Company may, from time to time, sell common stock having an aggregate offering value of up to US$40.0 million on the New York Stock Exchange. The Company determines, at its sole discretion, the timing and number of shares to be sold under the ATM facility. During the year ended December 31, 2016, the Company issued 10,245,347 common shares under the ATM facility at an average price of $3.90 per share for proceeds of $38,949, net of commission.

     

During the year ended December 31, 2016, the Company also recognized $843 of additional transaction costs, related to the two ATM financings, as share issuance costs which have been presented net of share capital.

     
(b) Purchase Options
     

Options to purchase common shares have been granted to directors, officers, employees and consultants pursuant to the Company’s current stock option plan approved by the Company’s shareholders in fiscal 2009 and ratified in 2015, at exercise prices determined by reference to the market value on the date of grant. The stock option plan allows for, with approval by the Board, granting of options to its directors, officers, employees and consultants to acquire up to 7.5% of the issued and outstanding shares at any time.


Endeavour Silver Corp. Page - 10 -


ENDEAVOUR SILVER CORP.
Notes to the Condensed Consolidated Interim Financial Statements
Three months ended March 31, 2017 and 2016
(unaudited – prepared by management)
(expressed in thousands of US dollars, unless otherwise stated)

The following table summarizes the status of the Company’s stock option plan and changes during the period:

  Expressed in Canadian dollars   Year Ended     Year Ended  
      March 31, 2017     December 31, 2016  
      Number     Weighted average     Number     Weighted  
      of shares     exercise price     of shares     average  
                           
  Outstanding, beginning of year   4,458,050   $ 3.93     6,322,050   $ 3.80  
     Granted   -     NA     2,150,000   $ 4.30  
     Exercised   (28,000 ) $ 3.47     (3,495,000 ) $ 3.89  
     Cancelled   -     NA     (519,000 ) $ 4.14  
  Outstanding, end of period   4,430,050   $ 3.93     4,458,050   $ 3.93  
                           
  Options exercisable at period end   2,893,550   $ 3.95     2,921,550   $ 3.95  

The following tables summarize information about stock options outstanding at March 31, 2017:

          Expressed in Canadian dollars        
    Options Outstanding     Options Exercisable  
          Weighted                    
    Number     Average     Weighted     Number     Weighted  
CAN $   Outstanding     Remaining     Average     Exercisable     Average  
Price   as at     Contractual Life     Exercise     as at     Exercise  
Intervals   March 31, 2017     (Number of Years)     Prices     March 31, 2017     Prices  
                               
$2.00 - $2.99   1,168,500     3.1   $ 2.65     784,000   $ 2.65  
$4.00 - $4.99   3,214,300     3.0   $ 4.33     2,062,300   $ 4.34  
$8.00 - $8.99   47,250     0.3   $ 8.59     47,250   $ 8.59  
    4,430,050     3.0   $ 3.93     2,893,550   $ 3.95  

During the three months ended March 31, 2017, the Company recognized share based compensation expense of $396 (March 31, 2016 - $380) based on the fair value of the vested portion of options granted in the current and prior years.

(c) Performance Share Units Plan

The Company has a Performance Share Unit (“PSU”) plan whereby performance share units may be granted to employees of the Company. Once vested and performance conditions have been met, a PSU is redeemable into one common share entitling the holder to receive the common share for no additional consideration. The current maximum number of common shares authorized for issuance from treasury under the PSU plan is 1,000,000.

There were no PSUs granted during the three months ended March 31, 2017 (March 31, 2016 – 425,000) under the Company’s PSU plan. During the year ended December 31, 2016, 100,000 PSUs were cancelled resulting in 325,000 PSUs outstanding at December 31, 2016. The PSUs vested on January 1, 2017, upon to achievement of pre-determined performance and/or service criteria. On April 12, 2017 193,825 common shares were issued and $449 in cash was paid in settlement of the 325,000 vested PSUs.

During the three months ended March 31, 2017, the Company recognized a recovery of share based compensation expense of $59 based on the change in fair value of the cash-settled PSUs (March 31, 2016 - $Nil)

Endeavour Silver Corp. Page - 11 -


ENDEAVOUR SILVER CORP.
Notes to the Condensed Consolidated Interim Financial Statements
Three months ended March 31, 2017 and 2016
(unaudited – prepared by management)
(expressed in thousands of US dollars, unless otherwise stated)

  (d) Diluted Earnings per Share            
      Three Months Ended  
      March 31,     March 31,  
      2017     2016  
  Basic earnings (loss) $  6,035   $  1,932  
  Basic weighted average number of shares outstanding   127,095,764     104,646,404  
  Effect of dilutive securities:            
   Stock options   1,103,069     -  
   Performance share units   325,000     425,000  
  Diluted weighted average number of share outstanding   128,523,833     105,071,404  
               
  Diluted earnings (loss) per share $  0.05   $  0.02  

10.

EXPLORATION


      Three Months Ended  
      March 31     March 31  
      2017     2016  
               
  Depreciation and depletion $  28   $  18  
  Share-based compensation   39     37  
  Salaries, wages and benefits   530     639  
  Direct exploration expenditures   2,739     505  
    $  3,336   $  1,199  

11.

GENERAL AND ADMINISTRATIVE


      Three Months Ended  
      March 31     March 31  
      2017     2016  
               
  Depreciation and depletion $  41   $  50  
  Share-based compensation   298     364  
  Salaries, wages and benefits   736     913  
  Direct general and administrative expenditures   880     701  
    $  1,955   $  2,028  

12.

SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS


      Three Months Ended  
      March 31,     March 31,  
      2017     2016  
  Net changes in non-cash working capital:            
     Accounts receivable $  (1,149 ) $  (4,018 )
     Inventories   944     340  
     Prepaid expenses   263     (36 )
     Accounts payable and accrued liabilities   2,037     (4,119 )
     Income taxes payable   (1,324 )   (2,491 )
    $  771   $  (10,324 )
  Non-cash financing and investing activities:            
     Fair value of exercised options allocated to share capital   35     14  
               
  Other cash disbursements:            
     Income taxes paid   1,603     3,295  
     Special mining duty paid   -     1,042  


Endeavour Silver Corp. Page - 12 -


ENDEAVOUR SILVER CORP.
Notes to the Condensed Consolidated Interim Financial Statements
Three months ended March 31, 2017 and 2016
(unaudited – prepared by management)
(expressed in thousands of US dollars, unless otherwise stated)

13.

SEGMENT DISCLOSURES

   

The Company’s operating segments are based on internal management reports that are reviewed by the Company’s executives (the chief operating decision makers) in assessing performance. The Company has three operating mining segments, Guanaceví, Bolañitos and El Cubo, which are located in Mexico as well as Exploration and Corporate segments. The Exploration segment consists of projects in the exploration and evaluation phases in Mexico and Chile.


    March 31, 2017     
      Corporate     Exploration     Guanaceví     Bolanitos     El Cubo     Total  
                                       
  Cash and cash equivalents $  54,816   $  153   $  2,880   $  6,812   $  5,824   $  70,485  
  Investments   102     -     -     -     -     102  
  Accounts receivables   625     1,471     6,865     2,836     14,836     26,633  
  Inventories   -     -     7,155     2,781     2,752     12,688  
  Prepaid expenses   998     174     321     180     101     1,774  
  Non-current deposits   76     56     311     143     73     659  
  Deferred income tax asset   -     -     -     961     81     1,042  
  Mineral property, plant and equipment   266     18,187     39,755     6,804     5,978     70,990  
  Total assets $  56,883   $  20,041   $  57,287   $  20,517   $  29,645   $  184,373  
                                       
  Accounts payable and accrued liabilities $  4,999   $  1,751   $  6,442   $  2,514   $  4,473   $  20,179  
  Income taxes payable   -     -     1,026     2,044     237     3,307  
  Credit facility   6,500     -     -     -     -     6,500  
  Provision for reclamation and rehabilitation   -     -     2,065     1,759     4,043     7,867  
  Deferred income tax liability   -     -     6,739     -     -     6,739  
  Total liabilities $  11,499   $  1,751   $  16,272   $  6,317   $  8,753   $  44,592  

    December 31, 2016     
      Corporate     Exploration     Guanaceví     Bolanitos     El Cubo     Total  
                                       
  Cash and cash equivalents $  62,223   $  635   $  1,649   $  1,627   $  6,183   $  72,317  
  Investments   85     -     -     -     -     85  
  Accounts receivables   607     1,303     5,019     4,845     13,786     25,560  
  Inventories   -     -     8,946     1,831     2,654     13,431  
  Prepaid expenses   1,363     170     404     60     40     2,037  
  Non-current deposits   76     56     311     143     73     659  
  Deferred income tax asset   -     -     -     -     183     183  
  Mineral property, plant and equipment   247     17,709     38,105     6,972     3,205     66,238  
  Total assets $  64,601   $  19,873   $  54,434   $  15,478   $  26,124   $  180,510  
                                       
  Accounts payable and accrued liabilities $  5,829   $  1,329   $  5,025   $  2,093   $  3,953   $  18,229  
  Income taxes payable   452     525     1,030     2,309     315     4,631  
  Credit facility   9,000     -     -     -     -     9,000  
  Provision for reclamation and rehabilitation   -     -     2,058     1,755     4,033     7,846  
  Deferred income tax liability   -     -     7,340     205     -     7,545  
  Total liabilities $  15,281   $  1,854   $  15,453   $  6,362   $  8,301   $  47,251  


Endeavour Silver Corp. Page - 13 -


ENDEAVOUR SILVER CORP.
Notes to the Condensed Consolidated Interim Financial Statements
Three months ended March 31, 2017 and 2016
(unaudited – prepared by management)
(expressed in thousands of US dollars, unless otherwise stated)

      Corporate     Exploration     Guanacevi     Bolanitos     El Cubo     Total  
      Three months ended March 31, 2017  
  Silver revenue $  -   $  -   $  12,639   $  2,585   $  6,761   $  21,985  
  Gold revenue   -     -     1,924     7,041     5,491     14,456  
  Total revenue $  -   $  -   $  14,563   $  9,626   $  12,252   $  36,441  
   Salaries, wages and benefits:                                    
         mining $  -   $  -   $  1,329   $  1,045   $  1,756   $  4,130  
         processing   -     -     441     200     362     1,003  
         administrative   -     -     687     538     659     1,884  
         stock based compensation   -     -     -     -     -     -  
         change in inventory   -     -     621     (198 )   22     445  
  Total salaries, wages and benefits   -     -     3,078     1,585     2,799     7,462  
   Direct costs:                                    
         mining   -     -     3,167     2,455     3,138     8,760  
         processing   -     -     1,765     1,327     1,923     5,015  
         administrative   -     -     600     379     610     1,589  
         change in inventory   -     -     1,507     (448 )   163     1,222  
  Total direct production costs   -     -     7,039     3,713     5,834     16,586  
   Depreciation and depletion:                                    
         depreciation and depletion   -     -     3,503     460     338     4,301  
         change in inventory   -     -     (130 )   (46 )   (12 )   (188 )
  Total depreciation and depletion   -     -     3,373     414     326     4,113  
   Royalties   -     -     343     43     54     440  
                                       
  Total cost of sales $  -   $  -   $  13,833   $  5,755   $  9,013   $  28,601  
  Earnings (loss) before taxes $  33   $  (3,336 ) $  730   $  3,871   $  3,239   $  4,537  
     Current income tax expense   -     -     101     275     (77 )   299  
     Deferred income tax expense (recovery)   -     -     (734 )   (1,166 )   103     (1,797 )
  Total income tax expense (recovery)   -     -     (633 )   (891 )   26     (1,498 )
  Net earnings (loss) $  33   $  (3,336 ) $  1,363   $  4,762   $  3,213   $  6,035  

      Three months ended March 31, 2016  
  Silver revenue $  -   $  -   $  10,113   $  5,025   $  7,802   $  22,940  
  Gold revenue   -     -     1,952     9,673     6,976     18,601  
  Total revenue $  -   $  -   $  12,065   $  14,698   $  14,778   $  41,541  
   Salaries, wages and benefits:                                    
         mining $  -   $  -   $  1,199   $  1,625   $  2,284   $  5,108  
         processing   -     -     464     245     438     1,147  
         administrative   -     -     772     680     712     2,164  
         stock based compensation   -     -     19     18     19     56  
         change in inventory   -     -     (44 )   (27 )   (72 )   (143 )
  Total salaries, wages and benefits   -     -     2,410     2,541     3,381     8,332  
   Direct costs:                                    
         mining   -     -     2,056     3,256     7,891     13,203  
         processing   -     -     1,907     2,017     3,002     6,926  
         administrative   -     -     636     395     716     1,747  
         change in inventory   -     -     (176 )   109     (241 )   (308 )
  Total direct production costs   -     -     4,423     5,777     11,368     21,568  
   Depreciation and depletion:                                    
         depreciation and depletion   -     -     1,919     1,760     1,175     4,854  
         change in inventory   -     -     (52 )   175     177     300  
  Total depreciation and depletion   -     -     1,867     1,935     1,352     5,154  
   Royalties   -     -     80     66     63     209  
                                       
  Total cost of sales $  -   $  -   $  8,780   $  10,319   $  16,164   $  35,263  
  Earnings (loss) before taxes $  (1,942 ) $  (1,199 ) $  3,285   $  4,379   $  (1,386 ) $  3,137  
   Current income tax expense   25     -     296     1,075     15     1,411  
   Deferred income tax expense (recovery)   -     -     377     (582 )   102     (103 )
  Total income tax expense (recovery)   25     -     673     493     117     1,308  
  Net earnings (loss) $  (1,967 ) $  (1,199 ) $  2,612   $  3,886   $  (1,503 ) $  1,829  

The Exploration segment included $81 of costs incurred in Chile for the period ended March 31, 2017 (2016 - $161).

Endeavour Silver Corp. Page - 14 -


ENDEAVOUR SILVER CORP.
Notes to the Condensed Consolidated Interim Financial Statements
Three months ended March 31, 2017 and 2016
(unaudited – prepared by management)
(expressed in thousands of US dollars, unless otherwise stated)

14.

INCOME TAXES


(a)

Tax Assessments

Minera Santa Cruz y Garibaldi SA de CV (“MSCG”), a subsidiary of the Company, received a MXN 238 million assessment on October 12, 2010 by Mexican fiscal authorities for failure to provide the appropriate support for certain expense deductions taken in MSCG’s 2006 tax return, failure to provide appropriate support for loans made to MSCG from affiliated companies, and deemed an unrecorded distribution of dividends to shareholders, among other individually immaterial items. MSCG immediately initiated a Nullity action and filed an administrative attachment to dispute the assessment.

   

In June 2015, the Superior Court ruled in favour of MSCG on a number of the matters under appeal; however, the Superior Court ruled against MSCG for failure to provide appropriate support for certain deductions taken in MSCG’s 2006 tax return. In June 2016, the Company received a MXN 122.9 million (USD $5.9 million) tax assessment based on the June 2015 ruling. The 2016 tax assessment comprised of MXN 41.8 million in taxes owed (USD $2.0 million), MXN 17.7 million (USD $0.9 million) in inflationary charges, MXN 40.4 million (USD $1.9 million) in interest and MXN 23.0 million (USD $1.1 million) in penalties. The 2016 tax assessment was issued for failure to provide the appropriate support for certain expense deductions taken in MSCG’s 2006 tax return, failure to provide appropriate support for loans made to MSCG from affiliated companies.  The MXN 123 million assessment includes interest and penalties. If MSCG agrees to pay the tax assessment, or a lesser settled amount, it is eligible to apply for forgiveness of 100% of the penalties and 50% of the interest.

   

The Company filed an appeal against the June 2016 tax assessment on the basis certain items rejected by the courts were included in the new tax assessment, while a number of deficiencies exist within the assessment.

   

Included in the Company’s consolidated financial statements, are net assets of $595,000, including $42,000 in cash, held by MSCG. Following the Tax Court’s rulings, MSCG is in discussions with the tax authorities with regards to the shortfall of assets within MSCG to settle its estimated tax liability. An alternative settlement option would be to transfer the shares and assets of MSCG to the tax authorities. As of December 31, 2016, the Company recognized an allowance for transferring the shares and assets of MSCG amounting to $595,000. The Company is currently assessing MSCG’s settlement options based on on-going court proceedings and discussion with the tax authorities.


15.

FAIR VALUE MEASUREMENTS

   

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (for example, interest rate and yield curves observable at commonly quoted intervals, forward pricing curves used to value currency and commodity contracts and volatility measurements used to value option contracts), or inputs that are derived principally from or corroborated by observable market data or other means. Level 3 inputs are unobservable (supported by little or no market activity). The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs.

   

Financial assets measured at fair value on a recurring basis include:

                         
    Total     Level 1     Level 2     Level 3  
As at March 31, 2017 $    $    $    $   
                         
Financial assets:                        
Available for sale securities   102     102     -     -  
T rade receivables   6,758     -     6,758     -  
T otal financial assets   6,860     102     6,758     -  

Endeavour Silver Corp. Page - 15 -


ENDEAVOUR SILVER CORP.
Notes to the Condensed Consolidated Interim Financial Statements
Three months ended March 31, 2017 and 2016
(unaudited – prepared by management)
(expressed in thousands of US dollars, unless otherwise stated)

Fair values of financial assets and liabilities:

    As at March 31, 2017     As at December 31, 2016  
    Carrying     Estimated Fair     Carrying     Estimated Fair  
    value     value     value     value  
  $    $    $    $   
                         
Financial assets:                        
Cash and cash equivalents   70,485     70,485     72,317     72,317  
Investments   102     102     85     85  
Accounts receivables   26,633     26,633     25,560     25,560  
Total financial assets   97,220     97,220     97,962     97,962  
                         
Financial liabilities:                        
Accounts payable and accrued liabilities   20,179     20,179     18,229     18,229  
Credit facility   6,500     6,500     9,000     9,000  
Total financial liabilities   26,679     26,679     27,229     27,229  

Disclosure of the valuation techniques to estimate the fair values of financial assets and liabilities are disclosed in the following notes:

  • Trade receivables (see Note 4)

Endeavour Silver Corp. Page - 16 -


ENDEAVOUR SILVER CORP.
Notes to the Condensed Consolidated Interim Financial Statements
Three months ended March 31, 2017 and 2016
(unaudited – prepared by management)
(expressed in thousands of US dollars, unless otherwise stated)

HEAD OFFICE Suite #301, 700 West Pender Street
  Vancouver, BC, Canada V6C 1G8
  Telephone:  (604) 685-9775
     1-877-685-9775
  Facsimile:  (604) 685-9744
  Website:  www.edrsilver.com
     
     
DIRECTORS Geoff Handley  
  Ricardo Campoy
  Bradford Cooke  
  Rex McLennan  
  Kenneth Pickering
  Mario Szotlender
  Godfrey Walton  
     
     
OFFICERS Bradford Cooke - Chief Executive Officer
  Godfrey Walton - President and Chief Operating Officer
  Dan Dickson - Chief Financial Officer
  Tomas Iturriaga - Vice-President Operations, Country Manager Mexico
  Luis Castro - Vice-President, Exploration
  Dale Mah - Vice-President, Corporate Development
  Christine West – Vice-President, Controller
  Bernard Poznanski - Corporate Secretary
     
     
REGISTRAR AND Computershare Trust Company of Canada
TRANSFER AGENT 3rd Floor - 510 Burrard Street
  Vancouver, BC, V6C 3B9
     
     
AUDITORS KPMG LLP  
  777 Dunsmuir Street
  Vancouver, BC, V7Y 1K3
     
     
SOLICITORS Koffman Kalef LLP
19th Floor – 885 West Georgia Street
  Vancouver, BC, V6C 3H4
     
     
SHARES LISTED Toronto Stock Exchange
  Trading Symbol - EDR
   
  New York Stock Exchange
  Trading Symbol – EXK

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