Spur Ventures Inc.
Interim Consolidated Financial Statements
Three Months Ended June 30, 2005
(Unaudited)
These interim consolidated financial statements and
accompanying notes contained herein have not been reviewed
by the Company’s auditors.
| SPUR VENTURES INC. |
| CONSOLIDATED BALANCE SHEETS |
| | June 30, | | | December 31, | |
| Expressed in Canadian dollars as at | | 2005 | | | 2004 | |
| | | | | | | |
| ASSETS | | | | | | |
| Current | | | | | | |
| Cash and cash equivalents | $ | 11,816,079 | | $ | 9,484,991 | |
| Short-term investments | | - | | | 5,510,500 | |
| Accounts receivable | | 234,657 | | | 188,415 | |
| Inventory | | 1,244,124 | | | 1,125,024 | |
| Prepaid expenses | | 593,189 | | | 96,034 | |
| Due from YPCC - Note 5 | | 377,994 | | | 371,103 | |
| | 14,266,043 | | | 16,776,067 | |
| | | | | | | |
| Fixed assets - net | | 9,623,585 | | | 8,438,916 | |
| Land use right - net | | 841,012 | | | 482,639 | |
| Mineral properties | | 2,540,116 | | | 2,417,338 | |
| | | | | | | |
| | $ | 27,270,756 | | $ | 28,114,960 | |
| | | | | | | |
| LIABILITIES | | | | | | |
| Current | | | | | | |
| Accounts payable and accrued liabilities | $ | 1,245,471 | | $ | 1,181,390 | |
| Customer deposits | | 174,097 | | | 494,632 | |
| Other payable | | 215,646 | | | 228,863 | |
| Amount due to Yuanfeng | | 122,331 | | | 44,290 | |
| Bank loans - Note 6 | | 3,184,150 | | | 3,853,100 | |
| | 4,941,695 | | | 5,802,275 | |
| | | | | | | |
| Minority interest | | 903,954 | | | 971,098 | |
| | | | | | | |
| SHAREHOLDERS' EQUITY | | | | | | |
| Capital stock - Note 7 | | | | | | |
| Authorized - | | | | | | |
| Unlimited number of Common shares without par value | | | | | | |
| Unlimited number of Preferred shares without par value | | | | | | |
| Issued - | | | | | | |
| 40,597,662 Common shares (2004: 39,889,328) | | 28,465,152 | | | 27,550,651 | |
| Stock options and warrants | | 3,099,474 | | | 2,763,003 | |
| Cumulative translation adjustment | | (329,479 | ) | | (408,187 | ) |
| Deficit | | (9,810,040 | ) | | (8,563,880 | ) |
| | 21,425,107 | | | 21,341,587 | |
| | | | | | | |
| | $ | 27,270,756 | | $ | 28,114,960 | |
| APPROVED BY THE DIRECTORS | | |
| | | |
| | | |
| signed "Robert G. Atkinson" | | signed "Yingbin Ian He" |
| Director | | Director |
(The accompanying notes are an integral part of these consolidated financial statements)
| SPUR VENTURES INC. |
| CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT |
| FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2005 AND 2004 |
| | Three months ended | | | Six months ended | |
| | June 30, | | | June 30, | | | June 30, | | | June 30, | |
| Expressed in Canadian dollars | | 2005 | | | 2004 | | | 2005 | | | 2004 | |
| | | | | | | | | | | | | |
| Sales | $ | 2,609,072 | | $ | 997,789 | | $ | 4,725,939 | | $ | 997,789 | |
| Cost of sales | | 2,544,973 | | | 876,451 | | | 4,315,802 | | | 876,451 | |
| Gross profit | | 64,099 | | | 121,338 | | | 410,137 | | | 121,338 | |
| | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | |
| Consulting fees | | 20,000 | | | 60,962 | | | 97,000 | | | 165,962 | |
| Depreciation and amortization | | 67,012 | | | 18,974 | | | 83,988 | | | 22,326 | |
| Interest | | 49,602 | | | 63,746 | | | 110,573 | | | 63,746 | |
| Office and miscellaneous | | 99,710 | | | 65,138 | | | 154,337 | | | 74,056 | |
| Printing and mailing | | 37,714 | | | 24,672 | | | 39,687 | | | 28,721 | |
| Professional fees | | 116,452 | | | 31,235 | | | 139,213 | | | 43,729 | |
| Rent | | 35,098 | | | 12,035 | | | 48,556 | | | 20,064 | |
| Repairs and maintenance | | 44,340 | | | - | | | 49,067 | | | - | |
| Selling expenses | | 90,919 | | | 30,386 | | | 156,238 | | | 30,386 | |
| Stock-based compensation expenses | | 200,668 | | | 54,143 | | | 428,471 | | | 186,377 | |
| Transfer agent and filing fees | | 13,171 | | | 36,868 | | | 16,454 | | | 41,612 | |
| Travel, advertising and promotion | | 126,386 | | | 85,511 | | | 189,831 | | | 93,299 | |
| Wages and benefits | | 170,363 | | | 40,938 | | | 290,182 | | | 40,938 | |
| | 1,071,435 | | | 524,608 | | | 1,803,597 | | | 811,216 | |
| | | | | | | | | | | | | |
| Operating loss | | (1,007,336 | ) | | (403,270 | ) | | (1,393,460 | ) | | (689,878 | ) |
| | | | | | | | | | | | | |
| Other income and expenses | | | | | | | | | | | | |
| Gain on disposal of marketable securities | | - | | | - | | | - | | | 2,333 | |
| Interest income | | 3,690 | | | 7,844 | | | 62,165 | | | 21,184 | |
| Energy trust income | | - | | | - | | | - | | | 825 | |
| Other income | | - | | | 65,595 | | | - | | | 65,595 | |
| Foreign exchange gain (loss) | | (127 | ) | | 20,569 | | | (709 | ) | | 20,648 | |
| | 3,563 | | | 94,008 | | | 61,456 | | | 110,585 | |
| | | | | | | | | | | | | |
| Loss before minority interest | | (1,003,773 | ) | | (309,262 | ) | | (1,332,004 | ) | | (579,293 | ) |
| Minority interest | | 120,380 | | | 9,413 | | | 85,844 | | | 9,413 | |
| Loss for the period | | (883,393 | ) | | (299,849 | ) | | (1,246,160 | ) | | (569,880 | ) |
| | | | | | | | | | | | | |
| Deficit, Beginning of period as previously reported | | (8,926,647 | ) | | (6,471,588 | ) | | (8,563,880 | ) | | (4,732,692 | ) |
| Stock-based compensation expenses - accounting change | | - | | | - | | | - | | | (1,468,865 | ) |
| Deficit, Beginning of period, restated | | (8,926,647 | ) | | (6,471,588 | ) | | (8,563,880 | ) | | (6,201,557 | ) |
| | | | | | | | | | | | | |
| Deficit, End of period | $ | (9,810,040 | ) | $ | (6,771,437 | ) | $ | (9,810,040 | ) | $ | (6,771,437 | ) |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Basic and diluted loss per common share | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.02 | ) |
| | | | | | | | | | | | | |
| Weighted average number of common shares outstanding | | 40,390,043 | | | 29,977,240 | | | 40,141,897 | | | 29,388,724 | |
(The accompanying notes are an integral part of these consolidated financial statements)
| SPUR VENTURES INC. |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2005 AND 2004 |
| | Three months ended | | | Six months ended | |
| | June 30, | | | June 30, | | | June 30, | | | June 30, | |
| In Canadian dollars | | 2005 | | | 2004 | | | 2005 | | | 2004 | |
| | | | | | | | | | | | | |
| Cash flows from operating activities | | | | | | | | | | | | |
| Cash received from customers | $ | 2,619,868 | | $ | 974,071 | | $ | 4,658,466 | | $ | 974,071 | |
| Investment income | | - | | | - | | | - | | | 825 | |
| Interest received | | 281 | | | 31,157 | | | 123,370 | | | 59,968 | |
| Other income received | | - | | | 65,595 | | | - | | | 65,595 | |
| Interest paid | | (34,043 | ) | | (38,337 | ) | | (101,910 | ) | | (38,337 | ) |
| Cash paid to suppliers and employees | | (3,284,598 | ) | | (1,699,235 | ) | | (6,231,056 | ) | | (1,837,285 | ) |
| | (698,492 | ) | | (666,749 | ) | | (1,551,130 | ) | | (775,163 | ) |
| | | | | | | | | | | | | |
| Cash flows from investing activities | | | | | | | | | | | | |
| Feasibility study, project development | | (51,222 | ) | | (24,202 | ) | | (117,037 | ) | | (33,166 | ) |
| Purchase of fixed assets | | (166,399 | ) | | (663,851 | ) | | (1,280,765 | ) | | (663,851 | ) |
| Purchase of land use rights | | (359,883 | ) | | - | | | (359,883 | ) | | - | |
| Redemption of short-term investment | | - | | | - | | | 5,510,500 | | | - | |
| Amount due to Yuanfeng | | 80,911 | | | - | | | 78,041 | | | - | |
| Amount due from joint venture partner - YMC | | - | | | - | | | - | | | (500,000 | ) |
| Amount due from joint venture partner - YSC | | (5,294 | ) | | 13,959 | | | (6,891 | ) | | 13,959 | |
| Acquisition of YSC, net of cash acquired | | - | | | 1,086,279 | | | - | | | (572,255 | ) |
| | (501,887 | ) | | 412,185 | | | 3,823,965 | | | (1,755,313 | ) |
| | | | | | | | | | | | | |
| Cash flows from financing activities | | | | | | | | | | | | |
| Share subscriptions received, net | | 822,501 | | | 15,446,084 | | | 822,501 | | | 15,836,084 | |
| Repayment of bank loan | | - | | | - | | | (730,500 | ) | | - | |
| Proceeds from disposal of marketable securities | | - | | | - | | | - | | | 100,833 | |
| | 822,501 | | | 15,446,084 | | | 92,001 | | | 15,936,917 | |
| | | | | | | | | | | | | |
| Effect of exchange rate changes | | 17,611 | | | (43,248 | ) | | (33,748 | ) | | (43,248 | ) |
| | | | | | | | | | | | | |
| Increase (decrease) in cash and cash equivalents | | (360,267 | ) | | 15,148,272 | | | 2,331,088 | | | 13,363,193 | |
| | | | | | | | | | | | | |
| Cash and cash equivalents, beginning of period | | 12,176,346 | | | 3,180,492 | | | 9,484,991 | | | 4,965,571 | |
| | | | | | | | | | | | | |
| Cash and cash equivalents, end of period | $ | 11,816,079 | | $ | 18,328,764 | | $ | 11,816,079 | | $ | 18,328,764 | |
(The accompanying notes are an integral part of these consolidated financial statements)
| SPUR VENTURES INC. |
| NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
| JUNE 30, 2005 |
| (Unaudited) |
1. Basis of Presentation
The accompanying interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”). These interim consolidated financial statements do not include all disclosures required under Canadian generally accepted accounting principles for annual audited financial statements. Accordingly, they should be read in conjunction with the notes to the Company’s audited consolidated financial statements for the year ended December 31, 2004.
The same accounting policies, as disclosed in the audited financial statements, included in the Company’s latest annual report have been used.
The preparation of the consolidated financial statements compliant with generally accepted accounting principles requires management to make estimates and assumptions. These estimates affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods. Actual results could differ from these estimates.
In the opinion of management, all adjustments considered necessary for fair presentation of the results for the periods presented have been reflected in the consolidated financial statements.
The unaudited consolidated financial statements include Spur Ventures Inc. (“the Company”), its 72.18% owned joint venture company, Yichang Spur Chemicals Ltd. (“YSC”), since the date of acquisition, its 78.72% owned Joint Venture Company which is awaiting approval of the Chinese authorities, Yichang Maple Leaf Chemicals Ltd. (“YMC”) (Note 2) and its wholly owned subsidiaries, Spur Chemicals (BVI) Inc. and International Phosphate Mining Corporation (“International Phosphate”). All significant inter-company transactions and accounts have been eliminated.
Certain items have been reclassified to conform to the current period presentation. There is no effect on total results of operations or shareholders’ equity.
| SPUR VENTURES INC. |
| NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
| JUNE 30, 2005 |
| (Unaudited) |
2. Mineral Properties
Yichang Phosphate Project
| | | | | | | | Spur | | | | |
| | YMC | | | Ventures Inc. | | | Total | |
| | RMB | | | CA$ | | | CA$ | | | CA$ | |
| Exploration and development costs | | | | | | | | | | | | |
| Balance, December 31, 2004 | | 2,125,787 | | $ | 309,089 | | $ | 2,108,249 | | $ | 2,417,338 | |
| General and administration | | 222,107 | | | 32,893 | | | - | | | 32,893 | |
| Consulting | | 74,400 | | | 11,019 | | | 24,000 | | | 35,019 | |
| Travel | | 156,797 | | | 23,221 | | | - | | | 23,221 | |
| Legal and professional | | 64,352 | | | 9,531 | | | - | | | 9,531 | |
| Salaries and benefits | | 110,551 | | | 16,373 | | | - | | | 16,373 | |
| Translation adjustment | | - | | | 5,741 | | | - | | | 5,741 | |
| Balance, June 30, 2005 | | 2,753,994 | | $ | 407,867 | | $ | 2,132,249 | | $ | 2,540,116 | |
As of June 30, 2005, YMC has not received the final regulatory approval in China on the changes in terms of the joint venture and thus the Chinese partner had not transferred the land and mineral rights to YMC. Once the land and mineral rights are transferred to YMC, the Company’s interest in YMC will be 78.72%, with the Chinese joint venture partner holding 21.28% .
During the six months ended June 30, 2005, the Company incurred exploration and development costs of $122,778 in relation to the YMC joint venture. As of June 30, 2005, the Company has capitalized exploration and development expenses of $2,540,116 in relation to the YMC joint venture.
3. Fixed Assets
| | | | | | | | | | | December 31, | |
| | | | | June 30, 2005 | | | | | | 2004 | |
| | | | | Accumulated | | | Net book | | | Net book | |
| | Cost | | | depreciation | | | value | | | value | |
| | | | | | | | | | | | | |
| Building | $ | 7,202,061 | | $ | 168,987 | | $ | 7,033,074 | | $ | 1,597,625 | |
| Construction in progress | | 259,197 | | | - | | | 259,197 | | | 4,435,561 | |
| Machinery and equipment | | 2,455,992 | | | 294,808 | | | 2,161,184 | | | 2,316,359 | |
| Motor vehicle | | 136,562 | | | 22,782 | | | 113,780 | | | 37,558 | |
| Office equipment and furniture | | 75,091 | | | 22,057 | | | 53,034 | | | 45,181 | |
| Leasehold improvement | | 19,898 | | | 16,582 | | | 3,316 | | | 6,632 | |
| $ | 10,148,801 | | $ | 525,216 | | $ | 9,623,585 | | $ | 8,438,916 | |
| SPUR VENTURES INC. |
| NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
| JUNE 30, 2005 |
| (Unaudited) |
4. Land Use Rights
| | | | | | | | | | | December 31, | |
| | June 30, 2005 | | | 2004 | |
| | | | | Accumulated | | | Net book | | | Net book | |
| | Cost | | | amortization | | | value | | | value | |
| | | | | | | | | | | | | |
| Land use rights | $ | 861,391 | | $ | 20,379 | | $ | 841,012 | | $ | 482,639 | |
5. Amount outstanding with minority shareholders
As of June 30, 2005, the Company has the following amounts outstanding with minority shareholders of YSC, Yichang Phosphorous Chemical Industries Group Co. (“YPCC”):
| | RMB | | | | CA$ | |
| | | | | | | | |
| Bank loan for the benefits of YPCC (Note 6) | | 6,900,000 | | | $ | 1,021,890 | |
| Loan from YPCC | | (4,475,375 | ) | | | (662,803 | ) |
| Net exposure of YSC | | 2,424,625 | | | | 359,087 | |
| Advance to YPCC and its subsidiaries | | 127,663 | | | | 18,907 | |
| | 2,552,288 | | | $ | 377,994 | |
The company is still in discussion with YPCC and the Agricultural Bank of China regarding the full repayment of the bank loan, RMB6,900,000 ($1,021,890), which was due in December 2004 (Note 6).
6. Bank Loans
| Principal Amount | | | | | Annual interest | | |
| RMB | | | CA$ | | rate | | Maturity date |
| | | | | | | | |
| 11,900,000 | | $ | 1,762,390 | | 5.84% | | October 27, 2005 |
| 2,700,000 | | | 399,870 | | 5.58% | | November 3, 2005 |
| 6,900,000 | | | 1,021,890 | | 6.588% (Note 5) | | December 27, 2004 |
| 21,500,000 | | $ | 3,184,150 | | | | |
SPUR VENTURES INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
(Unaudited)
7. Capital Stock, Warrants and Options
(a) Capital Stock
The following is a summary of capital stock transactions during the six-month period ended June 30, 2005:-
(i) Authorized
Unlimited common shares without par value
Unlimited preferred shares without par value, issuable in series and with special
rights and restrictions to be determined on issuance
(ii) Issued and outstanding
| | Number of | | | | |
| | common shares | | | Amount | |
| | | | | | | |
| Balance, December 31, 2004 | | 39,889,328 | | $ | 27,550,651 | |
| Exercise of options | | | | | | |
| - cash received | | 300,000 | | | 210,000 | |
| - transfer from stock option account | | - | | | 92,000 | |
| Exercise of warrants | | | | | | |
| - cash received | | 408,334 | | | 612,501 | |
| Balance, June 30, 2005 | | 40,597,662 | | $ | 28,465,152 | |
100,000 stock options at an exercise price of $0.90 each and 200,000 stock options at an exercise price of $0.60 each were exercised during the six-month period ended June 30, 2005.
(b) Warrants
There was no warrant granted or cancelled during the six-month period ended June 30, 2005. 408,334 warrants at $1.50 each were exercised during the six-month period ended June 30, 2005.
The following table summarizes information about warrants outstanding at June 30, 2005:
| Number of warrants | | | Exercise price | | Expiry date |
| | | | | | |
| 300,000 | | $ | 1.10 | | July 15, 2005 |
| 5,421,666 | | | 1.50 | | June 23, 2006 |
| 5,721,666 | | | | | |
Subsequent to June 30, 2005, 300,000 warrants at an exercise price of $1.10 each were exercised.
SPUR VENTURES INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
(Unaudited)
7. Capital Stock, Warrants and Options - Continued
(c) Stock Options
The following is a summary of stock option transactions during the six-month period ended June 30, 2005:
| | | | | | Weighted | |
| | | | | | average | |
| | Options | | | | exercise | |
| | outstanding | | | | price | |
| | | | | | | | |
| Balance, December 31, 2004 | | 5,535,000 | | | $ | 1.02 | |
| Granted | | 500,000 | | | | 1.80 | |
| Exercised (Note 7(a)) | | (300,000 | ) | | | 0.70 | |
| Balance, June 30, 2005 | | 5,735,000 | | | | 1.09 | |
On March 3, 2005, the Company granted incentive stock options for 500,000 shares at a price of $1.80 per share exercisable up to March 1, 2010, to a director. 50% of the options become vested on March 1, 2006 and the remaining 50% become vested on March 1, 2007.
The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model with assumptions for the grant as follows:
| Risk free interest rate | 3.64% |
| Expected life of options in years | 2 years |
| Expected volatility | 52% |
| Dividend per share | $0.00 |
SPUR VENTURES INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
(Unaudited)
7. Capital Stock, Warrants and Options - Continued
(c) Stock Options - Continued
The following table summarizes information about stock options outstanding at June 30, 2005:
| | | Option Price | | |
| | Exercise | | |
| Number of options | | price | | Expiry Date |
| | | | | |
| 50,000 | | $ 0.90 | | October 18, 2005 |
| 700,000 | | 0.90 | | June 19, 2006 |
| 2,000,000 | | 0.60 | | May 6, 2008 |
| 635,000 | | 1.20 | | June 19, 2008 |
| 1,650,000 | | 1.50 | | July 23, 2009 |
| 200,000 | | 1.50 | | October 12, 2009 |
| 500,000 | | 1.80 | | March 1, 2010 |
| 5,735,000 | | | | |
During the six months ended June 30, 2005, compensation expense of $428,471 was recognized for options previously granted and vesting over time using the Black-Scholes option pricing model with the assumptions disclosed in the annual audited consolidated financial statements and the interim financial statements.
8. Related Party Transactions
During the three-month period ended June 30, 2005, the Company paid consulting fees of $20,000 (2004: $83,462) to a company controlled by a director (2004: five directors). The Company also paid legal fees of $2,996 (2004: $14,637) to an officer.
During the six-month period ended June 30, 2005, the Company paid consulting fees of $59,500 (2004: $180,962) to companies controlled by two directors (2004: five directors). The Company also paid legal fees of $6,741 (2004: $14,637) to an officer.
9. Segmented Information
Management considers developing an integrated fertilizer business including the development of the phosphate project in China to be the Company’s principal activity. All revenues are earned from sales to customers located in China.
| SPUR VENTURES INC. |
| NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS |
| JUNE 30, 2005 |
| (Unaudited) |
| | | | | | | | June 30, 2005 | |
| | | | | | | | | | |
| | Canada | | | China | | | Consolidated | |
| | | | | | | | | | |
| Current assets | $ | 1,266,703 | | $ | 12,999,340 | | $ | 14,266,043 | |
| Fixed assets - net | | 14,947 | | | 9,608,638 | | | 9,623,585 | |
| Land use rights - net | | - | | | 841,012 | | | 841,012 | |
| Mineral properties | | - | | | 2,540,116 | | | 2,540,116 | |
| Total assets | $ | 1,281,650 | | $ | 25,989,106 | | $ | 27,270,756 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | December 31, 2004 | |
| | | | | | | | | | |
| | Canada | | | China | | | Consolidated | |
| | | | | | | | | | |
| Current assets | $ | 15,931,184 | | $ | 844,883 | | $ | 16,776,067 | |
| Fixed assets - net | | 18,694 | | | 8,420,222 | | | 8,438,916 | |
| Land use rights | | - | | | 482,639 | | | 482,639 | |
| Mineral properties | | - | | | 2,417,338 | | | 2,417,338 | |
| Total assets | $ | 15,949,878 | | $ | 12,165,082 | | $ | 28,114,960 | |
10. Commitments, Obligations and Subsequent Events
(a) Acquisition of fertilizer related businesses
The Company has signed a binding agreement on June 29, 2005 to acquire the fertilizer related businesses of Hebei Tianren Chemical Corporation (“Tianren”), a shareholding Chinese company and to merge the management teams and assets of both companies. Under the agreement, the Company will assume bank debt of these businesses of US$ 3.4 million as of the end of the first quarter of 2005. The Company will acquire these businesses in consideration for the issue to Tianren of approximately 15.5 million shares of Spur Ventures Inc
(b) Brokered private placement
The Company closed a brokered private placement of 17,142,858 units for a net proceed of $28 million on July 29, 2005. Each unit has a price of $1.75, and consists of one share and one-half of one warrant to purchase an additional share for a period of two years at $2.00. All shares and warrants have a hold period expiring on November 29, 2005. The brokers will receive a 6% commission. The proceeds will be used to fund the fast tracking of the Company’s development projects in China and for general corporate purposes.
