FINANCIAL STATEMENTS
ACREX VENTURES LTD.
VANCOUVER, BRITISH COLUMBIA, CANADA
September 30, 2007
1. NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS
2. STATEMENT OF OPERATIONS, COMPREHENSIVE LOSS AND DEFICIT
3. BALANCE SHEET
4. STATEMENT OF CASH FLOWS
5. NOTES TO FINANCIAL STATEMENTS
Notice of No Auditor Review of Interim Financial Statements
The accompanying unaudited interim financial statements have been prepared by management and approved by the Audit Committee and the Board of Directors.
The Company’s independent auditors have not performed a review of these financial statements in accordance with the standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity’s auditors.
ACREX Ventures Ltd.
STATEMENT OF OPERATIONS, COMPREHEHSIVE LOSS AND DEFICIT
Unaudited
|
| Three months ended September 30, 2007 |
| Three months ended September 30, 2006 |
| Nine months ended September 30, 2007 |
| Nine months ended September 30, 2006 |
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees | $ | 34,500 | $ | 34,500 | $ | 103,500 | $ | 103,500 |
Directors fees - stock based compensation |
| 74,853 |
| – |
| 74,853 |
| – |
Investor relations |
| 11,405 |
| 30,299 |
| 68,716 |
| 79,127 |
Accounting |
| (2,550) |
| 16,127 |
| 30,750 |
| 54,275 |
Promotion and travel |
| 8,702 |
| 3,583 |
| 28,784 |
| 22,859 |
Office and general |
| 2,294 |
| 10,815 |
| 28,470 |
| 39,581 |
Consulting |
| 6,238 |
| 220 |
| 25,525 |
| 22,648 |
Legal |
| 955 |
| 9,390 |
| 25,135 |
| 35,621 |
Advertising |
| 7,730 |
| 4,670 |
| 11,665 |
| 10,010 |
Transfer agent fee |
| 3,064 |
| – |
| 11,360 |
| 17,250 |
Filing fees |
| 66 |
| – |
| 7,760 |
| 13,400 |
Rent |
| 170 |
| 1,565 |
| 3,710 |
| 9,441 |
Insurance |
| – |
| – |
| 2,300 |
| 2,500 |
|
|
|
|
| ||||
|
| 147,427 |
| 111,169 |
| 422,528 |
| 410,212 |
|
|
|
|
| ||||
Net loss before other items and income taxes |
| (147,427) |
| (111,169) |
| (422,528) |
| (410,212) |
|
|
|
|
| ||||
OTHER ITEMS |
|
|
|
| ||||
|
|
|
|
| ||||
Interest income |
| 15,532 |
| 16,723 |
| 18,675 |
| 23,887 |
Other |
| 270 |
| – |
| 270 |
| – |
Loss on termination of mineral property option |
| – |
| (15,256) |
| – |
| (15,256) |
|
|
|
|
| ||||
|
| 15,802 |
| 1,467 |
| 18,945 |
| 8,631 |
|
|
|
|
| ||||
NET LOSS AND COMPREHENSIVE LOSS |
| (131,625) |
| (109,702) |
| (403,583) |
| (401,581) |
|
|
|
|
| ||||
Deficit, beginning of period |
| (5,095,035) |
| (4,583,597) |
| (4,823,077) |
| (4,291,718) |
|
|
|
|
| ||||
DEFICIT, end of period | $ | (5,226,660) | $ | (4,693,299) | $ | (5,226,660) | $ | (4,693,299) |
|
|
|
|
| ||||
|
|
|
|
| ||||
LOSS PER SHARE – BASIC AND DILUTED | $ | 0.00 | $ | 0.00 | $ | (0.01) | $ | (0.02) |
|
|
|
|
| ||||
WEIGHTED AVERAGE |
|
|
|
| ||||
NUMBER OF SHARES OUTSTANDING |
| 33,868,417 |
| 26,593,175 |
| 29,347,364 |
| 23,685,627 |
ACREX Ventures Ltd.
BALANCE SHEET
|
| September 30, |
| December 31, |
|
| 2007 |
| 2006 |
|
| Unaudited |
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
Cash and short-term investments | $ | 2,582,246 | $ | 662,965 |
Marketable securities |
| 16,270 |
| 16,000 |
Other receivables |
| 25,277 |
| 42,420 |
Prepaid expenses and deposits |
| 7,000 |
| 7,507 |
|
|
| ||
|
| 2,630,793 |
| 728,892 |
|
|
| ||
Mineral properties[Note 3] |
| 1,989,560 |
| 1,704,959 |
|
|
| ||
| $ | 4,620,353 | $ | 2,433,851 |
|
|
| ||
|
|
| ||
|
|
| ||
LIABILITIES |
|
| ||
|
|
| ||
Current |
|
| ||
Accounts payable | $ | 89,508 |
| 17,992 |
|
|
| ||
|
|
| ||
SHAREHOLDERS' EQUITY |
|
| ||
|
|
| ||
Share capital [Note 4] |
| 9,335,356 |
| 7,019,882 |
Contributed surplus[Note 5] |
| 422,149 |
| 219,054 |
Deficit |
| (5,226,660) |
| (4,823,077) |
|
|
| ||
|
| 4,531,866 |
| 2,415,859 |
|
|
| ||
| $ | 4,620,353 | $ | 2,433,851 |
|
|
|
|
|
APPROVED ON BEHALF OF THE BOARD:
"T.J. MALCOLM POWELL"
"CARL R. JONSSON"
Director
Director
ACREX Ventures Ltd.
STATEMENT OF CASH FLOWS
Unaudited
|
| Three months ended September 30, 2007 |
| Three months ended September 30, 2006 |
| Nine months ended September 30, 2007 |
| Nine months ended September 30, 2006 |
|
|
|
|
|
|
|
|
|
OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss | $ | (131,625) | $ | (109,702) | $ | (403,583) | $ | (401,581) |
Add (deduct) items not involving cash: |
|
|
|
| ||||
Stock-based compensation |
| 74,853 |
| – |
| 74,853 |
| 13,400 |
Loss on termination of mineral property option |
| – |
| 15,256 |
| – |
| 15,256 |
Other |
| (270) |
| – |
| (270) |
| – |
|
|
|
|
| ||||
|
| (57,042) |
| (94,446) |
| (329,000) |
| (372,925) |
|
|
|
|
| ||||
Changes in non-cash working capital balances: |
|
|
|
| ||||
Decrease (increase) in other receivables |
| (7,092) |
| (11,058) |
| 17,143 |
| (18,140) |
Decrease (increase) in prepaid expenses |
|
| – |
| 507 |
| (3,500) | |
Increase (decrease) in accounts payable |
| 55,860 |
| (21,098) |
| 71,516 |
| (20,249) |
|
|
|
|
| ||||
|
| (8,274) |
| (126,602) |
| (239,834) |
| (414,814) |
|
|
|
|
| ||||
|
|
|
|
| ||||
FINANCING |
|
|
|
| ||||
|
|
|
|
| ||||
Shares issued for cash, net |
| 2,384,429 |
| 32,500 |
| 2,443,716 |
| 1,291,624 |
|
|
|
|
| ||||
|
|
|
|
| ||||
INVESTING |
|
|
|
| ||||
|
|
|
|
| ||||
Mineral properties: |
|
|
|
| ||||
Acquisition costs |
| (31,050) |
| (16,248) |
| (81,570) |
| (56,029) |
Exploration expenditures |
| (110,606) |
| (126,864) |
| (203,031) |
| (228,224) |
|
|
|
|
| ||||
|
| (141,656) |
| (143,112) |
| (284,601) |
| (284,253) |
|
|
|
|
| ||||
Increase (decrease) in cash |
| 2,384,429 |
| (237,214) |
| 1,919,281 |
| 592,557 |
|
|
|
|
| ||||
Cash and short-term investments, beginning of period |
| 347,747 |
| 1,238,104 |
| 662,965 |
| 408,332 |
|
|
|
|
| ||||
CASH AND SHORT-TERM |
|
|
|
| ||||
INVESTMENTS, end of period | $ | 2,582,246 | $ | 1,000,890 | $ | 2,582,246 | $ | 1,000,889 |
ACREX VENTURES LTD.
NOTES TO FINANCIAL STATEMENTS
Nine months ended September 30, 2007
Unaudited
1. NATURE OF OPERATIONS
ACREX Ventures Ltd., incorporated in British Columbia, is a public company listed on the TSX Venture Exchange ("TSX") in Canada and on the NASD over-the-counter Bulletin Board ("OTCBB") in the U.S.
The Company is in the exploration stage and its principal business activity is the sourcing and exploration of mineral properties in Canada.
The accompanying unaudited financial statements are prepared in accordance with Canadian generally accepted accounting principles but do not conform in all respects to the note disclosure requirements for its annual financial statements. The unaudited financial statements have been prepared on a basis consistent with the accounting principles and policies described in the annual financial statements, unless otherwise mentioned, and should be read in conjunction with those statements. Except for the changes in accounting policies described in Note 2, these unaudited interim financial statements follow the same significant accounting policies as the annual financial statements. In the opinion of management, all adjustments considered necessary for fair presentation of the Company's financial position, results of operations and cash flows have been included in these financial statements.
2. CHANGES IN ACCOUNTING POLICIES
Effective January 1, 2007, the Company has adopted three new accounting standards related to financial instruments that were issued by the Canadian Institute of Chartered Accountants (“CICA”) in 2005. These accounting policy changes were adopted on a prospective basis with no restatement of prior period financial statements. The new standards and accounting policy changes are as follows:
Financial Instruments – Recognition and Measurement (CICA Handbook Section 3855)
In accordance with this new standard the Company now classifies all financial assets and liabilities instruments as either held-to-maturity, available-for-sale, held for trading, loans and receivables, or other financial liabilities. Financial assets held to maturity, loans and receivables and financial liabilities other than those held for trading, are measured at amortized cost. Available-for-sale instruments are measured at fair value with unrealized gains and losses recognized in other comprehensive income. Instruments classified as held for trading are measured at fair value with unrealized gains and losses recognized on the statement of loss.
Comprehensive Income (CICA Handbook Section 1530)
Comprehensive income is the change in shareholders’ equity during a period from transactions and other events and circumstances from non-owner sources. In accordance with this new standard, the Company now reports a statement of comprehensive loss and a new category, accumulated other comprehensive income, has been added to the shareholders’ equity section of the balance sheet. The components of this new category will include unrealized gains and losses on financial assets classified as available-for-sale and the effective portion of cash flow hedges, if any. There were no such components to be recognized in comprehensive income for the nine month period ended September 30, 2007.
Hedges (CICA Handbook Section 3865)
The new standard specifies the criteria under which hedge accounting can be applied and how hedge accounting can be executed. The Company has not designated any hedging relationships.
ACREX VENTURES LTD.
NOTES TO FINANCIAL STATEMENTS
Nine months ended September 30, 2007
Unaudited
3. MINERAL PROPERTIES
|
| Michaud |
| Spanish Mountain |
| Total |
|
|
|
|
|
|
|
Acquisition costs |
|
|
|
|
|
|
Balance, beginning of period | $ | 75,000 | $ | 43,248 | $ | 118,248 |
Acquisition fees |
| – |
| 81,570 |
| 81,570 |
|
|
|
| |||
Balance, end of period |
| 75,000 |
| 124,818 |
| 199,818 |
|
|
|
| |||
Exploration costs |
|
|
| |||
Balance, beginning of period |
| 1,169,312 |
| 417,399 |
| 1,586,711 |
Drilling |
| 60,684 |
| - |
| 60,684 |
Surveying and linecutting |
| – |
| 87,483 |
| 87,483 |
Consulting |
| 14,078 |
| 25,243 |
| 39,321 |
Support |
| 6,854 |
| - |
| 6,854 |
Other |
| – |
| 8,689 |
| 8,689 |
|
|
|
| |||
Balance, end of period |
| 1,250,928 |
| 538,814 |
| 1,789,742 |
|
|
|
| |||
| $ | 1,325,928 | $ | 663,632 | $ | 1,989,560 |
|
|
|
|
|
|
|
Michaud gold claims, Ontario, Canada - Pursuant to an Agreement dated September 1, 2001 and amended January 17, 2003 and February 17, 2004 (“Agreement”) with Moneta Porcupine Mines Inc. (“Moneta”), the Company acquired an option to earn interests in 65 mineral claims in the Michaud Township, Ontario, Canada (the “Property”). The Property is divided into two areas.
Pursuant to the Agreement the Company could have earned a 60% interest in the first area by expending a minimum of $1,000,000 on exploration of the area by May 15, 2005 and completing a bankable feasibility study on the area by May 15, 2007. The Company was required to give notice to Moneta by December 31, 2004 of its intention to conduct further exploration on this area. The notice was not provided and as a result the Company lost all of its rights to earn any interest in the first area.
During 2004 the Company fulfilled the requirements to earn a 50% interest in the second area. On November 26, 2004, the Company entered into a Joint Venture Agreement with Moneta to engage in the exploration, development and mining of the second area. The agreement also includes terms for the acquisition of additional mining or mineral claims or other real property interests within the area of interest.
In order to earn an additional 20% interest in the second area the Company was required to give notice to Moneta by December 31, 2004 of its intent to expend a minimum of $2,750,000 on exploration of the property by May 15, 2007. The Company decided to not give such notice and as a result relinquished the right to earn the additional 20% in the second area.
The Agreement also includes terms for the acquisition of additional mineral claims within the area of interest. Pursuant to these provisions, the Company has agreed with Moneta to acquire 50% of the net 75% interest (i.e. a net 37.5% interest) in three adjoining mineral claims known to the parties as the Dyment Claims - which cover approximately 48 hectares. To reimburse Moneta for its costs of the original acquisition of interests in the Dyment Claims, the Company has agreed to pay Moneta $50,000, all of which has been paid as of December 31, 2006.
Spanish Mountain claims, British Columbia, Canada- On July 23, 2005, the Company entered into an Option Agreement (the "Agreement") to acquire a 100% interest in the Spanish Mountain property, consisting of 8 mineral claims covering approximately 1,350 hectares located near Likely in Northeastern British Columbia, Canada.
ACREX VENTURES LTD.
NOTES TO FINANCIAL STATEMENTS
Nine months ended September 30, 2007
Unaudited
3. MINERAL PROPERTIES (continued)
Acrex may earn the interest by making certain cash payments and issuing shares to the Optionor as follows:
|
| Cash |
| Share |
Due Date |
| Payment |
| Issuance |
|
|
|
|
|
July 25, 2005 (completed) | $ | 5,000 |
| 50,000 |
April 25, 2006 (completed) |
| 5,000 |
| – |
July 25, 2006 (completed) |
| 10,000 |
| 50,000 |
July 25, 2007 (completed) |
| 20,000 |
| 50,000 |
July 25, 2008 |
| 20,000 |
| 50,000 |
July 25, 2009 |
| 40,000 |
| – |
|
|
|
|
|
| $ | 100,000 |
| 200,000 |
|
|
|
|
|
In addition, 200,000 shares of the Company are to be issued upon receipt of a positive feasibility study.
The Agreement is subject to a 3% net smelter return (“NSR”). The Company has the right to purchase 66.67% of the NSR for $1,000,000 upon commencement of commercial production of the property.
On February 7, 2007, the Company acquired 100% interest of two mineral tenures immediately to the west and south of the Company's existing claim group. The purchase price of these claims was $10,000 and 200,000 shares. The fair value of these shares was $40,000.
On July 25, 2007, the Company issued 50,000 common shares and paid $20,000 for payment of the option obligations pursuant to the Agreement. The fair value of these shares was $11,050.
4. SHARE CAPITAL
The Company has authorized share capital of an unlimited number of common voting shares without par value. Issued share capital is as follows:
| 2007 |
| 2006 | ||||
| Number |
| Amount |
| Number |
| Amount |
|
|
|
|
|
|
|
|
Balance, beginning of period | 26,908,936 | $ | 7,019,882 |
| 20,115,991 | $ | 5,629,706 |
Shares issued for cash and other: |
|
|
|
|
|
|
|
Private placements, net of share issue costs | 13,351,511 |
| 2,264,424 |
| 3,000,000 |
| 705,000 |
Mineral properties | 250,000 |
| 51,050 |
| 50,000 |
| 17,000 |
Options | – |
| – |
| 663,630 |
| 79,636 |
Warrants | – |
| – |
| 3,079,315 |
| 550,988 |
Transferred from contributed surplus for stock |
|
|
|
|
|
|
|
options and agents' warrants exercised | – |
| – |
| – |
| 37,552 |
|
|
|
|
|
|
|
|
Balance, end of period | 40,510,447 | $ | 9,335,356 |
| 26,908,936 | $ | 7,019,882 |
|
|
|
|
|
|
|
|
a)
On February 2, 2007, the Company issued 200,000 commons shares for payment of certain mineral properties, as described in Note 3. The fair value of these shares was $40,000.
ACREX VENTURES LTD.
NOTES TO FINANCIAL STATEMENTS
Nine months ended September 30, 2007
Unaudited
4. SHARE CAPITAL (continued)
b)
On July 25, 2007, the Company issued 50,000 common shares and paid $20,000 for payment of the Spanish Mountain claims pursuant to the Option Agreement, as described in Note 3. The fair value of the shares was $11,050.
c)
In August, 2007, the Company completed a private placement consisting 5,000,000 units which were designated as flow-through units at a price of $0.22 per unit, and 7,800,000 non flow-through units at a price of $0.18 per unit, for gross proceeds of $2,504,000. Each unit consisted of one common shares and one half of one common share purchase warrant. Each whole warrant may be exercised to acquire a further common share at $0.50 per share until August 14 to August 16, 2009. The Company paid agent’s commission of $76,008 and other share issue costs of $60,851. The Company issued agent’s units of 551,511 non flow-through units with the same terms as the non flow-through units described above. The agent also received 1,024,000 agent’s warrants to acquire 1,024,000 non flow-through common shares at an exercise price of $0.23 per share for a period of 2 years until August 14 to August 16, 2009. The fair value of the agent’s warrants was det ermined to be $102,717.
Warrants - The following table summarizes the continuity of the Company’s warrants:
Number of shares |
| Weighted average exercise price $ | |
|
|
|
|
Balance, beginning of period | 3,000,000 |
| 0.30 |
|
|
| |
Issued on private placement units | 7,699,755 |
| 0.46 |
Expired | (3,000,000) |
| 0.30 |
|
|
| |
Balance, ending of period | 7,699,755 |
| 0.46 |
|
|
|
As at September 30, 2007, the following warrants were outstanding:
Number of Warrants |
| Exercise Price $ | Expiry Date |
|
|
|
|
6,675,755 |
| 0.50 | August 14/16, 2009 |
1,024,000 |
| 0.23 | August 14/16, 2009 |
|
|
|
|
7,699,755 |
|
|
|
|
|
|
|
During the period, the Company issued a total of 1,024,000 share purchase warrants as finder’s fees. The fair value of the share purchase warrants issued was determined to be $102,717 using the Black-Scholes pricing model, using the following weighted average assumptions:
| Nine months Ended September 30, 2007 |
|
|
Risk free interest rate | 4.57% |
Expected dividend yield | 0% |
Expected stock price volatility | 116% |
Warrant life | 2 year |
The weighted average fair value of share purchase warrants granted during the period ended September 30, 2007 was $0.10 per warrant.
ACREX VENTURES LTD.
NOTES TO FINANCIAL STATEMENTS
Nine months ended September 30, 2007
Unaudited
5. CONTRIBUTED SURPLUS
|
| 2007 |
| 2006 |
|
|
|
|
|
Balance - beginning of period | $ | 219,054 | $ | 217,397 |
Stock-based compensation – stock options granted |
| 100,378 |
| 39,209 |
Agent’s warrants granted |
| 102,717 |
| – |
Options and warrants exercised |
| – |
| (37,552) |
|
|
|
|
|
Balance - end of period | $ | 422,149 | $ | 219,054 |
|
|
|
|
|
6. STOCK OPTION PLAN AND STOCK - BASED COMPENSATION
The Company has established a stock option plan for directors, employees, and consultants. The following table summarizes the stock options outstanding and exercisable at September 30, 2007:
|
| Number |
| Number |
|
|
Price |
| Outstanding |
| Exercisable |
| Expiry Date |
|
|
|
|
|
|
|
$0.28 |
| 565,000 |
| 565,000 |
| November 4, 2008 |
$0.12 |
| 485,000 |
| 485,000 |
| July 7, 2010 |
$0.12 |
| 100,000 |
| 100,000 |
| October 13, 2010 |
$0.12 |
| 100,000 |
| 100,000 |
| December 5, 2010 |
$0.30 |
| 100,000 |
| 100,000 |
| June 19, 2011 |
$0.30 |
| 50,000 |
| 50,000 |
| June 29, 2011 |
$0.20 |
| 100,000 |
| 100,000 |
| February 7, 2012 |
$0.16 |
| 650,000 |
| 650,000 |
| July 12, 2012 |
|
|
|
|
|
|
|
|
| 2,150,000 |
| 2,150,000 |
|
|
|
|
|
|
|
|
|
Under the Company's stock option plan, the exercise price of each option is determined by the Board, subject to the pricing policies of the TSX Venture Exchange. Options vest immediately when granted and expire five years from the date of the grant, unless the Board establishes more restrictive terms.
The aggregate number of shares issuable pursuant to options granted under the plan is limited to 10% of the Company's issued shares at the time the options are granted. The aggregate number of options granted to any one optionee in a 12-month period is limited to 5% of the issued shares of the corporation.
A summary of the changes in the Company's stock options for the period ended September 30, 2007 and year ended 2006 is presented below:
|
| 2007 |
|
|
|
| 2006 |
|
|
|
| Weighted Average |
|
| Weighted Average |
|
| Number |
| Exercise Price | Number |
| Exercise Price |
|
|
|
|
|
|
|
|
Outstanding, beginning of period |
| 2,000,000 | $ | 0.23 | 2,520,380 | $ | 0.22 |
Granted |
| 750,000 |
| 0.17 | 150,000 |
| 0.30 |
Exercised |
| – |
| – | (663,630) |
| 0.12 |
Expired |
| (600,000) |
| 0.30 | (6,750) |
| 0.12 |
|
|
|
|
|
| ||
Outstanding, end of period |
| 2,150,000 | $ | 0.15 | 2,000,000 | $ | 0.23 |
|
|
|
|
|
|
|
|
ACREX VENTURES LTD.
NOTES TO FINANCIAL STATEMENTS
Nine months ended September 30, 2007
Unaudited
6. STOCK OPTION PLAN AND STOCK - BASED COMPENSATION (continued)
The Company uses the Black-Scholes option pricing model to value stock options granted. The Black-Scholes model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. The model requires management to make estimates, which are subjective and may not be representative of actual results. Changes in assumptions can materially affect estimates of fair values. For purposes of the calculation, the following assumptions were used:
| Nine months ended |
| September 30, 2007 |
|
|
Risk free interest rate | 4.5% |
Expected dividend yield | 0% |
Expected stock price volatility | 109% |
Expected life | 4.8 years |
Per share fair value of options granted during the period | $0.13 |
Total stock-based compensation expense in respect of stock options granted for the nine months ended September 30, 2007 was $74,853. The weighted average fair value of the options granted during the period was $0.12 per option.
7. RELATED PARTY TRANSACTIONS
The Company incurred share issue costs of $29,604 and legal fees of $25,135 from a law firm of which a director is a principal.
The Company incurred management fees of $81,000 and equipment rental charges of $8,856 from a company owned by a director and management fees of $22,500 from a company owned by another director of the Company.
8. SEGMENT INFORMATION
The Company's operations are limited to a single industry segment being the acquisition, exploration and development of mineral properties. The mineral properties are located in Canada in the Provinces of British Columbia and Ontario.