FIRST POINT MINERALS CORP.
FINANCIAL STATEMENTS
SECOND QUARTER 2004
August 25, 2004
NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS
Under National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.
The accompanying unaudited interim financial statements of First Point Minerals Corp. (the "Company") have been prepared by and are the responsibility of the Company's management.
The Company's independent auditor has not performed a review of these financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity's auditor.
FIRST POINT MINERALS CORP.
CONSOLIDATED BALANCE SHEETS
June 30, 2004 and December 31, 2003
ASSETS | |||||||
June 30 | December 31 | ||||||
2004 | 2003 | ||||||
(Unaudited) | (Audited) | ||||||
CURRENT | |||||||
Cash | $ | 789,331 | $ | 1,869,354 | |||
Accounts and advances receivable | 64,514 | 30,339 | |||||
Prepaid expenses and deposits | 30,213 | 33,571 | |||||
884,058 | 1,933,264 | ||||||
FUNDS IN TRUST | 61,246 | 61,246 | |||||
INVESTMENT | (Note 3) | 864,073 | - | ||||
CAPITAL ASSETS | (Note 4) | 32,728 | 31,086 | ||||
MINERAL PROPERTIES | (Note 5) | 2,975,073 | 3,348,973 | ||||
4,817,178 | 5,374,569 | ||||||
LIABILITIES | |||||||
CURRENT | |||||||
Accounts payable and accrued liabilities | 56,447 | 16,784 | |||||
SHAREHOLDERS' EQUITY | |||||||
SHARE CAPITAL | (Note 6) | 10,243,150 | 10,114,236 | ||||
CONTRIBUTED SURPLUS | 309,438 | 278,697 | |||||
DEFICIT | (5,791,857 | ) | (5,035,148 | ) | |||
4,760,731 | 5,357,785 | ||||||
$ | 4 ,817,178 | $ | 5,374,569 |
APPROVED BY THE DIRECTORS | ||
/s/Peter M.D. Bradshaw | /s/ Robert A. Watts | |
Director | Director |
See notes to the consolidated financial statements
FIRST POINT MINERALS CORP.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
(Unaudited, prepared by management)
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30
Three Months | Six Months | |||||||||||
Ended June 30 | Ended June 30 | |||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||
EXPENSES | ||||||||||||
Accounting, legal and audit | $ | 2,814 | $ | 2,322 | $ | 3,287 | $ | 19,560 | ||||
Amortization | 2,354 | 2,595 | 4,308 | 4,223 | ||||||||
Communications | 808 | 919 | 1,849 | 1,633 | ||||||||
Management fees | 23,500 | 8,800 | 39,500 | 18,400 | ||||||||
Office and administration | 2,910 | (1,883 | ) | 10,109 | 1,335 | |||||||
Rent | 5,894 | 4,254 | 11,055 | 8,507 | ||||||||
Stock-based compensation | 28,140 | - | 30,741 | - | ||||||||
Travel and promotion | 15,565 | 15,721 | 29,938 | 28,478 | ||||||||
Trust and filing fees | 15,503 | 17,441 | 27,327 | 23,081 | ||||||||
Wages and benefits | 2,723 | 10,965 | 25,022 | 20,422 | ||||||||
General exploration | 56,484 | 91,093 | 232,743 | 155,130 | ||||||||
LOSS BEFORE OTHER ITEMS | 156,695 | 152,227 | 415,879 | 264,691 | ||||||||
OTHER ITEMS: | ||||||||||||
Interest income | (6,536 | ) | (4,578 | ) | (15,049 | ) | (9,639 | ) | ||||
Loss/(gain) on foreign exchange | (6,199 | ) | 6,412 | (5,337 | ) | 1,217 | ||||||
Loss on disposal of mineral | ||||||||||||
property (Note 5) | - | - | 361,216 | - | ||||||||
NET LOSS FOR THE PERIOD | 143,960 | 154,061 | 756,709 | 256,269 | ||||||||
DEFICIT, BEGINNING OF PERIOD | 5,647,897 | 4,267,060 | 5,035,148 | 4,164,852 | ||||||||
DEFICIT, END OF PERIOD | $ | 5,791,857 | $ | 4,421,121 | $ | 5,791,857 | $ | 4,421,121 | ||||
LOSS PER SHARE | $ | (0 .00 | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.01 | ) |
WEIGHTED AVERAGE NUMBER OF SHARES | ||||||||||||
OUTSTANDING | 31,257,850 | 23,636,987 | 31,203,674 | 23,456,987 |
See notes to the consolidated financial statements
FIRST POINT MINERALS CORP.
Consolidated statements of changes in cash position
(Unaudited, prepared by management)
FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30
Three Months | Six Months | |||||||||||
Ended June 30 | Ended June 30 | |||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||
CASH PROVIDED BY (USED FOR): | ||||||||||||
OPERATING ACTIVITIES | ||||||||||||
Net loss for the period | $ | (143,960 | ) | $ | (154,061 | ) | $ | (756,709 | ) | $ | (256,269 | ) |
Add items not involving cash | ||||||||||||
Amortization | 1,333 | 2,595 | 30,741 | 4,223 | ||||||||
Stock-based compensation | 28,140 | - | 3,287 | - | ||||||||
Disposal of mineral | ||||||||||||
property (Note 5) | - | - | 1,136,636 | - | ||||||||
(114,487 | ) | (151,466 | ) | 413,955 | (252,046 | ) | ||||||
CHANGES IN NON-CASH WORKING | ||||||||||||
CAPITAL COMPONENTS: | ||||||||||||
Accounts receivable | (35,111 | ) | (22,373 | ) | (34,175 | ) | (301 | ) | ||||
Prepaid expenses | 13,286 | 2,981 | 3,358 | 12,243 | ||||||||
Accounts payable and accrued | ||||||||||||
liabilities | (102,178 | ) | 69,772 | 39,663 | 80,148 | |||||||
(238,490 | ) | (101,086 | ) | 422,801 | (159,956 | ) | ||||||
FINANCING ACTIVITIES * | ||||||||||||
Common shares issued for cash | - | 77,460 | 26,414 | 236,210 | ||||||||
INVESTING ACTIVITIES * | ||||||||||||
Equity in development company | - | - | (864,073 | ) | - | |||||||
Mineral Exploration | (382,176 | ) | (110,366 | ) | (660,236 | ) | (425,827 | ) | ||||
Purchase of capital assets | (1,934 | ) | (929 | ) | (4,929 | ) | (6,533 | ) | ||||
(384,110 | ) | (111,295 | ) | (1,529,238 | ) | (432,360 | ) | |||||
NET CASH (USED) DURING PERIOD | (622,600 | ) | (134,921 | ) | (1,080,023 | ) | (356,106 | ) | ||||
CASH, BEGINNING OF PERIOD | 1,411,931 | 725,148 | 1,869,354 | 946,333 | ||||||||
CASH, END OF PERIOD | $ | 789,331 | $ | 90,227 | $ | 789,331 | $ | 590,227 |
·Supplemental Disclosure of non---cash financing and investing activitiess
During the Second quarter of 2004, the Company issued 500,000 (2003 – nil) common shares at an aggregate value of $102,500 (2003 – nil) in connection with mineral property acquisition agreements
See notes to the consolidated financial statements
FIRST POINT MINERALS CORP.
Notes to the Unaudited Consolidated Financial Statements
(Prepared by management)
June 30, 2004 and 2003
1. | NATURE AND CONTINUANCE OF OPERATIONS |
The Company is incorporated under theAlberta Business Corporations Actand is involved in the acquisition and exploration of property interests that are considered potential sites of economic mineralization. At the date of the financial statements, the Company has not identified a known body of commercial grade ore on any of its properties and the ability of the Company to recover the costs it has incurred to date on these properties is dependent upon the Company being able to identify a commercial ore body, to finance its exploration and development costs and to resolve any environmental, regulatory, or other constraints which may hinder the successful development of the property. | |
These unaudited interim financial statements have been prepared by management on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The continuing operations of the Company are dependent upon its ability to continue to raise adequate financing and to commence profitable operations in the future. The financial statements have not been audited, reviewed or otherwise verified as to the accuracy or completeness of information. Readers are cautioned that these statements may not be appropriate for their purposes. |
June 30, 2004 | December 31, 2003 | ||||||
Deficit | $ | (5,791,857 | ) | $ | (5,035,148 | ) | |
Working Capital | $ | 827,611 | $ | 1,916,480 |
2. | SIGNIFICANT ACCOUNTING POLICIES |
Basis of Accounting | |
The accompanying unaudited interim financial statements have been prepared by management in accordance with generally accepted accounting principles ("GAAP") in Canada on a basis consistent with those outlined in the Company's audited financial statements for the year ended December 31, 2003. They do not include all of the information and disclosures required by Canadian GAAP for audited financial statements. In the opinion of management, all adjustments considered necessary for fair presentation have been included in these financial statements. These unaudited interim financial statements should be read in conjunction with the most recent audited annual financial statements of the Company, including the notes thereto. | |
The Company has not changed any of its existing accounting policies, nor has it adopted any new accounting policies since its last fiscal year end. | |
Stock-Based Compensation | |
The Company records compensation associated with stock options granted to directors, officers, employees and consultants using a fair value measured basis and records the expense as the options vest with the recipients. | |
Comparative Figures | |
Certain comparative figures have been reclassified to conform with the current period's presentation. |
FIRST POINT MINERALS CORP.
Notes to the Unaudited Consolidated Financial Statements
(Prepared by management)
3. | INVESTMENT |
The Company entered into an agreement (the "Shareholder Agreement") effective January 16, 2004 with a Michigan limited liability company, Menominee River Exploration Co., LLC ("MREC") and seven individuals, being the owners of MREC (the "Initial US Investors"). Pursuant to the terms of the Shareholder Agreement, MREC and the Company transferred MREC's Back Forty project in Michigan and First Point's Cedros Property in Honduras to a new company, Aquila Resources Corp. ("Aquila"). In addition, First Point agreed to provide the management services needed to take Aquila public on a Canadian stock exchange and to use its best efforts to arrange for certain funds to be raised for Aquila. | |
As consideration for the foregoing transactions, First Point was to receive 2,215,569 Aquila common shares, of which 1,000,000 shares have been issued and are held in a special escrow account pending the Honduran government completing transfer of title to the Cedros property to Aquila. The balance of the shares, being 1,215,569 shares, will be issued to First Point following the completion of Aquila's Initial Public Offering, at which time Aquila will be listed for trading on a Canadian stock exchange. First Point also purchased 253,209 common shares of Aquila at $0.35 per share. Concurrently, the Initial US Investors purchased 889,649 common shares of Aquila at the same price. Subsequently, Aquila completed a small private placement in which certain investors purchased an additional 565,321 common shares. As a result of the foregoing transactions, at the end of the second quarter, the Company owned or held conditional rights to an aggregate of 2,468,778 shares of Aquila having a deemed value (at $0.35 per share) of $864,073, representing an ownership interest in Aquila of 21.1%. | |
4. | EQUIPMENT |
June 30, 2004 | December 31, 2003 | |||||||
Accumulated | ||||||||
Cost | Amortization | Net Book Value | Net Book Value | |||||
$ | $ | $ | $ | |||||
Computers | 37,355 | 25,382 | 11,973 | 12,724 | ||||
Office furniture and equipment | 74,347 | 53,592 | 20,755 | 18,362 | ||||
111,702 | 78,974 | 32,728 | 31,086 |
5. | MINERAL PROPERTIES |
HONDURAS | |
Cacamuya Property | |
The Company acquired an option in July 1999 to purchase a 60% interest in the Cacamuya Property in southern Honduras from Minera Battle Mountain Gold Company ("BMG"). BMG has subsequently become a wholly- owned subsidiary of Newmont Gold Company. | |
To earn its interest, the Company was required to incur US$1,000,000 in exploration expenditures (completed) and to issue 700,000 common shares to BMG by July 2004. Of these, 200,000 shares had been issued as at March 31, 2004, and the remaining 500,000 were issued to BMG in June 2004. BMG retains a 0.6% NSR royalty interest in the property. | |
The Company also has an option to earn the remaining 40% interest in this property from a wholly-owned Honduran subsidiary of Breakwater Resources Ltd. by issuing 500,000 common shares at such time as the Honduran government enacts the regulations to the new Honduran mining code and converts title to the property. Breakwater Resources will retain a sliding scale royalty of 0.4% of the gross sale proceeds starting at US$325 |
FIRST POINT MINERALS CORP.
Notes to the Unaudited Consolidated Financial Statements
(Prepared by management)
5. | MINERAL PROPERTIES(Continued) |
HONDURAS(Continued) | |
per ounce of gold and rising to a maximum of 1.2% of the gross sale proceeds at US$400 per ounce of gold for all gold production, and 0.4% of the gross sale proceeds starting at US$5.25 per ounce of silver and rising to a maximum of 1.2% of the gross sale proceeds at US$7.00 per ounce of silver for all silver production. | |
Cedros Property | |
As part of the Shareholder Agreement (see note 3), the Company agreed to transfer its Cedros zinc-silver property in Honduras to Aquila in return for 2,215,569 Aquila common shares. The carrying value of the Cedros property was $1,136,636. The Company placed a deemed value of $775,420 on the Aquila shares issuable in consideration for the transfer of the Cedros property and accordingly, has recorded a loss of $361,216 on the disposal of the Cedros property. | |
Guayape Property | |
Late in the first quarter of 2004, the Company acquired an exploration concession from the Honduran government covering the Guayape Property. A total of $4,791 in deferred exploration expenditures were incurred on this concession in the second quarter (being an aggregate of $7,935 since the project was acquired in the first quarter). | |
NICARAGUA | |
Rio Luna Property | |
In December 2002, the Company entered into an option agreement to acquire a 100% interest in the Rio Luna Property from Novaterra Resources Inc. ("NRI") and Inversiones de Terra Nova S.A. ("Intersa"), a subsidiary of NRI. To keep the option agreement in good standing the Company must make a cash payment to NRI of US$10,000 prior to or on the second anniversary date of the option agreement and must issue an additional 60,000 common shares of the Company to NRI prior to or on the third anniversary date. Expenditures on this project during the quarter totalled $352,724 (2003 - $60,007). Expenditures for the half year totalled $597,692 (2003 - $84,597). | |
EL SALVADOR, HONDURAS, NICARAGUA | |
Exploration and Property Option Agreement | |
In February 2003, the Company entered into an exploration and property option agreement with BHP Billiton World Exploration Inc. ("BHPBilliton") whereby the parties agreed to complete a US$200,000 exploration program in El Salvador, Honduras and Nicaragua (the "Target Area") to explore for copper-gold deposits, with the Company as operator of the program. BHPBilliton subscribed to a private placement of First Point units at $0.42 per unit, being the equivalent of US$50,000, and contributed an additional US$50,000 in cash to the exploration budget. The Company contributed an aggregate of US$150,000 to the exploration budget. | |
Cumulative expenditures reached US$200,000 late in the first quarter of 2004. The parties have agreed to fund additional expenditures on a 50/50 basis, up to a maximum of US$243,066. Cumulative expenditures from project inception to the end of the second quarter of 2004 are US$234,926, exclusive of a 7.5% management fee the Company is entitled to receive for managing the exploration program. | |
Until such time as a property has been acquired, all expenditures incurred under this agreement are being expensed. |
FIRST POINT MINERALS CORP.
Notes to the Unaudited Consolidated Financial Statements
(Prepared by management)
5. | MINERAL PROPERTIES(Continued) |
EL SALVADOR, HONDURAS, NICARAGUA(Continued) | |
Exploration and Property Option Agreement(Continued) | |
The properties currently controlled by the Company in Honduras and Nicaragua are excluded from the agreement with BHPBilliton. In addition, any copper-gold deposit identified pursuant to this agreement, unless the copper constitutes more than 25% of the economic value of the deposit, will belong 100% to the Company, and BHPBilliton will have no interest in such deposit. | |
6. | SHARE CAPITAL |
Authorized share capital consists of an unlimited number of common shares without par value and an unlimited number of first and second preferred shares. |
Number of | |||||
Common | |||||
Shares | $ | ||||
Common shares: | |||||
Issued at December 31, 2002 | 22,839,954 | 8,015,161 | |||
Private placements (1) | 6,178,000 | 1,510,260 | |||
Warrants exercised | 1,950,000 | 557,950 | |||
Shares issued for a prepaid expense | 30,500 | 10,065 | |||
Options exercised | 50,000 | 16,000 | |||
Mineral property acquisition | 15,000 | 4,800 | |||
8,223,500 | 2,099,075 | ||||
Issued at December 31, 2003 | 31,063,454 | 10,114,236 | |||
Warrants exercised | 90,000 | 26,414 | |||
Mineral property acquisition | 500,000 | 102,500 | |||
Issued at June 30, 2004 | 31,653,454 | 10,243,150 |
(1) net of share issue costs of $64,500 | |
a) | Stock options: |
The Company has an incentive stock option plan that conforms to the requirements of the TSX Venture Exchange and that has been approved by the shareholders. Options to purchase common shares have been granted to directors, officers, employees and consultants of the Company at exercise prices determined by the market value of the common shares on the date of the grant. A summary of the options outstanding at June 30, 2004 follows: |
FIRST POINT MINERALS CORP.
Notes to the Unaudited Consolidated Financial Statements
(Prepared by management)
6. | SHARE CAPITAL(continued) |
a) | Stock options(continued) |
Exercise Price | ||||||
Number | Expiry | |||||
Outstanding | $ | Date | ||||
50 ,000 | 0.32 | August 1, 2004 | ||||
620,000 | 0.39 | December 27, 2004 | ||||
50,000 | 0.55 | April 30, 2005 | ||||
315,000 | 0.50 | June 27, 2005 | ||||
75,000 | 0.19 | Januar y 16, 2007 | ||||
305,000 | 0.20 | Januar y 22, 2007 | ||||
50,000 | 0.53 | June 4, 2007 | ||||
460,000 | 0.55 | June 27, 2007 | ||||
150,000 | 0.34 | November 4, 2008 | ||||
710,000 | 0.35 | December 12, 2008 | ||||
40,000 | 0.33 | Februar y 1, 2009 | ||||
175,000 | 0.20 | April 15, 2009 | ||||
3 ,000,000 |
Weighted-Average | Number | Weighted-Average | |||||
Exercise Price | of Options | Contractual | |||||
Remaining Life | |||||||
Balance, December 31, 2002 | 0.41 | 2,274,000 | 3.03 | ||||
Granted | 0.36 | 910,000 | |||||
Exercised | 0.53 | (50,000 | ) | ||||
Cancelled | 0.20 | (100,000 | ) | ||||
Balance, December 31, 2003 | 0.395 | 3,034,000 | 2.80 | ||||
Granted | 0.33 | 40,000 | |||||
0.20 | 175,000 | ||||||
Expired | 0.45 | (199,000 | ) | ||||
0.53 | (50,000 | ) | |||||
Balance, June 30, 2004 | 0.382 | 3,000,000 | 2.69 |
The fair value of options reported as compensation expense in the current quarter has been estimated using the Black-Scholes Option Pricing Model. A total of 185,000 options vested during the quarter. Stock-based compensation expense of $28,410 was recorded during the current quarter (2003 – nil). The assumptions used to determine the fair value of the stock options that were granted during the first and second quarters of 2004 and that vested during the second quarter are set out in the following table: |
Granted in First | Granted in Second | ||||
Quarter 2004 | Quarter 2004 | ||||
Risk free interest rate | 3.64% | 3.78% | |||
Volatility | 132.3 | 124.2 | |||
Term (in years) | 5 | 5 | |||
Vesting terms | 25% per quarter | Fully vested |
FIRST POINT MINERALS CORP.
Notes to the Unaudited Consolidated Financial Statements
(Prepared by management)
6. | SHARE CAPITAL(continued) |
a) | Stock options(continued) |
Option pricing models require the input of highly subjective assumptions, particularly as to the expected price volatility of the stock. Changes in these assumptions can materially affect the fair value estimate and therefore it is management's view that the existing models do not necessarily provide a single reliable measure of the fair value of the Company's stock option grants. | |
b) | Warrants outstanding at June 30, 2004 are summarized as follows: |
Number | Exercise Price | Expiry | |||
Outstanding | $ | Date | |||
82 ,987 | 0.65 | July 2, 2004 | |||
89,000 | 0.62 | (1) | April 28, 2005 | ||
3,100,000 | 0.30 | December 9, 2005 | |||
3,271,987 |
7. | LOSS PER SHARE |
Loss per share has been calculated using the weighted-average number of common shares outstanding during the period. Diluted loss per share has not been calculated as it is anti-dilutive. | |
8. | RELATED PARTY TRANSACTIONS |
During the quarter, the Company paid companies controlled by Company officers an aggregate of $23,500 (2003 – $8,800) for management and administrative services. | |
9. | SUPPLEMENTARY NOTES |
As at August 25, 2004, there were 31,653,454 common shares outstanding. There were also 3,000,000 options outstanding with exercise prices ranging from $0.19 to 0.55 per share and expiry dates extending to April 15, 2009 and 3,189,000 warrants outstanding with exercise prices ranging from $0.30 to $0.62 per share and expiry dates extending to December 9, 2005. |