UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the month of AUGUST, 2006.
Commission File Number: 0-30196
HALO RESOURCES LTD
- --------------------------------------------------------------------------------
(Translation of registrant's name into English)
#1305 - 1090 West Georgia Street, Vancouver, British Columbia, V6E 3V7, Canada
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F: FORM 20-F [X] FORM 40-F [ ]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1): _______
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7): _______
Indicate by check mark whether the registrant by furnishing the information
contained in this Form, is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
YES [ ] NO [X]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3- 2(b): 82-_____________
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf of the
undersigned, thereunto duly authorized.
HALO RESOURCES LTD.
-------------------------------------
Date: AUGUST 1, 2006 /s/ Nick DeMare
----------------------------- -------------------------------------
Nick DeMare,
Director and CFO
- --------------------------------------------------------------------------------
HALO RESOURCES LTD.
(AN EXPLORATION STAGE COMPANY)
INTERIM FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
MAY 31, 2006
(UNAUDITED - PREPARED BY MANAGEMENT)
- --------------------------------------------------------------------------------
MANAGEMENT'S COMMENTS ON UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim financial statements of Halo Resources Ltd.
for the nine months ended May 31, 2006, have been prepared by and are the
responsibility of the Company's management. These statements have not been
reviewed by the Company's external auditors.
HALO RESOURCES LTD.
(AN EXPLORATION STAGE COMPANY)
INTERIM BALANCE SHEETS
(UNAUDITED - PREPARED BY MANAGEMENT)
MAY 31, August 31,
2006 2005
$ $
ASSETS
CURRENT ASSETS
Cash 924,879 893,525
Amounts receivable and prepaids 166,997 197,507
------------ ------------
1,091,876 1,091,032
CAPITAL ASSETS (Note 3) 249,908 32,761
UNPROVEN MINERAL INTERESTS (Note 4) 23,321,634 22,759,333
DEFERRED SHARE ISSUE COSTS (Note 6(a)) - 45,556
------------ ------------
24,663,418 23,928,682
============ ============
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 124,680 584,221
REDEEMABLE PREFERRED SHARES (Note 5) 8,000,000 8,000,000
ASSET RETIREMENT OBLIGATION (Note 12) 995,500 938,500
FUTURE INCOME TAX LIABILITY 5,403,633 5,328,000
------------ ------------
14,523,813 14,850,721
------------ ------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 6) 32,527,163 28,487,576
SHARE SUBSCRIPTIONS RECEIVED (Note 6(a)) - 958,950
CONTRIBUTED SURPLUS (Note 8) 1,098,464 738,642
DEFICIT (23,486,022) (21,107,207)
------------ ------------
10,139,605 9,077,961
------------ ------------
24,663,418 23,928,682
============ ============
COMMITMENT (Note 10)
SUBSEQUENT EVENT (Note 4(e))
APPROVED BY THE BOARD
/s/ MARC CERNOVITCH, Director
- -----------------------------
/s/ NICK DEMARE , Director
- -----------------------------
The accompanying notes are an integral part of these interim
financial statements.
HALO RESOURCES LTD.
(AN EXPLORATION STAGE COMPANY)
INTERIM STATEMENTS OF LOSS AND DEFICIT
(UNAUDITED - PREPARED BY MANAGEMENT)
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
---------------------------- ----------------------------
2006 2005 2006 2005
$ $ $ $
REVENUES
Interest and other 4,513 13,016 12,661 25,782
------------ ------------ ------------ ------------
EXPENSES
Accretion (Note 12) 19,000 - 57,000 -
Amortization of capital assets 12,053 1,946 22,263 2,508
General and administrative 282,356 384,882 1,000,501 829,540
General exploration 11,780 2,611 15,691 2,611
Stock-based compensation - 14,975 359,822 559,031
Write-down of unproven
mineral interest (Note 4(b)) 1,681,199 - 1,681,199 -
------------ ------------ ------------ ------------
2,006,388 404,414 3,136,476 1,393,690
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAX (2,001,875) (391,398) (3,123,815) (1,367,908)
FUTURE INCOME TAX RECOVERY 180,000 134,000 745,000 1,343,000
------------ ------------ ------------ ------------
NET LOSS FOR THE PERIOD (1,821,875) (257,398) (2,378,815) (24,908)
DEFICIT - BEGINNING OF PERIOD (21,664,147) (20,506,607) (21,107,207) (20,739,097)
------------ ------------ ------------ ------------
DEFICIT - END OF PERIOD (23,486,022) (20,764,005) (23,486,022) (20,764,005)
============ ============ ============ ============
LOSS PER COMMON SHARE
- BASIC AND DILUTED $(0.06) $(0.01) $(0.09) $(0.00)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 29,903,906 18,771,405 27,563,547 14,397,226
============ ============ ============ ============
The accompanying notes are an integral part of these interim
financial statements.
HALO RESOURCES LTD.
(AN EXPLORATION STAGE COMPANY)
INTERIM STATEMENTS OF CASH FLOW
(UNAUDITED - PREPARED BY MANAGEMENT)
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
---------------------------- ----------------------------
2006 2005 2006 2005
$ $ $ $
CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
Net loss for the period (1,821,874) (257,398) (3,123,815) (24,908)
Items not involving cash
Accretion 19,000 - 57,000 -
Amortization of capital assets 12,053 1,946 22,263 2,508
Professional fees - - 60,000 -
Stock-based compensation - 14,975 359,822 559,031
Write-down of unproven mineral interest 1,681,199 - 1,681,199 -
Future income tax recovery (180,000) (134,000) (745,000) (1,343,000)
Decrease (increase) in amounts receivable
and prepaids 80,673 (15,586) 30,510 (232,022)
Increase (decrease) in accounts payable
and accrued liabilities (22,637) 459,844 (459,541) 662,034
------------ ------------ ------------ ------------
(231,587) 69,781 (1,372,562) (376,357)
------------ ------------ ------------ ------------
FINANCING ACTIVITIES
Common shares issued for cash 1,163,200 105,000 4,125,749 6,911,397
Common share issue costs - - (257,173) (647,423)
------------ ------------ ------------ ------------
1,163,200 105,000 3,868,576 6,263,974
------------ ------------ ------------ ------------
INVESTING ACTIVITIES
Additions to resource interests (657,590) (3,692,729) (2,225,250) (4,874,245)
Purchase of capital assets - (22,481) (239,410) (36,893)
------------ ------------ ------------ ------------
(657,590) (3,715,210) (2,464,660) (4,911,138)
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 274,023 (3,540,429) 31,354 976,479
CASH AND CASH EQUIVALENTS
- BEGINNING OF PERIOD 650,856 4,845,973 893,525 329,065
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS
- END OF PERIOD 924,879 1,305,544 924,879 1,305,544
============ ============ ============ ============
SUPPLEMENTARY CASH FLOW INFORMATION - See Note 11.
The accompanying notes are an integral part of these interim
financial statements.
HALO RESOURCES LTD.
(AN EXPLORATION STAGE COMPANY)
INTERIM SCHEDULE OF UNPROVEN MINERAL INTERESTS
(UNAUDITED - PREPARED BY MANAGEMENT)
--------------------------------------------------------------------------------- -----------
AUGUST 31,
MAY 31, 2006 2005
--------------------------------------------------------------------------------- -----------
BACHELOR QUARTER RED
DUPORT LAKE MOON LAKE SHERRIDON LAKE
PROPERTY PROPERTY PROPERTY PROJECT PROPERTY TOTAL TOTAL
$ $ $ $ $ $ $
BALANCE - BEGINNING OF PERIOD 16,834,784 5,585,956 338,593 - - 22,759,333 75,906
----------- ----------- ----------- ----------- ----------- ----------- -----------
AMOUNTS INCURRED DURING
THE PERIOD
EXPLORATION EXPENDITURES
Accounting - 13,272 - - - 13,272 -
Airborne surveying - - - 187,650 - 187,650 250,268
Assays - 23,065 - - - 23,065 56,036
Camp and equipment costs 110,727 97,224 - - - 207,951 209,549
Consulting 53,688 194,202 8,444 198,909 1,455 456,698 301,200
Data - - - 25,000 - 25,000 -
Drilling - 258,381 - - - 258,381 1,373,524
Due diligence 6,054 - - 8,160 - 14,214 23,296
Engineering 26,856 23,020 - - - 49,876 -
Exploration office costs 26,790 54,332 - 6,387 - 87,509 25,018
Field personnel 38,752 126,517 - - - 165,269 179,253
Field supplies - - - - - - 41,332
Filing - 2,250 - 1,000 - 3,250 14,035
Geological - - - - - - 199,030
Insurance - 16,719 - - - 16,719 -
Maintenance - 15,178 - - - 15,178 -
Mobilization, demobilization - 6,132 - - - 6,132 88,766
Rent and utilities - 106,577 - - - 106,577 30,669
Site preparation - - - - - - 232,706
Surveying 3,573 - - - - 3,573 16,223
Technical report - - - 10,859 - 10,859 10,000
Telephone 949 12,125 - - - 13,074 4,847
Travel 22,231 48,985 1,299 23,878 3,239 99,632 118,720
Reimbursement / Recoveries - (91,449) (14,288) - - (105,737) 1,818,123
----------- ----------- ----------- ----------- ----------- ----------- -----------
289,620 906,530 (4,545) 461,843 4,694 1,658,142 4,992,595
----------- ----------- ----------- ----------- ----------- ----------- -----------
OTHER ITEMS
Acquisition costs and payments - 165,782 - 63,250 - 229,032 11,260,000
Claims staking and
lease rental cost 4,876 - - 147,690 - 152,566 12,458
Legal 1,809 49,597 - 100,713 14,141 166,260 385,207
Capitalized dividend 37,500 - - - - 37,500 41,667
Future income tax adjustment - - - - - - 5,091,000
Asset retirement obligation - - - - - - 900,500
----------- ----------- ----------- ----------- ----------- ----------- -----------
44,185 215,379 - 311,653 14,141 585,358 17,690,832
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE BEFORE WRITE-DOWN 17,168,589 6,707,865 334,048 773,496 18,835 25,002,833 22,759,333
WRITE-DOWN (Note 4(b)) - (1,681,199) - - - (1,681,199) -
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE - END OF PERIOD 17,168,589 5,026,666 334,048 773,496 18,835 23,321,634 22,759,333
=========== =========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these interim
financial statements.
HALO RESOURCES LTD.
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MAY 31, 2006
(UNAUDITED - PREPARED BY MANAGEMENT)
1. NATURE OF OPERATIONS
Halo Resources Ltd. (the "Company") is a resource exploration company
which is engaged in the acquisition, exploration and development of
unproven mineral interests in Canada. The Company presently has no
proven or probable reserves and on the basis of information to date, it
has not yet determined whether these unproven mineral interests contain
economically recoverable ore reserves. Consequently the Company
considers itself to be an exploration stage company. The amounts shown
as unproven mineral interests and deferred costs represent costs
incurred to date, less amounts amortized and/or written off, and do not
necessarily represent present or future values. The underlying value of
the unproven mineral interests is entirely dependent on the existence
of economically recoverable reserves, securing and maintaining title
and beneficial interest, the ability of the Company to obtain the
necessary financing to complete development, and future profitable
production.
2. SIGNIFICANT ACCOUNTING POLICIES
These interim financial statements of the Company have been prepared by
management in accordance with Canadian generally accepted accounting
principles. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
interim financial statements and accompanying notes. Actual results
could differ from those estimates. The interim financial statements
have, in management's opinion, been properly prepared using careful
judgement with reasonable limits of materiality. These interim
financial statements should be read in conjunction with the most recent
annual financial statements. The significant accounting policies follow
that of the most recently reported annual financial statements.
3. CAPITAL ASSETS
AUGUST 31,
MAY 31, 2006 2005
--------------------------------------- ------------
ACCUMULATED NET BOOK NET BOOK
COSTS DEPRECIATION VALUE VALUE
$ $ $ $
Office furniture and equipment 8,600 1,792 6,808 5,693
Computer and telephone equipment 20,398 5,762 14,636 15,512
Mine equipment and facility 247,305 18,841 228,464 11,556
----------- ----------- ----------- -----------
276,303 26,395 249,908 32,761
=========== =========== =========== ===========
HALO RESOURCES LTD.
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MAY 31, 2006
(UNAUDITED - PREPARED BY MANAGEMENT)
4. UNPROVEN MINERAL INTERESTS
--------------------------------------- ---------------------------------------
MAY 31, 2006 AUGUST 31, 2005
--------------------------------------- ---------------------------------------
DEFERRED DEFERRED
ACQUISITION EXPLORATION TOTAL ACQUISITION EXPLORATION TOTAL
COSTS COSTS COSTS COSTS COSTS COSTS
$ $ $ $ $ $
Duport 14,946,429 2,222,160 17,168,589 14,902,244 1,932,540 16,834,784
Bachelor Lake 1,291,060 3,735,606 5,026,666 2,756,880 2,829,076 5,585,956
Quarter Moon Lake 107,614 226,434 334,048 107,614 230,979 338,593
Sherridon 311,653 461,843 773,496 - - -
Red Lake 14,141 4,694 18,835 - - -
----------- ----------- ----------- ----------- ----------- -----------
16,678,987 6,650,737 23,321,634 17,766,738 4,992,595 22,759,333
=========== =========== =========== =========== =========== ===========
(a) Duport Property, Ontario
Pursuant to an agreement dated February 18, 2005, the Company
acquired from The Sheridan Platinum Group Ltd. ("Sheridan") a
100% interest in 93 mineral claims (the "Duport Property")
covering an area of approximately 3,800 hectares, located near
Kenora, Ontario. The Company paid $250,000 cash and issued one
million common shares, at a fair value of $1,210,000, and $8
million in redeemable preferred shares (see Note 5). The
purchase of the Duport Property was conducted on a tax-free
roll-over basis to Sheridan and, accordingly, $9,210,000 of
costs have no tax value.
The Company has agreed to pay a 2.5% net smelter return
royalty ("NSR") on the first 1.5 million ounces of gold
produced and a 5% NSR on the excess. The Company will have the
right to buy back a 1% NSR for $2.5 million cash.
The Company has also acquired, through staking, ten mineral
claims in the area of the Duport property, covering an area of
approximately 1,700 hectares.
(b) Bachelor Lake Property, Quebec
On November 12, 2004, the Company entered into a heads of
agreement with Wolfden Resources Inc. ("Wolfden"), whereby
Wolfden would assign to the Company, Wolfden's option from
Metanor Resources Inc. ("Metanor"), to earn a 50% undivided
interest in two mining concessions and 51 mineral claims for a
total of 1,851 hectares (the "Bachelor Lake Property"),
located in the La Sueur Township, Quebec. On April 15, 2005,
the Company and Wolfden signed the final agreement (the
"Assignment and Assumption Agreement"). Under the agreed
terms, the Company acquired Wolfden's option by paying
$650,000 cash and issuing 1,400,000 common shares, at a fair
value of $1,050,000. The Company was also responsible for all
exploration costs incurred on the Bachelor Lake Property by
Wolfden from the date of signing the heads of agreement and
accordingly, reimbursed Wolfden $1,818,123 by paying
$1,293,123 cash and issuing 700,000 common shares, at a fair
value of $525,000. Upon exercising the option and after 50,000
ounces of gold or gold equivalent have been produced from the
Bachelor Lake Property, the Company is required to pay to
Wolfden a bonus payment of $250,000 cash and issue a further
250,000 common shares. The Company also agreed to pay a 0.5%
royalty on the Company's share of the NSR. A director of the
Company is also a director and officer of Wolfden.
HALO RESOURCES LTD.
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MAY 31, 2006
(UNAUDITED - PREPARED BY MANAGEMENT)
4. UNPROVEN MINERAL INTERESTS (continued)
Effective May 18, 2005, the Company and Metanor entered an
agreement whereby Metanor acknowledged the Assignment and
Assumption Agreement and the terms of the underlying option
agreement on the Bachelor Lake Property were amended. Under
the amendment, the Company could exercise its option to earn
the 50% interest in the Bachelor Lake Property by spending a
minimum of $500,000 of exploration on the Bachelor Lake
Property and paying $100,000 to Metanor. On September 21,
2005, the Company exercised its option and paid the $100,000.
The Bachelor Lake Property was then operated under a joint
venture agreement (the "Bachelor Lake JV").
On May 2, 2006, the Company and Metanor entered into a
purchase agreement (the "Metanor Purchase") whereby Metanor
agreed to purchase the Company's 50% interest in the Bachelor
Lake Property in consideration of $3.5 million cash, $750,000
in common shares of Metanor and a 1% NSR in favour of the
Company.
Closing of the Metanor Purchase (the "Closing") is scheduled
to occur (the "Completion Date") on the earlier of:
i) 30 days after Metanor completes a $5 million financing; or
ii) September 2, 2006.
Until Closing occurs, Metanor assumes all costs, expenses and
obligations relating to maintaining the Bachelor Lake Property
in good standing until the Completion Date.
In the event the Closing does not occur within the Completion
Date, the Company may elect to purchase Metanor's 50% interest
in the Bachelor Lake Property under the same terms as the
Metanor Purchase. The Company will then have four months to
complete its acquisition. The Company would also assume all
costs, expenses and obligations of the Bachelor Lake Property
from its election until closing of the Company's purchase. If
the Company does not elect to purchase Metanor's 50% interest
then both parties will retain their respective 50% interests
in the Bachelor Lake Property and operations would continue
under the Bachelor Lake JV.
The Metanor Purchase contemplates payment of $3.5 million cash
and common shares of Metanor with a fair value of $750,000,
for total consideration of $4.25 million. Accordingly, during
the nine months ended May 31, 2006, the Company recognized an
impairment of $1,681,199.
To date Metanor has not notified the Company that it has
arranged the necessary financing to complete the purchase of
the Company's 50% interest in the Bachelor Lake Property.
(c) Quarter Moon Lake Property, Manitoba
On February 9, 2005, as amended February 9, 2006, the Company
entered into a letter of intent ("Quarter Moon LOI") with
Endowment Lakes (2002) Limited Partnership ("EL") regarding
the option to earn up to an 80% interest in the Quarter Moon
Lake Property, Manitoba. The Quarter Moon Lake Property
comprises five mining claims covering a total of 1,072
hectares and is located 75 kilometres northeast of Flin Flon
and 61 kilometres northwest of Snow Lake. Under the terms of
the Quarter Moon LOI, the Company has the right to acquire an
initial 51% interest in the Quarter Moon Lake Property in
which the Company paid $40,000 cash, issued 50,000 common
shares of the
HALO RESOURCES LTD.
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MAY 31, 2006
(UNAUDITED - PREPARED BY MANAGEMENT)
4. UNPROVEN MINERAL INTERESTS (continued)
Company, at a fair value of $60,000, and is required to
complete a $250,000 minimum work commitment on or before March
9, 2006, paying a further $40,000 cash and issuing 50,000
common shares on or before March 9, 2006, and completing a
further $250,000 work commitment on or before February 9,
2007. The Company has the option to earn an additional 29%
interest by providing notice after the initial earn-in by
completing an additional $1.5 million in exploration and
development over a subsequent two year period, and paying an
additional $40,000 and issuing 50,000 common shares on or
before February 9, 2008. The Quarter Moon Lake Property will
then be held 80% by the Company and 20% by EL. The Company
will be responsible for advancing the property to production
and will recover all costs out of production prior to sharing
profits on an 80/20 basis. EL will hold a 1% NSR which can be
purchased at any time for $1 million.
The Company and EL are currently negotiating a restructuring
of the Quarter Moon LOI which will result in additional claims
to be acquired and revised payment terms.
(d) Sherridon VMS Project, Manitoba
The Sherridon VMS Project comprises approximately 13,915
hectares located in the Sherridon area, north-central
Manitoba, and comprises the following:
i) 51 unproven claims covering approximately 9,900 hectares,
staked by the Company;
ii) heads of agreement (the "Dunlop HOA") dated February 9,
2006, entered into by the Company and W. Bruce Dunlop
Limited NPL, whereby the Company was granted the option to
earn a 100% undivided interest in three unproven mineral
claims, covering 536 hectares, for $90,000 cash ($15,000
paid), issuance of 250,000 common shares of the Company
(25,000 shares issued) and expending a total of $170,000
in work expenditures over a four year period; and
iii)three option agreements (the "HBED Options"), dated
February 27, 2006, entered into by the Company and Hudson
Bay Exploration and Development Company Limited ("HBED"),
whereby the Company was granted options to acquire 100%
interests in 24 unproven mineral claims and one mining
lease covering approximately 3,478 hectares. In order to
earn 100% interests in all of the mineral claims and the
mining lease the Company will be required to make option
payments totalling $650,000 and incur expenditures
totalling $4,300,000, as follows:
OPTION WORK
DATE PAYMENTS EXPENDITURES
$ $
On signing 30,000(paid) -
First Anniversary 70,000 30,000
Second Anniversary 120,000 100,000
Third Anniversary 80,000 790,000
Fourth Anniversary 350,000 3,380,000
----------- -----------
650,000 4,300,000
=========== ===========
Upon agreement by both the Company and HBED, up to 25% of
the option payments may be paid in common shares of the
Company.
HALO RESOURCES LTD.
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MAY 31, 2006
(UNAUDITED - PREPARED BY MANAGEMENT)
4. UNPROVEN MINERAL INTERESTS (continued)
(e) Red Lake Property, Manitoba
On April 18, 2006, the Company entered into a letter of intent
(the "Red Lake LOI") with Goldcorp. Inc. ("Goldcorp")
regarding the option to earn a 60% interest in 67 mining
claims, a 45% interest in two mining claims, and a 30%
interest in ten mining claims (collectively the "Red Lake
Property") located in Ball Township, Red Lake, Ontario. On
June 20, 2006, the Company and Goldcorp completed a formal
option agreement (the "Red Lake Option") on the Red Lake
Property. Under the terms of the Red Lake Option, the Company
is required to perform minimum exploration programs totalling
$3 million, as follows:
DATE $
December 31, 2006 750,000
December 31, 2007 1,000,000
December 31, 2008 1,250,000
-----------
3,000,000
===========
Upon spending the $3.0 million, the Company is entitled to
elect to exercise the option of its interests. Upon
notification of the Company's election, Goldcorp has 90 days
to back-in and reacquire a 25% interest in the 67 mining
claims, a 18.75% interest in two mining claims and a 12.5%
interest in the ten mining claims by paying $6 million to the
Company. If Goldcorp does not exercise its back-in right, the
Company will then be required to issue one million common
shares of its share capital to Goldcorp.
5. REDEEMABLE PREFERRED SHARES
The series 1 redeemable preferred shares (the "Redeemable Preferred
Shares") were issued by the Company as partial consideration of its
purchase of the Duport Property described in Note 4(a). The Redeemable
Preferred Shares have a term of five years with payment of cumulative
cash dividends, at the following rates:
i) for each of the two years commencing November 1, 2004, an annual
dividend of $50,000, payable in quarterly instalments, commencing
on February 1, 2005 and ending on November 1, 2006; and
ii) for each of the three years commencing November 1, 2006, an annual
dividend of 4% of the Redeemable Preferred Shares outstanding,
payable in quarterly instalments, commencing on February 1, 2007
and ending on November 1, 2009.
The Company may elect to pay any of its dividends in common shares of
its capital stock based on a 15 day average price prior to the date the
dividend is due.
HALO RESOURCES LTD.
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MAY 31, 2006
(UNAUDITED - PREPARED BY MANAGEMENT)
5. REDEEMABLE PREFERRED SHARES (continued)
The Redeemable Preferred Shares are non-voting, non-convertible and can
be redeemed in whole or in part by the Company at any time prior to
November 1, 2009, as follows:
i) make a cash payment of $8 million plus a $400,000 bonus, together
with any accrued and unpaid dividends; or
ii) provided all dividends payable pursuant to the terms of the
Redeemable Preferred Shares have been paid, the Company may return
the Duport Property to Sheridan.
The Company may elect to redeem the Redeemable Preferred Shares through
the issuance of common shares in its capital stock based on a 15 day
average price prior to the date of redemption.
If the Redeemable Preferred Shares have not been redeemed the Company
will, effective November 1, 2009, retract the Redeemable Preferred
Shares in consideration of $8 million plus accrued unpaid dividends
(collectively the "Retraction Amount"), payable in cash or common
shares of the Company based on a 15 trading day average price prior to
the date of retraction.
During the nine months ended May 31, 2006, the Company recorded $37,500
of dividends on the Redeemable Preferred Shares, which have been
capitalized as part of resource interests. As at May 31, 2006, $4,167
of accrued dividends were included as part of accounts payable and
accrued liabilities.
6. SHARE CAPITAL
Authorized: unlimited common shares without par value
unlimited preferred shares
Issued common shares: MAY 31, 2006 AUGUST 31, 2005
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
$ $
Balance, beginning of period 21,005,765 28,487,576 9,443,859 20,914,102
----------- ----------- ----------- -----------
Issued during the period
For cash
Private placements 5,273,236 3,493,249 7,324,894 6,688,797
Exercise of options 150,000 67,500 - -
Exercise of warrants 4,598,500 1,523,950 1,048,500 253,100
Corporate finance 85,715 60,000 40,000 34,000
For unproven mineral interests 25,000 18,250 3,150,000 2,845,000
Cancellation of escrow shares - - (1,488) -
----------- ----------- ----------- -----------
10,132,451 5,162,949 11,561,906 9,820,897
Less: flow-through share renunciation - (820,633) - (1,566,000)
share issue costs - (302,729) - (681,423)
------------- ----------- ----------- -----------
10,132,451 4,039,587 11,561,906 7,573,474
------------- ----------- ----------- -----------
Balance, end of period 31,138,216 32,527,163 21,005,765 28,487,576
============= =========== =========== ===========
HALO RESOURCES LTD.
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MAY 31, 2006
(UNAUDITED - PREPARED BY MANAGEMENT)
6. SHARE CAPITAL (continued)
(a) During the nine months ended May 31, 2006, the Company
completed a non-brokered private placement of 3,293,070
flow-through common shares at a price of $0.70 per
flow-through share and 1,980,166 non-flow-through units (the
"Non-Flow-Through Units") at a price of $0.60 per Non-Flow-
Through Unit, for total gross proceeds of $3,493,249. Each
Non-Flow-Through Unit consisted of one common share and one
share purchase warrant entitling the holder to purchase one
further common share of the Company, for a period of two years
at a price of $0.70 per share. The Company paid a total of
$262,194 for commissions, incurred legal and filing costs
totalling $40,535 and issued 523,323 warrants ("Finders'
Warrants"). The Finder's Warrants have the same terms as the
private placement warrants. A director of the Company
purchased 20,000 flow-through shares for gross proceeds of
$14,000.
As at August 31, 2005, the Company had received $958,950 in
common share subscriptions and incurred $45,556 of share issue
costs with respect to this private placement.
(b) A summary of the number of common shares reserved pursuant to
the Company's warrants outstanding at May 31, 2006, and the
changes for the nine months ended May 31, 2006, is as follows:
NUMBER
Balance, beginning of period 10,331,859
Issued pursuant to private placements 1,980,166
Issued as finders warrants 523,323
Issued for corporate finance fee 85,715
Exercised (4,598,500)
-----------
Balance, end of period 8,322,563
===========
Common shares reserved pursuant to warrants outstanding at May
31, 2006, are as follows:
NUMBER EXERCISE PRICE EXPIRY DATE
$
2,313,182 1.50 December 23, 2006
2,698,530 1.35 December 23, 2006
20,000 1.35 December 23, 2006
701,647 1.05 December 23, 2006
2,071,015 0.70 September 14, 2007
432,474 0.70 September 29, 2007
85,715 0.75 October 14, 2007
---------
8,322,563
=========
HALO RESOURCES LTD.
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MAY 31, 2006
(UNAUDITED - PREPARED BY MANAGEMENT)
7. STOCK OPTIONS AND STOCK-BASED COMPENSATION
The Company has established a rolling stock option plan (the "Plan"),
in which the maximum number of common shares which can be reserved for
issuance under the Plan is 10% of the issued and outstanding shares of
the Company. The exercise price of the options is set at the Company's
closing share price on the day before the grant date, less allowable
discounts in accordance with the policies of the TSXV. During the nine
months ended May 31, 2006, the Company granted 2,168,000 stock options
to its employees, directors and consultants and recorded compensation
expense of $359,822.
The fair value of stock options granted to employees, directors and
consultants is estimated on the dates of grants using the Black-Scholes
option pricing model with the following assumptions used for the grants
made during the nine months ended May 31, 2006:
Risk-free interest rate 3.24% - 3.43%
Estimated volatility 61.41% - 64.96%
Expected life 1.5 years
Expected dividend yield 0%
The fair value per share of stock options, calculated using the
Black-Scholes option pricing model, granted during the nine months
ended May 31, 2006, to the Company's employees, directors and
consultants was $0.20 per share.
Option-pricing models require the use of estimates and assumptions
including the expected volatility. Changes in the underlying
assumptions can materially affect the fair value estimates and,
therefore, existing models do not necessarily provide reliable measure
of the fair value of the Company's stock options.
A summary of the Company's stock options at May 31, 2006, and the
changes for the nine months ended May 31, 2006, is presented below:
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF OPTIONS PRICE
$
Balance, beginning of period 1,688,000 0.80
Granted 2,168,000 0.54
Exercised (150,000) 0.75
Expired (753,000) 0.96
-----------
Balance, end of period 2,953,000 0.58
===========
HALO RESOURCES LTD.
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MAY 31, 2006
(UNAUDITED - PREPARED BY MANAGEMENT)
7. STOCK OPTIONS AND STOCK-BASED COMPENSATION (continued)
The following table summarizes information about the stock options
outstanding and exercisable at May 31, 2006:
OPTIONS OPTIONS EXERCISE
OUTSTANDING EXERCISABLE PRICE EXPIRY DATE
$
600,000 600,000 0.60 May 31, 2007
60,000 60,000 0.75 July 22, 2007
150,000 150,000 0.70 September 27, 2007
200,000 200,000 0.75 September 28, 2008
630,000 630,000 0.75 September 29, 2008
913,000 913,000 0.45 February 2, 2009
400,000 - 0.45 March 10, 2011
------------ -----------
2,953,000 2,553,000
============ ===========
8. CONTRIBUTED SURPLUS
Contributed surplus is comprised of the following:
MAY 31, AUGUST 31,
2006 2005
$ $
Balance, beginning of period 738,642 179,611
Stock-based compensation (Note 7) 359,822 559,031
----------- -----------
Balance, end of period 1,098,464 738,642
=========== ===========
9. RELATED PARTY TRANSACTIONS
(a) During the nine months ended May 31, 2006, the Company
incurred $176,275 for management, professional, accounting and
administrative services provided by companies controlled by
directors of the Company. As at May 31, 2006, accounts payable
and accrued liabilities include $9,124 due to these related
parties.
(b) Other related party transactions are disclosed elsewhere in
these financial statements.
These transactions were measured at the exchange amount, which was the
amount of consideration established and agreed to by related parties.
10. COMMITMENT
On May 17, 2006, the Company entered into an office lease agreement for
its exploration office located in Flin Flon, Manitoba. The gross rent
under the agreement is $16,150 per annum.
HALO RESOURCES LTD.
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MAY 31, 2006
(UNAUDITED - PREPARED BY MANAGEMENT)
11. SUPPLEMENTARY CASH FLOW INFORMATION
Non-cash financing activities were conducted by the Company during the
nine months ended May 31, 2006 and 2005, are as follows:
2006 2005
$ $
Financing activities
Common shares issued for mineral
interests 18,250 -
Common shares issued for corporate
finance fee - 34,000
Common share issue costs - (34,000)
Share capital - future income tax
adjustment (820,633) (1,566,000)
Future tax liability 820,633 (1,566,000)
----------- -----------
18,250 -
=========== ===========
Investing activity
Unproven mineral interests (22,417) -
=========== ===========
Operating activities
Accrued dividend payable 4,167 -
=========== ===========
Other supplementary cash flow information:
2006 2005
$ $
Interest paid in cash - -
=========== ===========
Income taxes paid in cash - -
=========== ===========
12. ASSET RETIREMENT OBLIGATION
MAY 31, AUGUST 31,
2006 2005
$ $
Balance, beginning of period 938,500 -
Liabilities assumed on acquisition - 900,500
Accretion expense 57,000 38,000
----------- -----------
995,500 938,500
=========== ===========
The total undiscounted amount of estimated cash flows required to
settle the Company's estimated obligation is $1,018,567 which has been
discounted using a credit adjusted risk free rate of 8.5%. The
reclamation obligation relates to the Bachelor Lake Property. The
present value of the reclamation liability may be subject to change
based on management's current estimates, changes in remediation
technology or changes to the applicable laws and regulations. Such
changes will be recorded in the accounts of the Company as they occur.
HALO RESOURCES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE NINE MONTHS ENDED MAY 31, 2006
BACKGROUND
This discussion and analysis of financial position and results of operation is
prepared as at July 27, 2006 and should be read in conjunction with the
unaudited interim financial statements and the accompanying notes for the nine
months ended May 31, 2006 of Halo Resources Ltd. (the "Company"). Those
financial statements have been prepared in accordance with Canadian generally
accepted accounting principles ("GAAP"). Except as otherwise disclosed, all
dollar figures included therein and in the following management discussion and
analysis ("MD&A") are quoted in Canadian dollars. Additional information
relevant to the Company's activities, can be found on SEDAR at WWW.SEDAR.COM .
COMPANY OVERVIEW
The Company is a resource exploration company which historically was engaged in
the acquisition, exploration and development of crude oil and natural gas
properties in the United States. In 2004 the Company reorganized its corporate
structure and business objectives. Effective March 1, 2004, the Company sold its
remaining oil and natural gas property interest. The Company subsequently
acquired a number of mineral property interests. The Company is now considered
to be an exploration stage company engaged in the acquisition and exploration of
precious and base metals on mineral interests located in Canada with active
exploration programs in Quebec, Ontario and Manitoba. As of the date of this
MD&A, the Company has not earned any production revenue, nor found any proved
reserves on any of its mineral interests.
As of the date of this MD&A the Company is a reporting issuer in British
Columbia, Alberta and Quebec. The Company trades on the TSX Venture Exchange
("TSXV") under the symbol "HLO", on the OTCBB under the symbol "HLOSF" and on
the Frankfurt Stock Exchange ("FSE") under the symbol "HRL". The Company is also
registered with the U.S. Securities and Exchange Commission ("SEC") as a foreign
private issuer under the Securities Act of 1934.
FORWARD LOOKING STATEMENTS
Certain information included in this discussion may constitute forward-looking
statements. Forward-looking statements are based on current expectations and
entail various risks and uncertainties. These risks and uncertainties could
cause or contribute to actual results that are materially different than those
expressed or implied. The Company disclaims any obligation or intention to
update or revise any forward-looking statement, whether as a result of new
information, future events, or otherwise.
EXPLORATION PROJECTS
DUPORT PROPERTY, ONTARIO, CANADA
The original NI 43-101 technical report on Duport was updated to review the
exploration data compiled in 2005, and to provide recommendations for future
work programs on the property aimed at expanding the resource base of the
property. Preparations were made to commence a January/February program to drill
test the numerous high priority targets generated by the successful 2005
helicopter-supported airborne magnetometer and electromagnetic ("EM") survey.
Unfortunately, mild temperature conditions during January and February did not
allow the building of sufficient ice thickness to support the drill rigs and it
was necessary to defer the planned drill program until the next winter season.
The Company believes that the property shows very high potential to expand the
existing resource, both laterally and along strike of the deposit, and discover
additional ounces within prospective satellite geophysical targets associated
with gold in historic drill holes in close proximity to the Duport deposit.
- 1 -
BACHELOR LAKE PROPERTY, QUEBEC
On May 2, 2006, the Company and Metanor entered into a purchase agreement (the
"Metanor Purchase") whereby Metanor agreed to purchase the Company's 50%
interest in the Bachelor Lake Property in consideration of $3.5 million cash,
$750,000 in common shares of Metanor and a 1% NSR in favour of the Company.
Closing of the Metanor Purchase (the "Closing") is scheduled to occur (the
"Completion Date") on the earlier of:
i) 30 days after Metanor completes a $5 million financing; or
ii) September 2, 2006.
Until Closing occurs, Metanor assumes all costs, expenses and obligations
relating to maintaining the Bachelor Lake Property in good standing until the
Completion Date.
In the event the Closing does not occur within the Completion Date, the Company
may elect to purchase Metanor's 50% interest in the Bachelor Lake Property under
the same terms as the Metanor Purchase. The Company will then have four months
to complete its acquisition. The Company would also assume all costs, expenses
and obligations of the Bachelor Lake Property from its election until closing of
the Company's purchase. If the Company does not elect to purchase Metanor's 50%
interest then both parties will retain their respective 50% interests in the
Bachelor Lake Property and operations would continue under the Bachelor Lake
joint venture
QUARTER MOON LAKE PROPERTY, MANITOBA
There was no activity on this property and the Letter of Intent ("LOI") with
Endowment Lakes (2002) Limited Partnership ("EL") was extended. The Company is
currently renegotiating the LOI to encompass additional claims and revised
payment terms.
SHERRIDON VMS PROPERTY, MANITOBA
In January 2006, the Company completed a technical report on the Sherridon VMS
Property in accordance with NI 43-101. The Company has continued to assemble a
large land package in the Sherridon volcanic massive sulphide ("VMS") district
located 70 km northeast of Flin Flon. The package includes six copper-zinc type
deposits and is considered highly prospective for new VMS discoveries. The
Company has now staked a total of 64 claims (approximately 12,700 ha) and
together with the recent purchase of a strategically located land package of
2072 ha from Endowment Lakes, the Company ground is now 14,788 hectare. Through
four option agreements The Company also has the right to acquire a 100% interest
in 27 other mining claims and one mineral lease in the Sherridon area bring the
total land package to approximately 18,800 hectare. The most significant of
these agreements are those with Hudson Bay Exploration and Development Company
Limited ("HBED") which allow the Company to acquire 100% of the substantial
Jungle and Park copper-zinc deposits. Under a separate agreement HBED has also
agreed to provide the Company with access to its historical exploration database
within the Sherridon VMS Property.
Under the technical direction of Eckart Buhlmann, an exploration team has been
assembled and the 2006 exploration plan developed. The compilation of the large
body of recently acquired government assessment data is well underway. The
detailed exploration data provided by HBED represents a major strategic
exploration asset and will assist the Company greatly to define the location of
the mineralized horizons on the north rim of the Sherridon dome.
A deep-penetrating and high resolution helicopter-borne geophysical survey
covering the entire property at a 100 m line spacing is near completion. A field
program is also being conducted in the vicinity of existing Cu-Zn deposits to
define possible controls on mineralization. This work will be integrated and
compiled with the historical database and the results of the current airborne
(EM) survey to set the foundation for additional ground geophysical surveying
and diamond drilling in August, 2006.
Data verification and geological modeling of the six existing Cu-Zn sulphides
deposits located on the Sherridon property is in progress and will also be used
to assist in establishing exploration targets adjacent to each of the known
mineralized deposits.
- 2 -
RED LAKE PROPERTY, ONTARIO
On June 20, 2006 the Company completed a formal option agreement with Goldcorp
Inc. ("Goldcorp") on its Middle Bay, Pipestone Bay and Biron Bay properties
(collectively the "Red Lake Property") located in Ball Township, Red Lake,
Ontario.
Under the terms of the option agreement the Company can earn a 60% interest in
67 mining claims, a 45% interest in two mining claims, and a 30% interest in ten
mining claims by spending $3 million on exploration by December 31, 2008. Upon
spending the $3 million, the Company is entitled to elect to exercise the option
of its interests. Upon notification of the Company's election, Goldcorp has 90
days to back-in and reacquire a 25% interest in the 67 mining claims, a 18.75%
interest in two mining claims and a 12.5% interest in the ten mining claims by
paying $6 million to the Company. If Goldcorp does not exercise its back-in
right, the Company will then be required to issue one million common shares of
its share capital to Goldcorp.
The Red Lake greenstone belt is host to the richest gold deposit in the world.
The high-grade zone at the Red Lake Mine contains 4.6M ounces at a grade of 2.35
oz/ton gold. The Red Lake Camp has produced over 20M ounces and is currently
being explored by a number of senior gold companies that include AngloGold, Teck
Cominco, Barrick and Goldcorp.
The Red Lake Property is located about 32 km west of the prolific Campbell and
Red Lake Mines. The property covers widespread gold mineralization from surface
showings and small gold deposits. Of interest is a 5.5 km long, arcuate,
intensely carbonate-altered structural horizon that trends through Middle Bay
and lies south of a prominent late-stage ultramafic body centered on Pipestone
Bay. Previous exploration by Goldcorp and others have returned significant
surface gold values including up to1.87 opt over 1.8 meters and 0.38 opt over
7.3 meters respectively from surface trenching.
The Company has completed a systematic exploration including diamond drilling
for the area and will commence its earn-in program immediately.
SELECTED FINANCIAL DATA
The following selected financial information is derived from the unaudited
interim financial statements of the Company prepared in accordance with Canadian
GAAP.
------------------------------------ ------------------------------------------------- ---------
FISCAL FISCAL FISCAL
2006 2005 2004
------------------------------------ ------------------------------------------------- ---------
THREE MONTH PERIODS ENDING MAY 31 FEB 29 NOV 30 AUG 31 MAY 31 FEB 28 NOV 30 AUG 31
$ $ $ $ $ $ $ $
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
OPERATIONS:
Revenues 4,513 3,498 4,650 5,549 13,016 12,323 443 19,930
Net income (loss) (1,821,875) (246,430) (310,510) (343,202) (257,398) 485,859 (253,369) (166,197)
Basic and diluted
income (loss) per share (0.06) (0.01) (0.01) (0.01) (0.01) 0.03 (0.03) (0.03)
Dividends per share Nil Nil Nil Nil Nil Nil Nil Nil
BALANCE SHEET:
Working capital 967,196 751,209 1,358,021 506,811 821,010 4,809,864 7,121 278,710
Total assets 24,663,418 25,487,480 25,971,467 23,928,682 22,474,879 6,346,291 318,900 417,581
Total long-term liabilities 14,399,133 14,560,133 14,756,133 14,266,500 13,314,000 Nil Nil Nil
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
- 3 -
RESULTS OF OPERATIONS
During the nine months ended May 31, 2006 ("2006"), the Company reported a net
loss of $2,378,815, an increase in loss of $2,353,907, from the $24,908 loss
reported during the nine months ended May 31, 2005 ("2005"). The increase in the
net loss in 2006 compared to 2005, is primarily attributed to the decrease of
$598,000 in future income tax recovery, from $1,343,000 in 2005 to $745,000 in
2006, offset by a $170,961 increase in general and administrative expenses and
$1,681,199 write-down of the Bachelor Lake Property.
General and administrative costs increased from $829,540 in 2005 to $1,000,501
in 2006, as follows:
2006 2005
$ $
Accounting and administration 81,225 71,075
Advertising and related 36,066 15,129
Consulting and professional fees 239,166 164,843
Corporate capital taxes 5,743 -
Filing fees and transfer agent 35,472 36,301
Foreign exchange 1,074 11,077
Investment conferences 65,510 163,038
Investor relations and shareholder communications 97,814 107,470
Insurance 16,392 -
Legal and audit 123,121 52,293
Office and general 82,420 21,423
Office rent and operating costs 14,835 22,138
Printing 11,103 15,683
Salaries and benefits 63,288 68,276
Telephone 10,182 11,186
Travel and related costs 102,871 58,408
Website and internet costs 14,219 11,200
----------- -----------
1,000,501 829,540
=========== ===========
General and administration expenses increased during 2006, due to increased
activities relating to the Company's property acquisitions, ongoing financing
activities, increased consulting and professional fees, shareholder
communications and investor relations activities. Significant expenditures
incurred during 2006, include $102,566 for legal costs incurred primarily for
the initial preparation of the Company's AIF, general legal advice on financings
and a general increase in activities; $35,472 for transfer agent and regulatory
filings for the Company's financing and property filings; $20,555 for
independent audit costs; $239,166 for incurred consulting and professional fees
provided for financing opportunities; $97,814 for investor relations and
shareholder communications costs; $65,510 for attendance and presentations at
numerous investment conferences in Canada, the United States and Europe;
$102,871 for travel and related costs, primarily to attend investment
conferences and meetings with the investment community; $82,420 for office and
miscellaneous; and $63,288 for salaries and benefits paid to the President of
the Company. During 2006, accounting and administration expenses of $81,225 was
billed by Chase Management Ltd. ("Chase"), a private company owned by Nick
DeMare, a director and the CFO of the Company. Chase is currently paid a base
amount of $3,000 per month for bookkeeping, accounting, administration and
corporate filing services provided by Chase personnel, exclusive of Mr. DeMare,
and $2,500 per month related to Mr. DeMare's services as the CFO of the Company.
The Company also recorded a non cash stock-based compensation charge of $359,822
in 2006 on the granting of 2,168,000 stock options, compared to $559,031 in
2005, when the Company granted 1,078,000 stock options. The calculation is based
on the fair value of stock options granted by the Company using the
Black-Scholes option pricing model, which uses estimates and assumptions.
In September 2005, the Company completed a private placement financing whereby
it issued a total of 5,273,236 common shares for $3,493,249 cash proceeds. Of
the total financing, 3,293,070 common shares were issued on a flow-through share
basis, for $2,305,149 cash proceeds. Resource expenditure deductions for income
tax purposes related to exploration and development activities funded by
flow-through share arrangements have been renounced by the Company to investors
in accordance with Canadian income tax legislation. The renunciation of such
- 4 -
expenditures is accounted for as a financing cost related to the flow-through
issuance and resulted in a $820,633 reduction in share capital with a
corresponding increase in the Company's future tax liability. The Company also
received $1,523,950 in 2006 from the exercise of warrants to purchase 4,598,500
common shares.
In September 2005, the Company exercised its option on the Bachelor Lake
Property and subsequently acquired additional claims, for a total consideration
of $165,782. The Company also paid $166,260 for legal costs associated with
property acquisitions and documentation, $152,566 for claims staking and $63,250
option payments on the Sherridon VMS Property, and $37,500 for capitalized
dividend on the Duport Property. The Company also recorded a total of $1,658,142
for exploration expenditures. As a result of an agreement to sell its 50%
interest in the Bachelor Lake Joint Venture, the Company has written down the
carrying value of the joint venture interest by $1,681,199, reflecting its
intrinsic fair value of $4.25 million. Detailed discussion of the Company's
exploration activities conducted is discussed in "Exploration Projects".
As a result of the application of previously unrecognized losses in 2006, the
Company recognized a future income tax recovery and a reduction of the future
income tax liability of $745,000.
FINANCIAL CONDITION / CAPITAL RESOURCES
The Company's practice is to proceed with staged exploration, where each stage
is dependent on the successful results of the preceding stage. To date the
Company has not received any revenues from its mining activities and has relied
on equity financing to fund its commitments and discharge its liabilities as
they come due. As at May 31, 2006, the Company had working capital of $967,196.
Although final budgets have not been completed, the Company expects to continue
exploration work on its Sherridon and Duport Properties. The Company will also
conduct due diligence on the Red Lake Property. The Company will require
additional financings to maintain its core operations and planned exploration.
In addition, results from its exploration programs and/or additional mineral
property acquisitions may result in additional financial requirements. There is
no assurance that funding will be available on terms acceptable to the Company
or at all. If such funds cannot be secured, the Company may be forced to curtail
additional exploration efforts to a level for which funding can be secured.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements.
PROPOSED TRANSACTIONS
On May 2, 2006, the Company entered into an agreement to sell its 50% interest
in the Bachelor Lake joint venture, as described in detail in "Exploration
Projects - Bachelor Lake Property, Quebec". As of the date of the MD&A, the
Company has not been notified by Metanor that it has arranged the necessary
financing to complete the Metanor Purchase.
CRITICAL ACCOUNTING ESTIMATES
A detailed summary of all the Company's significant accounting policies is
included in Note 2 to the August 31, 2005 audited financial statements.
CHANGES IN ACCOUNTING POLICIES
The Company has no changes in accounting policies.
TRANSACTIONS WITH RELATED PARTIES
During the nine months ended May 31, 2006, the Company was charged $176,275 for
management, professional, accounting and administrative services provided by
companies controlled by officers and directors of the Company. As at May 31,
2006, accounts payable and accrued liabilities include $9,124 due to these
related parties.
- 5 -
RISKS AND UNCERTAINTIES
The Company competes with other mining companies, some of which have greater
financial resources and technical facilities, for the acquisition of mineral
concessions, claims and other interests, as well as for the recruitment and
retention of qualified employees.
The Company is in compliance in all material regulations applicable to its
exploration activities. Existing and possible future environmental legislation,
regulations and actions could cause additional expense, capital expenditures,
restrictions and delays in the activities of the Company, the extent of which
cannot be predicted. Before production can commence on any properties, the
Company must obtain regulatory and environmental approvals. There is no
assurance that such approvals can be obtained on a timely basis or at all. The
cost of compliance with changes in governmental regulations has the potential to
reduce the profitability of operations.
INVESTOR RELATIONS ACTIVITIES
The Company has retained, on a part time basis and on a contract basis, a number
of assistants during 2006. A number of other consultants were also retained
during fiscal 2006, on an interim trial basis but all were terminated after
short term engagements. The services provided by these consultants related to
assistance in co-ordinating Company road shows in Europe and North America.
On March 10, 2006, the Company entered into an investor relation agreement with
Clark Avenue Company Inc. ("Clark Avenue") to provide market awareness and
investor relations on behalf of the Company. The agreement is for a term of one
year. Clark Avenue is paid $5,000 per month, and the Company also granted Clark
Avenue an option to purchase 400,000 common shares of the Company exercisable at
a price of $0.45 per share on or before March 10, 2011. During the nine months
ended May 31, 2006, the Company paid $15,000 to Clark Avenue.
During the nine months ended May 31, 2006, the Company was active in providing
corporate awareness of its work programs. The Company was also active in
attending and presenting at a number of investment conferences and trade shows
in Vancouver, Toronto, Winnipeg, San Francisco, New York and Frankfurt. The
Company is also using a number of web based advertisers. During the period, the
Company paid $36,066 for advertising, $65,510 for investment conferences,
$97,814 for investor relations and shareholder communications and $11,103 for
printing costs associated with investor materials and pamphlets.
On June 7, 2006, the Company entered into an investor relations agreement with
Value Relations GmbH ("Value Relations") to provide investor relations and
corporate financing activities in Europe. The Company has agreed to pay Value
Relations US $5,000 per month for a period of five months.
The Company maintains a web site at WWW.HALORES.COM .
OUTSTANDING SHARE DATA
The Company's authorized share capital is unlimited common shares without par
value. As at July 27, 2006, there were 31,138,216 issued and outstanding common
shares, 2,653,000 stock options outstanding and exercisable, at an exercise
price ranging from $0.45 to $0.75 per share, and 8,322,563 warrants outstanding,
with exercise prices ranging from $0.70 and $1.50 per share.
- 6 -
FORM 52-109F2 CERTIFICATION OF INTERIM FILINGS
I, Marc Cernovitch, a Director and Chief Executive Officer of Halo Resources
Ltd., certify that:
1. I have reviewed the interim filings (as this term is defined in
Multilateral Instrument 52-109 Certification of Disclosure in Issuers'
Annual and Interim Filings) of Halo Resources Ltd., (the issuer) for
the interim period ending May 31, 2006;
2. Based on my knowledge, the interim filings do not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated or that is necessary to make a statement not misleading in
light of the circumstances under which it was made, with respect to the
period covered by the interim filings;
3. Based on my knowledge, the interim financial statements together with
the other financial information included in the interim filings fairly
present in all material respects the financial condition, results of
operations and cash flows of the issuer, as of the date and for the
periods presented in the interim filings;
4. The issuer's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures and
internal control over financial reporting for the issuer, and we have:
(a) designed such disclosure controls and procedures, or caused
them to be designed under our supervision, to provide
reasonable assurance that material information relating to the
issuer, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which the interim filings are being prepared; and
(b) designed such internal control over financial reporting, or
caused it to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with the issuer's GAAP; and
5. I have caused the issuer to disclose in the interim MD&A any change in
the issuer's internal control over financial reporting that occurred
during the issuer's most recent interim period that has materially
affected, or is reasonably likely to materially affect, the issuer's
internal control over financial reporting.
Date: July 28, 2006
/s/ MARC CERNOVITCH
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Marc Cernovitch,
Director & Chief Executive Officer
FORM 52-109F2 CERTIFICATION OF INTERIM FILINGS
I, Nick DeMare, a Director and Chief Financial Officer of Halo Resources Ltd.,
certify that:
1. I have reviewed the interim filings (as this term is defined in
Multilateral Instrument 52-109 Certification of Disclosure in Issuers'
Annual and Interim Filings) of Halo Resources Ltd., (the issuer) for
the interim period ending May 31, 2006;
2. Based on my knowledge, the interim filings do not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated or that is necessary to make a statement not misleading in
light of the circumstances under which it was made, with respect to the
period covered by the interim filings;
3. Based on my knowledge, the interim financial statements together with
the other financial information included in the interim filings fairly
present in all material respects the financial condition, results of
operations and cash flows of the issuer, as of the date and for the
periods presented in the interim filings;
4. The issuer's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures and
internal control over financial reporting for the issuer, and we have:
(a) designed such disclosure controls and procedures, or caused
them to be designed under our supervision, to provide
reasonable assurance that material information relating to the
issuer, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which the interim filings are being prepared; and
(b) designed such internal control over financial reporting, or
caused it to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with the issuer's GAAP; and
5. I have caused the issuer to disclose in the interim MD&A any change in
the issuer's internal control over financial reporting that occurred
during the issuer's most recent interim period that has materially
affected, or is reasonably likely to materially affect, the issuer's
internal control over financial reporting.
Date: July 28, 2006
/s/ NICK DEMARE
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Nick DeMare,
Director & Chief Financial Officer