| CONSOLIDATED FINANCIAL STATEMENTS |
| |
| |
| THREE AND NINE MONTHS |
| ENDED MARCH 31, 2006 |
| |
| |
| |
| (Expressed in United States Dollars, unless otherwise stated) |
| |
| (Unaudited) |
| |
| |
| |
| These financial statements have not been reviewed by the Company's auditors |
| FARALLON RESOURCES LTD. |
| Consolidated Balance Sheets |
| (Expressed in United States Dollars, unless otherwise stated) |
| | | March 31 | | | June 30 | |
| | | 2006 | | | 2005 | |
| | | (unaudited) | | | | |
| | | | | | | |
| ASSETS | | | | | | |
| | | | | | | |
| Current assets | | | | | | |
| Cash and equivalents | $ | 7,661,570 | | $ | 13,962,200 | |
| Amounts receivable and prepaids | | 1,053,516 | | | 686,683 | |
| Balances receivable from related parties (note 4) | | 72,800 | | | – | |
| | | 8,787,886 | | | 14,648,883 | |
| | | | | | | |
| Buildings and equipment | | 339,163 | | | 384,324 | |
| Mineral property interests | | 8,963,127 | | | 8,963,127 | |
| | | | | | | |
| | $ | 18,090,176 | | $ | 23,996,334 | |
| | | | | | | |
| | | | | | | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | |
| | | | | | | |
| Current liabilities | | | | | | |
| Accounts payable and accrued liabilities | $ | 762,462 | | $ | 607,573 | |
| Balances payable to related parties (note 4) | | – | | | 115,023 | |
| | | 762,462 | | | 722,596 | |
| | | | | | | |
| Shareholders' equity | | | | | | |
| Share capital (note 3) | | 76,198,613 | | | 73,800,541 | |
| Contributed surplus | | 1,420,752 | | | 845,523 | |
| Deficit | | (60,291,651 | ) | | (51,372,326 | ) |
| | | 17,327,714 | | | 23,273,738 | |
| Contingencies (note 5) | | | | | | |
| | | | | | | |
| | $ | 18,090,176 | | $ | 23,996,334 | |
See accompanying notes to the consolidated financial statements.
Approved by the Board of Directors
| /s/ JRH (Dick) Whittington | /s/ Jeffrey R. Mason |
| | |
| JRH (Dick) Whittington | Jeffrey R. Mason |
| Director | Director |
| FARALLON RESOURCES LTD. |
| Consolidated Statements of Operations and Deficit |
| (Unaudited - Expressed in United States Dollars, unless otherwise stated) |
| | | Three months ended March 31 | | | Nine months ended March 31 | |
| | | 2006 | | | 2005 | | | 2006 | | | 2005 | |
| Expenses | | | | | | | | | | | | |
| Exploration (schedule) | $ | 2,427,724 | | $ | 2,702,495 | | $ | 6,645,066 | | $ | 5,276,994 | |
| Interest | | – | | | – | | | – | | | 141 | |
| Legal, audit and accounting | | 187,061 | | | 156,577 | | | 508,136 | | | 909,399 | |
| Office and administration | | 377,306 | | | 217,236 | | | 1,290,739 | | | 769,315 | |
| Shareholder communication | | 58,481 | | | 17,659 | | | 612,103 | | | 592,100 | |
| Stock-based compensation - exploration | | 22,747 | | | 7,774 | | | 168,095 | | | 349,092 | |
| Stock-based compensation - office and administration | | 57,775 | | | 21,771 | | | 407,134 | | | 342,084 | |
| Travel and conferences | | 70,003 | | | 46,277 | | | 290,978 | | | 146,902 | |
| | | 3,201,097 | | | 3,169,789 | | | 9,922,251 | | | 8,386,027 | |
| | | | | | | | | | | | | |
| Other income (expense) | | | | | | | | | | | | |
| Foreign exchange gain (loss) | | 178,852 | | | (209,508 | ) | | 772,452 | | | 247,122 | |
| Interest income | | 79,390 | | | 112,977 | | | 230,474 | | | 169,350 | |
| Gain on sale of equipment | | – | | | (1,543 | ) | | – | | | – | |
| | | 258,242 | | | (98,074 | ) | | 1,002,926 | | | 416,472 | |
| | | | | | | | | | | | | |
| Loss for the period | | 2,942,855 | | | 3,267,863 | | | 8,919,325 | | | 7,969,555 | |
| | | | | | | | | | | | | |
| Deficit, beginning of period | | 57,348,796 | | | 43,643,730 | | | 51,372,326 | | | 38,940,495 | |
| | | | | | | | | | | | | |
| Deficit, end of period | $ | 60,291,651 | | $ | 46,911,593 | | $ | 60,291,651 | | $ | 46,910,050 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Basic and diluted loss per share | $ | 0.03 | | $ | 0.03 | | $ | 0.09 | | $ | 0.11 | |
| | | | | | | | | | | | | |
| Weighted average number of common shares outstanding | | 104,806,814 | | | 96,081,030 | | | 102,370,768 | | | 74,972,685 | |
See accompanying notes to the consolidated financial statements.
| FARALLON RESOURCES LTD. |
| Consolidated Statements of Cash Flows |
| (Unaudited - Expressed in United States Dollars, unless otherwise stated) |
| | | Three months ended March 31 | | | Nine months ended March 31 | |
| | | 2006 | | | 2005 | | | 2006 | | | 2005 | |
| | | | | | | | | | | | | |
| Operating activities | | | | | | | | | | | | |
| Loss for the period | $ | (2,942,855 | ) | $ | (3,267,863 | ) | $ | (8,919,325 | ) | $ | (7,969,555 | ) |
| Items not involving cash | | | | | | | | | | | | |
| Amortization included in exploration expenses | | 29,974 | | | 17,633 | | | 94,670 | | | 46,886 | |
| Loss on disposal of equipment | | – | | | 1,543 | | | – | | | – | |
| Stock-based compensation | | 80,522 | | | 29,545 | | | 575,229 | | | 691,176 | |
| Changes in non-cash working capital | | | | | | | | | | | | |
| Amounts receivable and prepaids | | (355,329 | ) | | (79,260 | ) | | (366,833 | ) | | (494,705 | ) |
| Accounts payable and accrued liabilities | | 301,460 | | | 181,298 | | | 154,889 | | | 412,490 | |
| Cash used in operating activities | | (2,886,228 | ) | | (3,117,104 | ) | | (8,461,370 | ) | | (7,313,708 | ) |
| | | | | | | | | | | | | |
| Investing activities | | | | | | | | | | | | |
| Purchase of equipment | | (38,573 | ) | | (55,007 | ) | | (49,509 | ) | | (136,893 | ) |
| Proceeds from sale of equipment | | – | | | – | | | – | | | – | |
| Cash used in investing activities | | (38,573 | ) | | (55,007 | ) | | (49,509 | ) | | (136,893 | ) |
| | | | | | | | | | | | | |
| Financing activities | | | | | | | | | | | | |
| Balances receivable (payable) from (to) related parties | | 386,040 | | | 1,445,376 | | | (187,823 | ) | | 39,261 | |
| Common shares issued for cash, net of issue costs | | 63,955 | | | 176,682 | | | 2,398,072 | | | 18,996,291 | |
| Cash provided by financing activities | | 449,995 | | | 1,622,058 | | | 2,210,249 | | | 19,035,552 | |
| | | | | | | | | | | | | |
| Increase (decrease) in cash and equivalents | | (2,474,806 | ) | | (1,550,053 | ) | | (6,300,630 | ) | | 11,584,951 | |
| Cash and equivalents, beginning of period | | 10,136,376 | | | 18,548,017 | | | 13,962,200 | | | 5,413,013 | |
| | | | | | | | | | | | | |
| Cash and equivalents, end of period | $ | 7,661,570 | | $ | 16,997,964 | | $ | 7,661,570 | | $ | 16,997,964 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Supplemental cash flow information | | | | | | | | | | | | |
| Income taxes paid | $ | – | | $ | – | | $ | – | | $ | – | |
| Interest paid | $ | – | | $ | – | | $ | – | | $ | 141 | |
See accompanying notes to the consolidated financial statements.
| FARALLON RESOURCES LTD. |
| Consolidated Schedules of Exploration Expenses |
| (Unaudited - Expressed in United States Dollars, unless otherwise stated) |
| | | Three months ended March 31 | | | Nine months ended March 31 | |
| Campo Morado Property | | 2006 | | | 2005 | | | 2006 | | | 2005 | |
| Exploration expenses incurred during the period | | | | | | | | | | | | |
| Assays and analysis | $ | 108,361 | | $ | 72,949 | | $ | 227,862 | | $ | 203,461 | |
| Amortization | | 29,974 | | | 17,633 | | | 94,670 | | | 46,886 | |
| Drilling | | 856,885 | | | 683,212 | | | 2,389,280 | | | 1,777,692 | |
| Engineering | | 560,920 | | | 1,151,674 | | | 1,889,470 | | | 1,645,489 | |
| Geological | | 313,970 | | | 289,212 | | | 803,280 | | | 613,128 | |
| Site activities | | 503,129 | | | 422,392 | | | 1,103,673 | | | 848,356 | |
| Transportation | | 54,485 | | | 65,423 | | | 136,831 | | | 141,982 | |
| Subtotal | | 2,427,724 | | | 2,702,495 | | | 6,645,066 | | | 5,276,994 | |
| Non-cash stock-based compensation | | 22,747 | | | 7,774 | | | 168,095 | | | 349,092 | |
| Exploration expenses, including stock-based | | | | | | | | | | | | |
| compensation, incurred during the period | | 2,450,471 | | | 2,710,269 | | | 6,813,161 | | | 5,626,086 | |
| Cumulative exploration expenses, beginning of period | | 41,602,106 | | | 31,037,222 | | | 37,239,416 | | | 28,121,405 | |
| Cumulative exploration expenses, end of period | $ | 44,052,577 | | $ | 33,747,491 | | $ | 44,052,577 | | $ | 33,747,491 | |
| | | | | | | | | | | | | |
| Cumulative exploration expenditures consists of: | | | | | | | | | | | | |
| Cumulative cash expenditures | $ | 2,427,724 | | $ | 2,702,495 | | $ | 43,179,808 | | $ | 33,059,379 | |
| Cumulative non-cash stock-based compensation | | 22,747 | | | 7,774 | | | 872,769 | | | 688,112 | |
| | $ | 2,450,471 | | $ | 2,710,269 | | $ | 44,052,577 | | $ | 33,747,491 | |
| FARALLON RESOURCES LTD. |
| Notes to the Consolidated Financial Statements |
| Three and nine months ended March 31, 2006 |
| (Unaudited - Expressed in United States Dollars, unless otherwise stated) |
| |
| 1. | BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION |
| | |
| These interim consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles and are presented in United States dollars. They do not include all the disclosures as required for annual financial statements under generally accepted accounting principles. However, these interim consolidated financial statements follow the same accounting policies and methods of application as the Company's most recent annual financial statements, except for the change described in note 2. These interim consolidated financial statements should be read in conjunction with the Company's annual consolidated financial statements. |
| | |
| Operating results for the three and nine month periods ended March 31, 2006 are not necessarily indicative of the results that may be expected for the full year ending June 30, 2006. |
| 2. | CHANGE IN ACCOUNTING POLICY |
| | |
| Variable interest entities |
| | |
| Effective July 1, 2005, the Company adopted the Canadian Institute of Chartered Accountants (“CICA”) Accounting Guideline 15, "Consolidation of Variable Interest Entities" ("AcG15") on a prospective basis. AcG15 prescribes the application of consolidation principles for entities that meet the definition of a variable interest entity (“VIE”). An enterprise holding other than a voting interest in a VIE could, subject to certain conditions, be required to consolidate the VIE if it is considered its primary beneficiary whereby it would absorb the majority of the VIE’s expected losses, receive the majority of its expected residual returns, or both. The adoption of this new standard had no effect on the interim consolidated financial statements as the Company does not have any VIE’s. |
| 3. | SHARE CAPITAL |
| | |
| (a) | Authorized share capital |
| | |
| The Company’s authorized share capital consists of an unlimited number of common shares without par value, and an unlimited number of preferred shares without par value. |
| FARALLON RESOURCES LTD. |
| Notes to the Consolidated Financial Statements |
| Three and nine months ended March 31, 2006 |
| (Unaudited - Expressed in United States Dollars, unless otherwise stated) |
| |
| (b) | Issued and outstanding common shares |
| | | Price | Number | Amount |
| | Common shares issued | (Cdn$) | of Shares | (US$) |
| | Balance, June 30, 2005 | | 99,244,985 | $ 73,800,541 |
| | Share purchase options exercised | $0.60 | 26,000 | 13,578 |
| | Share purchase options exercised | $0.65 | 15,000 | 8,424 |
| | Share purchase options exercised | $0.74 | 65,500 | 41,954 |
| | Share purchase warrants exercised | $0.50 | 5,501,846 | 2,334,116 |
| | Balance, March 31, 2006 | | 104,853,331 | $ 76,198,613 |
| (c) | Share purchase option compensation plan |
| | The continuity of share purchase options for the period ended March 31, 2006 is as follows: | |
| | | | | | | | |
| | | Exercise | June 30 | | | Expired or | Mar 31 |
| | Expiry date | price | 2005 | Granted | Exercised | cancelled | 2006 |
| | February 8, 2006 | Cdn$0.74 | 50,500 | – | (50,500) | – | – |
| | June 21, 2006 | Cdn$0.60 | 415,000 | – | (26,000) | – | 389,000 |
| | June 21, 2006 | Cdn$0.65 | 195,000 | – | (15,000) | (40,000) | 140,000 |
| | June 21, 2006 | Cdn$0.70 | 1,767,500 | – | – | (10,000) | 1,757,500 |
| | June 1, 2007 | Cdn$0.60 | 50,000 | – | – | – | 50,000 |
| | June 22, 2007 | Cdn$0.60 | 240,000 | – | – | – | 240,000 |
| | June 22, 2007 | Cdn$0.74 | 275,000 | – | (15,000) | – | 260,000 |
| | September 28, 2007 | Cdn$0.58 | – | 2,165,000 | – | (20,000) | 2,145,000 |
| | December 14, 2007 | Cdn$0.52 | – | 135,000 | – | (120,000) | 15,000 |
| | February 29, 2006 | Cdn$0.74 | – | 215,000 | – | – | 215,000 |
| | March 31, 2009 | Cdn$0.80 | – | 744,000 | – | – | 744,000 |
| | March 31, 2011 | Cdn$1.00 | – | 2,450,000 | – | – | 2,450,000 |
| | | | 2,993,000 | 5,709,000 | (106,500) | (190,000) | 8,405,500 |
| | | | | | | | |
| | Weighted average exercise price | Cdn$ 0.68 | Cdn$ 0.79 | Cdn$ 0.69 | Cdn$ 0.56 | Cdn$ 0.76 |
| FARALLON RESOURCES LTD. |
| Notes to the Consolidated Financial Statements |
| Three and nine months ended March 31, 2006 |
| (Unaudited - Expressed in United States Dollars, unless otherwise stated) |
| |
| (d) | Share purchase warrants The continuity of share purchase warrants (each exercisable into one common share) for the period ended March 31, 2006 is: |
| | | | | | | | |
| | | Exercise | June 30 | | | | March 31 |
| | Expiry date | Price | 2005 | Issued | Exercised | Expired | 2006 |
| | December 31, 2005 | Cdn$0.50 | 7,031,636 | – | (5,501,846) | (1,529,790) | – |
| | December 17, 2006 | Cdn$1.02 (i) | 28,571,877 | – | – | – | 28,571,877 |
| | | | 35,603,513 | – | (5,501,846) | (1,529,790) | 28,571,877 |
| | | | | | | | |
| | Weighted average exercise price | Cdn$ 0.92 | Cdn$ – | Cdn$ 0.50 | Cdn$ 0.50 | Cdn$ 1.02 |
| | (i) | Warrants were exercisable at Cdn$0.80 until December 17, 2005 and thereafter, are exercisable at Cdn$1.02 until December 17, 2006. |
| | | |
| (e) | Contributed surplus |
| | Balance, June 30, 2005 | $ | 845,523 | |
| | Changes during 2006 | | | |
| | Non-cash stock-based compensation | | 575,229 | |
| | Balance, September 30, 2005 | $ | 1,420,752 | |
| 4. | RELATED PARTY BALANCES AND TRANSACTIONS |
| | | | | | As at | | | As at | |
| | | | | | March 31 | | | June 30 | |
| | | Balances receivable (payable) | | | 2006 | | | 2005 | |
| | | Hunter Dickinson Inc. and subsidiaries | | $ | 72,800 | | $ | (96,390 | ) |
| | | Hunter Dickinson Group Inc. | | | – | | | (2,727 | ) |
| | | CEC Engineering Ltd. | | | – | | | (15,906 | ) |
| | | Balances receivable from (payable to) related parties | | $ | 72,800 | | $ | (115,023 | ) |
| | | Three months ended | Nine months ended |
| | | March 31 | March 31 |
| | Transactions | 2006 | 2005 | 2006 | 2005 |
| | Services rendered and expenses reimbursed | | | | |
| | Hunter Dickinson Inc. and subsidiaries | $ 1,056,344 | $ 758,475 | $ 2,834,824 | $ 1,923,034 |
| | Hunter Dickinson Group Inc. | – | 2,581 | 2,658 | 7,691 |
| | CEC Engineering Ltd. | – | 5,782 | – | 30,867 |
Mineral Property Interests – Campo Morado
The Company's 100%-owned Campo Morado ownership rights were challenged and successfully defended in the legal courts of British Columbia, Nevada and Mexico. In 1996 and 1997, the Company was the defendant in various lawsuits relating to ownership of the Campo Morado property. The legal actions heard in British Columbia and Nevada were decided in the Company’s favor in 1998 and 1999 and 2001.
| FARALLON RESOURCES LTD. |
| Notes to the Consolidated Financial Statements |
| Three and nine months ended March 31, 2006 |
| (Unaudited - Expressed in United States Dollars, unless otherwise stated) |
| |
The Nevada action was concluded in favor of Farallon in 2001 and a money judgment of $646,991 was obtained against the plaintiffs. The plaintiffs filed an appeal to the Nevada Supreme Court. On November 16, 2005, the appeal was denied in its entirety, re-affirming the decisions of the lower courts. The November 16, 2005 decision was final and conclusive; however, in December 2005 one of the plaintiffs, requested a "rehearing" of the November 16, 2005 Judgement. On April 18, 2006, the Nevada Supreme Court denied in full any "rehearing" of the Summex Exploration Co. Ltd. appeal case.
In the Mexican action, Farallon received notice from its Mexican legal counsel that on October 25, 2001, the Third District Court in Hermosillo, Sonora ruled in favor of Farallon and the other defendants. The Court found the plaintiff's claim was without merit and ordered the plaintiff to pay Farallon's costs. This ruling was appealed by the plaintiff. On April 5, 2002, Farallon received the decision of the First Unitary Tribunal for the Fifth Circuit in Sonora, Mexico which set aside the original ruling of October 25, 2001 and declared the case a nullity, based on technical and legal omissions on the part of the plaintiff. Farallon appealed this ruling to the Second Collegial Court for the Fifth Circuit in Sonora, and this court upheld the decision of the First Unitary Tribunal.
On September 7, 2004, the Company was notified of a lawsuit by David Hermiston, a plaintiff in a previous legal action regarding the ownership of the Company’s Campo Morado Property, which was successfully defended by the Company, making essentially the same allegations and seeking essentially the same remedies as three lawsuits previously initiated by him, each of which successfully upheld management’s position on the issues in question. In connection with this claim, a lien was paced on certain assets of the Company's Mexican operating subsidiary. Management's view is that his claim is without merit. The Company is vigorously defending the action. However, the outcome of this matter is currently not determinable.
| (b) | Wiltz Investment S.A. vs Farallon Minera Mexicana S.A. de C.V. |
Wiltz Investment S.A. ("Wiltz") alleges that it is owed 750,000 common shares of Farallon related to its alleged purchase of the Campo Morado rights from Minera Summit de Mexico S.A. de C.V. in 1998 and is, consequently, demanding the rescission of the option agreement between Minera Summit and Farallon dated October 15, 1995. The Company's position is that the Company has never been notified of, nor has approved of, any transfer of rights to Wiltz. Furthermore, any potential further payments due to Minera Summit pursuant to the October 15, 1995 option agreement are due and payable (depending on the findings) on completion of a feasibility study. The Company's attorneys have filed documents to have these proceedings annulled and are seeking remediation from Wiltz and associated parties. In connection with this claim, a lien was placed on certain assets of the Company's Mexican operating subsidiary. Management's view is that this claim by Wiltz Investment S.A. is without merit and the Company is vigorously defending the action. However, the outcome of this matter is currently not determinable.
| (c) | Legal services agreement During the year ended June 30, 2005, the Company entered into legal services agreements which obligate the Company to expenditures aggregating up to approximately $1,020,000 for services which will be rendered during the current fiscal year. |
| FARALLON RESOURCES LTD. |
| Notes to the Consolidated Financial Statements |
| Three and nine months ended March 31, 2006 |
| (Unaudited - Expressed in United States Dollars, unless otherwise stated) |
| |
| 6. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES |
The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP"), which differ in certain material respects from those principles that the Company would have followed had its financial statements been prepared in accordance with United States generally accepted accounting principles ("US GAAP"). Had the Company followed US GAAP, certain items on the consolidated balance sheets, and the consolidated statements of operations and deficit would have been reported as follows:
| | | | As at | |
| | | | March 31 | | | June 30 | |
| | Share capital and contributed surplus | | 2006 | | | 2005 | |
| | Share capital and contributed surplus under Canadian GAAP | $ | 77,619,365 | | $ | 74,646,064 | |
| | Stock-based compensation (a) | | 19,521 | | | 19,521 | |
| | Share capital and contributed surplus under US GAAP | $ | 77,638,886 | | $ | 74,665,585 | |
| | | | As at | |
| | | | March 31 | | | June 30 | |
| | Deficit | | 2006 | | | 2005 | |
| | Deficit under Canadian GAAP | $ | 60,291,651 | | $ | 51,372,326 | |
| | Stock-based compensation (a) | | 19,521 | | | 19,521 | |
| | Deficit under US GAAP | $ | 60,311,172 | | $ | 51,391,847 | |
| | | | Nine months ended March 31 | |
| | Loss for the period | | 2006 | | | 2005 | |
| | Loss under Canadian GAAP | $ | 8,919,325 | | $ | 7,969,555 | |
| | Difference in stock-based compensation (a) | | – | | | – | |
| | Loss for the period under US GAAP | $ | 8,919,325 | | $ | 7,969,555 | |
| | | | | | | | |
| | Loss per share under US GAAP | $ | (0.09 | ) | $ | (0.11 | ) |
| (a) | Stock based compensation |
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation", requires that stock-based compensation be accounted for based on a fair value methodology, although in certain instances it allows the effects to be disclosed in the notes to the consolidated financial statements rather than in the statement of operations. SFAS 123 also allows an entity to continue to measure compensation costs for stock-based compensation plans using the intrinsic value based method of accounting as prescribed by APB Opinion No. 25 ("APB 25").
| FARALLON RESOURCES LTD. |
| Notes to the Consolidated Financial Statements |
| Three and nine months ended March 31, 2006 |
| (Unaudited - Expressed in United States Dollars, unless otherwise stated) |
| |
In the year ended June 30, 2001, the Company adopted the fair value based method of accounting for employee stock compensation as prescribed by SFAS 123.
Previously under US GAAP, the Company accounted for its employee stock option plan under the principles of APB 25 and related Interpretations. No compensation expense was recognized under APB 25, because the exercise prices of the Company’s employee stock options equaled the market price of the underlying stock on the dates of grant.
Under Canadian GAAP, effective July 1, 2003, the Company adopted the fair value method of recognizing stock-based compensation expense. In prior years, the Company accounted for employee stock-based compensation by the settlement method whereby no compensation expense was recorded for options granted. For US GAAP purposes, compensation expense of $19,521 recognized under US GAAP for the years ended June 30, 2002 and 2001 would not be recognized under Canadian GAAP.
Canadian GAAP allows the presentation of subtotals for "expenses" and "other income (expense)" in the consolidated statement of operations. No such subtotals would be presented under US GAAP.
Pursuant to US GAAP, the Company would be considered an exploration stage company as it is devoting its efforts to establishing a commercially viable mineral property. However, the identification of the Company as such for accounting purposes does not impact the measurement principles applied in these consolidated financial statements.
| (c) | Impact of recent United States accounting pronouncements: |
| | | |
| (i) | In March 2004, the Emerging Issues Task Force ("EITF") issued EITF 04-3, "Mining Assets: Impairment and Business Combinations". EITF 04-3 requires mining companies to consider cash flows related to the economic value of mining assets (including mineral properties and rights) beyond those assets' proven and probable reserves, as well as anticipated market price fluctuations, when assigning value in a business combination in accordance with SFAS 141 and when testing the mining assets for impairment in accordance with SFAS 144. The consensus is effective for fiscal periods beginning after March 31, 2004. The adoption of EITF 04-3 had no impact the Company’s financial position, results of operations or cash flows. |
| | | |
| (ii) | In December 2004, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123(R)"), which is a revision of SFAS 123. SFAS 123(R) supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees". Generally, the approach in SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. As the Company currently uses the fair value method to account for all stock option grants this statement is not expected to have any material impact on the financial statements when adopted. |
| FARALLON RESOURCES LTD. |
| Notes to the Consolidated Financial Statements |
| Three and nine months ended March 31, 2006 |
| (Unaudited - Expressed in United States Dollars, unless otherwise stated) |
| |
| | (iii) | In December 2004, the FASB issued Statement of Financial Accounting Standards No. 153, "Exchanges of Non-Monetary Assets - An Amendment of APB Opinion No. 29" ("SFAS 153"). The guidance in APB No. 29, "Accounting for Non-Monetary Transactions" is based on the principle that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. SFAS 153 amends APB No. 29 to eliminate the exception for exchanges of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 will be effective for fiscal periods beginning after June 15, 2005. Earlier application is permitted for non-monetary asset exchanges incurred during fiscal years beginning after the date this Statement is issued. The Company believes the SFAS 153 will have no impact on the financial statements of the Company once adopted. |
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| | (iv) | In March 2005, the EITF issued EITF 04-6, "Accounting for Stripping Costs in the Mining Industry". The consensus indicated that costs of removing overburden and waste materials ("stripping costs") after production begins, represent variable production costs and should be considered a component of mineral inventory cost subject to the guidance in Chapter 4 of Accounting Research Bulletin No. 43, "Restatement and Revision of Accounting Research Bulletins". EITF 04-6 is effective for fiscal years beginning after December 15, 2005 and upon adoption, can be applied by either retroactively restating prior periods or using a cumulative catch-up adjustment. The Company believes this Statement will have no impact on the financial statements of the Company once adopted. |
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| | (v) | In June 2005, the FASB issued Statement of Financial Accounting Standards No. 154, "Accounting Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3" ("SFAS 154"). SFAS 154 requires retrospective application to prior periods’ financial statements of a change in accounting principle unless it is impracticable to do so. This is a change from the existing practice that requires most accounting changes to be accounted for by including in net income in the period of the change the cumulative effect of changing to the new accounting principle. SFAS 154 will be effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The impact of SFAS 154 cannot be determined until which time the Company makes a change in accounting policy. |
