BERKLEY RESOURCES INC.
BALANCE SHEETS
(Prepared by Management)
September 30, | December 31, | ||||||
As at | 2006 | 2005 | |||||
(Unaudited) | (Audited) | ||||||
ASSETS | |||||||
Current Assets | |||||||
Cash | $ | 459,471 | $ | 1,894,681 | |||
Accounts receivable | 567,935 | 278,856 | |||||
Taxes recoverable | 5,237 | 22,325 | |||||
Prepaid expenses | 69,768 | 101,689 | |||||
Due from related party | - | 3,454 | |||||
1,102,411 | 2,301,005 | ||||||
Prepaid oil and gas costs | - | 295,350 | |||||
Oil and gas properties and equipment (Note 3) | 6,977,370 | 3,939,531 | |||||
Rental property (Note 4) | 2,038,924 | 2,049,015 | |||||
Other property plant and equipment (Note 5) | 5,785 | 6,449 | |||||
$ | 10,124,490 | $ | 8,591,350 | ||||
LIABILITIES | |||||||
Current Liabilities | |||||||
Accounts payable and accrued liabilities | $ | 1,338,359 | $ | 353,363 | |||
Bank loans (Note 6) | 3,389,402 | 1,922,146 | |||||
Due to related parties (Note 9(a)) | 33,869 | 124,917 | |||||
4,761,630 | 2,400,426 | ||||||
Site restoration liabilities | 89,339 | 85,439 | |||||
4,850,969 | 2,485,865 | ||||||
SHAREHOLDERS' EQUITY | |||||||
Share Capital (Note 7) | 8,962,421 | 8,762,671 | |||||
Contributed Surplus | 734,054 | 589,036 | |||||
Deficit | (4,422,954 | ) | (3,246,222 | ) | |||
5,273,521 | 6,105,485 | ||||||
$ | 10,124,490 | $ | 8,591,350 |
NOTE 1 - NATURE OF OPERATIONS
Approved by the Directors:
“Matt Wayrynen” Director “Lindsay Gorrill” Director
BERKLEY RESOURCES INC.
STATEMENTS OF OPERATIONS
(Unaudited - Prepared by Management)
Three Months ended | Nine Months ended | ||||||||||||
September 30, | September 30, | ||||||||||||
2006 | 2005 | 2006 | 2005 | ||||||||||
OIL AND GAS REVENUE | $ | 382,094 | $ | 282,766 | $ | 1,190,394 | $ | 1,137,854 | |||||
Oil and gas production expenses | |||||||||||||
Operating costs | 269,067 | 134,582 | 600,964 | 448,825 | |||||||||
Interest on bank loan | 8,837 | - | 8,837 | - | |||||||||
Amortization and depletion | 83,000 | 60,000 | 532,000 | 350,000 | |||||||||
Accretion of site restoration liabilities | 1,300 | 3,340 | 3,900 | 6,300 | |||||||||
362,204 | 197,922 | 1,145,701 | 805,125 | ||||||||||
NET OIL AND GAS INCOME | 19,890 | 84,844 | 44,693 | 332,729 | |||||||||
RENTAL REVENUE | 63,727 | 61,780 | 185,742 | 179,751 | |||||||||
Rental operations expenses | |||||||||||||
Operating costs | 50,246 | 46,592 | 143,465 | 147,780 | |||||||||
Interest on bank loan | 74,559 | 34,611 | 166,409 | 68,416 | |||||||||
Amortization | 3,363 | 3,363 | 10,091 | 10,091 | |||||||||
128,168 | 84,566 | 319,965 | 226,287 | ||||||||||
NET RENTAL LOSS | (64,441 | ) | (22,786 | ) | (134,223 | ) | (46,536 | ) | |||||
GENERAL AND ADMINISTRATIVE EXPENSES | |||||||||||||
Administrative, office services and premises | 72,190 | 86,294 | 245,397 | 289,032 | |||||||||
Stock based compensation | 50,918 | 29,060 | 145,018 | 148,037 | |||||||||
Management fees | 57,586 | 47,580 | 179,747 | 139,580 | |||||||||
Consulting fees | 52,661 | 24,936 | 195,227 | 75,061 | |||||||||
Professional fees | 22,126 | 41,857 | 93,954 | 89,394 | |||||||||
Filing and transfer agent fees | 6,009 | 3,221 | 22,177 | 15,532 | |||||||||
Shareholder information | 4,307 | 12,403 | 22,049 | 67,282 | |||||||||
Amortization | 367 | - | 1,098 | - | |||||||||
(266,164 | ) | (245,351 | ) | (904,667 | ) | (823,918 | ) | ||||||
OTHER INCOME (EXPENSES) | |||||||||||||
Interest expense | (4 | ) | (4,357 | ) | (849 | ) | (4,357 | ) | |||||
Loan advancement fee (Note 6) | (196,000 | ) | - | (196,000 | ) | - | |||||||
Interest and other income | 2,685 | 277 | 14,314 | 1,080 | |||||||||
(193,319 | ) | (4,080 | ) | (182,535 | ) | (3,277 | ) | ||||||
LOSS FOR THE PERIOD | $ | (504,034 | ) | $ | (187,373 | ) | $ | (1,176,732 | ) | $ | (541,002 | ) | |
LOSS PER SHARE | $ | (0.04 | ) | $ | (0.02 | ) | $ | (0.08 | ) | $ | (0.06 | ) | |
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING | 14,243,174 | 9,917,310 | 14,205,216 | 9,805,172 |
BERKLEY RESOURCES INC.
STATEMENTS OF DEFICIT
(Unaudited - Prepared by Management)
Nine Months ended | |||||||
September 30, | |||||||
2006 | 2005 | ||||||
DEFICIT, beginning of period | $ | (3,246,222 | ) | $ | (1,323,764 | ) | |
Loss for the period | (1,176,732 | ) | (541,002 | ) | |||
DEFICIT, end of period | $ | (4,422,954 | ) | $ | (1,864,766 | ) |
BERKLEY RESOURCES INC.
STATEMENTS OF CASH FLOWS
(Unaudited - Prepared by Management)
Three Months ended | Nine Months ended | ||||||||||||
September 30, | September 30, | ||||||||||||
2006 | 2005 | 2006 | 2005 | ||||||||||
CASH PROVIDED BY (USED IN) | |||||||||||||
OPERATING ACTIVITIES | |||||||||||||
Loss for the period | $ | (504,034 | ) | $ | (187,373 | ) | $ | (1,176,732 | ) | $ | (541,002 | ) | |
Items not requiring cash in the year: | |||||||||||||
Accretion of site restoration liability | 1,300 | 3,340 | 3,900 | 6,300 | |||||||||
Amortization and depletion | 86,730 | 63,363 | 543,189 | 360,091 | |||||||||
Loan advancement fee | 196,000 | - | 196,000 | - | |||||||||
Stock based compensation | 50,918 | 29,060 | 145,018 | 148,037 | |||||||||
(169,086 | ) | (91,610 | ) | (288,625 | ) | (26,574 | ) | ||||||
Net change in non-cash working capital balances: | |||||||||||||
Accounts receivable | (253,935 | ) | 210,142 | (289,079 | ) | (270,623 | ) | ||||||
Taxes recoverable | 12,012 | 17,357 | 17,088 | 22,187 | |||||||||
Prepaid expenses | (9,438 | ) | (34,681 | ) | 31,921 | (33,463 | ) | ||||||
Due from related parties | - | - | 3,454 | �� | (3,454 | ) | |||||||
Accounts payable and accrued liabilities | 370,866 | (26,892 | ) | 984,996 | (523,584 | ) | |||||||
Due to related parties | 8,573 | 2,500 | (91,048 | ) | 2,500 | ||||||||
(41,008 | ) | 76,816 | 368,707 | (833,011 | ) | ||||||||
INVESTING ACTIVITIES | |||||||||||||
Prepaid oil and gas costs | - | - | 295,350 | 376,693 | |||||||||
Oil and gas properties and equipment, net | (1,548,895 | ) | (368,911 | ) | (3,569,839 | ) | (1,521,989 | ) | |||||
Other capital assets | (434 | ) | 360 | (434 | ) | (5,957 | ) | ||||||
(1,549,329 | ) | (368,551 | ) | (3,274,923 | ) | (1,151,253 | ) | ||||||
FINANCING ACTIVITIES | |||||||||||||
Bank loans | 1,629,306 | 469,328 | 1,467,256 | 1,405,666 | |||||||||
Issuance of common shares | - | 1,300 | 3,750 | 91,492 | |||||||||
1,629,306 | 470,628 | 1,471,006 | 1,497,158 | ||||||||||
Increase (Decrease) in Cash | 38,969 | 178,893 | (1,435,210 | ) | (487,106 | ) | |||||||
Cash, Beginning of Period | 420,502 | 46,679 | 1,894,681 | 712,678 | |||||||||
Cash, End of Period | $ | 459,471 | $ | 225,572 | $ | 459,471 | $ | 225,572 |
BERKLEY RESOURCES INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2006
(Unaudited - Prepared by Management)
NOTE 1 - NATURE OF OPERATIONS
Berkley Resources Inc. (“the Company”) was created on the amalgamation of Fortune Island Mines Ltd., Kerry Mining Ltd. and Berkley Resources Ltd. under the Company Act (British Columbia) on July 18, 1986. The Company is in the business of acquisition, exploration, development and production from petroleum and natural gas interests in Alberta and Saskatchewan, Canada. The Company also rents commercial office space in a building it owns in Vancouver, Canada.
The Company will likely have to periodically raise additional funds to participate in future exploration and development work on its petroleum and natural gas properties. Management intends to issue additional shares in the upcoming year for this purpose.
NOTE 2 - BASIS OF PRESENTATION
These unaudited Financial Statements have been prepared in accordance with the instructions for the preparation of such financial statements contained in the CICA Handbook Section 1751. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such instructions. These Unaudited Financial Statements should be read in conjunction with the Audited Financial Statements and Notes thereto for the fiscal year ended December 31, 2005. These Financial Statements, and accompanying Notes, have not been reviewed by an auditor.
In the opinion of the Company’s management, all adjustments considered necessary for a fair presentation of these unaudited financial statements have been included and all such adjustments are of a normal recurring nature. Operating results for the nine month period ended September 30, 2006 are not necessarily indicative of the results that can be expected for the year ended December 31, 2006.
NOTE 3 - OIL AND GAS PROPERTIES AND EQUIPMENT
2006 | 2005 | ||||||
Oil and gas properties and equipment, cost | $ | 12,818,997 | $ | 8,155,795 | |||
Less: Accumulated amortization and depletion | (5,841,627 | ) | (3,594,127 | ) | |||
$ | 6,977,370 | $ | 4,561,668 |
Oil and gas properties and equipment includes the cost of unproven properties of approximately $501,000 (2005 - $200,000), which are currently not subject to depletion.
BERKLEY RESOURCES INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2006
(Unaudited - Prepared by Management)
NOTE 4 - RENTAL PROPERTY
2006 | 2005 | ||||||
Building, at cost | $ | 447,652 | $ | 447,652 | |||
Less: Accumulated amortization | (147,722 | ) | (134,822 | ) | |||
299,930 | 312,830 | ||||||
Land, at cost | 1,738,994 | 1,738,994 | |||||
$ | 2,038,924 | $ | 2,051,824 |
NOTE 5 - OTHER CAPITAL ASSETS
2006 | 2005 | ||||||||||||
Cost | Accumulated amortization | Net | Net | ||||||||||
Computer equipment | $ | 28,382 | $ | (25,240 | ) | $ | 3,142 | $ | 5,340 | ||||
Furniture and fixtures | 8,521 | (5,879 | ) | 2,642 | 2,936 | ||||||||
Truck | 39,040 | (39,039 | ) | 1 | 1 | ||||||||
$ | 75,943 | $ | (70,158 | ) | $ | 5,785 | $ | 8,277 |
NOTE 6 - LOANS PAYABLE
2006 | 2005 | ||||||
Canadian Imperial Bank of Commerce | $ | 589,402 | $ | 351,722 | |||
Quest Capital Corp. | 2,800,000 | - | |||||
IMOR Capital Corp. | - | 1,500,000 | |||||
$ | 3,389,402 | $ | 1,851,722 |
The bank loan payable to the Canadian Imperial Bank of Commerce (“CIBC”) bears interest at prime plus 1.00% per annum, is due on demand, and is secured by a first mortgage in the amount of $650,000 over the Company’s rental property (Note 4) and an assignment of rents and insurance. Also, one director has supplied a guarantee of $300,000. The Company is currently making monthly payments of $8,000 towards interest and reduction of principal.
The bank loan payable to Quest Capital Corp (“Quest”) bears interest at 12.00% per annum with monthly interest only payments of approximately $28,000 and is secured by a promissory note, a second mortgage and assignment of rents over the Company’s real estate, a first charge debenture over the oil and gas assets and a general security agreement. In consideration for the advance of the loan, a bonus payment of $196,000 was paid to Quest in the form of 301,538 common shares of the Company. The balance of the loan is due September 7, 2007. The lender, at its option, may extend the maturity date of this loan by one year at the request of the Company. Partial proceeds of this loan were used to pay out the IMOR Capital Corp. loan.
In addition, the Company has a $50,000 revolving demand credit line with the CIBC that bears interest at prime plus 1% per annum. As at September 30, 2006, there was a nil balance outstanding with regard to the credit line.
BERKLEY RESOURCES INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2006
(Unaudited - Prepared by Management)
NOTE 7 - SHARE CAPITAL
(a) Authorized
Unlimited common shares without par value
2006 | 2005 | ||||||||||||
Number of shares | Amount | Number of shares | Amount | ||||||||||
Balance, beginning of period | 14,184,955 | $ | 8,762,671 | 9,681,977 | $ | 5,734,921 | |||||||
Issued in the year for cash: | |||||||||||||
Exercise of warrants | 2,500 | 3,750 | - | - | |||||||||
Exercise of stock options | - | - | 237,000 | 89,010 | |||||||||
Share issuance for Quest loan | 301,538 | 196,000 | - | - | |||||||||
Share issuance costs recovery | - | - | - | 2,482 | |||||||||
Balance, end of period | 14,488,993 | $ | 8,962,421 | 9,918,977 | $ | 5,826,413 |
(b) Management incentive options
2006 | 2005 | ||||||||||||
Number of shares subject to option | Weighted average exercise price per share | Number of shares subject to option | Weighted average exercise price per share | ||||||||||
Balance outstanding, beginning of period | 1,634,000 | $ | 0.72 | 1,226,000 | $ | 0.47 | |||||||
Activity in the period: | |||||||||||||
Granted | 600,000 | 0.56 | - | - | |||||||||
Exercised | - | - | (237,000 | ) | 0.38 | ||||||||
Cancelled | (20,000 | ) | 0.78 | - | - | ||||||||
Lapsed | - | - | - | - | |||||||||
Balance outstanding, end of period | 2,214,000 | $ | 0.68 | 989,000 | $ | 0.60 |
BERKLEY RESOURCES INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2006
(Unaudited - Prepared by Management)
NOTE 7 - SHARE CAPITAL (continued)
A summary of management incentive options outstanding is as follows:
Exercise Price Per Share | Expiry date | Number of Shares Remaining Subject to Options at End of Period | |
2006 | 2005 | ||
$0.52 | September 19, 2008 | 580,500 | 580,500 |
$0.57 | September 19, 2008 | 150,000 | 150,000 |
$0.74 | September 19, 2008 | 6,000 | 21,000 |
$0.81 | October 19, 2009 | 200,000 | 200,000 |
$0.77 | October 29, 2009 | 37,500 | 37,500 |
$0.90 | December 23, 2010 | 640,000 | - |
$0.56 | September 21, 2011 | 600,000 | - |
2,214,000 | 989,000 |
The Company has adopted a 2006 Stock Option Plan (the “Plan”) which provides for the granting of options to acquire up to 2,837,000 shares. The Plan provides for the granting of options to employees and service providers, with no single optionee to be granted options in excess of 5% of the number of issued shares of the Company. All options are to be granted at fair value, and the term of the options granted is not to exceed five years. Options to acquire a total of 2,214,000 shares have been granted and are outstanding at September 30, 2006 under the Plan.
Effective January 1, 2004, the Company adopted the provisions of CICA Handbook Section 3870 “Stock Based Compensation and Other Stock Based Payments” with respect to the fair market value accounting for stock options granted to employees. In prior years, the Company recorded the fair market value of the stock options granted to non-employees only as compensation expense.
During the three months ended September 30, 2006 the Company granted incentive stock options for the purchase of up to 600,000 shares at a price of $0.56 per share exercisable on or before September 21, 2011 to directors, officers, employees and consultants of the Company. The fair value of the options to be charged to operations over the eighteen month vesting period is $198,900. The fair value of the options granted was estimated at the date of granting using the Black-Scholes option pricing model with the following assumptions: risk free interest rate of 3.913%, dividend yield of 0%, volatility factor of 54.62%, and an average life of 3 years.
The Black-Scholes valuation model was developed for use in estimating the fair value of traded options which are fully transferable and freely traded. In addition, option valuation models require the input of highly subjective assumptions including estimated stock price volatility. Because the Company’s stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
BERKLEY RESOURCES INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2006
(Unaudited - Prepared by Management)
NOTE 7 - SHARE CAPITAL (continued)
(c) Warrants
A summary of share purchase warrants outstanding is as follows:
Exercise Price Per Share | Expiry date | Number of Warrants | |
2006 | 2005 | ||
$1.25 | November 10, 2006 | 241,110 | 241,110 |
$1.50 | November 10, 2006 | 551,250 | 553,750 |
$1.25 | November 30, 2006 | 129,000 | 129,000 |
$1.50 | November 30, 2006 | 319,500 | 319,500 |
$1.36 | December 10, 2006 | 45,872 | 45,872 |
$1.25 | December 28, 2007 | 636,000 | - |
1,922,732 | 1,289,232 |
NOTE 8 - INCOME TAXES
The potential benefit of net operating loss carry forwards has not been recognized in the financial statements since the Company cannot be assured that it is more likely than not that such benefit will be utilized in future years.
NOTE 9 - RELATED PARTY TRANSACTIONS
(a) | Due to related parties consists of $7,000 (2005 - $2,500) due to Directors of the Company for Directors fees and expense reimbursements and $26,869 (2005 - $22,640) to a private company owned by public companies having common Directors that provides administrative services, office supplies and accounting services. |
(b) | Management and consulting fees totaling $179,747 (2005 - $139,580) were paid to Directors and their private companies in the period. |
(c) | Consulting fees totaling $72,000 (2005 - $72,000) were paid to a former Director and his spouse in the period. |
(d) | Administrative services, office supplies and accounting charges totaling $91,008 (2005 - $84,499) were paid to a private company owned by public companies having common Directors. |
NOTE 10 - COMMITMENT
Under the terms of Consulting Agreements with a former Director and his spouse, the Company is required to make the future payments of $24,000 in the 2006 fiscal year. Upon payment of this amount by December 31, 2006, the terms of the agreement will be fulfilled and no further obligation will exist.
BERKLEY RESOURCES INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2006
(Unaudited - Prepared by Management)
NOTE 11 - COMPARATIVE FIGURES
Certain of the comparative figures for 2005 have been reclassified, where applicable, to conform to the presentation adopted for the current year.
NOTE 12 - SUBSEQUENT EVENTS
Subsequent to the period ended September 30, 2006 the Company closed the following private placements:
i. | A first tranche of a non-brokered private placement of 813,000 flow-through shares at a price of $0.90 per share. The Company has paid cash of $49,644 in finders’ fees. |
ii. | A second tranche of a non-brokered private placement of 919,200 flow-through shares at a price of $0.90 per share and 715,600 units at a price of $0.90 per unit with each unit consisting of one common share and one-half non-transferable share purchase warrant. Each whole warrant under the Non Flow Through Offering will entitle the investor to purchase one additional share at a price of $1.20 until April 30, 2007 and then at a price of $1.50 until December 31, 2007. The Company has paid cash of $55,547 in finders’ fees. |
Subsequent to the period ended September 30, 2006, the Company entered into a consulting agreement with an unrelated party. The consultant will provide assistance in various financing activities. The Company will pay a cash fee of 7% and 3% of the gross proceeds on any equity or debt financing sourced by the consultant respectively. The agreement terminates on November 9, 2007.