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 JANUARY, 2007.
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: January 29, 2007 /s/ Marc Cernovitch
----------------------------- -------------------------------------
Marc Cernovitch
President and CEO
- --------------------------------------------------------------------------------
HALO RESOURCES LTD.
INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
NOVEMBER 30, 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 three months ended November 30, 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.
INTERIM BALANCE SHEETS
(UNAUDITED - PREPARED BY MANAGEMENT)
NOVEMBER 30, August 31,
2006 2006
$ $
ASSETS
CURRENT ASSETS
Cash 2,820,358 271,935
Amounts receivable and prepaids 110,457 136,275
------------ ------------
2,930,815 408,210
CAPITAL ASSETS (Note 3) 311,326 298,630
UNPROVEN MINERAL INTERESTS (Note 4) 22,098,181 23,845,828
------------ ------------
25,340,322 24,552,668
============ ============
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 363,200 256,688
REDEEMABLE PREFERRED SHARES (Note 5) 8,000,000 8,000,000
ASSET RETIREMENT OBLIGATION 1,014,500 1,014,500
FUTURE INCOME TAX LIABILITY 4,556,000 4,832,000
------------ ------------
13,933,700 14,103,188
------------ ------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 6) 33,718,594 32,395,855
CONTRIBUTED SURPLUS (Note 8) 1,717,822 1,360,767
DEFICIT (24,029,794) (23,307,142)
------------ ------------
11,406,622 10,449,480
------------ ------------
25,340,322 24,552,668
============ ============
SUBSEQUENT EVENT (Note 12)
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.
INTERIM STATEMENTS OF LOSS AND DEFICIT
FOR THE THREE MONTHS ENDED NOVEMBER 30
(UNAUDITED - PREPARED BY MANAGEMENT)
2006 2005
$ $
EXPENSES
Accretion - 19,000
Depreciation 6,855 2,110
General and administrative 444,019 450,667
General exploration 6,295 -
Stock-based compensation 322,108 193,383
Write-down of unproven mineral
interest (Note 4(b)) 225,000 -
------------ ------------
1,004,277 665,160
------------ ------------
LOSS BEFORE OTHER ITEMS (1,004,277) (665,160)
OTHER ITEM
Interest income 5,625 4,650
------------ ------------
LOSS BEFORE INCOME TAXES (998,652) (660,510)
FUTURE INCOME TAX RECOVERY 276,000 350,000
------------ ------------
NET LOSS FOR THE PERIOD (722,652) (310,510)
DEFICIT - BEGINNING OF PERIOD (23,307,142) (21,107,207)
------------ ------------
DEFICIT - END OF PERIOD (24,029,794) (21,417,717)
============ ============
LOSS PER COMMON SHARE
- BASIC AND DILUTED $(0.02) $(0.01)
============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 33,049,663 25,599,355
============ ============
The accompanying notes are an integral part of these interim
financial statements.
HALO RESOURCES LTD.
INTERIM STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED NOVEMBER 30
(UNAUDITED - PREPARED BY MANAGEMENT)
2006 2005
$ $
CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
Net loss for the period (722,652) (310,510)
Items not involving cash
Accretion - 19,000
Depreciation 6,855 2,110
Stock-based compensation 322,108 193,383
Write-down of unproven mineral interests 225,000 -
Future income tax recovery (276,000) (350,000)
Decrease (increase) in amounts receivable
and prepaids 25,818 (35,662)
Increase (decrease) in accounts payable and
accrued liabilities (46,179) 81,925
------------ ------------
(465,050) (399,754)
------------ ------------
FINANCING ACTIVITIES
Common shares issued for cash 1,537,350 2,651,716
Common share issue costs (179,664) (197,173)
------------ ------------
1,357,686 2,454,543
------------ ------------
INVESTING ACTIVITIES
Proceeds from sale of unproven mineral interests 2,025,000 -
Additions to unproven mineral interests (349,662) (965,276)
Purchase of capital assets (19,551) (192,040)
------------ ------------
1,655,787 (1,157,316)
------------ ------------
INCREASE IN CASH 2,548,423 897,473
CASH - BEGINNING OF PERIOD 271,935 893,525
------------ ------------
CASH - END OF PERIOD 2,820,358 1,790,998
============ ============
SUPPLEMENTARY CASH FLOW INFORMATION - See Note 10.
The accompanying notes are an integral part of these interim
financial statements.
HALO RESOURCES LTD.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 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. 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,
NOVEMBER 30, 2006 2006
------------------------------------------ ------------
ACCUMULATED NET BOOK NET BOOK
COSTS DEPRECIATION VALUE VALUE
$ $ $ $
Office furniture and equipment 46,634 8,221 38,413 40,417
Computer and telephone equipment 48,787 10,574 38,213 21,430
Field equipment and facility 254,741 28,684 226,057 226,700
Leasehold improvements 11,524 2,881 8,643 10,083
------------ ------------ ------------ ------------
361,686 50,360 311,326 298,630
============ ============ ============ ============
HALO RESOURCES LTD.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2006
(UNAUDITED - PREPARED BY MANAGEMENT)
4. UNPROVEN MINERAL INTERESTS
------------------------------------------ ------------------------------------------
NOVEMBER 30, 2006 AUGUST 31, 2006
------------------------------------------ ------------------------------------------
DEFERRED DEFERRED
ACQUISITION EXPLORATION TOTAL ACQUISITION EXPLORATION TOTAL
COSTS COSTS COSTS COSTS COSTS COSTS
$ $ $ $ $ $
Duport 14,992,409 2,245,478 17,237,887 14,957,409 2,241,773 17,199,182
Bachelor Lake 1,174,289 1,622,500 2,796,789 1,399,289 3,647,500 5,046,789
Sherridon 433,320 1,542,267 1,975,587 423,519 1,127,370 1,550,889
Red Lake 38,952 48,966 87,918 38,952 10,016 48,968
------------ ------------ ------------ ------------ ------------ ------------
16,638,970 5,459,211 22,098,181 16,819,169 7,026,659 23,845,828
============ ============ ============ ============ ============ ============
(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, 10 mineral
claims in the area of the Duport property, covering an area of
approximately 1,744 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 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 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 will be 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.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 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, as amended August 28, 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 JV in consideration of $3.5
million cash, $750,000 in common shares of Metanor and a 1%
NSR in favour of the Company.
On November 17, 2006, Metanor and the Company agreed to a new
agreement (the "Revised Metanor Purchase") under which Metanor
has now agreed to purchase the Company's 50% interest in the
Bachelor Lake JV for total consideration of $4 million, as
follows:
i) $2 million cash (received);
ii) $500,000 cash on or before March 30, 2007; and
iii) $500,000 in cash or common shares of Metanor each on
or before May 31, 2007, August 31, 2007 and November
30, 2007.
Metanor continues to be responsible for all on-going costs,
expenses and obligations of the Bachelor Lake JV. In addition
Metanor has granted the Company a 1% NSR and the Company will
retain its beneficial interest in the Bachelor Lake JV until
completion of the sale.
During the three months ended November 30, 2006, the Company
recognized a further write-down of $225,000 to reflect the
terms of the Revised Metanor Agreement.
(c) Sherridon VMS Project, Manitoba
The Company has acquired, through staking and various
acquisition agreements, an interest in 19,875 hectares located
in the Sherridon area, north-central Manitoba. Details of the
acquisitions are as follows:
i) 76 unproven claims covering approximately 14,789
hectares, staked by the Company;
ii) 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 had the
right to acquire an initial 51% interest in the
Quarter Moon Lake Property in which the Company has
paid $40,000 cash, issued 50,000 common shares of the
Company, at a value of $60,000, and was required to
complete a $500,000 work commitment, pay a further
$40,000 cash and issue 50,000 common shares. See also
Note 12.
HALO RESOURCES LTD.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2006
(UNAUDITED - PREPARED BY MANAGEMENT)
4. UNPROVEN MINERAL INTERESTS (continued)
iii) 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
iv) three option agreements (the "HBED Options"), dated
March 19, 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 25 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
$187,500 of the option payments may be paid in common
shares of the Company.
Should the Company acquire a 100% interest in any of
the claim groups under the HBED Options, HBED has the
option to back-in for a 51% interest in the subject
claims group by paying 135% of the expenditures
incurred by the Company. HBED will also hold a 2%
NSR.
(d) Red Lake Property, Ontario
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 on or before December 31, 2008. 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.
HALO RESOURCES LTD.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2006
(UNAUDITED - PREPARED BY MANAGEMENT)
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.
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 three months ended November 30, 2006, the Company recorded
$39,167 of dividends on the Redeemable Preferred Shares, which have
been capitalized as part of resource interests. As at November 30,
2006, $26,667 of accrued dividends were included as part of accounts
payable and accrued liabilities.
HALO RESOURCES LTD.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2006
(UNAUDITED - PREPARED BY MANAGEMENT)
6. SHARE CAPITAL
Authorized: unlimited common shares without par value
unlimited preferred shares (Note 5)
--------------------------- ---------------------------
Issued common shares: NOVEMBER 30, 2006 AUGUST 31, 2006
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
$ $
Balance, beginning of period 31,138,216 32,395,855 21,005,765 28,487,576
------------ ------------ ------------ ------------
Issued during the period
For cash
Private placements 3,416,333 1,537,350 5,273,236 3,493,249
Exercise of options - - 150,000 67,500
Exercise of warrants - - 4,598,500 1,523,950
For fiscal advisory services - - 85,715 32,458
For corporate finance fees 62,500 22,720 - -
For unproven mineral interests - - 25,000 18,250
Reallocation from contributed surplus on
exercise of options - - - 69,413
------------ ------------ ------------ ------------
3,478,833 1,560,070 10,132,451 5,204,820
Less: Flow-through share renunciation - - - (820,633)
Share issue costs - (237,331) - (475,908)
------------ ------------ ------------ ------------
3,478,833 1,322,739 10,132,451 3,908,279
------------ ------------ ------------ ------------
Balance, end of period 34,617,049 33,718,594 31,138,216 32,395,855
============ ============ ============ ============
(a) During the three months ended November 30, 2006 the Company
completed a brokered private placement and issued 3,416,333
flow-through units at a price of $0.45 per flow-through unit,
for total gross proceeds of $1,537,350. Each flow-through unit
consisted of one common share and one-half share purchase
warrant with each full warrant entitling the holder to
purchase one further common share of the Company at a price of
$0.60 on or before April 12, 2008. A director of the Company
purchased 20,000 flow-through units for $9,000.
The Company paid an agent a cash commission of $115,301 and
issued 341,633 warrants (the "Agent Warrants") and incurred
$64,363 of costs relating to the financing. Each Agent's
Warrant is exercisable to purchase one common share at a price
of $0.45 on or before April 12, 2008. The fair value of the
Agent's Warrants has been estimated using the Black-Scholes
option price model. The assumptions used were: dividend yield
of 0%; expected volatility of 79.42%; a risk-free interest
rate of 4.00%; and an expected life of one and one-half years.
The value assigned to the Agent's Warrants was $29,542.
The Company also issued 62,500 units (the "Corporate Finance
Units"), at a value of $28,125, for corporate finance fees.
Each Corporate Finance Unit, comprising of one common share
and one share purchase warrant entitling the holder to
purchase one common share at a price of $0.45 per share on or
before April 12, 2008. The fair value of the warrants has been
estimated using the Black-Scholes option price model. The
assumptions used were: dividend yield of 0%; expected
volatility of 79.42%; a risk-free interest rate of 4.00%; and
an expected life of one and one-half years. The value assigned
to the warrants was $5,405.
HALO RESOURCES LTD.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2006
(UNAUDITED - PREPARED BY MANAGEMENT)
6. SHARE CAPITAL (continued)
(b) A summary of the number of common shares reserved pursuant to
the Company's warrants outstanding at November 30, 2006 and
2005 and the changes for the three months ending on those
dates is as follows:
------------ ------------
2006 2005
------------ ------------
Balance, beginning of period 8,322,563 10,331,859
Pursuant to private placements 2,112,299 2,589,204
Exercised - (409,667)
------------ ------------
Balance, end of period 10,434,862 12,511,396
============ ============
Common shares reserved pursuant to warrants outstanding at
November 30, 2006, are as follows:
NUMBER EXERCISE PRICE EXPIRY DATE
$
2,313,182 1.50 December 23, 2006
2,718,530 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
1,708,166 0.60 April 12, 2008
404,133 0.45 April 12, 2008
------------
10,434,862
============
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 TSX Venture Exchange.
During the three months ended November 30, 2006 the Company granted
1,547,000 stock options (2005 - 855,000) to its employees, directors
and consultants and recorded compensation expense of $233,174 (2005 -
$193,383). In addition the Company amended terms of 450,000 (2005 -
nil) stock options in which the Company recorded compensation expense
of $88,934 (2005 - $nil).
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 three months ended November 30, 2006 and 2005:
2006 2005
------------ ------------
Risk-free interest rate 4.00% 3.24%
Estimated volatility 78.74% 61.41%
Expected life 3 years 1.5 years
Expected dividend yield 0% 0%
HALO RESOURCES LTD.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2006
(UNAUDITED - PREPARED BY MANAGEMENT)
7. STOCK OPTIONS AND STOCK-BASED COMPENSATION (continued)
The weighted average fair value of all stock options, calculated using
the Black-Scholes option pricing model, granted during the period to
the Company's employees, directors and consultants was $0.15 (2005 -
$0.23) 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 November 30, 2006 and 2005,
and the changes for the three months ending on those dates is presented
below:
---------------------------- ----------------------------
2006 2005
---------------------------- ----------------------------
WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE
OF OPTIONS EXERCISE PRICE OF OPTIONS EXERCISE PRICE
$ $
Balance, beginning of period 2,903,000 0.56 1,688,000 0.80
Granted 1,547,000 0.45 855,000 0.75
Cancelled (990,000) 0.71 - -
------------ ------------
Balance, end of period 3,460,000 0.47 2,543,000 0.77
============ ============
The following table summarizes information about the stock options
outstanding and exercisable at November 30, 2006:
OPTIONS OPTIONS EXERCISE
OUTSTANDING EXERCISABLE PRICE EXPIRY DATE
$
450,000 450,000 0.60 May 31, 2009
150,000 150,000 0.45 September 28, 2008
913,000 913,000 0.45 February 2, 2009
400,000 200,000 0.45 March 10, 2011
1,547,000 1,359,500 0.45 November 27, 2009
------------ ------------
3,460,000 3,072,500
============ ============
8. CONTRIBUTED SURPLUS
Contributed surplus is comprised of the following:
NOVEMBER 30, AUGUST 31,
2006 2006
$ $
Balance, beginning of period 1,360,767 738,642
Stock options exercised - (69,413)
Stock-based compensation on
stock options (Note 7) 322,108 550,817
Stock-based compensation on
warrants (Note 6) 34,947 140,721
------------ ------------
Balance, end of period 1,717,822 1,360,767
============ ============
HALO RESOURCES LTD.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2006
(UNAUDITED - PREPARED BY MANAGEMENT)
9. RELATED PARTY TRANSACTIONS
(a) During the three months ended November 30, 2006 and 2005 the
Company was charged for various services provided by companies
controlled by directors and officers of the Company, as
follows:
2006 2005
$ $
Accounting and administration 23,200 31,500
Professional and consulting 29,100 29,100
Compensation and benefits 23,250 23,250
------------ ------------
75,550 83,850
============ ============
These fees have been either expensed to operations or
capitalized to unproven mineral interests, based on the nature
of the expenditures.
As at November 30, 2006, accounts payable and accrued
liabilities include $13,166 (2005 - $15,643) 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. SUPPLEMENTARY CASH FLOW INFORMATION
Non-cash financing activities were conducted by the Company during the
three months ended November 30, 2006 and 2005 are as follows:
2006 2005
$ $
Operating Activity
Accrued payable for unproven mineral
interests 152,691 4,167
============ ============
Financing Activities
Issuance of common shares for fiscal
advisory services - 60,000
Issuance of common shares for corporate
finance fee 28,125 -
Common share issue costs (28,125) (60,000)
Share capital - future income tax
adjustment - (820,633)
Future tax liability - 820,633
------------ ------------
- -
============ ============
Investing Activity
Accounts payable for unproven
mineral interests (152,691) (4,167)
============ ============
HALO RESOURCES LTD.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2006
(UNAUDITED - PREPARED BY MANAGEMENT)
10. SUPPLEMENTARY CASH FLOW INFORMATION (continued)
Other supplementary cash flow information:
2006 2005
$ $
Interest paid in cash - -
============ ============
Dividends paid in cash 12,500 12,500
============ ============
Income taxes paid in cash - -
============ ============
11. SEGMENTED INFORMATION
The unproven mineral interest and the Company's corporate assets are
located in Canada. Identifiable assets, revenues and net loss in each
of these areas are as follows:
------------------------------------------
NOVEMBER 30, 2006
------------------------------------------
IDENTIFIABLE NET
ASSETS REVENUES LOSS
$ $ $
Mineral operations 22,098,181 - (225,000)
Corporate 3,242,141 5,625 (497,652)
------------ ------------ ------------
25,340,322 5,625 (722,652)
============ ============ ============
------------------------------------------
AUGUST 31, 2006
------------------------------------------
IDENTIFIABLE NET
ASSETS REVENUES LOSS
$ $ $
Mineral operations 23,845,828 - (1,538,655)
Corporate 706,840 16,729 (661,280)
------------ ------------ ------------
24,552,668 16,729 (2,199,935)
============ ============ ============
12. SUBSEQUENT EVENTS
On December 3, 2006, the Company and EL entered into a formal purchase
agreement (the "Quarter Moon Purchase Agreement") which closed on
January 12, 2007, under which the Company purchased a 100% interest in
ten mining claims, including the original five mining claims under the
Quarter Moon LOI, in north-central Manitoba, for $90,000 cash and
160,000 common shares of the Company. EL holds a 1% NSR, of which a
0.5% NSR can be purchased at any time for $500,000.
SCHEDULE I
HALO RESOURCES LTD.
SCHEDULE OF UNPROVEN MINERAL INTERESTS
------------------------------------------------------------------------ -----------
YEAR ENDED
AUGUST 31,
THREE MONTHS ENDED NOVEMBER 30, 2006 2006
------------------------------------------------------------------------ -----------
BACHELOR RED
DUPORT LAKE SHERRIDON LAKE
PROPERTY PROPERTY VMS PROJECT PROPERTY TOTAL TOTAL
$ $ $ $ $ $
BALANCE - BEGINNING OF PERIOD 17,199,182 5,046,789 1,550,889 48,968 23,845,828 22,759,333
------------ ------------ ------------ ------------ ------------ ------------
AMOUNTS INCURRED DURING THE PERIOD
EXPLORATION EXPENDITURES
Accounting - - - - - 13,272
Airborne surveying - - 39,541 - 39,541 350,270
Assays - - 8,347 3,441 11,788 32,510
Camp and equipment costs - - - - - 239,251
Consulting 502 - 202,789 24,256 227,547 697,681
Data - - - - - 25,000
Drilling - - 113,504 - 113,504 296,768
Due diligence - - - - - 14,214
Engineering - - - - - 49,876
Exploration office costs 574 - 12,894 3,447 16,915 63,983
Field personnel 1,270 - - - 1,270 167,769
Field supplies 912 - 3,971 2,128 7,011 6,559
Filing - - - - - 3,250
Insurance - - - - - 16,719
Maintenance - - - - - 16,388
Mobilization, demobilization - - - - - 6,132
Rent and utilities - - - - - 106,577
Surveying - - - - - 3,573
Technical report - - - - - 10,859
Telephone - - 2,935 - 2,935 9,580
Travel 447 - 30,916 5,678 37,041 132,541
Reimbursement / Recoveries - (2,025,000) - - (2,025,000) (228,708
------------ ------------ ------------ ------------ ------------ ------------
3,705 (2,025,000) 414,897 38,950 (1,567,448) 2,034,064
------------ ------------ ------------ ------------ ------------ ------------
OTHER ITEMS
Acquisition costs and payments - - - - - 232,244
Claims staking and lease rental costs - - 9,801 - 9,801 147,402
Legal - - - - - 161,440
Capitalized dividend 35,000 - - - 35,000 50,000
Future income tax adjustment - - - - - -
Asset retirement obligation - - - - - -
------------ ------------ ------------ ------------ ------------ ------------
35,000 - 9,801 - 44,801 591,086
------------ ------------ ------------ ------------ ------------ ------------
BALANCE BEFORE WRITE-DOWN 17,237,887 3,021,789 1,975,587 87,918 22,323,181 25,384,483
WRITE-DOWN (Note 4(b)) - (225,000) - - (225,000) (1,538,655)
------------ ------------ ------------ ------------ ------------ ------------
BALANCE - END OF PERIOD 17,237,887 2,796,789 1,975,587 87,918 22,098,181 23,845,828
============ ============ ============ ============ ============ ============
HALO RESOURCES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2006
BACKGROUND
This discussion and analysis of financial position and results of operation is
prepared as at January 24, 2007 and should be read in conjunction with the
interim financial statements and the accompanying notes for the three months
ended November 30, 2006 and 2005 of Halo Resources Ltd. (the "Company") that
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 engaged in the acquisition and exploration of precious and base
metals on mineral interests located in Canada. Current Company exploration
activities are in the provinces of Manitoba and Ontario. 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
During October 2006 a reconnaissance mapping and sampling program was completed
over a portion of the East Group of claims held by the Company on the Duport
property. Anomalous gold values were returned from limited sampling of
sulphide-bearing intrusive rocks collected on claim 3007334 which is underlain
by quartz diorite rocks of the Canoe Lake Stock. The stock is host to gold
mineralization near the contact with mafic volcanic rocks of the Cedar Island
Formation. The altered margin of the Canoe Lake Stock is a new target area for
the Company and additional work will be directed towards the evaluation and
further definition of high priority targets in this area.
In addition to the East Group, the Duport property covers the advanced-stage
Duport resource located on the West Group of claims. This resource has been
defined over a strike length of 760 meters to a vertical depth of 450 meters and
contains 424,000 tonnes grading 13.4 grams per tonne gold for 183,000 ounces in
the indicated category as well as 387,000 tonnes grading 10.7 grams per tonne
gold for 133,000 ounces in the inferred category.
The Company believes that there is a 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. Work
has commenced to quantify a cost effective exploration program to test potential
drill targets and expand the existing resource base. The results of the study
will be used to define an aggressive project development strategy that will be
shared with potential mining partners.
- 1 -
BACHELOR LAKE PROPERTY, QUEBEC
No exploration activities were carried out by the Company during this quarter.
The acquisition process of the Company's 50% undivided ownership interest in the
Bachelor Lake Property by Metanor Resources Inc. ("Metanor") is in progress and
is expected to be complete by November 30, 2007. Metanor continues to pay all
costs and expenses of the Bachelor Lake Joint Venture.
QUARTER MOON LAKE PROPERTY, MANITOBA
On December 3, 2006, the Company and Endowment Lakes (2002) Limited Partnership
("EL") entered into a formal purchase agreement (the "Quarter Moon Purchase
Agreement") which was completed on January 12, 2007, under which the Company
purchased a 100% interest in ten mining claims, including the original five
mining claims under the Quarter Moon letter of intent (the "EL Claims"), in
north-central Manitoba, for $90,000 cash and issued 160,000 common shares of the
Company. EL holds a 1% NSR, of which a 0.5% NSR can be purchased at any time for
$500,000. The El Claims are strategically located within the Sherridon dome
structure and Meat Lake basin structure respectively and will play an important
role in the Company's plans to explore for high-grade volcanogenic massive
sulphide deposits. The Company also has acquired the right to acquire any
additional rights acquired by EL in and to any mining claims within a one
kilometer area from the perimeter boundaries of the EL Claims.
Now that this transaction is complete, the Quarter Moon Lake Property will be
included with the Sherridon VMS Property.
SHERRIDON VMS PROPERTY, MANITOBA
The Sherridon VMS Property comprises a large land package in the Sherridon
volcanogenic massive sulphide district. The property includes the site of the
former Sherritt Gordon Mines' copper-zinc mine that operated from 1933 to 1950
and produced 7.7 million tonnes of copper-zinc ore. The property is considered
by the Company to be highly prospective for new VMS discoveries and to have a
largely untested gold potential. Possible developments in the future are greatly
facilitated by the existing rail link to Hudson Bay Mining and Smelting Co.
Ltd.'s ("HBMS") mining/metallurgical complex approximately 70 km to the
southwest and also by the presence of an all-weather 78 km road to provincial
Highway 10, a power line and a communication tower.
The Company has now staked a total of 74 claims (approximately 14,750 ha) and
together with the purchase of the ten claim (2,072 ha) land package from EL (see
Quarter Moon Lake Property above), the Company held ground is now 16,822
hectares. Through four option agreements the Company also has the right to
acquire a 100% interest in 30 other mining claims and one mineral lease in the
Sherridon area bringing the total land package to approximately 20,836 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. In total, the property
currently hosts approximately 11 mt of historic copper-zinc resources.
During September and October, preliminary data processing of the airborne
geophysical data was carried out with early results revealing numerous new EM
conductors including a strong conductor 500 metres east and at a depth of 250 to
400 metres along the down plunge extension of the historic Sherritt Gordon East
Zone ore body.
The final geophysical report detailing and prioritizing all EM anomalies
discovered during the VTEM program was issued during December 2006. This report
will form the basis for ongoing exploration activities during 2007. Work
continues to develop specific drilling targets from approximately 122 new EM
targets that have been identified by the geophysics program. Initial planning of
the multi-year exploration program for the Sherridon Project has been completed.
In October, the Company agreed to conduct joint research in the Geological
Survey of Canada's Flin Flon Project, part of the Government of Canada's
national Targeted Geoscience Initiative III (TGI-3) Program. The Flin Flon
Project is a five year integrated geoscience study aimed at helping in the
discovery of new base metal deposits in established mining communities of the
Flin Flon-La Ronge-Lynn Lake district of northern Manitoba and Saskatchewan. The
Company places great importance on engaging its technical staff collaboratively
with technical experts from the provincial and federal government, from academia
and also HBMS.
- 2 -
In November, the Company commenced a drill program designed to test numerous,
previously untested VMS target areas identified by the recently completed
helicopter-borne deep penetration and high resolution VTEM survey. The first
drill location is within an area that covers the postulated extension of the
historic Sherritt Gordon East Zone ore body (the Eastern Areas).
Drilling is currently been carried out at the Bob Lake deposit located 5.5 km
northeast of Sherridon. The deposit consists of major sulphide lenses that dip
to the northeast at approximately 45(degree) and plunging 18(degree) east.
Initial drilling aims to test the exact location of the mineralized horizon and
to help determine the plunge and direction of a high grade shoot indicated by a
Sherritt Gordon drill hole that cut 43 metres at 0.96% copper and 1.2% zinc,
including 23 metres at 1.17% copper and 2.2% zinc.
Over the next two years, using the best available technology, the Company will
apply a fully integrated and multi-disciplined approach to systematically and
efficiently complete the primary drill testing of all newly identified
exploration areas in the Sherridon VMS district. It will also complete a
thorough exploration program within and adjacent to all the existing historic
resource areas with a view to increasing the quality and quantity of the
resources sufficiently to support a bankable feasibility study. Over the next 12
months, all historic resources will be brought into NI 43-101 compatible
resource categories. A preliminary economic evaluation will also be conducted to
define the requirements for production feasibility. Geophysical modeling
techniques will continue to be used to generate primary exploration targets for
drill testing. Geochemical sampling and lithogeochemical and other sampling
programs will be conducted over all primary target areas as a means to better
refine and prioritize potential drill targets. Drill testing of all targets will
continue.
WEST 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 "West 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 4.6 million ounces at a grade
of 2.35 oz/ton gold. The Red Lake Camp has produced over 20 million ounces and
is currently being explored by a number of senior gold companies that include
AngloGold, Teck Cominco, Barrick and Goldcorp.
The West Red Lake Property is located about 32 km west of the prolific Campbell
and Red Lake Mines in the Red Lake Camp. The property covers widespread gold
mineralization from surface showings and small gold deposits. Previous
exploration by a number of companies including Hemlo Gold Mines Ltd., Goldcorp,
Cochenour-Willans Gold Mines Ltd, Dumont Nickel and May-Spiers Gold Mines Ltd.
have carried out intermittent exploration in this area since 1935 and surface
trenching has returned significant surface gold values including up to1.87 opt
over 1.8 meters and 0.38 opt over 7.3 meters respectively. The property has now
been consolidated into a larger package of contiguous claims.
The Company has subdivided the project into four broad exploration target areas:
Biron Bay, Middle Bay-May Spiers, West Trout-Bridget Lake and Pipestone-Phillips
Channel. During October 2006, work commenced on a mapping, sampling and
prospecting program focused on the Middle Bay-May Spiers target with the
objective of developing an understanding of the geological setting and to
confirm the presence of gold mineralization west of Middle Bay.
A total of 97 rock samples were submitted for assay and whole rock analysis to
ALS Chemex in Thunder Bay. Sampling of old trenches located between the historic
Miles Red Lake showing and the May-Spiers deposit successfully confirmed the
presence of significant gold, silver and copper mineralization. Whole rock
geochemistry revealed that the underlying geology is favourable for these
elements.
- 3 -
A series of old trenches exposing silicified shear zones containing pyrite
represents the North Zone. Trench 8-01, apparently undisturbed under brush for
several years returned up to 4.93 g/t Au, 75.5 g/t Ag and 3.63% Cu over 0.80
metres. This mineralized occurrence lies 125m south of the North Zone.
The South Zone, located 350m to the south, is exposed within a series of
trenches and steep-walled pits over a strike length of 100 meters. The
mineralization is hosted within intermediate to-felsic lapilli tuffs and is
concentrated in silicified, sulphidized shears up to 2 meters in width
containing pyrite and locally sphalerite, chalcopyrite, galena and arsenopyrite.
A sample collected near the 9-44 "shaft" returned 81 g/t Au, 100 g/t Ag and
4.61% Cu over a width of 0.70m. In addition, a sample taken from the 10-23 pit
located along strike about 82m west of the 9-44 location yielded 3.62 g/t Au,
100 g/t Ag and 8040 ppm As. The program was suspended prematurely due to
deteriorating weather conditions that included heavy snow accumulation and below
normal temperatures.
In early 2007, the Company commenced a 30 line km of grid work covering both the
North and South Zones, extending to the east to include the May-Spiers deposit.
This will be followed-up with detailed induced polarization (IP) and
magnetometer surveying and diamond drilling of the highest priority targets.
Work will also be carried out on the Biron Bay, West Trout-Bridget Lake and
Pipestone-Phillips Channel areas of the property in preparation for a
significant follow up exploration and diamond drilling program later in the year
and into 2008.
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
2007 FISCAL 2006 FISCAL 2005
---------- ------------------------------------------------- ------------------------------------
THREE MONTH PERIODS ENDING AUG 31 MAY 31 FEB 28 NOV 30 AUG 31 MAY 31 FEB 28 NOV 30
$ $ $ $ $ $ $ $
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
OPERATIONS:
Revenues - interest income 5,625 4,068 4,513 3,498 4,650 5,549 13,016 12,323
Net income (loss) (722,652) 178,880 (1,821,875) (246,430) (310,510) (343,202) (257,398) 485,859
Basic and diluted income
(loss) per share (0.02) 0.01 (0.06) (0.01) (0.01) (0.01) (0.01) 0.03
Dividends per share Nil Nil Nil Nil Nil Nil Nil Nil
BALANCE SHEET:
Working capital 2,567,615 151,522 967,196 751,209 1,358,021 506,811 821,010 4,809,864
Total assets 25,340,322 24,522,668 24,663,418 25,487,480 25,971,467 23,928,682 22,474,879 6,346,291
Total long-term
liabilities 13,570,500 13,846,500 14,399,133 14,560,133 14,756,133 14,266,500 13,314,000 Nil
---------- ------------------------------------------------- ------------------------------------
RESULTS OF OPERATIONS
During the three months ended November 30, 2006 (the "2006 period"), the Company
reported a net loss of $722,652, an increase in loss of $412,142, from the
$310,510 loss reported during the three months ended November 30, 2005 (the
"2005 period"). The increase in the net loss in the 2006 period compared to the
2005 period is primarily attributed to a $128,725 increase in stock-based
compensation and $225,000 increase in write-down of unproven mineral interests.
General and administrative costs decreased from $450,667 in the 2005 to $444,019
in the 2006 period, as follows:
2006 2005
$ $
Accounting and administration 23,200 31,500
Advertising and related 7,033 8,050
Compensation and benefits 23,250 23,250
Consulting and professional fees 45,321 89,240
Corporate finance fee - 60,000
Filing fees and transfer agent 2,409 9,397
Foreign exchange - 316
Investment conferences 112,167 24,345
Investor relations and shareholder communications 83,955 57,329
Legal and audit 61,490 60,434
Office and general 22,065 22,778
Office rent and operating costs 8,958 7,891
Printing 4,921 4,221
Telephone 5,307 3,331
Travel and related costs 42,576 46,728
Website and internet costs 1,367 1,857
---------- ----------
444,019 450,667
========== ==========
- 4 -
Significant expenditures incurred during the 2006 period, include $52,250 for
legal costs incurred primarily for general legal advice on financings and
general corporate activities; $9,240 for independent audit costs; $112,167 for
attendance and participation in investment conferences and meetings with the
investment communities in Canada and Europe; and $83,955 for investor relations
and shareholder communications. During the 2006 period $23,250 was paid to the
President of the Company for compensation and benefits, and accounting and
administration expenses of $23,200 was billed by Chase Management Ltd.
("Chase"), a private company owned by Nick DeMare, a director and the CFO of the
Company for bookkeeping, accounting, administration and corporate filing
services provided by Chase personnel.
The increase in significant general and administrative expenditures partially
offset by:
(i) a decrease of $43,919 for consulting and professional fees;
(ii) a decrease of $6,988 for filing fees and transfer agent; and;
(iii) a decrease of $60,000 for corporate finance fee, due to reduced
financings in the 2006 period compared to the 2005 period.
The Company also recorded a stock-based compensation charge of $322,108 in the
2006 period on the granting of 1,547,000 stock options and amending terms of
450,000 stock options, compared to $193,383 in the 2005 period, when the Company
granted 855,000 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.
During the 2006 period the Company recorded a total of $6,295 (2005 - $nil) for
general exploration expenditures. On November 17, 2006, the Company agreed to a
new agreement under which Metanor has now agreed to purchase the Company's 50%
interest for total consideration of $4.0 million. During the 2006 period, the
Company recognized a further write-down of $225,000 to reflect the terms of the
revised Metanor agreement. Detailed discussion of the Company's proposed sale of
its Bachelor Lake interest and exploration activities conducted is discussed in
"Exploration Projects".
As a result of the application of previously unrecognized losses during the 2006
period, the Company recognized a future income tax recovery and a reduction of
the future income tax liability of $276,000.
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 November 30, 2006, the Company had working capital of
$2,567,615. In October 2006, the Company raised $1,537,350 on the sale of common
shares on a flow-through basis. Although final budgets have not been completed,
the Company expects to continue exploration work on its Sherridon, Duport and
Red Lake Properties. The Company expects that it will require additional
financings to maintain its core operations, planned exploration and current
levels of corporate overhead. 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.
- 5 -
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements.
PROPOSED TRANSACTIONS
The Company has no proposed transactions.
CRITICAL ACCOUNTING ESTIMATES
A detailed summary of all the Company's significant accounting policies is
included in Note 2 to the August 31, 2006 audited financial statements.
CHANGES IN ACCOUNTING POLICIES
The Company has no changes in accounting policies.
TRANSACTIONS WITH RELATED PARTIES
During the 2006 period, the Company incurred $75,550 (2005 - $83,850) for
consulting and professional, compensation and benefits, and accounting and
administrative services provided by companies controlled by officers and
directors of the Company. As at November 30, 2006, accounts payable and accrued
liabilities include $13,166 (2005 - $15,643) due to these related parties.
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 the 2006 period. A number of other consultants were also
retained during the 2006 period, 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 2006 period,
the Company paid $15,000 to Clark Avenue.
During the 2006 period, 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 Toronto, Winnipeg, and
Frankfurt. The Company is also using a number of web based advertisers. During
the 2006 period, the Company paid $7,033 for advertising, $112,167 for
investment conferences, $83,955 for investor relations and shareholder
communications and $4,921 for printing costs associated with investor materials
and pamphlets.
- 6 -
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 agreed to pay Value
Relations US $5,000 per month for a period of five months. During the 2006
period, the Company paid $33,104 to Value Relations. Effective November 1, 2006,
the Company renewed its arrangement with Value Relations, under which it has
agreed to pay Value Relations EUR(euro)5,000 per month for twelve months and
granted 250,000 stock options, at $0.45 per share, for a period of three years.
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 January 24, 2007, there were 34,777,049 issued and outstanding
common shares, 3,460,000 stock options outstanding and 3,072,500 stock options
exercisable, at an exercise price ranging from $0.45 to $0.60 per share, and
4,701,503 warrants outstanding, with exercise prices ranging from $0.45 to $0.75
per share.
DISCLOSURE CONTROLS
Management has designed disclosure controls and procedures, or has caused them
to be designed under its supervision, to provide reasonable assurance that
material information relating to the Company, is made known to management by
others within those entities, particularly during the period in which the annual
filings are being prepared. Management has also designed such internal control
over financial reporting, or caused it to be designed under management's
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and preparation of the financial statements for the three
months ended November 30, 2006 in accordance with Canadian Generally Accepted
Accounting Principles. There has been no change in the Company's disclosure
controls and procedures or in the Company's internal control over financial
reporting that occurred during the most recently completed quarter that has
materially affected, or is reasonably likely to materially affect, the Company's
disclosure controls and procedures or internal control over financial reporting.
The Chief Executive Officer and Chief Financial Officer of the Company have
evaluated the effectiveness of the Company's disclosure controls and procedures
in place as at November 30, 2006. Based on this evaluation, it was determined
that certain weaknesses existed in internal controls over financial reporting.
In addition, the Company has not fully completed its review and evaluation of
the design of internal control over financial reporting as envisioned under
52-109. The Company expects to complete its assessment in Fiscal 2007. As is
indicative of many small companies, the lack of segregation of duties and
effective risk assessment were identified as areas where weaknesses existed. The
existence of these weaknesses is to be compensated for by senior management
monitoring which exists. The Company is taking steps to augment and improve the
design of procedure and controls impacting these areas of weakness over internal
control over financial reporting.
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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 November 30, 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: January 26, 2007
/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 November 30, 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: January 26, 2007
/s/ NICK DEMARE
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Nick DeMare,
Director & Chief Financial Officer