UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the month of JANUARY, 2008.
Commission File Number: 0-30196
HALO RESOURCES LTD
- --------------------------------------------------------------------------------
(Translation of registrant's name into English)
#1305 - 1090 West Georgia Street, Vancouver, British Columbia, V6E 3V7, Canada
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F: FORM 20-F [X] FORM 40-F [ ]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1): _______
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7): _______
Indicate by check mark whether the registrant by furnishing the information
contained in this Form, is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
YES [ ] NO [X]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3- 2(b): 82-_____________
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf of the
undersigned, thereunto duly authorized.
HALO RESOURCES LTD.
-------------------------------------
Date: January 30, 2008 /s/ Marc Cernovitch
----------------------------- -------------------------------------
Marc Cernovitch
Chairman
HALO RESOURCES LTD.
INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED
NOVEMBER 30, 2007
(Unaudited - Prepared by Management)
MANAGEMENT'S COMMENTS ON UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited interim financial statements of Halo Resources Ltd.
for the three months ended November 30, 2007, have been prepared by and are the
responsibility of the Company's management. These statements have not been
reviewed by the Company's external auditors.
HALO RESOURCES LTD.
INTERIM BALANCE SHEETS
(Unaudited - Prepared by Management)
NOVEMBER 30, AUGUST 31,
2007 2007
$ $
ASSETS
CURRENT ASSETS
Cash 7,246 2,102,498
Amounts receivable and prepaids (Note 4) 130,676 214,642
Available for sale marketable securities (Note 5) 81,250 -
------------ ------------
219,172 2,317,140
CAPITAL ASSETS (Note 6) 275,434 330,926
UNPROVEN MINERAL INTERESTS (Note 7) 24,937,792 24,139,099
------------ ------------
25,432,398 26,787,165
============ ============
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 523,329 474,375
REDEEMABLE PREFERRED SHARES (Note 8) 8,000,000 8,000,000
ASSET RETIREMENT OBLIGATION - 1,014,500
FUTURE INCOME TAX LIABILITY 4,510,000 4,886,000
------------ ------------
13,033,329 14,374,875
------------ ------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 9) 35,773,812 35,766,585
ACCUMULATED OTHER COMPREHENSIVE LOSS (3,750) -
CONTRIBUTED SURPLUS (Note 11) 2,169,398 2,149,234
DEFICIT (25,540,391) (25,503,529)
------------ ------------
12,399,069 12,412,290
------------ ------------
25,432,398 26,787,165
============ ============
SUBSEQUENT EVENT (Note 15)
APPROVED BY THE BOARD
/s/ LYNDA BLOOM , Director
- ----------------
/s/ NICK DEMARE , Director
- ----------------
The accompanying notes are an integral part of these
interim financial statements.
HALO RESOURCES LTD.
INTERIM STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
FOR THE THREE MONTHS ENDED NOVEMBER 30
(Unaudited - Prepared by Management)
2007 2006
$ $
EXPENSES
Amortization of capital assets 13,360 6,855
General and administrative 384,374 444,019
General exploration 2,619 6,295
Stock-based compensation (Note 10) 20,164 322,108
Write-down of unproven mineral interest - 225,000
------------ ------------
420,517 1,004,277
------------ ------------
LOSS BEFORE OTHER ITEM (420,517) (1,004,277)
OTHER ITEM
Interest income 7,655 5,625
------------ ------------
LOSS BEFORE INCOME TAXES (412,862) (998,652)
FUTURE INCOME TAX RECOVERY 376,000 276,000
------------ ------------
NET LOSS FOR THE PERIOD (36,862) (722,652)
OTHER COMPREHENSIVE LOSS
Unrealized holding loss on available for
sale marketable securities (3,750) -
------------ ------------
COMPREHENSIVE LOSS (40,612) (722,652)
============ ============
LOSS PER COMMON SHARE
- BASIC AND DILUTED $(0.00) $(0.02)
============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 40,749,935 33,049,663
============ ============
The accompanying notes are an integral part of these
interim financial statements.
HALO RESOURCES LTD.
INTERIM STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited - Prepared by Management)
ACCUMULATED
SHARE CAPITAL OTHER
---------------------------- CONTRIBUTED COMPREHENSIVE
SHARES AMOUNT SURPLUS DEFICIT (LOSS)
$ $ $ $
Balance, August 31, 2006 31,138,216 32,395,855 1,360,767 (23,307,142) -
Common shares issued for:
Private placements 9,328,965 4,288,350 - -
Corporate finance fee 62,500 28,125 - -
Unproven mineral interests 210,000 89,000 - -
Flow-through share renunciation - (524,500) - -
Share issue costs - (510,245) - -
Stock-based compensation on stock options - - 679,122 - -
Stock-based compensation on warrants - - 109,345 - -
Net loss for the year - - - (2,196,387) -
------------ ------------ ------------ ------------ ------------
Balance, August 31, 2007 40,739,681 35,766,585 2,149,234 (25,503,529) -
Common shares issued for warrants exercised 16,061 7,227 - - -
Stock-based compensation on stock options vested - - 20,164 - -
Unrealized holding loss on available
for sale marketable securities - - - - (3,750)
Net loss for the period - - - (36,862) -
------------ ------------ ------------ ------------ ------------
Balance at November 30, 2007 40,755,742 35,773,812 2,169,398 (25,540,391) (3,750)
============ ============ ============ ============ ============
The accompanying notes are an integral part of these
interim financial statements.
HALO RESOURCES LTD.
INTERIM STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED NOVEMBER 30
(Unaudited - Prepared by Management)
2007 2006
$ $
CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
Net loss for the period (36,862) (722,652)
Items not involving cash
Amortization of capital assets 13,360 6,855
Stock-based compensation 20,164 322,108
Write-down of unproven mineral interests - 225,000
Future income tax recovery (376,000) (276,000)
Decrease in amounts receivable and prepaids 83,966 25,818
Increase (decrease) in accounts payable and
accrued liabilities 56,360 (46,179)
------------ ------------
(239,012) (465,050)
------------ ------------
FINANCING ACTIVITIES
Common shares issued for cash 7,227 1,537,350
Common share issue costs - (179,664)
------------ ------------
7,227 1,357,686
------------ ------------
INVESTING ACTIVITIES
Proceeds from sale of unproven mineral interests - 2,025,000
Additions to unproven mineral interests (1,687,888) (349,662)
Purchase of capital assets (175,579) (19,551)
------------ ------------
(1,863,467) 1,655,787
------------ ------------
INCREASE (DECREASE) IN CASH (2,095,252) 2,548,423
CASH - BEGINNING OF PERIOD 2,102,498 271,935
------------ ------------
CASH - END OF PERIOD 7,246 2,820,358
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION - See Note 14.
The accompanying notes are an integral part of these
interim financial statements.
HALO RESOURCES LTD.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2007
(Unaudited - Prepared by Management)
1. NATURE OF OPERATIONS
Halo Resources Ltd. (the "Company") is a resource exploration company
which is engaged in the acquisition, exploration and development of
unproven mineral interests in Canada. The Company presently has no
proven or probable reserves and on the basis of information to date, it
has not yet determined whether these unproven mineral interests contain
economically recoverable ore reserves. The amounts shown as unproven
mineral interests and deferred costs represent costs incurred to date,
less amounts amortized and/or written off, and do not necessarily
represent present or future values. The underlying value of the
unproven mineral interests is entirely dependent on the existence of
economically recoverable reserves, securing and maintaining title and
beneficial interest, the ability of the Company to obtain the necessary
financing to complete development, and future profitable production.
As at November 30, 2007, the Company had a working capital deficiency
of $304,157. The Company has no source of revenue and will require
additional financing in order to conduct its work programs on its
mineral interests and meet its ongoing levels of corporate overhead.
These interim 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. During December 2007, the Company completed an
equity financing of approximately $3.5 million. See also Note 15.
2. BASIS OF PRESENTATION
These interim financial statements of the Company have been prepared by
management in accordance with Canadian generally accepted accounting
principles. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
interim financial statements and accompanying notes. Actual results
could differ from those estimates. The interim financial statements
have, in management's opinion, been properly prepared using careful
judgement with reasonable limits of materiality. These interim
financial statements should be read in conjunction with the most recent
annual financial statements. The significant accounting policies follow
that of the most recently reported annual financial statements.
3. CHANGE IN ACCOUNTING POLICIES
Effective September 1, 2007, the Company adopted the following new
standards issued by the Canadian Institute of Chartered Accountants
("CICA"). These new standards have been adopted on a prospective basis
with no re-statement of prior period financial statements.
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.
HALO RESOURCES LTD.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2007
(Unaudited - Prepared by Management)
3. CHANGE IN ACCOUNTING POLICIES (continued)
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.
4. AMOUNTS RECEIVABLE AND PREPAIDS
NOVEMBER 30, AUGUST 31,
2007 2007
$ $
Goods and services taxes receivable 96,903 144,525
Prepaids 17,663 50,680
Other 16,110 19,437
------------ ------------
130,676 214,642
============ ============
5. AVAILABLE FOR SALE MARKETABLE SECURITIES
AUGUST 31,
NOVEMBER 30, 2007 2007
-------------------------------------------- ------------
UNREALIZED
HOLDINGS FAIR
COST LOSS VALUE COST
$ $ $ $
Metanor Resources Inc. (Note 7(b)) 85,000 (3,750) 81,250 -
============ ============ ============ ============
HALO RESOURCES LTD.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2007
(Unaudited - Prepared by Management)
6. CAPITAL ASSETS
AUGUST 31,
NOVEMBER 30, 2007 2007
-------------------------------------------- ------------
ACCUMULATED NET BOOK NET BOOK
COSTS AMORTIZATION VALUE VALUE
$ $ $ $
Office furniture and equipment 53,843 18,651 35,192 37,931
Computer and telephone equipment 69,077 24,116 44,961 43,008
Field equipment and facility 206,643 14,243 192,400 245,665
Leasehold improvements 11,524 8,643 2,881 4,322
------------ ------------ ------------ ------------
341,087 65,653 275,434 330,926
============ ============ ============ ============
7. UNPROVEN MINERAL INTERESTS
NOVEMBER 30, 2007 AUGUST 31, 2007
-------------------------------------------- --------------------------------------------
DEFERRED DEFERRED
ACQUISITION EXPLORATION TOTAL ACQUISITION EXPLORATION TOTAL
COSTS COSTS COSTS COSTS COSTS COSTS
$ $ $ $ $ $
Duport 15,317,502 2,306,600 17,624,102 15,237,502 2,299,678 17,537,180
Bachelor Lake - - - 881,789 - 881,789
Sherridon 725,983 5,862,933 6,588,916 722,886 4,399,631 5,122,517
West Red Lake 38,952 685,822 724,774 38,952 558,661 597,613
------------ ------------ ------------ ------------ ------------ ------------
16,082,437 8,855,355 24,937,792 16,881,129 7,257,970 24,139,099
============ ============ ============ ============ ============ ============
(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 8). The
purchase of the Duport Property was conducted on a tax-free
roll-over basis to Sheridan and, accordingly, $9,210,000 of
costs have no tax value.
The Company has agreed to pay a 2.5% net smelter return
royalty ("NSR") on the first 1.5 million ounces of gold
produced and a 5% NSR on the excess. The Company will have the
right to buy back a 1% NSR for $2.5 million cash.
The Company has also acquired, through staking, 10 mineral
claims in the area of the Duport property, covering an area of
approximately 1,744 hectares.
HALO RESOURCES LTD.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2007
(Unaudited - Prepared by Management)
7. UNPROVEN MINERAL INTERESTS (continued)
(b) Bachelor Lake Property, Quebec
On April 27, 2006, as amended August 17, 2006, the Company and
Metanor Resources Inc. ("Metanor") entered into a purchase
agreement (the "Metanor Purchase") whereby Metanor agreed to
purchase the Company's 50% interest in a joint venture over
two mining concessions and 51 mineral claims for a total of
1,851 hectares (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. 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.
During fiscal 2007, the Company recognized a further
write-down of $340,000 to reflect the terms of the Revised
Metanor Agreement. In September 2007, the Company received the
Metanor Shares and completed the sale of its 50% interest in
the Bachelor Lake JV.
(c) Sherridon VMS Project, Manitoba
The Company 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.
HALO RESOURCES LTD.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2007
(Unaudited - Prepared by Management)
7. UNPROVEN MINERAL INTERESTS (continued)
iii) heads of agreement (the "Dunlop HOA") dated February
9, 2006, entered into by the Company and W. Bruce
Dunlop Limited NPL, whereby the Company was granted
the option to earn a 100% undivided interest in three
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:
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 Novmeber 30, 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.
HALO RESOURCES LTD.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2007
(Unaudited - Prepared by Management)
7. UNPROVEN MINERAL INTERESTS (continued)
(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.
8. 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 7(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.
HALO RESOURCES LTD.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2007
(Unaudited - Prepared by Management)
8. REDEEMABLE PREFERRED SHARES (continued)
The Company may elect to redeem the Redeemable Preferred Shares through
the issuance of common shares in its capital stock based on a 15 day
average price prior to the date of redemption.
If the Redeemable Preferred Shares have not been redeemed the Company
will, effective November 1, 2009, retract the Redeemable Preferred
Shares in consideration of $8 million plus accrued unpaid dividends
(collectively the "Retraction Amount"), payable in cash or common
shares of the Company based on a 15 trading day average price prior to
the date of retraction.
During the three months ended November 30, 2007, the Company recorded
$80,000 (2006 - $35,000) of dividends on the Redeemable Preferred
Shares, which have been capitalized as part of resource interests. As
at November 30, 2007, $26,667 (2006 - $26,667) of accrued dividends
were included as part of accounts payable and accrued liabilities.
9. SHARE CAPITAL
Authorized: unlimited common shares without par value
unlimited preferred shares (Note 8)
c
Issued common shares: NOVEMBER 30, 2007 AUGUST 31, 2007
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
$ $
Balance, beginning of period 40,739,681 35,766,585 31,138,216 32,395,855
------------ ------------ ------------ ------------
Issued during the period
For cash
Private placements - - 9,328,965 4,288,350
Exercise of warrants 16,061 7,227 - -
For corporate finance fee - - 62,500 28,125
For unproven mineral interests - - 210,000 89,000
------------ ------------ ------------ ------------
16,061 7,227 9,601,465 4,405,475
Less: Flow-through share renunciation - - - (524,500)
Share issue costs - - - (510,245)
------------ ------------ ------------ ------------
16,061 7,227 9,601,465 3,370,730
------------ ------------ ------------ ------------
Balance, end of period 40,755,742 35,773,812 40,739,681 35,766,585
============ ============ ============ ============
(a) A summary of the number of common shares reserved pursuant to
the Company's warrants outstanding at November 30, 2007 and
2006 and the changes for the three months ending on those
dates is as follows:
2007 2006
Balance, beginning of period 8,128,582 8,322,563
Pursuant to private placements - 2,112,299
Exercised (16,061) -
Expired (2,589,204) -
------------ ------------
Balance, end of period 5,523,317 10,434,862
============ ============
HALO RESOURCES LTD.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2007
(Unaudited - Prepared by Management)
9. SHARE CAPITAL (continued)
Common shares reserved pursuant to warrants outstanding at
November 30, 2007, are as follows:
NUMBER EXERCISE PRICE EXPIRY DATE
$
1,708,166 0.60 April 12, 2008
388,072 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
------------
5,523,317
============
(b) See also Note 15.
10. STOCK OPTIONS AND STOCK-BASED COMPENSATION
The Company has established a rolling stock option plan (the "Plan"),
in which the maximum number of common shares which can be reserved for
issuance under the Plan is 10% of the issued and outstanding shares of
the Company. The exercise price of the options is set at the Company's
closing share price on the day before the grant date, less allowable
discounts in accordance with the policies of the TSX Venture Exchange.
During the three months ended November 30, 2007 the Company recorded
compensation expense of $20,164 expense for the vesting of stock
options. During the three months ended November 30, 2006 the Company
recorded total compensation expense of $322,108, comprising of:
(i) $259,565 on the granting of 1,547,000 stock options to its
employees, directors and consultants; (ii) $37,641 on the amendment of
the terms of 450,000 stock options; and (iii) $24,902 for the vesting
of stock options.
The fair value of stock options granted, amended and vested to
employees, directors and consultants is estimated using the
Black-Scholes option pricing model with the following assumptions made
during the three months ended November 30, 2007 and 2006:
2007 2006
-------------------- ------------
Risk-free interest rate 4.09% 4.00%
Estimated volatility 73.18% - 74.04% 78.74%
Expected life 2 years - 2.75 years 3 years
Expected dividend yield 0% 0%
The weighted average fair value of all stock options, calculated using
the Black-Scholes option pricing model, granted during the period to
the Company's employees, directors and consultants was $nil (2006 -
$0.15) 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.
HALO RESOURCES LTD.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2007
(Unaudited - Prepared by Management)
10. STOCK OPTIONS AND STOCK-BASED COMPENSATION (continued)
A summary of the Company's stock options at November 30, 2007 and 2006,
and the changes for the three months 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 period 3,815,000 0.47 2,903,000 0.56
Granted - - 1,547,000 0.45
Cancelled (220,000) 0.45 (990,000) 0.71
------------ ------------
Balance, end of period 3,595,000 0.49 3,460,000 0.47
============ ============
The following table summarizes information about the stock options
outstanding and exercisable at November 30, 2007:
OPTIONS OPTIONS
OUTSTANDING EXERCISABLE EXERCISE PRICE EXPIRY DATE
$
450,000 450,000 0.60 May 31, 2009
853,000 853,000 0.45 February 2, 2009
1,387,000 1,387,000 0.45 November 27, 2009
150,000 37,500 0.50 July 18, 2010
755,000 755,000 0.52 July 24, 2012
------------ ------------
3,595,000 3,482,500
============ ============
11. CONTRIBUTED SURPLUS
Contributed surplus is comprised of the following:
NOVEMBER 30, AUGUST 31,
2007 2007
$ $
Balance, beginning of period 2,149,234 1,360,767
Stock-based compensation on stock
options (Note 10) 20,164 679,122
Stock-based compensation on warrants - 109,345
------------ ------------
Balance, end of period 2,169,398 2,149,234
============ ============
HALO RESOURCES LTD.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2007
(Unaudited - Prepared by Management)
12. RELATED PARTY TRANSACTIONS
(a) During the three months ended November 30, 2007 and 2006, 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 26,000 23,200
Professional and consulting 30,600 29,100
Compensation and benefits 67,000 23,250
Directors fees 4,500 -
------------ ------------
128,100 75,550
============ ============
These fees have been either expensed to operations or
capitalized to unproven mineral interests, based on the nature
of the expenditures.
As at November 30, 2007, accounts payable and accrued
liabilities include $42,437 (2006 - $13,166) due to these
related parties.
(b) Other related party transactions are disclosed elsewhere in
these financial statements.
These transactions were measured at the exchange amount, which was the
amount of consideration established and agreed to by related parties.
13. FINANCIAL INSTRUMENTS
The fair values of financial instruments at November 30, 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
November 30, 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,
marketable securities and accrued liabilities. It is not practicable to
estimate the fair value of the Redeemable Preferred Shares.
14. SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash activities conducted by the Company during the three months
ended November 30, 2007 and 2006 are as follows:
2007 2006
$ $
Operating activities
Accrued payable for unproven mineral
interests 7,406 152,691
Unrealized holding loss on marketable
securities 3,750 -
------------ ------------
11,156 152,691
============ ============
HALO RESOURCES LTD.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2007
(Unaudited - Prepared by Management)
14. SUPPLEMENTAL CASH FLOW INFORMATION (continued)
2007 2006
$ $
Financing activities
Issuance of common shares for corporate
finance fee - 28,125
Common share issue costs - (28,125)
Termination of asset retirement obligation 1,014,500 -
------------ ------------
1,014,500 -
============ ============
Investing activities
Accounts payable for unproven mineral
interests (7,406) (152,691)
Marketable securities received 85,000 -
Unrealized holding loss on marketable
securities (3,750) -
Sale of capital assets (217,711) -
Sale of unproven mineral interests (881,789) -
------------ ------------
(1,025,656) (152,691)
============ ============
Other supplemental cash flow information:
2007 2006
$ $
Interest paid in cash - -
============ ============
Dividends paid in cash 80,000 12,500
============ ============
Income taxes paid in cash - -
============ ============
15. SUBSEQUENT EVENT
Subsequent to November 30, 2007, the Company completed a private
placement of 4,652,755 flow-through shares, at a price of $0.47 per
flow-through share, and 3,273,292 non-flow-through units, at a price of
$0.42 per non-flow-through unit, for total gross proceeds of
$3,561,578. 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 share for a period of two
year at a price of $0.60 per share. Directors of the Company purchased
133,192 flow-through shares for $62,600.
The Company paid the agents a cash commission of $262,423 and issued
752,688 warrants (the "Agents' Warrants") and incurred approximately
$20,300 costs relating to this financing. Each Agents' Warrant is
exercisable to purchase one common share for a period of two years at a
price of $0.60 per share.
SCHEDULE I
HALO RESOURCES LTD.
INTERIM SCHEDULE OF UNPROVEN MINERAL INTERESTS
(Unaudited - Prepared by Management)
AUGUST 31,
NOVEMBER 30, 2007 2007
---------------------------------------------------------------------------- ------------
BACHELOR RED
DUPORT LAKE SHERRIDON LAKE
PROPERTY PROPERTY VMS PROJECT PROPERTY TOTAL TOTAL
$ $ $ $ $ $
BALANCE - BEGINNING OF PERIOD 17,537,180 881,789 5,122,517 597,613 24,139,099 23,845,828
------------ ------------ ------------ ------------ ------------ ------------
AMOUNTS INCURRED DURING THE PERIOD
EXPLORATION EXPENDITURES
Assays - - 88,966 22,782 111,748 68,367
Camp and associated costs - - 184,593 22,975 207,568 153,629
Consulting 1,455 - 34,278 1,940 37,673 236,680
Drafting - - - - - 52,626
Drilling - - 692,659 - 692,659 1,965,477
Exploration office costs 1,620 - 80,728 6,386 88,734 433,609
Field personnel 254 - 198,601 26,138 224,993 252,588
Field supplies 112 - 13,947 1,166 15,225 47,886
Geological - - 111,554 4,981 116,535 205,966
Geophysical survey - - 870 26,177 27,047 331,645
Land management - - 612 - 612 3,284
Line cutting - - - 10,460 10,460 52,177
Travel and accommodations 3,481 - 56,494 4,156 64,131 172,457
Reimbursement / Recoveries - - - - - (3,922,580)
------------ ------------ ------------ ------------ ------------ ------------
6,922 - 1,463,302 127,161 1,597,385 53,811
------------ ------------ ------------ ------------ ------------ ------------
OTHER ITEMS
Acquisition costs and payments - - - - - 269,000
Claims staking and lease rental - - 3,097 - 3,097 17,021
costs
Legal - - - - - 18,439
Capitalized dividend 80,000 - - - 80,000 275,000
------------ ------------ ------------ ------------ ------------ ------------
80,000 - 3,097 - 83,097 579,460
------------ ------------ ------------ ------------ ------------ ------------
BALANCE BEFORE WRITE-DOWN 17,624,102 881,789 6,588,916 724,774 25,819,581 24,479,099
WRITE-DOWN - - - - - (340,000)
DISPOSITION (Note 7(b)) - (881,789) - - (881,789) -
------------ ------------ ------------ ------------ ------------ ------------
BALANCE - END OF PERIOD 17,624,102 - 6,588,916 724,774 24,937,792 24,139,099
============ ============ ============ ============ ============ ============
HALO RESOURCES LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2007
BACKGROUND
This discussion and analysis of financial position and results of operation is
prepared as at January 23, 2008 and should be read in conjunction with the
interim financial statements and the accompanying notes for the three months
ended November 30, 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.
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 84 mineral claims that total 16,822 hectares.
Through four option agreements, Halo also has the right to acquire a 100%
interest in 30 other mining claims and one mineral lease in the Sherridon area
bringing the total land package to 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.
- 1 -
From November, 2006 to January 23, 2008, Halo completed 20,048 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, reinterpretation
of the structural geology and definition of targets for a second
phase of drilling;
c) 9,650 m in 12 holes in a second phase of drilling at Bob Lake
(September to October 2007), including the discovery of the
massive sulphide lens at Bob Lake that can be traced from
surface for 1,000 m down plunge and that remains open at depth
with representative intersections such as 1.8% copper and 1.3%
zinc over 14.7 m in 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 and
to support resource calculations;
e) completion of 1,950 metres in four holes at the Park 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;
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;
h) completion of 3,006 metres in 15 holes at Lost Lake to follow up
on the October 2007 massive sulphide discovery (assays are
pending);
i) completion of 650 metres in 5 holes to investigate the
structural geology to test for the southern extent of the East
Mine (assays pending); and
j) 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 January 2008, the first of the 43-101 compliant technical reports by Scott
Wilson Roscoe Postle (Scott Wilson RPA) was filed on SEDAR 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:
- --------------------------------------------------------------------------------------------------------------------------
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 $40 below the 218 m level.
3. All quantities rounded to the nearest 1000
- 2 -
The total tonnage of 1,325,000 tonnes in the Indicated resource category has an
overall grade of 1.17% copper, 0.85% zinc and precious metal credits. The
cut-off grades were calculated on the basis of all four commodities based on the
NSR assumptions shown below. In addition, there are 2,177,000 tonnes in the
Inferred resource category with an overall grade of 1.10% copper, 0.67% zinc and
precious metal credits.
Copper, zinc silver and gold contribute to the economics of the deposit so that
a NSR was calculated for each block based on the estimated grades of copper,
zinc, silver and gold, reasonable metal prices, the estimated recoveries for
each metal and common industry values for smelter terms. The parameters used
were as follows:
------------------------------------------------
METAL PRICE RECOVERY
(US$) (%)
------------------------------------------------
Copper $2.00/lb 85 %
Zinc $0.75/lb 85 %
Gold $600/oz 47 %
Silver $8.50/oz 54 %
------------------------------------------------
A second phase of drilling at Bob Lake demonstrated that reinterpretation of the
structural geology had defined a 1,000 m long massive sulphide lens. The copper
and zinc grades are relatively consistent (0.8 to 1.43 % copper and 0.99 to 2.1%
Zn) throughout the length of the lens which was tested by 10 holes from
September to November 2007. There is some evidence of increasing grades with
depths. The Bob Lake massive sulphide lens is open at depth and 2,500 m of
drilling is planned in Q1 2008 to test the depth extent as well as complete
sufficient drilling to commence resource estimates.
- --------------------------------------------------------------------------------
HOLE FROM TO INTERVAL COPPER ZINC
(M) (M) (M)* (%) (%)
- --------------------------------------------------------------------------------
DH07-58 210.7 222.3 11.6 0.8 1.8
- --------------------------------------------------------------------------------
DH07-59 225.4 229.7 4.3 1.8 1.9
- --------------------------------------------------------------------------------
DH07-60 272.8 277.8 5 2.1 2.1
- --------------------------------------------------------------------------------
DH07-61 257.9 272.6 14.7 1.8 1.3
- --------------------------------------------------------------------------------
DH07-62 176.9 191.6 14.7 1.43 1.57
- --------------------------------------------------------------------------------
DH07-63 86.3 103.1 16.8 1.25 1.57
- --------------------------------------------------------------------------------
DH07-64 107.5 114.5 7 1.41 1.97
- --------------------------------------------------------------------------------
DH07-65 103.9 112 8.1 1.19 0.99
- --------------------------------------------------------------------------------
DH07-66 103.3 107.8 4.5 1.36 2.09
- --------------------------------------------------------------------------------
DH07-67 110.1 115 5 1.25 0.96
- --------------------------------------------------------------------------------
* Widths may be overstated by up to 20% in steeply dipping holes.
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. Two drill rigs recommenced
drilling on January 4, 2008 and a third overburden drill rig is expected late in
January. 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.
- 3 -
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.
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
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.
- 4 -
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.
SELECTED FINANCIAL DATA
The following selected financial information is derived from the unaudited
interim financial statements of the Company prepared in accordance with Canadian
GAAP.
---------- ------------------------------------------------- ------------------------------------
FISCAL
2008 FISCAL 2007 FISCAL 2006
---------- ------------------------------------------------- ------------------------------------
THREE MONTH PERIODS ENDING NOV 30/07 AUG 31/07 MAY 31/07 FEB 28/07 NOV 30/06 AUG 31/06 MAY 31/06 FEB 28/06
$ $ $ $ $ $ $ $
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
OPERATIONS:
Revenues - interest income 7,655 37,799 5,906 13,741 5,625 4,068 4,513 3,498
Net income (loss) (36,862) (863,969) (243,413) (366,353) (722,652) 178,880 (1,821,875) (246,430)
Comprehensive loss (3,750) Nil Nil Nil Nil Nil Nil Nil
Basic and diluted
income (loss) per share (0.00) (0.02) (0.01) (0.01) (0.02) 0.01 (0.06) (0.01)
Dividends per share Nil Nil Nil Nil Nil Nil Nil Nil
BALANCE SHEET:
Working capital(deficiency) (304,157) 1,842,765 274,629 1,140,585 2,567,615 151,522 967,196 751,209
Total assets 25,432,398 26,787,165 24,602,155 25,247,018 25,340,322 24,522,668 24,663,418 25,487,480
Total long-term liabilities 12,510,000 13,900,500 13,822,000 14,092,000 13,570,500 13,846,500 14,399,133 14,560,133
---------- ------------------------------------------------- ------------------------------------
RESULTS OF OPERATIONS
During the three months ended November 30, 2007 (the "2007 period"), the Company
reported a net loss of $36,862, a decrease in loss of $685,790, from the
$722,652 loss reported during the three months ended November 30, 2006 (the
"2006 period"). The decrease in the net loss in the 2007 period compared to the
2006 period is primarily attributed to:
- $301,944 decrease in stock-based compensation charge recorded during
the 2007 period;
- $225,000 write-down of unproven mineral interest during the 2006
period (there were no write-downs in the 2007 period); and
- $100,000 increase of future income tax recovery recorded during the
2007 period.
General and administrative costs decreased from $444,019 in the 2006 to $384,374
in the 2007 period, as follows:
2007 2006
$ $
Accounting and administration 27,605 23,200
Advertising and related 8,367 7,033
Compensation and benefits 56,226 23,250
Consulting and professional fees 56,998 45,321
Directors' fees 4,500 -
Filing fees and transfer agent 3,571 2,409
Foreign exchange loss 985 -
Insurance 6,890 3,495
Investment conferences 28,578 112,167
Investor relations and shareholder communications 69,186 83,955
Legal and audit 46,735 61,490
Office and general 12,084 18,570
Office rent and operating costs 3,037 8,958
Printing 3,031 4,921
Telephone 9,068 5,307
Travel and related costs 34,300 42,576
Website and internet costs 13,213 1,367
------------ ------------
384,374 444,019
============ ============
- 5 -
Significant general and administrative expenditures incurred during the 2007
period include: $33,096 for legal costs incurred primarily for general legal
advice on financings, revisions to the sale agreement with Metanor Resources
Inc. and general corporate activities; $13,639 for independent audit costs;
$28,578 for attendance and participation in investment conferences and meetings
with the investment communities in North America and Europe; $69,186 for
investor relations and shareholder communications; $13,213 for internet and
website costs, of which $12,108 was for website development costs incurred on
the Company's website; $56,998 for consulting and professional costs, of which
$31,390 was incurred for executive search services; and $5,000 for corporate
finance advisory fees.
During the 2007 period accounting and administration expenses of $26,000 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. During
the 2007 period, the Company paid a total of $67,000 compensation to the
President and the Chairman of the Company. These fees have been either expensed
to compensation and benefits or capitalized to unproven mineral interests based
on the nature of the expenditures.
The Company also recorded a stock-based compensation charge of $322,108 in the
2006 period on the granting of 1,547,000 stock options, amendment of the terms
of 450,000 stock options and the vesting of stock options, compared to $20,164
in the 2007 period for the vesting of stock options.
During the 2007 period the Company recorded a total of $2,619 (2006 - $6,295)
for general exploration expenditures. In September 2007, the Company received
125,000 common shares of Metanor and completed the sale of its 50% interest in
the Bachelor Lake JV. The Company had previously received $3,825,000 cash.
Exploration during the 2007 period focused primarily on the Sherridon Project,
where the Company spent a total of $1,466,399. The Company also spent $127,161
on its Red Lake Property and $6,922 on the Duport Property. The Company also
capitalized $80,000 for dividends on the Redeemable Preferred Shares. See
"Exploration Projects" for detailed descriptions of exploration activities.
FINANCIAL CONDITION / CAPITAL RESOURCES
The Company's practice is to proceed with staged exploration, where each stage
is dependent on the successful results of the preceding stage. To date the
Company has not received any revenues from its mining activities and has relied
on equity financing to fund its commitments and discharge its liabilities as
they come due. As at November 30, 2007, the Company had a working capital
deficiency of $304,157. In December 2007, the Company completed a private
placement of 4,652,755 flow-through shares at a price of $0.47 per share and
3,273,292 non-flow-through units ("Non FT Unit") at $0.42 per Non-FT Unit for
gross proceeds of $3,561,578. 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.
- 6 -
CHANGES IN ACCOUNTING POLICIES
Effective September 1, 2007, the Company adopted the following new standards
issued by the Canadian Institute of Chartered Accountants ("CICA"). These new
standards have been adopted on a prospective basis with no re-statement of prior
period financial statements.
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 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.
TRANSACTIONS WITH RELATED PARTIES
During the three months ended November 30, 2007 and 2006 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 26,000 23,200
Professional and consulting 30,600 29,100
Compensation and benefits 67,000 23,250
Directors fees 4,500 -
------------ ------------
128,100 75,550
============ ============
These fees have been either expensed to operations or capitalized to unproven
mineral interests, based on the nature of the expenditures.
As at November 30, 2007, accounts payable and accrued liabilities include
$42,437 (2006 - $13,166) due to these related parties.
These transactions were measured at the exchange amount, which was the amount of
consideration established and agreed to by 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.
- 7 -
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
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 is 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 the 2007 period, the Company paid a total of $18,000
to Empire under its investor relations contract.
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 the 2007 period, the Company paid $22,024 (2006 - $33,104) to Value
Relations.
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 the 2006 period, the Company paid $15,000 to Clark Avenue.
During the 2007 period, the Company was active in providing corporate awareness
of its work programs. The Company was also active in attending and presenting at
a number of investment conferences and trade shows in North America and Europe.
The Company is also using a number of web based advertisers. During the 2007
period, the Company paid $6,420 for advertising, $28,578 for investment
conferences and related costs, $69,186 for investor relations and shareholder
communications and $3,031 for printing costs associated with investor materials
and pamphlets.
The Company maintains a web site at www.halores.com .
OUTSTANDING SHARE DATA
The Company's authorized share capital is unlimited common shares without par
value. As at January 23, 2008, there were 48,681,789 issued and outstanding
common shares, 3,595,000 stock options outstanding, at exercise prices ranging
from $0.45 to $0.60 per share, and 7,912,651 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
- 8 -
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 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.
- 9 -
FORM 52-109F2 CERTIFICATION OF INTERIM FILINGS
I, Lynda Bloom, President and Chief Executive Officer of Halo Resources Ltd.,
certify that:
1. I have reviewed the interim filings (as this term is defined in
Multilateral Instrument 52-109 Certification of Disclosure in Issuers'
Annual and Interim Filings) of Halo Resources Ltd., (the issuer) for
the interim period ending November 30, 2007;
2. Based on my knowledge, the interim filings do not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated or that is necessary to make a statement not misleading in
light of the circumstances under which it was made, with respect to the
period covered by the interim filings;
3. Based on my knowledge, the interim financial statements together with
the other financial information included in the interim filings fairly
present in all material respects the financial condition, results of
operations and cash flows of the issuer, as of the date and for the
periods presented in the interim filings;
4. The issuer's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures and
internal control over financial reporting for the issuer, and we have:
(a) designed such disclosure controls and procedures, or caused
them to be designed under our supervision, to provide
reasonable assurance that material information relating to the
issuer, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which the interim filings are being prepared; and
(b) designed such internal control over financial reporting, or
caused it to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with the issuer's GAAP; and
5. I have caused the issuer to disclose in the interim MD&A any change in
the issuer's internal control over financial reporting that occurred
during the issuer's most recent interim period that has materially
affected, or is reasonably likely to materially affect, the issuer's
internal control over financial reporting.
Date: January 29, 2008
/s/ Lynda Bloom
- -----------------------------------
Lynda Bloom,
President & Chief Executive Officer
FORM 52-109F2 CERTIFICATION OF INTERIM FILINGS
I, Nick DeMare, a Director and Chief Financial Officer of Halo Resources Ltd.,
certify that:
1. I have reviewed the interim filings (as this term is defined in
Multilateral Instrument 52-109 Certification of Disclosure in Issuers'
Annual and Interim Filings) of Halo Resources Ltd., (the issuer) for
the interim period ending November 30, 2007;
2. Based on my knowledge, the interim filings do not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated or that is necessary to make a statement not misleading in
light of the circumstances under which it was made, with respect to the
period covered by the interim filings;
3. Based on my knowledge, the interim financial statements together with
the other financial information included in the interim filings fairly
present in all material respects the financial condition, results of
operations and cash flows of the issuer, as of the date and for the
periods presented in the interim filings;
4. The issuer's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures and
internal control over financial reporting for the issuer, and we have:
(a) designed such disclosure controls and procedures, or caused
them to be designed under our supervision, to provide
reasonable assurance that material information relating to the
issuer, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which the interim filings are being prepared; and
(b) designed such internal control over financial reporting, or
caused it to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with the issuer's GAAP; and
5. I have caused the issuer to disclose in the interim MD&A any change in
the issuer's internal control over financial reporting that occurred
during the issuer's most recent interim period that has materially
affected, or is reasonably likely to materially affect, the issuer's
internal control over financial reporting.
Date: January 29, 2008
/s/ Nick DeMare
- ----------------------------------
Nick DeMare,
Director & Chief Financial Officer