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 DECEMBER, 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: December 19, 2007 /s/ Marc Cernovitch
----------------------------- -------------------------------------
Marc Cernovitch
Chairman
HALO RESOURCES LTD.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
AUGUST 31, 2007 AND 2006
D & H Group LLC
Chartered Accountants
AUDITORS' REPORT
To the Shareholders of
Halo Resources Ltd.
We have audited the balance sheets of Halo Resources Ltd. as at August 31, 2007
and 2006 and the statements of loss and deficit and cash flow for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at August 31, 2007 and 2006
and the results of its operations and cash flow for the years then ended in
accordance with Canadian generally accepted accounting principles.
On December 7, 2007, we reported separately to the shareholders of Halo
Resources Ltd. on the financial statements as at August 31, 2007 and 2006 and
for the years ended August 31, 2007, 2006 and 2005 audited in accordance with
Canadian generally accepted auditing standards and the standards of the Public
Company Accounting Oversight Board (United States) which include a
reconciliation to United States generally accepted accounting principles.
Vancouver, B.C.
December 7, 2007, except as to /s/ D&H GROUP LLP
Note 16(a) which is as of December 18, 2007 CHARTERED ACCOUNTANTS
D+H Group LLP Chartered Accountants
10th Floor, 1333 West Broadway Telephone 604 731 5881 www.DHgroup.ca
Vancouver, British Columbia Facsimile 604 731 9923 A BC Limited Liaibility
Canada V6H 4C1 Email: info@dhgroup.ca Partnership of Corporations
Member of BHD Association with affiliated offices across Canada and
internationally
HALO RESOURCES LTD.
BALANCE SHEETS
AS AT AUGUST 31
2007 2006
$ $
ASSETS
CURRENT ASSETS
Cash 2,102,498 271,935
Amounts receivable and prepaids (Note 3) 214,642 136,275
------------ ------------
2,317,140 408,210
CAPITAL ASSETS (Note 4) 330,926 298,630
UNPROVEN MINERAL INTERESTS (Note 5) 24,139,099 23,845,828
------------ ------------
26,787,165 24,552,668
============ ============
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 474,375 256,688
REDEEMABLE PREFERRED SHARES (Note 6) 8,000,000 8,000,000
ASSET RETIREMENT OBLIGATION (Note 15) 1,014,500 1,014,500
FUTURE INCOME TAX LIABILITY (Note 10) 4,886,000 4,832,000
------------ ------------
14,374,875 14,103,188
------------ ------------
LEASE COMMITMENTS (Note 14)
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 7) 35,766,585 32,395,855
CONTRIBUTED SURPLUS (Note 9) 2,149,234 1,360,767
DEFICIT (25,503,529) (23,307,142)
------------ ------------
12,412,290 10,449,480
------------ ------------
26,787,165 24,552,668
============ ============
SUBSEQUENT EVENTS (Note 16)
APPROVED BY THE BOARD
/s/ LYNDA BLOOM , Director
- -------------------
/s/ NICK DEMARE , Director
- -------------------
The accompanying notes are an integral part of these financial statements.
HALO RESOURCES LTD.
STATEMENTS OF LOSS AND DEFICIT
FOR THE YEARS ENDED AUGUST 31
2007 2006
$ $
EXPENSES
Accretion (Note 15) - 76,000
Amortization of capital assets 32,978 39,373
General and administrative 1,637,589 1,267,825
General exploration 40,269 17,627
Stock-based compensation (Note 8) 679,122 550,817
Part XII.6 tax expense - 43,000
Write-down of unproven mineral interest (Note 5) 340,000 1,538,655
------------ ------------
2,729,958 3,533,297
------------ ------------
LOSS BEFORE OTHER ITEM (2,729,958) (3,533,297)
------------ ------------
OTHER ITEM
Interest and other 63,071 16,729
------------ ------------
LOSS BEFORE INCOME TAXES (2,666,887) (3,516,568)
FUTURE INCOME TAX RECOVERY (Note 10) 470,500 1,316,633
------------ ------------
NET LOSS FOR THE YEAR (2,196,387) (2,199,935)
DEFICIT - BEGINNING OF YEAR (23,307,142) (21,107,207)
------------ ------------
DEFICIT - END OF YEAR (25,503,529) (23,307,142)
============ ============
LOSS PER COMMON SHARE - BASIC AND DILUTED $(0.06) $(0.08)
============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 35,293,394 28,447,710
============ ============
The accompanying notes are an integral part of these financial statements.
HALO RESOURCES LTD.
STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED AUGUST 31
2007 2006
$ $
CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
Net loss for the year (2,196,387) (2,199,935)
Items not involving cash
Accretion - 76,000
Amortization of capital assets 32,978 39,373
Stock-based compensation 679,122 550,817
Write-down of unproven mineral interests 340,000 1,538,655
Future income tax recovery (470,500) (1,316,633)
(Increase) decrease in amounts receivable
and prepaids (78,367) 61,232
Increase (decrease) in accounts payable
and accrued liabilities (17,073) (495,278)
------------ ------------
(1,710,227) (1,745,769)
------------ ------------
FINANCING ACTIVITIES
Common shares issued for cash 4,288,350 4,125,749
Common share issue costs (372,775) (257,173)
------------ ------------
3,915,575 3,868,576
------------ ------------
INVESTING ACTIVITIES
Proceeds from disposition of unproven
mineral interests 3,825,000 -
Additions to unproven mineral interests (4,134,511) (2,469,647)
Purchase of capital assets (65,274) (274,750)
------------ ------------
(374,785) (2,744,397)
------------ ------------
INCREASE (DECREASE) IN CASH DURING THE YEAR 1,830,563 (621,590)
CASH - BEGINNING OF YEAR 271,935 893,525
------------ ------------
CASH - END OF YEAR 2,102,498 271,935
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION - See Note 13.
The accompanying notes are an integral part of these financial statements.
HALO RESOURCES LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2007 AND 2006
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.
These financial statements have been prepared on a going-concern basis
which assumes that the Company will be able to realize assets and
discharge liabilities in the normal course of business. While the
Company has been successful in securing financings in the past, there
can be no assurance that it will be able to do so in the future.
Accordingly, it does not give effect to adjustments, if any, that would
be necessary should the Company be unable to continue as a going
concern and, therefore, be required to realize its assets and liquidate
its liabilities in other than the normal course of business and at
amounts which may differ from those shown in the financial statements.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with Canadian
GAAP requires management to make estimates and assumptions that affect
the reported amount of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements, and the
reported amounts of revenues and expenditures during the year. Examples
of significant estimates made by management include amortization, the
provision for future income tax recoveries and composition of future
income tax assets and future income tax liabilities, valuations of
mineral interests, capital assets, asset retirement obligations and
stock-based compensation. Actual results may differ from those
estimates.
UNPROVEN MINERAL INTERESTS
Unproven mineral interests costs and exploration, development and field
support costs directly relating to mineral interests are deferred until
the interests to which they relate are placed into production, sold or
abandoned. The deferred costs will be amortized over the life of the
orebody following commencement of production or written off if the
mineral interest is sold or abandoned. Administration costs and other
exploration costs that do not relate to any specific mineral interest
are expensed as incurred.
On a periodic basis, management reviews the carrying values of deferred
unproven mineral interest acquisition and exploration expenditures with
a view to assessing whether there has been any impairment in value.
Management takes into consideration various information including, but
not limited to, results of exploration activities conducted to date,
estimated future metal prices, and reports and opinions of outside
geologists, mine engineers and consultants. When it is determined that
a project or interest will be abandoned or its carrying value has been
impaired, a provision is made for any expected loss on the project or
interest.
HALO RESOURCES LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2007 AND 2006
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Although the Company has taken steps to verify title to mineral
properties in which it has an interest, according to the usual industry
standards for the stage of exploration of such properties, these
procedures do not guarantee the Company's title. Such properties may be
subject to prior agreements or transfers and title may be affected by
undetected defects.
From time to time, the Company acquires or disposes of mineral
interests pursuant to the terms of option agreements. Options are
exercisable entirely at the discretion of the optionee and,
accordingly, are recorded as mineral interest costs or recoveries when
the payments are made or received.
CAPITAL ASSETS
Capital assets are recorded at cost. Amortization is calculated using
the straight-line method over the estimated useful life of the assets,
as follows:
Office furniture and equipment 20%
Computer and telephone equipment 25%
Field equipment and facility 20%
Leasehold improvements 50%
ASSET RETIREMENT OBLIGATIONS
Future obligations to retire an asset, including dismantling,
remediation and ongoing treatment and monitoring of the site, are
recognized and recorded as a liability at fair value as at the time in
which they are incurred or the event occurs giving rise to such an
obligation. The liability is increased (accreted) over time through
periodic charges to earnings. The corresponding asset retirement cost
is capitalized as part of the asset's carrying value, and is amortized
over the asset's estimated useful life. The amount of the liability
will be subject to re-measurement at each reporting period.
Where possible, the Company has estimated asset retirement obligations
based on current best practice. These estimates are subject to change
as a result of changes in regulations, the extent of environmental
remediation required, the means of reclamation, or cost estimates.
Changes in estimates are accounted for prospectively from the period
the estimate is revised.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are assessed for impairment when events and
circumstances warrant. The carrying value of a long-lived asset is
impaired when the carrying amount exceeds the estimated undiscounted
net cash flow from use and fair value. In that event, the amount by
which the carrying value of an impaired long-lived asset exceeds its
fair value is charged to earnings.
STOCK-BASED COMPENSATION
Stock-based compensation is accounted for at fair value as determined
by the Black-Scholes option pricing model using amounts that are
believed to approximate the volatility of the trading price of the
Company's stock, the expected lives of awards of stock-based
compensation, the fair value of the Company's stock and the risk-free
interest rate. The estimated fair value of awards of stock-based
compensation are charged to expense as awards vest, with offsetting
amounts recognized as contributed surplus.
HALO RESOURCES LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2007 AND 2006
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
INCOME TAXES
Income tax liabilities and assets are recognized for the estimated
income tax consequences attributable to differences between the amounts
reported in the financial statements and their respective tax bases,
using enacted income tax rates. The effect of a change in income tax
rates on future income tax liabilities and assets is recognized in
income in the period that the change occurs. Future income tax assets
are recognized to the extent that they are considered more likely than
not to be realized.
EARNINGS (LOSS) PER SHARE
Basic earnings per share is computed by dividing income available to
common shareholders by the weighted average number of common shares
outstanding during the period. The computation of diluted earnings per
share assumes the conversion, exercise or contingent issuance of
securities only when such conversion, exercise or issuance would have a
dilutive effect on earnings per share. The dilutive effect of
convertible securities is reflected in diluted earnings per share by
application of the "if converted" method. The dilutive effect of
outstanding options and warrants and their equivalents is reflected in
diluted earnings per share by application of the treasury stock method.
RECENT ACCOUNTING PRONOUNCEMENTS
CICA Handbook Section 1530: "Comprehensive Income", effective for
fiscal years beginning on or after October 1, 2006, establishes
standards for reporting comprehensive income, defined as a change in
value of net assets that is not due to owner activities, by introducing
a new requirement to temporarily present certain gains and losses
outside of net income.
CICA Handbook Section 3251: "Equity", effective for fiscal years
beginning on or after October 1, 2006, establishes standards for the
presentation of equity and changes in equity during the reporting
period.
CICA Handbook Section 3855: "Financial Instruments - Recognition and
Measurement", effective for fiscal years beginning on or after October
1, 2006, establishes standards for the recognition, classification and
measurement of financial instruments including the presentation of any
resulting gains or losses. Assets classified as available-for-sale
securities will have revaluation gains and losses included in other
compre-hensive income until these assets are no longer included on the
balance sheet.
CICA Handbook Section 1506: "Accounting Changes" (CICA 1506"),
effective for fiscal years beginning on or after January 1, 2007,
establishes standards and new disclosures requirements for the
reporting of changes in accounting policies and estimates and the
reporting of error corrections. CICA1506 clarifies that a change in
accounting policy can be made only if it is a requirement under
Canadian GAAP or if it provides reliable and more relevant financial
statement information. Voluntary changes in accounting policies require
retrospective application of prior period financial statements, unless
the retrospective effects of the changes are impracticable to
determine, in which case the retrospective application may be limited
to the assets and liabilities of the earliest period practicable, with
a corresponding adjustment made to opening retained earnings.
The Company will be required to adopt the above new accounting
pronouncements for its fiscal period beginning September 1, 2007. The
adoption of these new pronouncements is not expected to have an effect
on the Company's financial position or results of operations.
HALO RESOURCES LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2007 AND 2006
3. AMOUNTS RECEIVABLE AND PREPAIDS
2007 2006
$ $
Goods and services taxes receivable 144,525 43,424
Prepaids 50,680 55,011
Other 19,437 37,840
------------ ------------
214,642 136,275
============ ============
4. CAPITAL ASSETS
-------------------------------------------- ------------
2007 2006
-------------------------------------------- ------------
ACCUMULATED NET BOOK NET BOOK
COSTS AMORTIZATION VALUE VALUE
$ $ $ $
Office furniture and equipment 53,843 15,912 37,931 40,417
Computer and telephone equipment 62,661 19,653 43,008 21,430
Field equipment and facility 279,381 33,716 245,665 226,700
Leasehold improvements 11,524 7,202 4,322 10,083
------------ ------------ ------------ ------------
407,409 76,483 330,926 298,630
============ ============ ============ ============
5. UNPROVEN MINERAL INTERESTS
------------------------------------------ ------------------------------------------
2007 2006
------------------------------------------ ------------------------------------------
DEFERRED DEFERRED
ACQUISITION EXPLORATION TOTAL ACQUISITION EXPLORATION TOTAL
COSTS COSTS COSTS COSTS COSTS COSTS
$ $ $ $ $ $
Duport 15,237,502 2,299,678 17,537,180 14,957,409 2,241,773 17,199,182
Bachelor Lake 881,789 - 881,789 1,399,289 3,647,500 5,046,789
Sherridon 722,886 4,399,631 5,122,517 423,519 1,127,370 1,550,889
West Red Lake 38,952 558,661 597,613 38,952 10,016 48,968
------------ ------------ ------------ ------------ ------------ ------------
16,881,129 7,257,970 24,139,099 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 6). 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.
HALO RESOURCES LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2007 AND 2006
5. UNPROVEN MINERAL INTERESTS (continued)
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.
Effective May 18, 2005, the Company and Metanor entered into
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 April 27, 2006, as amended August 17, 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. Accordingly, during fiscal 2006,
the Company recognized an impairment of $1,538,655 to reflect
the difference between the Company's recorded costs and the
anticipated proceeds.
On November 17, 2006, as amended August 22, 2007, Metanor and
the Company agreed to revise the payment terms of the Metanor
Purchase (the "Revised Metanor Purchase") under which Metanor
agreed to purchase the Company's 50% interest in the Bachelor
Lake JV for total consideration of $3,825,000 cash and 125,000
common shares of Metanor (the "Metanor Shares"). As of August
31, 2007, all of the cash payments have been made by Metanor.
In September 2007, the Company received the Metanor Shares.
During fiscal 2007, the Company recognized a further
write-down of $340,000 to reflect the terms of the Revised
Metanor Agreement.
HALO RESOURCES LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2007 AND 2006
5. UNPROVEN MINERAL INTERESTS (continued)
(c) Sherridon VMS Project, Manitoba
The Company now holds, through staking and various acquisition
agreements, an interest in 20,876 hectares located in the
Sherridon area, north-central Manitoba. Details of the
acquisitions are as follows:
i) 76 mining 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 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.
On December 3, 2006, the Company and EL entered into
a formal purchase agreement (the "Quarter Moon
Purchase Agreement"), under which the Company
purchased a 100% interest in ten mining claims,
including the original five mining claims under the
Quarter Moon LOI, covering a total of 2,072 hectares
in north-central Manitoba, for $90,000 cash and
issuance of 160,000 common shares, at a value of
$64,000. EL holds a 1% NSR, of which a 0.5% NSR can
be purchased at any time for $500,000.
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
mining claims, covering 536 hectares, as follows:
OPTION SHARE WORK
DATE PAYMENTS ISSUANCES EXPENDITURES
$ $
On signing 15,000(paid) 25,000(issued) -
February 9, 2007 20,000(paid) 50,000(issued) 10,000
February 9, 2008 25,000 75,000 10,000
February 9, 2009 30,000 100,000 50,000
February 9, 2010 - - 100,000
------------ ------------ ------------
90,000 250,000 170,000
============ ============ ============
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 24 mining claims
and one mining lease covering approximately 3,479
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:
HALO RESOURCES LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2007 AND 2006
5. UNPROVEN MINERAL INTERESTS (continued)
OPTION WORK
DATE PAYMENTS EXPENDITURES
$ $
On signing 30,000(paid) -
March 19, 2007 70,000(paid) 30,000
March 19, 2008 120,000 100,000
March 19, 2009 80,000 790,000
March 19, 2010 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. As of August 31, 2007, all
option payments and work expenditure commitments have
been met.
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) West Red Lake Property, Ontario
Pursuant to option agreements dated June 20, 2006 and April
20, 2007, (the "West Red Lake Option") with Goldcorp. Inc.
("Goldcorp") the Company has 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 "West
Red Lake Property") located in Ball Township, Red Lake,
Ontario. Under the terms of the West Red Lake Option, the
Company is required to perform minimum exploration programs
totalling $3 million on or before December 31, 2009, as
follows:
EXPENDITURE
DATE COMMITMENTS
$
December 31, 2007 750,000
December 31, 2008 1,000,000
December 31, 2009 1,250,000
------------
3,000,000
============
Once the Company has incurred $3 million of expenditures the
Company can elect to proceed with a formal joint venture on
the subject claims. 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 FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2007 AND 2006
6. 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 5(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 $320,000, 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 fiscal 2007, the Company recorded $275,000 (2006 - $50,000 ) of
dividends on the Redeemable Preferred Shares, which have been
capitalized as part of resource interests. As at August 31, 2007,
$26,667 (2006 - $4,167) of accrued dividends were included as part of
accounts payable and accrued liabilities.
HALO RESOURCES LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2007 AND 2006
7. SHARE CAPITAL
Authorized: unlimited common shares without par value
unlimited preferred shares (Note 6)
---------------------------- ----------------------------
Issued common shares: 2007 2006
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
$ $
Balance, beginning of year 31,138,216 32,395,855 21,005,765 28,487,576
------------ ------------ ------------ ------------
Issued during the year
For cash
Private placements 9,328,965 4,288,350 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 fee 62,500 28,125 - -
For unproven mineral interests 210,000 89,000 25,000 18,250
Reallocation from contributed surplus
on exercise of options - - - 69,413
------------ ------------ ------------ ------------
9,601,465 4,405,475 10,132,451 5,204,820
Less - flow-through share renunciation - (524,500) - (820,633)
Less - share issue costs - (510,245) - (475,908)
------------ ------------ ------------ ------------
9,601,465 3,370,730 10,132,451 3,908,279
------------ ------------ ------------ ------------
Balance, end of year 40,739,681 35,766,585 31,138,216 32,395,855
============ ============ ============ ============
(a) During fiscal 2007, the Company completed private placements
as follows:
i) 3,612,632 flow-through units, at a price of $0.475
per flow-through unit and 2,300,000 non-flow-through
units, at a price of $0.45 per non-flow-through unit,
for total gross proceeds of $2,751,000. 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 for a period eighteen months at a price
of $0.65 per share . Each non-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 shares for a
period of eighteen months at a price of $0.60 per
share. The Company can require the holders of these
warrants to exercise the warrants in the event the 20
day weighted average closing trading price of the
common shares is $0.85 or above. The President of the
Company purchased 25,000 flow-through units for
$11,875.
The Company paid the agents a cash commission of
$163,997 and issued 470,763 warrants (the "Agents'
Warrants") and incurred $29,114 of costs relating to
the financing. Each Agents' Warrant is exercisable to
purchase one common share for a period of eighteen
months at a price of $0.60 per share. 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 64.13%; a risk-free interest rate of 4.55%; and an
expected life of one and one-half years. The value
assigned to the Agent's Warrants was $74,398.
HALO RESOURCES LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2007 AND 2006
7. SHARE CAPITAL (continued)
ii) 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 the 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, consisted
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.
(b) During fiscal 2006, the Company completed a 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,
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 share for a period of two
years at a price of $0.70 per share. The Company paid a
finder's fee of $262,194 and issued 523,323 warrants (the
"Finders' Warrants") to the finder. The Company also issued
85,715 units (the "Finder's Units") in settlement of $60,000
billed by the finder for fiscal advisory services rendered.
The Finder's Warrants have the same terms as the private
placement warrants. The fair value of the Finder's Warrants
has been estimated using the Black-Scholes option price model.
The assumptions used were: dividend yield of 0%; expected
volatility of 61.41%; a risk-free interest rate of 3.09% -
3.30%; and an expected life of two years. The value assigned
to the Finder's Warrants was $113,179.
Each Finder's Unit consisted of one common share and one
purchase warrant entitling the finder to purchase one further
share, for a period of two years at a price of $0.75 per
share. 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 62.05%; a
risk-free interest rate of 3.39%; and an expected life of two
years. The value assigned to the warrants was $27,542.
The Company incurred a total of $40,535 for legal, filing and
other share issue costs relating to the private placement. A
director of the Company purchased 20,000 flow-through shares
for $14,000.
HALO RESOURCES LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2007 AND 2006
7. SHARE CAPITAL (continued)
(c) A summary of the number of common shares reserved pursuant to
the Company's warrants outstanding at August 31, 2007 and 2006
and the changes for the years ending on those dates is as
follows:
2007 2006
Balance, beginning of year 8,322,563 10,331,859
Pursuant to private placements 5,539,378 2,589,204
Exercised - (4,598,500)
Expired (5,733,359) -
------------ ------------
Balance, end of year 8,128,582 8,322,563
============ ============
Common shares reserved pursuant to warrants outstanding at
August 31, 2007, are as follows:
NUMBER EXERCISE PRICE EXPIRY DATE
$
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
1,091,316 0.65 January 4, 2009
1,509,763 0.60 January 4, 2009
665,000 0.65 January 11, 2009
111,000 0.60 January 11, 2009
50,000 0.65 July 20, 2009
------------
8,128,582
============
(d) See also Note 16.
8. 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 fiscal 2007, the Company granted 2,452,000 stock options (2006 -
2,168,000) to its employees, officers, directors and consultants and
recorded total compensation expense of $679,122 (2006 - $550,817) on
these stock options granted and on stock options which vested during
fiscal 2007. In addition the Company amended the terms of 450,000 (2006
- nil) stock options whereby the Company recorded compensation expense
of $37,641 (2006 - $nil), which is included in the total compensation
expense above.
HALO RESOURCES LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2007 AND 2006
8. STOCK OPTIONS AND STOCK-BASED COMPENSATION (continued)
The fair values of the stock options granted, vested or amended are
estimated using the Black-Scholes option pricing model with the
following assumptions:
2007 2006
----------------- -----------------
Risk-free interest rate 3.82% - 4.53% 3.38% - 4.11%
Estimated volatility 67.19% - 85.48% 61.41% - 85.48%
Expected life 3 years - 5 years 3 years - 5 years
Expected dividend yield 0% 0%
The weighted average fair value of all stock options, calculated using
the Black-Scholes option pricing model, granted, vested or amended
during the fiscal year was $0.21 (2006 - $0.25) 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 August 31, 2007 and 2006,
and the changes for the fiscal years ending on those dates is presented
below:
----------------------------- ----------------------------
2007 2006
----------------------------- ----------------------------
WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE
OF OPTIONS EXERCISE PRICE OF OPTIONS EXERCISE PRICE
$ $
Balance, beginning of year 2,903,000 0.56 1,688,000 0.80
Granted 2,452,000 0.48 2,168,000 0.54
Exercised - - (150,000) 0.75
Cancelled / Expired (1,540,000) 0.62 (803,000) 0.95
------------ ------------
Balance, end of year 3,815,000 0.48 2,903,000 0.56
============ ============
The following table summarizes information about the stock options
outstanding and exercisable at August 31, 2007:
OPTIONS OPTIONS EXERCISE
OUTSTANDING EXERCISABLE PRICE EXPIRY DATE
$
450,000 450,000 0.60 May 31, 2009
913,000 913,000 0.45 February 2, 2009
1,547,000 1,484,500 0.45 November 27, 2009
150,000 - 0.50 July 18, 2010
755,000 755,000 0.52 July 24, 2012
------------ ------------
3,815,000 3,602,500
============ ============
HALO RESOURCES LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2007 AND 2006
9. CONTRIBUTED SURPLUS
Contributed surplus for fiscal 2007 and 2006 is comprised of the
following:
2007 2006
$ $
Balance, beginning of year 1,360,767 738,642
Stock options exercised - (69,413)
Stock-based compensation on
stock options (Note 8) 679,122 550,817
Stock-based compensation on
warrants (Note 7) 109,345 140,721
------------ ------------
Balance, end of year 2,149,234 1,360,767
============ ============
10. INCOME TAXES
The income tax effects of temporary differences that give rise to
significant components of future income tax assets and liabilities are
as follows:
2007 2006
$ $
Future income tax assets:
Financing costs 294,000 272,000
Capital assets 26,000 15,000
Losses available for future periods 2,204,000 1,630,000
------------ ------------
2,524,000 1,917,000
Future income tax liabilities:
Difference between book value and
income tax costs of unproven
mineral interests (7,410,000) (6,749,000)
------------ ------------
Net future income tax liabilities (4,886,000) (4,832,000)
============ ============
The recovery of income taxes shown in the statements of loss and
deficit differ from the amounts obtained by applying statutory rates to
the loss before income taxes due to the following:
2007 2006
$ $
Combined federal and provincial
income tax rate 34.12% 34.12%
============ ============
Expected income tax recovery 910,000 1,205,600
Non-deductible stock-based compensation (231,700) (188,000)
Write-down of unproven mineral interest (116,000) (525,000)
Effect of change in tax rates - (48,000)
Unrecognized tax losses (569,300) (497,900)
Recovery of valuation allowance 398,600 1,316,633
Other 78,900 53,300
------------ ------------
Future income tax recovery 470,500 1,316,633
============ ============
HALO RESOURCES LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2007 AND 2006
10. INCOME TAXES (continued)
As at August 31, 2007, the Company has accumulated non-capital losses
of approximately $6.5 million and cumulative resource and other tax
pools of approximately $3.7 million carried forward for Canadian income
tax purposes and are available to reduce taxable income of future
years. The non-capital losses expire commencing in 2008 through 2027.
The cumulative resource and certain other tax pools can be carried
forward indefinitely.
In fiscal 2007, the Company issued 3,612,632 flow-through common shares
for gross proceeds of $1,716,000 (see Note 7(a)(i)). Resource
expenditure deductions for income tax purposes related to exploration
and development activities funded by flow-through share arrangements
are renounced to investors in accordance with Canadian income tax
legislation. The Company anticipates it will renounce this amount to
its investors effective December 31, 2007. The renunciation of such
expenditures is accounted for as a financing cost related to the
flow-through issuance and results in a reduction in share capital with
a corresponding increase in the Company's future income tax liability.
11. RELATED PARTY TRANSACTIONS
(a) The Company was charged for various services provided by
companies controlled by directors and officers of the Company,
as follows:
2007 2006
$ $
Accounting and administration 93,600 99,700
Professional and consulting 120,900 116,400
Compensation and benefits 180,500 93,000
Directors fees 9,500 -
------------ ------------
404,500 309,100
============ ============
These fees have been either expensed to operations or
capitalized to unproven mineral interests, based on the nature
of the expenditures.
These transactions were measured at the exchange amount, which
was the amount of consideration established and agreed to by
related parties.
As at August 31, 2007, accounts payable and accrued
liabilities include $24,344 (2006 - $4,637) due to these
related parties.
(b) Other related party transactions are disclosed elsewhere in
these financial statements.
HALO RESOURCES LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2007 AND 2006
12. FINANCIAL INSTRUMENTS
The fair values of financial instruments at August 31, 2007 and 2006,
were estimated based on relevant market information and the nature and
terms of financial instruments. Management is not aware of any factors
which would significantly affect the estimated fair market amounts,
however, such amounts have not been comprehensively revalued for
purposes of these financial statements. Disclosure subsequent to the
balance sheet dates and estimates of fair value at dates subsequent to
August 31, 2007 and 2006, may differ significantly from that presented.
Fair value approximates the amounts reflected in the financial
statements for cash, amounts receivable and accounts payable and
accrued liabilities. It is not practicable to estimate the fair value
of the Redeemable Preferred Shares.
13. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash operating, financing and investing activities were conducted
by the Company during fiscal 2007 and 2006 as follows:
2007 2006
$ $
Operating activities
Accounts payable for unproven mineral interests 372,013 137,253
Accounts payable for capital assets - 30,492
------------ ------------
372,013 167,745
============ ============
Financing activities
Issuance of common shares for unproven mineral interests 89,000 18,250
Issuance of common shares for fees 22,720 60,000
Common share issue costs (146,120) (60,000)
Contributed surplus 123,400 -
Share capital - future income tax adjustment (524,500) (820,633)
Future income tax liability 524,500 820,633
------------ ------------
89,000 18,250
============ ============
Investing activities
Accounts payable for unproven mineral interest (372,013) (137,253)
Accounts payable for capital assets - (30,492)
Common shares issued for unproven mineral interests (89,000) (18,250)
------------ ------------
(461,013) (185,995)
============ ============
Other supplemental cash flow information:
2007 2006
$ $
Interest paid in cash - -
============ ============
Dividends paid in cash 252,500 50,000
============ ============
Income taxes paid in cash - -
============ ============
HALO RESOURCES LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 2007 AND 2006
14. LEASE COMMITMENTS
The Company has entered into lease agreements for its offices and
certain vehicles under operating leases. Minimum payments under these
leases are as follows:
YEAR $
2008 101,176
2009 38,394
2010 606
------------
140,176
============
15. ASSET RETIREMENT OBLIGATION
2007 2006
$ $
Balance, beginning of year 1,014,500 938,500
Accretion expense - 76,000
------------ ------------
1,014,500 1,014,500
============ ============
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.
See also Note 5(b).
16. SUBSEQUENT EVENTS
(a) The Company has agreed to conduct a non-brokered private
placement of up to 4,675,000 flow-through shares, at a price
of $0.47 per flow-through share, and up to 3,500,000
non-flow-through units, at a price of $0.42 per
non-flow-through unit, for total gross proceeds of up to
$3,667,250. Each non-flow-through unit will consist of one
common share and one-half share purchase warrant, with each
full warrant entitling the holder to purchase one further
common share for a period of twenty-four months at a price of
$0.60 per share. To date, the Company has completed an initial
closing of 4,001,607 flow-through shares and 3,106,642
non-flow-through units.
(b) Subsequent to August 31, 2007, warrants to purchase 2,503,489
common shares of the Company at $0.70 per share and 85,715
common shares at $0.75 per share expired without exercise.
(c) See also Note 5(b).
SCHEDULE I
HALO RESOURCES LTD.
SCHEDULE OF UNPROVEN MINERAL INTERESTS
FOR THE YEARS ENDED AUGUST 31
2007 2006
-------------------------------------------------------------------------------- ------------
BACHELOR RED
DUPORT LAKE SHERRIDON LAKE
PROPERTY PROPERTY VMS PROJECT PROPERTY TOTAL TOTAL
$ $ $ $ $ $
BALANCE - BEGINNING OF YEAR 17,199,182 5,046,789 1,550,889 48,968 23,845,828 22,759,333
------------ ------------ ------------ ------------ ------------ ------------
AMOUNTS INCURRED DURING THE YEAR
EXPLORATION EXPENDITURES
Accounting - - - - - 13,272
Assays - - 64,471 3,896 68,367 32,510
Camp and equipment costs - - - - - 239,251
Consulting 37,342 - 147,157 52,181 236,680 697,681
Data - - - - - 25,000
Drafting 4,033 - 40,716 7,877 52,626 -
Drilling 1,613 - 1,963,864 - 1,965,477 296,768
Due diligence - - - - - 14,214
Engineering - - - - - 49,876
Exploration office costs 3,004 - 355,974 74,631 433,609 180,140
Field personnel 1,270 - 188,802 62,516 252,588 167,769
Field supplies 912 - 41,625 5,349 47,886 6,559
Filing - - - - - 3,250
Geological 140 - 181,112 24,714 205,966 -
Geophysical survey 4,066 - 168,054 159,525 331,645 353,843
Land management - - 3,284 - 3,284 -
Line cutting - - - 52,177 52,177 -
Insurance - - - - - 16,719
Maintenance - - - - - 16,388
Mobilization, demobilization - - - - - 6,132
Technical report - - - - - 10,859
Travel 5,525 - 214,782 105,779 326,086 132,541
Reimbursement / Recoveries - (3,825,000) (97,580) - (3,922,580) (228,708)
------------ ------------ ------------ ------------ ------------ ------------
57,905 (3,825,000) 3,272,261 548,645 53,811 2,034,064
------------ ------------ ------------ ------------ ------------ ------------
OTHER ITEMS
Acquisition costs and payments - - 269,000 - 269,000 232,244
Claims staking and lease rental
costs 5,093 - 11,928 - 17,021 147,402
Legal - - 18,439 - 18,439 161,440
Capitalized dividend 275,000 - - - 275,000 50,000
------------ ------------ ------------ ------------ ------------ ------------
280,093 - 299,367 - 579,460 591,086
------------ ------------ ------------ ------------ ------------ ------------
BALANCE BEFORE WRITE-DOWN 17,537,180 1,221,789 5,122,517 597,613 24,479,099 25,384,483
WRITE-DOWN (Note 5(b)) - (340,000) - - (340,000) (1,538,655)
------------ ------------ ------------ ------------ ------------ ------------
BALANCE - END OF YEAR 17,537,180 881,789 5,122,517 597,613 24,139,099 23,845,828
============ ============ ============ ============ ============ ============
HALO RESOURCES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED AUGUST 31, 2007
BACKGROUND
This discussion and analysis of financial position and results of operation is
prepared as at December 18, 2007 and should be read in conjunction with the
audited annual financial statements and the accompanying notes for the years
ended August 31, 2007 and 2006 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 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 and in fiscal 2004, the Company acquired a
number of mineral property interests. The Company is currently engaged in the
acquisition and exploration of precious and base metals on mineral interests
located in Manitoba and Ontario, Canada. The Company has not earned any
production revenue, nor found any proved reserves on any of its mineral
interests.
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.
CORPORATE APPOINTMENTS
On November 27, 2006, Ms. Lynda Bloom was appointed as a director for the
Company and on March 1, 2007, Ms. Bloom was appointed as the Company's president
and Chief Executive Officer, replacing Mr. Marc Cernovitch, who remained as a
director of the Company and assumed the position as Chairman of the Company.
Ms. Bloom has 30 years of leadership experience in the mining industry which
includes responsibility for project generation, financing and regulatory
compliance. After earning a M.Sc. at Queen's University in Geological Sciences,
she gained experience as an exploration geochemist planning and interpreting
geochemical surveys across Canada, and in many South America and African
countries. She is recognized as a world-expert on assay methods and has traveled
extensively worldwide to review sampling and analytical procedures. Over the
past 20 years she has also acted as a consultant to some of the largest
exploration and mining companies in the world including Barrick, Falconbridge,
AngloAmerican and Cameco.
Ms. Bloom has been a director and officer of junior mining companies for over 10
years and has experience at both the board and operational levels. She is a
director of the Prospectors and Developers Association of Canada and recently
completed her term as Chair of the Canadian Institute of Mining and
Metallurgy-Toronto Branch, as well as serving on several government advisory
boards.
- 1 -
EXPLORATION PROJECTS
SHERRIDON VMS PROPERTY, MANITOBA
The Sherridon VMS Property includes the site of the former Sherritt Gordon
Mines' copper-zinc mine that operated from 1931 to 1951 and produced 7.7 million
tonnes of copper-zinc ore with recovered grades of 2.46% copper and 0.8% zinc.
The property is considered by the Company to be highly prospective for new
volcanogenic massive sulphide ("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 hwy 10, a power line and
a communication tower.
The Sherridon Property includes 86 staked or purchased mineral claims that total
16,861 hectares. Through four option agreements, Halo also has the right to
acquire a 100% interest in 27 other mining claims and one mineral lease in the
Sherridon area bringing the total land package to 20,876 hectares. The most
significant of these agreements are those with Hudson Bay Exploration and
Development Company Limited ("HBED") which allows Halo to acquire 100% of the
Jungle and Park copper-zinc deposits. There are a total of six known VMS
deposits within the Sherridon VMS Property including the Park, Jungle, Bob,
Cold, Fidelity and AKE all of which host near-surface resources.
From November, 2006 to November 16, 2007, Halo completed 15,204 metres of
drilling and achieved the following key objectives:
a) completion of 3,444 metres in 15 holes at the Bob Lake deposit to
confirm historical mineralized intervals reported by Sherritt Gordon in
the 1940s, and to test the mineralized horizon along strike to the
southeast and known limits of the historical resource envelope;
b) expansion of the Bob Lake drill hole database, reinterpret the
structural geology and define targets for a second phase of drilling;
c) discovery of the massive sulphide lens at Bob Lake that can be traced
from surface for 1,000 m downplunge and that remains open at depth with
intersections such as 1.8% copper and 1.3% zinc over 14.7 m on drill
hole 07-61;
d) completion of 3,242 metres in 15 holes at the Jungle Lake deposit to
confirm historical mineralized intervals reported by Hudson Bay in the
1950s, and to test the mineralized horizon down-dip and test limits of
the historical resource envelope;
e) completion of 1,950 metres in four holes at the Park Lake deposit as
part of a 15 drill hole program to confirm historical mineralized
intervals reported by Hudson Bay in the 1950s, and to test the
mineralized horizon down-dip and test limits of the historical resource
envelope;
f) completion of 2,278 metres in 16 holes at the Cold Lake deposit to
confirm historical mineralized intervals reported by Hudson Bay
Exploration and Development in the 1950s, and to test the mineralized
horizon down-dip and along strike and test limits of the historical
resource envelope;
g) completion of 486 metres in three holes to test a geophysical anomaly
southeast of Cold Lake, resulting in the discovery of the Lost Lake
massive sulphide zone including near surface intersections such as 1.6%
copper and 4.9% zinc over 5.1 m in drill hole 07-55; and
h) improved understanding of the stratigraphy hosting massive sulphides,
alteration envelopes in the vicinity of mineralization and structural
controls to improve the ability to prioritize targets.
A NI43-101 compliant report to document resources is planned for those projects
where sufficient drilling has been done to confirm previously reported
mineralized intersections and the geometry of the ore bodies
In November 2007, the first of the 43-101 compliant technical reports was
coauthored by Scott Wilson Roscoe Postle (Scott Wilson RPA) and Giroux
Consultants Ltd. ("GCL") for Halo to substantiate the historical resource
reported for the Jungle Lake deposit. The resources estimated by GCL at Jungle
Lake have been classified as Indicated and Inferred.
It is assumed that the Jungle Lake Deposit would probably be mined by a
combination of both open pit and underground methods. The results of the
resource estimate are as follows:
- 2 -
- --------------------------------------------------------------------------------------------------------------------------
POTENTIAL GRADE CONTAINED METAL
MINING RESOURCE --------- -------------------------------- ------------------------------------------
METHOD CLASS TONNAGE CU ZN AU AG CU ZN AU AG
(t) (%) (%) (g/t) (g/t) (lb) (lb) (oz) (oz)
- -------------------------- --------- -------------------------------- ------------------------------------------
Open Pit Indicated 830,000 0.99 0.73 0.39 6.70 18,115,000 13,358,000 10,000 179,000
Underground Indicated 495,000 1.46 1.06 0.52 11.43 15,933,000 11,568,000 8,000 182,000
--------- -------------------------------- ------------------------------------------
Total 1,325,000 1.17 0.85 0.44 8.47 34,048,000 24,925,000 19,000 361,000
Open Pit Inferred 1,347,000 0.85 0.60 0.41 6.24 25,242,000 17,818,000 18,000 270,000
Underground Inferred 830,000 1.28 0.78 0.36 10.78 23,422,000 14,273,000 10,000 288,000
--------- -------------------------------- ------------------------------------------
Total 2,177,000 1.01 0.67 0.39 7.97 48,664,000 32,090,000 27,000 558,000
- --------------------------------------------------------------------------------------------------------------------------
1. Open pit cut-off net smelter return (" NSR") royalty US $20 above the 218 m
level
2. Underground cut-off NSR US $40 below the 218 m level.
3. All quantities rounded to the nearest 1000
The total tonnage of 1,325,000 tonnes in the Indicated resource category has an
overall grade of 1.17% copper, 0.85% zinc and precious metal credits. The
cut-off grades were calculated on the basis of all four commodities based on the
NSR assumptions shown below. In addition, there are 2,177,000 tonnes in the
Inferred resource category with an overall grade of 1.10% copper, 0.67% zinc and
precious metal credits.
Copper, zinc silver and gold contribute to the economics of the deposit so that
a NSR was calculated for each block based on the estimated grades of copper,
zinc, silver and gold, reasonable metal prices, the estimated recoveries for
each metal and common industry values for smelter terms. The parameters used
were as follows:
------------------------------------------------
METAL PRICE RECOVERY
(US$) (%)
------------------------------------------------
Copper $2.00/lb 85 %
Zinc $0.75/lb 85 %
Gold $600/oz 47 %
Silver $8.50/oz 54 %
------------------------------------------------
A summer program of geological mapping focused on six high-priority exploration
targets included areas with airborne geophysical targets identified by the 2006
Geotech VTEM survey. The fully integrated and multi-disciplined approach has
identified new drill targets in areas that have previously had minimal
exploration activity or only shallow drilling. A second diamond drill rig was
deployed November 2007 to continue the program of drilling to define resources
compliant with NI-43-101 as well as explore for new massive sulphide deposits.
The Company has a planned program of 30,000 m of drilling through 2008.
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 West Red Lake Property is located about 32 km west of the prolific Campbell
and Red Lake Mines in the Red Lake Camp that has produced 20 million ounces
within the Red Lake greenstone belt. 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 under one
ownership.
- 3 -
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.
Some 40 km of induced polarization ("IP") and magnetometer surveys were
completed in March 2007. One of the high priority geophysical anomalies
identified is associated with the May-Spiers gold deposit located in Middle Bay
of Red Lake in Ball Township. The May-Spiers shaft and surface exposure are on
May-Spiers Island where the May-Spiers Gold Mines Ltd. sank a three compartment
shaft to 375 feet in 1936 and developed mine workings at the lowest level over
150 feet. Intervals of 0.5 oz per ton gold over narrow widths less than 5 feet
were reported in the 1930s from surface drilling and underground mine grades
were in the order of 0.1 oz per ton. The mine workings were destroyed by fire in
1937 and no mining or exploration has taken place in 70 years.
The geophysical anomaly associated with the May-Spiers mine workings includes a
1.3 km long east-west trending magnetic low feature and a 600 m long
weak-to-moderate induced polarization (IP) chargeability anomaly with a width up
to 100 m. Almost half of the survey area is covered by water which is generally
less than 3.5 m deep but has limited previous exploration efforts.
Mapping and prospecting was undertaken between May and September 2007 with
approximately 500 rock samples collected. Assays are pending and will be
reported when the geochemical compilation is completed which is expected in
December 2007. An additional 20 km of geophysical surveys was completed in
October 2007 to extend the area of interest over an additional 2 km strike
length of favourable stratigraphy and results are pending.
The work program for the remainder of 2007 and the first half of 2008 includes
data compilation, assessment report writing and a 1,500 m drill program. The
timing of the drill program is dependent on availability of equipment and
weather conditions. The budget for the work program is $500,000.
DUPORT PROPERTY, ONTARIO, CANADA
The Duport property covers the advanced-stage Duport resource located on the
West Group of claims. A 2006 Roscoe Postle Associates NI43-101 report estimated
an in situ gold resource, defined over a strike length of 760 meters to a
vertical depth of 450 meters, containing 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.
In December 2006, Condor Consulting, Inc. commenced a detailed reprocessing and
analysis of the original geophysical data collected by Dighem frequency-domain
EM survey carried by Fugro Airborne Surveys during its August/September, 2005
survey. In March 2007 Condor concluded that there were a number of promising
geophysical targets that had the potential to yield additional sulphide
mineralization similar to the known mineralization. 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.
In recent months, the rapid increase in gold price and the long term expectation
of even higher gold prices have dramatically changed the economics and potential
value of the Duport property. Gold price has more than doubled since the
property was acquired and the preliminary economic assessment was carried out.
Economics would be significantly enhanced by further increases in gold price and
also the addition of either underground or open pit satellite resources.
A comprehensive underground exploration strategy is the most effective way to
advance the Duport project towards production. The Company is considering the
options of financing the costs of an underground exploration program and
business partnerships to advance the project in 2008.
- 4 -
SELECTED FINANCIAL DATA
The following selected financial information is derived from the audited annual
financial statements of the Company prepared in accordance with Canadian GAAP.
- --------------------------------------------------------------------------------
YEARS ENDED AUGUST 31,
- --------------------------------------------------------------------------------
2007 2006 2005
$ $ $
- --------------------------------------------------------------------------------
OPERATIONS:
Revenues - interest income 63,071 16,729 31,331
Loss (2,196,387) (2,199,935) (368,110)
Basic and diluted loss per share (0.06) (0.08) (0.02)
Dividends per share Nil Nil Nil
BALANCE SHEET:
Working capital 1,842,765 151,522 506,811
Total assets 26,787,165 24,552,668 23,928,682
Total long-term liabilities 13,900,500 13,846,500 14,266,500
- --------------------------------------------------------------------------------
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
------------------------------------------------- -------------------------------------------------
THREE MONTH PERIODS ENDING AUG 31 MAY 31 FEB 28 NOV 30 AUG 31 MAY 31 FEB 28 NOV 30
$ $ $ $ $ $ $ $
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
OPERATIONS:
Revenues - interest income 37,799 5,906 13,741 5,625 4,068 4,513 3,498 4,650
Net income (loss) (863,969) (243,413) (366,353) (722,652) 178,880 (1,821,875) (246,430) (310,510)
Basic and diluted
income (loss) per share (0.02) (0.01) (0.01) (0.02) 0.01 (0.06) (0.01) (0.01)
Dividends per share Nil Nil Nil Nil Nil Nil Nil Nil
BALANCE SHEET:
Working capital 1,842,765 274,629 1,140,585 2,567,615 151,522 967,196 751,209 1,358,021
Total assets 26,787,165 24,602,155 25,247,018 25,340,322 24,522,668 24,663,418 25,487,480 25,971,467
Total long-term liabilities 13,900,500 13,822,000 14,092,000 13,570,500 13,846,500 14,399,133 14,560,133 14,756,133
------------------------------------------------- -------------------------------------------------
RESULTS OF OPERATIONS
Three Months Ended August 31, 2007 Compared to Three Months August 31, 2006
During the three months ended August 31, 2007 (the "2007 Quarter") the Company
reported a net loss of $863,969, compared to a net income of $178,880 for the
three months ended August 31, 2006 (the "2006 Quarter"). The $1,042,849 increase
in net loss for the 2007 Quarter compared to the 2006 Quarter is primarily
attributed to:
- $131,926 increase in stock-based compensation charge recorded during
the 2007 Quarter;
- $257,544 increase in write-down of unproven mineral interest during the
2007 Quarter; and
- $650,133 decrease of future income tax recovery recorded during the
2007 Quarter.
Year Ended August 31, 2007 Compared to Year Ended August 31, 2006
During fiscal 2007, the Company reported a net loss of $2,196,387, a decrease in
loss of $3,548, from the $2,199,935 loss reported in fiscal 2006. The decrease
in the net loss in fiscal 2007 compared to fiscal 2006, is primarily attributed
to:
- a $1,198,655 decrease in the write-down of unproven mineral interests;
- a $76,000 decrease in accretion expense;
- a $43,000 decrease in Part XII.6 tax expense; and
- a $846,133 decrease of future income tax recovery recorded in fiscal
2007.
- 5 -
The decrease is partially offset by:
- a $369,764 increase in general and administrative expenses; and
- a $128,305 increase in stock-based compensation charge.
General and administrative costs increased from $1,267,825 in fiscal 2006 to
$1,637,589 in fiscal 2007, as follows:
2007 2006
$ $
Accounting and administration 98,690 99,700
Advertising and related 40,764 52,430
Compensation and benefits 183,051 95,288
Consulting and professional fees 158,234 208,056
Directors' fees 9,500 -
Filing fees and transfer agent 24,539 39,827
Foreign exchange loss 2,769 1,295
Insurance 23,797 22,945
Investment conferences 222,981 78,823
Investor relations and shareholder communications 310,679 124,908
Legal and audit 157,712 209,615
Office and general 98,315 113,488
Office rent and operating costs 63,379 19,052
Printing 19,157 13,558
Telephone 31,110 14,274
Travel and related costs 189,472 159,907
Website and internet costs 3,440 14,659
------------ ------------
1,637,589 1,267,825
============ ============
Significant general and administrative expenditures incurred during fiscal 2007,
include $133,652 for legal costs incurred primarily for general legal advice on
financings and general corporate activities; $24,060 for independent audit
costs; $222,981 for attendance and participation in investment conferences and
meetings with the investment communities in North America and Europe; $310,679
for investor relations and shareholder communications and $63,379 for the
Company's Vancouver and Toronto office rents and operating costs. During fiscal
2007 accounting and administration expenses of $93,600 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. Compensation and benefits
increased in fiscal 2007 by $87,763 due to the addition of Lynda Bloom as the
Company's new President and CEO. During fiscal 2007, the Company had incurred
$189,472 in travel costs, an increase of $29,565 from $159,907 during fiscal
2006, due to increased travel by the Company's management to its properties and
meetings to review financing opportunities during fiscal 2007.
The increase in general and administrative expenditures was partially offset by:
- a decrease of $49,822 for consulting and professional fees;
- a decrease of $15,288 for filing fees and transfer agent;
- a decrease of $15,173 in office and general;
- a decrease of $11,666 for advertising and related; and
- a decrease of $11,219 for website and internet costs.
The Company also recorded a stock-based compensation charge of $679,122 in
fiscal 2007 on the granting of 2,452,000 stock options and amending the terms of
450,000 stock options, compared to $550,817 in fiscal 2006, when the Company
granted 2,168,000 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 fiscal 2007 the Company recorded a total of $40,269 (2006 - $17,627) 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 fiscal 2007, the
Company recognized a further
- 6 -
write-down of $340,000 to reflect the terms of the revised Metanor agreement. No
accretion of the asset retirement obligation was recorded in fiscal 2007 due to
the proposed disposition under the Metanor agreement. A detailed discussion of
the Company's proposed sale of its Bachelor Lake interest and exploration
activities conducted is provided in "Exploration Projects".
As a result of the application of previously unrecognized losses during fiscal
2007, the Company recognized a future income tax recovery and a reduction of the
future income tax liability of $470,500.
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 August 31, 2007, the Company had working capital of
$1,842,765. In late November 2007, the Company announced a non-brokered private
placement of 4,675,000 flow-through shares at a price of $0.47 per share and
3,500,000 non-flow-through units ("Non FT Unit") at $0.42 per Non-FT Unit. On
December 14, 2007, the Company completed a first closing of the private
placement and issued 4,001,607 flow-through shares and 3,106,642 Non-FT Units,
for gross proceeds of $3,185,545. 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.
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, 2007 audited financial statements.
CHANGES IN ACCOUNTING POLICIES
The Company had no changes in accounting policies during fiscal 2007. The CICA
has made recent account pronouncements, as follows:
CICA Handbook Section 1530: "Comprehensive Income", effective for fiscal years
beginning on or after October 1, 2006, establishes standards for reporting
comprehensive income, defined as a change in value of net assets that is not due
to owner activities, by introducing a new requirement to temporarily present
certain gains and losses outside of net income.
CICA Handbook Section 3251: "Equity", effective for fiscal years beginning on or
after October 1, 2006, establishes standards for the presentation of equity and
changes in equity during the reporting period.
CICA Handbook Section 3855: "Financial Instruments - Recognition and
Measurement", effective for fiscal years beginning on or after October 1, 2006,
establishes standards for the recognition, classification and measurement of
financial instruments including the presentation of any resulting gains or
losses. Assets classified as available-for-sale securities will have revaluation
gains and losses included in other comprehensive income until these assets are
no longer included on the balance sheet.
CICA Handbook Section 1506: "Accounting Changes" (CICA 1506"), effective for
fiscal years beginning on or after January 1, 2007, establishes standards and
new disclosures requirements for the reporting of changes in accounting
- 7 -
policies and estimates and the reporting of error corrections. CICA1506
clarifies that a change in accounting policy can be made only if it is a
requirement under Canadian GAAP or if it provides reliable and more relevant
financial statement information. Voluntary changes in accounting policies
require retrospective application of prior period financial statements, unless
the retrospective effects of the changes are impracticable to determine, in
which case the retrospective application may be limited to the assets and
liabilities of the earliest period practicable, with a corresponding adjustment
made to opening retained earnings.
The Company will be required to adopt the above new accounting pronouncements
for its fiscal period beginning September 1, 2007. The adoption of these new
pronouncements is not expected to have an effect on the Company's financial
position or results of operations.
TRANSACTIONS WITH RELATED PARTIES
The Company was charged for various services provided by companies controlled by
directors and officers of the Company, as follows:
2007 2006
$ $
Accounting and administration 93,600 99,700
Professional and consulting 120,900 116,400
Compensation and benefits 180,500 93,000
Directors fees 9,500 -
------------ ------------
404,500 309,100
============ ============
These fees have been either expensed to operations or capitalized to unproven
mineral interests, based on the nature of the expenditures.
These transactions were measured at the exchange amount, which was the amount of
consideration established and agreed to by related parties.
As at August 31, 2007, accounts payable and accrued liabilities include $24,344
(2006 - $4,637) 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 fiscal 2007. A number of other consultants were also
retained during fiscal 2007, 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 was for a term of one
year. The agreement with Clark Avenue was terminated effective April 9, 2007.
During fiscal 2007, the Company paid $35,000 to Clark Avenue.
- 8 -
During fiscal 2007, 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, and Frankfurt. The Company is also using a number of web based
advertisers. During fiscal 2007, the Company paid $40,764 for advertising,
$222,981 for investment conferences and related costs, $310,679 for investor
relations and shareholder communications and $19,157 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 agreed to pay Value
Relations US $5,000 per month for a period of five months. 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.
During fiscal 2007, the Company paid $101,288 (2006 - $16,964) to Value
Relations.
In July 2007, the Company entered into an investor relations contract with
Empire Communications Inc. ("Empire"), under which Empire will provide financial
advice and assist in the structuring, coordinating and organizing of general
investor relations activities in Canada. Under the arrangement, Empire will be
paid a monthly fee of $6,000 and was granted stock options to purchase 150,000
common shares of the Company at $0.50 per share for a period of three years,
subject to vesting provisions. During fiscal 2007, the Company paid a total of
$36,000 to Empire under its investor relations contract and for prior consulting
services.
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 December 18, 2007, there were 47,863,991 issued and outstanding
common shares, 3,595,000 stock options outstanding, at exercise prices ranging
from $0.45 to $0.60 per share, and 7,076,638 warrants outstanding, with exercise
prices ranging from $0.45 to $0.65 per share.
DISCLOSURE CONTROLS
Disclosure controls and procedures are designed to provide reasonable assurance
that material information is gathered and reported to senior management,
including the Chief Executive Officer and Chief Financial Officer, as
appropriate to permit timely decisions regarding public disclosure.
Management, including the Chief Executive Officer and Chief Financial Officer,
has evaluated the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based on this evaluation, the Chief
Executive Officer and Chief Financial Officer has concluded that the Company's
disclosure controls and procedures, as defined in Multilateral Instrument 52-109
- - Certification of Disclosure in Issuer's Annual and Interim Filings ("52-109"),
are effective to ensure that the information required to be disclosed in reports
that are filed or submitted under Canadian Securities legislation are recorded,
processed, summarized and reported within the time period specified in those
rules. In conducting the evaluation it has become apparent that management
relies upon certain informal procedures and communication, and upon "hands-on"
knowledge of senior management. Management intends to formalize certain of its
procedures. Due to the small staff, however, the Company will continue to rely
on an active Board and management with open lines of communication to maintain
the effectiveness of the Company's disclosure controls and procedures. Lapses in
the disclosure controls and procedures could occur and/or mistakes could happen.
Should such occur, the Company will take whatever steps necessary to minimize
the consequences thereof.
INTERNAL CONTROLS AND PROCEDURES OVER FINANCIAL REPORTING
Management is also responsible for the design of the Company's internal control
over financial reporting in order to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with Canadian generally accepted accounting
principles. During the process of management's review and evaluation of the
design of the Company's internal control over financial reporting, it was
determined that certain weaknesses existed in internal controls over financial
reporting. As is indicative of many small
- 9 -
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. It should be noted that a control system, no matter how well
conceived or operated, can only provide reasonable assurance, not absolute
assurance, that the objectives of the control system are met.
- 10 -
FORM 52-109F1 CERTIFICATION OF ANNUAL FILINGS
I, Lynda Bloom, President and Chief Executive Officer of Halo Resources Ltd.,
certify that:
1. I have reviewed the annual 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
period ending August 31, 2007;
2. Based on my knowledge, the annual 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 annual filings;
3. Based on my knowledge, the annual financial statements together with
the other financial information included in the annual 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 annual 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 annual filings are being prepared;
(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
(c) evaluated the effectiveness of the issuer's disclosure
controls and procedures as of the end of the period covered by
the annual filings and have caused the issuer to disclose in
the annual MD&A our conclusions about the effectiveness of the
disclosure controls and procedures as of the end of the period
covered by the annual filings based on such evaluation; and
5. I have caused the issuer to disclose in the annual 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: December 19, 2007
/s/ Lynda Bloom
- --------------------------
Lynda Bloom,
President & CEO
FORM 52-109F1 CERTIFICATION OF ANNUAL FILINGS
I, Nick DeMare, Chief Financial Officer of Halo Resources Ltd., certify that:
1. I have reviewed the annual 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
period ending August 31, 2007;
2. Based on my knowledge, the annual 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 annual filings;
3. Based on my knowledge, the annual financial statements together with
the other financial information included in the annual 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 annual 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 annual filings are being prepared;
(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
(c) evaluated the effectiveness of the issuer's disclosure
controls and procedures as of the end of the period covered by
the annual filings and have caused the issuer to disclose in
the annual MD&A our conclusions about the effectiveness of the
disclosure controls and procedures as of the end of the period
covered by the annual filings based on such evaluation; and
5. I have caused the issuer to disclose in the annual 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: December 19, 2007
/s/ Nick DeMare
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Nick DeMare,
Chief Financial Officer