Tyler Resources Inc.
Consolidated
Financial Statements
July 31, 2005
Contents
Page
Auditors' Report
1
Consolidated Balance Sheets
2
Consolidated Statements of Operations and Deficit
3
Consolidated Statements of Cash Flows
4
Notes to the Consolidated Financial Statements
5-18
& nbsp; PricewaterhouseCoopers LLP
& nbsp; Chartered Accountants
&nb sp; 111 5th Avenue SW, Suite 3100
&nb sp; Calgary, Alberta
&nb sp; Canada T2P 5L3
&nb sp; Telephone +1 (403) 509 7500
&nb sp; Facsimile +1 (403) 781 1825
October 26, 2005
Auditors' Report
To the Shareholders of
Tyler Resources Inc.
We have audited the consolidated balance sheet of Tyler Resources Inc. as at July 31, 2005 and the consolidated statements of operations and deficit and cash flows for the year then ended. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in Canada and in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the company as at July 31, 2005 and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in Canada.
The consolidated financial statements as at July 31, 2004, and for each of the two years then ended were audited by other auditors who expressed an opinion without reservation on those statements in their report dated October 12, 2004.
Chartered Accountants
Calgary, Alberta
PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP and the other member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.
Grant Thornton LLP
Chartered Accountants
Management Consultants
Independent Auditors' Report
To the Shareholders of
Tyler Resources Inc.
We have audited the consolidated balance sheets of Tyler Resources Inc. as at July 31, 2004 and 2003 and the consolidated statements of operations and deficit and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards in Canada and the standards of the Public Company Accounting Oversight Board (United States). These standards require that we plan and perform an audit to obtain reasonable assurance whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at July 31, 2004 and 2003 and the results of its operations and cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.
;
Chartered Accountants
Calgary, Alberta
October 12, 2004
Suite 1000
112 - - 4th Avenue SW
Calgary, Alberta
T2P 0H3
T | (403) 260-2500 |
F | (403) 260-2571 |
E | Calgary@GrantThornton.ca |
W | www.GrantThornton.ca |
Canadian Member of Grant Thornton International
1
Tyler Resources Inc.
Consolidated Balance Sheets
(Canadian dollars)
July 31
2005
2004
_______________________________________________________________________________
ASSETS
Current
Cash and cash equivalents
$
10,268,934
$
2,344,456
Accounts receivable
20,084
12,711
Prepaids
13,381
6,304
Marketable securities - -
2,410
10,302,399
2,365,881
OTHER ASSETSNote 4
41,991
39,741
CAPITAL ASSETSNote 5
76,447
49,736
MINERAL PROPERTIES Note 6
9,834,155
5,683,983
$
20,254,992
$
8,139,341
LIABILITIES
Current
Accounts payable and accrued liabilities
$
313,498
$
29,011
Related party payables and accrued liabilities Note 10
5,621
19,487
319,119
48,498
SHAREHOLDERS’ EQUITY
CAPITAL STOCK Note 7
Authorized:
i)
an unlimited number of common voting shares
ii)
an unlimited number of preferred shares
Issued:
86,698,929 common shares (2004-68,431,439)
21,620,259
13,051,242
CONTRIBUTED SURPLUS and WARRANTS Note 8
5,500,660
593,050
DEFICIT
(7,185,046)
(5,553,449)
19,935,873
8,090,843
$
20,254,992
$
8,139,341
Commitments Note 11
Approved by the Board
“Gregory Smith
Director
“James Devonshire”
Director
Gregory Smith James Devonshire
See accompanying notes to the consolidated financial statements.
2
Tyler Resources Inc.
Consolidated Statements of Operations and Deficit
(Canadian dollars)
Years Ended July 31
2005 | 2004 | 2003 | |
INTEREST INCOME | $ 74,665 | $ 25,460 | $ 5,063 |
EXPENSES | |||
General and administrative Note 7b)iv) | 1,577,687 | 829,382 | 95,005 |
Professional fees | 26,267 | 36,286 | 13,759 |
Reporting to shareholders | 12,311 | 13,228 | 8,990 |
Stock exchange, filing and transfer agent fees | 43,942 | 30,005 | 17,934 |
Amortization of capital assets | 18,216 | 8,594 | - |
Overhead recoveries | - | (9,224) | (5,539) |
Abandonment and write-down of mineral properties | - | 261,959 | 45,818 |
Foreign exchange loss | 27,839 | - | - |
Mineral property proceeds in excess of mineral property costs | - | - | (37,000) |
1,706,262 | 1,170,230 | 138,967 | |
NET LOSS | $ (1,631,597) | $ (1,144,770) | $ (133,904) |
DEFICIT, beginning of year | (5,553,449) | (4,408,679) | (4,274,775) |
DEFICIT, end of year | $ (7,185,046) | $ (5,553,449) | $ (4,408,679) |
LOSS PER SHARE Basic and diluted | $ (0.02) | $ (0.02) | $ (0.00) |
WEIGHTED AVERAGE NUMBER OF SHARES | |||
OUTSTANDING, basic and diluted | 76,498,828 | 51,960,480 | 37,567,816 |
See accompanying notes to the consolidated financial statements.
3
Tyler Resources Inc.
Consolidated Statements of Cash Flows
(Canadian dollars)
Years Ended July 31
2005 | 2004 | 2003 | |
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS: | |||
OPERATING ACTIVITIES | |||
Interest and other income received | $ 74,665 | $ 34,684 | $ 10,602 |
Cash operating expenses | (390,238) | (347,066) | (66,272) |
(315,573) | (312,382) | (55,670) | |
INVESTING ACTIVITIES | |||
Mineral property expenditures | (3,810,474) | (1,034,307) | (199,897) |
Option receipts net of finders’ fee | - | 42,500 | - |
Arbitration settlement | - | 546,247 | - |
Capital asset expenditures | (44,927) | (58,330) | - |
| (3,855,401) | (503,890) | (199,897) |
FINANCING ACTIVITIES | |||
Private Placement proceeds net of issue costs | 9,723,294 | 3,068,296 | 100,000 |
Exercise of warrants and options | 2,352,333 | 129,750 | - |
Demand notes payable | - | (67,065) | 67,065 |
Proceeds on disposal of other assets | 19,825 | 27,837 | 51,022 |
Interest paid on notes payable | _ - | (6,067) | - |
12,095,452 | 3,152,751 | 218,087 | |
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 7,924,478 | 2,336,479 | (37,480) |
CASH AND CASH EQUIVALENTS: | |||
Beginning of year | 2,344,456 | 7,977 | 45,457 |
End of year | $ 10,268,934 | $ 2,344,456 | $ 7,977 |
See accompanying notes to the consolidated financial statements.
4
Tyler Resources Inc.
Notes to the Consolidated Financial Statements
(Canadian dollars)
July 31, 2005
1.
Nature of operations
Tyler Resources Inc. is engaged in the business of mineral exploration and development. Since inception, the efforts of the Company have been devoted to the acquisition, exploration and development of mineral properties. To date the Company has not received any revenue from mining operations and is considered to be in the development stage.
These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles and include the accounts of the Company and its wholly-owned Mexican subsidiary Recursos Tyler S.A. de C.V.
Mineral properties are recognized in these financial statements in accordance with the accounting policies outlined in Note 3. Accordingly, their carrying values represent costs incurred to date, net of recoveries, abandonments and write-downs, and do not necessarily reflect present or future values. The recoverability of these amounts is dependent upon the existence of economically recoverable mineral reserves; the acquisition and maintenance of appropriate permits, licenses and rights; the ability of the Company to obtain necessary financing to complete the development of properties where necessary, and upon future profitable operations; or alternatively, upon the Company’s ability to recover its costs through a disposition of its interests.
2.
Changes in Accounting Policy
Asset Retirement Obligations
In 2004, the Company adopted the recommendations of CICA Handbook Section 3110, Asset Retirement Obligations. This section required recognition of a legal liability for obligations relating to retirement of tangible long-lived assets that the Company is required to settle. This would include obligations related to future removal of property and equipment, and site restoration costs. Such asset retirement cost must be recognized as fair value in the period in which it is incurred by adding that amount to the carrying amount of the asset and amortized as a charge to earnings on a systematic basis over its useful life. The change in the policy has had no effect on these consolidated financial statements.
As at July 31, 2005, management has estimated that the discounted clean-up obligations for future periods are not material at this time.
3.
Summary of significant accounting policies
a)
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates that affect the reported amounts of assets, such as resource properties (see Note 1), and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
b)
Cash and cash equivalents
Cash and cash equivalents includes bank and brokerage deposits and bankers acceptances and treasury bills with maturities equal to or less than 90 days at the date of acquisition.
5
Tyler Resources Inc.
Notes to the Consolidated Financial Statements
(Canadian dollars)
July 31, 2005
3.
Summary of significant accounting policies(Continued)
c)
Mineral properties
Costs relating to the acquisition, exploration and development of mineral properties are capitalized on an area of interest basis. These expenditures will be charged against income, through unit of production depletion, when properties are developed to the stage of commercial production. If an area of interest is abandoned, the related costs are charged to operations. The Company reviews the carrying values of mineral property interests on a quarterly basis by reference to the timing of the exploration and/or development work, the work programs and exploration results experienced by the Company and others, and the extent to which optionees have committed, or are expected to commit to, exploration on the property. When the carrying value of the property exceeds its estimated net recoverable amount, an impairment provision is recognized for the decline in value.
Where the Company’s exploration commitments for an area of interest are performed under option agreements with a third party, the proceeds of any option payments under such agreements are applied to the area of interest to the extent of costs incurred. The excess, if any, is credited to operations. Option payments made by the Company are recorded as mineral property costs. Options are exercisable entirely at the discretion of the optionee and accordingly, are recorded as mineral property costs or recoveries when the payments are made or received.
d)
Capital assets
Capital assets include computer hardware and software, equipment, furniture and fixtures, a vehicle and leaseholds which are recorded at historical cost. The declining-balance method is used to calculate amortization at rates of 20% to 30%.
e)
Joint interests
Certain of the Company's exploration and development activities are conducted jointly with others. These financial statements reflect only the Company's proportionate interest in such activities. Although the Company holds certain interests in mineral properties through joint venture agreements, none of its operations are carried on through joint venture entities.
f)
Marketable Securities
Marketable securities consist of portfolio investments carried at the lesser of cost and market value. They are classified as a current asset as they are capable of reasonably prompt liquidation.
g)
Investments
Portfolio investments are carried at cost, less a provision for declines in value that are considered to be other than temporary.
h)
Loss per share
Basic loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding for the year. Diluted per share amounts reflect the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted to common shares. For the years presented this calculation proved to be anti-dilutive. The treasury stock method is used to determine the dilutive effect of stock options and other dilutive instruments. Under the treasury stock method only “in-the-money” dilutive instruments impact the dilution calculations.
6
Tyler Resources Inc.
Notes to the Consolidated Financial Statements
(Canadian dollars)
July 31, 2005
3.
Summary of significant accounting policies(Continued)
i)
Stock-Based Compensation
The Company follows the “fair value” method of accounting for stock-based compensation arrangements, whereby the fair value of the stock options is determined and recorded as compensation cost and a credit to contributed surplus over the vesting period. The fair value is determined using an option–pricing model that takes into account the exercise price and expected life of the option, the current price of the underlying stock, its expected volatility, the expected dividends on the stock, and the current risk-free interest rate for the expected life of the option.
j)
Income taxes
Income taxes are recorded using the liability method of tax allocation. Future income taxes are calculated based on temporary timing differences arising from the difference between the tax basis of an asset or liability and its carrying value using tax rates anticipated to apply in the periods when the timing differences are expected to reverse. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that substantive enactment or enactment occurs. To the extent that the Company does not consider it more likely than not that a future tax asset will be recovered, it provides a valuation allowance against the excess.
k)
Foreign currency translation
Monetary assets and liabilities are translated into Canadian dollars at the balance sheet date rate of exchange and non-monetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at appropriate transaction date rates. Gains and losses in translation are included in income.
The Company’s foreign subsidiary, Recursos Tyler S.A. de C.V., is considered financially and operationally dependent on the parent Company and, as such, is accounted for as an integrated operation whereby its accounts are translated into Canadian dollars using the method noted above.
l)
Financial instruments
The fair market value of the cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their carrying values as a result of the short-term nature of the instruments and/or the variable interest rate associated with the instrument. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency, or credit risks arising from these financial instruments.
m)
Asset retirement costs
The Company’s activities have primarily been focused on exploration directed toward the discovery of mineral resources. When it is determined that a future reclamation and retirement cost is material, the costs will be accrued.
7
Tyler Resources Inc.
Notes to the Consolidated Financial Statements
(Canadian dollars)
July 31, 2005
4.
Other Assets
2005 | 2004 | |||
Long-term investments: | ||||
Majescor Resources Inc. | $ | 35,750 | $ | 33,500 |
Long-term prepaid expense | 6,241 | 6,241 | ||
$ | 41,991 | $ | 39,741 |
In each of the years ended July 31, 2005 and July 31, 2004 the Company received 100,000 common shares and 50,000 purchase warrants of Majescor Resources Inc. as option payments on the Carat and Kelsey mineral properties. The warrants received in 2004 may be exercised at $0.40 per share to March 5, 2007 and the warrants received in 2005 may be exercised at $0.45 per share to January 22, 2008. The Company sold 50,000 shares during the year for total proceeds of $3,075. The Company held 150,000 (market value $25,500; 2004 - $21,000) shares and 100,000 warrants at July 31, 2005.
5.
Capital Assets
2005 | 2004 | |||
Cost | $ | 103,257 | $ | 58,330 |
Accumulated amortization | 26,810 | 8,594 | ||
Net book value | $ | 76,447 | $ | 49,736 |
6.
Mineral properties
Saskatchewan | Northwest Territories | Mexico | |||
2005 Exploration and development expenditures: | Total | Weedy Lake | Bahuerachi | Other | |
Balance July 31, 2004 | $3,668,899 | $1,744,159 | $ 106,272 | $1,811,106 | $ 7,362 |
Geological consulting | 550,453 | - | - | 548,078 | 2,375 |
Drilling | 1,876,480 | - | - | 1,876,480 | - |
Drilling advances | 139,697 | - | - | 139,697 | - |
Camp costs | 429,709 | - | - | 429,709 | - |
Site preparation | 558,693 | - | - | 558,693 | - |
Project field costs | 305,870 | - | - | 305,870 | - |
Geophysical | 68,492 | - | - | 68,492 | - |
Geochemical | 159,530 | - | - | 159,530 | - |
Taxes and property maintenance | 22,184 | - | - | 22,184 | - |
Survey | 17,914 | - | - | 17,914 | - |
Environmental | 55,644 | - | - | 55,644 | - |
Option payments | (119,000) | - | (119,000) | - | - |
Balance July 31, 2005 | 7,734,565 | 1,744,159 | (12,728) | 5,993,397 | 9,737 |
Property acquisition costs: | |||||
Balance July 31, 2004 | 2,015,084 | 637,844 | 246,112 | 1,123,859 | 7,269 |
Costs incurred | 84,506 | - | - | 84,506 | - |
Balance July 31, 2005 | 2,099,590 | 637,844 | 246,112 | 1,208,365 | 7,269 |
Total mineral properties July 31, 2005 | $9,834,155 | $2,382,003 | $233,384 | $7,201,762 | $ 17,006 |
8
Tyler Resources Inc.
Notes to the Consolidated Financial Statements
(Canadian dollars)
July 31, 2005
6.
Mineral properties (continued)
Saskatchewan | Northwest Territories | Nunavut | Mexico | |||
2004 Exploration and development expenditures: | Total | Weedy Lake | Keni | Bahuerachi | Other | |
Balance July 31, 2003 | $3,707,687 | $1,743,802 | $ 698,247 | $ 203,593 | $1,048,902 | $ 13,143 |
Geological consulting | 137,254 | 357 | 1,813 | 2,753 | 132,331 | - |
Drilling | 219,652 | - | - | - | 219,652 | - |
Camp costs | 36,637 | - | - | - | 36,637 | - |
Site preparation | 107,350 | - | - | - | 107,350 | - |
Project field costs | 105,439 | - | - | - | 105,439 | - |
Geophysical | 85,577 | - | - | - | 85,577 | - |
Geochemical | 34,036 | - | - | - | 34,036 | - |
Taxes and property maintenance | 36,538 | - | - | - | 36,538 | - |
Miscellaneous | (1,137) | - | - | - | 4,644 | (5,781) |
Legal expenditure-arbitration | 28,459 | - | 28,459 | - | - | - |
Finder’s fee Majescor option | 7,500 | - | 7,500 | - | - | - |
Option payments | (83,500) | - | (83,500) | - | - | - |
Arbitration settlement | (546,247) | - | (546,247) | - | - | - |
Write-offs and abandonments | (206,346) | - | - | (206,346) | - | - |
Balance July 31, 2004 | 3,668,899 | 1,744,159 | 106,272 | - | 1,811,106 | 7,362 |
Property acquisition costs: | ||||||
Balance July 31, 2003 | 1,194,432 | 637,844 | 246,112 | 55,520 | 248,613 | 6,343 |
Costs incurred | 876,264 | - | - | 92 | 875,246 | 926 |
Write-offs and abandonments | (55,612) | - | - | (55,612) | - | - |
Balance July 31, 2004 | 2,015,084 | 637,844 | 246,112 | - | 1,123,859 | 7,269 |
Total mineral properties July 31, 2004 | $5,683,983 | $2,382,003 | $352,384 | $ - | $2,934,965 | $ 14,631 |
Mexico
The principal exploration property in Mexico is Bahuerachi, owned by the Company’s wholly-owned subsidiary Recursos Tyler SA de CV, located in the state of Chihuahua roughly eight kilometres north of the town of La Reforma, Sinaloa. Substantially all of the Company’s efforts and resources are devoted to the exploration of this project. The base and precious metals of interest on the property are copper, gold, zinc and silver. At July 31, 2005 the Company held a 95% interest in the property. Pursuant to an option agreement with a Mexican national, (the “Optioner”), the remaining 5% property interest is convertible by the Company into a 10% net profits interest, which can be purchased at any time by the Company for $700,000 US.
Pursuant to the option agreement the Company is required to pay $50,000 U.S. annually to the optioner until the property commences production.
During the year ended July 31, 2004, the Company acquired a 40% interest in the Bahuerachi mineral property from CDG Investments Inc. (CDG), a Company related by virtue of certain common officers and directors. The Company issued 13,336,000 shares at $0.06 per share in payment of the $800,000 purchase price. The price was negotiated and agreed to by independent committees of the board of directors of both companies and came within the range of values assigned to the property by an independent geological consulting firm. The transfer price represented both the cost of the property on the books of CDG on the transaction date and the approximate fair value of the property.
9
Tyler Resources Inc.
Notes to the Consolidated Financial Statements
(Canadian dollars)
July 31, 2005
6.
Mineral properties (continued)
Northwest Territories
The Carat property, in which the Company has a 30% interest, was subject to an option agreement with Diamondex Resources Ltd. (Diamondex). Pursuant to the option agreement, Diamondex earned a 70% interest in the property by incurring $2,000,000 of exploration expenditures and issuing 200,000 common shares to the Company.
During the year ended July 31, 2004, pursuant to an Arbitration decision, the Company received $261,572 plus interest of $11,654, as reimbursement of joint venture over-expenditures associated with the Carat Joint Venture. The Company also received $284,675 as reimbursement for legal and other costs incurred regarding the arbitration. The awards were credited to the Carat property where the original property and arbitration costs had been capitalized. The interest has been included in “interest and other” in the statement of operations.
The Company has granted Majescor Resources Inc., (Majescor), an option to acquire its approximate 30% interest, subject to a net profits interest retained by the Company of approximately 8%, in the Carat diamond exploration joint venture. In order to purchase the interest Majescor will be required to pay the Company $300,000 in cash, (received $150,000), and issue 300,000 common shares, (received 200,000), and 200,000 warrants, (received 100,000: 50,000 with an exercise price of $0.40 per share expiring March 5, 2007 and 50,000 with an exercise price of $0.45 per share expiring January 22, 2008). The final option payment is due January 23, 2006 and is comprised of 100,000 Majescor common shares, 100,000 common share purchase warrants exercisable at $0.55 per share to January 22, 2008 and a cash payment of $150,000.
Saskatchewan
The Company has a 50.1% interest in the Weedy Lake property. During fiscal 2002 the Company entered into an option agreement with Golden Band Resources Inc. (Golden Band), whereby Golden Band can earn 50% of the company’s interest in the property, (25.05% of the total property interest). In order to earn the interest, Golden Band was required to incur a minimum of $100,000 of exploration expenditures on the property in each of the first three years and a minimum of $1,500,000 in aggregate over four years. On March 4, 2004, the Company notified Golden Band that it was in default of the option agreement. The Company has agreed that Golden Band will undertake a scoping study which will serve as the basis for negotiations on the acquisition of the Company’s remaining equity in the Golden Heart deposit by Golden Band and that, in the meantime, the Company will temporarily suspend the non-compliance provisions of the Weedy Lake option agreement. In assessing the carrying value of the property, management utilized an external report in their calculation that verified a write-down is not necessary at this time.
Nunavut
During the year ended July 31, 2004, the Company and its joint venture partner, Northern Abitibi Mining Corp., returned the Keni property to the vendors and wrote-off the capitalized costs of approximately $262,000. Management determined that initial exploration results did not warrant expending further option payments on the property.
10
Tyler Resources Inc.
Notes to the Consolidated Financial Statements
(Canadian dollars)
July 31, 2005
7.
Capital stock
a)
Common shares issued:
2005 | 2004 | 2003 | ||||
Number of Shares | Stated Value | Number of Shares | Stated Value | Number of Shares | Stated Value | |
Balance, beginning of year | 68,431, 439 | $13,051,242 | 38,294,939 | $ 9,050,246 | 36,219,939 | $8,946,496 |
Issued for acquisition of mineral properties | - | - | 13,336,000 | 800,000 | 75,000 | 3,750 |
Issued for cash: | ||||||
Private Placement (net of issue costs of $164,706; 2004 - $332,454; 2003 – $Nil) | 7,910,400 | 6,123,294 | 15,503,000 | 3,068,296 | 2,000,000 | 100,000 |
Exercise of options | 3,137,740 | 538,950 | 277,500 | 30,700 | - | - |
Exercise of warrants | 7,219,350 | 1,906,773 | 1,020,000 | 102,000 | - | - |
Balance, end of year | 86,698,929 | $21,620,259 | 68,431,439 | $13,051,242 | 38,294,939 | $9,050,246 |
During April, 2005 the Company completed a private placement of 7,910,400 units at $1.25 per unit for gross proceeds of $9,888,000. Each unit was comprised of one common share plus one warrant that may be exercised at $1.75 to acquire one common share in accordance with the terms detailed under 7(b)(i) Warrants, below. The warrants were allocated a value of $3,600,000 of the total issue price and this amount has been included in Contributed Surplus. Arm’s length finders’ fees of $115,500 have been included in the $164,706 issue costs that have been deducted from the private placement proceeds.
Subsequent to year end, the Company issued 240,800 shares pursuant to the exercise of agents’ stock options for total consideration of $60,200, 2,277,670 common shares pursuant to the exercise of warrants for total consideration of $797,185 and 56,800 common shares pursuant to the exercise of employee options for total consideration of $10,800.
During December, 2003 the Company completed a private placement of 2,500,000 units at $0.06 per unit. Each unit was comprised of one common share and one share purchase warrant with the attributes described in note 7(b)(i) below. During March, 2004 the Company completed a brokered private placement of 13,003,000 units at $0.25 per unit. Each unit was comprised of one common share and one-half of a share purchase warrant with the attributes described in note 7(b)(i) below. Officers, directors or their immediate family subscribed to 313,333 units of the December, 2003 private placement and 125,000 units of the March 2004 private placement. Pursuant to the brokered private placement the Company granted Agents’ Options whereby the Agents may acquire 1,040,240 Units at $0.25 per unit until September 16, 2005. The Agent Units are comprised of 1,040,240 common shares and 520,120 warrants which may be exercised at $0.35 per share to acquire 520,120 common shares to September 16, 2005. At July 31, 2005 795,240 Agents’ Options have been exercised.
11
Tyler Resources Inc.
Notes to the Consolidated Financial Statements
(Canadian dollars)
July 31, 2005
7.
Capital stock(continued)
b)
Stock options and warrants:
i)
Warrants
The following summarizes warrants outstanding at the respective year-ends:
Issue Date | Expiry Date | Number of Shares | Exercise Price | ||
2005 | 2004 | 2003 | |||
December 2, 2002 | December 2, 2004 | - | - | 1,000,000 | $0.10 |
December 23, 2003 | December 23, 2004 | - | 2,480,000 | - | $0.10 |
March 16, 2004 | September 16, 2005 | 2,159,770 | 6,501,500 | - | $0.35 |
April 25, 2005 | April 26, 2007 | 4,017,800 | - | - | $1.75 |
April 27, 2005 | April 28, 2007 | 3,892,600 | - | - | $1.75 |
10,070,170 | 8,981,500 | 1,000,000 | |||
Warrants to purchase 2,500,000 common shares at $0.10 per share to December 23, 2004 were issued pursuant to the December 23, 2003 private placement. Warrants to purchase 6,501,500 common shares at $0.35 per share to September 16, 2005 were issued pursuant to the March, 2004 private placement. Pursuant to the March, 2004 private placement, Agents were granted options as outlined above that will allow the purchase of units comprised of common shares and warrants. These warrants may be exercised at $0.35 per share until September 16, 2005. Pursuant to the April, 2005 private placement, warrants exercisable at $1.75 per share were issued that may be exercised to acquire 4,017,800 and 3,892,600 common shares to April 26, 2007 and April 28, 2007 respectively. The Company has the option to demand early exercise of these warrants on or after October 26 and 28, 200 5 respectively if the trading price of the common shares on the TSX Venture Exchange has exceeded $2.50 for a period of thirty consecutive trading days prior to the demand being made. Once demand to exercise has been made, the warrant holders have thirty days to exercise the warrants.
Directors, officers and control persons subscribed to 920,800 of the Units pursuant to the April, 2005 private placements.
The following weighted-average assumptions were used for the Black-Scholes valuation of warrants issued during the year:
Risk-free interest rate | 3.04% |
Expected life of options | 2 years |
Annualized volatility | 116.50% |
Dividend rate | 0.00% |
ii)
Employee and Consultant Options Outstanding
Number of Shares | ||||
Expiry Date | 2005 | 2004 | 2003 | Price |
January 23, 2006 | 225,000 | 1,057,500 | 1,285,000 | $0.10 |
January 29, 2007 | 75,000 | 75,000 | 75,000 | $0.12 |
July 22, 2007 | 1,450,000 | 1,500,000 | - | $0.35 |
May 2, 2008 | 600,000 | - | - | $1.50 |
December 15, 2008 | 730,000 | 2,190,000 | - | $0.10 |
January 29, 2009 | 1,500,000 | 1,500,000 | - | $0.20 |
December 16, 2009 | 1,300,000 | - | - | $0.65 |
February 7, 2010 | 70,000 | - | - | $1.54 |
June 13, 2010 | 200,000 | - | - | $1.18 |
July 20, 2010 | 200,000 | - | - | $1.00 |
6,350,000 | 6,322,500 | 1,360,000 | ||
12
Tyler Resources Inc.
Notes to the Consolidated Financial Statements
(Canadian dollars)
July 31, 2005
7.
Capital stock(continued)
The Company has an option plan, (the Plan), under which up to 10% of the issued and outstanding common shares are reserved for issuance. Under the Plan, the options that have been granted expire at the earlier of five years from the grant date or such date as the Directors determine, and not more than 60 days from the date from which the optionee ceases to be a director, officer, employee or consultant. The exercise price of the options granted under the Plan will not be less than the market price of the common shares, defined as the weighted average of the trading price per share for the last five trading days before the grant date. The 70,000 options exercisable at $1.54 per share to February 7, 2010 vest in increments of 17,500 every six months commencing six months from the grant date of February 8, 2005. The 200,000 options exercisable at $1.18 per share to June 13, 20 10 vest in increments of 50,000 every six months commencing six months from the date of employment of June 13, 2005. The remainder of the options outstanding vested on the grant date. Refer also to note 7(a) re. Agents’ Options.
iii)
Option Transactions
Number
Weighted-Average
of Options
Exercise Price
As at July 31, 2002
1,900,000
$ 0.10
Expired
(540,000)
$ 0.10
As at July 31, 2003
1,360,000
$ 0.10
Granted
5,240,000
$ 0.20
Exercised
(277,500)
$ 0.10
As at July 31, 2004
6,322,500
$ 0.18
Granted
2,370,000
$ 0.97
Exercised
(2,342,500)
$ 0.11
As at July 31, 2005
6,350,000
$ 0.50
iv)
Stock-Based Compensation
Stock options granted during the year ended July 31, 2005 were valued at $1,401,000 (2004 - $596,000; 2003 - $Nil) of which $208,100 (2004 & 2003 - $Nil) is included in geological consulting in mineral properties and $1,192,900 (2004 - $596,000; 2003 - $Nil) is included in general and administrative expenses. The valuations were calculated in accordance with the Black-Scholes Option Pricing Model using the following assumptions:
| 2005 | 2004 |
Risk-free interest rate | 3.53% | 3.87% |
Expected life of options | 2 to 5years | 3 to 5 years |
Annualized volatility | 119.99% | 122.27% |
Dividend rate | 0.00% | 0.00% |
8.
Contributed Surplus and Warrants
2005 | 2004 | |||
Balance July 31 | $ | 593,050 | $ | - |
Warrants Note 7a | 3,600,000 | - | ||
Stock Option Benefit Note 7b)iv) | 1,401,000 | 596,000 | ||
Options exercised during the year | (93,390) | (2,950) | ||
Balance July 31 | $ | 5,500,660 | $ | 593,050 |
13
Tyler Resources Inc.
Notes to the Consolidated Financial Statements
(Canadian dollars)
July 31, 2005
9.
Income taxes
a)
Following is a reconciliation of income taxes calculated at statutory rates to the actual income taxes recorded in the accounts:
2005 | 2004 | 2003 | |
Computed expected tax recovery at a combined Provincial and Federal rate of 34% (2004 – 34%; 2003 – 38%) | $ 555,000 | $ 389,000 | $ 51,000 |
Effect on income taxes resulting from: | |||
Non-deductible expenses | (408,000) | (204,000) | - |
Deductible capital items | 36,000 | 24,000 | - |
(Increase) decrease in valuation allowance | (242,000) | (239,000) | 21,000 |
Non-recognition of losses and future tax benefits for financial statement purposes | 59,000 | 30,000 | (72,000) |
Future income tax recovery | $ - | $ - | $ - |
The net future income tax asset is comprised of: | |||
Tax value of resource properties in excess of book value | $ 179,000 | $ 94,000 | |
Non-capital losses carried forward for income tax purpuses | 451,000 | 302,000 | |
Investments with tax values exceeding book values | - | 13,000 | |
Share issue costs deductible for tax purposes | 113,000 | 92,000 | |
| 743,000 | 501,000 | |
Less valuation allowance | (743,000) | (501,000) | |
Future income tax asset | $ - | $ - |
b)
The Company has incurred non-capital losses for income tax purposes of approximately $1,328,000 expiring at the following dates:
2006
$
33,000
2007
$
100,000
2009
$ 180,000
2010
$
135,000
2011
$
349,000
2012
$
531,000
14
Tyler Resources Inc.
Notes to the Consolidated Financial Statements
(Canadian dollars)
July 31, 2005
10.
Related party transactions and commitments
Companies, related by virtue of certain common officers and directors, and corporations in which certain of the Company’s officers or directors are shareholders, have provided services for consideration summarized below:
2005 | 2004 | 2003 | ||||
Geological and exploration | $ | 98,000 | $ | 117,000 | $ | $ 56,000 |
Direct administrative | 195,000 | 137,000 | 40,000 | |||
Office lease and operating | 35,000 | 22,000 | 22,000 | |||
$ | 328,000 | $ | 276,000 | $ | $118,000 |
The amounts due to related parties at July 31, 2005 and July 31, 2004 relate to the above amounts that were unpaid at year-end.
Related party transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
Included in revenue are overhead recoveries of $Nil (2004 - $9,000; 2003 - $6,000) charged to companies related by virtue of certain common officers and directors.
See also notes 6 and 7.
11.
Commitments
Pursuant to the Bahuerachi, Mexico option agreement, the Company is required to make annual option payments of $50,000 US in November of each year until the property commences commercial production. The Company is committed, pursuant to a sublease with a company related by virtue of certain common officers and directors, to pay its share of base office rent. The base rent for which it is committed aggregates $19,440 in fiscal 2006 and $8,160 in fiscal 2007. The Company is also required to pay its share of annual associated lease operating costs which are expected to approximate $18,000 during fiscal 2006.
In July 2005, the Company entered into a drilling contract with a third party drilling company and committed to a maximum expenditure of $540,000 of diamond drilling and/or piping.
12.
Subsequent Events
In October 2005, the Company entered into a drilling contract with a third party drilling company and committed to a maximum expenditure of $465,000 of drilling.
13.
Comparative Amounts
Certain amounts have been restated to conform to presentation adopted in the current year.
14.
Reconciliation 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 (“U.S. GAAP”). Had the Company followed U.S. GAAP, certain items on the financial statements of loss and deficit, and balance sheets would have been reported as follows:
15
Tyler Resources Inc.
Notes to the Consolidated Financial Statements
(Canadian dollars)
July 31, 2005
14.
Reconciliation between Canadian and United States Generally Accepted Accounting Principles(continued)
Consolidated Statements of Operations and Deficit
For the years ended July 31, | 2005 $ | 2004 $ | 2003 $ |
Net loss as shown in the financial statements | (1,631,597) | (1,144,770) | (133,904) |
Adjustments to: | |||
Exploration property expenditures(a) | (4,269,172) | (1,673,569) | (330,618) |
Abandonments of property costs (a) | - | 261,959 | 45,818 |
Mineral property recoveries (a) | 119,000 | 629,747 | - |
Adjust write-offs and loss on sale of investments previously written-down for Canadian GAAP(c) | (15,260) | (33,618) | (45,352) |
Net loss according to U.S. GAAP | (5,797,029) | (1,960,251) | (464,056) |
Comprehensive loss (d) | (5,779,513) | (1,945,134) | (425,626) |
Net loss per share (U.S. GAAP, basic and diluted) | (0.08) | (0.04) | (0.01) |
Consolidated Balance Sheets
For the years ended July 31, | 2005 | 2004 | ||
Canadian GAAP $ | U.S. GAAP $ | Canadian GAAP $ | U.S. GAAP $ | |
Assets | ||||
Current assets (c) | 10,302,399 | 10,302,405 | 2,365,881 | 2,365,881 |
Other assets (c) | 41,991 | 31,741 | 39,741 | 27,241 |
Capital assets | 76,447 | 76,447 | 49,736 | 49,736 |
Mineral properties (a) | 9,834,155 | - | 5,683,983 | - |
20,254,992 | 10,410,593 | 8,139,341 | 2,442,858 | |
Liabilities and shareholders’ equity | ||||
Current liabilities | 319,119 | 319,119 | 48,498 | 48,498 |
Shareholders’ equity | ||||
Capital stock | 21,620,259 | 21,607,259 | 13,051,242 | 13,038,242 |
Contributed surplus (b) | 5,500,660 | 5,645,660 | 593,050 | 738,050 |
Accumulated other comprehensive income (c &d) | - | (10,267) | - | (27,783) |
Deficit | (7,185,046) | (17,151,178) | (5,553,449) | (11,354,149) |
Total shareholders’ equity | 19,935,873 | 10,091,474 | 8,090,843 | 2,394,360 |
20,254,992 | 10,410,593 | 8,139,341 | 2,442,858 | |
Consolidated Statements of Comprehensive Loss
For the years ended July 31, | 2005 $ | 2004 $ | 2003 $ |
Net loss, US GAAP | (5,797,029) | (1,960,251) | (464,056) |
Change in net unrealizable gains on available-for-sale investments | (4,004) | (15,513) | 6,000 |
Realized portion of loss regarding investments sold during the year | 21,520 | 30,630 | 32,430 |
Comprehensive loss (d) | (5,779,513) | (1,945,134) | (425,626) |
16
Tyler Resources Inc.
Notes to the Consolidated Financial Statements
(Canadian dollars)
July 31, 2005
14.
Reconciliation between Canadian and United States Generally Accepted Accounting Principles(continued)
Consolidated Statements of Cash Flows
For the years ended July 31, | 2005 | 2004 | 2003 | |||
Canadian GAAP $ | U.S. GAAP $ | Canadian GAAP $ | U.S. GAAP $ | Canadian GAAP $ | U.S. GAAP $ | |
Operating activities (a) | (315,573) | (4,126,047) | (312,382) | (1,346,689) | (55,670) | (255,567) |
Investing activities (a) | (3,855,401) | (44,927) | (503,890) | 530,417 | (199,897) | - |
Financing activities | 12,095,452 | 12,095,452 | 3,152,751 | 3,152,751 | 218,087 | 218,087 |
Cash and cash equivalents, beginning of year | 2,344,456 | 2,344,456 | 7,977 | 7,977 | 45,457 | 45,457 |
Cash and cash equivalents, end of year | 10,268,934 | 10,268,934 | 2,344,456 | 2,344,456 | 7,977 | 7,977 |
a)
Mineral properties
Under Canadian GAAP the costs relating to the acquisition and exploration of mineral properties are capitalized on an area of interest basis and charged against income through unit-of-production depletion, when properties are developed to the stage of commercial production. Costs related to abandoned properties, and costs related to properties which the Company has assessed, based on the price of metals/minerals and general economic and market conditions, as not viable, are charged to other expenses in the year in which such determination is made.
Under U.S. GAAP the costs relating to mineral properties as defined above, which have not led to the identification of a commercially feasible property, are expensed in the year incurred and are charged to income (loss) from operations. As a result, all costs associated with the exploration properties described in Note 6 have been written off for U.S. GAAP purposes.
b)
Stock-based compensation
Prior to August 1, 2002, the Company did not recognize compensation expense when stock options were granted. Under U.S. GAAP, the Company adopted FAS 123, Accounting for Stock-Based Compensation, for stock options granted in its fiscal 2001 and 2002 years. Therefore, the stock compensation expense for options granted prior to August 1, 2002 is included under U.S. GAAP causing the difference of $145,000 in contributed surplus between Canadian and U.S. GAAP.
c)
Investments
Under Canadian GAAP, portfolio investments in shares of public companies have been recorded at the lesser of cost and fair market value. Under U.S. GAAP, the Company’s investments are classified as available-for-sale investments under FAS No. 115,Accounting for Certain Investments in Debt and Equity Securities. As a result, the investments are recorded at fair value on the balance sheet, with unrealized holding gains and losses excluded from the determination of earnings and reported as a separate component of comprehensive income. Included in other assets is an investment in Majescor Resources Inc. with a fair value of $25,500 at July 31, 2005 (2004 - $21,000). Included in current assets is an investment in Nordic Diamonds Ltd. with a fair value of $6 at July 31, 2005 (2004 - $10). An adjustment is made to comprehensive income on sale or impairment of the investment.
d)
Comprehensive income
Comprehensive income is measured in accordance with FAS No. 130,Reporting Comprehensive Income. This standard defines comprehensive income as all changes in equity other than those resulting from investments by owners and distributions to owners. Comprehensive income comprises of net earnings and other comprehensive income where other comprehensive income is the change in equity during the period that arises from transactions and other events that are related to non-owner sources. See the impending accounting changes (e) below for the new Canadian standard.
17
Tyler Resources Inc.
Notes to the Consolidated Financial Statements
(Canadian dollars)
July 31, 2005
14.
Reconciliation between Canadian and United States Generally Accepted Accounting Principles(continued)
e)
Impending Accounting Changes
Canadian GAAP
In January 2005, the CICA approved Handbook Section 1530,Comprehensive Income. The new standard is intended to harmonize Canadian GAAP with U.S. GAAP. The new standard is effective for the Company in the first quarter of 2008.
United States GAAP
FAS 154,Accounting Changes and Error Corrections, changes the requirements for the accounting for and reporting of a change in accounting principle. The new standard is effective for the Company in fiscal 2006.
In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“FAS”) No. 123(R),Share Based Payment, a revision to FAS 123, Accounting for Stock-Based Compensation. This standard requires all share based payments (including employee stock options) to be measured at fair value and included in earnings. FAS No. 123(R) is effective at the beginning of the first interim or annual reporting period commencing after December 15, 2005. The Company adopted a policy of recognizing the cost of stock options at the beginning of fiscal 2002 and as a result anticipates no impact on our consolidated results of operations and financial conditions when FAS 123(R) becomes effective.
18